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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-5424
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DELTA AIR LINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-0218548
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
HARTSFIELD ATLANTA INTERNATIONAL AIRPORT
ATLANTA, GEORGIA 30320
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(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 715-2600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
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COMMON STOCK, PAR VALUE $3.00 PER SHARE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
DEPOSITARY SHARES, EACH REPRESENTING NEW YORK STOCK EXCHANGE
1/1,000 OF A SHARE OF SERIES C
CONVERTIBLE PREFERRED STOCK
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
SERIES C CONVERTIBLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE, LIQUIDATION
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PREFERENCE $50,000 PER SHARE
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(TITLE OF CLASS)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of August 31, 1994, was approximately $2,985,545,000. As of
August 31, 1994, 50,603,888 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II of this Form 10-K incorporate by reference certain information
from the registrant's 1994 Annual Report to Stockholders. Part III of this Form
10-K incorporates by reference certain information from the registrant's
definitive Proxy Statement dated September 13, 1994, for its Annual Meeting of
Stockholders to be held on October 27, 1994.
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DELTA AIR LINES, INC.
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PART I
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ITEM 1. BUSINESS
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General Description
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Delta Air Lines, Inc. ("Delta" or the "Company") is a major air carrier
providing scheduled air transportation for passengers, freight and mail over a
network of routes throughout the United States and abroad. At September 12,
1994, the Company served 153 domestic cities in 43 states, the District of
Columbia, Puerto Rico and the U. S. Virgin Islands, as well as 57 cities in 32
foreign countries.
An important characteristic of Delta's domestic route system is its six hub
airports in Atlanta, Cincinnati, Dallas/Ft. Worth, Los Angeles, Orlando and
Salt Lake City. Each of these hub operations includes Delta flights which
gather and distribute traffic from markets in the geographic region
surrounding the hub to other major cities and to other Delta hubs. These hubs
also provide access to Delta's international hubs at New York-Kennedy Airport
and Portland, Oregon, and its European hub in Frankfurt, Germany.
Delta has significantly expanded its international route structure in
recent years. Operating revenues from the Company's foreign operations were
approximately $2.8 billion, $2.6 billion and $1.9 billion in the years ended
June 30, 1994, 1993 and 1992, respectively. On November 1, 1991, Delta expanded
its foreign operations by purchasing substantially all the transatlantic route
authorities and related beyond rights of Pan American World Airways, Inc.
For the year ended June 30, 1994, passenger revenues accounted for 92% of
Delta's operating revenues. Cargo revenues, which include freight and mail,
accounted for 6% of Delta's operating revenues, and other sources accounted
for 2% of the Company's operating revenues.
Delta's operating results for any interim period are not necessarily
indicative of operating results for an entire year because of seasonal
variations in the demand for air travel. In general, demand for air travel is
higher in the June and September quarters, particularly in international
markets, because there is more vacation travel during these periods than
during the remainder of the year. Demand for air travel, especially by
leisure and other discretionary customers, is also affected by factors such as
general economic conditions and fare levels. The impact of seasonal
variations on Delta's business has increased as a result of the Company's
international expansion.
Delta is incorporated under the laws of the State of Delaware. Its
principal executive offices are located at Hartsfield Atlanta International
Airport, Atlanta, Georgia 30320, and its telephone number is (404) 715-2600.
Regulatory Environment
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While the United States Department of Transportation (the "DOT") and the
Federal Aviation Administration (the "FAA") exercise regulatory authority over
air carriers under the
<PAGE>
Federal Aviation Act of 1958, as amended (the "Act"), most domestic economic
regulation of passenger and freight services was eliminated pursuant to the
Airline Deregulation Act of 1978 and other statutes amending the Act. The DOT
has jurisdiction over international tariffs and pricing; international routes;
and certain consumer protection matters such as advertising, denied boarding
compensation, baggage liability, smoking aboard aircraft and computer
reservations systems. The FAA regulates flying operations generally, including
control of navigable air space, flight personnel, aircraft certification and
maintenance, and other matters affecting air safety. The United States
Department of Justice has jurisdiction over airline mergers and acquisitions.
Because of the economic deregulation of the industry, unrestricted
authority to operate domestic air transportation (including the carriage of
passengers and cargo) is available to any air carrier which the DOT finds "fit"
to operate. Authority to operate international routes continues to be regulated
by the DOT and by the foreign governments involved. International route awards
are also subject to the approval of the President of the United States for
conformance with national defense and foreign policy objectives.
The economic deregulation of the industry permits unfettered competition
with respect to domestic routes, services, fares and rates, and competition on
Delta's routes continues to increase. Except for constraints imposed by the
Act's Essential Air Service provisions which are applicable to certain small
communities, airlines may terminate service to a city without restriction. The
International Air Transportation Competition Act of 1979 extended to
international air transportation certain procompetitive policies applicable to
domestic air transportation.
The FAA has implemented a number of provisions and requirements which are
being incorporated into Delta's maintenance program. These matters relate to,
among other things, inspection and maintenance of aging aircraft, corrosion
control, collision avoidance and windshear detection. Based on its current
implementation schedule, Delta expects to be in compliance with applicable
requirements within the required time periods.
Delta is also subject to various other federal, state, local and foreign
laws and regulations. The United States Postal Service has authority over
certain aspects of the transportation of mail, and rates for the carriage of
domestic mail are determined through negotiations or competitive bidding. The
Communications Act of 1934, as amended, governs Delta's use and operation of
radio facilities. Labor relations in the airline industry are generally governed
by the Railway Labor Act. Environmental matters (including noise pollution and
aircraft emissions) are regulated by various federal, state and local
governmental entities.
Fares and Rates
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Airlines are permitted to set their domestic prices without governmental
regulation, and the industry is characterized by substantial price competition.
With respect to foreign air transportation, the DOT retains authority over
fares, rates and charges, and air carriers are required to file and observe
tariffs covering such transportation. International fares and rates are also
subject to the jurisdiction of the governments of the foreign countries
involved. While air carriers are required to file and adhere to international
fare and rate tariffs, many international
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markets are characterized by substantial commissions, overrides and discounts
to travel agents, brokers and wholesalers.
Delta's financial results in fiscal 1994 were negatively impacted by
discount fare promotions in domestic and international markets, and the
increasing presence of low-cost, low-fare carriers in many domestic markets
served by the Company. These factors resulted in a 1% decrease in the passenger
mile yield in fiscal 1994 compared to fiscal 1993. As low-cost, low-fare
carriers enter new domestic markets, passenger mile yields quickly decline, most
often at a faster pace than traffic is stimulated. By the end of fiscal 1994,
approximately 57% of Delta's domestic origin and destination revenue passenger
miles were in markets also served by low-cost, low-fare carriers.
Delta's financial results in fiscal 1993 were negatively affected by a
change in the airline industry's domestic fare structure for most of the year,
which reduced the number of fare levels and generally lowered fares, a half-off
sale promotion during the September 1992 quarter, and discount fare promotions
in domestic and international markets. These fare initiatives contributed to a
3% decline in the passenger mile yield in fiscal 1993 compared to fiscal 1992.
Delta expects that price competition is likely to continue in domestic and
international markets. If fare reductions are not offset by increases in traffic
or changes in the mix of traffic that improve the passenger mile yield, Delta's
operating results will continue to be negatively affected.
Competition and Route Authority
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All domestic routes served by Delta are subject to competition from both
new and existing carriers, and service over virtually all of Delta's domestic
routes is highly competitive. On most of its principal routes, the Company
competes with at least one, and usually more than one, major airline. Delta also
competes with regional and national carriers, all-cargo carriers, charter
airlines and, particularly on its shorter routes, with surface transportation.
Service over most of Delta's international routes is also highly competitive.
International alliances between foreign and domestic carriers, such as the
marketing and code-sharing arrangements between British Airways Plc and USAir,
Inc., KLM-Royal Dutch Airlines and Northwest Airlines, Inc., and Lufthansa
German Airlines and United Air Lines, Inc., have significantly increased
competition in international markets. Through code-sharing arrangements with
U.S. carriers, British Airways, KLM and Lufthansa have obtained access to
interior U.S. passenger traffic. Similarly, Northwest and United have increased
their ability to sell transatlantic services and destinations to and beyond
European cities served by KLM and Lufthansa.
Delta's flight operations are authorized by certificates of public
convenience and necessity and, to a limited extent, by exemptions issued by the
DOT. The requisite approvals of other governments for international operations
are provided by bilateral agreements with, or permits issued by, foreign
countries. Because international air transportation is governed by bilateral or
other agreements between the United States and the foreign country or countries
involved, changes in United States or foreign government aviation policies could
result in the alteration or
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termination of such agreements, diminish the value of Delta's international
authorities or otherwise affect Delta's international operations. Bilateral
agreements between the United States and various foreign countries served by
Delta are subject to renegotiation from time to time.
Certain Delta international authorities are subject to periodic renewal
requirements. Delta requests extension of these authorities when and as
appropriate. While the DOT usually renews temporary authorities on routes where
the authorized carrier is providing a reasonable level of service, there is no
assurance of this result. Dormant authority may not be renewed in some cases --
especially where another United States carrier indicates a willingness to
provide service.
On April 15, 1992, the DOT granted Delta final authority to serve the
Detroit-London route. Delta's Detroit-London authority is subject to termination
if a court issues a final judgment, not subject to further appeal, holding that
Pan American World Airways, Inc. was not obligated to transfer that route to
Delta.
Code-Sharing
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Delta has entered into marketing agreements with certain foreign carriers
to maintain or improve Delta's access to international markets. Under these dual
designator code-sharing arrangements, Delta and the foreign carrier publish
their respective airline designator codes on a single flight operation, thereby
allowing Delta and the foreign carrier to share costs by providing joint service
with one aircraft rather than operating separate services with two aircraft.
Most of Delta's international code-sharing arrangements operate in discrete
international city pairs. Delta purchases seats on foreign airlines that are
resold as Delta service under Delta's "DL" designator code pursuant to code-
sharing arrangements with Aeromexico, Austrian Airlines, Malev Hungarian
Airlines, Sabena Belgian World Airlines, Swissair and Varig. Delta sells seats
to foreign airlines for sale under those carriers' two-letter designator codes
pursuant to code-sharing arrangements with Aeroflot, Aeromexico, Sabena and
Swissair.
Delta and Virgin Atlantic Airways have entered into a blocked-space, code-
sharing agreement under which Delta would purchase seats on Virgin Atlantic's
flights between (1) London-Heathrow and Los Angeles, New York-Kennedy, Newark
and San Francisco; and (2) London-Gatwick and Boston, Miami and Orlando. The
agreement is subject to DOT approval.
Slot Allocations
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Operations at four major United States and certain foreign airports served
by Delta are regulated by governmental entities through "slot" allocations. Each
slot represents the authorization to land or take off from the particular
airport during a specified time period. In the United States, the FAA regulates
slot allocations at New York-Kennedy Airport, LaGuardia Airport in New York,
National Airport in Washington, D. C. and O'Hare International Airport in
Chicago. The Delta Shuttle requires slot allocations at LaGuardia and National
Airports, as do Delta's other operations at those four airports. Certain foreign
airports, including Delta's European hub in Frankfurt, also have slot
allocations.
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Delta currently has sufficient slot authorizations to operate its existing
flights, and has generally been able to obtain slots to expand its operations
and to change its schedules. There is no assurance, however, that Delta will be
able to obtain slots for these purposes in the future because, among other
reasons, slot allocations are subject to changes in governmental policies.
The Delta Connection
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Delta has marketing agreements with four commuter carriers serving
principally the following regions of the United States: Atlantic Southeast
Airlines, Inc. ("ASA") operates in the Southeast through Atlanta and in the
Southwest through Dallas/Fort Worth; Business Express, Inc. serves the
Northeast; Comair Inc. ("Comair") serves Florida and operates in the Midwest
through Cincinnati; and SkyWest Airlines, Inc. ("SkyWest") serves California and
operates in other western states through Salt Lake City. These carriers, which
are known as "Delta Connection" airlines, use Delta's "DL" code on their flights
and exchange connecting traffic with Delta in the regions served by each
carrier. At June 30, 1994, Delta held equity interests in ASA, Comair Holdings,
Inc. (the parent of Comair) and SkyWest, Inc. (the parent of SkyWest) of 23.3%,
20.6% and 13.6%, respectively.
Computer Reservation System Partnership
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Delta owns 38% of WORLDSPAN, L.P. ("WORLDSPAN"), a Delaware limited
partnership formed to develop, operate and market a computer reservation system
("CRS") for the travel industry. Northwest Airlines, Inc., Trans World Airlines,
Inc. and ABACUS Distribution Systems Pte Ltd. own 32%, 25% and 5%, respectively,
of WORLDSPAN.
CRS services are used primarily by travel agents to book airline, hotel and
car rental reservations and issue airline tickets. CRS services are provided by
several companies in the United States and worldwide. In the United States,
other CRS competitors are SABRE (owned by American Airlines, Inc.), the Covia
Partnership (owned by United Air Lines, Inc., USAir, Inc. and certain foreign
carriers) and System One (owned by Continental Airlines, Inc.). CRS vendors are
subject to regulations promulgated by the DOT.
The CRS industry is highly competitive. Delta believes that WORLDSPAN ranks
third, behind SABRE and the Covia Partnership, in market share among travel
agents in the United States.
Fuel
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Delta's operations are significantly affected by the availability and price
of jet fuel. Based on the Company's fiscal 1994 fuel consumption, a one-cent
change in the average annual price-per-gallon of jet fuel would have caused an
approximately $25 million change in Delta's annual fuel costs. The following
table shows Delta's jet fuel consumption and costs for fiscal years 1990-1994.
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<TABLE>
<CAPTION>
Gallons Percent of
Fiscal Consumed Cost Average Price Operating
Year (Millions) (Millions) Per Gallon Expenses*
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<S> <C> <C> <C> <C>
1990 1,966 $1,233 62.71c 15%
1991 2,060 1,599 77.63 17
1992 2,384 1,482 62.19 13
1993 2,529 1,592 62.95 13
1994 2,550 1,411 55.34 12
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</TABLE>
* Excluding restructuring charges.
Aircraft fuel expense decreased 11% in fiscal 1994 compared to fiscal 1993,
as fuel gallons consumed increased 1% and the average price per fuel gallon
decreased 12% to 55.34 cents, Delta's lowest average price per fuel gallon for
any fiscal year since fiscal 1989.
Changes in fuel prices have industry-wide impact and benefit or harm
Delta's competitors as well as Delta. Accordingly, lower fuel prices may be
offset by increased price competition and lower revenues for all air carriers.
Moreover, there can be no assurance that Delta will be able to increase its
fares in response to any future increases in fuel prices.
Delta purchases most of its jet fuel from petroleum refiners under
contracts which permit the refiners to set the price, and give the Company the
right to terminate upon short notice if the price is unacceptable. The Company
also purchases aircraft fuel on the spot market, from off-shore sources and
under contracts which establish the price based on various market indices.
Although Delta is currently able to obtain adequate supplies of jet fuel,
it is impossible to predict the future availability or price of jet fuel.
Political disruptions in the oil producing countries, changes in government
policy concerning aircraft fuel production, transportation or marketing, changes
in aircraft fuel production capacity, environmental concerns, and other
unpredictable events may result in fuel supply shortages and fuel price
increases in the future. Such shortages and price increases could have a
material adverse effect on Delta's business.
The Omnibus Budget Reconciliation Act imposes a 4.3 cents per gallon tax on
commercial aviation jet fuel purchased for use in domestic operations, effective
October 1, 1995. Based on Delta's fiscal 1994 domestic fuel requirement of 1.9
billion gallons, the new fuel tax, when effective, is expected to increase
Delta's operating expenses by approximately $82 million annually.
Leadership 7.5
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On April 28, 1994, Delta announced "Leadership 7.5," a three-year plan with
the goal of reducing the Company's annual operating expenses by approximately $2
billion by the end of the June 1997 quarter. Delta has established operating
cost per available seat mile ("unit cost") goals
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of 8.6 cents by the June 1995 quarter, 8.0 cents by the June 1996 quarter and
7.5 cents by the June 1997 quarter. These unit cost goals reflect the phase-in
of the approximately $2 billion in targeted cost savings, exclude restructuring
and other nonrecurring charges, and assume other costs and operating capacity
remain at calendar 1993 levels. To the extent that other costs increase, Delta
will seek additional cost reductions to achieve its goals.
The Leadership 7.5 program includes planned workforce reductions of 12,000
to 15,000 jobs. Delta is offering voluntary early retirement incentives, leaves
of absence and severance programs, but furloughs of personnel will also be
necessary to achieve these reductions.
The support and participation of the Air Line Pilots Association ("ALPA"),
which represents Delta pilots, is critical to the success of Leadership 7.5. The
Company is seeking $320 million to $340 million in annual productivity
improvements and wage and benefit reductions from ALPA in connection with
contract negotiations expected to commence in November 1994.
Delta's cost reduction and unit cost goals under Leadership 7.5 are
aggressive, and no assurance can be given that Delta will achieve these goals.
Additional information regarding Leadership 7.5 is set forth under
"Operational Review - Leadership 7.5" on pages 4-5 of Delta's 1994 Annual
Report to Stockholders, and is incorporated herein by reference.
Information Technology Joint Venture
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On August 23, 1994, Delta and AT&T Global Information Solutions ("AT&T")
announced a memorandum of understanding to form a joint venture to provide
certain information technology services and products to Delta and other
companies in the travel and transportation industries. The memorandum of
understanding contemplates that Delta and AT&T will each own 50% of the joint
venture, which would manage Delta's computing and communications requirements
except for the Company's reservation and related systems. The establishment of
the joint venture is subject to the negotiation and completion of definitive
documents.
Personnel
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At June 30, 1994, Delta employed 71,412 active personnel, including 5,817
temporary and part-time personnel, compared to 73,533 active personnel,
including 5,809 temporary and part-time personnel, at June 30, 1993. This
reduction was primarily due to an early retirement program accepted by
approximately 1,500 employees effective November 1, 1993. Delta's Leadership 7.5
program includes planned workforce reductions of 12,000 to 15,000 jobs. See
"Leadership 7.5" above.
Approximately 13% of Delta's personnel in the United States are represented
by unions. The following table presents certain information concerning Delta's
domestic collective bargaining agreements.
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<TABLE>
<CAPTION>
Approximate
Number of Contract
Personnel Amendable
Personnel Group Represented Union Date
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<S> <C> <C> <C>
Pilots 9,100 Air Line Pilots 1/1/95
Association
Flight 170 Professional Airline 1/1/95
Superintendents Flight Control
Association
</TABLE>
Approximately 3,700 of Delta's personnel are based outside the United
States. Delta personnel in certain foreign countries, including most of Delta's
personnel in Germany, are represented by labor organizations.
The Company implemented a 5% salary reduction for domestic non-contract
personnel effective February 1, 1993. During fiscal 1994, the Professional
Airline Flight Control Association ("PAFCA") agreed to a 5% salary reduction but
ALPA did not. Subject to the completion of a definitive agreement, ALPA has
agreed to defer a 2% pay raise originally scheduled to become effective
August 1, 1994 for one year, following which time ALPA would have the right to
make that pay raise retroactive to its original effective date.
Delta's collective bargaining agreements with ALPA and PAFCA become
amendable January 1, 1995, and negotiations are expected to begin in November
1994. The outcome of these negotiations cannot presently be determined.
Environmental Matters
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The Airport Noise and Capacity Act of 1990 (the "ANCA") requires the phase-
out of Stage 2 aircraft by December 31, 1999, subject to certain exceptions. In
1991, the FAA issued regulations which implement the ANCA by requiring air
carriers to reduce (by modification or retirement) the number of Stage 2
aircraft operated by 25% by December 31, 1994, 50% by December 31, 1996, 75% by
December 31, 1998, and 100% by December 31, 1999. Alternatively, a carrier may
satisfy the regulations by operating a fleet that is at least 55%, 65%, 75% and
100% Stage 3 by the respective dates set forth in the preceding sentence.
At June 30, 1994, Delta operated 184 Stage 2 aircraft, constituting 33% of
the Company's fleet. Accordingly, Delta anticipates that it will be able to
comply with the requirements for December 31, 1994, by operating a fleet
comprised of at least 55% Stage 3 aircraft. With respect to the later compliance
deadlines, Delta has not yet determined which alternative it will select.
The ANCA recognizes the rights of operators of airports with noise problems
to implement local noise abatement procedures so long as such procedures do not
interfere unreasonably with
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interstate or foreign commerce or the national air transportation system. It
generally provides that local noise restrictions on Stage 3 aircraft first
effective after October 1, 1990, require FAA approval, and establishes a
regulatory notice and review process for local restrictions on Stage 2
aircraft first proposed after October 1, 1990. While Delta has had sufficient
scheduling flexibility to accommodate local noise restrictions in the past,
the Company's operations could be adversely impacted if locally-imposed
regulations become more restrictive or widespread.
The European Union has adopted a uniform policy requiring member states to
phase-out Stage 2 aircraft. Under the policy provisions, the phase-out of Stage
2 aircraft will begin on April 1, 1995, and will extend for seven years. Each
Stage 2 aircraft will be assured a 25 year operating life, but not extending
beyond April 1, 2002. Delta anticipates it will be able to comply with this
Stage 2 aircraft phase-out program, which will apply at all airports in the
member states. Other local European airport regulations which penalize or
restrict operations by Stage 2 aircraft have not in the past had an adverse
effect on Delta's operations; Delta's operations could be adversely impacted,
however, if such regulations become more restrictive or widespread.
The United States Environmental Protection Agency (the "EPA") is authorized
to regulate aircraft emissions. The engines on Delta's aircraft comply with the
applicable EPA standards.
