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UNITED ONLINE INC
FORM 10-K
(Annual Report)
Filed 02/28/12 for the Period Ending 12/31/11
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 2012, 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
    ...FORM 10-K (Annual Report) Filed 02/28/12 for the Period Ending 12/31/11 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 Services Technology 12/31...

  • Page 2
    ... Rights The Nasdaq Stock Market LLC (Nasdaq Global Select Market) No 3 No Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes 1 Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13...

  • Page 3
    ... 1 Smaller reporting company 1 No 3 Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2) of the Act). Yes 1 At June 30, 2011, the aggregate market value of voting stock held by non-affiliates of the Registrant, based on the last reported sales price of the...

  • Page 4
    ...4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures 4 20 38 38 39 40 PART II. Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management...

  • Page 5
    ... 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...

  • Page 6
    ...and Services BUSINESS FTD Content & Media Communications Floral, gift and related products and services for consumers, retail florists and other retail locations Online nostalgia products and services and online loyalty marketing services Internet access, email, Internet security, and web hosting...

  • Page 7
    ... wide variety of advertising, marketing and media-related initiatives in each of our operating segments. • Industry Background FTD Segment-Floral, Gift and Related Products and Services Consumers Floral industry retail purchases in the United States ("U.S."), including flowers, potted plants and...

  • Page 8
    ... of a retail florist's business, including the ability to send, receive and deliver floral orders. Additional products and services offered by providers of floral network services include point-of-sale and related technology systems and services, credit card processing services, e-commerce website...

  • Page 9
    ... products and services from participating vendors. Some online 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 consumer segments...

  • Page 10
    ... to other retail locations offering floral, gift and related products and services, in the U.S., Canada, the U.K., and the Republic of Ireland. The business uses the highly recognized FTD and Interflora brands, both supported by the Mercury Man logo. FTD is a floral and gift mass marketer, which we...

  • Page 11
    ... point-of-sale and related technology services and systems that enable its floral network members to transmit and receive orders and manage several back office functions of a floral retailer's business, including accounting, customer relationship management, direct marketing campaigns, delivery...

  • Page 12
    ... geographic locations, based on zip codes, of the members in the All-Access Pass holder's high school or other community affiliation. • • International. In addition to our Classmates website, we operate five international websites that offer nostalgia services, primarily as a social networking...

  • Page 13
    ... online loyalty promotions. The MyPoints website (www.mypoints.com) serves as a shopping portal for our advertising clients and direct sales partners. Members earn points for responding to email offers, taking market research companies' surveys, shopping online at the MyPoints website, searching...

  • Page 14
    ...from our Communications segment. Services Revenues FTD FTD services revenues consist of fees charged to its floral network members for access to the FTD and Interflora brands and the Mercury Man logo, access to the floral networks, credit card processing services, e-commerce website services, online...

  • Page 15
    ...also use targeting technologies and website integrations in order to provide effective solutions for advertisers. Communications Our Communications services generate advertising revenues from search placements, display advertisements and online market research associated with our Internet access and...

  • Page 16
    ...business include online advertising and marketing, including search engine marketing and optimization, social media and social gaming, and group-buying programs; co-marketing and affiliate partnerships, and loyalty programs such as airlines, credit card companies and hotel chains; database marketing...

  • Page 17
    ... and the Mercury Man logo, access to the floral networks, credit card processing services, e-commerce website services, online advertising tools, clearing-house services, order transmission, and after-hours telephone answering and order taking services, as well as floral-related products, such as...

  • Page 18
    ... 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 online loyalty marketing industry are the number, type and...

  • Page 19
    ... the pay accounts for our Content & Media and Communications segments pay us in advance with a credit card. Other payment options for some of our pay services include automated clearing-house ("ACH"), personal check, money order, or via a customer's local telephone bill. Internet access pay accounts...

  • Page 20
    ...of our data center services in 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...

  • Page 21
    ..., gift and related products and services to consumers and floral network members in the U.K. and the Republic of Ireland. Our operations in India primarily handle email customer support, product development, technology development, and quality assurance. Our operations in Germany provide online...

  • Page 22
    ... planned NetZero 4G mobile broadband service and our high school yearbook initiatives related to the Classmates website. Such development and implementation involves a number of uncertainties, including unanticipated delays and expenses and technological problems. New business initiatives, products...

  • Page 23
    ... 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...

