Tucows 2013 Annual Report Download - page 55

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We had approximately $0.4 million of total gross unrecognized tax benefit as of December 31, 2012 and $0.2
million of total gross unrecognized tax benefit as of December 31, 2011, which if recognized would favorably affect our
income tax rate in future periods. The unrecognized tax benefit relates primarily to prior year Pennsylvania state franchise
taxes and other insignificant U.S. state taxes, unrecognized tax benefits for potential 2012 research and development tax
credits as well as prior year German income tax. We will record the tax benefit of the 2012 research and development claim
once we have reasonable assurance that it is more likely than not that all or a portion of the benefit arising from the claim will
be realized.
A reconciliation of the federal statutory income tax rate to our effective tax rate is set forth in Note 10 of Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.
OTHER COMPREHENSIVE INCOME
To mitigate the impact of the change in fair value of our foreign exchange contracts on our financial results, in
October 2012 we begun applying hedge accounting for the majority of the contracts we need to meet our Canadian dollar
requirements on a prospective basis.
The following table presents other comprehensive income for the periods presented:
Year ended December 31,
2012
2011
Comprehensive income
$
44,104
$
-
Increase in provision over prior period
$
44,104
Increase - percentage
(100
)%
Percentage of net revenues
0
%
-
%
57
Liquidity and capital resources
As of December 31, 2013, our cash and cash equivalents balance increased by $6.0 million to $12.4 million when
compared to December 31, 2012. Our principal sources of liquidity during Fiscal 2013 was net cash provided by operating
activities of $8.7 million, the proceeds of $5.2 million we received from drawing down on our credit facility with the Bank of
Montreal (the “Bank”) to fund the Dutch Tender Offer which closed in January 2013 and the proceeds of $2.6 million we
received on the exercise of stock options.
We have credit agreements (collectively the “Amended Credit Facility”) with the Bank that were amended on
November 19, 2012, and which provide us with access to a demand loan revolving facility (“the 2012 DLR Loan”) and a
demand loan revolving reducing facility (“the 2012 DLRR Loan”) that provide for a $14 million, five year revolving credit
facility, a $3.5 million treasury risk management facility and a $1.0 million operating demand loan. At December 31, 2013
the balance under the 2012 DLR Loan was $5.2 million and the balance under the 2012 DLRR Loan was $1.1 million.
In accordance with the terms of the demand loan facilities, repayment of advances under the 2012 DLR Loan consist
of interest only payments made monthly in arrears and prepayment is permitted without penalty. In accordance with the
terms of the demand loan facilities, the outstanding balance under the 2012 DLR Loan as of December 31, 2013 of $5.2
million was fully repaid through an equivalent advance made under the 2012 DLRR Loan and will be repaid in equal
monthly principal payments plus interest, over a period of four years. Prepayment is permitted without penalty.
The Amended Credit Facility also provides for a $3.5 million settlement risk line to assist us with hedging Canadian
dollar exposure through foreign exchange forward contracts and/or currency options. Under the terms of the Amended Credit
Facility, we may enter into such agreements at market rates with terms not to exceed 18 months. As of December 31, 2013,
we held contracts in the amount of $26.5 million to trade U.S. dollars in exchange for Canadian dollars.
The Amended Credit Facility contains customary events of default and affirmative and negative covenants and
restrictions, including certain financial maintenance covenants such as a maximum total funded debt to EBITDA ratio and a
minimum fixed charge ratio. As of December 31, 2013, we were in compliance with all our covenants.
Cash Flow from Operating Activities
Year ended December 31, 2013