Juno 2013 Annual Report Download - page 148

Table of Contents
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purchasers of its subscription services. The Multistate Work Group did not provide an explanation as to how the $17.5 million was
determined or the proposed allocation of such counter offer between Classmates, Inc. and FTD.COM Inc. In addition, the Multistate
Work Group did not propose a limit on the amount of such restitution. The Company has rejected the Multistate Work Group's counter
offer and is seeking clarification regarding such counter offer. While the Company anticipates that settlement discussions will be
ongoing, there can be no assurances as to the terms on which the Multistate Work Group and Classmates, Inc. may agree to settle this
matter, or that any settlement of this matter may be reached. If no settlement is reached, certain Attorneys General of the Multistate Work
Group may file litigation against Classmates, Inc. and, in the event of litigation, Classmates, Inc. intends to vigorously defend itself.
•In 2011, Classmates, Inc. received a civil investigative demand from the Attorney General for the State of Washington regarding its
marketing, refund, cancelation, and renewal practices. Prior to that, in 2009, Classmates, Inc. had received a civil investigative demand
from the Attorney General for the State of Washington regarding certain post-transaction sales practices in which it had previously
engaged with certain third-party vendors. In 2012, the Attorney General for the State of Washington joined the aforementioned
Multistate Work Group. The Company believes that by joining the Multistate Work Group, the Attorney General's investigation may
have been consolidated into the Multistate Work Group's inquiry.
The Company cannot predict the outcome of these or any other governmental investigations or other legal actions or their potential implications for
its business. There are no assurances that additional governmental investigations or other legal actions will not be instituted in connection with the
Company's former post-transaction sales practices or other current or former business practices.
The Company records a liability when it believes that it is both probable that a loss will be incurred, and the amount of loss can be reasonably
estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously
accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company
may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are
indeterminate; (ii) if the proceedings are in early stages, (iii) if there is uncertainty as to the outcome of pending appeals, motions or settlements, (iv) if
there are significant factual issues to be determined or resolved, and (v) if there are novel or unsettled legal theories presented. In such instances, there is
considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. At December 31, 2013, the
Company had a reserve of $1.5 million recorded in liabilities of continuing operations for the proposed settlement of the Multistate Work Group's
inquiry of Classmates, Inc. With respect to the legal matters described above, including the Multistate Work Group's inquiry of Classmates, Inc., the
Company has determined, based on its current knowledge, that the amount of possible loss or range of loss, including any reasonably possible losses in
excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant
uncertainties, some of which are beyond the Company's control. As such, even though the Company intends to vigorously defend itself with respect to
its legal matters, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company's business,
financial condition, results of operations, or cash flows.
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