Edgar Filing: INTERSECTIONS INC

e10vq

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 September 30, 2010


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 November 9, 2010 there were 18,858,401 shares of common stock, $0.01 par value, issued and 17,741,985 shares outstanding, with 1,116,416 shares of treasury stock.

Form 10-Q

September 30, 2010
Table of Contents


	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)		3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009		3
Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009		4
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2010 and the Year Ended December 31, 2009		5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 4. Controls and Procedures		48
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		48
Item 6. Exhibits		49
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Revenue	$	89,326		$	88,324		$	272,940		$	256,965
Operating expenses:
Marketing		11,828			15,492			41,615			45,868
Commissions		28,731			28,232			89,335			80,882
Cost of revenue		21,528			22,682			66,610			67,915
General and administrative		16,024			15,420			46,585			44,595
Depreciation		2,039			1,753			6,094			5,430
Amortization		1,394			1,795			5,570			6,134

Total operating expenses		81,544			85,374			255,809			250,824

Income from operations		7,782			2,950			17,131			6,141
Interest income		5			6			16			148
Interest expense		(527	)		(443	)		(1,658	)		(843	)
Other (expense) income, net		(224	)		229			(274	)		40

Income from continuing operations before income taxes		7,036			2,742			15,215			5,486
Income tax expense		(2,663	)		(1,206	)		(6,292	)		(2,070	)

Income from continuing operations		4,373			1,536			8,923			3,416

Income (loss) from discontinued operations, net of tax		63			(1,187	)		(379	)		(10,663	)
Gain on disposal of discontinued operations		5,868			—			5,868			—
Net loss attributable to noncontrolling interest in discontinued operations		—			—			—			4,380

Income (loss) from discontinued operations		5,931			(1,187	)		5,489			(6,283	)

Net income (loss) attributable to Intersections, Inc.	$	10,304		$	349		$	14,412		$	(2,867	)


Basic earnings (loss) per share:
Net income from continuing operations	$	0.25		$	0.09		$	0.50		$	0.20
Net income (loss) from discontinued operations		0.33			(0.07	)		0.31			(0.36	)

Basic earnings (loss) per share	$	0.58		$	0.02		$	0.81		$	(0.16	)


Diluted earnings (loss) per share:
Net income from continuing operations	$	0.24		$	0.09		$	0.49		$	0.20
Net income (loss) from discontinued operations		0.32			(0.07	)		0.30			(0.36	)

Diluted earnings (loss) per share	$	0.56		$	0.02		$	0.79		$	(0.16	)


Cash dividends paid per common share	$	0.15		$	—		$	0.15		$	—

Weighted average shares outstanding:
Basic		17,759			17,534			17,688			17,470
Diluted		18,568			17,851			18,175			17,598

See Notes to Condensed Consolidated Financial Statements

INTERSECTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)


	September 30,			December 31,
	2010			2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	28,330		$	12,394
Short-term investments		4,994			4,995
Accounts receivable, net of allowance for doubtful accounts $104 (2010) and $374 (2009)		17,659			25,111
Prepaid expenses and other current assets		5,617			5,182
Income tax receivable		5,640			2,460
Deferred subscription solicitation costs		26,808			34,256

Total current assets		89,048			84,398

PROPERTY AND EQUIPMENT, net		17,854			17,802
DEFERRED TAX ASSET, net		6,983			3,700
LONG-TERM INVESTMENT		4,327			3,327
GOODWILL		43,235			46,939
INTANGIBLE ASSETS, net		16,043			21,613
OTHER ASSETS		8,144			14,392

TOTAL ASSETS	$	185,634		$	192,171

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	—		$	7,000
Capital leases, current portion		1,353			1,028
Accounts payable		3,168			9,168
Accrued expenses and other current liabilities		15,527			17,255
Accrued payroll and employee benefits		2,673			2,782
Commissions payable		755			2,044
Deferred revenue		4,698			5,202
Deferred tax liability, net, current portion		15,275			14,879

Total current liabilities		43,449			59,358

LONG-TERM DEBT		21,000			31,393
OBLIGATIONS UNDER CAPITAL LEASES, less current portion		2,446			1,681
OTHER LONG-TERM LIABILITIES		7,284			3,332

TOTAL LIABILITIES		74,179			95,764

COMMITMENTS AND CONTINGENCIES (see notes 12 and 14)
STOCKHOLDERS’ EQUITY:
Common stock at $.01 par value; shares authorized, 50,000; shares issued, 18,858 (2010) and 18,662 (2009); shares outstanding, 17,741 (2010) and 17,595 (2009)		189			187
Additional paid-in capital		107,814			104,810
Treasury stock, shares at cost; 1,117 (2010) and 1,067 (2009)		(9,948	)		(9,516	)
Retained earnings		13,773			2,027
Accumulated other comprehensive (loss) income:
Cash flow hedge		(377	)		(856	)
Other		4			(245	)

TOTAL STOCKHOLDERS’ EQUITY		111,455			96,407

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	185,634		$	192,171

See Notes to Condensed Consolidated Financial Statements

INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Year Ended December 31, 2009 and the Nine Months Ended September 30, 2010
(in thousands)
(unaudited)


	Common				Additional			Stock								Other			Intersections Inc.						Total
	Stock				Paid-in					Income			Retained			Comprehensive			Stockholders’			Noncontrolling			Stockholders’
	Shares		Amount		Capital			Shares		(Loss)			Earnings			Income (Loss)			Equity			Interest			Equity
													(In thousands)
BALANCE, DECEMBER 31, 2008		18,383	$	184	$	103,544			1,067	$	(9,516	)	$	8,380		$	(1,153	)	$	101,439		$	1,013		$	102,452

Issuance of common stock upon exercise of stock options and vesting of restricted stock units		279		3		(670	)		—		—			—			—			(667	)		—			(667	)
Share based compensation		—		—		4,556			—		—			—			—			4,556			—			4,556
Tax deficiency of stock options exercised and vesting of restricted stock units		—		—		(87	)		—		—			—			—			(87	)		—			(87	)
Release of uncertain tax benefits		—		—		526			—		—			—			—			526			—			526
Purchase of noncontrolling interest		—		—		(3,059	)		—		—			—			(200	)		(3,259	)		3,658			399
Net loss		—		—		—			—		—			(6,353	)		—			(6,353	)		(4,380	)		(10,733	)
Foreign currency translation adjustments		—		—		—			—		—			—			(155	)		(155	)		(291	)		(446	)
Cash flow hedge		—		—		—			—		—			—			407			407			—			407

Comprehensive Loss		—		—		—			—		—			—			—			(5,032	)		(1,013	)		(6,045	)

BALANCE, DECEMBER 31, 2009		18,662	$	187	$	104,810			1,067	$	(9,516	)	$	2,027		$	(1,101	)	$	96,407		$	—		$	96,407

Issuance of common stock upon exercise of stock options and vesting of restricted stock units		196		2		(1,087	)		—		—			—			—			(1,085	)		—			(1,085	)
Share based compensation		—		—		4,299			—		—			—			—			4,299			—			4,299
Tax deficiency upon vesting of restricted stock units		—		—		(208	)		—		—			—			—			(208	)		—			(208	)
Cash dividends paid on common shares		—		—		—			—		—			(2,666	)		—			(2,666	)		—			(2,666	)
Purchase of treasury stock		—		—		—			50		(432	)		—			—			(432	)		—			(432	)
Net income		—		—		—			—		—			14,412			—			14,412			—			14,412
Foreign currency translation adjustments		—		—		—			—		—			—			249			249			—			249
Cash flow hedge		—		—		—			—		—			—			479			479			—			479

Comprehensive Income		—		—		—			—		—			—			—			15,048			—			15,048

BALANCE, SEPTEMBER 30, 2010		18,858	$	189	$	107,814			1,117	$	(9,948	)	$	13,773		$	(373	)	$	111,455		$	—		$	111,455

See Notes to Condensed Consolidated Financial Statements.

INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


	Nine Months Ended
	September 30,
	2010			2009
Net income (loss)	$	14,412		$	(7,247	)
Adjustments to reconcile net income (loss) to cash flows provided by operating activities:
Depreciation		6,521			6,061
Amortization		5,570			6,473
Loss on disposal of fixed assets		—			64
Amortization of debt issuance cost		104			65
Accretion of interest on note payable		73			—
Provision for doubtful accounts		(210	)		47
Share based compensation		4,168			3,151
Amortization of deferred subscription solicitation costs		48,425			49,477
Goodwill impairment charges		—			6,163
Gain on disposal of discontinued operations		(5,868	)		—
Foreign currency transaction losses (gains), net		301			(616	)
Derivative loss reclassified to earnings		265			—
Changes in assets and liabilities:
Accounts receivable		4,411			2,418
Prepaid expenses and other current assets		(895	)		(129	)
Income tax receivable		(2,911	)		5,123
Tax benefit upon vesting of restricted stock units and option exercises		(68	)		(338	)
Deferred subscription solicitation costs		(38,429	)		(53,885	)
Other assets		5,180			(3,773	)
Accounts payable		(4,740	)		(3,732	)
Accrued expenses and other current liabilities		(2,299	)		3,636
Accrued payroll and employee benefits		511			(1,931	)
Commissions payable		(1,289	)		(615	)
Deferred revenue		(500	)		657
Deferred income tax, net		(3,727	)		2,718
Other long-term liabilities		4,065			(651	)

Cash flows provided by operating activities		33,070			13,136

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Proceeds from the sale of discontinued operations		12,640			—
Purchase of additional interest in long-term investment		(1,000	)		—
Acquisition of property and equipment		(5,803	)		(5,868	)
Proceeds from sale of property and equipment		—			26

Cash flows provided by (used in) investing activities		5,837			(5,842	)

CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayments under Credit Agreement		(16,583	)		(5,260	)
Repayment of note payable to CRG		(1,400	)		—
Cash dividends paid on common shares		(2,666	)		—
Cash distribution on vesting of restricted stock units		(970	)		—
Capital lease payments		(887	)		(559	)
Purchase of treasury stock		(432	)		—
Tax benefit upon vesting of restricted stock units and option exercises		68			338
Withholding tax payment on vesting of restricted stock units		(284	)		(362	)
Cash proceeds from stock options exercised		169			2

Cash flows used in financing activities		(22,985	)		(5,841	)

EFFECT OF EXCHANGE RATE ON CASH		14			(182	)

INCREASE IN CASH AND CASH EQUIVALENTS		15,936			1,271
CASH AND CASH EQUIVALENTS — Beginning of period		12,394			10,762

CASH AND CASH EQUIVALENTS — End of period	$	28,330		$	12,033


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, INCLUDING DISCONTINUED OPERATIONS:
Cash paid for interest	$	1,343		$	1,183

Cash paid for taxes	$	9,901		$	596


SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Equipment obtained under capital lease	$	1,978		$	1,577

Equipment additions accrued but not paid	$	1,338		$	315

Purchase of noncontrolling interest with issuance of note	$	—		$	778

Forgiveness of note, including accrued interest, in connection with purchase of noncontrolling interest	$	—		$	1,034

See Notes to Condensed Consolidated Financial Statements

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 21, 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 September 30, 2010. 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 all periods in our condensed consolidated statements of operations. We have not recasted our condensed consolidated balance sheet or statements of cash flows for the sale of SI. See Note 21 for additional information. 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, 2009, as filed in our Annual Report on Form 10-K.

