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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 September 30, 2009Oro

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


Commission file number 000-33367



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

Delaware(State or other Jurisdiction of
Incorporation or Organization)

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

91367(Zip Code)


(818) 287-3000(Registrant's Telephone Number, Including Area Code)

Not applicable(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)



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

Indicate by check mark whether the registrant has submitted 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 84,589,164 shares of the Registrant's common stock outstanding at October 30, 2009.



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UNITED ONLINE, INC.
INDEX TO FORM 10-Q
For the Quarter Ended September 30, 2009



PagePART I.

FINANCIAL INFORMATIONItem 1.

Unaudited Condensed Consolidated Balance Sheets at September 30, 2009 and December 31,
2008


4Unaudited Condensed Consolidated Statements of Operations for the Quarters and Nine Months
Ended September 30, 2009 and 2008


5Unaudited Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine
Months Ended September 30, 2009 and 2008


6Unaudited Condensed Consolidated Statement of Stockholders' Equity for the Nine Months Ended
September 30, 2009


7Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
2009 and 2008


8Notes to Unaudited Condensed Consolidated Financial Statements


9Item 2.

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


23Item 3.

Quantitative and Qualitative Disclosures About Market Risk


52Item 4.

Controls and Procedures


53PART II.

OTHER INFORMATIONItem 1.

Legal Proceedings


54Item 1A.

Risk Factors


54Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


70Item 6.

Exhibits


71SIGNATURES


72


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

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates and projections about our operations, industry, financial
condition, performance, results of operations, and liquidity. Statements containing words such as "may," "believe," "anticipate," "expect," "intend," "plan," "project," "projections," "business
outlook," "estimate," or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited to, statements about future financial performance;
segment metrics; operating expenses; market trends, including those in the markets in which we compete; operating and marketing efficiencies; revenues; liquidity; cash flows and uses of cash;
dividends; capital expenditures; depreciation and amortization; tax payments; impairment charges; stock-based compensation; restructuring charges; foreign currency exchange rates; hedging
arrangements; our ability to repay indebtedness, pay dividends and invest in initiatives; statements regarding the anticipated impact or

2

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benefits associated with the acquisition of FTD Group, Inc. and its subsidiaries; our products and services; pricing; competition; and strategies and initiatives. Potential factors that could
affect the matters about which the forward-looking statements are made include, among others, the factors disclosed in the section entitled "Risk Factors" in 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.

3

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PART IFINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

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

September 30,
2009

December 31,
2008AssetsCurrent assets:Cash and cash equivalents

$
121,424

$
104,514Accounts receivable, net of allowance for doubtful accounts of $7,469 and $4,327 at September 30, 2009 and December 31, 2008,
respectively


52,288


58,901Deferred tax assets, net


14,867


16,170Other current assets


23,755


30,970Total current assets


212,334


210,555Property and equipment, net


60,501


61,822Goodwill


462,562


459,348Intangible assets, net


300,344


320,236Other assets


17,985


21,566Total assets

$
1,053,726

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

$
55,230

$
83,372Accrued liabilities


39,011


43,148Member redemption liability


19,955


20,745Deferred revenue


76,629


78,498Long-term debt


34,248


22,219Total current liabilities


225,073


247,982Member redemption liability


4,935


5,231Deferred revenue


4,233


4,763Long-term debt, net of discounts


339,763


391,258Deferred tax liabilities, net


48,139


60,834Other liabilities


19,541


19,342Total liabilities


641,684


729,410Commitments and contingenciesStockholders' equity:Common stock


8


8Additional paid-in capital


517,231


520,187Accumulated other comprehensive loss


(28,613
)

(47,019
)Accumulated deficit


(76,584
)

(129,059
)Total stockholders' equity


412,042


344,117Total liabilities and stockholders' equity

$
1,053,726

$
1,073,527


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

4

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

Quarter Ended September 30,

Nine Months Ended September 30,2009

2008

2009

2008Revenues:Services

$
138,337

$
133,999

$
434,919

$
378,083Products


77,869


35,158


305,723


35,158Total revenues


216,206


169,157


740,642


413,241Operating expenses:Cost of revenuesservices (including stock-based compensation, see Note 10)


26,274


28,539


83,879


83,208Cost of revenuesproducts (including stock-based compensation, see Note 10)


58,288


26,305


223,466


26,305Sales and marketing (including stock-based compensation, see Note 10)


46,146


42,376


155,584


114,966Technology and development (including stock-based compensation, see Note 10)


15,700


14,983


49,637


40,406General and administrative (including stock-based compensation, see Note 10)


28,111


23,096


88,632


66,754Amortization of intangible assets


9,013


4,966


26,252


9,824Restructuring charges





93





656Total operating expenses


183,532


140,358


627,450


342,119Operating income


32,674


28,799


113,192


71,122Interest income


498


1,053


1,184


4,037Interest expense


(7,542
)

(3,751
)

(24,547
)

(3,751
)Other income, net


567


492


698


718Income before income taxes


26,197


26,593


90,527


72,126Provision for income taxes


10,042


10,427


38,052


29,220Net income

$
16,155

$
16,166

$
52,475

$
42,906Income allocated to participating securities


(1,222
)

(982
)

(3,491
)

(2,710
)Net income applicable to common stockholders

$
14,933

$
15,184

$
48,984

$
40,196Basic net income per common share

$
0.18

$
0.20

$
0.59

$
0.57Shares used to calculate basic net income per common share


84,028


74,108


83,372


70,382Diluted net income per common share

$
0.18

$
0.20

$
0.58

$
0.56Shares used to calculate diluted net income per common share


84,688


74,865


83,807


71,156


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

5

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

Quarter Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Net income

$
16,155

$
16,166

$
52,475

$
42,906Change in unrealized gain on short-term investments, net of tax of $(10) and $34 for the quarter and nine months ended September 30, 2008,
respectively





(366
)




(293
)Foreign currency translation


(4,804
)

(704
)

18,406


(907
)Comprehensive income

$
11,351

$
15,096

$
70,881

$
41,706


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, 2009


82,107

$
8

$
520,187

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


118





535








535Issuance of common stock through employee stock purchase plan


553





2,490








2,490Vesting of restricted stock units


1,457














Repurchases of common stock








(5,217
)







(5,217
)Dividends paid on shares outstanding and restricted stock units








(27,118
)







(27,118
)Dividends payable on restricted stock units








(146
)







(146
)Stock-based compensation








29,204








29,204Foreign currency translation











18,406





18,406Tax shortfalls from equity awards








(2,704
)







(2,704
)Net income














52,475


52,475Balance at September 30, 2009


84,235

$
8

$
517,231

$
(28,613
)
$
(76,584
)
$
412,042


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)

Nine Months Ended
September 30,2009

2008Cash flows from operating activities:Net income

$
52,475

$
42,906Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


45,061


25,497Stock-based compensation


29,204


28,106Accretion of discounts and amortization of debt issue costs


3,883


447Provision for doubtful accounts receivable


4,687


988Deferred taxes, net


(4,407
)

3,924Tax benefits (shortfalls) from equity awards


(2,704
)

386Excess tax benefits from equity awards


(94
)

(339
)Other


318


(17
)Changes in operating assets and liabilities:Accounts receivable


2,211


4,066Other assets


10,312


5,073Accounts payable and accrued liabilities


(33,933
)

(20,411
)Member redemption liability


(1,086
)

1,787Deferred revenue


(1,254
)

9,916Other liabilities


(398
)

(1,748
)Net cash provided by operating activities


104,275


100,581Cash flows from investing activities:Purchases of property and equipment


(17,190
)

(11,483
)Purchases of short-term investments





(120,378
)Proceeds from maturities of short-term investments





82,765Proceeds from sales of short-term investments





106,364Cash paid for acquisitions, net of cash acquired





(307,160
)Proceeds from sales of assets, net


14


45Net cash used for investing activities


(17,176
)

(249,847
)Cash flows from financing activities:Proceeds from term loans and revolver





421,041Payments on term loans and revolver


(42,930
)

(302,280
)Payments on capital leases





(13
)Payments for debt issue costs





(249
)Proceeds from exercises of stock options


535


1,661Proceeds from employee stock purchase plan


2,490


2,576Repurchases of common stock


(5,217
)

(8,381
)Payments for dividends


(27,118
)

(44,326
)Excess tax benefits from equity awards


94


339Net cash provided by (used for) financing activities


(72,146
)

70,368Effect of foreign currency exchange rate changes on cash and cash equivalents


1,957


(939
)Change in cash and cash equivalents


16,910


(79,837
)Cash and cash equivalents, beginning of period


104,514


149,507Cash and cash equivalents, end of period

$
121,424

$
69,670Supplemental disclosure of non-cash investing and financing activities:Dividends payable on restricted stock units

$
146

$
140Issuance of common stock in connection with the acquisition of FTD Group, Inc.

$


$
126,151


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, MyPoints, NetZero, and Juno. On August 26, 2008, United
Online, Inc. completed its acquisition of 100% of the capital stock of FTD Group, Inc. (together with its subsidiaries, "FTD"). The Company reports its business in three reportable
segments: FTD, Classmates Media and Communications. The Company's FTD segment provides floral and related products and services to consumers and retail florists, as well as to other retail locations
offering floral and related products and services. The Company's Classmates Media services are online social networking and online loyalty marketing. The Company's primary Communications services are
Internet access and email. On a combined basis, the Company's Web properties attract a significant number of Internet users and the Company offers a broad array of Internet marketing services for
advertisers.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements for the quarters and nine months ended September 30, 2009
and 2008 include United Online, Inc. and its subsidiaries. The unaudited condensed consolidated balance sheet information at December 31, 2008 is derived from the Company's audited
consolidated financial statements, filed on February 27, 2009 with the Securities and Exchange Commission ("SEC") in the Company's Annual Report on Form 10-K for the year
ended December 31, 2008, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). The Company's unaudited condensed
consolidated financial statements have been prepared in accordance with GAAP, including those for interim financial information, and with the instructions for Form 10-Q and
Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all of the information and note disclosures required by GAAP for complete financial
statements. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements, in the opinion of management,
reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the results for the periods shown. The results of operations for such periods are
not necessarily indicative of the results expected for any future periods.

The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates and assumptions. These unaudited condensed consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2008 included in the Company's Annual
Report on Form 10-K.

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.

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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.

Subsequent eventsThe Company has evaluated subsequent events through November 6, 2009, the date this Quarterly Report on
Form 10-Q was filed with the SEC.

Accounting Policies

Earnings Per ShareThe Company computes earnings per share in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 260,Earnings Per Share. ASC 260 provides that unvested share-based payment awards that contain non-forfeitable rights
to dividends are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing
earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and
participation rights in undistributed earnings. Certain of the Company's restricted stock units are considered participating securities because they contain a non-forfeitable right to
dividends irrespective of whether the awards ultimately vest. The Company is required to retrospectively adjust earnings per share data to conform to the provisions in this standard. Accordingly,
effective January 1, 2009, the Company computed earnings per common share using the two-class method for all periods presented. See Note 11 for additional disclosures.

Recent Accounting Pronouncements

Fair Value Measurements and Disclosures-Measuring Liabilities at Fair ValueIn August 2009, the FASB issued Accounting Standards Update ("ASU")
No. 2009-05,Fair Value Measurements and DisclosuresMeasuring Liabilities at Fair Value.This update provides
amendments to ASC 820-10,Fair Value Measurements and DisclosuresOverall, for the fair value measurement of liabilities, and
provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or
more of the recommended techniques. The amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The amendments in this update also clarify that both a quoted price in an active
market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the
asset are required are Level 1 fair value measurements. The guidance provided in this update became effective on October 1, 2009, and will not materially affect the Company's
consolidated financial statements.

Revenue RecognitionMultiple Deliverable Revenue ArrangementsIn October 2009, the FASB issued ASU No. 2009-13, Revenue
RecognitionMultiple Deliverable Revenue Arrangements. This update addresses the accounting for multiple-deliverable arrangements to
enable vendors to account for products or services (deliverables) separately rather than as a combined unit. The amendments in this update will be effective prospectively for revenue arrangements
entered into or materially modified

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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

beginning
January 1, 2011. Early adoption is permitted. The Company is currently evaluating the impact, if any, of this update on its consolidated financial statements.

SoftwareCertain Revenue Arrangements That Include Software ElementsIn October 2009, the FASB issued ASU No. 2009-14, SoftwareCertain Revenue Arrangements That Include Software Elements. The amendments in this update change the accounting model for revenue
arrangements that include both tangible products and software elements. Tangible products containing software components and non-software components that function together to deliver the
tangible product's essential functionality will no longer be within the scope of the software revenue guidance in ASC 985-605,SoftwareRevenue
Recognition. The amendments in this update will be effective prospectively for revenue arrangements entered into or materially modified beginning January 1, 2011. Early
adoption is permitted. The Company is currently evaluating the impact, if any, of this update on its consolidated financial statements.

