Enom 2014 Annual Report Download - page 42

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Amortization of Intangible Assets
We capitalize certain costs allocated to the purchase price of certain identifiable intangible assets acquired in connection with
business combinations and to develop content that our algorithms indicate have a probable economic benefit. We amortize these costs
on a straight-line basis over the related expected useful lives of these assets. We determine the appropriate useful life of intangible
assets by performing an analysis of expected cash flows based on our historical experience of intangible assets of similar quality and
value. We expect amortization expense related to business combinations to decrease due to a lower level of acquisitions in the near
term as compared to prior years, as well as a decrease in intangible assets as a result of recent dispositions including Creativebug and
CoveritLive. In response to changes that Google, Yahoo! and Bing have made to their search engine algorithms, we have elected to
remove certain content units from our content library, resulting in $7.7 million, $2.4 million, $2.1 million and $5.9 million of related
accelerated amortization expense in 2014, 2013, 2012 and 2011, respectively. Further remediation of our content in future periods may
result in significant additional accelerated amortization expense related to capitalized media content in the periods such actions occur.
Amortization as a percentage of revenue will depend upon a variety of factors, such as the amounts and mix of our investments in
content and identifiable intangible assets acquired in business combinations.
Goodwill
We test goodwill for impairment in the fourth quarter of each year unless there are interim indicators that suggest that it is more
likely than not that goodwill may be impaired. For the reasons described below under “—Critical Accounting Policies and
Estimates—Goodwill,” we performed an interim assessment of impairment of the goodwill in our content and media reporting unit in
the third quarter of 2014. Based on our analyses, the implied fair value of goodwill was substantially lower than the carrying value of
goodwill for the content and media reporting unit and, as a result, we determined that the implied fair value of the goodwill in the
content and media reporting unit was zero. Accordingly, we recorded a $232.3 million goodwill impairment charge during the third
quarter of 2014. We performed our annual impairment analysis in the fourth quarter of the year ended December 31, 2014, and based
on the results of the annual impairment test there were no additional goodwill impairment charges for the year ended December 31,
2014. We may be required to record additional goodwill impairment charges in future periods.
Stock-based Compensation
Included in operating expenses are expenses associated with stock-based compensation, which are allocated and included in
service costs, sales and marketing, product development and general and administrative expenses. Stock-based compensation expense
is largely comprised of costs associated with stock options, restricted stock units and restricted stock granted to employees, directors
and non-employees, and expenses relating to our Employee Stock Purchase Plan. We record the fair value of these equity-based
awards and expenses at their cost ratably over related vesting periods.
Interest Income (Expense), Net
Interest expense principally consists of interest on outstanding debt and amortization of debt issuance costs associated with our
credit facility, which was fully repaid in November 2014. Interest expense was higher in 2014 than in prior years due to higher
borrowings outstanding for most of the year, as well as the $1.7 million write off of the debt issuance costs associated with our credit
facility. We expect interest expense to decrease in 2015 because we currently have no debt outstanding. Interest income consists of
interest earned on cash balances and short-term investments. We typically invest our available cash balances in money market funds
and short-term United States Treasury obligations.
Other Income (Expense), Net
Other income (expense), net consists primarily of transaction gains and losses on foreign currency-denominated assets and
liabilities and changes in the value of certain long term investments. We expect our transaction gains and losses will vary depending
upon movements in underlying currency exchange rates.
Provision for Income Taxes
Since our inception, we have been subject to income taxes principally in the United States, and certain other countries where we
have a legal presence, including the United Kingdom, the Netherlands, Canada, Australia and Argentina. We may in the future
become subject to taxation in additional countries based on the foreign statutory rates and our effective tax rate could fluctuate
accordingly.
Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the