LinkedIn 2014 Annual Report Download - page 100

Fiscal 2013 Joint Venture
On November 3, 2013, the Company entered into an agreement to create LinkedIn CN Limited, a
joint venture (‘‘JV’’) with Dragon Networking, an affiliate of China Broadband Capital, and SCCV IV
Success HoldCo, Ltd., an affiliate of Sequoia Capital, (collectively, the ‘‘Partners’’) to engage in the
investment, organization, management and operation of a professional social network in the People’s
Republic of China (‘‘PRC’’). As of December 31, 2014, the Company owned approximately 93% of the
outstanding equity interests in the JV in the form of common shares by contributing intellectual
property. The Partners contributed $5.0 million in cash in exchange for 7% of the outstanding equity
interests in the form of preferred shares. Pending the occurrence of certain events, the Partners will
contribute an additional $20.0 million in cash in exchange for equity interests in the form of preferred
shares (‘‘Second Closing’’), at which point the Company and the Partners would own approximately
72% and 28% of the outstanding equity interests in the JV, respectively.
The preferred shares may be callable or puttable, generally at fair value, subject to a floor and
cap, following the fifth anniversary of the Second Closing or at the occurrence of certain events.
The Company has determined it is the primary beneficiary of the JV due to the percentage
ownership as well as the power to direct the activities that most significantly impact the JV’s economic
performance. Furthermore, the Company has the right to receive benefits and obligation to absorb
losses from the entity. The liabilities of the JV are recourse solely to the JV’s assets, except for as it
relates to a guarantee made by the Company to the JV in the event that the JV cannot fulfill the liability
resulting from the exercise of the put right by the Partners.
The noncontrolling interest in the JV is classified outside of permanent equity in the Company’s
consolidated balance sheet as of December 31, 2014, as the preferred shares include a put right
available to the noncontrolling interest holders in the future. Earnings attributable to the noncontrolling
interest on the Company’s consolidated financial statements include the accretion to the redemption
value.
Fiscal 2013 Acquisition
Pulse
On April 17, 2013, LinkedIn completed its acquisition of Alphonso Labs, Inc. (‘‘Pulse’’), a San
Francisco, California-based privately held leading mobile news reader and content distribution platform.
LinkedIn’s purchase price of $47.6 million for all the outstanding shares of capital stock of Pulse
consisted of $6.7 million in cash and 225,882 shares of LinkedIn Class A common stock. LinkedIn also
issued 9,182 stock options related to assumed Pulse equity awards. The fair value of the earned
portion of assumed stock options of $0.3 million is included in the purchase price, with the remaining
fair value of $1.2 million resulting in post-acquisition compensation expense that will be recognized
over the requisite service period of approximately three years from the date of acquisition.
The acquisition has been accounted for as a business combination under the acquisition method
and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired
and the liabilities assumed based on their respective fair values on the acquisition date. Pulse’s results
of operations have been included in the consolidated financial statements from the date of acquisition.
To retain the services of certain former Pulse employees, LinkedIn offered nonvested Class A common
stock that will be earned over three years from the date of acquisition. As these equity awards are
subject to post-acquisition employment, the Company is accounting for them as post-acquisition
compensation expense. In connection with these post-acquisition arrangements, the Company issued
244,601 shares of nonvested Class A common stock with a total fair value of $44.0 million.
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