UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-Q

(Mark One)ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended March 31, 2009Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from            to


Commission file number 000-33367



UNITED ONLINE, INC.(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or other Jurisdiction of
Incorporation or Organization)

77-0575839(I.R.S. Employer Identification No.)21301 Burbank Boulevard,
Woodland Hills, California(Address of Principal Executive Office)

91367(Zip Code)(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)




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 eletronically and posted on its corporate Web site, 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 o 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):

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller
reporting company)

Smaller reporting company o


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 83,580,761 shares of the Registrant's common stock outstanding at May 1, 2009.



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Table of Contents

UNITED ONLINE, INC.
INDEX TO FORM 10-Q
For the Quarter Ended March 31, 2009



PagePART I.

FINANCIAL INFORMATIONItem 1.

Unaudited Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008


4Unaudited Condensed Consolidated Statements of Operations for the Quarters Ended March 31, 2009 and
2008


5Unaudited Condensed Consolidated Statements of Comprehensive Income for the Quarters Ended March 31, 2009
and 2008


6Unaudited Condensed Consolidated Statement of Stockholders' Equity for the Quarter Ended March 31,
2009


7Unaudited Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2009 and
2008


8Notes to Unaudited Condensed Consolidated Financial Statements


9Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations


22Item 3.

Quantitative and Qualitative Disclosures About Market Risk


46Item 4.

Controls and Procedures


47PART II.

OTHER INFORMATIONItem 1.

Legal Proceedings


48Item 1A.

Risk Factors


49Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


50Item 6.

Exhibits


51SIGNATURES


52


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 and the documents incorporated herein by reference contain forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, 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 limited to, statements about future financial performance;
segment metrics; operating expenses; market trends, including those in the markets in which we compete; operating and marketing efficiencies; revenues; cash flows and uses of cash; dividends; capital
expenditures; depreciation and amortization; tax payments; impairment charges; stock-based compensation; restructuring charges; foreign currency exchange rates; hedging arrangements; our ability to
repay indebtedness, pay dividends and invest in initiatives; statements regarding the anticipated impact or benefits

2

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Table of Contents

associated with the acquisition of FTD Group, Inc. and its subsidiaries; our products and services; pricing; competition; and strategies and initiatives. Potential factors that could affect the
matters about which the forward-looking statements are made include, among others, the factors disclosed in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year
ended December 31, 2008, and additional factors that accompany their 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 management's
analysis only as the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual performance and
results to differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required by law, we undertake no obligation to publicly
release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated
events.

3

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Table of Contents

PART IFINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

March 31,
2009

December 31,
2008AssetsCurrent assets:Cash and cash equivalents

$
124,751

$
104,514Accounts receivable, net of allowance for doubtful accounts


54,814


58,901Deferred tax assets, net


13,265


16,170Other current assets


22,882


30,970Total current assets


215,712


210,555Property and equipment, net


62,226


61,822Goodwill


457,878


459,348Intangible assets, net


310,911


320,236Other assets


19,610


21,566Total assets

$
1,066,337

$
1,073,527Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
72,549

$
83,372Accrued liabilities


41,562


43,148Member redemption liability


19,896


20,745Deferred revenue


82,015


78,498Current portion of long-term debt


22,688


22,219Total current liabilities


238,710


247,982Member redemption liability


5,029


5,231Deferred revenue


4,719


4,763Long-term debt, net of discounts


386,238


391,258Deferred tax liabilities, net


55,570


60,834Other liabilities


19,641


19,342Total liabilities


709,907


729,410Commitments and contingenciesStockholders' equity:Common stock


8


8Additional paid-in capital


517,712


520,187Accumulated other comprehensive loss


(49,284
)

(47,019
)Accumulated deficit


(112,006
)

(129,059
)Total stockholders' equity


356,430


344,117Total liabilities and stockholders' equity

$
1,066,337

$
1,073,527


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

4

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Table of Contents

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

Quarter Ended
March 31,2009

2008Revenues

$
263,647

$
121,811Operating expenses:Cost of revenues (including stock-based compensation, see Note 10)


114,334


27,839Sales and marketing (including stock-based compensation, see Note 10)


55,763


36,781Technology and development (including stock-based compensation, see Note 10)


17,141


12,902General and administrative (including stock-based compensation, see Note 10)


30,414


20,884Amortization of intangible assets


8,591


2,836Restructuring charges





206Total operating expenses


226,243


101,448Operating income


37,404


20,363Interest income


348


1,600Interest expense


(8,201
)

Other income, net


38


42Income before income taxes


29,589


22,005Provision for income taxes


12,536


9,003Net income

$
17,053

$
13,002Income allocated to participating securities


(671
)

(930
)Net income applicable to common stockholders

$
16,382

$
12,072Basic net income per common share

$
0.20

$
0.18Shares used to calculate basic net income per common share


82,570


68,145Diluted net income per common share

$
0.20

$
0.18Shares used to calculate diluted net income per common share


82,837


68,890


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

5

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Table of Contents

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Quarter Ended
March 31,2009

2008Net income

$
17,053

$
13,002Change in unrealized gain on short-term investments, net of tax of $0 and $97 for the quarters ended March 31, 2009 and 2008,
respectively





167Change in unrealized gain on derivative, net of tax of $4 and $0 for the quarters ended March 31, 2009 and 2008, respectively


6


Foreign currency translation


(2,271
)

(45
)Comprehensive income

$
14,788

$
13,124


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

6

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Table of Contents

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(in thousands)

Common Stock



Accumulated
Other
Comprehensive
LossAdditional
Paid-In
Capital

Accumulated
Deficit

Total
Stockholders'
EquityShares

AmountBalance at January 1, 2009


82,107

$
8

$
520,187

$
(47,019
)
$
(129,059
)
$
344,117Exercises of stock options


40





109








109Vesting of restricted stock units


878














Repurchases of common stock








(2,611
)







(2,611
)Dividends paid on shares outstanding and restricted stock units








(8,770
)







(8,770
)Dividends payable on restricted stock units








(77
)







(77
)Stock-based compensation








9,366








9,366Foreign currency translation











(2,271
)




(2,271
)Change in unrealized gain on derivative, net of tax











6





6Tax shortfalls from equity awards








(492
)







(492
)Net income














17,053


17,053Balance at March 31, 2009


83,025

$
8

$
517,712

$
(49,284
)
$
(112,006
)
$
356,430


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

7

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Table of Contents

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Quarter Ended
March 31,2009

2008Cash flows from operating activities:Net income

$
17,053

$
13,002Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


14,683


8,075Stock-based compensation


9,366


10,010Accretion of discounts and amortization of debt issue costs


1,013


Provision for doubtful accounts receivable


1,161


318Deferred taxes, net


(2,180
)

(327
)Tax benefits (shortfalls) from equity awards


(492
)

77Excess tax benefits from equity awards


(227
)

(226
)Other


162


136Changes in operating assets and liabilities:Accounts receivable


2,803


3,220Other assets


9,859


5,908Accounts payable and accrued liabilities


(12,007
)

(15,536
)Member redemption liability


(1,050
)

(805
)Deferred revenue


3,476


5,037Other liabilities


(41
)

110Net cash provided by operating activities


43,579


28,999Cash flows from investing activities:Purchases of property and equipment


(6,347
)

(2,799
)Purchases of short-term investments





(69,268
)Proceeds from maturities of short-term investments





22,985Proceeds from sales of short-term investments





9,273Cash paid for acquisitions, net of cash acquired





(682
)Proceeds from sales of assets, net





9Net cash used for investing activities


(6,347
)

(40,482
)Cash flows from financing activities:Payments on term loans and revolver


(5,438
)

Payments on capital leases





(4
)Proceeds from exercises of stock options


109


694Repurchases of common stock


(2,611
)

(6,162
)Payments for dividends


(8,770
)

(14,569
)Excess tax benefits from equity awards


227


226Net cash used for financing activities


(16,483
)

(19,815
)Effect of foreign currency exchange rate changes on cash and cash equivalents


(512
)

(112
)Change in cash and cash equivalents


20,237


(31,410
)Cash and cash equivalents, beginning of period


104,514


149,507Cash and cash equivalents, end of period

$
124,751

$
118,097Supplemental disclosure of non-cash investing and financing activities:Dividends payable on restricted stock units

$
77

$



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

8

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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", "UOL" or the "Company") is a leading
provider of consumer products and services over the Internet through a number of brands, including FTD, Interflora, Classmates, MyPoints, NetZero, and Juno. On August 26, 2008, United
Online, Inc. completed its acquisition of 100% of the capital stock of FTD Group, Inc. (together with its subsidiaries, "FTD"). The Company reports its business in three reportable
segments: FTD, Classmates Media and Communications. The Company's FTD segment provides floral and related products and services to consumers and retail florists, as well as to other retail locations
offering floral and related products and services. The Company's Classmates Media services are online social networking and online loyalty marketing. The Company's primary Communications services are
Internet access and email. 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.

Basis of Presentation

The accompanying condensed consolidated financial statements for the quarters ended March 31, 2009 and 2008, include United
Online, Inc. and its subsidiaries and are unaudited. The condensed consolidated balance sheet information at December 31, 2008 is derived from the Company's audited consolidated
financial statements, filed on February 27, 2009 with the Securities and Exchange Commission ("SEC") in the Company's Annual Report on Form 10-K for the year ended
December 31, 2008, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). The Company's unaudited condensed
consolidated financial statements have been prepared in accordance with 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 SEC. Accordingly, they 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
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, 2008 included in the Company's Annual
Report on Form 10-K filed on February 27, 2009 with the SEC.

The
most significant areas of the unaudited condensed consolidated financial statements that require management judgment and which are susceptible to possible change in the near term
include the Company's allocation of purchase price in business combinations, goodwill and indefinite-lived intangible assets, intangible assets and other long-lived assets, member
redemption liability, income taxes, and legal contingencies.

9

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Table of Contents

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)

ReclassificationsCertain prior year amounts have been reclassified to conform to the current year presentation. These changes
had no impact on the previously reported consolidated results of operations or stockholders' equity.

Accounting Policies

Earnings Per ShareEffectiveJanuary 1, 2009, the Company adopted
Financial Accounting Standards Board ("FASB") Staff Position ("FSP") EITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities.This FSP provides that unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and shall be
included in the computation of earnings per share pursuant to the two-class method described in Statement of Financial Accounting Standards ("SFAS") No. 128,Earnings
Per Share.The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating
securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Certain of the Company's restricted stock units are considered participating
securities because they contain a non-forfeitable right to dividends irrespective of whether the awards ultimately vest. The Company is required to retrospectively adjust earnings per share data to
conform to the provisions in this FSP. Accordingly, the Company adopted the provisions of FSP EITF 03-6-1 effective January 1, 2009 and computed earnings per common share using the
two-class method for all periods presented. See Note 11 for additional disclosures.

Recent Accounting Pronouncements

Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies

In April 2009, the FASB issued FSP No. Financial Accounting Standards ("FAS") 141(R)-1,Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. This guidance amends and clarifies Statement of Financial Accounting
Standards ("SFAS") No. 141(R),Business Combinations,to address application issues on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP FAS 141(R)-1 is effective for assets or liabilities
arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The
impact of this FSP will depend on the nature, terms and size of any acquisition that the Company consummates.

Interim Disclosures about Fair Value of Financial Instruments

In April 2009, the FASB issued FSP No. FAS 107-1 and Accounting Principles Board ("APB") Opinion
No. 28-1 ("FSP FAS 107-1"),Interim Disclosures about Fair Value of Financial Instruments.FSP
FAS 107-1 amends SFAS No. 107,Disclosures about Fair Value of Financial Instruments,to require disclosures about fair value
of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 also amends APB Opinion No. 28, Interim Financial Reporting,to require those disclosures in summarized financial information at interim reporting periods. FSP
FAS 107-1 applies to all financial instruments within the scope of SFAS No.107

10

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Table of Contents

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)

held
by publicly traded companies, as defined by APB Opinion No. 28, and shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. FSP FAS 107-1 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after
initial adoption, FSP FAS 107-1 requires comparative disclosures only for periods ending after initial adoption. Because FSP FAS 107-1 amends only the disclosure
requirements for financial instruments, the adoption of FSP FAS 107-1 will only affect the disclosure in the Company's consolidated financial statements.

