Enom 2012 Annual Report Download

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Table of contents

  • Page 1

  • Page 2

  • Page 3
    ... years, we grew domains under management by 66% to approximately 15 million names. We currently service nearly 8,800 resellers, reaching millions of businesses and consumers. At the end of the year, we acquired Name.com to add a direct retail presence to our service platform. In 2012, we invested...

  • Page 4
    ...Demand Media will become a pure-play media company with a powerful outsourced content creation platform, leading web properties that reach over 100 million monthly unique visitors, and a unique monetization platform that incorporates branded, network and mobile optimizations. Our new domain services...

  • Page 5
    ... 1934 For the fiscal year ended December 31, 2012 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-35048 DEMAND MEDIA, INC. (Exact name of registrant as specified in its charter) Delaware (State...

  • Page 6
    ... Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services 71 71 71 71 71 Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities...

  • Page 7
    ...in this Annual Report on Form 10-K and have filed with the Securities and Exchange Commission (the "SEC") with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. As used herein, "Demand Media...

  • Page 8
    ... our customers, including approximately 8,800 active resellers, comprised of small businesses, large e-commerce websites, Internet service providers and web-hosting companies. Upon the delegation by Internet Corporation for Assigned Names and Numbers ("ICANN") of new generic Top Level Domain ("gTLD...

  • Page 9
    ... to the content and monetization features provided through our platform, some of our owned and operated websites also feature unique social and mobile applications. Users visit our sites through search engine referrals, direct navigation, social media referrals, web-based mobile applications and...

  • Page 10
    ... 31, 2012. Through eNom, we provide domain name registration services and related value-added services to resellers, including small businesses, e-commerce websites, Internet service providers and web-hosting companies. These resellers, in turn, contract directly with domain name registrants to...

  • Page 11
    ...a domain name. We have also developed a number of proprietary services designed to help enhance visibility and help drive traffic to our customers' sites, including business listing services to help our customers advertise through Whois lookup inquiries and Rich Content, which allows website owners...

  • Page 12
    ... with companies such as Jive Software and Bazaarvoice. Registrar Services The markets for domain name registration and web-based services are intensely competitive. We compete for business on a number of factors including price, value-added services, such as e-mail and web-hosting, customer service...

  • Page 13
    ..., governance guidelines, board committee charters, and code of conduct, is also available on the investor relations section of our corporate website under the heading "Corporate Governance." The content included on our websites is not incorporated by reference into this Annual Report on Form 10...

  • Page 14
    ..., and our undeveloped websites, (ii) our use of Google's DoubleClick ad-serving platform to deliver advertisements to our developed websites, and (iii) a revenue-sharing arrangement with respect to revenue generated by our content posted on Google's YouTube. Each such agreement expires in the third...

  • Page 15
    ...in media content over the course of 2012. We anticipate making increased media content expenditures in 2013 compared to 2012, including additional investment in short-form articles on our owned and operated sites including eHow.com, growth in content published on our network of customer websites and...

  • Page 16
    ... number of Google search referrals to its owned and operated and network of customer websites. In 2011, the overall impact of these changes on the Company's owned and operated websites was negative, primarily due to a decline in traffic to eHow.com, the Company's largest website. In 2012, Google...

  • Page 17
    ...ended December 31, 2011 and 2012 from advertising. One component of our platform that we use to generate advertiser interest in our content is our system of monetization tools, which is designed to match content with advertisements in a manner that optimizes revenue yield and end-user experience. 12

  • Page 18
    ... or with our network of customer websites, which would negatively harm our business, revenue, financial condition and results of operations. Furthermore, brands and advertisers are increasingly focusing a portion of their online advertising budgets on social media outlets such as Facebook as well as...

  • Page 19
    ...quality of such contributions is not sufficiently attractive to our advertisers or to drive traffic to our owned and operated websites and to our network of customer websites, we may incur substantial costs in procuring suitable replacement content, which could have a negative impact on our business...

