Delta Airlines 2008 Annual Report Download - page 42

Table of Contents
Index to Financial Statements
• Facility leases. A net $43 million gain, which primarily reflects (1) a $126 million net gain related to our settlement agreement with the
Massachusetts Port Authority partially offset by (2) a net $80 million charge from an allowed general, unsecured claim in connection with the
settlement relating to the restructuring of certain of our lease and other obligations at the Cincinnati Airport.
Income Tax Benefit (Provision)
We recorded an income tax benefit of $119 million for 2008 as a result of the impairment of our indefinite-lived intangible assets. The impairment of
goodwill did not result in an income tax benefit as goodwill is not deductible for income tax purposes. We did not record an income tax benefit for the
remainder of our loss for 2008, as it is fully reserved by a valuation allowance.
For 2007, we recorded an income tax provision totaling $207 million. We have recorded a full valuation allowance against our net deferred tax assets,
excluding the effect of the deferred tax liabilities that are unable to be used as a source of income against these deferred tax assets, based on our belief that it is
more likely than not that the asset will not be realized in the future. We will continue to assess the need for a full valuation allowance in future periods. In
accordance with SOP 90-7, any reduction in the valuation allowance as a result of the recognition of deferred tax assets is adjusted through goodwill, followed
by other indefinite-lived intangible assets until the net carrying cost of these assets is zero. Accordingly, during 2007, we reduced goodwill by $211 million
with respect to the realization of pre-emergence deferred tax assets.
Results of Operations—2007 Combined Compared to 2006
Fresh Start Adjustments
During the eight months ended December 31, 2007, Fresh Start 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.
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