10-K 1 a2218800z10-k.htm 10-K

Use these links to rapidly review the document
TABLE OF CONTENTS
PART IV
UNITED ONLINE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

(Mark One)    

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2013

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
(State or other jurisdiction of
incorporation or organization)
  77-0575839
(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)

         Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class   Name of Exchange on Which Registered
Common Stock, par value $0.0001 per share   The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)

         Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o   Smaller reporting company o

         Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2) of the Act. Yes o    No ý

         At June 30, 2013, the aggregate market value of voting stock held by non-affiliates of the Registrant, based on the last reported sales price of the Registrant's common stock on such date reported by The Nasdaq Global Select Market, was $671,313,756 (calculated by excluding shares directly or indirectly held by directors and officers).

         At March 7, 2014, there were 14,037,235 shares of the Registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

         The information required by Part III of this Form 10-K, to the extent not set forth herein, is incorporated herein by reference to the Registrant's definitive proxy statement relating to the 2014 annual meeting of stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Registrant's fiscal year ended December 31, 2013.

   


Table of Contents


UNITED ONLINE, INC.

INDEX TO FORM 10-K

For the Year Ended December 31, 2013

 
   
  Page

PART I.

   

Item 1.

 

Business

  4

Item 1A.

 

Risk Factors

  12

Item 1B.

 

Unresolved Staff Comments

  29

Item 2.

 

Properties

  29

Item 3.

 

Legal Proceedings

  29

Item 4.

 

Mine Safety Disclosures

  33

PART II.

 
 

Item 5.

 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  34

Item 6.

 

Selected Financial Data

  37

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

  38

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

  73

Item 8.

 

Financial Statements and Supplementary Data

  74

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  74

Item 9A.

 

Controls and Procedures

  74

Item 9B.

 

Other Information

  75

PART III.

 
 

Item 10.

 

Directors, Executive Officers and Corporate Governance

  76

Item 11.

 

Executive Compensation

  76

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  76

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

  76

Item 14.

 

Principal Accounting Fees and Services

  76

PART IV.

 
 

Item 15.

 

Exhibits, Financial Statement Schedules

  77

Signatures

 
78

        In this document, "United Online," "UOL," the "Company," "we," "us" and "our" refer to United Online, Inc. and its subsidiaries.

        This Annual Report on Form 10-K and the documents incorporated herein by reference contain certain 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 the expected benefits of our acquisitions; the Company's strategies; the expected benefits of the separation of the Company and FTD Companies, Inc. into separate, publicly-traded companies and the Company's pursuit of long-term growth initiatives; future financial performance and results; revenues; segment metrics; operating expenses; market

2


Table of Contents

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 services and products; pricing; marketing plans; competition; settlement of legal matters; and the impact of accounting pronouncements. 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 Annual Report on Form 10-K and additional factors that accompany the related forward-looking statements in this Annual Report on Form 10-K 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 of 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 I

ITEM 1.    BUSINESS

Overview

        United Online, through its operating subsidiaries, provides consumer services and products over the Internet under a number of brands, including Classmates, StayFriends, Trombi, MyPoints, NetZero, and Juno.

        United Online, Inc. is a Delaware corporation, headquartered in Woodland Hills, California, that commenced operations in 2001 following the merger of dial-up Internet access providers NetZero, Inc. ("NetZero") and Juno Online Services, Inc. ("Juno"). In 2004, we acquired Classmates Online, Inc. (whose name was changed to Classmates, Inc. in December 2013, "Classmates"), a provider of social networking services, and in 2006, we acquired MyPoints.com, Inc. ("MyPoints"), a provider of a loyalty marketing service. In 2008, we acquired FTD Group, Inc. (together with its subsidiaries and its parent, FTD Companies, Inc., "FTD"), a provider of floral, gift and related products and services to consumers and retail florists, as well as to other retail locations offering floral, gift and related products and services under the FTD and Interflora brands. In June 2012, we acquired schoolFeed, Inc. ("schoolFeed"), an online high school social network that enables members to reconnect and interact with their former classmates.

        On November 1, 2013, United Online, Inc. consummated the separation of FTD Companies, Inc. (together with its subsidiaries, "FTD") from United Online, Inc. through a tax-free distribution of all FTD Companies, Inc. common stock held by United Online, Inc. to United Online, Inc.'s stockholders (the "FTD Spin-Off Transaction"). On October 31, 2013, immediately prior to the completion of the FTD Spin-Off Transaction, United Online, Inc. implemented a one-for-seven reverse stock split of shares of United Online, Inc. common stock. Accordingly, the results of operations, financial condition and cash flows of FTD have been presented as discontinued operations for all periods presented. Further, except as noted, all United Online, Inc. common stock share information and related per share amounts have been adjusted to reflect the one-for-seven reverse stock split of shares of United Online, Inc. common stock.

        Prior to the completion of the FTD Spin-Off Transaction, United Online, Inc. and FTD Companies, Inc. entered into a Separation and Distribution Agreement, a Tax Sharing Agreement and an Employee Matters Agreement, each dated October 31, 2013, that govern the post-separation relationship. In addition, United Online, Inc. and FTD Companies, Inc. entered into a Transition Services Agreement, dated October 31, 2013, as amended January 2, 2014, under which United Online, Inc. agreed to provide FTD with various services on an interim, transitional basis, generally for a period of up to 12 months.

        We report our businesses in two reportable segments:

Segment
  Services and Products

Content & Media

  Social networking services and products and a loyalty marketing service

Communications

 

Internet access services and devices, including dial-up, mobile broadband, DSL, email, Internet security and web hosting services

        In 2013, the Content & Media segment and the Communications segment accounted for 57% and 43% of consolidated revenues, respectively. In both 2012 and 2011, the Content & Media segment and the Communications segment accounted for 59% and 41% of consolidated revenues, respectively.

4


Table of Contents

        We generate revenues from three primary sources:

    Services revenues.  Services revenues in our Content & Media and Communications segments are derived from selling subscriptions to consumers who are typically billed in advance for the entire subscription term.

    Products revenues.  Products revenues in our Content & Media segment are derived from the sale of yearbook reprints and related shipping and handling fees. Products revenues in our Communications segment are derived from the sale of mobile broadband devices and the related shipping and handling fees.

    Advertising and other revenues.  Advertising and other revenues are primarily derived from various advertising, marketing and media-related initiatives in our Content & Media and Communications segments.

Content & Media Segment

Social Networking Services

        Our Content & Media segment provides social networking services and products under the Classmates, StayFriends, and Trombi brands. We operate our social networking 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 domestic and international social networking services comprise a large and diverse population of users, with approximately 100 million registered accounts at December 31, 2013. We also 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. Our social networking products primarily consist of yearbook reprints.

        Our Classmates website (www.classmates.com) primarily serves the U.S. and Canada. Over the years, Classmates members have contributed a substantial amount of distinct, relevant pieces of user-generated content, such as names, high school affiliations, biographies, interests, and photos. We believe our large membership base and the user-generated content posted on the Classmates website assist us in attracting new members and bringing existing members back to the website on a recurring basis. One content feature targeted at our large base of registered consumers age 35 and over, who joined Classmates to reconnect with important memories from their past, are our digitized versions of high school yearbooks. At December 31, 2013, we had approximately 235,000 digitized high school yearbooks available on the website, representing what we believe is the largest digitized yearbook collection available anywhere on the Internet. Visitors to the website can interact with yearbooks, which can facilitate new forms of social connections, such as sharing memorable content with friends and acquaintances or posting comments on the Classmates website or its Facebook page. In addition, members can tag photos directly in the digitized yearbook collection, search for individuals, and view an index of all members appearing in the yearbooks. Members and visitors may also purchase a copy of any yearbook available on the Classmates website. Seasonality has not had a material impact on our social networking revenues.

        Domestic.    Visitors to the Classmates website can experience a substantial amount of content free of charge. Members with free accounts can use our search feature to locate individuals in our database or in our collection of yearbooks; post information and view information posted by other members; tag yearbook photos; and organize reunions and engage in other reunion-related activities. To engage in the premium features, a member is required to purchase an All-Access Pass, which is generally available for terms ranging from three months to two years. Revenues from our Classmates website are derived primarily from the sale of these subscriptions and, to a lesser extent, from advertising fees and other transactions on our website, including the sale of yearbook reprints.

5


Table of Contents

        All-Access Pass holders have access to a variety of premium features. We expect the features available to free users and All-Access Pass holders to continue to change from time to time. Premium features currently include, among others:

    Access to our Classmates® Guestbook, which alerts members when another member visits his or her Classmates profile, unless the visiting member makes the profile selection not to leave his or her name. Only All-Access Pass holders are able to see the names of the members who visited their Classmates profile.

    Access to our Classmates location feature, which shows the geographic locations, based on zip codes, of the members in the All-Access Pass holder's high school or other community affiliation.

    Ability to send emails through our Classmates website to other members and respond to email messages from any other member, regardless of whether the sender is a free member or a paying member.

        International.    In addition to our Classmates website, we operate five international websites that offer social networking services, primarily as a social networking platform to reconnect friends and acquaintances from high school. We operate StayFriends in Germany, Sweden, Austria, and Switzerland (www.stayfriends.de, www.stayfriends.se, www.stayfriends.at, and www.stayfriends.ch, respectively), and Trombi in France (www.trombi.com). Similar to the Classmates website, each international website includes free and pay memberships.

        Industry Background—The Internet continues to evolve and grow as a platform to enable, among other things, social interaction, consumer engagement, the sale of goods and services, and advertising. We believe that as people age, many develop a strong interest in reconnecting with people and events from their past.

        The number of Internet users age 35 and older is expected to increase from 124.9 million in 2012 to 138.8 million in 2016, according to 2012 forecasts by eMarketer, a market research firm. Community affiliations based on schools attended encompass a particularly large population of individuals. According to the U.S. Census Bureau, as of 2012, there were approximately 204 million high school graduates living in the U.S. and approximately 133 million people living in the U.S. who had attended college. We believe that the occurrence of class reunions among this large population frequently strengthens an individual's curiosity and nostalgic feelings about school memories, friends and acquaintances, and popular culture during such individual's years in high school and college.

        Our domestic Classmates service, which launched in 1995 as one of the first social networking services, is designed to assist members in finding friends and acquaintances primarily from high school. Consumers can register for free accounts or pay for premium accounts that give them access to more information. As the Internet has matured, a number of other platforms and services, such as Facebook and Google, have provided alternative means for individuals to find and interact with people from their past. Facebook, in particular, has become a dominant platform for finding and interacting with people online, including both past and present acquaintances. Our services continue to provide a platform for social networking activities and communications, especially related to the high school experience. We are also using the Facebook platform as an additional location for people to access our content and services.

        Competition—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, games, 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. Certain aspects

6


Table of Contents

of the value proposition of our social networking services compete with major social networking platforms such as Facebook, as well as Internet search engines such as Google. Many of our competitors offer their content and services free of charge. We believe the primary competitive factors are price, features, functionality, size and engagement of the user base, and quantity, quality and scope of the content. We believe we compete favorably with respect to certain of these areas, although many competitors have a significant advantage over us in certain other areas. For additional information, see "Risk Factors", which appears in Item 1A of this Annual Report on Form 10-K.

Loyalty Marketing

        Our Content & Media segment also offers a loyalty marketing service under the MyPoints brand. 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 register and provide certain identifying information to receive direct email marketing and other loyalty promotions. Members earn points for responding to email offers, shopping online at the MyPoints website (www.mypoints.com), taking market research companies' surveys, playing MyPoints branded online games, searching the Internet through a MyPoints branded toolbar, and engaging in other online activities. In addition to these online point earning opportunities, MyPoints also offers a credit card with opportunities to earn points through both online and offline shopping. Rewards points are redeemable primarily in the form of third-party gift cards or electronic codes, currently from approximately 90 merchants, including, among others, leading retailers, restaurants, online payment and prepaid credit card merchants, gas stations, games, airlines, hotels, and theaters. Gift cards are available for purchase on the MyPoints website.

        MyPoints provides advertisers with an effective means to reach a large online audience. MyPoints uses a variety of criteria, including personal interests, purchasing behavior and demographic profiles, to create targeted promotions for advertisers. These marketing campaigns are tailored to meet the goals of the specific advertiser, which are most commonly to generate incremental sales of an advertiser's products or services but may also include objectives that do not involve purchase transactions such as generating sales leads or increased traffic to an advertiser's website. In many cases, MyPoints sends personalized email marketing messages, called BonusMail®, that are directed specifically to individual MyPoints members to showcase a single advertiser or offer. MyPoints members benefit not only from attractive discounts and other benefits featured in BonusMail® offers but also can receive points for purchases and, in some cases, for clicking through the media links in BonusMail® to the advertiser's website, as well as for other actions taken within a limited time period. We believe the limited-time nature of the BonusMail® offers adds a sense of urgency to the promotion for the consumer.

        The advertising revenues generated from our loyalty marketing service revenues are classified as advertising and other revenues. Advertisers pay us primarily based on performance measures that include when our MyPoints emails are transmitted to members, when members respond to emails and when members complete online transactions. Advertising and other revenues also includes revenues generated from the sale of gift cards. Loyalty marketing advertising revenues and operating results tend to be higher in the quarter ending December 31 when compared to other quarters, though there can be no assurance that these seasonal trends will continue in the future.

        Industry Background—Online retail sales are expected to grow from $225.5 billion in 2012 to $434.2 billion by 2017, according to a 2013 forecast by eMarketer. In addition, spending for online advertising is expected to grow almost 14% annually over the next several years, reaching $66.6 billion and accounting for 31.4% of all advertising dollars by 2016, according to eMarketer. As advertisers seek methods to target, reach and retain online consumers, loyalty marketing presents an effective option.

        According to the 2013 Colloquy Loyalty Census, total loyalty memberships in the United States grew from 973 million in 2000 to over 2.6 billion in 2012. This confluence of growth in online shopping

7


Table of Contents

and advertising, and in loyalty memberships offers significant opportunities as our MyPoints loyalty marketing business is poised to realize its potential by exploiting current assets including: strong relationships with a variety of retailers and clients, a large and engaged member base, a variety of engagement activities to serve member needs and interests, and the ability to provide loyalty incentives to drive consumer action. Loyalty marketing programs are generally designed to reward consumers with points that accumulate based on their activities and which may be redeemed for cash, gift cards, or products and services from participating vendors. Some loyalty marketing programs use points as an incentive for members to opt in to receiving certain email offers or to update their personal interest profiles, which provide useful information that helps advertisers target consumers interested in purchasing the advertisers' products and services. While these programs have long been popular with airlines, credit card vendors, hotels, and retailers, in recent years, loyalty marketing programs have expanded into a comprehensive direct marketing and targeted advertising strategy for companies in a wide range of industries.

        Loyalty marketing programs and similar services enable advertisers to target consumers in ways that are generally impractical with traditional offline direct marketing channels. Loyalty marketing programs can also easily measure click-through rates on display advertising and response rates to email campaigns, providing rapid feedback for advertisers that can be used to identify potential customers and create new targeted offers. In addition, a loyalty marketing program that has attracted a large, responsive and loyal member base helps to improve returns on advertisers' marketing investments. Furthermore, advertisers may prefer to work with loyalty marketing programs that offer performance-based pricing, which helps advertisers achieve specific performance objectives within budget.

        Competition—The market for 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 and expand to mobile platforms. Our MyPoints loyalty marketing business faces competition for members from other online loyalty marketing programs, such as Ebates, as well as offline loyalty marketing programs that have a significant online presence, such as those operated by credit card, airline and hotel companies. In addition, we also face competition for members from online providers of discounted offerings and coupons, such as Groupon and LivingSocial. We believe the primary competitive factors in the loyalty marketing industry are the number, type and popularity of the participating merchants, the attractiveness of the rewards offered, the number of points awarded for various actions, the ease and speed of earning rewards, and the ability to offer members a robust, user-friendly shopping experience. We believe that we compete favorably in certain of these areas, although some of our competitors have an advantage over us in some or all of these areas. For additional information, see "Risk Factors", which appears in Item 1A of this Annual Report on Form 10-K.

        For additional information regarding our Content & Media segment, see Note 2—"Segment Information" of the Notes to the Consolidated Financial Statements, which appears in Part II, Item 8 of this Annual Report on Form 10-K.

Communications Segment

        Our principal Communications pay service is dial-up Internet access, offered under the NetZero and Juno brands. We also offer mobile broadband, DSL, email, Internet security, web hosting services, and other services. In total, we had 553,000 Communications pay accounts at December 31, 2013, of which 346,000 were Internet access pay accounts and 207,000 were pay accounts subscribed to our other Communications services, including email, Internet security and web hosting services. The majority of our Communications revenues are derived from dial-up Internet access, DSL and other Communications services. In addition, our Communications services generate advertising revenues from search placements, display advertisements and online market research associated with our Internet access and email services.

8


Table of Contents

        Internet Access Services.    Our Internet access services consist of dial-up, mobile broadband and, to a much lesser extent, DSL 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. In addition, we offer accelerated dial-up Internet access services which can significantly reduce the time required for certain web pages to load during Internet browsing when compared to our basic dial-up Internet access services. Our accelerated dial-up Internet access services are also bundled with additional benefits, including antivirus software and enhanced email storage, although we also offer each of these features and certain other value-added features as stand-alone pay services. Our dial-up Internet access services are available in more than 12,600 cities across the U.S. and Canada. We also generate revenues from the resale of telecommunications to third parties. Our Internet access services have typically experienced a higher rate of new member registrations during the quarter ending March 31 when compared to other quarters, though there can be no assurance that these seasonal trends will continue in the future.

        In 2012, we began offering our mobile broadband service as part of a wholesale agreement with Clearwire. In January 2014, we expanded the coverage area to include the Sprint 3G network. We offer consumers the option to access the service by purchasing either a NetZero USB modem to connect a single device such as a PC or a Mac® computer, or a NetZero personal hotspot that can connect up to eight Wi-Fi enabled devices simultaneously. NetZero USB modem and NetZero hotspot customers are able to connect to our mobile broadband service using a variety of devices, including a PC, Mac® computer, iPad® mobile digital device, and other tablets, netbooks and smartphones. Our mobile broadband service is generally available for use in the home, at the office or on the go by customers across the U.S.

        Industry Background—The U.S. market for consumer Internet access services has evolved significantly, primarily due to increased availability and consumer adoption of high-speed, or broadband, connections. As a result, the percentage of Americans who access the Internet via dial-up has declined each year since 2002, according to Pew Internet & American Life Project. We anticipate that such percentage will continue to decline.

        Broadband Internet access services are now available to most of the U.S. population at competitive prices, although market pricing varies based on the geographic region and speed of the broadband service, among other factors. Broadband continues to have a much lower penetration rate in rural areas when compared to urban and suburban areas and, according to an estimate released by the Federal Communications Commission in August 2012, 19 million Americans lack access to fixed broadband service, including 14.5 million Americans who lack access to the service in rural areas. Many broadband providers, including cable companies such as Comcast and local exchange carriers such as AT&T, market broadband Internet access offerings that are "bundled" with telephone, entertainment or other services, which generally results in lower prices than stand-alone services. At the same time, the maturity of the dial-up Internet access market has led the largest dial-up service providers in the U.S., including AOL, EarthLink, NetZero, and Juno, to significantly reduce marketing spending and operate their dial-up Internet access businesses primarily for profitability and cash flows.

        There are numerous dial-up Internet access providers in the U.S., although a small number of national providers account for a significant majority of the U.S. dial-up market. AOL, EarthLink and our Internet access businesses, NetZero and Juno, on a combined basis reported approximately 3.3 million dial-up Internet access pay accounts at December 31, 2013. As the industry has matured, the average tenure of dial-up Internet access pay accounts has increased significantly, which has generally resulted in a reduction in subscriber churn since longer tenured pay accounts, on average, exhibit greater retention characteristics than newer pay accounts.

