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Intersections 10-Q 2011
e10vq
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
INTERSECTIONS INC.
(Exact name of registrant as specified in the charter)
     
DELAWARE
(State or other jurisdiction of
incorporation or organization)
  54-1956515
(I.R.S. Employer
Identification Number)
     
3901 Stonecroft Boulevard,
Chantilly, Virginia

(Address of principal executive office)
  20151
(Zip Code)
(703) 488-6100
(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 þ 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 (§232.405 of this chapter) 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 the definitions of “large accelerated filer,” “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 þ
     Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No þ
     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:
     As of May 5, 2011 there were 19,244,115 shares of common stock, $0.01 par value, issued and 16,385,236 shares outstanding, with 2,858,879 shares of treasury stock.
 
 

 


 

Form 10-Q
March 31, 2011
Table of Contents
         
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 EX-10.01
 EX-10.2
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Revenue
  $ 90,445     $ 91,489  
Operating expenses:
               
Marketing
    9,773       17,103  
Commissions
    27,775       30,795  
Cost of revenue
    25,408       23,171  
General and administrative
    16,537       15,317  
Depreciation
    1,923       2,096  
Amortization
    1,000       2,299  
 
           
Total operating expenses
    82,416       90,781  
 
           
Income from operations
    8,029       708  
Interest income
    6       5  
Interest expense
    (106 )     (605 )
Other expense, net
    (47 )     (22 )
 
           
Income from continuing operations before income taxes
    7,882       86  
Income tax expense
    (3,298 )     (344 )
 
           
Income (loss) from continuing operations
    4,584       (258 )
Loss from discontinued operations, net of tax
          (810 )
 
           
Loss from discontinued operations
          (810 )
 
           
Net income (loss) attributable to Intersections Inc.
  $ 4,584     $ (1,068 )
 
           
Basic earnings (loss) per share:
               
Income (loss) from continuing operations
  $ 0.26     $ (0.01 )
Income (loss) from discontinued operations
          (0.05 )
 
           
Basic earnings (loss) per share
  $ 0.26     $ (0.06 )
 
           
Diluted earnings (loss) per share:
               
Income (loss) from continuing operations
  $ 0.23     $ (0.01 )
Income (loss) from discontinued operations
          (0.05 )
 
           
Diluted earnings (loss) per share
  $ 0.23     $ (0.06 )
 
           
 
               
Cash dividends paid per common share
  $ 0.15     $  
Weighted average shares outstanding:
               
Basic
    17,940       17,621  
Diluted
    19,543       17,621  
See Notes to Condensed Consolidated Financial Statements

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INTERSECTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
                 
    March 31,     December 31,  
    2011     2010  
ASSETS
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 24,794     $ 14,453  
Short-term investments
          4,994  
Accounts receivable, net of allowance for doubtful accounts of $41 (2011) and $41 (2010)
    19,509       19,195  
Prepaid expenses and other current assets
    7,132       7,010  
Deferred subscription solicitation costs
    24,122       24,756  
 
           
Total current assets
    75,557       70,408  
 
           
PROPERTY AND EQUIPMENT, net
    23,639       21,569  
DEFERRED TAX ASSET, net
    1,210       2,298  
LONG-TERM INVESTMENT
    4,327       4,327  
GOODWILL
    43,235       43,235  
INTANGIBLE ASSETS, net
    13,897       14,897  
OTHER ASSETS
    5,053       5,893  
 
           
TOTAL ASSETS
  $ 166,918     $ 162,627  
 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
               
Accounts payable
  $ 5,556     $ 5,097  
Accrued expenses and other current liabilities
    14,927       14,718  
Accrued payroll and employee benefits
    3,582       2,342  
Current portion of debt
    20,000        
Capital leases, current portion
    1,673       1,645  
Commissions payable
    761       787  
Income tax payable
    714       1,782  
Deferred revenue
    5,165       4,856  
Deferred tax liability, net, current portion
    8,662       8,662  
 
           
Total current liabilities
    61,040       39,889  
 
           
OBLIGATIONS UNDER CAPITAL LEASE, less current portion
    2,963       3,399  
OTHER LONG-TERM LIABILITIES
    2,965       2,783  
 
           
TOTAL LIABILITIES
    66,968       46,071  
 
           
COMMITMENTS AND CONTINGENCIES (see notes 11 and 13)
               
STOCKHOLDERS’ EQUITY:
               
Common stock at $.01 par value, shares authorized 50,000; shares issued 19,215 (2011) and 18,912 (2010); shares outstanding 16,356 (2011) and 17,795 (2010)
    192       189  
Additional paid-in capital
    110,361       109,250  
Treasury stock, shares at cost; 2,859 (2011) and 1,711 (2010)
    (29,551 )     (9,948 )
Retained earnings
    18,948       17,060  
Accumulated other comprehensive (loss) income
          5  
 
           
TOTAL STOCKHOLDERS’ EQUITY
    99,950       116,556  
 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 166,918     $ 162,627  
 
           
See Notes to Condensed Consolidated Financial Statements

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INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Year Ended December 31, 2010 and the Three Months Ended March 31, 2011
(in thousands)
(unaudited)
                                                                 
    Common     Additional                             Other     Total  
    Stock     Paid-in     Treasury Stock     Retained     Comprehensive     Stockholders’  
    Shares     Amount     Capital     Shares     Amount     Earnings     Income (Loss)     Equity  
    (In thousands)  
 
                                                               
BALANCE, DECEMBER 31, 2009
    18,662     $ 187     $ 104,810       1,067     $ (9,516 )   $ 2,027     $ (1,101 )   $ 96,407  
 
                                               
Issuance of common stock upon exercise of stock options and vesting of restricted stock units
    250       2       (976 )                             (974 )
Share based compensation
                5,808                               5,808  
Tax deficiency of stock options exercised and vesting of restricted stock units
                (380 )                             (380 )
Other
                (12 )                             (12 )
Cash dividends paid on common shares
                                  (5,332 )           (5,332 )
Purchase of treasury stock
                      50       (432 )                 (432 )
Net income
                                  20,365             20,365  
Foreign currency translation adjustments
                                        250       250  
Cash flow hedge
                                        856       856  
 
                                               
Comprehensive Income
                                              20,149  
 
                                               
 
                                                               
BALANCE, DECEMBER 31, 2010
    18,912     $ 189     $ 109,250       1,117     $ (9,948 )   $ 17,060     $ 5     $ 116,556  
 
                                               
Issuance of common stock upon exercise of stock options and vesting of restricted stock units
    303       3       (1,424 )                             (1,421 )
Share based compensation
                1,690                               1,690  
Tax benefit of stock options exercised and vesting of restricted stock units
                845                               845  
Cash dividends paid on common shares
                                  (2,696 )           (2,696 )
Purchase of treasury stock
                      1,742       (19,603 )                 (19,603 )
Net income
                                  4,584             4,584  
Foreign currency translation adjustments
                                        (5 )     (5 )
 
                                               
Comprehensive Loss
                                              (16,606 )
 
                                               
BALANCE, March 31, 2011
    19,215     $ 192     $ 110,361       2,859     $ (29,551 )   $ 18,948     $     $ 99,950  
 
                                               
See Notes to Condensed Consolidated Financial Statements.

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INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Net income (loss)
  $ 4,584     $ (1,068 )
Adjustments to reconcile net income (loss) to cash flows provided by operating activities:
               
Depreciation
    1,923       2,308  
Amortization
    1,000       2,299  
Amortization of debt issuance cost
          17  
Provision for doubtful accounts
          (104 )
Share based compensation
    1,690       1,419  
Amortization of deferred subscription solicitation costs
    12,642       18,028  
Deferred income tax, net
    1,933       (2,407 )
Foreign currency transaction losses, net
    26       357  
Changes in assets and liabilities:
               
Accounts receivable
    (202 )     (1,872 )
Prepaid expenses and other current assets
    (122 )     (872 )
Income tax payable
    (1,068 )     457  
Deferred subscription solicitation costs
    (11,404 )     (16,234 )
Other assets
    212       5,340  
Tax (benefit) deficiency upon vesting of restricted stock units
    (845 )     (277 )
Accounts payable
    632       (3,960 )
Accrued expenses and other current liabilities
    484       3,515  
Accrued payroll and employee benefits
    716       (70 )
Commissions payable
    (26 )     (1,122 )
Deferred revenue
    308       (37 )
Other long-term liabilities
    181       3,143  
 
           
Cash flows provided by operating activities
    12,664       8,860  
 
           
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
               
Purchase of additional interest in long-term investment
          (1,000 )
Proceeds from sale of investment
    4,994        
Acquisition of property and equipment
    (4,440 )     (1,537 )
 
           
Cash flows provided by (used in) investing activities
    554       (2,537 )
 
           
CASH FLOWS USED IN FINANCING ACTIVITIES:
               
Borrowings under Credit Agreement
    20,000        
Purchase of treasury stock
    (19,603 )      
Cash dividends paid on common shares
    (2,696 )      
Repayments under Credit Agreement
          (1,750 )
Tax benefit (deficiency) upon vesting of restricted stock units
    845       (277 )
Capital lease payments
    (407 )     (214 )
Cash proceeds from stock options exercised
    27        
Cash distribution on vesting of restricted stock units
          (970 )
Withholding tax payment on vesting of restricted stock units
    (1,043 )     (68 )
 
           
Cash flows used in financing activities
    (2,877 )     (3,279 )
 
           
EFFECT OF EXCHANGE RATE ON CASH
          (10 )
 
           
INCREASE IN CASH AND CASH EQUIVALENTS
    10,341       3,034  
CASH AND CASH EQUIVALENTS — Beginning of period
    14,453       12,394  
 
           
CASH AND CASH EQUIVALENTS — End of period
  $ 24,794     $ 15,428  
 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
Cash paid for interest
  $ 95     $ 314  
 
           
Cash paid for taxes
  $ 2,627     $ 514  
 
           
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
               
Equipment obtained under capital lease
  $     $ 170  
 
           
Equipment additions accrued but not paid
  $ 197     $ 565  
 
           
Withholding tax payment on vesting of restricted stock units accrued but not paid
  $ 524     $  
 
           
See Notes to Condensed Consolidated Financial Statements

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INTERSECTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Business
     We offer consumers a variety of consumer protection services and other consumer products and services primarily on a subscription basis. Our services help consumers protect themselves against identity theft or fraud and understand and monitor their credit profiles and other personal information. Through our subsidiary, Intersections Insurance Services, Inc. (“IISI”), we offer a portfolio of services to include consumer discounts on healthcare, home and auto related expenses, access to professional financial and legal information, and life, accidental death and disability insurance products. Our consumer products and services are offered through relationships with clients, including many of the largest financial institutions in the United States and Canada, and clients in other industries.
     In addition, we also offer our services directly to consumers. We conduct our consumer direct marketing primarily through the Internet, television, radio and other mass media. We also may market through other channels, including direct mail, outbound telemarketing, inbound telemarketing and email.
     Through a subsidiary, Screening International Holdings, LLC (“SIH”), we provided personnel and vendor background screening services to businesses worldwide. As further described in Note 17, on July 19, 2010, we and SIH entered into a membership interest purchase agreement with Sterling Infosystems, Inc. (“Sterling”), pursuant to which SIH sold, and Sterling acquired, 100% of the membership interests of Screening International, LLC (“SI”) for an aggregate purchase price of $15.0 million in cash plus adjustments for working capital and other items. SIH is not an operating subsidiary, and our background screening services ceased upon the sale of SI.
     We have three reportable operating segments with continuing operations through the period ended March 31, 2011. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services. This segment consists of identity theft management tools, services from our relationship with a third party that administers referrals for identity theft to major banking institutions and breach response services, membership product offerings and other subscription based services such as life and accidental death insurance. Our Online Brand Protection segment includes corporate brand protection provided by Net Enforcers, Inc. (“Net Enforcers”) and our Bail Bonds Industry Solutions segment includes the software management solutions for the bail bond industry provided by Captira Analytical, LLC (“Captira Analytical”). In addition, until the sale of SI on July 19, 2010, we had a fourth reportable segment, our Background Screening segment, which included the personnel and vendor background screening services provided by SI.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
     The accompanying unaudited condensed consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission. They include the accounts of the company and our subsidiaries. The results of SI, a former subsidiary which we sold on July 19, 2010, are presented as discontinued operations for the three months ended March 31, 2010 in the condensed consolidated statements of operations. We have not recasted our condensed statements of cash flows for the sale of SI. Our decision to consolidate an entity is based on our direct and indirect majority interest in the entity. All significant intercompany transactions have been eliminated. The condensed consolidated results of operations for the interim periods are not necessarily indicative of results for the full year.
     These condensed consolidated financial statements do not include all the information or notes necessary for a complete presentation and, accordingly, should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2010, as filed in our Annual Report on Form 10-K.

