Financement-Québec Financial Statement

Transcription

1 Financement-Québec Financial Statement for the year ended March 31, 2014

2 Financement-Québec Financial Statement for the year ended March 31, 2014

3 TABLE OF CONTENTS MANAGEMENT S REPORT... 3 INDEPENDENT AUDITOR S REPORT... 5 FINANCIAL STATEMENTS... 7 INCOME AND ACCUMULATED SURPLUS... 7 STATEMENT OF REMEASUREMENT GAINS AND LOSSES... 8 STATEMENT OF FINANCIAL POSITION... 9 STATEMENT OF THE CHANGE IN NET FINANCIAL ASSETS CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS... 13

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5 MANAGEMENT S REPORT The financial statements of Financement-Québec have been drawn up by management, which is responsible for their preparation and their presentation, including significant judgements and estimates. This responsibility includes the selection of appropriate accounting methods that satisfy Canadian public sector accounting standards. The financial information contained in the operational report agrees with the information given in the financial statements. To carry out its responsibilities, management maintains a system of internal accounting controls designed to provide reasonable assurance that assets are protected and that operations are correctly accounted for in a timely fashion, are duly approved and are such as to produce reliable financial statements. The Corporation acknowledges that it is responsible for managing its affairs in accordance with the laws and regulations that govern it. The Board of Directors oversees how the Corporation s management carries out its responsibilities in terms of financial information and it approves the financial statements. The Auditor General of Québec has audited the Corporation's financial statements in accordance with Canadian generally accepted accounting standards. His independent auditor s report sets out the nature and extent of this audit and expresses his opinion. The Auditor General of Québec may, without limitation, meet the Board of Directors to discuss anything concerning his audit. Original French version signed Executive Vice-President Original French version signed President and Chief Executive Officer Québec City, June 16, 2014

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7 INDEPENDENT AUDITOR S REPORT To the Minister of Finance Report on the I have audited the accompanying financial statements of Financement-Québec, which comprise the statement of financial position as at March 31, 2014, and the statement of income and accumulated surplus, statement of remeasurement gains and losses, statement of change in net financial assets and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information included in the notes to the financial statements. Management's Responsibility for the Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

8 Opinion In my opinion, the financial statements present fairly, in all material respects, the financial position of Financement-Québec as at March 31, 2014, and the results of its operations, its remeasurement gains and losses, changes in its net financial assets and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Report on Other Legal and Regulatory Requirements As required by Auditor General Act (CQLR, chapter V-5.01), I report that, in my opinion, the accounting principles in these standards have been applied on a basis consistent with that of the preceding year. Original French version signed Michel Samson, CPA Auditor, CA Acting Auditor General of Québec Québec City, June 16, 2014

9 FINANCIAL STATEMENTS Income and accumulated surplus for the fiscal year ended March 31, 2014 Net interest income Budget Actual results Actual results Interest on loans Interest on investments Interest on borrowings and advances (note 3) ( ) ( ) ( ) Gains (losses) on derecognition of financial derivatives (1 739) Operation and administration expenses Wages, salaries and allowances Depreciation of fixed assets Service agreement with the Financing Fund 35 (70) 30 Other SURPLUS FOR THE YEAR ACCUMULATED SURPLUS AT THE BEGINNING Operations on accumulated surplus (note13) (17 512) - ACCUMULATED SURPLUS AT THE END The notes are an integral part of the financial statements. Financement-Québec 7

10 Statement of remeasurement gains and losses for the fiscal year ended march 31, 2014 ACCUMULATED REMEASUREMENT GAINS AT THE BEGINNING OF THE YEAR Unrealized (losses) gains attributable to the following: Fair value financial derivatives (32 382) Exchange rate financial derivatives - (2 125) Exchange rate borrowing Reclassified amounts in the income statement: Fair value financial derivatives (3 904) Exchange rate financial derivatives - ( ) Exchange rate borrowing NET REMEASUREMENT (LOSSES) GAINS FOR THE YEAR (36 286) ACCUMULATED REMEASUREMENT GAINS AT THE END OF THE YEAR The notes are an integral part of the financial statements. 8 Financement-Québec

