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UNITED ONLINE INC
FORM 10-K
(Annual Report)
Filed 03/06/06 for the Period Ending 12/31/05
Address 21301 BURBANK BOULEVARD
WOODLAND HILLS, CA 91367
Telephone 8182873000
CIK 0001142701
Symbol UNTD
SIC Code 7370 - Computer Programming, Data Processing, And
Industry Computer Services
Sector Technology
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2008, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    UNITED ONLINE INC FORM 10-K (Annual Report) Filed 03/06/06 for the Period Ending 12/31/05 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 21301 BURBANK BOULEVARD WOODLAND HILLS, CA 91367 8182873000 0001142701 UNTD 7370 - Computer Programming, Data Processing, And Computer ...

  • Page 2
    ... Employer incorporation or organization) Identification No.) 21301 Burbank Boulevard Woodland Hills, California 91367 (Address of principal executive office) (Zip Code) (818) 287-3000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act...

  • Page 3
    ..., but are not limited to, statements about the markets in which we compete, our pay accounts and subscriptions, our product and service offerings, the advertising market, operating expenses, operating efficiencies, revenues, capital requirement, tax payments and our cash position. In addition, any...

  • Page 4
    ...our VoIP telephony service. Our corporate headquarters are located in Woodland Hills, California. Consumer Brands and Services We offer a variety of consumer Internet services, both free of charge and subscription-based, under a number of brands, which include the following: Internet Access: NetZero...

  • Page 5
    ... month. A limited, advertising-supported version of the service is offered free of charge. Email We offer free Web-based email services, including up to one gigabyte of storage, anti-spam protection, address book importing, photo viewing and more. NetZero and Juno offer premium email services under...

  • Page 6
    ... revenues from such search services. In addition, we offer advertisers sophisticated market research capabilities through our CyberTarget division, which can design and execute customized, real-time market research in an Internet environment and help advertisers better understand their target...

  • Page 7
    ... historically been lowest, position the value-priced segment to increase its share of the U.S. market for dial-up access, although we do not expect our access services to grow. Online Social Networking Classmates.com is part of the "online social-networking market," which is based on user-generated...

  • Page 8
    ... of a Web-hosting business and through the acquisition of Classmates. We further diversified our business by acquiring PhotoSite, an online digital photo-sharing business, in 2005. We also developed and launched other new non-access services, including our premium email and premium content services...

  • Page 9
    ... and promotions, such as one or more free months of service or discounted rates for an initial period or an extended commitment. Advertising and Commerce Revenues We are able to designate the initial Web site displayed to users of our access services during an Internet session. This Web site, or...

  • Page 10
    ... check or money order are not provisioned until their payment is received and they are required to sign-up for one of our prepaid multi-month billing plans. Fees charged to accounts for live telephone technical support are generally billed to a credit card and are charged on a per-minute basis...

  • Page 11
    ... use our client software to collect important data regarding the quality of access connections so that we can quickly resolve network problems that may occur. The client software also contains our internally developed "autodialer" technology that presents accounts with a list of telephone numbers...

  • Page 12
    ..., in some cases, Perl. Web pages are served via the Apache open source software system. User information is stored in an Oracle database, which is also used to support Web sites, target advertising, and prepare email campaigns. MySql is also employed for certain data. These various packages are run...

  • Page 13
    ... Communications Corporation; local telephone companies; and regional and local commercial ISPs. Also, a number of municipalities, such as San Francisco, have announced their intention to make available wireless broadband access services to their communities free of charge or for discounted fees, and...

  • Page 14
    ... of their offerings in response to competition from broadband and valuepriced providers. In particular, many premium-priced services include at no additional charge telephone technical support, proprietary content, parental controls, multiple accounts and email addresses, increased email storage...

  • Page 15
    ... Reunion.com, Facebook.com and Monster.com's Military.com service, offering similar online socialnetworking services based on work, school and military communities. Classmates also competes directly with many schools, employers, Web sites, and associations that maintain their own Internet-based...

