Enom 2015 Annual Report Download - page 78

F-14
than the carrying amount of the asset group, an impairment loss equal to the excess of the asset’s carrying value over its
fair value is recorded. Fair value is determined based upon estimated discounted future cash flows. We did not recognize
any impairment loss for long-lived assets for the year ended December 31, 2015. Assets to be disposed of or held for sale
would be separately presented on the balance sheets and reported at the lower of their carrying amount or fair value less
costs to sell, and would no longer be depreciated or amortized.
Goodwill
Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets.
Goodwill is tested for impairment annually during the fourth quarter of our fiscal year or when events or circumstances
change in a manner that indicates goodwill might be impaired. Events or circumstances that could trigger an impairment
review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse
action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner
of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends,
a decline in our stock price leading to an extended period when our market 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. During the second quarter of 2015, we made certain changes to our management structure below our chief
operating decision maker and, as a result of these changes, we determined that Society6, which had previously been
included in our content and media reporting unit, should be combined with the Saatchi Art reporting unit to create a
marketplaces reporting unit. As a result of these changes we determined that we have two reporting units as of December
31, 2015. A change in reporting units requires that goodwill be tested for impairment. Therefore, we performed an
interim assessment of impairment of goodwill for the Saatchi Art reporting unit during the second quarter of 2015 and
determined an impairment did not exist. As of December 31, 2015, we determined that we have two reporting units:
content and media and marketplaces.
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.
For the year ended December 31, 2014, due to unexpected revenue declines 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, 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,
we determined that 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 determined 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 in
2014.
For the year ended December 31, 2015, we performed our annual goodwill impairment test in the fourth quarter of
the year, consistent with our existing accounting policy, and we determined that there was no impairment charge for the
year ended December 31, 2015. As of December 31, 2015, there was $10.4 million of goodwill recorded in our
marketplaces reporting unit. We may be required to record goodwill impairment charges in future periods.