Delta Airlines 2007 Annual Report Download

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DELTA AIR LINES INC /DE/ (DAL)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 02/15/2008
Filed Period 12/31/2007

Table of contents

  • Page 1
    DELTA AIR LINES INC /DE/ (DAL) 10-K Annual report pursuant to section 13 and 15(d) Filed on 02/15/2008 Filed Period 12/31/2007

  • Page 2
    ... executive offices) 30320-6001 (Zip Code) Registrant's telephone number, including area code: (404) 715-2600 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $0.0001 per share New York Stock Exchange...

  • Page 3
    Part III of this Form 10-K incorporates by reference certain information from the registrant's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on June 3, 2008 to be filed with the Securities and Exchange Commission.

  • Page 4
    ... Airline Operations Fuel Competition Frequent Flyer Program Regulatory Matters Employee Matters Executive Officers Additional Information ITEM 1A. RISK FACTORS Risk Factors Relating to Delta Risk Factors Relating to the Airline Industry ITEM 1B. UNRESOLVED STAFF COMMENTS ITEM 2. PROPERTIES Flight...

  • Page 5
    ... ABOUT MARKET RISK FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES OTHER INFORMATION 48 48 48 48 50 50 50 50 50 50 51 52 53 F-1 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF...

  • Page 6
    ... of operations for the four months ended April 30, 2007 of the Predecessor with the eight months ended December 31, 2007 of the Successor. Additional information about our Chapter 11 proceedings is available on the Internet at www.delta.com/restructure. Bankruptcy Court filings, claims information...

  • Page 7
    ... our Internet address is www.delta.com. Information contained on this website is not part of, and is not incorporated by reference in, this Form 10-K. Airline Operations Our route network is centered around the hub system we operate at airports in Atlanta, Cincinnati, New York-JFK and Salt Lake City...

  • Page 8
    ... SkyTeam alliance would offer significant advantages to consumers including more choice in flight schedules, travel times, services and fares. This application was the first under the landmark European Union-United States Open Skies treaty. Delta Connection Program The Delta Connection program...

  • Page 9
    ... the carriers to retain their separate identities and route networks while increasing the number of domestic and international connecting passengers using the carriers' route networks. Fuel Our results of operations are significantly impacted by changes in the price and availability of aircraft fuel...

  • Page 10
    ...frequent flyer program, the SkyMiles® program, which offers incentives to customers to increase travel on Delta. This program allows program members to earn mileage for travel awards by flying on Delta, Delta Connection carriers and participating airlines. Mileage credit may also be earned by using...

  • Page 11
    ...our tickets are sold by travel agents, and fares are subject to commissions, overrides and discounts paid to travel agents, brokers and wholesalers. Route Authority Our flight operations are authorized by certificates of public convenience and necessity and, to a limited extent, by exemptions issued...

  • Page 12
    ... financial statements. Civil Reserve Air Fleet Program We participate in the Civil Reserve Air Fleet program (the "CRAF Program"), which permits the U.S. military to use the aircraft and crew resources of participating U.S. airlines during airlift emergencies, national emergencies or times...

  • Page 13
    ...Financial Statements Regulatory and Legislative Proposals A number of Congressional bills and proposed DOT regulations have been considered in recent years to address airline competition and other issues. Some of these proposals would require large airlines with major operations at certain airports...

  • Page 14
    ... to Financial Statements Labor unions periodically engage in organizing efforts to represent various groups of employees of Delta and Comair that are not represented for collective bargaining purposes. In February 2008, the Association of Flight Attendants/Communication Workers of America filed an...

  • Page 15
    Table of Contents Index to Financial Statements ITEM 1A. RISK FACTORS Risk Factors Relating to Delta Our business and results of operations are dependent on the price and availability of aircraft fuel. Continuing high fuel costs or further cost increases could have a materially adverse effect on ...

  • Page 16
    ...in Cincinnati, New York-JFK and Salt Lake City. Each of these hub operations includes flights that gather and distribute traffic from markets in the geographic region surrounding the hub to other major cities and to other Delta hubs. A significant interruption or disruption in service at the Atlanta...

  • Page 17
    ... effect on our liquidity. We sell a substantial number of tickets that are paid for by customers who use credit cards. Our Visa/MasterCard credit card processing agreement provides that no future holdback of receivables or reserve is required except in certain circumstances. Under its processing...

  • Page 18
    ... have lower costs than we do and provide service at low fares to destinations served by us. In particular, we face significant competition at our hub airports in Atlanta and New York-JFK from other carriers. In addition, our operations at our hub airports also compete with operations at the hubs of...

