eFax 2008 Annual Report Download - page 48

46
equipment under capital leases, are amortized on a straight-line basis over their estimated useful lives or for leasehold improvements,
the related lease term, if less. We have capitalized certain internal use software and Website development costs which are included in
property and equipment. The estimated useful life of costs capitalized is evaluated for each specific project and ranges from one to
seven years.
(l) Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets
acquired in a business combination. Intangible assets resulting from the acquisitions of entities accounted for using the purchase
method of accounting are recorded at the estimated fair value of the assets acquired. Identifiable intangible assets are comprised of
purchased customer relationships, trademarks and trade names, developed technologies and other intangible assets. Intangible assets
subject to amortization are amortized using the straight-line method over estimated useful lives ranging from two to 20 years. In
accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), goodwill and other intangible assets with
indefinite lives are not amortized but tested annually for impairment or more frequently if we believe indicators of impairment exist.
The performance of the impairment test involves a two-step process. The first step involves comparing the fair values of the applicable
reporting units with their aggregate carrying values, including goodwill. We generally determine the fair value of our reporting units
using the income approach methodology of valuation. If the carrying value of a reporting unit exceeds the reporting unit’s fair value,
we perform the second step of the test to determine the amount of impairment loss. The second step involves measuring the
impairment by comparing the implied fair values of the affected reporting unit’s goodwill and intangible assets with the respective
carrying values. We completed the required impairment review at the end of 2008, 2007 and 2006 and concluded that there were no
impairments. Consequently, no impairment charges were recorded.
(m) Long-Lived Assets
We account for long-lived assets, which include property and equipment and identifiable intangible assets with finite useful
lives (subject to amortization), in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (“SFAS 144”). SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the
carrying amount of an asset to the expected future net cash flows generated by the asset. If it is determined that the asset may not be
recoverable, and if the carrying amount of an asset exceeds its estimated fair value, an impairment charge is recognized to the extent
of the difference.
We assessed whether events or changes in circumstances have occurred that potentially indicate the carrying amount of long-
lived assets may not be recoverable. We concluded that there were no such events or changes in circumstances during 2008, 2007 or
2006. Net long-lived assets, including intangible assets subject to amortization, amounted to $53.0 million and $50.3 million as of
December 31, 2008 and 2007, respectively.
(n) Income Taxes
Our income is subject to taxation in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in
evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many
transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties
based on estimates of whether, and the extent to which, additional taxes will be due. These reserves for tax contingencies are
established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully
supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of a tax audit. The provision
for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS 109”), which requires
that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book
and tax basis of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if
it is more likely than not that some or all of the net deferred tax assets will not be realized. Our valuation allowance is reviewed
quarterly based upon the facts and circumstances known at the time. In assessing this valuation allowance, we review historical and
future expected operating results and other factors, including our recent cumulative earnings experience and expectations of future
taxable income by taxing jurisdiction, the carryforward periods available to us for tax reporting purposes, to determine whether it is
more likely than not that deferred tax assets are realizable. The majority of our gross deferred tax assets relate to net operating loss
carryforwards that related to differences in share-based compensation between the financial statements and our tax returns. We had
$10.7 million and $7.8 million in net deferred tax assets at December 31, 2008 and December 31, 2007, respectively. Based on our
review, we concluded that these net deferred tax assets do not require valuation allowances at December 31, 2008 and December 31,
2007. The net deferred tax assets should be realized through future operating results and the reversal of temporary differences.