  • Page 16
    ...has relied extensively on Internet advertising through portals and other Internet service providers, including AOL, MSN and Yahoo!, to grow its base of free and pay accounts. A number of these companies are competitors of United Online with respect to Internet access and other services, and they may...

  • Page 17
    ... Yahoo! Search. We compete directly with Yahoo! for Internet access, email, Web-hosting and online photo-sharing subscribers and indirectly for subscribers to our social-networking services. To the extent competitors who are also sources of significant advertising revenue cease to do business with...

  • Page 18
    ... INFORMATION Our corporate Web site is www.untd.com. On this Web site, we make available, free of charge, our annual, quarterly and current 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 SEC as...

  • Page 19
    ... advertising revenues or if our pay access base declines faster than anticipated, our profitability could be materially and adversely impacted. We anticipate a significant decrease in our marketing expenditures during 2006 from what we spent in 2005. At the same time, we currently have more services...

  • Page 20
    ... manage, integrate or grow our Web-hosting, photo-sharing and Classmates businesses. In April 2004, we acquired the assets of About, Inc.'s Web-hosting business, in November 2004, we acquired Classmates and in March 2005, we acquired the assets of Homestead Technologies, Inc.'s online digital photo...

  • Page 21
    ... bases, technologies and operations; • difficulty assimilating and retaining employees from the acquired business; • risks of entering markets in which we have little or no direct prior experience; • lack of controls, policies and procedures appropriate for a public company, and the time...

  • Page 22
    ... individual. As such, the actual number of unique individuals using our services may be much lower than our total number of accounts. We may not successfully develop and market new services in a timely or cost-effective manner; consumers or advertisers may not accept our new products. We may not be...

  • Page 23
    ... with new customers. If our access accounts usage increases or our telecommunications costs increase, our business may suffer. Other than sales and marketing, our telecommunications costs are our largest expense. If the average monthly usage of our access users increases, or if our average hourly...

  • Page 24
    ... rates would increase the cost of providing our services and, if significant, could have a material adverse effect on our business, financial position, results of operations and cash flows. If we fail to manage our telecommunications or our internal network capacities, our access service levels...

  • Page 25
    ... financial and customer data, excessive credit card chargebacks or refunds, delays in new product or payment plan introductions and other billing-related errors. Such problems could lead to inaccurate reporting from time to time, which could adversely affect our business, financial position...

  • Page 26
    ... development resources. We have experienced technical and customer support issues associated with our services and software releases. These issues have resulted in users discontinuing their service and have adversely impacted our revenues. A number of our material technologies and systems are based...

  • Page 27
    ... time to time been disseminated through the Internet and have caused significant disruption to Internet users. Certain of these programs have disabled the ability of computers to access the Internet, requiring users to obtain technical support in order to gain access to the Internet. Other programs...

  • Page 28
    ...to our Internet access services. However, our Internet access services could become subject to Federal Communications Commission and state regulation as Internet access services and telecommunications services converge. If the regulatory status of ISPs changes, our business may be adversely affected...

  • Page 29
    ... to us. If the regulatory status of our VoIP service offerings changes or if we offer new services that subject us to new laws and regulations, our business may be adversely affected. The Internet Tax Freedom Act, which placed a moratorium on new state and local taxes on Internet commerce, has been...

  • Page 30
    ... that provides for redress payments and specific disclosures or notices regarding, among other things, the cost of its Internet access services, its cancellation terms and local versus long-distance charges, as well as the requirement to provide adequate customer support to process cancellations. We...

  • Page 31
    ... impacted our services, although to date such failures have not been material to our operations. A significant portion of our computer equipment, including critical equipment dedicated to our Internet access services, is located at our headquarters in Woodland Hills, California and at facilities...

  • Page 32
    ... Facilities Location Square Feet Lease Expiration Principal executive and corporate offices Operations facility Customer support and technology facility Operations and technology facility Operations facility Woodland Hills, California Renton, Washington Hyderabad, India New York, New York Orem...