  • Page 24
    ... credit card processors. Key systems include, without limitation, order transmission, fulfillment and processing, including the system for transmitting orders through the floral network; billing; website and database management; customer support; telecommunications network management; advertisement...

  • Page 25
    ... protect our intellectual property and proprietary rights could adversely affect our brands and could harm our business. 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...

  • Page 26
    ...or the information of our members or customers, cause interruption in our operations, or damage our computers or those of our members or customers. A significant number of our members and customers authorize us to bill their payment card accounts (credit or debit) directly for all amounts charged by...

  • Page 27
    ... types of emails. Without the ability to email these members, we have very limited means of inducing members to return to our websites and utilize our services. In addition, each month, a significant number of email addresses for members of our online nostalgia and online loyalty marketing services...

  • Page 28
    ...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...

  • Page 29
    ...companies with less indebtedness. Our ability to apply excess FTD cash flow or proceeds from certain types of securities offerings, asset sales and other transactions to purposes other than the repayment of debt, as well as servicing of the debt, could be limited. The interest rates under the Credit...

  • Page 30
    ... 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. In addition, advertisers and other third parties may choose to not do business with us in order to avoid nexus with certain...

  • Page 31
    ... added taxes and restrictions on the repatriation of earnings; increased financial accounting, tax and reporting burdens and complexities; disruption of our ongoing business and significant diversion of management attention from day-to-day responsibilities; localization of our services, including...

  • Page 32
    ... and the Mercury Man logo, access to the floral networks, credit card processing services, e-commerce website services, online advertising tools, clearing-house services, order transmission, and after-hours telephone answering and order taking services, as well as floral-related products, such as...

  • Page 33
    ... departments, including such companies as 1-800-FLOWERS.COM, Inc., Proflowers.com and Teleflora. Our key competitors in the U.S. floral network services market include providers of online or e-commerce services, retailers and wholesalers of floral-related products and other floral network services...

  • Page 34
    ...third parties that have a fixed, and in certain cases greater, discount or other associated costs. We also offer discounts on our floral network service fees from time to time on a promotional basis. Shifts in the mix of products and services sold that have resulted in increases in the proportion of...

  • Page 35
    ...imposition of additional sales and use tax or other tax obligations. Additionally, in accordance with current industry practice by international floral and gift direct marketers and our interpretation of applicable law, we collect and remit value added taxes on certain consumer orders placed through...

  • Page 36
    ... from other online loyalty marketing programs as well as offline loyalty marketing programs that have a significant online presence, such as those operated by credit card, airline and hotel companies. In addition, we also face competition for members from online providers of discounted offerings and...

  • Page 37
    ...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. A number of our pay account subscriptions each month...

  • Page 38
    ... to our pricing and marketing strategies. For example, we may have to lower our introductory rates, offer additional free periods of service, or reduce the standard pricing of our services. Measures such as these would decrease our average revenue per dial-up Internet access pay account and may...

  • Page 39
    ...-up Internet access pay accounts and, potentially, the average monthly revenue per pay account, we expect that our Communications services revenues, advertising revenues and the profitability of this segment will continue to decline over time. The rate of decline in Communications services revenues...

  • Page 40
    ... 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. None. ITEM 2. PROPERTIES UNRESOLVED STAFF COMMENTS Our corporate headquarters are located in Woodland Hills, California and...

  • Page 41
    ...October 2008, Anthony Michaels filed a purported class action complaint against Classmates Online, Inc., now known as Memory Lane, Inc., Classmates Media Corporation and United Online, Inc. in Superior Court of the State of California, County of Los Angeles, alleging causes of action for intentional...

  • Page 42
    ...com Inc. and Classmates Online, Inc. received subpoenas from the Attorney General for the State of Kansas and the Attorney General for the State of Maryland, respectively. These subpoenas were issued on behalf of a Multistate Work Group that consists of the Attorneys General for the following states...

  • Page 43
    ... 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. 2010 High Low High 2011 Low First Quarter Second Quarter Third Quarter Fourth Quarter $ $ $ $ 7.95...

  • Page 44
    ...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, 2011 were as follows...

  • Page 45
    ...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, 2011, the cumulative total stockholder return for the Company's common stock, The Nasdaq Global Select Market (U.S. companies...

  • Page 46
    ...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...

  • Page 47
    ... Internet marketing services for advertisers. Segment Definitions We report our businesses in three reportable segments: Segment Products and Services FTD Content & Media Communications Floral, gift and related products and services for consumers, retail florists and other retail locations Online...

