Enom 2013 Annual Report Download - page 56

Our finite lived intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the
estimated pattern in which the underlying economic benefits are consumed. Capitalized website registration costs for undeveloped websites are
amortized on a straight-line basis over their estimated useful lives of one to seven years. Internally developed software and website development
costs are depreciated on a straight-line basis over their estimated three year usef ul life. We amortize our intangible assets acquired through
business combinations on a straight-line basis over the period in which the underlying economic benefits are expected to be consumed.
Capitalized content is amortized on a straight-line basis over five years, representing our estimate of the pattern that the underlying
economic benefits are expected to be realized and based on our estimates of the projected cash flows from advertising revenue expected to be
generated by the deployment of our conte nt. These estimates are based on our current plans and projections for our content, our comparison of
the economic returns generated by content of comparable quality and an analysis of historical cash flows generated by that content to date which,
particularly for more recent content cohorts, is somewhat limited. To date, certain content that we acquired in business combinations has
generated cash flows from advertisements beyond a five year useful life. The acquisition of content, at scale, however, is a new and rapidly
evolving model, and therefore we closely monitor its performance and, periodically, assess its estimated useful life.
Advertising revenue generated from the deployment of our media content makes up a significant element of our business such that
amounts we record in our financial statements related to our content are material. Significant judgment is required in estimating the useful life of
our content. Changes from the five year useful life we currently use to amortize our capitalized cont ent would have a significant impact on our
financial statements.
Recoverability of Long-lived Assets
We evaluate the recoverability of our intangible assets, and other long-lived assets with finite useful lives for impairment when events or
changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. These trigger events or changes in
circumstances include, but are not limited to a significant decrease in the market price of a long-lived asset, a significant adverse change in the
extent or manner 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 including changes which may result from adverse shifts in technology in our industry and the impact of competition, a
significant adverse deterioration in the amount of revenue or cash flows we expect to generate from an asset group, an accumulation of costs
significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or
cash flow losses that demonstrates continuing losses associated with the use of our long-lived asset, or a current expectation that, more likely
than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. We perform
impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash
flows of other assets and liabilities. In making this determination, we consider the specific operating characteristics of the relevant long-lived
assets, including (i) the nature of the direct and any indirect revenue generated by the assets; (ii) the interdependency of the revenue generated by
the assets; and (iii) the nature and extent of any shared costs necessary to operate the assets in their intended use. An impairment test would be
performed when the estimated undiscounted future cash flows expected to result from the use of the asset group is less than its carrying amount.
Impairment is measured by assessing the usefulness of an asset by comparing its carrying value to its fair value. If an asset is considered
impaired, the impairment loss is measured as the amount by which the carrying value of the asset group exceeds its estimated fair value. Fair
value is determined based upon estimated discounted future cash flows. The key estimates applied when preparing cash flow projections relate to
revenue, operating margins, economic life of assets, overheads, taxation and discount rates. To date, we have not recognized any such
impairment loss associated with our long-lived assets.
Income Taxes
We account for our income taxes using the liability and asset method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in our financial statements or in our tax returns. In estimating
future tax consequences, generally all expected future events other than enactments or changes in the tax law or rates are considered. Def erred
income taxes are recognized for differences between financial reporting and tax bases of assets and liabilities at the enacted statutory tax rates in
effect for the years in which the temporary differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized
in income in the period that includes the enactment date. We evaluate the realizability of our deferred tax assets and valuation allowances are
provided when necessary to reduce deferred tax assets to the amounts expected to be realized.
We operate in various tax jurisdictions and are subject to audit by various tax authorities. We provide tax contingencies whenever it is
deemed probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax
contingencies are based upon their technical merits, and relevant tax law and the specific facts and circumstances as of each reporting period.
Changes in facts and circumstances could result in ma terial changes to the amounts recorded for such tax contingencies.
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