Incredimail 2014 Annual Report Download - page 45

Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome
of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, the
refinement of an estimate or changes in tax laws. To the extent that the final tax outcome of these matters is different than the amounts recorded,
such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes
includes the impact of reserve provisions and changes to reserves that are considered appropriate. Interest is recorded within finance income, net.
Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. We also assess our ability to
utilize tax attributes, including those in the form of carry forwards for which the benefits have already been reflected in the financial statements.
We record valuation allowances for deferred tax assets that we believe are not more likely than not to be realized in future periods. While we
believe the resulting tax balances as of December 31, 2014 are appropriately accounted for, the ultimate outcome of such matters could result in
favorable or unfavorable adjustments to our consolidated financial statements and such adjustments could be material. See Note 12 of the
Financial Statements for further information regarding income taxes. We have filed or are in the process of filing local and foreign tax returns
that are subject to audit by the respective tax authorities. The amount of income tax we pay is subject to ongoing audits by the tax authorities,
which often result in proposed assessments. We believe that we adequately provided for any reasonably foreseeable outcomes related to tax
audits and settlement. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period
the assessments are made or resolved, audits are closed or when statutes of limitation on potential assessments expire.
Business Combinations
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired
based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and
liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant
estimates and assumptions, especially with respect to intangible assets.
Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from customer
relationships and acquired patents and developed technology; and discount rates. Management’
s estimates of fair value are based upon
assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from
estimates.
Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the
assets acquired and liabilities assumed, as more fully discussed in Note 3 of the Financial Statements.
Goodwill
Goodwill is allocated to reporting units expected to benefit from the business combination. We test goodwill for impairment at the
reporting unit level at least annually, or more frequently if events or changes in circumstances occur that would more likely than not reduce the
fair value of a reporting unit below its carrying value. Goodwill impairment tests require judgment, including the identification of reporting
units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each
reporting unit. As of December 31, 2014, no impairment of goodwill has been identified.
Impairment of Long
-Lived Assets
We are required to assess the impairment of tangible and intangible long-
lived assets subject to amortization, under ASC 360 "Property,
Plant and Equipment", on a periodic basis and when events or changes in circumstances indicate that the carrying value may not be recoverable.
Impairment indicators include any significant changes in the manner of our use of the assets or the strategy of our overall business, significant
negative industry or economic trends and significant decline in our share price for a sustained period.
Upon determination that the carrying value of a long-
lived asset may not be recoverable based upon a comparison of aggregate
undiscounted projected future cash flows from the use of the asset or asset group to the carrying amount of the asset, an impairment charge is
recorded for the excess of carrying amount over the fair value. We measure fair value using discounted projected future cash flows. We base our
fair value estimates on assumptions we believe to be reasonable, but these estimates are unpredictable and inherently uncertain. If these estimates
or their related assumptions change in the future, we may be required to record impairment charges for our tangible and intangible long-
lived
assets subject to amortization. In 2014, we incurred impairment charges of $19.9 million related to intangible assets associated with desktop
technologies acquired in the acquisition of Perion that were determined during the process of integration with Perion to be redundant to the
technology of ClientConnect. This impairment was also a result of our shifting future growth strategy towards mobile platforms and
discontinuing some of the consumer products developed.
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