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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-26659
Move, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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95-4438337
(I.R.S. Employer
Identification No.) |
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910 East Hamilton Avenue
Campbell, California
(Address of Principal Executive
Offices)
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95008
(Zip Code) |
Registrant’s telephone number, including area code:
(805) 557-2300
Securities Registered Pursuant to Section 12(b) of the Act:
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| Title of Each Class |
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Name of Each Exchange on Which Registered |
| Common Stock, par value $.001 per share
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The NASDAQ Stock Market LLC |
| Warrants to purchase Common Stock, par value $.001 per share
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The NASDAQ Stock Market LLC |
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Accelerated
Filer o | Accelerated
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Non-Accelerated
Filer o
(Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
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Aggregate market value of voting common stock held by non-affiliates of the registrant as of June 30, 2008* |
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132,297,836 |
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Number of shares of common stock outstanding as of March 2, 2009 |
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153,104,160 |
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Based on the closing price of the common stock of $2.33 per share on that date, as reported
on The NASDAQ Stock Market and, for purposes of this computation only, the assumption that all
of the registrant’s directors, executive officers and beneficial owners of 10% or more of the
registrant’s common stock are affiliates. |
DOCUMENTS INCORPORATED BY REFERENCE
In accordance with General Instruction G(3) to Form 10-K, certain information in the
registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission
relating to the registrant’s 2009 Annual Meeting of Stockholders is incorporated by reference into
Part III.
EXPLANATORY NOTE REGARDING RESTATEMENT
This Form 10-K/A is an amendment to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, originally filed with the Securities and Exchange Commission (“SEC”) on March 6,
2009 (“the Original Filing”). This Form 10-K/A is being filed to restate our audited consolidated
financial statements for the years ended December 31, 2008, 2007 and 2006 and for each of the
quarters in fiscal 2008 and 2007, to reflect the effects of adjustments to stock-based compensation
expense. These changes are more fully described in Note 26 of the audited consolidated financial
statements included in Item 8 of this Form 10-K/A.
As a result of identifying errors in stock-based compensation expense as explained below, we
restated our audited consolidated financial statements for fiscal years 2008, 2007 and 2006 in this
Form 10-K/A, restated our unaudited condensed consolidated financial statements as of March 31,
2009 and for the three month periods ended March 31, 2009 and 2008 in our Form 10-Q/A for the
quarterly period ended March 31, 2009 and restated our unaudited condensed consolidated financial
statements as of June 30, 2009 and for the three and six month periods ended June 30, 2009 and 2008
in our Form 10-Q/A for the quarterly period ended June 30, 2009. The Form 10-Q/A for the quarterly
period ended March 31, 2009 and Form 10-Q/A for the quarterly period ended June 30, 2009 are being
filed with the SEC concurrently with this Form 10-K/A.
All amendments and restatements to the financial statements affected are non-cash in nature.
Since fiscal 2006, the Company has licensed software from a third party provider to automate
the administration of its employee equity programs and calculate its stock-based compensation
expense (the “Software”). In the third quarter of 2009, the Company learned that the Software
contained an error in how it calculated stock-based compensation expense and that the Software
provider had a new version of the Software that was designed to correct this error. The Company
upgraded to the new version of the Software and identified differences in the stock-based
compensation expense of prior periods. After reviewing such differences, the Company identified an
error in its accounting for stock-based compensation expense. The prior version of the Software
incorrectly calculated stock-based compensation expense by continuing to apply a weighted average
forfeiture rate to the vested portion of stock option awards until the grant’s final vest date,
rather than reflecting actual forfeitures as awards vested, resulting in an understatement of
stock-based compensation expense in certain periods prior to the grant’s final vest date. As a
result of identifying the error, on October 30, 2009, the Company concluded that accounting
adjustments were necessary to correct certain previously issued financial statements. To correct
these errors, the Company recorded increases in stock-based compensation expense of $1.6 million in
fiscal 2008, $1.3 million in fiscal 2007 and $1.2 million in fiscal 2006, from amounts previously
reported. An explanation of the errors and their impact on the Company’s financial statements is
contained in Note 26 to the consolidated financial statements contained in Item 8 of this report.
The following sections in this report have been amended as a result of the restatements:
Part I:
Item 1A: Risk Factors, as to matters related to the restatements
Part II:
Item 6: Selected Financial Data
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of
Operations, as to matters related to the restatements
Item 8: Financial Statements and Supplementary Data
Item 9A: Controls and Procedures, as to matters related to the restatements
Part III:
Item 15: Exhibits and Financial Statement Schedules, as to the consent of our independent
registered public accounting firm and the certifications filed as Exhibits 31.01, 31.02,
32.01 and 32.02
For convenience of the reader, this Form 10-K/A sets forth the Original Filing in its entirety
and includes items that have been changed as a result of the restatement as well as items that are
unchanged from the Original Filing. This Form 10K/A speaks as of the original filing date of the
Original Filing and has not been updated to reflect other events occurring subsequent to the
original filing date, including forward-looking statements and all items contained in this Form
10-K/A that were not directly impacted by the restatement, which should be read in their historical
context. References to the Form 10-K herein shall refer to the Annual Report on Form 10-K/A filed
on November 9, 2009.
We have not amended and do not anticipate amending our Annual Report on Form 10-K for any
years prior to fiscal year 2008, nor will we be amending any of our previously filed Quarterly
Reports on Form 10-Q, except for those Quarterly Reports for the quarterly periods ended March 31,
2009 and June 30, 2009 (together referred to as “the FY2009 Form 10-Qs”) which are being filed
concurrently with this Form 10K/A. The financial statements and other information that have been
previously filed or otherwise reported for these periods should no longer be relied upon; all such
prior information is superseded by the information in this Form 10-K/A, and the FY2009 Form 10-Qs.
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MOVE, INC.
FORM 10-K/A
For the Fiscal Year Ended December 31, 2008
INDEX
This Annual Report on Form 10-K/A and the documents incorporated herein by reference
contain forward-looking statements based on our current expectations, estimates and projections
about our industry, beliefs, and certain assumptions made by us. Words such as “believes,”
“anticipates,” “estimates,” “expects,” “projections,” “may,” “potential,” “plan,” “continue” and
words of similar import constitute “forward-looking statements.” The forward-looking statements
contained in this report involve known and unknown risks, uncertainties and other factors that may
cause our actual results to be materially different from those expressed or implied by these
statements. These factors include those listed under “Risk Factors,” “Business,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this
Form 10-K/A, and the other documents we file with the Securities and Exchange Commission (“SEC”),
including our reports on Form 8-K and Form 10-Q, and any amendments thereto. Other unknown or
unpredictable factors also could have material adverse effects on our future results. The
forward-looking statements included in this Annual Report on Form 10-K/A are made only as of the
date of this Annual Report. We cannot guarantee future results, levels of activity, performance or
achievements. Accordingly, you should not place undue reliance on
these forward-looking statements. Finally, we expressly disclaim any intent or obligation to
update any forward-looking statements to reflect subsequent events or circumstances.
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PART I
Item 1. Business.
OVERVIEW
Move, Inc. and its subsidiaries (“Move”, “we”, “our” or “us”) operate the leading online
network of web sites for real estate search, finance, moving and home enthusiasts and provide an
essential resource for consumers seeking the information and connections they need before, during
and after a move. Our flagship consumer web sites are Move.com, REALTOR.com® and Moving.com. We
also provide lead management software for real estate agents and brokers through our Top Producer®
business. In 2008, we announced our decision to sell our Welcome Wagon® business, which provided
local merchant and community information to new movers.
On our web sites we display comprehensive real estate property content, with over four million
resale, new home and rental listings, as well as extensive move-related information and tools. We
hold a significant leadership position over our competitors in terms of web traffic, attracting an
average of 8.1 million consumers to our network per month in 2008 according to comScore Media
Metrix, a substantial lead over the next leading real estate site. We also have strong
relationships with the real estate industry, including content agreements with approximately 900
Multiple Listing Services (“MLS”) across the country and exclusive partnerships with the National
Association of REALTORS® (“NAR”) and the National Association of Home Builders (“NAHB”).
Our vision is to revolutionize the American dream of home ownership. A home is the single
largest investment in most people’s lives, and we believe a tremendous opportunity exists to help
transform the difficult process of finding a place to live into the emotional connection of home.
Our mission is to be the most trusted source for real estate online.
The strategy for realizing our vision is built upon three pillars:
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Build the leading real estate search experience: providing the greatest breadth and depth
of property listings coupled with rich, timely neighborhood information in a superior,
consumer-friendly search experience to enable us to be the most used real estate search
engine and the most trusted consumer site. |
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Integrate proprietary home and listings-related content: integrating content such as
neighborhood and community information to improve decision-making and the enjoyment of a
home will enable us to convert real estate search users into recurring users and broaden our
advertiser base. |
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Improve relevance and effectiveness of advertising: aggregating the largest audience of
prospective and current homeowners and renters and understanding their behavior,
demographics, needs and intent to allow us to deliver contextually relevant ads targeted to
the right consumer at the right time. |
We operate under two business segments: Real Estate Services and Consumer Media, which for the
year ended December 31, 2008, represented approximately 90% and 10% of our revenue, respectively.
For information regarding the results of operations of each of our segments, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7 and
“Segment Information” contained in Note 14 to our Consolidated Financial Statements in Item 8 of
this Form 10-K.
We generate a substantial majority of our revenue from selling advertising and marketing
solutions to real estate industry participants, including real estate agents, homebuilders and
rental property owners, as well as to other local and national advertisers interested in reaching
our consumer audience. Most of our revenue is derived from subscription-based services that allow
our customers to easily budget for our services. Our sales force consists of a combination of
internal phone-based account executives and field sales personnel.
We were incorporated in the State of Delaware in 1993 under the name of InfoTouch Corporation.
In February 1999, we changed our corporate name to Homestore.com, Inc. In May 2002, we changed our
name to Homestore, Inc. In June 2006, we changed our name to Move, Inc. See Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” for a further description
of our history. Our corporate headquarters are located in Westlake Village, California. Our phone
number is (805) 557-2300. Our periodic and current reports are available, free of charge, on our
web site, http://investor.move.com, as soon as possible after such material is electronically filed
with, or furnished to, the SEC.
REAL ESTATE SERVICES
Real Estate Services incorporates all revenue and associated costs for products and services
sold to real estate professionals, including real estate agents and brokers, new home builders, and
rental owners or operators. We provide marketing solutions to help real estate professionals reach
and connect with the highly targeted consumer audience we have attracted to our web sites. Real
Estate Services is comprised of our REALTOR.com®, Top Producer® and Move® New Homes and Rentals
businesses.
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REALTOR.com®
The REALTOR.com® web site offers consumers a comprehensive suite of services, tools and
content for all aspects of the residential real estate transaction. We display on REALTOR.com®
listing content received from approximately 900 MLSs across the United States, resulting in a
searchable database of approximately four million existing homes for sale. Half of our listings are
updated every fifteen minutes providing the most comprehensive and timely content available on the
Internet.
In addition to property listings and neighborhood profiles, we offer consumers information and
tools designed to assist them in understanding the value of their home, preparing the home for
sale, listing and advertising the home, home affordability, the offer process, applying for a loan
and understanding the mortgage options available, closing the purchase and planning the move.
REALTOR.com® is the official web site of NAR, the largest trade association in the United
States that represents residential and commercial real estate professionals, including brokers,
agents, property managers, appraisers, counselors and others engaged in all aspects of the real
estate industry. NAR had approximately 1.2 million members as of December 31, 2008. Under our
agreement with NAR, we operate REALTOR.com®, and, as such, we present basic MLS property listings
to consumers on the web site at no charge to real estate professionals.
We offer the following services to enable real estate professionals to manage their online
content and branding presence and better connect with home buyers and sellers:
Showcase Listing Enhancements. When an agent or broker purchases the enhanced listing product
they are then able to promote their listings by adding more photos, virtual tours, video and
printable brochures to the basic listing. They can also personalize the listing by adding
additional features such as custom copy, text effects, their own personal branding information,
links to their personal web site and more. Enhanced listings are priced based on the size of a
geographic market and the number of annual listings an agent may have, and are sold on an annual
subscription basis. We sell enhanced listings directly to individual real estate agents as well as
to real estate brokers who purchase enhanced listings on behalf of their agents. Our listing
enhancement product represented approximately 39%, 35%, and 30% of our overall revenue from
continuing operations for fiscal years 2008, 2007 and 2006, respectively;
Display ad products. We provide numerous opportunities for real estate professionals to
promote individual properties, themselves or their company brand. These products are priced based
on geographic market and are sold as three, six or twelve month subscriptions:
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Featured Homes™ allows agents or brokers to more prominently display a limited number of
their property listings on the REALTOR.com® web site by presenting them first in certain
searches of their respective zip codes; |
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Featured Agent™, Featured Company™ and Featured Community™ all provide the opportunity
for agents or brokers to promote themselves and their services on REALTOR.com® in the form
of banner advertising within a geographically targeted real estate audience; and |
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Featured CMA™ allows agents or brokers to present consumers with information about their
local market conditions and, in the process, recognize the value of contacting them for
professional consultation and assistance. |
Our Featured Homes product represented approximately 11%, 13%, and 13% of our overall revenue
from continuing operations for fiscal years 2008, 2007 and 2006, respectively; and
Web sites. We design, host, and maintain personal and corporate web sites for real estate
professionals. We offer a series of template web sites designed specifically for agents and
brokers, which are sold on an annual subscription basis. The Enterprise, our media design and
production business unit, designs and builds customized web sites for brokerage customers seeking
web sites with specialized features and expanded functionality. Such websites can display listings
for a broker’s local market using Internet Data Exchange (“IDX”) protocols and technology. We
support IDX data feeds in approximately 311 markets.
Top Producer®
Our primary Top Producer product, “7itm”, is the leading customer
relationship management (“CRM”) software designed specifically for real estate agents. Top
Producer’s 7i web-based application features client management, appointment and task scheduling,
Internet lead distribution and follow-up, prospecting automation, comparative market analysis,
customer presentations and mobile data synchronization. Products are co-branded for some of the
country’s largest franchise brands, such as RE/MAX, Keller Williams, Coldwell Banker, Century 21,
ERA, GMAC and Real Estate One. We believe that our ability to assist real estate professionals in
managing relationships with their customers enables us to better distinguish the value of our media
properties. During 2008, we introduced “8i”, an upgraded version of our product that provides
greater ease of use, performance and better custom branding. All current users have the ability to
upgrade to this expanded offering at no additional charge.
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The Top Producer CRM software is offered exclusively as a web-based application that is
purchased through an initial annual subscription. We currently have over 55,000 subscribers using
the web-based CRM software. Our 7i and 8i products represented approximately 11%, 12% and 12% of
our overall revenue from continuing operations for fiscal year 2008, 2007 and 2006, respectively.
We also offer Market Snapshot
tm and Market Builder
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products that allow real estate professionals to effortlessly provide real-time MLS market updates
and trend analysis to their online prospects and clients. Market Snapshot and Market Builder are
currently purchased through an annual subscription and are available on a standalone basis, or
bundled with 7i or 8i and other Top Producer products.
Move® New Homes
The Move New Homes channel of Move.com is the official new homes listing site of the National
Association of Home Builders. We aggregate and display new home listings nationwide. We display
these listings at no charge to consumers. The primary services we offer home builders to enhance
and promote their listings are the following:
Showcase Listings. Showcase Listings allow home builders to promote their listings by giving
them priority placement, adding enhanced property descriptions, highlighting unique property
amenities, displaying multiple photos, elevations and plans, offering interactive floor plans,
along with additional features. Showcase Listings are sold on a monthly subscription basis; and
Featured Listings. Featured Listings allow home builders to obtain priority placement for
their listings on the search results page. The Featured Listings displayed in the top positions are
based on consumer-defined criteria and the relevancy of listing detail to those criteria. Featured
Listings are offered on a cost-per-click basis.
Move® Rentals
We aggregate and display rental listings nationwide. We display these listings at no charge to
consumers. We offer the following services to enable rental property owners and managers to enhance
and promote their listings:
Showcase Listings. Showcase Listings allow rental property owners and managers to promote
their listings by giving them priority placement, adding enhanced property descriptions,
highlighting unique property amenities, displaying multiple photos, offering interactive floor
plans along with additional features. Showcase Listings are sold on a monthly subscription basis;
and
Featured Listings. Featured Listings allow rental property owners and managers to obtain
priority placement for their listings on the search results page. The Featured Listings displayed
in the top positions are based on consumer-defined criteria and the relevancy of listing detail to
those criteria. Featured Listings are offered on a cost-per-click basis.
CONSUMER MEDIA
Our Consumer Media segment now consists solely of our Media business which provides
advertising products and lead generation tools including display, text-link and rich media
advertising positions, directory products, price quote tools and content sponsorships on our
Move.com and other related web sites, as well as lead generation products for professional moving,
truck rental, and self-storage businesses on our Moving.com web site. In the second quarter of
2008, we announced our intention to sell the Welcome Wagon® business, formerly in this segment,
and, as such, the results have been classified as discontinued operations for all periods
presented.
Media
Our Media business provides advertisers such as mortgage companies, home improvement
retailers, moving service providers and other consumer product and service companies with an
efficient way to target consumers in the move cycle. We offer these advertising customers a variety
of products and services across the entire Move network of web sites, particularly in our Finance,
Moving and Home & Garden content areas on Move.com. These products and services include graphical
display advertisements, text links, sponsorships and directories. Pricing models include cost per
thousand impressions (“CPM”), cost-per-click and subscription based sponsorships of specific
content areas.
We also provide consumers with quotes from moving companies, truck rental companies and
self-storage facilities, as well as other move-related information, on our Moving.com web site. The
majority of revenue for Moving.com is derived from cost-per-lead products.
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COMPETITION
We face competition in each segment of our business.
Real Estate Services
We compete with a variety of online companies and web sites providing real estate content that
sell classified advertising opportunities to real estate professionals and sell advertising
opportunities to other advertisers seeking to reach consumers interested in products and services
related to the home and real estate. We also compete with web sites that attract consumers by
offering rebates for home purchases or rental leases, and then charge the real estate professional
who performed the transaction a referral fee for the introduction. However, these sites generally
have a limited amount of real estate content and an even more limited directory of qualified
REALTORS®.
Our primary competitors for online real estate advertising dollars include Yahoo! Real Estate,
Tree.com (formerly Lending Tree and RealEstate.com), Market Leader, Inc. (formerly
HouseValues.com), HomeGain (a division of Classified Ventures, LLC), Trulia, Zillow and Google. In
addition, our Move® Rentals web site faces competition from ApartmentGuide.com, Rent.com,
ForRent.com and Apartments.com, and our Move® New Homes web site competes directly with
NewHomeGuide.com and NewHomeSource.com. Our Move.com web site also faces competition from general
interest consumer web sites that offer home, moving and finance content, including ServiceMagic,
Inc. (a division of InterActive Corp), and Living Choices (a division of Network Communications,
Inc.).
The barriers to entry for web-based services and businesses are low. While we believe we would
have an advantage on listing content for some time over other online businesses, we may not be able
to maintain that advantage, and existing or future competitors could create other products and
services that could be more attractive to consumers than our products and services.
Newspapers and home/apartment guide publications are the two primary offline competitors of
our media offerings. We compete with newspapers and home/apartment guide publications for the
advertising dollars spent by real estate professionals to advertise their offerings. In addition,
newspapers and the publishers of home/apartments guides, including Classified Ventures, Inc.,
PRIMEDIA Inc., and Network Communications, Inc., have extended their media offerings to include an
Internet presence. We believe that the effectiveness of print publications continues to decline and
we will continue to work to demonstrate the value of our online offerings to shift more real estate
advertising dollars online.
Our Top Producer® business faces competition from First American’s subsidiary, MarketLinx,
Inc., and Fidelity National Information Solutions, Inc. which offers competing solutions to real
estate professionals. Top Producer also competes with horizontal customer relationship management
offerings such as Microsoft Corporation’s Outlook solution, Best Software Inc.’s ACT! solution,
Salesforce.com and FrontRange Solution, Inc.’s GoldMine product. Some providers of real estate web
site solutions, such as ALa Mode, Inc., also offer contact management features which compete with
products from Top Producer. Certain Internet media companies such as HomeGain and Market Leader are
providing drip marketing solutions that incorporate aspects of lead management, which over time
could pose a competitive threat to Top Producer.
Consumer Media
Our Moving.com business competes with other web sites that offer comparable products, such as
123movers.com and VanLines.com.
SEASONALITY
Our traffic generally declines on all our web sites during the fourth quarter due to weather
and the holiday season when consumers are less likely to search for real estate. Historically, this
has caused revenue from our Media business to decline in the fourth quarter, as this business
includes revenue models that are directly tied to traffic levels.
This seasonal decline in traffic can also negatively impact the revenue from our “Featured”
products in both New Homes and Rentals as that revenue is generated on a cost-per-click basis.
GEOGRAPHIC REGIONS
We derive all of our revenue from our operations in North America.
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INFRASTRUCTURE AND TECHNOLOGY
We seek to maintain and enhance our market position with consumers and real estate
professionals by building proprietary systems and consumer features into our web sites, such as
search engines for real estate listings and the technologies used to aggregate real estate content.
We regard many elements of our web sites and underlying technologies as proprietary, and we attempt
to protect these elements and underlying technologies by relying on trademark, service mark,
patent, copyright and trade secret laws, restrictions on disclosure and other methods. See
“Intellectual Property” below.
Our web sites are designed to provide fast, secure and reliable high-quality access to our
services, while minimizing the capital investment needed for our computer systems. We have made,
and expect to continue to make, technological improvements designed to reduce costs and increase
the attractiveness to the consumer and the efficiency of our systems. We expect that enhancements
to our web sites, and our products and services, will come from internally and externally developed
technologies.
Our systems supporting our web sites must accommodate a high volume of user traffic, store a
large number of listings and related data, process a significant number of user searches and
deliver frequently updated information. Significant increases in utilization of these services
could potentially strain the capacity of our computers, causing slower response times or outages.
Through 2008, our systems have been able to respond to increased content and more frequent updates
to the content on the sites as well as higher consumer demand. We host all of our web sites, as
well as custom broker web pages and the on-line subscription product for Top Producer® in Phoenix,
Arizona. See “Risk Factors — Internet Industry Risks” for a more complete description of the risks
related to our computer infrastructure and technology.
INTELLECTUAL PROPERTY
We regard substantial elements of our web sites and underlying technology as proprietary. We
attempt to protect our intellectual property by relying on a combination of trademark, service
mark, patent, copyright and trade secret laws, restrictions on disclosure, and other methods.
Despite our precautions, our intellectual property is subject to a number of risks that may
materially adversely affect our business, including, but not limited to, the following:
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it may be possible for a third party to copy or otherwise obtain and use our proprietary
information without authorization, or to develop similar technology independently; |
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we could lose the use of the REALTOR.com® trademark or the REALTOR.com® domain name, or
be unable to protect the other trademarks or web site addresses that are important to our
business, and therefore would need to devote substantial resources toward developing an
independent brand identity; |
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we could be subject to litigation with respect to our intellectual property rights or
those of third parties providing us with content or other licensed material; |
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we may be required to license additional technology and information from others, which
could require substantial expenditures by us; and |
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legal standards relating to the validity, enforceability and scope of protection of
proprietary rights in Internet-related businesses are uncertain and continue to evolve, and
we can give no assurance regarding our ability to protect our intellectual property and
other proprietary rights. |
See “Risk Factors — Risks Related to Our Business” for a more complete description of the
risks related to our intellectual property.
EMPLOYEES
As of December 31, 2008, we had 1,181 active full-time equivalent employees, of which, 166
were employed by our Welcome Wagon® business which we are currently marketing for sale and which is
classified as a discontinued operation. We consider our relations with our employees to be good. No
employee is represented by a collective bargaining agreement and we have never had a work stoppage.
We believe that our future success will depend in part on our ability to attract, integrate, retain
and motivate highly qualified personnel and upon the continued service of our senior management and
key technical personnel. See “Risk Factors — Risks Related to Our Business.”
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AVAILABLE INFORMATION
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports, as well as our proxy statements and other information, with
the SEC. In most cases, those documents are available, without charge, on our web site at
http://investor.move.com as soon as reasonably practicable after they are filed electronically with
the SEC. Copies are also available, without charge, from Move, Inc., Investor Relations, 30700
Russell Ranch Road, Westlake Village, CA 91362. You may also read and copy these documents at the
SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549 under our SEC
file number (000-26659), and you may obtain information on the operation of the public reference
room by calling the SEC at 1-800-SEC-0330. In most cases, these documents are available over the
Internet from the SEC’s web site at http://www.sec.gov.
Item 1A. Risk Factors.
You should consider carefully the following risk factors and other information included or
incorporated by reference in this Form 10-K/A. The risks and uncertainties described below are not
the only ones we face. Additional risks and uncertainties not presently known to us or that we deem
to be currently immaterial also may impair our business operations. If any of the following risks
actually occur, our business, financial condition and operating results could be materially
adversely affected.
Risks Related to our Business
We have a history of net losses and could incur net losses in the future.
Except for net income of $20.9 million in 2006, and $0.5 million in 2005, we have incurred net
losses every year since 1993 including net losses of $29.2 million, $0.3 million and $7.9 million
for the years ended December 31, 2008, 2007 and 2004, respectively. We have an accumulated deficit
of approximately $2.0 billion. Current market conditions around residential real estate make it
difficult to project if we will become consistently profitable in the future. Furthermore, we have
been making significant changes to our organizational structure and our business models. While
these changes are being implemented with the belief that they will strengthen our business and our
market position in the long run, there can be no assurance that these changes will generate
additional revenue or a more efficient cost structure, which will be needed to return to
profitability.
The emergence of competitors for our services may adversely impact our business.
Our existing and potential competitors include web sites offering real estate related content
and services as well as general purpose online services, and traditional media such as newspapers,
magazines and television that may compete for advertising dollars. The real estate search services
market in which our Real Estate Services division operates is becoming increasingly competitive. A
number of competitors have emerged or intensified their focus on the real estate market, including
Yahoo! Real Estate, Tree.com (formerly Lending Tree and RealEstate.com), Market Leader, Inc.
(formerly HouseValues.com), HomeGain (a division of Classified Ventures, LLC), ApartmentGuide.com,
Rent.com, ForRent.com, Apartments.com, NewHomeGuide.com, NewHomeSource.com and more recently
Trulia, Google, and Zillow as well as general interest consumer web sites that offer home, moving
and finance content, including ServiceMagic, Inc. (a division of InterActive Corp), and Living
Choices (a division of Network Communications, Inc.).
The barriers to entry for web-based services and businesses are low. In addition, parties with
whom we have listing and marketing agreements could choose to develop their own Internet strategies
or competing real estate sites. Many of our existing and potential competitors have longer
operating histories in the Internet market, greater name recognition, larger consumer bases and
significantly greater financial, technical and marketing resources than us. The rapid pace of
technological change constantly creates new opportunities for existing and new competitors and it
can quickly render our existing technologies less valuable. Developments in the real estate search
services market may also encourage additional competitors to enter that market. See “We may not be
able to continue to obtain more listings from MLSs and real estate brokers than other web site
operators” below.
We cannot predict how, if at all, our competitors may respond to our initiatives. We also
cannot provide assurance that our offerings will be able to compete successfully against these
competitors or new competitors that enter our markets.
We may not be able to continue to obtain more listings from MLSs and real estate brokers than
other web site operators.
We believe that the success of REALTOR.com® depends, in part, on displaying a larger and more
current database of existing homes for sale than other web sites. We obtain these listings through
agreements with MLSs that have fixed terms, typically 12 to 36 months. At the end of the term of
each agreement, the MLS could choose not to renew their agreement with us. There are no assurances
the MLSs will continue to renew their agreements to provide listing data to us. If they choose not
to renew their relationship with us, then REALTOR.com® could become less attractive to consumers
and thus, less attractive to our advertising customers.
9
Individual real estate brokers, using IDX technology from their local MLS, can display on
their web sites listings from all participating brokers in the market covered by the MLS. In the
past, the NAR had guidelines in place for MLSs that allowed a broker to prevent MLSs from providing
such broker’s listing data to other brokers’ web sites. In a civil antitrust lawsuit brought
against NAR in 2005, the United States Department of Justice (“DOJ”) challenged this policy by
alleging that it is in violation of federal antitrust laws. In 2008, the NAR and the DOJ reached an
agreement regarding NAR’s multiple listing policy as it pertains to the display of listings from
the MLSs on brokers’ virtual office web sites (“VOWs”). As a result, NAR has required all MLSs to
adopt new VOW policies by February 15, 2009. Under the new policies, MLS participants will no
longer be allowed to opt-out of having their listings shown on the VOWs of other participants, thus
a real estate broker operating a VOW would be permitted to display listings from all MLS
participants on its web site. These VOW policies do not apply to REALTOR.com®. The NAR’s new VOW
policies could make it easier for other web sites operators to aggregate listing data for display
over the Internet in a manner comparable to REALTOR.com®. This could impact how consumers and
customers value our content and product offerings on the REALTOR.com® web site.
Our quarterly financial results are subject to significant fluctuations.
Our quarterly results of operations have varied in the past and may vary significantly in the
future. We have made significant investments in our businesses and incurred restructuring charges
as we have made adjustments to our business model. As we change business models, we could
experience a decline in quarterly revenue. If revenue from these initiatives falls below our
expectations, we may not be able to reduce our spending or change our pricing models rapidly in
response to the shortfall. Fluctuations in our quarterly results could also adversely affect the
price of our common stock.
Other factors that could affect our quarterly operating results include those described
elsewhere in this Form 10-K, and include:
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the level at which real estate agents, brokers, homebuilders and rental owners renew the
arrangements through which they obtain our services; |
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a continued downturn in the residential real estate market and the impact on advertising; |
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the amount of advertising sold on our web sites and the timing of payments for this
advertising; and |
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the costs from pending litigation, including the cost of settlements. |
Negative conditions in the global credit markets may continue to impair the liquidity of a portion
of our investment portfolio.
As of December 31, 2008, our long-term investments included $111.8 million of high-grade (AAA
rated) student loan auction rate securities issued by student loan funding organizations, which
loans are 97% guaranteed under FFELP (Federal Family Education Loan Program). These auction rate
securities (“ARS”) were intended to provide liquidity via an auction process that resets the
interest rate, generally every 28 days, allowing investors to either roll over their holdings or
sell them at par. In February 2008, auctions for the investments in these securities failed to
settle on their respective settlement dates. Consequently, the investments are not currently
liquid and we will not be able to access these funds until a future auction of these investments is
successful, the securities mature, or a buyer is found outside of the auction process. Maturity
dates for these ARS investments range from 2030 to 2047 with principal distributions occurring on
certain securities prior to maturity. We do not have a need to access these funds for operational
purposes for the foreseeable future. Subject to an arbitration proceeding described in Note 23
“Commitments and Contingencies — Legal Proceedings” to our Consolidated Financial Statements in
Item 8 of this Form 10-K, we currently have the intent to hold these ARS investments until their
fair value recovers, until they reach maturity or until they can be sold in a market that
facilitates orderly transactions. We have classified the ARS investment balance as Long-term
Investments because of the inability to determine when these investments will become liquid. We
have also modified our current investment strategy and increased our investments in more liquid
money market and treasury bill investments. During the year ended December 31, 2008, we determined
that there was a decline in the fair value of our ARS investments of approximately $17.6 million
which we deemed as temporary and included in Other Comprehensive Income.
The valuation of our investment portfolio is subject to uncertainties that are difficult to
predict. Factors that may impact its valuation include changes in credit ratings of the securities
as well as to the underlying assets supporting those securities, rates of default of the underlying
assets, underlying collateral value, discount rates and ongoing strength and quality of market
credit and liquidity.
If the current market conditions deteriorate further, or the anticipated recovery in market
values does not occur, we may be required in future periods to record additional unrealized losses
in other comprehensive income (loss) or depending on the circumstances existing at the time, such
losses may be considered other than temporary and recorded as a component of net income (loss).
10
The mortgage, financial and credit markets have been and continue to experience unprecedented
disruption, which have had, and are expected to continue to have, an adverse effect on our
business, financial condition and results of operations.
The ongoing global financial crisis affecting the banking system and financial markets has
resulted in a severe tightening in the credit markets, a low level of liquidity in many financial
markets, and extreme volatility in credit and equity markets. This financial crisis could impact
our business in a number of ways.
The U.S. residential real estate market is currently in a significant downturn due to downward
pressure on housing prices, credit constraints inhibiting home buyers and an exceptionally large
inventory of unsold homes. We cannot predict when the market and related economic forces will
return the U.S. residential real estate industry to normal conditions.
Until market conditions improve, our customers’ ability to continue advertising on our sites
could be adversely impacted.
We could be required to expend substantial amounts in connection with continuing indemnification
obligations to a purchaser of one of our businesses.
As part of the sale in 2002 of our ConsumerInfo division to Experian Holdings, Inc.
(“Experian”), $10.0 million of the purchase price was put in escrow to secure our indemnification
obligations (the “Indemnity Escrow”). The Indemnity Escrow was scheduled to terminate in the third
quarter of 2003, but prior to the scheduled termination, Experian demanded indemnification from us
for claims made against Experian or its subsidiaries by several parties in civil actions and by the
Federal Trade Commission (“FTC”), including allegations of unfair and deceptive advertising in
connection with ConsumerInfo’s furnishing of credit reports and providing “Advice for Improving
Credit” that appeared on its web site both before, during and after our ownership of ConsumerInfo.
Under the stock purchase agreement pursuant to which we sold ConsumerInfo to Experian (the “Stock
Purchase Agreement”), we could have elected to defend against the claims, but because the alleged
conduct occurred both before and after our sale to Experian, we elected to rely on Experian to
defend them, which they did. Substantially all of those claims have now been resolved.
Under the terms of the Stock Purchase Agreement, our maximum potential liability for claims by
Experian is capped at $29.25 million less the balance in escrow, which amount was approximately
$8.5 million on December 31, 2008. During 2008, Experian demanded $29.25 million in indemnity
payments. We denied liability for that sum and a bifurcated arbitration proceeding ensued to
resolve the dispute. The parties have agreed to settle the dispute, the economic terms of which
are that Experian will receive $7.4 million from the escrow and we will receive the balance of the
escrow. Further, the parties agreed to execute a mutual release of all claims which, among other
things, will have the legal effect of terminating our indemnification obligations and make Experian
solely responsible for any unresolved third party claims for which indemnity could have been sought
by Experian against us under the Stock Purchase Agreement. The parties are currently in the
process of documenting this settlement agreement.
We are and may continue to be involved in litigation and other disputes.
Our business and operations may subject us to claims, litigation and other proceedings brought
by private parties and governmental authorities. We are currently involved in several matters,
which are described in Note 23, “Commitments and Contingencies — Legal Proceedings,” to our
Consolidated Financial Statements in Item 8 in this Form 10-K/A.
Litigation may also result from other companies owning or obtaining patents or other
intellectual property rights that could prevent, limit or interfere with our ability to provide our
products and services. In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights, including in the Internet industry, and
companies in the Internet market are increasingly making claims alleging infringement of their
intellectual property rights. We have in the past and are currently involved in intellectual
property-related litigation, and we may be involved in these and other disputes in the future, to
protect our intellectual property or as a result of an alleged infringement of the intellectual
property of others. Any such lawsuit, including those we are currently defending, may result in
significant monetary damages against us that could have an adverse effect on our results of
operations and our financial position. Moreover, even those intellectual property disputes that are
ultimately resolved in our favor, are time-consuming and expensive to resolve and divert
management’s time and attention. In addition to subjecting us to monetary damages, any intellectual
property dispute could force us to do one or more of the following:
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stop selling, incorporating or using services that use the challenged intellectual
property; |
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pay significant sums to obtain a license to the relevant intellectual property that we
are alleged to infringe; and |
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redesign those services that use technology that is the subject of an infringement claim. |
If we are forced to take any of the foregoing actions, such actions could have an adverse
effect on our results of operations and our financial position. Pursuant to our operating agreement
with NAR, we may also be required to indemnify NAR and other third parties
11
for liabilities arising from the infringement or alleged infringement of third parties’
intellectual property rights, and these indemnification obligations could have an adverse effect on
our results of operations and our financial position.
We rely on intellectual property and proprietary rights.
We regard substantial elements of our web sites and underlying technology as proprietary.
Despite our precautionary measures, third parties may copy or otherwise obtain and use our
proprietary information without authorization, or develop similar technology independently. Any
legal action that we may bring to protect our proprietary information could be unsuccessful,
expensive and distract management from day-to-day operations.
Other companies may own, obtain or claim trademarks that could prevent or limit or interfere
with use of the trademarks we use. The REALTOR.com® web site address and trademark and the REALTOR®
trademark are important to our business and are licensed to us by NAR. If we were to lose the
REALTOR.com® domain name or the use of these trademarks, our business would be harmed and we would
need to devote substantial resources toward developing an independent brand identity.
Legal standards relating to the validity, enforceability and scope of protection of
proprietary rights in Internet-related businesses are uncertain and evolving, and we can give no
assurance regarding the future viability or value of any of these proprietary rights.
Our Series B Preferred Stock could make it more difficult for us to raise additional capital.
In November 2005, we sold to Elevation Partners, L.P. and Elevation Employee Side Fund, LLC
(together, “Elevation”) an aggregate of 100,000 shares of our Series B Convertible Participating
Preferred Stock (the “Series B Preferred Stock”) for an aggregate purchase price of $100 million.
