01—Abstract
Summary
Summary of the 10-K filed September 30, 1996. Cited figures are marked; the original filing is the authoritative source.
Delta Air Lines, Inc. reported fiscal 1996 (year ended June 30, 1996) net income of $156 milliona, or $1.42 per primary and fully diluted common share after preferred stock dividends, on operating income of $463 million.
Results include pretax restructuring and other non-recurring charges of $829 millionb ($506 million after tax, or $9.71 per common share), primarily a $452 million write-down of the Lockheed L-1011 fleet and $273 million for a special early retirement program for approximately 500 pilots. Excluding these charges, net income was $662 million ($11.13 primary per share), and operating income was $1.3 billion, compared with $294 million net income excluding the SFAS 112 cumulative effect in fiscal 1995. Operating revenues rose 2% to $12.5 billion, driven by a 3% increase in passenger revenue, while operating expenses rose 4% to $12.0 billion, though expenses excluding charges fell 3% under the Leadership 7.5 cost reduction program.
The company's balance sheet strengthened, with stockholders' equity rising to $2.54 billionc from $1.83 billion and long-term debt and capital leases (including current maturities) falling to $2.3 billion from $3.3 billion. Cash and short-term investments totaled $1.6 billion at June 30, 1996, and cash from operations was $1.4 billion. Management stated that Delta has shifted strategy from a strict focus on operating costs to a balanced approach that also emphasizes revenue improvement, and it raised its three-year operating margin goal to 12% by the end of fiscal 1999.
The company also announced Delta Express, a low-fare unit scheduled to launch October 1, 1996, and a global marketing alliance with Swissair, Sabena and Austrian Airlines that received antitrust immunity from the DOT on June 14, 1996. Key risks disclosed include continued low-fare competition, a 4.3 cent per gallon federal jet fuel tax that the company estimates costs about $90 milliond annually, and several pending lawsuits, including a travel agent commission antitrust class action seeking about $725 million (trebled) for which Delta agreed to pay $20 million in settlement, and a ValuJet suit alleging antitrust violations related to LaGuardia slots.
02—Key points
Key Highlights
- Net income of $156 million ($1.42 per share) for fiscal 1996, versus $408 million in fiscal 1995, which included a $114 million SFAS 112 benefit
- Restructuring and other non-recurring charges of $829 million pretax, including a $452 million L-1011 fleet write-down and $273 million for a pilot early retirement program
- Excluding charges, net income was $662 million ($11.13 primary per share) and operating income was $1.3 billion
- Operating revenues up 2% to $12.5 billion; passenger revenue up 3%, while operating expenses excluding charges fell 3%
- Stockholders' equity rose to $2.54 billion and long-term debt with capital leases fell to $2.3 billion from $3.3 billion
- Operating margin goal raised to 12% by fiscal 1999, with a shift toward balancing cost reduction and revenue improvement
- Delta Express low-fare unit to launch October 1, 1996; Swissair/Sabena/Austrian global alliance received DOT antitrust immunity June 14, 1996
03—Questions
Frequently Asked Questions
How did Delta perform financially in fiscal 1996?
Delta reported net income of $156 million, or $1.42 per primary and fully diluted share after preferred dividends, and operating income of $463 million. Those figures include $829 million in pretax restructuring and other non-recurring charges. Excluding those charges, net income was $662 million, or $11.13 per primary share, and operating income was $1.3 billion.
What drove the large restructuring charges in fiscal 1996?
The $829 million charge included a $452 million write-down of the Lockheed L-1011 fleet and related assets, after Delta decided to accelerate replacement of its 55 L-1011 aircraft. It also included $273 million for a special early retirement program for about 500 pilots expected to retire in fiscal 1997, and $104 million for continuing Leadership 7.5 cost reduction programs.
What is the Leadership 7.5 program and is Delta still targeting its cost goals?
Leadership 7.5 was a three-year plan announced in April 1994 to reduce annual operating expenses by about $2 billion by the June 1997 quarter and reach a unit cost of 7.5 cents per available seat mile. In July 1996, Delta said it no longer expects to reach the 7.5 cent goal by June 1997, though it remains a long-term goal, and it shifted to a more balanced focus that includes revenue improvement.
What are the main risks and legal exposures Delta disclosed?
Delta cited continued low-fare competition, which it said could adversely affect operating results, and a 4.3 cent per gallon federal jet fuel tax that it estimated would cost about $90 million annually. Key litigation included a travel agent commission antitrust class action seeking about $725 million before trebling, which Delta agreed to settle for $20 million subject to court approval, and a ValuJet suit alleging antitrust violations over LaGuardia slots. Management did not expect these matters to have a material adverse effect.
What balance sheet and liquidity changes occurred during the year?
Stockholders' equity increased to $2.54 billion from $1.83 billion, while long-term debt and capital leases including current maturities fell to $2.3 billion from $3.3 billion. Delta repurchased $224 million of long-term debt and had $1.25 billion of credit available under its bank credit agreement as of August 16, 1996. Cash and short-term investments totaled $1.6 billion at June 30, 1996.
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