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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, 2010Oro

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 electronically 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 87,133,658 shares of the Registrant's common stock outstanding at April 30, 2010.



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UNITED ONLINE, INC.        INDEX TO FORM 10-Q        For the Quarter Ended March 31, 2010



PagePART I.

FINANCIAL INFORMATIONItem 1.

Financial Statements:Unaudited Condensed Consolidated Balance Sheets at March 31, 2010 and December 31,
2009

4Unaudited Condensed Consolidated Statements of Operations for the Quarters Ended March 31,
2010 and 2009

5Unaudited Condensed Consolidated Statements of Comprehensive Income for the Quarters Ended
March 31, 2010 and 2009

6Unaudited Condensed Consolidated Statement of Stockholders' Equity for the Quarter Ended
March 31, 2010

7Unaudited Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2010
and 2009

8Notes to Unaudited Condensed Consolidated Financial
Statements

9Item 2.

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

19Item 3.

Quantitative and Qualitative Disclosures About Market
Risk

40Item 4.

Controls and Procedures

41PART II.

OTHER INFORMATION

42Item 1.

Legal Proceedings

42Item 1A.

Risk Factors

43Item 2.

Unregistered Sales of Equity Securities and Use of
Proceeds

60Item 6.

Exhibits

61SIGNATURES

62


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;
advertising revenues; segment metrics; operating expenses; market trends, including those in the markets in which we compete; operating and marketing efficiencies; revenues; liquidity; cash flows and
uses of cash; dividends; capital expenditures; depreciation and amortization; tax payments; foreign currency exchange rates; hedging arrangements; our ability to repay indebtedness, pay dividends and
invest in

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initiatives; 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 this Quarterly Report on Form 10-Q and additional factors that accompany the related
forward-looking statements in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect 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.

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PART IFINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS



UNITED ONLINE, INC.        UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS        (in thousands)

March 31,
2010

December 31,
2009AssetsCurrent assets:Cash and cash equivalents

$
120,923

$
115,509Accounts receivable, net of allowance for doubtful accounts


48,410


55,874Deferred tax assets, net


15,652


15,797Other current assets


20,105


25,599Total current assets


205,090


212,779Property and equipment, net


61,676


63,547Goodwill


455,783


464,151Intangible assets, net


280,409


292,520Other assets


16,006


16,937Total assets

$
1,018,964

$
1,049,934Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
75,250

$
71,668Accrued liabilities


48,122


50,428Member redemption liability


19,852


20,666Deferred revenue


75,651


74,294Long-term debt


14,552


24,383Total current liabilities


233,427


241,439Member redemption liability


4,878


5,089Deferred revenue


3,313


3,340Long-term debt, net of discounts


290,593


304,563Deferred tax liabilities, net


43,580


44,788Other liabilities


18,143


18,064Total liabilities


593,934


617,283Commitments and contingenciesStockholders' equity:Common stock


9


8Additional paid-in capital


510,896


518,580Accumulated other comprehensive loss


(38,122
)

(26,963
)Accumulated deficit


(47,753
)

(58,974
)Total stockholders' equity


425,030


432,651Total liabilities and stockholders' equity

$
1,018,964

$
1,049,934


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

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UNITED ONLINE, INC.        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (in thousands, except per share amounts)

Quarter Ended
March 31,2010

2009Revenues:Services

$
127,238

$
150,382Products


124,487


113,265Total revenues


251,725


263,647Operating expenses:Cost of revenuesservices


26,013


29,642Cost of revenuesproducts


95,185


84,692Sales and marketing


50,130


55,763Technology and development


14,349


17,141General and administrative


30,984


30,414Amortization of intangible assets


8,163


8,591Restructuring charges


1,069


Total operating expenses


225,893


226,243Operating income


25,832


37,404Interest income


465


348Interest expense


(7,149
)

(8,201
)Other income, net


82


38Income before income taxes


19,230


29,589Provision for income taxes


8,009


12,536Net income

$
11,221

$
17,053Income allocated to participating securities


(727
)

(671
)Net income applicable to common stockholders

$
10,494

$
16,382Basic net income per common share

$
0.12

$
0.20Shares used to calculate basic net income per common share


85,759


82,570Diluted net income per common share

$
0.12

$
0.20Shares used to calculate diluted net income per common share


86,545


82,837Dividends paid per common share

$
0.10

$
0.10


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

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UNITED ONLINE, INC.        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME        (in thousands)

Quarter Ended March 31,2010

2009Net income

$
11,221

$
17,053Foreign currency translation


(11,159
)

(2,265
)Comprehensive income

$
62

$
14,788


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

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UNITED ONLINE, INC.        UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY        (in thousands)

Common Stock



Accumulated
Other
Comprehensive
LossAdditional
Paid-In
Capital

Accumulated
Deficit

Total
Stockholders'
EquityShares

AmountBalance at January 1, 2010


84,958

$
8

$
518,580

$
(26,963
)
$
(58,974
)
$
432,651Exercises of stock options


1





4








4Vesting of restricted stock units


1,599


1


(1
)







Repurchases of common stock








(6,047
)







(6,047
)Dividends paid on shares outstanding and restricted stock units








(9,108
)







(9,108
)Change in dividends payable on restricted stock units








243








243Stock-based compensation








7,860








7,860Foreign currency translation











(11,159
)




(11,159
)Tax shortfalls from equity awards








(635
)







(635
)Net income














11,221


11,221Balance at March 31, 2010


86,558

$
9

$
510,896

$
(38,122
)
$
(47,753
)
$
425,030


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

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UNITED ONLINE, INC.        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (in thousands)

Quarter Ended
March 31,2010

2009Cash flows from operating activities:Net income

$
11,221

$
17,053Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


14,830


14,683Stock-based compensation


7,860


9,366Provision for doubtful accounts receivable


1,235


1,161Accretion of discounts and amortization of debt issue costs


1,427


1,013Deferred taxes, net


(525
)

(2,180
)Tax shortfalls from equity awards


(109
)

(492
)Excess tax benefits from equity awards


(326
)

(227
)Other


201


162Changes in operating assets and liabilities:Accounts receivable


5,909


2,803Other assets


6,045


9,859Accounts payable and accrued liabilities


2,931


(12,007
)Member redemption liability


(1,026
)

(1,050
)Deferred revenue


1,364


3,476Other liabilities


450


(41
)Net cash provided by operating activities


51,487


43,579Cash flows from investing activities:Purchases of property and equipment


(5,162
)

(6,347
)Net cash used for investing activities


(5,162
)

(6,347
)Cash flows from financing activities:Payments on term loans


(25,082
)

(5,438
)Proceeds from exercises of stock options


4


109Repurchases of common stock


(6,047
)

(2,611
)Payments for dividends


(9,108
)

(8,770
)Excess tax benefits from equity awards


326


227Net cash used for financing activities


(39,907
)

(16,483
)Effect of foreign currency exchange rate changes on cash and cash equivalents


(1,004
)

(512
)Change in cash and cash equivalents


5,414


20,237Cash and cash equivalents, beginning of period


115,509


104,514Cash and cash equivalents, end of period

$
120,923

$
124,751Supplemental disclosure of non-cash investing and financing activities:Increase (decrease) in dividends payable on restricted stock units

$
(243
)
$
77


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

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UNITED ONLINE, INC.        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Description of Business

United Online, Inc. (together with its subsidiaries, "United Online", "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, StayFriends, NetZero, and MyPoints. 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 unaudited condensed consolidated financial statements for the quarters ended March 31, 2010 and 2009 include
United Online. The unaudited condensed consolidated balance sheet information at December 31, 2009 is derived from the Company's audited consolidated financial statements, filed on
February 23, 2010 with the Securities and Exchange Commission ("SEC") in the Company's Annual Report on Form 10-K for the year ended December 31, 2009, but does not
include all of the 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, 2009 included in the Company's Annual
Report on Form 10-K.

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

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

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SEGMENT INFORMATION

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

Quarter Ended March 31, 2010FTD

Classmates Media

Communications

TotalServices

$
31,731

$
33,952

$
37,018

$
102,701Products


124,487








124,487Advertising


469


16,550


8,223


25,242Total segment revenues

$
156,687

$
50,502

$
45,241

$
252,430Segment income from operations

$
14,046

$
10,095

$
16,521

$
40,662




Quarter Ended March 31, 2009FTD

Classmates Media

Communications

TotalServices

$
32,798

$
38,221

$
48,049

$
119,068Products


113,265








113,265Advertising


1,924


20,252


9,929


32,105Total segment revenues

$
147,987

$
58,473

$
57,978

$
264,438Segment income from operations

$
19,230

$
12,155

$
20,702

$
52,087


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

Quarter Ended
March 31,2010

2009Segment revenues:FTD

$
156,687

$
147,987Classmates Media


50,502


58,473Communications


45,241


57,978Intersegment eliminations


(705
)

(791
)Consolidated revenues

$
251,725

$
263,647


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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SEGMENT INFORMATION (Continued)

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

Quarter Ended
March 31,2010

2009Segment operating expenses:FTD

$
142,641

$
128,757Classmates Media


40,407


46,318Communications


28,720


37,276Total segment operating expenses


211,768


212,351Depreciation


6,667


6,092Amortization of intangible assets


8,163


8,591Intersegment eliminations


(705
)

(791
)Consolidated operating expenses

$
225,893

$
226,243


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 31,2010

2009Segment income from operations:FTD

$
14,046

$
19,230Classmates Media


10,095


12,155Communications


16,521


20,702Total segment income from operations


40,662


52,087Depreciation


(6,667
)

(6,092
)Amortization of intangible assets


(8,163
)

(8,591
)Consolidated operating income

$
25,832

$
37,404


International
revenues are generated by the Company's operations in Europe. International revenues totaled $56.9 million and $49.2 million for the quarters ended
March 31, 2010 and 2009, respectively.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SEGMENT INFORMATION (Continued)

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

March 31,
2010

December 31,
2009United States

$
68,773

$
71,280Europe


8,909


9,204Total long-lived assets

$
77,682

$
80,484


Segment
assets are not reported to, or used by, the Company's chief operating decision maker to allocate resources to or assess performance of the segments and, therefore, pursuant to
ASC 280,Segment Reporting, total segment assets have not been disclosed.

3. BALANCE SHEET COMPONENTS

Other Current Assets

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

March 31,
2010

December 31,
2009Prepaid expenses

$
11,820

$
14,112Gift cards related to member redemption liability


2,847


4,017Floral-related inventories, net


2,468


4,035Other


2,970


3,435Total

$
20,105

$
25,599


Property and Equipment

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

March 31,
2010

December 31,
2009Computer software and equipment

$
163,421

$
159,359Land and buildings


17,173


17,671Furniture and fixtures


16,648


16,485197,242


193,515Less: accumulated depreciation and amortization


(135,566
)

(129,968
)Total

$
61,676

$
63,547


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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. BALANCE SHEET COMPONENTS (Continued)

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

March 31,
2010

December 31,
2009Employee compensation and related expenses

$
15,971

$
22,475Income taxes payable


12,288


8,565Non-income taxes payable


5,801


5,325Customer deposits


3,854


3,636Reserve for pending lawsuit


2,567


2,200Other


7,641


8,227Total

$
48,122

$
50,428


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

Goodwill

The changes in goodwill by reportable segment for the quarter ended March 31, 2010 were as follows (in thousands):

FTD

Classmates
Media

Communications

TotalBalance at January 1, 2010:Goodwill (excluding impairment charges)

$
445,931

$
124,731

$
13,227

$
583,889Accumulated impairment charges


(114,000
)




(5,738
)

(119,738
)Goodwill


331,931


124,731


7,489


464,151Foreign currency translation


(8,357
)

(11
)




(8,368
)Balance at March 31, 2010:Goodwill (excluding impairment charges)


437,574


124,720


13,227


575,521Accumulated impairment charges


(114,000
)




(5,738
)

(119,738
)Goodwill

$
323,574

$
124,720

$
7,489

$
455,783


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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Intangible Assets

Intangible assets consisted of the following (in thousands):

March 31, 2010Gross
Value

Accumulated
Amortization

NetPay accounts and free accounts

$
100,780

$
(89,507
)
$
11,273Customer contracts and relationships


111,406


(36,342
)

75,064Trademarks and trade names


181,268


(15,584
)

165,684Software and technology


46,335


(18,241
)

28,094Patents, domain names and other


4,596


(4,302
)

294Total

$
444,385

$
(163,976
)
$
280,409




December 31, 2009Gross
Value

Accumulated
Amortization

NetPay accounts and free accounts

$
100,825

$
(88,935
)
$
11,890Customer contracts and relationships


112,575


(31,856
)

80,719Trademarks and trade names


184,020


(14,912
)

169,108Software and technology


46,726


(16,279
)

30,447Patents, domain names and other


4,602


(4,246
)

356Total

$
448,748

$
(156,228
)
$
292,520


The
Company's acquired trademarks and trade names related to the FTD acquisition of $229.8 million, prior to impairment charges, are indefinite-lived and, accordingly, there is no
associated amortization expense or accumulated amortization. At March 31, 2010 and December 31, 2009, the FTD trademarks and trade names after impairment and foreign currency translation
adjustments totaled $155.5 million and $158.2 million, respectively.