2. ACQUISITION

The results of FTD's operations have been included in the Company's consolidated financial statements since August 26, 2008, the closing date. The following unaudited pro forma
information assumes the FTD acquisition occurred at January 1, 2008 (in thousands, except per share amounts):

Quarter Ended
March 31, 2008Revenues

$
313,798Net income

$
13,850Basic net income per share

$
0.17Diluted net income per share

$
0.17


3. SEGMENT INFORMATION

Revenues and segment income from operations by segment are as follows (in thousands):

Quarter Ended March 31, 2009FTD

Classmates Media

Communications

TotalProducts

$
113,265

$


$


$
113,265Services


32,798


38,221


48,049


119,068Advertising


1,924


20,252


9,331


31,507Total revenues

$
147,987

$
58,473

$
57,380

$
263,840Segment income from operations

$
19,230

$
12,155

$
20,702

$
52,087




Quarter Ended March 31, 2008FTD

Classmates Media

Communications

TotalServices

$


$
31,241

$
59,421

$
90,662Advertising





20,643


10,506


31,149Total revenues

$


$
51,884

$
69,927

$
121,811Segment income from operations

$


$
7,953

$
20,485

$
28,438


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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. SEGMENT INFORMATION (Continued)

A
reconciliation of segment income from operations (which excludes depreciation and amortization of intangible assets) to consolidated operating income, is as follows for each period
presented (in thousands):

Quarter Ended
March 31,2009

2008Segment income from operations:FTD

$
19,230

$
Classmates Media


12,155


7,953Communications


20,702


20,485Total segment income from operations


52,087


28,438Depreciation


(6,092
)

(5,239
)Amortization of intangible assets


(8,591
)

(2,836
)Consolidated operating income

$
37,404

$
20,363


A
reconciliation of segment revenues to consolidated revenues is as follows for each period presented (in thousands):

Quarter Ended March 31,2009

2008Segment revenues:FTD

$
147,987

$
Classmates Media


58,473


51,884Communications


57,380


69,927Intersegment eliminations


(193
)

Consolidated revenues

$
263,647

$
121,811


12

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. SEGMENT INFORMATION (Continued)

A
reconciliation of segment operating expenses (excluding depreciation and amortization of intangible assets) to consolidated operating expenses is as follows for each period presented
(in thousands):

Quarter Ended March 31,2009

2008Segment operating expenses:FTD

$
128,757

$
Classmates Media


46,318


43,931Communications


36,678


49,442Total segment operating expenses


211,753


93,373Depreciation


6,092


5,239Amortization of intangible assets


8,591


2,836Intersegment eliminations


(193
)

Consolidated operating expenses

$
226,243

$
101,448


International
revenues totaled $49.2 million and $3.4 million for the quarters ended March 31, 2009 and 2008, respectively.

Geographic
information for long-lived assets is as follows (in thousands):

March 31,
2009

December 31,
2008United States

$
74,649

$
76,434Europe


7,187


6,952Total long-lived assets

$
81,836

$
83,386


The
Company manages its working capital on a consolidated basis. In addition, segment assets are not reported to, or used by, the chief operating decision maker to allocate resources to
or assess performance of the segments and therefore, pursuant to SFAS No. 131, total segment assets have not been disclosed.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. BALANCE SHEET COMPONENTS

Other Current Assets

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

March 31,
2009

December 31,
2008Prepaid expenses

$
13,400

$
15,751Income taxes receivable





1,810Gift cards related to member redemption liability


2,727


4,332Floral-related inventories, net


3,578


5,603Other


3,177


3,474Total

$
22,882

$
30,970


Property and Equipment

Property and equipment consisted of the following (in thousands):

March 31,
2009

December 31,
2008Computer software and equipment

$
144,582

$
139,164Land and buildings


18,730


18,525Furniture and fixtures


15,865


15,511179,177


173,200Less: accumulated depreciation and amortization


(116,951
)

(111,378
)Total

$
62,226

$
61,822


Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

March 31,
2009

December 31,
2008Employee compensation and related expenses

$
16,961

$
23,683Income taxes payable


9,326


1,690Non-income taxes payable


5,100


4,930Customer deposits


3,363


3,472Other


6,812


9,373Total

$
41,562

$
43,148


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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The changes in goodwill by reportable segments for the quarters ended March 31, 2009 were as follows (in thousands):

FTD

Classmates
Media

Communications

TotalBalance at January 1, 2009

$
327,133

$
124,726

$
7,489

$
459,348Acquisition adjustments(a)


(139
)







(139
)Foreign currency translation


(1,322
)

(9
)




(1,331
)Balance at March 31, 2009

$
325,672

$
124,717

$
7,489

$
457,878


---

Intangible Assets

Intangible assets consisted of the following (in thousands):

March 31, 2009Cost or
Fair Value

Accumulated
Amortization

NetPay accounts and free accounts

$
100,806

$
(86,608
)
$
14,198Customer contracts and relationships


110,385


(16,682
)

93,703Trademarks and trade names


178,891


(12,919
)

165,972Advertising contracts and related relationships


7,229


(7,229
)

Software and technology


46,029


(9,975
)

36,054Patents, domain names and other


4,598


(3,614
)

984Total

$
447,938

$
(137,027
)
$
310,911




December 31, 2008Cost or
Fair Value

Accumulated
Amortization

NetPay accounts and free accounts

$
100,785

$
(85,658
)
$
15,127Customer contracts and relationships


110,570


(11,805
)

98,765Trademarks and trade names


179,300


(12,221
)

167,079Advertising contracts and related relationships


7,229


(7,229
)

Software and technology


46,047


(7,884
)

38,163Patents, domain names and other


4,596


(3,494
)

1,102Total

$
448,527

$
(128,291
)
$
320,236


The
Company's acquired trademarks and trade names related to the FTD acquisition are indefinite-lived and, accordingly, there is no associated accumulated amortization. At
March 31, 2009 and December 31, 2008, the FTD trademarks and trade names after foreign currency translation adjustments totaled $153.1 million and $153.5 million,
respectively.

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. CREDIT AGREEMENTS

UOL Credit Agreement

In connection with its acquisition of FTD, in August 2008, United Online, Inc. entered into a $60 million senior secured
credit agreement with Silicon Valley Bank (the "UOL Credit Agreement") and borrowed $60 million thereunder.

FTD Credit Agreement

In connection with the FTD acquisition in August 2008, UNOLA Corp., then an indirect wholly-owned subsidiary of United
Online, Inc., which subsequently merged into FTD Group, Inc., entered into a $425 million senior secured credit agreement with Wells Fargo Bank, National Association, as
Administrative Agent (the "FTD Credit Agreement"), consisting of (i) a term loan A facility of $75 million, (ii) a term loan B facility of $300 million, and (iii) a
revolving credit facility of up to $50 million.

The
changes in the Company's debt balances, net of discounts, for the quarter ended March 31, 2009 were as follows (in thousands):

Balance at
January 1, 2009

Repayments
of Debt

Accretion
of Discounts

Balance at
March 31, 2009UOL Credit Agreement

$
54,859

$
(3,750
)
$
172

$
51,281FTD Credit Agreement, term loan A


71,812


(937
)

148


71,023FTD Credit Agreement, term loan B


286,806


(750
)

566


286,622FTD Credit Agreement, revolving credit facility











Total

$
413,477

$
(5,437
)
$
886

$
408,926


Future
minimum principal payments based upon United Online, Inc.'s and FTD Group Inc.'s outstanding and scheduled and required debt payments per the credit agreements, excluding
required prepayments based on excess cash flow, were as follows at March 31, 2009 (in thousands):

Year Ending December 31,Remaining
2009Total

2010

2011

2012

2013

2014UOL Credit Agreement

$
52,500

$
11,250

$
15,000

$
15,000

$
11,250

$


$
FTD Credit Agreement, term loan A


73,125


3,281


6,094


7,500


7,969


48,281


FTD Credit Agreement, term loan B


298,500


2,250


3,000


3,000


3,000


3,000


284,250Total

$
424,125

$
16,781

$
24,094

$
25,500

$
22,219

$
51,281

$
284,250


At
March 31, 2009, the borrowing capacity under the FTD revolving credit facility, which was reduced by $11.0 million in outstanding standby letters of credit, was
$39.0 million. In April 2009, commitments under such standby letters of credit were reduced to $1.0 million.

Subject
to certain exceptions, United Online, Inc. is required to make quarterly prepayments of a portion of the term loans under the UOL Credit Agreement partially based on
excess cash flow (commencing in the second quarter of 2009). Subject to certain exceptions, FTD Group, Inc. is required to make annual prepayments of a portion of the term loans and/or
commitments under the FTD Credit Agreement partially based on excess cash flow (commencing in the first quarter of 2010).

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. DERIVATIVE INSTRUMENT

FTD Group, Inc. is required by the FTD Credit Agreement to maintain one or more interest rate swap agreements, interest rate cap agreements, interest rate collar agreements or
other similar instruments to manage risks associated with interest rate fluctuations and exposures on its credit facilities with Wells Fargo Bank, National Association. Accordingly, in November 2008,
FTD Group, Inc. entered into a three-year interest rate cap agreement to manage risks associated with interest rate fluctuations on a $150 million notional amount of the FTD
Credit Agreement. This instrument was previously accounted for as a cash flow hedge. In January 2009, FTD Group, Inc. changed the interest rate basis of the hedged item from LIBOR-based to
prime-based and, as a result, the cash flow hedge was de-designated and accordingly no longer qualifies for hedge accounting treatment. FTD Group, Inc. currently intends to maintain
the interest rate cap in order to comply with the FTD Credit Agreement and does not expect to enter into any other interest rate hedging arrangement. The interest rate cap does not contain any credit
risk-related contingent features as defined by SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities an amendment of SFAS
No. 133.

The
following table presents the fair value of the interest rate cap in the condensed consolidated balance sheet at March 31, 2009 (in thousands):

Asset DerivativesDerivatives Not Designated as
Hedging Instruments

Balance Sheet Location

Fair ValueInterest rate cap

Other assets

$
15


Changes
in the fair value of the interest rate cap are recognized in earnings in the period of change. The following table presents the effect of these changes on the condensed
consolidated statement of operations for the quarter ended March 31, 2009 (in thousands):

Derivatives Not Designated as
Hedging Instruments

Location of Loss

Amount of LossInterest rate cap

Interest expense

$
35


The
amount of deferred loss on the interest rate cap reclassified from accumulated other comprehensive loss in the statement of stockholders' equity to interest expense upon
de-designation of the hedge was immaterial. The deferred loss to be reclassified to interest expense from accumulated other comprehensive loss during the next 12 months is not
expected to be significant.

For
additional information regarding the Company's overall risk management strategies, see Part I, Item 3"Quantitative and Qualitative Disclosures About Market
Risk" of this Quarterly Report on Form 10-Q.

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. FAIR VALUE MEASUREMENTS

The provisions of SFAS No. 157 related to nonfinancial assets and liabilities became effective for the Company on January 1, 2009 in accordance with FSP
FAS 157-2,Effective Date of FASB Statement No. 157,and did not have a material impact on the Company's unaudited condensed
consolidated financial statements.

SFAS
No. 157 establishes a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) quoted prices (unadjusted) in active markets
for identical assets and liabilities (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and
(iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The following table presents
information about assets required to be measured at fair value on a recurring basis at March 31, 2009 (in thousands):

Description

Total

Level 1

Level 2Cash equivalents

$
78,682

$
67,897

$
10,785Derivative asset


15





15Total

$
78,697

$
67,897

$
10,800


9. STOCKHOLDERS' EQUITY

Common Stock Repurchases

United Online, Inc.'s Board of Directors authorized a common stock repurchase program (the "program") that allows the Company to
repurchase shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors through December 31, 2009. From August
2001 through March 31, 2009, the Company had repurchased $139.2 million of its common stock under the program. The Company has not repurchased any shares of its common stock under the
program since February 2005 and, at March 31, 2009, the remaining amount available under the program was $60.8 million.

Shares
withheld upon vesting of restricted stock units and restricted stock awards and upon the issuance of stock awards to pay applicable employee withholding taxes are considered
common stock repurchases, but are not counted as purchases against the program. Upon vesting, the Company currently does not collect the applicable employee withholding taxes from employees. Instead,
the Company automatically withholds, from the restricted stock units and restricted stock awards 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. The Company then pays the applicable withholding taxes in cash. The amounts
remitted in the quarter ended March 31, 2009 and 2008 were $2.6 million and $6.2 million, respectively, for which the Company withheld 503,000 and 546,000 shares of common stock,
respectively, that were underlying the restricted stock units and restricted stock awards which vested and stock awards that were issued.

