LendingTree, Inc. - Quarter Report: 2011 September (Form 10-Q)

Use these links to rapidly review the document
TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2011
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 001-34063

TREE.COM, INC.
(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		26-2414818 (I.R.S. Employer Identification No.)

11115 Rushmore Drive, Charlotte, North Carolina 28277
(Address of principal executive offices)

(704) 541-5351
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ý 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 definition of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company ý

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

As of November 8, 2011 there were 11,045,274 shares of the Registrant's common stock, par value $.01 per share, outstanding, excluding treasury shares.

Table of Contents

TABLE OF CONTENTS

		Page Number

	PART I—FINANCIAL INFORMATION
Item 1.	*Financial Statements*	3
Item 2.	*Management's Discussion and Analysis of Financial Condition and Results of Operations*	36
Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*	49
Item 4.	*Controls and Procedures*	49
	PART II—OTHER INFORMATION
Item 1.	*Legal Proceedings*	50
Item 1A.	*Risk Factors*	51
Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*	56
Item 6.	*Exhibits*	57

Table of Contents

PART 1—FINANCIAL INFORMATION

Item 1. Financial Statements

TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

			Three Months Ended September 30,						Nine Months Ended September 30,

			2011			2010			2011			2010
			(In thousands, except per share amounts)
Revenue			$	13,101		$	15,204		$	43,951		$	48,013
Cost of revenue (exclusive of depreciation shown separately below)				1,001			1,346			3,529			3,654

	Gross margin			12,100			13,858			40,422			44,359
Operating expenses
	Selling and marketing expense			8,475			12,944			39,246			38,901
	General and administrative expense			4,388			6,295			15,059			18,666
	Product development			681			805			2,677			2,554
	Litigation settlements and contingencies			212			74			5,206			102
	Restructuring expense			498			46			990			2,718
	Amortization of intangibles			213			307			787			922
	Depreciation			1,393			823			3,677			2,297
	Asset impairments			—			—			250			—

		Total operating expenses		15,860			21,294			67,892			66,160

		Operating loss		(3,760	)		(7,436	)		(27,470	)		(21,801	)
Other income (expense)
	Interest income			—			—			—			7
	Interest expense			(110	)		(60	)		(266	)		(392	)

Total other expense, net				(110	)		(60	)		(266	)		(385	)

Loss before income taxes				(3,870	)		(7,496	)		(27,736	)		(22,186	)
Income tax benefit (provision)				185			(42	)		(117	)		(850	)

Net loss from continuing operations				(3,685	)		(7,538	)		(27,853	)		(23,036	)

Gain from sale of discontinued operations, net of tax				7,752			—			7,752			—
Income (loss) from operations of discontinued operations, net of tax				8,531			9,357			(24,615	)		17,910

Income (loss) from discontinued operations				16,283			9,357			(16,863	)		17,910

Net income (loss) available to common shareholders			$	12,598		$	1,819		$	(44,716	)	$	(5,126	)

Weighted average common shares outstanding				11,037			11,023			10,978			10,993

Weighted average diluted shares outstanding				11,120			11,163			10,978			10,993

Net loss per share from continuing operations
	Basic		$	(0.33	)	$	(0.68	)	$	(2.54	)	$	(2.10	)

	Diluted		$	(0.33	)	$	(0.68	)	$	(2.54	)	$	(2.10	)

Net income (loss) per share available to common shareholders
	Basic		$	1.14		$	0.16		$	(4.07	)	$	(0.47	)

	Diluted		$	1.13		$	0.16		$	(4.07	)	$	(0.47	)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Table of Contents

TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		September 30, 2011			December 31, 2010

		(unaudited) (In thousands, except par value and share amounts)
ASSETS:
Cash and cash equivalents		$	10,331		$	68,819
Restricted cash and cash equivalents			12,955			8,155
Accounts receivable, net of allowance of $118 and $131, respectively			5,443			3,564
Prepaid and other current assets			1,038			1,043
Current assets of discontinued operations			203,950			130,701

	Total current assets		233,717			212,282
Property and equipment, net			9,191			7,598
Goodwill			3,632			3,632
Intangible assets, net			40,295			41,319
Other non-current assets			241			116
Non-current assets of discontinued operations			10,094			17,855

