Alaska Airlines and Horizon Air 2014 Annual Report Download - page 161

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Pretax effect of derivative instruments on earnings and AOCL (in millions):
2014 2013 2012
Derivative Instruments Not Designated as Hedges
Fuel hedge contracts
Gains (losses) recognized in aircraft fuel expense $ (18) $ (44) $ (62)
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) (8) 10 (10)
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 $6 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 $3 million, $7 million and $15 million as of December 31, 2014,
2013 and 2012, respectively. The collateral was provided to a 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.
77
ŠForm 10-K