MOVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Revenue
|
|
$
|
227,033
|
|
$
|
199,233
|
|
$
|
191,724
|
|
Costs and operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
45,868
|
|
|
37,421
|
|
|
36,671
|
|
Sales and marketing
|
|
|
90,012
|
|
|
75,089
|
|
|
72,312
|
|
Product and web site development
|
|
|
38,889
|
|
|
37,341
|
|
|
34,732
|
|
General and administrative
|
|
|
47,282
|
|
|
42,360
|
|
|
40,467
|
|
Amortization of intangible assets
|
|
|
4,421
|
|
|
2,275
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and operating expenses
|
|
|
226,472
|
|
|
194,486
|
|
|
185,687
|
|
Income from operations
|
|
|
561
|
|
|
4,747
|
|
|
6,037
|
|
Interest (expense) income, net
|
|
|
(2,559
|
)
|
|
(6
|
)
|
|
51
|
|
Earnings of unconsolidated joint venture
|
|
|
2,355
|
|
|
1,192
|
|
|
985
|
|
Other income, net
|
|
|
116
|
|
|
89
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
473
|
|
|
6,022
|
|
|
7,533
|
|
Income tax (benefit) expense
|
|
|
(101
|
)
|
|
397
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
574
|
|
|
5,625
|
|
|
7,260
|
|
Convertible preferred stock dividend and related accretion
|
|
|
|
|
|
(942
|
)
|
|
(4,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
574
|
|
$
|
4,683
|
|
$
|
3,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share applicable to common stockholders
|
|
$
|
0.01
|
|
$
|
0.12
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share applicable to common stockholders
|
|
$
|
0.01
|
|
$
|
0.12
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation of income per share applicable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
39,089
|
|
|
38,705
|
|
|
39,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
41,236
|
|
|
39,721
|
|
|
39,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
51
Table of Contents
MOVE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Net income
|
|
$
|
574
|
|
$
|
5,625
|
|
$
|
7,260
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation loss
|
|
|
(81
|
)
|
|
(39
|
)
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
|
|
(81
|
)
|
|
(39
|
)
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
493
|
|
$
|
5,586
|
|
$
|
7,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
52
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, 2011
|
|
|
|
|
$
|
|
|
|
39,626
|
|
$
|
40
|
|
$
|
2,124,673
|
|
$
|
372
|
|
$
|
(2,042,311
|
)
|
$
|
82,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,260
|
|
|
7,260
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114
|
)
|
|
|
|
|
(114
|
)
|
Issuance of common stock under exercise of stock options
|
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
834
|
|
|
|
|
|
|
|
|
834
|
|
Issuance of restricted stock, net of cancellations
|
|
|
|
|
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
(39
|
)
|
Issuance of common stock under exercise of stock options
|
|
|
|
|
|
|
|
|
498
|
|
|
|
|
|
3,108
|
|
|
|
|
|
|
|
|
3,108
|
|
Issuance of restricted stock, net of cancellations
|
|
|
|
|
|
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
574
|
|
|
574
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
|
(81
|
)
|
Issuance of common stock under exercise of stock options
|
|
|
|
|
|
|
|
|
1,402
|
|
|
2
|
|
|
10,084
|
|
|
|
|
|
|
|
|
10,086
|
|
Issuance of restricted stock, net of cancellations
|
|
|
|
|
|
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchases
|
|
|
|
|
|
|
|
|
(1,883
|
)
|
|
(2
|
)
|
|
(26,008
|
)
|
|
|
|
|
|
|
|
(26,010
|
)
|
Equity component of convertible senior notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,137
|
|
|
|
|
|
|
|
|
18,137
|
|
Restricted stock surrendered for employee tax liability
|
|
|
|
|
|
|
|
|
(194
|
)
|
|
|
|
|
(2,574
|
)
|
|
|
|
|
|
|
|
(2,574
|
)
|
Stock-based compensation and charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,688
|
|
|
|
|
|
|
|
|
10,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
|
|
$
|
|
|
|
39,178
|
|
$
|
39
|
|
$
|
2,142,516
|
|
$
|
138
|
|
$
|
(2,033,863
|
)
|
$
|
108,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
53
Table of Contents
MOVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
574
|
|
$
|
5,625
|
|
$
|
7,260
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
10,505
|
|
|
9,551
|
|
|
9,393
|
|
Amortization of intangible assets
|
|
|
4,421
|
|
|
2,275
|
|
|
1,505
|
|
Amortization of debt discount and issuance costs
|
|
|
1,491
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
619
|
|
|
528
|
|
|
190
|
|
Stock-based compensation and charges
|
|
|
10,688
|
|
|
8,272
|
|
|
5,907
|
|
Loss on sales and disposals of assets
|
|
|
|
|
|
61
|
|
|
126
|
|
Earnings of unconsolidated joint venture
|
|
|
(2,355
|
)
|
|
(1,192
|
)
|
|
(985
|
)
|
Return on investment in unconsolidated joint venture
|
|
|
2,102
|
|
|
1,192
|
|
|
1,152
|
|
Other non-cash items
|
|
|
21
|
|
|
(74
|
)
|
|
(88
|
)
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(606
|
)
|
|
(422
|
)
|
|
(2,229
|
)
|
Other assets
|
|
|
(833
|
)
|
|
(328
|
)
|
|
1,292
|
|
Accounts payable and accrued expenses
|
|
|
6,669
|
|
|
5,047
|
|
|
(2,060
|
)
|
Deferred revenue
|
|
|
(614
|
)
|
|
(1,435
|
)
|
|
(3,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
32,682
|
|
|
29,100
|
|
|
17,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(12,586
|
)
|
|
(11,025
|
)
|
|
(8,099
|
)
|
Acquisitions, net of cash acquired
|
|
|
(5,930
|
)
|
|
(31,725
|
)
|
|
(500
|
)
|
Proceeds from dissolution of joint venture
|
|
|
|
|
|
|
|
|
499
|
|
Return of investment in unconsolidated joint venture
|
|
|
582
|
|
|
787
|
|
|
788
|
|
Other investing activities
|
|
|
(250
|
)
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(18,184
|
)
|
|
(41,954
|
)
|
|
(7,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Principal payments on loans payable
|
|
|
(1,019
|
)
|
|
(111
|
)
|
|
(103
|
)
|
Proceeds from issuance of convertible senior notes, net of issuance costs
|
|
|
96,606
|
|
|
|
|
|
|
|
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
|
|
|
10,056
|
|
|
3,108
|
|
|
834
|
|
Tax payment related to net share settlements of equity awards
|
|
|
(2,574
|
)
|
|
(605
|
)
|
|
(312
|
)
|
Repurchases of common stock
|
|
|
(26,010
|
)
|
|
(69
|
)
|
|
(9,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
77,059
|
|
|
(47,603
|
)
|
|
(81,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
91,557
|
|
|
(60,457
|
)
|
|
(70,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
27,122
|
|
|
87,579
|
|
|
158,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
118,679
|
|
$
|
27,122
|
|
$
|
87,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
54
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 include 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® products. Through its
ListHub
TM
products, the Company is also an online real estate listing syndicator and provider of advanced performance reporting solutions to help drive an effective online advertising
program for brokers, real estate franchises, and individual agents.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company's financial statements have been prepared in conformity with accounting principles generally accepted in the U.S.
("U.S. GAAP").
The
Company reclassified certain prior year amounts to conform to its presentation within the Consolidated Statements of Operations for the year ended December 31, 2013.