	Total assets	$	297,170		$	282,802

LIABILITIES:
Accounts payable, trade		$	11,691		$	6,562
Deferred revenue			216			312
Deferred income taxes			4,221			2,358
Accrued expenses and other current liabilities			19,116			23,881
Current liabilities of discontinued operations			167,565			118,220

	Total current liabilities		202,809			151,333
Income taxes payable			59			96
Other long-term liabilities			4,156			3,168
Deferred income taxes			12,201			13,962
Non-current liabilities of discontinued operations			18,797			12,422

	Total liabilities		238,022			180,981
Commitments and contingencies (Note 9)
SHAREHOLDERS' EQUITY:
Preferred stock $.01 par value; authorized 5,000,000 shares; none issued or outstanding			—			—
Common stock $.01 par value; authorized 50,000,000 shares; issued 12,165,992 and 11,893,468 shares, respectively, and outstanding 11,042,731 and 10,770,207 shares, respectively			121			118
Additional paid-in capital			910,877			908,837
Accumulated deficit			(843,318	)		(798,602	)
Treasury stock 1,123,261 shares			(8,532	)		(8,532	)

	Total shareholders' equity		59,148			101,821

	Total liabilities and shareholders' equity	$	297,170		$	282,802

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Table of Contents

TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(Unaudited)

					Common Stock										Treasury Stock

		Total			Number of Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Number of Shares		Amount
		(In thousands)
Balance as of December 31, 2010		$	101,821			11,893	$	118	$	908,837		$	(798,602	)		1,123	$	(8,532	)
Comprehensive loss:
	Net loss for the nine months ended September 30, 2011		(44,716	)		—		—		—			(44,716	)		—		—

Comprehensive loss			(44,716	)		—		—		—			—			—		—
Non-cash compensation			2,993			—		—		2,993			—			—		—
Issuance of common stock upon exercise of stock options and vesting of restricted stock units, net of withholding taxes			(950	)		273		3		(953	)		—			—		—

Balance as of September 30, 2011		$	59,148			12,166	$	121	$	910,877		$	(843,318	)		1,123	$	(8,532	)

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Table of Contents

TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Nine Months Ended September 30,

		2011			2010
		(In thousands)
Cash flows from operating activities attributable to continuing operations:
Net loss		$	(44,716	)	$	(5,126	)
Less (income) loss from discontinued operations, net of tax			16,863			(17,910	)

Net loss from continuing operations			(27,853	)		(23,036	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities attributable to continuing operations:
	Loss on disposal of fixed assets		210			3
	Amortization of intangibles		787			922
	Depreciation		3,677			2,297
	Intangible impairment		250			—
	Non-cash compensation expense		2,731			2,423
	Non-cash restructuring expense		—			93
	Deferred income taxes		101			1,023
	Bad debt expense		32			45
Changes in current assets and liabilities:
	Accounts receivable		(1,911	)		212
	Prepaid and other current assets		(122	)		(898	)
	Accounts payable and other current liabilities		385			(15,658	)
	Income taxes payable		(58	)		(388	)
	Deferred revenue		(96	)		(155	)
	Other, net		988			3,043

Net cash used in operating activities attributable to continuing operations			(20,879	)		(30,074	)

Cash flows from investing activities attributable to continuing operations:
	Capital expenditures		(5,480	)		(3,743	)
	Acquisitions		—			(50	)
	Other, net		(1,488	)		2,186

Net cash used in investing activities attributable to continuing operations			(6,968	)		(1,607	)

Cash flows from financing activities attributable to continuing operations:
	Issuance of common stock, net of withholding taxes		(950	)		(575	)
	Purchase of treasury stock		—			(4,705	)
	(Increase) decrease in restricted cash		(3,325	)		150

Net cash used in financing activities attributable to continuing operations			(4,275	)		(5,130	)

Total cash used in continuing operations			(32,122	)		(36,811	)

Net cash used in operating activities attributable to discontinued operations			(58,317	)		(52,362	)
Net cash used in investing activities attributable to discontinued operations			(9,310	)		(1,256	)
Net cash provided by financing activities attributable to discontinued operations			41,261			61,630

Total cash provided by (used in) discontinued operations			(26,366	)		8,012

Net decrease in cash and cash equivalents			(58,488	)		(28,799	)
Cash and cash equivalents at beginning of period			68,819			86,093

Cash and cash equivalents at end of period		$	10,331		$	57,294

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Table of Contents

TREE.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—ORGANIZATION

Company Overview

Tree.com, Inc. ("we," "Tree.com" or the "Company") is the parent of LendingTree, LLC, which owns several brands and businesses that provide information, tools, advice, products and services for critical transactions in our customers' lives. Our family of brands includes: LendingTree.com®, GetSmart.com®, DegreeTree.com^SM, HealthTree.com^SM, LendingTreeAutos.com, DoneRight.com®, and InsuranceTree.com^SM. Together, these brands serve as an ally for consumers who are looking to comparison shop for loans and other services from multiple businesses and professionals that will compete for their business.

