Air Canada 2014 Annual Report Download - page 131

Download and view the complete annual report

Please find page 131 of the 2014 Air Canada annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

131
2014 Consolidated Financial Statements and Notes
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, 2014
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 $ 234 $ - $ 234 $ -
Short-term investments 1,614 -1,614 -
Deposits and other assets
Prepayment option on senior
secured notes 4- - 4
Derivative instruments
Fuel derivatives 4 - 4 -
Share forward contracts 85 -85 -
Foreign exchange derivatives 30 -30 -
Interest rate swaps 8 - 8 -
TOTAL $ 1,979 $ - $ 1,975 $ 4
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 2014.
In measuring the fair value of the prepayment option on the New Senior Notes issued in 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 fair value of the prepayment option is $4.
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 $2 to the prepayment option asset, and a decrease of 1% to the credit margin would
result in a $4 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 $67 as at December 31, 2014 ($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.