<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5424
DELTA AIR LINES, INC.
State of Incorporation: Delaware
IRS Employer Identification No.: 58-0218548
Hartsfield Atlanta International Airport, Atlanta, Georgia 30320
Telephone: (404) 715-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
------- -------
Number of shares outstanding by each class of common stock,
as of April 30, 1994:
Common Stock, $3.00 par value - 50,449,807 shares outstanding
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- - ----------------------------
DELTA AIR LINES, INC.
Consolidated Balance Sheets (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
March 31 June 30
ASSETS 1994 1993
- - -------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,413,538 $ 1,180,364
Accounts receivable, net 584,969 1,002,202
Notes receivable 243,566 22,667
Refundable income taxes 12,243 29,936
Maintenance and operating supplies 70,983 90,593
Deferred income taxes 196,344 173,224
Prepaid expenses and other 241,398 322,934
----------- -----------
Total current assets 2,763,041 2,821,920
----------- -----------
PROPERTY AND EQUIPMENT:
Flight equipment owned 9,236,860 9,042,876
Less: Accumulated depreciation 3,806,737 3,559,084
----------- -----------
5,430,123 5,483,792
----------- -----------
Flight equipment under capital leases 173,284 173,284
Less: Accumulated amortization 139,024 128,572
----------- -----------
34,260 44,712
----------- -----------
Ground property and equipment 2,428,994 2,372,587
Less: Accumulated depreciation 1,254,395 1,143,087
----------- -----------
1,174,599 1,229,500
----------- -----------
Advance payments for equipment 239,347 382,741
----------- -----------
6,878,329 7,140,745
----------- -----------
OTHER ASSETS:
Marketable equity securities, net 266,504 265,124
Deferred income taxes 603,984 504,645
Investments in associated companies 214,071 202,176
Cost in excess of net assets acquired 285,035 291,579
Leasehold and operating rights, net 257,537 305,801
Non-operating property, net 197,216 72,227
Long-term receivables and other 241,476 266,806
----------- -----------
2,065,823 1,908,358
----------- -----------
$11,707,193 $11,871,023
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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<PAGE>
DELTA AIR LINES, INC.
Consolidated Balance Sheets (Unaudited)
(In Thousands except Share Amounts)
<TABLE>
<CAPTION>
March 31 June 30
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
- - -----------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 34,418 $ 34,843
Current obligations under capital leases 12,020 12,307
Accounts payable and accrued liabilities 1,509,547 1,382,304
Air traffic liability 1,114,370 1,189,883
Vacation liability 169,488 194,174
Accrued rent 183,071 200,471
Accrued income taxes 6,501 4,849
----------- -----------
Total current liabilities 3,029,415 3,018,831
----------- -----------
NONCURRENT LIABILITIES:
Long-term debt 3,350,720 3,619,473
Postretirement benefits 1,520,921 1,381,347
Capital leases 87,272 97,199
Accrued rent 519,890 439,871
Other 310,753 222,512
----------- -----------
5,789,556 5,760,402
----------- -----------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions 997,267 990,703
Manufacturers credits 104,449 103,395
Unamortized investment tax credits 388 1,432
Other 405 834
----------- -----------
1,102,509 1,096,364
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)
EMPLOYEE STOCK OWNERSHIP PLAN
PREFERRED STOCK:
Series B ESOP Convertible Preferred Stock,
$1.00 par value, $72.00 stated and liquidation value;
issued and outstanding 6,884,800 shares at March 31,
1994 and 6,913,171 shares at June 30, 1993 495,706 497,740
Less: Unearned compensation under
employee stock ownership plan 393,115 415,419
----------- -----------
102,591 82,321
----------- -----------
STOCKHOLDERS' EQUITY:
Series C Convertible Preferred Stock,
$1.00 par value, $50,000 liquidation preference;
Issued and outstanding 23,000 shares at March 31, 1994
and June 30, 1993 23 23
Common stock, $3.00 par value;
Authorized, 150,000,000 shares;
Issued 54,463,887 shares at March 31, 1994
and 54,450,286 shares at June 30, 1993 163,392 163,351
Additional paid-in capital 2,012,570 2,011,879
Retained earnings (deficit) (209,280) 35,907
Less: Net unrealized loss on noncurrent
marketable equity securities - 855
Treasury stock at cost, 4,185,647 shares at
March 31, 1994 and 4,386,445 shares at June 30, 1993 283,583 297,200
----------- -----------
1,683,122 1,913,105
----------- -----------
$11,707,193 $11,871,023
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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<PAGE>
<TABLE>
<CAPTION>
DELTA AIR LINES, INC.
Consolidated Statements of Operations (Unaudited)
(In Thousands, except Per Share)
Three Months Ended
March 31
-------------------------
1994 1993 *
----------- -----------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 2,691,292 $ 2,709,031
Cargo 186,915 168,418
Other, net 64,765 49,181
----------- -----------
Total operating revenues 2,942,972 2,926,630
----------- -----------
OPERATING EXPENSES:
Salaries and related costs 1,144,716 1,199,733
Aircraft fuel 330,617 366,083
Passenger commissions 310,716 298,457
Aircraft rent 181,993 184,297
Depreciation and amortization 169,747 195,027
Passenger service 126,552 126,757
Aircraft maintenance materials and repairs 102,182 122,026
Facilities and other rent 97,866 88,780
Landing fees 63,964 63,332
Restructuring charges -- 82,500
Other 481,829 410,442
----------- -----------
Total operating expenses 3,010,182 3,137,434
----------- -----------
OPERATING LOSS (67,210) (210,804)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (75,656) (62,381)
Interest capitalized 8,156 13,419
----------- -----------
(67,500) (48,962)
Gain (loss) on disposition of flight equipment (120) 12,756
Interest income 11,658 5,421
Miscellaneous income (loss), net (323) 3,003
----------- -----------
(56,285) (27,782)
----------- -----------
LOSS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES (123,495) (238,586)
INCOME TAXES CREDITED, NET 45,613 86,271
----------- -----------
LOSS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES (77,882) (152,315)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES, NET OF TAX -- --
----------- -----------
NET LOSS (77,882) (152,315)
PREFERRED STOCK DIVIDENDS (27,531) (27,606)
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (105,413) $ (179,921)
=========== ===========
PRIMARY AND FULLY DILUTED PER SHARE AMOUNTS:
Loss before cumulative effect of accounting changes $ (2.10) $ (3.61)
Cumulative effect of accounting changes -- --
----------- -----------
$ (2.10) $ (3.61)
=========== ===========
WEIGHTED AVERAGE SHARES USED
IN PER SHARE COMPUTATION 50,256,860 49,872,116
DIVIDENDS PAID PER COMMON SHARE $0.05 $0.05
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
* Restated as described in Note 1.
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<PAGE>
<TABLE>
<CAPTION>
DELTA AIR LINES, INC.
