Delta Airlines 2006 Annual Report Download - page 32

Due to our Chapter 11 proceedings, the realization of assets and satisfaction of liabilities, without substantial adjustments and/or changes in ownership,
are subject to uncertainty. Accordingly, there is substantial doubt about the current financial reporting entity’s ability to continue as a going concern. Upon
emergence from bankruptcy, we expect to adopt fresh start reporting in accordance with SOP 90-7 which will result in our becoming a new entity for financial
reporting purposes. The adoption of fresh start reporting may have a material impact on the consolidated financial statements of the new financial reporting
entity.
The accompanying Consolidated Financial Statements do not reflect or provide for the consequences of the Chapter 11 proceedings. In particular, the
financial statements do not show (1) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (2) as to pre-petition
liabilities, the amounts that may be allowed for claims or contingencies, or their status and priority; (3) as to shareowners’ equity accounts, the effect of any
changes that may be made in our capitalization; or (4) as to operations, the effect of any changes that may be made in our business.
Sale of ASA
On September 7, 2005, we sold Atlantic Southeast Airlines, Inc. (“ASA”), our wholly owned subsidiary, to SkyWest, Inc. (“SkyWest”). After the sale,
the revenue and expenses related to our contract carrier agreement with ASA are reported as regional affiliates passenger revenues and contract carrier
arrangements, respectively, in our Consolidated Statements of Operations. Prior to the sale, expenses related to ASA were reported in the applicable expense
line item in our Consolidated Statements of Operations. See Note 11 of the Notes to the Consolidated Financial Statement for additional information on the
sale of ASA.
Accounting Adjustments
During 2006, we recorded certain out-of-period adjustments (“Accounting Adjustments”) in our Consolidated Financial Statements that are reflected in
our results for the year ended December 31, 2006. These adjustments resulted in an aggregate net noncash charge approximating $310 million to our
Consolidated Statement of Operations, consisting primarily of:
•A $112 million charge in landing fees and other rents. This adjustment is associated primarily with our airport facility leases at John F. Kennedy
International Airport in New York. It resulted from historical differences associated with recording escalating rent expense based on actual rent
payments instead of on a straight-line basis over the lease term as required by Statement of Financial Accounting Standards (“SFAS”) No. 13,
“Accounting for Leases” (“SFAS 13”).
•A $108 million net charge related to the sale of mileage credits under our SkyMiles frequent flyer program. This includes an $83 million
decrease in passenger revenues, a $106 million decrease in other, net operating revenues, and an $81 million decrease in other operating
expenses. This net charge primarily resulted from the reconsideration of our position with respect to the timing of recognizing revenue associated
with the sale of mileage credits that we expect will never be redeemed for travel.
•A $90 million charge in salaries and related costs to adjust our accrual for postemployment healthcare benefits. This adjustment is due to
healthcare payments appliedto this accrual over several years, which should have been expensed as incurred.
We believe the Accounting Adjustments, considered individually and in the aggregate, are not material to our Consolidated Financial Statements for
each of the years ended December 31, 2006, 2005 and 2004. In making this assessment, we considered qualitative and quantitative factors, including the
substantial net loss in each of these three years, the noncash nature of the Accounting Adjustments, our substantial shareowners’ deficit at the end of each of
these three years and our status as a debtor-in-possession under Chapter 11 of the Bankruptcy Code.
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