America Online 2011 Annual Report Download - page 86

Table of Contents
AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
• On December 15, 2010, the Company completed the acquisition of Pictela, Inc. ("Pictela"), a provider of rich media advertising formats used by
agencies and publishers. This business was acquired to further the Company's ability to provide high quality advertising content.
• On December 20, 2010, the Company completed the acquisition of About.me, Inc. ("About.me"), a company that provides a web service product
that empowers people to create a single personal profile page that presents their online identities together in one place, simplifying the social
experience across the web. This business was acquired to enhance the Company's ability to provide relevant and meaningful content to
consumers.
The aggregate purchase price of these acquisitions was $63.8 million, net of cash acquired. AOL recorded $55.7 million of goodwill (which is not
deductible for tax purposes) and $10.1 million of intangible assets related to these acquisitions.
The intangible assets associated with these acquisitions consist of acquired technology, trademarks, non-compete agreements and customer
relationships to be amortized on a straight-line basis over a weighted average period of approximately three years.
Additional Information on Acquisitions
For the years ended December 31, 2011 and 2010, the Company incurred $9.9 million and $3.3 million, respectively, of merger and acquisition related
expenses primarily related to the acquisitions discussed above. These transaction costs were recorded within general and administrative costs in the
consolidated financial statements.
The amounts assigned to intangible assets were based on the Company's best estimate of the fair value of such assets. The Company used an
independent valuation specialist to assist in determining the fair value of the identified intangible assets. The fair value of the significant identified intangible
assets was estimated by performing a discounted cash flow analysis using the "income" approach, which represents a level 3 fair value measurement. The
income approach includes a forecast of direct revenues and costs associated with the respective intangible assets and charges for economic returns on tangible
and intangible assets utilized in cash flow generation. Net cash flows attributable to the identified intangible assets are discounted to their present value at a
rate commensurate with the perceived risk. The projected cash flow assumptions considered contractual relationships, customer attrition, eventual
development of new technologies and market competition.
The useful lives of trade names were estimated based on the Company's evaluation of the useful lives of comparable intangible assets purchased under
similar circumstances. The useful lives of customer relationships were estimated based upon the length of the contracts currently in place, probability-based
estimates of contract renewals in the future and natural growth and diversification of the customer base.
In connection with incentive cash compensation arrangements made in connection with acquisitions made in 2011 and 2010, the Company recorded
$35.2 million and $6.2 million in retention compensation expense for the years ended December 31, 2011 and 2010, respectively.
Unaudited pro forma results of operations assuming these acquisitions had taken place at the beginning of each period are not provided because the
historical operating results of the acquired companies were not significant and pro forma results would not be significantly different from reported results for
the periods presented.
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