Financial instruments

12 Months Ended

Dec. 31, 2015

16.	Financial instruments:

(a)

Fair value:

The carrying values of cash and cash equivalents, short-term investments, restricted cash, accounts receivable, loans to affiliate and accounts payable and accrued liabilities approximate their fair values because of their short term to maturity. As of December 31, 2015, the fair value of the Company’s Revolving and Term loan credit facilities is $2,999,746,000 (2014 – $2,911,330,000) and the carrying value is $3,042,195,000 (2014 – $3,037,419,000). As of December 31, 2015, the fair value of the Company’s other long-term liabilities, excluding the deferred gains, is $346,138,000 (2014 – $217,134,000) and the carrying value is $342,767,000 (2014 – $214,458,000). The fair value of the Revolving credit facilities, Term loan credit facilities and other long-term liabilities, excluding the deferred gains, are estimated based on expected principal repayments and interest, discounted by relevant forward rates plus a margin appropriate to the credit risk of the Company. Therefore, the Company has categorized the fair value of these financial instruments as Level 3 in the fair value hierarchy.

As of December 31, 2015, the fair value of the Company’s senior unsecured notes is $335,340,000 (2014 – $342,240,000) and the carrying value is $345,000,000 (2014 – $345,000,000). The fair value of senior unsecured notes is calculated based on a quoted price that is readily and regularly available in an active market. Therefore, the Company has categorized the fair value of these financial instruments as Level 1 in the fair value hierarchy.

The Company’s interest rate derivative financial instruments are re-measured to fair value at the end of each reporting period. The fair values of the interest rate derivative financial instruments have been calculated by discounting the future cash flow of both the fixed rate and variable rate interest rate payments. The discount rate was derived from a yield curve created by nationally recognized financial institutions adjusted for the associated credit risk. The fair values of the interest rate derivative financial instruments are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized the fair value of these derivative financial instruments as Level 2 in the fair value hierarchy.

(b)

Interest rate derivative financial instruments:

The Company uses interest rate derivative financial instruments, consisting of interest rate swaps and interest rate swaptions, to manage its interest rate risk associated with its variable rate debt. Prior to 2008, the Company applied hedge accounting to certain of its interest rate swaps. In 2008, the Company voluntarily de-designated all such interest rate swaps as accounting hedges such that the Company no longer applies hedge accounting. The amounts in accumulated other comprehensive loss related to the interest rate swaps to which hedge accounting was previously applied are recognized in earnings when and where the related interest is recognized in earnings.

As of December 31, 2015, the Company had the following outstanding interest rate derivatives:

Fixed per annum	Notional		Maximum
rate swapped for	amount as of		notional
LIBOR	December 31, 2015		amount⁽¹⁾		Effective date	Ending date
5.6400%	$	694,987	$	694,987	August 31, 2007	August 31, 2017	⁽²⁾
5.4200%		438,462		438,462	September 6, 2007	May 31, 2024
5.9450%		243,542		243,542	January 30, 2014	May 31, 2019
5.6000%		162,400		162,400	June 23, 2010	December 23, 2021	⁽²⁾
5.5950%		95,500		95,500	August 28, 2009	August 28, 2020	⁽³⁾
5.2600%		95,500		95,500	July 3, 2006	February 26, 2021	⁽²⁾
5.4975%		47,100		47,100	July 31, 2012	July 31, 2019	⁽³⁾
5.1700%		24,000		24,000	April 30, 2007	May 29, 2020
5.8700%		—		620,390	August 31, 2017	November 28, 2025

(1)

Over the term of the interest rate swaps, the notional amounts increase and decrease. These amounts represent the peak notional over the remaining term of the swap.

(2)

Prospectively de-designated as an accounting hedge in 2008.

(3)

Swap counterparty has an early termination right in 2016 which may require the Company to settle the swap at the early termination date

In addition, the Company entered into swaption agreements with a bank (Swaption Counterparty B) whereby Swaption Counterparty B has the option to require the Company to enter into interest rate swaps to pay LIBOR and receive a fixed rate of 1.183% and to pay 0.5% and receive LIBOR, respectively. The notional amounts of the underlying swaps are each $200,000,000 with an effective date of March 2, 2017 and an expiration of March 2, 2027.

(c)

Foreign exchange derivative instruments:

The Company is exposed to market risk from foreign currency fluctuations. The Company has entered into foreign currency forward contracts to manage foreign currency fluctuations. At December 31, 2015, the notional amount of the foreign exchange forward contracts is $15,200,000 (2014 – $14,200,000) and the fair value liability is $1,260,000 (2014 – $638,000).

Included in short-term investments is $2,095,000 (2014 - $1,100,000) of restricted cash held as collateral for these foreign currency forward contracts.

(d)

Fair value of asset and liability derivatives:

The following provides information about the Company’s derivatives:

	2015		2014
Fair value of financial instruments asset	$	33,632	$	37,677
Fair value of financial instruments liability		338,146		395,443

	Gross amounts
	of recognized			Amounts subject
	assets and			to master netting
December 31, 2015	liabilities			agreement		Net amount
Derivative assets	$	33,632		$	21,964	$	11,668
Derivative liabilities		338,146			21,964		316,182
Net liability	$	(304,514	)	$	—	$	(304,514	)

	Gross amounts
	of recognized			Amounts subject
	assets and			to master netting
December 31, 2014	liabilities			agreement		Net amount
Derivative assets	$	37,677		$	26,625	$	11,052
Derivative liabilities		395,443			26,625		368,818
Net liability	$	(357,766	)	$	—	$	(357,766	)

The following table provides information about losses included in net earnings and reclassified from accumulated other comprehensive loss (“AOCL”) into earnings:

	2015			2014			2013
Gain/(Loss) on derivatives recognized in net earnings:
Change in fair value of financial instruments	$	(54,576	)	$	(105,694	)	$	60,504
Loss reclassified from AOCL to net earnings⁽¹⁾
Interest expense	$	(3,319	)	$	(4,259	)	$	(5,330	)
Depreciation and amortization		(1,078	)		(1,052	)		(882	)

(1)

The effective portion of changes in unrealized loss on interest rate swaps was recorded in accumulated other comprehensive income until September 30, 2008 when these contracts were de-designated as accounting hedges. The amounts in accumulated other comprehensive income will be recognized in earnings when and where the previously hedged interest is recognized in earnings.

The estimated amount of AOCL expected to be reclassified to net earnings within the next twelve months is approximately $3,963,000.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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