Acquisitions and Joint Venture

Fiscal 2015 Acquisitions

Lynda.com

On May 14, 2015, LinkedIn acquired lynda.com, Inc. ("Lynda.com"), a Carpinteria, California-based privately held online learning company teaching business, technology, and creative skills to help people achieve their professional goals. LinkedIn's purchase price of approximately $1.5 billion for all the outstanding shares of capital stock of Lynda.com consists of approximately $777.7 million in cash and 3,573,589 shares of LinkedIn Class A common stock. LinkedIn also issued 178,763 stock options related to assumed Lynda.com equity awards. The fair value of the earned portion of assumed stock options of $11.2 million is included in the purchase price, with the remaining fair value of $18.9 million representing post-acquisition compensation expense that will be recognized over the requisite service period of approximately three years from the date of acquisition. LinkedIn accelerated the vesting of and settled in cash the stock options for non-continuing employees and recognized $22.4 million in stock-based compensation expense immediately. A portion of the consideration was placed in escrow to satisfy certain indemnification obligations of the former Lynda.com stockholders as described in the Merger Agreement.

The following table presents the components of the preliminary purchase consideration transferred based on the closing price of $194.49 per share of LinkedIn's Class A common stock (in thousands):



Cash	$	777,745
Class A common stock	695,028
Earned portion of the assumed stock options	11,181
Other consideration	2,758
Purchase consideration	$	1,486,712

The acquisition has been accounted for as a business combination under the acquisition method and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on the fair value on the acquisition date. The fair value of assets acquired and liabilities assumed from the acquisition of Lynda.com is based on a preliminary valuation and, as such, the Company's estimates and assumptions are subject to change within the measurement period. The primary areas of the purchase price that are not yet finalized are related to indirect taxes. The changes to the purchase price allocation primarily related to income taxes with the largest change related to the early adoption of authoritative accounting guidance on deferred taxes.

The results of operations of Lynda.com are included in the consolidated financial statements from the date of acquisition. The Company has recognized $107.4 million in revenue and net loss of $82.9 million related to its acquisition of Lynda.com in 2015. The net loss related to Lynda.com includes tax-effected one-time charges, such as severance, of approximately $19.4 million. The Company also recognized transaction costs of approximately $2.0 million, which are included in general and administrative expense in the consolidated statement of operations in 2015. The following table presents the preliminary purchase price allocation recorded in the Company's consolidated balance sheets for Lynda.com as of the acquisition date (in thousands):



				Preliminary estimated useful life
Cash	$	136,109
Accounts receivable	9,370
Prepaid expenses	3,984
Other current assets	153
Property and equipment	16,239			3 years	⁽⁵⁾
Goodwill ⁽¹⁾	1,126,536
Definite-lived intangible assets:
Subscriber relationships - Enterprise	164,000			4 years
Subscriber relationships - Individual	57,000			2 years
Content ⁽²⁾	98,000			3 years
Developed technology	39,000			2 years
Trade name	1,000			1 year
Other assets	367
Accounts payable	(8,622		)
Accrued liabilities	(7,142		)
Deferred revenue ⁽³⁾	(46,994		)
Deferred tax liabilities	(87,481		)
Other long-term liabilities ⁽³⁾	(14,807		)
Total purchase price⁽⁴⁾	$	1,486,712

____________

(1)

The goodwill represents the excess value of the purchase price over both tangible and intangible assets acquired. The goodwill in this transaction is primarily attributable to expected operating synergies, which include the Lynda.com talent and their production process, the Learning & Development (“L&D”) opportunities to strengthen the skills of LinkedIn's members, as well as the L&D initiatives that the talent of Lynda.com and LinkedIn will jointly develop. These attributes position the Company to be able to further expand its long-term content strategy and to realize its vision of building the world's first economic graph. None of the goodwill is expected to be deductible for tax purposes.


(2)	The amortization method for the content intangible asset is 50% the first year, 30% the second year, and 20% in the third year. The remaining definite-lived intangible assets are amortized using the straight-line method.