For so long as the holders of Series B Preferred Stock hold at least one-sixth of these 100,000
shares of Series B Preferred Stock, we are generally not permitted, without obtaining the consent
of holders representing at least a majority of the then outstanding shares of Series B Preferred
Stock, to create or issue any equity securities that rank senior or on a parity with the Series B
Preferred Stock with respect to dividend rights or rights upon our liquidation. In addition, our
stockholders agreement with Elevation limits the amount of debt we can incur. If we need to raise
additional capital through public or private financing, strategic relationships or other
arrangements to execute our business plan, we would be restricted in the type of equity securities
that we could offer and the amount of debt we can incur without the consent of Elevation. We cannot
offer any assurances that we would be able to obtain that consent. If we were unable to obtain
Elevation’s consent, we may not be able to raise additional capital in the amounts needed to fund
our business or on terms that are desirable.
Our relationship with the NAR is an important part of our business plan and our business could be
harmed if we were to lose the benefits of this agreement.
The REALTOR.com® trademark and web site address and the REALTOR® trademark are owned by NAR.
NAR licenses these trademarks to our subsidiary RealSelect under a license agreement, and
RealSelect operates the REALTOR.com® web site under an operating agreement with NAR. Our operating
agreement with NAR contains restrictions on how we can operate the REALTOR.com® web site. For
example, we can only enter into agreements with entities that provide us with real estate listings,
such as MLSs, on terms approved by NAR. In addition, NAR can require us to include on REALTOR.com®
real estate related content that it has developed.
Our operating agreement with NAR, as amended, also contains a number of provisions that
restrict how we operate our business. For example:
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we would need to obtain the consent of NAR if we want to acquire or develop another
service that provides real estate listings on an Internet site or through other electronic
means; any consent from NAR, if obtained, could be conditioned on our agreeing to conditions
such as paying fees to NAR or limiting the types of content or listings on the web sites or
service or other terms and conditions; |
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we are restricted in the type and subject matter of, and the manner in which we display,
advertisements on the REALTOR.com® web site; |
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NAR has the right to approve how we use its trademarks, and we must comply with its
quality standards for the use of these marks; and |
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we must meet performance standards relating to the availability time of the REALTOR.com®
web site. |
NAR also has significant influence over our corporate governance, including the right to have
one representative as a member of our board of directors (out of a current total of 10) and two
representatives as members of our RealSelect’s subsidiary’s board of directors (out of a current
total of 8). RealSelect also cannot take certain actions, including amending its certificate of
incorporation or
12
bylaws, pledging its assets and making changes in its executive officers or board of
directors, without the consent of at least one of NAR’s representatives on its board of directors.
Although the REALTOR.com® operating agreement is a perpetual agreement and it does not contain
provisions that allow us to terminate, NAR may terminate it for a variety of reasons. These
include:
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the acquisition of us or RealSelect by another party without NAR’s consent; |
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if traffic on the REALTOR.com® site falls below 500,000 unique users per month; |
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a substantial decrease in the number of property listings on our REALTOR.com® site; and |
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a breach of any of our other obligations under the agreement that we do not cure within
30 days of being notified by NAR of the breach. |
If our operating agreement with NAR were terminated, we would be required to transfer a copy
of the software that operates the REALTOR.com® web site and provide copies of our agreements with
data content providers, such as real estate brokers or MLSs, to NAR. NAR would then be able to
operate the REALTOR.com® web site itself or with another third party.
We must dedicate significant resources to market our subscription products and services to real
estate professionals.
Real estate agents are generally independent contractors rather than employees of brokers and
typically spend a majority of their time outside the office. As a result, it is often necessary for
us to communicate with them on an individual basis. This results in relatively high fixed costs
associated with our inside and field-based sales activities. In addition, since we offer services
to both real estate brokers and agents, we are often required to contact them separately when
marketing our products and services.
Our future success depends largely on our ability to attract, retain and motivate qualified
personnel.
Our future success depends on our ability to attract, retain and motivate highly skilled
technical, managerial and sales personnel, senior management and other key personnel. The loss of
the services of key employees would likely have a significantly detrimental effect on our business.
Several of our key senior management have employment agreements that we believe will assist in our
ability to retain them. However, many other key employees do not have employment agreements.
Competition for qualified personnel in our industry and geographical locations is intense.
Attracting and retaining qualified personnel with experience in the real estate industry, a complex
industry that requires a unique knowledge base, is an additional challenge for us. We can give no
assurance that we will be successful in attracting, integrating, retaining and motivating a
sufficient number of qualified employees to conduct our business in the future. The loss of
services of any of our key personnel, excessive turnover of our work force, the inability to retain
and attract qualified personnel in the future or delays in hiring required personnel may have an
adverse effect on our business, operating results or financial condition.
Our net operating loss carry forwards could be substantially limited if we experience an ownership
change as defined in the Internal Revenue Code.
At December 31, 2008, we had gross net operating losses carry forwards (“NOLs”) for federal
and state income tax purposes of approximately $934.6 million and $351.3 million, respectively, and
we could generate NOLs in future years. The federal NOLs will begin to expire in 2018.
Approximately $20.1 million of the state NOLs expired in 2008 and the state NOLs will continue to
expire from 2009 to 2027. Gross net operating loss carry forwards for both federal and state tax
purposes may be subject to an annual limitation under relevant tax laws.
Utilization of the NOLs may also be subject to an annual limitation due to ownership change
limitations that may have occurred or that could occur in the future, as determined by Section 382
of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state
limitations. These ownership changes may limit the amount of NOLs that can be utilized annually to
offset future federal taxable income. Section 382 of the Code contains rules that limit the ability
of a company that undergoes an ownership change, which is generally any change in ownership of more
than 50% of its stock over a three-year period, to utilize its NOLs and certain built-in losses
recognized in years after the ownership change. These rules impact any ownership changes among
stockholders owning directly or indirectly 5% or more of the stock of a company and any change in
ownership arising from a new issuance of stock by the company.
If we undergo an ownership change for purposes of Section 382 of the Code as a result of
future transactions involving our common stock, including purchases or sales of stock between 5%
stockholders, our ability to use our NOLs and to recognize certain built-in losses would be subject
to the limitations under Section 382. Depending on the resulting limitation, a significant portion
of our NOLs could expire before we would be able to recognize the benefit of using them. Our
inability to utilize our NOLs could have a negative impact on our results of operations.
13
Delaware law, our certificate of incorporation and bylaws, and other agreements contain provisions
that could discourage a takeover.
Delaware law, our certificate of incorporation and bylaws, our operating agreement with NAR,
other agreements with business partners and our stockholders agreement with Elevation could have
the effect of delaying or preventing a third party from acquiring us, even if a change in control
would be beneficial to our stockholders. For example, our stockholders are unable to act by written
consent or to fill any vacancy on the Board of Directors. Our stockholders cannot call special
meetings of stockholders for any purpose, including removing any director or the entire Board of
Directors without cause. Certain terms of the Series B Preferred Stock could also discourage a
third party from acquiring us. Upon a change in control, we would be required to make an offer to
repurchase all of the outstanding shares of Series B Preferred Stock for total cash consideration
generally equal to 101% of the liquidation preference ($100 million plus all accrued and unpaid
dividends) plus, under certain circumstances, 101% of a portion of the dividends which would have
accrued had the Series B Preferred Stock remained outstanding. In addition, NAR could terminate the
REALTOR.com® operating agreement if we are acquired and they do not consent to the acquisition.
Real Estate Industry Risks
Our business is dependent on the strength of the real estate industry, which is both cyclical and
seasonal and is affected by general economic conditions.
The real estate industry traditionally has been cyclical. Economic swings in the real estate
industry may be caused by various factors. When interest rates are high or general national and
global economic conditions are or are perceived to be weak, there is typically less sales activity
in real estate. A decrease in the current level of sales of real estate and products and services
related to real estate could adversely affect demand for our products and services. In addition,
reduced traffic on our web sites could cause our subscription and advertising revenue to decline,
which would adversely affect our business.
During recessionary periods, there tends to be a corresponding decline in demand for real
estate, generally and regionally, that could adversely affect certain segments of our business.
Such adverse effects typically are a general decline in rents and sales prices, a decline in
leasing activity, a decline in the level of investments in, and the value of real estate, and an
increase in defaults by tenants under their respective leases. All of these, in turn, adversely
affect revenue for fees and brokerage commissions, which are derived from property sales, annual
rental payments, and property management fees which may or may not influence advertising.
Purchases of real property and related products and services are particularly affected by
negative trends in the general economy. The success of our operations depends to a significant
extent upon a number of factors relating to discretionary consumer and business spending, and the
overall economy, as well as regional and local economic conditions in markets where we operate,
including interest rates, taxation policies, availability of credit, employment levels, wage and
salary levels and fears of terrorist attacks or threats of war.
We could also experience seasonality in our business as we offer new products and new pricing
models. The real estate industry, in most areas of the United States, generally experiences a
decrease in activity during the winter months and traffic on our web sites generally declines
during the fourth quarter, which can negatively affect revenue from our products that are directly
tied to such traffic.
We have risks associated with changing legislation in the real estate industry.
Real estate is a heavily regulated industry in the U.S., including regulation under the Fair
Housing Act, the Real Estate Settlement Procedures Act and state advertising laws. In addition,
states could enact legislation or regulatory policies in the future, which could require us to
expend significant resources to comply. These laws and related regulations may limit or restrict
our activities. As the real estate industry evolves in the Internet environment, legislators,
regulators and industry participants may advocate additional legislative or regulatory initiatives.
Should existing laws or regulations be amended or new laws or regulations be adopted, we may need
to comply with additional legal requirements and incur resulting costs, or we may be precluded from
certain activities. For instance, our Move® Rentals business required us to qualify and register as
a real estate agent/broker in the State of California. To date, we have not spent significant
resources on lobbying or related government issues. Any need to significantly increase our lobbying
or related activities could substantially increase our operating costs.
Internet Industry Risks
Our operations depend upon our ability to maintain and protect our computer systems.
Temporary or permanent outages of our computers or software equipment could have an adverse
effect on our business. Although we have not experienced any material outages to date, we currently
do not have fully redundant systems for our web sites and other
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services at an alternate site. Therefore, our systems are vulnerable to damage from break-ins,
unauthorized access, vandalism, fire, earthquakes, power loss, telecommunications failures and
similar events. Although we maintain insurance against fires, earthquakes and general business
interruptions, the amount of coverage, while adequate to replace assets and compensate for losses
incurred, may not be adequate to compensate for the disruption it causes our customers and
consumers, which could affect our future revenues and traffic.
Experienced computer programmers seeking to intrude or cause harm, or hackers, may attempt to
penetrate our network security from time to time. Although we have not experienced any material
security breaches to date, if a hacker were to penetrate our network security, they could
misappropriate proprietary information or cause interruptions in our services. We might be required
to expend significant capital and resources to protect against, or to alleviate, problems caused by
hackers. We also may not have a timely remedy against a hacker who is able to penetrate our network
security. In addition to purposeful security breaches, the inadvertent transmission of computer
viruses could expose us to litigation or to a risk of loss.
We depend on continued improvements to our computer network.
Any failure of our computer systems that causes interruption or slower response time of our
web sites or services could result in a smaller number of users of our web sites or the web sites
that we host for real estate professionals. If sustained or repeated, these performance issues
could reduce the attractiveness of our web sites to consumers and our subscription products and
services to real estate professionals, providers of real estate-related products and services and
other Internet advertisers. Increases in the volume of our web site traffic could also strain the
capacity of our existing computer systems, which could lead to slower response times or system
failures. This would cause the number of real property search inquiries, advertising impressions,
other revenue producing offerings and our informational offerings to decline, any of which could
hurt our revenue growth and our brand loyalty. We may need to incur additional costs to upgrade our
computer systems in order to accommodate increased demand if our systems cannot handle current or
higher volumes of traffic. We may not be able to project accurately the rate, timing or cost of any
increases in our business, or to expand and upgrade our systems and infrastructure to accommodate
any increases in a timely manner.
We could face liability for information on our web sites and for products and services sold
over the Internet.
We provide third-party content on our web sites, particularly real estate listings. We could
be exposed to liability with respect to this third-party information. Persons might assert, among
other things, that by directly or indirectly providing a link to web sites operated by third
parties, we should be liable for copyright or trademark infringement or other wrongful actions by
the third parties operating those web sites. They could also assert that our third-party
information contains errors or omissions, and consumers could seek damages for losses incurred if
they rely upon incorrect information.
We enter into agreements with other companies under which we share with these other companies’
revenue resulting from advertising or the purchase of services through direct links to or from our
web sites. These arrangements may expose us to additional legal risks and uncertainties, including
local, state, federal and foreign government regulation and potential liabilities to consumers of
these services, even if we do not provide the services ourselves. We cannot offer any assurance
that any indemnification provided to us in our agreements with these parties, if available, will be
adequate.
Even if these claims do not result in liability to us, we could incur significant costs in
investigating and defending against these claims. Our general liability insurance may not cover all
potential claims to which we are exposed and may not be adequate to indemnify us for all liability
that may be imposed.
Item 1B. Unresolved Staff Comments.
None.
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Item 2. Properties:
We maintain the following principal facilities:
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Square |
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Lease |
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Location |
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Expiration |
Principal executive and corporate office(C)(R)(M) |
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Westlake Village, CA |
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137,762 |
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2010 |
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Technology facility(C)(R)(M) |
|
Phoenix, AZ |
|
|
8,114 |
|
|
|
2017 |
|
Operations and customer service center(R)(M) |
|
Scottsdale, AZ |
|
|
46,182 |
|
|
|
2013 |
|
Product development and marketing(C)(R)(M) |
|
Campbell, CA |
|
|
29,767 |
|
|
|
2013 |
|
Welcome Wagon(R)(D) |
|
Plainview, NY |
|
|
48,148 |
|
|
|
2015 |
|
Top Producer®(R) |
|
Richmond, Canada |
|
|
47,114 |
|
|
|
2011 |
|
Enterprise(R) |
|
Milwaukee, WI |
|
|
16,817 |
|
|
|
2010 |
|
Sales offices(M) |
|
Manhattan, NY |
|
|
6,000 |
|
|
|
2012 |
|
|
|
|
| (C — Corporate) |
|
(R — Real Estate Services) (M — Consumer Media)( D — Discontinued Operations) |
We believe that our existing facilities and office space are adequate to meet current
requirements.
Item 3. Legal Proceedings.
From time to time, we are party to various litigation and administrative proceedings relating
to claims arising from our operations in the ordinary course of business. See the disclosure
regarding litigation included in Note 22, “Settlements of Disputes and Litigation — Settlement of
Securities Class Action Lawsuit and Potential Obligations” and “Settlement and Resolution of Other
Litigation,” and Note 23, “Commitments and Contingencies — Legal Proceedings,” to our Consolidated
Financial Statements contained in Item 8 of this Form 10-K/A, which are incorporated herein by
reference. As of the date of this Form 10-K and except as set forth herein, we are not a party to
any other litigation or administrative proceedings that management believes will have a material
adverse effect on our business, results of operations, financial condition or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
We did not submit any matters to a vote of security holders during the fourth quarter of the
fiscal year ended December 31, 2008.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market Information
Our common stock is traded on the NASDAQ Global Select Market under the symbol “MOVE.” The
following table shows the high and low sale prices of the common stock as reported for the periods
indicated.
| |
|
|
|
|
|
|
|
|
| |
|
High |
|
Low |
2007 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
6.69 |
|
|
$ |
5.22 |
|
Second Quarter |
|
|
5.59 |
|
|
|
3.80 |
|
Third Quarter |
|
|
4.55 |
|
|
|
2.36 |
|
Fourth Quarter |
|
|
3.08 |
|
|
|
2.20 |
|
2008 |
|
|
|
|
|
|
|
|
First Quarter |
|
|
3.22 |
|
|
|
1.62 |
|
Second Quarter |
|
|
3.47 |
|
|
|
2.23 |
|
Third Quarter |
|
|
3.16 |
|
|
|
2.00 |
|
Fourth Quarter |
|
|
2.33 |
|
|
|
0.64 |
|
2009 |
|
|
|
|
|
|
|
|
First Quarter (up until March 2, 2009) |
|
|
1.94 |
|
|
|
1.32 |
|
As of March 2, 2009, there were approximately 3,088 record holders of our common stock.
Because many of these shares are held by brokers and other institutions on behalf of stockholders,
we are unable to estimate the total number of stockholders represented by these record holders.
16
Dividends
We have never declared or paid any cash dividends on our common stock and do not anticipate
paying any cash dividends in the foreseeable future, except for an annual dividend of $0.08 to be
paid on the one share of our Series A preferred stock held by NAR. We are obligated to pay
dividends on our Series B Preferred Stock of 3.5% per year, paid quarterly. For the first five
years the Series B Preferred Stock is outstanding, the dividend will be paid “in-kind” in shares of
Series B Preferred Stock. See Note 16, “Series B Convertible Preferred Stock,” to our Consolidated
Financial Statements contained in Item 8 of the Form 10-K/A for information regarding restrictions
on our ability to pay dividends.
Stock Repurchases
There were no purchases of shares under our stock repurchase program for the year ended
December 31, 2008 and the program expired on September 17, 2008.
Recent Sales of Unregistered Securities
There were no sales of unregistered equity securities by Move, Inc. during the year ended
December 31, 2008 that have not previously been reported in a Quarterly Report on Form 10-Q or in a
Current Report on Form 8-K.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2008 regarding compensation plans
(including individual compensation arrangements) under which our equity securities are authorized
for issuance.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Number of Securities |
| |
|
|
|
|
|
Weighted Average |
|
Remaining Available for |
| |
|
Number of Securities to |
|
Exercise Price of |
|
Future Issuance Under |
| |
|
be Issued Upon Exercise |
|
Outstanding |
|
Equity Compensation Plans |
| |
|
of Outstanding Options, |
|
Options, Warrants |
|
(Excluding Securities |
| |
|
Warrants and Rights |
|
and Rights |
|
Reflected in Column (a) |
| Plan Category |
|
(a) |
|
(b) |
|
(c) |
| |
|
(In thousands) |
|
|
|
|
|
(In thousands) |
Equity compensation plans approved by security holders |
|
|
27,092 |
|
|
$ |
3.31 |
|
|
|
13,451 |
|
Equity compensation plans not approved by security holders |
|
|
8,205 |
|
|
$ |
2.73 |
|
|
|
7,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
35,297 |
|
|
$ |
3.17 |
|
|
|
21,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information
Each of the above plans provides that the number of shares with respect to which options may
be granted, and the number of shares of common stock subject to an outstanding option, shall be
proportionately adjusted in the event of a subdivision or consolidation of shares or the payment of
a stock dividend on common stock, and the purchase price per share of outstanding options shall be
proportionately revised.
The Move, Inc. 1999 Stock Incentive Plan, a security-holder approved plan, contains a
provision for an automatic increase in the number of shares available for issuance each January 1
(until January 1, 2009) by an amount equal to 4.5% of the total number of outstanding shares as of
the preceding December 31; provided that the aggregate number of shares that qualify as Incentive
Stock Options (as defined in the plan) must not exceed 20.0 million shares. On January 1, 2009,
6,888,682 additional shares became available under the plan.
Non-Shareholder Approved Plans
Options are granted from the Move, Inc. 2002 Stock Incentive Plan, a plan established in
January 2002 to attract and retain qualified personnel. No more than 40% of the available
securities granted under this plan may be awarded to our directors or executive officers. Option
grants under this plan are non-qualified stock options and generally have a four-year vesting
schedule and a 10-year life.
Other non-shareholder approved plans include the following plans assumed in connection with
prior acquisitions: The 1997-1998 Stock Incentive Plan of Cendant Corporation, the Cendant
Corporation Move.com Group 1999 Stock Option Plan, as amended and restated effective as of March
21, 2000, the Move.com, Inc. 2000 Stock Incentive Plan, the HomeWrite Incorporated 2000 Equity
Incentive Plan, the ConsumerInfo.com, Inc. 1999 Stock Option Plan, the iPlace 2000 Stock Option
Plan, the eNeighborhoods, Inc. 1998 Stock Option Plan, the Qspace, Inc. 1999 Stock Option Plan, the
iPlace, Inc. 2001 Equity Incentive Plan and The Hessel Group, Inc. 2000 Stock Option Plan. Each of
these plans (i) was intended to attract, retain and motivate employees, (ii) was administered by
the Board of Directors or by a committee of the Board of Directors of such entities, and (iii)
provided that options granted thereunder
17
would be exercisable as determined by such Board of Directors or committee, provided that no
option would be exercisable after the expiration of 10 years after the grant date. We granted
1,726,000 options under these plans in 2007, but we did not grant any option under these plans in
2008 or 2006. Options outstanding as of December 31, 2008 pursuant to compensation plans assumed in
connection with prior acquisitions, in the aggregate, total 1,777,691 and the weighted average
exercise price of those option shares is $4.81.
For additional information regarding our equity compensation plans, see Note 15, “Stock
Plans,” to our Consolidated Financial Statements contained in Item 8 of this Form 10-K/A.
18
Item 6. Selected Financial Data
Information that has been previously filed or otherwise reported for the periods presented in
this Item 6 is superseded by the information in this report, and the previously filed financial
statements and related financial information and opinions of our independent registered public
accounting firm contained in such reports should no longer be relied upon.
You should read the following selected consolidated financial data together with the
Consolidated Financial Statements and related notes included in “Part II — Item 8. Financial
Statements and Supplementary Data” and “Part II — Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this Form 10-K/A.
The consolidated statement of operations data for the years ended December 31, 2008, 2007 and
2006 and the consolidated balance sheet data as of December 31, 2008 and 2007 are derived from our
audited Consolidated Financial Statements included in “Part II — Item 8. Financial Statements and
Supplementary Data” of this Form 10-K/A. The consolidated statement of operations data for the
years ended December 31, 2005 and 2004 and the consolidated balance sheet data as of December 31,
2006, 2005 and 2004 have been derived from audited Consolidated Financial Statements not included
in this Form 10-K. Pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 144
“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), our Consolidated
Financial Statements for all periods presented reflects the classification of our Welcome Wagon,
Homeplans, Wyldfyre and CFT divisions as discontinued operations.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(As restated)(2) |
|
|
(As restated)(2) |
|
|
(As restated)(2) |
|
|
|
|
|
|
|
|
|
| |
|
(In thousands, except per share amounts) |
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1) |
|
$ |
242,069 |
|
|
$ |
248,919 |
|
|
$ |
238,752 |
|
|
$ |
202,653 |
|
|
$ |
168,263 |
|
Cost of revenue(1) |
|
|
46,041 |
|
|
|
42,908 |
|
|
|
41,154 |
|
|
|
33,284 |
|
|
|
31,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
196,028 |
|
|
|
206,011 |
|
|
|
197,598 |
|
|
|
169,369 |
|
|
|
137,052 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing(1) |
|
|
93,531 |
|
|
|
89,954 |
|
|
|
86,765 |
|
|
|
70,151 |
|
|
|
68,840 |
|
Product and web site development(1) |
|
|
26,342 |
|
|
|
34,656 |
|
|
|
31,969 |
|
|
|
21,257 |
|
|
|
15,111 |
|
General and administrative(1) |
|
|
77,571 |
|
|
|
72,731 |
|
|
|
70,113 |
|
|
|
71,861 |
|
|
|
58,071 |
|
Amortization of intangible assets |
|
|
756 |
|
|
|
761 |
|
|
|
699 |
|
|
|
1,296 |
|
|
|
5,601 |
|
Restructuring charges(1) |
|
|
4,412 |
|
|
|
— |
|
|
|
(278 |
) |
|
|
(1,331 |
) |
|
|
1,316 |
|
Impairment of long-lived assets(1) |
|
|
1,670 |
|
|
|
4,824 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Litigation settlement |
|
|
— |
|
|
|
3,900 |
|
|
|
— |
|
|
|
1,750 |
|
|
|
2,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
204,282 |
|
|
|
206,826 |
|
|
|
189,268 |
|
|
|
164,984 |
|
|
|
151,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations |
|
|
(8,254 |
) |
|
|
(815 |
) |
|
|
8,330 |
|
|
|
4,385 |
|
|
|
(14,055 |
) |
Interest income, net |
|
|
5,687 |
|
|
|
9,852 |
|
|
|
7,250 |
|
|
|
2,351 |
|
|
|
673 |
|
Other income, net |
|
|
1,091 |
|
|
|
1,493 |
|
|
|
17,274 |
|
|
|
530 |
|
|
|
935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
(1,476 |
) |
|
|
10,530 |
|
|
|
32,854 |
|
|
|
7,266 |
|
|
|
(12,447 |
) |
Provision for income taxes |
|
|
549 |
|
|
|
501 |
|
|
|
134 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(2,025 |
) |
|
|
10,029 |
|
|
|
32,720 |
|
|
|
7,266 |
|
|
|
(12,447 |
) |
Gain on disposition of discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
855 |
|
|
|
7,294 |
|
Loss from discontinued operations(1) |
|
|
(27,165 |
) |
|
|
(10,345 |
) |
|
|
(11,863 |
) |
|
|
(7,576 |
) |
|
|
(2,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(29,190 |
) |
|
|
(316 |
) |
|
|
20,857 |
|
|
|
545 |
|
|
|
(7,886 |
) |
Convertible preferred stock dividend and related accretion |
|
|
(5,108 |
) |
|
|
(4,977 |
) |
|
|
(4,859 |
) |
|
|
(408 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
$ |
(34,298 |
) |
|
$ |
(5,293 |
) |
|
$ |
15,998 |
|
|
$ |
137 |
|
|
$ |
(7,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share applicable to common stockholders
Continuing operations |
|
$ |
(0.05 |
) |
|
$ |
0.03 |
|
|
$ |
0.18 |
|
|
$ |
0.05 |
|
|
$ |
(0.09 |
) |
Discontinued operations |
|
|
(0.18 |
) |
|
|
(0.07 |
) |
|
|
(0.08 |
) |
|
|
(0.05 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share applicable to common stockholders |
|
$ |
(0.23 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.11 |
|
|
$ |
0.00 |
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share applicable to common stockholders
Continuing operations |
|
$ |
(0.05 |
) |
|
$ |
0.03 |
|
|
$ |
0.17 |
|
|
$ |
0.04 |
|
|
$ |
(0.09 |
) |
Discontinued operations |
|
|
(0.18 |
) |
|
|
(0.07 |
) |
|
|
(0.07 |
) |
|
|
(0.04 |
) |
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share applicable to common stockholders |
|
$ |
(0.23 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.10 |
|
|
$ |
0.00 |
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation of income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
151,952 |
|
|
|
154,524 |
|
|
|
151,170 |
|
|
|
147,175 |
|
|
|
136,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
151,952 |
|
|
|
154,524 |
|
|
|
163,394 |
|
|
|
182,548 |
|
|
|
136,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
| (1) |
|
The following chart summarizes the stock-based compensation and
charges that have been included in the following captions for the
periods presented: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(As restated)(2) |
|
|
(As restated)(2) |
|
|
(As restated)(2) |
|
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
Cost of revenue |
|
$ |
144 |
|
|
$ |
130 |
|
|
$ |
140 |
|
|
$ |
— |
|
|
$ |
— |
|
Sales and marketing |
|
|
758 |
|
|
|
1,309 |
|
|
|
1,765 |
|
|
|
291 |
|
|
|
301 |
|
Product and web site development |
|
|
566 |
|
|
|
1,181 |
|
|
|
1,339 |
|
|
|
— |
|
|
|
— |
|
General and administrative |
|
|
10,857 |
|
|
|
12,380 |
|
|
|
12,510 |
|
|
|
824 |
|
|
|
518 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
570 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from continuing operations |
|
|
12,325 |
|
|
|
15,570 |
|
|
|
15,754 |
|
|
|
1,115 |
|
|
|
819 |
|
Total from discontinued operations |
|
|
135 |
|
|
|
514 |
|
|
|
1,169 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation and charges |
|
$ |
12,460 |
|
|
$ |
16,084 |
|
|
$ |
16,923 |
|
|
$ |
1,115 |
|
|
$ |
819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
| |
|
(In thousands) |
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments |
|
$ |
108,935 |
|
|
$ |
175,613 |
|
|
$ |
157,848 |
|
|
$ |
152,322 |
|
|
$ |
59,859 |
|
Total assets |
|
|
292,007 |
|
|
|
282,528 |
|
|
|
285,949 |
|
|
|
249,026 |
|
|
|
150,504 |
|
Obligation under capital lease |
|
|
339 |
|
|
|
2,167 |
|
|
|
4,071 |
|
|
|
1,005 |
|
|
|
2,765 |
|
Series B convertible preferred stock |
|
|
106,297 |
|
|
|
101,189 |
|
|
|
96,212 |
|
|
|
91,349 |
|
|
|
— |
|
Total stockholders’ equity |
|
$ |
67,839 |
|
|
$ |
104,477 |
|
|
$ |
101,452 |
|
|
$ |
61,924 |
|
|
$ |
57,393 |
|
|
|
|
| (2) |
|
See Note 26 “Restatement of Previously Issued Consolidated Financial Statements” to our
Consolidated Financial Statements for a discussion of these adjustments. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with our audited Consolidated
Financial Statements for the years ended December 31, 2008, 2007 and 2006 and related notes
included in “Part II — Item 8. Financial Statements and Supplementary Data” of this Form 10-K/A.
Overview
Our History
We were incorporated in 1993 under the name of InfoTouch Corporation with the objective of
establishing an interactive network of real estate “kiosks” for consumers to search for homes. In
1996, we began to develop the technology to build and operate real estate related Internet sites.
In 1996, we entered into a series of agreements with NAR and several investors and transferred
technology and assets to a newly-formed subsidiary, which ultimately became RealSelect, Inc.
RealSelect, Inc. in turn entered into a number of formation agreements with, and issued cash and
common stock representing a 15% ownership interest in RealSelect, Inc. to, NAR in exchange for the
rights to operate the REALTOR.com® web site and pursue commercial opportunities relating to the
listing of real estate on the Internet. That 15% ownership in RealSelect, Inc. was exchanged for
stock in a new parent company, Homestore.com, Inc., in August 1999. Our initial operating
activities primarily consisted of recruiting personnel, developing our web site content and raising
our initial capital and we began actively marketing our advertising products and services to real
estate professionals in January 1997. We changed our name to Homestore, Inc. in May 2002 and to
Move, Inc. in June 2006.
Our Business
Move, Inc. and its subsidiaries (“Move”, “we”, “our” or “us”) operate the leading online
network of web sites for real estate search, finance, moving and home enthusiasts and is the
essential resource for consumers seeking the information and connections they need before, during
and after a move. Our flagship consumer web sites are Move.com, REALTOR.com® and Moving.com. We
also provide lead management software for real estate agents and brokers through our Top Producer®
business.
On our web sites we display comprehensive real estate property content, with over four million
resale, new home and rental listings, as well as extensive move-related information and tools. We
hold a significant leadership position over our competitors in terms of web traffic, attracting an
average of 8.1 million consumers to our network per month in 2008 according to comScore Media
20
Metrix, a substantial lead over the next leading real estate site. The total minutes on our
sites exceeded the total of the next six competitors combined. We also have strong relationships
with the real estate industry, including content agreements with approximately 900 Multiple Listing
Services (“MLS”) across the country and exclusive partnerships with the National Association of
REALTORS® (“NAR”) and the National Association of Home Builders (“NAHB”).
Our vision is to revolutionize the American dream of home ownership. A home is the single
largest investment in most people’s lives, and we believe a tremendous opportunity exists to help
transform the difficult process of finding a place to live into the emotional connection of home.
Our mission is to be the most trusted source for real estate online.
Business Trends and Conditions
In recent years, our business has been, and we expect may continue to be, influenced by a
number of macroeconomic, industry-wide and product-specific trends and conditions:
| |
• |
|
Market and economic conditions. In recent years, the U.S. economy has experienced low
interest rates, and volatility in the equities markets. Through 2005, housing starts
remained strong, while the supply of apartment housing generally exceeded demand. For a
number of years prior to 2007, owning a home became much more attainable for the average
consumer due to the availability of flexible mortgage options, which required minimal down
payments and provided low interest rates. During this period, home builders spent less on
advertising, given the strong demand for new houses, and homeowners who were looking to sell
a home only had to list it at a reasonable price in most areas of the U.S. to sell in 60
days or less. Conversely, demand for rental units declined and apartment owners did not
spend as much money on advertising, as they have sought to achieve cost savings during the
difficult market for rentals. These trends had an impact on our ability to grow our
business. |
| |
| |
|
|
Beginning in the second half of 2006, the market dynamics seemed to reverse. Interest rates rose
and mortgage options began to decline. The housing market became saturated with new home
inventory in many large metropolitan markets and the available inventory of resale homes began
to climb as demand softened. The impact of the rise in interest rates caused demand for homes to
decline substantially by mid-2007. In the second half of 2007, the availability of mortgage
financing became very sparse. The lack of liquidity coupled with increased supply of homes and
declining prices had a significant impact on real estate professionals, our primary customers. |
| |
| |
|
|
Throughout 2008, market conditions continued to decline and in late September, the stock market
declines negatively impacted the liquidity of the markets in general and have contributed to the
decline in consumer spending. With the exception of very few markets, new home starts have
ground to a halt. Consumer confidence has declined and while mortgage rates have appeared to
decline slightly, the credit standards are perceived to be the tightest they have been in the
last 15 years. The combination of these factors has had a negative impact on the demand for
homes. |
| |
| |
|
|
These changing conditions resulted in fewer home purchases and forced many real estate
professionals to reconsider their marketing spend. In 2006, we saw many customers begin to shift
their dollars from conventional offline channels, such as newspapers and real estate guides, to
the Internet. We saw many brokers move their spending online and many home builders increased
their marketing spend to move existing inventory, even as they slowed their production and our
business grew as a result. However, as the slow market continued into 2008, it has caused our
rate of growth to decline. While the advertising spend by many of the large agents and brokers
online appears steady, some of the medium and smaller brokers and agents have reduced expenses
to remain in business and this will cause our growth rate to decline further and possibly
experience a decline in revenue as we move into 2009. |
| |
| |
• |
|
Evolution of Our Product and Service Offerings and Pricing Structures. |
Real Estate Services segment: Our Real Estate Services began as a provider of Internet
applications to real estate professionals. It became apparent that our customers valued the media
exposure that the Internet offered them, but not all of the “technology” that we were offering.
Many of our customers objected to our proposition that they purchase our templated web site in
order to gain access to our networks. In addition, we were charging a fixed price to all customers
regardless of the market they operated in or the size of their business.
We responded to our customers’ needs and revamped our service offerings. We began to price our
REALTOR.com® services based on the size of the market and the number of properties the customer
displayed. For many of our customers this change led to substantial price increases over our former
technology pricing. This change was reasonably well-accepted by our customers.
In 2006, we changed the business model for our New Homes and Rentals businesses. Prior to that
time, we charged homebuilders and rental owners to list their properties on our HomeBuilder.com®
and RENTNET® web sites. When we launched the Move.com web site on May 1, 2006, we replaced our new
home site, HomeBuilder.com, and our apartment rental site, RENTNET, with Move.com. In conjunction
with this change, we began to crawl the web to display any new home and apartment listing for no
charge.
21
We continued to obtain revenue from enhanced listings, including our Showcase Listing and
Featured Listing products, as well as other forms of advertising on the sites. Featured Listings,
which appear above the algorithmically-generated search results, are priced on a fixed
“cost-per-click” basis. When we launched the Move.com web site, existing listing subscription
customers were transitioned into our new products having comparable value for the duration of their
existing subscription. While the consumer was provided with significantly more content, the number
of leads to our paying customers declined.
In today’s market, our real estate professional customers are facing a decline in their
business and have to balance their marketing needs with their ability to pay. As a result, they are
demanding products that perform and provide measurable results for their marketing spend. We are
evaluating customer feedback and balancing that with the need for an improved consumer experience
and have modified our products and our pricing to be responsive to both.
Consumer Media segment: The decline in consumer confidence and the resulting decline in
consumer spending has caused many of our traditional consumer advertisers to reduce their spending.
These economic conditions have caused the decline in our revenue in this segment to continue. It
could take considerable time before this segment yields meaningful growth, if at all. Significant
growth will require that we introduce new targeted products that are responsive to advertisers’
demands and are presented to consumers much more timely.
This market decline has also impacted our Welcome Wagon® business, causing us to decide in the
second quarter of 2008 to market this business for sale. The results of operations of Welcome
Wagon have been classified as discontinued operations for all periods presented.
Acquisitions and Dispositions
In the second quarter of 2008, we decided to divest our Welcome Wagon® business, which had
been reported as part of our Consumer Media segment. We are actively marketing the business for
sale and expect to complete a transaction in 2009.
In the fourth quarter of 2007, we decided to divest our Homeplans business, which had been
reported as part of our Consumer Media segment. In the second quarter of 2008, we closed the sale
of the business for a sales price of approximately $1 million in cash. The transaction did not
result in any significant gain or loss on disposition.
On February 21, 2006, we acquired certain assets and assumed certain liabilities of
Moving.com, Inc. from TMP Directional Marketing, LLC for approximately $9.6 million in cash.
Moving.com connects consumers with moving companies, van lines, truck rental providers and self
storage facilities. The acquisition has been accounted for as a purchase. The acquisition cost has
been allocated to the assets acquired based on their respective fair values. We integrated
Moving.com’s product offering into our new Move offering in 2006.
