01—Abstract
Summary
Summary of the 10-K filed February 24, 2014. Cited figures are marked; the original filing is the authoritative source.
Delta Air Lines, Inc. reported a sharp swing to profitability for 2013, with net income of $10.54 billiona, up from $1.01 billion in 2012.
The result was driven mainly by an $8.0 billionb net income tax benefit from releasing almost all of its valuation allowance against deferred tax assets. Income before income taxes was $2.53 billion, compared with $1.03 billion in 2012, and operating income rose to $3.40 billion from $2.18 billion on operating revenue of $37.77 billion (up 3%). The filing states that operating margin rose about 4 percentage points to 7%, and that operating expense fell $122 million as lower fuel expense (down $787 million, to $11.46 billion including regional carriers) offset higher salaries and profit sharing.
Management noted that the company expects to record income tax expense at an effective rate of about 38% beginning in 2014, and that it holds more than $15 billionc of net operating loss carryforwards that will offset cash taxes on future earnings. Balance sheet and capital allocation improved meaningfully. Stockholders' equity moved to $11.64 billion from a deficit of $2.13 billion a year earlier, and total debt and capital leases fell to $11.3 billion.
The company ended 2013 with $5.7 billiond in unrestricted liquidity and generated $4.5 billion in operating cash flow. Delta began a quarterly dividend of $0.06 per share, declared a $500 million share repurchase program running through June 2016, and returned about $350 million to shareholders during 2013. Capital expenditures were $2.6 billion, and the company expects about $2.3 billion in 2014, primarily for aircraft.
Operationally, the filing highlights a fleet restructuring program (retiring 50-seat regional jets and adding B-737-900ER, B-717-200 and CRJ-900 aircraft), expansion at LaGuardia and JFK, a 49% equity stake in Virgin Atlantic for $360 million, and the Trainer refinery acquired in 2012 to supply jet fuel. Key risks disclosed include fuel price volatility (fuel was 33% of operating expense), refinery operating and RIN compliance costs (the refinery recorded a $116 million loss in 2013), pension funding obligations (funded status of about $10.1 billion unfunded), labor relations, 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 $10.54 billion in 2013 versus $1.01 billion in 2012, including an $8.0 billion net tax benefit from releasing almost all of the deferred tax valuation allowance.
- Income before income taxes rose to $2.53 billion from $1.03 billion; operating income increased to $3.40 billion from $2.18 billion.
- Operating revenue grew 3% to $37.77 billion, led by passenger revenue of $32.94 billion (up $1.19 billion), with domestic unit revenue up over 5%.
- Total fuel expense fell $787 million to $11.46 billion; average price per gallon was $3.00 versus $3.25, and fuel hedging produced $493 million of gains.
- Stockholders' equity turned positive at $11.64 billion from a $2.13 billion deficit; unrestricted liquidity was $5.7 billion at year end.
- Dividend program initiated at $0.06 per share quarterly and a $500 million share repurchase program authorized through June 2016; the company expects an effective tax rate of about 38% from 2014.
- Management expects about $2.3 billion of capital investment in 2014, primarily aircraft, funded through operations and new financings.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 24, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $37.77B$36.67B | +3.0% |
| Operating Expenses | $34.37B$34.49B | −0.4% |
| Operating Income | $3.40B$2.17B | +56.3% |
| Interest Expense | $852.00M$1.00B | −15.2% |
| Net Income | $10.54B$1.01B | +944.6% |
| EPS (Basic) | $12.41$1.20 | +934.2% |
| EPS (Diluted) | $12.29$1.19 | +932.8% |
| Shares Outstanding (Basic) | 849.00M845.00M | +0.5% |
| Shares Outstanding (Diluted) | 858.00M850.00M | +0.9% |
05—Questions
Frequently Asked Questions
Why did Delta's net income jump so much in 2013?
Net income was $10.54 billion, but $8.0 billion of that came from an income tax benefit tied to releasing almost all of the valuation allowance against deferred tax assets. Income before income taxes was $2.53 billion, up $1.5 billion from 2012.
How much did fuel costs change and why does fuel matter to investors?
Fuel expense, including regional carriers, decreased $787 million to $11.46 billion, mainly because the average price per gallon fell to $3.00 from $3.25. Fuel accounted for 33% of total operating expense in 2013, so price volatility remains a key driver of results.
Will Delta pay meaningful cash income taxes going forward?
The filing states that Delta has more than $15 billion of federal pre-tax net operating loss carryforwards and expects to pay no cash federal income taxes for the next several years. Beginning in 2014, it expects to record income tax expense at an effective rate of approximately 38%.
What is Delta doing with its capital and shareholder returns?
Delta reduced total debt by $1.4 billion in 2013 to $11.3 billion, began paying a $0.06 quarterly dividend, and repurchased about 10 million shares for roughly $250 million under a $500 million program. The company plans to return more than $1 billion to shareholders over three years.
What are the main risks highlighted in the filing?
Key risks include fuel price and supply volatility, collateral posting requirements on hedges, a defined benefit pension obligation with an estimated $19.1 billion benefit obligation against $8.9 billion of plan assets, labor disruptions (about 18% of the workforce is unionized), refinery operating and RIN compliance costs, and pending antitrust and EU Regulation 261 litigation.
06—Continue