Delta Airlines 2003 Annual Report Download - page 58

Table of Contents
federal subsidy to sponsors of health care benefit plans in certain circumstances. The impact of the Medicare Act is not reflected in our 2003 Consolidated
Financial Statements due to our September 30 measurement date for our postretirement plans, which was prior to the enactment of this law.
The FASB issued FASB Staff Position SFAS No. 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003" ("FSP 106-1") in January 2004. FSP 106-1 permits a sponsor of a postretirement health care plan that provides
a prescription drug benefit to make a one-time election to defer accounting for the Medicare Act. It also requires certain disclosures regarding the Medicare
Act and is effective for financial statements issued after December 7, 2003. In compliance with FSP 106-1, in 2004, we will make a one-time election to
reflect the estimated impact of the Medicare Act immediately or to defer recognition until specific authoritative guidance on accounting for the federal
subsidy portion of the Medicare Act is issued. In either case, when specific guidance is issued, we could be required to change previously reported financial
information. We are still evaluating the impact of the Medicare Act on our 2004 Consolidated Financial Statements. For additional information about our
employee benefit plans, see Note 11 of the Notes to the Consolidated Financial Statements.
Market Risks Associated with Financial Instruments. We have significant market risk exposure related to aircraft fuel prices and interest rates. Market risk
is the potential negative impact of adverse changes in these prices or rates on our Consolidated Financial Statements. To manage the volatility relating to these
exposures, we periodically enter into derivative transactions pursuant to stated policies (see Notes 3 and 4 of the Notes to the Consolidated Financial
Statements). Management expects adjustments to the fair value of financial instruments accounted for under SFAS 133 to result in ongoing volatility in
earnings and shareowners' (deficit) equity.
The following sensitivity analyses do not consider the effects of a change in demand for air travel, the economy as a whole or additional actions by
management to mitigate our exposure to a particular risk. For these and other reasons, the actual results of changes in these prices or rates may differ
materially from the following hypothetical results.
Aircraft Fuel Price Risk. Our results of operations may be significantly impacted by changes in the price of aircraft fuel. To manage this risk, we
periodically enter into heating and crude oil derivative contracts to hedge a portion of our projected annual aircraft fuel requirements. Heating and crude oil
prices have a highly correlated relationship to fuel prices, making these derivatives effective in offsetting changes in the cost of aircraft fuel. We do not enter
into fuel hedge contracts for speculative purposes.
At December 31, 2003, we had hedged 32% of our projected aircraft fuel requirements for 2004 at an average hedge price per gallon of 76.46¢, and none
of our projected aircraft fuel requirements for 2005 or thereafter. The fair values of our heating and crude oil derivative instruments were $97 million at
December 31, 2003 and $73 million at December 31, 2002. A 10% decrease in the average annual price of heating and crude oil would have decreased the fair
values of these instruments by $65 million at December 31, 2003.
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