Delta Airlines 2006 Annual Report Download - page 45

Legal Contingencies.We are involved in various legal proceedings relating to antitrust matters, employment practices, environmental issues and other
matters concerning our business. We cannot reasonably estimate the potential loss for certain legal proceedings because, for example, the litigation is in its
early stages or the plaintiff does not specify the damages being sought. As a result of our Chapter 11 proceedings, virtually all pre-petition pending litigation
against us is stayed and related amounts accrued have been classified in liabilities subject to compromise on the Consolidated Balance Sheet at December 31,
2006 and 2005.
Other Contingent Obligations under Contracts.In addition to the contractual obligations discussed above, we have certain contracts for goods and
services that require us to pay a penalty, acquire inventory specific to us or purchase contract specific equipment, as defined by each respective contract, if we
terminate the contract without cause prior to its expiration date. Because these obligations are contingent on our termination of the contract without cause
prior to its expiration date, no obligation would exist unless such a termination occurs. We also cannot predict the impact, if any, that our Chapter 11
proceedings might have on these obligations.
For additional information about other contingencies not discussed above as well as discussions related to general indemnifications, see Note 8 of the
Notes to the Consolidated Financial Statements.
Application of Critical Accounting Policies
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. We periodically
evaluate these estimates and assumptions, which are based on historical experience, changes in the business environment and other factors that management
believes to be reasonable under the circumstances. Actual results may differ materially from these estimates.
Claims Resolution Process.As of February 7, 2007, claims totaling about $87.0 billion have been filed with the Bankruptcy Court against the Debtors,
and we expect new and amended claims to be filed in the future, including claims amended to assign values to claims originally filed with no designated
value. We have identified, and we expect to continue to identify, many claims that we believe should be disallowed by the Bankruptcy Court because they are
duplicative, have been later amended or superseded, are without merit, are overstated or for other reasons. As of February 7, 2007, the Bankruptcy Court has
disallowed approximately $1.2 billion of claims and has not yet ruled on our other objections to claims, the disputed portions of which aggregate to an
additional $2.8 billion. We expect to continue to file objections in the future. Because the process of analyzing and objecting to claims is ongoing, the amount
of disallowed claims may increase significantly in the future.
Through the claims resolution process, differences in amounts scheduled by the Debtors and claims filed by creditors will be investigated and resolved,
including through the filing of objections with the Bankruptcy Court where appropriate. In light of the substantial number and amount of claims filed, the
claims resolution process may take considerable time to complete, and we expect that it will continue after our emergence from Chapter 11. Accordingly, the
ultimate number and amount of allowed claims is not presently known, nor is the exact recovery with respect to allowed claims presently known.
Passenger Revenue.We record sales of passenger tickets as air traffic liabilities on our Consolidated Balance Sheets. Passenger revenue is recognized
when we provide transportation or when the ticket expires unused, reducing the related air traffic liability. We periodically evaluate the estimated air traffic
liability and record any resulting adjustments in our Consolidated Statements of Operations in the period in which the evaluations are completed. These
adjustments relate primarily to refunds, exchanges, transactions with other airlines and other items for which final settlement occurs in periods subsequent to
the sale of the related tickets at amounts other than the original sales price.
Frequent Flyer Program.We have a frequent flyer program, the SkyMiles Program, offering incentives to increase travel on Delta. This program allows
participants to earn mileage for travel awards by flying on Delta, Delta Connection carriers and participating airlines, as well as through participating
companies such as credit card companies, hotels and car rental agencies. Mileage credits can be redeemed for free or upgraded air travel on Delta and
participating airlines, for membership in our Crown Room Club and for other program awards.
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