ACCT SEC 10-K REPORT

Instructions

Overview

As an analyst for a large U.S. multinational corporation, you are assigned to examine a possible acquisition candidate, completing an initial search and review.  Your supervisor is a member of the Controller’s team.  The Controller reports directly to the Chief Financial Officer (CFO). Your work may be presented to a variety of audiences, so professionalism is essential in all deliverables you create. As the audience for your report is diverse, you must explain all accounting/financial terminology and concepts presented.

1. Select a company that is publicly traded. (DELTA AIRLINES)

2. You must research and secure the SEC 10-K Annual Report for the most recent year. This is often available at the company web site. Search for “Investor Information” or “Company Information” and “SEC Filing.”

3. You may also find the report using the SEC EDGAR system. 

4. Save the file to your computer for access. There is no need to print this file as the report is usually 100 pages or more. 

5. Cut and paste the Income Statement, Balance Sheet and Statement of Cash Flows into a Word Document. You will need these for the SEC 10-K discussions as well as for your final report. Please make sure you use the Statement of Operations for your Income Statement and not the Statement of Comprehensive Income. Your statements must be readable when printed. If you need assistance, please let me knowh. (ATTACHED BELOW)

6. Use this company in the Discussion postings throughout the semester. The discussion questions will help you build content for your report and presentation.

Report Requirements

Report Content 

1. Post the name of your company in the SEC 10-K company for your instructor’s approval in the SEC Project: Request a Corporation to study (REQUIRED posting) during Week 1. All parts of the discussion must be answered in your post.

2. Each student must select a different company, so read the company names selected by classmates. Also, your selected company must be ranked 500 or higher on the Fortune 500 list of industrial companies. (DELTA AIRLINES)

3. Your report should comment on the financial statements for your company as they relate to the information presented through Week 2 for this class, including the notes to the financial statements. The SEC 10K Discussions for weeks 1-3 will be used to write draft sections of your report. Your final report must be based on these writings, which you will update/revise based on feedback given.

Week 1 discussion:

Delta Airlines; NYSE: DAL

I would love to study Delta Airlines because I love flying with them. Everywhere I go, I fly delta! Also, if I didn’t join the Navy, I was going to become a flight attendant and my ultimate goal was to become a flight attendant with Delta! This interest in Delta makes me want to learn more about them and revenue.

Below is the link for the SEC-10K report:

https://www.sec.gov/ix?doc=/Archives/edgar/data/27904/000002790421000003/dal-20201231.htm

According to the Fortune 500, Delta Airlines is ranked number 68.

The financial statements are found on the pages below:

Income statement: PAGE 64

Balance sheet: PAGE 62

Statement of stockholder’s equity: PAGE 66

Statement of cash flows: PAGE 65

In 1925, Huff Daland Dusters became the predecessor of Delta. His 18 planes became the leading privately-owned fleet worldwide and also became the first commercial agricultural flying company. Later on, Delta became the first international mail and passenger route on the west coast of South America for Pan Am subsidiary Peruvian Airways (Gay, 2019). In 1941 Delta headquarters moves from Monroe, La., to Atlanta, Ga and in 1942 Delta provides to the war by modifying 1,000+ aircraft in efforts to help. Fast forward to 2001 Delta felt a great financial impact for the first time in 6 years after the 2001 terrorist attack (Gay, 2019). Years later in 2010, Delta announces largest product upgrade in a decade with plans to invest more than $2 billion through 2013 to improve the overall quality of the Delta experience, meaning customer service, renovations on aircraft, and more!

In more recent events in 2017 Delta reported a company record adjusted pre-tax income of $6.1 billion. Delta ranks No. 63 and is the only airline on Fortune's Best Companies To Work For list, based on employee ratings of workplace culture (Gay, 2019). Also, in 2017, Delta invested 49% in Aeromexico, which embarked on a historic transborder partnership.