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Use of Estimates
     The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
     We recognize revenue on 1) identity theft and credit management services, 2) accidental death insurance and other membership products 3) other monthly subscription products.
     Our products and services are offered to consumers primarily on a monthly subscription basis. Subscription fees are generally billed directly to the subscriber’s credit card, mortgage bill or demand deposit accounts. The prices to subscribers of various configurations of our products and services range generally from $4.99 to $25.00 per month. As a means of allowing customers to become familiar with our services, we sometimes offer free trial or guaranteed refund periods. No revenues are recognized until applicable trial periods are completed.
Identity Theft and Credit Management Services
     We recognize revenue from our services when: a) persuasive evidence of arrangement exists as we maintain signed contracts with all of our large financial institution customers and paper and electronic confirmations with individual purchases, b) delivery has occurred once the product is transmitted over the internet, c) the seller’s price to the buyer is fixed as sales are generally based on contract or list prices and payments from large financial institutions are collected within 30 days with no significant write-offs, and d) collectability is reasonably assured as individual customers pay by credit card which has limited our risk of non-collection. Revenue for monthly subscriptions is recognized in the month the subscription fee is earned. For subscriptions with refund provisions whereby only the prorated subscription fee is refunded upon cancellation by the subscriber, deferred subscription fees are recorded when billed and amortized as subscription fee revenue on a straight-line basis over the subscription period, generally one year. We also generate revenue through a collaborative arrangement which involves joint marketing and servicing activities. We recognize our share of revenues and expenses from this arrangement.
     Revenue for annual subscription fees must be deferred if the subscriber has the right to cancel the service. Annual subscriptions include subscribers with full refund provisions at any time during the subscription period and pro-rata refund provisions. Revenue related to annual subscription with full refund provisions is recognized on the expiration of these refund provisions. Revenue related to annual subscribers with pro-rata provisions is recognized based on a pro rata share of revenue earned. An allowance for discretionary subscription refunds is established based on our actual experience.
     We also provide services for which certain financial institution clients are the primary obligors directly to their customers. Revenue from these arrangements is recognized when earned, which is at the time we provide the service, generally on a monthly basis.
     We record revenue on a gross basis in the amount that we bill the subscriber when our arrangements with financial institution clients provide for us to serve as the primary obligor in the transaction, we have latitude in establishing price and we bear the risk of physical loss of inventory and credit risk for the amount billed to the subscriber. We record revenue in the amount that we bill our financial institution clients, and not the amount billed to their customers, when our financial institution client is the primary obligor, establishes price to the customer and bears the credit risk.
Accidental Death Insurance and Other Membership Products
     We recognize revenue from our services when: a) persuasive evidence of arrangement exists as we maintain paper and electronic confirmations with individual purchases, b) delivery has occurred at the completion of a product trial period, c) the seller’s price to the buyer is fixed as the price of the product is agreed to by the customer as a condition of the sales transaction which established the sales arrangement, and d) collectability is reasonably assured as evidenced by our collection of revenue through the monthly mortgage payments of our customers or through checking account debits to our customers’ accounts. Revenues from insurance contracts are recognized when earned. Marketing of our insurance products generally involves a trial period during which time the product is made available at no cost to the customer. No revenues are recognized until applicable trial periods are completed.

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     For insurance products, we record revenue on a net basis as we perform as an agent or broker for the insurance products without assuming the risks of ownership of the insurance products. For membership products, we generally record revenue on a gross basis as we serve as the primary obligor in the transactions, have latitude in establishing price and bear credit risk for the amount billed to the subscriber.
     We participate in agency relationships with insurance carriers that underwrite insurance products offered by us. Accordingly, insurance premiums collected from customers and remitted to insurance carriers are excluded from our revenues and operating expenses. Insurance premiums collected but not remitted to insurance carriers as of March 31, 2011 and December 31, 2010 totaled $1.1 million and $1.2 million, respectively, and are included in accrued expenses and other current liabilities in our condensed consolidated balance sheet.
Other Monthly Subscription Products
     We generate revenue from other types of subscription based products provided from our Online Brand Protection and Bail Bonds Industry Solutions segments. We recognize revenue from online brand protection and brand monitoring services, offered by Net Enforcers, on a monthly basis and from providing management service solutions, offered by Captira Analytical, on a monthly subscription basis.
Goodwill, Identifiable Intangibles and Other Long Lived Assets
     We record, as goodwill, the excess of the purchase price over the fair value of the identifiable net assets acquired in purchase transactions. We review our goodwill for impairment annually, as of October 31, or more frequently if indicators of impairment exist, and follow the two step process. Goodwill has been assigned to our reporting units for purposes of impairment testing. As of March 31, 2011, goodwill of $43.2 million resides in our Consumer Products and Services reporting unit and there is no goodwill remaining in our other reporting units.
     A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others (a) a significant decline in our expected future cash flows; (b) a sustained, significant decline in our stock price and market capitalization; (c) a significant adverse change in legal factors or in the business climate; (d) unanticipated competition; (e) the testing for recoverability of a significant asset group within a reporting unit; and (f) slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact in our condensed consolidated financial statements.
     The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its carrying value. We estimate fair value using the best information available, using a combined income (discounted cash flow) valuation model and market based approach. The market approach measures the value of an entity through an analysis of recent sales or offerings of comparable companies. The income approach measures the value of the reporting units by the present values of its economic benefits. These benefits can include revenue and cost savings. Value indications are developed by discounting expected cash flows to their present value at a rate of return that incorporates the risk-free rate for use of funds, trends within the industry, and risks associated with particular investments of similar type and quality as of the valuation date.
     The estimated fair value of our reporting units is dependent on several significant assumptions, including our earnings projections, and cost of capital (discount rate). The projections use management’s best estimates of economic and market conditions over the projected period including business plans, growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. There are inherent uncertainties related to these factors and management’s judgment in applying each to the analysis of the recoverability of goodwill.
     We estimate fair value giving consideration to both the income and market approaches. Consideration is given to the line of business and operating performance of the entities being valued relative to those of actual transactions, potentially subject to corresponding economic, environmental, and political factors considered to be reasonable investment alternatives.

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     If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying value of the reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with its goodwill carrying value to measure the amount of impairment charge, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of that reporting unit was the purchase price paid. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment charge is recognized in an amount equal to that excess.
     We review long-lived assets, including finite-lived intangible assets, property and equipment and other long term assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Significant judgments in this area involve determining whether a triggering event has occurred and determining the future cash flows for assets involved. In conducting our analysis, we compared the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the undiscounted cash flows exceed the net book value, the long-lived assets are considered not to be impaired. If the net book value exceeds the undiscounted cash flows, an impairment charge is measured and recognized. An impairment charge is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value is estimated by discounting the future cash flows associated with these assets.
     Intangible assets subject to amortization may include trademarks and customer, marketing and technology related intangibles. Such intangible assets, excluding customer related intangibles, are amortized on a straight-line basis over their estimated useful lives, which are generally three to ten years. Customer related intangible assets are amortized on either a straight-line or accelerated basis, dependent upon the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up.
Deferred Subscription Solicitation and Advertising
     Our deferred subscription solicitation costs consist of subscription acquisition costs, including telemarketing, web-based marketing expenses and direct mail such as printing and postage. We expense advertising costs the first time advertising takes place, except for direct-response marketing costs. Telemarketing, web-based marketing and direct mail expenses are direct response marketing costs, which are amortized on a cost pool basis over the period during which the future benefits are expected to be received, but no more than 12 months. The recoverability of amounts capitalized as deferred subscription solicitation costs are evaluated at each balance sheet date by comparing the carrying amounts of such assets on a cost pool basis to the probable remaining future benefit expected to result directly from such advertising costs. Probable remaining future benefit is estimated based upon historical subscriber patterns, and represents net revenues less costs to earn those revenues. In estimating probable future benefit (on a per subscriber basis) we deduct our contractual cost to service that subscriber from the known sales price. We then apply the future benefit (on a per subscriber basis) to the number of subscribers expected to be retained in the future to arrive at the total probable future benefit. In estimating the number of subscribers we will retain (i.e., factoring in expected cancellations), we utilize historical subscriber patterns maintained by us that show attrition rates by client, product and marketing channel. The total probable future benefit is then compared to the costs of a given marketing campaign (i.e., cost pools), and if the probable future benefit exceeds the cost pool, the amount is considered to be recoverable. If direct response advertising costs were to exceed the estimated probable remaining future benefit, an adjustment would be made to the deferred subscription costs to the extent of any shortfall.
Commission Costs
     Commissions that relate to annual subscriptions with full refund provisions and monthly subscriptions are expensed when incurred, unless we are entitled to a refund of the commissions. If annual subscriptions are cancelled prior to their initial terms, we are generally entitled to a full refund of the previously paid commission for those annual subscriptions with a full refund provision and a pro-rata refund, equal to the unused portion of the subscription, for those annual subscriptions with a pro-rata refund provision. Commissions that relate to annual subscriptions with full commission refund provisions are deferred until the earlier of expiration of the refund privileges or cancellation. Once the refund privileges have expired, the commission costs are recognized ratably in the same pattern that the related revenue is recognized. Commissions that relate to annual subscriptions with pro-rata refund provisions are deferred and charged to operations as the corresponding revenue is recognized. If a subscription is cancelled, upon receipt of the refunded commission from our client, we record a reduction to the deferred commission.

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     We have prepaid commission agreements with some of our clients. Under these agreements, we pay a commission on new subscribers in lieu of or reduction in ongoing commission payments. We amortize these prepaid commissions, on an accelerated basis, over a period of time not to exceed three years, which is the average expected life of customers. The short-term portion of the prepaid commissions is shown in deferred subscription solicitation costs in our condensed consolidated balance sheet. The long-term portion of the prepaid commissions is shown in other assets in our condensed consolidated balance sheet. Amortization is included in commission expense in our condensed consolidated statement of operations.
Share Based Compensation
     We use the Black-Scholes option-pricing model to value all options and the straight-line method to amortize this fair value as compensation cost over the requisite service period. The fair value of each option granted has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
                 
    Three Months Ended
    March 31,
    2011   2010
Expected dividend yield
    6.1 %     0 %
Expected volatility
    74.6 %     67.8 %
Weighted-average risk free interest rate
    2.5 %     2.8 %
Weighted-average expected life of options
  6.2 years     6.2 years  
     Expected Dividend Yield. The Black-Scholes valuation model requires an expected dividend yield as an input. Prior to September 10, 2010 we had not issued dividends and, therefore, the dividend yield used in grants prior to September 10, 2010 was zero. Subsequent to September 2010, we paid quarterly cash dividends of $0.15 per share on our common stock. We had a grant in the three months ended March 31, 2011 and applied a dividend yield. For future grants, we will apply a dividend yield based on our history and expectation of dividend payouts.
     Expected Volatility. In 2010, we revised our estimation method for calculating expected volatility. For the three months ended March 31, 2011, the expected volatility of options granted was estimated based upon our historical share price volatility. For the three months ended March 31, 2010, the expected volatility of options granted was estimated based upon our historical share price volatility as well as the average volatility of comparable public companies. We will continue to review our estimate in the future.
     Risk-free Interest Rate. The yield on actively traded non-inflation indexed U.S. Treasury notes was used to extrapolate an average risk-free interest rate based on the expected term of the underlying grants.
     Expected Term. The expected term of options granted during the three months ended March 31, 2011 and 2010 was determined under the simplified calculation ((vesting term + original contractual term)/2). For the majority of grants valued during the three months ended March 31, 2011 and 2010, the options had graded vesting over 4 years (equal vesting of options annually) and the contractual term was 10 years.
     In addition, we estimate forfeitures based on historical option and restricted stock unit activity on a grant by grant basis. We may make changes to that estimate throughout the vesting period based on actual activity.
Income Taxes
     We account for income taxes under the applicable provisions of U.S. GAAP, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are provided, if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
     Accounting for income taxes in interim periods provides that at the end of each interim period we are required to make our best estimate of the consolidated effective tax rate expected to be applicable for our full calendar year. The rate so determined shall be used in providing for income taxes on a consolidated current year-to-date basis. Further, the rate is reviewed, if necessary, as of the end of each successive interim period during the year to our best estimate of our annual effective tax rate.

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     We believe that our tax positions comply with applicable tax law. As a matter of course, we may be audited by various taxing authorities and these audits may result in proposed assessments where the ultimate resolution may result in us owing additional taxes. U.S. GAAP addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
3. Accounting Standards Updates
Accounting Standards Updates Recently Adopted
     In January 2010, an update was made to “Fair Value Measurements and Disclosures”. This update requires new disclosures of transfers in and out of Levels 1 and 2 and of activity in Level 3 fair value measurements. The update also clarifies the existing disclosures for levels of disaggregation and about inputs and valuation techniques. This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We have adopted the provisions of this update as of January 1, 2011 and have included the additional disclosure requirements 2011 and there was no material impact to our condensed consolidated financial statements.
     In April 2010, an update was made to “Compensation — Stock Compensation”. This update provides amendments to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would classify such an award as a liability if it otherwise qualifies as equity. This update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier adoption is permitted. We have adopted the provisions of this update as of January 1, 2011 and there was no material impact to our condensed consolidated financial statements.
     In December 2010, an update was made to “Intangibles — Goodwill and Other”. This update modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2010. We have adopted the provisions of this update as of January 1, 2011 and there was no material impact to our condensed consolidated financial statements.
     In December 2010, an update was made to “Business Combinations”. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. We have adopted the provisions of this update as of January 1, 2011 and there was no impact to our condensed consolidated financial statements.
Accounting Standards Updates Not Yet Effective
     In January 2011, an update was made to “Receivables”. The amendments in this update temporarily delay the effective date of disclosures about troubled debt restructuring for public entities. The effective date of the new disclosures about troubled debt restructuring for public entities and the guidance for determining what constitutes a troubled debt restructurings for public entities will be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. We will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.
4. Net Income (Loss) Per Common Share
     Basic and diluted income (loss) per share are determined in accordance with the applicable provisions of U.S. GAAP. Basic income (loss) per common share is computed using the weighted average number of shares of common stock outstanding for the period. Diluted income (loss) per share is computed using the weighted average number of shares of common stock, adjusted for the dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method or the if-converted method, includes the potential exercise of stock options under our share-based employee compensation plans and our restricted stock units.

