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DEMAND MEDIA INC.
FORM 10-K
(Annual Report)
Filed 03/17/14 for the Period Ending 12/31/13
Address 1655 26TH STREET
SANTA MONICA, CA 90404
Telephone 310-917-6400
CIK 0001365038
Symbol DMD
SIC Code
7374 - Computer Processing and Data Preparation and Processing Services
Industry Computer Services
Sector Technology
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2014, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    DEMAND MEDIA INC. FORM 10-K (Annual Report) Filed 03/17/14 for the Period Ending 12/31/13 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 1655 26TH STREET SANTA MONICA, CA 90404 310-917-6400 0001365038 DMD 7374 - Computer Processing and Data Preparation and Processing Services ...

  • Page 2
    ..., 2013 or 1 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 or other jurisdiction of incorporation...

  • Page 3
    ... and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services 69 69 69 69 69 Market For Registrant...

  • Page 4
    ...or update any forward-looking statements for any reason after the date of this Annual Report on Form 10-K, except as required by law. You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed with the Securities and Exchange...

  • Page 5
    ...our new registry business will make us one of the largest providers of end-to-end domain name services in the world. • Our content & media service offering generates revenue primarily through the sale of advertising, both on our owned and operated websites and on our customers' websites. We also...

  • Page 6
    ... monetization tools to our owned and operated websites and to our customers' websites. We also offer content services that leverage our content creation and distribution platform to provide custom content and other conten t marketing solutions to brands, publishers and agencies. Our content & media...

  • Page 7
    ... our display ad inventory directly to advertisers and decreasing overhead, while streamlining ad planning and buying and managing media campaigns through the use of technology. We deploy our monetization platform to our owned and operated websites, our network of customer websites, our portfolio of...

  • Page 8
    ... to their customers including domain privacy protection, email hosting, website builder tools, website hosting plans, marketing/promotional services and security services like malware scanning and Secure Socket Layer, or SSL, certificates. 1 We also provide our reseller partners with configuration...

  • Page 9
    ... help keep domain owners' information private through our ID Protect service; customizable email accounts that allow customers to set up and manage multiple mailboxes associated with a domain name; website builder tools to help customers easily create a professional looking web presence; web-hosting...

  • Page 10
    ... to buy and sell higher-value domain names. 1 Auctions: We own 50% of NameJet through our joint venture with Web.com. NameJet offers domain name auction services to domain name buyers, brokerage services, registrants, registrars and registries, providing a secondary market for the purchase and...

  • Page 11
    ... large e-commerce websites, Internet service providers and web-hosting companies, as well as directly to over 225,000 customers. As of December 31, 2013, our three largest registrar resell ers, in the aggregate, accounted for 32% of our total domain names under management. Each registry we operate...

  • Page 12
    ...requirements for the registration of domain names generally, including those for previously registered domain names. In addition, ICANN could adopt or promote policies, including its Consensu s Policies, or adopt unfavorable unilateral changes to the terms of the registry operator agreements for new...

  • Page 13
    ...alternative ad-serving platforms on acceptable terms or on a timely basis or both. Any termination of our relationships with Google, in particular the agreement to provide cost-per-click advertisements for our developed websites, or any extension or renewal of such agreements on terms and conditions...

  • Page 14
    ...and operated websites and on our network of customer websites. For the years ended December 31, 2013 and 2012, we generated 50% and 53%, respectively, of our revenue from advertising. One component of our platform that we use to generate advertiser interest is our system of monetization tools, which...

  • Page 15
    ...their corporate policies. Internet search engines, including Google, could also view changes made to our owned and operated websites or our customer websites unfavorably, leading to lower search result rankings and a decrease in search referral traffic. Google regularly deploys changes to its search...

  • Page 16
    ... cohort of content as the annual discount rate that, when applied to the advertising revenue generated from the cohort over a period of time, less certain direct ongoing costs, produces an amount equal to the initial investment in that cohort. Our calculations are based on certain material estimates...