During the three months ended September 30, 2010, we recorded a cumulative out-of-period adjustment to revenue. The adjustment had the effect of reducing the revenue by $1.3 million and net income by $796 thousand in the three and nine months ended September 30, 2010. Based upon an evaluation of all relevant quantitative and qualitative factors, and after considering the applicable provisions within U.S. GAAP, we do not believe this correcting entry is material to our results of operations for any period.

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 3) other membership 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 generally range 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 subscriptions 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 generally 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 generally 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 September 30, 2010 and December 31, 2009 were $1.1 million and $1.5 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.

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 are shown in deferred subscription solicitation costs in our condensed consolidated balance sheet. The long-term portion

of the prepaid commissions are shown in other assets in our condensed consolidated balance sheet. Amortization is included in commission expense in our condensed consolidated statement of operations.

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 and follow the two step process. We test goodwill annually as of October 31, or more frequently if indicators of impairment exist. Goodwill has been assigned to our reporting units for purposes of impairment testing. As of September 30, 2010, goodwill of $43.2 million resided in our Consumer Products and Services reporting unit. As of December 31, 2009, goodwill of $43.2 million and $3.7 million resided in our Consumer Products and Services and Background Screening reporting units, respectively.

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 reviewed all impairment indicators with regards to goodwill and we concluded that for the three and nine months ended September 30, 2010, there were no adverse changes in these indicators which would cause a need for an interim goodwill impairment analysis. Therefore, we were not required to perform a goodwill analysis during the third quarter of 2010.

determined, in the first step and second step of our goodwill impairment analysis performed as of June 30, 2009, that goodwill in the Background Screening reporting unit was impaired. We, therefore, recorded an impairment charge of $5.9 million in our Background Screening reporting unit during the three months ended June 30, 2009. In addition, during the three months ended March 31, 2009, we finalized our calculation for the second step of our goodwill impairment test, in which the first step was performed during the year ended December 31, 2008. Based on the finalization of this second step, we recorded an additional impairment charge of $214 thousand in our Background Screening reporting unit in the three months ended March 31, 2009. As further described in Note 21, we sold our Background Screening segment with the sale of SI on July 19, 2010, therefore, goodwill in that respective segment was eliminated as part of the sale.

We will continue to monitor our market capitalization, along with other operational performance measures and general economic conditions. A downward trend in one or more of these factors could cause us to reduce the estimated fair value of our reporting units and recognize a corresponding impairment of our goodwill in connection with a future goodwill impairment test.

Our Consumer Products and Services reporting unit has $43.2 million of remaining goodwill as of September 30, 2010. We may not be able to take sufficient cost containment actions to maintain our current operating margins in the future. In addition, due to the concentration of our significant clients in the financial industry, any significant impact to a contract held by a major client may have an effect on future revenue which could lead to additional impairment charges.

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 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.

During the three and nine months ended September 30, 2010 and 2009, there were no adverse changes in our long-lived assets, which would cause a need for an impairment analysis. Therefore, we were not required to perform an analysis of our long-lived assets in the three or nine months ended September 30, 2010 and 2009.

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 with the following weighted-average assumptions:


	Nine Months Ended
	September 30,
	2010			2009
Expected dividend yield		0	%		0	%
Expected volatility		67.8	%		55.4	%
Risk-free interest rate		2.8	%		2.0	%
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. We have not issued dividends in the past, therefore, the dividend yield used in grants prior to the three months ended September 30, 2010 was zero. In the three months ended September 30, 2010, we paid a cash dividend of $0.15 per share on our common stock to stockholders of record as of August 31, 2010. We have not had a grant in the three months ended June 30, 2010 or September 30, 2010, which would have caused us to report a dividend yield. For future grants, we will apply a dividend yield based on our history and expectation of dividend payouts.

Expected Volatility. 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 nine months ended September 30, 2010 and 2009 was determined under the simplified calculation ((vesting term + original contractual term)/2). For the majority of grants valued during the nine months ended September 30, 2010 and 2009, 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. If necessary, deferred tax assets are reduced by a valuation allowance to an amount that is determined to be more likely than not recoverable.

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.

In addition to the amount of tax resulting from applying the estimated effective tax rate to pretax income, we included certain items, treated as discrete events, to arrive at an estimated overall tax amount for the nine months ended September 30, 2010. See Note 16 for additional information.

3. Accounting Standards Updates

Accounting Standards Updates Recently Adopted

This update is effective for annual periods beginning after November 15, 2009, for interim periods within the first annual reporting period and for interim and annual periods thereafter. Earlier application is prohibited. We have adopted the provisions of this update as of January 1, 2010 and there was no material impact to our condensed consolidated financial statements.

In February 2010, an update was made to “Subsequent Events”. This update removes the requirement for a public filer to disclose a date in both issued and revised financial statements. This update is effective upon issuance of the final update, except for the use of the issued date for conduit debt obligators. That amendment is effective for interim or annual periods ending after June 15, 2010. We have adopted the provisions of this update as of March 31, 2010 and there was no material impact to our condensed consolidated financial statements.

In March 2010, an update was made to “Derivatives and Hedging”. This update provides clarification and related additional examples to improve financial reporting by resolving potential ambiguity about the breadth of the embedded credit derivative scope exception. This update is effective for each reporting entity at the beginning of the first fiscal quarter beginning after June 15, 2010. We have adopted the provisions of this update as of June 30, 2010 and there was no material impact to our condensed consolidated financial statements.

In April 2010, an update was made to “Revenue Recognition — Milestone Method”. This update provides amendments to provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. This update is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Earlier adoption is permitted. We have adopted the provisions of this update as of June 30, 2010 and there was no material impact to our condensed consolidated financial statements.

Accounting Standards Updates Not Yet Effective

In October 2009, an update was made to “Revenue Recognition — Multiple-Deliverable Revenue Arrangements”. This update amends the criteria in “Multiple-Element Arrangements” for separating consideration in multiple-deliverable arrangements and replaces the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. This update establishes a selling price hierarchy for determining the selling price of a deliverable, eliminates the residual method of allocation and significantly expands the disclosures related to a vendor’s multiple-deliverable revenue arrangements. This update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.

In October 2009, an update was made to “Software — Certain Revenue Arrangements That Include Software Elements”. This update changes the accounting model for revenue arrangements that include both tangible products and software elements. This update removed tangible products containing software components and nonsoftware components that function together to deliver the tangible product’s essential functionality from the scope of the software revenue guidance in “Software-Revenue Recognition”. This update also provides guidance on how a vendor should allocate arrangement consideration to deliverables in an arrangement that includes both tangible products and software, how to allocate arrangement consideration when an arrangement includes deliverables both included and excluded from the scope of software revenue guidance and provides additional disclosure requirements. This update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.

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 will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.

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 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 is 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, our restricted stock units and warrants.

For the three and nine months ended September 30, 2010, options to purchase 1.4 million and 4.3 million shares of common stock, respectively, have been excluded from the computation of diluted income per share as their effect would be anti-dilutive. For the three months ended September 30, 2009, options to purchase 4.3 million shares of common stock, respectively, have been excluded from the computation of diluted income per share as their effect would be anti-dilutive. For the nine months ended September 30, 2009, options to purchase 5.6 million shares of common stock, respectively, have been excluded from the computation of diluted loss per share as their effect would be anti-dilutive. These shares could dilute earnings per share in the future.

A reconciliation of the components of basic and diluted earnings (loss) per share is as follows:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010		2009			2010		2009
	(In thousands, except					(In thousands, except
	per share data)					per share data)
Income from continuing operations	$	4,373	$	1,536		$	8,923	$	3,416
Income (loss) from discontinued operations		5,931		(1,187	)		5,489		(6,283	)

Net income (loss) available to common shareholders — basic and diluted	$	10,304	$	349		$	14,412	$	(2,867	)


Weighted average common shares outstanding — basic		17,759		17,534			17,688		17,470
Dilutive effect of common stock equivalents		809		317			487		128

Weighted average common shares outstanding — diluted		18,568		17,851			18,175		17,598


Basic earnings (loss) per common share:
Income from continuing operations	$	0.25	$	0.09		$	0.50	$	0.20
Income (loss) from discontinued operations	$	0.33	$	(0.07	)	$	0.31	$	(0.36	)

Basic earnings (loss) per common share	$	0.58	$	0.02		$	0.81	$	(0.16	)

Diluted earnings (loss) per common share:
Income from continuing operations	$	0.24	$	0.09		$	0.49	$	0.20
Income (loss) from discontinued operations	$	0.32	$	(0.07	)	$	0.30	$	(0.36	)

Diluted earnings (loss) per common share	$	0.56	$	0.02		$	0.79	$	(0.16	)

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 based on quoted market prices in active markets 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.

The principal market where we execute our interest swap contracts is the retail market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large money center banks and regional banks. These contracts are typically classified within Level 2 of the fair value hierarchy.

The fair value of our instruments measured on a recurring basis at September 30, 2010 are as follows (in thousands):

Fair Value Measurements at Reporting Date Using:

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

September 30,

Identical Assets

Inputs

2010

(Level 1)

(Level 2)

(Level 3)

Assets:

US Treasury bills

4,994

—

Liabilities:

Interest rate swap contracts

595

—

595

—

The fair value of our instruments measured on a recurring basis at December 31, 2009 are as follows (in thousands):

Fair Value Measurements at Reporting Date Using:

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

December 31,

Identical Assets

Inputs

2009

(Level 1)

(Level 2)

(Level 3)

Assets:

US Treasury bills

4,995

—

Liabilities:

Interest rate swap contracts

856

—

856

—

The carrying amounts of 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. The carrying value of our long-term debt is reported in the financial statements at cost. Although there is no active market for the debt, we have determined that the carrying value approximates fair value as a result of our recent debt refinancing in March 2010, as well as the fact that the debt has a variable interest rate component.

