UNITED ONLINE INC - FORM 10-Q - August 8, 2011
Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) |
ý |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2011 |
Or |
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period
from to
Commission file number 000-33367
UNITED ONLINE, INC.
(Exact name of Registrant as specified in its charter)
|
|
|
Delaware |
|
77-0575839 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
21301 Burbank Boulevard,
Woodland Hills, California (Address of principal executive office) |
|
91367
(Zip Code) |
(818) 287-3000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
ý No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes ý No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer ý |
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Non-accelerated filer o |
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Smaller reporting company o |
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|
(Do not check if a smaller
reporting company) |
|
|
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o No ý
There were 88,692,654 shares of the Registrant's common stock outstanding at July 29, 2011.
Table of Contents
UNITED ONLINE, INC.
INDEX TO FORM 10-Q
For the Quarter Ended June 30, 2011
In
this document, "United Online," the "Company," "we," "us" and "our" refer to United Online, Inc. and its subsidiaries.
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements within the meaning of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial condition,
performance, results of operations, and liquidity. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook,"
"estimate," or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements about future financial performance; revenues;
segment metrics; operating expenses; market trends, including those in the markets in which we compete; liquidity; cash flows and uses of cash; dividends; capital expenditures; depreciation and
amortization; tax payments; foreign currency exchange rates; hedging arrangements; our ability to repay indebtedness, pay dividends and invest in initiatives; our products and services; pricing;
competition; strategies; and new business initiatives, products, services, features, and functionality. Potential factors that could affect the matters about which the forward-looking statements are
made include, among others, the
2
Table of Contents
factors disclosed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and additional factors that accompany the related forward-looking statements in this Quarterly Report on
Form 10-Q and our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis
only as the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance and results to
differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required
by law, we undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
3
Table of Contents
PART IFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED ONLINE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
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June 30, 2011 |
|
December 31, 2010 |
|
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
111,444 |
|
$ |
100,264 |
|
|
Accounts receivable, net of allowance for doubtful accounts |
|
|
38,818 |
|
|
49,797 |
|
|
Deferred tax assets, net |
|
|
15,114 |
|
|
14,200 |
|
|
Other current assets |
|
|
22,924 |
|
|
28,494 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
188,300 |
|
|
192,755 |
|
Property and equipment, net |
|
|
65,299 |
|
|
63,893 |
|
Goodwill |
|
|
463,162 |
|
|
459,409 |
|
Intangible assets, net |
|
|
250,868 |
|
|
262,775 |
|
Other assets |
|
|
13,313 |
|
|
13,326 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
980,942 |
|
$ |
992,158 |
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|
|
|
|
|
|
Liabilities and Stockholders' Equity |
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|
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|
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Current liabilities: |
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|
|
|
|
|
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|
Accounts payable |
|
$ |
53,518 |
|
$ |
71,659 |
|
|
Accrued liabilities |
|
|
41,739 |
|
|
48,881 |
|
|
Member redemption liability |
|
|
19,309 |
|
|
19,899 |
|
|
Deferred revenue |
|
|
68,272 |
|
|
71,673 |
|
|
Current portion of long-term debt |
|
|
2,650 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
185,488 |
|
|
212,112 |
|
Member redemption liability |
|
|
4,859 |
|
|
4,967 |
|
Deferred revenue |
|
|
2,518 |
|
|
3,021 |
|
Long-term debt, net of discounts |
|
|
259,577 |
|
|
258,084 |
|
Deferred tax liabilities, net |
|
|
43,604 |
|
|
42,677 |
|
Other liabilities |
|
|
11,052 |
|
|
16,816 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
507,098 |
|
|
537,677 |
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Common stock |
|
|
9 |
|
|
9 |
|
|
Additional paid-in capital |
|
|
489,584 |
|
|
493,387 |
|
|
Accumulated other comprehensive loss |
|
|
(28,148 |
) |
|
(33,628 |
) |
|
Retained earnings (accumulated deficit) |
|
|
12,399 |
|
|
(5,287 |
) |
|
|
|
|
|
|
|
|
Total stockholders' equity |
|
|
473,844 |
|
|
454,481 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
980,942 |
|
$ |
992,158 |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
4
Table of Contents
UNITED ONLINE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
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|
|
|
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|
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|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
145,832 |
|
$ |
121,971 |
|
$ |
274,918 |
|
$ |
246,458 |
|
|
Services |
|
|
109,733 |
|
|
120,715 |
|
|
222,152 |
|
|
247,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
255,565 |
|
|
242,686 |
|
|
497,070 |
|
|
494,411 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenuesproducts |
|
|
108,637 |
|
|
90,228 |
|
|
204,792 |
|
|
185,413 |
|
|
Cost of revenuesservices |
|
|
23,305 |
|
|
24,667 |
|
|
47,976 |
|
|
50,680 |
|
|
Sales and marketing |
|
|
48,811 |
|
|
49,013 |
|
|
96,946 |
|
|
99,143 |
|
|
Technology and development |
|
|
13,243 |
|
|
13,646 |
|
|
26,018 |
|
|
27,995 |
|
|
General and administrative |
|
|
26,039 |
|
|
27,259 |
|
|
54,913 |
|
|
58,243 |
|
|
Amortization of intangible assets |
|
|
7,598 |
|
|
8,115 |
|
|
15,343 |
|
|
16,278 |
|
|
Restructuring charges |
|
|
143 |
|
|
(78 |
) |
|
677 |
|
|
991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
227,776 |
|
|
212,850 |
|
|
446,665 |
|
|
438,743 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
27,789 |
|
|
29,836 |
|
|
50,405 |
|
|
55,668 |
|
Interest income |
|
|
283 |
|
|
412 |
|
|
832 |
|
|
877 |
|
Interest expense |
|
|
(10,776 |
) |
|
(6,314 |
) |
|
(15,817 |
) |
|
(13,463 |
) |
Other income, net |
|
|
166 |
|
|
53 |
|
|
1,705 |
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
17,462 |
|
|
23,987 |
|
|
37,125 |
|
|
43,217 |
|
Provision for income taxes |
|
|
2,694 |
|
|
10,030 |
|
|
10,176 |
|
|
18,039 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,768 |
|
$ |
13,957 |
|
$ |
26,949 |
|
$ |
25,178 |
|
|
|
|
|
|
|
|
|
|
|
|
Income allocated to participating securities |
|
|
(577 |
) |
|
(859 |
) |
|
(1,142 |
) |
|
(1,590 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
14,191 |
|
$ |
13,098 |
|
$ |
25,807 |
|
$ |
23,588 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
|
$ |
0.16 |
|
$ |
0.15 |
|
$ |
0.29 |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
Shares used to calculate basic net income per common share |
|
|
88,507 |
|
|
87,021 |
|
|
87,965 |
|
|
86,393 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share |
|
$ |
0.16 |
|
$ |
0.15 |
|
$ |
0.29 |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
Shares used to calculate diluted net income per common share |
|
|
88,625 |
|
|
87,782 |
|
|
88,225 |
|
|
87,167 |
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per common share |
|
$ |
0.10 |
|
$ |
0.10 |
|
$ |
0.20 |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
5
Table of Contents
UNITED ONLINE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Net income |
|
$ |
14,768 |
|
$ |
13,957 |
|
$ |
26,949 |
|
$ |
25,178 |
|
|
Change in losses on derivative instruments, net of tax of $(44) and $(12) for the quarter and six months ended June 30, 2011 |
|
|
(108 |
) |
|
|
|
|
(20 |
) |
|
|
|
|
Foreign currency translation |
|
|
443 |
|
|
(3,408 |
) |
|
5,500 |
|
|
(14,567 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
15,103 |
|
$ |
10,549 |
|
$ |
32,429 |
|
$ |
10,611 |
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
6
Table of Contents
UNITED ONLINE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Accumulated
Other
Comprehensive
Loss |
|
Retained
Earnings
(Accumulated
Deficit) |
|
|
|
|
|
Additional
Paid-In
Capital |
|
Total
Stockholders'
Equity |
|
|
|
Shares |
|
Amount |
|
Balance at January 1, 2011 |
|
|
86,745 |
|
$ |
9 |
|
$ |
493,387 |
|
$ |
(33,628 |
) |
$ |
(5,287 |
) |
$ |
454,481 |
|
|
Exercises of stock options |
|
|
13 |
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
24 |
|
|
Issuance of common stock through employee stock purchase plan |
|
|
517 |
|
|
|
|
|
2,349 |
|
|
|
|
|
|
|
|
2,349 |
|
|
Vesting of restricted stock units |
|
|
1,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
|
|
|
|
|
|
(6,330 |
) |
|
|
|
|
|
|
|
(6,330 |
) |
|
Dividends and dividend equivalents paid on shares outstanding and restricted stock units |
|
|
|
|
|
|
|
|
(9,141 |
) |
|
|
|
|
(9,263 |
) |
|
(18,404 |
) |
|
Change in dividend equivalents payable on restricted stock units |
|
|
|
|
|
|
|
|
174 |
|
|
|
|
|
|
|
|
174 |
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
9,221 |
|
|
|
|
|
|
|
|
9,221 |
|
|
Change in losses on derivative instruments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
(20 |
) |
|
|
|
|
(20 |
) |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
5,500 |
|
|
|
|
|
5,500 |
|
|
Tax shortfalls from equity awards |
|
|
|
|
|
|
|
|
(100 |
) |
|
|
|
|
|
|
|
(100 |
) |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,949 |
|
|
26,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2011 |
|
|
88,693 |
|
$ |
9 |
|
$ |
489,584 |
|
$ |
(28,148 |
) |
$ |
12,399 |
|
$ |
473,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
7
Table of Contents
UNITED ONLINE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
26,949 |
|
$ |
25,178 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
28,330 |
|
|
29,845 |
|
|
|
Stock-based compensation |
|
|
9,221 |
|
|
14,221 |
|
|
|
Provision for doubtful accounts receivable |
|
|
1,366 |
|
|
2,545 |
|
|
|
Accretion of discounts and amortization of debt issue costs |
|
|
1,052 |
|
|
2,720 |
|
|
|
Loss on extinguishment of debt |
|
|
6,078 |
|
|
|
|
|
|
Deferred taxes, net |
|
|
(538 |
) |
|
(3,149 |
) |
|
|
Tax benefits (shortfalls) from equity awards |
|
|
13 |
|
|
(98 |
) |
|
|
Excess tax benefits from equity awards |
|
|
(251 |
) |
|
(349 |
) |
|
|
Other |
|
|
161 |
|
|
420 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
9,943 |
|
|
10,667 |
|
|
|
Other assets |
|
|
6,832 |
|
|
6,850 |
|
|
|
Accounts payable and accrued liabilities |
|
|
(26,889 |
) |
|
(10,240 |
) |
|
|
Member redemption liability |
|
|
(697 |
) |
|
(1,759 |
) |
|
|
Deferred revenue |
|
|
(5,476 |
) |
|
(984 |
) |
|
|
Other liabilities |
|
|
(5,817 |
) |
|
422 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
50,277 |
|
|
76,289 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(13,662 |
) |
|
(14,146 |
) |
|
Purchases of rights, content and intellectual property |
|
|
(2,114 |
) |
|
(1,170 |
) |
|
Proceeds from sales of assets, net |
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(15,776 |
) |
|
(15,267 |
) |
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from term loan |
|
|
261,325 |
|
|
|
|
|
Payments on term loans |
|
|
(264,625 |
) |
|
(54,819 |
) |
|
Payments for debt issuance costs |
|
|
(30 |
) |
|
|
|
|
Proceeds from exercises of stock options |
|
|
24 |
|
|
11 |
|
|
Proceeds from employee stock purchase plan |
|
|
2,349 |
|
|
2,612 |
|
|
Repurchases of common stock |
|
|
(6,330 |
) |
|
(6,695 |
) |
|
Dividends and dividend equivalents paid on outstanding shares and restricted stock units |
|
|
(18,684 |
) |
|
(18,462 |
) |
|
Excess tax benefits from equity awards |
|
|
251 |
|
|
349 |
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(25,720 |
) |
|
(77,004 |
) |
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash and cash equivalents |
|
|
2,399 |
|
|
(4,598 |
) |
Change in cash and cash equivalents |
|
|
11,180 |
|
|
(20,580 |
) |
Cash and cash equivalents, beginning of period |
|
|
100,264 |
|
|
115,509 |
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
111,444 |
|
$ |
94,929 |
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Decrease in dividend equivalents payable on restricted stock units |
|
$ |
(174 |
) |
$ |
(208 |
) |
The
accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
8
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS
Description of Business
United Online, Inc. (together with its subsidiaries, "United Online" or the "Company") is a leading provider of consumer
products and services over the Internet through a number of brands, including FTD, Interflora, Memory Lane, Classmates, StayFriends, MyPoints, and NetZero. On August 26, 2008, the Company
completed its acquisition of 100% of the capital stock of FTD Group, Inc. (together with its subsidiaries, "FTD"). The Company reports its business in three reportable segments: FTD,
Content & Media and Communications. The Company's FTD segment provides floral and related products and services to consumers and retail florists, as well as to other retail locations offering
floral and related products and services. The Company's Content & Media services are online nostalgia services and online loyalty marketing. The Company's primary Communications service is
Internet access. On a combined basis, the Company's web properties attract a significant number of Internet users and the Company offers a broad array of Internet marketing services for advertisers.
Basis of Presentation
The Company's unaudited condensed consolidated financial statements for the quarters and six months ended June 30, 2011 and 2010
have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), including those for interim financial information, and with the instructions
for Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (the "SEC"). Accordingly, such financial statements do not
include all of the information and note disclosures required by GAAP for complete financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair
statement of the results for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for any future periods. The unaudited condensed
consolidated balance sheet information at December 31, 2010 is derived from the Company's audited consolidated financial statements, filed on February 28, 2011 with the SEC in the
Company's Annual Report on Form 10-K for the year ended December 31, 2010, but does not include all of the disclosures required by GAAP.
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates and assumptions. These unaudited condensed consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2010 included in the Company's Annual
Report on Form 10-K.
The
most significant areas of the unaudited condensed consolidated financial statements that require management judgment include the Company's revenue recognition, allocation of purchase
price in business combinations, goodwill and indefinite-lived intangible assets, definite-lived intangible assets and other long-lived assets, member redemption liability, income taxes,
and legal contingencies.
9
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
The
Company believes that its existing cash and cash equivalents and cash generated from operations will be sufficient to service its debt obligations and fund its working capital
requirements, capital expenditures, dividend payments, and other obligations through at least the next twelve months.
ReclassificationsCertain prior period amounts have been reclassified to conform to the current period presentation. These changes had no impact on
the previously reported consolidated results of operations or stockholders' equity.
Accounting Policies
SegmentsThe operating segments identified in Note 2 below are the segments of the Company for which separate financial information is
available and for which segment results are regularly reviewed by the Company's chief operating decision maker in deciding how to allocate resources and assess performance. Effective in the first
quarter of 2011, the Company modified how it reports segment information to the chief operating decision maker. The Company's segment reporting now separately reports unallocated corporate expenses.
Historically, such expenses were fully allocated to the Company's reportable segments. The Company has revised prior period results to conform to the current year presentation.
Derivative InstrumentsFrom time to time, the Company utilizes forward foreign currency exchange contracts to protect the
value of its net investments in certain foreign subsidiaries. For derivative instruments that are designated and qualify as a hedge of a net investment, the gain or loss is reported in accumulated
other comprehensive income in the unaudited condensed consolidated statement of stockholders' equity to the extent the hedge is effective, with the related amounts due to or from counterparties
included in other liabilities or other assets. The Company utilizes the forward-rate method of assessing hedge effectiveness. Gains or losses related to any ineffective portions of net
investment hedges are recognized in the unaudited condensed consolidated statements of operations. There was no ineffectiveness related to the Company's foreign currency net investment hedges for the
quarter and six months ended June 30, 2011. These forward foreign currency exchange contracts do not contain any credit risk-related contingent features as defined by Accounting
Standards Codification ("ASC") 815, Derivatives and Hedging.
In
addition, the Company periodically enters into forward foreign currency exchange contracts which are not designated as hedging instruments for accounting purposes. The Company enters
into these derivative instruments to partially offset the economic effect of fluctuations in foreign currency exchange rates.
Recent Accounting Pronouncements
ReceivablesIn April 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
No. 2011-02, A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring, as codified in ASC 310, Receivables. The
amendments in this update provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets
the criteria to be considered a troubled debt restructuring. The amendments in this update are effective for the period beginning on or after June 15, 2011, and should be applied
retrospectively to
10
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
the
beginning of the annual period of adoption. The Company does not expect this update to have a material impact on its consolidated financial statements.
Comprehensive IncomeIn June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive
Income, as codified in ASC 220, Comprehensive Income. The amendments in this update require that all nonowner changes in
stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first
statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive
income, and the total of comprehensive income. The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning
after December 15, 2011. The Company does not expect this update to have a material impact on its consolidated financial statements.
2. SEGMENT INFORMATION
Segment revenues and segment income from operations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2011 |
|
|
|
FTD |
|
Content & Media |
|
Communications |
|
Total |
|
Products |
|
$ |
145,832 |
|
$ |
|
|
$ |
|
|
$ |
145,832 |
|
Services |
|
|
30,467 |
|
|
32,249 |
|
|
26,112 |
|
|
88,828 |
|
Advertising |
|
|
|
|
|
15,178 |
|
|
6,167 |
|
|
21,345 |
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues |
|
$ |
176,299 |
|
$ |
47,427 |
|
$ |
32,279 |
|
$ |
256,005 |
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
$ |
24,682 |
|
$ |
9,208 |
|
$ |
15,865 |
|
$ |
49,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2010 |
|
|
|
FTD |
|
Content & Media |
|
Communications |
|
Total |
|
Products |
|
$ |
121,971 |
|
$ |
|
|
$ |
|
|
$ |
121,971 |
|
Services |
|
|
30,545 |
|
|
33,213 |
|
|
35,265 |
|
|
99,023 |
|
Advertising |
|
|
153 |
|
|
15,571 |
|
|
6,774 |
|
|
22,498 |
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues |
|
$ |
152,669 |
|
$ |
48,784 |
|
$ |
42,039 |
|
$ |
243,492 |
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
$ |
19,568 |
|
$ |
13,123 |
|
$ |
19,102 |
|
$ |
51,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
FTD |
|
Content & Media |
|
Communications |
|
Total |
|
Products |
|
$ |
274,918 |
|
$ |
|
|
$ |
|
|
$ |
274,918 |
|
Services |
|
|
60,258 |
|
|
64,778 |
|
|
53,991 |
|
|
179,027 |
|
Advertising |
|
|
22 |
|
|
30,962 |
|
|
12,986 |
|
|
43,970 |
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues |
|
$ |
335,198 |
|
$ |
95,740 |
|
$ |
66,977 |
|
$ |
497,915 |
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
$ |
43,255 |
|
$ |
19,331 |
|
$ |
32,490 |
|
$ |
95,076 |
|
|
|
|
|
|
|
|
|
|
|
11
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SEGMENT INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010 |
|
|
|
FTD |
|
Content & Media |
|
Communications |
|
Total |
|
Products |
|
$ |
246,458 |
|
$ |
|
|
$ |
|
|
$ |
246,458 |
|
Services |
|
|
62,276 |
|
|
67,165 |
|
|
72,283 |
|
|
201,724 |
|
Advertising |
|
|
622 |
|
|
32,121 |
|
|
14,997 |
|
|
47,740 |
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues |
|
$ |
309,356 |
|
$ |
99,286 |
|
$ |
87,280 |
|
$ |
495,922 |
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
$ |
36,993 |
|
$ |
26,654 |
|
$ |
39,697 |
|
$ |
103,344 |
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of segment revenues to consolidated revenues was as follows for each period presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Segment revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTD |
|
$ |
176,299 |
|
$ |
152,669 |
|
$ |
335,198 |
|
$ |
309,356 |
|
|
Content & Media |
|
|
47,427 |
|
|
48,784 |
|
|
95,740 |
|
|
99,286 |
|
|
Communications |
|
|
32,279 |
|
|
42,039 |
|
|
66,977 |
|
|
87,280 |
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues |
|
|
256,005 |
|
|
243,492 |
|
|
497,915 |
|
|
495,922 |
|
|
Intersegment eliminations |
|
|
(440 |
) |
|
(806 |
) |
|
(845 |
) |
|
(1,511 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
255,565 |
|
$ |
242,686 |
|
$ |
497,070 |
|
$ |
494,411 |
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of segment operating expenses (which excludes depreciation and amortization of intangible assets) to consolidated operating expenses was as follows for each period
presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Segment operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTD |
|
$ |
151,617 |
|
$ |
133,101 |
|
$ |
291,943 |
|
$ |
272,363 |
|
|
Content & Media |
|
|
38,219 |
|
|
35,661 |
|
|
76,409 |
|
|
72,632 |
|
|
Communications |
|
|
16,414 |
|
|
22,937 |
|
|
34,487 |
|
|
47,583 |
|
|
|
|
|
|
|
|
|
|
|
Total segment operating expenses |
|
|
206,250 |
|
|
191,699 |
|
|
402,839 |
|
|
392,578 |
|
|
Depreciation |
|
|
6,409 |
|
|
6,897 |
|
|
12,554 |
|
|
13,564 |
|
|
Amortization of intangible assets |
|
|
7,869 |
|
|
8,118 |
|
|
15,776 |
|
|
16,281 |
|
|
Unallocated corporate expenses |
|
|
7,688 |
|
|
6,942 |
|
|
16,341 |
|
|
17,831 |
|
|
Intersegment eliminations |
|
|
(440 |
) |
|
(806 |
) |
|
(845 |
) |
|
(1,511 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated operating expenses |
|
$ |
227,776 |
|
$ |
212,850 |
|
$ |
446,665 |
|
$ |
438,743 |
|
|
|
|
|
|
|
|
|
|
|
12
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SEGMENT INFORMATION (Continued)
A
reconciliation of segment income from operations (which excludes depreciation and amortization of intangible assets) to consolidated operating income was as follows for each period
presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Segment income from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTD |
|
$ |
24,682 |
|
$ |
19,568 |
|
$ |
43,255 |
|
$ |
36,993 |
|
|
Content & Media |
|
|
9,208 |
|
|
13,123 |
|
|
19,331 |
|
|
26,654 |
|
|
Communications |
|
|
15,865 |
|
|
19,102 |
|
|
32,490 |
|
|
39,697 |
|
|
|
|
|
|
|
|
|
|
|
Total segment income from operations |
|
|
49,755 |
|
|
51,793 |
|
|
95,076 |
|
|
103,344 |
|
|
Depreciation |
|
|
(6,409 |
) |
|
(6,897 |
) |
|
(12,554 |
) |
|
(13,564 |
) |
|
Amortization of intangible assets |
|
|
(7,869 |
) |
|
(8,118 |
) |
|
(15,776 |
) |
|
(16,281 |
) |
|
Unallocated corporate expenses |
|
|
(7,688 |
) |
|
(6,942 |
) |
|
(16,341 |
) |
|
(17,831 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated operating income |
|
$ |
27,789 |
|
$ |
29,836 |
|
$ |
50,405 |
|
$ |
55,668 |
|
|
|
|
|
|
|
|
|
|
|
International
revenues are generated by the Company's operations in Europe. International revenues totaled $55.6 million and $105.4 million for the quarter and six months
ended June 30, 2011, respectively. International revenues totaled $36.3 million and $93.3 million for the quarter and six months ended June 30, 2010, respectively.
Geographic
information for long-lived assets, which consist of property and equipment and other assets, was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
December 31, 2010 |
|
United States |
|
$ |
68,885 |
|
$ |
68,222 |
|
Europe |
|
|
9,727 |
|
|
8,997 |
|
|
|
|
|
|
|
|
Total long-lived assets |
|
$ |
78,612 |
|
$ |
77,219 |
|
|
|
|
|
|
|
Segment
assets are not reported to, or used by, the Company's chief operating decision maker to allocate resources to, or assess performance of, the segments and therefore, pursuant to
ASC 280, Segment Reporting, total segment assets have not been disclosed.
