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 Delta Air Lines Announces December Quarter and Full Year 2016 Profit
   Thursday, January 12, 2017 7:00:00 AM ET

Delta Air Lines (DAL ) today reported financial results for the December quarter and full year 2016. Highlights of those results, including both GAAP and adjusted metrics, are below and incorporated here.

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Adjusted pre-tax income for the December 2016 quarter was $923 million, a $524 million decrease from the December 2015 quarter, primarily driven by the new pilot agreement. For the full year, adjusted pre-tax income increased 4 percent year over year to $6.1 billion.

"Delta had a year of record-breaking performance in 2016 - financially, operationally and for our customers - and it’s an honor to recognize our employees’ efforts this year with over $1 billion in profit sharing," said Ed Bastian, Delta’s chief executive officer. "As we move into 2017, we are seeing our unit revenues turn positive which should return the company to margin expansion by the back half of the year. This will allow us to produce the solid returns and cash flows that investors rely upon from Delta."

Revenue Environment

Delta’s operating revenue for the December quarter was down $44 million versus prior year. Passenger unit revenues declined 2.7 percent on a 0.9 percent increase in capacity.

"Delta’s commercial strategies and capacity actions combined with improving demand continue to drive benefit as we transition back into sustained positive unit revenues. For the March quarter, we expect a unit revenue increase of flat to up 2 percent, stemming the declines that have been ongoing for two years," said Glen Hauenstein, Delta’s president. "We will remain conservative and keep our capacity growth in check until we see a further firming of these revenue trends in the near-term and longer-term, a return to our 17-19 percent operating margin target."

                                  Increase (Decrease)
                                  4Q16 versus 4Q15
                                  Change   Unit
Passenger Revenue      4Q16 ($M)  YoY      Revenue Yield   Capacity
         Mainline      4,385      0.4  %   (2.8) % (3.1) % 3.3  %
         Regional      1,399      (1.6) %  (1.8) % (2.4) % 0.1  %
Total Domestic         5,784      (0.1) %  (2.7) % (3.1) % 2.7  %
         Atlantic      1,084      (6.8) %  (6.0) % (2.4) % (0.8) %
         Pacific       559        (14.4) % (8.8) % (8.6) % (6.1) %
         Latin America 547        5.0  %   5.2  %  1.2  %  (0.1) %
Total Passenger        7,974      (1.9) %  (2.7) % (2.7) % 0.9  %
Cargo Revenue          174        (9.8) %
Other Revenue          1,310      10.6  %
Total Revenue          9,458      (0.5) %

March 2017 Quarter Guidance

For the March quarter, Delta is expecting pressures on margins as the pace of change in unit revenue will not match the cost impact of higher fuel prices and employee wage increases. This margin pressure is likely to peak in the March quarter, and the company expects margins to expand beginning in the second half of the year.

                                                       1Q17 Forecast
Operating margin*                                      11% - 13%
Passenger unit revenue (compared to 1Q16)              Up 0% - 2%
Fuel price, including taxes and refinery impact*       $1.68 - $1.73
CASM - Ex including profit sharing (compared to 1Q16)* Up 5% - 7%
System Capacity (compared to 1Q16)                     Down 0% - 1%

*See note A for information about reconciliation of these projected non-GAAP financial measures

Cost Performance

Adjusted fuel expense2 declined $240 million compared to the same period in 2015, as 12 percent higher market prices were offset by prior year hedge losses. Delta’s adjusted fuel price per gallon for the December quarter was $1.60.

CASM-Ex3 including profit sharing increased 10.6 percent for the December 2016 quarter compared to the prior year period primarily driven by the impact of the new pilot agreement ratified on December 1, 2016 with retroactive effect to January 1, 2016. Results for the December quarter include the full 2016 impact of the new contract totaling $475 million of expense, of which $380 million relates to the first three quarters of the year.

Non-operating expense declined $116 million for the quarter due to a $75 million loss in prior year for the write-off of Venezuela currency and $10 million of lower interest expense from Delta’s debt reduction initiatives.