        Competition—We compete with numerous providers of broadband services, as well as other dial-up Internet access providers. Our principal competitors for broadband services include, among others, local

9


Table of Contents

exchange carriers, wireless and satellite service providers, and cable service providers. These competitors include established providers such as AT&T, Verizon, Sprint and T-Mobile. 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, such as EarthLink and its PeoplePC subsidiary. We believe the primary competitive factors in the Internet access industry are speed, price, coverage area, scope of services, quality of service, and features. Our dial-up Internet access services do not compete favorably with broadband services with respect to certain of these factors, including, but not limited to, speed and, in certain cases, price. When compared to other dial-up Internet access services, we believe our dial-up Internet access services compete favorably. Our mobile broadband service and our DSL service compete favorably with other broadband services with respect to certain factors, although some of our competitors have an advantage over us with respect to certain other factors, such as price. For additional information, see "Risk Factors", which appears in Item 1A of this Annual Report on Form 10-K.

Technology

        Each of our services, including our social networking services, our loyalty marketing service, and our Internet access services operates on a separate and distinct technology platform. Each of our services is generally provided through a combination of internally-developed and third-party software, industry standard hardware and outsourced network services. We maintain the web properties that power these services. We also have developed software to enhance the functionality of certain components of our services, including connectivity, web services, billing, email, customer support, data analysis, customer loyalty applications, and targeted advertising. We maintain data centers in multiple locations in the U.S. and Europe. In many cases, we have redundant systems to provide high levels of service availability and connectivity. We host the majority of our data center services in outsourced, third-party co-location facilities and we outsource all of our bandwidth and managed modem services.

        We license from third parties a number of our software applications and components, including applications for our billing, customer support, advertising, and database systems, our client and server applications, and portions of our dial-up Internet access accelerator services. These licenses generally have terms ranging from a year to perpetual.

Customer Support and Retention

        We believe reliable customer service and technical support are important to retaining our customers. Our businesses generally offer a variety of online and offline tools designed to provide solutions and answers to frequently asked questions. These tools are also designed to assist our members and customers in verifying and updating their account information. In addition, we offer traditional email support and certain of our services provide live telephone support as well.

        Our customer relationship management and support infrastructure includes employees at our facilities in Woodland Hills, California; Hyderabad, India; Fort Lee, New Jersey; Seattle, Washington; and Schaumburg, Illinois. We also outsource to third parties substantially all of our telephone and email customer support for our Communications services, and email customer support for MyPoints services. We monitor the effectiveness of our customer support functions and measure performance metrics such as average hold time and first call resolution and abandonment rates. Communications with our customers are logged and categorized to enable us to recognize and act on trends.

Government Regulations

        We are subject to a number of international, federal, state, and local laws and regulations, including, without limitation, those relating to taxation, bulk email or "spam," advertising, user privacy and data protection, consumer protection, antitrust, export, and unclaimed property. In addition,

10


Table of Contents

proposed laws and regulations relating to some or all of the foregoing, as well as to other areas affecting our businesses, are continuously debated and considered for adoption in the U.S. and other countries, and such laws and regulations could be adopted in the future. For additional information, see "Risk Factors," which appears in Item 1A of this Annual Report on Form 10-K.

Proprietary Rights

        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, domain name laws, and contract laws to protect our intellectual property and proprietary rights. We continuously assess whether to seek patent and other intellectual property protections for those aspects of our businesses and technologies that we believe constitute innovations providing competitive advantages. We generally enter into confidentiality or license agreements with our employees, consultants and corporate partners, and generally control access to, and distribution of, our technologies, documentation and other proprietary information. We consider our trademarks, including our United Online, Classmates, NetZero, Juno, StayFriends, and MyPoints trademarks, to be very valuable assets, and most of these trademarks have been registered in the U.S. or, in certain cases, in other countries.

International Operations

        We have international operations in India and Germany. Our operations in India primarily handle software development and operations, quality assurance and email customer support. Our operations in Germany provide social networking services in Germany, Sweden, France, Austria, and Switzerland. We do not generate revenues directly from our operations in India. Our U.S. revenues totaled $200.3 million, $222.1 million and $267.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. Revenues from our international social networking services totaled $33.3 million, $35.6 million and $43.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. For information regarding risks associated with our international operations, see "Risk Factors," which appears in Item 1A of this Annual Report on Form 10-K. For information regarding long-lived assets, see Note 2—"Segment Information" of the Notes to the Consolidated Financial Statements, which appears in Part II, Item 8 of this Annual Report on Form 10-K.

Segment Financial Information

        For information regarding segment revenues, profit or loss and assets, see Note 1—"Description of Business, Basis of Presentation, Accounting Policies, and Recent Accounting Pronouncements" and Note 2—"Segment Information" of the Notes to the Consolidated Financial Statements, which appear in Part II, Item 8 of this Annual Report on Form 10-K.

Employees

        At December 31, 2013, we had 622 employees, 351 of which were located in the U.S., 184 of which were located in India, and 87 of which were located in Europe. None of these employees are subject to a collective bargaining agreement, and we consider our relationship with our employees to be good.

Executive Officers

        See Part III, Item 10 "Directors, Executive Officers and Corporate Governance" of this Annual Report on Form 10-K for information about executive officers of the Registrant.

11


Table of Contents

Available Information

        Our corporate website is www.unitedonline.com. On this website, we make available, free of charge, our annual, quarterly and current reports (including all amendments to such reports), changes in the stock ownership of our directors and executive officers, our code of ethics, and other documents filed with, or furnished to, the Securities and Exchange Commission ("SEC"), as soon as reasonably practicable after such documents are filed with, or furnished to, the SEC.

        The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding the Company that we file electronically with the SEC at www.sec.gov.

        By referring to our websites, including, without limitation, www.unitedonline.com, www.classmates.com, www.stayfriends.de, www.stayfriends.se, www.trombi.com, www.stayfriends.at, www.stayfriends.ch, and www.mypoints.com, we do not incorporate these websites or their contents into this Annual Report on Form 10-K.

ITEM 1A.    RISK FACTORS

RISKS RELATING TO THE FTD SPIN-OFF TRANSACTION

There are a number of risks associated with the FTD Spin-Off Transaction and they may have a material and adverse impact on our business, financial condition, results of operations, and cash flows.

        On November 1, 2013, United Online, Inc. consummated the FTD Spin-Off Transaction. There are a number of risks associated with the FTD Spin-Off Transaction, including, without limitation, the following:

    Each of the independent publicly-traded companies resulting from the completion of the FTD Spin-Off Transaction may be unable to achieve some or all of the full strategic and financial benefits that we expected would result from the separation of the Company and FTD into independent publicly-traded companies, or such benefits may be delayed or may not occur at all.

    Following the consummation of the FTD Spin-Off Transaction, the Company is smaller and less diversified, as compared to immediately prior to the consummation of the FTD Spin-Off Transaction.

    The Company shared economies of scope and scale with FTD in costs and vendor relationships and took advantage of size and purchasing power in procuring certain products and services, such as insurance and healthcare benefits, technology and computer software licenses. With the consummation of the FTD Spin-Off Transaction, we may be unable to obtain these products and services at prices or on terms as favorable to us as those we obtained prior to the consummation of the FTD Spin-Off Transaction.

        Any of the foregoing, in addition to any other risks related to the transaction that are not specifically described above, could materially and adversely affect our business, financial condition, results of operations, and cash flows.

If the FTD Spin-Off Transaction were to fail to qualify as a tax-free transaction for U.S. federal income tax purposes, then the FTD Spin-Off Transaction could result in significant tax liabilities.

        United Online, Inc. received a private letter ruling from the IRS, substantially to the effect that, for U.S. federal income tax purposes, the FTD Spin-Off Transaction qualifies as a tax-free transaction for U.S. federal income tax purposes under Section 355 of the Internal Revenue Code of 1986, as

12


Table of Contents

amended. In addition, prior to the consummation of the FTD Spin-Off Transaction, United Online, Inc. received a legal opinion, substantially to the effect that the FTD Spin-Off Transaction so qualifies. The IRS ruling and the tax opinion rely on certain facts, assumptions and undertakings, and certain representations from United Online, Inc. and FTD, regarding the past and future conduct of both respective businesses and other matters, and the tax opinion relies on the IRS ruling. Notwithstanding the IRS ruling and the tax opinion, the IRS could determine that the FTD Spin-Off Transaction should be treated as a taxable transaction if it determines that any of these facts, assumptions, representations, or undertakings is not correct, or that the FTD Spin-Off Transaction should be taxable for other reasons, including if the IRS were to disagree with the conclusions in the tax opinion that are not covered by the IRS ruling.

        If the FTD Spin-Off Transaction ultimately is determined to be taxable, then a stockholder of United Online, Inc. that received shares of FTD common stock in the FTD Spin-Off Transaction would be treated as having received a distribution of property in an amount equal to the fair market value of such shares on the distribution date and could incur significant income tax liabilities. Such distribution would be taxable to such stockholder as a dividend to the extent of United Online's current and accumulated earnings and profits. Any amount that exceeded United Online's earnings and profits would be treated first as a non-taxable return of capital to the extent of such stockholder's tax basis in its shares of United Online, Inc. stock with any remaining amount being taxed as a capital gain. In addition, United Online would recognize a taxable gain in an amount equal to the excess, if any, of the fair market value of the shares of common stock of FTD held by United Online, Inc. on the distribution date over United Online, Inc.'s tax basis in such shares.

In connection with the FTD Spin-Off Transaction, FTD indemnified us for certain liabilities and we indemnified FTD for certain liabilities. This indemnity may not be sufficient to insure us against the full amount of the liabilities assumed by FTD and FTD may be unable to satisfy its indemnification obligations to us in the future.

        Pursuant to the Separation and Distribution Agreement and certain other agreements with FTD, FTD agreed to indemnify us for certain liabilities, and we agreed to indemnify FTD for certain liabilities, in certain cases, for unlimited amounts. There can be no assurance that the indemnity from FTD will be sufficient to protect us against the full amount of such liabilities, or that FTD will be able to fully satisfy its indemnification obligations. Third-parties could also seek to hold us responsible for any of the liabilities that FTD has agreed to assume. Even if we ultimately succeed in recovering from FTD any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. In addition, certain indemnities that we may be required to provide to FTD are not subject to any limits on the aggregate amount of the liability, may be significant and could negatively impact our business. Each of these risks could negatively affect our business, financial condition, results of operations, and cash flows.

Completion of the FTD Spin-Off Transaction may not enhance long-term shareholder value.

        We completed the FTD Spin-Off Transaction on November 1, 2013. At the time of the consummation of the FTD Spin-Off Transaction, our Board of Directors and management team, after consultation with independent financial and legal advisors, believed that the FTD Spin-Off Transaction as planned would enhance long-term shareholder value. There can be no assurance, however, that the combined value of our common stock and the common stock of FTD in the long term will equal or exceed what the value of our common stock would have been in the absence of the FTD Spin-Off Transaction. The combined value of the common stock of the two companies following the distribution could be lower than anticipated for a variety of reasons, including, among others, changes in the Company's dividend policy, the inability of either company to compete effectively as an independent company, realignment of the stockholder population of both the Company and FTD in the period

13


Table of Contents

following the distribution, and changes in market perception of the prospects of the Company and FTD as a consequence of the distribution. We are a substantially smaller company than we were prior to the completion of the FTD Spin-Off Transaction, and we cannot predict the prices at which our common stock may trade in the future.


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.

        Our services and products 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' levels of disposable income, consumer debt, and overall consumer confidence. Challenging economic conditions have adversely impacted certain aspects of our businesses in a number of ways, including reduced demand, more aggressive pricing for similar services and products 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 services and products. Challenging economic conditions may adversely impact our key vendors and customers. 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, increased provisions for excess and obsolete inventories, 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 Annual Report on Form 10-K and in our other filings with the SEC 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, services, products, features, applications, or functionality may not be successful, which could adversely impact our business, financial condition, results of operations, and cash flows.

        We have expended, and may continue to expend, significant resources in developing, integrating and implementing new business initiatives, services, products, features, applications, and functionality. Such development, integration and implementation involve a number of uncertainties, including unanticipated delays and expenses and technological problems. New business initiatives, services, products, features, applications, or functionality also may not be accepted by consumers or commercially successful. We cannot assure you that we will be successful in such development, integration and implementation efforts, or that any new business initiatives, services, products, features, applications, or functionality will be accepted by consumers or commercially successful. If our

14


Table of Contents

development, integration and implementation efforts are not successful, or such new business initiatives, services, products, features, applications, or functionality are not accepted by consumers or commercially successful, our business, financial condition, results of operations, and cash flows 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 revenues and profitability for our Content & Media and Communications segments. Factors that have caused, or may cause in the future, our advertising revenues to fluctuate include, without limitation, changes in the number of visitors to our websites, active accounts or consumers purchasing our services and products, 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 patterns, competition, 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 have been fluctuating and may 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 Annual Report on Form 10-K. 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.

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, 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 for our Internet access and loyalty marketing businesses are outsourced to third parties, and other systems are not redundant. In addition, some of our backup systems have never been operated as a primary system. We have experienced systems problems in the past. For example, in the fourth quarter of 2013, the Classmates website experienced outages that occurred intermittently over a one-week period, as well as stability issues. We or our third-party vendors may experience problems in the future. All information technology and communication systems are subject to reliability issues, integration and compatibility concerns, and security-threatening intrusions. The continued and uninterrupted performance of our key systems is critical to our success. Unanticipated problems affecting these systems could cause interruptions in our services. In addition, if our third-party vendors face financial or other difficulties, our business could be adversely impacted. Any significant errors, damage, failures, interruptions, delays, or other problems with our systems, our backup systems or our third-party vendors or their systems could adversely impact our ability to satisfy our customers or operate our websites, and 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 significant portion of their live customer support functions. These businesses rely on customer support vendors, 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 our vendors unexpectedly become unable or unwilling to provide these services to us.

15


Table of Contents

Failure to have a successful strategy that aligns with technology advances and trends could adversely affect our business.

        Consumers increasingly connect to the Internet through sources other than the personal computer, including mobile phones, smartphones, handheld computers such as netbooks and tablets, video game consoles, and television set-top devices, and their penetration will likely continue to increase. Our business will be adversely affected if we do not have a successful strategy that aligns with such trends. As new devices are continually being released, it is difficult to predict the problems we may encounter in adapting our services and products and developing competitive new services and products. Our social networking services and loyalty marketing service have a limited mobile presence, and we only began offering a mobile broadband service in March 2012. We may devote significant resources to the creation, support and maintenance of services and products across multiple platforms. If we are slow to develop services, products and technologies that are more compatible with alternative devices, we will fail to capture the opportunities available as consumers and advertisers transition to a dynamic, multi-screen environment. If we fail to implement a successful strategy that aligns with technology advances and trends, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.

Our marketing efforts may not be successful or may become more expensive, either of which could increase our costs and adversely impact our business, financial condition, results of operations, and cash flows.

        We spend significant resources marketing our brands, services and products. We rely on relationships with a wide variety of third parties, including Internet search providers such as Google, social networking platforms such as Facebook, Internet advertising networks, co-registration partners, retailers, distributors, television advertising agencies, and direct marketers, to source new members and to promote or distribute our services and products. In addition, in connection with the launch of new services or products, we may spend a significant amount on marketing. With any of our brands, services and products, if our marketing activities are inefficient or unsuccessful, if important third-party relationships or marketing strategies, such as Internet search engine marketing and search engine optimization, become more expensive or unavailable, or are suspended or terminated, for any reason, if there is an increase in the proportion of consumers visiting our websites or purchasing our services and products by way of marketing channels with higher marketing costs as compared to channels that have lower or no associated marketing costs, or if our marketing efforts do not result in our services and products being prominently ranked in Internet search listings, our business, financial condition, results of operations, and cash flows could be materially and adversely impacted.

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

16


Table of Contents

operations to fluctuate significantly from period to period and could materially and adversely affect our business, financial condition, results of operations, and cash flows. In addition, we also file actions against third parties from time to time for various reasons, including, without limitation, to protect our intellectual property rights, to enforce our contractual rights, or to make other business-related claims. The legal fees, costs and expenses associated with these actions may be significant, and if we were to lose these actions, we may be required to pay the other party's legal fees, costs and expenses, which also may be significant and could materially and adversely affect our business, financial condition, results of operations, and cash flows.

        Various governmental agencies have in the past asserted claims, instituted legal actions, inquiries or investigations, or imposed obligations relating to our business practices, such as our marketing, billing, customer retention, renewal, cancelation, refund, or disclosure practices, and they may continue to do so in the future. We have received civil investigative demands and subpoenas, as applicable, from the Federal Trade Commission ("FTC") and the Attorneys General of various states, primarily regarding their respective investigations into certain former post-transaction sales practices and certain of our marketing, billing, renewal, and privacy practices and disclosures. 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. For example, in 2010, Classmates, Inc. (then known as Classmates Online, Inc.) paid $960,000 to resolve an investigation of the Attorney General for the State of New York related to its former post-transaction sales practices. Defending against lawsuits, inquiries and investigations also 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 damages, fines, penalties or assessments, which could 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. For more information, see Note 13 "Contingencies—Legal Matters" of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Annual Report on Form 10-K.

Governmental regulation of the collection and use of personal information or our failure to comply with these regulations could harm our businesses.

        The FTC has regulations regarding the collection and use of personal information obtained from individuals when accessing websites, with particular emphasis on access by minors. In addition, other governmental authorities have regulations to govern the collection and use of personal information that may be obtained from customers or visitors to websites. These regulations include requirements that procedures be established to disclose and notify users of our websites or mobile apps of our privacy and security policies, obtain consent from users for collection and use of personal information and provide users with the ability to access, correct or delete personal information stored by us. In addition, the FTC and other governmental authorities have made inquiries and investigations of companies' practices with respect to their users' personal information collection and dissemination practices to confirm these are consistent with stated privacy policies and to determine whether precautions are taken to secure consumers' personal information. The FTC and certain state agencies also have made inquiries, and, in a number of situations, brought actions against companies to enforce the privacy policies of these companies, including policies relating to security of consumers' personal information.

17


Table of Contents

        As discussed in the preceding risk factor, we have been cooperating with the Attorneys General of various states in connection with their inquiries and investigations of, among other things, the privacy policies of our Classmates.com business. Becoming subject to the regulatory and enforcement efforts of the FTC, a state agency or other governmental authority could have a material adverse effect on our ability to collect demographic and personal information from users, which, in turn, could have a material adverse effect on our marketing efforts, business, financial condition, results of operations, and cash flows. In addition, the adverse publicity regarding the existence or results of an investigation could have an adverse impact on customers' willingness to use our websites and services and thus could adversely impact our future revenues.

        Our international businesses must also comply with data protection and privacy laws of the applicable jurisdictions. If we or any of the third-party services on which we rely fail to transmit customer information and payment details in a secure manner, or if they otherwise fail to protect customer privacy in online transactions or if they transfer personal information without complying with certain required conditions, then we risk being exposed to civil and criminal liability, as well as claims from individuals alleging damages as a result of the alleged non-compliance. We may also be required to alter our data collection and use practices. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our business is subject to online security risks and 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. In connection with conducting our business in the ordinary course, we store and transmit member information, including personally identifiable information. 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 members and of third parties. A number of other websites have publicly disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their sites. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the perception of the effectiveness of our security measures could be harmed and we could lose members or vendors. A party that is able to circumvent our security measures could misappropriate our proprietary information or the information of our members, cause interruption in our operations, or damage our computers or those of our members.

        A significant number of our members authorize us to bill their payment card accounts (credit or debit) directly for all amounts charged by us. These members provide payment card information and other personally identifiable information which, depending on the particular payment plan, may be maintained to facilitate future payment card transactions. We rely on third-party and internally-developed encryption and authentication technology to provide the security and authentication to effectively secure transmission of confidential information, including payment card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect transaction data being breached or compromised. Non-technical means, for example, actions by an employee, can also result in a data breach. Under payment card rules and our contracts with our card processors, if there is a breach of payment card information that we store, we could be liable to the banks that issue the payment cards for their related expenses and penalties. In addition, if we fail to follow payment card industry security standards, even if there is no compromise of customer information, we could incur significant fines or lose our ability to give our

18


Table of Contents

members and customers the option of using payment cards. If we were unable to accept payment cards, our businesses would be seriously harmed.

