UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
November 17, 2004
United Online, Inc.
(Exact Name of Registrant as specified in Charter)
Delaware | | 000-33367 | | 77-0575839 |
(State or Other Jurisdiction
of Incorporation) | | (Commission File
Number) | | (I.R.S. Employer
Identification Number) |
21301 Burbank Boulevard
Woodland Hills, California 91367
(Address of principal executive offices) (Zip Code)
Telephone: (818) 287-3000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
On November 17, 2004, United Online, Inc. (“United Online”) and Mariner Acquisition Corp., a Washington corporation and wholly-owned subsidiary of United Online, completed the acquisition, via merger, of Classmates Online, Inc,. a Washington corporation (“Classmates Online”). Pursuant to the Agreement and Plan of Merger, dated October 23, 2004, among United Online, Mariner Acquisition Corp. and Classmates Online (“Agreement and Plan of Merger”), Mariner Acquisition Corp. was merged with and into Classmates Online, with Classmates Online being the surviving corporation and continuing as a wholly-owned subsidiary of United Online (the “Merger”). Classmates Online operates Classmates.com, connecting millions of members throughout the U.S. and Canada with friends and acquaintances from school, work and the military.
The merger consideration consisted of approximately $100 million in cash, net of cash acquired. Unvested options of Classmates Online were assumed by United Online and converted into options to purchase United Online common stock, with the number of shares and exercise price equitably adjusted to reflect the conversion.
The description of the Agreement and Plan of Merger set forth above is qualified in its entirety by reference to the Agreement and Plan of Merger, which is incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K, dated November 4, 2004.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
Audited financial statements of Classmates Online, including audited consolidated balance sheets as of December 31, 2003 and 2002 and the related audited statements of income, shareholders’ equity and cash flow for the three fiscal years ended December 31, 2003, 2002 and 2001 and Independent Auditors’ Report are incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K, dated November 4, 2004. Unaudited financial statements of Classmates Online, including unaudited consolidated balance sheet as of September 30, 2004 and the related unaudited statements of income and cash flow for the nine months ended September 30, 2004 and 2003, that were prepared by Classmates Online are incorporated by reference to Exhibit 99.3 of the Current Report on Form 8-K, dated November 4, 2004.
(b) Pro forma financial information.
The following unaudited pro forma financial statements are furnished as part of this Current Report on Form 8-K.
Pro Forma Consolidated Balance Sheet as of September 30, 2004 and notes thereto
Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2004 and notes thereto
Pro Forma Consolidated Statement of Operations for the year ended December 31, 2003 and notes thereto
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UNITED ONLINE, INC.
INDEX TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
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UNITED ONLINE, INC.
INTRODUCTORY NOTE REGARDING THE UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On October 23, 2004, United Online (the “Company”) signed the Agreement and Plan of Merger to acquire Classmates Online (see Note 1 in Note to Unaudited Pro Forma Consolidated Financial Statements). The purchase consideration is allocated based on the estimated fair value of Classmates Online's net assets acquired and the excess of cost over the fair value of Classmates Online's net tangible assets acquired will be allocated to goodwill and identifiable intangible assets. Based on a preliminary analysis, identifiable, definite-lived intangible assets will be amortized on a straight-line basis over estimated lives ranging from 3.5 to 10 years. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, goodwill and indefinite-lived intangibles will not be amortized but will be reviewed for impairment on an annual basis and between annual tests if an event occurs or circumstances change such that an interim review is necessary. These allocations may change when the Company completes its final analysis of the fair values of Classmates Online's net assets. The impact of the allocation of purchase price to goodwill and other identifiable intangible assets could be material to the Company’s future operating results.
The unaudited pro forma consolidated balance sheet as of September 30, 2004 gives effect to the acquisition of Classmates Online as if it had occurred on September 30, 2004 and combines the historical unaudited consolidated balance sheets of United Online and Classmates Online.
