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

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FORM 10-Q

For the transition period from                                    to                 

Commission file number 000-33367

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UNITED ONLINE, INC.
(Exact name of Registrant as specified in its charter)

(818) 287-3000
(Registrant's telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

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        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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

        There were 14,236,901 shares of the Registrant's common stock outstanding at November 3, 2014.

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UNITED ONLINE, INC.
INDEX TO FORM 10-Q

For the Quarter Ended September 30, 2014

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

        This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our current expectations, estimates and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not

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limited to, statements about the expected benefits of our acquisitions; our strategies; our pursuit of long-term growth initiatives; our future financial performance and results, revenues, segment metrics, operating expenses, market trends, liquidity, cash flows and uses of cash, dividends, capital expenditures, depreciation and amortization, tax payments, foreign currency exchange rates, and hedging arrangements; our ability to invest in initiatives; our plans for services and products, pricing, and marketing; competition; legal matters; and the impact of accounting pronouncements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, time frames or achievements to be materially different from those set forth or contemplated in the forward-looking statements, including, among others, the factors disclosed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and additional factors that accompany the related forward-looking statements in this Quarterly Report on Form 10-Q 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 our estimates and assumptions only as of the date hereof. Such forward-looking statements are not guarantees of future performance or results and reported results should not be considered an indication of future performance. We undertake no obligation to update these forward-looking statements to reflect the impact of events or circumstances arising after the date hereof, unless required by law.

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PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

        

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

   

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

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UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

   

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

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UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

   

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

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UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(in thousands)

   

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

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UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

   

The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS

Description of Business

        United Online, Inc. (together with its subsidiaries, "United Online" or the "Company"), through its operating subsidiaries, provides consumer services and products over the Internet under a number of brands, including Classmates, StayFriends, Trombi, MyPoints, NetZero, and Juno. The Company reports its business in two reportable segments: Content & Media and Communications. The Company's Content & Media segment provides social networking services and products and a loyalty marketing service. The Company's primary Communications service is Internet access. On a combined basis, the Company's web properties attract a significant number of Internet users and the Company offers a broad array of Internet marketing services for advertisers. On November 1, 2013, United Online, Inc. consummated the separation of FTD Companies, Inc. (together with its subsidiaries, "FTD") from United Online, Inc. through a tax-free distribution of all FTD Companies, Inc. common stock held by United Online, Inc. to United Online, Inc.'s stockholders. As a result, FTD's financial results are presented as discontinued operations in the Company's unaudited condensed consolidated financial statements.

        The Company's corporate headquarters are located in Woodland Hills, California, and the Company also maintains offices in Seattle, Washington; Erlangen, Germany; Berlin, Germany; San Francisco, California; Schaumburg, Illinois; Fort Lee, New Jersey; and Hyderabad, India.

Basis of Presentation

        The Company's unaudited condensed consolidated financial statements for the quarters and nine months ended September 30, 2014 and 2013 have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), including those for interim financial information, and with the instructions for Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (the "SEC"). Accordingly, such financial statements do not include all of the information and note disclosures required by GAAP for complete financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the results for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for any future periods. The unaudited condensed consolidated balance sheet information at December 31, 2013 was derived from the Company's audited consolidated financial statements, filed on September 4, 2014, with the SEC in the Company's Amendment No.1 to the Annual Report on Form 10-K/A for the year ended December 31, 2013, but does not include all of the disclosures required by GAAP.

        The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates and assumptions. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2013 included in the Company's Amendment No.1 to the Annual Report on Form 10-K/A.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

        The most significant areas of the unaudited condensed consolidated financial statements that require management judgment include the Company's revenue recognition, goodwill, definite-lived intangible assets and other long-lived assets, member redemption liability, income taxes, contingent consideration, and legal contingencies.

        The Company believes that its existing cash and cash equivalents and cash generated from operations will be sufficient to fund its working capital requirements, capital expenditures, and other obligations through at least the next twelve months.

Accounting Policies

        Refer to the Company's Amendment No.1 to the Annual Report on Form 10-K/A for the year ended December 31, 2013 for a complete discussion of all significant accounting policies.

        Revision of Previously-Issued Financial Statements—In connection with the preparation of the Company's provision for income taxes for the quarter ended June 30, 2014, the Company determined that the accounting for income taxes in the prior periods needed to be revised. In addition, the revisions in the accounting for income taxes also contributed to an increase to the goodwill impairment charge recorded by its Classmates reporting unit during the quarter ended September 30, 2013. Additionally, the Company revised the current and noncurrent portions of the member redemption liability at December 31, 2013 to correct for a prior-period misclassification. The Company evaluated the cumulative impact of these items, together with other previously-identified uncorrected errors, on prior periods under the guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic No. 250, Accounting Changes and Error Corrections, relating to SEC Staff Accounting Bulletin ("SAB") No. 99, Materiality, and concluded that the errors were not considered to be material, individually or in the aggregate, to any previously-issued quarterly or annual financial statements. The Company also evaluated the impact of correcting these items through an adjustment to its financial statements for the quarter ended June 30, 2014 and concluded, based on the guidance within ASC Topic No. 250 relating to SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, to revise its previously-issued financial statements to reflect the impact of these corrections because the cumulative amount of such corrections is expected to be material to the year ending December 31, 2014. The Company's prior-period financial statements have been revised in connection with the filing of the Company's Amendment No. 1 to the Annual Report on Form 10-K/A for the year ended December 31, 2013 and this Quarterly Report on Form 10-Q and will continue to be revised when presented in future filings.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

        The tables below present the impact of these revisions on the Company's previously-filed financial statements (in thousands, except per share amounts), including certain other adjustments to correct previously-identified uncorrected errors.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

Recent Accounting Pronouncements

        Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists—Effective January 1, 2014, the Company adopted the FASB Accounting Standards Update ("ASU") No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, as codified in ASC Topic No. 740, Income Taxes. The amendments in this update state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The adoption of this update did not have a material impact on the Company's consolidated financial statements.

        Presentation of Financial Statements and Property, Plant and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity—In April 2014, the FASB issued ASU No. 2014- 08, Presentation of Financial Statements and Property, Plant and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The core principle of the guidance raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the new definition of a discontinued operation. It also allows an entity to present a discontinued operation even when it has continuing cash flows and significant continuing involvement with the disposed component. The amendments in this ASU are effective prospectively for disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company does not expect this update to have a material impact on its consolidated financial statements.

        Revenue from Contracts with Customers—In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU applies to all entities that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The amendments in this ASU will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The amendments should be applied retrospectively. The Company is currently assessing the impact of this update on its consolidated financial statements.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

        Compensation—Stock Compensation: Accounting for Share- Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period —In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation: Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The core principle of the guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period should be treated as a performance condition. A reporting entity should apply existing guidance in ASC Topic No. 718, Compensation—Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU No. 2014-12 either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Company does not expect this update to have a material impact on its consolidated financial statements.

        Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern—In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The update provides GAAP guidance on management's responsibility in evaluating whether there is substantial doubt about a company's ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company's ability to continue as a going concern within one year from the date the financial statements are issued. The amendments in this update are effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect this update to have a material impact on its consolidated financial statements.

2. SEGMENT INFORMATION

        Segment revenues and segment income (loss) from operations were as follows (in thousands):

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SEGMENT INFORMATION (Continued)

 

 

 

        A reconciliation of segment revenues to consolidated revenues was as follows (in thousands):

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SEGMENT INFORMATION (Continued)

        A reconciliation of segment operating expenses (which excludes depreciation and amortization of intangible assets) to consolidated operating expenses was as follows (in thousands):

        A reconciliation of segment income (loss) from operations (which excludes depreciation and amortization of intangible assets) to consolidated operating income (loss) was as follows (in thousands):

        Geographic information for revenues was as follows (in thousands):

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SEGMENT INFORMATION (Continued)

        Geographic information for long-lived assets, which consist of property and equipment and other assets, was as follows (in thousands):

        Segment assets are not reported to, or used by, the Company's chief operating decision maker to allocate resources to, or assess performance of, the segments and therefore, total segment assets have not been disclosed.

3. BALANCE SHEET COMPONENTS

Inventories, Net

        Inventories, net consisted of the following (in thousands):

Other Current Assets

        Other current assets consisted of the following (in thousands):

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. BALANCE SHEET COMPONENTS (Continued)

Accrued Liabilities

        Accrued liabilities consisted of the following (in thousands):

Other Liabilities

        Other liabilities consisted of the following (in thousands):

Accumulated Other Comprehensive Loss

        The components of accumulated other comprehensive loss were as follows (in thousands):

        All amounts reclassified from accumulated other comprehensive loss were related to net gains on derivatives classified as cash flow hedges. These reclassifications impacted technology and development expenses in the consolidated statements of operations.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS

Goodwill

        The changes in goodwill by reportable segment for the nine months ended September 30, 2014 were as follows (in thousands):

        During the quarter ended March 31, 2014, due to a decline in internal financial projections for the MyPoints reporting unit, the Company performed an interim quantitative goodwill impairment assessment. Step one of the goodwill impairment assessment resulted in the Company's determination that the fair value of the MyPoints reporting unit substantially exceeded its carrying value, including goodwill. Accordingly, no impairment charge was recorded.

Intangible Assets

        Intangible assets consisted of the following (in thousands):

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS (Continued)

 

        Amortization expense related to intangible assets for the quarter and nine months ended September 30, 2014 was $1.9 million and $5.2 million, respectively. Amortization expense related to intangible assets for the quarter and nine months ended September 30, 2013 was $1.6 million and $6.9 million, respectively.

        Estimated future intangible assets amortization expense at September 30, 2014 was as follows (in thousands):

5. DERIVATIVE INSTRUMENTS

        The fair and notional values of outstanding derivative instruments were as follows (in thousands):

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. FAIR VALUE MEASUREMENTS

        The following table presents information about assets and liabilities that were required to be measured at fair value on a recurring basis (in thousands):

 

7. STOCKHOLDERS' EQUITY

Common Stock

        In May 2001, United Online, Inc.'s Board of Directors authorized a common stock repurchase program (the "Program") that allows United Online, Inc. to repurchase shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors. From time to time since then, the Board of Directors has increased the amount authorized for repurchase under this Program and has extended the Program. From August 2001 through December 31, 2010, United Online, Inc. had repurchased $150.2 million of its common stock under the Program, leaving $49.8 million of authorization remaining under the Program. In February 2011, the Board of Directors extended the Program through December 31, 2011 and authorized an increase in the $49.8 million authorization remaining to $80.0 million. In December 2011, the Board of Directors extended the Program through December 31, 2012. In January 2013, the Board of Directors approved and ratified the extension of the Program through December 31, 2013, and in September 2013, the Board of Directors further extended the Program through December 31, 2014. In October

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCKHOLDERS' EQUITY (Continued)

2014, the Board of Directors further extended the Program through December 31, 2015. There were no repurchases under the Program during the year ended December 31, 2013 or the nine months ended September 30, 2014 and, at September 30, 2014, the authorization remaining under the Program was $80.0 million through December 31, 2014 (subsequently extended to December 31, 2015).

        Shares withheld upon the vesting of restricted stock units to pay minimum statutory employee withholding taxes are considered common stock repurchases, but are not counted as purchases against the Program. Upon vesting of restricted stock units, the Company currently does not collect the minimum statutory withholding taxes from employees. Instead, the Company automatically withholds, from the restricted stock units that vest, the portion of those shares with a fair market value equal to the amount of the minimum statutory employee withholding taxes due, which is accounted for as a repurchase of common stock. The Company then pays the minimum statutory withholding taxes in cash. The amounts remitted in the nine months ended September 30, 2014 and 2013 were $2.4 million and $3.4 million, respectively, for which the Company withheld 0.2 million and 0.3 million shares of common stock, respectively, that were underlying the restricted stock units that vested.

Dividends

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

8. STOCK-BASED COMPENSATION PLANS

Stock-Based Compensation

        The following table summarizes the stock-based compensation that has been included in the following line items within the unaudited condensed consolidated statements of operations (in thousands):

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. STOCK-BASED COMPENSATION PLANS (Continued)

Restricted Stock Units

        The following table summarizes activity for restricted stock units for the nine months ended September 30, 2014 (in thousands):

Stock Options

        The following table summarizes stock option activity for the nine months ended September 30, 2014 (in thousands):

9. INCOME TAXES

        The Company's provision for income taxes for the quarter ended September 30, 2014 differed from the U.S. federal statutory tax rate of 34% primarily due to a provision for income taxes related to our foreign operations and an income tax accrual related to certain goodwill assets. The Company's tax provision has an unusual relationship to pre-tax income primarily due to the existence of a full deferred tax asset valuation allowance. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would otherwise be recognized is offset by the change in the valuation allowance. However, the tax expense recorded in the quarter ended September 30, 2014 included an accrual of a non-cash tax benefit of approximately $0.3 million in connection with the tax amortization of certain goodwill assets that is not available to offset existing deferred tax assets (termed "naked credits"). Specifically, the Company does not consider the deferred tax liabilities related to certain goodwill assets when determining the need for a valuation allowance.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. NET INCOME (LOSS) PER COMMON SHARE

        The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

        The diluted net income (loss) per common share computations exclude stock options and restricted stock units that are antidilutive. Weighted-average antidilutive shares for the quarter and nine months ended September 30, 2014 were 1.2 million and 1.6 million, respectively. Weighted-average antidilutive shares for the quarter and nine months ended September 30, 2013 were 1.0 million and 0.6 million, respectively.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. RESTRUCTURING AND OTHER EXIT COSTS

        Restructuring and other exit costs were as follows (in thousands):

        In the quarter ended September 30, 2014, the Company recorded restructuring and other exit costs totaling $0.5 million, which included $0.4 million of facility closure and relocation costs in the Content & Media segment, $0.1 million of employee termination costs in the Communications segment and $0.1 million of unallocated corporate employee termination costs. In the nine months ended September 30, 2014, the Company recorded restructuring and other exit costs totaling $3.1 million, which included $1.5 million, $1.0 million and $0.3 million of employee termination costs in our Content & Media segment, unallocated corporate expenses and Communications segment, respectively, and $0.4 million of facility closure and relocation costs in our Content and Media segment. These restructuring and other exit costs were a result of management's decision to streamline operations, prioritize resources to growth initiatives and increase profitability. At September 30, 2014, accrued restructuring and other exit costs totaled $0.4 million.