  • Page 48
    ...charged to floral network members). Average order values may fluctuate from period to period based on the average foreign currency exchange rates; product mix; changes in merchandise pricing, shipping and service fees; levels of refunds issued; and discounts, among other factors. Content & Media and...

  • Page 49
    ... online loyalty marketing members who have earned or redeemed points during such period. Communications segment active accounts include all Communications segment pay accounts as of the date presented combined with the number of free Internet access and email accounts that logged on to our services...

  • Page 50
    ... 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. Quarter Ended September 30, June 30, March 31, 2011 2011 2011...

  • Page 51

  • Page 52
    ... to floral network members are recognized in the period in which the orders are delivered. Monthly fees, recurring fees and other floral network service-based fees are recognized in the period in which the related service has been provided. Content & Media Segment and Communications Segment Revenue...

  • Page 53
    ... recorded on the consolidated balance sheets as deferred revenue. We offer alternative payment methods to credit cards for certain pay service plans. These alternative payment methods currently include use of ACH, payment by personal check or money order, or payment through a local telephone company...

  • Page 54
    ...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 determined using...

  • Page 55
    ... a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates and other assumptions. Under the market approach, using the guideline company method, a reporting unit's fair value is estimated based on multiples of the cash-free market...

  • Page 56
    ... 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. The member redemption liability is estimated based upon the weighted-average cost and number of points that...

  • Page 57
    ... fees, less discounts and refunds, for FTD consumer orders as well as revenues generated from sales of branded and non-branded hard goods, software and hardware systems, cut flowers, packaging and promotional products, and a wide variety of other floral-related supplies to floral network members...

  • Page 58
    ...from our Communications segment. Services Revenues FTD FTD services revenues consist of fees charged to its floral network members for access to the FTD and Interflora brands and the Mercury Man logo; access to the floral networks; credit card processing services; e-commerce website services; online...

  • Page 59
    ... 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...

  • Page 60
    ... of acquired pay accounts and free accounts; certain acquired trademarks and trade names; purchased software and technology; acquired customer and advertising contracts and related relationships; acquired rights, content and intellectual property; and other acquired identifiable intangible...

  • Page 61
    ... thereto included elsewhere in this Annual Report on Form 10-K. Consolidated information was as follows (in thousands): Year Ended December 31, 2010 2009 2011 Revenues Operating expenses: Cost of revenues Sales and marketing Technology and development General and administrative Amortization of...

  • Page 62
    ... pay accounts and revenues from our Communications and Content & Media segments. Cost of Revenues Year Ended December 31, Change 2011 2010 $ (in thousands, except percentages) % Cost of revenues Cost of revenues as a percentage of total segment cost of revenues: FTD Content & Media Communications...

  • Page 63
    ... with our Content & Media segment and a $0.4 million decrease in depreciation expense. These decreases were partially offset by a $3.7 million increase in sales and marketing expenses associated with our FTD segment. Technology and Development Year Ended Change December 31, 2011 2010 $ (in thousands...

  • Page 64
    ... primarily due to lower interest rates as a result of the June 2011 refinancing of FTD's credit agreement that was entered into in connection with the acquisition of FTD in August 2008, as well as reduced interest expense as a result of lower average debt balances, partially offset by a $6.1 million...

  • Page 65
    ... tax benefits and reduced expense related to lower non-deductible stock-based compensation. FTD Segment Results FTD Revenues Year Ended Change December 31, 2011 2010 $ (in thousands, except percentages and average order value) % Products Services Advertising Total FTD Revenues Consumer orders...

  • Page 66
    ... decreased marketing expenditures related to television advertising in the U.S. FTD Technology and Development Year Ended Change December 31, 2011 2010 $ % (in thousands, except percentages) FTD technology and development FTD technology and development expenses as a percentage of FTD revenues $ 11...

  • Page 67
    ... ARPUs. In addition, Content & Media advertising revenues decreased due to a decrease in segment active accounts and a decrease in available inventory on the Classmates website as well as a decrease in advertising revenues generated by our online loyalty marketing service due to a number of factors...

  • Page 68
    ...costs to acquire new online loyalty marketing members. These decreases were partially offset by $5.5 million in marketing costs in the year ended December 31, 2011 primarily related to television advertising supporting the launch of the Memory Lane website. Content & Media Technology and Development...