The unaudited pro forma consolidated statements of operations for the year ended December 31, 2003 and the nine months ended September 30, 2004 give effect to the acquisition of Classmates Online as if it had occurred on January 1, 2003. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2003 was prepared based on the unaudited consolidated statement of operations for the six months ended June 30, 2003 for United Online, the audited consolidated statement of operations for the six months ended December 31, 2003 for United Online and the audited consolidated statement of operations for the year ended December 31, 2003 for Classmates Online. The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2004 was prepared based on the unaudited consolidated statements of operations for the nine months ended September 30, 2004 for United Online and Classmates Online.
The unaudited pro forma consolidated financial statements are based on estimates and assumptions set forth in the note to these statements. These estimates and assumptions are preliminary and have been made solely for purposes of developing these pro forma consolidated financial statements. Unaudited pro forma consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations of future periods or the results that actually would have been realized had these transactions occurred on the dates indicated above. These unaudited pro forma consolidated financial statements are based upon the respective historical consolidated financial statements of United Online and Classmates Online and related notes to those statements and should be read in conjunction with those statements and the related notes. Certain reclassifications have been made to conform Classmates Online’s historical financial statements to the presentation of United Online’s historical financial statements.
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UNITED ONLINE, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 2004
| | United Online | | Classmates Online | | Adjustments | | Pro Forma | |
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | | $ | 63,406 | | $ | 27,782 | | $ | 57,839 | (a) | $ | 23,574 | |
| | | | | | (125,453 | )(c) | | |
Short-term investments | | 139,239 | | — | | (57,839 | )(a) | 81,400 | |
Restricted cash | | — | | 225 | | | | 225 | |
Accounts receivable, net | | 13,414 | | 3,377 | | | | 16,791 | |
Deferred tax assets, net | | 10,255 | | 3,588 | | 5,092 | (c) | 18,935 | |
Other current assets | | 12,739 | | 1,657 | | | | 14,396 | |
Total current assets | | 239,053 | | 36,629 | | (120,361 | ) | 155,321 | |
Property and equipment, net | | 18,763 | | 10,319 | | 5,800 | (c) | 34,882 | |
Restricted cash | | — | | 750 | | | | 750 | |
Deferred tax assets, net | | 917 | | — | | | | 917 | |
Goodwill | | 17,029 | | 112 | | 58,490 | (c) | 75,631 | |
Intangible assets, net | | 24,700 | | 678 | | 70,800 | (c) | 96,178 | |
Other assets | | 800 | | 243 | | | | 1,043 | |
Total assets | | $ | 301,262 | | $ | 48,731 | | $ | 14,729 | | $ | 364,722 | |
| | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable | | $ | 38,762 | | $ | 606 | | $ | 1,721 | (c) | $ | 41,089 | |
Accrued liabilities | | 16,952 | | 6,003 | | | | 22,955 | |
Deferred revenue | | 28,231 | | 25,757 | | | | 53,988 | |
Deferred tax liabilities | | — | | 376 | | 4,745 | (c) | 5,121 | |
Capital leases | | — | | 848 | | | | 848 | |
Total current liabilities | | 83,945 | | 33,590 | | 6,466 | | 124,001 | |
Deferred revenue | | — | | 671 | | | | 671 | |
Capital leases | | — | | 759 | | | | 759 | |
