Delta Airlines 2005 Annual Report Download - page 83

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Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 to 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, and 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.
Advertising Costs
We expense advertising costs as other selling expenses in the year incurred. Advertising expense was $164 million, $148 million
and $135 million for the years ended December 31, 2005, 2004 and 2003, respectively.
Commissions
We record passenger commissions in prepaid expenses and other on our Consolidated Balance Sheets when the related passenger
tickets are sold. Passenger commissions are recognized in operating expenses on our Consolidated Statements of Operations when the
transportation is provided and the related revenue is recognized.
Foreign Currency Remeasurement
We remeasure assets and liabilities denominated in foreign currencies using exchange rates in effect on the balance sheet date.
Fixed assets and the related depreciation or amortization charges are recorded at the exchange rates in effect on the date we acquired
the assets. Revenues and expenses denominated in foreign currencies are measured using average exchange rates for each of the
periods presented. We recognize the resulting foreign exchange gains (losses) as a component of miscellaneous income (expense) on
our Consolidated Statements of Operations. These gains (losses) are immaterial for all periods presented.
Stock-Based Compensation
We account for our stock-based compensation plans under the intrinsic value method in accordance with APB 25 and related
interpretations. No stock option compensation expense is recognized in our Consolidated Statements of Operations because all stock
options granted had an exercise price equal to the fair value of the underlying common stock on the grant date.
The estimated fair values of stock options granted during the years ended December 31, 2005, 2004 and 2003 were derived using a
Black-Scholes model. The assumptions used in the Black-Scholes model are based on the date when the stock options are granted. The
following table includes the assumptions used in F-21