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     For the three months ended March 31 2011 and 2010, options to purchase 1.4 million and 7.0 million shares of common stock, respectively, have been excluded from the computation of diluted income (loss) per share as their effect would be anti-dilutive. These shares could dilute income (loss) per share in the future.
     A reconciliation of basic income (loss) per common share to diluted loss per common share is as follows:
                 
    Three Months Ended  
    March 31,  
    2011     2010  
    (In thousands, except  
    per share data)  
Income (loss) from continuing operations
  $ 4,584     $ (258 )
Income (loss) from discontinued operations
          (810 )
 
           
Net income (loss) available to common shareholders — basic and diluted
  $ 4,584     $ (1,068 )
 
           
 
               
Weighted average common shares outstanding — basic
    17,940       17,621  
Dilutive effect of common stock equivalents
    1,603        
 
           
Weighted average common shares outstanding — diluted
    19,543       17,621  
 
           
 
               
Basic income (loss) per common share:
               
Income (loss) from continuing operations
  $ 0.26     $ (0.01 )
Income (loss) from discontinued operations
          (0.05 )
 
           
Basic income (loss) per common share
  $ 0.26     $ (0.06 )
 
           
Diluted income (loss) per common share:
               
Income (loss) from continuing operations
  $ 0.23     $ (0.01 )
Income (loss) from discontinued operations
          (0.05 )
 
           
Diluted income (loss) per common share
  $ 0.23     $ (0.06 )
 
           
5. Fair Value Measurement
     Our cash and any investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy as they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued are based on quoted market prices in active markets and are primarily U.S. government and agency securities and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.
     We did not hold instruments that are measured at fair value on a recurring basis as of March 31, 2011. The fair value of our instruments measured on a recurring basis at December 31, 2010 was as follows (in thousands):
                                 
    Fair Value Measurements at Reporting Date using:
            Quoted Prices        
            in Active   Significant    
            Markets for   other   Significant
            Identical Assets   Observable   Unobservable
    December 31, 2010   (Level 1)   Inputs (Level 2)   Inputs (Level 3)
Assets:
                               
US Treasury bills
  $ 4,994     $ 4,994     $  —     $  —  
     For certain financial instruments, such as cash and cash equivalents, short-term government debt instruments, trade accounts receivables, leases payable and trade accounts payable, we consider the recorded value to approximate fair value based on the liquidity of these financial instruments. We did not have any transfers in or out of Level 1 and Level 2 in the three months ended March 31, 2011 or in the year ended December 31 2010.
     At March 31, 2011, we had a total of $20.0 million outstanding under our revolving credit facility, which is a variable rate loan and therefore fair value approximates book value.

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6. Deferred Subscription Solicitation and Commission Costs
     Total deferred subscription solicitation costs included in the accompanying condensed consolidated balance sheet as of March 31, 2011 and December 31, 2010 was $27.5 million and $28.8 million, respectively. The long-term portion of the deferred subscription solicitation costs are reported in other assets in our condensed consolidated balance sheet and include $3.4 million and $4.0 million as of March 31, 2011 and December 31, 2010, respectively. The current portion of the prepaid commissions is included in the deferred subscription solicitation costs which were $7.6 million and $8.5 million as of March 31, 2011 and December 31, 2010, respectively. Amortization of deferred subscription solicitation and commission costs, which are included in either marketing or commissions expense in our condensed consolidated statements of operations, for the three months ended March 31, 2011 and 2010 were $12.6 million and $18.0 million, respectively. Marketing costs, which are included in marketing expenses in our condensed consolidated statements of operations, as they did not meet the criteria for deferral, for the three months ended March 31, 2011 and 2010, were $775 thousand and $4.8 million, respectively.
7. Long-Term Investments
     Our long-term investment consists of an investment in equity shares of a privately held company. White Sky, Inc. (“White Sky”) provides smart card-based software solutions to safeguard consumers against identity theft and online crime when they bank, shop and invest online. We own less than 20% of White Sky. The investment is accounted for at cost on the condensed consolidated balance sheet. As of March 31, 2011, no indicators of impairment were identified.
     In addition to the investment, we have a commercial agreement with White Sky to receive exclusivity on the sale of its ID Vault products, which we amended in the year ended December 31, 2010. The strategic commercial agreement allows us to include these products and services as part of our comprehensive identity theft protection services to consumers. Under the amended commercial agreement we are required to make royalty payments to White Sky in exchange for certain exclusivity on the sale of its ID Vault products.
8. Goodwill and Intangible Assets
     Changes in the carrying amount of goodwill are as follows (in thousands):
                                         
    March 31, 2011  
                                    Net Carrying  
    Gross     Accumulated     Net Carrying             Amount at  
    Carrying     Impairment     Amount at             March 31,  
    Amount     Losses     January 1, 2011     Impairment     2011  
Consumer Products and Services
  $ 43,235     $     $ 43,235     $     $ 43,235  
Online Brand Protection
    11,242       (11,242 )                  
Bail Bonds Industry Solutions
    1,390       (1,390 )                  
 
                             
Total Goodwill
  $ 55,867     $ (12,632 )   $ 43,235     $     $ 43,235  
 
                             
                                                 
    December 31, 2010  
                                    Discontinued     Net Carrying  
    Gross     Accumulated     Net Carrying             Operations     Amount at  
    Carrying     Impairment     Amount at             (See Note     December 31,  
    Amount     Losses     January 1, 2010     Impairment     17)     2010  
Consumer Products and Services
  $ 43,235     $     $ 43,235     $     $     $ 43,235  
Background Screening
    23,583       (19,879 )     3,704             (3,704 )      
Online Brand Protection
    11,242       (11,242 )                        
Bail Bonds Industry Solutions
    1,390       (1,390 )                        
 
                                   
Total Goodwill
  $ 79,450     $ (32,511 )   $ 46,939     $     $ (3,704 )   $ 43,235  
 
                                   
     During the three months ended March 31, 2011, we did not identify any triggering events related to our goodwill and therefore, were not required to test our goodwill for impairment. As further described in Note 17, in the three months ended September 30, 2010, we reduced goodwill by $3.7 million due to the sale of SI.

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     Our intangible assets consisted of the following (in thousands):
                                 
    March 31, 2010  
    Gross                     Net  
    Carrying     Accumulated             Carrying  
    Amount     Amortization     Impairment     Amount  
Amortizable intangible assets:
                               
Customer related
  $ 38,846     $ (25,061 )   $     $ 13,785  
Marketing related
    3,192       (3,155 )           37  
Technology related
    2,796       (2,721 )           75  
 
                       
Total amortizable intangible assets
  $ 44,834     $ (30,937 )   $     $ 13,897  
 
                       
                                 
    December 31, 2010  
    Gross                     Net  
    Carrying     Accumulated             Carrying  
    Amount     Amortization     Impairment     Amount  
Amortizable intangible assets:
                               
Customer related
  $ 38,846     $ (24,172 )   $     $ 14,674  
Marketing related
    3,192       (3,119 )           73  
Technology related
    2,796       (2,646 )           150  
 
                       
Total amortizable intangible assets
  $ 44,834     $ (29,937 )   $     $ 14,897  
 
                       
     Intangible assets are amortized over a period of three to ten years. For the three months ended March 31, 2011 and 2010, we incurred aggregate amortization expense of $1.0 million and $2.3 million, respectively, which was included in amortization expense in the condensed consolidated statements of operations. We estimate that we will have the following amortization expense for the future periods indicated below (in thousands):
         
For the remaining nine months ending December 31, 2011
  $ 2,828  
For the years ending December 31:
       
2012
    3,542  
2013
    3,483  
2014
    3,437  
2015
    426  
Thereafter
    181  
 
     
 
  $ 13,897  
 
     
9. Other Assets
     The components of our other assets are as follows:
                 
    March 31,     December 31,  
    2011     2010  
    (In thousands)  
Prepaid royalty payments
  $ 75     $ 75  
Prepaid contracts
    53       92  
Prepaid commissions
    3,425       4,029  
Other
    1,500       1,697  
 
           
 
  $ 5,053     $ 5,893  
 
           
10. Accrued Expenses and Other Current Liabilities
     The components of our accrued expenses and other liabilities are as follows:
                 
    March 31,     December 31,  
    2011     2010  
    (In thousands)  
Accrued marketing
  $ 2,688     $ 2,637  
Accrued cost of sales, including credit bureau costs
    6,532       6,239  
Accrued general and administrative expense and professional fees
    3,029       3,269  
Insurance premiums
    1,070       1,190  
Other
    1,608       1,383  
 
           
 
  $ 14,927     $ 14,718  
 
           

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     In the three months ended March 31, 2011, we recorded $61 thousand related to uncertain tax positions, primarily for a state tax jurisdiction. We believe these liabilities to be short-term and therefore, have recorded them to current liabilities in our condensed consolidated balance sheet.
11. Commitments and Contingencies
Leases
     We have entered into long-term operating lease agreements for office space and capital leases for fixed assets. The minimum fixed commitments related to all noncancellable leases are as follows:
                 
    Operating     Capital  
    Leases     Leases  
    (In thousands)  
For the remaining nine months ending December 31, 2011
  $ 1,386     $ 1,418  
For the years ending December 31:
               
2012
    2,215       1,500  
2013
    2,704       867  
2014
    2,333       785  
2015
    2,384       548  
2016
    2,401        
Thereafter
    6,419        
 
           
Total minimum lease payments
  $ 19,842       5,118  
 
             
Less: amount representing interest
            (482 )
 
             
Present value of minimum lease payments
            4,636  
Less: current obligation
            (1,673 )
 
             
Long term obligations under capital lease
          $ 2,963  
 
             
     In the years ended December 31, 2009 and 2010, we financed certain software development costs. These costs did not meet the criteria for capitalization under U.S. GAAP. Amounts owed under this arrangement as of March 31, 2011 are $226 thousand and $86 thousand and are included in accrued expenses and other current liabilities and other long-term liabilities, respectively, in our condensed consolidated financial statements. The minimum fixed commitments related to this arrangement are as follows (in thousands):
         
For the remaining nine months ending December 31, 2011
  $ 168  
For the years ending December 31:
       
2012
    136  
2013
    8  
 
     
Obligations under arrangement
  $ 312  
 
     
     Rental expenses included in general and administrative expenses were $716 thousand and $721 thousand for the three months ended March 31, 2011 and 2010, respectively. For the three months ended March 31, 2010, the rental expenses included in loss from discontinued operations in our condensed consolidated statements of operations was $193 thousand. This amount is related to SI, which was sold on July 19, 2010.
Legal Proceedings