6. Deferred Subscription Solicitation and Commission Costs

Total deferred subscription solicitation costs included in the accompanying condensed consolidated balance sheet as of September 30, 2010 and December 31, 2009 was $31.6 million and $41.6 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 $4.8 million and $7.4 million as of September 30, 2010 and December 31, 2009, respectively. The current portion of the prepaid commissions are included in the deferred subscription solicitation costs, which were $9.2 million and $11.5 million as of September 30, 2010 and December 31, 2009, 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 September 30, 2010 and 2009 were $16.4 million and $16.9 million, respectively. Amortization of deferred subscription solicitation and commission costs for the nine months ended September 30, 2010 and 2009 were $48.4 and $49.5, 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 September 30, 2010 and 2009, were $1.4 and $3.0 million respectively. Marketing costs expensed as incurred related to marketing for the nine months ended September 30, 2010 and 2009 were $7.5 million and $9.5 million, respectively.

7. Long-Term Investments

Our long-term investment consists of an investment in equity shares of a privately held company. During the three months ended March 31, 2010, we paid $1.0 million in cash for an additional preferred stock investment in White Sky, Inc. (“White Sky”), a privately held company in California. 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 in our condensed consolidated balance sheet. As of September 30, 2010, no indicators of impairment were identified.

In addition to the investment, we amended a commercial agreement with White Sky to receive exclusivity on the sale of its ID Vault products. The amended strategic commercial agreement allows us to include these products and services as part of our comprehensive identity theft protection services to consumers. The amendment also modified our future 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):


	September 30, 2010
													Net Carrying
	Gross		Accumulated			Net Carrying				Discontinued			Amount at
	Carrying		Impairment			Amount at				Operations (See			September 30,
	Amount		Losses			January 1, 2010		Impairment		Note 21)			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


	December 31, 2009
											Net Carrying
	Gross		Accumulated			Net Carrying					Amount at
	Carrying		Impairment			Amount at					December 31,
	Amount		Losses			January 1, 2009		Impairment			2009
Consumer Products and Services	$	43,235	$	—		$	43,235	$	—		$	43,235
Background Screening		23,583		(13,716	)		9,867		(6,163	)		3,704
Online Brand Protection		11,242		(11,242	)		—		—			—
Bail Bonds Industry Solutions		1,390		(1,390	)		—		—			—

Total Goodwill	$	79,450	$	(26,348	)	$	53,102	$	(6,163	)	$	46,939

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 calculated the value of our reporting units by utilizing an income and market based approach. The value under the income approach is developed by discounting the projected future cash flows to present value. The reporting units discounted cash flows require significant management judgment with respect to revenue, earnings, capital expenditures and the selection and use of an appropriate discount rate. The discounted cash flows are based on our annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows directly resulting from the use of those assets in operations. However, the comparison of the values calculated using the income and market based approach to our market capitalization resulted in a value significantly in excess of our market capitalization. We therefore proportionally allocated the market capitalization, including a reasonable control premium, to the reporting units to determine the implied fair value of the reporting units.

The carrying value of our Background Screening reporting unit exceeded its implied fair value based on this analysis as of June 30, 2009, which resulted in an impairment charge of $5.9 million to the goodwill in our Background Screening reporting unit. In addition, during the three months ended March 31, 2009, we finalized the second step of our goodwill impairment test, in which the first step was performed during the year ended December 31, 2008, and we recorded an additional impairment charge of $214 thousand in our Background Screening reporting unit.

Our intangible assets consisted of the following (in thousands):


	September 30, 2010
	Gross
	Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Amortizable intangible assets:
Customer related	$	38,846	$	(23,138	)	$	15,708
Marketing related		3,192		(3,082	)		110
Technology related		2,796		(2,571	)		225

Total amortizable intangible assets	$	44,834	$	(28,791	)	$	16,043


	December 31, 2009
	Gross
	Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Amortizable intangible assets:
Customer related	$	40,857	$	(19,913	)	$	20,944
Marketing related		3,553		(3,335	)		218
Technology related		2,796		(2,345	)		451

Total amortizable intangible assets	$	47,206	$	(25,593	)	$	21,613

During the year ended December 31, 2009, we recorded an impairment of $947 thousand related to certain intangible assets. We have adjusted the gross carrying amount and accumulated amortization to reflect this impairment. As further described in Note 21, due to the sale of SI in the three months ended September 30, 2010, we reduced both the gross carrying amount and accumulated amortization on our amortizable intangible assets by $2.4 million. The intangible assets held by SI were fully amortized.

Intangible assets are amortized over a period of three to ten years. For the three and nine months ended September 30, 2010, we incurred aggregate amortization expense of $1.4 million and $5.6 million, respectively, which was included in amortization expense in our condensed consolidated statement of operations. For the three and nine months ended September 30, 2009, we incurred aggregate amortization expense from continuing operations of $1.8 million and $6.1 million, respectively, which was included in amortization expense in our condensed consolidated statement of operations. We estimate that we will have the following amortization expense for the future periods indicated below (in thousands


For the remaining three months ending December 31, 2010	$	1,146
For the years ending December 31:
2011		3,828
2012		3,542
2013		3,483
2014		3,437
Thereafter		607

	$	16,043

9. Other Assets

The components of our other assets are as follows:


	September 30,		December 31,
	2010		2009
	(In thousands)
Prepaid royalty payments	$	75	$	75
Prepaid contracts		150		1,341
Prepaid commissions		4,813		7,362
Escrow receivable		1,750		—
Other		1,356		5,614

	$	8,144	$	14,392

During the nine months ended September 30, 2010, the decrease in other assets is primarily related to a trade receivable from an ongoing marketing arrangement and a decrease in prepaid commissions.

As part of the sale agreement for SI, we recorded an escrow receivable of $1.8 million. See Note 21 for further information. In addition, $59 thousand of other assets as of December 31, 2009 related to SI, which was sold on July 19, 2010.

10. Accrued Expenses and Other Current Liabilities

The components of our accrued expenses and other liabilities are as follows:


	September 30,		December 31,
	2010		2009
	(In thousands)
Accrued marketing	$	2,210	$	3,614
Accrued cost of sales, including credit bureau costs		5,280		5,764
Accrued general and administrative expense and professional fees		5,219		4,191
Insurance premiums		1,140		1,473
Other		1,678		2,213

	$	15,527	$	17,255

As of December 31, 2009, $366 thousand of accrued expenses and other current liabilities related to SI, which was sold on July 19, 2010.

11. Accrued Payroll and Employee Benefits

The components of our accrued payroll and employee benefits are as follows:


	September 30,		December 31,
	2010		2009
	(In thousands)
Accrued payroll	$	988	$	415
Accrued benefits		1,685		2,364
Other		—		3

	$	2,673	$	2,782

As of December 31, 2009, $358 thousand of accrued payroll and employee benefits related to SI, which was sold on July 19, 2010.

12. 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, 2010	$	447	$	385
For the years ending December 31:
2011		1,650		1,563
2012		2,044		1,129
2013		2,503		496
2014		2,124		414
2015		2,163		207
Thereafter		7,951		—

Total minimum lease payments	$	18,882		4,194

Less: amount representing interest				(395	)

Present value of minimum lease payments				3,799
Less: current obligation				(1,353	)

Long term obligations under capital lease			$	2,446

As further described in Note 21, we reduced our minimum fixed commitments related to noncancellable operating leases by $299 related to SI, which was sold on July 19, 2010.

During the nine months ended September 30, 2010 we entered into additional capital lease agreements for approximately $1.9 million. We recorded the lease liability at the fair market value of the underlying assets on our condensed consolidated balance sheet.

We have 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 September 30, 2010 are $216 thousand and $201 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, 2010	$	52
For the years ending December 31:
2011		221
2012		136
2013		8

Long term obligations under arrangement	$	417

We entered into an agreement with a related party who is a provider of identity theft products under which we are required to pay non-refundable minimum payments totaling $1.5 million during the year ended December 31, 2010, in exchange for exclusivity.

Rental expenses included in general and administrative expenses were $658 thousand and $2.0 million for the three and nine months ended September 30, 2010, respectively. Rental expenses included in general and administrative expenses were $162 thousand and $1.0 million for the three and nine months ended September 30, 2009, respectively. The increase in rental expenses is primarily due to the increase in rent as a result of our relocation to a new building facility in the third quarter of 2009.

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. We have moved in the Bankruptcy Court to lift the automatic stay in order to proceed with trial in the U.S. District Court, and the motion is pending.

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. The defendants each have filed a motion to dismiss the plaintiff’s claims, and the motions are pending. We believe we have meritorious and complete defenses to the plaintiff’s claims. We believe, however, that it is too early in the litigation to form an opinion as to the likelihood of success in defeating the claims.

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. We believe we have meritorious and complete defenses to the plaintiff’s claims but believe that it is too early in the litigation to form an opinion as to the likelihood of success in defeating the claims. Defendants filed answers to the complaint on May 24, 2010. Discovery is ongoing.

13. Other Long-Term Liabilities

The components of our other long-term liabilities are as follows:


	September 30,		December 31,
	2010		2009
	(In thousands)
Deferred rent	$	1,940	$	1,129
Uncertain tax positions, interest and penalties not recognized		4,359		224
Interest rate swaps		595		856
Accrued general and administrative expenses		201		352
Other		189		771

	$	7,284	$	3,332

During the nine months ended September 30, 2010, we recorded a liability for an uncertain tax position in a foreign jurisdiction of $4.2 million, including interest and penalties. In addition, $21 thousand of other long-term liabilities as of December 31, 2009 related to SI, which was sold on July 19, 2010.

14. Debt and Other Financing


	September 30,		December 31,
	2010		2009
	(In thousands)
Term loan	$	—	$	14,583
Revolving line of credit		21,000		23,000
Note payable to Control Risks Group: $1.4 million face amount, noninterest bearing, due in three annual payments of $467 thousand beginning June 30, 2012 (less unamortized discount, based on an imputed interest rate of 16%, of $590 thousand at December 31, 2009)		—		810

		21,000		38,393
Less current portion		—		(7,000	)

Total long term debt	$	21,000	$	31,393

On July 3, 2006 we negotiated bank financing in the amount of $40 million (the “Credit Agreement”). Under terms of the Credit Agreement, we were granted a $25 million line of credit and a term loan of $15 million with interest at 1.00-1.75 percent over LIBOR. On January 31, 2008, we amended the Credit Agreement in order to increase the term loan facility to $28 million. The amended term loan is payable in monthly installments of $583 thousand, plus interest. Substantially all our assets and a pledge by us of stock and membership interests we hold in certain subsidiaries are pledged as collateral to these loans. In addition, pursuant to the amendment, our subsidiaries Captira and Net Enforcers were added as co-borrowers under the Credit Agreement. The amendment provides that the maturity date for the revolving credit facility and the term loan facility under the Credit Agreement will be December 31, 2011. In July 2009, we entered into a third amendment to the Credit Agreement related to the termination and ongoing operations of SI.

as a co-borrower, and to clarify other matters related to the termination of our joint ownership agreement with CRG and the ongoing operations of SIH. We also formed Intersections Business Services, LLC, to provide services to our Background Screening, Online Brand Protection and Bail Bonds Industry Solutions segments, and which joined in the Credit Agreement as a co-borrower. On March 11, 2010, we entered into a fourth amendment to the Credit Agreement. The amendment increased our interest rate by one percent at each pricing level such that the interest rate now ranges from 2.00% to 2.75% over LIBOR. In addition, the amendment increased our ability to invest additional funds into Screening International, as well as required a portion of the proceeds from any disposition of that entity to be paid to Bank of America, N.A. On July 30, 2010, following the sale of Screening International on July 19, 2010, we prepaid the remaining principal balance of $11.1 million on our term loan, which included the required amount as well as additional amounts. Additionally, on August 18, 2010 we paid $2.0 million of principal on our revolving line of credit. As of September 30, 2010, the outstanding rate on our line of credit was 2.8% and the principal balance was $21.0 million.

