Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with our audited Consolidated Financial Statements for the years ended
December 31, 2012, 2011 and 2010 and related notes included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K. The Company's
results of operations discussed below are presented in conformity with U.S. generally accepted accounting principles ("GAAP").
OVERVIEW
Our History
We were incorporated in 1993 under the name of InfoTouch Corporation with the objective of establishing an interactive network of real
estate "kiosks" for consumers to search for homes. In 1996, we began to develop the technology to build and operate real estate related Internet sites. In 1996, we entered into a series of agreements
with the NAR and several investors and transferred technology and assets to a newly-formed subsidiary, which ultimately became RealSelect, Inc. RealSelect, Inc. in turn entered into a
number of formation agreements with, and issued cash and common stock representing a 15% ownership interest in RealSelect, Inc. to, the NAR in exchange for the rights to operate the
REALTOR.com® web site and pursue commercial opportunities relating to the listing of real estate on the Internet. Substantially all of the NAR's ownership interest in
RealSelect, Inc. was exchanged for stock in a new parent company, Homestore.com, Inc., in August 1999. Our initial operating activities primarily consisted of recruiting personnel,
developing our web site content and raising our initial capital and we began actively marketing our advertising products and services to real estate professionals in January 1997. We changed our name
to Homestore, Inc. in May 2002 and to Move, Inc. in June 2006.
Our Business
We operate an online network of web sites for real estate search, finance, moving and home enthusiasts and provide a comprehensive
resource for consumers seeking the online information and connections they need regarding real estate. Our consumer web sites are REALTOR.com®, Move.com and Moving.com
TM
. We
also provide lead management software and marketing services for real estate agents and brokers through our Top Producer® and TigerLead® businesses. Through our
ListHub
TM
business, we are also an online real estate listing syndicator and provider of advanced performance reporting solutions for the purpose of helping to drive an effective online
advertising program for brokers, real estate franchises, and individual agents.
With
REALTOR.com® as our flagship web site and brand, we are the leading real estate information marketplace connecting consumers with the information and the expertise they
need to make informed home buying, selling, financing and renting decisions. Move's purpose is to help people love where they live. To that end we strive to create the leading marketplace for real
estate information
and services by connecting people at every stage of the real estate cycle with the content, tools and professional expertise they need to find a perfect home.
Through
the collection of assets we have developed over nearly 20 years in this business, Move is positioned to address the needs and wants of both consumers and real estate
professionals throughout the process of home ownership. Although the real estate marketplace has been unquestionably changed by the Internet, and likely will continue to evolve through the growth of
mobile devices and social networking, our business continues to be about empowering consumers with timely and reliable information and connecting them to the real estate professionals who have the
expertise to help them better understand and succeed in that marketplace.
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We
provide consumers with a powerful combination of breadth, depth and accuracy of information about homes for sale, new construction, homes for rent, multi-family rental properties,
senior living communities, home financing, home improvement and moving resources. Through REALTOR.com®, consumers have access to over 94 million properties across the U.S. as well
as properties for sale from another 32 countries worldwide. Our for-sale listing content, comprising over 4 million properties as of December 31, 2012, and accessible in 11
different languages, represents the most comprehensive, accurate and up-to-date collection of its kind, online or offline. Through REALTOR.com® and our mobile
applications, we display approximately 98% of all for-sale properties listed in the U.S. We source this content directly from our relationships with more than 800 MLSs across the country,
which represents nearly all MLSs, with approximately 90% of the listings updated every 15 minutes and the remaining listings updated daily.
REALTOR.com®'s
substantial content advantage has earned us trust with both consumers and real estate professionals. We attract a highly engaged consumer audience and have
developed an exceptionally large number of relationships with real estate professionals across the country. More than 22 million users, viewing an average of over 390 million pages and
spending an average of over 325 million minutes on the REALTOR.com® web site each month over the last twelve-month period, interact with over 400,000 real estate professionals on
REALTOR.com® and our mobile applications. We delivered approximately 60% more connections between our consumers and real estate professionals during the year ended December 31,
2012, as compared to the prior year. This illustrates the success of our continued commitment to not only deliver valuable information to consumers, but more importantly, to connect them with real
estate professionals who can provide the local expertise consumers want when making home-related decisions.
In
addition to providing an industry-leading content mix, Move facilitates connections and transactions between consumers and real estate professionals. Although attracting and engaging
a large consumer
audience is an important part of our business, to succeed we must also focus on winning the hearts and minds of real estate professionals, who are both customers of our business and suppliers of much
of our property content. We believe this starts with our commitment to respecting the listing and content rights of the real estate agents, brokers, MLSs and others who work hard to help generate
these important data resources. Through REALTOR.com® and ListHub
TM
, we aggregate, syndicate and display real estate listings across the web and on mobile applications. Part
of the reason we have become the leading source for real estate listing content is that we work closely with, and respect the rights of, real estate professionals while still maintaining a balance
that allows consumers to obtain the information and expertise they expect and need.
At
the same time, we are committed to delivering valuable connections, advertising systems and productivity and lead management tools to real estate professionals, with the goal of
helping to make them more successful. By combining REALTOR.com® advertising systems with the productivity and lead management tools offered through our Top Producer® and
TigerLead® SaaS CRM products, we are able to help grow and enrich connections between our customers and consumers, and to help our customers better manage those connections in an effort to
facilitate transactions and grow their business.
Our
dual focus on both the consumer and the real estate professional has helped us create and maintain REALTOR.com® as a distinct advantage in the online real estate space.
For nearly 20 years, we have provided consumers with access to a highly accurate and comprehensive set of real estate listing data and, as a result, have built relationships within the real
estate industry that are both broad and deep. We expect this industry to continue to progress as new technologies are embraced and as consumers' needs and wants evolve. We also expect that real estate
professionals, to stay relevant, will likewise need to evolve along with technology, consumers and the market. We aim to keep REALTOR.com® positioned to lead this transformation with
consumers and real estate professionals at the forefront, and expect to leverage our collection of advertising systems, productivity tools and other assets to do so.
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Products and Services
Our products and services are broadly defined into two audience-driven groups: Consumer Advertising and Software and Services.
Consumer Advertising
Our Consumer Advertising products are focused on providing real estate consumers with the information, tools and professional expertise
they need to make informed home buying, selling, financing and renting decisions through our operation of REALTOR.com® and other consumer-facing web sites.
Through
our REALTOR.com® web site, mobile applications and business operations, we offer a number of services to real estate franchises, brokers and agents, as well as
non-real estate related advertisers, in an effort to connect those advertisers with our consumer audience. We categorize the products and services available through
REALTOR.com® as listing advertisements and non-listing advertisements. Listing advertisements are typically sold on a subscription basis. Pricing models for
non-listing advertisements include CPM, CPC, cost-per-unique user and subscription-based sponsorships of specific content areas or specific targeted geographies.
We
separately operate several other web sites providing multi-family rental, senior housing and moving-related content and services to our consumer audience. Through our Rentals and
Senior Housing businesses, we aggregate and display rental listings nationwide. We offer a variety of listing-related advertisements that allow rental property owners and managers to promote their
listings and connect with consumers through our web sites. Pricing models include monthly subscriptions and CPC. Through our Moving.com
TM
business we provide consumers with quotes from
moving companies and truck rental companies. The majority of revenue from Moving.com
TM
is derived from cost-per-lead pricing models.
Our
Consumer Advertising products represented approximately 81% of our overall revenues for fiscal years ended December 31, 2012, 2011 and 2010.
Software and Services
Our Software and Services products are committed to delivering valuable connections to real estate professionals by providing them with
advertising systems, productivity and lead management tools, and reporting with the goal of helping to make them more successful.
Top
Producer® and TigerLead® are our SaaS businesses providing productivity and lead management tools tailored to real estate agents. These businesses complement
REALTOR.com® and our mission of connecting consumers and real estate professionals to facilitate transactions by empowering real estate professionals' ability to connect with, cultivate
and ultimately convert their relationships with homebuyers and sellers into transactions. Our Top Producer® product offerings include a web- and mobile-based CRM solution, our
Market Snapshot® product and a series of template web site products. The TigerLead® SaaS CRM product provides real estate agents and brokers with a sophisticated IDX web site
platform to capture and manage leads that are delivered with unique insights such as how many times a user has returned to the site to search particular listings and price ranges.
Additionally,
through our TigerLead® business, we are able to provide expertise in real estate search engine marketing through sophisticated key word buying and a platform
and model that grades each lead source and lead in order to deliver high quality intelligent leads to the agent or broker.
ListHub
TM
syndicates for-sale listing information from MLSs or other reliable data sources, such as real estate brokerages, and distributes that content to an
array of online web sites. Our ListHub
TM
product line allows participating web sites to display real property listings, and provides agents, brokers, franchises and MLSs the ability to
obtain advanced performance reporting about their listings on the participating web sites. Listing syndication pricing includes fixed- or variable-pricing models based on listing counts. Advanced
reporting products are sold on a monthly subscription basis.
Our
Software and Services products represented approximately 19% of our overall revenues for fiscal years ended December 31, 2012, 2011 and 2010.
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Market and Economic Conditions
In recent years, our business has been, and we expect may continue to be, influenced by a number of macroeconomic,
industry-wide and product-specific trends and conditions. For a number of years prior to 2006, the U.S. residential real estate market experienced a period of hyper-sales rates and home
price appreciation, fueled by the availability of low interest
rates and flexible mortgage options for many consumers. During the latter half of 2006 and through 2008, lending standards were tightened, equity markets declined substantially, liquidity in general
was impacted, unemployment rates rose and consumer spending declined. The combination of these factors materially impacted the U.S. housing market in the form of fewer home sales, lower home prices
and accelerating delinquencies and foreclosures, all of which created a cycle that further exacerbated the housing market downturn.
The
effects on the housing market have persisted for several years but key market indicators suggest that large parts of the housing market have bottomed out and have entered a recovery
mode. During the fourth quarter of 2012, the nation saw a 12.9% reduction in the median age of inventory, as well as a year-over-year reduction in inventory of 7.5%. National
median list prices were up significantly in the first half of 2012, but were effectively flat year-over-year for the fourth quarter of 2012 compared to the fourth quarter of
2011.
Mortgage
delinquency rates declined in 2012, meaning the percentage of people who have fallen behind on their mortgages declined. However, banks continue to have tighter credit standards
for mortgage loans, which have made home purchases more difficult. Unemployment rates declined in 2012; however, job and wage growth is still tepid. Therefore, we believe that market conditions could
continue to impact spending by real estate professionals in the near term.
Acquisitions
In the fourth quarter of 2012, we acquired certain assets and assumed certain liabilities of Relocation.com, LLC which operates
an online marketplace that connects homebuyers and renters with moving and storage professionals and was a direct competitor to our Moving.com
TM
business. The purchase price was
$11.5 million in cash, $9.5 million of which was paid upon closing, with the remaining $2.0 million to be paid in two equal installments on the first and second anniversaries of
the acquisition date. The transaction with Relocation.com, LLC has been accounted for as a business combination with the total purchase price being allocated to the assets acquired based on
their respective fair values. The $11.5 million purchase price was allocated $3.2 million to definite-lived intangible assets, $3.2 million to indefinite-lived intangible assets,
$0.1 million to net tangible assets with the remaining $5.0 million allocated to goodwill. The identifiable intangible assets are being amortized over estimated lives ranging from two to
six years, with the exception of $3.2 million in indefinite-lived domain names. The financial results of the acquired business are included in our Consolidated Financial Statements from the
date of acquisition. Pro forma information for this acquisition has not been presented because the effects were not material to our historical consolidated financial statements.
In
the third quarter of 2012, we entered into an agreement with Tiger Lead Solutions, LLC whereby we acquired substantially all of the operating assets of the
TigerLead® business for a purchase price of $22.0 million in cash, $3.0 million of which was paid into escrow for a
one-to-two year period to secure potential liabilities of Tiger Lead Solutions, LLC. In addition, we entered into employment agreements with members of TigerLead's
senior management whereby we granted 273,420 restricted stock units with a grant date fair value of $2.2 million. These time-based restricted stock units will vest one year from the
date of grant and would be forfeited in the event of termination by us for cause or voluntary resignation. TigerLead® provides an integrated set of internet marketing services and SaaS CRM
tools to residential real estate professionals to generate, cultivate, and manage leads.
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The
transaction with Tiger Lead Solutions, LLC has been accounted for as a business combination with the total purchase price being allocated to the assets acquired based on their
respective fair values. The $22.0 million purchase price was allocated $11.9 million to definite-lived intangible assets, $0.9 million to indefinite-lived intangible assets,
$0.1 million to net tangible assets with the remaining $9.1 million allocated to goodwill. The identifiable intangible assets are being amortized over estimated lives ranging from six to
nine years, with the exception of $0.9 million in indefinite-lived trade name and trademarks. The financial results of the acquired business are included in our Consolidated Financial
Statements from the date of acquisition. Pro forma information for this acquisition has not been presented because the effects were not material to our historical consolidated financial statements.
In
the third quarter of 2011, we acquired the assets of Peep.ly, LLC ("Social Bios"). The Social Bios assets include social media products that can compile and integrate a user's
social networking profiles from various social media properties to build a web site landing page that provides a profile of the user and allows the user to conduct a directory search for others
whereby the user's social profile is matched against the social profiles of others to determine social overlaps or commonalities. The acquisition did not have a material impact on our consolidated
financial position, results of operation or cash flows.
In
the third quarter of 2010, we acquired all of the outstanding shares of Threewide Corporation ("Threewide") for approximately $13.1 million in cash. Threewide was the operator
of ListHub
TM
, an online real estate listing syndicator and provider of advanced performance reporting solutions for the purpose of helping to drive an effective online advertising
program for brokers, real estate franchises and individual agents. The total purchase price has been allocated to the assets acquired, including intangible assets and liabilities assumed based on
their respective fair values.
Investment in Unconsolidated Joint Ventures
Mortgage Match
In August 2010, we entered into a joint venture agreement with a national mortgage banker d/b/a Mortgage Match and contributed an
initial investment of $0.5 million in exchange for a 49.9% ownership in the joint venture. We recorded our initial investment in the joint venture at $0.5 million, reflecting such cash
payment. In addition, we entered into an Interim Services Agreement in August 2010 with the joint venture partner, under which we operated the MortgageMatch.com web site, performed various supporting
services and received a fixed monthly fee.
In
July 2011, we and our joint venture partner decided to dissolve the joint venture and terminate the Interim Services Agreement. As a result of the dissolution, we received a
distribution of $0.5 million which represented the refund of our initial investment. In addition, we incurred $0.6 million in costs related to the dissolution of the joint venture which
are included in "General and administrative" within the Consolidated Statements of Operations for the year ended December 31, 2011.
Builders Digital Experience LLC
In October 2009, along with Builder Homesite, Inc. ("BHI") we entered into an agreement to create Builders Digital
Experience LLC ("BDX"), a joint venture dedicated to helping new home builders reach buyers with innovative online marketing solutions. Through this joint venture, and in part through operation
of a new web site,
www.theBDX.com
, BDX operates the Move.com New Homes Channel, the NewHomeSource.com web site and other web sites focused on the new
homes market. The BDX joint venture is located in Austin, Texas. We made cash payments of $6.5 million and contributed customer lists and other business assets in exchange for a 50% ownership
in the joint venture. We recorded our initial investment in the joint venture at $6.5 million. The carrying value of the investment in BDX exceeded our proportionate share in the underlying
assets of the joint venture by $2.5 million. This excess primarily related to differences in the cash payments and carrying value of the net assets contributed by us and BHI upon the formation
of the joint venture and represented goodwill.
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The
Company accounts for its investments in BDX under the equity method of accounting. Under this method, we record our proportionate share of the joint venture's net income or loss
based on the monthly financial statements of the joint venture. We record our proportionate share of net income or loss one month in arrears. Our proportionate share of earnings resulting from our
investment in BDX was $1.2 million, $1.0 million and $1.0 million for the years ended December 31, 2012, 2011 and 2010, respectively, and was included in "Earnings of
unconsolidated joint venture" within the Consolidated Statements of Operations.
We
received cash distributions of $2.0 million, $1.9 million and $1.0 million from BDX during the years ended December 31, 2012, 2011 and 2010, respectively.
We apply the "cumulative earnings" approach to apportion the cash distributions received from BDX between returns on investment and returns of investment for purposes of classification in our
Consolidated Statements of Cash Flows. All cash distributions received are deemed to be returns on our investment in BDX and classified as operating cash flows, unless the cumulative cash
distributions exceed our cumulative equity in earnings from our investment in BDX, in which case the excess cash distributions are deemed to be returns of the investment and are classified as
investing cash flows.
Critical Accounting Policies, Estimates and Assumptions
Our discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements,
which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition,
uncollectible receivables, valuation of investments, intangibles and other long-lived assets, stock-based compensation and contingencies. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We
believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements: revenue
recognition; valuation allowances, specifically the allowance for doubtful accounts; valuation of goodwill, identified intangibles and other long-lived assets; stock-based compensation;
segment reporting; and legal contingencies.