"Delta’s cost and capital discipline has allowed us to consistently invest in our people and the customer experience, and do so in a way that keeps our unit cost growth manageable over time and generates sufficient cash flow for debt reduction and shareholder returns," said Paul Jacobson, Delta’s chief financial officer. "We’ll continue to take this balanced approach - investing across the business to drive future earnings growth, further strengthening our investment grade balance sheet, and returning cash to our owners - as we drive sustainability for the long term."

Cash Flow, Shareholder Returns, and Adjusted Net Debt

Delta generated $1.2 billion of adjusted operating cash flow and $640 million of free cash flow during the quarter. The company used this strong cash generation to invest $600 million into the business for aircraft modifications, facilities upgrades and technology improvements.

For the December quarter, the company returned $449 million to shareholders, comprised of $149 million of dividends and $300 million of share repurchases. Delta returned $3.1 billion to its owners in 2016 through dividends and share repurchases.

Adjusted net debt4 at the end of the quarter stood at $6.1 billion, a $500 million reduction compared to the end of 2015.

December Quarter and Full Year Results

                                                GAAP        Adjusted    GAAP        Adjusted
($ in millions except per share and unit costs) 4Q16  4Q15  4Q16  4Q15  FY16  FY15  FY16  FY15
Pre-tax income                                  952   1,533 923   1,447 6,636 7,157 6,071 5,865
Net income                                      622   980   604   926   4,373 4,526 4,017 3,709
Diluted earnings per share                      0.84  1.25  0.82  1.18  5.79  5.63  5.32  4.61
Fuel expense (including regional carriers)      1,492 1,652 1,503 1,743 5,985 7,579 6,435 8,880
Average fuel price per gallon                   1.59  1.75  1.60  1.85  1.49  1.90  1.60  2.23
Consolidated unit cost (CASM/CASM-Ex)           14.37 13.38 11.25 10.17 12.98 13.33 10.13 9.77
Operating cash flow                             1,125 1,479 1,217 1,441 7,205 7,927 6,954 7,429
Total debt and capital leases                   7,332 8,329 6,144 6,675 7,332 8,329 6,144 6,675

About Delta Delta Air Lines serves nearly 180 million customers each year. In 2016, Delta was named to Fortune’s top 50 Most Admired Companies in addition to being named the most admired airline for the fifth time in six years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for an unprecedented six consecutive years. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 323 destinations in 57 countries on six continents. Headquartered in Atlanta, Delta employs more than 80,000 employees worldwide and operates a mainline fleet of more than 800 aircraft. The airline is a founding member of the SkyTeam global alliance and participates in the industry’s leading transatlantic joint venture with Air France-KLM and Alitalia as well as a joint venture with Virgin Atlantic. Including its worldwide alliance partners, Delta offers customers more than 15,000 daily flights, with key hubs and markets including Amsterdam, Atlanta, Boston, Detroit, Los Angeles, Minneapolis/St. Paul, New York-JFK and LaGuardia, London-Heathrow, Paris-Charles de Gaulle, Salt Lake City, Seattle and Tokyo-Narita. Delta has invested billions of dollars in airport facilities, global products and services, and technology to enhance the customer experience in the air and on the ground. Additional information is available on the Delta News Hub, as well as delta.com, Twitter @DeltaNewsHub, Google.com/+Delta, and Facebook.com/delta.

End Notes

(1) Note A to the attached Consolidated Statements of Operations provides a reconciliation of non-GAAP financial measures used in this release to the comparable GAAP metric and provides the reasons management uses those measures.
(2) Adjusted fuel expense reflects, among other things, the impact of mark-to-market ("MTM") adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. See Note A for a reconciliation of adjusted fuel expense and average fuel price per gallon to the comparable GAAP metric.
(3) CASM - Ex, including profit sharing: In addition to fuel expense, Delta believes adjusting for certain other expenses is helpful to investors because other expenses are not related to the generation of a seat mile. These expenses include aircraft maintenance and staffing services Delta provides to third parties, Delta’s vacation wholesale operations and refinery cost of sales to third parties. The amounts excluded were $338 million and $213 million for the December 2016 and December 2015 quarters, respectively and $1.2 billion for both years ended December 31, 2016 and 2015. Management believes this methodology provides a more consistent and comparable reflection of Delta’s airline operations.
(4) Adjusted net debt includes $38 million and $119 million as of December 31, 2016 and December 31, 2015, respectively, of hedge margin receivable, which is cash that we have posted with counterparties as hedge margin. See Note A for additional information about our calculation of adjusted net debt.