5. CREDIT AGREEMENTS

UOL Credit Agreement

In connection with the acquisition by the Company of FTD Group, Inc. (together with its subsidiaries, "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. The net proceeds of the
term loan under the UOL Credit Agreement were used to finance, in part, the acquisition of FTD. In April 2010, United Online, Inc. made a voluntary prepayment of $14.7 million plus accrued
interest for a total of payment of $14.8 million, under the UOL Credit Agreement to retire the credit facility.

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

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. CREDIT AGREEMENTS (Continued)

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 up to $75 million, (ii) a term loan B facility of up to $300 million, and (iii) a revolving credit facility of up to $50 million. In April 2010, FTD
Group, Inc. made a voluntary prepayment of $15.0 million under the FTD Credit Agreement.

The
changes in the Company's debt balances, net of discounts, for the quarter ended March 31, 2010 were as follows (in thousands):

Balance at
January 1, 2010

Repayments
of Debt

Accretion
of Discounts

Balance at
March 31, 2010UOL Credit Agreement

$
24,383

$
(10,082
)
$
251

$
14,552FTD Credit Agreement, term loan A


59,779


(2,917
)

170


57,032FTD Credit Agreement, term loan B


244,784


(12,083
)

860


233,561FTD Credit Agreement, revolving credit facility











Total

$
328,946

$
(25,082
)
$
1,281

$
305,145


Future
minimum principal payments based upon the outstanding and scheduled mandatory debt payments under the UOL Credit Agreement and FTD Credit Agreement, excluding required prepayments
based on excess cash flows, were as follows at March 31, 2010 (in thousands):

Year Ending December 31,Total
Gross
Debt

April -
December
20102011

2012

2013

2014UOL Credit Agreement

$
14,737

$
11,250

$
3,487

$


$


$
FTD Credit Agreement, term loan A


58,273





5,298


7,505


45,470


FTD Credit Agreement, term loan B


241,352





1,857


2,475


2,475


234,545Total

$
314,362

$
11,250

$
10,642

$
9,980

$
47,945

$
234,545


At
March 31, 2010, the borrowing capacity under the FTD revolving credit facility, which was reduced by $1.1 million in outstanding letters of credit, was
$48.9 million.

Subject
to certain exceptions, FTD Group, Inc. is required to make annual prepayments of a portion of the term loans under the FTD Credit Agreement based on excess cash flow as
defined in the FTD Credit Agreement (commencing in the second quarter of 2010).

6. FAIR VALUE MEASUREMENTS

ASC 820 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

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. FAIR VALUE MEASUREMENTS (Continued)

information
about assets at March 31, 2010 that are required to be measured at fair value on a recurring basis (in thousands):

Description

Total
Fair Value

Level 1
Fair Value

Level 2
Fair ValueMoney market funds

$
83,961

$
83,961

$
Time deposits


7,306





7,306Total

$
91,267

$
83,961

$
7,306


The
Company estimated the fair value of its long-term debt using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for
duration and risk profile. In determining the market interest yield curve, the Company considered, among other factors, its estimate of its credit ratings. The Company estimated its credit ratings as
A/A for the long-term debt associated with the UOL Credit Agreement resulting in a discount rate of 3%, and BBB/BB+ for the long-term debt associated with the FTD
Credit Agreement resulting in a discount rate of 5%. The table below summarizes the fair value estimates for long-term debt at March 31, 2010, as defined by ASC 825, Disclosures about Fair Value of Financial
Instruments, (in thousands):

Carrying
Amount

Estimated
Fair ValueLong-term debt, net of discounts, including current portion

$
305,145

$
340,730


7. 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, 2010. From August
2001 through March 31, 2010, the Company had repurchased $139.2 million of its common stock under the program, leaving $60.8 million of
authorization remaining under the program. The Company has not repurchased any shares of its common stock under the program since February 2005.

Shares
withheld upon the vesting of restricted stock units 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 or issuance of stock awards, the Company currently does not collect the applicable employee withholding taxes
from employees. Instead, the Company automatically withholds, from the restricted stock units that vest, and from the stock awards that are issued, the portion of those shares with a fair market value
equal to the amount of the employee withholding taxes due, which is accounted for as a repurchase of common stock. The Company then pays the applicable withholding taxes in cash. The amounts remitted
in the quarter ended March 31, 2010 and 2009 were $6.0 million and $2.6 million, respectively, for which the Company withheld 964,000 and 503,000 shares of common stock,
respectively, that were underlying the restricted stock units which vested and stock awards that were issued.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCKHOLDERS' EQUITY (Continued)

Dividends

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

In
February 2010, United Online, Inc.'s Board of Directors declared a quarterly cash dividend of $0.10 per share of common stock. The dividend was paid on February 26, 2010
and totaled $9.1 million.

In
April 2010, 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,
2010 and the dividend will be paid on May 28, 2010.

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.

8. 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 31,2010

2009Operating expenses:Cost of revenuesservices

$
181

$
256Cost of revenuesproducts


19


Sales and marketing


1,217


1,248Technology and development


973


1,193General and administrative


5,470


6,669Total stock-based compensation

$
7,860

$
9,366


Recent Awards

Effective February 15, 2010, the Compensation Committee of the Board of Directors of United Online, Inc. (the
"Compensation Committee") approved grants of 1.0 million restricted stock units with a grant-date fair value equal to $6.5 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 as to one-third of the total number of shares awarded annually over a three-year period beginning February 15, 2010.

Effective
February 15, 2010, the Secondary Compensation Committee of the Board of Directors of United Online, Inc. approved grants of 1.2 million restricted stock
units with a grant-date fair value equal to $7.7 million to certain of the Company's non-executive officer employees. The restricted stock

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. STOCK-BASED COMPENSATION PLANS (Continued)

units
will vest as to twenty-five percent of the total number of shares awarded annually over a four-year period beginning February 15, 2010.

Effective
February 15, 2010, the Compensation Committee approved grants of 0.7 million shares of common stock with a grant-date fair value equal to
$3.7 million to the Company's executive officers in connection with awards earned under the 2009 Management Bonus Plan.

9. NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income per common share for the quarters ended March 31, 2010 and 2009 (in thousands, except per share
amounts):

Quarter Ended
March 31,2010

2009Numerator:Net income

$
11,221

$
17,053Income allocated to participating securities


(727
)

(671
)Net income applicable to common stockholders

$
10,494

$
16,382Denominator:Weighted-average common shares


85,759


82,570Shares used to calculate basic net income per common share


85,759


82,570Add: Dilutive effect of non-participating securities


786


267Shares used to calculate diluted net income per common share


86,545


82,837Basic net income per common share

$
0.12

$
0.20Diluted net income per common share

$
0.12

$
0.20


The
diluted net income per common share computations exclude stock options and restricted stock units which are antidilutive. Weighted-average antidilutive shares for the quarters ended
March 31, 2010 and 2009 were 2.8 million and 10.0 million, respectively.

10. RESTRUCTURING CHARGES

For the quarter ended March 31, 2010, the Company recorded restructuring charges totaling $1.1 million related to the closure of certain FTD call center facilities in the
United States and the United Kingdom. Restructuring charges primarily included lease termination costs and employee termination benefits.

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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; advertising revenues; segment metrics; operating expenses; market trends, including those in the markets in which we compete; operating and marketing
efficiencies; revenues; liquidity; cash flows and uses of cash; dividends; capital expenditures; depreciation and amortization; tax payments; foreign currency exchange rates; hedging arrangements; our
ability to repay indebtedness, pay dividends and invest in initiatives; 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 this Quarterly Report on Form 10-Q and
additional factors that accompany the related forward-looking statements in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect 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, StayFriends, NetZero, and MyPoints. 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 marketing servicesCommunications

Internet access, email, Internet security, and Web hosting services


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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 U.S., Canada, the U.K., and the Republic of Ireland. The business uses the
highly recognized FTD and Interflora brands, both supported by the Mercury Man logo. FTD is a nationwide floral marketer, which we refer to as FTD's consumer business, and a provider of floral network
services, which we refer to as FTD's floral network business. These businesses are complementary, as the majority of floral orders generated by the consumer business are fulfilled and
hand-delivered by the members of the FTD network. FTD does not own or operate any retail locations.

Consumer Business.FTD is a leading 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.ukandwww.interflora.ieWeb sites and various telephone
numbers. FTD also operates mobile Web sites that are optimized for mobile phones with Internet connections. While floral arrangements and plants are FTD's primary offerings, FTD also markets and sells
other specialty gift items including gourmet food, special occasion gifts, bath and beauty products, jewelry, wine and gift baskets, chocolates, and stuffed animals.

Floral Network Business.FTD provides a comprehensive suite of products and services that promote revenue growth and enhance the
operating
efficiencies of its floral network members, including services that enable such members to receive, send and deliver floral orders. Floral network members 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 floral network members
provides an order fulfillment vehicle for our consumer business and allows FTD to offer same-day delivery capability (subject to certain limitations) to populations throughout the U.S.,
Canada, the U.K., and Ireland.

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 online social networking under the StayFriends and Trombi brands.

Online Social Networking.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
services have a large and diverse population of users, with over 60 million registered accounts at March 31, 2010.

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.

Online Loyalty Marketing.MyPoints connects advertisers with its members by allowing members to earn rewards points for engaging in
online
activities. MyPoints is a free service for consumers who 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 companies' surveys, shopping online at the MyPoints Web site which serves as a
shopping portal, searching the Internet through a MyPoints branded toolbar, playing MyPoints branded online games, and engaging in other online activities. Rewards points are

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redeemable
primarily in the form of third-party gift cards from over 75 merchants, including, among others, retailers, theaters, restaurants, airlines, and hotels. Participating merchants include,
among others, Amazon.com, iTunes, Marriott, Macy's, and Target.

Communications

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

Internet Access Services.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. In addition, we offer accelerated dial-up Internet
access services which can significantly reduce the time for certain Web pages to download when compared to our basic dial-up Internet access services. Our accelerated dial-up
Internet access services 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 more than 11,000 cities across the U.S. and Canada.

Our
broadband Internet access services consist of digital subscriber lines (also known as "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 conducted very limited marketing of our broadband Internet access services to the general public.

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.ukandwww.interflora.ieWeb sites and
various telephone numbers. 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, plant 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 received for consumer orders delivered during a period. This average U.S. Dollar amount is determined after translating the British Pound
amounts received for orders delivered in the U.K. and the Republic of Ireland into U.S. Dollars. Average order value includes merchandise revenue and shipping and service fees paid by the consumer,
less certain discounts and certain refunds. Average order values may fluctuate from period to period based on the average 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.

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Classmates Media and Communications Segment 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. A pay account does
not equate to a unique subscriber since one subscriber could have several pay accounts. 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. 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 ("ARPU"). A pay account generally becomes a free account following the
expiration or termination of the related subscription.

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

Churn.To evaluate the retention characteristics of our membership base, we also monitor the percentage of pay accounts that terminate
or expire,
which we refer to as our average monthly churn rate. Our average monthly churn rate 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 all social networking pay accounts as of the date presented; the monthly average for the 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 period; and the monthly average for the period of all online loyalty marketing members who have earned or redeemed points
during such period. Communications segment active accounts include all Communications segment pay accounts as of the date presented combined with the number of free Internet access and email accounts
that logged on to our services 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

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unless
the account uses the same member identifier. As a result, total active accounts may not represent total unique users.

The
table below sets forth, for the quarterly periods presented, as applicable, our consolidated revenues, segment revenues, consumer orders, average order value, average currency
exchange rate, pay accounts (at the end of the period), segment churn (monthly average for the period), ARPU (monthly average for the period), and segment active accounts (monthly average for the
period).

Revenues
and operating results from our FTD segment are impacted by seasonal holiday timing variations and fluctuations in foreign currency exchange rates. As such, we believe that
comparisons of our FTD segment's revenues and operating results for any period with those of the immediately preceding period or, in some instances, the same period of the preceding fiscal year, may
be of limited relevance in evaluating its historical financial performance and predicting its future financial performance.

