Enom 2011 Annual Report Download - page 52

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 and prior to our initial public offering changes in the fair value of our preferred stock warrant liability. We expect our
transaction gains and losses will vary depending upon movements in underlying currency exchange rates, and could become more significant when we expand
internationally. Our preferred stock warrants were net exercised for common stock upon our initial public offering in January 2011 and thus we no longer
record changes in the value of the warrant subsequent to that date.
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 legal presence,
including the United Kingdom, the Netherlands, Canada, Sweden and beginning in 2011, Ireland and Argentina. We anticipate that as we expand our
operations outside the United States, we will become subject to taxation 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 year in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
We currently believe that based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly
we have taken a full valuation allowance against all of our United States deferred tax assets. As of December 31, 2011, we had approximately $54 million of
federal and $12 million of state operating loss carry-forwards available to offset future taxable income which expire in varying amounts beginning in 2020 for
federal and 2013 for state purposes if unused. Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carry-
forwards in the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.
Currently, we do not expect the utilization of our net operating loss and tax credit carry-forwards in the near term to be materially affected as no significant
limitations are expected to be placed on these carry-forwards as a result of our previous ownership changes. If an ownership change is deemed to have
occurred as a result of our initial public offering, potential near term utilization of these assets could be reduced.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of
these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses
and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other
assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
We believe that the assumptions and estimates associated with our revenue recognition, accounts receivable and allowance for doubtful accounts,
capitalization and useful lives associated with our intangible assets, including our internal software and website development and content costs, income taxes,
stock-based compensation and the recoverability of our goodwill and long-lived assets have the greatest potential impact on our consolidated financial
statements. Therefore, we consider these to be our critical accounting policies and estimates.
Revenue Recognition
We recognize revenue when four basic criteria are met: persuasive evidence of a sales arrangement exists; performance of services has occurred; the
sales price is fixed or determinable; and collectability is reasonably assured. We consider persuasive evidence of a sales arrangement to be the receipt of a
signed contract. Collectability is assessed based on a number of factors, including transaction history and the credit worthiness of a customer. If it is
determined that collection is not reasonably assured, revenue is not recognized until collection becomes reasonably assured, which is generally upon receipt of
cash. We record cash received in advance of revenue recognition as deferred revenue.
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