Delta Airlines 2014 Annual Report Download - page 69

We value goodwill and indefinite-lived intangible assets primarily using market capitalization and income approach valuation techniques. These
measurements include the following key assumptions: (1) forecasted revenues, expenses and cash flows, (2) terminal period revenue growth and cash
flows, (3) an estimated weighted average cost of capital, (4) assumed discount rates depending on the asset and (5) a tax rate. 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, actual transaction amounts may differ materially from these estimates.
Changes in certain events and circumstances could result in impairment. Factors which could cause impairment include, but are not limited to, (1)
negative trends in our market capitalization, (2) reduced profitability resulting from lower passenger mile yields or higher input costs (primarily related
to fuel and employees), (3) lower passenger demand as a result of weakened U.S. and global economies, (4) interruption to our operations due to a
prolonged employee strike, terrorist attack, or other reasons, (5) changes to the regulatory environment (e.g., diminished slot restrictions or additional
Open Skies agreements), (6) competitive changes by other airlines and (7) strategic changes to our operations leading to diminished utilization of the
intangible assets.
Goodwill. In evaluating goodwill for impairment, we estimate the fair value of our reporting unit by considering market capitalization and other
factors if it is more likely than not that the fair value of our reporting unit is less than its carrying value. 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. Indefinite-lived assets are not amortized and consist of routes, slots, the Delta tradename and assets related to
SkyTeam. Definite-lived intangible assets consist primarily of marketing agreements and are amortized on a straight-line basis or under the
undiscounted cash flows method over the estimated economic life of the respective agreements. Costs incurred to renew or extend the term of an
intangible asset are expensed as incurred.
We assess our indefinite-lived assets under a qualitative or quantitative approach. We analyze market factors to determine if events and
circumstances have affected the fair value of the indefinite-lived intangible assets. If we determine that it is more likely than not that the asset value
may be impaired, we use the quantitative approach to assess the asset's fair value and the amount of the impairment. We perform the quantitative
impairment test for 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) a combination of limited market transactions and the lease savings method for certain 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 (an income
approach). We recognize an impairment charge if the asset's carrying value exceeds its estimated fair value.
Income Taxes
We account for deferred income taxes under the liability method. We recognize deferred tax assets and liabilities based on the tax effects of
temporary differences between the financial statement and tax basis of assets and liabilities, as measured by current enacted tax rates. Deferred tax
assets and liabilities are recorded net as current and noncurrent deferred income taxes. A valuation allowance is recorded to reduce deferred tax assets
when necessary. For additional information about our income taxes, see Note 13 .
Manufacturers' Credits
We periodically receive credits in connection with the acquisition of aircraft and engines. These credits are deferred until the aircraft and engines
are delivered, and then applied as a reduction to the cost of the related equipment.
Maintenance Costs
We record maintenance costs to aircraft maintenance materials and outside repairs. Maintenance costs are expensed as incurred, except for costs
incurred under power-by-the-hour contracts, which are expensed based on actual hours flown. Power-by-the-hour contracts transfer certain risk to
third-party service providers and fix the amount we pay per flight hour to the service provider in exchange for maintenance and repairs under a
predefined maintenance program. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are
capitalized and amortized over the remaining estimated useful life of the asset or the remaining lease term, whichever is shorter.
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