Delta Airlines 2010 Annual Report Download - page 42

Table of Contents
Goodwill and Other Intangible Assets
We apply a fair value-based impairment test to the net book value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain
events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The annual impairment test date for our goodwill and
indefinite-lived intangible assets is October 1.
As of October 1, 2010, the date of our most recent goodwill and indefinite-lived intangible assets impairment tests, the fair value of goodwill and
indefinite-lived intangible assets exceeded the carrying values. The key assumptions included (1) our projected revenues, expenses and cash flows, (2) an
estimated weighted average cost of capital of 10%, (3) assumed discount rates ranging from 10% to 15% depending on the asset and (4) a tax rate of 39.2%.
These assumptions are consistent with those hypothetical market participants would use. Since we are required to make estimates and assumptions when
evaluating goodwill and indefinite-lived intangible assets for impairment, the actual amounts may differ materially from these estimates.
Changes in assumptions or circumstances could result in impairment. Factors which could cause impairment include, but are not limited to, (1) negative
trends in our market capitalization, (2) an increase in 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 airline industry.
Goodwill. Goodwill reflects (1) the excess of the reorganization value of Delta over the fair values of tangible and identifiable intangible assets, net of
liabilities, from the adoption of fresh start reporting upon emergence from bankruptcy, adjusted for impairment and (2) the excess of purchase price over the
fair values of tangible and identifiable intangible assets acquired and liabilities assumed from Northwest in the Merger.
In evaluating 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) market capitalization, (2) controlling interest premiums, (3) recent market transactions, (4) projected discounted future cash flows and
(5) other factors. 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 estimated fair value.
Identifiable Intangible Assets. Identifiable intangible assets reflect intangible assets recorded as a result of our adoption of fresh start reporting upon
emergence from bankruptcy and acquired in the Merger. Indefinite-lived assets are not amortized and consist primarily of routes, slots, the Delta tradename
and the SkyTeam alliance. Definite-lived intangible assets consist primarily of marketing agreements and contracts and are amortized on a straight-line basis
or under the undiscounted cash flows method over the estimated economic life of the respective agreements and contracts.
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) potential lease savings from owning the assets, (3) 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.
As of October 1, 2010, the date of our most recent impairment test, we determined our Pacific routes and slots continue to have an indefinite life and are
not presently impaired. We considered that the U.S. and Japan signed an open skies agreement in October 2010. We currently believe this agreement will not
have a significant long-term impact on our Pacific routes and slots. See Note 4 of the Notes to the Consolidated Financial Statements for additional
information.
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