Delta Airlines 2006 Annual Report Download - page 78

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Restricted Cash
We have restricted cash, which primarily relates to cash held as collateral by credit card processors and interline clearinghouses and to support certain
projected insurance obligations. Restricted cash included in current assets on our Consolidated Balance Sheets totaled $750 million and $870 million at
December 31, 2006 and 2005, respectively. Restricted cash recorded in other noncurrent assets on our Consolidated Balance Sheets totaled $52 million and
$58 million at December 31, 2006 and 2005, respectively.
Derivative Financial Instruments
Fuel Hedging Program
We periodically use derivative instruments designated as cash flow hedges, which are comprised of heating oil and jet fuel swap and collar contracts, to
manage our exposure to changes in aircraft fuel prices. In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS 133”), we record the fair market value of our fuel hedge contracts on our Consolidated Balance Sheets and recognize certain changes in these fair
values on our Consolidated Statements of Operations.
We believe our fuel hedge contracts will be highly effective during their term in offsetting changes in cash flow attributable to the hedged risk. We
perform both a prospective and retrospective assessment to this effect at least quarterly, including assessing the possibility of counterparty default. If we
determine that a derivative is no longer expected to be highly effective, we discontinue hedge accounting prospectively and recognize subsequent changes in
the fair market value of the hedge to other (expense) income on our Consolidated Statements of Operations rather than being deferred in accumulated other
comprehensive loss on our Consolidated Balance Sheets. As a result of our effectiveness assessment at December 31, 2006, we believe our fuel hedge
contracts will continue to be highly effective in achieving offsetting changes in cash flows.
Changes in the fair value of fuel hedge contracts that qualify for hedge accounting are recorded in shareowners’ deficit as a component of accumulated
other comprehensive loss. These gains or losses are generally recognized in aircraft fuel expense when the related aircraft fuel purchases being hedged are
consumed. To the extent that the change in the fair value of a fuel hedge contract does not perfectly offset the change in the value of the aircraft fuel being
hedged, the ineffective portion of the hedge is immediately recognized in other (expense) income on our Consolidated Statements of Operations. For our
heating oil and jet fuel option contracts, ineffectiveness is measured based on the intrinsic value of the derivative. The difference between the fair value and
intrinsic value represents the time value of the option contract. Time value is excluded from the calculation of ineffectiveness and immediately recognized in
other (expense) income on our Consolidated Statements of Operations.
For additional information about our derivative instruments, see Note 4.
Equity Warrants and Other Similar Rights
We record our equity warrants and other similar rights in certain companies at fair value at the date of acquisition in other noncurrent assets on our
Consolidated Balance Sheets. In accordance with SFAS 133, we regularly adjust the recorded amount to reflect the changes in the fair values of the equity
warrants and other similar rights, and recognize the related gains or losses in other (expense) income on our Consolidated Statements of Operations.
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