13
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. BALANCE SHEET COMPONENTS
Financing Receivables
Credit quality of financing receivables was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2011 |
|
December 31,
2010 |
|
Current |
|
$ |
14,522 |
|
$ |
16,625 |
|
Past due |
|
|
3,795 |
|
|
3,705 |
|
|
|
|
|
|
|
|
Total |
|
$ |
18,317 |
|
$ |
20,330 |
|
|
|
|
|
|
|
A
significant majority of the past due financing receivables at June 30, 2011 and December 31, 2010 were 120 days or more past due. Financing receivables on
nonaccrual status at June 30, 2011 and December 31, 2010 totaled $3.8 million and $4.0 million, respectively.
The
changes in allowance for credit losses related to financing receivables for the six months ended June 30, 2011 were as follows (in thousands):
|
|
|
|
|
|
Balance at January 1, 2011: |
|
$ |
3,597 |
|
|
Current period provision |
|
|
377 |
|
|
Write-offs charged against allowance |
|
|
(337 |
) |
|
|
|
|
Balance at June 30, 2011 |
|
$ |
3,637 |
|
|
|
|
|
Other Current Assets
Other current assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2011 |
|
December 31,
2010 |
|
Prepaid expensesother |
|
$ |
10,324 |
|
$ |
9,185 |
|
Floral-related inventories |
|
|
3,265 |
|
|
5,321 |
|
Income taxes receivable |
|
|
1,376 |
|
|
3,962 |
|
Gift cards related to member redemption liability |
|
|
2,698 |
|
|
2,973 |
|
Prepaid advertising and promotions |
|
|
1,290 |
|
|
1,855 |
|
Prepaid floral catalog expenses |
|
|
1,327 |
|
|
1,305 |
|
Prepaid insurance |
|
|
146 |
|
|
1,248 |
|
Other |
|
|
2,498 |
|
|
2,645 |
|
|
|
|
|
|
|
|
Total |
|
$ |
22,924 |
|
$ |
28,494 |
|
|
|
|
|
|
|
14
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. BALANCE SHEET COMPONENTS (Continued)
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2011 |
|
December 31,
2010 |
|
Employee compensation and related expenses |
|
$ |
19,786 |
|
$ |
23,411 |
|
Income taxes payable |
|
|
3,831 |
|
|
5,987 |
|
Non-income taxes payable |
|
|
4,853 |
|
|
5,527 |
|
Customer deposits |
|
|
2,111 |
|
|
2,608 |
|
Reserve for pending legal settlement |
|
|
4,417 |
|
|
2,161 |
|
Other |
|
|
6,741 |
|
|
9,187 |
|
|
|
|
|
|
|
|
Total |
|
$ |
41,739 |
|
$ |
48,881 |
|
|
|
|
|
|
|
4. GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS
Goodwill
The changes in goodwill by reportable segment for the six months ended June 30, 2011 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTD |
|
Content & Media |
|
Communications |
|
Total |
|
Balance at January 1, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (excluding impairment charges) |
|
$ |
441,202 |
|
$ |
124,718 |
|
$ |
13,227 |
|
$ |
579,147 |
|
|
Accumulated impairment charges |
|
|
(114,000 |
) |
|
|
|
|
(5,738 |
) |
|
(119,738 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at January 1, 2011 |
|
|
327,202 |
|
|
124,718 |
|
|
7,489 |
|
|
459,409 |
|
|
Foreign currency translation |
|
|
3,737 |
|
|
16 |
|
|
|
|
|
3,753 |
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (excluding impairment charges) |
|
|
444,939 |
|
|
124,734 |
|
|
13,227 |
|
|
582,900 |
|
|
Accumulated impairment charges |
|
|
(114,000 |
) |
|
|
|
|
(5,738 |
) |
|
(119,738 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at June 30, 2011 |
|
$ |
330,939 |
|
$ |
124,734 |
|
$ |
7,489 |
|
$ |
463,162 |
|
|
|
|
|
|
|
|
|
|
|
15
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS (Continued)
Intangible Assets
Intangible assets consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
|
Gross
Value |
|
Accumulated
Amortization |
|
Net |
|
Pay accounts and free accounts |
|
$ |
101,012 |
|
$ |
(92,498 |
) |
$ |
8,514 |
|
Customer contracts and relationships |
|
|
112,436 |
|
|
(59,075 |
) |
|
53,361 |
|
Trademarks and trade names |
|
|
183,694 |
|
|
(18,925 |
) |
|
164,769 |
|
Software and technology |
|
|
46,695 |
|
|
(28,769 |
) |
|
17,926 |
|
Rights, content and intellectual property |
|
|
9,861 |
|
|
(3,563 |
) |
|
6,298 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
453,698 |
|
$ |
(202,830 |
) |
$ |
250,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Gross
Value |
|
Accumulated
Amortization |
|
Net |
|
Pay accounts and free accounts |
|
$ |
100,873 |
|
$ |
(91,278 |
) |
$ |
9,595 |
|
Customer contracts and relationships |
|
|
111,913 |
|
|
(50,273 |
) |
|
61,640 |
|
Trademarks and trade names |
|
|
182,463 |
|
|
(17,603 |
) |
|
164,860 |
|
Software and technology |
|
|
46,513 |
|
|
(24,527 |
) |
|
21,986 |
|
Rights, content and intellectual property |
|
|
7,735 |
|
|
(3,041 |
) |
|
4,694 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
449,497 |
|
$ |
(186,722 |
) |
$ |
262,775 |
|
|
|
|
|
|
|
|
|
The
Company's acquired trademarks and trade names related to the acquisition by the Company of FTD in August 2008, are indefinite-lived and, accordingly, there is no associated
amortization expense or accumulated amortization. At June 30, 2011 and December 31, 2010, the FTD trademarks and trade names after impairment and foreign currency translation adjustments
totaled $157.9 million and $156.7 million, respectively.
5. LONG-TERM DEBT
In connection with the FTD acquisition in August 2008, UNOLA Corp., which was then an indirect wholly-owned subsidiary of United Online, Inc., and which subsequently merged into
FTD Group, Inc., entered into a $425 million senior secured credit agreement with Wells Fargo Bank, National Association, as Administrative Agent (the "2008 Credit Agreement"),
consisting of (i) a term loan A facility of $75 million, (ii) a term loan B facility of $300 million, and (iii) a revolving credit facility of up to
$50 million. On June 10, 2011, FTD Group, Inc. entered into a new credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association, as Administrative Agent
for the lenders, to refinance the 2008 Credit Agreement. The Credit Agreement provides FTD Group, Inc. with a $315 million senior secured credit facility consisting of (i) a
$265 million seven-year term loan (the "Term Loan") and (ii) a $50 million five-year revolving credit facility (the "Revolving Credit Facility" and
together with the Term Loan, the "Credit Facilities"), and certain other financial accommodations, including letters of credit.
16
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. LONG-TERM DEBT (Continued)
On
June 10, 2011, FTD Group, Inc. repaid in full all outstanding indebtedness under the 2008 Credit Agreement. No penalties were paid in connection with such repayment. The
repayment of obligations under the 2008 Credit Agreement was financed with the proceeds of the $265 million of term loan borrowings under the Credit Agreement and FTD's available cash. No funds
were borrowed under the Revolving Credit Facility at closing.
The
obligations under the Credit Agreement are guaranteed by the parent of FTD Group, Inc., UNOL Intermediate, Inc. ("Holdings"), and certain of the wholly-owned domestic
subsidiaries of FTD Group, Inc. (the "Subsidiary Guarantors"). In addition, the obligations under the Credit Agreement are secured by a lien on substantially all of the assets of FTD
Group, Inc., Holdings and the Subsidiary Guarantors (collectively, the "Loan Parties"), including a pledge of all (except with respect to foreign subsidiaries, in which case such pledge shall
be limited to 66%) of the outstanding capital stock of certain direct subsidiaries of the Loan Parties.
The
interest rates on both the Term Loan and the Revolving Credit Facility are either a base rate plus 2.5% per annum, or LIBOR plus 3.5% per annum (with a LIBOR floor of 1.25% in the
case of the Term Loan). In addition, there is a commitment fee equal to 0.50% per annum (with step-downs in the commitment fee depending on FTD's net leverage ratio) on the unused portion
of the Revolving Credit Facility. The Credit Agreement contains customary representations and warranties, events of default, affirmative covenants, and negative covenants, that require, among other
things, FTD to maintain compliance with a maximum net leverage ratio and a minimum fixed-charge coverage ratio, and impose restrictions and limitations on, among other things, capital expenditures,
investments, dividends, asset sales, and incurrence of additional debt or liens by Holdings, FTD Group, Inc. and their subsidiaries. The Credit Agreement also provides for an additional
$100 million in borrowing, subject to certain conditions, including compliance with covenants and approval by the lender group.
The
refinancing of the Credit Facilities was accounted for in accordance with ASC 470, Debt. A significant portion of the debt under the
2008 Credit Agreement was considered to be extinguished, and the Company recorded a $6.1 million loss on extinguishment of debt in connection with the refinancing, which was recorded in
interest expense for the quarter ended June 30, 2011.
The
changes in the Company's debt balances, net of discounts, for the six months ended June 30, 2011 under the 2008 Credit Agreement were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
January 1,
2011 |
|
Repayments
of Debt |
|
Accretion
of Discounts |
|
Write-Off
of Discounts |
|
Balance at
June 30,
2011 |
|
2008 Credit Agreement, term loan A |
|
$ |
49,446 |
|
$ |
(50,258 |
) |
$ |
143 |
|
$ |
669 |
|
$ |
|
|
2008 Credit Agreement, term loan B |
|
|
208,638 |
|
|
(214,367 |
) |
|
697 |
|
|
5,032 |
|
|
|
|
2008 Credit Agreement, revolving credit facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
258,084 |
|
$ |
(264,625 |
) |
$ |
840 |
|
$ |
5,701 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. LONG-TERM DEBT (Continued)
The
changes in the Company's debt balances, net of discounts, for the six months ended June 30, 2011 under the Credit Agreement were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
January 1,
2011 |
|
Draw Down
of Debt |
|
Discounts |
|
Accretion
of Discounts |
|
Balance at
June 30,
2011 |
|
Credit Agreement, Term Loan |
|
$ |
|
|
$ |
265,000 |
|
$ |
(2,797 |
) |
$ |
24 |
|
$ |
262,227 |
|
Credit Agreement, Revolving Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
$ |
265,000 |
|
$ |
(2,797 |
) |
$ |
24 |
|
$ |
262,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
minimum principal payments based upon scheduled mandatory debt payments under the Credit Agreement, excluding required repayments based on excess cash flows, were as follows at
June 30, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31, |
|
|
|
|
|
Total
Gross
Debt |
|
Jul-Dec
2011 |
|
|
|
|
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
Thereafter |
|
Credit Agreement, Term Loan |
|
$ |
265,000 |
|
$ |
1,325 |
|
$ |
2,650 |
|
$ |
2,650 |
|
$ |
2,650 |
|
$ |
2,650 |
|
$ |
2,650 |
|
$ |
250,425 |
|
At
June 30, 2011, the borrowing capacity under the Revolving Credit Facility, which was reduced by $2.0 million in outstanding letters of credit, was $48.0 million.
Commencing
in April 2013 for fiscal year 2012, subject to certain exceptions, FTD Group, Inc. will be required to make annual repayments of a portion of the Term Loan under the
Credit Agreement based on excess cash flow as defined in the Credit Agreement.
6. DERIVATIVE FINANCIAL INSTRUMENTS
The fair value of outstanding derivative instruments was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of
Derivative Instruments |
|
Notional Value of
Derivative Instruments |
|
Derivative Instruments
|
|
Balance Sheet Location |
|
June 30,
2011 |
|
December 31,
2010 |
|
June 30,
2011 |
|
December 31,
2010 |
|
Derivative assets designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts |
|
Other current assets |
|
$ |
28 |
|
$ |
|
|
$ |
2,670 |
|
$ |
|
|
Derivative liabilities not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts |
|
Other current liabilities |
|
$ |
91 |
|
$ |
|
|
$ |
5,398 |
|
$ |
|
|
18
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
The
effect of derivatives designated as net investment hedging instruments on other comprehensive income was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Change in Losses Recognized in Accumulated Other Comprehensive Income on Derivatives Before Tax Effect |
|
Derivatives Designated as Net Investment Hedging Instruments
|
|
Quarter
Ended
June 30, 2011 |
|
Six Months
Ended
June 30, 2011 |
|
Forward foreign currency exchange contracts |
|
$ |
(152 |
) |
$ |
(32 |
) |
The
effect of derivative instruments not designated as hedging instruments on income was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Losses Recognized in Income on Derivatives |
|
Derivatives Not Designated as Hedging Instruments
|
|
Location |
|
Quarter
Ended
June 30, 2011 |
|
Six Months
Ended
June 30, 2011 |
|
Forward foreign currency exchange contracts |
|
Other income (expense), net |
|
$ |
(111 |
) |
$ |
(111 |
) |
7. FAIR VALUE MEASUREMENTS
The following table presents information about assets and liabilities at June 30, 2011 that are required to be measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Total
Fair Value |
|
Level 1
Fair Value |
|
Level 2
Fair Value |
|
Money market funds |
|
$ |
82,086 |
|
$ |
82,086 |
|
$ |
|
|
Derivative assets |
|
|
28 |
|
|
|
|
|
28 |
|
Derivative liabilities |
|
|
(91 |
) |
|
|
|
|
(91 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
82,023 |
|
$ |
82,086 |
|
$ |
(63 |
) |
|
|
|
|
|
|
|
|
The
following table presents information about assets at December 31, 2010 that are required to be measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
Description
|
|
Total
Fair Value |
|
Level 1
Fair Value |
|
Money market funds |
|
$ |
67,150 |
|
$ |
67,150 |
|
The
Company estimated the fair value of its long-term debt using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for
duration and risk profile. In determining the market interest yield curve, the Company considered, among other factors, its estimate of its credit rating. The Company estimated its credit rating as
BB+/BB- for the long-term debt associated with the Credit Agreement, resulting in a discount rate of 6%. The table below summarizes
19
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. FAIR VALUE MEASUREMENTS (Continued)
the
fair value estimates for long-term debt, net of discounts, including the current portion, at June 30, 2011, as defined by ASC 825, Disclosures about Fair
Value of Financial Instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
Carrying
Amount |
|
Estimated
Fair Value |
|
Long-term debt, net of discounts, including current portion |
|
$ |
262,227 |
|
$ |
270,104 |
|
8. STOCKHOLDERS' EQUITY
Common Stock Repurchases
United Online, Inc.'s Board of Directors authorized a common stock repurchase program (the "Program") that allows the Company to
repurchase shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors. From August 2001 through December 31,
2010, the Company had repurchased $150.2 million of its common stock under the Program, leaving $49.8 million of authorization remaining under the Program at December 31, 2010. In
February 2011, the Board of Directors extended the Program through December 31, 2011 and increased the amount authorized to $80.0 million. There were no repurchases under the Program in
the six months ended June 30, 2011.
Shares
withheld upon the vesting of restricted stock units and upon the issuance of stock awards to pay applicable required employee withholding taxes are considered common stock
repurchases, but are not counted as purchases against the Program. Upon vesting of restricted stock units or issuance of stock awards, the Company currently does not collect the applicable required
employee withholding taxes
from employees. Instead, the Company automatically withholds, from the restricted stock units that vest, and from the stock awards that are issued, the portion of those shares with a fair market value
equal to the amount of the required employee withholding taxes due, which is accounted for as a repurchase of common stock. The Company then pays the applicable withholding taxes in cash. The amounts
remitted in the six months ended June 30, 2011 and 2010 were $6.3 million and $6.7 million, respectively, for which the Company withheld 0.9 million and 1.1 million
shares of common stock, respectively, that were underlying the restricted stock units which vested and stock awards that were issued. For information regarding the common stock repurchases consummated
during the quarter ended June 30, 2011, see "Item 2. Unregistered Sales of Equity Securities and Use of Proceeds," which appears elsewhere in this Quarterly Report on
Form 10-Q.
Dividends
Dividends are paid on shares of common stock outstanding as of the record date. In addition, dividend equivalents are generally paid on
nonvested restricted stock units as of the record date.
In
January and April 2011, the Board of Directors declared quarterly cash dividends of $0.10 per share of common stock. The dividends were paid on February 28, 2011 and
May 31, 2011 and totaled $9.4 million and $9.3 million respectively, including dividend equivalents paid on nonvested restricted stock units.
In
July 2011, the Board of Directors declared a quarterly cash dividend of $0.10 per share of common stock. The record date for the dividend is August 12, 2011 and the dividend
will be paid on August 31, 2011.
20
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. STOCKHOLDERS' EQUITY (Continued)
The
payment of future dividends is discretionary and is subject to determination by United Online, Inc.'s Board of Directors each quarter following its review of the Company's
financial performance and other factors. Dividends that are declared by the Board of Directors are currently paid out of the Company's surplus, as defined and computed in accordance with the General
Corporation Law of the State of Delaware.
9. STOCK-BASED COMPENSATION PLANS
Stock-Based Compensation
The following table summarizes the stock-based compensation that has been included in the following captions within the unaudited
condensed consolidated statements of operations for each of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues-products |
|
$ |
13 |
|
$ |
11 |
|
$ |
21 |
|
$ |
30 |
|
Cost of revenues-services |
|
|
100 |
|
|
133 |
|
|
182 |
|
|
314 |
|
Sales and marketing |
|
|
637 |
|
|
986 |
|
|
1,107 |
|
|
2,203 |
|
Technology and development |
|
|
577 |
|
|
855 |
|
|
1,130 |
|
|
1,828 |
|
General and administrative |
|
|
3,168 |
|
|
4,376 |
|
|
6,781 |
|
|
9,846 |
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation |
|
$ |
4,495 |
|
$ |
6,361 |
|
$ |
9,221 |
|
$ |
14,221 |
|
|
|
|
|
|
|
|
|
|
|
Recent Awards
Effective February 15, 2011, the Secondary Compensation Committee of the Board of Directors of United Online, Inc.
approved grants of 1.3 million restricted stock units with a grant-date fair value equal to $9.3 million to certain of the Company's non-executive officer
employees. The restricted stock units will vest as to twenty-five percent of the total number of units awarded annually over a four-year period beginning February 15,
2011.
Effective
February 15, 2011, the Compensation Committee of the Board of Directors of United Online, Inc. approved grants of 2.4 million stock options with a
grant-date fair value equal to $4.7 million to certain members of the Company's senior management. Each stock option entitles the recipient to receive one share of United
Online, Inc.'s common stock upon exercise of the vested award. The stock options will vest as to one-third of the total number of options awarded annually over a
three-year period beginning February 15, 2011.
21
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income per common share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,768 |
|
$ |
13,957 |
|
$ |
26,949 |
|
$ |
25,178 |
|
|
Income allocated to participating securities |
|
|
(577 |
) |
|
(859 |
) |
|
(1,142 |
) |
|
(1,590 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
14,191 |
|
$ |
13,098 |
|
$ |
25,807 |
|
$ |
23,588 |
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to calculate basic net income per common share |
|
|
88,507 |
|
|
87,021 |
|
|
87,965 |
|
|
86,393 |
|
|
|
|
|
|
|
|
|
|
|
|
Add: Dilutive effect of non-participating securities |
|
|
118 |
|
|
761 |
|
|
260 |
|
|
774 |
|
|
|
|
|
|
|
|
|
|
|
Shares used to calculate diluted net income per common share |
|
|
88,625 |
|
|
87,782 |
|
|
88,225 |
|
|
87,167 |
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
|
$ |
0.16 |
|
$ |
0.15 |
|
$ |
0.29 |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share |
|
$ |
0.16 |
|
$ |
0.15 |
|
$ |
0.29 |
|
$ |
0.27 |
|
|
|
|
|
|
|
|
|
|
|
The
diluted net income per common share computations exclude restricted stock units and stock options that were antidilutive. Weighted-average antidilutive shares for the quarter and six
months ended June 30, 2011 were 4.7 million and 3.9 million, respectively. Weighted-average antidilutive shares for the quarter and six months ended June 30, 2010 were
2.0 million and 2.4 million, respectively.
11. RESTRUCTURING CHARGES
For the quarter and six months ended June 30, 2011, the Company recorded restructuring charges
related to its Communications segment totaling $0.1 million and $0.7 million, respectively, related to employee termination benefits. For the quarter and six months ended June 30,
2010, the Company recorded a restructuring benefit of $0.1 million and restructuring charges of $1.0 million, respectively, primarily related to the closure of certain FTD call center
facilities in the United States and the United Kingdom, which included lease termination costs and employee termination benefits.
12. LEGAL CONTINGENCIES
In April 2001 and in May 2001, lawsuits were filed in the United States District Court for the Southern District of New York against NetZero, Inc. ("NetZero"), certain officers
and directors of NetZero and the underwriters of NetZero's initial public offering, Goldman Sachs Group, Inc., BancBoston Robertson Stephens, Inc. and Salomon Smith Barney, Inc. A
consolidated amended complaint was filed in April 2002. The complaint alleges that the prospectus through which NetZero conducted its initial public offering in September 1999 was materially false and
misleading because it failed to disclose, among other things, that (i) the underwriters had solicited and received excessive and undisclosed commissions from certain investors in exchange for
which the underwriters allocated to those investors material portions of the restricted number of NetZero shares issued in connection with the offering; and (ii) the underwriters had entered
into agreements with customers whereby the underwriters agreed to allocate NetZero shares to those customers in the offering in exchange for
22
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. LEGAL CONTINGENCIES (Continued)
which
the customers agreed to purchase additional NetZero shares in the aftermarket at pre-determined prices. Plaintiffs are seeking injunctive relief and damages. The case against NetZero
was coordinated with approximately 300 other suits filed against more than 300 issuers that conducted their initial public offerings between 1998 and 2000, their underwriters and an unspecified number
of their individual corporate officers and directors. The parties in the approximately 300 coordinated class actions, including NetZero, the underwriter defendants in the NetZero class action, and the
plaintiff class in the NetZero action, have reached an agreement in principle under which the insurers for the issuer defendants in the coordinated cases will make a settlement payment on behalf of
the issuers, including NetZero. On October 5, 2009, the district court issued an order granting final approval of the settlement and certifying the settlement class. Two individuals have
appealed the October 5, 2009 order and plaintiffs have filed a motion to dismiss the appeals. The appellate court has not ruled on either the appeals or the motions to dismiss.
On
October 30, 2008, Anthony Michaels filed a purported class action complaint against Classmates Online, Inc., now known as Memory Lane, Inc., Classmates Media
Corporation and United Online, Inc. in Superior Court of the State of California, County of Los Angeles, alleging causes of action for intentional misrepresentation, negligent
misrepresentation, negligence, fraudulent concealment, and for violations of California Business and Professions Code sections 17200 and 17500 et seq. On December 19, 2008, Xavier
Vasquez filed a purported class action complaint against Classmates Online, Inc., Classmates Media Corporation and United Online, Inc. in Superior Court of Washington, Kings County,
alleging causes of action for violation of the Washington Consumer Protection Act, violation of California's Unfair Competition Law, violation of California's Consumer Legal Remedies Act, unjust
enrichment and violation of California Civil Code section 1694, dealing with dating services contracts. In both actions, the plaintiffs are seeking injunctive relief and damages. On
April 30, 2009, the United States District Court of the Western District of Washington consolidated the Michaels and the Vasquez actions and designated the Michaels action as the lead case. On
March 12, 2010, the parties entered into a comprehensive class action settlement agreement. On December 16, 2010, the court conducted a final approval hearing on the settlement. On
February 22, 2011, the court issued an order formally denying final approval of the settlement. On March 24, 2011, the parties entered into a revised settlement agreement, and on
March 25, 2011, plaintiffs filed a motion for preliminary approval of the revised settlement. On July 8, 2011, the court issued an order granting preliminary approval of the revised
settlement agreement, establishing a schedule for providing notice to class members and setting December 15, 2011 as the date for the hearing to determine the final approval of the settlement.
On July 27, 2011, the court entered an order approving a revised individual notice to the settlement class and, thereafter, the parties entered into a revised settlement agreement effective as
of August 1, 2011 that included the revised notice and minor court-approved changes.
The
Company has been cooperating with certain governmental authorities in connection with their respective investigations of the Company's former post-transaction sales
practices and certain other current or former business practices:
-
- In 2010, FTD.com Inc. and Classmates Online, Inc. received subpoenas from the Attorney General for the State
of Kansas and the Attorney General for the State of Maryland, respectively. These subpoenas were issued on behalf of a Multistate Work Group that consists of the Attorneys General for the following
states: Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, New Mexico, New Jersey, North Dakota, Ohio, Oregon,
23
Table of Contents
UNITED ONLINE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. LEGAL CONTINGENCIES (Continued)
Pennsylvania,
South Dakota, Texas, and Vermont. Based on the subpoenas, the Company believes that the primary focus of the inquiry concerns certain post-transaction sales practices in
which these subsidiaries previously engaged with certain third-party vendors.
