JetBlue Airlines 2012 Annual Report Download - page 65

JETBLUE AIRWAYS CORPORATION-2012 10K 61
PART II
ITEM 8Financial Statements and Supplementary Data
The following table illustrates the approximate hedged percentages of our
projected fuel usage by quarter as of December31, 2012, related to our
outstanding fuel hedging contracts that were designated as cash fl ow
hedges for accounting purposes.
Brent crude oil collars
First Quarter 2013 8%
Second Quarter 2013 8%
Third Quarter 2013 4%
In January 2013, we entered into jet fuel swap transactions representing
an additional 4% of our forecasted consumption in each of the third and
fourth quarter of 2013. In February 2013, we entered into jet fuel cap
agreements representing an additional 8% of our forecasted consumption
in each of the third and fourth quarter of 2013.
During 2012, we also entered into basis swaps, which we did not designate
as cash fl ow hedges for accounting purposes and as a result we marked to
market in earnings each period outstanding based on their current fair value.
As of December 31, 2011, we determined that the correlation between WTI
crude oil and jet fuel had signifi cantly deteriorated and the requirements
for continuing hedge accounting treatment were no longer satisfi ed. As
such, we prospectively discontinued hedge accounting treatment on all of
our WTI crude oil cap agreements and WTI crude oil collars outstanding as
of December31, 2011, which then represented approximately 6% of our
total 2012 forecasted fuel consumption. The forecasted fuel consumption,
for which these transactions were designated as cash fl ow hedges, occurred
as originally expected; therefore, amounts deferred in other comprehensive
income related to these contracts remained deferred until the forecasted
fuel consumption occurred. At December31, 2011, we had deferred
$3 million, or $2 million net of taxes, of these losses in other comprehensive
income associated with these contracts. We recognized all of these losses
into fuel expense in 2012.
Interest rate swaps: The interest rate swap agreements we had outstanding
as of December31, 2012 effectively swap fl oating rate debt for fi xed rate
debt, taking advantage of lower borrowing rates in existence at the time of
the hedge transaction as compared to the date our original debt instruments
were executed. As of December 31, 2012, we had $348 million in notional
debt outstanding related to these swaps, which cover certain interest
payments through August 2016. The notional amount decreases over time
to match scheduled repayments of the related debt. Refer to Note 2 for
information on the debt outstanding related to these swap agreements.
All of our outstanding interest rate swap contracts qualify as cash fl ow hedges
in accordance with the Derivatives and Hedging topic of the Codifi cation.
Since all of the critical terms of our swap agreements match the debt to
which they pertain, there was no ineffectiveness relating to these interest
rate swaps in 2012, 2011 or 2010, and all related unrealized losses were
deferred in accumulated other comprehensive income. We recognized
approximately $11 million, $10 million and $8 million in additional interest
expense as the related interest payments were made during 2012, 2011
and 2010, respectively.
Any outstanding derivative instruments expose us to credit loss in the event
of nonperformance by the counterparties to the agreements, but we do not
expect that any of our three counterparties will fail to meet their obligations.
The amount of such credit exposure is generally the positive fair value of
our outstanding contracts. To manage credit risks, we select counterparties
based on credit assessments, limit our overall exposure to any single
counterparty and monitor the market position of each counterparty. Some
of our agreements require cash deposits if market risk exposure exceeds
a specifi ed threshold amount.
The fi nancial derivative instrument agreements we have with our counterparties
may require us to fund all, or a portion of, outstanding loss positions related
to these contracts prior to their scheduled maturities. The amount of
collateral posted, if any, is periodically adjusted based on the fair value of the
hedge contracts. Our policy is to offset the liabilities represented by these
contracts with any cash collateral paid to the counterparties. We did not
have any collateral posted related to our outstanding fuel hedge contracts
at December31, 2012 or December31, 2011. We had $12 million and
$20 million posted in collateral related to our interest rate derivatives which
offset the hedge liability in other current liabilities at December31, 2012
and 2011, respectively.
The table below refl ects quantitative information related to our derivative instruments and where these amounts are recorded in our fi nancial statements
(dollar amounts in millions).
As of December 31,
2012 2011
Fuel derivatives
Asset fair value recorded in prepaid expenses and other
(1) $—$ 6
Liability fair value recorded in other accrued liabilities
(1) 1 10
Longest remaining term (months) 9 12
Hedged volume (barrels, in thousands) 675 3,540
Estimated amount of existing lossesexpected to be reclassifi ed into earnings in the next 12months (1) (6)
Interest rate derivatives
Liability fair value recorded in other long term liabilities
(2) 12 20
Estimated amount of existing lossesexpected to be reclassifi ed into earnings in the next 12months (9) (10)
2012 2011 2010
Fuel derivatives
Hedge effectiveness gains (losses)recognized in aircraft fuel expense $ 10 $ 3 $ (3)
Hedge ineffectiveness lossesrecognized in other income (expense) — (2) (2)
Losseson derivatives not qualifying for hedge accounting recognized in other income (expense) (3) — —
Hedge gains (losses)on derivatives recognized in comprehensive income 14 (11) (11)
Percentage of actual consumption economically hedged 30% 40% 51%
Interest rate derivatives
Hedge losseson derivatives recognized in comprehensive income (3) (7) (21)
Hedge losses on derivatives recognized in interest expense (11) (10) (8)
(1) Gross asset or liability of each contract prior to consideration of offsetting positions with each counterparty.
(2) Gross liability, prior to impact of collateral posted.