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ORGANIZATION
 9 Months Ended
Sep. 30, 2013
ORGANIZATION  
ORGANIZATION
ORGANIZATION
Company Overview
Tree.com, Inc. is the parent of LendingTree, LLC, which owns several brands and businesses that provide information, tools, advice, products and services for critical transactions in consumers' lives. Our family of brands includes: LendingTree®, GetSmart®, DegreeTree®, LendingTreeAutos, DoneRight!®, ServiceTree® and InsuranceTree®. Together, these brands serve as an ally for consumers who are looking to comparison-shop for loans, education programs, home services providers and other services from multiple businesses and professionals that will compete for their business.
Discontinued Operations
The businesses of RealEstate.com and RealEstate.com, REALTORS® (which together represent the former Real Estate segment) and LendingTree Loans are presented as discontinued operations in the accompanying consolidated balance sheets and consolidated statements of operations and cash flows for all periods presented. The notes accompanying these consolidated financial statements reflect our continuing operations and, unless otherwise noted, exclude information related to the discontinued operations.
Real Estate
On March 10, 2011, management made the decision and finalized a plan to close all of the field offices of the proprietary full-service real estate brokerage business known as RealEstate.com, REALTORS®. We exited all markets in which we previously operated by March 31, 2011. In September 2011, we sold the remaining assets of RealEstate.com, which consisted primarily of internet domain names and trademarks, for $8.3 million and recognized a gain on sale of $7.8 million.
LendingTree Loans
On May 12, 2011, we entered into an asset purchase agreement with Discover Bank, a wholly-owned subsidiary of Discover Financial Services, as amended on February 7, 2012, for the sale of substantially all of the operating assets of our LendingTree Loans business. We completed the sale on June 6, 2012. 
The asset purchase agreement as amended provided for a purchase price of approximately $55.9 million in cash for the assets, subject to certain conditions. Of this total purchase price, $8.0 million was paid prior to the closing, $37.9 million was paid upon the closing and the contingent amount of $10.0 million was paid in the second quarter of 2013 and recognized as a gain from sale of discontinued operations.
Discover generally did not assume liabilities of the LendingTree Loans business that arose before the closing date, except for certain liabilities directly related to assets Discover acquired. Of the purchase price paid, $18.1 million is being held in escrow pending resolution of certain actual and/or contingent liabilities that remain with us following the sale, as of September 30, 2013. The escrowed amount is recorded as restricted cash at September 30, 2013.
Separate from the asset purchase agreement, we agreed to provide certain marketing-related services to Discover in connection with its mortgage origination business for approximately seventeen months following the closing, or such earlier point as the agreed-upon services are satisfactorily completed. The services were satisfactorily completed in the second quarter of 2013. Discover remains a network lender on our mortgage exchange following completion of the services.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements as of September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012, respectively, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. In the opinion of management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of our financial position for the periods presented. The results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013, or any other period. These financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2012. 
Revision of Prior Period Financial Statements
In connection with the preparation of our consolidated financial statements for the first quarter of 2013, we determined that the number of outstanding shares had been overstated in prior periods due to issuances of unrestricted shares upon satisfaction of vesting conditions on restricted shares from 2009 to 2012, without canceling the original restricted share certificates. This resulted in double counting of certain vested restricted shares in the calculation of shares outstanding. Management has determined that unrestricted shares issued upon vesting of restricted shares should not have been considered validly issued or outstanding until the associated restricted shares were canceled.  All of the restricted stock awards that were double-counted were issued to our Chairman and CEO.  The error in shares noted above was not reflected in our Chairman and CEO's filings made under Section 13(d) or Section 16 of the Securities Exchange Act of 1934 or in our disclosures of his holdings in public filings. In addition, our weighted average share calculation had erroneously included restricted shares, resulting in errors in the previously reported weighted average shares and earnings per share.
On December 26, 2012, we paid a special dividend of $1.00 per share to our shareholders of record on December 17, 2012. The dividend was paid on all shares shown as outstanding in our records, including the shares granted to our Chairman and CEO for which management has determined should not have been considered issued or outstanding.  As a result, we unintentionally overpaid $0.4 million in dividends to our Chairman and CEO, which was presented as a financing cash outflow for the year ended December 31, 2012. Such amount was repaid to the company during the second quarter of 2013 and is presented as a financing cash inflow in the nine months ended September 30, 2013.  Other than that special dividend, we have not declared or paid any cash dividends on our common stock.  There was also a related error in the dividend accrual recorded for unvested shares entitled to the special dividend upon vesting, resulting in an over-accrual of $0.2 million at December 31, 2012.
In accordance with ASC 250-10, we assessed materiality of the errors and concluded that the errors were not material to any of our previously issued financial statements.  Accordingly, we corrected the dividend errors in the first quarter of 2013 and we are revising our previously issued financial statements prospectively to correct share errors.
 
