Delta Airlines 2007 Annual Report Download - page 48

Download and view the complete annual report

Please find page 48 of the 2007 Delta Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

Table of Contents
Index to Financial Statements
For the impact that the adoption of fresh start reporting had on our Consolidated Balance Sheet, see Note 1 of the Notes to the Consolidated Financial
Statements.
Frequent Flyer Program (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 companies, hotels and car rental agencies. We also sell mileage credits to other airlines and to non-airline businesses. 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.
As a result of the adoption of fresh start reporting upon emergence from bankruptcy, we revalued our SkyMiles frequent flyer award liability to
estimated fair value. The fair value of our SkyMiles frequent flyer award liability was determined based on the estimated price that third parties would require
us to pay for them to assume the obligation for miles expected to be redeemed under the SkyMiles Program. This estimated price was determined based on the
weighted average equivalent ticket value of a SkyMiles award, redeemed for travel on Delta or a participating airline. The weighted average equivalent ticket
value contemplates differing classes of service, domestic and international itineraries and the carrier providing the award travel. At April 30, 2007, we
recorded deferred revenue equal to $0.0083 for each mile we estimate will ultimately be redeemed under the SkyMiles Program.
Upon emergence from bankruptcy, we changed our accounting policy to a deferred revenue model for all frequent flyer miles. We now account for all
miles earned and sold as separate deliverables in a multiple element revenue arrangement as prescribed by EITF 00-21, "Revenue Arrangements with Multiple
Deliverables."
We use the residual method for revenue recognition of mileage credits. The fair value of the mileage credit component is determined based on the low
end of the range of the prices at which we sell mileage credits to other airlines, which price is currently $0.0054 per mile and will be re-evaluated annually.
Under the residual method, the portion of the revenue from the sale of mileage credits that approximates fair value is deferred and recognized as passenger
revenue when miles are redeemed and services are provided based on the weighted average price of all miles that have been deferred. The portion of the
revenue received in excess of the fair value, the marketing premium, is recognized in income when the related services are provided and classified as other,
net revenue.
For mileage credits which we estimate are not likely to be redeemed ("Breakage"), we recognize the associated value proportionally during the period
in which the remaining mileage credits are expected to be redeemed. The estimate of Breakage, which is currently 22%, is based on historical redemption
patterns. A change in assumptions as to the period over which mileage credits are expected to be redeemed, the actual redemption activity for mileage credits
or our estimate of the fair value of mileage credits expected to be redeemed could have a material impact on our revenue in the year in which the change
occurs and in future years. At December 31, 2007, the aggregate deferred revenue balance associated with the SkyMiles program was $3.3 billion. A
hypothetical 1% change in our outstanding number of miles estimated to be redeemed would result in a $27 million impact on our deferred revenue liability.
Goodwill and Other Intangible Assets. Goodwill reflects the excess of the reorganization value of the Successor over the fair value of tangible and
identifiable intangible assets, net of liabilities, from the adoption 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 assets, excluding marketing agreements, customer relationships and certain contracts, are indefinite-lived
assets and are not amortized. Marketing agreements, customer relationships and certain contracts are definite-lived intangible assets and are amortized over
the estimated economic life of the respective agreements and contracts.
43