Pursuant to SFAS No. 144, our Consolidated Financial Statements for all periods presented
reflects the classification of our Welcome Wagon® and Homeplans divisions as discontinued
operations. Accordingly, the revenue, operating expenses, and cash flows of these divisions have
been excluded from the respective captions in the Consolidated Statements of Operations and
Consolidated Statements of Cash Flows and have been reported as “Loss from discontinued
operations,” net of applicable income taxes of zero; and as “Net cash provided by (used in)
discontinued operations.” Total revenue and loss from discontinued operations are reflected below
(in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Revenue |
|
$ |
31,452 |
|
|
$ |
44,250 |
|
|
$ |
51,632 |
|
Total operating expenses |
|
|
(41,027 |
) |
|
|
(51,521 |
) |
|
|
(63,495 |
) |
Restructuring charges |
|
|
(1,584 |
) |
|
|
— |
|
|
|
— |
|
Impairment of long-lived assets |
|
|
(16,006 |
) |
|
|
(3,074 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
$ |
(27,165 |
) |
|
$ |
(10,345 |
) |
|
$ |
(11,863 |
) |
|
|
|
|
|
|
|
|
|
|
The carrying amounts of the major classes of assets and liabilities of the discontinued
operations are as follows (in thousands):
| |
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
Total current assets |
|
$ |
6,524 |
|
Property and equipment, net |
|
|
2,736 |
|
Goodwill and other assets |
|
|
15,157 |
|
|
|
|
|
Total assets of discontinued operations |
|
$ |
24,417 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
5,429 |
|
|
|
|
|
Total liabilities of discontinued operations |
|
$ |
5,429 |
|
|
|
|
|
22
Critical Accounting Policies, Estimates and Assumptions
Our discussion and analysis of our financial condition and results of operations is based upon
our Consolidated Financial Statements, which have been prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”). The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to revenue recognition, uncollectible receivables,
valuation of investments, intangible and other long-lived assets, stock-based compensation and
contingencies. We base our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our Consolidated Financial Statements: revenue
recognition; valuation allowances, specifically the allowance for doubtful accounts; valuation of
investments; valuation of goodwill, identified intangibles and other long-lived assets; stock-based
compensation; and legal contingencies.
Management has discussed the development and selection of the following critical accounting
policies, estimates and assumptions with the Audit Committee of our Board of Directors and the
Audit Committee has reviewed these disclosures.
Revenue Recognition
We derive our revenue primarily from two sources (i) advertising revenue for running online
advertising on our web sites and (ii) software revenue, which includes software licenses.
As described below, significant management judgments and estimates must be made and used in
connection with the revenue recognized in any accounting period.
We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue
Recognition”, and Emerging Issues Task Force Issue (“EITF”) 00-21, “Revenue Arrangements with
Multiple Deliverables”. Revenue is recognized only when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price is fixed or determinable,
and collectibility is reasonably assured.
We assess collection based on a number of factors, including past transaction history with the
customer and the credit worthiness of the customer. We do not request collateral from our
customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and
recognize revenue at the time collection becomes reasonably assured, which is generally upon
receipt of cash. Cash received in advance is recorded as deferred revenue until earned.
Advertising Revenue — We primarily sell online advertising. Online advertising revenue
includes three revenue streams: (i) impression based, (ii) fixed fee subscriptions and (iii)
variable, performance based agreements. The impressions 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 fixed fee subscription revenue is recognized
ratably over the period in which the services are provided. We measure performance related to
advertising obligations on a monthly basis prior to the recording of revenue.
Software Revenue — We generally license our software product on a monthly subscription basis.
Our hosting arrangements require customers to pay a fixed fee and receive service over a period of
time, generally one year. Revenue is recognized ratably over the service period.
Allowance for Doubtful Accounts
Our estimate for the allowance for doubtful accounts related to trade receivables is based on
two methods. The amounts calculated from each of these methods are combined to determine the total
amount to be reserved. First, we evaluate specific accounts where we have information that the
customer may have an inability to meet its financial obligations. In these cases, we use our
judgment, based on the best available facts and circumstances, and record a specific reserve for
that customer against amounts due to reduce the receivable to the amount that is expected to be
collected. These specific reserves are reevaluated and adjusted as additional information is
received that impacts the amount reserved. Second, an additional reserve is established for all
customers based on a range of percentages applied to aging categories. These percentages are based
on historical collection and write-off experience. If circumstances change (i.e., higher than
expected defaults or an unexpected material adverse change in a major customer’s ability to meet
its financial obligation to us) our estimates of the recoverability of amounts due to us could be
reduced or increased by a material amount.
23
Valuation of Long-term Investments
On January 1, 2008, we adopted the provision of SFAS No. 157, “Fair Value Measurement,” which
defines fair value as the price that would be received to sell an asset in an orderly transaction
between market participants at the reporting date. Our Long-term Investments consist of ARS
investments which are not currently trading and therefore do not have a readily determinable market
value. We used a discounted cash flow model to estimate the fair value of these ARS investments as
of December 31, 2008. The assumptions used in preparing the discounted cash flow model includes
estimates for interest rates, timing and amount of cash flows and expected holding period of the
ARS. If any of the assumptions used in the discounted cash flow model change significantly, the
fair value of our ARS investments may differ materially in the future from that recorded in the
current period. We believe the fair value accounting associated with our investments is a critical
accounting policy because it requires the use of complex judgment in its application.
Valuation of Goodwill, Identified Intangibles and Other Long-lived Assets
Under the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting
Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” goodwill is not amortized, but
is tested for impairment at a reporting unit level on an annual basis and between annual tests if
an event occurs or circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying value amount. Events or circumstances which could trigger an
impairment review include a significant adverse change in legal factors or in the business climate,
an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel,
significant changes in the manner of our use of the acquired assets or the strategy for our overall
business, significant negative industry or economic trends, significant declines in our stock price
for a sustained period or significant underperformance relative to expected historical or projected
future operating results.
In testing for a potential impairment of goodwill, we first compare the estimated fair value
of each reporting unit 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 of the respective reporting unit is less than book value, then we are
required to compare the carrying amount of the goodwill with its implied fair value. The estimate
of implied fair value of goodwill may require independent valuations of certain internally
generated and unrecognized intangible assets such as our subscriber base, software and technology
and patents and trademarks. If the carrying amount of our goodwill exceeds the implied fair value
of that goodwill, an impairment loss would be recognized in an amount equal to the excess.
Stock-Based Compensation
On January 1, 2006, we adopted the provision of SFAS No. 123 (revised 2004), “Share-Based
Payment” (“SFAS 123R”) which requires that compensation expense be measured and recognized at an
amount equal to the fair value of share-based payments granted under compensation arrangements. We
calculated the fair value of stock options by using the Black-Scholes option-pricing model. The
determination of the fair value of share-based awards at the grant date requires judgment in
developing assumptions, which involve a number of variables. These variables include, but are not
limited to, the expected stock-price volatility over the term of the awards, the expected dividend
yield and the expected stock option exercise behavior. Additionally, judgment is also required in
estimating the number of share-based awards that are expected to forfeit. Our computation of
expected volatility is based on a combination of historical and market-based implied volatility.
The expected term of options granted was derived from an analysis of optionees’ historical
post-vest exercise behavior.
If any of the assumptions used in the Black-Scholes model change significantly, stock-based
compensation expense may differ materially in the future from that recorded in the current period.
We believe the accounting for stock-based compensation is a critical accounting policy because it
requires the use of complex judgment in its application.
Legal Contingencies
We are currently involved in certain legal proceedings, as discussed in Note 23, “Commitments
and Contingencies — Legal Proceedings” to our Consolidated Financial Statements in Item 8 of this
Form 10-K/A. For those matters where we have reached agreed-upon settlements, we have estimated the
amount of those settlements and accrued the amount of the settlement in our financial statements.
Because of the uncertainties related to both the amount and range of loss on the remaining pending
litigation, we are unable to make a reasonable estimate of the liability that could result from an
unfavorable outcome. As additional information becomes available, we will assess the potential
liability related to our pending litigation and revise our estimates. Such revisions in our
estimates of the potential liability could materially impact our results of operations and
financial position.
24
Results of Operations
We have a limited operating history and our business model has been modified over the past
three years. In addition, we appointed a new Chief Executive Officer in January 2009. Our prospects
should be considered in light of the risks, uncertainties, expenses and difficulties frequently
encountered by companies in their early stages of development, particularly companies in new and
rapidly evolving markets such as the Internet. To address these risks, we must, among other things,
be able to continue to:
| |
• |
|
execute our business model, including changes to that model; |
| |
| |
• |
|
respond to highly competitive developments; |
| |
| |
• |
|
attract, retain and motivate qualified personnel; |
| |
| |
• |
|
implement and successfully execute our marketing plans; |
| |
| |
• |
|
continue to upgrade our technologies; |
| |
| |
• |
|
develop new distribution channels; and |
| |
| |
• |
|
improve our operational and financial systems. |
We were able to generate moderate growth in 2006 and 2007, but our revenue declined slightly
in 2008. Although our revenue grew significantly in our early history, you should not consider our
historical growth indicative of future revenue levels or operating results. We have achieved net
income in a few recent quarters in 2006 and 2007, but we did not achieve net income in any quarter
of 2008 and we may not be able to do so in the future. A more complete description of other risks
relating to our business is set forth in “Part I — Item 1A. Risk Factors” of this Form 10-K/A.
Pursuant to SFAS No. 144, our Consolidated Financial Statements for all periods presented reflects
the classification of our Homeplans and Welcome Wagon® divisions as discontinued operations.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(As restated)(2) |
|
|
(As restated)(2) |
|
|
(As restated)(2) |
|
| |
|
(In thousands) |
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
242,069 |
|
|
$ |
248,919 |
|
|
$ |
238,752 |
|
Cost of revenue(1) |
|
|
46,041 |
|
|
|
42,908 |
|
|
|
41,154 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
196,028 |
|
|
|
206,011 |
|
|
|
197,598 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing(1) |
|
|
93,531 |
|
|
|
89,954 |
|
|
|
86,765 |
|
Product and web site development(1) |
|
|
26,342 |
|
|
|
34,656 |
|
|
|
31,969 |
|
General and administrative(1) |
|
|
77,571 |
|
|
|
72,731 |
|
|
|
70,113 |
|
Amortization of intangible assets |
|
|
756 |
|
|
|
761 |
|
|
|
699 |
|
Restructuring charges |
|
|
4,412 |
|
|
|
— |
|
|
|
(278 |
) |
Impairment of long-lived assets(1) |
|
|
1,670 |
|
|
|
4,824 |
|
|
|
— |
|
Litigation settlement |
|
|
— |
|
|
|
3,900 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
204,282 |
|
|
|
206,826 |
|
|
|
189,268 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations |
|
|
(8,254 |
) |
|
|
(815 |
) |
|
|
8,330 |
|
Interest income, net |
|
|
5,687 |
|
|
|
9,852 |
|
|
|
7,250 |
|
Other income, net |
|
|
1,091 |
|
|
|
1,493 |
|
|
|
17,274 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
(1,476 |
) |
|
|
10,530 |
|
|
|
32,854 |
|
Provision for income taxes |
|
|
549 |
|
|
|
501 |
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(2,025 |
) |
|
|
10,029 |
|
|
|
32,720 |
|
Loss from discontinued operations(1) |
|
|
(27,165 |
) |
|
|
(10,345 |
) |
|
|
(11,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(29,190 |
) |
|
|
(316 |
) |
|
|
20,857 |
|
Convertible preferred stock dividend and related accretion |
|
|
(5,108 |
) |
|
|
(4,977 |
) |
|
|
(4,859 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
$ |
(34,298 |
) |
|
$ |
(5,293 |
) |
|
$ |
15,998 |
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
| (1) |
|
The following chart summarizes the stock-based compensation and
charges that have been included in the following captions for the
periods presented: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(As Restated)(2) |
|
|
(As Restated)(2) |
|
|
(As Restated)(2) |
|
| |
|
(In thousands) |
|
Cost of revenue |
|
$ |
144 |
|
|
$ |
130 |
|
|
$ |
140 |
|
Sales and marketing |
|
|
758 |
|
|
|
1,309 |
|
|
|
1,765 |
|
Product and web site development |
|
|
566 |
|
|
|
1,181 |
|
|
|
1,339 |
|
General and administrative |
|
|
10,857 |
|
|
|
12,380 |
|
|
|
12,510 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
570 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total for continuing operations |
|
|
12,325 |
|
|
|
15,570 |
|
|
|
15,754 |
|
Total for discontinued operations |
|
|
135 |
|
|
|
514 |
|
|
|
1,169 |
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation and charges |
|
$ |
12,460 |
|
|
$ |
16,084 |
|
|
$ |
16,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| (2) |
|
See Note 26 “Restatement of Previously Issued Consolidated Financial Statements” to our
Consolidated Financial Statements for a discussion of these adjustments. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(As Restated) |
|
|
(As Restated) |
|
|
(As Restated) |
|
| |
|
(In thousands) |
|
As a Percentage of Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
Cost of revenue |
|
|
19 |
|
|
|
17 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
81 |
|
|
|
83 |
|
|
|
83 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
39 |
|
|
|
36 |
|
|
|
37 |
|
Product and web site development |
|
|
11 |
|
|
|
14 |
|
|
|
13 |
|
General and administrative |
|
|
32 |
|
|
|
29 |
|
|
|
29 |
|
Amortization of intangible assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring charges |
|
|
2 |
|
|
|
— |
|
|
|
— |
|
Impairment of long-lived assets |
|
|
1 |
|
|
|
2 |
|
|
|
— |
|
Litigation settlement |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
84 |
|
|
|
83 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations |
|
|
(3 |
) |
|
|
— |
|
|
|
4 |
|
Interest income, net |
|
|
2 |
|
|
|
4 |
|
|
|
3 |
|
Other income, net |
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
(1 |
) |
|
|
4 |
|
|
|
14 |
|
Provision for income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(1 |
) |
|
|
4 |
|
|
|
14 |
|
Loss from discontinued operations |
|
|
(11 |
) |
|
|
(4 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(12 |
) |
|
|
— |
|
|
|
9 |
|
Convertible preferred stock dividend and related accretion |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
|
(14 |
)% |
|
|
(2 |
)% |
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, 2008 and 2007
Revenue
Revenue decreased $6.8 million, or 3%, to $242.1 million for the year ended December 31, 2008,
compared to $248.9 million for the year ended December 31, 2007. The decrease in revenue was due to
decreases of $3.3 million in the Real Estate Services segment and $3.5 million in the Consumer
Media segment. These changes by segment are explained in the segment information below.
Cost of Revenue
Cost of revenue increased $3.1 million, or 7%, to $46.0 million for the year ended December
31, 2008, compared to $42.9 million for the year ended December 31, 2007. The increase was
primarily due to higher product fulfillment costs of $3.3 million and
26
increased depreciation expense of $1.1 million, partially offset by a decrease of $1.1 million
in software maintenance costs and other cost decreases of $0.2 million.
Gross margin percentage decreased to 81% for the year ended December 31, 2008, compared to 83%
for the year ended December 31, 2007.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased $3.6 million, or 4%, to $93.5
million for the year ended December 31, 2008, compared to $89.9 million for the year ended December
31, 2007. The increase was primarily due to increases in sales compensation costs of $5.7 million
partially offset by decreases in online distribution costs of $1.7 million and other cost decreases
of $0.4 million.
Product and Web Site Development. Product and web site development expenses decreased $8.3
million, or 24%, to $26.3 million for the year ended December 31, 2008, compared to $34.6 million
for the year ended December 31, 2007. The overall decrease was primarily due to a decrease in
consulting costs of $5.7 million, a decrease in personnel related costs of $2.3 million and other
cost decreases of $0.3 million.
General and Administrative. General and administrative expenses increased $4.8 million, or
7%, to $77.5 million for the year ended December 31, 2008, compared to $72.7 million for the year
ended December 31, 2007. The increase was primarily due to an increase in outside legal fees of
$6.7 million related to patent and other litigation partially offset by decreases in personnel
related costs of $1.9 million, $1.5 million of which represented non-cash stock-based compensation.
Amortization of Intangible Assets. Amortization of intangible assets was $0.8 million for the
years ended December 31, 2008 and 2007.
Restructuring Charges. During the third and fourth quarters of 2008, the Company’s Board of
Directors approved restructuring and integration plans with the objective of eliminating duplicate
resources and redundancies and implementing a new operating structure to lower total operating
expenses. As a result of these plans, the Company incurred a restructuring charge from continuing
operations of $4.4 million. Included in these charges were lease charges of $3.0 million related
to the consolidation of our operations in Westlake Village, California and the vacancy of a portion
of the leased facility and severance and other personnel related costs of $1.4 million associated
with a reduction in workforce. There were no restructuring charges for the year ended December 31,
2007.
Impairment of long-lived assets. There was a $1.7 million impairment charge from continuing
operations for the year ended December 31, 2008 primarily due to an impairment charge of $1.8
million associated with previously capitalized costs for software development. In addition, the
Company was able to negotiate a favorable release from certain maintenance obligations related to
long-lived assets impaired in 2007 resulting in a reduction to its impairment charges of
approximately $0.1 million. There was a $4.8 million impairment charge from continuing operations
for the year ended December 31, 2007 primarily due to a $4.2 million charge associated with certain
software costs. In addition, due to the loss of a specific contract and the associated revenue
streams, certain long-lived assets associated with the issuance of warrants were determined to be
impaired. The Company recorded an additional impairment charge of $0.6 million for the year ended
December 31, 2007 for this impairment.
Litigation Settlement. There were no litigation settlement charges for the year ended
December 31, 2008. The Company recorded litigation settlement charges of $3.9 million for the year
ended December 31, 2007. These settlements are discussed in Note 22, “Settlements of Disputes and
Litigation” to the audited Consolidated Financial Statements contained in Item 8 of this Form
10-K/A.
Stock-based Compensation and Charges. The following chart summarizes the stock-based
compensation and charges that have been included in the following captions for each of the periods
presented (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(As restated) |
|
|
(As restated) |
|
Cost of revenue |
|
$ |
144 |
|
|
$ |
130 |
|
Sales and marketing |
|
|
758 |
|
|
|
1,309 |
|
Product and web site development |
|
|
566 |
|
|
|
1,181 |
|
General and administrative |
|
|
10,857 |
|
|
|
12,380 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
570 |
|
|
|
|
|
|
|
|
Total from continuing operations |
|
$ |
12,325 |
|
|
$ |
15,570 |
|
|
|
|
|
|
|
|
Stock-based compensation and charges decreased for the year ended December 31, 2008 primarily
due to the vesting of significantly fewer stock options in the current year compared to prior year.
Additionally, for the year ended December 31, 2007, there were one time charges for stock options
and restricted stock issued to a new executive officer in 2007 that were immediately vested and
impairment of long-lived assets associated with warrants. As of December 31, 2008, there was $22.8
million of
27
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 2.3 years.
Interest Income, Net
Interest income, net, decreased $4.2 million to $5.7 million for the year ended December 31,
2008, compared to $9.9 million for the year ended December 31, 2007, primarily due to decreases in
interest yields on short-term and long-term investments and interest expense related to new
short-term borrowings in 2008 under our line of credit.
Other Income, Net
Other income, net, decreased $0.4 million to $1.1 million for the year ended December 31,
2008, compared to $1.5 million for the year ended December 31, 2007, primarily due to a decrease in
other income recognized from the revaluation of an embedded derivative liability resulting from the
issuance of convertible preferred stock in December 2005.
Income Taxes
As a result of historical net operating losses, the Company would not generally expect to
record a provision for income taxes. However, during the year ended December 31, 2006, the Company
recorded certain indefinite lived intangible assets as a result of a purchase transaction which
creates a permanent difference as the amortization can be recorded for tax purposes but not for
book purposes. A deferred tax provision in the amount of $0.1 million and $0.2 million was recorded
during the years ended December 31, 2008 and 2007, respectively, as a result of this permanent
difference which cannot be offset against net operating loss carryforwards due to its indefinite
life. A current tax provision of $0.1 million and $0.2 million was also recorded during the years
ended December 31, 2008 and 2007, respectively, due to federal alternative minimum taxes incurred
as a result of the utilization of net operating losses against taxable income. An additional
current tax provision of $0.2 million was recorded for the years ended December 31, 2008 and 2007
due to the release of acquired net operating loss carryforwards which were recorded against
Goodwill. An additional $0.2 million tax provision was recorded in the year ended December 31,
2008 for state and local income taxes.
At December 31, 2008, the Company had gross net operating loss carryfowards (“NOLs”) for
federal and state income tax purposes of approximately $934.6 million and $351.3 million,
respectively. The federal NOLs will begin to expire in 2018. Approximately $20.1 million of the
state NOLs expired in 2008 and the state NOLs will continue to expire from 2009 until 2027. Gross
net operating loss carryforwards for both federal and state tax purposes may be subject to an
annual limitation under relevant tax laws. We have provided a full valuation allowance on our
deferred tax assets, consisting primarily of net operating loss carryforwards, due to the
likelihood that we may not generate sufficient taxable income during the carryforward period to
utilize the net operating loss carryforwards.
Segment Information
Segment information is presented in accordance with SFAS No. 131, “Disclosures about Segments
of an Enterprise and Related Information.” This standard is based on a management approach, which
requires segmentation based upon our internal organization and disclosure of revenue and operating
expenses based upon internal accounting methods. Our management evaluates performance and allocates
resources based on two segments consisting of Real Estate Services for those products and services
offered to industry professionals trying to reach new movers and manage their relationships with
them and Consumer Media for those products and services offered to other advertisers who are trying
to reach those consumers in the process of a move. This is consistent with the data that is made
available to our management to assess performance and make decisions.
The expenses presented below for each of the business segments include an allocation of
certain corporate expenses that are identifiable and benefit those segments and are allocated for
internal management reporting purposes. The unallocated expenses are those corporate overhead
expenses that are not directly attributable to a segment and include: corporate expenses, such as
finance, legal, executive, facilities, corporate brand marketing, certain corporate technology
costs including internal business systems, and human resources; amortization of intangible assets;
litigation settlement charges; impairment charges; stock-based charges; and acquisition and
restructuring charges. There is no inter-segment revenue. Assets and liabilities are not fully
allocated to segments for internal reporting purposes.
28
Summarized information by segment as excerpted from internal management reports is as follows
(in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2008 (As restated) |
|
|
Year Ended December 31, 2007 (As restated) |
|
| |
|
Real Estate |
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
|
Consumer |
|
|
|
|
|
|
|
| |
|
Services |
|
|
Media |
|
|
Unallocated |
|
|
Total |
|
|
Services |
|
|
Media |
|
|
Unallocated |
|
|
Total |
|
Revenue |
|
$ |
217,233 |
|
|
$ |
24,836 |
|
|
$ |
— |
|
|
$ |
242,069 |
|
|
$ |
220,546 |
|
|
$ |
28,373 |
|
|
$ |
— |
|
|
$ |
248,919 |
|
Cost of revenue |
|
|
38,394 |
|
|
|
6,554 |
|
|
|
1,093 |
|
|
|
46,041 |
|
|
|
34,677 |
|
|
|
5,875 |
|
|
|
2,356 |
|
|
|
42,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
178,839 |
|
|
|
18,282 |
|
|
|
(1,093 |
) |
|
|
196,028 |
|
|
|
185,869 |
|
|
|
22,498 |
|
|
|
(2,356 |
) |
|
|
206,011 |
|
Sales and marketing |
|
|
75,956 |
|
|
|
12,026 |
|
|
|
5,549 |
|
|
|
93,531 |
|
|
|
71,114 |
|
|
|
13,578 |
|
|
|
5,262 |
|
|
|
89,954 |
|
Product and web site development |
|
|
21,763 |
|
|
|
1,750 |
|
|
|
2,829 |
|
|
|
26,342 |
|
|
|
27,030 |
|
|
|
5,994 |
|
|
|
1,632 |
|
|
|
34,656 |
|
General and administrative |
|
|
27,851 |
|
|
|
4,015 |
|
|
|
45,705 |
|
|
|
77,571 |
|
|
|
27,782 |
|
|
|
4,358 |
|
|
|
40,591 |
|
|
|
72,731 |
|
Amortization of intangible assets |
|
|
— |
|
|
|
— |
|
|
|
756 |
|
|
|
756 |
|
|
|
— |
|
|
|
— |
|
|
|
761 |
|
|
|
761 |
|
Restructuring charges |
|
|
301 |
|
|
|
188 |
|
|
|
3,923 |
|
|
|
4,412 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,900 |
|
|
|
3,900 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
1,670 |
|
|
|
1,670 |
|
|
|
— |
|
|
|
— |
|
|
|
4,824 |
|
|
|
4,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
125,871 |
|
|
|
17,979 |
|
|
|
60,432 |
|
|
|
204,282 |
|
|
|
125,926 |
|
|
|
23,930 |
|
|
|
56,970 |
|
|
|
206,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations |
|
$ |
52,968 |
|
|
$ |
303 |
|
|
$ |
(61,525 |
) |
|
$ |
(8,254 |
) |
|
$ |
59,943 |
|
|
$ |
(1,432 |
) |
|
$ |
(59,326 |
) |
|
$ |
(815 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Services
Real Estate Services consists of products and services that promote and connect real estate
professionals to consumers through our REALTOR.com®, Move.com and SeniorHousingNet.com web sites,
in addition to the customer relationship management applications for REALTORS® offered through the
TOP PRODUCER® business. The Company’s revenue is derived from a variety of advertising and
software services, including enhanced listings, company and property display advertising, customer
management software and web site sales which are sold to those businesses interested in reaching
the Company’s targeted audience or those professionals interested in being more effective in
managing their contact with consumers.
Real Estate Services revenue decreased $3.3 million, or 2%, to $217.2 million for the year
ended December 31, 2008, compared to $220.5 million for the year ended December 31, 2007. The
revenue decrease was primarily generated by a significant decrease in our HomeBuilder.com® business
resulting from the downturn in the housing market. There were modest declines in the REALTOR.com®
business primarily due to decreased Featured Homes™ revenue as a direct result of reduced
purchasing by one large broker customer, partially offset by increased enhanced listing revenues
and Featured CMA™ revenues. There were also modest declines in the Rentals business due to
decreased featured listings revenues. These decreases were partially offset by an increase in
revenue from our Top Producer® product offerings. Real Estate Services revenue represented
approximately 90% of total revenue for the year ended December 31, 2008, compared to 89% of total
revenue for the year ended December 31, 2007.
Real Estate Services expenses increased $3.7 million, or 2%, to $164.3 million for the year
ended December 31, 2008, compared to $160.6 million for the year ended December 31, 2007. There was
a $4.8 million increase in sales and marketing costs primarily due to a $4.1 million increase in
sales compensation costs and $0.7 million in other cost increases and a $3.7 million increase in
cost of sales due to a $1.8 million increase in product fulfillment costs associated with
improvements to the Featured Community™ products, a $1.0 million increase in depreciation expense
associated with the new Top Producer 8i content management software, and a $0.9 million increase in
personnel related costs. There was also a $0.3 million restructuring charge and other cost
increases of $0.2 million. These increases were partially offset by a $5.3 million decrease in
product and web site development costs primarily due to reduced personnel related and consulting
costs.
Real Estate Services generated operating income of $53.0 million for the year ended December
31, 2008, compared to $59.9 million for the year ended December 31, 2007 primarily due to the
decreased revenues and increased costs discussed above. We will continue to seek increased revenue
through new product offerings and new market opportunities.
Consumer Media
Consumer Media consists of on-line advertising products and lead generation tools including
display, text-link and rich advertising positions, directory products, price quote tools and
content sponsorships which we sell to those businesses interested in reaching our targeted
audience. As described in the “Acquisitions and Dispositions” section above, we sold our Homeplans
business and have decided to divest our Welcome Wagon® business and, as a result, the operating
results of these businesses have been reclassified as discontinued operations for all periods
presented.
Consumer Media revenue decreased $3.5 million, or 12%, to $24.8 million for the year ended
December 31, 2008, compared to $28.3 million for the year ended December 31, 2007. The decrease was
primarily generated by a decline in our online display revenue due to reduced revenue per
impression as a result of declining market demand for online advertising. Consumer Media’s revenue
represented approximately 10% of total revenue for the year ended December 31, 2008, compared to
11% of total revenue for the year ended December 31, 2007.
Consumer Media expenses decreased $5.3 million, or 18%, to $24.5 million for the year ended
December 31, 2008, compared to $29.8 million for the year ended December 31, 2007. The decrease was
primarily due to a $4.2 million decrease in product and web
29
site development costs due to lower personnel related and consulting costs and a $1.6 million
decrease in sales and marketing costs due to lower online distribution costs, partially offset by
other costs increases of $0.5 million.
Consumer Media generated operating income of $0.3 million for the year ended December 31,
2008, compared to an operating loss of $1.4 million for the year ended December 31, 2007 primarily
due to factors outlined above. We continue to seek increased revenue through new product offerings
and new market opportunities.
Unallocated
Unallocated expenses increased $2.2 million, or 4%, to $61.5 million for the year ended
December 31, 2008, compared to $59.3 million for the year ended December 31, 2007. The increase
was primarily due to a $6.7 million increase in outside legal costs associated with patent and
other litigation, a $3.9 million restructuring charge, a $2.6 million increase in facilities costs
related to new facilities in Northern California and Arizona and a $1.2 million increase in product
and web site development costs for unallocated projects. These increases were partially offset by
a $3.9 million decrease in litigation settlement charges, a $3.2 million decrease in impairment
charges, a $2.2 million decrease in general and administrative primarily due to reduced personnel
related costs, a $2.0 million decrease in consulting costs, a $0.8 million decrease in software
maintenance costs and other cost decreases of $0.1 million.
For the Years Ended December 31, 2007 and 2006
Revenue
Revenue increased $10.2 million, or 4%, to $248.9 million for the year ended December 31,
2007, compared to $238.7 million for the year ended December 31, 2006. The increase in revenue was
due to an increase of $12.2 million in the Real Estate Services segment partially offset by a
decrease of $2.0 million in the Consumer Media segment. These changes by segment are explained in
the segment information below.
Cost of revenue increased $1.8 million, or 4%, to $42.9 million for the year ended December
31, 2007, compared to $41.1 million for the year ended December 31, 2006. The increase was
primarily due to a $1.8 million increase in hosting and web content costs, a $1.2 million increase
in depreciation expense due to the acquisition of new technology equipment for the data center and
other cost increases of $1.3 million, partially offset by a $1.5 million decrease in facilities
costs due to the relocation of the data center and a $1.0 million decrease in product fulfillment
costs.
Gross margin percentage remained relatively stable at 83% for the years ended December 31,
2007 and December 31, 2006, respectively.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased $3.2 million, or 4%, to $90.0
million for the year ended December 31, 2007, compared to $86.8 million for the year ended December
31, 2006. The increase was primarily due to a $2.3 million increase in personnel related costs, a
$0.9 million increase in consulting costs, a $0.6 million increase in online distribution costs and
other cost increases of $0.1 million, partially offset by decreases in other marketing costs of
$0.7 million.
Product and Web Site Development. Product and web site development expenses increased $2.7
million, or 8%, to $34.7 million for the year ended December 31, 2007, compared to $32.0 million
for the year ended December 31, 2006. The overall increase was primarily due to a $2.5 million
increase in consulting costs to improve the product offerings in the REALTOR.com® and Top Producer®
businesses and other cost increases of $0.2 million.
General and Administrative. General and administrative expenses increased $2.6 million, or
4%, to $72.7 million for the year ended December 31, 2007, compared to $70.1 million for the year
ended December 31, 2006. The increase was primarily due to an increase of $4.8 million in personnel
related costs, $1.2 million of which represented one-time severance costs for a key executive, an
increase of $1.2 million in insurance costs as a result of a one-time refund received in the year
ended December 31, 2006, a $0.8 million charge taken for lease termination costs, and other cost
increases of $0.9 million. These increases were partially offset by a $4.6 million decrease in
consulting costs, $3.2 million of which was due to the completion of the relocation of our data
center in the year ended December 31, 2006, and a $0.5 million decrease in non-cash stock-based
compensation due to the reversal of $4.0 million in previously recognized compensation expense
associated with restricted stock unit grants, partially offset by additional expense due to
one-time charges for stock options and restricted stock issued to a new executive officer that were
immediately vested and new stock option grants.
Amortization of Intangible Assets. Amortization of intangible assets was $0.8 million for the
year ended December 31, 2007 and $0.7 million for the year ended December 31, 2006.
30
Restructuring Charges. There were no restructuring charges for the year ended December 31,
2007. The Company recorded a $0.3 million reduction to our restructuring charges for the year ended
December 31, 2006 as a result of the early buy-out of the remaining lease obligation in Canada.
Impairment of long-lived assets. There was a $4.8 million impairment charge from continuing
operations for the year ended December 31, 2007 primarily due to a $4.2 million charge associated
with certain software costs. In addition, due to the loss of a specific contract and the
associated revenue streams, certain long-lived assets associated with the issuance of warrants were
determined to be impaired. The Company recorded an additional impairment charge of $0.6 million for
the year ended December 31, 2007 for this impairment. There were no impairment of long-lived
assets for the year ended December 31, 2006.
Litigation Settlement. The Company recorded litigation settlement charges of $3.9 million for
the year ended December 31, 2007. There were no litigation settlement charges for the year ended
December 31, 2006. These settlements are discussed in Note 22, “Settlements of Disputes and
Litigation” to our audited Consolidated Financial Statements contained in Item 8 of this Form
10-K/A.
Stock-based Compensation and Charges. The following chart summarizes the stock-based
compensation and charges that have been included in the following captions for each of the periods
presented (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
| |
|
December 31, |
|
| |
|
2007 |
|
|
2006 |
|
| |
|
(As restated) |
|
|
(As restated) |
|
Cost of revenue |
|
$ |
130 |
|
|
$ |
140 |
|
Sales and marketing |
|
|
1,309 |
|
|
|
1,765 |
|
Product and web site development |
|
|
1,181 |
|
|
|
1,339 |
|
General and administrative |
|
|
12,380 |
|
|
|
12,510 |
|
Impairment of long-lived assets |
|
|
570 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total from continuing operations |
|
$ |
15,570 |
|
|
$ |
15,754 |
|
|
|
|
|
|
|
|
Stock-based compensation and charges decreased for the year ended December 31, 2007 primarily
due to the reversal of previously recognized expense for restricted stock units, partially offset
by one-time charges for stock options and restricted stock issued to a new executive officer that
were immediately vested and new stock option grants.
Interest Income, Net
Interest income, net, increased $2.6 million to $9.9 million for the year ended December 31,
2007, compared to $7.3 million for the year ended December 31, 2006, primarily due to increases in
short-term investment balances and higher interest rates on those balances.
Other Income, Net
Other income, net, decreased $15.8 million to $1.5 million for the year ended December 31,
2007, compared to $17.3 million for the year ended December 31, 2006, primarily due to a realized
gain on sale of investments of $15.7 million for the year ended December 31, 2006 resulting from
the sale of certain marketable securities that had previously been permanently impaired and written
off during the year ended December 31, 2001.
Income Taxes
As a result of historical net operating losses, the Company would not generally expect to
record a provision for income taxes. However, during the year ended December 31, 2006, the Company
recorded certain indefinite lived intangible assets as a result of a purchase transaction which
creates a permanent difference as the amortization can be recorded for tax purposes but not for
book purposes. A deferred tax provision in the amount of $0.2 million and $0.1 million was recorded
during the years ended December 31, 2007 and 2006, respectively, as a result of this permanent
difference which cannot be offset against net operating loss carryforwards due to its indefinite
life. A current tax provision of $0.2 million was recorded during the year ended December 31, 2007
due to federal alternative minimum taxes incurred as a result of the utilization of net operating
losses against taxable income. An additional current tax provision of $0.2 million was recorded
for the year ended December 31, 2007 due to the release of acquired net operating loss
carryforwards which was recorded against Goodwill.
Segment Information
Summarized information by segment as excerpted from internal management reports is as follows
(in thousands):
31
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2007 (As restated) |
|
|
Year Ended December 31, 2006 (As restated) |
|
| |
|
Real Estate |
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
|
Consumer |
|
|
|
|
|
|
|
| |
|
Services |
|
|
Media |
|
|
Unallocated |
|
|
Total |
|
|
Services |
|
|
Media |
|
|
Unallocated |
|
|
Total |
|
Revenue |
|
$ |
220,546 |
|
|
$ |
28,373 |
|
|
$ |
— |
|
|
$ |
248,919 |
|
|
$ |
208,339 |
|
|
$ |
30,413 |
|
|
$ |
— |
|
|
$ |
238,752 |
|
Cost of revenue |
|
|
34,677 |
|
|
|
5,875 |
|
|
|
2,356 |
|
|
|
42,908 |
|
|
|
33,323 |
|
|
|
4,675 |
|
|
|
3,156 |
|
|
|
41,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
185,869 |
|
|
|
22,498 |
|
|
|
(2,356 |
) |
|
|
206,011 |
|
|
|
175,016 |
|
|
|
25,738 |
|
|
|
(3,156 |
) |
|
|
197,598 |
|
Sales and marketing |
|
|
71,114 |
|
|
|
13,578 |
|
|
|
5,262 |
|
|
|
89,954 |
|
|
|
69,915 |
|
|
|
12,963 |
|
|
|
3,887 |
|
|
|
86,765 |
|
Product and web site development |
|
|
27,030 |
|
|
|
5,994 |
|
|
|
1,632 |
|
|
|
34,656 |
|
|
|
25,083 |
|
|
|
2,657 |
|
|
|
4,229 |
|
|
|
31,969 |
|
General and administrative |
|
|
27,782 |
|
|
|
4,358 |
|
|
|
40,591 |
|
|
|
72,731 |
|
|
|
30,113 |
|
|
|
3,478 |
|
|
|
36,522 |
|
|
|
70,113 |
|
Amortization of intangible assets |
|
|
— |
|
|
|
— |
|
|
|
761 |
|
|
|
761 |
|
|
|
— |
|
|
|
— |
|
|
|
699 |
|
|
|
699 |
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(278 |
) |
|
|
(278 |
) |
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
3,900 |
|
|
|
3,900 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
4,824 |
|
|
|
4,824 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
125,926 |
|
|
|
23,930 |
|
|
|
56,970 |
|
|
|
206,826 |
|
|
|
125,111 |
|
|
|
19,098 |
|
|
|
45,059 |
|
|
|
189,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations |
|
$ |
59,943 |
|
|
$ |
(1,432 |
) |
|
$ |
(59,326 |
) |
|
$ |
(815 |
) |
|
$ |
49,905 |
|
|
$ |
6,640 |
|
|
$ |
(48,215 |
) |
|
$ |
8,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Services
Real Estate Services consists of products and services that promote and connect real estate
professionals to consumers through our REALTOR.com®, New Homes and Rentals on Move.com and
SeniorHousingNet.com web sites, in addition to our customer relationship management applications
for REALTORS® offered through our TOP PRODUCER® business. During the second quarter of 2006, we
launched Move.com as a real estate listing and move-related search site. Shortly after its launch,
Move.com replaced HomeBuilder.com® and RENTNET.com and we began promoting those under the Move®
brand. Our revenue is derived from a variety of advertising and software services, including
enhanced listings, company and property display advertising, customer management software and web
site sales which we sell to those businesses interested in reaching our targeted audience or those
professionals interested in being more effective in managing their contact with consumers.