Specifically, effective October 1, 2013, the Company elected to change the presentation of certain lead acquisition costs and to reclassify these costs from "Cost of revenue" to "Sales and
marketing" within its Consolidated Statements of Operations in order to be more consistent with certain of its peers and to combine all traffic acquisition costs that are not considered directly
related to the fulfillment of products into "Sales and marketing." This had the effect of decreasing "Cost of revenue" and increasing "Sales and marketing" expense by $4.0 million and
$3.7 million, or 2% of revenue, for the years ended December 31, 2012 and 2011, respectively. Based on a review of U.S. GAAP, management has concluded that this reclassification
is not a change in accounting principle nor is it a correction of an error in previously issued financial statements.
In
the fourth quarter of 2013, the Company eliminated the presentation of gross profit in its Consolidated Statements of Operations as it is not an important metric for the Company or
the industry. The Company reports "Cost of revenue" as a separate line item within "Costs and operating expenses" in the Consolidated Statements of Operations.
Principles of Consolidation
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. Investments in private entities
where the Company holds an ownership interest of less than 20% and does not have significant influence over the entity are accounted for on the cost basis of accounting.
55
Table of Contents
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 regularly maintains cash and cash equivalents in excess of federally insured limits at financial institutions. 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 and accounts payable are carried at cost, which approximates their fair value due to the short-term maturity of
these instruments. The cash equivalent balances are measured at fair value on a recurring basis.
Prepaid Commissions
Prepaid commissions represent the incremental costs that are directly associated with subscription contracts with customers and
consist of sales commissions paid to the Company's internal sales force.
The
commissions are deferred and amortized over the terms of the related customer contracts, which are typically 6 to 12 months in duration. The commission payments are paid in
full the month after the customer's contract commences. The prepaid commission amounts are recoverable through the future revenue streams under the customer contracts. The Company believes this is the
preferable method of accounting as the commission charges are so closely related to the revenue from the subscription contracts that they should be recorded as an asset and charged to expense over the
same period that the subscription revenue is recognized. Amortization of prepaid commissions is included in "Sales and marketing" expense within the Consolidated Statements of Operations.
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Table of Contents
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 3 to 5 years for computer software and equipment and 5 years for furniture, fixtures and office
equipment. Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives. Maintenance and repair costs are charged to expense as incurred. Major improvements,
which extend the useful life of the related asset, are capitalized. 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 within the Consolidated Statements of Operations.
Capitalized Development Costs
The Company capitalizes direct costs incurred in the development of software for internal use, generally back office
systems applications, and web site and mobile platform development costs ("capitalized development costs"). The costs incurred in the design and preliminary stages of development are expensed as
incurred. Once a development project has reached the development stage, internal and external costs, if direct and incremental and deemed by management to be significant, are capitalized in property
and equipment and amortized on a straight-line basis over the estimated useful lives. Maintenance and enhancement costs, including those costs in the post-implementation stages, are typically expensed
as incurred, unless such costs relate to substantial upgrades and enhancements to the software, web site or mobile application that results in added functionality, in which case the costs are
capitalized and amortized on a straight-line basis over the estimated useful lives. As the Company is constantly enhancing its products, a significant portion of its product and web site development
costs are expensed as incurred. Capitalized development costs are amortized over useful lives that range from 18 months to 5 years. Amortization of capitalized costs associated with back
office system applications are included in "General and administrative" expense and amortization of capitalized web site and mobile platform development costs are included in "Product and web site
development" expense within the Consolidated Statements of Operations.
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 1 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 as of November 30,
or 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 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.
57
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 (e.g. the consolidated entity) 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. At November 30, 2013, the market capitalization of the consolidated entity was a multiple of 5.6X its carrying value.
The
Company also utilizes a qualitative approach to test indefinite-lived intangible assets for impairment, evaluating these indefinite-lived intangible assets at the lowest level of
separation based upon the revenue stream associated with the intangible asset. 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.
Deferred Revenue
Deferred revenue consists of prepaid but unrecognized subscription revenue, advertising fees received or billed in advance of
delivery or completion of services, and for amounts received in instances when revenue recognition criteria have not been met. Deferred revenue is recognized when the services are provided and all
revenue recognition criteria have been met. Any prepayments received from a customer on a contract that may be refundable are not considered deferred revenue and, instead, are classified as a
liability and included in "Accrued expenses" within the Consolidated Balance Sheets.
Deferred Rent
For operating leases, rent expense is recognized on a straight-line basis over the terms of the leases and, accordingly, any difference
between the cash rent payments and the recognition of rent expense is recorded as a deferred rent liability. Landlord-funded leasehold improvements, to the extent the improvements are at the Company's
direction and control, are also recorded as deferred rent liabilities and are amortized as a reduction of rent expense over the non-cancelable term of the related operating lease.
58
Table of Contents
Revenue Recognition
Revenues are recognized from services rendered when the following four revenue recognition criteria are met: (i) persuasive
evidence of an arrangement exists; (ii) services have been rendered; (iii) the selling price is fixed or determinable; and (iv) 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 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 generally recorded as deferred revenue until earned. If the cash received is refundable, the unearned portion is recorded
as a current liability.
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 our search engine marketing services is based upon the amount 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, email campaigns, media buys, other trade advertising and agency
fees, are expensed as incurred and totaled $5.1 million, $1.9 million and $1.7 million during the years ended December 31, 2013, 2012 and 2011, respectively. Advertising
expense is included in "Sales and marketing" expense within the Consolidated Statements of Operations.
59
Table of Contents
Stock-Based Compensation
The Company typically issues three types of stock-based awards to employees: restricted stock, time-vested restricted stock
units ("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 as determined 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 stock-based award forfeitures.
The
Company typically grants restricted stock awards to the non-employee members of its Board of Directors as remuneration for serving on its Board. Compensation expense associated with
these restricted stock awards is based upon the fair value of the common stock on the date of grant. Compensation expense is recognized using a straight-line amortization method over the respective
vesting period for these awards.
For
stock options granted to non-employees, 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-Scholes valuation model) is remeasured using the then-current fair value of the Company's common stock. Stock options granted by the
Company to non-employees typically vest over a four-year service period. The Company accounts for non-employee grants as an expense over the vesting period of the underlying options.
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 tax assets 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 Per Share
Basic net income per share is computed by dividing the net income applicable to common stockholders for the period by the
weighted-average number of common shares outstanding. Diluted net income per share is computed by giving effect to all potential weighted-average dilutive common stock, including stock options,
restricted stock, restricted stock units and convertible senior notes. The dilutive effect of outstanding stock options, restricted stock and restricted stock units, and the convertible senior notes
is reflected in diluted net income per share by application of the treasury stock method. Shares associated with stock options, restricted stock, restricted stock units and convertible senior notes
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 "Other comprehensive income (loss)" within the Consolidated Statements of 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 non-owner sources. For the Company, comprehensive income consists of its reported net income or loss and the change in the foreign currency translation adjustments during
the period, and is presented in the Consolidated Statements of Comprehensive Income.
