Delta Airlines 2004 Annual Report Download - page 36

Table of Contents
Aircraft maintenance materials and outside repairs increased 8%, primarily due to increased materials volume and higher costs from scheduled
maintenance events. Other selling expenses increased 5%, primarily reflecting a 3% rise from increased credit card charges due to higher traffic and a 1%
increase from advertising and promotions. Passenger service expense increased 7%, primarily due to increased traffic.
During December 2004, we recorded a $1.9 billion impairment charge, primarily related to goodwill, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). For additional information about the impairment charge, see
Note 5 of the Notes to the Consolidated Financial Statements.
Restructuring, asset writedowns, pension settlements and related items, net totaled a $41 million net gain for 2004 compared to a $268 million net charge
for 2003. The 2004 amount includes (1) a $527 million gain related to the elimination of the healthcare coverage subsidy for non-pilot employees who retire
after January 1, 2006; (2) settlement charges totaling $257 million primarily related to our defined benefit pension plan for pilots ("Pilot Plan"); (3) a
$194 million charge related to voluntary and involuntary workforce reduction programs; and (4) a $40 million aircraft impairment charge related to our
agreement, entered into in the September 2004 quarter, to sell eight owned MD-11 aircraft. The charge for 2003 consists of (1) $212 million related to
settlements under the Pilot Plan; (2) $43 million related to a net curtailment loss for the cost of pension and postretirement obligations for participants under
our 2002 workforce reduction programs; and (3) $41 million associated with the planned sale of 11 B737-800 aircraft. This charge was partially offset by a
$28 million reduction to operating expenses from revised estimates of remaining costs associated with our restructuring activities. For additional information
about these restructuring, asset writedowns, pension settlements and related items, net, see Note 14 of the Notes to the Consolidated Financial Statements.
Reimbursements under the Appropriations Act totaled $398 million in 2003, representing reimbursements from the U.S. government to air carriers for
certain passenger and air carrier security fees paid to the TSA. We recorded these amounts as a reduction to operating expenses in our Consolidated Statement
of Operations. For additional information about the Appropriations Act, see Note 18 of the Notes to the Consolidated Financial Statements.
Other operating expenses increased 20%. This primarily reflects a 7% increase from higher professional fees mainly from our restructuring and
contingency planning efforts, a 4% increase due to a loss on certain aircraft transactions, a 4% increase from a rise in the navigation charges due to increased
international capacity and a 4% increase due to higher fuel taxes.
Operating Loss and Operating Margin
We incurred an operating loss of $3.3 billion for 2004, compared to an operating loss of $785 million for 2003. Operating margin, which is the ratio of
operating income (loss) to operating revenues, was (22%) and (6%) for 2004 and 2003, respectively.
Other Income (Expense)
Other expense, net for 2004 was $684 million, compared to other expense, net of $404 million for 2003. This change is primarily attributable to the
following:
• Interest expense increased $67 million for 2004 compared to 2003 primarily due to higher levels of debt outstanding and higher interest rates
on variable debt.
• Gain (loss) from sale of investments, net was $123 million for 2004 compared to $321 million for 2003. In 2004, we sold our remaining
equity interest in Orbitz, Inc. ("Orbitz"), recognizing a gain of $123 million. The gain in 2003 was primarily related to a $279 million gain
from the sale of our equity investment in WORLDSPAN, L.P. ("Worldspan") and a $28 million gain from the sale of a portion of our equity
interest in Orbitz. For additional information about these investments, see Note 16 of the Notes to the Consolidated Financial Statements.
• Fair value adjustments of derivatives accounted for under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") resulted in a $31 million charge for 2004 compared to a $9 million charge for
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