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Table of Contents
88
The following tables present information relating to the significant unobservable inputs of the Company’s Level 3 financial
instruments:
Fair Value Valuation Weighted
(in millions) Technique Unobservable Input Range Average
As of December 31, 2015:
Fuel swap contracts $ (4) Discounted
Cash Flows
Forward Unleaded Price per Gallon(1) $1.91 - $2.55 $ 2.22
As of December 31, 2014:
Fuel swap contracts $ (6) Discounted
Cash Flows
Forward Unleaded Price per Gallon(1) $2.06 - $2.71 $ 2.39
___________________________________
(1) Forward prices per gallon were derived from third-party market data providers. A decrease in the forward price would result
in a decrease in the fair value of the fuel swap contracts.
The Company uses derivative financial instruments to manage risks associated with changes in fuel prices and interest rates.
The Company does not hold or issue derivative financial instruments for trading or speculative purposes. In designating its derivative
financial instruments as hedging instruments under accounting standards for derivative instruments, the Company formally documents
the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for the
use of the hedging instrument. This documentation includes linking the derivatives to forecasted transactions. The Company assesses
at the time a derivative contract is entered into, and at least quarterly thereafter, whether the derivative item is effective in offsetting
the projected changes in cash flows of the associated forecasted transactions. All of the Company’s designated hedging instruments
are classified as cash flow hedges.
The Company has historically hedged a significant portion of its annual fuel consumption. The Company has also historically
hedged the interest payments on a portion of its variable rate debt through the use of interest rate swap agreements. All of the
Company’s fuel swap contracts and interest rate swap contracts are classified as cash flow hedges, and, as such, the hedging
instruments are recorded on the consolidated statements of financial position as either an asset or liability at fair value, with the
effective portion of changes in the fair value attributable to the hedged risks recorded in accumulated other comprehensive income
(loss). Any change in the fair value of the hedging instrument resulting from ineffectiveness, as defined by accounting standards, is
recognized in current period earnings. Cash flows related to fuel and interest rate derivatives are classified as operating activities in the
consolidated statements of cash flows.
Ineffective portions of derivative instruments designated in accordance with accounting standards as cash flow hedge
relationships were insignificant during the 12 months ended December 31, 2015. As of December 31, 2015, the Company had fuel
swap contracts to pay fixed prices for fuel with an aggregate notional amount of $21 million, maturing through 2016. Under the terms
of its fuel swap contracts, the Company is required to post collateral in the event that the fair value of the contracts exceeds a certain
agreed upon liability level and in other circumstances required by the counterparty. As of December 31, 2015, the Company had
posted $4 million in letters of credit as collateral under its fuel hedging program, which were issued under the Revolving Credit
Facility.
The effective portion of the gain or loss on derivative instruments designated and qualifying as cash flow hedging
instruments is recorded in accumulated other comprehensive income (loss). These amounts are reclassified into earnings in the same
period or periods during which the hedged forecasted debt interest settlement or the fuel settlement affects earnings. See Note 14 to
the consolidated financial statements for the effective portion of the gain or loss on derivative instruments recorded in accumulated
other comprehensive income (loss) and for the amounts reclassified out of accumulated other comprehensive income (loss) and into
earnings. The amount expected to be reclassified into earnings during the next 12 months includes unrealized gains and losses related
to open fuel hedges and interest rate swaps. Specifically, as the underlying forecasted transactions occur during the next 12 months,
the hedging gains and losses in accumulated other comprehensive income (loss) expected to be recognized in earnings is a loss of
$6 million, net of tax, as of December 31, 2015. The amounts that are ultimately reclassified into earnings will be based on actual fuel
prices and interest rates at the time the positions are settled and may differ materially from the amount noted above.
104 2015 Annual Report