  • Page 19
    ... Financial Statements increasing number of countries around the world, including in particular the Open Skies agreement with the Member States of the European Union, has accelerated this trend. Through marketing and codesharing arrangements with U.S. carriers, foreign carriers have obtained access...

  • Page 20
    ...(ground damage) and the aircraft hull. The coverage currently extends through August 31, 2008. The withdrawal of government support of airline war-risk insurance would require us to obtain war-risk insurance coverage commercially, if available. Such commercial insurance could have substantially less...

  • Page 21
    ...to a regional air carrier in April 2007. For additional information, see "Aircraft Order Commitments" in Note 8 of the Notes to the Consolidated Financial Statements. Delivery in Calendar Years Ending Aircraft on Option(1) 2009 2010 2011 2012 After 2012 Total Rolling Options B-737-800 B-767...

  • Page 22
    ... necessary to pay debt service on special facility bonds issued to finance their construction. We also lease marketing, ticketing and reservations offices in certain locations for varying terms. In recent years, some airports have increased or sought to increase the rates charged to airlines to...

  • Page 23
    .... Delta Family-Care Savings Plan Litigation On March 16, 2005, a retired Delta employee filed an amended class action complaint in the U.S. District Court for the Northern District of Georgia against Delta, certain current and former Delta officers and certain current and former Delta directors on...

  • Page 24
    Table of Contents Index to Financial Statements We carry aviation risk liability insurance and believe that this insurance is sufficient to cover any liability likely to arise from this accident. *** For a discussion of certain environmental matters, see "Business-Environmental Matters" in Item 1. ...

  • Page 25
    ... of allowed general, unsecured claims (including our pilots) and (2) 14 million shares to our approximately 39,000 eligible non-contract, non-management employees. The new common stock was listed on the New York Stock Exchange and began trading under the ticker symbol "DAL" on May 3, 2007. The...

  • Page 26
    ... Under Equity Compensation Plans" of our Proxy Statement for the Annual Meeting of Shareholders to be held June 3, 2008. This Proxy Statement will be filed with the SEC, and is incorporated herein by reference. Stock Performance Graph The following graph compares the cumulative total returns during...

  • Page 27
    ...grants of stock under our Performance Compensation Plan and in connection with bankruptcy claims. The Company disclosed these matters generally in its Disclosure Statement dated February 7, 2007, as amended, and the Plan of Reorganization, which were filed with the Securities and Exchange Commission...

  • Page 28
    ... Successor and (2) the years ended December 31, 2006, 2005, 2004 and 2003 of the Predecessor from our audited consolidated financial statements and the related notes thereto. Upon emergence from Chapter 11 on April 30, 2007 the Effective Date, we adopted fresh start reporting in accordance with SOP...

  • Page 29
    ...31, 2007(2) Four Months Ended April 30, 2007(3) Predecessor Year Ended December 31, 2006(4)(10) 2005(5)(10) 2004(6) 2003(7) Revenue passenger miles (millions)(1) Available seat miles (millions)(1) Passenger mile yield(1) Passenger revenue per available seat mile(1) Operating cost per available seat...

  • Page 30
    ... net of tax, or $1.55 diluted EPS) for certain other income and expense items. (8) Includes interest income. (9) Includes (losses) gains from the sale of investments and fair value adjustments of derivatives. (10) The 2006 and 2005 Consolidated Summary of Operations and Financial and Statistical...

  • Page 31
    ...and around the world. We offered service, including Delta Connection carrier service, to 321 destinations in 58 countries in January 2008. We are a founding member of SkyTeam, a global airline alliance that provides customers with extensive worldwide destinations, flights and services. Including our...

  • Page 32
    ... 2007, to share revenue and cost on certain transatlantic routes. The initial implementation of the joint venture in April 2008 will include flights operated by both carriers between Air France's Paris-Charles de Gaulle, Orly and Lyon hubs and our Atlanta, Cincinnati, New York-JFK and Salt Lake City...

  • Page 33
    ... 67 157 $ SkyMiles Frequent Flyer Program. We revalued our frequent flyer award liability to estimated fair value and changed our accounting policy from an incremental cost method to a deferred revenue method. Fair value represents the estimated price that third parties would require us to pay for...

  • Page 34
    ... the Management Program, officers received restricted stock, stock options and performance shares; director-level employees received restricted stock and stock options; and other management personnel received restricted stock. During the eight months ended December 31, 2007, the total compensation...

  • Page 35
    ... tax benefit discussed below. Operating Revenue Combined Year Ended December 31, 2007 Predecessor Year Ended December 31, 2006 Increase (Decrease) % Increase (Decrease) (in millions) Operating Revenue: Passenger: Mainline Regional affiliates Total passenger revenue Cargo Other, net Total operating...

