Enom 2013 Annual Report Download - page 51

our historical experience of intangible assets of similar quality and value. We expect intangible amortization expense to decrease in the near term
as we reduced our investment in content intangible assets in 2013 and 2012 as compared to prior years, and we elected to remove certain articles
from service in 2013, 2012 and 2011. This will be partially offset by an increase in amortization expense as a result of the Society6 acquisition
during 2013. Amortization as a percentage of revenue will depend upon a variety of factors, such as the amounts and mix of our investments in
content and identifiable intangible assets acquired in business combinations.
Stock
-based Compensation
Included in our operating expenses are expenses associated with stock-based compensation, which are allocated and included in service
costs, sales and marketing, product development and general and administrative expenses. Stock-based compensation expense is largely
comprised of costs associated with stock options and restricted stock units granted to employees, restricted stock issued to employees and
expenses relating to our Employee Stock Purchase Plan. We record the fair value of these equity-based awards and expense at their cost ratably
over their related vesting periods. In addition, stock-based compensation expense includes the cost of warrants to purchase common and
preferred stock issued to certain non-employees.
As of December 31, 2013 , we had approximately $37.2 million of unrecognized employee related stock-based compensation, net of
estimated forfeitures, that we expect to recognize over a weighted average period of approximately 2.5 years. Stock-
based compensation expense
in 2014 is expected to be relatively consistent with 2013 based on the existing unrecognized stock-based compensation expense, but may
fluctuate depending on the magnitude of additional stock-based awards that we will make in order to continue to attract and retain employees
and in connection with potential business acquisitions.
Interest Expense
Interest expense principally consists of interest on outstanding debt and amortization of debt issuance costs associated with our term loan
facility . As of December 31, 2013 $96.3 million principal balance was outstanding under the term loan facility.
Interest Income
Interest income consists of interest earned on cash balances and short-
term investments. We typically invest our available cash balances in
money market funds.
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 potential gains or losses on gTLD application
negotiations as well as movements in underlying currency exchange rates which could become more significant as we continue to expand
internationally.
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,
Cayman Islands, Ireland, the Netherlands, Canada andArgentina. 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. Based on the available information we h ave taken a full valuation allowance against all of our United States
deferred tax assets.
As of December 31, 2013 , we had approximately $71.0 million of federal and $16.0 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.
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