Tucows 2013 Annual Report Download - page 83

Goodwill is tested for impairment as part of a two-step process. The first step uses a market approach that is based
on the publicly traded common shares of the Company to estimate fair value. If the carrying value is less than the fair value,
no impairment exists and the second step need not be performed. If the carrying value is greater than the fair value then the
second step will be performed. In the second step, the impairment is computed by comparing the implied fair value of the
Company’s goodwill with the carrying amount of that goodwill.
For the second step the Company uses a discounted cash flow or income approach in which future expected cash
flows are converted to present value using factors that consider the timing and risk of the future cash flows. The estimate of
cash flows used is prepared on an unleveraged debt-free basis. The discount rate reflects a market-derived weighted average
cost of capital. The Company believes that this approach is appropriate because it provides a fair value estimate based upon
the Company’s expected long-term operating and cash flow performance. The projections are based upon the Company’s
best estimates of projected economic and market conditions over the related period including growth rates, estimates of
future expected changes in operating margins and cash expenditures.
Other significant estimates and assumptions include terminal value growth rates, terminal value margin rates, future
capital expenditures and changes in future working capital. If assumptions and estimates used to allocate the purchase price
or used to assess impairment prove to be inaccurate, future asset impairment charges could be required. At
December 31, 2013, the Company had goodwill of $18.9 million. The Company completed its latest annual impairment test
and fair value analysis for goodwill, and there were no impairments present and no impairment charge was recorded during
the years ended December 31, 2013, 2012 and 2011.
The Company has other finite life intangible assets consisting of patented and non-patented technologies. These
intangible assets are amortized over their expected economic lives. The lives are determined based upon the expected use of
the asset, the stability of the industry, expected changes in and replacement value of distribution networks and other factors
deemed appropriate.
F-9
The Company continually evaluates whether events or circumstances have occurred that indicate the remaining
estimated useful lives of its definite- lived intangible assets may warrant revision or that the remaining balance of such assets
may not be recoverable. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the
asset in measuring whether the asset is recoverable. There was no impairment recorded on definite-life intangible assets and
other long-lived assets during 2013 and 2012.
(g) Revenue recognition
The Company’s revenues are derived from domain name registration fees on both a wholesale and retail basis, the
sale of domain names, the provisioning of other Internet services and advertising and other revenue. Amounts received in
advance of meeting the revenue recognition criteria described below are recorded as deferred revenue.
The Company earns registration fees in connection with each new, renewed and transferred-in registration and from
providing provisioning of other Internet services to resellers and registrars on a monthly basis. Service has been provided in
connection with registration fees once the Company has confirmed that the requested domain name has been appropriately
recorded in the registry under contractual performance standards.
Domain names are generally purchased for terms of one to ten years. Registration fees charged for domain name
registration and provisioning services are recognized on a straight-line basis over the life of the contracted term. Other
Internet services that are provisioned for annual periods or longer, are recognized on a straight-line basis over the life of the
contracted term. Other Internet services that are provisioned on a monthly basis are recognized as services are provided.
For arrangements with multiple deliverables, the Company allocates revenue to each deliverable if the delivered
item(s) has value to the customer on a standalone basis and, if the arrangement includes a general right of return relative to
the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the control
of the Company. The fair value of the selling price for a deliverable is determined using a hierarchy of (1) Company specific
objective and reliable evidence, then (2) third-party evidence, then (3) best estimate of selling price. The Company allocates
any arrangement fee to each of the elements based on their relative selling prices.
Revenue generated from the sale of domain names, earned from transferring the rights to domain names under the
Company’s control, are recognized once the rights have been transferred and payment has been received in full.