Dividends

Dividends are paid on shares of common stock and unvested restricted stock units outstanding as of the record date.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. STOCKHOLDERS' EQUITY (Continued)

In
January 2009, United Online, Inc.'s Board of Directors declared a quarterly cash dividend of $0.10 per share of common stock. The record date for the dividend was
February 13, 2009. The dividend was paid on February 27, 2009 and totaled $8.8 million.

In
April 2009, United Online, Inc.'s Board of Directors declared a quarterly cash dividend of $0.10 per share of common stock. The record date for the dividend is May 14,
2009 and the dividend is payable on May 29, 2009.

The
payment of future dividends is discretionary and is subject to determination by United Online, Inc.'s Board of Directors each quarter following its review of the Company's
financial performance and other factors. Dividends are declared and paid out of the Company's surplus, as defined and computed in accordance with the General Corporation Law of the State of Delaware.

10. STOCK-BASED COMPENSATION PLANS

Stock-Based Compensation

The following table summarizes the stock-based compensation that has been included in the following captions within the unaudited
condensed consolidated statements of operations for each of the periods presented (in thousands):

Quarter Ended March 31,2009

2008Operating expenses:Cost of revenues

$
256

$
220Sales and marketing


1,248


1,588Technology and development


1,193


1,288General and administrative


6,669


6,914Total stock-based compensation

$
9,366

$
10,010


Recent Awards

Effective February 15, 2009, the Compensation Committee of the Board of Directors of United Online, Inc. (the
"Compensation Committee") approved grants of 0.9 million restricted stock units with a grant-date fair value equal to $4.9 million to certain members of the Company's senior
management. Each restricted stock unit entitles the recipient to receive one share of United Online Inc.'s common stock upon vesting. The restricted stock units will vest in full on
February 15, 2010.

Effective
February 15, 2009, the Company approved grants of 0.9 million restricted stock units with a grant-date fair value equal to $4.6 million to the
Company's non-executive officer employees. The restricted stock units will vest as to twenty-five percent of the total number of shares awarded annually over a
four-year period beginning February 15, 2009.

Effective
February 15, 2009, the Compensation Committee approved grants of 0.5 million shares of common stock with a grant-date fair value equal to
$5.3 million to certain members of senior management in connection with awards earned under the 2008 Management Bonus Plan.

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. STOCK-BASED COMPENSATION PLANS (Continued)

Stock Option Exchange Program for Three Executive Officers

In March 2009, the Compensation Committee implemented a stock option exchange program pursuant to which three executive officers were
given the opportunity to exchange certain "out-of-the-money," or "underwater," stock options previously granted to them under the Company's 2001 Stock Incentive
Plan, for an award of restricted stock units pursuant to which the executive officers will be entitled to receive one share of common stock of United Online, Inc. for each unit that is granted
under the award on the date that each such unit vests in accordance with its terms and the designated vesting schedule.

The
number of restricted stock units issued for each exchanged underwater stock option was determined in accordance with a 1-for-3 exchange ratio. All
2.0 million of underwater stock options eligible for the exchange were exchanged for 0.6 million restricted stock units. All underwater stock options were canceled upon exchange for
restricted stock units pursuant to the Company's 2001 Stock Incentive Plan.

The
restricted stock units will vest in quarterly increments over two years measured from February 15, 2009, subject to the executive officer's continued employment with the
Company through the vesting date of such restricted stock units. Upon vesting, the Company will issue shares of common stock corresponding to the number of vested restricted stock units awarded to the
officer, less the number of shares having an aggregate value equal to the Company's statutory withholding obligations with respect to applicable federal and state income and employment withholding
taxes (all as consistent with the Company's current practices with respect to restricted stock units). The grant-date fair value of the restricted stock units totaled $2.5 million.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net income per common share for the quarters ended March 31, 2009 and 2008 (in thousands, except per share
amounts):

Quarter Ended March 31,2009

2008Numerator:Net income

$
17,053

$
13,002Income allocated to participating securities


(671
)

(930
)Net income applicable to common stockholders

$
16,382

$
12,072Denominator:Weighted-average common shares


82,570


68,245Less: weighted-average common shares subject to repurchase rights





(100
)Shares used to calculate basic net income per common share


82,570


68,145Add: Dilutive effect of non-participating securities


267


745Shares used to calculate diluted net income per common share


82,837


68,890Basic net income per common share

$
0.20

$
0.18Diluted net income per common share

$
0.20

$
0.18


Basic
net income per share and diluted net income per share reported under the previous method for the quarter ended March 31, 2008 were each $0.19.

The
diluted earnings per share computations exclude restricted stock units and stock options which are antidilutive. The number of antidilutive shares at March 31, 2009 and 2008
was 2.8 million and 3.3 million, respectively.

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Table of Contents

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference
contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, 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 limited
to, statements about future financial performance; segment metrics, operating expenses; market trends, including
those in the markets in which we compete; operating and marketing efficiencies; revenues; cash flows and uses of cash; dividends; capital expenditures; depreciation and amortization; tax payments;
impairment charges; stock-based compensation; restructuring charges; foreign currency exchange rates; hedging arrangements; our ability to repay indebtedness, pay dividends and invest in initiatives;
statements regarding the anticipated impact or benefits associated with the acquisition of FTD Group, Inc. and its subsidiaries; our products and services; pricing; competition; and strategies
and initiatives. Potential factors that could affect the matters about which the forward-looking statements are made include, among others, the factors disclosed in the section entitled "Risk Factors"
in our Annual Report on Form 10-K for the year ended December 31, 2008, and additional factors that accompany their 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
management's analysis only as the date hereof. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that may cause actual
performance and results to differ materially from those predicted. Reported results should not be considered an indication of future performance. Except as required by law, we undertake no obligation
to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

Overview

We are a leading provider of consumer products and services over the Internet through a number of brands including FTD, Interflora,
Classmates, MyPoints, NetZero, and Juno. Our FTD segment provides floral and related products and services to consumers and retail florists, as well as to other retail locations offering floral and
related products and services. Our Classmates Media segment services are online social networking and online loyalty marketing. Our primary Communications segment services are Internet access and
email. On a combined basis, our Web properties attract a significant number of Internet users, and we offer a broad range of Internet marketing services for advertisers.

Segment Definitions

We report our businesses in three reportable segments:

Segment

Products and ServicesFTD

Floral and related products and services for consumers, retail florists and other retail locationsClassmates Media

Online social networking and online loyalty marketingCommunications

Internet access, email, Internet security, and Web hosting


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Table of Contents

Segment Services

FTD

FTD Group, Inc. (together with its subsidiaries, "FTD") is a leading provider of floral and related products and services to
consumers and retail florists, as well as to other retail locations offering floral and related products and services in the United States of America ("U.S."), Canada, the United Kingdom ("U.K."), and
the Republic of Ireland. The business uses the highly recognized FTD and Interflora brands, both supported by the Mercury Man logo. FTD is a floral marketer, which we refer to as FTD's consumer
businesses, and a provider of floral network services, which we refer to as FTD's florist businesses. These businesses are complementary, as most floral orders generated by the consumer businesses are
delivered by FTD's network of florist members. FTD does not own or operate any retail locations.

Consumer Businesses.FTD is an Internet and telephone marketer of flowers and specialty gift items to consumers. FTD operates in the
U.S. and Canada,
primarily through thewww.ftd.comWeb site and 1-800-SEND-FTD toll-free telephone number, and in the
U.K. and the Republic of Ireland through thewww.interflora.co.ukWeb site and a toll-free telephone number. While floral arrangements and
plants are FTD's primary offerings, FTD also markets and sells other specialty gift items, including gourmet food, holiday gifts, bath and beauty products, jewelry, wine and gift baskets, dried
flowers, chocolates, and stuffed animals.

Consumers
place orders at FTD's Web sites or, to a lesser extent, over the telephone. Orders either are transmitted to florist members or are fulfilled by shipment directly to the
consumer by our third-party suppliers. The majority of consumer orders are delivered by FTD's network of florist members and the remainder are shipped by third-parties. In general, FTD does not
maintain physical inventory or bear the cost of warehousing and distribution facilities. Our florist members and direct-ship partners maintain substantially all floral and specialty gift
physical inventory and facilities and, therefore, bear the cost of warehousing and distribution. In addition, consumers generally pay for floral and specialty gift orders before FTD pays florist
members, specialty gift providers and other third parties to fulfill those orders. Our distribution networks also allow our consumer businesses to process peak order flow substantially above that of
our average daily order flow.

Florist Businesses.FTD provides a comprehensive suite of products and services that promote revenue growth and enhance the operating
efficiencies of
its florist members, including services that enable its members to receive, send and deliver floral orders. FTD provides these services to its network of independent florist members, which include
traditional retail florists as well as other retailers offering floral and related products and services, that are located primarily in the U.S., Canada, the U.K., and the Republic of Ireland. The
large network of FTD and Interflora florist members provides an order fulfillment vehicle for FTD's consumer businesses and allows FTD to offer same day delivery capability, subject to certain
limitations, to nearly 100% of U.S., Canadian, U.K., and Irish populations.

FTD
products and services available to its florist members include: access to the FTD and Interflora brands and the Mercury Man logo, supported by various advertising campaigns; access
to the FTD florist network; credit card processing services; e-commerce Web sites; online advertising tools; and telephone answering and order-taking services. FTD also provides
point-of-sale and related technology systems that enable its florist members to transmit and receive orders and manage several back office functions of a florist member's
business, including accounting, customer relationship management, direct marketing campaigns, and delivery route management. FTD also acts as a national wholesaler to florist members, providing
FTD-branded and non-branded hard goods and cut flowers as well as packaging, promotional products and a wide variety of other floral-related supplies.

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Table of Contents

Our
strategy for the FTD segment includes the following key elements: attract and retain consumer customers and generate additional order volume through innovative marketing initiatives,
including cross-marketing to Classmates, MyPoints, NetZero, and Juno members; expand our consumer product offerings; increase the number of florists in our network and expand our suite of floral
network products and services; and increase our presence in alternative retail channels such as supermarkets.

For
additional information regarding our FTD segment, see Note 3"Segment Information" of the notes to unaudited condensed consolidated financial statements, which
appears in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Classmates Media

Our Classmates Media services include online social networking under the Classmates brand and online loyalty marketing under the
MyPoints brand. Our Classmates Media services also include international social networking under the StayFriends and Trombi brands.



Our social networking Web sites enable users to locate and interact with acquaintances from their past, with school affiliations as the
primary focus. Led by our flagship Classmates Web site (www.classmates.com) that serves the U.S. and Canada, our social networking properties comprise a
large and diverse population of users with over 50 million registered accounts at March 31, 2009.

Using
our interactive tools and features, our members have contributed to our social networking Web sites a substantial number of distinct, relevant pieces of content, such as names,
school affiliations, profiles, biographies, interests, and photos. Our large membership base and the extensive user-generated content posted on our Web sites assist us in acquiring new
members, and we receive tens of thousands of new free account registrations each day. We believe this valuable content also brings existing members back to our Web sites, with a significant number of
our members visiting our Web sites on a recurring basis over many years.

Our
social networking members can choose between free membership and a paid subscription offering additional features. Free accounts constitute the vast majority of our social networking
accounts. Revenues from our social networking services are derived from subscription fees and advertising fees.

Basic Membership.Basic membership on our Classmates Web site is free and provides members with access to a number of interactive
features. Visitors
to our Classmates Web site can become free members by completing the registration process and providing their name, year of birth, graduation year (or, in the case of workplace or military
affiliations, years at such affiliation), and an email address. Free members are required to affiliate with at least one high school, college, work, or military community. In addition, free members
can elect to provide information about their personal interests and post photos.

Free
members have access to the following primary features:



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Table of Contents



Gold Membership.Gold membership on our Classmates Web site is a paid subscription service that provides members with access to all of
the features
of a free membership as well as the following additional features:



We
continue to develop a number of new free and pay features on our Classmates Web site that we believe will enhance the member experience while providing an additional incentive for our
free members to upgrade to a pay account. We expect the features available to free members and paying members will continue to change from time to time.