60
Table of Contents
Recent Accounting Developments
In July 2013, the FASB issued Accounting Standards Update No. 2013-11 ("ASU 2013-11"), "Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The amendments in ASU 2013-11 are intended to end inconsistent practices
regarding the presentation of unrecognized tax benefits on the balance sheet. An entity will be required to present an unrecognized tax benefit as a reduction of a deferred tax asset for a NOL or tax
credit carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. An entity is required to apply
the amendments prospectively for annual reporting periods beginning after December 15, 2013, and for interim periods within those annual periods. Early adoption and retrospective application
are permitted. The Company is currently evaluating ASU 2013-11, but does not anticipate that the implementation of this guidance will have a material impact on its 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 2013, the Company acquired all of the outstanding shares of FiveStreet, Inc., which provides a lead consolidation and response
tool for agents, agent-teams and brokerages. The software consolidates leads from various lead providers, including realtor.com® and other major real estate sites, and automates the
process of rapidly responding to, assigning and distributing leads. The purchase price was $4.8 million in cash, $3.8 million of which was paid upon closing, with the remainder to be
paid in two equal installments on the first and second anniversaries of the acquisition date. The net assets acquired constituted a business at the date of acquisition and, therefore, were accounted
for as a business combination, with the total purchase price being allocated to the assets acquired based on their respective fair values. The $4.8 million purchase price was allocated
$2.6 million to purchased technology with an estimated useful life of 5 years, $0.3 million to net tangible assets (which included $0.1 million of cash acquired), with the
remaining $1.9 million allocated to goodwill. In connection with the purchase accounting, the Company recorded an income tax benefit of $0.7 million, resulting in additional goodwill of
$0.7 million being recorded. The financial results of the acquisition are included in the 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 second quarter of 2013, the Company acquired certain assets of ABC Holdings, LLC, which, prior to such date, operated Doorsteps®. Doorsteps®
provides homebuyers with content, tools and advice along every step of the home buying process and helps professionals connect, engage and collaborate with homebuyers during every step of the
transaction. The purchase price was $2.3 million in cash, $0.3 million of which was paid into escrow for a two-year period. The assets acquired constituted a business at the date of
acquisition and, therefore, were accounted for as a business combination with the total purchase price being allocated to the assets acquired based on their respective fair values. The
$2.3 million purchase price was allocated $1.0 million to domain name, $0.6 million to purchased technology, $0.2 million to web site content, with the remaining
$0.5 million allocated to goodwill. The identifiable intangible assets are being amortized over estimated useful lives ranging from 1 to 5 years. The financial results of the acquisition
are included in the 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.
61
Table of Contents
In
the fourth quarter of 2012, the Company acquired certain assets and assumed certain liabilities of Relocation.com, LLC, which operated 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
assets acquired constituted a business at the date of acquisition and, therefore, were 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 2 to 6 years, with the exception of $3.2 million related to indefinite-lived domain names. The financial results of the acquired business are included in the 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 ("TigerLead") whereby the Company acquired substantially all of the operating
assets of the TigerLead® business, which provides an integrated set of internet marketing services and SaaS CRM tools to residential real estate professionals to generate, cultivate, and
manage leads. The purchase price was $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 TigerLead. The
assets acquired constituted a business at the date of acquisition and, therefore, were 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 6 to 9 years, with the exception of $0.9 million related to indefinite-lived trade name and
trademarks. The financial results of the acquired business are included in the 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 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 restricted stock units vested one year from the date of grant.
In
the third quarter of 2011, the Company 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 operations or cash flows.
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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Table of Contents
Within
that single reporting segment, the Company categorizes its products and services into two 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, 2013, 2012 and 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
(In thousands)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Consumer advertising
|
|
$
|
175,890
|
|
$
|
161,817
|
|
$
|
155,559
|
|
Software and services
|
|
|
51,143
|
|
|
37,416
|
|
|
36,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
227,033
|
|
$
|
199,233
|
|
$
|
191,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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" expenses 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.
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Table of Contents
As
of December 31, 2013 and 2012, the Company's interest in its unconsolidated joint venture, BDX, amounted to $4.6 million and $4.9 million, respectively, which was
recorded in "Investment in unconsolidated joint venture" within the Consolidated Balance Sheets.
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 $2.4 million, $1.2 million and $1.0 million for the years ended December 31, 2013, 2012
and 2011, respectively, and was included in "Earnings of unconsolidated joint venture" within the Consolidated Statements of Operations.
Summarized
financial statement information for BDX follows (in thousands):
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2013
|
|
2012
|
|
Current assets
|
|
$
|
8,710
|
|
$
|
8,282
|
|
Current liabilities
|
|
|
1,613
|
|
|
1,529
|
|
Members' equity
|
|
|
7,097
|
|
|
6,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members' equity
|
|
$
|
8,710
|
|
$
|
8,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
November 30,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Revenue
|
|
$
|
20,279
|
|
$
|
18,432
|
|
$
|
16,369
|
|
Cost of revenue
|
|
|
3,351
|
|
|
3,078
|
|
|
2,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16,928
|
|
|
15,354
|
|
|
13,786
|
|
Total operating expenses
|
|
|
12,043
|
|
|
12,853
|
|
|
11,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,885
|
|
|
2,501
|
|
|
2,078
|
|
Income tax expense
|
|
|
175
|
|
|
115
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,710
|
|
$
|
2,386
|
|
$
|
1,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company received cash distributions of $2.7 million, $2.0 million and $1.9 million from BDX during the years ended December 31, 2013, 2012 and 2011,
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.
The
Company evaluates the significance of its unconsolidated joint ventures on an annual basis. Based on that assessment, the Company determined that its investment in BDX was
significant for the year ended December 31, 2013. Accordingly, the stand-alone financial statements of BDX have been included as Exhibit 99.02 to this Annual Report on Form 10-K
for the year ended December 31, 2013.
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Table of Contents
6. Debt
Convertible Senior Notes
In August 2013, the Company issued the Notes with a principal amount of $100.0 million. Interest is payable in cash in arrears
at a fixed rate of 2.75% on March 1 and September 1 of each year, beginning on March 1, 2014. The Notes mature on September 1, 2018 unless repurchased or converted in
accordance with their terms prior to such date. The Company cannot redeem the Notes prior to maturity.
The
terms of the Notes are governed by an indenture by and between the Company and U.S. Bank National Association, as Trustee (the "Indenture"). The Notes are unsecured, unsubordinated
obligations and do not contain any financial covenants or any restrictions pertaining to the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of
securities by the Company. Upon conversion, holders of the Notes will receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the
Company's election.
For
the Notes, the initial conversion rate is 53.2907 shares of common stock per $1,000 principal amount, which is equal to an initial conversion price of approximately $18.77 per share
of common stock, subject to adjustment. Prior to the close of business on June 1, 2018, the conversion is subject to the satisfaction of certain conditions as described below.
Holders
of the Notes who convert their notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the Indenture) are, under certain
circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event that constitutes a fundamental change (as defined in the Indenture), holders of the Notes
may require us to repurchase all or a portion of their notes at a price equal to 100% of the principal amount of their notes, plus any accrued and unpaid interest.
Holders
of the Notes may convert all or a portion of their notes prior to the close of business on June 1, 2018, in multiples of $1,000 principal amount, only under the following
circumstances:
-
-
during any fiscal quarter commencing after the quarter ending on December 31, 2013, if the last reported sale price
of the Company's common stock for at least twenty trading days during a period of thirty consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is
greater than or equal to 130% of the conversion price of the respective notes on each applicable trading day;
-
-
during the five business day period after any five consecutive trading day period in which the trading price per $1,000
principal amount of the respective notes for each day of that five day consecutive trading day period was less than 98% of the product of the last reported sale price of the Company's common stock and
the conversion rate of the respective notes on such trading day; or
-
-
upon the occurrence of specified corporate events as noted in the Indenture.
