Delta Airlines 2002 Annual Report Download - page 144

Republic offers for sale in its initial public offering at a price per share
equal to the initial public offering price; and (4) the right to receive a
warrant to purchase up to an additional 60,000 shares of Republic common stock
for each additional aircraft Chautauqua operates for us above the 22 aircraft
under the original contract carrier agreement.
The 2002 Warrant is exercisable in whole or in part at any time until June 7,
2012. The fair value of the 2002 Warrant on the date received was approximately
$11 million, and will be recognized in income ratably over a five-year period.
The carrying value of the 2002 Warrant was approximately $10 million at December
31, 2002. The 2002 Warrant is accounted for in the same manner as the priceline
warrants described above.
The IPO Warrant is exercisable in whole or in part at any time (1) beginning on
the closing date of Republic's initial public offering of common stock and (2)
subject to earlier cancellation if the contract carrier agreement is terminated
in certain circumstances, ending on the tenth anniversary of that closing date.
We will record the fair value of the IPO Warrant on the closing date of
Republic's initial public offering of common stock.
The 2002 Warrant, the IPO Warrant and the shares of Republic common stock
underlying these securities are not registered under the Securities Act of 1933;
however, we have certain demand and piggyback registration rights relating to
the underlying shares of Republic common stock.
OTHER
Our equity interest in SkyWest, Inc., the parent company of SkyWest Airlines,
was classified as an available-for-sale equity security under SFAS 115. During
2001, we sold our equity interest in SkyWest, Inc. for $125 million and recorded
a pretax gain of $111 million. We recorded this gain in our 2001 Consolidated
Statement of Operations in gain (loss) from sale of investments, net.
During 2001, we also sold our remaining equity interest in Equant, N.V.
(Equant), an international data services company, recognizing a pretax gain of
$11 million. We recorded this gain in our 2001 Consolidated Statement of
Operations in gain (loss) from sale of investments, net.
Note 3. Risk Management
AIRCRAFT FUEL PRICE RISK
Our results of operations can be significantly impacted by changes in the price
of aircraft fuel. To manage this risk, we periodically purchase options and
other similar non-leveraged derivative instruments and enter into forward
contracts for the purchase of fuel. These contracts may have maturities of up to
36 months. We may hedge up to 80% of our expected fuel requirements on a
12-month rolling basis. See Note 4 for additional information about our fuel
hedge contracts. We do not enter into fuel hedge contracts for speculative
purposes.
INTEREST RATE RISK
Our exposure to market risk due to changes in interest rates primarily relates
to our long-term debt obligations and cash portfolio. Market risk associated
with our long-term debt relates to the potential change in fair value resulting
from a change in interest rates as well as the potential increase in interest we
would pay on variable rate debt. At December 31, 2002 and 2001, approximately
26% and 25%, respectively, of our total debt was variable rate debt. Market risk
associated with our cash portfolio relates to the potential change in our
earnings resulting from a decrease in interest rates.
From time to time, we may enter into interest rate swap agreements, provided
that the notional amount of these transactions does not exceed 50% of our
long-term debt. See Note 4 for additional information about our interest rate
swap agreements. We do not enter into interest rate swap agreements for
speculative purposes.
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