Classmates.com 2004 Annual Report Download - page 85

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Foreign Currency —The functional currency of the Company's international subsidiaries is the local currency. The financial statements of
these subsidiaries are translated to U.S. dollars using period-
end rates of exchange for assets and liabilities, and average rates of exchange for the
period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a component of
stockholders' equity. Net gains and losses resulting from foreign exchange transactions were not significant during the periods presented.
Income Taxes —Income taxes are accounted for under SFAS No. 109, Accounting for Income Taxes . Under SFAS No. 109, deferred tax
assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when
necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company
reviews both positive and negative evidence pursuant to the requirements of SFAS No. 109, including current and historical results of operations,
the annual limitation on utilization of net operating loss carryforwards pursuant to Internal Revenue Code section 382, future income projections
and potential tax-planning strategies.
Earnings Per Share —Basic earnings per share is computed using the weighted average number of common shares outstanding during the
period, net of shares subject to repurchase rights, and excludes any dilutive effects of options or warrants, restricted stock and convertible
securities, if any. Diluted earnings per share is computed using the weighted average number of common and common stock equivalent shares
outstanding (including the effect of restricted stock) during the period. Common stock equivalent shares are excluded from the computation if
their effect is antidilutive.
Legal Contingencies —
The Company is currently involved in certain legal proceedings. The Company records liabilities related to pending
litigation when an unfavorable outcome is probable and management can reasonably estimate the amount of loss. The Company has not recorded
liabilities for certain pending litigation because of the uncertainties related to assessing both the amount and the probable outcome of those
claims. As additional information becomes available, the Company continually assesses the potential liability related to all pending litigation.
Segments —In accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information , the Company
operates in one principal operating segment, a provider of consumer Internet subscription services through a number of brands, including
NetZero, Juno, and Classmates Online. The Company's pay services include dial
-up Internet access, community-based networking, personal
Web-hosting, and premium email services, among others. The Company also offers, at no charge, advertising supported versions of certain of its
services. In addition, the Company offers marketers a broad array of Internet advertising products, including online market research and
measurement services. The vast majority of the Company's revenues and related results of operations and identifiable assets are in the United
States of America.
Stock Splits —On September 24, 2003, the Company announced that its Board of Directors had declared a 3-for-2 split of the Company's
common stock. The split was effected in the form of a stock dividend. The new shares were issued on October 31, 2003, and the shares began
trading on NASDAQ on a post-split basis on November 3, 2003. All prior period share and per share amounts herein have been restated to
account for the stock dividend.
In connection with the Merger completed on September 25, 2001, NetZero common stockholders received 0.2000 of a share of United
Online common stock for each share of NetZero common stock they owned, and Juno common stockholders received 0.3570 of a share of
United Online common stock for each share of Juno common stock they owned. All prior period share and per share amounts herein have been
restated to account for the NetZero share conversion.
F-16