Delta Airlines 2008 Annual Report Download - page 87

Table of Contents
Index to Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 is provided over the remaining useful life of the related fleet for spare parts expected to be available at the date aircraft are retired from service.
We also provide allowances for parts currently identified as excess or obsolete to reduce the carrying costs to the lower of cost or net realizable value. These
parts are assumed to have an estimated residual value of 5% of the original cost. In connection with our adoption of fresh start reporting upon emergence from
bankruptcy, we recorded our expendable parts inventories at fair value.
Advertising Costs
We expense advertising costs as other selling expenses in the year incurred. Advertising expense was $114 million for the year ended December 31,
2008, $121 million for the eight months ended December 31, 2007, $51 million for the four months ended April 30, 2007 and $150 million for the year ended
December 31, 2006.
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 expense on our Consolidated Statements of Operations when the related revenue is recognized.
Stock-Based Compensation
Effective January 1, 2006, we adopted the fair value provisions of SFAS No. 123 (revised 2004), "Share Based Payment" ("SFAS 123R"). SFAS 123R
requires companies to measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award.
The fair value of our stock options is estimated using an options pricing model. The resulting cost for all equity awards is recognized over the period during
which an employee is required to provide service in exchange for the awards (usually the vesting period of the awards).
Fair Value of Financial Instruments
We record our cash equivalents and short-term investments at estimated fair value. The estimated fair values of other financial instruments, including
debt and derivative instruments, have been determined using available market information and valuation methodologies, primarily discounted cash flow
analyses and an options pricing model.
Accounting Adjustments
During 2006, we recorded certain out-of-period adjustments ("Accounting Adjustments") in our Consolidated Financial Statements that are reflected in
our results for the year ended December 31, 2006. These adjustments resulted in an aggregate net non-cash charge approximating $310 million to our
Consolidated Statement of Operations.
We believe the Accounting Adjustments, considered individually and in the aggregate, were not material to our Consolidated Financial Statements for
the year ended December 31, 2006. In making this assessment, we considered qualitative and quantitative factors, including our substantial net loss in that
year, the non-cash nature of the Accounting Adjustments, our substantial stockholders' deficit at December 31, 2006 and our status as a debtor-in-possession
under Chapter 11 of the Bankruptcy Code during that year.
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