Real Estate Services revenue increased $12.2 million, or 6%, to $220.5 million for the year
ended December 31, 2007, compared to $208.3 million for the year ended December 31, 2006. The
revenue increase was primarily generated by an increase in our REALTOR.com® business driven by
increased Company Showcase Listing Enhancement revenue and increased Featured
Homestm revenue, partially offset by a decrease in Virtual Tour revenue.
Additionally, there was an increase in our Top Producer® business primarily due to continued growth
in our 7itm subscriber base and increased revenue from the Top
Websitetm and Top Marketertm products which were launched
during the year ended December 31, 2006. These increases were partially offset by a decrease in
revenue from our Rentals business. Real Estate Services revenue represented approximately 89% of
total revenue for the year ended December 31, 2007, compared to 87% of total revenue for the year
ended December 31, 2006.
Real Estate Services expenses increased $2.2 million, or 1%, to $160.6 million for the year
ended December 31, 2007, compared to $158.4 million for the year ended December 31, 2006. The
increase was primarily due to a $1.9 million increase in product and development costs related to
increased consulting and personnel costs, a $1.4 million increase in cost of sales related to
increased hosting and web content costs and a $1.2 million increase in sales and marketing costs
due to increased sales compensation from the increased revenues, partially offset by a $2.3 million
decrease in general and administrative costs primarily due to decreased personnel related costs,
including a $0.3 million decrease in non-cash stock-based compensation primarily due to a $1.3
million reversal of previously recognized expense associated with restricted stock units partially
offset by additional stock option grants.
Real Estate Services generated operating income of $59.9 million for the year ended December
31, 2007, compared to $49.9 million for the year ended December 31, 2006 primarily due to the
increased revenues discussed above.
Consumer Media
Consumer Media consists of on-line advertising products and lead generation tools including
display, text-link and rich advertising positions, directory products, price quote tools and
content sponsorships which we sell to those businesses interested in reaching our targeted
audience. As described in the “Acquisitions and Dispositions” section above, we sold our Homeplans
business and have decided to divest our Welcome Wagon® business and, as a result, the operating
results of these businesses have been reclassified as discontinued operations for all periods
presented.
Consumer Media revenue decreased $2.0 million, or 7%, to $28.4 million for the year ended
December 31, 2007, compared to $30.4 million for the year ended December 31, 2006. The decrease was
primarily generated by a decline in our online advertising revenue, partially offset by an increase
in revenues from the Moving.com business resulting from a full year of revenue as the business was
purchased on February 21, 2006. Consumer Media’s revenue represented approximately 11% of total
revenue for the year ended December 31, 2007, compared to 13% of total revenue for the year ended
December 31, 2006.
Consumer Media expenses increased $6.0 million, or 25%, to $29.8 million for the year ended
December 31, 2007, compared to $23.8 million for the year ended December 31, 2006. The increase was
due to a $3.3 million increase in product and web site development costs primarily due to increased
personnel related and consulting costs, a $1.2 million increase in cost of goods sold
32
primarily due to increased hosting and imaging costs, a $0.9 million increase in general and
administrative costs due primarily to a $1.5 million increase in personnel related costs and other
cost increases of $0.3 million, partially offset by a $0.9 million decrease in bad debt expense,
and a $0.6 million increase in sales and marketing primarily due to increased online distribution
costs.
Consumer Media generated an operating loss of $1.4 million for the year ended December 31,
2007, compared to operating income of $6.6 million for the year ended December 31, 2006 primarily
due to factors outlined above.
Unallocated
Unallocated expenses increased $11.1 million, or 23%, to $59.3 million for the year ended
December 31, 2007, compared to $48.2 million for the year ended December 31, 2006. The increase was
primarily due to one-time costs associated with a $4.8 million impairment charge and a $3.9 million
litigation settlement. The remaining increase was associated with an increase of $5.6 million in
personnel related costs, $1.5 million of which represented one-time severance costs for key
executives, an increase of $1.2 million in insurance costs as a result of a one-time refund
received in the year ended December 31, 2006, a $0.8 million charge taken for lease termination
costs, a $0.5 million increase in depreciation expense related to equipment for the Company’s new
data center, and other cost increases of $1.0 million. These increases were partially offset by a
$6.2 million decrease in consulting costs, $3.2 million of which was due to the completion of the
relocation of our data center in the year ended December 31, 2006 and a $0.5 million decrease in
non-cash stock-based compensation due to the reversal of $2.5 million in previously recognized
compensation expense associated with restricted stock unit grants, partially offset by additional
expense due to one-time charges for stock options and restricted stock issued to a new executive
officer that were immediately vested and new stock option grants.
Liquidity and Capital Resources
Net cash provided by continuing operating activities of $8.9 million for the year ended
December 31, 2008 was attributable to net loss from continuing operations of $2.0 million plus
non-cash expenses including depreciation, amortization of intangible assets, changes in market
value of embedded derivative liability, provision for doubtful accounts, stock-based compensation
and charges, impairment of long-lived assets and other non-cash items, aggregating to $26.4
million, offset by changes in operating assets and liabilities of approximately $15.5 million.
Net cash provided by continuing operating activities of $28.4 million for the year ended
December 31, 2007 was attributable to net income from continuing operations of $10.0 million plus
non-cash expenses including depreciation, amortization of intangible assets, changes in market
value of embedded derivative liability, provision for doubtful accounts, stock-based compensation
and charges, impairment of long-lived assets and other non-cash items, aggregating to $30.6
million, offset by changes in operating assets and liabilities of approximately $12.2 million.
Net cash used in investing activities of continuing operations of $5.2 million for the year
ended December 31, 2008 was primarily attributable to purchases of short-term investments of $96.9
million, proceeds from sales of property and equipment of $0.2 million, partially offset by
maturities of short-term investments of $96.4 million and capital expenditures of $5.9 million. The
actual cash provided by investing activities was $5.7 million, as the $96.9 million and $96.4
million of investment activity reflect the gross sales and purchases of investments which is a
classification requirement.
Net cash provided by investing activities of continuing operations of $15.2 million for the
year ended December 31, 2007 was primarily attributable to maturities of short-term investments of
$86.6 million, proceeds from the sale of marketable equity securities of $15.7 million, proceeds
from the surrender of a life insurance policy of $5.2 million, and proceeds from the sales of
property and equipment of $0.3 million, partially offset by purchases of short-term investments of
$73.5 million, capital expenditures of $18.5 million and the purchase of intangible assets of $0.6
million. The actual cash provided by investing activities was $2.1 million, as the $86.6 million
and $73.5 million of investment activity reflect the gross sales and purchases of investments which
is a classification requirement.
Net cash provided by financing activities of $66.1 million for the year ended December 31,
2008 was primarily attributable to proceeds from a drawdown on a revolving line of credit of $64.7
million, the exercise of stock options of $3.1 million and a reduction in restricted cash balances
of $0.1 million, partially offset by payments on capital lease obligations of $1.8 million.
Net cash used in financing activities of $7.9 million for the year ended December 31, 2007 was
primarily attributable to $10.0 million in repurchases of company stock and $1.9 million in capital
lease payments, partially offset by $3.1 million due to the exercise of stock options and warrants
and a reduction in restricted cash balances of $0.9 million.
We have generated positive operating cash flows in each of the last three years. We have no
material financial commitments other than those under capital and operating lease agreements and
our operating agreement with NAR.
Our contractual obligations as of December 31, 2008 are as follows (in thousands):
33
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period |
|
| |
|
|
|
|
|
Due in |
|
|
Due in |
|
|
Due in |
|
|
|
|
| |
|
Total |
|
|
One Year |
|
|
One to |
|
|
Three to |
|
|
Over |
|
| |
|
Payments Due |
|
|
or Less |
|
|
Three Years |
|
|
Five Years |
|
|
Five Years |
|
Capital lease obligations |
|
$ |
345 |
|
|
$ |
345 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Operating lease obligations |
|
|
24,390 |
|
|
|
8,509 |
|
|
|
9,094 |
|
|
|
5,062 |
|
|
|
1,725 |
|
Other purchase obligations |
|
|
8,281 |
|
|
|
1,656 |
|
|
|
3,312 |
|
|
|
3,313 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
33,016 |
|
|
$ |
10,510 |
|
|
$ |
12,406 |
|
|
$ |
8,375 |
|
|
$ |
1,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other purchase obligations represent payments required under our operating agreement with NAR.
Obligations for the years ending 2009 and beyond are calculated based on amounts paid in prior
years adjusted for the Annual Consumer Price Index for the period ending in the prior calendar
year. Obligations disclosed above only include estimated payments over the next five years as this
agreement has an indefinite term.
In addition, we have commitments of approximately $0.4 million to purchase property, plant and
equipment, software licenses and consulting services as of December 31, 2008.
As of December 31, 2008, our long-term investments included $111.8 million of high-grade (AAA
rated) student loan auction rate securities issued by student loan funding organizations, which
loans are 97% guaranteed under FFELP (Federal Family Education Loan Program). These ARS were
intended to provide liquidity via an auction process that resets the interest rate, generally every
28 days, allowing investors to either roll over their holdings or sell them at par. In February
2008, auctions for the investments in these securities failed to settle on their respective
settlement dates. Consequently, the investments are not currently liquid and we will not be able
to access these funds until a future auction of these investments is successful, the securities
mature or a buyer is found outside of the auction process. Maturity dates for these ARS investments
range from 2030 to 2047 with principal distributions occurring on certain securities prior to
maturity. We do not have a need to access these funds for operational purposes for the foreseeable
future. Subject to an arbitration proceeding as discussed in Note 23 “Commitments and
Contingencies — Legal Proceedings” to our Consolidated Financial Statements in Item 8 of this Form
10-K, we currently have the intent to hold these ARS investments until their fair value recovers,
until they reach maturity or until they can be sold in a market that facilitates orderly
transactions. As of December 31, 2008, we classified $111.8 million of the ARS investment balance
as Long-term Investments because of the inability to determine when our investments in ARS would
become liquid. We have also modified our current investment strategy and increased our investments
in more liquid money market and treasury bill investments. During the year ended December 31,
2008, we determined that there was a decline in the fair value of our ARS investments of
approximately $17.6 million which we deemed as temporary and included in Other Comprehensive
Income.
The valuation of our investment portfolio is subject to uncertainties that are difficult to
predict. Factors that may impact its valuation include changes in credit ratings of the securities
as well as to the underlying assets supporting those securities, rates of default of the underlying
assets, underlying collateral value, discount rates and ongoing strength and quality of market
credit and liquidity.
If the current market conditions deteriorate further, or the anticipated recovery in market
values does not occur, we may be required in future periods to record additional unrealized losses
in other comprehensive income (loss) or depending on the circumstances existing at the time, such
losses may be considered other than temporary and recorded as a component of net income (loss).
On May 8, 2008, we entered into a revolving line of credit providing for borrowings of up to
$64.8 million with a major financial institution. Outstanding balances are due on May 7, 2009. The
line of credit is secured by our ARS investment balances and outstanding borrowings will bear
interest at the Federal Funds Rate plus 2.1% (2.24% as of December 31, 2008). The available
borrowings may not exceed 50% of the par value of our ARS investment balances and could be limited
further if the quoted market value of these securities drop below 70% of par value. On September 4,
2008, as a result of our concerns about the fluctuating credit markets, we drew down $64.7 million
under the line of credit to increase our cash position and preserve our financial flexibility. As
of December 31, 2008, there was $64.7 million in outstanding borrowings against this line of
credit.
In August 2008, we announced our plans to review our overall operating structure and a process
to lower our total operating expenses. Our objective was to reduce annual operating expenses by
$20.0 million by the end of 2008, the full effect of which was not expected to be realized until
2009. However, we were successful in completing this process by December 2008. These actions have
resulted in a restructuring charge of $4.4 million being taken in the current period.
Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities whereby we have
financial guarantees, subordinated retained interests, derivative instruments or other contingent
arrangements that expose Move to material continuing risks, contingent liabilities,
34
or any other obligation under a variable interest in an unconsolidated entity that provides
financing, liquidity, market risk or credit risk support to Move.
Recent Accounting Developments
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”, and SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 141(R) requires an
acquirer to measure the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill
being the excess value over the net identifiable assets acquired. SFAS No. 160 clarifies that a
noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial
statements. The calculation of earnings per share will continue to be based on income amounts
attributable to the parent. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements
issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. We have
not yet determined the effect that the adoption of SFAS No. 141(R) or SFAS No. 160 will have on our
consolidated financial statements.
In April 2008, the FASB issued SFAS No. 142-3, “Determination of the Useful Life of Intangible
Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142. The intent of FSP 142-3 is to improve the consistency between the useful life
of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to
measure the fair value of the assets under SFAS No. 141(R), and other guidance under GAAP. FSP
142-3 is effective for financial statements issued for fiscal years beginning after December 15,
2008, and early adoption is prohibited. We have not yet determined the effect that the adoption of
FSP 142-3 will have on our consolidated financial statements.
In June 2008, the EITF reached a consensus on EITF No. 07-5, “Determining Whether an
Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF 07-5
addresses the determination of whether an instrument (or embedded feature) is indexed to an
entity’s own stock. EITF 07-5 would require the entity to account for embedded conversion options
as derivatives and record them on the balance sheet as a liability with subsequent fair value
changes recorded in the income statement. EITF 07-5 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and early adoption is prohibited. We have not
yet determined the effect that the adoption of EITF 07-5 will have on our consolidated financial
statements, particularly with respect to our Convertible Preferred Stock. See Note 16 “Series B
Convertible Preferred Stock” to our Consolidated Financial Statements in Item 8 of this Form 10-K
for a description of our Convertible Preferred Stock.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position, results of
operations or cash flows due to adverse changes in financial and commodity market prices and rates.
We are exposed to market risk primarily in the area of changes in United States interest rates and
conditions in the credit markets. We do not have any material foreign currency or other derivative
financial instruments. Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes. We attempt to increase the safety and
preservation of our invested principal funds by limiting default risk, market risk and reinvestment
risk. We mitigate default risk by investing in investment grade securities.
As of December 31, 2008, our long-term investments included $111.8 million of high-grade (AAA
rated) student loan auction rate securities issued by student loan funding organizations, which
loans are 97% guaranteed under FFELP (Federal Family Education Loan Program). These ARS were
intended to provide liquidity via an auction process that resets the interest rate, generally every
28 days, allowing investors to either roll over their holdings or sell them at par. In February
2008, auctions for the investments in these securities failed to settle on their respective
settlement dates. Consequently, the investments are not currently liquid and we will not be able
to access these funds until a future auction of these investments is successful, the securities
mature or a buyer is found outside of the auction process. Maturity dates for these ARS investments
range from 2030 to 2047 with principal distributions occurring on certain securities prior to
maturity. We do not have a need to access these funds for operational purposes for the foreseeable
future. Subject to an arbitration proceeding as discussed in Note 23 “Commitments and
Contingencies — Legal Proceedings” to our Consolidated Financial Statements in Item 8 of this Form
10-K, we currently have the intent to hold these ARS investments until their fair value recovers,
until they reach maturity or until they can be sold in a market that facilitates orderly
transactions. As of December 31, 2008, we classified $111.8 million of the ARS investment balance
as Long-term Investments because of the inability to determine when our investments in ARS would
become liquid. We have also modified our current investment strategy and increased our investments
in more liquid money market and treasury bill investments. During the year ended December 31,
2008, we determined that there was a decline in the fair value of our ARS investments of
approximately $17.6 million which we deemed as temporary and included in Other Comprehensive
Income.
The valuation of our investment portfolio is subject to uncertainties that are difficult to
predict. Factors that may impact its valuation include changes in credit ratings of the securities
as well as to the underlying assets supporting those securities, rates of
35
default of the underlying assets, underlying collateral value, discount rates and ongoing strength
and quality of market credit and liquidity.
If the current market conditions deteriorate further, or the anticipated recovery in market
values does not occur, we may be required in future periods to record additional unrealized losses
in other comprehensive income (loss) or depending on the circumstances existing at the time, such
losses may be considered other than temporary and recorded as a component of net income (loss).
36
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
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| |
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Page |
|
Move, Inc. Consolidated Financial Statements |
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38 |
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39 |
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|
40 |
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41 |
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42 |
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43 |
|
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Move, Inc.
We have audited the accompanying consolidated balance sheets of Move, Inc. as of December 31, 2008
and 2007, and the related consolidated statements of operations, stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2008. Our audits also included
the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements
and schedule are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Move, Inc. at December 31, 2008 and 2007, and the
consolidated results of its operations and its cash flows for each of the three years in the period
ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects, the information
set forth therein.
As described in Note 26, “Restatement of Previously Issued Consolidated Financial Statements”, the
Company has restated its financial statements as of December 31, 2008 and 2007 and for each of the
three years in the period ended December 31, 2008 to correct its accounting for stock-based
compensation expense.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Move, Inc.’s internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4,
2009, except for the effects of the material weakness described in the sixth paragraph, as to which
the date is November 9, 2009, expressed an adverse opinion thereon.
Los Angeles, California
March 4, 2009, except for Notes 2, 14, 15, 18, 21 and 26,
as to which the date is November 9, 2009
38
MOVE, INC.
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(As Restated)(1) |
|
|
(As Restated)(1) |
|
| |
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
108,935 |
|
|
$ |
45,713 |
|
Short-term investments |
|
|
— |
|
|
|
129,900 |
|
Accounts receivable, net of allowance for
doubtful accounts of $3,716 and $3,687 at
December 31, 2008 and 2007, respectively |
|
|
12,833 |
|
|
|
15,645 |
|
Assets of discontinued operations |
|
|
— |
|
|
|
24,417 |
|
Other current assets |
|
|
11,399 |
|
|
|
10,111 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
133,167 |
|
|
|
225,786 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
21,934 |
|
|
|
29,930 |
|
Long-term investments |
|
|
111,800 |
|
|
|
— |
|
Goodwill, net |
|
|
16,969 |
|
|
|
17,181 |
|
Intangible assets, net |
|
|
3,933 |
|
|
|
5,011 |
|
Restricted cash |
|
|
3,209 |
|
|
|
3,369 |
|
Other assets |
|
|
995 |
|
|
|
1,251 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
292,007 |
|
|
$ |
282,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,051 |
|
|
$ |
4,337 |
|
Accrued expenses |
|
|
22,747 |
|
|
|
28,446 |
|
Obligation under capital leases |
|
|
339 |
|
|
|
1,894 |
|
Deferred revenue |
|
|
23,991 |
|
|
|
34,975 |
|
Line of credit |
|
|
64,700 |
|
|
|
— |
|
Liabilities of discontinued operations |
|
|
— |
|
|
|
5,429 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
115,828 |
|
|
|
75,081 |
|
|
|
|
|
|
|
|
|
|
Obligation under capital leases |
|
|
— |
|
|
|
273 |
|
Other non-current liabilities |
|
|
2,043 |
|
|
|
1,508 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
117,871 |
|
|
|
76,862 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 23) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B convertible preferred stock |
|
|
106,297 |
|
|
|
101,189 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Series A convertible preferred stock |
|
|
— |
|
|
|
— |
|
Common stock, $.001 par value; 500,000
shares authorized, 153,082 and 151,355
shares issued and outstanding at
December 31, 2008 and December 31, 2007,
respectively |
|
|
153 |
|
|
|
151 |
|
Additional paid-in capital |
|
|
2,094,135 |
|
|
|
2,078,619 |
|
Accumulated other comprehensive income |
|
|
(17,183 |
) |
|
|
675 |
|
Accumulated deficit |
|
|
(2,009,266 |
) |
|
|
(1,974,968 |
) |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
67,839 |
|
|
|
104,477 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
292,007 |
|
|
$ |
282,528 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
See Note 26 “Restatement of Previously Issued Consolidated Financial Statements” to our
Consolidated Financial Statements for a discussion of these adjustments. |
The accompanying notes are an integral part of these consolidated financial statements.
39
MOVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(As Restated)(1) |
|
|
(As Restated)(1) |
|
|
(As Restated)(1) |
|
| |
|
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
242,069 |
|
|
$ |
248,919 |
|
|
$ |
238,752 |
|
Cost of revenue |
|
|
46,041 |
|
|
|
42,908 |
|
|
|
41,154 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
196,028 |
|
|
|
206,011 |
|
|
|
197,598 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
93,531 |
|
|
|
89,954 |
|
|
|
86,765 |
|
Product and web site development |
|
|
26,342 |
|
|
|
34,656 |
|
|
|
31,969 |
|
General and administrative |
|
|
77,571 |
|
|
|
72,731 |
|
|
|
70,113 |
|
Amortization of intangible assets |
|
|
756 |
|
|
|
761 |
|
|
|
699 |
|
Restructuring charges |
|
|
4,412 |
|
|
|
— |
|
|
|
(278 |
) |
Impairment of long-lived assets |
|
|
1,670 |
|
|
|
4,824 |
|
|
|
— |
|
Litigation settlement |
|
|
— |
|
|
|
3,900 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
204,282 |
|
|
|
206,826 |
|
|
|
189,268 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations |
|
|
(8,254 |
) |
|
|
(815 |
) |
|
|
8,330 |
|
Interest income, net |
|
|
5,687 |
|
|
|
9,852 |
|
|
|
7,250 |
|
Other income, net |
|
|
1,091 |
|
|
|
1,493 |
|
|
|
17,274 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
(1,476 |
) |
|
|
10,530 |
|
|
|
32,854 |
|
Provision for income taxes |
|
|
549 |
|
|
|
501 |
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(2,025 |
) |
|
|
10,029 |
|
|
|
32,720 |
|
Loss from discontinued operations |
|
|
(27,165 |
) |
|
|
(10,345 |
) |
|
|
(11,863 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(29,190 |
) |
|
|
(316 |
) |
|
|
20,857 |
|
Convertible preferred stock dividend and related accretion |
|
|
(5,108 |
) |
|
|
(4,977 |
) |
|
|
(4,859 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
$ |
(34,298 |
) |
|
$ |
(5,293 |
) |
|
$ |
15,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share applicable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.05 |
) |
|
$ |
0.03 |
|
|
$ |
0.18 |
|
Discontinued operations |
|
|
(0.18 |
) |
|
|
(0.07 |
) |
|
|
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share applicable to common stockholders |
|
$ |
(0.23 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share applicable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.05 |
) |
|
$ |
0.03 |
|
|
$ |
0.17 |
|
Discontinued operations |
|
|
(0.18 |
) |
|
|
(0.07 |
) |
|
|
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share applicable to common stockholders |
|
$ |
(0.23 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculation of income (loss) per share applicable
to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
151,952 |
|
|
|
154,524 |
|
|
|
151,170 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
151,952 |
|
|
|
154,524 |
|
|
|
163,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
See Note 26 “Restatement of Previously Issued Consolidated Financial Statements” to our
Consolidated Financial Statements for a discussion of these adjustments. |
The accompanying notes are an integral part of these consolidated financial statements.
40
MOVE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
| |
|
Convertible |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Deferred |
|
|
Other |
|
|
|
|
|
|
Total |
|
| |
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Treasury |
|
|
Stock-based |
|
|
Comprehensive |
|
|
Accumulated |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital (1) |
|
|
Stock |
|
|
Charges |
|
|
Income (loss) |
|
|
Deficit (1) |
|
|
Equity |
|
| |
|
(In thousands) |
|
Balance at January 1, 2006 — As
previously reported |
|
|
— |
|
|
$ |
— |
|
|
|
149,201 |
|
|
$ |
149 |
|
|
$ |
2,047,456 |
|
|
$ |
— |
|
|
$ |
(351 |
) |
|
$ |
343 |
|
|
$ |
(1,985,673 |
) |
|
$ |
61,924 |
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (As restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,857 |
|
|
|
20,857 |
|
Unrealized gain on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,820 |
|
|
|
— |
|
|
|
14,820 |
|
Realized gain on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,809 |
) |
|
|
— |
|
|
|
(14,809 |
) |
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(28 |
) |
|
|
— |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (As restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17 |
) |
|
|
20,857 |
|
|
|
20,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under exercise
of stock options |
|
|
— |
|
|
|
— |
|
|
|
4,852 |
|
|
|
5 |
|
|
|
6,884 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,889 |
|
Issuance of restricted stock |
|
|
— |
|
|
|
— |
|
|
|
110 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Receipt of shares from escrow |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(291 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(291 |
) |
Retirement of treasury shares |
|
|
— |
|
|
|
— |
|
|
|
(47 |
) |
|
|
— |
|
|
|
(291 |
) |
|
|
291 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation and charges (As
restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,949 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,949 |
|
Convertible preferred stock dividend and
accretion of discount |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,859 |
) |
|
|
(4,859 |
) |
Reclassification of deferred compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(351 |
) |
|
|
— |
|
|
|
351 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 (As restated) |
|
|
— |
|
|
$ |
— |
|
|
|
154,116 |
|
|
$ |
154 |
|
|
$ |
2,070,647 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
326 |
|
|
$ |
(1,969,675 |
) |
|
$ |
101,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (As restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(316 |
) |
|
|
(316 |
) |
Unrealized gain on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
14 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
335 |
|
|
|
— |
|
|
|
335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (As restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
349 |
|
|
|
(316 |
) |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under exercise
of stock options |
|
|
— |
|
|
|
— |
|
|
|
1,128 |
|
|
|
1 |
|
|
|
3,063 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,064 |
|
Issuance of restricted stock |
|
|
— |
|
|
|
— |
|
|
|
357 |
|
|
|
— |
|
|
|
500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
500 |
|
Restricted stock surrendered for employee
tax liability |
|
|
— |
|
|
|
— |
|
|
|
(83 |
) |
|
|
— |
|
|
|
(358 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(358 |
) |
Repurchase and retirement of common stock |
|
|
— |
|
|
|
— |
|
|
|
(4,163 |
) |
|
|
(4 |
) |
|
|
(9,996 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,000 |
) |
Stock-based compensation and charges (As
restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,763 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,763 |
|
Convertible preferred stock dividend and
accretion of discount |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,977 |
) |
|
|
(4,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 (As restated) |
|
|
— |
|
|
$ |
— |
|
|
|
151,355 |
|
|
$ |
151 |
|
|
$ |
2,078,619 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
675 |
|
|
$ |
(1,974,968 |
) |
|
$ |
104,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (As restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(29,190 |
) |
|
|
(29,190 |
) |
Unrealized loss on auction rate securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,600 |
) |
|
|
— |
|
|
|
(17,600 |
) |
Unrealized loss on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18 |
) |
|
|
— |
|
|
|
(18 |
) |
Realized gain on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
15 |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(255 |
) |
|
|
— |
|
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (As restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,858 |
) |
|
|
(29,190 |
) |
|
|
(47,048 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under exercise
of stock options |
|
|
— |
|
|
|
— |
|
|
|
1,576 |
|
|
|
2 |
|
|
|
3,056 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,058 |
|
Issuance of restricted stock |
|
|
— |
|
|
|
— |
|
|
|
291 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeitures of restricted stock |
|
|
— |
|
|
|
— |
|
|
|
(140 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation and charges (As
restated) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,460 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,460 |
|
Convertible preferred stock dividend and
accretion of discount |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,108 |
) |
|
|
(5,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 (As restated) |
|
|
— |
|
|
$ |
— |
|
|
|
153,082 |
|
|
$ |
153 |
|
|
$ |
2,094,135 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(17,183 |
) |
|
$ |
(2,009,266 |
) |
|
$ |
67,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
See Note 26 “Restatement of Previously Issued Consolidated Financial Statements” to our
Consolidated Financial Statements for a discussion of these adjustments. |
The accompanying notes are an integral part of these consolidated financial statements.
41
MOVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(As Restated)(1) |
|
|
(As Restated)(1) |
|
|
(As Restated)(1) |
|
| |
|
(In thousands) |
|
Cash flows from continuing operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(2,025 |
) |
|
$ |
10,029 |
|
|
$ |
32,720 |
|
Adjustments to reconcile income (loss) from continuing operations to net cash provided by
continuing operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
11,246 |
|
|
|
9,978 |
|
|
|
9,280 |
|
Amortization of intangible assets |
|
|
756 |
|
|
|
761 |
|
|
|
699 |
|
Provision for doubtful accounts |
|
|
823 |
|
|
|
1,271 |
|
|
|
1,721 |
|
Stock-based compensation and charges |
|
|
12,325 |
|
|
|
15,000 |
|
|
|
15,754 |
|
Impairment of long-lived assets |
|
|
1,670 |
|
|
|
4,824 |
|
|
|
— |
|
Gain on sales of property and equipment |
|
|
(687 |
) |
|
|
(337 |
) |
|
|
— |
|
Change in market value of embedded derivative liability |
|
|
(411 |
) |
|
|
(1,052 |
) |
|
|
(1,074 |
) |
Other non-cash items |
|
|
651 |
|
|
|
128 |
|
|
|
(307 |
) |
Changes in operating assets and liabilities, net of acquisitions and discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
1,965 |
|
|
|
(1,618 |
) |
|
|
(3,256 |
) |
Other assets |
|
|
(557 |
) |
|
|
(3,574 |
) |
|
|
(14,456 |
) |
Accounts payable and accrued expenses |
|
|
(6,067 |
) |
|
|
2,986 |
|
|
|
(15,177 |
) |
Deferred revenue |
|
|
(10,834 |
) |
|
|
(9,973 |
) |
|
|
5,328 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operating activities |
|
|
8,855 |
|
|
|
28,423 |
|
|
|
31,232 |
|
Net cash used in discontinued operations |
|
|
(7,334 |
) |
|
|
(4,660 |
) |
|
|
(7,819 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,521 |
|
|
|
23,763 |
|
|
|
23,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(5,935 |
) |
|
|
(18,509 |
) |
|
|
(11,972 |
) |
Acquisitions, net |
|
|
— |
|
|
|
— |
|
|
|
(9,572 |
) |
Purchases of short-term investments |
|
|
(96,418 |
) |
|
|
(73,475 |
) |
|
|
(30,250 |
) |
Maturities of short-term investments |
|
|
96,918 |
|
|
|
86,550 |
|
|
|
26,325 |
|
Purchases of intangible assets |
|
|
— |
|
|
|
(619 |
) |
|
|
(300 |
) |
Proceeds from the sale of marketable equity securities |
|
|
27 |
|
|
|
15,743 |
|
|
|
— |
|
Proceeds from the surrender of life insurance policies |
|
|
— |
|
|
|
5,200 |
|
|
|
— |
|
Proceeds from sales of property and equipment |
|
|
206 |
|
|
|
338 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities of continuing operations |
|
|
(5,202 |
) |
|
|
15,228 |
|
|
|
(25,769 |
) |
Net cash provided by (used in) investing activities of discontinued operations |
|
|
813 |
|
|
|
(221 |
) |
|
|
(945 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(4,389 |
) |
|
|
15,007 |
|
|
|
(26,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and share issuances under employee stock purchase
plans |
|
|
3,058 |
|
|
|
3,064 |
|
|
|
6,890 |
|
Proceeds from line of credit |
|
|
64,700 |
|
|
|
— |
|
|
|
— |
|
Repurchases of company’s common stock |
|
|
— |
|
|
|
(10,000 |
) |
|
|
— |
|
Payments on capital lease obligations |
|
|
(1,828 |
) |
|
|
(1,904 |
) |
|
|
(2,735 |
) |
Restricted cash |
|
|
160 |
|
|
|
910 |
|
|
|
747 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
66,090 |
|
|
|
(7,930 |
) |
|
|
4,902 |
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
63,222 |
|
|
|
30,840 |
|
|
|
1,601 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
45,713 |
|
|
|
14,873 |
|
|
|
13,272 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
108,935 |
|
|
$ |
45,713 |
|
|
$ |
14,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
See Note 26 “Restatement of Previously Issued Consolidated Financial Statements” to our
Consolidated Financial Statements for a discussion of these adjustments. |
The accompanying notes are an integral part of these consolidated financial statements.
42
MOVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Move, Inc. and its subsidiaries (the “Company”) operate the leading online network of web
sites for real estate search, finance, moving and home enthusiasts and is the essential resource
for consumers seeking the information and connections they need before, during and after a move.
The Company’s flagship consumer web sites are Move.com, REALTOR.com® and Moving.com. The Company
also provides lead management software for real estate agents and brokers through its Top Producer®
business.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation — The consolidated financial statements
include the accounts of the parent company and its subsidiaries, all of which are wholly owned. All
material intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates — The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent liabilities and the
reported amounts of revenue and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents, Short-Term Investments — All highly liquid instruments with an
original maturity of three months or less are considered cash and cash equivalents, those with
original maturities greater than three months and current maturities less than 12 months from the
balance sheet date are considered short-term investments. The Company also invested in certain
auction rate securities that were classified as short-term investments and presented in current
assets in the accompanying balance sheets as of December 31, 2007 as they had completed a
successful auction process subsequent to December 31, 2007. In February 2008, auctions for the
investments in these securities failed to settle on their respective settlement dates. As a
result, these affected securities are currently not liquid and are classified as Long-term
Investments as of December 31, 2008. The Company invests its excess cash in liquid money market
and treasury bill investments. See Note 5 for further discussion.
The Company’s marketable securities and short-term investments are classified as
available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax,
recorded in the comprehensive income (loss) component of stockholders’ equity. Realized gains or
losses and declines in value that are other than temporary, if any, on available-for-sale
securities are calculated using the specific identification method and are reported in other
income, net as incurred. For the year ended December 31, 2006, the Company recognized $15.7 million
in realized gains on the sale of marketable securities which are included within other income, net,
$14.8 million of which was reclassified from accumulated other comprehensive income into earnings
for the period. For the years ended December 31, 2008 and 2007 realized gains and losses were
immaterial.
Restricted Cash — The restricted cash balance is related to letters of credit associated with
contractual provisions of two of the Company’s facilities lease commitments.
Concentration of Credit Risk — Financial instruments that potentially subject the Company to
a concentration of credit risk consist of cash and cash equivalents, short-term and long-term
investments, marketable equity securities and accounts receivable. The Company’s accounts
receivable are derived primarily from revenue earned from customers located in the United States.
The Company maintains an allowance for doubtful accounts based upon the expected collectability of
accounts receivable.
Fair Value — On January 1, 2008, the Company adopted the methods of fair value as described
in Statements of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurement” (“SFAS
157”), which refines the definition of fair value, provides a framework for measuring fair value
and expands disclosure about fair value measurements. The Financial Accounting Standards Board
(“FASB”) delayed the effective date of SFAS 157 until January 1, 2009, with respect to the fair
value measurement requirements for non-financial assets and liabilities that are not remeasured on
a recurring basis. SFAS 157 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 statement 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 |
43
| |
|
|
little or no market data is available). |
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities—including an amendment to FASB Statement No. 115” (“SFAS 159”), which
permits an entity to measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. Under SFAS 159, entities that elect the
fair value option will report unrealized gains and losses in earnings at each subsequent reporting
date. The Company adopted SFAS 159 as of January 1, 2008 and has elected not to apply the fair
value option provided under this statement, therefore, the adoption of SFAS 159 has not had an
impact on the Company’s Consolidated Financial Statements.
The Company’s financial instruments, including cash and cash equivalents, accounts receivable,
accounts payable, and line of credit are carried at cost, which approximates their fair value due
to the short-term maturity of these instruments.
The Company’s long-term investments are not currently trading and therefore do not have a
readily determinable market value. The Company used a discounted cash flow model to determine the
estimated fair value of these instruments as of December 31, 2008. The assumptions used in
preparing the discounted cash flow model includes estimates for interest rates, timing and amount
of cash flows and expected holding period of the investments (See Note 6).
Prepaid Commissions — The Company prepays commissions to certain of its salespersons on the
contract sale date and expenses the commission consistent with the revenue recognition term.
Property and Equipment — Property and equipment are stated at historical cost less
accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which is generally three to five years for computer software
and equipment, three to five years for furniture, fixtures and office equipment, and five to seven
years for machinery and equipment. Amortization of assets recorded under capital leases is included
in depreciation expense and amortized over the life of the lease. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful lives. Construction in
progress is primarily related to software licenses and capitalized costs and leasehold improvements
not yet deployed. Depreciation for these assets commences once they are placed in service. Upon the
sale or retirement of property or equipment, the cost and related accumulated depreciation and
amortization are removed from the Company’s financial statements with the resulting gain or loss
reflected in the Company’s results of operations.
Product and Web Site Development Costs — The Company capitalizes the cost of software
developed for internal use as well as the cost to develop its monthly subscription software
products in accordance with Statement of Position (“SOP”) 98-1, “Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use” and the FASB’s Emerging Issue Task Force
(“EITF”) Issue 00-02, “Accounting for Website Development Costs.” Costs related to design or
maintenance is expensed as incurred. The Company had $11.9 million and $11.7 million of capitalized
software costs and $6.2 million and $4.0 million of accumulated amortization included in computer
software and equipment and construction in progress which is included in Property and Equipment,
net, at December 31, 2008 and 2007, respectively.
