UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
EXHIBIT 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Demand Media, Inc., a Delaware corporation (the “Company”, “our”, “we” or “us”), entered into an Asset Purchase Agreement dated April 8, 2016 to sell substantially all of the assets relating to its Cracked business, including the Xxxxxxx.xxx website (the “Business”), to Scripps Media, Inc. (“the Buyer”) for a cash purchase price of $39 million (the “Disposition”). On April 12, 2016, the Company completed the Disposition. The sale of such assets constituted a significant 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 Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2016.
The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2015 have been prepared giving effect to the Disposition as if the transaction had occurred on January 1, 2015. The unaudited pro forma condensed consolidated balance sheet gives effect to the Disposition as if the transaction had occurred effective December 31, 2015.
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 Year Ended December 31, 2015
(In thousands, except per share amounts)
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Pro Forma |
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Cracked |
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Pro Forma |
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Demand |
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As Reported |
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Disposition |
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Adjustments |
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Media, Inc. |
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Revenue: |
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Service revenue |
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$ |
77,254 |
|
$ |
(10,741 |
) |
$ |
— |
|
$ |
66,513 |
|
Product revenue |
|
48,715 |
|
(131 |
) |
— |
|
48,584 |
| ||||
Total revenue |
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125,969 |
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(10,872 |
) |
— |
|
115,097 |
| ||||
Operating expenses: |
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|
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Service costs (exclusive of amortization of intangible assets shown separately below) |
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37,289 |
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(5,003 |
) |
— |
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32,286 |
| ||||
Product costs |
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33,769 |
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(59 |
) |
— |
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33,710 |
| ||||
Sales and marketing |
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20,319 |
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(1,079 |
) |
— |
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19,240 |
| ||||
Product development |
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24,313 |
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(1,540 |
) |
— |
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22,773 |
| ||||
General and administrative |
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38,344 |
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(111 |
) |
— |
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38,233 |
| ||||
Amortization of intangible assets |
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18,706 |
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(1 |
) |
— |
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18,705 |
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Total operating expenses |
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172,740 |
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(7,793 |
) |
— |
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164,947 |
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Income (Loss) from operations |
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(46,771 |
) |
3,079 |
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— |
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(49,850 |
) | ||||
Interest income |
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361 |
|
— |
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— |
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361 |
| ||||
Interest expense |
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(143 |
) |
— |
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— |
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(143 |
) | ||||
Other income, net |
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3,107 |
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— |
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— |
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3,107 |
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Income (Loss) before income taxes |
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(43,446 |
) |
3,079 |
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— |
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(46,525 |
) | ||||
Income tax (expense) benefit |
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(55 |
) |
— |
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— |
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(55 |
) | ||||
Net Income (Loss) |
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$ |
(43,501 |
) |
$ |
3,079 |
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$ |
— |
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$ |
(46,580 |
) |
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Earnings (Loss) per share - basic and diluted |
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Net loss per share - basic and diluted |
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$ |
(2.18 |
) |
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$ |
(2.34 |
) | ||
Weighted average number of shares - basic and diluted |
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19,938 |
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19,938 |
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The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.