  • Page 17
    ... manage SEO efforts for eHow; our failure to prevent internal technical issues that disrupt traffic to eHow; or reduced reliance by Internet users on search engines to locate relevant content. Additionally, as we continue to evaluate and improve the user experience on eHow, we may make changes...

  • Page 18
    ...be able to enter into agreements with alternative third-party consumer search data providers on acceptable terms or on a timely basis or both. Any termination of our relationships with these consumer search data providers, or any entry into new agreements on terms and conditions less favorable to us...

  • Page 19
    ... condition and results of operations may be negatively impacted. We depend upon the quality of traffic to our websites, our network of customer websites and the portfolios of domain names owned by us and our customers to provide value to online advertisers , and any failure in our quality control...

  • Page 20
    ..., introduce and market new products and services on a timely basis to address changing consumption trends, consumer preferences and new technologies; overall changes in consumer spending on discretionary purchases; and legal claims, including copyright and trademark infringement claims, associated...

  • Page 21
    ... under the New gTLD Registry Agreement. The increase in these fees with respect to any gTLDs for which we act as the registry either must be included in the prices we charge to registrars or absorbed by us. If we absorb such cost increases or if increased prices to registrars act as a deterrent to...

  • Page 22
    ... of their domain name registrations. Registrar service revenue, which is closely tied to domain name registrations, represented approximately 38% and 35% of total revenue in the years ended December 31, 2013 and 2012, respectively. Our customer renewal rate for expiring domain name registrations was...

  • Page 23
    ...20,000 active resellers, comprised of small businesses, large e-commerce websites, Internet service providers and webhosting companies, as well as through companies using our hosted back-end registrar platform. These customers, in turn, contract directly with domain name registrants to deliver these...

  • Page 24
    ... increase from existing competitors as well as from new market entrants. These competitors include, among others, domain name registrars, website design firms, website hosting companies, Internet service providers, Internet por tals and search engine companies, and include companies such as GoDaddy...

  • Page 25
    ... costs of doing business and may divert management's time and attention. We provide an automated service that enables a user to register a domain name and publish its content on a website hosted on that domain name. Our registars do not monitor or review, nor do our registrar agreements with ICANN...

  • Page 26
    ...advertising services business depends on our ability to acquire domain names from a variety of sources. These sources include previously registered domain names that are not renewed at the domain name registry by the current owner, private sales of domain names, participation in domain name auctions...

  • Page 27
    ... decrease in demand and/or the renewal rate for those domain names. Fo r example, Google has in the past (and may in the future) changed its search algorithm and pay-per-click advertising policies to provide less compensation for certain types of websites. This has made such websites less profitable...

  • Page 28
    ... 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; the entry of new competitors in our markets; changes in generally accepted accounting principles; our focus on long-term goals...

  • Page 29
    ... to our customers in both our content and media and domain name service offerings. Our competitors are constantly developing innovations in content creation and distribution as well as in domain name registration and related services, such as we b hosting, email and website creation solutions. As...

  • Page 30
    ... our operating 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...

  • Page 31
    ... of our information technology and communications systems. Any damage to or failure of our systems, or those of third parties that we rely upon (e.g. , co-location providers for data servers, storage devices, our registry DNS services provider for our registry and network access) could result in...

  • Page 32
    ..., 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 and technologies. Also, any successful lawsuit against us could subject us to...

  • Page 33
    ... exchange rates, establishing management systems and infrastructures, reduced protection for intellectual property rights in some countries, changes in foreign political and economic conditions, and potentially adverse tax consequences. Our inability to expand and market our products and services...

  • Page 34
    ... adverse effect on our business, financial condition or results of operations. Many of our customers 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 raise our operating expenses and...

  • Page 35
    ...Registration Statement on Form 10 with the SEC in January 2014, which it amended in February 2014, in connection with the planned separation of our domain name services business from our content and media business, including the planned spin-off of Rightside as an independent publicly traded company...

  • Page 36
    ... this report, these factors include: 1 1 1 1 1 our operating performance and the operating performance of similar companies; the overall performance of the equity markets; the number of shares of our common stock publicly owned and available for trading; any major change in our board of directors or...