Identifiable Intangibles, Goodwill and other Long-Lived Assets — 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 3.0 to 15.5
years. The Company assesses the impairment of long-lived assets, which include property and
equipment and identifiable intangible assets, whenever events or changes in circumstances indicate
that such assets might be impaired and the carrying value may not be recoverable. 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 the Company’s operating model or strategy and competitive
forces as well as other factors.
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. Goodwill has been
recorded in connection with the Company’s various acquisitions. In testing for a potential
impairment of goodwill, the Company will first compare the estimated fair value of each reporting
unit 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
of the respective reporting units of the Company 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.
44
During the years ended December 31, 2008 and December 31, 2007, the Company recorded
impairment charges of $1.7 million and $4.8 million, respectively, from continuing operations and
$16.0 million and $3.1 million, respectively, from discontinued operations (See Note 8). There were
no impairment charges during the year ended December 31, 2006.
The following table summarizes the Company’s useful lives for significant intangible and
long-lived assets:
| |
|
|
|
|
| |
|
Weighted Average |
| |
|
Amortization |
| |
|
Period |
| Type |
|
(In Years) |
National Association of Realtors (“NAR”) operating agreement |
|
|
15.5 |
|
Purchased technology |
|
|
7.0 |
|
Trade names, trademarks, brand name and domain names |
|
|
5.2 |
|
Other |
|
|
5.8 |
|
Revenue Recognition — The Company derives its revenue primarily from two sources (i)
advertising revenue for running online advertising on the Company’s web sites and (ii) software
revenue, which includes software licenses. As described below, significant management judgments and
estimates must be made and used in connection with the revenue recognized in any accounting period.
The Company recognizes revenue in accordance with Securities and Exchange Commission (“SEC”)
Staff Accounting Bulletin No. 104, “Revenue Recognition”, and EITF 00-21, “Revenue Arrangements
with Multiple Deliverables.” Revenue is recognized only when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the price is fixed or determinable
and collectibility is reasonably assured.
The Company assesses collection based on a number of factors, including past transaction
history with the customer and the credit worthiness of the customer. The Company does not request
collateral from its customers. If the Company determines that collection of a fee is not reasonably
assured, the Company defers the fee and recognizes revenue at the time collection becomes
reasonably assured, which is generally upon receipt of cash. Cash received in advance is recorded
as deferred revenue until earned.
Advertising Revenue — The Company primarily sells online advertising. Online advertising
revenue includes three revenue streams: (i) impression based, (ii) fixed fee subscriptions, and
(iii) variable, performance based agreements. The impression based agreements range from spot
purchases to twelve month contracts. The impression based revenue is recognized based upon actual
impressions delivered and viewed by a user in a period. The fixed fee subscription revenue is
recognized ratably over the period in which the services are provided. The Company measures
performance related to advertising obligations on a monthly basis prior to the recording of
revenue.
Software Revenue — The Company licenses its software on a monthly subscription basis. The
Company’s hosting arrangements require customers to pay a fixed fee and receive service over a
period of time, generally one year. Revenue is recognized ratably over the service period.
Shipping and Handling Income and Costs — The Company accounts for income and costs related to
shipping and handling activities in accordance with EITF Issue 00-10, “Accounting for Shipping and
Handling Revenues and Costs.” Income from shipping and handling is included with revenue.
Associated costs of shipping and handling are included in cost of revenue.
Taxes Collected from Customers — The Company reports taxes collected from customers on a net
presentation basis in accordance with EITF Issue 06-03, “How Taxes Collected from Customers and
Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross
Versus Net Presentation).”
Advertising Expense — Advertising costs from continuing operations, which consist primarily
of online advertising, portal fees, keyword buys, e-mail campaigns, and other trade advertising,
are expensed as incurred and totaled $30.1 million, $31.8 million and $31.3 million during the
years ended December 31, 2008, 2007 and 2006, respectively.
Stock-Based Compensation and Charges — On January 1, 2006, the Company adopted SFAS No. 123
(revised 2004) “Share-Based Payment” (“SFAS 123R”) which requires the measurement and recognition
of compensation expense for all share-based payment awards made to employees and directors,
including employee stock options, based on estimated fair values. In March 2005, the SEC issued
Staff Accounting Bulleting No. 107 (“SAB 107”) related to SFAS 123R. The Company has applied the
provisions of SAB 107 in its adoption of SFAS 123R.
Stock-based compensation expense from continuing operations recognized in accordance with SFAS
123R was $11.8 million, $17.6 million, and $11.4 million for the years ended December 31, 2008,
2007 and 2006, respectively, related to employee stock options.
Income Taxes — Income taxes are accounted for under SFAS No. 109, “Accounting for Income
Taxes” (“SFAS 109”). Under SFAS 109, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of
45
assets and liabilities, and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred taxes to the amount expected to be realized.
Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
requires the impact of a tax position to be recognized in the financial statements if that position
is more likely than not of being sustained by the taxing authority. The adoption of FIN 48 did not
have a material effect on the Company’s consolidated financial position or results of operations.
Net Income (Loss) Per Share — Net income (loss) per share is computed by dividing the net
income (loss) applicable to common stockholders for the period by the weighted average number of
common shares outstanding. Shares associated with stock options, warrants and convertible preferred
stock are not included to the extent they are anti-dilutive.
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 accumulated other comprehensive income as a separate
component of stockholders’ equity.
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, the
change in the foreign currency translation adjustments during a period and the net unrealized gains
or losses on short-term and long-term investments and marketable equity securities.
Segments — The Company reports segment information in accordance with SFAS No. 131,
“Disclosures about Segments of an Enterprise and Related Information.” This standard is based on a
management approach, which requires segmentation based upon the Company’s internal organization and
disclosure of revenue and operating expenses based upon internal accounting methods. The Company’s
management evaluates performance and allocates resources based on two segments consisting of Real
Estate Services for those products and services offered to industry professionals trying to reach
new movers and manage their relationships with them and Consumer Media for those products and
services offered to other advertisers who are trying to reach those consumers in the process of a
move. This is consistent with the data that is made available to our management to assess
performance and make decisions.
Recent Accounting Developments — In December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations”, and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.”
SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities
assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition
date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 160
clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements. The calculation of earnings per share will continue to be based
on income amounts attributable to the parent. SFAS No. 141(R) and SFAS No. 160 are effective for
financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is
prohibited. The Company has not yet determined the effect that the adoption of SFAS No. 141(R) or
SFAS No. 160 will have on its consolidated financial statements.
In April 2008, the FASB issued SFAS No. 142-3, “Determination of the Useful Life of Intangible
Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142. The intent of FSP 142-3 is to improve the consistency between the useful life
of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to
measure the fair value of the assets under SFAS No. 141(R), and other guidance under Generally
Accepted Accounting Principles (“GAAP”). FSP 142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and early adoption is prohibited. The Company
has not yet determined the effect that the adoption of FSP 142-3 will have on its consolidated
financial statements.
In June 2008, the EITF reached a consensus on EITF No. 07-5, “Determining Whether an
Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF 07-5
addresses the determination of whether an instrument (or embedded feature) is indexed to an
entity’s own stock. EITF 07-5 would require the entity to account for embedded conversion options
as derivatives and record them on the balance sheet as a liability with subsequent fair value
changes recorded in the income statement. EITF 07-5 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and early adoption is prohibited. The Company
has not yet determined the effect that the adoption of EITF 07-5 will have on its consolidated
financial statements, particularly with respect to its Convertible Preferred Stock (See Note 16).
46
3. Acquisitions and Disposals
In the second quarter of 2008, the Company decided to divest its Welcome Wagon® business,
which had been reported as part of its Consumer Media segment. The Company is actively marketing
the business for sale and expects to complete a transaction in 2009.
In the fourth quarter of 2007, the Company decided to divest its Homeplans business, which had
been reported as part of its Consumer Media segment. On April 15, 2008, the Company closed the sale
of the business for a sales price of approximately $1.0 million in cash which is included in net
cash provided by discontinued investing activities in the Company’s Consolidated Statement of Cash
Flows for the year ended December 31, 2008. The transaction did not result in any significant gain
or loss on disposition.
On February 21, 2006, the Company acquired certain assets and assumed certain liabilities of
Moving.com, Inc. from TMP Directional Marketing, LLC for approximately $9.6 million in cash.
Moving.com connects consumers with moving companies, van lines, truck rental providers and self
storage facilities. The acquisition has been accounted for as a purchase. The acquisition cost has
been allocated to the assets acquired based on their respective fair values. The excess of purchase
consideration over net tangible assets acquired of $8.9 million has been allocated to goodwill and
other identifiable intangible assets. The identifiable intangible assets include $2.0 million
associated with indefinite lived trade name and trademarks with the remaining being amortized over
estimated lives ranging from two to seven years. At December 31, 2008 and 2007, the Company had
goodwill of $4.4 million and net intangible assets of $2.9 million and $3.4 million, respectively,
associated with the Moving.com acquisition.
Pursuant to SFAS No. 144, the consolidated financial statements of the Company for all periods
presented reflect the classification of its Homeplans and Welcome Wagon divisions as discontinued
operations. Accordingly, the revenue, operating expenses, and cash flows of these divisions have
been excluded from the respective captions in the Consolidated Statements of Operations and
Consolidated Statements of Cash Flows and have been reported as “Loss from discontinued
operations,” net of applicable income taxes of zero; and as “Net cash provided by (used in)
discontinued operations.” Total revenue and loss from discontinued operations are reflected below
(in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Revenue |
|
$ |
31,452 |
|
|
$ |
44,250 |
|
|
$ |
51,632 |
|
Total operating expenses |
|
|
(41,027 |
) |
|
|
(51,521 |
) |
|
|
(63,495 |
) |
Restructuring charges |
|
|
(1,584 |
) |
|
|
— |
|
|
|
— |
|
Impairment of long-lived assets |
|
|
(16,006 |
) |
|
|
(3,074 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
$ |
(27,165 |
) |
|
$ |
(10,345 |
) |
|
$ |
(11,863 |
) |
|
|
|
|
|
|
|
|
|
|
The carrying amounts of the major classes of assets and liabilities of the discontinued
operations are as follows (in thousands):
| |
|
|
|
|
| |
|
December 31, |
|
| |
|
2007 |
|
Total current assets |
|
$ |
6,524 |
|
Property and equipment, net |
|
|
2,736 |
|
Goodwill and other assets |
|
|
15,157 |
|
|
|
|
|
Total assets of discontinued operations |
|
$ |
24,417 |
|
|
|
|
|
| |
Total current liabilities |
|
|
5,429 |
|
|
|
|
|
Total liabilities of discontinued operations |
|
$ |
5,429 |
|
|
|
|
|
4. Restructuring Charges
In the third and fourth quarters of 2008, the Company’s Board of Directors approved
restructuring and integration plans with the objective of eliminating duplicate resources and
redundancies and implementing a new operating structure to lower total operating expenses. As a
result of these plans, the Company incurred a restructuring charge from continuing operations of
$4.4 million for the year ended December 31, 2008. Included in these charges were lease obligations
and related charges of $3.0 million for the consolidation of the Company’s operations in Westlake
Village, California and the vacancy of a portion of the leased facility. In addition, the charge
included severance and other payroll-related expenses of $1.4 million associated with the reduction
in workforce of approximately 74 employees whose positions with the Company were eliminated. These
workforce reductions affected 27 employees in cost of revenue positions, 31 employees in sales and
marketing, 5 employees in product and web site development and 11 employees in general and
administrative positions. The Company incurred a restructuring charge from discontinued operations
of $1.6 million associated with severance and other payroll-related expenses for 199 employees who
were terminated.
47
A summary of activity for the year ended December 31, 2008 related to these restructuring
plans is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Lease |
|
|
|
|
| |
|
|
|
|
|
Obligations |
|
|
|
|
| |
|
Employee |
|
|
and |
|
|
|
|
| |
|
Termination |
|
|
Related |
|
|
|
|
| |
|
Benefits |
|
|
Charges |
|
|
Total |
|
Restructuring charges incurred from continuing operations at December 31, 2008 |
|
$ |
1,373 |
|
|
$ |
3,039 |
|
|
$ |
4,412 |
|
Restructuring charges incurred from discontinued operations at December 31, 2008 |
|
|
1,584 |
|
|
|
— |
|
|
|
1,584 |
|
Cash paid |
|
|
(1,553 |
) |
|
|
(895 |
) |
|
|
(2,448 |
) |
|
|
|
|
|
|
|
|
|
|
Restructuring accrual at December 31, 2008 |
|
$ |
1,404 |
|
|
$ |
2,144 |
|
|
$ |
3,548 |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, there was $3.1 million of accrued restructuring costs included in
current accrued expenses and $0.4 million included in other non-current liabilities.
5. Short-term and Long-term Investments
The following table summarizes the Company’s short-term and long-term investments (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
| |
|
Adjusted |
|
|
Net Unrealized |
|
|
Carrying |
|
|
Adjusted |
|
|
Net Unrealized |
|
|
Carrying |
|
| |
|
Cost |
|
|
Gain/(Loss) |
|
|
Value |
|
|
Cost |
|
|
Gain/(Loss) |
|
|
Value |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate auction rate securities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
129,900 |
|
|
$ |
— |
|
|
$ |
129,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
129,900 |
|
|
$ |
— |
|
|
$ |
129,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate auction rate securities |
|
$ |
129,400 |
|
|
$ |
(17,600 |
) |
|
$ |
111,800 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments |
|
$ |
129,400 |
|
|
$ |
(17,600 |
) |
|
$ |
111,800 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s long-term investments consist primarily of high-grade (AAA rated) student loan
auction rate securities issued by student loan funding organizations, which loans are 97%
guaranteed under FFELP (Federal Family Education Loan Program). These auction rate securities
(“ARS”) were intended to provide liquidity via an auction process that resets the interest rate,
generally every 28 days, allowing investors to either roll over their holdings or sell them at par.
In February 2008, auctions for the Company’s investments in these securities failed to settle on
their respective settlement dates. Consequently, the investments are not currently liquid and the
Company will not be able to access these funds until a future auction of these investments is
successful, the securities mature or a buyer is found outside of the auction process. Maturity
dates for these ARS investments range from 2030 to 2047 with principal distributions occurring on
certain securities prior to maturity. Subject to an arbitration proceeding as discussed in Note 23
“Commitments and Contingencies — Legal Proceedings,” the Company currently has the intent to hold
these ARS investments until their fair value recovers, until they reach maturity or until they can
be sold in a market that facilitates orderly transactions. As of December 31, 2008, the Company has
classified $111.8 million of the ARS investment balance as Long-term Investments because of the
Company’s inability to determine when these investments in ARS will become liquid. The Company has
also modified its current investment strategy and increased its investments in more liquid money
market and treasury-bill investments. Citigroup Global Markets Inc./Solomon Smith Barney
(“Citigroup”) was the Company’s investment advisor in connection with the investment in the ARS.
The Company reviews its potential investment impairments in accordance with SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity Securities”, and the related guidance issued
by the FASB and SEC in order to determine the classification of the impairment as
“temporary” or “other-than-temporary.” A temporary impairment charge results in an unrealized loss
being recorded in the other comprehensive income (loss) component of stockholder’s equity. An
other-than-temporary impairment charge is recorded as a realized loss in the Condensed Consolidated
Statement of Operations and reduces net income (loss) for the applicable accounting period. The
differentiating factors between temporary and other-than-temporary impairment are primarily the
length of the time and the extent to which the market value has been less than cost, the financial
condition and near-term prospects of the issuer and the intent and ability of the Company to retain
its investment in the issuer for a period of time sufficient to allow for any anticipated recovery
in market value.
The Company’s ARS investments were measured at fair value as of December 31, 2008, and an
unrealized loss of $17.6 million for the year ended December 31, 2008 was included in Other
Comprehensive Income. See Note 6 for additional information concerning fair value measurement of
the Company’s ARS investments.
48
6. Fair Value Measurements
Financial assets and liabilities included in our financial statements and measured at fair
value as of December 31, 2008 are classified based on the valuation technique level in the table
below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurement |
|
| |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Description: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1) |
|
$ |
108,935 |
|
|
$ |
108,935 |
|
|
$ |
— |
|
|
$ |
— |
|
Long-term investments (2) |
|
|
111,800 |
|
|
|
— |
|
|
|
— |
|
|
|
111,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
220,735 |
|
|
$ |
108,935 |
|
|
$ |
— |
|
|
$ |
111,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivative liability (3) |
|
$ |
600 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Cash and cash equivalents consist primarily of treasury bills with original maturity
dates of three months or less and money market funds for which we determine fair value
through quoted market prices. |
| |
| (2) |
|
Long-term investments consist of student loan, FFELP-backed, ARS issued by student loan
funding organizations. Typically the fair value of ARS investments approximates par value
due to the frequent resets through the auction process. While the Company continues to earn
interest on its ARS investments at the maximum contractual rate, these investments are not
currently trading and therefore do not have a readily determinable market value. The Company
used a discounted cash flow model to determine the estimated fair value of its investment in
ARS as of December 31, 2008. The assumptions used in preparing the discounted cash flow
model includes estimates for interest rates, timing and amount of cash flows and expected
holding period of the ARS. Based on this assessment of fair value, the Company determined
there was a decline in the fair value of its ARS investments of $17.6 million which was
deemed temporary and is included within comprehensive other income (loss) for the year ended
December 31, 2008. |
| |
| (3) |
|
The embedded derivative liability, which is included within other non-current
liabilities, represents the value associated with the right of the holders of Series B
Preferred Stock to receive additional guaranteed dividends in the event of a change of
control. There is no current observable market for this type of derivative and, as such, we
determined the value of the embedded derivative based on a lattice model using inputs such as
an assumed corporate bond borrowing rate, market price of the Company’s stock, probability of
a change in control, and volatility. |
The following table provides a reconciliation of the beginning and ending balances for
the major class of assets and liabilities
measured at fair value using significant unobservable inputs (Level 3) (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Embedded |
|
| |
|
Long-term |
|
|
Derivative |
|
| |
|
Investments |
|
|
Liability |
|
Balance at January 1, 2008 |
|
$ |
— |
|
|
$ |
1,011 |
|
Transfers in and /or out of Level 3 (1) |
|
|
129,400 |
|
|
|
— |
|
Total gains/losses realized/unrealized included in
earnings |
|
|
— |
|
|
|
(411 |
) |
Total losses included in other comprehensive income |
|
|
(17,600 |
) |
|
|
— |
|
Purchases, sales, issuances and settlements, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
111,800 |
|
|
$ |
600 |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Based on the deteriorated market conditions of the Company’s ARS investments that were
previously classified as available-for-sale, in the first quarter of 2008, the Company
changed the fair value measurement methodology from quoted prices from active markets to a
discounted cash flow model. Accordingly, these securities were reclassified from Level 1
to Level 3. |
7. Revolving Line of Credit
On May 8, 2008, the Company entered into a revolving line of credit providing for borrowings
of up to $64.8 million with a major financial institution. Outstanding balances are due on May 7,
2009. The line of credit is secured by the Company’s ARS investment balances and outstanding
borrowings will bear interest at the Federal Funds Rate plus 2.1% (2.24% as of December 31, 2008).
The available borrowings may not exceed 50% of the par value of the Company’s ARS investment
balances and could be limited further if the quoted market value of these securities drops below
70% of par value. There are no debt covenants associated with the revolving line of credit. As of
December 31, 2008, there was $64.7 million in outstanding borrowings against this line of credit.
49
8. Impairment of Long-Lived Assets and Contract Termination Costs
During the fourth quarter of 2008, specific events and changes in operations of the business
indicated a potential impairment of certain of the Company’s long-lived assets. As a result of the
Company’s 2009 budget and strategic planning, the Company reviewed the status of several projects
and it was determined that the Company would not continue to invest in certain projects going
forward and, as a result, associated assets would be abandoned. The Company recorded an impairment
charge of $1.8 million associated with certain software and capitalized software development costs
for the year ended December 31, 2008. In addition, the Company was able to negotiate a favorable
release from certain software maintenance obligations related to long-lived assets impaired in the
fourth quarter of 2007. As a result, the Company was able to record a reduction to its impairment
charges of approximately $0.1 million for the year ended December 31, 2008.
During the second quarter of 2008, the Company decided to divest its Welcome Wagon® business
and began to actively market the business for sale. During the third quarter of 2008, pursuant to
SFAS No. 144, the Company performed an impairment analysis and fair value was determined to be $0
based on third party proposals received for the business. As a result, the Company recorded an
impairment charge of $15.9 million associated with long-lived assets. This impairment charge is
reflected in loss from discontinued operations for the year ended December 31, 2008.
During the fourth quarter of 2007, specific events and changes in operations of the business
indicated a potential impairment of certain of the Company’s long-lived assets. As a result of a
change in key management, the Company’s operating strategy and technological direction changed
significantly. As a result of the change in strategies, during the fourth quarter of 2007, several
key projects were reviewed and it was determined that the Company would not continue to invest in
certain projects going forward and, as a result, associated assets purchased to support those
projects would be abandoned. The Company recorded an impairment charge of $5.5 million associated
with certain software and capitalized web site development costs, $4.2 million is included within
income from continuing operations and $1.3 million is included within loss from discontinued
operations for the year ended December 31, 2007. In addition, due to the loss of a specific
contract and the associated revenue streams, certain long-lived assets associated with the issuance
of warrants were determined to be impaired. The Company recorded an additional impairment charge of
approximately $0.6 million for the year ended December 31, 2007.
During the fourth quarter of 2007, the Company decided to divest its Homeplans business.
Pursuant to SFAS No. 144, the Company performed an impairment analysis and fair value was
determined based on third party proposals received for the Homeplans assets. The Company recorded
an impairment charge of $1.8 million for the year ended December 31, 2007 associated with the
potential divestiture and sale of this business. During the first quarter of 2008, the Company
recorded an additional impairment charge of $0.1 million. These impairment charges are reflected
in loss from discontinued operations for the years ended December 31, 2008 and 2007.
During the third quarter of 2007, in anticipation of a potential move of the Company’s
corporate headquarters, management entered into a sublease agreement for an interim facility
located in Agoura Hills, California for a term of thirteen months. Subsequent to entering into the
lease, management renegotiated with the current landlord and executed an amendment to remain in its
corporate headquarters in Westlake Village, California. As a result, the Company will not occupy
the new facility in Agoura Hills. Since the Company will derive no economic value from the
sublease, the Company has recorded an estimated liability in accordance with SFAS No. 146,
“Accounting for Costs Associated with Exit or Disposal Activities.” The estimated liability of $0.8
million was recorded and is included in general and administrative expenses for the year ended
December 31, 2007. No estimate was made for estimated subtenant income due to the unlikelihood that
the Company will be able to sublease the location due to the limited term of the agreement and
general economic conditions in the area. The remaining liability associated with this lease was
$0.2 million as of December 31, 2008 and is included within Accrued Expenses.
9. Property and Equipment
Property and equipment consists of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Computer software and equipment |
|
$ |
51,000 |
|
|
$ |
50,364 |
|
Furniture, fixtures and office equipment |
|
|
3,247 |
|
|
|
2,881 |
|
Leasehold improvements |
|
|
10,962 |
|
|
|
10,359 |
|
Machinery and equipment |
|
|
36 |
|
|
|
36 |
|
Construction in progress |
|
|
603 |
|
|
|
4,626 |
|
|
|
|
|
|
|
|
Total |
|
|
65,848 |
|
|
|
68,266 |
|
Less: accumulated depreciation and amortization |
|
|
(43,914 |
) |
|
|
(38,336 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
21,934 |
|
|
$ |
29,930 |
|
|
|
|
|
|
|
|
50
Depreciation expense, excluding discontinued operations, was $11.2 million, $10.0 million and
$9.3 million, which includes amortization of fixed assets acquired under capital lease obligations
of $1.8 million, $1.8 million, and $2.4 million for the years ended December 31, 2008, 2007 and
2006, respectively. Computer software and equipment above includes $6.3 million of assets purchased
under capital leases at December 31, 2008 and 2007.
10. Goodwill and Other Intangible Assets
Goodwill by segment is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Real Estate Services |
|
$ |
12,594 |
|
|
$ |
12,806 |
|
Consumer Media |
|
|
4,375 |
|
|
|
4,375 |
|
|
|
|
|
|
|
|
Total |
|
$ |
16,969 |
|
|
$ |
17,181 |
|
|
|
|
|
|
|
|
The Company has both indefinite and definite lived intangibles. Indefinite-lived intangibles
consist of $2.0 million of trade name and trademarks. Definite-lived intangible assets consist of
certain trade names, trademarks, brand names, domain names, purchased technology and other
miscellaneous agreements entered into in connection with business combinations and are amortized
over expected periods of benefits. The Company wrote-off $0.3 million of indefinite-lived
intangible assets associated with an abandoned business initiative and $0.3 million of fully
amortized intangible assets that were no longer in use during the year ended December 31, 2008.
There are no expected residual values related to these intangible assets. Intangible assets by
category are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
Gross |
|
|
Accumulated |
|
|
Gross |
|
|
Accumulated |
|
| |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Trade names, trademarks, brand names, and domain names |
|
$ |
2,530 |
|
|
$ |
514 |
|
|
$ |
2,830 |
|
|
$ |
512 |
|
Purchased technology |
|
|
1,400 |
|
|
|
566 |
|
|
|
1,400 |
|
|
|
366 |
|
NAR operating agreement |
|
|
1,578 |
|
|
|
1,052 |
|
|
|
1,578 |
|
|
|
901 |
|
Other |
|
|
1,450 |
|
|
|
893 |
|
|
|
1,705 |
|
|
|
723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,958 |
|
|
$ |
3,025 |
|
|
$ |
7,513 |
|
|
$ |
2,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense, excluding discontinued operations, for intangible assets for the years
ended December 31, 2008, 2007 and 2006 was $0.8 million, $0.8 million and $0.7 million,
respectively. Amortization expense for the next five years is estimated to be as follows (in
thousands):
| |
|
|
|
|
| Year Ended December 31, |
|
Amount |
2009 |
|
$ |
472 |
|
2010 |
|
|
417 |
|
2011 |
|
|
416 |
|
2012 |
|
|
341 |
|
2013 |
|
|
99 |
|
11. Other Current Assets
Other current assets consist of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Prepaid commissions |
|
$ |
6,798 |
|
|
$ |
5,204 |
|
Other |
|
|
4,601 |
|
|
|
4,907 |
|
|
|
|
|
|
|
|
Total |
|
$ |
11,399 |
|
|
$ |
10,111 |
|
|
|
|
|
|
|
|
12. Accrued Expenses
Accrued expenses consist of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Accrued payroll and related benefits |
|
$ |
10,459 |
|
|
$ |
14,892 |
|
Accrued professional fees |
|
|
2,037 |
|
|
|
1,308 |
|
Other |
|
|
10,251 |
|
|
|
12,246 |
|
|
|
|
|
|
|
|
Total |
|
$ |
22,747 |
|
|
$ |
28,446 |
|
|
|
|
|
|
|
|
51
13. Related-party Transactions
As part of an employment agreement entered into in 2002 with W. Michael Long, the Company
reimbursed its former chief executive officer for the business use of an airplane, which is owned
indirectly by him. Total expense incurred by the Company for reimbursement was approximately $1.2
million, $1.7 million and $1.4 million for the years ended December 31, 2008, 2007 and 2006,
respectively.
The Company provided product development services to NAR and recognized $1.1 million in
revenues for the year ended December 31, 2008. The Company also makes payments to NAR through its
operating agreement and other advertising agreements. Total amounts paid under these agreements
were $1.9 million, $1.7 million and $1.7 million for the years ended December 31, 2008, 2007, and
2006, respectively. Additionally, future commitments to NAR are included within the commitment
schedule in Note 23.
14. Segment Information
Segment information is presented in accordance with SFAS No. 131 “Disclosures about Segments
of an Enterprise and Related Information.” This standard is based on a management approach, which
requires segmentation based upon the Company’s internal organization and disclosure of revenue and
operating expenses based upon internal accounting methods. The Company’s management evaluates
performance and allocates resources based on two segments consisting of Real Estate Services for
those products and services offered to industry professionals trying to reach new movers and manage
their relationships with them and Consumer Media for those products and services offered to other
advertisers who are trying to reach those consumers in the process of a move. This is consistent
with the data that is made available to our management to assess performance and make decisions.
The expenses presented below for each of the business segments include an allocation of
certain corporate expenses that are identifiable and benefit those segments and are allocated for
internal management reporting purposes. The unallocated expenses are those corporate overhead
expenses that are not directly attributable to a segment and include: corporate expenses, such as
finance, legal, executive, facilities, corporate brand marketing, certain corporate technology
costs including internal business systems, and human resources; amortization of intangible assets;
litigation settlement charges; stock-based charges; impairment charges and acquisition and
restructuring charges. There is no inter-segment revenue. Assets and liabilities are not fully
allocated to segments for internal reporting purposes.
The listing enhancement product within the Real Estate Services segment represented
approximately 39%, 35%, and 30% of the overall revenue from continuing operations for fiscal years
2008, 2007 and 2006, respectively. The Featured Homes product within this segment represented
approximately 11%, 13%, and 13% of the overall revenue from continuing operations for 2008, 2007
and 2006, respectively, and the Top Producer 7i and 8i product represented approximately 11%, 12%
and 12% of the overall revenue from continuing operations for 2008, 2007, and 2006, respectively.
Summarized information, by segment, as excerpted from the internal management reports is as
follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, 2008 (As restated) |
|
| |
|
Real Estate |
|
|
Consumer |
|
|
|
|
|
|
|
| |
|
Services |
|
|
Media |
|
|
Unallocated |
|
|
Total |
|
Revenue |
|
$ |
217,233 |
|
|
$ |
24,836 |
|
|
$ |
— |
|
|
$ |
242,069 |
|
Cost of revenue |
|
|
38,394 |
|
|
|
6,554 |
|
|
|
1,093 |
|
|
|
46,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
178,839 |
|
|
|
18,282 |
|
|
|
(1,093 |
) |
|
|
196,028 |
|
Sales and marketing |
|
|
75,956 |
|
|
|
12,026 |
|
|
|
5,549 |
|
|
|
93,531 |
|
Product and web site development |
|
|
21,763 |
|
|
|
1,750 |
|
|
|
2,829 |
|
|
|
26,342 |
|
General and administrative |
|
|
27,851 |
|
|
|
4,015 |
|
|
|
45,705 |
|
|
|
77,571 |
|
Amortization of intangible assets |
|
|
— |
|
|
|
— |
|
|
|
756 |
|
|
|
756 |
|
Restructuring charges |
|
|
301 |
|
|
|
188 |
|
|
|
3,923 |
|
|
|
4,412 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
1,670 |
|
|
|
1,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
125,871 |
|
|
|
17,979 |
|
|
|
60,432 |
|
|
|
204,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations |
|
$ |
52,968 |
|
|
$ |
303 |
|
|
$ |
(61,525 |
) |
|
$ |
(8,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
52
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, 2007 (As restated) |
|
| |
|
Real Estate |
|
|
Consumer |
|
|
|
|
|
|
|
| |
|
Services |
|
|
Media |
|
|
Unallocated |
|
|
Total |
|
Revenue |
|
$ |
220,546 |
|
|
$ |
28,373 |
|
|
$ |
— |
|
|
$ |
248,919 |
|
Cost of revenue |
|
|
34,677 |
|
|
|
5,875 |
|
|
|
2,356 |
|
|
|
42,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
185,869 |
|
|
|
22,498 |
|
|
|
(2,356 |
) |
|
|
206,011 |
|
Sales and marketing |
|
|
71,114 |
|
|
|
13,578 |
|
|
|
5,262 |
|
|
|
89,954 |
|
Product and web site development |
|
|
27,030 |
|
|
|
5,994 |
|
|
|
1,632 |
|
|
|
34,656 |
|
General and administrative |
|
|
27,782 |
|
|
|
4,358 |
|
|
|
40,591 |
|
|
|
72,731 |
|
Amortization of intangible assets |
|
|
— |
|
|
|
— |
|
|
|
761 |
|
|
|
761 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
4,824 |
|
|
|
4,824 |
|
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
3,900 |
|
|
|
3,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
125,926 |
|
|
|
23,930 |
|
|
|
56,970 |
|
|
|
206,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations |
|
$ |
59,943 |
|
|
$ |
(1,432 |
) |
|
$ |
(59,326 |
) |
|
$ |
(815 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, 2006 (As restated) |
|
| |
|
Real Estate |
|
|
Consumer |
|
|
|
|
|
|
|
| |
|
Services |
|
|
Media |
|
|
Unallocated |
|
|
Total |
|
Revenue |
|
$ |
208,339 |
|
|
$ |
30,413 |
|
|
$ |
— |
|
|
$ |
238,752 |
|
Cost of revenue |
|
|
33,323 |
|
|
|
4,675 |
|
|
|
3,156 |
|
|
|
41,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
175,016 |
|
|
|
25,738 |
|
|
|
(3,156 |
) |
|
|
197,598 |
|
Sales and marketing |
|
|
69,915 |
|
|
|
12,963 |
|
|
|
3,887 |
|
|
|
86,765 |
|
Product and web site development |
|
|
25,083 |
|
|
|
2,657 |
|
|
|
4,229 |
|
|
|
31,969 |
|
General and administrative |
|
|
30,113 |
|
|
|
3,478 |
|
|
|
36,522 |
|
|
|
70,113 |
|
Amortization of intangible assets |
|
|
— |
|
|
|
— |
|
|
|
699 |
|
|
|
699 |
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
(278 |
) |
|
|
(278 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
125,111 |
|
|
|
19,098 |
|
|
|
45,059 |
|
|
|
189,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations |
|
$ |
49,905 |
|
|
$ |
6,640 |
|
|
$ |
(48,215 |
) |
|
$ |
8,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Stock Plans
Option Plans
In general, options granted by the Company vest over a four year period and are granted at the
fair market value at the date of grant. The life of an option grant cannot exceed ten years. In
January 1999, the Board of Directors adopted, and in March 1999 the Company’s stockholders
approved, the 1999 Equity Incentive Plan (“1999 Plan”) to replace a pre-existing stock option plan
(“1996 Plan”). The 1999 Plan provides for the issuance of both non-statutory and incentive stock
options to employees, officers, directors and consultants of the Company. The initial number of
shares of common stock reserved for issuance under the 1999 Plan was 10,000,000. In April 1999 and
June 1999, the Board of Directors authorized, and the stockholders approved, an increase in the
number of shares reserved for issuance under the 1999 Plan by an additional 3,000,000 shares and
625,000 shares, respectively.
In June 1999, the Board of Directors adopted, and the stockholders approved, the 1999 Stock
Incentive Plan (“SIP”) which was combined with the previous 1999 Plan. The SIP reserves 4,900,000
shares of common stock for future grants. The SIP contains a provision for an automatic increase in
the number of shares available for grant starting January 1, 2000 and each January thereafter by an
amount equal to 4.5% of the outstanding shares as of the preceding December 31; provided, however,
that the aggregate number of shares that qualify as Incentive Stock Options (as defined in the
plan) must not exceed 20.0 million shares. In accordance with the provisions of the SIP, the number
of options available for grant was increased by 6,888,682, 6,813,010 and 6,937,250 shares in
January 2008, 2007 and 2006, respectively. Pursuant to the terms of the plan, no person is eligible
to receive more than 2 million shares in any calendar year under the plan.
In connection with acquisitions prior to 2002, the Company assumed plans with authorized
options of 8,013,141. Options outstanding pursuant to these plans were 1,777,691 and 1,787,941 as
of December 31, 2008 and 2007, respectively, and the weighted average exercise price of those
option shares was $4.81 and $4.90, respectively.
On January 15, 2002, the Board of Directors adopted the 2002 Stock Incentive Plan (“2002
SIP”). The 2002 SIP reserved 15,000,000 shares of common stock for future grants of nonqualified
stock options to employees, consultants, contractors and advisors as to be determined by the
Management Development and Compensation Committee of the Board of Directors. Pursuant to the terms
of the plan, options granted to insiders (officers or directors of the Company who are subject to
Section 16 of the Securities Exchange Act of 1934) may not exceed in the aggregate forty percent
(40%) of all shares that are reserved for grant under the plan.
The following table summarizes the activities under the option plans for the three years ended
December 31, 2008 (shares in thousands):
53
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
| |
|
Number |
|
|
|
|
|
|
Average |
|
| |
|
of Shares |
|
|
Price per Share |
|
|
Exercise Price |
|
Outstanding at December 31, 2005 |
|
|
32,215 |
|
|
$ |
0.30 to 89.25 |
|
|
$ |
2.84 |
|
Granted |
|
|
6,274 |
|
|
|
4.40 to 6.45 |
|
|
|
5.13 |
|
Exercised |
|
|
(4,612 |
) |
|
|
0.30 to 4.80 |
|
|
|
1.39 |
|
Cancelled |
|
|
(2,264 |
) |
|
|
0.30 to 89.25 |
|
|
|
5.60 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
31,613 |
|
|
|
0.30 to 89.25 |
|
|
|
3.30 |
|
Granted |
|
|
9,553 |
|
|
|
2.35 to 6.32 |
|
|
|
4.18 |
|
Exercised |
|
|
(1,128 |
) |
|
|
0.30 to 5.96 |
|
|
|
2.72 |
|
Cancelled |
|
|
(2,467 |
) |
|
|
0.30 to 72.12 |
|
|
|
5.08 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
37,571 |
|
|
|
0.30 to 89.25 |
|
|
|
3.43 |
|
Granted |
|
|
5,459 |
|
|
|
1.01 to 5.43 |
|
|
|
2.06 |
|
Exercised |
|
|
(1,576 |
) |
|
|
0.30 to 3.00 |
|
|
|
1.94 |
|
Cancelled |
|
|
(6,157 |
) |
|
|
0.30 to 54.00 |
|
|
|
4.05 |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
35,297 |
|
|
$ |
0.30 to 89.25 |
|
|
$ |
3.17 |
|
|
|
|
|
|
|
|
|
|
|
Common stock available for issuance upon the exercise of options as of December 31, 2008 was
21.1 million shares, but increased on January 1, 2009 to 28.0 million shares.
