Tucows 2012 Annual Report Download - page 54

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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.
Liquidity and capital resources
As of December 31, 2012, our cash and cash equivalents balance remained flat at $6.4 million when compared
to December 31, 2011. Our principal sources of liquidity during Fiscal 2012 was net cash provided by operating
activities of $6.3 million, the proceeds of $0.5 million we received on the sale of certain intangible assets with no book
value and our credit facility with the Bank of Montreal (the “Bank” or “BMO”).
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 two revolving demand loan facilities (the “2012 Demand Loan
Facilities”), a treasury risk management facility and an operating demand loan.
Two Revolving Demand Loan Facilities.
The 2012 Demand Loan Facilities are governed by the terms of the Offer Letter, dated as of November 19,
2012, by and between the Company and the Bank and filed with the SEC on November 21, 2012.
Under the terms of the credit facility, our prior revolving demand loan facilities have been amended to provide
an aggregate of $14 million in funds available through the 2012 Demand Loan Facilities, which consist of a demand loan
revolving facility (“the 2012 DLR Loan”) and a demand loan revolving reducing facility (“ the 2012 DLRR Loan”). The
2012 DLR Loan accrues interest at the Bank’s U.S. Base Rate plus 1.25%. We may elect to pay interest on the 2012
DLRR Loan either at the Bank’s U.S. Base Rate plus 1.25% or LIBOR plus 2.50%. Aggregate advances under the 2012
Demand Loan Facilities may not exceed $14 million and no more than $2 million of such advances may be used to
finance repurchases of Company common stock. The 2012 Demand Loan Facilities are subject to an undrawn aggregate
standby fee of 0.20% following the first draw, which such fee is payable quarterly in arrears.
Repayment of advances under the 2012 DLR Loan consist of interest only payments made monthly in arrears
and prepayment is permitted without penalty. The outstanding balance under the 2012 DLR Loan as of December 31st
of each year is to be fully repaid within 30 days of December 31st through an equivalent advance made under the 2012
DLRR Loan. Advances under the 2012 DLRR Loan will be made annually and solely for such purpose. Each advance
under the 2012 DLRR Loan is to be repaid in equal monthly principal payments plus interest, over a period of four years
from the date of such advance.
On July 28, 2011, we drew down $2.5 million on our prior demand loan revolving facility (“ DLR Loan”) to
fund the acquisition of EPAG as more fully described under Note 3, Business acquisitions. On December 31, 2011, in
accordance with the terms of our prior revolving demand loan facilities, the remaining balance under the 2011 DLR
Loan was fully repaid by an equivalent advance made under our prior demand loan revolving reducing loan facility (the
“2011 DLRR Loan”). At June 30, 2012, the 2011 DLRR Loan was fully repaid.
During the period ended March 31, 2012, we successfully concluded a modified “Dutch auction tender offer”,
which was funded from available cash and an advance under the 2011 DLR Loan in the amount of $4.0 million. Under
the terms of the offer, we repurchased an aggregate of 7,570,236 shares of our common stock at a purchase price of
$0.77 per share, for a total of $5,829,082, excluding transaction costs of approximately $64,000. At December 31, 2012,
the outstanding balance under the 2012 DLR Loan was $3.7 million.
Treasury Risk Management Facility
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, 2012, we held contracts in the amount of $29.3 million to trade U.S. dollars in exchange for Canadian
dollars.