Tucows 2013 Annual Report Download - page 54

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Percentage of net revenues
(1
)%
1
%
We have entered into certain forward exchange contracts that do not comply with the requirements of hedge
accounting to meet a portion of our future Canadian dollar requirements through April 2014. The impact of the fair value
adjustment on unrealized foreign exchange on these contracts for Fiscal 2012 was a net gain of $1.1 million compared to a
net loss of $1.5 million for Fiscal 2011. This impact of the fair value adjustment on unrealized foreign exchange on these
contracts was partially offset by a realized loss upon settlement of currency forward contracts of $0.4 million for Fiscal 2012
and a realized gain of $1.0 million for Fiscal 2011.
At December 31, 2012, our balance sheet reflects a derivative instrument asset of $0.4 million as a result of our
existing foreign exchange contracts. Until their respective maturity dates, these contracts will fluctuate in value in line with
movements in the Canadian dollar relative to the U.S. dollar.
OTHER INCOME AND EXPENSES
Year ended December 31,
2012
2011
Other income (expense), net
$
336,848
$
324,573
Increase over prior period
$
12,275
Increase - percentage
4
%
Percentage of net revenues
0
%
0
%
Other income for Fiscal 2012 increased by $12,000, to $0.3 million, as compared with Fiscal 2011. This primarily
resulted from our selling certain intangible assets with no book value for $0.5 million during Fiscal 2012. This increase was
partially offset by the $0.4 million we received during Fiscal 2011 from the third party who is commercializing the
Infonautics patents we assigned to them in 2002, undertaking a routine audit of one of their licensees.
In addition, other income for Fiscal 2012 decreased when compared to Fiscal 2011 as a result of the interest payable
pursuant to the terms of our credit facility with the Bank of Montreal.
56
INCOME TAXES
The following table presents our provision for income taxes for the periods presented:
Year ended December 31,
2012
2011
Provision for (recovery of) income taxes
$
2,004,156
$
(2,719,621
)
Increase in provision over prior period
$
4,723,777
Increase - percentage
(174
)%
Percentage of net revenues
2
%
(3
)%
We operate in various tax jurisdictions, and accordingly, our income is subject to varying rates of tax. Losses
incurred in one jurisdiction cannot be used to offset income taxes payable in another jurisdiction. Our ability to use income
tax loss carryforwards and future income tax deductions is dependent upon our operations in the tax jurisdictions in which
such losses or deductions arise. Income taxes are computed using the asset and liability method, under which deferred tax
assets and liabilities are determined based on the difference between the financial statement carrying values and tax base of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized.
Fiscal 2012 includes tax on profits of $2.1 million, offset by a recovery of $0.1 million related to investment tax
credits.
Our Fiscal 2011 provision included a deferred tax recovery of $3.6 million related to the full release of our
remaining valuation allowances. In addition, our Fiscal 2011 provision included a recovery of $0.2 million related to
revisions of prior year estimates and a recovery of $0.04 million related to investment tax credits earned during the period.
This was offset by a provision for Fiscal 2011 tax on profits of $1.1 million.