Delta Airlines 2005 Annual Report Download - page 82

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Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
unsecured claim. Interest expense recorded on our Consolidated Statements of Operations totaled approximately $1.0 billion for the
year ended December 31, 2005. Contractual interest expense (including interest expense that is associated with obligations in
liabilities subject to compromise) during this period totaled approximately $1.2 billion.
Equity Method Investments
We use the equity method to account for our investment in a company when we have significant influence but not control over the
company's operations. Under the equity method, we initially record our investment at cost and then adjust the carrying value of the
investment to recognize our proportional share of the company's net income (loss). In addition, dividends received from the company
reduce the carrying value of our investment.
In accordance with Securities and Exchange Commission Staff Accounting Bulletin ("SAB") 51, "Accounting for Sales of Stock
by a Subsidiary" ("SAB 51"), we record SAB 51 gains (losses) as a component of shareowners' deficit on our Consolidated Balance
Sheets (see Note 18).
Income Taxes
In accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"), we account for deferred income taxes under the
liability method. 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 necessary. Deferred tax assets and liabilities are recorded net as current and noncurrent
deferred income taxes on our Consolidated Balance Sheets (see Note 11).
Our income tax provisions are based on calculations and assumptions that are subject to examination by the Internal Revenue
Service and other tax authorities. We do not record tax benefits for any positions unless we believe it is probable these benefits will be
sustained under such examinations. We regularly assess the potential outcomes of examinations. We believe the outcome of
examinations will not have a material effect on our Consolidated Financial Statements. In the event 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 4). 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.
Frequent Flyer Program
We record a liability for the estimated incremental cost of flight awards which are earned under our SkyMiles frequent flyer
program and expected to be redeemed for travel on Delta or other airline partners. Our incremental costs include (1) our system
average cost per passenger for fuel, food and other direct passenger costs for awards to be redeemed on Delta and (2) contractual costs
for awards to be redeemed on partner airlines. 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 our estimated incremental costs and
changes to the SkyMiles program. F-20