  • Page 20
    ... sharing arrangement with respect to different types of advertising generated by the display of our media content. In addition, our enterprise-class social media tools allow websites to add feature-rich applications, such as user profiles, comments, forums, reviews, blogs, photo and video sharing...

  • Page 21
    ... and/or Content & Media revenue. Also, if our Content & Media service offering on mobile devices is less attractive to advertisers and this segment of Internet traffic increases at a faster rate than traditional desktop or laptop Internet access our business, revenue, financial condition and results...

  • Page 22
    ...'s trademark or the name of a living or deceased person. A number of our owned and operated websites and our network of customer websites are undeveloped or minimally developed properties that primarily contain advertising listings and links. As part of our registration process, we perform searches...

  • Page 23
    ... decide to purchase the discounted service offerings of our competitors. As a result of these factors, in the future it may become increasingly difficult for us to compete successfully. If our customers do not renew their domain name registrations or if they transfer their existing registrations to...

  • Page 24
    ...being more proactive in policing online pharmacies acting in violation of U.S. laws. We provide an automated service that enables users to register domain names and populate websites with content. We do not monitor or review, nor does our accreditation agreement with ICANN require that we monitor or...

  • Page 25
    ...and therefore increase our cost of doing business. The volume of domain name registration disputes may increase in the future as the overall number of registered domain names increases. Domain name registrars also face potential tort law liability for their role in wrongful transfers of domain names...

  • Page 26
    ... renew the registration of domain names that we process on behalf of our customers. In addition, any errors of this type might result in the interruption of our other services. Our failure to properly register or to maintain, secure, transfer or renew the registration of our customers' domain names...

  • Page 27
    ... of each domain name. For example, VeriSign, the registry for .com, presently charges a $7.85 fee for each .com registration and ICANN currently charges a $0.18 fee for each .com domain name registered in the generic top level domains, or gTLDs, that fall within its purview. We have no control over...

  • Page 28
    ... reduction in the number of domain names under management or in the rate at which this number grows, due to slow growth or contraction in our markets, lower renewal rates or other factors; reductions in the percentage of our domain name registration customers who purchase additional services from us...

  • Page 29
    ... impact both new customer growth and renewal rates; the entry of new competitors in our markets; our ability to keep our platform, domain name registration services and our owned and operated websites operational at a reasonable cost and without service interruptions; increased product development...

  • Page 30
    ... monetizing our content; maintain our standing with key advertisers as well as Internet search companies and our network of customer websites; maintain our customer service standards; develop and improve our operational, financial and management controls and maintain adequate reporting systems...

  • Page 31
    ... results. Cost increases, loss of traffic or failure to accommodate new technologies or changing business requirements could harm our business, revenue and financial condition. If the security measures for our systems are breached, or if our products or services are subject to attacks that degrade...

  • Page 32
    ..., as well our proprietary online content production studio, and eNom customers. As a result of these data center outages, we have recently developed initiatives to create automatic backup capacity at an alternate facility for our top revenue generating services to address similar scenarios in the...

  • Page 33
    ... an alternative service provider on acceptable terms or in hosting the computer servers ourselves. We may also be limited in our remedies against these providers in the event of a failure of service. We also rely on providers for components of our technology platform, such as hardware and software...

  • Page 34
    ... costly litigation and could divert management resources and attention. Moreover, should we be found liable for infringement or misappropriation, we may be required to enter into licensing agreements, if available on acceptable terms or at all, pay substantial damages or limit or curtail our systems...

  • Page 35
    ...; pricing, fees and taxes; content and the distribution of content, including liability for user reliance on such content; intellectual property rights, including secondary liability for infringement by others; taxation; domain name registration; and online advertising and marketing, including email...

  • Page 36
    ... our business, financial condition or results of operations. Many of the customers of our Content & Media and Registrar service offerings pay amounts owed to us using a credit card or debit card. For credit and debit card payments, we pay interchange and other fees, which may increase over time and...