Quarter EndedMarch 31,
2010

December 31,
2009

September 30,
2009

June 30,
2009

March 31,
2009Consolidated:Revenues (in thousands)

$
251,725

$
249,490

$
216,206

$
260,789

$
263,647FTD:Segment revenues (in thousands)

$
156,687

$
141,116

$
107,526

$
149,216

$
147,987% of consolidated revenues


62
%

57
%

50
%

57
%

56
%Consumer orders (in thousands)


1,813


1,594


1,075


1,711


1,691Average order value

$
59.42

$
60.14

$
61.29

$
59.78

$
57.70Average currency exchange rate: GBP to USD


1.54


1.63


1.64


1.55


1.43Classmates Media:Segment revenues (in thousands)

$
50,502

$
60,712

$
58,682

$
58,155

$
58,473% of consolidated revenues


20
%

24
%

27
%

22
%

22
%Pay accounts (in thousands)


4,988


4,886


4,785


4,621


4,563Segment churn


3.2
%

3.8
%

3.8
%

4.3
%

4.1
%ARPU

$
2.29

$
2.53

$
2.71

$
2.81

$
2.87Segment active accounts (in millions)


17.5


19.4


16.9


16.4


16.8Communications:Segment revenues (in thousands)

$
45,241

$
48,429

$
50,679

$
54,147

$
57,978% of consolidated revenues


18
%

19
%

23
%

21
%

22
%Pay accounts (in thousands):Access


967


1,036


1,118


1,203


1,316Other


306


314


322


329


337Total pay accounts


1,273


1,350


1,440


1,532


1,653Segment churn


4.3
%

4.4
%

4.6
%

4.9
%

4.8
%ARPU

$
9.41

$
9.43

$
9.43

$
9.55

$
9.45Segment active accounts (in millions)


2.1


2.2


2.3


2.4


2.6


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Financial Statement Presentation

Revenues

Services Revenues



FTD services revenues consist of fees charged to its floral network members for access to the FTD and Interflora brands and the Mercury
Man logo, access to the floral networks, credit card processing services, e-commerce Web sites services, online advertising tools, and telephone answering, order-taking, transmission, and
clearing-house 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, email, Web hosting, 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. 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.

Products Revenues

Products revenues consist of merchandise revenue and related shipping and service fees, less discounts and refunds, for FTD consumer
orders as well as revenues generated from sales of containers, software and hardware systems, cut flowers, packaging and promotional products, and a wide variety of other floral-related supplies to
floral network members. We do not generate products revenues from our Classmates Media segment or our Communications segment.

Advertising Revenues

We provide advertising opportunities to marketers with both brand and direct response objectives through a full suite of display,
search, email, and text-link opportunities across our various properties. We also offer targeting technologies, Web site sponsorships and Web site integrations.



FTD advertising revenues consist primarily of post-transaction sales that are generated when FTD and Interflora consumers
are presented with third-party offers immediately after completing a purchase on thewww.ftd.comand www.interflora.co.ukWeb sites.



Our online social networking services have historically generated advertising revenues primarily from post-transaction sales occurring
after Classmates members have completed the pay account registration process and, to a lesser extent, from 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 also sell a portion of our advertising inventory through third-party
advertising resellers.

Our
online loyalty marketing service revenues are derived from advertising fees, consisting primarily of fees based on performance measures, that are generated when emails are
transmitted to members, when members respond to emails, when members complete online transactions, and when

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members
engage in a variety of other activities including, but not limited to, games, Internet searches and market research 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. Advertising revenues also include intercompany commissions from our Classmates Media
segment which are included in reported segment results and are eliminated upon consolidation.

Cost of Revenues

FTD

FTD cost of revenues includes product costs; shipping and delivery costs; costs associated with taking orders; printing and postage
costs; costs related to FTD's product quality guarantee; 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; costs related to customer billing for floral network 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; costs related to customer billing and billing support for our pay accounts; fees associated with the storage and processing of customer credit cards and associated bank fees; 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; costs related to customer billing and billing
support for our pay accounts; fees associated with the storage and processing of customer credit cards and associated bank fees; and domain name registration fees.

Sales and Marketing

Sales and marketing expenses include expenses associated with promoting our brands, 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

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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 group in various office locations. 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.

General and Administrative

General and administrative expenses include personnel-related expenses for executive, finance, legal, human resources, facilities,
internal audit, investor relations, and internal customer support personnel. In addition, general and administrative expenses include, among other costs, professional fees for legal, accounting and
financial services; insurance; occupancy and other overhead-related costs; office relocation costs; non-income taxes; and expenses incurred and credits received as a result of settlements,
judgments, fines, penalties, assessments, or other resolutions related to litigation, arbitration, investigations, disputes, or similar matters, or reserves for any of the foregoing. General and
administrative expenses also include expenses resulting from actual or proposed transactions such as business combinations, mergers, acquisitions, and financing transactions, including expenses for
advisors and representatives such as investment bankers, consultants, attorneys, and accounting firms.

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 acquired identifiable
intangible assets. In accordance with the provisions set forth in ASC 350, 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.

Restructuring Charges

Restructuring charges consist of costs associated with the realignment and reorganization of our operations and generally include
severance expenses and facility closure and relocation costs.

Interest Income

Interest income consists of earnings on our cash, cash equivalents and short-term investments held from time to time, and
interest on long-term receivables from FTD's technology 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 and our interest rate cap.

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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 gains and losses on foreign currency exchange rate transactions.
Additionally, other income (expense), net, consists of realized and unrealized gains and losses on foreign currency forward contracts and one-time, non-operating income and
expenses.

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.

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

Quarter Ended
March 31,2010

2009Revenues

$
251,725

$
263,647Operating expenses:Cost of revenues


121,198


114,334Sales and marketing


50,130


55,763Technology and development


14,349


17,141General and administrative


30,984


30,414Amortization of intangible assets


8,163


8,591Restructuring charges


1,069


Total operating expenses


225,893


226,243Operating income


25,832


37,404Interest income


465


348Interest expense


(7,149
)

(8,201
)Other income, net


82


38Income before income taxes


19,230


29,589Provision for income taxes


8,009


12,536Net income

$
11,221

$
17,053


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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 31,2010

2009

2010

2009

2010

2009Revenues

$
156,687

$
147,987

$
50,502

$
58,473

$
45,241

$
57,978Operating expenses:Cost of revenues


99,613


89,851


8,289


8,978


10,645


13,059Sales and marketing


26,584


24,839


17,217


20,029


6,403


11,397Technology and development


3,226


2,968


5,488


7,327


3,346


4,808General and administrative


12,149


11,099


9,413


9,984


8,326


8,012Restructuring charges


1,069














Total operating expenses


142,641


128,757


40,407


46,318


28,720


37,276Segment income from operations

$
14,046

$
19,230

$
10,095

$
12,155

$
16,521

$
20,702


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

Quarter Ended
March 31,2010

2009Segment revenues:FTD

$
156,687

$
147,987Classmates Media


50,502


58,473Communications


45,241


57,978Intersegment eliminations


(705
)

(791
)Consolidated revenues

$
251,725

$
263,647


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

Quarter Ended
March 31,2010

2009Segment operating expenses:FTD

$
142,641

$
128,757Classmates Media


40,407


46,318Communications


28,720


37,276Total segment operating expenses


211,768


212,351Depreciation


6,667


6,092Amortization of intangible assets


8,163


8,591Intersegment eliminations


(705
)

(791
)Consolidated operating expenses

$
225,893

$
226,243


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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 31,2010

2009Segment income from operations:FTD

$
14,046

$
19,230Classmates Media


10,095


12,155Communications


16,521


20,702Total segment income from operations


40,662


52,087Depreciation


(6,667
)

(6,092
)Amortization of intangible assets


(8,163
)

(8,591
)Consolidated operating income

$
25,832

$
37,404


Quarter Ended March 31, 2010 compared to Quarter Ended March 31, 2009

The following table presents our consolidated operating results as a percentage of consolidated revenues for the quarters ended
March 31, 2010 and 2009.

Quarter Ended
March 31,2010

2009Revenues


100.0
%

100.0
%Operating expenses:Cost of revenues


48.1


43.4Sales and marketing


19.9


21.2Technology and development


5.7


6.5General and administrative


12.3


11.5Amortization of intangible assets


3.2


3.3Restructuring charges


0.4


Total operating expenses


89.7


85.8Operating income


10.3


14.2Interest income


0.2


0.1Interest expense


(2.8
)

(3.1
)Other income, net





Income before income taxes


7.6


11.2Provision for income taxes


3.2


4.8Net income


4.5
%

6.5
%


Consolidated Results

Revenues.Consolidated revenues decreased by $11.9 million, or 5%, to $251.7 million for the quarter ended March 31,
2010,
compared to $263.6 million for the quarter ended March 31, 2009. The decrease in consolidated revenues was primarily due to a $12.7 million decrease in revenues from our
Communications segment and an $8.0 million decrease in revenues from our Classmates Media segment, partially offset by an $8.7 million increase in revenues from our FTD segment.
Consolidated revenues related to our FTD, Classmates Media and Communications segments constituted 62.1%,

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20.0%
and 17.9%, respectively, of our total segment revenues for the quarter ended March 31, 2010, compared to 56.0%, 22.1% and 21.9%, respectively, for the quarter ended March 31, 2009.
As previously disclosed, in January 2010, we terminated our domestic post-transaction sales agreements. For the quarter ended March 31, 2010, these agreements, which have minimal
costs of revenues, contributed $0.1 million, or less than 1%, of our FTD segment revenues, and $1.1 million, or 2%, of our Classmates Media segment revenues, compared to
$1.7 million, or 1%, of our FTD segment revenues and $4.5 million, or 8%, of our Classmates Media segment revenues for the quarter ended March 31, 2009. We expect to be able to
replace only a limited portion of the advertising revenues previously generated through these agreements. As a result of a number of factors, including those discussed throughout the results of
operations discussion, we anticipate consolidated revenues and operating income will decrease in 2010 as compared to 2009.

Cost of Revenues.Consolidated cost of revenues increased by $6.9 million, or 6%, to $121.2 million for the quarter ended
March 31, 2010, compared to $114.3 million for the quarter ended March 31, 2009. Consolidated cost of revenues as a percentage of consolidated revenues increased to 48.1% for the
quarter ended March 31, 2010, compared to 43.4% for the prior-year period. The increase of $6.9 million was primarily due to a $9.8 million increase in cost of
revenues associated with our FTD segment. The increase was partially offset by a $2.4 million decrease in cost of revenues associated with our Communications segment and a $0.7 million
decrease associated with our Classmates Media segment. Cost of revenues related to our FTD, Classmates Media and Communications segments constituted 84.0%, 7.0% and 9.0%, respectively, of our total
segment cost of revenues for the quarter ended March 31, 2010, compared to 80.3%, 8.0% and 11.7%, respectively, for the quarter ended March 31, 2009.

Sales and Marketing Expenses.Consolidated sales and marketing expenses decreased by $5.6 million, or 10%, to $50.1 million
for the
quarter ended March 31, 2010, compared to $55.8 million for the quarter ended March 31, 2009. Consolidated sales and marketing expenses as a percentage of consolidated revenues
decreased to 19.9% for the quarter ended March 31, 2010, compared to 21.2% for the prior-year period. The decrease of $5.6 million was primarily due to a $5.0 million
decrease in sales and marketing expenses associated with our Communications segment and a $2.8 million decrease associated with our Classmates Media segment. The decrease was partially offset
by a $1.7 million increase in sales and marketing expenses associated with our FTD segment and a $0.4 million increase in depreciation expense. The decrease as a percentage of revenues
was primarily
due to a reduction in marketing spending by our Classmates Media and Communications segments, partially offset by an increase in marketing spending by our FTD segment. Sales and marketing expenses
related to our FTD, Classmates Media and Communications segments constituted 53.0%, 34.3% and 12.8%, respectively, of total segment sales and marketing expenses for the quarter ended March 31,
2010, compared to 44.1%, 35.6% and 20.3%, respectively, for the quarter ended March 31, 2009.

Technology and Development Expenses.Consolidated technology and development expenses decreased by $2.8 million, or 16%, to
$14.3 million for the quarter ended March 31, 2010, compared to $17.1 million for the quarter ended March 31, 2009. Consolidated technology and development expenses as a
percentage of consolidated revenues decreased to 5.7% for the quarter ended March 31, 2010, compared to 6.5% for the prior-year period. The decrease of $2.8 million was
primarily related to a $1.8 million decrease in technology and development expenses associated with our Classmates Media segment and a $1.5 million decrease associated with our
Communications segment. The decrease was partially offset by a $0.3 million increase in technology and development expenses associated with our FTD segment and a $0.3 million increase in
depreciation expense. The decrease in technology and development expenses as a percentage of revenues was primarily due a greater portion of revenues being derived from our FTD segment, which has
lower technology and development expenses as a percentage of revenues compared to the other segments. Technology and development expenses related to our FTD, Classmates Media and Communications
segments constituted 26.7%, 45.5% and 27.7%,

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respectively,
of total segment technology and development expenses for the quarter ended March 31, 2010, compared to 19.7%, 48.5% and 31.8%, respectively, for the quarter ended March 31,
2009.

