Classmates.com 2005 Annual Report Download - page 101

For the year ended December 31, 2005, the Company recorded a tax provision of $40.2 million on pre-tax income of $87.4 million,
resulting in an effective tax rate of 46.1%. The effective tax rate differs from the statutory rate primarily due to compensation, including stock-
based compensation, that is limited under Section 162(m) of the Code; foreign losses, the benefit of which is not currently recognizable due to
uncertainty regarding realization; and the re-measurement of net deferred tax assets, including a change in New York State tax law.
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 attributable to the expected utilization of net operating loss and tax credit carryforwards in the years ending December 31, 2004 and
2005, offset by state income taxes. In September 2002, the State of California enacted legislation that suspended the utilization of net operating
loss carryforwards to offset current taxable income for a two-year period beginning in the year ended June 30, 2003. As a result, the Company
recorded a California state income tax provision for the period.
For the year ended June 30, 2003, the Company recorded a tax benefit of $1.8 million on pre-tax income of $26.0 million for an effective
tax rate benefit of 6.8%. The effective tax rate benefit differs from the statutory tax rate primarily due to the release of the valuation allowance
attributable to the actual utilization of net operating loss carryforwards, the benefit of which had not been previously recognized, as well as the
expected utilization of net operating loss and tax credit carryforwards in the period ended June 30, 2004, offset by state income taxes.
Components of the deferred tax assets, liability and related valuation allowance at December 31, 2005 and 2004 are as follows (in
thousands):
The decrease in the Company’s net deferred tax assets during the year ended December 31, 2005 of $7.8 million is primarily attributable to
the utilization of net operating loss carryforwards, partially offset by the utilization of deferred tax liabilities recorded in connection with the
acquisition of Classmates.
The increase in the Company’
s net deferred tax assets during the year ended December 31, 2004 of $49.8 million is primarily attributable to
the release of the valuation allowance, offset to a certain extent by
F- 32
December 31,
2005
2004
Deferred tax assets:
Net operating loss carryforwards
$
74,459
$
93,602
Depreciation and amortization
2,126
2,708
Stock
-
based compensation
4,817
992
Other
8,725
5,398
Total deferred tax assets
90,127
102,700
Less: valuation allowance
(4,670
)
(1,938
)
Total deferred tax assets after valuation allowance
85,457
100,762
Deferred tax liability:
Amortization of acquired intangible assets
(17,102
)
(24,559
)
Total deferred tax liability
(17,102
)
(24,559
)
Net deferred tax assets
$
68,355
$
76,203