Management
has discussed the development and selection of the following critical accounting policies, estimates and assumptions with the Audit Committee of our Board of Directors and the
Audit Committee has reviewed these disclosures.
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Revenue Recognition
Revenues are recognized from services rendered when the following four revenue recognition criteria are met: persuasive evidence of an
arrangement exists, services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. When a revenue agreement involves multiple elements, such as
sales of various services in one arrangement or potentially multiple arrangements, the entire fee from the arrangement is allocated to each respective element based on its relative fair value and
recognized when the revenue recognition criteria for each element is met. We determine the selling price of our deliverables based on the following hierarchy: (1) vendor-specific objective
evidence, if available; (2) third-party evidence, if vendor-specific objective evidence is not available; and (3) best estimated selling price, if neither vendor-specific objective
evidence nor third-party evidence is available. Where the fair value for an undelivered element cannot be determined, we defer revenue recognition for the delivered elements until the undelivered
elements are delivered or the fair value is determinable. We evaluate whether payments made to customers or revenues earned from vendors have a separate identifiable benefit and whether they are
fairly valued in determining the appropriate classification of the related revenue and expense.
We
assess collection based on a number of factors, including past transaction history with the customer and the credit worthiness of the customer. We do not request collateral from our
customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt
of cash. Cash received in advance is recorded as deferred revenue until earned.
We
derive our revenue primarily from two product groups: (i) Consumer Advertising and (ii) Software and Services. We derive all of our revenue from our operations in North
America. As described below, significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period.
Consumer
Advertising
Revenue for our Consumer Advertising products are generated from the sale of online advertising for display on our
consumer-facing web sites.
Listing
advertisements are typically sold on a fixed-fee subscription basis. Fixed-fee subscription revenue is recognized ratably over the period in which the
services are provided. Pricing models for non-listing advertisements are impression-based and include CPM, CPC, cost-per-lead,
cost-per-unique user and subscription-based sponsorships of specific content areas or specific targeted geographies. The impression-based agreements range from spot purchases
to 12-month contracts. The impression-based revenue is recognized based upon actual impressions delivered and viewed by a user in a period. We measure performance related to advertising
obligations on a monthly basis prior to the recording of revenue.
Software
and Services
Revenue for our Software and Services products are generated from the sale of our SaaS CRM products, search engine
marketing and listing syndication and reporting.
We
license our SaaS CRM products on a monthly subscription basis. Our hosting arrangements require customers to pay a fixed fee and receive service over a period of time, generally one
year. Listing syndication pricing includes fixed- or variable-pricing models based on listing counts. Advanced reporting products are sold on a monthly subscription basis. Revenue for these products
is recognized ratably over the service period.
Pricing
for our search engine marketing services is based upon a percentage of marketing spend each month and is recognized as revenue at the time services are delivered.
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Allowance for Doubtful Accounts
Our estimate for the allowance for doubtful accounts related to trade receivables is based on two methods. The amounts calculated from
each of these methods are combined to determine the total amount to be reserved. First, we evaluate specific accounts where we have information that the customer may have an inability to meet its
financial obligations. In these
cases, we use our judgment, based on the best available facts and circumstances, and record a specific reserve for that customer against amounts due to reduce the receivable to the amount that is
expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received that impacts the amount reserved. Second, an additional reserve is established for
all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. If circumstances change
(i.e., higher than expected defaults or an unexpected material adverse change in a major customer's ability to meet its financial obligation to us) our estimates of the recoverability of
amounts due to us could be reduced or increased by a material amount. Actual results have historically been consistent with management's estimates.
Goodwill, Identifiable Intangible Assets and other Long-Lived Assets
Goodwill and identifiable intangible assets have been recorded in connection with our various acquisitions. Goodwill represents the
excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination, and is not amortized. We have both indefinite- and
definite-lived intangibles. Definite-lived identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from 2.0 to 15.5 years.
We assess the impairment of goodwill, identifiable intangible assets and long-lived assets, which include property and equipment, on an annual basis during the fourth quarter and whenever
an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying value amount. Events and circumstances that may indicate that an asset is impaired may
include significant decreases in the market value of an asset, a significant decline in actual and projected advertising and software license revenue, loss of key customer relationships or
renegotiation of existing arrangements, a change in the extent or manner in which an asset is used, shifts in technology, loss of key management or personnel, changes in our operating model or
strategy and competitive forces as well as other factors.
Impairment
of goodwill is required to be tested at the reporting unit level which is determined through the use of the management approach. The management approach considers the internal
organizational structure used by our Chief Operating Decision Maker ("CODM"), our chief executive officer, for making operating decisions and assessing performance. We are aligned functionally with
the management team focused and incentivized around the total company performance. The CODM is provided with reports that show our results on a consolidated basis with additional expenditure
information by functional area, but there is no additional financial information provided at any further reporting unit level. Therefore we test goodwill for impairment on a consolidated entity basis.
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If
events and circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than
the carrying amount of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. Fair value is determined based on the present value of estimated
expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the assets. In testing for a potential
impairment of goodwill, we qualitatively evaluate, based on the weight of available evidence, the significance of all identified events and circumstances, including both positive and negative events,
in their totality to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that the fair value
of the reporting unit equals or exceeds the carrying value, it is not necessary to perform the quantitative assessment in that year. However, if the qualitative assessment indicated that the fair
value of the reporting unit is less than its carrying value, it would be necessary for us to proceed with the two-step quantitative impairment test. When a quantitative assessment is
necessary, we will first compare the estimated fair value of the consolidated entity with book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to
be impaired and no additional steps are necessary. If, however, the fair value is less than book value, then we are required to compare the carrying amount of the goodwill with its implied fair value.
The estimate of implied fair value of goodwill may require independent valuations of certain internally generated and unrecognized intangible assets such as its subscriber base, software and
technology and patents and trademarks. If the carrying amount of the goodwill exceeds the implied fair value of that goodwill, an impairment loss would be recognized in an amount equal to the excess.
We
also utilize a qualitative approach to test indefinite-lived intangible assets for impairment. We first perform a qualitative assessment to determine whether it is more likely than
not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If it is concluded that this is the case, the fair value of the indefinite-lived intangible asset is
calculated. Otherwise, it is not necessary to calculate the fair value of the asset in that year. If the carrying amount of the indefinite-lived intangible asset exceeds the fair value of that asset,
an impairment loss would be recognized in an amount equal to the excess.
Stock-Based Compensation
We recognize stock-based compensation at an amount equal to the fair value of share-based payments granted under compensation
arrangements. We calculate the fair value of stock options by using the Black-Scholes option-pricing model. The determination of the fair value of share-based awards at the grant date requires
judgment in developing assumptions, which involve a number of variables. These variables include, but are not limited to, the expected stock-price volatility over the term of the awards, the expected
dividend yield and the expected stock option exercise
behavior. Additionally, judgment is also required in estimating the number of share-based awards that are expected to forfeit. Our computation of expected volatility is based on a combination of
historical and market-based implied volatility. The expected term of stock options granted was derived from an analysis of optionees' historical post-vest exercise behavior.
If
any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current
period. We believe the accounting for stock-based compensation is a critical accounting policy because it requires the use of complex judgment in its application.
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Segment Reporting
Segment reporting requires the use of the management approach in determining reportable operating segments. The management approach
considers the internal organization and reporting used by our CODM for making operating decisions and assessing performance. Our organizational structure is aligned functionally with the management
team focused and incentivized around the total company performance. We do not provide the CODM with disaggregated data for decision making purposes and, as such, we have determined that only one
segment exists.
Legal Contingencies
We are currently involved in certain legal proceedings, as discussed in Note 22, "Commitments and
ContingenciesLegal Proceedings" to our Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data" of this
Form 10-K. For those matters where we have reached agreed-upon settlements, we have estimated the amount of those settlements and accrued the amount of the settlement in
our financial statements. Because of the uncertainties related to both the amount and range of loss on the remaining pending litigation, we are unable to make a reasonable estimate of the liability
that could result from an unfavorable outcome. As additional information becomes available, we will assess the potential liability related to our pending litigation and revise our estimates. Such
revisions in our estimates of the potential liability could materially impact our results of operations and financial position.
RESULTS OF OPERATIONS
We have continued to modify our business model over the past three years. Our prospects should be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in rapidly evolving markets such as the Internet. To address these risks, we must, among other things, be able to continue
to:
-
-
execute our business model, including changes to that model;
-
-
respond to highly competitive developments;
-
-
attract, retain and motivate qualified personnel;
-
-
implement and successfully execute our marketing plans;
-
-
continue to upgrade our technologies;
-
-
develop new distribution channels; and
-
-
improve our operational and financial systems.
We
achieved positive net income for the years ended December 31, 2012 and 2011, but we may not be able to do so in the future. A more complete description of other risks relating
to our business is set forth in Part I, Item 1A, "Risk Factors" of this Form 10-K.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Consumer advertising
|
|
$
|
161,817
|
|
$
|
155,559
|
|
$
|
159,172
|
|
Software and services
|
|
|
37,416
|
|
|
36,165
|
|
|
38,331
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
199,233
|
|
|
191,724
|
|
|
197,503
|
|
|
|
|
|
|
|
|
|
Cost of revenue
(1)
|
|
|
41,413
|
|
|
40,369
|
|
|
43,119
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
157,820
|
|
|
151,355
|
|
|
154,384
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
(1)
|
|
|
71,097
|
|
|
68,614
|
|
|
73,737
|
|
Product and web site development
(1)
|
|
|
37,341
|
|
|
34,732
|
|
|
34,320
|
|
General and administrative
(1)
|
|
|
42,360
|
|
|
40,467
|
|
|
42,657
|
|
Amortization of intangible assets
|
|
|
2,275
|
|
|
1,505
|
|
|
696
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
153,073
|
|
|
145,318
|
|
|
151,410
|
|
Income from operations
|
|
|
4,747
|
|
|
6,037
|
|
|
2,974
|
|
Interest (expense) income, net
|
|
|
(6
|
)
|
|
51
|
|
|
910
|
|
Earnings of unconsolidated joint venture
|
|
|
1,192
|
|
|
985
|
|
|
1,017
|
|
Impairment of auction rate securities
|
|
|
|
|
|
|
|
|
(19,559
|
)
|
Other income (expense), net
|
|
|
89
|
|
|
460
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
6,022
|
|
|
7,533
|
|
|
(15,625
|
)
|
Income tax expense (benefit)
|
|
|
397
|
|
|
273
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5,625
|
|
|
7,260
|
|
|
(15,472
|
)
|
Convertible preferred stock dividend and related accretion
|
|
|
(942
|
)
|
|
(4,069
|
)
|
|
(5,383
|
)
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
4,683
|
|
$
|
3,191
|
|
$
|
(20,855
|
)
|
|
|
|
|
|
|
|
|
-
(1)
-
The
following chart summarizes the stock-based compensation and charges that have been included in the following captions for the periods
presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Cost of revenue
|
|
$
|
268
|
|
$
|
221
|
|
$
|
175
|
|
Sales and marketing
|
|
|
1,962
|
|
|
1,351
|
|
|
1,598
|
|
Product and web site development
|
|
|
1,938
|
|
|
1,176
|
|
|
1,616
|
|
General and administrative
|
|
|
4,104
|
|
|
3,159
|
|
|
3,901
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation and charges
|
|
$
|
8,272
|
|
$
|
5,907
|
|
$
|
7,290
|
|
|
|
|
|
|
|
|
|
36
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
As a Percentage of Revenue:
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Consumer advertising
|
|
|
81
|
%
|
|
81
|
%
|
|
81
|
%
|
Software and services
|
|
|
19
|
%
|
|
19
|
%
|
|
19
|
%
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Cost of revenue
|
|
|
21
|
%
|
|
21
|
%
|
|
22
|
%
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
79
|
%
|
|
79
|
%
|
|
78
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
36
|
%
|
|
36
|
%
|
|
37
|
%
|
Product and web site development
|
|
|
19
|
%
|
|
18
|
%
|
|
17
|
%
|
General and administrative
|
|
|
21
|
%
|
|
21
|
%
|
|
22
|
%
|
Amortization of intangible assets
|
|
|
1
|
%
|
|
1
|
%
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
77
|
%
|
|
76
|
%
|
|
76
|
%
|
Income from operations
|
|
|
2
|
%
|
|
3
|
%
|
|
2
|
%
|
Interest (expense) income, net
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Earnings of unconsolidated joint venture
|
|
|
1
|
%
|
|
1
|
%
|
|
1
|
%
|
Impairment of auction rate securities
|
|
|
0
|
%
|
|
0
|
%
|
|
-10
|
%
|
Other income (expense), net
|
|
|
0
|
%
|
|
0
|
%
|
|
-1
|
%
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
3
|
%
|
|
4
|
%
|
|
-8
|
%
|
Income tax expense (benefit)
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
3
|
%
|
|
4
|
%
|
|
-8
|
%
|
Convertible preferred stock dividend and related accretion
|
|
|
-1
|
%
|
|
-2
|
%
|
|
-3
|
%
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
|
2
|
%
|
|
2
|
%
|
|
-11
|
%
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, 2012 and 2011
Revenue
Revenue increased $7.5 million, or 4%, to $199.2 million for the year ended December 31, 2012, compared to
$191.7 million for the year ended December 31, 2011.
Revenue
attributable to our Consumer Advertising products increased $6.3 million, or 4%, to $161.8 million for the year ended December 31, 2012, compared to
$155.6 million for the year ended December 31, 2011. The increase in revenue was primarily due to increases in listing advertisements in our REALTOR.com® business and to the
introduction of our new Co-Broke
TM
product and our PreQual
plus
product, along with increases from our Relocation.com
acquisition, partially offset by revenue decreases from our featured products (i.e. Featured Homes, Featured Area Community and Buyer Assist).
Revenue
for our Software and Services products increased $1.3 million, or 3%, to $37.4 million for the year ended December 31, 2012, compared to $36.2 million
for the year ended December 31, 2011. The increase in revenue was primarily due to new SaaS product and marketing services revenue associated with our TigerLead® acquisition, as
well as increased publishing revenue in our ListHub
TM
business, partially offset by a decline in revenues from our Top Producer® product suite.
37
Table of Contents
Cost of Revenue
Cost of revenue increased $1.0 million, or 3%, to $41.4 million for the year ended December 31, 2012, compared to
$40.4 million for the year ended December 31, 2011. The increase was primarily due to a $2.1 million increase in lead acquisition costs primarily attributable to the new
TigerLead® and Relocation.com acquisitions along with a $0.5 million increase in consulting costs, partially offset by a $1.3 million decrease in personnel-related costs and
a $0.3 million reduction in production and fulfillment costs due to reduced featured product revenue.
Gross
margin percentage remained consistent at 79% for the years ended December 31, 2012 and 2011 as the increase in revenue was equally offset by increased cost of revenue.
Operating Expenses
Sales and Marketing.
Sales and marketing expenses increased $2.5 million, or 4%, to $71.1 million for the
year ended December 31, 2012, compared to $68.6 million for the year ended December 31, 2011. As a result of the departure of certain sales management during the year ended
December 31, 2012, we recognized $0.5 million in incremental stock-based compensation associated with the acceleration of vesting for outstanding stock option and restricted stock awards
and $0.7 million in severance costs. Additionally, there was a $0.6 million increase in software licensing fees, a $0.6 million increase in online distribution costs and a
$0.4 million increase in consulting costs. These increases were partially offset by other cost decreases of $0.3 million.
Product and Web Site Development.
Product and web site development expenses increased $2.6 million, or 8%, to
$37.3 million for the year ended December 31, 2012, compared to $34.7 million for the year ended December 31, 2011. The increase was primarily due to increases in
personnel-related costs and consulting costs as we continue to enhance our product offerings, including the redesign of our Realtor.com® web site and the expansion of our mobile
applications.
General and Administrative.
General and administrative expenses increased $1.9 million, or 5%, to
$42.4 million for the year ended December 31, 2012, compared to $40.5 million for the year ended December 31, 2011. The increase was primarily due an increase in
personnel-related costs of $2.6 million, including a $1.0 million increase in stock-based compensation, increased bad debt expense of $0.3 million primarily related to the
bankruptcy of one of our customers, a $0.3 million increase in common area maintenance charges related to our leased facilities and other cost increases of $0.1 million. These increases
were partially offset by a decrease in outside legal fees of $0.8 million and one-time joint venture dissolution costs of $0.6 million incurred in 2011.
Amortization of Intangible Assets.
Amortization of intangible assets increased $0.8 million to
$2.3 million for the year ended December 31, 2012, compared to $1.5 million for the year ended December 31, 2011. This increase was due to the amortization of intangible
assets that were newly acquired in the third and fourth quarters of 2012.
Stock-Based Compensation and Charges.