-
- In 2010, Classmates Online, Inc. received a subpoena from the Attorney General for the District of Columbia
regarding the subsidiary's marketing, billing, and renewal practices, including, without limitation, its former post-transaction sales practices.
-
- In July 2011, United Online, Inc. received a civil investigative demand from the Federal Trade Commission regarding
certain post-transaction sales practices in which the Company previously engaged with a certain third-party vendor.
-
- In July 2011, Classmates Online, Inc. received a civil investigative demand from the Attorney General for the State
of Washington regarding its marketing, refund, cancelation and renewal practices. In 2009, Classmates Online, Inc. had received a civil investigative demand from the Attorney General for the
State of Washington regarding certain post-transaction sales practices in which it had previously engaged with certain third-party vendors.
The
Company cannot predict the outcome of these or any other governmental investigations or other legal actions or their potential implications for its business. There are no assurances
that additional governmental investigations or other legal actions will not be instituted in connection with the Company's former post-transaction sales practices or other current or
former business practices.
The
Company is subject to various legal proceedings, investigations, claims, and litigation that can involve complex questions of fact and law and may require the expenditure of
significant funds and the diversion of other resources to defend. There can be no assurance that such legal proceedings, investigations, claims, and litigation, which are inherently uncertain, will
not materially and adversely affect the Company's business, financial condition, results of operations, or cash flows. At June 30, 2011, the Company had a reserve of $4.4 million for a
pending legal settlement.
24
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference
contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates
and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Statements containing words such as "may," "believe," "anticipate," "expect,"
"intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions
constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements about future financial performance; revenues; segment metrics; operating expenses;
market trends, including those in the markets in which we compete; liquidity; cash flows and uses of cash; dividends; capital expenditures; depreciation and amortization; tax payments; foreign
currency exchange rates; hedging arrangements; our ability to repay indebtedness, pay dividends and invest in initiatives; our products and services; pricing; competition; strategies; and new business
initiatives, products, services, features, and functionality. Potential factors that could affect the matters about which the forward-looking statements are made include, among others, the factors
disclosed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and additional factors that accompany the related forward-looking statements in this Quarterly
Report on Form 10-Q and our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual
performance and results to differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required by law, we undertake no obligation
to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Overview
We are a leading provider of consumer products and services over the Internet through a number of brands including FTD, Interflora,
Memory Lane, Classmates, MyPoints, and NetZero. Our FTD segment provides floral and related products and services to consumers and retail florists, as well as to other retail locations offering floral
and related products and services. Our Content & Media segment services are online nostalgia services and online loyalty marketing. Our primary Communications segment service is Internet
access. On a combined basis, our web properties attract a significant number of Internet users, and we offer a broad range of Internet marketing services for advertisers.
Segment Definitions
We report our businesses in three reportable segments:
|
|
|
Segment
|
|
Products and Services |
FTD |
|
Floral and related products and services for consumers, retail florists and other retail locations |
Content & Media |
|
Online nostalgia services and online loyalty marketing services |
Communications |
|
Internet access, email, Internet security, and web hosting services |
25
Table of Contents
Segment Services
FTD
FTD Group, Inc. (together with its subsidiaries, "FTD") is a leading provider of floral and related products and services to
consumers and retail florists, as well as to other retail locations offering floral and related products and services, in the United States ("U.S."), Canada, the United Kingdom ("U.K."), and the
Republic of Ireland. The business uses the highly recognized FTD and Interflora brands, both supported by the Mercury Man logo. FTD is a floral mass marketer, which we refer to as FTD's consumer
business, and a provider of floral network services, which we refer to as FTD's floral network business. These businesses are complementary, as the majority of floral orders generated by the consumer
business are fulfilled and hand-delivered by the
members of the FTD floral network, with the remaining orders delivered via direct shipment. FTD does not own or operate any retail locations.
Consumer Business. FTD is a leading marketer of flowers and gift items to consumers. FTD operates in the U.S. and Canada, primarily
through the www.ftd.com website and 1-800-SEND-FTD telephone number, and in the U.K. and the Republic of Ireland through the www.interflora.co.uk and
www.interflora.ie websites and various telephone numbers. FTD also operates
mobile websites that are optimized for mobile phones with Internet connections. While floral arrangements and plants are FTD's primary offerings, FTD also markets and sells gift items including:
special occasion gifts, bath and beauty products, jewelry, wine, fruit and other gift baskets, chocolates, and stuffed animals.
Floral Network Business. FTD provides a comprehensive suite of products and services that promote revenue growth and enhance the
operating
efficiencies of its floral network members, including services that enable such members to receive, send and deliver floral orders. Floral network members include traditional retail florists, as well
as other retailers offering floral and related products and services, that are located primarily in the U.S., Canada, the U.K., and the Republic of Ireland. The large networks of floral network
members provide an order fulfillment vehicle for our consumer business and allows FTD to offer same-day delivery capability (subject to certain limitations) to populations throughout the
U.S., Canada, the U.K., and the Republic of Ireland.
Content & Media
Our Content & Media services include online nostalgia services under the Memory Lane, Classmates, StayFriends, and Trombi
brands. Our Content & Media services also include online loyalty marketing under the MyPoints brand.
Online Nostalgia Services. Our nostalgia services are led by our Memory Lane website, which includes our Classmates service and serves
the U.S. and
Canada. We have historically operated our nostalgia services as a platform to enable users to locate and interact with acquaintances from their past, with high school affiliations as the primary
focus. Our Memory Lane website now also features nostalgic content including digitized versions of high school yearbooks, photographic images, vintage music samples, iconic magazines, and video
content such as historic newsreels, classic movie trailers, sports clips, and television commercials. Visitors to the website can engage with a significantly broader range of available content than
before, and members can further engage in new forms of social interaction,
such as sharing memorable content with friends and acquaintances or posting comments on the website after viewing the nostalgic content.
In
addition to our Memory Lane website, we operate five international websites that offer nostalgia services, primarily as a social networking platform to reconnect friends and
acquaintances from high school. We operate StayFriends in Sweden, Germany, Austria, and Switzerland (www.stayfriends.se, www.stayfriends.de,
www.stayfriends.at, and www.stayfriends.ch, respectively), and Trombi in France
(www.trombi.com). Similar to the Memory Lane website, each international website
26
Table of Contents
includes
free and pay memberships, although the features of our international pay services differ from those of the Memory Lane pay services.
Online Loyalty Marketing. MyPoints connects advertisers with its members by allowing members to earn rewards points for engaging in
online
activities. MyPoints is a free service for consumers who need only provide their name, zip code, gender, date of birth, and an email address to register. Members register to receive direct email
marketing and other online loyalty promotions, and earn points for responding to email offers, taking market research companies' surveys, shopping online at the MyPoints website (www.mypoints.com) which
serves as a shopping portal, searching the Internet through a MyPoints branded toolbar, playing MyPoints branded online games,
and engaging in other online activities. Rewards points are redeemable primarily in the form of third-party gift cards from over 75 merchants, including, among others, retailers, theaters,
restaurants, airlines, and hotels.
Communications
Our principal Communications pay service is dial-up Internet access, offered under the NetZero and Juno brands. We also
offer broadband services, email, Internet security services, and web hosting services. Most of our Communications revenues are derived from dial-up Internet access pay accounts.
Internet Access Services. Our Internet access services consist of dial-up and, to a much lesser extent, broadband services. Our
dial-up Internet access services are provided on both a free and pay basis, with the free services subject to hourly and other limitations. Basic pay dial-up Internet access
services include Internet access and an email account, although we also offer an enhanced email service as a stand-alone pay service. In addition, we offer accelerated
dial-up Internet access services which can significantly reduce the time for certain web pages to download when compared to our basic dial-up Internet access services. Our
accelerated dial-up Internet access services are also bundled with additional benefits including pop-up blocking, antivirus software and enhanced email storage. Our
dial-up Internet access services are available in more than 12,000 cities across the U.S. and Canada.
Our
broadband Internet access services consist of digital subscriber lines (also known as "DSL") services that we purchase from third parties and resell under our own
brands. These services are primarily used as a means to retain users who are leaving our dial-up Internet access services and we have conducted very limited marketing of our broadband
Internet access services to the general public.
Key Business Metrics
We review a number of key business metrics to help us monitor our performance and trends affecting our businesses, and to develop
forecasts and budgets. These key measures are:
FTD Segment Metrics
Consumer Orders. We monitor the number of consumer orders for floral and gift products during a given period. Consumer orders are
orders delivered
during the period that originated in the U.S. and Canada, primarily from the www.ftd.com website and the 1-800-SEND-FTD telephone number, and in the U.K. and the
Republic of Ireland, primarily from the www.interflora.co.uk and www.interflora.ie websites and various telephone numbers. The number of consumer orders is not adjusted for non-delivered
orders that are refunded after the scheduled delivery. Orders originating with a florist or other retail location for delivery to consumers are not included. The number of consumer orders received may
fluctuate significantly from period to period due to seasonality resulting from the timing of key holidays; general economic conditions; fluctuations in marketing expenditures on initiatives designed
to attract new and retain existing customers; changes in pricing for our floral, plant and gift products or competitive offerings; new or terminated partnerships; and changing consumer preferences,
among other factors.
27
Table of Contents
Average Order Value. We monitor the average value for consumer orders delivered in a given period, which we refer to as the average
order value.
Average order value represents the average U.S. Dollar amount received for consumer orders delivered during a period. This average U.S. Dollar amount is determined after translating local currency
amounts received for orders delivered principally in the U.K. and the Republic of Ireland into U.S. Dollars. Average order value includes merchandise revenue and shipping and service fees paid by the
consumer, less discounts and refunds. Average order values may fluctuate from period to period based on the average foreign currency exchange rates; product mix; changes in merchandise pricing,
shipping and service fees; levels of refunds issued; and discounts, among other factors.
Content & Media and Communications Segment Metrics
Pay Accounts. We generate a significant portion of our revenues from our pay accounts and they represent one of the most important
drivers of our
business model. A pay account is defined as a member who has paid for a subscription to a Content & Media or Communications service, and whose subscription has not terminated or expired. A
subscription provides the member with access to our service for a specific term (for example, a month or a year) and may be renewed upon the expiration of each term. One-time purchases of
our services, such as Memory Lane's one-day All-Access Pass, are not considered subscriptions and thus, are not included in the pay accounts metric. A pay account does not
equate to a unique subscriber since one subscriber could have several pay accounts. At any point in time, our pay account base includes a number of accounts receiving a free period of service as
either a promotion or retention tool and a number of accounts that have notified us that they are terminating their service but whose service remains in effect. In general, the key metrics that affect
our revenues from our pay accounts base include the number of pay accounts and the average monthly revenue per pay account ("ARPU"). A pay account generally becomes a free account following the
expiration or termination of the related subscription.
ARPU. We monitor ARPU, which is a monthly measure calculated by dividing services revenues
generated from the pay accounts of our Content & Media or Communications segment, as applicable, for a period (after translation into U.S. Dollars) by the average number of segment pay accounts
for that period, divided by the number of months in that period. The average number of pay accounts is the simple average of the number of pay accounts at the beginning and end of a period. ARPU may
fluctuate significantly from period to period as a result of a variety of factors, including, but not limited to, the extent to which promotional, discounted or retention pricing is used to attract
new, or retain existing, paying subscribers; changes in the mix of pay services and the related pricing plans; increases or decreases in the price of our services; the timing of pay accounts being
added or removed during a period; and the average foreign currency exchange rate between the U.S. Dollar and the Euro.
Churn. To evaluate the retention characteristics of our membership base, we also monitor the percentage of pay accounts that terminate
or expire,
which we refer to as our average monthly churn rate. Our average monthly churn rate is calculated as the total number of pay accounts that terminated or expired in a period divided by the average
number of pay accounts for that period, divided by the number of months in that period. Our average monthly churn percentage may fluctuate from period to period due to our mix of subscription terms,
which affects the timing of subscription expirations, and other factors. We make certain normalizing adjustments to the calculation of our churn percentage for periods in which we add a significant
number of pay accounts due to acquisitions. For our Communications segment pay accounts, we do not include in our churn calculation those accounts canceled during the first 30 days of service
unless the accounts have upgraded from free accounts, although a number of such accounts will be included in our account totals at any given measurement date. Subscribers who cancel one pay service
but subscribe to another pay service are not necessarily considered to have canceled a pay account depending on the services and, as such, our segment churn rates are not necessarily indicative of the
percentage of subscribers canceling any particular service.
28
Table of Contents
Active Accounts. We monitor the number of active accounts among our membership base. Content & Media segment active accounts
are defined as
the sum of all pay accounts as of the date presented; the monthly average for the period of all free accounts who have visited our domestic or international online nostalgia websites (excluding The
Names Database) at least once during the period; and the monthly average for the period of all online loyalty marketing members who have earned or redeemed points during such period. Communications
segment active accounts include all Communications segment pay accounts as of the date presented combined with the number of free Internet access and email accounts that logged on to our services at
least once during the preceding 31 days.
In
general, we count and track pay accounts and free accounts by unique member identifiers. Users have the ability to register for separate services under separate brands and member
identifiers independently. We do not track whether a pay account has purchased more than one of our services
unless the account uses the same member identifier. As a result, total active accounts may not represent total unique users.
The
table below sets forth, for the quarterly periods presented, as applicable, our consolidated revenues, segment revenues, consumer orders, average order value, average currency
exchange rate, pay accounts (at the end of the period), segment churn (monthly average for the period), ARPU (monthly average for the period), and segment active accounts (monthly average for the
period).
Revenues
and operating results from our FTD segment are impacted by seasonal holiday timing variations and fluctuations in foreign currency exchange rates. As such, we believe that
comparisons of our FTD segment's revenues and operating results for any period with those of the immediately preceding period or, in some instances, the same period of the preceding fiscal year, may
be of limited relevance in evaluating its historical financial performance and predicting its future financial performance.
The
pay accounts and ARPU metrics for our Content & Media segment may fluctuate significantly from period to period due to various factors including, but not limited to, the
extent to which discounted pricing is offered in prior and current periods, the percentage of pay accounts being represented by international pay accounts which, on average, have lower-priced
subscription plans compared to U.S. pay accounts, and the churn rate.
29
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
June 30,
2011 |
|
March 31,
2011 |
|
December 31,
2010 |
|
September 30,
2010 |
|
June 30,
2010 |
|
Consolidated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (in thousands) |
|
$ |
255,565 |
|
$ |
241,505 |
|
$ |
232,601 |
|
$ |
193,541 |
|
$ |
242,686 |
|
FTD: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues (in thousands) |
|
$ |
176,299 |
|
$ |
158,899 |
|
$ |
140,174 |
|
$ |
105,046 |
|
$ |
152,669 |
|
|
|
% of consolidated revenues |
|
|
69 |
% |
|
66 |
% |
|
60 |
% |
|
54 |
% |
|
63 |
% |
|
Consumer orders (in thousands) |
|
|
2,167 |
|
|
1,742 |
|
|
1,612 |
|
|
1,085 |
|
|
1,851 |
|
|
Average order value |
|
$ |
60.45 |
|
$ |
63.28 |
|
$ |
60.43 |
|
$ |
60.77 |
|
$ |
58.76 |
|
|
Average currency exchange rate: GBP to USD |
|
|
1.63 |
|
|
1.61 |
|
|
1.58 |
|
|
1.55 |
|
|
1.49 |
|
Content & Media: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues (in thousands) |
|
$ |
47,427 |
|
$ |
48,313 |
|
$ |
53,253 |
|
$ |
49,105 |
|
$ |
48,784 |
|
|
|
% of consolidated revenues |
|
|
19 |
% |
|
20 |
% |
|
23 |
% |
|
25 |
% |
|
20 |
% |
|
Pay accounts (in thousands) |
|
|
4,007 |
|
|
4,260 |
|
|
4,499 |
|
|
4,795 |
|
|
4,982 |
|
|
Segment churn |
|
|
3.8 |
% |
|
3.9 |
% |
|
4.1 |
% |
|
3.5 |
% |
|
3.1 |
% |
|
ARPU |
|
$ |
2.60 |
|
$ |
2.47 |
|
$ |
2.42 |
|
$ |
2.26 |
|
$ |
2.22 |
|
|
Segment active accounts (in millions) |
|
|
12.5 |
|
|
13.6 |
|
|
13.7 |
|
|
15.0 |
|
|
16.1 |
|
Communications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues (in thousands) |
|
$ |
32,279 |
|
$ |
34,698 |
|
$ |
39,708 |
|
$ |
40,165 |
|
$ |
42,039 |
|
|
|
% of consolidated revenues |
|
|
13 |
% |
|
14 |
% |
|
17 |
% |
|
21 |
% |
|
17 |
% |
|
Pay accounts (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Access |
|
|
622 |
|
|
675 |
|
|
732 |
|
|
801 |
|
|
880 |
|
|
|
Other |
|
|
272 |
|
|
279 |
|
|
288 |
|
|
295 |
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pay accounts |
|
|
894 |
|
|
954 |
|
|
1,020 |
|
|
1,096 |
|
|
1,180 |
|
|
Segment churn |
|
|
3.5 |
% |
|
3.8 |
% |
|
3.8 |
% |
|
4.0 |
% |
|
4.2 |
% |
|
ARPU |
|
$ |
9.28 |
|
$ |
9.33 |
|
$ |
9.46 |
|
$ |
9.58 |
|
$ |
9.57 |
|
|
Segment active accounts (in millions) |
|
|
1.7 |
|
|
1.7 |
|
|
1.8 |
|
|
1.9 |
|
|
2.0 |
|
Financial Statement Presentation
Revenues
Products Revenues
Products revenues consist of merchandise revenue and related shipping and service fees, less discounts and refunds, for FTD consumer
orders as well as revenues generated from sales of containers, software and hardware systems, cut flowers, packaging and promotional products, and a wide variety of other floral-related supplies to
floral network members. We do not generate products revenues from our Communications segment and we did not generate products revenues from our Content & Media segment through June 30,
2010.
Services Revenues
FTD services revenues consist of fees charged to its floral network members for access to the FTD and Interflora brands and the Mercury
Man logo, access to the floral networks, credit card processing services, e-commerce website services, online advertising tools, and telephone answering, order taking, order transmission,
and clearing-house services.
30
Table of Contents
Content & Media services revenues consist of amounts charged to pay accounts for online nostalgia services. Communications
services revenues consist of amounts charged to pay accounts for Internet access, email, web hosting, Internet security, and other services, with substantially all of such revenues associated with
Internet access. Our Content & Media and
Communications services revenues are primarily dependent on two factors: the average number of pay accounts for a period and the ARPU. In general, we charge our pay accounts in advance of providing a
service, which results in the deferral of services revenue to the period in which the services are provided. Communications services revenues also include revenues generated from the resale of
telecommunications to third parties.
Advertising Revenues
We provide advertising opportunities to marketers with both brand and direct response objectives through a full suite of display,
search, email, and text-link opportunities across our various properties. We also offer targeting technologies, website sponsorships and website integrations.
FTD has historically generated advertising revenues primarily from post-transaction sales generated when FTD and Interflora
consumers were presented with third-party offers immediately after completing a purchase on the www.ftd.com and www.interflora.co.uk websites. FTD has not
had a domestic post-transaction sales agreement since January 2010 and terminated its U.K.
post-transaction sales agreement in January 2011.
Our online nostalgia services generate advertising revenues primarily from display advertisements. Advertising inventory on our online
nostalgia websites includes text and graphic placements on the user home page, profile page, class list page, and most other pages on our websites.
Our
online loyalty marketing service revenues are derived from advertising fees, consisting primarily of fees based on performance measures, that are generated when emails are
transmitted to members, when members respond to emails, when members complete online transactions, and when members engage in a variety of other online activities including, but not limited to, games,
Internet searches and market research surveys.
Our Communications services generate advertising revenues from search placements, display advertisements and online market research
associated with our Internet access and email services. Advertising revenues also include intercompany commissions from our Content & Media segment which are included in reported segment
results and are eliminated upon consolidation.
Cost of Revenues
FTD
FTD cost of revenues includes product costs; shipping and delivery costs; costs associated with taking orders; printing and postage
costs; costs related to FTD's product quality guarantee; systems installation, training and support costs; data center costs; depreciation of network computers and equipment; license fees; costs
related to customer billing and billing support for floral network members; fees associated with the storage and processing of customer credit cards and associated bank fees; and domain name
registration fees.
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Table of Contents
Content & Media
Content & Media cost of revenues includes costs of points earned by members of our online loyalty marketing service; data center
costs; personnel- and overhead-related costs associated with operating our networks and data centers; depreciation of network computers and
equipment; amortization of content purchases; license fees; costs related to providing customer support; costs related to customer billing and billing support for our pay accounts; fees associated
with the storage and processing of customer credit cards and associated bank fees; and domain name registration fees.
Communications
Communications cost of revenues includes telecommunications and data center costs; personnel- and overhead-related costs associated
with operating our networks and data centers; depreciation of network computers and equipment; license fees; costs related to providing customer support; costs related to customer billing and billing
support for our pay accounts; fees associated with the storage and processing of customer credit cards and associated bank fees; and domain name registration fees.
Sales and Marketing
Sales and marketing expenses include expenses associated with promoting our brands, products and services and with generating
advertising revenues. Expenses associated with promoting our brands, products and services include advertising and promotion expenses; fees paid to distribution partners, third-party advertising
networks and co-registration partners to acquire new pay and free accounts; personnel and overhead-related expenses for marketing, merchandising, customer service, and sales personnel; and
telemarketing costs incurred to acquire and retain pay accounts and up-sell pay accounts to additional services. Expenses associated with generating advertising revenues include sales
commissions and personnel-related expenses. We have expended significant amounts on sales and marketing, including branding and customer acquisition campaigns consisting of television, Internet,
sponsorships, print, and outdoor advertising, and on retail and other performance-based distribution relationships. Marketing and advertising costs to promote our products and services are expensed in
the period incurred. Advertising and promotion expenses include media, agency and promotion expenses. Media production costs are expensed the first time the advertisement is run. Media and agency
costs are expensed over the period the advertising runs.
Technology and Development
Technology and development expenses include expenses for product development, maintenance of existing software, technology and
websites, and development of new or improved software and technology, including personnel-related expenses for our technology group in
various office locations. Costs incurred by us to manage and monitor our technology and development activities are expensed as incurred. Costs relating to the acquisition and development of
internal-use software are capitalized when appropriate and depreciated over their estimated useful lives, generally three to five years.
General and Administrative
General and administrative expenses, which include unallocated corporate expenses, consist of personnel-related expenses for executive,
finance, legal, human resources, facilities, internal audit, investor relations, internal customer support personnel and personnel associated with operating our corporate network systems. In addition,
general and administrative expenses include, among other costs, professional fees for legal, accounting and financial services; insurance; occupancy and other overhead-related costs; office relocation
costs; non-income taxes; gains and losses on the sale of assets; and expenses incurred as a result of settlements, judgments, fines, penalties, assessment, or other resolutions related to
litigation, arbitration, investigations, disputes, or similar matters, or reserves for
32
Table of Contents
any
of the foregoing. General and administrative expenses also include expenses resulting from actual or potential transactions such as business combinations, mergers, acquisitions, and financing
transactions, including expenses for advisors and representatives such as investment bankers, consultants, attorneys, and accounting firms.
Amortization of Intangible Assets
Amortization of intangible assets principally includes amortization of: acquired pay accounts and free accounts; certain acquired
trademarks and trade names; purchased software and technology; acquired customer and advertising contracts and related relationships; acquired rights, content and intellectual property; and other
acquired identifiable intangible assets. In accordance with the provisions set forth in Accounting Standards Codification ("ASC") 350, IntangiblesGoodwill and
Other, goodwill and indefinite-lived intangible assets are not being amortized but are tested for impairment at a reporting unit level on an annual basis and between annual
tests if an event occurs or circumstances change that would indicate the fair value of a reporting unit is below its carrying value.
Restructuring Charges
Restructuring charges consist of costs associated with the realignment and reorganization of our operations and generally include
severance expenses and facility closure and relocation costs.
Interest Income
Interest income consists primarily of earnings on our cash, cash equivalents and short-term investments held from time to
time, and interest on long-term receivables from FTD's technology system sales.