(3)	Other long-term liabilities include $2.8 million of long-term deferred revenue. Approximately 80% of total deferred revenue of $49.9 million is amortized in 2015 and approximately 20% thereafter.


(4)	Subject to adjustment based on (i) purchase price adjustment provisions contained in the acquisition agreement and (ii) indemnification obligations of the acquired company stockholders.


5)	Represents an average estimated life.

Supplemental information on an unaudited pro forma basis, as if the acquisition of Lynda.com had been consummated on January 1, 2014, is presented as follows (in thousands, except per share amounts):



	Year Ended December 31,
	2015			2014
Revenue	$	3,073,039		$	2,356,620
Net loss attributable to common stockholders	(176,894		)	(173,461		)
Net loss per share attributable to common stockholders - diluted	$	(1.36	)	$	(1.37	)

These pro forma results are based on estimates and assumptions, which the Company believes are reasonable. They are not necessarily indicative of the Company's consolidated results of operations in future periods or the results that actually would have been realized had the companies operated on a combined basis during the periods presented. The pro forma results include adjustments primarily related to amortization of intangible assets, accelerated vesting of options for non-continuing employees, and stock-based compensation expenses for assumed unearned equity awards.

Other acquisitions

LinkedIn completed six other acquisitions for a total purchase price of $40.8 million, which consisted of $35.1 million in cash and 22,898 shares of LinkedIn Class A common stock. These acquisitions have been accounted for as business combinations under the acquisition method and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their respective fair values on the acquisition dates. The results of operations of these acquisitions have been included in the consolidated financial statements from the date of each respective acquisition. The following table presents the purchase price allocations recorded in the Company's consolidated balance sheets as of the acquisition dates (in thousands):



	Other Acquisitions
Goodwill ⁽¹⁾	$	23,839
Intangible assets ⁽²⁾	12,723
Net tangible assets	4,230
Total purchase price ⁽³⁾	$	40,792

_______________________


(1)	The goodwill represents the excess value of the purchase price over both tangible and intangible assets acquired. The goodwill in this transaction is primarily attributable to expected operational synergies, the assembled workforce, and the future development initiatives of the assembled workforce. None of the goodwill is expected to be deductible for tax purposes.


(2)	Identifiable definite-lived intangible assets were comprised of developed technology of $12.7 million with an estimated useful life of 2.0 years, which will be amortized on a straight-line basis over the estimated useful lives.


(3)	Subject to adjustment based on (i) purchase price adjustment provisions contained in the acquisition agreements and (ii) indemnification obligations of the acquired company stockholders.

Fiscal 2014 Acquisitions

Bizo

On August 13, 2014, LinkedIn completed its acquisition of Bizo, Inc. ("Bizo"), a San Francisco, California-based privately held company that enables measurable display and social advertising programs specifically focused on professional segments. LinkedIn's purchase price of $160.3 million for all the outstanding shares of capital stock of Bizo consisted of $153.5 million in cash and the fair value of assumed Bizo equity awards. In connection with these assumed awards, LinkedIn issued 70,172 stock options and 1,788 restricted stock units ("RSUs"). The fair value of the earned portion of assumed stock awards of $6.8 million is included in the purchase price, with the remaining fair value of $4.9 million resulting in post-acquisition compensation expense that will be recognized over the requisite service period of approximately two years from the date of acquisition.

To retain the services of certain former Bizo employees, LinkedIn offered 67,664 shares of non-vested Class A common stock with a total fair value of $14.6 million that will be earned over two years from the date of acquisition. As the shares are subject to post-acquisition employment, the Company is accounting for them as post-acquisition compensation expense.