  • Page 37
    ... or actual litigation; changes in laws or regulations relating to our solutions; changes in methodologies or algorithms used by search engines and their impact on search referral traffic; any major change in our board of directors or management; publication of research reports about us or our...

  • Page 38
    ... result in a decrease in the trading price of our common stock. We previously announced a stock repurchase program approved by our board of directors whereby we are authorized to repurchase shares of our common stock. Such purchases may be limited, suspended, or terminated at any time without prior...

  • Page 39
    ... and lead to management entrenchment. Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors, including...

  • Page 40
    ... things, our board of directors has approved the transaction. Risks Relating to the Proposed Business Separation The proposed separation of our business into two distinct publicly traded companies may not be completed on the terms or timeline currently contemplated, if at all. In February 2013, we...

  • Page 41
    ... Proceedings In April 2011, the Company and eleven other defendants were named in a patent infringement lawsuit filed in the U.S. District Court, Eastern District of Texas. The plaintiff filed and served a complaint making several claims related to a method for displaying advertising on the Internet...

  • Page 42
    ... our common stock. The following table sets forth, for the period indicated and on a per-share basis, the high and low intra-day sale prices of our common stock as reported by the New York Stock Exchange. High Low Fiscal Year end December 31, 2012 First Quarter Second Quarter Third Quarter Fourth...

  • Page 43
    ... into any filing of Demand Media under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. The graph compares the cumulative total return of our common stock for the period starting on January 26, 2011, the date of...

  • Page 44
    ... disclosed in a current report on Form 8-K filed on February 16, 2012, our board of directors increased our previously approved stock repurchase program to authorize the repurchase of up to $50.0 million of our common stock as share price, market conditions and other factors warrant. Under the stock...

  • Page 45
    ... data for the years ended December 31, 2010, 2011 and 2012, as well as the consolidated balance sheet data as of December 31, 2011 and 2012, are derived from our audited consolidated financial statements that are included elsewhere in this Annual Report on Form 10-K. The consolidated statements of...

  • Page 46
    ... to period comparisons, to prepare and approve our annual budget and to develop short and long term operational plans. Additionally, Adjusted EBITDA is the primary measure used by the compensation committee of our board of directors to establish the target for and ultimately fund our annual employee...

  • Page 47
    ... of Revenue ex-TAC and Adjusted EBITDA for each of the periods presented: Year ended December 31, 2008 2009 2010 (In thousands) 2011 2012 Non-GAAP Financial Measures: Content & Media revenue Registrar revenue Less: traffic acquisition costs (TAC)(1) Total revenue ex-TAC Net income (loss...

  • Page 48
    ..., we report Content & Media and Registrar revenue separately. In February 2013, we announced that our board of directors authorized a plan to explore separating the Company into two independent, publicly-traded companies: a pure-play Internet-based content and media company and a pure-play domain...

  • Page 49
    ... network of customer websites, to the extent that the viewed customer web pages host the Company's monetization, social media and/or content services. Page views are primarily tracked through internal systems, such as our Omniture web analytics tool, contain estimates for our customer websites using...

  • Page 50
    ... Content & Media service offering and through domain name registration subscriptions in our Registrar service offering. Our advertising revenue is primarily generated by advertising networks, which include both performance-based Internet advertising, such as cost-per-click where an advertiser pays...

  • Page 51
    ...-period growth in our Content & Media revenue will exceed the growth in our Registrar revenue, which would typically provide for higher operating margins. However, we expect that service costs will increase in 2013 compared to 2012 due to the growth of higher volume, lower margin Registrar customers...

  • Page 52
    ... security services, e-mail accounts and web-hosting. Finally, we generate revenue from fees related to auction services we provide to facilitate the selling of third-party owned domains. Our Registrar revenue varies based upon the number of domains registered, the rates we charge our customers...

  • Page 53
    ..., customer service and information technology; and certain content production costs. Our service costs are dependent on a number of factors, including the number of page views generated across our platform and the volume of domain registrations and value-added services supported by our Registrar...

  • Page 54
    ... "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...