  • Page 36
    ... of our route network and higher contract carrier flying from our initiatives to right-size capacity. Cost per available seat mile ("CASM") increased 1% to 11.90¢. Aircraft fuel and related taxes. Aircraft fuel and related taxes increased primarily due to higher average fuel prices and increased...

  • Page 37
    ..., for each year in which we have an annual pre-tax profit (as defined), we will pay at least 15% of that profit to eligible employees. Based on our pre-tax earnings, we accrued $158 million under the profit sharing plan for 2007. Operating Income and Operating Margin We reported operating income of...

  • Page 38
    ... agreements and the termination of these plans, see Note 10 of the Notes to the Consolidated Financial Statements. Pilot collective bargaining agreement. A $2.1 billion allowed general, unsecured claim in connection with our comprehensive agreement with ALPA reducing our pilot labor costs. Aircraft...

  • Page 39
    ...by Accounting Adjustments discussed above. Passenger revenue of regional affiliates increased due to (1) a change in how we classify ASA's revenue as a result of its sale to SkyWest and (2) new contract carrier agreements with Shuttle America Corporation ("Shuttle America") and Freedom Airlines, Inc...

  • Page 40
    ... December 31, (in millions) 2006 2005 % Increase (Decrease) Increase (Decrease) Operating Expense: Aircraft fuel and related taxes Salaries and related costs Contract carrier arrangements Depreciation and amortization Contracted services Aircraft maintenance materials and outside repairs Passenger...

  • Page 41
    ... and an 8% decrease from salary rate and benefit cost reductions for our pilot and non-pilot employees, partially offset by Accounting Adjustments discussed above. Contract carrier arrangements. Contract carrier arrangements expense increased primarily due to a 73% increase from the change in how we...

  • Page 42
    ...-income tax reserves, (2) a 12% decrease from the Accounting Adjustments discussed above and (3) a 10% decrease related to the change in how we classify ASA's expense as a result of its sale to SkyWest. Operating Income (Loss) and Operating Margin We reported operating income of $58 million for 2006...

  • Page 43
    ... from sales of auction rate securities. Cash flows provided by operating activities in 2006 reflect an increase of $401 million in working capital compared to 2005. This increase was primarily a result of revenue and network productivity improvements, restructuring initiatives and labor cost...

  • Page 44
    ... the sale of the 2007-1 Certificates and (3) scheduled principal payments on long-term debt and capital lease obligations. During 2007, we also received proceeds from an amendment to the Spare Parts Loan, as discussed above. Cash used in financing activities totaled $606 million for 2006, compared...

  • Page 45
    ... wages required under collective bargaining agreements, fund pension plans (as discussed below), purchase capacity under contract carrier arrangements (as discussed below), settle tax contingency reserves (as discussed below) and pay credit card processing fees and fees for other goods and services...

  • Page 46
    ... air carriers. Under these agreements, the carriers operate some or all of their aircraft using our flight code, and we schedule those aircraft, sell the seats on those flights and retain the related revenue. We pay those airlines an amount, as defined in the applicable agreement, which is based...

  • Page 47
    ... of the Successor was based on financial projections using various valuation methods, including (1) a comparison of our projected performance to the market values of comparable companies; (2) a review and analysis of several recent transactions in the airline industry; and (3) a calculation of the...

  • Page 48
    ...(the "SkyMiles Program").We have a frequent flyer program offering incentives to increase travel on Delta. This program allows participants to earn mileage credits by flying on Delta, Delta Connection Carriers and participating airlines, as well as through participating companies such as credit card...

  • Page 49
    ... projections of passenger yield, fuel costs, labor costs and other relevant factors. We estimate aircraft fair values using published sources, appraisals and bids received from third parties, as available. For additional information about our accounting policy for the impairment of long-lived assets...

  • Page 50
    ... benefit pension plans were terminated during 2006. For additional information regarding these terminations, see Note 10 of the Notes to the Consolidated Financial Statements. We determine our weighted average discount rate on our measurement date primarily by reference to annualized rates earned...

  • Page 51
    ... fuel requirements, including those of our contract carriers under capacity purchase agreements, for the three years ending December 31, 2010, using crude oil and heating oil call option and swap contracts as follows: Weighted Average Contract Strike Price per Gallon Contract Fair Value Based...

  • Page 52
    ... to Financial Statements Weighted Average Contract Strike Price per Gallon Contract Fair Value Based Upon 10% Rise in Futures Prices(1)(2) Increase in Aircraft Fuel Expense Due to 10% Rise in Jet Fuel Price(3) (in millions, unless otherwise stated) Percentage of Projected Fuel Requirements Hedged...

  • Page 53
    ...of December 31, 2007 to ensure that material information was accumulated and communicated to our management, including our Chief Executive Officer and our President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Changes In Internal Control Except...