        In the quarter ended September 30, 2013, the Company recorded restructuring and other exit costs totaling $0.3 million, consisting of employee termination costs. In the nine months ended September 30, 2013, the Company recorded restructuring and other exit costs totaling $2.5 million, consisting of $2.3 million and $0.2 million of employee termination costs and contract termination costs, respectively, in the Content & Media segment. These restructuring charges were a result of management's decision to streamline segment operations and increase segment profitability.

12. CONTINGENCIES—LEGAL MATTERS

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

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. CONTINGENCIES—LEGAL MATTERS (Continued)

        In March 2012, Hope Kelm, Barbara Timmcke, Regina Warfel, Brett Reilly, Juan M. Restrepo, and Jennie H. Pham filed a purported class action complaint (the "Kelm Class Action") in United States District Court, District of Connecticut, against multiple defendants, including United Online, Inc., Classmates, Inc., Classmates International, Inc., and FTD Group, Inc. The complaint alleges (1) violations of the Racketeer Influenced Corrupt Organizations Act ("RICO"), and aiding and abetting violations of such act; (2) aiding and abetting violations of federal mail fraud, wire fraud and bank fraud statutes; (3) violations of the Electronic Communications Privacy Act ("ECPA"), and aiding and abetting violations of such act; (4) violations of the Connecticut Unfair Trade Practices Act, and aiding and abetting violations of such act; (5) violation of California Business and Professions Code section 17602; and (6) unjust enrichment.

        In March 2012, Debra Miller and William Thompson filed a purported class action complaint (the "Miller Class Action") in United States District Court, District of Connecticut, against multiple defendants, including Classmates International, Inc., FTD Group, Inc., Classmates, Inc., and United Online, Inc. The complaint alleges (1) violations of RICO, and aiding and abetting violations of such act; (2) aiding and abetting violations of federal mail fraud, wire fraud and bank fraud statutes; (3) violations of the ECPA, and aiding and abetting violations of such act; (4) violations of the Connecticut Unfair Trade Practices Act, and aiding and abetting violations of such act; (5) violation of California Business and Professions Code section 17602; and (6) unjust enrichment. In April 2012, the Kelm Class Action and the Miller Class Action were consolidated with a related case under the case caption In re Trilegiant Corporation, Inc.

        In addition, in December 2012, David Frank filed a purported class action complaint (the "Frank Class Action") in United States District Court, District of Connecticut, against multiple defendants, including Classmates International, Inc., FTD Group, Inc., Classmates, Inc., and United Online, Inc. The complaint alleges (1) violations of RICO, and aiding and abetting violations of such act; (2) aiding and abetting commissions of mail fraud, wire fraud and bank fraud; (3) violation of the ECPA, and aiding and abetting violations of such act; (4) violations of the Connecticut Unfair Trade Practices Act, and aiding and abetting violations of such act; (5) violation of California Business and Professions Code section 17602; and (6) unjust enrichment. In January 2013, the plaintiff moved to consolidate the Frank Class Action with the In re Trilegiant Corporation, Inc. action. In March 2014, the Court granted the motion to consolidate the Frank Class Action with the In re Trilegiant Corporation, Inc. action, with the latter designated as the lead case. The plaintiffs in the Kelm Class Action, the Miller Class Action and the Frank Class Action seek class certification, restitution and disgorgement of all amounts wrongfully charged to and received from the plaintiffs, damages, treble damages, punitive damages, preliminary and permanent injunctive relief, attorneys' fees, costs of suit, and pre- and post-judgment interest on any amounts awarded.

        On March 28, 2014, the Court issued an order in the In re Trilegiant Corporation, Inc. action dismissing for lack of Article III standing, and inadequately pled corporate parent liability for its subsidiary's actions, Plaintiffs' claims against United Online, Inc., Memory Lane, Inc. (subsequently renamed Classmates, Inc.), FTD Group, Inc., and Classmates International, Inc. The Court ruled that because none of the named Plaintiffs alleged they used services from or were otherwise injured by any of those defendants, the claims against them are dismissed. The Court's dismissal was without prejudice. The deadline for Plaintiffs to file a motion for reconsideration of the Court's Order expired on April 11, 2014, without any such motion being filed. On April 28, 2014, the Plaintiffs filed a motion seeking entry of partial final judgment on, and certification for interlocutory appeal of, the Court's

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March 28, 2014 orders dismissing the RICO claims and RICO conspiracy claims, the claims against certain credit card company defendants, the nationwide Connecticut Unfair Trade Practices Act class action allegations, and the claims of plaintiffs Warfel, Reilly, Restrepo and Brian Schnabel based on their participation in a previous class action settlement. On May 5, 2014, the Court summarily granted Plaintiff's motion for entry of partial final judgment and certification for interlocutory appeal, but subsequently vacated that order and set a May 23, 2014 deadline for the remaining defendants to file their oppositions to Plaintiff's motion. On May 23, 2014, the remaining defendants filed their opposition briefs to the motion for interlocutory review and, on June 5, 2014, the Plaintiff filed a reply brief. No date has been set for a hearing on Plaintiff's motion. The Plaintiffs' motion did not seek entry of a partial final judgment on, nor certification for interlocutory review of, the Court's dismissal of Plaintiffs' claims against United Online, Inc., Memory Lane, Inc. (subsequently renamed Classmates, Inc.), FTD Group, Inc., and Classmates International, Inc., for lack of Article III standing and inadequately pled corporate parent liability for its subsidiary's actions.

        In January 2013, Unified Messaging Solutions LLC filed a complaint in United States District Court, Northern District of Illinois, against United Online, Inc., Juno Online Services, Inc., NetZero, Inc. and Memory Lane, Inc. (subsequently renamed Classmates, Inc.) alleging patent infringement of five patents related to email index lists. This case is part of a 58 case multidistrict litigation in Chicago, Illinois with two separate "waves" of defendants. In March 2013, United Online, Inc. was dismissed from the action. In March 2014, the plaintiff agreed to stipulate that the remaining defendants had not infringed, and did not infringe, the asserted claims of the patents, and agreed to consent to the entry of judgment in defendants' favor on that basis without prejudice to plaintiff's right to re-assert its claims against defendants if the United States Court of Appeals for the Federal Circuit reversed or modified, in whole or in part, any of the court's rulings on claim construction. On June 13, 2014, the court entered a final judgment dismissing plaintiff's claims of infringement in favor of defendants Juno Online Services, Inc., NetZero, Inc. and Memory Lane, Inc.

        In March 2014, Modern Telecom Systems LLC filed a complaint in the United States District Court for the Central District of California, Southern Division, against Juno Online Services, Inc. and NetZero, Inc. alleging infringement of certain patents relating to the commercial operation of their dial-up internet services. The complaint seeks an injunction, damages and other relief. On July 10, 2014, Juno Online Services, Inc. and NetZero, Inc. were served with the complaint. On July 23, 2014, Juno Online Services, Inc. and NetZero, Inc. were served with an amended complaint in the same matter. The court has set a trial date of January 26, 2016.

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

•

In 2010, Classmates, Inc. and FTD.COM Inc. received subpoenas from the Attorney General for the State of Kansas and the Attorney General for the State of Maryland, respectively. These subpoenas were issued on behalf of a Multistate Work Group that currently consists of the Attorneys General for the following states: Alabama, Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, Nebraska, New Mexico, New Jersey, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Vermont, Washington and Wisconsin. The inquiry concerns certain post-transaction sales practices in which these companies previously engaged with certain third-party vendors and certain auto-renewal practices of Classmates, Inc. In the

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second quarter of 2012, the Company received an offer of settlement from the Multistate Work Group consisting of certain injunctive relief and the consideration of two areas of monetary relief: (1) restitution to consumers and (2) a $20 million payment by Classmates, Inc. and FTD.COM for the violations alleged by the Multistate Work Group and to reimburse the Multistate Work Group for its investigation costs. The Company rejected the Multistate Work Group's offer. The Company has since had ongoing discussions with the Multistate Work Group regarding a negotiated resolution. In December 2013, Classmates, Inc. and FTD.COM, Inc. proposed to the Multistate Work Group to resolve the matter without admitting liability by making a settlement payment of $2.2 million. In February 2014, the Multistate Work Group responded to the Company's settlement offer of $2.2 million with a counter offer of (1) $17.5 million plus (2) restitution by Classmates, Inc. to a group of purchasers of its subscription services. The Multistate Work Group did not provide an explanation as to how the $17.5 million was determined or the proposed allocation of such counter offer between Classmates, Inc. and FTD.COM Inc. In addition, the Multistate Work Group did not propose a limit on the amount of such restitution. The parties continued settlement discussions and offers and in June 2014, Classmates, Inc. and FTD.COM, Inc. proposed to the Multistate Work Group to resolve the matter without admitting liability by making a settlement payment of $5 million plus an additional total $1 million payment for making restitution to a group of purchasers of Classmates, Inc.'s subscription services. In July 2014 the Multistate Work Group sent Classmates, Inc. and FTD.COM a revised Consent Decree containing a demand for a cash payment of $12.5 million plus restitution to a group of purchasers of Classmates, Inc.'s subscription services up to a maximum of $5 million as part of the relief provided for. However, to the extent the restitution claims exceed $2 million, the $12.5 million payment would be reduced dollar for dollar up to a maximum credit of $3 million. In September 2014 Classmates, Inc. and FTD.COM provided the Multistate Work Group with a counter-proposal in the amount of $7 million plus a restitution payment to a group of purchasers of Classmates, Inc.'s subscription services of up to $2 million, and to the extent restitution payments to consumers total less than $2 million, then Classmates, Inc. shall remit the balance of the restitution account to the Attorneys General. In October 2014 the Multistate Work Group sent Classmates, Inc. and FTD.COM a revised Consent Decree containing a demand for a cash payment of $9 million plus restitution to a group of purchasers of Classmates, Inc.'s subscription services up to a maximum of $4 million as part of the relief provided for. The Consent Decree further provides that if Classmates, Inc.'s payments to consumers total less than $4 million, then Classmates, Inc. shall, remit the balance of the restitution account to the Attorneys General. While settlement discussions are ongoing, there can be no assurances as to the terms on which the Multistate Work Group and Classmates, Inc. may agree to settle this matter (and how such settlement may affect Classmates, Inc.'s ongoing business), or that any settlement of this matter may be reached. If no settlement is reached, certain Attorneys General of the Multistate Work Group may file litigation against Classmates, Inc. and, in the event of litigation, Classmates, Inc. intends to vigorously defend itself.

•

In 2011, Classmates, Inc. received a civil investigative demand from the Attorney General for the State of Washington regarding its marketing, refund, cancelation, and renewal practices. Prior to that, in 2009, Classmates, Inc. had received a civil investigative demand from the Attorney General for the State of Washington regarding certain post-transaction sales practices in which it had previously engaged with certain third-party vendors. In 2012, the Attorney General for the

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State of Washington joined the aforementioned Multistate Work Group. The Company believes that by joining the Multistate Work Group, the Attorney General's investigation may have been consolidated into the Multistate Work Group's inquiry.

        The Company cannot predict the outcome of these or any other governmental investigations or other legal actions or their potential implications for its business. In addition, the Company, at times, has negotiated resolutions related to certain governmental investigations. For example, in 2010, Classmates, Inc. (then known as Classmates Online, Inc.) paid $960,000 to resolve an investigation of the Attorney General for the State of New York related to its former post-transaction sales practices; and in July 2013, Classmates, Inc. (formerly known as Memory Lane, Inc.) paid $300,000 to resolve an investigation of the Attorney General for the District of Columbia related to its former post-transaction sales practices. There are no assurances that additional governmental investigations or other legal actions will not be instituted in connection with the Company's former post- transaction sales practices or other current or former business practices.

        The Company records a liability when it believes that it is both probable that a loss will be incurred, and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate; (ii) if the proceedings are in early stages; (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements; (iv) if there are significant factual issues to be determined or resolved; and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. At September 30, 2014, the Company had reserves totaling $6.6 million for estimated losses related to certain of the matters noted above. With respect to the legal matters described above, excluding the Multistate Work Group's inquiry of Classmates, Inc., the Company has determined, based on its current knowledge, that the amount of possible loss or range of loss, including any reasonably possible losses in excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company's control. As such, even though the Company intends to vigorously defend itself with respect to its legal matters, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company's business, financial condition, results of operations, or cash flows.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

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

        United Online, Inc. is a Delaware corporation, headquartered in Woodland Hills, California, that commenced operations in 2001 following the merger of dial-up Internet access providers NetZero, Inc. ("NetZero") and Juno Online Services, Inc. ("Juno"). In 2004, we acquired Classmates Online, Inc. (whose name was changed to Classmates, Inc. in December 2013, "Classmates"), a provider of social networking services, and in 2006, we acquired MyPoints.com, Inc. ("MyPoints"), a provider of a loyalty marketing service. In 2008, we acquired FTD Group, Inc., a provider of floral, gift and related products and services to consumers and retail florists, as well as to other retail locations offering floral, gift and related products and services under the FTD and Interflora brands. In June 2012, we acquired schoolFeed, Inc. ("schoolFeed"), an online high school social network that enables members to reconnect and interact with their former classmates. On November 1, 2013, United Online, Inc. consummated the separation of FTD Companies, Inc. (together with its subsidiaries, including FTD Group, Inc., "FTD") from United Online, Inc. through a tax-free distribution of all FTD Companies, Inc. common stock held by United Online, Inc. to United Online, Inc.'s stockholders (the "FTD Spin-Off Transaction"). As a result, FTD's financial results are presented as discontinued operations in our unaudited condensed consolidated financial statements.