2. ACQUISITION

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

Quarter Ended
September 30, 2008

Nine Months Ended
September 30, 2008Revenues

$
242,303

$
853,279Net income (loss)

$
(1,589
)
$
33,527Net income (loss) applicable to common stockholders

$
(2,472
)
$
30,817Basic net income (loss) per common share

$
(0.03
)
$
0.38Diluted net income (loss) per common share

$
(0.03
)
$
0.38


3. SEGMENT INFORMATION

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

Quarter Ended September 30, 2009FTD

Classmates Media

Communications

TotalServices

$
28,535

$
38,283

$
42,050

$
108,868Products


77,869








77,869Advertising


1,122


20,399


8,629


30,150Total revenues

$
107,526

$
58,682

$
50,679

$
216,887Segment income from operations

$
15,253

$
16,998

$
15,613

$
47,864


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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. SEGMENT INFORMATION (Continued)



Quarter Ended September 30, 2008FTD

Classmates Media

Communications

TotalServices

$
13,122

$
36,386

$
53,208

$
102,716Products


35,158








35,158Advertising





22,360


8,923


31,283Total revenues

$
48,280

$
58,746

$
62,131

$
169,157Segment income from operations

$
8,184

$
12,158

$
18,771

$
39,113




Nine Months Ended September 30, 2009FTD

Classmates Media

Communications

TotalServices

$
93,690

$
115,222

$
135,757

$
344,669Products


305,723








305,723Advertising


5,316


60,088


27,047


92,451Total revenues

$
404,729

$
175,310

$
162,804

$
742,843Segment income from operations

$
58,392

$
43,276

$
56,585

$
158,253




Nine Months Ended September 30, 2008FTD

Classmates Media

Communications

TotalServices

$
13,122

$
101,761

$
168,763

$
283,646Products


35,158








35,158Advertising





65,882


28,555


94,437Total revenues

$
48,280

$
167,643

$
197,318

$
413,241Segment income from operations

$
8,184

$
28,048

$
60,387

$
96,619


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

Quarter Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Segment revenues:FTD

$
107,526

$
48,280

$
404,729

$
48,280Classmates Media


58,682


58,746


175,310


167,643Communications


50,679


62,131


162,804


197,318Intersegment eliminations


(681
)




(2,201
)

Consolidated revenues

$
216,206

$
169,157

$
740,642

$
413,241


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UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. SEGMENT INFORMATION (Continued)

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

Quarter Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Segment operating expenses:FTD

$
92,273

$
40,096

$
346,337

$
40,096Classmates Media


41,684


46,588


132,034


139,595Communications


35,066


43,360


106,219


136,931Total segment operating expenses


169,023


130,044


584,590


316,622Depreciation


6,177


5,348


18,809


15,673Amortization of intangible assets


9,013


4,966


26,252


9,824Intersegment eliminations


(681
)




(2,201
)

Consolidated operating expenses

$
183,532

$
140,358

$
627,450

$
342,119


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

Quarter Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Segment income from operations:FTD

$
15,253

$
8,184

$
58,392

$
8,184Classmates Media


16,998


12,158


43,276


28,048Communications


15,613


18,771


56,585


60,387Total segment income from operations


47,864


39,113


158,253


96,619Depreciation


(6,177
)

(5,348
)

(18,809
)

(15,673
)Amortization of intangible assets


(9,013
)

(4,966
)

(26,252
)

(9,824
)Consolidated operating income

$
32,674

$
28,799

$
113,192

$
71,122


International
revenues are generated from the Company's operations in Europe. International revenues totaled $39.2 million and $123.8 million for the quarter and nine
months ended September 30, 2009, respectively. International revenues totaled $18.5 million and $26.3 million for the quarter and nine months ended September 30, 2008,
respectively.

13

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. SEGMENT INFORMATION (Continued)

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

September 30,
2009

December 31,
2008United States

$
69,832

$
76,434Europe


8,654


6,952Total long-lived assets

$
78,486

$
83,386


The
Company manages its working capital on a consolidated basis. In addition, segment assets are not reported to, or used by, the chief operating decision maker to allocate resources to
or assess performance of the segments and, therefore, pursuant to ASC 280,Segment Reporting, total segment assets have not been disclosed.

4. BALANCE SHEET COMPONENTS

Other Current Assets

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

September 30,
2009

December 31,
2008Prepaid expenses

$
14,801

$
15,751Income taxes receivable





1,810Gift cards related to member redemption liability


3,042


4,332Floral-related inventories, net


2,979


5,603Other


2,933


3,474Total

$
23,755

$
30,970


Property and Equipment

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

September 30,
2009

December 31,
2008Computer software and equipment

$
154,017

$
140,619Land and buildings


17,474


17,070Furniture and fixtures


16,317


15,511187,808


173,200Less: accumulated depreciation and amortization


(127,307
)

(111,378
)Total

$
60,501

$
61,822


14

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. BALANCE SHEET COMPONENTS (Continued)

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

September 30,
2009

December 31,
2008Employee compensation and related expenses

$
22,135

$
23,683Income taxes payable


4,065


1,690Non-income taxes payable


4,373


4,930Customer deposits


3,937


4,269Other


4,501


8,576Total

$
39,011

$
43,148


5. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The changes in goodwill by reportable segment for the nine months ended September 30, 2009 were as follows
(in thousands):

FTD

Classmates
Media

Communications

TotalBalance at January 1, 2009

$
327,133

$
124,726

$
7,489

$
459,348Foreign currency translation


12,739


10





12,749Acquisition adjustments(a)


(9,535
)







(9,535
)Balance at September 30, 2009

$
330,337

$
124,736

$
7,489

$
462,562


---

Intangible Assets

Intangible assets consisted of the following (in thousands):

September 30, 2009Cost or
Fair Value

Accumulated
Amortization

NetPay accounts and free accounts

$
100,836

$
(88,168
)
$
12,668Customer contracts and relationships


112,353


(26,828
)

85,525Trademarks and trade names


183,495


(14,239
)

169,256Advertising contracts and related relationships


7,229


(7,229
)

Software and technology


46,655


(14,179
)

32,476Patents, domain names and other


4,607


(4,188
)

419Total

$
455,175

$
(154,831
)
$
300,344


15

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. GOODWILL AND INTANGIBLE ASSETS (Continued)



December 31, 2008Cost or
Fair Value

Accumulated
Amortization

NetPay accounts and free accounts

$
100,785

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


110,570


(11,805
)

98,765Trademarks and trade names


179,300


(12,221
)

167,079Advertising contracts and related relationships


7,229


(7,229
)

Software and technology


46,047


(7,884
)

38,163Patents, domain names and other


4,596


(3,494
)

1,102Total

$
448,527

$
(128,291
)
$
320,236


The
Company's acquired trademarks and trade names related to the FTD acquisition are indefinite-lived and, accordingly, there is no associated amortization expense or accumulated
amortization. At September 30, 2009 and December 31, 2008, the FTD trademarks and trade names, after foreign currency translation adjustments, totaled $157.7 million and
$153.5 million, respectively.

6. CREDIT AGREEMENTS

UOL Credit Agreement

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

FTD Credit Agreement

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

The
changes in the Company's debt balances, net of discounts, for the nine months ended September 30, 2009 were as follows (in thousands):

Balance at
January 1, 2009

Repayments
of Debt

Accretion
of Discounts

Balance at
September 30, 2009UOL Credit Agreement

$
54,859

$
(21,242
)
$
669

$
34,286FTD Credit Agreement, term loan A


71,812


(5,676
)

548


66,684FTD Credit Agreement, term loan B


286,806


(16,012
)

2,247


273,041FTD Credit Agreement, revolving credit facility











Total

$
413,477

$
(42,930
)
$
3,464

$
374,011


16

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. CREDIT AGREEMENTS (Continued)

Future
minimum principal payments based upon United Online, Inc.'s and FTD Group Inc.'s scheduled mandatory debt payments per the credit agreements, excluding required
prepayments based on excess cash flow, were as follows at September 30, 2009 (in thousands):

Year Ending December 31,Total
Gross
Debt

Remaining
20092010

2011

2012

2013

2014UOL Credit Agreement

$
35,008

$
3,750

$
15,000

$
15,000

$
1,258

$


$
FTD Credit Agreement, term loan A


68,386





4,684


7,494


7,963


48,245


FTD Credit Agreement, term loan B


283,239





2,156


2,876


2,876


2,876


272,455Total

$
386,633

$
3,750

$
21,840

$
25,370

$
12,097

$
51,121

$
272,455


At
September 30, 2009, the borrowing capacity under the FTD revolving credit facility, which was reduced by $1.4 million in outstanding letters of credit, was
$48.6 million.

Subject
to certain exceptions, United Online, Inc. is required to make quarterly prepayments under the UOL Credit Agreement based on excess cash flow as defined in the UOL Credit
Agreement (commencing in the second quarter of 2009). Subject to certain exceptions, FTD Group, Inc. is required to make annual prepayments of a portion of the term loans under the FTD Credit
Agreement based on excess cash flow as defined in the FTD Credit Agreement (commencing in the second quarter of 2010). Based on the Company's current projections, under the provisions of the credit
facilities, the Company reasonably expects to make excess cash flow debt prepayments of approximately $15.0 million in the next twelve months. Accordingly, this amount has been classified as a
current liability on the condensed consolidated balance sheet at September 30, 2009. In October 2009, FTD Group, Inc. made a voluntary prepayment of $10.0 million on its term
loans.

7. DERIVATIVE INSTRUMENTS

Interest Rate Cap

FTD Group, Inc. is required by the FTD Credit Agreement to maintain one or more interest rate swap agreements, interest rate cap
agreements, interest rate collar agreements, or other similar instruments to manage risks associated with interest rate fluctuations and exposures on its credit facilities with Wells Fargo Bank,
National Association. Accordingly, in November 2008, FTD Group, Inc. entered into a three-year interest rate cap agreement to manage risks associated with interest rate fluctuations
on a $150 million notional amount of the FTD Credit Agreement. This instrument was initially accounted for as a cash flow hedge. In January 2009, FTD Group, Inc. changed the interest
rate basis of the hedged item from LIBOR-based to prime rate-based and, as a result, the cash flow hedge was de-designated and accordingly does not currently qualify for hedge
accounting treatment. The amount of deferred loss on the interest rate cap reclassified from accumulated other comprehensive loss in the statement of stockholders' equity to interest expense since
de-designation of the hedge in the first quarter of 2009 has been immaterial.

FTD
Group, Inc. intends to maintain the interest rate cap in order to comply with the FTD Credit Agreement and does not presently expect to enter into any other interest rate
hedging arrangements. The interest rate cap does not contain any credit risk-related contingent features as defined by ASC 815,Derivatives and
Hedging.

17

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. DERIVATIVE INSTRUMENTS (Continued)

Foreign Exchange Contracts

In June 2009, the Company entered into two foreign currency forward contracts between the U.S. Dollar and the British Pound, one
of which expired in September and the other of which will expire in December 2009. While these contracts are not designated as hedging instruments for accounting purposes, the Company entered into
these derivative contracts to partially offset the economic effect of fluctuations in the currency exchange rate between the U.S. Dollar and the British Pound. These derivatives are intended to
minimize the impact of foreign currency exchange rates on intercompany dividend payments in British Pounds. The Company presently anticipates that it may continue to enter into foreign currency
forward or other similar contracts to manage foreign currency exchange rate risks. These foreign currency forward contracts do not contain any credit risk-related contingent features as
defined by ASC 815.

At
September 30, 2009, foreign currency forward contracts with a notional value of $3.6 million were outstanding.

Summary Information

The following table presents the fair value of derivatives in the condensed consolidated balance sheet at September 30, 2009
(in thousands):

Derivative Instruments

Balance Sheet Location

Fair ValueInterest rate cap

Other assets

$
156Foreign currency forward contracts

Other current assets

$
64


Changes
in the fair value of the derivatives are recognized in earnings in the period of change. The following table presents the effect of these changes on the condensed consolidated
statements of operations for the quarter and nine months ended September 30, 2009 (in thousands):

Amount of Gain (Loss)Derivative Instruments

Location of
Gain (Loss)

Quarter Ended
September 30, 2009

Nine Months Ended
September 30, 2009Interest rate cap

Interest expense

$
28

$
106Foreign currency forward contracts

Other income, net

$
131

$
83


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

8. FAIR VALUE MEASUREMENTS

The provisions of ASC 820,Fair Value Measurements and Disclosures, related to nonfinancial assets and liabilities became effective for
the Company on January 1, 2009 and did not have a material impact on the Company's condensed consolidated financial statements.

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

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. FAIR VALUE MEASUREMENTS (Continued)

indirectly
(Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The
following table presents information about assets at September 30, 2009 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 ValueCash equivalents

$
88,274

$
80,477

$
7,797Derivative assets


220





220Total

$
88,494

$
80,477

$
8,017


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 estimated 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 4% and BBB/BB+ for the long-term debt associated with
the FTD Credit Agreement, resulting in a discount rate of 6%. The table below summarizes the fair value estimates for long-term debt at September 30, 2009, 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

$
374,011

$
411,888


9. STOCKHOLDERS' EQUITY

Common Stock Repurchases

United Online, Inc.'s Board of Directors authorized a common stock repurchase program (the "program") that allows the Company to
repurchase shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors through December 31, 2009. From August
2001 through September 30, 2009, the Company had repurchased $139.2 million of its common stock under the program. The Company has not repurchased any shares of its common stock under
the program since February 2005 and, at September 30, 2009, the remaining amount available under the program was $60.8 million.

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, the Company currently does not collect the applicable employee withholding taxes from employees. Instead,
the Company automatically withholds, from the restricted stock units and restricted stock awards that vest and from the stock awards that are issued, the portion of those shares with a fair market
value equal to the amount of the employee withholding taxes due, which is accounted for as a repurchase of common stock. The Company then pays the applicable withholding taxes in cash. The amounts
remitted in the nine months ended September 30, 2009 and 2008 were $5.2 million and $8.4 million, respectively, for which the Company withheld 867,000 and 734,000 shares of common
stock, respectively, that were

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. STOCKHOLDERS' EQUITY (Continued)

underlying
the restricted stock units and restricted stock awards which vested and stock awards that were issued.

Dividends

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

In
January, April and July 2009, United Online, Inc.'s Board of Directors declared quarterly cash dividends of $0.10 per share of common stock. The dividends were paid on
February 27, 2009, May 29, 2009 and August 31, 2009 and totaled $8.8 million, $9.1 million and $9.2 million, respectively. In October 2009, United
Online, Inc.'s Board of Directors declared a quarterly cash dividend of $0.10 per share of common stock. The record date for the dividend is November 13, 2009 and the dividend is payable
on November 30, 2009.