Pricing
for a Classmates pay account varies by term of membership, with most pay accounts consisting of a three-month subscription for $15.00, or $5.00 per month; a 12-month
subscription for $39.00, or $3.25 per month; or a 24-month subscription for $59.00, or $2.46 per month. We expect that the pricing and terms of membership we offer will change from time to
time.

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Table of Contents

International.In addition to our flagship Classmates Web site, we operate five international social networking services. We operate
StayFriends
(www.stayfriends.se) in Sweden, Trombi (www.trombi.com) in France, StayFriends
(www.stayfriends.de) in Germany, StayFriends (www.stayfriends.at) in Austria, and StayFriends
(www.stayfriends.ch) in Switzerland. Each service is similar to our Classmates service, although their affiliations are focused only on schools. We
offer free and pay accounts on all of our international Web sites, although certain features of our international social networking pay services differ from those of our Classmates pay services and
pricing for our international social networking services is lower than for Classmates.

Our
strategy for our online social networking services includes the following key elements: enhance the member experience and engagement on our Web sites, in part by encouraging members
to contribute user-generated content that helps attract additional member visits; expand our member base through a variety of marketing and registration techniques; increase monetization
of our social networking Web sites by marketing our pay account services to our free members; increase our advertising revenues; and evaluate further opportunities to expand internationally or through
the acquisition of complementary services.



MyPoints connects advertisers with our members by allowing members to earn rewards points for engaging in online activities. MyPoints
is a free service and users need only provide their name, zip code, gender, date of birth, and an email address to register. Members register
to receive direct email marketing and other online loyalty promotions, and earn points for responding to email offers, taking market research surveys, shopping online, and engaging in other online
activities. Rewards points are redeemable primarily in the form of third-party gift cards from over 70 merchants, including retailers, theaters, restaurants, airlines, and hotels. Participating
merchants include, among others, Amazon.com, iTunes, Marriott, Macy's, and Target.

MyPoints
provides advertisers with an effective means to reach a large online audience with targeted and untargeted marketing campaigns. We use a variety of criteria, including personal
interests, purchasing behavior and demographic profiles, to create targeted promotions for advertisers. We tailor these marketing campaigns to meet the needs of the specific advertiser, which may
include generating sales leads, soliciting information, registrations or the purchase of an advertiser's products or services, or increasing customer traffic on an advertiser's Web site.

All
of our loyalty marketing service revenues are classified as advertising revenues. Advertisers primarily pay us when our emails are transmitted to members, when members respond to
emails and when members complete online transactions. During 2008, we marketed the products and services of over 400 advertisers to our MyPoints members.

Media Services.MyPoints primarily allows advertisers to directly market their products or services to MyPoints members through the
following media
services:



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Table of Contents



This
broad range of media services allows MyPoints to create targeted marketing campaigns for advertisers by selecting from a variety of demographic and behavioral parameters based on
the personal interests, purchasing behavior and demographic profiles of our MyPoints members.

Other Services.Our members can earn points and advertisers or marketers can reach our members through a variety of other member
activities including
shopping on our MyPoints Web site which also serves as an online shopping portal; completion of online market research surveys on behalf of market research companies; searching through a MyPoints
branded toolbar; and playing MyPoints branded online games.

Our
strategy for our online loyalty marketing service includes the following key elements: enhance the member experience and engagement of our service by developing new features; expand
our member base through new marketing techniques and acquisition channels, including cross-marketing our services to Classmates members; and increase monetization by developing additional methods for
designing advertising campaigns for our loyalty marketing members that are specifically tailored to an individual's personal interests, purchasing behavior and demographic profile.

For
additional information regarding our Classmates Media segment, see Note 3"Segment Information" of the notes to unaudited condensed consolidated financial
statements, which appears in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Communications

Our principal Communications pay services are dial-up Internet access and email primarily under the NetZero and Juno
brands. We also offer broadband services, Internet security services, Web hosting services and premium email. Most of our Communications revenues are derived from dial-up Internet access
accounts.



Our Internet access services consist of dial-up and, to a much lesser extent, broadband 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, although we also offer an enhanced email service as a stand-alone pay service. Our accelerated dial-up Internet
access services can significantly reduce the time for certain Web pages to download when compared to our basic dial-up Internet access service and are also bundled with additional benefits
including pop-up blocking, antivirus software and enhanced email storage. Our dial-up Internet access services are available in cities across the U.S. and Canada. In general,
monthly pricing for our dial-up Internet access services ranges from $9.95 for basic services to $14.95 for our bundled services.

Our
broadband Internet access services consist of digital subscriber line ("DSL") services that we purchase from third-parties and resell under our own brands. These
services are primarily used as a means to retain users who are leaving our dial-up Internet access services and we have not marketed our broadband Internet access services to the general
public. We have experienced limited adoption of our broadband Internet access services. In general, monthly pricing for our broadband Internet access services ranges from $12.95 to $34.95, although we
anticipate that our pricing may change and fluctuate based on connection speed and geographic region.

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Our
primary strategy for the Communications segment is to manage our dial-up Internet access business for profitability and cash flows. In certain instances, we seek to
extend the business life cycle and cash flows generated by our dial-up Internet access subscribers by offering them a broadband alternative to their dial-up service.

For
additional information regarding our Communications segment, see Note 3"Segment Information" of the notes to unaudited condensed consolidated financial
statements, which appears in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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 are:

FTD Segment Metrics

Consumer Orders.We monitor the number of consumer orders for floral and gift products during a given period. Consumer orders are
orders delivered
during the period that originated in the U.S. and Canada, primarily from thewww.ftd.comWeb site and the
1-800-SEND-FTD telephone number, and in the U.K. and the Republic of Ireland, primarily from the www.interflora.co.ukWeb site and a toll-free telephone number. Orders originating with a florist or
other retail location for delivery to
consumers are not included. The number of consumer orders received may fluctuate significantly from period to period due to: seasonality resulting from the timing of key holidays; general economic
conditions; fluctuations in marketing expenditures on initiatives designed to attract new and retain existing customers; changes in pricing for our floral and specialty gift products or competitive
offerings; and changing consumer preferences, among other factors.

Average Order Value.We monitor the average value for consumer orders delivered in a given period, which we refer to as the average
order value.
Average order value represents the average U.S. Dollar
amount paid for consumer orders delivered during a period. This average U.S. Dollar amount is determined after translating the British Pound amounts paid for orders delivered in the U.K. and the
Republic of Ireland into U.S. Dollars. Average order value includes merchandise revenue, shipping and service fees, less discounts and certain refunds payable by the consumer. Average order values may
fluctuate from period to period based on: the foreign currency exchange rate between the U.S. Dollar and the British Pound; product mix; changes in merchandise pricing; shipping and service fees;
levels of certain refunds issued; and discounts, among other factors.

Classmates Media and Communications Segments Metrics

Pay Accounts.We generate a significant portion of our revenues from our pay accounts and they represent one of the most important
drivers of our
business model. A pay account is defined as a member who has subscribed to, and paid for, our Classmates Media or Communications services, and whose subscription has not expired. Pay accounts also
include, at any given measurement date, a number of members who are receiving pay services free of charge for a limited period of time on a promotional basis. In general, the key metrics that affect
our revenues from our pay accounts base include the number of pay accounts and the average monthly revenue per pay account. In general, a pay account becomes a free account following the expiration or
termination of the related subscription. At any point in time, our pay account base includes a number of accounts receiving a free period of service as either a promotion or retention tool and a
number of accounts that have notified us that they are terminating their service but whose service remains in effect.

ARPU.We monitor the average monthly revenue per pay account ("ARPU"). ARPU is calculated by dividing Classmates Media or Communications
services
revenues for a period (after translation into U.S. Dollars) by the average number of pay accounts for that period, divided by the number of months

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in
that period. The average number of pay accounts is the simple average of the number of pay accounts at the beginning and end of a period. ARPU may fluctuate from period to period as a result of a
variety of factors, including, but not limited to: changes in the mix of pay services and the related pricing plans; the use of promotional or retention pricing to attract new; or retain existing,
paying subscribers; increases or decreases in the price of our services; the timing of pay accounts being added or removed during a period; and the foreign currency exchange rates between the U.S.
Dollar and the Euro and between the U.S. Dollar and the Swedish Krona.

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 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 the same 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 those accounts canceled during the first 30 days
of service unless the accounts have upgraded from free accounts, although a number of such accounts 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. Classmates Media segment active accounts are
defined as the sum
of the following: all segment pay accounts as of the date presented; the monthly average for the reporting period of all free social networking accounts who have visited our domestic or international
social networking Web sites (excluding The Names Database) at least once during the reporting period; and the monthly average for the reporting period of all loyalty marketing members who have earned
or redeemed points during such period. Communications segment active accounts include all segment pay accounts as of the date presented and the number of free Internet access and email accounts that
logged on to our services at least once during the preceding 31 days.

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
following table sets forth, for the dates or three-month periods presented, as applicable, our consolidated revenues, pay accounts (at the end of the period), segment revenues,
consumer orders, average order value, churn (monthly average for the period), ARPU (monthly average for the period), and active accounts (monthly average for the period).

Revenues
and operating results from our FTD segment are impacted by seasonal variations and fluctuations in foreign currency exchange rates. We believe that comparisons of the FTD
segment's revenues and operating results for any period with those of the immediately preceding period, or in

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some
instances, the same period of the preceding fiscal year, may be of limited relevance in evaluating its historical performance and predicting its future financial performance.

Quarter EndedMarch 31,
2009

December 31,
2008

September 30,
2008

June 30,
2008

March 31,
2008Consolidated:Revenues (in thousands)

$
263,647

$
256,162

$
169,157

$
122,273

$
121,811FTD:Basis of presentation(a)








Combined


Pre-
Acquisition


Pre-
AcquisitionRevenues(a) (in thousands)

$
147,987

$
133,685

$
121,427

$
174,904

$
191,987% of Total revenues(a)


56.1
%

52.2
%

N/A


N/A


N/AConsumer orders(a) (in thousands)


1,691


1,467


1,154


1,993


1,994Average order value(a)

$
57.70

$
58.80

$
64.37

$
62.67

$
65.59Currency exchange rate: GBP to USD


1.43


1.56


1.90


1.97


1.98Classmates Media:Segment revenues (in thousands)

$
58,473

$
62,592

$
58,746

$
57,013

$
51,884% of Total revenues


22.2
%

24.4
%

34.7
%

46.6
%

42.6
%Pay accounts (in thousands)


4,563


4,319


4,087


3,809


3,521Segment churn


4.1
%

4.4
%

4.1
%

4.2
%

4.3
%ARPU

$
2.87

$
2.98

$
3.07

$
3.10

$
3.10Segment active accounts (in millions)


16.8


16.0


15.5


15.1


13.9Communications:Segment revenues (in thousands)

$
57,380

$
60,120

$
62,131

$
65,260

$
69,927% of Total revenues


21.7
%

23.5
%

36.7
%

53.4
%

57.4
%Pay accounts (in thousands):Access


1,316


1,388


1,468


1,560


1,682Other


337


347


353


356


361Total pay accounts


1,653


1,735


1,821


1,916


2,043Segment churn


4.8
%

4.3
%

4.4
%

4.5
%

4.8
%ARPU

$
9.45

$
9.31

$
9.49

$
9.45

$
9.45Segment active accounts (in millions)


2.6


2.7


2.8


2.9


3.1


---

Financial Statement Presentation

Revenues

Products Revenues

Products revenues consist of the FTD segment's merchandise revenue and related shipping and service fees for consumer orders, as well
as revenues generated from the sale of containers, software and hardware systems, cut flowers, packaging and promotional products and a wide variety of other

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floral-related
supplies to florist members. We do not generate products revenues from our Classmates Media segment or our Communications segment.

Services Revenues



Services revenues consist of fees charged to florist members for access to the FTD and Interflora brands and the Mercury Man logo,
access to the florist network, credit card processing services, e-commerce Web sites, online advertising tools, and telephone answering and order-taking services.



Classmates Media services revenues consist of amounts charged to pay accounts for social networking services. Communications services
revenues consist of amounts charged to pay accounts for Internet access, Web hosting, email, Internet security, and other services, with substantially all of such revenues associated with Internet
access. Our Classmates Media and Communications services revenues are primarily dependent on two factors: the average number of pay
accounts for a period and the ARPU. The average number of pay accounts is a simple average calculated based on the number of pay accounts at the beginning and end of a period. 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.