11 Statement of financial position as at March 31, 2014 Financial assets Loans (note 4) Accrued interest on loans Cash position Investments Accounts receivable Financial derivatives Liabilities Borrowings and advances (note 5) Net accrued interest on borrowings and advances Financial derivatives Accounts payable Net financial assets Non-financial assets Tangible fixed assets CAPITAL STOCK (NOTE 10) ACCUMULATED SURPLUS Accumulated surplus consists of: Accumulated surplus Accumulated remeasurement gains TOTAL The notes are an integral part of the financial statements. For the board of directors, Original French version signed Executive Vice-President Original French version signed President and Chief Executive Officer Financement-Québec 9

12 Statement of the change in net financial assets for the fiscal year ended March 31, 2014 Budget Actual results Actual results NET FINANCIAL ASSETS AT THE BEGINNING Changes due to tangible fixed assets Acquisitions (1 359) (580) (675) Depreciation (1 357) (465) (673) Surplus for the year Operations on accumulated surplus (note 13) - (17 512) - Accumulated remeasurement (losses) gains (36 286) (Decrease) increase in net financial assets (18 887) NET FINANCIAL ASSETS AT THE END The notes are an integral part of the financial statements. 10 Financement-Québec

13 Cash flows for the fiscal year ended March 31, 2014 Operating activities Surplus for the year Items not affecting cash and cash equivalents: Discounts and premiums on loans (589) (518) Interest income charged to loans (27 964) (34 091) Issue expenses on loans (15 717) (15 007) Administration expenses on loans (3 923) (3 696) Issue expenses on borrowings and advances Premiums and discounts on borrowings and advances (Gains) losses on derecognition of financial derivatives (3 904) Change in futures contracts 58 (1 770) Depreciation of tangible fixed assets Change in financial assets and liabilities related to operations (note 11) (4 350) Cash flows from operating activities Investing activities Loans made ( ) ( ) Loans transferred (note 13) ( ) - Loan repayments Cash flows from investing activities Fixed assets investment activities Acquisition of tangible fixed assets and cash flows from fixed asset investment activities Financing activities ( ) (580) (675) Short-term borrowings and advances Long-term borrowings and advances Repayments of long-term borrowings and advances ( ) ( ) Repayments of short-term borrowings and advances ( ) ( ) Cash flows from financing activities ( ) CHANGE IN CASH AND CASH EQUIVALENTS (44 725) CASH AND CASH EQUIVALENTS AT THE BEGINNING CASH AND CASH EQUIVALENTS AT THE END (NOTE 11) The notes are an integral part of the financial statements. Financement-Québec 11

