Delta Airlines 2002 Annual Report Download - page 145

FOREIGN CURRENCY EXCHANGE RISK
We are subject to foreign currency exchange risk because we have revenues and
expenses denominated in foreign currencies, primarily the euro, the British
pound and the Canadian dollar. To manage exchange rate risk, we net foreign
currency revenues and expenses, to the extent practicable. From time to time, we
may also enter into foreign currency options and forward contracts with
maturities of up to 12 months. We did not have any foreign currency hedge
contracts at December 31, 2002. The fair value of our foreign currency hedge
contracts was not material at December 31, 2001. We do not enter into foreign
currency hedge contracts for speculative purposes.
CREDIT RISK
To manage credit risk associated with our aircraft fuel price, interest rate and
foreign currency exchange risk management programs, we select counterparties
based on their credit ratings and limit our exposure to any one counterparty
under defined guidelines. We also monitor the market position of these programs
and our relative market position with each counterparty. The credit exposure
related to these programs was not significant at December 31, 2002 and 2001.
Our accounts receivable are generated largely from the sale of passenger airline
tickets and cargo transportation services to customers. The majority
of these sales are processed through major credit card companies, resulting in
accounts receivable which are generally short-term in duration. We also have
receivables from the sale of mileage credits to partners, such as credit card
companies, hotels and car rental agencies, that participate in our SkyMiles
program. We believe that the credit risk associated with these receivables is
minimal and that the allowance for uncollectible accounts that we have provided
is sufficient.
SELF-INSURANCE RISK
We self-insure a portion of our losses from claims related to workers'
compensation, environmental issues, property damage, medical insurance for
employees and general liability. Losses are accrued based on an estimate of the
ultimate aggregate liability for claims incurred, using independent actuarial
reviews based on standard industry practices and our actual experience. A
portion of our projected workers' compensation liability is secured with
restricted cash collateral (see Note 1).
Note 4. Derivative Instruments
On July 1, 2000, we adopted SFAS 133, as amended. SFAS 133 requires us to record
all derivative instruments on our Consolidated Balance Sheets at fair value and
to recognize certain non-cash changes in these fair values in our Consolidated
Statements of Operations. SFAS 133 impacts the accounting for our fuel hedging
program, our interest rate hedging program and our holdings of equity warrants
and other similar rights in certain companies.
The impact of SFAS 133 on our Consolidated Statements of Operations is
summarized as follows:
Income (Expense)
------------------------------------------------------------
FOR THE For the For the Six
YEAR ENDED Year Ended Months Ended Cumulative
DECEMBER 31, December 31, December 31, Effect
(in millions) 2002 2001 2000 July 1, 2000
------------- ------------ ------------ ------------ ------------
Write-off of fuel hedge contract premiums $ -- $ -- $ -- $ (143)
Change in time value of fuel hedge contracts (23) (1) 7 --
Ineffective portion of fuel hedge contracts 13 (3) (2) 16
Fair value adjustment of equity rights (29) 72 (164) (37)
------ ------ ------- -------
Fair value adjustments of SFAS 133 derivatives, pretax (39) 68 (159) (164)
------ ------ ------- -------
Total, net of tax $ (25) $ 41 S (97) $ (100)
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