Reference:

Gay, C. (2019, April 23). Delta's history: From dusting crops to connecting the world. Retrieved February 17, 2021, from https://news.delta.com/deltas-history-dusting-crops-connecting-world#:~:text=1928: C.E. Woolman, the principal,3, 1928.&text=Company renamed Delta Air Corporation

To add on,

Delta airlines currently accommodate global corporation with over 80, 000 employees in the airline industry. Notably, Delta was created in 1928 with C. E Woolman's leadership with a group of investors in Monroe Louisiana to by a crop-dusting company that started in 1924 that helped in solving significant problems faced by American farmers. Progressively, in 1929, Delta Airlines started to operate the first passenger flights which operated effectively in 1934 when the corporation won airmail that led to cost-effective services for passengers in the airline industries. N 1941 Delta headquarters moved to Atlanta Georgia from the initial headquarter in Monroe Louisiana. Noteworthy, the 1953 Chicago and Southern Airlines merger presented Delta’s first international routes. In 1961 Delta acclaimed significant awarding-winning by the National Safety Award for flying 11 billion passengers without a fatality. According to the financial crisis record, Delta suffered financial losses forcing employee’s payroll deductions amounting to $30 million to purchase the first Boeing 767 for flight and operational conveniences. The 1987 merging with Delta makes it the fourth-largest US carrier and fifth lagers world carrier. In the year 2000, Delta launched the Sky team as a fundamental global alliance to accommodate international operation and partnership needs (Georgia Historical Society, 2015). Thus, the segment has provided notable articulation on Delta airline' historical development.

Similarly, in the period between 1997and 2000 Delta was generating net income between $815 and 1,196 million annually (Geretz, 2017). Between 2000 and 2004 the travel demand was generally low with Delta airlines accommodating operating revenue of 13,866-$15,002. Noteworthy, Delta Airlines was generating a positive economic income in 2010, acknowledging significant debt reduction to $7,322 in 2016 from 15,525 in 2010. Accordingly, the DAL provides fundamental attention to financial, economic, and route structure Hub strategies as fundamental in historical documentation of the airline industries for practical considerations.

FEEDBACK:

Thanks for the info on Delta. Another student selected JetBlue, so it will be interesting to read about, and compare the two companies. You have a lot of interesting facts in your introduction. You may want to consider rearranging the material so that you begin with what the company does, followed by a brief history, and then some financial highlights. The financial info should be at a high level, as your paper will be more in-depth. When discussing past and present numbers, you should use the same indicators (for example, compare revenue in past years to current revenue, rather than net income to revenue) and indicate the growth rate. Your Intro should be no more than two short paragraphs, so you can pare this down a bit. Most students find, as they are pulling together the final paper, that they need more room for the body of the paper, as there are 3 pages maximum.

Thank you for including in-text citations and your reference list!

Week 2 discussion:

Dividends

Delta Airlines has usually pay dividends to its stockholders every three months or four times every year excluding specials dividends. The quarterly dividend payment for the company is usually 35 cents per share. The dividend per share usually increases from year to year. However, this year, due to the COVID-19 pandemic the airlines experienced a dividend growth rate of -73.30 percent thus stakeholders received $0.00 (Premkumar, 2020).

In 2018, Delta Airline’s total dividends were $1.31, the total dividends jumped to $1.4 in 2019. In the first quarterly of 2020, the dividends were $0.4025. However, due to the reduced travels due to COVID-19, the company paid $0.00 in the rest of the quarterly to the stakeholders (Premkumar, 2020). The airline is projected to take off in 2021 the planes starts to make their trips to different destinations both national and the international. However, this means that dividend payment will not take place until maybe September 2021 at the earliest.

Long-term liabilities

Delta Air lines have long-term liabilities/debts amounting to $19.41 billion as reported in the balance sheet released in July 15, 2020. The company also has a current debt of $6.07 billion and thus combining the two shows that the airline has a total debt amounting to $25.48 billion. The cash equivalent of the company is $11.37 billion (Benzinga, 2020). Therefore, subtracting it gives a net debt of $14.12 billion

The long-term liabilities for the company in 2020 was 34.8B which was a 33.8 percent increase when compared to 2019. The long-term liabilities were $9.771 in 2019. This was a 8.77 percentage increase when compared to long-term debt in 2018 (Benzinga, 2020). Lastly, the long-term liabilities for the corporation in 2018 were $7.33B, a 7.834 percent increase when compared to the long-term debts in 2017.