Statistical Summary
(Unaudited)
Three Months Ended
March 31
-----------------------
1994 1993 *
---------- ----------
<S> <C> <C>
Available Seat Miles (000) 31,384,928 31,692,578
Available Ton Miles (000) 4,349,273 4,343,944
Revenue Passengers Enplaned 20,494,686 19,307,535
Revenue Passenger Miles (000) 19,398,604 18,279,976
Cargo Ton Miles (000) 337,636 304,127
Revenue Ton Miles (000) 2,278,167 2,132,601
Passenger Load Factor 61.81% 57.68%
Breakeven Load Factor 63.35% 62.17%
Fuel Gallons Consumed (000) 607,394 603,324
Average Price Per Fuel Gallon 54.43c 60.68c
Cost Per Available Seat Mile 9.59c 9.90c
Cost Per Available Seat Mile -
Excluding Restructuring Charges 9.59c 9.64c
Passenger Mile Yield 13.87c 14.82c
Operating Revenue Per Available Seat Mile 9.38c 9.23c
* Restated as described in Note 1.
</TABLE>
-5-
<PAGE>
DELTA AIR LINES, INC.
Consolidated Statements of Operations (Unaudited)
(In Thousands, except Per Share)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
-------------------------
1994 1993 *
----------- -----------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 8,411,042 $ 8,178,109
Cargo 568,342 520,988
Other, net 200,282 166,072
----------- -----------
Total operating revenues 9,179,666 8,865,169
----------- -----------
OPERATING EXPENSES:
Salaries and related costs 3,451,478 3,624,443
Aircraft fuel 1,085,536 1,208,854
Passenger commissions 973,152 924,109
Aircraft rent 559,432 543,524
Depreciation and amortization 507,768 575,007
Passenger service 397,880 418,122
Aircraft maintenance materials and repairs 304,957 361,378
Facilities and other rent 283,660 268,777
Landing fees 193,856 195,326
Restructuring charges 112,288 82,500
Other 1,435,485 1,295,830
----------- -----------
Total operating expenses 9,305,492 9,497,870
----------- -----------
OPERATING LOSS (125,826) (632,701)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (228,972) (175,822)
Interest capitalized 26,462 50,630
----------- -----------
(202,510) (125,192)
Gain on disposition of flight equipment 1,292 63,118
Interest income 37,550 16,165
Miscellaneous income, net 19,789 17,095
----------- -----------
(143,879) (28,814)
----------- -----------
LOSS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES (269,705) (661,515)
INCOME TAXES CREDITED, NET 111,132 239,618
----------- -----------
LOSS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES (158,573) (421,897)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES, NET OF TAX - (587,144)
----------- -----------
NET LOSS (158,573) (1,009,041)
PREFERRED STOCK DIVIDENDS (82,713) (82,815)
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (241,286) $(1,091,856)
=========== ===========
PRIMARY AND FULLY DILUTED PER SHARE AMOUNTS:
Loss before cumulative effect of accounting changes $ (4.81) $ (10.14)
Cumulative effect of accounting changes - (11.80)
----------- -----------
$ (4.81) $ (21.94)
=========== ===========
WEIGHTED AVERAGE SHARES USED
IN PER SHARE COMPUTATION 50,210,671 49,773,099
DIVIDENDS PAID PER COMMON SHARE $0.15 $0.65
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
* Restated as described in Note 1.
-6-
<PAGE>
<TABLE>
<CAPTION>
DELTA AIR LINES, INC.
Statistical Summary
(Unaudited)
Nine Months Ended
March 31
-----------------------
1994 1993 *
---------- ----------
<S> <C> <C>
Available Seat Miles (000) 98,980,635 98,649,649
Available Ton Miles (000) 13,737,694 13,539,270
Revenue Passengers Enplaned 64,708,663 63,574,675
Revenue Passenger Miles (000) 63,073,914 61,501,735
Cargo Ton Miles (000) 1,024,361 938,804
Revenue Ton Miles (000) 7,337,645 7,093,386
Passenger Load Factor 63.72% 62.34%
Breakeven Load Factor 64.68% 67.17%
Fuel Gallons Consumed (000) 1,910,376 1,892,167
Average Price Per Fuel Gallon 56.82c 63.89c
Cost Per Available Seat Mile 9.40c 9.63c
Cost Per Available Seat Mile -
Excluding Restructuring Charges 9.29c 9.54c
Passenger Mile Yield 13.34c 13.30c
Operating Revenue Per Available Seat Mile 9.27c 8.99c
* Restated as described in Note 1.
</TABLE>
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<PAGE>
DELTA AIR LINES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
--------------------------
1994 1993 *
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (158,573) $(1,009,041)
Adjustments to reconcile net loss to cash
provided by operating activities:
Cumulative effect of accounting changes - 587,144
Depreciation and amortization 507,768 627,507
Deferred income taxes (93,138) (202,238)
Amortization of investment tax credits (1,044) (2,338)
Amortization of deferred gain on sale and
leaseback transactions (44,546) (42,317)
Gain on disposition of flight equipment (1,292) (63,118)
Rental expense in excess of payments 62,619 34,213
Pension expense in excess of (less than) funding (4,902) 30,036
Compensation under ESOP 24,128 21,971
Postretirement benefits 139,574 96,768
Changes in certain assets and liabilities:
Decrease in receivables 214,027 255,339
Decrease (increase) in other current assets 78,026 (16,593)
Decrease in air traffic liability (75,513) (179,564)
Increase in accounts payable and accrued liabilities 127,243 202,055
Decrease in other payables (23,034) (3,910)
Increase in other noncurrent liabilities 93,143 15,303
Other, net 27,973 (63,315)
----------- -----------
Net cash provided by operating activities 872,459 287,902
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (884,893) (962,788)
Ground property and equipment (120,349) (125,443)
Proceeds from sale of flight equipment 96,164 81,257
Investment in associated companies (82) (744)
----------- -----------
Net cash used in investing activities (909,160) (1,007,718)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock, net - 1,126,000
Issuance of common stock 607 1,222
Long-term borrowings 226,200 675,000
Net short-term borrowings (repayments) - (795,206)
Payments on long-term debt and capital lease obligations (522,940) (513,101)
Cash dividends (82,803) (100,940)
Proceeds from sale and leaseback transactions 648,811 455,156
----------- -----------
Net cash provided by financing activities 269,875 848,131
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 233,174 128,315
Cash and cash equivalents at beginning of period 1,180,364 50,413
----------- -----------
Cash and cash equivalents at end of period $ 1,413,538 $ 178,728
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
* Restated as described in Note 1.
-8-
<PAGE>
DELTA AIR LINES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1994
(Unaudited)
1. ACCOUNTING AND REPORTING POLICIES:
The Company's accounting and reporting policies are summarized in Note 1
(page 25) of the Notes to Consolidated Financial Statements in Delta's 1993
Annual Report to Stockholders. These interim financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's 1993 Annual Report to Stockholders. Certain
amounts for fiscal 1993 have been reclassified to conform with the current
financial statement presentation. In the opinion of management, the
accompanying unaudited financial statements reflect all adjustments,
consisting of normal recurring accruals, except with respect to the
restructuring charges as discussed in Note 9, necessary for a fair statement
of results for the interim periods.
