December 31, 2007 of the Successor. We then compared the combined results of operations for the year ended December 31, 2007 with the corresponding period in the prior year of the Predecessor and discussed significant fresh start reporting adjustments (“Fresh Start Adjustments”) which impacted comparability.

We believe the combined results of operations for the year ended December 31, 2007 provide management and investors with a more meaningful perspective on Delta’s ongoing financial and operational performance and trends than if we did not combine the results of operations of the Predecessor and the Successor in this manner. Similarly, we combine the financial results of the Predecessor and the Successor when discussing our sources and uses of cash for the year ended December 31, 2007.

 Overview of Combined 2007 Results

In 2007, we recorded combined consolidated net income of $1.6 billion, which includes a $1.2 billion gain from reorganization items, net, primarily reflecting a $2.1 billion gain in connection with our emergence from bankruptcy. From an operational perspective, we reported operating income of $1.1 billion for 2007.



Due to the record high fuel costs experienced over the last several years, aircraft fuel expense and related taxes have become our largest cost. In an effort to manage these costs, we hedged 38% of our fuel consumption in 2007, resulting in an average fuel price per gallon of $2.21. We realized $111 million in cash gains on fuel hedge contracts settled during the year.

Consistent with our positive operating financial results for 2007, cash flows from operations generated $1.4 billion, which are net of $875 million in cash used under the Plan of Reorganization to satisfy our bankruptcy-related obligations to the Air Line Pilots Association (“ALPA”) and the Pension Benefit Guaranty Corporation (the “PBGC”). During 2007, we strengthened our balance sheet through the payment of $1.0 billion in net debt, including two then outstanding debtor-in-possession financing facilities (the “DIP Facility”), our bankruptcy-related obligations to ALPA and the PBGC and certain other higher interest-bearing debt maturities. We also invested more than $1.0 billion in capital expenditures, focused primarily on customer service initiatives, such as new flight equipment and improvements at our Atlanta and New York-JFK hubs.

 Business Initiatives

Recent initiatives that we expect will generate positive momentum in our business include:

 

 

 

 

In late 2007, our Board of Directors established a special committee of the Board to work with management to review and analyze strategic options, including potential consolidation transactions, to assist us in maintaining our leadership position in the airline industry. Any decision of the Board of Directors regarding strategic options will be based on the best, long-term interests of all Delta stakeholders, including stockholders, employees, customers and the communities we serve.



Fresh Start Adjustments

During the eight months ended December 31, 2007, Fresh Start Adjustments impacted our Consolidated Financial Statements. These adjustments resulted in a $157 million increase