  • Page 33
    ... on the settlement is scheduled for April 24, 2006. On August 21, 2001, Juno commenced an adversary proceeding in U.S. Bankruptcy Court in the Southern District of New York against Smart World Technologies, LLC, dba "Freewwweb" (the "Debtor"), a provider of free Internet access that had elected to...

  • Page 34
    ... Our Board of Directors authorized a common stock repurchase 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, the Board of Directors has increased the...

  • Page 35
    ... to offer our eligible employees the opportunity to exchange any outstanding stock options granted to them which have an exercise price per share of our common stock at or above $16.00 (the "Eligible Options") in return for restricted stock units ("RSUs"). The number of RSUs that will be issued in...

  • Page 36
    ... 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, 2005 and 2004, the six months...

  • Page 37
    ...Web-hosting, premium email, Internet security and online digital photo-sharing, among others. We also offer advertising-supported versions of many of our services at no charge to consumers. On a combined basis, our Web properties attract a significant number of Internet users each month. Advertisers...

  • Page 38
    ... resources to our Internet access services, we have diversified our business by acquiring or developing a number of non-access Internet services, including social-networking, VoIP, personal Web-hosting, premium email and content, and online digital photo-sharing. A significant part of our strategy...

  • Page 39
    ... Internet access services, socialnetworking, Web-hosting and domain name registration services, premium email services, premium content, Internet security, photo-sharing services and VoIP. In addition, we charge fees for certain VoIP telephony for minutes and live telephone technical support...

  • Page 40
    ...including our pay accounts. Factors impacting our advertising and commerce revenues generally include changes in orders from significant customers, the state of the online search and advertising markets, seasonality, increases or decreases in our active accounts, limitations on our free services and...

  • Page 41
    ... technical support and license fees. We allocate costs associated with access services between billable services and free services based on the aggregate hourly usage of our pay access accounts as a percentage of total hours used by our active access accounts. We allocate costs associated with Web...

  • Page 42
    ...technical support. We allocate costs associated with access services between billable services and free services based on the aggregate hourly usage of our free access accounts as a percentage of total hours used by our active access accounts. We allocate costs associated with Web hosting and online...

  • Page 43
    ...Marketing Sales and marketing expenses include advertising and promotion expenses, fees paid to distribution partners to acquire new pay and free accounts, personnel-related expenses for sales and marketing personnel and telemarketing costs incurred to acquire and retain pay accounts and up-sell pay...

  • Page 44
    ... include personnel-related expenses for executive, finance, legal, human resources and internal customer support personnel. In addition, general and administrative expenses include fees for professional legal, accounting and financial services, office relocation costs, non-income taxes, insurance...

  • Page 45
    ... acquired trademarks and trade names, purchased technologies and other identifiable intangible assets. At December 31, 2005, we had approximately $59.3 million in net identifiable intangible assets resulting primarily from the acquisitions of Classmates, BlueLight Internet assets and the Web-hosting...

  • Page 46
    ...rate primarily due to the release of substantially all of the balance of the valuation allowance attributable to the expected utilization of net deferred tax assets in the future. At December 31, 2005, the Company had net operating loss and tax credit... limitations under Section 382 of the Code. 45

  • Page 47
    ... promotion of our pay services, particularly our accelerator services; the introduction of new pay services, particularly our premium email services; an expansion of our online and offline distribution channels; our Web-hosting acquisition in April 2004; and a significant number of our free accounts...

  • Page 48
    ... in average hourly telecommunications costs, a decrease in the number of active free access accounts and a decrease in the average hourly usage of these accounts. The decrease in free access accounts resulted from free accounts upgrading to our pay services and fewer new free account sign-ups...

  • Page 49
    ... process associated with a potential acquisition that was terminated and increased legal fees; a $2.3 million increase in stock-based compensation primarily related to restricted stock issued to certain of our executive officers in January 2004; a $2.3 million increase in overhead-related costs...

