01—Abstract
Summary
Summary of the 10-K filed February 13, 2013. Cited figures are marked; the original filing is the authoritative source.
Delta Air Lines, Inc. reported 2012 net income of $1.0 billiona, or $1.19 per diluted share, on operating revenue of $36.67 billion, up from $35.12 billion in 2011.
Operating income rose to $2.18 billionb from $1.98 billion, while total operating expense grew 4% to $34.50 billion, driven mainly by higher fuel expense. Average fuel price per gallon rose 6% to $3.25, despite a 2% decline in consumption. Passenger mile yield improved 5% on flat traffic, and passenger revenue per available seat mile increased 7%.
Management cites $5.2 billionc in unrestricted liquidity at year-end, $2.5 billion of operating cash flow, and $1.1 billion of debt reduction during 2012. The filing highlights several strategic initiatives: a $1 billion structural cost program, a fleet restructuring to retire 50-seat regional jets and older aircraft, and the acquisition of the Trainer refinery near Philadelphia for $180 million to secure jet fuel supply. Delta also agreed to buy a 49% stake in Virgin Atlantic for $360 million and implemented a transpacific joint venture with Virgin Australia.
Total debt and capital leases fell to $12.7 billion, while stockholders' deficit widened to $2.13 billiond, largely due to a $1.8 billion other comprehensive loss tied to pension liabilities. The company has a $16.3 billion U.S. federal pretax net operating loss carryforward and a full valuation allowance of $11.0 billion against deferred tax assets, so it expects to pay no significant federal cash income taxes in the near term. Risk factors center on fuel price volatility, the pension funding obligation (about $675 million expected in 2013), the financial and collateral covenants on its secured debt, labor relations under the Railway Labor Act, and pending litigation including the First Bag Fee antitrust case and the EU Regulation 261 class action.
02—Key points
Key Highlights
- Net income of $1.009 billion, or $1.19 per diluted share, in 2012, up from $854 million in 2011.
- Operating revenue of $36.67 billion, up $1.56 billion (4%) year over year, led by a 5% improvement in passenger mile yield.
- Aircraft fuel and related taxes of $10.15 billion; total fuel expense including contract carriers was $12.25 billion, with a 6% higher average price per gallon of $3.25.
- Liquidity of $5.2 billion at year-end, including $3.4 billion in cash and short-term investments and $1.8 billion in undrawn revolving credit facilities.
- Total debt and capital leases reduced to $12.7 billion, down $1.1 billion from 2011; operating cash flow was $2.5 billion.
- Acquired the Trainer refinery for $180 million, with a capacity of 185,000 barrels per day, to supply jet fuel to its Northeastern operations.
- Stockholders' deficit of $2.13 billion at year-end, reflecting a $1.8 billion other comprehensive loss, primarily from pension liabilities.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 13, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $36.67B$35.12B | +4.4% |
| Operating Expenses | $34.49B$33.14B | +4.1% |
| Operating Income | $2.17B$1.98B | +10.1% |
| Interest Expense | $1.00B— | — |
| Net Income | $1.01B$854.00M | +18.1% |
| EPS (Basic) | $1.20$1.02 | +17.6% |
| EPS (Diluted) | $1.19$1.01 | +17.8% |
| Shares Outstanding (Basic) | 845.00M838.00M | +0.8% |
| Shares Outstanding (Diluted) | 850.00M844.00M | +0.7% |
05—Questions
Frequently Asked Questions
How did Delta's profitability change in 2012?
Net income rose to $1.009 billion, or $1.19 per diluted share, from $854 million in 2011. Operating income increased to $2.175 billion from $1.975 billion, as the 4% revenue increase outpaced the 4% rise in operating expense.
What is driving Delta's fuel costs and how is the company managing them?
The average fuel price rose 6% to $3.25 per gallon, though consumption fell 2% to 3.769 billion gallons. Delta manages price risk with a hedging program and reduces supply risk through its Monroe refinery subsidiary, which the company says will supply jet fuel to its New York hubs. The filing notes that fuel hedging produced losses of $66 million in 2012.
What are the main risks to Delta's balance sheet?
The company has a stockholders' deficit of $2.13 billion and total debt and capital leases of $12.7 billion. Its defined benefit pension obligation is about $21.5 billion against $8.2 billion of plan assets, with a 2013 funding requirement of roughly $675 million. Many of its credit facilities contain collateral coverage and liquidity covenants, and a shortfall could require additional collateral or debt repayment.
What growth and strategic initiatives did Delta pursue in 2012?
Delta launched a $1 billion structural cost program and a domestic fleet restructuring to retire 50-seat regional jets. It ordered 40 CRJ-900 aircraft and leased 88 B-717-200 aircraft, and it agreed to buy a 49% stake in Virgin Atlantic for $360 million, pending regulatory approval. It also expanded LaGuardia, where it operates about 260 daily flights.
06—Continue