Delta Airlines 2002 Annual Report Download - page 146

FUEL HEDGING PROGRAM
Because there is not a readily available market for derivatives in aircraft
fuel, we use heating and crude oil derivative contracts to manage our exposure
to changes in aircraft fuel prices. Changes in the fair value of these contracts
(fuel hedge contracts) are highly effective at offsetting changes in aircraft
fuel prices.
At December 31, 2002, our fuel hedge contracts had an estimated short-term fair
value of $68 million and an estimated long-term fair value of $5 million, with
unrealized gains of $29 million, net of tax, recorded in accumulated other
comprehensive income (loss). At December 31, 2001, our fuel hedge contracts had
an estimated short-term fair value of $55 million and an estimated long-term
fair value of $9 million, with unrealized gains of $25 million, net of tax,
recorded in accumulated other comprehensive income (loss). See Note 1 for
information about our accounting policy for fuel hedge contracts.
INTEREST RATE HEDGING PROGRAM
To manage our interest rate exposure, in July 2002, we entered into two interest
rate swap agreements relating to our (1) $300 million principal amount of
unsecured Series C Medium Term Notes due March 15, 2004, which pay interest at a
fixed rate of 6.65% per year and (2) $500 million principal amount of unsecured
Notes due December 15, 2005, which pay interest at a fixed rate of 7.70% per
year.
Under the first interest rate swap agreement, we are paying the London InterBank
Offered Rate (LIBOR) plus a margin per year and receiving 6.65% per year on a
notional amount of $300 million until March 15, 2004. Under the second
agreement, we are paying LIBOR plus a margin per year and receiving 7.70% per
year on a notional amount of $500 million until December 15, 2005.
At December 31, 2002, our interest rate swap agreements had an estimated
long-term fair value of $21 million which was recorded in other noncurrent
assets on our Consolidated Balance Sheets. In accordance with fair value hedge
accounting, we also recorded a $21 million increase to the carrying value of our
long-term debt. We did not have any interest rate swap agreements outstanding at
December 31, 2001. See Note 1 for information about our accounting policy for
interest rate swap agreements.
EQUITY WARRANTS AND OTHER SIMILAR RIGHTS
We own equity warrants and other similar rights in certain companies, primarily
Republic and priceline. The total fair value of these rights at December 31,
2002 and 2001, was $14 million and $48 million, respectively. See Notes 1 and 2
for information about our accounting policy for these rights and the significant
rights that we own, respectively.
Note 5. Goodwill and Intangible Assets
On January 1, 2002, we adopted SFAS 142, which requires that we discontinue the
amortization of goodwill and other intangible assets with indefinite useful
lives. Instead, we now apply a fair value-based impairment test to the net book
value of goodwill and indefinite-lived intangible assets. See Note 1 for
information about our accounting policy for the impairment tests of goodwill and
other intangible assets.
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