  • Page 37
    ... and financial condition. In addition, the recent distress in the financial markets has also resulted in extreme volatility in security prices. The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our...

  • Page 38
    ...as a public company. Any failure by us to provide the required financial information in a timely reliable manner could materially and adversely impact our financial condition and the trading price of our securities. In addition, we may incur additional expenses and commitment of management's time in...

  • Page 39
    ... Media service offering in Austin, Texas; an office for our Name.com retail registrar service offering in Denver, Colorado; and sales offices, support facilities and data centers in other locations in North America, South America, Europe and Australia. We believe our current and planned data centers...

  • Page 40
    ...I tem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The following table sets forth, for the periods indicated and on a per-share basis, the high and low intra-day sales prices of our common stock as reported by the...

  • Page 41
    .... Purchases of Equity Securities by the Issuer and Affiliated Purchasers Under the stock repurchase plan announced on August 19, 2011 and further increased on February 8, 2012, we are authorized to repurchase up to $50 million of our common stock from time to time in open market purchases or...

  • Page 42
    ... conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Year ended December 31, 2013 (1) 2012 (1) 2011 (1) (In thousands...

  • Page 43
    ...accounting and other professional fees directly attributable to acquisition activity, (3) employee severance payments attributable to acquisition or corporate realignment activities and (4) expenditures related to the separation of Demand Media into two distinct publicly traded companies. Management...

  • Page 44
    ... costs, (b) legal, accounting and other professional service fees directly attributable to acquisition activity, (c) employee severance payments attributable to corporate realignment activities and (d) expenditures related to the separation of Demand Media into two distinct publicly traded companies...

  • Page 45
    ..."Special Note Regarding Forward-Looking Statements" and Item I, Part 1A, "Risk Factors" included elsewhere in this Annual Report on Form 10-K. Overview We are a diversified digital content & media and domain name services company. We have developed a leading Internet-based model for the professional...

  • Page 46
    .... 1 Registrar Metrics 1 domain: We define a domain as an individual domain name paid for by a third-party customer where the domain name is managed through our Registrar service offering. Beginning July 1, 2011, the number of net new domains has been adjusted to include only new registered domains...

  • Page 47
    ... Year ended December 31, 2012 2011 % Change 2013 to 2012 2012 to 2011 Content & Media Metrics (1) : Owned & operated Page views (in millions) RPM Network of customer websites Page views (in millions) RPM RPM ex-TAC Registrar Metrics (1) : End of Period # of Domains (in millions) Average Revenue per...

  • Page 48
    ... maintaining consistent domain name registration and value-added service renewal rates and to grow those relationships th rough competitive pricing on domain name registrations, differentiated value-added service and customer service offerings, and best-in-class reseller integration tools. Over the...

  • Page 49
    ..., renewed and transferred domain name registrations. In addition, our registrar also generates revenue from the sale of other value-added services that are designed to help our customers easily build, enhance and protect their domain names, including security services, email accounts and web hosting...

  • Page 50
    ...video deal with YouTube in 2012 and costs associated with our paid content initiatives. Our service costs are dependent on a number of factors, including the amount of traffic on our platform and the volume of domain registrations and value-added services supported by our Registrar. In the near term...

  • Page 51
    ... 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...

  • Page 52
    ... relative selling prices. Our revenue is principally derived from the following services: Content & Media Advertising Revenue . Advertising re venue is generated by performance-based Internet advertising, such as cost-per-click ("CPC") advertising, in which an advertiser pays only when a user clicks...

  • Page 53
    ... consist of registry and ICANN fees, and expense them as service costs on a straight-line basis over the registration term. Our businesses including eNom and Name.com, are ICANN accredited registrars. Thus, we are the primary obligor with our reseller and retail registrant customers and are...

  • Page 54
    ... a straight-line basis over the registration term. If we sell a domain name, any unamortized cost basis is recorded as a service cost. For domain name sales generated through NameJet, we recognize revenue net of auction service fee payments to NameJet. Accounts Receivable and Allowance for Doubtful...