  • Page 50
    ... of factors including increased marketing and promotion of our pay services, the acquisition of approximately 174,000 pay accounts from BlueLight in November 2002 and a significant number of our free users upgrading to our pay access services. ARPU was $10.27 for the six months ended December 31...

  • Page 51
    ... pricing obtained from our primary customer support vendor; decreased depreciation expense; and a slight decrease in average hourly usage per pay access account. Cost of Free Services Cost of free services decreased by $2.9 million, or 43%, to $4.0 million for the six months ended December 31, 2003...

  • Page 52
    ... hours allocated to our free access account base decreased to approximately 10% of total telecommunications hours purchased during the six months ended December 31, 2003, compared to approximately 16% during the six months ended December 31, 2002. Sales and Marketing Sales and marketing...

  • Page 53
    ... was based primarily on our history of net operating losses as compared to, at the time, only a recent trend of profitable operations, the potential for future stock option deductions to significantly reduce taxable income, our annual net operating loss limitations under Section 382 of the Code and...

  • Page 54
    ... increase in working capital accounts due to increases in revenues and operating expenses and the timing of related cash receipts and payments, including an $8.7 million increase in income taxes payable; and • a $15.6 million increase in depreciation, amortization and stock-based compensation in...

  • Page 55
    ...a number of factors including, without limitation, potential future acquisitions and new business initiatives, which are difficult to predict and could change significantly over time. Additionally, technological advances may require us to make capital expenditures to develop or acquire new equipment...

  • Page 56
    .... We intend to use our existing cash balances and future cash generated from operations to fund dividend payments; to develop and acquire complementary services, businesses or technologies; to repurchase shares of our common stock if we believe market conditions to be favorable; pay the withholding...

  • Page 57
    ...payments from pay accounts are recorded on the balance sheet as deferred revenue. We offer alternative payment methods to credit cards for certain pay service plans. These alternative payment methods currently include payment by ACH, personal check or money order or through a local telephone company...

  • Page 58
    ... trends, significant declines in our stock price for a sustained period or significant underperformance relative to expected historical or projected future results of operations. We determine reporting units by allocating assets, including goodwill, based on the related service offerings. In testing...

  • Page 59
    ... and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary...

  • Page 60
    ... No. 123, Accounting for Stock-Based Compensation , and supersedes Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees . This statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. This...

  • Page 61
    ... related to share-based payment transactions with nonemployees, the transition from nonpublic to public entity status, valuation methods (including assumptions such as expected volatility and expected term), the accounting for certain redeemable financial instruments issued under share-based payment...

  • Page 62
    ... have not engaged in foreign currency hedging, we may in the future use hedging programs, currency forward contracts, currency options and/or other derivative financial instruments commonly utilized to reduce financial market risks if it is determined that such hedging activities are appropriate to...

  • Page 63
    ... 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, information...

  • Page 64
    ... the end of our fiscal year. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: 1. Consolidated Financial Statements: Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements...

  • Page 65
    ... Plan Form of Option Agreement for 2001 Supplemental Stock Incentive Plan Classmates Online, Inc. Amended and Restated 1999 Stock Plan Classmates Online, Inc. 2004 Stock Plan Form of Option Agreement for Classmates Online, Inc. 2004 Stock Plan United Online, Inc. 2005 Management Bonus Plan Amended...

  • Page 66
    ... Amendment to Credit Agreement, dated as of March 11, 2005 List of Subsidiaries Consent of Independent Registered Public Accounting Firm Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer pursuant to...

  • Page 67
    ... of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 6, 2006. UNITED ONLINE, INC. By: /s/ MARK R. GOLDSTON Mark R. Goldston Chairman, Chief Executive Officer and President KNOW ALL PERSONS BY THESE PRESENT, that each...