Effective July 1, 1992, Delta adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" (SFAS 106), and Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS 109). The accompanying
financial statements have been restated to reflect the adoption of SFAS 106
and SFAS 109 as of July 1, 1992.
Effective April 1, 1993, the Company changed its depreciation policy for
substantially all of its flight equipment from a straight-line 15-year
period, 10% residual value to a straight-line 20-year period, 5% residual
value. Also effective April 1, 1993, the Company increased the expected
annual return on plan assets associated with defined benefit pension plans
from 9% to 10%.
2. STOCKHOLDERS' EQUITY:
During the March 1994 quarter, the Company issued 3,316 common shares, at an
average price of $52.41 per share, under the Dividend Reinvestment and Stock
Purchase Plan. Also during the March 1994 quarter, the Company transferred
from its treasury 67,038 common shares, at an average cost of $67.75 per
share, to the Delta Family-Care Savings Plan and 24 common shares, at an
average cost of $67.75 per share, under the 1989 Stock Incentive Plan.
At March 31, 1994, 5,922,785 common shares were reserved for issuance under
the 1989 Stock Incentive Plan; 5,905,781 common shares were reserved for
conversion of the Series B ESOP
-9-
<PAGE>
Convertible Preferred Stock; 17,490,494 common shares were reserved for
conversion of the Series C Convertible Preferred Stock; and 10,149,072
common shares were reserved for conversion of the 3.23% Convertible
Subordinated Notes due 2003.
3. MARKETABLE EQUITY SECURITIES:
The Company's investments in Singapore Airlines Limited (Singapore Airlines)
and Swissair, Swiss Air Transport Company Ltd. (Swissair) are accounted for
under the cost method and are carried at aggregate cost or market value,
whichever is lower. At March 31, 1994, the gross unrealized gain on the
Company's investment in Singapore Airlines was approximately $71.9 million
and the gross unrealized loss on the Company's investment in Swissair was
approximately $29.3 million. Since the aggregate market value of these
investments exceeds their aggregate cost by $42.6 million, these investments
are carried at their aggregate cost of $266.5 million at March 31, 1994.
4. INCOME TAXES:
Income taxes are credited at the estimated annual effective tax rate, which
differs from the federal statutory rate of 35%, primarily due to state
income taxes and purchase accounting adjustments not deductible for income
tax purposes. During the nine months ended March 31, 1994 and 1993, Delta
received refunds in excess of cash income tax payments of $13.3 million and
$161.0 million, respectively.
5. CONTINGENCIES:
On March 6, 1992, Pan Am Corporation and certain of its subsidiaries,
debtors-in-possession under the Bankruptcy Code (Pan Am), and the Official
Committee of Unsecured Creditors of Pan Am (Creditors Committee), together
with the Ad Hoc Committee of Administrative and Priority Creditors of Pan
Am, filed a consolidated amended complaint (Complaint) against Delta
relating to Delta's participation in Pan Am's proposed plan of
reorganization. The Complaint alleges, among other things, that Delta
breached its contractual obligations and promises to participate in the plan
of reorganization; violated its duty of good faith and fair dealing;
breached its fiduciary duties to Pan Am and its creditors; and acted in bad
faith. The plaintiffs are seeking to disallow, or to subordinate to the
claims of Pan Am's general unsecured creditors, all claims Delta may have
against Pan Am, including the repayment of the $115.0 million principal
amount of debtor-in-possession financing Delta provided to Pan Am; to impose
a constructive trust for the benefit of Pan Am's
-10-
<PAGE>
creditors on the profits Delta receives or should have received from the
assets Delta purchased from Pan Am under the asset purchase agreement
dated July 27, 1991, as amended; to recover at least $2.5 billion in
compensatory damages plus punitive damages, costs and attorneys' fees; and
to obtain such other relief as the Court deems appropriate. In addition,
the Creditors Committee is seeking, independently and in its own right,
unspecified compensatory and punitive damages for, among other things,
loss of its potential equity interest in, and loss of employment by Pan Am
employees with, a reorganized Pan Am. The trial of this lawsuit in the
United States District Court for the Southern District of New York began
on May 4, 1994. It is expected to be completed in May or June 1994, and
the District Court will issue its decision some time after the end of the
trial. Several other lawsuits have been filed against Delta relating to
its participation in Pan Am's proposed plan of reorganization.
Delta believes that it complied with all of its obligations to Pan Am and
the Creditors Committee and that the actions filed against it are without
merit, and it intends to defend these matters vigorously. Although the
ultimate outcome of these matters cannot be predicted with certainty and
could have a material adverse effect on Delta's consolidated financial
condition, results of operations or liquidity, management presently believes
that the resolution of these actions is not likely to have a material
adverse effect on Delta's consolidated financial condition, results of
operations or liquidity.
The Company is also a defendant in certain legal actions relating to alleged
employment discrimination practices, other matters concerning past and
present employees, environmental issues and other matters concerning the
Company's business. Given the unsettled status of the law in many of the
areas involved, the ultimate outcome of these matters cannot be predicted
with certainty. Although the ultimate outcome of these matters could have a
material adverse effect on Delta's consolidated financial condition, results
of operations or liquidity, management presently believes that the
resolution of these actions is not likely to have a material adverse effect
on Delta's consolidated financial condition, results of operations or
liquidity.
6. LONG-TERM DEBT:
At March 31, 1994, there were no borrowings outstanding under the Company's
1991 and 1992 Bank Credit Agreements. On August 12, 1993, the Company
obtained, and there is currently outstanding, a letter of credit under the
1992 Bank Credit Agreement in the amount of $699.1 million to credit enhance
the Guaranteed Serial ESOP Notes. This letter of credit is utilizing $699.1
million of the available $1 billion commitment under the 1992 Bank Credit
Agreement. For additional information regarding Delta's long-term debt,
including the 1991 and 1992 Bank Credit Agreements and the Guaranteed Serial
ESOP Notes, see Note 3 (page 26) of the Notes to Consolidated Financial
Statements in Delta's 1993 Annual Report to Stockholders.
-11-
<PAGE>
During the nine months ended March 31, 1994 and 1993, Delta made cash
interest payments, net of interest capitalized, of $155.1 million and $112.1
million, respectively.
7. SALE OF RECEIVABLES:
On March 31, 1994, the Company entered into a revolving facility
(Receivables Facility) with NationsBank of Georgia, National Association
(Purchaser) pursuant to which the Purchaser agreed to purchase from the
Company certain accounts receivable on a limited recourse basis. Under this
Receivables Facility, the Company sold $509 million in receivables and
received $300 million in cash and a subordinated note bearing an interest
rate of 4.75%. The principal amount of the subordinated note, which was
initially $209 million, fluctuates daily depending upon the volume of
receivables sold, and is payable by the Purchaser only to the extent the
collections actually received on the sold receivables exceed the Purchaser's
cash investment. New receivables are transferred daily to the Purchaser as
collections reduce previously transferred receivables.