Segment Reporting

The overall concept that Tree.com employs in determining its reportable segments and related financial information is to present them in a manner consistent with how the chief operating decision maker and executive management view the Tree.com businesses, how the businesses are organized as to segment management, and the focus of the Tree.com businesses with regards to the types of products or services offered or the target market.

Through the quarter ended March 31, 2011, we operated in two reportable business segments: LendingTree Loans and Exchanges. The LendingTree Loans segment originates, processes, approves and funds various residential real estate loans through Home Loan Center, Inc. dba LendingTree Loans ("HLC"). The HLC and LendingTree Loans brand names are collectively referred to in these consolidated financial statements as "LendingTree Loans." The Exchanges segment consists of online lead generation networks and call centers that connect consumers and service providers principally in the lending, higher education, home services, insurance and automobile marketplaces.

In connection with entering into an agreement in the second quarter of 2011 that provides for the sale of substantially all of the operating assets of our LendingTree Loans segment to Discover Bank that is discussed below and in Note 6, the Company re-evaluated its reporting segments based on the continuing operations of the Company. We have determined that our continuing operations are now one reportable segment, which represents the previous "Exchanges" segment.

Tree.com maintains operations solely in the United States.

Discontinued Operations

The businesses of RealEstate.com and RealEstate.com, REALTORS® (which together represent the former Real Estate segment) and LendingTree Loans are presented as discontinued operations in the accompanying consolidated balance sheet and consolidated statements of operations and cash flows for all periods presented. The notes accompanying these consolidated financial statements reflect our continuing operations and, unless otherwise noted, exclude information related to the discontinued operations.

Real Estate

On March 10, 2011, management of the Company made the decision and finalized a plan to close all of the field offices of the proprietary full service real estate brokerage business known as RealEstate.com, REALTORS®. The Company exited all markets by March 31, 2011. In September

Table of Contents

TREE.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1—ORGANIZATION (Continued)

2011, the Company sold the remaining assets of RealEstate.com, which consisted primarily of internet domain names and trademarks, for $8.3 million and recognized a gain on sale of $7.8 million.

LendingTree Loans

On May 12, 2011, we entered into an asset purchase agreement with Discover Bank, a wholly-owned subsidiary of Discover Financial Services. The asset purchase agreement provides for the sale of substantially all of the operating assets of our LendingTree Loans business to Discover Bank.

Under the terms of the asset purchase agreement, Discover Bank has agreed to pay approximately $55.9 million in cash for the assets, subject to certain adjustments as described in the asset purchase agreement. $35.9 million is due upon the closing of the transaction and $10 million is due on each of the first and second anniversaries of the closing, subject to certain conditions as described in the asset purchase agreement, including maintenance of the LendingTree Exchange and certain financial and operational metrics associated with the LendingTree Exchange business, for which we are compliant.

Discover Bank generally will not assume liabilities of the LendingTree Loans business that arose before the closing date, except for certain liabilities directly related to assets included in the purchase. A portion of the initial purchase price payment will be held in escrow pending the discharge of certain liabilities that will remain with us.

The transaction is subject to various closing conditions, including the receipt of regulatory approvals and loan repurchase proposals for Discover Bank. Our stockholders approved the transaction on August 26, 2011.

The asset purchase agreement contains customary representations, warranties, covenants and indemnification obligations of the parties.

The asset purchase agreement also includes covenants of us (for which we are compliant) and Discover Bank. Subject to certain exceptions stated in the asset purchase agreement, we have agreed to operate the LendingTree Loans business in the ordinary course and to maintain certain operational and financial metrics until the closing of the transaction. Our covenants include requirements to maintain personnel in our LendingTree Loans business, to maintain certain quality thresholds for our loan pipeline, to maintain warehouse line capacity and compliance with our warehouse lending agreement, and subject to certain exceptions, not to introduce new loan products without Discover Bank's consent. If the requirements of these covenants are not met, Discover Bank has the option to terminate the asset purchase agreement. Subject to certain exceptions, we have also agreed not to solicit or initiate discussion with third parties regarding other proposals to acquire the assets of the LendingTree Loans business or substantial equity interests in our company, and to certain restrictions on our ability to respond to or accept any such proposals.