General and Administrative Expenses.Consolidated general and administrative expenses increased by $0.6 million, or 2%, to
$31.0 million for the quarter ended March 31, 2010, compared to $30.4 million for the quarter ended March 31, 2009. Consolidated general and administrative expenses as a
percentage of consolidated revenues increased to 12.3% for the quarter ended March 31, 2010, compared to 11.5% for the prior-year period. The increase of $0.6 million was
primarily due a $1.1 million increase in general and administrative expenses associated with our FTD segment and a $0.3 million increase associated with our Communications segment. The
increase was partially offset by a $0.6 million decrease in general and administrative expenses associated with our Classmates Media segment and a $0.2 million decrease in depreciation
expense. The increase in general and administrative expenses was also due to $2.0 million of expenses incurred in connection with a potential transaction that failed to consummate. Such
expenses were allocated to the FTD, Classmates Media and Communications segments equally and are reflected in the aforementioned results. The increase in general and administrative expenses as a
percentage of revenues was primarily due to the continued declines in revenues from our Communications segment. General and administrative expenses related to our FTD, Classmates Media and
Communications segments constituted 40.6%, 31.5% and 27.9%, respectively, of total segment general and administrative expenses for the quarter ended March 31, 2010, compared to 38.1%, 34.3% and
27.5%, respectively, for the quarter ended March 31, 2009.

Amortization of Intangible Assets.Consolidated amortization of intangible assets decreased by $0.4 million, or 5%, to
$8.2 million for
the quarter ended March 31, 2010, compared to $8.6 million for the quarter ended March 31, 2009. The decrease was primarily due to certain intangible assets related to our
acquisition of Classmates Online becoming fully amortized in prior periods.

Restructuring Charges.Consolidated restructuring charges increased by $1.1 million for the quarter ended March 31, 2010.
There were no
restructuring charges for the quarter ended March 31, 2009. Restructuring charges for the quarter ended March 31, 2010 were related to the closure of certain FTD call center facilities
in the United States and the United Kingdom.

Interest Income.Interest income increased by $0.1 million, or 34%, to $0.5 million for the quarter ended March 31, 2010,

compared to $0.3 million for the quarter ended March 31, 2009.

Interest Expense.Interest expense decreased by $1.1 million, or 13%, to $7.1 million for the quarter ended March 31,
2010,
compared to $8.2 million for the quarter ended March 31, 2009. Interest expense was primarily related to interest on our credit facilities, including accretion of discounts and
amortization of debt issue costs. The decrease was primarily due to declining debt balances as a result of repayments on our term loans.

Other Income, Net.Other income, net increased by $44,000, or 116%, to $82,000 for the quarter ended March 31, 2010, compared to
$38,000 for
the quarter ended March 31, 2009.

Provision for Income Taxes.For the quarter ended March 31, 2010, we recorded a provision for income taxes of $8.0 million on
pre-tax income of $19.2 million, resulting in a year-to-date effective income tax rate of 41.6%. 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 42.4%. The
year-over-year rate has declined primarily due to the benefits resulting from statute expirations of uncertain tax positions.

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FTD Segment Results

The following table presents FTD segment's operating expenses and income from operations as a percentage of FTD revenues for the
quarters ended March 31, 2010 and 2009.

Quarter Ended
March 31,2010

2009Revenues


100.0
%

100.0
%Operating expenses:Cost of revenues


63.6


60.7Sales and marketing


17.0


16.8Technology and development


2.1


2.0General and administrative


7.8


7.5Restructuring charges


0.7


Total operating expenses


91.0


87.0Segment income from operations


9.0
%

13.0
%


FTD Revenues.FTD revenues increased by $8.7 million, or 6%, to $156.7 million for the quarter ended March 31, 2010,
compared to
$148.0 million for the quarter ended March 31, 2009. Excluding the foreign currency exchange rate impact of $3.5 million due to a stronger British Pound versus the U.S. Dollar,
revenues increased by $5.2 million, or 4%, compared to the prior-year period, primarily due to increased consumer order volume. The increase was partially offset by a decrease in
advertising revenues generated from post-transaction sales.

FTD Cost of Revenues.FTD cost of revenues increased by $9.8 million, or 11%, to $99.6 million for the quarter ended
March 31,
2010, compared to $89.9 million for the quarter ended March 31, 2009. Excluding the impact of foreign currency exchange rates of $2.5 million, cost of revenues increased by
$7.3 million, or 8%, compared to the prior-year period, primarily as a result of the increase in consumer order volume noted above. FTD cost of revenues as a percentage of revenues
increased to 63.6% for the quarter ended March 31, 2010, compared to 60.7% for the prior-year period. Cost of revenues as a percentage of revenues was negatively impacted by a shift
in the mix of products and services sold and a reduction in post-transaction sales revenues, which have minimal cost of revenues, as a result of the termination of the company's domestic
post-transaction sales agreements.

FTD Sales and Marketing Expenses.FTD sales and marketing expenses increased by $1.7 million, or 7%, to $26.6 million for the
quarter
ended March 31, 2010, compared to $24.8 million for the quarter ended March 31, 2009. FTD sales and marketing expenses as a percentage of revenues increased to 17.0% for the
quarter ended March 31, 2010, compared to 16.8% for the prior-year period. Excluding the impact of foreign currency exchange rates of $0.4 million, sales and marketing
expenses increased by $1.4 million, or 6%, compared to the prior-year period. The increase was largely due to higher marketing expenditures related to television advertising for the
Valentine's Day holiday in 2010, partially offset by a decrease in expenses related to online marketing and print advertising.

FTD Technology and Development Expenses.FTD technology and development expenses increased by $0.3 million, or 9%, to
$3.2 million for
the quarter ended March 31, 2010, compared to $3.0 million for the quarter ended March 31, 2009. FTD technology and development expenses as a percentage of revenues remained
relatively constant with the prior-year period at 2.1%. Excluding the impact of foreign currency exchange rates of $0.1 million, technology and development expenses increased by
$0.2 million, or 5%, compared to the prior-year period.

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FTD General and Administrative Expenses.FTD general and administrative expenses increased by $1.1 million, or 9%, to
$12.1 million for
the quarter ended March 31, 2010, compared to $11.1 million for the quarter ended March 31, 2009. FTD general and administrative expenses as a percentage of revenues increased to
7.8% for the quarter ended March 31, 2010, compared to 7.5% for the prior-year period. Excluding the impact of foreign currency exchange rates of $0.1 million, general and
administrative expenses increased by $0.9 million, or 8%, compared to the prior-year period. The increase was largely attributable to an increase in allocated corporate costs,
including $0.7 million of allocated expenses related to the potential transaction that failed to consummate, and allocated stock-based compensation. The increase was partially offset by a
decrease in personnel-related costs as a result of reduced headcount.

FTD Restructuring Charges.FTD recorded restructuring charges of $1.1 million for the quarter ended March 31, 2010 related to
the
closure of certain call center facilities in the United States and the United Kingdom. There were no restructuring charges in the quarter ended March 31, 2009.

Classmates Media Segment Results

The following table presents the Classmates Media segment's operating expenses and income from operations as a percentage of Classmates
Media revenues for the quarters ended March 31, 2010 and 2009.

Quarter Ended
March 31,2010

2009Revenues


100.0
%

100.0
%Operating expenses:Cost of revenues


16.4


15.4Sales and marketing


34.1


34.3Technology and development


10.9


12.5General and administrative


18.6


17.1Total operating expenses


80.0


79.2Segment income from operations


20.0
%

20.8
%


Classmates Media Revenues.Classmates Media revenues decreased by $8.0 million, or 14%, to $50.5 million for the quarter
ended
March 31, 2010, compared to $58.5 million for the quarter ended March 31, 2009. The decrease in Classmates Media revenues was partially due to a $4.3 million decrease in
services revenues. Services revenues decreased, despite an 11% increase in our average number of pay accounts from 4.4 million for the quarter ended March 31, 2009 to 4.9 million
for the quarter ended
March 31, 2010, as a result of a 20% decrease in ARPU from $2.87 for the quarter ended March 31, 2009 to $2.29 for the quarter ended March 31, 2010. The decrease in ARPU was
primarily attributable to the increased use of discounted pricing plans offered to certain U.S. online social networking pay accounts on a promotional basis in recent quarters. In addition, Classmates
Media advertising revenues decreased by $3.7 million primarily due to a decrease in revenues generated from post-transaction sales, compared to the quarter ended March 31,
2009. As a result of the termination of Classmates Media's post-transaction sales agreements in January 2010, we expect decreased advertising revenues in 2010 as compared to 2009. Although
we intend to enter into new post-transaction sales agreements, there are no assurances that we will enter into any such agreements.

Classmates Media Cost of Revenues.Classmates Media cost of revenues decreased by $0.7 million, or 8%, to $8.3 million for the
quarter
ended March 31, 2010, compared to $9.0 million for the quarter ended March 31, 2009. Classmates Media cost of revenues as a percentage of Classmates Media

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revenues
increased to 16.4% for the quarter ended March 31, 2010, compared to 15.4% for the prior-year period. The decrease of $0.7 million was primarily related to a
decrease in customer support and billing-related costs. The increase in cost of revenues as a percentage of Classmates Media revenues was primarily due to a smaller portion of revenues being generated
from post-transaction sales, which have minimal costs of revenues.

Classmates Media Sales and Marketing Expenses.Classmates Media sales and marketing expenses decreased by $2.8 million, or 14%, to
$17.2 million for the quarter ended March 31, 2010, compared to $20.0 million for the quarter ended March 31, 2009. Classmates Media sales and marketing expenses as a
percentage of Classmates Media revenues decreased slightly to 34.1% for the quarter ended March 31, 2010, compared to 34.3% for the prior-year period. The decrease of
$2.8 million was largely the result of a $1.7 million net decrease in marketing costs as a result of decreased costs to acquire new online social networking members, partially offset by
an increase in costs to acquire new online loyalty marketing members. The decrease was also due to a $1.1 million decrease in personnel-and overhead-related expenses as a result of reduced
headcount.

Classmates Media Technology and Development Expenses.Classmates Media technology and development expenses decreased by
$1.8 million, or 25%,
to $5.5 million for the quarter ended March 31, 2010, compared to $7.3 million for the quarter ended March 31, 2009. Classmates Media technology and development expenses as
a percentage of Classmates Media revenues decreased to 10.9% for the quarter ended March 31, 2010, compared to 12.5% for the prior-year period. The decrease in expenses was
primarily due to a $1.6 million decrease in personnel-related expenses as a result of reduced headcount.

Classmates Media General and Administrative Expenses.Classmates Media general and administrative expenses decreased by
$0.6 million, or 6%,
to $9.4 million for the quarter ended March 31, 2010, compared to $10.0 million for the quarter ended March 31, 2009. Classmates Media general and administrative expenses
as a percentage of Classmates Media revenues increased to 18.6% for the quarter ended March 31, 2010, compared to 17.1% for the prior-year period. The decrease of
$0.6 million was primarily due to a $1.4 million decrease in personnel-related costs and a $0.9 million decrease in overhead-related expenses. The decrease was partially offset by
a $0.7 million increase in professional services and consulting fees, $0.7 million of allocated expenses related to the potential transaction that failed to consummate and a
$0.4 million increase in litigation settlement charges related to an increase in administrative costs expected to be incurred in connection with the settlement of a pending lawsuit.

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Communications Segment Results

The following table presents the Communications segment's operating expenses and income from operations as a percentage of
Communications revenues for the quarters ended March 31, 2010 and 2009.

Quarter Ended
March 31,2010

2009Revenues


100.0
%

100.0
%Operating expenses:Cost of revenues


23.5


22.5Sales and marketing


14.2


19.7Technology and development


7.4


8.3General and administrative


18.4


13.8Total operating expenses


63.5


64.3Segment income from operations


36.5
%

35.7
%


Communications Revenues.Communications revenues decreased by $12.7 million, or 22%, to $45.2 million for the quarter ended
March 31, 2010, compared to $58.0 million for the quarter ended March 31, 2009. The decrease in Communications revenues was primarily due to an $11.0 million decrease in
services revenues as a result of a 27% decrease in our average number of dial-up Internet access pay accounts from 1.3 million for the quarter ended March 31, 2009 to
0.9 million for the quarter ended
March 31, 2010, and a slight decrease in ARPU from $9.45 for the quarter ended March 31, 2009 to $9.41 for the quarter ended March 31, 2010. The decrease in Communications
revenues was also due to a $1.7 million decrease in advertising revenues resulting from the decrease in pay accounts and a decrease in search revenues following our transition to a new search
provider. In 2010, we expect that Communications pay accounts, services revenues, and advertising revenues will continue to decline as compared to the year-ago period.

