Delta Airlines 2004 Annual Report Download - page 111

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Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 16. Equity Investments
WORLDSPAN, L.P. ("Worldspan")
On June 30, 2003, we sold our 40% equity investment in Worldspan, which operates and markets a computer reservation system for the travel industry. In
exchange for the sale of our equity interest, we received (1) $285 million in cash and (2) a $45 million subordinated promissory note, which bears interest at
10% per annum and matures in 2012. As a result of this transaction, we recorded a gain of $279 million ($176 million net of tax) in other income (expense) on
our 2003 Consolidated Statement of Operations. In addition, we will receive credits totaling approximately $125 million, which will be recognized ratably as
a reduction of costs through 2012, for future Worldspan-provided services ("Worldspan Credits"). The carrying and fair value of the subordinated promissory
note was $36 million and $38 million at December 31, 2004 and 2003, respectively, which reflects a writedown resulting from a decrease in its fair value.
This note was classified as a trading security under SFAS 115 (see Note 1).
On January 10, 2005, Worldspan redeemed the subordinated promissory note for $36 million, which represented the carrying value of the note as of
December 31, 2004. As part of this transaction, we agreed that Worldspan may elect to prepay all of the remaining Worldspan Credits at any time on or before
December 31, 2005. The prepayment amounts range from approximately $64 million to approximately $72 million depending on when the election is made.
Our equity earnings from this investment totaled $18 million and $43 million for the years ended December 31, 2003 and 2002, respectively. We also
received cash dividends from Worldspan of $44 million and $40 million for the years ended December 31, 2003 and 2002, respectively. At December 31,
2002, our Worldspan investment of $57 million was recorded in other noncurrent assets on our Consolidated Balance Sheet.
Worldspan provides us with computer reservation and related services for which we paid approximately $90 million for the six-months ended June 30,
2003 and approximately $180 million for the year ended December 31, 2002. As discussed above, we sold our equity interest in Worldspan on June 30, 2003.
Orbitz, Inc. ("Orbitz")
During November 2004, we sold our remaining ownership and voting interest in Orbitz for approximately $143 million. We recognized an approximately
$123 million gain on this transaction.
During December 2003, Orbitz completed its initial public offering and the founding airlines of Orbitz, including us, sold a portion of their Orbitz shares.
We received $33 million from our sale of Orbitz shares. Additionally, we recorded (1) a SAB 51 gain of $18 million, net of tax, in additional paid-in capital
on our Consolidated Balance Sheet (see Note 1 for our SAB 51 accounting policy); (2) a $28 million gain ($17 million net of tax) in other income
(expense) on our Consolidated Statement of Operations from our sale of Orbitz shares; and (3) a $4 million loss ($2 million net of tax) in other income
(expense) on our Consolidated Statement of Operations from previously unrecognized Orbitz losses since our recorded investment in Orbitz was zero prior to
its initial public offering.
As a result of our sale of a portion of our Orbitz shares in December 2003, we had a 13% ownership interest and an 18% voting interest in Orbitz. Prior to
that transaction, we had an 18% ownership and voting interest in Orbitz. We accounted for our investment in Orbitz under the equity method because we had
the ability to exercise significant influence, but not control, over that company's financial and operating policies. This ability was evidenced by, among other
things, our right to appoint at least one of our senior officers to the Board of Directors of Orbitz.
For the years ended December 31, 2004, 2003 and 2002, the gains (losses) recorded from our investment in Orbitz were not material to our Consolidated
Statements of Operations. F-54