Advertising Revenues

We provide advertising solutions 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. We also use targeting technologies, Web site sponsorships and Web site integrations in order to provide effective
solutions.



Advertising revenues consist primarily of post-transaction sales that are generated when FTD and Interflora consumers are
provided third-party offers after completing a purchase on thewww.ftd.comandwww.Interflora.co.ukWeb
sites.



Our social networking services generate advertising revenues primarily from post-transaction sales and display
advertisements. Advertising inventory on our social networking Web sites includes text and graphic placements on the user home page, profile page, class list page, and most other pages on our Web
sites. We sell a portion of our advertising inventory through third-party advertising resellers.

Our
loyalty marketing service revenues are derived from advertising fees, consisting primarily of fees 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 activities including Internet searches, games and market surveys.



Our Communications services generate advertising revenues from search placements, display advertisements and online market research.
Substantially all of our Communications advertising revenues are generated from our Internet access services.

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Table of Contents

Cost of Revenues

FTD

FTD cost of revenues includes product costs; shipping and delivery costs; costs associated with taking orders; printing and postage
costs; systems installation, training and support costs; 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; customer billing for our florist members; fees associated with the storage and processing of customer credit cards
and associated bank fees; and domain name registration fees.

Classmates Media

Classmates Media cost of revenues includes costs of points earned by members of our online loyalty marketing service; 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; customer billing and billing support for our pay accounts; fees associated with the storage and processing of customer credit cards and associated bank fees; and domain name registration
fees.

Communications

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; customer billing and billing support for our
pay accounts; fees associated with the storage and processing of customer credit cards and associated bank fees; and domain name registration fees.

Sales and Marketing

Sales and marketing expenses include expenses associated with promoting our products and services and with generating advertising
revenues. Expenses associated with promoting our brands, products and services 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
commissions and personnel-related expenses. We have expended significant amounts on sales and marketing, including branding and customer acquisition campaigns consisting of television, Internet,
sponsorships, radio, print, and outdoor advertising, and on retail and other performance-based distribution relationships. Marketing and advertising costs to promote our products and services 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 and technology and
development of new or improved software and technology, including personnel-related expenses for our technology departments and the costs associated with operating our facility in India. Costs
incurred by us to manage and monitor our technology and development activities are expensed as incurred. Costs relating to the acquisition and development of internal-use software are
capitalized when appropriate and depreciated over their estimated useful lives, generally three years.

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Table of Contents

General and Administrative

General and administrative expenses include personnel-related expenses for executive, finance, legal, human resources, facilities, and
internal customer support personnel. In addition, general and administrative expenses include, among other costs, professional fees for legal, accounting and financial services; office relocation
costs; non-income taxes; insurance; occupancy and other overhead-related costs; and expenses incurred and credits received as a result of certain legal settlements.

Amortization of Intangible Assets

Amortization of intangible assets principally includes amortization of: acquired pay accounts and free accounts; certain acquired
trademarks and trade names; purchased software and technology; acquired customer and advertising contracts and related relationships; acquired patents and domain names; and other identifiable
intangible assets. In accordance with the provisions set forth in SFAS No. 142, goodwill and indefinite-lived intangible assets are not being amortized but are tested for impairment at a
reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would indicate the fair value of a reporting unit is below its carrying value.

Interest Income

Interest income consists of earnings on our cash, cash equivalents and short-term investments, net of the amortization of
premiums on certain of our short-term investments held from time to time, and interest on long-term receivables from FTD's system sales.

Interest Expense

Interest expense consists of interest expense on our credit facilities, including accretion of discounts and amortization of debt issue
costs, and interest expense relating to capital leases.

Other Income (Expense), Net

Other income (expense), net, generally consists of realized gains and losses recognized in connection with the sale of
short-term investments, gains and losses on the sale of assets, equity earnings on investments in subsidiaries, and foreign currency transaction exchange rate gains and losses.
Additionally, other income (expense), net consists of imputed interest expense on the acquired member redemption liability related to our acquisition of MyPoints.com, Inc. in April 2006, which
was amortized through the quarter ended September 30, 2007.

Results of Operations

The following tables set forth, for the periods presented, selected historical statements of operations 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 the unaudited condensed
consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

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Table of Contents

Unaudited
condensed consolidated financial information was as follows (in thousands):

Quarter Ended
March 31,2009

2008Revenues

$
263,647

$
121,811Operating expenses:Cost of revenues (including stock-based compensation)


114,334


27,839Sales and marketing (including stock-based compensation)


55,763


36,781Technology and development (including stock-based compensation)


17,141


12,902General and administrative (including stock-based compensation)


30,414


20,884Amortization of intangible assets


8,591


2,836Restructuring charges





206Total operating expenses


226,243


101,448Operating income


37,404


20,363Interest income


348


1,600Interest expense


(8,201
)

Other income, net


38


42Income before income taxes


29,589


22,005Provision for income taxes


12,536


9,003Net income

$
17,053

$
13,002


Information
for our three reportable segments was as follows (in thousands):

FTD

Classmates Media

CommunicationsQuarter Ended
March 31,

Quarter Ended
March 31,

Quarter Ended
March 31,2009

2008

2009

2008

2009

2008Revenues:Products

$
113,265

$


$


$


$


$
Services


32,798





38,221


31,241


48,049


59,421Advertising


1,924





20,252


20,643


9,331


10,506Total revenues


147,987





58,473


51,884

$
57,380


69,927Operating expenses:Cost of revenues


89,851





8,978


9,287


12,984


16,203Sales and marketing


24,839





20,029


19,558


10,874


17,113Technology and development


2,968





7,327


5,207


4,808


6,161General and administrative


11,099





9,984


9,879


8,012


9,759Restructuring charges

















206Total operating expenses


128,757





46,318


43,931


36,678


49,442Segment income from operations

$
19,230

$


$
12,155

$
7,953

$
20,702

$
20,485


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

Quarter Ended
March 31,2009

2008Segment income from operations:FTD

$
19,230

$
Classmates Media


12,155


7,953Communications


20,702


20,485Total segment income from operations


52,087


28,438Depreciation


(6,092
)

(5,239
)Amortization of intangible assets


(8,591
)

(2,836
)Consolidated operating income

$
37,404

$
20,363


A
reconciliation of segment revenues to consolidated revenues was as follows for each period presented (in thousands):

Quarter Ended
March 31,2009

2008Segment revenues:FTD

$
147,987

$
Classmates Media


58,473


51,884Communications


57,380


69,927Intersegment eliminations


(193
)

Consolidated revenues

$
263,647

$
121,811


A
reconciliation of segment operating expenses (excluding depreciation and amortization of intangible assets) to consolidated operating expenses was as follows for each period presented
(in thousands):

Quarter Ended
March 31,2009

2008Segment operating expenses:FTD

$
128,757

$
Classmates Media


46,318


43,931Communications


36,678


49,442Total segment operating expenses


211,753


93,373Depreciation


6,092


5,239Amortization of intangible assets


8,591


2,836Intersegment eliminations


(193
)

Consolidated operating expenses

$
226,243

$
101,448


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Table of Contents

Quarter Ended March 31, 2009 compared to Quarter Ended March 31, 2008

Consolidated Results

Revenues.Consolidated revenues increased by $141.8 million, or 116%, to $263.6 million for the quarter ended March 31,
2009,
compared to $121.8 million for the quarter ended March 31, 2008. The increase in consolidated revenues was primarily related to $148.0 million of revenues associated with our FTD
segment and, to a lesser extent, an increase in revenues from our Classmates Media segment, partially offset by a decrease in revenues from our Communications segment. Consolidated revenues related to
our FTD, Classmates Media and Communications segments constituted 56.1%, 22.2% and 21.7%, respectively, of our consolidated revenues for the quarter ended March 31, 2009, compared to 0%, 42.6%
and 57.4%, respectively, for the quarter ended March 31, 2008.

Cost of Revenues.Consolidated cost of revenues increased by $86.5 million, or 311%, to $114.3 million for the quarter ended
March 31, 2009, compared to $27.8 million for the quarter ended March 31, 2008. Consolidated cost of revenues as a percentage of consolidated revenues increased to 43.4% for the
quarter ended March 31, 2009, compared to 22.9% for the prior-year period. The increase of $86.5 million was related to $89.9 million of cost of revenues associated
with our FTD segment, partially offset by a decrease in cost of revenues associated with our Communications and Classmates Media segments. The increase as a percentage of revenues was due to the
addition of FTD which has a significantly higher cost of revenues as a percentage of its revenues compared to the other segments. Cost of revenues related to our FTD, Classmates Media and
Communications segments constituted 80.4%, 8.0% and 11.6%, respectively, of our total segment cost of revenues for the quarter ended March 31, 2009, compared to 0%, 36.4% and 63.6%,
respectively, for the quarter ended March 31, 2008.

Sales and Marketing Expenses.Consolidated sales and marketing expenses increased by $19.0 million, or 52%, to $55.8 million,
for the
quarter ended March 31, 2009, compared to $36.8 million for the quarter ended March 31, 2008. Consolidated sales and marketing expenses as a percentage of consolidated revenues
decreased to 21.2% for the quarter ended March 31, 2009, compared to 30.2% for the prior-year period. The increase of $19.0 million was primarily related to
$24.8 million of sales and marketing expenses associated with our FTD segment and a slight increase in marketing expenses associated with our Classmates Media segment, partially offset by a
reduction in marketing expenses related to our Communications segment. The decrease as a percentage of revenues was primarily due to the addition of FTD, which has lower sales and marketing expenses
as a percentage of its revenues compared to the other segments. Sales and marketing expenses related to our FTD, Classmates Media and Communications segments constituted 44.6%, 35.9% and 19.5%,
respectively, of total segment sales and marketing expenses for the quarter ended March 31, 2009, compared to 0%, 53.3% and 46.7%, respectively, for the quarter ended March 31, 2008.

Technology and Development Expenses.Consolidated technology and development expenses increased by $4.2 million, or 33%, to
$17.1 million, for the quarter ended March 31, 2009, compared to $12.9 million for the quarter ended March 31, 2008. Consolidated technology and development expenses as a
percentage of consolidated revenues decreased to 6.5% for the quarter ended March 31, 2009,
compared to 10.6% for the prior-year period. The increase of $4.2 was primarily related to $3.0 million of technology and development expenses associated with our FTD segment and an
increase in expenses related to our Classmates Media segment, partially offset by a decrease in expenses in our Communications segment. The decrease as a percentage of revenues was primarily due to
the addition of FTD, which has lower technology and development expenses as a percentage of its revenues. Technology and development expenses related to our FTD, Classmates Media and Communications
segments constituted 19.7%, 48.5% and 31.8%, respectively, of total segment technology and development expenses for the quarter ended March 31, 2009, compared to 0%, 45.8% and 54.2%,
respectively, for the quarter ended March 31, 2008.

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General and Administrative Expenses.Consolidated general and administrative expenses increased by $9.5 million, or 46%, to
$30.4 million for the quarter ended March 31, 2009, compared to $20.9 million for the quarter ended March 31, 2008. Consolidated general and administrative expenses as a
percentage of consolidated revenues decreased to 11.5% for the quarter ended March 31, 2009, compared to 17.1% for the prior-year period. The increase of $9.5 million was
primarily related to $11.1 million of general and administrative expenses associated with our FTD segment, partially offset by a decrease in general and administrative expenses associated with
our Communications segment. The decrease as a percentage of revenues was primarily due to the addition of FTD, which has lower general and administrative expenses as a percentage of its revenues.
General and administrative expenses related to our FTD, Classmates Media and Communications segments constituted 38.1%, 34.4% and 27.5%, respectively, of total segment general and administrative
expenses for the quarter ended March 31, 2009, compared to 0%, 50.3% and 49.7%, respectively, for the quarter ended March 31, 2008.

Amortization of Intangible Assets.Consolidated amortization of intangible assets increased by $5.8 million, or 203%, to
$8.6 million
for the quarter ended March 31, 2009, compared to $2.8 million for the quarter ended March 31, 2008. The increase was associated with increased amortization related to intangible
assets acquired in connection with our FTD acquisition in August 2008, partially offset by a decrease in amortization of intangible assets related to our Classmates Media segment attributable to the
accelerated amortization in earlier years of intangible assets associated with our acquisition of Classmates Online, Inc. in November 2004.

