Delta Airlines 2012 Annual Report Download - page 72

Long-term Investments. Our long-term investments, primarily consisting of equity investments in GOL and Aeroméxico and auction rate
securities, are classified in other noncurrent assets. Our equity investments are traded on a public exchange and valued based on quoted market
prices. Because auction rate securities are not actively traded, fair values were estimated by discounting the cash flows expected to be received over
the remaining maturities of the underlying securities. We based the valuations on our assessment of observable yields on instruments bearing
comparable risks and considered the creditworthiness of the underlying debt issuer. Changes in market conditions could result in further adjustments
to the fair value of these securities.
Hedge Derivatives. Our derivative contracts are generally negotiated with counterparties without going through a public exchange. Accordingly,
our fair value assessments give consideration to the risk of counterparty default (as well as our own credit risk).
Assets Measured at Fair Value on a Nonrecurring Basis
65
•
Fuel Derivatives.
Our fuel hedge portfolio consists of call options; put options; combinations of two or more call options and put options;
swap contracts; and futures contracts. The products underlying the hedge contracts include heating oil, crude oil, jet fuel and diesel fuel, as
these commodities are highly correlated with the price of jet fuel that we consume. Option contracts are valued under an income approach
using option pricing models based on data either readily observable in public markets, derived from public markets or provided by
counterparties who regularly trade in public markets. Volatilities used in these valuations ranged from 12% to 35% depending on the maturity
dates, underlying commodities and strike prices of the option contracts. Swap contracts are valued under an income approach using a
discounted cash flow model based on data either readily observable or derived from public markets. Discount rates used in these valuations
vary with the maturity dates of the respective contracts and are based on LIBOR. Futures contracts and options on futures contracts are traded
on a public exchange and valued based on quoted market prices.
•
Interest Rate Derivatives.
Our interest rate derivatives consist primarily of swap contracts and are valued primarily based on data readily
observable in public markets.
•
Foreign Currency Derivatives.
Our foreign currency derivatives consist of Japanese yen and Canadian dollar forward contracts and are valued
based on data readily observable in public markets.
Significant Unobservable Inputs (Level 3)
(in millions)
December 31, 2012
December 31, 2011
Valuation Technique
Goodwill
(1)
$
9,794
$
9,794
(a)(b)
Indefinite-lived intangible assets
(1)
(see Note 6)
4,373
4,375
(a)(b)
(1)
See Note 1 , “Goodwill and Other Intangible Assets”,
for a description of how these assets are tested for impairment.