  • Page 54
    ... Registered Public Accounting Firm The Board of Directors and Shareowners of Delta Air Lines, Inc. We have audited Delta Air Lines, Inc.'s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the...

  • Page 55
    ... COMPENSATION Information required by this item is set forth under the headings "Director Compensation," "Corporate Governance Matters-Compensation Committee Interlocks and Insider Participation" and "Executive Compensation" in our Proxy Statement and is incorporated by reference. ITEM 12. SECURITY...

  • Page 56
    ... Statements. All other financial statement schedules are not required or are inapplicable and therefore have been omitted. (3). The exhibits required by this item are listed in the Exhibit Index to this Form 10-K. The management contracts and compensatory plans or arrangements required to be filed...

  • Page 57
    ... to Financial Statements SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 15th day of February, 2008. DELTA AIR LINES...

  • Page 58
    ..., and Calyon New York Brand and RBS Securities Corporation, as co-documentation agents (Filed as Exhibit 10.1(a) to Delta's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007).* Second Lien Term Loan and Guaranty Agreement, dated as of April 30, 2007, among Delta Air Lines, Inc...

  • Page 59
    ... Financial Statements 10.9(b) 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 12.1 21.1 23.1 23.2 31.1 31.2 32 * ** Delta 2007 Performance Compensation Plan Award Agreement between Delta Air Lines, Inc. and Edward H. Bastian dated August 28, 2007 (Filed as Exhibit 10.3 to Delta's Quarterly Report...

  • Page 60
    ... FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (Ernst & Young LLP) Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP) Consolidated Balance Sheets-December 31, 2007 and 2006 Consolidated Statements of Operations for the eight months...

  • Page 61
    ..."Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," for the Successor Company as a new entity with assets, liabilities and a capital structure having carrying values not comparable with prior periods as described in Note 1. In our opinion, the financial statements referred...

  • Page 62
    ... Index to Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareowners of Delta Air Lines, Inc. Atlanta, Georgia We have audited the accompanying consolidated statements of operations, cash flows, and shareowners' deficit of Delta Air Lines...

  • Page 63
    ... to Financial Statements DELTA AIR LINES, INC. Consolidated Balance Sheets Successor Predecessor December 31, 2006 ASSETS (in millions) December 31, 2007 CURRENT ASSETS: Cash and cash equivalents Short-term investments Restricted cash Accounts receivable, net of an allowance for uncollectible...

  • Page 64
    ... value; 1,500,000,000 shares authorized, 299,464,669 shares issued at December 31, 2007 Additional paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Predecessor stock held in treasury, at cost, 4,745,710 shares at December 31, 2006 Successor stock...

  • Page 65
    ...Four Months Ended April 30, 2007 Year Ended December 31, 2006 2005 (in millions, except per share data) OPERATING REVENUE: Passenger: Mainline Regional affiliates Cargo Other, net Total operating revenue OPERATING EXPENSE: Aircraft fuel and related taxes Salaries and related costs Contract carrier...

  • Page 66
    ... of Contents Index to Financial Statements DELTA AIR LINES, INC. Consolidated Statements of Cash Flow Successor Eight Months Ended December 31, 2007 $ 314 778 211 (604) - (30) 50 22 473 (111) (585) (359) 175 334 $ Predecessor Four Months Ended April 30, 2007 Year Ended December 31, 2006 2005 (in...

  • Page 67
    Debt extinguishment from aircraft renegotiation Dividends on Series B ESOP Convertible Preferred Stock Current maturities of long-term debt exchanged for shares of common stock 33 - - - - - 171 2 - - 15 45 The accompanying notes are an integral part of these Consolidated Financial Statements. ...

  • Page 68
    ... Contents Index to Financial Statements DELTA AIR LINES, INC. Consolidated Statements of Shareowners' Equity (Deficit) Retained Accumulated Additional Earnings Other Common Paid-In (Accumulated Comprehensive Treasury Stock Capital Deficit) Income (Loss) Stock $ 286 5 (289) 2 2 - 2 - - 2 (2 3,052...

  • Page 69
    ... holders of allowed general, unsecured claims (including our pilots) and (2) up to 14 million shares to our approximately 39,000 eligible non-contract, non-management employees. The new common stock was listed on the New York Stock Exchange and began trading under the symbol "DAL" on May 3, 2007. As...

  • Page 70
    ... pension plan for pilots (the "Pilot Plan"); and $650 million in cash to fund an obligation (the "Pilot Obligation") under our comprehensive agreement with the Air Line Pilots Association, International ("ALPA"), the collective bargaining representative of Delta's pilots, to reduce pilot labor costs...

