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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
    ... 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 Services...

  • Page 2
    ...filer  Non-accelerated filer 3 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2) of the Act). Yes 3 No  At June 30, 2005, the aggregate market value of voting stock held by non-affiliates of the registrant, based on the last reported sales price of the...

  • Page 3
    ... Principal Accounting Fees and Services Exhibits, Financial Statement Schedules 3 18 31 31 31 32 33 35 36 60 61 61 62 63 63 63 63 63 63 63 66 In this document, "United Online," the "Company," "we," "us" and "our" refer to United Online, Inc. and its wholly-owned subsidiaries. This Annual Report on...

  • Page 4
    ... NetZero Family Pack, Juno Family Pack and Norton Internet Security. Online Photos: Other Services: Internet Access Our basic pay access services include Internet access and an email account and are offered through various pricing plans, generally $9.95 per month. We also offer accelerated access...

  • Page 5
    ... various pricing plans, generally $9.95 per year. We also offer personalized, vanity email services with enhanced features and storage for $1.99 per month. Online Photos PhotoSite is an online digital photo-sharing service, which enables users to display photos, order prints and create custom photo...

  • Page 6
    ..., America Online ("AOL") and EarthLink, market value-priced dial-up access services through alternative brands. Providers of broadband access, which include cable, digital subscriber lines ("DSL"), satellite and wireless, generally offer users faster connections and download speeds than dial-up for...

  • Page 7
    ... in lower-income households accessing the Internet, where penetration rates have 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...

  • Page 8
    ... 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. Additionally, with the recent recovery and growth of Internet advertising, we...

  • Page 9
    ...We also view our free community-based networking and consumer Web-hosting services as important sources of pay subscribers. We seek to up-sell the free account bases of these services to pay versions of each service, as well as to Internet access and other pay services. Our marketing efforts to date...

  • Page 10
    ...access accounts that elect to pay with a personal 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...

  • Page 11
    ... of our services, including connectivity, Web services, billing, email, customer support and targeted advertising. We maintain data centers in multiple locations around the country with, in many cases, redundant systems to provide high levels of service availability and connectivity. We host the...

  • Page 12
    ... ranging from seven additional years to perpetual. Our VoIP service shares a considerable portion of the access service infrastructure, notably the data center networking facilities, Oracle customer databases, email system, and billing facilities, as described above. Software to support PC to PC...

  • Page 13
    ... has grown significantly over the last few years and is expected to continue to grow. Broadband access, which includes cable, DSL, satellite and wireless, generally offers users faster connection and download speeds than dial-up access for monthly fees currently ranging from approximately $13 to $55...

  • 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
    ...their own Internet-based alumni information services. In addition to this direct competition, Classmates competes for subscribers with companies offering a wide variety of social-networking services including Web portals such as Yahoo!, MSN and AOL that maintain chat rooms and are developing new Web...

  • 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
    ...use information about our users to improve the quality of our services and the effectiveness of advertising by our advertising customers. SEASONALITY We have experienced seasonal trends in connection with our access services. In general, we have experienced increased Internet usage and increased pay...

  • Page 18
    ... our relationships with employees to be good. AVAILABLE 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...

  • Page 19
    ...-market additional subscriptions to existing users or successfully acquire or develop and commercialize new services, our pay accounts and subscriptions could continue to decline. Our business is subject to fluctuations. Our results of operations and changes in the number and mix of pay accounts...

  • Page 20
    ... complete acquisitions. The merger and acquisition market for companies offering Internet services is extremely competitive, particularly for companies who have demonstrated a profitable business model with long-term growth potential. Recently, the public equity markets have been very receptive to...

  • Page 21
    ... impact the number of pay access accounts and our revenues and profitability could be negatively impacted. If we are unable to retain users, our business and financial results will suffer. Historically, we have lost an average of four to five percent of our pay accounts each month, which we...

  • Page 22
    ... attract advertisers, on the number of advertising impressions we have available to sell, and on how many pay accounts and subscriptions we can potentially acquire through marketing our pay services to our active free accounts. Each month, a significant number of free accounts become inactive and we...

  • Page 23
    ... with similar agreements 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...

  • Page 24
    ... increase in market 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...

