Tucows 2013 Annual Report Download - page 40

With regards to property and equipment and definite 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 that the remaining balance of such assets may not be recoverable. 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 2013 and 2012.
Our 2013 annual goodwill impairment analysis, which we performed for our Domain Services reporting unit as of
December 31, 2013, did not result in an impairment charge.
We determined the estimated fair value for our reporting unit using the market approach that is based on the publicly
traded common shares of the Company to estimate fair value. The fair value was greater than the carrying value, therefore no
impairment exists and the second step was not performed. 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 reporting unit 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 or reporting units, requiring a reallocation and updated impairment
analysis of goodwill. 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 impairment of goodwill or intangible assets as a result of the annual impairment tests completed during the fourth
quarters of 2013 and 2012.
Accounting for income taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in
evaluating our uncertain tax positions and determining our provision for income taxes. We apply a two-step approach to
recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by
determining if on the weight of available evidence it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit that is
more than 50% likely to be realized upon settlement.
Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the
final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances,
such as the closing of a tax audit or the refinement of an estimate based on new information that may become available. To
the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the
provision for income taxes in the period in which such determination is made.
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As we account for income taxes under the asset and liability method, we recognize deferred tax assets or liabilities
for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of our
assets and liabilities. We record a valuation allowance to reduce the net deferred tax assets when it is more likely than not
that the benefit from the deferred tax assets will not be realized. In assessing the need for a valuation allowance, historical
and future levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax
planning strategies are considered. In the event that it is determined that the deferred tax assets to be realized in the future
would be in excess of the net recorded amount, an adjustment to the deferred tax asset valuation allowance would be
recorded. This adjustment would increase income in the period that such determination was made. Likewise, should it be
determined that all or part of a recorded net deferred tax asset would not be realized in the future, an adjustment to increase
the deferred tax asset valuation allowance would be charged to income in the period that such determination would be made.
On a periodic basis, we evaluate the probability that our deferred tax asset balance will be recovered to assess its
realizability. To the extent we believe it is more likely than not that some portion of our deferred tax assets will not be
realized, we will increase the valuation allowance against the deferred tax assets. Realization of our deferred tax assets is
dependent primarily upon future taxable income. Our judgments regarding future profitability may change due to future
market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require possible
material adjustments to these deferred tax assets, impacting net income or net loss in the period when such determinations are
made.
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