Delta has been identified by the EPA as a potentially responsible party (a
"PRP") with respect to the following federal Superfund Sites: the Operating
Industries, Inc. Site in Monterey Park, California; and the Peak Oil Site in
Tampa, Florida. In addition, Delta is a third party defendant in United States
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of America v. J.B. Stringfellow, Jr., a lawsuit involving the cleanup of the
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Stringfellow Superfund Site in Los Angeles, California. Delta's alleged
volumetric contribution to these sites is limited. Delta is also the subject of
an administrative enforcement action brought by the Georgia Environmental
Protection Division (the "Georgia EPD") concerning alleged violations of certain
air permitting regulations and other provisions of the Clean Air Act and the
Georgia air quality rules at Delta's aircraft maintenance facility at Hartsfield
Atlanta International Airport. Delta is negotiating a consent order with the
Georgia EPD, which has proposed a monetary penalty of $315,000 and an
unspecified monetary settlement equal to Delta's economic benefit from its
alleged noncompliance. Management presently believes that the resolution of
these matters is not likely to have a material adverse effect on the Company's
consolidated financial condition, results of operations or liquidity.
Frequent Flyer Program
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Delta, like other major airlines, has established a Frequent Flyer Program
offering incentives to maximize travel on Delta. This program allows
participants to accrue mileage for award travel while flying on Delta, the Delta
Connection carriers and participating airlines. Mileage credit may also be
accrued for the use of certain services offered by Frequent Flyer Program
partners such as hotels, car rental agencies and credit card companies. Delta
reserves the right to terminate the program with six months advance notice, and
to change the program's terms and conditions without notice.
Mileage credits earned can be redeemed for free, discounted or upgraded
travel, for membership in Delta's Crown Room Club and for other Frequent Flyer
Program partner awards.
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Once issued, modification or reissuance of an award is limited. Travel awards
are subject to transfer restrictions and, in most cases, blackout dates and
capacity controlled seating.
As of June 30, 1992, a participant in the Frequent Flyer Program generally
became eligible for a free travel award after accruing 40,000 miles, and for two
free travel awards after accruing 60,000 miles. Delta subsequently modified the
Frequent Flyer Program by reducing the number of miles required to become
eligible for a free travel award to 30,000 effective October 1, 1992 and 25,000
effective May 1, 1995. Delta estimates the potential number of roundtrip flight
awards outstanding to be 3.2 million at June 30, 1992, 5.0 million at June 30,
1993 and 7.9 million at June 30, 1994 (based on program accounts with balances
in excess of 40,000 miles, 30,000 miles and 25,000 miles, respectively). Of
these earned awards, Delta expects up to approximately 2.4 million, 3.3 million
and 5.1 million, respectively, to be redeemed. The difference between the
roundtrip awards outstanding and the awards expected to be redeemed is the
estimate, based on historical data, of awards which will (1) never be redeemed;
(2) be redeemed for something other than a free trip; or (3) be redeemed on
another carrier participating in the Frequent Flyer Program. Accounts with
balances in excess of 40,000 miles represented 41% of the total mileage balance
of all program participants at June 30, 1992. Accounts with balances in excess
of 30,000 miles represented 52% of the total mileage balance of all participants
at June 30, 1993. Accounts with balances in excess of 25,000 miles represented
61% of the total mileage balance of all participants at June 30, 1994.
Delta accounts for its Frequent Flyer Program obligations by recording the
estimated incremental cost associated with the potential flight awards as a
liability and passenger service expense. Delta monitors changes in the potential
free travel awards under the program, and the liability and appropriate expense
account balances are adjusted as necessary. The estimated incremental cost
associated with a potential flight award is based on Delta's system average cost
per passenger for fuel; food and food supplies; passenger insurance, injuries,
losses and damages; interrupted trips and oversales; porter service; ticket
forms; bag tags; boarding forms; in-flight entertainment; and customs. The trip
length is determined by calculating the average trip length to the various award
destinations weighted by the historical number of redemptions for each
destination. Delta does not record a liability for mileage earned by
participants who have not reached the level to become eligible for a free travel
award. Delta believes this exclusion is immaterial and appropriate because the
large majority of these participants are not expected to earn a free flight
award. Delta does not account for the redemption of non-travel awards since the
cost of these awards to Delta is negligible. At June 30, 1992, 1993 and 1994,
the accrued liability was $45.7 million, $69.0 million and $95.0 million,
respectively. The $95.0 million accrued liability at June 30, 1994 includes a
$14.0 million one-time charge in fiscal 1994 related to Frequent Flyer Program
changes that will become effective May 1, 1995.
Frequent Flyer Program participants flew 3.1 million, 4.5 million and 5.7
million free round-trips in fiscal years 1992, 1993 and 1994, respectively.
These round-trips accounted for approximately 5%, 6% and 7% of the total
passenger miles flown for the respective periods. Delta believes that the low
percentage of free passenger miles, its load factor and the restrictions applied
to free travel awards minimize the displacement of revenue passengers.
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Transactions with Pan Am Corporation
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Asset Purchase Agreement. Pursuant to an asset purchase agreement dated
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July 27, 1991, as amended (the "Asset Purchase Agreement"), with Pan Am
Corporation and certain of its subsidiaries, debtors-in-possession under Chapter
11 of the Bankruptcy Code ("Pan Am"), Delta purchased certain assets relating to
Pan Am's Boston-New York-Washington, D. C. Shuttle (the "Shuttle Assets") and
route authorities to Europe, Asia and Africa (the "North Atlantic Assets"). The
purchased assets included (1) substantially all of Pan Am's then-existing
transatlantic route authorities and related beyond rights; (2) certain take-off
and landing authorizations and slots; (3) equity interests in three used
A310-200 aircraft as well as certain aircraft spare engines and spare parts; and
(4) leasehold interests in certain airport facilities.
On September 1, 1991, Delta acquired the Shuttle Assets and began operating
the Delta Shuttle between Boston and New York and between Washington, D. C.
and New York. On November 1, 1991, Delta purchased the North Atlantic Assets
and started service between New York-Kennedy Airport and 15 nonstop
transatlantic destinations; between Miami and London; between Washington,
D.C. and Frankfurt; and between Frankfurt and nine nonstop destinations in
Europe, the Middle East and India.
Delta's purchase price under the Asset Purchase Agreement was $416 million,
subject to certain adjustments. Under the Asset Purchase Agreement, Delta
also assumed certain liabilities, including $66 million in mortgages on
acquired assets and up to $100 million of Pan Am's passenger tickets under
certain circumstances. In connection with these asset acquisitions, Delta
hired approximately 7,800 Pan Am personnel and entered into operating leases
for 42 used aircraft.
Participation in Plan of Reorganization. Pursuant to a letter dated
---------------------------------------
August 11, 1991, as amended on October 22, 1991 (the "Letter Agreement"), among
Delta, Pan Am and the Official Committee of Unsecured Creditors of Pan Am (the
"Creditors Committee"), Delta agreed, subject to certain terms and conditions,
to participate in a plan of reorganization for Pan Am, to provide certain
debtor-in-possession financing (the "DIP Loan") to Pan Am prior to the effective
date of Pan Am's proposed plan of reorganization and to amend the Asset Purchase
Agreement in certain respects (including increasing the purchase price
thereunder to the purchase price indicated above).
On December 1, 1991, Delta advised Pan Am that it could not agree to Pan
Am's request to provide additional financing to Pan Am prior to the effective
date of Pan Am's proposed plan of reorganization. Pan Am ceased operations on
December 4, 1991, and its proposed plan of reorganization before the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court") was not confirmed. Pan Am is liquidating its assets.
The $115 million principal amount of the DIP Loan, plus accrued interest of
$30 million, is outstanding and reflected as an asset in Delta's Consolidated
Balance Sheets as of June 30, 1994. These amounts are secured by a lien on
substantially all of Pan Am's remaining assets, but are subject to prior liens
of approximately $60 million in favor of the Pan Am Shuttle bankruptcy estate
and certain other liens on specific assets. As a result of the sale of Pan
Am's assets, Delta
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<PAGE>
expects Pan Am will have sufficient funds to repay in full these amounts due
Delta under the DIP Loan, although there can be no assurance this will be the
case. Delta believes the book value of the DIP Loan as recorded in the
Company's Consolidated Balance Sheets approximates its fair value.
On February 24, 1993, Delta filed a motion requesting the Bankruptcy Court
to order Pan Am to repay to Delta the outstanding principal amount of the DIP
Loan plus certain accrued interest. Pan Am and the Creditors Committee opposed
Delta's motion, and filed a cross-motion requesting the Bankruptcy Court to
provide for the repayment of the DIP Loan, if at all, at the conclusion of the
lawsuit discussed below filed against Delta by Pan Am, the Creditors Committee
and the Ad Hoc Committee of Administrative and Priority Creditors of Pan Am (the
"Ad Hoc Committee"). On May 20, 1993, the Bankruptcy Court consolidated these
motions with the lawsuit described in the first three paragraphs under
"Litigation Relating to Delta's Participation in Pan Am's Plan of
Reorganization" below. Delta appealed this ruling to the United States District
Court for the Southern District of New York (the "District Court") which, on
December 27, 1993, remanded this matter to the Bankruptcy Court for (1) a
statement of reasons for the Bankruptcy Court's ruling; and (2) reconsideration.
The Bankruptcy Court has not yet taken any action on this remand.
CRAF. To resolve certain claims against Pan Am by the United States Air
----
Force (the "Air Force") related to Pan Am's participation in the Civil Reserve
Air Fleet Enhancement Program (the "CRAF Program"), Delta entered into an
agreement in principle dated October 17, 1991, with the Air Force. Under the
agreement in principle, Delta committed to the CRAF Program, for five years,
aircraft having a certain point value under the CRAF Program. This commitment is
currently being met by Delta's agreeing to make available 43 of its
international-range aircraft (which will be reduced to 26 aircraft as of October
1, 1994) for use by the military under certain stages of readiness related to
national emergencies.
Litigation Relating to Delta's Participation in Pan Am's Plan of
----------------------------------------------------------------
Reorganization. On March 6, 1992, Pan Am, the Creditors Committee and the Ad
- --------------
Hoc Committee filed a consolidated amended complaint (the "Complaint") in the
Bankruptcy Court 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 Complaint also asserts, among other things, that Delta induced Pan
Am and the Creditors Committee to approve the sale to Delta of the Shuttle
Assets and the North Atlantic Assets in exchange for Delta's commitment to
participate in the proposed plan of reorganization; that once it acquired the
Shuttle Assets and the North Atlantic Assets, Delta, in bad faith, refused to
participate in the plan of reorganization; that Delta erected substantial
obstacles to the successful completion of the plan of reorganization; that
Delta failed to provide all the financing it committed to provide and delayed
making known its decision not to participate in the plan of reorganization
until the last possible moment, thereby knowingly precipitating Pan Am's
shutdown; that, following the Bankruptcy Court's approval of the sale of the
Shuttle Assets and North Atlantic Assets, Delta controlled Pan Am and was an
active participant in every material decision concerning Pan Am's operations,
including the development of a business plan for reorganized Pan Am; and that,
to the degree there was any deterioration of
-12-
<PAGE>
the business plan for reorganized Pan Am, Delta either caused or materially
contributed to such deterioration. In the Complaint, the plaintiffs seek 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 DIP Loan; to impose a constructive trust for the benefit of Pan Am's
creditors on the profits Delta receives or should have received from the Shuttle
Assets and the North Atlantic Assets; 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 Bankruptcy Court deems appropriate. In addition,
in the Complaint, the Creditors Committee seeks, 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.
On April 6, 1992, Delta filed its answer denying liability under the
Complaint and asserting various affirmative defenses. Additionally, Delta filed
counterclaims against the Creditors Committee, its individual members and Pan
Am. Delta's counterclaims allege, among other things, that the Creditors
Committee and its members (1) violated their duty of good faith and fair dealing
to Delta by engaging in destructive and manipulative acts which undermined Pan
Am's proposed reorganization; and (2) interfered improperly with Delta's
agreements with Pan Am. In its counterclaims against the Creditors Committee and
its members, Delta is seeking compensatory and punitive damages in an amount to
be determined at trial. In its counterclaims against Pan Am, Delta is seeking
actual damages for Pan Am's failure to pay Delta amounts owed, including the DIP
Loan. Pan Am filed an answer denying liability to Delta; the Creditors Committee
and its members filed a motion to dismiss Delta's counterclaims. On November 5,
1992, the Bankruptcy Court denied the motion to dismiss Delta's counterclaims
against the Creditors Committee, but dismissed Delta's counterclaims against the
individual members of the Creditors Committee. Delta appealed this dismissal to
the District Court which, on August 20, 1993, dismissed Delta's appeal as not
then appealable.
On December 23, 1993, the District Court granted Delta's motion requesting
that Court (before which are pending the two lawsuits filed against Delta by
former Pan Am employees which are described below), rather than the Bankruptcy
Court, to conduct the trial of this action. 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. 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 liability issues
(but not possible damages) in this lawsuit occurred between May 4, 1994, and
June 10, 1994. The District Court has not yet issued its decision or indicated
when such a decision may be forthcoming.
Several other legal actions relating to Delta's participation in Pan Am's
proposed plan of reorganization are also pending including, among others, the
following actions. Pan Am, which has been sued by the Air Force for, among other
things, $382.4 million for Pan Am's alleged breach of its obligations under the
CRAF Program, has filed a third party complaint in the Bankruptcy Court against
Delta alleging that, to the extent the Air Force has a valid claim against Pan
Am, Pan Am is entitled to recover from Delta such amounts as are required to
satisfy any
-13-
<PAGE>
such claim. On April 6, 1992, Delta filed its answer denying liability under Pan
Am's third party complaint and asserting various affirmative defenses.
Additionally, Delta filed a counterclaim against Pan Am and a third party
complaint against the Creditors Committee and its individual members. Delta's
counterclaim and third party complaint in this case are similar to Delta's
counterclaims against Pan Am, and the Creditors Committee and its members,
respectively, described in the second preceding paragraph. Pan Am filed an
answer denying liability to Delta; the Creditors Committee and its members filed
a motion to dismiss Delta's third party complaint. On November 5, 1992, the
Bankruptcy Court denied the motion to dismiss Delta's third party complaint
against the Creditors Committee, but dismissed Delta's third party complaint
against the individual members of the Creditors Committee. Delta appealed this
dismissal to the District Court which, on August 20, 1993, dismissed Delta's
appeal as not then appealable. On September 16, 1994, Pan Am objected to the
assertions of the Air Force that certain of its alleged claims against Pan Am
are secured or are otherwise entitled to priority treatment, and moved for
partial summary judgment with respect to such assertions.
On March 12, 1992, a purported class action complaint was filed against
Delta in the District Court 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. The
former employees, who have requested and are entitled to a jury trial, make
allegations and claims similar to those asserted in the Complaint described
above. In their complaint, the former employees seek damages of at least $1.1
billion for loss of employment, loss of continued wages and benefits with a
reorganized Pan Am and out-of-pocket losses; costs and attorneys' fees; and
other unspecified relief. On July 8, 1992, Delta filed its answer denying
liability in this lawsuit and asserting various affirmative defenses.
Additionally, Delta filed a third party complaint against the Creditors
Committee, its individual members and Pan Am alleging that these parties are
liable to Delta for any amounts that plaintiffs in this lawsuit may recover from
Delta. Pan Am filed an answer denying liability to Delta; the Creditors
Committee and its members filed a motion to dismiss Delta's third party
complaint. On December 4, 1992, the District Court dismissed Delta's third party
complaint against the Creditors Committee and its members, but granted Delta
permission to replead its claims. On January 25, 1993, Delta filed an amended
third party complaint against the Creditors Committee and its members, who filed
a motion to dismiss Delta's amended claims. The District Court (1) denied
plaintiffs' motion for class action certification on March 10, 1993 and
reaffirmed this order on August 6, 1993; and (2) denied the motion by the
Creditors Committee and its members to dismiss Delta's amended third party
complaint on August 18, 1993. On September 24, 1993, the Creditors Committee and
its members answered Delta's amended third party complaint, denying liability to
Delta and asserting various affirmative defenses. On December 14, 1993, the
District Court denied plaintiffs' motion requesting the District Court to
reconsider its order denying plaintiffs' motion for class action certification
or, alternatively, to permit an immediate appeal of that order. On February 28,
1994, Delta filed a motion for summary judgment on all of plaintiffs' claims in
this lawsuit; the plaintiffs are opposing this motion. 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 this
lawsuit; Delta is opposing these motions. The District Court has not yet ruled
on these motions or scheduled the trial of this lawsuit.
-14-
<PAGE>
On September 10, 1992, a lawsuit was filed against Delta in the District
Court by approximately 120 former Pan Am pilots who make allegations and claims
similar to those asserted in the purported class action complaint by former Pan
Am employees described in the preceding paragraph. In their complaint, the
plaintiffs, who have requested and are entitled to a jury trial, seek
unspecified damages for lost wages and benefits and out-of-pocket losses; costs
and attorneys' fees; and other unspecified relief. On January 8, 1993, Delta
filed its answer denying liability in this lawsuit and asserting various
affirmative defenses. Additionally, Delta filed a third party complaint against
the Creditors Committee and its individual members alleging that these parties
are liable to Delta for any amounts that plaintiffs in this lawsuit may recover
from Delta. The Creditors Committee and its members filed a motion to dismiss
Delta's third party complaint. On August 18, 1993, the District Court denied
this motion. On September 24, 1993, the Creditors Committee and its members
answered Delta's third party complaint, denying liability to Delta and asserting
various affirmative defenses. On February 28, 1994, Delta filed a motion for
summary judgment on all of plaintiffs' claims in this lawsuit; the plaintiffs
are opposing this motion. 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 this lawsuit; Delta is opposing these
motions. The District Court has not yet ruled on these motions or scheduled the
trial of this lawsuit.
A purported class action complaint was commenced against Delta in the
Supreme Court of the State of New York, County of New York, on behalf of
participants of Pan Am's WorldPass Frequent Flyer Program ("WorldPass") who
elected to obtain Pan Am WorldPass travel certificates rather than to transfer
their accumulated miles into Delta's Frequent Flyer Program. The WorldPass
participants are seeking unspecified damages, costs and attorneys' fees, and
other unspecified relief. Delta has removed this action to the Bankruptcy Court.
On April 6, 1992, Delta filed its answer denying liability in this lawsuit and
asserting various affirmative defenses.
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. It is
possible that other actions and claims will be filed against Delta relating to
its participation in Pan Am's proposed plan of reorganization.
ITEM 2. PROPERTIES
- ------ ----------
Flight Equipment
- ----------------
Information relating to Delta's aircraft fleet is set forth under
"Operational Review - Aircraft Fleet" on page 6, and in Notes 2 and 6 of the
Notes to Consolidated Financial Statements on pages 28 and 31, respectively, of
Delta's 1994 Annual Report to Stockholders, and is incorporated herein by
reference.
-15-
<PAGE>
Ground Facilities
- -----------------
Delta leases most of the land and buildings that it occupies. The Company's
largest aircraft maintenance base, various computer, cargo, flight kitchen and
training facilities and most of its principal offices are located at or near
Hartsfield Atlanta International Airport, in Atlanta, Georgia, on land leased
from the City of Atlanta under long-term leases. Delta owns a portion of its
principal offices, its Atlanta reservations center and other improved and
unimproved real property in Atlanta, as well as a limited number of radio
transmitting and receiving sites and certain other facilities.
Delta leases ticket counter and other terminal space, operating areas and
air cargo facilities in most of the airports which it serves. These leases
generally run for periods of from less than one year to thirty years or more,
are based on fixed rental charges per square foot of floor space occupied, and
contain provisions for periodic adjustment of rates. At most airports which it
serves, Delta has entered into use agreements which provide for the non-
exclusive use of runways, taxiways, and other facilities; landing fees under
these agreements normally are based on the number of landings and weight of
aircraft. The Company also leases aircraft maintenance facilities at certain
airports, generally under long-term leases which cover the cost of providing,
operating and maintaining such facilities. In addition, Delta leases marketing,
ticket and reservations offices in certain major cities which it serves; these
leases are normally for shorter terms than the airport leases. Additional
information relating to Delta's ground facilities is set forth in Note 6 of the
Notes to Consolidated Financial Statements on page 31 of Delta's 1994 Annual
Report to Stockholders, and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
- ------ -----------------
On September 19, 1986, a purported class action lawsuit was filed against
Delta, Western Air Lines, Inc. ("Western") and certain directors of Western in
the Court of Chancery of the State of Delaware in New Castle County (the
"Chancery Court") on behalf of persons who owned Western securities on
September 9, 1986, the date Western and Delta entered into a merger agreement
(the "Merger Agreement") providing for the merger (the "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.) In
their amended complaint, the plaintiffs, who are seeking unspecified
compensatory and rescissionary damages, allege, among other things, that the
consideration paid in the Merger was grossly inadequate, that Western's
directors breached their fiduciary duties to Western stockholders by approving
the Merger despite their knowledge that Western's common stock had a value of
up to more than double the merger price, by agreeing to a "lock-up option" and
a "no shop/no talk" clause in the Merger Agreement, by acquiescing in certain
"golden parachute" arrangements and by failing to disclose certain information
concerning the value of Western, and that Delta aided and abetted such
breaches of duty. On September 11, 1989, the Chancery Court granted in part
and denied in part Western's and the individual defendants' motions to dismiss
the amended complaint, and granted Delta's motion to dismiss the amended
complaint. The Chancery Court ruled that the amended complaint stated two
claims against Western and the individual defendants that could not be
resolved on a motion to dismiss: whether Western and the individual
defendants failed (1) to act in the best interests of
-16-
<PAGE>
Western's stockholders in conducting the sale of Western; and (2) to disclose
certain information concerning the value of Western. On November 23, 1992,
Western and the individual defendants filed a motion for summary judgment, which
the Chancery Court granted on February 25, 1994. The plaintiffs have appealed
this ruling to the Delaware Supreme Court. Delta believes that the defendants'
conduct has been entirely proper and lawful, and it intends to continue to
defend this lawsuit vigorously.
