Delta Airlines 2002 Annual Report Download - page 121

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- five B-737-800 aircraft deferred from 2003 to 2006;
- 23 B-737-800 aircraft deferred from 2004 to 2007;
- one B-777-200 aircraft deferred from 2004 to 2006; and
- two B-777-200 aircraft deferred from 2005 to 2006.
As a result of these deferrals, we have no mainline aircraft deliveries
scheduled in 2003 or 2004, which will reduce capital expenditures by
approximately $1.3 billion during that two-year period.
Shareowners' equity was $893 million at December 31, 2002 and $3.8 billion at
December 31, 2001. The decrease in our shareowners' equity is primarily due to
the $1.6 billion non-cash charge to equity related to our pension plans (see
Note 11 of the Notes to the Consolidated Financial Statements) and our
consolidated net loss in 2002. These items, as well as an increase in
outstanding debt, have caused our net debt-to-capital ratio, which includes
implied debt from operating leases, to increase to 94% at December 31, 2002 from
80% at December 31, 2001.
For additional information on our liquidity, see the Business Environment
section of Management's Discussion and Analysis on pages 13-15.
WORKING CAPITAL POSITION
As of December 31, 2002, we had negative working capital of $2.6 billion,
compared to negative working capital of $2.8 billion at December 31, 2001.
A negative working capital position is normal for us, typically due to our air
traffic liability and the fact that we primarily generate revenue by providing
air transportation through the utilization of property and equipment, which are
classified as long-term assets. Our negative working capital position also
reflects our losses over the past two years.
CREDIT RATINGS AND COVENANTS
At December 31, 2002, our senior unsecured long-term debt was rated Ba3 by
Moody's and BB- by Standard and Poor's. On February 18, 2003, Standard & Poor's
lowered their ratings on certain of our enhanced equipment trust certificates.
Both Moody's and Standard & Poor's outlooks for our long-term credit ratings are
negative. Our current credit ratings have negatively impacted our ability (1) to
issue unsecured debt, (2) to renew outstanding letters of credit that back
certain of our obligations and (3) to obtain certain financial instruments that
we use in our fuel hedging program. They have also increased the cost of our
financing transactions and the amount of collateral required for certain
financial instruments and insurance coverage. Subsequent to December 31, 2002,
our collateral requirements related to our workers' compensation insurance
increased by $55 million. As discussed in Note 8 of the Notes to the
Consolidated Financial Statements, we may be required to repurchase outstanding
receivables that we sold to a third party ($250 million at December 31, 2002) if
our senior unsecured long-term debt is rated either below Ba3 by Moody's or
below BB- by Standard & Poor's.
We have obtained from a third party unsecured letters of credit totaling $409
million relating to bonds issued by various municipalities to finance
construction at certain airport facilities leased to us. As discussed under
"Letter of Credit Enhanced Municipal Bonds" in Note 6 of the Notes to the
Consolidated Financial Statements, we will be required to accelerate the
repayment of these obligations if we do not extend those letters of credit prior
to their expiration on June 8, 2003.
The Reimbursement Agreement relating to the letters of credit described in the
above paragraph contains covenants that (1) require us to maintain a minimum of
$1 billion of unrestricted cash, cash equivalents and short-term investments at
the end of each month; (2) limit the amount of current debt and convertible
subordinated debt that we may have outstanding; and (3) limit our annual flight
equipment rental expense. It also provides that, upon the occurrence of a change
in control of Delta, we shall, at the request of the banks, deposit cash
collateral with the banks in an amount equal to all letters of credit
outstanding and other amounts we owe under the agreement. We are in compliance
with all of our financial covenants.
PRIOR YEARS
2001
Cash and cash equivalents totaled $2.2 billion at December 31, 2001. Net cash
provided by operations totaled $236 million during 2001, including $556 million
of compensation received under the Stabilization Act. Capital expenditures,
including aircraft acquisitions made under seller financing arrangements, were