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

10. STOCK-BASED COMPENSATION PLANS

Stock-Based Compensation

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

Quarter Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Operating expenses:Cost of revenuesservices

$
201

$
381

$
728

$
775Cost of revenuesproducts


20





20


Sales and marketing


1,421


2,135


4,120


5,528Technology and development


1,202


2,664


3,713


5,263General and administrative


6,748


4,775


20,623


16,540Total stock-based compensation

$
9,592

$
9,955

$
29,204

$
28,106


Recent Awards

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

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. STOCK-BASED COMPENSATION PLANS (Continued)

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

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

Stock Option Exchange Program for Three Executive Officers

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

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

The
restricted stock units will vest in quarterly increments over two years measured from February 15, 2009, subject to the executive officer's continued employment with the
Company through the vesting date of such restricted stock units. Upon vesting, the Company will issue shares of common stock corresponding to the number of vested restricted stock units awarded to the
officer, less the number of shares having an aggregate value equal to the Company's statutory withholding obligations with respect to applicable federal and state income and employment withholding
taxes (all as consistent with the Company's current practices with respect to restricted stock units). The grant-date fair value of the 0.6 million restricted stock units totaled
$2.5 million.

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Table of Contents

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income per common share for
the quarters and nine months ended September 30, 2009 and 2008 (in thousands, except per share amounts):

Quarter Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Numerator:Net income

$
16,155

$
16,166

$
52,475

$
42,906Income allocated to participating securities


(1,222
)

(982
)

(3,491
)

(2,710
)Net income applicable to common stockholders

$
14,933

$
15,184

$
48,984

$
40,196Denominator:Weighted-average common shares


84,028


74,108


83,372


70,415Less: weighted-average common shares subject to repurchase rights











(33
)Shares used to calculate basic net income per common share


84,028


74,108


83,372


70,382Add: Dilutive effect of non-participating securities


660


757


435


774Shares used to calculate diluted net income per common share


84,688


74,865


83,807


71,156Basic net income per common share

$
0.18

$
0.20

$
0.59

$
0.57Diluted net income per common share

$
0.18

$
0.20

$
0.58

$
0.56


Basic
net income per common share reported prior to the adoption of ASC 260-10-45,Earnings Per Share-Other Presentation
Matters, for the quarter and nine months ended September 30, 2008 was $0.22 and $0.61, respectively. Diluted net income per common share reported prior to the adoption
of ASC 260-10-45 for the quarter and nine months ended September 30, 2008 was $0.21 and $0.60, respectively.

The
diluted net income per common share computations exclude restricted stock units and stock options which are antidilutive. Weighted average antidilutive shares for the quarter and
nine months ended September 30, 2009 were 3.4 million and 6.0 million, respectively. Weighted average antidilutive
shares for the quarter and nine months ended September 30, 2008 were 5.4 million and 5.4 million, respectively.

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Table of Contents

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference
contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, as amended, based on our current expectations, estimates
and projections about our operations, industry, financial condition, performance, results of operations, and liquidity. Statements containing words such as "may," "believe," "anticipate," "expect,"
"intend," "plan," "project," "projections," "business outlook," "estimate," or similar expressions constitute forward-looking statements. These forward-looking statements include, but are not limited
to,
statements about future financial performance; segment metrics; operating expenses; market trends, including those in the markets in which we compete; operating and marketing efficiencies; revenues;
liquidity; cash flows and uses of cash; dividends; capital expenditures; depreciation and amortization; tax payments; impairment charges; stock-based compensation; restructuring charges; foreign
currency exchange rates; hedging arrangements; our ability to repay indebtedness, pay dividends and invest in initiatives; statements regarding the anticipated impact or benefits associated with the
acquisition of FTD Group, Inc. and its subsidiaries; our products and services; pricing; competition; and strategies and initiatives. Potential factors that could affect the matters about which
the forward-looking statements are made include, among others, the factors disclosed in the section entitled "Risk Factors" in 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, MyPoints, NetZero, and Juno. Our FTD segment provides floral and related products and services to consumers and retail florists, as well as to other retail locations offering floral and
related products and services. Our Classmates Media segment services are online social networking and online loyalty marketing. Our primary Communications segment services are Internet access and
email. On a combined basis, our Web properties attract a significant number of Internet users, and we offer a broad range of Internet marketing services for advertisers.

Segment Definitions

We report our businesses in three reportable segments:

Segment

Products and ServicesFTD

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

Online social networking and online loyalty marketingCommunications

Internet access, email, Internet security, and Web hosting


23

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Table of Contents

Segment Services

FTD

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

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

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

Classmates Media

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

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
properties comprise a large and diverse population of users with over 60 million registered accounts at September 30, 2009.

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 our members by allowing members to earn rewards points for engaging in
online
activities. MyPoints is a free service and users need only provide their name, zip code, gender, date of birth, and an email address to register. Members register to receive direct email marketing and
other online loyalty promotions, and earn points for responding to email offers, taking market research surveys, shopping online, and engaging in other online activities. Rewards points are redeemable
primarily in the form of third-party gift cards from over 70 merchants, including, but not limited to, retailers, theaters, restaurants, airlines, and hotels.

24

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Communications

Our principal Communications pay services are dial-up and broadband Internet access services primarily under the NetZero
and Juno brands. We also offer Internet security services, Web hosting services and email. Most of our Communications revenues are derived from dial-up Internet access 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. Our accelerated dial-up Internet
access service can significantly reduce the time for certain Web pages to download when compared to our basic dial-up Internet access services and is also bundled with additional benefits
including pop-up blocking, antivirus software and enhanced email storage. Our dial-up Internet access services are available in cities across the U.S. and Canada.

Our
broadband Internet access services consist of digital subscriber line services that we purchase from third-parties and resell under our own brands. This service is primarily used as
a means to retain users
who are leaving our dial-up Internet access service and we have conducted very limited marketing of our broadband Internet access service 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's Metrics

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

Classmates Media and Communications Segments' Metrics

Pay Accounts.We generate a significant portion of our revenues from our pay accounts and they represent one of the most important
drivers of our
business model. A pay account is defined as a member who has subscribed to, and paid for, our Classmates Media or Communications services, and

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

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

Active Accounts.We monitor the number of active accounts among our membership base. Classmates Media segment active accounts are
defined as the sum
of 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 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, pay accounts (at the end of the period), segment revenues, consumer orders,
average order

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value,
average currency exchange rate, churn (monthly average for the period), ARPU (monthly average for the period), and active accounts (monthly average for the period).

Revenues
and operating results from our FTD segment are impacted by seasonal holiday 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.

The
pay accounts and ARPU metrics for our Classmates Media segment may fluctuate significantly from period to period due to various factors including, in particular, the extent to which
discounted pricing is offered during a period, the percentage of pay accounts being represented by international social networking pay accounts which have lower-priced subscription plans compared to
U.S. social networking pay accounts, and the churn rate.

Quarter EndedSeptember 30,
2009

June 30,
2009

March 31,
2009

December 31,
2008

September 30,
2008Consolidated:Revenues (in thousands)

$
216,206

$
260,789

$
263,647

$
256,162

$
169,157FTD:Basis of presentation(a)


CombinedRevenues(a) (in thousands)

$
107,526

$
149,216

$
147,987

$
133,685

$
121,427% of Total revenues(a)


50
%

57
%

56
%

52
%

N/AConsumer orders(a) (in thousands)


1,075


1,711


1,691


1,467


1,154Average order value(a)

$
61.29

$
59.78

$
57.70

$
58.80

$
64.37Average currency exchange rate: GBP to USD


1.64


1.55


1.43


1.56


1.90Classmates Media:Segment revenues (in thousands)

$
58,682

$
58,155

$
58,473

$
62,592

$
58,746% of Total revenues


27
%

22
%

22
%

24
%

35
%Pay accounts (in thousands)


4,785


4,621


4,563


4,319


4,087Segment churn


3.8
%

4.3
%

4.1
%

4.4
%

4.1
%ARPU

$
2.71

$
2.81

$
2.87

$
2.98

$
3.07Segment active accounts (in millions)


16.9


16.4


16.8


16.0


15.5Communications:Segment revenues (in thousands)

$
50,679

$
54,147

$
57,978

$
60,120

$
62,131% of Total revenues


23
%

21
%

22
%

23
%

37
%Pay accounts (in thousands):Access


1,118


1,203


1,316


1,388


1,468Other


322


329


337


347


353Total pay accounts


1,440


1,532


1,653


1,735


1,821Segment churn


4.6
%

4.9
%

4.8
%

4.3
%

4.4
%ARPU

$
9.43

$
9.55

$
9.45

$
9.31

$
9.49Segment active accounts (in millions)


2.3


2.4


2.6


2.7


2.8


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Financial Statement Presentation

Revenues

Services Revenues



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

Products Revenues

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



Classmates Media services revenues consist of amounts charged to pay accounts for social networking services. Communications services
revenues consist of amounts charged to pay accounts for Internet access, Web hosting, email, Internet security, and other services, with substantially all of such revenues associated with Internet
access. In general, we charge our pay accounts in advance of providing a service, which results in the deferral of services revenue to the period in which the services are provided.

Advertising Revenues

We provide advertising solutions to marketers with both brand and direct response objectives through display, search, email, and
text-link opportunities across our various businesses. We also use targeting technologies, Web site sponsorships and Web site integrations in order to provide effective advertising
solutions.



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



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

Our
online loyalty marketing service generates advertising revenues from fees, consisting primarily of fees generated when emails are transmitted to members, when members respond to
emails, when members complete online transactions, and when members engage in a variety of other activities including Internet searches, games and market research surveys.

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

Cost of Revenues

FTD

FTD cost of revenues includes product costs; shipping and delivery costs; costs associated with taking orders; printing and postage
costs; systems installation, training and support costs; data center costs; personnel- and overhead-related costs associated with operating our networks and data centers; depreciation of network
computers and equipment; license fees; costs related to providing customer support; costs related to customer billing for our florist members; fees associated with the storage and processing of
customer credit cards and associated bank fees; and domain name registration fees.

Classmates Media

Classmates Media cost of revenues includes costs of points earned by members of our online loyalty marketing service; data center
costs; personnel-and overhead-related costs associated with operating our networks and data centers; depreciation of network computers and equipment; license fees; costs related to
providing customer support; 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 products and services and with generating advertising
revenues. Expenses associated with promoting our brands, products and services include advertising and promotion expenses; fees paid to distribution partners, third-party advertising networks and
co-registration partners to acquire new pay and free accounts; personnel and overhead-related expenses for marketing, merchandising, customer service, and sales personnel; and
telemarketing costs incurred to acquire and retain pay accounts and up-sell pay accounts to additional services. Expenses associated with generating advertising revenues include sales
commissions and personnel-related expenses. We have expended significant amounts on sales and marketing, including branding and customer acquisition campaigns consisting of television, Internet,
sponsorships, radio, print, and outdoor advertising, and on retail and other performance-based distribution relationships. Marketing and advertising costs to promote our products and services are
expensed in the period incurred. Advertising and promotion expenses include media, agency and promotion expenses. Media production costs are expensed the first time the advertisement is run. Media and
agency costs are expensed over the period the advertising runs.

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Table of Contents

Technology and Development

Technology and development expenses include expenses for product development, maintenance of existing software and technology and
development of new or improved software and technology, including personnel-related expenses for our technology departments in various office locations and the costs associated with operating our
facility in India. Costs incurred by us to manage and monitor our technology and development activities are expensed as incurred. Costs relating to the acquisition and development of
internal-use software are capitalized when appropriate and depreciated over their estimated useful lives, generally three years.

General and Administrative

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

Amortization of Intangible Assets

Amortization of intangible assets principally includes amortization of: acquired pay accounts and free accounts; certain acquired
trademarks and trade names; purchased software and technology; acquired customer and advertising contracts and related relationships; acquired patents and domain names; and other identifiable
intangible assets. In accordance with the provisions set forth in ASC 350,Intangibles-Goodwill and Other, 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
reductions in force and closures of facilities.

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.

Other Income, Net

Other income, 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,
net, consists of realized and unrealized gains and losses on foreign currency forward contracts.

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Table of Contents

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
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Revenues

$
216,206

$
169,157

$
740,642

$
413,241Operating expenses:Cost of revenues


84,562


54,844


307,345


109,513Sales and marketing


46,146


42,376


155,584


114,966Technology and development


15,700


14,983


49,637


40,406General and administrative


28,111


23,096


88,632


66,754Amortization of intangible assets


9,013


4,966


26,252


9,824Restructuring charges





93





656Total operating expenses


183,532


140,358


627,450


342,119Operating income


32,674


28,799


113,192


71,122Interest income


498


1,053


1,184


4,037Interest expense


(7,542
)

(3,751
)

(24,547
)

(3,751
)Other income, net


567


492


698


718Income before income taxes


26,197


26,593


90,527


72,126Provision for income taxes


10,042


10,427


38,052


29,220Net income

$
16,155

$
16,166

$
52,475

$
42,906


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

FTD

Classmates Media

CommunicationsQuarter Ended
September 30,

Quarter Ended
September 30,

Quarter Ended
September 30,2009

2008

2009

2008

2009

2008Revenues

$
107,526

$
48,280

$
58,682

$
58,746

$
50,679

$
62,131Operating expenses:Cost of revenues


62,581


28,154


7,918


10,364


11,469


14,177Sales and marketing


16,731


7,224


19,016


21,495


10,745


13,532Technology and development


2,993


861


5,966


5,837


4,615


6,649General and administrative


9,968


3,857


8,784


8,892


8,237


8,909Restructuring charges

















93Total operating expenses


92,273


40,096


41,684


46,588


35,066


43,360Segment income from operations

$
15,253

$
8,184

$
16,998

$
12,158

$
15,613

$
18,771


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FTD

Classmates Media

CommunicationsNine Months Ended
September 30,

Nine Months Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008

2009

2008Revenues

$
404,729

$
48,280

$
175,310

$
167,643

$
162,804

$
197,318Operating expenses:Cost of revenues


237,604


28,154


25,821


30,279


36,328


44,453Sales and marketing


67,463


7,224


57,802


61,957


31,434


45,447Technology and development


9,029


861


20,206


16,289


14,154


18,499General and administrative


32,241


3,857


28,205


31,070


24,303


27,876Restructuring charges

















656Total operating expenses


346,337


40,096


132,034


139,595


106,219


136,931Segment income from operations

$
58,392

$
8,184

$
43,276

$
28,048

$
56,585

$
60,387


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

Quarter Ended
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Segment revenues:FTD