References

Benzinga. I (2020). A Look Into Delta Air Lines Debt. https://finance.yahoo.com/news/look-delta-air-lines-debt-131631364.html

Premkumar, D. (2020). Why Delta Shares Are Poised to Take Off in 2021. Retrieved from: https://www.nasdaq.com/articles/why-delta-shares-are-poised-to-take-off-in-2021-2020-12-07

FEEDBACK:

Thanks for the info on Delta. This is a great start for your paper. Please see below for some comments and suggestions:

Thank you for using topic headers. They will make your paper more organized and easier to follow. (Just make sure they are in APA format for your final paper.)

Please explain all of your financial terminology. For example, what are dividends, long-term labilities, etc? Assume that your reader is not familiar with these terms so that you can demonstrate your understanding of the concepts.

Dividends - You have some relevant and interesting info in this section, but it looks like there are some problems with the numbers. For example, if dividends were $.35 per share, but now they are $0, that would be a reduction of 100%. You also indicate that the dividend is usually .35 per share, but in the next paragraph, you list dividends for the previous years and there is only one year where the dividends were .35 per share. You state that dividends will not be paid until "maybe" September 2021. What is the source of this information?

When discussing dividends, it would be helpful to include a brief chart showing a history of the dividends over the past several years so that the reader can visualize the changes.

Long-term liabilities - This section should relate only to long-term liabilities and its components.

Explain what you mean by the "cash equivalent".

I am having a hard time following some of the number in this section, as I am not seeing them on the attached balance sheet. For 2020, I see a total of $54.5B for total non-current (long-term) liabilities and $29B in 2019. This is a significant increase, with most of the increase attributable to debt and finance leases. This, and any other notable change, should be researched further.

WEEK 3 DISCUSSION:

Cash Flow Analysis

Cash flow analysis is defined as the evaluation or analysis of the different flow of cash to a business and the outflow of cash from the business during a given period. Cash Flow Analysis is usually divided into three segments, cash flow from operations, cash flow from investments, and cash flow from financing. In this discussion, I will conduct a cash flow analysis between Delta Air Lines and American Air Lines, two of the biggest airlines company in the United States for the year 2020.

Delta Airlines Inc.

From the Delta Air Lines annual cash flow statement, the cash flow from operations was -$3.793 million which is the cash flowing from the continuing operating activities. The cash flow from operations is negative meaning that the business did not do very well in 2020 (finance.yahoo.2020). The cash flow from investment was -$9.238 million in the financial year 2019-2020 and this is all the cash flowing from all the continuing investing activities for the company. The cash flow from financing activities was $ 19.356 million in the financial year 2019-2020. This was all the cash flow coming from the continuing finial activities in the company. The financial

American Air Lines Inc.

Data from the American Airlines company for the financial year 2019-2020 showed that the company’s cash flow from operations was -$6.543 million which is the total cash flow from all the continuing operating activities in the business (finance.yahoo.2020). The cash flow from the investment activities was -$4.342 million from all the continuing investing activities in the company. The cash flow from the financing activities was $10.994 million for the same financial year.

From the two airline company’s annual cash flow statements for the financial year 2019-2020, it is evident that both businesses made huge losses. This can be attributed to the COVID-19 pandemic crisis that had a huge impact on the air transport industry as many nations closed their borders to contain the spread of the disease from early 2020. However, between the two airline companies, Delta Air Lines did much better when compared to American Airlines which suffered bigger losses in 2020.

References

(finance.yahoo.2020). Delta Air Lines, Inc. (DAL) Cash Flow - Yahoo Finance. Retrieved from: https://finance.yahoo.com/quote/DAL/cash-flow/

(finance.yahoo.2020). American Airlines Group, Inc. (AAL) Cash Flow - Yahoo Finance. Retrieved from: https://finance.yahoo.com/quote/AAL/cash-flow/

FEEDBACK:

Thanks for the info on Delta and American. Here are some comments and feedback for your final paper:

Thank you for the introductory material regarding the cash flow statement in general and introduction to your competitor company. This sets the stage for the rest of your analysis.

In addition to explaining the cash flow statement in general, you should also discuss each individual section and what it means. It would be best to organize your paper around the 3 major sections and discussing each company within these sections.