  • Page 68
    ... Plan Form of Option Agreement for 2001 Supplemental Stock Incentive Plan Classmates Online, Inc. Amended and Restated 1999 Stock Plan Classmates Online, Inc. 2004 Stock Plan Form of Option Agreement for Classmates Online, Inc. 2004 Stock Plan United Online, Inc. 2005 Management Bonus Plan Amended...

  • Page 69
    ... Amendment to Credit Agreement, dated as of March 11, 2005 List of Subsidiaries Consent of Independent Registered Public Accounting Firm Certification of the Chief Executive Officer pursuant to Section 302 of the SarbanesOxley Act of 2002 Certification of the Chief Financial Officer pursuant to...

  • Page 70
    ... Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Schedule II-Valuation...

  • Page 71
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis...

  • Page 72
    ... (iii) 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 financial statements. Because of its inherent limitations, internal control over financial reporting may not...

  • Page 73
    UNITED ONLINE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) December 31, 2005 December 31, 2004 Assets Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net of allowance for doubtful accounts of $1,325 and $647 at December 31, 2005 ...

  • Page 74
    ... services Advertising and commerce Total revenues Operating expenses: Cost of billable services (including stockbased compensation, see Note 8) Cost of free services Sales and marketing (including stock-based compensation, see Note 8) Product development (including stock-based compensation, see Note...

  • Page 75
    ... December 31, 2005 Foreign currency translation Comprehensive income $ 47,127 $ 117,480 $ 33,327 $ 27,792 (282 ) 83 (119 ) $ 46,809 (1,666 ) - 9 $ 115,823 (796 ) - - $ 32,531 1,429 - - $ 29,221 The accompanying notes are an integral part of these consolidated financial statements. F- 6

  • Page 76
    ... 31, 2004 Issuance of common stock through employee stock purchase plan Exercises of stock options Repurchases of common stock Issuance of restricted stock units Cancellation of restricted stock units Cancellation of options assumed in connection with acquisition Common Stock Shares Amount 60,851...

  • Page 77
    Dividends paid on shares outstanding and restricted stock units Stock-based compensation Unrealized loss on short-term investments, net of tax Unrealized gain on derivative Foreign currency translation Tax benefits from stock options Net income Balance at December 31, 2005 62,606 6 (38,067 ) ...

  • Page 78
    ... of credit Repayment of notes receivable from stockholders Payments for dividends Proceeds from exercises of stock options Proceeds from employee stock purchase plan Repurchases of common stock and option shares exercised Net cash provided by (used for) financing activities Effect of exchange rate...

  • Page 79
    ...-hosting and domain name registration business of About Web Services, Inc. In March 2005, the Company acquired certain assets related to PhotoSite, the online digital photo-sharing business of Homestead Technologies, Inc. The Company's corporate headquarters are located in Woodland Hills, California...

  • Page 80
    ... on available-for-sale securities are reported in other income or expense. The cost basis of a security that has been sold and any amount reclassified out of accumulated other comprehensive income into earnings was determined by the specific identification method. The Company recognized $0.1 million...

  • Page 81
    ...-term investments and accounts receivable. The Company's accounts receivable are derived primarily from revenue earned from pay accounts and advertising customers located in the United States. The Company extends credit based upon an evaluation of the customer's financial condition and, generally...

  • Page 82
    ...operations. The Company determines reporting units by allocating assets, including goodwill, based on its related service offerings. In testing for a potential impairment of goodwill, the estimated fair values of the Company's reporting units are compared with their respective book values, including...

  • Page 83
    ...recorded on the balance sheet as deferred revenue. The Company offers alternative payment methods to credit cards for certain pay service plans. These alternative payment methods currently include electronic check payment, payment by personal check or money order or through a local telephone company...

  • Page 84
    ... Internet access costs that have been allocated to billable services based on the aggregate hourly usage of pay accounts as a percentage of total hours used by active accounts. Direct costs consist of costs related to providing technical support, customer billing and billing support to pay accounts...