  • Page 55
    ... the period of the license as content is delivered or when other related performance criteria are fulfilled. Subscription and Social Media Services Subscription services revenue is generated through the sale of membership fees paid to access content available on certain owned and operated websites...

  • Page 56
    ... customer relationship. Value-added Services Revenue from online Registrar value-added services, which include, but are not limited to, security certificates, domain name identification protection, charges associated with alternative payment methodologies, web hosting services and email services...

  • Page 57
    ... 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; and certain domain reseller customers of our Registrar service...

  • Page 58
    ... 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...

  • Page 59
    ... in which a long-lived asset is being used, significant adverse changes in legal factors, including changes that could result from our inability to renew or replace material agreements with certain of our partners such as Google on favorable terms, significant adverse changes in the business climate...

  • Page 60
    ... changes in future exercise patterns. Under the Company's Employee Stock Purchase Plan (the "ESPP"), eligible officers and employees may purchase a limited amount of our common stock at a discount to the market price in accordance with the terms of the plan as described in Note 11 (Share-based...

  • Page 61
    ... to non-employees are accounted for at fair value determined using the Black-Scholes optionpricing model. Management believes that the fair value of the stock options is more reliably measured than the fair value of the services received. The fair value of each non-employee stock-based compensation...

  • Page 62
    ... following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results. Year ended December 31, 2010 2011 (In thousands) 2012 Revenue Operating expenses(1)(2): Service costs (exclusive of...

  • Page 63
    ... Year Ended December 31, 2010 2011 (In thousands) 2012 2010 to 2011 2011 to 2012 Content & Media: Owned and operated websites Network of customer websites Total Content & Media Registrar Total revenue $ 110,770 42,140 152,910 100,026 252,936 $ 157,089 48,361 205,450 119,416 324,866 $ 178,511 67...

  • Page 64
    ...to 2010. On average, our direct display advertising sales generate higher RPMs than display advertising that we deliver from our advertising networks, such as Google. Content & Media Revenue from Network of Customer Websites 2012 compared to 2011. Content & Media revenue from our network of customer...

  • Page 65
    ... centers, advertising transactions and domain registrations. As a percentage of revenues, service costs (exclusive of amortization of intangible assets) decreased 40 basis points to 47.6% for the year ended December 31, 2012 from 48.0% during the same period in 2011 primarily due to Content & Media...

  • Page 66
    ...-based compensation expense, net of internal costs capitalized as internal software development. These costs increased as a result of our decision to hire additional employees to further develop our platform, our owned and operated websites, and to support and grow our Registrar product and service...

  • Page 67
    ... of intangible assets increased 120 basis points to 14.5% during the year ended December 31, 2011 compared to 13.3% during the same period in 2010 as the result of the factors listed above. Interest Income Interest income for the year ended December 31, 2012 and 2011, respectively, changed by less...

  • Page 68
    ... million during the year ended December 31, 2010 to $22.7 million in the same period in 2011 now applies to both federal and state deferred tax assets. In addition, the tax increase was also impacted by movement in the company's state tax apportionment rates due to changes in state tax laws and the...

  • Page 69
    ... 30, 2011 December 31, 2011 March 31, 2012 June 30, 2012 September 30, 2012 December 31, 2012 (in thousands, except per share data) Unaudited Revenue: Content & Media: Owned and operated websites Network websites Total Content & Media Registrar Total revenue Operating expenses(1)(2): Service costs...

  • Page 70
    ... of our content to our network of customer websites. As we made improvements and assessed the impact of such improvements to our content creation and distribution platform we reduced the level of our overall investment in media content in 2012 when compared to 2010 and 2011. However, based on our...

  • Page 71
    ... and deferred registry fees were primarily due to growth in our Registrar service during the period. The increase in accrued expenses is reflective of significant amounts due to certain vendors and our employees. The increase in our accounts receivable reflects growth in advertising revenue. 66

  • Page 72
    ... media content. Cash used in investing activities included investments in property and equipment of $17.7 million, $18.2 million and $21.4 million during the year ended December 31, 2012, 2011 and 2010. These expenditures included investments in servers and IT equipment, fixtures and fittings...