Interest Expense
Interest expense consists of interest expense on our credit facilities, including accretion of discounts and amortization of debt issue
costs, loss on extinguishment of debt and interest expense relating to capital leases and our interest rate cap.
Other Income (Expense), Net
Other income (expense), net, generally consists of realized gains and losses recognized in connection with the sale of
short-term investments, equity earnings on investments in subsidiaries, and gains and losses on foreign currency exchange rate transactions. Additionally, other income (expense), net,
consists of realized and unrealized gains and losses on foreign currency forward contracts and other non-operating income and expenses.
Results of Operations
The following tables set forth, for the periods presented, selected historical statements of operations data. The information contained
in the tables below should be read in conjunction with Liquidity and Capital Resources, Contractual Obligations, and Other Commitments included in this Item 2 as well as "Quantitative and
Qualitative Disclosures About Market Risk" included in Part I, Item 3 of this Quarterly Report on Form 10-Q, and the unaudited condensed consolidated financial
statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
33
Table of Contents
Unaudited
condensed consolidated financial information was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Revenues |
|
$ |
255,565 |
|
$ |
242,686 |
|
$ |
497,070 |
|
$ |
494,411 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
131,942 |
|
|
114,895 |
|
|
252,768 |
|
|
236,093 |
|
|
Sales and marketing |
|
|
48,811 |
|
|
49,013 |
|
|
96,946 |
|
|
99,143 |
|
|
Technology and development |
|
|
13,243 |
|
|
13,646 |
|
|
26,018 |
|
|
27,995 |
|
|
General and administrative |
|
|
26,039 |
|
|
27,259 |
|
|
54,913 |
|
|
58,243 |
|
|
Amortization of intangible assets |
|
|
7,598 |
|
|
8,115 |
|
|
15,343 |
|
|
16,278 |
|
|
Restructuring charges |
|
|
143 |
|
|
(78 |
) |
|
677 |
|
|
991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
227,776 |
|
|
212,850 |
|
|
446,665 |
|
|
438,743 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
27,789 |
|
|
29,836 |
|
|
50,405 |
|
|
55,668 |
|
Interest income |
|
|
283 |
|
|
412 |
|
|
832 |
|
|
877 |
|
Interest expense |
|
|
(10,776 |
) |
|
(6,314 |
) |
|
(15,817 |
) |
|
(13,463 |
) |
Other income, net |
|
|
166 |
|
|
53 |
|
|
1,705 |
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
17,462 |
|
|
23,987 |
|
|
37,125 |
|
|
43,217 |
|
Provision for income taxes |
|
|
2,694 |
|
|
10,030 |
|
|
10,176 |
|
|
18,039 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,768 |
|
$ |
13,957 |
|
$ |
26,949 |
|
$ |
25,178 |
|
|
|
|
|
|
|
|
|
|
|
Information
for our three reportable segments was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTD |
|
Content & Media |
|
Communications |
|
|
|
Quarter Ended
June 30, |
|
Quarter Ended
June 30, |
|
Quarter Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Revenues |
|
$ |
176,299 |
|
$ |
152,669 |
|
$ |
47,427 |
|
$ |
48,784 |
|
$ |
32,279 |
|
$ |
42,039 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
112,809 |
|
|
94,246 |
|
|
7,949 |
|
|
7,752 |
|
|
8,562 |
|
|
9,904 |
|
|
Sales and marketing |
|
|
27,885 |
|
|
28,091 |
|
|
18,323 |
|
|
15,501 |
|
|
2,551 |
|
|
5,759 |
|
|
Technology and development |
|
|
2,898 |
|
|
2,671 |
|
|
6,097 |
|
|
5,650 |
|
|
1,995 |
|
|
3,072 |
|
|
General and administrative |
|
|
8,025 |
|
|
8,080 |
|
|
5,850 |
|
|
6,849 |
|
|
3,163 |
|
|
4,202 |
|
|
Restructuring charges |
|
|
|
|
|
13 |
|
|
|
|
|
(91 |
) |
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
151,617 |
|
|
133,101 |
|
|
38,219 |
|
|
35,661 |
|
|
16,414 |
|
|
22,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
$ |
24,682 |
|
$ |
19,568 |
|
$ |
9,208 |
|
$ |
13,123 |
|
$ |
15,865 |
|
$ |
19,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTD |
|
Content & Media |
|
Communications |
|
|
|
Six Months Ended
June 30, |
|
Six Months Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Revenues |
|
$ |
335,198 |
|
$ |
309,356 |
|
$ |
95,740 |
|
$ |
99,286 |
|
$ |
66,977 |
|
$ |
87,280 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
213,179 |
|
|
193,859 |
|
|
16,755 |
|
|
16,041 |
|
|
17,734 |
|
|
20,549 |
|
|
Sales and marketing |
|
|
57,237 |
|
|
54,675 |
|
|
33,729 |
|
|
32,718 |
|
|
5,884 |
|
|
12,162 |
|
|
Technology and development |
|
|
5,787 |
|
|
5,897 |
|
|
11,922 |
|
|
11,138 |
|
|
3,838 |
|
|
6,418 |
|
|
General and administrative |
|
|
15,740 |
|
|
16,850 |
|
|
14,003 |
|
|
12,826 |
|
|
6,354 |
|
|
8,454 |
|
|
Restructuring charges |
|
|
|
|
|
1,082 |
|
|
|
|
|
(91 |
) |
|
677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
291,943 |
|
|
272,363 |
|
|
76,409 |
|
|
72,632 |
|
|
34,487 |
|
|
47,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
$ |
43,255 |
|
$ |
36,993 |
|
$ |
19,331 |
|
$ |
26,654 |
|
$ |
32,490 |
|
$ |
39,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of segment revenues to consolidated revenues was as follows for each period presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Segment revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTD |
|
$ |
176,299 |
|
$ |
152,669 |
|
$ |
335,198 |
|
$ |
309,356 |
|
|
Content & Media |
|
|
47,427 |
|
|
48,784 |
|
|
95,740 |
|
|
99,286 |
|
|
Communications |
|
|
32,279 |
|
|
42,039 |
|
|
66,977 |
|
|
87,280 |
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues |
|
|
256,005 |
|
|
243,492 |
|
|
497,915 |
|
|
495,922 |
|
|
Intersegment eliminations |
|
|
(440 |
) |
|
(806 |
) |
|
(845 |
) |
|
(1,511 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
255,565 |
|
$ |
242,686 |
|
$ |
497,070 |
|
$ |
494,411 |
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of segment operating expenses (which excludes depreciation and amortization of intangible assets) to consolidated operating expenses was as follows for each period
presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Segment operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTD |
|
$ |
151,617 |
|
$ |
133,101 |
|
$ |
291,943 |
|
$ |
272,363 |
|
|
Content & Media |
|
|
38,219 |
|
|
35,661 |
|
|
76,409 |
|
|
72,632 |
|
|
Communications |
|
|
16,414 |
|
|
22,937 |
|
|
34,487 |
|
|
47,583 |
|
|
|
|
|
|
|
|
|
|
|
Total segment operating expenses |
|
|
206,250 |
|
|
191,699 |
|
|
402,839 |
|
|
392,578 |
|
|
Depreciation |
|
|
6,409 |
|
|
6,897 |
|
|
12,554 |
|
|
13,564 |
|
|
Amortization of intangible assets |
|
|
7,869 |
|
|
8,118 |
|
|
15,776 |
|
|
16,281 |
|
|
Unallocated corporate expenses |
|
|
7,688 |
|
|
6,942 |
|
|
16,341 |
|
|
17,831 |
|
|
Intersegment eliminations |
|
|
(440 |
) |
|
(806 |
) |
|
(845 |
) |
|
(1,511 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated operating expenses |
|
$ |
227,776 |
|
$ |
212,850 |
|
$ |
446,665 |
|
$ |
438,743 |
|
|
|
|
|
|
|
|
|
|
|
35
Table of Contents
A reconciliation of segment income from operations (which excludes depreciation and amortization of intangible assets) to consolidated operating income was as
follows for each period presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Segment income from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTD |
|
$ |
24,682 |
|
$ |
19,568 |
|
$ |
43,255 |
|
$ |
36,993 |
|
|
Content & Media |
|
|
9,208 |
|
|
13,123 |
|
|
19,331 |
|
|
26,654 |
|
|
Communications |
|
|
15,865 |
|
|
19,102 |
|
|
32,490 |
|
|
39,697 |
|
|
|
|
|
|
|
|
|
|
|
Total segment income from operations |
|
|
49,755 |
|
|
51,793 |
|
|
95,076 |
|
|
103,344 |
|
|
Depreciation |
|
|
(6,409 |
) |
|
(6,897 |
) |
|
(12,554 |
) |
|
(13,564 |
) |
|
Amortization of intangible assets |
|
|
(7,869 |
) |
|
(8,118 |
) |
|
(15,776 |
) |
|
(16,281 |
) |
|
Unallocated corporate expenses |
|
|
(7,688 |
) |
|
(6,942 |
) |
|
(16,341 |
) |
|
(17,831 |
) |
|
|
|
|
|
|
|
|
|
|
Consolidated operating income |
|
$ |
27,789 |
|
$ |
29,836 |
|
$ |
50,405 |
|
$ |
55,668 |
|
|
|
|
|
|
|
|
|
|
|
Quarter and Six Months Ended June 30, 2011 compared to Quarter and Six Months Ended June 30, 2010
The following table presents our consolidated operating results as a percentage of consolidated revenues for the quarters and six
months ended June 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Revenues |
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
51.6 |
|
|
47.3 |
|
|
50.9 |
|
|
47.8 |
|
|
Sales and marketing |
|
|
19.1 |
|
|
20.2 |
|
|
19.5 |
|
|
20.1 |
|
|
Technology and development |
|
|
5.2 |
|
|
5.6 |
|
|
5.2 |
|
|
5.7 |
|
|
General and administrative |
|
|
10.2 |
|
|
11.2 |
|
|
11.0 |
|
|
11.8 |
|
|
Amortization of intangible assets |
|
|
3.0 |
|
|
3.3 |
|
|
3.1 |
|
|
3.3 |
|
|
Restructuring charges |
|
|
0.1 |
|
|
|
|
|
0.1 |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
89.1 |
|
|
87.7 |
|
|
89.9 |
|
|
88.7 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
10.9 |
|
|
12.3 |
|
|
10.1 |
|
|
11.3 |
|
Interest income |
|
|
0.1 |
|
|
0.2 |
|
|
0.2 |
|
|
0.2 |
|
Interest expense |
|
|
(4.2 |
) |
|
(2.6 |
) |
|
(3.2 |
) |
|
(2.7 |
) |
Other income, net |
|
|
0.1 |
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
6.8 |
|
|
9.9 |
|
|
7.5 |
|
|
8.7 |
|
Provision for income taxes |
|
|
1.1 |
|
|
4.1 |
|
|
2.0 |
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
5.8 |
% |
|
5.8 |
% |
|
5.4 |
% |
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
|
Consolidated Results
Revenues. Consolidated revenues increased by $12.9 million, or 5%, to $255.6 million for the quarter ended June 30, 2011,
compared to $242.7 million for the quarter ended June 30, 2010. The increase in consolidated revenues was due to a $23.6 million increase in revenues from our FTD segment,
partially offset by a $9.8 million decrease in revenues from our Communications segment and a $1.4 million decrease in revenues from our Content & Media segment. Consolidated
revenues related to our FTD, Content & Media and Communications segments constituted 68.9%, 18.5% and 12.6%,
36
Table of Contents
respectively,
of our total segment revenues for the quarter ended June 30, 2011, compared to 62.7%, 20.0% and 17.3%, respectively, for the quarter ended June 30, 2010.
Consolidated
revenues increased by $2.7 million, or 1%, to $497.1 million for the six months ended June 30, 2011, compared to $494.4 million for the quarter
ended June 30, 2010. The increase in consolidated revenues was due to a $25.8 million increase in revenues from our FTD segment, partially offset by a $20.3 million decrease in
revenues from our Communications segment and a $3.5 million decrease in revenues from our Content & Media segment. Consolidated revenues related to our FTD, Content & Media and
Communications segments constituted 67.3%, 19.2% and 13.5%, respectively, of our total segment revenues for the six months ended June 30, 2011, compared to 62.4%, 20.0% and 17.6%, respectively,
for the six months ended June 30, 2010.
Cost of Revenues. Consolidated cost of revenues increased by $17.0 million, or 15%, to $131.9 million for the quarter ended
June 30, 2011, compared to $114.9 million for the quarter ended June 30, 2010. Consolidated cost of revenues as a percentage of consolidated revenues increased to 51.6% for the
quarter ended June 30, 2011, compared to 47.3% for the prior-year period. The increase of $17.0 million was primarily due to an $18.6 million increase in cost of
revenues associated with our FTD segment and, to a lesser extent, a $0.2 million increase in cost of revenues associated with our Content & Media segment. The increase was partially
offset by a $1.3 million decrease in cost of revenues associated with our Communications segment and a $0.6 million decrease in depreciation expense. Segment cost of revenues related to
our FTD, Content & Media and Communications segments constituted 87.2%, 6.1% and 6.6%, respectively, of our total segment cost of revenues for the quarter ended June 30, 2011, compared
to 84.2%, 6.9% and 8.9%, respectively, for the quarter ended June 30, 2010.
Consolidated
cost of revenues increased by $16.7 million, or 7%, to $252.8 million for the six months ended June 30, 2011, compared to $236.1 million for the
six months ended June 30, 2010. Consolidated cost of revenues as a percentage of consolidated revenues increased to 50.9% for the six months ended June 30, 2011, compared to 47.8% for
the prior-year period. The increase of $16.7 million was primarily due to a $19.3 million increase in cost of revenues associated with our FTD segment and, to a lesser
extent, a $0.7 million increase in cost of revenues associated with our Content & Media segment. The increase was partially offset by a $2.8 million decrease in cost of revenues
associated with our Communications segment and a $0.8 million decrease in depreciation expense. Segment cost of revenues related to our FTD, Content & Media and Communications segments
constituted 86.1%, 6.8% and 7.2%, respectively, of our total segment cost of revenues for the six months ended June 30, 2011, compared to 84.1%, 7.0% and 8.9%, respectively, for the six months
ended June 30, 2010.
Sales and Marketing Expenses. Consolidated sales and marketing expenses decreased by $0.2 million, or less than 1%, to
$48.8 million
for the quarter ended June 30, 2011, compared to $49.0 million for the quarter ended June 30, 2010. Consolidated sales and marketing expenses as a percentage of consolidated
revenues decreased to 19.1% for the quarter ended June 30, 2011, compared to 20.2% for the quarter ended June 30, 2010. The decrease of $0.2 million was primarily due to a
$3.2 million decrease in sales and marketing expenses associated with our Communications segment and, to a lesser extent, a $0.2 million decrease associated with our FTD segment. The
decrease was partially offset by a $2.8 million increase in sales and marketing expenses associated with our Content & Media segment. Segment sales and marketing expenses related to our
FTD, Content & Media and Communications segments constituted 57.2%, 37.6% and 5.2%, respectively, of total segment sales and marketing expenses for the quarter ended June 30, 2011,
compared to 56.9%, 31.4% and 11.7%, respectively, for the quarter ended June 30, 2010.
Consolidated
sales and marketing expenses decreased by $2.2 million, or 2%, to $96.9 million for the six months ended June 30, 2011, compared to $99.1 million
for the six months ended June 30, 2010.
37
Table of Contents
Consolidated
sales and marketing expenses as a percentage of consolidated revenues decreased to 19.5% for the six months ended June 30, 2011, compared to 20.1% for the six months ended
June 30, 2010. The decrease of $2.2 million was primarily due to a $6.3 million decrease in sales and marketing expenses associated with our Communications segment and, to a
lesser extent, a $0.3 million decrease in
depreciation expense. The decrease was partially offset by a $2.6 million increase in sales and marketing expenses associated with our FTD segment and a $1.0 million increase in sales
and marketing expenses associated with our Content & Media segment. Segment sales and marketing expenses related to our FTD, Content & Media and Communications segments constituted
59.1%, 34.8% and 6.1%, respectively, of total segment sales and marketing expenses for the six months ended June 30, 2011, compared to 54.9%, 32.9% and 12.2%, respectively, for the six months
ended June 30, 2010.
Technology and Development Expenses. Consolidated technology and development expenses decreased by $0.4 million, or 3%, to
$13.2 million for the quarter ended June 30, 2011, compared to $13.6 million for the quarter ended June 30, 2010. Consolidated technology and development expenses as a
percentage of consolidated revenues decreased to 5.2% for the quarter ended June 30, 2011, compared to 5.6% for the prior-year period. The decrease of $0.4 million was
primarily due to a $1.1 million decrease in technology and development expenses associated with our Communications segment, partially offset by a $0.4 million increase in technology and
development expenses associated with our Content & Media segment and a $0.2 million increase associated with our FTD segment. Segment technology and development expenses related to our
FTD, Content & Media and Communications segments constituted 26.4%, 55.5% and 18.2%, respectively, of total segment technology and development expenses for the quarter ended June 30,
2011, compared to 23.4%, 49.6% and 27.0%, respectively, for the quarter ended June 30, 2010.
Consolidated
technology and development expenses decreased by $2.0 million, or 7%, to $26.0 million for the six months ended June 30, 2011, compared to
$28.0 million for the six months ended June 30, 2010. Consolidated technology and development expenses as a percentage of consolidated revenues decreased to 5.2% for the six months ended
June 30, 2011, compared to 5.7% for the prior-year period. The decrease of $2.0 million was primarily related to a $2.6 million decrease in technology and development
expenses associated with our Communications segment, partially offset by a $0.8 million increase in technology and development expenses associated with our Content & Media segment.
Segment technology and development expenses related to our FTD, Content & Media and Communications segments constituted 26.9%, 55.3% and 17.8%, respectively, of total segment technology and
development expenses for the six months ended June 30, 2011, compared to 25.1%, 47.5% and 27.4%, respectively, for the six months ended June 30, 2010.
General and Administrative Expenses. Consolidated general and administrative expenses decreased by $1.2 million, or 4%, to
$26.0 million for the quarter ended June 30, 2011, compared to $27.3 million for the quarter ended June 30, 2010. Consolidated general and administrative expenses as a
percentage of consolidated revenues decreased to 10.2% for the quarter ended June 30, 2011, compared to 11.2% for the prior-year period. The decrease of $1.2 million was due
to a $1.0 million decrease in general and administrative expenses associated with our Communications segment and a $1.0 million decrease in general and administrative expenses associated
with our Content & Media segment. The decrease was partially offset by a $0.7 million increase in unallocated corporate expenses and a $0.2 million increase in depreciation
expense. Segment general and administrative expenses related to our FTD, Content & Media and Communications segments constituted 47.1%, 34.3% and 18.6%, respectively, of total segment general
and administrative expenses for the quarter ended June 30, 2011, compared to 42.2%, 35.8% and 22.0%, respectively, for the quarter ended June 30, 2010.
Consolidated
general and administrative expenses decreased by $3.3 million, or 6%, to $54.9 million for the six months ended June 30, 2011, compared to
$58.2 million for the six months ended June 30, 2010. Consolidated general and administrative expenses as a percentage of consolidated
38
Table of Contents
revenues
decreased to 11.0% for the six months ended June 30, 2011, compared to 11.8% for the prior-year period. The decrease of $3.3 million was due to a $2.1 million
decrease in general and administrative expenses associated with our Communications segment, a $1.5 million decrease in unallocated corporate expenses and a $1.1 million decrease in
general and administrative expenses associated with our FTD segment. The decrease was partially offset by a $1.2 million increase in general and administrative expenses associated with our
Content & Media segment and a $0.4 million increase in depreciation expense. Segment general and administrative expenses related to our FTD, Content & Media and Communications
segments constituted 43.6%, 38.8% and 17.6%, respectively, of total segment general and administrative expenses for the six months ended June 30, 2011, compared to 44.2%, 33.6% and 22.2%,
respectively, for the six months ended June 30, 2010.
Amortization of Intangible Assets. Consolidated amortization of intangible assets decreased by $0.5 million, or 6%, to
$7.6 million for
the quarter ended June 30, 2011, compared to $8.1 million for the quarter ended June 30, 2010. Consolidated amortization of intangible assets decreased by $0.9 million, or
6%, to $15.3 million for the six months ended June 30, 2011, compared to $16.3 million for the six months ended June 30, 2010. The decreases were primarily due to a
decrease in amortization of intangible assets related to our FTD segment.
Restructuring Charges. Consolidated restructuring charges were $0.1 million for the quarter ended June 30, 2011, compared to a
$0.1 million benefit for the quarter ended June 30, 2010. Consolidated restructuring charges were $0.7 million for the six months ended June 30, 2011, compared to
$1.0 million for the six months ended June 30, 2010. For the six months ended June 30, 2011, the Communications segment eliminated five positions and the Company recorded
restructuring charges related to employee termination benefits. Restructuring charges for the six months ended June 30, 2010 were primarily related to the closure of certain FTD call center
facilities in the U.S. and the U.K. These restructuring charges primarily included lease termination costs and employee termination benefits.
Interest Income. Interest income decreased by $0.1 million, or 31%, to $0.3 million for the quarter ended June 30, 2011,
compared to $0.4 million for the quarter ended June 30, 2010. Interest income decreased by $0.1 million, or 5%, to $0.8 million for the six months ended June 30,
2011, compared to $0.9 million for the six months ended June 30, 2010.
Interest Expense. Interest expense increased by $4.5 million, or 71%, to $10.8 million for the quarter ended June 30,
2011,
compared to $6.3 million for the quarter ended June 30, 2010. Interest expense increased by $2.4 million, or 17%, to $15.8 million for the six months ended June 30,
2011, compared to $13.5 million for the six months ended June 30, 2010. The increases were primarily related to a $6.1 million loss on extinguishment of debt, which was recorded
in the quarter ended June 30, 2011, related to the refinancing of the 2008 Credit Agreement, partially offset by reduced interest expense as a result of lower average debt balances as a result
of repayments on our credit facilities.
Other Income (Expense), Net. Other income, net increased by $0.1 million, or over 100%, to $0.2 million for the quarter ended
June 30, 2011, compared to $0.1 million for the quarter ended June 30, 2010. Other income, net increased by $1.6 million, or over 100%, to $1.7 million for the six
months ended June 30, 2011, compared to $0.1 million for the six months ended June 30, 2010. The increase in other income, net for the six months ended June 30, 2011 was
primarily related to a non-income tax refund at our FTD segment.
Provision for Income Taxes. For the quarter and six months ended June 30, 2011, we recorded a provision for income taxes of
$2.7 million and $10.2 million, respectively, on pre-tax income of $17.5 million and $37.1 million, respectively, resulting in a
year-to-date effective income tax rate of 27.4%. For the quarter and six months ended June 30, 2010, we recorded a provision for income taxes of $10.0 million and
$18.0 million, respectively, on pre-tax income of $24.0 million and $43.2 million,
39
Table of Contents
respectively,
resulting in a year-to-date effective income tax rate of 41.7%. The year-over-year effective income tax rate declined primarily due to the
benefit from a decrease in non-deductible stock-based compensation and a benefit of $4.8 million related to the release of reserves for uncertain tax positions.
FTD Segment Results
The following table presents the FTD segment's operating expenses and income from operations as a percentage of FTD revenues for the
quarters and six months ended June 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Revenues |
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
64.0 |
|
|
61.7 |
|
|
63.6 |
|
|
62.7 |
|
|
Sales and marketing |
|
|
15.8 |
|
|
18.4 |
|
|
17.1 |
|
|
17.7 |
|
|
Technology and development |
|
|
1.6 |
|
|
1.7 |
|
|
1.7 |
|
|
1.9 |
|
|
General and administrative |
|
|
4.6 |
|
|
5.3 |
|
|
4.7 |
|
|
5.4 |
|
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
86.0 |
|
|
87.2 |
|
|
87.1 |
|
|
88.0 |
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
|
14.0 |
% |
|
12.8 |
% |
|
12.9 |
% |
|
12.0 |
% |
|
|
|
|
|
|
|
|
|
|
FTD Revenues. FTD revenues increased by $23.6 million, or 15%, to $176.3 million for the quarter ended June 30, 2011,
compared
to $152.7 million for the quarter ended June 30, 2010. Excluding the impact of foreign currency exchange rates of $3.5 million due to a stronger British Pound versus the U.S.