Forward Looking Statements

Statements in this investor update that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the estimates, expectations, beliefs, intentions, projections and strategies reflected in or suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to, the effects of terrorist attacks or geopolitical conflict; the cost of aircraft fuel; the impact of rebalancing our hedge portfolio, recording mark-to-market adjustments or posting collateral in connection with our fuel hedge contracts; the availability of aircraft fuel; the possible effects of accidents involving our aircraft; the restrictions that financial covenants in our financing agreements will have on our financial and business operations; labor issues; interruptions or disruptions in service at one of our hub or gateway airports; disruptions or security breaches of our information technology infrastructure; our dependence on technology in our operations; the effects of weather, natural disasters and seasonality on our business; the effects of an extended disruption in services provided by third party regional carriers; failure or inability of insurance to cover a significant liability at Monroe’s Trainer refinery; the impact of environmental regulation on the Trainer refinery, including costs related to renewable fuel standard regulations; our ability to retain management and key employees; competitive conditions in the airline industry; the effects of extensive government regulation on our business; the sensitivity of the airline industry to prolonged periods of stagnant or weak economic conditions, including the effects of Brexit; and the effects of the rapid spread of contagious illnesses.

Additional information concerning risks and uncertainties that could cause differences between actual results and forward-looking statements is contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016. Caution should be taken not to place undue reliance on our forward-looking statements, which represent our views only as of January 12, 2017, and which we have no current intention to update.