  • Page 73
    ...condition of our large advertising network providers, large direct advertisers and their agencies, large Registrar resellers and other large customers when we enter into or amend agreements with them and limit credit risk by collecting in advance when possible and setting and adjusting credit limits...

  • Page 74
    ... detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention...

  • Page 75
    ...LLP, an independent registered public accounting firm, as stated in their report which appears in this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting. There have been no changes in the Company's internal control over financial reporting during the most recent fiscal...

  • Page 76
    ... York Stock Exchange, by filing a Current Report on Form 8-K with the SEC, disclosing such information. Item 11. Executive Compensation The information required by this item will be set forth in the 2013 Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain...

  • Page 77
    ...: The following consolidated financial statements are included in this Annual Report on Form 10-K on the pages indicated: Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income...

  • Page 78
    ...Folie Investment Group LLC, as the Seller Representative (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on August 9, 2011) Stock Purchase Agreement, dated as of August 8, 2011, by and among Demand Media, Inc., IndieClick Media Group, Inc, the...

  • Page 79
    ... Report on Form 10-Q filed with the SEC on August 12, 2011) Demand Media, Inc. 2010 Incentive Award Plan Stock Option Grant Notice and Stock Option Agreement, between Demand Media, Inc. and Joanne Bradford, dated August 3, 2010 (incorporated by reference to Exhibit 10.31 to the Company's Amendment...

  • Page 80
    ... 6, 2010) Amendment Number 3 to Google Services Agreement, entered into as of September 1, 2011, between Google, Inc. and Demand Media, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on November 14, 2011) Credit Agreement, dated...

  • Page 81
    ... are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability...

  • Page 82
    ...(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DEMAND MEDIA, INC. By: /s/ RICHARD M. ROSENBLATT Richard M. Rosenblatt Chairman and Chief Executive Officer Date: March 5, 2013 POWER OF...

  • Page 83
    ... A. HAWKINS John A. Hawkins Director March 5, 2013 /s/ JAMES R. QUANDT James R. Quandt Director March 5, 2013 /s/ PETER GUBER Peter Guber Director March 5, 2013 /s/ JOSHUA G. JAMES Joshua G. James Director March 5, 2013 /s/ ROBERT R. BENNETT Robert R. Bennett Director March 5, 2013 78

  • Page 84
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Demand Media, Inc. Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of ...

  • Page 85
    ... in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria...

  • Page 86
    Demand Media, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except per share amounts) December 31, 2011 Assets Current assets Cash and cash equivalents Accounts receivable, net Prepaid expenses and other current assets Deferred registration costs Total current assets Deferred ...

  • Page 87
    Demand Media, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except per share amounts) Year ended December 31, 2010 2011 2012 Revenue Operating expenses Service costs...share - diluted Weighted average number of shares - basic Weighted average number of shares - diluted $...

  • Page 88
    Demand Media, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (In thousands) Year ended December 31, 2010 2011 2012 Net income (loss) Other comprehensive income (loss) Foreign currency translation adjustment Other comprehensive income (loss) Comprehensive income (loss) $ ...

  • Page 89
    ...of stock options Income tax windfall benefits Issuance of warrants to purchase common stock Stock-based compensation expense Foreign currency translation adjustment Net loss Comprehensive loss Balance at December 31, 2010 Exercise of stock awards, net Stock option windfall tax benefits Conversion of...

  • Page 90
    ...costs related to debt and equity financings Payments of withholding tax on net exercise of stock-based awards Net cash provided by (used in) financing activities Effect of foreign currency on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents, beginning of period...

  • Page 91
    ... and operated websites and network of customer websites. Content & Media services are delivered through the Company's Content & Media platform, which includes its content creation studio, social media applications and a system of monetization tools designed to match content with advertisements in...