The asset purchase agreement also includes customary termination provisions, including that each of our company and Discover Bank may terminate the asset purchase agreement if the other party has materially breached any representation, warranty or covenant contained in the asset purchase agreement and failed to cure such breach, if the closing has not occurred within 150 days from the signing (subject to certain extensions for up to 150 additional days). Discover Bank may terminate the asset purchase agreement if our board of directors determines, after considering any modified proposals from Discover Bank, to change its recommendation to our stockholders because a failure to do so would constitute a breach of its fiduciary duties, or if we materially breach our non-solicitation obligations. If the asset

Table of Contents

TREE.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1—ORGANIZATION (Continued)

purchase agreement is terminated under certain circumstances, including due to a change of recommendation by our board of directors, we will be required to pay Discover Bank a termination fee of $2.2 million. If Discover Bank does not complete the acquisition as a result of its inability to obtain proposals for loan purchase arrangements that are customary for a bank that is similarly situated to Discover Bank, Discover Bank will be required to pay us a termination fee of $5 million.

On November 7, 2011, Discover Bank elected to extend the end date upon which either party could terminate the Asset Purchase Agreement by 30 days to December 8, 2011, and paid the required extension payment of $1.0 million to the Company's HLC, Inc. subsidiary. Discover Bank is permitted up to three additional 30-day extensions in certain circumstances. Discover Bank must pay a $1.0 million extension fee to HLC, Inc. to exercise each of the second and third extensions and a $2.0 million extension to exercise the fourth extension. All extension payments, including the one received in November, will be credited against the purchase price due at closing. For a more complete discussion of the closing conditions, end date extension rights and associated fees, termination fees and other provisions of the Asset Purchase Agreement, please see the Company's definitive proxy statement filed with the Securities and Exchange Commission on August 2, 2011.

Separate from the asset purchase agreement, Tree.com has also agreed to provide certain marketing related services to Discover Bank in connection with its mortgage origination business for a two-year term commencing on the date of entry into the asset purchase agreement. Discover Bank has also agreed to be a participating lender in the LendingTree Network following the closing of the acquisition.

Business Combinations

On March 15, 2011, Tree.com, through its wholly-owned subsidiary, HLC, completed its acquisition of certain assets of First Residential Mortgage Network, Inc. dba SurePoint Lending ("SurePoint") and certain shareholders of SurePoint. The Asset Purchase Agreement (the "Agreement") was previously announced on November 16, 2010. SurePoint, a LendingTree network lender for eleven years, was a full service residential mortgage provider licensed in 45 states and employing over 500 people, including more than 300 licensed loan officers. The Agreement provides for the purchase by HLC of certain specified assets and liabilities of SurePoint related to its business of originating, refinancing, processing, underwriting, funding and closing residential mortgage loans; providing title and escrow services; and providing other mortgage related services, as further described in the Agreement. The acquired assets also include all of the equity interests of Real Estate Title Services, LLC. Under the terms of the Agreement, HLC paid $8.0 million in cash upon the closing of the transaction, subject to certain adjustments as described in the Agreement. The Company used available cash to fund the acquisition.

This asset purchase is being accounted for under the acquisition method of accounting. Accordingly, the purchase price is allocated to the acquired assets and liabilities based on their estimated fair values at the acquisition date. The purchase price has been allocated as $5.6 million to goodwill, $0.7 million to intangible assets with useful lives of three months to five years, and $1.7 million to equipment and other assets. The pro forma effect of this purchase was not material to our results of operations.

Table of Contents

TREE.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1—ORGANIZATION (Continued)

Basis of Presentation

The accompanying unaudited interim consolidated financial statements as of September 30, 2011 and 2010 and for the three and nine months then ended have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of the Company's management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Company's financial position for the periods presented. The results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011, or any other period. These financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2010.

NOTE 2—SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates

Tree.com's management is required to make certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP"). These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates.