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; 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 as well as customary covenants, representations and warranties, funding conditions and events of default. We are currently in compliance with all such covenants.

As further described in Note 15, we entered into interest rate swap transactions on our term loan and revolving line of credit that converts our variable-rate debt to fixed-rate debt. Due to the prepayment of the remaining principal balance on our term loan, we no longer meet the criteria for hedge accounting and, therefore, discontinued our cash flow hedge and reclassified our interest rate swap on the term loan to a non-designated derivative. We retained the interest rate swap to economically hedge our interest rate risk on the non-hedged portion of the revolving line of credit.

As further described in Note 19 on July 1, 2009, we and CRG agreed to terminate our existing ownership agreement in SI and we acquired CRG’s 45% ownership interest in SI, resulting in SI becoming our wholly-owned subsidiary. As part of the termination, a $900 thousand demand loan between SI and CRG was forgiven and a non-interest bearing $1.4 million note was issued by SIH to CRG. The note matured in five years and required equal annual payments by SIH of $467 thousand due on June 30, 2012, 2013 and 2014. The note was recorded at fair value, which was $748 thousand, as of July 1, 2009. Interest was accrued monthly using a 16% imputed interest rate in accordance with U.S. GAAP. As further described in Note 21, on July 19, 2010 as a result of the sale of SI, the note payable to CRG was paid, resulting in a loss on debt extinguishment of $517 thousand, which is included in the gain on disposal of discontinued operations in our condensed consolidated statements of operations.

Aggregate maturities are as follows (in thousands):


For the twelve month period ending September 30,
2011	$	—
2012		21,000

Total	$	21,000

15. Derivative Financial Instruments

Risk Management Strategy

We maintain an interest rate risk management strategy that incorporates the use of derivative instruments to minimize the economic effect of interest rate changes. In 2008, we entered into certain interest rate swap transactions that convert our variable-rate long-term debt to fixed-rate debt. Our interest rate swaps are related to variable interest rate risk exposure associated with our long-term debt and are intended to manage this risk. As of September 30, 2010, the interest rate swaps on our outstanding revolving line of credit have notional amounts of $10.5 million and $10.0 million, respectively. The swaps modify our interest rate exposure by effectively converting the variable rate on our revolving line of credit (0.3% at September 30, 2010) to a fixed rate of 3.2% and 3.4% per annum through December 2011. We have one swap in which the notional amount amortizes on a monthly basis through December 2011 and the other swap amortized from $15.0 million to $10.0 million through March 31, 2009 and terminates in December 2011.

We use the monthly LIBOR interest rate and have the intent and ability to continue to use this rate on our hedged and non-hedged borrowings.

Although we use derivatives to minimize interest rate risk, the use of derivatives does expose us to both market and credit risk. Market risk is the chance of financial loss resulting from changes in interest rates. Credit risk is the risk that our counterparty will not perform its obligations under the contracts and it is limited to the loss of fair value gain in a derivative that the counterparty owes us. We are currently in a liability position to the counterparty and, therefore, have limited credit risk exposure to the counterparty. The counterparty to our derivative agreements is a major financial institution for which we continually monitor its position and credit ratings. We do not anticipate nonperformance by this financial institution.

Summary of Derivative Financial Statement Impact

The fair values of our derivative instruments and the line items on the condensed consolidated balance sheets to which they were recorded are summarized as follows:

Derivative Liabilities
(in thousands)

Balance Sheet Line Item

September 30, 2010

December 31, 2009

Derivatives designated as hedging instruments:

Interest rate contracts

Other long-term liabilities

377

856

Total

377

856

Derivatives not designated as hedging instruments:

Interest rate contracts

Other long-term liabilities

218

—

Total

218

—

Total

595

856

The effects of our cash flow hedging instruments on other comprehensive income and the condensed consolidated statements of operations are summarized as follows:

The Effect of Derivative Instruments on the Statement of Operations
(in thousands)


												Amount of Gain or (Loss)
												Reclassified from
						Amount of (Loss)						Accumulated OCI into
	Amount of Gain or (Loss)					Reclassified from						Income (Ineffective
Cash Flow	Recognized in OCI on					Accumulated OCI into						Portion and Amount
Hedge Relationships	Derivative (Effective					Income (Effective						Excluded from
Three Months Ended	Portion)					Portion)						Effectiveness Testing)
September 30,	2010		2009			2010			2009			2010			2009
	In thousands of dollars
Interest rate contracts	$	32	$	(10	)	$	(110	)	$	(215	)	$	(265	)	$	—

Total	$	32	$	(10	)	$	(110	)(1)	$	(215	)(1)	$	(265	)	$	—

Amount of Gain or (Loss)

Reclassified from

Amount of (Loss)

Accumulated OCI into

Amount of Gain or (Loss)

Reclassified from

Income (Ineffective

Cash Flow

Recognized in OCI on

Accumulated OCI into

Portion and Amount

Hedge Relationships

Derivative (Effective

Income (Effective

Excluded from

Nine Months Ended

Portion)

Effectiveness Testing)

September 30,

2010

2009

2010

2009

2010

2009

In thousands of dollars

Interest rate contracts

211

294

(466

)

(677

)

(265

)

—

Total

211

294

(466

)(1)

(677

)(1)

(265

)

—


(1)		Gain or (Loss) Reclassified from Accumulated OCI into income for the effective portion of the cash flow hedge is recorded in interest expense in our condensed consolidated statement of operations.

During the nine months ended September 30, 2009 there was no material ineffective portion of the cash flow hedge on our revolving credit facility and therefore, no impact to our condensed consolidated statements of operations. As further described in Note 14, we prepaid the remaining principal balance on the term loan under our Credit Agreement. Therefore, we no longer met the criteria for hedge accounting and we discontinued our cash flow hedge and reclassified our interest rate swap on the term loan to a non designated derivative. This resulted in the recognition of a loss of $265 thousand, which was reclassified from Accumulated OCI into earnings during the three months ended September 30, 2010. We retained this interest rate swap to economically hedge our interest rate risk on the non-hedged portion of the revolving line of credit. We will continue to fair value the non-hedged swap through our condensed consolidated statements of operations. We cannot be certain that no further derivative losses related to our remaining cash flow hedge included in Accumulated OCI will be reclassified into earnings within the next 12 months.

The effect on the condensed consolidated statements of operations of derivative instruments not designated as hedges is summarized as follows:

Gains (Losses) For The

Three and Nine Months

Ended

Derivatives not Designated as Hedging

Line Item in Statements of

September

Instruments

Operations

30, 2010

30, 2009

Interest rate contracts

Other (expense) income, net

(218

)

—

Total

(218

)

—

16. Income Taxes

Our consolidated effective tax rate from continuing operations for the three months ended September 30, 2010 and 2009 was 37.8% and 44.0%, respectively. Our consolidated effective tax rate from continuing operations for the nine months ended September 30, 2010 and 2009 was 41.4% and 37.7%, respectively. The change for the nine months ended September 30, 2010 is primarily due to an increase in state apportionment allocations as well as a discrete event related to an increase in an uncertain tax position in a foreign jurisdiction.

In addition, the liability increased by approximately $4.2 million primarily related to an uncertain tax position in a foreign jurisdiction in the nine months ended September 30, 2010. This liability is recorded in other long-term liabilities in our condensed consolidated balance sheet. We record income tax penalties related to uncertain tax positions as part of our income tax expense in our condensed consolidated financial statements. We record interest expense related to uncertain tax positions as part of interest expense in our condensed consolidated financial statements. In the three months ended September 30, 2010, we recorded penalties of $97 thousand and a net interest expense of $25 thousand, primarily due to the uncertain tax position in a foreign jurisdiction. In the nine months ended September 30, 2010, we recorded penalties of $316 thousand and a net interest expense of $235 thousand primarily due to the uncertain tax position in a foreign jurisdiction. The penalties and interest, net of federal benefit, increased the effective tax rate in the three and nine months ended September 30, 2010.

We reduced our liability and interest expense in the three months ended September 30, 2010 by $109 thousand and $25 thousand, respectively, by effectively settling our state and federal income tax audits.

17. Stockholders’ Equity

Share Repurchase

On August 12, 2010, we announced that our Board of Directors had increased the authorized amount under our existing share repurchase program to a total of $30.0 million of our common shares. This represents an increase of approximately $10.0 million from the approximately $20.5 million remaining in the program. Repurchases under the program may be made in open market or privately negotiated transactions or otherwise, from time to time, depending on market conditions. In the three and nine months ended September 30, 2010, we repurchased 50 thousand common shares at $8.62 a share. We did not repurchase any common stock in the three and nine months ended September 30, 2009.

Dividends

On August 12, 2010, we announced a cash dividend of $.15 per share on our common stock, payable on September 10, 2010 to stockholders of record as of August 31, 2010. This resulted in a cash payment of $2.7 million in the three months ended September 30, 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 September 30, 2010, there were 525 thousand shares outstanding. Individual awards under the 1999 Plan took the form of incentive stock options and nonqualified stock options.

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, of which 338 thousand shares are remaining to issue. As of September 30, 2010, we also have 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 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 approved by the Board of Directors and then by stockholders on May 20, 2009. As of September 30, 2010, we have 985 thousand shares or restricted stock units remaining to issue and options to purchase 3.1 million shares and restricted stock units outstanding. 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 in our condensed consolidated statement of operations, for the three and nine months ended September 30, 2010 was $647 thousand and $1.9 million, respectively. Total share-based compensation expense recognized for stock options included in gain on disposal of discontinued operations in our condensed consolidated statement of operations, for the three and nine months ended September 30, 2010 was $53 thousand. Total share-based compensation expense recognized for stock options included in general and administrative expense in our condensed consolidated statement of operations, for the three and nine months ended September 30, 2009 was $536 thousand and $1.6 million, 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, 2009		3,806,052		$	6.49
Granted		719,335			4.32
Canceled and Forfeited		(428,445	)		8.54
Exercises		(46,283	)		3.70

Outstanding at September 30, 2010		4,050,659		$	5.92	$	16,027		7.17

Exercisable at September 30, 2010		1,648,910		$	8.55	$	3,574		4.88

There were no options granted during the three months ended September 30, 2010 and 2009, respectively. The weighted average grant date fair value of options granted, based on the Black-Scholes method, during the nine months ended September 30, 2010 and 2009 was $2.75 and $1.76, 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 and nine months ended September 30, 2010 and 2009 was $236 thousand and $873 thousand, respectively.