  • Page 69
    ..., customer support and billingrelated costs due to the decrease in the number of dial-up Internet access accounts, a $1.0 million decrease in costs associated with our broadband Internet access services and a $1.6 million decrease in costs associated with our email, Internet security and web hosting...

  • Page 70
    ...,521 $ (10,512) 7.9% 12.3% (51)% The decrease in Communications sales and marketing expenses was attributable to a $5.4 million decrease in advertising, promotion and distribution costs primarily related to our dial-up Internet access services and a $5.2 million decrease in personnel- and overhead...

  • Page 71
    ... $0.7 million decrease in personnel- and overhead-related costs, partially offset by $1.8 million of restructuring and other exit costs recorded during the year ended December 31, 2011 primarily related to the departure of United Online's former chief financial officer. Year Ended December 31, 2010...

  • Page 72
    ... in cost of revenues associated with our Communications segment. Sales and Marketing Year Ended December 31, Change 2010 2009 $ (in thousands, except percentages) % Sales and marketing Sales and marketing expenses as a percentage of total segment sales and marketing expenses: FTD Content & Media...

  • Page 73
    ... restructuring and other exit costs totaling $1.3 million related to employee termination benefits. In addition, in the year ended December 31, 2010, our FTD segment recorded $1.6 million of restructuring and other exit costs primarily related to the closure of certain call center facilities in the...

  • Page 74
    ... December 31, 2010 2009 (in thousands, except percentages) Provision for income taxes Effective income tax rate $ 36,228 40.3% $ 48,144 40.7% The year-over-year effective income tax rate declined primarily due to the benefit from lower non-deductible stock-based compensation, offset by a year...

  • Page 75
    ... volume and level of discounts on products sold to consumers, increased shipping costs, a shift in the mix of products and services sold, and a decrease in post-transaction sales, which have minimal cost of revenues. FTD Sales and Marketing Year Ended December 31, Change 2010 2009 $ % (in thousands...

  • Page 76
    ... lease termination costs and employee termination benefits. Content & Media Segment Results Content & Media Revenues Year Ended Change December 31, 2010 2009 $ (in thousands, except percentages and ARPU) % Services Advertising Total Content & Media Revenues ARPU Average pay accounts $ 134,055...

  • Page 77
    ... in Content & Media cost of revenues was primarily due to a $1.5 million increase in the cost of points earned by members of our online loyalty marketing service and a $0.7 million increase in overhead-related costs, partially offset by a $1.3 million decrease in credit card processing fees and...

  • Page 78
    ... a reduction in headcount. Communications Segment Results Communications Revenues Year Ended December 31, Change 2010 2009 $ (in thousands, except percentages and ARPU) % Services Advertising Total Communications Revenues ARPU Average number of dial-up Internet access pay accounts $ 135,342 $ 175...

  • Page 79
    ... the number of dial-up Internet access pay accounts and a decrease in hourly usage per pay account and a $3.1 million decrease in customer support and billing-related costs due to a decrease in the number of dial-up Internet access pay accounts. In addition, Communications cost of revenues decreased...

  • Page 80
    ... technology and development Communications technology and development expenses as a percentage of Communications revenues $ 12,284 $ 18,468 $ (6,184) 7.3% 8.7% (33)% The decrease in Communications technology and development expenses was the result of a decrease in personnel- and overhead-related...

  • Page 81
    .... The net proceeds of the term loan under the UOL Credit Agreement were used to finance, in part, the acquisition of FTD. In April 2010, United Online, Inc. paid $14.7 million to retire this credit facility. In connection with the FTD acquisition in August 2008, UNOLA Corp., which was then an...

  • Page 82
    ... due to a $19.5 million increase in working capital requirements primarily related to a decline in deferred revenue primarily as a result of a decline in Content & Media pay accounts and, to a lesser extent, the timing of payments to vendors and changes in tax liabilities, as well as a $13.2 million...

  • Page 83
    ... other things, both contractual payments and optional prepayments on the outstanding balance under the Credit Agreement; dividend payments, if declared by United Online, Inc.'s Board of Directors; the development and/or acquisition of other services, businesses or technologies; the repurchase of our...

  • Page 84
    ... might be offered to us. We currently expect to have sufficient liquidity to fulfill our debt service obligations, at least in the next twelve months. FTD Group, Inc. was in compliance with all covenants under the Credit Agreement at December 31, 2011. If we need to raise additional capital through...