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     On May 27, 2009, we filed a complaint in the U.S. District Court for the Eastern District of Virginia against Joseph C. Loomis and Jenni M. Loomis in connection with our stock purchase agreement to purchase all of Net Enforcers, Inc.’s (NEI) stock in November 2007 (the “Virginia Litigation”). We alleged, among other things, that Mr. Loomis committed securities fraud, breached the stock purchase agreement, and breached his fiduciary duties to the company. The complaint also seeks a declaration that NEI is not in breach of its employment agreement with Mr. Loomis and that, following NEI’s termination of Mr. Loomis for cause, NEI’s obligations pursuant to the agreement were terminated. In addition to a judgment rescinding the stock purchase agreement and return of the entire purchase price we had paid, we are seeking unspecified compensatory, consequential and punitive damages, among other relief. On July 2, 2009, Mr. Loomis filed a motion to dismiss certain of our claims. On July 24, 2009, Mr. Loomis’ motion to dismiss our claims was denied in its entirety. Mr. Loomis also asserted counterclaims for an unspecified amount not less than $10,350,000, alleging that NEI breached the employment agreement by terminating him without cause and breached the stock purchase agreement by preventing him from running NEI in such a way as to earn certain earn-out amounts. On January 14, 2010, we settled all claims with Mr. Loomis and his sister, co-defendant Jenni Loomis. On January 26, 2010, prior to final documentation of the settlement and transfer of the funds, Mr. Loomis filed for bankruptcy in the United States Bankruptcy Court for the District of Arizona (the “Bankruptcy Court’). The Virginia litigation thus was automatically stayed as related to Mr. Loomis. In furtherance of our efforts to enforce the settlement agreement, we obtained a stay of the case as related to Jenni Loomis as well. On April 22, 2010, the Bankruptcy Court granted our motion to modify the stay so that we may seek a declaration from the U.S. District Court for the Eastern District of Virginia that the settlement is enforceable. We made a motion in the U.S. District Court to enforce the settlement agreement. On November 3, 2010, the U.S. District Court denied our motion, and ordered the parties to report in fourteen days on whether the automatic stay had been lifted by the Bankruptcy Court to allow the U.S. District Court to proceed with trial. On January 26, 2011, the Bankruptcy Court lifted the automatic stay, and the U.S. District Court for the Eastern District of Virginia has scheduled a trial to commence on May 2, 2011. Prior to the trial date, the parties, along with various related non-parties, entered into a settlement agreement resolving all claims in this matter. Completion of the settlement depends on satisfaction of certain conditions, including our acceptance of the transfer to us by Mr. Loomis or certain related non-parties of certain real property and real property interests. The settlement has been approved by the Bankruptcy Court, and the U.S. District Court has stayed the trial pending completion of the settlement. We are conducting due diligence regarding the real property and real property interests. We do not know at this time whether all conditions to completion of the settlement will be satisfied.
     On September 11, 2009, a putative class action complaint was filed against Intersections, Inc., Intersections Insurance Services Inc., Loeb Holding Corp., Bank of America of America, NA, Banc of America Insurance Services, Inc., American International Group, Inc., National Union Fire Insurance Company of Pittsburgh, PA, and Global Contact Services, LLC, in the U.S. District Court for the Southern District of Texas. The complaint alleges various claims based on telemarketing of an accidental death and disability program. On February 22, 2011, the U.S. District Court dismissed all of the plaintiff’s claims against us and the other defendants. The plaintiff has filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit, and the briefing by the parties is ongoing.
     On February 16, 2010, a putative class action complaint was filed against Intersections, Inc., Bank of America Corporation, and FIA Card Services, N.A., in the U.S. District Court for the Northern District of California. The complaint alleges various claims based on the provision of identity protection services to the named plaintiff. Defendants filed answers to the complaint on May 24, 2010. On April 19, 2011, an amended complaint was filed. In the amended complaint, the original named plaintiff was withdrawn from the case, and three new plaintiffs were added. Our response to the amended complaint is due on or about May 19, 2011. We currently are investigating the new claims. We believe that it is too early to make a determination of the likelihood of success in defeating the claims.
12. Other Long-Term Liabilities
     The components of our other long-term liabilities are as follows:
                 
    March 31,     December 31,  
    2011     2010  
    (In thousands)  
Deferred rent
  $ 2,653     $ 2,415  
Uncertain tax positions, interest and penalties not recognized
    226       224  
Accrued general and administrative expenses
    86       144  
 
           
 
  $ 2,965     $ 2,783  
 
           
13. Debt and Other Financing
     We have a Credit Agreement with Bank of America, N.A., which has a maturity date of December 31, 2011. Our Credit Agreement currently consists of a revolving credit facility in the amount of $25.0 million and is secured by substantially all of our assets and a pledge by us of stock and membership interests we hold in certain of our subsidiaries. Our subsidiaries are co-borrowers under the Credit Agreement.
     In July 2010, following the sale of Screening International, we prepaid the outstanding principal balance of the term loan portion of the Credit Agreement, and the term loan may not be re-drawn. We amended the Credit Agreement in the three months ended March 31, 2011 in connection with the share repurchase (see Note 15) to provide for the consent of the lenders to the share repurchase and to clarify covenant calculations. As part of this amendment, we agreed to maintain available liquidity of at least $10.0 million at all times while the Credit Agreement is in effect. As of March 31, 2011, the outstanding balance of the revolving credit facility was $20.0 million, which is included as a current liability in our condensed consolidated balance sheet, and we have approximately $24.8 million in cash and equivalents in our condensed consolidated balance sheet in addition to unused capacity under the Credit Agreement, which more than satisfies the minimum available liquidity requirement.

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     The Credit Agreement contains certain customary covenants, including among other things covenants that limit or restrict the incurrence of liens; the incurrence of certain indebtedness; mergers, dissolutions, liquidation, or consolidations; acquisitions (other than certain permitted acquisitions); sales of substantially all of our or any co-borrowers’ assets; the declaration of certain dividends or distributions; transactions with affiliates (other than co-borrowers under the Credit Agreement) other than on fair and reasonable terms; share repurchases; and the creation or acquisition of any direct or indirect subsidiary of ours that is not a domestic subsidiary unless such subsidiary becomes a guarantor. We are also required to maintain compliance with certain financial covenants which includes our consolidated leverage ratios, consolidated fixed charge coverage ratios, minimum available liquidity requirements as well as customary covenants, representations and warranties, funding conditions and events of default. We are currently in compliance with all such covenants.
14. Income Taxes
     Our consolidated effective tax rate from continuing operations for the three months ended March 31, 2011 and 2010 was 41.8% and 400.0%, respectively. The change from the comparable period is primarily due to a reduction in a discrete item from an uncertain tax position in a foreign jurisdiction. The reduction, along with the ratio of a significant increase in income from continuing operations before tax, decreased the effective tax rate and resulted in a more normalized rate for the three months ended March 31, 2011.
     In addition, the total liability for uncertain tax positions increased by approximately $63 thousand from December 31, 2010. The short-term portion of the liability is recorded in accrued expenses and other current liabilities and the long-term portion is recorded in other long-term liabilities in the condensed consolidated balance sheet. We record income tax penalties related to uncertain tax positions as part of our income tax expense in the condensed consolidated financial statements. We record interest expense related to uncertain tax positions as part of interest expense in the condensed consolidated financial statements. In the three months ended March 31, 2011 and 2010, we recorded penalties of $22 thousand and $219 thousand and interest of $9 thousand and $183 thousand, respectively. The penalties and interest increased the effective tax rate in the three months ended March 31, 2011.
15. Stockholders’ Equity
     Share Repurchase
     On April 25, 2005, our Board of Directors authorized a share repurchase program under which we can repurchase up to $20.0 million of our outstanding shares of common stock from time to time, depending on market conditions, share price and other factors. On August 12, 2010, our Board of Directors further increased the authorized amount under our existing share repurchase program to a total of $30.0 million of our common shares.
     During the three months ended March 31, 2011 we repurchased approximately 1.7 million shares of common stock at $11.25 per share resulting in an aggregate cost to us of $19.6 million. Following the repurchase, our Board of Directors further increased the authorized amount under our existing share repurchase program to $20.0 million, of which approximately $10.4 million is available for purchase on March 31, 2011 under the terms of our Credit Agreement. The repurchases may be made on the open market, in block trades, through privately negotiated transactions or otherwise, and the program may be suspended or discontinued at any time. We did not repurchase any common stock in the three months ended March 31, 2010.
     Dividends
     On February 7, 2011, we announced a cash dividend of $0.15 per share on our common stock, payable on March 10, 2011 to stockholders of record as of February 28, 2011. This dividend resulted in cash payments of $2.7 million in the three months ended March 31, 2011. We did not make any dividend payments in the three months ended March 31, 2010.
     Share Based Compensation
     On August 24, 1999, the Board of Directors and stockholders approved the 1999 Stock Option Plan (the “1999 Plan”). The active period for this plan expired on August 24, 2009. The number of shares of common stock that have been issued under the 1999 Plan could not exceed 4.2 million shares pursuant to an amendment to the plan executed in November 2001. As of March 31, 2011, there were 297 thousand shares outstanding. Individual awards under the 1999 Plan took the form of incentive stock options and nonqualified stock options.

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     On March 12, 2004 and May 5, 2004, the Board of Directors and stockholders, respectively, approved the 2004 Stock Option Plan (the “2004 Plan”) to be effective immediately prior to the consummation of the initial public offering. The 2004 Plan provides for the authorization to issue 2.8 million shares of common stock. As of March 31, 2011, we have 346 thousand shares remaining to issue and options to purchase 2.4 million shares outstanding. Individual awards under the 2004 Plan may take the form of incentive stock options and nonqualified stock options. Option awards are generally granted with an exercise price equal to the market price of our stock at the date of grant; those option awards generally vest over three and four years of continuous service and have ten year contractual terms.
     On March 8, 2006 and May 24, 2006, the Board of Directors and stockholders, respectively, approved the 2006 Stock Incentive Plan (the “2006 Plan”). The number of shares of common stock that may be issued under the 2006 Plan may not exceed 5.1 million shares pursuant to an amendment to the plan executed in May 2009. As of March 31, 2011, we have 98 thousand shares or restricted stock units remaining to issue and options to purchase 3.4 million shares and restricted stock units outstanding. In April 2011, our Board of Directors approved, and recommended that our stockholders approve, an amendment to the 2006 Plan to increase the number of shares authorized and reserved for issuance thereunder by 2.0 million shares from 5.1 million shares to 7.1 million shares. We are seeking stockholder approval of this amendment at our Annual Meeting of Stockholders scheduled to be held on May 18, 2011. If approved by our stockholders, the proposed amendment will automatically become effective upon approval. Individual awards under the 2006 Plan may take the form of incentive stock options, nonqualified stock options, restricted stock awards and/or restricted stock units. These awards generally vest over four years of continuous service.
     The Compensation Committee administers the Plans, selects the individuals who will receive awards and establishes the terms and conditions of those awards. Shares of common stock subject to awards that have expired, terminated, or been canceled or forfeited are available for issuance or use in connection with future awards.
     The 1999 Plan active period expired on August 24, 2009, the 2004 Plan will remain in effect until May 5, 2014, and the 2006 Plan will remain in effect until March 7, 2016, unless terminated by the Board of Directors.
     Stock Options
     Total share based compensation expense recognized for stock options, which is included in general and administrative expense in our condensed consolidated statement of operations, for the three months ended March 31, 2011 and 2010 was $603 thousand and $630 thousand, respectively.
     The following table summarizes our stock option activity:
                                 
                            Weighted-  
            Weighted-             Average  
            Average             Remaining  
    Number of     Exercise     Aggregate     Contractual  
    Shares     Price     Intrinsic Value     Term  
                    (In thousands)     (In years)  
Outstanding at December 31, 2010
    3,795,057     $ 5.79                  
Granted
    35,000       9.76                  
Canceled
    (11,012 )     6.84                  
Exercised
    (19,148 )     7.61                  
 
                             
Outstanding at March 31, 2011
    3,799,897     $ 5.81     $ 25,783       7.12  
 
                       
Exercisable at March 31, 2011
    1,728,938     $ 7.98     $ 8,400       5.72  
 
                       
     The weighted average grant date fair value of options granted, based on the Black-Scholes method, during the three months ended March 31, 2011 and 2010 was $4.05 and $2.75, respectively.
     For options exercised, intrinsic value is calculated as the difference between the market price on the date of exercise and the exercise price. The total intrinsic value of options exercised during the three months ended March 31, 2011 was $76 thousand. There were no options exercised in the three months ended March 31, 2010.
     As of March 31, 2011, there was $5.1 million of total unrecognized compensation cost related to nonvested stock option arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 2.2 years.
     Restricted Stock Units
     Total share based compensation recognized for restricted stock units, which is included in general and administrative expense in our condensed consolidated statement of operations, for the three months ended March 31, 2011 and 2010 was $1.1 million and $789 thousand, respectively.

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     The following table summarizes our restricted stock unit activity:
                         
                    Weighted-Average  
            Weighted-Average     Remaining  
    Number of     Grant Date     Contractual  
    RSUs     Fair Value     Life  
            (In years)          
Outstanding at December 31, 2010
    1,943,808     $ 4.26          
Granted
    886,689       9.76          
Canceled
    (151,124 )     5.85          
Vested
    (317,283 )     5.77          
 
                   
Outstanding at March 31, 2011
    2,362,090     $ 6.32       2.95  
 
                 
     As of March 31, 2011, there was $13.5 million of total unrecognized compensation cost related to unvested restricted stock units compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 2.7 years.
16. Related Party Transactions
     We have a minority investment in White Sky and a commercial agreement to incorporate and market their product into our fraud and identity theft protection product offerings. For the three months ended March 31, 2011 and 2010, there was $650 thousand and $551 thousand, respectively, included in cost of revenue in our condensed consolidated statement of operations related to royalties for exclusivity and product costs.
     The chief executive officer and president of Digital Matrix Systems, Inc. (“DMS”) serves as our board member. We have entered into contracts with DMS that provide for services that assist us in monitoring credit on a daily and quarterly basis, as well as certain on-line credit analysis services. In connection with these agreements, we paid monthly installments totaling $216 thousand for the three months ended March 31, 2011 and 2010, respectively. These amounts are included within cost of revenue and general and administrative expenses in the condensed consolidated statement of operations.
     A family member of our executive vice president of operations is the president of RCS International, Inc. (“RCS”). We have entered into a contract with RCS to assist us in our Canada fulfillment operations. For the three months ended March 31, 2011 and 2010, we paid $383 thousand and $377 thousand, respectively. These amounts are included within cost of revenue in the condensed consolidated statement of operations.
17. Discontinued Operations
     On July 19, 2010, we and SIH entered into a membership interest purchase agreement with Sterling, pursuant to which SIH sold, and Sterling acquired, 100% of the membership interests of SI for an aggregate purchase price of $15.0 million in cash plus adjustments for working capital and other items. SIH is not an operating subsidiary and our background screening services ceased upon the sale of SI. The sale is subject to customary representations, warranties, indemnifications and an escrow account of $1.8 million for a period of one year after the closing date to satisfy any claims by Sterling under the Purchase Agreement. We recognized a gain of $5.9 million on the sale of our subsidiary in the year ended December 31, 2010.
     The following table summarizes the operating results of the discontinued operations included in our condensed consolidated statement of operations (in thousands):
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Revenue
  $     $ 5,100  
 
