Delta Airlines 2009 Annual Report Download - page 72

Table of Contents
In evaluating our goodwill for impairment, we first compare our one reporting unit's fair value to its carrying value. We estimate the fair value of our
reporting unit by considering (1) our market capitalization, (2) any premium to our market capitalization an investor would pay for a controlling interest,
(3) the potential value of synergies and other benefits that could result from such interest, (4) market multiple and recent transaction values of peer companies
and (5) projected discounted future cash flows, if reasonably estimable. If the reporting unit's fair value exceeds its carrying value, no further testing is
required. If, however, the reporting unit's carrying value exceeds its fair value, we then determine the amount of the impairment charge, if any. We recognize
an impairment charge if the carrying value of the reporting unit's goodwill exceeds its implied fair value.
We perform the impairment test for our indefinite-lived intangible assets by comparing the asset's fair value to its carrying value. Fair value is estimated
based on (1) recent market transactions, where available, (2) the lease savings method for airport slots (which reflects potential lease savings from owning the
slots rather than leasing them from another airline at market rates), (3) the royalty method for the Delta tradename (which assumes hypothetical royalties
generated from using our tradename) or (4) projected discounted future cash flows. We recognize an impairment charge if the asset's carrying value exceeds
its estimated fair value.
Changes in assumptions or circumstances could result in an additional impairment in the period in which the change occurs and in future years. Factors
which could cause impairment include, but are not limited to, (1) negative trends in our market capitalization, (2) volatile fuel prices, (3) declining passenger
mile yields, (4) lower passenger demand as a result of the weakened U.S. and global economy, (5) interruption to our operations due to an employee strike,
terrorist attack, or other reasons, (6) changes to the regulatory environment and (7) consolidation of competitors in the industry.
Interest Expense
Interest expense recorded on our Consolidated Statements of Operations totaled $1.3 billion and $705 million for the years ended December 31, 2009 and
2008, respectively, $390 million for the eight months ended December 31, 2007 and $262 million for the four months ended April 30, 2007. Contractual
interest expense (including interest expense that was associated with obligations classified as liabilities subject to compromise) totaled $366 million for the
four months ended April 30, 2007. While operating as a debtor-in-possession under Chapter 11 of the Bankruptcy Code, we recorded interest expense only to
the extent (1) interest would be paid during our Chapter 11 proceedings or (2) it was probable interest would be an allowed priority, secured or unsecured
claim.
Income Taxes
We account for deferred income taxes under the liability method. Under this method, we recognize deferred tax assets and liabilities based on the tax
effects of temporary differences between the financial statement and tax bases of assets and liabilities, as measured by current enacted tax rates. A valuation
allowance is recorded to reduce deferred tax assets when necessary. Deferred tax assets and liabilities are recorded net as current and noncurrent deferred
income taxes on our Consolidated Balance Sheets.
Our income tax provisions are based on calculations and assumptions that are subject to examination by the Internal Revenue Service (the "IRS") and other
taxing authorities. Although we believe that the positions taken on previously filed tax returns are reasonable, we have established tax and interest reserves in
recognition that taxing authorities may challenge the positions we have taken, which could result in additional liabilities for taxes and interest. We review the
reserves as circumstances warrant and adjust the reserves as events occur that affect our potential liability, such as lapsing of applicable statutes of limitations,
conclusion of tax audits, a change in exposure based on current calculations, identification of new issues, release of administrative guidance or the rendering
of a court decision affecting a particular issue. We would adjust the income tax provision in the period in which the facts that give rise to the revision become
known.
Long-Term Investments
Investments with maturities of greater than one year when purchased are recorded at fair value in other noncurrent assets on our Consolidated Balance
Sheets. Our long-term investments are comprised of student loan backed auction rate securities classified as available-for-sale and insured auction rate
securities classified as trading securities. Any change in the fair value of these securities is recorded in accumulated other comprehensive loss or earnings, as
appropriate. For additional information regarding our auction rate securities, see Note 3.
Deferred Gains on Sale and Leaseback Transactions
We amortize deferred gains on the sale and leaseback of property and equipment under operating leases over the lives of these leases. The amortization of
these gains is recorded as a reduction to rent expense. Gains on the sale and leaseback of property and equipment under capital leases reduce the carrying
value of the related assets. 67