At March 31, 1994, the net proceeds of $300 million are reported as
operating cash flows in the Company's Statements of Cash Flows and as a
reduction in accounts receivable on the Company's Balance Sheets. The
subordinated note is reflected as an increase in notes receivable on the
Company's Balance Sheets. The full amount of the allowance for doubtful
accounts has been retained since the Company has substantially the same
credit risk as if the receivables had not been sold.
The Receivables Facility is scheduled to expire on May 31, 1994. The
Company is negotiating with various financial institutions to establish a
longer-term receivables facility.
8. AIRCRAFT PURCHASE AND SALE COMMITMENTS:
On November 4, 1993, Delta announced that it had reached an understanding
with McDonnell Douglas Corporation (McDonnell Douglas) to defer delivery of
20 aircraft on firm order that were previously scheduled for delivery in
fiscal years 1995 and 1996, to fiscal years after fiscal 1996. This
understanding is subject to the completion of definitive agreements with
McDonnell Douglas.
On March 16, 1994, Delta entered into definitive agreements with The Boeing
Company (Boeing) to reschedule delivery of 17 aircraft on firm order that
were previously scheduled for delivery in fiscal years 1995 and 1996, to
fiscal years after fiscal 1996. As a result of these agreements, Boeing
returned to Delta advance payments of $94.0 million.
-12-
<PAGE>
The following information does not incorporate the foregoing understanding
with McDonnell Douglas.
Future expenditures for aircraft and engines on firm order at March 31,
1994, are estimated to be $3.15 billion, excluding aircraft orders subject
to reconfirmation by Delta, as follows:
<TABLE>
<CAPTION>
Years Ending Amount
June 30 (In Millions)
------------ -------------
<S> <C>
Three months ending June 30, 1994.. $ 160
1995............................... 950
1996............................... 600
1997............................... 580
1998............................... 260
After 1998......................... 600
------
Total $3,150
======
</TABLE>
At March 31, 1994, the Company's aircraft fleet, purchase commitments and
options were:
<TABLE>
<CAPTION>
Current Operating Fleet
-----------------------
Aircraft Type Owned Leased Total Orders Options
------------- ----- ------ ----- ------ -------
<S> <C> <C> <C> <C> <C>
A310-200 3 1 4 - -
A310-300 - 9 9 - -
B-727-200 106 33 139 - -
B-737-200 1 57 58 - -
B-737-300 2 13 15 52 56
B-757-200 43 41 84 6 38
B-767-200 15 - 15 - -
B-767-300 2 24 26 2 -
B-767-300ER 7 7 14 5 11
L-1011-1 32 - 32 - -
L-1011-200 1 - 1 - -
L-1011-250 6 - 6 - -
L-1011-500 17 - 17 - -
MD-11 4 6 10 5 29
MD-88 63 57 120 5 49
MD-90 - - - 50 50
--- --- --- --- ---
302 248 550 125 233
=== === === === ===
</TABLE>
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<PAGE>
The aircraft orders include 22 B-737-300 aircraft and 24 MD-90 aircraft
scheduled for delivery after fiscal 2001 and after fiscal 1996,
respectively, that are subject to reconfirmation by Delta. The MD-88
aircraft options may be converted to MD-90 aircraft orders or options at
Delta's election. The B-737-300 aircraft orders and options may be
converted to B-737-400 or B-737-500 aircraft orders at Delta's election, and
four of the five B-767-300ER aircraft orders and the B-767-300ER aircraft
options may be converted to B-767-300 aircraft orders and options,
respectively, also at Delta's election.
During the quarter ended March 31, 1994, Delta accepted delivery of one MD-
11 aircraft, and returned two A310-200 aircraft, twelve A310-300 aircraft
and three B-727-200 aircraft to their lessors. Both A310-200 aircraft and
two of the three B-727-200 aircraft were removed from service in the
December 1993 quarter. The Company also returned to service one A310-200
aircraft under an operating lease.
Subsequent to March 31, 1994, Delta accepted delivery of one MD-11 aircraft,
which the Company sold and leased back under an operating lease.
9. RESTRUCTURING CHARGES:
The operating results for the nine months ended March 31, 1994, include a
$112.3 million charge related to the curtailment loss and special
termination benefits for approximately 1,500 employees who elected to retire
on November 1, 1993 under an early retirement program. Operating results
for the three months and nine months ended March 31, 1993, include an $82.5
million restructuring charge related to the retirement of certain aircraft.
10. SUBSEQUENT EVENTS:
Reference is made to the Financial Condition section of Item 2,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" of this Form 10-Q for information related to additional
restructuring charges expected to be taken as early as the June 1994
quarter.
-14-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
- - --------------------------------------------------------------------
and Results of Operations
- - -------------------------
FINANCIAL CONDITION
During the nine months ended March 31, 1994, Delta invested $884.9 million in
flight equipment, net of advance payment refunds received of $94.0 million (see
Note 8 of Notes to Condensed Consolidated Financial Statements), and $120.3
million in ground property and equipment; made payments of $522.9 million on
long-term debt and capital lease obligations; and paid $82.8 million in cash
dividends. The principal sources of these funds were $872.5 million in cash
from operations, which includes $300.0 million from the sale of certain
receivables (see Note 7 of Notes to Condensed Consolidated Financial
Statements), $648.8 million in proceeds from aircraft sale and leaseback
transactions, $226.2 million of long-term borrowings, and $96.2 million in
proceeds from the sale of flight equipment. Cash and cash equivalents totaled
$1.41 billion at March 31, 1994, compared to $1.18 billion at June 30, 1993.
At March 31, 1994 and June 30, 1993, long-term debt and capital lease
obligations, including current maturities, totaled $3.48 billion and $3.76
billion, respectively. Stockholders' equity was $1.68 billion at March 31,
1994, compared to $1.91 billion at June 30, 1993. The Company's debt-to-equity
position, excluding short-term borrowings, was 67% debt and 33% equity at March
31, 1994, compared to 66% debt and 34% equity at June 30, 1993.
At March 31, 1994, there were outstanding $432.0 million principal amount of
Guaranteed Serial ESOP Notes (ESOP Notes) guaranteed by Delta. The terms of the
ESOP Notes require Delta to purchase the ESOP Notes at the option of the holders
thereof if the credit rating of Delta's long-term senior unsecured debt falls
below certain levels (Purchase Event), unless Delta obtains within a specified
period of a Purchase Event certain credit enhancements (Approved Credit
Enhancement) that result in the ESOP Notes being rated A3 or higher by Moody's
Investors Service (Moody's) and A- or higher by Standard & Poor's (S&P)
(Required Ratings). As a result of Moody's rating action on May 11, 1993, a
Purchase Event occurred, and Delta became obligated to purchase on September 15,
1993, any ESOP Notes properly tendered to it. On August 12, 1993, Delta
obtained an Approved Credit Enhancement in the form of a letter of credit in the
amount of $699.1 million under its 1992 Bank Credit Agreement (see Note 6 of
Notes to Condensed Consolidated Financial Statements). Due to the issuance of
the letter of credit, the ESOP Notes received the Required Ratings. Although
Delta no longer has an obligation to purchase the ESOP Notes as a result of the
Purchase Event that occurred on May 11, 1993, there can be no assurance that
Delta will not be required to purchase the ESOP Notes at a later date. For
additional information regarding the ESOP Notes, Delta's purchase obligation
with respect thereto and the letter of credit that Delta obtained to credit
enhance the ESOP Notes, see Note 3 (page 26) of the Notes to Consolidated
Financial Statements in Delta's 1993 Annual Report to Stockholders.
