Delta Airlines 2007 Annual Report Download - page 33

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Table of Contents
Index to Financial Statements
Fresh Start Adjustments
During the eight months ended December 31, 2007, Fresh Start Adjustments impacted our Consolidated Financial Statements. These adjustments
resulted in a $157 million increase to pre-tax income for the year ended December 31, 2007. The Fresh Start Adjustments consist of the following:
(in millions)
Increase/(Decrease)
to Pre-tax Income
for 2007
Operating revenue $ 188
Operating expense
Aircraft fuel expense and related taxes (46)
Depreciation 127
Amortization (146)
Aircraft maintenance materials and outside repairs (52)
Other 19
Total operating expense (98)
Operating income 90
Other income (primarily interest expense) 67
Income before income taxes $ 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 them to assume
the obligation of redeeming miles under the SkyMiles program. Fresh Start Adjustments for the SkyMiles program (including the change in accounting policy
for that program) increased operating revenue by $188 million for the year ended December 31, 2007.
Fuel Hedging. Prior to the adoption of fresh start reporting on April 30, 2007, we recorded as a component of shareowners' deficit in other
comprehensive loss $46 million of deferred gains related to our fuel hedging program. This gain would have been recognized as an offset to fuel expense as
the underlying fuel hedge contracts were settled. However, as required by fresh start reporting, accumulated other comprehensive loss prior to emergence
from Chapter 11 was reset to zero. Accordingly, Fresh Start Adjustments resulted in a non-cash increase to fuel expense of $46 million for the year ended
December 31, 2007.
Depreciation. We revalued property and equipment to fair value, which reduced the net book value of these assets by $1.0 billion. In addition, we
adjusted the depreciable lives of flight equipment to reflect revised estimated useful lives. As a result, depreciation expense decreased by $127 million for the
year ended December 31, 2007.
Amortization of Intangible Assets. We valued our intangible assets at fair value, which increased the net book value of intangible assets (excluding
goodwill) by $2.9 billion, of which $956 million relates to amortizable intangible assets. As a result, amortization expense increased by $146 million for the
year ended December 31, 2007.
Aircraft Maintenance Materials and Outside Repairs. We changed the way we account for certain maintenance parts that were previously capitalized
and depreciated. After emergence, we expense these parts as they are placed on the aircraft. This change resulted in an increase in aircraft maintenance
materials and outside repairs expense of $52 million for the year ended December 31, 2007.
Interest Expense. The revaluation of our debt and capital lease obligations resulted in a decrease in interest expense due to the amortization of premiums
from adjusting these obligations to fair value. During 2007, $33 million in future premium credits were accelerated in connection with accounting for (1) the
amendment to our
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