  • Page 85
    ...December 31, 2009. The increase was due to $4.7 million in purchases of rights, content and intellectual property related to acquiring new content for our domestic online nostalgia services business and a $1.1 million increase in capital expenditures. Net cash used for financing activities decreased...

  • Page 86
    ... credit card processing activity and additional letters of credit are maintained related to inventory purchases. Other Commitments In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, sureties and insurance companies, business...

  • Page 87
    ... the Revolving Credit Facility is either a base rate plus 2.5% per annum, or LIBOR plus 3.5% per annum (with a LIBOR floor of 1.25% in the case of the Term Loan). A 100 basis point increase in LIBOR rates would result in an estimated annual increase in our interest expense related to the outstanding...

  • Page 88
    ... 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...

  • Page 89
    ... Control-Integrated Framework . Based on that assessment under those criteria, management has determined that, at December 31, 2011, the Company's internal control over financial reporting was effective. The Company's internal control over financial reporting at December 31, 2011 has been audited by...

  • Page 90
    ... 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 2012 annual...

  • Page 91
    ... Accounts F-46 F-50 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: The agreements included as exhibits to this Annual Report...

  • Page 92
    ... Reference to Form File No. Date Filed 2.1 Agreement and Plan of Merger, dated April 30, 2008, among United Online, Inc., UNOLA Corp. and FTD Group, Inc. 2.2 Amendment No. 1 to Agreement and Plan of Merger, dated July 16, 2008, among United Online, Inc., UNOLA Corp. and FTD Group, Inc. 3.1 Amended...

  • Page 93
    89

  • Page 94
    ... by Reference to Form File No. Date Filed 10.12 Form of Restricted Stock Unit Issuance Agreement for 2010 Incentive Compensation Plan (officers) 10.13 Form of Restricted Stock Unit Issuance Agreement for 2010 Incentive Compensation Plan (employees) 10.14 Form of Stock Option Agreement for 2010...

  • Page 95
    Agreement(s) Amendment Agreement between United Online, Inc. and Frederic A. Randall, Jr. 90

  • Page 96
    ... Amendment Agreement between United Online, Inc. and Robert J. Taragan 10.30 2011 Management Bonus Plan 10.31 2011 Special Bonus Plan 10.32 Office Lease between LNR Warner Center, LLC and NetZero, Inc. 21.1 List of Subsidiaries 23.1 Consent of Independent Registered Public Accounting Firm 24.1 Power...

  • Page 97

  • Page 98
    ... as part of this report are listed in Item 15(a)(3) of this Annual Report on Form 10-K. (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. 92

  • Page 99
    ... Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 28, 2012. UNITED ONLINE, INC. By: /s/ MARK R. GOLDSTON Mark R. Goldston Chairman, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY...

  • Page 100
    Table of Contents Signature Title Date /s/ DENNIS HOLT Director Dennis Holt /s/ HOWARD G. PHANSTIEL Director Howard G. Phanstiel /s/ CAROL A. SCOTT Director Carol A. Scott 94 February 28, 2012 February 28, 2012 February 28, 2012

  • Page 101
    ... 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. No...

  • Page 102
    ... for 2010 Incentive Compensation Plan (employees) 10.14 Form of Stock Option Agreement for 2010 Incentive Compensation Plan (officers version I) 10.15 Form of Stock Option Agreement for 2010 Incentive Compensation Plan (officers version II) 10.16 Amended and Restated United Online, Inc. Severance...

  • Page 103
    the Registrant and Frederic A. Randall, Jr. 96

  • Page 104
    ... Amendment Agreement between United Online, Inc. and Robert J. Taragan 10.30 2011 Management Bonus Plan 10.31 2011 Special Bonus Plan 10.32 Office Lease between LNR Warner Center, LLC and NetZero, Inc. 21.1 List of Subsidiaries 23.1 Consent of Independent Registered Public Accounting Firm 24.1 Power...

  • Page 105
    31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 000-33367 97

  • Page 106
    ...Form 10-K Incorporated by Reference to Form File No. Date Filed 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification...

  • Page 107
    ...UNITED ONLINE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm Consolidated Balance...Notes to Consolidated Financial Statements Schedule I-Condensed Financial Information of Registrant Schedule II-Valuation and Qualifying Accounts F-1 F-2 ...

  • Page 108
    ... years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) present fairly, in all material respects, the...