$
107,526

$
48,280

$
404,729

$
48,280Classmates Media


58,682


58,746


175,310


167,643Communications


50,679


62,131


162,804


197,318Intersegment eliminations


(681
)




(2,201
)

Consolidated revenues

$
216,206

$
169,157

$
740,642

$
413,241


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
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Segment operating expenses:FTD

$
92,273

$
40,096

$
346,337

$
40,096Classmates Media


41,684


46,588


132,034


139,595Communications


35,066


43,360


106,219


136,931Total segment operating expenses


169,023


130,044


584,590


316,622Depreciation


6,177


5,348


18,809


15,673Amortization of intangible assets


9,013


4,966


26,252


9,824Intersegment eliminations


(681
)




(2,201
)

Consolidated operating expenses

$
183,532

$
140,358

$
627,450

$
342,119


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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
September 30,

Nine Months Ended
September 30,2009

2008

2009

2008Segment income from operations:FTD

$
15,253

$
8,184

$
58,392

$
8,184Classmates Media


16,998


12,158


43,276


28,048Communications


15,613


18,771


56,585


60,387Total segment income from operations


47,864


39,113


158,253


96,619Depreciation


(6,177
)

(5,348
)

(18,809
)

(15,673
)Amortization of intangible assets


(9,013
)

(4,966
)

(26,252
)

(9,824
)Consolidated operating income

$
32,674

$
28,799

$
113,192

$
71,122


Quarter and Nine Months Ended September 30, 2009 compared to Quarter and Nine Months Ended September 30, 2008

The following table presents our consolidated operating results as a percentage of consolidated revenues for each period presented:

Quarter Ended
September 30,

Nine Months
Ended
September 30,2009

2008

2009

2008Revenues


100.0
%

100.0
%

100.0
%

100.0
%Operating expenses:Cost of revenues


39.1


32.4


41.5


26.5Sales and marketing


21.3


25.1


21.0


27.8Technology and development


7.3


8.9


6.7


9.8General and administrative


13.0


13.7


12.0


16.2Amortization of intangible assets


4.2


2.9


3.5


2.4Restructuring charges





0.1





0.2Total operating expenses


84.9


83.0


84.7


82.8Operating income


15.1


17.0


15.3


17.2Interest income


0.2


0.6


0.2


1.0Interest expense


(3.5
)

(2.2
)

(3.3
)

(0.9
)Other income, net


0.3


0.3


0.1


0.2Income before income taxes


12.1


15.7


12.2


17.5Provision for income taxes


4.6


6.2


5.1


7.1Net income


7.5
%

9.6
%

7.1
%

10.4
%


Consolidated Results

Revenues.Consolidated revenues increased by $47.1 million, or 28%, to $216.2 million for the quarter ended September 30,
 2009,
compared to $169.2 million for the quarter ended September 30, 2008. The increase in consolidated revenues was primarily due to a $59.2 million increase in revenues associated
with our FTD segment as a result of including FTD revenues for the entire period for the quarter ended September 30, 2009 whereas such revenues were included only from August 26, 2008

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(date
of acquisition) in the prior-year period. This increase was partially offset by a decrease in revenues from our Communications segment. Consolidated revenues related to our FTD,
Classmates Media and Communications segments constituted 49.6%, 27.1% and 23.4%, respectively, of our total segment revenues for the quarter ended September 30, 2009, compared to 28.5%, 34.7%
and 36.7%, respectively, for the quarter ended September 30, 2008.

Consolidated
revenues increased by $327.4 million, or 79%, to $740.6 million for the nine months ended September 30, 2009, compared to $413.2 million for the
nine months ended September 30, 2008. The increase in consolidated revenues was primarily due to a $356.4 million increase in revenues associated with our FTD segment as a result of
including FTD revenues for the entire period for the nine months
ended September 30, 2009 whereas such revenues were only included from August 26, 2008 (date of acquisition) in the prior-year period. The increase was also due to an
increase in revenues from our Classmates Media segment, partially offset by a decrease in revenues from our Communications segment. Consolidated revenues related to our FTD, Classmates Media and
Communications segments constituted 54.5%, 23.6% and 21.9%, respectively, of our total segment revenues for the nine months ended September 30, 2009, compared to 11.7%, 40.6% and 47.7%,
respectively, for the nine months ended September 30, 2008.

Cost of Revenues.Consolidated cost of revenues increased by $29.7 million, or 54%, to $84.6 million for the quarter ended
September 30, 2009, compared to $54.8 million for the quarter ended September 30, 2008. Consolidated cost of revenues as a percentage of consolidated revenues increased to 39.1%
for the quarter ended September 30, 2009, compared to 32.4% for the prior-year period. The increase of $29.7 million was primarily due to a $34.4 million increase in
cost of revenues associated with our FTD segment as a result of including FTD cost of revenues for the entire period for the quarter ended September 30, 2009 whereas such costs were included
only from August 26, 2008 (date of acquisition) in the prior-year period. The increase was also due to a $0.5 million increase in depreciation expense for the quarter ended
September 30, 2009, compared to the prior-year period. The increase was partially offset by decreases in cost of revenues associated with our Communications and Classmates Media
segments. The increase in cost of revenues as a percentage of revenues was due to the addition of our FTD segment, which has a significantly higher cost of revenues as a percentage of revenues
compared to the other segments. Cost of revenues related to our FTD, Classmates Media and Communications segments constituted 76.3%, 9.7% and 14.0%, respectively, of our total segment cost of revenues
for the quarter ended September 30, 2009, compared to 53.4%, 19.7% and 26.9%, respectively, for the quarter ended September 30, 2008.

Consolidated
cost of revenues increased by $197.8 million, or 181%, to $307.3 million for the nine months ended September 30, 2009, compared to $109.5 million
for the nine months ended September 30, 2008. Consolidated cost of revenues as a percentage of consolidated revenues increased to 41.5% for the nine months ended September 30, 2009,
compared to 26.5% for the prior-year period. The increase of $197.8 million was primarily due to $209.5 million increase in cost of revenues associated with our FTD segment
as a result of including FTD cost of revenues for the entire period for the nine months ended September 30, 2009 whereas such costs were included only from August 26, 2008 (date of
acquisition) in the prior-year period. The increase was also due to a $1.1 million increase in depreciation expense for the nine months ended September 30, 2009, compared to
the prior-year period. The increase was partially offset by decreases in cost of revenues associated with our Communications and Classmates Media segments. The increase in cost of revenues
as a percentage of revenues was due to the addition of our FTD segment, which has a significantly higher cost of revenues as a percentage of revenues compared to the other segments. Cost of revenues
related to our FTD, Classmates Media and Communications segments constituted 79.3%, 8.6% and 12.1%, respectively, of our total segment cost of revenues for the nine months ended September 30,
2009, compared to 27.4%, 29.4% and 43.2%, respectively, for the nine months ended September 30, 2008.

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Sales and Marketing Expenses.Consolidated sales and marketing expenses increased by $3.8 million, or 9%, to $46.1 million
for the
quarter ended September 30, 2009, compared to $42.4 million for the quarter ended September 30, 2008. Consolidated sales and marketing expenses as a percentage of consolidated
revenues decreased to 21.3% for the quarter ended September 30, 2009, compared to 25.1% for the prior-year period. The increase of $3.8 million was primarily due to a
$9.5 million increase in sales and marketing expenses associated with our FTD segment as a result of including FTD sales and marketing expenses for the entire period for the quarter ended
September 30, 2009 whereas such expenses were included only from August 26, 2008 (date of acquisition) in the prior-year period. The increase was partially offset by
decreases in sales and marketing expenses associated with our Communications and Classmates Media segments. The decrease as a percentage of revenues was primarily due to the addition of our FTD
segment, which has lower sales and marketing expenses as a percentage of revenues compared to the Classmates Media segment and a similar percentage compared to the Communications segment. Sales and
marketing expenses related to our FTD, Classmates Media and Communications segments constituted 36.0%, 40.9% and 23.1%, respectively, of total segment sales and marketing expenses for the quarter
ended September 30, 2009, compared to 17.1%, 50.9% and 32.0%, respectively, for the quarter ended September 30, 2008.

Consolidated
sales and marketing expenses increased by $40.6 million, or 35%, to $155.6 million for the nine months ended September 30, 2009, compared to
$115.0 million for the nine months ended September 30, 2008. Consolidated sales and marketing expenses as a percentage of consolidated revenues decreased to 21.0% for the nine months
ended September 30, 2009, compared to 27.8% for the prior-year period. The increase of $40.6 million was primarily due to a $60.2 million increase in sales and
marketing expenses associated with our FTD segment as a result of including FTD sales and marketing expenses for the entire period for the nine months ended September 30, 2009 whereas such
expenses were included only from August 26, 2008 (date of acquisition) in the prior-year period. The increase was also due to a $0.6 million increase in depreciation expense
for the nine months ended September 30, 2009, compared to the prior-year period. The increase was offset by decreases in sales and marketing expenses associated with our
Communications and Classmates Media segments. The decrease as a percentage of revenues was primarily due to the addition of our FTD segment, which has lower sales and marketing expenses as a
percentage of revenues compared to the Classmates Media segment and a similar percentage compared to the Communications segment. Sales and marketing expenses related to our FTD, Classmates Media and
Communications segments constituted 43.1%, 36.9% and 20.1%, respectively, of total segment sales and marketing expenses for the nine months ended September 30, 2009, compared to 6.3%, 54.1% and
39.6%, respectively, for the nine months ended September 30, 2008.

Technology and Development Expenses.Consolidated technology and development expenses increased by $0.7 million, or 5%, to
$15.7 million for the quarter ended September 30, 2009, compared to $15.0 million for the quarter ended September 30, 2008. Consolidated technology and development expenses
as a percentage of consolidated revenues decreased to 7.3% for the quarter ended September 30, 2009, compared to 8.9% for the prior-year period. The increase of $0.7 million
was primarily related to a $2.1 million increase in technology and development expenses associated with our FTD segment as a result of including FTD technology and development expenses for the
entire period for the quarter ended September 30, 2009 whereas such expenses were included only from August 26, 2008 (date of acquisition) in the prior-year period. The
increase was also due to a slight increase in technology and development expenses related to our Classmates Media segment and an increase in depreciation expense of $0.5 million for the quarter
ended September 30, 2009, compared to the prior-year period, partially offset by a decrease in technology and development expenses in our Communications segment. The decrease in technology and
development expenses as a percentage of revenues was primarily due to the addition of 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

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constituted
22.0%, 44.0% and 34.0%, respectively, of total segment technology and development expenses for the quarter ended September 30, 2009, compared to 6.5%, 43.7% and 49.8%, respectively,
for the quarter ended September 30, 2008.

Consolidated
technology and development expenses increased by $9.2 million, or 23%, to $49.6 million for the nine months ended September 30, 2009, compared to
$40.4 million for the nine months ended September 30, 2008. Consolidated technology and development expenses as a percentage of consolidated revenues decreased to 6.7% for the nine
months ended September 30, 2009, compared to 9.8% for the prior-year period. The increase of $9.2 million was primarily due to an $8.2 million increase in technology
and development expenses associated with our FTD segment as a result of including FTD technology and development expenses for the entire period for the nine months ended September 30, 2009
whereas such expenses were included only from August 26, 2008 (date of acquisition) in the prior-year period. The increase was also due to an increase in technology and development
expenses related to our Classmates Media segment and an increase in depreciation expense of $1.5 million for the nine months ended September 30, 2009, compared to the prior-year period,
partially offset by a decrease in technology and development expenses in our Communications segment. The decrease in technology and development expenses as a percentage of revenues was primarily due
to the addition of 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 20.8%, 46.6% and 32.6%, respectively, of total segment technology and development expenses for the nine months ended September 30,
2009, compared to 2.4%, 45.7% and 51.9%, respectively, for the nine months ended September 30, 2008.

General and Administrative Expenses.Consolidated general and administrative expenses increased by
$5.0 million, or 22%, to $28.1 million for the quarter ended September 30, 2009, compared to $23.1 million for the quarter ended September 30, 2008. Consolidated
general and administrative expenses as a percentage of consolidated revenues decreased to 13.0% for the quarter ended September 30, 2009, compared to 13.7% for the prior-year
period. The increase of $5.0 million was primarily due to a $6.1 million increase in general and administrative expenses associated with our FTD segment as a result of including FTD
general and administrative expenses for the entire period for the quarter ended September 30, 2009 whereas such expenses were included only from August 26, 2008 (date of acquisition) in
the prior-year period. The increase was partially offset by a decrease in general and administrative expenses associated with our Communications segment and, to a lesser extent, a decrease
in general and administrative expenses associated with our Classmates Media segment. The decrease was also due to a $0.3 million decrease in depreciation expense. The decrease in general and
administrative expenses as a percentage of revenues was primarily due to the addition of our FTD segment, which has lower general and administrative expenses as a percentage of revenues compared to
the other segments. General and administrative expenses related to our FTD, Classmates Media and Communications segments constituted 36.9%, 32.5% and 30.5%, respectively, of total segment general and
administrative expenses for the quarter ended September 30, 2009, compared to 17.8%, 41.1% and 41.1%, respectively, for the quarter ended September 30, 2008.

Consolidated
general and administrative expenses increased by $21.9 million, or 33%, to $88.6 million for the nine months ended September 30, 2009, compared to
$66.8 million for the nine months ended September 30, 2008. Consolidated general and administrative expenses as a percentage of consolidated revenues decreased to 12.0% for the nine
months ended September 30, 2009, compared to 16.2% for the prior-year period. The increase of $21.9 million was primarily due to a $28.4 million increase in general
and administrative expenses associated with our FTD segment as a result of including FTD general and administrative expenses for the entire period for the nine months ended September 30, 2009
whereas such expenses were included only from August 26, 2008 (date of acquisition) in the prior-year period. The increase was partially offset by decreases in general and

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administrative
expenses associated with our Communications and Classmates Media segments. The decrease in general and administrative expenses as a percentage of revenues was primarily due to the
addition of our FTD segment, which has lower general and administrative expenses as a percentage of revenues compared to the other segments. General and administrative expenses related to our FTD,
Classmates Media and Communications segments constituted 38.0%, 33.3% and 28.7%, respectively, of total segment general and administrative expenses for the nine months ended September 30, 2009,
compared to 6.1%, 49.5% and 44.4%, respectively, for the nine months ended September 30, 2008.

