Delta Airlines 2012 Annual Report Download - page 39

Fuel Purchase Cost. Fuel purchase cost is based on the market price for jet fuel at airport locations.
Refinery Impact. The refinery results include the impact on fuel expense of self-supply from the production of the refinery and from refined
products exchanged with Phillips 66 and BP. As described in Note 2 of the Notes to the Consolidated Financial Statements, to the extent that we
account for exchanges of refined products as non-monetary transactions, we include the results of those transactions within fuel expense.
Fuel Hedge Losses (Gains) and MTM Adjustments. During the year ended December 31, 2012 , our fuel hedge losses of $66 million included $27
million of MTM adjustments.
These MTM adjustments are based on market prices as of the end of the reporting period for contracts settling in future
periods. Such market prices are not necessarily indicative of the actual future value of the underlying hedge in the contract settlement period. The
losses for MTM adjustments are reflected in the table above to calculate an effective fuel cost for the period.
We adjust fuel expense for these items to arrive at a more meaningful measure of fuel cost. Our average price per gallon, adjusted (a non-GAAP
financial measure as defined in "Supplemental Information" below) was $3.26 for the year ended December 31, 2012 .
Salaries and Related Costs . The increase in salaries and related costs is primarily due to employee pay increases, increases in pension expense
and other benefits.
During the June 2012 quarter, we reached an agreement with ALPA that increases pay and benefits for our pilots. Our pilots and substantially all
other employees received base pay increases on July 1, 2012 and received additional increases on January 1, 2013. These increases are designed both
to recognize changes to the profit sharing program described below and to accelerate the planned 2013 pay increase for non-pilot employees.
Aircraft Maintenance Materials and Outside Repairs. Aircraft maintenance materials and outside repairs consists of costs associated with
maintenance of aircraft used in our operations and maintenance sales to third parties by our MRO services business. The increase in maintenance
costs is primarily due to the cyclical timing of maintenance events on our fleet. Additionally, maintenance cost increased as we accelerated certain
maintenance events into 2012, resulting in a lower total cost for those activities, and completed maintenance initiatives to improve our operational
reliability.
Passenger Commissions and Other Selling Expenses.
The decrease in passenger commissions and other selling expenses is primarily due to lower
booking fees and international commission rates, partially offset by increases in sales.
Contracted Services. Contracted services expense decreased year-over-year due primarily to the impact of severe winter storms on our operations
in the March 2011 quarter.
Profit Sharing. Our broad based employee profit sharing program provides that, for each year in which we have an annual pre-tax profit, as
defined by the terms of the program, we will pay a specified portion of that profit to employees. In determining the amount of profit sharing, the
terms of the program specify the exclusion of special items, such as MTM adjustments and restructuring and other items, from pre-tax profit. During
the June 2012 quarter, our profit sharing program was modified so that we will pay 10% of profits on the first $2.5 billion of annual profits effective
with the plan year beginning January 1, 2013 compared to paying 15% of annual profits for the 2012 plan year. Under the program, we will continue
to pay 20% of annual profits above $2.5 billion.
Restructuring and Other Items. Due to the nature of amounts recorded within restructuring and other items, a year-over-year comparison is not
meaningful. For a discussion of charges recorded in restructuring and other items, see Note 16 of the Notes to the Consolidated Financial Statements.
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