  • Page 109
    ...' Equity Current liabilities: Accounts payable Accrued liabilities Member redemption liability Deferred revenue Current portion of long-term debt Total current liabilities Member redemption liability Deferred revenue Long-term debt, net of discounts Deferred tax liabilities, net Other liabilities...

  • Page 110
    ...OF OPERATIONS (in thousands, except per share amounts) Year Ended December 31, 2010 2009 2011 Revenues: Products Services Total revenues Operating expenses: Cost of revenues-products Cost of revenues-services Sales and marketing Technology and development General and administrative Amortization of...

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    Table of Contents UNITED ONLINE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Year Ended December 31, 2011 2010 2009 Net income Change in gains on derivatives designated as net investment hedging instruments, net of tax of $79 for the year ended December 31, 2011 Change in ...

  • Page 112
    ... restricted stock units Change in dividend equivalents payable on restricted stock units Stock-based compensation Foreign currency translation Tax shortfalls from equity awards Net income Balance at December 31, 2009 Exercises of stock options Issuance of common stock through employee stock purchase...

  • Page 113
    restricted stock units Change in dividend equivalents payable on restricted stock units Stock-based compensation Foreign currency translation Tax shortfalls from equity awards Net income Balance at December 31, 2010 Exercises of stock options Issuance of common stock through employee stock purchase ...

  • Page 114
    ... Payments for debt issue costs Proceeds from exercises of stock options Proceeds from employee stock purchase plans Repurchases of common stock Dividends and dividend equivalents paid on outstanding shares and restricted stock units Excess tax benefits from equity awards Net cash used for financing...

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    F-7

  • Page 116
    ...'s web properties attract a significant number of Internet users and the Company offers a broad array of Internet marketing services for advertisers. The Company's corporate headquarters are located in Woodland Hills, California, and the Company also maintains offices in Downers Grove, Illinois...

  • Page 117
    ... on such deposits. Accounts Receivable, including Financing Receivables -The Company's accounts receivable are derived primarily from revenues earned from advertising customers and floral network members located in the U.S. and the U.K., and pay accounts. The Company extends credit based upon an...

  • Page 118
    ..., the receivable balance is reduced and related credit allowance adjusted accordingly. Fair value approximates the carrying amount of financing receivables because such receivables are discounted at a rate comparable to market. Property and Equipment -Property and equipment are stated at historical...

  • Page 119
    ...-based valuation techniques are not available, the Company will be required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument. Fair values of cash and cash equivalents, short-term accounts receivable, accounts payable, accrued...

  • Page 120
    ...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...

  • Page 121
    ... 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. The member redemption liability is estimated based upon the weighted-average cost and number of points that...

  • Page 122
    ... recorded on the consolidated balance sheets as deferred revenue. The Company offers alternative payment methods to credit cards for certain Communications pay service plans. These alternative payment methods currently include use of automated clearing-house, payment by personal check or money order...

  • Page 123
    ... the Company's pay accounts and floral network members; fees associated with the storage and processing of customer credit cards and associated bank fees; domain name registration fees; and personnel- and overhead-related costs associated with operating the Company's networks and data centers. Sales...

  • Page 124
    ... Capitalized internal-use software is included in the computer software and equipment category within property and equipment, net, in the consolidated balance sheets. Software to be Sold, Leased or Marketed -The Company follows the provisions of ASC 985, which requires that all costs relating to the...

  • Page 125
    ... 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 sales of...

  • Page 126
    ... 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. The Company records a valuation allowance to reduce its deferred tax assets to the amount...

  • Page 127
    ... UNITED ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued) Recent Accounting Pronouncements Comprehensive Income -In June 2011, the FASB issued Accounting...

  • Page 128
    ...Contents UNITED ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. SEGMENT INFORMATION Segment revenues and segment income from operations were as follows (in thousands): Year Ended December 31, 2011 Content & Media Communications FTD Total Products Services Advertising Total...

  • Page 129
    ... income was as follows for each period presented (in thousands): Year Ended December 31, 2010 2009 2011 Segment income from operations: FTD Content & Media Communications Total segment income from operations Depreciation Amortization of intangible assets Unallocated corporate expenses Consolidated...

  • Page 130
    .... The changes in allowance for credit losses related to financing receivables for the year ended December 31, 2011 were as follows (in thousands): Balance at January 1, 2011 Current period provision Write-offs charged against allowance Balance at December 31, 2011 F-22 $ 3,597 670 (612) $ 3,655

  • Page 131
    ... of the following (in thousands): December 31, 2011 2010 Prepaid expenses Income taxes receivable Floral-related inventories Gift cards related to member redemption liability Prepaid floral catalog expenses Prepaid advertising and promotion expense Prepaid insurance Other Total Property and...

