Westjet 2015 Annual Report Download - page 93

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Notes to Consolidated Financial Statements
As at and for the years ended December 31, 2015 and 2014
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
WestJet Annual Report 2015 | 91
14. Financial instruments and risk management (continued)
(b) Risk management related to financial instruments (continued)
Market risk (continued)
The following table presents the financial impact and statement presentation of the Corporation’s foreign exchange derivatives
on the consolidated statement of financial position:
Statement presentation
2015
2014
Fair value
Prepaid expenses, deposits and other
17,409
6,409
Fair value
Accounts payable and accrued liabilities
(51)
(49)
Unrealized gain
Hedge reserves (before tax)
15,770
6,360
The following table presents the financial impact and statement presentation of the Corporation’s foreign exchange derivatives
on the consolidated statement of earnings:
Statement presentation
2015
2014
Realized gain
Aircraft leasing
21,515
9,498
Realized gain
Other revenue
608
−
Realized and unrealized gain
Gain on derivatives
1,765
−
A one-cent change in the US-dollar exchange rate for the year ended December 31, 2015, would impact hedge reserves, net of
taxes, by $1,349 (2014 – $1,037) and gain on derivatives, net of taxes, by $261 (2014 – $nil) as a result of the Corporation’s
foreign exchange derivatives.
(iii) Interest rate risk
Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate as a result of changes in
market interest rates.
Cash and cash equivalents
The Corporation is exposed to interest rate fluctuations on its short-term investments, included in cash and cash equivalents. A
change of 50 basis points in the market interest rate would have an approximate impact on net earnings of $4,639 (2014 –
$4,673) as a result of the Corporation’s short-term investment activities.
Deposits
The Corporation is exposed to interest rate fluctuations on deposits related to aircraft financing and airport operations, which, at
December 31, 2015, totaled $26,675 (2014 – $25,204). A reasonable change in market interest rates at December 31, 2015,
would not have significantly impacted the Corporation’s net earnings due to the small size of these deposits.
Long-term debt
The Corporation is exposed to interest rate risks arising from fluctuations in market interest rates on its variable-rate debt. The
fixed-rate debt and interest rate swaps on the Corporation’s long-term debt mitigate the impact of interest rate fluctuations over
the term of the outstanding debt and therefore a change in interest rates at December 31, 2015, would not impact net earnings.
At December 31, 2015, the Corporation has entered into interest rate swaps with a weighted-average term of 7.2 years and a
weighted-average fixed contracted rate was 1.69%, inclusive of a basis point spread. The Corporation applies cash flow hedge
accounting to certain interest rate swaps.