Alaska Airlines and Horizon Air 2014 Annual Report Download - page 145

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forfeit cash previously paid for hedge premiums. We believe there is risk in not hedging against the
possibility of fuel price increases. We estimate that a 10% increase or decrease in crude oil prices as of
December 31, 2014 would increase or decrease the fair value of our crude oil hedge portfolio by
approximately $3 million.
Our portfolio value of fuel hedge contracts was $7 million at December 31, 2014 compared to a
portfolio value of $16 million at December 31, 2013. We do not have any collateral held by
counterparties to these agreements as of December 31, 2014.
We continue to believe that our fuel hedge program is an important part of our strategy to reduce our
exposure to volatile fuel prices. We expect to continue to enter into these types of contracts
prospectively, although significant changes in market conditions could affect our decisions. For more
discussion, see the “Derivative Instruments” note in our consolidated financial statements.
Interest Rates
We have exposure to market risk associated with changes in interest rates related primarily to our debt
obligations and short-term investment portfolio. Our debt obligations include variable-rate instruments,
which have exposure to changes in interest rates. This exposure is somewhat mitigated through our
variable-rate investment portfolio. A hypothetical 10% change in the average interest rates incurred on
variable-rate debt during 2014 would correspondingly change our net earnings and cash flows
associated with these items by less than $1 million. In order to help mitigate the risk of interest rate
fluctuations, we have fixed the interest rates on certain existing variable-rate debt agreements. Our
variable-rate debt is approximately 24% of our total long-term debt at December 31, 2014 compared to
19% at December 31, 2013.
We also have investments in marketable securities, which are exposed to market risk associated with
changes in interest rates. If short-term interest rates were to average 1% more than they did in 2014,
interest income would increase by approximately $14 million.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (unaudited)
First Quarter Second Quarter Third Quarter Fourth Quarter
(in millions, except per share) 2014 2013 2014 2013 2014 2013 2014 2013
Operating revenues(a) $1,222 $1,133 $1,375 $1,256 $1,465 $1,557 $1,306 $1,210
Operating income 141 64 263 174 316 470 242 130
Net income 94 37 165 104 198 289 148 78
Basic earnings per share(b) 0.69 0.26 1.20 0.75 1.47 2.07 1.12 0.56
Diluted earnings per share(b) 0.68 0.26 1.19 0.74 1.45 2.04 1.11 0.56
(a) In the third quarter of 2013, the Company adopted Accounting Standards Update 2009-13,
“Multiple-Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task
Force” (ASU 2009-13).
(b) For earnings per share, the sum of the quarters may not equal the total for the full year due to
rounding.
61
ŠForm 10-K