As of September 30, 2010, there was $6.1 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 2.6 years.

Restricted Stock Units

Total share based compensation recognized for restricted stock units in our condensed consolidated statement of operations, for the three and nine months ended September 30, 2010 was $869 thousand and $2.4 million, respectively. Total share-based compensation expense recognized for restricted stock units included in gain on disposal of discontinued operations in our condensed consolidated statement of operations, for the three and nine months ended September 30, 2010 was $78 thousand. Total share based compensation recognized for restricted stock units included in general and administrative expense in our condensed consolidated statements of operations for the three and nine months ended September 30, 2009 was $577 thousand and $1.6 million, respectively.

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, 2009		1,562,108		$	4.32
Granted		1,010,205			4.32
Canceled		(260,567	)		4.52
Vested		(372,938	)		5.79

Outstanding at September 30, 2010		1,938,808		$	4.61		2.80

As of September 30, 2010, there was $6.9 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 2.5 years.

In the three months ended March 31, 2010, two restricted stock unit grants, at the vesting date, were paid in cash rather than stock, to recipients at our election. The total cash paid was $970 thousand, which did not exceed the fair value on the settlement date.

18. Related Party Transactions

We have a minority investment in White Sky, Inc. (“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 September 30, 2010 and 2009, there was $375 thousand and $588 thousand, respectively, included in cost of revenue in our condensed consolidated statement of operations related to royalties for exclusivity and product costs. For the nine months ended September 30, 2010 and 2009, there was $1.3 million and $1.2 million, respectively, included in cost of revenue in our condensed consolidated statement of operations related to royalties for exclusivity and product costs.

19. Transfers from Noncontrolling Interest

On July 1, 2009, we and CRG terminated our May 15, 2006 ownership agreement pursuant to which we established and operated SI. In connection with the termination, we formed SIH, which purchased from CRG (a) all of CRG’s equity in SI and (b) all of SI’s indebtedness (with an aggregate principal amount and accrued interest of $1.0 million) and certain payables (with a value of $125 thousand (based on current currency conversion rates)) to CRG. SIH paid the purchase price for this equity and indebtedness by delivery of a promissory note in favor of CRG with a principal amount of $1.4 million, accruing no interest and maturing in five years, with equal principal repayments due on June 30, 2012, June 30, 2013 and June 30, 2014. See Note 21 for further detail on the sale of SI and the repayment of the note payable to CRG.

Changes in a parent’s ownership interest in which the parent retains its controlling financial interest in its subsidiary are accounted for as an equity transaction. The carrying amount of the noncontrolling interest was adjusted to reflect the change in our ownership interest in SIH. The difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest was adjusted were recognized in our stockholders’ equity. As a result of the transaction, we reclassified the noncontrolling interest to stockholders’ equity in our condensed consolidated financial statements.

On July 19, 2010 we and SIH entered into a membership interest purchase agreement with Sterling Infosystems, Inc., 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, an escrow of $1.8 million and a further post-closing working capital adjustment. See Note 21 for further information.

20. Segment and Geographic Information

We have three reportable operating segments within continuing operations through the period ended September 30, 2010. In 2009, we changed our segment reporting by realigning a portion of our Other segment into the Consumer Products and Services segment. 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.

We have recasted the results of our business segment data for the three and nine months ended September 30, 2009 into the new operating segments for comparability with current presentation. The following table sets forth segment information from continuing operations for the three and nine months ended September 30, 2010 and 2009:


	Consumer					Bail Bonds
	Products		Online Brand			Industry
	and Services		Protection			Solutions			Consolidated
	(in thousands)
Three Months Ended September 30, 2010
Revenue	$	88,627	$	555		$	144		$	89,326
Depreciation		2,032		5			2			2,039
Amortization		1,387		7			—			1,394
Income (loss) from continuing operations before income taxes	$	7,435	$	(30	)	$	(369	)	$	7,036
Three Months Ended September 30, 2009
Revenue	$	87,755	$	493		$	76		$	88,324
Depreciation		1,736		3			14			1,753
Amortization		1,671		17			107			1,795
Income (loss) from continuing operations before income taxes	$	5,251	$	(1,988	)	$	(521	)	$	2,742
Nine Months Ended September 30, 2010
Revenue	$	271,051	$	1,514		$	375		$	272,940
Depreciation		6,078		14			2			6,094
Amortization		5,550		20			—			5,570
Income (loss) from continuing operations before income taxes	$	16,785	$	(432	)	$	(1,138	)	$	15,215
Nine Months Ended September 30, 2009
Revenue	$	255,102	$	1,613		$	250		$	256,965
Depreciation		5,396		7			27			5,430
Amortization		5,762		52			320			6,134
Income (loss) from continuing operations before income taxes	$	10,734	$	(3,697	)	$	(1,551	)	$	5,486


	Consumer				Bail Bonds
	Products		Online Brand		Industry
	and Services		Protection		Solutions		Consolidated
	(in thousands)
As of September 30, 2010
Property, plant and equipment, net	$	17,776	$	27	$	51	$	17,854

Identifiable assets	$	172,537	$	9,394	$	3,703	$	185,634


							Bail Bonds
	Consumer Products		Background		Online Brand		Industry		Consolidated
	and Services		Screening		Protection		Solutions
	(In thousands)
As of December 31, 2009
Property, plant and equipment, net	$	15,553	$	2,212	$	37	$	—	$	17,802

Identifiable assets	$	165,995	$	14,016	$	9,210	$	2,950	$	192,171

The principal geographic area of our revenue and assets from continuing operations is the United States.

21. Discontinued Operations

On July 19, 2010, we and SIH entered into a membership interest purchase agreement with Sterling Infosystems, Inc., 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, 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, and a further post-closing working capital adjustment. We recognized a gain of $5.9 million on the sale of our subsidiary in the three months ended September 30, 2010.

Our Background Screening segment was comprised of the results of operations for SI. We evaluated the segment disposal for classification as a discontinued operation under U.S. GAAP. SI qualified as a discontinued operation as we do not have significant continuing involvement in the business and its operations and cash flows were eliminated from our ongoing operations.

In connection with the sale, we remitted $1.4 million in full payment of a note payable entered into between SIH and CRG in 2009. As a result, a loss on debt extinguishment of $517 thousand is included in the gain on disposal of discontinued operations in our condensed consolidated statements of operations.

The following table summarizes the operating results of the discontinued operations included in the condensed consolidated statement of operations (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenue	$	1,060		$	4,603		$	12,907		$	13,548

Income (loss) before income taxes from discontinued operations		83			(844	)		(158	)		(10,320	)
Income tax expense		(20	)		(343	)		(221	)		(343	)

Income (loss) from discontinued operations		63			(1,187	)		(379	)		(10,663	)
Gain on disposal from discontinued operations		5,868			—			5,868			—
Net loss attributable to noncontrolling interest in discontinued operations		—			—			—			4,380

Income (loss) from discontinued operations	$	5,931		$	(1,187	)	$	5,489		$	(6,283	)

We did not record an income tax benefit on the tax loss on disposal in the three months ended September 30, 2010, as the income tax benefit was not deemed to be realizable within the foreseeable future under U.S. GAAP.

The following table summarizes the carrying values of the major assets and liabilities of discontinued operations as finally reported on the closing date of July 19, 2010 and as of December 31, 2009 (in thousands):


			As of
	As of		December 31,
	July 19, 2010		2009
Accounts receivable	$	3,307	$	1,809
Prepaid expenses and other current assets		448		652
Property and equipment, net		2,016		2,212
Goodwill		3,704		3,704

Accounts payable	$	1,014	$	1,113
Accrued expenses and other current liabilities		640		366
Accrued payroll and employee benefits		615		358
Other		10		46

22. Subsequent Events

On October 21, 2010, we entered into additional capital lease agreements for fixed assets. We will record the lease liability at the fair market value of the underlying assets in our condensed consolidated balance sheet in the fourth quarter of 2010.

On November 15, 2010, we announced a cash dividend of $.15 per share on our common stock, payable on December 10, 2010 to stockholders of record as of November 30, 2010.

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, 2009 filed on March 16, 2010, 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 the effects of the recession in the U.S. and the worldwide economic slowdown, recent 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 through the period ended September 30, 2010: Consumer Products and Services, Online Brand Protection and Bail Bonds Industry Solutions. In 2009, we changed our segment reporting by realigning a portion of our Other segment into the Consumer Products and Services segment. 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, we had a fourth reportable segment, our Background Screening segment, which included the personnel and vendor background screening services provided by SI.

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 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 2010 in our direct to consumer business.

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						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Subscribers at beginning of period		4,107			4,467			4,301			4,730
New subscribers — indirect		251			171			671			622
New subscribers — direct (1)		289			582			1,054			1,703
Cancelled subscribers within first 90 days of subscription		(144	)		(240	)		(587	)		(700	)
Cancelled subscribers after first 90 days of subscription		(402	)		(581	)		(1,338	)		(1,956	)

Subscribers at end of period		4,101			4,399			4,101			4,399

Total revenue	$	89,326		$	88,324		$	272,940		$	256,965
Revenue from transactional sales		(1,081	)		(883	)		(3,109	)		(2,935	)
Revenue from lost/stolen credit card registry		(5	)		(12	)		(21	)		(38	)

Subscription revenue	$	88,240		$	87,429		$	269,810		$	253,992

Marketing and commissions	$	40,559		$	43,724		$	130,950		$	126,750
Commissions paid on transactional sales		—			(1	)		(1	)		(3	)
Commissions paid on lost/stolen credit card registry		(29	)		(41	)		(64	)		(83	)

Marketing and commissions associated with subscription revenue	$	40,530		$	43,682		$	130,885		$	126,664


(1)		We classify subscribers from shared marketing arrangements with direct marketing arrangements.

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 bondsmen on a “per seat” license basis plus additional one-time or recurring charges for various optional services. Captira Analytical has also developed a suite of services for bail bonds insurance companies, general agents and sureties which are also sold on either a transactional or recurring revenue basis. As Captira Analytical’s business model is relatively new, pricing and service configurations are subject to change at any time.