Deferred tax liabilities | | — | | 996 | | 17,815 | (c) | 18,811 | |
Other liabilities | | 1,189 | | 283 | | | | 1,472 | |
Total liabilities | | 85,134 | | 36,299 | | 24,281 | | 145,714 | |
| | | | | | | | | |
Stockholders’ equity: | | | | | | | | | |
Preferred stock | | — | | 18,566 | | (18,566 | )(c) | — | |
Common stock | | 6 | | 3,536 | | (3,536 | )(c) | 6 | |
Additional paid-in capital | | 487,094 | | — | | 4,325 | (c) | 491,419 | |
Deferred stock-based compensation | | (9,540 | ) | (101 | ) | 101 | (c) | (10,985 | ) |
| | | | | | (1,445 | )(c) | | |
Accumulated other comprehensive income | | 335 | | — | | | | 335 | |
Accumulated deficit | | (261,767 | ) | (9,569 | ) | 9,569 | (c) | (261,767 | ) |
Total stockholders’ equity | | 216,128 | | 12,432 | | (9,552 | ) | 219,008 | |
Total liabilities and stockholders’ equity | | $ | 301,262 | | $ | 48,731 | | $ | 14,729 | | $ | 364,722 | |
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UNITED ONLINE, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003
(in thousands, except per share amounts)
| | United Online | | Classmates Online | | Adjustments | | Pro Forma | |
Revenues: | | | | | | | | | |
Billable services | | $ | 306,086 | | $ | 61,338 | | | | $ | 367,424 | |
Advertising and commerce | | 33,079 | | 16,883 | | 256 | (h) | 50,218 | |
Other | | — | | 256 | | (256 | )(h) | — | |
Total revenues | | 339,165 | | 78,477 | | — | | 417,642 | |
| | | | | | | | | |
Operating expenses: | | | | | | | | | |
Cost of billable services | | 92,785 | | | | 33 | (d) | 98,207 | |
| | | | | | 725 | (f) | | |
| | | | | | 2,173 | (i) | | |
| | | | | | 1,352 | (k) | | |
| | | | | | 619 | (l) | | |
| | | | | | 520 | (m) | | |
Cost of free services | | 9,659 | | | | 108 | (d) | 20,345 | |
| | | | | | 1,208 | (f) | | |
| | | | | | 5,084 | (k) | | |
| | | | | | 2,329 | (l) | | |
| | | | | | 1,957 | (m) | | |
Sales and marketing | | 120,619 | | 36,298 | | 423 | (d) | 151,851 | |
| | | | | | (2,196 | )(i) | | |
| | | | | | (996 | )(j) | | |
| | | | | | (2,647 | )(l) | | |
| | | | | | 350 | (o) | | |
Product development | | 21,881 | | | | 358 | (d) | 27,798 | |
| | | | | | 5,270 | (l) | | |
| | | | | | 289 | (m) | | |
General and administrative | | 29,087 | | 21,371 | | 163 | (d) | 41,726 | |
| | | | | | 23 | (i) | | |
| | | | | | 996 | (j) | | |
| | | | | | (6,436 | )(k) | | |
| | | | | | (5,571 | )(l) | | |
| | | | | | 2,443 | (m) | | |
| | | | | | (350 | )(o) | | |
Amortization of intangible assets | | 15,856 | | | | 9,924 | (e) | 25,786 | |
| | | | | | 6 | (n) | | |
Depreciation and amortization | | — | | 5,215 | | (5,209 | )(m) | — | |
| | | | | | (6 | )(n) | | |
Restructuring charges | | (215 | ) | — | | | | (215 | ) |
Total operating expenses | | 289,672 | | 62,884 | | 12,942 | | 365,498 | |
Operating income | | 49,493 | | 15,593 | | (12,942 | ) | 52,144 | |
Interest and other income, net | | 4,679 | | 280 | | (2,726 | )(b) | 2,233 | |
Interest expense | | (43 | ) | (153 | ) | | | (196 | ) |
Income before income taxes | | 54,129 | | 15,720 | | (15,668 | ) | 54,181 | |
Provision (benefit) for income taxes | | (754 | ) | 5,224 | | (1,059 | )(b) | (910 | ) |
| | | | | | (172 | )(d) | | |
| | | | | | (3,473 | )(e) | | |
| | | | | | (676 | )(f) | | |
Net income | | $ | 54,883 | | $ | 10,496 | | $ | (10,288 | ) | $ | 55,091 | |
Net income per share – basic | | $ | 0.87 | | | | | | $ | 0.87 | |
Net income per share – diluted | | $ | 0.80 | | | | | | $ | 0.80 | |
Shares used to calculate basic net income per share | | 63,369 | | | | — | | 63,369 | |