Your paper should contain some analysis in addition to stating the numbers. This would include looking at trends from prior years and examining how your company is receiving and using cash both compared to prior years and to its competitor. Here are some noteworthy items that should be explored further:

Operating activities - in addition to explaining the nature of this section, you should discuss the indirect method, which both companies use, as well as how net income and cash flow from operating activities differ. Interesting items to note are that both companies had net income in the two previous years, and net losses in the current year. However, for both companies, the cash used for operating activities is less than the loss (Delta’s cash used for operating activities was actually significantly less than it’s net loss). The reasons for this should also be discussed as this helps to illustrate the need to have the cash flow statement in addition to the other, accrual based statements.

Investing activities - there are some interesting trends to note here. Both companies have decreased the amount of cash used for purchasing property and capital equipment and increased the use of cash to purchase investments and securities. This should warrant some further research and discussion.

Financing activities – similar to investing, both companies have also made changes in the current year for financing activities when compared to the past 2 years. Both have increased their net cash proceeds from issuing debt and reduced the amount of cash used to repurchase stock an pay dividends.

Reviewing the notes and other narrative in the 10-K report may provide more insight into these changes.

4. Do not consider managerial accounting material from Weeks 6 through 8 in your report.

5. The report must be submitted in Week 6. 

Report Layout

1. Write a 2- to 3-page ( a full-page typically has at least 300 words) report, single-spaced, one-inch margins, 12-point font, with a double space between paragraphs.

2. Please keep your report to no more than 3 pages.

3. Page count does not include a title page, tables and exhibits, table of contents, and reference list.

4. Include a title page (include your name on the title page). Use headings in your reports such as Statement of Owners’ Equity and Statement of Cash Flows (topics from the textbook); other examples would be Balance Sheet and Income Statement.

5. Include a brief introduction of your company as well as a conclusion/summary at the end. The bulk of your report should cover the accounting topics in Weeks 1 and 2 (Owners’ Equity, Financial Ratios, and Statement of Cash Flows) as well as the Balance Sheet and Income Statement.  ACCT 221 is not identical to ACCT 220. Discussions continue through week 5.

6. You will also be required to include the Income Statement, Balance Sheet, Statement of Owners’ Equity, and Statement of Cash Flows as attachments to your report. (attached below)

7. You can cut and paste directly from the SEC 10-K Report. These are considered attachments and are not part of the required page count for the report.

8. APA style is required for citations and a reference list. Include in-text citations. The reference list is the most important.

9. Your report should use one-inch margins on the left, right, top, and bottom of each page and font set at 12 points.

Resources

1. You main resources for your report should be the information in the SEC 10-K reports, the online accounting text www.principlesofaccounting.com, and the learning resources provided in the classroom. You may use other resources for your report, with the exception of Investopedia or Wikipedia. However, the source for accounting terminology and concepts must be the online textbook or the resources provided in the classroom.

learning resources provided in the classroom:

https://openstax.org/books/principles-financial-accounting/pages/14-why-it-matters

https://www.principlesofaccounting.com/chapter-14/

https://learn.umgc.edu/d2l/le/content/547011/viewContent/21359935/View

https://learn.umgc.edu/d2l/le/content/547011/viewContent/21359934/View

https://learn.umgc.edu/d2l/le/content/547011/viewContent/21359936/View

https://openstax.org/books/principles-financial-accounting/pages/13-why-it-matters

https://www.principlesofaccounting.com/chapter-13/

https://learn.umgc.edu/d2l/le/content/547011/viewContent/21359939/View

https://learn.umgc.edu/d2l/le/content/547011/viewContent/21359938/View

https://learn.umgc.edu/d2l/le/content/547011/viewContent/21359937/View

https://openstax.org/books/principles-financial-accounting/pages/11-why-it-matters

https://learn.umgc.edu/d2l/le/content/547011/viewContent/21359940/View

https://www.principlesofaccounting.com/long-term-assets/

https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters

https://openstax.org/books/principles-managerial-accounting/pages/2-why-it-matters

https://learn.umgc.edu/d2l/le/content/547011/viewContent/21359912/View

https://openstax.org/books/principles-managerial-accounting/pages/5-why-it-matters

https://openstax.org/books/principles-managerial-accounting/pages/3-why-it-matters

https://openstax.org/books/principles-managerial-accounting/pages/9-why-it-matters

https://openstax.org/books/principles-managerial-accounting/pages/13-why-it-matters

Academic Integrity

1. Write your report, in your own words, using accounting words from our textbook and explaining how these relate to the financial statements of your company.

