Delta Airlines 2015 Annual Report Download - page 67
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Refinery.Refinedproduct,feedstockandblendstockinventories,allofwhicharefinishedgoods,arecarriedatrecoverablecost.Weusejetfuelproducedbythe
refineryandprocuredthroughtheexchangewiththirdpartiesofgasoline,dieselandotherrefinedproducts("non-jetfuelproducts")therefineryproducesinour
airlineoperations.Costisdeterminedusingthefirst-in,first-outmethod.Costsincludetherawmaterialconsumedplusdirectmanufacturingcosts(suchaslabor,
utilitiesandsupplies)asincurredandanapplicableportionofmanufacturingoverhead.
Accounting for Refinery Related Buy/Sell Agreements
To the extent that we receive jet fuel for non-jet fuel products exchanged under buy/sell agreements, we account for these transactions as nonmonetary
exchanges.Wehaverecordedthesenonmonetaryexchangesatthecarryingamountofthenon-jetfuelproductstransferredwithinaircraftfuelandrelatedtaxeson
theConsolidatedStatementsofOperations.
Derivatives
Changesinaircraftfuelprices,interestratesandforeigncurrencyexchangeratesimpactourresultsofoperations.Inanefforttomanageourexposuretothese
risks,weenterintoderivativecontractsandadjustourderivativeportfolioasmarketconditionschange.Werecognizederivativecontractsatfairvalueonour
ConsolidatedBalanceSheets.
NotDesignatedasAccountingHedges.Wedonotdesignateourfuelderivativecontractsasaccountinghedges.Werecordchangesinthefairvalueofourfuel
hedgesinaircraftfuelandrelatedtaxes.Thesechangesinfairvalueincludesettledgainsandlossesaswellasmark-to-marketadjustments("MTMadjustments").
MTMadjustmentsaredefinedasfairvaluechangesrecordedinperiodsotherthanthesettlementperiod.Suchfairvaluechangesarenotnecessarilyindicativeof
theactualsettlementvalueoftheunderlyinghedgeinthecontractsettlementperiod.
DesignatedasCashFlowHedges.Forderivativecontractsdesignatedascashflowhedges(interestratecontractsandforeigncurrencyexchangecontracts),the
effectiveportionofthegainorlossonthederivativeisreportedasacomponentofAOCIandreclassifiedintoearningsinthesameperiodinwhichthehedged
transactionaffectsearnings.Theeffectiveportionofthederivativerepresentsthechangeinfairvalueofthehedgethatoffsetsthechangeinfairvalueofthe
hedgeditem.Totheextentthechangeinthefairvalueofthehedgedoesnotperfectlyoffsetthechangeinthefairvalueofthehedgeditem,theineffectiveportion
ofthehedgeisimmediatelyrecognizedinotherexpense.
DesignatedasFairValueHedges.Forderivativecontractsdesignatedasfairvaluehedges(interestratecontracts),thegainorlossonthederivativeisreported
inearningsandanequivalentamountisreflectedasachangeinthecarryingvalueoflong-termdebtandcapitalleases,withanoffsettinglossorgainrecognizedin
currentearnings.Weincludethegainorlossonthehedgediteminthesameaccountastheoffsettinglossorgainontherelatedderivativecontract,resultinginno
impacttoourConsolidatedStatementsofOperations.
ThefollowingtablesummarizestheriskeachtypeofderivativecontractishedgingandtheclassificationofrelatedgainsandlossesonourConsolidated
StatementsofOperations:
DerivativeType HedgedRisk ClassificationofGainsandLosses
Fuelhedgecontracts Increasesinjetfuelprices Aircraftfuelandrelatedtaxes
Interestratecontracts Increasesininterestrates Interestexpense,net
Foreigncurrencyexchangecontracts Fluctuationsinforeigncurrencyexchangerates Passengerrevenue
Thefollowingtablesummarizestheaccountingtreatmentofourderivativecontracts:
ImpactofUnrealizedGainsandLosses
AccountingDesignation EffectivePortion IneffectivePortion
Notdesignatedashedges Changeinfairvalueofhedgeisrecordedinearnings
Designatedascashflowhedges MarketadjustmentsarerecordedinAOCI Excess,ifany,overeffectiveportionofhedgeis
recordedinotherexpense
Designatedasfairvaluehedges Marketadjustmentsarerecordedinlong-term
debtandcapitalleases
Excess,ifany,overeffectiveportionofhedgeis
recordedinotherexpense
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