  • Page 85
    ... the development of new or improved software and technology, including personnel-related expenses for the software engineering department and the costs associated with operating the Company's facility in India. Costs incurred by the Company to manage, monitor and operate the Company's services are...

  • Page 86
    ...the year ended December 31, 2005, the Company issued 1.7 million restricted stock units ("RSUs") with a weighted average grantdate fair value of $10.77. During the year ended December 31, 2004, the Company issued 0.6 million shares of restricted stock with a weighted average grant-date fair value of...

  • Page 87
    ... VoIP telephony, personal Web-hosting, online digital photo sharing and premium email services, among others. The Company also offers, at no charge, advertising supported versions of certain of its services. In addition, the Company offers marketers a broad array of Internet advertising products and...

  • Page 88
    ... "out-of-the-money" stock options in December 2005 as disclosed in Note 8. In March 2005, the SEC issued SAB No. 107, Share-Based Payment . The interpretations in this SAB express views of the staff regarding the interaction between SFAS No. 123R and certain SEC rules and regulations and provide the...

  • Page 89
    ...financial position, results of operations or cash flows. 2. ACQUISITIONS PhotoSite In March 2005, the Company acquired certain assets related to PhotoSite, the online digital photo-sharing business of Homestead Technologies, Inc., for approximately $10.1 million in cash, including acquisition costs...

  • Page 90
    ... assets acquired: Trademark and trade name Advertising contracts and related relationships Pay accounts Free accounts Other intangibles Total intangible assets acquired Goodwill Total purchase price $ 30,350 3,396 9,700 2,384 (6,742 ) (23,757 ) (14,170 ) (1,485 ) (286 ) (610 ) 13,800 7,200...

  • Page 91
    ... April 2004, the Company acquired substantially all of the assets associated with the Web-hosting business of About, Inc. The business offers consumers Web-site services, including hosting, domain and email services. The acquisition has been accounted for under the purchase method in accordance with...

  • Page 92
    ... Life Net tangible assets acquired: Accounts receivable Property and equipment Accounts payable Deferred service liabilities Total net tangible assets acquired Intangible assets acquired: Pay accounts Proprietary rights Software and technology Total intangible assets acquired Total purchase price...

  • Page 93
    ...been in a continuous unrealized loss position, at December 31, 2005 (in thousands): Less than 12 Months Gross Unrealized Fair Value Losses 12 Months or Greater Gross Unrealized Fair Value Losses Total Gross Unrealized Fair Value Losses U.S. corporate notes Government agencies Total $ 26,132 33,990...

  • Page 94
    ...acquired book/tax basis differences. Intangible assets consist of the following (in thousands): December 31, 2005 Accumulated Cost Amortization Net Pay accounts and free accounts Trademarks and trade names Advertising contracts and related relationships Software and technology Patents, domain names...

  • Page 95
    ... four, payable in quarterly installments. Any voluntarily prepayments made by the Company will reduce, on a pro-rata basis, the remaining outstanding amortization payments. The Company has the option to maintain the term loan as either base rate loans or Eurodollar loans, but at no time shall there...

  • Page 96
    ... certain financial and other covenants that place restrictions on additional indebtedness by the Company, liens against the Company's assets, payment of dividends, consolidation, merger, purchase or sale of assets, capital expenditures, investments and acquisitions. At December 31, 2005, the Company...

  • Page 97
    ... Stock Repurchase Program The Company's Board of Directors authorized a common stock repurchase program that allows the Company to repurchase shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors. From time to time...

  • Page 98
    ...,207 48,706 - 100,000 74,989 60,782 All shares were repurchased as part of a publicly announced program. Dividends In May, August and October of 2005, the Company's Board of Directors declared a quarterly cash dividend of $0.20 per share of common stock. The quarterly dividends were paid on May 31...