Bright

On February 28, 2014, LinkedIn completed its acquisition of Bright Media Corporation ("Bright"), a San Francisco, California-based privately held online job board with candidate matching capabilities. LinkedIn's purchase price of $100.6 million for all the outstanding shares of capital stock of Bright consisted of $50.5 million in cash and 241,875 shares of LinkedIn Class A common stock. LinkedIn also issued 11,702 stock options related to assumed Bright equity awards. The fair value of the earned portion of assumed stock options of $0.8 million is included in the purchase price, with the remaining fair value of $1.4 million resulting in post-acquisition compensation expense that will be recognized over the requisite service period of approximately three years from the date of acquisition.

To retain the services of certain former Bright employees, LinkedIn offered 55,186 shares of non-vested Class A common stock with a total fair value of $11.3 million and $2.6 million in cash that will be earned over three years from the date of acquisition. As the equity awards and cash are subject to post-acquisition employment, the Company is accounting for them as post-acquisition compensation expense.

Other acquisitions

LinkedIn completed five other acquisitions for a total purchase price of $23.8 million, which consisted of $16.5 million in cash, 46,091 shares of LinkedIn Class A common stock and assumed equity awards. To retain the services of certain former employees, LinkedIn offered 79,604 shares of unvested Class A common stock with a total fair value of $12.5 million that will be earned over two years from the date of acquisition. As the equity awards are subject to post-acquisition employment, the Company is accounting for them as post-acquisition compensation expense.

These acquisitions, including Bizo and Bright, have been accounted for as business combinations under the acquisition method and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their respective fair values on the acquisition dates. The results of operations of these acquisitions have been included in the consolidated financial statements from the date of each respective acquisition. The Company has recognized $22.9 million in revenue related to its acquisition of Bizo. The following table presents the purchase price allocations recorded in the Company's consolidated balance sheets as of the acquisition dates (in thousands):



	Bizo			Bright			Other acquisitions			Total
Net tangible assets	$	8,159		$	905		$	221		$	9,285
Goodwill ⁽¹⁾	113,551			73,851			18,445			205,847
Intangible assets ⁽²⁾	47,800			32,200			5,299			85,299
Net deferred tax liability	(9,257		)	(6,323		)	(195		)	(15,775		)
Total purchase price ⁽³⁾	$	160,253		$	100,633		$	23,770		$	284,656

_______________________


(1)	The goodwill represents the excess value of the purchase price over both tangible and intangible assets acquired. The goodwill in these transactions is primarily attributable to expected operational synergies, assembled workforces, and the future development initiatives of the assembled workforces. None of the goodwill is expected to be deductible for tax purposes.


(2)	Identifiable definite-lived intangible assets were comprised of developed technology of $81.4 million and customer relationships of $3.9 million. The overall weighted-average life of the identifiable definite-lived intangible assets acquired in the purchase of the companies was 3.0 years, which will be amortized on a straight-line basis over their estimated useful lives.


(3)	Subject to adjustment based on (i) purchase price adjustment provisions contained in the acquisition agreement and (ii) indemnification obligations of the acquired company stockholders.

Supplemental information on an unaudited pro forma basis, as if the Bright and Bizo acquisitions had been consummated on January 1, 2013, is presented as follows (in thousands, except per share amounts):



	Year Ended December 31,
	2014			2013
Revenue	$	2,247,187		$	(1,574,460	)
Net loss attributable to common stockholders	$	(50,786	)	$	(9,007	)
Net loss per share attributable to common stockholders - diluted	$	(0.41	)	$	0.08

These pro forma results are based on estimates and assumptions, which the Company believes are reasonable. They are not necessarily indicative of the Company's consolidated results of operations in future periods or the results that actually would have been realized had the companies operated on a combined basis during the periods presented. The pro forma results include adjustments primarily related to amortization of developed technology, benefit arrangements in connection with the acquisition, and stock-based compensation expenses for assumed unearned equity awards.