        We report our businesses in two reportable segments:

        We generate revenues from three primary sources:

•

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



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



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

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Segment Services

Content & Media

        Our Content & Media segment provides social networking services and products under the Classmates, StayFriends, and Trombi brands. We also provide advertising opportunities to marketers with both brand and direct response objectives through a full suite of display, search, email, and text-link opportunities across our various properties. Our social networking products primarily consist of yearbooks and yearbook reprints. Our Content & Media segment also offers a loyalty marketing service under the MyPoints brand.

        Social Networking Services.    We operate our social networking services as a platform to enable users to locate and interact with acquaintances from their past, with high school affiliations as the primary focus. Our domestic and international social networking services comprise a large and diverse population of users, with approximately 100 million registered accounts at September 30, 2014.

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

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

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

Communications

        Our principal Communications pay service is dial-up Internet access, offered under the NetZero and Juno brands. We also offer mobile broadband, DSL, email, Internet security, web hosting services, and other services. In total, we had 507,000 Communications pay accounts at September 30, 2014, of which 314,000 were Internet access pay accounts and 193,000 were pay accounts subscribed to our other Communications services, including email, Internet security and web hosting services. The majority of our Communications revenues is derived from dial-up Internet access, mobile broadband,

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DSL and other Communications services. In addition, our Communications services generate advertising revenues from search placements, display advertisements and online market research associated with our Internet access and email services.

        Internet Access Services.    Our Internet access services consist of dial-up, mobile broadband and, to a much lesser extent, DSL services. Our dial-up Internet access services are provided on both a free and pay basis, with the free services subject to hourly and other limitations. Basic pay dial-up Internet access services include Internet access and an email account. In addition, we offer accelerated dial-up Internet access services which can significantly reduce the time required for certain web pages to load during Internet browsing when compared to our basic dial-up Internet access services. Our accelerated dial-up Internet access services are also bundled with additional benefits, including antivirus software and enhanced email storage, although we also offer each of these features and certain other value-added features as stand-alone pay services. Our dial-up Internet access services are available in approximately 12,000 cities across the U.S. and Canada. We also generate revenues from the resale of telecommunications to third parties. Our Internet access services have typically experienced a higher rate of subscriber additions during the quarter ending March 31 when compared to other quarters, though there can be no assurance that this seasonal trend will continue in the future.

        In 2012, we began offering our mobile broadband service as part of a wholesale agreement with Clearwire. In January 2014, we expanded the coverage area to include the Sprint 3G network. In May 2014, our mobile broadband products and services became available in up to 1,500 retail locations in Texas, California and Florida. We offer consumers the option to access the service by purchasing either a NetZero USB modem to connect a single device, a NetZero personal hotspot that can connect up to eight Wi-Fi enabled devices simultaneously or a home device that is both a modem and Wi-Fi router. NetZero USB, hotspot or home modem customers are able to connect to our mobile broadband service using a variety of devices, including personal computers, tablets, netbooks, smartphones, and smart televisions.

Key Business Metrics

        We review a number of key business metrics to help us monitor our performance and trends affecting our businesses, and to develop forecasts and budgets. These key measures include the following:

        Pay Accounts.    We generate a significant portion of our revenues from our pay accounts, which represent one of the most important drivers of our business model. A pay account is defined as a member who has paid for a subscription to a Content & Media or Communications service, and whose subscription has not terminated or expired. A subscription provides the member with access to our service for a specific term (for example, a month or a year) and may be renewed upon the expiration of each term. One time purchases of our services, with the exception of our free and pre-paid mobile broadband service, are not considered subscriptions and thus, are not included in the pay accounts metric. A pay account does not equate to a unique subscriber because one subscriber could have several pay accounts. In addition, at any point in time, our pay account base includes customers who previously purchased pre-paid mobile broadband service and have been inactive for 90 days or less, as well as a number of accounts receiving a free period of service as either a promotion or retention tool, such as the subscribers receiving our free mobile broadband service, and a number of accounts that have notified us that they are terminating their service but whose service remains in effect. In general, the key business metrics that affect our revenues from our pay accounts base include the number of pay accounts and the average monthly revenue per pay account. A pay account generally becomes a free account following the expiration or termination of the related subscription.

        ARPU.    We monitor average monthly revenue per pay account ("ARPU"), which is calculated by dividing services revenues generated from the pay accounts of our Content & Media or

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Communications segment, as applicable, for a period (after translation into U.S. Dollars) by the average number of segment pay accounts for that period, divided by the number of months in that period. The average number of pay accounts is the simple average of the number of pay accounts at the beginning and the end of a period. ARPU may fluctuate significantly from period to period as a result of a variety of factors, including, but not limited to, the extent to which promotional, discounted or retention pricing is used to attract new, or retain existing, paying subscribers; changes in the mix of pay services and the related pricing plans; increases or decreases in the price of our services; the timing of pay accounts being added or removed during a period; and for the Content & Media segment the average foreign currency exchange rate between the U.S. Dollar and the Euro.

        Churn.    To evaluate the retention characteristics of our membership base, we also monitor the percentage of pay accounts that terminate or expire, which we refer to as our average monthly churn rate. Our average monthly churn rate for a period is calculated as the total number of pay accounts that terminated or expired in a period divided by the average number of pay accounts for that period, divided by the number of months in that period. Our average monthly churn percentage may fluctuate from period to period due to our mix of subscription terms, which affects the timing of subscription expirations, and other factors. We make certain normalizing adjustments to the calculation of our churn percentage for periods in which we add a significant number of pay accounts due to acquisitions. For our Communications segment pay accounts, we do not include in our churn calculation accounts canceled during the first 30 days of service, other than dial-up accounts that have upgraded from free accounts, and we do not include customers who previously purchased pre-paid mobile broadband service and have been inactive for 90 days or less. A number of such accounts nevertheless will be included in our account totals at any given measurement date. Subscribers who cancel one pay service but subscribe to another pay service are not necessarily considered to have canceled a pay account depending on the services and, as such, our segment churn rates are not necessarily indicative of the percentage of subscribers canceling any particular service.

        Active Accounts.    We monitor the number of active accounts among our membership base. Content & Media segment active accounts are defined as the sum of all pay accounts as of the date presented; the monthly average for the period of all free accounts who have visited our domestic or international social networking websites (excluding schoolFeed, The Names Database and Yearbook app), at least once during the period; and the monthly average for the period of all loyalty marketing members who have earned or redeemed points during such period. Communications segment active accounts include all Communications segment pay accounts as of the date presented combined with the number of free dial-up Internet access and email accounts that logged on to our services at least once during the preceding 31 days. Content & Media segment and Communications segment active accounts for six-month, nine-month and annual periods are calculated as a simple average of the quarterly active accounts for each respective segment.

        In general, we count and track pay accounts and free accounts by unique member identifiers. Users have the ability to register for separate services under separate brands and member identifiers independently. We do not track whether a pay account has purchased more than one of our services unless the account uses the same member identifier. As a result, total active accounts may not represent total unique users.

        The pay accounts and ARPU metrics for the Content & Media segment may fluctuate significantly from period to period due to various factors, including, but not limited to, the extent to which discounted pricing is offered in prior and current periods, the percentage of pay accounts being represented by international pay accounts, which, on average, have lower-priced subscription plans compared to U.S. pay accounts, and the churn rate.

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

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

Financial Statement Presentation

Revenues

Services Revenues

        Content & Media services revenues primarily consist of amounts charged to pay accounts for social networking services. Communications services revenues consist of amounts charged to pay accounts for dial-up Internet access, mobile broadband, DSL, email, Internet security, web hosting, and other services. Our Content & Media and Communications services revenues are primarily dependent on two factors: the average number of pay accounts for a period and ARPU. In general, we charge our pay accounts in advance of providing a service, which results in the deferral of services revenue to the period in which the services are provided. Communications services revenues also include revenues generated from the resale of telecommunications to third parties.

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Products Revenues

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

Advertising and Other Revenues

        We provide advertising opportunities to marketers with both brand and direct response objectives through a full suite of display, search, email, and text-link opportunities across our various properties. Our social networking services generate advertising revenues primarily from display advertisements on our websites. Advertising inventory on our social networking websites includes text and graphic placements on the user home page, profile page, class list page, and most other pages on our websites. Our loyalty marketing service's advertising and other revenues are derived from advertising fees, consisting primarily of fees based on performance measures, that are generated when emails are transmitted to members, when members respond to emails, when members complete online transactions, and when members engage in a variety of other online activities, including, but not limited to, games, Internet searches and market research surveys. Our loyalty marketing service's advertising and other revenues also include revenues generated from the sale of gift cards.

        Our Communications services generate advertising revenues from search placements, display advertisements and online market research associated with our Internet access and email services. Advertising revenues also include intercompany commissions from the Content & Media segment which are included in reported segment results and are eliminated upon consolidation.

Cost of Revenues

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

        Communications cost of revenues includes telecommunications and data center costs; personnel and overhead-related costs associated with operating our networks and data centers; depreciation of network computers and equipment; license fees; costs related to providing customer support; costs related to customer billing and billing support for our pay accounts; fees associated with the storage and processing of customer credit cards and associated bank fees; domain name registration fees; and the costs associated with the sale of mobile broadband devices to our mobile broadband customers and to our retail partners, including the related shipping and handling costs.

Sales and Marketing

        Sales and marketing expenses include expenses associated with promoting our brands, services and products and with generating advertising revenues. Expenses associated with promoting our brands, services and products include advertising and promotion expenses; fees paid to distribution partners, third-party advertising networks and co-registration partners to acquire new pay and free accounts; personnel and overhead-related expenses for marketing, merchandising, customer service, and sales personnel; and telemarketing costs incurred to acquire and retain pay accounts and up-sell pay accounts to additional services. Expenses associated with generating advertising revenues include sales

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commissions and personnel-related expenses. We have expended significant amounts on sales and marketing, including branding and customer acquisition campaigns consisting of television, Internet, public relations, sponsorships, print, and outdoor advertising, and on retail and other performance-based distribution relationships. Marketing and advertising costs to promote our services and products are expensed in the period incurred. Advertising and promotion expenses include media, agency and promotion expenses. Media production costs are expensed the first time the advertisement is run. Media and agency costs are expensed over the period the advertising runs.

Technology and Development

        Technology and development expenses include expenses for product development, maintenance of existing software, technology and websites, and development of new or improved software and technology, including personnel-related expenses for our technology group in various locations. Costs incurred by us to manage and monitor our technology and development activities are expensed as incurred.

General and Administrative

        General and administrative expenses, which include unallocated corporate expenses, consist of personnel-related expenses for executive, finance, legal, human resources, facilities, internal audit, investor relations, internal customer support personnel and personnel associated with operating our corporate network systems. In addition, general and administrative expenses include, among other costs, professional fees for legal, accounting and financial services; insurance; occupancy and other overhead-related costs; office relocation costs; non-income taxes; gains and losses on the sale of assets; bad debt expense; and reserves or expenses incurred as a result of settlements, judgments, fines, penalties, assessment, or other resolutions related to litigation, arbitration, investigations, disputes, or similar matters. General and administrative expenses also include expenses resulting from actual or potential transactions such as business combinations, mergers, acquisitions, dispositions, spin offs, financing transactions, and other strategic transactions, including, without limitation, expenses for advisors and representatives such as investment bankers, consultants, attorneys, and accounting firms.

Amortization of Intangible Assets

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

Contingent Consideration—Fair Value Adjustment

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

Restructuring and Other Exit Costs

        Restructuring and other exit costs consist of costs associated with the realignment and reorganization of our operations and other employee termination events. Restructuring and other exit

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

Interest Income

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

Other Income, Net

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

Results of Operations

        The following tables set forth, for the periods presented, selected historical consolidated statements of operations and segment information data. The information contained in the tables below should be read in conjunction with Liquidity and Capital Resources, Contractual Obligations, and Other Commitments included in this Item 2, as well as Quantitative and Qualitative Disclosures About Market Risk included in Part I, Item 3 of this Quarterly Report on Form 10-Q, and the unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

        The results of operations discussion below reflects certain revisions to previously-issued financial statements. See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I—Item 1—"Financial Statements" for a description of such revisions.

        Unaudited condensed consolidated statement of operations information was as follows (in thousands):

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

 

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Quarter and Nine Months Ended September 30, 2014 compared to Quarter and Nine Months Ended September 30, 2013

Consolidated Results

Revenues

        The decrease in consolidated revenues for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $4.4 million decrease in revenues from our Content & Media segment, partially offset by a $0.9 million increase in revenues from our Communications segment.

        The decrease in consolidated revenues for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to an $11.7 million decrease in revenues from our Content & Media segment, partially offset by a $3.2 million increase in revenues from our Communications segment.

Cost of Revenues

        The decrease in consolidated cost of revenues for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $1.8 million decrease in cost of revenues associated with our Content & Media segment and a $0.2 million decrease in depreciation and amortization expense, largely offset by a $2.0 million increase in cost of revenues associated with our Communications segment.

        The decrease in consolidated cost of revenues for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to a $5.0 million decrease in cost of revenues associated with our Content & Media segment and a $2.8 million decrease in depreciation and amortization expense, partially offset by a $5.9 million increase in cost of revenues from our Communications segment.

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Sales and Marketing

        The decrease in consolidated sales and marketing expenses for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $1.6 million decrease in sales and marketing expenses associated with our Content & Media segment and a $0.5 million decrease in sales and marketing expenses associated with our Communications segment.

        The decrease in consolidated sales and marketing expenses for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to a $2.8 million decrease in sales and marketing expenses associated with our Content & Media segment and a $1.3 million decrease in sales and marketing expenses associated with our Communications segment. These decreases were partially offset by a $0.3 million increase in depreciation expense.

Technology and Development

        The decrease in consolidated technology and development expenses for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $1.2 million decrease in technology and development expenses associated with our Content & Media segment.