Demand Media, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheets
As of December 31, 2015
(In thousands)
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Cracked |
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Pro Forma |
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Pro Forma |
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As Reported |
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Disposition |
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Adjustments |
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Demand Media, Inc. |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
38,570 |
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$ |
(47 |
) |
$ |
47 |
(a) |
$ |
73,670 |
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|
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|
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— |
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35,100 |
(b) |
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Accounts receivable, net |
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10,469 |
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(63 |
) |
63 |
(a) |
10,469 |
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Prepaid expenses and other current assets |
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4,989 |
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(1 |
) |
— |
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4,988 |
| ||||
Total Current Assets |
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54,028 |
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(111 |
) |
35,210 |
|
89,127 |
| ||||
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Property and equipment, net |
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14,568 |
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(579 |
) |
— |
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13,989 |
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Intangible assets, net |
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21,332 |
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— |
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— |
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21,332 |
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Goodwill |
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10,358 |
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— |
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— |
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10,358 |
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Other assets |
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1,173 |
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— |
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3,900 |
(b) |
5,073 |
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Total assets |
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$ |
101,459 |
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$ |
(690 |
) |
$ |
39,110 |
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$ |
139,879 |
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Liabilities and Stockholders’ Equity |
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Current Liabilities |
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Accounts payable |
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$ |
1,973 |
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$ |
(32 |
) |
$ |
32 |
(a) |
$ |
1,973 |
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Accrued expenses and other current liabilities |
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15,169 |
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(488 |
) |
488 |
(a) |
15,384 |
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|
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— |
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215 |
(c) |
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Deferred revenue |
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2,933 |
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(1 |
) |
— |
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2,932 |
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Total Current Liabilities |
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20,075 |
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(521 |
) |
735 |
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20,289 |
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Deferred tax liability |
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551 |
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— |
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— |
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551 |
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Other liabilities |
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1,713 |
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— |
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— |
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1,713 |
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Stockholders’ equity |
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Common stock |
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2 |
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— |
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— |
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2 |
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Additional paid-in capital |
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505,603 |
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— |
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— |
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505,603 |
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Accumulated other comprehensive loss |
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(91 |
) |
— |
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— |
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(91 |
) | ||||
Treasury stock |
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(30,767 |
) |
— |
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— |
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(30,767 |
) | ||||
Accumulated deficit |
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(395,627 |
) |
(169 |
) |
38,375 |
(d) |
(357,421 |
) | ||||
Total stockholders’ equity |
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79,120 |
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(169 |
) |
38,375 |
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117,326 |
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Total liabilities and stockholders’ equity |
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$ |
101,459 |
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$ |
(690 |
) |
$ |
39,110 |
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$ |
139,879 |
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The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.
Demand Media, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2015 and unaudited pro forma condensed consolidated balance sheet as of December 31, 2015 were derived from the Company’s historical audited consolidated financial statements as of and for the year ended December 31, 2015, included in our Annual Report on Form 10-K for the year ended December 31, 2015.
Note 2. The Disposition of Cracked
On April 12, 2016, we completed the sale of substantially all of the assets relating to the Business to Scripps Media, Inc. for a purchase price of $39 million in cash, comprised of $35.1 million received by us on the closing date and $3.9 million (the “Escrow Amount”) placed into escrow to satisfy our post-closing indemnification obligations. Any remaining portion of the Escrow Amount that is not subject to then-pending claims will be paid to us on the 15-month anniversary of the closing date of the Disposition. The net book value of the assets being transferred in the Disposition is $579 thousand, as of December 31, 2015, resulting in a gain on sale of approximately $38.2 million. In March 2016, we reclassified the related assets and liabilities to assets and liabilities held for sale.
Assets and liabilities being disposed (in thousands): |
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Prepaid expenses and other current assets |
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$ |
1 |
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Property plant and equipment, net |
|
579 |
| |
Deferred revenue |
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(1 |
) | |
Assets and liabilities, net |
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$ |
579 |
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Note 3. 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) — Assets and liabilities not assumed
Reflects adjustments for the assets and liabilities of the Business that are not being assumed by the Buyer pursuant to the terms of the Purchase Agreement.
(b) — Purchase price
Reflects the adjustments to include the cash proceeds of $35.1 million received on the closing date and the $3.9 million Escrow Amount, resulting from the Disposition.
(c) — Disposition costs
Reflects an accrual for transaction costs related to the Disposition.
(d) — Retained earnings
As a result of the Disposition, we will recognize a gain of $38.2 million. This has not been included in the unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2015 due to its non-recurring nature, but has been recorded in the unaudited pro forma condensed balance sheet as of December 31, 2015. We expect to utilize our existing net operating losses to offset the gain on sale resulting from the sale of the Business.
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(in thousands) |
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Proceeds |
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$ |
39,000 |
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Assets and liabilities, net |
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(579 |
) | |
less transaction costs |
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(215 |
) | |
Gain on sale |
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$ |
38,206 |
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