EXHIBIT 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On July 9, 2014, Demand Media, Inc., a Delaware corporation (the “Company”, “our”, “we” or “us”) completed the sale of substantially all of the assets relating to its Creativebug business (“Creativebug”) to CB Acquisition, LLC, a Delaware limited liability company (“Buyer”) for $10.0 million in cash (the “Disposition”).
The accompanying unaudited pro forma financial information should be read in conjunction with our historical consolidated financial statements and the accompanying notes included in the 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 17, 2014, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed with the SEC on May 12, 2014.
The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2013 and the three months ended March 31, 2014, have been prepared giving effect to the Disposition of Creativebug as if the transactions had occurred on January 1, 2013. The unaudited pro forma condensed consolidated balance sheet gives effect to the Disposition as if the transaction had occurred effective March 31, 2014.
The unaudited pro forma condensed consolidated financial statements are prepared in accordance with Article 11 of Regulation S-X. The pro forma adjustments are described in the accompanying notes and are based upon information and assumptions available at the time of the filing of this report on Form 8-K.
The unaudited pro forma financial information is based on financial statements prepared in accordance with U.S. generally accepted accounting principles, which are subject to change and interpretation. The unaudited pro forma condensed consolidated financial statements were based on and derived from our historical consolidated financial statements, adjusted for those amounts which were determined to be directly attributable to the Disposition, factually supportable, and with respect to the Unaudited Pro Forma Condensed Consolidated Statement of Operations, expected to have a continuing impact on our consolidated results. Actual adjustments, however, may differ materially from the information presented. Pro forma adjustments do not include allocations of corporate costs, as those are not directly attributable to the transaction. In addition, the unaudited pro forma financial information is based upon available information and assumptions that management considers to be reasonable, and such assumptions have been made solely for purposes of developing such unaudited pro forma financial information for illustrative purposes in compliance with the disclosure requirements of the SEC. The unaudited pro forma financial information is not necessarily indicative of the financial position or results of operations that would have actually occurred had the Disposition occurred on the dates indicated. In addition, these unaudited pro forma condensed consolidated financial statements should not be considered to be indicative of our future financial performance and results of operations of the consolidated Company.
Demand Media, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 2014
(In thousands, except per share amounts)
| As Reported | | | Creativebug | | | Pro Forma Adjustments | | | Pro Forma Demand Media, Inc. | |
Service revenue | $ | 82,960 | | | $ | (63 | ) | | $ | - | | | $ | 82,897 | |
Product revenue | | 6,792 | | | | - | | | | - | | | | 6,792 | |
Total Revenue | | 89,752 | | | | (63 | ) | | | - | | | | 89,689 | |
Operating expenses: | | | | | | | | | | | | | | | |
Service costs | | 49,137 | | | | (307 | ) | | | - | | | | 48,830 | |
Product costs | | 4,955 | | | | - | | | | - | | | | 4,955 | |
Sales and marketing | | 8,931 | | | | (109 | ) | | | - | | | | 8,822 | |
Product development | | 11,272 | | | | (230 | ) | | | - | | | | 11,042 | |
General and administrative | | 17,715 | | | | (333 | ) | | | - | | | | 17,382 | |
Amortization of intangible assets | | 11,629 | | | | (236 | ) | | | - | | | | 11,393 | |
