01—Abstract
Summary
Summary of the 10-K filed September 28, 1995. Cited figures are marked; the original filing is the authoritative source.
Delta Air Lines, Inc. reported net income of $408 milliona for the fiscal year ended June 30, 1995, compared with a net loss of $409 million in fiscal 1994.
Excluding a one-time $114 millionb after-tax benefit from the adoption of SFAS 112 and the prior year's restructuring charges, net income was $294 million, versus a net loss of $77 million in fiscal 1994. Operating revenues rose 1% to $12.2 billion, while operating expenses fell 8% to $11.5 billion, producing operating income of $661 million compared with an operating loss of $447 million a year earlier. The improvement was attributed primarily to cost reductions under the Leadership 7.5 program, which targets roughly $2 billion in annual operating expense reductions by the end of the June 1997 quarter.
Passenger mile yield declined 1% as low-cost, low-fare carriers expanded in Delta's domestic markets. The balance sheet strengthened modestly, with stockholders' equity rising to $1.83 billionc from $1.47 billion and long-term debt and capital leases (excluding current maturities) falling to $3.12 billion from $3.23 billion. Cash, cash equivalents and short-term investments totaled $1.8 billion at June 30, 1995.
Management noted negative working capital of $427 milliond, which it described as normal for the company. Cash from operations was $1.1 billion. Capital spending on flight equipment was $458 million, down from $1.03 billion in fiscal 1994, and the company voluntarily repurchased $403 million of long-term debt.
Risks highlighted in the filing include ongoing negotiations with the Air Line Pilots Association, which Delta seeks to win $340 million in annual productivity improvements and wage and benefit reductions from, a proposed 4.3 cent per gallon federal jet fuel tax effective October 1, 1995 estimated to add about $80 million annually, several pending lawsuits (including Pan Am-related litigation and travel agent commission cap antitrust suits), and the expectation of continued low-fare competition. Delta's deferred tax assets of $740 million net are expected to be realized, based on management's assessment of future taxable income.
02—Key points
Key Highlights
- Net income of $408 million in fiscal 1995 versus a net loss of $409 million in fiscal 1994; excluding a $114 million one-time SFAS 112 benefit, net income was $294 million
- Operating income of $661 million, compared with an operating loss of $447 million in fiscal 1994, on operating revenues of $12.2 billion (up 1%) and operating expenses of $11.5 billion (down 8%)
- Operating expenses excluding fiscal 1994 restructuring charges declined $465 million, or 4%, driven by the Leadership 7.5 cost reduction program
- Primary earnings per common share of $6.32 (including the cumulative effect of accounting changes), with fully diluted EPS of $5.43
- Stockholders' equity increased to $1.83 billion from $1.47 billion; long-term debt and capital leases (excluding current maturities) decreased to $3.12 billion from $3.23 billion
- Domestic passenger mile yield declined 1% as low-cost, low-fare carriers grew presence; approximately 60% of domestic RPMs were in markets served by such carriers, up from 57%
- Pending ALPA pilot contract negotiations, with Delta seeking $340 million in annual productivity improvements and wage and benefit reductions
03—Questions
Frequently Asked Questions
How did Delta perform financially in fiscal 1995?
Delta reported net income of $408 million for the year ended June 30, 1995, reversing a net loss of $409 million in fiscal 1994. Operating income was $661 million, up from an operating loss of $447 million a year earlier. Excluding a one-time $114 million after-tax benefit from accounting changes, net income was $294 million.
What drove the improvement in operating results?
The company attributed the improvement primarily to cost reductions under its Leadership 7.5 program, which contributed to a $465 million, or 4%, decline in operating expenses excluding fiscal 1994 restructuring charges. Passenger revenue rose less than 1%, as traffic gains offset a 1% decline in passenger mile yield.
What is the Leadership 7.5 program and what are its goals?
Leadership 7.5 is a three-year plan announced April 28, 1994, with the goal of reducing annual operating expenses by approximately $2 billion by the end of the June 1997 quarter. It also set operating cost per available seat mile targets of 8.6 cents for the June 1995 quarter, 8.0 cents for June 1996 and 7.5 cents for June 1997. Delta reported a unit cost of 8.39 cents for the June 1995 quarter and said initiatives expected to generate about $1.6 billion in annual savings were in process or completed. The company also states that these goals are aggressive and no assurance can be given that they will be achieved.
What are the main risks facing Delta according to the filing?
The filing cites low-fare competition from low-cost carriers, which management expects to continue and which could adversely affect operating results if price reductions are not offset by traffic gains. Other risks include the outcome of pilot union negotiations with ALPA, a 4.3 cent per gallon federal jet fuel tax effective October 1, 1995 expected to add about $80 million in annual operating expenses, volatile jet fuel prices, and pending litigation including Pan Am-related claims and travel agent commission cap antitrust lawsuits.
How is Delta's balance sheet and liquidity position?
At June 30, 1995, cash, cash equivalents and short-term investments totaled $1.8 billion, and stockholders' equity was $1.83 billion. Long-term debt and capital leases, including current maturities, totaled $3.3 billion. Working capital was negative $427 million, which management said is normal for Delta and does not indicate a lack of liquidity. Cash from operations was $1.1 billion in fiscal 1995.
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