Dollar, revenues increased by $20.1 million, or 13%, compared to the prior-year period. Revenues increased in the period primarily due to an increase in order volume and higher
average order values. In the U.K., the increased order volume related to the shift in timing of the Mother's Day holiday to the second quarter of 2011 rather than the first quarter, which shifted
approximately $14 million in revenues into the second quarter. Excluding the shift of the U.K. Mother's Day to the second quarter and the impact of foreign currency exchange rates, FTD revenues
increased 4% compared to the prior-year quarter.
FTD
revenues increased by $25.8 million, or 8%, to $335.2 million for the six months ended June 30, 2011, compared to $309.4 million for the six months ended
June 30, 2010. Excluding the impact of foreign currency exchange rates of $4.6 million due to a stronger British Pound versus the U.S. Dollar, revenues increased by $21.2 million,
or 7%, compared to the prior-year period. Revenues increased in the period primarily due to increased consumer order volumes in the U.S. and the U.K. and higher average order values.
FTD Cost of Revenues. FTD cost of revenues increased by $18.6 million, or 20%, to $112.8 million for the quarter ended
June 30,
2011, compared to $94.2 million for the quarter ended June 30, 2010. Excluding the impact of foreign currency exchange rates of $2.4 million, cost of revenues increased by
$16.1 million, or 17% compared to the prior-year period. FTD cost of revenues as a percentage of revenues increased to 64.0% for the quarter ended June 30, 2011, compared to
61.7% for the
prior-year period. Cost of revenues as a percentage of revenues was negatively impacted by an increase in the level of discounts offered on our products, a shift in the mix of products and
services sold, and higher shipping costs.
FTD
cost of revenues increased by $19.3 million, or 10%, to $213.2 million for the six months ended June 30, 2011, compared to $193.9 million for the six
months ended June 30, 2010. Excluding the impact of foreign currency exchange rates of $3.2 million, cost of revenues increased by $16.1 million, or 8% compared to the
prior-year period. FTD cost of revenues as a percentage of
40
Table of Contents
revenues
increased to 63.6% for the six months ended June 30, 2011, compared to 62.7% for the prior-year period. Cost of revenues as a percentage of revenues was negatively impacted
by an increase in the level of discounts offered on our products, a shift in the mix of products and services sold, higher shipping costs, and a decrease in post-transaction sales, which
have minimal cost of revenues.
FTD Sales and Marketing Expenses. FTD sales and marketing expenses decreased by $0.2 million, or 1%, to $27.9 million for the
quarter
ended June 30, 2011, compared to $28.1 million for the quarter ended June 30, 2010. FTD sales and marketing expenses as a percentage of revenues decreased to 15.8% for the quarter
ended June 30, 2011, compared to 18.4% for the prior-year period. Excluding the impact of foreign currency exchange rates of $0.3 million, sales and marketing expenses
decreased by $0.5 million, or 2%, compared to the prior-year period. The decrease was primarily due to lower marketing expenditures related to television advertising in the U.S.
leading up to the 2011 Mother's Day holiday as compared to the prior- year period, partially offset by higher online marketing costs.
FTD
sales and marketing expenses increased by $2.6 million, or 5%, to $57.2 million for the six months ended June 30, 2011, compared to $54.7 million for the
six months ended June 30, 2010. FTD sales and marketing expenses as a percentage of revenues decreased to 17.1% for the six months ended June 30, 2011, compared to 17.7% for the
prior-year period. Excluding the impact of foreign currency exchange rates of $0.6 million, sales and marketing expenses increased by $2.0 million, or 4%, compared to the
prior-year period. The increase was primarily due to higher marketing expenditures related to television advertising in the U.K., partially offset by decreased marketing expenditures
related to television advertising in the U.S., in each case, leading up to their respective 2011 Mother's Day holidays as compared to the prior-year periods, and higher online marketing
costs.
FTD Technology and Development Expenses. FTD technology and development expenses increased by $0.2 million, or 8%, to
$2.9 million for
the quarter ended June 30, 2011, compared to $2.7 million for the
quarter ended June 30, 2010. FTD technology and development expenses as a percentage of revenues remained relatively flat at 1.6% for the quarter ended June 30, 2011, compared to 1.7%
for the prior-year period.
FTD
technology and development expenses decreased by $0.1 million, or 2%, to $5.8 million for the six months ended June 30, 2011, compared to $5.9 million for
the six months ended June 30, 2010. FTD technology and development expenses as a percentage of revenues decreased to 1.7% for the six months ended June 30, 2011, compared to 1.9% for the
prior-year period.
FTD General and Administrative Expenses. FTD general and administrative expenses decreased by $0.1 million, or 1%, to
$8.0 million for
the quarter ended June 30, 2011, compared to $8.1 million for the quarter ended June 30, 2010. FTD general and administrative expenses as a percentage of revenues decreased to
4.6% for the quarter ended June 30, 2011, compared to 5.3% for the prior-year period. The decrease in general and administrative expenses was largely attributable to a decrease in
bad debt expense and a $0.6 million charge related to a legal settlement in the quarter ended June 30, 2010, partially offset by an increase in personnel-related costs.
FTD
general and administrative expenses decreased by $1.1 million, or 7%, to $15.7 million for the six months ended June 30, 2011, compared to $16.9 million
for the six months ended June 30, 2010. FTD general and administrative expenses as a percentage of revenues decreased to 4.7% for the six months ended June 30, 2011, compared to 5.4% for
the prior-year period. The decrease in general and administrative expenses was largely attributable to a decrease in bad debt expense and a $0.6 million charge related to a legal
settlement in 2010, partially offset by an increase in personnel-related costs.
FTD Restructuring Charges. The FTD segment recorded restructuring charges of $1.1 million for the six months ended June 30,
2010. These
charges were primarily related to the closure of certain call center facilities in the U.S. and the U.K. There were no restructuring charges for the FTD segment for the six months ended
June 30, 2011.
41
Table of Contents
Content & Media Segment Results
The following table presents the Content & Media segment's operating expenses and income from operations as a percentage of
Content & Media revenues for the quarters and six months ended June 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Revenues |
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
16.8 |
|
|
15.9 |
|
|
17.5 |
|
|
16.2 |
|
|
Sales and marketing |
|
|
38.6 |
|
|
31.8 |
|
|
35.2 |
|
|
33.0 |
|
|
Technology and development |
|
|
12.9 |
|
|
11.6 |
|
|
12.5 |
|
|
11.2 |
|
|
General and administrative |
|
|
12.3 |
|
|
14.0 |
|
|
14.6 |
|
|
12.9 |
|
|
Restructuring charges |
|
|
|
|
|
(0.2 |
) |
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
80.6 |
|
|
73.1 |
|
|
79.8 |
|
|
73.2 |
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
|
19.4 |
% |
|
26.9 |
% |
|
20.2 |
% |
|
26.8 |
% |
|
|
|
|
|
|
|
|
|
|
Content & Media Revenues. Content & Media revenues decreased by $1.4 million, or 3%, to $47.4 million for
the quarter
ended June 30, 2011, compared to $48.8 million for the quarter ended June 30, 2010. The decrease was due to a $1.0 million decrease in services revenues as a result of a
17% decrease in our average number of pay accounts from 5.0 million for the quarter ended June 30, 2010 to 4.1 million for the quarter ended June 30, 2011, partially offset
by a 17% increase in ARPU from $2.22 for the quarter ended June 30, 2010 to $2.60 for the quarter ended June 30, 2011. The increase in ARPU was primarily attributable to a higher
percentage of domestic pay accounts on shorter-term subscription plans, which have higher ARPUs, and a decrease in the level of discounts offered on our subscription plans. At June 30, 2011,
the number of pay accounts decreased by 253,000 when compared to March 31, 2011. In addition, Content & Media advertising revenues decreased by $0.4 million for the quarter ended
June 30, 2011 compared to the quarter ended June 30, 2010, primarily due to a decrease in the number of active accounts as well as a decrease in available advertising inventory on the
Memory Lane website. We anticipate that Content & Media pay accounts will continue to decline, at least in the near term.
Content &
Media revenues decreased by $3.5 million, or 4%, to $95.7 million for the six months ended June 30, 2011, compared to $99.3 million for the
six months ended June 30, 2010. The decrease was due to a $2.4 million decrease in services revenues. Services revenues decreased primarily as a result of a 14% decrease in our average
number of pay accounts from 4.9 million for the six months ended June 30, 2010 to 4.3 million for the six months ended June 30, 2011, partially offset by a 12% increase in
ARPU from $2.27 for the six months ended June 30, 2010 to $2.54 for the six months ended June 30, 2011. The increase in ARPU was primarily attributable to a higher percentage of domestic
pay accounts on shorter-term subscription plans, which have higher ARPUs, and a decrease in the level of discounts offered on our subscription plans. In addition, Content & Media advertising
revenues decreased by $1.2 million for the six months ended June 30, 2011 compared to the six months ended June 30, 2010, primarily due to a decrease in the number of active
accounts as well as a decrease in available advertising inventory on the Memory Lane website, partially offset by an increase in revenues generated from our online loyalty marketing service.
Content & Media Cost of Revenues. Content & Media cost of revenues increased by $0.2 million, or 3%, to
$7.9 million for
the quarter ended June 30, 2011, compared to $7.8 million for the quarter ended June 30, 2010. Content & Media cost of revenues as a percentage of Content & Media
revenues increased to 16.8% for the quarter ended June 30, 2011, compared to 15.9% for the prior-year period.
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The
increase of $0.2 million was primarily due to a $0.7 million increase in the cost of points earned by members of our online loyalty marketing service as a result of increased
revenues, partially offset by a $0.3 million decrease in overhead-related costs and a $0.2 million decrease in customer support costs.
Content &
Media cost of revenues increased by $0.7 million, or 4%, to $16.8 million for the six months ended June 30, 2011, compared to $16.0 million
for the six months ended June 30, 2010. Content & Media cost of revenues as a percentage of Content & Media revenues increased to 17.5% for the six months ended June 30,
2011, compared to 16.2% for the prior-year period. The increase of $0.7 million was due to a $1.3 million increase in the cost of points earned by members of our online
loyalty marketing service as a result of increased revenues, partially offset by a $0.3 million decrease in overhead-related costs and a $0.3 million decrease in customer support costs.
Content & Media Sales and Marketing Expenses. Content & Media sales and marketing expenses increased by
$2.8 million, or 18%, to
$18.3 million for the quarter ended June 30, 2011, compared to $15.5 million for the quarter ended June 30, 2010. Content & Media sales and marketing expenses as a
percentage of Content & Media revenues increased to 38.6% for the quarter ended June 30, 2011, compared to 31.8% for the prior-year period. The increase of
$2.8 million was primarily due to a $3.0 million increase in marketing costs primarily related to the launch of Memory Lane.
Content &
Media sales and marketing expenses increased by $1.0 million, or 3%, to $33.7 million for the six months ended June 30, 2011, compared to
$32.7 million for the six months ended June 30, 2010. Content & Media sales and marketing expenses as a percentage of Content & Media revenues increased to 35.2% for the
six months ended June 30, 2011, compared to 33.0% for the prior-year period. The increase of $1.0 million was due to a $2.6 million increase in marketing costs
primarily related to the launch of Memory Lane, partially offset by a $1.3 million decrease in costs to acquire online loyalty marketing members and other sales and marketing costs and a
$0.3 million decrease in personnel- and overhead-related costs.
Content & Media Technology and Development Expenses. Content & Media technology and development expenses increased by
$0.4 million, or 8%, to $6.1 million for the quarter ended June 30, 2011, compared
to $5.7 million for the quarter ended June 30, 2010. Content & Media technology and development expenses as a percentage of Content & Media revenues increased to 12.9% for
the quarter ended June 30, 2011, compared to 11.6% for the prior-year period. The $0.4 million increase was primarily due to an increase in personnel- and overhead-related
costs.
Content &
Media technology and development expenses increased by $0.8 million, or 7%, to $11.9 million for the six months ended June 30, 2011, compared to
$11.1 million for the six months ended June 30, 2010. Content & Media technology and development expenses as a percentage of Content & Media revenues increased to 12.5% for
the six months ended June 30, 2011, compared to 11.2% for the prior-year period. The $0.8 million increase was primarily due to an increase in personnel- and overhead-related
costs.
Content & Media General and Administrative Expenses. Content & Media general and administrative expenses decreased by
$1.0 million, or 15%, to $5.9 million for the quarter ended June 30, 2011, compared to $6.8 million for the quarter ended June 30, 2010. Content & Media
general and administrative expenses as a percentage of Content & Media revenues decreased to 12.3% for the quarter ended June 30, 2011, compared to 14.0% for the prior-year
period. The decrease of $1.0 million was primarily due to a $1.0 million charge related to a legal settlement in the quarter ended June 30, 2010 and a $0.3 million decrease
in professional and consulting fees, partially offset by a $0.4 million increase in personnel- and overhead-related costs.
Content &
Media general and administrative expenses increased by $1.2 million, or 9%, to $14.0 million for the six months ended June 30, 2011, compared to
$12.8 million for the six months ended June 30, 2010. Content & Media general and administrative expenses as a percentage of
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Content &
Media revenues increased to 14.6% for the six months ended June 30, 2011, compared to 12.9% for the prior-year period. The increase of $1.2 million was due
to a $1.6 million increase in personnel- and overhead-related costs and a $0.9 million increase in charges for reserves for legal matters, partially offset by a $1.2 million
decrease in professional and consulting fees.
Content & Media Restructuring Charges. The Content & Media segment recorded a restructuring benefit totaling
$0.1 million for
the quarter and six months ended June 30, 2010. There were no Content & Media restructuring charges for the quarter and six months ended June 30, 2011.
Communications Segment Results
The following table presents the Communications segment's operating expenses and income from operations as a percentage of
Communications revenues for the quarters and six months ended June 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Revenues |
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
26.5 |
|
|
23.6 |
|
|
26.5 |
|
|
23.5 |
|
|
Sales and marketing |
|
|
7.9 |
|
|
13.7 |
|
|
8.8 |
|
|
13.9 |
|
|
Technology and development |
|
|
6.2 |
|
|
7.3 |
|
|
5.7 |
|
|
7.4 |
|
|
General and administrative |
|
|
9.8 |
|
|
10.0 |
|
|
9.5 |
|
|
9.7 |
|
|
Restructuring charges |
|
|
0.4 |
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
50.9 |
|
|
54.6 |
|
|
51.5 |
|
|
54.5 |
|
|
|
|
|
|
|
|
|
|
|
Segment income from operations |
|
|
49.1 |
% |
|
45.4 |
% |
|
48.5 |
% |
|
45.5 |
% |
|
|
|
|
|
|
|
|
|
|
Communications Revenues. Communications revenues decreased by $9.8 million, or 23%, to $32.3 million for the quarter ended
June 30, 2011, compared to $42.0 million for the quarter ended June 30, 2010. The decrease was primarily due to a $9.2 million decrease in services revenues primarily as a
result of a 31% decrease in our average number of dial-up Internet access pay accounts from 0.9 million for the quarter ended June 30, 2010 to 0.6 million for the
quarter ended June 30, 2011, as well as a decrease in ARPU from $9.57 for the quarter ended June 30, 2010 to $9.28 for the quarter ended June 30, 2011. The decrease in
Communications revenues was also due to a $0.6 million decrease in advertising revenues resulting from the decrease in pay accounts. We expect that Communications pay accounts and services
revenues will continue to decline.
Communications
revenues decreased by $20.3 million, or 23%, to $67.0 million for the six months ended June 30, 2011, compared to $87.3 million for the six
months ended June 30, 2010. The decrease was primarily due to an $18.3 million decrease in services revenues primarily as a result of a 31% decrease in our average number of
dial-up Internet access pay accounts from 0.9 million for the six months ended June 30, 2010 to 0.6 million for the six months ended June 30, 2011, as well as a
decrease in ARPU from $9.52 for the six months ended June 30, 2010 to $9.40 for the six months ended June 30, 2011. The decrease in Communications revenues was also due to a
$2.0 million decrease in advertising revenues resulting from the decrease in pay accounts.
Communications Cost of Revenues. Communications cost of revenues decreased by $1.3 million, or 14%, to $8.6 million for the
quarter
ended June 30, 2011, compared to $9.9 million for the quarter ended June 30, 2010. Communications cost of revenues as a percentage of Communications revenues increased to 26.5%
for the quarter ended June 30, 2011, compared to 23.6% for the prior-year period due to a higher percentage of revenues being generated from our broadband services which have a
higher cost of revenues than our dial-up Internet access services. The decrease of $1.3 million was
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primarily
due to a $0.7 million decrease in telecommunications costs associated with our dial-up Internet access services due to the decrease in the number of dial-up
Internet access pay accounts and a decrease in hourly usage per pay account. The decrease was also due to a $0.6 million decrease in customer support and billing-related costs due to the
decrease in the number of dial-up Internet access pay accounts.
Communications
cost of revenues decreased by $2.8 million, or 14%, to $17.7 million for the six months ended June 30, 2011, compared to $20.5 million for the
six months ended June 30, 2010. Communications cost of revenues as a percentage of Communications revenues increased to 26.5% for the six months ended June 30, 2011, compared to 23.5%
for the prior-year period due to a higher percentage of revenues being generated from our broadband services which have a higher cost of revenues than our dial-up Internet
access services. The decrease of $2.8 million was primarily due to a $1.3 million decrease in customer support and billing-related costs due to the decrease in the number of
dial-up Internet access pay accounts and a $1.2 million decrease in telecommunications costs associated with our dial-up Internet access services due to the decrease in
the number of dial-up Internet access pay accounts and a decrease in hourly usage per pay account. In addition, Communications cost of revenues decreased due to a $0.2 million
decrease in costs associated with our broadband services. We expect cost of revenues as a percentage of revenues to continue to increase as revenues continue to decrease as a result of a higher
percentage of fixed costs compared to variable costs, and a higher percentage of pay accounts being represented by broadband pay accounts, which have higher costs of revenues as compared to
dial-up pay accounts.
Communications Sales and Marketing Expenses. Communications sales and marketing expenses decreased by $3.2 million, or 56%, to
$2.6 million for the quarter ended June 30, 2011, compared to $5.8 million for the quarter ended June 30, 2010. Communications sales and marketing expenses as a percentage
of Communications revenues decreased to 7.9% for the quarter ended June 30, 2011, compared to 13.7% for the prior-year period. The decrease in expenses reflects the Company's
decision to reduce sales and marketing expenses. The decrease of $3.2 million was primarily attributable to a $1.5 million decrease in personnel-and overhead-related expenses
as a result of reduced headcount and a $1.4 million decrease in advertising, promotion and distribution costs related to our dial-up Internet access services.
Communications
sales and marketing expenses decreased by $6.3 million, or 52%, to $5.9 million for the six months ended June 30, 2011, compared to
$12.2 million for the six months ended June 30, 2010. Communications sales and marketing expenses as a percentage of Communications revenues decreased to 8.8% for the six months ended
June 30, 2011, compared to 13.9% for the prior-year period. The decrease in expenses reflects the Company's decision to reduce sales and marketing expenses. The decrease of
$6.3 million was primarily attributable to a $3.2 million decrease in advertising, promotion and distribution costs related to our dial-up Internet access services, a
$2.3 million decrease in personnel-and overhead-related expenses as a result of reduced headcount and a $0.6 million decrease in customer service costs related to our
dial-up Internet access services.
Communications Technology and Development Expenses. Communications technology and development expenses decreased by $1.1 million,
or 35%, to
$2.0 million for the quarter ended June 30, 2011, compared to $3.1 million for the quarter ended June 30, 2010. Communications technology and development expenses as a
percentage of Communications revenues decreased to 6.2% for the quarter ended June 30, 2011, compared to 7.3% for the prior-year period. The decrease of $1.1 million was the
result of a decrease in personnel- and overhead-related expenses as a result of reduced headcount.
Communications
technology and development expenses decreased by $2.6 million, or 40%, to $3.8 million for the six months ended June 30, 2011, compared to
$6.4 million for the six months ended June 30, 2010. Communications technology and development expenses as a percentage of
45
Table of Contents
Communications
revenues decreased to 5.7% for the six months ended June 30, 2011, compared to 7.4% for the prior-year period. The decrease of $2.6 million was the result of a
decrease in personnel- and overhead-related expenses as a result of reduced headcount.
Communications General and Administrative Expenses. Communications general and administrative expenses decreased by $1.0 million,
or 25%, to
$3.2 million for the quarter ended June 30, 2011, compared to $4.2 million for the quarter ended June 30, 2010. Communications general and administrative expenses as a
percentage of Communications revenues decreased to 9.8% for the quarter ended June 30, 2011, compared to 10.0% for the prior-year period. The decrease of $1.0 million was
primarily due to a $0.8 million decrease in personnel- and overhead-related costs as a result of reduced headcount and a $0.2 million decrease in bad debt expense.
Communications
general and administrative expenses decreased by $2.1 million, or 25%, to $6.4 million for the six months ended June 30, 2011, compared to
$8.5 million for the six months ended June 30, 2010.
Communications general and administrative expenses as a percentage of Communications revenues decreased to 9.5% for the six months ended June 30, 2011, compared to 9.7% for the
prior-year period. The decrease of $2.1 million was primarily due to a $1.9 million decrease in personnel- and overhead-related costs as a result of reduced headcount and a
$0.3 million decrease in bad debt expense.
Communications Restructuring Charges. Communications restructuring charges related to employee termination benefits and contract
termination costs
were $0.1 million and $0.7 million, respectively, for the quarter and six months ended June 30, 2011. There were no Communications restructuring charges for the quarter and six
months ended June 30, 2010.
Unallocated Corporate Expenses
Unallocated corporate expenses increased by $0.7 million, or 11%, to $7.7 million for the quarter ended June 30,
2011, compared to $6.9 million for the quarter ended June 30, 2010 primarily related to an increase in personnel-related costs.
Unallocated
corporate expenses decreased by $1.5 million, or 8%, to $16.3 million for the six months ended June 30, 2011, compared to $17.8 million for the
six months ended June 30, 2010. The decrease was primarily due to $2.0 million of expenses recorded in the first quarter of 2010 related to a potential transaction that failed to
consummate.
Liquidity and Capital Resources
In connection with the FTD acquisition in August 2008, UNOLA Corp., which was then an indirect wholly-owned subsidiary of United
Online, Inc., and which subsequently merged into FTD Group, Inc., entered into a $425 million senior secured credit agreement with Wells Fargo Bank, National Association, as
Administrative Agent (the "2008 Credit Agreement"), consisting of (i) a term loan A facility of $75 million, (ii) a term loan B facility of $300 million, and (iii) a
revolving credit facility of up to $50 million. On June 10, 2011, FTD Group, Inc. entered into a new credit agreement (the "Credit Agreement") with Wells Fargo Bank, National
Association, as Administrative Agent for the lenders, to refinance the 2008 Credit Agreement. The Credit Agreement provides FTD Group, Inc. with a $315 million senior secured credit
facility consisting of (i) a $265 million seven-year term loan (the "Term Loan") and (ii) a $50 million five-year revolving credit facility (the
"Revolving Credit Facility" and together with the Term Loan, the "Credit Facilities"), and certain other financial accommodations, including letters of credit.
On
June 10, 2011, FTD Group, Inc. repaid in full all outstanding indebtedness under the 2008 Credit Agreement. No penalties were paid in connection with such repayment. The
repayment of obligations under the 2008 Credit Agreement was financed with the proceeds of the $265 million of
46
Table of Contents
term
loan borrowings under the Credit Agreement and FTD's available cash. No funds were borrowed under the Revolving Credit Facility at closing.
The
obligations under the Credit Agreement are guaranteed by FTD's parent, UNOL Intermediate, Inc. ("Holdings"), and certain of the wholly-owned domestic subsidiaries of FTD
Group, Inc. (the "Subsidiary Guarantors"). In addition, the obligations under the Credit Agreement are secured by a lien on substantially all of the assets of FTD Group, Inc., Holdings
and the Subsidiary Guarantors (collectively, the "Loan Parties"), including a pledge of all (except with respect to foreign subsidiaries, in which case such pledge shall be limited to 66%) of the
outstanding capital stock of certain direct subsidiaries of the Loan Parties.
