Delta Air Lines, Inc. David Pruchno BUS 210-00A-Su13 - M/W 6-9 http://www.delta.com/content/dam/delta-www/pdfs/about-financial/deltaairlines_10k_2012.pdf
Introduction Richard H Anderson, CEO Former UnitedHealth Group Executive Vice President, CEO Northwest Airlines Corporations Atlanta, GA December 31, 2012 Airline, provides transportation to passengers and cargo throughout the United States and around world Presence around the world - 9 hubs in US, hubs in Amsterdam, France, Japan
Audit Report Ernst & Young LLP According to accounting principles set forth by COSO, Delta maintained internal control of financial reporting for the fiscal year ending on December 31, 2012 - Their report was truthful and accurate
Stock Market Information New York Stock Exchange (DAL) Stock price $18.01 12 month range-low: $17.97 - High: $18.42 No dividends given in 2012 and 2011 Above information valid as of May 31, 2013 Opinion: BUY - based off 1 year and 5 year trends, strength of Delta in airline industry, Delta future plans
Income Statement (In millions) 2012 2011 Gross Profit $24,419 $23,332 Income from Operations $2,175 $1,975 Net income $1,009 $854 Multistep approach to income statement Steady 4% increases - only.19% increase in fuel expenses - DAL benefitted from lower fuel prices
Balance Sheet (In millions) 2012 2011 Current Assets $8,272 $7,729 Property and Equipment $20,713 $20,223 Other Assets $15,565 $15,547 Total Assets $44,550 $43,499 Current Liabilities $13,270 $12,701 Noncurrent Liabilities $33,411 $32,194 Stockholders Deficit ($2,131). ($1,396). Total Liabilities and stockholders deficit $44,550 $43,499 Normal growth for all balance sheet accounts
Statement of Cash Flows (In millions) 2012 2011 Cash flow from operating $2,476 $2,834 Cash flow from investing ($1,962). ($1,498). Cash flow from financing ($755). ($1,571). Cash flow from operating > Net income for 2012 and 2011 Increases in investing activities - flight equipment, ground equipment Proceeds from long term obligations - largest source of financing Overall decrease in cash flow
Accounting Policies 3 month or less maturity short term investments - cash & cash equivalents Accounts receivable - major credit card companies Revenue recognized when transportation is provided or ticket goes unused Refined inventory valued at lowest cost, spare inventory valued at average cost Aircrafts depreciated with straight line method Cash and Cash Equivalents and Short-Term Investments, Accounts Receivable, Inventories, Derivatives, Passenger Tickets, Passenger Taxes and Fees, Frequent Flyer Program, Revenue, Other assets, Income taxes, Maintenance Costs, Advertising costs
Financial Analysis Liquidity Ratios 2012 2011 Working Capital (in millions) 8,272-13,270 = (4,998) 7,729-12,701 = (4,972) Current Ratio 8,272 / 13,270 = 0.623 7,729 / 12,701 = 0.609 Negative Working Capital, Low Current Ratio Short-term nature of accounts receivable Majority of receivables from major credit card companies Tickets booked far in advance, high current liabilities (Unearned Revenue recognized as Air Traffic Liability)
Financial Analysis Liquidity Ratios (Continued) Operating Cycle (days) 16 + 8 = 24 days 16 + 5 = 21 days Quick receivable turnover, low average days uncollected impacted by nature of accounts receivable Mostly large credit card companies Quick inventory turnover, low average days inventory on hand impacted by type of industry Passenger & cargo transportation Inventory consisting of fuel and aircraft parts 2012 2011 Receivable Turnover 36,670 / (1,693 + 1,563 / 2) = 22.52 35,115 / (1,563 + 1,456 / 2) = 23.26 Average days sales uncollected 365 / 22.52 = 16.21 16 days 365 / 23.26 = 15.69 16 days Inventory Turnover 34,495 / (1,023 + 535 / 2) = 44.28 33,140 / (535 + 318 / 2) = 77.70 Average days inventory on hand 365 / 44.28 = 8.24 8 days 365 / 77.70 = 4.70 5 days
Financial Analysis Profitability Ratios 2012 2011 Profit Margin 1,009 / 36,670 =.028 854 / 35,115 =.024 Asset Turnover Return on Assets 36,670 / [44,550 + 43,499 / 2] =.833 1,009 / [44,550 + 43,499 / 2] =.023 35,115 / [43,499 + 43,188 / 2] =.810 854 / [43,499 + 43,188 / 2] =.020 Return on Equity 1,009 / (2,131) = (.473) 854 / (1,396) = (.612) Improvements from 2011 to 2012 Healthy profit margin for airline industry Pressure of competition, increased fuel prices Greater than Southwest s.025, United s (.019), American s (.078) for 2012 Negative return on equity due to continued recovery from recession, shows improvement
Financial Analysis Market Strength Ratios 2012 2011 Earnings per share 1,009 / 845 = 1.19 854 / 838 = 1.02 Dividend Yield No dividends given No dividends given Earnings per share greater than competitors Southwest $.56, American ($1.93), United ($2.17) Net income invested rather than paid in dividends
Financial Analysis Solvency Ratio 2012 2011 Debt to equity 46,681 / (2,131) = (21.91) 44,895 / (1,396) = (32.16) Financing gap (days) 24-21 = 3 days 21-18 = 3 days Improvement in debt to equity ratio Short financing gap Remained 3 days, financing gap as percentage of operating cycle improved from 17% to 13%
Industry Situation Nature of airline industry High current liabilities due to unearned revenue Profit margin affected by operating costs - rising fuel prices, competition Liquidity ratios impacted by restructuring and future planning among industry s largest airlines Delta - Strong position in airline industry
Company Plans Restructure of domestic fleet Decrease amount of 50-passenger regional jets, increase amount of larger jets Improve passenger quality, increase cost efficiency, increase overall fleet capacity Increase global presence - flight volume to/from LaGuardia and London Heathrow Increase efficiency in passenger booking, staffing, ground transportation, and fuel usage Delta.com, mobile app, airport kiosks Removal of unprofitable routes, decreased taxi times Debt reduction
Executive Summary Over the last ten years, the airline industry has faced major changes. Industry revenue has nearly doubled while the amount of major airlines has decreased nearly in half. Amidst the quickly changing industry, Delta Air Lines acts as leader. Delta is the largest carrier serving the most passengers of any global airline. Additionally, Delta is an industry frontrunner in profit margin and earnings per share. Beginning with Delta s merger with Northwest Airlines in 2010, the airline has largely invested in the future of their company. Delta plans to increase efficiency while offering more destinations, increase their global presence, and restructure their domestic operations, as well as increase quality for customers. Delta is currently the best investment in the major airline industry, and thanks to their vision and plans for the future, Delta will remain the best airline investment.
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