  • Page 25
    ... addition, our ability to offer new pay services or alternative payment plans is dependent on our ability to customize our billing and support systems. Issues associated with these systems could cause a variety of problems including the failure to bill and collect from users on a timely basis, over...

  • Page 26
    ... service providers, providers of customer support services and other vendors. Unauthorized or inappropriate access to, or use of, our networks, computer systems and services could potentially jeopardize the security of confidential information, including credit card information, of our users...

  • Page 27
    .... 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 have had the potential to damage or delete computer programs. The development and widespread dissemination...

  • Page 28
    ... increase our costs. Currently, ISPs are considered "information service" providers rather than "telecommunications" providers, and regulations that apply to telephone companies and other telecommunications common carriers currently do not apply to our Internet access services. However, our Internet...

  • Page 29
    ... new telephone numbers to our customers that access our service via dialup accounts. The FCC's order allows the CPUC to determine what services will be required to assign numbers from the specialized overlay area codes. Should the CPUC determine that VoIP providers must assign telephone numbers...

  • Page 30
    ..., or instituted inquiries into, ISPs, including Juno and NetZero, in connection with marketing, billing, customer retention, cancellation and disclosure practices. We cannot assure you that our services and business practices, or changes to our services and business practices, will not subject us to...

  • Page 31
    ... what we experienced in 2005 due to the payment of income taxes, and our cash balances will decline if we use our cash to acquire businesses, repurchase stock or for other purposes. We cannot assure you that we will continue to pay quarterly cash dividends, and if we do not, our stock price could be...

  • Page 32
    ... behalf of himself and all others similarly situated, filed a lawsuit in the United States District Court for the Southern District of New York against NetZero, certain officers and directors of NetZero and the underwriters of NetZero's initial public offering, Goldman Sachs Group, Inc., BancBoston...

  • Page 33
    ... case against NetZero was consolidated with approximately 300 other suits filed against more than 300 issuers that conducted their initial public offerings between 1998 and 2000, their underwriters and an unspecified number of their individual corporate officers and directors. In a court order dated...

  • Page 34
    .... Prior to that, NetZero common stock had been quoted on the NASDAQ under the symbol "NZRO" since September 23, 1999. The following table sets forth, for the quarters indicated, the high and low prices per share of our common stock as reported on the NASDAQ. High Low Year Ended December 31, 2004...

  • Page 35
    ... our intention 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...

  • Page 36
    ... 31, 2004. Net income included tax benefits of $12.3 million for the six months ended December 31, 2003. Net income included tax benefits of $4.3 million for the year ended June 30, 2003. In September 2001, NetZero and Juno merged and became wholly-owned subsidiaries of United Online. The results of...

  • Page 37
    ... a number of brands, including NetZero, Juno and Classmates Online. Our subscription services include dial-up Internet access, social-networking, VoIP telephony, personal Web-hosting, premium email, Internet security and online digital photo-sharing, among others. We also offer advertising-supported...

  • Page 38
    ... 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 is to enhance and market certain of these services as well as to expand the non-access services we offer...

  • Page 39
    ...of subscription fees charged to pay accounts for dial-up and accelerated 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...

  • Page 40
    ...decline in ARPU for our access services due to increased use of free months of service and promotional pricing to obtain or retain pay access accounts, offset partially by an increased number of subscriptions to our accelerator services. For the year ended December 31, 2005, approximately 16% of our...

  • Page 41
    ...of network computers and equipment, email 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...

  • Page 42
    ...pay account base subscribing to higher margin services including our social-networking services, or if due to competitive or other factors we decrease the pricing for our access or other services or increase the use of promotions such as one or more free months of service, or if our new pay services...

  • Page 43
    ... 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 accounts to additional services...

  • Page 44
    ... 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, and occupancy and other overhead-related costs, as well as the expenses incurred and credits...

  • Page 45
    ... recognized in connection with the sale of short-term investments. Interest and other income, net increased by $1.7 million, or 34%, to $6.9 million for the year ended December 31, 2005, compared to $5.1 million for the year ended December 31, 2004 as a result of higher interest rates and higher...

  • 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 carryforwards for federal and state income tax...