The following chart summarizes the stock-based compensation and charges that have
been included in the following captions for each of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
Cost of revenue
|
|
$
|
268
|
|
$
|
221
|
|
Sales and marketing
|
|
|
1,962
|
|
|
1,351
|
|
Product and web site development
|
|
|
1,938
|
|
|
1,176
|
|
General and administrative
|
|
|
4,104
|
|
|
3,159
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,272
|
|
$
|
5,907
|
|
|
|
|
|
|
|
38
Table of Contents
Stock-based
compensation and charges increased $2.4 million for the year ended December 31, 2012, compared to the year ended December 31, 2011,
primarily due to the grants of restricted stock units to TigerLead® senior management pursuant to their employment agreements in connection with the acquisition, acceleration of vesting of
certain outstanding stock option and restricted stock awards, and new grants of restricted stock units and stock option awards.
Other Income, Net
Net other income of $0.1 million for the year ended December 31, 2012, was primarily attributable to other income from
the sale of certain investments, partially offset by fluctuations in foreign exchange rates and losses on the sales of fixed assets. Net other income of $0.5 million for the year ended
December 31, 2011, primarily consisted of a gain on sale of certain investments, partially offset by losses attributable to fluctuations in foreign exchange rates and losses on the sales of
fixed assets.
Income Taxes
As a result of historical net operating losses, we have generally not recorded a provision for income taxes. However, we recorded
certain indefinite-lived intangible assets as part of the purchase accounting for acquisitions, which creates amortization that is being recorded for tax purposes but not for book purposes. During the
years ended December 31, 2012 and 2011, we recorded income tax expense of $0.4 million and $0.3 million, respectively, which includes a deferred tax provision related to
amortization of the indefinite-lived intangible assets and state income taxes.
For the Years Ended December 31, 2011 and 2010
Revenue
Revenue decreased $5.8 million, or 3%, to $191.7 million for the year ended December 31, 2011, compared to
$197.5 million for the year ended December 31, 2010.
Revenue
attributable to our Consumer Advertising products decreased $3.6 million, or 2%, to $155.6 million for the year ended December 31, 2011, from
$159.2 million for the year ended
December 31, 2010. The decrease in revenue was primarily due to declines in our Rentals products and featured products (i.e. Featured Homes, Featured Area Community and Buyer Assist),
partially offset by increased revenues attributable to new product introductions, including our PreQual
plus
product.
Revenue
for our Software and Services products decreased $2.2 million, or 6%, to $36.2 million for the year ended December 31, 2011, from $38.3 million for
the year ended December 31, 2010. The decrease in revenue was primarily due to a decline in our Top Producer® product suite attributable to a decline in our CRM subscriber base,
which was a result of reduced spending by real estate professionals, partially offset by revenue increases due to new product introductions associated with ListHub
TM
.
Cost of Revenue
Cost of revenue decreased $2.7 million, or 6%, to $40.4 million for the year ended December 31, 2011, compared to
$43.1 million for the year ended December 31, 2010. The decrease was primarily due to decreased production and fulfillment costs associated with our featured products of
$1.3 million resulting from improved self-service templates for our customers, a decrease in personnel-related costs of $1.0 million, a decrease in royalties of
$0.7 million and credit card processing fees of $0.5 million due to reduced revenues and a decrease in depreciation expense of $0.7 million, partially offset by a
$1.3 million increase in technology licensing fees related to new online functionality and other cost increases of $0.2 million.
Gross
margin percentage increased to 79% for the year ended December 31, 2011, compared to 78% for the year ended December 31, 2010, due to the decreased costs described
above.
39
Table of Contents
Operating Expenses
Sales and Marketing.
Sales and marketing expenses decreased $5.1 million, or 7%, to $68.6 million for the
year ended December 31, 2011, compared to $73.7 million for the year ended December 31, 2010. The decrease was primarily due to a $4.1 million decrease in personnel-related
costs directly related to reduced revenues, a $1.4 million decrease in marketing and tradeshow expenses and a decrease in online distribution costs of $0.7 million, partially offset by a
$0.6 million increase in software licensing costs, a $0.3 million increase in consulting costs and other cost increases of $0.2 million.
Product and Web Site Development.
Product and web site development expenses increased $0.4 million, or 1%, to
$34.7 million for the year ended December 31, 2011, compared to $34.3 million for the year ended December 31, 2010. The increase was primarily due to an increase in
personnel-related costs of $2.3 million partially offset by decreased consulting costs of $1.9 million. The continued increase in product and web site development cost is a result of
incremental investments in our new technology platforms and mobile applications.
General and Administrative.
General and administrative expenses decreased $2.2 million, or 5%, to
$40.5 million for the year ended December 31, 2011, compared to $42.7 million for the year ended December 31, 2010. The decrease was primarily due to reduced
personnel-related costs of $1.9 million, reduced facilities-related costs of $0.7 million, reduced training costs of $0.3 million and other cost reductions of $0.3 million,
partially offset by an increase due to joint venture dissolution costs of $0.6 million and increased legal costs of $0.4 million.
Amortization of Intangible Assets.
Amortization of intangible assets increased $0.8 million to
$1.5 million for the year ended December 31, 2011, compared to $0.7 million for the year ended December 31, 2010. The increase was due to the amortization of intangible
assets that were acquired in the fourth quarter of 2010 and during the year ended December 31, 2011.
Stock-Based Compensation and Charges.
The following chart summarizes the stock-based compensation and charges that have
been included in the following captions for each of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
Cost of revenue
|
|
$
|
221
|
|
$
|
175
|
|
Sales and marketing
|
|
|
1,351
|
|
|
1,598
|
|
Product and web site development
|
|
|
1,176
|
|
|
1,616
|
|
General and administrative
|
|
|
3,159
|
|
|
3,901
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,907
|
|
$
|
7,290
|
|
|
|
|
|
|
|
Stock-based
compensation and charges decreased $1.4 million for the year ended December 31, 2011, compared to the year ended December 31, 2010, mainly due to the
reversal of expense recognized for restricted stock awards and restricted stock units forfeited or not expected to vest during the year ended December 31, 2011, and fewer options being granted.
Interest Income, Net
Net interest income decreased $0.9 million to less than $0.1 million for the year ended December 31, 2011,
compared to $1.0 million for the year ended December 31, 2010, primarily due to reductions in our cash and cash equivalent balances, as well as higher interest rates that were earned in
2010 on our auction rate securities ("ARS") prior to selling the portfolio in April 2010.
40
Table of Contents
Impairment of Auction Rate Securities
In April 2010, we completed the sale of our entire portfolio of ARS for $109.8 million (par value $129.4 million) to a
broker in the secondary market. As a result of the sale, an other-than-temporary loss of $19.6 million was recorded for the year ended December 31, 2010.
Other Income (Expense), Net
Net other income of $0.5 million for the year ended December 31, 2011, consisted primarily of gains on sale of certain
investments. Net other expense of $1.0 million for the year ended December 31, 2010, consisted primarily of the transaction fees associated with the sale of our portfolio of ARS.
Income Taxes
We recorded an income tax expense of $0.3 million for the year ended December 31, 2011, and we recorded a tax benefit of
$0.2 million for the year ended December 31, 2010. For the year ended December 31, 2011, we recorded a deferred tax provision of $0.2 million related to amortization of
certain indefinite-lived intangible assets and a current state tax expense of $0.1 million. For the year ended December 31, 2010, the Company recorded an income tax benefit of
$0.3 million as a result of a change in the valuation allowance resulting from the deferred tax liability established for the amortizable intangible assets acquired as part of a business
combination, partially offset by $0.1 million of state income tax expenses and a deferred tax provision related to amortization of certain indefinite-lived intangible assets.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities of $29.1 million for the year ended December 31, 2012, was attributable to net
income of $5.6 million, plus noncash expenses including depreciation, amortization of intangible assets, provision for doubtful accounts, stock-based compensation and charges, earnings of
unconsolidated joint venture and other noncash items aggregating to $19.4 million, a $1.2 million cash distribution representing a return on our investment in an unconsolidated joint
venture and a $2.9 million change in operating assets and liabilities.
Net
cash provided by operating activities of $17.6 million for the year ended December 31, 2011, was attributable to net income of $7.3 million, plus noncash
expenses including depreciation, amortization of intangible assets, provision for doubtful accounts, stock-based compensation and charges, earnings of unconsolidated joint venture and other noncash
items aggregating $16.0 million, and a $1.2 million cash distribution representing a return on our investment in an unconsolidated joint venture, partially offset by a
$6.9 million change in operating assets and liabilities.
Net
cash used in investing activities of $42.0 million for the year ended December 31, 2012, was primarily attributable to the acquisitions, net of cash acquired, of
$31.7 million and capital expenditures of $11.0 million, partially offset by a cash distribution representing a return of our invested capital in an unconsolidated joint venture of
$0.8 million.
Net
cash used in investing activities of $7.3 million for the year ended December 31, 2011, was primarily attributable to capital expenditures of $8.1 million and
acquisitions, net of cash acquired, of $0.5 million, partially offset by a cash distribution representing a return of our invested capital in an unconsolidated joint venture of
$0.8 million and proceeds from the dissolution of our mortgage joint venture of $0.5 million.
41
Table of Contents
Net
cash used in financing activities of $47.6 million for the year ended December 31, 2012, was primarily attributable to the redemption of the balance of the
Series B Preferred Stock for $49.0 million, payments of dividends on our Series B Preferred Stock of $0.9 million, tax withholdings related to net share settlements of
restricted stock awards of $0.6 million and repurchases of common stock and principal payments on loan payable totaling $0.2 million, partially offset by proceeds from the exercise of
stock options of $3.1 million.
Net
cash used in financing activities of $81.2 million for the year ended December 31, 2011, was primarily attributable to the redemption of a portion of the
Series B Preferred Stock for $70.0 million, repurchases of the Company's common stock of $9.6 million, payments of dividends on our Series B Preferred Stock of
$2.0 million, tax withholdings related to net share settlements of restricted stock awards of $0.3 million and principal payments on loan payable of $0.1 million, partially offset
by cash proceeds from the exercise of stock options of $0.8 million.
We
have generated positive operating cash flows in each of the last three fiscal years. We believe that our existing cash and any cash generated from operations will be sufficient to
fund our working capital requirements, capital expenditures and other obligations for the foreseeable future.
In
February 2011, our Board of Directors authorized a stock repurchase program. The program authorized, in one or more transactions taking place during a two-year period, the
repurchase of our outstanding common stock utilizing surplus cash in the amount of up to $25 million. Under the program, we were authorized to repurchase shares of common stock in the open
market or in privately negotiated transactions. The timing and amount of any repurchase transactions under this program were dependent upon market conditions, corporate considerations and regulatory
requirements. Shares repurchased under the program were retired to constitute authorized but unissued shares of our common stock. We repurchased 9,958 shares of our outstanding common stock in the
open market for approximately $0.1 million during the year ended December 31, 2012. As of December 31, 2012, we had repurchased 1,493,127 shares of our common stock for an
aggregate purchase price of $9.7 million. This authorization expired in February 2013.
We
are party to a revolving line of credit agreement with a major financial institution, providing for borrowings of up to $20.0 million, available until August 31, 2013.
At December 31, 2012 and 2011, we had no borrowings outstanding under the revolving line of credit. The revolving line of credit requires interest payments based on the BBA LIBOR Rate plus
2.5%. There is an unused commitment fee of 0.2% on any unused portion of the line of credit, payable quarterly. Additionally, there is a 0.5% annual fee payable if our average aggregate monthly
deposit and investment balances with the financial institution fall below $35.0 million. Among financial and other covenants, the revolving line of credit
agreement provides that we must: maintain tangible net worth of $50.0 million; maintain minimum unrestricted, unencumbered marketable securities, cash and cash equivalents of the lesser of
$20.0 million or 125% of the outstanding principal balance of the line of credit; and maintain adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") of
$17.0 million on a twelve-month rolling basis. The revolving line of credit is collateralized by our cash deposits, accounts receivable, investments, property and equipment and general
intangibles it now or subsequently owns. In addition, we have pledged the capital stock of our current and future subsidiaries as further collateral for the revolving line of credit. We were in
compliance with these covenants as of December 31, 2012.
42
Table of Contents
Our
material financial commitments consist of those under operating lease agreements, our operating agreement with the NAR and various web services and content agreements. Our
contractual obligations as of December 31, 2012, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
Payments
Due
|
|
Due in
One Year
or Less
|
|
Due in
One to
Three Years
|
|
Due in
Three to
Five Years
|
|
Due in
Over
Five Years
|
|
Operating lease obligations
|
|
$
|
22,944
|
|
$
|
5,106
|
|
$
|
9,464
|
|
$
|
5,930
|
|
$
|
2,444
|
|
Other purchase obligations
|
|
|
12,746
|
|
|
4,113
|
|
|
4,316
|
|
|
4,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,690
|
|
$
|
9,219
|
|
$
|
13,780
|
|
$
|
10,247
|
|
$
|
2,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
purchase obligations represent payments required under our operating agreement with the NAR and agreements with various other web service and content providers. Obligations for the
years ending 2013 and beyond under the NAR operating agreement are calculated based on amounts paid in 2012 adjusted for the Annual Consumer Price Index for the period ending December 2012.
Obligations disclosed above for the NAR operating agreement and one of the content agreements only include estimated payments over the next five years as these agreements have an indefinite term.
We
also have commitments of $2.4 million to purchase property, plant and equipment and software maintenance as of December 31, 2012.
Additionally,
$1.0 million of the remaining purchase price related to the acquisition of Relocation.com (see Note 3, "Acquisitions") was recorded in "Other noncurrent
liabilities" within our Consolidated Balance Sheets as of December 31, 2012.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained
interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an
unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us.
RECENT ACCOUNTING DEVELOPMENTS
See Note 2, "Summary of Significant Accounting Policies" to our consolidated financial statements, regarding the impact of
certain recent accounting pronouncements on our consolidated financial statements.
Item 8.
Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
44
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Stockholders of Move, Inc.
We
have audited the accompanying consolidated balance sheets of Move, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of operations,
comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2012. Our audits
also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Move, Inc. at December 31, 2012
and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Move, Inc.'s internal control over financial reporting as
of December 31, 2012, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 22, 2013 expressed an unqualified opinion thereon.
