Delta Airlines 2007 Annual Report Download - page 109

Table of Contents
Index to Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the principal reasons for the difference between the effective tax rate and the U.S. federal statutory income tax rate for the
eight months ended December 31, 2007, the four months ended April 30, 2007 and the years ended December 31, 2006 and 2005:
Successor Predecessor
Eight Months
Ended
December 31,
2007
Four Months
Ended
April 30,
2007
Year Ended December 31,
2006 2005
U.S. federal statutory income tax rate 35.0% 35.0% (35.0)% (35.0)%
State taxes, net of federal income tax effect 3.7 3.6 (2.5) (3.3)
(Decrease) increase in valuation allowance(1) — (39.3) 23.2 36.6
Other, net 1.5 0.4 3.3 0.6
Effective income tax rate 40.2% (0.3)% (11.0)% (1.1)%
(1) For the four months ended April 30, 2007, the decrease in the valuation allowance reflects fresh start adjustments.
For additional information about our accounting policy for income taxes, see Note 2.
Note 10. Employee Benefit Plans
We sponsor qualified defined benefit and defined contribution pension plans, healthcare plans, and disability and survivorship plans for eligible
employees and retirees, and their eligible family members. We regularly evaluate ways to better manage our employee benefits and control costs. We reserve
the right to modify or terminate our benefit plans as to all participants and beneficiaries at any time, except as restricted by the Internal 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 connection with our bankruptcy proceedings, we restructured our retiree benefit programs as follows:
Termination of Pilot Plan and Corresponding Non-Qualified Plans. Effective September 2, 2006, we terminated the Pilot Plan in a distress termination,
and also terminated the corresponding non-qualified pension plans for pilots. As a result of these terminations, we recorded settlement gains of $1.3 billion in
reorganization items, net. The PBGC received a $2.2 billion allowed general, unsecured claim and retired pilots received $810 million in total claims
(comprised of an $801 million allowed general, unsecured claim and $9 million administrative claim), in our Chapter 11 case due to the termination of the
Pilot Plan and the non-qualified plans, respectively. The total of these two claims was recorded in reorganization items, net with a corresponding offset in
liabilities subject to compromise.
Postretirement Healthcare Plans. We amended our postretirement healthcare plan for pilots (1) to increase healthcare premiums for pilots who retire
after June 1, 2006 and their survivors prior to age 65 and (2) to provide that pilots who retire after June 1, 2006 are not eligible for subsidized post age 65
healthcare, although they may purchase such coverage at full cost.
We eliminated post age 65 coverage for all non-pilot retirees and increased current retirees' (both pilot and non-pilot) share of healthcare costs. We
agreed to provide a limited subsidy for certain retirees that can be applied to alternative coverage to be made available through the retiree committee
appointed pursuant to Section 1114 of the Bankruptcy Code. Retired pilots may also apply their subsidy to the Delta Pilots Medical Plan rather than to the
alternative coverage. Current pilot and non-pilot retirees received a $539 million allowed general, unsecured claim, which was recorded in reorganization
items, net with a corresponding offset in liabilities subject to compromise. These amendments of our postretirement plans reduce participant benefits and are
accounted for as a negative plan amendment, reducing the accumulated plan benefit obligation ("APBO") for these plans by $859 million.
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