Restructuring Charges.There were no restructuring charges for the quarter ended March 31, 2009, compared to $0.2 million for
the
quarter ended March 31, 2008. The restructuring charges for the quarter ended March 31, 2008 were primarily associated with the closure of our Orem, Utah facility.

Interest Income.Interest income decreased by $1.3 million, or 78%, to $0.3 million for the quarter ended March 31, 2009,

compared to $1.6 million for the quarter ended March 31, 2008. The decrease in interest income was primarily due to the liquidation of our short-term investments portfolio to fund the
FTD acquisition in the third quarter of 2008 as well as a decline in interest rates on our investments as a result of the current interest rate environment.

Interest Expense.Interest expense was $8.2 million for the quarter ended March 31, 2009. We had no interest expense for the
quarter
ended March 31, 2008. The increase in interest expense was a result of the indebtedness incurred in connection with the FTD acquisition, which closed in the third quarter of 2008.

Other Income, Net.Other income, net was $38,000 for the quarter ended March 31, 2009, compared to other income, net of $42,000 for
the
quarter ended March 31, 2008.

Provision for Income Taxes.For the quarter ended March 31, 2009, we recorded a provision for income taxes of $12.5 million,
on
pre-tax income of $29.6 million, resulting in a year-to-date effective income tax rate of 42.2%. For the quarter ended March 31, 2008, we recorded a
provision for income taxes of $9.0 million, on pre-tax income of $22.0 million, resulting in a year-to-date effective income tax rate of 40.9%. The
increase in the effective income tax rate compared to the prior year was primarily due to (1) an increase in stock-based compensation that is limited under Section 162(m) of the Internal
Revenue Code, (2) an increase in stock-based compensation related to the qualified employee stock purchase plan that is not currently tax deductible, (3) lower amounts of
tax-free income, (4) a reduction in the utilization of foreign net operating losses, and (5) an increase in foreign tax credit limitations. These increases to the effective
income tax rate were partially offset by benefit for foreign income that is taxed at less than the U.S. statutory rate. The quarterly effective income tax rate is subject to fluctuation in future
periods due to discrete items and other factors.

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Classmates Media Segment Results

Classmates Media Revenues.Classmates Media revenues increased by $6.6 million, or 13%, to $58.5 million for the quarter
ended
March 31, 2009, compared to $51.9 million for the quarter ended March 31, 2008. The increase in Classmates Media revenues was primarily due to a $7.0 million increase in
services revenues as a result of a 32% increase in our average number of pay accounts from 3.4 million for the quarter ended March 31, 2008 to 4.4 million for the quarter ended
March 31, 2009, partially offset by a 7% decrease in ARPU from $3.10 for the quarter ended March 31, 2008 to $2.87 for the quarter ended March 31, 2009. The decrease in ARPU was
primarily attributable to a greater percentage of pay accounts being represented by international social networking pay accounts which have lower-priced subscription plans compared to U.S. social
networking pay accounts. The increase in Classmates Media services revenues was partially offset by a $0.4 million decrease in advertising revenues due to a decrease in revenues generated by
our loyalty marketing services.

Classmates Media Cost of Revenues.Classmates Media cost of revenues decreased by $0.3 million, or 3%, to $9.0 million, for
the quarter
ended March 31, 2009, compared to $9.3 million for the quarter ended March 31, 2008. Classmates Media cost of revenues as a percentage of Classmates Media revenues decreased to
15.4% for the quarter ended March 31, 2009, compared to 17.9% for the prior-year period. The decrease of $0.3 million was primarily related to a $0.5 million decrease
in costs associated with our loyalty marketing services, partially offset by $0.2 million increase in customer support, overhead-and personnel-related costs associated with our
social networking services as a result of growth in the business and an increase in headcount.

Classmates Media Sales and Marketing Expenses.Classmates Media sales and marketing expenses increased by $0.5 million, or 2%, to
$20.0 million, for the quarter ended March 31, 2009, compared to $19.6 million for the quarter ended March 31, 2008. Classmates Media sales and marketing expenses as a
percentage of Classmates Media revenues decreased to 34.3% for the quarter ended March 31, 2009, compared to 37.7% for the prior-year period. The increase of $0.5 million was
primarily the result of a $0.7 million increase in personnel- and overhead-related expenses, partially offset by a $0.2 million net decrease in marketing costs related to acquiring new
social networking and loyalty marketing members. The decrease as a percentage of Classmates Media revenues was mainly due to a reduction in sales commissions as a result of a decline in revenues from
our loyalty marketing services and an increase in revenues from our international social networking operations.

Classmates Media Technology and Development Expenses.Classmates Media technology and development expenses increased by
$2.1 million, or 41%,
to $7.3 million, for the quarter ended March 31, 2009, compared to $5.2 million for the quarter ended March 31, 2008. Classmates Media technology and development expenses
as a percentage of Classmates Media revenues increased to 12.5% for the quarter ended March 31,2009, compared to 10.0% for the prior-year period. The increase in expenses was
primarily due to a $1.3 million increase in personnel-related expenses resulting from increased headcount to develop new features related to our social networking services and an
$0.8 million increase in overhead-related expenses.

Classmates Media General and Administrative Expenses.Classmates Media general and administrative expenses increased by
$0.1 million, or 1%,
to $10.0 million, for the quarter ended March 31, 2009, compared to $9.9 million for the quarter ended March 31, 2008. Classmates Media general and administrative expenses
as a percentage of Classmates Media revenues decreased to 17.1%, compared to 19.0% for the prior-year period. The increase of $0.1 million was primarily related to an increase in
overhead-related costs of $0.6 million and an increase in professional services and consulting fees of $0.4 million, partially offset by an $0.8 million decrease in
personnel-related expenses.

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Communications Segment Results

Communications Revenues.Communications revenues decreased by $12.5 million, or 18%, to $57.4 million for the quarter ended
March 31, 2009, compared to $69.9 million for the quarter ended March 31, 2008. The decrease in Communications revenues was primarily due to an $11.4 million decrease in
services revenues as a result of a 23% decrease in our average number of dial-up Internet access pay accounts from 1.7 million for the quarter ended March 31, 2008 to
1.3 million for the quarter ended March 31, 2009, partially offset by an increase in revenues from our broadband services in the quarter ended March 31, 2009, compared to the
quarter ended March 31, 2008. The decrease in Communications revenues was also due to a $1.2 million decrease in advertising revenues as a result of the decrease in pay accounts. We
anticipate continued declines in our Communications pay accounts, which will result in continued declines in Communications revenues.

Communications Cost of Revenues.Communications cost of revenues decreased by $3.2 million, or 20%, to $13.0 million, for the
quarter
ended March 31, 2009, compared to $16.2 million for the quarter ended March 31, 2008. Communications cost of revenues as a percentage of Communications revenues decreased slightly
to 22.6% for the quarter ended March 31, 2009, compared to 23.2% for the prior-year period. The decrease of $3.2 million was primarily due to a $2.4 million decrease
in telecommunications costs associated with our dial-up Internet access services due to a decrease in the number of pay accounts, a decrease in hourly usage per pay account, and lower
average hourly telecommunications costs. In addition, Communications costs of revenues decreased as a result of an $0.8 million decrease in customer support- and billing-related costs in the
quarter ended March 31, 2009, compared to the prior-year period, as a result of a decrease in the number of dial-up Internet access pay accounts and a decrease in the
hourly rate charged by our third-party vendor, a $0.3 million decrease in costs associated with our VoIP service as a result of our decision to exit this business in the third quarter of 2007,
and a $0.2 million decrease in overhead-related costs. These decreases were partially offset by a $0.7 million increase in costs associated with our broadband services due to an increase
in the number of broadband pay accounts.

Communications Sales and Marketing Expenses.Communications sales and marketing expenses decreased by $6.2 million, or 36%, to
$10.9 million, for the quarter ended March 31, 2009, compared to $17.1 million for the quarter ended March 31, 2008. Communications sales and marketing expenses as a
percentage of Communications revenues decreased to 19.0% for the quarter ended March 31, 2009, compared to 24.5% for the prior-year period. The decrease of $6.2 million was
attributable to a $4.1 million decline in advertising, promotion and distribution costs related to our dial-up Internet access services and a $2.2 million decrease in
personnel- and overhead-related expenses as a result of reduced headcount.

Communications Technology and Development Expenses.Communications technology and development expenses decreased by $1.4 million,
or 22%, to
$4.8 million, for the quarter ended March 31, 2009, compared to $6.2 million for the quarter ended March 31, 2008. Communications technology and development expenses as a
percentage of Communications revenues decreased slightly to 8.4% for the quarter ended March 31, 2009, compared to 8.8% for the prior-year period. The decrease in expenses was
primarily the result of a $1.5 million decrease in personnel-related expenses as a result of reduced headcount.

Communications General and Administrative Expenses.Communications general and administrative expenses decreased by $1.7 million,
or 18%, to
$8.0 million, for the quarter ended March 31, 2009, compared to $9.8 million for the quarter ended March 31, 2008. Communications general and administrative expenses as a
percentage of Communications revenues remained stable at 14.0% for the quarters ended March 31, 2009 and 2008. The decrease of $1.7 million was primarily due to a $1.9 million
decrease in personnel-related costs as a result of reduced headcount and a $0.1 million decrease in facilities costs, partially offset by a $0.3 million increase in professional services
and consulting fees.

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Communications Restructuring Charges.There were no restructuring charges for the quarter ended March 31, 2009, compared to
$0.2 million for the quarter ended March 31, 2008. The restructuring charges for the quarter ended March 31, 2008 were primarily associated with the closure of our Orem, Utah
facility.

FTD Segment Results (Actual Results vs. Pre-Acquisition Results Discussion)

The unaudited results of operations for FTD for the quarter ended March 31, 2009 and unaudited pre-acquisition
results of operations for FTD for the quarter ended March 31, 2008 (the "Pre-Acquisition First Quarter 2008 Results") are set forth below. The Pre-Acquisition First Quarter 2008
Results were derived from the unaudited results of operations of FTD prior to the acquisition.

The
Pre-Acquisition First Quarter 2008 Results set forth below have been included with this Quarterly Report on Form 10-Q for informational purposes only and do not
purport to be
indicative of the results of future operations of the FTD segment or the results that would have actually been attained had the acquisition taken place at the beginning of 2008. The Pre-Acquisition
First Quarter 2008 Results should be read in conjunction with the historical consolidated financial statements of FTD Group, Inc. and the related notes to those financial statements. Historical
public filings of FTD Group, Inc. are available at the SEC's Web site atwww.sec.gov.

Quarter Ended March 31,2009

2008
(Pre-Acquisition)

% Change(in thousands, except
Average Order Value)FTD segment revenues:Products

$
113,265

$
149,726


(24.4
)%Services


32,798


39,696


(17.4
)%Advertising


1,924


2,565


(24.5
)%Total FTD segment revenues


147,987


191,987


(22.9
)%Operating expenses:Cost of revenues


89,851


119,548


(24.8
)%Sales and marketing


24,839


33,308


(25.4
)%Technology and development


2,968


3,570


(16.9
)%General and administrative


11,099


13,056


(15.0
)%Total operating expenses


128,757


169,482


(24.0
)%Consumer orders


1,691


1,994


(15.2
)%Average order value

$
57.70

$
65.59


(12.0
)%


FTD Revenues.FTD revenues decreased by $44.0 million, or 23%, to $148.0 million for the quarter ended March 31, 2009,
compared
to $192.0 million for the quarter ended March 31, 2008. Excluding the foreign currency exchange rate impact of $16.5 million due to a weaker British Pound versus the U.S. Dollar,
revenues decreased $27.5 million, or 14.3%, primarily due to reduced consumer order volume and a decrease in sales of products and services to our florist members.

FTD Cost of Revenues.FTD cost of revenues decreased by $29.6 million, or 25%, to $89.9 million, for the quarter ended
March 31,
2009, compared to $119.5 million for the quarter ended March 31, 2008. Excluding the impact of foreign currency exchange rates of $11.5 million, cost of revenues decreased by
$18.2 million, or 15.2%, compared to the prior-year period. FTD cost of revenues as a percentage of FTD revenues decreased to 60.7% for the quarter ended March 31, 2009,
compared to 62.3% for the prior-year period. Cost of revenues as a percentage of revenues was impacted by a shift in the mix of products and services sold.

