Classmates.com 2008 Annual Report Download - page 54

Table of Contents
Income Taxes
We account for income taxes 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. We record a valuation allowance to reduce our deferred income
tax assets to the amount that is more likely than not to be realized. In evaluating our ability to recover our deferred income tax assets, we
consider all available positive and negative evidence, including our operating results, ongoing tax planning and forecasts of future taxable
income on a jurisdiction-by-jurisdiction basis. We apply the provisions of FASB Interpretation No. ("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.
Potential Subsidiary Initial Public Offering of Classmates Media Corporation
Classmates Media Corporation ("CMC") was formed in August 2007 for the purposes of consolidating our Classmates, The Names
Database and MyPoints business units in preparation of an initial public offering ("IPO") by CMC. 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 Securities and Exchange Commission ("SEC") for
the IPO of its common stock.
In December 2007, we determined that proceeding with the IPO under then-current market conditions was not in the best interests of our
stockholders and CMC withdrew its Form S-1 registration statement previously filed with the SEC. Approximately $0.5 million of transaction
costs were determined not to have continuing value after the withdrawal of the IPO and were expensed in the quarter ended December 31, 2007.
Because it remained our strategy to complete an IPO of CMC during 2008, certain IPO transaction-related costs incurred during 2007 and the
first quarter of 2008 totaling $3.9 million were deferred and were included in other assets on our condensed consolidated balance sheet at
March 31, 2008. During the second quarter of 2008, we concluded that it was unlikely that an IPO would be completed before 2009. As such, we
determined, on June 23, 2008, that the $3.9 million in deferred transaction-related costs relating to the IPO would be expensed in the quarter
ended June 30, 2008, and our financial results and the financial results of our Classmates Media segment for the year ended December 31, 2008
were negatively impacted.
Financial Statement Presentation
Revenues
Products Revenues
Products revenues consist of merchandise revenue and related shipping and service fees for FTD consumer orders as well as revenues
generated from sales of containers, software and hardware
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