Classmates.com 2006 Annual Report Download - page 98

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7. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 2006, 2005 and 2004 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, 2006, the Company recorded a tax provision of $36.3 million on pre-tax income of $77.5 million,
resulting in an effective tax rate of 46.8%. The effective tax rate differs from the statutory rate primarily due to (1) stock-based compensation
that is limited under Section 162(m) of the Internal Revenue Code (the “Code”); (2) foreign losses, the benefit of which is not currently
recognizable due to uncertainty regarding realization; and (3) the re-measurement of net deferred tax assets in New York. Additionally, in 2006,
the effective rate was increased due to the employee stock purchase plan compensation, the benefit which is not currently recognized under
SFAS No. 123R. This increase was completely offset by the benefit of federal exempt interest income.
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.
F- 36
Year Ended December 31,
2006
2005
2004
Current:
Federal
$
33,433
$
33,043
$
23,385
State
6,469
5,625
4,042
39,902
38,668
27,427
Deferred:
Federal
(8,629
)
(3,958
)
2,780
State
2,275
3,529
3,423
Foreign
(719
)
(726
)
(203
)
Increase (decrease) in valuation allowance
3,464
2,732
(67,478
)
(3,609
)
1,577
(61,478
)
Provision (benefit) for income taxes
$
36,293
$
40,245
$
(34,051
)
Year Ended December 31,
2006
2005
2004
Taxes on income at the statutory federal rate (35% for all periods
presented)
$
27,133
$
30,580
$
29,200
State income taxes, net of federal tax benefits
3,858
4,454
4,853
Re
-
measurement of net deferred tax assets
2,265
2,473
4
Other differences, net
(427
)
6
(630
)
Increase (decrease) in valuation allowance
3,464
2,732
(67,478
)
Provision (benefit) for income taxes
$
36,293
$
40,245
$
(34,051
)