Significant estimates underlying the accompanying consolidated financial statements, including discontinued operations, include: valuation allowance for impaired loans held for sale; loan loss obligations; the fair value of loans held for sale and related derivatives; the recoverability of long-lived assets, goodwill and intangible assets; the determination of income taxes payable and deferred income taxes, including related valuation allowances; restructuring reserves; contingent consideration related to business combinations; various other allowances, reserves and accruals; and assumptions related to the determination of stock-based compensation.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current presentation with no effect on net income (loss) or accumulated deficit. Specifically, certain costs within continuing operations totaling $0.1 million for both the three and nine months ended September 30, 2010 were reclassified from general and administrative expense to litigation settlements and contingencies.

Cash and Cash Equivalents

Cash and cash equivalents include cash and short-term, highly liquid money market investments.

Table of Contents

TREE.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2—SIGNIFICANT ACCOUNTING POLICIES (Continued)

Restricted Cash

Restricted cash and cash equivalents consists of the following (in thousands):

		September 30, 2011		December 31, 2010

Cash in escrow for surety bonds		$	6,500	$	5,030
Cash in escrow for corporate purchasing card program			800		800
Minimum required balances for warehouse lines of credit			5,250		1,925
Other			405		400

	Total restricted cash and cash equivalents	$	12,955	$	8,155

New Accounting Pronouncements

On January 21, 2010, the FASB amended and Tree.com adopted the accounting standard for fair value measurements and disclosures, which added new requirements for disclosures about transfers into and out of Level 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The amendment also clarifies existing fair value disclosures about the level of disaggregation and the inputs and valuation techniques used to measure fair value. This amendment is effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. See Note 6 for further information.

On September 15, 2011, the FASB issued the updated accounting standard on testing goodwill for impairment. The update simplifies how an entity tests goodwill for impairment. The amendments allow both public and nonpublic entities an option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under that option, an entity no longer would be required to calculate the fair value of a reporting unit unless the entity determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company does not plan to early adopt and believes this will not have a material impact on the consolidated financial statements.

Table of Contents

TREE.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3—GOODWILL AND INTANGIBLE ASSETS

The balance of goodwill and intangible assets, net is as follows (in thousands):

		September 30, 2011		December 31, 2010

Goodwill		$	3,632	$	3,632

Intangible assets with indefinite lives		$	39,142	$	39,142
Intangible assets with definite lives, net			1,153		2,177

	Total intangible assets, net	$	40,295	$	41,319

Intangible assets with indefinite lives relate principally to the LendingTree trademarks.

At September 30, 2011, intangible assets with definite lives relate to the following (in thousands):

		Cost		Accumulated Amortization			Net

Purchase agreements		$	50,436	$	(50,306	)	$	130	5.0
Technology			25,194		(24,998	)		196	3.0
Customer lists			6,682		(6,030	)		652	4.2
Other			1,517		(1,342	)		175	2.5

	Total	$	83,829	$	(82,676	)	$	1,153

At December 31, 2010, intangible assets with definite lives relate to the following (in thousands):

		Cost		Accumulated Amortization			Net

Purchase agreements		$	50,436	$	(50,271	)	$	165	5.0
Technology			26,091		(25,438	)		653	3.0
Customer lists			6,682		(5,986	)		696	4.1
Other			1,609		(946	)		663	2.5

	Total	$	84,818	$	(82,641	)	$	2,177

Table of Contents

TREE.COM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3—GOODWILL AND INTANGIBLE ASSETS (Continued)

		Amount

Three months ending December 31, 2011		$	107
Year ending December 31, 2012			363
Year ending December 31, 2013			143
Year ending December 31, 2014			84
Year ending December 31, 2015			60
Thereafter			396

	Total	$	1,153

		September 30, 2011			December 31, 2010

Computer equipment and capitalized software		$	26,053		$	19,898
Leasehold improvements			2,042			1,382
Furniture and other equipment			1,450			1,362
Projects in progress			638			2,780

			30,183			25,422
Less: accumulated depreciation and amortization			(20,992	)		(17,824	)

	Total property and equipment, net	$	9,191		$	7,598

		September 30, 2011		December 31, 2010

Litigation accruals		$	3,726	$	520
Accrued advertising expense			3,054		8,511
Accrued compensation and benefits			332		2,766
Accrued professional fees			1,083		1,166
Accrued restructuring costs			764		1,199
Customer deposits and escrows			2,234		2,240
Deferred rent			180		379
Other			7,743		7,100