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FTD Sales and Marketing Expenses.FTD sales and marketing expenses decreased by $8.5 million, or 25%, to $24.8 million, for
the quarter
ended March 31, 2009, compared to $33.3 million for the quarter ended March 31, 2008. FTD sales and marketing expenses as a percentage of FTD revenues decreased to 16.8% for the
quarter ended March 31, 2009, compared to 17.3% for the prior-year period. Excluding the impact of foreign currency exchange rates, sales and marketing expenses decreased by
$6.9 million, or 20.6%. The decrease was due to reduced costs in certain programs, including online marketing and print advertising, lower florist member incentives and a decrease in
personnel-related costs.

FTD Technology and Development Expenses.FTD technology and development expenses decreased by $0.6 million, or 17%, to
$3.0 million,
for the quarter ended March 31, 2009, compared to $3.6 million, for the quarter ended March 31, 2008. FTD technology and development expenses as a percentage of FTD revenues
increased to 2.0% for the quarter ended March 31, 2009, compared to 1.9% for the prior-year period. Excluding the impact of foreign currency exchange rates, technology and
development costs decreased by $0.1 million, or 3.4%.

FTD General and Administrative Expenses.FTD general and administrative expenses decreased by $2.0 million, or 15%, to
$11.1 million,
for the quarter ended March 31, 2009, compared to $13.1 million for the quarter ended March 31, 2008. FTD general and administrative expenses as a percentage of FTD revenues
increased to 7.5% for the quarter ended March 31, 2009, compared to 6.8% for the prior-year period. Excluding the impact of foreign currency exchange rates, general and
administrative expenses decreased by $1.7 million, or 13.1%. The decrease was primarily due to $2.0 million of charges in the March 2008 quarter related to acquisition opportunities that
were abandoned in light of the pending acquisition by us, $0.9 million of expenses in the March 2008 quarter related to the then-pending acquisition of FTD by us,
$0.6 million of advisory costs in the March 2008 quarter related to the resolution of a sales tax audit, and a decrease in personnel-related costs in the March 2008 quarter, partially offset by
an increase in stock-based compensation costs and allocated corporate costs.

Liquidity and Capital Resources

On August 26, 2008, we completed the acquisition of 100% of the capital stock of FTD Group, Inc. The FTD acquisition was
financed, in part, with the net proceeds from (i) a $60 million senior secured credit agreement with Silicon Valley Bank (the "UOL Credit Agreement") and (ii) $425 million
of term loan borrowings under senior secured credit facilities, including a $50 million revolving line of credit, with Wells Fargo Bank, National Association, as Administrative Agent (the "FTD
Credit Agreement").

Our
total cash and cash equivalent balances increased by $20.2 million, or 19.4%, to $124.8 million at March 31, 2009, compared to $104.5 million at
December 31, 2008. Our summary cash flows for the quarters ended March 31, 2009 and 2008 were as follows (in thousands):

Quarter Ended March 31,2009

2008Net cash provided by operating activities

$
43,579

$
28,999Net cash used for investing activities

$
(6,347
)
$
(40,482
)Net cash used for financing activities

$
(16,483
)
$
(19,815
)


Quarter Ended March 31, 2009 compared to Quarter Ended March 31, 2008

Net cash provided by operating activities increased by $14.6 million, or 50.3%, for the quarter ended March 31, 2009
compared to the quarter ended March 31, 2008. Net cash provided by operating activities is driven by our net income adjusted for non-cash items, including, but not limited to,
depreciation and amortization, provision for doubtful accounts receivable, stock-based compensation,

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intangible
assets and long-lived assets, deferred taxes, tax benefits (shortfalls) from equity awards, and changes in operating assets and liabilities. The quarter ended March 31,
2009 includes the results of FTD which we acquired in August 2008. The increase in cash provided by operating activities was primarily due to a $4.1 million increase in net income, a
$5.4 million increase in non-cash items and a $5.1 million favorable change in operating assets and liabilities.

Net
cash used for investing activities decreased by $34.1 million, or 84.3%, for the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008. The
decrease in cash used for investing activities was primarily due to a net decrease in purchases of short-term investments.

Capital
expenditures for the quarter ended March 31, 2009 were $6.3 million. We currently anticipate that our total capital expenditures for 2009 will be in the range of
$27.0 million to $32.0 million. The actual amount of future capital expenditures may fluctuate due to a number of factors including, without limitation, strategic spending decisions,
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 decreased by $3.3 million, or 16.8%, for the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008. The
decrease in net cash used for financing activities was primarily due to a $5.8 million decrease in the payment of dividends resulting from the decrease in our quarterly cash dividend from $0.20
per share of common stock to $0.10 per share of common stock and a $3.6 million decrease in repurchases of common stock in connection with shares withheld upon vesting of restricted stock
awards and restricted stock units to pay applicable employee withholding taxes. These decreases were partially offset by payments on the UOL Credit Agreement and the FTD Credit Agreement of
$5.4 million in the quarter ended March 31, 2009 and a decrease in proceeds from the exercise of stock options of $0.6 million in the quarter ended March 31, 2009 compared
to the quarter ended March 31, 2008.

The
payment of dividends negatively impacts our cash flows from financing activities. In January 2009, United Online, Inc.'s Board of Directors declared a quarterly cash dividend
of $0.10 per share of common stock. The record date for the dividend was February 13, 2009. The dividend was paid on February 27, 2009 and totaled $8.8 million. In April 2009,
United Online, Inc.'s Board declared a quarterly cash dividend of $0.10 per share of common stock. The record date for the dividend is May 14, 2009 and the dividend will be paid on
May 29, 2009. The payment of future dividends is discretionary and is subject to determination by United Online, Inc.'s Board of Directors each quarter following its review of our
financial performance and other factors. In accordance with the terms of the FTD Credit Agreement, cash flows at FTD will, in general, not be available to United Online, Inc. or segments other
than the FTD segment. In addition, the UOL Credit Agreement imposes certain limitations on our ability to pay dividends.

Future
cash flows from financing activities may also be affected by repurchases of our common stock. 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 through
December 31, 2009. From August 2001 through March 31, 2009, we had repurchased a total of $139.2 million of our common stock under the program. We have not repurchased any shares
of our common stock under the program since February 2005, and at March 31, 2009, the remaining amount available under the program was $60.8 million. The UOL Credit Agreement restricts
our ability to repurchase shares of our common stock.

Cash
flows from financing activities may also be negatively impacted by the withholding of a portion of shares underlying the restricted stock units, restricted stock awards and stock
awards we award to employees. We currently do not collect the applicable employee withholding taxes upon

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vesting
of restricted stock units and restricted stock awards and upon the issuance of stock awards from employees. Instead, we automatically withhold, from the restricted stock units that vest and
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. We then pay the applicable 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 quarters ended March 31, 2009 and 2008 were $2.6 million
and $6.2 million, respectively, for which we withheld 503,000 shares and 546,000 shares of common stock, respectively, that were underlying the restricted stock units and restricted stock
awards which vested and stock awards that were issued. The amount we pay in future quarters will vary based on our stock price and the number of restricted stock units vesting and stock awards being
issued during the quarter.

Based
on our current projections, we expect to continue to generate positive cash flows from operations, at least in the next twelve months. We may use our existing cash balances and
future cash generated from operations to fund, among other things, both contractual payments and optional prepayments on the outstanding balances under the UOL Credit Agreement and FTD Credit
Agreement; dividend payments, if declared by United Online, Inc.'s Board of Directors; the development and acquisition of other services, businesses or technologies; to repurchase our common
stock underlying restricted stock units and stock awards and pay the employee withholding taxes due on vested restricted stock units and stock awards issued; to repurchase our common stock under the
program; and to fund future capital expenditures. Under the terms of the UOL Credit Agreement and the FTD Credit Agreement, there are significant limitations on our ability to use cash flows from
operations generated by our Communications and Classmates Media segments for the benefit of the FTD segment and, conversely, there are significant limitations on our ability to use cash flows from
operations generated by the FTD segment for the benefit of United Online, Inc. or the Communications and Classmates Media segments. The degree to which our assets are leveraged and the terms of
our debt could materially and adversely affect our ability to obtain additional capital as well as the terms at which such capital might be offered to us. We currently expect to have sufficient
liquidity to fulfill our debt service obligations.

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. Our failure to raise sufficient capital when needed could severely constrain or prevent us from, among other factors, developing new or enhancing
existing services or products, repurchasing our common stock, acquiring other services, businesses or technologies or funding significant capital expenditures, and have a material adverse effect on
our business, financial position, results of operations, and cash flows as well as impair our ability to pay future dividends. If additional funds were raised through the issuance of equity or
convertible debt securities, the percentage of stock owned by the then-current stockholders could be reduced. Furthermore, such equity or debt securities that we issue might have rights,
preferences or privileges senior to holders of our
common stock. In addition, the recent extreme volatility and disruption in the securities and credit markets may restrict our ability to raise any such additional funds, at least in the near term.

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Contractual Obligations

Contractual obligations at March 31, 2009 were as follows (in thousands):

Total

Less than
1 Year

1 Year to
Less than
3 Years

3 Years to
Less than
5 Years

More than
5 YearsOperating leases(1)

$
60,626

$
15,893

$
19,780

$
13,903

$
11,050Services and promotional contracts


7,610


6,090


1,520





Telecommunications purchases


1,984


1,347


637





Media purchases


1,954


1,775


179





Floral-related purchase obligations


1,286


1,112


174





Debt, including interest


567,895


50,532


105,839


117,103


294,421Member redemption liability, long-term


5,029





5,029





Other long-term liabilities


2,717


363


1,494


262


598Total

$
649,101

$
77,112

$
134,652

$
131,268

$
306,069


---

Commitments
under standby letters of credit at March 31, 2009 were scheduled to expire as follows (in thousands):

Total

Less than
1 Year

1 Year to
Less than
3 Years

3 Years to
Less than
5 Years

More than
5 YearsStandby letters of credit

$
12,859

$
11,735

$
882

$
242

$



Standby
letters of credit are maintained by FTD to secure credit card processing activity. Additionally, standby letters of credit are maintained pursuant to certain of our lease
arrangements and remain in effect at declining levels through the terms of the related leases. In April 2009, commitments under standby letters of credit were reduced by $10.0 million.

Other Commitments

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, 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
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.

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Off-Balance Sheet Arrangements

At March 31, 2009, we had no off-balance sheet arrangements 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

Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies

In April 2009, the FASB issued FSP No. Financial Accounting Standards ("FAS") 141(R)-1,Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. This guidance amends and clarifies Statement of Financial Accounting
Standards ("SFAS") No. 141(R),Business Combinations,to address application issues on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP FAS 141(R)-1 is effective for assets or liabilities
arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The
impact of this FSP will depend on the nature, terms and size of any acquisition that we consummate.

Interim Disclosures about Fair Value of Financial Instruments

In April 2009, the FASB issued FSP No. FAS 107-1 and Accounting Principles Board ("APB") Opinion
No. 28-1 ("FSP FAS 107-1"),Interim Disclosures about Fair Value of Financial Instruments.FSP
FAS 107-1 amends SFAS No. 107,Disclosures about Fair Value of Financial Instruments,to require disclosures about fair value
of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 also amends
APB Opinion No. 28,Interim Financial Reporting,to require those disclosures in summarized financial information at interim reporting periods.
FSP FAS 107-1 applies to all financial instruments within the scope of SFAS No.107 held by publicly traded companies, as defined by APB Opinion No. 28, and shall be effective
for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. FSP FAS 107-1 does not require
disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FSP FAS 107-1 requires comparative disclosures only for
periods ending after initial adoption. Because FSP FAS 107-1 amends only the disclosure requirements for financial instruments, the adoption of FSP FAS 107-1 will
only affect the disclosure in our consolidated financial statements.

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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 fluctuations.