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15 NOTES TO THE FINANCIAL STATEMENTS 1. Constitution, Purpose and Financing Financement-Québec (the Corporation) was incorporated under An Act respecting Financement-Québec (CQLR, chapter F-2.01) which entered into force on October 1, The Corporation is a legal person with share capital and is a mandatary of the State. The Corporation's mission is to supply financial services to public organizations covered by its act of incorporation. It finances them directly by granting them loans or by issuing debt securities on their behalf. It advises them to facilitate their access to credit and to minimize their financing costs and, to that end, it develops financing programs. It may also manage the financial risks of these organizations, in particular cash flow risks and exchange risks. The Corporation may also provide public organizations with technical services regarding financial analysis and management. The Corporation charges loan issue expenses to borrowers to offset those incurred by the Corporation on borrowings made. The Corporation also charges administration expenses to borrowers. The level of expenses charged is subject to government approval. The Corporation issues debt securities that are guaranteed by the Québec government. The Corporation is subject neither to Québec nor to Canadian income tax. 2. Main accounting methods The financial statements are established in accordance with the CPA Canada Public Sector Accounting Handbook. Use of any other source of generally accepted accounting principles must be consistent with that Handbook. In accordance with Canadian generally accepted accounting principles, the preparation of the Corporation s financial statements requires that management make use of accounting estimates and assumptions. These have an impact on the recognition of assets and liabilities, the presentation of assets and contingent liabilities on the date of the financial statements and the recognition of income and charges of the period presented in the financial statements. The actual results may differ from management s best estimates. Financial Instruments Upon their initial recognition, financial instruments are classified either in the category of financial instruments valued at fair value or in the category of financial instruments valued at cost or at amortized cost. On the date of the transaction, for financial instruments valued at fair value, issue expenses are expensed while, for financial instruments valued at cost or at amortized cost, they are added to the book value of such instruments. The Corporation has classified financial derivatives in the category of financial instruments valued at fair value. The Corporation has classified loans, accrued interest on loans, cash position, short-term investments, accounts receivable, borrowings and advances, accrued interest on borrowings and advances and accounts payable in the category of financial instruments valued at cost or at amortized cost. Financial assets and financial liabilities are offset, and the net balance is shown in the statement of financial position, if and only if the Corporation has a legally enforceable right to offset the amounts recognized and if it intends either to settle the net amount or to simultaneously realize the asset and settle the liability. Financement-Québec 13

16 A financial instrument is derecognized when the contractual obligations are extinguished at expiration or the Corporation transfers the contractual rights to receive the cash flows linked to the financial instruments under a transaction in which practically all the risks and benefits inherent in the ownership of the financial instrument are transferred. Loans Loans are recorded at the amount disbursed at the time of issue, adjusted by the discount or premium and issue expenses and are valued at amortized cost using the effective interest rate method. The interest income on loans, valued using the effective interest rate method, is recognized when earned. Borrowings and Advances Borrowings and advances from the General Fund of the Consolidated Revenue Fund are recorded at the amount received at the time of issue, including the discount or premium and issue expenses. After their initial recognition, borrowings and advances from the General Fund of the Consolidated Revenue Fund are valued at amortized cost using the effective interest rate method. The corresponding interest expenses are shown under the heading Interest on borrowings and advances in the statement of operations. Financial Derivatives The Corporation makes use of financial derivatives to reduce risk related to fluctuations in currencies and interest rates. It is the Corporation s policy not to use financial derivatives for speculative purposes. Financial derivatives with a positive value are entered as financial assets and financial derivatives with a negative value are shown as financial liabilities. The change in the fair value of each financial derivative is recorded in the statement of remeasurement gains and losses until it is derecognized. The cumulative balance of remeasurement gains and losses associated with financial derivatives is then reclassified in the statement of operations. Currency Translation The assets, liabilities and amounts shown in the statement of operations arising from a currency transaction are translated into Canadian dollars at the exchange rate on the date of the transaction. Monetary assets and liabilities as well as non-monetary items classified in the category of financial assets valued at fair value, denominated in foreign currencies, are translated into Canadian dollars at the exchange rate on the date of the financial statements. Unrealized foreign exchange gains and losses on assets and liabilities in foreign currencies are recognized in the statement of remeasurement gains and losses until they are derecognized. The cumulative unrealized foreign exchange gains and losses are then reversed and a foreign exchange gain or loss is recognized in the statement of operations. 14 Financement-Québec

17 Cash and Cash Equivalents The Corporation presents, under cash and cash equivalents, bank balances and investments that are easily convertible in the short term into a known amount of cash whose value is not likely to change significantly. 3. Interest on Borrowings and Advances Interest on borrowings and advances consists of the following: Interest on borrowings and advances ( ) ( ) Interest on financial derivatives recorded under liabilities ( ) ( ) Realized exchange loss on financial derivatives - ( ) ( ) ( ) Interest on financial derivatives recorded under assets Realized exchange gain on borrowing TOTAL ( ) ( ) Financement-Québec 15