        The decrease in consolidated technology and development expenses for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was due to a $3.2 million decrease in technology and development expenses associated with our Content & Media segment and a $0.6 million decrease in depreciation expense, partially offset by a $0.3 million increase in technology and development expenses associated with our Communications segment.

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General and Administrative

        The increase in consolidated general and administrative expenses for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $3.3 million increase in general and administrative expenses associated with our Content & Media segment and a $0.3 million increase in general and administrative expenses associated with our Communications segment, partially offset by a $0.9 million decrease in unallocated corporate expenses.

        The increase in consolidated general and administrative expenses for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to a $7.0 million increase in general and administrative expenses associated with our Content & Media segment and a $0.5 million increase in unallocated corporate expenses. These increases were partially offset by a $0.2 million decrease in depreciation expense and a $0.2 million decrease in general and administrative expenses associated with our Communications segment.

Amortization of Intangible Assets

        The increases in consolidated amortization of intangible assets for the quarter and nine months ended September 30, 2014, compared to the quarter and nine months ended September 30, 2013, were primarily due to a $0.2 million increase in amortization expense attributable to the acceleration of certain intangible assets associated with schoolFeed, Inc. ("schoolFeed") due to a change in strategy for that business.

Contingent Consideration—Fair Value Adjustment

        During the nine months ended September 30, 2013, the Company recognized a benefit of $5.1 million as a result of changes in the estimated fair value of contingent consideration related to the acquisition in June 2012 of schoolFeed, due to the restriction of certain functionality of the schoolFeed app by Facebook, which limited schoolFeed's ability to use the Facebook platform to contact users who were not registered members of schoolFeed. Subsequently, in May 2013, Facebook discontinued the schoolFeed app's access to the Facebook platform, which resulted in the termination of future new installations of the schoolFeed app through Facebook, as well as the discontinuance of the sharing of

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Facebook content through the schoolFeed app. We had accrued $3.4 million for the contingent consideration payment for the earnout period ended June 30, 2013, which was paid in August 2013. For the June 30, 2014 earnout period, no contingent consideration was earned. We do not currently expect any contingent consideration will be earned for the remaining earnout period ending June 30, 2015.

Restructuring and Other Exit Costs

        Consolidated restructuring and other exit costs for the quarter ended September 30, 2014 included $0.4 million of facility closure and relocation costs in our Content & Media segment, $0.1 million of employee termination costs in our Communications segment and $0.1 million of unallocated corporate employee termination costs. Consolidated restructuring and other exit costs for the nine months ended September 30, 2014 included $1.5 million, $1.0 million and $0.3 million of employee termination costs in our Content & Media segment, unallocated corporate expenses and Communications segment, respectively, and $0.4 million of facility closure and relocation costs in our Content and Media segment. These restructuring and other exit costs were a result of our decision to streamline operations, prioritize resources to growth initiatives and increase profitability. At September 30, 2014, accrued restructuring and other exit costs totaled $0.4 million.

        Consolidated restructuring and other exit costs for the quarter ended September 30, 2013 included $0.3 million of employee termination costs recorded in our Content & Media segment. Consolidated restructuring and other exit costs for the nine months ended September 30, 2013 included $2.3 million of employee termination costs and $0.2 million of contract termination costs recorded in our Content & Media segment.

Impairment of Goodwill, Intangible Assets and Long-Lived Assets

        A goodwill impairment charge totaling $52.8 million was recognized in the quarter and nine months ended September 30, 2013 due to a material reduction in the fair value of our Classmates reporting unit.

Interest Income

        Consolidated interest income remained relatively flat for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013.

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        The increase in consolidated interest income for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to higher invested cash balances at our India subsidiary.

Other Income (Expense), Net

        The increase in consolidated other income (expense), net, for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was due to an increase in realized and unrealized gains related to forward currency exchange contracts, partially offset by a decrease in gains associated with foreign exchange remeasurement.

        The increase in consolidated other income (expense), net, for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to an increase in realized and unrealized gains related to forward currency exchange contracts, partially offset by a decrease in gains associated with foreign exchange remeasurement.

Provision for (Benefit from) Income Taxes

        For the quarter ended September 30, 2014, we recorded a provision for income taxes totaling $1.5 million on pre-tax income of $1.7 million, compared to a provision for income taxes of $1.9 million on pre-tax loss of $48.1 million for the quarter ended September 30, 2013. Our effective income tax rate of 91.3% for the quarter ended September 30, 2014 was primarily due to a provision for income taxes related to our foreign operations and an income tax accrual related to certain goodwill assets. Our tax provision has an unusual relationship to pre-tax income primarily due to the existence of a full deferred tax asset valuation allowance. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would otherwise be recognized is offset by the change in the valuation allowance. However, the tax expense recorded in the quarter ended September 30, 2014 included an accrual of a non-cash tax benefit of approximately $0.3 million in connection with the tax amortization of certain goodwill assets that is not available to offset existing deferred tax assets (termed "naked credits"). Specifically, we do not consider the deferred tax liabilities related to certain goodwill assets when determining the need for a valuation allowance. The change in our effective income tax rate for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to the tax effect of goodwill impairment charges recorded in the quarter ended September 30, 2013.

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        For the nine months ended September 30, 2014, we recorded a provision for income taxes totaling $5.5 million on a pre-tax loss of $7.0 million, compared to a benefit from income taxes of $0.5 million on pre-tax loss of $47.6 million for the nine months ended September 30, 2013. Our negative effective income tax rate of 77.6% for the nine months ended September 30, 2014 was primarily due to the impact of a provision for income taxes related to our foreign operations and an income tax accrual related to certain goodwill assets. The change in our effective income tax rate for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to the tax effect of goodwill impairment charges recorded in the nine months ended September 30, 2013.

Content & Media Segment Results

Content & Media Revenues

        Content & Media advertising and other revenues for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, decreased primarily due to a decrease in advertising revenues from our loyalty marketing services as a result of a decline in the number of direct billing partners and advertisers, as well as a decrease in loyalty marketing active accounts. The decrease in Content & Media services revenues was a result of an 8% decrease in the number of average pay accounts.

        Content & Media advertising and other revenues for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, decreased primarily due to a decrease in advertising revenues from our loyalty marketing services as a result of a decline in the number of direct billing partners and advertisers, as well as a decrease in loyalty marketing active accounts. The decrease in Content & Media services revenues was a result of an 8% decrease in the number of average pay accounts. Adjusting for the favorable impact of foreign currency exchange rates, ARPU decreased by 1%. The decrease in Content & Media products revenues was primarily related to the termination, in 2013, of an agreement to sell merchandise. Adjusting for the favorable impact of foreign currency exchange rates of $0.7 million due to a stronger Euro versus the U.S. Dollar, Content & Media revenues decreased by $12.4 million, or 13%.

Content & Media Cost of Revenues

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        The decrease in Content & Media cost of revenues for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was due to a $0.8 million decrease in costs related to the sale of gift cards, a $0.4 million decrease in cost of points earned by members of our loyalty marketing services as a result of lower revenues and a $0.4 million decrease in personnel and overhead-related costs.

        The decrease in Content & Media cost of revenues for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was due to a $1.8 million decrease in cost of points earned by members of our loyalty marketing services as a result of lower revenues, a $1.5 million decrease in costs related to the sale of gift cards, a $0.6 million decrease in hosting-related fees, a $0.5 million decrease in personnel and overhead-related costs, and a $0.5 million decrease in costs associated with the termination, in 2013, of an agreement to sell merchandise.

Content & Media Sales and Marketing

        The decrease in Content & Media sales and marketing expenses for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $0.9 million decrease in personnel and overhead-related costs due to our restructuring initiatives, a $0.4 million decrease in costs to acquire new social networking members to improve the efficiency of the member acquisition spend, and a $0.3 million decrease in costs to acquire new loyalty marketing members due to the change in MyPoints strategy that deemphasizes low margin activities. These low margin activities were highly dependent upon new members due to higher churn associated with them.

        The decrease in Content & Media sales and marketing expenses for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to a $2.2 million decrease in personnel and overhead-related costs due to our restructuring initiatives and a $0.6 million decrease in costs to acquire new loyalty marketing members due to the change in MyPoints strategy that deemphasizes low margin activities. These low margin activities were highly dependent upon new members due to higher churn associated with them.

Content & Media Technology and Development

        The decreases in Content & Media technology and development expenses for the quarter and nine months ended September 30, 2014, compared to the quarter and nine months ended September 30, 2013, were the result of decreases in personnel and overhead-related costs due to our restructuring initiatives.

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Content & Media General and Administrative

        The increase in Content & Media general and administrative expenses for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $2.8 million insurance reimbursement related to a legal settlement, which was recorded in the quarter ended September 30, 2013 and a $1.3 million reserve for legal settlements recorded in the quarter ended September 30, 2014, partially offset by a $0.7 million decrease in personnel and overhead-related costs and a $0.2 million decrease in bad debt expense.

        The increase in Content & Media general and administrative expenses for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to a $5.4 million increase in reserves for legal settlements and a $2.8 million insurance reimbursement related to a legal settlement, which was recorded in the nine months ended September 30, 2013, partially offset by a $1.0 million decrease in personnel and overhead-related costs and a $0.4 million decrease in bad debt expense.

Content & Media Contingent Consideration—Fair Value Adjustment

        During the nine months ended September 30, 2013, the Company recognized a benefit of $5.1 million as a result of changes in the estimated fair value of contingent consideration related to the acquisition in June 2012 of schoolFeed, due to the restriction of certain functionality of the schoolFeed app by Facebook, which limited schoolFeed's ability to use the Facebook platform to contact users who were not registered members of schoolFeed. Subsequently, in May 2013, Facebook discontinued the schoolFeed app's access to the Facebook platform, which resulted in the termination of future new installations of the schoolFeed app through Facebook, as well as the discontinuance of the sharing of Facebook content through the schoolFeed app. We had accrued $3.4 million for the contingent consideration payment for the earnout period ended June 30, 2013, which was paid in August 2013. For the June 30, 2014 earnout period, no contingent consideration was earned. We do not currently expect any contingent consideration will be earned for the remaining earnout period ending June 30, 2015.

Content & Media Restructuring and Other Exit Costs

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        Content & Media restructuring and other exit costs for the quarter ended September 30, 2014 included $0.4 million of facility closure and relocation costs. Content & Media restructuring and other exit costs for the nine months ended September 30, 2014 consisted of $1.5 million of employee termination costs and $0.4 million of facility closure and relocation costs. These restructuring charges were the result of management's decision to streamline operations, prioritize resources to growth initiatives and increase profitability.

        Content & Media restructuring and other exit costs for the quarter ended September 30, 2013 included $0.3 million of employee termination costs. Content & Media restructuring and other exit costs for the nine months ended September 30, 2013 totaled $2.5 million, including $2.3 million of employee termination costs and $0.2 million of contract termination costs.

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

        A goodwill impairment charge totaling $52.8 million was recognized in the quarter and nine months ended September 30, 2013 due to a material reduction in the fair value of our Classmates reporting unit.

Communications Segment Results

Communications Revenues

        The increase in Communications revenues for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, consisted primarily of a $0.6 million increase in products revenues driven by the sale of mobile broadband devices from higher signups and lower discounting on devices, as well as a $0.4 million increase in services revenues driven by the increase in the number of mobile broadband subscribers and an overall increase in mobile broadband ARPU. The increase in ARPU was due to a higher percentage of mobile broadband subscribers, which have higher ARPUs, as well as an increase in mobile broadband ARPU for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013. These increases were partially offset by decreases in dial-up and DSL services revenues.

        The increase in Communications revenues for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, consisted primarily of a $2.1 million increase

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in products revenues driven by the sale of mobile broadband devices from higher signups and lower discounting on devices and a $1.1 million increase in advertising revenues due to higher advertising rates driven by optimization of our advertising revenues. The increase in Communications services revenues for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was due to an $8.9 million increase in mobile broadband services revenues driven by the increase in the number of mobile broadband subscribers, largely offset by an $8.6 million decrease in dial-up and DSL services revenues. The increase in ARPU was due to a higher percentage of mobile broadband subscribers, which have higher ARPUs, as well as an increase in mobile broadband ARPU for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013.

Communications Cost of Revenues

        The increase in Communications cost of revenues for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $2.5 million increase in costs associated with our mobile broadband service due to increased subscribers, partially offset by a $0.3 million decrease in costs associated with our DSL service due to a decrease in the number of DSL pay accounts and a $0.2 million decrease in customer support and billing-related costs due to a decrease in the number of dial-up Internet access pay accounts. Included in the cost associated with our mobile broadband services is an inventory markdown totaling $0.5 million, which was recorded in the quarter ended September 30, 2014, related to Clearwire mobile broadband devices that will be obsolete by the end of 2015.

        The increase in Communications cost of revenues for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due a $8.4 million increase in costs associated with our mobile broadband service due to increased subscribers. The increase was partially offset by a $1.4 million decrease in costs associated with our DSL service due to a decrease in the number of DSL pay accounts, as well as a $0.6 million decrease in telecommunications costs and a $0.5 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, costs associated with our email and Internet security services decreased by $0.3 million. Included in the cost associated with our mobile broadband services is an inventory markdown totaling $0.5 million, which was recorded in the nine months ended September 30, 2014, related to Clearwire mobile broadband devices that will be obsolete by the end of 2015.

Communications Sales and Marketing

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        The decrease in Communications sales and marketing expenses for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $0.3 million decrease in marketing costs associated with our mobile broadband services due to more efficient customer acquisition spend as a result of the launch of the mobile broadband service on Sprint's 3G Network.

        The decrease in Communications sales and marketing expenses for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to a $0.8 million decrease in marketing costs associated with our mobile broadband services due to more efficient customer acquisition spend as a result of the launch of the mobile broadband service on Sprint's 3G Network and a $0.4 million decrease in marketing costs associated with our dial-up services due to a decrease in demand for dial-up Internet access.

Communications Technology and Development

        The decrease in Communications technology and development expenses for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was due to a decrease in personnel and overhead-related costs.

