Air Canada 2013 Annual Report Download - page 138

2013 Air Canada Annual Report
138
Following is a classification of fair value measurements recognized in the consolidated statement of financial position using a
fair value hierarchy that reflects the significance of the inputs used in making the measurements.
Fair value measurements at reporting date using:
Recurring measurements
December 31, 2013
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs (Level 3)
Financial Assets
Held-for-trading securities
Cash equivalents $ 186 $– $186 $ –
Short-term investments 1,458 – 1,458 –
Deposits and other assets
Prepayment option on senior secured notes 2 – – 2
Derivative instruments
Fuel derivatives 20 – 20 –
Share forward contracts 56 – 56 –
Foreign exchange derivatives 13 – 13 –
Interest rate swaps 10 – 10 –
Total $ 1,745 $– $1,743 $ 2
Financial assets held by financial institutions in the form of cash and restricted cash have been excluded from the fair value
measurement classification table above as they are not valued using a valuation technique.
The Corporation’s policy is to recognize transfers into and transfers out of fair value hierarchy levels as of the date of the
event or change in circumstances that caused the transfer. There were no transfers within the fair value hierarchy during 2013.
In measuring the fair value of the prepayment option on the New Senior Notes issued in September 2013, which is
categorized as Level 3 in the fair value hierarchy, the Corporation takes into account various factors including the prepayment
terms in the notes, market rates of interest, the current conditions in credit markets and the current estimated credit margin
applicable to the Corporation.
The change in Level 3 assets in 2013 related to a loss of $15 recorded in Interest expense for the fair value of the prepayment
option within the senior secured notes which were extinguished in September 2013, upon refinancing with the issuance of
New Senior Notes. The fair value of the prepayment option on the New Senior Notes that were issued is $2. The Corporation’s
credit margin is considered a Level 3 input and an increase of 1% to the credit margin would result in a decrease of $1 to the
prepayment option asset, and a decrease of 1% to the credit margin would result in a $2 increase to the prepayment option
asset.
Offsetting of Financial Instruments in the Consolidated Statement of Financial Position
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position
where the Corporation has a legally enforceable right to set-off the recognized amounts and there is an intention to settle on
a net basis or realize the asset and settle the liability simultaneously. In the normal course of business, the Corporation enters
into various master netting arrangements or other similar arrangements that do not meet the criteria for offsetting in the
consolidated statement of financial position but still allow for the related amounts to be set off in certain circumstances, such
as the termination of the contracts or in the event of bankruptcy or default of either party to the agreement.
Air Canada participates in industry clearing house arrangements whereby certain accounts receivable balances related to
passenger, cargo and other billings are settled on a net basis with the counterparty through the clearing house. These billings
are mainly the result of interline agreements with other airlines, which are commercial agreements that enable the sale and
settlement of travel and related services between the carriers. Billed and work in process interline receivables are presented on
a gross basis and amount to $61 as at December 31, 2013. These balances will be settled at a net value at a later date;
however such net settlement amount is unknown until the settlement date.