Communications Cost of Revenues.Communications cost of revenues decreased by $2.4 million, or 18%, to $10.6 million for the
quarter
ended March 31, 2010, compared to $13.1 million for the quarter ended March 31, 2009. Communications cost of revenues as a percentage of Communications revenues increased to 23.5%
for the quarter ended March 31, 2010, compared to 22.5% for the prior-year period. The decrease of $2.4 million was largely due to a $1.0 million decrease in
telecommunications costs associated with our dial-up Internet access services primarily 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 cost of revenues decreased as a result of a $0.8 million decrease in customer support and billing-related costs due to
a decrease in the number of dial-up Internet access pay accounts and a $0.6 million decrease in personnel-related costs as a result of reduced headcount.

Communications Sales and Marketing Expenses.Communications sales and marketing expenses decreased by $5.0 million, or 44%, to
$6.4 million for the quarter ended March 31, 2010, compared to $11.4 million for the quarter ended March 31, 2009. Communications sales and marketing expenses as a
percentage of Communications revenues decreased to 14.2% for the quarter ended March 31, 2010, compared to 19.7% for the prior-year period. The decrease in expenses reflect the
Company's ongoing efforts to reduce sales and marketing expenses and focus on more cost-efficient spending as a result of the continued decline in dial-up Internet access pay
accounts and revenues. The decrease of $5.0 million was attributable to a $4.5 million decline in advertising, promotion and distribution costs related to our dial-up
Internet access services and, to a lesser extent, a $0.6 million decrease in personnel- and overhead-related expenses as a result of reduced headcount.

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Communications Technology and Development Expenses.Communications technology and development expenses decreased by $1.5 million,
or 30%, to
$3.3 million for the quarter ended March 31, 2010, compared to $4.8 million for the quarter ended March 31, 2009. Communications technology and development expenses as a
percentage of Communications revenues decreased to 7.4% for the quarter
ended March 31, 2010, compared to 8.3% for the prior-year period. The decrease in expenses was primarily the result of a $1.3 million decrease in personnel-related expenses
as a result of reduced headcount.

Communications General and Administrative Expenses.Communications general and administrative expenses increased by $0.3 million,
or 4%, to
$8.3 million, for the quarter ended March 31, 2010, compared to $8.0 million for the quarter ended March 31, 2009. Communications general and administrative expenses as a
percentage of Communications revenues increased to 18.4% for the quarter ended March 31, 2010, compared to 13.8% for the prior-year period. The increase of $0.3 million was
primarily due to $0.7 million of allocated expenses related to the potential transaction that failed to consummate and a $0.3 million increase in bad debt expense, partially offset by a
$0.6 million decrease in professional services and consulting fees. The increase as a percentage of revenues was largely attributable to continued declines in revenues as a result of continuing
declines in the number of dial-up Internet access pay accounts.

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
funded, 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) $375 million of
term loan borrowings under senior secured credit facilities with Wells Fargo Bank, National Association, as Administrative Agent (the "FTD Credit Agreement"). In connection with the FTD Credit
Agreement, FTD Group, Inc. received a $50 million revolving line of credit. In April 2010, we made a voluntary prepayment of $14.7 million plus accrued interest for a total payment of
$14.8 million, under the UOL Credit Agreement to retire our credit facility with Silicon Valley Bank. In April 2010, we also made a voluntary prepayment of $15.0 million under the FTD
Credit Agreement.

Our
total cash and cash equivalent balances increased by $5.4 million, or 4.7%, to $120.9 million at March 31, 2010, compared to $115.5 million at
December 31, 2009. Our summary cash flows for the quarters ended March 31, 2010 and 2009 were as follows (in thousands):

Quarter Ended
March 31,2010

2009Net cash provided by operating activities

$
51,487

$
43,579Net cash used for investing activities

$
(5,162
)
$
(6,347
)Net cash used for financing activities

$
(39,907
)
$
(16,483
)


Quarter Ended March 31, 2010 compared to Quarter Ended March 31, 2009

Net cash provided by operating activities increased by $7.9 million, or 18.1%, for the quarter ended March 31, 2010
compared to the quarter ended March 31, 2009. 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, stock-based compensation, impairment of goodwill, intangible assets and long-lived assets, deferred taxes, tax benefits from equity awards, and changes in
operating assets and liabilities. Net income, adjusted for non-cash items, decreased by $4.7 million to $35.8 million for the quarter ended March 31, 2010 compared to
the prior-year period. The decrease was offset by a $12.6 million increase in the change in working capital, primarily due to a favorable change in accounts payable and accrued
expenses for the quarter ended March 31, 2010 compared to the prior-year period.

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Changes
in working capital can cause variation in our cash flows provided by operating activities from quarter to quarter due to seasonality, timing and other factors.

Net
cash used for investing activities decreased by $1.2 million, or 18.7%, for the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009. The
decrease was due to a decrease in capital expenditures.

Capital
expenditures for the quarter ended March 31, 2010 were $5.2 million. We currently anticipate that our total capital expenditures for 2010 will be in the range of
$26 million to $31 million. The actual amount of future capital expenditures may fluctuate due to a number of factors including, without limitation, potential future acquisitions and new
business initiatives, which are difficult to predict and which could change significantly over time. Additionally, technological advances may require us to make capital expenditures to develop or
acquire new equipment or technology in order to replace aging or technologically obsolete equipment.

Net
cash used for financing activities increased by $23.4 million, or 142.1%, for the quarter ended March 31, 2010, compared to the quarter ended March 31, 2009. The
increase in net cash used for financing activities was primarily due to an increase in payments on term loans of $19.6 million, an increase in common stock repurchases of $3.4 million
and an increase in payment of dividends of $0.3 million for the quarter ended March 31, 2010, compared to the prior-year period.

The
payment of dividends reduces our cash flows from financing activities. In February 2010, United Online, Inc.'s Board of Directors declared a quarterly cash dividend of $0.10
per share of common stock. The dividend was paid on February 26, 2010 and totaled $9.1 million. In April 2010, 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, 2010 and the dividend will be paid on May 28, 2010. 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 our segments other than the FTD segment.

Future
cash flows from financing activities may also be affected by our repurchases of our common stock. United Online, Inc.'s Board of Directors authorized a common stock
repurchase program (the "program") that allows 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, 2010. From August 2001 through March 31, 2010, we 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, 2010, the remaining amount available under the program was $60.8 million.

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 from employees upon vesting of restricted stock units and restricted stock awards and upon the
issuance of stock awards. 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, 2010 and 2009 were $6.0 million and $2.6 million, respectively, for which we withheld 964,000 shares and 503,000
shares of common stock, respectively, that were underlying the restricted stock units and restricted stock awards which vested and stock

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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 balance under the FTD Credit Agreement; dividend payments, if
declared by United Online, Inc.'s Board of Directors; the development and/or acquisition of other services, businesses or technologies; the repurchase of our common stock underlying restricted
stock units and stock awards to pay the employee withholding taxes due on vested restricted stock units and stock awards issued; the repurchase of our common stock under the program; and future
capital expenditures.

Under
the terms of the FTD Credit Agreement, there are significant limitations on our ability to use cash flows generated by the FTD segment for the benefit of United Online, Inc.
or the Communications and Classmates Media segments. The FTD Credit Agreement also includes provisions which may require us to make debt prepayments in the event that we generate excess cash flow, as
defined in the FTD Credit Agreement, on an annual basis. The assessments of future excess cash flow for FTD, on a standalone basis, require us to forecast its respective cash flows from operations
less certain cash outflows, including, but not limited to, those related to capital expenditures and income taxes. The determination of excess cash flow obligations requires us to make significant
estimates regarding our cash flows from operations, capital expenditures, income taxes, and other items. Actual results could differ from our current projections and we could be required to pay
materially different amounts under the excess cash flow provisions of the FTD Credit Agreement. 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. With respect to the UOL Credit Agreement, in April 2010, we made a voluntary
prepayment which retired such credit facility. Prior to doing so, the terms of the UOL Credit Agreement included significant limitations on our ability to use cash flows generated by our
Communications and Classmates Media segments for the benefit of the FTD segment. The UOL Credit Agreement also included excess cash flow obligations similar to the obligations described above for the
FTD Credit Agreement but determined on a
quarterly basis. We currently expect to have sufficient liquidity to fulfill our debt service obligations, at least in the next twelve months.

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, trends 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, 2010 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 YearsDebt, including interest

$
413,738

$
36,424

$
64,406

$
312,908

$
Member redemption liability, long-term


24,730


19,852


4,878





Operating leases(1)


49,849


14,968


17,110


11,088


6,683Services and promotional contracts


4,703


3,913


790





Telecommunications purchases


879


879








Media purchases


809


809








Floral-related purchases


5,563


4,613


950





Other long-term liabilities


2,839


240


1,871


255


473Total

$
503,110

$
81,698

$
90,005

$
324,251

$
7,156


(1)The
operating lease obligations shown in the table have not been reduced by minimum non-cancelable sublease rentals aggregating
$0.1 million. We remain secondarily liable under these leases in the event that any sublessee defaults under the sublease terms. We do not believe that material payments will be required as a
result of our secondary responsibilities.


Commitments
under letters of credit at March 31, 2010 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 YearsLetters of credit

$
2,217

$
1,676

$
299

$
242

$



Letters
of credit are maintained pursuant to certain of our lease arrangements. The letters of credit remain in effect at declining levels through the terms of the related leases. In
addition, standby letters of credit are maintained by FTD to secure credit card processing activity.

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, 2010, 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.

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, cash equivalents, and the outstanding balance of the FTD Credit Agreement. 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 Group, Inc. 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
rate-based borrowings were more attractive than LIBOR-based borrowings. Therefore, in January 2009, the cash flow hedge was de-designated and accordingly does not currently
qualify for hedge accounting treatment. As a result, subsequent fluctuations in the market value of the interest rate cap are recorded in earnings. For the quarter ended March 31, 2010, the
amount recorded in earnings as a result of such fluctuations was immaterial. A 100 basis point increase in interest rates would result in an estimated annual increase in our interest expense related
to our debt of approximately $3.1 million. With respect to the UOL Credit Agreement, prior to our retirement of such credit facility in April 2010, it provided for 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.

While
we do not currently maintain any short-term investments, we still maintain deposits which are classified as cash equivalents. Therefore, our interest income is
sensitive to changes in the general level of U.S. and certain foreign interest rates.

Foreign Currency Risk

We transact business in foreign currencies and are exposed to risk resulting from fluctuations in foreign currency exchange rates,
particularly the British Pound ("GBP"), the Euro ("EUR"), the Indian Rupee ("INR"), and the Canadian Dollar ("CAD"), which may result in gains or losses reported in our earnings. The volatilities in
GBP, EUR, INR, 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

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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. A 10% adverse change in overall foreign currency exchange rates over an entire year would result in a material reduction in
estimated annual revenues and estimated annual income before income taxes. 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 or in the same degrees, and actual results may differ materially. Net foreign currency transaction gains or losses arising from transactions denominated in currencies other
than the local functional currency are included in other income, net in the unaudited condensed consolidated statements of operations.

In
the second quarter of 2009, we entered into foreign currency forward contracts to partially offset the economic effect of fluctuations in the U.S. Dollar against the British Pound.
These derivatives were intended to minimize the foreign currency exchange rate impact of intercompany dividend payments in British Pounds. Changes in the fair value of these derivatives were
recognized in earnings in the period of change. We may in the future also use other hedging programs, including derivative financial instruments commonly utilized, if it is determined that such
hedging activities are appropriate to reduce risk. At March 31, 2010, we had no foreign currency forward contracts outstanding.

ITEM 4.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of
the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by
this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are
effective in recording, processing, summarizing, and reporting, on a timely basis, information 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 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.

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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. 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. On October 5, 2009, the district court issued an order granting final approval of the settlement and certifying the settlement class.
Certain individuals have appealed the October 5, 2009 order.

In
2009, a committee of the U.S. Senate commenced an investigation of post-transaction sales practices and the companies that have engaged in such practices. As part of such
investigation, we received a request for information from the committee, and we have cooperated with, and have responded to, such request. In addition, we have received a civil investigative demand
from the Attorney General of the State of Washington and subpoenas from the Attorney General of the State of New York regarding their respective investigations into such practices and the companies
that have engaged in them, including us. We have been cooperating with the investigations, but we cannot predict their outcome or their potential implications for our business. There are no assurances
that additional governmental investigations or other legal actions will not be instituted in connection with our former post-transaction sales practices or other current or former business
practices.