In January 1987, the Association of Flight Attendants ("AFA"), the
collective bargaining agent for the flight attendants at Western prior to the
merger of Western into Delta on April 1, 1987 (the "Second Merger"), filed suit
against Western in the United States District Court for the District of
Columbia. The AFA suit sought to compel Western to arbitrate a grievance
alleging that Western breached the AFA-Western collective bargaining agreement
by not requiring Delta (1) to be bound by that agreement; and (2) to recognize
the AFA as representing the former Western flight attendants after the Second
Merger. The District Court dismissed the action on the grounds that the
grievance raised representation matters which under the Railway Labor Act are
within the exclusive jurisdiction of the National Mediation Board (which
subsequently ruled that the representation certification of the AFA at Western
terminated on April 1, 1987). The AFA appealed to the United States Court of
Appeals for the District of Columbia, which reversed the District Court's
dismissal of the AFA's action to compel arbitration, ruling (1) that the AFA's
claim based on any right of continued representation is moot; (2) that the AFA's
claim for damages is not moot; and (3) that an arbitrator has authority under
the Railway Labor Act to adjudicate the AFA's grievance to the extent it seeks
damages for Western's alleged breach of the collective bargaining agreement.
Delta then filed a petition for certiorari in the United States Supreme Court
which, on April 2, 1990, refused to review the Court of Appeals' decision. As a
result, arbitration of the AFA's grievance will proceed and, if the AFA's claim
is upheld, damages could be assessed against Delta. Delta has a number of
defenses which it considers to be valid, and will vigorously assert these
defenses in the arbitration.
On May 16, 1994, a purported class action complaint was filed in the United
States District Court for the Northern District of Georgia against Delta and
certain Delta officers in their capacity as members of the Administrative
Committee responsible for administering certain Company employee benefit
plans. The plaintiffs, who have requested a jury trial, are 21 former Delta
employees who seek to represent the class consisting of the approximately
1,800 former non-pilot employees of Delta who retired from active service
between July 23, 1992 and January 1, 1993. The complaint alleges that Delta
violated the Employee Retirement Income Security Act by (1) modifying health
benefits for this group of retirees in spite of alleged oral and written
representations that it would not make any such modifications; (2) breaching
its fiduciary duties and interfering with plaintiffs' benefits by making such
modifications and by allegedly giving false assurances that no enhanced
retirement benefit incentives were being considered or would be offered in the
future; and (3) discriminating against certain benefit plan participants. The
complaint also alleges, among other things, that Delta breached a contract
with plaintiffs by amending Delta's pass policy to suspend the flight
privileges of a retiree during any period such retiree is employed by certain
other airlines. Plaintiffs are seeking injunctive relief, unspecified
compensatory and punitive damages, costs and attorneys' fees, and such other
relief as the District Court deems appropriate. On July 18, 1994, Delta filed
its answer denying liability under the complaint and asserting various
affirmative defenses. Delta intends to defend this matter vigorously.
-17-
<PAGE>
Delta is also a defendant in certain other legal actions relating to
alleged employment discrimination practices, other matters concerning past and
present employees, environmental issues and other matters concerning Delta's
business. Although the ultimate outcome of these matters and the matters
discussed above in this item 3 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.
For a discussion of certain environmental matters and litigation relating
to Delta's participation in Pan Am's proposed plan of reorganization, see "ITEM
1. BUSINESS - Environmental Matters" on pages 8-9, and "ITEM 1. BUSINESS -
Transactions with Pan Am Corporation" on pages 11-15, respectively, of this Form
10-K. For a discussion of the settlement of certain antitrust litigation, see
"Capitalization, Financing and Liquidity - Fiscal Year 1994 -Antitrust
Settlement" on page 14 of Delta's 1994 Annual Report to Stockholders, which is
incorporated herein by reference.
On December 21, 1992, 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"), a computerized fare publishing service owned by
domestic and international air carriers. The complaint alleges that the
defendants and unnamed co-conspirators violated Section 1 of the Sherman Act
by engaging in price fixing and by operating the ATP's computerized fare
exchange system in a manner that unreasonably restrains competition in the
domestic air passenger transportation system. In March 1994, Delta, the ATP
and 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. On
August 10, 1994, the District Court approved the final judgment, which is
similar to a final judgment entered into by the two other airline defendants
that was approved by the District Court in November 1993. Delta believes that
its compliance with the stipulated final judgment will not have a material
adverse effect on its operations.
The Attorneys General of several States are investigating whether several
major airlines, including Delta, have engaged in price fixing and other
unlawful restraints of trade. The States have issued a subpoena to the
Company and other major airlines requiring them to provide certain information
and documents. Delta and other airlines have met with the States to discuss a
possible settlement of the States' potential claims, but there can be no
assurance that a settlement will be reached. Delta believes that its pricing
activities are legal and that it has not violated the antitrust laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
Not applicable.
-18-
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
Certain information concerning Delta's executive officers follows. All
positions shown are with Delta. There are no family relationships between any
of Delta's executive officers.
Ronald W. Allen Mr. Allen has been Chairman of the Board and Chief
Executive Officer since August 1, 1987. On March 1,
1993, Mr. Allen was elected to the additional office
of President, a position he also held from August 9,
1990 through April 30, 1991. He was President and
Chief Operating Officer from November 1983 through
July 1987. Age 52.
H. C. Alger Executive Vice President - Operations, March 1993 to
date; Senior Vice President - Operations, February
1992 through February 1993; Vice President - Flight
Operations, August 1987 through January 1992. Age 56.
W. Martin Braham Senior Vice President - Airport Customer Service,
March 1993 to date; Vice President - Airport Customer
Service, August 1992 through February 1993; Assistant
Vice President - International Airport Customer
Service, February 1992 through July 1992; Assistant
Vice President - Stations, August 1991 through January
1992; Director - Stations, August 1989 through July
1991. Age 49.
Robert W. Coggin Senior Vice President - Marketing, August 1992 to
date; Senior Vice President - Marketing Development
and Planning, February 1992 through July 1992; Vice
President - Marketing Development and Planning,
November 1991 through January 1992; Vice President -
Marketing Development, November 1988 through October
1991. Age 58.
Robert S. Harkey Senior Vice President - General Counsel, November 1990
to date; Vice President - General Counsel, November
1988 through October 1990. Age 53.
Russell H. Heil Senior Vice President - Technical Operations, February
1992 to date; Executive Vice President - Technical
Operations, May 1991 through January 1992; Executive
Vice President - Operations and Personnel, August 16,
1990 through April 1991; Senior Vice President -
Personnel, November 1984 through August 15, 1990. Age
52.
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<PAGE>
Rex A. McClelland Senior Vice President - Corporate Services, August
1993 to date; Senior Vice President - Administrative
Services, February 1992 through July 1993; Senior Vice
President - Operations, August 1987 through January
1992. Age 58.
Thomas J. Roeck, Jr. Senior Vice President - Finance and Chief Financial
Officer, June 1988 to date. Age 50.
Maurice W. Worth Senior Vice President - Personnel, May 1991 to date;
Vice President - Personnel, November 1989 through
April 1991; Assistant Vice President - Personnel
Administration, February 1987 through October 1989.
Age 54.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------ ---------------------------------------------------------------------
Information required by this item is set forth under "Common Stock and
Depositary Shares Representing Series C Convertible Preferred Stock", "Number
of Stockholders" and "Market Prices and Dividends" on page 17 of Delta's 1994
Annual Report to Stockholders, and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
- ------ -----------------------
Information required by this item is set forth on page 38 and the inside
back cover of Delta's 1994 Annual Report to Stockholders, and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Information required by this item is set forth under "Operational Review -
Leadership 7.5" on pages 4-5, and pages 7-14, of Delta's 1994 Annual Report
to Stockholders, and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
Information required by this item is set forth on pages 22-37, and in
"Report of Independent Public Accountants" on page 21, of Delta's 1994 Annual
Report to Stockholders, and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
-20-
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------- --------------------------------------------------
Information required by this item is set forth on pages 4-7, and under
"Other Matters Involving Directors and Executive Officers - Legal Services"
and " - Compliance with Section 16(a) of the Securities Exchange Act of 1934"
on page 12, of Delta's Proxy Statement dated September 13, 1994, and is
incorporated herein by reference. Certain information regarding executive
officers is contained in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
------- ----------------------
Information required by this item is set forth under "General Information -
Compensation of Directors" on pages 3-4, and " - Charitable Award Program" on
page 4, and on pages 10 and 16-19, of Delta's Proxy Statement dated September
13, 1994, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
------- ---------------------------------------------------
MANAGEMENT
----------
Information required by this item is set forth on pages 7-9 of Delta's
Proxy Statement dated September 13, 1994, and is hereby incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------- ----------------------------------------------
Information required by this item is set forth on pages 10-11, and under
"General Information - Legal Services" on page 12, of Delta's Proxy Statement
dated September 13, 1994, and is incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
------- ----------------------------------------------------
ON FORM 8-K
-----------
(a)(1), (2). The financial statements and schedules required by this item
are listed in the Index to Consolidated Financial Statements and Schedules on
page 24 of this Form 10-K.
(3). The exhibits required by this item are listed in the Exhibit
Index on pages 38-41 of this Form 10-K. The management contracts and
compensatory plans or arrangements required to be filed as an exhibit to this
Form 10-K are listed as Exhibits 10.7 to 10.14 in the Exhibit Index.
(b) During the quarter ended June 30, 1994, Delta did not file
any Current Reports on Form 8-K.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 26th day of
September, 1994.
DELTA AIR LINES, INC.
By: /s/ Ronald W. Allen
-----------------------------------
Ronald W. Allen
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 26th day of September, 1994 by the
following persons on behalf of the registrant and in the capacities indicated.
Signature Title
--------- -----
/s/ Ronald W. Allen Chairman of the Board, President
- -------------------------------- and Chief Executive Officer
Ronald W. Allen (Principal Executive Officer)
Edwin L. Artzt* Director
- --------------------------------
Edwin L. Artzt
Henry A. Biedenharn, III* Director
- --------------------------------
Henry A. Biedenharn, III
James L. Broadhead* Director
- --------------------------------
James L. Broadhead
Edward H. Budd* Director
- --------------------------------
Edward H. Budd
-22-
<PAGE>
Signature Title
--------- -----
George D. Busbee* Director
- --------------------------------
George D. Busbee
R. Eugene Cartledge* Director
- --------------------------------
R. Eugene Cartledge
Mary Johnston Evans* Director
- --------------------------------
Mary Johnston Evans
David C. Garrett, Jr.* Director
- --------------------------------
David C. Garrett, Jr.
Gerald Grinstein* Director
- --------------------------------
Gerald Grinstein
Jesse Hill, Jr.* Director
- --------------------------------
Jesse Hill, Jr.
Andrew Young* Director
- --------------------------------
Andrew Young
/s/ Thomas J. Roeck, Jr. Senior Vice President-Finance
- -------------------------------- and Chief Financial Officer
Thomas J. Roeck, Jr. (Principal Financial Officer
and Principal Accounting Officer)
*By: /s/ Thomas J. Roeck, Jr. Attorney-In-Fact
---------------------------
Thomas J. Roeck, Jr.
-23-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
--------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - Incorporated herein by reference to
"Report of Independent Public Accountants" on page 21 of Delta's 1994 Annual
Report to Stockholders.
FINANCIAL STATEMENTS - All of which are incorporated herein by reference to
Delta's 1994 Annual Report to Stockholders.
Consolidated Balance Sheets - June 30, 1994 and 1993
Consolidated Statements of Operations for the years ended June 30, 1994, 1993
and 1992
Consolidated Statements of Cash Flows for the years ended June 30, 1994, 1993
and 1992
Consolidated Statements of Stockholders' Equity for the years ended June 30,
1994, 1993 and 1992
Notes to Consolidated Financial Statements - June 30, 1994, 1993 and 1992
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
SCHEDULES SUPPORTING FINANCIAL STATEMENTS:
Schedule
Number
------
I Marketable Securities - Other Investments as of June 30, 1994
V Operating Property and Equipment for the years ended June 30,
1994, 1993 and 1992
VI Accumulated Depreciation and Amortization of Operating Property
and Equipment for the years ended June 30, 1994, 1993 and 1992
VII Guarantees of Securities of Other Issuers as of June 30, 1994
VIII Valuation and Qualifying Accounts for the years ended June 30,
1994, 1993 and 1992
X Supplementary Information on Statements of Operations for the
years ended June 30, 1994, 1993 and 1992
All other schedules have been omitted as not applicable or because the
required information is included in the financial statements or notes thereto.
-24-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
-----------------------------------------------------
To Delta Air Lines, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in Delta Air Lines, Inc.'s annual report to
stockholders incorporated by reference in this Form 10-K and have issued our
report thereon dated August 12, 1994. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedules listed
in the accompanying index are the responsibility of the Company's management,
are presented for purposes of complying with the Securities and Exchange
Commission's rules, and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 12, 1994
<PAGE>
SCHEDULE I
DELTA AIR LINES, INC.
---------------------
MARKETABLE SECURITIES - OTHER INVESTMENTS
-----------------------------------------
AS OF JUNE 30, 1994
-------------------
(In Millions, Except Share Amounts)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Number of Market Value Balance Sheet Value
Issuer and Title of Issue Shares Cost at End of Year at End of Year
------------------------- --------- -------- -------------- -------------------
<S> <C> <C> <C> <C>
Swissair, Swiss Air Transport Company Ltd 105,000 $ 85 $ 61 $ 61
Singapore Airlines Limited
Ordinary Shares 35,186,300 181 290 290
--- --- ---
$266 $351 $351
==== ==== ====
</TABLE>
-26-
<PAGE>
SCHEDULE V
DELTA AIR LINES, INC.
---------------------
OPERATING PROPERTY AND EQUIPMENT
--------------------------------
FOR THE YEAR ENDED JUNE 30, 1994
--------------------------------
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance at Beginning Additions Retirements Other Changes Balance at End
Classifications of Period at Cost (a) or Sales (a) Add (Deduct) of Period
--------------- -------------------- ----------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Flight Equipment Owned $ 9,043 $1,125 $(842) $(263)(b) $ 9,063
Flight Equipment under Capital
Leases 173 - - - 173
Ground Property and Equipment 2,372 170 (116) (28)(c) 2,398
----- --- ----- ---- -----
$11,588 $1,295 $(958) $(291) $11,634
====== ===== ===== ===== ======
</TABLE>
(a) Major additions included 8 A310-300 aircraft, 2 B-737-300 aircraft,
1 B-767-300 aircraft, 4 MD-11 aircraft and 4 MD-88 aircraft. The Company
completed sale and leaseback agreements for 8 A310-300 aircraft,
1 B-767-300 aircraft and 1 MD-11 aircraft. Three B-737-300 aircraft were
sold, and 3 A310-200 aircraft, 14 A310-300 aircraft, 11 B-727-200 aircraft
and 2 MD-11 aircraft were returned to lessors.
(b) Primarily represents net transfers to non-operating flight equipment.
(c) Primarily represents net transfers to non-operating property.
-27-
<PAGE>
SCHEDULE V
DELTA AIR LINES, INC.
---------------------
OPERATING PROPERTY AND EQUIPMENT
--------------------------------
FOR THE YEAR ENDED JUNE 30, 1993
--------------------------------
<TABLE>
<CAPTION>
(Amounts in Millions)
Column A Column B Column C Column D Column E Column F
Balance at Beginning Additions Retirements Other Changes Balance at End
Classifications of Period at Cost (a) or Sales (a) Add (Deduct) of Period
--------------- -------------------- ----------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Flight Equipment Owned $ 8,354 $1,469 $(738) $(42)(b) $ 9,043
Flight Equipment under
Capital Leases 173 -- -- -- 173
Ground Property and
Equipment 2,210 245 (29) (54)(c) 2,372
----- --- --- --- -----
$10,737 $1,714 $(767) $(96) $11,588
------ ----- ---- --- ------
</TABLE>
(a) Major additions included 1 A310-300 aircraft, 6 B-757-200 aircraft, 3
B-737-300 aircraft, 1 B-767-300 aircraft, 4 B-767-300ER aircraft, 3 MD-11
aircraft and 11 MD-88 aircraft. The Company completed sale and leaseback
agreements for 1 A310-300 aircraft, 5 B-757-200 aircraft, 1 B-767-300
aircraft, 2 B-767-300ER aircraft and 2 MD-11 aircraft. Eighteen DC-9
aircraft were sold, and 5 B-727-200 aircraft and 1 B-737-200 aircraft were
returned to lessors.
(b) Primarily represents net transfers to non-operating flight equipment.
(c) Primarily represents net transfers to non-operating property.
-28-
<PAGE>
SCHEDULE V
DELTA AIR LINES, INC.
--------------------
OPERATING PROPERTY AND EQUIPMENT
--------------------------------
FOR THE YEAR ENDED JUNE 30, 1992
--------------------------------
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance at Beginning Additions Retirements Other Changes Balance at End
Classifications of Period at Cost (a) or Sales (a) Add (Deduct) of Period
--------------- -------------------- ----------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Flight Equipment Owned $6,831 $2,053 $(671) $141(b) $ 8,354
Flight Equipment under Capital Leases 173 -- -- -- 173
Ground Property and Equipment 1,890 363 (54) 11(c) 2,210
----- --- ---- -- -----
$8,894 $2,416 $(725) $152 $10,737
----- ----- ----- --- ------
</TABLE>
(a) Major additions were 3 used A310-200 aircraft, 9 B-757-200 aircraft,
3 B-767-300 aircraft, 1 B-767-300ER aircraft, 13 used L-1011 aircraft,
4 MD-11 aircraft and 22 MD-88 aircraft. The Company completed sale and
leaseback agreements for 1 B-767-300 aircraft, 1 B-767-300ER aircraft,
4 MD-11 aircraft and 9 MD-88 aircraft. Nine DC-9 aircraft were sold, and
5 DC-9 aircraft were returned to lessors. The Company acquired, under
operating leases, 4 used A310-200 aircraft, 14 used A310-300 aircraft and
24 used B-727-200 aircraft.
(b) Primarily represents net transfers from non-operating property.
(c) Primarily represents net transfers from flight equipment.
-29-
<PAGE>
SCHEDULE VI
DELTA AIR LINES, INC.
---------------------
ACCUMULATED DEPRECIATION AND AMORTIZATION OF OPERATING PROPERTY AND EQUIPMENT
-----------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1994
--------------------------------
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions
- - - - - - - - - Deductions
Balance at Beginning Provision Charged - - - - - - Other Changes Balance At End
Classifications of Period to Income (a) Retirements Add (Deduct) of Period
--------------- -------------------- ----------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Flight Equipment Owned $3,559 $419 $ (34) $(64)(b) $3,880
Flight Equipment under Capital Leases 128 14 - - 142
Ground Property and Equipment 1,143 221 (108) (6)(b) 1,250
------ --- ----- ---- ------
$4,830 $654 $(142) $(70) $5,272
----- --- ----- ---- -----
</TABLE>
(a) Provision charged to income as above $654
Amortization of cost in excess of net assets acquired 9
Amortization of leasehold and operating rights 64
Amortization of pre-operating expense 9
Amount shown as restructuring charge (58)
----
Depreciation and amortization as shown on consolidated statements of
income $678
---
(b) Primarily represents net transfers to non-operating property and flight
equipment.
-30-
<PAGE>
SCHEDULE VI
DELTA AIR LINES, INC.
---------------------
ACCUMULATED DEPRECIATION AND AMORTIZATION OF OPERATING PROPERTY AND EQUIPMENT
-----------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1993
--------------------------------
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions
- - - - - - - - - Deductions
Balance at Beginning Provision Charged - - - - - - Other Changes Balance At End
Classifications of Period to Income(a) Retirements Add (Deduct) of Period
--------------- -------------------- ----------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Flight Equipment Owned $3,213 $476 $ (90) $(40)(b) $3,559
Flight Equipment under
Capital Leases 112 16 -- -- 128
Ground Property and
Equipment 983 186 (25) (1)(b) 1,143
----- --- --- --- -----
$4,308 $678 $(115) $(41) $4,830
===== === ==== === =====
</TABLE>
(a) Provision charged to income as above $678
Amortization of cost in excess of net assets acquired 9
Amortization of leasehold and operating rights 64
Amortization of pre-operating expense 14
Amount shown as restructuring charge (30)
---
Depreciation and amortization as shown on consolidated statements
of income $735
===
(b) Primarily represents net transfers to non-operating property and flight
equipment.
-31-
<PAGE>
SCHEDULE VI
DELTA AIR LINES, INC.
---------------------
ACCUMULATED DEPRECIATION AND AMORTIZATION OF OPERATING PROPERTY AND EQUIPMENT
-----------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1992
--------------------------------
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions
- - - - - - - - - Deductions
Balance at Beginning Provision Charged - - - - - - Other Changes Balance at End
Classifications of Period to Income (a) Retirements Add (Deduct) of Period
--------------- -------------------- ------------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Flight Equipment Owned $2,873 $390 $(26) $(24)(b) $3,213
Flight Equipment under Capital Leases 92 20 -- -- 112
Ground Property and Equipment 854 174 (43) (2)(b) 983
----- --- ---- --- -----
$3,819 $584 $(69) $(26) $4,308
===== === ==== ==== =====
</TABLE>
(a) Provision charged to income as above $584
Amortization of cost in excess of net assets acquired 9
Amortization of leasehold and operating rights 36
Amortization of pre-operating expense 6
---
Depreciation and amortization as shown on consolidated
statements of income $635
===
(b) Primarily represents net transfers to non-operating property.
-32-
<PAGE>
SCHEDULE VII
DELTA AIR LINES, INC.
---------------------
GUARANTEES OF SECURITIES OF OTHER ISSUERS
-----------------------------------------
AS OF JUNE 30, 1994
-------------------
(Amounts In Millions)
<TABLE>
<CAPTION>
Name of Issuer of Securities Guaranteed Title of Issue of Each Class of Total Amount Guaranteed
by Person for Which Statement is Filed Securities Guaranteed and Outstanding Nature of Guarantee
--------------------------------------- ------------------------------ ----------------------- -------------------
<S> <C> <C> <C>
Regional Airports Improvement Corporation Regional Airports Improvement Corporation $ 94 Principal and Interest
11 1/4% Facilities Sublease Revenue Bonds,
Issue of 1985
Dallas-Fort Worth International Airport Dallas-Fort Worth International Airport 117 Principal and Interest
Facility Improvement Corporation Facility Improvement Corporation Delta Air
Lines, Inc. Revenue Bonds, Series 1991
Kenton County Airport Board Kenton County Airport Board (Commonwealth 438 Principal and Interest
of Kentucky) Special Facilities Revenue
Bonds, Series 1992 (Delta Air Lines, Inc.