2. The discussion postings throughout the semester will assist you in completing this report.

DELTA AIR LINES, INC. Consolidated Balance Sheets		December 31,
(in millions, except share data)		2020		2019
ASSETS
Current Assets:
Cash and cash equivalents		$	8,307			$	2,882
Short-term investments		5,789			—
Accounts receivable, net of an allowance for uncollectible accounts of $89 and $13 as of 2020 and 2019, respectively		1,396			2,854
Fuel inventory		377			730
Expendable parts and supplies inventories, net of an allowance for obsolescence of $188 and $82 as of 2020 and 2019, respectively		355			521
Prepaid expenses and other		1,180			1,262
Total current assets		17,404			8,249
Noncurrent Assets:
Property and equipment, net of accumulated depreciation and amortization of $17,511 and $17,027 as of 2020 and 2019, respectively		26,529			31,310
Operating lease right-of-use assets		5,733			5,627
Goodwill		9,753			9,781
Identifiable intangibles, net of accumulated amortization of $883 and $873 as of 2020 and 2019, respectively		6,011			5,163
Cash restricted for airport construction		1,556			636
Equity investments		1,665			2,568
Deferred income taxes, net		1,988			120
Other noncurrent assets		1,357			1,078
Total noncurrent assets		54,592			56,283
Total assets		$	71,996			$	64,532
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of debt and finance leases		$	1,732			$	2,287
Current maturities of operating leases		678			801
Air traffic liability		4,044			5,116
Accounts payable		2,840			3,266
Accrued salaries and related benefits		2,086			3,701
Loyalty program deferred revenue		1,777			3,219
Fuel card obligation		1,100			736
Other accrued liabilities		1,670			1,078
Total current liabilities		15,927			20,204
Noncurrent Liabilities:
Debt and finance leases		27,425			8,873
Noncurrent air traffic liability		500			—
Pension, postretirement and related benefits		10,630			8,452
Loyalty program deferred revenue		5,405			3,509
Noncurrent operating leases		5,713			5,294
Deferred income taxes, net		—			1,456
Other noncurrent liabilities		4,862			1,386
Total noncurrent liabilities		54,535			28,970
Commitments and Contingencies
Stockholders' Equity:
Common stock at $0.0001 par value; 1,500,000,000 shares authorized, 647,352,203 and 651,731,443 shares issued as of 2020 and 2019, respectively		—			—
Additional paid-in capital		11,259			11,129
Retained earnings/(deficit)		(428)			12,454
Accumulated other comprehensive loss		(9,038)			(7,989)
Treasury stock, at cost, 9,169,683 and 8,959,730 shares as of 2020 and 2019, respectively		(259)			(236)
Total stockholders' equity		1,534			15,358
Total liabilities and stockholders' equity		$	71,996			$	64,532
The accompanying notes are an integral part of these Consolidated Financial Statements.

DELTA AIR LINES, INC.

Consolidated Statements of Comprehensive (Loss)/Income

	Year Ended December 31,
(in millions)	2020		2019		2018
Net (Loss)/Income	$	(12,385)			$	4,767			$	3,935
Other comprehensive (loss)/income:
Net change in derivative contracts and other	(66)			6			15
Net change in pension and other benefits	(983)			(170)			(113)
Total Other Comprehensive (Loss)/Income	(1,049)			(164)			(98)
Comprehensive (Loss)/Income	$	(13,434)			$	4,603			$	3,837

DELTA AIR LINES, INC.

