Delta Airlines 2009 Annual Report Download - page 68

Table of Contents
Cash flow hedges
For derivative instruments that are designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of
accumulated other comprehensive loss and reclassified into earnings in the same period during which the hedged transaction affects earnings. The effective
portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. To the extent the change in
the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately
recognized in other (expense) income on our Consolidated Statements of Operations. The following table summarizes the accounting treatment and
classification of our cash flow hedges on our Consolidated Financial Statements:
Impact of Unrealized Gains and Losses
Consolidated Consolidated
Balance Sheets Statements of Operations
Derivative Instrument(1) Hedged Risk Effective Portion Ineffective Portion
Designated as cash flow hedges:
Fuel hedges consisting of crude oil, heating
oil, and jet fuel swaps, collars and call
options(2)
Volatility in jet
fuel prices
Effective portion of hedge is recorded in
accumulated other comprehensive loss
Excess, if any, over effective portion of hedge is
recorded in other (expense) income
Interest rate swaps and call options Increase in
interest rates
Entire hedge is recorded in accumulated
other comprehensive loss
Expect hedge to fully offset hedged risk; no
ineffectiveness recorded
Foreign currency forwards and collars Fluctuations in
foreign currency
exchange rates
Entire hedge is recorded in accumulated
other comprehensive loss
Expect hedge to fully offset hedged risk; no
ineffectiveness recorded
Not designated as hedges:
Fuel contracts consisting of crude oil, heating
oil and jet fuel extendable swaps and
three-way collars
Volatility in jet
fuel prices
Entire amount of change in fair value of hedge is recorded in aircraft
fuel expense and related taxes
(1) In the Merger, we assumed Northwest's outstanding hedge contracts, which included fuel, interest rate and foreign currency cash flow hedges. On the
Closing Date, we designated certain of these contracts as hedges. The remaining Northwest derivative contracts did not qualify for hedge accounting
and settled as of June 30, 2009.
(2) Ineffectiveness on our fuel hedge option contracts is calculated using a "perfectly effective" hypothetical derivative, which acts as a proxy for the fair
value of the change in expected cash flows from the purchase of aircraft fuel.
Fair value hedges
For derivative instruments that are designated as fair value hedges, the gain or loss on the derivative and the offsetting loss or gain on the hedged item
attributable to the hedged risk are recognized in current earnings. We include the gain or loss on the hedged item in the same account as the offsetting loss or
gain on the related derivative instrument, resulting in no impact to our Consolidated Statements of Operations. The following table summarizes the accounting
treatment and classification of our fair value hedges on our Consolidated Financial Statements:
Impact of Unrealized Gains and Losses
Consolidated Consolidated
Balance Sheets Statements of Operations
Derivative Instrument Hedged Risk Effective Portion Ineffective Portion
Designated as fair value hedges:
Interest rate swaps Reduction in fair
value from an
increase in
interest rates
Entire fair value of hedge is recorded in
long-term debt and capital leases
Expect hedge to be perfectly effective at offsetting changes
in fair value of the related debt; no ineffectiveness recorded
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