Enom 2014 Annual Report Download - page 44

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capitalization is less than the book value of our net assets or significant underperformance relative to expected historical or projected
future results of operations.
Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As
of December 31, 2014, we determined that we have two reporting units. When testing goodwill for impairment, we first perform a
qualitative assessment to determine whether it is necessary to perform step one of a two-step goodwill impairment test for each
reporting unit. We are required to perform step one only if we conclude that it is more likely than not that a reporting unit’s fair value
is less than the carrying value of its assets. Should this be the case, the first step of the two-step process is to identify whether a
potential impairment exists by comparing the estimated fair values of our reporting units with their respective carrying values,
including goodwill. If the estimated fair value of a reporting unit exceeds the carrying value, goodwill is not considered to be impaired
and no additional steps are necessary. If, however, the fair value of a reporting unit is less than its carrying value, then a second step is
performed to measure the amount of the impairment loss, if any. The amount of the impairment loss is the excess of the carrying
amount of the goodwill over its implied fair value. The estimate of implied fair value of goodwill 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 test goodwill for impairment in the fourth quarter of each year unless there are interim indicators that suggest that it is more
likely than not that goodwill may be impaired. Due to unexpected revenue declines in the third quarter of 2014 attributable to lower
traffic and monetization yield on certain of our content and media websites, we lowered our future cash flow expectations. As a result
of the decline in our cash flow forecast as well as a sustained decline in our market capitalization which remained at a level below the
book value of our net assets for an extended period of time, including as of September 30, 2014, we performed an interim assessment
of impairment of the goodwill in our content and media reporting unit in the third quarter of 2014. Based on our analyses, the implied
fair value of goodwill was substantially lower than the carrying value of goodwill for the content and media reporting unit and as a
result, we estimated that the implied fair value of the goodwill in the content and media reporting unit was zero. Accordingly, we
recorded $232.3 million for the goodwill impairment charge during the third quarter of 2014, which is included in Goodwill
impairment charge in the Consolidated Statements of Operations. We determined the fair value of the Content & Media reporting unit
using the combination of an income and market approach. The income approach relies on the present value of estimated future cash
flows of the business, discounted using a rate appropriately reflecting the risks inherent in the cash flows. The market approach relies
on market data of other public companies which the company deemed comparable in operations to the Content & Media reporting
unit, as well as the Company's own market capitalization. We performed our annual goodwill impairment test in the fourth quarter of
the year ending December 31, 2014, consistent with our existing accounting policy, and we determined that there was no further
impairment charge for the year ended December 31, 2014. We may be required to record additional goodwill impairment charges in
future periods.
Intangible Assets—Media Content
We capitalize the direct costs incurred to acquire our media content that is determined to embody a probable future economic
benefit. Costs are recognized as finite-lived intangible assets based on their acquisition cost to us. 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, 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 revenue 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 visits 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 visits 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 portion of our revenue; the fact that our content creation and distribution model is
evolving and may be impacted by competition and technological advancements; our ability to expand existing and enter into new
distribution channels and applications for our content; and whether we will be able to continue to create content of the same quality or
generate similar economic returns from content in the future. Management has reviewed, and intends to regularly review the operating
performance of content in determining probable future economic benefits of our content.
Capitalized media content is amortized on a straight-line basis over its useful life, which is typically five years, representing our
estimate of when 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 such content. These estimates are based on our plans and
projections, comparison of the economic returns generated by our content with content of comparable quality and an analysis of
historical cash flows generated by that content to date.