  • Page 55
    ... is primarily based on an estimate of the discounted cash flows expected to result from that reporting unit, but may require valuations of certain internally generated and unrecognized intangible assets such as our software, technology, patents and trademarks. We performed our annual impairment...

  • Page 56
    ... 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 57
    ... rate is zero as we currently have no history or expectation of paying cash dividends on our common stock. The forfeiture rate is established based on applicable historical forfeiture patterns adjusted for any expected changes in future periods. Under the Demand Media Employee Stock Purchase Plan...

  • Page 58
    ... of future results. Year ended December 31, 2013 2012 (In thousands) 2011 Revenue Operating expenses: Service costs (exclusive of amortization of intangible assets shown separately below) (1)(2) $ 394,598 $ 380,578 $ 324,866 Sales and marketing Product development General and administrative...

  • Page 59
    ... 1.6% 100.0% 48.0% 11.5% 11.7% 18.3% 14.5% 104.0% -4.0% 0.0% -0.3% -0.1% 0.0% -4.4% -1.3% -5.7% % Change 2013 to 2012 2012 to 2011 Content & Media: Owned and operated websites Network of customer websites Total Content & Media Registrar Total revenue $ $ 195,546 50,851 246,397 148,201 394,598...

  • Page 60
    ... acquisition of Name.com. Excluding the Name.com acquisition, registrar revenue for the year ended December 31, 2013 , increased $4.9 million or 4% due to average domains under management, and a price increase for .com as compared to the prior year. 2012 compared to 2011. Registrar revenue for the...

  • Page 61
    ....1 million increase in domain registry fees and registrar costs associated with our growth in domain registrations and related revenue over the same period and the acquisition of Name.com in December 2012, a $3.7 million increase in personnel related costs, including stock-based compensation, a $10...

  • Page 62
    ...-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 63
    ... in 2011 related to the change in the value of our preferred stock warrants which were recorded at fair value with changes in value recorded in earnings through the closing date of our initial public offering. Gain on Other Assets, Net 2013 compared to 2012. Gain on other assets, net, increased by...

  • Page 64
    ... 30, 2012 December 31, 2012 June 30, 2013 Revenue: Content & Media: Owned and operated websites Network websites Total Content & Media Registrar Total revenue Operating expenses (1)(2) : Service costs (exclusive of amortization of intangible assets) (3) Sales and marketing Product development...

  • Page 65
    ... 31, 2013. The timing and actual number of shares repurchased will depend on various factors including price, corporate and regulatory requirements, debt covenant requirements, alternative investment opportunities and other market conditions. We entered into a credit agreement, dated August 29, 2013...

  • Page 66
    ...and deferred revenue of $32.2 million. The increases in our deferred revenue and deferred registry costs were primarily due to growth in our Registrar business during the period, while the decrease in our accounts receivable balances was primarily due to timing of collections. Year ended December 31...

  • Page 67
    ... a $125.0 million Revolving Loan Facility. We drew down all of the Term Loan Facility during 2013 and also incurred costs of $1.9 million related to the Credit Agreement. From time to time, we expect to receive cash from the exercise of employee stock options in our common stock. Proceeds from the...

  • Page 68
    ..., 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 an d adjusting credit limits where we deem appropriate. In addition, our recent...

  • Page 69
    ...be no assurance that there will not be losses on these deposits. Advertising network partners that accounted for more than 10% of our consolidated accounts receivable balance were as follows: Year ended December 31, 2013 2012 Google Item 8. Financial Statements and Supplementary Data 27% 26% The...

  • Page 70
    ...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 71
    ... an amendment to, or waiver from, a provision of this Code of Business Conduct and Ethics by posting such information on our corporate website, at the address and location specified above and, to the extent required by the listing standards of the New York Stock Exchange, by filing a Current Repo...

  • Page 72
    ...: 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 73
    ... Services LLC (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 2013) Amended and Restated Certificate of Incorporation of Demand Media, Inc., dated January 28, 2011 (incorporated by reference to Exhibit 3.01 to the Company's Annual...

