Enom 2014 Annual Report Download - page 93

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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 & Media reporting unit and as a result, we determined that the implied fair value of
the goodwill in the Content & Media reporting unit was zero. Accordingly, we recorded a $232.3 million for the goodwill impairment
charge during the third quarter of 2014, which is included in Goodwill impairment charge in the Consolidated Statements of
Operations. These estimated fair value measurements were calculated using unobservable inputs, primarily using the income and
market approach, specifically the discounted cash flow method and market comparables, which are classified as Level 3 within the fair
value hierarchy. The amount and timing of future cash flows within those analyses was based on our most recent future cash flow
expectations, long-term strategic plans and other estimates including the amount and timing of future expected cash flows, terminal
value growth rate and the appropriate market-participant risk-adjusted discount rates.
14. Discontinued Operations
On August 1, 2014, we completed the Separation of Rightside from Demand Media, Inc. As a result of the Separation, 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. Following the Separation, the following activity in our statement of operations was reclassified
from continuing operations to discontinued operations:
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
Capital expenditures for discontinued operations for the years ended December 31, 2014, 2013 and 2012 were $2.7 million, $8.4
million and $7.9 million, respectively.
15. Business Acquisitions
We account for acquisitions of businesses using the purchase method of accounting where the cost is allocated to the underlying
net tangible and intangible assets acquired, based on their respective estimated fair values. The excess of the purchase price over the
estimated fair values of the net assets acquired is recorded as goodwill.
Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of
significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected
revenue, expenses and cash flows, weighted average cost of capital, discount rates, estimates of advertiser and publisher turnover rates
and estimates of terminal values.
During the years ended December 31, 2014 and 2013, we acquired businesses consistent with our strategic plan of acquiring,
consolidating and developing Internet media properties and applications and domain service businesses. In addition to identifiable
assets acquired in these business combinations, our acquired goodwill that primarily derives from the ability to generate synergies
across our media services.
On August 8, 2014, we acquired Saatchi Online, Inc., a Delaware corporation (“Saatchi Online”) , pursuant to an Agreement
and Plan of Merger whereby Saatchi Online became a wholly owned subsidiary of Demand Media (the “Merger”). After giving effect
to working capital adjustments as of the closing date, the purchase price consisted of approximately $4.8 million in cash after giving
effect to working capital adjustments and 1,049,959 shares of our common stock, valued at approximately $10.3 million based on
Demand Media’s stock price on the closing date of the Merger. A portion of the cash purchase price equal to $1.7 million was placed
into escrow and can be applied by us towards satisfaction of post-closing indemnification obligations of the former stockholders of