Document and Entity Information (USD $)	12 Months Ended
Document and Entity Information (USD $)	Dec. 31, 2012	Mar. 28, 2013	Jun. 29, 2012
Document and Entity Information
Entity Registrant Name	Tree.com, Inc.
Entity Central Index Key	0001434621
Document Type	10-K
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 71,208,274
Entity Common Stock, Shares Outstanding		11,638,457
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	FY

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue	$ 77,443	$ 54,617
Costs and expenses
Cost of revenue (exclusive of depreciation shown separately below)	4,295	4,133
Selling and marketing expense	48,934	46,662
General and administrative expense	22,231	19,751
Product development	3,529	3,203
Depreciation	4,105	5,023
Amortization of intangibles	358	891
Restructuring and severance	(57)	1,080
Litigation settlements and contingencies (Note 12)	(3,101)	5,732
Asset impairments (Note 4)		29,250
Total costs and expenses	80,294	115,725
Operating loss	(2,851)	(61,108)
Other income (expense)
Interest expense	(881)	(368)
Total other income (expense)	(881)	(368)
Loss before income taxes	(3,732)	(61,476)
Income tax benefit	1,483	11,766
Net loss from continuing operations	(2,249)	(49,710)
Gain from sale of discontinued operations, net of tax	24,373	7,752
Income (loss) from operations of discontinued operations, net of tax	24,501	(17,545)
Income (loss) from discontinued operations	48,874	(9,793)
Net income (loss)	$ 46,625	$ (59,503)
Weighted average common shares outstanding (in shares)	11,313	10,995
Weighted average diluted shares outstanding (in shares)	11,313	10,995
Net loss per share from continuing operations
Basic (in dollars per share)	$ (0.20)	$ (4.52)
Diluted (in dollars per share)	$ (0.20)	$ (4.52)
Net income (loss) per share from discontinued operations
Basic (in dollars per share)	$ 4.32	$ (0.89)
Diluted (in dollars per share)	$ 4.32	$ (0.89)
Net income (loss) per share attributable to common shareholders
Basic (in dollars per share)	$ 4.12	$ (5.41)
Diluted (in dollars per share)	$ 4.12	$ (5.41)

CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
ASSETS:
Cash and cash equivalents	$ 80,190	$ 45,541
Restricted cash and cash equivalents	29,414	12,451
Accounts receivable, net of allowance of $503 and $86, respectively	11,488	5,474
Prepaid and other current assets	773	1,060
Current assets of discontinued operations	407	232,425
Total current assets	122,272	296,951
Property and equipment, net	6,155	8,375
Goodwill	3,632	3,632
Intangible assets, net	10,831	11,189
Other non-current assets	152	246
Non-current assets of discontinued operations	129	10,947
Total assets	143,171	331,340
LIABILITIES:
Accounts payable, trade	2,741	9,072
Deferred revenue	648	176
Deferred income taxes		4,335
Accrued expenses and other current liabilities	19,960	16,712
Current liabilities of discontinued operations (Note 7)	31,017	250,030
Total current liabilities	54,366	280,325
Income taxes payable		7
Other non-current liabilities	936	4,070
Deferred income taxes	4,694	435
Non-current liabilities of discontinued operations	253	1,032
Total liabilities	60,249	285,869
Commitments and contingencies (Notes 11 and 12)
SHAREHOLDERS' EQUITY:
Preferred stock $.01 par value; authorized 5,000,000 shares; none issued or outstanding
Common stock $.01 par value; authorized 50,000,000 shares; issued 12,625,678 and 12,169,226 shares, respectively, and outstanding 11,437,199 and 11,045,965 shares, respectively	126	121
Additional paid-in capital	903,688	911,987
Accumulated deficit	(811,480)	(858,105)
Treasury stock 1,188,479 and 1,123,261 shares, respectively	(9,412)	(8,532)
Total shareholders' equity	82,922	45,471
Total liabilities and shareholders' equity	$ 143,171	$ 331,340

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance (in dollars)	$ 503	$ 86
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized shares	5,000,000	5,000,000
Preferred stock, issued shares	0	0
Preferred stock, outstanding shares	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized shares	50,000,000	50,000,000
Common stock, issued shares	12,625,678	12,169,226
Common stock, outstanding shares	11,437,199	11,045,965
Treasury stock, shares	1,188,479	1,123,261

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Treasury Stock	Comprehensive Income
Balance at Dec. 31, 2010	$ 101,821	$ 118	$ 908,837	$ (798,602)	$ (8,532)
Balance (in shares) at Dec. 31, 2010		11,893,000			1,123,000
Comprehensive income (loss):
Net income (loss) for the years ended December 31, 2011 and 2012	(59,503)			(59,503)		(59,503)
Comprehensive income (loss)	(59,503)					(59,503)
Stock-based compensation	4,115		4,115
Issuance of common stock upon exercise of stock options and vesting of restricted stock units, net of withholding taxes	(962)	3	(965)
Issuance of common stock upon exercise of stock options and vesting of restricted stock units, net of withholding taxes (in shares)		276,000
Purchase of treasury stock (in shares)	0
Balance at Dec. 31, 2011	45,471	121	911,987	(858,105)	(8,532)
Balance (in shares) at Dec. 31, 2011		12,169,000			1,123,000
Comprehensive income (loss):
Net income (loss) for the years ended December 31, 2011 and 2012	46,625			46,625		46,625
Comprehensive income (loss)	46,625					46,625
Stock-based compensation	4,756		4,756
Issuance of common stock upon exercise of stock options and vesting of restricted stock units, net of withholding taxes	(814)	5	(819)
Issuance of common stock upon exercise of stock options and vesting of restricted stock units, net of withholding taxes (in shares)		456,000
Purchase of treasury stock	(880)				(880)
Purchase of treasury stock (in shares)	65,218				65,000
Dividends	(12,236)		(12,236)
Balance at Dec. 31, 2012	$ 82,922	$ 126	$ 903,688	$ (811,480)	$ (9,412)
Balance (in shares) at Dec. 31, 2012		12,625,000			1,188,000

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities attributable to continuing operations:
Net income (loss)	$ 46,625	$ (59,503)
Less loss (income) from discontinued operations, net of tax	(48,874)	9,793
Net loss from continuing operations	(2,249)	(49,710)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities attributable to continuing operations:
Loss on disposal of fixed assets	747	311
Amortization of intangibles	358	891
Depreciation	4,105	5,023
Asset impairments		29,250
Non-cash compensation expense	4,587	3,777
Non-cash contingent consideration gain		(652)
Deferred income taxes	(92)	(11,551)
Bad debt expense (benefit)	(4)	55
Changes in current assets and liabilities:
Accounts receivable	(6,011)	(1,964)
Prepaid and other current assets	620	(148)
Accounts payable, accrued expenses and other current liabilities	(6,595)	(4,376)
Income taxes payable	(98)	(309)
Deferred revenue	472	(136)
Other, net	(562)	1,487
Net cash used in operating activities attributable to continuing operations	(4,722)	(28,052)
Cash flows from investing activities attributable to continuing operations:
Capital expenditures	(2,632)	(6,110)
Decrease (increase) in restricted cash	(1,085)	(1,981)
Net cash used in investing activities attributable to continuing operations	(3,717)	(8,091)
Cash flows from financing activities attributable to continuing operations:
Issuance of common stock, net of withholding taxes	(815)	(962)
Purchase of treasury stock	(879)
Dividends	(11,428)
Decrease (increase) in restricted cash	1,199	(2,325)
Net cash used in financing activities attributable to continuing operations	(11,923)	(3,287)
Total cash used in continuing operations	(20,362)	(39,430)
Net cash provided by (used in) operating activities attributable to discontinued operations	226,747	(81,723)
Net cash provided by investing activities attributable to discontinued operations	25,923	839
Net cash (used in) provided by financing activities attributable to discontinued operations	(197,659)	97,036
Total cash provided by discontinued operations	55,011	16,152
Net increase (decrease) in cash and cash equivalents	34,649	(23,278)
Cash and cash equivalents at beginning of period	45,541	68,819
Cash and cash equivalents at end of period	$ 80,190	$ 45,541

