Delta Airlines 2004 Annual Report Download - page 77

Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the years ended December 31, 2004, 2003 and 2002, the gains (losses) recorded from our investment in priceline were not material to our Consolidated
Statements of Operations.
See Note 1 for additional information about our accounting policy for investments in equity securities and derivative financial instruments.
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 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. We do not enter into fuel hedge contracts for speculative purposes. See
Note 4 for additional information about our fuel hedge contracts. We did not have any fuel hedge contracts at December 31, 2004.
Interest Rate Risk
Our exposure to market risk due to changes in interest rates primarily relates to our long-term debt obligations, cash portfolio, workers' compensation
obligations and pension, postemployment and postretirement benefits.
Market risk associated with our long-term debt relates to the potential change in fair value of our fixed rate debt from a change in interest rates as well as
the potential increase in interest expense on variable rate debt. At December 31, 2004 and 2003, approximately 39% and 34%, respectively, of our total debt
had a variable interest rate.
Market risk associated with our cash portfolio relates to the potential change in interest income from a decrease in interest rates. Workers' compensation
obligation risk relates to the potential changes in our future obligations and expenses from a change in interest rates. Pension, postemployment and
postretirement benefits risk relates to the potential changes in our benefit obligations, funding and expenses from a change in interest rates (see Note 10).
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. We do not enter into interest rate swap agreements for speculative purposes. We did not have any interest rate swap agreements at
December 31, 2004 and 2003.
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 attempt to execute both our international revenue and expense transactions in the
same foreign currency, 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 do not enter into foreign currency hedge contracts for speculative purposes. We did not have any foreign currency hedge contracts at
December 31, 2004 and 2003.
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,
2004 and 2003.
Our accounts receivable are generated largely from the sale of passenger airline tickets and cargo transportation services. 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
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