Westjet 2015 Annual Report Download - page 94

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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 | 92
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 interest rate derivatives on the
consolidated statement of financial position:
Statement presentation
2015
2014
Fair value
Accounts payable and accrued liabilities
4,475
2,809
Fair value
Other liabilities
8,489
4,845
Unrealized loss
Hedge reserves (before tax)
12,026
7,654
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
2015
2014
Realized loss
Finance cost
3,515
3,225
Unrealized loss
Loss on derivatives
938
−
A change of 50 basis points in market interest rates at December 31, 2015, would impact hedge reserves, net of taxes, by
$3,372 (2014 – $4,214) and gain on derivatives, net of taxes, by $3,829 (2014 – $nil) as a result of the Corporation’s interest
rate derivatives.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge
an obligation. At December 31, 2015, the Corporation’s credit exposure consists primarily of the carrying amounts of cash and
cash equivalents, restricted cash, accounts receivable, other deposits, aircraft deposits and the fair value of derivative financial
assets.
The Corporation’s maximum exposure to credit risk is represented by the balances in the aforementioned accounts:
2015
2014
Cash and cash equivalents(i)
1,183,797
1,358,071
Restricted cash(i)
68,573
58,149
Accounts receivable(ii)
82,136
54,950
Other deposits(iii)
26,675
25,204
Aircraft deposits(iv)
319,019
509,684
Derivative financial assets(v)
17,409
6,409
(i) Consist of bank balances and short-term investments with terms of up to 31 days. Credit risk associated with cash and cash equivalents and restricted
cash is minimized substantially by ensuring that these financial assets are invested primarily in debt instruments with highly rated financial institutions,
some with provincial-government-backed guarantees. The Corporation manages its exposure by assessing the financial strength of its counterparties
and by limiting the total exposure to any one individual counterparty.
(ii) All significant counterparties, both current and new, are reviewed and approved for credit on a regular basis under the Corporation’s credit management
processes. The Corporation does not hold any collateral as security, however, in some cases the Corporation requires guaranteed letters of credit with
certain of its counterparties. Trade receivables are generally settled within 30 to 60 days. Industry receivables are generally settled in less than 30 days.
(iii) The Corporation is not exposed to counterparty credit risk on deposits related to aircraft financing, as the funds are held in a security trust separate
from the assets of the financial institution. While the Corporation is exposed to counterparty credit risk on its deposit relating to airport operations, it
considers this risk to be remote because of the nature and size of the counterparty.
(iv) The Corporation is exposed to counterparty credit risk on aircraft deposits with aircraft manufacturers. The Corporation considers this risk to be remote
given the size and credit quality of the manufacturers.
(v) Derivative financial assets consist of foreign exchange forward contracts. The Corporation reviews the size and credit rating of both current and any
new counterparties in addition to limiting the total exposure to any one counterparty.
There were no new bad debts recorded for the year ended December 31, 2015 (2014 – $nil).