           
 
               
Loss before income taxes from discontinued operations
  $     $ (832 )
Income tax benefit
          22  
 
           
Loss from discontinued operations
          (810 )
Gain on disposal from discontinued operations
           
Net loss attributable to noncontrolling interest in discontinued operations
           
 
           
(Loss) income from discontinued operations
  $     $ (810 )
 
           

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18. Segment and Geographic Information
     We have three reportable operating segments within continuing operations. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services. This segment consists of identity theft management tools, services from our relationship with a third party that administers referrals for identity theft to major banking institutions and breach response services, membership product offerings and other subscription based services such as life and accidental death insurance. Our Online Brand Protection segment includes corporate brand protection provided by Net Enforcers. Our Bail Bonds Industry Solutions segment includes the software management solutions for the bail bond industry provided by Captira Analytical. In addition, until the sale of SI on July 19, 2010, our Background Screening segment included the personnel and vendor background screening services provided by SI.
     The following table sets forth segment information for the three months ended March 31, 2011 and 2010:
                                 
    Consumer             Bail Bonds        
    Products     Online Brand     Industry        
    and Services     Protection     Solutions     Consolidated  
            (in thousands)          
Three Months Ended March 31, 2011
                               
Revenue
  $ 89,730     $ 542     $ 173     $ 90,445  
Depreciation
    1,907       5       11       1,923  
Amortization
    993       7             1,000  
Income (loss) from continuing operations before income taxes
  $ 8,640     $ (411 )   $ (347 )   $ 7,882  
Three Months Ended March 31, 2010
                               
Revenue
  $ 90,918     $ 463     $ 108     $ 91,489  
Depreciation
    2,091       5             2,096  
Amortization
    2,292       7             2,299  
Income (loss) from continuing operations before income taxes
  $ 790     $ (308 )   $ (396 )   $ 86  
As of March 31, 2011
                               
Property, plant and equipment, net
  $ 23,452     $ 30     $ 157     $ 23,639  
 
                       
Total assets
  $ 152,625     $ 10,139     $ 4,154     $ 166,918  
 
                       
As of December 31, 2010
                               
Property, plant and equipment, net
  $ 21,424     $ 23     $ 122     $ 21,569  
 
                       
Total assets
  $ 148,884     $ 9,900     $ 3,843     $ 162,627  
 
                       
     The principal geographic area of our revenue and assets from continuing operations is the United States.
19. Subsequent Events
     On April 21, 2011, we announced a cash dividend of $0.15 per share on our common stock, payable on June 10, 2011, to stockholders of record as of May 31, 2011.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
     Certain written and oral statements made by or on our behalf may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. Words or phrases such as “should result,” “are expected to,” “we anticipate,” “we estimate,” “we project,” or similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, but are not limited to, those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 16, 2011, and our quarterly and current reports filed with the Securities and Exchange Commission and the following important factors: demand for our services, general economic conditions, including lingering effects of the significant recession in the U.S. and the worldwide economic slowdown, disruptions to the credit and financial markets in the U.S. and worldwide, economic conditions specific to our financial institutions clients, product development, maintaining acceptable margins, maintaining secure systems, ability to control costs, the impact of federal, state and local regulatory requirements on our business, specifically the consumer credit market, the impact of competition, ability to continue our long-term business strategy including growth through acquisition, ability to attract and retain qualified personnel and the uncertainty of economic conditions in general.
     Readers are cautioned not to place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made, and we undertake no obligation to publicly update these statements based on events that may occur after the date of this report.
Overview
     We have three reportable segments with continuing operations: Consumer Products and Services, Online Brand Protection and Bail Bonds Industry Solutions. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services. This segment consists of identity theft management tools, services from our relationship with a third party that administers referrals for identity theft to major banking institutions and breach response services, membership product offerings and other subscription based services such as life and accidental death insurance. Our Online Brand Protection segment includes corporate brand protection provided by Net Enforcers. Our Bail Bonds Industry Solutions segment includes the software management solutions for the bail bond industry provided by Captira Analytical. In addition, until the sale of Screening International on July 19, 2010, we had a fourth reportable segment, our Background Screening segment, which included the personnel and vendor background screening services provided by Screening International.
     Consumer Products and Services
     We offer consumers a variety of consumer protection services and other consumer products and services primarily on a subscription basis. Our services help consumers protect themselves against identity theft or fraud and understand and monitor their credit profiles and other personal information. Through our subsidiary, Intersections Insurance Services, we offer a portfolio of services to include consumer discounts on healthcare, home, and auto related expenses, access to professional financial and legal information, and life, accidental death and disability insurance products. Our consumer services are offered through relationships with clients, including many of the largest financial institutions in the United States and Canada, and clients in other industries.
     Our products and services are marketed to customers of our clients, and often are branded and tailored to meet our clients’ specifications. Our clients are principally credit card, direct deposit or mortgage issuing financial institutions, including many of the largest financial institutions in the United States and Canada. With certain of our financial institution clients, we have broadened our marketing efforts to access demand deposit accounts. Our financial institution clients currently account for the majority of our existing subscriber base. We also are continuing to augment our client base through relationships with insurance companies, mortgage companies, brokerage companies, associations, travel companies, retail companies, web and technology companies and other service providers with significant market presence and brand loyalty.
     With our clients, our services are marketed to potential subscribers through a variety of marketing channels, including direct mail, outbound telemarketing, inbound telemarketing, inbound customer service and account activation calls, email, mass media and the Internet. Our marketing arrangements with our clients sometimes call for us to fund and manage marketing activity. The mix between our company-funded and client-funded marketing programs varies from year to year based upon our and our clients’ strategies.
     We continued our efforts to market our consumer products and services directly to consumers. We conduct our consumer direct marketing primarily through the Internet and broadcast media. We also may market through other channels, including direct mail, outbound telemarketing, inbound telemarketing and email. We expect to continue our investment in marketing in 2011 in our direct to consumer business.

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     Our client arrangements are distinguished from one another by the allocation between us and the client of the economic risk and reward of the marketing campaigns. The general characteristics of each arrangement are described below, although the arrangements with particular clients may contain unique characteristics:
    Direct marketing arrangements: Under direct marketing arrangements, we bear most of the new subscriber marketing costs and pay our client a commission for revenue derived from subscribers. These commissions could be payable upfront in a lump sum on a per subscriber basis for the subscriber’s enrollment, periodically over the life of a subscriber, or through a combination of both. These arrangements generally result in negative cash flow over the first several months after a program is launched due to the upfront nature of the marketing investments. In some arrangements, we pay the client a service fee for access to the client’s customers or billing of the subscribers by the client, and we may reimburse the client for certain of its out-of-pocket marketing costs incurred in obtaining the subscriber.
 
    Indirect marketing arrangements: Under indirect marketing arrangements, our client bears the marketing expense and pays us a service fee or percentage of the revenue. Because the subscriber acquisition cost is borne by our client under these arrangements, our revenue per subscriber is typically lower than that under direct marketing arrangements. Indirect marketing arrangements generally provide positive cash flow earlier than direct arrangements and the ability to obtain subscribers and utilize marketing channels that the clients otherwise may not make available.
 
    Shared marketing arrangements: Under shared marketing arrangements, marketing expenses are shared by us and the client in various proportions, and we may pay a commission to or receive a service fee from the client. Revenue generally is split relative to the investment made by our client and us.
     The classification of a client relationship as direct, indirect or shared is based on whether we or the client pay the marketing expenses. Our accounting policies for revenue recognition, however, are not based on the classification of a client arrangement as direct, indirect or shared. We look to the specific client arrangement to determine the appropriate revenue recognition policy, as discussed in detail in Note 2 to our condensed consolidated financial statements.
     Our typical contracts for direct marketing arrangements, and some indirect and shared marketing arrangements, provide that, after termination of the contract, we may continue to provide our services to existing subscribers, for periods ranging from two years to no specific termination period, under the economic arrangements that existed at the time of termination. Under certain of our agreements, however, including most indirect marketing arrangements and some shared marketing arrangements; the clients may require us to cease providing services under existing subscriptions. Clients under some contracts may also require us to cease providing services to their customers under existing subscriptions if the contract is terminated for material breach by us.
     The following table details other selected subscriber and financial data.
Other Data (in thousands):
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Subscribers at beginning of period
    4,150       4,301  
New subscribers — indirect
    232       229  
New subscribers — direct (1)
    313       472  
Cancelled subscribers within first 90 days of subscription
    (177 )     (240 )
Cancelled subscribers after first 90 days of subscription
    (370 )     (524 )
 
           
Subscribers at end of period
    4,148       4,238  
 
           
Total revenue
  $ 90,445     $ 91,489  
Revenue from transactional sales and lost/stolen credit card registry
    (1,168 )     (845 )
 
           
Subscription revenue
  $ 89,277     $ 90,644  
 
           
Marketing and commissions
  $ 37,548     $ 47,898  
Commissions paid on transactional sales and lost/stolen credit card registry
    (23 )     (13 )
 
           
Marketing and commissions associated with subscription revenue
  $ 37,525     $ 47,885  
 
           
 
(1)   We classify subscribers from shared marketing arrangements with direct marketing arrangements.

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     Subscription revenue, net of marketing and commissions associated with subscription revenue, is a non-GAAP financial measure that we believe is important to investors and one that we utilize in managing our business as subscription revenue normalizes the effect of changes in the mix of indirect and direct marketing arrangements.
     Online Brand Protection
     Through our subsidiary, Net Enforcers, we provide online brand protection services including online channel monitoring, auction monitoring, forum, blog and newsgroup monitoring and other services. Net Enforcers’ services include the use of technology and operations staff to search the Internet for instances of our clients’ brands and/or specific products, categorize each instance as potentially threatening to our clients based upon client provided criteria, and report our findings back to our clients. Net Enforcers also offers additional value added services to assist our clients to take actions to remediate perceived threats detected online. Net Enforcers’ services are typically priced as monthly subscriptions for a defined set of monitoring services, as well as per transaction charges for value added communications services. Prices for our services vary based upon the specific configuration of services purchased by each client and range from several hundred dollars per month to tens of thousands of dollars per month.
     Bail Bonds Industry Solutions
     Through our subsidiary, Captira Analytical, we provide automated service solutions for the bail bonds industry. These services include accounting, reporting, and decision making tools which allow bail bondsmen, general agents and sureties to run their offices more efficiently, to exercise greater operational and financial control over their businesses, and to make better underwriting decisions. We believe Captira Analytical’s services are the only fully integrated suite of bail bonds management applications of comparable scope available in the marketplace today. Captira Analytical’s services are sold to retail bail bondsman on a “per seat” license basis plus additional one-time or recurring charges for various optional services. Additionally, Captira Analytical has developed a suite of services for bail bonds insurance companies, general agents and sureties which are sold on either a transactional or recurring revenue basis.
Critical Accounting Policies
Management Estimates
     In preparing our condensed consolidated financial statements, we make estimates and assumptions that can have a significant impact on our financial position and results of operations. The application of our critical accounting policies requires an evaluation of a number of complex criteria and significant accounting judgments by us. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions. We have identified the following policies as critical to our business operations and the understanding of our results of operations. For further information on our critical and other accounting policies, see Note 2 to our condensed consolidated financial statements.
Revenue Recognition
     We recognize revenue on 1) identity theft and credit management services, 2) accidental death insurance and other membership products and 3) other monthly subscription products.
     Our products and services are offered to consumers primarily on a monthly subscription basis. Subscription fees are generally billed directly to the subscriber’s credit card, mortgage bill or demand deposit accounts. The prices to subscribers of various configurations of our products and services range generally from $4.99 to $25.00 per month. As a means of allowing customers to become familiar with our services, we sometimes offer free trial or guaranteed refund periods. No revenues are recognized until applicable trial periods are completed.