DELTA AIR LINES, INC.
Consolidated Statements of Operations
(Unaudited)
                                                                          Three Months Ended                                         Year Ended
                                                                          December 31,                                               December 31,
(in millions, except per share data)                                      2016             2015             $ Change       % Change  2016             2015             $ Change         % Change
Operating Revenue:
               Passenger:
                                         Mainline                         $         6,575  $         6,703  $        (128) (2)%      $       28,105   $       28,898   $          (793) (3)%
                                         Regional carriers                1,399            1,422            (23)           (2)%      5,672            5,884            (212)            (4)%
                                         Total passenger revenue          7,974            8,125            (151)          (2)%      33,777           34,782           (1,005)          (3)%
               Cargo                                                      174              193              (19)           (10)%     668              813              (145)            (18)%
               Other                                                      1,310            1,184            126            11%       5,194            5,109            85               2%
                                         Total operating revenue          9,458            9,502            (44)           NM        39,639           40,704           (1,065)          (3)%
Operating Expense:
               Salaries and related costs                                 2,869            2,213            656            30%       10,034           8,776            1,258            14%
               Aircraft fuel and related taxes                            1,256            1,433            (177)          (12)%     5,133            6,544            (1,411)          (22)%
               Regional carriers expense
                                         Fuel                             236              219              17             8%        852              1,035            (183)            (18)%
                                         Other                            854              799              55             7%        3,459            3,206            253              8%
               Contracted services                                        511              473              38             8%        1,991            1,848            143              8%
               Depreciation and amortization                              472              451              21             5%        1,902            1,835            67               4%
               Aircraft maintenance materials and outside repairs         466              418              48             11%       1,823            1,848            (25)             (1)%
               Passenger commissions and other selling expenses           419              402              17             4%        1,710            1,672            38               2%
               Landing fees and other rents                               367              329              38             12%       1,490            1,493            (3)              NM
               Profit sharing                                             193              380              (187)          (49)%     1,115            1,490            (375)            (25)%
               Passenger service                                          233              208              25             12%       907              872              35               4%
               Aircraft rent                                              81               67               14             21%       285              250              35               14%
               Other                                                      481              393              88             22%       1,986            2,033            (47)             (2)%
                                         Total operating expense          8,438            7,785            653            8%        32,687           32,902           (215)            (1)%
Operating Income                                                          1,020            1,717            (697)          (41)%     6,952            7,802            (850)            (11)%
Non-Operating Expense:
               Interest expense, net                                      (93)             (102)            9              (9)%      (388)            (481)            93               (19)%
               Miscellaneous, net                                         25               (82)             107            NM        72               (164)            236              NM
                                         Total non-operating expense, net (68)             (184)            116            (63)%     (316)            (645)            329              (51)%
Income Before Income Taxes                                                952              1,533            (581)          (38)%     6,636            7,157            (521)            (7)%
Income Tax Provision                                                      (330)            (553)            223            (40)%     (2,263)          (2,631)          368              (14)%
Net Income                                                                $            622 $            980 $        (358) (37)%     $         4,373  $         4,526  $          (153) (3)%
Basic Earnings Per Share                                                  $           0.85 $           1.26                          $           5.82 $           5.68
Diluted Earnings Per Share                                                $           0.84 $           1.25                          $           5.79 $           5.63
Basic Weighted Average Shares Outstanding                                 732              778                                       751              797
Diluted Weighted Average Shares Outstanding                               737              785                                       755              804
DELTA AIR LINES, INC.
Statistical Summary
(Unaudited)
                                                       Three Months Ended                                                 Year Ended
                                                       December 31,                                                       December 31,
                                                       2016                  2015                  Change                 2016           2015           Change
Consolidated:
Revenue passenger miles (millions)                     49,985                49,573                0.8%                   213,098        209,625        1.7%
Available seat miles (millions)                        58,715                58,199                0.9%                   251,867        246,764        2.1%
Passenger mile yield (cents)                           15.95                 16.39                 (2.7%)                 15.85          16.59          (4.5%)
Passenger revenue per available seat mile (cents)      13.58                 13.96                 (2.7%)                 13.41          14.10          (4.9%)
Operating cost per available seat mile (cents)         14.37                 13.38                 7.4%                   12.98          13.33          (2.6%)
CASM-Ex, including profit sharing - see Note A (cents) 11.25                 10.17                 10.6%                  10.13          9.77           3.7%
Passenger load factor                                  85.1%                 85.2%                 (0.1) pts              84.6%          84.9%          (0.3) pts
Fuel gallons consumed (millions)                       941                   945                   (0.4%)                 4,016          3,988          0.7%
Average price per fuel gallon                          $       1.59          $       1.75          (9.1%)                 $         1.49 $         1.90 (21.6%)
Average price per fuel gallon, adjusted - see Note A   $       1.60          $       1.85          (13.5%)                $         1.60 $         2.23 (28.3%)
Number of aircraft in fleet, end of period             966                   926                   40
Full-time equivalent employees, end of period          83,756                82,949                1.0%
Mainline:
Revenue passenger miles (millions)                     44,601                44,231                0.8%                   191,714        188,365        1.8%