ORGANIZATION	12 Months Ended
ORGANIZATION	Dec. 31, 2012
ORGANIZATION
ORGANIZATION	NOTE 1—ORGANIZATION Company Overview Tree.com, Inc. ("Tree.com" or the "Company") is the parent of LendingTree, LLC, which owns several brands and businesses that provide information, tools, advice, products and services for critical transactions in consumers' lives. Our family of brands includes: LendingTree®, GetSmart®, DegreeTree®, LendingTreeAutos, DoneRight®, ServiceTree® and InsuranceTree®. Together, these brands serve as an ally for consumers who are looking to comparison-shop for loans, education programs, home services providers and other services from multiple businesses and professionals that will compete for their business. Spin-Off On August 20, 2008, Tree.com was spun off from its parent company, IAC/InterActiveCorp ("IAC") into a separate publicly traded company. In connection with the spin-off, Tree.com was incorporated as a Delaware corporation in April 2008. Segment Reporting Effective December 31, 2012, we expanded our reportable segments from one to two, consisting of mortgage and non-mortgage. The change was made as the convergence of economic similarities associated with our mortgage and non-mortgage operating segments was no longer expected. This decision was made in connection with the update of our annual budget and forecast, which occurs in the fourth quarter each year. The non-mortgage reportable segment consists of our auto, education and home services operating segments, which are not yet mature businesses, and have been aggregated. Prior period results have been reclassified to conform with the change in reportable segments. Business Combinations: Contingent Consideration In 2010, we purchased certain assets of a company for an aggregate purchase price of $0.8 million in cash and contingent consideration. The contingent consideration amount is based on a percentage of estimated cumulative earnings over a period of thirty-six months from the date of acquisition. The minimum payout under the arrangement is zero and the maximum payout is unlimited. In 2011, there was a reduction of $0.4 million in the amount of contingent consideration recognized since the date of acquisition, which is reflected as a reduction of general and administrative expense. The purchase was part of our strategic initiative to diversify our revenue streams outside of the mortgage and real estate industries. In 2009, we purchased certain assets of four separate companies, for an aggregate purchase price of $5.7 million in cash and $1.0 million in contingent consideration. The contingent consideration amount related to one of the purchases is based on a percentage of estimated cumulative earnings over a period of thirty-six months from the date of acquisition. The minimum payout under the arrangement is zero and the maximum payout is unlimited. In 2011, there was a reduction of $0.3 million in the amount of contingent consideration recognized since the date of acquisition, which is reflected as a reduction of general and administrative expense. All four transactions were part of our strategic initiative to diversify our revenue streams outside of the mortgage and real estate industries. Discontinued Operations The businesses of RealEstate.com and RealEstate.com, REALTORS® (which together represent the former Real Estate segment) and LendingTree Loans are presented as discontinued operations in the accompanying consolidated balance sheets and consolidated statements of operations and cash flows for all periods presented. The notes accompanying these consolidated financial statements reflect our continuing operations and, unless otherwise noted, exclude information related to the discontinued operations. Real Estate On March 10, 2011, management made the decision and finalized a plan to close all of the field offices of the proprietary full-service real estate brokerage business known as RealEstate.com, REALTORS®. We exited all markets in which we previously operated by March 31, 2011. In September 2011, we sold the remaining assets of RealEstate.com, which consisted primarily of internet domain names and trademarks, for $8.3 million and recognized a gain on sale of $7.8 million. LendingTree Loans On May 12, 2011, we entered into an asset purchase agreement with Discover, as amended on February 7, 2012, for the sale of substantially all of the operating assets of our LendingTree Loans business. We completed the sale on June 6, 2012. The asset purchase agreement as amended provided for a purchase price of approximately $55.9 million in cash for the assets, subject to certain conditions. Of this total purchase price, $8.0 million was paid prior to the closing, $37.9 million was paid upon the closing and $10.0 million is due on the first anniversary of the closing (June 6, 2013), subject to certain conditions. Discover generally did not assume liabilities of the LendingTree Loans business that arose before the closing date, except for certain liabilities directly related to assets Discover acquired. Of the initial purchase price payment, $17.1 million is being held in escrow pending resolution of certain actual and/or contingent liabilities that remain with us following the sale. The escrowed amount is recorded as restricted cash at December 31, 2012. Separate from the asset purchase agreement, we agreed to provide certain marketing-related services to Discover in connection with its mortgage origination business for approximately seventeen months following the closing, or such earlier point as the agreed-upon services are satisfactorily completed. Discover has been a network lender on our mortgage exchange since closing of the transaction. Business Combinations On March 15, 2011, our wholly-owned subsidiary, HLC, completed its acquisition of certain assets of First Residential Mortgage Network, Inc., dba SurePoint Lending, pursuant to an asset purchase agreement dated November 15, 2010. SurePoint, a LendingTree network lender for eleven years, was a full-service residential mortgage provider licensed in 45 states and employed over 500 people, including more than 300 licensed loan officers. HLC purchased certain specified assets and assumed certain liabilities of SurePoint related to its business of originating, refinancing, processing, underwriting, funding and closing residential mortgage loans; providing title and escrow services; and providing other mortgage-related services. The acquired assets also included the equity interests of Real Estate Title Services, LLC. HLC paid $8.0 million in cash upon the closing of the transaction, subject to certain adjustments as described in the asset purchase agreement, and $0.2 million in cash for contingent consideration subsequent to the close. HLC used available cash to fund the acquisition. This asset purchase was accounted for under the acquisition method of accounting. Accordingly, the purchase price was allocated to the acquired assets and liabilities based on their estimated fair values at the acquisition date. The purchase price was allocated as $5.6 million to goodwill, $0.7 million to intangible assets with useful lives of three months to five years, and $1.7 million to equipment and other assets. The pro forma effect of this purchase was not material to our results of operations. Out of Period Adjustment The Company's results of operations for the year ended December 31, 2012 include a net reduction to net income attributable to common shareholders of approximately $0.2 million that should have been recorded as an increase to net loss attributable to common shareholders between 2008 and 2011 related to the following: leases in restructuring, additional interest on preferred stock of a wholly-owned subsidiary, stock compensation expense and litigation expense. Because the amounts are not material to our previously issued consolidated financial statements and the cumulative amount is not material to the results of operations for the full year 2012, we recorded the cumulative effect of correcting these items during the fourth quarter of 2012.

SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2012

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2—SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of Tree.com and all entities that are wholly-owned by us. Intercompany transactions and accounts have been eliminated.

Revenue Recognition

The Company derives its revenue from fees which are earned through the delivery of qualified leads that originated through one of our websites or affiliates. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is reasonably assured. Delivery is deemed to have occurred at the time a qualified lead is delivered to our customer provided that no significant obligations remain.

Previously, lenders also paid closing fees when they closed a transaction with a consumer. The closing fee was eliminated in 2011 for all mortgage products, with the exception of home equity loans. The closing fee on home equity loan products was eliminated in January 2013. Closed-loan fees were recognized at the time the lender reported the closed loan to us, which could have been several months after the loan request was transmitted.

In addition, during the year ended December 31, 2012, we recognized approximately $1.9 million of revenue from marketing-related services provided to Discover discussed above. Revenue from these services is recognized in the period the services are provided.

Cash and Cash Equivalents

Cash and cash equivalents include cash and short-term, highly liquid money market investments with original maturities of three months or less.