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 3) other membership products.

Identity Theft and Credit Management Services

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.

Accidental Death Insurance and Other Membership Products

Other Monthly Subscription Products

Deferred Subscription Solicitation and Advertising

Commission Costs

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.

Goodwill, Identifiable Intangibles and Other Long Lived Assets

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.

Due to the deterioration in the general economic environment and decline in our market capitalization through June 30, 2009, we concluded a triggering event had occurred indicating potential impairment in our Background Screening reporting unit. We determined, in the first step and second step of our goodwill impairment analysis performed as of June 30, 2009, that goodwill in the Background Screening reporting unit was impaired. We, therefore, recorded an impairment charge of $5.9 million in our Background Screening reporting unit during the three months ended June 30, 2009. In addition, during the three months ended March 31, 2009, we finalized our calculation for the second step of our goodwill impairment test, in which the first step was performed during the year ended December 31, 2008. Based on the finalization of this second step, we recorded an additional impairment charge of $214 thousand in our Background Screening reporting unit in the three months ended March 31, 2009. As further described in Note 21, we sold our Background Screening segment with the sale of SI on July 19, 2010, therefore, goodwill in that respective segment was eliminated as part of the sale.

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.

Share Based Compensation


	Nine Months Ended
	September 30,
	2010			2009
Expected dividend yield		0	%		0	%
Expected volatility		67.8	%		55.4	%
Risk-free interest rate		2.8	%		2.0	%
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. We have not issued dividends in the past, therefore, the dividend yield used in grants prior to the three months ended September 30, 2010 was zero. In the three months ended September 30, 2010, we paid a cash dividend of $0.15 per share on our common stock to stockholders of record as of August 31, 2010. We have not had a grant in the three months ended June 30, 2010 of September 30, 2010. For future grants, we will apply a dividend yield based on our history and expectation of dividend payouts.

Income Taxes

bases. If necessary, deferred tax assets are reduced by a valuation allowance to an amount that is determined to be more likely than not recoverable.

Accounting Standards Updates

Accounting Standards Updates Recently Adopted

In June 2009, an update was made to “Consolidation — Consolidation of Variable Interest Entities”, to replace the calculation for determining which entities, if any, have a controlling financial interest in a variable interest entity (“VIE”) from a quantitative risk based calculation, to a qualitative approach that focuses on identifying which entities have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. The update requires an ongoing assessment as to whether an entity is the primary beneficiary of a VIE, modifies the presentation of consolidated VIE assets and liabilities, and requires additional disclosures about a company’s involvement in VIEs. This update is effective for annual periods beginning after November 15, 2009, for interim periods within the first annual reporting period and for interim and annual periods thereafter. Earlier application is prohibited. We have adopted the provisions of this update as of January 1, 2010 and there was no material impact to our condensed consolidated financial statements.

Accounting Standards Updates Not Yet Effective

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 will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.

Results of Continuing Operations

We have three reportable segments with continuing operations through the period ended September 30, 2010. In 2009, we changed our segment reporting by realigning a portion of our Other segment into the Consumer Products and Services segment. 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.

Three Months Ended September 30, 2010 vs. Three Months Ended September 30, 2009 (in thousands):

The condensed consolidated results of continuing operations are as follows:


	Consumer
	Products					Bail Bonds
	and		Online Brand			Industry
	Services		Protection			Solutions			Consolidated
Three Months Ended September 30, 2010
Revenue	$	88,627	$	555		$	144		$	89,326
Operating expenses:
Marketing		11,828		—			—			11,828
Commissions		28,731		—			—			28,731
Cost of revenue		21,382		135			11			21,528
General and administrative		15,086		438			500			16,024
Depreciation		2,032		5			2			2,039
Amortization		1,387		7			—			1,394

Total operating expenses		80,446		585			513			81,544

Income (loss) from operations	$	8,181	$	(30	)	$	(369	)	$	7,782

Three Months Ended September 30, 2009
Revenue	$	87,755	$	493		$	76		$	88,324
Operating expenses:
Marketing		15,492		—			—			15,492
Commissions		28,232		—			—			28,232
Cost of revenue		22,378		256			48			22,682
General and administrative		12,787		2,204			429			15,420
Depreciation		1,736		3			14			1,753
Amortization		1,671		17			107			1,795

Total operating expenses		82,296		2,480			598			85,374

Income (loss) from operations	$	5,459	$	(1,987	)	$	(522	)	$	2,950

Consumer Products and Services Segment

Our income from operations in our Consumer Products and Services segment increased in the three months ended September 30, 2010 as compared to the three months ended September 30, 2009. This is primarily due to decreased marketing expenses in our direct subscription and direct to consumer business and growth in revenue from existing clients, partially offset by increased commissions as a result of an increased effective commission rate in our ongoing direct subscriber base. Our subscription revenue (see Other Data) increased to $88.2 million from $87.1 million in the comparable period.


	Three Months Ended September 30,
	2010		2009		Difference			%
Revenue	$	88,627	$	87,755	$	872			1.0	%
Operating expenses:
Marketing		11,828		15,492		(3,664	)		(23.7	)%
Commissions		28,731		28,232		499			1.8	%
Cost of revenue		21,382		22,378		(996	)		(4.5	)%
General and administrative		15,086		12,787		2,299			18.0	%
Depreciation		2,032		1,736		296			17.1	%
Amortization		1,387		1,671		(284	)		(17.0	)%

Total operating expenses		80,446		82,296		(1,850	)		(2.2	)%

Income from operations	$	8,181	$	5,459	$	2,722			49.9	%

Revenue. The increase in revenue is primarily the result of growth in revenue from existing clients, the increase in the ratio of revenue from direct marketing arrangements to revenue from indirect subscribers and increased revenue from our direct to consumer business. The growth in revenue from existing clients is primarily from new and ongoing subscribers converting to higher priced product offerings. The percentage of revenue from direct marketing arrangements, in which we recognize the gross amount billed to the subscriber, has increased to 89.9% for the three months ended September 30, 2010 from 87.9% in the three months ended September 30, 2009.

Total subscriber additions for the three months ended September 30, 2010 were 540 thousand compared to 753 thousand in the three months ended September 30, 2009.

The table below shows the percentage of subscribers generated from direct marketing arrangements:


	Three Months Ended
	September 30,
	2010			2009
Percentage of subscribers from direct marketing arrangements to total subscribers		59.2	%		60.6	%
Percentage of new subscribers acquired from direct marketing arrangements to total new subscribers acquired		53.6	%		77.3	%
Percentage of revenue from direct marketing arrangements to total subscription revenue		89.9	%		87.9	%

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 is primarily a result of a decrease in marketing 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 September 30, 2010 and 2009 were $10.4 million and $12.5 million, respectively. Marketing costs expensed as incurred for the three months ended September 30, 2010 and 2009 were $1.4 million and $3.0 million, respectively, 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 13.3% for the three months ended September 30, 2010 from 17.7% for the three months ended September 30, 2009.

Commissions Expenses. Commission expenses consist of commissions paid to our clients. The increase is related to an increase in sales and subscribers from our direct marketing arrangements with existing clients, as well as an increase in the effective commission rate.

As a percentage of revenue, commission expenses increased to 32.4% for the three months ended September 30, 2010 from 32.2% for the three months ended September 30, 2009.

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 decrease in cost of revenue is primarily the result of reduced data, fulfillment and service costs as a result of a decrease in the subscriber base. This decrease was partially offset by an increase in the effective rates for data. Our data agreement with Equifax expires on November 27, 2010. We are in discussions with Equifax regarding a new contract. We expect that under the new contract we may incur a significant increase for Equifax data costs.

As a percentage of revenue, cost of revenue decreased to 24.1% for the three months ended September 30, 2010 compared to 25.5% for the three months ended September 30, 2009.

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, share based compensation and consulting.

Total share based compensation expense for the three months ended September 30, 2010 and 2009 was $1.5 million and $1.1 million, respectively.

As a percentage of revenue, general and administrative expenses increased to 17.0% for the three months ended September 30, 2010 from 14.6% for the three months ended September 30, 2009.

Depreciation. Depreciation expenses consist primarily of depreciation expenses related to our fixed assets and capitalized software. Depreciation expense increased for the three months ended September 30, 2010 compared to the three months ended September 30, 2009, primarily due to additional assets placed in service.

As a percentage of revenue, depreciation expenses increased to 2.3% for the three months ended September 30, 2010 from 2.0% for the three months ended September 30, 2009.

Amortization. Amortization expenses consist primarily of the amortization of our intangible assets. Amortization decreased for the three months ended September 30, 2010 compared to the three months ended September 30, 2009.

As a percentage of revenue, amortization expenses decreased to 1.6% for the three months ended September 30, 2010 from 1.9% for the three months ended September 30, 2009.

Online Brand Protection Segment

Our loss from operations in our Online Brand Protection segment decreased for the three months ended September 30, 2010 as compared to the three months year ended September 30, 2009 primarily due to reductions in general and administrative costs from ongoing litigation and regulatory compliance issues.


	Three Months Ended September 30,
	2010			2009			Difference			%
Revenue	$	555		$	493		$	62			12.6	%
Operating expenses:
Cost of revenue		135			256			(121	)		(47.3	)%
General and administrative		438			2,204			(1,766	)		(80.1	)%
Depreciation		5			3			2			66.7	%
Amortization		7			17			(10	)		(58.8	)%

Total operating expenses		585			2,480			(1,895	)		(76.4	)%

Loss from operations	$	(30	)	$	(1,987	)	$	1,957			98.5	%

Revenue. Revenue increased $62 thousand for the three months ended September 30, 2010 compared to the three months ended September 30, 2009.

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 was primarily due to the reductions in direct labor costs.

As a percentage of revenue, cost of revenue was 24.3% for the three months ended September 30, 2010 compared to 51.9% for the three months ended September 30, 2009.

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. General and administrative expenses primarily decreased due to a reduction in legal fees associated with our ongoing litigation and regulatory compliance issues.

As a percentage of revenue, general and administrative expenses decreased to 78.9% for the three months ended September 30, 2010 from 447.1% for the three months ended September 30, 2009.

Bail Bonds Industry Solutions Segment

Our loss from operations in our Bail Bonds Industry Solutions Segment decreased for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009. The decrease in loss from operations is driven by slight growth in revenue and decreased amortization expense.


	Three Months Ended September 30,
	2010			2009			Difference			%
Revenue	$	144		$	76		$	68			89.5	%
Operating expenses:
Cost of revenue		11			48			(37	)		(77.1	)%
General and administrative		500			429			71			16.6	%
Depreciation		2			14			(12	)		(85.7	)%
Amortization		—			107			(107	)		(100.0	)%

Total operating expenses		513			598			(85	)		(14.1	)%

Loss from operations	$	(369	)	$	(522	)	$	153			29.2	%

Revenue. Revenue increased $68 thousand for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009 as the result of new clients.

