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F-31
operations for the years ended December 31, 2014 and 2013. 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
Service revenue ........................................................
$
107,721
$
185,187
Service costs .........................................................
92,588
143,607
Sales and marketing ...................................................
5,632
10,170
Product and development ...............................................
8,203
12,002
General and administrative ..............................................
14,819
20,263
Amortization of intangible assets .........................................
4,243
7,890
Total operating expenses ..............................................
125,485
193,932
Operating loss .........................................................
(17,764)
(8,745)
Other income (expense), net ..............................................
7,017
4,174
Loss before income taxes ................................................
$
(10,747)
$
(4,571)
Income tax expense .....................................................
(461)
(1,385)
Net loss ...............................................................
$
(11,208)
$
(5,956)
Capital expenditures for discontinued operations for the years ended December 31, 2014 and 2013 were $2.7
million and $8.4 million, respectively.
15. Acquisitions and Dispositions
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 marketplace businesses. In addition to identifiable
assets acquired in these business combinations, our goodwill primarily derives from the ability to generate synergies
across our businesses. As of December 31, 2015, our goodwill primarily results from our acquisition of marketplace
businesses.
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. Of the $1.7 million from the cash portion of the purchase price that was placed into escrow to be applied by us
towards satisfaction of post-closing indemnification obligations of the former stockholders of Saatchi Online and/or
post-closing adjustments to the purchase price, approximately $0.9 million was paid to us to cover post-closing
indemnification claims and approximately $0.2 million was released to the selling stockholders in connection with a
multi-party settlement agreement and the expiration of the post-closing indemnification period in August 2015.
Approximately $0.6 million remains in the escrow account as of December 31, 2015 to cover estimated claims related to
pre-closing VAT amounts, and any remaining portion of the escrow amount that is not required to cover the estimated