In
accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by
measuring the fair value of similar liabilities that do not have an associated convertible feature. The carrying amount of the equity component, representing the conversion option, was determined by
deducting the fair value of the liability component from the principal amount of the Notes. This difference represents a debt discount that is amortized to interest expense over the term of the Notes.
The equity component is not remeasured as long as it continues to meet the conditions for equity classification.
65
Table of Contents
In
accounting for the direct transaction costs (the "issuance costs") related to the Notes, the Company allocated the total amount of issuance costs incurred to the liability and equity
components based on their relative values. Issuance costs, including fees paid to underwriters who acted as intermediaries in the placement of the Notes, attributable to the liability component are
included within "Other assets" in the Consolidated Balance Sheets and are being amortized to interest expense over the term of the Notes, and the issuance costs attributable to the equity component
were netted with the equity component and included within "Additional paid-in capital" in the Consolidated Balance Sheets. The Company recorded issuance costs of $2.8 million and
$0.6 million to the liability component and equity component, respectively. Interest cost related to the amortization expense of the issuance costs associated with the liability component was
$0.2 million in the year ended December 31, 2013.
The
Notes consisted of the following (in thousands):
|
|
|
|
|
|
|
December 31, 2013
|
|
Principal amounts:
|
|
|
|
|
Principal
|
|
$
|
100,000
|
|
Unamortized debt discount
(1)
|
|
|
(17,541
|
)
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
$
|
82,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of the equity component
(2)
|
|
$
|
18,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Included
in the Consolidated Balance Sheets within "Convertible senior notes," and is amortized over the remaining life of the Notes on an
effective interest rate basis.
-
(2)
-
Included
in the Consolidated Balance Sheets within "Additional paid-in capital," net of $0.6 million in issuance costs.
As
of December 31, 2013, the remaining life of the Notes was 56 months. The Company applies the treasury stock method to determine the potential dilutive effect of the
Notes on net income per share as a result of the Company's intent and stated policy to settle the principal amount of the Notes in cash.
The
following table sets forth total interest expense recognized and the effective interest rate related to the Notes (in thousands, except effective interest rate):
|
|
|
|
|
|
|
Year Ended
December 31, 2013
|
|
Contractual interest expense
|
|
$
|
1,077
|
|
Interest cost related to amortization of debt issuance costs
|
|
|
195
|
|
Interest cost related to amortization of the debt discount
|
|
|
1,234
|
|
Effective interest rate of the liability component
|
|
|
7.9
|
%
|
The
initial net proceeds from the sale of the Notes were $96.6 million after deducting the issuance costs paid by the Company. In connection with the sale of the Notes, the
Company purchased 1,798,561 shares of its outstanding common stock in privately negotiated transactions for an aggregate purchase price of $25.0 million. The Company intends to use the
remainder of the net proceeds of the Notes for general corporate purposes and potential future acquisitions and strategic transactions.
Revolving Line of Credit
The Company was previously party to a revolving line of credit agreement with a major financial institution, providing for borrowings
of up to $20.0 million. The revolving line of credit agreement was terminated in August 2013 in conjunction with the issuance of the Notes. There were no amounts outstanding under the revolving
line of credit immediately prior to its termination.
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Table of Contents
7. Fair Value Measurements
As of December 31, 2013, the Company's cash and cash equivalent balances were held in unrestricted demand deposit accounts or invested in U.S. treasury
bills with original maturity dates of three months or less for which fair value is determined using quoted market prices. As of December 31, 2013, the cash equivalent balances invested in U.S.
treasury bills were valued at $40.0 million and are classified as level 1 in the fair value hierarchy. As of December 31, 2012, all of the Company's cash balances were held in
unrestricted demand deposit accounts. The Company had no cash equivalents at that date. Accordingly, no adjustments to fair value were necessary.
Certain
assets and liabilities are measured at fair value on a non-recurring basis. That is, such 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, 2013
and 2012, the Company had no significant non-financial assets or liabilities that had been adjusted to fair value subsequent to initial recognition.
The
carrying amounts and estimated fair values of financial instruments not recorded at fair value were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
Carrying
Amount
|
|
Estimated Fair
Value
(1)
|
|
Convertible senior notes
|
|
$
|
82,459
|
|
$
|
112,875
|
|
-
(1)
-
The
fair value of the Notes is inclusive of the conversion feature, which was originally allocated for reporting purposes at
$18.8 million, and is included in the Consolidated Balance Sheets within "Additional paid-in capital."
The
estimated fair value of the Notes, which are classified as level 2 financial instruments, was determined based on the quoted bid price of the Notes in an over-the-counter
secondary market on December 31, 2013.
Based
on the closing price of the Company's common stock of $15.99 on December 31, 2013, the if-converted value of the Notes was less than their principal amounts.
8. Property and Equipment
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Computer software and equipment
|
|
$
|
54,102
|
|
$
|
48,021
|
|
Capitalized development costs
|
|
|
23,423
|
|
|
18,047
|
|
Furniture, fixtures and office equipment
|
|
|
2,700
|
|
|
2,658
|
|
Leasehold improvements
|
|
|
9,867
|
|
|
10,820
|
|
Construction-in-progress
|
|
|
525
|
|
|
1,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
90,617
|
|
|
80,931
|
|
Less: accumulated depreciation and amortization
|
|
|
(66,657
|
)
|
|
(58,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
23,960
|
|
$
|
21,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
Table of Contents
Depreciation
and amortization expense was $10.5 million, $9.6 million and $9.4 million for the years ended December 31, 2013, 2012 and 2011, respectively.
These amounts include amortization of capitalized development costs of $2.4 million, $1.6 million and $1.8 million for the years ended December 31, 2013, 2012 and 2011,
respectively. The Company capitalized development costs of $4.5 million, $2.6 million and $1.9 million during the years ended December 31, 2013, 2012 and 2011,
respectively. The net unamortized book value of the Company's capitalized development costs was $7.3 million and $5.1 million at December 31, 2013 and 2012, respectively.
At
December 31, 2013 and 2012, there were no assets purchased under capital leases. Construction-in-progress is primarily related to computer hardware, software licenses and
capitalized development costs for which the associated applications have not been placed in service.
9. Goodwill and Other Intangible Assets
Goodwill increased $3.1 million to $41.6 million as of December 31, 2013, from $38.6 million as of December 31, 2012, due to
the Company's 2013 acquisitions discussed in Note 3 "Acquisitions." The Company had no accumulated impairment losses as of December 31, 2013 and 2012. The Company also had both
indefinite- and definite-lived intangible assets at those dates. Indefinite-lived intangible assets consist of domain names, 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, domain names, content syndication agreements, purchased technology, customer contracts and related customer relationships, non-contractual customer relationships, other miscellaneous
agreements and web site content. The definite-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,
|
|
|
|
|
|
2013
|
|
2012
|
|
|
|
Weighted
Average
Amortization
Period
|
|
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Gross
Amount
|
|
Accumulated
Amortization
|
|
Trade names, trademarks, brand names, and domain names
|
|
|
5.1
|
|
$
|
1,530
|
|
$
|
657
|
|
$
|
530
|
|
$
|
521
|
|
Content syndication agreements
|
|
|
5.0
|
|
|
3,800
|
|
|
2,491
|
|
|
3,800
|
|
|
1,731
|
|
Purchased technology
|
|
|
5.5
|
|
|
11,800
|
|
|
3,605
|
|
|
8,600
|
|
|
1,983
|
|
Customer relationships
|
|
|
7.7
|
|
|
8,630
|
|
|
2,014
|
|
|
8,630
|
|
|
835
|
|
Other
|
|
|
9.3
|
|
|
3,583
|
|
|
2,803
|
|
|
3,403
|
|
|
2,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total definite-lived intangible assets
|
|
|
6.6
|
|
|
29,343
|
|
|
11,570
|
|
|
24,963
|
|
|
7,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names and trademarks
|
|
|
|
|
|
6,630
|
|
|
|
|
|
6,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total indefinite-lived intangible assets
|
|
|
|
|
|
6,630
|
|
|
|
|
|
6,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
$
|
35,973
|
|
$
|
11,570
|
|
$
|
31,593
|
|
$
|
7,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
Table of Contents
Amortization
expense for intangible assets for the years ended December 31, 2013, 2012 and 2011 was $4.4 million, $2.3 million and $1.5 million, respectively.