Shares used to calculate diluted net income per share | | 68,752 | | | | 151 | (g) | 68,903 | |
| | | | | | | | | | | | | | |
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UNITED ONLINE, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004
(in thousands, except per share amounts)
| | United Online | | Classmates Online | | Adjustments | | Pro Forma | |
Revenues: | | | | | | | | | |
Billable services | | $ | 302,291 | | $ | 41,063 | | | | $ | 343,354 | |
Advertising and commerce | | 26,706 | | 13,205 | | 170 | (h) | 40,081 | |
Other | | | | 170 | | (170 | )(h) | — | |
Total revenues | | 328,997 | | 54,438 | | — | | 383,435 | |
| | | | | | | | | |
Operating expenses: | | | | | | | | | |
Cost of billable services | | 71,887 | | | | 7 | (d) | 75,802 | |
| | | | | | 563 | (f) | | |
| | | | | | 1,465 | (i) | | |
| | | | | | 810 | (k) | | |
| | | | | | 497 | (l) | | |
| | | | | | 573 | (m) | | |
Cost of free services | | 4,919 | | | | 24 | (d) | 12,951 | |
| | | | | | 937 | (f) | | |
| | | | | | 3,044 | (k) | | |
| | | | | | 1,870 | (l) | | |
| | | | | | 2,157 | (m) | | |
Sales and marketing | | 131,274 | | 30,639 | | 95 | (d) | 156,320 | |
| | | | | | (1,480 | )(i) | | |
| | | | | | (739 | )(j) | | |
| | | | | | (3,469 | )(l) | | |
Product development | | 19,456 | | | | 80 | (d) | 26,268 | |
| | | | | | 6,070 | (l) | | |
| | | | | | 662 | (m) | | |
General and administrative | | 28,252 | | 15,227 | | 36 | (d) | 36,960 | |
| | | | | | 15 | (i) | | |
| | | | | | 739 | (j) | | |
| | | | | | (3,854 | )(k | | |
| | | | | | (4,968 | )(l) | | |
| | | | | | 1,513 | (m) | | |
Amortization of intangible assets | | 12,752 | | | | 7,443 | (e) | 20,200 | |
| | | | | | 5 | (n) | | |
Depreciation and amortization | | | | 4,910 | | (4,905 | )(m) | — | |
| | | | | | (5 | )(n) | | |
Total operating expenses | | 268,540 | | 50,776 | | 9,185 | | 328,501 | |
Operating income | | 60,457 | | 3,662 | | (9,185 | ) | 54,934 | |
Interest and other income, net | | 3,290 | | 238 | | (1,833 | )(b) | 1,695 | |
Interest expense | | | | (57 | ) | | | (57 | ) |
Income before income taxes | | 63,747 | | 3,843 | | (11,018 | ) | 56,572 | |
Provision for income taxes | | 26,456 | | 1,616 | | (458 | )(b) | 23,993 | |
| | | | | | (44 | )(d) | | |
| | | | | | (2,977 | )(e) | | |
| | | | | | (600 | )(f) | | |
Net income | | $ | 37,291 | | $ | 2,227 | | $ | (6,939 | ) | $ | 32,579 | |
Net income per share - basic | | $ | 0.60 | | | | | | $ | 0.53 | |
Net income per share - diluted | | $ | 0.56 | | | | | | $ | 0.49 | |
Shares used to calculate basic net income per share | | 61,772 | | | | — | | 61,772 | |
Shares used to calculate diluted net income per share | | 66,178 | | | | 151 | (g) | 66,329 | |
| | | | | | | | | | | | | |
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UNITED ONLINE, INC.
NOTE TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
1. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE ACQUISITION OF CLASSMATES ONLINE, INC.
(a) To reduce the Company’s short-term investment portfolio to fund the acquisition of Classmates Online.
(b) To reduce interest income due to the reduction in the Company’s short-term investment balance and record the related tax effect.
(c) Preliminary allocation of the purchase consideration to the fair value of the net assets acquired. The fair value of the Classmates Online unvested stock options assumed was determined based on the Black-Scholes option pricing model using a weighted average expected life of 5 years, 0% dividend yield, volatility of 99%, and a risk-free interest rate of 3%.