Available seat miles (millions)                        52,153                51,646                1.0%                   225,268        220,429        2.2%
Operating cost per available seat mile (cents)         14.06                 12.97                 8.4%                   12.51          12.84          (2.6%)
CASM-Ex, including profit sharing - see Note A (cents) 11.08                 9.87                  12.3%                  9.75           9.41           3.6%
Fuel gallons consumed (millions)                       790                   794                   (0.5%)                 3,405          3,383          0.7%
Average price per fuel gallon                          $       1.58          $       1.80          (12.2%)                $         1.50 $         1.93 (22.3%)
Average price per fuel gallon, adjusted - see Note A   $       1.60          $       1.91          (16.2%)                $         1.63 $         2.31 (29.4%)
Number of aircraft in fleet, end of period             832                   809                   23
Note: except for full-time equivalent employees and number of aircraft in fleet, consolidated data presented
includes operations under Delta’s contract carrier arrangements.
DELTA AIR LINES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
                                                                                         Three Months Ended
                                                                                         December 31,
(in millions)                                                                            2016                      2015
Cash Flows From Operating Activities:
Net income                                                                               $                    622  $                  980
Depreciation and amortization                                                            472                       451
Hedge derivative contracts                                                               (52)                      (455)
Deferred income taxes                                                                    332                       558
Pension, postretirement and postemployment payments greater than expense                 78                        76
Changes in:
                                     Hedge margin                                        (18)                      262
                                     Air traffic liability                               (516)                     (728)
                                     Profit sharing                                      193                       380
Other working capital changes, net                                                       14                        (45)
                                     Net cash provided by operating activities           1,125                     1,479
Cash Flows From Investing Activities:
Property and equipment additions:
                                     Flight equipment, including advance payments        (468)                     (640)
                                     Ground property and equipment, including technology (326)                     (238)
Acquisition of London-Heathrow slots                                                     -                         (276)
Net redemptions (purchases) of short-term investments                                    1,023                     (29)
Proceeds for sales of E190 aircraft                                                      185                       -
Other, net                                                                               31                        4
                                     Net cash provided by (used in) investing activities 445                       (1,179)
Cash Flows From Financing Activities:
Payments on long-term debt and capital lease obligations                                 (306)                     (407)
Repurchases of common stock                                                              (300)                     (425)
Cash dividends                                                                           (149)                     (105)
Fuel card obligation                                                                     225                       2
Net proceeds from hedge derivative contracts                                             75                        230
Other, net                                                                               9                         8
                                     Net cash used in financing activities               (446)                     (697)
Net Increase (Decrease) in Cash and Cash Equivalents                                     1,124                     (397)
Cash and cash equivalents at beginning of period                                         1,638                     2,369
Cash and cash equivalents at end of period                                               $                 2,762   $               1,972
                                           DELTA AIR LINES, INC.
                                           Consolidated Balance Sheets
                                           (Unaudited)
                                                                        December 31,           December 31,
(in millions)                                                           2016                   2015
                                           ASSETS
Current Assets:
               Cash and cash equivalents                                $               2,762  $               1,972
               Short-term investments                                   487                    1,465
               Accounts receivable, net                                 2,064                  2,020
               Fuel inventory                                           519                    379
               Expendable parts and supplies inventories, net           372                    318
               Hedge derivatives asset                                  393                    1,987
               Prepaid expenses and other                               836                    915
                                           Total current assets         7,433                  9,056
Property and Equipment, Net:
               Property and equipment, net                              24,375                 23,039
Other Assets:
               Goodwill                                                 9,794                  9,794
               Identifiable intangibles, net                            4,844                  4,861
               Deferred income taxes, net                               3,077                  4,956
               Other noncurrent assets                                  1,733                  1,428
                                           Total other assets           19,448                 21,039
Total assets                                                            $             51,256   $             53,134
                                           LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
               Current maturities of long-term debt and capital leases  $               1,131  $               1,563
               Air traffic liability                                    4,626                  4,503
               Accounts payable                                         2,572                  2,743
               Accrued salaries and related benefits                    2,924                  3,195
               Hedge derivatives liability                              688                    2,581
               Frequent flyer deferred revenue                          1,648                  1,635
               Other accrued liabilities                                1,632                  1,306
                                           Total current liabilities    15,221                 17,526
Noncurrent Liabilities:
               Long-term debt and capital leases                        6,201                  6,766
               Pension, postretirement and related benefits             13,461                 13,855
               Frequent flyer deferred revenue                          2,278                  2,246
               Other noncurrent liabilities                             1,832                  1,891
                                           Total noncurrent liabilities 23,772                 24,758
Commitments and Contingencies
Stockholders’ Equity                                                    12,263                 10,850
Total liabilities and stockholders’ equity                              $             51,256   $             53,134