Amortization expense for the next five years is estimated to be as follows (in thousands):
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2014
|
|
$
|
4,684
|
|
2015
|
|
|
3,820
|
|
2016
|
|
|
2,821
|
|
2017
|
|
|
2,753
|
|
2018
|
|
|
2,076
|
|
10. Other Current Assets
Other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Prepaid commissions
|
|
$
|
4,762
|
|
$
|
4,220
|
|
Other
|
|
|
3,441
|
|
|
2,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,203
|
|
$
|
7,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Accrued payroll and related benefits
|
|
$
|
12,337
|
|
$
|
11,545
|
|
Customers' refundable fees
|
|
|
3,607
|
|
|
|
|
Other
|
|
|
10,985
|
|
|
8,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,929
|
|
$
|
20,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers'
refundable fees represent a liability for prepayments received from customers on contracts that may be refundable. In the fourth quarter of 2013, the Company received a
$4.0 million prepayment from a customer associated with a content licensing agreement. Revenues associated with the agreement are expected to be earned over a two-year period. The unearned
portion of the prepayment may be refundable if circumstances specified in the agreement were to occur. For the year ended December 31, 2013, the Company recognized $0.4 million in
revenue associated with the agreement.
12. 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 for the years ended December 31, 2013, 2012 and 2011. 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 2013 or 2012. As of December 31, 2013, the
Company had a balance due to the NAR of $0.5 million, which is included in "Accounts payable" within the Consolidated Balance Sheets. As of December 31, 2012, the Company had a balance
due to the NAR of $0.5 million, which is included in "Accrued liabilities" within the Consolidated Balance Sheets. Additionally, future commitments to the NAR are included within the summary of
other commitments in Note 21, "Commitments and Contingencies."
69
Table of Contents
13. 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. On June 12, 2013, our stockholders approved an amendment to the 2011 Plan whereby the number of shares available for future grant was increased by
2.1 million. As of December 31, 2013, common stock available for future issuance under the 2011 Plan was 3.3 million shares.
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
non-statutory or both non-statutory 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, 2013 and 2012.
Options outstanding pursuant to these plans were 2,505,886 and 5,141,695 as of December 31, 2013 and 2012, respectively, and the weighted-average exercise prices of those outstanding options
were $10.84 and $10.90, 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 non-employees,
that have been included in the following financial statement captions for each of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Cost of revenue
|
|
$
|
340
|
|
$
|
268
|
|
$
|
221
|
|
Sales and marketing
|
|
|
2,379
|
|
|
1,962
|
|
|
1,351
|
|
Product and web site development
|
|
|
2,719
|
|
|
1,938
|
|
|
1,176
|
|
General and administrative
|
|
|
5,250
|
|
|
4,104
|
|
|
3,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation and charges
|
|
$
|
10,688
|
|
$
|
8,272
|
|
$
|
5,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
Table of Contents
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,
|
|
|
2013
|
|
2012
|
|
2011
|
Risk-free interest rates
|
|
0.69%1.75%
|
|
0.59%1.04%
|
|
0.83%2.30%
|
Expected term (in years)
|
|
5.85
|
|
5.85
|
|
5.85
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Expected volatility
|
|
70%75%
|
|
75%
|
|
75%80%
|
The
Company periodically evaluates its forfeiture rates and, if appropriate, 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, 2013, 2012 and 2011.
The
following table is a summary of stock option activity as of December 31, 2013 and for the year then ended. There were no stock option grants made to non-employees in the year
ended December 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(In thousands)
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual Term
(Years)
|
|
Aggregate
Intrinsic
Value
(In thousands)
|
|
Outstanding at December 31, 2012
|
|
|
7,000
|
|
$
|
10.10
|
|
|
|
|
|
|
|
Granted
|
|
|
953
|
|
|
9.96
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,402
|
)
|
|
7.19
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,616
|
)
|
|
13.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
4,935
|
|
$
|
9.78
|
|
|
6.4
|
|
$
|
33,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2013
|
|
|
3,139
|
|
$
|
10.29
|
|
|
5.2
|
|
$
|
20,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
summary of stock options outstanding and exercisable at December 31, 2013, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Prices
|
|
Number of
Shares
(In thousands)
|
|
Weighted-
Average
Exercise Price
|
|
Number of
Shares
(In thousands)
|
|
Weighted-
Average
Exercise Price
|
|
$4.04 to $6.32
|
|
|
954
|
|
$
|
5.50
|
|
|
926
|
|
$
|
5.49
|
|
$6.36 to $8.27
|
|
|
1,184
|
|
|
7.34
|
|
|
614
|
|
|
7.32
|
|
$8.29 to $15.99
|
|
|
2,009
|
|
|
9.58
|
|
|
823
|
|
|
9.55
|
|
$16.80 to $25.52
|
|
|
788
|
|
|
19.12
|
|
|
776
|
|
|
19.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,935
|
|
$
|
9.78
|
|
|
3,139
|
|
$
|
10.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted-average grant date fair value of stock options granted during the years ended December 31, 2013, 2012 and 2011 was $6.40, $5.20 and $5.34, respectively. The total
intrinsic value of stock options exercised during the years ended December 31, 2013, 2012 and 2011 was $7.7 million, $0.8 million and $0.4 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.
71
Table of Contents
The
total cost recognized related to stock option awards was $4.5 million, $5.2 million and $4.5 million for the years ended December 31, 2013, 2012 and 2011,
respectively.
As
of December 31, 2013, there was $8.3 million of unrecognized compensation cost related to non-vested 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 2.4 years.
Restricted Stock Awards
The Company grants restricted stock awards to the non-employee 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, 2013 and
2012, the Company granted 45,959 and 73,391 shares of restricted stock to the non-employee members of its Board of Directors, respectively. These shares, subject to certain terms and restrictions,
will vest over three years from the date of grant. Additionally, during the year ended December 31, 2011, the Company issued 32,729 shares of restricted stock, respectively, to its non-employee
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. Additionally, 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. The aggregate grant date fair value associated with the issuance of these shares was $0.5 million, $0.6 million and
$0.3 million for the years ended December 31, 2013, 2012 and 2011, respectively, and is being recognized as stock-based charges over their respective vesting periods. Total cost
recognized for restricted stock awards issued to the non-employee members of its Board of Directors was $0.4 million, $0.3 million and $0.3 million for the years ended
December 31, 2013, 2012 and 2011, 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 executives and key employees during the year ended
December 31, 2013. Costs recognized during the years ended December 31, 2013, 2012 and 2011, associated with these restricted stock awards, totaled $0.8 million,
$1.0 million and $0.3 million, respectively.