Purchase Consideration | | | |
Cash | | $ | 125,453 | |
Fair value of stock options assumed | | 4,325 | |
Intrinsic value of unvested stock options | | (1,445 | ) |
Estimated acquisition costs | | 1,721 | |
| | | |
Total purchase consideration | | $ | 130,054 | |
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Description | | Estimated
Fair Value | | Estimated
Amortizable
Life | |
Net assets acquired: | | | | | |
Cash | | $ | 27,782 | | | |
Accounts receivable | | 3,377 | | | |
Restricted cash | | 975 | | | |
Deferred tax assets | | 8,680 | | | |
Property and equipment | | 16,119 | | | |
Other assets | | 2,690 | | | |
Accounts payable and accrued liabilities | | (6,609 | ) | | |
Deferred revenue | | (26,428 | ) | | |
Deferred tax liabilities | | (23,932 | ) | | |
Capital leases | | (1,607 | ) | | |
Other liabilities | | (283 | ) | | |
| | | | | |
Total net assets acquired | | 764 | | | |
| | | | | |
Intangible assets acquired: | | | | | |
Trademark and trade name | | 20,200 | | indefinite | |
Advertising contracts | | 10,300 | | 3.5 years | |
Gold members | | 19,700 | | 4 years | |
Basic members | | 20,600 | | 10 years | |
| | | | | |
Total intangible assets acquired | | 70,800 | | | |
| | | | | |
Goodwill | | 58,490 | | | |
| | | | | |
Total purchase consideration | | $ | 130,054 | | | |
The estimated fair value of assets and liabilities are based, in part, on a preliminary valuation by a third party valuation specialist. The final allocation of the purchase consideration at closing may be different from the allocation based on this preliminary valuation.
An adjustment of $5,092 has been made to deferred tax assets to reflect the tax benefit associated with the estimated payment at closing of approximately $14.5 million related to vested stock options of Classmates Online.
An adjustment of $22,560 has been made to deferred tax liabilities to reflect the differences between the financial statement carrying amounts of amortizable intangible assets and property and equipment and their tax bases.
(d) To record stock-based compensation and the related tax effect associated with the assumption of Classmates Online’s unvested stock options.
(e) To record amortization expense and the related income tax effect for the intangible assets acquired.
(f) To record depreciation expense and the related income tax effect for the increase in fair value of property and equipment.
(g) To adjust diluted weighted average shares outstanding for the stock options assumed.
(h) To reclass Classmates Online’s other revenue to conform to United Online’s financial statement presentation.
(i) To reclass Classmates Online’s billing costs to conform to United Online’s financial statement presentation.
(j) To reclass Classmates Online’s revenue tax to conform to United Online’s financial statement presentation.
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(k) To reclass Classmates Online's data center costs to conform to United Online’s financial statement presentation.
(l) To reclass Classmates Online's personnel and overhead-related costs to United Online’s financial statement presentation.
(m) To reclass Classmates Online's depreciation to United Online’s financial statement presentation.
(n) To reclass Classmates Online's amortization to United Online’s financial statement presentation.
(o) To reclass Classmates Online's advertising expense to United Online’s financial statement presentation.
(c) Exhibits
Exhibit No. | | Description |
2.1 | | Agreement and Plan of Merger, dated October 23, 2004, by and among United Online, Inc., Mariner Acquisition Corp. and Classmates Online, Inc. (incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K, dated November 4, 2004). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: | November 23, 2004 | | UNITED ONLINE, INC. |
| | |
| | /s/ Charles S. Hilliard | |
| | Charles S. Hilliard |
| | Executive Vice President, Finance, |
| | and Chief Financial Officer |
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EXHIBIT INDEX
Exhibit No. | | Description |
2.1 | | Agreement and Plan of Merger, dated October 23, 2004, by and among United Online, Inc., Mariner Acquisition Corp. and Classmates Online, Inc. (incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K, dated November 4, 2004). |
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