Delta Airlines 2004 Annual Report Download - page 73

Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 necessary. Deferred tax assets and liabilities are recorded net as
current and noncurrent deferred income taxes on our Consolidated Balance Sheets (see Note 9).
Our income tax provisions are based on calculations and assumptions that will be subject to examination by the Internal Revenue Service and other tax
authorities. We do not record tax benefits for any positions unless we believe they are probable of being sustained under such examinations. We regularly
assess the potential outcomes of these examinations, which we believe will not have a material effect on our Consolidated Financial Statements, in
determining the adequacy of our accruals for income taxes. Should the actual results differ from our estimates, we would adjust the income tax provision in
the period in which the facts that give rise to the revision become known. Tax law and rate changes are reflected in the income tax provision in the period in
which such changes are enacted.
Investments in Debt and Equity Securities
In accordance with SFAS 115, we record our investments classified as available-for-sale securities at fair value in other noncurrent assets on our
Consolidated Balance Sheets. Any change in the fair value of these securities is recorded in accumulated other comprehensive income (loss), unless such
change is a decline in value that is deemed to be other than temporary (see Note 2).
We record our investments classified as trading securities at fair value in current assets on our Consolidated Balance Sheets and recognize changes in the
fair value of these securities in other income (expense) on our Consolidated Statements of Operations (see Note 16).
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. We
periodically record adjustments to this liability in other operating expenses on our Consolidated Statements of Operations 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 moving average 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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