Classmates.com 2008 Annual Report Download - page 116

Table of Contents
UNITED ONLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
rights, and excludes any dilutive effects of options or warrants, restricted stock, restricted stock units, and convertible securities, if any. Diluted
net income (loss) 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 does 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, the Company continually assesses the potential liability related to such pending
litigation.
Operating Leases —The Company leases office space, data centers and certain office equipment under operating lease agreements with
original lease periods of up to ten years. Certain of the lease agreements contain rent holidays and rent escalation provisions. Rent holidays and
rent escalation provisions are considered in determining straight-line rent expense to be recorded over the lease term. The lease term begins on
the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease.
Lease renewal periods are considered on a lease-by-lease basis and are generally not included in the initial lease term.
Recent Accounting Pronouncements
Business Combinations
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations . SFAS No. 141(R) requires an acquirer to measure the
identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with
goodwill being the excess value over the net identifiable assets acquired. Among other things, SFAS No. 141(R) establishes new guidelines for
the expensing of transaction and restructuring costs, fair value measurement of contingent consideration in earnings and capitalization of in-
process research and development. SFAS No. 141(R) is effective for financial statements issued for fiscal years beginning after December 15,
2008 and early adoption is prohibited. SFAS No. 141(R) requires prospective application for all acquisitions after the date of adoption. The
Company expects SFAS No. 141(R) to have an impact on how acquisitions are reflected in the consolidated financial statements when effective,
but the timing, nature and magnitude of the specific effects will depend upon the nature, terms and size of any acquisitions that the Company
consummates after the effective date.
Additionally, for business combinations in which the acquisition date is prior to the effective date of SFAS No. 141(R), the acquirer is
required to apply the requirements of SFAS No. 109, Income Taxes , as amended by SFAS No. 141(R), prospectively. After the effective date of
SFAS No. 141(R), changes in the valuation allowance for acquired deferred tax assets and dispositions of uncertain income tax positions must be
recognized as an adjustment to income tax expense, rather than through goodwill. The impact of the adoption of SFAS No. 141(R) on the
Company's consolidated financial statements will largely be dependent on the size and nature of the business combinations completed after the
adoption of this statement.
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