Delta to Record Non-Cash Charges

14th Jul 2004

Delta Air Lines today announced that the company will recognize in the June 2004 quarter two significant non-cash charges totaling $1.65 billion. These charges will not affect Delta’s June 30, 2004, cash position. The key points are, Delta:Will recognize a $1.53 billion non-cash charge related to deferred income taxes.
* Will no longer recognize income tax benefits for the foreseeable future.
* Will recognize a $117 million non-cash settlement charge related to the company’s defined benefit pension plan for pilots as a result of higher than average pilot retirements.

Delta will announce its June 2004 quarter financial results on Monday, July 19.
Charge Related to Deferred Income Taxes; Discontinues Recognition of Income Tax Benefit
Delta accounts for its deferred income tax assets in accordance with Statement of Financial Accounting Standard 109 (SFAS 109). This standard requires a company to assess periodically whether it is more likely than not that the company will generate sufficient taxable income to realize its deferred income tax assets.
Delta’s actual and projected financial performance for 2004 has been significantly impacted by higher than expected fuel costs and lower than anticipated domestic yields. ÊAs a result, it is now unclear as to the timing of when the company will be able to generate sufficient taxable income to use its deferred income tax assets. Accordingly, Delta will record under SFAS 109 a reserve against substantially all of its net deferred income tax assets [1]. ÊThis will result in a non-cash charge to income tax expense totaling $1.53 billion for the June 2004 quarter, and will be reported as a reserve against net deferred income tax assets on Delta’s balance sheet at June 30, 2004.
For these reasons, Delta also will discontinue recording income tax benefits on its statement of operations for the foreseeable future.
Charge Related to Pilot Pension Plan
Similar to the charge recorded during the December 2003 quarter, Delta will record in its statement of operations for the June 2004 quarter a non-cash settlement charge of $117 million related to its defined benefit pension plan for pilots (the “Pilot Plan”). This non-cash charge relates to lump sum distributions under the Pilot Plan for 356 pilots who retired. Accordingly, Delta is required under Statement of Financial Accounting Standard 88 to accelerate recognition of actuarial losses that were scheduled to be recorded in future periods.
This non-cash charge does not affect Delta’s short-term funding obligations under the Pilot Plan. Delta estimates that these obligations will be approximately $115 million for 2004, of which $71 million was contributed in the March 2004 quarter.


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