  • Page 132
    ... Contents UNITED ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. BALANCE SHEET COMPONENTS (Continued) Accrued Liabilities Accrued liabilities consisted of the following (in thousands): December 31, 2011 2010 Employee compensation and related expenses Non-income taxes payable...

  • Page 133
    ... assets consisted of the following (in thousands): December 31, 2011 Accumulated Amortization Gross Value Net Pay accounts and free accounts Customer contracts and relationships Trademarks and trade names Software and technology Rights, content and intellectual property Total $ 100,854 $ 111...

  • Page 134
    ... TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. LONG-TERM DEBT (Continued) "UOL Credit Agreement") and borrowed $60 million thereunder. The net proceeds of the term loan under the UOL Credit Agreement were used to finance, in part, the acquisition of FTD. In April 2010, United Online, Inc. paid...

  • Page 135
    .... Under the terms of the Credit Agreement, FTD Group, Inc. is generally restricted from transferring funds to United Online, Inc., with certain exceptions including an annual basket of $15 million (subject to adjustment based on excess cash flow calculations) which may be used to make cash dividends...

  • Page 136
    ... of Contents UNITED ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. DERIVATIVE INSTRUMENTS The fair and notional values of outstanding derivative instruments were as follows (in thousands): Fair Value of Derivative Instruments Balance Sheet Location December 31, 2011 2010...

  • Page 137
    ..., net $ 654 $ - $ - The following table presents information about assets at December 31, 2011 that were required to be measured at fair value on a recurring basis (in thousands): Description Total Fair Value Level 1 Fair Value Level 2 Fair Value Money market funds Derivative assets Derivative...

  • Page 138
    ... a recurring basis (in thousands): Description Total Fair Value Level 1 Fair Value Money market funds $ 67,150 $ 67,150 The Company estimated the fair value of its long-term debt using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration...

  • Page 139
    ...stock units that vest, and from the stock awards that are issued, the portion of those shares with a fair market value equal to the amount of the required employee withholding taxes due, which is accounted for as a repurchase of common stock. The Company then pays the applicable withholding taxes in...

  • Page 140
    ...9. STOCK-BASED COMPENSATION PLANS The Company has one active equity plan, the 2010 Incentive Compensation Plan (the "Plan"), under which, in general, the Company is authorized to grant restricted stock units, stock awards and stock options. Restricted stock units granted to employees generally vest...

  • Page 141
    ... thousands): Year Ended December 31, 2011 2010 2009 Operating expenses: Cost of revenues-products Cost of revenues-services Sales and marketing Technology and development General and administrative Total stock-based compensation Tax benefit recognized Restricted Stock Units $ 46 $ 41 $ 43 354 502...

  • Page 142
    ...December 31, 2011, 2010 and 2009 were $19,000, $0.8 million and $0.1 million, respectively. At December 31, 2011, total unrecognized compensation cost related to nonvested stock options, net of expected forfeitures, was $3.0 million and was expected to be recognized over a weighted-average period of...

  • Page 143
    ... FINANCIAL STATEMENTS (Continued) 9. STOCK-BASED COMPENSATION PLANS (Continued) The fair value of stock options granted during the year ended December 31, 2011 was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions: Risk-free interest rate Expected...

  • Page 144
    ... STOCK-BASED COMPENSATION PLANS (Continued) of time remaining in the 24-month offering period. The risk-free interest rate assumed in valuing the employee stock purchase plan shares is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term. The Company determines...

  • Page 145
    ...deferred tax balances were as follows (in thousands): December 31, 2011 2010 Deferred tax assets: Net operating loss and foreign tax credit carryforwards Stock-based compensation Other, net Total gross deferred tax assets Less: valuation allowance Total deferred tax assets after valuation allowance...

  • Page 146
    ... as follows (in thousands): Year Ended December 31, 2011 2010 2009 Beginning balance Additions for current year tax positions Additions for prior year tax positions Reductions related to settlements with taxing authorities Reductions due to lapse in statute of limitations Ending balance $ 8,530...

  • Page 147
    ... 2011, 2010 and 2009, income tax shortfalls, net, attributable to equity-based compensation ...life. These carryforwards have been adjusted to reflect the Company's estimate of limitations under Section 382 of the Internal Revenue Code of 1986, as amended. 11. NET INCOME PER COMMON SHARE The following...