A
summary of the Company's non-vested restricted stock award activity for the year ended December 31, 2013, is as follows:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(In thousands)
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Non-vested restricted stock awards at December 31, 2012
|
|
|
505
|
|
$
|
7.62
|
|
Granted
|
|
|
46
|
|
|
11.75
|
|
Vested
|
|
|
(164
|
)
|
|
7.87
|
|
Forfeited
|
|
|
(17
|
)
|
|
6.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards at December 31, 2013
|
|
|
370
|
|
$
|
8.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
Table of Contents
The
weighted-average grant date fair value of restricted stock awards granted during the years ended December 31, 2013, 2012 and 2011 was $11.75, $7.42 and $7.65, respectively.
The aggregate fair value of restricted stock awards vested during the years ended December 31, 2013, 2012 and 2011, was $2.1 million, $1.3 million and $1.9 million,
respectively. As of December 31, 2013, there was $2.0 million of unrecognized compensation cost related to non-vested 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 1.8 years.
Restricted Stock Units
The Company also grants 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 date, 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, 2013, the Company granted 1,009,910 restricted stock units with an aggregate grant date fair value of $11.0 million, which is being amortized over the
four-year vesting period. During the year ended December 31, 2012, the Company granted 941,365 restricted stock units with an aggregate 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 an aggregate grant date fair value of $2.2 million provided to members of
TigerLead's senior management in 2012 pursuant to employment agreements as described in Note 3, "Acquisitions," which was amortized over a one-year vesting period. As of December 31,
2013, there were 1,545,389 non-vested restricted stock units outstanding with an aggregate grant date fair value of $15.4 million. The total cost recognized for restricted stock units was
$4.8 million and $1.7 million for the years ended December 31, 2013 and 2012, respectively.
A
summary of the Company's non-vested restricted stock unit activity for the year ended December 31, 2013, is as follows:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(In thousands)
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Non-vested restricted stock units at December 31, 2012
|
|
|
1,092
|
|
$
|
8.27
|
|
Granted
|
|
|
1,010
|
|
|
10.85
|
|
Vested
|
|
|
(475
|
)
|
|
8.13
|
|
Forfeited
|
|
|
(82
|
)
|
|
9.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock units at December 31, 2013
|
|
|
1,545
|
|
$
|
9.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted-average grant date fair value of restricted stock units granted during the years ended December 31, 2013, 2012 and 2011 was $10.85, $8.25 and $5.80, respectively. The
aggregate fair value of restricted stock units vested during the year ended December 31, 2013 was $6.2 million. As of December 31, 2013, there was $9.7 million of
unrecognized compensation cost related to non-vested 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 2.9 years.
73
Table of Contents
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 (earnings before interest, taxes, depreciation and amortization) 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, 2013, 2012 and 2011. The Company recognized $0.7 million in stock-based compensation costs related to performance-based restricted stock units during
the year ended December 31, 2011. There was no stock-based compensation associated with performance-based restricted stock units recognized during the years ended December 31, 2013 and
2012.
The
aggregate fair value of performance-based restricted stock units that vested during the year ended December 31, 2011 was $0.7 million. There were no performance-based
restricted stock units outstanding at December 31, 2013 or 2012.
14. 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 were 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
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. 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.
In
February 2011, the Company reached an agreement with Elevation to redeem 70,000 shares of the Series B Preferred Stock, at a total redemption price of $70.4 million,
including $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, which is included in "Convertible preferred stock dividend and related accretion" within the Consolidated Statements
of Operations for the year ended December 31, 2011. Immediately after the completion of the redemption, Elevation continued to be the sole holder of the outstanding Series B Preferred
Stock and held 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.
In
March 2012, the Company elected to redeem all of the outstanding shares of the Series B Preferred Stock held by Elevation, 49,044 shares, for a total redemption price of
$49.5 million, including $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.
74
Table of Contents
The
Company recorded accretion of the discount and issuance costs of $0.5 million and $2.0 million for the years ended December 31, 2012 and 2011, respectively.
A
summary of activity related to the Series B Preferred Stock is as follows (in thousands):
|
|
|
|
|
Net convertible preferred stock at December 31, 2010
|
|
$
|
116,564
|
|
Accretion of discount and issuance costs
|
|
|
1,991
|
|
Partial redemption of convertible preferred stock
|
|
|
(70,000
|
)
|
|
|
|
|
|
|
|
|
|
Net convertible preferred stock at December 31, 2011
|
|
|
48,555
|
|
Accretion of discount and issuance costs
|
|
|
489
|
|
Final redemption of convertible preferred stock
|
|
|
(49,044
|
)
|
|
|
|
|
|
|
|
|
|
Net convertible preferred stock at December 31, 2012
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Capitalization
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, 2013 and 2012, one share of Series A Preferred Stock was issued and outstanding and held by the NAR. The holder of the 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 our certificate of incorporation may not be amended without the approval of the holder of the Series A Preferred Stock.
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,
non-cumulative dividends in an amount equal to $0.08 per share of Series A Preferred Stock (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 the 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 holder of the
Series A Preferred Stock is entitled to receive, prior and in preference to any payment or distribution on any shares of common stock, an amount 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.
75
Table of Contents
Redemption
Redemption
of the Series A Preferred Stock could occur upon the earliest of: (i) termination of that certain operating
agreement dated November 26, 1996, as may be amended from time to time, between REALTORS® Information Network, Inc. and RealSelect, Inc. (the "operating agreement");
(ii) the NAR ceases to own at least 37,445 shares of common stock of the Company; (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 (iv) the existence and continuance of a material breach by the NAR of the Trademark License
dated as of November 26, 1996, by and between the NAR and the Company. At any time following the occurrence of these events, 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.
16. Common Stock Repurchases
In February 2011, the Board of Directors authorized a stock repurchase program. From the inception of the program in February 2011 through the program's
expiration on February 10, 2013, the Company repurchased, and retired, 1,493,127 shares of its common stock for an aggregate purchase price of $9.7 million.
In
March 2013, the Board of Directors authorized another stock repurchase program (the "Program"). The Program authorizes, in one or more transactions taking place during a two-year
period commencing May 2, 2013, the repurchase of the Company's outstanding common stock utilizing surplus cash in an amount of up to $20 million. Under the Program, the Company is
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 the Program is dependent upon
market conditions, corporate considerations, and regulatory requirements. Shares repurchased under the Program will be retired to constitute authorized but unissued shares of the Company's common
stock. As of December 31, 2013, the Company has repurchased, and retired, 84,054 shares of its outstanding common stock in the open market for $1.0 million since the inception of the
Program.
Additionally,
on August 12, 2013, in connection with the issuance of the Notes, the Company purchased, and retired, 1,798,561 shares of its outstanding common stock in privately
negotiated transactions for an aggregate purchase price of $25.0 million.
