Tucows 2012 Annual Report Download - page 85

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F-9
(e) Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided on a
straight-line basis so as to depreciate the cost of depreciable assets over their estimated useful lives at the following
rates:
Asset Rate
Computer equipment 30%
Computer software 100%
Furniture and equipment 20%
Leasehold improvements Over term of lease
The Company reviews the carrying values of its property and equipment for potential impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated
undiscounted future cash flows expected to result from the use of the group of assets and its eventual disposition is less
than its carrying amount, it is considered to be impaired. The amount of the impairment loss recognized is measured as
the amount by which the carrying value of the asset exceeds the fair value of the asset, with fair value being determined
based upon discounted cash flows or appraised values, depending on the nature of the assets.
(f) Goodwill and Intangible assets
Goodwill represents the excess of purchase price over the fair values assigned to the net assets acquired in
business combinations. Finite life intangible assets, related to the acquisition of EPAG Domainservices GMBH
(“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.
The Company does not amortize goodwill and indefinite life intangibles, but tests for impairment annually or
more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying
amount. The Company reviews goodwill at least annually for possible impairment in the fourth quarter of each year.
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, 2012, 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, 2012, 2011 and 2010.
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.