Classmates.com 2006 Annual Report Download - page 99

Components of net deferred tax assets at December 31, 2006 and 2005 are as follows (in thousands):
The increase in the valuation allowance of $2.2 million during the year ended December 31, 2006 is attributable to compensation that is
expected to be limited under Section 162(m) of the Code and foreign losses, the benefit of which is not currently recognizable due to uncertainty
regarding utilization. Based upon the Company’s assessment of all available evidence, it concluded that, primarily with the exception of certain
compensation that is expected to be limited under Section 162(m) of the Code and foreign net operating losses, it is more likely than not that the
remaining deferred tax assets will be realized. The Company will continue to monitor all available evidence in assessing the realization of its
deferred tax assets in future periods, including recognizing an amount of taxable income during the carryforward period that equals or exceeds
the Section 382 limitation.
The increase in the valuation allowance of $2.7 million during the year ended December 31, 2005 is attributable to compensation that is
expected to be limited under Section 162(m) of the Code and foreign losses, the benefit of which is not currently recognizable due to uncertainty
regarding utilization.
The decrease in the valuation allowance of $85.3 million during the year ended December 31, 2004 is primarily attributable to the release of
the valuation allowance due to the expectation that the Company will realize its deferred tax assets in the future.
In accordance with APB Opinion No. 23, Accounting for Income Taxes—Special Areas , the Company has not recognized federal deferred
income taxes on the undistributed earnings of certain of its foreign subsidiaries that are indefinitely reinvested outside the U.S. The Company has
indefinitely reinvested approximately $1.6 million of the cumulative undistributed earnings of certain foreign subsidiaries, of which $0.4 million
was earned during the year ended December 31, 2006. If these earnings were distributed, a U.S. income tax liability would result.
At December 31, 2006, the Company had net operating loss and tax credit carryforwards for federal and state income tax purposes of
approximately $175 million and $61 million, respectively, which begin to expire in 2018 and 2007, respectively. With respect to the state net
operating losses, certain amounts will be further reduced pursuant to the state allocation and apportionment laws. These carryforwards have been
adjusted to reflect the Company’s estimate of limitations under Section 382 of the Code. The Company has also claimed income tax deductions
from the exercise of certain stock options and the related sale of common stock by employees, and, in 2006, the deduction includes the excess
deduction for vested restricted stock. For the years ended December 31, 2006, 2005 and 2004, benefits of $5.8 million, $7.2 million and
$8.6 million, respectively, were credited to stockholders’ equity.
F- 37
December 31,
2006
2005
Deferred tax assets:
Net operating loss carryforwards
$
66,303
$
74,459
Depreciation and amortization
7,899
2,126
Stock
-
based compensation
8,841
4,817
Other
8,719
8,725
Total deferred tax assets
91,762
90,127
Less: valuation allowance
(6,850
)
(4,670
)
Total deferred tax assets after valuation allowance
84,912
85,457
Deferred tax liability:
Amortization of acquired intangible assets
(13,552
)
(17,102
)
Total deferred tax liability
(13,552
)
(17,102
)
Net deferred tax assets
$
71,360
$
68,355