Note A: The following tables show reconciliations of non-GAAP financial measures. The reasons Delta uses these measures are described below.

Delta sometimes uses information ("non-GAAP financial measures") that is derived from the Consolidated Financial Statements, but that is not presented in accordance with accounting principles generally accepted in the U.S. ("GAAP"). Under the U.S. Securities and Exchange Commission rules, non-GAAP financial measures may be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. The tables below show reconciliations of non-GAAP financial measures used in this release to the most directly comparable GAAP financial measures.

Forward Looking Projections. Delta does not reconcile forward looking non-GAAP financial measures because MTM adjustments and settlements will not be known until the end of the period and could be significant.

Pre-Tax Income and Net Income, adjusted. We adjust for the following items to determine pre-tax income and net income, adjusted, for the reasons described below:

Mark-to-Market ("MTM") adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to better understand and analyze our core operational performance in the periods shown.

Restructuring and other. Because of the variability in restructuring and other, the adjustment for this item is helpful to investors to analyze the company’s recurring core performance in the periods shown.

Virgin Atlantic MTM adjustments. We record our proportionate share of earnings from our equity investment in Virgin Atlantic in non-operating expense. We adjust for Virgin Atlantic’s MTM adjustments to allow investors to better understand and analyze the company’s core financial performance in the periods shown.

Income tax. We included the income tax effect of adjustments when presenting net income, adjusted. We believe that presenting the income tax effect of adjustments allows investors to better understand and analyze the company’s core financial performance in the periods shown.

Operating Cash Flow, adjusted. We adjusted operating cash flow because management believes this metric is helpful to investors to evaluate the company’s ability to generate cash that is available for use for capital expenditures, debt service or general corporate initiatives. Adjustments include:
                                           Hedge deferrals. During the March 2015 quarter, we effectively deferred settlement of a portion of our fuel hedge portfolio by entering into transactions that, excluding market movements from the date of inception, would provide approximately $300 million in cash receipts during the second half of 2015 and require approximately $300 million in cash payments in 2016. During the March 2016 quarter, we further deferred settlement of a portion of our hedge portfolio until 2017 by entering into transactions that, excluding market movements from the date of inception, would provide approximately $300 million in cash receipts during the second half of 2016 and require approximately $300 million in cash payments in 2017. Operating cash flow is adjusted to include the impact of these deferral transactions in order to allow investors to better understand the net impact of hedging activities in the periods shown.
                                           Hedge margin and other. Operating cash flow is adjusted for hedge margin as we believe this adjustment removes the impact of current market volatility on our unsettled hedges and allows investors to better understand and analyze the company’s core operational performance in the periods shown.
                                                                                                                                                                                                     Three Months Ended            Three Months Ended
(in millions)                                                                                                                                                                                        December 31, 2016             December 31, 2015
Net cash provided by operating activities (GAAP)                                                                                                                                                     $                      1,125  $                      1,479
Adjustments:
Hedge deferrals                                                                                                                                                                                      75                            230
Hedge margin and other                                                                                                                                                                               17                            (268)
Net cash provided by operating activities, adjusted                                                                                                                                                  $                      1,217  $                      1,441
                                                                                                                                                                                                     Year Ended                    Year Ended
(in millions)                                                                                                                                                                                        December 31, 2016             December 31, 2015
Net cash provided by operating activities (GAAP)                                                                                                                                                     $                      7,205  $                      7,927
Adjustments:
Hedge deferrals                                                                                                                                                                                      (159)                         358
Hedge margin and other                                                                                                                                                                               (92)                          (856)
Net cash provided by operating activities, adjusted                                                                                                                                                  $                      6,954  $                      7,429

Operating Cash Flow, adjusted. We adjusted operating cash flow because management believes this metric is helpful to investors to evaluate the company’s ability to generate cash that is available for use for capital expenditures, debt service or general corporate initiatives. Adjustments include:

Hedge deferrals. During the March 2015 quarter, we effectively deferred settlement of a portion of our fuel hedge portfolio by entering into transactions that, excluding market movements from the date of inception, would provide approximately $300 million in cash receipts during the second half of 2015 and require approximately $300 million in cash payments in 2016. During the March 2016 quarter, we further deferred settlement of a portion of our hedge portfolio until 2017 by entering into transactions that, excluding market movements from the date of inception, would provide approximately $300 million in cash receipts during the second half of 2016 and require approximately $300 million in cash payments in 2017. Operating cash flow is adjusted to include the impact of these deferral transactions in order to allow investors to better understand the net impact of hedging activities in the periods shown.

Hedge margin and other. Operating cash flow is adjusted for hedge margin as we believe this adjustment removes the impact of current market volatility on our unsettled hedges and allows investors to better understand and analyze the company’s core operational performance in the periods shown.