-15-
<PAGE>
At March 31, 1994, the Company had negative working capital of $266.4 million,
compared with negative working capital of $196.9 million at June 30, 1993. A
negative working capital position is normal for Delta and does not indicate a
lack of liquidity. The Company expects to meet its current obligations as they
become due through cash reserves, internally generated funds, debt financings
and proceeds from asset sales and sale and leaseback transactions. At March 31,
1994, there were no borrowings outstanding under the Company's 1991 and 1992
Bank Credit Agreements. However, as discussed above, there is currently
outstanding a letter of credit under the 1992 Bank Credit Agreement in the
amount of $699.1 million to credit enhance the ESOP Notes. At March 31, 1994,
the Company had $300 million of credit available under its 1992 Bank Credit
Agreement, and $500 million available under its 1991 Bank Credit Agreement,
subject to compliance with certain conditions.
During 1991, Delta provided certain debtor-in-possession financing to Pan Am
(DIP Loan). At March 31, 1994, there was outstanding and reflected as an asset
in the Company's Consolidated Balance Sheets the $115 million principal amount
of the DIP Loan plus accrued interest of $26.2 million. Delta believes the book
value of the DIP Loan as recorded in the Company's Consolidated Balance Sheets
approximates its fair value. For additional information concerning the DIP
Loan, including certain litigation relating thereto, see Notes 14 and 15 (page
33) of the Notes to Consolidated Financial Statements in Delta's 1993 Annual
Report to Stockholders and "Item 1. - Legal Proceedings" in Part II of Delta's
Quarterly Report on Form 10-Q for the quarters ended December 31, 1993, and
March 31, 1994.
At its regular meeting on April 28, 1994, Delta's Board of Directors declared
cash dividends of five cents per common share and $875.00 per share of Series C
Convertible Preferred Stock ($0.875 per depositary share), both payable June 1,
1994, to stockholders of record on May 11, 1994.
Low-fare competition continues to increase in many of Delta's markets,
primarily in the eastern United States where Delta has a significant presence.
These low fares have resulted from widespread discount fare promotions in
domestic and international markets, and the growing presence of low-fare, low-
cost carriers. The fare reductions have had a significant negative effect on
Delta's financial results because such reductions generally have not stimulated
enough traffic to offset declines in the passenger mile yield. In order to
effectively compete in this environment, Delta believes it must lower its cost
structure.
-16-
<PAGE>
Subsequent to the March 1994 quarter, Delta announced a three-year restructuring
program with a goal of lowering its annual operating costs by approximately $2
billion by the quarter ending June 30, 1997, by improving its efficiency. Delta
believes this program will result in the elimination of 12,000 to 15,000 jobs.
To achieve the workforce reduction, Delta will emphasize voluntary programs
including attrition, early retirement incentives, long-term leaves, separation
incentives and similar actions. Delta expects, however, that it will be
necessary to use furloughs to achieve these reductions.
Delta has established internal teams to develop plans to reach its cost
reduction goal. As part of this program, Delta will be seeking changes in its
collective bargaining agreement with the Air Line Pilots Association (ALPA) to
contribute approximately $320 million to $340 million of the total annual cost
reduction goal. ALPA is the collective bargaining representative for the
Company's approximately 8,400 pilots. The outcome of these negotiations cannot
presently be determined.
Delta has also established a goal of reducing its cost per available seat mile
to 7.5 cents by the June 1997 quarter. This goal assumes the achievement of
approximately $2 billion in annual operating cost savings discussed above,
excludes restructuring and other one-time charges and assumes other costs remain
at calendar year 1993 levels. Delta's cost per available seat mile in calendar
year 1993, excluding restructuring charges, was 9.26 cents. Delta's cost
reduction and available seat mile goals are aggressive, and no assurance can be
given that Delta will achieve these goals.
Delta does not intend to start a separate internal airline to compete on high
density routes at this time because it believes such an operation would not,
alone, adequately reduce Delta's costs. The Company is, however, exploring the
alternative of providing low-fare, low-cost service in certain markets through a
joint venture with one or more other parties.
In connection with its restructuring program, Delta plans to develop and adopt a
profit sharing program for non-pilot personnel. This program would be in effect
during fiscal years 1995, 1996 and 1997.
Delta expects to record a charge related to the restructuring program and
certain other actions, including the changes to the Frequent Flyer Program
discussed in the next paragraph, as early as the June 1994 quarter. The total
charges are estimated to range from $400 million to $600 million.
-17-
<PAGE>
Also subsequent to the March 1994 quarter, Delta announced a new SKYMILES
Program, which will replace the current Frequent Flyer Program effective May 1,
1995. Under the new program, the threshold for a free travel award will
generally be reduced; miles accrued on or after May 1, 1995 will expire in
certain circumstances; and free travel awards will be more readily transferable.
Delta estimates that the new program will result in an initial increase to the
accrual for the Company's Frequent Flyer liability of between $15 million to $30
million to be recorded in the June 1994 quarter.
-18-
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1994 and 1993
- - ------------------------------------------
For the quarter ended March 31, 1994, Delta recorded an unaudited net loss of
$77,882,000 ($2.10 primary and fully diluted loss per share after preferred
stock dividend requirements) and an operating loss of $67,210,000. For the
quarter ended March 31, 1993, the Company recorded a net loss of $152,315,000
($3.61 primary and fully diluted loss per common share after preferred stock
dividend requirements) and an operating loss of $210,804,000. The results for
the March 1993 quarter include an $82.5 million pretax restructuring charge
($1.05 primary and fully diluted charge per share after preferred stock dividend
requirements) related to the retirement of certain aircraft.
The losses in the March 1994 quarter reflect discount fare promotions in
domestic and international markets, the growing presence of low-fare, low-cost
carriers and weak economies in a number of regions worldwide. The 48%
improvement in operating results for the March 1994 quarter compared to the
March 1993 quarter (excluding the $82.5 million pretax restructuring charge) is
primarily due to declining jet fuel prices and the Company's cost reduction
efforts.
Operating revenues in the March 1994 quarter totaled $2.94 billion, an increase
of less than 1% from the $2.93 billion recorded in the March 1993 quarter.
