Advertisement
To determine the recoverability of a trade receivable, management analyzes accounts receivable, first identifying customer groups that represent minimal risk (large oil and gas and other low risk large companies, governments and municipalities). Impairment of the remaining accounts is determined by identifying specific accounts that are at risk, and then by applying a formula based on aging to the remaining amounts receivable. All amounts identified as at risk are provided for in an allowance for doubtful accounts. The changes in this account for the years ended December 31, 2012 and 2011 are as follows:
Allowance for doubtful accounts December 31, 2012 December 31, 2011----------------------------------------------------------------------------Balance, beginning of year 285 341Net increase in provision 154 44Net amounts recovered (written off as uncollectible) 41 (100)----------------------------------------------------------------------------Balance, end of year 480 285----------------------------------------------------------------------------
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors of Newalta, which has built an appropriate liquidity risk management framework for the management of the Corporation's short, medium and long-term funding and liquidity management requirements. Management mitigates liquidity risk by maintaining adequate reserves, banking facilities and other borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Newalta's assessment of liquidity risk has remained unchanged from the prior year.
Interest rate risk
Newalta is exposed to interest rate risk to the extent that its credit facility has a variable interest rate. Management does not enter into any derivative contracts to manage the exposure to variable interest rates. The senior unsecured debentures have fixed interest rates until their maturity dates, at which point, any remaining amounts owing under these debentures will need to be repaid or refinanced. Newalta's assessment of interest rate risk has remained unchanged from the prior year. The table below provides an interest rate sensitivity analysis to net earnings as at period end:
---------------------------------------------------------------------------- For the three months For the year ended ended December 31, December 31,---------------------------------------------------------------------------- 2012 2011 2012 2011----------------------------------------------------------------------------If interest rates increased by 1% with all other values held constant (193) (126) (854) (548)----------------------------------------------------------------------------
Market risk
Market risk is the risk that the fair value or future cash flows of Newalta's financial instruments will fluctuate because of changes in market prices. Newalta is exposed to foreign exchange market risk. Foreign exchange risk refers to the risk that the value of a financial commitment, recognized asset or liability will fluctuate due to changes in foreign currency exchange rates. The risk arises primarily from U.S. dollar denominated long-term debt and working capital. As at December 31, 2012, Newalta had $11.8 million in net working capital and nil in long-term debt both denominated in U.S. dollars. Management has not entered into any financial derivatives to manage the risk for the foreign currency exposure as at December 31, 2012. Newalta's assessment of market risk has remained unchanged from the prior year.
