Classmates.com 2005 Annual Report Download - page 87

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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.
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, RSUs and convertible
securities, if any. Diluted earnings per share is computed using the weighted average number of common stock 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, social-networking, VoIP telephony,
personal Web-hosting, online digital photo sharing 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
and services, 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.
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 Pronouncements
In December 2004, the FASB issued SFAS No. 123R, 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 non employees 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.
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