18 4. Loans Borrowers Entities included in the government reporting entity: School boards General and vocational colleges Health and social services institutions and agencies Université du Québec and its constituents Entities excluded from the government reporting entity: Universities other than the Université du Quebec and its constituents Municipalities Transit authorities Public bodies exercising fiduciary activities Other entities TOTAL Due in Amount Effective rate (%) (1) Amount to to to to to to TOTAL (1) Excludes floating rate loans, which are at the rate of 3-month bankers acceptances and at the rate of 1-month bankers acceptances plus a spread of 0.30%. Loans maturing during the fiscal year ending March 31, 2015 include short-term loans of $290.1 million. For the long-term loans, maturities and interest rates on loans made by the Corporation are, with a few exceptions, identical to those of borrowings and advances contracted for this purpose taking into consideration currency and interest rate swap contracts, if any. However, depending on available capital, the Corporation may make new loans from repayments of existing loans. These new loans are made at interest rates and maturities that may differ from the conditions of the advance or borrowing initially received. 16 Financement-Québec

19 5. Borrowings and Advances Summary Borrowings on markets Advances from the General Fund of the Consolidated Revenue Fund Canada Mortgage and Housing Corporation (CMHC) Financing Fund Société québécoise des infrastructures (SQI) TOTAL Schedule and effective interest rate Borrowings on markets Due in Amount Effective rate (%) (1) Amount to to to to to to to TOTAL (1) Excludes floating rate borrowings and swaps, which are at the rates of 3-month bankers acceptances plus a spread varying between minus 0.67% and plus 1.80%. All these borrowings are repayable solely at maturity. Borrowings maturing during the fiscal year ending March 31, 2015 include short-term borrowings of $695.5 million. All borrowings are guaranteed by the Québec government. Short-term borrowings bear interest at rates varying from 0.96% to 1.01% (rates varying from 0.99% to 1.44% as at March 31, 2013). Financement-Québec 17

20 Advances from the General Fund of the Consolidated Revenue Fund Due in Amount Effective rate (%) Amount to TOTAL Borrowings from CMHC Due in Amount Effective rate (%) Amount to to to TOTAL Borrowings from the Financing Fund Due in Amount Effective rate (%) Amount TOTAL Borrowing from SQI Due in Amount Effective rate (%) Amount TOTAL Financement-Québec

21 The amounts of principal payments to be made on borrowings and advances over the coming fiscal years are as follows: Schedule of principal payments and following Borrowings on markets Advances from the General Fund of the Consolidated Revenue Fund Borrowings from CMHC Borrowings from the Financing Fund Borrowing from SQI TOTAL Determination of fair value The fair value of a financial instrument corresponds to the price at which it would be traded between parties acting under normal competitive conditions. The Corporation applies widely used valuation techniques reflecting best practices and incorporating data observed on markets. The methodology the Corporation uses to arrive at the fair value of its financial instruments involves discounting future financial flows receivable less those payable. Swap contracts are traded on an over-the-counter market and prices are not published for these financial instruments. The fair value of these financial instruments is estimated using swap and CDOR rate curves published on recognized financial information systems available to all stakeholders, as well as financial discounting methods consistent with best practices. Futures contracts on three-month Canadian bankers acceptances are exchange-traded and their fair value is determined on the basis of the daily settlement price. Financement-Québec 19

22 By way of indication, the fair value of the Corporation s financial instruments as at March 31, 2014 is shown in the following table. Fair value of financial instruments Book value Fair value Book value Fair value Loans - Total Borrowings and advances Borrowings on markets Advances from the General Fund of the Consolidated Revenue Fund Borrowings from CMHC Borrowings from the Financing Fund Borrowing from SQI TOTAL Financial derivatives Financial assets Interest rate swap contracts Futures contracts on three-month Canadian bankers acceptances Liabilities Interest rate swap contracts ( ) ( ) ( ) ( ) Futures contracts on three-month Canadian bankers acceptances (4) (4) - - ( ) ( ) ( ) ( ) TOTAL ( ) The fair value of other financial instruments corresponds essentially to book value in view of their nature or their short-term maturity. 7. Financial Derivatives Financial derivatives are financial contracts whose value fluctuates on the basis of the underlying security and that do not require that the underlying security itself be held or delivered. This underlying item may be financial in nature (interest rate, currency, security or stock index) or merchandise (precious metal, commodity, oil). The outstanding face amount of a financial derivative represents the theoretical value of the principal, to which applies a rate or a price to determine the exchange of future cash flows, and does not reflect the credit risk pertaining to the derivative. The Corporation makes use of two (2) types of financial derivatives to manage its financial risks. Interest rate swap contracts are used to manage the interest rate risk exposure of long-term financial instruments, while futures contracts on three-month Canadian bankers acceptances are used to manage short-term risk. 20 Financement-Québec