The
interest rates on both the Term Loan and the Revolving Credit Facility are either a base rate plus 2.5% per annum, or LIBOR plus 3.5% per annum (with a LIBOR floor of 1.25% in the
case of the Term Loan). In addition, there is a commitment fee equal to 0.50% per annum (with step-downs in the commitment fee depending on FTD's net leverage ratio) on the unused portion
of the Revolving Credit Facility. The Credit Agreement contains customary representations and warranties, events of default, affirmative covenants, and negative covenants, that require, among other
things, FTD to maintain compliance with a maximum net leverage ratio and a minimum fixed-charge coverage ratio, and impose restrictions and limitations on, among other things, capital expenditures,
investments, dividends, asset sales, and incurrence of additional debt or liens by Holdings, FTD Group, Inc. and their subsidiaries. The Credit Agreement also provides for an additional
$100 million in borrowing, subject to certain conditions, including compliance with covenants and approval by the lender group.
Our
total cash and cash equivalents balances increased by $11.2 million, or 11%, to $111.4 million at June 30, 2011, compared to $100.3 million at
December 31, 2010. Our summary cash flows for the six months ended June 30, 2011 and 2010 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, |
|
|
|
2011 |
|
2010 |
|
Net cash provided by operating activities |
|
$ |
50,277 |
|
$ |
76,289 |
|
Net cash used for investing activities |
|
$ |
(15,776 |
) |
$ |
(15,267 |
) |
Net cash used for financing activities |
|
$ |
(25,720 |
) |
$ |
(77,004 |
) |
Six Months Ended June 30, 2011 compared to Six Months Ended June 30, 2010
Net cash provided by operating activities decreased by $26.0 million, or 34%, for the six months ended June 30, 2011,
compared to the six months ended June 30, 2010. Net cash provided by operating activities is driven by our net income adjusted for non-cash items and changes in working capital
including, but not limited to, depreciation and amortization, stock-based compensation, loss on extinguishment of debt, deferred taxes, and tax benefits (shortfalls) from equity awards. The decrease
in net cash provided by operating activities was due to a $27.1 million increase in working capital requirements primarily related to the timing of payments to vendors and a decline in deferred
revenue as a result of a decline in Content & Media pay accounts, partially offset by a $1.1 million increase in net income, adjusted for non-cash items. Changes in working
capital can cause variation in our cash flows provided by operating activities due to seasonality, timing and other factors.
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Table of Contents
Net cash used for investing activities increased by $0.5 million, or 3%, for the six months ended June 30, 2011, compared to the six months ended
June 30, 2010. The increase was due to a $0.9 million increase in purchases of rights, content and intellectual property related to acquiring new content for our domestic online
nostalgia services business, partially offset by a $0.5 million decrease in capital expenditures. We currently anticipate expending between $4 million to $6 million on purchases
of rights, content and intellectual property in 2011, primarily for the purpose of adding new content.
Capital
expenditures for the six months ended June 30, 2011 were $13.7 million. We currently anticipate that our total capital expenditures for 2011 will be in the range of
$25 million to $30 million. The actual amount of future capital expenditures may fluctuate due to a number of factors including, without limitation, potential future acquisitions and new
business initiatives, which are difficult to predict and which could change significantly over time. Additionally, technological advances may require us to make capital expenditures to develop or
acquire new equipment or technology in order to replace aging or technologically obsolete equipment.
Net
cash used for financing activities decreased by $51.3 million, or 67%, for the six months ended June 30, 2011, compared to the six months ended June 30, 2010. In
the six months ended June 30, 2010, we repaid $54.8 million on the outstanding balance of the 2008 Credit Agreement. In the six months ended June 30, 2011, we refinanced the 2008
Credit Agreement and, in connection with the refinancing, we received net proceeds of $261.3 million, which, along with FTD's available cash, were used to repay the outstanding balance on the
2008 Credit Agreement of $264.6 million.
The
payment of dividends and dividend equivalents is a cash outflow from financing activities. In January and April 2011, United Online, Inc.'s Board of Directors declared
quarterly cash dividends of $0.10 per share of common stock. The dividends were paid on February 28, 2011 and May 31, 2011 and totaled $9.4 million and $9.3 million,
respectively, including dividend equivalents paid on nonvested restricted stock units. In July 2011, United Online, Inc.'s Board of Directors declared a quarterly cash dividend of $0.10 per
share of common stock. The record date for the dividend is August 12, 2011 and the dividend will be paid on August 31, 2011. The payment of future dividends is discretionary and is
subject to determination by United Online, Inc.'s Board of Directors each quarter following its review of our financial performance and other factors.
Future
cash flows from financing activities may also be affected by our repurchases of our common stock. United Online, Inc.'s Board of Directors authorized a common stock
repurchase program (the "Program") that allows us to repurchase shares of our common stock through open market or privately negotiated transactions based on prevailing market conditions and other
factors. From August 2001 through December 31, 2010, we repurchased a total of $150.2 million of our common stock under the Program and at December 31, 2010, the remaining amount
available under the Program was $49.8 million. In February 2011, the Board of Directors extended the Program through December 31, 2011 and increased the amount authorized to
$80 million. At June 30, 2011, the authorization remaining under the Program was $80.0 million.
Cash
flows from financing activities may also be negatively impacted by the withholding of a portion of shares underlying the restricted stock units and stock awards we grant to
employees. In general, we currently do not collect the applicable required employee withholding taxes from employees upon vesting of restricted stock units and upon the issuance of stock awards.
Instead, we automatically withhold, from the restricted stock units that vest and the stock awards that are issued, the portion of those shares with a fair market value equal to the amount of the
required employee withholding taxes due. We then pay the applicable withholding taxes in cash. The withholding of these shares, although accounted for as a common stock repurchase, does not reduce the
amount available under the Program. Similar to repurchases of common stock under the Program, the net effect of such withholding will adversely impact our cash flows from financing activities. The
amounts remitted in the six months ended June 30, 2011 and 2010 were $6.3 million and $6.7 million, respectively, for which we
48
Table of Contents
withheld
0.9 million shares and 1.1 million shares of common stock, respectively, that were underlying the restricted stock units which vested and stock awards that were issued. The
amount we pay in future periods will vary based on our stock price and the number of applicable restricted stock units vesting and stock awards being issued during the period.
Based
on our current projections, we expect to continue to generate positive cash flows from operations, at least in the next twelve months. We may use our existing cash balances and
future cash generated from operations to fund, among other things, both contractual payments and optional prepayments on the outstanding balance under the Credit Agreement; dividend payments, if
declared by United Online, Inc.'s Board of Directors; the development and/or acquisition of other services,
businesses or technologies; the repurchase of our common stock underlying restricted stock units and stock awards to pay the required employee withholding taxes due on vested restricted stock units
and stock awards issued; the repurchase of our common stock under the Program; future capital expenditures and future acquisitions of intangible assets, including rights, content and intellectual
property.
Under
the terms of the Credit Agreement, there are a number of limitations on our ability to use cash flows generated by the FTD segment for the benefit of United Online, Inc. or
the Communications and Content & Media segments. The Credit Agreement also includes provisions which require us to make debt prepayments in the event that we generate consolidated excess cash
flow, as defined in the Credit Agreement, on an annual basis commencing in April 2013 for fiscal year 2012. The degree to which our assets are leveraged and the terms of our debt could materially and
adversely affect our ability to obtain additional capital as well as the terms at which such capital might be offered to us. We currently expect to have sufficient liquidity to fulfill our debt
service obligations, at least in the next twelve months.
If
we need to raise additional capital through public or private debt or equity financings, strategic relationships or other arrangements, this capital might not be available to us in a
timely manner, on acceptable terms, or at all. Our failure to raise sufficient capital when needed could severely constrain or prevent us from, among other factors, developing new or enhancing
existing services or products, repurchasing our common stock, acquiring other services, businesses or technologies or funding significant capital expenditures and/or purchases of intangible assets,
including rights, content and intellectual property, and have a material adverse effect on our business, financial position, results of operations, and cash flows as well as impair our ability to pay
future dividends and our ability to service our debt obligations. If additional funds were raised through the issuance of equity or convertible debt securities, the percentage of stock owned by the
then-current stockholders could be reduced. Furthermore, such equity or any debt securities that we issue might have rights, preferences or privileges senior to holders of our common
stock. In addition, trends in the securities and credit markets may restrict our ability to raise any such additional funds, at least in the near term.
49
Table of Contents
Contractual Obligations
Contractual obligations at June 30, 2011 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Less than
1 Year |
|
1 Year to
Less than
3 Years |
|
3 Years to
Less than
5 Years |
|
More than
5 Years |
|
Debt, including interest |
|
$ |
381,143 |
|
$ |
15,465 |
|
$ |
33,138 |
|
$ |
41,686 |
|
$ |
290,854 |
|
Member redemption liability |
|
|
24,168 |
|
|
19,309 |
|
|
4,859 |
|
|
|
|
|
|
|
Operating leases |
|
|
41,083 |
|
|
12,840 |
|
|
18,467 |
|
|
5,773 |
|
|
4,003 |
|
Services and promotional contracts |
|
|
4,050 |
|
|
2,841 |
|
|
1,209 |
|
|
|
|
|
|
|
Telecommunications purchases |
|
|
8,410 |
|
|
5,897 |
|
|
2,513 |
|
|
|
|
|
|
|
Media purchases |
|
|
20 |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
Floral-related purchases |
|
|
6,357 |
|
|
6,357 |
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
3,489 |
|
|
288 |
|
|
2,253 |
|
|
271 |
|
|
677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
468,720 |
|
$ |
63,017 |
|
$ |
62,439 |
|
$ |
47,730 |
|
$ |
295,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
under letters of credit at June 30, 2011 were scheduled to expire as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Less than
1 Year |
|
1 Year to
Less than
3 Years |
|
Letters of credit |
|
$ |
2,244 |
|
$ |
1,986 |
|
$ |
258 |
|
Letters
of credit are maintained pursuant to certain of our lease arrangements. The letters of credit remain in effect at declining levels through the terms of the related leases.
Standby letters of credit are maintained by FTD to secure credit card processing activity and additional letters of credit are maintained related to inventory purchases.
Other Commitments
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, sureties
and insurance companies, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be
provided by us, or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers and
employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. We have also
agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. We maintain director and officer insurance, which may
cover certain liabilities arising from our obligation to indemnify our directors and certain of our officers and employees, and former officers, directors and employees of acquired companies, in
certain circumstances.
It
is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique
facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses.
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Off-Balance Sheet Arrangements
At June 30, 2011, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or
future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.
Recent Accounting Pronouncements
ReceivablesIn April 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
No. 2011-02, A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring, as codified in ASC 310, Receivables. The
amendments in this update provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets
the criteria to be considered a troubled debt restructuring. The amendments in this update are effective for the period beginning on or after June 15, 2011, and should be applied
retrospectively to the beginning of the annual period of adoption. We do not expect this update to have a material impact on our consolidated financial statements.
Comprehensive IncomeIn June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive
Income, as codified in ASC 220, Comprehensive Income. The amendments
in this update require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In
the two-statement approach, the first statement will present total net income and its components followed consecutively by a second statement that will present total other comprehensive
income, the components of other comprehensive income, and the total of comprehensive income. The amendments in this update are to be applied retrospectively and will be effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011. We do not expect this update to have a material impact on our consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks arising from transactions in the normal course of business, principally risk associated with
interest rate and foreign currency exchange rate fluctuations.
Interest Rate Risk
We are exposed to interest rate risk on our cash, cash equivalents, and the outstanding balance of the Credit Agreement. The interest
rate set forth in the Credit Agreement for the Term Loan and the Revolving Credit Facility is either a base rate plus 2.5% per annum, or LIBOR plus 3.5% per annum (with a LIBOR floor of 1.25% in the
case of the Term Loan). A 100 basis point increase in LIBOR rates would result in an estimated annual increase in our interest expense related to the outstanding debt under the Credit Agreement of
approximately $0.8 million.
While
we do not currently maintain any short-term investments, we still maintain deposits which are classified as cash equivalents. Therefore, our interest income is
sensitive to changes in the general level of U.S. and certain foreign interest rates.
Foreign Currency Risk
We transact business in foreign currencies and are exposed to risk resulting from fluctuations in foreign currency exchange rates,
particularly the British Pound ("GBP") and the Euro ("EUR") and, to a much lesser extent, the Indian Rupee ("INR"), the Swedish Krona ("SEK"), the Swiss Franc ("CHF"), and the Canadian Dollar ("CAD"),
which may result in gains or losses reported in our results of operations. The volatilities in GBP, EUR, INR, SEK, CHF, and CAD (and all other applicable foreign currencies) are monitored by us
throughout the year. We face two risks related to
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foreign
currency exchange ratestranslation risk and transaction risk. Amounts invested in our foreign operations are translated into U.S. Dollars using period-end
exchange rates. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in stockholders' equity. Revenues and expenses in foreign currencies
translate into higher or lower revenues and expenses in U.S. Dollars as the U.S. Dollar weakens or strengthens against other currencies. Substantially all of the revenues of our foreign
subsidiaries are received, and substantially all expenses are incurred, in currencies other than the U.S. Dollar, which increases or decreases the related U.S. Dollar-reported revenues and
expenses depending on the trend in currencies. Therefore, changes in foreign currency exchange rates may negatively affect our consolidated revenues and net income. A 1% adverse change in overall
foreign currency exchange rates over an entire year would not have a material impact on estimated annual revenues and estimated annual income before income taxes. These estimates assume an adverse
shift in all foreign currency exchange rates against the U.S. Dollar, which do not always move in the same direction or in the same degrees, and actual results may differ materially. Net
foreign currency transaction gains or losses arising from transactions denominated in currencies other than the local functional currency are included in other income (expense), net in the unaudited
condensed consolidated statements of operations.
We
currently utilize forward foreign currency exchange contracts to protect the value of our net investments in certain foreign subsidiaries. These contracts are designated as hedges of
net investments in foreign entities, and the gains or losses are reported in accumulated other comprehensive income to the extent that they are effective. At June 30, 2011, the notional value
of open forward foreign currency contracts accounted for as foreign net investment hedges totaled $2.7 million.
Periodically,
we enter into forward foreign currency exchange contracts which are not designated as hedging instruments for accounting purposes. We enter into these derivative
instruments to partially offset the economic effect of fluctuations in foreign currency exchange rates. At June 30, 2011, the notional value of open forward foreign currency exchange contracts
that did not qualify for hedge accounting treatment totaled $5.4 million. We may, in the future, also use other derivative financial instruments, if it is determined that such hedging
activities are appropriate to reduce risk.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Acting Chief Financial Officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Acting Chief Financial Officer have concluded that, as of
the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Acting Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company's internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
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PART IIOTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 2001 and in May 2001, lawsuits were filed in the United States District Court for the Southern District of New York against
NetZero, Inc. ("NetZero"), certain officers and directors of NetZero and the underwriters of NetZero's initial public offering, Goldman Sachs Group, Inc., BancBoston Robertson
Stephens, Inc. and Salomon Smith Barney, Inc. A consolidated amended complaint was filed in April 2002. The complaint alleges that the prospectus through which NetZero conducted its
initial public offering in September 1999 was materially false and misleading because it failed to disclose, among other things, that (i) the underwriters had solicited and received excessive
and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of the restricted number of NetZero shares issued in
connection with the offering; and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocate NetZero shares to those customers in the offering
in exchange for which the customers agreed to purchase additional NetZero shares in the aftermarket at pre-determined prices. Plaintiffs are seeking injunctive relief and damages. The case
against NetZero was coordinated with approximately 300 other suits filed against more than 300 issuers that conducted their initial public offerings between 1998 and 2000, their underwriters and an
unspecified number of their individual corporate officers and directors. The parties in the approximately 300 coordinated class actions, including NetZero, the underwriter defendants in the NetZero
class action, and the plaintiff class in the NetZero action, have reached an agreement in principle under which the insurers for the issuer defendants in the coordinated cases will make a settlement
payment on behalf of the issuers, including NetZero. On October 5, 2009, the district court issued an order granting final approval of the settlement and certifying the settlement class. Two
individuals have appealed the October 5, 2009 order and plaintiffs have filed a motion to dismiss the appeals. The appellate court has not ruled on either the appeals or the motions to dismiss.
On
October 30, 2008, Anthony Michaels filed a purported class action complaint against Classmates Online, Inc., now known as Memory Lane, Inc., Classmates Media
Corporation and United Online, Inc. in Superior Court of the State of California, County of Los Angeles, alleging causes of action for intentional misrepresentation, negligent
misrepresentation, negligence, fraudulent concealment, and for violations of California Business and Professions Code sections 17200 and 17500 et seq. On December 19, 2008, Xavier
Vasquez filed a purported class action complaint against Classmates Online, Inc., Classmates Media Corporation and United Online, Inc. in Superior Court of Washington, Kings County,
alleging causes of action for violation of the Washington Consumer Protection Act, violation of California's Unfair Competition Law, violation of California's Consumer Legal Remedies Act, unjust
enrichment and violation of California Civil Code section 1694, dealing with dating services contracts. In both actions, the plaintiffs are seeking injunctive relief and damages. On
April 30, 2009, the United States District Court of the Western District of Washington consolidated the Michaels and the Vasquez actions and designated the Michaels action as the lead case. On
March 12, 2010, the parties entered into a comprehensive class action settlement agreement. On December 16, 2010, the court conducted a final approval hearing on the settlement. On
February 22, 2011, the court issued an order formally denying final approval of the settlement. On March 24, 2011, the parties entered into a revised settlement agreement, and on
March 25, 2011, plaintiffs filed a motion for preliminary approval of the revised settlement. On July 8, 2011, the court issued an order granting preliminary approval of the revised
settlement agreement, establishing a schedule for providing notice to class members and setting December 15, 2011 as the date for the hearing to determine the final approval of the settlement.
On July 27, 2011, the court entered an order approving a revised individual notice to the settlement class and, thereafter, the parties entered into a revised settlement agreement effective as
of August 1, 2011 that included the revised notice and minor court-approved changes.
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We
have been cooperating with certain governmental authorities in connection with their respective investigations of our former post-transaction sales practices and certain
other current or former business practices:
-
- In 2010, FTD.com Inc. and Classmates Online, Inc. received subpoenas from the Attorney General for the State
of Kansas and the Attorney General for the State of Maryland, respectively. These subpoenas were issued on behalf of a Multistate Work Group that consists of the Attorneys General for the following
states: Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, New Mexico, New Jersey, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, and Vermont. Based on the
subpoenas, the Company believes that the primary focus of the inquiry concerns certain post-transaction sales practices in which these subsidiaries previously engaged with certain
third-party vendors.
-
- In 2010, Classmates Online, Inc. received a subpoena from the Attorney General for the District of Columbia
regarding the subsidiary's marketing, billing, and renewal practices, including, without limitation, its former post-transaction sales practices.
-
- In July 2011, United Online, Inc. received a civil investigative demand from the Federal Trade Commission regarding
certain post-transaction sales practices in which we previously engaged with a certain third-party vendor.
-
- In July 2011, Classmates Online, Inc. received a civil investigative demand from the Attorney General for the State
of Washington regarding its marketing, refund, cancelation and renewal practices. In 2009, Classmates Online, Inc. had received a civil investigative demand from the Attorney General for the
State of Washington regarding certain post-transaction sales practices in which it had previously engaged with certain third-party vendors.
We
cannot predict the outcome of these or any other governmental investigations or other legal actions or their potential implications for our business. There are no assurances that
additional governmental investigations or other legal actions will not be instituted in connection with our former post-transaction sales practices or other current or former business
practices.
We
are subject to various legal proceedings, investigations, claims, and litigation that can involve complex questions of fact and law and may require the expenditure of significant
funds and the diversion of other resources to defend. There can be no assurance that such legal proceedings, investigations, claims, and litigation, which are inherently uncertain, will not materially
and adversely affect our business, financial condition, results of operations, or cash flows. At June 30, 2011, we had a reserve of $4.4 million for a pending legal settlement.
ITEM 1A. RISK FACTORS
The risk factors set forth below are substantially the same as those included in our Annual Report on Form 10-K for
the year ended December 31, 2010.
RISKS RELATING TO OUR BUSINESS GENERALLY
Current or future economic conditions may have a material and adverse impact on our business, financial condition, results of operations, and cash flows.
Economic conditions in the U.S. and the European Union have been depressed and may remain challenging for the foreseeable future. Our
products and services are discretionary and dependent upon levels of consumer spending. Consumer spending patterns are difficult to predict and are sensitive to, among other factors, the general
economic climate, the consumers' level of disposable income, consumer debt, and overall consumer confidence. The continuing economic conditions have adversely impacted certain aspects of our
businesses in a number of ways including reduced demand, more
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aggressive
pricing for similar products and services by our competitors, decreased spending by advertisers, increased credit risks, increased credit card failures, a loss of customers, and increased
use of discounted pricing for certain of our products and services. It is likely that these and other factors will continue to adversely impact our businesses, at least in the near term. The
continuing economic conditions may adversely impact our key vendors. Such economic conditions and decreased consumer spending have, in certain cases, resulted in, and may in the future result in, a
variety of negative effects such as a reduction in revenues, increased costs, lower gross margin and operating margin percentages, increased allowances for doubtful accounts and write-offs
of accounts receivable, and recognition of impairments of assets, including goodwill and other intangible and long-lived assets. Any of the above factors could have a material adverse
effect on our business, financial condition, results of operations, and cash flows.
Our business is subject to fluctuations.
Our results of operations and changes in our key business metrics from period to period have varied in the past and may fluctuate
significantly in the future due to a variety of factors, many of which are outside of our control and difficult to predict. Each of the risk factors discussed in this Item 1A and the other
factors described elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission may affect us from period to period and may
affect our long-term performance. As a result, you should not rely on period-to-period comparisons as an indication of our future performance. In addition, these
factors and the challenging economic conditions create difficulties with respect to our ability to forecast our financial performance and business metrics accurately. We believe that these
difficulties in forecasting present even greater challenges for financial analysts who publish their own estimates of our future financial results and business metrics. We cannot assure you that we
will achieve the expectations of, or projections made by, our management or the financial analysts. In the event we do not achieve such expectations or projections, our financial results and the price
of our common stock could be adversely affected.
New business initiatives, products, services, or features may not be successful, which could adversely impact our key metrics and financial results.
We have expended, and will continue to expend, significant resources in developing and implementing new business initiatives, products,
services, and features, such as those related to our Memory Lane website. Such development and implementation involves a number of uncertainties, including unanticipated delays and expenses and
technological problems. New business initiatives, products, services, or features also may not be accepted by consumers or commercially successful. We cannot assure you that we will be successful in
such development and implementation efforts, including those related to the Memory Lane business, or that any new business initiatives, products, services, or features will be accepted by consumers or
commercially successful. If our development and implementation efforts are not successful, or such new initiatives, products, services, or features are not accepted by consumers or commercially
successful, our key metrics and financial results could be materially and adversely impacted.
We may be unable to maintain or grow our advertising revenues. Reduced advertising revenues may reduce our profits.
Advertising revenues are a key component of our revenues and profitability. Factors that have caused, or may cause in the future, our
advertising revenues to fluctuate include, without limitation, the effect of, changes to, or terminations of key advertising relationships, changes to our websites and advertising inventory, changes
in applicable laws, regulations or business practices, including those related to behavioral or targeted advertising, user privacy and taxation, changes in business models, changes in the online
advertising market, changes in the economy, advertisers' budgeting and buying
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patterns,
competition, changes in the number of visitors to our websites, active accounts or consumers purchasing our products and services, and changes in usage of our services. Decreases in our
advertising revenues are likely to adversely impact our profitability.
Advertising
revenues generated by our Content & Media and Communications segments generally have been declining, when compared to prior periods, and may continue to decline in the
future as a result of various factors, including, without limitation, the risks and uncertainties discussed above, in other risk factors, and elsewhere in this Quarterly Report on
Form 10-Q. Any or all of the above factors have caused, and could continue to cause, our advertising revenues and profits to significantly decline in the future.
Changes in foreign currency exchange rates could adversely affect comparisons of our operating results.
We transact business in different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign
currency exchange rates, including the British Pound, the Euro, the Indian Rupee, the Swedish Krona, the Swiss Franc, and the Canadian Dollar. Revenues and expenses in foreign currencies translate
into higher or lower revenues and expenses in U.S. Dollars as the U.S. Dollar weakens or strengthens against such other currencies. Substantially all of the revenues of our foreign subsidiaries
are received, and substantially all expenses are incurred, in currencies other than the U.S. Dollar, which increases or decreases the related U.S. Dollar-reported revenues and expenses
depending on the trend in foreign currency exchange rates. Certain of our key business metrics, such as the FTD segment's average order value, are similarly affected by such foreign currency exchange
rate fluctuations. Changes in global economic conditions, market factors, and governmental actions, among other factors, can affect the value of these currencies in relation to the U.S. Dollar.
