Classmates.com 2004 Annual Report Download - page 99

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7. EMPLOYEE BENEFIT PLANS
The Company has a savings plan (the "Savings Plan") that qualifies as a defined contribution plan under Section 401(k) of the Internal
Revenue Code. Under the Savings Plan, participating employees may defer a percentage (not to exceed 40%) of their eligible pretax earnings up
to the Internal Revenue Service annual contribution limit. All full-
time employees on the payroll of the Company are eligible to participate in the
Plan. At December 31, 2004, the Company had made no contributions since the inception of the Savings Plan; however, beginning January 1,
2005, the Company will match 25% of the employee's contributions, up to plan limits.
8. INCOME TAXES
The provision (benefit) for income taxes for the year ended December 31, 2004, the six months ended December 31, 2003 and the years
ended June 30, 2003 and 2002 is comprised of the following (in thousands):
The following is a reconciliation of the statutory federal income tax rate to the Company's effective income tax rate (in thousands):
For the year ended December 31, 2004, the Company recorded a tax benefit of $34.1 million on pre-tax income of $83.4 million, resulting
in an effective tax rate benefit of 40.8%. The effective tax rate differs from the statutory rate primarily due to the release of substantially all of
the balance of the valuation allowance attributable to the expected utilization of net deferred tax assets in the future.
For the six months ended December 31, 2003, the Company recorded a tax provision of $1.7 million on pre-tax income of $35.0 million,
resulting in an effective tax rate of 4.9%. The effective tax rate differs from the statutory tax rate primarily due to the release of the valuation
allowance
F-30
Six Months
Ended
December 31,
2003
Year Ended June 30,
Year Ended
December 31,
2004
2003
2002
Current:
Federal
$
23,385
$
6,038
$
—
$
—
State
4,042
1,313
2,555
—
27,427
7,351
2,555
—
Deferred:
Federal
2,577
5,675
8,734
(9,656
)
State
3,423
985
(863
)
(2,069
)
Change in valuation allowance
(67,478
)
(12,292
)
(12,207
)
11,725
(61,478
)
(5,632
)
(4,336
)
—
Provision (benefit) for income taxes
$
(34,051
)
$
1,719
$
(1,781
)
$
—
Six Months
Ended
December 31,
2003
Year Ended June 30,
Year Ended
December 31,
2004
2003
2002
Taxes on income at the statutory federal rate
$
29,200
$
12,266
$
9,104
$
(16,734
)
State income taxes, net of federal tax benefits
4,853
1,493
1,100
(1,345
)
Non
-
deductible acquisition
-
related costs
—
—
—
4,955
Other differences, net
(626
)
252
222
1,399
Change in valuation allowance
(67,478
)
(12,292
)
(12,207
)
11,725
Provision (benefit) for income taxes
$
(34,051
)
$
1,719
$
(1,781
)
$
—