  • Page 92
    ... maturity of 90 days or less at the time of purchase to be cash equivalents. The Company considers funds transferred from its credit card service providers but not yet deposited into its bank accounts at the balance sheet dates, as funds in transit and these amounts are recorded as unrestricted cash...

  • Page 93
    ... and reported amounts owing that occurs typically within 30 days of the period end. For the years ended December 31, 2010, 2011 and 2012, the difference between the amounts recognized based on preliminary information and cash collected was not material. Content Revenue. Content revenue is generated...

  • Page 94
    ... systems and hardware used to build and operate the Company's Content & Media platform and Registrar, personnel costs relating to in-house editorial, customer service, information technology and certain content production costs such as our multi-channel video deal with YouTube. Registry fee expenses...

  • Page 95
    ... 30 to 60 days from the date the advertising services are delivered and billed; Customers who syndicate the Company's content over their websites in exchange for a share of related advertising revenue. Accounts receivable from these customers are recorded at the revenue share as reported by the...

  • Page 96
    ... term of the related domain name registration, media subscription as services are rendered, over customer useful life, or online value added service period. Deferred registration costs represent incremental direct cost paid in advance to registries, ICANN, and other third parties for domain name...

  • Page 97
    ... number of Google search referrals to its owned and operated and network of customer websites. In 2011, the overall impact of these changes on the Company's owned and operated websites was negative primarily due to a decline in traffic to eHow.com, the Company's largest website. During 2011 and 2012...

  • Page 98
    ...31, 2010, 2011 and 2012, respectively. Stock-Based Compensation Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period, on a straight-line basis. The Company uses the...

  • Page 99
    ... cost for an award that has a market condition is recognized as the requisite service period is fulfilled, even if the market condition is never satisfied. Stock-based awards issued to non-employees are accounted for at fair value determined using the Black-Scholes option-pricing model. Management...

  • Page 100
    ..., receivables from domain name registries, registry deposits, accounts payable, accrued liabilities and customer deposits approximate fair value because of their short maturities. The Company's investments in marketable securities are recorded at fair value. Prior to the net exercise of the Series...

  • Page 101
    ...) Balance at December 31, 2010 Change in fair value included in other income (expense) Conversion into common stock Balance at December 31, 2011 and 2012 Recent Accounting Pronouncements Indefinite-lived intangible assets impairment $ 225 252 477 319 (796) - In July 2012, the FASB issued an update...

  • Page 102
    ... and interim periods within those annual periods. The adoption of this guidance does not have a material impact on the Company's consolidated financial statements. Reclassification of accumulated other comprehensive loss In February 2013, the FASB issued an accounting standards update requiring new...

  • Page 103
    ...Intangible assets consist of the following: December 31, 2011 Gross carrying amount Accumulated amortization Weighted average useful life Net Owned website names Customer relationships Media content Technology Non-compete agreements Trade names Content publisher relationships $ 43,343 27,325 130...

  • Page 104
    5. Goodwill The following table presents the changes in the Company's goodwill balance: Balance at December 31, 2010 Goodwill arising from acquisitions (Note-13) Balance at December 31, 2011 Goodwill arising from acquisitions (Note-13) Other Balance at December 31, 2012 $ $ 224,920 31,140 256,060 10...

  • Page 105
    ...with certain payment arrangements with domain name registries as well as security agreements related to real estate leases. Revolving Line of Credit Agreements The Company entered into a credit agreement (the "Credit Agreement") with a syndicate of commercial banks. The Credit Agreement provides for...

  • Page 106
    .... Domain Name Agreement On April 1, 2011, the Company amended its existing agreement with a customer to provide domain name registration services and manage certain domain names owned and operated by the customer over a twenty seven month term ending June 30, 2013 (the "Amended Domain Agreement...

  • Page 107
    ... income tax rate of 35% to the Company's effective income tax rate is as follows: 2010 2011 2012 Expected income tax benefit (expense) at U.S. statutory rate Difference between U.S. and foreign taxes State tax (expense) benefit, net of federal taxes Non-deductible stock-based compensation Meals...