        The increase in Communications technology and development expenses for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was due to an increase in personnel and overhead-related costs.

Communications General and Administrative

        The increase in Communications general and administrative expenses for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $0.2 million increase in professional services and consulting fees.

        The decrease in Communications general and administrative expenses for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to a $0.1 million decrease in professional services and consulting fees.

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Communications Restructuring and Other Exit Costs

        Communications restructuring and other exit costs for the quarter and nine months ended September 30, 2014, consisted primarily of employee termination costs.

Corporate Revenues

        Corporate revenues for the nine months ended September 30, 2014 were related to transition services provided to FTD in connection with the FTD Spin-Off Transaction, which was consummated on November 1, 2013. There were no corporate revenues for the quarter ended September 30, 2014.

Unallocated Corporate Expenses

Unallocated Corporate General and Administrative

        The decrease in unallocated corporate general and administrative expenses, excluding depreciation and amortization of intangible assets, for the quarter ended September 30, 2014, compared to the quarter ended September 30, 2013, was primarily due to a $0.9 million decrease in transaction-related costs and a $0.4 million decrease in personnel and overhead-related costs, partially offset by a $0.4 million increase in professional services and consulting fees.

        The increase in unallocated corporate general and administrative expenses, excluding depreciation and amortization of intangible assets, for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily due to a $0.9 million increase in professional services and consulting fees and a $0.4 million increase in personnel and overhead-related costs, partially offset by a $0.8 million decrease in transaction-related costs.

Unallocated Corporate Restructuring and Other Exit Costs

        Unallocated corporate restructuring and other exit costs for the quarter and nine months ended September 30, 2014 consisted of employee termination costs.

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Liquidity and Capital Resources

Nine Months Ended September 30, 2014 compared to Nine Months Ended September 30, 2013

        Our total cash and cash equivalents balance increased by $8.0 million, or 12%, to $76.3 million at September 30, 2014, compared to $68.3 million at December 31, 2013. Our summary cash flows for the periods presented were as follows (in thousands):

        Net cash provided by operating activities from continuing operations decreased by $1.6 million, or 7%. The decrease was due to a $41.1 million decrease in non-cash items, which consisted of a $52.8 million goodwill impairment charge recorded in the nine months ended September 30, 2013, as well as a $3.0 million decrease in depreciation and amortization. These non-cash decreases were partially offset by a $9.1 million increase in deferred taxes, a $5.1 million benefit related to the change in the estimated fair value of contingent consideration in the nine months ended September 30, 2013 and a $0.6 million increase in stock-based compensation. The decrease in net cash provided by operating activities was largely offset by a $34.6 million decrease in loss from continuing operations and a $4.9 million favorable change in working capital. Changes in working capital can cause variation in our cash flows provided by operating activities due to seasonality, timing and other factors.

        Net cash used for investing activities from continuing operations increased by $0.9 million, or 10%. The increase was primarily due to an increase in purchases of property and equipment.

        Capital expenditures for the nine months ended September 30, 2014 totaled $8.9 million. At September 30, 2014 and December 31, 2013, we had $2.7 million and $0.4 million, respectively, of property and equipment that was not yet paid for and was included in accounts payable in the consolidated balance sheets. We currently anticipate that our total capital expenditures for 2014 will be in the range of $12.5 million to $14.0 million, which includes the aforementioned $0.4 million of purchases on account at December 31, 2013. The actual amount of future capital expenditures may fluctuate due to a number of factors, including, without limitation, potential future acquisitions and new business initiatives, which are difficult to predict and which could change significantly over time. Additionally, technological advances may require us to make capital expenditures to develop or acquire new equipment or technology in order to replace aging or technologically obsolete equipment.

        Net cash used for financing activities from continuing operations decreased by $29.4 million, or 95%. The decrease was primarily due to the discontinuation of cash dividend payments. We paid cash dividends of $28.8 million in the nine months ended September 30, 2013. In January 2014, we announced that United Online, Inc.'s Board of Directors determined to discontinue cash dividend payments in order to provide financial flexibility to support anticipated long-term growth initiatives. In addition, we paid cash for contingent consideration totaling $3.4 million and paid $1.0 million for repurchases of common stock in the nine months ended September 30, 2013. The decrease in cash used for financing activities was partially offset by a decrease of $3.6 million in proceeds from exercises of stock options and employee stock plan purchases.

        Future cash flows from financing activities may also be affected by our repurchases of our common stock. United Online, Inc.'s Board of Directors authorized a common stock repurchase program (the "Program") that allows United Online, Inc. to repurchase shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors.

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United Online, Inc.'s Board of Directors has approved and ratified the Program through December 31, 2014, which date was recently extended by the Board of Directors (in October 2014) to December 31, 2015. There were no repurchases under the Program during the year ended December 31, 2013 or the nine months ended September 30, 2014 and, at September 30, 2014, the authorization remaining under the Program was $80.0 million through December 31, 2014 (subsequently extended to December 31, 2015).

        Cash flows from financing activities may also be negatively impacted by the withholding of a portion of shares underlying the restricted stock units we grant to employees. In general, we currently do not collect the minimum statutory employee withholding taxes from employees upon vesting of restricted stock units. Instead, we automatically withhold, from the restricted stock units that vest, the portion of those shares with a fair market value equal to the amount of the minimum statutory employee withholding taxes due. We then pay the minimum statutory withholding taxes in cash. The withholding of these shares, although accounted for as a common stock repurchase, does not reduce the amount available under the Program. Similar to repurchases of common stock under the Program, the net effect of such withholding will adversely impact our cash flows from financing activities. The amounts remitted in the nine months ended September 30, 2014 and 2013 were $2.4 million and $3.4 million, respectively, for which we withheld 0.2 million and 0.3 million shares of common stock, respectively, that were underlying the restricted stock units that vested. The amount we pay in future periods will vary based on our stock price and the number of applicable restricted stock units vesting during the period.

        On an ongoing basis, we assess opportunities for improved operational effectiveness and efficiency. We recorded $3.1 million of restructuring and other exit costs in the nine months ended September 30, 2014, which consisted of $2.8 million of employee termination costs and $0.4 million of facility closure and relocation costs. During the nine months ended September 30, 2014, we paid $2.9 million of restructuring and other exit costs. At September 30, 2014, accrued restructuring and other exit costs totaled $0.4 million, which will be paid over the next 12 months.

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

        We are now a substantially smaller company than we were prior to the consummation of the FTD Spin-Off Transaction, and we anticipate that our consolidated cash flows will be substantially lower when compared to periods prior to the FTD Spin-Off Transaction. In addition, if we need to raise additional capital through public or private debt or equity financings, strategic relationships or other arrangements, this capital might not be available to us in a timely manner, on acceptable terms, or at all.

Contractual Obligations

        There were no significant changes to our contractual obligations during the quarter or nine months ended September 30, 2014.

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        At September 30, 2014, we had liabilities for uncertain tax positions totaling $12.6 million, of which $8.9 million was expected to be due in less than one year. We are not able to reasonably estimate when or if cash payments for long-term liabilities related to uncertain tax positions will occur.

Other Commitments

        In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, sureties and insurance companies, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. We have also agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. We maintain director and officer insurance, which may cover certain liabilities, including those arising from our obligation to indemnify our directors and certain of our officers and employees, and former officers, directors and employees of acquired companies, in certain circumstances.

        It is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses.

Off-Balance Sheet Arrangements

        At September 30, 2014, we did not have any off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K) that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Recent Accounting Pronouncements

        See Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I—Item 1—"Financial Statements" for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on our financial condition, results of operations and cash flows.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to certain market risks arising from transactions in the normal course of business, principally risk associated with interest rate and foreign currency exchange rate fluctuations.

Interest Rate Risk

        While we do not currently maintain any short-term investments, we do invest in money market funds and time deposits, which are classified as cash and cash equivalents in our consolidated balance sheets. Therefore, our interest income is sensitive to changes in the general level of U.S. and certain foreign interest rates. At September 30, 2014, we did not have any fixed or floating rate debt obligations.

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Foreign Currency Exchange Risk

        We transact business in foreign currencies, and we are exposed to risk resulting from fluctuations in foreign currency exchange rates, particularly the Euro ("EUR") and the Indian Rupee ("INR") and, to a much lesser extent, the Swedish Krona ("SEK") and the Swiss Franc ("CHF"), which may result in gains or losses reported in our results of operations. The volatilities in EUR, INR, SEK, and CHF (and all other applicable foreign currencies) are monitored by us throughout the year. We face two risks related to foreign currency exchange rates—translation risk and transaction risk. Amounts invested in our foreign operations are translated into U.S. Dollars using the current rate method. The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss in the unaudited condensed consolidated balance sheets. Revenues and expenses in foreign currencies translate into higher or lower revenues and expenses in U.S. Dollars as the U.S. Dollar weakens or strengthens against other currencies. Substantially all of the revenues of our foreign subsidiaries are received, and substantially all expenses are incurred, in currencies other than the U.S. Dollar, which increases or decreases the related U.S. Dollar-reported revenues and expenses depending on the exchange rate trend in currencies. Therefore, changes in foreign currency exchange rates may negatively affect our consolidated revenues and net income (loss).

        We currently utilize forward foreign currency exchange contracts to protect the value of our net investments in certain foreign subsidiaries and certain forecasted cash flows denominated in currencies other than the U.S. Dollar. These contracts are designated as hedges of net investments in foreign entities and hedges of cash flows. At September 30, 2014, the notional value of open forward foreign currency exchange contracts accounted for as net investment and cash flow hedges totaled $2.4 million and $1.8 million, respectively.

        We considered the historical trends in currency exchange rates and determined that it was reasonably possible that changes in exchange rates of 10% for our foreign currency exchange contracts could be experienced in the near term. If the U.S. dollar weakened or strengthened by 10%, the impact on accumulated other comprehensive income would be immaterial at September 30, 2014.

        Periodically, we enter into forward foreign currency exchange contracts, which are not designated as hedging instruments for accounting purposes. We enter into these derivative instruments to hedge intercompany transactions and partially offset the economic effect of fluctuations in foreign currency exchange rates. At September 30, 2014, the notional value of open forward foreign currency exchange contracts that did not qualify for hedge accounting treatment totaled $2.4 million. If the U.S. dollar weakened or strengthened by 10%, other income (expense), net, would increase or decrease by approximately $0.2 million.

        We may, in the future and in accordance with our investment and foreign exchange policies, also use other derivative financial instruments, if it is determined that such hedging activities are appropriate to reduce risk.

ITEM 4.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

        The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms and include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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        Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. At the time that our Annual Report on Form 10-K for the year ended December 31, 2013 was filed on March 13, 2014, and at the time that our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 was filed on May 6, 2014, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2013 and March 31, 2014, respectively. Subsequent to those evaluations, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2013, March 31, 2014 and June 30, 2014 because of the material weakness in our internal control over financial reporting described below. As such, the Company revised its Annual Report on Form 10-K for the year ended December 31, 2013 and filed with the SEC an Amendment No.1 to the Annual Report on Form 10-K/A on September 4, 2014. In addition, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2014.

Material Weakness in Internal Control Over Financial Reporting

        In connection with the preparation of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, which was filed with the SEC on August 18, 2014, we concluded that there was a combination of deficiencies that constituted a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

        We have concluded that there is a material weakness in internal control over financial reporting, as we did not maintain effective controls over the accounting for income taxes and related disclosures. Specifically, management identified four deficiencies in internal control related to the accounting for income taxes, which individually were not determined to be material weaknesses; however, when considering these deficiencies in the aggregate, they constitute a material weakness. Management determined that these deficiencies related to the level of precision of management's review controls related to the provision for income taxes and reconciliation of tax-related balance sheet accounts. Management's review controls over the provision for income taxes, deferred taxes, income taxes payable, and liabilities for uncertain tax positions, as well as review controls related to the federal tax returns, specifically the review of the return-to-provision analysis, operated at a level of precision to prevent or detect potential material misstatements from being reported, but were not sufficient to prevent or detect individually immaterial errors that, when aggregated, could be material to the Company's financial reporting. Additionally, these control deficiencies could result in misstatements of income taxes and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected.

        As a result of the material weakness described above, the Company revised its consolidated financial statements for the years ended December 31, 2013, 2012 and 2011 and each of the quarterly periods during the year ended December 31, 2013 and for the quarter ended March 31, 2014. The Company amended its Annual Report on Form 10-K for the year ended December 31, 2013 and filed an Amendment No.1 to the Annual Report on Form 10-K/A on September 4, 2014, to reflect the revisions and the conclusion by the Company's management that internal control over financial reporting and disclosure controls and procedures were not effective as of December 31, 2013.

        We are committed to remediating the material weakness by implementing changes to our internal control over financial reporting. We already have implemented, and will continue to implement, changes and improvements in the internal control over financial reporting to remediate the control

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deficiencies that gave rise to the material weakness. Specifically, the following have been, are being or are planned to be implemented:

•

Re-evaluating the design of income tax accounting processes and implementing new and improved processes and controls, as appropriate, including adding supplemental oversight and review; and



•

Strengthening the precision of the internal review process to ensure the completeness and accuracy of the accounting for income taxes, including re-training and/or hiring of personnel to operate the controls at the appropriate level of precision; and



•

Enhancement of standardized documentation and process in the income tax provision area.

        Management is committed to a strong internal control environment and believes that, when fully implemented and tested, the measures described above will remediate the material weakness in our internal control over financial reporting. We will continue to assess the effectiveness of our remediation efforts in connection with our future assessments of the effectiveness of internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

        There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

        For a description of our material pending legal proceedings, please refer to Note 12, "Contingencies—Legal Matters" of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 1A.    RISK FACTORS

        Our success is subject to numerous risks and uncertainties, including those discussed below. These factors could hinder our growth, cause us to sustain losses or have other adverse effects on us, which could individually or collectively cause our stock price to decline. The following list is not exhaustive and you should carefully consider these risks and uncertainties before investing in our securities.