  • Page 74
    ... Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 12, 2011) Demand Media, Inc. 2010 Employee Stock Purchase Plan, dated September 27, 2010 (incorporated by reference to Exhibit 10.26 to Amendment No. 3 to the Company's Registration Statement on Form S-1 (File...

  • Page 75
    ....LAB 101.PRE Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.01 to the Company's Annual Report on Form 10-K filed with the SEC on March 1, 2011) List of subsidiaries of Demand Media, Inc. (filed herewith) Consent of Independent Registered Public Accounting Firm (filed...

  • Page 76
    ...15(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/ SHAWN COLO SHAWN COLO Interim President & Chief Executive Officer Date: March 17, 2014 POWER OF ATTORNEY Each...

  • Page 77
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page 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 (Loss) Consolidated ...

  • Page 78
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Demand Media, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity (deficit) ...

  • Page 79
    Demand Media, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except per share amounts) December 31, 2013 December 31, 2012 Assets Current assets Cash and cash equivalents Accounts receivable, net Prepaid expenses and other current assets Deferred registration costs Total current ...

  • Page 80
    Demand Media, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except per share amounts) 2013 Year ended December 31, 2012 2011 Revenue Operating expenses: Service costs (exclusive of amortization of intangible assets shown separately below) Sales and marketing Product ...

  • Page 81
    Demand Media, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (In thousands) 2013 Year ended December 31, 2012 2011 Net income (loss) Other comprehensive income (loss), net of tax: Foreign currency translation adjustment Unrealized gain on marketable securities ...

  • Page 82
    ... be held in treasury Foreign currency translation adjustment Net income Balance at December 31, 2012 Issuance of stock under employee stock awards and other, net Stock option windfall tax benefits Stock-based compensation expense Unrealized gain on marketable securities Issuance of common stock for...

  • Page 83
    ... taxes Stock-based compensation Gain on other assets, net Other Change in operating assets and liabilities, net of effect of acquisition: Accounts receivable, net Prepaid expenses and other current assets Deferred registration costs Deposits with registries Other long-term assets Accounts payable...

  • Page 84
    ... begun to offer certain on-demand services for purchase on an a la carte or subscription basis, such as eHow Now, a platform where customers chat directly with experts to receive advice and guidance. Registrar Our Registrar service offering provides domain name registration and related value added...

  • Page 85
    ... for the years ended December 31, 2013, 2012 and 2011, respectively. We account for investments in companies that we do not control or account for under the equi ty method either at fair value or under the cost method, as applicable. Investments in equity securities are carried at fair value if the...

  • Page 86
    ... services: Content & Media Advertising Revenue . Advertising revenue is generated by performance-based Internet advertising, such as cost-per-click advertising, in which an advertiser pays only when a user clicks on our advertisement that is displayed on our owned and operated websites and customer...

  • Page 87
    ... consist of registry and ICANN fees, and expense them as service costs on a straight-line basis over the registration term. Our businesses including eNom and Name.com, are ICANN accredited registrars. Thus, we are the primary obligor with our reseller and retail registrant customers and are...

  • Page 88
    ... 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 consist of payments to entities accredited by ICANN as the...

  • Page 89
    ...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 registrations and are recorded as a deferred cost on the balance sheets. Deferred registration costs...

  • Page 90
    ... acquisition accounted for as a business combination and allocate the purchase price of each acquired business to our respective net tangible and intangible assets. Acquired intangible assets include: trade names, non-compete agreements, owned website names, customer relationships, technology, media...

  • Page 91
    .... Advertising expense was $2.5 million, $2.8 million and $2.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. Stock-Based Compensation We measure and recognize compensation expense for all share-based payment awards made to employees, non-employees and directors based on...

  • Page 92
    Under the Demand Media Employee Stock Purchase Plan ("ESPP"), eligible officers and employees could purchase a limited amount of Demand Media's common stock at a discount to the market price in accordance with the terms of the plan as described in Note 1 2 ("Stock-based Compensation Plans and Awards...

  • Page 93
    ... including cash and cash equivalents, accounts receivable, receivables from domain name registries, registry deposits, restricted cash, accounts payable, accrued liabilities and customer deposits approximate fair value because of their short maturities. For the term loans and revolving loan facility...

