Tucows 2013 Annual Report Download - page 88

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With regards to property, equipment and definite life intangible assets, the Company continually evaluates whether
events or circumstances have occurred that indicate the remaining estimated useful lives of its definite-life intangible assets
may warrant revision or that the remaining balance of such assets may not be recoverable. The Company measures
recoverability of assets to be held and used by comparing the carrying amount of the assets to future undiscounted net cash
flows expected to be generated by the assets. Recoverability measurement and estimation of undiscounted cash flows is done
at the lowest possible levels for which there are identifiable cash flows. If such assets fail the recoverability test, the
impairment to be recognized is measured as the amount by which the carrying amount of assets exceeds the fair value of the
assets. Assets to be disposed of are recorded at the lower of the carrying amount or fair value less costs to sell. Management
must exercise judgment in determining whether an event has occurred that may impair the value of the long-lived assets.
Factors that could indicate that impairment may exist include significant underperformance relative to a plan or long-term
projections, significant changes in business strategy, significant negative industry or economic trends or a significant decline
in our stock price or in the value of our reporting units for a sustained period of time. There was no impairment recorded on
definite-life intangible assets and property and equipment during 2013 and 2012. As of December 31, 2013, the Company
had $15.4 million in intangible assets.
4. Derivative instruments and hedging activities:
Foreign currency forward contracts
In October 2012, the Company entered in to a hedging program with a Canadian chartered bank to limit the
potential foreign exchange fluctuations incurred on its future cash flows related to a portion of payroll, rent and payments to
a Canadian domain name registry supplier that are denominated in Canadian dollars and are expected to be paid by its
Canadian operating subsidiary. As part of its risk management strategy, the Company uses derivative instruments to hedge a
portion of the foreign exchange risk associated with these costs. The Company does not use these forward contracts for
trading or speculative purposes. These forward contracts typically mature between one and eighteen months.
The Company has designated these transactions as cash flow hedges of forecasted transactions under ASC Topic
815 “Derivatives and Hedging” (ASC Topic 815). As the critical terms of the hedging instrument, and of the entire hedged
forecasted transaction, are the same, in accordance with ASC Topic 815, the Company has been able to conclude that
changes in fair value or cash flows attributable to the risk of being hedged are expected to completely offset at inception and
on an ongoing basis. Accordingly, unrealized gains or losses on the effective portion of these contracts have been included
within other comprehensive income. The fair value of the contracts, as of December 31, 2013 and 2012, is recorded as
derivative instrument assets and liabilities.
As of December 31, 2013, the notional amount of forward contracts that the Company held to sell U.S. dollars in
exchange for Canadian dollars was $26.5 million, of which $20.6 million met the requirements of ASC Topic 815 and were
designated as hedges (December 31, 2012 - $29.3 million of which $15.1 million were designated as hedges).
F-15
Fair value of derivative instruments and effect of derivative instruments on financial performance
The effect of these derivative instruments on our consolidated financial statements as of, and for the year ended
December 31, 2013, were as follows (amounts presented do not include any income tax effects).
Fair value of derivative instruments in the consolidated balance sheets (see note 14)
Derivatives
Balance Sheet
Location
Year ended
December 31,
2013
Fair Value
Asset
(Liability)
Year ended
December 31,
2013
Fair Value
Asset
(Liability)
Foreign currency forward contracts designated as cash flow hedges
Derivative
instruments
$
(118,505
)
$
377,703
Foreign currency forward contracts not designated as cash flow hedges
Derivative
instruments
$
(372,593
)
$
67,079