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Notes to Consolidated Financial Statements
For the years ended December 31, 2012 and 2011
(Stated in thousands of Canadian dollars, except share and per share amounts)
16. Financial instruments and risk management (continued)
(b) Risk management related to financial instruments (continued)
Market Risk (continued)
(ii) Foreign exchange 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
December 31
2012
December 31
2011
Fair value
Prepaid expenses, deposits and other
800
4,662
Fair value
Accounts payable and accrued liabilities
(898)
−
Unrealized gain (loss)
Hedge reserves – before tax impact
(98)
4,662
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
2012
2011
Realized gain (loss)
Aircraft leasing
1,245
(4,840)
A one-cent change in the US-dollar exchange rate for the year ended December 31, 2012, would impact OCI, net of taxes, by
$1,157 (2011 – $1,192) 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 had an approximate impact on net earnings of $4,956 (2011 –
$) as a result of the Corporation’s short-term investment activities.
Deposits
The Corporation is exposed to interest rate fluctuations on its deposits that relate to purchased aircraft and airport operat ions,
which, as at December 31, 2012, totaled $ (2011 – $ ). A reasonable change in market interest rates as at
December 31, 2012, 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 nature of the majority of the Corporation’s long-term debt mitigates the impact of interest rate fluctuations over the
term of the outstanding debt. The Corporation accounts for its long-term fixed-rate debt at amortized cost, and therefore, a
change in interest rates as at December 31, 2012, would not impact net earnings.
At December 31, 2012, the Corporation had two interest rate swap contracts outstanding with a 12 year term to fix the interest
rate two variable interest rate term loans at 2.89% and 2.99%, respectively, inclusive of a 75 basis point spread. The term loans
were used to finance the purchase of two aircraft in 2012.
Upon proper qualification, the Corporation accounts for its interest rate swap derivatives as cash flow hedges.
The following table presents the financial impact and statement presentation of the Corporation’s interest rate derivatives on the
condensed consolidated statement of financial position:
Statement presentation
December 31
2012
December 31
2011
Fair value
Accounts payable and accrued liabilities
611
112
Fair value
Other long-term liabilities
268
420
Unrealized loss
Hedge reserves (before tax impact)
(879)
(532)
WestJet 2012 Annual Report
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