Delta Airlines 2006 Annual Report Download - page 86

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Note 3. Marketable and Other Equity Securities
Republic Airways Holdings, Inc. (“Republic Holdings”) and Affiliates
We have contract carrier agreements with two subsidiaries of Republic Holdings — Chautauqua Airlines, Inc. (“Chautauqua”) and Shuttle America
Corporation (“Shuttle America”). As part of these agreements, we received warrants to purchase 3.5 million shares of Republic Holdings common stock with
exercise prices ranging from $11.60 to $13.00 per common share. The warrants have expiration dates between June 2012 and December 2014.
The warrants were recorded at their fair values on the date received in other noncurrent assets on our Consolidated Balance Sheets. The fair values are
primarily being recognized on a straight-line basis over a five year period. Changes in fair value are recorded in other (expense) income on our Consolidated
Statements of Operations. The fair values totaled $33 million and $29 million at December 31, 2006 and 2005, respectively.
For additional information about our contract carrier agreements with Chautauqua and Shuttle America, see Note 8.
priceline.com Incorporated (“priceline”)
We have an agreement with priceline under which we (1) provide ticket inventory that may be sold through priceline’s Internet-based e-commerce
system and (2) received certain equity interests in priceline.
At December 31, 2006 and 2005, our investment in priceline consisted of (1) 13.5 million shares of Series B Preferred Stock and (2) warrants issued in
2001 to purchase 0.8 million shares of priceline common stock at $17.81 per common share. The Series B Preferred Stock had a carrying value of $13
million, was classified as an available-for-sale security under SFAS 115 and was recorded at face value, which approximates fair value, in other noncurrent
assets on our Consolidated Balance Sheets. The warrants were recorded at fair value in other noncurrent assets on our Consolidated Balance Sheets, with any
changes in fair value recorded in other (expense) income on our Consolidated Statements of Operations. The fair value of the warrants was $20 million and $7
million at December 31, 2006 and 2005, respectively.
Note 4. Risk Management and Financial Instruments
Fuel Price Risk
Our results of operations may be materially impacted by changes in the price of aircraft fuel. To manage this risk, we periodically enter into derivative
contracts comprised of heating oil and jet fuel swap and collar contracts to hedge a portion of our projected aircraft fuel requirements. We do not enter into
fuel hedge contracts for speculative purposes.
Under our Chapter 11 proceedings, we were authorized to hedge up to 50% of our estimated 2006 aggregate fuel consumption, with no single month
exceeding 80% of our estimated fuel consumption. We are also authorized to hedge up to 80% of our projected fuel consumption for each month in the
quarter ending March 31, 2007, up to 50% for each month in the quarter ending June 30, 2007, up to 35% for each month in the quarter ending September 30,
2007 and up to 25% for each month in the quarter ending December 31, 2007. We currently cannot enter into any fuel hedge contract that extends beyond
December 31, 2007 without approval from the Bankruptcy Court or the Creditors Committee. As of January 31, 2007, we had hedged approximately 24% of
our projected aircraft fuel requirements for the nine months ended September 2007 using heating oil and jet fuel zero-cost collar and swap contracts. We have
not entered into any hedges for the December 2007 quarter.
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