Restricted Cash

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

	December 31, 2012		December 31, 2011

Cash in escrow for surety bonds	$	6,500	$	6,500
Cash in escrow for corporate purchasing card program		800		800
Cash in escrow for sale of LTL (Note 7)		17,077		—
Cash in escrow for earnout related to an acquisition (Note 6)		1,956		—
Cash restricted for loan loss obligations		3,051		—
Minimum required balances for warehouse lines of credit		—		4,250
Other		30		901

Total restricted cash and cash equivalents	$	29,414	$	12,451

During 2012, $3.1 million of restricted cash on deposit with a former warehouse lender to the LendingTree Loans business was redesignated as restricted cash for the settlement of loan loss obligations.

Accounts Receivable

Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts.

Accounts receivable outstanding longer than the contractual payment terms are considered past due. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time accounts receivable are past due, our previous loss history, the specific customer's current ability to pay its obligation to us and the condition of the general economy and the customer's industry as a whole. We write off accounts receivable when management deems them uncollectible. Write-offs were $0.0 million and $0.1 million for the years ended December 31, 2012 and 2011, respectively. The allowance for doubtful accounts increased by $0.3 million as a result of litigation with one customer within the non-mortgage segment.

Loan Loss Obligations

LendingTree Loans sold loans it originated to investors on a servicing-released basis and the risk of loss or default by the borrower was generally transferred to the investor. However, LendingTree Loans was required by these investors to make certain representations relating to credit information, loan documentation and collateral. To the extent LendingTree Loans did not comply with such representations or there are early payment defaults, LendingTree Loans may be required to repurchase loans or indemnify the investors for any losses from borrower defaults. LendingTree Loans maintains a liability for the estimated exposure relating to such contingent obligations and changes to the estimate are recorded in revenue in the periods they occur.

Prior to the third quarter of 2012, in estimating our exposure to losses on loans previously sold, LendingTree Loans used a model that considered the original loan balance (before it was sold to an investor), historical and projected loss frequency and loss severity ratios by loan type, as well as analyses of losses in process. Subsequent adjustments to the obligation, if any, are made once further losses are determined to be both probable and estimable. Further, LendingTree Loans segmented its loan sales into four segments, based on the extent of the documentation provided by the borrower to substantiate their income and/or assets (full or limited documentation) and the lien position of the mortgage in the underlying property (first or second position). Each of these segments typically has a different loss experience, with full documentation, first lien position loans generally having the lowest loss ratios, and limited documentation, second lien position loans generally having the highest loss ratios.

Property and Equipment

Property and equipment, including significant improvements, are recorded at cost less accumulated depreciation. Repairs and maintenance and any gains or losses on dispositions are included in operations.

Depreciation is recorded on a straight-line basis to allocate the cost of depreciable assets to operations over their estimated service lives. Amortization of assets recorded under capital leases is included in depreciation expense. The following table presents the depreciation period for each asset category:

Asset Category		Depreciation Period

Computer equipment and capitalized software		1 to 5 years
Leasehold improvements		Lesser of asset life or life of lease
Furniture and other equipment		3 to 7 years

Software Development Costs

Software development costs primarily include expenses incurred to develop the software that powers our websites. Certain costs incurred during the application development stage are capitalized based on specific activities tracked on internal timesheets and external invoices (or timesheets), while costs incurred during the preliminary project stage and post-implementation/operation stage are expensed as incurred. Capitalized software development costs are amortized over estimated lives of one to three years.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill acquired in business combinations is assigned to the reporting units that are expected to benefit from the combination as of the acquisition date.

Goodwill impairment is determined using a two-step process. The first step is to compare the fair value of a reporting unit with its carrying amount, including goodwill. In performing the first step, we determine the fair value of our reporting units by using a market approach and a discounted cash flow ("DCF") analysis. For the fiscal 2012 annual impairment test, the fair value of our mortgage reporting unit was estimated using a DCF analysis and a market comparable method, with each method being equally weighted in the calculation. Determining fair value using a DCF analysis requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates and the amount and timing of expected future cash flows. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not required. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is required to be performed to measure the amount of impairment, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

The impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the indefinite-lived intangible asset exceeds its estimated fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of indefinite-lived intangible assets are determined using a DCF valuation analysis that employs a relief-from royalty methodology in estimating the fair value of trade names and trademarks. Significant judgments inherent in this analysis include the determination of royalty rates, discount rates, perpetual growth rates and the amount and timing of future revenues.

Goodwill and indefinite-lived intangible assets, primarily trade names and trademarks, are tested annually for impairment as of October 1, or earlier upon the occurrence of certain events or substantive changes in circumstances. We performed interim tests as of March 31, 2011 and June 30, 2011, in addition to the annual tests on October 1, 2012 and 2011. We identified impairments in the interim tests in 2011, as described in Notes 4 and 7. No impairments were identified in 2012.

Long-Lived Assets and Intangible Assets with Definite Lives

Long-lived assets, including property and equipment and intangible assets with definite lives, are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying amount is deemed to not be recoverable, an impairment loss is recorded as the amount by which the carrying amount of the long-lived asset exceeds its fair value. Amortization of definite-lived intangible assets is recorded on a straight-line basis over their estimated lives. We did not identify any impairment related to such assets in 2012 or 2011.

Fair Value Measurements

We categorize our assets and liabilities measured at fair value into a fair value hierarchy that prioritizes the assumptions used in pricing the asset or liability into the following three levels:

•

Level 1: Observable inputs, such as quoted prices for identical assets and liabilities in active markets obtained from independent sources.

•

Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data.

•

Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the asset or liability. See Note 7 for a discussion of assets measured at fair value using Level 3 inputs.

Our non-financial assets, such as goodwill, intangible assets and property and equipment are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs. See Note 4 for discussion of goodwill and intangible asset impairment charges.

Cost of Revenue

Cost of revenue consists primarily of costs associated with compensation and other employee-related costs (including stock-based compensation) related to customer call centers, credit scoring fees, consumer incentive costs, and website network hosting and server fees.

Consumer Promotional Costs

We previously offered certain consumers that utilize our services promotional incentives to complete a transaction. These included gift certificates, airline miles or other coupons in the event a transaction was completed utilizing our services. This program was terminated in 2012. The liability was estimated for these consumer promotional costs each period based on the number of consumers that were presented such offers, the cost of the item being offered, the historical trends of consumers qualifying for the offer and our payout rates. The estimated costs of consumer promotional incentives were charged to cost of revenue in each period. Consumer promotional expense was $0.7 million for the year ended December 31, 2011. Consumer promotional costs accrued totaled $0.2 million at December 31, 2011, and are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

Product Development

Product development expense consists primarily of compensation and other employee-related costs (including stock-based compensation) for personnel engaged in the design, development, testing and enhancement of technology that are not capitalized.

Advertising

Advertising costs are expensed in the period incurred (when the advertisement first runs for production costs that are initially capitalized) and principally represent offline costs, including television, print and radio advertising, and online advertising costs, including fees paid to search engines and distribution partners. Advertising expense was $40.8 million and $40.7 million for the years ended December 31, 2012 and 2011, respectively.

Income Taxes

We account for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In estimating future tax consequences, all expected future events are considered. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. We record interest on potential tax contingencies as a component of income tax expense and record interest net of any applicable related income tax benefit. The Company reported a loss from continuing operations and income from discontinued operations during 2012. As a result, the Company has followed the accounting guidance prescribed in ASC 740-20-45-7 which provides an exception to the "with" and "without" approach to intraperiod tax allocation for determination of the amount of tax benefit to allocate to continuing operations in such circumstances.

In accordance with the accounting standard for uncertainty in income taxes, we recognize liabilities for uncertain tax positions based on the two-step process prescribed by the accounting standards. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement.

Stock-Based Compensation

We record stock-based compensation in accordance with the accounting standard for share-based payments. See Note 3 for further information.