RISKS RELATING TO OUR BUSINESS GENERALLY

New business initiatives, services, products, features, applications, or functionality may not be successful, which could adversely impact our business, financial condition, results of operations, and cash flows.

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

Current or future economic conditions may have a material and adverse impact on our business, financial condition, results of operations, and cash flows.

        Our services and products are discretionary and dependent upon levels of consumer spending. Consumer spending patterns are difficult to predict and are sensitive to, among other factors, the general economic climate, consumers' levels of disposable income, consumer debt, and overall consumer confidence. Challenging economic conditions have adversely impacted certain aspects of our businesses in a number of ways, including reduced demand, more aggressive pricing for similar services and products by our competitors, decreased spending by advertisers, increased credit risks, increased credit card failures, a loss of customers, and increased use of discounted pricing for certain of our services and products. Challenging economic conditions may adversely impact our key vendors and customers. Such economic conditions and decreased consumer spending have, in certain cases, resulted in, and may in the future result in, a variety of negative effects such as a reduction in revenues, increased costs, lower gross margin and operating margin percentages, increased allowances for doubtful accounts and write-offs of accounts receivable, increased provisions for excess and obsolete inventories, and recognition of impairments of assets, including goodwill and other intangible and long-lived assets. Any of the above factors could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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

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

We may be unable to maintain or grow our advertising revenues. Reduced advertising revenues may reduce our profits.

        Advertising revenues are a key component of revenues and profitability for our Content & Media and Communications segments. Factors that have caused, or may cause in the future, our advertising revenues to fluctuate include, without limitation, changes in the number of visitors to our websites, active accounts or consumers purchasing our services and products, the effect of, changes to, or terminations of key advertising relationships, changes to our websites and advertising inventory, changes in applicable laws, regulations or business practices, including those related to behavioral or targeted advertising, user privacy and taxation, changes in business models, changes in the online advertising market, changes in the economy, advertisers' budgeting and buying patterns, competition, and changes in usage of our services. Decreases in our advertising revenues are likely to adversely impact our profitability.

        Advertising revenues generated by our Content & Media and Communications segments have been fluctuating and may decline in the future as a result of various factors, including, without limitation, the risks and uncertainties discussed above, in other risk factors, and elsewhere in this Quarterly Report on Form 10-Q. Any or all of the above factors have caused, and could continue to cause, our advertising revenues and profits to significantly decline in the future.

The material weakness identified in our internal control over financial reporting, if not remediated, could have a material adverse effect on our business, financial condition, or results of operations and our stock price.

        Our management team is responsible for establishing and maintaining adequate internal control over our financial reporting. As described below, we have identified a material weakness in our internal control over financial reporting related to the accounting for income taxes. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

        In connection with the preparation of our provision for income taxes for the quarter ended June 30, 2014, we determined that the accounting for income taxes in prior periods needed to be revised. In addition, the revisions in the accounting for income taxes also contributed to an increase to the goodwill impairment charge recorded by our Classmates reporting unit during the quarter ended

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September 30, 2013. We have determined that the combination of control deficiencies giving rise to such revisions amount to a material weakness and that our internal control over financial reporting was not effective as of December 31, 2013. In addition, as a result of such material weakness, our disclosure controls and procedures were not effective as of December 31, 2013, March 31, 2014, June 30, 2014, and September 30, 2014.

        We are actively engaged in execution of a remediation plan designed to address the material weakness. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take, and our measures may not prove to be successful in remediating the material weakness. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our financial statements may contain material misstatements and we could be required to restate our financial results. In addition, if we are unable to successfully remediate the material weakness in our internal controls and if we are unable to produce accurate or timely financial statements, we may be subject to adverse regulatory consequences, including sanctions or investigations by the Securities and Exchange Commission, our stock price may be adversely affected, our reputation may suffer and we may be unable to maintain compliance with applicable stock exchange listing requirements.

Our business is subject to quarterly fluctuations.

        Our results of operations and changes in our key business metrics from period to period have varied in the past and may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control and difficult to predict. Each of the risk factors discussed in this Item 1A and the other factors described elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC may affect us from period to period and may affect our long-term performance. As a result, you should not rely on current results and period-to-period comparisons as an indication of our future performance. In addition, these factors and challenging economic conditions create difficulties with respect to our ability to forecast our financial performance and business metrics accurately. We believe that these difficulties in forecasting present even greater challenges for financial analysts who publish their own estimates of our future financial results and business metrics. We cannot assure you that we will achieve the expectations of, or projections made by, our management or the financial analysts. In the event we do not achieve such expectations or projections, our financial results and the price of our common stock could be adversely affected.

Legal actions or investigations could subject us to substantial liability, require us to change our business practices, and adversely affect our business, financial condition, results of operations, and cash flows.

        We are currently, and have been in the past, party to various legal actions and investigations. These actions may include, without limitation, claims by private parties in connection with consumer protection and other laws, claims that we infringe third-party patents, trademarks, copyrights or other intellectual property or proprietary rights, securities laws claims, claims involving marketing practices or unfair competition, claims in connection with employment practices, breach of contract claims, and other business-related claims. The nature of our business could subject us to additional claims for similar matters, as well as a wide variety of other claims, including, without limitation, claims for defamation, right of publicity, negligence, and privacy and security matters. The failure to successfully defend against these and other types of claims, including claims relating to our business practices, could result in the Company incurring significant liabilities related to judgments or settlements or require us to change our business practices. Infringement claims may also result in our being required to obtain licenses from third parties, which licenses may not be available on acceptable terms, if at all. Both the

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

        Various governmental agencies have asserted claims, instituted legal actions, inquiries or investigations, or imposed obligations relating to our business practices, such as our marketing, billing, customer retention, renewal, cancelation, refund, or disclosure practices, and they may continue to do so in the future. We have received civil investigative demands and subpoenas, as applicable, from the Federal Trade Commission ("FTC") and the Attorneys General of various states, primarily regarding their respective investigations into certain former post-transaction sales practices and certain of our marketing, billing, renewal, and privacy practices and disclosures. We have been cooperating with these investigations. However, the outcome of these or any other governmental investigations or their potential implications for our business are uncertain. We may not prevail in existing or future claims and any judgment against us or settlement or resolution of such claims may involve the payment of significant sums, including damages, fines, penalties, or assessments, or changes to our business practices. For example, in 2010, Classmates, Inc. (then known as Classmates Online, Inc.) paid $960,000 to resolve an investigation of the Attorney General for the State of New York related to its former post-transaction sales practices; and in July 2013, Classmates, Inc. (formerly known as Memory Lane, Inc.) paid $300,000 to resolve an investigation of the Attorney General for the District of Columbia related to its former post-transaction sales practices. Defending against lawsuits, inquiries and investigations also involves significant expense and diversion of management's attention and resources from other matters. There are no assurances that additional governmental investigations or other legal actions will not be instituted in connection with our former post-transaction sales practices or other current or former business practices. Enforcement actions or changes in enforcement policies and procedures could result in changes to our business practices, as well as significant damages, fines, penalties or assessments, which could decrease our revenues or increase the costs of operating our business. To the extent that our services and business practices change as a result of claims or actions by governmental agencies or private parties (including in connection with settlement agreements related to such claims), or we are required to pay significant sums, including damages, fines, penalties, or assessments, our business, financial condition, results of operations, and cash flows could be materially and adversely affected. For more information, see Note 12, "Contingencies—Legal Matters" of the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

        The FTC has regulations regarding the collection and use of personal information obtained from individuals when accessing websites, with particular emphasis on access by minors. In addition, other governmental authorities have regulations to govern the collection and use of personal information that may be obtained from individuals when accessing websites. These regulations include requirements that procedures be established to disclose and notify users of our websites or mobile apps of our privacy and security policies, obtain consent from users for collection and use of personal information and provide users with the ability to access, correct or delete personal information stored by us. In addition, the FTC and other governmental authorities have made inquiries and investigations of companies' practices with respect to their users' personal information collection and dissemination practices to

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confirm these are consistent with stated privacy policies and to determine whether precautions are taken to secure consumers' personal information. The FTC and certain state agencies also have made inquiries, and, in a number of situations, brought actions against companies to enforce the privacy policies of these companies, including policies relating to security of consumers' personal information.

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

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

Our business is subject to online security risks and a security breach or inappropriate access to, or use of, our networks, computer systems or services or those of third-party vendors could expose us to liability, claims and a loss of revenue.

        The success of our business depends on the security of our networks and, in part, on the security of the network infrastructures of our third-party vendors. In connection with conducting our business in the ordinary course, we store and transmit member information, including personally identifiable information. Unauthorized or inappropriate access to, or use of, our networks, computer systems or services, whether intentional, unintentional or as a result of criminal activity, could potentially jeopardize the security of confidential information, including credit card information, of our members and of third parties. A number of other websites have publicly disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their sites. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the perception of the effectiveness of our security measures could be harmed and we could lose members or vendors. A party that is able to circumvent our security measures could misappropriate our proprietary information or the information of our members, cause interruption in our operations, or damage our computers or other devices or those of our members.

        A significant number of our members authorize us to bill their payment card accounts (credit or debit) directly for all amounts charged by us. These members provide payment card information and other personally identifiable information which, depending on the particular payment plan, may be maintained to facilitate future payment card transactions. We rely on third-party and internally-developed encryption and authentication technology to provide the security and authentication to effectively secure transmission of confidential information, including payment card information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect transaction data being breached or compromised.

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Non-technical means, for example, actions by an employee, can also result in a data breach. Under payment card rules and our contracts with our card processors, if there is a breach of payment card information that we store, we could be liable to the banks that issue the payment cards for their related expenses and penalties. In addition, if we fail to follow payment card industry security standards, even if there is no compromise of customer information, we could incur significant fines or lose our ability to give our members and customers the option of using payment cards. If we were unable to accept payment cards, our businesses would be seriously harmed.

        We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security breaches, including any breach related to us or the parties with which we have commercial relationships, could damage our reputation and expose us to a risk of loss, litigation and liability. We cannot assure you that the security measures we take will be effective in preventing these types of activities. We also cannot assure you that the security measures of our third-party vendors, including network providers, providers of customer and billing support services, and other vendors, will be adequate. In addition, the coverage and limits of our insurance policies may not be adequate to reimburse us for losses caused by security breaches. We believe the recent impact of large-scale retail credit card fraud may impact our ability to bill customers with card-on-file efficiency. In addition to potential legal liability, these matters may adversely impact our reputation or our revenues and may interfere with our ability to provide our services and products, all of which could adversely impact our business, financial condition, results of operations, and cash flows.

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

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

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

        Our business is largely dependent on the efforts and abilities of our senior management and other key personnel. Any of our officers or employees can terminate his or her employment relationship at any time. Our officers have employment agreements pursuant to which they may be entitled to separation benefits in connection with a termination of employment under certain circumstances. In addition, we do not carry key-person life insurance on any of our employees. The loss of any of our key officers or other employees, or our inability to attract or retain qualified employees could seriously harm our business, financial condition, results of operations, and cash flows.

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Significant problems with our key systems or those of our third-party vendors could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

        The systems underlying the operations of each of our business segments are complex and diverse, and must efficiently integrate with third-party systems, such as credit card processors. Key systems include, without limitation, billing; website and database management; customer support; telecommunications network management; advertisement serving and management systems; and internal financial systems. Some of these systems, such as customer support for our Internet access and loyalty marketing businesses are outsourced to third parties, and other systems are not redundant. In addition, some of our backup systems have never been operated as a primary system. We have experienced systems problems in the past. For example, in the fourth quarter of 2013, the Classmates website experienced outages that occurred intermittently over a one-week period, as well as stability issues. We or our third-party vendors may experience problems in the future. All information technology and communication systems are subject to reliability issues, integration and compatibility concerns, and security-threatening intrusions. The continued and uninterrupted performance of our key systems is critical to our success. Unanticipated problems affecting these systems could cause interruptions in our services. In addition, if our third-party vendors face financial or other difficulties, our business could be adversely impacted. Any significant errors, damage, failures, interruptions, delays, or other problems with our systems, our backup systems or our third-party vendors or their systems could adversely impact our ability to satisfy our customers or operate our websites, and could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

        In addition, our Content & Media and Communications businesses outsource a significant portion of their live customer support functions. These businesses rely on customer support vendors, and we maintain only a small number of internal customer support personnel for these businesses. Our internal customer support personnel are not equipped to provide the necessary range of customer support functions in the event that our vendors unexpectedly become unable or unwilling to provide these services to us. Any significant problems with our customer support vendors or our internal customer support personnel could adversely impact our ability to satisfy our customers, and could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We may be unsuccessful at acquiring additional businesses, services or technologies. Even if we complete an acquisition, it may not improve our results of operations and may also adversely impact our business, financial condition and cash flows.

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

        We may evaluate a wide variety of potential strategic transactions that we believe may complement our existing businesses. However, we may not realize the anticipated benefits and synergies of an acquisition, and our attempts at integrating an acquired business may not be successful. Acquiring a business, service or technology involves many operational and financial risks, including risks relating to:

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disruption of our ongoing business and significant diversion of resources and management time from day-to-day responsibilities;



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acquisition financings that involve the issuance of potentially dilutive equity or the incurrence of debt;



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reduction of cash and other resources available for operations and other uses;



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exposure to risks specific to the acquired business, service or technology to which we are not currently exposed;

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risks of entering markets in which we have little or no direct prior experience;



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unforeseen obligations or liabilities;



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difficulty assimilating the acquired customer bases, technologies and operations;



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difficulty assimilating and retaining management and employees of the acquired business;



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potential impairment of relationships with users, customers or vendors as a result of changes in management of the acquired business or other factors;



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large write-offs either at the time of the acquisition or in the future, the incurrence of restructuring and other exit costs, the amortization of identifiable intangible assets, and the impairment of amounts capitalized as goodwill, intangible assets and other long-lived assets; and



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lack of, or inadequate, controls, policies and procedures appropriate for a public company, and the time, cost and difficulties related to the implementation of such controls, policies and procedures or the remediation of any deficiencies.