  • Page 47
    ... pay accounts comprised of our accelerator services which generates a significantly higher average ARPU; an increase in the number of free months of service offered for initial trial periods and retention programs; and an increase in the number of accounts signing up for promotional pricing plans...

  • Page 48
    ... and support costs per pay account primarily as a result of better pricing obtained from our principal customer support vendor; and a decrease in average hourly usage per pay access account. Cost of Free Services Cost of free services decreased by $2.3 million, or 23%, to $7.4 million for the year...

  • Page 49
    ... million for the year ended December 31, 2003. The increase was the result of $3.3 million in lease termination fees and accelerated depreciation expenses in connection with the relocation of our corporate offices; a $3.2 million increase in professional and consulting fees primarily related to our...

  • Page 50
    ... free users upgrading to our pay access services. ARPU was $10.27 for the six months ended December 31, 2003, compared to $9.39 for the six months ended December 31, 2002. The increase in ARPU was due to an increase in the number of access accounts purchasing our $14.95 accelerator services, which...

  • Page 51
    ... hours purchased. Customer support and billing-related costs increased as a result of the increase in the average number of pay access accounts. Depreciation expense allocated to billable services has decreased due to network assets placed in service in prior years becoming fully depreciated...

  • Page 52
    ... increasing our pay account base, promoting our accelerated dial-up services and building our brands. Additionally, sales and marketing expenses increased as a result of a $4.4 million increase in telemarketing expenses related to customer acquisition, retention and up sell activities. The increases...

  • Page 53
    ...The effective tax rate differs from the statutory tax rate primarily due to the release of valuation allowance attributable to the expected utilization of net operating loss and tax credit carryforwards in the years ending December 31, 2004 and 2005, offset by current California state income tax. In...

  • Page 54
    ...following: • a $15.0 million net 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...

  • Page 55
    ... 31, 2005 compared to the year ended December 31, 2004. The payment of dividends will negatively impact cash flows from financing activities. In May, August and October of 2005 and February of 2006, our Board of Directors declared a quarterly cash dividend of $0.20 per share of common stock. The...

  • Page 56
    ... for income taxes. 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...

  • 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
    ... rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the assets. Goodwill We adopted SFAS No. 142 on July 1, 2002. Under SFAS No. 142, goodwill is not amortized, but is tested for impairment at a reporting unit level on an annual basis...

  • Page 59
    ...historical information. Income Taxes Income taxes are accounted for under SFAS No. 109. Under SFAS No. 109, deferred tax assets 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...

  • Page 60
    ...This statement replaces SFAS 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...

  • Page 61
    ... for public companies. In particular, this SAB provides guidance 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...

  • Page 62
    ... future cash interest payments that are attributable to LIBOR-based market interest rates. The cap provided protection through January 31, 2007 from an increase in three month LIBOR over 3.5%; however, in January 2006, we paid the outstanding balance on the term loan in full. In connection with the...

  • Page 63
    ... and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management's Report on Internal Control Over Financial Reporting Management of United Online, Inc. is...

  • Page 64
    ... Securities and Exchange Commission within 120 days after 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...

  • Page 65
    ... 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 and Restated Employment Agreement between the Registrant and Mark R. Goldston Amended and Restated...

  • Page 66
    ...and Robert Taragan Office Lease between LNR Warner Center, LLC and NetZero, Inc. Credit Agreement, dated as of December 3, 2004, among United Online, the Lenders party thereto from time to time, Deutsche Bank Trust Company Americas, as Administrative Agent, and Deutsche Bank Securities Inc., as Lead...

  • Page 67
    ...Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 6, 2006. UNITED ONLINE, INC. By: /s/ MARK R. GOLDSTON Mark R. Goldston Chairman, Chief Executive Officer and President KNOW...

  • Page 68
    ... 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 and Restated Employment Agreement between the Registrant and Mark R. Goldston 8-K 8-K 8-K 000-33367 000...

  • Page 69
    ...and Robert Taragan Office Lease between LNR Warner Center, LLC and NetZero, Inc. Credit Agreement, dated as of December 3, 2004, among United Online, the Lenders party thereto from time to time, Deutsche Bank Trust Company Americas, as Administrative Agent, and Deutsche Bank Securities Inc., as Lead...

  • Page 70
    UNITED ONLINE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Stockholders' Equity Consolidated ...