Amortization of Intangible Assets.Consolidated amortization of intangible assets increased by $4.0 million, or 81%, to
$9.0 million
for the quarter ended September 30, 2009, compared to $5.0 million for the quarter ended September 30, 2008. Consolidated amortization of intangible assets increased by
$16.4 million, or 167%, to $26.3 million for the nine months ended September 30, 2009, compared to $9.8 million for the nine months ended September 30, 2008. The
increases were primarily due to an increase in amortization of intangible assets associated with our FTD segment as a result of including
FTD amortization of intangible assets for the entire period for the quarter and nine months ended September 30, 2009 whereas such expenses were included only from August 26, 2008 (date
of acquisition) in the prior-year periods.

Restructuring Charges.There were no restructuring charges for the quarter and nine months ended September 30, 2009, compared to
$0.1 million and $0.7 million for the quarter and nine months ended September 30, 2008, respectively. The restructuring charges for the quarter and nine months ended
September 30, 2008 were primarily associated with the closure of our Orem, Utah facility.

Interest Income.Interest income decreased by $0.6 million, or 53%, to $0.5 million for the quarter ended September 30,
2009,
compared to $1.1 million for the quarter ended September 30, 2008. Interest income decreased by $2.9 million, or 71%, to $1.2 million for the nine months ended
September 30, 2009, compared to $4.0 million for the nine months ended September 30, 2008. The decreases in interest income were primarily due to the liquidation of our
short-term investments portfolio to fund the FTD acquisition in August 2008, as well as to a decline in interest rates as a result of the interest rate environment in recent quarterly
periods and to our decision in the fourth quarter of 2008 to invest in only cash and cash equivalents.

Interest Expense.Interest expense increased by $3.8 million, or 101%, to $7.5 million for the quarter ended
September 30, 2009,
compared to $3.8 million for the quarter ended September 30, 2008. Interest expense increased by $20.8 million, or 554%, to $24.5 million for the nine months ended
September 30, 2009, compared to $3.8 million for the nine months ended September 30, 2008. The increases were primarily due to indebtedness incurred in connection with our FTD
acquisition, which closed on August 26, 2008. Interest expense was primarily related to interest on our credit facilities, including accretion of discounts and amortization of debt issue costs.

Other Income, Net.Other income, net increased by $0.1 million, or 15%, to $0.6 million for the quarter ended
September 30,
2009, compared to $0.5 million for the quarter ended September 30, 2008. Other income, net remained flat at $0.7 million for the nine months ended September 30, 2009 and
2008, respectively.

Provision for Income Taxes.For the quarter and nine months ended September 30, 2009, we recorded a provision for income taxes of
$10.0 million and $38.1 million, respectively, on pre-tax income of $26.2 million and $90.5 million, respectively, resulting in a
year-to-date effective income tax rate of 42.0%. For the quarter and nine months ended September 30, 2008, we recorded a provision for income taxes of
$10.4 million and $29.2 million, respectively, on pre-tax income of $26.6 million and $72.1 million, respectively, resulting in a
year-to-date effective income tax rate of 40.5%. The increase in the effective income tax rate compared to the prior-year period was primarily due to (i) an
increase in stock-based compensation that is limited under Section 162(m) of the Internal Revenue Code; (ii) an

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increase
in stock-based compensation related to the qualified employee stock purchase plan that is not currently tax deductible; (iii) lower amounts of tax-free interest income;
(iv) a reduction in the utilization of foreign net operating losses; and (v) an increase in foreign tax credit limitations. The increase in the effective income tax rate was partially
offset by a benefit for foreign income that is taxed at less than the U.S. statutory rate. The effective income tax rate is subject to fluctuation in future periods due to discrete items and other
factors.

Classmates Media Segment Results

The following table presents the Classmates Media segment's operating results as a percentage of Classmates Media revenues for each
period presented:

Classmates MediaQuarter Ended
September 30,

Nine Months
Ended
September 30,2009

2008

2009

2008Revenues


100.0
%

100.0
%

100.0
%

100.0
%Operating expenses:Cost of revenues


13.5


17.6


14.7


18.1Sales and marketing


32.4


36.6


33.0


37.0Technology and development


10.2


9.9


11.5


9.7General and administrative


15.0


15.1


16.1


18.5Total operating expenses


71.0


79.3


75.3


83.3Segment income from operations


29.0
%

20.7
%

24.7
%

16.7
%


Classmates Media Revenues.Classmates Media revenues were flat at $58.7 million for each of the quarters ended September 30,
2009 and
2008. An increase in Classmates Media services revenues of $1.9 million was offset by a decrease in advertising revenues of $2.0 million. The increase in services revenues was a result
of a 19% increase in our average number of pay accounts from 3.9 million for the quarter ended September 30, 2008 to 4.7 million for the quarter ended September 30, 2009,
partially offset by a 12% decrease in ARPU from $3.07 for the quarter ended September 30, 2008 to $2.71 for the quarter ended September 30, 2009. The decrease in ARPU was primarily
attributable to discounted pricing offered to certain U.S. social networking pay accounts on a promotional basis and, to a lesser extent, to a greater percentage of our pay accounts being represented
by international social networking pay accounts which have lower-priced subscription plans compared to U.S. social networking pay accounts. Although we experienced an increase in growth in net
Classmates Media pay accounts in the September 2009 quarter, this increase was primarily due to an increase in our offerings of discounted pricing plans, with a significant number of the new pay
accounts generated during the period under this promotional pricing, as well as a decrease in the churn rate. Due to economic and other factors, we anticipate that, at least in the near term, growth
in Classmates Media pay accounts will remain modest. In addition, we anticipate, at least in the near term, a continuing decrease in Classmates Media services revenues and ARPU due to the expected
continuing use of discounted pricing plans to certain U.S. social networking pay accounts and the expected continuing increase in the percentage of pay accounts being represented by international
social networking pay accounts. The decrease in advertising revenues was due to a decrease in revenues generated by our online loyalty marketing service, partially offset by an increase in advertising
revenues generated by our social networking services.

Classmates
Media revenues increased by $7.7 million, or 4.6%, to $175.3 million for the nine months ended September 30, 2009, compared to $167.6 million for
the nine months ended September 30, 2008. The increase in Classmates Media revenues was primarily due to a $13.5 million

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increase
in services revenues as a result of a 25% increase in our average number of pay accounts from 3.6 million for the nine months ended September 30, 2008 to 4.6 million for
the nine months ended September 30, 2009, partially offset by a 9% decrease in ARPU from $3.10 for the nine months ended September 30, 2008 to $2.81 for the nine months ended
September 30, 2009. The decrease in ARPU was primarily attributable to a greater percentage of pay accounts being represented by international social networking pay accounts which have
lower-priced subscription plans compared to U.S. social networking pay accounts and, to a lesser extent, discounted pricing plans offered to certain U.S. social networking pay accounts on a
promotional basis. The increase in Classmates Media services revenues was partially offset by a $5.8 million decrease in advertising revenues due to a decrease in revenues generated by our
online loyalty marketing service, partially offset by an increase in advertising revenues generated by our social networking services.

Classmates Media Cost of Revenues.Classmates Media cost of revenues decreased by $2.4 million, or 24%, to $7.9 million for
the quarter
ended September 30, 2009, compared to $10.4 million for the quarter ended September 30, 2008. Classmates Media cost of revenues as a percentage of Classmates Media revenues
decreased to 13.5% for the quarter ended September 30, 2009, compared to 17.6% for the prior-year period. The decrease of $2.4 million was largely related to a
$1.2 million decrease in the cost of points earned by members of our online loyalty marketing service as a result of a decrease in revenues generated by our online loyalty marketing service.
The decrease was also due to a $0.5 million decrease in personnel-related expenses, a $0.4 million decrease in customer support costs and a $0.2 million decrease in
overhead-related costs. The decrease in cost of revenues as a percentage of Classmates Media revenues was mainly due to a greater percentage of revenues resulting from higher-margin social networking
services.

Classmates
Media cost of revenues decreased by $4.5 million, or 15%, to $25.8 million for the nine months ended September 30, 2009, compared to $30.3 million
for the nine months ended September 30, 2008. Classmates Media cost of revenues as a percentage of Classmates Media revenues decreased to 14.7% for the nine months ended September 30,
2009, compared to 18.1% for the prior-year period. The decrease of $4.5 million was largely related to a $3.1 million decrease in the cost of points earned by members of our
online loyalty marketing service as a result of a decrease in revenues generated by our online loyalty marketing service. The decrease was also due to a $1.0 million decrease in
personnel-related expenses and a decrease of $0.5 million in overhead-related costs, partially offset by a $0.3 million increase in customer support costs. The decrease in cost of
revenues as a percentage of Classmates Media revenues was mainly due to a greater percentage of revenues generated from higher-margin social networking services.

Classmates Media Sales and Marketing Expenses.Classmates Media sales and marketing expenses decreased by $2.5 million, or 12%, to
$19.0 million for the quarter ended September 30, 2009, compared to $21.5 million for the quarter ended September 30, 2008. Classmates Media sales and marketing expenses as
a percentage of Classmates Media revenues decreased to 32.4% for the quarter ended September 30, 2009, compared to 36.6% for the prior-year period. The decrease of
$2.5 million was primarily the result of a $1.9 million decrease in marketing costs related to acquiring new social networking and online loyalty marketing members and a
$0.6 million decrease in personnel-and overhead-related expenses. The decrease as a percentage of Classmates Media revenues was mainly due to a reduction in sales commissions as a result of a
decline in revenues from our online loyalty marketing service and an increase in revenues from our international social networking operations without a corresponding increase in related sales and
marketing costs. The decrease was also due to our cost-efficient, U.S-based marketing initiatives that helped to reduce sales and marketing spending in the quarter ended
September 30, 2009, compared to the quarter ended September 30, 2008.

Classmates
Media sales and marketing expenses decreased by $4.2 million, or 7%, to $57.8 million for the nine months ended September 30, 2009, compared to
$62.0 million for the nine months ended September 30, 2008. Classmates Media sales and marketing expenses as a percentage of Classmates

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Media
revenues decreased to 33.0% for the nine months ended September 30, 2009, compared to 37.0% for the prior-year period. The decrease of $4.2 million was primarily the
result of a $4.1 million decrease in marketing costs related to acquiring new social networking and online loyalty marketing members. The decrease as a percentage of Classmates Media revenues
was mainly due to a reduction in sales commissions as a result of a decline in revenues from our online loyalty marketing service and an increase in revenues from our international social networking
operations without a corresponding increase in related sales and marketing costs. The decrease was also due to our cost-efficient, U.S.-based marketing initiatives that helped reduce sales
and marketing spending in the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008.

Classmates Media Technology and Development Expenses.Classmates Media technology and development expenses increased by
$0.1 million, or 2%,
to $6.0 million for the quarter ended September 30, 2009, compared to $5.8 million for the quarter ended September 30, 2008. Classmates Media technology and development
expenses as a percentage of Classmates Media revenues increased to 10.2% for the quarter ended September 30, 2009, compared to 9.9% for the prior-year period. The increase of
$0.1 million was primarily due to an increase in overhead-related expenses.

Classmates
Media technology and development expenses increased by $3.9 million, or 24%, to $20.2 million for the nine months ended September 30, 2009, compared to
$16.3 million for the nine months ended September 30, 2008. Classmates Media technology and development expenses as a percentage of Classmates Media revenues increased to 11.5% for the
nine months ended September 30, 2009, compared to 9.7% for the prior-year period. The increase in expenses was
primarily due to a $2.5 million increase in personnel-related expenses and a $1.4 million increase in overhead-related expenses.

Classmates Media General and Administrative Expenses.Classmates Media general and administrative expenses decreased by
$0.1 million, or 1%,
to $8.8 million for the quarter ended September 30, 2009, compared to $8.9 million for the quarter ended September 30, 2008. Classmates Media general and administrative
expenses as a percentage of Classmates Media revenues decreased slightly to 15.0%, compared to 15.1% for the prior-year period. The decrease of $0.1 million was primarily due to a
$0.4 million decrease in recruiting and relocation-related expenses and a $0.3 million decrease in overhead-related expenses, partially offset by an increase of $0.5 million in
professional services and consulting fees.

Classmates
Media general and administrative expenses decreased by $2.9 million, or 9%, to $28.2 million for the nine months ended September 30, 2009, compared to
$31.1 million for the nine months ended September 30, 2008. Classmates Media general and administrative expenses as a percentage of Classmates Media revenues decreased to 16.1%, compared
to 18.5% for the prior-year period. The decrease of $2.9 million was primarily due to the expensing of $3.9 million in deferred transaction costs related to the potential
initial public offering ("IPO") of Classmates Media Corporation ("CMC") in the nine months ended September 30, 2008 and a $1.0 million decrease in recruiting and relocation-related
expenses, partially offset by a $1.2 million increase in professional services and consulting fees and a $0.7 million increase in overhead-related expenses.

