Reports Pre-Tax Income of $373 Million, Excluding Reorganization and Related Items
ATLANTA - Delta Air Lines (NYSE:DAL) reported combined1 results for the quarter ended June 30, 2007. Key points include:
· Delta's second quarter pre-tax income was $1.9 billion. Excluding reorganization and related items, pre-tax income was $373 million, a nearly $200 million improvement compared to the prior year period.2,3
· Delta's operating income for the June 2007 quarter was $490 million, the company's fifth consecutive quarterly operating profit, reflecting an operating margin of 9.8 percent. Excluding reorganization and related items, operating income was $499 million, and operating margin was 10.0 percent.
· In the June 2007 quarter Delta generated $1.1 billion in free cash flow. As of June 30, 2007, Delta had $3.7 billion in cash, cash equivalents and short-term investments, of which $3.4 billion was unrestricted. The company's undrawn revolving credit facility provides an additional $1 billion in unrestricted liquidity.
· Delta accrued $79 million in profit sharing for the June 2007 quarter, in recognition of the achievements of all Delta employees toward meeting the company's financial targets.
Delta reported pre-tax income of $1.9 billion in the second quarter of 2007, compared to a pre-tax loss of $2.2 billion in the second quarter of 2006. Given its significant net operating loss carry forwards (NOLs) which will be used to offset substantially all cash income tax obligations in the foreseeable future, Delta believes pre-tax earnings is a more meaningful measure of financial performance.
Net income for the June 2007 quarter was $1.8 billion, or $4.49 per share based on 393.8 million diluted shares outstanding. Excluding the reorganization and related items described below, net income was $274 million or $0.70 per share.
"Delta's emergence from bankruptcy was a significant milestone in the history of the company and the airline industry," said Gerald Grinstein, Delta's chief executive officer. "In delivering the kind of outstanding financial, operational and customer service results we saw this quarter, it is clear Delta people at every level are producing a strong airline with a bright future."
Fresh Start Reporting
Upon emergence from bankruptcy on April 30, 2007, the company adopted fresh start reporting4. Under fresh start reporting, Delta revalued its assets and liabilities to preliminarily estimated current market values and changed the accounting for its SkyMiles frequent flyer program. These non-cash adjustments significantly impacted Delta's balance sheet, statement of operations and statement of cash flows. As a result, Delta's financial statements on and after May 1, 2007 are not comparable to its previously issued financial statements.
Financial Performance
Strong passenger demand, together with Delta's network restructuring and revenue management initiatives, drove operating revenue of $5.0 billion for the June 2007 quarter, representing an increase of $262 million or 5.5 percent compared to the prior year period. The increase includes a $42 million benefit, primarily impacting passenger revenue, from fresh start adjustments related to a change in accounting for Delta's frequent flyer program.
Delta's consolidated passenger unit revenue (PRASM) was 11.78 cents, an increase of 5.6 percent in the June 2007 quarter compared to the same period in 2006. Excluding the impact of the fresh start adjustments related to a change in accounting for the frequent flyer program, consolidated PRASM increased 4.6 percent.
Delta's international PRASM grew 9.7 percent year over year, with trans-Atlantic markets producing an 11.1 percent PRASM improvement on an 11.8 percent increase in capacity, and Latin American markets producing a 6.7 percent increase in PRASM on a 23.8 percent increase in capacity. Domestic markets also showed solid PRASM performance, with domestic PRASM up 5.7 percent on 4.8 percent lower capacity. Delta's mix of domestic versus international capacity was 65 percent and 35 percent, respectively in June 2007, as compared to 77 percent and 23 percent, respectively in June 2005.
Based on the most recent available ATA data for the year-to-date period ended May 31, 2007, Delta's consolidated length of haul adjusted PRASM was 96% of the industry average PRASM (excluding Delta), up from 86% in 2005 and on track with Delta's target of closing the gap to the industry by the end of 2008.