        In addition, an acquisition of a foreign business involves risks in addition to those set forth above, including risks associated with foreign currency exchange rates, potentially unfamiliar economic, political and regulatory environments, and integration difficulties due to language, cultural and geographic differences. Any of these risks could harm our business, financial condition, results of operations, and cash flows.

Changes in laws and regulations and new laws and regulations may adversely affect our business, financial condition, results of operations, and cash flows.

        We are subject to a variety of international, federal, state, and local laws and regulations, including, without limitation, those relating to taxation, bulk email or "spam," advertising, including, without limitation, targeted or behavioral advertising, user privacy and data protection, consumer protection, antitrust, export, and unclaimed property. Compliance with the various laws and regulations, which in many instances are unclear or unsettled, is complex. New laws and regulations, such as those being considered or recently enacted by certain states, the federal government or international authorities related to automatic-renewal practices, spam, user privacy, targeted or behavioral advertising, and taxation, could impact our revenues or certain of our business practices or those of our advertisers. For example, our compliance with Canada's new anti-spam legislation, which went into effect in July 2014, may impact the types of emails we send to some of our members and the content that we include in our emails to them. Any changes in the laws and regulations applicable to us, the enactment of any additional laws or regulations, or the failure to comply with, or increased enforcement activity by regulators of, such laws and regulations, could significantly impact our services and products, our costs, or the manner in which we or our advertisers conduct business, all of which could adversely impact our business, financial condition, results of operations, and cash flows and cause our business to suffer.

Our social networking and loyalty marketing services rely heavily on email campaigns, and any disruptions or restrictions on the sending of emails or increase in the associated costs could adversely affect our business, financial condition, results of operations, and cash flows.

        Our emails have historically generated the majority of the traffic on our social networking websites and are a key driver of member activity for our loyalty marketing service. A significant number of members of our social networking and loyalty marketing services elect to opt-out of receiving certain types of emails. New laws, such as Canada's new anti-spam legislation, may impact our ability to email some of our members, the types of emails we send to them or the content that we include in our emails to them. Without the ability to email these members, we have very limited means of inducing

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these members to return to our websites and utilize our services. In addition, each month, a significant number of email addresses for members of our social networking and loyalty marketing services become invalid. This disrupts our ability to email these members and also prevents our social networking members from being able to contact these members, which is one of the reasons why members use our services. An increase in the number of members to whom we are not able to send emails, or who elect to not receive, are unable to receive, or do not open, our emails could adversely affect our business, financial condition, results of operations, and cash flows. From time to time, Internet service providers block bulk email transmissions, classify as "spam" emails that have low opening rates, or otherwise experience technical difficulties that result in our inability to successfully deliver emails to our members. Certain email service providers, such as Google's Gmail service, segregate marketing and promotional emails from other types of emails, which may impact the effectiveness of our email campaigns. Google's Gmail service also simplifies the opt-out process by including an "unsubscribe" link at the top of each marketing email, which allows the consumer to unsubscribe from future marketing emails from the particular marketer without first being redirected to the marketer's website. Third parties may also block, impose restrictions on, or start to charge for, the delivery of emails through their email systems. Due to the importance of email to our businesses, any disruption or restriction on the distribution of emails or increase in the associated costs could materially and adversely affect our business, financial condition, results of operations, and cash flows.

Our intellectual property and proprietary rights are important to our businesses, and such rights may be challenged, invalidated, infringed, misappropriated or be inadequate for the conduct of our businesses. The inability to protect such rights may adversely affect our business, financial condition, results of operations, and cash flows.

        Our trade names, trademarks, service marks, patents, copyrights, domain names, trade secrets, and other intellectual property are important to the success of our businesses. In particular, we view our primary trademarks as critical to our success. We principally rely upon patent, trademark, copyright, trade secret, and domain name laws in the U.S. and similar laws in other countries, as well as licenses and other agreements with our employees, members, consumers, suppliers, and other parties, to establish and maintain our intellectual property and proprietary rights in the technology, services, products, and content used in our operations. These laws and agreements may not guarantee that our proprietary rights will be protected and our intellectual property and proprietary rights could be challenged or invalidated. We have applied for the registration of, and have been issued, trademark registrations for trademarks and service marks used in our businesses in the U.S. and various foreign countries; however, there could be certain pre-existing and potentially conflicting trademark registrations held by third parties. The steps we have taken to obtain and to protect our intellectual property and proprietary rights may not be adequate, and other third parties may infringe or misappropriate our intellectual property and proprietary rights. This could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Furthermore, the validity, enforceability, and scope of protection of intellectual property in Internet-related industries are uncertain and still evolving. The protection of our intellectual property and proprietary rights may require the expenditure of significant financial and internal resources. We cannot assure you that we have taken adequate steps to prevent infringement or misappropriation of our intellectual property and proprietary rights. Our failure to adequately protect our intellectual property and proprietary rights could adversely affect our brands and could harm our business. We are also subject to the risk of claims alleging that our business practices infringe on the intellectual property rights of others. These claims could result in lengthy and costly litigation. Moreover, resolution of any such claim against us may require us or one of our subsidiaries to obtain a license to use the intellectual property rights at issue or possibly to cease using those rights altogether. Any of those events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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Fluctuations in foreign currency exchange rates could adversely affect comparisons of our operating results.

        We transact business in various foreign currencies and may be exposed to market risk resulting from fluctuations in foreign currency exchange rates. Our primary currency exposures are the Euro, Indian Rupee, Swedish Krona, and Swiss Franc. International revenues and expenses denominated in foreign currencies translate into higher or lower revenues and expenses in U.S. Dollars as the U.S. Dollar weakens or strengthens against such other currencies. Substantially all of the revenues of our international businesses are received, and substantially all expenses are incurred, in currencies other than the U.S. Dollar, which increases or decreases the related U.S. Dollar-reported revenues and expenses depending on the fluctuations in foreign currency exchange rates. Certain of our key business metrics, such as the Content & Media segment's ARPU, are similarly affected by such foreign currency exchange rate fluctuations. Changes in global economic conditions, market factors, and governmental actions, among other factors, can affect the value of these currencies in relation to the U.S. Dollar. A strengthening of the U.S. Dollar compared to these currencies and, in particular, to the Euro, has had, and in future periods could have, an adverse effect on the comparisons of our revenues and operating income against prior periods. We cannot accurately predict the impact of future foreign currency exchange rate fluctuations on our operating results, and such fluctuations could negatively impact the comparisons of such results against prior periods as well as our business, financial condition, results of operations, and cash flows. We use derivative instruments, such as foreign currency forward contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such instruments may not offset any, or more than a portion, of the adverse financial effects of unfavorable movements in foreign currency exchange rates.

We may not realize the benefits associated with our assets and may be required to record a significant charge to earnings if we are required to expense certain costs or impair our assets.

        We have capitalized goodwill and identifiable intangible assets in connection with our acquisitions and certain business initiatives. We perform an impairment test of our goodwill annually during the fourth quarter of our fiscal year or when events occur or circumstances change that would more likely than not indicate that goodwill or any such assets might be permanently impaired. If our acquisitions or business initiatives are not commercially successful or, if due to economic or other conditions, our assumptions regarding the performance of our businesses or business initiatives are not achieved, we would likely be required to record impairment charges which would negatively impact our financial condition and results of operations. We have experienced impairment charges in the past, including a $55.4 million goodwill impairment charge in the year ended December 31, 2013 with respect to our Classmates reporting unit. Given the current economic and competitive environment and the uncertainties regarding the impact on our businesses, there can be no assurance that our estimates and assumptions regarding the duration of the challenging economic conditions, or the period or strength of recovery, made for purposes of our goodwill and identifiable intangible assets impairment testing will prove to be accurate predictions of the future. If our assumptions regarding forecasted revenues or growth rates of certain reporting units or other factors are not achieved or are revised downward, we may be required to record additional impairment charges in future periods. If our operating segments change in the future, such change may result in changes to our reporting units for impairment testing purposes, which may result in additional impairment charges. In addition, from time to time, we record tangible or intangible assets on our balance sheet that, due to changes in value or in our strategy, may have to be expensed in future periods. Write-downs or impairments of assets, whether tangible or intangible, could adversely and materially impact our financial condition and results of operations.

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Foreign, state and local governments may attempt to impose additional income taxes, sales and use taxes, value added taxes or other taxes on our business activities and Internet-based transactions, including our past sales, which could decrease our ability to compete, reduce our sales, or have a material adverse effect on our business, financial condition, results of operations, and cash flows.

        We are subject to income and various other taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our consolidated provision for income taxes. During the ordinary course of business, there are many transactions for which the ultimate tax determination is uncertain. In addition, our effective income tax rates could be adversely affected by earnings being less than anticipated in countries where we have lower statutory rates and more (or determined to be more by a particular taxing jurisdiction) than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, by increases in the applicable tax rates, or by, among other factors, changes in the relevant tax, accounting and other laws, regulations, principles, and interpretations. We are under audit and subject to audit in various jurisdictions, and such jurisdictions may assess additional income and other taxes against us. For example, we are under an Internal Revenue Service audit which, if finally determined in an unfavorable manner, could result in a significant liability. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions, and our historical recognition of other tax matters. The results of an audit or litigation could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

        In connection with our Internet-based transactions, a number of states, including California, have adopted or have been considering legislation or policy initiatives, including those that would facilitate a finding of nexus to exist between Internet companies and the states, aimed at expanding the reach of sales and use taxes or imposing state income or other taxes on various innovative theories, including agency attribution from independent third-party service providers. Such legislation or initiatives could result in the imposition of additional sales and use taxes, or the payment of state income or other taxes, on certain transactions conducted over the Internet. Our costs may increase as a result of our activities related to advertisers and other third parties, and advertisers and other third parties may choose to not do business with us or limit their business activities, in order to avoid nexus with certain states. If such legislation is enacted, or such initiatives are instituted, and unless overturned by the courts, the legislation or initiatives could subject us to substantially increased tax liabilities for past and future sales or state income or other taxes, require us to collect additional sales and use taxes, cause our future sales to decrease, or otherwise negatively impact our business, financial condition, results of operations, and cash flows, and thus have a material adverse effect on us.

We face risks relating to operating and doing business internationally that could adversely affect our businesses and results of operations.

        Our businesses operate in a number of countries outside the U.S. Conducting international operations involves risks and uncertainties, including:

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adverse fluctuations in foreign currency exchange rates;



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potentially adverse tax consequences, including the complexities of foreign value added taxes and restrictions on the repatriation of earnings;



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increased financial accounting, tax and reporting burdens and complexities;



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



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difficulties in managing and staffing international operations;

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the burdens of complying with a wide variety of foreign laws, regulations and legal and regulatory standards;



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political, social and economic instability abroad, terrorist attacks and security concerns in general; and



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reduced or varied protection for intellectual property and proprietary rights.

        The occurrence of any one of these risks could negatively affect our international operations, which could adversely affect our business, financial condition, results of operations, and cash flows.

Our stock price has been highly volatile and may continue to be volatile.

        The market price of our common stock has fluctuated significantly and it may continue to be volatile with extreme trading volume fluctuations. In January 2014, we announced that our Board of Directors has determined to discontinue cash dividend payments. Immediately following such announcement, the market price of our common stock declined significantly and has remained volatile. Furthermore, the market price of our common stock may fluctuate significantly to the extent we are added to or removed from certain stock market indices. The Nasdaq Global Select Market also has experienced substantial price and trading volume fluctuations. The broad market and industry factors that influence or affect such fluctuations may harm the market price of our common stock, regardless of our actual operating performance. As a result of these or other reasons, we have experienced and may continue to experience significant volatility in the market price of our common stock.

Our businesses could be shut down or severely impacted by a catastrophic event.

        Our businesses could be materially and adversely affected by a catastrophic event. A disaster such as a fire, earthquake, flood, power loss, terrorism, or other similar event, affecting any of our facilities, data centers or computer systems, or those of our third-party vendors, or a system interruption or delay that slows down the Internet or makes the Internet or our websites temporarily unavailable, could result in a significant and extended disruption of our operations and services. Any prolonged disruption of our services due to these or other events would severely impact our businesses. The property, business interruption and other insurance we carry may not be sufficient to cover, if at all, losses that may occur as a result of any events which cause interruptions in our services.

We cannot predict our future capital needs and we may not be able to secure additional financing, which could adversely impact us.

        We may need to raise additional funds in the future to fund our operations, for acquisitions of businesses, services or technologies or for other purposes. Additional financing may not be available in a timely manner, on terms favorable to us, or at all. The current volatility of, and disruption in, the securities and credit markets may restrict our ability to raise any such additional funds. If adequate funds are not available or not available when required and in sufficient amounts or on acceptable terms, our businesses and future prospects may suffer.

Our certificate of incorporation, our bylaws and Delaware law contain provisions that could delay or discourage takeover attempts that stockholders may consider favorable or beneficial.

        Certain provisions of our certificate of incorporation, our bylaws and Delaware law limit the ability of our stockholders to elect directors and take other corporate actions. These provisions could have the effect of delaying or discouraging takeover attempts that our stockholders may consider favorable or beneficial because of the premium price that would be offered by a potential acquirer. In addition, although our previous stockholder rights plan expired in 2011, there are no assurances that our Board of Directors will not implement a new stockholder rights plan in the future.

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ADDITIONAL RISKS RELATING TO OUR CONTENT & MEDIA SEGMENT

We face intense competition that could result in the failure of our social networking services to be commercially successful.

        As consumers continue to spend more time and money online, the competition for their time and engagement has continued to intensify. Consumers have a great number of options for online content and entertainment, including, by way of example, games, websites offering news and current events, movies, television shows, videos, information about any and virtually every topic, and the opportunity to communicate, socialize and interact with acquaintances and others. Certain aspects of our social networking services compete with major social networking platforms, such as Facebook, as well as Internet search engines such as Google. Many of our competitors offer their content and services free of charge.