	Total accrued expenses and other current liabilities	$	19,116	$	23,881

	Three Months Ended September 30,

	2011		2010
Revenue	$	37,094	$	34,760

Income before income taxes	$	9,168	$	10,539
Income tax provision		—		—

Net income	$	9,168	$	10,539

	Nine Months Ended September 30,

	2011			2010
Revenue	$	81,726		$	87,147

Income (loss) before income taxes	$	(7,679	)	$	22,364
Income tax provision		—			—

Net income (loss)	$	(7,679	)	$	22,364

		September 30, 2011			December 31, 2010

Current assets		$	137		$	305

Property and equipment			—			2,123
Goodwill			—			7,967
Other non-current assets			—			4,285

	Non-current assets		—			14,375

Current liabilities			1,248			1,213
Non-current liabilities			92			288

Net assets (liabilities)		$	(1,203	)	$	13,179

		September 30, 2011		December 31, 2010

Loans held for sale		$	185,295	$	116,681
Other current assets			18,518		13,715

	Current assets		203,813		130,396

Property and equipment			3,406		3,074
Goodwill			5,579		—
Other non-current assets			1,108		406

	Non-current assets		10,094		3,480

Warehouse lines of credit			141,883		100,623
Other current liabilities			24,434		16,384

	Current liabilities		166,317		117,007

Non-current liabilities			18,705		12,134

Net assets (liabilities)		$	28,885	$	4,735

	September 30, 2011					December 31, 2010

	Amount		%			Amount		%
Conforming	$	153,561		83	%	$	86,451		74	%
FHA and Alt-A		20,778		11	%		20,431		18	%
Jumbo		10,956		6	%		9,129		8	%
Subprime		—		—	%		580		—	%
Home equity		—		—	%		90		—	%

Total	$	185,295		100	%	$	116,681		100	%

	As of September 30, 2011

	Loans on Nonaccrual— Measured at Fair Value			Loans on Nonaccrual— Measured at LOCOM		Total Loans on Nonaccrual
Aggregate unpaid principal balance	$	558		$	—	$	558
Difference between fair value and aggregate unpaid principal balance		(250	)		—		(250	)

Loans on nonaccrual	$	308		$	—	$	308

	As of September 30, 2011

	Recurring Fair Value Measurements Using
	Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Fair Value Measurements
Loans held for sale	$	—	$	184,987		$	308	$	185,295
Interest rate lock commitments ("IRLCs")		—		—			12,747		12,747
Forward delivery contracts		—		(2,898	)		32		(2,866	)

Total	$	—	$	182,089		$	13,087	$	195,176

			Three Months Ended September 30, 2011

			Interest Rate Lock Commitments			Forward Delivery Contracts			Loans Held for Sale
Balance at July 1, 2011			$	6,278		$	220		$	861
	Transfers into Level 3			—			—			72
	Transfers out of Level 3			—			(257	)		—
	Total net gains (losses) included in earnings (realized and unrealized)			40,680			69			(83	)
	Purchases, sales, and settlements
		Purchases		—			—			—
		Sales		—			—			(538	)
		Settlements		(2,255	)		—			(4	)
	Transfers of IRLCs to closed loans			(31,956	)		—			—

Balance at September 30, 2011			$	12,747		$	32		$	308

	Three Months Ended September 30, 2011							Nine Months Ended September 30, 2011

	Interest Rate Lock Commitments		Forward Delivery Contracts		Loans Held for Sale			Interest Rate Lock Commitments		Forward Delivery Contracts		Loans Held for Sale
Total net gains (losses) included in earnings, which are included in discontinued operations	$	40,680	$	69	$	(83	)	$	81,847	$	302	$	(86	)

Change in unrealized gains (losses) relating to assets and liabilities still held at September 30, 2011, which are included in discontinued operations	$	12,747	$	32	$	—		$	12,747	$	32	$	(44	)

	September 30, 2011				December 31, 2010

	Balance Sheet Location	Fair Value			Balance Sheet Location	Fair Value
Interest Rate Lock Commitments	Current assets of discontinued operations	$	12,784		Current assets of discontinued operations	$	5,991
Forward Delivery Contracts	Current assets of discontinued operations		323		Current assets of discontinued operations		2,633
Interest Rate Lock Commitments	Current liabilities of discontinued operations		(37	)	Current liabilities of discontinued operations		(5	)
Forward Delivery Contracts	Current liabilities of discontinued operations		(3,189	)	Current liabilities of discontinued operations		(1,629	)

