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Business Combinations
 6 Months Ended
Dec. 31, 2011
Business Combinations [Abstract]  
Business Combinations

3. Business Combinations

Acquisition of Albumprinter Holding B.V.

On October 31, 2011, we acquired 100% of the outstanding shares of Albumprinter Holding B.V., a leading provider of photo books and other photo products to consumers in Europe. At the closing, we paid €60,000 ($85,019 based on the exchange rate as of the date of acquisition) in cash for Albumprinter Holding B.V.'s shares, which we funded using cash on hand and borrowings under our credit facility, and we may pay up to an additional €5,000 ($7,085 based on the exchange rate as of the date of acquisition) in cash on or after December 31, 2012 based upon the acquired business achieving revenue and earnings targets for calendar year 2012. The estimated fair value of the earn-out payment of $583 was included as a component of the purchase price based on an evaluation of the likelihood of achievement of the contractual conditions and weighted probability assumptions of these outcomes. Any changes in fair value will be recorded in our consolidated statements of income. In connection with the acquisition, we incurred transaction costs related to investment banking, legal, financial, and other professional services of approximately $1,700 in the six months ended December 31, 2011, which have been recorded in general and administrative expenses.

The amount paid at closing was subject to a post-closing adjustment based on Albumprinter's working capital and net debt as of the closing date. These adjustments resulted in a reduction of purchase price of €3,165 ($4,485 based on the exchange rate as of the date of acquisition). The proceeds due from this adjustment are included in other current assets as of December 31, 2011 and have been received as of the date of this filing.

 

Our condensed consolidated financial statements include the accounts of Albumprinter from October 31, 2011, the date of acquisition. Albumprinter revenues and net income included for the three and six months ended December 31, 2011 are $15,708 and $2,891, respectively.

Purchase Price Allocation

The excess of the purchase price paid over the fair value of Albumprinter's net assets is recorded as goodwill, which is primarily attributable to revenue synergies expected from cross-selling opportunities and the workforce of Albumprinter. Goodwill is not expected to be deductible for tax purposes, and has been attributed to our Europe operating segment.

The accounting for the Albumprinter acquisition is considered provisional as the valuation and tax accounting are preliminary. The purchase price is allocated as follows:

 

             
     Amount     Weighted
Average Useful
Life (in years)

Total assets acquired (1)

    $ 33,521      n/a

Total liabilities assumed (2)

      (44,622 )    n/a

Identifiable intangible assets:

             

Trade name

      9,919      7

Developed technology

      9,210      3

Customer relationships

      22,672      7

Goodwill

      50,417      n/a
    

 

 

      

Total purchase price (3)

    $ 81,117       
    

 

 

      

 

(1) Includes cash and cash equivalents acquired of $43.
(2) Includes deferred tax liabilities of $10,450 primarily composed of the difference between the book value and tax basis of assets acquired.
(3) Includes an estimate of the fair value of contingent consideration of $583 and is reduced by post-closing adjustments of $4,485.

Acquisition of Webs, Inc.

On December 28, 2011, we acquired 100% of the outstanding shares of Webs, a leading provider of do-it-yourself websites, Facebook Pages and mobile presence solutions for small businesses. At closing we paid $101,300 in cash and $16,200 in RSAs contingent upon continued employment of the founding shareholders. The purchase price was funded using cash on hand and borrowings under our credit facility. In connection with the acquisition, we incurred transaction costs related to investment banking, legal, financial, and other professional services of approximately $1,600 in the three months ended December 31, 2011, which have been recorded in general and administrative expenses.

Our condensed consolidated financial statements include the accounts of Webs from December 28, 2011, the date of acquisition. Webs revenue and net income were not significant for the three days between the acquisition and December 31, 2011.

Restricted Share Awards

The RSAs were granted to the founding shareholders of Webs and vest 50% on December 28, 2012 and 50% on December 28, 2013, subject to continued employment on each vesting date with possible accelerated vesting or forfeiture under certain circumstances.The fair value of the RSAs of $15,843 was determined based on our share price on the date of acquisition and is expected to be recognized as share-based compensation expense over the two year vesting period. This has not been included as part of the consideration transferred for purposes of the purchase price allocation.

Purchase Price Allocation

The excess of the purchase price paid over the fair value of Webs' net assets is recorded as goodwill, which is primarily attributable to revenue synergies expected from cross-selling opportunities and the workforce of Webs. Goodwill is not expected to be deductible for tax purposes and we are still evaluating the allocation of goodwill to our operating segments.

 

The accounting for the Webs acquisition is considered provisional as the valuation and tax accounting are preliminary. The purchase price is allocated as follows:

 

             
     Amount     Estimated Useful
Life (in years)

Total assets acquired (1)

    $ 2,439      n/a

Total liabilities assumed (2)

      (9,514 )    n/a

Identifiable intangible assets:

             

Trade name

      300      2

Developed technology

      3,000      4

Customer network

      4,600      7

Patents (3)

      2,500      —  

Goodwill

      97,933      n/a
    

 

 

      

Total purchase price

    $ 101,258       
    

 

 

      

 

(1) Includes cash and cash equivalents acquired of $1,412.
(2) Includes deferred tax liabilities of $4,102 primarily composed of the difference between the book value and tax basis of assets acquired.
(3) These patents are classified as held-for-sale.

Pro Forma Financial Information

The acquired companies have been included in our condensed consolidated financial statements starting on their respective acquisition dates. The following pro forma financial information presents our results as if these acquisitions had occurred on July 1, 2010:

 

                                 
     Three Months Ended
December 31,		      Six Months Ended
December 31,		  
     2011      2010      2011      2010  

Pro forma revenue

    $ 311,577       $ 249,128       $ 541,883       $ 431,147   

Pro forma income from operations

      37,126         41,497         47,747         54,099   

These amounts have been calculated after applying our accounting policies and adjusting the results of Albumprinter and Webs to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on July 1, 2010.

Identifiable Intangible Assets

We used the income approach to value the trade names, customer relationships and customer network and a replacement cost approach to value developed technology. The income approach calculates fair value by discounting the after-tax cash flows back to a present value. The baseline data for this analysis was the cash flow estimates used to price the transaction. Cash flows were forecasted for each intangible asset then discounted based on an appropriate discount rate.

In estimating the useful life of the acquired assets, we reviewed the expected use of the assets acquired, factors that may limit the useful life of an acquired asset or may enable the extension of the useful life of an acquired asset without substantial cost, the effects of obsolescence, demand, competition and other economic factors, and the level of maintenance expenditures required to obtain the expected future cash flows from the asset. We amortize acquired intangible assets over their economic useful lives using either a method that is based on estimated future cash flows or a straight-line basis over the periods benefited. Definite-lived assets are assessed for impairment whenever significant events or changes occur that might impact recovery of recorded costs.