Project)
Dallas-Fort Worth International Airport Dallas-Fort Worth International Airport 26 Principal and Interest
Facility Improvement Corporation Facility Improvement Corporation Delta Air
Lines, Inc. Revenue Refunding Bonds, Series
1993
---
$ 675
---
</TABLE>
-33-
<PAGE>
SCHEDULE VIII
DELTA AIR LINES, INC.
---------------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
FOR THE YEAR ENDED JUNE 30, 1994
--------------------------------
<TABLE>
<CAPTION>
(Amounts in Millions)
Column A Column B Column C Column D Column E
Additions
Balance At Beginning - - - - - - - - - - - - - - - - - Deductions from Balance At End
Description of Period Charged to Income Other Allowance of Period
----------- -------------------- ----------------- ----- --------------- --------------
<S> <C> <C> <C> <C> <C>
DEDUCTED IN THE BALANCE
SHEET FROM THE ASSET TO
WHICH IT APPLIES:
Allowance for uncollectible
accounts receivable: $82 $23 $ - $55(a) $50
Allowance for
unrealized (gains)
losses on non-current
marketable securities: $ 1 $ - $(85)(b) $ 1(c) $(85)
</TABLE>
(a) Represents write-off of accounts considered to be uncollectible, reversal of
amounts deemed collectible and collections.
(b) Represents net unrealized gain to reflect increase in market value resulting
from the adoption of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
(c) Represents reversal of previously recognized losses to reflect increases in
market value.
-34-
<PAGE>
SCHEDULE VIII
DELTA AIR LINES, INC.
---------------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
FOR THE YEAR ENDED JUNE 30, 1993
--------------------------------
<TABLE>
<CAPTION>
(Amounts in Millions)
Column A Column B Column C Column D Column E
Additions
Balance At Beginning - - - - - - - - - - - - - - - - - Deductions from Balance At End
Description of Period Charged to Income Other Allowance of Period
----------- -------------------- ----------------- ----- --------------- --------------
<S> <C> <C> <C> <C> <C>
DEDUCTED IN THE BALANCE
SHEET FROM THE ASSET TO
WHICH IT APPLIES:
Allowance for uncollectible
accounts receivable: $67 $27 $ - $12(a) $82
Allowance for unrealized
losses on non-current
marketable securities: $19 $ - $ - $18(b) $ 1
</TABLE>
(a) Represents write-off of accounts considered to be uncollectible, reversal of
amounts deemed collectible and collections.
(b) Represents reversal of previously recognized losses to reflect increases
in market value.
-35-
<PAGE>
SCHEDULE VIII
DELTA AIR LINES, INC.
---------------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
FOR THE YEAR ENDED JUNE 30, 1992
--------------------------------
<TABLE>
<CAPTION>
(Amounts in Millions)
Column A Column B Column C Column D Column E
Additions
Balance At Beginning - - - - - - - - - - - - - - - - - Deductions from Balance At End
Description of Period Charged to Income Other Allowance of Period
----------- -------------------- ----------------- ----- --------------- --------------
<S> <C> <C> <C> <C> <C>
DEDUCTED IN THE BALANCE
SHEET FROM THE ASSET TO
WHICH IT APPLIES:
Allowance for uncollectible
accounts receivable: $59 $38 $ - $30(a) $67
Allowance for unrealized
losses on non-current
marketable securities: $22 $ - $ - $ 3(b) $19
</TABLE>
(a) Represents write-off of accounts considered to be uncollectible, reversal of
amounts deemed collectible and collections.
(b) Represents reversal of previously recognized losses to reflect increases
in market value.
-36-
<PAGE>
SCHEDULE X
DELTA AIR LINES, INC.
---------------------
SUPPLEMENTARY INFORMATION ON STATEMENTS OF OPERATIONS
-----------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
------------------------------------------------
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B
Charged to Costs and Expenses
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Item (a) 1994 1993 1992
-------- ---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs $1,160 $1,190 $1,113
Taxes other than payroll and income 169 166 169
Advertising costs 196 193 234
</TABLE>
(a) Amounts for royalties and depreciation and amortization of intangible
assets, pre-operating costs, and similar deferrals do not exceed 1% of total
operating revenues.
-37-
<PAGE>
EXHIBIT INDEX
-------------
3.1 Delta's Certificate of Incorporation (Filed as Exhibit 3 to Delta's
Current Report on Form 8-K dated November 17, 1993).*
3.2 Delta's By-Laws (Filed as Exhibit 3 to Delta's Current Report on Form
8-K dated November 17, 1993).*
4.1 Rights Agreement dated as of October 23, 1986, and Amendment No. 1
thereto dated as of June 19, 1992, between Delta and NationsBank of Georgia,
N. A. (Filed as Exhibit 1 to Delta's Current Report on Form 8-K dated November
4, 1986, and Exhibit 4-I to Amendment No. 2 to Delta's Registration Statement
on Form S-3 (Registration No. 33-48136)).*
4.2 Resignation, Transfer and Acceptance Agreement dated November 30,
1992, among NationsBank of Georgia, N.A., First Chicago Trust Company of New
York, and Delta (Filed as Exhibit 4-G to Amendment No. 1 to Delta's Registration
Statement on Form S-3 (Registration No. 33-62048)).*
4.3 Certificate of Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock, Series B ESOP Convertible Preferred Stock and
Series C Convertible Preferred Stock (Filed as part of Exhibit 3 to Delta's
Current Report on Form 8-K dated November 17, 1993).*
4.4 Indenture dated as of March 1, 1983, between Delta and The Citizens
and Southern National Bank, Trustee, as supplemented by the First and Second
Supplemental Indentures thereto dated as of January 27, 1986 and May 26, 1989,
respectively (Filed as Exhibit 4 to Delta's Registration Statement on Form S-3
(Registration No. 2-82412), Exhibit 4(b) to Delta's Registration Statement on
Form S-3 (Registration No. 33-2972), and Exhibit 4.5 to Delta's Annual Report on
Form 10-K for the year ended June 30, 1989).*
4.5 Agreement dated May 31, 1989, among Delta, The Citizens and Southern
National Bank and The Citizens and Southern National Bank of Florida relating
to the appointment of a successor trustee under the Indenture dated as of
March 1, 1983, as supplemented, between Delta and The Citizens and Southern
National Bank (Filed as Exhibit 4.6 to Delta's Annual Report on Form 10-K for
the year ended June 30, 1989).*
4.6 Indenture dated as of April 30, 1990, between Delta and The Citizens
and Southern National Bank of Florida, Trustee (Filed as Exhibit 4(a) to
Amendment No. 1 to Delta's Registration Statement on Form S-3 (Registration No.
33-34523)).*
4.7 Indenture dated as of May 1, 1991, between Delta and The Citizens and
Southern National Bank of Florida, Trustee (Filed as Exhibit 4 to Delta's
Registration Statement on Form S-3 (Registration No. 33-40190)).*
-38-
<PAGE>
4.8 Indenture dated as of June 15, 1993, between Delta and NationsBank of
Georgia, N.A., Trustee, relating to Delta's 3.23% Convertible Subordinated
Notes due June 15, 2003 (Filed as Exhibit 4.2 to Delta's Current Report on
Form 8-K dated June 29, 1993).*
4.9 Note Purchase Agreement dated February 22, 1990, among the Delta
Family-Care Savings Plan, Issuer, Delta, Guarantor, and Various Lenders relating
to the Guaranteed Serial ESOP Notes (Filed as Exhibit 10 to Delta's Current
Report on Form 8-K dated April 25, 1990).*
4.10 Indenture of Trust dated as of August 1, 1993, among Delta, Fidelity
Management Trust Company, ESOP Trustee, and Wilmington Trust Company, Trustee,
relating to the Guaranteed Serial ESOP Notes (Filed as Exhibit 4.12 to Delta's
Annual Report on Form 10-K for the year ended June 30, 1993).*
4.11 Letter of Credit dated August 12, 1993, issued by NationsBank of
Georgia, N.A., to Wilmington Trust Company, Trustee, relating to the
Guaranteed Serial ESOP Notes (Filed as Exhibit 4.13 to Delta's Annual Report
on Form 10-K for the year ended June 30, 1993).*
4.12 Credit Agreement dated as of December 19, 1991, among Delta, Certain
Banks and NationsBank of Georgia, N.A., as Agent Bank, as amended by the First
and Second Amendments thereto dated as of November 3, 1992 and December 4,
1992, respectively (Filed as Exhibit 4 to Delta's Quarterly Report on Form
10-Q for the quarter ended December 31, 1991, Exhibit 4.1 to Delta's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1992, and Exhibit 4.2
to Delta's Quarterly Report on Form 10-Q for the quarter ended December 31,
1992).*
4.13 Amended and Restated Credit Agreement dated as of December 4, 1992,
among Delta, Certain Banks and NationsBank of Georgia, N.A., as Agent Bank, as
amended by the First Amendment thereto dated as of June 4, 1993 (Filed as
Exhibit 4.2 to Delta's Current Report on Form 8-K dated December 8, 1992 and
Exhibit 4-I to Amendment No. 2 to Delta's Registration Statement on Form S-3
(Registration No. 33-62048)).*
Delta is not filing any other instruments evidencing any indebtedness
because the total amount of securities authorized under any single such
instrument does not exceed 10% of the total assets of Delta and its subsidiaries
on a consolidated basis. Copies of such instruments will be furnished to the
Securities and Exchange Commission upon request.
10.1 Purchase Agreement No. 1646 between The Boeing Company and Delta
relating to Boeing Model 737-332 aircraft (Filed as Exhibit 10.8 to Delta's
Annual Report on Form 10-K for the year ended June 30, 1990).*
10.2 Stock Purchase Agreement dated July 10, 1989, between Delta and
Swissair, Swiss Air Transport Company Ltd. (Filed as Exhibit 10.2 to Delta's
Current Report on Form 8-K dated July 24, 1989).*
-39-
<PAGE>
10.3 Stock Purchase Agreement dated August 21, 1989, between Delta and
Swissair, Swiss Air Transport Company Ltd. (Filed as Exhibit 10.9 to Delta's
Annual Report on Form 10-K for the year ended June 30, 1989)*.
10.4 Stock Purchase Agreement dated October 26, 1989, between Singapore
Airlines Limited and Delta (Filed as Exhibit 10.1 to Delta's Current Report on
Form 8-K dated November 2, 1989).*
10.5 Stock Purchase Agreement dated October 26, 1989, between Delta and
Singapore Airlines Limited (Filed as Exhibit 10.2 to Delta's Current Report on
Form 8-K dated November 2, 1989).*
10.6 Sixth Amended and Restated Limited Partnership Agreement of
WORLDSPAN, L.P. dated as of April 30, 1993 (Filed as Exhibit 10.6 to Delta's
Annual Report on Form 10-K for the year ended June 30, 1993).*
10.7 Employment Agreement dated May 1, 1979, as amended, between Delta
and Mr. David C. Garrett (Filed as Exhibit A(1) to Delta's Annual Report on Form
10-K for the year ended June 30, 1979, and Exhibit 10.6 to Delta's Annual Report
on Form 10-K for the year ended June 30, 1986).*
10.8 Employment Agreement dated July 29, 1987, between Delta and Mr.
Ronald W. Allen, as amended by the Amendments thereto dated February 1, 1992,
August 15, 1992, and October 28, 1993 (Filed as Exhibit 10.8 to Delta's Annual
Report on Form 10-K for the year ended June 30, 1987, Exhibit 10 to Delta's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992, Exhibit
10.13 to Delta's Annual Report on Form 10-K for the year ended June 30, 1992,
and Exhibit 10 to Delta's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993).*
10.9 Delta's Incentive Compensation Plan, as amended.
10.10 Delta's 1989 Stock Incentive Plan, as amended.
10.11 Delta's Executive Deferred Compensation Plan.
10.12 Directors' Deferred Compensation Plan (Filed as Exhibit 10.14 to
Delta's Annual Report on Form 10-K for the year ended June 30, 1987).*
10.13 Directors' Charitable Award Program (Filed as Exhibit 10.14 to
Delta's Annual Report on Form 10-K for the year ended June 30, 1993).*
10.14 1991 Delta Excess Benefit Plan, The Delta Supplemental Excess
Benefit Plan and Form of Excess Benefit Plan Agreement (Filed as Exhibit 10.18
to Delta's Annual Report on Form 10-K for the year ended June 30, 1992).*
-40-
<PAGE>
10.15 Agreement between Delta and The Air Line Pilots in the Service of
Delta as Represented by The Air Line Pilots Association, International as
supplemented (Filed as Exhibit 10.28 to Delta's Annual Report on Form 10-K for
the year ended June 30, 1990 and Exhibit 10.20 to Delta's Annual Report on Form
10-K for the year ended June 30, 1992).*
10.16 Purchase Agreement No. DAC 90-10-D between McDonnell Douglas
Corporation and Delta relating to MD-90 aircraft (Filed as Exhibit 10.1 to
Delta's Quarterly Report on Form 10-Q for the quarter ended September 30,
1990).*
11. Statement regarding computation of per share earnings for the years
ended June 30, 1992, 1993 and 1994.
12. Statement regarding computation of ratio of earnings to fixed
charges for the years ended June 30, 1990, 1991, 1992, 1993 and 1994.
13. Portions of Delta's 1994 Annual Report to Stockholders.
21. Subsidiaries of Delta.
23. Consent of Arthur Andersen LLP.
24. Powers of Attorney.
27. Financial Data Schedule.
- ---------
*Incorporated herein by reference.
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<PAGE>
EXHIBIT 10.9
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Delta Air Lines, Inc.
Incentive Compensation Plan
Article 1. Establishment and Purpose
1.1 Establishment of the Plan. Delta Air Lines, Inc., a Delaware
corporation (the "Company"), hereby establishes an annual incentive compensation
plan to be known as "The Delta Air Lines, Inc. Incentive Compensation Plan" (the
"Plan"), as set forth in this document. The Plan permits the awarding of annual
cash bonuses to Employees of the Company, based on the achievement of
preestablished performance goals.
The Plan shall become effective as of July 1, 1994 (the "Effective Date")
and shall remain in effect until terminated by the Board.
1.2 Purpose. The purposes of the Plan are to: (a) increase the
incentives to Participants to achieve annual goals that are within group and/or
individual control, and are considered key to the Company's success; (b)
encourage teamwork among Participants in various segments of the Company; and
(c) reward performance with pay that varies in relation to the extent to which
the preestablished goals are achieved.
Article 2. Definitions.
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when the defined meaning is intended, the term is
capitalized:
2.1 "Award Opportunity" means the various levels of incentive award
payouts which a Participant may earn under the Plan, as established by the
Committee pursuant to Sections 5.1 and 5.2 herein.
2.2 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.3 "Change in Control" shall be deemed to have occurred:
(a) Fifteen (15) days after a public announcement that any person (as
that term is used in Section 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), without prior approval of the Board, has acquired, either
directly or indirectly, beneficial ownership of securities representing twenty
percent (20%) or more of the total votes that could be cast by the holders of
all of the Company's outstanding securities entitled to vote in elections of
Directors; or
(b) When individuals constituting the Board as of the Effective Date
(or the successors of such individuals nominated by a Board of Directors on
which such individuals or such successors constituted a majority) cease to
constitute a majority of the Board of Directors.
<PAGE>
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Committee" means a committee of two (2) or more individuals,
appointed by the Board to administer the Plan, pursuant to Article 3 herein.
2.6 "Company" means Delta Air Lines, Inc., a Delaware corporation
(including any and all Subsidiaries), and any successor thereto.
2.7 "Disability" means a disability which would qualify the Participant
for Long-Term Disability benefits as defined in Section 4.03 of the Delta
Family-Care Disability and Survivorship Plan, as may be amended from time to
time.
2.8 "Effective Date" means the date the Plan becomes effective, as set
forth in Section 1.1 herein.
2.9 "Employee" means a full-time, salaried employee of the Company.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.11 "Final Award" means the actual award earned during a Plan Year by a
Participant, as determined by the Committee following the end of the Plan Year.
2.12 "Named Executive Officer" means a Participant who, as of the date of
payout of a Final Award, is one of the group of "covered employees," as defined
in the Regulations promulgated under Code Section 162(m), or any successor
statute.
2.13 "Participant" means an Employee who is actively participating in the
Plan.
2.14 "Plan" means the Delta Air Lines, Inc. Incentive Compensation Plan,
as set forth herein.
2.15 "Plan Year" means the Company's fiscal year.
2.16 "Retirement" shall have the meanings ascribed to Early, Normal or
Deferred Retirement in the Company's defined benefits tax-qualified retirement
pension plan applicable to the participant.
2.17 "Subsidiary" means any corporation (other than the Company) in which
the Company or a Subsidiary of the Company owns fifty percent (50%) or more of
the total combined voting power of all classes of stock.
2.18 "Target Incentive Award" means the award to be paid to Participants
when the Company meets "targeted" performance results, as established by the
Committee.
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<PAGE>
Article 3. Administration
3.1 The Committee. The Plan shall initially be administered by the
Personnel, Compensation & Nominating Committee of the Board. Subject to the
terms of this Plan, the Board may appoint a successor Committee to administer
the Plan. The members of the Committee shall be appointed by, must be members
of, and shall serve at the discretion of, the Board.
3.2 Authority of the Committee. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Employees who
shall participate in the Plan; determine the size and types of Award
Opportunities and Final Awards; determine the terms and conditions of Award
Opportunities in a manner consistent with the Plan; construe and interpret the
Plan and any agreement or instrument entered into under the Plan; establish,
amend, or waive rules and regulations for the Plan's administration; and
(subject to the provisions of Article 8 herein) amend the terms and conditions
of any outstanding Award Opportunity to the extent such terms and conditions are
within the sole discretion of the Committee as provided in the Plan. Further,
the Committee shall make all other determinations which may be necessary or
advisable for the administration of the Plan. As permitted by law, the
Committee may delegate its authorities as identified hereunder.
3.3 Decisions Binding. All determinations and decisions of the
Committee as to any disputed question arising under the Plan, including
questions of construction and interpretation, shall be final, binding, and
conclusive upon all parties.
Article 4. Eligibility and Participation
4.1 Eligibility. All Employees who are deemed by the Committee to be
key employees shall be eligible to participate in the Plan for such Plan Year.
4.2 Participation. Participation in the Plan shall be determined
annually by the Committee based upon the criteria set forth in Section 4.1
herein. Employees who are chosen to participate in the Plan in any given Plan
Year shall be so notified in writing, and shall be apprised of the performance
measure(s), performance goal(s), and related Award Opportunities for the
relevant Plan Year, as soon as is practicable.
4.3 Partial Plan Year Participation. Except as provided in Article 8
herein, an Employee who becomes eligible after the beginning of a Plan Year may
participate in the Plan for that Plan Year. Such situations may include, but
are not limited to (a) new hires; (b) when an Employee is promoted from a
position which did not previously meet the eligibility criteria; or (c) when an
Employee is transferred from an affiliate which does not participate in the
Plan.
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The Committee, in its sole discretion, retains the right to prohibit or
allow participation in the initial Plan Year of eligibility for any of the
aforementioned Employees.
4.4 No Right to Participate. No Participant or other Employee shall
at any time have a right to be selected for participation in the Plan for any
Plan Year, despite having previously participated in the Plan.
Article 5. Award Determination
5.1 Performance Measures and Performance Goals. Prior to the
beginning of each Plan Year, or as soon as practicable thereafter, the Committee
shall select performance measures and shall establish performance goals for that
Plan Year. Except as provided in Article 8 herein, the performance measures may
be based on any combination of corporate, divisional, and/or individual goals.
For each Plan Year, the Committee shall establish ranges of performance
goals which will correspond to various levels of Award Opportunities. Each
performance goal range shall include a level of performance at which one hundred
percent (100%) of the Target Incentive Award shall be earned. In addition,
each range shall include levels of performance above and below the one hundred
percent (100%) performance level.
After the performance goals are established, the Committee will align
the achievement of the performance goals with the Award Opportunities (as
described in Section 5.2 herein), such that the level of achievement of the
preestablished performance goals at the end of the Plan Year will determine the
Final Awards. Except as provided in Article 8 herein, the Committee shall have
the authority to exercise subjective discretion in the determination of Final
Awards, as well as the authority to delegate the ability to exercise subjective
discretion in this respect.
The Committee may establish one or more Company-wide performance
measures which must be achieved for any Participant to receive a Final Award
payment for that Plan Year.
5.2 Award Opportunities. Prior to the beginning of each Plan Year, or
as soon as practicable thereafter, the Committee shall establish, in writing,
Award Opportunities, which correspond to various levels of achievement of the
preestablished performance goals. The established Award Opportunities shall vary
in relation to the job classification of each Participant. Except as provided in
Article 8 herein, in the event a Participant changes job levels during a Plan
Year, the Participant's Award Opportunity may be adjusted to reflect the amount
of time at each job level during the Plan Year.
5.3 Adjustment of Performance Goals and Award Opportunities. Once
established, performance goals normally shall not be changed during the Plan
Year. However, except as provided in Article 8 herein, if the Committee
determines in its sole discretion that external changes or other unanticipated
business conditions have materially
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<PAGE>
affected the fairness of the goals, then the Committee may approve appropriate
adjustments to the performance goals (either up or down) during the Plan Year as
such goals apply to the Award Opportunities of specified Participants.
Notwithstanding any other provision of this Plan, in the event of any
change in corporate capitalization, such as a stock split, or a corporate
transaction, such as any merger, consolidation, separation, including a spin-
off, or other distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Code Section 368), or any partial or complete liquidation of
the Company, such adjustment shall be made in the Award Opportunities and/or the
performance measures or performance goals related to then-current performance
periods, as may be determined to be appropriate and equitable by the Committee,
in its sole discretion, to prevent dilution or enlargement of rights; provided,
however, that subject to Article 8 herein, any such adjustment shall not be made
if it would eliminate the ability of Award Opportunities held by Named Executive
Officers to qualify for the "performance-based" exception under Code Section
162(m).