  • Page 71
    ... December 31, 2006: Predecessor (in millions) 2006 Pension, postretirement and other benefits Debt and accrued interest Aircraft lease related obligations Accounts payable and other accrued liabilities Total liabilities subject to compromise Liabilities subject to compromise refers to pre-petition...

  • Page 72
    ... Contract carrier agreements(5) Emergence compensation(6) Professional fees Pilot collective bargaining agreement(7) Interest income(8) Facility leases(9) Vendor waived pre-petition debt Retiree healthcare claims(10) Debt issuance and discount costs Compensation expense(11) Pilot pension termination...

  • Page 73
    ... 12. (7) Allowed general, unsecured claims of $83 million for the four months ended April 30, 2007 and $2.1 billion for the year ended December 31, 2006 in connection with Comair's and Delta's respective comprehensive agreements with ALPA reducing pilot labor costs. (8) Reflects interest earned due...

  • Page 74
    ...of Contents Index to Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued) companies; (2) a review and analysis of several recent transactions in the airline industry; and (3) a calculation of the present value of future cash flows based on our projections. Utilizing these...

  • Page 75
    ... Other noncurrent assets Total other assets Total assets CURRENT LIABILITIES Current maturities of long-term debt and capital leases DIP Facility Accounts payable, accrued salaries and related benefits SkyMiles deferred revenue Air traffic liability Taxes payable Total current liabilities NONCURRENT...

  • Page 76
    ... our trade name, takeoff and arrival slots, SkyTeam alliance agreements, marketing agreements, customer relationships and certain contracts. Certain of these assets will be subject to an annual impairment review. For additional information on intangible assets, see Notes 2 and 5. Long-term debt and...

  • Page 77
    .... Effective with our emergence from bankruptcy, we changed our accounting policy from an incremental cost basis to a deferred revenue model for miles earned through travel. For additional information on the accounting policy for our SkyMiles Program, see Note 2. (f) (g) Noncurrent liabilities-other...

  • Page 78
    ...EITF 06-03 on January 1, 2007. Various taxes and fees on the sale of tickets to customers are collected by us as an agent and remitted to the respective taxing authority. These taxes and fees have been presented on a net basis in the accompanying Consolidated Statements of Operations and recorded as...

  • Page 79
    ... FINANCIAL STATEMENTS-(Continued) Derivative Financial Instruments Fuel Hedging Program We periodically use derivative instruments designated as cash flow hedges, which are comprised of crude oil, heating oil and jet fuel swap, collar and call option contracts, to manage our exposure to changes...

  • Page 80
    ...) SkyMiles Program. We have a frequent flyer program offering incentives to increase travel on Delta. This program allows participants to earn mileage credits by flying on Delta, Delta Connection Carriers and participating airlines, as well as through participating companies such as credit card...

  • Page 81
    ...miscellaneous service revenue. Our revenue from other airlines' sale of seats on our flights under codeshare agreements is recorded in passenger revenue on our Consolidated Statements of Operations. Long-Lived Assets We record property and equipment at cost and depreciate or amortize these assets on...

  • Page 82
    ...of fresh start reporting. We recorded $12.3 billion of goodwill upon emergence from bankruptcy. Identifiable intangible assets consist primarily of trade name, takeoff and arrival slots, SkyTeam alliance agreements, marketing agreements, customer relationships and certain contracts. These intangible...

  • Page 83
    ... valuation allowance associated with the realization of pre-emergence deferred tax assets will sequentially reduce the value of recorded goodwill followed by other indefinite-lived intangible assets until the net carrying cost of these assets is zero. During the eight months ended December 31, 2007...

  • Page 84
    ... Statements of Operations when the related revenue is recognized. Stock-Based Compensation Effective January 1, 2006, we adopted the fair value provisions of SFAS No. 123 (revised 2004), "Share Based Payment" ("SFAS 123R"). This standard requires companies to measure the cost of employee services...

  • Page 85
    ...The estimated fair values of other financial instruments, including debt and derivative instruments, have been determined using available market information and valuation methodologies, primarily discounted cash flow analyses and a Black-Scholes model. Accounting Adjustments During 2006, we recorded...

  • Page 86
    ...for employees at our wholly owned subsidiary, DGS, to salaries and related costs. DGS provides staffing services to both internal and external customers. Previously, these costs were recorded in contracted services. Fuel taxes. We reclassified $114 million and $195 million, respectively, to aircraft...

  • Page 87
    ... flows for specific assets derived from our projections of future revenue, expense and airline market conditions. These cash flows were discounted to their present value using a rate of return that considers the relative risk of not realizing the estimated annual cash flows and time value of money...