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Identity Theft and Credit Management Services
     We recognize revenue from our services when: a) persuasive evidence of arrangement exists as we maintain signed contracts with all of our large financial institution customers and paper and electronic confirmations with individual purchases, b) delivery has occurred once the product is transmitted over the internet, c) the seller’s price to the buyer is fixed as sales are generally based on contract or list prices and payments from large financial institutions are collected within 30 days with no significant write-offs, and d) collectability is reasonably assured as individual customers pay by credit card which has limited our risk of non-collection. Revenue for monthly subscriptions is recognized in the month the subscription fee is earned. For subscriptions with refund provisions whereby only the prorated subscription fee is refunded upon cancellation by the subscriber, deferred subscription fees are recorded when billed and amortized as subscription fee revenue on a straight-line basis over the subscription period, generally one year. We also generate revenue through a collaborative arrangement which involves joint marketing and servicing activities. We recognize our share of revenues and expenses from this arrangement.
     Revenue for annual subscription fees must be deferred if the subscriber has the right to cancel the service. Annual subscriptions include subscribers with full refund provisions at any time during the subscription period and pro-rata refund provisions. Revenue related to annual subscription with full refund provisions is recognized on the expiration of these refund provisions. Revenue related to annual subscribers with pro-rata provisions is recognized based on a pro rata share of revenue earned. An allowance for discretionary subscription refunds is established based on our actual experience.
     We also provide services for which certain financial institution clients are the primary obligors directly to their customers. Revenue from these arrangements is recognized when earned, which is at the time we provide the service, generally on a monthly basis.
     We record revenue on a gross basis in the amount that we bill the subscriber when our arrangements with financial institution clients provide for us to serve as the primary obligor in the transaction, we have latitude in establishing price and we bear the risk of physical loss of inventory and credit risk for the amount billed to the subscriber. We record revenue in the amount that we bill our financial institution clients, and not the amount billed to their customers, when our financial institution client is the primary obligor, establishes price to the customer and bears the credit risk.
Accidental Death Insurance and Other Membership Products
     We recognize revenue from our services when: a) persuasive evidence of arrangement exists as we maintain paper and electronic confirmations with individual purchases, b) delivery has occurred at the completion of a product trial period, c) the seller’s price to the buyer is fixed as the price of the product is agreed to by the customer as a condition of the sales transaction which established the sales arrangement, and d) collectability is reasonably assured as evidenced by our collection of revenue through the monthly mortgage payments of our customers or through checking account debits to our customers’ accounts. Revenues from insurance contracts are recognized when earned. Marketing of our insurance products generally involves a trial period during which time the product is made available at no cost to the customer. No revenues are recognized until applicable trial periods are completed.
     For insurance products, we record revenue on a net basis as we perform as an agent or broker for the insurance products without assuming the risks of ownership of the insurance products. For membership products, we generally record revenue on a gross basis as we serve as the primary obligor in the transactions, have latitude in establishing price and bear credit risk for the amount billed to the subscriber.
     We participate in agency relationships with insurance carriers that underwrite insurance products offered by us. Accordingly, insurance premiums collected from customers and remitted to insurance carriers are excluded from our revenues and operating expenses. Insurance premiums collected but not remitted to insurance carriers as of March 31, 2011 and December 31, 2010 totaled $1.1 million and $1.2 million, respectively, and are included in accrued expenses and other current liabilities in our condensed consolidated balance sheet.
Other Monthly Subscription Products
     We generate revenue from other types of subscription based products provided from our Online Brand Protection and Bail Bonds Industry Solutions segments. We recognize revenue from online brand protection and brand monitoring services, offered by Net Enforcers, on a monthly basis and from providing management service solutions, offered by Captira Analytical, on a monthly subscription basis.

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Goodwill, Identifiable Intangibles and Other Long Lived Assets
     We record, as goodwill, the excess of the purchase price over the fair value of the identifiable net assets acquired in purchase transactions. We review our goodwill for impairment annually, as of October 31, or more frequently if indicators of impairment exist, and follow the two step process. Goodwill has been assigned to our reporting units for purposes of impairment testing. As of March 31, 2011, goodwill of $43.2 million resides in our Consumer Products and Services reporting unit and there is no goodwill remaining in our other reporting units.
     A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others (a) a significant decline in our expected future cash flows; (b) a sustained, significant decline in our stock price and market capitalization; (c) a significant adverse change in legal factors or in the business climate; (d) unanticipated competition; (e) the testing for recoverability of a significant asset group within a reporting unit; and (f) slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our condensed consolidated financial statements.
     The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its carrying value. We estimate fair value using the best information available, using a combined income (discounted cash flow) valuation model and market based approach. The market approach measures the value of an entity through an analysis of recent sales or offerings of comparable companies. The income approach measures the value of the reporting units by the present values of its economic benefits. These benefits can include revenue and cost savings. Value indications are developed by discounting expected cash flows to their present value at a rate of return that incorporates the risk-free rate for use of funds, trends within the industry, and risks associated with particular investments of similar type and quality as of the valuation date.
     The estimated fair value of our reporting units is dependent on several significant assumptions, including our earnings projections, and cost of capital (discount rate). The projections use management’s best estimates of economic and market conditions over the projected period including business plans, growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. There are inherent uncertainties related to these factors and management’s judgment in applying each to the analysis of the recoverability of goodwill.
     We estimate fair value giving consideration to both the income and market approaches. Consideration is given to the line of business and operating performance of the entities being valued relative to those of actual transactions, potentially subject to corresponding economic, environmental, and political factors considered to be reasonable investment alternatives.
     If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying value of the reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with its goodwill carrying value to measure the amount of impairment charge, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of that reporting unit was the purchase price paid. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment charge is recognized in an amount equal to that excess.
     We review long-lived assets, including finite-lived intangible assets, property and equipment and other long term assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Significant judgments in this area involve determining whether a triggering event has occurred and determining the future cash flows for assets involved. In conducting our analysis, we compared the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the undiscounted cash flows exceed the net book value, the long-lived assets are considered not to be impaired. If the net book value exceeds the undiscounted cash flows, an impairment charge is measured and recognized. An impairment charge is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value is estimated by discounting the future cash flows associated with these assets.
     Intangible assets subject to amortization may include trademarks and customer, marketing and technology related intangibles. Such intangible assets, excluding customer related intangibles, are amortized on a straight-line basis over their estimated useful lives, which are generally three to ten years. Customer related intangible assets are amortized on either a straight-line or accelerated basis, dependent upon the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up.

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Deferred Subscription Solicitation and Advertising
     Our deferred subscription solicitation costs consist of subscription acquisition costs, including telemarketing, web-based marketing expenses and direct mail such as printing and postage. We expense advertising costs the first time advertising takes place, except for direct-response marketing costs. Telemarketing, web-based marketing and direct mail expenses are direct response marketing costs, which are amortized on a cost pool basis over the period during which the future benefits are expected to be received, but no more than 12 months. The recoverability of amounts capitalized as deferred subscription solicitation costs are evaluated at each balance sheet date by comparing the carrying amounts of such assets on a cost pool basis to the probable remaining future benefit expected to result directly from such advertising costs. Probable remaining future benefit is estimated based upon historical subscriber patterns, and represents net revenues less costs to earn those revenues. In estimating probable future benefit (on a per subscriber basis) we deduct our contractual cost to service that subscriber from the known sales price. We then apply the future benefit (on a per subscriber basis) to the number of subscribers expected to be retained in the future to arrive at the total probable future benefit. In estimating the number of subscribers we will retain (i.e., factoring in expected cancellations), we utilize historical subscriber patterns maintained by us that show attrition rates by client, product and marketing channel. The total probable future benefit is then compared to the costs of a given marketing campaign (i.e., cost pools), and if the probable future benefit exceeds the cost pool, the amount is considered to be recoverable. If direct response advertising costs were to exceed the estimated probable remaining future benefit, an adjustment would be made to the deferred subscription costs to the extent of any shortfall.
Commission Costs
     Commissions that relate to annual subscriptions with full refund provisions and monthly subscriptions are expensed when incurred, unless we are entitled to a refund of the commissions. If annual subscriptions are cancelled prior to their initial terms, we are generally entitled to a full refund of the previously paid commission for those annual subscriptions with a full refund provision and a pro-rata refund, equal to the unused portion of the subscription, for those annual subscriptions with a pro-rata refund provision. Commissions that relate to annual subscriptions with full commission refund provisions are deferred until the earlier of expiration of the refund privileges or cancellation. Once the refund privileges have expired, the commission costs are recognized ratably in the same pattern that the related revenue is recognized. Commissions that relate to annual subscriptions with pro-rata refund provisions are deferred and charged to operations as the corresponding revenue is recognized. If a subscription is cancelled, upon receipt of the refunded commission from our client, we record a reduction to the deferred commission.
     We have prepaid commission agreements with some of our clients. Under these agreements, we pay a commission on new subscribers in lieu of or reduction in ongoing commission payments. We amortize these prepaid commissions, on an accelerated basis, over a period of time not to exceed three years, which is the average expected life of customers. The short-term portion of the prepaid commissions is shown in deferred subscription solicitation costs in our condensed consolidated balance sheet. The long-term portion of the prepaid commissions is shown in other assets in our condensed consolidated balance sheet. Amortization is included in commission expense in our condensed consolidated statement of operations.
Share Based Compensation
     We use the Black-Scholes option-pricing model to value all options and the straight-line method to amortize this fair value as compensation cost over the requisite service period. The fair value of each option granted has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Expected dividend yield
    6.1 %     0 %
Expected volatility
    74.6 %     67.8 %
Weighted-average risk free interest rate
    2.5 %     2.8 %
Weighted-average expected life of options
  6.2 years     6.2 years  
     Expected Dividend Yield. The Black-Scholes valuation model requires an expected dividend yield as an input. Prior to September 10, 2010 we had not issued dividends and, therefore, the dividend yield used in grants prior to September 10, 2010 was zero. Subsequent to September 2010, we paid quarterly cash dividends of $0.15 per share on our common stock. We had a grant in the three months ended March 31, 2011 and we applied a dividend yield. For future grants, we will apply a dividend yield based on our history and expectation of dividend payouts.

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     Expected Volatility. In 2010, we revised our estimation method for calculating expected volatility. For the three months ended March 31, 2011, the expected volatility of the options granted was estimated based upon our historical share price volatility. For the three months ended March 31, 2010, the expected volatility of the options granted was estimated based upon our historical share price volatility as well as the average volatility of comparable public companies. We will continue to review our estimate in the future.
     Risk-free Interest Rate. The yield on actively traded non-inflation indexed U.S. Treasury notes was used to extrapolate an average risk-free interest rate based on the expected term of the underlying grants.
     Expected Term. The expected term of options granted during the three months ended March 31, 2011 and 2010 was determined under the simplified calculation ((vesting term + original contractual term)/2). For the majority of grants valued during the three months ended March 31, 2011 and 2010, the options had graded vesting over 4 years (equal vesting of options annually) and the contractual term was 10 years.
     In addition, we estimate forfeitures based on historical option and restricted stock unit activity on a grant by grant basis. We may make changes to that estimate throughout the vesting period based on actual activity.
Income Taxes
     We account for income taxes under the applicable provisions of U.S. GAAP, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation allowances are provided, if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
     Accounting for income taxes in interim periods provides that at the end of each interim period we are required to make our best estimate of the consolidated effective tax rate expected to be applicable for our full calendar year. The rate so determined shall be used in providing for income taxes on a consolidated current year-to-date basis. Further, the rate is reviewed, if necessary, as of the end of each successive interim period during the year to our best estimate of our annual effective tax rate.
     We believe that our tax positions comply with applicable tax law. As a matter of course, we may be audited by various taxing authorities and these audits may result in proposed assessments where the ultimate resolution may result in us owing additional taxes. U.S. GAAP addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.
Accounting Standards Updates
     Accounting Standards Updates Recently Adopted
     In January 2010, an update was made to “Fair Value Measurements and Disclosures”. This update requires new disclosures of transfers in and out of Levels 1 and 2 and of activity in Level 3 fair value measurements. The update also clarifies the existing disclosures for levels of disaggregation and about inputs and valuation techniques. This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We have adopted the provisions of this update as of January 1, 2011 and have included the additional disclosure requirements and there was no material impact to our condensed consolidated financial statements.
     In April 2010, an update was made to “Compensation — Stock Compensation”. This update provides amendments to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would classify such an award as a liability if it otherwise qualifies as equity. This update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier adoption is permitted. We have adopted the provisions of this update as of January 1, 2011 and there was no material impact to our condensed consolidated financial statements.

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     In December 2010, an update was made to “Intangibles — Goodwill and Other”. This update modifies step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2010. We have adopted the provisions of this update as of January 1, 2011 and there was no material impact to our condensed consolidated financial statements.
     In December 2010, an update was made to “Business Combinations”. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. We have adopted the provisions of this update as of January 1, 2011 and there was no impact to our condensed consolidated financial statements.
     Accounting Standards Updates Not Yet Effective
     In January 2011, an update was made to “Receivables”. The amendments in this update temporarily delay the effective date of disclosures about troubled debt restructuring for public entities. The effective date of the new disclosures about troubled debt restructuring for public entities and the guidance for determining what constitutes a troubled debt restructurings will be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. We will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.
Trends Related to the Current Economic Environment
     In 2011, we do not anticipate improvements in the U.S. economy to contribute measurably to our growth. Growth in consumer lending has lagged the general economic recovery. The lingering weakness in consumer lending could affect our financial performance in 2011 in two primary ways. First, lower new card issuances at our financial institution clients could translate into lower subscriber additions in our Consumer Products and Services segment. Second, charge or credit card delinquencies and card cancellations may be higher for certain of our services. Also, the lingering economic weakness has made acquiring and maintaining business more difficult, which we expect to persist in 2011.
Results of Continuing Operations
     We have three reportable segments with continuing operations: Consumer Products and Services, Online Brand Protection and Bail Bonds Industry Solutions. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services. This segment consists of identity theft management tools, services from our relationship with a third party that administers referrals for identity theft to major banking institutions and breach response services, membership product offerings and other subscription based services such as life and accidental death insurance. Our Online Brand Protection segment includes corporate brand protection provided by Net Enforcers. Our Bail Bonds Industry Solutions segment includes the software management solutions for the bail bond industry provided by Captira Analytical.