Additional information with respect to the outstanding options at December 31, 2008 is as
follows (shares in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding |
|
|
|
|
| |
|
|
|
|
|
Weighted Average |
|
|
Weighted |
|
|
Options Exercisable |
|
| |
|
Number |
|
|
Remaining |
|
|
Average |
|
|
Number |
|
|
Average |
|
| Prices |
|
Of Shares |
|
|
Contractual Life |
|
|
Exercise Price |
|
|
of Shares |
|
|
Exercise Price |
|
$0.30 to 1.01 |
|
|
3,534 |
|
|
|
9.17 |
|
|
$ |
0.97 |
|
|
|
364 |
|
|
$ |
0.64 |
|
1.19 to 1.72 |
|
|
503 |
|
|
|
4.05 |
|
|
|
1.39 |
|
|
|
457 |
|
|
|
1.38 |
|
1.76 |
|
|
9,618 |
|
|
|
2.70 |
|
|
|
1.76 |
|
|
|
9,618 |
|
|
|
1.76 |
|
1.95 to 2.07 |
|
|
550 |
|
|
|
5.98 |
|
|
|
1.95 |
|
|
|
474 |
|
|
|
1.95 |
|
2.16 |
|
|
3,600 |
|
|
|
5.10 |
|
|
|
2.16 |
|
|
|
3,422 |
|
|
|
2.16 |
|
2.18 to 4.09 |
|
|
5,095 |
|
|
|
5.35 |
|
|
|
3.28 |
|
|
|
3,787 |
|
|
|
3.35 |
|
4.17 to 4.25 |
|
|
3,765 |
|
|
|
6.85 |
|
|
|
4.21 |
|
|
|
1,904 |
|
|
|
4.22 |
|
4.31 to 4.47 |
|
|
3,657 |
|
|
|
7.49 |
|
|
|
4.32 |
|
|
|
2,244 |
|
|
|
4.33 |
|
4.48 to 5.43 |
|
|
4,060 |
|
|
|
5.30 |
|
|
|
4.97 |
|
|
|
3,005 |
|
|
|
4.97 |
|
5.51 to 89.25 |
|
|
915 |
|
|
|
3.63 |
|
|
|
14.77 |
|
|
|
749 |
|
|
|
16.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.30 to 89.25 |
|
|
35,297 |
|
|
|
5.31 |
|
|
$ |
3.17 |
|
|
|
26,024 |
|
|
$ |
3.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair value of options granted during the years ended December 31, 2008,
2007 and 2006 was $0.91, $2.78 and $3.69, respectively. The total number of shares exercisable was
26.0 million, 24.5 million and 19.6 million at December 31, 2008, 2007 and 2006, respectively. The
weighted average exercise price at those dates was $3.23, $3.05 and $2.95, respectively.
Stock-Based Compensation and Charges
As noted in Note 26, the Company restated its audited consolidated financial statements for
fiscal years 2008, 2007 and 2006 in its Form 10-K/A for the fiscal year ended December 31, 2008 as it relates to its accounting for stock based compensation expense.
During the years ended December 31, 2008, 2007 and 2006, the Company issued 160,793, 100,000,
and 109,500 shares of restricted stock, respectively, to certain members of the Company’s Board of
Directors. These shares will vest on the third anniversary of their issuance. The total intrinsic
value associated with the issuance of these shares was approximately $0.5 million, $0.4 million,
and $0.5 million for the years ended December 31, 2008, 2007 and 2006, respectively, and is being
recognized over their respective vesting period. During the year ended December 31, 2008, one
member of the Board of Directors resigned and forfeited 40,000 shares of unvested restricted stock.
Total cost recognized was approximately $0.3 million for each of the three years ended December
31, 2008 and is included in stock-based compensation and charges. There were 345,293, 314,950 and
292,200 unvested shares of restricted stock issued to members of the Company’s Board of Directors
as of December 31, 2008, 2007 and 2006, respectively.
During the year ended December 31, 2007, the Company issued 232,018 shares of restricted stock
to one of its officers as a “sign-on” bonus. These shares had a fair value of $1.0 million and
vested fifty percent immediately with the balance vesting one year from
54
the grant date subject to continued employment with the Company. The fair value of the first
fifty percent vesting was recognized as stock based compensation immediately with the remaining
fifty percent being amortized over one year. The total costs recognized during the years ended
December 31, 2008 and 2007 related to this award was approximately $0.2 million and $0.8 million
and is included in stock-based compensation and charges. The officer returned 82,946 shares of
common stock with a fair value of approximately $0.4 million to reimburse the Company for the
officer’s share of employment taxes due as a result of this transaction. As of December 31, 2008,
all shares are vested.
The Board of Directors awarded performance-based restricted stock units to certain of the
Company’s executive officers during the years ended December 31, 2007 and 2006, respectively. The
following summarizes the restricted stock unit activity for the three years ended December 31, 2008
(in thousands):
| |
|
|
|
|
| |
|
Number of |
| |
|
Restricted Stock Units |
Initial units granted |
|
|
5,145 |
|
Units forfeited |
|
|
(505 |
) |
|
|
|
|
|
Non-vested units at December 31, 2006 |
|
|
4,640 |
|
Units granted |
|
|
2,325 |
|
Units forfeited |
|
|
(1,830 |
) |
|
|
|
|
|
Non-vested units at December 31, 2007 |
|
|
5,135 |
|
Units forfeited |
|
|
(1,080 |
) |
Units cancelled |
|
|
(2,027 |
) |
|
|
|
|
|
Non-vested units at December 31, 2008 |
|
|
2,028 |
|
|
|
|
|
|
Based on the original terms of the awards, the officers were to earn shares of the Company’s
stock, based on the attainment of certain performance goals relating to the Company’s revenues and
operating income (as defined by the Management Development and Compensation Committee of the Board
of Directors) for the fiscal year ending December 31, 2008. During the year ended December 31,
2007, the Management Development and Compensation Committee of the Board of Directors approved
modifications of the performance targets and vesting periods from the original awards, reducing the
original restricted stock units available for vesting after 2008 by 50% for each of the executives,
and revising the target financial performance for 2008 based on current market conditions and the
Company’s expected performance. The committee also established financial performance targets for
2009, which provided the potential for executives to earn the remaining 50% of the restricted stock
units previously granted by attainment of those performance goals.
As a result of the modification, pursuant to SFAS 123R, a new measurement date was
established. The modification was entered into because the 2006 grants required a three-year
projection of financial performance in a highly competitive and rapidly changing market and the
Management Development and Compensation Committee of the Board of Directors wanted to better
reflect the current strategy of the Company while adhering to the original goals of increased and
sustained performance. As a result, the likelihood of achieving the original targets was improbable
and previously recognized compensation under the award was reversed to reflect this assumption.
Recognition of compensation for these units will be deferred until management determines that it is
probable that it will achieve the new performance targets. As a result, $4.0 million of stock-based
compensation expense recognized in 2006 was reversed in 2007. Based on operating results for the
year ended December 31, 2008, the target financial performance was not achieved and, as such,
2,027,000 restricted stock units were cancelled as of December 31, 2008. As of December 31, 2008,
the fair value of the remaining restricted stock units granted was $9.6 million.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS
123R using the modified-prospective transition method. Under that transition method, compensation
cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior
to January 1, 2006, but not yet vested, based on the grant-date fair value estimated in accordance
with the original provisions of SFAS 123; and (b) compensation cost for all share-based payments
granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123R. Compensation costs are recognized using a straight-line
amortization method over the vesting period.
The fair value of each option award is estimated on the date of grant using a Black-Scholes
option valuation model that uses the ranges of assumptions in the following table. Our computation
of expected volatility is based on a combination of historical and market-based implied volatility.
The expected term of stock options granted represents the weighted average period that the stock
options are expected to remain outstanding. Effective January 1, 2008, the Company derived the
expected term assumption based on the Company’s weighted average vesting period combined with the
post-vesting holding period. Prior to January 1, 2008, the Company used the simplified method to
calculate the expected term for its options, as allowed by Staff Accounting Bulletin SEC Topic 14,
“Share-Based Payments (SAB 107)”. The risk-free interest rates are based on U.S. Treasury
zero-coupon bonds for the periods in which the stock options were granted.
55
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, |
| |
|
2008 |
|
2007 |
|
2006 |
Risk-free interest rates |
|
|
0.10-3.41 |
% |
|
|
3.41-5.16 |
% |
|
|
4.35-5.33 |
% |
Expected term (in years) |
|
|
5.85 |
|
|
|
6.06 |
|
|
|
6.06 |
|
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected volatility |
|
|
65-80 |
% |
|
|
65-75 |
% |
|
|
80 |
% |
During the years ended December 31, 2008, 2007 and 2006, the Company updated the estimated
forfeiture rates it uses in the determination of its stock-based compensation expense; these
changes were the result of an assessment that included an analysis of the actual number of equity
awards that had been forfeited to date compared to prior estimates and an evaluation of future
estimated forfeitures. The Company periodically evaluates its forfeiture rates and updates the
rates its uses in the determination of its stock-based compensation expense. The impact of changes
to the forfeiture rates on non-cash compensation expense was immaterial.
During the year ended December 31, 2008, the Company modified the vesting and extended the
time to exercise for several former executive employees as part of their severance agreements. As
a result of these modifications, the Company recorded additional stock-based compensation expense
of $0.8 million. During the year ended December 31, 2007, the Company accelerated the vesting of
stock options of one former employee and extended the term to exercise vested options for that
employee and two other former employees. As a result of these modifications, the Company recorded
additional compensation expense of $1.6 million. During the year ended December 31, 2006, the
Company accelerated the vesting of stock options of three employees upon their termination of
employment with the Company. As a result of this modification, the Company recorded additional
compensation expense of approximately $0.5 million.
The following chart summarizes the stock-based compensation and charges that have been
included in the following captions for each of the periods presented (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended |
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(As restated) |
|
|
(As restated) |
|
|
(As restated) |
|
Cost of revenue |
|
$ |
144 |
|
|
$ |
130 |
|
|
$ |
140 |
|
Sales and marketing |
|
|
758 |
|
|
|
1,309 |
|
|
|
1,765 |
|
Product and web site development |
|
|
566 |
|
|
|
1,181 |
|
|
|
1,339 |
|
General and administrative |
|
|
10,857 |
|
|
|
12,380 |
|
|
|
12,510 |
|
Impairment of long lived assets |
|
|
— |
|
|
|
570 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total from continuing operations |
|
|
12,325 |
|
|
|
15,570 |
|
|
|
15,754 |
|
Total from discontinued operations |
|
|
135 |
|
|
|
514 |
|
|
|
1,169 |
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation and charges |
|
$ |
12,460 |
|
|
$ |
16,084 |
|
|
$ |
16,923 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation and charges for the year ended December 31, 2008 are comprised of
employee-based stock option expense and restricted stock amortization. Stock-based compensation
and charges for the years ended December 31, 2007 and 2006 include approximately $0.3 million
related to vendor agreements with the remainder related to employee-based stock option expense and
restricted stock amortization. There was $4.0 million of compensation expense associated with
restricted stock units recognized during the year ended December 31, 2006 and a reversal of that
$4.0 million expense during the year ended December 31, 2007 as described above. Stock-based
charges for the year ended December 31, 2007 also includes $0.6 million due to impairment of
long-lived assets related to the issuance of warrants.
The total intrinsic value of stock options exercised during the year ended December 31, 2008,
2007 and 2006 was $1.2 million, $3.0 million, and $19.1 million, respectively. The intrinsic value
of options exercisable as of December 31, 2008, 2007 and 2006 was $0.4 million, $10.0 million and
$62.3 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 option.
A summary of the Company’s non-vested stock options as of and for the three years ended
December 31, 2008 is as follows (in thousands, except per share amounts):
| |
|
|
|
|
|
|
|
|
| |
|
Number |
|
|
Weighted |
|
| |
|
of |
|
|
Average |
|
| |
|
Shares |
|
|
Exercise Price |
|
Non-vested options at December 31, 2005 |
|
|
12,429 |
|
|
$ |
2.72 |
|
Granted |
|
|
6,274 |
|
|
|
5.13 |
|
Vested |
|
|
(4,738 |
) |
|
|
2.71 |
|
Forfeited |
|
|
(1,985 |
) |
|
|
3.15 |
|
|
|
|
|
|
|
|
Non-vested options at December 31, 2006 |
|
|
11,980 |
|
|
$ |
3.91 |
|
Granted |
|
|
9,553 |
|
|
|
4.18 |
|
Vested |
|
|
(6,219 |
) |
|
|
3.86 |
|
Forfeited |
|
|
(2,223 |
) |
|
|
3.88 |
|
|
|
|
|
|
|
|
56
| |
|
|
|
|
|
|
|
|
| |
|
Number |
|
|
Weighted |
|
| |
|
of |
|
|
Average |
|
| |
|
Shares |
|
|
Exercise Price |
|
Non-vested options at December 31, 2007 |
|
|
13,091 |
|
|
$ |
4.13 |
|
Granted |
|
|
5,459 |
|
|
|
2.06 |
|
Vested |
|
|
(5,458 |
) |
|
|
3.91 |
|
Forfeited |
|
|
(3,820 |
) |
|
|
4.18 |
|
|
|
|
|
|
|
|
Non-vested options at December 31, 2008 |
|
|
9,272 |
|
|
$ |
3.02 |
|
|
|
|
|
|
|
|
As of December 31, 2008, there was $22.8 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 2.3 years.
16. Series B Convertible 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 designated (the
“Purchasers”) to sell to the Purchasers 100,000 shares of its Series B Convertible Participating
Preferred Stock (“Series B Preferred Stock”) for an aggregate purchase price of $100 million. The
transaction was exempt from the registration requirements of the Securities Act of 1933, as
amended. The transaction closed on November 29, 2005. The net proceeds of $94.1 million from the
issuance of the Series B Preferred Stock are net of issuance costs of $5.9 million, and are
classified as mezzanine equity due to certain change of control provisions which provide for
redemption outside the control of the Company. The Company determined that due to those change of
control provisions, the Series B Preferred Stock should be recorded on the Company’s financial
statements as though it consisted of two components: (i) convertible preferred stock (the “Host
Contract”) with a 3.5% annual dividend, and (ii) an embedded derivative (the “Embedded Derivative”)
which reflected the right of the holders of the Series B Preferred Stock to receive additional
guaranteed dividends in the event of a change of control. The Series B Preferred Stock reported on
the Company’s consolidated balance sheet consists only of the value of the Host Contract (less
issuance costs) plus the amount of accretion for issuance costs and accrued dividends. Such
discount and issuance costs are being accreted over the life of the Series B Preferred Stock with
such accretion being recorded as a reduction in retained earnings. During each of the three years
ended December 31, 2008, the Company recorded accretion on the issuance costs of approximately $1.3
million. The Company determined that the fair value of the Embedded Derivative as of December 31,
2008 and 2007 was $0.6 million and $1.0 million, respectively, and is included in other non-current
liabilities. As a result of the reduction in fair value of the embedded derivative, the Company
recognized other income of $0.4 million, $1.1 million and $1.1 million during the years ended
December 31, 2008, 2007 and 2006, respectively.
The Series B Preferred Stock has an aggregate liquidation preference of $100 million plus all
accrued and unpaid dividends. The Series B Preferred Stock will be convertible into the Company’s
common stock at a conversion price of $4.20 per share, subject to certain adjustment upon certain
events. Based on the number of shares of common stock outstanding as of December 31, 2008, if all
shares of Series B Preferred Stock were converted they would represent approximately 15% of the
Company’s outstanding common stock. The Series B Preferred Stock pays a quarterly dividend of 3.5%
per annum of the original price per share, payable in additional Series B Preferred Stock, for the
first five years following issuance, after which such dividends will be paid only in cash. After
the third anniversary of the issuance, the Company may cause all of the Series B Preferred Stock to
be converted to the Company’s common stock if the closing price per share of the Company’s common
stock during any 30 consecutive trading days is at least $7.77. The Company may not redeem the
Series B Preferred Stock until after the fifth anniversary of the issuance, and must redeem it on
the seventh anniversary if not converted to common stock.
In the event of a change of control, the Company will be required to offer to repurchase all
of the outstanding shares of Series B Preferred Stock for total cash equal to 100% of the
liquidation preference (or, if such change of control occurs after the six month anniversary of the
issuance, 101% of the liquidation preference). If a change of control occurs within five years
after the issuance of the Series B Preferred Stock, and the price per share of common stock in such
change of control is less than $7.98, then the Company will be required to issue additional shares
of Series B Preferred Stock, or in certain instances cash, in an amount equal to the regular
dividends such shares would have received from the date of repurchase following the change of
control until the fifth anniversary of the issuance of the shares. In no event would the Company be
obligated to issue Series B Preferred Shares or cash equating to more than three years of
dividends.
The Series B Preferred Stock ranks senior to the common stock of the Company and junior to the
Company’s Series A Preferred Stock, and votes as a single class with the common stock on any matter
to come before the stockholders of the Company, with each share of Series B Preferred Stock being
entitled to cast a number of votes equal to the number of shares of Common Stock into which it is
then convertible. The Agreement contains customary anti-dilution provisions.
The holders of the Series B Preferred Stock are entitled to elect two Directors to the
Company’s Board of Directors. The Purchasers are required to vote their shares in the manner
recommended by the Board with respect to the election or removal of directors, other than any
directors designated by the Purchasers.
57
The Stockholders Agreement dated November 29, 2005 between the Company and Elevation Partners,
L.P. and Elevation Employee Side Fund, LLC (“Stockholders Agreement”) requires the consent of the
holders of the Series B Preferred Stock before the Company may engage in the following: (i)
incurrence of certain additional indebtedness; (ii) certain divestitures, acquisitions or other
business reorganizations; (iii) filing for bankruptcy protection; (iv) transactions with affiliates
in excess of $100,000; and (v) payment of any dividend on, or the redemption or repurchase of,
common stock in aggregate amounts of $10 million or more. The Stockholders Agreement also provides
the Purchasers with certain rights to register shares of common stock upon conversion of the Series
B Preferred Stock. The Purchasers are entitled to three demand registration rights, which may
include shelf registration beginning two years from date of issuance, subject to certain dollar and
share number thresholds. The Purchasers are also entitled to piggyback registration rights.
A summary of activity related to the Series B Preferred Stock is as follows (in thousands):
| |
|
|
|
|
Gross Proceeds |
|
$ |
100,000 |
|
Costs and expenses of issuance |
|
|
(5,924 |
) |
Embedded derivative liability |
|
|
(3,137 |
) |
|
|
|
|
Net convertible preferred stock at issuance |
|
|
90,939 |
|
Accretion of discount |
|
|
99 |
|
Dividends |
|
|
311 |
|
|
|
|
|
Net convertible preferred stock at December 31, 2005 |
|
|
91,349 |
|
Accretion of discount |
|
|
1,302 |
|
Dividends |
|
|
3,557 |
|
Costs and expenses of issuance |
|
|
4 |
|
|
|
|
|
Net convertible preferred stock at December 31, 2006 |
|
|
96,212 |
|
Accretion of discount |
|
|
1,294 |
|
Dividends |
|
|
3,683 |
|
|
|
|
|
Net convertible preferred stock at December 31, 2007 |
|
|
101,189 |
|
Accretion of discount |
|
|
1,294 |
|
Dividends |
|
|
3,814 |
|
|
|
|
|
Net convertible preferred stock at December 31, 2008 |
|
$ |
106,297 |
|
|
|
|
|
17. Capitalization
As of December 31, 2004, the Company had authorized the issuance of one share of Series A
Preferred Stock. As of December 31, 2008 and December 31, 2007, one share of Series A Preferred
Stock was issued and outstanding and held by NAR. The holder of Series A Preferred Stock has the
following rights:
Voting — Except as provided in this paragraph, the Series A preferred stockholder is not
entitled to notice of any stockholders’ meetings and shall not be entitled to vote on any matters
with respect to any question upon which holders of common stock or preferred stock have the right
to vote, except as may be required by law (and, in any such case, the Series A Preferred Stock
shall have one vote per share and shall vote together with the common stock as a single class). The
holder of Series A Preferred Stock is entitled to elect one director of the Company. If there is
any vacancy in the office of a director elected by the holder of the Series A Preferred Stock, then
a director to hold office for the unexpired term of such directorship may be elected by the vote or
written consent of the holder of the Series A Preferred Stock. The provisions dealing with
preferred stockholders rights included in the Certificate of Incorporation may not be amended
without the approval of the holder of the Series A Preferred Stock.
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 (as appropriately adjusted for stock splits, stock dividends, recapitalizations and
the like), prior and in preference to the payment of any dividend on the common stock in such
calendar year. If, after dividends in the full preferential amounts specified in this section for
the Series A Preferred Stock have been paid or declared and set apart in any calendar year of the
Company, the holder of Series A Preferred Stock shall have no further rights to receive any further
dividends that the Board may declare or pay in that calendar year.
Liquidation — In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the Series A Preferred Stockholder is entitled to receive, prior
and in preference to any payment or distribution on any shares of common stock, an amount per share
equal to $1.00 per share of Series A Preferred Stock. After payment of such amount, any further
amounts available for distribution shall be distributed among the holders of common stock and the
holders of preferred stock other than Series A Preferred Stock, if any, entitled to receive such
distributions.
Redemption — Upon the earlier to occur of (i) termination of that certain operating agreement
dated November 26, 1996, as the same may be amended from time to time (the “operating agreement”),
or (ii) NAR ceases to own at least 149,778 shares of common stock of the Company, or (iii) the
existence and continuance of a material breach by NAR of that certain Joint Ownership Agreement,
58
dated as of November 26, 1996, between NAR, and subsidiaries of the Company, or the Trademark
License dated as of November 26, 1996, by and between NAR and the Company, at any time thereafter
the Company may, at the option of the Board, redeem the Series A Preferred Stock. The redemption
price for each share of Series A Preferred Stock shall be $1.00 per share.
Conversion — Each share of Series A Preferred Stock shall automatically be converted into one
share of common stock upon any sale, transfer, pledge, or other disposition of the share of Series
A Preferred Stock to any person or entity other than the initial holder of such share of Series A
Preferred Stock, or any successor by operation of law that functions as a non-profit trade
association for REALTORS® under Section 501(c)(6) of Internal Revenue Code of 1986, as amended,
that owns the REALTOR® trademark, or any wholly-owned affiliate of such holder as long as the
holder continues to own such affiliate.
Issuance of Common Stock
The Company recognized $0.3 million in stock-based charges in connection with the issuance of
common stock to members of its Board of Directors for the years ended December 31, 2008, 2007 and
2006.
Stock Repurchases
On September 13, 2007, the Board of Directors authorized a stock repurchase program. The
program authorized, in one or more transactions taking place during the twelve month period
following September 17, 2007, the repurchase of our outstanding common stock utilizing surplus cash
in the amount of up to $50 million. Under the program, the Company purchased shares of common stock
in the open market. Shares repurchased under the program were retired to constitute authorized but
unissued shares of our common stock. As of December 31, 2007, the Company had purchased 4,162,912
shares for a total expenditure of $10.0 million which were immediately retired. There were no
shares purchased during the year ended December 31, 2008 and the program expired on September 17,
2008.
18. Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted net income (loss) per
share applicable to common stockholders for the periods indicated (in thousands, except per share
amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For The Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
(As restated) |
|
|
(As restated) |
|
|
(As restated) |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(2,025 |
) |
|
$ |
10,029 |
|
|
$ |
32,720 |
|
Loss from discontinued operations |
|
|
(27,165 |
) |
|
|
(10,345 |
) |
|
|
(11,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(29,190 |
) |
|
|
(316 |
) |
|
|
20,857 |
|
Convertible preferred stock dividend and related accretion |
|
|
(5,108 |
) |
|
|
(4,977 |
) |
|
|
(4,859 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
$ |
(34,298 |
) |
|
$ |
(5,293 |
) |
|
$ |
15,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders from continuing operations |
|
$ |
(7,133 |
) |
|
$ |
5,052 |
|
|
$ |
27,861 |
|
Net income (loss) applicable to common stockholders from discontinued operations |
|
|
(27,165 |
) |
|
|
(10,345 |
) |
|
|
(11,863 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
$ |
(34,298 |
) |
|
$ |
(5,293 |
) |
|
$ |
15,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
151,952 |
|
|
|
154,524 |
|
|
|
151,170 |
|
Dilutive effect of options, warrants and restricted stock |
|
|
— |
|
|
|
— |
|
|
|
12,224 |
|
|
|
|
|
|
|
|
|
|
|
Fully diluted weighted average shares outstanding |
|
|
151,952 |
|
|
|
154,524 |
|
|
|
163,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) applicable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.05 |
) |
|
$ |
0.03 |
|
|
$ |
0.18 |
|
Discontinued operations |
|
|
(0.18 |
) |
|
|
(0.07 |
) |
|
|
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.23 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) applicable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.05 |
) |
|
$ |
0.03 |
|
|
$ |
0.17 |
|
Discontinued operations |
|
|
(0.18 |
) |
|
|
(0.07 |
) |
|
|
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.23 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
Because their effects would be anti-dilutive for the periods presented, the above computation
of diluted income (loss) per share excludes preferred stock, options and warrants of 61,852,408,
63,218,549 and 27,235,665 for the years ended December 31, 2008, 2007, and 2006, respectively.
59
19. Supplemental Cash Flow Information
During the year ended December 31, 2008:
| |
• |
|
The Company paid $0.7 million in interest. |
| |
| |
• |
|
The Company issued 160,793 shares of restricted common stock to certain members of its
Board of Directors. These shares will vest on the third anniversary of their issuance. The
charge associated with these shares was $0.5 million and is being recognized over the
three-year vesting period. |
| |
| |
• |
|
The Company issued $3.8 million in additional Series B Preferred Stock as in-kind
dividends. |
| |
| |
During the year ended December 31, 2007: |
| |
| |
• |
|
The Company paid $0.2 million in interest. |
| |
| |
• |
|
The Company issued 100,000 shares of restricted common stock to certain members of its
Board of Directors. These shares will vest on the third anniversary of their issuance. The
charge associated with these shares was $0.4 million and is being recognized over the
three-year vesting period. |
| |
| |
• |
|
The Company issued 116,009 shares of restricted common stock to an executive officer
which vested immediately. The expense associated with these shares was $0.5 million and was
recognized in the year ended December 31, 2007. |
| |
| |
• |
|
The Company issued 116,009 shares of restricted common stock to an executive officer
which vest one year from their date of employment. The charge associated with these shares
was $0.5 million, and is being recognized over the one-year vesting period. |
| |
| |
• |
|
The Company received 82,946 shares of common stock with a fair value of approximately
$0.4 million from one of its officers to reimburse the Company for the officer’s share of
employment taxes due as a result of the issuance of restricted stock. |
| |
| |
• |
|
The Company issued $3.7 million in additional Series B Preferred Stock as in-kind
dividends. |
20. Defined Contribution Plan
The Company has a savings plan (“Savings Plan”) that qualifies as a defined contribution plan
under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, participating employees
may defer a percentage (not to exceed 75%) of their eligible pretax earnings up to the Internal
Revenue Service’s annual contribution limit. All full-time employees on the payroll of the Company
are eligible to participate in the Plan. The Company pays all general and administrative expenses
of the plan and may make contributions to the plan. The Company made matching contributions of
approximately $1.8 million, $1.9 million and $1.8 million for the years ended December 31, 2008,
2007 and 2006, respectively.
21. Income Taxes
As a result of historical net operating losses, the Company has generally not recorded a
provision for income taxes. However, during the year ended December 31, 2006, the Company recorded
certain indefinite lived intangible assets as a result of a purchase transaction which creates a
permanent difference as the amortization can be recorded for tax purposes but not for book
purposes. Additionally, during the years ended December 31, 2008 and 2007, a tax provision was
recorded due to federal alternative minimum taxes incurred as a result of the utilization of net
operating losses against taxable income. For the year ended December 31, 2008, a state tax
provision was also recorded for various state jurisdictions. Significant components of the
provision for income taxes from continuing operations are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended |
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
273 |
|
|
$ |
334 |
|
|
$ |
— |
|
State |
|
|
167 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total current provision |
|
|
440 |
|
|
|
334 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
90 |
|
|
|
137 |
|
|
|
112 |
|
State |
|
|
19 |
|
|
|
30 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision |
|
|
109 |
|
|
|
167 |
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
549 |
|
|
$ |
501 |
|
|
$ |
134 |
|
|
|
|
|
|
|
|
|
|
|
60
The components of the deferred tax assets and related valuation allowance at December 31, 2008
and 2007 are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
| |
|
(As restated) |
|
|
(As restated) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
276,609 |
|
|
$ |
273,508 |
|
Deferred expenses |
|
|
6,346 |
|
|
|
4,322 |
|
Impairment charges |
|
|
13,371 |
|
|
|
9,043 |
|
Amortization of acquired intangible assets |
|
|
270 |
|
|
|
4,879 |
|
Other |
|
|
14,418 |
|
|
|
12,282 |
|
|
|
|
|
|
|
|
|
|
|
311,014 |
|
|
|
304,034 |
|
Less: valuation allowance |
|
|
(311,014 |
) |
|
|
(304,034 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Amortization of acquired intangible assets |
|
|
(410 |
) |
|
|
(301 |
) |
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(410 |
) |
|
$ |
(301 |
) |
|
|
|
|
|
|
|
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 carry forward period to utilize the net operating loss
carryforwards. The valuation reserve for net deferred taxes was increased by approximately $7.3
million primarily as a result of the increase to the deferred tax asset relating to the impairment
charges recognized for GAAP purposes and additional net operating loss carryforwards.
As a result of the adoption of SFAS No. 123R, the Company will recognize excess tax benefits
associated with the exercise of stock options directly to stockholders’ equity only when realized.
Accordingly, deferred tax assets are not recognized for net operating loss carry forwards (“NOL”)
resulting from excess tax benefits. As of December 31, 2008, deferred tax assets do not include
$60.2 million of these excess tax benefits from employee stock option exercises that are a
component of the Company’s net operating loss carry forwards. Additional paid in capital will be
increased up to an additional $60.2 million if and when such excess tax benefits are realized.
Included in the deferred tax assets are net operating losses from acquired entities. Prior to
the adoption of SFAS 141R, which is effective for years beginning after December 15, 2008, to the
extent that the valuation allowance recorded in connection with the acquisition of tax
carryforwards is subsequently released, it is credited directly to goodwill. The Company recorded
a $0.2 million reduction to goodwill related to the release of valuation allowance for utilization
of acquired net operating losses for the years ended December 31, 2008 and 2007.
The reconciliation between the Company’s effective tax rate and the federal statutory rate is
as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
Amount |
|
|
Tax Rate |
|
|
Amount |
|
|
Tax Rate |
|
|
Amount |
|
|
Tax Rate |
|
| |
|
(As
restated) |
|
|
(As
restated) |
|
|
(As
restated) |
|
|
(As
restated) |
|
|
(As
restated) |
|
|
(As
restated) |
|
Statutory rate applied to income before income taxes |
|
$ |
(502 |
) |
|
|
34 |
% |
|
$ |
3,580 |
|
|
|
34 |
% |
|
|
11,170 |
|
|
|
34 |
% |
State taxes, net of federal tax benefit |
|
|
252 |
|
|
|
(17 |
)% |
|
|
622 |
|
|
|
6 |
% |
|
|
1,993 |
|
|
|
6 |
% |
Permanent items |
|
|
2,123 |
|
|
|
(144 |
)% |
|
|
1,385 |
|
|
|
13 |
% |
|
|
2,326 |
|
|
|
7 |
% |
Change in valuation allowance |
|
|
(1,324 |
) |
|
|
90 |
% |
|
|
(5,086 |
) |
|
|
(48 |
)% |
|
|
(15,355 |
) |
|
|
(47 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax provision |
|
$ |
549 |
|
|
|
(37 |
)% |
|
$ |
501 |
|
|
|
5 |
% |
|
$ |
134 |
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, the Company had gross NOLs for federal and state income tax purposes of
approximately $934.6 million and $351.3 million, respectively. The federal NOLs will begin to
expire in 2018. Approximately $20.1 million of the state NOLs expired in 2008 and the state NOLs
will continue to expire from 2009 until 2027. Gross net operating loss carry forwards for both
federal and state tax purposes may be subject to an annual limitation under relevant tax laws.
Utilization of the NOLs may be subject to a substantial annual limitation due to ownership
change limitations that may have occurred or that could occur in the future, as required by Section
382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and
foreign limitations. These ownership changes may limit the amount of NOLs that can be utilized
annually to offset future taxable income and tax, respectively. In general, an “ownership change”
as defined by Section 382 of the Code, results from a transaction or series of transactions over a
three-year period resulting in an ownership change of more than 50 percentage points of the
outstanding stock of a company by certain stockholders or public groups.
The Company has not finalized 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, however, rulings by the Internal
61
Revenue Service may limit the annual use of the NOLs going forward. There may also be
additional ownership changes in the future, and any future change at 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 under FIN 48. 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, 2008 and 2007, the Company does not have any 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 provision for income tax. We do not have any interest or
penalties related to uncertain tax positions in provision for income tax during the years ended
December 31, 2008, 2007, and 2006. The tax years 1993-2008 remain open to examination by the major
taxing jurisdictions to which we are subject.
22. Settlements of Disputes and Litigation
Settlement of Securities Class Action Lawsuit and Potential Obligations
Beginning in December 2001, numerous separate complaints purporting to be class actions were
filed in various jurisdictions alleging that the Company and certain of its current and former
officers and directors violated certain provisions of the Securities Exchange Act of 1934. In March
2002, the California State Teachers’ Retirement System was named lead plaintiff (the “Plaintiff”),
and the complaints were consolidated in the United States District Court, Central District of
California (“District Court”). In November 2002, the Plaintiff filed a first amended consolidated
class action complaint (“Securities Class Action Lawsuit”). In August 2003, the Company entered
into a settlement agreement with the Plaintiff to resolve all outstanding claims against the
Company in the Securities Class Action Lawsuit.
Cendant Corporation, now Avis Budget Group, Inc. (“Avis”), was a member of the class of
defendants certified by the District Court to be entitled to share in the proceeds of the Company’s
settlement of the Securities Class Action Lawsuit (“Class Settlement Proceeds”) because Avis had
acquired shares of the Company’s common stock during the applicable class period. Avis was also
named as a defendant in the Securities Class Action Lawsuit which would have precluded Avis from
sharing in the Class Settlement Proceeds had it remained a defendant in the case. In March 2003,
the District Court in the Securities Class Action Lawsuit dismissed with prejudice several
defendants, including Avis. Plaintiff appealed the dismissal to the United States Court of Appeals
for the Ninth Circuit (“Ninth Circuit”). In a Settlement Agreement and Release dated August 5,
2003, between Avis and the Company, the Company agreed with Avis that if for any reason, other than
as a result of Avis’s voluntary action, Avis was not entitled to share in the Class Settlement
Proceeds (which would have been the case if Avis had remained a defendant in the case), the Company
would pay or otherwise provide to Avis the amount of money and Company common stock that Avis would
have been otherwise entitled to receive had Avis remained a class member, which the Company
subsequently estimated could be approximately $2.3 million in cash and approximately 3.79 million
shares. On June 30, 2006, the Ninth Circuit affirmed the dismissals, but remanded the case to the
District Court to determine whether it would be possible for the Plaintiff to amend its complaint
to state a claim against any of the dismissed defendants consistent with the Ninth Circuit’s
opinion in the case. The defendants, including Avis, petitioned to the U.S. Supreme Court for a
writ of certiorari to the Ninth Circuit, which petition was granted. On January 22, 2008, the
United States Supreme Court vacated the judgment of the Ninth Circuit and remanded the case back to
the Ninth Circuit for further consideration in light of the Supreme Court’s decision in Stoneridge
Investment Partners, L.L.C. v. Scientific-Atlantic, Inc. (“Stoneridge”). On March 26, 2008, the
Ninth Circuit vacated its prior opinion and the District Court’s decision and remanded the case
back to the District Court for further consideration in light of Stoneridge. On June 19, 2008,
Plaintiff filed a motion in the District Court to amend its complaint against Avis, and on July 3,
2008, Avis filed its motion in opposition to Plaintiff’s motion to amend. On October 2, 2008,
Plaintiff and Avis entered into a Stipulation and Agreement of Settlement (the “Avis Settlement”).
Following a hearing on November 25, 2008, the District Court entered its order granting preliminary
approval of the Avis Settlement. Pursuant to the Avis Settlement, upon final approval of the
settlement by the District Court following a hearing currently set for March 16, 2009, and the
expiration of applicable appeal periods, Plaintiff would dismiss Avis as a defendant in the
Securities Class Action Lawsuit, Avis would be entitled to its share of the Class Settlement
Proceeds, and Avis would relinquish a portion of this share for the benefit of the other class
members. The Company has been advised by counsel that should the Avis Settlement become final, the
Company would have no obligation to Avis under its August 5, 2003 Settlement and Release Agreement
with Avis to pay or provide Avis with the cash or stock that Avis has voluntarily agreed to
relinquish for the benefit of the other class members pursuant to the Avis Settlement.
