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AOL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4—BUSINESS ACQUISITIONS, DISPOSITIONS AND OTHER SIGNIFICANT
TRANSACTIONS
2014 Acquisitions
Gravity
On January 23, 2014, the Company acquired Gravity, a company that provides content personalization
technology and publisher solutions to create relevant consumer and advertiser experiences, for a purchase price
of $83.2 million, net of cash acquired. An additional $7.6 million of cash consideration was deferred and will be
paid over a two year service period to certain Gravity employees, which is being recorded as compensation
expense over the required service period. The purchase price includes $0.8 million related to the portion of the
fair value of converted Gravity awards that was attributable to pre-acquisition service. An additional $5.9 million
of fair value of unvested AOL restricted stock issued to Gravity employees is being recognized as equity-based
compensation expense over the remaining award service periods.
The Company recorded $46.1 million of goodwill (which is not deductible for tax purposes) and $40.4
million of intangible assets associated with this acquisition. The intangible assets associated with this acquisition
consist primarily of technology, customer 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 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.
Convertro
On May 6, 2014, the Company acquired Convertro, a leading attribution modeling technology company that
helps marketers reallocate budgets within their media channels, sites, placements and creatives, for a total
purchase price of $98.6 million, net of cash acquired. The purchase price included $89.0 million in cash, $8.9
million estimated fair value (with a gross value of $10.0 million) of contingent consideration to be paid to
Convertro shareholders upon meeting specified product development milestones over the 17 months following
the acquisition date (which was achieved as of December 31, 2014), and $0.7 million of the $2.1 million
estimated fair value of the unvested in-the-money options held by Convertro employees replaced with unvested
AOL restricted stock and related to the pre-acquisition service period.
The remaining $1.4 million fair value of issued restricted stock is being recognized as equity-based
compensation expense over the remaining awards requisite service periods. The integration of Convertro
technology is expected to enhance the ability of advertisers to customize their audience segments and establish a
map of user journey to a particular event across media channels (e.g., a conversion, completion), thereby
enabling the Company’s advertisers to develop a media plan that maximizes return on ad spend across various
media channels. The Company borrowed $75.0 million under its senior secured revolving credit facility
agreement (the “Credit Facility Agreement”) to facilitate funding of this acquisition.
The fair value of the contingent consideration liability recognized on the acquisition date was $8.9 million,
of which $6.0 million was classified within other current liabilities and the remaining $2.9 million was classified
within other long-term liabilities on the consolidated balance sheets based on the expected timing of payments as
of the acquisition date. The Company determined the fair value of the liability for the contingent consideration
based on a probability-weighted discounted cash flow analysis, which represents a level 3 fair value
measurement. As of December 31, 2014, all product development milestones had been achieved and the $10.0
million in contingent consideration had been fully paid to Convertro shareholders. The Company recognized $1.1
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