        We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security breaches, including any breach related to us or the parties with which we have commercial relationships, could damage our reputation and expose us to a risk of loss, litigation and possible liability. 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 vendors, including network providers, providers of customer and billing support services, and 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 services and products, all of which could adversely impact our business, financial condition, results of operations, and cash flows. In addition, the coverage and limits of our insurance policies may not be adequate to reimburse us for losses caused by security breaches. We believe the recent impact of large-scale retail credit card fraud may impact our ability to bill customers with card-on-file efficiency.

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, export, 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, the federal government or international authorities related to automatic-renewal practices, spam, user privacy, targeted or behavioral advertising, and taxation, could impact our revenues or certain of our business practices or those of our advertisers. For example, our compliance with Canada's new anti-spam legislation, which will go into effect in July 2014 and will require the consent of a Canadian consumer in order to send certain types of emails to such consumer, may impact our ability to email some of our members. Any changes in the 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 services and products, our costs, or the manner in which we or our advertisers conduct business, all of which could adversely impact our business, financial condition, results of operations, and cash flows and cause our business to suffer.

Our social networking and loyalty marketing services 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, financial condition, results of operations, and cash flows.

        Our emails have historically generated the majority of the traffic on our social networking websites and are a key driver of member activity for our loyalty marketing service. A significant number of members of our social networking and loyalty marketing services elect to opt-out of receiving certain types of emails. New laws, such as Canada's new anti-spam legislation, may impact our ability to email some of our members. Without the ability to email these members, we have very limited means of inducing these members to return to our websites and utilize our services. In addition, each month, a significant number of email addresses for members of our social networking and loyalty marketing services become invalid. This disrupts our ability to email these members and also prevents our social networking members from being able to contact these members, which is one of the reasons why members use our services. An increase in the number of members to whom we are not able to send emails, or who elect to not receive, are unable to receive, or do not open, our emails could adversely affect our business, financial condition, results of operations, and cash flows. From time to time,

19


Table of Contents

Internet service providers block bulk email transmissions, classify as "spam" emails that have low opening rates, or otherwise experience technical difficulties that result in our inability to successfully deliver emails to our members. Certain email service providers, such as Google's Gmail service, segregate marketing and promotional emails from other types of emails, which may impact the effectiveness of our email campaigns. Google's Gmail service also simplifies the opt-out process by including an "unsubscribe" link at the top of each marketing email, which allows the consumer to unsubscribe from future marketing emails from the particular marketer without first being redirected to the marketer's website. 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 business, financial condition, results of operations, and cash flows.

Our intellectual property and proprietary rights are important to our businesses.

        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, services, products, 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 have applied for the registration of, and have been issued, trademark registrations for trademarks and service marks used in our businesses in the U.S. and various foreign countries; however, there could be certain pre-existing and potentially conflicting trademark registrations held by third parties. The steps we and such third parties have taken to obtain and 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. This could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Furthermore, the validity, enforceability, and scope of protection of intellectual property in Internet-related industries are uncertain and still evolving. 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. We are also subject to the risk of claims alleging that our business practices infringe on the intellectual property rights of others. These claims could result in lengthy and costly litigation. Moreover, resolution of any such claim against us may require us or one of our subsidiaries to obtain a license to use the intellectual property rights at issue or possibly to cease using those rights altogether. Any of those events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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.

        Acquisitions of businesses, services or technologies may provide us with an opportunity to diversify the services and products we offer, leverage our assets and core competencies, complement our existing businesses, or expand our geographic reach.

        We may evaluate a wide variety of potential strategic transactions that we believe may complement our existing businesses. However, we may not realize the anticipated benefits and synergies of an

20


Table of Contents

acquisition, and our attempts at integrating an acquired business may not 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;

    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 and other exit costs, 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.

        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. Any of these risks could harm our business, financial condition, results of operations, and cash flows.

Fluctuations 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 Euro, the Indian Rupee, the Swedish Krona, and the Swiss Franc. 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 international businesses 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 fluctuations in foreign currency exchange rates. Certain of our key business metrics, such as the Content & Media segment's average monthly revenue per pay account (also referred to as "ARPU"), 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 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

21


Table of Contents

such fluctuations could negatively impact the comparisons of such results against prior periods as well as our business, financial condition, results of operations, and cash flows.

We have a new president and chief executive officer, as well as a new general counsel, and our chief financial officer has announced his resignation. Any failure or delay in successfully transitioning their duties and responsibilities could have a negative impact on our business.

        Francis Lobo became President and Chief Executive Officer of United Online, Inc. and a member of its Board of Directors on November 5, 2013, and Gail Shulman became its Executive Vice President and General Counsel on January 7, 2014. Neil P. Edwards, the Executive Vice President and Chief Financial Officer of United Online, Inc., has announced his resignation effective as of March 14, 2014. In addition, the employment of the Company's Chief Personnel Officer also terminated in January 2014. Our success depends to a significant extent on the performance of our senior management. Any failure or delays in the transition of duties and responsibilities to, and the assumption and execution of such duties and responsibilities by the new members of senior management could have a negative impact on our business, financial condition, results of operations, and cash flows.

Our ability to operate our business could be seriously harmed if we lose members of our senior management team or other key employees or we are not able to attract qualified new personnel.

        Our business is largely dependent on the efforts and abilities of our senior management and other key personnel. Any of our officers or employees can terminate his or her employment relationship at any time. Our officers have employment agreements pursuant to which they may be entitled to separation benefits in connection with a termination of employment under certain circumstances. As discussed in the preceding risk factor, several of our key officers, including our president and chief executive officer, our general counsel, our chief financial officer, and our chief personnel officer, recently left, or announced their intention to leave, the Company. The loss of any of our key officers or other employees, or our inability to attract or retain qualified employees could seriously harm our business, financial condition, results of operations, and cash flows. We do not carry key-person life insurance on any of our employees.

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. We perform an impairment test of our goodwill 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 our 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, including a $52.9 million goodwill impairment charge in the year ended December 31, 2013 with respect to our Classmates reporting unit. Given the current economic and competitive 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 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 revenues 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. If our operating segments change in the future, such change may result in changes to our reporting units for impairment testing purposes, which may result in additional impairment charges. In addition, from time to time, we record

22


Table of Contents

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.

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, by increases in the applicable tax rates, or by, among other factors, changes in the relevant tax, accounting and other laws, regulations, principles, and interpretations. We are under audit and subject to audit in various jurisdictions, and such jurisdictions may assess additional income and other taxes against us. For example, we are under an Internal Revenue Service audit which, if finally determined in an unfavorable manner, could result in a significant liability. 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 adverse effect on our business, financial condition, results of operations, and cash flows.

        In connection with our Internet-based transactions, a number of states, including California, have adopted or have been considering legislation or 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. Our costs may increase as a result of our activities related to advertisers and other third parties, and advertisers and other third parties may choose to not do business with us or limit their business activities, in order to avoid nexus with certain states. If such legislation is enacted, or such initiatives are instituted, and unless overturned 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, or otherwise negatively impact our business, financial condition, results of operations, and cash flows, 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;

23


Table of Contents

    lack of familiarity with, and unexpected changes in, foreign regulatory requirements;

    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, which could adversely affect our business, financial condition, results of operations, and cash flows.

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. The property, business interruption and other insurance we 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 current 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.

        Certain provisions of our certificate of incorporation, our bylaws and Delaware law limit the ability of 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 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 January 2014, we announced that our Board of Directors has determined to discontinue cash dividend payments. Immediately following such announcement, the market price of our common stock declined significantly and has remained volatile. The Nasdaq Global Select Market also 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

24


Table of Contents

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 CONTENT & MEDIA SEGMENT

We face intense competition that could result in the failure of our social networking 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, games, 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. Certain aspects of the value proposition of our social networking services compete with major social networking platforms, such as Facebook, as well as Internet search engines such as Google. Many of our competitors offer their content and services free of charge.

        The market for 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 and expand to mobile platforms. Our MyPoints loyalty marketing service faces competition for members from other loyalty marketing programs, such as Ebates, as well as offline loyalty marketing programs that have a significant online presence, such as those operated by credit card, airline and hotel companies. In addition, we also face competition for members from online providers of discounted offerings and coupons, such as Groupon and LivingSocial.

        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. In particular, Facebook's membership base currently far exceeds that of any of its competitors. If our competitors provide services similar to our social networking services for free, we may not be able to charge for our social networking services. We rely on some of our competitors to promote our services and for new member acquisitions, such as Facebook in connection with our Facebook high school fan pages. Any changes to Facebook's rules or policies or any other changes implemented by Facebook could adversely affect our business or our strategies. Competition has adversely affected our subscription revenues from social networking services, as well as our advertising revenues from our social networking services and loyalty marketing service. More intense competition could also require us to increase our marketing or other expenditures. As a result of competition, our business, financial condition, results of operations, and cash flows have been adversely affected.

Continued declines in the number of pay accounts for our social networking services could cause our business, financial condition, results of operations, and cash flows to suffer.

        Pay accounts are critical to our business model. Only a small percentage of users visiting our websites or initially registering for our social networking services sign up for a paid subscription at the time of registration. As a result, our ability to generate subscription revenues 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. In addition, changes to our registration or renewal processes, such as the changes required for

25


Table of Contents

our international social networking services to implement the Single Euro Payments Area (or SEPA) initiative, could adversely affect our churn rate.

        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 affects the timing of subscription expirations, as well as the degree of credit card failures. To maintain or reduce the level of churn, 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 factors related to changes in laws and regulations and to legal actions and investigations, the laws being considered and those that have been enacted by certain states regarding automatic-renewal practices will, and enforcement action or changes in enforcement policies and procedures could, impact certain of our business practices. We provide automatic-renewal notices to members in only those states that legally require such notices. If we provide such notices in additional states, or additional states start to require such notices, our churn rate may increase. We also experience an increase in the percentage of credit card failures from time to time. For example, a large-scale security breach at a retailer may result in the cancelation and re-issuance of the affected credit cards by the issuing banks, which would impact our ability to charge our members on their old credit cards and if our members do not update their credit card information with us, their accounts will terminate. 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 business, financial condition, results of operations, and cash flows.

        Pay accounts and free active accounts have been decreasing, and we believe such trend may 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 social networking services and related advertising revenues will continue to decline and the business, financial condition, results of operations, and cash flows of the Content & Media segment will be adversely affected.

Failure to increase or maintain the number of visitors to our websites and members for our social networking and 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 social networking and 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 social networking 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 loyalty marketing service members could also result in decreased advertising revenues. We have experienced a decline in the number of active members. 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, financial condition, results of operations, and cash flows.

Failure to maintain our standard pricing could have adverse effects on our financial results.

        For competitive and other reasons, we have been offering a large percentage of discounted pricing plans on a promotional basis. In general, these discounted pricing plans offer a subscription term at a significant discount compared to the standard pricing for such subscription term. Any increases in the

26


Table of Contents

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, in particular, if such increases continue. 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 then-current standard pricing or at all. 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 has resulted 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 providers of broadband, mobile broadband and DSL services, as well as other dial-up Internet access providers. Our principal competitors for our mobile broadband and DSL services include, among others, local exchange carriers, wireless and satellite service providers, and cable service providers. These competitors include established providers such as AT&T, Verizon, Sprint and T-Mobile. 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, 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. In addition, there are a number of mobile virtual network operators, some of which focus on pricing as their main selling point. 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 facilitate the provision of broadband services to such 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, mobile broadband and DSL 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, for broadband, mobile broadband and DSL services, as well as dial-up Internet access services, will continue.

Revenues and profitability of our Communications segment may continue to decline.

        Most of our Communications segment 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. 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. We also experience an increase in the percentage of credit card

27


Table of Contents

failures from time to time. For example, a large-scale security breach at a retailer may result in the cancelation and re-issuance of the affected credit cards by the issuing banks, which would impact our ability to charge our members on their old credit cards and if our members do not update their credit card information with us, their accounts will terminate. Any change 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 adversely affect our business, financial condition, results of operations, and cash flows.

        We expect our dial-up and DSL Internet access pay accounts to continue to decline, potentially at an increasing rate. Any growth in the number of mobile broadband pay accounts may not be sufficient to offset such decline, at least in the near term. As a result, Communications services revenues and the profitability of this segment may continue to decline. 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. In addition, we increased our marketing expenses in connection with the launch of the mobile broadband service, which is subject to a number of risks. Continued declines in Communications revenues, particularly if such declines accelerate, will materially and adversely impact the profitability of this segment.

Our mobile broadband service may not be commercially successful.

        We started offering a mobile broadband service under the NetZero brand in 2012. However, this service may not be accepted by consumers or commercially successful. We have been testing various marketing initiatives, including offering discounts on our devices, but there are no assurances that such initiatives will increase the number of accounts. The free version of the service is limited to a one-year term and these accounts are automatically terminated upon the expiration of the one-year service term if they do not upgrade to one of the paid subscription plans. There are no assurances that we will be successful in upgrading these accounts before they terminate. Some of our competitors have longer operating histories, greater name and brand recognition, larger user bases, wider coverage areas, and significantly greater financial, technical, sales, and marketing resources than we do. If the mobile broadband service fails to be commercially successful, such failure could materially and adversely impact our business, financial condition, results of operations, and cash flows.

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. Currently, our mobile broadband service is entirely dependent upon services acquired from two service providers, and the devices required by each provider can be used for only such provider's service. If we are unable to maintain, renew or obtain new agreements with telecommunications providers, or our providers discontinue their services, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.

28


Table of Contents

        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.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2.    PROPERTIES

        Our corporate headquarters, which includes space for the Communications segment, is located in Woodland Hills, California and consists of leased space of approximately 110,000 square feet. The lease for our corporate office will expire in September 2014, and we believe we will find suitable substitute space. Our Content & Media segment leases office space in Seattle, Washington, San Francisco, California; San Mateo, California; Schaumburg, Illinois; Erlangen, Germany; and Berlin, Germany and our Communications segment leases office space in Fort Lee, New Jersey. We also lease office space in Hyderabad, India, which is used by both of our segments.

        We believe that our existing facilities are adequate to meet our current requirements and that suitable additional or substitute space will be available, as needed, to accommodate any physical expansion of our corporate and operations facilities. For additional information regarding our obligations under leases, see Note 13—"Commitments and Contingencies" of the Notes to our Consolidated Financial Statements, which appears in Part II, Item 8 of this Annual Report on Form 10-K.

ITEM 3.    LEGAL PROCEEDINGS

        In June 2011, Memory Lane, Inc., a California corporation, filed a complaint in United States District Court, Central District of California, against Classmates International, Inc., Classmates Online, Inc. and Classmates, Inc. (then known as Memory Lane, Inc.) ("Classmates"), alleging false designation of origin under the Lanham Act, 15 U.S.C. section 1125, and state and common law unfair competition. The complaint included requests for an award of damages and for preliminary and permanent injunctive relief. Notwithstanding the request for preliminary injunctive relief, no motion for such relief was filed. Classmates responded to the complaint in September 2011. In October 2011, the plaintiff amended its complaint to, among other things, dismiss Classmates International, Inc. and add United Online, Inc. as a defendant. The trial commenced on February 11, 2014. On February 20, 2014, the jury issued a verdict for the defendants, concluding that the defendants did not infringe plaintiff's trademark. On February 25, 2014, the court entered judgment in favor of the defendant.

        In March 2012, Hope Kelm, Barbara Timmcke, Regina Warfel, Brett Reilly, Juan M. Restrepo, and Jennie H. Pham filed a purported class action complaint (the "Kelm Class Action") in United States District Court, District of Connecticut, against the following defendants: (i) Chase Bank USA, N.A., Bank of America, N.A., Capital One Financial Corporation, Citigroup, Inc., and Citibank, N.A. (collectively, the "Credit Card Company Defendants"); (ii) 1-800-Flowers.com, Inc., United Online, Inc., Classmates, Inc., Classmates International, Inc., FTD Group, Inc., Days Inns Worldwide, Inc., Wyndham Worldwide Corporation, PeopleFindersPro, Inc., Beckett Media LLC, Buy.com, Inc., Rakuten USA, Inc., IAC/InterActiveCorp, and Shoebuy.com, Inc. (collectively, the

29


Table of Contents

"E-Merchant Defendants"); and (iii) Trilegiant Corporation, Inc. ("Trilegiant"), Affinion Group, LLC ("Affinion"), and Apollo Global Management, LLC ("Apollo"). The complaint alleges (1) violations of the Racketeer Influenced Corrupt Organizations Act ("RICO") by all defendants, and aiding and abetting violations of such act by the Credit Card Company Defendants; (2) aiding and abetting violations of federal mail fraud, wire fraud and bank fraud statutes by the Credit Card Company Defendants; (3) violations of the Electronic Communications Privacy Act ("ECPA") by Trilegiant, Affinion and the E-Merchant Defendants, and aiding and abetting violations of such act by the Credit Card Company Defendants; (4) violations of the Connecticut Unfair Trade Practices Act by Trilegiant, Affinion, Apollo, and the E-Merchant Defendants, and aiding and abetting violations of such act by the Credit Card Company Defendants; (5) violation of California Business and Professions Code section 17602 by Trilegiant, Affinion, Apollo, and the E-Merchant Defendants; and (6) unjust enrichment by all defendants. The plaintiffs seek class certification, restitution and disgorgement of all amounts wrongfully charged to and received from plaintiffs, damages, treble damages, punitive damages, preliminary and permanent injunctive relief, attorneys' fees, costs of suit, and pre- and post-judgment interest on any amounts awarded.

        In March 2012, Debra Miller and William Thompson filed a purported class action complaint (the "Miller Class Action") in United States District Court, District of Connecticut, against the following defendants: (i) Trilegiant, Affinion, Apollo, Vertrue, Inc., Webloyalty.com, Inc., and Adaptive Marketing, LLC (collectively, the "Membership Companies"); (ii) 1-800-Flowers.com, Inc., Beckett Media LLC, Buy.com, Inc., Classmates International, Inc., Days Inn Worldwide, Inc., FTD Group, Inc., IAC/Interactivecorp, Inc., Classmates, Inc., Peoplefinderspro, Inc., Rakuten USA, Inc., Shoebuy.com, Inc., United Online, Inc., Wells Fargo & Company, and Wyndham Worldwide Corporation (collectively, the "Marketing Companies"); and (iii) Bank of America, N.A., Capital One Financial Corporation, Chase Bank USA, N.A., and Citibank, N.A. (collectively, the "Credit Card Companies"). The complaint alleges (1) violations of RICO by all defendants, and aiding and abetting violations of such act by the Credit Card Companies; (2) aiding and abetting violations of federal mail fraud, wire fraud and bank fraud statutes by the Credit Card Companies; (3) violations of the ECPA by the Membership Companies and the Marketing Companies, and aiding and abetting violations of such act by the Credit Card Companies; (4) violations of the Connecticut Unfair Trade Practices Act by the Membership Companies and the Marketing Companies, and aiding and abetting violations of such act by the Credit Card Companies; (5) violation of California Business and Professions Code section 17602 by the Membership Companies and the Marketing Companies; and (6) unjust enrichment by all defendants. The plaintiffs seek class certification, restitution and disgorgement of all amounts wrongfully charged to and received from the plaintiffs, damages, treble damages, punitive damages, preliminary and permanent injunctive relief, attorneys' fees, costs of suit, and pre- and post-judgment interest on any amounts awarded.

        In April 2012, the Kelm Class Action and the Miller Class Action were consolidated with a related case under the case caption In re Trilegiant Corporation, Inc. In September 2012, the plaintiffs filed their consolidated amended complaint and named five additional defendants. The defendants have responded to the consolidated amended complaint by joining in motions to dismiss filed by other defendants in December 2012. Those motions were argued before the district court in September 2013, and taken under submission. The court has not yet ruled on the motion to dismiss, and no trial date has been set.

