Enom 2014 Annual Report Download - page 73

F-9
Principles of Consolidation
The consolidated financial statements include the accounts of Demand Media and its wholly owned subsidiaries. Acquisitions
are included in our consolidated financial statements from the date of the acquisition. Our purchase accounting resulted in all assets
and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates. All significant
intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such
estimates and assumptions include revenue, allowance for doubtful accounts, investments in equity interests, fair value of issued and
acquired stock warrants, the assigned value of acquired assets and assumed liabilities in business combinations, useful lives and
impairment of property and equipment, intangible assets, goodwill and other assets, the fair value of equity-based compensation
awards, and deferred income tax assets and liabilities. Actual results could differ materially from those estimates. On an ongoing
basis, we evaluate our estimates compared to historical experience and trends, which form the basis for making judgments about the
carrying value of our assets and liabilities.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents. We
consider funds transferred from our credit card service providers but not yet deposited into our bank accounts at the balance sheet
dates, as funds in transit and these amounts are recorded as unrestricted cash, since the amounts are generally settled the day after the
outstanding date. Cash and cash equivalents consist primarily of checking accounts, money market accounts, money market funds, and
short-term certificates of deposit.
Investments in Equity
Investments in affiliates over which we have the ability to exert significant influence, but do not control and are not the primary
beneficiary of, are accounted for using the equity method of accounting. Any investments in affiliates over which we have no ability
to exert significant influence are accounted for using the cost method of accounting. Our proportional shares of affiliate earnings or
losses accounted for under the equity method of accounting are included in other income (expense), net in our consolidated statements
of operations. Investments in affiliated companies are not material individually or in the aggregate to our financial position, results of
operations or cash flows for any period presented.
We account for investments in companies that we do not control or account for under the equity method of accounting either at
fair value or using the cost method of accounting, as applicable. Investments in equity securities are carried at fair value if the fair
value of the security is readily determinable. Equity investments carried at fair value are classified as marketable securities available-
for-sale. Realized gains and losses for marketable securities available-for-sale are included in other income (expense), net in our
consolidated statements of operations. Unrealized gains and losses, net of taxes, on marketable securities available-for-sale are
included in our consolidated financial statements as a component of other comprehensive income (loss) and accumulated other
comprehensive income (loss) (“AOCI”), until realized.
Investments in companies that we do not control or account for under the equity method, and for which we do not have readily
determinable fair values, are accounted for under the cost method. Cost method investments are originally recorded at cost. In
determining whether other-than-temporary impairment exists for equity securities, management considers: (1) the length of time and the
extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) our intent
and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
The cost of marketable securities sold is based upon the specific accounting method used. Any realized gains or losses on the
sale of equity investments are reflected as a component of interest income or expense. For the year ended December 31, 2013,
unrealized gains on marketable securities available-for-sale was $0.9 million. During the first quarter of 2014, we sold all of these
marketable securities, resulting in a reclassification from other comprehensive income of $0.9 million of unrealized gains on
marketable securities, which is currently recorded in discontinued operations. The sale of our marketable securities resulted in total
realized gains of $1.4 million related to the sale of our marketable securities, which are included in other income (expense), net.
In addition, we classify marketable securities as current or non-current based upon whether such assets are reasonably expected
to be realized in cash or sold or consumed during the normal operating cycle of the business.