/s/
Ernst & Young LLP
Los
Angeles, California
February 22, 2013
45
Table of Contents
MOVE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
27,122
|
|
$
|
87,579
|
|
Accounts receivable, net of allowance for doubtful accounts of $429 and $524 at December 31, 2012 and 2011, respectively
|
|
|
11,759
|
|
|
11,719
|
|
Other current assets
|
|
|
7,215
|
|
|
7,086
|
|
|
|
|
|
|
|
Total current assets
|
|
|
46,096
|
|
|
106,384
|
|
Property and equipment, net
|
|
|
21,975
|
|
|
20,487
|
|
Investment in unconsolidated joint venture
|
|
|
4,924
|
|
|
5,711
|
|
Goodwill, net
|
|
|
38,560
|
|
|
24,450
|
|
Intangible assets, net
|
|
|
24,444
|
|
|
7,319
|
|
Other assets
|
|
|
870
|
|
|
570
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
136,869
|
|
$
|
164,921
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,741
|
|
$
|
5,851
|
|
Accrued expenses
|
|
|
20,512
|
|
|
14,782
|
|
Deferred revenue
|
|
|
8,520
|
|
|
9,809
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
33,773
|
|
|
30,442
|
|
Other noncurrent liabilities
|
|
|
5,086
|
|
|
3,264
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
38,859
|
|
|
33,706
|
|
Commitments and contingencies (Note 22)
|
|
|
|
|
|
|
|
Series B convertible preferred stock, 0 and 49,044 shares issued and outstanding at December 31, 2012 and 2011,
respectively
|
|
|
|
|
|
48,555
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
Series A convertible preferred stock
|
|
|
|
|
|
|
|
Common stock, $.001 par value; 125,000 shares authorized, 39,348 and 38,682 shares issued and outstanding at December 31, 2012 and 2011,
respectively
|
|
|
39
|
|
|
39
|
|
Additional paid-in capital
|
|
|
2,132,189
|
|
|
2,121,483
|
|
Accumulated other comprehensive income
|
|
|
219
|
|
|
258
|
|
Accumulated deficit
|
|
|
(2,034,437
|
)
|
|
(2,039,120
|
)
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
98,010
|
|
|
82,660
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
136,869
|
|
$
|
164,921
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
46
Table of Contents
MOVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Revenue
|
|
$
|
199,233
|
|
$
|
191,724
|
|
$
|
197,503
|
|
Cost of revenue
|
|
|
41,413
|
|
|
40,369
|
|
|
43,119
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
157,820
|
|
|
151,355
|
|
|
154,384
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
71,097
|
|
|
68,614
|
|
|
73,737
|
|
Product and web site development
|
|
|
37,341
|
|
|
34,732
|
|
|
34,320
|
|
General and administrative
|
|
|
42,360
|
|
|
40,467
|
|
|
42,657
|
|
Amortization of intangible assets
|
|
|
2,275
|
|
|
1,505
|
|
|
696
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
153,073
|
|
|
145,318
|
|
|
151,410
|
|
Income from operations
|
|
|
4,747
|
|
|
6,037
|
|
|
2,974
|
|
Interest (expense) income, net
|
|
|
(6
|
)
|
|
51
|
|
|
910
|
|
Earnings of unconsolidated joint venture
|
|
|
1,192
|
|
|
985
|
|
|
1,017
|
|
Impairment of auction rate securities
|
|
|
|
|
|
|
|
|
(19,559
|
)
|
Other income (expense), net
|
|
|
89
|
|
|
460
|
|
|
(967
|
)
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
6,022
|
|
|
7,533
|
|
|
(15,625
|
)
|
Income tax expense (benefit)
|
|
|
397
|
|
|
273
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
5,625
|
|
|
7,260
|
|
|
(15,472
|
)
|
Convertible preferred stock dividend and related accretion
|
|
|
(942
|
)
|
|
(4,069
|
)
|
|
(5,383
|
)
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
4,683
|
|
$
|
3,191
|
|
$
|
(20,855
|
)
|
|
|
|
|
|
|
|
|
Basic income (loss) per share applicable to common stockholders
|
|
$
|
0.12
|
|
$
|
0.08
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share applicable to common stockholders
|
|
$
|
0.12
|
|
$
|
0.08
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
Shares used in calculation of income (loss) per share applicable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
38,705
|
|
|
39,114
|
|
|
38,880
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
39,721
|
|
|
39,928
|
|
|
38,880
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
47
Table of Contents
MOVE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,625
|
|
$
|
7,260
|
|
$
|
(15,472
|
)
|
Reclassification of unrealized loss on auction rate securities
|
|
|
|
|
|
|
|
|
17,600
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
(3
|
)
|
Foreign currency translation loss
|
|
|
(39
|
)
|
|
(114
|
)
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
5,586
|
|
$
|
7,146
|
|
$
|
2,016
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
48
Table of Contents
MOVE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
Convertible
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Accumulated
Other
Comprehensive
Income (loss)
|
|
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Total
Stockholders'
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Balance at January 1, 2010
|
|
|
|
|
$
|
|
|
|
38,930
|
|
$
|
39
|
|
$
|
2,112,730
|
|
$
|
(17,116
|
)
|
$
|
(2,021,456
|
)
|
$
|
74,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,472
|
)
|
|
(15,472
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,488
|
|
|
|
|
|
17,488
|
|
Issuance of common stock under exercise of stock options
|
|
|
|
|
|
|
|
|
683
|
|
|
1
|
|
|
4,751
|
|
|
|
|
|
|
|
|
4,752
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures of restricted stock
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock surrendered for employee tax liability
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
(98
|
)
|
Stock-based compensation and charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,290
|
|
|
|
|
|
|
|
|
7,290
|
|
Convertible preferred stock dividend and accretion of discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,383
|
)
|
|
(5,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
|
|
$
|
|
|
|
39,626
|
|
$
|
40
|
|
$
|
2,124,673
|
|
$
|
372
|
|
$
|
(2,042,311
|
)
|
$
|
82,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,260
|
|
|
7,260
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114
|
)
|
|
|
|
|
(114
|
)
|
Issuance of common stock under exercise of stock options
|
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
834
|
|
|
|
|
|
|
|
|
834
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures of restricted stock
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchases
|
|
|
|
|
|
|
|
|
(1,483
|
)
|
|
(1
|
)
|
|
(9,619
|
)
|
|
|
|
|
|
|
|
(9,620
|
)
|
Restricted stock surrendered for employee tax liability
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
(312
|
)
|
Stock-based compensation and charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,907
|
|
|
|
|
|
|
|
|
5,907
|
|
Convertible preferred stock dividend and accretion of discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,069
|
)
|
|
(4,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
|
|
$
|
|
|
|
38,682
|
|
$
|
39
|
|
$
|
2,121,483
|
|
$
|
258
|
|
$
|
(2,039,120
|
)
|
$
|
82,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,625
|
|
|
5,625
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
(39
|
)
|
Issuance of common stock under exercise of stock options
|
|
|
|
|
|
|
|
|
498
|
|
|
|
|
|
3,108
|
|
|
|
|
|
|
|
|
3,108
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures of restricted stock
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchases
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
(69
|
)
|
Restricted stock surrendered for employee tax liability
|
|
|
|
|
|
|
|
|
(75
|
)
|
|
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
(605
|
)
|
Stock-based compensation and charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,272
|
|
|
|
|
|
|
|
|
8,272
|
|
Convertible preferred stock dividend and accretion of discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(942
|
)
|
|
(942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
|
|
|
$
|
|
|
|
39,348
|
|
$
|
39
|
|
$
|
2,132,189
|
|
$
|
219
|
|
$
|
(2,034,437
|
)
|
$
|
98,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
49
Table of Contents
MOVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,625
|
|
$
|
7,260
|
|
$
|
(15,472
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
9,551
|
|
|
9,393
|
|
|
10,077
|
|
Amortization of intangible assets
|
|
|
2,275
|
|
|
1,505
|
|
|
696
|
|
Provision for doubtful accounts
|
|
|
528
|
|
|
190
|
|
|
80
|
|
Stock-based compensation and charges
|
|
|
8,272
|
|
|
5,907
|
|
|
7,290
|
|
Impairment of auction rate securities
|
|
|
|
|
|
|
|
|
19,559
|
|
Loss on sales and disposals of assets
|
|
|
61
|
|
|
126
|
|
|
|
|
Earnings of unconsolidated joint venture
|
|
|
(1,192
|
)
|
|
(985
|
)
|
|
(1,017
|
)
|
Return on investment in unconsolidated joint venture
|
|
|
1,192
|
|
|
1,152
|
|
|
1,000
|
|
Other noncash items
|
|
|
(74
|
)
|
|
(88
|
)
|
|
(210
|
)
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(422
|
)
|
|
(2,229
|
)
|
|
1,316
|
|
Other assets
|
|
|
(328
|
)
|
|
1,292
|
|
|
3,254
|
|
Accounts payable and accrued expenses
|
|
|
5,047
|
|
|
(2,060
|
)
|
|
(386
|
)
|
Deferred revenue
|
|
|
(1,435
|
)
|
|
(3,880
|
)
|
|
(2,490
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
29,100
|
|
|
17,583
|
|
|
23,697
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of auction rate securities
|
|
|
|
|
|
|
|
|
109,841
|
|
Proceeds from the sale of marketable equity securities
|
|
|
|
|
|
|
|
|
14
|
|
Purchases of property and equipment
|
|
|
(11,025
|
)
|
|
(8,099
|
)
|
|
(10,732
|
)
|
Proceeds from sale of assets
|
|
|
9
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
(31,725
|
)
|
|
(500
|
)
|
|
(12,371
|
)
|
Investment in joint venture
|
|
|
|
|
|
|
|
|
(499
|
)
|
Proceeds from dissolution of joint venture
|
|
|
|
|
|
499
|
|
|
|
|
Return of investment in unconsolidated joint venture
|
|
|
787
|
|
|
788
|
|
|
|
|
Principal payments on notes receivable
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(41,954
|
)
|
|
(7,312
|
)
|
|
87,253
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
462
|
|
Proceeds from line of credit
|
|
|
|
|
|
|
|
|
64,700
|
|
Gross principal payments on line of credit
|
|
|
|
|
|
|
|
|
(129,330
|
)
|
Proceeds from loan payable
|
|
|
|
|
|
|
|
|
316
|
|
Principal payments on loan payable
|
|
|
(111
|
)
|
|
(103
|
)
|
|
(82
|
)
|
Redemption of convertible preferred stock
|
|
|
(49,044
|
)
|
|
(70,000
|
)
|
|
|
|
Payment of dividends on convertible preferred stock
|
|
|
(882
|
)
|
|
(2,008
|
)
|
|
|
|
Proceeds from exercise of stock options
|
|
|
3,108
|
|
|
834
|
|
|
4,752
|
|
Tax payment related to net share settlements of restricted stock awards
|
|
|
(605
|
)
|
|
(312
|
)
|
|
(98
|
)
|
Repurchases of common stock
|
|
|
(69
|
)
|
|
(9,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(47,603
|
)
|
|
(81,209
|
)
|
|
(59,280
|
)
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(60,457
|
)
|
|
(70,938
|
)
|
|
51,670
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
87,579
|
|
|
158,517
|
|
|
106,847
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
27,122
|
|
$
|
87,579
|
|
$
|
158,517
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
50
Table of Contents
MOVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Move, Inc. and its subsidiaries (the "Company" or "Move") operate an online network of web sites for real estate search, finance, moving and home
enthusiasts and provide a comprehensive resource for consumers seeking online information and connections needed regarding real estate. The Company's flagship consumer web sites are
REALTOR.com®, Move.com and Moving.com
TM
. The Company also supplies lead management software and marketing services for real estate agents and brokers through its Top
Producer® and TigerLead® businesses. Through its ListHub
TM
business, the Company is also an online real estate listing syndicator and provider of advanced
performance reporting solutions for the purpose of helping to drive an effective online advertising program for brokers, real estate franchises, and individual agents.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying financial statements are consolidated and include the financial statements of
Move, Inc. and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in private entities where the Company
holds a 50% or less ownership interest and does not exercise control are accounted for using the equity method of accounting. The investment balance is included in "Investment in unconsolidated joint
venture" within the Consolidated Balance Sheets and the Company's share of the investees' results of operations is included in "Earnings of unconsolidated joint venture" within the Consolidated
Statements of Operations.
The
Company has evaluated all subsequent events through the date the financial statements were issued.
Adjustments to Statements of Cash Flows
Certain adjustments have been made to the prior year Consolidated Statement of Cash Flows to conform to the
current year presentation. These adjustments have the effect of increasing cash flows from operating activities (i.e., returns on investment) and decreasing cash flows from investing activities
(i.e., returns of investment).
During
the year ended December 31, 2012, the Company identified immaterial errors in the Consolidated Statements of Cash Flows for the years ended December 31, 2011 and
2010, related to the classification of cash distributions that represented returns on its investment in an unconsolidated joint venture as cash flows from investing activities. The Company has
analyzed and apportioned the total cash distributions received associated with its investment in an unconsolidated joint venture utilizing the "cumulative earnings" approach to properly apportion the
cash distributions received between returns on investment and returns of investment for purposes of classification in its Consolidated Statements of
Cash Flows. All cash distributions received were deemed to be returns on the Company's investment in the unconsolidated joint venture and were classified as operating cash flows, unless the cumulative
cash distributions exceeded the Company's cumulative equity in earnings from its investment in the joint venture, in which case the excess cash distributions were deemed to be returns of the
investment and classified as investing cash flows. Based on a quantitative and qualitative analysis of the errors in prior financial statements as required by authoritative guidance, the Company
concluded that such errors had, and such apportionment adjustments would have, no material impact on any of the Company's previously issued financial statements and had no effect on the trend of
financial results. Accordingly, the Company has elected to present revised information pertaining to cash flows from operating and investing activities for the years ended December 31, 2011 and
2010, as described below.
51
Table of Contents
For
the year ended December 31, 2011, cash distributions representing a return on investment were $1.2 million. Adjustment of such amount has the effect of increasing
previously reported cash provided by operating activities from $16.4 million to $17.6 million and increasing previously reported cash used in investing activities from
$6.2 million to $7.3 million for 2011. For the year ended December 31, 2010, cash distributions representing a return on investment were $1.0 million. Adjustment of such
amount has the effect of increasing previously reported cash provided by operating activities from $22.7 million to $23.7 million and reducing previously reported cash provided by
investing activities from $88.3 million to $87.3 million for 2010.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to provisions for doubtful accounts, legal contingencies, income
taxes, revenue recognition, stock-based compensation, the fair value of investments and the recoverability of goodwill and intangible assets. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash
equivalents and accounts receivable. The Company's accounts receivable are derived primarily from revenue earned from customers located in the U.S. The Company maintains an allowance for doubtful
accounts based upon the expected collectability of accounts receivable.
Fair Value
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an
orderly transaction between market participants at the reporting date. The methodology establishes consistency and comparability by providing a fair value hierarchy that prioritizes the inputs to
valuation techniques into three broad levels, which are described below:
-
-
Level 1 inputs are quoted market prices in active markets for identical assets or liabilities (these are observable
market inputs).
-
-
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset
or liability (includes quoted market prices for similar assets or identical or similar assets in markets in which there are few transactions, prices that are not current or prices that vary
substantially).
-
-
Level 3 inputs are unobservable inputs that reflect the entity's own assumptions in pricing the asset or liability
(used when little or no market data is available).
The
Company's financial instruments, including cash, accounts receivable, accounts payable, and line of credit are carried at cost, which approximates their fair value due to the
short-term maturity of these instruments.
Prepaid Commissions
The Company prepays commissions to certain of its salespersons on the contract sale date and expenses the commission consistent
with the revenue recognition term.
Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which is generally three to five years for computer software and equipment and five years for furniture, fixtures and
office equipment. Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives. Construction in progress is primarily related to computer hardware, software
licenses and capitalized costs not yet deployed.
Depreciation for these assets commences once they are placed in service. Upon the sale or retirement of property or equipment, the cost and related accumulated depreciation and amortization are
removed from the Company's financial statements with the resulting gain or loss reflected in the Company's results of operations.
52
Table of Contents
Capitalized Development Costs
The Company capitalizes direct costs incurred in the development phase of software developed for internal use, web site
development costs, and costs to develop its monthly subscription software products ("capitalized development costs"). The Company only capitalizes direct costs if there is new functionality being
developed and the expected life is greater than one year. As the Company is constantly enhancing its products and adding new functionality, a significant portion of its product and web site
development costs are expensed as incurred. Additionally, costs related to design or maintenance is expensed as incurred. The Company had $19.1 million and $16.5 million of capitalized
development costs and $14.0 million and $12.4 million of accumulated amortization included in "Computer software and equipment" and "Construction in progress" which are components of
"Property and equipment, net" within the Consolidated Balance Sheets at December 31, 2012 and 2011, respectively. The remaining unamortized cost of $5.1 million at December 31,
2012, primarily relates to software development for internal enterprise systems.
Goodwill, Identifiable Intangible Assets and other Long-Lived Assets
Goodwill and identifiable intangible assets have been recorded in
connection with the Company's various acquisitions. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a
business combination, and is not amortized. The Company has both indefinite- and definite-lived intangibles. Definite-lived identifiable intangible assets are amortized on a straight-line
basis over their estimated useful lives, ranging from 2.0 to 15.5 years. The Company assesses the impairment of goodwill, identifiable intangible assets and long-lived assets, which
include property and equipment, on an annual basis during the fourth quarter and whenever an event occurs or circumstances change that would more likely than not reduce the fair value below its
carrying value amount. Events and circumstances that may indicate that an asset is impaired may include significant decreases in the market value of an asset, a significant decline in actual and
projected advertising and software license revenue, loss of key customer relationships or renegotiation of existing arrangements, a change in the extent or manner in which an asset is used, shifts in
technology, loss of key management or personnel, changes in our operating model or strategy and competitive forces as well as other factors.
Impairment
of goodwill is required to be tested at the reporting unit level which is determined through the use of the management approach. The management approach considers the internal
organizational structure used by the Company's CODM for making operating decisions and assessing performance.
The Company is aligned functionally with the management team focused and incentivized around the total company performance. The CODM is provided with reports that show the company's results on a
consolidated basis with additional expenditure information by functional area, but there is no additional financial information provided at any further reporting unit level. Therefore the Company
tests goodwill for impairment on a consolidated entity basis.
53
Table of Contents
If
events and circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than
the carrying amount of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. Fair value is determined based on the present value of estimated
expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the assets. In testing for a potential
impairment of goodwill, the Company qualitatively evaluates, based on the weight of available evidence, the significance of all identified events and circumstances, including both positive and
negative events, in their totality to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates
that the fair value of the reporting unit equals or exceeds the carrying value, it is not necessary to perform the quantitative assessment in that year. However, if the qualitative assessment
indicated that the fair value of the reporting unit is less than its carrying value, it would be necessary for the Company to proceed with the two-step quantitative impairment test. When a
quantitative assessment is necessary, the Company will first compare the estimated fair value of the consolidated entity with book value, including goodwill. If the estimated fair value exceeds book
value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value is less than book value, then the Company is required to compare the carrying amount
of the goodwill with its implied fair value. The estimate of implied fair value of goodwill may require independent valuations of certain internally generated and unrecognized intangible assets such
as its subscriber base, software and technology and patents and trademarks. If the carrying amount of the goodwill exceeds the implied fair value of that goodwill, an impairment loss would be
recognized in an amount equal to the excess.
The
Company also utilizes a qualitative approach to test indefinite-lived intangible assets for impairment. It first performs a qualitative assessment to determine whether it is more
likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If it is concluded that this is the case, the fair value of the indefinite-lived intangible
asset is calculated. Otherwise, it is not necessary to calculate the fair value of the asset in that year. If the carrying amount of the indefinite-lived intangible asset exceeds the fair value of
that asset, an impairment loss would be recognized in an amount equal to the excess.