        In addition, in December 2012, David Frank filed a purported class action complaint (the "Frank Class Action") in United States District Court, District of Connecticut, against the following defendants: Trilegiant, Affinion, Apollo (collectively, the "Frank Membership Companies"); 1-800-Flowers.com, Inc., Beckett Media LLC, Buy.com, Inc., Classmates International, Inc., Days Inn Worldwide, Inc., FTD Group, Inc., Hotwire, Inc., IAC/Interactivecorp, Inc., Classmates, Inc., Orbitz Worldwide, LLC, PeopleFindersPro, Inc., Priceline.com, Inc., Shoebuy.com, Inc., TigerDirect, Inc.,

30


Table of Contents

United Online, Inc., and Wyndham Worldwide Corporation (collectively, the "Frank Marketing Companies"); Bank of America, N.A., Capital One Financial Corporation, Chase Bank USA, N.A., Chase Paymentech Solutions, LLC, Citibank, N.A., Citigroup, Inc., and Wells Fargo Bank, N.A. (collectively, the "Frank Credit Card Companies"). The complaint alleges (1) violations of RICO by all defendants; (2) aiding and abetting violations of such act by the Frank Credit Card Companies; (3) aiding and abetting commissions of mail fraud, wire fraud and bank fraud by the Frank Credit Card Companies; (4) violation of the ECPA by the Frank Membership Companies and the Frank Marketing Companies, and aiding and abetting violations of such act by the Frank Credit Card Companies; (5) violations of the Connecticut Unfair Trade Practices Act by the Frank Membership Companies and the Frank Marketing Companies, and aiding and abetting violations of such act by the Frank Credit Card Companies; (6) violation of California Business and Professions Code section 17602 by the Frank Membership Companies and the Frank Marketing Companies; and (7) unjust enrichment by all defendants. The plaintiff seeks class certification, restitution and disgorgement of all amounts wrongfully charged to and received from plaintiff, damages, treble damages, punitive damages, preliminary and permanent injunctive relief, attorneys' fees, costs of suit, and pre- and post-judgment interest on any amounts awarded. In January 2013, the plaintiff moved to consolidate the Frank Class Action with the In re Trilegiant Corporation, Inc. action. In response, the court ordered the plaintiff to show cause as to why, among other things, the plaintiff should be afforded named plaintiff status. The plaintiff filed his response to the order to show cause in February 2013. The court has not yet ruled on the request for consolidation or the order to show cause.

        In January 2013, Unified Messaging Solutions LLC ("Unified Messaging") filed a complaint in United States District Court, Northern District of Illinois, against United Online, Inc., Juno Online Services, Inc., NetZero, Inc. and Memory Lane, Inc. alleging patent infringement of five patents related to email index lists. This case is part of a 58 case multidistrict litigation in Chicago, Illinois with two separate "waves" of defendants. In December 2013, the court issued its Markman claim construction ruling. In January 2014, the plaintiff filed a notice of motion for reconsideration of the court's Markman ruling. In February 2014, the court denied plaintiff's motion for reconsideration. On March 7, 2014, the plaintiff agreed to stipulate that defendants have not infringed, and do not infringe, the asserted claims of the patents, and agreed to consent to the entry of judgment in defendants' favor on that basis without prejudice to plaintiff's right to re-assert its claims against defendants if the United States Court of Appeals for the Federal Circuit reverses or modifies, in whole or in part, any of the court's rulings on claim construction.

        On March 6, 2014, Modern Telecom Systems LLC filed a complaint in the United States District Court for the Central District of California, Southern Division, against Juno Online Services, Inc. and NetZero, Inc. alleging infringement of certain patents relating to the commercial operation of their dial-up internet services. The complaint seeks an injunction, damages and other relief. As of March 11, 2014, neither Juno Online Services, Inc. nor NetZero, Inc. has been served with the complaint.

        The Company has been cooperating with certain governmental authorities in connection with their respective investigations of its former post-transaction sales practices and certain other current or former business practices.

    In 2010, Classmates, Inc. and FTD.COM 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: Alabama, Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, Nebraska, New Mexico, New Jersey, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Vermont, and Washington. The primary focus of the inquiry concerns certain post-transaction sales practices in which these companies previously engaged with certain third-party vendors and certain auto-renewal practices of Classmates, Inc. In the second quarter of 2012, the Company received an offer of settlement from the Multistate Work

31


Table of Contents

      Group consisting of certain injunctive relief and the consideration of two areas of monetary relief: (1) restitution to consumers and (2) a $20 million payment by Classmates, Inc. and FTD.COM for the violations alleged by the Multistate Work Group and to reimburse the Multistate Work Group for its investigation costs. The Company rejected the Multistate Work Group's offer. The Company has since had ongoing discussions with the Multistate Work Group regarding the non-monetary aspects of a negotiated resolution. In December 2013, Classmates and FTD.COM, Inc. proposed to the Multistate Work Group to resolve the matter without admitting liability by making a settlement payment of $2.2 million. On February 11, 2014, the Multistate Work Group responded to the Company's settlement offer of $2.2 million with a counter offer of (1) $17.5 million plus (2) restitution by Classmates to a group of purchasers of its subscription services. The Multistate Work Group did not provide an explanation as to how the $17.5 million was determined or the proposed allocation of such counter offer between Classmates, Inc. and FTD.COM Inc. In addition, the Multistate Work Group did not propose a limit on the amount of such restitution. The Company has rejected the Multistate Work Group's counter offer and is seeking clarification regarding such counter offer. While the Company anticipates that settlement discussions will be ongoing, there can be no assurances as to the terms on which the Multistate Work Group and Classmates, Inc. may agree to settle this matter, or that any settlement of this matter may be reached. If no settlement is reached, certain Attorneys General of the Multistate Work Group may file litigation against Classmates, Inc. and, in the event of litigation, Classmates, Inc. intends to vigorously defend itself.

    In 2011, Classmates, Inc. received a civil investigative demand from the Attorney General for the State of Washington regarding its marketing, refund, cancelation, and renewal practices. Prior to that, in 2009, Classmates, 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. In 2012, the Attorney General for the State of Washington joined the aforementioned Multistate Work Group. The Company believes that by joining the Multistate Work Group, the Attorney General's investigation may have been consolidated into the Multistate Work Group's inquiry.

        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 records a liability when it believes that it is both probable that a loss will be incurred, and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate; (ii) if the proceedings are in early stages, (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements, (iv) if there are significant factual issues to be determined or resolved, and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. At December 31, 2013, the Company had a reserve of $1.5 million recorded in liabilities of continuing operations for the proposed settlement of the Multistate Work Group's inquiry of Classmates, Inc. With respect to the legal matters described above, including the Multistate Work Group's inquiry of Classmates, Inc., the Company has determined, based on its current knowledge, that the amount of possible loss or range of loss, including any reasonably possible losses in excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company's control.

32


Table of Contents

As such, even though the Company intends to vigorously defend itself with respect to its legal matters, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company's business, financial condition, results of operations, or cash flows.

ITEM 4.    MINE SAFETY DISCLOSURES

        Not applicable.

33


Table of Contents


PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock has been quoted on The Nasdaq Global Select Market ("NASDAQ") under the symbol "UNTD" since September 26, 2001. Prior to that, NetZero common stock had been quoted on NASDAQ under the symbol "NZRO" since September 23, 1999. The following table sets forth, for the quarters indicated, the high and low sales prices per share of our common stock as reported on the NASDAQ.

 
  2012(1)   2013(1)  
 
  High   Low   High   Low  

First Quarter

  $ 6.02   $ 4.67   $ 6.69   $ 5.10  

Second Quarter

  $ 4.98   $ 3.63   $ 7.81   $ 5.88  

Third Quarter

  $ 5.85   $ 4.00   $ 8.90   $ 7.48  

Fourth Quarter

  $ 5.85   $ 4.98   $ 19.48 (2) $ 7.64 (2)

(1)
The stock prices in the table above, on or prior to November 1, 2013, the date of the FTD Spin-Off Transaction, have not been adjusted for the impact of the FTD Spin-Off Transaction and reverse stock split.

(2)
The stock prices beginning on November 1, 2013 reflect the impact of the FTD Spin-Off Transaction and one-for-seven reverse stock split.

        At March 7, 2014, there were 144 holders of record of our common stock.

Dividends

        United Online, Inc.'s Board of Directors declared quarterly cash dividends of $0.70 per share of common stock, as adjusted to reflect the one-for-seven reverse stock split, in January, April, August, and October 2012. The dividends were paid on February 29, May 31, August 31, and November 30, 2012 and totaled $9.3 million, $9.4 million, $9.4 million, and $9.4 million respectively, including dividend equivalents paid on nonvested restricted stock units.

        United Online, Inc.'s Board of Directors declared quarterly cash dividends of $0.70 per share of common stock, as adjusted to reflect the one-for-seven reverse stock split, in January, April and July 2013. The dividends were paid on February 28, May 31 and August 30, 2013 and totaled $9.4 million, $9.7 million and $9.7 million, respectively, including dividend equivalents paid on nonvested restricted stock units. In November 2013, United Online, Inc.'s Board of Directors declared a quarterly cash dividend of $0.15 per share of common stock. The dividends were paid on November 29, 2013 and totaled $2.2 million, including dividend equivalents paid on nonvested restricted stock units.

        In January 2014, we announced that United Online, Inc.'s Board of Directors determined to discontinue cash dividend payments in order to provide financial flexibility to support anticipated long-term growth initiatives.

Common Stock Repurchases

        In May 2001, 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 time to time since then, the Board of Directors has increased the amount authorized for repurchase under this Program and has extended the Program. From August 2001 through December 31, 2010, we had repurchased $150.2 million of our common stock under the Program,

34


Table of Contents

leaving $49.8 million of authorization remaining under the Program. In February 2011, the Board of Directors extended the Program through December 31, 2011 and authorized an increase in the $49.8 million authorization remaining to $80.0 million. In December 2011, the Board of Directors extended the Program through December 31, 2012. In January 2013, the Board of Directors approved and ratified the extension of the Program through December 31, 2013, and in September 2013, the Board of Directors further extended the Program through December 31, 2014. There were no repurchases under the Program in the year ended December 31, 2013 and, at December 31, 2013, the authorization remaining under the Program was $80.0 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 December 31, 2013 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
 

October 1 – October 31, 2013

      $       $ 80,000  

November 1 – November 30, 2013

    57   $ 16.44       $ 80,000  

December 1 – December 31, 2013

      $       $ 80,000  

Performance Graph

        This performance graph shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of United Online, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.

        The following graph compares, for the five-year period ended December 31, 2013, the cumulative total stockholder return for the Company's common stock, The Nasdaq Composite Index (the "Nasdaq Composite") and the Morgan Stanley Internet Index ("MS Internet Index"). Measurement points are the last trading day of each of the Company's fiscal years ended December 31, 2008, 2009, 2010, 2011, 2012, and 2013. The graph assumes that $100 was invested on December 31, 2008 in the common stock of United Online, Inc., the Nasdaq Composite and the MS Internet Index and assumes reinvestment of

35


Table of Contents

any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

GRAPHIC

 
  Dec-08   Dec-09   Dec-10   Dec-11   Dec-12   Dec-13  

United Online, Inc. 

  $ 100.00   $ 125.37   $ 122.48   $ 107.99   $ 120.11   $ 236.62  

Nasdaq Composite

  $ 100.00   $ 143.89   $ 168.22   $ 165.19   $ 191.47   $ 264.84  

MS Internet Index

  $ 100.00   $ 195.66   $ 257.25   $ 239.15   $ 314.33   $ 527.77  

36


Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA

        The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K.

        The following table presents the consolidated statements of operations data for the years ended December 31, 2013, 2012 and 2011, and the consolidated balance sheet data at December 31, 2013 and 2012. Such financial data are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The table also presents the consolidated statements of operations data for the years ended December 31, 2010 and 2009 and the consolidated balance sheet data at December 31, 2011, 2010 and 2009, which are derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K.

        The following amounts are in thousands, except per share data:

 
  Year Ended December 31,  
 
  2013(1)(2)(3)   2012(4)   2011   2010   2009  

Consolidated Statements of Operations Data:

                               

Revenues

  $ 233,614   $ 257,765   $ 310,959   $ 366,430   $ 444,866  

Cost of revenues

  $ 75,480   $ 78,229   $ 75,177   $ 83,731   $ 93,628  

Operating income (loss)

  $ (52,543 ) $ (11,771 ) $ 49,565   $ 76,187   $ 89,958  

Income (loss) from continuing operations

  $ (94,996 ) $ (11,701 ) $ 35,662   $ 45,168   $ 50,822  

Income from discontinued operations, net of tax

  $ 12,829   $ 24,505   $ 16,007   $ 8,453   $ 19,141  

Net income (loss)

  $ (82,167 ) $ 12,804   $ 51,669   $ 53,621   $ 69,963  

Net income (loss) attributable to common stockholders

  $ (83,362 ) $ 11,579   $ 49,679   $ 50,392   $ 65,323  

Income (loss) from continuing operations per common share—basic

  $ (7.25 ) $ (1.00 ) $ 2.66   $ 3.40   $ 3.86  

Income (loss) from continuing operations per common share—diluted

  $ (7.25 ) $ (1.00 ) $ 2.66   $ 3.37   $ 3.83  

Net income (loss) per common share—basic

  $ (6.29 ) $ 0.90   $ 3.93   $ 4.08   $ 5.46  

Net income (loss) per common share—diluted

  $ (6.29 ) $ 0.90   $ 3.92   $ 4.05   $ 5.42  

 

 
  December 31,  
 
  2013(3)   2012   2011   2010   2009  

Consolidated Balance Sheet Data:

                               

Total assets

  $ 211,360   $ 994,477   $ 1,025,672   $ 1,028,797   $ 1,093,701  

Non-current liabilities

  $ 15,230   $ 317,153   $ 349,608   $ 362,388   $ 419,771  

Cash dividends declared and paid per common share

  $ 2.25   $ 2.80   $ 2.80   $ 2.80   $ 2.80  

(1)
During the year ended December 31, 2013, we recorded goodwill impairment charges totaling $52.9 million related to our Classmates reporting unit.

(2)
During the year ended December 31, 2013, we recorded a valuation allowance against our deferred tax assets totaling $43.0 million.

37


Table of Contents

(3)
On November 1, 2013, we consummated the FTD Spin-Off Transaction, a tax-free distribution of all FTD Companies, Inc. common stock held by United Online, Inc. to United Online, Inc.'s stockholders. Immediately prior to the FTD Spin-Off Transaction, we implemented a one-for-seven reverse stock split of shares of United Online, Inc. common stock. Accordingly, the results of operations and financial condition of FTD Companies, Inc. have been presented as discontinued operations for all periods presented. Further, all common stock share information and related per share amounts have been adjusted to reflect the one-for-seven reverse stock split.

(4)
During the year ended December 31, 2012, we recorded a goodwill and intangible asset impairment charge totaling $26.9 million ($16.7 million, net of tax) related to our MyPoints reporting unit.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

        This Annual Report on Form 10-K and the documents incorporated herein by reference contain certain 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 the expected benefits of our acquisitions; the Company's strategies; the expected benefits of the separation of the Company and FTD Companies, Inc. into separate, publicly-traded companies and the Company's pursuit of long-term growth initiatives; 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 services and products; pricing; marketing plans; competition; settlement of legal matters; and the impact of accounting pronouncements. 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 Annual Report on Form 10-K and additional factors that accompany the related forward-looking statements in this Annual Report on Form 10-K 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 of 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

        United Online, through its operating subsidiaries, provides consumer services and products over the Internet under a number of brands, including Classmates, StayFriends, Trombi, MyPoints, NetZero, and Juno. Our Content & Media segment provides social networking services and products and a loyalty marketing service. 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.

38


Table of Contents

        We report our businesses in two reportable segments:

Segment
  Services and Products

Content & Media

  Social networking services and products and a loyalty marketing service

Communications

 

Internet access services and devices, including dial-up, mobile broadband, DSL, email, Internet security and web hosting services

FTD Spin-Off Transaction

        On November 1, 2013, United Online, Inc. consummated the separation of FTD Companies, Inc. (together with its subsidiaries, "FTD") from United Online, Inc. through a tax-free distribution of all FTD Companies, Inc. common stock held by United Online, Inc. to United Online, Inc.'s stockholders (the "FTD Spin-Off Transaction"). On October 31, 2013, immediately prior to the completion of the FTD Spin-Off Transaction, United Online, Inc. implemented a one-for-seven reverse stock split of shares of United Online, Inc. common stock. Accordingly, the financial condition, results of operations and cash flows of FTD have been presented as discontinued operations for all periods presented. Further, except as noted, all United Online, Inc. common stock share information and related per share amounts have been adjusted to reflect the one-for-seven reverse stock split of shares of United Online, Inc. common stock.

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 include the following:

        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, with the exception of our free mobile broadband service, 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. In addition, 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, such as the subscribers receiving our free mobile broadband service, 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 business metrics that affect our revenues from our pay accounts base include the number of pay accounts and 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 the 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

39


Table of Contents

during a period; and for the Content & Media segment 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 accounts canceled during the first 30 days of service, other than dial-up accounts that have upgraded from free accounts. A number of such accounts nevertheless 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.

        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 social networking websites (excluding schoolFeed, The Names Database and Yearbook app), at least once during the period; and the monthly average for the period of all 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 dial-up Internet access and email accounts that logged onto our services at least once during the preceding 31 days. Content & Media segment and Communications segment active accounts for the six-month, nine-month and annual periods, as applicable, are calculated as a simple average of the quarterly active accounts for each respective segment.

        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 pay accounts and ARPU metrics for the 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.

        The pay accounts, churn and ARPU metrics for the Communications segment may fluctuate significantly from period to period due to various factors, including, but not limited to, the number of mobile broadband pay accounts, which have a higher churn rate and ARPU.

40


Table of Contents

        The table below sets forth, for the periods presented, as applicable, our consolidated revenues, segment revenues, pay accounts, segment churn, ARPU, average currency exchange rate, and segment active accounts.

 
  Quarter Ended   Year Ended December 31,  
 
  December 31,
2013
  September 30,
2013
  June 30,
2013
  March 31,
2013
  December 31,
2012
  2013   2012   2011  

Consolidated:

                                                 

Revenues (in thousands)

  $ 62,644   $ 56,239   $ 57,567   $ 57,164   $ 65,884   $ 233,614   $ 257,765   $ 310,959  

Content & Media:

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Segment revenues (in thousands)

  $ 35,869   $ 32,233   $ 32,919   $ 32,826   $ 39,509   $ 133,847   $ 153,496   $ 185,475  

% of consolidated revenues

    57 %   57 %   57 %   57 %   60 %   57 %   59 %   59 %

Pay accounts (in thousands)

    2,632     2,690     2,720     2,786     2,864     2,632     2,864     3,484  

Segment churn

    3.0 %   2.9 %   3.1 %   3.3 %   3.5 %   3.1 %   3.6 %   3.9 %

ARPU

  $ 2.54   $ 2.52   $ 2.48   $ 2.48   $ 2.52   $ 2.50   $ 2.49   $ 2.59  

Segment active accounts (in millions)

    10.3     10.3     10.5     11.4     11.5     10.6     11.0     12.1  

Average currency exchange rate: EUR to USD

    1.36     1.33     1.31     1.32     1.30     1.33     1.29     1.39  

Communications:

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Segment revenues (in thousands)

  $ 26,929   $ 24,354   $ 24,935   $ 24,640   $ 26,669   $ 100,858   $ 105,442   $ 126,532  

% of consolidated revenues

    43 %   43 %   43 %   43 %   40 %   43 %   41 %   41 %

Pay accounts (in thousands):

                                                 

Internet access

    346     360     378     404     421     346     421     535  

Other

    207     213     217     222     229     207     229     259  
                                   

Total pay accounts

    553     573     595     626     650     553     650     794  

Segment churn

    2.7 %   2.7 %   3.0 %   3.0 %   2.9 %   2.8 %   3.1 %   3.5 %

ARPU

  $ 9.62   $ 9.41   $ 9.34   $ 9.21   $ 9.05   $ 9.34   $ 8.90   $ 9.14  

Segment active accounts (in millions)

    1.2     1.2     1.2     1.3     1.3     1.2     1.4     1.6  

Critical Accounting Policies, Estimates and Assumptions

General

        Our discussion and analysis of our financial condition and results of operations is based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and with the instructions for the Annual Report on Form 10-K. 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 those estimates and assumptions. Management believes that the following accounting policies, estimates and assumptions made by management thereunder are the most critical to aid in fully understanding and evaluating our reported financial results. These estimates and assumptions require management's most difficult, subjective or complex judgment and may be based on matters, the effects of which are inherently uncertain.

