Chesapeake Energy 2012 Annual Report Download - page 144

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
134
Fair Value Hedges
For interest rate derivative instruments designated as fair value hedges, the fair values of the hedges are recorded
on the consolidated balance sheets as assets or liabilities, with corresponding offsetting adjustments to the debt’s
carrying value. We have elected not to designate any of our qualifying interest rate derivatives as fair value hedges.
Therefore, changes in the fair value of all of our interest rate derivatives that occur prior to their maturity (i.e., temporary
fluctuations in value) are reported in the consolidated statements of operations within interest expense.
The following table presents the gain (loss) recognized in the consolidated statements of operations for terminated
instruments designated as fair value derivatives:
Years Ended December 31,
Fair Value Derivatives Location of Gain (Loss) 2012 2011 2010
($ in millions)
Interest rate contracts ................... Interest expense $ 8 $ 16 $ 20
We include the expense on the hedged item (i.e., fixed-rate borrowings) in the same line item – interest expense
– as the offsetting gain or loss on the related interest rate swap listed above. For the years ended December 31, 2012,
2011 and 2010, this expense was $0, $23 million, and $19 million, respectively.
Cash Flow Hedges
A reconciliation of the changes of accumulated other comprehensive income (loss) in the consolidated statements
of stockholders’ equity related to our cash flow hedges is presented below.
Years Ended December 31,
2012 2011 2010
Before
Tax
After
Tax
Before
Tax
After
Tax
Before
Tax
After
Tax
($ in millions)
Balance, beginning of period ................................ $ (287) $ (178) $ (291) $ (181) $ 134 $ 84
Net change in fair value ........................................ 10 6 368 228 364 226
Gains reclassified to income ................................. (27) (17) (364) (225) (789) (491)
Balance, end of period.......................................... $ (304) $ (189) $ (287) $ (178) $ (291) $ (181)
Approximately $179 million of the $189 million of accumulated other comprehensive loss as of December 31,
2012 represents the net deferred loss associated with commodity derivative contracts that were previously designated
as cash flow hedges. Because the originally forecasted transactions are still expected to occur, these amounts are
being recognized in earnings in the month the originally forecasted production occurs. As of December 31, 2012, we
expect to transfer approximately $20 million of net loss included in accumulated other comprehensive income to net
income (loss) during the next 12 months. The remaining amount will be transferred by December 31, 2022. As of
December 31, 2012, none of our open commodity derivative instruments were designated as a cash flow hedge.