  • Page 71
    ... the standards 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...

  • Page 72
    ... accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or...

  • 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
    ... 2005 2004 Six Months Ended December 31, 2003 Year Ended June 30, 2003 Revenues: Billable 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...

  • Page 75
    UNITED ONLINE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Year Ended December 31, 2005 2004 Six Months Ended December 31, 2003 Year Ended June 30, 2003 Net income Unrealized gain (loss) on short-term investments, net of tax of $(193), $(452), $(553) and $992 for the ...

  • Page 76
    ...short-term investments, net of tax Foreign currency translation Tax benefits from stock options Net income Balance at December 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...

  • 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
    ..., including NetZero, Juno and Classmates Online. The Company's subscription services include dial-up Internet access, socialnetworking, VoIP telephony, personal Web-hosting, premium email, Internet security and online digital photo-sharing, among others. The Company also offers advertising-supported...

  • Page 80
    ... rating of A1 and P1. The Company's short-term investments are reported at fair value, with unrealized gains and losses, net of taxes, recorded in the consolidated statements of comprehensive income. Realized gains or losses and permanent declines in value, if any, on available-for-sale securities...

  • Page 81
    ...amount of insurance provided on such deposits. The Company's business depends substantially on the capacity, affordability, reliability and security of third-party telecommunications and data service providers. Only a small number of providers offer the network services the Company requires, and the...

  • Page 82
    ... declines in the Company's stock price for a sustained period or significant underperformance relative to expected historical or projected future results of operations. The Company determines reporting units by allocating assets, including goodwill, based on its related service offerings. In testing...

  • Page 83
    ...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. In circumstances where payment is not received in...

  • Page 84
    ... the Company's social-networking services are allocated based on the number of Web site visits by free accounts relative to the total number of visits. Sales and Marketing- Sales and marketing expenses include advertising and promotion expenses, fees paid to distribution partners to acquire new pay...

  • Page 85
    ... and internal customer support personnel. In addition, general and administrative expenses include fees for professional, legal, accounting and financial services, non-income taxes, insurance, and occupancy and other overhead-related costs, as well as the expenses incurred and credits received as...

  • Page 86
    ... on net income and net income per share would have been as follows (in thousands, except per share amounts): Year Ended December 31, 2005 2004 Six Months Ended December 31, 2003 Year Ended June 30, 2003 Net income, as reported Add: Stock-based compensation included in net income, net of tax Deduct...

  • Page 87
    ..., including NetZero, Juno, and Classmates Online. The Company's pay services include dial-up Internet access, social-networking, VoIP telephony, personal Web-hosting, online digital photo sharing and premium email services, among others. The Company also offers, at no charge, advertising supported...

  • Page 88
    ... for public companies. In particular, this SAB provides guidance related to share-based payment transactions with non employees, the transition from nonpublic to public entity status, valuation methods (including assumptions such as expected volatility and expected term), the accounting for...

  • Page 89
    ... 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, and entered into a related licensing and support agreement with...

  • Page 90
    ... liabilities Deferred revenue Deferred income taxes Capital leases Other long-term liabilities Total net liabilities assumed Intangible assets acquired: Trademark and trade name Advertising contracts and related relationships Pay accounts Free accounts Other intangibles Total intangible assets...

  • Page 91
    ...Net income per share-diluted About Web Services $ 513,300 $ 111,882 $ 1.82 $ 1.70 $ 417,642 $ 51,189 $ 0.81 $ 0.74 In 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...

  • Page 92
    ... gains and losses are presented net of tax in accumulated other comprehensive income on the consolidated balance sheets. The Company recognized $0.1 million of realized gains from the sale of short-term investments in the year ended December 31, 2004. The Company had no material realized gains...

  • Page 93
    ... both corporate and government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities purchased with a lower yield-at-cost show a mark...

  • Page 94
    ... adjustment in the state income tax rate expected to apply to future reversals of 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...

  • Page 95
    ... portion of the proceeds of the term loan facility were used to purchase shares tendered pursuant to the Company's tender offer and pay related fees and expenses. The funds are available for general corporate purposes, stock repurchases and acquisitions, subject to certain limitations. The term loan...