Revenue Recognition

        We apply the provisions of Accounting Standards Codification ("ASC") 605, Revenue Recognition, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. We recognize

41


Table of Contents

revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, no significant Company obligations remain, and collectibility is reasonably assured. Revenues exclude sales taxes collected.

        Our revenues are comprised of services revenues, which are derived primarily from fees charged to pay accounts; advertising and other revenues; and product revenues, which are derived primarily from the sale of yearbook reprints and related shipping fees, the sale of mobile broadband devices and related shipping and handling fees, as well as from the sale of third-party merchandise.

        Service revenues for our social networking services and for our Communications services are derived primarily from fees charged to pay accounts and are recognized in the period in which fees are fixed or determinable and the related services are provided to the customer. Our pay accounts generally pay in advance for their services by credit card, PayPal or check, and revenues are then recognized ratably over the service period. Advance payments from pay accounts are recorded on the consolidated balance sheets as deferred revenue. We offer alternative payment methods to credit cards for certain Communications pay service plans. These alternative payment methods currently include use of automated clearinghouse, payment by money order, payment by check or payment through a local telephone company. In circumstances where payment is not received in advance, revenues are only recognized if collectibility is reasonably assured.

        Advertising revenues from our social networking services and from our Communications services consist primarily of amounts from our Internet search provider that are generated as a result of users utilizing such provider's Internet search services, amounts generated from display advertisements, and amounts generated from referring members to third-party websites or services. We recognize such advertising revenues in the period in which the advertisement is displayed or, for performance-based arrangements, when the related performance criteria are met. In determining whether an arrangement exists, we ensure that a written contract is in place, such as a standard insertion order or a customer-specific agreement. We assess whether performance criteria have been met and whether the fees are fixed or determinable based on a reconciliation of the performance criteria and the payment terms associated with the transaction. The reconciliation of the performance criteria generally includes a comparison of our internally-tracked performance data to the contractual performance obligation and, when available, to third-party or customer-provided performance data.

        Advertising and other revenues for our loyalty marketing service consist primarily of fees generated when emails are transmitted to members, when members respond to emails and when members complete online transactions. Each of these activities is a discrete, independent activity, which generally is specified in the agreement with each advertising customer. As the earning activities take place, activity measurement data (examples include the number of emails delivered and the number of responses received) is accumulated and the related revenues are recorded. Our loyalty marketing service also generates revenues from the sale of gift cards.

        Our social networking products revenues are derived from the sale of yearbook reprints and related shipping fees. Products revenues from the sale of yearbook reprints are recognized upon delivery to the customer. Shipping fees charged to customers are recognized at the time the related products revenues are recognized and are included in products revenues. Shipping costs are included in cost of revenues.

        Our Communications products revenues are generated from the sale of mobile broadband service devices and the related shipping and handling fees and are recognized upon delivery of such devices. Sales of mobile broadband service devices bundled with free service plans are allocated using the relative selling price method in accordance with the multiple-element arrangement provisions of ASC 605. The selling prices of our mobile broadband paid service plans are determined by vendor specific objective evidence, which is based upon the monthly stand-alone selling price of each plan. The selling prices of the mobile broadband service devices and free service plans are determined by management's

42


Table of Contents

best estimate of selling price, which considers market and economic conditions, internal costs, pricing, and discounting practices. The revenues allocated to the free service plans are recognized ratably over the service period.

        Probability of collection is assessed based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. If it is determined that collectibility is not reasonably assured, revenue is not recognized until collectibility becomes reasonably assured, which is generally upon receipt of cash.

Goodwill

        Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the net tangible and intangible assets acquired. Indefinite-lived intangible assets acquired in a business combination are initially recorded at management's estimate of their fair values. We account for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other, which among other things, addresses financial accounting and reporting requirements for acquired goodwill. ASC 350 prohibits the amortization of goodwill and requires us to test goodwill at the reporting unit level for impairment at least annually.

        We test the goodwill of our reporting units for impairment annually during the fourth quarter of our fiscal year and whenever events occur or circumstances change that would more likely than not indicate that the goodwill might be impaired. Events or circumstances which could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key management or other personnel, significant changes in the manner of our use of the acquired assets or the strategy for the acquired business or our overall business, significant and sustained decline in market capitalization, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

        The determination of whether or not goodwill is impaired involves a significant level of judgment in the assumptions underlying the approaches used to determine the estimated fair values of our reporting units. The determination of the fair values of our reporting units generally includes a study of market comparables, including the selection of appropriate valuation multiples and discounted cash flow models based on our internal forecasts and projections. The estimated fair value of each of our reporting units is typically determined using a combination of the income approach and the market approach. The income approach is weighted at 75%, unless a meaningful base of market data is unavailable, in which case, the market approach is not used.

        We operate two reportable segments, in accordance with ASC 280, Segment Reporting, and we have identified three reporting units—Classmates, MyPoints, and Communications—for purposes of evaluating goodwill. These reporting units each constitute a business or group of businesses for which discrete financial information is available and is regularly reviewed by segment management. The goodwill related to our acquired businesses is specific to each reporting unit and the goodwill amounts are assigned as such.

        Testing goodwill for impairment involves a two-step quantitative process. However, prior to performing the two-step quantitative goodwill impairment test, we have the option to first assess qualitative factors to determine whether or not it is necessary to perform the two-step quantitative goodwill impairment test for selected reporting units. If we choose the qualitative option, we are not required to perform the two-step quantitative goodwill impairment test unless we have determined, based on the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the two-step quantitative impairment test is required or chosen, the first step of the impairment test involves comparing the estimated fair value of a reporting unit with its respective carrying amount, including goodwill. If the estimated fair value of a reporting unit

43


Table of Contents

exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of a reporting unit is less than its carrying amount, including goodwill, then the carrying amount of the goodwill is compared with its implied fair value, and an impairment loss is recognized in an amount equal to the excess.

Annual Goodwill Impairment Assessment

        We performed the annual quantitative goodwill impairment assessment for all of our reporting units in the fourth quarter of 2013. The first step of the quantitative goodwill impairment test resulted in the determination that the fair values of our Classmates, MyPoints, and Communications reporting units substantially exceeded their carrying amounts, including goodwill. Accordingly, the second step was not required for these reporting units.

        The determination of whether or not goodwill is impaired involves a significant level of judgment in the assumptions underlying the approaches used to determine the estimated fair value of our reporting units. We believe our analysis included sufficient tolerance for sensitivity in key assumptions. The determination of the fair value of our reporting units included a study of market comparables, including the selection of appropriate valuation multiples and discounted cash flow models based on our internal forecasts and projections. We believe the assumptions and rates used in our impairment assessment are reasonable, but they are judgmental, and variations in any assumptions could result in materially different calculations of fair value and, if applicable, the impairment amount.

Impairment of Goodwill

        During the quarter ended September 30, 2013, due to a decline in internal financial projections, we performed an interim quantitative goodwill assessment for our Classmates reporting unit. Due to the complexity and the effort required to estimate the fair value of the Classmates reporting unit in step one of the impairment test and to estimate the fair value of all assets and liabilities of the Classmates reporting unit in step two of the test, the fair value estimates were derived based on preliminary assumptions and analysis that were subject to change. Based on our preliminary analysis, the implied fair value of goodwill was substantially lower than the carrying value of goodwill for our Classmates reporting unit. As a result, we recorded our best estimate of $50.2 million for the goodwill impairment charge during the quarter ended September 30, 2013. We recorded an adjustment of $2.7 million to the estimated impairment charge during the quarter ended December 31, 2013 for a total impairment charge of $52.9 million for the year ended December 31, 2013. The impairment charge was included in impairment of goodwill, intangible assets and long-lived assets in the consolidated statements of operations.

        The estimated fair value of the Classmates reporting unit was determined using the income approach, as a meaningful base of market data was not available as to also use the market approach, which was estimated based on the discounted cash flow method. The discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates and other assumptions. The inputs for the fair value calculations of the Classmates reporting unit included a 4% growth rate to calculate the terminal value and a discount rate of 12% for the annual impairment assessment. In addition, the Company assumed revenue growth and applied margin and other cost assumptions consistent with the reporting unit's historical trends.

44


Table of Contents

        The determination of whether or not goodwill is impaired involves a significant level of judgment in the assumptions underlying the approaches used to determine the estimated fair value of our reporting units. We believe our analysis included sufficient tolerance for sensitivity in key assumptions. We believe the assumptions and rates used in our impairment assessment are reasonable, but they are judgmental, and variations in any assumptions could result in materially different calculations of fair value.

Finite-Lived Intangible Assets and Other Long-Lived Assets

        We account for identifiable intangible assets and other long-lived assets in accordance with ASC 360, Property, Plant and Equipment, which addresses financial accounting and reporting for the impairment and disposition of identifiable intangible assets and other long-lived assets. Intangible assets acquired in a business combination are initially recorded at management's estimate of their fair values. We evaluate the recoverability of identifiable intangible assets and other long-lived assets for impairment when events occur or circumstances change that would indicate that the carrying amount of an asset may not be recoverable. Events or circumstances that may indicate that an asset is impaired include, but are not limited to, significant decreases in the market value of an asset, significant underperformance relative to expected historical or projected future operating results, a change in the extent or manner in which an asset is used, shifts in technology, loss of key management or other personnel, significant negative industry or economic trends, changes in our operating model or strategy, and competitive forces. In determining if an impairment exists, we estimate the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If an impairment is indicated based on a comparison of the assets' carrying amounts and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amounts of the assets exceed the respective fair values of the assets. Definite-lived intangible assets are amortized on either a straight-line basis or an accelerated basis over their estimated useful lives, ranging from two to ten years. Our identifiable intangible assets were acquired primarily in connection with business combinations.

        The process of evaluating the potential impairment of long-lived intangible assets is subjective and requires significant judgment on matters such as, but not limited to, the asset group to be tested for recoverability. We are also required to make estimates that may significantly impact the outcome of the analyses. Such estimates include, but are not limited to, future operating performance and cash flows, cost of capital, terminal values, and remaining economic lives of assets.

Member Redemption Liability

        Member redemption liability for loyalty marketing service points represents the estimated costs associated with the obligation of MyPoints to redeem outstanding points accumulated by its loyalty marketing service members, less an allowance for points expected to expire prior to redemption. The estimated cost of points is primarily presented in cost of revenues, except for the portion related to member acquisition activities, internal marketing surveys and other non-revenue generating activities, which are presented in sales and marketing expenses. The member redemption liability is recognized when members earn points, less an allowance for points expected to expire, and is reduced when members redeem accumulated points upon reaching required redemption thresholds or when points expire prior to redemption.

        MyPoints members may redeem points for third-party gift cards and other rewards. Members earn points when they respond to direct marketing offers delivered by MyPoints, purchase goods or services from advertisers, engage in certain promotional campaigns of advertisers, or engage in other specified activities.

45


Table of Contents

        The member redemption liability is estimated based upon the weighted-average cost and number of points that may be redeemed in the future. The weighted-average cost of points is calculated by taking the total cost of items fulfilled divided by total points redeemed. MyPoints purchases gift cards and other awards from merchants at a discount and sets redemption levels for its members. The discounts and points needed to redeem awards vary by merchant and award denomination. MyPoints has the ability to adjust the number of points required to redeem awards to reflect changes in the cost of awards.

        MyPoints accounts for and reduces the gross points issued by an estimate of points that will never be redeemed by its members. This reduction is calculated based on an analysis of historical point-earning trends, redemption activities and individual member account activity. MyPoints' historical analysis takes into consideration the total points in members' accounts that have been inactive for six months or longer, less an estimated reactivation rate, plus an estimate for future cancelations of points that have not yet been outstanding for 180 days. Changes in, among other factors, the net number of points issued, redemption activities and members' activity levels could materially impact the member redemption liability. A 100 basis point increase or decrease in the estimate of points that will never be redeemed would increase or decrease our member redemption liability at December 31, 2013 by approximately $33,000.

        Points in active MyPoints accounts do not expire; however, unredeemed points expire after twelve consecutive months of inactivity. For purposes of the member redemption liability, "inactive" means a lack of all of the following: email response; survey completion; profile update; and any point-earning or point-redeeming transaction. The canceling or disabling of inactive MyPoints accounts would have no impact on our consolidated financial statements, as we fully consider inactive MyPoints accounts when establishing the member redemption liability, as discussed above.

        The following table sets forth, for the periods presented, a reconciliation of the changes in the member redemption liability (in thousands):

 
  Year Ended
December 31,
 
 
  2013   2012  

Beginning balance

  $ 22,575   $ 23,457  

Accruals for points earned

    11,892     14,077  

Reduction for redeemed points

    (13,586 )   (15,155 )

Changes in allowance for points expected to expire and weighted-average cost of points

    46     196  
           

Ending balance

  $ 20,927   $ 22,575  
           
           

Income Taxes

        We apply the provisions of ASC 740, Income Taxes. Under ASC 740, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including our operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In accordance with ASC 740, we recognize, in our consolidated financial statements, the impact of our tax positions that are more likely than not to be sustained upon examination based on the technical merits of the positions. The Company recognizes interest and penalties for uncertain tax positions in income tax expense.

46


Table of Contents

Legal Contingencies

        We are currently involved in certain legal proceedings and investigations. We record liabilities related to pending matters when an unfavorable outcome is deemed probable and management can reasonably estimate the amount or range of loss. As additional information becomes available, we continually assess the potential liability related to such pending matters.

Financial Statement Presentation

Revenues

Services Revenues

        Content & Media services revenues primarily consist of amounts charged to pay accounts for social networking services. Communications services revenues consist of amounts charged to pay accounts for dial-up Internet access, mobile broadband, DSL, email, Internet security, web hosting, and other services. Our Content & Media and Communications services revenues are primarily dependent on two factors: the average number of pay accounts for a period and 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.

Products Revenues

        Content & Media products revenues consist of revenues generated from the sale of yearbook reprints and related shipping and handling fees, as well as revenues generated from reselling third-party merchandise. Communications products revenues consist of revenues generated from the sale of mobile broadband devices and the related shipping and handling fees.

Advertising and Other 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. Our social networking services generate advertising revenues primarily from display advertisements on our websites. Advertising inventory on our social networking websites includes text and graphic placements on the user home page, profile page, class list page, and most other pages on our websites. Our loyalty marketing service's advertising and other 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 loyalty marketing service's advertising and other revenues also include revenues generated from the sale of gift cards.

        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 the Content & Media segment which are included in reported segment results and are eliminated upon consolidation.

Cost of Revenues

        Content & Media cost of revenues includes costs of points earned by members of our loyalty marketing service; costs related to the sale of gift cards; depreciation of network computers and equipment; data center costs; amortization of content purchases; fees associated with the storage and processing of customer credit cards and associated bank fees; costs related to providing customer support; personnel- and overhead-related costs; costs related to third-party merchandise; costs

47


Table of Contents

associated with the sale of yearbook reprints and the related shipping and handling costs; license fees; and domain name registration fees.

        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; domain name registration fees; and the costs associated with the sale of mobile broadband devices, including the related shipping and handling costs.

Sales and Marketing

        Sales and marketing expenses include expenses associated with promoting our brands, services and products and with generating advertising revenues. Expenses associated with promoting our brands, services and products 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, public relations, sponsorships, print, and outdoor advertising, and on retail and other performance-based distribution relationships. Marketing and advertising costs to promote our services and products 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.

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; bad debt expense; and reserves or expenses incurred as a result of settlements, judgments, fines, penalties, assessment, or other resolutions related to litigation, arbitration, investigations, disputes, or similar matters. General and administrative expenses also include expenses resulting from actual or potential transactions such as business combinations, mergers, acquisitions, dispositions, spin offs, financing transactions, and other strategic transactions, including, without limitation, expenses for advisors and representatives such as investment bankers, consultants, attorneys, and accounting firms.

48


Table of Contents

Amortization of Intangible Assets

        Amortization of intangible assets includes amortization of acquired pay accounts and free accounts; certain acquired trademarks and trade names; acquired software and technology; acquired customer and advertising contracts and related relationships; acquired rights, content and intellectual property; and other acquired identifiable intangible assets.

Contingent Consideration—Fair Value Adjustment

        Contingent consideration—fair value adjustment includes changes in the estimated fair value of contingent consideration, as well as interest expense related to such contingent consideration. Changes to one or multiple inputs to the Monte-Carlo simulation used to estimate fair value, including the discount rate, mean growth rates, volatility rates, the estimated number of daily registrations, and the estimated rate of conversion of new subscribers to pay accounts, could significantly impact the estimated fair value of contingent consideration. We review and reassess the estimated fair value of contingent consideration on a quarterly basis, and future fair value estimates could differ from the initial estimate.

Restructuring and Other Exit Costs

        Restructuring and other exit costs consist of costs associated with the realignment and reorganization of our operations and other employee termination events. Restructuring and other exit costs include employee termination costs, facility closure and relocation costs, and contract termination costs. The timing of associated cash payments is dependent upon the type of exit cost and can extend over a 12-month period. We record restructuring and other exit cost liabilities in accrued liabilities or other liabilities in the consolidated balance sheets.

Interest Income

        Interest income primarily consists of earnings on our cash and cash equivalents.

Interest Expense

        Interest expense primarily consists of interest incurred related to tax and other regulatory filings.

Other Income (Expense), Net

        Other income (expense), net, consists of gains and losses on foreign currency exchange rate transactions; realized and unrealized gains and losses on certain forward foreign currency exchange contracts; gains or losses related to ineffectiveness of derivative instruments; equity earnings on investments in subsidiaries; and other non-operating income and expenses.

Results of Operations

        The following tables set forth, for the periods presented, selected historical consolidated statements of operations and segment information data. The information contained in the tables below should be read in conjunction with Critical Accounting Policies, Estimates and Assumptions, Liquidity and Capital Resources, Contractual Obligations, and Other Commitments included in this Item 7, as well as "Quantitative and Qualitative Disclosures About Market Risk" and the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

49


Table of Contents

        Consolidated information was as follows (in thousands):

 
  Year Ended December 31, 2013  
 
  2013   2012   2011  

Revenues

  $ 233,614   $ 257,765   $ 310,959  

Operating expenses:

                   

Cost of revenues

    75,480     78,229     75,177  

Sales and marketing

    57,066     67,488     69,158  

Technology and development

    31,555     32,944     35,397  

General and administrative

    66,347     59,760     71,594  

Amortization of intangible assets

    5,433     4,950     5,266  

Contingent consideration—fair value adjustment

    (5,124 )   (836 )    

Restructuring and other exit costs

    2,501     91     4,802  

Impairment of goodwill, intangible assets and long-lived assets

    52,899     26,910      
               

Total operating expenses

    286,157     269,536     261,394  
               

Operating income (loss)

    (52,543 )   (11,771 )   49,565  

Interest income

    225     559     284  

Interest expense

    (12 )       (176 )

Other income, net

    251     258     901  
               

Income (loss) before income taxes

    (52,079 )   (10,954 )   50,574  

Provision for income taxes

    42,917     747     14,912  
               

Income (loss) from continuing operations

    (94,996 )   (11,701 )   35,662  

Income from discontinued operations, net of income tax

    12,829     24,505     16,007  
               

Net income (loss)

  $ (82,167 ) $ 12,804   $ 51,669  
               
               

        Information for our two reportable segments, which excludes depreciation and amortization of intangible assets, was as follows (in thousands):

 
  Content & Media   Communications  
 
  Year Ended December 31,   Year Ended December 31,  
 
  2013   2012   2011   2013   2012   2011  

Revenues

  $ 133,847   $ 153,496   $ 185,475   $ 100,858   $ 105,442   $ 126,532  

Operating expenses:

                                     

Cost of revenues

    31,769     35,922     33,894     33,865     33,883     33,442  

Sales and marketing

    41,242     49,839     59,063     16,617     18,188     10,009  

Technology and development

    19,057     19,552     21,530     7,419     7,532     7,932  

General and administrative

    18,455     21,003     26,020     10,576     10,718     12,554  

Contingent consideration—fair value adjustment

    (5,124 )   (836 )                

Restructuring and other exit costs

    2,501     (14 )   1,616         (8 )   1,399  

Impairment of goodwill, intangible assets and long-lived assets

    52,899     26,910                  
                           

Total operating expenses

    160,799     152,376     142,123     68,477     70,313     65,336  
                           

Segment income (loss) from operations

  $ (26,952 ) $ 1,120   $ 43,352   $ 32,381   $ 35,129   $ 61,196  
                           
                           

50


Table of Contents


Year Ended December 31, 2013 compared to Year Ended December 31, 2012

Consolidated Results

Revenues

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Revenues

  $ 233,614   $ 257,765   $ (24,151 )   (9 )%

Revenues as a percentage of total segment revenues:

                         

Content & Media

    57.0 %   59.3 %            

Communications

    43.0 %   40.7 %            

        The decrease in consolidated revenues was primarily due to a $19.6 million decrease in revenues from our Content & Media segment and a $4.6 million decrease in revenues from our Communications segment.

