Tucows 2013 Annual Report Download - page 47

At December 31, 2013, our balance sheet reflects a derivative instrument liability of $0.5 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,
2013
2012
Other income (expense), net
$
(354,857
)
$
336,848
Decrease over prior period
$
(691,705
)
Decrease - percentage
(205
)%
Percentage of net revenues
(0
)%
0
%
Other expenses for Fiscal 2013 increased by $0.7 million, to $0.4 million, as compared with Fiscal 2012. During
Fiscal 2013 we made interest payments of $0.4 million pursuant to the terms of our credit facility with the Bank of Montreal.
During Fiscal 2012, we sold certain intangible assets with no book value for $0.5 million, which was partially offset by the
interest payable in Fiscal 2012 of $0.2 million pursuant to the terms of our credit facility with the Bank of Montreal.
INCOME TAXES
The following table presents our provision for income taxes for the periods presented:
Year ended December 31,
2013
2012
Provision for income taxes
$
1,619,339
$
2,004,156
Decrease in provision over prior period
$
(384,817
)
Decrease - percentage
(19
)%
Percentage of net revenues
1
%
2
%
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.
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Fiscal 2013 includes tax on profits of $1.8 million, offset by a recovery of $0.2 million related to investment tax
credits.
Fiscal 2012 includes tax on profits of $2.1 million, offset by a recovery of $0.1 million related to investment tax
credits.
We had approximately $0.1 million of total gross unrecognized tax benefit as of December 31, 2013 and $0.4
million of total gross unrecognized tax benefit as of December 31, 2012, 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.
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 (LOSS)
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 impact of the fair value adjustment on outstanding hedged contracts for Fiscal 2013
was a net gain in other comprehensive income of $0.3 million. The impact of the fair value adjustment on outstanding hedged
contracts was a net loss in other comprehensive income of $44,000 for Fiscal 2012.