Enom 2014 Annual Report Download - page 46

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On August 1, 2014, we completed the Separation of Rightside from Demand Media, resulting in two independent, publicly
traded companies. Following the Separation, Rightside operates our former domain name services business, while we continue to own
and operate our Content & Media and Marketplaces businesses. The financial results of Rightside are presented as discontinued
operations in our consolidated statements of operations for the years ended December 31, 2014, 2013 and 2012. We reclassified the
following activity in our consolidated statements of operations from continuing operations to discontinued operations (in thousands):
Year ended December 31,
2014 2013 2012
(in thousands)
Service revenue ........................................................................... $ 107,721 $ 185,187 $ 172,938
Operating expenses:
Service costs ............................................................................. 92,588 143,607 126,714
Sales and marketing.................................................................. 5,632 10,170 7,553
Product and development ......................................................... 8,203 12,002 9,518
General and administrative ....................................................... 14,819 20,263 8,943
Amortization of intangible assets ............................................. 4,243 7,890 8,274
Total operating expenses ....................................................... 125,485 193,932 161,002
Operating income (loss) .............................................................. (17,764) (8,745 ) 11,936
Other income (expense), net ....................................................... 7,017 4,174 (64)
Income (loss) before income taxes .............................................. (10,747) (4,571 ) 11,872
Income tax benefit (expense) ...................................................... (461) (1,385 ) (832)
N
et income (loss) ........................................................................ $ (11,208) $ (5,956 ) $ 11,040
Income Taxes
We account for our income taxes using the liability and asset method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been recognized in our financial statements or in our tax
returns. In estimating future tax consequences, generally all expected future events other than enactments or changes in the tax law or
rates are considered. Deferred income taxes are recognized for differences between financial reporting and tax bases of assets and
liabilities at the enacted statutory tax rates in effect for the years in which the temporary differences are expected to reverse. The effect
on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. We evaluate the
realizability of our deferred tax assets, and valuation allowances are provided when necessary to reduce deferred tax assets to the
amounts expected to be realized.
We operate in various tax jurisdictions and are subject to audit by various tax authorities. Our 2012 federal income tax return is
currently under IRS audit. We believe any adjustments that may ultimately be required as a result of any of these audits will not be
material to our consolidated financial statements. We provide tax contingencies whenever it is deemed probable that a tax asset has
been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are based
upon their technical merits, and relevant tax law and the specific facts and circumstances as of each reporting period. Changes in facts
and circumstances could result in material changes to the amounts recorded for such tax contingencies.
We recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated
financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being
realized upon settlement. We recognize interest and penalties accrued related to unrecognized tax benefits in our income tax (benefit)
provision in the accompanying consolidated statements of operations.
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results
reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are recorded when identified. The amount
of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities. Our estimate of the potential outcome
of any uncertain tax issue is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. To
the extent that our assessment of such tax positions changes, the change in estimate is recorded in the period in which the
determination is made.
Stock-based Compensation
We measure and recognize compensation expense for all stock-based payment awards made to employees, non-employees and
directors based on the grant date fair values of the awards. For stock option awards to employees with service and/or performance
based vesting conditions, the fair value is estimated using the Black-Scholes-Merton option pricing model. The value of an award that