Total operating expenses | | 103,639 | | | | (1,215 | ) | | | - | | | | 102,424 | |
Income (loss) from operations | | (13,887 | ) | | | 1,152 | | | | - | | | | (12,735 | ) |
Interest income (expense) | | (765 | ) | | | - | | | | - | | | | (765 | ) |
Other income (expense), net | | 1,304 | | | | - | | | | - | | | | 1,304 | |
Gain on other assets, net | | 4,860 | | | | - | | | | - | | | | 4,860 | |
Income (loss) before income taxes | | (8,488 | ) | | | 1,152 | | | | - | | | | (7,336 | ) |
Income tax expense | | (2,468 | ) | | | - | | | | - | | | | (2,468 | ) |
Net income (loss) | $ | (10,956 | ) | | $ | 1,152 | | | $ | - | | | $ | (9,804 | ) |
| | | | | | | | | | | | | | | |
Net income (loss) per share - basic | $ | (0.12 | ) | | | | | | | | | | $ | (0.11 | ) |
Net income (loss) per share - diluted | $ | (0.12 | ) | | | | | | | | | | $ | (0.11 | ) |
| | | | | | | | | | | | | | | |
Weighted average number of shares - basic | | 90,854 | | | | | | | | | | | | 90,854 | |
Weighted average number of shares - diluted | | 90,854 | | | | | | | | | | | | 90,854 | |
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Demand Media, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 2013
(In thousands, except per share amounts)
| As Reported | | | Creativebug | | | Pro Forma Adjustments | | | Pro Forma Demand Media, Inc. | |
Service revenue | $ | 394,598 | | | $ | (220 | ) | | $ | - | | | $ | 394,378 | |
Operating expenses: | | | | | | | | | | | | | | | |
Service costs | | 204,763 | | | | (1,020 | ) | | | - | | | | 203,743 | |
Sales and marketing | | 46,445 | | | | (362 | ) | | | - | | | | 46,083 | |
Product development | | 44,187 | | | | (594 | ) | | | - | | | | 43,593 | |
General and administrative | | 73,277 | | | | (836 | ) | | | - | | | | 72,441 | |
Amortization if intangible assets | | 44,409 | | | | (790 | ) | | | - | | | | 43,619 | |
Total operating expenses | | 413,081 | | | | (3,602 | ) | | | - | | | | 409,479 | |
Income (loss) from operations | | (18,483 | ) | | | 3,382 | | | | - | | | | (15,101 | ) |
Interest income (expense) | | (1,621 | ) | | | - | | | | - | | | | (1,621 | ) |
Other income (expense), net | | (61 | ) | | | - | | | | - | | | | (61 | ) |
Gain on other assets, net | | 4,232 | | | | - | | | | - | | | | 4,232 | |
Income (loss) before income taxes | | (15,933 | ) | | | 3,382 | | | | - | | | | (12,551 | ) |
Income tax expense | | (4,241 | ) | | | - | | | | - | | | | (4,241 | ) |
Net income (loss) | $ | (20,174 | ) | | $ | 3,382 | | | $ | - | | | $ | (16,792 | ) |
| | | | | | | | | | | | | | | |
Net income (loss) per share - basic | $ | (0.23 | ) | | | | | | | | | | $ | (0.19 | ) |
Net income (loss) per share - diluted | $ | (0.23 | ) | | | | | | | | | | $ | (0.19 | ) |
| | | | | | | | | | | | | | | |
Weighted average number of shares - basic | | 88,534 | | | | | | | | | | | | 88,534 | |
Weighted average number of shares - diluted | | 88,534 | | | | | | | | | | | | 88,534 | |
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Demand Media, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheets
As of March 31, 2014
(In thousands)
| As Reported | | | Creativebug | | | Pro Forma Adjustments | | | Pro Forma Demand Media, Inc. | |
Assets | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 153,963 | | | $ | (9 | ) | | $ | 9 | | (b) | $ | 162,963 | |
| | | | | | | | | | 9,000 | | (a) | | | |
Accounts receivable, net | | 31,977 | | | | - | | | | - | | | | 31,977 | |
Prepaid expenses and other current assets | | 8,598 | | | | (27 | ) | | | 1,000 | | (a) | | 9,571 | |
Deferred registrations costs | | 71,665 | | | | - | | | | - | | | | 71,665 | |
Total current assets | | 266,203 | | | | (36 | ) | | | 10,009 | | | | 276,176 | |
Deferred registrations costs, less current portion | | 13,547 | | | | - | | | | - | | | | 13,547 | |
Property plant and equipment, net | | 39,490 | | | | (186 | ) | | | - | | | | 39,304 | |