Lawsuits
and investigations 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, investigations, claims, and litigation will have a material adverse effect on our business, financial condition, results of operations, or
cash flows, the results of legal proceedings, investigations, claims, and litigation are inherently uncertain and we cannot provide assurance that we will not be materially and adversely impacted by
the results of such proceedings or investigations. At March 31, 2010, we had not established any reserves for legal proceedings and investigations except for a $2.6 million reserve for a
pending lawsuit.

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 condition, results of operations, or cash flows. There can be no assurance, however, that such
actions will not materially and adversely affect our business, financial condition, results of operations, or cash flows.

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ITEM 1A.    RISK FACTORS

The risk factors set forth below are substantially the same as those included in our Annual Report on Form 10-K for
the year ended December 31, 2009.

RISKS RELATING TO OUR BUSINESS GENERALLY

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

Economic
conditions in the United States and the European Union have been depressed and may remain depressed for the foreseeable future. Our products and services are discretionary and
dependent upon levels of consumer spending. Consumer spending patterns are difficult to predict and are sensitive to, among other factors, the general economic climate, the consumers' level of
disposable income, consumer debt, and overall consumer confidence. The current economic conditions have adversely impacted certain aspects of our businesses in a number of ways including reduced
demand, more aggressive pricing for similar products and services by our competitors, decreased spending by advertisers, increased credit risks, increased credit card failures, a loss of customers,
and increased use of discounted pricing plans for certain of our products and services. It is likely that these and other factors will continue to adversely impact our businesses, at least in the near
term. The current economic conditions may adversely impact our key vendors. The depressed economic conditions and decreased consumer spending have, in certain cases, resulted in, and may in the future
result in, a variety of negative effects such as a reduction in revenues, increased costs, lower gross margin and operating margin percentages, increased allowances for doubtful accounts and
write-offs of accounts receivable, and recognition of impairments of assets, including goodwill and other intangible and long-lived assets. Any of the above factors could have
a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our business is subject to fluctuations.

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

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

Advertising revenues are a key component of our revenues and profitability. Factors that have caused, or may cause in the future, our
advertising revenues to fluctuate include, without limitation, the effect of, changes to, or terminations of key advertising relationships, changes in applicable laws, regulations or business
practices, changes in the online advertising market, changes in the economy, advertisers' budgeting and buying patterns, competition, changes in the number of consumers purchasing our products and
services, changes in our business models, changes in our advertising

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inventory,
and changes in usage of our services. Decreases in our advertising revenues are likely to adversely impact our profitability.

Our
advertising revenues have in the past declined, and may in the future decline, when compared to prior periods. For 2010, we expect that our advertising revenues will decrease as
compared to 2009. We anticipate advertising revenues generated by our Communications segment to continue to decline primarily as a result of the decrease in our dial-up Internet access pay
accounts. In addition, our Communications segment has derived significant advertising revenues from search, and we recently changed Internet search providers. Changes to the terms of our search
agreement or the inability of the new search provider's service to monetize as well as the prior service, could have a material adverse effect on our Communications segment's advertising revenues.
Also, all of our revenues from our online loyalty marketing service are derived from advertising, and we have experienced from time to time, and may continue to experience, significant declines in
revenues from this service. In addition, prior to 2010, our Classmates Media and FTD segments have collectively derived significant advertising revenues from domestic post-transaction
sales agreements. Post-transaction sales involve the online presentation of a third-party offer immediately following the point where a consumer has purchased our subscription services or
floral products, as applicable. In January 2010, we terminated our domestic post-transaction sales agreements. As discussed in greater detail in the risk factor related to changes in laws
and regulations, certain governmental agencies have been investigating post-transaction sales practices and the companies that have engaged in such practices, including us. Although we
expect to continue to offer our members and customers complementary services or products at the end of our registration or sale processes, including third-party offers as well as our own offers, there
are no assurances that we will enter into any such third-party arrangements or that such offers will be well received by our members or customers. Even if we do enter into third-party arrangements, we
anticipate that the revenues generated from such arrangements will be significantly less than the post-transaction sales revenues generated in 2009. Any or all of the above factors could
cause our advertising revenues and profits to significantly decline in the future.

Changes in exchange rates could adversely affect comparisons of our operating results.

We transact business in different foreign currencies and may be exposed to financial market risk resulting from fluctuations in foreign
currency exchange rates, including the British Pound, the Euro, the Indian Rupee, and the Canadian Dollar. 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 such 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 currency exchange rates.
Certain of our key business metrics, such as the FTD segment's average order value, are similarly affected by such currency fluctuations. Changes in global economic conditions, market factors, and
governmental actions, among other factors, can affect the value of these currencies in relation to the U.S. Dollar. A strengthening of the U.S. Dollar compared to these currencies and, in particular,
to the British Pound, has had, and in future periods could have, an adverse effect on the comparisons of our revenues and operating income against prior periods. We cannot accurately predict the
impact of future foreign currency exchange rate fluctuations on our operating results, and such fluctuations could negatively impact the comparisons of such results against prior periods.

Our marketing efforts may not be successful, which could increase our costs and adversely impact our key metrics and financial results.

We spend significant resources marketing our brands, products and services. We rely on relationships with a wide variety of third
parties, including Internet search providers, Internet advertising networks, co-registration partners, retailers, distributers and direct marketers, to promote or

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distribute
our products and services. In addition, one of our strategies is to cross market our various products and services to our existing customer base. If our marketing, including cross
marketing, activities are inefficient or unsuccessful, or if important third-party relationships become more expensive or unavailable, our key metrics and financial results could be materially and
adversely impacted.

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

The systems underlying the operations of each of our business segments are complex and diverse, and must efficiently integrate with
third-party systems, such as credit card processors. Key systems include, without limitation, order transmission, fulfillment and processing including the system for transmitting orders through the
floral network; billing; Web site and database management; customer support; telecommunications network management; advertisement serving and management systems; and internal financial systems. Some
of these systems, such as customer support, are outsourced to third parties, and other systems, such as FTD's order transmission and fulfillment system and the platform for our international social
networking Web sites, are not redundant. We have experienced systems problems in the past, and we or these third parties may experience problems in the future. In addition, if these third parties face
financial or other difficulties, our business could be adversely impacted. Any significant errors, failures, interruptions, delays, or other problems with our systems or our third-party vendors or
their systems could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

In
addition, our Classmates Media and Communications businesses outsource a majority of their live technical and billing support functions. These businesses rely on one customer support
vendor, and we maintain only a small number of internal customer support personnel for these businesses. Our internal customer support personnel are not equipped to provide the necessary range of
customer support functions in the event that this vendor unexpectedly becomes unable or unwilling to provide these services to us.

Our failure to enforce and protect our proprietary rights could harm our business.

Our trade names, trademarks, service marks, patents, copyrights, domain names, and trade secrets are important to the success of our
businesses. In particular, we view our primary trademarks as critical to our success. We rely upon patent, trademark, copyright, trade secret, and domain name laws in the U.S. and similar laws in
other countries, as well as licenses and other agreements with our employees, members, consumers, suppliers and other parties, to establish and maintain our proprietary rights in the technology,
products, services and content used in our operations. These laws and agreements may not guarantee that our proprietary rights will be protected and our proprietary rights could be challenged or
invalidated. We also license some of our intellectual property rights, including the Mercury Man logo, to third parties. The steps we and such third parties have taken to protect our proprietary
rights may not be adequate, and other third parties may infringe or misappropriate our proprietary rights. The protection of our proprietary rights may require the expenditure of significant financial
and internal resources. We cannot assure you that we have taken adequate steps to prevent misappropriation of our proprietary rights. Our failure to adequately protect our proprietary rights could
adversely affect our brands and could harm our business.

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

One of our strategic objectives is to acquire businesses, services or technologies that will provide us with an opportunity to
diversify the products and services we offer, leverage our assets and core

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competencies,
or expand our geographic reach, or that otherwise may be complementary to our existing businesses. However, acquiring companies is a difficult process with many factors outside of our
control. In addition, the FTD Credit Agreement imposes certain restrictions on our ability to complete acquisitions and there is no assurance that we will be successful in completing additional
acquisitions.

We
have evaluated and expect to continue to evaluate, a wide variety of potential strategic transactions that we believe may complement our current or future business activities.
However, we cannot assure you that the anticipated benefits and synergies of an acquisition will materialize or that any integration attempts will be successful. Acquiring a business, service or
technology involves many operational and financial risks, including risks relating to:



Any
of these risks could harm our business, financial condition, results of operations, and cash flows.

In
addition, an acquisition of a foreign business involves risks in addition to those set forth above, including risks associated with foreign currency exchange rates, potentially
unfamiliar economic,
political and regulatory environments and integration difficulties due to language, cultural and geographic differences.

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

The success of our business depends on the security of our networks and, in part, on the security of the network infrastructures of our
third-party vendors. Unauthorized or inappropriate access to, or use of, our networks, computer systems or services, whether intentional, unintentional or as a result of criminal activity, could
potentially jeopardize the security of confidential information, including credit card information, of our customers and of third parties. We cannot assure you that the security measures we take will
be effective in preventing these types of activities. We also cannot assure you

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that
the security measures of our third-party network providers, providers of customer and billing support services or other vendors will be adequate. In addition to potential legal liability, these
activities may adversely impact our reputation or our revenues and may interfere with our ability to provide our products and services, all of which could adversely impact our business.

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

We are currently, and have been in the past, party to various legal actions and investigations. These actions may include, without
limitation, claims by private parties in connection with consumer protection and other laws, claims that we infringe third-party patents, claims involving unfair competition, claims in connection with
employment practices, securities laws claims, breach of contract claims, and other business-related claims. The nature of our business could subject us to additional claims for similar matters, as
well as a wide variety of other claims including, without limitation, claims for defamation, right of publicity, negligence, trademark and copyright infringement, and privacy and security matters.
Various governmental agencies have in the past, and may in the future, assert claims, institute legal actions, inquiries or investigations, or impose obligations relating to our business practices,
such as our marketing, billing, customer retention, renewal, cancelation, refund, or disclosure practices. As discussed in the risk factor related to changes in laws and regulations, certain
governmental agencies have been investigating post-transaction sales practices and the companies that engage in such practices, including us. Defending against lawsuits, inquiries and
investigations involves significant expense and diversion of management's attention and resources from other matters. We may not prevail in existing or future claims. The failure to successfully
defend against certain types of claims, including claims relating to our business practices or alleging
infringement of proprietary rights, could result in our incurring significant liabilities related to judgments or settlements or require us to change our business practices. Infringement claims may
also result in our being required to obtain licenses from third parties, which licenses may not be available on acceptable terms, if at all. Both the cost of defending claims, as well as the effect of
settlements and judgments, could cause our results of operations to fluctuate significantly from period to period and could materially and adversely affect our business, financial condition, results
of operations, and cash flows.

Our online social networking and online loyalty marketing services, as well as our FTD segment's consumer business, rely heavily on email campaigns,
and any disruptions or restrictions on the sending of emails or increase in the associated costs could adversely affect our business and results of operations.

Our emails generate the majority of the traffic on our social networking Web sites and are the most important driver of member activity
for our online loyalty marketing service. A significant number of members of our online social networking and online loyalty marketing services elect to opt-out of receiving certain types
of emails. Without the ability to email these members, we have very limited means of inducing members to return to our Web sites and utilize our services. In addition, each month, a significant number
of email addresses for members of our online social networking and online loyalty marketing services become invalid. This disrupts our ability to email these members and prevents social networking
members from being able to contact these members, which is a key reason why members use our online social networking services.

Our
FTD segment generates a significant portion of its consumer orders from the emails we send to customers who have previously ordered products from us. We also engage in a number of
third-party email marketing campaigns in which such third parties include our marketing offers in the emails they send.

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An
increase in the number of members or customers who elect to not receive, or are unable to receive, our emails could adversely affect our business and results of operations. From time
to time, Internet service providers block bulk email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails to our members or
customers. Third parties may also block, impose restrictions on, or start to charge for, the delivery of emails through their email systems. Due to the importance of email to our businesses, any
disruption or restriction on the distribution of emails or increase in the associated costs could materially and adversely affect our revenues and profitability.

FTD has a substantial amount of indebtedness which could adversely affect our ability to raise additional capital to fund operations, our flexibility
in operating our business and our ability to react to changes in the economy or our industry, and prevent us from satisfying our debt obligations.

FTD has a substantial amount of indebtedness which could have important consequences for our business and financial condition. For
example:



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Under
the terms of the FTD Credit Agreement, we will be permitted to incur additional indebtedness subject to certain conditions, and the risks described above may be increased if we
incur additional indebtedness.