23 Interest Rate Swap Contracts The Corporation uses interest rate swap contracts to manage interest rate risks on its financial intermediation activities. Interest rate swap contracts give rise to the periodic exchange of interest payments without an exchange of the reference face amount on which the payments are based. The total outstanding face value of interest rate swap contracts in Canadian currency as at March 31, 2014 is $ million (March 31, 2013: $ million). Currency Swap Contracts The Corporation uses currency swap contracts to hedge its exchange rate risk. Since March 25, 2012, the Corporation has held no currency swap contracts. Futures Contracts on Three-Month Canadian Bankers Acceptances (BAX) The Corporation uses futures contracts on three-month Canadian bankers acceptances (BAX) to hedge the interest rate risk arising from its short-term financing activities. These positions are revalued and revised every day and daily financial offsets are applied to them based on the closing prices of the contracts. As at March 31, 2014, the Corporation held a long position with an outstanding face value of $334 million ($1 313 million as at March 31, 2013). 8. Hierarchy of Fair Value Valuations The fair value valuations of the Corporation s financial derivatives are classified according to a hierarchy that reflects the importance of the data used. The hierarchy of fair value valuations consists of the following levels: a) prices (unadjusted) quoted on active markets for identical assets or liabilities; (level 1); b) data other than the quoted prices mentioned in level 1, that are observable for the asset or the liability, directly (i.e. prices) or indirectly (i.e. price derivatives) (level 2); c) data relating to the asset or the liability that are not based on observable market data (non-observable data) (level 3). Financement-Québec 21

24 The following table shows the fair value of financial instruments recognized at fair value in the statement of financial position and classified according to the valuation hierarchy described above: Hierarchical Structure of Fair Value Valuations As at March 31, 2014 Financial derivatives Financial assets Level 1 Level 2 Level 3 Total Interest rate swap contracts Liabilities Interest rate swap contracts - ( ) - ( ) Futures contracts on three-month Canadian bankers acceptances (4) - - (4) TOTAL (4) Hierarchical Structure of Fair Value Valuations As at March 31, 2013 Financial derivatives Financial assets Level 1 Level 2 Level 3 Total Interest rate swap contract Futures contracts on three-month Canadian bankers acceptances Liabilities Interest rate swap contracts - ( ) - ( ) TOTAL Financial Risk and Risk Management The Corporation s general philosophy is to avoid unnecessary risk and to limit, as much as possible, any risk associated with the Corporation s activities. The Corporation avoids taking any risk not related to the normal course of its business. The Corporation does not engage in speculative activities but recognizes that the conduct of its activities exposes it to various risks, including credit, liquidity and market risk, and that it must manage these risks on an ongoing basis. To limit the effect of these risks on its results and on its financial position, the Corporation gives preference to ongoing risk management through its day-to-day operations but may also make use of financial derivatives. Financial derivatives are used solely for risk management purposes. 22 Financement-Québec

