Tucows 2013 Annual Report Download - page 39

estimates are based on an assessment of the actual services rendered to each customer since the last billing period against our
rate plans existing at that time. Adjustments affecting revenue may occur in periods subsequent to the billing period when the
services were provided and are recognized as revenue during the current billing cycle. In addition, revenues associated with
the sale of wireless devices and accessories to subscribers is recognized when title and risk of loss is transferred to the
subscriber and shipment has occurred. Incentive marketing credits given to customers are recorded as a reduction of revenue.
Revenue from domain portfolio monetization and sales consists primarily of amounts earned for the transfer of
rights to domain names and domain related rights that are currently under the Company's control. Collectability of revenues
generated is subject to a high level of uncertainty; accordingly revenues are recognized only when payment is received,
except where a fixed contract has been negotiated, in which case revenues are recognized once all the terms of the contract
have been satisfied.
We also generate advertising and other revenue through tucows.com as well as advertising revenue from our
OpenSRS expired domain names and our domain name portfolio. Advertising and other revenue is recognized ratably over
the period in which it is presented. To the extent that the minimum number of post-presentation impressions we guarantee to
customers is not met, we defer recognition of the corresponding revenues until the guaranteed impressions are achieved.
Revenue is also generated from vendors who are seeking to expand or maintain their services market position and is
recognized once all the conditions have been met.
Changes to contractual relationships in the future could impact the amounts and timing of revenue recognition.
In those cases where payment is not received at the time of sale, additional conditions for recognition of revenue
apply. The conditions are (i) that the collection of sales proceeds is reasonably assured and (ii) that we have no further
performance obligations. We record expected refunds, rebates and credit card charge-backs as a reduction of revenues at the
time of the sale based on historical experiences and current expectations. Should these expectations not be met, adjustments
will be required in future periods.
We record provisions for possible uncollectible accounts receivable and contingent liabilities which may arise in the
normal course of business. The allowance for doubtful accounts is calculated by taking into account factors such as our
historical collection and write-off experience, the number of days the customer is past due and the status of the customer's
account with respect to whether or not the customer is continuing to receive service. The contingent liability estimates are
based on management's historical experience and various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the reported amounts of liabilities and
expenses that are not readily apparent from other sources. Historically, credit losses have been within our expectations and
the reserves we have established have been appropriate. However, we have, on occasion, experienced issues which have led
to accounts receivable not being fully collected. Should these issues occur more frequently, additional provisions may be
required.
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Valuation of intangible assets, goodwill and long-lived assets
The excess of the fair value of purchase price over the fair values of the identifiable assets and liabilities from our
acquisitions is recorded as goodwill. At December 31, 2013, we had $18.9 million in goodwill related to our acquisitions and
$15.4 million in intangible assets. All related to our Domain Services segment. The goodwill recorded in relation to these
acquisitions is not deductible for tax purposes. We report our financial results as two operating segments, Domain Services
with three distinct service offerings, being Wholesale, Retail and Portfolio and Network Access Services which derives
revenue from the sale of retail mobile phones and services to individuals and small businesses.
Finite life intangible assets, related to the acquisition of EPAG in August 2011, are being amortized on a straight-
line basis over periods of two to seven years, and consist of technology, brand and customer relationships. Finite life
intangible assets, related to the acquisition of Innerwise, Inc. in July 2007, are being amortized on a straight-line basis over
periods of five to seven years, and consist of brand and customer relationships. Indefinite life intangible assets, acquired in
the acquisition of Mailbank.com Inc. in June 2006, consist of surname domain names and direct navigation domain names.
We account for goodwill in accordance with FASB’s authoritative guidance, which requires that goodwill and
certain intangible assets are not amortized, but are subject to an annual impairment test. We complete our goodwill and
certain intangible assets impairment test on an annual basis, during the fourth quarter of our fiscal year, or more frequently, if
changes in facts and circumstances indicate that impairment in the value of goodwill and certain intangible assets recorded on
our balance sheet may exist.