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Three Months Ended March 31, 2011 vs. Three Months Ended March 31, 2010 (in thousands):
     The condensed consolidated results of operations are as follows:
                                 
    Consumer                      
    Products             Bail Bonds        
    and     Online Brand     Industry        
    Services     Protection     Solutions     Consolidated  
Three Months Ended March 31, 2011                                
Revenue
  $ 89,730     $ 542     $ 173     $ 90,445  
Operating expenses:
                               
Marketing
    9,773                   9,773  
Commissions
    27,775                   27,775  
Cost of revenue
    25,250       144       14       25,408  
General and administrative
    15,245       797       495       16,537  
Depreciation
    1,907       5       11       1,923  
Amortization
    993       7             1,000  
 
                       
Total operating expenses
    80,943       953       520       82,416  
 
                       
Income (loss) from operations
  $ 8,787     $ (411 )   $ (347 )   $ 8,029  
 
                       
Three Months Ended March 31, 2010
                               
Revenue
  $ 90,918     $ 463     $ 108     $ 91,489  
Operating expenses:
                               
Marketing
    17,103                   17,103  
Commissions
    30,795                   30,795  
Cost of revenue
    22,986       162       23       23,171  
General and administrative
    14,239       598       480       15,317  
Depreciation
    2,091       5             2,096  
Amortization
    2,292       7             2,299  
 
                       
Total operating expenses
    89,506       772       503       90,781  
 
                       
Income (loss) from operations
  $ 1,412     $ (309 )   $ (395 )   $ 708  
 
                       
Consumer Products and Services Segment
OVERVIEW
     Our income from operations for our Consumer Products and Services segment increased in the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. The increase in income from operations is primarily due to decreased marketing expenses in our direct subscription and direct to consumer business, along with decreased commissions expenses. This was partially offset by increased effective rates for data required to support ongoing subscribers. Our subscription revenue (see Other Data) decreased to $89.3 million from $90.6 million in the comparable period.
                                 
    Three Months Ended March 31,  
    2011     2010     Difference     %  
Revenue
  $ 89,730     $ 90,918     $ (1,188 )     (1.3 )%
Operating expenses:
                               
Marketing
    9,773       17,103       (7,330 )     (42.9 )%
Commissions
    27,775       30,795       (3,020 )     (9.8 )%
Cost of revenue
    25,250       22,986       2,264       9.9 %
General and administrative
    15,245       14,239       1,006       7.1 %
Depreciation
    1,907       2,091       (184 )     (8.8 )%
Amortization
    993       2,292       (1,299 )     (56.7 )%
 
                         
Total operating expenses
    80,943       89,506       (8,563 )     (9.6 )%
 
                         
Income from operations
  $ 8,787     $ 1,412     $ 7,375       522.3 %
 
                         
     Revenue. The decrease in revenue is primarily due to a reduction in subscribers in one of our direct marketing arrangements. This was partially offset by increased revenue from our direct to consumer business and growth in our indirect marketing arrangements. The percentage of revenue from direct marketing arrangements, in which we recognize the gross amount billed to the subscriber, has increased to 89.3% for the three months ended March 31, 2011 from 88.6% in the three months ended March 31, 2010.
     Total subscriber additions for the three months ended March 31, 2011 were 545 thousand compared to 701 thousand in the three months ended March 31, 2010.

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     The table below shows the percentage of subscribers generated from direct marketing arrangements:
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Percentage of subscribers from direct marketing arrangements to total subscribers
    57.8 %     61.2 %
Percentage of new subscribers acquired from direct marketing arrangements to total new subscribers acquired
    57.4 %     67.3 %
Percentage of revenue from direct marketing arrangements to total subscription revenue
    89.3 %     88.6 %
     Marketing Expenses. Marketing expenses consist of subscriber acquisition costs, including radio, television, telemarketing, web-based marketing and direct mail expenses such as printing and postage. The decrease in marketing is primarily a result of a decrease in marketing expenses for our direct subscription business with existing clients and a decrease in marketing for our direct to consumer business. Amortization of deferred subscription solicitation costs related to marketing for the three months ended March 31, 2011 and 2010 were $9.0 million and $12.3 million, respectively. Marketing costs expensed as incurred for the three months ended March 31, 2011 and 2010 were $775 thousand and $4.8 million, respectively, primarily related to broadcast media for our direct to consumer business, which do not meet the criteria for capitalization.
     As a percentage of revenue, marketing expenses decreased to 10.9% for the three months ended March 31, 2011 from 18.8% for the three months ended March 31, 2010.
     Commissions Expenses. Commission expenses consist of commissions paid to our clients. The decrease in commissions expense is primarily due to a reduction in sales and subscribers from our direct marketing arrangements, partially offset by an increase in the effective commission rate.
     As a percentage of revenue, commission expenses decreased to 31.0% for the three months ended March 31, 2011 from 33.9% for the three months ended March 31, 2010.
     Cost of Revenue. Cost of revenue consists of the costs of operating our customer service and information processing centers, data costs, and billing costs for subscribers and one-time transactional sales. The increase in cost of revenue is primarily the result of an increase in the effective rates for data, partially offset by reduced data fulfillment and service costs. We expect increased data rates to continue in 2011 and possibly, thereafter.
     As a percentage of revenue, cost of revenue increased to 28.1% for the three months ended March 31, 2011 compared to 25.3% for the three months ended March 31, 2010, as a result of an increase in the ratio of revenue from direct marketing arrangements and data cost rates.
     General and Administrative Expenses. General and administrative expenses consist of personnel and facilities expenses associated with our executive, sales, marketing, information technology, finance, program and account management functions. The increase in general and administrative expenses is primarily related to increased payroll costs and professional fees.
     Total share based compensation expense for the three months ended March 31, 2011 and 2010 was $1.7 million and $1.4 million, respectively. In addition, we incurred compensation expense of $384 thousand for payments to RSU holders equivalent to the dividends that would have been received on these shares had they been fully vested.
     As a percentage of revenue, general and administrative expenses increased to 17.0% for the three months ended March 31, 2011 from 15.7% for the three months ended March 31, 2010.
     Depreciation. Depreciation expenses consist primarily of depreciation expenses related to our fixed assets and capitalized software. Depreciation expense decreased for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.
     As a percentage of revenue, depreciation expenses decreased slightly to 2.1% for the three months ended March 31, 2011 and 2.3% for the three months ended March 31, 2010.
     Amortization. Amortization expenses consist primarily of the amortization of our intangible assets. The decrease in amortization expense is due to a reduction in amortization of customer-related intangible assets, which are amortized on an accelerated basis, from the comparable period.
     As a percentage of revenue, amortization expenses decreased to 1.1% for the three months ended March 31, 2011 from 2.5% for the three months ended March 31, 2010.
Online Brand Protection Segment
     Our loss from operations in our Online Brand Protection segment increased for the three months ended March 31, 2011 as compared to the three months year ended March 31, 2010 primarily due to increased general and administrative expenses associated with our ongoing litigation and regulatory compliance issues.

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    Three Months Ended March 31,  
    2011     2010     Difference     %  
Revenue
  $ 542     $ 463     $ 79       17.1 %
Operating expenses:
                               
Cost of revenue
    144       162       (18 )     (11.1 )%
General and administrative
    797       598       199       33.3 %
Depreciation
    5       5              
Amortization
    7       7              
 
                       
Total operating expenses
    953       772       181       23.4 %
 
                       
Loss from operations
  $ (411 )   $ (309 )   $ (102 )     (33.0 )%
 
                       
     Revenue. The increase in revenue is primarily due to increased sales with existing clients.
     Cost of Revenue. Cost of revenue consists of the costs of operating our customer service and information processing centers, data costs and billing costs for subscribers. The decrease in cost of revenue is primarily due to reductions in direct labor costs.
     As a percentage of revenue, cost of revenue decreased to 26.6% for the three months ended March 31, 2011 compared to 35.0% for the three months ended March 31, 2010.
     General and Administrative Expenses. General and administrative expenses consist of personnel and facilities expenses associated with our sales, marketing, information technology, finance, and program and account functions. The increase in general and administrative expenses is due to legal fees associated with our ongoing litigation and regulatory compliance issues.
     As a percentage of revenue, general and administrative expenses increased to 147.0% for the three months ended March 31, 2011 from 129.2% for the three months ended March 31, 2010.
Bail Bonds Industry Solutions Segment
     Our loss from operations in our Bail Bonds Industry Solutions segment decreased for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010. The decrease in loss from operations for the three months ended March 31, 2011 is primarily driven by growth in revenue.
                                 
    Three Months Ended March 31,  
    2011     2010     Difference     %  
Revenue
  $ 173     $ 108     $ 65       60.2 %
Operating expenses:
                               
Cost of revenue
    14       23       (9 )     (39.1 )%
General and administrative
    495       480       15       3.1 %
Depreciation
    11             11       100.0 %
 
                       
Total operating expenses
    520       503       17       3.4 %
 
                       
Loss from operations
  $ (347 )   $ (395 )   $ 48       12.2 %
 
                       
     Revenue. The increase in revenue is the result of revenue from adding new clients.
     Cost of Revenue. Cost of revenue consists of monitoring and credit bureau expenses. The decrease in cost of revenue is primarily due to a reduction in monitoring costs.
     As a percentage of revenue, cost of revenue decreased to 8.1% for the three months ended March 31, 2011 compared to 21.3% for the three months ended March 31, 2010.
     General and Administrative Expenses. General and administrative expenses consist of personnel and facilities expenses associated with our sales, marketing, information technology, finance, and program and account functions. The increase in general and administrative expenses is due to an increase in professional fees.

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Interest Expense
     Interest expense decreased 82.5% to $106 thousand for the three months ended March 31, 2011 from $605 thousand for the three months ended March 31, 2010. The decrease is primarily attributable to a decrease in interest expense on our outstanding debt and reductions in our uncertain tax positions, of which interest expense is recorded, in the comparable period.
Income Taxes
     Our consolidated effective tax rate from continuing operations for the three months ended March 31, 2011 and 2010 was 41.8% and 400.0%, respectively. The change from the comparable period is primarily due to a reduction in a discrete item from an uncertain tax position in a foreign jurisdiction. The reduction, along with the ratio of a significant increase in income from continuing operations before tax, decreased the effective tax rate and resulted in a more normalized rate for the three months ended March 31, 2011.
     In addition, the liability for uncertain tax positions increased by approximately $63 thousand from December 31, 2010. The short-term portion of the liability is recorded in accrued expenses and other current liabilities and the long-term portion is recorded in other long-term liabilities in the condensed consolidated balance sheet. We record income tax penalties related to uncertain tax positions as part of our income tax expense in the condensed consolidated financial statements. We record interest expense related to uncertain tax positions as part of interest expense in the condensed consolidated financial statements. In the three months ended March 31, 2011 and 2010, we recorded penalties of $22 thousand and $219 thousand and interest of $9 thousand and $183 thousand, respectively. The penalties and interest increased the effective tax rate in the three months ended March 31, 2011.
Results of Discontinued Operations
     Our Background Screening segment consisted of the personnel and vendor background screening services provided by Screening International. On July 19, 2010, we and Screening International Holdings entered into a membership interest purchase agreement with Sterling Infosystems, pursuant to which Screening International Holdings sold, and Sterling Infosystems acquired, 100% of the membership interests of Screening International for an aggregate purchase price of $15.0 million in cash plus adjustments for working capital and other items. Screening International Holdings is not an operating subsidiary and our background screening services ceased upon the sale of Screening International.
     The following table summarizes the operating results of the discontinued operations included in the consolidated statement of operations (in thousands):
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Revenue
  $     $ 5,100  
 
           
Loss before income taxes from discontinued operations
  $     $ (832 )
Income tax benefit (expense)
          22  
 
           
Loss from discontinued operations
          (810 )
Gain on disposal from discontinued operations
           
Net loss attributable to noncontrolling interest in discontinued operations
           
 
           
(Loss) income from discontinued operations
  $     $ (810 )
 
           
Liquidity and Capital Resources
     Cash Flow
     Cash and cash equivalents were $24.8 million as of March 31, 2010 compared to $14.5 million as of December 31, 2010. We believe our cash and cash equivalents are highly liquid investments and may include short-term U.S. Treasury securities with original maturity dates of less than or equal to 90 days.
     As of December 31, 2010 we held short term U.S. treasury securities with a maturity date greater than 90 days of approximately $5.0 million, which were classified as short-term investments in our consolidated financial statements. We redeemed all of our U.S. treasury securities in the three months ended March 31, 2011.