5.4 Final Award Determinations. At the end of each Plan Year, Final
Awards shall be computed for each Participant as determined by the Committee.
Subject to the terms of Article 8 herein, Final Award amounts may vary above or
below the Target Incentive Award, based on the level of achievement of the
preestablished corporate, divisional, and/or individual performance goals.
5.5 Award Limit. The Committee may establish guidelines governing the
maximum Final Awards that may be earned by Participants (either in the
aggregate, by Employee class, or among individual Participants) in each Plan
Year. The guidelines may be expressed as a percentage of Company-wide goals of
financial measures, or such other measures as the Committee shall from time to
time determine; provided, however, that the maximum payout with respect to a
Final Award payable to any one Participant in connection with performance in any
one Plan Year shall be three million dollars ($3,000,000).
5.6 Threshold Levels of Performance. The Committee may establish
minimum levels of performance goal achievement, below which no payouts of Final
Awards shall be made to any Participant.
Article 6. Payment of Final Awards
6.1 Form and Timing of Payment. Unless a deferral election is made by
a Participant pursuant to Section 6.2 herein, or deferral of all or a portion of
a Participant's Final Award is required by Section 6.3, each Participant's Final
Award shall be paid in cash, in one lump sum, within seventy-five (75) calendar
days after the end of each Plan Year.
6.2 Voluntary Deferral of Final Award Payouts. The Committee may
permit a Participant to defer such Participant's receipt of the payment of cash
that would otherwise be
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<PAGE>
due pursuant to his or her Final Award. If any such deferral election is
required or permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals.
6.3 Required Deferral of Final Award Payouts. In the event that all or
a portion of a Participant's Final Award is not deductible by the Company due to
limits contained in Code Section 162(m) or any successor Code Section, payment
of the nondeductible portion of such Final Award shall be deferred until such
time as it may be deducted by the Company.
6.4 Unsecured Interest. No participant or any other party claiming an
interest in amounts earned under the Plan shall have any interest whatsoever in
any specific asset of the Company. To the extent that any party acquires a
right to receive payments under the Plan, such right shall be equivalent to that
of an unsecured general creditor of the Company.
Article 7. Termination of Employment
7.1 Termination of Employment Due to Death, Disability or Retirement.
In the event of a Participant's employment is terminated by reason of death,
Disability, or Retirement, the Final Award determined in accordance with Section
5.4 herein shall be reduced to reflect participation prior to termination only.
The reduced award shall be determined by multiplying said Final Award by a
fraction, the numerator of which is the number of days of employment in the Plan
Year through the date of employment termination, and the denominator of which is
three hundred sixty-five (365). In the case of a Participant's Disability, the
employment termination shall be deemed to have occurred on the date that the
Committee determines the definition of Disability to have been satisfied.
The Final Award thus determined shall be paid within seventy-five (75)
calendar days following the end of the Plan Year in which employment termination
occurs.
7.2 Termination of Employment for Other Reasons. In the event a
Participant's employment is terminated for any reason other than death,
Disability, or Retirement (of which the Committee shall be the sole judge), all
of the Participant's rights to a Final Award for the Plan Year then in progress
shall be forfeited. However, the Committee, in its sole discretion, may pay a
prorated award for the portion of the Plan Year that the Participant was
employed by the Company, computed as determined by the Committee.
Article 8. Named Executive Officers
8.1 Applicability of Article 8. The provisions of this Article 8 shall
apply only to Named Executive Officers. In the event of any inconsistencies
between this Article 8 and the other Plan provisions as they pertain to Named
Executive Officers, the provisions of this Article 8 shall control.
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<PAGE>
8.2 Establishment of Award Opportunities. Except as provided in
Section 8.8 herein, Award Opportunities for Named Executive Officers shall be
established as a function of each Named Executive Officer's Base Salary (as
defined below). Prior to the beginning of each Plan Year, or as soon as
practicable thereafter, the Committee shall establish, in writing, various
levels of Final Awards which will be paid with respect to specified levels of
attainment of the preestablished performance goals.
For purposes of this Article 8, "Base Salary" shall mean, as to any
specific Plan Year, a Participant's regular annual salary rate as of the first
day of the Plan Year. Regular salary shall not be reduced by any salary
reduction contributions made to any defined contribution plan or other deferred
compensation plans of the Company, but shall not include any payments under this
Plan or any other bonuses, incentive pay, or special awards.
8.3 No Partial Plan Year Participation. A Named Executive Officer who
becomes eligible after the beginning of a Plan Year may first participate in the
Plan for the succeeding Plan Year.
8.4 Components of Award Opportunities. Each Named Executive Officer's
Award Opportunity shall be based on: (a) the Named Executive Officer's Target
Incentive Award; (b) the potential Final Awards corresponding to various levels
of achievement of the preestablished performance goals, as established by the
Committee; and (c) Company performance in relation to the preestablished
performance goals. Except as provided in Section 8.8 herein, performance
measures which may serve as determinants of Named Executive Officers' Award
Opportunities shall be limited to Pretax Income, Return on Assets, Operating
Cash Flow, Return on Equity, Growth in Revenues, and Earnings per Share.
8.5 No Mid-Year Change in Award Opportunities. Except as provided in
Section 8.8 herein, each Named Executive Officer's Final Award shall be based
exclusively on the Award Opportunity levels established by the Committee before
the first day of each Plan Year.
8.6 Nonadjustment of Performance Goals. Except as provided in Section
8.8 herein, performance goals shall not be changed following their
establishment, and Named Executive Officers shall not receive any payout when
the minimum performance goals are not met or exceeded.
8.7 Individual Performance and Discretionary Adjustments. Except as
provided in Section 8.8 herein, subjective evaluations of individual performance
of Named Executive Officers shall not be reflected in their Final Awards.
However, the Committee shall have the discretion to decrease or eliminate the
amount of the Final Award otherwise payable to a Named Executive Officer.
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<PAGE>
8.8 Possible Modifications. If, on the advice of the Company's
counsel, the Committee determines that Code Section 162(m) and the Regulations
thereunder will not adversely affect the deductibility for federal income tax
purposes of any amount paid under the Plan by permitting greater discretion
and/or flexibility with respect to Award Opportunities granted to Named
Executive Officers pursuant to this Article 8, then the Committee may, in its
sole discretion, apply such greater discretion and/or flexibility to such Award
Opportunities as is consistent with the terms of this Plan, and without regard
to the restrictive provisions of this Article 8.
In addition, in the event that changes are made to Code Section 162(m) or the
Regulations thereunder to permit greater flexibility with respect to any Award
Opportunities under the Plan, the Committee may, subject to this Article 8, make
any adjustments it deems appropriate.
Article 9. Rights of Participants
9.1 Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue in the employ of
the Company.
9.2 Nontransferability. No right or interest of any Participant in the
Plan shall be assignable or transferable, or subject to any lien, directly, by
operation of law or otherwise, including, but not limited to, execution, levy,
garnishment, attachment, pledge, and bankruptcy.
Article 10. Beneficiary Designation.
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each designation will revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Committee during his or her lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
Article 11. Change in Control
In the event of a Change in Control, each Participant shall, in the sole
discretion of the Committee, be entitled to a pro rata payment of his or her
Target Incentive Award for the Plan Year during which such Change in Control
occurs. Such proration shall be determined as a function of the number of days
within the Plan Year prior to the effective date of the Change in Control, in
relation to three hundred sixty-five (365). Such amount shall be paid in cash
to each Participant within one hundred twenty (120) days after the effective
date of the Change in Control.
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<PAGE>
Article 12. Amendments
The Committee, in its sole discretion, without notice, at any time and
from time to time, may modify or amend, in whole or in part, any or all of the
provisions of the Plan, or suspend or terminate it entirely; provided, however,
that no such modification, amendment, suspension, or termination may, without
the consent of a Participant (or his or her beneficiary in the case of the death
of the Participant), materially reduce the right of a Participant (or his or her
beneficiary as the case may be) to a payment or distribution hereunder the which
he or she is entitled.
Article 13. Miscellaneous
13.1 Governing Law. The Plan, and all agreements hereunder, shall be
governed by and construed in accordance with the laws of the state of Georgia.
13.2 Withholding Taxes. The Company shall have the right to deduct
from all payments under the Plan any foreign, Federal, state, or local income or
other taxes required by law to be withheld with respect to such payments. Before
payment of any Final Award may be deferred under Article 6, the Company may
require that the Participant pay or agree to withholding for any foreign,
Federal, state or local income or other taxes which may be imposed on any amount
deferred.
13.3 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular, and the singular shall include the plural.
13.4 Severability. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
13.5 Costs of the Plan. All costs of implementing and administering
the Plan shall be borne by the Company.
13.6 Successors. All obligations of the Company under the Plan shall
be binding upon and inure to the benefit of any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
13.7 Other Plans. Nothing contained in this Plan shall prevent the
Board from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
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<PAGE>
EXHIBIT 10.10
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1989 STOCK INCENTIVE PLAN
OF
DELTA AIR LINES, INC.
---------------------
As Amended Through October 28, 1993
SECTION 1. Purpose; Definitions.
The purpose of this plan, which shall be known as the "1989 Stock Incentive Plan
of Delta Air Lines, Inc." (the "Plan"), is to promote the interests of Delta Air
Lines, Inc. (the "Company") by attracting and retaining in its employment
persons of outstanding ability, and to provide present and future officers and
key employees of the Company, or any of its present or future Subsidiaries,
greater incentive to make material contributions to the success of the Company
by increasing their proprietary interest in the welfare and success of the
Company through increased direct stock ownership and other incentives related to
the value of the stock, all to the benefit of the Company and its shareholders.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
(c) "Committee" means the Committee referred to in Section 2 of the Plan.
If at any time no Committee shall be designated, then the functions of the
Committee specified in the Plan shall be exercised by the Board.
(d) "Company" means Delta Air Lines, Inc., a corporation organized under
the laws of the State of Delaware, or any successor corporation.
(e) "Disability" means disability as determined under the disability plan
of the Company or Subsidiary applicable to the Participant.
(f) "Disinterested Person" shall have the meaning set forth in Rule 16b-
3(d)(3) as promulgated by the Securities and Exchange Commission under the
Exchange Act, or any successor definition adopted by the Commission.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(h) "Fair Market Value" means, as of any given date, the opening or closing
price, as determined by the Committee, of the Stock on the New York Stock
Exchange or, if no sale of Stock occurs on the New York Stock Exchange on
such date, the opening or closing price, as determined by the Committee, of
the Stock on said exchange on the last preceding day on which such sale
occurred.
<PAGE>
(i) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422
of the Code.
(j) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(k) "Other Stock-Based Award" means an award under Section 8 below of Stock
or that is valued in whole or in part by reference to, or is otherwise
based on, Stock.
(1) "Option Price" means the price specified in Section 5 below.
(m) "Participant" means the recipient of an award under the Plan.
(n) "Plan" means the 1989 Stock Incentive Plan of Delta Air Lines, Inc., as
amended from time to time.
(o) "Restricted Stock" means Stock granted under an award pursuant to
Section 7 below which is subject to the restrictions specified therein.
(p) "Retirement" means retirement from active employment with the Company
or any Subsidiary pursuant to the retirement or pension plan of such entity
applicable to the Participant.
(q) "Stock" means the Common Stock, $3.00 par value, of the Company.
(r) "Stock Appreciation Right" means a right granted under an award
pursuant to Section 6 below to receive an amount equal to the excess of the
Fair Market Value of the shares of Stock covered by such right over the
Option Price applicable to such shares, as specified in Section 6 below.
(s) "Stock Option" or "Option" means any option to purchase shares of Stock
granted pursuant to Section 5 below.
(t) "Subsidiary" means any corporation (other than the Company) in which
the Company or a Subsidiary of the Company owns 50% or more of the total
combined voting power of all classes of stock.
SECTION 2. Administration.
The Plan shall be administered by a Committee of the Board of Directors,
designated by the Board and to be comprised of not less than three members of
the Board. All the members of the Committee shall be Disinterested Persons. Each
director, while serving as a member of the Committee, shall be considered to be
acting in his capacity as a director of the Company. Members of the Committee
shall be appointed from time to time for such terms as the Board shall
determine, and may be removed by the Board at any time with or without cause.
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to construe and interpret the Plan, to establish, amend and
rescind appropriate rules and regulations relating to the
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<PAGE>
Plan, to determine the persons to whom and the time or times at which to grant
awards thereunder, to administer the Plan, and to take all such steps and make
all such determinations in connection with the Plan and the awards granted
thereunder as it may deem necessary or advisable to carry out the provisions and
intent of the Plan. All determinations of the Committee shall be by a majority
of its members, and its determinations shall be final and conclusive for all
purposes and upon all persons, including but without limitation, the Company,
the Committee, the directors, officers and employees of the Company, the
Participants and their respective successors in interest.
Except as provided in the Plan, the Committee may make awards under Sections 5,
6, 7 and 8 of this Plan either alone or in such combinations as it deems
appropriate, and awards need not be the same with respect to each Participant.
When granting Stock Options under Section 5 of this Plan, the Committee shall
designate the Stock Option as either an Incentive Stock Option or a Non-
Qualified Stock Option. The Committee shall also designate whether the Stock
Option is granted with Stock Appreciation Rights.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 6,000,000, subject to adjustment as provided in this
Section. Stock issued under the Plan may be either authorized and unissued
shares or treasury shares.
To the extent that any award under the Plan, or any portion thereof, is settled
in cash rather than in shares of Stock, the number of shares of Stock subject to
such award, less the number of shares of Stock issued, if any, in connection
with such settlement, shall again be available for distribution in connection
with future awards under the Plan. Subject to Section 6(d) below, if any shares
of Stock subject to a Stock Option cease to be subject to such Option for any
reason other than the exercise of such Option, or if any shares of Stock subject
to a Restricted Stock award or Other Stock-Based Award are forfeited or any such
award otherwise terminates, in whole or part, without a payment being made to
the Participant in the form of Stock, the shares of Stock previously subject to
such Option or award shall again be available for distribution in connection
with future awards under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
Stock dividend, Stock split or other change in corporate structure affecting the
Stock, the Committee, in its sole discretion, shall make such modifications,
substitutions or adjustments as it deems necessary to reflect such change so as
to prevent the deletion or enlargement of rights, including but not limited to,
modifications, substitutions, or adjustments in the aggregate number of shares
reserved for issuance under the Plan, in the number and Option Price of shares
subject to outstanding Options or Stock Appreciation Rights granted under the
Plan, and in the number of shares subject to other outstanding awards granted
under the Plan, provided that the number of shares subject to any award shall
always be a whole number.
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<PAGE>
SECTION 4. Eligibility.
Officers and other key employees of the Company and its Subsidiaries who are
responsible for or contribute to the management, growth and/or profitability of
the Company and/or its Subsidiaries, as determined by the Committee, are
eligible to be granted awards under the Plan.
SECTION 5. Stock Options.
Award Limitation
The number of shares of Stock subject to Stock Options that may be awarded to a
Participant under the Plan shall not exceed ten percent of the maximum total
number of shares of Stock reserved for distribution under Section 3 of the Plan.
Grant
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the persons to whom Stock Options shall be
granted, the number of shares to be covered by each Stock Option and the
conditions and limitations, if any, in addition to those set forth in this
Section 5, applicable to such Stock Options. The Committee shall have the
authority to grant both Incentive Stock Options and Non-Qualified Stock Options.
In the case of Incentive Stock Options, the terms and conditions of such grants
shall be subject to and comply with the requirements of Section 422 of the Code,
as from time to time amended, and any implementing regulations. Each such award
shall be confirmed by an agreement executed by the Committee and the
Participant, which agreement shall contain such provisions as the Committee
determines to be necessary or appropriate to carry out the intent of this Plan
with respect to such award. Each such agreement shall provide that the Option
(and any related Stock Appreciation Right) is not transferable by the
Participant otherwise than by will, by the laws of descent and distribution, or
by a written designation referred to in Section 10(c) below, and is exercisable,
during the Participant's lifetime, only by such Participant.
Option Price
The Committee shall establish the Option Price at the time each Stock Option is
granted, which price shall not be less than 100% of the Fair Market Value of the
Stock on the date of grant. The Option Price shall be the price payable by the
Participant for a share of Stock upon the exercise of a Stock Option. The Option
Price shall be subject to adjustment in accordance with the provisions of
Section 3 hereof.
Exercise
The Committee shall determine when a Stock Option shall become exercisable, and
may provide that a Stock Option is exercisable in installments, provided that no
Stock Option shall be exercisable earlier than one (1) year or later than ten
(10) years after the date of grant, except that if a Participant dies prior to
one (1) year after the date of grant the one (1) year limitation shall not apply
and the Option may be exercised as provided in Section 10 hereof.
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The Option Price of each share as to which an Option is exercised shall be paid
in full at the time of such exercise. Such payment shall be made in cash, or,
subject to the consent of the Committee and to such limitations as the Committee
may impose, by tender of shares of unrestricted Stock valued at Fair Market
Value as of the date of exercise, or by a combination of cash and shares of
unrestricted Stock.
Incentive Stock Options
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify the Plan under Section 422 of the Code, or, without the consent
of the Participant(s) affected, to disqualify any Incentive Stock Option under
such Section 422.
To the extent permitted under Section 422 of the Code or the applicable
regulations thereunder or any applicable Internal Revenue Service pronouncement,
and subject to such terms and conditions as the Committee shall prescribe, any
Incentive Stock Option that does not continue to comply with the requirements of
the Code shall be treated as a Non-Qualified Stock Option.
SECTION 6. Stock Appreciation Rights.
Grant
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the persons who shall receive Stock Appreciation
Rights and the number of shares of Stock with respect to which each Stock
Appreciation Right is granted. Stock Appreciation Rights may be granted only in
conjunction with Stock Options granted under the Plan. Whenever Stock
Appreciation Rights are granted, they shall be provided for in the agreement
referred to in Section 5 above, or an amendment thereto.
A Stock Appreciation Right or applicable portion thereof granted in conjunction
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, and a Stock Option or
applicable portion thereof granted in conjunction with a Stock Appreciation
Right shall terminate and no longer be exercisable upon the termination or
exercise of the related Stock Appreciation Right.
Terms and Conditions
Stock Appreciation Rights shall be exercisable in accordance with procedures
established by the Committee and shall be subject to such terms and conditions,
not inconsistent with the provisions of the Plan, as shall be determined from
time to time by the Committee, in addition to the following:
(a) Stock Appreciation Rights shall be exercisable only at such time or times
and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 of the Plan. The
exercise of Stock Appreciation Rights by Participants who are subject to Section
16(b) of the Exchange Act shall comply with Rule 16b-3 (or any successor rule)
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thereunder, to the extent applicable; provided, however, that the Committee, in
its sole discretion, may require the exercise of Stock Appreciation Rights by
any Participant to comply with the requirements of Rule 16b-3 (or any successor
rule).
(b) Upon the exercise of a Stock Appreciation Right, a Participant shall be
entitled to receive an amount in cash or shares of Stock or a combination
thereof, as determined by the Committee, equal in value to the excess of the
Fair Market Value of one share of Stock over the Option Price per share
specified in the related Stock Option multiplied by the number of shares in
respect of which the Stock Appreciation Right shall have been exercised. The
Fair Market Value used to determine the amount payable (and the number of shares
payable to the extent that the payment is in the form of Stock) shall be the
Fair Market Value on the last trading day preceding the date of exercise of the
Stock Appreciation Right or, if so specified by the Committee, the highest Fair
Market Value during the applicable period referred to in Rule 16b-3(e)(3)(iii)
(or any successor rule) under the Exchange Act in which the Stock Appreciation
Right is exercised.
(c) Stock Appreciation Rights shall be transferable only when and to the extent
that the related Stock Option would be transferable under Section 5 of the Plan.
(d) Upon the exercise of a Stock Appreciation Right, the Stock Option or part
thereof to which such Stock Appreciation Right is related shall be deemed to
have been exercised for the purpose of the limitation set forth in Section 3 of
the Plan on the number of shares of Stock to be issued under the Plan, but only
to the extent of the number of shares actually issued, if any, upon the exercise
of the Stock Appreciation Right.
SECTION 7. Restricted Stock.
Grant
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares to be
awarded, the price (if any) to be paid by the recipient of Restricted Stock, the
time or times within which such awards may be subject to forfeiture, and all
other terms and conditions of the awards.
The Committee may condition the grant of Restricted Stock upon the attainment of
specified performance goals or such other factors as the Committee may
determine, in its sole discretion.
Each Restricted Stock award shall be confirmed by an agreement executed by the
Committee and the Participant, which agreement shall contain such provisions as
the Committee determines to be necessary or appropriate to carry out the intent
of this Plan with respect to such award.
Each Participant receiving a Restricted Stock award shall be issued a Stock
certificate in respect of such shares of Restricted Stock. Such certificate
shall be registered in the name of such Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award.
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The Committee shall require that Stock certificates evidencing such shares be
held by the Company until the restrictions thereon shall have lapsed, and that,
as a condition of any Restricted Stock award, the Participant shall have
delivered to the Company a stock power, endorsed in blank, relating to the Stock
covered by such award.
Restrictions and Conditions
The shares of Restricted Stock awarded pursuant to this Section 7 shall be
subject to the following restrictions and conditions:
(a) During a period set by the Committee commencing with the date of such award
(the "Restriction Period"), the Participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded under the Plan.
Within these limits, the Committee, in its sole discretion, may provide for the
lapse of such restrictions in installments and may accelerate or waive such
restrictions in whole or in part, based on service, performance and/or such
other factors or criteria as the Committee may determine.
(b) Except as provided in this paragraph (b) and paragraph (a) above, the
Participant shall have, with respect to the shares of Restricted Stock, all of
the rights of a shareholder of the Company, including the right to vote the
shares, and the right to receive any cash dividends. The Committee, in its sole
discretion, as determined at the time of award, may provide that the payment of
cash dividends shall or may be deferred and, if the Committee so determines,
reinvested in additional shares of Stock or Restricted Stock to the extent
shares are available under Section 3, or otherwise reinvested. Pursuant to
Section 3 above, Stock dividends issued with respect to Restricted Stock shall
be treated as additional shares of Restricted Stock that are subject to the same
restrictions and other terms and conditions that apply to the shares with
respect to which such dividends are issued.