  • Page 88
    ... Program. This estimated price was determined based on our weighted average equivalent ticket value of a SkyMiles award which is redeemed for travel on Delta or a participating airline. The weighted average equivalent ticket value contemplates differing classes of service, domestic and international...

  • Page 89
    ... Index to Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Weighted Average Contract Strike Price per Gallon Percentage of Projected Fuel Requirements Hedged Contract Fair Value at January 31, 2008 (in millions)(1) 2009 Crude oil Call options Total 2010 Crude oil...

  • Page 90
    ... the sale of mileage credits under our SkyMiles Program to participating airlines and non-airline businesses such as credit card companies, hotels and car rental agencies. We believe that the credit risk associated with these receivables is minimal and that the allowance for uncollectible accounts...

  • Page 91
    ...including goodwill, at December 31, 2007 and 2006: Indefinite-Lived Intangible Assets Successor December 31, 2007 Gross Carrying Amount Predecessor December 31, 2006 Gross Carrying Amount (in millions) Goodwill Trade name Takeoff and arrival slots SkyTeam alliance Other Total $ $ 12,104 880 635...

  • Page 92
    ... Index to Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 6. Debt The following table summarizes our debt at December 31, 2007 and 2006: Successor (in millions) December 31, 2007 Predecessor December 31, 2006 Senior Secured(1) Senior Secured Exit Financing...

  • Page 93
    ... Capital Corporation("GECC")(2)(4) 9.74% Notes due in installments from 2008 to July 7, 2011 ("Spare Engines Loan") 9.86% Notes due in installments from 2008 to July 7, 2011 ("Aircraft Loan")(3) 6.98% Notes due in installments from 2008 to September 27, 2014 ("Spare Parts Loan") Other secured debt...

  • Page 94
    ..., 2006. In October 2007, we completed the sale of $1.4 billion of Pass Through Certificates, Series 2007-1 (the "2007-1 Certificates"). The proceeds from this offering were primarily used to prepay certain existing aircraft-secured and related financings, including these debt instruments. The rates...

  • Page 95
    ...THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Future Maturities The following table summarizes scheduled maturities of our debt, including current maturities, at December 31, 2007: Principal Amount Years Ending December 31, (in millions) 2008 2009 2010 2011 2012 After 2012 Total Exit Financing...

  • Page 96
    ...NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Exit Facilities contain financial covenants that require us to: • maintain a minimum fixed charge coverage ratio (defined as the ratio of (1) earnings before interest, taxes, depreciation, amortization and aircraft rent, and subject to...

  • Page 97
    ... with GECC referred to as the Aircraft Loan with the proceeds from the issuance of the 2007-1 Certificates. In addition, we terminated a reimbursement agreement with GECC under which letters of credit were issued to support certain special facility bonds. The Spare Engines Loan is secured by 93...

  • Page 98
    ... operations. For additional information about our war-risk insurance currently provided by the U.S. Government, see Note 8. We were in compliance with these covenant requirements at December 31, 2007. Note 7. Lease Obligations We lease aircraft, airport terminals and maintenance facilities, ticket...

  • Page 99
    ... to Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following tables summarize, as of December 31, 2007, our minimum rental commitments under capital leases and noncancelable operating leases (including certain aircraft under contract carrier agreements) with...

  • Page 100
    .... Under these agreements, the regional air carriers operate some or all of their aircraft using our flight code, and we schedule those aircraft, sell the seats on those flights and retain the related revenues. We pay those airlines an amount, as defined in the applicable agreement, which is based on...

  • Page 101
    ...Index to Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table shows by carrier and contract (1) the number of aircraft in Delta Connection operation as of December 31, 2007, (2) the number of aircraft scheduled to be in Delta Connection operation as of...

  • Page 102
    ... terms and conditions. We estimate that the total fair values, determined as of December 31, 2007, of the aircraft that Chautauqua or Shuttle America could assign to us or require that we purchase if we terminate without cause our contract carrier agreements with those airlines (the "Put Right") are...

  • Page 103
    ...Board Special Facilities Revenue Bonds, 1992 Series B (Delta Air Lines, Inc. Project), $16 million of which were then outstanding. The Cincinnati Airport Settlement Agreement, among other things provides for agreements under which we will continue to use certain facilities at the Cincinnati Airport...

  • Page 104
    ... trustee amounts sufficient to pay the debt service on $47 million in Facilities Sublease Refunding Revenue Bonds. These bonds were issued in 1996 to refinance bonds that financed the construction of certain airport and terminal facilities we use at Los Angeles International Airport. We also provide...

  • Page 105
    ... major airports in the New York City area. In accordance with this agreement, in September 2006, we sold to Aron, at then current market prices, (1) all jet fuel inventory that we were then holding in storage at facilities that support our operations at the airports in Atlanta and Cincinnati and...