Cost of Revenues

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Cost of revenues

  $ 75,480   $ 78,229   $ (2,749 )   (4 )%

Cost of revenues as a percentage of total segment cost of revenues:

                         

Content & Media

    48.4 %   51.5 %            

Communications

    51.6 %   48.5 %            

        The decrease in consolidated cost of revenues was primarily due to a $4.2 million decrease in cost of revenues associated with our Content & Media segment, partially offset by a $1.4 million increase in depreciation and amortization expense.

Sales and Marketing

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Sales and marketing

  $ 57,066   $ 67,488   $ (10,422 )   (15 )%

Sales and marketing expenses as a percentage of total segment sales and marketing expenses:

                         

Content & Media

    71.3 %   73.3 %            

Communications

    28.7 %   26.7 %            

        The decrease in consolidated sales and marketing expenses was due to an $8.6 million decrease in sales and marketing expenses associated with our Content & Media segment, a $1.6 million decrease in sales and marketing expenses associated with our Communications segment and a $0.2 million decrease in depreciation expense.

51


Table of Contents

Technology and Development

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Technology and development

  $ 31,555   $ 32,944   $ (1,389 )   (4 )%

Technology and development expenses as a percentage of total segment technology and development expenses:

                         

Content & Media

    72.0 %   72.2 %            

Communications

    28.0 %   27.8 %            

        The decrease in consolidated technology and development expenses was due to a $0.5 million decrease in technology and development expenses associated with our Content & Media segment, a $0.1 million decrease in technology and development expenses associated with our Communications segment and an $0.8 million decrease in depreciation expense.

General and Administrative

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

General and administrative

  $ 66,347   $ 59,760   $ 6,587     11 %

General and administrative expenses as a percentage of total segment general and administrative expenses:

                         

Content & Media

    63.6 %   66.2 %            

Communications

    36.4 %   33.8 %            

        The increase in consolidated general and administrative expenses was primarily due to a $9.9 million increase in unallocated corporate expenses, partially offset by a $2.5 million decrease in administrative expenses associated with our Content & Media segment and a $0.7 million decrease in depreciation expense.

Amortization of Intangible Assets

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands,
except percentages)

 

Amortization of intangible assets

  $ 5,433   $ 4,950   $ 483     10 %

        The increase in consolidated amortization of intangible assets was due to the acquisition of schoolFeed in June 2012, as compared to the full year of amortization of schoolFeed intangible assets for the year ended December 31, 2013.

Contingent Consideration—Fair Value Adjustment

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Contingent consideration—fair value adjustment

  $ (5,124 ) $ (836 ) $ (4,288 )   *  

*
Not meaningful

52


Table of Contents

        Contingent consideration—fair value adjustment for the year ended December 31, 2013 was comprised of a $5.7 million decrease in the estimated fair value of contingent consideration, partially offset by $0.5 million of interest expense related to such contingent consideration. During the quarter ended March 31, 2013, Facebook restricted certain functionality of the schoolFeed app, which limited schoolFeed's ability to use the Facebook platform to contact users who are not registered members of schoolFeed. In May 2013, Facebook discontinued the schoolFeed app's access to the Facebook platform, which resulted in the termination of future new installations of the schoolFeed app through Facebook, as well as the discontinuance of the sharing of Facebook content through the schoolFeed app.

Restructuring and Other Exit Costs

 
  Year Ended
December 31,
  Change
 
  2013   2012   $   %
 
  (in thousands,
except percentages)

Restructuring and other exit costs

  $ 2,501   $ 91   $ 2,410   *

*
Not meaningful

        Consolidated restructuring and other exit costs for the year ended December 31, 2013 included $2.3 million of employee termination costs and $0.2 million of contract termination costs recorded in our Content & Media segment. Consolidated restructuring and other exit costs for the year ended December 31, 2012 primarily consisted of employee termination costs.

Impairment of Goodwill, Intangible Assets and Long-Lived Assets

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Impairment of goodwill, intangible assets and long-lived assets

  $ 52,899   $ 26,910   $ 25,989     97 %

        Goodwill impairment charges totaling $52.9 million were recorded in the year ended December 31, 2013 due to a material reduction in the fair value of the Classmates reporting unit. A goodwill and intangible asset impairment charge totaling $26.9 million was recorded in the quarter ended December 31, 2012 due to a material reduction in the fair value of the MyPoints reporting unit. See "Critical Accounting Policies, Estimates and Assumptions—Impairment of Goodwill" for additional information.

Interest Income

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands,
except percentages)

 

Interest income

  $ 225   $ 559   $ (334 )   (60 )%

        The decrease in consolidated interest income was primarily related to higher interest income at our India subsidiary during the year ended December 31, 2012.

53


Table of Contents

Interest Expense

 
  Year Ended
December 31,
  Change
 
  2013   2012   $   %
 
  (in thousands,
except percentages)

Interest expense

  $ 12   $   $ 12   N/A

        Interest expense remained relatively flat for the year ended December 31, 2013, compared to the year ended December 31, 2012.

Other Income, Net

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands,
except percentages)

 

Other income, net

  $ 251   $ 258   $ (7 )   (3 )%

        Consolidated other income, net remained relatively flat for the year ended December 31, 2013, compared to the year ended December 31, 2012.

Provision for Income Taxes

 
  Year Ended
December 31,
 
 
  2013   2012  
 
  (in thousands,
except percentages)

 

Provision for income taxes

  $ 42,917   $ 747  

Effective income tax rate

    (82.4 )%   (6.8 )%

        For the year ended December 31, 2013, we recorded a provision for income taxes totaling $42.9 million on a pre-tax loss totaling $52.1 million, compared to a provision for income taxes totaling $0.7 million on a pre-tax loss totaling $11.0 million for the year ended December 31, 2012. The change in the effective income tax rate was primarily due to the valuation allowance recorded against our domestic deferred tax assets and the tax effect of the goodwill and intangible asset impairment charges recorded in the year ended December 31, 2013, compared to the year ended December 31, 2012.

Content & Media Segment Results

Content & Media Revenues

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands,
except percentages and ARPU)

 

Services

  $ 82,591   $ 95,119   $ (12,528 )   (13 )%

Products

    3,136     3,646     (510 )   (14 )%

Advertising and other

    48,120     54,731     (6,611 )   (12 )%
                     

Total Content & Media Revenues

  $ 133,847   $ 153,496   $ (19,649 )   (13 )%
                     
                     

ARPU

  $ 2.50   $ 2.49   $ 0.01     %

Average pay accounts

    2,748     3,174     (426 )   (13 )%

54


Table of Contents

        The decrease in Content & Media services revenues was the result of a 13% decrease in our average number of pay accounts. Excluding the favorable impact of foreign currency exchange rates, ARPU decreased by 1%. In addition, Content & Media advertising and other revenues decreased primarily due to a decrease in advertising revenues from our loyalty marketing services as a result of lower revenues per advertising customer, as well as a decrease in loyalty marketing active accounts. The decrease in Content & Media products revenues was related to the discontinuation of third-party merchandise sales in the year ended December 31, 2013. Adjusting for the favorable impact of foreign currency exchange rates of $1.1 million due to a stronger Euro versus the U.S. Dollar, Content & Media revenues decreased by $20.7 million, or 14%. We anticipate that Content & Media pay accounts and revenues will continue to decline year over year, at least in the near term.

Content & Media Cost of Revenues

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Content & Media cost of revenues

  $ 31,769   $ 35,922   $ (4,153 )   (12 )%

Content & Media cost of revenues as a percentage of Content & Media revenues

    23.7 %   23.4 %            

        The decrease in Content & Media cost of revenues was due to a $1.8 million decrease in cost of points earned by members of our loyalty marketing service due to lower revenues, a $1.6 million decrease in hosting-related fees due to the consolidation of certain data centers and lower software licensing fees, a $1.2 million decrease in personnel- and overhead-related costs due to our restructuring initiatives, a $0.6 million decrease in costs associated with the sale of third-party merchandise, and a $0.3 million decrease in credit card-related fees due to a decrease in pay accounts. These decreases were partially offset by a $1.1 million increase in costs related to the sale of gift cards.

Content & Media Sales and Marketing

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Content & Media sales and marketing

  $ 41,242   $ 49,839   $ (8,597 )   (17 )%

Content & Media sales and marketing expenses as a percentage of Content & Media revenues

    30.8 %   32.5 %            

        The decrease in Content & Media sales and marketing expenses was primarily due to a $4.7 million decrease in online marketing costs to acquire new social networking members primarily due to our cost-cutting efforts and a $3.7 million decrease in personnel- and overhead-related costs due to our restructuring initiatives.

Content & Media Technology and Development

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Content & Media technology and development

  $ 19,057   $ 19,552   $ (495 )   (3 )%

Content & Media technology and development expenses as a percentage of Content & Media revenues

    14.2 %   12.7 %            

55


Table of Contents

        The decrease in Content & Media technology and development expenses was due to $0.5 million decrease in personnel- and overhead-related costs.

Content & Media General and Administrative

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Content & Media general and administrative

  $ 18,455   $ 21,003   $ (2,548 )   (12 )%

Content & Media general and administrative expenses as a percentage of Content & Media revenues

    13.8 %   13.7 %            

        The decrease in Content & Media general and administrative expenses was due to a $2.8 million insurance reimbursement received in the year ended December 31, 2013 related to a legal settlement, a $1.0 million decrease in personnel- and overhead-related costs, an $0.8 million decrease in professional services and consulting fees, and $0.5 million of transaction-related costs related to the schoolFeed acquisition recorded in the year ended December 31, 2012. These decreases were partially offset by reserves for legal settlements totaling $2.2 million recorded in the year ended December 31, 2013 and a $0.4 million increase in bad debt expense.

Content & Media Contingent Consideration—Fair Value Adjustment

 
  Year Ended
December 31,
  Change
 
  2013   2012   $   %
 
  (in thousands, except percentages)

Content & Media contingent consideration—fair value adjustment

  $ (5,124 ) $ (836 ) $ (4,288 ) *

*
Not meaningful

        Content & Media contingent consideration—fair value adjustment was comprised of a $5.7 million decrease in the estimated fair value of contingent consideration, partially offset by $0.5 million of interest expense related to such contingent consideration. During the quarter ended March 31, 2013, Facebook restricted certain functionality of the schoolFeed app, which limited schoolFeed's ability to use the Facebook platform to contact users who are not registered members of schoolFeed. In May 2013, Facebook discontinued the schoolFeed app's access to the Facebook platform, which resulted in the termination of future new installations of the schoolFeed app through Facebook, as well as the discontinuance of the sharing of Facebook content through the schoolFeed app.

Content & Media Restructuring and Other Exit Costs

 
  Year Ended
December 31,
  Change
 
  2013   2012   $   %
 
  (in thousands, except
percentages)

Content & Media restructuring and other exit costs (benefits)

  $ 2,501   $ (14 ) $ 2,515   *

*
Not meaningful

        Content & Media restructuring and other exit costs included $2.3 million of employee termination costs and $0.2 million of contract termination costs. These restructuring and other exit costs were a result of management's initiative to improve the operational effectiveness and efficiency of the

56


Table of Contents

Content & Media segment, as well as segment profitability. At December 31, 2013, accrued restructuring and other exit costs totaled $0.2 million, which will be paid over the next 12 months.

Content & Media Impairment of Goodwill, Intangible Assets and Long-Lived Assets

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Content & Media impairment of goodwill, intangible assets and long-lived assets

  $ 52,899   $ 26,910   $ 25,989     97 %

        Goodwill impairment charges totaling $52.9 million were recorded in the year ended December, 31, 2013 due to a material reduction in the fair value of the Classmates reporting unit. A goodwill and intangible asset impairment charge totaling $26.9 million was recorded in the year ended December, 31, 2012 due to a material reduction in the fair value of the MyPoints reporting unit. See "Critical Accounting Policies, Estimates and Assumptions—Impairment of Goodwill" for additional information.

Communications Segment Results

Communications Revenues

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages and ARPU)
 

Services

  $ 68,393   $ 78,089   $ (9,696 )   (12 )%

Products

    3,743     3,011     732     24 %

Advertising

    28,722     24,342     4,380     18 %
                     

Total Communications Revenues

  $ 100,858   $ 105,442   $ (4,584 )   (4 )%
                     
                     

ARPU

  $ 9.34   $ 8.90   $ 0.44     5 %

Average number of dial-up Internet access pay accounts

    307     418     (111 )   (27 )%

        The decrease in Communications services revenues was primarily due to a 27% decrease in our average number of dial-up Internet access pay accounts, partially offset by a 5% increase in ARPU and growth in mobile broadband pay accounts. The increase in ARPU was attributable to a higher percentage of mobile broadband pay accounts, which have higher ARPUs. The decrease in Communications services revenues was partially offset by a $4.4 million increase in Communications advertising revenues due to higher advertising rates driven by optimization of advertising inventory and stronger market demand and a $0.7 million increase in Communications products revenues related to the sale of mobile broadband devices and the related shipping and handling fees.

Communications Cost of Revenues

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Communications cost of revenues

  $ 33,865   $ 33,883   $ (18 )   %

Communications cost of revenues as a percentage of Communications revenues

    33.6 %   32.1 %            

57


Table of Contents

        Communications cost of revenues remained relatively flat for the year ended December 31, 2013, compared to the year ended December 31, 2012. Communications cost of revenues remained relatively flat primarily due to a $2.9 million decrease in costs associated with our DSL service, a $1.7 million decrease in telecommunications, customer support and billing-related costs, an $0.8 million decrease in costs associated with our email, Internet security and web hosting services, and an $0.8 million decrease in telecommunications costs. These decreases were partially offset by a $5.3 million increase in costs associated with our mobile broadband service and a $0.3 million increase in costs associated with our Communications advertising revenues.

Communications Sales and Marketing

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Communications sales and marketing

  $ 16,617   $ 18,188   $ (1,571 )   (9 )%

Communications sales and marketing expenses as a percentage of Communications revenues

    16.5 %   17.2 %            

        The decrease in Communications sales and marketing expenses was due to a $1.0 million decrease in advertising, promotion, customer support and distribution costs primarily related to our dial-up Internet access services and an $0.8 million decrease in marketing costs associated with the promotion of our mobile broadband service, partially offset by a $0.2 million increase in personnel- and overhead-related costs.

Communications Technology and Development

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Communications technology and development

  $ 7,419   $ 7,532   $ (113 )   (2 )%

Communications technology and development expenses as a percentage of Communications revenues

    7.4 %   7.1 %            

        Communications technology and development expenses remained relatively flat for the year ended December 31, 2013, compared to the year ended December 31, 2012.

Communications General and Administrative

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Communications general and administrative

  $ 10,576   $ 10,718   $ (142 )   (1 )%

Communications general and administrative expenses as a percentage of Communications revenues

    10.5 %   10.2 %            

        The decrease in Communications general and administrative expenses was due to a $0.2 million decrease in bad debt expense and a $0.2 million decrease in personnel- and overhead-related costs, partially offset by a $0.3 million increase in professional services and consulting fees.

58


Table of Contents

Communications Restructuring and Other Exit Costs

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except
percentages)

 

Communications restructuring and other exit costs

  $   $ (8 ) $ 8     100 %

        Communications restructuring and other exit costs were immaterial for the years ended December 31, 2013 and 2012.

Corporate Revenues

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except
percentages)

 

Corporate revenues

  $ 145   $   $ 145     N/A  

        Corporate revenues for the year ended December 31, 2013 were related to transition services provided to FTD in connection with the FTD Spin-Off Transaction.

Unallocated Corporate Expenses

 
  Year Ended
December 31,
  Change  
 
  2013   2012   $   %  
 
  (in thousands, except percentages)
 

Unallocated corporate expenses

  $ 35,552   $ 25,606   $ 9,946     39 %

        The increase in unallocated corporate expenses, excluding depreciation, amortization of intangible assets and restructuring and other exit costs, was primarily due to an $8.2 million increase in transaction-related costs and a $2.7 million increase in personnel- and overhead-related costs primarily due to an increase in stock-based compensation, partially offset by a $1.0 million decrease in professional services and consulting fees.

        On November 1, 2013, upon completion of the FTD Spin-Off Transaction, Mark R. Goldston, former Chairman, President and Chief Executive Officer of United Online, Inc., resigned as a director and officer of United Online. Pursuant to the terms of Mr. Goldston's employment agreement, Mr. Goldston received a cash severance payment totaling approximately $7.3 million, which was included in transaction-related costs, as well as full and accelerated vesting of Mr. Goldston's outstanding nonvested restricted stock units and unvested stock options resulting in an increase in stock-based compensation for the year ended December 31, 2013, compared to the year ended December 31, 2012. Mr. Goldston's employment agreement has previously been filed with the SEC.

59


Table of Contents


Year Ended December 31, 2012 compared to Year Ended December 31, 2011

Consolidated Results

Revenues

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Revenues

  $ 257,765   $ 310,959   $ (53,194 )   (17 )%

Revenues as a percentage of total segment revenues:

                         

Content & Media

    59.3 %   59.4 %            

Communications

    40.7 %   40.6 %            

        The decrease in consolidated revenues was primarily due to a $32.0 million decrease in revenues from our Content & Media segment and a $21.1 million decrease in revenues from our Communications segment.

Cost of Revenues

 
  Year Ended December 31,   Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Cost of revenues

  $ 78,229   $ 75,177   $ 3,052     4 %

Cost of revenues as a percentage of total segment cost of revenues:

                         

Content & Media

    51.5 %   50.3 %            

Communications

    48.5 %   49.7 %            

        The increase in consolidated cost of revenues was due to a $2.0 million increase in cost of revenues associated with our Content & Media segment, a $0.6 million increase in depreciation and amortization expense and a $0.4 million increase in cost of revenues associated with our Communications segment.

Sales and Marketing

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Sales and marketing

  $ 67,488   $ 69,158   $ (1,670 )   (2 )%

Sales and marketing expenses as a percentage of total segment sales and marketing expenses:

                         

Content & Media

    73.3 %   85.5 %            

Communications

    26.7 %   14.5 %            

        The decrease in consolidated sales and marketing expenses was due to a $9.2 million decrease in sales and marketing expenses associated with our Content & Media segment and a $0.5 million decrease in depreciation expense, partially offset an $8.2 million increase in sales and marketing expenses associated with our Communications segment.

60


Table of Contents

Technology and Development

 
  Year Ended December 31,   Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Technology and development

  $ 32,944   $ 35,397   $ (2,453 )   (7 )%

Technology and development expenses as a percentage of total segment technology and development expenses:

                         

Content & Media

    72.2 %   73.1 %            

Communications

    27.8 %   26.9 %            

        The decrease in consolidated technology and development expenses was primarily due to a $2.0 million decrease in technology and development expenses associated with our Content & Media segment and a $0.4 million decrease in technology and development expenses associated with our Communications segment.

General and Administrative

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

General and administrative

  $ 59,760   $ 71,594   $ (11,834 )   (17 )%

General and administrative expenses as a percentage of total segment general and administrative expenses:

                         

Content & Media

    66.2 %   67.5 %            

Communications

    33.8 %   32.5 %            

        The decrease in consolidated general and administrative expenses was due to a $5.0 million decrease in general and administrative expenses associated with our Content & Media segment, a $1.8 million decrease in general and administrative expenses associated with our Communications segment, a $4.3 million decrease in unallocated corporate expenses, and a $0.7 million decrease in depreciation expense.

