60 ANNUAL REPORT 2012 Cash fows from interest and dividends For the year ended December 31 December 31 2012 2011 Operating activities Cash interest paid 42407 46301 Cash interest received 139 1264 Financing activities Cash dividends paid 14511 11317 Noncash transactions For the year ended December 31 December 31 2012 2011 Noncash transactions excluded from consolidated statements of cash fows Property plant and equipment acquired and fnanced by fnance leases 35510 48390 32 FINANCIAL INSTRUMENTS Fair value From time to time the Company enters into forward contracts and other foreign exchange hedging products to manage its exposure to changes in exchange rates related to transactions denominated in currencies other than the Canadian dollar but does not hold or issue such fnancial instruments for speculative trading purposes As at December 31 2012 the Company had net outstanding contracts to sell US259 and buy US3622 December 31 2011 sell euro 394 sell US18318 and buy US1402 on which there was a net unrealized exchange gain of 21 December 31 2011 net gain of 204 The net unrealized exchange gain represents the estimated amount the Company would have received if it terminated the contracts at the end of the respective periods and is included in other income in the consolidated statements of income IFRS 7 Financial Instruments Disclosures enhances disclosures about fair value measurements Fair value is defned as the amount for which an asset could be exchanged or liability settled between knowledgeable willing parties in an arms length transaction Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs The fair value hierarchy is based on three levels of inputs The frst two levels are considered observable and the last unobservable These levels are used to measure fair values as follows Level 1 Quoted prices unadjusted in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date Level 2 Inputs other than Level 1 inputs that are observable for assets and liabilities either directly or indirectly Level 2 inputs include quoted market prices for similar assets or liabilities quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs that are supported by little or no market activity and that are signifcant to the fair value of the assets or liabilities The following table summarizes the fair value hierarchy under which the Companys fnancial instruments are valued As at December 31 2012 Total Level 1 Level 2 Level 3 Financial assets liabilities measured at fair value Convertible debentures embedded derivatives 1589 1589 As explained in Note 19 the convertible debentures contain an embedded derivative that must be measured at fair value at each reporting date with gains and losses in fair value recognized through proft or loss The fair value of the embedded derivatives is determined using the quoted market price of the convertible debentures and apportioning the value between the debt and the embedded derivative components of the instruments Two of the most signifcant assumptions impacting the Companys valuation of these embedded derivatives are the implied volatility and credit spread inputs For the 2015 and 2014 debentures the Company used an implied volatility of 2323 and 2405 respectively and a credit spread of 343 and 383 respectively A 1 change in the implied volatility factor would have changed the fair value of the embedded derivative by 321 and a 1 change in the credit spread factor would have changed the fair value of the embedded derivative by 4928 Risk management The main risks arising from the Companys fnancial instruments are credit risk liquidity risk interest rate risk and currency risk These risks arise from exposures that occur in the normal course of business and are managed on a consolidated Company basis Credit risk Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents shortterm deposits and marketable securities accounts receivable holdbacks receivable unbilled revenue and foreign exchange contracts Credit risk associated with cash and shortterm deposits is minimized by ensuring these fnancial assets are placed with fnancial institutions with investment grade credit ratings The credit risk associated with foreign exchange contracts arises from the possibility that the counterparty to one of these contracts fails to perform according to the terms of the contract Credit risk associated with foreign exchange contracts is minimized by entering into such transactions with major Canadian fnancial institutions NOTES TO THE CONSOLIDA TED FINANCIAL ST A TEMENTS DECEMBER 31 2012 AND 2011 IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER SHARE AMOUNTS