  • Page 94
    ... 88,766 4.7 5.5 3.0 5.0 4.1 3.4 12.6 5.0 December 31, 2012 Gross carrying amount Accumulated amortization Weighted average useful life (years) Net Owned website names Customer relationships Media content Technology Non-compete agreements Trade names Content publisher relationships $ $ F-18 42...

  • Page 95
    ...343 1,047 47,174 Service costs for the years ended December 31, 2013, 2012 and 2011 includes an accelerated amortization charge of $3.1 million, $2.1 million and $5.9 million, respectively, as a result of the removing certain content assets from service. Based upon the current amount of intangible...

  • Page 96
    ... We entered into a credit agreement, dated August 29, 2013, with Silicon Valley Bank, as administrative agent, and the lenders and other agents party thereto (the "Credit Agreement"). The Credit Agreement provides for a $100.0 million senior secured term loan facility (the "Term Loan Facility") and...

  • Page 97
    ...our material direct and indirect domestic subsidiaries and 66% of each class of capital stock of any material firsttier foreign subsidiaries, subject to limited exceptions. Under the Credit Agreement, loans bear interest, at our option, at an annual rate based on LIBOR or a base rate. Loans based on...

  • Page 98
    ... a customer to provide domain name registration services and manage certain domain names owned and operated by the customer (the "Domain Agreement"). In December 2013, we amended the Domain Agreement (as amended, the "Amended Domain Agreement"). The term of the Amended Domain Agreement expires on...

  • Page 99
    ... tax rate of 35% to the Company's effective income tax rate is as follows (in thousands): 2013 2012 2011 Expected income tax benefit (expense) as U.S. statutory rate Difference between U.S. and foreign taxes State tax (expense) benefit, net of federal taxes Non-deductible stock-based compensation...

  • Page 100
    ... 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 101
    ...advertising and creative services during the years ended December 31, 2012 and 2011, respectively. As of December 31, 2013 and December 31, 2012, we had no receivable balance due from FRS. The creative services agreement was terminated by the parties effective May 31, 2011. 11. Employee Benefit Plan...

  • Page 102
    ... companies in our industry that have similar vesting and contractual terms. The risk free interest rate is based on the implied yield currently available on U.S. Treasury issues with terms approximately equal to the expected life of the option. We currently have no history or expectation of paying...

  • Page 103
    ... Stock Purchase Plan In May 2011, we commenced our 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 our common stock at a 15% discount to the lower of market price...

  • Page 104
    ...of $4.8 million. The timing and actual number of shares repurchased will depend on various factors including price, corporate and regulatory requirements, debt covenant requirements, alternative investment opportunities and other market conditions. Shares repurchased by us are accounted for when the...

  • Page 105
    ... derives from the ability to generate synergies across our media services. On December 31, 2012, we completed the acquisition of the net assets of Name.com, a retail registrar company based in Denver, Colorado. In March 2013, we acquired Creativebug, an online destination for arts and crafts...

  • Page 106
    ... Owned website names Trade names Non-compete agreements Technology Other assets acquired (liabilities assumed), net Total $ $ 10,313 5,094 1,885 897 205 76 (470) 18,000 On December 31, 2012, we completed the acquisition of the net assets of Name.com, a retail registrar company based in...

  • Page 107
    ...payments for the cost of registered names and prepaid registration fees for the years ended December 31, 2013, 2012 and 2011, respectively. The failure of this registry to perform its operations may cause significant short-term disruption to our domain registration business. Concentrations of Credit...

  • Page 108
    18. Net Income (Loss) Per Share The following table sets forth the computation of basic and diluted net income ( loss) per share of common stock (in thousands, except per share data): Year ended December 31, 2012 2013 2011 Net income (loss) Cumulative preferred stock dividends Net income (loss) ...

  • Page 109
    ... Exhibit Securities Purchase Agreement, dated as of June 20, 2013, by and among Demand Media, Inc., Society6, the Sellers and Shareholder Representative Services LLC (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 2013) Amended and...