A strengthening of the U.S. Dollar compared to these currencies and, in particular, to the British Pound and the Euro, has had, and in future periods could have, an adverse effect on the
comparisons of our revenues and operating income against prior periods. We cannot accurately predict the impact of future foreign currency exchange rate fluctuations on our operating
results, and such fluctuations could negatively impact the comparisons of such results against prior periods.
Our marketing efforts may not be successful, which could increase our costs and adversely impact our key metrics and financial results.
We spend significant resources marketing our brands, products and services. We rely on relationships with a wide variety of third
parties, including Internet search providers, Internet advertising networks, co-registration partners, retailers, distributors and direct marketers, to promote or distribute our products
and services. In addition, in connection with the launch of the Memory Lane website, we have spent, and may continue to spend, a significant amount on its marketing, including through television
advertising. If our marketing activities are inefficient or unsuccessful, or if important third-party relationships become more expensive or unavailable, our key metrics and financial results could be
materially and adversely impacted.
Significant problems with our key systems or those of our third-party vendors could have a material adverse effect on our business, financial condition, results of
operations, and cash flows.
The systems underlying the operations of each of our business segments are complex and diverse, and must efficiently integrate with
third-party systems, such as credit card processors. Key systems include, without limitation, order transmission, fulfillment and processing including the system for transmitting orders through the
floral network; billing; website and database management; customer support; telecommunications network management; advertisement serving and management systems; and internal financial systems. Some of
these systems, such as customer support, are outsourced to third parties, and other systems, such as FTD's order transmission and fulfillment system and the
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platform
for our international online nostalgia websites, are not redundant. We have experienced systems problems in the past, and we or these third parties may experience problems in the future. In
addition, if these third parties face financial or other difficulties, our business could be adversely impacted. Any significant errors, failures, interruptions, delays, or other problems with our
systems or our third-party vendors or their systems could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
In
addition, our Content & Media and Communications businesses outsource a majority of their live technical and billing support functions. These businesses rely on one customer
support vendor, and we maintain only a small number of internal customer support personnel for these businesses. Our internal
customer support personnel are not equipped to provide the necessary range of customer support functions in the event that this vendor unexpectedly becomes unable or unwilling to provide these
services to us.
Legal actions or investigations could subject us to substantial liability, require us to change our business practices, and adversely affect our business, financial
condition, results of operations, and cash flows.
We are currently, and have been in the past, party to various legal actions and investigations. These actions may include, without
limitation, claims by private parties in connection with consumer protection and other laws, claims that we infringe third-party patents, trademarks, copyrights or other intellectual property or
proprietary rights, securities laws claims, claims involving marketing practices or unfair competition, claims in connection with employment practices, breach of contract claims, and other
business-related claims. The nature of our business could subject us to additional claims for similar matters, as well as a wide variety of other claims including, without limitation, claims for
defamation, right of publicity, negligence, and privacy and security matters. The failure to successfully defend against these and other types of claims, including claims relating to our business
practices, could result in our incurring significant liabilities related to judgments or settlements or require us to change our business practices. Infringement claims may also result in our being
required to obtain licenses from third parties, which licenses may not be available on acceptable terms, if at all. Both the cost of defending claims, as well as the effect of settlements and
judgments, could cause our results of operations to fluctuate significantly from period to period and could materially and adversely affect our business, financial condition, results of operations,
and cash flows.
Various
governmental agencies have in the past, and may in the future, assert claims, institute legal actions, inquiries or investigations, or impose obligations relating to our business
practices, such as our marketing, billing, customer retention, renewal, cancelation, refund, or disclosure practices. The Federal Trade Commission and certain state agencies have investigated Internet
companies, including us, in connection with consumer protection and privacy matters. In addition, we have received civil investigative demands and subpoenas, as applicable, from the Federal Trade
Commission and the Attorneys General of various states, primarily regarding their respective investigations into certain post-transaction sales practices and certain of our marketing,
billing and renewal practices. We have been cooperating with these investigations. However, the outcome of these or any other governmental investigations or their potential implications for our
business are uncertain. We may not prevail in existing or future claims and any judgment against us or settlement or resolution of such claims may involve the payment of significant sums, including
damages, fines, penalties, or assessments, or changes to our business practices. Defending against lawsuits, inquiries and investigations involves significant expense and diversion of management's
attention and resources from other matters. There are no assurances that additional governmental investigations or other legal actions will not be instituted in connection with our former
post-transaction sales practices or other current or former business practices. Enforcement actions or changes in enforcement policies and procedures could result in changes to our
business practices as well as significant fines, penalties or assessments, which could
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decrease
our revenues or increase the costs of operating our business. To the extent that our services and business practices change as a result of claims or actions by governmental agencies or
private parties, or we are required to pay significant sums, including damages, fines, penalties, or assessments, our business, financial condition, results of operations, and cash flows could be
materially and adversely affected.
Our failure to enforce and protect our intellectual property and proprietary rights could harm our business.
Our trade names, trademarks, service marks, patents, copyrights, domain names, trade secrets, and other intellectual property are
important to the success of our businesses. In particular, we view our primary trademarks as critical to our success. We principally rely upon patent, trademark, copyright, trade secret, and domain
name laws in the U.S. and similar laws in other countries, as well as licenses and other agreements with our employees, members, consumers, suppliers and other parties, to establish and maintain our
intellectual property and proprietary rights in the technology, products, services and content used in our operations. These laws and agreements may not guarantee that our proprietary rights will be
protected and our intellectual property and proprietary rights could be challenged or invalidated. We also license some of our intellectual property rights, including the Mercury Man logo, to third
parties. The steps we and such third parties have taken to protect our intellectual property and proprietary rights may not be adequate, and other third parties may infringe or misappropriate our
intellectual property and proprietary rights. The protection of our intellectual property and proprietary rights may require the expenditure of significant financial and internal resources. We cannot
assure you that we have taken adequate steps to prevent infringement or misappropriation of our intellectual property and proprietary rights. Our failure to adequately protect
our intellectual property and proprietary rights could adversely affect our brands and could harm our business.
A security breach or inappropriate access to, or use of, our networks, computer systems or services or those of third-party vendors could expose us to liability, claims and
a loss of revenue.
The success of our business depends on the security of our networks and, in part, on the security of the network infrastructures of our
third-party vendors. Unauthorized or inappropriate access to, or use of, our networks, computer systems or services, whether intentional, unintentional or as a result of criminal activity, could
potentially jeopardize the security of confidential information, including credit card information, of our customers and of third parties. We cannot assure you that the security measures we take will
be effective in preventing these types of activities. We also cannot assure you that the security measures of our third-party network providers, providers of customer and billing support services or
other vendors will be adequate. In addition to potential legal liability, these activities may adversely impact our reputation or our revenues and may interfere with our ability to provide our
products and services, all of which could adversely impact our business.
Changes in laws and regulations and new laws and regulations may adversely affect our business, financial condition, results of operations, and cash flows.
We are subject to a variety of international, federal, state, and local laws and regulations, including, without limitation, those
relating to taxation, bulk email or "spam," advertising, including, without limitation, targeted or behavioral advertising, user privacy and data protection, consumer protection, antitrust, and
unclaimed property. Compliance with the various laws and regulations, which in many instances are unclear or unsettled, is complex. New laws and regulations, such as those being considered or recently
enacted by certain states or the federal government related to automatic-renewal practices, user privacy, targeted or behavioral advertising, floral-related advertising and charges, and taxation,
could impact certain of our business practices or those of our advertisers. Any changes in the
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laws
and regulations applicable to us, the enactment of any additional laws or regulations, or the failure to comply with, or increased enforcement activity of, such laws and regulations, could
significantly impact our products and services, our costs, or the manner in which we or our advertisers conduct business, all of which could adversely impact our results of operations and cause our
business to suffer.
Our online nostalgia and online loyalty marketing services, as well as our FTD segment's consumer business, rely heavily on email campaigns, and any disruptions or
restrictions on the sending of emails or increase in the associated costs could adversely affect our business and results of operations.
Our emails have historically generated the majority of the traffic on our online nostalgia websites and are the most important driver
of member activity for our online loyalty marketing service. A significant number of members of our online nostalgia and online loyalty marketing services elect to opt-out of receiving
certain types of emails. Without the ability to email these members, we have very limited means of inducing members to return to our websites and utilize our services. In addition, each month, a
significant number of email addresses for members of our online nostalgia and online loyalty marketing services become invalid. This disrupts our ability to email these members and also prevents our
online nostalgia members from being able to contact these members, which is one of the reasons why members use our online nostalgia services.
Our
FTD segment generates a significant portion of its consumer orders from the emails we send to customers who have previously ordered products from us. We also engage in a number of
third-party email marketing campaigns in which such third parties include our marketing offers in the emails they send.
An
increase in the number of members or customers who elect to not receive, or are unable to receive, our emails could adversely affect our business and results of operations. From time
to time, Internet service providers block bulk email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails to our members or
customers. Third parties may also block, impose restrictions on, or start to charge for, the delivery of emails through their email systems. Due to the importance of email to our businesses, any
disruption or restriction on the distribution of emails or increase in the associated costs could materially and adversely affect our revenues and profitability.
We may be unsuccessful at acquiring additional businesses, services or technologies. Even if we complete an acquisition, it may not improve our results of operations and may
also adversely impact our business, financial condition and cash flows.
One of our strategic objectives is to acquire businesses, services or technologies that will provide us with an opportunity to
diversify the products and services we offer, leverage our assets and core competencies, or expand our geographic reach, or that otherwise may be complementary to our existing businesses. However,
acquiring companies is a difficult process with many factors outside of our control. In addition, the Credit Agreement imposes certain restrictions on our ability to complete acquisitions and there is
no assurance that we will be successful in completing additional acquisitions.
We
have evaluated and expect to continue to evaluate, a wide variety of potential strategic transactions that we believe may complement our current or future business activities.
However, we cannot assure you that the anticipated benefits and synergies of an acquisition will materialize or that any integration attempts will be successful. Acquiring a business, service or
technology involves many operational and financial risks, including risks relating to:
-
- disruption of our ongoing business and significant diversion of resources and management time from
day-to-day responsibilities;
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-
- acquisition financings that involve the issuance of potentially dilutive equity or the incurrence of debt;
-
- reduction of cash and other resources available for operations and other uses;
-
- exposure to risks specific to the acquired business, service or technology to which we are not currently exposed;
-
- risks of entering markets in which we have little or no direct prior experience;
-
- unforeseen obligations or liabilities;
-
- difficulty assimilating the acquired customer bases, technologies and operations;
-
- difficulty assimilating and retaining management and employees of the acquired business;
-
- potential impairment of relationships with users, customers or vendors as a result of changes in management of the
acquired business or other factors;
-
- large write-offs either at the time of the acquisition or in the future, the incurrence of restructuring
charges, the amortization of identifiable intangible assets, and the impairment of amounts capitalized as goodwill, intangible assets and other long-lived assets; and
-
- lack of, or inadequate, controls, policies and procedures appropriate for a public company, and the time, cost and
difficulties related to the implementation of such controls, policies and procedures or the remediation of any deficiencies.
Any
of these risks could harm our business, financial condition, results of operations, and cash flows.
In
addition, an acquisition of a foreign business involves risks in addition to those set forth above, including risks associated with foreign currency exchange rates, potentially
unfamiliar economic, political and regulatory environments, and integration difficulties due to language, cultural and geographic differences.
FTD has a substantial amount of indebtedness which could adversely affect our ability to raise additional capital to fund operations, our flexibility in operating our
business and our ability to react to changes in the economy or our industry, and prevent us from satisfying our debt obligations.
FTD has a substantial amount of indebtedness which could have important consequences for our business and financial condition. For
example:
-
- If we fail to meet payment obligations or otherwise default under the Credit Agreement, the lenders will have the right to
accelerate the indebtedness and exercise other rights and remedies against us.
-
- We will be required to dedicate a substantial portion of FTD's cash flow from operations to payments on the debt, thereby
reducing funds available for working capital, capital expenditures, dividends, acquisitions, and other purposes.
-
- Our ability to obtain additional financing to fund future working capital, capital expenditures, additional acquisitions,
and other general corporate requirements could be limited.
-
- The Credit Agreement imposes operating and financial covenants and restrictions on FTD, including limitations on our
ability to use FTD cash flow for the benefit of our subsidiaries other than FTD, and compliance with such covenants and restrictions may adversely affect our ability to adequately finance our
operations or capital needs in the future, to pursue attractive business opportunities that may arise in the future, to redeem or repurchase capital stock, to pay dividends, to sell assets, and to
make capital expenditures.
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-
- Our failure to comply with the covenants in the Credit Agreement, including failure as a result of events beyond our
control, could result in an event of default under the credit agreement, which could cause all amounts outstanding with respect to that debt to become immediately due and payable and could materially
and adversely affect our operating results, financial condition and liquidity.
-
- We will experience increased vulnerability to, and limited flexibility in planning for, changes to our businesses and
adverse economic and industry conditions.
-
- We could be placed at a competitive disadvantage relative to other companies with less indebtedness.
-
- Our ability to apply excess FTD cash flow or proceeds from certain types of securities offerings, asset sales and other
transactions to purposes other than the repayment of debt, as well as servicing of the debt, could be limited.
-
- The interest rates under the Credit Agreement will fluctuate and, accordingly, interest expense may increase. Credit
rating agencies have been considering a possible downgrade of the U.S. government's credit rating. A downgrade of the U.S. government's credit rating would likely result in an increase in interest
rates, which could increase our interest rates under the Credit Agreement and our interest expense.
-
- If we make voluntary prepayments on our debt, we will have to accelerate the related discount accretion and debt issuance
cost amortization, which would impact interest expense, and certain prepayments may be subject to penalties.
Under
the terms of the Credit Agreement, we will be permitted to incur additional indebtedness subject to certain conditions, and the risks described above may be increased if we incur
additional indebtedness.
The
Credit Agreement includes guarantees on a joint and several basis by UNOL Intermediate, Inc. and certain of FTD Group, Inc.'s existing and future, direct and indirect
domestic subsidiaries and is secured by first priority security interests in, and mortgages on, substantially all of the tangible and intangible
assets of UNOL Intermediate, Inc., FTD Group, Inc. and certain of FTD Group, Inc.'s direct and indirect subsidiaries and first priority pledges of all the equity interests owned
by FTD Group, Inc. in certain of its existing and future direct and indirect subsidiaries (except with respect to foreign subsidiaries in which case such pledges are limited to 66% of the
outstanding capital stock). The occurrence of an event of default under the Credit Agreement could permit the lenders to terminate the commitments of such lenders to make further extensions of credit
under the Credit Agreement, to call and enforce the guarantees, and to foreclose on the collateral securing such debt.
We may not realize the benefits associated with our assets and may be required to record a significant charge to earnings if we are required to expense certain costs or
impair our assets.
We have capitalized goodwill and identifiable intangible assets in connection with our acquisitions and certain business initiatives
such as the content archives on the Memory Lane website. We perform an impairment test of our goodwill and indefinite-lived intangible assets annually during the fourth quarter of our fiscal year or
when events occur or circumstances change that would more likely than not indicate that goodwill or any such assets might be permanently impaired. If our acquisitions or business initiatives are not
commercially successful or, if due to economic or other conditions, our assumptions regarding the performance of such businesses or business initiatives are not achieved, we would likely be required
to record impairment charges which would negatively impact our financial condition and results of operations. We have experienced impairment charges in the past. Given the current economic environment
and the uncertainties regarding the impact on our businesses, there can be no assurance that our estimates and assumptions regarding the duration of the challenging economic
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conditions,
or the period or strength of recovery, made for purposes of our goodwill and identifiable intangible assets impairment testing will prove to be accurate predictions of the future. If our
assumptions regarding forecasted revenue or growth rates of certain reporting units or other factors are not achieved or are revised downward, we may be required to record additional impairment
charges in future periods. In addition, from time to time, we record tangible or intangible assets on our balance sheet that, due to changes in value or in our strategy, may have to be expensed in
future periods. Write-downs or impairments of assets, whether tangible or intangible, could adversely and materially impact our financial condition and results of operations.
Our ability to operate our business could be seriously harmed if we lose members of our senior management team or other key employees.
Our business is largely dependent on the efforts and abilities of our senior management, particularly Mark R. Goldston, our chairman,
president and chief executive officer, and other key personnel. Any of our officers or employees can terminate his or her employment
relationship at any time. The loss of any of these key employees or our inability to attract or retain other qualified employees could seriously harm our business and prospects. We do not carry
key-person life insurance on any of our employees.
Foreign, state and local governments may attempt to impose additional income taxes, sales and use taxes, value added taxes or other taxes on our business activities and
Internet-based transactions, including our past sales, which could decrease our ability to compete, reduce our sales, or have a material adverse effect on our business, financial condition, results of
operations, and cash flows.
We are subject to income and various other taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in
evaluating our consolidated provision for income taxes. During the ordinary course of business, there are many transactions for which the ultimate tax determination is uncertain. In addition, our
effective income tax rates could be adversely affected by earnings being less than anticipated in countries where we have lower statutory rates and more (or determined to be more by a particular
taxing jurisdiction) than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities or by, among other factors, changes in
the relevant tax, accounting and other laws, regulations, principles, and interpretations. We are subject to audit in various jurisdictions, and such jurisdictions may assess additional income and
other taxes against us. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income
tax provisions, and our historical recognition of other tax matters. The results of an audit or litigation could have a material effect on our business, financial condition, results of operations, and
cash flows.
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In connection with our Internet-based transactions, a number of states have been considering or adopting legislation or instituting policy initiatives, including
those that would facilitate a finding of nexus to exist between Internet companies with the states, aimed at expanding the reach of sales and use taxes or imposing state income or other taxes on
various innovative theories, including agency attribution from independent third-party service providers. Such legislation or initiatives could result in the imposition of additional sales and use
taxes, or the payment of state income or other taxes, on certain transactions conducted over the Internet. If such legislation is enacted, or such initiatives are instituted, and upheld by the courts,
the legislation or initiatives could subject us to substantially increased tax liabilities for past and future sales or state income or other taxes, require us to collect additional sales and use
taxes, cause our future sales to decrease, otherwise negatively impact our businesses, and thus have a material adverse effect on us.
We face risks relating to operating and doing business internationally that could adversely affect our businesses and results of operations.
Our businesses operate in a number of countries outside the U.S. Conducting international operations involves risks and uncertainties,
including:
-
- adverse fluctuations in foreign currency exchange rates;
-
- potentially adverse tax consequences, including the complexities of foreign value added taxes and restrictions on the
repatriation of earnings;
-
- increased financial accounting, tax and reporting burdens and complexities;
-
- disruption of our ongoing business and significant diversion of management attention from
day-to-day responsibilities;
-
- localization of our services, including translation into foreign languages and adaptation for local practices and
regulatory requirements;
-
- lack of familiarity with, and unexpected changes in, foreign regulatory requirements;
-
- longer accounts receivable collection cycles;
-
- difficulties in managing and staffing international operations;
-
- the burdens of complying with a wide variety of foreign laws, regulations and legal and regulatory standards;
-
- political, social and economic instability abroad, terrorist attacks and security concerns in general; and
-
- reduced or varied protection for intellectual property and proprietary rights.
The
occurrence of any one of these risks could negatively affect our international operations, our key business metrics, and our financial results.
We may stop paying, or reduce, quarterly cash dividends on our common stock.
The payment of future dividends is discretionary and is subject to determination by our Board of Directors each quarter following its
review of our financial condition, results of operations and cash flows and such other factors as are deemed relevant by our Board of Directors. Commencing with the third quarter of 2008, we have
decreased our quarterly cash dividend from $0.20 per share of common stock to $0.10 per share of common stock. A decline in our cash flows, changes in our business needs, including working capital and
funding for business initiatives or acquisitions, or a change in tax laws relating to dividends, among other factors, could cause our Board of Directors to decide to cease the
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payment
of, or further reduce, dividends in the future. We cannot assure you that we will not decrease or discontinue quarterly cash dividends, and if we do, our stock price could be negatively
impacted.
Our businesses could be shut down or severely impacted by a catastrophic event.
Our businesses could be materially and adversely affected by a catastrophic event. A disaster such as a fire, earthquake, flood, power
loss, terrorism, or other similar event, affecting any of our facilities, data centers or computer systems, or those of our third-party vendors, or a system interruption or delay that slows down the
Internet or makes the Internet or our websites temporarily unavailable, could result in a significant and extended disruption of our operations and services. Any prolonged disruption of our services
due to these or other events would severely impact our businesses. We do not carry flood insurance for certain of our facilities, and the property, business interruption and other insurance we do
carry may not be sufficient to cover, if at all, losses that may occur as a result of any events which cause interruptions in our services.
We cannot predict our future capital needs and we may not be able to secure additional financing which could adversely impact us.
We may need to raise additional funds in the future to fund our operations, for acquisitions of businesses, services or technologies or
for other purposes. Additional financing may not be available in a timely manner, on terms favorable to us, or at all. The terms of FTD's indebtedness in addition to the degree to which we are
leveraged, will adversely affect our ability to obtain additional financing. In addition, the current extreme volatility of, and disruption in, the securities and credit markets may restrict our
ability to raise any such additional funds. If adequate funds are not available or not available when required and in sufficient amounts or on acceptable terms, our businesses and future prospects may
suffer.
Our certificate of incorporation, our bylaws and Delaware law contain provisions that could delay or discourage takeover attempts that stockholders may consider favorable or
beneficial.
Provisions of our certificate of incorporation, our bylaws and Delaware law could make it difficult for our stockholders to elect
directors and take other corporate actions. These provisions could have the effect of delaying or discouraging takeover attempts that our stockholders may consider favorable or beneficial because of
the premium price that would be offered by a potential acquirer. In addition, although our previous stockholder rights plan expired in February 2011, there are no assurances that our Board of
Directors will not implement a new stockholder rights plan in the future.
Our stock price has been highly volatile and may continue to be volatile.
The market price of our common stock has fluctuated significantly and it may continue to be volatile with extreme trading volume
fluctuations. In addition, the Nasdaq Global Select Market has experienced substantial price and trading volume fluctuations. The broad market and industry factors that influence or affect such
fluctuations may harm the market price of our common stock, regardless of our actual operating performance. As a result of these or other reasons, we have experienced and may continue to experience
significant volatility in the market price of our common stock.
ADDITIONAL RISKS RELATING TO OUR FTD SEGMENT
Competition could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
We compete in the market for flowers and, to a lesser degree, gifts. In the consumer market, consumers are our customers for direct
sales of floral products and gifts through our websites and telephone numbers. In the floral network services market, retail florists and supermarkets are our
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principal
customers for memberships and subscriptions to our various floral network services, including access to the FTD and Interflora brands and the Mercury Man logo, access to the floral networks,
credit card processing services, e-commerce website services, online advertising tools, telephone answering, order taking, order transmission, and clearing-house services.
The
consumer market for flowers and gifts is highly competitive as consumers can purchase the products we offer from numerous sources, including traditional local retail florists,
supermarkets, mass merchants, gift retailers, and floral mass marketers, such as those that use websites, telephone numbers and catalogs. The floral network services market is highly competitive as
well, and retail florists and supermarkets may choose from a few floral network service providers that offer similar products and services. In the U.S., our key competitors in the consumer market
include 1-800-FLOWERS.COM, Inc., Proflowers.com and Teleflora, and our key competitors in the floral network services market include Teleflora and BloomNet Wire Service,
a
subsidiary of 1-800-FLOWERS.COM, Inc. International key competitors include Marks & Spencer, NEXT, John Lewis, Teleflorist (also known as eFlorist), Flowers
Direct, and Flying Flowers.
We
believe competition in the consumer market will likely continue to intensify. Supermarkets, mass merchants and floral mass marketers have been gaining market share over retail
florists as consumers continue to shift more of their floral purchases to these channels. We expect the sales volumes at supermarkets and mass merchants to continue to increase, and other floral mass
marketers will continue to increase their competition with us. In particular, the nature of the Internet as a marketplace facilitates competitive entry and comparative shopping, and we have
experienced increased competition based on price. Some of our competitors may have significant competitive advantages over us, may engage in more significant discounting, may devote significantly
greater resources to marketing campaigns or other aspects of their business or may respond more quickly and effectively than we can to new or changing opportunities or customer requirements.