Revenue Recognition
Revenues are recognized from services rendered when the following four revenue recognition criteria are met: persuasive evidence
of an arrangement exists, services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. When a revenue agreement involves multiple elements, such
as sales of various services in one arrangement or potentially multiple arrangements, the entire fee from the arrangement is allocated to each respective element based on its relative fair value and
recognized when the revenue recognition criteria for each element is met. The Company determines the selling price of its deliverables based on the following hierarchy: (1) vendor-specific
objective evidence, if available; (2) third-party evidence, if vendor-specific objective evidence is not available; and (3) best estimated selling price, if neither vendor-specific
objective evidence nor third-party evidence is available. Where the fair value for an undelivered element cannot be determined, we defer revenue recognition for the delivered elements until the
undelivered elements are delivered or the fair value is determinable. The Company evaluates whether payments made to customers or revenues earned from vendors have a separate identifiable benefit and
whether they are fairly valued in determining the appropriate classification of the related revenue and expense.
The
Company assesses collection based on a number of factors, including past transaction history with the customer and the credit worthiness of the customer. The Company does not request
collateral from its customers. If the Company determines that collection of a fee is not reasonably assured, the Company defers the fee and recognizes revenue at the time collection becomes reasonably
assured, which is generally upon receipt of cash. Cash received in advance is recorded as deferred revenue until earned.
54
Table of Contents
The
Company derives its revenue primarily from two product groups: (i) Consumer Advertising and (ii) Software and Services. The Company derives all of its revenue from its
operations in North America. As described below, significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period.
Consumer Advertising
Revenue for the Company's Consumer Advertising products are generated from the sale of online
advertising for display on its consumer-facing web sites.
Listing
advertisements are typically sold on a fixed-fee subscription basis. Fixed-fee subscription revenue is recognized ratably over the period in which the
services are provided. Pricing models for non-listing advertisements are impression-based and include CPM, CPC, cost-per-lead,
cost-per-unique user and subscription-based sponsorships of specific content areas or specific targeted geographies. The impression-based agreements range from spot purchases
to 12-month contracts. The impression-based revenue is recognized based upon actual impressions delivered and viewed by a user in a period. The Company measures performance related to
advertising obligations on a monthly basis prior to the recording of revenue.
Software and Services
Revenue for the Company's Software and Services products are generated from the sale of its SaaS
CRM products, search engine marketing and listing syndication and reporting.
The
Company licenses its SaaS CRM products on a monthly subscription basis. The hosting arrangements for the products require customers to pay a fixed fee and receive service over a
period of time, generally one year. Listing syndication pricing includes fixed- or variable-pricing models based on listing counts. Advanced reporting products are sold on a monthly subscription
basis. Revenue for these products is recognized ratably over the service period.
Pricing
for the Company's search engine marketing services is based upon a percentage of marketing spend each month and is recognized as revenue at the time services are delivered.
Taxes Collected from Customers
The Company reports taxes collected from customers on a net presentation basis.
Advertising Expense
Advertising costs, which consist primarily of online advertising, portal fees, keyword buys, email campaigns, and other trade
advertising, are expensed as incurred and totaled $13.5 million, $13.1 million and $13.7 million during the years ended December 31, 2012, 2011 and 2010, respectively.
Stock-Based Compensation
The Company typically issues three types of stock-based awards to employees: restricted stock, restricted stock units and
stock options. Compensation expense associated with restricted stock and restricted stock units is based upon the fair value of the common stock on the date of grant. Compensation expense associated
with stock options granted to employees is based on the estimated grant date fair value method using the Black-Scholes valuation model. Compensation expense is recognized using a
straight-line amortization method over the respective vesting period for awards that are ultimately expected to vest. Accordingly, stock-based
compensation has been reduced for estimated forfeitures. When estimating forfeitures, the Company considers voluntary termination behaviors as well as trends of actual option forfeitures.
For
stock options granted to nonemployees, compensation expense is generally recognized over the vesting period of the award. At the end of each financial reporting period prior to
vesting, the value of these options (as calculated using the Black-Sholes valuation model) is remeasured using the then-current fair value of the Company's common stock. Stock options
granted by the Company to nonemployees typically vest over a four-year service period. The Company accounts for nonemployee grants as an expense over the vesting period of the underlying
options.
55
Table of Contents
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred taxes to the amount expected to be realized.
The
Company reports a liability, if applicable, for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Interest and
penalties, if any, related to unrecognized tax benefits, are recognized in income tax expense.
Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing the net income (loss) applicable to common stockholders for the period
by the weighted-average number of common shares outstanding. Shares associated with stock options, restricted stock, restricted stock units and convertible preferred stock are not included to the
extent they are antidilutive.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiary are measured using the local currency as the functional
currency. Assets and liabilities of the subsidiary are translated at the rate of exchange at the balance sheet date. Income and expense items
are translated at average monthly rates of exchange prevailing during the year. The resulting translation adjustments are included in comprehensive income.
Comprehensive Income
Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. For the Company, comprehensive income consists of its reported net income or loss, the change in the foreign currency translation adjustments during a
period and the net unrealized gains or losses on short- and long-term investments and marketable equity securities.
Recent Accounting Developments
In June 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standards update, which amends
current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of stockholders' equity. Instead,
the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate
but consecutive statements. This accounting standards update was effective for public companies during interim and annual periods beginning after December 15, 2011, with early adoption
permitted. The Company has elected to report comprehensive income in a separate but consecutive statement following its Consolidated Statements of Operations. The adoption of this accounting standards
update did not have a material impact on the Company's consolidated financial statements.
In
September 2011, the FASB issued an accounting standards update which allows entities to use a qualitative approach to test goodwill for impairment. This update permits an entity to
first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the
case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. This update was
effective for public companies during interim and annual periods beginning after December 15, 2011, with early adoption permitted. The adoption of this accounting standards update did not have
a material impact on the Company's consolidated financial statements.
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In
July 2012, the FASB issued an accounting standards update which allows entities to use a qualitative approach to test indefinite-lived intangible assets for impairment. This update
permits an entity to first
perform a qualitative assessment to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If it is concluded that
this is the case, it is necessary to calculate the fair value of the indefinite-lived intangible asset. Otherwise, it is not necessary to calculate the fair value of the asset in that year. This
update will be effective for public companies for interim and annual impairment tests performed during fiscal years beginning after September 15, 2012, with early adoption permitted. The
Company elected early adoption of this accounting standard during the year ended December 31, 2012. The adoption of this accounting standards update did not have a material impact on the
Company's consolidated financial statements.
A
variety of proposed or otherwise potential accounting standards are currently under evaluation by the various standard setting organizations and regulatory agencies. Due to the
tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would have a material impact to the Company's consolidated
financial statements.
3. Acquisitions
In the fourth quarter of 2012, the Company acquired certain assets and assumed certain liabilities of Relocation.com, LLC which operates an online
marketplace that connects homebuyers and renters with moving and storage professionals. The purchase price was $11.5 million in cash, $9.5 million of which was paid upon closing, with
the remaining $2.0 million to be paid in two equal installments on the first and second anniversaries of the acquisition date. The transaction with Relocation.com, LLC has been accounted
for as a business combination with the total purchase price being allocated to the assets acquired based on their respective fair values. The $11.5 million purchase price was allocated
$3.2 million to definite-lived intangible assets, $3.2 million to indefinite-lived intangible assets, $0.1 million to net tangible assets with the remaining $5.0 million
allocated to goodwill. The identifiable intangible assets are being amortized over estimated lives ranging from two to six years, with the exception of $3.2 million in indefinite-lived domain
names. The goodwill and indefinite-lived intangible assets of $8.2 million will be amortized over 15 years for tax purposes. At December 31, 2012, $1.0 million of the
remaining $2.0 million purchase price, which is due on the first anniversary of the acquisition date, was recorded in "Accrued expenses" and the remaining $1.0 million, which is due on
the second anniversary of the acquisition date, was recorded in "Other noncurrent liabilities" within the Consolidated Balance Sheets. The financial results of the acquired business are included in
the Company's Consolidated Financial Statements from the date of acquisition. Pro forma information for this acquisition has not been presented because the effects were not material to the Company's
historical consolidated financial statements.
In
the third quarter of 2012, the Company entered into an agreement with Tiger Lead Solutions, LLC whereby the Company acquired substantially all of the operating assets of the
TigerLead® business for a purchase price of $22.0 million in cash, $3.0 million of which was paid into escrow for a one-to-two year period to secure
potential liabilities of Tiger Lead Solutions, LLC. In addition, the Company entered into employment agreements with members of TigerLead's senior management whereby the Company granted 273,420
restricted stock units with a grant date fair value of $2.2 million. These time-based restricted stock units will vest one year from the date of grant and would be forfeited in the
event of termination by the Company for cause or voluntary resignation. TigerLead® provides an integrated set
of internet marketing services and SaaS CRM tools to residential real estate professionals to generate, cultivate, and manage leads.
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The
transaction with Tiger Lead Solutions, LLC has been accounted for as a business combination with the total purchase price being allocated to the assets acquired based on their
respective fair values. The $22.0 million purchase price was allocated $11.9 million to definite-lived intangible assets, $0.9 million to indefinite-lived intangible assets,
$0.1 million to net tangible assets with the remaining $9.1 million allocated to goodwill. The identifiable intangible assets are being amortized over estimated lives ranging from six to
nine years, with the exception of $0.9 million in indefinite-lived trade name and trademarks. The goodwill and indefinite-lived intangible assets of $10.0 million will be amortized over
15 years for tax purposes. The financial results of the acquired business are included in the Company's Consolidated Financial Statements from the date of acquisition. Pro forma information for
this acquisition has not been presented because the effects were not material to the Company's historical consolidated financial statements.
In
the third quarter of 2011, the Company acquired the assets of Social Bios. The Social Bios assets include social media products that can compile and integrate a user's social
networking profiles from various social media properties to build a web site landing page that provides a profile of the user and allows the user to conduct a directory search for others whereby the
user's social profile is matched against the social profiles of others to determine social overlaps or commonalities. The acquisition did not have a material impact on our consolidated financial
position, results of operations or cash flows.
In
the third quarter of 2010, the Company acquired all of the outstanding shares of Threewide for approximately $13.1 million in cash. Threewide was the operator of
ListHub
TM
, an online real estate listing syndicator and provider of advanced performance reporting solutions for the purpose of helping to drive an effective online advertising program
for brokers, real estate franchises and individual agents. The total purchase price has been allocated to the assets acquired, including intangible assets and liabilities assumed, based on their
respective fair values. The $13.1 million purchase price was allocated $0.5 million to net tangible assets (which included $0.7 million of cash acquired), $5.1 million to
intangible assets with estimated useful lives of five years, $0.5 million to indefinite-lived trade name and trademarks, with the remaining $7.0 million allocated to goodwill. In
connection with the purchase accounting, the Company recorded a net deferred tax liability of $0.2 million associated with the indefinite-lived intangible assets and an income tax benefit of
$0.3 million (see Note 21, "Income Taxes"), resulting in additional goodwill of $0.5 million being recorded. As of December 31, 2012 and 2011, the Company had goodwill of
$7.5 million and net intangible assets of $3.3 million and $4.3 million, respectively, associated with the Threewide acquisition. The financial results of Threewide are included
in the Company's Consolidated Financial Statements from the date of acquisition. Pro forma information for this acquisition has not been presented because the effects were not material to the
Company's historical consolidated financial statements.
4. Segment Information and Revenues by Product Category
Segment reporting requires the use of the management approach in determining reportable operating segments. The management approach considers the internal
organization and reporting used by the Company's CODM for making operating decisions and assessing performance. The Company is aligned functionally with the management team focused and incentivized
around the total company performance. The CODM is provided with reports that show the company's results on a consolidated basis with additional expenditure information by functional area, but there is
no additional financial information provided at any further segment level. Based on this, the Company has determined that only one reportable segment exists.
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Within
that single reporting segment, the Company categorizes its products and services into two audience-driven groupsConsumer Advertising and Software and Services. The
Company's Consumer Advertising products are focused on providing real estate consumers with the information, tools and professional expertise they need to make informed home buying, selling, financing
and renting decisions through its operation of REALTOR.com® and other consumer-facing web sites. The Company's Software and Services products are committed to delivering valuable
connections to real estate professionals by providing them with advertising systems, productivity and lead management tools, and reporting with the goal of helping to make them more successful.
The
following table summarizes the Company's revenues by product category within its single reporting segment for the years ended December 31, 2012, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Consumer advertising
|
|
$
|
161,817
|
|
$
|
155,559
|
|
$
|
159,172
|
|
Software and services
|
|
|
37,416
|
|
|
36,165
|
|
|
38,331
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
199,233
|
|
$
|
191,724
|
|
$
|
197,503
|
|
|
|
|
|
|
|
|
|
5. Investments in Unconsolidated Joint Ventures
Mortgage Match
In August 2010, the Company entered into a joint venture agreement with a national mortgage banker d/b/a Mortgage Match and contributed
an initial investment of $0.5 million in exchange for a 49.9% ownership in the joint venture. The Company recorded its initial investment in the joint venture at $0.5 million, reflecting
such cash payment. In addition, the Company entered into an Interim Services Agreement in August 2010 with the joint venture partner, under which the Company operated the MortgageMatch.com web site,
performed various supporting services and received a fixed monthly fee.
In
July 2011, the Company and its joint venture partner decided to dissolve the joint venture and terminate the Interim Services Agreement. As a result of the dissolution, the
Company received a distribution of $0.5 million which represented the refund of its initial investment. In addition, the Company incurred $0.6 million in costs related to the dissolution
of the joint venture which are included in "General and administrative" within the Consolidated Statements of Operations for the year ended December 31, 2011.
Builders Digital Experience LLC
In October 2009, along with BHI the Company entered into an agreement to create BDX, a joint venture dedicated to helping new home
builders reach buyers with innovative online marketing solutions. Through this joint venture, and in part through operation of a new web site,
www.theBDX.com
, BDX operates the Move.com New Homes Channel,
the NewHomeSource.com web site and other web sites focused on the new homes market. The BDX
joint venture is located in Austin, Texas. The Company made cash payments of $6.5 million and contributed customer lists and other business assets in exchange for a 50% ownership in the joint
venture. The Company recorded its initial investment in the joint venture at $6.5 million. The carrying value of the investment in BDX exceeded the Company's proportionate share in the
underlying assets of the joint venture by $2.5 million. This excess primarily related to differences in the cash payments and carrying value of the net assets contributed by the Company and BHI
upon the formation of the joint venture and represented goodwill.
As
of December 31, 2012 and 2011, the Company's interest in its unconsolidated joint venture, BDX, amounted to $4.9 million and $5.7 million, respectively, which was
recorded in "Investment in unconsolidated joint venture" within the Consolidated Balance Sheets.
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The
Company accounts for its investments in the joint venture under the equity method of accounting. Under this method, the Company records its proportionate share of the joint venture's
net income or loss based on the monthly financial statements of the joint venture. The Company records its proportionate share of net income or loss one month in arrears. The Company's proportionate
share of earnings resulting from its investment in unconsolidated joint venture was $1.2 million, $1.0 million and $1.0 million for the years ended December 31, 2012, 2011
and 2010, respectively, and was included in "Earnings of unconsolidated joint venture" within the Consolidated Statements of Operations.
The
Company received cash distributions of $2.0 million, $1.9 million and $1.0 million from BDX during the years ended December 31, 2012, 2011 and 2010,
respectively. The Company applies the "cumulative earnings" approach to apportion the cash distributions received from BDX between returns on investment and returns of investment for purposes of
classification in its Consolidated Statements of Cash Flows. All cash distributions received are deemed to be returns on the Company's investment in BDX and classified as operating cash flows, unless
the cumulative cash distributions exceed the Company's cumulative equity in earnings from its investment in BDX, in which case the excess cash distributions are deemed to be returns of the investment
and are classified as investing cash flows.
6. Impairment of Auction Rate Securities
Prior to April 2010, the Company had long-term investments which consisted of high-grade, primarily AAA rated, student loan ARS issued by
student loan funding organizations, which loans were 97% guaranteed under FFELP (Federal Family Education Loan Program). These ARS were intended to provide liquidity via an auction process that reset
the interest rate, generally every 28 days, allowing investors to either roll over their holdings or sell them at par. In February 2008, auctions for the Company's investments in these
securities failed to settle on their respective settlement dates. Consequently, the investments were not liquid and the Company was not going to be able to access these funds until a future auction of
these investments was successful, the securities matured or a buyer was found outside of the auction process. Maturity dates for these ARS investments ranged from 2030 to 2047 with principal
distributions occurring on certain securities prior to maturity.