For the June 2007 quarter, Delta's operating expenses increased 3 percent, or $141 million, versus the prior year period. The increase was due to $79 million in profit sharing expense, $36 million in non-cash expense from fresh start adjustments, $26 million in non-cash compensation expense related to emergence awards, and higher expenses related to a 1% increase in capacity. These increases were partially offset by lower fuel price and benefits from restructuring initiatives. For the same period, non-operating expenses declined 27 percent, or $52 million, due primarily to improved cash flows and lower effective interest rates.
Delta's reported mainline unit cost (CASM) in the second quarter of 2007 was 10.41 cents, an increase of 1.8 percent compared to the second quarter of 20065. Excluding expenses from profit sharing and bankruptcy-related professional fees, mainline non-fuel CASM was 6.93 cents, a decline of 0.6 percent.
Liquidity
At June 30, 2007, Delta had $3.7 billion in cash, cash equivalents and short-term investments, of which $3.4 billion was unrestricted. Delta also has an additional $1 billion in unrestricted liquidity available under its undrawn revolving credit facility. During the June 2007 quarter, Delta generated $1.1 billion in free cash flow, which included more than $170 million in capital expenditures reinvested in its business.
June 2007 Quarter Highlights
The June 2007 quarter included several significant events for Delta. In addition to emerging from bankruptcy on April 30, Delta continued the positive momentum from its restructuring, demonstrating its continued commitment to providing the best products and services to its customers while creating value for investors by:
· Completing its $2.5 billion exit financing facility, which includes an industry leading $1 billion revolving credit facility, and repaying its $2.1 billion debtor-in-possession financing loans;
· Beginning trading of its common stock on May 3rd on the New York Stock Exchange under the ticker symbol DAL;
· Increasing its unrestricted cash reserves by approximately $800 million by amending its Visa/Mastercard credit card processing agreement to provide for return of the previously required holdback;
· Earning, for the second consecutive year, a ranking in the top two among network carriers in the JD Power Customer Satisfaction Survey;
· Completing the conversion of eight B767-400 aircraft from domestic to international service, to continue its international expansion strategy. International routes launched during the June 2007 quarter include new service from Atlanta to Dubai, Prague, Seoul, and Vienna and from New York-JFK to Bucharest and Pisa;
· Confirming an additional order for a B777-LR aircraft, and announcing the planned installation of winglets on more than 60 Boeing 737-NG, 757-200 and 767-300ER aircraft over the next 2 years;
· Completing its redesigned, state-of-the-art lobby at Hartsfield-Jackson Atlanta International Airport to provide its customers with a faster, more convenient check-in process;
· Opening a dedicated check-in facility at Terminal 2 at New York-JFK, offering the only exclusively premium check-in facility at that airport; and
· Unveiling its new corporate brand and livery, which features the new all-red Delta "widget" to recognize Delta's rich heritage and highlight the company's bold, new identity.
"The June quarter results announced today include $1.1 billion in free cash flow showing solid evidence that our plan is working. As a result of our strong operating performance, we're pleased to report that we accrued $79 million in profit sharing for the quarter that we expect will be paid to employees early next year to reward them for all their hard work." said Edward H. Bastian, Delta's executive vice president and chief financial officer. "Our turnaround continues to take hold, but is not complete - we must remain vigilant in driving revenue and cost improvements, especially in light of increasing fuel prices."
Operational Performance
Based on the most recent available DOT data for the year-to-date period ended May 31, 2007, Delta ranks first of the network carriers in on-time performance. In addition, exchange carrier data for the month of June 2007 indicates similar rankings through the end of the second quarter. Delta's June 2007 quarter completion factor was 99.1 percent.
"Delta people continue to step up to day-to-day operational challenges and have again achieved top tier operational performance, which is even more impressive when considered against the severe weather and record load factors during the quarter," said Jim Whitehurst, Delta's chief operating officer. "This drive to deliver excellent customer service was recognized in Delta's second place ranking of the network carriers - for the second year in a row - in the JD Power Customer Satisfaction Survey."
