Delta Airlines 2009 Annual Report Download - page 42

Table of Contents
• Contract carrier restructuring. $14 million in charges associated with the early termination of certain capacity purchase agreements with regional air
carriers.
Impairments. During 2008, we experienced a significant decline in market capitalization primarily from record high fuel prices and overall airline industry
conditions. In addition, the announcement of our intention to merge with Northwest established a stock exchange ratio based on the relative valuation of Delta
and Northwest. As a result, we determined goodwill was impaired and recorded a non-cash charge of $6.9 billion. We also recorded a non-cash charge of
$357 million to reduce the carrying value of certain intangible assets based on their revised estimated fair values.
Fuel expense. Fuel expense, including contract carriers, increased $2.2 billion, primarily due to higher average fuel prices, which were partially offset by
fuel hedge gains and reduced consumption from lower capacity. Fuel prices averaged $3.18 per gallon, including fuel hedge gains of $134 million, for 2008,
compared to $2.24 per gallon, including fuel hedge gains of $51 million, for 2007.
Salaries and related costs. Salaries and related costs increased $66 million primarily from a 6% average increase in pilots and flight attendants to staff
increased international flying, annual pay increases for all pilot and non-pilot non-management employees, and increases in group insurance rates, partially
offset by a 3% average decrease in headcount primarily related to two voluntary workforce reduction programs.
Aircraft maintenance materials and outside repairs. Aircraft maintenance materials and outside repairs increased $73 million primarily due to growth in
our third party maintenance and repair business.
Passenger service. Passenger service increased $67 million primarily associated with (1) the increased cost of catering on international flights, (2) product
upgrades in our Business Elite cabins and (3) unfavorable foreign currency exchange rates.
Profit sharing. In 2007, we recorded a $158 million charge related to our broad-based employee profit sharing plan. We did not record any profit sharing
expense in 2008. This plan provides that, 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.
Other (Expense) Income
Other expense, net for 2008 was $727 million, compared to $492 million for 2007. This change is attributable to (1) a $53 million, or 8%, increase in
interest expense primarily due to a higher level of debt outstanding, including Northwest debt for the period from October 30 to December 31, 2008 and the
borrowing of the entire amount of our $1.0 billion exit revolving credit facility, partially offset by the repayment of our debtor-in-possession financing
facilities (the "DIP Facility") and other higher floating rate debt in connection with our emergence from Chapter 11, (2) a $36 million decrease in interest
income primarily from lower cash balances prior to the Merger and lower interest rates compared to 2007 and (3) a $146 million unfavorable change in
miscellaneous, net due to the following:
Unfavorable
2008 GAAP vs. 2007
Predecessor +
(in millions) Successor
Miscellaneous, net
Foreign currency exchange rates $ 72
Loss on investments in The Reserve Primary Fund and insured auction rate securities 34
Mark-to-market adjustments on the ineffective portion of fuel hedge contracts 21
Northwest non-operating expense from October 30 to December 31, 2008 12
Other 7
Total miscellaneous, net $ 146
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