Delta Airlines 2007 Annual Report Download - page 50

Table of Contents
Index to Financial Statements
Our income tax provisions are based on calculations and assumptions that are subject to examination by the Internal Revenue Service and other tax
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 various 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 adjust the income tax provision in the period in which the facts that give rise to the revision
become known. In the event that the adjustment pertains to a pre-emergence tax position, we would adjust goodwill followed by other indefinite-lived
intangible assets until the net carrying value of these assets is zero. Beginning January 1, 2009, any adjustments to pre-emergence tax positions will be made
through the income tax provision pursuant to SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R").
For additional information about income taxes, see Notes 2 and 9 of the Notes to the Consolidated Financial Statements.
Pension Plans. We sponsor DB Plans for our eligible employees and retirees. The impact of these DB Plans on our Consolidated Balance Sheets as of
December 31, 2007 and 2006 and our Consolidated Statements of Operations for the eight months ended December 31, 2007, the four months ended April 30,
2007 and the years ended December 31, 2006 and 2005 is presented in Note 10 of the Notes to the Consolidated Financial Statements. We currently estimate
that our defined benefit pension plan expense related to our Non-Pilot Plan in 2008 will be approximately $35 million. The effect of our DB Plans on our
Consolidated Financial Statements is subject to many assumptions. We believe the most critical assumptions are (1) the weighted average discount rate and
(2) the expected long-term rate of return on the assets of our DB Plans. The Pilot Plan and pilot non-qualified defined benefit pension plans were terminated
during 2006. For additional information regarding these terminations, see Note 10 of the Notes to the Consolidated Financial Statements.
We determine our weighted average discount rate on our measurement date primarily by reference to annualized rates earned on high quality fixed
income investments and yield-to-maturity analysis specific to our estimated future benefit payments. We used a weighted average discount rate of 6.08% and
5.88% at December 31, 2007 and September 30, 2006, respectively. Additionally, our weighted average discount rate for net periodic benefit cost in each of
the past three years has varied from the rate selected on our measurement date, ranging from 5.67% to 6.01% between 2005 and 2007, due to remeasurements
throughout the year. The impact of a 0.50% change in our weighted average discount rate is shown in the table below.
The expected long-term rate of return on the assets of our DB Plans is based primarily on plan specific investment studies using historical returns on our
DB Plans' assets. The investment strategy for pension plan assets is to utilize a diversified mix of global public and private equity portfolios, public and
private fixed income portfolios, and private real estate and natural resource investments to earn a long-term investment return that meets or exceeds a 9%
annualized return target. Our historical annualized three, five, 10 and 15 year rate of return on plan assets is approximately 13%, 14%, 8% and 11%,
respectively, as of December 31, 2007. The impact of a 0.50% change in our expected long-term rate of return is shown in the table below.
Change in Assumption
Effect on 2008
Pension Expense
Effect on Accrued
Pension Liability at
December 31, 2007
0.50% decrease in discount rate - 9 million + 452 million
0.50% increase in discount rate + 6 million - 426 million
0.50% decrease in expected return on assets + 23 million —
0.50% increase in expected return on assets - 23 million —
For additional information about our pension plans, see Note 10 of the Notes to the Consolidated Financial Statements.
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