Comprehensive Income

Comprehensive income consists of net income only. Total accumulated other comprehensive income (loss) is displayed as a separate component of stockholders' equity.

Accounting Estimates

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

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

Certain Risks and Concentrations

Our business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud.

Financial instruments, which potentially subject us to concentration of credit risk, consist primarily of cash and cash equivalents. Cash and cash equivalents are in excess of Federal Deposit Insurance Corporation insurance limits, but are maintained with quality financial institutions of high credit.

Due to the nature of the mortgage lending industry, interest rate increases may negatively impact future revenue from our lender network.

For the year ended December 31, 2012, one mortgage customer accounted for revenue representing 14% of total revenue and another mortgage customer accounted for 11% of total revenue. No customer accounted for more than 10% of total revenue for the year ended December 31, 2011.

Lenders participating on our lender network can offer their products directly to consumers through brokers, mass marketing campaigns or through other traditional methods of credit distribution. These lenders can also offer their products online, either directly to prospective borrowers, through one or more of our online competitors, or both. If a significant number of potential consumers are able to obtain loans from our participating lenders without utilizing our service, our ability to generate revenue may be limited. Because we do not have exclusive relationships with the lenders whose loan offerings are offered on our online marketplace, consumers may obtain offers and loans from these lenders without using our service.

We maintain operations solely in the United States.

Recent Accounting Pronouncements

In May 2011, the FASB issued amendments to the fair value accounting guidance. The amendments clarify the application of the highest and best use, and valuation premise concepts, preclude the application of blockage factors in the valuation of all financial instruments and include criteria for applying the fair value measurement principles to portfolios of financial instruments. The amendments additionally prescribe enhanced financial statement disclosures for Level 3 fair value measurements. The new amendments were effective on January 1, 2012. The adoption of this guidance did not have a material impact on our consolidated financial statements. See Note 7 for further information.

In June 2011, the FASB issued new accounting guidance on the presentation of comprehensive income in financial statements. The new guidance requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. In December 2011, the FASB deferred certain provisions of this guidance pertaining to the presentation of reclassification adjustments. This new accounting guidance is effective for the three months ended March 31, 2012. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In December 2011, the FASB issued new accounting guidance that requires additional disclosures on financial instruments and derivative instruments that are either offset in accordance with existing accounting guidance or are subject to an enforceable master netting arrangement or similar agreement. The new requirements do not change the accounting guidance on netting, but rather enhance the disclosures to more clearly show the impact of netting arrangements on a company's financial position. This new accounting guidance will be effective, on a retrospective basis for all comparative periods presented, beginning on January 1, 2013. The adoption of this guidance will not have a material impact on our consolidated financial statements.

In July 2012, the FASB issued new guidance which allows an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. This assessment should be used as a basis for determining whether it is necessary to perform the quantitative impairment test. An entity would not be required to calculate the fair value of the intangible asset and perform the quantitative test unless the entity determines, based upon its qualitative assessment, that it is more likely than not that its fair value is less than its carrying value. The update expands previous guidance by providing more examples of events and circumstances that an entity should consider in determining whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. The update also allows an entity the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. This update is effective for annual and interim periods beginning after September 15, 2012, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-04, "Liabilities." ASU No. 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this ASU also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We are currently evaluating the impact that the adoption will have on our consolidated financial statements in fiscal 2014.

- Definition

The entire disclosure for all significant accounting policies of the reporting entity.

+ References+ Details

STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2012

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

NOTE 3—STOCK-BASED COMPENSATION

We currently have one active plan, the Amended and Restated Tree.com 2008 Stock and Annual Incentive Plan, under which future awards may be granted, which currently covers outstanding stock options to acquire shares of our common stock and restricted stock units ("RSUs"), and provides for the future grant of these and other equity awards. Under the Third Amended and Restated Tree.com 2008 Stock and Annual Incentive Plan, we are authorized to grant stock options, RSUs and other equity-based awards for up to 3.35 million shares of Tree.com common stock. The active plan described above authorizes us to grant awards to employees, officers and directors. Finally, this active plan also governs certain equity awards of IAC that were converted into equity awards of Tree.com in connection with the spin-off.

In addition, the plan described above has a stated term of ten years and provides that the exercise price of stock options granted will not be less than the market price of our common stock on the grant date. The plan does not specify grant dates or vesting schedules, as those determinations have been delegated to the Compensation Committee of our board of directors. Each grant agreement reflects the vesting schedule for that particular grant as determined by the Compensation Committee.

Prior to the spin-off, our employees received equity awards that were granted under various IAC stock and annual incentive plans. Upon spin-off, these IAC awards were converted into awards of both Tree.com and other former IAC companies, which vested in 2012. We recognized non-cash compensation expense for these awards granted to our employees in 2011 and 2012.

Non-cash stock-based compensation expense related to equity awards is included in the following line items in the accompanying consolidated statements of operations for the years ended December 31, 2012 and 2011 (in thousands):

	2012			2011

Cost of revenue	$	6		$	11
Selling and marketing expense		750			425
General and administrative expense		3,205			3,025
Product development		626			316

Non-cash stock-based compensation expense before income taxes		4,587			3,777
Income tax benefit		(1,812	)		(1,492	)

Non-cash stock-based compensation expense after income taxes	$	2,775		$	2,285

The forms of stock-based awards granted to Tree.com employees are principally RSUs, restricted stock and stock options. RSUs are awards in the form of units, denominated in a hypothetical equivalent number of shares of Tree.com common stock and with the value of each award equal to the fair value of Tree.com common stock at the date of grant. RSUs may be settled in cash, stock or both, as determined by the Compensation Committee at the time of grant. Each stock-based award is subject to service-based vesting, where a specific period of continued employment must pass before an award vests. Certain restricted stock awards also include performance-based vesting, where certain performance targets set at the time of grant must be achieved before an award vests. Tree.com recognizes expense for all stock-based awards for which vesting is considered probable. For stock-based awards, the accounting charge is measured at the grant date as the fair value of Tree.com common stock awarded and expensed ratably as non-cash compensation over the vesting term. For performance-based awards, the expense is measured at the grant date as the fair value of our common stock awarded and expensed as non-cash compensation using a graded vesting attribution model considering the probability of the targets being achieved.

The amount of stock-based compensation expense recognized in the consolidated statement of operations is reduced by estimated forfeitures, as the amount recorded is based on awards ultimately expected to vest. The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods if the actual forfeiture rate differs from the estimated rate.

Tax benefits resulting from tax deductions in excess of the stock-based compensation expense recognized in the consolidated statement of operations are reported as a component of financing cash flows. In 2012, while there were excess tax benefits from stock-based compensation, the tax benefits were not reflected in the consolidated statement of operations because of the utilization of NOLs. There were no excess tax benefits from stock-based compensation for the year ended December 31, 2011.

As of December 31, 2012, there was approximately $0.6 million, $4.6 million and $0.1 million of unrecognized compensation cost, net of estimated forfeitures, related to stock options, RSUs and restricted stock, respectively. These costs are expected to be recognized over a weighted-average period of approximately 1.9 years for stock options, 2.0 years for RSUs and 0.1 years for restricted stock.

Stock Options

A summary of changes in outstanding stock options is as follows:

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

					(In years)		(In thousands)
Outstanding at January 1, 2012	1,046,746		$	9.09
Granted	150,000			7.43
Exercised	(96,987	)		7.54
Forfeited	—			—
Expired	(27,256	)		10.35

Outstanding at December 31, 2012	1,072,503		$	8.97		5.7	$	9,819

Options exercisable	230,073		$	12.60		3.9	$	1,350

Substantially all options outstanding at December 31, 2012 are vested or are expected to vest over a weighted-average period of approximately 1.9 years.