The following table presents the effect of these corrections on the company's consolidated statements of operations for the years ended December 31, 2012 and December 31, 2011 (in thousands, except per share amounts): 
 
Year Ended December 31, 2012
 
Year Ended December 31, 2011
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Weighted average basic shares outstanding
11,313

 
(618
)
 
10,695

 
10,995

 
(618
)
 
10,377

Weighted average diluted shares outstanding
11,313

 
(618
)
 
10,695

 
10,995

 
(618
)
 
10,377

Net loss per share from continuing operations:
 

 
 

 
 

 
 

 
 

 
 

Basic
$
(0.20
)
 
$
(0.01
)
 
$
(0.21
)
 
$
(4.52
)
 
$
(0.27
)
 
$
(4.79
)
Diluted
$
(0.20
)
 
$
(0.01
)
 
$
(0.21
)
 
$
(4.52
)
 
$
(0.27
)
 
$
(4.79
)
Net income (loss) per share from discontinuing operations:
 

 
 

 
 

 
 

 
 

 
 

Basic
$
4.32

 
$
0.25

 
$
4.57

 
$
(0.89
)
 
$
(0.05
)
 
$
(0.94
)
Diluted
$
4.32

 
$
0.25

 
$
4.57

 
$
(0.89
)
 
$
(0.05
)
 
$
(0.94
)
Net income (loss) per share:
 

 
 

 
 

 
 

 
 

 
 

Basic
$
4.12

 
$
0.24

 
$
4.36

 
$
(5.41
)
 
$
(0.32
)
 
$
(5.73
)
Diluted
$
4.12

 
$
0.24

 
$
4.36

 
$
(5.41
)
 
$
(0.32
)
 
$
(5.73
)

 
For the years ended December 31, 2012 and 2011, we had losses from continuing operations and, as a result, no potentially dilutive securities were included in the denominator for computing diluted earnings per share because the impact would have been anti-dilutive. Accordingly, the weighted average basic shares outstanding were used to compute all earnings per share amounts.
The following tables present the effect of these corrections on the company's consolidated statements of operations for each of the quarters in the year ended December 31, 2012 (in thousands, except per share amounts): 
 
Three Months Ended March 31, 2012
 
Three Months Ended June 30, 2012
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Weighted average basic shares outstanding
11,173

 
(618
)
 
10,555

 
11,303

 
(618
)
 
10,685

Weighted average diluted shares outstanding
11,414

 
(859
)*
 
10,555

 
11,303

 
(618
)
 
10,685

Net loss per share from continuing operations:
 

 
 

 
 

 
 

 
 

 
 

Basic
$
(0.29
)
 
$
(0.02
)
 
$
(0.31
)
 
$
(0.16
)
 
$
0.00

 
$
(0.16
)
Diluted
$
(0.29
)
 
$
(0.02
)
 
$
(0.31
)
 
$
(0.16
)
 
$
0.00

 
$
(0.16
)
Net income per share from discontinuing operations:
 

 
 

 
 

 
 

 
 

 
 

Basic
$
1.56

 
$
0.09

 
$
1.65

 
$
2.44

 
$
0.14

 
$
2.58

Diluted
$
1.53

 
$
0.12
*
 
$
1.65

 
$
2.44

 
$
0.14

 
$
2.58

Net income per share:
 

 
 

 
 

 
 

 
 

 
 

Basic
$
1.27

 
$
0.07

 
$
1.34

 
$
2.28

 
$
0.13

 
$
2.41

Diluted
$
1.24

 
$
0.10
*
 
$
1.34

 
$
2.28

 
$
0.13

 
$
2.41

 
 
 
 
 
 
 
 
 
 
 
 
 
*
Includes correction of an error of 241 shares and $0.03 per share made during the first quarter of 2012 related to the control number utilized for diluted earnings per share. 
 
Three Months Ended September 30, 2012
 
Three Months Ended December 31, 2012
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Weighted average basic shares outstanding
11,389

 
(618
)
 
10,771

 
11,386

 
(618
)
 
10,768

Weighted average diluted shares outstanding
12,003

 
(618
)
 
11,385

 
12,175

 
(618
)
 
11,557

Net income per share from continuing operations:
 

 
 

 
 

 
 

 
 

 
 

Basic
$
0.02

 
$
0.01

 
$
0.03

 
$
0.22

 
$
0.01

 
$
0.23

Diluted
$
0.02

 
$
0.00

 
$
0.02

 
$
0.21

 
$
0.01

 
$
0.22

Net income (loss) per share from discontinuing operations:
 

 
 

 
 

 
 

 
 

 
 

Basic
$
0.36

 
$
0.02

 
$
0.38

 
$
(0.02
)
 
$
0.00

 
$
(0.02
)
Diluted
$
0.35

 
$
0.01

 
$
0.36

 
$
(0.02
)
 
$
0.00

 
$
(0.02
)
Net income per share:
 

 
 

 
 

 
 

 
 

 
 

Basic
$
0.38

 
$
0.03

 
$
0.41

 
$
0.20

 
$
0.02

 
$
0.22

Diluted
$
0.37

 
$
0.01

 
$
0.38

 
$
0.19

 
$
0.01

 
$
0.20


 The following table presents the effect these errors had on the consolidated balance sheet at December 31, 2012:
 
December 31, 2012
 
As Reported
 
Adjustment
 
As Adjusted
Issued shares
12,625,678

 
(430,469
)
 
12,195,209

Outstanding shares
11,437,199

 
(430,469
)
 
11,006,730