Total Derivatives		$	9,881			$	6,990

			Three Months Ended					Nine Months Ended

		Location of Gain/(Loss) Recognized in Income on Derivative	September 30, 2011			September 30, 2010		September 30, 2011			September 30, 2010
Interest Rate Lock Commitments		Discontinued operations	$	40,680		$	33,683	$	81,847		$	83,752
Forward Delivery Contracts		Discontinued operations		(3,262	)		3,252		(3,818	)		(3,905	)

	Total		$	37,418		$	36,935	$	78,029		$	79,847

	As of September 30, 2011

	Loans Held for Sale— Measured at Fair Value		Loans Held for Sale— Measured at LOCOM		Total Loans Held For Sale
Aggregate unpaid principal balance	$	177,471	$	—	$	177,471
Difference between fair value and aggregate unpaid principal balance		7,824		—		7,824

Loans held for sale	$	185,295	$	—	$	185,295

	As of September 30, 2011

Period of Loan Sales	Number of loans sold		Original principal balance		Number of loans with losses		Original principal balance of loans with losses		Amount of aggregate losses
			(in billions)				(in millions)		(in millions)
Nine months ended September 30, 2011		8,500	$	1.8		—	$	—	$	—
2010		12,400		2.8		3		0.7		0.1
2009		12,800		2.8		3		0.8		0.1
2008		11,000		2.2		22		4.7		1.1
2007		36,300		6.1		149		20.2		7.3
2006		55,000		7.9		202		23.4		13.0
2005 and prior years		86,700		13.0		87		11.7		4.8

Total		222,700	$	36.6		466	$	61.5	$	26.4

	Nine Months Ended September 30,

	2011			2010
Balance, beginning of period	$	16,984		$	16,985
Provisions		11,050			8,132
Charge offs to reserves(a)		(1,014	)		(10,172	)

Balance, end of period	$	27,020		$	14,945

	As of September 30, 2011		As of December 31, 2010

Current portion related to settlement above, included in current liabilities of discontinued operations	$	300	$	300
Other current portion, included in current liabilities of discontinued operations		9,809		5,459
Long term portion, included in non-current liabilities of discontinued operations		17,211		11,525

Total	$	27,320	$	17,284

	Three Months Ended September 30,

	2011						2010
	Basic			Diluted			Basic			Diluted
	(In thousands, except per share data)
Numerator:
Loss from continuing operations	$	(3,685	)	$	(3,685	)	$	(7,538	)	$	(7,538	)
Income from discontinued operations, net of tax		16,283			16,283			9,357			9,357

Net income available to common shareholders	$	12,598		$	12,598		$	1,819		$	1,819

Denominator:
Weighted average common shares		11,037			11,120			11,023			11,163

Loss per Share:
Loss from continuing operations	$	(0.33	)	$	(0.33	)	$	(0.68	)	$	(0.68	)
Income from discontinued operations, net of tax		1.47			1.46			0.84			0.84

Net income per common share	$	1.14		$	1.13		$	0.16		$	0.16

			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

					(In years)		(In thousands)
Outstanding at January 1, 2011	952,669		$	9.58
Granted	153,868			5.89
Exercised	(5,162	)		4.14
Forfeited	(7,633	)		7.46
Expired	(27,685	)		9.17

Outstanding at September 30, 2011	1,066,057		$	9.10		6.2	$	14

Options exercisable at September 30, 2011	292,183		$	12.22		4.1	$	14

	Options Outstanding						Options Exercisable

Range of Exercise Prices	Outstanding at September 30, 2011		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Exercisable at September 30, 2011		Weighted Average Exercise Price
$.01 to $4.99		6,580		1.84	$	2.90		6,580	$	2.90
$5.00 to $7.45		161,983		9.14		5.92		8,115		6.53
$7.46 to $9.99		726,303		6.24		8.30		106,297		7.56
$10.00 to $14.99		43,103		1.67		12.30		43,103		12.30
$15.00 to $19.99		81,425		3.65		15.03		81,425		15.03
$20.00 to $24.99		46,663		3.69		20.19		46,663		20.19

		1,066,057		6.16	$	9.10		292,183	$	12.22

	RSUs					Restricted Stock

	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2011		634,771		$	7.53		412,500		$	6.80
Granted		371,618			7.07		24,642			5.55
Vested		(255,094	)		7.32		(137,500	)		6.80
Forfeited		(173,455	)		7.57		—			—

