Delta Airlines 2004 Annual Report Download - page 78

Download and view the complete annual report

Please find page 78 of the 2004 Delta Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 137

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137

Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 appropriate.
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
SFAS 133, as amended, requires us to record all derivative instruments on our Consolidated Balance Sheets at fair value and to recognize certain changes
in these fair values in our Consolidated Statements of Operations. SFAS 133 impacts the accounting for our fuel 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 Years Ended
December 31,
(in millions) 2004 2003 2002
Change in time value of fuel hedge contracts $ (18) $ (75) $ (23)
Ineffective portion of fuel hedge contracts (10) 58 13
Fair value adjustment of equity rights (3) 8 (29)
Fair value adjustments of SFAS 133 derivatives(1) $ (31) $ (9) $ (39)
(1) Fair value adjustments of SFAS 133 derivatives, net of tax, for 2003 and 2002 were $(6) million and $(25) million, respectively. There is no tax effect
in 2004 because we discontinued recording tax benefits for losses in 2004.
Fuel Hedging Program
Because there is not a readily available market for derivatives in aircraft fuel, we periodically 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.
In February 2004, we settled all of our fuel hedge contracts prior to their scheduled settlement dates. As a result of these transactions, we received
proceeds of $83 million, which represented the fair value of these contracts at the date of settlement. In accordance with SFAS 133, we recorded effective
gains of $82 million in accumulated other comprehensive loss when the related fuel purchases which were being hedged were consumed during 2004. The
time value component of these contracts and the ineffective portion of the hedges at the date of settlement resulted in an approximately $10 million charge,
net of tax. This charge was recorded in fair value adjustments of SFAS 133 derivatives on our Consolidated Statements of Operations.
At December 31, 2003, our fuel hedge contracts had a fair value of $97 million, which was recorded in prepaid expenses and other, with unrealized
effective gains of $34 million, net of tax, recorded in accumulated other comprehensive loss on our Consolidated Balance Sheet. We did not have any fuel
hedge contracts at December 31, 2004. See Note 1 for information about our accounting policy for fuel hedge contracts.
Equity Warrants and Other Similar Rights
We own equity warrants and other similar rights in certain companies, primarily Republic Holdings and priceline. The fair value of these rights was
$37 million and $30 million at December 31, 2004 and 2003, respectively. See Notes 1 and 2 for information about our accounting policy for and ownership
of these rights, respectively. F-21