Alaska Airlines and Horizon Air 2013 Annual Report Download - page 154

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Pretax effect of derivative instruments on earnings (fuel hedges) and AOCL (interest rate swaps) at
December 31 (in millions):
2013 2012 2011
Derivative Instruments Not Designated as Hedges
Fuel hedge contracts
Gains (losses) recognized in aircraft fuel expense .................. $(44) $(62) $ (9)
Derivative Instruments Designated as Hedges
Interest rate swaps
Gains (losses) recognized in aircraft rent ......................... (6) (6) (6)
Gains (losses) recognized in other comprehensive income (OCI) ....... 10 (10) (26)
The amounts shown as recognized in aircraft rent
for cash flow hedges (interest rate swaps)
represent the realized losses transferred out of
AOCL to aircraft rent. The amounts shown as
recognized in OCI are prior to the losses recognized
in aircraft rent during the period. The Company
expects $7 million to be reclassified from OCI to
aircraft rent within the next twelve months.
Credit Risk and Collateral
The Company is exposed to credit losses in the
event of non-performance by counterparties to
these derivative instruments. To mitigate
exposure, the Company periodically reviews the
risk of counterparty nonperformance by
monitoring the absolute exposure levels and
credit ratings. The Company maintains security
agreements with a number of its counterparties
which may require the Company to post collateral
if the fair value of the selected derivative
instruments fall below specified mark-to-market
thresholds. The posted collateral does not offset
the fair value of the derivative instruments and is
included in "Prepaid expenses and other current
assets" on the consolidated balance sheet.
The Company posted collateral of $7 million,
$15 million and $1 million as of December 31,
2013, 2012 and 2011, respectively. The
collateral was provided to one counterparty
associated with the net liability position of the
interest rate swap agreements offset by the net
asset position of the fuel hedge contracts under
a master netting arrangement.
NOTE 5. FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments on a Recurring Basis
Fair values of financial instruments on the consolidated balance sheet (in millions):
December 31, 2013 Level 1 Level 2 Total
Assets
Marketable securities
U.S. government and agency securities ........................ $294 $ — $294
Foreign government bonds .................................. — 11 11
Asset-back securities ...................................... — 146 146
Mortgage-back securities ................................... — 143 143
Corporate notes and bonds .................................. — 630 630
Municipal securities ....................................... — 26 26
Derivative instruments
Fuel hedge contracts
Call options and swap agreements ........................ — 16 16
Liabilities
Derivative instruments
Interest rate swap agreements ............................... — (17) (17)
68