Consolidated Statements of Cash Flows

	Year Ended December 31,
(in millions)	2020		2019		2018
Cash Flows From Operating Activities:
Net (loss)/income	$	(12,385)			$	4,767			$	3,935
Adjustments to reconcile net income to net cash provided by operating activities:
Restructuring charges	4,111			—			—
Depreciation and amortization	2,312			2,581			2,329
Deferred income taxes	(3,110)			1,473			1,364
Pension, postretirement and postemployment payments less/(greater) than expense	898			(922)			(790)
Impairments and equity method losses	2,432			62			60
Changes in certain assets and liabilities:
Receivables	1,168			(775)			108
Fuel inventory	354			(139)			324
Noncurrent assets	210			111			(221)
Air traffic liability	(572)			454			297
Loyalty program deferred revenue	455			87			319
Profit sharing	(1,650)			354			233
Other payables, deferred revenue and accrued liabilities	240			144			(418)
Noncurrent liabilities	1,185			(16)			47
Other, net	559			244			(573)
Net cash (used in)/provided by operating activities	(3,793)			8,425			7,014
Cash Flows From Investing Activities:
Property and equipment additions:
Flight equipment, including advance payments	(896)			(3,344)			(3,704)
Ground property and equipment, including technology	(1,003)			(1,592)			(1,464)
Proceeds from sale-leaseback transactions	465			—			—
Purchase of equity investments	(2,099)			(170)			—
Sale of equity investments	—			279			28
Purchase of short-term investments	(13,400)			—			(145)
Redemption of short-term investments	7,608			206			766
Other, net	87			58			126
Net cash used in investing activities	(9,238)			(4,563)			(4,393)
Cash Flows From Financing Activities:
Proceeds from short-term obligations	3,261			1,750			—
Proceeds from long-term obligations	22,790			2,057			3,745
Proceeds from sale-leaseback transactions	2,306			—			—
Payments on debt and finance lease obligations	(8,559)			(3,320)			(3,052)
Repurchase of common stock	(344)			(2,027)			(1,575)
Cash dividends	(260)			(980)			(909)
Fuel card obligation	364			(339)			7
Other, net	(202)			(21)			58
Net cash provided by/(used in) financing activities	19,356			(2,880)			(1,726)
Net Increase in Cash, Cash Equivalents and Restricted Cash	6,325			982			895
Cash, cash equivalents and restricted cash at beginning of period	3,730			2,748			1,853
Cash, cash equivalents and restricted cash at end of period	$	10,055			$	3,730			$	2,748
Supplemental Disclosure of Cash Paid for Interest	$	761			$	481			$	376
Non-Cash Transactions:
Right-of-use assets acquired under operating leases	$	1,077			$	464			$	1,041
Flight and ground equipment acquired under finance leases	381			650			93
Operating leases converted to finance leases

DELTA AIR LINES, INC.

Consolidated Statements of Stockholders' Equity

	Common Stock	Additional Paid-In Capital	Retained Earnings / (Deficit)	Accumulated Other Comprehensive Loss	Treasury Stock
(in millions, except per share data)	Shares	Amount				Shares	Amount	Total
Balance at January 1, 2018	715		$	—		$	12,053		$	8,256		$	(7,621)		7		$	(158)		$	12,530
Net income	—		—		—		3,935		—		—		—		3,935
Change in accounting principle and other	—		—		—		(154)		(106)		—		—		(260)
Dividends declared	—		—		—		(909)		—		—		—		(909)
Other comprehensive loss	—		—		—		—		(98)		—		—		(98)
Common stock issued for employee equity awards(1)	1		—		91		—		—		1		(40)		51
Stock options exercised	1		—		13		—		—		—		—		13
Stock purchased and retired	(29)		—		(486)		(1,089)		—		—		—		(1,575)
Balance at December 31, 2018	688		—		11,671		10,039		(7,825)		8		(198)		13,687
Net income	—		—		—		4,767		—		—		—		4,767
Dividends declared	—		—		—		(981)		—		—		—		(981)
Other comprehensive loss	—		—		—		—		(164)		—		—		(164)
Common stock issued for employee equity awards(1)	2		—		114		—		—		1		(38)		76
Stock purchased and retired	(38)		—		(656)		(1,371)		—		—		—		(2,027)
Balance at December 31, 2019	652		—		11,129		12,454		(7,989)		9		(236)		15,358
Net loss	—		—		—		(12,385)		—		—		—		(12,385)
Dividends declared	—		—		—		(257)		—		—		—		(257)
Other comprehensive loss	—		—		—		—		(1,049)		—		—		(1,049)
Common stock issued for employee equity awards and other(1)	1		—		120		—		—		—		(23)		97
Stock purchased and retired	(6)		—		(104)		(240)		—		—		—		(344)
Government support warrant issuance	—		—		114		—		—		—		—		114
Balance at December 31, 2020	647		$	—		$	11,259		$	(428)		$	(9,038)		9		$	(259)		$	1,534