  • Page 106
    ... that support our operations at the Atlanta and Cincinnati airports and all jet fuel inventory that is in transit to these airports as well as to the three major New York City area airports. Our cost to purchase such inventory may be material. At termination of the agreement, Aron will return to...

  • Page 107
    ... months ended April 30, 2007 was not material. We are currently under audit by the Internal Revenue Service for the 2005 and 2006 tax years. It is reasonably possible that during 2008 the settlement of bankruptcy claims will result in significant changes to the amount of unrecognized tax benefits...

  • Page 108
    ...other indefinite-lived intangible assets until the net carrying costs of these assets is zero. Beginning January 1, 2009, pursuant to SFAS 141R, any reduction in this valuation allowance will be reflected through the income tax provision. Our income tax (provision) benefit for the eight months ended...

  • Page 109
    ... Revenue Code, the Employee Retirement Income Security Act ("ERISA") and our collective bargaining agreements. Any changes to the plans or assumptions used to estimate future benefits could have a significant effect on the amount of the reported obligation and future annual expense. During 2006, in...

  • Page 110
    ... by Western Airlines. During 2007, in connection with our bankruptcy proceedings, we restructured our retiree benefit programs as follows: Non-Pilot Pension Plans. Effective April 1, 2007, we elected the alternative funding schedule under Section 402(a)(1) of the Pension Protection Act of 2006 with...

  • Page 111
    ... TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued) benefit pension plans, other postretirement plans, and certain of our postemployment plans on our Consolidated Balance Sheet as of December 31, 2006. Because the requirement to measure the funded status of a plan as of the Company's year-end was...

  • Page 112
    Table of Contents Index to Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In 2006, the $5.2 billion decrease in the pension benefit obligation and $1.7 billion decrease in the fair value of plan assets relate to the termination of the Pilot Plan and the related non-...

  • Page 113
    ...: Pension Benefits Successor Eight Months Ended December 31, 2007 Four Months Ended April 30, 2007 Predecessor Year Ended December 31, (in millions) 2006 2005 Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized net actuarial loss Amortization...

  • Page 114
    ... Year Ended 5.88% 0.36% 8.50% Net Periodic Benefit Cost(3) Four Months Ended April 30, 2007 December 31, 2006 2005 Weighted average discount rate-pension benefit Weighted average discount rate-other postretirement benefit Weighted average discount rate-other postemployment benefit Rate...

  • Page 115
    ... TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Assumed healthcare cost trend rates have an effect on the amounts reported for the other postretirement benefit plans. A 1% change in the healthcare cost trend rate used in measuring the APBO for these plans at December 31, 2007, would have the...

  • Page 116
    ... defined benefit pension plans for eligible Delta employees in certain foreign countries. These plans did not have a material impact on our Consolidated Financial Statements in any period presented. Defined Contribution Pension Plans Delta Family-Care Savings Plan ("Savings Plan") Eligible employees...

  • Page 117
    ...required tax withholdings, as well as for awards under the 2007 Plan, which is described below. These shares are valued at cost, which equals the market price of the common stock on the date of issuance. At December 31, 2007, there were 7,238,973 shares of common stock held in treasury at a weighted...

  • Page 118
    ...; and management personnel received restricted stock. All of these awards were made under the Delta Air Lines, Inc. 2007 Performance Compensation Plan (the "2007 Plan") described below. The following table shows the total compensation cost related to the 2007 Plan during the eight months ended...

  • Page 119
    .... 107, "Share Based Payments." The weighted average fair value of options granted during the eight months ended December 31, 2007 was $10.82 and determined based on the following weighted average assumptions: Risk-free interest rate Average expected life of stock options (in years) Weighted average...

  • Page 120
    ...under the broad-based employee Profit Sharing Program. Predecessor We did not grant any stock options during the four months ended April 30, 2007 or the year ended December 31, 2006. The estimated fair values of stock options granted during the year ended December 31, 2005 were derived using a Black...

  • Page 121
    ... costs associated with these awards. The Bankruptcy Court granted our motion, which resulted in substantially all of our stock options being rejected effective March 31, 2006. For the year ended December 31, 2006, we recorded in our Consolidated Statement of Operations (1) $8 million of compensation...

  • Page 122
    ..., and postemployment benefit liabilities, (3) changes in our deferred tax asset valuation allowance related to our unrecognized pension, postretirement, and postemployment liabilities and (4) changes in the effective portion of our open fuel hedge contracts, which qualify for hedge accounting. The...

  • Page 123
    ... passengers and cargo. This allows us to benefit from an integrated revenue pricing and route network that includes Mainline, Comair and our contract carriers. The flight equipment of the carriers is combined to form one fleet, which is deployed through a single route scheduling system. When making...