Fiscal 2013 Acquisition

Pulse

On April 17, 2013, LinkedIn completed its acquisition of Alphonso Labs, Inc. ("Pulse"), a San Francisco, California-based privately held leading mobile news reader and content distribution platform. LinkedIn's purchase price of $47.6 million for all the outstanding shares of capital stock of Pulse consisted of $6.7 million in cash and 225,882 shares of LinkedIn Class A common stock. LinkedIn also issued 9,182 stock options related to assumed Pulse equity awards. The fair value of the earned portion of assumed stock options of $0.3 million is included in the purchase price, with the remaining fair value of $1.2 million resulting in post-acquisition compensation expense that will be recognized over the requisite service period of approximately three years from the date of acquisition.

The acquisition has been accounted for as a business combination under the acquisition method and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their respective fair values on the acquisition date. Pulse's results of operations have been included in the consolidated financial statements from the date of acquisition. To retain the services of certain former Pulse employees, LinkedIn offered nonvested Class A common stock that will be earned over three years from the date of acquisition. As these equity awards are subject to post-acquisition employment, the Company is accounting for them as post-acquisition compensation expense. In connection with these post-acquisition arrangements, the Company issued 244,601 shares of nonvested Class A common stock with a total fair value of $44.0 million.

The following table presents the purchase price allocation recorded in the Company's consolidated balance sheets on the acquisition date (in thousands):



	Total
Net tangible assets	$	221
Goodwill ⁽¹⁾	35,657
Intangible assets⁽²⁾	14,000
Net deferred tax liability	(2,267		)
Total purchase consideration	$	47,611

_______________________


(1)	The goodwill represents the excess value of the purchase price over both tangible and intangible assets acquired and liabilities assumed. The goodwill in this transaction is primarily attributable to expected operational synergies, the assembled workforce, and the future development initiatives of the assembled workforce. None of the goodwill is expected to be deductible for tax purposes.


(2)	Identifiable definite-lived intangible assets were comprised of developed technology of $9.5 million, trade name of $2.7 million, registered user base of $1.2 million and backlog of $0.6 million. The overall weighted-average life of the identifiable definite-lived intangible assets acquired was 2.9 years, which will be amortized on a straight-line basis over their estimated useful lives.

Pro forma results of operations for this acquisition have not been presented as the financial impact to the Company’s consolidated financial statements is not material.

Joint Venture

On November 3, 2013, the Company entered into an agreement to create LinkedIn CN Limited, a joint venture (“JV”) with Dragon Networking, an affiliate of China Broadband Capital, and SCCV IV Success HoldCo, Ltd., an affiliate of Sequoia Capital, (collectively, the “Partners”) to engage in the investment, organization, management and operation of a professional social network in the People’s Republic of China (“PRC”). In the fourth quarter of 2013, the Partners had contributed $5.0 million in cash in exchange for 7% of the outstanding equity interests in the form of preferred shares. In the second quarter of 2015, the Partners contributed an additional $20.0 million in cash in exchange for additional preferred shares ("Second Closing"). As a result, the Company and the Partners own approximately 65% and 25% of the fully diluted equity interests in the JV, respectively, with the remaining 10% related to authorized stock options of the JV.

The preferred shares may be callable or puttable, generally at fair value, subject to a floor and cap, following the fifth anniversary of the Second Closing or at the occurrence of certain events ("embedded features"). These embedded features are accounted for as a derivative liability as a result of the Company's adoption of the new authoritative guidance on derivatives and hedging in the fourth quarter of 2015. See Note 1, Description of Business and Summary of Accounting Policies, for additional information on the adoption of this guidance.

The Company has determined it is the primary beneficiary of the JV due to the percentage ownership as well as the power to direct the activities that most significantly impact the JV's economic performance. Furthermore, the Company has the right to receive benefits and obligation to absorb losses from the entity. The liabilities of the JV are recourse solely to the JV’s assets.

The noncontrolling interest in the JV is classified outside of permanent equity in the Company’s consolidated balance sheet as of December 31, 2015, as the preferred shares include a put right against the Company available to the noncontrolling interest holders in the future. Net income attributable to common stockholders on the Company's consolidated statements of operations includes the accretion of the RNCI to its redemption value.