The fair value of each stock option award is estimated on the grant date using the Black-Scholes option pricing model. In 2012, a stock option to purchase 150,000 shares was granted to the Chairman and CEO, which vests over a period of three years from the grant date. The exercise price and the fair value related to this stock option grant was $7.43 and $3.63, respectively. In 2011, stock options to purchase 153,868 shares were granted to the Chairman and CEO, which also vest over a period of three years. The weighted average exercise price and the weighted average fair value related to these stock option grants were $5.89 and $2.60, respectively.

The Black-Scholes option pricing model incorporates various assumptions, including expected volatility and expected term. For purposes of this model, no dividends have been assumed. The risk-free interest rates are based on U.S. Treasury yields for notes with comparable expected terms as the awards, in effect at the grant date. The expected term of options granted is based on analyses of historical employee termination rates and option exercise patterns, giving consideration to expectations of future employee behavior. The following are the weighted average assumptions used in the Black-Scholes option pricing model for years ended December 31, 2012 and December 31, 2011, respectively: volatility factors of 45% and 44%, risk-free interest rates of 2.0% and 3.6%, expected terms of 7.0 and 7.0 years, and a dividend yield of zero for both years.

In connection with the spin-off, our Chairman and CEO was awarded two grants of 589,950 stock options, each of which represented the right to acquire 2.5% of the fully diluted equity at exercise prices representing total equity values of the Company of $100 million and $300 million. These stock options all cliff vest at the end of five years. The weighted average exercise price and the weighted average fair value related to these stock option grants were $16.95 and $4.19, respectively. In 2009, we entered into an Option Cancellation Agreement with the Chairman and CEO, in which he surrendered for cancellation in its entirety one stock option award to purchase 589,850 shares of the Company's common stock at an exercise price of $25.43 per share.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2012. The intrinsic value changes based on the fair market value of our common stock. The total intrinsic value of stock options exercised during the years ended December 31, 2012 and 2011 was $345,000 and $17,000, respectively.

Cash received from stock option exercises and the related actual tax benefit realized were $731,000 and $144,000 for the year ended December 31, 2012 and $21,000 and $7,000 for the year ended December 31, 2011.

The following table summarizes the information about stock options outstanding and exercisable as of December 31, 2012:

	Options Outstanding						Options Exercisable

Range of Exercise Prices	Outstanding at December 31, 2012		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Exercisable at December 31, 2012		Weighted Average Exercise Price
$.01 to $4.99		4,228		0.81	$	3.27		4,228	$	3.27
$5.00 to $7.45		306,685		8.65		6.65		54,105		5.92
$7.46 to $9.99		619,045		5.01		8.44		29,195		7.60
$10.00 to $14.99		15,087		1.72		12.40		15,087		12.40
$15.00 to $19.99		80,795		2.42		15.02		80,795		15.02
$20.00 to $24.99		46,663		2.43		20.19		46,663		20.19

		1,072,503		5.68	$	8.97		230,073	$	12.60

Restricted Stock Units and Restricted Stock

Nonvested RSUs and restricted stock outstanding as of December 31, 2012 and changes during the year ended December 31, 2012 were as follows:

	RSUs					Restricted Stock

	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2012		933,051		$	6.48		299,642		$	6.70
Granted		364,868			12.56		—			—
Vested		(424,530	)		7.07		(112,141	)		5.45
Forfeited		(116,278	)		6.75		—			—

Nonvested at December 31, 2012		757,111		$	9.09		187,501		$	7.44

The weighted average grant date fair value of RSUs granted during the years ended December 31, 2012 and 2011 at market prices equal to Tree.com's common stock on the grant date was $12.56 and $6.17, respectively.

The total fair value of RSUs that vested during the years ended December 31, 2012 and 2011 was $4.3 million and $1.9 million, respectively.

Our Chairman and CEO was granted 350,000 shares of restricted stock in 2009, which was treated as a modification of the cancelled stock option award of 589,850 shares discussed above. These shares of restricted stock had a weighted average grant date fair value of $5.42. The incremental non-cash compensation expense for this modification is $0.7 million, which is being recognized over the vesting period of four years. During the year ended December 31, 2010, our Chairman and CEO was granted 150,000 shares of restricted stock. These shares of restricted stock had a weighted average grant date fair value of $8.27 and a total fair value of $1.2 million. During the year ended December 31, 2011, our Chairman and CEO was granted 24,642 shares of restricted stock. The shares of restricted stock had a weighted average grant date fair value of $5.55 and a total fair value of $0.1 million. There were no restricted stock awards granted in 2012.

During February of 2013, 100,000 shares of restricted stock that were previously granted to our Chairman and CEO vested.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 718

-SubTopic 10

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 718

-SubTopic 10

-Section 50

-Paragraph 2

-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 505

-SubTopic 50

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 123R

-Paragraph 64, 65, A240

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 718

-SubTopic 40

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 718

-SubTopic 10

-Section 50

-Paragraph 4

-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher SEC

-Name Staff Accounting Bulletin (SAB)

-Number Topic 14

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Statement of Position (SOP)

-Number 93-6

-Paragraph 53

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

+ Details

GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2012

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

NOTE 4—GOODWILL AND INTANGIBLE ASSETS

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

	December 31, 2012		December 31, 2011

Goodwill	$	3,632	$	3,632

Intangible assets with indefinite lives	$	10,142	$	10,142
Intangible assets with definite lives, net		689		1,047

Total intangible assets, net	$	10,831	$	11,189

Intangible assets with indefinite lives relate principally to our trademarks. At December 31, 2012, intangible assets with definite lives relate to the following ($ in thousands):

	Cost		Accumulated Amortization			Net

Purchase agreements	$	236	$	(165	)	$	71	5.0
Technology		25,194		(25,158	)		36	3.0
Customer lists		6,682		(6,106	)		576	4.2
Other		1,517		(1,511	)		6	2.5

Total	$	33,629	$	(32,940	)	$	689

At December 31, 2011, intangible assets with definite lives relate to the following ($ in thousands):

	Cost		Accumulated Amortization			Net

Purchase agreements	$	50,411	$	(50,293	)	$	118	5.0
Technology		25,194		(25,034	)		160	3.0
Customer lists		6,682		(6,045	)		637	4.2
Other		1,516		(1,384	)		132	2.5

Total	$	83,803	$	(82,756	)	$	1,047

Amortization of intangible assets with definite lives is computed on a straight-line basis and, based on balances as of December 31, 2012, such amortization is estimated to be as follows (in thousands):

	Amount

Year ending December 31, 2013	$	147
Year ending December 31, 2014		86
Year ending December 31, 2015		60
Year ending December 31, 2016		60
Year ending December 31, 2017		60
Thereafter		276

Total	$	689

The following table presents the balance of goodwill, including changes in the carrying amount of goodwill, for the years ended December 31, 2012 and 2011 (in thousands):

	Total

Balance as of January 1, 2011
Goodwill	$	486,720
Accumulated impairment losses		(483,088	)

		3,632

Goodwill acquired during the year		—
Impairment losses		—
Other deductions		—

Balance as of December 31, 2011
Goodwill		486,720
Accumulated impairment losses		(483,088	)

		3,632

Goodwill acquired during the year		—
Impairment losses		—
Other deductions		—

Balance as of December 31, 2012
Goodwill		486,720
Accumulated impairment losses		(483,088	)

	$	3,632

We performed our annual impairment test as of October 1, 2012 but recorded no impairments for 2012.

