Classmates.com 2005 Annual Report Download - page 79

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UNITED ONLINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, SIGNIFICANT ACCOUNTING POLICIES AND RECENT
ACCOUNTING PRONOUNCEMENTS
Description of Business
United Online, Inc. (“United Online” or the “Company”) is a leading provider of consumer Internet subscription services through a number
of brands, including NetZero, Juno and Classmates Online. The Company’s subscription services include dial-up Internet access, social-
networking, VoIP telephony, personal Web-hosting, premium email, Internet security and online digital photo-sharing, among others. The
Company also offers advertising-supported versions of many of its services at no charge to customers. On a combined basis, the Company’s
Web properties attract a significant number of Internet users each month. Advertisers can reach this audience through the United Online Media
Group, which offers marketers a broad array of Internet advertising products as well as online market research and measurement services.
United Online is a Delaware corporation that commenced operations in 2001 following the merger of Internet access providers
NetZero, Inc. and Juno Online Services, Inc. (the
“Merger”). During 2004, the Company completed the acquisitions of Classmates Online, Inc.
(“Classmates”), a leading provider of social-networking services, and the Web-hosting and domain name registration business of About Web
Services, Inc. In March 2005, the Company acquired certain assets related to PhotoSite, the online digital photo-sharing business of Homestead
Technologies, Inc. The Company’s corporate headquarters are located in Woodland Hills, California, and the Company also maintains offices in
Renton, Washington; New York, New York; Orem, Utah; Brisbane, California; Hyderabad, India and Munich, Germany.
From inception through the year ended June 30, 2002, the Company and NetZero, as the Company’s predecessor, incurred operating losses
and reported negative operating cash flows. In the six months ended December 31, 2003 and the year ended June 30, 2003, the Company
reported operating income and positive cash flows from operations. For the years ended December 31, 2005 and 2004, the Company reported
operating income of $86.6 million and $79.5 million, respectively, and cash flows from operations of $137.0 million and $124.0 million,
respectively. At December 31, 2005, the Company had cash and cash equivalents of $100.4 million and short-term investments of
$144.0 million. The Company believes that its existing cash, cash equivalents and short-term investments, and cash generated from operations
will be sufficient to fund its working capital requirements, capital expenditures, dividend payments, repayments on its term loan and other
obligations through at least the next twelve months. However, additional capital may be needed in order to fund the Company’s operations,
expand marketing activities, develop new or enhance existing services or products, respond to competitive pressures or acquire complementary
services, businesses or technologies.
Basis of Presentation
The accompanying consolidated financial statements for the years ended December 31, 2005 and 2004, the six months ended December 31,
2003 and the year ended June 30, 2003 include United Online and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated financial statements, in the opinion of management, reflect all adjustments
(consisting only of normal recurring adjustments) that are necessary for a fair presentation of the results for the periods shown. The results of
operations for such periods are not necessarily indicative of the results expected for any future periods. The preparation of financial statements in
accordance with generally accepted accounting principles (“GAAP”) requires management to make
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