Tucows 2014 Annual Report Download - page 175

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The following table provides a summary of the fair values of the Company’s derivative instruments measured at
fair value on a recurring basis as at December 31, 2013:
December 31, 2013
Fair Value Measurement Using Liabilities at
Level 1 Level 2 Level 3 Fair Value
Derivative instrument liability $ — $ 491,098 $ — $ 491,098
Total Liabilities $ — $ 491,098 $ — $ 491,098
7. Derivative instruments and hedging activities:
Foreign currency forward contracts
In October 2012, the Company entered into 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 Canadian domain name registry suppliers 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. 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, 2014 and 2013, is recorded as derivative
instrument liabilities.
As of December 31, 2014, the notional amount of forward contracts that the Company held to sell U.S. dollars in
exchange for Canadian dollars was $26.2 million, of which $22.3 million met the requirements of ASC Topic 815 and
were designated as hedges (December 31, 2013 - $26.5 million of which $20.6 million were designated as hedges).
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, 2014, were as follows (amounts presented do not include any income tax effects).
Fair value of derivative instruments in the consolidated balance sheets (see note 6)
Derivatives
Balance Sheet
Location
Year ended
December 31,
2014
Fair Value
Asset
(Liability)
Year ended
December 31,
2013
Fair Value
Asset
(Liability)
Foreign currency forward contracts designated as cash flow
hedges
Derivative
instruments $ (946,676)$ (372,593)
Foreign currency forward contracts not designated as cash flow
hedges
Derivative
instruments $ (169,129)$ (118,505)
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