Alaska Airlines and Horizon Air 2013 Annual Report Download - page 155

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December 31, 2012 Level 1 Level 2 Total
Assets
Marketable securities
U.S. government and agency securities ........................ $272 $ — $272
Foreign government bonds .................................. — 51 51
Asset-back securities ...................................... — 62 62
Mortgage-back securities ................................... — 137 137
Corporate notes and bonds .................................. — 585 585
Municipal securities ....................................... — 23 23
Derivative instruments
Fuel hedge contracts
Call options .......................................... — 65 65
Liabilities
Derivative instruments
Fuel hedge contracts
Swap agreements ..................................... — (1) (1)
Interest rate swap agreements ............................... — (33) (33)
The Company uses the market and income
approach to determine the fair value of
marketable securities. U.S. government
securities are Level 1 as the fair value is based
on quoted prices in active markets. Foreign
government bonds, asset-back securities,
mortgage-back securities, corporate notes and
bonds, and municipal securities are Level 2 as
the fair value is based on industry standard
valuation models that are calculated based on
observable inputs such as quoted interest rates,
yield curves, credit ratings of the security and
other observable market information.
The Company uses the market approach and the
income approach to determine the fair value of
derivative instruments. Fuel hedge contracts that
are not traded on a public exchange are Level 2
as the fair value is primarily based on inputs
which are readily available in active markets or
can be derived from information available in
active markets. The fair value for call options is
determined utilizing an option pricing model
based on inputs that are readily available in
active markets, or can be derived from
information available in active markets. In
addition, the fair value considers the exposure to
credit losses in the event of non-performance by
counterparties. The fair value of jet fuel refining
margins is determined based on inputs readily
available in public markets and provided by
brokers who regularly trade these contracts.
Interest rate swap agreements are Level 2 as
the fair value of these contracts is determined
based on the difference between the fixed
interest rate in the agreements and the
observable LIBOR-based interest forward rates at
period end, multiplied by the total notional value.
The Company has no other financial assets that
are measured at fair value on a nonrecurring
basis at December 31, 2013.
Fair Value of Other Financial Instruments
The Company used the following methods and
assumptions to determine the fair value of
financial instruments that are not recognized at
fair value as described below.
Cash and Cash Equivalents: Carried at amortized
costs which approximate fair value.
Debt: The carrying amounts of the Company's
variable-rate debt approximate fair values. For
fixed-rate debt, the Company uses the income
approach to determine the estimated fair value,
by discounting cash flows using borrowing rates
for comparable debt over the weighted life of the
outstanding debt. The estimated fair value of the
fixed-rate debt is Level 3 as certain inputs used
are unobservable.
69
ŠForm 10-K