  • Page 99
    ...follows (in thousands): Unrealized gain (loss) on short-term investments, net of tax Unrealized gain on derivative...$ The diluted per share computations exclude options, unvested common stock and warrants, which are antidilutive. The number of antidilutive shares at December 31, 2005, 2004 and 2003 ...

  • Page 100
    ... of the Internal Revenue Code (the "Code"). Under the Savings Plan, participating employees may defer a percentage (not to exceed 40%) of their eligible pretax earnings up to the Internal Revenue Service annual contribution limit. All full-time employees on the payroll of the Company are eligible to...

  • Page 101
    ... change in New York State tax law. For the year ended December 31, 2004, the Company recorded a tax benefit of $34.1 million on pre-tax income of $83.4 million, resulting in an effective tax rate benefit of 40.8%. The effective tax rate differs from the statutory rate primarily due to the release of...

  • Page 102
    ...as well as direct stock issuances, may be granted to employees, officers, directors and consultants of the Company. An aggregate of 19.9 million shares have been reserved under the 2001 SIP, of which 1.0 million shares were available for future grant at December 31, 2005, and 9.0 million options and...

  • Page 103
    ..., directors and executive officers of United Online or its subsidiaries whose service commenced or commences following the date of the acquisition. An aggregate of approximately 0.4 million shares have been reserved under the Classmates 1999 Stock Plan, of which approximately 60,000 options remained...

  • Page 104
    The following table summarizes activity under the Plans during the year ended June 30, 2003, the six months ended December 31, 2003 and the years ended December 31, 2004 and 2005 (in thousands, except per share amounts): Number of Shares Price Per Share Weighted Average Exercise Price Options ...

  • Page 105
    ...,000 restricted shares of common stock in connection with the resignation of an executive officer and reversed $2.0 million of the $11.4 million in deferred stock-based compensation. Deferred stock-based compensation is recognized over the service period. During the years ended December 31, 2005 and...

  • Page 106
    ... price of $18.70. In March 2005, the Company issued approximately 1.0 million RSUs to certain of the Company's executive officers. Each RSU entitles the officer to receive one share of the Company's common stock upon vesting. The units vest 25% annually over the four-year period beginning February...

  • Page 107
    ....47 per share. The options vest 25% after one year and monthly thereafter for three years. In addition, the Company issued 0.2 million RSUs to these executive officers. Each RSU entitles the officer to receive one share of the Company's common stock upon vesting. The units vest 25% annually over the...

  • Page 108
    ... on the settlement is scheduled for April 24, 2006. On August 21, 2001, Juno commenced an adversary proceeding in U.S. Bankruptcy Court in the Southern District of New York against Smart World Technologies, LLC, dba "Freewwweb" (the "Debtor"), a provider of free Internet access that had elected to...

  • Page 109
    ..., however, that such actions will not be material or adversely affect the Company's business, financial position, results of operations or cash flows. 10. TRANSITION PERIOD COMPARATIVE DATA The following table presents certain financial information for the six months ended December 31, 2003 and 2002...

  • Page 110
    ... to be uncollectible. Represents allowance for doubtful accounts acquired in connection with the acquisition of Classmates. Represents the increase in valuation allowance primarily due to executive compensation that is limited under Section 162(m) of the Code and foreign losses, the benefit of which...

  • Page 111
    ..., Freeservers, Global Servers and MySite) United Online Advertising Network, Inc., a Delaware corporation (dba United Online Media Group) United Online Communications, Inc., a Delaware corporation Juno Online Services Development Private Limited, a corporation organized under the laws of India

  • Page 112
    ...) of United Online, Inc. of our report dated March 3, 2006 relating to the financial statements, financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears...

  • Page 113
    ...in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who...

  • Page 114
    ...in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who...

  • Page 115
    ... Officer and President of United Online, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (a) the Annual Report on Form 10-K of the Company for the year ended December 31, 2005, as filed...

  • Page 116
    ... Chief Financial Officer of United Online, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (a) the Annual Report on Form 10-K of the Company for the year ended December 31, 2005, as filed...