(c) Upon termination of a Participant's employment with the Company or any
Subsidiary for any reason during the Restriction Period, all shares still
subject to restriction will vest, or be forfeited, in accordance with the terms
and conditions established by the Committee in the award agreement.
(d) If and when the Restriction Period expires without a prior forfeiture of the
Restricted Stock subject to such Restriction Period, certificates for an
appropriate number of unrestricted shares of Stock shall be delivered promptly
to the Participant, and the certificates for the shares of Restricted Stock
shall be cancelled.
SECTION 8. Other Stock-Based Awards.
Grant
Other awards of Stock and other awards that are valued in whole or in part by
reference to, or are otherwise based on, Stock ("Other Stock-Based Awards"), may
be granted either alone or in addition to or in conjunction with other awards
under this Plan. Awards under this section may include, but are not limited to,
the grant of Stock upon the continued employment of a Participant
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for a specified period of time, the payment of cash based upon the performance
of the Stock, or the grant of securities convertible into Stock.
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the persons to whom and the time or times at
which such awards shall be made, the number of shares of Stock or other
securities, if any, to be granted pursuant to such awards, and all other
conditions of the awards. Any such award shall be subject to an agreement
between the Company and the Participant.
Each Other Stock-Based Award shall be confirmed by an agreement executed by the
Committee and the Participant, which agreement shall contain such provisions as
the Committee determines to be necessary or appropriate to carry out the intent
of this Plan with respect to such award.
Terms and Conditions
In addition to the terms and conditions specified in the award agreement, Other
Stock-Based Awards made pursuant to this Section 8 shall be subject to the
following:
(a) Any shares of Stock subject to awards made under this Section 8 may not be
sold, assigned, transferred, pledged or otherwise encumbered prior to the date
on which the shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
(b) If specified by the Committee in the award agreement, the recipient of an
award under this Section 8 shall be entitled to receive, currently or on a
deferred basis, interest or dividends or dividend equivalents with respect to
the Stock or other securities covered by the award, and the Committee may
provide that such amounts (if any) shall be deemed to have been reinvested in
additional Stock or otherwise reinvested.
(c) The award agreement with respect to any Other Stock-Based Award shall
contain provisions dealing with the disposition of such award in the event of a
termination of the Participant's employment prior to the exercise, realization
or payment of such award, whether such termination occurs because of Retirement,
Disability, death or other reason, with such provisions to take account of the
specific nature and purpose of the award.
SECTION 9. Change in Control.
In order to maintain the Participants' rights in the event of a "Change
in Control" of the Company, as hereinafter defined, the Committee, in its sole
discretion, may, either at the time an Award is made hereunder or at any time
prior to, or simultaneously with, a Change in Control (i) provide for the
acceleration of any time periods relating to the exercise or realization of such
Awards so that such Awards may be exercised or realized in full on or before a
date fixed by the Committee; (ii) provide for the purchase of such Awards, upon
the Participant's request, for an amount of cash equal to the amount which could
have been attained upon the exercise or realization of such Awards had such
Awards been currently exercisable or payable; (iii) make such adjustment to the
Awards then outstanding as the Committee deems appropriate to reflect such
transaction or change; or (iv) with the approval of and through the Board of
Directors, cause the Awards then outstanding to be assumed, or new Awards
substituted therefor, by the surviving
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corporation in such change. The Committee may, in its discretion, include such
further provisions and limitations with respect to a Change in Control in any
agreement entered into pursuant to this Plan as it may deem appropriate and in
the best interests of the Company. A "Change in Control" shall be deemed to have
occurred (i) fifteen (15) days after public announcement that any person, entity
or group, without prior approval of the Board of Directors, has acquired, either
directly or indirectly, beneficial ownership of securities representing twenty
percent (20%) or more of the total votes that could be cast by the holders of
all of the Company's outstanding securities entitled to vote in elections of
directors; or (ii) when individuals currently constituting the Board of
Directors (or the successors of such individuals nominated by a Board of
Directors on which such individuals or such successors constituted a majority)
cease to constitute a majority of the Board of Directors.
SECTION 10. Termination of Employment, Retirement, Disability, Death and
Voluntary Demotion.
Except as provided in award agreements under Sections 7 or 8, the following
shall apply:
(a) If a Participant's employment shall be terminated by the Company or a
Subsidiary, or if a Participant resigns from employment with the Company or a
Subsidiary, the Stock Options or Stock Appreciation Rights held by such
Participant shall be forfeited unless the Committee authorizes the exercise of
such Stock Options or Stock Appreciation Rights, provided that any such exercise
shall be permissible only for a period of up to four (4) months following such
termination or resignation and only if such exercise is otherwise permissible
under the Plan and the applicable award agreement.
(b) With respect to awards made prior to October 28, 1993, a Participant whose
employment is terminated because of his Retirement or Disability shall be
treated as though he remains in active employment, unless the applicable award
agreement is amended to shorten the exercise period following Retirement or
Disability. With respect to awards made on or after October 28, 1993, a
Participant whose employment is terminated because of his Retirement or
Disability may exercise his outstanding Stock Options or Stock Appreciation
Rights only during the shorter of the exercise period remaining under the
applicable award agreement or the three years after such Retirement or
Disability. In the case of an exercise under either of the two preceding
sentences, such exercise must otherwise comply with the Plan and the applicable
award agreement. Notwithstanding the preceding sentences, however, if a
Participant's employment is terminated because of Retirement prior to his normal
retirement date (as determined under the retirement or pension plan of the
Company or Subsidiary applicable to the Participant) and, within two years after
such early Retirement and without the Committee's approval, such Participant is
employed or retained by any air carrier or organization which the Committee
determines is in direct and substantial competition with the Company or any of
its affiliates, then such Participant shall (i) immediately forfeit any Stock
Options and Stock Appreciation Rights held by him; and (ii) within 30 days after
the Committee makes a determination hereunder, repay the Company in cash an
amount equal to the amount realized in cash and/or stock at the time of exercise
of any Stock Options or Stock Appreciation Rights exercised by such Participant
after such early Retirement.
(c) With respect to awards made prior to October 28, 1993, in the event of the
death of a Participant while employed by the Company or a Subsidiary or while
covered by Section 10(b)
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above, such Participant's Stock Options or Stock Appreciation Rights may only be
exercised within one year after the Participant's death, unless the applicable
award agreement is amended to provide a maximum exercise period of up to three
years as described in the next sentence. With respect to awards made on or after
October 28, 1993, in the event of the death of a Participant while employed by
the Company or a Subsidiary, such Participant's Stock Options or Stock
Appreciation Rights may be exercised only within the shorter of the exercise
period remaining under the applicable award agreement or the three years after
the Participant's death. In the case of an exercise under either of the two
preceding sentences, such exercise may be made by the person or persons named in
a written designation by the Participant delivered to and approved by the
Committee, or if there is no such approved designation, by the executor or
administrator of the Participant's estate or such other personal representative,
legatee or devisee, as may be designated in the Participant's last will and
testament; provided, however, that such exercise must otherwise comply with the
Plan and the applicable award agreement.
(d) In the event that prior to the time that a Stock Option or Stock
Appreciation Right is exercisable, a Participant voluntarily suggests and later
accepts a demotion to a job involving lesser responsibilities than those of the
job held by the Participant at the time of an award hereunder, the Committee in
its sole discretion may revoke or modify such award as it deems appropriate
under the circumstances.
(e) Notwithstanding anything in Section 10(a)-(d) above to the contrary, if a
Participant resigns from employment with the Company and coincident with such
resignation becomes an employee of WORLDSPAN L.P. ("WORLDSPAN"), such
Participant shall be treated as though he remains in active employment with the
Company with respect to Stock Options and Stock Appreciation Rights outstanding
at the time of such resignation; provided, however, that, after becoming an
employee of WORLDSPAN coincident with his resignation from the Company:
(i) If a Participant's employment is terminated by WORLDSPAN, or if a
Participant resigns from employment with WORLDSPAN (other than if such
Participant becomes an employee of the Company or a Subsidiary coincident
with his resignation from WORLDSPAN), the Stock Options or Stock
Appreciation Rights held by such Participant shall be forfeited unless the
Committee authorizes the exercise of such Stock Options or Stock
Appreciation Rights, provided that any such exercise shall be permissible
only for a period of up to four (4) months following such termination or
resignation and only if such exercise is otherwise permissible under the
Plan and the applicable award agreement; and provided further that if a
Participant resigns from WORLDSPAN and coincident with such resignation
becomes an employee of the Company or a Subsidiary, such Participant shall,
subject to Sections 10(a)-(d) above, be treated as in active employment
with the Company.
(ii) If a Participant's employment with WORLDSPAN is terminated because of
his retirement or disability under WORLDSPAN's, retirement or disability
plan applicable to such Participant, such Participant shall be treated as
though he remains in active employment.
(iii) If a Participant dies while employed by WORLDSPAN or while covered by
Section 10(e)(ii) above, such Participant's Stock Options or Stock
Appreciation Rights may only
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be exercised within one year after the Participant's death by the person or
persons named in a written designation by the Participant delivered to and
approved by the Committee, or if there is no such approved designation, by
the executor or administrator of the Participant's estate or such other
personal representative, legatee or devisee, as may be designated in the
Participant's last will and testament; provided, however, that such
exercise must otherwise comply with the Plan and the applicable award
agreement.
(iv) If prior to the time that a Stock Option or Stock Appreciation Right
is exercisable, a Participant voluntarily suggests and later accepts a
demotion to a job involving lesser responsibilities than those of the job
held by the Participant at the time of first becoming an employee of
WORLDSPAN, the Committee in its sole discretion may revoke or modify such
award as it deems appropriate under the circumstances.
SECTION 11. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of a
Participant under a Stock Option, Stock Appreciation Right, Restricted Stock
award, or Other Stock-Based Award theretofore granted, without the Participant's
consent, or which, without the approval of the Company's stockholders, would
cause the Plan not to continue to comply with Rule 16b-3 under the Exchange Act,
or any successor to such Rule.
The Committee may amend the terms of any Stock Option or other award theretofore
granted, including but not limited to extending the time during which awards
granted prior to October 28, 1993 may be exercised to the full period of time
permitted by the Plan; provided, however, that, subject to Section 3 above, no
such amendment shall impair the rights of any Participant without the
Participant's consent, except as provided in Section 10(d) above.
Subject to the above provisions, the Board shall have broad authority to amend
the Plan to take into account changes in applicable securities and tax laws and
accounting rules, as well as other developments.
SECTION 12. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to a Stock
Option, Stock Appreciation Right or other award under the Plan to represent to
and agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock or other securities delivered under the
Plan shall be subject to such stock-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate references to such restrictions. Except as
otherwise provided in the Plan, Participants
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shall have no rights as stockholders of Stock covered by an award prior to the
issuance of a Stock certificate to such Participant.
(b) Nothing contained in this Plan shall prevent the Board from adopting other
or additional compensation arrangements, subject to stockholder approval if such
approval is required; and such arrangements may be either generally applicable
or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee of the Company
or any Subsidiary any right to continued employment with the Company or a
Subsidiary, as the case may be, nor shall it interfere in any way with the right
of the Company or a Subsidiary to terminate the employment of any of its
employees at any time.
(d) No later than the date as of which an amount first becomes includible in the
gross income of the Participant for Federal income tax purposes with respect to
any award under the Plan, the Participant shall pay to the Company, or make
arrangements satisfactory to the Company regarding the payment of, any Federal,
state, or local taxes of any kind required by law to be withheld with respect to
such amount. Subject to the consent of the Committee and to such limitations as
the Committee may impose, withholding obligations may be settled with Stock,
including Stock that is part of the award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditioned
on such payment or arrangements and the Company and its Subsidiaries shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.
(e) The Plan and all awards made and actions taken thereunder shall be governed
by and construed in accordance with the laws of the State of Georgia.
(f) Agreements with respect to awards pursuant to the Plan may contain, in
addition to terms and conditions prescribed in the Plan, such other terms and
conditions as the Committee may deem appropriate provided such terms and
conditions are not inconsistent with the provisions of the Plan.
SECTION 13. Effective Date of Plan.
The Plan shall be effective as of January 1, 1989, subject to the approval of
the Plan by the affirmative votes of the holders of a majority of the Stock
present and entitled to vote at the 1988 annual meeting of stockholders. Any
grants made under the Plan prior to such approval shall be effective when made
(unless otherwise specified by the Committee at the time of grant), but shall be
conditioned on, and subject to, such approval of the Plan by such stockholders.
SECTION 14. Term of Plan.
No Stock Option, Stock Appreciation Right, Restricted Stock award or Other
Stock-Based Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the effective date of the Plan, but awards granted prior to such
tenth anniversary may extend beyond that date.
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NOTE: The foregoing is the original 1989 Stock Incentive Plan as adopted by
Delta Air Lines' Board of Directors on July 28, 1988, for effectiveness on
January 1, 1989, and as amended April 26, 1990, January 24, 1991, July 22,
1993, and October 28, 1993.
----------------------------
Mary E. Raines
Corporate Secretary
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EXHIBIT 10.11
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Delta Air Lines, Inc.
Executive Deferred Compensation Plan
Article 1. Establishment and Purposes
1.1 Establishment. Delta Air Lines, Inc., a Delaware corporation (the
"Company"), hereby establishes, effective as of July 1, 1994, a deferred
compensation plan for key employees as described herein, which shall be known as
the "Delta Air Lines, Inc. Executive Deferred Compensation Plan" (the "Plan").
1.2 Purpose. The purpose of the Plan is to provide certain key employees
of the Company with the opportunity to voluntarily defer a portion of their
compensation, subject to the terms of the Plan. By adopting the plan, the
Company desires to enhance its ability to attract and retain employees of
outstanding competence.
Article 2. Definitions
Whenever used herein, the following terms shall have the meanings set forth
below, and, when the defined meaning is intended, the term is capitalized:
(a) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(b) "Bonus" means any incentive award based on an assessment of
performance, payable by the Company to a Participant with respect to
the Participant's services during a Year, and shall be deemed earned
only upon award by the Company. For purposes of the Plan, "Bonus"
shall not include incentive awards which relate to a period exceeding
one (1) Year.
(c) "Change in Control" shall be deemed to have occurred:
(i) Fifteen (15) days after a public announcement that any person (as
that term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), without prior approval of the
Board, has acquired, either directly or indirectly, beneficial
ownership of securities representing twenty percent (20%) or more
of the total votes that could be cast by the holders of all the
Company's outstanding securities entitled to vote in elections of
Directors; or
(ii) When individuals constituting the Board as of the Effective Date
(or the successors of such individuals nominated by a Board of
Directors on which such individuals or such successors
constituted a majority) cease to constitute a majority of the
Board of Directors.
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(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of two (2) or more individuals,
appointed by the Board to administer the Plan, pursuant to Article 3.
(f) "Company" means Delta Air Lines, Inc., a Delaware corporation
(including any and all Subsidiaries), and any successor thereto.
(g) "Compensation" means the gross Salary, Bonus, Long-Term Awards, and
other payments eligible for deferral under the Plan, which are payable
to a Participant with respect to services performed during a Year.
(h) "Disability" means a disability which would qualify the Participant
for Long-Term Disability benefits as defined in Section 4.03 of the
Delta Family-Care Disability and Survivorship Plan, as may be amended
from time to time.
(i) "Effective Date" means the date the Plan becomes effective, as set
forth in Section 1.1 herein.
(j) "Employee" means a full-time, salaried employee of the Company.
(k) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor Act thereto.
(l) "Long-Term Award" means any cash award (other than cash payment in
connection with any stock option or stock appreciation right awards
under the 1989 Stock Incentive Plan) payable to a Participant pursuant
to a Company program which establishes incentive award opportunities
which are contingent upon performance which is measured over periods
greater than one (1) Year.
(m) "Participant" means an Employee who is actively participating in the
Plan.
(n) "Plan" means the Delta Air Lines, Inc. Executive Deferred Compensation
Plan.
(o) "Salary" means all regular, basic wages, before reduction for amounts
deferred pursuant to the Plan or any other plan of the Company,
payable in cash to a Participant for services to be rendered during
the Year, exclusive of any Bonus, Long-Term Awards, other special
fees, awards, or incentive compensation, allowances, or amounts
designated by the Company as payment toward or reimbursement of
expenses.
(p) "Subsidiary" means any corporation (other than the Company) in which
the Company or a Subsidiary of the Company owns fifty percent (50%) or
more of the total combined voting power of all classes of stock.
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(q) "Year" means the fiscal year of the Company.
Article 3. Administration
3.1 Authority of the Committee. The Plan shall initially be administered
by the Personnel, Compensation and Nominating Committee of the Board. Subject
to the terms of this Plan, the Board may appoint a successor Committee to
administer the Plan. The members of the Committee shall be appointed by, must
be members of, and shall serve at the discretion of the Board.
Subject to the provisions herein, the Committee shall have the exclusive
discretion to select Employees for participation in the Plan; to determine the
terms and conditions of each Employee's participation in the Plan; to construe
and interpret the Plan and any agreement or instrument entered into under the
Plan; to establish, amend, or waive rules and regulations for the Plan's
administration; to amend (subject to the provisions of Article 9 herein) the
terms and conditions of the Plan and any agreement entered into under the Plan;
and to make other determinations which may be necessary or advisable for the
administration of the Plan. Subject to the terms of the Plan, the Committee may
delegate any or all of its authority granted under the Plan to an executive or
executives of the Company.
3.2 Claims Procedure. If a request for benefits by a Participant or
beneficiary is wholly or partially denied, the Committee will provide such
claimant written notice setting forth the denial. A review procedure is
available upon written request by the claimant to the Committee within 90 days
after the date of the Committee's written notice of the denial of the claim, and
includes the right to examine pertinent documents and submit issues and comments
in writing to the Committee. The decision on review will be made within 90 days
after receipt of the request for review, unless circumstances warrant an
extension of time not to exceed an additional 90 days, and shall be in writing.
If a decision on review is not made within such period, the Participant's claim
shall be deemed denied.
3.3 Decisions Binding. All determinations and decisions of the Committee
as to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, conclusive, and binding on all
parties.
Article 4. Eligibility and Participation
4.1 Eligibility. Employees eligible to participate in the Plan include
key policy-makers and decision-makers of the Company, as selected by the
Committee, at its sole discretion. It is the intent of the Company to extend
eligibility only to those executives who comprise a select group of management
or highly compensated employees, such that the Plan will qualify for treatment
as a "Top Hat" plan under ERISA.
In the event a Participant no longer meets the requirements for
participation in the Plan, such Participant shall become an inactive
Participant, retaining all the rights described under the
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Plan, except the right to make any further deferrals, until such time that the
Participant again becomes an active Participant.
4.2 Participation. Participation in the Plan shall be determined annually
by the Committee based upon the criteria set forth in Section 4.1 herein.
Employees who are chosen to participate in the Plan in any given Year shall be
so notified in writing.
4.3 Partial Year Eligibility. In the event that an Employee first becomes
eligible to participate in the Plan during a Year, such Employee shall, within
thirty (30) calendar days of becoming eligible, be notified by the Company of
his or her eligibility to participate, and the Company shall provide each such
Employee with an "Election to Defer Form," which must be completed by the
Employee as provided in Section 5.2 herein; provided, however, that such
Employee may only make an election to defer with respect to that portion of his
or her Compensation for such Year which is to be earned after the filing of the
deferral election.
4.4 No Right to Participate. No Employee shall have the right to be
selected as a Participant, or, having been so selected for any given Year, to be
selected again as a Participant for any other Year.
Article 5. Deferral Opportunity
5.1 Amount Which May Be Deferred. A Participant may elect to defer up to
one hundred percent (100%) of eligible components of Compensation, including but
not limited to Salary, Bonus, and Long-Term Awards, in any Year; provided,
however, that the Committee shall have sole discretion to designate which
components of Compensation are eligible for deferral elections under the Plan in
any given Year. The minimum amount of any single eligible component of
Compensation which may be deferred in any Year is the lesser of ten percent
(10%) of such component and ten thousand dollars ($10,000). In addition, an
election to defer Compensation in any Year shall be expressed by each
Participant in minimum increments of either ten percent (10%) of the applicable
component of Compensation or ten thousand dollars ($10,000).
5.2 Deferral Election. Participants shall make their elections to defer
Compensation under the Plan at least thirty (30) calendar days prior to the
beginning of each Year, or not later than thirty (30) calendar days following
notification of eligibility to participate for a partial Year. All deferral
elections shall be irrevocable, and shall be made on an "Election to Defer
Form," as described herein. Notwithstanding the foregoing, Participants shall
make their elections to defer Salary under the Plan at least thirty (30)
calendar days prior to the beginning of each calendar year for which the Salary
is payable, or not later than thirty (30) calendar days following notification
of eligibility to participate for a partial calendar year.
Participants shall make the following irrevocable elections on each
"Election to Defer Form":
-4-
<PAGE>
(a) The amount to be deferred with respect to each eligible component of
Compensation for the Year;
(b) The length of the deferral period with respect to each eligible
component of Compensation, pursuant to the terms of Section 5.3
herein; and
(c) The form of payment to be made to the Participant at the end of the
deferral period (s), pursuant to the terms of Section 5.4 herein.
Notwithstanding the amounts requested to be deferred pursuant to
Subparagraph (a) above, the limits on deferrals set forth in Section 5.1 herein
shall apply to the requested deferrals each Year.
5.3 Length of Deferral. The deferral periods elected by each Participant
with respect to deferrals of Compensation for any Year shall be at least equal
to one (1) year following the end of the Year in which the Compensation is
earned, and shall be no greater than ten (10) years following such date.
However, notwithstanding the deferral periods elected by a Participant, payment
of deferred amounts and accumulated interest thereon shall be made to the
Participant in a single lump sum in the event the Participant's employment with
the Company is terminated by reason of death or Disability at any time prior to
full payment of deferred amounts and interest thereon. Such payment following
employment termination shall be made in cash, within thirty (30) calendar days
after the termination of the Participant's employment.
