Classmates.com 2007 Annual Report Download - page 57

In February 2008, we communicated our intentions to close our Orem, Utah facility and consolidate these functions into our operations at
our corporate headquarters. We believe these activities will result in restructuring charges, comprised largely of employee termination benefits,
during 2008, of approximately $0.5 million.
Commencing in 2006, we began to assess unprofitable operations and all of our other operations in light of the mature dial-up Internet
access industry. Our assessment has resulted in the restructuring charges referenced above and may result in additional restructuring charges.
Interest and Other Income, Net
Interest income consists of earnings on our cash, cash equivalents and short-term investments. Other income, net, consists of realized gains
and losses recognized in connection with the sale of short-term investments.
Interest and other income, net, increased by $1.5 million, or 24%, to $7.6 million for the year ended December 31, 2007, compared to
$6.1 million for the year ended December 31, 2006. The increase was primarily due to higher average cash and cash equivalents and short-term
investments balances and higher interest rates. Net realized gains on sales of our short-term investments were not significant for the years ended
December 31, 2007 and 2006.
Interest Expense
Interest expense consists of interest expense on our term loan (see separate section herein discussing our term loan), which was retired in
January 2006, amortization of deferred financing costs related to our term loan, capital leases, the amortization of premiums on certain of our
short-term investments, and imputed interest on the acquired member redemption liability related to our acquisition of MyPoints in April 2006.
Interest expense decreased by $1.4 million, or 55%, to $1.2 million for the year ended December 31, 2007, compared to $2.6 million for the
year ended December 31, 2006. The decrease was primarily the result of a decrease in amortized deferred financing costs related to our term
loan. In January 2006, we expensed the remaining $1.5 million in deferred financing costs upon our repayment of the $54.2 million balance of
the term loan.
Provision for Income Taxes
For the year ended December 31, 2007, we recorded a tax provision of $40.9 million on pre-tax income of $98.7 million, resulting in an
effective tax rate of 41.5%. The effective tax rate differs from the statutory federal income tax rate primarily due to (1) state income taxes, net of
federal benefit; (2) compensation, including stock-
based compensation, that is limited under Section 162(m) of the Internal Revenue Code, or the
Code; (3) foreign losses, the benefit of which is not currently recognizable due to uncertainty regarding realization; (4) the re-measurement of
certain deferred tax assets in New York; (5) employee stock purchase plan compensation, the benefit of which is not currently recognized under
SFAS No. 123R but which is recognized upon a disqualified disposition; and (6) the benefit of federal tax exempt interest income.
For the year ended December 31, 2006, we 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 federal income tax rate primarily due to (1) state income taxes, net of
federal benefit; (2) compensation, including stock-based compensation, that is limited under Section 162(m) of the Code; (3) foreign losses, the
benefit of which is not currently recognizable due to uncertainty regarding realization; (4) the re-measurement of certain deferred tax assets in
New York; (5) employee stock purchase plan compensation, the benefit of which is not currently recognized under SFAS No. 123R but
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