Amortization of Intangible Assets

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Amortization of intangible assets

  $ 4,950   $ 5,266   $ (316 )   (6 )%

        The decrease in consolidated amortization of intangible assets was due to $0.9 million of amortization in our Communications segment related to intangible assets that were fully amortized during 2011, partially offset by an increase of $0.6 million related to the schoolFeed acquisition in June 2012.

61


Table of Contents

Contingent Consideration—Fair Value Adjustment

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except
percentages)

 

Contingent consideration—fair value adjustment

  $ (836 ) $   $ (836 )   N/A  

        Contingent consideration—fair value adjustment was comprised of a $1.8 million reduction in fair value of the schoolFeed contingent consideration, partially offset by $1.0 million of interest expense related to such contingent consideration.

Restructuring and Other Exit Costs

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Restructuring and other exit costs

  $ 91   $ 4,802   $ (4,711 )   (98 )%

        Consolidated restructuring and other exit costs for the year ended December 31, 2012 primarily consisted of employee termination costs. Consolidated restructuring and other exit costs for the year ended December 31, 2011 primarily consisted of employee termination costs and, to a lesser extent, contract termination costs and facility closure costs.

Impairment of Goodwill, Intangible Assets and Long-Lived Assets

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Impairment of goodwill, intangible assets and long-lived assets

  $ 26,910   $   $ 26,910     N/A  

        A goodwill and intangible asset impairment charge totaling $26.9 million was recorded in the quarter ended December 31, 2012 due to a material reduction in the fair value of the MyPoints reporting unit. See "Critical Accounting Policies, Estimates and Assumptions—Impairment of Goodwill" for additional information.

Interest Income

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except
percentages)

 

Interest income

  $ 559   $ 284   $ 275     97 %

        The increase in consolidated interest income was primarily due to higher average cash balances and interest rates at our India subsidiary.

62


Table of Contents

Interest Expense

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except
percentages)

 

Interest expense

  $   $ 176   $ (176 )   (100 )%

        Interest expense for the year ended December 31, 2011 consisted of interest incurred related to state tax and regulatory filings.

Other Income, Net

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except
percentages)

 

Other income, net

  $ 258   $ 901   $ (643 )   (71 )%

        The decrease in consolidated other income, net, was primarily due to a decrease in gains associated with foreign currency exchange transactions and a decrease in gains on investments.

Provision for Income Taxes

 
  Year Ended
December 31,
 
 
  2012   2011  
 
  (in thousands,
except
percentages)

 

Provision for income taxes

  $ 747   $ 14,912  

Effective income tax rate

    (6.8 )%   29.5 %

        For the year ended December 31, 2012, we recorded a provision for income taxes totaling $0.7 million on a pre-tax loss totaling $11.0 million, compared to a provision for income taxes totaling $14.9 million on pre-tax income totaling $50.6 million for the year ended December 31, 2011. The change in the effective income tax rate was primarily due to the valuation allowance recorded against deferred tax assets and lower tax benefits related to uncertain tax positions recorded in the year ended December 31, 2012, compared to the year ended December 31, 2011.

Content & Media Segment Results

Content & Media Revenues

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages and ARPU)
 

Services

  $ 95,119   $ 123,992   $ (28,873 )   (23 )%

Products

    3,646     1,155     2,491     216 %

Advertising and other

    54,731     60,328     (5,597 )   (9 )%
                     

Total Content & Media Revenues

  $ 153,496   $ 185,475   $ (31,979 )   (17 )%
                     
                     

ARPU

  $ 2.49   $ 2.59   $ (0.10 )   (4 )%

Average pay accounts

    3,174     3,992     (818 )   (20 )%

63


Table of Contents

        Excluding the unfavorable impact of foreign currency exchange rates of $2.9 million due to a weaker Euro versus the U.S. Dollar, Content & Media revenues decreased by $29.0 million, or 16%. The decrease in Content & Media services revenues was the result of a 20% decrease in our average number of pay accounts. Excluding the unfavorable impact of foreign currency exchange rates, ARPU decreased by 1%. In addition, Content & Media advertising and other revenues decreased due to a decrease in revenues from our loyalty marketing service as a result of a number of factors, including the loss of a major customer during the second half of 2011, as well as a decrease in revenues from our social networking services business due to a decrease in active accounts for the international business, partially offset by an increase in revenues generated from the sale of gift cards. These decreases were partially offset by a $2.5 million increase in Content & Media products revenues primarily related to the sale of yearbook reprints.

Content & Media Cost of Revenues

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Content & Media cost of revenues

  $ 35,922   $ 33,894   $ 2,028     6 %

Content & Media cost of revenues as a percentage of Content & Media revenues

    23.4 %   18.3 %            

        The increase in Content & Media cost of revenues was due to a $5.3 million increase in costs associated with the sale of gift cards and third-party merchandise, as well as a $0.9 million increase in costs associated with the sale of yearbook reprints. These increases were partially offset by a $2.2 million decrease in costs associated with points earned by members of our loyalty marketing service, a $1.4 million decrease in credit card-related fees due to a decrease in pay accounts and a $0.6 million decrease in personnel- and overhead-related costs.

Content & Media Sales and Marketing

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Content & Media sales and marketing

  $ 49,839   $ 59,063   $ (9,224 )   (16 )%

Content & Media sales and marketing expenses as a percentage of Content & Media revenues

    32.5 %   31.8 %            

        The decrease in Content & Media sales and marketing expenses was due to $5.5 million in marketing costs related to television advertising supporting the launch of the nostalgic content website in the year ended December 31, 2011, a $4.3 million decrease in personnel- and overhead-related costs and a $0.4 million decrease in costs to acquire new loyalty marketing members. These decreases were partially offset by a $1.0 million increase in costs to acquire new social networking members.

64


Table of Contents

Content & Media Technology and Development

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Content & Media technology and development

  $ 19,552   $ 21,530   $ (1,978 )   (9 )%

Content & Media technology and development expenses as a percentage of Content & Media revenues

    12.7 %   11.6 %            

        The decrease in Content & Media technology and development expenses was the result of a decrease in personnel- and overhead-related costs as a result of reduced headcount in 2012.

Content & Media General and Administrative

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Content & Media general and administrative

  $ 21,003   $ 26,020   $ (5,017 )   (19 )%

Content & Media general and administrative expenses as a percentage of Content & Media revenues

    13.7 %   14.0 %            

        The decrease in Content & Media general and administrative expenses was due to a $3.3 million decrease in legal settlement costs, a $2.3 million decrease in personnel- and overhead-related costs and a $0.3 million decrease in bad debt expense. These decreases were partially offset by $0.5 million of transaction-related costs incurred in the year ended December 31, 2012 in connection with the schoolFeed acquisition and a $0.4 million increase in professional fees.

Content & Media Contingent Consideration—Fair Value Adjustment

 
  Year Ended
December 31,
  Change
 
  2012   2011   $   %
 
  (in thousands,
except percentages)

Content & Media contingent consideration—fair value adjustment

  $ (836 ) $   $ (836 ) N/A

        Content & Media contingent consideration—fair value adjustment was comprised of a $1.8 million decrease in fair value of the schoolFeed contingent consideration, partially offset by $1.0 million of interest expense related to such contingent consideration.

Content & Media Restructuring and Other Exit Costs

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Content & Media restructuring and other exit costs (benefits)

  $ (14 ) $ 1,616   $ (1,630 )   (101 )%

        Content & Media restructuring and other exit costs for the year ended December 31, 2011 were primarily related to employee termination costs associated with a reduction in headcount during the fourth quarter of 2011.

65


Table of Contents

Content & Media Impairment of Goodwill, Intangible Assets and Long-Lived Assets

 
  Year Ended
December 31,
  Change
 
  2012   2011   $   %
 
  (in thousands, except percentages)

Content & Media impairment of goodwill, intangible assets and long-lived assets

  $ 26,910   $   $ 26,910   N/A

        A goodwill and intangible asset impairment charge totaling $26.9 million was recorded in the quarter ended December 31, 2012 due to a material reduction in the fair value of the MyPoints reporting unit. See "Critical Accounting Policies, Estimates and Assumptions—Impairment of Goodwill" for additional information.

Communications Segment Results

Communications Revenues

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages and ARPU)
 

Services

  $ 78,089   $ 100,770   $ (22,681 )   (23 )%

Products

    3,011         3,011     N/A  

Advertising

    24,342     25,762     (1,420 )   (6 )%
                     

Total Communications Revenues

  $ 105,442   $ 126,532   $ (21,090 )   (17 )%
                     
                     

ARPU

  $ 8.90   $ 9.14   $ (0.24 )   (3 )%

Average number of dial-up Internet access pay accounts

    418     583     (165 )   (28 )%

        The decrease in Communications services revenues was primarily due to a 28% decrease in our average number of dial-up Internet access pay accounts, partially offset by an increase in the number of mobile broadband service pay accounts, as well as a 3% decrease in ARPU. The decrease in ARPU was attributable to a higher percentage of pay accounts on lower-priced or discounted subscription plans or services. The decrease in Communications advertising revenues was primarily due to the decrease in active accounts. These decreases were partially offset by $3.0 million in Communications products revenues related to the sale of mobile broadband service devices.

Communications Cost of Revenues

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Communications cost of revenues

  $ 33,883   $ 33,442   $ 441     1 %

Communications cost of revenues as a percentage of Communications revenues

    32.1 %   26.4 %            

        The increase in Communications cost of revenues was due to $5.6 million of costs associated with the launch of our mobile broadband service in the first quarter of 2012 and a $1.2 million inventory markdown in the quarter ended December 31, 2012 related to the mobile broadband service devices. These increases were partially offset by a $2.5 million decrease in telecommunications, customer support and billing-related costs due to a decrease in dial-up Internet access accounts, a $1.5 million decrease in costs associated with our DSL service, a $0.9 million decrease in costs associated with our

66


Table of Contents

email, Internet security and web hosting services, an $0.8 million decrease in personnel- and overhead-related costs, and an $0.8 million decrease in advertising costs.

Communications Sales and Marketing

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Communications sales and marketing

  $ 18,188   $ 10,009   $ 8,179     82 %

Communications sales and marketing expenses as a percentage of Communications revenues

    17.2 %   7.9 %            

        The increase in Communications sales and marketing expenses was attributable to $12.1 million in marketing costs associated with the promotion of our mobile broadband service in the year ended December 31, 2012. This increase was partially offset by a $2.4 million decrease in advertising, promotion and distribution costs primarily related to our dial-up Internet access services and a $1.5 million decrease in personnel- and overhead-related costs.

Communications Technology and Development

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Communications technology and development

  $ 7,532   $ 7,932   $ (400 )   (5 )%

Communications technology and development expenses as a percentage of Communications revenues

    7.1 %   6.3 %            

        The decrease in Communications technology and development expenses was due to a decrease in personnel- and overhead-related costs as a result of reduced headcount.

Communications General and Administrative

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Communications general and administrative

  $ 10,718   $ 12,554   $ (1,836 )   (15 )%

Communications general and administrative expenses as a percentage of Communications revenues

    10.2 %   9.9 %            

        The decrease in Communications general and administrative expenses was primarily due to a decrease in personnel- and overhead-related costs as a result of reduced headcount.

Communications Restructuring and Other Exit Costs

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Communications restructuring and other exit costs

  $ (8 ) $ 1,399   $ (1,407 )   (101 )%

        Communications restructuring and other exit costs for the year ended December 31, 2011 were primarily related to employee termination costs associated with a reduction in headcount and, to a lesser extent, contract termination and facility exit costs.

67


Table of Contents

Unallocated Corporate Expenses

 
  Year Ended
December 31,
  Change  
 
  2012   2011   $   %  
 
  (in thousands, except percentages)
 

Unallocated corporate expenses

  $ 25,606   $ 31,644   $ (6,038 )   (19 )%

        The decrease in unallocated corporate expenses, excluding depreciation and amortization of intangible assets, was primarily due to a $4.9 million decrease in personnel- and overhead-related costs and a $1.7 million decrease in restructuring and other exit costs, partially offset by $0.7 million of transaction-related costs in connection with the exploration of strategic alternatives for our other businesses and potential monetization opportunities for our portfolio of patents and patent applications.

Liquidity and Capital Resources

Year Ended December 31, 2013 compared to Year Ended December 31, 2012

        Our total cash and cash equivalents balance decreased by $0.8 million to $68.3 million at December 31, 2013, compared to $69.1 million at December 31, 2012. Our summary cash flows from continuing operations for the years ended December 31, 2013, 2012 and 2011 were as follows (in thousands):

 
  Year Ended December 31,  
 
  2013   2012   2011  

Net cash provided by operating activities

  $ 22,361   $ 27,994   $ 54,961  

Net cash used for investing activities

  $ (12,696 ) $ (20,562 ) $ (19,345 )

Net cash used for financing activities

  $ (29,444 ) $ (37,128 ) $ (40,792 )

        Net cash provided by operating activities from continuing operations decreased by $5.6 million, or 20%. Net cash provided by operating activities is driven by our income (loss) from continuing operations adjusted for non-cash items and changes in working capital, including, but not limited to, depreciation and amortization, stock-based compensation, impairment of goodwill, intangible assets and long-lived assets, and deferred taxes. The decrease in net cash provided by operating activities was due to an $83.3 million increase in loss from continuing operations. This decrease was partially offset by a $61.4 million increase in non-cash items primarily related to a $26.0 million increase in goodwill and intangible asset impairment charges and a $37.7 million increase in deferred taxes, net, primarily related to the increase in valuation allowance, partially offset by a $4.3 million decrease in contingent consideration resulting from the fair value adjustment to the related contingent consideration. The decrease in net cash provided by operating activities was also impacted by a $16.2 million favorable change in working capital. Changes in working capital can cause variation in our cash flows provided by operating activities due to seasonality, timing and other factors.

        Net cash used for investing activities from continuing operations decreased by $7.9 million, or 38%. The decrease was primarily due to $7.4 million of cash paid, net of cash acquired, for the acquisition of schoolFeed in 2012, an $0.8 million decrease in purchases of rights, content and intellectual property and a $0.7 million decrease in purchases of property and equipment.

        Capital expenditures for the year ended December 31, 2013 totaled $10.7 million. At December 31, 2013 and December 31, 2012, we had $0.4 million and $1.8 million, respectively, of property and equipment that was not yet paid for and was included in accounts payable in the consolidated balance sheets. We currently anticipate that our total capital expenditures for 2014 will be in the range of $10.5 million to $12.5 million, which includes the aforementioned $0.4 million of purchases on account at December 31, 2013. 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

68


Table of Contents

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 from continuing operations decreased by $7.7 million, or 21%. The decrease in net cash used for financing activities was due to a $6.5 million decrease in payments of dividends and dividend equivalents on nonvested restricted stock units and a $5.1 million increase in proceeds from exercises of stock options, partially offset by a $1.7 million increase in repurchases of common stock. In addition, in the year ended December 31, 2013, we paid $3.4 million for contingent consideration related to the acquisition of schoolFeed.

        The payment of dividends and dividend equivalents is a cash outflow from financing activities. In January, April, and July 2013, United Online, Inc.'s Board of Directors declared a quarterly cash dividend of $0.70 per share of common stock, as adjusted to reflect the one-for-seven reverse stock split. In November 2013, United Online, Inc.'s Board of Directors declared a quarterly cash dividend of $0.15 per share of common stock. The dividends were paid on February 28, 2013, May 31, 2013, August 30, 2013, and November 30, 2013 and totaled $9.4 million, $9.7 million, $9.7 million and $2.2 million, respectively, including dividend equivalents paid on nonvested restricted stock units. In January 2014, we announced that United Online, Inc.'s Board of Directors determined to discontinue cash dividend payments in order to provide financial flexibility to support anticipated long-term growth initiatives.

        On an ongoing basis, we assess opportunities for improved operational effectiveness and efficiency. We recorded restructuring and other exit costs totaling $2.5 million in the year ended December 31, 2013 in our Content & Media segment, which consisted of $2.3 million of employee termination costs and $0.2 million of contract termination costs. During the year ended December 31, 2013, we paid $2.3 million of restructuring and other exit costs, and, at December 31, 2013, accrued restructuring and other exit costs totaled $0.2 million, which will be paid over the next 12 months.

        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 United Online, Inc. to repurchase shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors. United Online, Inc.'s Board of Directors has approved and ratified the Program through December 31, 2014. There were no repurchases under the Program in the years ended December 31, 2013 or 2012. At December 31, 2013, 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 we grant to employees. In general, we currently do not collect the minimum statutory employee withholding taxes from employees upon vesting of restricted stock units. Instead, we automatically withhold, from the restricted stock units that vest, the portion of those shares with a fair market value equal to the amount of the minimum statutory employee withholding taxes due. We then pay the minimum statutory 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 year ended December 31, 2013 and 2012 were $4.3 million and $2.6 million, respectively, for which we withheld 0.3 million and 0.1 million shares of common stock, respectively, that were underlying the restricted stock units that vested. The amount we pay in future periods will vary based on our stock price and the number of applicable restricted stock units vesting during the period. In August 2013, we paid a $3.4 million contingent consideration payment for the earnout period ended June 30, 2013 related to the schoolFeed acquisition. We do not expect any contingent consideration will be earned for either of the remaining earnout periods.

69


Table of Contents

        Based on our current projections, we expect to continue to generate positive cash flows from operations, at least for the next twelve months. We may use our existing cash balances and future cash generated from operations to fund, among other things, long-term growth initiatives, which may include optimizing our current product offerings to enhance our consumer value proposition, expanding new product development efforts to drive new revenue growth, and pursuing new strategic partnerships and other opportunities to expand our scope and reach; the repurchase of our common stock underlying restricted stock units to pay the minimum statutory employee withholding taxes due on vested restricted stock units; the repurchase of our common stock under the Program; future capital expenditures; and future acquisitions of intangible assets, including rights, content and intellectual property.

        We are now a substantially smaller company than we were prior to the consummation of the FTD Spin-Off Transaction, and we anticipate that our consolidated cash flows will be substantially lower when compared to periods prior to the FTD Spin-Off Transaction.

        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, long-term growth initiatives, which may include optimizing our current product offerings to enhance our consumer value proposition, expanding new product development efforts to drive new revenue growth, and pursuing new strategic partnerships and other opportunities to expand our scope and reach; the repurchase of our common stock underlying restricted stock units to pay the minimum statutory employee withholding taxes due on vested restricted stock units; the repurchase of our common stock under the Program; future capital expenditures; and future acquisitions 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.


Year Ended December 31, 2012 compared to Year Ended December 31, 2011

        Net cash provided by operating activities from continuing operations decreased by $27.0 million, or 49%, for the year ended December 31, 2012, compared to the year ended December 31, 2011. Net cash provided by operating activities is driven by our income (loss) from continuing operations 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, impairment of goodwill, intangible assets and long-lived assets, and deferred taxes. The decrease in net cash provided by operating activities was due to a $47.4 million decrease in income from continuing operations. This decrease was partially offset by a $14.1 million increase in non-cash items, which consisted of a $26.9 million goodwill and intangible asset impairment charge related to our MyPoints reporting unit, partially offset by an $8.2 million decrease in deferred taxes, and decrease of $4.5 million in stock-based compensation. Additionally, net cash provided by operating activities was impacted by a $6.3 million favorable change in working capital. Changes in working capital can cause variation in our cash flows provided by operating activities due to seasonality, timing and other factors.

        Net cash used for investing activities from continuing operations increased by $1.2 million, or 6%, for the year ended December 31, 2012, compared to the year ended December 31, 2011. The increase was primarily due to $7.4 million of cash paid, net of cash acquired, for the acquisition of schoolFeed during the year ended December 31, 2012. This increase was partially offset by a $5.1 million decrease in cash paid for purchases of property and equipment and a $1.2 million decrease in cash paid for

70


Table of Contents

purchases of rights, content and intellectual property related to our social networking services. Capital expenditures for the year ended December 31, 2012 totaled $11.4 million. At December 31, 2012, we had $1.8 million of property and equipment that was not yet paid for and was included in accounts payable in the consolidated balance sheets. 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 from continuing operations decreased by $3.7 million, or 9%, for the year ended December 31, 2012, compared to the year ended December 31, 2011. The decrease was primarily due to a $5.1 million decrease in repurchases of common stock, partially offset by a $0.9 million increase in proceeds from employee stock purchase plans.