We
expect competition in the floral network services market to continue to increase as well. We believe we will continue to experience increasing competition from the other floral
network services providers. In addition, we expect retail florists likely will continue to lose sales to supermarkets and floral mass marketers, which likely will result in a continuing decrease in
their revenues and in the number of retail florists. As the number of retail florists and their revenues decrease, competition for the business of the remaining retail florists will intensify.
Increased
competition in the consumer market or the floral network services market may result in lower revenues, reduced gross margins, loss of market share, and increased marketing
expenditures. We cannot provide assurance that we will be able to compete successfully or that competitive pressures will not have a material adverse effect on our business, financial condition,
results of operations, and cash flows.
We are dependent on third parties who fulfill orders and deliver goods and services to our customers and their failure to provide our customers with high-quality
products and customer service may harm our brands and could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
We believe that our success in promoting and enhancing our brands depends on our ability to provide our customers
high-quality products and a high level of customer service. Our business depends, in part, on the ability of our independent floral network members and third-party suppliers who fulfill
our orders to do so at high-quality levels. We work with our floral network members and third-party suppliers to develop best practices for quality assurance; however, we generally do not
directly control or continuously monitor any floral network member or third-party supplier. The failure of our floral network members or third-party suppliers to fulfill orders to our customers'
satisfaction, at an acceptable level of quality and within the required timeframe, could adversely impact our brands
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and
cause us to lose customers, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Additionally,
because we depend upon third parties for the delivery of our products to customers, strikes or other service interruptions affecting these shippers could have an adverse
effect on our ability to deliver our products on a timely basis. If any of our shippers are unable or unwilling to deliver our products, we would have to engage alternative shippers which could
increase our costs. A disruption in any of our shippers' delivery of our products could cause us to lose customers or could increase our costs, which could have a material adverse effect on our
business, financial condition, results of operations, and cash flows.
The success of our business is dependent on our floral network members and on the financial performance of the retail floral industry.
A significant portion of our profitability is dependent on our floral network members. We have lost, and may continue to lose, floral
network members as a result of both our members choosing not to do business with us as well as declines in the number of local retail florists as a result of economic factors and competition. If we
lose a significant number of floral network members, or if we are not able to maintain or increase revenues from our floral network members, our business, financial condition, results of operations,
and cash flows could be materially and adversely affected.
Shifts in the mix of products versus services sold, and types of products and services sold, may adversely affect our financial results.
The cost of revenues associated with our products revenues is generally higher than that associated with our services revenues. In
addition, the cost of revenues associated with certain products and services may be higher than that associated with other products and services. As a result, changes in the proportion of FTD segment
revenues that is represented by products revenues versus services revenues, and certain types of products and services versus others, may adversely affect our revenues, cost of revenues, cost of
revenues as a percentage of revenues, and segment income from operations.
Shifts in the mix of products and services sold at standard pricing as compared to discounted pricing or the failure to maintain our standard pricing for products and
services could have adverse effects on our financial results.
Due to economic conditions and for competitive and other reasons, we have been offering broader and greater discounts to the consumer,
both on a promotional basis to consumers generally as well as through strategic arrangements with third parties that have a fixed, and in certain cases greater, discount or other associated costs. We
also offer discounts on our floral network service fees from time to time on a promotional basis. Shifts in the mix of products and services sold that have resulted in increases in the proportion of
products and services sold at a discount, and at times at greater discounts, including through such strategic arrangements, have resulted, and may in the future result, in reduced revenues, an
increase in cost of revenues as a percentage of revenues, and a decrease in segment income from operations. We currently intend to continue selling a portion of our products and services at a
discount, including through such strategic arrangements, and there are no assurances that the portion of products and services sold at a discount, including through such strategic arrangements, will
not continue to increase. The continued use of discounts for our products and services may result in our becoming more reliant upon offering discounts, including through such strategic arrangements,
in order to sell our products and services, which could result in our having to reduce our standard pricing, and may adversely impact our financial results.
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If the supply of flowers becomes limited, the price of these products could rise or these products may become unavailable, which could result in our not being able to meet
consumer demand and could cause an adverse effect on our business, financial condition, results of operations, and cash flows.
Many factors, such as weather conditions, agricultural limitations, restrictions relating to the management of pests and disease, and
fair trade and other social or environmental issues, affect the supply of flowers and the price of our floral products. If the supply of flowers available for sale is limited, the wholesale prices of
flowers could rise, which would cause us to increase our prices or reduce our profits. An increase in our prices could result in a decline in customer demand for our floral products, which would
decrease our revenues.
Alternatively,
we may not be able to obtain high-quality flowers in an amount sufficient to meet customer demand. Even if available, flowers from alternative sources may be
of lesser quality or more expensive than those currently offered by us. A large portion of our supply of flowers is sourced from Colombia, Ecuador and Holland.
The
availability and price of our products could be affected by a number of other factors affecting suppliers, including:
-
- severe weather;
-
- disease, infestation and other biological problems;
-
- import duties and quotas;
-
- time-consuming import regulations or controls at airports;
-
- changes in trading status;
-
- economic uncertainties and currency fluctuations, including as a result of the recent volatility and disruptions in the
credit markets and general economy;
-
- foreign government laws and regulations;
-
- political, social and economic instability, terrorist attacks and security concerns in general;
-
- fair trade and other social or environmental certifications, requirements or practices;
-
- governmental bans or quarantines;
-
- disruption in transportation and delivery;
-
- trade restrictions, including U.S. retaliation against foreign trade practices; and
-
- transportation availability and costs.
Foreign, state and local governments may attempt to impose additional sales and use taxes, value added taxes or other taxes on our business activities, including our past
sales, which could decrease our ability to compete, reduce our sales, and have a material adverse effect on our business, financial condition, results of operations, and cash flows.
In accordance with current industry practice by domestic floral and gift order gatherers and our interpretation of applicable law, our
FTD consumer business collects and remits sales and use taxes on orders that are delivered in states where it has a physical presence or other form of jurisdictional nexus, which is a limited number
of states. If states successfully challenge this practice and impose sales and use taxes on orders delivered in states where we do not have physical presence or another form of jurisdictional nexus,
we could incur substantial tax liabilities for past sales and lose future sales as a result of the increased tax cost that would be borne by the customer. Also, states may seek to reclassify the
status of Internet order gatherers, such as our FTD consumer business, as persons that are deemed
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to
fulfill the underlying order, in which case, a state may seek to impose taxes on the receipts generated by our FTD consumer business for orders fulfilled and delivered by florists outside such
state. In addition, future changes in the operation of our online and telephonic sales channels could result in the imposition of additional sales and use tax or other tax obligations.
Additionally,
in accordance with current industry practice by international floral and gift direct marketers and our interpretation of applicable law, we collect and remit value added
taxes on certain consumer orders placed through Interflora. Future changes in the operation of our business could result in the imposition of additional tax obligations. Moreover, if a foreign taxing
authority successfully challenges our current practice or implements new legislative initiatives, additional taxes on consumer sales could be due by us. The imposition of additional tax liabilities
for past or future sales could decrease our ability to compete with traditional retailers and reduce our sales, which could have a material adverse effect on our business, financial condition, results
of operations, and cash flow.
We utilize outsourced staff and temporary employees, who may not be as well trained or committed to our customers as our permanent employees, and their failure to provide
our customers with high-quality customer service may cause our customers not to return, which could have a material adverse effect on our business, financial condition, results of
operations, and cash flows.
We utilize and rely on a significant number of outsourced staff and temporary employees in addition to our permanent employees, to take
orders and respond to customer inquiries. These outsourced staff and temporary employees may not have the same level of commitment to our customers or be as well trained as our permanent employees. In
addition, we may not hire
enough outsourced staff or temporary employees to adequately handle the increased volume of telephone calls we receive during peak periods. If our customers are dissatisfied with the quality of the
customer service they receive, they may not place orders with us again, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
ADDITIONAL RISKS RELATING TO OUR CONTENT & MEDIA SEGMENT
The transition of our historical Classmates business to the new Memory Lane business may not be successful.
In 2010, we made the strategic decision to expand upon the historical value proposition of our Classmates service and transition the
website to be the premier U.S. website to access, acquire, interact with, and share nostalgic content under the new Memory Lane brand. There are many risks associated with such transition. We have
marketed, and may continue marketing, the new website and brand through a significant marketing campaign, and our efforts may not be successful. In addition, we charge for certain premium content and
other products, and there are no assurances that consumers will find such content and products to be compelling and be willing to pay for them, which could result in our having to reduce our standard
pricing or change our pricing structure or business model. We also have altered, and will continue to evaluate and evolve, the ways in which we bring Internet traffic to the website and in which
visitors navigate the website. Such changes may not be successful and could adversely affect Internet traffic to the website, the visitor's experience, as well as our key metrics, including the number
of free accounts, pay accounts, active accounts, and visitors to the website generally. We intend to add new forms of content and social interaction features to the website, but we may experience
delays or technical issues in connection with the implementation of such new content and features. Technology is also constantly evolving and the website may not be compatible with the latest mobile
and other devices used by consumers. There are no assurances that the Memory Lane initiative will be successful. If this initiative is not successful, our business, key metrics and financial results
will be adversely affected.
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We face intense competition that could result in the failure of our online nostalgia services to be commercially successful.
As consumers continue to spend more time and money online, the competition for their time and engagement has continued to intensify.
Consumers have a great number of options for online content and entertainment, including, by way of example, websites offering news and current events, movies, television shows, videos, information
about any and virtually every topic, and the opportunity to communicate, socialize and interact with acquaintances and others. The value proposition of our historical Classmates service as well as
that of our international services competes with major social networking websites such as Facebook and Internet search engines such as Google. Our expanded online nostalgia service continues to
compete with these types of websites, as well as other websites that offer online content and entertainment, such as, by way of example, YouTube with respect to videos, Hulu with respect to television
shows, websites offering games, and websites offering other forms of social media, such as Twitter. Many of our competitors offer their content and services free of charge.
The
market for online loyalty marketing services is highly competitive, and we expect competition to significantly increase in the future as loyalty marketing programs continue to grow
in popularity. Our MyPoints online loyalty marketing service faces competition for members from other online loyalty marketing programs as well as offline loyalty marketing programs that have a
significant online presence, such as those operated by credit card, airline and hotel companies.
Some
of our competitors have longer operating histories, greater name and brand recognition, larger user bases, significantly greater financial, technical, sales, and marketing
resources, and engage in more extensive research and development than we do. Some of our competitors also have lower customer acquisition costs than we do, offer a wider variety of services, have more
compelling websites with more extensive user-generated or third-party content or offer their services or content free to their users. Some of our competitors have been more successful than
we have been in attracting and retaining visitors and members, and our ability to attract visitors to our websites and maintain a large and growing member base has been adversely affected by such
competition. If our competitors provide services similar to our online nostalgia services for free, we may not be able to charge for our online nostalgia services. Competition could have a material
adverse effect on our subscription revenues from online nostalgia services, as well as on advertising revenues from our online nostalgia services and online loyalty marketing services. More intense
competition could also require us to increase our marketing or other expenditures. As a result of competition, our key business metrics, revenues, cash flows, and profitability could be adversely
affected.
Continued declines in the number of pay accounts for our online nostalgia services could cause our business and financial results to suffer.
Pay accounts are critical to our business model. Only a small percentage of users visiting our websites or initially registering for
our online nostalgia services sign up for a paid
subscription at the time of registration. As a result, our ability to generate subscription revenue is highly dependent on our ability to attract visitors to our websites, register them as free
members, encourage them to return to our websites, and convince them to become pay accounts in order to access the pay features of our websites. The number of pay accounts has been decreasing, and
there are no assurances that such trend will not continue. If we are not able to attract visitors to our websites and convert a significant portion to pay accounts, the number of pay accounts for our
online nostalgia services will continue to decline and our business and financial results would be adversely affected.
A
number of our pay account subscriptions each month are not renewed or are canceled, which, for the Content & Media segment, we refer to as "churn." The level of churn we
experience fluctuates from quarter to quarter due to a variety of factors, including our mix of subscription terms, which
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affects
the timing of subscription expirations, as well as the degree of credit card failures. We must continually add new pay accounts both to replace pay accounts who churn and to grow our business
beyond our current pay account base. We expect that our churn rate will continue to fluctuate from period to period. A significant majority of our pay accounts are on plans that automatically renew at
the end of their subscription period and we have received complaints with respect to our renewal policies and practices. As discussed in the risk factor related to changes in laws and regulations, the
laws being considered or recently enacted by certain states regarding automatic-renewal practices will impact certain of our business practices. We also experience an increase in the percentage of
credit card failures from time to time. Any change in our renewal policies or practices, or in the degree of credit card failures, could have a material impact on our churn rate. If we experience a
higher than expected level of churn, it will make it more difficult for us to increase or maintain the number of pay accounts, which could reduce our revenues and adversely affect our financial
results.
Failure to increase or maintain the number of visitors to our websites and members for our online nostalgia and online loyalty marketing services or the activity level of
these visitors and members could cause our business and financial results to suffer.
The success of our online nostalgia and online loyalty marketing services depends upon our ability to increase or maintain the number
of visitors to our websites, our base of free members and the level of activity of those visitors and members. A decline in the number of visitors, registered or active free online nostalgia members,
or a decline in the activity of those members, could result in decreased pay accounts, decreased content on our websites and decreased advertising revenues. A decline in the number of registered or
active online loyalty marketing service members could result in decreased advertising revenues. We have been experiencing a decline in the number of active members, and there are no assurances that
this trend will not continue. The failure to increase or maintain the number of visitors to our websites, our base of free members, or the failure to convince our free members to actively participate
in our websites or services, could have a material adverse effect on our business and our financial results.
Failure to maintain our standard pricing could have adverse effects on our financial results.
Due to economic conditions and for competitive and other reasons, from time to time, we have offered a greater percentage of discounted
pricing plans on a promotional basis than we typically have offered. In general, these discounted pricing plans offer a subscription term at a significant discount compared to the standard pricing for
such subscription term. Any such increases in the percentage of pay accounts under a discounted pricing plan and any increases in the level of the discounts will likely result in a decrease in
subscription revenues and ARPU, at least in the near term. Although these discounted pricing plans, by their terms, renew at the then-current standard pricing for such subscription term
upon the expiration of the initial term, there are no assurances as to the number of pay accounts that will renew at the standard pricing. We intend to continue offering discounted pricing plans in
the future, and there are no assurances that the volume or level of the discounts offered during a period will not be higher than anticipated. Our continued use of discounted pricing plans may result
in our becoming dependent on offering such plans in order to obtain new pay accounts and retain existing pay accounts and may result in our having to reduce our standard pricing, which would adversely
impact our financial results.
ADDITIONAL RISKS RELATING TO OUR COMMUNICATIONS SEGMENT
Our business will suffer if we are unable to compete successfully.
We compete with numerous other dial-up Internet access providers as well as providers of broadband services. Our principal
dial-up Internet access competitors include established online service and content providers, such as AOL and MSN, and independent national Internet service providers,
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such
as EarthLink and its PeoplePC subsidiary. Dial-up Internet access services do not compete favorably with broadband services with respect to connection speed and do not have a
significant, if any, price advantage over certain broadband services. Many broadband providers, including cable companies and local exchange carriers, bundle their offerings with telephone,
entertainment or other services, which may result in lower prices than standalone services. Certain portions of the U.S., primarily rural areas, currently have limited or no access to broadband
services. However, the U.S. government has indicated its intention to provide broadband services to such rural
areas. Such expansion of the availability of broadband services will increase the competition for Internet access subscribers in such areas and will likely adversely affect our business. In addition
to competition from broadband providers, competition among dial-up Internet access service providers is intense and neither our pricing nor our features provides us with a significant
competitive advantage, if any, over certain of our dial-up Internet access competitors. We expect that competition, particularly with respect to price, both for broadband as well as
dial-up Internet access services, will continue. We also expect that our dial-up Internet access subscriber base will continue to decrease, potentially at an increasing rate,
and that our broadband services will not experience significant growth.
In
order to compete effectively, we may have to make significant revisions to our services, pricing and marketing strategies, and business model. For example, we may have to lower our
introductory rates, offer additional free periods of service, offer additional features at little or no additional cost to the consumer, or reduce the standard pricing of our services. Measures such
as these could decrease our revenues and our average revenue per dial-up Internet access pay account. We may also have to allocate more marketing resources toward our dial-up
Internet access services than we anticipate. All of the foregoing could adversely affect the profitability of our dial-up Internet access services which could materially and adversely
impact our business, financial condition, results of operations, and cash flows.
Revenues and profitability of our Communications segment are expected to decrease.
Most of our Communications revenues and profits come from our dial-up Internet access services. Our dial-up
Internet access pay accounts and revenues have been declining and are expected to continue to decline due to the continued maturation of the market for dial-up Internet access. Consumers
continue to migrate to broadband access, primarily due to the faster connection and download speeds provided by broadband access. Advanced applications such as online gaming, music downloads and
videos require greater bandwidth for optimal performance, which adds to the demand for broadband access. The pricing for basic broadband services has been declining as well, making it a more viable
option for consumers. In addition, the popularity of accessing the Internet through tablets and mobile devices has been growing and may accelerate the migration of consumers away from
dial-up Internet access. We expect our dial-up Internet access pay accounts to continue to decline. As a result of expected continued decreases in our dial-up
Internet access pay accounts and, potentially, the average monthly revenue per pay account, we expect that our Communications services revenues, advertising revenues, and the profitability of this
segment will continue to decline over time. The number of dial-up Internet access pay accounts has been adversely impacted by both a decrease in the number of new pay accounts signing up
for our services as well as the impact of subscribers canceling their accounts, which we refer to as "churn." Churn has increased from time to time and may increase in the future. The rate of decline
in Communications services revenues has accelerated in some periods and may continue to accelerate. Although we have been reducing our expenses in order to manage the profitability of our
Communications segment, we will not be able to continue making the same level of expense reductions in the future, and we anticipate our profitability will decrease as our Communications services
revenues continue to decline. Continued declines, particularly if such declines accelerate, in Communications revenues will materially and adversely impact the profitability of this segment.
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Our Internet access business is dependent on the availability of telecommunications services and compatibility with third-party systems and products.
Our Internet access business substantially depends on the availability, capacity, affordability, reliability, and security of our
telecommunications networks. Only a limited number of telecommunications providers offer the network and data services we currently require, and we purchase most of our telecommunications services
from a few providers. Some of our telecommunications services are provided pursuant to short-term agreements that the providers can terminate or elect not to renew. In addition, some
telecommunications providers may cease to offer network services for certain less populated areas, which would reduce the number of providers from which we may purchase services and may entirely
eliminate our ability to purchase services for certain areas. If we are unable to maintain, renew or obtain new agreements with
telecommunications providers, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.
Our
dial-up Internet access services also rely on their compatibility with other third-party systems, products and features, including operating systems. Incompatibility with
third-party systems and products could adversely affect our ability to deliver our services or a user's ability to access our services and could also adversely impact the distribution channels for our
services. Our services are dependent on dial-up modems and an increasing number of computer manufacturers, including certain manufacturers with whom we have distribution relationships, do
not pre-load their new computers with dial-up modems, requiring the user to separately acquire a modem to access our services. There can be no assurance that, as the
dial-up Internet access market declines and new technologies emerge, we will be able to continue to effectively distribute and deliver our services.
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Table of Contents
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) - (b) Not applicable
(c) Repurchases
United Online, Inc.'s Board of Directors authorized a common stock repurchase program (the "Program") that allowed us to repurchase shares of our common
stock through open market or privately negotiated transactions based on prevailing market conditions and other factors through
December 31, 2009. From time to time, the Board of Directors has increased the amount authorized for repurchase under this Program and has extended the Program. In April 2004, the Board of
Directors authorized us to purchase up to an additional $100 million of our common stock under the Program, bringing the total amount authorized under the Program to $200 million. In
December 2009, the Board of Directors again further extended the Program through December 31, 2010. From August 2001 through December 31, 2010, we had repurchased $150.2 million
of our common stock under the Program, leaving $49.8 million of authorization remaining under the Program at December 31, 2010. In February 2011, the Board of Directors extended the
Program through December 31, 2011 and increased the amount authorized to $80 million. At June 30, 2011, the authorization remaining under the Program was $80 million.
Shares
withheld upon the vesting of restricted stock units and restricted stock awards and upon the issuance of stock awards to pay applicable required employee withholding taxes are
considered common stock repurchases, but are not counted as purchases against the Program. Upon vesting of most restricted stock units or issuance of stock awards, we currently do not collect the
applicable required employee withholding taxes from employees. Instead, we automatically withhold, from the restricted stock units that vest and from the stock awards that are issued, the portion of
those shares with a fair market value equal to the amount of the employee withholding taxes due, which is accounted for as a repurchase of common stock. We then pay the applicable required employee
withholding taxes.
Common
stock repurchases during the quarter ended June 30, 2011 were as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number of
Shares Purchased |
|
Average Price
Paid per Share |
|
Total Number of
Shares Purchased as
Part of a Publicly
Announced Program |
|
Maximum Approximate
Dollar Value that
May Yet be Purchased
Under the Program |
|
April 2011 |
|
|
1 |
|
$ |
6.29 |
|
|
|
|
$ |
80,000 |
|
May 2011 |
|
|
26 |
|
$ |
6.11 |
|
|
|
|
$ |
80,000 |
|
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Table of Contents
ITEM 6. EXHIBITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference to |
|
|
|
|
Filed
with this
Form 10-Q |
No. |
|
Exhibit Description |
|
Form |
|
File No. |
|
Date Filed |
|
3.1 |
|
Amended and Restated Certificate of Incorporation |
|
|
|
10-K |
|
000-33367 |
|
3/1/2007 |
|
3.2 |
|
Amended and Restated Bylaws |
|
|
|
10-K |
|
000-33367 |
|
3/1/2007 |
|
10.1 |
|
Credit Agreement dated as of June 10, 2011 by and among FTD Group, Inc., a Delaware corporation, the financial
institutions party thereto from time to time as lenders, Wells Fargo Securities, LLC, as sole lead arranger and sole book runner, and Wells Fargo Bank, National Association, as administrative agent for the lenders |
|
|
|
8-K |
|
000-33367 |
|
6/16/2011 |
|
10.2 |
|
Amended and Restated United Online, Inc. Severance Benefit Plan |
|
|
|
10-Q |
|
000-33367 |
|
5/9/2011 |
|
31.1 |
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
31.2 |
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
32.1 |
|
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
32.2 |
|
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.INS |
|
XBRL Instance Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.CAL |
|
XBRL Taxonomy Calculation Linkbase Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.LAB |
|
XBRL Taxonomy Label Linkbase Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.PRE |
|
XBRL Taxonomy Presentation Linkbase Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.DEF |
|
XBRL Taxonomy Extension Definition Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
74
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
Date: August 8, 2011 |
|
UNITED ONLINE, INC. (Registrant) |
|
|
By: |
|
/s/ NEIL P. EDWARDS
Neil P. Edwards Acting Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer) |
75
Table of Contents
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference to |
|
|
|
|
Filed
with this
Form 10-Q |
No. |
|
Exhibit Description |
|
Form |
|
File No. |
|
Date Filed |
|
3.1 |
|
Amended and Restated Certificate of Incorporation |
|
|
|
10-K |
|
000-33367 |
|
3/1/2007 |
|
3.2 |
|
Amended and Restated Bylaws |
|
|
|
10-K |
|
000-33367 |
|
3/1/2007 |
|
10.1 |
|
Credit Agreement dated as of June 10, 2011 by and among FTD Group, Inc., a Delaware corporation, the financial
institutions party thereto from time to time as lenders, Wells Fargo Securities, LLC, as sole lead arranger and sole book runner, and Wells Fargo Bank, National Association, as administrative agent for the lenders |
|
|
|
8-K |
|
000-33367 |
|
6/16/2011 |
|
10.2 |
|
Amended and Restated United Online, Inc. Severance Benefit Plan |
|
|
|
10-Q |
|
000-33367 |
|
5/9/2011 |
|
31.1 |
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
31.2 |
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
32.1 |
|
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
32.2 |
|
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.INS |
|
XBRL Instance Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.CAL |
|
XBRL Taxonomy Calculation Linkbase Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.LAB |
|
XBRL Taxonomy Label Linkbase Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.PRE |
|
XBRL Taxonomy Presentation Linkbase Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
|
101.DEF |
|
XBRL Taxonomy Extension Definition Document |
|
X |
|
|
|
000-33367 |
|
8/8/2011 |
76