Tucows 2015 Annual Report Download - page 79

Valuation of goodwill, intangible assets and long-lived assets
The excess of the purchase price over the fair values of the identifiable assets and liabilities from our acquisitions
is recorded as goodwill. At December 31, 2015, we had $21.0 million (2014 - $18.9 million) in goodwill related to our
acquisitions and $14.5 million (2014 - $14.2 million) in intangible assets comprised of indefinite life intangibles of $13.3
million (2014 - $13.5 million) and finite life intangible assets of $1.2 million (2014 - $0.7 million).We report our financial
results as three operating segments, Domain Services with three distinct service offerings, being wholesale and retail
domain name registration services, value added services and portfolio, and Network Access - Mobile Services which
derives revenue from the sale of retail mobile phones and telephony services, as well as Network Access – Other Services
which derives revenue from fixed high speed internet access, Internet hosting and network consulting services. Ninety
percent of goodwill relates to our Domain Services operating segment and 10% of goodwill relates to our Network Access
– Other Services operating segment. With the exception of the goodwill relating to the acquisition of the hosted messaging
assets of Critical Path and the BRI Group, all goodwill recorded in relation to our acquisitions is not deductible for tax
purposes. Ninety-five percent of intangible assets relate to our Domain Services operating segment and 5% of intangible
assets relate to our Network Access – Other Services operating segment.
We account for goodwill and indefinite life intangible assets in accordance with FASB’s authoritative guidance,
which requires that goodwill and indefinite life intangible assets are not amortized, but are subject to an annual impairment
test. We complete our 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 indicators are present.
Our indefinite life intangible assets consist of surname domain names and direct navigation domain names. In
order to maintain our rights to these domain names, we pay annual renewal fees to the applicable domain name registries.
During the year we decided not to renew certain under-performing domain names and an impairment charge of $0.2
million was recorded during the fiscal year.
With regard to long-lived assets comprised of property and equipment and finite life intangible assets, we
continually evaluate whether events or circumstances have occurred that indicate the remaining estimated useful lives of
our definite-life intangible assets may warrant revision or whether the carrying amount of such assets may not be
recoverable and exceed their fair value. We use 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 property and equipment during 2015 and 2014.
We performed a qualitative assessment to determine whether there were events or circumstances which would
lead to a determination, whether it is more likely than not, that goodwill and indefinite life intangible assets have been
impaired. In performing the qualitative testing, we made an evaluation of the impact of various factors to the expected
future cash flows attributable to our operating segments and to the assumed discount rate which would be used to present
value those cash flows. Consideration was given to factors such as macro-economic, industry and market conditions
including the capital markets and the competitive environment amongst others. There were no indications of impairment
under the qualitative approach. The analysis was consistent with the approach we utilized in our analysis performed in
prior years.
Any changes to our key assumptions about our businesses and our prospects, or changes in market conditions,
could cause the fair value of our operating segments to fall below its carrying value, resulting in a potential impairment
charge. In addition, changes in our organizational structure or how our management allocates resources and assesses
performance, could result in a change in our operating segments, requiring a reallocation and updated impairment analysis
of goodwill and indefinite life intangible assets. A goodwill or intangible asset impairment charge could have a material
effect on our consolidated financial statements because of the significance of goodwill and intangible assets to our
consolidated balance sheet. There was no further impairment of goodwill or intangible assets as a result of the annual
impairment tests completed during the fourth quarters of 2015 and 2014.
Accounting for income taxes
Page 7
9
of 22
5
tcx20151201_10k.ht
m
9
/
13
/
201
6
https://www.sec.gov/Archives/edgar/data/909494/000143774916027177/tcx20151201_10...