Delta Airlines 2010 Annual Report Download - page 56

Table of Contents
Cash flow hedges
For derivative instruments 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 in 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 Realized
Impact of Unrealized Gains and Losses Gains and Losses
Consolidated
Consolidated Statements of Consolidated
Balance Sheets Operations Statements of Operations
Derivative Instrument(1) Hedged Risk Effective Portion Ineffective Portion Effective 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
Amounts reclassified into earnings
from accumulated other comprehensive
loss are recorded in aircraft fuel and
related costs
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
Amounts reclassified into earnings
from accumulated other comprehensive
loss are recorded in interest expense
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
Amounts reclassified into earnings
from accumulated other comprehensive
loss are recorded in passenger revenue
and cargo revenue
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.
Hedge Margin
In accordance with our fuel, interest rate and foreign currency hedge agreements, we may require counterparties to fund the margin associated with our
gain position on hedge contracts and/or counterparties may require us to fund the margin associated with our loss position on these contracts. The amount of
the margin, if any, is periodically adjusted based on the fair value of the hedge contracts. The margin requirements are intended to mitigate a party's exposure
to market volatility and the associated risk of contracting party default. We do not offset margin funded to counterparties or margin funded to us by
counterparties against fair value amounts recorded for our hedge contracts.
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