Westjet 2014 Annual Report Download - page 85

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Notes to Consolidated Financial Statements
As at and for the years ended December 31, 2014 and 2013
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
WestJet Annual Report 2014 │ 83
15. Financial instruments and risk management (continued)
(b) Risk management related to financial instruments (continued)
Market risk (continued)
(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 $4,673 (2013 –
$4,639) 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 certain purchased aircraft and airport
operations, which, at December 31, 2014, totaled $25,204 (2013 – $32,021). A reasonable change in market interest rates at
December 31, 2014, 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 at December 31, 2014, would not impact net earnings.
At December 31, 2014, the Corporation had seven interest rate swap contracts outstanding with a 12-year term to fix the
interest rate on seven variable interest rate term loans at a weighted average contracted rate of 2.60%, inclusive of a basis
point spread. The term loans were used to finance the purchase of aircraft.
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
consolidated statement of financial position:
Statement presentation 2014 2013
Fair value
Accounts payable and accrued liabilities
(2,809)
(3,220)
Fair value Other assets − 4,103
Fair value Other liabilities (4,845) −
Unrealized gain (loss) Hedge reserves (before tax) (7,654) 883
The following table presents the financial impact and statement presentation of the Corporation’s interest rate derivatives on the
consolidated statement of earnings:
Statement presentation 2014 2013
Realized loss Finance cost (3,225) (1,058)
A change of 50 basis points in market interest rates at December 31, 2014, would impact OCI, net of taxes, by $4,214 (2013 –
$4,926) as a result of the Corporation’s interest rate derivatives.