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Communications Segment Results

The following table presents the Communications segment's operating results as a percentage of Communications revenues for each period
presented:

CommunicationsQuarter Ended
September 30,

Nine Months
Ended
September 30,2009

2008

2009

2008Revenues


100.0
%

100.0
%

100.0
%

100.0
%Operating expenses:Cost of revenues


22.6


22.8


22.3


22.5Sales and marketing


21.2


21.8


19.3


23.0Technology and development


9.1


10.7


8.7


9.4General and administrative


16.3


14.3


14.9


14.1Restructuring charges





0.1





0.3Total operating expenses


69.2


69.8


65.2


69.4Segment income from operations


30.8
%

30.2
%

34.8
%

30.6
%


Communications Revenues.Communications revenues decreased by $11.5 million, or 18%, to $50.7 million for the quarter ended
September 30, 2009, compared to $62.1 million for the quarter ended September 30, 2008. The decrease in Communications revenues was primarily due to an $11.2 million
decrease in services revenues primarily as a result of a 23% decrease in our average number of dial-up Internet access pay accounts from 1.5 million for the quarter ended
September 30, 2008 to 1.2 million for the quarter ended September 30, 2009. The decrease in Communications revenues was also due to a $0.3 million decrease in advertising
revenues largely as a result of the decrease in pay accounts. We anticipate continued declines in our Communications pay accounts, services revenues and advertising revenues, which will result in
continued declines in total Communications revenues.

Communications
revenues decreased by $34.5 million, or 18%, to $162.8 million for the nine months ended September 30, 2009, compared to $197.3 million for the
nine months ended September 30, 2008. The decrease in Communications revenues was primarily due to a $33.0 million decrease in services revenues as a result of a 23% decrease in our
average number of dial-up Internet access pay accounts from 1.6 million for the nine months ended September 30, 2008 to 1.3 million for the nine months ended
September 30, 2009. The decrease in Communications revenues was also due to a $1.5 million decrease in advertising revenues largely as a result of the decrease in pay accounts.

Communications Cost of Revenues.Communications cost of revenues decreased by $2.7 million, or 19%, to $11.5 million for the
quarter
ended September 30, 2009, compared to $14.2 million for the quarter ended September 30, 2008. Communications cost of revenues as a percentage of Communications revenues decreased
to 22.6% for the quarter ended September 30, 2009, compared to 22.8% for the prior-year period. The decrease of $2.7 million was primarily due to a $1.7 million
decrease in telecommunications costs associated with our dial-up Internet access services due to a decrease in the number of pay accounts, a decrease in hourly usage per pay account and
lower average hourly telecommunications costs. In addition, Communications cost of revenues decreased as a result of a $0.6 million decrease in customer support- and billing-related costs in
the quarter ended September 30, 2009, compared to the prior-year period, as a result of a decrease in the number of dial-up Internet access pay accounts and a decrease
in the hourly rate charged by our third-party vendor, and a $0.3 million decrease in overhead-related costs.

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Communications
cost of revenues decreased by $8.1 million, or 18%, to $36.3 million for the nine months ended September 30, 2009, compared to $44.5 million
for the nine months ended September 30, 2008. Communications cost of revenues as a percentage of Communications revenues decreased to 22.3% for the nine months ended September 30, 2009,
compared to 22.5% for the prior-year period. The decrease of $8.1 million was largely due to a $6.1 million decrease in telecommunications costs associated with our
dial-up Internet access services due to a decrease in the number of pay accounts, a decrease in hourly usage per pay account and lower average hourly telecommunications costs. In addition,
Communications cost of revenues decreased as a result of a $1.9 million decrease in customer support- and billing-related costs in the nine months ended September 30, 2009, compared to
the prior-year period, as a result of a decrease in the number of dial-up Internet access pay accounts, a $0.7 million decrease in costs associated with our Web hosting
business primarily as a result of the closure of our Orem, Utah facility in 2008, and a $0.4 million decrease in costs associated with our VoIP service as a result of our previous decision to
exit this business. These decreases were partially offset by a $1.1 million increase in costs associated with our broadband services resulting from the increase in the number of subscribers to
such services.

Communications Sales and Marketing Expenses.Communications sales and marketing expenses decreased by $2.8 million, or 21%, to
$10.7 million for the quarter ended September 30, 2009, compared to $13.5 million for the quarter ended September 30, 2008. Communications sales and marketing expenses as a
percentage of Communications revenues decreased to 21.2% for the quarter ended September 30, 2009, compared to 21.8% for the prior-year period. The decrease of $2.8 million
was attributable to a $1.7 million decrease in personnel- and overhead-related expenses as a result of reduced headcount and a $2.7 million decline in advertising, promotion and
distribution costs related to our dial-up Internet access services. The decrease was partially offset by a one-time, out-of-period adjustment of $1.4 million related to marketing
expenses and a $0.2 million increase in advertising and promotion costs related to our broadband services.

Communications
sales and marketing expenses decreased by $14.0 million, or 31%, to $31.4 million for the nine months ended September 30, 2009, compared to
$45.4 million for the nine months ended September 30, 2008. Communications sales and marketing expenses as a percentage of Communications revenues decreased to 19.3% for the nine months
ended September 30, 2009, compared to 23.0% for the prior-year period. The decrease of $14.0 million was attributable to a $10.9 million decline in advertising,
promotion and distribution costs related to our dial-up Internet access services and, to a lesser extent and, a $4.8 million decrease in personnel- and overhead-related expenses as
a result of reduced headcount. The decrease was partially offset by a one-time, out-of-period adjustment of $1.4 million related to marketing expenses and a $0.3 million increase in
advertising and promotion costs related to our broadband services.

Communications Technology and Development Expenses.Communications technology and development expenses decreased by $2.0 million,
or 31%, to
$4.6 million for the quarter ended September 30, 2009, compared to $6.6 million for the quarter ended September 30, 2008. Communications technology and development expenses
as a percentage of Communications revenues decreased to 9.1% for the quarter ended September 31, 2009, compared to 10.7% for the quarter ended September 30, 2008. The decrease of
$2.0 million was primarily the result of a $2.0 million decrease in personnel-related expenses as a result of reduced headcount.

Communications
technology and development expenses decreased by $4.3 million, or 24%, to $14.2 million for the nine months ended September 30, 2009, compared to
$18.5 million for the nine months ended September 30, 2008. Communications technology and development expenses as a percentage of Communications revenues decreased to 8.7% for the
quarter ended September 30, 2009, compared to 9.4% for the prior-year period. The decrease of $4.3 million was primarily the result of a $4.5 million decrease in
personnel-related expenses as a result of reduced headcount.

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Communications General and Administrative Expenses.Communications general and administrative expenses decreased by $0.7 million,
or 8%, to
$8.2 million for the quarter ended September 30, 2009, compared to $8.9 million for the quarter ended September 30, 2008. Communications general and administrative expenses
as a percentage of Communications revenues increased to 16.3% for the quarter ended September 30, 2009, compared to 14.3% for the quarter ended September 30, 2008. The decrease of
$0.7 million was due to a $0.5 million decrease in personnel-related costs as a result of reduced headcount and a $0.4 million decrease in professional services and consulting
fees. The decrease was partially offset by a $0.3 million increase in overhead-related expenses. 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.

Communications
general and administrative expenses decreased by $3.6 million, or 13%, to $24.3 million for the nine months ended September 30, 2009, compared to
$27.9 million for the nine months ended September 30, 2008. Communications general and administrative expenses as a percentage of Communications revenues increased to 14.9% for the nine
months ended September 30, 2009, compared to 14.1% for the nine months ended September 30, 2008. The decrease of $3.6 million was primarily due to a $3.1 million decrease
in personnel-related costs as a result of reduced headcount and, to a lesser extent, 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.

Communications Restructuring Charges.There were no restructuring charges for the quarter and nine months ended September 30, 2009,
 compared
to $0.1 million and $0.7 million for the quarter and nine months ended September 30, 2008, respectively. The restructuring charges for the quarter and nine months ended
September 30, 2008 were primarily associated with the closure of our Orem, Utah facility.

FTD Segment Results (Actual Results vs. Combined Results Discussion)

The unaudited results of operations for FTD for the quarter ended September 30, 2009 and unaudited combined results of
operations for FTD for the quarter ended September 30, 2008 (the "Combined Third Quarter 2008 Results") as well as the unaudited results of operations for FTD for the nine months ended
September 30, 2009 and unaudited combined results of operations for FTD for the nine months ended September 30, 2008 (the "Combined Nine Months Ended September 30, 2008 Results")
are set forth below. The unaudited Combined Third Quarter 2008 Results were derived by adding (i) the unaudited pre-acquisition results of operations of FTD for the period from
July 1, 2008 through August 25, 2008 and (ii) the unaudited post-acquisition results of operations of FTD for the period from August 26, 2008 through
September 30, 2008. The unaudited Combined Nine Months Ended September 30, 2008 Results were derived by adding (i) the unaudited pre-acquisition results of operations
of FTD for the period from January 1, 2008 through August 25, 2008 and (ii) the unaudited post-acquisition results of operations of FTD for the period from
August 26, 2008 through September 30, 2008. Consistent with our definition of segment income from operations, the discussions of FTD segment results exclude depreciation and amortization
within segment operating expenses.

The
Combined Third Quarter 2008 Results and the Combined Nine Months Ended September 30, 2008 Results set forth below have been included in this Quarterly Report on
Form 10-Q for informational purposes only and do not purport to be indicative of the results of future operations of our FTD segment or the results that would have actually been
attained had the FTD acquisition taken place at the beginning of 2008. The Combined Third Quarter 2008 Results and the Combined Nine Months Ended September 30, 2008 Results should be read in
conjunction with the historical consolidated financial statements of FTD Group, Inc. and the related notes to those financial statements. The historical information presented below has been
revised to exclude depreciation and amortization and reflects certain reclassifications to conform with the Company's financial statement

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presentation.
Historical public filings of FTD Group, Inc. are available at the SEC's Web site atwww.sec.gov.

Quarter Ended September 30,2009

2008
(Combined)

% Change(in thousands, except
average order value
and average currency exchange rates)Revenues

$
107,526

$
121,427


(11.4
)%Operating expenses:Cost of revenues


62,581


70,753


(11.6
)%Sales and marketing


16,731


18,504


(9.6
)%Technology and development


2,993


2,934


2.0
%General and administrative


9,968


22,364


(55.4
)%Total operating expenses


92,273


114,555


(19.5
)%Segment income from operations

$
15,253

$
6,872


121.9
%Consumer orders


1,075


1,154


(6.8
)%Average order value

$
61.29

$
64.37


(4.8
)%Average currency exchange rate: GBP to USD


1.64


1.90


(13.7
)%




Nine Months Ended September 30,2009

2008
(Combined)

% Change(in thousands, except
average order value
and average currency exchange rates)Revenues

$
404,729

$
488,318


(17.1
)%Operating expenses:Cost of revenues


237,604


295,253


(19.5
)%Sales and marketing


67,463


79,611


(15.3
)%Technology and development


9,029


9,953


(9.3
)%General and administrative


32,241


46,008


(29.9
)%Total operating expenses


346,337


430,825


(19.6
)%Segment income from operations

$
58,392

$
57,493


1.6
%Consumer orders


4,477


5,082


(11.9
)%Average order value

$
59.36

$
64.20


(7.5
)%Average currency exchange rate: GBP to USD


1.52


1.96


(22.4
)%


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The
following table presents the FTD segment's operating results as a percentage of FTD revenues for each period presented:

FTDQuarter Ended
September 30,

Nine Months
Ended
September 30,2009

2008
(Combined)

2009

2008
(Combined)Revenues


100.0
%

100.0
%

100.0
%

100.0
%Operating expenses:Cost of revenues


58.2


58.3


58.7


60.5Sales and marketing


15.6


15.2


16.7


16.3Technology and development


2.8


2.4


2.2


2.0General and administrative


9.3


18.4


8.0


9.4Total operating expenses


85.8


94.3


85.6


88.2Segment income from operations


14.2
%

5.7
%

14.4
%

11.8
%


FTD Revenues.FTD revenues decreased by $13.9 million, or 11%, to $107.5 million for the quarter ended September 30,
2009,
compared to $121.4 million for the quarter ended September 30, 2008. Excluding the foreign currency exchange rate impact of $4.8 million due to a weaker British Pound versus the
U.S. Dollar, revenues decreased by $9.1 million, or 7%, primarily due to reduced consumer order volume and a decrease in sales of products and services to our florist members.

FTD
revenues decreased by $83.6 million, or 17%, to $404.7 million for the nine months ended September 30, 2009, compared to $488.3 million for the nine
months ended September 30, 2008. Excluding the foreign currency exchange rate impact of $29.0 million due to a weaker British Pound versus the U.S. Dollar, revenues decreased by
$54.6 million, or 11%, primarily due to reduced consumer order volume and a decrease in sales of products and services to our florist members.

FTD Cost of Revenues.FTD cost of revenues decreased by $8.2 million, or 12%, to $62.6 million for the quarter ended
September 30, 2009, compared to $70.8 million for the quarter ended September 30, 2008. Excluding the impact of foreign currency exchange rates of $3.3 million, cost of
revenues decreased by $4.9 million, or 7%, compared to the prior-year period primarily as a result of the decline in products revenues. FTD cost of revenues as a percentage of
revenues decreased slightly to 58.2% for the quarter ended September 30, 2009, compared to 58.3% for the prior-year period.

FTD
cost of revenues decreased by $57.7 million, or 20%, to $237.6 million for the nine months ended September 30, 2009, compared to $295.3 million for the
nine months ended September 30, 2008. Excluding the impact of foreign currency exchange rates of $20.0 million, cost of revenues decreased by
$37.7 million, or 13%, compared to the prior-year period primarily as a result of the decline in products revenues. FTD cost of revenues as a percentage of revenues decreased to
58.7% for the nine months ended September 30, 2009, compared to 60.5% for the prior-year period. Cost of revenues as a percentage of revenues was positively impacted by a shift in
the mix of products and services sold as well as by cost reductions, primarily related to shipping fees.

FTD Sales and Marketing Expenses.FTD sales and marketing expenses decreased by $1.8 million, or 10%, to $16.7 million for
the quarter
ended September 30, 2009, compared to $18.5 million for the quarter ended September 30, 2008. FTD sales and marketing expenses as a percentage of revenues increased to 15.6% for
the quarter ended September 30, 2009, compared to 15.2% for the prior-year period. Excluding the impact of foreign currency exchange rates of $0.5 million, sales and
marketing expenses decreased by $1.2 million, or 7%, compared to the prior-year period. The decrease was due to

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reduced
costs in certain programs, including online marketing, print advertising, and lower florist member incentives, and a decrease in personnel-related costs.