Interest Rate Risk

We are exposed to interest rate risk on our cash and outstanding balances of the UOL Credit Agreement and the FTD Credit Agreement. The
term loan under the UOL Credit Agreement bears interest at either LIBOR plus 3.50% per annum (with a LIBOR floor of 3.00%) or the prime rate plus 2.00% per annum. The interest rate set forth in the
FTD Credit Agreement for loans made under the revolving credit facility and term loan A facility is either LIBOR plus 3.50% per
annum (with a LIBOR floor of 3.00%) or the prime rate plus 2.50% per annum, in each case, with step-downs in the interest rate depending on FTD's leverage ratio. The interest rate set
forth in the FTD Credit Agreement for loans made under the term loan B facility is either LIBOR plus 4.50% per annum (with a LIBOR floor of 3.00%) or the prime rate plus 3.50% per annum, in each case,
with step-downs in the interest rate depending on FTD's leverage ratio. The FTD Credit Agreement also requires that FTD maintain one or more interest rate swap agreements, interest rate
cap agreements, interest rate collar agreements or other similar arrangements to manage risks associated with interest rate fluctuations and exposures on its credit facilities with Wells Fargo Bank,
National Association. Accordingly, in November 2008, FTD Group, Inc. entered into a three-year interest rate cap instrument based on LIBOR and a $150 million notional amount
of our FTD Credit Agreement. At inception and at December 31, 2008, the interest rate cap instrument was designated as a cash flow hedge against expected future cash flows attributable to
future LIBOR interest payments on the outstanding borrowings under the FTD Credit Agreement. However, in January 2009, as economic and capital market conditions continued to deteriorate, we determined
that prime-based borrowings were more attractive than LIBOR-based borrowings. Therefore, in January 2009, the cash flow hedge was de-designated and cash flow hedge accounting was
discontinued prospectively. Therefore, subsequent fluctuations in market value of the interest rate cap are recorded in earnings. If interest rates were to increase 100 basis points, the result would
be an annual increase in our interest expense related to our debt of approximately $3.7 million.

We
also have interest rate risk related to our short-term investments portfolio. As a result, we are exposed to the impact of interest rate changes and changes in the market
values of our investments. Our interest income is sensitive to changes in the general level of U.S. interest rates.

We
typically have maintained a short-term investments portfolio consisting, at times, of U.S. commercial paper, U.S. corporate notes, U.S. Government or U.S. Government
agencies obligations, and municipal securities, including, prior to 2008, auction rate securities. Additionally, we also maintain deposits in foreign banks. We have not used derivative financial
instruments in our short-term investments portfolio. Our principal objective in managing our short-term investments is the preservation of principal and liquidity, while
optimizing yield without significantly increasing risk. The minimum long-term credit rating is A, and if a long-term credit rating is not available, we require a minimum
short-term credit rating of A1 and P1. Furthermore, by policy, we limit the amount of credit exposure to any one issuer. Our short-term investments, at times in both
fixed-rate and variable-rate interest-earning instruments, carry a degree of interest rate risk. Fixed-rate securities may have their fair market value adversely
impacted due to a rise in interest rates, while variable-rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment
income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal by selling securities which have declined in market value due to changes in interest rates.

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Foreign Currency Risk

We transact business in foreign currencies and may be exposed to risk resulting from fluctuations in foreign currency exchange rates,
particularly the British Pound ("GBP"), the Indian Rupee ("INR"), the Euro ("EUR"), and the Canadian Dollar ("CAD"), which may result in gains or losses reported in our earnings. The volatilities in
GBP, INR, EUR, and CAD (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 period-end exchange rates. The resulting translation adjustments are recorded as a
component of accumulated other comprehensive income (loss) in stockholders' equity. 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 trend in currencies. Therefore, changes in foreign currency exchange
rates may negatively affect our consolidated revenues and expenses. We do not currently hedge foreign currency translation risk. A hypothetical 10% adverse change in overall foreign currency exchange
rates over an entire year would result in a reduction of reported annual revenues of approximately $16.0 million and a reduction of reported annual income before income taxes of approximately
$1.8 million. These estimates assume an adverse shift in all foreign currency exchange rates against the U.S. Dollar, which do not always move in the same direction, and actual results may
differ materially. Net foreign currency transaction gains or losses arising from transactions in our foreign operations denominated in currencies other than the local functional currency are included
in other income (expense), net in the consolidated statements of operations. While we have not engaged in foreign currency hedging to date, we may in the future use hedging programs, including
currency forward contracts, currency options and/or other derivative financial instruments commonly utilized if it is determined that such hedging activities are appropriate to reduce risk.

ITEM 4.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Acting 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. Based on such evaluation, our Chief Executive Officer and Acting Chief Financial Officer have
concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information
required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring 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 Acting Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company's internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.

47

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Table of Contents

PART IIOTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

In April 2001 and in May 2001, lawsuits were filed in the United States District Court for the Southern District of New York against
NetZero, Inc. ("NetZero"), certain officers and directors of NetZero and the underwriters of NetZero's initial public offering, Goldman Sachs Group, Inc., BancBoston Robertson
Stephens, Inc. and Salomon Smith Barney, Inc. A consolidated amended complaint was filed in April 2002. The complaint alleges that the prospectus through which NetZero conducted its
initial public offering in September 1999 was materially false and misleading because it failed to disclose, among other things, that (i) the underwriters had solicited and received excessive
and undisclosed commissions from certain investors in exchange for which the underwriters allocated to those investors material portions of the restricted number of NetZero shares issued in
connection with the offering; and (ii) the underwriters had entered into agreements with customers whereby the underwriters agreed to allocate NetZero shares to those customers in the offering
in exchange for which the customers agreed to purchase additional NetZero shares in the aftermarket at pre-determined prices. Plaintiffs are seeking injunctive relief and damages. The case
against NetZero was coordinated with approximately 300 other suits filed against more than 300 issuers that conducted their initial public offerings between 1998 and 2000, their underwriters and an
unspecified number of their individual corporate officers and directors. On October 13, 2004, the district court certified a class in six of the other nearly identical actions (the "focus
cases"). The United States Court of Appeals for the Second Circuit subsequently vacated the district court's decision granting class certification. On October 10, 2008, the district court
granted plaintiffs' motion to withdraw without prejudice their Motion for Class Certification in the six focus cases. The parties in the approximately 300 coordinated class actions, including NetZero,
the underwriter defendants in the NetZero class action, and the plaintiff class in the NetZero action, have reached an agreement in principle under which the insurers for the issuer defendants in the
coordinated cases will make a settlement payment on behalf of the issuers, including NetZero. The settlement is subject to court approval.

On
March 6, 2006, plaintiff Anthony Piercy filed a purported consumer class action lawsuit in the Superior Court of the State of California, County of Los Angeles, against NetZero
claiming that NetZero continues to charge consumers fees after they cancel their Internet access account. On July 27, 2006, plaintiff Donald E. Ewart filed a purported consumer class action
lawsuit in the Superior Court of the State of California, County of Los Angeles, against NetZero containing substantially similar allegations to the Piercy case. Plaintiffs in both cases sought
injunctive and declaratory relief and damages. These cases subsequently were consolidated as Rasnake v. NetZero. A settlement agreement was entered into by all parties in this case, and the settlement
became final on January 5, 2009.

Lawsuits
involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to defend. Although we do not believe the
outcome of our outstanding legal proceedings, claims and litigation will have a material adverse effect on our business, financial position, results of operations, or cash flows, the results of legal
proceedings, claims and litigation are inherently uncertain and we cannot assure you that we will not be materially and adversely impacted by the results of such proceedings. At March 31, 2009,
we had not established allowances for losses relating to any of the matters described above, with the exception of the Rasnake v. NetZero matter.

We
are subject to various legal proceedings, claims and litigation that arise in the ordinary course of business. Based on information at this time, we believe the amount, and ultimate
liability, if any, with respect to these actions will not materially affect our business, financial position, results of operations, or cash flows. We cannot assure you, however, that such actions
will not materially and adversely affect our business, financial position, results of operations, or cash flows.

48

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Table of Contents

ITEM 1A.    RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I,
Item IA, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the Securities and Exchange Commission. These
factors could materially affect our business, financial condition or future results. However, they are not the only risks facing the Company. Additional risks and uncertainties not currently known to
us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

49

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Table of Contents

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

(a)-(b) Not applicable

(c)       Repurchases

In May 2001, our 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, our Board of Directors has increased the amount
authorized for repurchase under this program and has extended the program. In April 2004, our Board of Directors authorized us to purchase up to an additional $100 million of our common stock
under the program, bringing the total amount authorized under the program to $200 million. In January 2009, our Board of Directors again further extended the program through December 31,
2009. At March 31, 2009, we had repurchased $139.2 million of our common stock under the program, leaving $60.8 million of authorization remaining under the program.

Shares
withheld upon vesting of restricted stock units and restricted stock awards and upon the issuance of stock awards to pay applicable employee withholding taxes are considered
common stock repurchases, but are not counted as purchases against the program. Upon vesting of restricted stock units and restricted stock awards or issuance of stock awards, we currently do not
collect the applicable employee withholding taxes from employees. Instead, we automatically withhold, from the restricted stock units and restricted stock awards that vest and 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. We then pay the applicable withholding taxes in cash.

Common
stock repurchases through March 31, 2009 were as follows (in thousands, except per share amounts):

Period

Total Number of
Shares Purchased

Average Price
Paid per Share

Total Number of
Shares Purchased as
Part of a Publicly
Announced Program

Maximum Approximate
Dollar Value that
May Yet be Purchased
Under the Program2001 - 2006


11,147

$
12.72


10,932

$
60,782February 15, 2007


194

$
13.72




$
60,782May 15, 2007


71

$
15.89




$
60,782August 15, 2007


69

$
12.82




$
60,782November 15, 2007


56

$
16.66




$
60,782January 27, 2008


142

$
10.71




$
60,782February 15, 2008


404

$
11.49




$
60,782May 15, 2008


81

$
11.81




$
60,782August 15, 2008


104

$
11.79




$
60,782November 15, 2008


72

$
6.62




$
60,782November 18, 2008


3

$
6.37




$
60,782January 2, 2009


1

$
6.02




$
60,782February 13, 2009


1

$
5.19




$
60,782February 15, 2009


501

$
5.19




$
60,782Total


12,846

$
12.37


10,932


50

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Table of Contents

ITEM 6.    EXHIBITS

Incorporated by Reference toFiled
with this
Form 10-QNo.

Exhibit Description

Form

File No.

Date Filed3.1

Amended and Restated Certificate of Incorporation




10-K


000-33367


3/1/20073.2

Amended and Restated Bylaws




10-K


000-33367


3/1/20073.3

Certificate of Designation for Series A Junior Participating Preferred Stock (included in Exhibit 4.1 below)




10-K


000-33367


3/1/20074.1

Rights Agreement, dated as of November 15, 2001, between the Company and U.S. Stock Transfer Corporation, which includes the form of
Certificate of Designation for the Series A junior participating preferred stock as Exhibit A, and the form of Rights Certificate as Exhibit B




10-K


000-33367


3/1/20074.2

Amendment No. 1 to Rights Agreement, dated as of April 29, 2003, between the Registrant and U.S. Stock Transfer
Corporation




10-Q


000-33367


5/1/200310.1

United Online, Inc. 2009 Management Bonus Plan

X





000-33367


5/8/200931.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X





000-33367


5/8/200931.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X





000-33367


5/8/200932.1

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X





000-33367


5/8/200932.2

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X





000-33367


5/8/2009


51

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Table of Contents

SIGNATURES

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

Date: May 8, 2009

UNITED ONLINE, INC.(Registrant)By:

/s/ NEIL P. EDWARDS Neil P. Edwards Acting Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)


52

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Table of Contents

EXHIBIT INDEX

Incorporated by Reference toFiled
with this
Form 10-QNo.

Exhibit Description

Form

File No.

Date Filed3.1

Amended and Restated Certificate of Incorporation




10-K


000-33367


3/1/20073.2

Amended and Restated Bylaws




10-K


000-33367


3/1/20073.3

Certificate of Designation for Series A Junior Participating Preferred Stock (included in Exhibit 4.1 below)




10-K


000-33367


3/1/20074.1

Rights Agreement, dated as of November 15, 2001, between the Company and U.S. Stock Transfer Corporation, which includes the form of
Certificate of Designation for the Series A junior participating preferred stock as Exhibit A, and the form of Rights Certificate as Exhibit B




10-K


000-33367


3/1/20074.2

Amendment No. 1 to Rights Agreement, dated as of April 29, 2003, between the Registrant and U.S. Stock Transfer
Corporation




10-Q


000-33367


5/1/200310.1

United Online, Inc. 2009 Management Bonus Plan

X





000-33367


5/8/200931.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X





000-33367


5/8/200931.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X





000-33367


5/8/200932.1

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X





000-33367


5/8/200932.2

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X





000-33367


5/8/2009


---