Fair Value Measurements

        We measure our contingent consideration liability at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. Contingent consideration related to the acquisition of schoolFeed, Inc. is measured based on three annual earnout periods ending June 30, 2013, 2014 and 2015 and, if earned, will be paid annually shortly after the closing of each earnout period. The range of the amounts we could pay under the contingent consideration arrangement is between $0 and $27.5 million. We review and reassess the estimated fair value of the contingent consideration on a quarterly basis, and future fair value estimates could differ from the initial estimate.

        During the quarter ended March 31, 2013, Facebook restricted certain functionality of the schoolFeed app, which limited schoolFeed's ability to use the Facebook platform to contact users who are not registered members of schoolFeed. Subsequently, in May 2013, Facebook discontinued the schoolFeed app's access to the Facebook platform, which resulted in the termination of future new installations of the schoolFeed app through Facebook, as well as the discontinuance of the sharing of Facebook content through the schoolFeed app. At June 30, 2013, we had accrued $3.4 million for the contingent consideration payment for the earnout period ended June 30, 2013, which was paid in full in August 2013. We recognized a gain of $5.1 million in the year ended December 31, 2013 related to resulting changes in the estimated fair value of the contingent consideration. We do not currently expect any contingent consideration will be earned for either of the remaining earnout periods.

Contractual Obligations

        Contractual obligations at December 31, 2013 were as follows (in thousands):

 
  Total   Less than
1 Year
  1 Year to
Less than
3 Years
  3 Years to
Less than
5 Years
 

Member redemption liability

  $ 20,927   $ 14,738   $ 6,189   $  

Noncancelable operating leases

    14,435     6,757     5,415     2,263  

Purchase obligations

    1,767     1,607     160      

Other liabilities

    6,499     6,489     6     4  
                   

Total

  $ 43,628   $ 29,591   $ 11,770   $ 2,267  
                   
                   

        At December 31, 2013, we had liabilities for uncertain tax positions totaling $11.4 million, of which $6.5 million was included in other liabilities in the contractual obligations table above and, at December 31, 2013, was expected to be due in less than one year. We are not able to reasonably estimate when or if cash payments for long-term liabilities related to uncertain tax positions will occur.

71


Table of Contents

        Commitments under letters of credit at December 31, 2013 were scheduled to expire as follows (in thousands):

 
  Total   3 Years to
Less than
5 Years
 

Letters of credit

  $ 162   $ 162  

        Letters of credit are maintained pursuant to certain of our lease arrangements and contractual obligations. The letters of credit remain in effect at varying levels through the terms of the related agreements.

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, including those 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.

        In connection with the termination of the employment of certain executive officers and, in certain cases, their post-termination consulting arrangements, we have cash obligations of approximately $1.1 million, which will be paid in full by the first quarter of 2015, and we have accelerated or will accelerate, as the case may be, the vesting of approximately 143,000 restricted stock units and 52,000 stock options in the first half of 2014. In addition, we paid $1.1 million to these executive officers in connection with their 2013 annual bonuses.

Off-Balance Sheet Arrangements

        At December 31, 2013, we did not have any off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K) 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

        Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income —Effective January 1, 2013, we adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, as codified in ASC 220. The amendments in this update require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net

72


Table of Contents

income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The adoption of this update did not have a material impact on our consolidated financial statements.

        Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists—In July 2013, FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, as codified in ASC 740, Income Taxes. The amendments in this update state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments in this ASU will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. We are currently assessing the impact of this update and believe that its adoption in the first quarter of 2014 will not have a material impact on our consolidated financial statements.

Inflation

        Inflation did not have a material impact on our consolidated revenues and results of operations during the years ended December 31, 2013, 2012 and 2011, and we do not currently anticipate that inflation will have a material impact on our consolidated revenues and results of operations for the year ending December 31, 2014.

ITEM 7A.    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

        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. At December 31, 2013, the Company did not have any fixed or floating rate debt obligations.

Foreign Currency Exchange Risk

        We transact business in foreign currencies, and we are exposed to risk resulting from fluctuations in foreign currency exchange rates, particularly the Euro ("EUR") and the Indian Rupee ("INR") and, to a much lesser extent, the Swedish Krona ("SEK") and the Swiss Franc ("CHF"), which may result in gains or losses reported in our results of operations. The volatilities in EUR, INR, SEK, and CHF (and

73


Table of Contents

all other applicable foreign currencies) are monitored by us throughout the year. We face two risks related to foreign currency exchange rates—translation 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 loss in the unaudited condensed consolidated balance sheets. 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 exchange rate trend in currencies. Therefore, changes in foreign currency exchange rates may negatively affect our consolidated revenues and net income. A hypothetical 10% adverse change in overall foreign currency exchange rates over an entire year would not have a material impact on annual revenues and would have impacted income (loss) before income taxes by approximately $0.7 million and $0.5 million, respectively, for the years ended December 31, 2013 and 2012. 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, net, in the consolidated statements of operations.

        We currently utilize forward foreign currency exchange contracts to protect the value of our net investments in certain foreign subsidiaries and certain forecasted cash flows denominated in currencies other than the U.S. Dollar. These contracts are designated as hedges of net investments in foreign subsidiaries and hedges of cash flows. At December 31, 2013, the notional value of open forward foreign currency exchange contracts accounted for as cash flow hedges totaled $1.2 million. The Company did not have any open net investment hedges at December 31, 2013.

        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 hedge intercompany transactions and partially offset the economic effect of fluctuations in foreign currency exchange rates. At December 31, 2013, the notional value of open forward foreign currency exchange contracts that did not qualify for hedge accounting treatment totaled $3.7 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 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        For our Consolidated Financial Statements and Schedule II, see the Index to Consolidated Financial Statements on page F-1.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

ITEM 9A.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

        Our management, with the participation of our Chief Executive Officer and 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 Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and 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,

74


Table of Contents

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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management's Report on Internal Control Over Financial Reporting

        The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

        The Company's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the Company's consolidated financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        Management assessed the effectiveness of the Company's internal control over financial reporting at December 31, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control—Integrated Framework (1992). Based on that assessment under those criteria, management has determined that, at December 31, 2013, the Company's internal control over financial reporting was effective.

        The Company's internal control over financial reporting at December 31, 2013 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

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.

ITEM 9B.    OTHER INFORMATION

        None.

75


Table of Contents


PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

        The information required by Item 10 is included under the following captions in our definitive proxy statement relating to our 2014 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2013 and is incorporated herein by reference: "Matters to Be Considered at Annual Meeting—Proposal One: Election of Directors"; "Executive Compensation and Other Information"; and "Section 16(a) Beneficial Ownership Reporting Compliance".

ITEM 11.    EXECUTIVE COMPENSATION

        The information required by Item 11 is included under the following captions in our definitive proxy statement relating to our 2014 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2013 and is incorporated herein by reference: "Compensation Discussion and Analysis"; "Summary Compensation Table"; "Grants of Plan-Based Awards"; "Outstanding Equity Awards at Fiscal Year-End"; "Option Exercises and Stock Vested"; "Director Summary Compensation Table"; "Compensation Committee Interlocks and Insider Participation"; and "Compensation Committee Report".

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information required by Item 12 is included under the following captions in our definitive proxy statement relating to our 2014 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2013 and is incorporated herein by reference: "Equity Compensation Plan Information" and "Ownership of Securities".

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

        The information required by Item 13 is included under the following captions in our definitive proxy statement relating to our 2014 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2013 and is incorporated herein by reference: "Board Committees and Meetings" and "Related-Party Transactions".

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

        The information required by Item 14 is included under the caption "Proposal Two: Ratification of Independent Registered Public Accounting Firm" in our definitive proxy statement relating to our 2014 annual meeting of stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2013 and is incorporated herein by reference.

76


Table of Contents


PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES

    (a)
    The following documents are filed as part of this report:

        All other schedules have been omitted because the information required to be set forth therein is not applicable, not required or is shown in the consolidated financial statements or notes related thereto.

      3.
      Exhibits:

    (b)
    Exhibits

        See the Exhibit Index following the signature page to this Annual Report on Form 10-K for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

        The agreements included as exhibits to this Annual Report on Form 10-K contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

    should not be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

    may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement;

    may apply contract standards of "materiality" that are different from "materiality" under the applicable securities laws; and

    were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

        The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Annual Report on Form 10-K not misleading.

        Additional information about the Company may be found elsewhere in this Annual Report on Form 10-K and in the Company's other public filings, which are available without charge through the SEC's website at www.sec.gov.

    (c)
    Financial Statement Schedules

        The financial statement schedules required by Regulation S-X and Item 8 of this Annual Report on Form 10-K are listed in Item 15(a)(2) of this Annual Report on Form 10-K.

77


Table of Contents


SIGNATURES

        Pursuant to the requirements of Section 13 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 on March 13, 2014

    UNITED ONLINE, INC.

 

 

By:

 

/s/ FRANCIS LOBO

Francis Lobo
President and Chief Executive Officer


POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Francis Lobo and Neil P. Edwards, as his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendment to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated below.

Signature
 
Title
 
Date

 

 

 

 

 
/s/ FRANCIS LOBO

Francis Lobo
  President, Chief Executive
Officer and Director (Principal
Executive Officer and Director)
  March 13, 2014

/s/ NEIL P. EDWARDS

Neil P. Edwards

 

Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

 

March 13, 2014

/s/ JAMES T. ARMSTRONG

James T. Armstrong

 

Director

 

March 13, 2014

/s/ ROBERT BERGLASS

Robert Berglass

 

Director

 

March 13, 2014

/s/ KENNETH L. COLEMAN

Kenneth L. Coleman

 

Director

 

March 13, 2014

78


Table of Contents

Signature
 
Title
 
Date

 

 

 

 

 
/s/ DENNIS HOLT

Dennis Holt
  Director   March 13, 2014

/s/ HOWARD G. PHANSTIEL

Howard G. Phanstiel

 

Chairman and Director

 

March 13, 2014

/s/ CAROL A. SCOTT

Carol A. Scott

 

Director

 

March 13, 2014

79


Table of Contents


EXHIBIT INDEX

        The agreements included as exhibits to this Annual Report on Form 10-K contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

    should not be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

    may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement;

    may apply contract standards of "materiality" that are different from "materiality" under the applicable securities laws; and

    were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

        The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Annual Report on Form 10-K not misleading.

        Additional information about the Company may be found elsewhere in this Annual Report on Form 10-K and in the Company's other public filings, which are available without charge through the SEC's website at www.sec.gov.

 
   
   
  Incorporated by Reference to  
 
   
  Filed
with this
Form 10-K
 
No.   Exhibit Description   Form   File No.   Date Filed  
  2.1   Separation and Distribution Agreement by and between United Online, Inc. and FTD Companies, Inc., dated as of October 31, 2013       8-K   000-33367     11/6/2013  

 

3.1

 

Amended and Restated Certificate of Incorporation (As Amended Effective October 31, 2013)

 

X

 

 

 

 

 

 

 

 

 

3.2

 

Amended and Restated Bylaws (As Amended Effective December 17, 2013)

 

X

 

 

 

 

 

 

 

 

 

10.1

*

Form of Indemnification Agreement

 

 

 

10-Q

 

000-33367

 

 

11/10/2008

 

 

10.2

*

2001 Stock Incentive Plan

 

 

 

10-Q

 

000-33367

 

 

8/9/2007

 

 

10.3

*

2010 Incentive Compensation Plan

 

 

 

10-Q

 

000-33367

 

 

8/6/2010

 

 

10.4

*

Amended and Restated 2010 Incentive Compensation Plan

 

 

 

10-Q

 

000-33367

 

 

8/5/2013

 

 

10.5

*

Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan

 

 

 

10-Q

 

000-33367

 

 

8/8/2005

 

 

10.6

*

Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan

 

 

 

10-K

 

000-33367

 

 

2/27/2009

 

 

10.7

*

Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan

 

 

 

10-K

 

000-33367

 

 

2/27/2009

 

80


Table of Contents

 
   
   
  Incorporated by Reference to  
 
   
  Filed
with this
Form 10-K
 
No.   Exhibit Description   Form   File No.   Date Filed  
  10.8 * Form of Restricted Stock Unit Issuance Agreement for 2001 Stock Incentive Plan       10-Q   000-33367     5/12/2008  

 

10.9

*

Form of Option Agreement for 2001 Stock Incentive Plan

 

 

 

10-Q

 

000-33367

 

 

10/27/2004

 

 

10.10

*

Form of Restricted Stock Unit Issuance Agreement for 2010 Incentive Compensation Plan (non-employee directors—initial grant)

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.11

*

Form of Restricted Stock Unit Issuance Agreement for 2010 Incentive Compensation Plan (non-employee directors—annual grant)

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.12

*

Form of Restricted Stock Unit Issuance Agreement for 2010 Incentive Compensation Plan (officers)

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.13

*

Form of Restricted Stock Unit Issuance Agreement for 2010 Incentive Compensation Plan (employees)

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.14

*

Form of Stock Option Agreement for 2010 Incentive Compensation Plan (officers version I)

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.15

*

Form of Stock Option Agreement for 2010 Incentive Compensation Plan (officers version II)

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.16

*

Form of Restricted Stock Unit Issuance Agreement for Amended and Restated 2010 Incentive Compensation Plan (officers version)

 

X

 

 

 

 

 

 

 

 

 

10.17

*

Form of Restricted Stock Unit Issuance Agreement for Amended and Restated 2010 Incentive Compensation Plan (employees)

 

X

 

 

 

 

 

 

 

 

 

10.18

*

Form of Stock Option Agreement for Amended and Restated 2010 Incentive Compensation Plan (officers version)

 

X

 

 

 

 

 

 

 

 

 

10.19

*

Form of Stock Option Agreement for Amended and Restated 2010 Incentive Compensation Plan (employees)

 

X

 

 

 

 

 

 

 

 

 

10.20

*

Amended and Restated United Online, Inc. Severance Benefit Plan

 

 

 

10-Q

 

000-33367

 

 

5/4/2012

 

 

10.21

*

Employment Agreement between the Registrant and Francis Lobo

 

X

 

 

 

 

 

 

 

 

 

10.22

*

Employment Agreement between the Registrant and Gail Shulman

 

X

 

 

 

 

 

 

 

 

81


Table of Contents

 
   
   
  Incorporated by Reference to  
 
   
  Filed
with this
Form 10-K
 
No.   Exhibit Description   Form   File No.   Date Filed  
  10.23 * Employment Agreement between the Registrant and Robert J. Taragan       10-K   000-33367     2/28/2011  

 

10.24

*

Amendment to Employment Agreement between the Registrant and Robert J. Taragan

 

 

 

8-K

 

000-33367

 

 

1/25/2013

 

 

10.25

*

Amendment No. 2 to Employment Agreement between the Registrant and Robert J. Taragan

 

 

 

8-K

 

000-33367

 

 

07/30/2013

 

 

10.26

*

Employment Agreement between Classmates, Inc. (f/k/a Classmates Online, Inc.) and Harold A. Zeitz

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.27

*

Amendment to Employment Agreement between Classmates, Inc. (f/k/a Classmates Online, Inc.) and Harold A. Zeitz

 

 

 

8-K

 

000-33367

 

 

1/25/2013

 

 

10.28

*

Amendment No. 2 to Employment Agreement between Classmates, Inc. (f/k/a Classmates Online, Inc.) and Harold A. Zeitz

 

X

 

 

 

 

 

 

 

 

 

10.29

*

Employment Agreement between the Registrant and Neil P. Edwards

 

 

 

10-Q

 

000-33367

 

 

11/7/2011

 

 

10.30

*

Amendment to Employment Agreement between the Registrant and Neil P. Edwards

 

 

 

8-K

 

000-33367

 

 

1/25/2013

 

 

10.31

*

Amendment No. 2 to Employment Agreement between the Registrant and Neil P. Edwards

 

 

 

8-K

 

000-33367

 

 

07/30/2013

 

 

10.32

*

Transition and Separation Agreement between the Registrant and Neil P. Edwards

 

X

 

 

 

 

 

 

 

 

 

10.33

*

Consulting Agreement between the Registrant and Neil P. Edwards

 

X

 

 

 

 

 

 

 

 

 

10.34

*

Employment Agreement between the Registrant and Charles B. Ammann

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.35

*

Amendment to Employment Agreement between the Registrant and Charles B. Ammann

 

 

 

10-K

 

000-33367

 

 

3/4/2013

 

 

10.36

*

Amendment No. 2 to Employment Agreement between the Registrant and Charles B. Ammann

 

 

 

8-K

 

000-33367

 

 

07/30/2013

 

 

10.37

*

Transition and Separation Agreement between the Registrant and Charles B. Ammann

 

X

 

 

 

 

 

 

 

 

82


Table of Contents

 
   
   
  Incorporated by Reference to  
 
   
  Filed
with this
Form 10-K
 
No.   Exhibit Description   Form   File No.   Date Filed  
  10.38 * Consulting Agreement between the Registrant and Charles B. Ammann   X                

 

10.39

*

Employment Agreement between the Registrant and Mark R. Goldston

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.40

*

Employment Agreement between the Registrant and Paul E. Jordan

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.41

*

Amendment to Employment Agreement between the Registrant and Paul E. Jordan

 

 

 

10-K

 

000-33367

 

 

3/4/2013

 

 

10.42

*

Amendment No. 2 to Employment Agreement between the Registrant and Paul E. Jordan

 

X

 

 

 

 

 

 

 

 

 

10.43

*

Post-Employment Consulting Agreement and General Release between the Registrant and Frederic A. Randall, Jr.

 

 

 

10-Q

 

000-33367

 

 

5/4/2012

 

 

10.44

*

Employment Agreement between FTD Group, Inc. and Robert S. Apatoff

 

 

 

10-K

 

000-33367

 

 

2/28/2011

 

 

10.45

*

Amendment to Employment Agreement between FTD Group, Inc. and Robert S. Apatoff

 

 

 

8-K

 

000-33367

 

 

1/25/2013

 

 

10.46

*

2013 Management Bonus Plan

 

X

 

 

 

 

 

 

 

 

 

10.47

*

Office Lease between LNR Warner Center, LLC and NetZero, Inc.

 

 

 

10-Q

 

000-33367

 

 

5/3/2004

 

 

10.48

*

Transition Services Agreement by and between United Online, Inc. and FTD Companies, Inc., dated as of October 31, 2013

 

 

 

8-K

 

 

 

 

11/6/2013

 

 

10.49

*

Amendment No. 1 to Transition Services Agreement by and between United Online, Inc. and FTD Companies, Inc., dated as of January 2, 2014

 

X

 

 

 

 

 

 

 

 

 

10.50

*

Employee Matters Agreement by and between United Online, Inc. and FTD Companies, Inc., dated as of October 31, 2013

 

 

 

8-K

 

 

 

 

11/6/2013

 

 

10.51

*

Tax Sharing Agreement by and between United Online, Inc. and FTD Companies, Inc., dated as of October 31, 2013

 

 

 

8-K

 

 

 

 

11/6/2013

 

 

21.1

 

List of Subsidiaries

 

X

 

 

 

 

 

 

 

 

 

23.1

 

Consent of Independent Registered Public Accounting Firm

 

X

 

 

 

 

 

 

 

 

83


Table of Contents

 
   
   
  Incorporated by Reference to  
 
   
  Filed
with this
Form 10-K
 
No.   Exhibit Description   Form   File No.   Date Filed  
  24.1   Power of Attorney (see signature page of this Annual Report on Form 10-K)   X                

 

31.1

 

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

X

 

 

 

 

 

 

 

 

 

31.2

 

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

X

 

 

 

 

 

 

 

 

 

32.1

 

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

X

 

 

 

 

 

 

 

 

 

32.2

 

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

X

 

 

 

 

 

 

 

 

 

101.INS

 

XBRL Instance Document

 

X