  • Page 108
    ... Code of 1986, as amended, provide for annual limitations on the utilization of net operating loss and credit carryforwards if the Company were to undergo an ownership change, as defined in Section 382. Changes in the Company's equity structure and the acquisitions by the Company of eNom, Trails.com...

  • Page 109
    ... members of the board of directors of the Company also sit on the board of directors of The FRS Company ("FRS"). The Company recognized approximately $378, $513 and $30 in revenue from FRS for advertising and creative services during the years ended December 31, 2010, 2011 and 2012, respectively. As...

  • Page 110
    ... with service and/or performance conditions was determined on the date of grant using the Black-Scholes option pricing model with the following assumptions: Year ended December 31, 2010 Year ended December 31, 2011 Year ended December 31, 2012 (1) Expected life (in years) Risk-free interest rate...

  • Page 111
    ... have otherwise vested contingent upon the employees continued employment with the Company as of such date. As a result, the Company paid and expensed as part of stock-based compensation $360, $127 and $0 during the years ended December 31, 2010, 2011 and 2012, respectively, related to these options...

  • Page 112
    ...In May 2011, the Company commenced its first offering under the Demand Media, Inc. 2010 Employee Stock Purchase Plan (the "ESPP"), which allows eligible employees to purchase, through payroll deductions, a limited amount of the Company's common stock at a 15% discount to the lower of market price as...

  • Page 113
    ...the liabilities assumed for business acquisitions made by the Company during the year ended December 31, 2012. Name.com Goodwill Customer relationships Owned website names Trade names Non-compete agreements Technology Other assets acquired (liabilities assumed), net Total $ $ 10,997 4,784 1,730 705...

  • Page 114
    ... based on the Company's stock price on the acquisition date. On August 5, 2011, the Company acquired 100% of the membership units (including the profits interest) of RSS Graffiti, LLC, a creator of content sharing applications on Facebook, helping online publishers, brands and individuals to program...

  • Page 115
    ... and the Company's ability to generate synergies with its services. Goodwill of approximately $16,300 is expected to be deductible for tax purposes. Supplemental Pro forma Information (unaudited) Supplemental information on an unaudited pro forma basis, as if the 2012 and 2011 acquisitions had...

  • Page 116
    ... December 31, 2010, 2011 and 2012, approximately 84%, 80% and 82%, respectively, of the payments for the cost of registered names and prepaid registration fees were made to a single domain name registry, which is accredited by ICANN to be the exclusive registry for certain TLD's. The failure of this...

  • Page 117
    ...4,099 32 17. Subsequent Events In February 2013, the Company announced that its board of directors authorized a plan to explore separating the company into two independent, publicly-traded companies: a pure-play Internet-based content and media company and a pureplay domain services company. F-34

  • Page 118
    ...Folie Investment Group LLC, as the Seller Representative (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on August 9, 2011) Stock Purchase Agreement, dated as of August 8, 2011, by and among Demand Media, Inc., IndieClick Media Group, Inc, the...

  • Page 119
    ... Report on Form 10-Q filed with the SEC on August 12, 2011) Demand Media, Inc. 2010 Incentive Award Plan Stock Option Grant Notice and Stock Option Agreement, between Demand Media, Inc. and Joanne Bradford, dated August 3, 2010 (incorporated by reference to Exhibit 10.31 to the Company's Amendment...

  • Page 120
    ... 6, 2010) Amendment Number 3 to Google Services Agreement, entered into as of September 1, 2011, between Google, Inc. and Demand Media, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on November 14, 2011) Credit Agreement, dated...

  • Page 121
    ... are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability...

  • Page 122
    ... period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report...

  • Page 123
    ... period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report...

  • Page 124
    ...-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 of Demand Media, Inc. (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard M. Rosenblatt, Chief Executive Officer of the...

  • Page 125
    ... OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 of Demand Media, Inc. (the "Company") as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mel Tang, Chief Financial Officer of the...

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