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

        Some of our competitors have longer operating histories, greater name and brand recognition, larger user bases, significantly greater financial, technical, sales, and marketing resources, and engage in more extensive research and development than we do. Some of our competitors also have lower customer acquisition costs than we do, offer a wider variety of services, have more compelling websites with more extensive user-generated or third-party content or offer their services or content free to their users. Some of our competitors have been more successful than we have been in attracting and retaining visitors and members, and our ability to attract visitors to our websites and maintain a large and growing member base has been adversely affected by such competition. In particular, Facebook's membership base currently far exceeds that of any of its competitors. If our competitors provide services similar to our social networking services for free, we may not be able to charge for our social networking services or we may need to reduce our membership fees. We rely on some of our competitors, such as Facebook, to promote our services and for new member acquisitions. Any changes to such competitors' rules or policies or any other changes implemented by such competitor could adversely affect our business or our strategies. Competition has adversely affected our subscription revenues from social networking services, as well as our advertising revenues from our social networking services and loyalty marketing service. More intense competition could also require us to increase our marketing or other expenditures. In addition, any restructuring of our Content & Media Segment may leave us with reduced financial and marketing resources to develop products and services to compete against our competitors. As a result of competition, our business, financial condition, results of operations, and cash flows have been, and may continue to be, adversely affected.

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

        Pay accounts are critical to our business model. Only a small percentage of users visiting our websites or initially registering for our social networking services sign up for a paid subscription at the time of registration. As a result, our ability to generate subscription revenues is highly dependent on our ability to attract visitors to our websites, register them as free members, encourage them to return to our websites, and convince them to become pay accounts in order to access the pay features of our websites. In addition, changes to our registration or renewal processes, such as the changes required for

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

        A number of our pay account subscriptions each month are not renewed or are canceled, which, for the Content & Media segment, we refer to as "churn." The level of churn we experience fluctuates from quarter to quarter due to a variety of factors, including our mix of subscription terms, which affects the timing of subscription expirations, as well as the degree of credit card failures. To maintain or reduce the level of churn, we must continually add new pay accounts both to replace pay accounts who churn and to grow our business beyond our current pay account base. We expect that our churn rate will continue to fluctuate from period to period. A significant majority of our pay accounts are on plans that automatically renew at the end of their subscription period and we have received complaints with respect to our renewal policies and practices. As discussed in the risk factors related to changes in laws and regulations and to legal actions and investigations, the laws being considered and those that have been enacted by certain states regarding automatic-renewal practices will, and enforcement action or changes in enforcement policies and procedures could, impact certain of our business practices. We provide automatic-renewal notices to members in only those states that legally require such notices. If we provide such notices in additional states, or additional states start to require such notices, our churn rate may increase. We also experience an increase in the percentage of credit card failures from time to time. For example, a large-scale security breach at a retailer may result in the cancelation and re-issuance of the affected credit cards by the issuing banks, which would impact our ability to charge our members on their old credit cards and if our members do not update their credit card information with us, their accounts will terminate. Any change in our renewal policies or practices, or in the degree of credit card failures, could have a material impact on our churn rate. If we experience a higher than expected level of churn, it will make it more difficult for us to increase or maintain the number of pay accounts, which could reduce our revenues and adversely affect our business, financial condition, results of operations, and cash flows.

        Pay accounts and free active accounts have been decreasing, and we believe this trend may continue. If we are not able to attract visitors to our websites and convert a significant portion to pay accounts, the number of pay accounts for our social networking services and related advertising revenues will continue to decline and the business, financial condition, results of operations, and cash flows of the Content & Media segment will be adversely affected.

Failure to increase or maintain the number of visitors to our websites and members for our social networking and loyalty marketing services or the activity level of these visitors and members could cause our business and financial results to suffer.

        The success of our social networking and loyalty marketing services depends upon our ability to increase or maintain the number of visitors to our websites, our base of free members and the level of activity of those visitors and members. A decline in the number of visitors, registered or active free social networking members, or a decline in the activity of those members, could result in decreased pay accounts, decreased content on our websites and decreased advertising revenues. A decline in the number of registered or active loyalty marketing service members could also result in decreased advertising revenues. We have experienced a decline in the number of active members. The failure to increase or maintain the number of visitors to our websites, our base of free members, or the failure to convince our free members to actively participate in our websites or services, could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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

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

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percentage of pay accounts under a discounted pricing plan and any increases in the level of the discounts will likely result in a decrease in subscription revenues and ARPU, in particular, if such increases continue. Although these discounted pricing plans, by their terms, renew at the then-current standard pricing for such subscription term upon the expiration of the initial term, there are no assurances as to the number of pay accounts that will renew at the then-current standard pricing or at all. We intend to continue offering discounted pricing plans in the future, and there are no assurances that the volume or level of the discounts offered during a period will not be higher than anticipated. Our continued use of discounted pricing plans has resulted in our becoming dependent on offering such plans in order to obtain new pay accounts and retain existing pay accounts and may result in our having to reduce our standard pricing, which would adversely impact our financial results.

ADDITIONAL RISKS RELATING TO OUR COMMUNICATIONS SEGMENT

We compete against much larger companies, many of whom have significantly more financial and marketing resources, and our business will suffer if we are unable to compete successfully.

        We compete with numerous providers of broadband, mobile broadband and DSL services, as well as other dial-up Internet access providers, many of whom are much larger and have significantly more financial and marketing resources. Our principal competitors for our mobile broadband and DSL services include, among others, local exchange carriers, wireless and satellite service providers, and cable service providers. These competitors include established providers such as AT&T, Verizon, Sprint and T-Mobile. Our principal dial-up Internet access competitors include established online service and content providers, such as AOL and MSN, and independent national Internet service providers, such as EarthLink and its PeoplePC subsidiary. Dial-up Internet access services do not compete favorably with broadband services with respect to connection speed and do not have a significant, if any, price advantage over certain broadband services. Many broadband providers, including cable companies and local exchange carriers, bundle their offerings with telephone, entertainment or other services, which may result in lower prices than standalone services. In addition, there are a number of mobile virtual network operators, some of which focus on pricing as their main selling point. Certain portions of the U.S., primarily rural areas, currently have limited or no access to broadband services. However, the U.S. government has indicated its intention to facilitate the provision of broadband services to such areas. Such expansion of the availability of broadband services will increase the competition for Internet access subscribers in such areas and will likely adversely affect our business. In addition to competition from broadband, mobile broadband and DSL providers, competition among dial-up Internet access service providers is intense and neither our pricing nor our features provides us with a significant competitive advantage, if any, over certain of our dial-up Internet access competitors. We expect that competition, particularly with respect to price, for broadband, mobile broadband and DSL services, as well as dial-up Internet access services, will continue and may materially and adversely impact our business, financial condition, results of operations, and cash flows.

Revenues and profitability of our Communications segment may decline.

        A significant portion of our Communications segment revenues and profits come from our dial-up Internet and DSL access services and related services and advertising revenues. Our dial up and DSL Internet access pay accounts and revenues have been declining and are expected to continue to decline due to the continued maturation of the market for dial-up and DSL Internet access. Consumers continue to migrate to broadband access, primarily due to the faster connection and download speeds provided by broadband access. Advanced applications such as online gaming, music downloads and videos require greater bandwidth for optimal performance, which adds to the demand for broadband access. The pricing for basic broadband services has been declining as well, making it a more viable option for consumers. In addition, the popularity of accessing the Internet through tablets and mobile devices has been growing and may accelerate the migration of consumers away from dial-up Internet

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access. The number of dial-up Internet access pay accounts has been adversely impacted by both a decrease in the number of new pay accounts signing up for our services, as well as the impact of subscribers canceling their accounts, which we refer to as "churn." Churn has increased from time to time and may increase in the future. We also experience an increase in the percentage of credit card failures from time to time. For example, a large-scale security breach at a retailer may result in the cancelation and re-issuance of the affected credit cards by the issuing banks, which would impact our ability to charge our members on their old credit cards and if our members do not update their credit card information with us, their accounts will terminate. Any change in the degree of credit card failures could have a material impact on our churn rate. If we experience a higher than expected level of churn, it will make it more difficult for us to increase or maintain the number of pay accounts, which could adversely affect our business, financial condition, results of operations, and cash flows.

        We expect our dial-up and DSL Internet access pay accounts to continue to decline, potentially at an increasing rate. Any growth in the number of mobile broadband pay accounts may not be sufficient to offset such decline, at least in the near term. As a result, Communications services revenues and the profitability of this segment may decline. The rate of decline in Communications services revenues has accelerated in some periods and may continue to accelerate.

        Although we have reduced our expenses in order to manage the profitability of our Communications segment, we will not be able to continue making the same level of expense reductions in the future. In addition, we increased our marketing expenses in connection with the launch of the mobile broadband service, which is subject to a number of risks. Continued declines in Communications revenues, particularly if such declines accelerate, will materially and adversely impact the profitability of this segment.

Our mobile broadband service may not be commercially successful.

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

Our Internet access business is dependent on the availability of telecommunications services and compatibility with third-party systems and products.

        Our Internet access business substantially depends on the availability, capacity, affordability, reliability, and security of our telecommunications networks. Only a limited number of telecommunications providers offer the network and data services we currently require, and we purchase most of our telecommunications services from a few providers. Some of our telecommunications services are provided pursuant to short-term agreements that the providers can terminate or elect not to renew. In addition, some telecommunications providers may cease to offer network services for certain less populated areas, which would reduce the number of providers from which we may purchase services and may entirely eliminate our ability to purchase services for certain areas. Currently, our mobile broadband service is entirely dependent upon services acquired from one service provider, and the devices required by the provider can be used for only such provider's service. If we are unable to maintain, renew or obtain new agreement with the telecommunications provider on

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acceptable terms, or the provider discontinues its services, our business, financial condition, results of operations, and cash flows could be materially and adversely affected. Sprint, which owns Clearwire, recently announced that it plans to cease using WiMAX technology on the Clearwire network by the end of 2015. If this plan is implemented, this discontinuation will affect our mobile broadband subscribers that utilize the Clearwire network. We are working on a transition plan for such subscribers, but our transition plan may not be successful or we may incur significant costs in implementing such plan. If our transition plan is not successful, or is not accepted by subscribers, our business, financial condition, results of operations, and cash flows could be materially and adversely impacted.

        Our dial-up Internet access services also rely on their compatibility with other third-party systems, products and features, including operating systems. Incompatibility with third-party systems and products could adversely affect our ability to deliver our services or a user's ability to access our services and could also adversely impact the distribution channels for our services. Our services are dependent on dial-up modems and an increasing number of computer manufacturers, including certain manufacturers with whom we have distribution relationships, do not pre-load their new computers with dial-up modems, requiring the user to separately acquire a modem to access our services. There can be no assurance that, as the dial-up Internet access market declines and new technologies emerge, we will be able to continue to effectively distribute and deliver our services.

RISKS RELATING TO THE FTD SPIN-OFF TRANSACTION

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

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

•

We may be unable to achieve some or all of the full strategic and financial benefits that we expected would result from the FTD Spin-Off Transaction, or such benefits may be delayed or may not occur at all.



•

We are smaller and less diversified as compared to immediately prior to the consummation of the FTD Spin-Off Transaction.



•

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

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

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

        United Online, Inc. received a private letter ruling from the IRS, substantially to the effect that, for U.S. federal income tax purposes, the FTD Spin-Off Transaction qualifies as a tax-free transaction for U.S. federal income tax purposes under Section 355 of the Internal Revenue Code of 1986, as amended. In addition, prior to the consummation of the FTD Spin-Off Transaction, United Online, Inc. received a legal opinion, substantially to the effect that the FTD Spin-Off Transaction so qualifies. The IRS ruling and the tax opinion rely on certain facts, assumptions and undertakings, and certain

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

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

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

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

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

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

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completion of the FTD Spin-Off Transaction, and we cannot predict the prices at which our common stock may trade in the future.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) - (b) Not applicable

(c)   Repurchases

        In May 2001, United Online, Inc.'s Board of Directors authorized a common stock repurchase program (the "Program") that allows us to repurchase shares of our common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors. From time to time since then, the Board of Directors has increased the amount authorized for repurchase under this Program and has extended the Program. From August 2001 through December 31, 2010, we had repurchased $150.2 million of our common stock under the Program, leaving $49.8 million of authorization remaining under the Program. In February 2011, the Board of Directors extended the Program through December 31, 2011 and authorized an increase in the $49.8 million authorization remaining to $80.0 million. In December 2011, the Board of Directors extended the Program through December 31, 2012. In January 2013, the Board of Directors approved and ratified the extension of the Program through December 31, 2013, and in September 2013, the Board of Directors further extended the Program through December 31, 2014. In October 2014, the Board of Directors further extended the Program through December 31, 2015. There were no repurchases under the Program in the year ended December 31, 2013 or the nine months ended September 30, 2014 and, at September 30, 2014, the authorization remaining under the Program was $80.0 million through December 31, 2014 (subsequently extended to December 31, 2015).

        Shares withheld upon the vesting of restricted stock units and restricted stock awards and upon the issuance of stock awards to pay applicable required employee withholding taxes are considered common stock repurchases, but are not counted as purchases against the Program. Upon vesting of most restricted stock units or issuance of stock awards, we currently do not collect the applicable required employee withholding taxes from employees. Instead, we automatically withhold, from the restricted stock units that vest and from the stock awards that are issued, the portion of those shares with a fair market value equal to the amount of the employee withholding taxes due, which is accounted for as a repurchase of common stock. We then pay the applicable required employee withholding taxes. Common stock repurchases during the quarter ended September 30, 2014 were as follows (in thousands, except per share amounts):

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

        Not applicable.

ITEM 4.    MINE SAFETY DISCLOSURES

        Not applicable.

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ITEM 5.    OTHER INFORMATION

        Not applicable.

ITEM 6.    EXHIBITS

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

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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EXHIBIT INDEX

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