Insurance Coverage Litigation
Between September 2002 and November 2002, Genesis Insurance Company, Federal Insurance
Company, Clarendon National Insurance Company, Royal Indemnity Company and TIG Insurance Company of
Michigan sent the Company notices of rescission of the officers and directors liability policies
issued to the Company for the period of August 4, 2001 through August 4, 2002 and subsequently
filed complaints to judicially confirm the rescissions. The courts granted motions for summary
judgments declaring that
62
the directors and officers liability policies were rescinded as to all insureds. The Company
initiated appeals from such judgments; however, in March 2006 those judgments were affirmed by the
appellate courts. The Company does not intend to pursue any further appeals. The Company received
premium refunds of $1.2 million from the insurance carriers which are included in general and
administrative expenses for the year ended December 31, 2006.
Settlement and Resolution of Other Litigation
In June 2006, InternetAd Systems, LLC (“InternetAd”) filed suit against the Company, Turner
Broadcasting Systems, Inc., FreeRealTime.com, Inc., Knight Ridder Digital, and Condenet, Inc. in
the United States District Court for the Northern District of Texas, Dallas Division. The complaint
alleged that InternetAd is licensee of U.S. Patents 5,572,643; 5,737,619; 6,185,586; and 6,457,025,
and that the Company infringed these patents by manufacturing, making, having made, and/or using
products and/or advertising systems through the Company’s web sites. InternetAd requested an
unspecified amount of damages, as well as interest, attorney fees and costs, and an injunction. On
May 18, 2007, the Company entered into an agreement resolving the patent infringement claims
brought against it by InternetAd Systems, LLC. Pursuant to the agreement, the Company paid cash and
received a fully paid up worldwide license to the patents at issue in the case and the claims
against the Company were dismissed by InternetAd with prejudice.
In December 2006, Scott C. Harris and Memory Control Enterprise, LLC (“MCE”) filed suit
against the Company, Classified Ventures, LLC and Eastman Kodak Company in the United States
District Court for the Northern District of Illinois, Eastern Division. The complaint alleged that
MCE is the exclusive licensee of U.S. Patent 6,704,791, and that the Company infringed this patent
by facilitating thick and thin communication of three dimensional rotation of objects through the
Company’s web sites, and by controlling and connecting its web sites to third parties who carry out
some steps of the infringement. MCE requested an unspecified amount of damages, as well as
interest, attorney fees and costs, and an injunction. On September 7, 2007, the Company entered
into an agreement resolving the patent infringement claims brought against it by Scott C. Harris
and Memory Control Enterprise, LLC. Pursuant to the agreement, the Company paid cash and received a
fully paid up worldwide license to the patents at issue in the case, and the claims against the
Company were dismissed by the plaintiffs with prejudice.
In March 2004, three former shareholders of WyldFyre Technologies, Inc. (“WyldFyre”), two of
whom had previously opted out of the settlement of the Securities Class Action Lawsuit (“Meyers and
Koehmsted”), filed a complaint in the Superior Court of California, County of Los Angeles against
the Company, two of its former officers and Merrill Lynch & Co., Inc. In August 2005, Meyers and
Koehmsted filed a second amended complaint alleging claims against the Company for vicarious
liability for fraud allegedly committed by Messrs. Wolff and Tafeen, two of the Company’s former
officers, unfair business practices, unjust enrichment and breach of contract arising out of the
Company’s acquisition of WyldFyre in March 2000. The plaintiffs sought restitution, rescissionary
or compensatory damages in an unspecified amount, disgorgement of benefits, punitive damages and
costs of litigation including attorneys’ fees. On October 8, 2007, the parties reached a settlement
wherein the Company agreed to pay Meyers and Koehmsted $3.9 million in exchange for a dismissal,
with prejudice, of the entire action. As a result of the settlement, the Company recorded a
litigation settlement charge of $3.9 million for the year ended December 31, 2007.
In July 2005, the Company received a demand from David Rosenblatt (“Rosenblatt”), the
Company’s former General Counsel, seeking indemnification for expenses (including attorneys’ fees)
purportedly incurred by Rosenblatt in connection with the SEC and Department of Justice (“DOJ”)
investigations and certain civil actions filed against Rosenblatt, including indemnification of a
settlement payment of $0.2 million Rosenblatt has agreed to make in connection with his settlement
of the claims brought against him in the Securities Class Action Lawsuit. The Company has advanced
legal expenses of approximately $0.7 million as of December 31, 2008. On April 4, 2008, the Company
entered into an agreement with Rosenblatt, resolving all past claims for indemnification for
expenses, including attorneys’ fees in connection with the SEC and DOJ investigations and certain
civil actions filed against Rosenblatt, and settlement of the claims brought against him in the
Securities Class Action Lawsuit. The settlement does not include any claims Rosenblatt may assert
for indemnification for future expenses in connection with the SEC and DOJ investigations. The
Company is unable to determine whether Rosenblatt will have any additional claims or what portion,
if any, of Rosenblatt’s additional expenses it will ultimately have to advance, or if Rosenblatt
will ultimately demonstrate an entitlement to indemnification with respect to the claimed amounts.
On August 2, 2007, ActiveRain Corp. (“ActiveRain”) sued the Company in the United States
District Court, Central District of California (the “Court”) for violation of the California
Uniform Trade Secrets Act, breach of contract, unjust enrichment, promissory and/or equitable
estoppel, unfair competition, violation of the Washington Unfair Business Practices statute and
fraud. ActiveRain alleged that the Company breached a mutual nondisclosure agreement entered into
between the Company and ActiveRain in connection with negotiations in early 2007 for the potential
acquisition of ActiveRain by the Company. The discussions were terminated by the Company prior to
entering into a definitive acquisition agreement. ActiveRain sought to recover monetary damages,
including exemplary damages, attorney’s fees and interest, as well as to enjoin the Company from
using what ActiveRain alleges is its confidential information. On February 11, 2009, the parties
entered into a settlement agreement in which the Company agreed to pay an immaterial amount, and on
February 18, 2009 filed a Stipulation of Dismissal with Prejudice in the Court.
63
23. Commitments and Contingencies
Operating and Capital Leases
The Company leases certain facilities and equipment under non-cancelable operating leases with
various expiration dates through 2015. The leases generally contain renewal options and payments
that may be adjusted for increases in operating expenses. Certain equipment leases constitute
capital leases. The accompanying consolidated financial statements include the assets and
liabilities arising from these capital lease obligations. Future minimum lease payments under these
capital and operating leases as of December 31, 2008 are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Capital |
|
|
Operating |
|
| Year Ended December 31, |
|
Leases |
|
|
Leases |
|
2009 |
|
$ |
345 |
|
|
$ |
8,509 |
|
2010 |
|
|
— |
|
|
|
5,072 |
|
2011 |
|
|
— |
|
|
|
4,022 |
|
2012 |
|
|
— |
|
|
|
3,127 |
|
2013 and thereafter |
|
|
— |
|
|
|
3,660 |
|
|
|
|
|
|
|
|
Total |
|
$ |
345 |
|
|
$ |
24,390 |
|
|
|
|
|
|
|
|
Less: Amount representing interest |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net capital leases |
|
$ |
339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense from continuing operations for the Company for operating leases was $7.0
million, $6.1 million and $5.1 million for the years ended December 31, 2008, 2007 and 2006,
respectively. Included in rent expense for the year ended December 31, 2007 are contract
termination charges of $0.8 million as discussed in Note 8. Rental expense from discontinued
operations was $0.7 million, $0.8 million and $0.9 million for the years ended December 31, 2008,
2007 and 2006, respectively.
The contractual provisions of two of the Company’s facilities lease commitments required that
the Company collateralize the obligation with outstanding letters of credit, resulting in $3.2
million classified as restricted cash at December 31, 2008.
Other Commitments
Under the Company’s operating agreement with NAR, the Company has an exclusive arrangement to
operate REALTOR.com® as well as a license to use the REALTOR.com® domain name and trademark and the
REALTORS® trademark in exchange for minimum annual royalty payments. Commitments for the years
ending 2009 and beyond will be calculated based on amounts paid in the prior year adjusted for the
Annual Consumer Price Index for the period ending in the prior calendar year. The following
presents the Company’s future minimum commitments under the remaining NAR agreement (in thousands):
| |
|
|
|
|
| Year Ending December 31, |
|
|
|
|
2009 |
|
$ |
1,656 |
|
2010 |
|
|
1,656 |
|
2011 |
|
|
1,656 |
|
2012 |
|
|
1,656 |
|
2013 |
|
|
1,657 |
|
|
|
|
|
Total |
|
$ |
8,281 |
|
|
|
|
|
Commitments for the purchase of property, plant and equipment, software licenses and other
consulting services were approximately $0.4 million as of December 31, 2008.
Legal Proceedings
See Note 22, “Settlements of Disputes and Litigation — Settlement of Securities Class Action
Lawsuit and Potential Obligations” for contingencies related to the settlement of the Securities
Class Action Lawsuit.
In June 2002, Tren Technologies Holdings LLC., (“Tren”) sued the Company, the National
Associated of REALTORS® (“NAR”) and the National Association of Home Builders (“NAHB”)
in the United States District Court, Eastern District of Pennsylvania for patent infringement based
on the Company’s operation of the REALTOR.com® and HomeBuilder.com® web
sites. Specifically, Tren alleged that it owns a patent (U.S. Patent No. 5,584,025) on an
application, method and system for tracking demographic customer information, including tracking
information related to real estate and real estate demographics information, and that the Company
has developed an infringing technology for the REALTOR.com® and
HomeBuilder.com® web sites. Tren’s complaint sought an unspecified amount of damages
(including treble damages for willful infringement and attorneys’ fees) and a permanent injunction
against the Company using the technology. In October 2003, Kevin Keithley (“Keithley”) sued the
Company, NAR and NAHB in the United States District Court for the Northern District of California
asserting that he was the exclusive licensee of U.S. Patent
64
No. 5,584,025, and alleging the same infringement and seeking the same relief as in the Tren action. On
May 22, 2004, the Company filed with the United States Patent and Trademark Office (“USPTO”) a
Request for Reexamination of the patent at issue in these actions. The Keithley and Tren actions
were stayed pending the reexamination proceeding. In August 2005, the USPTO confirmed the original
claims of the patent and allowed additional claims. Accordingly, the stay in the Keithley action
was lifted and the parties have agreed that the Keithley action should go forward. On May 24, 2006,
the court in Pennsylvania dismissed the Tren case without prejudice. In September 2006, Keithley
amended his complaint to add Tren as a Plaintiff. Keithley and Tren asserted that the patent is
infringed by the websites www.Realtor.com, www.Move.com, www.Homebuilder.com, www.Rentnet.com, and
www.Moving.com, and by Top Producer software and services as well as certain other websites
formerly operated by the Company. In the discovery process, Plaintiffs limited their infringement
assertions to www.realtor.com and www.move.com (which is alleged to include www.homestore.com,
www.homebuilder.com, www.rentnet.com, www.springstreet.com and www.seniorhousingnet.com). On August
12, 2008, the U.S. Magistrate Judge presiding over all discovery matters in the Keithley action
issued an Order for monetary sanctions (“Order for Sanctions”) against the Company. On August 26,
2008, the Company filed an objection to the Order for Sanctions with the U.S. District Court asking
the court to reconsider and reverse the Magistrate Judge’s Order for Sanctions. On November 14,
2008, the U. S. District Court Judge upheld the Magistrate Judge’s Order for Sanctions and remanded
the determination of the final amount of monetary sanctions to the Magistrate Judge for final
determination. The Magistrate Judge has not issued her final ruling. On September 2, 2008, the
Company filed a motion for sanctions against Keithley and on January 7, 2009, the Magistrate Judge
ordered monetary sanctions against Keithley and Tren. On October 3, 2008, the Company filed
motions for summary judgment of patent invalidity based on anticipation and obviousness, for
non-infringement and invalidity based on indefiniteness, for a finding that any infringement was
not willful, and for non-infringement by NAR and NAHB. On November 19, 2008, the U. S. District
Court Judge issued an order granting the Company’s motion for summary judgment as to
non-infringement and invalidity based on indefiniteness and denied the other motions as moot. The
period within which Keithley and Tren may file an appeal of the summary judgment will not begin
until after the Magistrate Judge issues her final ruling on the Order for Sanctions against the
Company. The Company believes that the claims in the Keithley action are without merit and intends
to vigorously defend the case. At this time, however, the Company is unable to express an opinion
on the outcome of these cases.
In December 2005, CIVIX-DDI, LLC (“CIVIX”) filed suit against NAR, the Company, Hotels.com,
L.P. and Hotels.com GP LLC in the United States District Court for the Northern District of
Illinois, Eastern Division. The complaint alleges that the Company and NAR infringe U.S. Patents
6,385,622; 6,408,307; 6,415,291; and 6,473,692 by offering, providing, using and operating
location-based searching services through the REALTOR.com® web site and requests an unspecified
amount of damages (including treble damages for willful infringement and attorneys’ fees) and an
injunction. Yahoo! Inc. was added as a defendant in the Amended Complaint which was filed by CIVIX
on January 11, 2006. The Company is defending both itself and NAR. On January 26, 2006, the Company
and NAR filed their answer and counterclaims responding to CIVIX’s complaint denying that the
Company and NAR infringed these patents and alleging that these patents are invalid. CIVIX has
replied to the answer and counterclaims filed by the Company and NAR. On May 31, 2006, the case was
consolidated with another action brought by CIVIX against Orbitz, LLC, Yellowpages.com and
Travelocity.com, Inc. On September 17, 2007, the court stayed the case pending completion of
reexamination of the patents in suit by the United States Patent and Trademark Office. The Company
is continuing its evaluation and investigation of the allegations made in the lawsuit and intends
to vigorously defend against them if and when the patents emerge from reexamination and the stay of
the case is lifted. At this time, however, the Company is unable to express an opinion on the
outcome of this case.
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 against REAL, and its licensing agent Equias Technology
Development, LLC (“Equias”) and Equias’ principal, Scott Tatro (“Tatro” seeking a declaratory
judgment that the Company does not infringe U.S. Patent Nos. 4,870,576 and 5,032,989 (“the REAL
patents”) and that the REAL patents are invalid and/or unenforceable (“the Move California
Action”). The Move California Action also includes claims by the Company against the defendants
for several business torts, such as interference with contractual relations and prospective
economic advantage and unfair competition under California common law and statutory law. On May
14, 2007, defendants in the Move California Action moved to have the California case dismissed or
transferred to Pennsylvania, and on June 27, 2007, the court denied defendants’ motion as to
defendants REAL and Equias, but granted dismissal of the claims against Tatro without prejudice. On
August 8, 2007, REAL and Equias denied the Company’s allegations, and REAL asserted counterclaims
against the Company asserting infringement of the REAL patents, seeking compensatory damages,
punitive damages, treble damages, costs, expenses, reasonable attorneys’ fees and pre- and
post-judgment interest. On February 28, 2008, REAL filed a motion for leave to amend its
counter-claims, and to include NAR
65
and the National Association of Home Builders (“NAHB”) as individual defendants, as well as various
brokers including RE/Max International (“RE/Max”), agents, Multiple Listing Services (“MLS”), new
home builders, rental property owners, and technology providers and indicated that it intended to
seek to certify certain defendant classes. On March 24, 2008, the Company filed its opposition to
REAL’s motion for leave to amend its counter-claims. On March 11, 2008, REAL filed a separate suit
in the U.S. District Court for the Central District of California (“the REAL California Action”)
alleging infringement of the REAL patents against the same defendants it sought to include in its
proposed amended counter-claims in the Move California Action, and also indicated that it intended
to seek to certify the same defendant classes. The Company is not named as a defendant in the REAL
California Action; however, the Company is defending NAR, NAHB and RE/Max in the REAL California
Action. On July 29, 2008, the Move California Action was transferred to Judge King, the same judge
in the REAL California Action. In September, 2008, the court decided to coordinate both cases and
issued an order dividing the issues of both cases into two phases. Phase 1 will include REAL and
Equias and will address issues of validity, unenforceability, whether the accused Move websites
infringe, damages, and the liability of Move, NAR and NAHB. Phase 2 will include all the remaining
defendants named by REAL in the REAL California Action and will address REAL’s infringement claims
related to the websites owned or operated by the remaining defendants and whether the remaining
defendants can be held liable for infringement of the accused Move websites. The Court has stayed
Phase 2 of the litigation pending resolution of the issues in Phase 1. On August 18, 2008, the
Company filed a motion for summary judgment for non-infringement in the Move California Action, and
on October 23, 2008, the court denied the motion as premature with leave to re-file after discovery
closed.
On April 8, 2008 REAL filed a separate patent infringement action against LoopNet, Inc. in the
U.S. District Court for the Central District of California (“LoopNet Action”), and on October 14,
2008, the LoopNet Action was transferred to Judge King. The Company intends to vigorously
prosecute and to defend against REAL’s allegations in the Move California Action and vigorously
defend and to prosecute the claims that have been brought on behalf of NAR, NAHB and RE/MAX in the
REAL California Action. At this time, however, the Company is unable to express an opinion on the
outcome of these cases.
As part of the sale in 2002 of the Company’s ConsumerInfo division to
Experian Holdings, Inc. (“Experian”), $10.0 million of the purchase price was put in escrow to
secure the Company’s indemnification obligations (the “Indemnity Escrow”). The Indemnity Escrow was
scheduled to terminate in the third quarter of 2003, but prior to the scheduled termination,
Experian demanded indemnification from the Company for claims made against Experian or its
subsidiaries by several parties in civil actions and by the Federal Trade Commission (“FTC”),
including allegations of unfair and deceptive advertising in connection with ConsumerInfo’s
furnishing of credit reports and providing “Advice for Improving Credit” that appeared on its web
site both before, during, and after the Company’s ownership of ConsumerInfo. Under the stock
purchase agreement, pursuant to which the Company sold ConsumerInfo to Experian (the “Stock
Purchase Agreement”), the Company could have elected to defend against the claims, but because the
alleged conduct occurred both before and after its sale to Experian, the Company elected to rely on
Experian to defend them, which they did. Substantially all of those claims have not been resolved.
Under the terms of the Stock Purchase Agreement, the Company’s maximum potential liability for
claims by Experian is capped at $29.25 million less the balance in escrow, which amount was
approximately $8.5 million on December 31, 2008. During 2008, Experian demanded $29.25 million in
indemnity payments. The Company denied liability for that sum and a bifurcated arbitration
proceeding ensued to resolve the dispute. The parties have agreed to settle the dispute, the
economic terms of which are that Experian will receive $7.4 million from the escrow and the Company
will receive the balance in the escrow. Further, the parties agreed to execute mutual general
releases of all claims which, among other things, will have the effect of terminating the
indemnification obligations of the Company and make Experian solely responsible for any unresolved
third party claims for which indemnity could have been sought by Experian against the Company under
the Stock Purchase Agreement. The parties are currently in the process of documenting this
settlement agreement.
Citigroup was the Company’s investment advisor in connection with the Company’s investment in
ARS. In February, 2008, the auctions for ARS failed and thereby rendered the Company’s investment
illiquid (See Note 6). On September 17, 2008, the Company commenced an arbitration against
Citigroup before the Financial Industry Regulatory Authority (“FINRA”) by filing a Statement of
Claim alleging breach of fiduciary duty, breach of contract and breach of contractual duty of good
faith and fair dealing, violation of SEC Rule 10b-5 and FINRA Rule 2310, violation of SEC Rule
15c1-2, violation of the Investment Advisers Act, 15 U.S.C. Secs. 80b-1 et seq., and negligent
misrepresentation. The Company is seeking that Citigroup return the funds that the Company
entrusted to Citigroup, compensatory and punitive damages, pre and post judgment interest,
attorneys’ fees, and other remedies the FINRA panel deems appropriate. The FINRA arbitration has
been set for August 25, 2009.
On November 12, 2008, Patricia Ramirez on behalf of herself and all others similarly situated
filed a purported class action lawsuit in the Los Angeles Superior Court against Move, Inc., and
its subsidiary Move Sales, Inc. asserting failure to fully reimburse business expenses, unlawful
wage deductions, failure to timely pay wages due at termination, failure to timely furnish accurate
itemized wage statements, unfair business practices and declaratory relief. On December 24, 2008,
the Company filed an answer with general denial
66
and affirmative defenses. The Company intends to vigorously defend all the claims. At this
time, however, the Company is unable to express an opinion on the outcome of these cases.
Contingencies
From time to time, the Company is party to various other litigation and administrative
proceedings relating to claims arising from its operations in the ordinary course of business. As
of the date of this Form 10-K and except as set forth herein, the Company is not a party to any
other litigation or administrative proceedings that management believes would have a material
adverse effect on the Company’s business, results of operations, financial condition or cash flows.
24. Subsequent Events (unaudited)
Stock Plans
In January 2009, in accordance with plan provisions, the number of shares reserved for
issuance under the SIP was increased by an additional 6,888,682 shares.
In January 2009, the Company hired a new Chief Executive Officer. In connection with his
employment contract, the Company issued 3,000,000 stock options, 1,800,000 restricted stock awards
and 700,000 restricted stock units.
25. Quarterly Financial Data (unaudited)
Provided below is the selected unaudited quarterly financial data for 2008 and 2007:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
Mar. 31, |
|
|
June 30, |
|
|
Sept. 30, |
|
|
Dec. 31, |
|
|
Mar. 31, |
|
|
June 30, |
|
|
Sept. 30, |
|
|
Dec. 31, |
|
| |
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
| |
|
(As |
|
|
(As |
|
|
(As |
|
|
(As |
|
|
(As |
|
|
(As |
|
|
(As |
|
|
(As |
|
| |
|
Previously |
|
|
Previously |
|
|
Previously |
|
|
Previously |
|
|
Previously |
|
|
Previously |
|
|
Previously |
|
|
Previously |
|
| |
|
Reported) |
|
|
Reported) |
|
|
Reported) |
|
|
Reported) |
|
|
Reported) |
|
|
Reported) |
|
|
Reported) |
|
|
Reported) |
|
| |
|
(In thousands, except per share amounts) |
|
Revenue |
|
$ |
61,942 |
|
|
$ |
61,437 |
|
|
$ |
61,240 |
|
|
$ |
57,450 |
|
|
$ |
60,443 |
|
|
$ |
62,533 |
|
|
$ |
63,380 |
|
|
$ |
62,563 |
|
Cost of revenue |
|
|
11,435 |
|
|
|
11,214 |
|
|
|
11,804 |
|
|
|
11,588 |
|
|
|
9,991 |
|
|
|
10,598 |
|
|
|
11,053 |
|
|
|
11,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
50,507 |
|
|
|
50,223 |
|
|
|
49,436 |
|
|
|
45,862 |
|
|
|
50,452 |
|
|
|
51,935 |
|
|
|
52,327 |
|
|
|
51,297 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
24,126 |
|
|
|
23,140 |
|
|
|
24,002 |
|
|
|
22,263 |
|
|
|
22,802 |
|
|
|
22,275 |
|
|
|
23,212 |
|
|
|
21,665 |
|
Product and web site development |
|
|
6,887 |
|
|
|
6,802 |
|
|
|
6,821 |
|
|
|
5,832 |
|
|
|
8,775 |
|
|
|
9,223 |
|
|
|
8,615 |
|
|
|
8,043 |
|
General and administrative |
|
|
22,171 |
|
|
|
19,433 |
|
|
|
18,534 |
|
|
|
15,807 |
|
|
|
18,222 |
|
|
|
14,528 |
|
|
|
20,479 |
|
|
|
18,205 |
|
Amortization of intangibles |
|
|
197 |
|
|
|
197 |
|
|
|
188 |
|
|
|
174 |
|
|
|
181 |
|
|
|
189 |
|
|
|
194 |
|
|
|
197 |
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
4,014 |
|
|
|
398 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,900 |
|
|
|
— |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,670 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
53,381 |
|
|
|
49,572 |
|
|
|
53,559 |
|
|
|
46,144 |
|
|
|
49,980 |
|
|
|
46,215 |
|
|
|
56,400 |
|
|
|
52,934 |
|
Operating income (loss) from continuing operations |
|
|
(2,874 |
) |
|
|
651 |
|
|
|
(4,123 |
) |
|
|
(282 |
) |
|
|
472 |
|
|
|
5,720 |
|
|
|
(4,073 |
) |
|
|
(1,637 |
) |
Interest income, net |
|
|
2,057 |
|
|
|
1,521 |
|
|
|
1,261 |
|
|
|
848 |
|
|
|
2,313 |
|
|
|
2,503 |
|
|
|
2,567 |
|
|
|
2,469 |
|
Other income (expense) |
|
|
71 |
|
|
|
109 |
|
|
|
959 |
|
|
|
(48 |
) |
|
|
774 |
|
|
|
(372 |
) |
|
|
676 |
|
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes |
|
|
(746 |
) |
|
|
2,281 |
|
|
|
(1,903 |
) |
|
|
518 |
|
|
|
3,559 |
|
|
|
7,851 |
|
|
|
(830 |
) |
|
|
1,247 |
|
Provision for income taxes |
|
|
(41 |
) |
|
|
(162 |
) |
|
|
(110 |
) |
|
|
(236 |
) |
|
|
(84 |
) |
|
|
(169 |
) |
|
|
(169 |
) |
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(787 |
) |
|
|
2,119 |
|
|
|
(2,013 |
) |
|
|
282 |
|
|
|
3,475 |
|
|
|
7,682 |
|
|
|
(999 |
) |
|
|
1,168 |
|
Income (loss) from discontinued operations |
|
|
(2,574 |
) |
|
|
(3,076 |
) |
|
|
(19,334 |
) |
|
|
(2,181 |
) |
|
|
(2,080 |
) |
|
|
(2,018 |
) |
|
|
(1,044 |
) |
|
|
(5,203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(3,361 |
) |
|
|
(957 |
) |
|
|
(21,347 |
) |
|
|
(1,899 |
) |
|
|
1,395 |
|
|
|
5,664 |
|
|
|
(2,043 |
) |
|
|
(4,035 |
) |
Convertible preferred stock dividend |
|
|
(1,265 |
) |
|
|
(1,272 |
) |
|
|
(1,282 |
) |
|
|
(1,289 |
) |
|
|
(1,232 |
) |
|
|
(1,241 |
) |
|
|
(1,248 |
) |
|
|
(1,256 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
$ |
(4,626 |
) |
|
$ |
(2,229 |
) |
|
$ |
(22,629 |
) |
|
$ |
(3,188 |
) |
|
$ |
163 |
|
|
$ |
4,423 |
|
|
$ |
(3,291 |
) |
|
$ |
(5,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share applicable to
common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.00 |
) |
Discontinued operations |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.13 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
0.03 |
|
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share applicable to
common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.00 |
) |
Discontinued operations |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.13 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
0.03 |
|
|
$ |
(0.02 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
Mar. 31, |
|
|
June 30, |
|
|
Sept. 30, |
|
|
Dec. 31, |
|
|
Mar. 31, |
|
|
June 30, |
|
|
Sept. 30, |
|
|
Dec. 31, |
|
| |
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
|
2007 |
|
| |
|
(As restated) |
|
|
(As restated) |
|
|
(As restated) |
|
|
(As restated) |
|
|
(As restated) |
|
|
(As restated) |
|
|
(As restated) |
|
|
(As restated) |
|
| |
|
(In thousands, except per share amounts) |
|
Revenue |
|
$ |
61,942 |
|
|
$ |
61,437 |
|
|
$ |
61,240 |
|
|
$ |
57,450 |
|
|
$ |
60,443 |
|
|
$ |
62,533 |
|
|
$ |
63,380 |
|
|
$ |
62,563 |
|
Cost of revenue |
|
|
11,435 |
|
|
|
11,214 |
|
|
|
11,804 |
|
|
|
11,588 |
|
|
|
9,991 |
|
|
|
10,598 |
|
|
|
11,053 |
|
|
|
11,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
50,507 |
|
|
|
50,223 |
|
|
|
49,436 |
|
|
|
45,862 |
|
|
|
50,452 |
|
|
|
51,935 |
|
|
|
52,327 |
|
|
|
51,297 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
24,126 |
|
|
|
23,140 |
|
|
|
24,002 |
|
|
|
22,263 |
|
|
|
22,802 |
|
|
|
22,275 |
|
|
|
23,212 |
|
|
|
21,665 |
|
Product and web site development |
|
|
6,887 |
|
|
|
6,802 |
|
|
|
6,821 |
|
|
|
5,832 |
|
|
|
8,775 |
|
|
|
9,223 |
|
|
|
8,615 |
|
|
|
8,043 |
|
General and administrative |
|
|
22,947 |
|
|
|
20,177 |
|
|
|
18,639 |
|
|
|
15,808 |
|
|
|
18,519 |
|
|
|
14,894 |
|
|
|
20,834 |
|
|
|
18,484 |
|
Amortization of intangibles |
|
|
197 |
|
|
|
197 |
|
|
|
188 |
|
|
|
174 |
|
|
|
181 |
|
|
|
189 |
|
|
|
194 |
|
|
|
197 |
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
4,014 |
|
|
|
398 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,900 |
|
|
|
— |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,670 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
54,157 |
|
|
|
50,316 |
|
|
|
53,664 |
|
|
|
46,145 |
|
|
|
50,277 |
|
|
|
46,581 |
|
|
|
56,755 |
|
|
|
53,213 |
|
Operating income (loss) from continuing operations |
|
|
(3,650 |
) |
|
|
(93 |
) |
|
|
(4,228 |
) |
|
|
(283 |
) |
|
|
175 |
|
|
|
5,354 |
|
|
|
(4,428 |
) |
|
|
(1,916 |
) |
Interest income, net |
|
|
2,057 |
|
|
|
1,521 |
|
|
|
1,261 |
|
|
|
848 |
|
|
|
2,313 |
|
|
|
2,503 |
|
|
|
2,567 |
|
|
|
2,469 |
|
Other income (expense) |
|
|
71 |
|
|
|
109 |
|
|
|
959 |
|
|
|
(48 |
) |
|
|
774 |
|
|
|
(372 |
) |
|
|
676 |
|
|
|
415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes |
|
|
(1,522 |
) |
|
|
1,537 |
|
|
|
(2,008 |
) |
|
|
517 |
|
|
|
3,262 |
|
|
|
7,485 |
|
|
|
(1,185 |
) |
|
|
968 |
|
Provision for income taxes |
|
|
41 |
|
|
|
162 |
|
|
|
110 |
|
|
|
236 |
|
|
|
84 |
|
|
|
169 |
|
|
|
169 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(1,563 |
) |
|
|
1,375 |
|
|
|
(2,118 |
) |
|
|
281 |
|
|
|
3,178 |
|
|
|
7,316 |
|
|
|
(1,354 |
) |
|
|
889 |
|
Income (loss) from discontinued operations |
|
|
(2,574 |
) |
|
|
(3,076 |
) |
|
|
(19,334 |
) |
|
|
(2,181 |
) |
|
|
(2,080 |
) |
|
|
(2,018 |
) |
|
|
(1,044 |
) |
|
|
(5,203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(4,137 |
) |
|
|
(1,701 |
) |
|
|
(21,452 |
) |
|
|
(1,900 |
) |
|
|
1,098 |
|
|
|
5,298 |
|
|
|
(2,398 |
) |
|
|
(4,314 |
) |
Convertible preferred stock dividend |
|
|
(1,265 |
) |
|
|
(1,272 |
) |
|
|
(1,282 |
) |
|
|
(1,289 |
) |
|
|
(1,232 |
) |
|
|
(1,241 |
) |
|
|
(1,248 |
) |
|
|
(1,256 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
$ |
(5,402 |
) |
|
$ |
(2,973 |
) |
|
$ |
(22,734 |
) |
|
$ |
(3,189 |
) |
|
$ |
(134 |
) |
|
$ |
4,057 |
|
|
$ |
(3,646 |
) |
|
$ |
(5,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share applicable to
common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
(0.02 |
) |
|
$ |
(0.00 |
) |
Discontinued operations |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.13 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.04 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
0.03 |
|
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share applicable to
common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
(0.02 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
0.04 |
|
|
$ |
(0.02 |
) |
|
$ |
(0.00 |
) |
Discontinued operations |
|
|
(0.02 |
) |
|
|
(0.02 |
) |
|
|
(0.13 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.04 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
0.02 |
|
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26. Restatement of Previously Issued Consolidated Financial Statements
During the three months ended September 30, 2009, the Company identified errors in
stock-based compensation expense. The Company has restated its audited consolidated financial
statements for fiscal years 2008, 2007 and 2006 in this Form 10-K/A as described below. In
addition, the Company restated its unaudited condensed consolidated financial statements as of
March 31, 2009 and for the three month periods ended March 31, 2009 and 2008 in its Form 10-Q/A for
the quarterly period ended March 31, 2009 and restated its unaudited condensed consolidated
financial statements as of June 30, 2009 and for the three and six month periods ended
June 30, 2009 and 2008 in its Form 10-Q/A for the quarterly
period ended June 30, 2009, all as filed with the Securities and
Exchange Commission concurrently with this Form 10-K/A.
67
Since fiscal 2006, the Company has licensed software from a third party provider to automate
the administration of its employee equity programs and calculate its stock-based compensation
expense (the “Software”). During the three months ended September 30, 2009, the Company learned
that the Software contained an error in how it calculated stock-based compensation expense and that
the Software provider had a new version of the Software that was designed to correct this error.
The Company upgraded to the new version of the Software and identified differences in the
stock-based compensation expense of prior periods. After reviewing such differences, the Company
concluded that there was an error in its accounting for stock-based compensation expense. The
prior version of the Software incorrectly calculated stock-based compensation expense by continuing
to apply a weighted average forfeiture rate to the vested portion of stock option awards until the
grant’s final vest date, rather than reflecting actual forfeitures as awards vested, resulting in
an understatement of stock-based compensation expense in certain periods prior to the grant’s final
vest date. Thus, the accounting error relates to the timing of estimated stock-based compensation
expense recognition. As stock-based compensation expense is a non-cash item, there is no impact to
net cash provided by operations in any period.
The Company determined that the cumulative stock based compensation expense errors related to
the fiscal years ended 2008, 2007 and 2006 totaled $4.2 million at December 31, 2008. To correct
these errors, the Company has recorded additional stock based compensation expense of $1.6 million
in 2008, $1.3 million in 2007 and $1.2 million in 2006. The cumulative effect of the stock-based
compensation adjustments on the consolidated balance sheets for the years ended 2008, 2007 and 2006
was an increase in additional paid-in capital offset by a corresponding decrease in accumulated
deficit which results in no net effect on stockholders’ equity.
The following tables present the effect of the restatement adjustments by financial statement
line item for the Consolidated Balance Sheets as of December 31, 2008 and December 31, 2007, and
the Consolidated Statements of Operations and Consolidated Statements of Cash Flows for the years
ended December 31, 2008, 2007 and 2006.
