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8-K - 8-K - LEAF GROUP LTD.dmd-8k_20140709.htm
EX-2 - EX-2.1 - LEAF GROUP LTD.dmd-ex2_2014070929.htm

 

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

)