  • Page 110
    ... 10.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 12, 2011) †Demand Media, Inc. 2010 Employee Stock Purchase Plan, dated September 27, 2010 (incorporated by reference to Exhibit 10.26 to Amendment No. 3 to the Company's Registration Statement on Form S-1 (File...

  • Page 111
    ...Registered Public Accounting Firm (filed herewith) Certification of the Interim Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended...15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to ... Definition ...

  • Page 112
    ... payment, provided , that notwithstanding the foregoing, the Executive shall be eligible to earn a pro-rated Annual Bonus based on service from January 1, 2013 through October 14, 2013, determined by reference to actual performance and subject to the terms and conditions of the Employment Agreement...

  • Page 113
    ...Agreement voluntarily and knowingly. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. DEMAND MEDIA...

  • Page 114
    ... DEMAND MEDIA, INC. FIRST AMENDMENT TO INTERIM PRESIDENT AND CEO EMPLOYMENT AGREEMENT SIDE LETTER RECITALS A. B. Demand Media, Inc. (the " Company ") and Shawn Colo (the " Executive ") have entered into that certain Interim President and CEO Employment Agreement Side Letter, dated October 14, 2013...

  • Page 115
    ... the Company (each, an " RSU Agreement "), to be entered into by the Company and the Executive, which shall evidence the grant(s) of RSUs. The RSUs shall be governed in all respects by the terms and conditions of the Plan. For the avoidance of doubt, no extra RSUs shall be granted due to service in...

  • Page 116
    IN WITNESS WHEREOF , Executive and Demand have executed this Amendment as of the date first above written. EXECUTIVE /s/ Shawn Colo SHAWN COLO DEMAND MEDIA, INC. By: /s/ James Quandt Its: Chairman 3

  • Page 117
    ..., Incorporated Demand Media Canada Corp. Demand Media (Netherlands) B.V. DMD Media Services, Inc. DMIH Limited Domain Rouge, Inc. Domainnovations, Incorporated DomainSite, Inc. Dropoutlet, Incorporated eNom Canada Corp. eNom Corporate, Inc. eNom GMP Services, Inc. eNom World, Inc. eNom, Incorporated...

  • Page 118
    .... eNomfor, Inc. eNomMX, Inc. eNomnz, Inc. eNomsky, Inc. eNomTen, Inc. eNomToo, Inc. eNomV, Inc. eNomX, Inc. Entertainment Names, Incorporated Extra Threads Corporation Jurisdiction Nevada Nevada Nevada Nevada Nevada Nevada Nevada Nevada Nevada Nevada Nevada Nevada Nevada Nevada Nevada Nevada Nevada...

  • Page 119
    ...Secure Business Services, Inc. SicherRegister, Incorporated Sipence, Incorporated Small Business Names and Certs, Incorporated Society6, LLC SssassS, Incorporated Traffic Names, Incorporated Travel Domains, Incorporated United TLD Holdco Ltd. Vedacore.com, Inc. Whiteglove Domains, Incorporated Whois...

  • Page 120
    Exhibit 23. 1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-183554) and Form S-8 (No. 333172371) of Demand Media, Inc. of our report dated March 17, 2014 relating to the consolidated ...

  • Page 121
    Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Shawn Colo, certify that: 1. 2. I have reviewed this Annual Report on Form 10-K of Demand Media, Inc.; Based on my knowledge, this report does not contain any untrue statement of a ...

  • Page 122
    ... 2. I have reviewed this Annual Report on Form 10-K of Demand Media, Inc.; Based on my knowledge, this report does not contain ...based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors...

  • Page 123
    ... ACT OF 2002 In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 of Demand Media, Inc. (the "Company") as filed with the Securities and Exchange Commission (the "Report"), I, Shawn Colo, Interim Chief Executive Officer of the Company, certify, pursuant to 18...

  • Page 124
    ...OF 2002 In connection with the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 of Demand Media, Inc. (the "Company") as filed with the Securities and Exchange Commission (the "Report"), I, Mel Tang, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section...