The
FTD Credit Agreement includes guarantees on a joint and several basis by FTD Group, Inc.'s existing and future, direct and indirect domestic subsidiaries and is secured by
first priority security interests in, and mortgages on, substantially all of FTD Group, Inc.'s direct and indirect subsidiaries' tangible and intangible assets and first priority pledges of all
the equity interests owned by FTD in its existing and future direct and indirect subsidiaries (except with respect to foreign subsidiaries in which case such pledges are limited to 66% of the
outstanding capital stock). The occurrence of an event of default under the FTD Credit Agreement could permit the lenders to terminate the commitments of
such lenders to make further extensions of credit under the FTD Credit Agreement, to call and enforce the guarantees, and to foreclose on the collateral securing such debt.

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

We have capitalized goodwill and identifiable intangible assets in connection with our acquisitions. We perform an impairment test of
our goodwill and indefinite-lived intangible assets annually during the fourth quarter of our fiscal year or when events occur or circumstances change that would more likely than not indicate that
goodwill or any such assets might be permanently impaired. If our acquisitions are not commercially successful or, if due to economic or other conditions, our assumptions regarding the performance of
the acquired businesses are not achieved, we would likely be required to record impairment charges which would negatively impact our financial condition and results of operations. We have experienced
impairment charges in the past, and in the fourth quarter of 2008, we recorded material impairment charges related to our FTD segment's goodwill and indefinite-lived intangible assets. Given the
current economic environment and the uncertainties regarding the impact on our businesses, there can be no assurance that our estimates and assumptions regarding the duration of the depressed economic
conditions, or the period or strength of recovery, made for purposes of our goodwill and identifiable intangible assets impairment testing will prove to be accurate predictions of the future. If our
assumptions regarding forecasted revenue or growth rates of certain reporting units or other factors are not achieved or are revised downward, we may be required to record additional impairment
charges in future periods. In addition, from time to time, we record tangible or intangible assets on our balance sheet that, due to changes in value or in our strategy, may have to be expensed in
future periods. Write-downs or impairments of assets, whether tangible or intangible, could adversely and materially impact our financial condition and results of operations.

Our ability to operate our business could be seriously harmed if we lose members of our senior management team or other key employees.

Our business is largely dependent on the efforts and abilities of our senior management, particularly Mark R. Goldston, our chairman,
president and chief executive officer, and other key personnel. Any of our officers or employees can terminate his or her employment relationship at any time. The loss of any of these key employees or
our inability to attract or retain other qualified employees could seriously harm our business and prospects. We do not carry key-person life insurance on any of our employees.

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

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

In
connection with our Internet-based transactions, a number of states have been considering or adopting legislation or instituting policy initiatives, including those that would
facilitate a finding of nexus to exist between Internet companies with the states, aimed at expanding the reach of sales and use taxes or imposing state income or other taxes on various innovative
theories, including agency attribution from independent third-party service providers. Such legislation or initiatives could result in the imposition of additional sales and use taxes, or the payment
of state income or other taxes, on certain transactions conducted over the Internet. If such legislation is enacted, or such initiatives are instituted, and upheld by the courts, the legislation or
initiatives could subject us to substantially increased tax liabilities for past and future sales or state income or other taxes, require us to collect additional sales and use taxes, cause our future
sales to decrease, otherwise negatively impact our businesses, and thus have a material adverse affect on us.

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

We are subject to a variety of international, federal, state, and local laws and regulations, including, without limitation, those
relating to taxation, bulk email or "spam," advertising, user privacy and data protection, consumer protection, antitrust, and unclaimed property. Compliance with the various laws and regulations,
which in many instances are unclear or unsettled, is complex. Any changes in such laws and regulations, the enactment of any additional laws or regulations, failure to comply with, or increased
enforcement activity of, such laws and regulations,
could significantly impact our products and services, our costs, or the manner in which we conduct business, all of which could adversely impact our results of operations and cause our business to
suffer.

The
Federal Trade Commission and certain state agencies have investigated Internet companies, including us, in connection with consumer protection and privacy matters. Federal, state and
foreign governments have also enacted consumer protection laws, including laws protecting the privacy of consumers' nonpublic personal information. In 2009, a committee of the U.S. Senate commenced an
investigation of post-transaction sales practices and the companies that have engaged in such practices. As part of such investigation, we received a request for information from the
committee, and we have cooperated with, and have responded to, such request. In addition, we have received a civil investigative demand from the Attorney General of the State of Washington and
subpoenas from the Attorney General of the State of New York regarding their respective investigations into such practices

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and
the companies that have engaged in them, including us. We have been cooperating with the investigations, but we cannot predict their outcome or their potential implications for our business. There
are no assurances that additional governmental investigations or other legal actions will not be instituted in connection with our former post-transaction sales practices or other current
or former business practices. Enforcement actions or changes in enforcement policies and procedures, the adoption of new laws or regulations, or our failure to comply with existing laws, including
those of foreign countries in which we operate, could decrease our revenues and increase the costs of operating our business. To the extent that our services and business practices change as a result
of claims or actions by governmental agencies, changes in laws and regulations, or claims or actions by private parties, our business, financial condition, results of operations, and cash flows could
be materially and adversely affected.

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

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



The
occurrence of any one of these risks could negatively affect our international operations, our key business metrics, and our financial results.

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

Our businesses could be materially and adversely affected by a catastrophic event. A disaster such as a fire, earthquake, flood, power
loss, terrorism, or other similar event, affecting any of our facilities, data centers or computer systems, or those of our third-party vendors, or a system interruption or delay that slows down the
Internet or makes the Internet or our Web sites temporarily unavailable, could result in a significant and extended disruption of our operations and services. Any prolonged disruption of our services
due to these or other events would severely impact our businesses. We do not carry flood insurance for one of our facilities, and the property, business interruption and other insurance we

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do
carry may not be sufficient to cover, if at all, losses that may occur as a result of any events which cause interruptions in our services.

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

We may need to raise additional funds in the future to fund our operations, for acquisitions of businesses, services or technologies or
for other purposes. Additional financing may not be available in a timely manner, on terms favorable to us, or at all. We incurred substantial indebtedness in connection with the acquisition of FTD.
The terms of such indebtedness in addition to the degree to which we are leveraged, will adversely affect our ability to obtain additional financing. In addition, the current extreme volatility of,
and disruption in, the securities and credit markets may restrict our ability to raise any such additional funds. If adequate funds are not available or not available when required and in sufficient
amounts or on acceptable terms, our businesses and future prospects may suffer.

We may stop paying, or reduce, quarterly cash dividends on our common stock.

The payment of future dividends is discretionary and is subject to determination by our Board of Directors each quarter following its
review of our financial condition, results of operations and cash flows and such other factors as are deemed relevant by our Board of Directors. The terms of our indebtedness impose limitations on our
ability to pay dividends. Commencing with the third quarter of 2008, we have decreased our quarterly cash dividend from $0.20 per share of common stock to $0.10 per share of common stock. Changes in
our business needs, including working capital and funding for acquisitions, or a change in tax laws relating to dividends, among other factors, could cause our Board of Directors to decide to cease
the payment of, or further reduce, dividends in the future. We cannot assure you that we will not decrease or discontinue quarterly cash dividends, and if we do, our stock price could be negatively
impacted.

We have anti-takeover provisions that may make it difficult for a third party to acquire us.

Provisions of our certificate of incorporation, our bylaws and Delaware law could make it difficult for a third party to acquire us,
even if doing so might be beneficial to our stockholders because of a premium price offered by a potential acquirer. Our Board of Directors adopted a stockholder rights plan, which is an
anti-takeover measure that will cause substantial dilution to a third party who attempts to acquire our Company on terms not approved by our Board of Directors.

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

The market price of our common stock has fluctuated significantly and it may continue to be volatile with extreme trading volume
fluctuations. In addition, The Nasdaq Global Select Market has experienced substantial price and trading volume fluctuations. The broad market and industry factors that influence or affect such
fluctuations may harm the market price of our common stock, regardless of our actual operating performance. As a result of these or other reasons, we have experienced and may continue to experience
significant volatility in the market price of our common stock.

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ADDITIONAL RISKS RELATING TO OUR FTD SEGMENT

Competition could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We compete in the market for flowers and, to a lesser degree, specialty gifts. In the consumer market, consumers are our customers for
direct sales of floral and specialty gifts through our Web sites and various telephone numbers. In the floral network services market, retail florists and supermarkets are our principal customers for
memberships and subscriptions to our various floral network services including, among other things, access to the FTD and Interflora brands and the Mercury Man logo, access to the floral network,
credit card processing services, e-commerce Web sites, online advertising tools, and telephone answering, order-taking, transmission and clearing-house services.

The
consumer market for flowers and specialty gifts is highly competitive, and consumers can purchase the products we offer from numerous sources, including traditional local retail
florists, supermarkets, mass merchants, specialty gift retailers, and nationwide floral marketers, such as those that use Web sites, toll-free telephone numbers and catalogs. The floral
network services market is highly competitive as well, and retail florists and supermarkets may choose from a few floral network service providers that offer similar products and services. In the
U.S., our key competitors in the consumer market include 1-800-FLOWERS.COM, Inc., Proflowers.com and Teleflora, and our key competitors in the floral network services
market include Teleflora and BloomNet Wire Service, a subsidiary of 1-800-FLOWERS.COM. International key competitors include Marks & Spencer, NEXT, Flying Flowers, John
Lewis, eFlorist (also known as Teleflorist), and Flowers Direct.

We
believe competition in the consumer market will likely intensify. Supermarkets and nationwide floral marketers have been gaining market share over retail florists as consumers
continue to shift more of their floral purchases to these channels. We expect the sales volumes at supermarkets and other mass merchants to continue to increase, and that nationwide floral marketers
will continue to increase their competition with us. In particular, the nature of the Internet as a marketplace facilitates competitive entry and comparative shopping, and we have experienced
increased competition based on price. Some of our competitors may have significant competitive advantages over us, may devote significantly greater resources to marketing campaigns or other aspects of
their business or may respond more quickly and effectively than we can to new or changing opportunities or customer requirements.

We
expect competition in the floral network services market to continue to increase as well. We believe we will continue to experience increasing competition from the other floral
network services providers. In addition, we expect retail florists likely will continue to lose sales to supermarkets and nationwide floral marketers, which likely will result in a continuing decrease
in their revenues and in the number of retail florists. As the number of retail florists and their revenues decrease, competition for the business of the remaining retail florists will intensify.

Increased
competition in the consumer market or the floral network services market may result in lower revenues, reduced gross margins, loss of market share, and increased marketing
expenditures. We cannot provide assurance that we will be able to compete successfully or that competitive pressures will not have a material adverse effect on our business, financial condition,
results of operations, and cash flows.

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We are dependent on third parties who fulfill orders and deliver goods and services to our customers and their failure to provide our customers with high-quality
products and customer service may harm our brands and could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We believe that our success in promoting and enhancing our brands depends on our ability to provide our customers
high-quality products and a high level of customer service. Our business depends, in part, on the ability of our independent floral network members and third-party suppliers who fulfill
our orders to do so at high-quality levels. We work with our floral network members and third-party suppliers to develop best practices for quality assurance; however, we generally do not
directly control or continuously monitor any floral network member or third-party supplier. The failure of our floral network members or third-party suppliers to fulfill orders to our customers'
satisfaction, at an acceptable level of quality and within the required timeframe, could adversely impact our brands and cause us to lose customers, which could have a material adverse effect on our
business, financial condition, results of operations, and cash flows.

Additionally,
because we depend upon third parties for the delivery of our products to customers, strikes or other service interruptions affecting these shippers could have an adverse
effect on our ability to deliver our products on a timely basis. If any of our shippers are unable or unwilling to deliver our products, we would have to engage alternative shippers which could
increase our costs. A disruption in any of our shippers' delivery of our products could cause us to lose customers or could increase our costs, which could have a material adverse effect on our
business, financial condition, results of operations, and cash flows.

The success of our business is dependent on our floral network members and on the financial performance of the retail floral industry.

A significant portion of our profitability is dependent on our floral network members. We have lost, and may continue to lose, floral
network members as a result of both our members choosing not to do business with us as well as declines in the number of local retail florists as a result of economic factors and competition. If we
lose a significant number of floral network members, or if we are not able to maintain or increase revenues from our floral network members, our business, financial condition, results of operations,
and cash flows may be materially and adversely affected.

If the supply of flowers becomes limited, the price of these products could rise or these products may become unavailable, which could result in our not being able to meet
consumer demand and could cause an adverse effect on our business, financial condition, results of operations, and cash flows.

Many factors, such as weather conditions, agricultural limitations and restrictions relating to the management of pests and disease,
affect the supply of flowers and the price of our floral products. If the supply of flowers available for sale is limited, the wholesale prices of flowers could rise, which would cause us to increase
our prices or reduce our profits. An increase in our prices could result in a decline in customer demand for our floral products, which would decrease our revenues.

