Juno 2014 Annual Report Download - page 129

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Table of Contents
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


On December 5, 2013, Classmates, Inc. ("Classmates"), a subsidiary of United Online, Inc., acquired the Yearbook App for approximately $0.8 million in
cash. The Yearbook App is a Facebook application that helps users find and re-connect with past classmates. The primary reason for the acquisition was to
acquire the Yearbook App subscription customer relationships and developed technology, which had a total estimated fair value of $0.4 million upon
acquisition. The effect of 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.

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.
During the quarter ended March 31, 2013, Facebook restricted certain functionality of the schoolFeed app, which limited schoolFeed's ability to use the
Facebook platform to contact users who were not registered members of schoolFeed. Subsequently, in May 2013, Facebook discontinued the schoolFeed
app's access to the Facebook platform, which resulted in the termination of future new
F-47