25 a) Credit Risk Credit risk is the risk that the Corporation suffers a financial loss as a result of the failure of the counterparty of a financial instrument to fulfil a financial commitment. The Corporation s credit risk is negligible in view of the securities put in place and, consequently, the book value of the financial assets adequately represents the maximum credit risk exposure of the financial instruments. Organizations receiving a subsidy for the repayment of long-term borrowings contracted with the Corporation must pledge this subsidy in favour of the Corporation as security. For the other loans without subsidy, the Minister responsible for the organization undertakes to act, in the event of the organization s default, so that it remedies the situation as soon as possible. All credit risks are associated with the Québec government. In any case of default, the Québec government s intervention is stipulated under the terms of the various contracts in question, both for the Corporation s assets and its liabilities. Accordingly, the Québec government is the ultimate counterparty of the financial instruments held or incurred by the Corporation. b) Liquidity Risk Liquidity risk is the risk that the Corporation is unable to honour its financial commitments when they are due. The Corporation forecasts cash flows to ensure that it has the necessary funds to meet its obligations in a timely fashion. The Corporation is of the view that the cash flows generated by ongoing operations as well as available sources of funding are sufficient to satisfy its obligations as they arise. The Corporation obtains funding through long-term borrowings and short-term credit facilities, ensuring sufficient entries of funds to meet financial commitments when required. The Corporation is authorized to contract short-term and long-term borrowings on financial markets. The following table gives an analysis of the maturities of monetary flows of financial instruments as at March 31, The net exposure to liquidity risk shows, for each interval, the excess amount (positive) or shortfall (negative) of monetary flows. Financement-Québec 23

26 As at March 31, 2014, the summary of maturities expressed in face value of cash flows of financial assets and financial liabilities is as follows: Maturity schedule of monetary flows As at March 31, 2014 (millions of dollars) Due in Nonderivatives (1) Assets Liabilities Net exposure Derivatives Nonderivatives (2) Derivatives By maturity Cumulative, after reinvestment of available capital (3) (94) (292) (552) (375) (1) (1 451) 688 (1) Financial assets that limit liquidity risk are loans, accrued interest on loans and accounts receivable. (2) Financial liabilities that expose the Corporation to liquidity risk are borrowings, accrued interest on borrowings and advances, and accounts payable. (3) In the normal course of its business, the Corporation reinvests its available capital productively and to honour its financial commitments when they are due. Maturity schedule of monetary flows As at March 31, 2013 (millions of dollars) Due in Nonderivatives (1) Assets Liabilities Net exposure Derivatives Nonderivatives (2) Derivatives By maturity Cumulative, after reinvestment of available capital (3) (230) (382) (641) (178) (1 416) 530 (1) Financial assets that limit liquidity risk are loans, accrued interest on loans, investment and accounts receivable. (2) Financial liabilities that expose the Corporation to liquidity risk are borrowings, accrued interest on borrowings and advances, and accounts payable. (3) In the normal course of its business, the Corporation reinvests its available capital productively and to honour its financial commitments when they are due. 24 Financement-Québec

27 c) Market Risk Market risk is the risk that changes in market price affect the value of the Corporation s financial instruments. Market risk includes price, interest rate and exchange rate risks. i) Price Risk Price risk is the risk that the fair value or the future cash flows of the Corporation s financial instruments vary with fluctuations in market price, where such fluctuations do not stem from interest rates or exchange rates. Because of the nature of its activities, the Corporation is not exposed to price risk. ii) Interest Rate Risk Interest rate risk refers to uncertainty relating to the current fair value, fair value at maturity or future cash flows of financial securities taking into account possible changes in applicable interest rates, in the interval between the execution of a transaction on financial securities and the disposition or maturity of such securities. To control interest rate risk, the Corporation s strategy is to match the maturities of assets and liabilities and, if necessary, change the composition of its portfolios using financial derivatives. By managing interest rate risk, the Corporation must be able to contain the effects of interest rate fluctuations within the limits it has set. The following table shows the interest rate risk exposure of long-term financial instruments, broken down according to the sensitivity specific to each financial instrument and monetary flows that make up a financial instrument, in order to show the related refinancing and reinvestment risks. Short-term financial instruments, i.e. short-term loans, investment, short-term borrowings and short-term financial derivatives, are excluded from this table because the associated interest rate risk is eliminated by day-to-day risk management operations. Financement-Québec 25

