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Goodwill and Intangible Assets Accounting Policy

Delta's goodwill and identifiable intangible assets relate to the airline segment. Delta applies 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. Delta assesses the value of the goodwill and indefinite-lived assets under either a qualitative or quantitative approach. Under a qualitative approach, Delta considers various market factors, including the key assumptions listed below. Delta analyzes these factors to determine if events and circumstances have affected the fair value of goodwill and indefinite-lived intangible assets. If Delta determines that it is more likely than not that the asset may be impaired, Delta uses the quantitative approach to assess the asset's fair value and the amount of the impairment. Under a quantitative approach, Delta calculates the fair value of the asset using the key assumptions listed below.

Delta values 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 Delta is 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 or a change from indefinite-lived to definite-lived. Factors which could cause impairment include, but are not limited to, (1) negative trends in Delta's 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 Delta's 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 Delta's operations leading to diminished utilization of the intangible assets.

Goodwill

When Delta evaluates goodwill for impairment using a quantitative approach, Delta estimates the fair value of the reporting unit by considering both market capitalization and projected discounted future cash flows (an income approach). 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, Delta then determines the amount of the impairment charge, if any. Delta recognizes 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 and collaborative arrangements. Definite-lived intangible assets consist primarily of marketing and maintenance service 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.

Delta assesses the indefinite-lived assets under a qualitative or quantitative approach. Delta analyzes market factors to determine if events and circumstances have affected the fair value of the indefinite-lived intangible assets. If Delta determines that it is more likely than not that the asset value may be impaired, Delta uses the quantitative approach to assess the asset's fair value and the amount of the impairment. Delta performs 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) the royalty method for the Delta tradename (which assumes hypothetical royalties generated from using the tradename) or (3) projected discounted future cash flows (an income approach). Delta recognizes an impairment charge if the asset's carrying value exceeds its estimated fair value.

Source: Delta Air Lines Inc., Annual Report

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Goodwill and Intangible Assets Disclosure

Delta Air Lines Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
International routes and slots
Delta tradename
SkyTeam-related assets
Domestic slots
Indefinite-lived intangible assets
Marketing agreements
Contracts
Other
Definite-lived intangible assets, gross carrying value
Accumulated amortization
Definite-lived intangible assets, net of accumulated amortization
Intangible assets, net of accumulated amortization
Goodwill
Intangible assets and goodwill

Source: Based on data from Delta Air Lines Inc. Annual Reports

Item Description The company
Intangible assets, net of accumulated amortization Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Delta Air Lines Inc.'s intangible assets, net of accumulated amortization declined from 2015 to 2016 but then slightly increased from 2016 to 2017.
Goodwill Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions.
Intangible assets and goodwill Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Delta Air Lines Inc.'s intangible assets and goodwill declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

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Analyst Adjustments: Removal of Goodwill

Delta Air Lines Inc., adjustments to financial data

USD $ in millions

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Total Assets
Total assets (as reported)
Less: Goodwill
Total assets (adjusted)
Adjustment to Stockholders' Equity
Stockholders' equity (as reported)
Less: Goodwill
Stockholders' equity (adjusted)

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Adjusted Ratios: Removal of Goodwill (Summary)

Delta Air Lines Inc., adjusted ratios

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Total Asset Turnover
Reported total asset turnover
Adjusted total asset turnover
Financial Leverage
Reported financial leverage
Adjusted financial leverage
Return on Equity (ROE)
Reported ROE % % % % %
Adjusted ROE % % % % %
Return on Assets (ROA)
Reported ROA % % % % %
Adjusted ROA % % % % %
Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Delta Air Lines Inc.'s adjusted total asset turnover improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Delta Air Lines Inc.'s adjusted financial leverage declined from 2015 to 2016 and from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Delta Air Lines Inc.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Delta Air Lines Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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Adjusted Total Asset Turnover

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Operating revenue (USD $ in millions)
Total assets (USD $ in millions)
Total asset turnover1
Adjusted for Goodwill
Operating revenue (USD $ in millions)
Adjusted total assets (USD $ in millions)
Adjusted total asset turnover2

2017 Calculations

1 Total asset turnover = Operating revenue ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Operating revenue ÷ Adjusted total assets
= ÷ =

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Delta Air Lines Inc.'s adjusted total asset turnover improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017.

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Adjusted Financial Leverage

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Total assets (USD $ in millions)
Stockholders' equity (USD $ in millions)
Financial leverage1
Adjusted for Goodwill
Adjusted total assets (USD $ in millions)
Adjusted stockholders' equity (USD $ in millions)
Adjusted financial leverage2

2017 Calculations

1 Financial leverage = Total assets ÷ Stockholders' equity
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders' equity
= ÷ =

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Delta Air Lines Inc.'s adjusted financial leverage declined from 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Equity (ROE)

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (USD $ in millions)
Stockholders' equity (USD $ in millions)
ROE1 % % % % %
Adjusted for Goodwill
Net income (USD $ in millions)
Adjusted stockholders' equity (USD $ in millions)
Adjusted ROE2 % % % % %

2017 Calculations

1 ROE = 100 × Net income ÷ Stockholders' equity
= 100 × ÷ = %

2 Adjusted ROE = 100 × Net income ÷ Adjusted stockholders' equity
= 100 × ÷ = %

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. Delta Air Lines Inc.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Assets (ROA)

 
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Net income (USD $ in millions)
Total assets (USD $ in millions)
ROA1 % % % % %
Adjusted for Goodwill
Net income (USD $ in millions)
Adjusted total assets (USD $ in millions)
Adjusted ROA2 % % % % %

2017 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ = %

2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × ÷ = %

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Delta Air Lines Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

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