76
Table of Contents
17. Net Income per Share
The following table sets forth the computation of basic and diluted net income per share applicable to common stockholders for the periods indicated (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
574
|
|
$
|
5,625
|
|
$
|
7,260
|
|
Convertible preferred stock dividend and related accretion
|
|
|
|
|
|
(942
|
)
|
|
(4,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders
|
|
$
|
574
|
|
$
|
4,683
|
|
$
|
3,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
39,089
|
|
|
38,705
|
|
|
39,114
|
|
Dilutive effect of options and restricted stock
|
|
|
2,147
|
|
|
1,016
|
|
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted weighted average shares outstanding
|
|
|
41,236
|
|
|
39,721
|
|
|
39,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income applicable to common stockholders
|
|
$
|
0.01
|
|
$
|
0.12
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income applicable to common stockholders
|
|
$
|
0.01
|
|
$
|
0.12
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 835,416 and 3,949,581 for
the years ended December 31, 2013 and 2012, respectively. 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.
The
Notes did not have a dilutive effect in the above calculation of diluted income per share for the year ended December 31, 2013.
18. Supplemental Cash Flow Information
The following represents the Company's non-cash financing and investing activities for the years ended December 31, 2013, 2012 and 2011. The cash-related
components of these transactions are reported within the Consolidated Statements of Cash Flows.
During
the year ended December 31, 2013:
-
-
In connection with the acquisition of all of the outstanding shares of FiveStreet, Inc., the Company paid
$3.8 million of the $4.8 million purchase price upon closing, with the remaining $1.0 million to be paid in two equal installments on the first and second anniversaries of the
acquisition date (see Note 3, "Acquisitions"). The imputed interest associated with the note payable is reported within "Amortization of debt discount and issuance costs" in the Consolidated
Statements of Cash Flows.
-
-
In connection with the purchase accounting for the acquisition of all of the outstanding shares of
FiveStreet, Inc., the Company recorded an income tax benefit of $0.7 million, resulting in additional goodwill of $0.7 million being recorded.
During
the year ended December 31, 2012:
-
-
In connection with the acquisition of certain assets of Relocation.com, LLC, the Company paid $9.5 million
of the $11.5 million purchase price 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 (see
Note 3, "Acquisitions"). In 2013, $1.0 million of the remaining purchase price was paid and is reflected as a financing activity in the Consolidated Statements of Cash Flows. The imputed
interest associated with the note payable is reported within "Amortization of debt discount and issuance costs" in the Consolidated Statements of Cash Flows.
77
Table of Contents
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.
19. 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 $1.6 million, $1.4 million and $1.2 million during the years ended December 31, 2013, 2012 and 2011, respectively.
20. Income Taxes
The Company is subject to income taxes in the U.S. and Canada. However, due to the NOLs and Canadian tax credits generated for tax purposes, the Company does not
record a current U.S. federal or Canadian tax provision. However, the Company is subject to income taxes in various state jurisdictions and has recorded a current state tax provision. In addition, 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. For the year ended December 31, 2013,
a deferred tax benefit was recorded for the change in the valuation allowance resulting from the deferred tax liability established as part of a business combination.
Significant
components of the provision for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
|
|
$
|
|
|
State
|
|
|
(45
|
)
|
|
118
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
$
|
(45
|
)
|
$
|
118
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(77
|
)
|
$
|
248
|
|
$
|
137
|
|
State
|
|
|
21
|
|
|
31
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision
|
|
$
|
(56
|
)
|
$
|
279
|
|
$
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
$
|
(101
|
)
|
$
|
397
|
|
$
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Table of Contents
The
following table reconciles the federal income tax statutory rate to the Company's effective income tax rate (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
Amount
|
|
Tax Rate
|
|
Amount
|
|
Tax Rate
|
|
Amount
|
|
Tax Rate
|
|
Statutory rate applied to income before income taxes
|
|
$
|
161
|
|
|
34
|
%
|
$
|
2,049
|
|
|
34
|
%
|
$
|
2,561
|
|
|
34
|
%
|
State taxes, net of federal tax benefit
|
|
|
510
|
|
|
108
|
|
|
290
|
|
|
5
|
|
|
560
|
|
|
7
|
|
Non-deductible executive compensation
|
|
|
1,128
|
|
|
238
|
|
|
211
|
|
|
4
|
|
|
145
|
|
|
2
|
|
Permanent items
|
|
|
562
|
|
|
119
|
|
|
2,595
|
|
|
43
|
|
|
(4,859
|
)
|
|
(64
|
)
|
Stock compensation
|
|
|
4,512
|
|
|
954
|
|
|
3,463
|
|
|
58
|
|
|
458
|
|
|
6
|
|
Expired tax attributes
|
|
|
4,531
|
|
|
958
|
|
|
2,058
|
|
|
34
|
|
|
|
|
|
|
|
Change in state effective tax rate
|
|
|
(138
|
)
|
|
(29
|
)
|
|
13
|
|
|
|
|
|
(443
|
)
|
|
(6
|
)
|
Change in valuation allowance
|
|
|
(11,367
|
)
|
|
(2,403
|
)
|
|
(10,282
|
)
|
|
(171
|
)
|
|
1,851
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax (benefit) expense
|
|
$
|
(101
|
)
|
|
(21
|
)%
|
$
|
397
|
|
|
7
|
%
|
$
|
273
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax assets and liabilities are recognized for the future tax effect attributable to temporary differences, NOLs and credit carryforwards. A summary of the components of the
deferred tax assets and liabilities and related valuation allowance follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2013
|
|
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
262,987
|
|
$
|
267,398
|
|
Other
|
|
|
37,366
|
|
|
44,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,353
|
|
|
312,127
|
|
Valuation allowance
|
|
|
(294,101
|
)
|
|
(312,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
6,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Amortization of acquired intangible assets
|
|
|
(1,959
|
)
|
|
(1,333
|
)
|
Convertible senior notes
|
|
|
(6,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(8,211
|
)
|
|
(1,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(1,959
|
)
|
$
|
(1,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2013, 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.
79
Table of Contents
The valuation allowance for net deferred tax assets decreased by $18.0 million primarily as a result of a reduction of deferred tax assets due to book and
tax basis differences related to the Notes and the expiration of stock options and NOLs. The deferred tax liability is included in "Other non-current liabilities" within the Consolidated Balance
Sheets.
The
Company recognizes excess tax benefits associated with the exercise of stock options as additional paid in capital only when realized. Accordingly, deferred tax assets are not
recognized for NOLs resulting from excess tax deductions. As of December 31, 2013, deferred tax assets do not include $57.1 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 $57.1 million, if and when, such excess tax benefits are realized.
At December 31, 2013, the Company had gross NOLs for federal and state income tax purposes of $910.6 million and $223.1 million, respectively. The federal NOLs will begin to
expire in 2017. In 2013, $69.8 million of the state NOLs expired and will continue to expire from 2014 until 2033. 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, 2013, the Company had $34.0 million of capital loss
carryforward for federal and state income tax purposes. In 2013, $1.4 million of the capital loss expired. The Company
also had $6.3 million of Canadian tax credit carryforward available to offset Canadian tax liabilities. The Canadian tax credit will begin to expire in 2015.
Of
the $910.6 million federal NOLs, $149.9 million 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 changes 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. 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, 2013 and 2012, 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, 2013, 2012 and 2011. The tax years 19932013 remain open to examination by the major taxing jurisdictions to which the
Company is subject.
80
Table of Contents
21. Commitments and Contingencies
Operating Leases
The Company leases certain facilities and equipment under non-cancelable operating leases with various expiration dates through 2020.