FTD
sales and marketing expenses decreased by $12.1 million, or 15%, to $67.5 million for the nine months ended September 30, 2009, compared to $79.6 million
for the nine months ended September 30, 2008. FTD sales and marketing expenses as a percentage of revenues increased to 16.7% for the nine months ended September 30, 2009, compared to
16.3% for the prior-year period. Excluding the impact of foreign currency exchange rates of $3.0 million, sales and marketing expenses decreased by $9.1 million, or 11%,
compared to the prior-year period. The decrease was due to reduced costs in certain programs, including online marketing, print advertising, and lower florist member incentives, and a
decrease in personnel-related costs, partially offset by an increase in expenses related to second quarter 2009 television advertising for the Mother's Day holiday. Sales and marketing expenses as a
percentage of revenues increased due to expenses related to our television advertising for the Mother's Day holiday, partially offset by reduced online marketing costs.

FTD Technology and Development Expenses.FTD technology and development expenses increased by $0.1 million, or 2%, to
$3.0 million for
the quarter ended September 30, 2009, compared to $2.9 million for the quarter ended September 30, 2008. FTD technology and development expenses as a percentage of revenues
increased to 2.8% for the quarter ended September 30, 2009, compared to 2.4% for the prior-year period. Excluding the impact of foreign currency exchange rates of
$0.2 million, technology and development expenses increased by $0.3 million, or 10%, compared to the prior-year period.

FTD
technology and development expenses decreased by $1.0 million, or 9%, to $9.0 million for the nine months ended September 30, 2009, compared to
$10.0 million for the nine months ended September 30, 2008. FTD technology and development expenses as a percentage of revenues increased slightly to 2.2% for the nine months ended
September 30, 2009, compared to 2.0% for the prior-year period. Excluding the impact of foreign currency exchange rates of $1.1 million, technology and development expenses
increased by $0.2 million, or 2%, compared to the prior-year period.

FTD General and Administrative Expenses.FTD general and administrative expenses decreased by $12.4 million, or 55%, to
$10.0 million
for the quarter ended September 30, 2009, compared to $22.4 million for the quarter ended September 30, 2008. FTD general and administrative expenses as a percentage of revenues
decreased to 9.3% for the quarter ended September 30, 2009, compared to 18.4% for the prior-year period. Excluding the impact of foreign currency exchange rates of
$0.1 million, general and administrative expenses decreased by $12.3 million, or 55%, compared to the prior-year period. The decrease was primarily related to
$13.2 million of expenses in the quarter ended September 30, 2008 related to the acquisition of FTD by the Company, partially offset by allocated stock-based compensation and corporate
costs for the quarter ended September 30, 2009.

FTD
general and administrative expenses decreased by $13.8 million, or 30%, to $32.2 million for the nine months ended September 30, 2009, compared to
$46.0 million for the nine months ended September 30, 2008. FTD general and administrative expenses as a percentage of revenues decreased to 8.0% for the nine months ended
September 30, 2009, compared to 9.4% for the prior-year period. Excluding the impact of foreign currency exchange rates of $0.6 million, general and administrative expenses
decreased by $13.1 million, or 29%, compared to the prior-year period. The decrease was primarily due to $16.2 million of expenses in the prior-year period
related to the acquisition of FTD by the Company, $2.0 million of charges in the prior-year period related to acquisition opportunities that were abandoned in light of the
then-pending acquisition of FTD by the Company, $0.6 million of advisory costs in the prior-year period related to the resolution of a sales tax audit, and a decrease in
personnel-related costs for the nine months ended September 30, 2009. The decrease was largely offset by an increase in allocated stock-based compensation and corporate costs for the nine
months ended September 30, 2009.

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Liquidity and Capital Resources

On August 26, 2008, we completed the acquisition of 100% of the capital stock of FTD Group, Inc. The FTD acquisition was
financed, in part, with the net proceeds from (i) a $60 million senior secured credit agreement with Silicon Valley Bank (the "UOL Credit Agreement") and (ii) $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 received a $50 million revolving line of credit.

Our
total cash and cash equivalent balances increased by $16.9 million, or 16.2%, to $121.4 million at September 30, 2009, compared to $104.5 million at
December 31, 2008. Our summary cash flows for the nine months ended September 30, 2009 and 2008 were as follows (in thousands):

Nine Months Ended
September 30,2009

2008Net cash provided by operating activities

$
104,275

$
100,581Net cash used for investing activities

$
(17,176
)
$
(249,847
)Net cash provided by (used for) financing activities

$
(72,146
)
$
70,368


Nine Months Ended September 30, 2009 compared to Nine Months Ended September 30, 2008

Net cash provided by operating activities increased by $3.7 million, or 3.7%, for the nine months ended
September 30, 2009, compared to the nine months ended September 30, 2008. Net cash provided by operating activities is driven by our net income adjusted for non-cash items,
including, but not limited to, depreciation and amortization, provision for doubtful accounts receivable, stock-based compensation, impairment of intangible assets and long-lived assets,
deferred taxes, tax benefits (shortfalls) from equity awards, and changes in operating assets and liabilities. The nine months ended September 30, 2009 includes the results of FTD, which
we acquired in August 2008. The increase in net cash provided by operating activities was primarily due to a $16.6 million increase in non-cash items and a $9.6 million
increase in net income, partially offset by a $22.8 million unfavorable change in operating assets and liabilities.

Net
cash used for investing activities decreased by $232.7 million, or 93.1%, for the nine months ended September 30, 2009, compared to the nine months ended
September 30, 2008. The decrease was primarily due to $307.2 million in cash paid for our FTD acquisition in August 2008. The decrease was partially offset by a $68.8 million
decrease in net proceeds from sales and maturities of short-term investments in the nine months ended September 30, 2009, compared to the prior-year period, as a result of
our prior decision to liquidate our short-term
investments portfolio in 2008 and a $5.7 million increase in capital expenditures in the nine months ended September 30, 2009 compared to the nine months ended
September 30, 2008.

Our
total capital expenditures for the nine months ended September 30, 2009 were $17.2 million. We currently anticipate that our total capital expenditures for 2009 will be
in the range of $25.0 million to $28.0 million. The actual amount of future capital expenditures may fluctuate due to a number of factors including, without limitation, strategic
spending decisions, potential future acquisitions and new business initiatives, which are difficult to predict and which could change significantly over time. Additionally, technological advances may
require us to make capital expenditures to develop or acquire new equipment or technology in order to replace aging or technologically obsolete equipment.

Net
cash used for financing activities increased by $142.5 million, or 202.5%, for the nine months ended September 30, 2009, compared to the nine months ended
September 30, 2008. The increase in net cash used for financing activities was primarily due to $421.0 in proceeds from the UOL Credit Agreement and the FTD Credit Agreement received in the
nine months ended September 30, 2008,

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partially
offset by a decrease in payments on term loans of $259.4 million in the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008. The
increase in net cash used for financing activities was also offset by a $17.2 million decrease in the payment of dividends resulting from the decrease in our quarterly cash dividend from
$0.20 per share of common stock to $0.10 per share of common stock subsequent to the FTD acquisition, and a decrease in repurchases of common stock of $3.2 million related to cash
paid for employee tax withholding upon vesting of restricted stock units and restricted stock awards and upon the issuance of stock awards.

The
payment of dividends reduces our cash flows from financing activities. In January, April and July 2009, United Online, Inc.'s Board of Directors declared quarterly cash
dividends of $0.10 per share of common stock, which were paid on February 27, 2009, May 29, 2009 and August 31, 2009, respectively, and totaled $8.8 million,
$9.1 million and $9.2 million, respectively. In October 2009, United Online, Inc.'s Board declared a quarterly cash dividend of $0.10 per share of common stock. The record
date for the dividend is November 13, 2009 and the dividend will be paid on November 30, 2009. The payment of future dividends is discretionary and is subject to determination by United
Online, Inc.'s Board of Directors each quarter following its review of our financial performance and other factors. In accordance with the terms of the FTD Credit Agreement, cash flows at FTD
will, in general, not be available to United Online, Inc. or segments other than the FTD segment. In addition, the UOL Credit Agreement imposes certain limitations on our ability to pay
dividends or use cash flows from operations generated by our Communications and Classmates Media segments for the benefit of our FTD segment.

Future
cash flows from financing activities may also be affected by repurchases of our common stock. United Online, Inc.'s Board of Directors authorized a common stock repurchase
program (the "program") that allows us to repurchase shares of our common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors
through
December 31, 2009. From August 2001 through September 30, 2009, we had repurchased a total of $139.2 million of our common stock under the program. We have not repurchased any
shares of our common stock under the program since February 2005 and, at September 30, 2009, the remaining amount available under the program was $60.8 million. The UOL Credit Agreement
restricts our ability to repurchase shares of our common stock under the program.

Cash
flows from financing activities may also be negatively impacted by the withholding of a portion of shares underlying the restricted stock units, restricted stock awards and stock
awards we award to employees. We currently do not collect the applicable employee withholding taxes upon vesting of restricted stock units and restricted stock awards and upon the issuance of stock
awards from employees. Instead, we automatically withhold, from the restricted stock units that vest and the stock awards that are issued, the portion of those shares with a fair market value equal to
the amount of the employee withholding taxes due. We then pay the applicable withholding taxes in cash. The withholding of these shares, although accounted for as a common stock repurchase, does not
reduce the amount available under the program. Similar to repurchases of common stock under the program, the net effect of such withholding will adversely impact our cash flows from financing
activities. The amounts remitted in the nine months ended September 30, 2009 and 2008 were $5.2 million and $8.4 million, respectively, for which we withheld 867,000 shares
and 734,000 shares of common stock, respectively, that were underlying the restricted stock units and restricted stock awards which vested and stock awards that were issued. The amount we pay
in future quarters will vary based on our stock price and the number of restricted stock units and restricted stock awards vesting and stock awards being issued during the quarter.

Based
on our current projections, we expect to continue to generate positive cash flows from operations, at least in the next twelve months. We may use our existing cash balances and
future cash generated from operations to fund, among other things, both contractual payments and optional prepayments on the outstanding balances under the UOL Credit Agreement and FTD Credit

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Agreement;
dividend payments, if declared by United Online, Inc.'s Board of Directors; the development and 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 UOL Credit Agreement and the FTD Credit Agreement, there are significant limitations on our ability to use cash flows generated by our Communications and
Classmates Media segments for the benefit of the FTD segment and, conversely, there are significant limitations on our ability to use cash flows from operations generated by the FTD segment for the
benefit of United Online, Inc. or the Communications and Classmates Media segments. Our credit facilities include provisions which may require us to make debt prepayments in the event that we
generate excess cash flow, as defined in the UOL Credit Agreement and the FTD Credit Agreement, on a quarterly or annual basis, respectively. The assessments of future excess cash flow for UOL,
excluding FTD, and for FTD on a standalone basis require us to forecast our respective cash flows from operations less certain cash outflows, including, but not limited to, those related to capital
expenditures and income taxes.
Based on our current projections, under the provisions of our credit facilities, we reasonably expect to make excess cash flow debt prepayments of approximately $15.0 million in the next twelve
months. Accordingly, this amount has been classified as a current liability on our consolidated balance sheet at September 30, 2009. In addition, in October 2009, we made a voluntary prepayment
of $10.0 million on the FTD term loans. 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 our credit facilities. The degree to which our assets are leveraged and the terms of our debt could materially and adversely affect our ability to obtain additional capital as well as the terms at
which such capital might be offered to us. We currently expect to have sufficient liquidity to fulfill our debt service obligations, 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; acquiring other services, businesses or technologies; repurchasing our common stock or funding significant capital expenditures, and have a material adverse effect on
our business, financial condition, 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 common stock owned by the common stockholders could be reduced. Furthermore, such equity or debt securities that we issue might have rights, preferences
or privileges senior to holders of our common stock. In addition, the recent extreme volatility and disruption in the securities and credit markets may restrict our ability to raise any such
additional funds, at least in the near term.

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Contractual Obligations

Contractual obligations at September 30, 2009 were as follows (in thousands):

Total

Less than
1 Year

1 Year to
Less than
3 Years

3 Years to
Less than
5 Years

More than
5 YearsOperating leases(1)

$
52,304

$
13,660

$
17,370

$
13,357

$
7,917Services and promotional contracts


6,161


5,394


767





Telecommunications purchases


1,376


1,285


91





Media purchases


2,564


2,564








Floral-related purchase obligations


3,275


3,217


58





Debt, including interest


514,095


49,547


87,660


376,888


Member redemption liability, long-term


24,890


19,955


4,935





Other long-term liabilities


2,742


163


1,786


257


536Total

$
607,407

$
95,785

$
112,667

$
390,502

$
8,453


---

Commitments
under letters of credit at September 30, 2009 were scheduled to expire as follows (in thousands):

Total

Less than
1 Year

1 Year to
Less than
3 Years

3 Years to
Less than
5 Years

More than
5 YearsLetters of credit

$
2,774

$
2,233

$
299

$
242

$



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

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 directors' and officers' 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 September 30, 2009, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Recent Accounting Pronouncements

Fair Value Measurements and DisclosuresMeasuring Liabilities at Fair ValueIn August 2009, the FASB issued Accounting Standards Update
("ASU") No. 2009-05,Fair Value Measurements and DisclosuresMeasuring Liabilities at Fair Value.This update provides
amendments to ASC 820-10,Fair Value Measurements and DisclosuresOverall, for the fair value measurement of liabilities.
This update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value
using one or more of the recommended techniques. The amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate
input or adjustment to other
inputs relating to the existence of a restriction that prevents the transfer of the liability. The amendments in this update also clarify that both a quoted price in an active market for the identical
liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. The guidance provided in this update became effective on October 1, 2009 and will not materially affect our consolidated financial statements.

