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Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly;
Level 3 - Inputs that are not based on observable market data.
The following table summarizes Canfor's financial instruments at March 31, 2013 and December 31, 2012, and shows the level within the fair value hierarchy in which they have been classified (for financial instruments measured at fair value):
As at Fair Value As at December(millions of Canadian Hierarchy March 31, 31, dollars) Level 2013 2012-------------------------------------------------------------------------- Financial assets Held for trading Derivative financial instruments Level 2 $ 2.5 $ 0.7 Loans and receivables Cash and cash equivalents n/a 6.2 - Accounts receivable (excluding derivatives) n/a 201.5 157.4 Other deposits, loans and advances n/a 8.3 4.2 Royalty receivable Level 3 6.4 6.5 Available for sale Investments in other entities n/a 23.8 23.7-------------------------------------------------------------------------- $ 248.7 $ 192.5-------------------------------------------------------------------------- Financial liabilities Held for trading Derivative financial instruments Level 2 $ 1.3 $ 4.8 Other liabilities Cheques issued in excess of cash on hand n/a - 17.1 Operating loans n/a 40.0 27.0 Accounts payable and accrued liabilities (excluding derivatives) n/a 309.4 254.2 Long-term debt (including current portion) n/a 287.9 284.1-------------------------------------------------------------------------- $ 638.6 $ 587.2----------------------------------------------------------------------------------------------------------------------------------------------------
The royalty receivable is measured at fair value at each reporting period and is presented in other accounts receivable and long-term investments on the consolidated balance sheet. The fair value is determined by discounting future expected cash flows based on energy price assumptions and future sales volume assumptions until the termination of the royalty agreement in 2015. There were no movements between financial instrument levels in the first quarter of 2013.
The Company uses a variety of derivative financial instruments to reduce its exposure to risks associated with fluctuations in foreign exchange rates, lumber prices, energy costs, electricity sales and floating interest rates on certain long-term debt. At March 31, 2013, the fair value of derivative financial instruments was a net asset of $1.2 million (December 31, 2012 - net liability of $4.1 million). The fair value of these financial instruments was determined based on prevailing market rates for instruments with similar characteristics.
