Delta Airlines 2002 Annual Report Download - page 140

interest rate related to specific asset financings. Interest capitalization ends
when the equipment or facility is ready for service or its intended use.
Capitalized interest totaled $15 million, $32 million and $45 million for the
years ended December 31, 2002, 2001 and 2000, respectively.
EQUITY METHOD INVESTMENTS
We use the equity method to account for our 40% ownership interest in WORLD-
SPAN, L.P. (Worldspan), a computer reservations system partnership. Our equity
earnings from this investment totaled $43 million, $19 million and $59 million
for the years ended December 31, 2002, 2001 and 2000, respectively. We also
received cash dividends from Worldspan of $40 million, $70 million and $32
million for the years ended December 31, 2002, 2001 and 2000, respectively.
Worldspan provides computer reservation and related services for us, which
totaled approximately $180 million for the year ended December 31, 2002. At
December 31, 2002, we had a liability to Worldspan for $15 million which is
included in accounts payable, deferred credits and other accrued liabilities on
our Consolidated Balance Sheet.
We account for our 18% ownership interest in Orbitz, LLC (Orbitz), an on-line
travel agency, under the equity method. We use the equity method of accounting
for this investment because we believe we have the ability to exercise
significant influence, but not control, over the financial and operating
policies of Orbitz. This influence is evidenced by, among other things, our
right to appoint two of our senior officers to the 11 member Board of Managers
of Orbitz, which allows us to participate in Orbitz's financial and operating
decisions.
Our investments in Worldspan and Orbitz are recorded in investments in
associated companies on our Consolidated Balance Sheets.
INCOME TAXES
We account for deferred income taxes under the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes" (SFAS 109). Under this method,
we recognize deferred tax assets and liabilities based on the tax effects of
temporary differences between the financial statement and tax bases of assets
and liabilities, as measured by current enacted tax rates. A valuation allowance
is recorded to reduce deferred tax assets when determined necessary in
accordance with SFAS 109. Deferred tax assets and liabilities are recorded net
as current and noncurrent deferred income taxes on our Consolidated Balance
Sheets.
FREQUENT FLYER PROGRAM
We record an estimated liability for the incremental cost associated with
providing free transportation under our SkyMiles frequent flyer program when a
free travel award is earned. The liability is recorded in accounts payable,
deferred credits and other accrued liabilities on our Consolidated Balance
Sheets. It is adjusted periodically based on awards earned, awards redeemed,
changes in the SkyMiles program and changes in estimated incremental costs.
DEFERRED GAINS ON SALE AND LEASEBACK TRANSACTIONS
We amortize deferred gains on the sale and leaseback of property and equipment
under operating leases over the lives of these leases. The amortization of these
gains is recorded as a reduction in rent expense. Gains on the sale and
leaseback of property and equipment under capital leases reduce the carrying
value of the related assets.
MANUFACTURERS' CREDITS
We periodically receive credits in connection with the acquisition of aircraft
and engines. These credits are deferred until the aircraft and engines are
delivered, then applied on a pro rata basis as a reduction to the cost of the
related equipment.
MAINTENANCE COSTS
We record maintenance costs in operating expenses as they are incurred.
INVENTORIES
Inventories of expendable parts related to flight equipment are carried at cost
and charged to operations as consumed. An allowance for obsolescence for the
cost of these parts is provided over the remaining useful life of the related
fleet.
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