Delta Airlines 2015 Annual Report Download - page 45
Download and view the complete annual report
Please find page 45 of the 2015 Delta Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.TableofContents
Werecognizerevenueaswedelivereachsaleselement.Wedeferthetraveldeliverable(mileagecredits)aspartoffrequentflyerdeferredrevenueand
recognizepassengerrevenueasthemileagecreditsareusedfortravel.Therevenueallocatedtotheremainingdeliverablesisrecordedinotherrevenue.We
recognizetherevenuefortheseservicesastheyareperformed.
Breakage.Formileagecreditsthatweestimatearenotlikelytoberedeemed(“breakage”),werecognizetheassociatedvalueproportionallyduringtheperiod
inwhichtheremainingmileagecreditsareexpectedtoberedeemed.Managementusesstatisticalmodelstoestimatebreakagebasedonhistoricalredemption
patterns.Achangeinassumptionsastotheperiodoverwhichmileagecreditsareexpectedtoberedeemed,theactualredemptionactivityformileagecreditsorthe
estimatedfairvalueofmileagecreditsexpectedtoberedeemedcouldhaveamaterialimpactonourrevenueintheyearinwhichthechangeoccursandinfuture
years.AtDecember31,2015,theaggregatedeferredrevenuebalanceassociatedwiththeSkyMilesProgramwas$3.9billion.Ahypothetical1%changeinthe
numberofoutstandingmilesestimatedtoberedeemedwouldresultina$29millionimpactonourdeferredrevenueliabilityatDecember31,2015.
GoodwillandIndefinite-LivedIntangibleAssets
Weapplyafairvalue-basedimpairmenttesttothecarryingvalueofgoodwillandindefinite-livedintangibleassetsonanannualbasis(asofOctober1)and,if
certaineventsorcircumstancesindicatethatanimpairmentlossmayhavebeenincurred,onaninterimbasis.Weassessthevalueofourgoodwillandindefinite-
livedassetsundereitheraqualitativeorquantitativeapproach.Underaqualitativeapproach,weconsidervariousmarketfactors,includingthekeyassumptions
listedbelow.Weanalyzethesefactorstodetermineifeventsandcircumstanceshaveaffectedthefairvalueofgoodwillandindefinite-livedintangibleassets.Ifwe
determinethatitismorelikelythannotthattheassetmaybeimpaired,weusethequantitativeapproachtoassesstheasset'sfairvalueandtheamountofthe
impairment.Underaquantitativeapproach,wecalculatethefairvalueoftheassetusingthekeyassumptionslistedbelow.Iftheasset'scarryingvalueexceedsits
fairvaluecalculatedusingthequantitativeapproach,wewillrecordanimpairmentchargeforthedifferenceinfairvalueandcarryingvalue.
Whenweevaluategoodwillforimpairmentusingaquantitativeapproach,weestimatethefairvalueofthereportingunitbyconsideringbothmarket
capitalizationandprojecteddiscountedfuturecashflows(anincomeapproach).Whenweperformaquantitativeimpairmentassessmentofourindefinite-lived
intangibleassets,fairvalueisestimatedbasedon(1)recentmarkettransactions,whereavailable,(2)theroyaltymethodfortheDeltatradename(whichassumes
hypotheticalroyaltiesgeneratedfromusingourtradename)or(3)projecteddiscountedfuturecashflows(anincomeapproach).
KeyAssumptions.Thekeyassumptionsinourimpairmenttestsinclude:(1)forecastedrevenues,expensesandcashflows,(2)terminalperiodrevenuegrowth
andcashflows,(3)anestimatedweightedaveragecostofcapital,(4)assumeddiscountratesdependingontheassetand(5)ataxrate.Theseassumptionsare
consistentwiththosehypotheticalmarketparticipantswoulduse.Sincewearerequiredtomakeestimatesandassumptionswhenevaluatinggoodwilland
indefinite-livedintangibleassetsforimpairment,actualtransactionamountsmaydiffermateriallyfromtheseestimates.Inaddition,weconsidertheamountby
whichtheintangibleassets'fairvaluesexceededtheirrespectivecarryingvaluesinthemostrecentfairvaluemeasurementscalculatedusingaquantitative
approach.
Changesincertaineventsandcircumstancescouldresultinimpairment.Factorswhichcouldcauseimpairmentinclude,butarenotlimitedto,(1)negative
trendsinourmarketcapitalization,(2)reducedprofitabilityresultingfromlowerpassengermileyieldsorhigherinputcosts(primarilyrelatedtofueland
employees),(3)lowerpassengerdemandasaresultofweakenedU.S.andglobaleconomies,(4)interruptiontoouroperationsduetoaprolongedemployeestrike,
terroristattack,orotherreasons,(5)changestotheregulatoryenvironment(e.g.,diminishedslotrestrictionsoradditionalOpenSkiesagreements),(6)competitive
changesbyotherairlinesand(7)strategicchangestoouroperationsleadingtodiminishedutilizationoftheintangibleassets.
Weassessedeachoftheaboveassumptionsinourmostrecentimpairmentanalyses.Thecombinationofourmostrecentlycompletedannualresultsandour
projectedrevenues,expensesandcashflowsmorethanoffsetanynegativeeventsandcircumstances.ThestabilizingoperatingenvironmentforU.S.airlineshas
resultedinannualyieldsincreasingalongwithloadfactors,leadingtoimprovedfinancialresults.
Goodwill.Ourgoodwillbalance,whichisrelatedtotheairlinesegment,was$9.8billionatDecember31,2015.Baseduponourquantitativeassessmentofall
relevantfactors,includingapplicablefactorsnotedin"KeyAssumptions"above,wedeterminedthatthefairvalueofgoodwillsignificantlyexceededthecarrying
valueand,therefore,therewasnoindicationthatgoodwillwasimpaired.
41