  • Page 96
    ... and acquisitions. At December 31, 2005, the Company was in compliance with all covenants. The credit agreement also includes certain customary events of default such as payment defaults, cross defaults to other indebtedness, bankruptcy and insolvency, and a change in control, the occurrence of...

  • Page 97
    ...at the close of business on that date. Each right entitles the registered holder to purchase from the Company one unit consisting of one one-thousandth of a share of its Series A junior participating preferred stock at a price of $25 per unit. On April 29, 2003, the Board of Directors voted to amend...

  • 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
    ... table sets forth the computation of basic and diluted net income per share for the years ended December 31, 2005 and 2004, the six months ended December 31, 2003 and the year ended June 30, 2003 (in thousands, except per share amounts): Year Ended Year Ended December 31, 2005 2004 Six Months Ended...

  • Page 100
    ... income tax rate to the Company's effective income tax rate (in thousands): Year Ended December 31, 2005 2004 Six Months Ended December 31, 2003 Year Ended June 30, 2003 Taxes on income at the statutory federal rate State income taxes, net of federal tax benefits Re-measurement of net deferred tax...

  • Page 101
    ...measurement of net deferred tax assets, including a 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...

  • Page 102
    ... 382 of the Code. The Company has also claimed income tax deductions from the exercise of certain stock options and the related sale of common stock by employees, and for the years ended December 31, 2005 and 2004, the six months ended December 31, 2003 and the year ended June 30, 2003, benefits...

  • Page 103
    ...monthly or annually. Option grants expire after ten years unless cancelled earlier due to termination of employment or Board service. Certain grants are immediately exercisable for unvested shares of common stock, with the unvested portion of the shares remaining subject to repurchase by the Company...

  • Page 104
    ...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 outstanding at June 30, 2002 Granted Exercised Canceled...

  • Page 105
    ... (in thousands): Year Ended Year Ended December 31, 2005 2004 Six Months Ended December 31, 2003 June 30, 2003 Operating expenses: Cost of billable services Sales and marketing Product development General and administrative Total stock-based compensation Acceleration of Stock Options $ 183...

  • Page 106
    ... 15, 2006 and monthly thereafter for three years. In April 2005, the Company issued 37,500 RSUs to members of its Board of Directors. Each RSU entitles the Board member to receive one share of the Company's common stock upon vesting. The units vest 100% on February 15, 2006. In connection with these...

  • Page 107
    ... 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 four-year period beginning August 15, 2005. In connection with these units, the Company recorded deferred stock-based compensation of...

  • Page 108
    ... case against NetZero was consolidated with approximately 300 other suits filed against more than 300 issuers that conducted their initial public offerings between 1998 and 2000, their underwriters and an unspecified number of their individual corporate officers and directors. In a court order dated...

  • Page 109
    ... for income taxes Net income Net income per share-basic Net income per share-diluted Shares used to calculate basic net income per share Shares used to calculate diluted net income per share 11. QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share data) Year ended December 31, 2005...

  • Page 110
    ... for doubtful accounts: Year ended December 31, 2005 Year ended December 31, 2004 Six months ended December 31, 2003 Year ended June 30, 2003 Valuation allowance for deferred tax assets: Year ended December 31, 2005 Year ended December 31, 2004 Six months ended December 31, 2003 Year ended June...

  • Page 111
    ... NetZero, Inc., a Delaware corporation (also dba PhotoSite) Juno Online Services, Inc., a Delaware corporation NetBrands, Inc., a California corporation (dba BlueLight Internet Service) Classmates Online, Inc., a Washington corporation United Online Web Services, Inc., a Delaware corporation...

  • Page 112
    ....1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-70532, 333-88766, 333-106003, 333-114919, 333-121217 and 333-123392) of United Online, Inc. of our report dated March 3, 2006 relating...

  • Page 113
    ... 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 I, Mark R. Goldston, certify that: 1. I have reviewed this annual report of United Online, Inc.; 2. Based on my knowledge...

  • Page 114
    ...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, Charles S. Hilliard, certify that: 1. I have reviewed this annual report of United Online...that material information relating to the registrant, including its ...

  • Page 115
    ... 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 with the Securities and...

  • Page 116
    ... 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 with the Securities and...