Revenue RecognitionMultiple Deliverable Revenue ArrangementsIn October 2009, the FASB issued ASU No. 2009-13, Revenue
RecognitionMultiple Deliverable Revenue Arrangements. This update addresses the accounting for multiple-deliverable arrangements to
enable vendors to account for products or services (deliverables) separately rather than as a combined unit. The amendments in this update will be effective prospectively for revenue arrangements
entered into or materially modified beginning January 1, 2011. Early adoption is permitted. We are currently evaluating the impact, if any, of this update on our consolidated financial
statements.

SoftwareCertain Revenue Arrangements That Include Software ElementsIn October 2009, the FASB issued ASU No. 2009-14, SoftwareCertain Revenue Arrangements That Include Software Elements. The amendments in this update change the accounting model for revenue
arrangements that include both tangible products and software elements. Tangible products containing software components and non-software components that function together to deliver the
tangible product's essential functionality will no longer be within the scope of the software revenue guidance in ASC 985-605,SoftwareRevenue
Recognition. The amendments in this update will be effective prospectively for revenue arrangements entered into or materially modified beginning January 1, 2011. Early
adoption is permitted. We are currently evaluating the impact, if any, of this update on our consolidated financial statements.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

We are exposed to interest rate risk on our cash, cash equivalents, and outstanding balances of the UOL Credit Agreement and the FTD
Credit Agreement. The UOL Credit Agreement bears interest at either LIBOR plus 3.50% per annum (with a LIBOR floor of 3.00%) or the prime rate plus 2.00% per annum. The interest rate set forth in the
FTD Credit Agreement for
loans made under the revolving credit facility and term loan A facility is either LIBOR plus 3.50% per annum (with a LIBOR floor of 3.00%) or the prime rate plus 2.50% per annum, in each case, with
step-downs in the interest rate depending on FTD's leverage ratio. The interest rate set forth in the FTD Credit Agreement for loans made under the term loan B facility is either LIBOR
plus 4.50% per annum (with a LIBOR floor of 3.00%) or the prime rate plus 3.50% per annum, in each case, with step-downs in the interest rate depending on FTD's leverage ratio. The FTD
Credit Agreement also requires that FTD maintain one or more interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, or other similar arrangements to manage risks
associated with interest rate fluctuations and exposures on its credit facilities with Wells Fargo Bank, National Association. Accordingly, in November 2008, FTD Group, Inc. entered into a
three-year interest rate cap instrument based on LIBOR and a $150 million notional amount of our FTD Credit Agreement. At inception and at December 31, 2008, the interest
rate cap instrument was designated as a cash flow hedge against expected future cash flows attributable to future LIBOR interest payments on the outstanding borrowings under the FTD Credit Agreement.
However, in January 2009, as economic and capital market conditions continued to deteriorate, we determined that prime rate-based borrowings were more attractive than LIBOR-based
borrowings. Therefore, in January 2009, the cash flow hedge was de-designated and cash flow hedge accounting was discontinued prospectively. As a result, subsequent fluctuations in the
market value of the interest rate cap are recorded in earnings. For the nine months ended September 30, 2009, we recorded a $0.1 million gain as a result of such fluctuations. If
interest rates were to increase 100 basis points on a sustained parallel basis, the result would be an annual increase in our interest expense related to our debt of approximately $3.8 million.

Prior
to 2009, we had interest rate risk related to our short-term investments portfolio. As a result, we were exposed to the impact of interest rate changes and changes in
the market values of our investments. 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.

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

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Foreign Currency Risk

We transact business in foreign currencies and 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 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 hypothetical 10% adverse change in overall foreign currency exchange rates over an entire year would result in a reduction of
reported annual revenues of approximately $16.9 million and a reduction of reported annual income before income taxes of approximately $2.0 million. These estimates assume an adverse
shift in all foreign currency exchange rates against the U.S. Dollar, which do not always move in the same direction 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 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 are intended to minimize the foreign currency exchange rate impact of intercompany dividend payments in British Pounds. Changes in the fair value of these derivatives are 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.

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.

Lawsuits
involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to defend. Although we do not believe the
outcome of our outstanding legal proceedings, claims and litigation will have a material adverse effect on our business, financial condition, results of operations, or cash flows, the results of legal
proceedings, claims and litigation are inherently uncertain and we cannot assure you that we will not be materially and adversely impacted by the results of such proceedings. 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. We cannot assure you, however, that such actions will not materially and adversely affect
our business, financial condition, results of operations, or cash flows.

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, 2008, as modified and restated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.

RISKS RELATING TO OUR BUSINESS GENERALLY

Current 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

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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 discounted
prices for certain of our products and services, and 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 are likely to result, and in certain cases, have resulted, 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 decline in 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.

Changes in exchange rates could adversely affect 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. 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 our revenues and operating income. We cannot accurately predict the impact of future foreign currency exchange rate
fluctuations on our operating results, and such fluctuations could negatively impact such results.

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. Our advertising revenues have in the past declined, and may
in the future decline, when compared to prior periods.

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Factors
that have caused, or may cause in the future, our advertising revenues to fluctuate include, without limitation, changes in the online advertising market, changes in the economy, advertisers'
budgeting and buying patterns, the effect of key advertising relationships, competition, changes in the number of consumers purchasing our products and services, changes in our business models,
changes in our advertising inventory, and changes in usage of our services. Decreases in our advertising revenues are likely to adversely impact our profitability.

All
of our revenues from our online loyalty marketing service are derived from advertising and we have experienced, and may continue to experience, significant declines in revenues from
this service. We expect our advertising revenues in 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 derives significant advertising revenues from search, and any changes to our search agreement could have a material adverse effect on our Communications segment's
advertising revenues. Our Classmates Media and FTD segments derive significant advertising revenues from post-transaction sales. Post-transaction sales involve the online
presentation of a third-party offer following the point where a consumer has purchased our subscription services or floral products. The post-transaction sales practices of certain
providers of these third-party services, including the third-parties with which our Classmates Media and FTD businesses have contractual relationships, have been the subject of consumer class action
lawsuits as well as governmental inquiries or investigations, including an ongoing U.S. Congressional committee review. Changes to industry business practices, our business practices or the terms of
our agreements for post-transaction sales, or a decrease in the number of consumers purchasing our products and services, could cause our advertising revenues from
post-transaction sales to decline. Any or all of the above factors could cause our advertising revenues and profits to decline in the future.

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 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, billing; Web site and database management; order transmission, fulfillment and processing including the
system for transmitting orders through florist members; customer support; telecommunications network management; advertisement serving and management systems; and internal financial systems. Some of
these systems, such as customer support and FTD's Web site, 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

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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. We are not equipped to provide the necessary range of customer support functions in the event
that this vendor becomes unable or unwilling to provide these services to us.

Our failure to 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 principally rely upon patent, trademark, copyright, trade secret, and contract laws to protect our proprietary
rights, all of which provide only limited protection. 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 (such as our recent acquisition of FTD), 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 competencies, or expand our geographic reach, or that otherwise may be complementary to our existing businesses. We completed
the acquisition of FTD in August 2008, and we may acquire additional businesses, services or technologies in the future. However, acquiring companies is a difficult process with many factors outside
of our control. In addition, our credit agreements impose 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, including our recent acquisition of FTD, 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:



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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 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 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 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 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. 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. 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

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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 substantial amount of indebtedness 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.

We have 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 credit agreements, 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.

Our
credit agreements include guarantees on a joint and several basis by our existing and future, direct and indirect domestic subsidiaries and are secured by first priority security
interests in, and mortgages on, substantially all of our direct and indirect subsidiaries' tangible and intangible assets and first priority pledges of all the equity interests owned by us in our
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 credit agreements could permit the lenders to terminate the commitments of such lenders to make further extensions of credit under the credit agreements, 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, 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 ongoing economic downturn, 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.

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 with traditional retailers, 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.

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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 the period or periods for which that determination is made.

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 current sales or state income 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, 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
FTC 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. Our failure to comply with existing laws, including those of foreign
countries in which we operate, the adoption of new laws or regulations or changes in enforcement policies and procedures could increase the costs of operating our business. To the extent that our
services and business practices change as a result of changes in regulations or claims or actions by governmental agencies, such as the FTC, or claims or actions by private parties, our business,
financial condition, results of operations, and cash flows could be materially and adversely affected.

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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, 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 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.

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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.

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 toll-free telephone numbers. In the floral network services market, retail florists are our 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 florist network, credit card
processing services, e-commerce Web sites, online advertising tools, and telephone answering and order-taking 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 retail florists,
supermarkets, 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 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. and Proflowers.com, and our key competitors in the floral services market include Teleflora and BloomNet Wire Service, a subsidiary of
1-800-FLOWERS.COM. International key competitors include Marks & Spencer, NEXT, John Lewis, Teleflorist, and Flowers Direct.

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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 market retailers 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 our customers, the 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 remaining retail florists and their
business 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.

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 network of independent florist members and third-party suppliers who fulfill our orders to do so at high-quality
levels. We work with our florist members and third-party suppliers to develop best practices for quality assurance; however, we generally do not directly control or continuously monitor any florist
member or third-party supplier. The failure of our network of florist 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 florist members and on the financial performance of the retail floral industry.

A significant portion of our profitability is dependent on our florist members. We have lost, and may continue to lose, florist members
as a result of both our members choosing not to do business with

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us
as well as declines in the number of retail florists as a result of economic factors and competition. If we lose a significant number of florist members, or if we are not able to maintain or
increase revenues from our florist 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 countries such as Colombia, Ecuador and Holland.

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



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 with traditional retailers, 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.

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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.

During peak periods, we utilize temporary employees and outsourced staff, 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.

During peak periods, we utilize and rely on a significant number of temporary employees and outsourced staff in addition to our
permanent employees, to take orders and respond to customer inquiries. These temporary employees and outsourced staff 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 temporary employees and outsourced staff 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.

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 social networking services compete with a wide variety of social networking Web sites, including broad social networking Web sites
such as Facebook and MySpace; a number of specialty Web sites, including LinkedIn and MyLife.com (formerly known as Reunion.com), that offer online social networking services based on 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 Web portals such as Yahoo!, MSN and AOL, online services designed to locate
individuals such as White Pages and US Search, and Internet search engines that have the ability to locate individuals, including by finding individuals through their profiles on social networking Web
sites. 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 from school. 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 social networking services are broadening their service
offerings to compete with our services. As we evolve our services and provide more opportunities for our members to meet new people with similar interests or affiliations, we may compete with the
increasing number of social networking Web sites for special
niches and areas of interest. The increasing competition could result in a loss of members, reduced revenues and decreased profitability.

The
market for 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

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marketing
programs. We also face competition from 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 social networking services. Competition could have a material adverse effect on our subscription revenues from social networking services, as well as on advertising revenues from
our 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 and profitability could be adversely affected.

Failure to increase or maintain the number of pay accounts for our 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 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 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 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. 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 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 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

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in
our Web sites or services, could have a material adverse effect on our business and our financial results.

Our social networking and online loyalty marketing services rely heavily on email campaigns, and any disruptions or restrictions on the sending of emails or increase in the
associated costs could adversely affect our business 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 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. An increase in the number of members who
opt-out of receiving our emails could adversely affect our business and results of operations.

Each
month, a significant number of email addresses for members of our 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 social networking services. 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. 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.

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, and 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.

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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. 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, for the Communications segment, 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. We also
expect that our Communications advertising revenues will continue to decline. Continued declines, particularly if such declines accelerate, in Communications revenues will materially and adversely
impact the profitability of this segment.

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 January 2009, the Board of Directors again further extended the program through
December 31, 2009. From August 2001 through September 30, 2009, we had repurchased $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 September 30, 2009, the remaining amount available under the program was $60.8 million.

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 and restricted stock awards or issuance of stock awards, we currently do not
collect the applicable employee withholding taxes from employees. Instead, we automatically withhold, from the restricted stock units and restricted stock awards that vest and 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 through September 30, 2009 were as follows (in thousands, except per share amounts):

Period

Total Number of
Shares Purchased

Average Price
Paid per Share

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

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


11,147

$
12.72


10,932

$
60,782February 15, 2007


194

$
13.72




$
60,782May 15, 2007


71

$
15.89




$
60,782August 15, 2007


69

$
12.82




$
60,782November 15, 2007


56

$
16.66




$
60,782January 27, 2008


142

$
10.71




$
60,782February 15, 2008


404

$
11.49




$
60,782May 15, 2008


81

$
11.81




$
60,782August 15, 2008


104

$
11.79




$
60,782November 15, 2008


72

$
6.62




$
60,782November 18, 2008


3

$
6.37




$
60,782January 2, 2009


1

$
6.02




$
60,782February 13, 2009


1

$
5.19




$
60,782February 15, 2009


501

$
5.19




$
60,782May 15, 2009


115

$
6.62




$
60,782August 15, 2009


249

$
7.41




$
60,782Total


13,210

$
12.23


10,932


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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

Employment Agreement between the Registrant and Charles B. Ammann

X



000-33367

11/6/200910.2

First Amendment to Employment Agreement between the Registrant and Frederic A. Randall, Jr.

X



000-33367

11/6/200931.1

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

X



000-33367

11/6/200931.2

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

X



000-33367

11/6/200932.1

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

X



000-33367

11/6/200932.2

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

X



000-33367

11/6/2009


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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: November 6, 2009

UNITED ONLINE, INC.(Registrant)By:

/s/ SCOTT H. RAY Scott H. Ray Executive Vice President and
Chief Financial OfficerBy:

/s/ NEIL P. EDWARDS Neil P. Edwards Senior Vice President, Finance, Treasurer and
Chief Accounting Officer


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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

Employment Agreement between the Registrant and Charles B. Ammann

X



000-33367

11/6/200910.2

First Amendment to Employment Agreement between the Registrant and Frederic A. Randall, Jr.

X



000-33367

11/6/200931.1

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

X



000-33367

11/6/200931.2

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

X



000-33367

11/6/200932.1

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

X



000-33367

11/6/200932.2

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

X



000-33367

11/6/2009


---