We performed an interim impairment test in the second quarter of 2011 and our annual test as of October 1, 2011 and recorded impairment charges related to trade names and trademarks of $29.0 million and definite-lived intangible assets of $0.3 million. These impairments resulted from a lower observed market value of our common stock at June 30, 2011 and lower anticipated revenues related to our trade names and trademarks as a result of the anticipated sale of substantially all of the operating assets of LendingTree Loans. No additional impairments were recorded as of October 1, 2011.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References+ Details

PROPERTY AND EQUIPMENT

12 Months Ended

Dec. 31, 2012

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

NOTE 5—PROPERTY AND EQUIPMENT

The balance of property and equipment, net is as follows (in thousands):

	December 31, 2012			December 31, 2011

Computer equipment and capitalized software	$	25,592		$	24,940
Leasehold improvements		2,055			2,042
Furniture and other equipment		1,302			1,450
Projects in progress		500			826

		29,449			29,258
Less: accumulated depreciation and amortization		(23,294	)		(20,883	)

Total property and equipment, net	$	6,155		$	8,375

Unamortized capitalized software development costs were $4.8 million and $6.4 million at December 31, 2012 and 2011, respectively. Capitalized software development amortization expense was $3.1 million and $2.7 million for the years ended December 31, 2012 and 2011, respectively.

- Definition

The entire disclosure for long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale. Examples include land, buildings, machinery and equipment, and other types of furniture and equipment including, but not limited to, office equipment, furniture and fixtures, and computer equipment and software. This disclosure may include property plant and equipment accounting policies and methodology, a schedule of property, plant and equipment gross, additions, deletions, transfers and other changes, depreciation, depletion and amortization expense, net, accumulated depreciation, depletion and amortization expense and useful lives, income statement disclosures, assets held for sale and public utility disclosures.

+ References+ Details

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

12 Months Ended

Dec. 31, 2012

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

NOTE 6—ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):

	December 31, 2012		December 31, 2011

Litigation accruals	$	535	$	3,077
Accrued advertising expense		6,638		2,659
Accrued compensation and benefits		2,603		624
Accrued professional fees		1,399		635
Accrued restructuring costs		364		439
Customer deposits and escrows		2,101		2,211
Deferred rent		217		186
Other		6,103		6,881

Total accrued expenses and other current liabilities	$	19,960	$	16,712

The other category above reflects an estimated earnout payable related to an acquisition, franchise taxes, self-insured health claims and other miscellaneous accrued expenses.

An additional $0.5 million and $0.9 million of accrued restructuring liability is classified in other long term liabilities at December 31, 2012 and December 31, 2011, respectively.

DISCONTINUED OPERATIONS

12 Months Ended

Dec. 31, 2012

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

NOTE 7—DISCONTINUED OPERATIONS

On March 10, 2011, management made the decision and finalized a plan to close all of the field offices of the proprietary full-service real estate brokerage business known as RealEstate.com, REALTORS®. We exited all markets by March 31, 2011. In September 2011, we sold the remaining assets of RealEstate.com, which consisted primarily of internet domain names and trademarks. Accordingly, these real estate businesses are presented as discontinued operations in the accompanying consolidated balance sheets and consolidated statements of operations and cash flows for all periods presented. No significant future cash flows are anticipated from the disposition of this business.

On May 12, 2011, we entered into an asset purchase agreement that provided for the sale of substantially all of the operating assets of our LendingTree Loans business to Discover. On February 7, 2012, we entered into an amendment to the asset purchase agreement. We completed the sale on June 6, 2012. Discover has participated as a network lender since closing of the transaction. We have evaluated the facts and circumstances of the transaction and the applicable accounting guidance for discontinued operations, and have concluded that the LendingTree Loans business should be reflected as discontinued operations in the accompanying consolidated balance sheets and consolidated statements of operations and cash flows for all periods presented. The continuing cash flows related to this transaction are not significant and, accordingly, are not deemed to be direct cash flows of the divested business.

We have agreed to indemnify Discover for a breach or inaccuracy of any representation, warranty or covenant made by us in the asset purchase agreement, for any liability of ours that was not assumed, for any claims by our stockholders against Discover and for our failure to comply with any applicable bulk sales law, subject to certain limitations. Discover has submitted a claim for indemnification relating to our sale prior to the closing of certain loans that were listed in the asset purchase agreement as to be conveyed to Discover at closing. We have evaluated this matter as a potential loss contingency, and have determined that it is probable that a loss could be incurred. We also evaluated a range of potential losses, and a reserve of $1.6 million has been established for this matter, which is reflected as a reduction in gain from sale of discontinued operations and in current liabilities of discontinued operations.

The revenue and net loss for the Real Estate businesses that are reported as discontinued operations for the years ended December 31, 2012 and 2011 were as follows (in thousands):

	Year Ended December 31,

	2012			2011
Revenue	$	93		$	3,857

Loss before income taxes	$	(410	)	$	(16,804	)
Income tax expense		—			—
Gain from sale of discontinued operations, net of tax		—			7,752

Net loss	$	(410	)	$	(9,052	)

Net loss for the year ended December 31, 2012 includes restructuring expense of $0.2 million.

Net loss for the year ended December 31, 2011 includes goodwill disposal charges totaling $8.0 million, trademark impairment charges of $4.1 million and restructuring expense totaling $2.6 million.

The revenue and net income (loss) for LendingTree Loans that are reported as discontinued operations for the years ended December 31, 2012 and 2011 were as follows (in thousands):

	Year Ended December 31,

	2012			2011
Revenue	$	86,740		$	117,509

Income (loss) before income taxes	$	26,160		$	(741	)
Income tax benefit (expense)		(1,249	)		—
Gain from sale of discontinued operations, net of tax		24,373			—

Net income (loss)	$	49,284		$	(741	)

Net income for year ended December 31, 2012 includes intangible asset impairment charges of $1.4 million and restructuring expense totaling $0.1 million. Net loss for the year ended December 31, 2011 includes restructuring expense totaling $4.0 million.

The assets and liabilities of Real Estate that are reported as discontinued operations as of December 31, 2012 and December 31, 2011 were as follows (in thousands):

	December 31, 2012			December 31, 2011

Current assets	$	—		$	33

Current liabilities		206			702
Non-current liabilities		—			54

Net assets (liabilities)	$	(206	)	$	(723	)

The assets and liabilities of LendingTree Loans that are reported as discontinued operations as of December 31, 2012 and December 31, 2011 were as follows (in thousands):

	December 31, 2012			December 31, 2011

Loans held for sale	$	—		$	217,467
Other current assets		407			14,925

Current assets		407			232,392

Property and equipment		—			4,181
Goodwill		—			5,579
Other non-current assets		129			1,187

Non-current assets		129			10,947

Warehouse lines of credit		—			197,659
Other current liabilities		30,811			51,669

Current liabilities		30,811			249,328

Non-current liabilities		253			978

Net assets (liabilities)	$	(30,528	)	$	(6,967	)

Significant Assets and Liabilities of LendingTree Loans

Upon closing of the sale of substantially all of the operating assets of our LendingTree Loans business on June 6, 2012, LendingTree Loans ceased to originate consumer loans. The remaining operations are being wound down. These wind-down activities have included, among other things, selling the balance of loans held for sale to investors, which is substantially complete, paying off and then terminating the warehouse lines of credit, which occurred on July 21, 2012, and settling derivative obligations. Liability for losses on previously sold loans will remain with LendingTree Loans. Below is a discussion of these significant items.

Loans Held for Sale

LendingTree Loans originated all of its residential real estate loans with the intent to sell them in the secondary market. Loans held for sale consisted primarily of residential first mortgage loans that were secured by residential real estate throughout the United States.

Loans held for sale were recorded at fair value, with the exception of any loans that had been repurchased from investors or loans originated prior to January 1, 2008 on which we did not elect the fair value option. The fair value of loans held for sale was determined using current secondary market prices for loans with similar coupons, maturities and credit quality.

Interest on mortgage loans held for sale was recognized as earned and was only accrued if deemed collectible. Interest was generally deemed uncollectible when a loan became three months or more delinquent or when a loan had a defect affecting its salability. Delinquency was calculated based on the contractual due date of the loan. Loans were written off when deemed uncollectible.

