Delta Airlines 2011 Annual Report Download - page 65
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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 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.
Advertising Costs
We expense advertising costs as other selling expenses in the year incurred. Advertising expense was $214 million, $169 million and $176 million for the
years ended December 31, 2011, 2010 and 2009, respectively.
Commissions
Passenger commissions are recognized in operating expense when the related revenue is recognized.
NOTE 2. FAIR VALUE MEASUREMENTS
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. Fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing
an asset or liability. A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
•Level 1. Observable inputs such as quoted prices in active markets;
•Level 2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
•Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one or more of three valuation techniques identified in the tables below. The valuation
techniques are as follows:
(a) Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;
(b) Cost approach. Amount that would be required to replace the service capacity of an asset (replacement cost); and
(c) Income approach. Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques,
option-pricing and excess earnings models).
Assets (Liabilities) Measured at Fair Value on a Recurring Basis
(in millions) December 31, 2011 Level 1 Level 2 Level 3 Valuation
Technique
Cash equivalents $ 2,357 $ 2,357 $ — $ — (a)
Short-term investments 958 958 — — (a)
Restricted cash equivalents and short-term investments 341 341 — — (a)
Long-term investments 188 55 24 109 (a)(c)
Hedge derivatives, net
Fuel hedge contracts 70 — 70 — (a)(c)
Interest rate contracts (91) — (91) — (a)(c)
Foreign currency exchange contracts (89) — (89) — (a)
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