Intangible assets, net | | 83,156 | | | | (3,238 | ) | | | - | | | | 79,918 | |
Goodwill | | 347,382 | | | | (6,600 | ) | | | - | | (c) | | 340,782 | |
Other assets | | 22,800 | | | | - | | | | - | | | | 22,800 | |
Total assets | $ | 772,578 | | | $ | (10,060 | ) | | $ | 10,009 | | | $ | 772,527 | |
Liabilities and Stockholders' Equity | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | |
Accounts Payable | $ | 12,321 | | | $ | (19 | ) | | $ | 19 | | (b) | $ | 12,321 | |
Accrued expenses and other current liabilities | | 31,654 | | | | (615 | ) | | | 615 | | (b) | | 31,854 | |
| | | | | | | | | | 200 | | (d) | | | |
Deferred tax liabilities | | 22,431 | | | | - | | | | - | | | | 22,431 | |
Current portion of long-term debt | | 15,000 | | | | - | | | | - | | | | 15,000 | |
Deferred revenue | | 91,570 | | | | (19 | ) | | | - | | | | 91,551 | |
Total current liabilities | | 172,976 | | | | (653 | ) | | | 834 | | | | 173,157 | |
Deferred revenue, less current portion | | 18,205 | | | | - | | | | - | | | | 18,205 | |
Other liabilities | | 14,416 | | | | (2 | ) | | | 2 | | (b) | | 14,416 | |
Long-term debt | | 77,500 | | | | - | | | | - | | | | 77,500 | |
Total stockholders' equity | | 489,481 | | | | (9,405 | ) | | | 9,173 | | (e) | | 489,249 | |
Total liabilities and stockholders' equity | $ | 772,578 | | | $ | (10,060 | ) | | $ | 10,009 | | | $ | 772,527 | |
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A – The disposition of Creativebug
On July 9, 2014, Demand Media, Inc., a Delaware corporation, completed the sale of substantially all of the assets relating to its Creativebug business to CB Acquisition, LLC, a Delaware limited liability company, for a purchase price of $10.0 million, comprised of $9.0 million in cash, and a $1.0 million holdback amount. The holdback amount is being held in escrow to secure any post-closing indemnification obligations of the Company. Any remaining portion of the holdback amount that is not subject to then-pending claims will be paid to us on the 12-month anniversary of the closing of the Disposition. The net book value of the assets being transferred in the Disposition is $3.4 million, as of March 31, 2014, resulting in a loss on disposition of $0.2 million. In May 2014, we reclassified the net assets to assets and liabilities held for sale.
Assets and liabilities being disposed (in thousands): | | | |
| | | |
Prepaid expenses and other current assets | $ | 27 | |
Property plant and equipment, net | | 186 | |
Intangible assets, net | | 3,238 | |
Goodwill | | 6,600 | |
Deferred revenue | | (19 | ) |
Change in assets and liabilities, net | $ | 10,032 | |
Note B - Pro Forma Adjustments
The following is a summary of the pro forma adjustments reflected in the unaudited pro forma condensed consolidated financial statements based on preliminary estimates, which may change as additional information is obtained:
(a) – Purchase price
Reflects the adjustments to include the cash proceeds of $9.0 million received and the $1.0 million holdback resulting from the Disposition.
(b) – Assets and liabilities not assumed
Reflects the adjustments for the Creativebug assets and liabilities that are not being assumed by the buyer pursuant to the terms of the purchase agreement.
(c) – Goodwill
Goodwill is a preliminary estimate of relative fair value.
(d) – Disposition costs
To reflect an accrual for transaction costs related to the Disposition.
(e) – Retained earnings
As a result of the Disposition, we will recognize a loss of $0.2 million. This has not been included in the pro forma adjustments to the unaudited condensed consolidated statements of operations due to its non-recurring nature, but has been recorded in the unaudited pro forma balance sheet as of March 31, 2014.
Cash Proceeds | $ | 10,000 | |
Change in assets and liabilities, net | | (10,032 | ) |
less transaction costs | | (200 | ) |
Loss on sale | $ | (232 | ) |