5.4 Payment of Deferred Amounts. Subject to the provisions of Section
5.5, 5.6 and Article 9 of the Plan, Participants shall be entitled to elect to
receive payment of deferred amounts, together with interest earned thereon, at
the end of the deferral period in a single lump-sum cash payment, by means of
installments, or in such other format approved by the Committee. Such elections
shall be made within the same time periods as required in Section 5.2 of the
Plan.
(a) Lump-Sum Payment. Such payment shall be made in cash within sixty
(60) calendar days of the date specified by the Participant as the
date for payment of deferred Compensation, as described in Sections
5.2 and 5.3 herein.
(b) Installment Payments. Participants may elect payout in installments,
with a minimum number of installments of two (2), and a maximum of
fifteen (15). The initial payment shall be made in cash within sixty
(60) calendar days after the commencement date selected by the
Participant pursuant to Sections 5.2 and 5.3 herein. The remaining
installment payments shall be made in cash each year thereafter, until
the Participant's entire deferred compensation account has been paid.
Interest shall accrue on the deferred amounts in the Participant's
deferred compensation account, as provided in Section 6.2 of this
Plan. The amount of each installment payment shall be equal to the
balance remaining in the Participant's deferred compensation account
immediately prior to each such payment, multiplied by a fraction, the
numerator of which is one (1), and the denominator of which is the
number of installment payments remaining.
-5-
<PAGE>
In the event a Participant's employment with the Company is terminated
by reason of death or Disability at a time when there is a balance in
the Participant's deferred compensation account, the entire balance
shall be paid out to the Participant, as set forth in Section 5.3
herein.
(c) Alternative Payment Schedule. A participant may submit an alternate
payment schedule to the Committee for approval; provided, however,
that no such alternate payment schedule shall be permitted unless
approved by the Committee.
5.5 Financial Hardship. The Committee shall have the authority to alter
the timing or manner of payment of deferred amounts in the event that the
Participant establishes, to the satisfaction of the Committee, severe financial
hardship. In such event, the Committee may, in its sole discretion:
(a) Authorize the cessation of deferrals by such Participant under the
Plan; or
(b) Provide that all, or a portion, of the amount previously deferred by
the Participant shall immediately be paid in a lump-sum cash payment;
or
(c) Provide that all, or a portion, of the installments payable over a
period of time shall immediately be paid in a lump-sum cash payment;
or
(d) Provide for such other installment payment schedule as deemed
appropriate by the Committee under the circumstances.
For purposes of this Section 5.5, "severe financial hardship" shall mean
any financial hardship resulting from extraordinary and unforeseeable
circumstances arising as a result of one or more recent events beyond the
control of the Participant. In any event, payment may not be made to the extent
such emergency is or may be relieved: (i) through reimbursement or compensation
by insurance or otherwise; (ii) by liquidation of the Participant's assets, to
the extent the liquidation of such assets would not itself cause severe
financial hardship; and (iii) by cessation of deferrals under the Plan.
Withdrawals of amounts because of a severe financial hardship may only be
permitted to the extent reasonably necessary to satisfy the hardship. Examples
of what are not considered to be severe financial hardships include the need to
send a Participant's child to college or the desire to purchase a home. The
Participant's account will be credited with earnings in accordance with the Plan
up to the date of distribution.
The severity of the financial hardship shall be judged by the Committee.
The Committee's decision with respect to the severity of financial hardship and
the manner in which, if at all, the Participant's future deferral opportunities
shall be ceased, and/or the manner in which, if at all the payment of deferred
amounts to the Participant shall be altered or modified, shall be final,
conclusive, and not subject to appeal.
-6-
<PAGE>
5.6 Change in Control. Notwithstanding any provision contained in the
Plan, in the event of a Change in Control, in its sole discretion, the Committee
may direct that all Participants shall be entitled to an immediate lump sum
payment of their deferred amounts, together with interest earned thereon.
Article 6. Deferred Compensation Accounts
6.1 Participants' Accounts. The Company shall establish and maintain an
individual bookkeeping account for deferrals made by each Participant under
Article 5 herein. Each account shall be credited as of the date the amount
deferred otherwise would have become due and payable to the Participant.
6.2 Interest on Deferred Amounts. Compensation deferred under Article 5
shall accrue interest on a quarterly basis at a rate equal to the rate elected
by the participant from among the alternatives offered by the Company upon
deferral. Each Participant's deferred compensation account shall be credited on
the last day of each calendar quarter, with interest computed on the average
balance in the account during such quarter.
Interest earned on deferred amounts shall be paid out to Participants at
the same time and in the same manner as the underlying deferred amounts.
6.3 Charges Against Accounts. There shall be charged against each
Participant's deferred compensation account any payments made to the Participant
or to his or her beneficiary.
6.4 Designation of Beneficiary. Each Participant may designate a
beneficiary or beneficiaries (who may be named contingently or successively)
who, upon the Participant's death, will receive the amounts that otherwise would
have been paid to the Participant under the Plan. All designations shall be
signed by the Participant, and shall be in such form as prescribed by the
Committee. Each designation shall be effective as of the date received by to
the Corporate Secretary of the Company from the Participant.
Participants may change their designations of beneficiary on such form as
prescribed by the Committee. The payment of amounts deferred under the Plan
shall be in accordance with the last unrevoked written designation of
beneficiary that has been signed by the Participant and delivered by the
Participant to the Secretary of the Company prior to the Participant's death.
In the event that all the beneficiaries named by a Participant pursuant to
this Section 6.4 predecease the Participant, the deferred amounts that would
have been paid to the Participant or the Participant's beneficiaries shall be
paid to the Participant's estate.
In the event a Participant does not designate a beneficiary, or for any
reason such designation is ineffective, in whole or in part, the amounts that
otherwise would have been paid to the Participant or the Participant's
beneficiaries under the Plan shall be paid to the Participant's estate.
-7-
<PAGE>
Article 7. Rights of Participants
7.1 Contractual Obligation. The Plan shall create a contractual
obligation on the part of the Company to make payments from the Participants'
accounts when due. Payment of account balances shall be made out of the general
funds of the Company.
7.2 Unsecured Interest. No Participant or party claiming an interest in
deferred amounts or contributions under a Participant shall have any interest
whatsoever in any specific asset of the Company. To the extent that any party
acquires a right to receive payments under the Plan, such right shall be
equivalent to that of an unsecured general creditor of the Company.
The Company may establish one or more trusts, with such trustee as the
Committee may approve, for the purpose of providing for the payment of deferred
amounts and/or contributions. Any such trust created by the Company will
conform to the terms of the model trust as contained in the most current revenue
procedure and related releases. Such trust or trusts may be irrevocable, but
the assets thereof shall be subject to the claims of the Company's general
creditors. To the extent any deferred amounts or contributions under the Plan
are actually paid from any such trust, the Company shall have no further
obligation with respect thereto, but to the extent not so paid, such deferred
amounts and contributions shall remain the obligation of, and shall be paid by,
the Company.
7.3 Employment. Nothing in the Plan shall interfere with nor limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
Article 8. Withholding of Taxes
The Company shall withhold from an employee's regular compensation from the
Company an amount sufficient to satisfy foreign, Federal, state, and local
income or other withholding tax requirements with regard to amounts deferred
under the Plan. However, the Company reserves the right to institute
alternative methods for satisfying the applicable income and withholding tax
requirements.
Article 9. Amendment and Termination
The Company hereby reserves the right to amend, modify, or terminate the
Plan at any time by action of the Committee. Except as described below in this
Article 9, no such amendment or termination shall in any material manner
adversely affect any Participant's rights to deferred amounts, contributions, or
interest earned thereon, without the consent of the Participant.
The Plan is intended to be an unfunded plan maintained primarily to provide
deferred compensation benefits for a select group of "management or highly
compensated employees" within the meaning of Sections 201, 301, and 401 of
ERISA, and therefore to be exempt from the provisions of Parts 2, 3, and 4 of
Title I of ERISA. Accordingly, the Board may terminate the
-8-
<PAGE>
Plan and commence termination payout for all or certain Participants, or remove
certain employees as Participants, if it is determined by the United States
Department of Labor or a court of competent jurisdiction that the Plan
constitutes an employee pension benefit plan within the meaning of Section 3(2)
of ERISA which is not so exempt. If payout is commenced pursuant to the
operation of this Article 9, the payment of such amounts shall be made in a lump
sum regardless of the manner selected by each Participant under Section 5.4
herein as applicable.
Article 10. Miscellaneous
10.1 Notice. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail to the Corporate Secretary of the Company.
Notice to the Corporate Secretary of the Company, if mailed, shall be addressed
to the principal executive offices of the Company Notice mailed to a Participant
shall be at such address as is given in the records of the Company. Notices
shall be deemed given as of the date of delivery or, if delivery is made by
mail, as of the date shown on the postmark on the receipt for registration or
certification.
10.2 Nontransferability. Participants' rights to deferred amounts,
contributions, and interest earned thereon under the Plan may not be sold,
transferred, assigned, or otherwise alienated or hypothecated, other than by
will or by the laws of descent and distribution. In no event shall the Company
make any payment under the Plan to any assignee or creditor of a Participant.
10.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
10.4 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular, and the singular shall include the plural.
10.5 Costs of the Plan. All costs of implementing and administering the
Plan shall be borne by the Company.
10.6 Applicable Law. The Plan shall be construed and enforced in
accordance with the provisions of ERISA. In the event that ERISA is not
applicable or does not preempt State law, the laws of the state of Georgia shall
govern.
10.7 Successors. All obligations of the Company under the Plan shall be
binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of the
Company.
-9-
<PAGE>
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR YEARS ENDED JUNE 30, 1992, 1993, AND 1994
EXHIBIT 11
<TABLE>
<CAPTION>
(In millions except per share amounts)
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
PRIMARY:
Weighted average shares outstanding 49 50 50
Additional shares assuming
exercise of stock options * * *
-------- -------- --------
Average shares outstanding as adjusted 49 50 50
======== ======== ========
Income (loss) before cumulative effect of
changes in accounting principles $ (506) $ (415) $ (409)
Preferred dividends series C - (80) (80)
Preferred dividends series B (19) (30) (30)
-------- -------- --------
Income (loss) before cumulative effect of
changes in accounting principles
attributable to primary shares (525) (525) (519)
Cumulative effect of changes in accounting principles - (587) -
-------- -------- --------
Net income (loss) attributable to primary shares $ (525) $ (1,112) $ (519)
======== ======== ========
Primary earnings (loss) per share before
cumulative effect of changes in accounting principles $ (10.60) $ (10.54) $ (10.32)
Cumulative effect of changes in accounting principles - (11.78) -
-------- -------- --------
Primary earnings (loss) per share $ (10.60) $ (22.32) $ (10.32)
======== ======== ========
FULLY DILUTED:
Weighted average shares outstanding 49 50 50
Additional shares assuming:
Conversion of series C convertible preferred stock - 17 17
Conversion of series B ESOP convertible
preferred stock 6 6 7
Conversion of 3.23% convertible subordinated notes - - 10
Exercise of stock options * * *
-------- -------- --------
Average shares outstanding as adjusted 55 73 84
======== ======== ========
Income (loss) before cumulative effect of
changes in accounting principles $ (506) $ (415) $ (409)
Interest on 3.23% convertible subordinated
notes net of taxes - - 32
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock (14) (16) (18)
-------- -------- --------
Income (loss) before cumulative effect of
changes in accounting principles (520) (431) (395)
Cumulative effect of changes in accounting principles - (587) -
-------- -------- --------
Net income (loss) attributable to fully
diluted common shares $ (520) $ (1,018) $ (395)
======== ======== ========
Fully diluted earnings (loss) per common share
before cumulative effect of changes in
accounting principles $ (9.39) $ (5.86) $ (4.72)
Cumulative effect of changes in accounting principles - (7.99) -
-------- -------- --------
Fully diluted earnings (loss) common share $ (9.39) $ (13.85) $ (4.72)
======== ======== ========
</TABLE>
*Antidilutive
<PAGE>
DELTA AIR LINES, INC. EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions except ratio)
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (before cumulative effect of accounting changes):
Net income (loss) $ 303 $ (324) $ (506) $ (415) $ (409)
Add (deduct):
Income tax (credit) provision 187 (163) (271) (233) (250)
Fixed charges 272 402 569 615 688
Interest capitalized (57) (65) (70) (62) (33)
Interest offset on
Guaranteed Serial
ESOP Notes (7) (16) (15) (15) (14)
--------------------------------------------------------------
Earnings (loss) as adjusted $ 698 $ (166) $ (293) $ (110) $ (18)
==============================================================
Fixed charges:
Interest expense $ 84 $ 162 $ 221 $ 239 $ 304
1/3 of rentals 181 224 333 361 370
Additional interest on
Guaranteed Serial
ESOP Notes 7 16 15 15 14
--------------------------------------------------------------
Total fixed charges $ 272 $ 402 $ 569 $ 615 $ 688
==============================================================
Ratio of earnings to fixed charges 2.57 - - - -
</TABLE>
- ----------------------------------------------------------------
Earnings for the fiscal years ended June 30, 1991, 1992, 1993, and 1994 were
inadequate to cover fixed charges.
Additional earnings of $568 million for the fiscal year ended June 30, 1991, of
$862 million for the fiscal year ended June 30, 1992, of $725 million for the
fiscal year ended June 30, 1993 and of $706 million for the fiscal year ended
June 30, 1994, would have been necessary to bring the ratio to 1.0.
<PAGE>
EXHIBIT 13
THE YEAR IN REVIEW
September 1993 Quarter
*Delta Chairman Ron Allen supports the findings of the National Commission to
Ensure a Strong and Competitive Airline Industry. Allen urges Congress and the
Executive Branch to quickly implement the Commission's recommendations to ease
tax and regulatory burdens on the airline industry and to develop a new
aviation trade policy.
*Delta offers an early retirement program to personnel in selected departments
of the Company to align staffing levels with business needs and reduce costs.
*For the second consecutive year, Delta is honored as the recipient of the ASTA
Agency Management Magazine Rex Award for U.S. domestic airlines, recognizing
Delta for providing the best programs and policies for travel agents.
*Delta reports September 1993 quarter net income of $60 million and operating
income of $121 million.
December 1993 Quarter
*Delta introduces "Rapid Redemption," the industry's first program allowing
Frequent Flyers to instantly redeem mileage for free tickets or upgrades.
*Delta reaches understandings with aircraft manufacturers to defer delivery of
37 aircraft on firm order that were scheduled for delivery in fiscal 1995 and
1996. These deferrals reduce aircraft capital spending by approximately $1
billion through fiscal 1996.
*Delta strengthens its transatlantic operations, announcing a rework of its New
York-Kennedy flight complex, including a restructuring of up to one-third of
its transatlantic routes.
*Delta reports a $71 million net loss for the December 1993 quarter, excluding a
$112 million pretax restructuring charge related to the early retirement
program discussed above. Operating loss, excluding the charge, was $68 million.
March 1994 Quarter
*Delta announces additional steps to strengthen transatlantic operations,
including route reductions, code-sharing arrangements and increased domestic
connecting flights to international departures at New York-Kennedy.
*Ron Allen proposes an international aviation strategy to promote fair and equal
access to an increasingly competitive global marketplace.
*Delta reports a $78 million net loss and $67 million operating loss for the
March 1994 quarter.
June 1994 Quarter
*Delta unveils SKYMILES,(TM) a revised frequent flyer program that lowers
redemption levels and permits the transfer of awards.
*Delta forms Business Travel Advisory Councils, comprised of business travelers,
to promote effective communications between Delta and its business customers.
*Delta announces "Leadership 7.5," a three-year program designed to reduce the
Company's annual operating costs by approximately $2 billion by the end of the
June 1997 quarter. The program, which includes an anticipated reduction of
12,000 to 15,000 jobs, addresses the Company's plans for operating profitably
in a low-fare industry environment.
*Delta announces suspension of service in four transatlantic markets and plans
to phase-out its Airbus A310 fleet.
*Delta reports June 1994 quarter net income of $11 million, excluding a $414
million restructuring charge related to Leadership 7.5. Operating income,
excluding the charge, was $93 million.
- --------------------------------------------------------------------------------
Description Of Business
Delta Air Lines, Inc., has been engaged in the air transportation business
since 1929. Based on calendar 1993 data, Delta is the third largest U.S. airline
as measured by operating revenues and revenue passenger miles flown, and the
largest U.S. airline as measured by passengers enplaned.
The Company provides scheduled air transportation over an extensive route
network. At September 12, 1994, Delta served 153 domestic cities in 43 states,
the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, and 57
cities in 32 foreign countries. Service over most of Delta's routes is highly
competitive. In addition to scheduled passenger service, Delta also provides air
freight, mail and other related aviation services.
Delta is incorporated under the laws of the State of Delaware and is
subject to government regulation under the Federal Aviation Act of 1958, as
amended, as well as many other federal, state and foreign laws and regulations.
- --------------------------------------------------------------------------------
[Inside Front Cover]
<PAGE>
OPERATIONAL REVIEW
"Leadership 7.5 is the most difficult task ever faced by this Company, but I
firmly believe the Delta people are up to the challenge."
Leadership 7.5
The emergence of low-cost, low-fare carriers is causing many traditional
airlines, including Delta, to reexamine their domestic operations. The industry
is faced with a growing number of deeply discounted fares and is experiencing a
shift in customers' perceptions of value, largely brought on by the prevalence
of lower fares in the market.
As low-cost, low-fare carriers enter new domestic markets, passenger mile
yields quickly decline, most often at a faster pace than traffic is stimulated.
By the end of fiscal 1994, approximately 57% of Delta's domestic origin and
destination revenue passenger miles were in markets also served by low-cost,
low-fare carriers. Consequently, as fiscal 1994 progressed, the Company's
domestic passenger mile yield weakened from the previous year.
<TABLE>
<CAPTION>
Leadership 7.5 Targets
Operating Cost/ASM
In cents
(Graphic material omitted)
Operating
June Quarters Cost/ASM
- ------------- ---------
<S> <C>
1995 8.6
1996 8.0
1997 7.5
</TABLE>
In November 1993, Delta began a comprehensive study of its domestic
operations, with the goal of developing a strategy for competing profitably in a
low-fare environment. The study addressed the challenges brought on by low-cost,
low-fare carriers: achieving permanent cost reductions to compete profitably at
low-fare levels, increasing productivity and utilization of assets, and
adjusting service to appropriate levels.
As a result of the study, on April 28, 1994, Delta announced "Leadership
7.5," a three-year plan with the goal of reducing annual operating expenses by
approximately $2 billion by the end of the June 1997 quarter. The $2 billion
cost reduction would lower the Company's system operating cost per available
seat mile (unit cost) to approximately 7.5 cents by the June 1997 quarter. Delta
has established interim unit cost goals of 8.6 cents by the June 1995 quarter
and 8.0 cents by the June 1996 quarter. These unit cost goals reflect the phase-
in of the approximately $2 billion in targeted cost savings, exclude
restructuring and other nonrecurring charges, and assume other costs and
operating capacity remain at calendar 1993 levels. To the extent that other
costs increase, the Company will seek additional cost reductions to achieve its
goals.
Delta considered, but rejected, creating a separate low-fare airline to
compete on high-density routes in favor of a more comprehensive effort to
substantially reduce costs and improve productivity throughout its system.
However, in the event Delta is not able to reach its cost reduction goal, the
Company is exploring an alternate business plan to provide service in certain
markets through a joint venture with one or more third parties.
The Leadership 7.5 program includes planned workforce reductions of 12,000
to 15,000 jobs. The Company is offering voluntary early retirement incentives,
leaves of absence and severance programs, but furloughs of personnel will also
be necessary to achieve these reductions.
Delta has established 11 internal teams to develop plans to reach its
Leadership 7.5 cost reduction goals.
Leadership 7.5 Teams
<TABLE>
<CAPTION>
Cost Reduction
Target
Team (Millions)
- ---- ---------------
<S> <C>
Marketing.................................... $ 400
Flying Operations............................ 320-340
On-Board Services............................ 310
Personnel.................................... 200-300
Technical Support............................ 175-280
Airport Operations........................... 175-250
Administrative Support....................... 150
Other Flying Operations...................... 50-80
Fleet and Network Reconfiguration............ 25-150
Product/Service.............................. *
Joint Venture................................ *
------------
Total........................................ $1,805-2,260
</TABLE>
*Support Team; no savings target
The teams are scheduled to finalize their plans by September 15, 1994.
However, a number of cost reduction initiatives have already begun. Actions
expected to result in over $500 million in annual cost savings have been
implemented or are scheduled for implementation, including:
*Outsourcing of certain non-passenger contact functions and changes in
staffing formulas in Airport Customer Service, resulting in the
reduction of 4,500 full-time jobs.
*Reengineering of processes in Technical Operations, resulting in the
elimination of 2,500 jobs as well as reductions in inventory levels.
*Adjusting service levels on certain flights and improving flight attendant
productivity through staffing changes.
*Beginning a point-of-service employee medical plan.
*Implementing the planned phase-out of the Airbus A310 fleet.
The support and participation of the Air Line Pilots Association (ALPA),
which represents Delta pilots, is critical
4
<PAGE>
to the success of Leadership 7.5. The Company is seeking $320-340 million in
annual productivity improvements and wage and benefit reductions from ALPA in
connection with contract negotiations expected to commence in November 1994. The
contract becomes amendable in January 1995.
Delta's cost reduction and unit cost goals are aggressive, and no assurance
can be given that Delta will achieve these goals.
"We also made progress in fiscal 1994 on the very serious need to make our
transatlantic routes profitable."
International Operations
Transatlantic operating results, while unprofitable, improved significantly
from the previous year. Transatlantic revenue continued to be negatively
affected by weak economies in much of Europe and by discount fares in most of
the markets Delta serves. In addition, many of the costs associated with
international operations continued to escalate. Because of these factors, Delta
initiated a detailed analysis of its transatlantic operations to improve
performance on these routes.