  • Page 124
    ... Months Ended April 30, 2007 Predecessor Year Ended December 31, 2006 2005 (in millions, except per share data) Basic: Net income (loss) Dividends on allocated Series B ESOP Convertible Preferred Stock Net income (loss) attributable to common shareowners Basic weighted average shares outstanding...

  • Page 125
    ...four months ended April 30, 2007 and the years ended 2006 and 2005, and the associated activity for the years then ended: Allowance for: Obsolescence of Expendable Parts & Supplies Inventory (in millions) Restructuring and Other Charges(1) Uncollectible Accounts Receivable(2) Deferred Tax Assets...

  • Page 126
    ... start reporting to eliminate the Predecessor's accumulated other comprehensive loss. Note 18. Quarterly Financial Data (Unaudited) The following table summarizes our unaudited results of operations for the 2007 and 2006 periods presented below: 2007 Predecessor Three Months One Month Ended Ended...

  • Page 127
    ... with my employment relationship with Delta, or the termination of that relationship, except as described in the Plan and this Agreement (other than retirement, death or equity-based benefits in accordance with the respective terms of any retirement, death or equity-based benefits plan in which...

  • Page 128
    ... provided by or arising under the Plan, this Agreement, the Delta Pilots Defined Contribution Plan (or any other policy, plan or program pertaining to retirees of Delta), the Delta Family-Care Savings Plan, the Delta Air Lines, Inc. 2007 Performance Compensation Plan, or any right I may have to...

  • Page 129
    ...of "trade secrets" under the law of the State of Georgia, including, without limitation, information regarding Delta's present and future operations, its financial operations, marketing plans and strategies, alliance agreements and relationships, its compensation and incentive programs for employees...

  • Page 130
    ...the sale of assets; all third party provider agreements, relationships, and strategies; all business methods and processes used by Delta and its employees; all personally identifiable information regarding Delta employees, contractors and applicants; and all lists of actual or potential customers or...

  • Page 131
    ... officers, directors or employees, including, but not limited to any such statement which damages Delta's good reputation or impairs its normal operations. I further agree that I will not initiate or solicit claims against Delta, or otherwise directly or indirectly encourage or support any claim...

  • Page 132
    ... of any other provision of this Agreement, which will remain in full force and effect. 21. Entire Agreement. This Agreement sets forth the entire Agreement between me and Delta and supersedes any other written or oral agreement. No representations, statements, or inducements have been made to...

  • Page 133
    ..., Delta has executed this Agreement on the 29th day of November, 2007, and Joseph C. Kolshak has executed this Agreement on the date indicated below. /S/ Name: Date: /S/ JOSEPH C. KOLSHAK Joseph C. Kolshak 11-27-2007 ROBERT L. KIGHT Robert L. Kight Vice President-Compensation and Benefits Delta Air...

  • Page 134
    ... (loss) before income taxes Add (deduct): Fixed charges from below Income from equity investee Distributed income of equity investees Earnings (loss) as adjusted Fixed Charges: Interest expense, including capitalized amounts and amortization of debt costs Preferred stock dividends Portion of rental...

  • Page 135
    ...American World Airways, Inc.-Unterstutzungskasse GMBH Delta Air Lines Dublin Limited Delta Air Lines Private Limited Delta Benefits Management, Inc. Delta Connection Academy, Inc. Delta Loyalty Management Services, LLC Delta Technology, LLC Epsilon Trading, LLC Kappa Capital Management, Inc. New Sky...

  • Page 136
    ... to the consolidated financial statements of Delta Air Lines, Inc. and the effectiveness of internal control over financial reporting of Delta Air Lines, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2007. /s/ Ernst & Young LLP Atlanta, Georgia February 13, 2008

  • Page 137
    ...the Company's reorganization under Chapter 11 of the United States Bankruptcy Code and the Company's ability to continue as a going concern) appearing in this Annual Report on Form 10-K of Delta Air Lines, Inc. for the year ended December 31, 2007. /s/ Deloitte & Touche LLP Atlanta, Georgia February...

  • Page 138
    ..., summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in Delta's internal control over financial reporting. February 15, 2008 /s / RICHARD ANDERSON Richard Anderson Chief Executive Officer

  • Page 139
    ... report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in Delta's internal control over financial reporting. February 15, 2008 /s / EDWARD H. BASTIAN Edward H. Bastian President and Chief Financial Officer

  • Page 140
    ... Code in connection with the filing on the date hereof with the Securities and Exchange Commission of the Annual Report on Form 10-K of Delta Air Lines, Inc. ("Delta") for the fiscal year ended December 31, 2007 (the "Report"). Each of the undersigned, the Chief Executive Officer and the President...