Spirit Airlines 2015 Annual Report Download - page 84

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Notes to Financial Statements—(Continued)
84
The following table summarizes the components of aircraft fuel expense for the years ended December 31, 2015, 2014
and 2013:
Year Ended December 31,
2015 2014 2013
(in thousands)
Into-plane fuel cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 454,747 $ 608,033 $ 542,523
Realized losses (gains) related to fuel derivative contracts, net . . . . . . 10,580 995 8,958
Unrealized losses (gains) related to fuel derivative contracts, net. . . . . (3,880) 3,881 265
Aircraft fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 461,447 $ 612,909 $ 551,746
Premiums and settlements received or paid on fuel derivative contracts are reflected in the accompanying statements of
cash flows in net cash provided by operating activities.
During the third quarter of 2014, the Company became aware of an underpayment of Federal Excise Tax (FET) for fuel
purchases during the period between July 1, 2009 and August 31, 2014. The commencement of the period in which the
Company underpaid FET coincided with a change in its fuel service provider that took place in July 2009. The out of period jet
fuel FET amount of $9.3 million is recorded within aircraft fuel in the statement of operations for the year ended December 31,
2014.
As of December 31, 2015, the Company did not have any outstanding fuel derivatives. As of December 31, 2014, the
Company had fuel derivatives consisting of jet fuel options with refined products as the underlying commodities designed to
protect 88.7 million gallons, or approximately 35% of its 2015 anticipated jet fuel consumption, at a weighted-average ceiling
price of $2.07.
Interest Rate Swaps
During the third quarter of 2015, the Company settled six forward interest rate swaps, having a total notional amount of
$120 million. The interest rate swaps fix the benchmark interest rate component of the interest payments on the debt related to
three Airbus A321 aircraft, which the company took delivery of during the third quarter of 2015. These instruments limited the
Company's exposure to changes in the benchmark interest rate in the period from the trade date through the date of maturity.
The interest rate swaps were designated as cash flow hedges. The Company accounts for these interest rate swaps at fair value
and recognizes them in the balance sheet in prepaid expenses and other current assets or other current liabilities with changes in
fair value recorded within accumulated other comprehensive income (AOCI). Realized gains and losses from cash flow hedges
are recorded in the statement of cash flows as a component of cash flows from operating activities. Subsequent to the issuance
of each debt instrument, amounts remaining in AOCI are amortized over the life of the fixed-rate debt instrument.
As of December 31, 2015, the Company had no outstanding interest rate swaps. As of December 31, 2014, the interest
rate swaps were recorded as a liability of approximately $1.1 million. For the twelve months ended December 31, 2015 and
2014, a loss of $0.8 million and $0.7 million, net of deferred taxes of $0.5 million and $0.4 million, was recorded within AOCI
related to these instruments.
Given the uncertainty regarding the terms on which the Company issues its fixed-rate debt, the Company evaluated the
effect of such uncertainty in the effectiveness of the hedging relationship designated for each reporting period. Any
ineffectiveness was recorded within other non-operating expense in the Company's statement of operations. During the twelve
months ended December 31, 2015 and 2014, the Company recorded no ineffectiveness associated with the Company's interest
rate cash flow hedges.