Enom 2011 Annual Report Download - page 55

30 to 60 days from the date the advertising services are delivered and billed; and
• customers who syndicate the Company's content over their websites in exchange for a share of related advertising revenue. Accounts receivable
from our customers are recorded at the revenue share as reported by our customers and are due within 30 to 45 days.
We maintain an allowance for doubtful accounts to reserve for potentially uncollectible receivables from our customers based on our best estimate of
the amount of probable losses from existing accounts receivable. We determine the allowance based on analysis of historical bad debts, advertiser
concentrations, advertiser credit-worthiness and current economic trends. In addition, past due balances over 90 days and specific other balances are reviewed
individually for collectability on at least a quarterly basis.
Goodwill
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. We perform our impairment testing for
goodwill at the reporting unit level. As of December 31, 2011, we determined that we have three reporting units. For the purpose of performing the required
impairment tests, we primarily apply a present value (discounted cash flow) method to determine the fair value of the reporting units with goodwill. We test
goodwill for impairment annually during the fourth quarter of our fiscal year or when events or circumstances change that would indicate that goodwill might
be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in
the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of
our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends or significant underperformance
relative to expected historical or projected future results of operations.
The testing for a potential impairment of goodwill involves a two-step process. The first step involves comparing the estimated fair values of our
reporting units with their respective book values, including goodwill. If the estimated fair value of the reporting unit exceeds book value, goodwill is
considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, the second step is
performed to determine if goodwill is impaired and to recognize the amount of impairment loss, if any. The estimate of the fair value of goodwill is primarily
based on an estimate of the discounted cash flows expected to result from that reporting unit and may require valuations of certain recognized and
unrecognized intangible assets such as our content, software, technology, patents and trademarks. If the carrying amount of goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to the excess. To date, we have not recognized an impairment loss associated with
our goodwill.
We estimate the fair value of our reporting units, using various valuation techniques, with the primary technique being a discounted cash flow analysis.
A discounted cash flow analysis requires us to make various judgmental assumptions about sales, operating margins, growth rates and discount rates.
Assumptions about discount rates are based on a weighted-average cost of capital for comparable companies. Assumptions about sales, operating margins,
and growth rates are based on our forecasts, business plans, economic projections, anticipated future cash flows and marketplace data. Assumptions are also
made for varying perpetual growth rates for periods beyond the long-term business plan period. As of December 31, 2011, the date of the most recent
impairment assessment, we determined that the fair value of each of our reporting units was in excess of its carrying value.
Capitalization and Useful Lives Associated with our Intangible Assets, including Content and Internal Software and Website Development Costs
We publish long-lived media content generated by our content studio which we commission and acquire from third-party freelance creative
professionals. Direct costs incurred for each individual content unit that we determine embodies a probable future economic benefit are capitalized. The vast
majority of direct content costs represent amounts paid to freelance creative professionals to acquire content units and, to a lesser extent, specifically
identifiable internal direct labor costs incurred to enhance the value of acquired content units prior to their publication. Internal costs not directly attributable
to the enhancement of content units acquired prior to publication are expensed as incurred. All costs incurred to deploy and publish content are expensed as
incurred, including the costs incurred for the ongoing maintenance of websites on which our content resides. We generally acquire content when our internal
systems and processes, including an analysis of millions of historical Internet search queries, advertising marketing terms, or keywords, and other data provide
reasonable assurance that, given predicted consumer and advertiser demand relative to our predetermined cost to acquire the content, the content unit will
generate revenues over its useful life that exceed the cost of acquisition. In determining whether content embodies probable future economic benefit required
for asset capitalization, we make judgments and estimates including the forecasted number of page views and the advertising rates that the content will
generate. These estimates and judgments take into consideration various inherent uncertainties including, but not limited to, total expected page views over
the articles useful life, our expected ability to renew at favorable terms or replace certain material agreements with Google that currently provide a significant
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