Delta Airlines 2010 Annual Report Download - page 68

Table of Contents
Hedge Gains (Losses)
Gains (losses) recorded on our Consolidated Financial Statements related to our hedge contracts are as follows:
Effective Portion Recognized Effective Portion Reclassified from Accumulated Other
in Other Comprehensive Income Comprehensive Ineffective Portion Recognized
(Loss) Loss to Earnings in Other (Expense) Income
Year Ended December 31,
(in millions) 2010 2009 2008 2010 2009(1) 2008(1) 2010 2009 2008
Designated as hedges
Fuel hedge swaps, collars, and call options $ 153 $ 1,268 $ (1,268) $ (87) $ (1,344) $ 26 $ (4) $ 57 $ (20)
Interest rate swaps and call options (28) 51 (94) (5) — — — — —
Foreign currency exchange forwards and collars (73) 11 (33) (31) (6) — — — —
Total designated $ 52 $ 1,330 $ (1,395) $ (123) $ (1,350) $ 26 $ (4) $ 57 $ (20)
(1) In 2008, we recorded a mark-to-market adjustment of $91 million related to Northwest derivative contracts settling in 2009 that were not designated as
hedges in aircraft fuel and related taxes on our Consolidated Statement of Operations. In 2009, we recorded an additional $15 million loss.
As of December 31, 2010, we recorded in accumulated other comprehensive loss on our Consolidated Balance Sheet $109 million of net gains on our
hedge contracts scheduled to settle in the next 12 months.
In 2008, one of our fuel hedge contract counterparties, Lehman Brothers, filed for bankruptcy. As a result, we terminated our fuel hedge contracts with
Lehman Brothers prior to their scheduled settlement dates. Additionally, we terminated certain fuel hedge contracts with other counterparties to reduce our
exposure to projected fuel hedge losses due to the decrease in crude oil prices. We recorded an unrealized loss of $324 million, which represents the effective
portion of these terminated contracts at the date of settlement, in accumulated other comprehensive loss on our Consolidated Balance Sheet. These losses were
reclassified into the Consolidated Statements of Operations in accordance with their original contract settlement dates through December 2009.
Interest Rate Risk
Our exposure to market risk from adverse changes in interest rates is primarily associated with our long-term debt obligations. Market risk associated with
our fixed and variable rate long-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase
in interest rates. We also have exposure to market risk from adverse changes in interest rates associated with our cash portfolio and benefit plan obligations.
Market risk associated with our cash portfolio relates to the potential decline in interest income from a decrease in interest rates. Workers' compensation,
pension, postemployment, and postretirement benefit obligation risk relates to the potential increase in our future obligations and expenses from a decrease in
interest rates used to discount these obligations.
In an effort to manage our exposure to the risk associated with our variable rate long-term debt, we periodically enter into derivative instruments comprised
of interest rate swaps and call option agreements. In the Merger, we assumed Northwest's outstanding interest rate swap and call option agreements. On the
Closing Date, we designated these derivative instruments as cash flow hedges for purposes of converting our interest rate exposure on a portion of our debt
portfolio from a floating rate to a fixed rate. The floating rates are based on three-month LIBOR plus a margin. Our interest rate swap and call option
agreements had an estimated fair value liability position of $74 million at December 31, 2010.
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