Passenger revenue decreased less than 1% to $2.69 billion, the result of a 6%
increase in revenue passenger miles offset by a 6% decrease in the passenger
mile yield. The increase in passenger traffic and reduction in passenger mile
yield are mainly due to discount fare promotions in domestic and international
markets and the growing presence of low-fare, low-cost carriers. Cargo revenues
increased 11% to $186.9 million, as cargo ton miles grew 11% and the ton mile
yield remained virtually unchanged. All other revenue increased 32% to $64.8
million, primarily due to fees collected for passenger ticket changes and
additional revenue related to certain marketing programs.
Operating expenses were $3.01 billion in the March 1994 quarter, down 4% from
the March 1993 quarter. Operating capacity decreased less than 1% to 31.38
billion available seat miles. Cost per available seat mile declined 3% to 9.59
cents. Excluding the restructuring charge in the March 1993 quarter, cost per
available seat mile was down 0.5%.
Salaries and related costs decreased 5%, due to lower employee benefits
expenses, a 2% reduction in the average level of employment, primarily due to an
early retirement program, and a 5% pay cut for domestic noncontract personnel
effective February 1, 1993. Aircraft fuel expense decreased 10%, as fuel
consumption rose 1%, while the average price per fuel gallon declined 10% to
54.43 cents, Delta's lowest average fuel price per gallon in a March quarter
since 1987. Passenger commissions rose 4%, mainly due to an increase in
international traffic, where commission rates are higher than in domestic
markets. Aircraft rent expense decreased 1% due to the
-19-
<PAGE>
return of certain aircraft to their lessors. Depreciation and amortization
expense decreased 13%, primarily the result of a change in the Company's
depreciation policy, effective April 1, 1993, increasing the depreciable lives
of substantially all of Delta's flight equipment from 15 to 20 years, partially
offset by the purchase of additional owned flight and ground equipment.
Passenger service expense, despite the increase in traffic of 6%, remained
virtually unchanged, primarily due to the continuation of cost control programs
implemented during fiscal year 1993. Aircraft maintenance materials and repairs
expense decreased 16%, reflecting lower airframe outside repair expense and
decreased engine material usage. Facilities and other rent increased 10%,
primarily due to higher terminal facility lease rates in certain hub cities.
Landing fees increased 1%, mainly reflecting rate increases throughout the
system. All other operating expenses increased 17%, primarily reflecting higher
booking fee payments to computer reservations systems associated with increased
passenger volume, increased professional and technical fees, and higher cargo
commissions expense.
Nonoperating expense in the March 1994 quarter totaled $56.3 million, compared
to $27.8 million in the March 1993 quarter. Net interest expense increased 38%
to $67.5 million, due to a higher level of long-term debt and lower capitalized
interest resulting from a decline in the balance of advance payments for
aircraft. The Company recorded a pretax loss of $120,000 on the disposition of
flight equipment in the March 1994 quarter, versus a gain of $12.8 million on
aircraft dispositions in the March 1993 quarter. Interest income increased 115%
to $11.7 million due to a higher average level of short-term investments.
The $123.5 million pretax loss for the March 1994 quarter was reduced by an
income tax benefit of $45.6 million. Dividends on Series C Convertible
Preferred Stock and Series B ESOP Convertible Preferred Stock totaled $27.5
million.
Nine Months Ended March 31, 1994 and 1993
- - -----------------------------------------
For the nine months ended March 31, 1994, Delta recorded an unaudited net loss
of $158,573,000 ($4.81 primary and fully diluted loss per common share after
preferred stock dividend requirements) and an operating loss of $125.8 million,
compared to a net loss of $1,009,041,000 ($21.94 primary and fully diluted loss
per common share after preferred stock dividend requirements) and an operating
loss of $632.7 million for the nine months ended March 31, 1993.
Results for the nine months ended March 31, 1994 include a $112.3 million pretax
restructuring charge related to an early retirement program under which
approximately 1,500 employees elected to retire, effective November 1, 1993.
Results for the nine months ended March 31, 1993, include an $82.5 million
pretax restructuring charge related to the retirement of certain aircraft and a
$587.1 million cumulative after-tax effect of the Company's adoption, effective
July 1, 1992, of SFAS 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" and SFAS 109, "Accounting for Income Taxes."
-20-
<PAGE>
Excluding the pretax charges discussed in the preceding paragraph, the operating
loss was $13.5 million in the nine months ended March 31, 1994, compared to an
operating loss of $550.2 million in the nine months ended March 31, 1993. The
losses for the nine months ended March 31, 1994, reflect discount fare
promotions in domestic and international markets, the growing presence of low-
fare, low-cost carriers and weak economies in a number of regions worldwide.
Operating revenues in the nine months ended March 31, 1994, grew 4% to $9.18
billion. Passenger revenue increased 3% to $8.41 billion, the result of 3%
growth in revenue passenger miles, and a less than 1% increase in the passenger
mile yield. The increase in passenger traffic was primarily due to growth in
international markets as well as domestic and international discount fare
promotions, which negatively impacted the passenger mile yield. Cargo revenues
increased 9% to $568.3 million, due to a 9% increase in cargo ton miles. All
other revenues were up 21% to $200.3 million, mainly due to fees collected for
passenger ticket changes and additional revenue related to certain marketing
programs.
Operating expenses in the nine months ended March 31, 1994, decreased 2% to
$9.31 billion. Operating capacity grew less than 1% to 98.98 billion available
seat miles. Operating cost per available seat mile, excluding restructuring
charges, decreased 3% to 9.29 cents.
Salaries and related costs declined 5%, primarily due to lower employee benefits
expenses, a 2% decrease in the average level of employment, primarily due to an
early retirement program accepted by approximately 1,500 employees in November
1993, and a 5% pay cut for domestic noncontract personnel effective February 1,
1993. Aircraft fuel expense decreased 10%, as fuel gallons consumed increased
1% and the average price per fuel gallon decreased 11% to 56.82 cents per
gallon, Delta's lowest average fuel price per gallon for any nine month period
ended March 31 since 1989. Passenger commissions increased 5%, primarily the
result of international passenger revenue growth and the addition of new
incentive programs. Aircraft rent expense increased 3%, the result of
additional leased aircraft in the fleet. Depreciation and amortization expense
decreased 12%, largely the result of a change in the Company's depreciation
policy, effective April 1, 1993, increasing the depreciable lives of
substantially all of Delta's flight equipment from 15 to 20 years, partially
offset by the purchase of additional owned flight and ground equipment.
Passenger service expense decreased 5%, primarily due to the continuation of
cost control programs, partially offset by passenger traffic growth. Aircraft
maintenance materials and repairs expense decreased 16%, primarily due to
decreased engine materials usage and a lower level of aircraft maintenance
contracted outside the Company. Facilities and other rents increased 6%, due to
increased rents on existing facilities. Landing fees declined 1%, primarily due
to lower rates at a certain domestic hub. All other operating expenses
increased 11%, primarily the result of growth in passenger and cargo traffic,
and also due to increased contract services.