In the Consolidated Balance Sheet, the effect of the adjustment on Additional paid-in capital
and Accumulated deficit as of December 31, 2008 and 2007 was as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
December 31, 2007 |
| |
|
As Previously |
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
| |
|
Reported |
|
Adjustment |
|
As Restated |
|
Reported |
|
Adjustment |
|
As Restated |
Additional paid in capital |
|
$ |
2,089,964 |
|
|
$ |
4,171 |
|
|
$ |
2,094,135 |
|
|
$ |
2,076,074 |
|
|
$ |
2,545 |
|
|
$ |
2,078,619 |
|
Accumulated deficit |
|
$ |
(2,005,095 |
) |
|
$ |
(4,171 |
) |
|
$ |
(2,009,266 |
) |
|
$ |
(1,972,423 |
) |
|
$ |
(2,545 |
) |
|
$ |
(1,974,968 |
) |
68
In the Consolidated Statements of Operations, the effect of the adjustments for the years
ended December 31, 2008, 2007 and 2006 was as follows (in thousands, except per share amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
December 31, 2006 |
|
| |
|
As Previously |
|
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
|
|
|
| |
|
Reported |
|
|
Adjustment |
|
|
As Restated |
|
|
Reported |
|
|
Adjustment |
|
|
As Restated |
|
|
Reported |
|
|
Adjustment |
|
|
As Restated |
|
Revenue |
|
$ |
242,069 |
|
|
$ |
— |
|
|
$ |
242,069 |
|
|
$ |
248,919 |
|
|
$ |
— |
|
|
$ |
248,919 |
|
|
$ |
238,752 |
|
|
$ |
— |
|
|
$ |
238,752 |
|
Cost of revenue |
|
|
46,041 |
|
|
|
— |
|
|
|
46,041 |
|
|
|
42,908 |
|
|
|
— |
|
|
|
42,908 |
|
|
|
41,154 |
|
|
|
— |
|
|
|
41,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
196,028 |
|
|
|
— |
|
|
|
196,028 |
|
|
|
206,011 |
|
|
|
— |
|
|
|
206,011 |
|
|
|
197,598 |
|
|
|
— |
|
|
|
197,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
93,531 |
|
|
|
— |
|
|
|
93,531 |
|
|
|
89,954 |
|
|
|
— |
|
|
|
89,954 |
|
|
|
86,765 |
|
|
|
— |
|
|
|
86,765 |
|
Product and web site development |
|
|
26,342 |
|
|
|
— |
|
|
|
26,342 |
|
|
|
34,656 |
|
|
|
— |
|
|
|
34,656 |
|
|
|
31,969 |
|
|
|
— |
|
|
|
31,969 |
|
General and administrative |
|
|
75,945 |
|
|
|
1,626 |
|
|
|
77,571 |
|
|
|
71,434 |
|
|
|
1,297 |
|
|
|
72,731 |
|
|
|
68,865 |
|
|
|
1,248 |
|
|
|
70,113 |
|
Amortization of intangible assets |
|
|
756 |
|
|
|
— |
|
|
|
756 |
|
|
|
761 |
|
|
|
— |
|
|
|
761 |
|
|
|
699 |
|
|
|
— |
|
|
|
699 |
|
Restructuring charges |
|
|
4,412 |
|
|
|
— |
|
|
|
4,412 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(278 |
) |
|
|
— |
|
|
|
(278 |
) |
Impairment of long-lived assets |
|
|
1,670 |
|
|
|
— |
|
|
|
1,670 |
|
|
|
4,824 |
|
|
|
— |
|
|
|
4,824 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,900 |
|
|
|
— |
|
|
|
3,900 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
202,656 |
|
|
|
1,626 |
|
|
|
204,282 |
|
|
|
205,529 |
|
|
|
1,297 |
|
|
|
206,826 |
|
|
|
188,020 |
|
|
|
1,248 |
|
|
|
189,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from
continuing operations |
|
|
(6,628 |
) |
|
|
(1,626 |
) |
|
|
(8,254 |
) |
|
|
482 |
|
|
|
(1,297 |
) |
|
|
(815 |
) |
|
|
9,578 |
|
|
|
(1,248 |
) |
|
|
8,330 |
|
Interest income, net |
|
|
5,687 |
|
|
|
— |
|
|
|
5,687 |
|
|
|
9,852 |
|
|
|
— |
|
|
|
9,852 |
|
|
|
7,250 |
|
|
|
— |
|
|
|
7,250 |
|
Other income , net |
|
|
1,091 |
|
|
|
— |
|
|
|
1,091 |
|
|
|
1,493 |
|
|
|
— |
|
|
|
1,493 |
|
|
|
17,274 |
|
|
|
— |
|
|
|
17,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes |
|
|
150 |
|
|
|
(1,626 |
) |
|
|
(1,476 |
) |
|
|
11,827 |
|
|
|
(1,297 |
) |
|
|
10,530 |
|
|
|
34,102 |
|
|
|
(1,248 |
) |
|
|
32,854 |
|
Provision for income taxes |
|
|
549 |
|
|
|
— |
|
|
|
549 |
|
|
|
501 |
|
|
|
— |
|
|
|
501 |
|
|
|
134 |
|
|
|
— |
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations |
|
|
(399 |
) |
|
|
(1,626 |
) |
|
|
(2,025 |
) |
|
|
11,326 |
|
|
|
(1,297 |
) |
|
|
10,029 |
|
|
|
33,968 |
|
|
|
(1,248 |
) |
|
|
32,720 |
|
Loss from discontinued operations |
|
|
(27,165 |
) |
|
|
— |
|
|
|
(27,165 |
) |
|
|
(10,345 |
) |
|
|
— |
|
|
|
(10,345 |
) |
|
|
(11,863 |
) |
|
|
— |
|
|
|
(11,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(27,564 |
) |
|
|
(1,626 |
) |
|
|
(29,190 |
) |
|
|
981 |
|
|
|
(1,297 |
) |
|
|
(316 |
) |
|
|
22,105 |
|
|
|
(1,248 |
) |
|
|
20,857 |
|
Convertible preferred stock
dividend and related accretion |
|
|
(5,108 |
) |
|
|
— |
|
|
|
(5,108 |
) |
|
|
(4,977 |
) |
|
|
— |
|
|
|
(4,977 |
) |
|
|
(4,859 |
) |
|
|
— |
|
|
|
(4,859 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to
common stockholders |
|
$ |
(32,672 |
) |
|
$ |
(1,626 |
) |
|
$ |
(34,298 |
) |
|
$ |
(3,996 |
) |
|
$ |
(1,297 |
) |
|
$ |
(5,293 |
) |
|
$ |
17,246 |
|
|
$ |
(1,248 |
) |
|
$ |
15,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
applicable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.04 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.05 |
) |
|
$ |
0.04 |
|
|
$ |
(0.01 |
) |
|
$ |
0.03 |
|
|
$ |
0.19 |
|
|
$ |
(0.01 |
) |
|
$ |
0.18 |
|
Discontinued operations |
|
|
(0.18 |
) |
|
|
— |
|
|
|
(0.18 |
) |
|
|
(0.07 |
) |
|
|
— |
|
|
|
(0.07 |
) |
|
|
(0.08 |
) |
|
|
— |
|
|
|
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
applicable to common
stockholders |
|
$ |
(0.22 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.11 |
|
|
$ |
(0.00 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
applicable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.04 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.05 |
) |
|
$ |
0.04 |
|
|
$ |
(0.01 |
) |
|
$ |
0.03 |
|
|
$ |
0.18 |
|
|
$ |
(0.01 |
) |
|
$ |
0.17 |
|
Discontinued operations |
|
|
(0.18 |
) |
|
|
— |
|
|
|
(0.18 |
) |
|
|
(0.07 |
) |
|
|
— |
|
|
|
(0.07 |
) |
|
|
(0.07 |
) |
|
|
— |
|
|
|
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
applicable to common
stockholders |
|
$ |
(0.22 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.03 |
) |
|
$ |
0.11 |
|
|
$ |
(0.01 |
) |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the Consolidated Statement of Cash Flows, the effect of the adjustment on Income
(loss) from continuing operations and Stock-based compensation and charges for the years ended
December 31, 2008, 2007 and 2006 was as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
December 31, 2007 |
|
December 31, 2006 |
| |
|
As Previously |
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
|
|
|
|
|
As Previously |
|
|
|
|
| |
|
Reported |
|
Adjustment |
|
As Restated |
|
Reported |
|
Adjustment |
|
As Restated |
|
Reported |
|
Adjustment |
|
As Restated |
Income (loss) from continuing operations |
|
$ |
(399 |
) |
|
$ |
(1,626 |
) |
|
$ |
(2,025 |
) |
|
$ |
11,326 |
|
|
$ |
(1,297 |
) |
|
$ |
10,029 |
|
|
$ |
33,968 |
|
|
$ |
(1,248 |
) |
|
$ |
32,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile income (loss)
from continuing operations to net cash
provided by continuing operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation and charges |
|
$ |
10,699 |
|
|
$ |
1,626 |
|
|
$ |
12,325 |
|
|
$ |
13,703 |
|
|
$ |
1,297 |
|
|
$ |
15,000 |
|
|
$ |
14,506 |
|
|
$ |
1,248 |
|
|
$ |
15,754 |
|
69
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2008 pursuant to Rule 13a-15 of the Securities Exchange Act of 1934,
as amended.
At the time that our Annual Report on Form 10-K for the year ended December 31, 2008 was
originally filed, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of December 31, 2008. In connection with the
restatement described in Note 26 to our consolidated financial statements, our Chief Executive
Officer and Chief Financial Officer re-evaluated our disclosure controls and procedures and
determined that there was a material weakness in our internal control over financial reporting as
of December 31, 2008, as more fully described below in “Management’s Annual Report on Internal
Control over Financial Reporting (As Revised).” Based on this re-evaluation and because of the
material weakness described below, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were not effective as of December 31, 2008.
(b) Management’s Report on Internal Control Over Financial Reporting (As Revised)
The management of Move, Inc. (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended.
Internal control over financial reporting is a process designed by, or under the supervision
of, the Company’s Chief Executive Officer and Chief Financial Officer and effected by the Company’s
Board of Directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a material effect on the financial statements.
A deficiency in internal control over financial reporting exists when the design or operation
of a control does not allow management or employees, in the normal course of performing their
assigned functions, to prevent or detect misstatements on a timely basis. A deficiency in design
exists when (a) a control necessary to meet the control objective is missing or (b) an existing
control is not properly designed so that, even if the control operates as designed, the control
objective would not be met. A deficiency in operation exists when a properly designed control does
not operate as designed, or when the person performing the control does not possess the necessary
authority or competence to perform the control effectively. A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control over financial reporting that is
less severe than a material weakness, yet important enough to merit attention by those responsible
for oversight of the Company’s financial reporting. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
In connection with the restatement discussed in Note 26 to the consolidated financial
statements, our management, including our Chief Executive Officer and Chief Financial Officer,
re-assessed the effectiveness of our internal control over financial reporting as of December 31,
2008. Management based its assessment on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Management’s assessment included the evaluation of elements such as the design and operating
effectiveness of key financial reporting controls, process documentation, accounting policies, and
our overall control environment. Based upon this assessment, our management has concluded that, as
of December 31, 2008, our internal control over financial reporting was not effective to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with GAAP because of the
following material weakness:
| |
• |
|
The Company’s controls to calculate stock-based compensation expense related to the
application of the forfeiture rate were not designed effectively. As a result, a material
weakness exists in the design of the controls over the calculation of stock-based
compensation expense related to the application of the forfeiture rate. This control
deficiency led to a misstatement of stock-based compensation expense, which was not
prevented or detected on a timely basis, and resulted in a restatement of our
|
70
| |
|
|
consolidated financial statements for the years ended December 31, 2008, 2007 and 2006 and our
unaudited condensed consolidated financial statements for the quarters ended March 31, 2009
and June 30, 2009. |
We reviewed the results of management’s assessment with the Audit Committee of our Board of
Directors. Our independent registered public accounting firm, which audited the consolidated
financial statements included in this amended annual report on Form 10-K/A, has issued an
attestation report, included elsewhere herein, which expresses an adverse opinion on the
effectiveness of our internal control over financial reporting.
| |
|
|
|
|
| |
|
|
| |
/s/ Steven H. Berkowitz
|
|
| November 9, 2009 |
Steven H. Berkowitz |
|
| |
Chief Executive Officer |
|
| |
| |
|
|
| |
/s/ ROBERT J. KROLIK
|
|
| November 9, 2009 |
Robert J. Krolik |
|
| |
Chief Financial Officer |
|
| |
(c) Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred in
the fourth quarter of the period covered by this Annual Report of Form 10-K/A that have materially
affected, or are reasonably likely to materially affect, our internal controls over financial
reporting.
(d) Remedial Efforts to Address the Material Weakness
Subsequent to the identification of the material weakness during the three months ended
September 30, 2009, the Company has initiated remediation measures to address the material weakness
over the calculation of stock-based compensation expense related to the application of the
forfeiture rate which includes adding a control procedure to test the calculation of the
third-party stock-based compensation system reports on a quarterly basis and upon our upgrades to
new versions of the software.
71
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Shareholders of Move, Inc.
We have audited Move, Inc.’s internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Move, Inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting (As Revised).
Our responsibility is to express an opinion on the company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our report dated March 4, 2009, we expressed an unqualified opinion that the company maintained,
in all material respects, effective internal control over financial reporting as of December 31,
2008 based on the COSO criteria. As described in the following paragraph, the company subsequently
identified material misstatements in its consolidated financial statements, which caused such
consolidated financial statements to be restated. Management subsequently revised its assessment
due to the identification of the material weakness described in the following paragraph and
concluded that the company’s internal control over financial reporting was not effective as of
December 31, 2008. Accordingly, our opinion on the effectiveness of the company’s internal control
over financial reporting as of December 31, 2008, expressed herein is different from that expressed
in our previous report.
A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of
the company’s annual or interim financial statements will not be prevented or detected on a timely
basis. The following material weakness has been identified and included in management’s assessment.
Management has identified a material weakness in controls related to the company’s controls to
calculate stock-based compensation expense. This material weakness was considered in determining
the nature, timing and extent of audit tests applied in our audit of the 2008 financial statements
and this report does not affect our report dated March 4, 2009,
except for Notes 2, 14, 15, 18, 21 and
26, as to which the date is November 9, 2009.
In our opinion, because of the effect of the material weakness described above on the achievement
of the objectives of the control criteria, Move, Inc. has not maintained effective internal control
over financial reporting as of December 31, 2008, based on the COSO criteria.
/s/ Ernst & Young LLP
Los Angeles, California
March 4, 2009, except for the effects of the material weakness described
in the sixth paragraph above, as to which the date is November 9, 2009
72
Item 9B. Other Information
Entry into Indemnification Agreement with Named Executive Officer
On March 5, 2009, we entered into an Indemnification Agreement with Steven H. Berkowitz, our
Chief Executive Officer. The Indemnification Agreement provides that Move will indemnify and hold
harmless Mr. Berkowitz if he is made a party to or is otherwise involved in certain legal
proceedings as a result of actions related to his or her service as an agent of Move, subject to
the terms and conditions set forth in the agreement. The Indemnification Agreement also requires
Move to advance the expenses incurred by Mr Berkowitz in defending against any such proceeding,
subject to certain exceptions set forth in the agreement. The rights of Mr. Berkowitz under the
Indemnification Agreement are not exclusive and are in addition to his rights under Move’s Restated
Certificate of Incorporation and Bylaws, other agreements or otherwise.
The Form of the Indemnification Agreement has previously been filed by Move and is
incorporated by reference as Exhibit 10.26 to this Form 10-K. The foregoing does not constitute a
complete summary of the terms of the Indemnification Agreement, and reference is made to the
complete text of the Form of Indemnification Agreement. The Form of Indemnification Agreement is
incorporated herein by reference.
This disclosure is intended to satisfy Item 5.02(e) of Form 8-K.
PART III
Information required by Items 10, 11, 12, 13 and 14 of Part III is omitted from this Annual
Report and will be filed in a definitive proxy statement or by an amendment to this Annual Report
not later than 120 days after the end of the fiscal year covered by this Annual Report.
Item 10. Directors and Executive Officers and Corporate Governance
We will provide information that is responsive to this item not later than 120 days after the
end of the fiscal year covered by this Annual Report, in an amendment to this Annual Report, or in
our definitive proxy statement under the captions “Management,” “Meetings and Committees of the
Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Code of Conduct
and Business Ethics” and possibly elsewhere therein. That information is incorporated in this item
by reference.
Item 11. Executive Compensation
We will provide information that is responsive to this item not later than 120 days after the
end of the fiscal year covered by this Annual Report, in an amendment to this Annual Report, or in
our definitive proxy statement under the captions “Compensation Discussion and Analysis,”
“Executive Compensation,” “Director Compensation,” “Compensation Committee Interlocks and Insider
Participation,” “Compensation Committee Report,” and possibly elsewhere therein. That information
is incorporated in this item by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information under the caption “Securities Authorized for Issuance Under Equity
Compensation Plans” in Item 5 of this Annual Report is incorporated in this item by reference. We
will provide information that is responsive to this item not later than 120 days after the end of
the fiscal year covered by this Annual Report, in an amendment to this Annual Report, or in our
definitive proxy statement under the caption “Security Ownership of Certain Beneficial Owners and
Management” and possibly elsewhere therein. That information is incorporated in this item by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
We will provide information that is responsive to this item not later than 120 days after the
end of the fiscal year covered by this Annual Report, in an amendment to this Annual Report, or in
our definitive proxy statement under the captions “Certain Relationships and Related Transactions,”
“Meetings and Committees of the Board of Directors,” and possibly elsewhere therein. That
information is incorporated in this item by reference.
Item 14. Principal Accounting Fees and Services
We will provide information that is responsive to this item not later than 120 days after the
end of the fiscal year covered by this Annual Report, in an amendment to this Annual Report, or in
our definitive proxy statement under the caption “Fees Billed for Services Rendered by Independent
Auditors,” and possibly elsewhere therein. That information is incorporated in this item by
reference.
73
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements and Supplementary Data: See Index to Consolidated
Financial Statements at Item 8 of this Annual Report.
(2) Schedule II — Valuation and Qualifying Accounts, Exhibit Number 99.01.
(3) Exhibits
74
| |
|
|
| Number |
|
Exhibit Title |
2.01
|
|
Agreement and Plan of Reorganization dated October 26, 2000 among Homestore.com®, Inc.,
Metal Acquisition Corp., WW Acquisition Corp., Move.com, Inc., Welcome Wagon® International,
Inc., Cendant Membership Services Holdings, Inc. and Cendant Corporation. (Incorporated by
reference to Annex A to the definitive proxy statement filed November 29, 2000.) |
|
|
|
3.01.1
|
|
Restated Certificate of Incorporation of Move, Inc., dated June 23, 2005, as amended by the
Certificate of Amendment dated June 22, 2006. (Incorporated by reference to Exhibit 3.1 to our
quarterly report on Form 10-Q for the quarter ended June 30, 2006 filed August 7, 2006.) |
|
|
|
3.01.2
|
|
Certificate of Designation of Series B Convertible Participating Preferred Stock dated
November 29, 2005. (Incorporated by reference to Exhibit 3.01.2 of our Form 10-K for the year
ended December 31, 2005 filed March 13, 2006.) |
|
|
|
3.02
|
|
Bylaws of Move, Inc. (incorporated by reference to Exhibit 3.1 to our Current Report on Form
8-K filed on June 28, 2006.) |
|
|
|
3.03.1
|
|
RealSelect, Inc.’s Certificate of Incorporation dated October 25, 1996. (Incorporated by
reference to Exhibit 3.05.1 to our registration statement on Form S-1 (File No. 333-79689)
filed May 28, 1999.) |
|
|
|
3.03.2
|
|
RealSelect, Inc.’s Certificate of Amendment to Certificate of Incorporation dated November
25, 1996. (Incorporated by reference to Exhibit 3.05.2 to our registration statement on Form
S-1/A (File No. 333-79689) filed June 17, 1999.) |
|
|
|
3.04
|
|
RealSelect, Inc.’s Amended By-laws dated December 1999. (Incorporated by reference to Exhibit
3.07 of our Form 10-K for the year ended December 31, 1999 filed March 10, 2000.) |
|
|
|
4.01
|
|
Form of Specimen Certificate for common stock. (Incorporated by reference to Exhibit 4.01 of
our Form 10-K for the year ended December 31, 2006 filed March 5, 2007.) |
|
|
|
10.01.1
|
|
Operating Agreement dated November 26, 1996, between REALTORS® Information Network, Inc.
and RealSelect, Inc. (Incorporated by reference to Exhibit 10.02 to our registration statement
on Form S-1 (File No. 333-79689) filed May 28, 1999.) |
|
|
|
10.01.2
|
|
First Amendment to Operating Agreement dated December 27, 1996 between REALTORS®
Information Network, Inc. and RealSelect, Inc. (Incorporated by reference to Exhibit 10.02.2
to our registration statement on Form S-1/A (File No. 333-79689) filed June 17, 1999.) |
|
|
|
10.01.3
|
|
Amendment No. 2 to Operating Agreement dated May 28, 1999 between REALTORS® Information
Network, Inc. and RealSelect, Inc. (Incorporated by reference to Exhibit 10.02.3 to our
registration statement on Form S-1/A (File No. 333-79689) filed June 17, 1999.) |
|
|
|
10.02
|
|
Joint Ownership Agreement dated November 26, 1996, among National Association of REALTORS®,
NetSelect, L.L.C., and NetSelect, Inc. (Incorporated by reference to Exhibit 10.04 to our
registration statement on Form S-1 (File No. 333-79689) filed May 28, 1999.) |
|
|
|
10.03
|
|
Trademark License dated November 26, 1996, between National Association of REALTORS® and
RealSelect, Inc. (Incorporated by reference to Exhibit 10.05 to our registration statement on
Form S-1 (File No. 333-79689) filed May 28, 1999.) |
|
|
|
10.04
|
|
Agreement dated August 21, 1998 among RealSelect, Inc., REALTORS® Information Network, Inc.,
National Association of REALTORS®, NetSelect, Inc., and NetSelect L.L.C. (Incorporated by
reference to Exhibit 10.29 to our registration statement on Form S-1 (File No. 333-79689)
filed May 28, 1999.) |
|
|
|
10.05
|
|
Agreement dated May 28, 1999 among NetSelect, Inc., RealSelect, Inc., REALTORS® Information
Network, Inc. and National Association of REALTORS®. (Incorporated by reference to Exhibit
10.30 to our registration statement on Form S-1/A (File No. 333-79689) filed June 17, 1999.) |
|
|
|
10.06
|
|
Letter Agreement Regarding Rental Site Acquisition dated May 17, 1999 among National
Association of REALTORS®, REALTORS® Information Network, Inc. and RealSelect, Inc.
(Incorporated by reference to Exhibit 10.32 to our registration statement on Form S-1/A (File
No. 333-79689) filed June 17, 1999.)(1) |
|
|
|
10.07
|
|
Stock Purchase Agreement dated March 16, 2002 between Experian Holdings, Inc. and
Homestore.com®, Inc. (Incorporated by reference to Exhibit 2.1 to our current report on Form
8-K filed March 19, 2002.) |
75
| |
|
|
| Number |
|
Exhibit Title |
10.08
|
|
Standard Office Lease Form, Westlake North Business Park dated March 7, 2000 between
Westlake North Associates, LLC, and Homestore, Inc. for 30700 Russell Ranch Road, Westlake
Village, California. (Incorporated by reference to Exhibit 10.33 to our annual report on Form
10-K for the year ended December 31, 2000 filed April 2, 2001.) |
|
|
|
10.09
|
|
First Amendment to Lease dated as of February 2001, between Westlake North Associates, LLC,
and homestore.com, Inc. for 30700 Russell Ranch Road, Westlake Village, California.
(Incorporated by reference to Exhibit 10.10 to our annual report on Form 10-K for the year
ended December 31, 2007 filed February 29, 2008.) |
|
|
|
10.10
|
|
Second Amendment to Lease dated as of July 3, 2001, between Westlake North Associates, LLC
and homestore.com, Inc. for 30700 Russell Ranch Road, Westlake Village, California.
(Incorporated by reference to Exhibit 10.11 to our annual report on Form 10-K for the year
ended December 31, 2007 filed February 29, 2008.) |
|
|
|
10.11
|
|
Third Amendment to Lease dated September 27, 2007 between Arden Realty Limited Partnership
and Move, Inc. for 30700 Russell Ranch Road, Westlake Village, California (Incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September
30, 2007 filed November 2, 2007.) |
|
|
|
10.12
|
|
NetSelect, Inc. 1996 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.16 to
our registration statement on Form S-1 (File No. 333-79689) filed May 28, 1999.)(3) |
|
|
|
10.13
|
|
NetSelect, Inc. 1999 Equity Incentive Plan. (Incorporated by reference to Exhibit 10.17 to
our registration statement on Form S-1 (File No. 333-79689) filed May 28, 1999.)(3) |
|
|
|
10.14
|
|
Homestore.com®, Inc. 1999 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.18
to our registration statement on Form S-1/A (File No. 333-79689) filed July 27, 1999.)(3) |
|
|
|
10.15
|
|
Amendment dated December 10, 2008 to the Homestore.com®, Inc. 1999 Stock Incentive Plan.
(2)(3) |
|
|
|
10.16
|
|
Homestore.com®, Inc. 1999 Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit 10.19 to our registration statement on Form S-1/A (File No. 333-79689) filed July 27,
1999.)(3) |
|
|
|
10.17
|
|
Homestore.com®, Inc. 2002 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.04
to our registration statement on Form S-8 (File No. 333-89172) filed May 24, 2002.)(3) |
|
|
|
10.18
|
|
Amendment dated December 10, 2008 to the Homestore.com®, Inc. 2002 Stock Incentive Plan.
(2)(3) |
|
|
|
10.19
|
|
InfoTouch Corporation 1994 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.20
to our registration statement on Form S-1/A (File No. 333-79689) filed June 17, 1999.)(3) |
|
|
|
10.20
|
|
Move.com, Inc. 2000 Stock Incentive Plan. (Incorporated by reference to Exhibit 4.04 to our
registration statement on Form S-8 (File No. 333-55828) filed February 16, 2001.)(3) |
|
|
|
10.21
|
|
Cendant Corporation Move.com Group 1999 Stock Option Plan as assumed by Cendant Corporation
from Move.com, Inc. and amended and restated effective as of March 21, 2000. (Incorporated by
reference to Exhibit 4.05 to our registration statement on Form S-8 (File No. 333-55828) filed
February 16, 2001.)(3) |
|
|
|
10.22
|
|
1997 Stock Incentive Plan of Cendant Corporation as amended and restated through October 14,
1998. (Incorporated by reference to Exhibit 4.06 to our registration statement on Form S-8
(File No. 333-55828) filed February 16, 2001.)(3) |
|
|
|
10.23
|
|
Amendment to Amended and Restated 1997 Stock Incentive Plan of Cendant Corporation dated
March 27, 2000. (Incorporated by reference to Exhibit 4.07 to our registration statement on
Form S-8 (File No. 333-55828) filed February 16, 2001.)(3) |
|
|
|
10.24
|
|
Amendment to Amended and Restated 1997 Stock Incentive Plan of Cendant Corporation dated
March 28, 2000. (Incorporated by reference to Exhibit 4.08 to our registration statement on
Form S-8 (File No. 333-55828) filed February 16, 2001.)(3) |
|
|
|
10.25
|
|
Homestore 401(k) Plan. (Incorporated by reference to Exhibit 10.25 to our registration
statement on Form S-1/A (File No. 333-79689) filed June 17, 1999.)(3) |
|
|
|
10.26
|
|
Form of Indemnity Agreement between Move, Inc. and each of its directors and executive
officers (Incorporated by reference to Exhibit 10.25 to our annual report on Form 10-K for the
year ended December 31, 2003 filed March 15, 2004.)(3) |
76
| |
|
|
| Number |
|
Exhibit Title |
10.27
|
|
Employment Agreement dated March 6, 2002 between Homestore.com®, Inc. and W. Michael
Long. (Incorporated by reference to Exhibit 6.01(A) to our quarterly report on Form 10-Q for
the quarter ended March 31, 2002 filed May 14, 2002.)(3) |
|
|
|
10.28
|
|
Amendment dated December 24, 2008 to Employment Agreement of W. Michael Long dated March 6,
2002. (2)(3) |
|
|
|
10.29
|
|
Amendment dated January 14, 2009 to Employment Agreement of W. Michael Long dated March 6,
2002. (2)(3) |
|
|
|
10.30
|
|
2006 Executive Bonus Plan for W. Michael Long. (Incorporated by reference to Exhibit 10.3 to
our quarterly report on Form 10-Q for the quarter ended March 31, 2006 filed May 5, 2006.)(3) |
|
|
|
10.31
|
|
W. Michael Long 2007 Executive Bonus Plan (Incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed August 3, 2007.)(3) |
|
|
|
10.32
|
|
Offer letter to Lorna Borenstein dated April 26, 2007 with form of Executive Retention and
Severance Agreement attached as exhibit (Incorporated by reference to Exhibit 99.3 to our
Current Report on Form 8-K filed May 2, 2007.)(3) |
|
|
|
10.33
|
|
Amendment dated December 19, 2008 to Offer letter to Lorna Borenstein dated April 26,
2007.(2)(3) |
|
|
|
10.34
|
|
Amendment dated December 19, 2008 to Executive Retention and Severance Agreement between
Move, Inc. and Lorna Borenstein. (2)(3) |
|
|
|
10.35
|
|
Lorna Borenstein 2007 Executive Bonus Plan (Incorporated by reference to Exhibit 10.4to our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed August 3, 2007.)(3) |
|
|
|
10.36
|
|
Employment Agreement dated March 6, 2002 between Homestore.com®, Inc. and Lewis R. Belote
III. (Incorporated by reference to Exhibit 6.02(A) to our quarterly report on Form 10-Q for
the quarter ended March 31, 2002 filed May 14, 2002.)(3) |
|
|
|
10.37
|
|
Amendment dated December 19, 2008 to Employment Agreement dated March 6, 2002 between
Homestore.com®, Inc. and Lewis R. Belote III. (2)(3) |
|
|
|
10.38
|
|
2006 Executive Bonus Plan for Lewis R. Belote III. (Incorporated by reference to Exhibit
10.6 to our quarterly report on Form 10-Q for the quarter ended March 31, 2006 filed May 5,
2006.)(3) |
|
|
|
10.39
|
|
Lewis R. Belote, III 2007 Executive Bonus Plan (Incorporated by reference to Exhibit 10.3 to
our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed August 3,
2007.)(3) |
|
|
|
10.40
|
|
Executive Retention and Severance Agreement dated September 30, 2002 between Homestore.com®,
Inc. and Allan D. Dalton. (Incorporated by reference to Exhibit 10.1 to our quarterly report
on Form 10-Q for the quarter ended September 30, 2002 filed November 14, 2002.)(3) |
|
|
|
10.41
|
|
Offer Letter dated October 7, 2002 between Homestore.com®, Inc. and Allan D. Dalton.
(Incorporated by reference to Exhibit 10.2 to our quarterly report on Form 10-Q for the
quarter ended September 30, 2002 filed November 14, 2002.)(3) |
|
|
|
10.42
|
|
Realtor+ Top Producer 2006 Executive Bonus Plan for Allan D. Dalton. (Incorporated by
reference to Exhibit 10.5 to our quarterly report on Form 10-Q for the quarter ended March 31,
2006 filed May 5, 2006.)(3) |
|
|
|
10.43
|
|
Letter Agreement between Move, Inc. and Allan Dalton dated April 30, 2007 (Incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31,
2007 filed May 3, 2007.)(3) |
|
|
|
10.44
|
|
Letter Agreement with Allan Dalton dated February 26, 2008 with Exhibit A attached
(Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed March 4,
2008.)(3) |
|
|
|
10.45
|
|
General Release of Claims between Move, Inc. and Allan Dalton (Incorporated by reference to
Exhibit 99.2 to our Current Report on Form 8-K filed March 4, 2008.)(3) |
|
|
|
10.46
|
|
Offer Letter dated July 2, 2003 between Homestore, Inc. and Errol Samuelson. (Incorporated
by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March
31, 2008 filed May 9, 2008.)(3) |
|
|
|
10.47
|
|
Compensation Letter dated August 1, 2007 from Move, Inc. to Errol Samuelson. (Incorporated
by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March
31, 2008 filed May 9, 2008.)(3) |
|
|
|
77
| |
|
|
| Number |
|
Exhibit Title |
10.48
|
|
Executive Retention and Severance Agreement dated May 6, 2008 between Move, Inc. and
Errol Samuelson. (Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form
10-Q for the quarter ended March 31, 2008 filed May 9, 2008.)(3) |
|
|
|
10.49
|
|
Amendment dated December 30, 2008 to Executive Retention and Severance Agreement dated May
6, 2008 between Move, Inc. and Errol Samuelson. (2)(3) |
|
|
|
10.50
|
|
Move, Inc. Offer Letter to Steven H. Berkowitz dated January 21, 2009.(Incorporated by
reference to Exhibit 99.2 to our Current Report on Form 8-K filed January 23, 2009.)(3) |
|
|
|
10.51
|
|
Executive Retention and Severance Agreement between Steven H. Berkowitz and Move, Inc. dated
January 21, 2009. (Incorporated by reference to Exhibit 99.3 to our Current Report on Form 8-K
filed January 23, 2009.)(3) |
|
|
|
10.52
|
|
Form of the Move, Inc. Performance-Based Restricted Stock Unit Agreement.(Incorporated by
reference to Exhibit 99.4 to our Current Report on Form 8-K filed January 23, 2009.)(3) |
|
|
|
10.53
|
|
Stipulation and Agreement of Settlement between California State Teachers’ Retirement System
and Homestore, Inc. dated as of August 12, 2003. (Incorporated by reference to Exhibit 10.7 to
our quarterly report on Form 10-Q for the quarter ended September 30, 2003 filed November 13,
2003.) |
|
|
|
10.54
|
|
Settlement Agreement and Release dated August 5, 2003 among Homestore, Inc., Welcome Wagon®
International, Inc., Cendant Corporation, Cendant Membership Services Holdings, Inc, Century
21 Real Estate Corporation, Coldwell Banker Real Estate Corporation, ERA Franchise Systems,
Inc., NRT Incorporated, and Cendant Mortgage Corporation. (Incorporated by reference to
Exhibit 10.1 to our quarterly report on Form 10-Q for the quarter ended June 30, 2003 filed
August 14, 2003.) |
|
|
|
10.55
|
|
Registration Rights Agreement dated August 5, 2003 among Homestore, Inc., Cendant
Corporation and Cendant Membership Services Holdings, Inc. (Incorporated by reference to
Exhibit 10.2 to our quarterly report on Form 10-Q for the quarter ended June 30, 2003 filed
August 14, 2003.) |
|
|
|
10.56
|
|
Listings License Agreement dated August 5, 2003 between Cendant Corporation and Homestore,
Inc. (Incorporated by reference to Exhibit 10.3 to our quarterly report on Form 10-Q for the
quarter ended June 30, 2003 filed August 14, 2003.) |
|
|
|
10.57
|
|
Source Code License and Maintenance Services Agreement dated August 5, 2003 between
Homestore, Inc. and Cendant Corporation. (Incorporated by reference to Exhibit 10.4 to our
quarterly report on Form 10-Q for the quarter ended June 30, 2003 filed August 14, 2003.) |
|
|
|
10.58
|
|
Asset Purchase Agreement dated October 6, 2004 between Homestore, Inc. and Wyld Acquisition
Corp. (Incorporated by reference to Exhibit 10.1 to our quarterly report on Form 10-Q for the
quarter ended September 30, 2004 filed November 5, 2004.) |
|
|
|
10.59
|
|
Exclusivity Termination Agreement between Homestore, Inc., RealSelect, Inc., REALTORS(®)
Information Network, Inc. and the National Association of REALTORS® (Incorporated by reference
to Exhibit 10.1 to our current report on Form 8-K filed April 21, 2005.) |
|
|
|
10.60
|
|
Form of Certificate of Stock Option Grant to Executive Officers (Incorporated by reference
to Exhibit 10.1 to our quarterly report on Form 10-Q for the quarter ended March 31, 2005
filed May 6, 2005.)(3) |
|
|
|
10.61
|
|
Settlement Agreement and Releases dated September 20, 2005 between the Company and Stuart
Wolff (Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed
September 26, 2005.) |
|
|
|
10.62
|
|
Preferred Stock Purchase Agreement, dated November 6, 2005, by and among Homestore, Inc. and
the Purchasers signatory thereto (Incorporated by reference to Exhibit 10.1 to our current
report on Form 8-K filed November 7, 2005.) |
|
|
|
10.63
|
|
Stockholders Agreement, dated November 29, 2005, by and among Homestore, Inc., Elevation
Partners, L.P. and Elevation Employee Side Fund, LLC. (Incorporated by reference to Exhibit
10.1 to our current report on Form 8-K filed November 30, 2005.) |
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78
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|
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| Number |
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Exhibit Title |
10.64
|
|
Asset Purchase Agreement dated February 21, 2006 between Homestore, Inc., TMP
Directional Marketing, LLC and Moving.com, Inc. (Incorporated by reference to Exhibit 10.1 to
our quarterly report on Form 10-Q for the quarter ended March 31, 2006 filed May 5, 2006.) |
|
|
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10.65
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|
Settlement Agreement and Releases dated February 15, 2006 between Homestore, Inc. and Peter
Tafeen (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on
February 22, 2006.) |
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10.66
|
|
Loan Agreement between Move, Inc. and Citigroup Global Markets Inc. dated as of May 8, 2008.
(Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2008 filed May 9, 2008.) |
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|
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10.67
|
|
Offer Letter dated February 18, 2004 between Homestore, Inc. and James S. Caulfield. (2)(3) |
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|
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10.68
|
|
Offer Letter dated October 5, 2006 between Move, Inc. and James S. Caulfield. (2)(3) |
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10.69
|
|
Executive Retention and Severance Agreement dated October 5, 2006 between Move, Inc. and
James S. Caulfield. (2)(3) |
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|
|
10.70
|
|
Amendment dated December 19, 2008 to Executive Retention and Severance Agreement dated
October 5, 2006 between Move, Inc. and James S. Caulfield. (2)(3) |
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|
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21.01
|
|
Subsidiaries of Move, Inc.(2) |
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23.01
|
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.(4) |
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24.01
|
|
Power of Attorney (included on signature pages to this report).(2) |
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|
|
31.01
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(4) |
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31.02
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(4) |
|
|
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32.01
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(4) |
|
|
|
32.02
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(4) |
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|
|
99.01
|
|
Schedule II — Valuation and Qualifying Accounts.(2) |
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|
|
| (1) |
|
Confidential treatment has been granted with respect to certain
information in these exhibits pursuant to a confidential treatment
request. |
| |
| (2) |
|
Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 6, 2009, to which this amendment applies. |
| |
| (3) |
|
Denotes management contracts and compensatory plans and arrangements. |
| |
| (4) |
|
Filed herewith. |
(c) Exhibits
See Item 15(a)(3) above.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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|
| |
MOVE, INC.
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By: |
/s/ Steven H. Berkowitz
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Steven H. Berkowitz |
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| |
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Chief Executive Officer |
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By: |
/s/ ROBERT J. KROLIK
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| |
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Robert J. Krolik |
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| |
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Chief Financial Officer |
|
| |
Date: November 9, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
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| Signature |
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Title |
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Date |
Principal Executive Officer: |
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Chief Executive Officer and Director
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November 9, 2009 |
Steven H. Berkowitz |
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Principal Financial Officer and Principal Accounting
Officer: |
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Chief Financial Officer
|
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November 9, 2009 |
Robert J. Krolik |
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Additional Directors: |
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Chairman of the Board and Director
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November 9, 2009 |
Joe F. Hanauer |
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Director
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November 9, 2009 |
Fred D. Anderson |
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Director
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November 9, 2009 |
William E. Kelvie |
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Director
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November 9, 2009 |
Kenneth K. Klein |
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80
| |
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| Signature |
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Title |
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Date |
| |
|
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Director
|
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November 9, 2009 |
Geraldine B. Laybourne |
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Director
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November 9, 2009 |
Roger B. McNamee |
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Director
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November 9, 2009 |
V. Paul Unruh |
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Director
|
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November 9, 2009 |
Catherine Whatley |
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Director
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November 9, 2009 |
Bruce G. Willison |
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| * By: |
/s/ James S. Caulfield
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James S. Caulfield |
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Attorney-in-Fact for each of
the persons indicated |
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81