Classmates.com 2004 Annual Report Download - page 86

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Reclassifications —Certain prior year amounts have been reclassified to conform to current year presentation. These changes had no
impact on previously reported results of operations or stockholders' equity.
Recent Accounting Pronouncement
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment . This statement replaces SFAS No. 123 and
supersedes APB Opinion No. 25. This statement requires that the cost resulting from all share-based payment transactions be recognized in the
financial statements. This statement establishes fair value as the measurement objective in accounting for share-
based payment arrangements and
requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees except
for equity instruments held by employee share ownership plans. This statement also establishes fair value as the measurement objective for
transactions in which an entity acquires goods or services from nonemployees in share-based payment transactions. This statement uses the
terms compensation and payment in their broadest senses to refer to the consideration paid for goods or services, regardless of whether the
supplier is an employee. SFAS No. 123 (revised) becomes effective in the September 2005 quarter and will have a material adverse effect on the
Company's results of operations.
At the required effective date, the Company will apply this statement using a modified version of prospective application. Under the
modified prospective application, this statement applies to new awards and to awards modified, repurchased, or cancelled after the required
effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are
outstanding as of the required effective date will be recognized as the requisite service is rendered on or after the required effective date. The
compensation cost for that portion of awards shall be based on the grant-
date fair value of those awards as calculated for either recognition or pro
forma disclosures under SFAS No. 123.
2. ACQUISITIONS
Classmates Online, Inc.
In November 2004, the Company acquired Classmates, which operates Classmates.com (www.classmates.com), connecting millions of
members throughout the U.S. and Canada with friends and acquaintances from school, work and the military. Its Classmates International
subsidiary also operates leading community-
based networking sites in Sweden, through Klassträffen Sweden AB (www.klasstraffen.com), and in
Germany, through StayFriends GmbH (www.stayfriends.de). The acquisition was accounted for under the purchase method in accordance with
SFAS No. 141, Business Combinations
. The primary reason for the acquisition was to acquire Classmates' services and account base to continue
to expand the Company's subscription offerings. Classmates' results of operations are included in the consolidated financial statements from the
date of acquisition.
The purchase price of approximately $131.4 million, including acquisition costs of $3.1 million for professional, accounting, legal and
administrative fees, was allocated to Classmates' net assets based on their fair values. The excess of the purchase price over the estimated fair
values of the net assets acquired, including identifiable intangible assets, was recorded as goodwill. The Company assumed 0.5 million unvested
options as of the acquisition date, and the fair value of the options assumed was determined based on the Black-Scholes option pricing model
using a weighted average expected life of
F-17