Classmates.com 2007 Annual Report Download - page 46

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The following table sets forth, for the periods presented, a reconciliation of the changes in the member redemption liability (in thousands):
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.
The computation of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating
to the realizability of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available, we
continually assess the carrying value of our net deferred tax assets.
We apply the provisions of FASB Interpretation No., or FIN, 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB
Statement No. 109 . Under FIN 48, we recognize, in our consolidated financial statements, the impact of tax positions that are more likely than
not to be sustained upon examination based on the technical merits of the positions.
Legal Contingencies
We are currently involved in certain legal proceedings. We record liabilities related to pending litigation when an unfavorable outcome is
probable and management can reasonably estimate the amount of loss. We do not record liabilities for pending litigation when there are
uncertainties related to assessing either the amount or the probable outcome of the claims asserted in the litigation. As additional information
becomes available, we continually assess the potential liability related to such pending litigation.
Subsidiary Initial Public Offering of Classmates Media Corporation
In May 2007, we announced our intention to explore the possibility of a subsidiary initial public offering, or IPO. Classmates Media
Corporation, or CMC, was formed in August 2007 for the purposes of consolidating our Classmates, The Names Database and MyPoints
business units and initiating a public equity offering. The businesses were contributed to CMC by us on August 9, 2007. In August 2007, CMC
filed a Form S-1 registration statement with the SEC for the IPO of its common stock.
44
Year Ended
December 31,
2007
Period from
April 10, 2006 (date
of MyPoints
acquisition) through
December 31, 2006
Beginning balance
$
19,989
$
18,497
Accruals for points earned
23,745
14,103
Reduction for redeemed points
(18,857
)
(11,892
)
Changes in allowance for points expected to expire
and weighted
-
average cost of points
(633
)
(404
)
Revaluation of member redemption liability in
connection with purchase accounting
—
(
771
)
Imputed interest on acquired member redemption
liability
316
456
Ending balance
$
24,560
$
19,989