As
of December 31, 2009, the Company had recorded a temporary loss related to the ARS of $17.6 million that was included in "Accumulated Other Comprehensive Income" within
the Consolidated Balance Sheets. At a board meeting on March 24, 2010, the Board of Directors and Management discussed the recent passage of the Health Care Reform Bill that contained a
provision eliminating FFELP, a significant change in student loan funding. In management's opinion, this change, along with other market factors, created additional uncertainty in the student loan
auction rate securities market. As a result, the Board of Directors and Management changed its intent, which had been to hold these securities, and decided to sell the entire portfolio of ARS and,
thereafter, the Company began to actively market the ARS for sale to third parties. The Company reviewed its potential investment impairments in accordance with Accounting Standards Codification
("ASC") 320 "InvestmentDebt and Equity Securities" and the related guidance issued by the FASB and SEC in order to determine the classification of the impairment as "temporary" or
"other-than-temporary." A temporary impairment charge results in an unrealized loss being recorded in the accumulated other comprehensive income (loss) component of
stockholder's equity. An other-than-temporary impairment charge is recorded as a realized loss in the Consolidated Statements of Operations and reduces net income or increases
net loss for the applicable accounting period. The differentiating factors between temporary and other-than-temporary impairment are primarily the length of time and the extent
to which the market value has been less than cost, the financial condition and near-term prospects of the issuer, and the ability and intent of the holder to hold the investment until
maturity or its value recovers. Prior to March 24, 2010, the Company had not intended to sell, nor was it not more-likely-than-not that the Company would be
required to sell before the recovery of its amortized cost basis and, as such, the loss
was considered temporary. On March 24, 2010, as indicated above, the Company changed its intent to hold the ARS and, therefore, the impairment was reclassified to an
other-than-temporary loss.
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In
April 2010, the Company completed a sale of the entire portfolio of ARS for $109.8 million (par value of $129.4 million) to a broker in a secondary market. As a result
of the sale, an other-than-temporary loss of $19.6 million was recorded in "Impairment of Auction Rate Securities" within the Consolidated Statements of Operations for
the year ended December 31, 2010. Transaction costs of approximately $1.0 million associated with this transaction were recorded in "Other income (expense), net" within the Consolidated
Statements of Operations for the year ended December 31, 2010.
7. Fair Value Measurements
As of December 31, 2012 and 2011, all of the Company's cash balances were held in unrestricted demand deposit accounts. The Company had no cash equivalents
at either of those dates. Accordingly, no adjustments to fair value were necessary.
Certain
assets and liabilities are measured at fair value on a nonrecurring basis. That is, the assets and liabilities are not measured at fair value on an ongoing basis, but are subject
to fair value adjustments in certain circumstances (e.g. when there is evidence of impairment). At December 31, 2012 and 2011, the Company had no significant nonfinancial assets or
liabilities that had been adjusted to fair value subsequent to initial recognition.
8. Revolving Line of Credit
The Company is party to a revolving line of credit agreement with a major financial institution, providing for borrowings of up to $20.0 million, available
until August 31, 2013. At December 31, 2012 and 2011, the Company had no borrowings outstanding under the revolving line of credit. The revolving line of credit requires interest
payments based on the BBA LIBOR Rate plus 2.5%. There is an unused commitment fee of 0.2% on any unused portion of the line of credit, payable quarterly.
Additionally, there is a 0.5% annual fee payable if the Company's average aggregate monthly deposit and investment balances with the financial institution fall below $35.0 million. Among
financial and other covenants, the revolving line of credit agreement provides that the Company must: maintain tangible net worth of $50.0 million; maintain minimum unrestricted, unencumbered
marketable securities, cash and cash equivalents (of the lesser of $20.0 million or 125% of the outstanding principal balance of the line of credit; and maintain adjusted EBITDA of
$17.0 million on a twelve-month rolling basis. The revolving line of credit is collateralized by the Company's cash deposits, accounts receivable, investments, property and equipment and
general intangibles it now or subsequently owns. In addition, the Company has pledged the capital stock of its current and future subsidiaries as further collateral for the revolving line of credit.
The
Company was in compliance with these covenants as of December 31, 2012.
9. Property and Equipment
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Computer software and equipment
|
|
$
|
66,068
|
|
$
|
63,356
|
|
Furniture, fixtures and office equipment
|
|
|
2,658
|
|
|
2,602
|
|
Leasehold improvements
|
|
|
10,820
|
|
|
9,402
|
|
Construction in progress
|
|
|
1,385
|
|
|
1,516
|
|
|
|
|
|
|
|
Total
|
|
|
80,931
|
|
|
76,876
|
|
Less: accumulated depreciation and amortization
|
|
|
(58,956
|
)
|
|
(56,389
|
)
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
21,975
|
|
$
|
20,487
|
|
|
|
|
|
|
|
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Depreciation expense was $9.6 million, $9.4 million and $10.1 million for the years ended December 31, 2012, 2011 and 2010,
respectively. The amounts include amortization of capitalized development costs of $1.6 million, $1.8 million and $2.3 million for the years ended December 31, 2012, 2011
and 2010, respectively. At December 31, 2012 and 2011, there were no assets purchased under capital leases.
10. Goodwill and Other Intangible Assets
Goodwill increased $14.1 million to $38.6 million as of December 31, 2012, from $24.5 million as of December 31, 2011, due to
the Company's 2012 acquisitions discussed in Note 3 "Acquisitions." The Company had no accumulated impairment losses as of December 31, 2012 and 2011. The Company also had both
indefinite- and definite-lived intangible assets at those dates. Indefinite-lived intangible assets consist of trade name and trademarks used to market products for the foreseeable future and do not
have any known useful life limitations due to legal, contractual, regulatory, economic or other factors. Definite-lived intangible assets consist of certain trade names, trademarks, brand names,
content
syndication agreements, purchased technology, customer contracts and related customer relationships, noncontractual customer relationships, and other miscellaneous agreements. The definitive-lived
intangible assets are amortized over the expected period of benefit. There are no expected residual values related to these intangible assets.
Intangible
assets and weighted-average amortization periods by category are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
Weighted
Average
Amortization
Period
|
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Trade names, trademarks, brand names, and domain names
|
|
|
5.2
|
|
$
|
530
|
|
$
|
521
|
|
$
|
530
|
|
$
|
520
|
|
Content syndication agreements
|
|
|
5.0
|
|
|
3,800
|
|
|
1,731
|
|
|
3,800
|
|
|
971
|
|
Purchased technology
|
|
|
5.9
|
|
|
8,600
|
|
|
1,983
|
|
|
1,900
|
|
|
1,250
|
|
Customer relationships
|
|
|
7.7
|
|
|
8,630
|
|
|
835
|
|
|
1,230
|
|
|
314
|
|
Other
|
|
|
9.7
|
|
|
3,403
|
|
|
2,079
|
|
|
3,028
|
|
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total definite-lived intangible assets
|
|
|
|
|
|
24,963
|
|
|
7,149
|
|
|
10,488
|
|
|
5,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks
|
|
|
|
|
|
6,630
|
|
|
|
|
|
2,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite-lived intangible assets
|
|
|
|
|
|
6,630
|
|
|
|
|
|
2,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
$
|
31,593
|
|
$
|
7,149
|
|
$
|
13,018
|
|
$
|
5,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense for intangible assets for the years ended December 31, 2012, 2011 and 2010 was $2.3 million, $1.5 million and $0.7 million, respectively.
Amortization expense for the next five years is estimated to be as follows (in thousands):
|
|
|
|
|
Year Ended December 31,
|
|
Amount
|
|
2013
|
|
$
|
3,897
|
|
2014
|
|
|
3,685
|
|
2015
|
|
|
2,949
|
|
2016
|
|
|
2,035
|
|
2017
|
|
|
2,033
|
|
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11. Other Current Assets
Other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Prepaid commissions
|
|
$
|
4,220
|
|
$
|
4,523
|
|
Other
|
|
|
2,995
|
|
|
2,563
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,215
|
|
$
|
7,086
|
|
|
|
|
|
|
|
12. Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Accrued payroll and related benefits
|
|
$
|
11,545
|
|
$
|
8,797
|
|
Other
|
|
|
8,967
|
|
|
5,985
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,512
|
|
$
|
14,782
|
|
|
|
|
|
|
|
13. Related-party Transactions
The Company makes payments to the NAR required under its operating agreement with the NAR and under certain other advertising agreements. Total amounts paid under
these agreements were $2.0 million, $2.0 million and $1.9 million for the years ended December 31, 2012, 2011 and 2010, respectively. The Company also provided product
development services to the NAR and recognized $0.8 million in revenues for the year ended December 31, 2011. The Company did not provide similar product development services in 2012 or
2010. As of December 31, 2012, the Company had a balance due to the NAR of $0.4 million, which is included in "Accrued liabilities" within the Consolidated Balance Sheets. As of
December 31, 2011, the Company had a balance due to the NAR of $0.5 million, which is included in "Accounts payable" within the Consolidated Balance Sheets. Additionally, future
commitments to the NAR are included within the summary of other commitments in Note 22, "Commitments and Contingencies."
14. Stock Plans
In June 2011, the Board of Directors adopted, and the stockholders approved, the Move Inc. 2011 Incentive Plan (the "2011 Plan"). The 2011 Plan reserved
5.2 million shares of common stock for future grants. The 2011 Plan contains a provision for an automatic increase in the number of shares available for grant, not to exceed 2.5 million,
based on the number of shares underlying awards outstanding as of
February 28, 2011, under prior plans that thereafter terminate or expire unexercised, or are cancelled, forfeited or lapse for any reason. We renounced the granting of further awards under all
previous stock plans as part of our proposal of the 2011 Plan for stockholder approval, which 2011 Plan was approved by our stockholders at our Annual Meeting on June 15, 2011. As of
December 31, 2012, shares available to grant pursuant to the 2011 Plan were increased by the maximum 2.5 million allowed in accordance with its terms. As of December 31, 2012,
common stock available for future issuance under the 2011 Plan was 3.2 million shares.
63
Table of Contents
Prior
to the adoption of the 2011 Plan, the Company's Board of Directors adopted various equity incentive plans (some of which were approved by the Company's stockholders), and in
addition the Company assumed certain equity incentive plans in connection with various acquisitions (collectively, the "Predecessor Plans"). These Predecessor Plans provided for the issuance of either
nonstatutory or both nonstatutory and incentive stock options in addition to other equity instruments to employees, officers, directors and consultants of the Company. These Predecessor Plans were
superseded by the adoption of the 2011 Plan in June 2011. Consequently, there were no shares available for future issuance under these Predecessor Plans as of December 31, 2012 and 2011.
Options outstanding pursuant to these plans were 5,141,695 and 8,122,198 as of December 31, 2012 and 2011, respectively, and the weighted-average exercise prices of those outstanding options
were $10.90 and $10.44, respectively.
Stock-Based Compensation and Charges
The Company recognizes stock-based compensation and charges in accordance with ASC 718 "CompensationStock Compensation."
Compensation costs are recognized using a straight-line amortization method over the vesting period.
The
following chart summarizes the stock-based compensation and charges, associated with stock option, restricted stock and restricted stock unit grants to employees and nonemployees,
that have been included in the following financial statement captions for each of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Cost of revenue
|
|
$
|
268
|
|
$
|
221
|
|
$
|
175
|
|
Sales and marketing
|
|
|
1,962
|
|
|
1,351
|
|
|
1,598
|
|
Product and web site development
|
|
|
1,938
|
|
|
1,176
|
|
|
1,616
|
|
General and administrative
|
|
|
4,104
|
|
|
3,159
|
|
|
3,901
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation and charges
|
|
$
|
8,272
|
|
$
|
5,907
|
|
$
|
7,290
|
|
|
|
|
|
|
|
|
|
Stock Option Awards
The fair value of stock option awards was estimated on the date of grant using a Black-Scholes option valuation model that used the
ranges of assumptions in the following table. The risk-free interest rates are based upon U.S. Treasury zero-coupon bonds for the periods during which the options were granted.
The expected term of stock options granted represents the weighted-average period that the stock options are expected to remain outstanding. The Company has not declared and does not expect to declare
dividends on its common stock; accordingly, the dividend yield for valuation purposes is assumed to be zero. The Company bases its computation of expected volatility upon a combination of historical
and market-based implied volatility.
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2012
|
|
2011
|
|
2010
|
Risk-free interest rates
|
|
0.59%1.04%
|
|
0.83%2.30%
|
|
1.13%2.43%
|
Expected term (in years)
|
|
5.85
|
|
5.85
|
|
5.85
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected volatility
|
|
75%
|
|
75%80%
|
|
80%85%
|
The
Company periodically evaluates its forfeiture rates and updates the rates it uses in the determination of its stock-based compensation expense. There were no changes to the
forfeiture rates for the years ended December 31, 2012, 2011 and 2010.
64
Table of Contents
The
following table is a summary of stock option activity as of December 31, 2012 and for the year then ended, including grants to nonemployees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(in thousands)
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual Term
(Years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding at December 31, 2011
|
|
|
8,831
|
|
$
|
10.21
|
|
|
|
|
|
|
|
Granted
|
|
|
1,235
|
|
|
8.07
|
|
|
|
|
|
|
|
Exercised
|
|
|
(498
|
)
|
|
6.24
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(2,568
|
)
|
|
10.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
7,000
|
|
$
|
10.10
|
|
|
5.1
|
|
$
|
4,130
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2012
|
|
|
5,218
|
|
$
|
10.82
|
|
|
3.8
|
|
$
|
3,608
|
|
|
|
|
|
|
|
|
|
|
|
A
summary of stock options outstanding and exercisable at December 31, 2012, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Prices
|
|
Number of
Shares
(in thousands)
|
|
Weighted-
Average
Exercise Price
|
|
Number of
Shares
(in thousands)
|
|
Weighted-
Average
Exercise Price
|
|
$2.24 to $6.08
|
|
|
1,508
|
|
$
|
5.25
|
|
|
1,419
|
|
$
|
5.22
|
|
$6.16 to $8.04
|
|
|
1,478
|
|
|
7.30
|
|
|
589
|
|
|
7.31
|
|
$8.20 to $8.93
|
|
|
1,467
|
|
|
8.67
|
|
|
1,012
|
|
|
8.63
|
|
$8.95 to $16.84
|
|
|
1,850
|
|
|
13.60
|
|
|
1,501
|
|
|
14.61
|
|
$17.28 to $25.52
|
|
|
697
|
|
|
20.19
|
|
|
697
|
|
|
20.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
$
|
10.10
|
|
|
5,218
|
|
$
|
10.82
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted-average grant date fair value of stock options granted during the years ended December 31, 2012, 2011 and 2010 was $5.20, $5.34 and $5.08, respectively. The total
intrinsic value of stock options exercised during the years ended December 31, 2012, 2011 and 2010 was $0.8 million, $0.4 million and $1.1 million, respectively. The
intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the stock option.
As
of December 31, 2012, there was $8.0 million of unrecognized compensation cost related to nonvested stock option awards granted under the Company's plans. Substantially
all of that cost is expected to be recognized over a weighted-average period of 2.5 years.
65
Table of Contents
Restricted Stock Awards
The Company grants restricted stock awards to the nonemployee members of its Board of Directors as remuneration for serving on its
Board (except for any director who is entitled to a seat on the Board of Directors on a contractual basis or has waived remuneration as a director). During the year ended December 31, 2012, the
Company granted 73,391 shares of restricted stock to the nonemployee members of its Board of Directors, which vest over three years. During the year ended December 31, 2011, the Company granted
7,500 shares of common stock to the Chairman of the Board of Directors which vested immediately. Additionally, during the years ended December 31, 2011 and 2010, the Company issued 32,729 and
34,775 shares of restricted stock, respectively, to its nonemployee members of its Board of Directors (except any director who is entitled to a seat on the Board of Directors on a contractual basis or
has waived such remuneration). These shares, subject to certain terms and restrictions, will cliff vest on the third anniversary of their issuance. The aggregate grant date fair value associated with
the issuance of these shares was approximately $0.6 million, $0.3 million and $0.3 million for the years ended December 31, 2012, 2011 and 2010,
respectively, and is being recognized as stock-based charges over their respective vesting periods. During the year ended December 31, 2010, a member of the Board of Directors resigned and
forfeited 16,597 shares of unvested restricted stock. Total cost recognized for restricted stock awards issued to the nonemployee members of its Board of Directors was approximately
$0.3 million, $0.3 million and $0.4 million for the years ended December 31, 2012, 2011 and 2010, respectively.
The
Company also grants restricted stock awards to certain executives and key employees. Generally, these shares, subject to certain terms and restrictions, vest in equal annual
installments over the four-year period following the grant date. During the year ended December 31, 2012, the Company granted 100,000 shares of restricted stock with an aggregate
grant date fair value of $0.7 million that is being amortized over the vesting period. During the year ended December 31, 2011, the Company granted 438,350 shares with an aggregate grant
date fair value of $3.3 million, which is being amortized over the respective vesting periods. The Company did not grant any restricted stock awards to employees during the year ended
December 31, 2010. Costs recognized during the years ended December 31, 2012, 2011 and 2010, associated with these restricted stock awards, totaled $1.0 million,
$0.3 million and $1.0 million, respectively.