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 over the life of the lease. Future minimum lease payments under operating leases as of December 31, 2013, are as follows (in thousands):
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2014
|
|
$
|
5,059
|
|
2015
|
|
|
5,031
|
|
2016
|
|
|
4,556
|
|
2017
|
|
|
3,125
|
|
2018
|
|
|
3,033
|
|
Thereafter
|
|
|
2,077
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent
expense associated with the Company's operating leases was $4.9 million, $4.6 million and $4.5 million for the years ended December 31, 2013, 2012 and
2011, respectively.
Other Commitments
Under the Company's operating agreement with the NAR, the Company has an exclusive arrangement to operate realtor.com®, a
license to use the realtor.com® domain name and trademark, and a license to use the REALTORS® trademark in exchange for minimum annual royalty payments. Commitments for the
years ending 2014 and beyond will be calculated based on amounts paid in the prior year adjusted for changes in 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.
The
following presents the Company's future minimum commitments under the above agreements for the next five years (in thousands):
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2014
|
|
$
|
4,519
|
|
2015
|
|
|
3,480
|
|
2016
|
|
|
2,770
|
|
2017
|
|
|
2,192
|
|
2018
|
|
|
2,192
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally,
commitments for the purchase of property, plant and equipment and software maintenance were $0.4 million as of December 31, 2013.
81
Table of Contents
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 District 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 of the patent. 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.
82
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 on the Company's claim of non-infringement of the patent. On
March 27, 2012, REAL appealed the District Court's summary judgment order. On March 4, 2013, the Circuit Court issued its opinion affirming the District Court's ruling of no direct
infringement of the patent by the Company, but remanded the case to the District Court for a determination of induced infringement under the standard set forth in
Akamai
Technologies, Inc. v. Limelight Network, Inc., 692 F.3d 1301 (Fed. Cir. 2012) (S.Ct. Cert. No. 12-960)
. The Company filed a motion for rehearing to
the Circuit Court on May 3, 2013. On June 12, 2013, the Circuit Court denied the Company's motion and remanded the case to the District Court. On January 10, 2014, the U. S.
Supreme Court granted writ of certiorari in the
Akamai
case on the issue of whether the Circuit Court erred in holding that a defendant may be held
liable for inducing patent infringement in the absence of a finding of direct infringement. On February 3, 2014, the District Court entered an order staying the case pending the U.S. Supreme
Court decision in the
Akamai
case. 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 "Court"). 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. Smarter Agent appealed the PTO's rejection to the Patent Trial and Appeals Board. 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 other litigation and administrative proceedings relating to claims arising from its
operations in the ordinary course of business. As of the date of this Annual Report on 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.
83
Table of Contents
22. Quarterly Financial Data (unaudited)
Provided below is the selected unaudited quarterly financial data for the years ended December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31,
2013
|
|
June 30,
2013
|
|
Sept. 30,
2013
|
|
Dec. 31,
2013
|
|
Mar. 31,
2012
|
|
June 30,
2012
|
|
Sept. 30,
2012
|
|
Dec. 31,
2012
|
|
|
|
(In thousands, except per share amounts)
|
|
Revenue
|
|
$
|
54,238
|
|
$
|
57,490
|
|
$
|
58,825
|
|
$
|
56,480
|
|
$
|
47,741
|
|
$
|
49,309
|
|
$
|
49,446
|
|
$
|
52,737
|
|
Costs and operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
(1)
|
|
|
10,863
|
|
|
11,790
|
|
|
11,750
|
|
|
11,465
|
|
|
8,790
|
|
|
8,823
|
|
|
9,376
|
|
|
10,432
|
|
Sales and marketing
(1)
|
|
|
21,668
|
|
|
22,980
|
|
|
22,971
|
|
|
22,393
|
|
|
18,267
|
|
|
19,163
|
|
|
18,095
|
|
|
19,564
|
|
Product and web site development
|
|
|
9,846
|
|
|
9,583
|
|
|
9,894
|
|
|
9,566
|
|
|
8,714
|
|
|
9,477
|
|
|
9,412
|
|
|
9,738
|
|
General and administrative
|
|
|
11,538
|
|
|
11,985
|
|
|
12,209
|
|
|
11,550
|
|
|
10,888
|
|
|
10,162
|
|
|
10,464
|
|
|
10,846
|
|
Amortization of intangible assets
|
|
|
999
|
|
|
1,063
|
|
|
1,110
|
|
|
1,249
|
|
|
397
|
|
|
397
|
|
|
500
|
|
|
981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and operating expenses
|
|
|
54,914
|
|
|
57,401
|
|
|
57,934
|
|
|
56,223
|
|
|
47,056
|
|
|
48,022
|
|
|
47,847
|
|
|
51,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(676
|
)
|
|
89
|
|
|
891
|
|
|
257
|
|
|
685
|
|
|
1,287
|
|
|
1,599
|
|
|
1,176
|
|
Interest (expense) income, net
|
|
|
(14
|
)
|
|
(13
|
)
|
|
(917
|
)
|
|
(1,615
|
)
|
|
1
|
|
|
|
|
|
(1
|
)
|
|
(6
|
)
|
Earnings of unconsolidated joint venture
|
|
|
602
|
|
|
463
|
|
|
585
|
|
|
705
|
|
|
199
|
|
|
221
|
|
|
290
|
|
|
482
|
|
Other (expense) income
|
|
|
(27
|
)
|
|
(8
|
)
|
|
(46
|
)
|
|
197
|
|
|
(52
|
)
|
|
(17
|
)
|
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(115
|
)
|
|
531
|
|
|
513
|
|
|
(456
|
)
|
|
833
|
|
|
1,491
|
|
|
1,888
|
|
|
1,810
|
|
Income tax (benefit) expense
|
|
|
(15
|
)
|
|
65
|
|
|
375
|
|
|
(526
|
)
|
|
25
|
|
|
47
|
|
|
103
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(100
|
)
|
|
466
|
|
|
138
|
|
|
70
|
|
|
808
|
|
|
1,444
|
|
|
1,785
|
|
|
1,588
|
|
Convertible preferred stock dividend and related accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(918
|
)
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income applicable to common stockholders
|
|
$
|
(100
|
)
|
$
|
466
|
|
$
|
138
|
|
$
|
70
|
|
$
|
(110
|
)
|
$
|
1,420
|
|
$
|
1,785
|
|
$
|
1,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share applicable to common stockholders
|
|
$
|
(0.00
|
)
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
(0.00
|
)
|
$
|
0.04
|
|
$
|
0.05
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share applicable to common stockholders
|
|
$
|
(0.00
|
)
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
(0.00
|
)
|
$
|
0.04
|
|
$
|
0.04
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Effective
October 1, 2013, the Company elected to change the presentation of certain lead acquisition costs and to reclassify these
costs from "Cost of revenue" to "Sales and marketing" within its Consolidated Statements of Operations in order to be more consistent with certain of its peers and to combine all traffic acquisition
costs that are not considered directly related to the fulfillment of products into "Sales and marketing." This had the effect of decreasing "Cost of revenue" and increasing "Sales and marketing"
expense by the quarterly amounts specified in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31,
2013
|
|
June 30,
2013
|
|
Sept. 30,
2013
|
|
Mar. 31,
2012
|
|
June 30,
2012
|
|
Sept. 30,
2012
|
|
Dec. 31,
2012
|
|
|
|
(In thousands)
|
|
Lead acquisition costs reclassified from "Cost of revenue" to "Sales and marketing"
|
|
$
|
1,825
|
|
$
|
2,019
|
|
$
|
2,016
|
|
$
|
855
|
|
$
|
805
|
|
$
|
860
|
|
$
|
1,472
|
|