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Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010
(Stated in thousands of Canadian dollars, except share and per share amounts)
│
17. Financial instruments and risk management (continued)
(b) Risk management related to financial instruments (continued)
Market Risk (continued)
(i) Fuel price risk (continued)
The following table presents the financial impact and statement presentation of the Corporation’s fuel derivatives on the
consolidated statement of financial position:
Statement presentation December 31
2011 December 31
2010 January 1
2010
Receivable from counterparties
for fuel derivatives
Accounts receivable/Prepaid
expenses, deposits and other 27 445 96
Fair value of fuel derivatives
Prepaid expenses, deposits and
other 7,611 5,244 −
Fair value of fuel derivatives
Accounts payable and accrued
liabilities − − (7,521)
Payable to counterparties for
fuel derivatives
Accounts payable and accrued
liabilities −(800) (1,242)
Unrealized (gain)/loss from fuel
derivatives (i)
Hedge reserves – before tax
impact −)11( 6,713
(i) The estimated amount reported in hedge reserves that is expected to be reclassified to net earnings as a component of aircraft fuel expense, when
the underlying jet fuel is consumed during the next 12 months, is $nil (December 31, 2010 – gain before tax of $11; January 1, 2010 – loss before tax
of $6,713).
The following table presents the financial impact and statement presentation of the Corporation’s fuel derivatives on the
consolidated statement of earnings for the 12 months ended December 31, 2011 and 2010:
Statement presentation 2011 2010
Realized gain (loss) on designated fuel
derivatives Aircraft fuel 2,656 )9,172(
Gain (loss) on designated fuel derivatives Loss on derivatives (6,052) 44
During the year ended December 31, 2011, the Corporation cash settled fuel derivatives in its favour of $2,732 (2010 – $8,980
in favour of the counterparties). The Corporation paid cash premiums for option contracts of $8,506 for the year ended
December 31, 2011 (2010 – $6,189).
The following table presents the exposure, net of tax, to earnings and other comprehensive income (OCI) of a 10% increase in
the forward curve for WTI, the underlying commodity of the Corporation’s fuel derivatives:
December 31 10% Increase in WTI
Gain
(
Loss
)
10% Decrease in WTI
Gain
(
Loss
)
Year Instrument Fair Value Income OCI Income OCI
2011 Fuel derivatives 7,611 − 4,974 (2,986)
2010 Fuel derivatives 5,244 − 4,896 − (2,455)
This sensitivity analysis assumes that 100% of the change in price is considered effective under cash flow hedge accounting.
Should some or all of the change in price be considered ineffective under hedge accounting, the ineffective portion would be
recorded in non-operating income (expense). It also assumes that all other variables remain constant, particularly foreign
exchange and interest rates. These assumptions may not be representative of actual movements.
WestJet Annual Report 2011 95