Juno 2013 Annual Report Download - page 140

Table of Contents
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increased engagement with the Classmates website and members contributed to a purchase price in excess of the fair value of Yearbook App's net
liabilities assumed and intangible assets acquired, and, as a result, the Company has recorded goodwill in connection with this transaction. The
Yearbook App's results of operations are included in the Company's consolidated financial statements from the date of acquisition and are immaterial.
The purchase price was allocated based on the estimated fair values of assets and liabilities, including identifiable intangible assets. The purchase price
allocation is considered final. The weighted-average amortizable life of the acquired intangible assets is 5 years. The $0.4 million of goodwill acquired is
deductible for tax purposes. The pro forma effect of the transaction is immaterial to the consolidated financial statements.
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On June 8, 2012 (the "Closing Date"), Classmates completed the acquisition of schoolFeed, Inc. ("schoolFeed"), owner of the schoolFeed
Facebook app. Classmates acquired all of the issued and outstanding capital stock of schoolFeed from the stockholders for consideration of $7.5 million
in cash upon closing and a maximum of $27.5 million of contingent consideration payments payable upon the achievement of certain performance
objectives. The acquisition strengthened the Classmates business domestically by providing the opportunity for our members to reconnect and interact
with more of their high school friends and acquaintances.
The contingent consideration payments were calculated based on the number of individuals who (i) install the schoolFeed app or register for
schoolFeed via the schoolFeed registration process and (ii) the number of eligible new subscribers who convert to pay accounts, all subject to certain
conditions. The contingent consideration is measured based on three annual earnout periods ending June 30, 2013, 2014 and 2015 and if earned, will be
paid annually shortly after the closing of each earnout period. The range of the amounts the Company could pay under the contingent consideration
arrangement is between $0 and $27.5 million. The fair value of the contingent consideration recognized at the Closing Date was estimated at
$9.4 million using a Monte-Carlo simulation. The key assumptions used in calculating the fair value of the contingent consideration included estimated
probabilities of U.S. and other target market daily registrations; mean growth rates of 0% to 18% for U.S. registrations and 0% to 14% for other target
market registrations, each with a standard deviation of 50%, during the earnout periods; an estimated rate of conversion of new subscribers to pay
accounts; and a discount rate of 19.5%. Changes to one or multiple inputs to the Monte-Carlo simulation, including the discount rate, growth rates,
volatility rates, the estimated number of daily registrations, and the estimated rate of conversion of new subscribers to pay accounts, could significantly
impact the estimated fair value of the contingent consideration. A 100 basis point increase or decrease in the discount rate would have resulted in a
decrease or increase in the fair value of the contingent consideration at the Closing Date by $159,000 or $163,000, respectively.
At December 31, 2012, the fair value of the contingent consideration was estimated at $8.6 million using a Monte-Carlo simulation. The key
assumptions used in calculating the fair value of the contingent consideration included estimated probabilities of U.S. and other target market daily
registrations; mean growth rates of (59)% to 51% for U.S. registrations and (60)% to 51% for other target market registrations, each with a standard
deviation of 50%, during the Earnout Periods; an estimated rate of conversion of new subscribers to pay accounts; and a discount rate of 18.2%.
Changes to one or multiple inputs to the Monte-Carlo simulation, including the discount rate, growth rates, volatility rates, the estimated number of daily
registrations, and the estimated rate of conversion of new
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