-21-
<PAGE>
Nonoperating expense for the nine months ended March 31, 1994, totaled $143.9
million, compared to $28.8 million in the nine months ended March 31, 1993. Net
interest expense rose $77.3 million, principally due to a higher level of long-
term debt and lower capitalized interest. Pretax gains on the disposition of
flight equipment decreased $61.8 million while interest income increased $21.4
million, primarily due to a higher average level of short-term investments.
Miscellaneous income increased $2.7 million primarily due to increased income
from associated companies.
The $269.7 million pretax loss for the nine months ended March 31, 1994, was
reduced by an income tax benefit of $111.1 million. Dividends on Series C
Convertible Preferred Stock and Series B ESOP Convertible Preferred Stock
totaled $82.7 million.
-22-
<PAGE>
ARTHUR ANDERSEN & CO.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
the Board of Directors of
Delta Air Lines, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
DELTA AIR LINES, INC. (a Delaware Corporation) as of March 31, 1994, the
related consolidated statements of operations for the three-month and nine-
month periods ended March 31, 1994 and 1993, and the consolidated statements
of cash flows for the nine-month periods ended March 31, 1994 and 1993. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Delta Air Lines, Inc. as as June
30, 1993 (not presented herein), and in our report dated August 13, 1993, we
expressed an unqualified opinion on that balance sheet. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of June 30, 1993 is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
/s/Arthur Andersen & Co.
Atlanta, Georgia
May 13, 1994
-23-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- - --------------------------
Litigation Relating to Delta's Participation in Pan Am's Plan of Reorganization
- - -------------------------------------------------------------------------------
Pan Am, the Official Committee of Unsecured Creditors of Pan Am (Creditors
Committee) and others have filed legal actions against Delta relating to Delta's
participation in Pan Am's proposed plan of reorganization. The following
discussion of recent developments regarding that litigation supplements the
discussion set forth on pages 10-13 of Delta's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993 (1993 Form 10-K), page 18 of Delta's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, and
pages 22-23 of Delta's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993.
As previously reported, Pan Am, the Creditors Committee and the Ad Hoc Committee
of Administrative and Priority Creditors of Pan Am filed a lawsuit against Delta
that is pending before the United States District Court for the Southern
District of New York (District Court). On May 2, 1994, the District Court (1)
denied the plaintiffs' motion requesting a jury trial or, alternatively, trial
by an advisory jury; and (2) ruled that this lawsuit would be tried separately
from the two lawsuits filed against Delta by former Pan Am employees which are
described below and on pages 12-13 of the 1993 Form 10-K. On May 3, 1994, the
District Court denied Delta's motion for partial summary judgment, as well as
the Creditors Committee's motion for summary judgment on Delta's counterclaims.
The trial of this lawsuit began on May 4, 1994. It is expected to be completed
in May or June 1994, and the District Court will issue its decision some time
after the end of the trial.
As previously reported, there are also pending before the District Court two
lawsuits filed against Delta by former Pan Am employees who allege, among other
things, that they were intended third-party beneficiaries of Delta's agreement
with Pan Am to participate in Pan Am's proposed plan of reorganization. On
February 28, 1994, Delta filed motions for summary judgment on all of
plaintiffs' claims in these two lawsuits; the plaintiffs are opposing these
motions. Also on February 28, 1994, the Creditors Committee and its members
filed motions for summary judgment on Delta's third party claims for
indemnification and contribution in these lawsuits; Delta is opposing these
motions. The District Court has not yet ruled on these motions or scheduled the
trial of these lawsuits.
Antitrust Matters
- - -----------------
As reported on page 15 of the 1993 Form 10-K, and on page 19 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, the
United States Department of Justice filed a civil complaint in the United States
District Court for the District of Columbia against Delta, seven other major
domestic airlines and the Airline Tariff Publishing Company (ATP) alleging the
-24-
<PAGE>
defendants and unnamed coconspirators violated Section 1 of the Sherman Act by
engaging in price-fixing and by operating a computerized fare exchange system in
a manner that unreasonably restrains competition in the domestic air passenger
transportation system.
On March 27, 1994, Delta, ATP and the remaining five other airline defendants
agreed to settle this lawsuit without admitting liability by entering into a
stipulated final judgment that (1) prohibits the announcement of fare increases
before their effective date, (2) restricts the use of fares which require that
tickets be purchased by a specified date and (3) bars or limits certain other
pricing activities. The proposed final judgment is subject to approval by the
Court following a statutory notice and comment period, and is similar to a final
judgment entered into by two other airline defendants that was approved by the
Court in November 1993. Delta believes that its compliance with the stipulated
judgment will not have a material adverse effect on its operations.
Western Air Lines Stockholder Litigation
- - ----------------------------------------
As reported on pages 14-15 of the 1993 Form 10-K, on September 19, 1986, a
purported class action lawsuit was filed against Western Air Lines, Inc.
(Western) and certain directors of Western in the Court of Chancery of the State
of Delaware in New Castle County (Chancery Court) on behalf of persons who owned
Western securities on September 9, 1986, the date Western and Delta entered into
a merger agreement providing for the merger (Merger) of a wholly owned
subsidiary of Delta into Western. (The Merger was consummated on December 18,
1986, and Western was merged into Delta on April 1, 1987). On February 25,
1994, the Chancery Court granted Western's and the individual defendants' motion
for summary judgment. The plaintiffs have appealed this ruling to the Delaware
Supreme Court.
Item 5. Other Information
- - -------------------------
Bilateral Agreements
- - --------------------
As discussed on page 3 of the 1993 Form 10-K, the Company's international
operations are governed by bilateral or other agreements between the United
States and the foreign country or countries involved. During March 1994, the
United States signed a memorandum of understanding modifying the bilateral
agreement with Germany. The new four year agreement with Germany may increase
competition for air transportation between the United States and Germany and
beyond Germany by, among other reasons, allowing United Airlines and Lufthansa
to proceed with their agreement to jointly market transatlantic flights as well
as flights within and beyond the United States and Germany.
-25-
<PAGE>
Marketing Arrangements
- - ----------------------
Delta and Virgin Atlantic signed a blocked-seat/code-sharing agreement pursuant
to which Delta will purchase seats on Virgin's flights between (1) London
Heathrow and New York (JFK), Newark, Los Angeles and San Francisco, and (2)
London Gatwick and Boston, Orlando and Miami. The purchased seats will be sold
as Delta services. The blocked-seat/code-sharing arrangement, which is
scheduled to begin on November 1, 1994, is subject to approval of the United
States and the United Kingdom.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits:
11. Statement regarding computation of per share earnings
12. Statement regarding computation of ratio of earnings to fixed charges
15. Letter from Arthur Andersen & Co. regarding unaudited interim financial
information
(b) Reports on Form 8-K:
Delta did not file any Current Reports on Form 8-K during the quarter
ended March 31, 1994.
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<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delta Air Lines, Inc.
----------------------------------
(Registrant)
By: /s/ Thomas J. Roeck, Jr.
----------------------------------
Thomas J. Roeck, Jr.