A
summary of the Company's nonvested restricted stock award activity for the year ended December 31, 2012, is as follows:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(in thousands)
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Nonvested restricted stock awards at December 31, 2011
|
|
|
481
|
|
$
|
7.74
|
|
Granted
|
|
|
173
|
|
|
7.42
|
|
Vested
|
|
|
(147
|
)
|
|
7.81
|
|
Forfeited
|
|
|
(2
|
)
|
|
5.80
|
|
|
|
|
|
|
|
Nonvested restricted stock awards at December 31, 2012
|
|
|
505
|
|
$
|
7.62
|
|
|
|
|
|
|
|
The
aggregate fair value of restricted stock awards vested during the years ended December 31, 2012, 2011 and 2010, was $1.3 million, $1.9 million and
$1.4 million, respectively. As of December 31, 2012, there was $2.7 million of unrecognized compensation cost related to nonvested restricted stock awards granted under the
Company's plans. Substantially all of that cost is expected to be recognized over a weighted-average period of 2.5 years.
66
Table of Contents
Time-Vested Restricted Stock Units
The Company also grants time-vested restricted stock units. Generally, these restricted stock units, subject to certain
terms and restrictions, vest in equal annual installments over the four-year period following the grant dates, resulting in the issuance, on a one-for-one basis, of
shares of our common stock after the vesting date. During the year ended December 31, 2012, the Company granted 941,365 restricted stock units with a grant date fair value of
$7.9 million, which is being amortized over the four-year vesting period. In addition, there were 273,420 restricted stock units with a grant date fair value of $2.2 million
provided to members of Tiger Lead Solution's senior management pursuant to employment agreements as described in Note 3, "Acquisitions," which will be amortized over a one-year
vesting period. As of December 31, 2012, there were 1,092,170 nonvested restricted stock units outstanding with an aggregate grant date fair value of $9.0 million. The total cost
recognized for time-vested restricted stock units was $1.7 million for the year ended December 31, 2012.
A
summary of the Company's nonvested time-vested restricted stock unit activity for the year ended December 31, 2012, is as follows:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(in thousands)
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Nonvested restricted stock units at December 31, 2011
|
|
|
2
|
|
$
|
5.80
|
|
Granted
|
|
|
1,215
|
|
|
8.25
|
|
Vested
|
|
|
(1
|
)
|
|
5.80
|
|
Forfeited
|
|
|
(124
|
)
|
|
7.81
|
|
|
|
|
|
|
|
Nonvested restricted stock units at December 31, 2012
|
|
|
1,092
|
|
$
|
8.27
|
|
|
|
|
|
|
|
As
of December 31, 2012, there was $5.7 million of unrecognized compensation cost related to nonvested restricted stock units granted under the Company's plans.
Substantially all of that cost is expected to be recognized over a weighted-average period of 2.7 years.
Performance-Based Restricted Stock Units
The Company granted performance-based restricted stock units to executive and key employees in 2010 and 2009. These awards could have
been earned on the attainment of certain performance goals defined by the Management Development and Compensation Committee of the Board of Directors (the "Compensation Committee") relating to the
Company's EBITDA for a specified fiscal year. The Board of Directors did not award any new performance-based restricted stock awards during the years ended December 31, 2012 and 2011. The
Company recognized $0.7 million and $0.2 million in stock-based compensation costs related to performance-based restricted stock units during the years ended December 31, 2011 and
2010, respectively. There was no stock-based compensation associated with performance-based restricted stock units recognized during the year ended December 31, 2012.
The
aggregate fair value of performance-based restricted stock units that vested during the years ended December 31, 2011 and 2010 was $0.7 million and $0.2 million,
respectively. There were no performance-based restricted stock units outstanding at December 31, 2012 or 2011.
67
Table of Contents
15. Series B Preferred Stock
On November 6, 2005, the Company entered into a Preferred Stock Purchase Agreement ("Agreement") with Elevation Partners, L.P. and such affiliates
as Elevation Partners, L.P. designated ("Elevation") to sell to Elevation 100,000 shares of its Series B Preferred Stock for an aggregate purchase price of $100 million. The
transaction was exempt from the registration requirements of the Securities Act of 1933, as amended. The transaction closed on November 29, 2005. The net proceeds of $94.1 million from
the issuance of the Series B Preferred Stock are net of issuance costs of $5.9 million, and were classified as mezzanine equity due to certain change of control provisions which provide
for redemption outside the control of the Company. The Company determined that due to those change of control provisions, the Series B Preferred Stock should be recorded on the Company's
financial statements as though it consisted of two components: (i) convertible preferred stock (the "Host Contract") with a 3.5% annual dividend, and (ii) an embedded derivative (the
"Embedded Derivative") which reflected the right of the holders of the Series B Preferred Stock to receive additional guaranteed dividends in the event of a change of control. The
Series B Preferred Stock reported on the Company's consolidated balance sheet consists only of the value of the Host Contract (less issuance costs) plus the amount of accretion for issuance
costs and accrued dividends. Such discount and issuance costs are being accreted over the life
of the Series B Preferred Stock with such accretion being recorded as an increase to accumulated deficit. During each of the three years ended December 31, 2012, the Company recorded
accretion of the discount and issuance costs of approximately $0.5 million, $2.0 million and $1.3 million, respectively. Due to the expiration of the change of control provisions
as of November 30, 2010, there was no fair value associated with the Embedded Derivative as of December 31, 2011.
The
Series B Preferred Stock had an original aggregate liquidation preference of $100 million plus all accrued and unpaid dividends. The Series B Preferred Stock was
convertible into the Company's common stock at a conversion price of $16.80 per share, subject to certain adjustments upon certain events. In February 2011, the Company reached an agreement with
Elevation to redeem 70,000 shares of the Company's Series B Preferred Stock, at a total redemption price of $70.4 million, including approximately $0.4 million in associated cash
dividends accrued through the date immediately prior to the redemption. As a result of the redemption, the Company accelerated a proportionate share of the unamortized discount resulting in an
additional charge of $1.4 million for the year ended December 31, 2011. Immediately after the completion of the redemption, Elevation continued to be the sole holder of the Company's
outstanding Series B Preferred Stock and held approximately 49,044 shares of such stock as of December 31, 2011, which stock was held under the same terms as applied to the original
purchase of Series B Preferred Stock.
The
Series B Preferred Stock paid a quarterly dividend of 3.5% per annum of the original price per share, which was payable in additional Series B Preferred Stock until
November 29, 2010, after which such dividends were paid only in cash. As of December 31, 2011, the Company recorded a liability for dividends payable in cash of $0.4 million which
is included in "Accrued expenses" within the Consolidated Balance Sheets.
68
Table of Contents
In
March 2012, the Company elected to redeem all of the outstanding shares of the Company's Series B Preferred Stock, approximately 49,044 shares, for a total redemption price of
$49.5 million, including approximately $0.5 million in associated cash dividends accrued through the date immediately prior to the redemption. In March 2012, the Company and Elevation
agreed on certain timing and procedural matters to facilitate the redemption. As a result of the agreed-upon redemption, the Company recognized the remaining unamortized issuance costs
associated with the Series B Preferred Stock of $0.4 million, which is included in "Convertible preferred stock dividend and related accretion" within the Consolidated Statements of
Operations for the year ended December 31, 2012. The redemption was effective, and the redemption price was paid to Elevation on April 6, 2012. As a result of the redemption, Elevation
was no longer entitled to representation on the Company's Board of Directors. Accordingly, Fred D. Anderson resigned as a director of the Company effective April 6, 2012. Additionally, Roger B.
McNamee, a Managing Partner of Elevation, did not stand for re-election to the Board at the 2012 Annual Meeting of Stockholders held on June 13, 2012, and ceased to be a director of
the Company on that date.
A
summary of activity related to the Series B Preferred Stock is as follows (in thousands):
|
|
|
|
|
Net convertible preferred stock at December 31, 2009
|
|
$
|
111,541
|
|
Accretion of discount
|
|
|
1,294
|
|
Dividends
|
|
|
3,729
|
|
|
|
|
|
Net convertible preferred stock at December 31, 2010
|
|
|
116,564
|
|
Accretion of discount
|
|
|
1,991
|
|
Partial redemption of convertible preferred stock
|
|
|
(70,000
|
)
|
|
|
|
|
Net convertible preferred stock at December 31, 2011
|
|
|
48,555
|
|
Accretion of discount
|
|
|
489
|
|
Final redemption of convertible preferred stock
|
|
|
(49,044
|
)
|
|
|
|
|
Net convertible preferred stock at December 31, 2012
|
|
$
|
|
|
|
|
|
|
16. Capitalization
Reverse Stock Split
At the close of business on November 18, 2011, the Company effected a 1-for-4 reverse split of its
common stock, which was previously authorized by its stockholders. All common stock share and per share information has been retroactively adjusted to reflect the reverse stock split for all periods
presented, except for par value, which was not affected by the reverse stock split.
Series A Preferred Stock
As of December 31, 2004, the Company had authorized the issuance of one share of Series A Preferred Stock. As of
December 31, 2012 and 2011, one share of Series A Preferred Stock was issued and outstanding and held by the NAR. The holder of Series A Preferred Stock has the following rights:
Voting
Except
as provided in this paragraph, the Series A preferred stockholder is not entitled to notice of any stockholders' meetings
and shall not be entitled to vote on any matters with respect to any question upon which holders of common stock or preferred stock have the right to vote, except as may be required by law (and, in
any such case, the Series A Preferred Stock shall have one vote per share and shall vote together with the common stock as a single class). The holder of Series A Preferred Stock is
entitled to elect one director of the Company. If there is any vacancy in the office of a director elected by the holder of the Series A Preferred Stock, then a director to hold office for the
unexpired term of such directorship may be elected by the vote or written consent of the holder of the Series A Preferred Stock. The provisions dealing with preferred stockholders' rights
included in the Certificate of Incorporation may not be amended without the approval of the holder of the Series A Preferred Stock.
69
Table of Contents
Dividends
In
each calendar year, the holder of the Series A Preferred Stock is entitled to receive, when, as and if declared by the Board,
noncumulative dividends in an amount equal to $0.08 per share (as appropriately adjusted for stock splits, stock dividends, recapitalizations and the like), prior and in preference to the payment of
any dividend on the common stock in such calendar year. If, after dividends in the full preferential amounts specified in this section for the Series A Preferred Stock have been paid or
declared and set apart in any calendar year of the Company, the holder of Series A Preferred Stock shall have no further rights to receive any further dividends that the Board may declare or
pay in that calendar year.
Liquidation
In
the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the Series A
Preferred Stockholder is entitled to receive, prior and in preference to any payment or distribution on any shares of common stock, an amount per share equal to $1.00 per share of Series A
Preferred Stock. After payment of such amount, any further amounts available for distribution shall be distributed among the holders of common stock and the holders of preferred stock other than
Series A Preferred Stock, if any, entitled to receive such distributions.
Redemption
Redemption
could occur upon the earlier of (i) termination of that certain operating agreement dated November 26, 1996,
as the same may be amended from time to time (the "operating agreement"), or (ii) the NAR ceases to own at least 37,445 shares of common stock of the Company, or (iii) the existence and
continuance of a material breach by the NAR of that certain Joint Ownership Agreement, dated as of November 26, 1996, between the NAR, and subsidiaries of the Company, or the Trademark License
dated as of November 26, 1996, by and between the NAR and the Company, at any time thereafter the Company may, at the option of the Board, redeem the Series A Preferred Stock. The
redemption price for each share of Series A Preferred Stock shall be $1.00 per share.
Conversion
Each
share of Series A Preferred Stock shall automatically be converted into one share of common stock upon any sale, transfer,
pledge, or other disposition of the share of Series A Preferred Stock to any person or entity other than the initial holder of such share of Series A Preferred Stock, or any successor by
operation of law that functions as a non-profit trade association for REALTORS® under Section 501(c)(6) of Internal Revenue Code of 1986, as amended, that owns the
REALTOR® trademark, or any wholly-owned affiliate of such holder as long as the holder continues to own such affiliate.
17. Common Stock Repurchases
In February 2011, the Company's Board of Directors authorized a stock repurchase program. The program authorized, in one or more transactions taking place during
a two-year period, the repurchase of the Company's outstanding common stock utilizing surplus cash in the amount of up to $25 million. Under the program, the Company was authorized
to repurchase shares of common stock in the open market or in privately negotiated transactions. The timing and amount of any repurchase transaction under this program were dependant upon market
conditions, corporate considerations, and regulatory requirements. Shares repurchased under the program were retired to constitute authorized but unissued shares of the Company's common stock. The
Company repurchased 9,958 shares of its outstanding common stock in the open market for approximately $0.1 million during the year ended December 31, 2012. From the inception of the
program in February 2011 through December 31, 2012, the Company repurchased 1,493,127 shares of its common stock for an aggregate purchase price of $9.7 million. This authorization
expired on February 10, 2013.
70
Table of Contents
18. Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted net income (loss) per share applicable to common stockholders for the periods indicated (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,625
|
|
$
|
7,260
|
|
$
|
(15,472
|
)
|
Convertible preferred stock dividend and related accretion
|
|
|
(942
|
)
|
|
(4,069
|
)
|
|
(5,383
|
)
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
4,683
|
|
$
|
3,191
|
|
$
|
(20,855
|
)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
38,705
|
|
|
39,114
|
|
|
38,880
|
|
Dilutive effect of options, warrants and restricted stock
|
|
|
1,016
|
|
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted weighted average shares outstanding
|
|
|
39,721
|
|
|
39,928
|
|
|
38,880
|
|
|
|
|
|
|
|
|
|
Basic income (loss) applicable to common stockholders
|
|
$
|
0.12
|
|
$
|
0.08
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
Diluted income (loss) applicable to common stockholders
|
|
$
|
0.12
|
|
$
|
0.08
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
Because
their effects would be antidilutive, the denominator in the above computation of diluted income per share excludes "out-of-the-money" stock
options of 3,949,581 for the year ended December 31, 2012. The denominator in the above calculation of diluted income per share excludes convertible preferred stock and
"out-of-the-money" stock options totaling 7,795,006 for the year ended December 31, 2011. For the year ended December 31, 2010, the denominator in the
above calculation of diluted loss per share excludes convertible preferred stock, stock options, restricted stock units and nonvested restricted stock awards totaling 15,874,090, as their effect would
be antidilutive as a result of the Company's net loss applicable to common stockholders.
19. Supplemental Cash Flow Information
During the year ended December 31, 2011:
-
-
The Company declared and accrued $0.4 million in cash dividends on its Series B Preferred Stock as of
December 31, 2011.
During
the year ended December 31, 2010:
-
-
The Company received a trade-in allowance on the purchase of property and equipment of $0.2 million.
-
-
The Company issued $3.7 million in additional Series B Preferred Stock as in-kind dividends and
declared and accrued $0.4 million in cash dividends.
20. Defined Contribution Plan
The Company has a savings plan ("Savings Plan") that qualifies as a defined contribution plan under Section 401(k) of the Internal Revenue Code. Under the
Savings Plan, participating employees may defer a percentage (not to exceed 75%) of their eligible pretax earnings up to the Internal Revenue Service's annual contribution limit. All
full-time employees are eligible to participate in the Savings Plan. The Company pays all of the administrative expenses of the Savings Plan and may make matching contributions to the
Savings Plan. The Company made matching contributions of approximately $1.4 million, $1.2 million and $1.1 million during the years ended December 31, 2012, 2011 and 2010,
respectively.
71
Table of Contents
21. Income Taxes
The Company is subject to income taxes in the U.S. and Canada. However, due to historical operating losses and the related net operating loss carryforwards
generated for tax purposes, the Company does not record a current federal tax provision. However, the Company has recorded a deferred tax provision due to certain indefinite-lived intangible assets
being amortized for tax purposes but not for book purposes. Additionally, a state tax provision was also recorded for various state jurisdictions. Significant components of the provision for income
taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
|
|
$
|
|
|
State
|
|
|
118
|
|
|
114
|
|
|
67
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
$
|
118
|
|
$
|
114
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
248
|
|
$
|
137
|
|
$
|
(98
|
)
|
State
|
|
|
31
|
|
|
22
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
Total deferred provision
|
|
$
|
279
|
|
$
|
159
|
|
$
|
(220
|
)
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
397
|
|
$
|
273
|
|
$
|
(153
|
)
|
|
|
|
|
|
|
|
|
A
summary of the components of the deferred tax assets and liabilities and related valuation allowance follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
267,398
|
|
$
|
278,031
|
|
Other
|
|
|
44,729
|
|
|
44,364
|
|
|
|
|
|
|
|
|
|
|
312,127
|
|
|
322,395
|
|
Valuation allowance
|
|
|
(312,127
|
)
|
|
(322,395
|
)
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Amortization of acquired intangible assets
|
|
$
|
(1,333
|
)
|
$
|
(1,054
|
)
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(1,333
|
)
|
$
|
(1,054
|
)
|
|
|
|
|
|
|
Based
on management's assessment, the Company has placed a valuation reserve against its otherwise recognizable deferred tax assets due to the likelihood that the Company may not
generate sufficient taxable income during the carryforward period to utilize the NOLs. Management regularly reviews the Company's net deferred tax valuation allowance to determine if available
evidence continues to support the Company's position that it is more-likely-than-not
(likelihood of more than 50%) that a portion of or the entire deferred tax asset will not be realized in the future. As of December 31, 2012, due to the Company's recent history of losses,
management could not conclude that it is more-likely-than-not that the deferred tax assets will be realized. As a result, the Company will continue to maintain a
full valuation allowance against its deferred tax assets. The Company will continue to assess its position in future periods to determine if it is appropriate to reduce a portion of its valuation
allowance in the future.