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     Our accounts receivable balance as of March 31, 2011 was $19.5 million compared to $19.2 million as of December 31, 2010. Our accounts receivable balance consists primarily of credit card transactions that have been approved but not yet deposited into our account and several large balances with some of our top financial institutions clients. The likelihood of non-payment has historically been remote with respect to subscriber based clients billed, however, we do provide for an allowance for doubtful accounts with respect to corporate brand protection clients. We are continuing to monitor our allowance for doubtful accounts with respect to our financial institution obligors. In addition, we provide for a refund allowance, which is included in liabilities in our condensed consolidated balance sheet, against transactions that may be refunded in subsequent months. This allowance is based on historical results
     Our sources of capital include, but are not limited to, cash and cash equivalents, cash from continuing operations, amounts available under our Credit Agreement and other external sources of funds. Our short-term and long-term liquidity depends primarily upon our level of net income, working capital management and bank borrowings. We had a working capital surplus of $14.5 million as of March 31, 2011 compared to $30.5 million as of December 31, 2010. We believe that available short-term and long-term capital resources are sufficient to fund capital expenditures, working capital requirements, scheduled debt payments and interest and tax obligations for the next twelve months. We expect to utilize our cash provided by operations to fund our ongoing operations.
                         
    Three Months Ended March 31,  
    2011     2010     Difference  
    (In thousands)  
Cash flows provided by operating activities
  $ 12,664     $ 8,860     $ 3,804  
Cash flows provided by (used in) investing activities
    554       (2,537 )     3,091  
Cash flows used in financing activities
    (2,877 )     (3,279 )     402  
Effect of exchange rate changes on cash and cash equivalents
          (10 )     10  
 
                 
Net increase in cash and cash equivalents
    10,341       3,034       7,307  
Cash and cash equivalents, beginning of year
    14,453       12,394       2,059  
 
                 
Cash and cash equivalents, end of year
  $ 24,794     $ 15,428     $ 9,366  
 
                 
     The increase in cash flows provided by operations was primarily the result of an increase in earnings and a decrease in cash paid for marketing and prepaid commissions, partially offset by a decrease in other assets related to a receipt of a receivable from an ongoing joint marketing arrangement and an increase in income tax payments. In the three months ended March 31, 2011, cash flows used in operations for deferred subscription solicitation costs was $11.4 million as compared to $16.2 million in the three months ended March 31, 2010. If we consent to the specific requests from clients to incur higher solicitation costs and choose to incur the costs, we may need to raise additional funds in the future in order to operate and expand our business. There can be no assurances that we will be successful in raising additional funds on favorable terms, or at all, which could materially adversely affect our business, strategy and financial condition, including losses of or changes in the relationships with one or more of our clients.
     The increase in cash flows provided by investing activities for the three months ended March 31, 2011 was primarily attributable to cash proceeds received from the redemption of our short-term investment, partially offset by purchases of property and equipment.
     The decrease in cash flows used in financing activities for three months ended March 31, 2011 was primarily due to a reduction in long-term debt repayments and cash distribution on vesting of restricted stock units partially offset by cash dividends paid on common shares. We borrowed $20.0 million from our Credit Agreement to repurchase approximately 1.7 million common shares at an aggregate cost to us of $19.6 million during the three months ended March 31, 2011.
     The following summarizes our dividend activity for the three months ended March 31, 2011:
                         
Announcement Date   Record Date   Payment Date   Cash Dividend Amount (per share)
February 7, 2011
  February 28, 2011   March 10, 2011   $ 0.15  
     On April 21, 2011, we announced a cash dividend of $0.15 per share on our common stock, payable on June 10, 2011, to stockholders of record as of May 31, 2011.

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     Credit Facility and Borrowing Capacity
     We have a Credit Agreement with Bank of America, N.A., which has a maturity date of December 31, 2011. Our Credit Agreement currently consists of a revolving credit facility in the amount of $25.0 million, and is secured by substantially all of our assets and a pledge by us of stock and membership interests it holds in certain of its subsidiaries. Our subsidiaries are co-borrowers under the Credit Agreement.
     In July 2010, following the sale of Screening International, we prepaid the outstanding principal balance of the term loan portion of the Credit Agreement, and the term loan may not be re-drawn. We amended the Credit Agreement in the three months ended March 31,2011 in connection with the share repurchase to provide for the consent of the lenders to the share repurchase and to clarify covenant calculations. As part of this amendment, we agreed to maintain available liquidity of at least $10.0 million at all times while the Credit Agreement is in effect. As of March 31, 2011, the outstanding balance of the revolving credit facility was $20.0 million, which is included as a current liability in our condensed consolidated balance sheet, and we have approximately $24.8 million in cash and equivalents on our condensed consolidated balance sheet in addition to unused capacity under the Credit Agreement, which more than satisfies the minimum available liquidity requirement.
     The Credit Agreement contains certain customary covenants, including among other things covenants that limit or restrict the incurrence of liens; the incurrence of certain indebtedness; mergers, dissolutions, liquidation, or consolidations; acquisitions (other than certain permitted acquisitions); sales of substantially all of our or any co-borrowers’ assets; the declaration of certain dividends or distributions; transactions with affiliates (other than co-borrowers under the Credit Agreement) other than on fair and reasonable terms; share repurchases; and the creation or acquisition of any direct or indirect subsidiary of ours that is not a domestic subsidiary unless such subsidiary becomes a guarantor. We are also required to maintain compliance with certain financial covenants which includes our consolidated leverage ratios, consolidated fixed charge coverage ratios, minimum available liquidity requirements as well as customary covenants, representations and warranties, funding conditions and events of default. We are currently in compliance with all such covenants.
     We intend to replace the credit facility prior to its expiration in December 2011. Although we believe we can do so on terms at least as favorable as the current facility; however, such terms will be subject to market conditions which may change significantly.
     Share Repurchase
     On April 25, 2005, our Board of Directors authorized a share repurchase program under which we can repurchase up to $20.0 million of our outstanding shares of common stock from time to time, depending on market conditions, share price and other factors. On August 12, 2010, our Board of Directors further increased the authorized amount under our existing share repurchase program to a total of $30.0 million of our common shares.
     During the three months ended March 31, 2011 we repurchased approximately 1.7 million shares of common stock at $11.25 per share resulting in an aggregate cost to us of $19.6 million. Following the repurchase, our Board of Directors further increased the authorized amount under our existing share repurchase program to $20.0 million, of which approximately $10.4 million is available for purchase on March 31, 2011 under the terms of our Credit Agreement. Therefore, as of March 31, 2011, we have $20.4 million remaining in our repurchase program. The repurchases may be made on the open market, in block trades, through privately negotiated transactions or otherwise, and the program may be suspended or discontinued at any time. We did not repurchase any common stock in the three months ended March 31, 2010.
     Contractual Obligations
     On January 19, 2011, we entered into a Broker Agreement for Consumer Disclosure Service with Equifax Information Services LLC (“Equifax”), pursuant to which we will continue to purchase credit information from Equifax for use in our products and services. The Broker Agreement is effective as of January 1, 2011 and has a term of one year, subject to automatic renewals for two additional one year terms unless either party decides not to renew or the agreement is terminated for cause.

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Item 4. Controls and Procedures
     The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Our officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our chief executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
     There have been no changes in our internal control over financial reporting during the three months ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
     On May 27, 2009, we filed a complaint in the U.S. District Court for the Eastern District of Virginia against Joseph C. Loomis and Jenni M. Loomis in connection with our stock purchase agreement to purchase all of Net Enforcers, Inc.’s (NEI) stock in November 2007 (the “Virginia Litigation”). We alleged, among other things, that Mr. Loomis committed securities fraud, breached the stock purchase agreement, and breached his fiduciary duties to the company. The complaint also seeks a declaration that NEI is not in breach of its employment agreement with Mr. Loomis and that, following NEI’s termination of Mr. Loomis for cause, NEI’s obligations pursuant to the agreement were terminated. In addition to a judgment rescinding the stock purchase agreement and return of the entire purchase price we had paid, we are seeking unspecified compensatory, consequential and punitive damages, among other relief. On July 2, 2009, Mr. Loomis filed a motion to dismiss certain of our claims. On July 24, 2009, Mr. Loomis’ motion to dismiss our claims was denied in its entirety. Mr. Loomis also asserted counterclaims for an unspecified amount not less than $10,350,000, alleging that NEI breached the employment agreement by terminating him without cause and breached the stock purchase agreement by preventing him from running NEI in such a way as to earn certain earn-out amounts. On January 14, 2010, we settled all claims with Mr. Loomis and his sister, co-defendant Jenni Loomis. On January 26, 2010, prior to final documentation of the settlement and transfer of the funds, Mr. Loomis filed for bankruptcy in the United States Bankruptcy Court for the District of Arizona (the “Bankruptcy Court’). The Virginia litigation thus was automatically stayed as related to Mr. Loomis. In furtherance of our efforts to enforce the settlement agreement, we obtained a stay of the case as related to Jenni Loomis as well. On April 22, 2010, the Bankruptcy Court granted our motion to modify the stay so that we may seek a declaration from the U.S. District Court for the Eastern District of Virginia that the settlement is enforceable. We made a motion in the U.S. District Court to enforce the settlement agreement. On November 3, 2010, the U.S. District Court denied our motion, and ordered the parties to report in fourteen days on whether the automatic stay had been lifted by the Bankruptcy Court to allow the U.S. District Court to proceed with trial. On January 26, 2011, the Bankruptcy Court lifted the automatic stay, and the U.S. District Court for the Eastern District of Virginia has scheduled a trial to commence on May 2, 2011. Prior to the trial date, the parties, along with various related non-parties, entered into a settlement agreement resolving all claims in this matter. Completion of the settlement depends on satisfaction of certain conditions, including our acceptance of the transfer to us by Mr. Loomis or certain related non-parties of certain real property and real property interests. The settlement has been approved by the Bankruptcy Court, and the U.S. District Court has stayed the trial pending completion of the settlement. We are conducting due diligence regarding the real property and real property interests. We do not know at this time whether all conditions to completion of the settlement will be satisfied.
     On September 11, 2009, a putative class action complaint was filed against Intersections, Inc., Intersections Insurance Services Inc., Loeb Holding Corp., Bank of America of America, NA, Banc of America Insurance Services, Inc., American International Group, Inc., National Union Fire Insurance Company of Pittsburgh, PA, and Global Contact Services, LLC, in the U.S. District Court for the Southern District of Texas. The complaint alleges various claims based on telemarketing of an accidental death and disability program. On February 22, 2011, the U.S. District Court dismissed all of the plaintiff’s claims against us and the other defendants. The plaintiff has filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit, and the briefing by the parties is ongoing.
     On February 16, 2010, a putative class action complaint was filed against Intersections, Inc., Bank of America Corporation, and FIA Card Services, N.A., in the U.S. District Court for the Northern District of California. The complaint alleges various claims based on the provision of identity protection services to the named plaintiff. Defendants filed answers to the complaint on May 24, 2010. On April 19, 2011, an amended complaint was filed. In the amended complaint, the original named plaintiff was withdrawn from the case, and three new plaintiffs were added. Our response to the amended complaint is due on or about May 19, 2011. We currently are investigating the new claims. We believe that it is too early to make a determination of the likelihood of success in defeating the claims.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchase of equity securities by the Issuer and Affiliated Purchasers.
The following table contains information for shares repurchased during the three months ended March 31, 2011:
                                 
                            Approximate
                            Dollar Value
                            of Shares
                    Total Number of   that May Yet
    Total Number           Shares Purchased   Be
    of Shares   Average   as Part of Publicly   Purchased
    Purchased (1)   Price Paid   Announced Plan   Under the
    (2)   per Share   (2)   Plan
January 1, 2011 to January 31, 2011
                       
February 1, 2011 to February 28, 2011
                       
March 1, 2011 to March 31, 2011
    1,742,463     $ 11.25       1,742,463     $ 20,000,000  
 
(1)   Average price per share excludes commissions.
 
(2)   The repurchases were made pursuant to the program announced on August 12, 2010 under which our Board of Directors had authorized the repurchase of up to $30.0 million of our common stock. The repurchases may be made on the open market, in block trades, through privately negotiated transactions or otherwise, and the program may be suspended or discontinued at any time. Following the repurchase, we had approximately $445 thousand authorized for future purchases. On March 31, 2011 following the repurchase, our Board of Directors further increased the authorization for future purchases to $20.0 million.
Item 6. Exhibits
     
10.1† *
  Broker Agreement for Consumer Disclosure Service, dated as of January 19, 2011, between the Registrant and Equifax Information Services LLC (Incorporated by reference to Exhibit 10.1, filed with the Form 8-K filed on January 24, 2011).
 
   
10.2*
  Amendment No. 5 dated as of March 30, 2011 to Credit Agreement dated as of July 3, 2006 by and among the Registrant, certain Subsidiaries thereof, Bank of America, N.A. and L/C Issuer (Incorporated by reference to Exhibit 10.1, filed with the Form 8-K filed on April 4, 2011).
 
   
31.1*
  Certification of Michael R. Stanfield, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2*
  Certification of John G. Scanlon, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1*
  Certification of Michael R. Stanfield, Chief 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 John G. Scanlon, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
  Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange Commission.
 
*   Filed herewith

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SIGNATURE
     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.
         
  INTERSECTIONS INC.
 
 
  By:   /s/ John G. Scanlon    
    John G. Scanlon   
Date: May 10, 2011    Chief Financial Officer   
 

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