Cost of Revenue. Cost of revenue consists of monitoring and credit bureau expenses. Cost of revenue decreased primarily due to a reduction in monitoring costs.

As a percentage of revenue, cost of revenue was 7.6% for the three months ended September 30, 2010 compared to 63.2% for the three months ended September 30, 2009.

General and Administrative Expenses. General and administrative expenses consist of personnel and facilities expenses associated with our executive, sales, marketing, information technology, finance, and program and account functions. The increase in general and administrative expenses is primarily due to increased payroll.

Nine Months Ended September 30, 2010 vs. Nine Months Ended September 30, 2009 (in thousands):

The condensed consolidated results of operations are as follows:


	Consumer
	Products					Bail Bonds
	and		Online Brand			Industry
	Services		Protection			Solutions			Consolidated
Nine Months Ended September 30, 2010
Revenue	$	271,051	$	1,514		$	375		$	272,940
Operating expenses:
Marketing		41,615		—			—			41,615
Commissions		89,335		—			—			89,335
Cost of revenue		66,123		441			46			66,610
General and administrative		43,649		1,471			1,465			46,585
Depreciation		6,078		14			2			6,094
Amortization		5,550		20			—			5,570

Total operating expenses		252,350		1,946			1,513			255,809

Income (loss) from operations	$	18,701	$	(432	)	$	(1,138	)	$	17,131

Nine Months Ended September 30, 2009
Revenue	$	255,102	$	1,613		$	250		$	256,965
Operating expenses:
Marketing		45,868		—			—			45,868
Commissions		80,882		—			—			80,882
Cost of revenue		67,074		696			145			67,915
General and administrative		38,731		4,555			1,309			44,595
Depreciation		5,396		7			27			5,430
Amortization		5,762		52			320			6,134

Total operating expenses		243,713		5,310			1,801			250,824

Income (loss) from operations	$	11,389	$	(3,697	)	$	(1,551	)	$	6,141

Consumer Products and Services Segment

Our income from operations in our Consumer Products and Services segment increased in the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009. This is primarily due to growth in revenue from existing clients and decreased marketing expenses in our direct subscription and direct to consumer business, partially offset by increased commissions as a result of increased sales and effective commission rates in our ongoing direct subscriber base and increased general and administrative expenses. Our subscription revenue (see Other Data) increased to $269.8 million from $254.0 million in the comparable period.


	Nine Months Ended September 30,
	2010		2009		Difference			%
Revenue	$	271,051	$	255,102	$	15,949			6.3	%
Operating expenses:
Marketing		41,615		45,868		(4,253	)		(9.3	)%
Commissions		89,335		80,882		8,453			10.5	%
Cost of revenue		66,123		67,074		(951	)		(1.4	)%
General and administrative		43,649		38,731		4,918			12.7	%
Depreciation		6,078		5,396		682			12.6	%
Amortization		5,550		5,762		(212	)		(3.7	)%

Total operating expenses		252,350		243,713		8,637			3.5	%

Income from operations	$	18,701	$	11,389	$	7,312			64.2	%

Revenue. The increase in revenue is primarily the result of growth in revenue from existing clients, the increase in the ratio of revenue from direct marketing arrangements to revenue from indirect subscribers and increased revenue from our direct to consumer business. The growth in revenue from existing clients is primarily from new and ongoing subscribers converting to higher priced product offerings. The percentage of revenue from direct marketing arrangements, in which we recognize the gross amount billed to the subscriber, has increased to 89.1% for the nine months ended September 30, 2010 from 87.4% in the nine months ended September 30, 2009.

Total subscriber additions for the nine months ended September 30, 2010 were 1.7 million compared to 2.3 million in the nine months ended September 30, 2009.

The table below shows the percentage of subscribers generated from direct marketing arrangements:


	Nine Months Ended
	September 30,
	2010			2009
Percentage of subscribers from direct marketing arrangements to total subscribers		59.2	%		60.6	%
Percentage of new subscribers acquired from direct marketing arrangements to total new subscribers acquired		61.1	%		73.2	%
Percentage of revenue from direct marketing arrangements to total subscription revenue		89.1	%		87.4	%

Marketing Expenses. The decrease in marketing is primarily a result of a decrease in marketing expenses for our direct subscription business with existing clients. Amortization of deferred subscription solicitation costs related to marketing for the nine months ended September 30, 2010 and 2009 were $34.0 million and $36.4 million, respectively. Marketing costs expensed as incurred for the nine months ended September 30, 2010 and 2009 were $7.5 million and $9.5 million, respectively, 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 15.4% for the nine months ended September 30, 2010 from 18.0% for the nine months ended September 30, 2009.

Commissions Expenses. The increase is related to an increase in sales and subscribers from our direct marketing arrangements with existing clients, as well as an increase in the effective commission rate.

As a percentage of revenue, commission expenses increased to 33.0% for the nine months ended September 30, 2010 from 31.7% for the nine months ended September 30, 2009.

Cost of Revenue. The decrease in cost of revenue is primarily the result of reduced data fulfillment costs and service costs as a result of a decrease in the subscriber base. This decrease was partially offset by an increase in the effective rates for data. Our data agreement with Equifax expires on November 27, 2010. We are in discussions with Equifax regarding a new contract. We expect that under the new contract we may incur a significant increase for Equifax data costs.

As a percentage of revenue, cost of revenue decreased to 24.4% for the nine months ended September 30, 2010 compared to 26.3% for the nine months ended September 30, 2009.

General and Administrative Expenses. The increase in general and administrative expenses is primarily related to increased payroll costs, share based compensation, professional fees and software license and maintenance costs.

Total share-based compensation expense in our consolidated statements of operations for the nine months ended September 30, 2010 and 2009 was $4.3 million and $3.2 million, respectively.

As a percentage of revenue, general and administrative expenses increased to 16.1% for the nine months ended September 30, 2010 from 15.2% for the nine months ended September 30, 2009.

Depreciation. Depreciation expense increased for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 due to an increase in assets placed into service in the nine months ended September 30, 2010.

As a percentage of revenue, depreciation expense increased slightly to 2.2% for the nine months ended September 30, 2010 from 2.1% for the nine months ended September 30, 2009, respectively.

Amortization. Amortization decreased for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009.

As a percentage of revenue, amortization expenses decreased to 2.0% for the nine months ended September 30, 2010 from 2.3% for the nine months ended September 30, 2009.

Online Brand Protection Segment

Our loss from operations in our Online Brand Protection segment decreased for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009 primarily due to reductions in general and administrative costs associated with our ongoing litigation and regulatory compliance issues.


	Nine Months Ended September 30,
	2010			2009			Difference			%
Revenue	$	1,514		$	1,613		$	(99	)		(6.1	)%
Operating expenses:
Cost of revenue		441			696			(255	)		(36.6	)%
General and administrative		1,471			4,555			(3,084	)		(67.7	)%
Depreciation		14			7			7			100.0	%
Amortization		20			52			(32	)		(61.5	)%

Total operating expenses		1,946			5,310			(3,364	)		(63.4	)%

Loss from operations	$	(432	)	$	(3,697	)	$	3,265			88.3	%

Revenue. Revenue decreased $99 thousand for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. This decrease is primarily due to the general economic slowdown and competition, which negatively impacted sales in the nine months ended September 30, 2010.

Cost of Revenue. Cost of revenue decreased primarily due to reductions in direct labor costs.

As a percentage of revenue, cost of revenue was 29.1% for the nine months ended September 30, 2010 compared to 43.1% for the nine months ended September 30, 2009.

General and Administrative Expenses. General and administrative expenses primarily decreased due to a reduction in legal fees in our ongoing litigation and regulatory compliance issues.

As a percentage of revenue, general and administrative expenses decreased to 97.2% for the nine months ended September 30, 2010 from 282.4% for the nine months ended September 30, 2009.

Bail Bonds Industry Solutions Segment

Our loss from operations in our Bail Bonds Industry Solutions Segment decreased for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009. The decrease in loss from operations is primarily driven by slight growth in revenue and decreased amortization expense.


	Nine Months Ended September 30,
	2010			2009			Difference			%
Revenue	$	375		$	250		$	125			50.0	%
Operating expenses:
Cost of revenue		46			145			(99	)		(68.3	)%
General and administrative		1,465			1,309			156			11.9	%
Depreciation		2			27			(25	)		(92.6	)%
Amortization		—			320			(320	)		(100.0	)%

Total operating expenses		1,513			1,801			(288	)		(16.0	)%

Loss from operations	$	(1,138	)	$	(1,551	)	$	413			26.6	%

Revenue. Revenue increased $125 thousand for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009 as a result of new clients.

Cost of Revenue. Cost of revenue decreased primarily due to a reduction in monitoring costs.

As a percentage of revenue, cost of revenue was 12.3% for the nine months ended September 30, 2010 compared to 58.0% for the nine months ended September 30, 2009.

General and Administrative Expenses. The increase in general and administrative expenses was primarily to increased payroll.

Amortization. Amortization decreased for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. This was due to impairment of amortizable intangible assets in late 2009.

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, Inc., 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 condensed consolidated statement of operations (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Revenue	$	1,060		$	4,603		$	12,907		$	13,548
Income (loss) from discontinued operations		83			(844	)		(158	)		(10,320	)
Income tax expense		(20	)		(343	)		(221	)		(343	)

Income (loss) from discontinued operations		63			(1,187	)		(379	)		(10,663	)
Gain on disposal from discontinued operations		5,868			—			5,868			—
Net loss attributable to noncontrolling interest in discontinued operations		—			—			—			4,380

Income (loss) from discontinued operations	$	5,931		$	(1,187	)	$	5,489		$	(6,283	)

Interest Income

Interest income decreased to $5 thousand for the three months ended September 30, 2010 from $6 thousand for the three months ended September 30, 2009. Interest income decreased to $16 thousand for the nine months ended September 30, 2010 from $148 thousand for the nine months ended September 20, 2009. The decrease in both the three and nine months ended September 30, 2010 is primarily attributable to interest earned on a federal tax refund related to the conclusion of an Internal Revenue Service examination in 2009.

Interest Expense

Interest expense from continuing operations increased to $527 thousand for the three months ended September 30, 2010 from $443 thousand for the three months ended September 30, 2009. Interest expense from continuing operations increased to $1.7 million for the nine months ended September 30, 2010 from $843 thousand for the nine months ended September 30, 2009. The increase in interest expense for both the three and nine months ended September 30, 2010 is primarily attributable to the increase in uncertain tax positions of $4.2 million, on which interest expense is recorded, as well as interest expense on additional leases executed in the nine months ended September 30, 2010.

