Enom 2014 Annual Report Download - page 78

F-14
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 & 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 & 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 & Media reporting unit and as a
result, we determined that the implied fair value of the goodwill in the Content & Media reporting unit was zero. Accordingly, we
recorded a $232.3 million 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 impairment analysis in the fourth quarter of the year
ended December 31, 2014, and determined that no further impairment of goodwill existed at December 31, 2014.
Operating Leases
For operating leases that include rent-free periods or escalation clauses over the term of the lease, we recognize rent expense on
a straight-line basis and the difference between expense and amounts paid are recorded as deferred rent in current and long-term
liabilities.
Advertising Costs
Advertising costs are expensed as incurred and generally consist of Internet based advertising, sponsorships, and trade shows.
Such costs are included in sales and marketing expense in our consolidated statements of operations. Advertising expense was $2.2
million, $2.5 million and $2.8 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Stock-Based Compensation
We measure and recognize compensation expense for all stock-based payment awards made to employees, non-employees and
directors based on the grant date fair values of the awards. Our stock-based payment awards are comprised principally of restricted
stock units, restricted stock awards and stock options.
For stock-based payment awards issued to employees with service and/or performance based vesting conditions the fair value is
estimated using the Black-Scholes-Merton option pricing model. For premium-priced stock options with service and/or performance-
based vesting conditions the fair value is estimated using the Hull-White model. The value of an award that is ultimately expected to
vest is recognized as expense over the requisite service periods in our consolidated statements of operations. We elected to treat stock-
based payment awards, other than performance awards, with graded vesting schedules and time-based service conditions as a single
award and recognize stock-based compensation expense on a straight-line basis (net of estimated forfeitures) over the requisite service
period. Stock-based compensation expense is classified in the consolidated statement of operations based on the department to which
the related employee provides service.
We account for stock-based payment awards issued to non-employees in accordance with the guidance for equity-based
payments to non-employees. We believe that the fair value of stock-based payment awards is more reliably measured than the fair
value of the services received. Stock option awards to non-employees are accounted for at fair value using the Black-Scholes-Merton