Nonvested at September 30, 2011		577,840		$	7.36		299,642		$	6.70

	For The Three Months Ended September 30, 2011

	Employee Termination Costs		Continuing Lease Obligations		Asset Write-offs		Total
Restructuring expense	$	396	$	86	$	16	$	498

	Three Months Ended September 30,

	2011		$ Change			% Change			2010
	(Dollars in thousands)
Match fees	$	12,383	$	(475	)		(4	)%	$	12,858
Closed loan fees		381		(1,275	)		(77	)%		1,656
Other		337		(353	)		(51	)%		690

Total revenue	$	13,101	$	(2,103	)		(14	)%	$	15,204

Period		Average Price Paid per Share			Maximum Number/Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands)

07/01/11 - 07/31/11	4,447	$	—	—	$	4,274
08/01/11 - 08/31/11	2,557	$	—	—	$	4,274
09/01/11 - 09/30/11	490	$	—	—	$	4,274

Total	7,494	$	—	—	$	4,274

	Description	Location

2.1	Asset Purchase Agreement dated September 15, 2011 by and among LendingTree, LLC, RealEstate.com, Inc. and Market Leader, Inc.*	Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed September 21, 2011
10.1	Bill of Sale	Exhibit 2.2 to the Registrant's Current Report on Form 8-K filed September 21, 2011
10.2	Assignment and Assumption Agreement	Exhibit 2.3 to the Registrant's Current Report on Form 8-K filed September 21, 2011
10.3	Amendment No. 2 to Transactions Terms Letter dated as of July 12, 2011, which supplements that certain Master Repurchase Agreement dated as of May 1, 2009 by and between Home Loan Center, Inc. and Bank of America, N.A.	Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed July 15, 2011
10.4	Amendment No. 2 to Early Purchase Program Addendum to Loan Purchase Agreement dated as of July 12, 2011, which supplements that certain Loan Purchase Agreement by and between Bank of America, N.A. and Home Loan Center, Inc. dated April 16, 2002.	Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed July 15, 2011
10.5	Extension Letter Agreement dated as of August 11, 2011, regarding the Master Repurchase Agreement by and between Bank of America, N.A. and Home Loan Center, Inc. dated May 1, 2009	Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q filed August 15, 2011
10.6	Master Repurchase Agreement, dated as of October 13, 2011, by and between Home Loan Center, Inc. and Citibank, N.A.	Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed October 19, 2011
10.7	Pricing Side Letter dated as of October 13, 2011, by and between Home Loan Center, Inc. and Citibank, N.A.	Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed October 19, 2011
10.8	Amendment No. 3 to Transaction Terms Letter dated as of September 30, 2011, which supplements that certain Master Repurchase Agreement dated as of May 1, 2009 by and between Home Loan Center, Inc. and Bank of America, N.A	Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed October 5, 2011

	Description	Location

10.9	Amendment No. 7 to Master Repurchase Agreement dated as of October 28, 2011, by and between Home Loan Center, Inc. and JPMorgan Chase Bank, N.A.	†
10.10	Amendment No. 5 to Side Letter dated as of October 28, 2011, which supplements that certain Master Repurchase Agreement dated as of October 30, 2009 by and between Home Loan Center, Inc. and JPMorgan Chase Bank, N.A.	†
10.11	Amendment No. 2 to Master Repurchase Agreement dated as of November 1, 2011, which supplements that certain Master Repurchase Agreement dated as of May 1, 2009 by and between Home Loan Center, Inc. and Bank of America, N.A	†
10.12	Amendment No. 4 to Transaction Terms Letter dated as of November 1, 2011, which supplements that certain Master Repurchase Agreement dated as of May 1, 2009 by and between Home Loan Center, Inc. and Bank of America, N.A	†
31.1	Certification of the principal executive officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	†
31.2	Certification of the principal financial officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	†
32.1	Certification of the principal executive officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	††
32.2	Certification of the principal financial officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	††
101.INS	XBRL Instance Document	†††
101.SCH	XBRL Taxonomy Extension Schema Document	†††
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	†††

	Description	Location

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	†††
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	†††
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	†††


		TREE.COM, INC.
		By:		/s/ CHRISTOPHER R. HAYEK Christopher R. Hayek Senior Vice President and Chief Accounting Officer (principal financial officer and duly authorized officer)