Airtran 2005 Annual Report Download - page 31

:: PROPERTY AND EQUIPMENT : :
Property and equipment are stated on the basis of cost. Flight equipment is depreciated to its salvage values of 10 percent, using the straight-line method. The estimated salvage values and depreciable lives are
periodically reviewed for reasonableness, and revised if necessary. The estimated useful lives for airframes, engines and aircraft parts are 30 years. Other property and equipment is depreciated over three to
10 years. Leasehold improvements are depreciated over the economic life of the asset or the lease term, whichever is shorter.
:: MEASUREMENT OF IMPAIRMENT : :
In accordance with Statement of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets,” we record impairment losses on long-lived assets used in
operations when events or circumstances indicate that the assets may be impaired, the undiscounted cash flows estimated to be generated by those assets are less than the net book value of those assets and the
fair value is less than the net book value.
:: INTANGIBLES : :
Intangibles are recorded at cost. Excess of cost over fair value of net assets acquired (goodwill) and indefinite-lived intangibles, such as trade names, are not amortized but are subject to periodic impairment reviews
in accordance with Statement of Financial Accounting Standards No. 142 (SFAS 142). We performed annual impairment tests in the fourth quarter of 2005, 2004 and 2003. Our tests indicated that we did not have
any impairment of our trade name or of our goodwill. Accumulated amortization was $6.5 million at December 31, 2005, 2004 and 2003.
:: CAPITALIZED INTEREST : :
Interest attributable to funds used to finance the acquisition of new aircraft is capitalized as an additional cost of the related asset. Interest is capitalized at our weighted-average interest rate on long-term debt
or, where applicable, the interest rate related to specific borrowings. Capitalization of interest ceases when the asset is ready for service. For the years ended December 31,2005, 2004 and 2003, the Company incurred
approximately $22.2 million, $19.4 million and $28.3 million in interest expense, respectively, net of capitalized interest of $15.3 million, $7.3 million and $2.0 million, respectively.
: : AIRCRAFT AND ENGINE MAINTENANCE : :
Maintenance repair costs for major components on our B717 aircraft, including engines and auxiliary power units (APU), covered under maintenance agreements with FAA-approved contractors, are expensed monthly
based on flight hours flown or landings. Maintenance on airframes and other components as well as maintenance on our B737 aircraft engines are expensed as incurred.
: : ADVERTISING COSTS : :
Advertising costs are charged to expense in the period the costs are incurred. Advertising expense was approximately $35.0 million, $27.0 million and $22.8 million for the years ended December 31, 2005, 2004 and
2003, respectively.
During 2005 we entered into an advertising barter transaction in which we exchanged flight credits in our frequent flyer program for promotional consideration. The transaction was recorded at the fair value of the
credits exchanged resulting in approximately $4.6 million of advertising expense in 2005. The revenue relating to the flight credits will be recognized as passenger revenue as the credits are utilized or expire. As of
December 31, 2005, $0.4 million was recognized in passenger revenues.
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