28 As at March 31, 2014, the summary of maturities expressed in face value of cash flows of financial assets and financial liabilities whose fair value is sensitive to fluctuations in interest rates is as follows: Interest rate risk exposure of financial instruments (millions of dollars) 2014 Financial assets Liabilities Net exposure Loans Derivatives Borrowings and advances Derivatives Floating rate (7 844) 250 Fixed rate: (466) (70) (445) (307) TOTAL Interest rate risk exposure of financial instruments (millions of dollars) 2013 Financial assets Liabilities Net exposure Loans Derivatives Borrowings and advances Derivatives Floating rate 52 (3 698) (11 455) (415) Fixed rate: (159) TOTAL Financement-Québec

29 The following table shows the sensitivity of the annual surplus to the rate of interest, measured by an increase or decrease in the applied interest rate of 100 basis points over the entire fiscal year: Interest rate sensitivity of the annual surplus Simulated interest rate shock estimate of the impact Increase of 100 basis points (3 586) (3 046) Decrease of 100 basis points The following table shows the sensitivity of the year s net remeasurement losses (gains), measured by an increase or decrease in the rate of interest of 100 basis points over the entire fiscal year: Interest rate sensitivity of the year s net remeasurement (losses) gains Simulated interest rate shock estimate of the impact Increase of 100 basis points Decrease of 100 basis points iii) Exchange Risk Exchange risk is the risk that the fair value or future cash flows of a financial instrument fluctuates as a result of changes in exchange rates. In view of its mission, the Corporation avoids any exposure to exchange risk. As at March 31, 2014, the Corporation holds no financial instrument denominated in foreign currency and consequently is not exposed to exchange risk. 10. Capital Stock Description The Corporation s shares are part of the public domain and are attributed to the Minister of Finance of Québec. Authorized shares with a par value of $100 each. Issued and paid for shares: $ The Corporation's shares are held by the Minister of Finance of Québec. Financement-Québec 27

30 11. Cash Flows As at March 31, 2014, cash and cash equivalents consist of the following items: Cash and cash equivalents Cash position Investment TOTAL For the fiscal year ended March 31, 2014, the change in financial assets and liabilities relating to operations consists of the following items: Change in financial assets and liabilities Accrued interest on loans Accounts receivable (1) (629) Net accrued interest on borrowings and advances (14 010) Deferred income Accounts payable (2) (693) 339 TOTAL (4 350) (1) The amount for 2013 has been adjusted to reflect accounts receivable relating to loan repayment amounts not received as at March 31, 2013 for an amount of $36.0 million. (2) The amount for 2013 has been adjusted to reflect accounts payable relating to borrowing repayment amounts not disbursed as at March 31, 2013 for an amount of $29.7 million. Interest paid by the Corporation during the year amounted to $711.3 million ($774.5 million to March 31, 2013). 12. Related Party Transactions In addition to the related party transactions already disclosed in the financial statements and recorded at exchange value, the Corporation is related to all the ministries and special funds as well as all the organizations and enterprises controlled directly or indirectly by the Québec government or subject either to joint control or to significant common influence by the Québec government. All the Corporation's business transactions with these related parties were carried out in the normal course of its activities and under usual business conditions. These transactions are not separately disclosed in the financial statements. 28 Financement-Québec

31 13. Operations on accumulated surplus In the course of the restructuring of the Corporation s activities in, loans belonging to the Financing Fund and made with entities excluded from the Québec government reporting entity were transferred to the Corporation. The book value and accrued interest relating to these loans are $746.4 million and $10.2 million respectively. The consideration paid by the Corporation was $774.1 million, corresponding to their fair value. The excess of the amount paid over the transferred assets, $17.5 million, was posted directly to the accumulated surplus. 14. Comparative Figures Some comparative figures for 2013 have been reclassified for consistency with the presentation adopted in Financement-Québec 29

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