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AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
common stock with a fair value of $80.8 million based on AOL’s closing stock price on the closing date. Adap.tv
is an online video advertising company whose advertising technology platform provides advertisers and
publishers the ability to buy and sell video advertising inventory across desktop, mobile, and connected TV
platforms. This acquisition is expected to enhance the Company’s offerings to publishers and advertisers. The
results of operations of Adap.tv are reflected within the AOL Platforms segment from the date of acquisition.
In connection with the acquisition, the Company replaced unvested in-the-money options held by Adap.tv
employees under the Adap.tv Stock Incentive Plan (the “Adap.tv Plan”) with unvested AOL restricted stock of
$35.6 million in fair value. Of the total fair value, $10.8 million was attributable to pre-acquisition service and
included in the purchase price, bringing the total purchase price of Adap.tv for accounting purposes to $421.4
million. The remaining $24.8 million of the fair value of this restricted stock is being recognized as equity-based
compensation expense over the remaining award service periods.
The Company recorded $295.1 million of goodwill (which is not deductible for tax purposes) and $120.3
million of intangible assets associated with this acquisition. The intangible assets associated with this acquisition
consist of technology, advertiser and publisher relationships, and trade names, all of which are being amortized
on a straight-line basis over a period of five years. The fair value of the significant identified intangible assets
was estimated by using relief from royalty, cost savings and multi-period excess earnings valuation
methodologies, which represent level 3 fair value measurements. Inputs used in the methodologies primarily
included projected future cash flows, discounted at a rate commensurate with the risk involved.
2012 Acquisitions
Ad.com Japan
On February 9, 2012, the Company entered into a share-purchase agreement with Mitsui to purchase an
additional 3% interest in Ad.com Japan for approximately $1.2 million. Ad.com Japan, which operates a display
advertising network business in Japan, was formed in 2006. Prior to the execution of the share purchase
agreement, AOL and Mitsui each owned a 50% interest in Ad.com Japan, and AOL accounted for its 50%
interest using the equity method of accounting. As part of this transaction, AOL obtained control of the board and
of the day-to-day operations of Ad.com Japan. The Company accounted for the incremental 3% share purchase
as a business combination achieved in stages (“step acquisition”) and consolidated Ad.com Japan beginning on
the closing date.
Under the accounting guidance for step acquisitions, AOL is required to record all assets acquired, liabilities
assumed, and Mitsui’s noncontrolling interests at fair value, and recognize the entire goodwill of the acquired
business. The step acquisition guidelines also require that AOL remeasure its preexisting investment in Ad.com
Japan at fair value, and recognize any gains or losses from such remeasurement. The fair value of AOL’s interest
immediately before the closing date was $15.4 million, which resulted in the Company recognizing a non-cash
gain of approximately $10.8 million within interest and other income (expense), net on the consolidated
statements of comprehensive income in the first quarter of 2012. The Company used a combination of the market
based approach (guideline public company) and an income approach (discounted cash flow analysis), both of
which represent level 3 fair value measurements, to measure both the fair value of AOL’s preexisting investment
and the fair value of Mitsui’s noncontrolling interest. As Mitsui has a right to put its interest to AOL based on a
pre-established and determinable price in the future, the noncontrolling interest is presented as redeemable
noncontrolling interest outside permanent equity on the Company’s consolidated balance sheets. The
noncontrolling interest holder’s right to redeem its stock is exercisable any time between July 1 and July 30 of
any year, which commenced on July 1, 2014. The amount payable from AOL to Mitsui if Mitsui were to exercise
85