01—Abstract
Summary
Summary of the 10-K filed February 11, 2015. Cited figures are marked; the original filing is the authoritative source.
Delta Air Lines, Inc. reported 2014 operating revenue of $40.36 billiona, up from $37.77 billion in 2013, with operating income of $2.21 billion versus $3.40 billion a year earlier.
Pre-tax income fell to $1.07 billionb from $2.53 billion, driven by $3.5 billion of special items, including $2.35 billion of unfavorable mark-to-market adjustments on fuel hedges and $716 million of restructuring and other charges. Excluding special items, pre-tax income rose to $4.54 billion from $2.68 billion, according to the filing's non-GAAP reconciliation. Net income was $659 million, or $0.78 per diluted share, compared with $10.54 billion in 2013, which included an $8.0 billion tax benefit from releasing the valuation allowance.
Fuel remained the largest expense at $13.51 billionc, or 35% of operating expense, with an average price of $3.47 per gallon including hedge losses of $2.0 billion. The company's Monroe refinery in Trainer, Pennsylvania, recorded a profit of $96 million in 2014. Cash from operations was $4.95 billion, and the company reported $5.2 billion of unrestricted liquidity at year-end.
Debt and capital leases were reduced to $9.9 billiond principal, and the company returned $1.4 billion to shareholders through repurchases and dividends. The quarterly dividend was raised to $0.09 per share, and a $2.0 billion repurchase program was authorized. Looking ahead, the company ordered 50 widebody aircraft for delivery from 2017, expanded its Virgin Atlantic joint venture and Seattle hub, and continued fleet restructuring.
Its 2015 capital investment is expected to be about $2.8 billion. Key risks disclosed include fuel price volatility, labor relations with 18% unionized employees, and competition from government-supported foreign carriers.
02—Key points
Key Highlights
- Operating revenue rose 7% to $40.36 billion in 2014, while operating income declined to $2.21 billion from $3.40 billion.
- Net income fell to $659 million ($0.78 diluted EPS) from $10.54 billion in 2013, which benefited from an $8.0 billion tax valuation allowance release.
- Special items of $3.5 billion, led by $2.35 billion of unfavorable fuel hedge mark-to-market adjustments, drove the drop in reported pre-tax income to $1.07 billion; adjusted pre-tax income was $4.54 billion.
- Fuel expense totaled $13.51 billion (35% of operating expense) at an average of $3.47 per gallon, versus $3.00 in 2013.
- Cash from operations was $4.95 billion, with $5.2 billion of unrestricted liquidity at December 31, 2014.
- Debt and capital lease principal declined to $9.9 billion, and $1.4 billion was returned to shareholders in 2014.
- Quarterly dividend increased to $0.09 per share, and a $2.0 billion share repurchase program was authorized through December 2016.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 11, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $40.36B$37.77B | +6.9% |
| Operating Expenses | $38.16B$34.37B | +11.0% |
| Operating Income | $2.21B$3.40B | −35.1% |
| Interest Expense | $650.00M$852.00M | −23.7% |
| Net Income | $659.00M$10.54B | −93.7% |
| EPS (Basic) | $0.79$12.41 | −93.6% |
| EPS (Diluted) | $0.78$12.29 | −93.7% |
| Shares Outstanding (Basic) | 836.00M849.00M | −1.5% |
| Shares Outstanding (Diluted) | 845.00M858.00M | −1.5% |
05—Questions
Frequently Asked Questions
Why did Delta's pre-tax income fall sharply in 2014 despite higher revenue?
Pre-tax income fell to $1.07 billion from $2.53 billion mainly because of $3.5 billion of special items, including $2.35 billion of unfavorable mark-to-market adjustments on fuel hedges following the sharp decline in crude oil prices during 2014. Excluding special items, pre-tax income increased to $4.54 billion.
How did fuel costs affect Delta's 2014 results?
Total fuel expense rose to $13.51 billion from $11.46 billion, and the average price per gallon rose to $3.47 from $3.00, including $2.0 billion of hedge losses. Excluding hedging and refinery effects, the adjusted price per gallon was $2.87, down from $3.07 in 2013. The Monroe refinery recorded a $96 million profit in 2014.
How is Delta returning capital to shareholders?
In 2014 Delta repurchased $1.1 billion of common stock and paid $251 million in dividends. The quarterly dividend was raised to $0.09 per share in the September 2014 quarter, and a new $2.0 billion repurchase program runs through December 31, 2016. Management expects these programs to return $2.75 billion through 2016.
What are Delta's main growth initiatives for the coming years?
Delta is expanding its Virgin Atlantic joint venture, developing Seattle as a Pacific hub with peak departures projected to reach 120 in 2015, and retiring B-747-400 aircraft. It ordered 50 widebody aircraft (25 A330-900neo and 25 A350-900) for delivery beginning in 2017, and expects 2015 investments of about $2.8 billion.
What key risks does Delta disclose?
The filing highlights fuel price volatility and supply disruptions, the risk of unrecoverable losses from its Monroe refinery, competition from well-funded government-supported carriers, labor relations (about 18% of employees are unionized, and the pilot agreement becomes amendable December 31, 2015), and the effects of weather, terrorism and economic conditions.
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