23. FINANCIAL INSTRUMENTS

[a]

Foreign exchange contracts

At December 31, 2015, the Company had outstanding foreign exchange forward contracts representing commitments to buy and sell various foreign currencies. Significant commitments are as follows:


	For Canadian dollars										For U.S. dollars
Buy (Sell)	U.S. dollar amount			Weighted average rate		Euro amount			Weighted average rate		Peso amount		Weighted average rate
2016		276			1.30051		44			1.45543		4,248		0.06751
2016		(932	)		0.82317		(11	)		0.67901		—		—
2017		7			1.23553		14			1.44220		2,689		0.06269
2017		(577	)		0.81685		—			—		—		—
2018		—			—		—			—		780		0.05619
2018		(416	)		0.79299		—			—		—		—
2019		(278	)		0.78519		—			—		—		—
2020		(117	)		0.76577		—			—		—		—

		(2,037	)				47					7,717


	For euros
Buy (Sell)	U.S. dollar amount			Weighted average rate		GBP amount			Weighted average rate		Czech koruna amount			Weighted average rate
2016		101			0.87463		11			1.40949		3,377			0.03709
2016		(153	)		1.20933		(13	)		0.80758		(2	)		26.84500
2017		38			0.88127		—			—		2,168			0.03720
2017		(84	)		1.23216		(9	)		0.81324		—			—
2018		15			0.87239		—			—		1,031			0.03774
2018		(45	)		1.18114		(7	)		0.73974		—			—
2019		5			0.85873		—			—		—			—
2019		(17	)		1.16813		(4	)		0.74603		—			—
2020		(2	)		1.17400		—			—		—			—

		(142	)				(22	)				6,574

Based on forward foreign exchange rates as at December 31, 2015 for contracts with similar remaining terms to maturity, gains of $31 million and losses of $343 million relating to the Company’s foreign exchange forward contracts have been recognized in other comprehensive loss [note 22].

The Company does not enter into foreign exchange forward contracts for speculative purposes.

[b]

Financial assets and liabilities

The Company’s financial assets and liabilities consist of the following:


	2015			2014
Trading
Cash and cash equivalents	$	2,863		$	1,249
Investment in ABCP		73			88
Equity investments		4			—

	$	2,940		$	1,337

Available-for-sale investments
Equity investments	$	—		$	5

Held-to-maturity investments
Severance investments	$	3		$	4

Loans and receivables
Accounts receivable	$	5,439		$	5,316
Long-term receivables included in other assets [note 14]		87			85

	$	5,526		$	5,401

Other financial liabilities
Bank indebtedness	$	25		$	30
Long-term debt (including portion due within one year)		2,557			995
Accounts payable		4,746			4,765

	$	7,328		$	5,790

Derivatives designated as effective hedges, measured at fair value
Foreign currency contracts
Prepaid expenses and other	$	27		$	21
Other assets		4			8
Other accrued liabilities		(191	)		(90	)
Other long-term liabilities		(152	)		(80	)

		(312	)		(141	)
Commodity contracts
Other accrued liabilities		—			(1	)

	$	(312	)	$	(142	)

[c]

Derivatives designated as effective hedges, measured at fair value

The Company presents derivatives that are designated as effective hedges at gross fair value in the consolidated balance sheets. However, master netting and other similar arrangements allow net settlements under certain conditions. The following table shows the Company’s derivative foreign currency contracts at gross fair value as reflected in the consolidated balance sheets and the unrecognized impact of master netting arrangements:


	Gross			Gross
	amounts			amounts
	presented			not offset
	in consolidated			in consolidated			Net
	balance sheets			balance sheets			amounts
December 31, 2015
Assets	$	31		$	30		$	1
Liabilities	$	(343	)	$	(30	)	$	(313	)
December 31, 2014
Assets	$	29		$	28		$	1
Liabilities	$	(170	)	$	(28	)	$	(142	)

[d]

Fair value

The Company determined the estimated fair values of its financial instruments based on valuation methodologies it believes are appropriate; however, considerable judgment is required to develop these estimates. Accordingly, these estimated fair values are not necessarily indicative of the amounts the Company could realize in a current market exchange. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies. The methods and assumptions used to estimate the fair value of financial instruments are described below:

Cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable.

Due to the short period to maturity of the instruments, the carrying values as presented in the consolidated balance sheets are reasonable estimates of fair values.

Investments

At December 31, 2015, the Company held Canadian third party ABCP with a face value of Cdn$107 million [2014 - Cdn$107 million]. The carrying value and estimated fair value of this investment was Cdn$101 million [2014 - Cdn$102 million]. As fair value information is not readily determinable for the Company’s investment in ABCP, the fair value was based on a valuation technique estimating the fair value from the perspective of a market participant.

Term debt

The Company’s term debt includes $211 million due within one year. Due to the short period to maturity of this debt, the carrying value as presented in the consolidated balance sheet is a reasonable estimate of its fair value.

Senior Notes

At December 31, 2015, the net book value of the Company’s Senior Notes was $2.30 billion and the total estimated fair value of the Senior Notes was approximately $2.31 billion, determined primarily using active market prices, categorized as Level 1 inputs within the Accounting Standards Codification 820 fair value hierarchy.

[e]

Credit risk

The Company’s financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts receivable, held-to-maturity investments and foreign exchange and commodity forward contracts with positive fair values.

Cash and cash equivalents, which consist of short-term investments, are only invested in governments, bank term deposits and bank commercial paper with an investment grade credit rating. Credit risk is further reduced by limiting the amount which is invested in certain governments or any major financial institution.

The Company is also exposed to credit risk from the potential default by any of its counterparties on its foreign exchange forward contracts. The Company mitigates this credit risk by dealing with counterparties who are major financial institutions that the Company anticipates will satisfy their obligations under the contracts.

In the normal course of business, the Company is exposed to credit risk from its customers, substantially all of which are in the automotive industry and are subject to credit risks associated with the automotive industry. For the year ended December 31, 2015, sales to the Company’s six largest customers represented 83% [2014 - 83%] of the Company’s total sales; and substantially all of its sales are to customers in which the Company has ongoing contractual relationships.

[f]

Currency risk

The Company is exposed to fluctuations in foreign exchange rates when manufacturing facilities have committed to the delivery of products for which the selling price has been quoted in currencies other than the facilities’ functional currency, and when materials and equipment are purchased in currencies other than the facilities’ functional currency. In an effort to manage this net foreign exchange exposure, the Company employs hedging programs, primarily through the use of foreign exchange forward contracts [note 23[a]].

[g]

Interest rate risk

The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities. In particular, the amount of interest income earned on cash and cash equivalents is impacted more by investment decisions made and the demands to have available cash on hand, than by movements in interest rates over a given period.

In addition, the Company is not exposed to interest rate risk on its term debt and Senior Notes as the interest rates on these instruments are fixed.