                                                     Three Months Ended            Three Months Ended
(in millions)                                        December 31, 2016             December 31, 2015
Net cash provided by operating activities (GAAP)     $                      1,125  $                      1,479
Adjustments:
Hedge deferrals                                      75                            230
Hedge margin and other                               17                            (268)
Net cash provided by operating activities, adjusted  $                      1,217  $                      1,441
                                                     Year Ended                    Year Ended
(in millions)                                        December 31, 2016             December 31, 2015
Net cash provided by operating activities (GAAP)     $                      7,205  $                      7,927
Adjustments:
Hedge deferrals                                      (159)                         358
Hedge margin and other                               (92)                          (856)
Net cash provided by operating activities, adjusted  $                      6,954  $                      7,429

Free Cash Flow. We present free cash flow because management believes this metric is helpful to investors to evaluate the company’s ability to generate cash that is available for use for debt service or general corporate initiatives. Adjustments include:

Hedge deferrals. During the March 2016 quarter, we entered into transactions to defer settlement of a portion of our hedge portfolio until 2017. These deferral transactions, excluding market movements from the date of inception, would provide approximately $300 million in cash receipts during the second half of 2016 and require approximately $300 million in cash payments in 2017. Free cash flow is adjusted to include these deferral transactions in order to allow investors to better understand the net impact of hedging activities in the period shown.

Hedge margin and other. Free cash flow is adjusted for hedge margin as we believe this adjustment removes the impact of current market volatility on our unsettled hedges and allows investors to better understand and analyze the company’s core operational performance in the periods shown.

Net purchases of short-term investments and other investing. Net purchases of short term investments represent the net purchase and sale activity of investments and marketable securities in the period, including gains and losses. We adjust free cash flow for this activity, net, to provide investors a better understanding of the company’s free cash flow position core to operations.

                                                            Three Months Ended
(in millions)                                               December 31, 2016
Net cash provided by operating activities                   $                           1,125
Net cash provided by investing activities                   445
Adjustments:
Hedge deferrals                                             75
Hedge margin and other                                      17
Net purchases of short-term investments and other investing (1,022)
Total free cash flow                                        $                              640
                                                            Year Ended
(in millions)                                               December 31, 2016
Net cash provided by operating activities                   $                           7,205
Net cash used in investing activities                       (2,155)
Adjustments:
Hedge deferrals                                             (159)
Hedge margin and other                                      (92)
Net purchases of short-term investments and other investing (967)
Total free cash flow                                        $                           3,832

Fuel expense, adjusted and Average fuel price per gallon, adjusted. The tables below show the components of fuel expense, including the impact of the refinery segment and hedging on fuel expense and average price per gallon. We then adjust for MTM adjustments and settlements for the reason described below:

MTM adjustments and settlements. MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. Settlements represent cash received or paid on hedge contracts settled during the period. These items adjust fuel expense to show the economic impact of hedging, including cash received or paid on hedge contracts during the period. Adjusting for these items allows investors to better understand and analyze our core operational performance in the periods shown.

Consolidated:
                                                                                                      Average Price Per Gallon
                                              Three Months Ended                                      Three Months Ended
                                              December 31,                                            December 31,
(in millions, except per gallon data)         2016                        2015                        2016              2015
Fuel purchase cost                            $                   1,461   $                   1,415   $            1.56 $          1.50
Airline segment fuel hedge gains              (11)                        245                         (0.01)            0.26
Refinery segment impact                       42                          (8)                         0.04              (0.01)
Total fuel expense                            $                   1,492   $                   1,652   $            1.59 $          1.75
MTM adjustments and settlements               11                          91                          0.01              0.10
Total fuel expense, adjusted                  $                   1,503   $                   1,743   $            1.60 $          1.85
Change year-over-year                         $                     (240)
                                              Year Ended                                              Year Ended
                                              December 31,                                            December 31,
(in millions, except per gallon data)         2016                        2015                        2016              2015
Fuel purchase cost                            $                   5,579   $                   6,934   $            1.39 $          1.74
Airline segment fuel hedge gains              281                         935                         0.07              0.23
Refinery segment impact                       125                         (290)                       0.03              (0.07)
Total fuel expense                            $                   5,985   $                   7,579   $            1.49 $          1.90
MTM adjustments and settlements               450                         1,301                       0.11              0.33
Total fuel expense, adjusted                  $                   6,435   $                   8,880   $            1.60 $          2.23
Mainline:
                                              Three Months Ended                                      Year Ended
                                              December 31,                                            December 31,
                                              2016                        2015                        2016              2015
Mainline average price per gallon             $                    1.58   $                    1.80   $            1.50 $          1.93
MTM adjustments and settlements               0.02                        0.11                        0.13              0.38
Mainline average price per gallon, adjusted   $                    1.60   $                    1.91   $            1.63 $          2.31