The following table represents the loans held for sale by type of loan as of December 31, 2011 ($ amounts in thousands):

	December 31, 2011

	Amount		%
Conforming	$	$171,375		79	%
FHA and Alt-A		40,433		18	%
Jumbo		5,659		3	%

Total	$	217,467		100	%

The following presents the difference between the aggregate principal balance of loans on nonaccrual status for which the fair value option has been elected and for loans measured at lower of cost or market valuation as of December 31, 2012 and December 31, 2011 (in thousands):

	As of December 31, 2012

	Loans on Nonaccrual— Measured at Fair Value			Loans on Nonaccrual— Measured at LOCOM		Total Loans on Nonaccrual
Aggregate unpaid principal balance	$	412		$	—	$	412
Difference between fair value and aggregate unpaid principal balance		(412	)		—		(412	)

Loans on nonaccrual	$	—		$	—	$	—

	As of December 31, 2011

	Loans on Nonaccrual— Measured at Fair Value			Loans on Nonaccrual— Measured at LOCOM		Total Loans on Nonaccrual
Aggregate unpaid principal balance	$	539		$	—	$	539
Difference between fair value and aggregate unpaid principal balance		(244	)		—		(244	)

Loans on nonaccrual	$	295		$	—	$	295

During the year ended December 31, 2012, LendingTree Loans repurchased two loans with a total unpaid principal balance of $0.7 million. During the year ended December 31, 2011, LendingTree Loans did not repurchase any loans, but sold fifteen loans on nonaccrual status for $1.2 million, which approximated the net book value.

Fair Value Measurements

A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Transfers in and out of Level 1, 2 or 3 are recorded at fair value at the beginning of the reporting period.

Following is a description of valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the fair value hierarchy.

LendingTree Loans entered into commitments with consumers to originate loans at specified interest rates (interest rate lock commitments—"IRLCs"). We reported IRLCs as derivative instruments at fair value, with changes in fair value being recorded in discontinued operations. IRLCs for loans to be sold to investors using a mandatory or assignment of trade ("AOT") method were hedged using "to be announced mortgage-backed securities" ("TBA MBS") and were valued using quantitative risk models. The IRLCs derive their base value from an underlying loan type with similar characteristics using the TBA MBS market, which is actively quoted and easily validated through external sources. The most significant data inputs used in this valuation included, but were not limited to, loan type, underlying loan amount, note rate, loan program and expected sale date of the loan. IRLCs for loans sold to investors on a best-efforts basis were hedged using best-efforts forward delivery commitments and were valued on an individual loan basis using a proprietary database program prior to January 1, 2012. These valuations were based on investor pricing tables stratified by product, note rate and term. The valuations were adjusted at the loan level to consider the servicing-release premium and loan pricing adjustments specific to each loan. Effective January 1, 2012, LendingTree Loans began valuing IRLCs for loans sold to investors on a best-efforts basis using quantitative risk models on a loan level basis. The decision to modify the valuation calculation for IRLCs for loans sold on a best-efforts basis evolved from a desire to achieve principally two goals: 1) to include this portion of the IRLCs into the main operating system we used for fair value (known as QRM), allowing us to improve our estimate of loan funding probability and 2) to include elements of the all-in fair value that we could not previously calculate in the previous models. The most significant data inputs used in the valuation of these IRLCs included, but were not limited to, investor pricing tables stratified by product, note rate and term, adjusted for current market conditions. These valuations were adjusted at the loan level to consider the servicing-release premium and loan pricing adjustments specific to each loan. LendingTree Loans applied an anticipated loan funding probability based on its own experience to value IRLCs, which resulted in the classification of these derivatives as Level 3. The value of the underlying loans and the anticipated loan funding probability were the most significant assumptions affecting the valuation of IRLCs. A significant change in the unobservable inputs could have resulted in a significant change in the ending fair value measurement. At December 31, 2012, there were no IRLCs outstanding. At December 31 2011, there were $363.8 million of IRLCs notional value outstanding.

Loans held for sale measured at fair value and sold to investors using a mandatory or AOT method were also hedged using TBA MBS and valued using quantitative risk models. The valuation was based on the loan amount, note rate, loan program and expected sale date of the loan. Loans held for sale measured at fair value and sold to investors on a best-efforts basis were hedged using best-efforts forward delivery commitments and were valued using a proprietary database program prior to January 1, 2012. The best-efforts valuations prior to that date were based on daily investor pricing tables stratified by product, note rate and term. These valuations were adjusted at the loan level to consider the servicing-release premium and loan pricing adjustments specific to each loan. Effective January 1, 2012, LendingTree Loans began valuing the loans held for sale and sold to investors on a best-efforts basis using quantitative risk models. The most significant data inputs used in the valuation of these loans included investor pricing tables stratified by product, note rate and term, adjusted for current market conditions. Loans held for sale, excluding impaired loans, were classified as Level 2. Loans held for sale measured at fair value that become impaired were transferred from Level 2 to Level 3, as the estimate of fair value was based on LendingTree Loans' experience considering lien position and current status of the loan. A significant change in the unobservable inputs could have resulted in a significant change in the ending fair value measurement. LendingTree Loans recognized interest income separately from other changes in fair value.

Under LendingTree Loans' risk management policy, LendingTree Loans economically hedged the changes in fair value of IRLCs and loans held for sale caused by changes in interest rates by using TBA MBS and entering into best-efforts forward delivery commitments. These hedging instruments were recorded at fair value with changes in fair value recorded in current earnings as a component of revenue from the origination and sale of loans. TBA MBS used to hedge both IRLCs and loans were valued using quantitative risk models based primarily on inputs related to characteristics of the MBS stratified by product, coupon and settlement date. These derivatives were classified as Level 2. Prior to January 1, 2012, best-efforts forward delivery commitments were valued using a proprietary database program using investor pricing tables considering the current base loan price. Effective January 1, 2012, best-efforts forward delivery commitments were valued using quantitative risk models based on investor pricing tables stratified by product, note rate and term, adjusted for current market conditions. An anticipated loan funding probability was applied to value best-efforts commitments hedging IRLCs, which resulted in the classification of these contracts as Level 3. The current base loan price and the anticipated loan funding probability were the most significant assumptions affecting the value of the best-efforts commitments. A significant change in the unobservable inputs could have resulted in a significant change in the ending fair value measurement. The best-efforts forward delivery commitments hedging loans held for sale were classified as Level 2, so such contracts were transferred from Level 3 to Level 2 at the time the underlying loan was originated. For the purposes of the tables below, we refer to TBA MBS and best-efforts forward delivery commitments collectively as "Forward Delivery Contracts".

Assets and liabilities measured at fair value on a recurring basis

The following presents our assets and liabilities that are measured at fair value on a recurring basis at December 31, 2011 (in thousands):

	As of December 31, 2011

	Recurring Fair Value Measurements Using
	Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Fair Value Measurements
Loans held for sale	$	—	$	217,172		$	295	$	217,467
Interest rate lock commitments ("IRLCs")		—		—			9,122		9,122
Forward delivery contracts		—		(4,107	)		19		(4,088	)

Total	$	—	$	213,065		$	9,436	$	222,501

The following presents the changes in our assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2012 and 2011 (in thousands):

	December 31, 2012

	Interest Rate Lock Commitments			Forward Delivery Contracts			Loans Held for Sale
Balance at January 1, 2012	$	9,122		$	19		$	295
Transfers into Level 3		—			—			564
Transfers out of Level 3		—			(845	)		—
Total net gains (losses) included in earnings (realized and unrealized)		73,378			846			(147	)
Purchases, sales, and settlements
Purchases		—			—			—
Sales		(5,640	)		(20	)		(491	)
Settlements		(3,401	)		—			(221	)
Transfers of IRLCs to closed loans		(73,459	)		—			—

Balance at December 31, 2012	$	—		$	—		$	—

	December 31, 2011

	Interest Rate Lock Commitments			Forward Delivery Contracts			Loans Held for Sale
Balance at January 1, 2011	$	5,986		$	3		$	884
Transfers into Level 3		—			—			859
Transfers out of Level 3		—			(285	)		—
Total net gains (losses) included in earnings (realized and unrealized)		114,889			359			(87	)
Purchases, sales, and settlements
Purchases(a)		970			(58	)		—
Sales		—			—			(1,041	)
Settlements		(11,977	)		—			(320	)
Transfers of IRLCs to closed loans		(100,746	)		—			—

Balance at December 31, 2011	$	9,122		$	19		$	295

(a): Purchased in conjunction with the acquisition of certain assets of SurePoint.