72
Table of Contents
The valuation allowance for net deferred taxes decreased by $10.3 million primarily as a result of adjusting NOLs associated with employee stock option
exercises, the utilization of net operating losses due to income generated for the current year and a reduction of the deferred tax assets due to expiration of stock options and net operating loss
carryovers. The deferred tax liability is included in "Other noncurrent liabilities" within the Consolidated Balance Sheets.
The
Company recognizes excess tax benefits associated with the exercise of stock options directly to stockholders' equity only when realized. Accordingly, deferred tax assets are not
recognized for NOLs resulting from excess tax benefits. As of December 31, 2012, deferred tax assets do not include $55.0 million of these excess tax benefits from employee stock option
exercises that are a component of the Company's NOLs. Additional paid in capital will be increased up to an additional $55.0 million, if and when, such excess tax benefits are realized.
The
following table reconciles the federal income tax statutory rate to the Company's effective income tax rate (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
2012
|
|
|
|
|
|
Tax Rate
|
|
|
|
Tax Rate
|
|
|
|
Amount
|
|
Tax Rate
|
|
Amount
|
|
Amount
|
|
Statutory rate applied to income before income taxes
|
|
$
|
2,049
|
|
|
34
|
%
|
$
|
2,561
|
|
|
34
|
%
|
$
|
(5,313
|
)
|
|
34
|
%
|
State taxes, net of federal tax benefit
|
|
|
290
|
|
|
5
|
|
|
560
|
|
|
7
|
|
|
(1,025
|
)
|
|
7
|
|
Permanent items
|
|
|
2,806
|
|
|
47
|
|
|
(4,714
|
)
|
|
(62
|
)
|
|
(2,724
|
)
|
|
17
|
|
Stock compensation
|
|
|
3,463
|
|
|
58
|
|
|
458
|
|
|
6
|
|
|
1,454
|
|
|
(9
|
)
|
Expired tax attributes
|
|
|
2,058
|
|
|
34
|
|
|
|
|
|
|
|
|
124
|
|
|
(1
|
)
|
Change in state effective tax rate
|
|
|
13
|
|
|
|
|
|
(443
|
)
|
|
(6
|
)
|
|
3,811
|
|
|
(24
|
)
|
Change in valuation allowance
|
|
|
(10,282
|
)
|
|
(171
|
)
|
|
1,851
|
|
|
25
|
|
|
3,520
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax provision (benefit)
|
|
$
|
397
|
|
|
7
|
%
|
$
|
273
|
|
|
4
|
%
|
$
|
(153
|
)
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2012, the Company had gross NOLs for federal and state income tax purposes of approximately $906.9 million and $282.6 million, respectively. The
federal NOLs will begin to expire in 2017. Approximately $35.4 million of the state NOLs expired in 2012 and the state NOLs will continue to expire from 2013 until 2031. Gross NOLs for both
federal and state tax purposes may be subject to an annual limitation under relevant tax laws. Currently, the NOLs have a full valuation allowance
recorded against them. At December 31, 2012, the Company had $35.3 million of capital loss for federal and state income tax purposes, which will begin to expire in 2013. The Company also
had approximately $6.8 million of Canadian tax credit available to offset Canadian tax liabilities. The Canadian tax credit will begin to expire in 2015.
Approximately
$150.0 million of the $906.9 million federal NOLs may belong to members of the Company's group that cannot be consolidated for federal income tax purposes.
Consequently, those NOLs would not be available to the Company to offset taxable income in the future. The NOLs indicated above are subject to a full valuation allowance.
Utilization
of the NOLs may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by
Section 382 of the Internal Revenue Code of 1986, as amended, (the "Code") as well as similar state and foreign limitations. These ownership changes may limit the amount of NOLs that can be
utilized annually to offset future taxable income and tax, respectively. In general, an "ownership change" as defined by Section 382 of the Code, results from a transaction or series of
transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public
groups.
73
Table of Contents
The
Company has completed a significant portion of its study to assess whether an ownership change has occurred that would materially impact the utilization of NOLs. The work performed
to date does not indicate a material limitation of any NOLs. There may also be additional ownership changes in the future, and any future change of its current market capitalization would severely
limit the annual use of these NOLs going forward. Such limitation could also result in expiration of a portion of the NOLs before utilization. Further, until the study is completed and any limitations
known, no amounts are being considered as an uncertain tax position or disclosed as an unrecognized tax benefit. Due to the existence of the valuation allowance, future changes in the Company's
unrecognized tax benefits will not impact its effective tax rate. Any NOLs that expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a
corresponding reduction of the valuation allowance.
As
of December 31, 2012 and 2011, the Company does not have any uncertain tax positions or accrued interest or penalties related to uncertain tax positions. The Company's policy
is to recognize interest and penalties related to uncertain tax positions in its provision for income tax. The Company does not have any interest or penalties related to uncertain tax positions in its
provision for income tax during the years ended December 31, 2012, 2011 and 2010. The tax years 1993-2012 remain open to examination by the major taxing jurisdictions to which the
Company is subject.
22. Commitments and Contingencies
Operating Leases
The Company leases certain facilities and equipment under noncancelable operating leases with various expiration dates through 2019.
The leases generally contain renewal options and payments that may be adjusted for increases in operating expenses. Leasehold improvement incentives are recorded as deferred obligations and amortized
as a reduction in rent expense through the life of the lease. Future minimum lease payments under operating leases as of December 31, 2012, are as follows (in thousands):
|
|
|
|
|
Year Ended December 31,
|
|
Operating
Leases
|
|
2013
|
|
$
|
5,106
|
|
2014
|
|
|
5,229
|
|
2015
|
|
|
4,235
|
|
2016
|
|
|
3,705
|
|
2017 and thereafter
|
|
|
4,669
|
|
|
|
|
|
Total
|
|
$
|
22,944
|
|
|
|
|
|
Rental
expense associated with the Company's operating leases was $4.6 million, $4.5 million and $5.1 million for the years ended December 31, 2012, 2011 and
2010, respectively.
Other Commitments
Under the Company's operating agreement with the NAR, the Company has an exclusive arrangement to operate REALTOR.com®, as
well as a license to use the REALTOR.com® domain name and trademark and the REALTORS® trademark in exchange for minimum annual royalty payments. Commitments for the years
ending 2013 and beyond will be calculated based on amounts paid in the prior year adjusted for the Annual Consumer Price Index for the period ending in the prior calendar year.
The
Company also has a data access agreement with Real Estate Business Services, Inc. ("REBS"), which provides the Company with a perpetual license to use data related to
California real property included in REBS's database on the Company's web sites. In addition, the Company also has various other web services and content agreements providing data for the Company's
web sites.
74
Table of Contents
The
following presents the Company's future minimum commitments under the above agreements (in thousands):
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
$
|
4,113
|
|
2014
|
|
|
2,158
|
|
2015
|
|
|
2,158
|
|
2016
|
|
|
2,158
|
|
2017
|
|
|
2,159
|
|
|
|
|
|
Total
|
|
$
|
12,746
|
|
|
|
|
|
Additionally,
commitments for the purchase of property, plant and equipment and software maintenance were approximately $2.4 million as of December 31, 2012.
Legal Proceedings
On February 28, 2007, in a patent infringement action against a real estate agent, Diane Sarkisian, pending in the U.S. District
Court for the Eastern District of Pennsylvania (the "Sarkisian case"), Real Estate Alliance, Limited ("REAL"), moved to certify two classes of defendants: subscribers and members of the
multiple listing service of which Sarkisian was a member, and customers of the Company who had purchased enhanced listings from the Company. The U.S. District Court in the Sarkisian case denied
REAL's motion to certify the classes on September 24, 2007. On March 25, 2008, the U.S. District Court in the Sarkisian case stayed that case, and denied without prejudice
all pending motions, pending the U.S. District Court of California's determination in the Move California Action (see below) of whether the Company's web sites infringe the REAL patents.
On
April 3, 2007, in response to REAL's attempt to certify our customers as a class of defendants in the Sarkisian case, the Company filed a complaint in the U.S.
District Court for the Central District of California (the "District Court") against REAL and its licensing agent (the "Move California Action") seeking a declaratory judgment that the Company does
not infringe U.S. Patent Nos. 4,870,576 and 5,032,989 (the "REAL patents"), that the REAL patents are invalid and/or unenforceable, and alleging several business torts and unfair competition.
On August 8, 2007, REAL denied the Company's allegations, and asserted counterclaims against the Company for infringement of the REAL patents seeking compensatory damages, punitive damages,
treble damages, costs, expenses, reasonable attorneys' fees and pre- and post-judgment interest. On March 11, 2008, REAL filed a separate suit in the District Court (the
"REAL California Action") alleging infringement of the REAL patents against the NAR and the National Association of Home Builders (the "NAHB") as individual defendants, as well as various brokers
including RE/Max International ("RE/Max"), agents, MLSs, new home builders, rental property owners, and technology companies. The Company is not named as a defendant in the REAL California Action;
however, the Company is defending the NAR, the NAHB and RE/Max. On July 29, 2008, the Move California Action was transferred to the same judge in the REAL California Action and in September
2008, the District Court coordinated both cases and issued an order dividing the issues into two phases. Phase 1 addresses issues of patent validity and enforceability, whether Move web sites
infringe, possible damages, and liability of Move, the NAR and the NAHB. Phase 2 will address REAL's infringement claims related to the web sites owned or operated by the
remaining defendants and whether those defendants infringe the REAL patents by using the Move web sites. The District Court has stayed Phase 2 pending resolution of the issues in
Phase 1.
On
November 25, 2009, the court entered its claim construction order in the Move California Action. On January 27, 2010, upon joint request of the parties, the District
Court entered judgment of non-infringement. In July 2010, REAL appealed the District Court's claim construction with the Federal Circuit Court of Appeals (the "Circuit Court"). On
March 22, 2011, the Circuit Court concluded that the District Court erred in certain of its claim construction and vacated and remanded the case for further proceedings.
75
Table of Contents
On
October 18, 2011, the parties filed a Joint Brief on Summary Judgment Motions, each side putting forth its arguments requesting the District Court to enter summary judgment in
its favor. On January 26, 2012, the District Court entered an order granting the Company's motion for summary judgment of non-infringement of the patent. On March 27, 2012,
REAL appealed the District Court's summary judgment order. On January 7, 2013, the Circuit Court heard the parties' oral arguments but has not issued its opinion. The Company intends to
vigorously defend all claims. At this time, however, the Company is unable to express an opinion on the outcome of these cases.
In
March 2010, Smarter Agent, LLC ("Smarter Agent") filed suit against Move, Inc., against the Company's affiliate, RealSelect, Inc. ("RealSelect"), and also against
other co-defendants Boopsie, Inc., Classified Ventures, LLC, Hotpads, Inc., IDX, Inc., Multifamily Technology Solutions, Inc.,
D/B/A MyNewPlace, Primedia, Inc., Consumer Source, Inc., Trsoft, Inc., D/B/A PlanetRE, Trulia, Inc., Zillow, Inc., and ZipRealty, Inc. in the U.S. District
Court for the District of Delaware. The complaint alleges that the Company and RealSelect, Inc. infringe U.S. Patents 6,385,541; 6,496,776; and 7,072,665 ("Patents in Suit") by offering an
iPhone application for the REALTOR.com® web site and requested an unspecified amount of damages (including enhanced damages for willful infringement and attorneys' fees) and an injunction.
On August 31, 2010, co-defendants Boopsie, Inc., Classified Ventures, LLC, Hotpads, Inc., IDX, Inc., Multifamily Technology Solutions, Inc.,
Primedia, Inc., Consumer Source, Inc., Trsoft, Inc., Trulia, Inc., Zillow, Inc., and ZipRealty, Inc., filed requests for interpartes reexamination of the
Patents in Suit with the U.S. Patent and Trademark Office ("PTO"). On September 30, 2010, the Company filed an answer and counter claims on behalf of Move and RealSelect. On October 22,
2010, SmarterAgent filed its answer to such counter claims. The PTO accepted the Patents in Suit for re-examination and on December 21, 2010, issued an initial office action
rejecting all claims in the Patents in Suit. On March 2, 2011, all parties agreed to stipulate to stay the lawsuit pending the completion of all re-examination proceedings at the
USPTO and on March 7, 2011, the court so ordered the stay as requested. The Company intends to vigorously defend all claims. At this time, however, the Company is unable to express an opinion
on the outcome of this case.
Contingencies
From time to time, the Company is party to various other litigation and administrative proceedings relating to claims arising from its
operations in the ordinary course of business. As of the date of this Form 10-K and except as set forth herein, the Company is not a party to any other litigation or administrative
proceedings that management believes would have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.
76
Table of Contents
23. Quarterly Financial Data (unaudited)
Provided below is the selected unaudited quarterly financial data for the years ended December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31,
2012
|
|
June 30,
2012
|
|
Sept. 30,
2012
|
|
Dec. 31,
2012
|
|
Mar. 31,
2011
|
|
June 30,
2011
|
|
Sept. 30,
2011
|
|
Dec. 31,
2011
|
|
|
|
(in thousands, except per share amounts)
|
|
Revenue
|
|
$
|
47,741
|
|
$
|
49,309
|
|
$
|
49,446
|
|
$
|
52,737
|
|
$
|
49,075
|
|
$
|
48,915
|
|
$
|
46,466
|
|
$
|
47,268
|
|
Cost of revenue
|
|
|
9,645
|
|
|
9,628
|
|
|
10,236
|
|
|
11,904
|
|
|
10,783
|
|
|
10,461
|
|
|
9,959
|
|
|
9,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
38,096
|
|
|
39,681
|
|
|
39,210
|
|
|
40,833
|
|
|
38,292
|
|
|
38,454
|
|
|
36,507
|
|
|
38,102
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
17,412
|
|
|
18,358
|
|
|
17,235
|
|
|
18,092
|
|
|
18,316
|
|
|
17,927
|
|
|
16,281
|
|
|
16,090
|
|
Product and web site development
|
|
|
8,714
|
|
|
9,477
|
|
|
9,412
|
|
|
9,738
|
|
|
9,463
|
|
|
8,999
|
|
|
8,437
|
|
|
7,833
|
|
General and administrative
|
|
|
10,888
|
|
|
10,162
|
|
|
10,464
|
|
|
10,846
|
|
|
10,064
|
|
|
9,465
|
|
|
10,823
|
|
|
10,115
|
|
Amortization of intangible assets
|
|
|
397
|
|
|
397
|
|
|
500
|
|
|
981
|
|
|
355
|
|
|
356
|
|
|
397
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
685
|
|
|
1,287
|
|
|
1,599
|
|
|
1,176
|
|
|
94
|
|
|
1,707
|
|
|
569
|
|
|
3,667
|
|
Interest income (expense), net
|
|
|
1
|
|
|
|
|
|
(1
|
)
|
|
(6
|
)
|
|
18
|
|
|
17
|
|
|
(2
|
)
|
|
18
|
|
Earnings of unconsolidated joint venture
|
|
|
199
|
|
|
221
|
|
|
290
|
|
|
482
|
|
|
211
|
|
|
140
|
|
|
367
|
|
|
267
|
|
Other income (expense)
|
|
|
(52
|
)
|
|
(17
|
)
|
|
|
|
|
158
|
|
|
429
|
|
|
(52
|
)
|
|
(99
|
)
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
833
|
|
|
1,491
|
|
|
1,888
|
|
|
1,810
|
|
|
752
|
|
|
1,812
|
|
|
835
|
|
|
4,134
|
|
Income tax expense
|
|
|
25
|
|
|
47
|
|
|
103
|
|
|
222
|
|
|
18
|
|
|
74
|
|
|
31
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
808
|
|
|
1,444
|
|
|
1,785
|
|
|
1,588
|
|
|
734
|
|
|
1,738
|
|
|
804
|
|
|
3,984
|
|
Convertible preferred stock dividend and related accretion
|
|
|
(918
|
)
|
|
(24
|
)
|
|
|
|
|
|
|
|
(2,382
|
)
|
|
(562
|
)
|
|
(562
|
)
|
|
(563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
(110
|
)
|
$
|
1,420
|
|
$
|
1,785
|
|
$
|
1,588
|
|
$
|
(1,648
|
)
|
$
|
1,176
|
|
$
|
242
|
|
$
|
3,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share applicable to common stockholders
|
|
$
|
(0.00
|
)
|
$
|
0.04
|
|
$
|
0.05
|
|
$
|
0.04
|
|
$
|
(0.04
|
)
|
$
|
0.03
|
|
$
|
0.01
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share applicable to common stockholders
|
|
$
|
(0.00
|
)
|
$
|
0.04
|
|
$
|
0.04
|
|
$
|
0.04
|
|
$
|
(0.04
|
)
|
$
|
0.03
|
|
$
|
0.01
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
Table of Contents