Non-Fuel Unit Cost or Cost per Available Seat Mile, Including Profit Sharing ("CASM-Ex"). We adjust CASM for the following items to determine CASM-Ex, including profit sharing for the reasons described below:

Aircraft fuel and related taxes. The volatility in fuel prices impacts the comparability of year-over-year financial performance. The adjustment for aircraft fuel and related taxes (including our regional carriers) allows investors to better understand and analyze our non-fuel costs and year-over-year financial performance.

Restructuring and other. Because of the variability in restructuring and other, the adjustment for this item is helpful to investors to analyze our recurring core performance in the periods shown.

Other expenses. Other expenses include aircraft maintenance and staffing services we provide to third parties, our vacation wholesale operations, and refinery cost of sales to third parties. Because these businesses are not related to the generation of a seat mile, we adjust for the costs related to these sales to provide a more meaningful comparison of the costs of our airline operations to the rest of the airline industry.

Consolidated CASM-Ex:
                                         Three Months Ended                    Year Ended
                                         December 31, 2016  December 31, 2015  December 31, 2016  December 31, 2015
CASM (cents)                             14.37              13.38              12.98              13.33
Adjusted for:
Aircraft fuel and related taxes          (2.54)             (2.84)             (2.38)             (3.07)
Restructuring and other                  -                  -                  -                  (0.01)
Other expenses                           (0.58)             (0.37)             (0.47)             (0.48)
CASM-Ex                                  11.25              10.17              10.13              9.77
Year-over-year change                    10.6 %
Mainline CASM-Ex:
                                         Three Months Ended                    Year Ended
                                         December 31, 2016  December 31, 2015  December 31, 2016  December 31, 2015
Mainline CASM (cents)                    14.06              12.97              12.51              12.84
Adjusted for:
Aircraft fuel and related taxes          (2.40)             (2.78)             (2.27)             (2.97)
Other expenses                           (0.58)             (0.32)             (0.49)             (0.46)
Mainline CASM-Ex                         11.08              9.87               9.75               9.41

Adjusted Net Debt. Delta uses adjusted total debt, including aircraft rent, in addition to long-term adjusted debt and capital leases, to present estimated financial obligations. Delta reduces adjusted debt by cash, cash equivalents and short-term investments, and hedge margin receivable, resulting in adjusted net debt, to present the amount of assets needed to satisfy the debt. Management believes this metric is helpful to investors in assessing the company’s overall debt profile. Management has reduced adjusted debt by the amount of hedge margin receivable, which reflects cash posted to counterparties, as we believe this removes the impact of current market volatility on our unsettled hedges and is a better representation of the continued progress we have made on our debt initiatives.

(in millions)                                            December 31, 2016                          December 31, 2015
Debt and capital lease obligations                       $                   7,332                  $               8,329
Plus: unamortized discount, net and debt issuance costs  104                                        152
Adjusted debt and capital lease obligations                                        7,436                                  8,481
Plus: 7x last twelve months’ aircraft rent                                         1,995                                  1,750
Adjusted total debt                                                                9,431                                  10,231
Less: cash, cash equivalents and short-term investments                            (3,249)                                (3,437)
Less: hedge margin receivable                                                      (38)                                   (119)
Adjusted net debt                                                                  $         6,144                        $         6,675

Capital Expenditures, net. Capital expenditures, net is adjusted for proceeds for sales of E190 aircraft because management believes investors should be informed that these proceeds effectively offset the cash paid for these aircraft earlier in the year. This provides a more meaningful measure of cash outflows for capital expenditures.

                                     Three Months Ended
(in millions)                        December 31, 2016
Property and equipment additions     $                           794
Proceeds for sales of E190 aircraft  (185)
Capital expenditures, net            $                           609

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/delta-air-lines-announces-december-quarter-and-full-year-2016-profit-300390024.html

SOURCE Delta Air Lines

https://rt.prnewswire.com/rt.gif?NewsItemId=CL86459&Transmission_Id=201701120700PR_NEWS_USPR_____CL86459&DateId=20170112



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