In 2008, we entered into an interest rate swap to effectively fix our variable rate term loan and a portion of the revolving credit facility under our Credit Agreement. In the three months ended September 30, 2010 we repaid the remaining principal on our term loan and repaid a portion of our revolving credit facility. We retained the fixed rate interest rate swaps as economic hedges of future variable interest rate risk on our revolving credit facility.

Other (Expense) Income

Other expense from continuing operations decreased to $224 thousand for the three months ended September 30, 2010 from income of $229 thousand for the three months ended September 30, 2009. Other expense from continuing operations decreased to $274 thousand for the nine months ended September 30, 2010 from income of $40 thousand for the nine months ended September 30, 2009. This decrease in other income is primarily attributable to the discontinuance of a cash flow hedge, which resulted in the reclassification of an interest rate swap into earnings, and a decrease in the foreign currency transaction gains resulting from exchange rate fluctuations over the current period.

Income Taxes

Our consolidated effective tax rate from continuing operations for the three months ended September 30, 2010 and 2009 was 37.8% and 44.0%, respectively. Our consolidated effective tax rate from continuing operations for the nine months ended September 30, 2010 and 2009 was 41.4% and 37.7%, respectively. The change is primarily due to an increase in state apportionment allocations as well as a discrete event related to an increase in an uncertain tax position in a foreign jurisdiction.

In addition, the liability increased by approximately $4.2 million primarily related to an uncertain tax position in a foreign jurisdiction in the nine months ended September 30, 2010. This liability is recorded in other long-term liabilities in our condensed consolidated balance sheet. We record income tax penalties related to uncertain tax positions as part of our income tax expense in our condensed consolidated financial statements. We record interest expense related to uncertain tax positions as part of interest expense in our condensed consolidated financial statements. In the three months ended September 30, 2010, we recorded penalties of $97 thousand and a net interest expense of $25 thousand primarily due to the uncertain tax position in a foreign jurisdiction. In the nine months ended September 30, 2010, we recorded penalties of $316 thousand and a net interest expense of $235 thousand primarily due to the uncertain tax position in a foreign jurisdiction. The penalties and interest, net of federal benefit, increased the effective tax rate in the three and nine months ended September 30, 2010.

Liquidity and Capital Resources

Cash Flow

Cash and cash equivalents were $28.3 million as of September 30, 2010. Cash and cash equivalents were $12.4 million as of December 31, 2009, of which $1.2 million related to cash and cash equivalents of our Background Screening segment. 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 September 30, 2010 and December 31, 2009 we held short-term U.S. treasury securities with a maturity date greater than 90 days of approximately $5.0 million, which are classified as short-term investments in our condensed consolidated financial statements.

Our accounts receivable balance as of September 30, 2010 was $17.7 million, compared to $25.1 million, including approximately $1.8 million related to our Background Screening segment, as of December 31, 2009. Our accounts receivable balance consists of credit card transactions that have been approved but not yet deposited into our account and several large balances with some of the top financial institutions. The likelihood of non-payment has historically been remote with respect to subscriber based clients; however, we do provide for an allowance for doubtful accounts with respect to our corporate brand protection clients. Given the events in the financial markets, we continue 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 the 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 $45.6 million as of September 30, 2010 compared to $25.0 million as of December 31, 2009. We believe that available short-term and long-term capital resources are sufficient to fund capital expenditures, working capital requirements, scheduled debt payments, interest and tax obligations for the next twelve months. We expect to utilize our cash provided by operations to fund our ongoing operations.


	Nine Months Ended September 30,
	2010			2009			Difference
	(In thousands)
Cash flows provided by operating activities	$	33,070		$	13,136		$	19,934
Cash flows provided by (used in) investing activities		5,837			(5,842	)		11,679
Cash flows used in financing activities		(22,985	)		(5,841	)		(17,144	)
Effect of exchange rate changes on cash and cash equivalents		14			(182	)		196

Net increase in cash and cash equivalents		15,936			1,271			14,665
Cash and cash equivalents, beginning of year		12,394			10,762			1,632

Cash and cash equivalents, end of year	$	28,330		$	12,033		$	16,297

The $19.9 million increase in cash flows provided by operations was primarily the result of an increase in earnings, a decrease in cash paid for marketing and prepaid commissions and a decrease in other assets due to receipt of a trade receivable, partially offset by an increase in income tax payments. In the nine months ended September 30, 2010, net cash used in operations for deferred subscription solicitation costs was $38.4 million as compared to $53.9 million in the nine months ended September 30, 2009. Our agreements are short-term in nature and are not a “continuing contract” because either party may generally terminate the agreements without cause at any time, without penalty. Due to the short-term nature of these agreements, our clients could, at any time, re-negotiate (and at times have renegotiated) any of the key terms, including price, marketing and commission arrangements. Our operating results will continue to be impacted by the non-cash amortization of prepaid commissions, as well as the amortization of the deferred subscription solicitation costs. If we consent to the specific requests 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 nine months ended September 30, 2010 was primarily attributable to the cash proceeds from the sale of Screening International, partially offset by the additional long-term investment in White Sky, Inc.

The increase in cash flows used in financing activities for the nine months ended September 30, 2010 was primarily attributable to the prepayment of principal on our term loan and revolving line of credit of $13.1 million and a cash dividend of $2.7 million.

On August 12, 2010, we announced a cash dividend of $.15 per share on our common stock, payable on September 10, 2010 to stockholders of record as of August 31, 2010. On September 10, 2010 we paid a cash dividend of $2.7 million.

On November 15, 2010, we announced a cash dividend of $.15 per share on our common stock, payable on December 10, 2010 to stockholders of record as of November 30, 2010.

Credit Facility and Borrowing Capacity

On July 3, 2006, we entered into a $40 million credit agreement with Bank of America, N.A. (“Credit Agreement”). The Credit Agreement consists of a revolving credit facility in the amount of $25 million and a term loan facility in the amount of $15 million with interest at 1.00-1.75% over LIBOR. On January 31, 2008, we amended our credit agreement in order to increase the term loan facility to $28 million. In July 2009, we entered into a third amendment to the Credit Agreement related to the termination and ongoing operations of Screening International. On March 11, 2010, we entered into a fourth amendment to the Credit Agreement. The amendment increased our interest rate by one percent at each pricing level such that the interest rate now ranges from 2.00% to 2.75% over LIBOR. In addition, the amendment increased our ability to invest additional funds into Screening International, as well as required a portion of the proceeds from any disposition of that entity to be paid to Bank of America, N.A. On July 30, 2010, following the sale of Screening International on July 19, 2010, we prepaid the remaining principal balance of $11.1 million on our term loan, which included the required amount as well as additional amounts. Additionally, on August 18, 2010, we paid $2.0 million of principal on our revolving line of credit. As of September 30, 2010, the outstanding rate on our line of credit was 2.8% and the principal balance was $21.0 million.

We entered into interest rate swap transactions on our term loan and revolving line of credit that converts our variable-rate debt to fixed-rate debt. As a result of the prepayment of the remaining principal balance on our term loan, we no longer meet the criteria for hedge accounting. Therefore, we discontinued our cash flow hedge and reclassified the interest rate swap on the term loan to a non designated derivative. We retained the interest rate swap to economically hedge our interest rate risk on the non-hedged portion of the revolving line of credit. The counterparty to our derivative agreements is a major financial institution for which we continually monitor its position and credit ratings. We do not anticipate nonperformance by this financial institution.

The interest rate swaps on our outstanding revolving line of credit have notional amounts of $10.5 million and $10.0 million, respectively. The swaps modify our interest rate exposure by effectively converting the variable rate on our revolving line of credit (0.3% at September 30, 2010) to a fixed rate of 3.4% per annum through December 2011. We have one swap in which the notional amount amortizes on a monthly basis through December 2011 and the other swap amortized from $15.0 million to $10.0 million through March 31, 2009 and terminates in December 2011. We use the monthly LIBOR interest rate and have the intent and ability to continue to use this rate on our hedged and non-hedged borrowings.

Share Repurchase

On August 12, 2010, we announced that our Board of Directors had increased the authorized amount under our existing share repurchase program to a total of $30.0 million of our common shares. This represents an increase of approximately $10.0 million from the approximately $20.5 million remaining in the program. Repurchases under the program may be made in open market or privately negotiated transactions or otherwise, from time to time, depending on market conditions. In the nine months ended September 30, 2010, we repurchased 50 thousand common shares at $8.62 a share for an aggregate cost of $432 thousand. We did not repurchase any common stock in the nine months ended September 30, 2009.

Contractual Obligations

We entered into an agreement with a provider of identity theft products under which we are required to pay non-refundable minimum payments totaling $1.5 million during the year ended December 31, 2010, in exchange for exclusivity.

During the nine months ended September 30, 2010 we entered into a master agreement for additional capital leases, of which we took partial delivery as of September 30, 2010 for $1.9 million. We expect to take delivery of the remaining assets in the fourth quarter of 2010. We recorded the lease liability at the fair market value of the underlying assets on our condensed consolidated balance sheet. The minimum fixed commitments related to the $1.9 million agreement are $69 thousand, $414 thousand, $414 thousand, $414 thousand, $414 thousand, and $207 thousand for the years ended December 31, 2010, 2011, 2012, 2013, 2014, and 2015, respectively.

Item 4. Controls and Procedures

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief 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 September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table contains information for common shares repurchased during the three months ended September 30, 2010:


					Total Number		Approximate Dollar
					of Shares		Value of Shares
	Total				Purchased as		that May Yet Be
	Number		Average		Part of Publicly		Purchased Under
	of Shares		Price Paid		Announced Plans		the Plans or
Fiscal Period	Purchased		per Share(1)		or Programs		Programs(2)
July 1, 2010 through July 31, 2010		—		—		—	$	10,522,054
August 1, 2010 through August 31, 2010		—		—		—	$	20,522,054
September 1, 2010 through September 30, 2010		50,000	$	8.62		50,000	$	20,090,004

TOTAL		50,000	$	8.62		50,000	$	20,090,004


(1)		Average price per share excludes commissions.

(2)		On August 12, 2010, we announced that our Board of Directors had increased the authorized amount by $10.0 million under our existing share repurchase program to a total of $30.0 million of our common shares. Repurchases under the program may be made in open market or privately negotiated transactions or otherwise, from time to time, depending on market conditions

Item 6. Exhibits


10.1		Form of Membership Interest Purchase Agreement, dated July 19, 2010, between Sterling Infosystems, Inc., Intersections Inc., Screening International Holdings LLC and Screening International LLC (Incorporated by reference to Exhibit 10.1, filed with the Form 8-K dated July 22, 2010)

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.


*		Filed herewith

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: November 15, 2010		Chief Financial Officer