Reorganization and Related Items
In the second quarter of 2007, Delta recorded income of $1.5 billion from reorganization and related items, primarily due to the discharge of claims and liabilities in connection with its bankruptcy proceedings and the adoption of fresh start reporting.
In the second quarter of 2006, Delta recorded a $2.4 billion charge for reorganization items primarily related to the allowed general, unsecured pre-petition claim in conjunction with changes to the Delta pilot collective bargaining agreement.
Fuel Hedging
During the June 2007 quarter, Delta hedged 48% of its fuel consumption resulting in an average fuel price per gallon of $2.05. Due to fresh start accounting eliminating much of the hedge benefits toward fuel costs, the average reported fuel price per gallon was $2.09 for the June 2007 quarter. Delta realized approximately $40 million in cash gains on fuel hedge contracts settled during the quarter.
As of July 18, 2007, Delta has hedged 21% of its projected fuel consumption for the September 2007 quarter utilizing heating oil collars with an average cap of $1.80.
Other Matters
Included with this press release are Delta's Consolidated Statements of Operations for the three and six month periods ended June 30, 2007 and 2006; a statistical summary for those periods; selected balance sheet data as of June 30, 2007 and Dec. 31, 2006; and a reconciliation of certain non-GAAP financial measures.
-Ends-
About Delta
Delta Air Lines (NYSE:DAL) offers customers service to more destinations than any global airline with Delta and Delta Connection carrier service to 333 destinations in 57 countries. With more than 60 new international routes introduced in the last year, Delta has added more international capacity than all other U.S. airlines combined and is the leader across the Atlantic with flights to 36 trans-Atlantic destinations. To Latin America and the Caribbean, Delta offers nearly 700 weekly flights to more than 60 destinations. Delta's marketing alliances also allow customers to earn and redeem SkyMiles on nearly 15,000 flights offered by SkyTeam and other partners. Delta is a founding member of SkyTeam, a global airline alliance that provides customers with extensive worldwide destinations, flights and services. Including its SkyTeam and worldwide codeshare partners, Delta offers flights to 479 worldwide destinations in 105 countries. Customers can check in for flights, print boarding passes and check flight status at delta.com.
Endnotes
1 In connection with its emergence from bankruptcy on April 30, 2007, Delta adopted fresh start reporting in accordance with American Institute of Certified Public Accountants' Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." The adoption of fresh start reporting results in Delta's becoming a new entity for financial reporting purposes. Accordingly, Delta's consolidated financial statements after April 30, 2007 are not comparable to its financial statements for any period prior to emergence. However, to provide a basis of comparison to prior year results, Delta has combined the results for (a) the one month ended April 30, 2007 with the two months ended June 30, 2007 and the four months ended April 30, 2007 with the two months ended June 30, 2007. References in this press release to "Successor" refer to Delta on or after May 1, 2007, giving effect to fresh start reporting. References to "Predecessor" refer to Delta prior to May 1, 2007.
2 Note 4 to the attached Consolidated Statements of Operations provides a reconciliation of certain non-GAAP financial measures used in this release and provides the reasons management uses those measures.
3 Reorganization items refers to revenues, expenses, gains or losses that are realized or incurred by us that are due to our reorganization under Chapter 11 of the U.S. Bankruptcy Code. In accordance with GAAP, these items are required to be separately classified in the Consolidated Statements of Operations.
4 These changes are described in Delta's Current Reports on Form 8-K dated May 2, 2007 and June 13, 2007.
5 Delta excludes from mainline unit costs expenses related to maintenance and staffing services which the company provides to third parties because these expenses are not related to the generation of a seat mile. Similarly, Delta excludes from passenger unit revenues, and includes in other revenue, revenues received for providing maintenance and staffing services to third parties. Management believes these classifications provide a more consistent and comparable reflection of Delta's mainline operations.
© Press Release 2007
