Delta Airlines 2015 Annual Report Download - page 45

TableofContents
Werecognizerevenueaswedelivereachsaleselement.Wedeferthetraveldeliverable(mileagecredits)aspartoffrequentflyerdeferredrevenueand
recognizepassengerrevenueasthemileagecreditsareusedfortravel.Therevenueallocatedtotheremainingdeliverablesisrecordedinotherrevenue.We
recognizetherevenuefortheseservicesastheyareperformed.
Breakage.Formileagecreditsthatweestimatearenotlikelytoberedeemed(“breakage”),werecognizetheassociatedvalueproportionallyduringtheperiod
inwhichtheremainingmileagecreditsareexpectedtoberedeemed.Managementusesstatisticalmodelstoestimatebreakagebasedonhistoricalredemption
patterns.Achangeinassumptionsastotheperiodoverwhichmileagecreditsareexpectedtoberedeemed,theactualredemptionactivityformileagecreditsorthe
estimatedfairvalueofmileagecreditsexpectedtoberedeemedcouldhaveamaterialimpactonourrevenueintheyearinwhichthechangeoccursandinfuture
years.AtDecember31,2015,theaggregatedeferredrevenuebalanceassociatedwiththeSkyMilesProgramwas$3.9billion.Ahypothetical1%changeinthe
numberofoutstandingmilesestimatedtoberedeemedwouldresultina$29millionimpactonourdeferredrevenueliabilityatDecember31,2015.
GoodwillandIndefinite-LivedIntangibleAssets
Weapplyafairvalue-basedimpairmenttesttothecarryingvalueofgoodwillandindefinite-livedintangibleassetsonanannualbasis(asofOctober1)and,if
certaineventsorcircumstancesindicatethatanimpairmentlossmayhavebeenincurred,onaninterimbasis.Weassessthevalueofourgoodwillandindefinite-
livedassetsundereitheraqualitativeorquantitativeapproach.Underaqualitativeapproach,weconsidervariousmarketfactors,includingthekeyassumptions
listedbelow.Weanalyzethesefactorstodetermineifeventsandcircumstanceshaveaffectedthefairvalueofgoodwillandindefinite-livedintangibleassets.Ifwe
determinethatitismorelikelythannotthattheassetmaybeimpaired,weusethequantitativeapproachtoassesstheasset'sfairvalueandtheamountofthe
impairment.Underaquantitativeapproach,wecalculatethefairvalueoftheassetusingthekeyassumptionslistedbelow.Iftheasset'scarryingvalueexceedsits
fairvaluecalculatedusingthequantitativeapproach,wewillrecordanimpairmentchargeforthedifferenceinfairvalueandcarryingvalue.
Whenweevaluategoodwillforimpairmentusingaquantitativeapproach,weestimatethefairvalueofthereportingunitbyconsideringbothmarket
capitalizationandprojecteddiscountedfuturecashflows(anincomeapproach).Whenweperformaquantitativeimpairmentassessmentofourindefinite-lived
intangibleassets,fairvalueisestimatedbasedon(1)recentmarkettransactions,whereavailable,(2)theroyaltymethodfortheDeltatradename(whichassumes
hypotheticalroyaltiesgeneratedfromusingourtradename)or(3)projecteddiscountedfuturecashflows(anincomeapproach).
KeyAssumptions.Thekeyassumptionsinourimpairmenttestsinclude:(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.Inaddition,weconsidertheamountby
whichtheintangibleassets'fairvaluesexceededtheirrespectivecarryingvaluesinthemostrecentfairvaluemeasurementscalculatedusingaquantitative
approach.
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.
Weassessedeachoftheaboveassumptionsinourmostrecentimpairmentanalyses.Thecombinationofourmostrecentlycompletedannualresultsandour
projectedrevenues,expensesandcashflowsmorethanoffsetanynegativeeventsandcircumstances.ThestabilizingoperatingenvironmentforU.S.airlineshas
resultedinannualyieldsincreasingalongwithloadfactors,leadingtoimprovedfinancialresults.
Goodwill.Ourgoodwillbalance,whichisrelatedtotheairlinesegment,was$9.8billionatDecember31,2015.Baseduponourquantitativeassessmentofall
relevantfactors,includingapplicablefactorsnotedin"KeyAssumptions"above,wedeterminedthatthefairvalueofgoodwillsignificantlyexceededthecarrying
valueand,therefore,therewasnoindicationthatgoodwillwasimpaired.
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