Senior Vice President - Finance and
Chief Financial Officer
May 16, 1994
----------------
(Date)
-27-
<PAGE>
<TABLE>
<CAPTION>
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11
(In thousands except share and per share amounts)
Three Months Three Months
Ended Ended
March 31, March 31,
1994 1993**
----------- -----------
<S> <C> <C>
PRIMARY:
Weighted average shares outstanding 50,256,860 49,872,116
Additional shares assuming
exercise of stock options * *
----------- -----------
Average shares outstanding as adjusted 50,256,860 49,872,116
=========== ===========
Income (loss) before cumulative effect of
changes in accounting principles $ (77,882) $ (152,315)
Preferred dividends series C (20,125) (20,125)
Preferred dividends series B (7,406) (7,481)
----------- -----------
Income (loss) before cumulative effect of
changes in accounting principles
attributable to primary common shares (105,413) (179,921)
Cumulative effect of changes in accounting principles - -
----------- -----------
Net income (loss) attributable to primary shares $ (105,413) $ (179,921)
=========== ===========
Primary earnings (loss) per share before
cumulative effect of changes in accounting principles $ (2.10) $ (3.61)
Cumulative effect of changes in accounting principles - -
----------- -----------
Primary earnings (loss) per share $ (2.10) $ (3.61)
=========== ===========
FULLY DILUTED:
Weighted average shares outstanding 50,256,860 49,872,116
Additional shares assuming:
Conversion of series C convertible preferred stock 17,490,494 17,490,494
Conversion of series B ESOP convertible
preferred stock 5,911,712 5,941,323
Conversion of 3.23% convertible subordinated notes 10,149,072 -
Exercise of stock options * *
----------- -----------
Average shares outstanding as adjusted 83,808,138 73,303,933
=========== ===========
Income (loss) before cumulative effect of
changes in accounting principles $ (77,882) $ (152,315)
Expenses of 3.23% convertible subordinated
notes net of taxes 7,787 -
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock net of taxes (4,500) (4,453)
----------- -----------
Income (loss) before cumulative effect of
changes in accounting principles (74,595) (156,768)
Cumulative effect of changes in accounting principles - -
----------- -----------
Net income (loss) attributable to fully
diluted common shares $ (74,595) $ (156,768)
=========== ===========
Fully diluted earnings (loss) per common share
before cumulative effect of changes in
accounting principles $ (0.89) $ (2.14)
Cumulative effect of changes in accounting principles - -
----------- -----------
Fully diluted earnings (loss) per common share $ (0.89) $ (2.14)
=========== ===========
*Antidilutive
** Restated as described in Note 1.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11
(In thousands except share and per share amounts)
Nine Months Nine Months
Ended Ended
March 31, March 31,
1994 1993**
----------- -----------
<S> <C> <C>
PRIMARY:
Weighted average shares outstanding 50,210,671 49,773,099
Additional shares assuming
exercise of stock options * *
----------- -----------
Average shares outstanding as adjusted 50,210,671 49,773,099
=========== ===========
Income (loss) before cumulative effect of
changes in accounting principles $ (158,573) $ (421,897)
Preferred dividends series C (60,375) (60,375)
Preferred dividends series B (22,338) (22,440)
----------- -----------
Income (loss) before cumulative effect of
changes in accounting principles
attributable to primary common shares (241,286) (504,712)
Cumulative effect of changes in accounting principles - (587,144)
----------- -----------
Net income (loss) attributable to primary shares $ (241,286) $ (1,091,856)
=========== ===========
Primary earnings (loss) per share before
cumulative effect of changes in accounting principles $ (4.81) $ (10.14)
Cumulative effect of changes in accounting principles - (11.80)
----------- -----------
Primary earnings (loss) per share $ (4.81) $ (21.94)
=========== ===========
FULLY DILUTED:
Weighted average shares outstanding 50,210,671 49,773,099
Additional shares assuming:
Conversion of series C convertible preferred stock 17,490,494 17,490,494
Conversion of series B ESOP convertible
preferred stock 5,920,553 5,944,781
Conversion of 3.23% convertible subordinated notes 10,149,072 -
Exercise of stock options * *
----------- -----------
Average shares outstanding as adjusted 83,770,790 73,208,374
=========== ===========
Income (loss) before cumulative effect of
changes in accounting principles $ (158,573) $ (421,897)
Expenses of 3.23% convertible subordinated
notes net of taxes 23,360 -
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock net of taxes (13,513) (11,824)
----------- -----------
Income (loss) before cumulative effect of
changes in accounting principles (148,726) (433,721)
Cumulative effect of changes in accounting principles - (587,144)
----------- -----------
Net income (loss) attributable to fully
diluted common shares $ (148,726) $ (1,020,865)
=========== ===========
Fully diluted earnings (loss) per common share
before cumulative effect of changes in
accounting principles $ (1.78) $ (5.92)
Cumulative effect of changes in accounting principles - (8.02)
----------- -----------
Fully diluted earnings (loss) per common share $ (1.78) $ (13.94)
=========== ===========
*Antidilutive
**Restated as described in Note 1.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DELTA AIR LINES, INC. EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands)
- - -----------------------------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
March 31, March 31,
1994 1993
------------ -------------
<S> <C> <C>
Earnings (before cumulative effect of accounting changes):
Income (loss) $ (158,573) (421,897)*
Add (deduct):
Income tax provision (110,088) (237,280)
Fixed charges 520,174 457,109
Interest capitalized (26,462) (50,630)
Interest offset on
Guaranteed Serial
ESOP Notes (10,171) (10,520)
------------ -------------
Earnings (loss) as adjusted $ 214,880 (263,218)
============ =============
Fixed charges:
Interest expense $ 228,972 175,822
1/3 of rentals 281,031 270,767
Additional interest on
Guaranteed Serial
ESOP Notes 10,171 10,520
------------ -------------
Total fixed charges $ 520,174 457,109
============ =============
Ratio of earnings to fixed charges -- --
- - ------------------------------------------------------------------------
</TABLE>
Earnings for the nine months ended March 31, 1994 and 1993 were inadequate
to cover fixed charges. Additional earnings of $305,294 for the nine months
ended March 31, 1994 and of $720,327 for the nine months ended March 31, 1993
would have been necessary to bring the ratios to 1.0.
* Restated as described in Note 1.
<PAGE>
ARTHUR ANDERSEN & CO.
EXHIBIT 15
To the Stockholders and
the Board of Directors of
Delta Air Lines, Inc.:
We are aware that Delta Air Lines, Inc. has incorporated by reference in its
Registration Statement Nos. 2-94541, 33-30454, 33-50175 and 33-52045 its Form
10-Q for the quarter ended March 31, 1994, which includes our report dated May
13, 1994 covering the unaudited interim financial information contained therein.
Pursuant to Regulation C of the Securities Act of 1933, that report is not
considered a part of the registration statements prepared or certified by our
firm or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
/s/Arthur Andersen & Co.
----------------------------
Atlanta, Georgia
May 13, 1994