  • Page 148
    ... exit costs related to employee terminations in the Content & Media, Communications and FTD segments, respectively, as well as $1.8 million of restructuring and other exit costs related to the departure of the Company's former chief financial officer. In addition, the Company recorded $0.2 million...

  • Page 149
    ...declining levels through the terms of the related leases. In addition, standby letters of credit are maintained by FTD to secure credit card processing activity. Certificates of deposit totaling $0.3 million and $0.5 million at December 31, 2011 and 2010, respectively, were maintained by the Company...

  • Page 150
    ...out of the Company's breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers and employees that will...

  • Page 151
    ...October 2008, Anthony Michaels filed a purported class action complaint against Classmates Online, Inc., now known as Memory Lane, Inc., Classmates Media Corporation and United Online, Inc. in Superior Court of the State of California, County of Los Angeles, alleging causes of action for intentional...

  • Page 152
    ...affect the Company's business, financial condition, results of operations, or cash flows. 14. QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share data) Quarter Ended September 30 June 30 December 31 March 31 Year ended December 31, 2011: Revenues Cost of revenues Operating income...

  • Page 153
    ... UNITED ONLINE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share data) (Continued) December 31 Quarter Ended September 30 June 30 March 31 Year ended December 31, 2010: Revenues Cost of revenues Operating...

  • Page 154
    Table of Contents UNITED ONLINE, INC. SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT PARENT COMPANY BALANCE SHEETS (in thousands) December 31, 2011 2010 Assets Current assets: Cash and cash equivalents Total current assets Investments in subsidiaries Other assets Total assets Liabilities...

  • Page 155
    Table of Contents UNITED ONLINE, INC. PARENT COMPANY STATEMENTS OF OPERATIONS (in thousands) Year Ended December 31, 2011 2010 2009 Revenues Operating expenses: General and administrative Total operating expenses Operating loss Interest income Intercompany interest income Interest expense Other ...

  • Page 156
    ... of Contents UNITED ONLINE, INC. PARENT COMPANY STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2010 2009 2011 Net cash provided by operating activities Cash flows from investing activities: Net cash used for investing activities Cash flows from financing activities: Payments on...

  • Page 157
    ... the Credit Agreement, FTD Group, Inc., a subsidiary of United Online, Inc., is generally restricted from transferring funds to United Online, Inc., with certain exceptions, including an annual basket of $15 million (subject to adjustment based on excess cash flow calculations) which may be used to...

  • Page 158
    ... UNITED ONLINE, INC. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (in thousands) Balance at Beginning of Period Additions Charged to Expense Charged (Credited) to Other Accounts Charges Utilized (Write-offs) Balance at End of Period Allowance for doubtful accounts: Year ended December 31, 2011...

  • Page 159

  • Page 160
    ...dba Bluelight Internet Service) Opobox, Inc., a Delaware corporation StayFriends GmbH Trombi Acquisition SARL United Online Advertising Network, Inc., a Delaware corporation (also dba United Online Media Group) United Online Software Development (India) Private Limited, a corporation organized under...

  • Page 161
    UNOL Intermediate, Inc., a Delaware corporation

  • Page 162
    QuickLinks Exhibit 21.1 List of Subsidiaries

  • Page 163
    ... OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to...United Online, Inc. of our report dated February 28, 2012 relating to the financial statements, financial statement schedules and the effectiveness of internal control over financial reporting, which appears in this Annual Report...

  • Page 164
    QuickLinks Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  • Page 165
    ... EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Mark R. Goldston, certify that: 1. I have reviewed this Annual Report on Form 10-K of United Online, Inc.; 2. Based on my knowledge, this report...

  • Page 166
    QuickLinks Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

  • Page 167
    ... OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Neil P. Edwards, certify that: 1. I have reviewed this Annual Report on Form 10-K of United Online, Inc.; 2. Based on my knowledge...

  • Page 168
    QuickLinks Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

  • Page 169
    ... pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (a) The Annual Report on Form 10-K of United Online, Inc. for the year ended December 31, 2011, as filed with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of...

  • Page 170
    QuickLinks Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

  • Page 171
    ... pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (a) The Annual Report on Form 10-K of United Online, Inc. for the year ended December 31, 2011, as filed with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of...

  • Page 172
    QuickLinks Exhibit 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002