Alternatively,
we may not be able to obtain high-quality flowers in an amount sufficient to meet customer demand. Even if available, flowers from alternative sources may be
of lesser quality or more expensive than those currently offered by us. A large portion of our supply of flowers is sourced from Colombia, Ecuador and Holland.

The
availability and price of our products could be affected by a number of other factors affecting suppliers, including:



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

In accordance with current industry practice by domestic floral and specialty gift order gatherers and our interpretation of applicable
law, our FTD consumer business collects and remits sales and use taxes on orders that are delivered in states where it has a physical presence or other form of jurisdictional nexus, which is a limited
number of states. If states successfully challenge this practice and impose sales and use taxes on orders delivered in states where we do not have physical presence or another form of jurisdictional
nexus, we could incur substantial tax liabilities for past sales and lose future sales as a result of the increased tax cost that would be borne by the customer. Also, states may seek to reclassify
the status of Internet order gatherers, such as our FTD consumer business, as persons that are deemed to fulfill the underlying order, in which case, a state may seek to impose taxes on the receipts
generated by our FTD consumer business for orders fulfilled
and delivered by florists outside such state. In addition, future changes in the operation of our online and telephonic sales channels could result in the imposition of additional sales and use tax or
other tax obligations.

Additionally,
in accordance with current industry practice by international floral and specialty gift direct marketers and our interpretation of applicable law, we collect and remit
value-added taxes on certain consumer orders placed through Interflora. Future changes in the operation of our Interflora business could result in the imposition of additional tax obligations.
Moreover, if a foreign taxing authority challenges our current practice or implements new legislative initiatives, additional taxes on consumer sales could be due by us. The imposition of additional
tax liabilities for past or future sales could decrease our ability to compete with traditional retailers and reduce our sales, which could have a material adverse effect on our business, financial
condition, results of operations, and cash flow.

We utilize outsourced staff and temporary employees, who may not be as well trained or committed to our customers as our permanent employees, and their failure to provide
our customers with high-quality customer service may cause our customers not to return, which could have a material adverse effect on our business, financial condition, results of
operations, and cash flows.

We utilize and rely on a significant number of outsourced staff and temporary employees in addition to our permanent employees, to take
orders and respond to customer inquiries. These outsourced staff and temporary employees may not have the same level of commitment to our customers or be as well trained as our permanent employees. In
addition, we may not hire enough outsourced staff or temporary employees to adequately handle the increased volume of telephone calls we receive during peak periods. If our customers are dissatisfied
with the quality of the customer service they receive, they may not place orders with us again, which could have a material adverse effect on our business, financial condition, results of operations,
and cash flows.

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ADDITIONAL RISKS RELATING TO OUR CLASSMATES MEDIA SEGMENT

We expect to face increasing competition that could result in a loss of members, reduced revenues and decreased profitability.

Our online social networking services compete with a wide variety of social networking Web sites, including broad social networking Web
sites such as Facebook; a number of specialty niche Web sites, including LinkedIn and MyLife.com, that offer online social networking services focused on particular affiliations such as school or work
communities; and schools, employers and associations that maintain their own Internet-based alumni information services. We also compete with a wide variety of Web sites that provide users with
alternative networks and ways of locating and interacting with acquaintances from various affiliations, including online services designed to locate individuals such as White Pages and US Search,
Internet search engines that have the ability to locate individuals, including by finding individuals through their profiles on social networking Web sites, and Web portals such as Yahoo!, MSN and
AOL. We believe that there are currently only a small number of competitive online social networking services that are focused specifically on our niche of the market, which is to help people find and
reconnect with enduring relationships and important memories from school. However, as the membership bases of broad social networking Web sites continue to grow, users may be able to locate
individuals from their past, free of charge in certain cases, without having to use a niche Web site or other online search service. As a result of the growth of the social networking market and
minimal barriers to entry, a number of companies have entered or are attempting to enter our market, either directly or indirectly, some of which may become significant competitors in the future. In
addition, many existing online social networking services are broadening their service offerings to compete with our services.

The
market for online loyalty marketing services is highly competitive, and we expect competition to significantly increase in the future as loyalty marketing programs grow in
popularity. Our MyPoints online loyalty marketing service faces competition for members from several other online loyalty marketing programs as well as offline loyalty marketing programs that have a
significant online presence, such as those operated by credit card, airline and hotel companies.

Some
of our competitors have longer operating histories, greater name and brand recognition, larger user bases, significantly greater financial, technical, sales, and marketing
resources, and engage in more extensive research and development than we do. Some of our competitors also have lower customer acquisition costs than we do, offer a wider variety of services, have more
compelling Web sites with more extensive user-generated content or offer their services free to their users. If our competitors are more successful than we are in attracting and retaining
members, our ability to maintain a large and growing member base will be adversely affected. If our social networking competitors provide similar services for free, we may not be able to continue to
charge for any of our online social networking services. Competition could have a material adverse effect on our subscription revenues from online social networking services, as well as on advertising
revenues from our online social networking and online loyalty marketing services. More intense competition could also require us to increase our marketing or other expenditures. As a result of
competition, our number of members, revenues, cash flows, and profitability could be adversely affected.

Failure to increase or maintain the number of pay accounts for our online social networking services could cause our business and financial results to suffer.

Pay accounts are critical to our business model. Only a small percentage of users initially registering for our online social
networking services sign up for a paid subscription at the time of registration. As a result, our ability to generate subscription revenue is highly dependent on our ability to attract users to our
Web sites and register them as free members, to encourage them to return to our Web sites, and to convince them to become pay accounts in order to access the pay features of our

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Web
sites. If we are not able to attract users to our Web sites and convert a significant portion to pay accounts, we may not be able to increase or maintain the number of pay accounts for our online
social networking services and our business and financial results would be adversely affected.

A
number of our social networking pay account subscriptions each month are not renewed or are canceled, which, for the Classmates Media segment, we refer to as "churn." The level of
churn we experience fluctuates from quarter to quarter due to a variety of factors, including our mix of subscription terms, which affects the timing of subscription expirations, as well as the degree
of credit card failures. We must continually add new social networking pay accounts both to replace pay accounts who churn and to grow our business beyond our current pay account base. We expect that
our churn rate will continue to fluctuate from period to period. A significant majority of our pay accounts are on plans that automatically renew at the end of their subscription period and we have
received complaints with respect to our renewal policies and practices. We also experienced an increase in the percentage of credit card failures in 2009. Any change in our renewal policies or
practices, or in the degree of credit card failures, could have a material impact on our churn rate. If we experience a higher than expected level of churn, it will make it more difficult for us to
increase or maintain the number of pay accounts, which could reduce our revenues and adversely affect our financial results.

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

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

In
addition, our online social networking services have expended, and may in the future expend, significant resources in developing and implementing new products and services. The
development of new products and services involves a number of uncertainties, including unanticipated delays and expenses and technological problems. They also may not be accepted by our members. We
cannot assure you that we will be successful in developing or implementing new or enhanced products or services, or that any new products or services will be commercially successful.

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

Due to the economic conditions in the U.S. and for competitive and other reasons, we recently have been offering a greater percentage
of discounted plans on a promotional basis than we typically have offered in the past. In general, these discounted plans offer a one-year subscription term for $9.95, which is a
significant discount compared to the current standard pricing for a one-year subscription term of $39.00. The increase in the percentage of pay accounts under a discounted plan has
resulted, and may in the future result, in a decrease in subscription revenues and ARPU, at least in the near term. Although these discounted plans will renew at the then-current standard
pricing for such subscription term upon the expiration of the initial term, there are no assurances as to the number of pay accounts that will renew at the standard pricing. We intend to continue
offering discounted plans in the future, and there are no assurances that the percentage of discounted plans offered during a period will not be higher than anticipated. Our continued use of
discounted plans may result in our becoming dependent on offering such plans in order to obtain new pay accounts and retain existing pay accounts

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and
may result in our having to reduce our standard pricing, which would adversely impact our financial results.

ADDITIONAL RISKS RELATING TO OUR COMMUNICATIONS SEGMENT

Our business will suffer if we are unable to compete successfully.

We compete with numerous other dial-up Internet access providers as well as providers of broadband services. Our key
dial-up Internet access competitors include established online service and content providers, such as AOL and MSN, and independent national Internet service providers, such as EarthLink
and its PeoplePC subsidiary. Dial-up Internet access services do not compete favorably with broadband services with respect to connection speed and do not have a significant, if any, price
advantage over certain broadband services. Many broadband providers, including cable companies and local exchange carriers, bundle their offerings with telephone, entertainment or other services,
which may result in lower prices than standalone services. In addition to competition from broadband providers, competition among dial-up Internet access service providers is intense and
neither our pricing nor our features provides us with a significant competitive advantage, if any, over certain of our dial-up Internet access competitors. We expect that competition,
particularly with respect to price, both for broadband as well as dial-up Internet access services, will continue. We also expect that our dial-up Internet access subscriber
base will continue to decrease, potentially at an increasing rate, and that our broadband services will not experience significant growth.

In
order to compete effectively, we may have to make significant revisions to our services, pricing and marketing strategies, and business model. For example, we may have to lower our
introductory rates, offer additional free periods of service, offer additional features at little or no additional cost to the consumer, or reduce the standard pricing of our services. Measures such
as these could decrease our revenues and our average revenue per dial-up Internet access pay account. We may also have to allocate more marketing resources toward our dial-up
Internet access services than we anticipate. All of the foregoing could adversely affect the profitability of our dial-up Internet access services which could materially and adversely
impact our business, financial condition, results of operations, and cash flows.

Revenues and profitability of our Communications segment are expected to decrease.

Most of our Communications revenues and profits come from our dial-up Internet access services. Our dial-up
Internet access pay accounts and revenues have been declining and are expected to continue to decline due to the continued maturation of the market for dial-up Internet access. Consumers
continue to migrate to broadband access, primarily due to the faster connection and download speeds provided by broadband access. Advanced applications such as online gaming, music downloads and
videos require greater bandwidth for optimal performance, which adds to the demand for broadband access. The pricing for basic broadband services has been declining as well, making it a more viable
option for consumers. We expect our dial-up Internet access pay accounts to continue to decline. As a result of expected continued decreases in our dial-up Internet access pay
accounts and, potentially, the average monthly revenue per pay account, we expect that our Communications services
revenues, advertising revenues, and the profitability of this segment will continue to decline over time. The number of dial-up Internet access pay accounts has been adversely impacted by
both a decrease in the number of new pay accounts signing up for our services as well as the impact of subscribers canceling their accounts, which we refer to as "churn." Churn has increased from time
to time and may increase in the future. The rate of decline in Communications services revenues has accelerated in some periods and may continue to accelerate. Continued declines, particularly if such
declines accelerate, in Communications revenues will materially and adversely impact the profitability of this segment.

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

Our Internet access business substantially depends on the availability, capacity, affordability, reliability, and security of our
telecommunications networks. Only a limited number of telecommunications providers offer the network and data services we currently require, and we purchase most of our telecommunications services
from a few providers. Some of our telecommunications services are provided pursuant to short-term agreements that the providers can terminate or elect not to renew. In addition, some
telecommunications providers may cease to offer network services for certain less populated areas, which would reduce the number of providers from which we may purchase services and may entirely
eliminate our ability to purchase services for certain areas. If we are unable to maintain, renew or obtain new agreements with telecommunications providers, our business, financial condition, results
of operations, and cash flows could be materially and adversely affected.

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

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

(a)-(b) Not applicable

(c)   Repurchases

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 time to time, the Board of Directors has
increased the amount authorized for repurchase under this program and has extended the program. In April 2004, the 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 December 2009, the Board of Directors again further extended the program
through December 31, 2010. From August 2001 through March 31, 2010, we repurchased $139.2 million of our common stock under the program, leaving $60.8 million of
authorization remaining under the program. We have not repurchased any shares of our common stock under the program since February 2005.

Shares
withheld upon the 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 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 that vest and from the stock awards that are issued, the portion of those shares with a fair
market value equal to the amount of the employee withholding taxes due, which is accounted for as a repurchase of common stock. We then pay the applicable withholding taxes in cash.

Common
stock repurchases during the quarter ended March 31, 2010 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 ProgramFebruary 2010


964

$
6.27




$
60,782


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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. 2010 Management Bonus Plan

X



000-33367

5/7/201031.1

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

X



000-33367

5/7/201031.2

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

X



000-33367

5/7/201032.1

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

X



000-33367

5/7/201032.2

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

X



000-33367

5/7/2010


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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 7, 2010

UNITED ONLINE, INC.(Registrant)By:

/s/ SCOTT H. RAY Scott H. Ray Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)


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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. 2010 Management Bonus Plan

X



000-33367

5/7/201031.1

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

X



000-33367

5/7/201031.2

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

X



000-33367

5/7/201032.1

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

X



000-33367

5/7/201032.2

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

X



000-33367

5/7/2010


---