The following presents the gains (losses) included in earnings for the years ended December 31, 2012 and 2011 relating to our assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):

	Year Ended December 31, 2012							Year Ended December 31, 2011

	Interest Rate Lock Commitments		Forward Delivery Contracts		Loans Held for Sale			Interest Rate Lock Commitments		Forward Delivery Contracts		Loans Held for Sale
Total net gains (losses) included in earnings, which are included in discontinued operations	$	73,378	$	846	$	(147	)	$	114,889	$	359	$	(87	)

Change in unrealized gains (losses) relating to assets and liabilities still held at December 31, 2012 and 2011, which are included in discontinued operations	$	—	$	—	$	(412	)	$	9,122	$	19	$	(38	)

The following table summarizes our derivative instruments not designated as hedging instruments as of December 31, 2011 (in thousands):

	December 31, 2011

	Balance Sheet Location	Fair Value
Interest Rate Lock Commitments	Current assets of discontinued operations	$	9,282
Forward Delivery Contracts	Current assets of discontinued operations		480
Interest Rate Lock Commitments	Current liabilities of discontinued operations		(160	)
Forward Delivery Contracts	Current liabilities of discontinued operations		(4,568	)

Total Derivatives		$	5,034

The gain (loss) recognized in the consolidated statements of operations for derivatives for the periods ended December 31, 2012 and 2011 was as follows (in thousands):

	Location of Gain (Loss) Recognized in Income on Derivative	Year Ended December 31, 2012		Year Ended December 31, 2011

Interest Rate Lock Commitments	Discontinued operations	$	73,378	$	114,889
Forward Delivery Contracts	Discontinued operations		4,244		(4,938	)

Total		$	77,622	$	109,951

Assets and liabilities under the fair value option

LendingTree Loans elected to account for loans held for sale originated on or after January 1, 2008 at fair value. Electing the fair value option allowed a better offset of the changes in fair values of the loans and the forward delivery contracts used to economically hedge them, without the burden of complying with the requirements for hedge accounting.

LendingTree Loans did not elect the fair value option on loans held for sale originated prior to January 1, 2008 and on loans that were repurchased from investors on or subsequent to that date. As of December 31, 2012 and 2011, there were no loans held for sale or carried at the lower of cost or market ("LOCOM") value assessed on an individual loan basis.

The following presents the difference between the aggregate principal balance of loans held for sale for which the fair value option has been elected and for loans measured at LOCOM, as of December 31, 2012 and 2011 (in thousands):

	As of December 31, 2012

	Loans Held for Sale— Measured at Fair Value			Loans Held for Sale— Measured at LOCOM		Total Loans Held For Sale
Aggregate unpaid principal balance	$	412		$	—	$	412
Difference between fair value and aggregate unpaid principal balance		(412	)		—		(412	)

Loans held for sale	$	—		$	—	$	—

	As of December 31, 2011

	Loans Held for Sale— Measured at Fair Value		Loans Held for Sale— Measured at LOCOM		Total Loans Held For Sale
Aggregate unpaid principal balance	$	208,918	$	—	$	208,918
Difference between fair value and aggregate unpaid principal balance		8,549		—		8,549

Loans held for sale	$	217,467	$	—	$	217,467

During the years ended December 31, 2012 and 2011, the change in fair value of loans held for sale for which the fair value option was elected was a gain of $2.7 million and $4.7 million, respectively, and is included in discontinued operations in the accompanying consolidated statements of operations.

Loan Loss Obligations

LendingTree Loans sold loans it originated to investors on a servicing-released basis, so the risk of loss or default by the borrower was generally transferred to the investor. However, LendingTree Loans was required by these investors to make certain representations and warranties relating to credit information, loan documentation and collateral. These representations and warranties may extend through the contractual life of the loan. Subsequent to the loan sale, if underwriting deficiencies, borrower fraud or documentation defects are discovered in individual loans, LendingTree Loans may be obligated to repurchase the respective loan or indemnify the investors for any losses from borrower defaults if such deficiency or defect cannot be cured within the specified period following discovery. In the case of early loan payoffs and early defaults on certain loans, LendingTree Loans may be required to repay all or a portion of the premium initially paid by the investor.

Our HLC subsidiary continues to be liable for these indemnification obligations, repurchase obligations and premium repayment obligations following the sale of substantially all of the operating assets of our LendingTree Loans business in the second quarter of 2012. Approximately $17.1 million of the purchase price paid at closing is being held in escrow pending resolution of certain of these contingent liabilities. We have been negotiating with certain secondary market purchasers to settle any existing and future contingent liabilities, but we may not be able to complete such negotiations on acceptable terms, or at all.

The obligation for losses related to the representations and warranties and other provisions discussed above is initially recorded at its estimated fair value, which includes a projection of expected future losses as well as a market-based premium. Because LendingTree Loans does not service the loans it sold, it does not maintain nor generally have access to the current balances and loan performance data with respect to the individual loans previously sold to investors. Accordingly, LendingTree Loans is unable to determine, with precision, its maximum exposure for breaches of the representations and warranties it makes to the investors that purchased such loans.

During the third quarter of 2012, in order to reflect our exit from the mortgage loan origination business in the second quarter of 2012 and our current commercial objective to pursue bulk settlements with investors, management revised the estimation process for evaluating the adequacy of the reserve for loan losses. The revised methodology, which is described below, was effective as of September 30, 2012, and resulted in a $6.5 million reduction to the loss reserve on previously sold loans.

The revised methodology uses the model described above, but also incorporates into the estimation process (a) recent bulk settlements entered into by certain of our investors with governmental agencies and other counterparties, as applied to the attributes of the loans sold by LendingTree Loans and currently held by investors and (b) our own recent investor bulk settlement experience. The historical model described above was weighted 50% in the revised analysis, and each of the other factors were weighted 25% to estimate the range of remaining loan losses, which was determined to be $18 million to $34 million at December 31, 2012. The reserve balance recorded as of December 31, 2012 was $27.2 million. Management has considered both objective and subjective factors in the estimation process, but given current general industry trends in mortgage loans as well as housing prices, market expectations and actual losses related to LendingTree Loans' obligations could vary significantly from the obligation recorded as of the balance sheet date or the range estimated above.

Additionally, Tree.com has guaranteed certain loans sold to two investors in the event that LendingTree Loans is unable to satisfy its repurchase and warranty obligations related to such loans. The original principal balance of the loans sold to one of these investors is approximately $1.8 billion and $1.5 billion as of December 31, 2012 and 2011, respectively. The unpaid principal balance of the loans sold to the second investor is approximately $279.6 million and $32.4 million as of December 31, 2012 and 2011, respectively.

The following table represents the loans sold for the period shown and the aggregate loan losses through December 31, 2012:

		As of December 31, 2012

Period of Loan Sales		Number of loans sold	Original principal balance	Number of loans with losses	Original principal balance of loans with losses	Amount of aggregate losses
	</