During fiscal 1994, Delta improved the efficiency of its New York-Kennedy
operation by adding domestic flights and reducing connecting times to
international flight departures. In addition, the Company began code-sharing
agreements with Sabena between New York-Kennedy and Brussels, with Malev
Hungarian Airlines between New York-Kennedy and Budapest, and with Austrian
Airlines between New York-Kennedy and Vienna.
Delta also announced a code-sharing agreement with Virgin Atlantic Airways
on its flights from Los Angeles, Miami, New York-Kennedy, Newark and San
Francisco to London-Heathrow airport, and from Boston and Orlando to London-
Gatwick airport. The agreement is subject to U.S. Department of Transportation
approval.
Other transatlantic route reconfiguration activities included
discontinuation of service in several unprofitable markets. During fiscal 1994,
Delta cancelled service from San Francisco to Frankfurt and announced the
suspension of service, effective September 1994, from Cincinnati to Munich,
Miami to London, and New York-Kennedy to Oslo and Stockholm.
Delta also implemented a number of initiatives to strengthen customer
service, sales and marketing efforts. These initiatives include development of
specific sales performance targets, a marketing plan to target key accounts, and
an enhanced automation system. In addition, the Company implemented operational
initiatives to reduce costs or increase productivity, including outsourcing in-
flight duty-free services, closing the Frankfurt distribution center, rebidding
European catering contracts, insourcing ground handling services at New York-
Kennedy and increasing self-handling of ground services at Frankfurt.
Delta expects future transatlantic financial results to improve through
further actions resulting from the transatlantic study, additional schedule
changes to adjust for seasonal demand, and continued emphasis on revenue
enhancement and cost reduction.
"Part of our international strategy is to use code-sharing with other quality
air carriers to support Delta's international service."
Bilateral Agreements and Code-Sharing
Delta's ability to provide certain international service is governed by
bilateral agreements between the United States and the foreign countries
involved. Recent financial hardships experienced by the industry have led a
number of foreign governments to seek amended bilateral agreements restricting
the operational flexibility of U.S. carriers.
Delta continues to advocate bilateral agreements that allow foreign
carriers open access into and beyond the U.S. in exchange for similar rights for
U.S. carriers abroad. However, with protectionist sentiment running high in a
number of countries, U.S. Government negotiators have been forced to accept
operating restrictions in order to avoid renunciations of existing bilateral
agreements. Delta will continue to advocate a more open, market-oriented
operating environment.
A key factor affecting a number of U.S.-foreign country bilateral relations
is the practice of code-sharing. Code-sharing is the application of one
airline's code on another carrier's flight. In a blocked-space, code-sharing
agreement, the non-operating carrier purchases seats from the operating carrier,
and each carrier separately markets its respective seats on the flight. Both
carriers must have underlying route authority. Code-sharing enables airlines to
use their resources efficiently, provides passengers with a convenient means of
travel to an increased range of destinations and enhances competition.
As Delta allocates its resources to markets with the most profit potential,
the Company is increasing its use of code-sharing to gain or maintain access to
international markets. Delta's goal is to serve its customers while increasing
efficiency and expanding market presence by developing a network of mutually
beneficial code-sharing alliances.
During fiscal 1994, Delta began a number of code-sharing arrangements,
including the transatlantic agreements previously discussed. In addition, the
Company began a code-sharing arrangement with Varig Brazilian Airlines on its
5
<PAGE>
flights from Atlanta, Los Angeles, Miami and New York-Kennedy to Rio de Janeiro
and Sao Paulo; and announced a code-sharing agreement with Aeromexico on its
flights from Dallas/Ft. Worth to Mexico City, on Delta flights from Atlanta to
Monterrey, and on both carriers' flights from Atlanta to Mexico City beginning
September 1994.
Delta will continue to seek code-sharing alliances with quality
international airlines as a cost-effective means of expanding its global
presence.
"We continued to simplify our fleet and refine our fleet plan."
Aircraft Fleet
During fiscal 1994, Delta made revisions to its aircraft fleet and fleet
plan to strengthen its financial position, and to continue a fleet
simplification program begun in fiscal 1992.
Aircraft Fleet
At June 30, 1994
<TABLE>
<CAPTION>
Average Age
of Aircraft
Type of Aircraft Type (Years) Owned Leased Total
- ---------------- ------------ ----- ------ -----
<S> <C> <C> <C> <C>
A310-200 9.5 3 1 4
A310-300 0.7 -- 9 9
B-727-200 17.2 106 32 138
B-737-200 9.8 1 57 58
B-737-300 7.4 2 13 15
B-757-200 5.5 43 41 84
B-767-200 11.1 15 -- 15
B-767-300 5.1 2 24 26
B-767-300ER 2.7 7 7 14
L-1011-1 17.3 32 -- 32
L-1011-200 16.0 1 -- 1
L-1011-250 11.7 6 -- 6
L-1011-500 13.4 17 -- 17
MD-11 1.4 4 7 11
MD-88 4.0 63 57 120
----- ----- ----- -----
Total 9.6 302 248 550
===== ===== ===== =====
</TABLE>
During fiscal 1994, Delta accepted delivery of 19 new aircraft, including 8
A310-300 aircraft, 2 B-737-300 aircraft, 1 B-767-300 aircraft, 4 MD-11 aircraft
and 4 MD-88 aircraft.
Also during fiscal 1994, Delta returned to lessors 3 A310-200 aircraft, 14
A310-300 aircraft, 11 B-727-200 aircraft and 2 MD-11 aircraft, and sold 3
B-737-300 aircraft. These aircraft retirements were part of Delta's continuing
fleet simplification program. Delta also announced plans to phase out its entire
A310 fleet by the end of calendar 1995. Delta intends to continue its fleet
simplification program as part of the Leadership 7.5 program.
Consistent with Delta's efforts to strengthen its financial position, the
Company continued to reduce capital spending plans during fiscal 1994 by
deferring delivery of 37 aircraft on firm order that were scheduled for delivery
in fiscal 1995 and 1996, to fiscal years after fiscal 1996. These deferrals
reduced previously planned aircraft capital expenditures by approximately $1
billion through fiscal 1996. As a result of these deferrals and changes to the
fleet plan announced in fiscal 1993 and 1992, Delta will take delivery of only
eight aircraft in each of the next two fiscal years.
In spite of reductions in new aircraft deliveries, Delta maintains one of
the youngest aircraft fleets of the major U.S. airlines. At June 30, 1994, the
average age of Delta's fleet was 9.6 years. The Company expects the average age
of the fleet will increase modestly over the next several years.
Aircraft Delivery Schedule
Aircraft on Firm Order at July 31, 1994
<TABLE>
<CAPTION>
Delivery in Year Ending June 30:
------------------------------------------------
After
Orders: 1995 1996 1997 1998 1999 1999 Total
- ------- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
B-737-300.............. -- -- 6 6 5 35 52
B-757-200.............. 1 1 2 2 -- -- 6
B-767-300.............. 1 1 -- -- -- -- 2
B-767-300ER............ -- 1 4 -- -- -- 5
MD-11.................. -- -- 2 2 -- -- 4
MD-90.................. 6 5 16 20 8 -- 55
---- ---- ---- ---- ---- ---- -----
Total............... 8 8 30 30 13 35 124
</TABLE>
The aircraft orders include 22 B-737-300 aircraft and 24 MD-90 aircraft
scheduled for delivery after fiscal 2001 and fiscal 1996, respectively, that are
subject to reconfirmation by Delta. In addition, the B-737-300 aircraft orders
may be converted to B-737-400 or B-737-500 aircraft orders at Delta's election,
and 4 B-767-300ER aircraft orders may be converted to B-767-300 aircraft orders,
also at Delta's election.
Delta's aircraft on option provide the Company with the flexibility to
adjust aircraft deliveries. During fiscal 1994, Delta allowed 19 aircraft
options to expire.
Aircraft Delivery Schedule
Aircraft on Option at July 31, 1994
<TABLE>
<CAPTION>
Delivery in Year Ending June 30:
------------------------------------------
After
Options: 1995 1996 1997 1998 1999 1999 Total
- -------- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
B-737-300.............. -- -- -- 2 6 48 56
B-757-200.............. -- -- 1 3 5 28 37
B-767-300ER............ -- -- 1 5 4 -- 10
MD-11.................. -- -- 5 5 5 12 27
MD-88.................. -- -- 15 15 15 -- 45
MD-90.................. -- -- -- -- 9 41 50
- -------- ---- ---- ---- ---- ---- ---- -----
Total -- -- 22 30 44 129 225
</TABLE>
The MD-88 aircraft options may be converted to MD-90 aircraft orders, the
B-737-300 aircraft options may be converted to B-737-400 or B-737-500 aircraft
orders, and the B-767-300ER aircraft options may be converted to B-767-300
aircraft orders, all at Delta's election.
6
<PAGE>
FINANCIAL REVIEW
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations--
Fiscal 1994 Compared with Fiscal 1993
For fiscal 1994, Delta recorded a net loss of $409 million ($10.32 primary
and fully diluted loss per common share after preferred stock dividend
requirements) and an operating loss of $447 million. In fiscal 1993, Delta
recorded a net loss of $1.0 billion ($22.32 primary and fully diluted loss per
common share after preferred stock dividend requirements) and an operating loss
of $575 million.
The results for fiscal 1994 and 1993 were affected by, among other factors,
certain nonrecurring charges, increased price competition, weak economies in a
number of international regions and certain changes in accounting estimates.
<TABLE>
<CAPTION>
Primary Earnings (Loss)
Per Common Share*
In dollars
(Graphic material omitted)
<S> <C>
Fiscal Year 1985 $ 6.50
1986 1.18
1987 5.90
1988 6.30
1989 9.37
1990 5.79
1991 (7.73)
1992 (10.60)
1993 (9.49)
1994 (3.73)
</TABLE>
*Excludes restructuring changes and cumulative effect of accounting changes
Fiscal 1994 results include pretax restructuring charges totaling $526
million ($331 million after tax, or $6.59 per common share) related to an early
retirement program under which approximately 1,500 employees elected to retire,
effective November 1, 1993, and the Company's Leadership 7.5 program.
Fiscal 1993 results include an $82 million pretax fleet restructuring
charge ($52 million after tax, or $1.05 per common share), reflecting
nonrecurring costs associated with the retirement of 21 A310 aircraft. Fiscal
1993 results were also affected by Delta's adoption effective July 1, 1992, of
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), which resulted in an aggregate $587 million after-tax charge ($11.78 per
common share). See Notes 12 and 10, respectively, of Notes to Consolidated
Financial Statements.
Excluding restructuring charges and the cumulative effect of accounting
changes, the net loss for fiscal 1994 was $77 million ($3.73 primary and fully
diluted loss per common share after preferred stock dividend requirements), and
operating income was $79 million, compared to a net loss of $363 million ($9.49
primary and fully diluted loss per common share after preferred stock dividend
requirements) and an operating loss of $493 million in fiscal 1993.
Fiscal 1994 results were negatively impacted by discount fare promotions in
domestic and international markets, and the increasing presence of low-cost,
low-fare carriers in many of the domestic markets served by Delta, which
resulted in a 1% decrease in the passenger mile yield from fiscal 1993.
Fiscal 1993 results were negatively affected by a change in the airline
industry's domestic fare structure for most of the year, which reduced the
number of fare levels and generally lowered fares, a half-off sale promotion
during the September 1992 quarter, and discount fare promotions in domestic and
international markets. These fare initiatives contributed to a 3% decline in the
passenger mile yield from fiscal 1992.
Delta expects that price competition is likely to continue in domestic and
international markets. If fare reductions are not offset by increases in traffic
or changes in the mix of traffic that improve the passenger mile yield, Delta's
operating results will be negatively affected.
In fiscal 1994 and 1993, transatlantic and intra-European operations
accounted for 20% and 19%, respectively, of the Company's system available seat
miles and 78% and 77%, respectively, of international available seat miles.
Generally weak economies in much of Europe, and particularly in Germany where
Delta operates a hub in Frankfurt, negatively affected international revenues
for fiscal 1994 and 1993.
Effective April 1, 1993, Delta revised its depreciation policy by
increasing the estimated useful lives of substantially all of its flight
equipment from 15 to 20 years and reducing residual values from 10% to 5% of
cost. Also effective April 1, 1993, Delta increased from 9% to 10% its
assumption regarding the expected annual return on plan assets associated with
defined benefit pension plans. (See Notes 1 and 12, respectively, of Notes to
Consolidated Financial Statements.) Results for fiscal 1994 include a full-year
benefit from these changes, versus a three-month benefit for fiscal 1993.
7
<PAGE>
The following table summarizes Delta's financial results for fiscal 1994
and 1993:
<TABLE>
<CAPTION>
Percent
1994 1993 Change
------- -------- --------
(In Millions, Except
Share Amounts)
<S> <C> <C> <C>
Operating Revenues................. $12,359 $11,997 + 3%
Operating Expenses................. 12,806 12,572 + 2
------- ------- ------
Operating Loss..................... (447) (575) - 22
Other Expense, Net................. (213) (76) *
------- ------- ------
Loss Before Income Taxes and
Cumulative Effect of
Accounting Changes............... (660) (651) + 1
Income Tax Benefit................. 251 236 + 6
------- ------- ------
Net Loss Before Cumulative Effect
of Accounting Changes............ (409) (415) - 1
Cumulative Effect of Accounting
Changes.......................... -- (587) --
------- ------- ------
Net Loss........................... (409) (1,002) - 59
Preferred Stock Dividends.......... (110) (110) --
------- ------- ------
Net Loss Attributable to
Common Stockholders.............. $ (519) $(1,112) - 53%
======= ======= ======
Primary and Fully Diluted Per
Share Amounts:
Loss Before Cumulative Effect
of Accounting Changes........ $(10.32) $(10.54) - 2%
Cumulative Effect of
Accounting Changes........... -- (11.78) --
------- ------- -------
Net Loss Per Common Share...... $(10.32) $(22.32) - 54%
======= ======= ======
Number of Shares Used to Compute
Net Loss Per Share Amounts....... 50,257,721 49,836,959 + 1%
</TABLE>
*Exceeds 100%
OPERATING REVENUES
Operating revenues for fiscal 1994 were $12.4 billion, up 3% from $12.0
billion in fiscal 1993. The following table compares operating revenues by
major category for fiscal 1994 and 1993:
<TABLE>
<CAPTION>
Percent
1994 1993 Change
------- ------- -------
(In Millions)
<S> <C> <C> <C>
Passenger............... $11,316 $11,075 + 2%
Cargo................... 769 698 +10
Other, Net.............. 274 224 +22
------- ------- -------
Total............... $12,359 $11,997 + 3%
======= ======= =======
</TABLE>
Passenger revenue in fiscal 1994 increased 2% to $11.3 billion, the result
of 3% growth in revenue passenger miles partly offset by a 1% decline in the
passenger mile yield to 13.28 cents. Domestic revenue passenger miles increased
1% and the domestic passenger mile yield declined less than 1%, primarily due to
discount fare promotions and the growing presence of low-cost, low-fare carriers
in many markets served by Delta. International revenue passenger miles grew 10%
and the international passenger mile yield declined 3%, largely the result of
discount fares and other promotional programs. During fiscal 1994, domestic
operating capacity declined 2% and international operating capacity rose 4%,
compared to fiscal 1993.
<TABLE>
<CAPTION>
Revenue Per
Available Seat Mile
In cents
(Graphic material omitted)
Fiscal Year Passenger Total
- ----------- --------- -----
<S> <C> <C>
1985 8.48 9.07
1986 7.75 8.36
1987 7.13 7.71
1988 7.51 8.06
1989 8.35 8.91
1990 8.34 8.90
1991 8.21 8.79
1992 8.22 8.80
1993 8.37 9.07
1994 8.59 9.38
</TABLE>
Cargo revenues increased 10% to $769 million in fiscal 1994. Cargo ton
miles increased 10%, primarily due to Delta's international expansion, and the
ton mile yield rose less than 1%.
<TABLE>
<CAPTION>
1994 Distribution of Operating Revenues
(Graphic material omitted)
<S> <C>
Domestic Passenger 72%
International Passenger 20%
Cargo 6%
Other 2%
</TABLE>
All other revenues were up 22% to $274 million, mainly due to increased
revenue from joint marketing programs and fees collected for passenger ticket
changes.
The following table compares revenue-related statistics for fiscal 1994 and
1993:
<TABLE>
<CAPTION>
Revenue Statistics 1994 1993 Change
- ------------------ ------ ------ ------
<S> <C> <C> <C>
Revenue Passenger
Miles (Millions)......... 85,206 82,406 + 3%
Revenue Passengers
Enplaned (Thousands)..... 87,399 85,085 + 3%
Passenger Load Factor...... 64.66% 62.30% +2.36 pts.
Passenger Mile Yield....... 13.28c 13.44c - 1%
Operating Revenue Per
Available Seat Mile...... 9.38c 9.07c + 3%
Cargo Ton Miles (Millions). 1,384 1,257 +10%
Cargo Ton Mile Yield....... 55.59c 55.47c --
</TABLE>
8
<PAGE>
Operating Expenses
Operating expenses in fiscal 1994 totaled $12.8 billion, up 2% from $12.6
billion in fiscal 1993. Operating capacity decreased less than 1% to 131.8
billion available seat miles. The cost per available seat mile increased 2% to
9.72 cents. Excluding restructuring charges in both periods, operating expenses
totaled $12.3 billion in fiscal 1994, down 2% from $12.5 billion in fiscal 1993,
and the cost per available seat mile decreased 1% to 9.32 cents.
The following table compares operating expenses by major category for
fiscal 1994 and 1993:
<TABLE>
<CAPTION>
Percent
1994 1993 Change
------- ------- -------
(In Millions)
<S> <C> <C> <C>
Salaries and Related
Costs......................... $ 4,589 $ 4,798 - 4%
Aircraft Fuel................... 1,411 1,592 -11
Passenger Commissions........... 1,318 1,250 + 5
Aircraft Rent................... 732 729 --
Depreciation and Amortization... 678 735 - 8
Passenger Service............... 530 549 - 3
Aircraft Maintenance
Materials and Outside
Repairs....................... 418 465 -10
Facilities and Other Rent....... 380 356 + 7
Landing Fees.................... 261 262 --
Restructuring Charges........... 526 82 *
Other........................... 1,963 1,754 +12
------- ------- -----
Total $12,806 $12,572 + 2%
======= ======= =====
</TABLE>
*Exceeds 100%
Salaries and related expenses decreased 4% to $4.6 billion, the result of
lower employee benefits expenses, a 3% reduction in the number of employees,
primarily due to an early retirement program accepted by approximately 1,500
employees effective November 1, 1993, and a 5% pay cut for domestic non-contract
personnel effective February 1, 1993. Aircraft fuel expense decreased 11% to
$1.4 billion, as fuel gallons consumed increased 1% and the average price per
fuel gallon decreased 12% to 55.34 cents, Delta's lowest average price per fuel
gallon for any fiscal year since 1989.
<TABLE>
<CAPTION>
1994 Operating Expenses*
As a percent of total operating expenses
(Graphic material omitted)
<S> <C>
Salaries and Related 37%
Aircraft Fuel 12%
Passenger Commissions 11%
Rentals and Landing Fees 11%
Depreciation and Amortization 6%
Passenger Service 4%
Aircraft Maintenance Materials and Outside Repairs 3%
Other Costs 16%
</TABLE>
* Excludes restructuring charges
Passenger commissions rose 5%, mainly the result of growth in international
passenger revenue and higher commission rates. Aircraft rent expense increased
less than 1%.
Depreciation and amortization expense decreased 8% in fiscal 1994,
primarily due to a change in the Company's depreciation policy previously
discussed.
Passenger service expense decreased 3%, reflecting continued cost reduction
programs, partially offset by 3% growth in passenger traffic. Aircraft
maintenance materials and outside repairs expense decreased 10%, primarily
attributable to lower outside repairs expense for both airframes and engines and
lower airframe material usage.
Cost Per Available Seat Mile*
In cents
(Graphic material omitted)
<TABLE>
<CAPTION>
Excluding
Fiscal Year Fuel Total
- ----------- --------- -----
<S> <C> <C>
1985 6.63 8.36
1986 6.80 8.30
1987 6.15 7.12
1988 6.33 7.48
1989 7.08 8.17
1990 7.18 8.46
1991 7.69 9.22
1992 8.15 9.35
1993 8.24 9.44
1994 8.25 9.32
</TABLE>
*Excludes restructuring charges
Facilities and other rent expenses increased 7%, the result of new
passenger and maintenance facilities and increased rental rates in certain
domestic hub locations. Landing fees decreased less than 1%, as certain rate
adjustments offset systemwide rate increases.
Fiscal 1994 operating expenses included a $112 million restructuring charge
for costs associated with an early retirement program under which approximately
1,500 employees elected to retire effective November 1, 1993, and a $414 million
restructuring charge related to the Leadership 7.5 program, which includes costs
associated with workforce reductions, reductions in inventory levels, facility
closings and route terminations.
Fiscal 1993 operating expenses included an $82 million fleet restructuring
charge, which included $28 million for costs of maintenance required prior to
returning 18 leased A310 aircraft to lessors; a $20 million write-off of
aircraft leasehold improvements on nine of the aircraft; a $30 million write-
down of three owned A310-200 aircraft and certain A310 spare parts to reflect
current market value; and $4 million related to pilot furloughs.
Cash payments for the fiscal 1994 restructuring charges will approximate
$473 million, of which $392 million is associated with workforce reductions and
represents future funding of pension and postretirement benefits that will occur
over many periods. The remaining $81 million represents costs for severence
payments and lease termination fees for aircraft and facilities, which are
expected to be substantially complete by fiscal 1996. Cash payments associated
with the fiscal 1993 restructuring charge were completed in fiscal 1994 and
totaled $28 million. See Note 14 of Notes to Consolidated Financial Statements.
9
<PAGE>
All other operating expenses for fiscal 1994 increased 12%, largely due to
growth in traffic and international operations. Cargo commissions increased 25%,
reflecting traffic growth and higher commission rates in international markets.
Booking fee payments to computer reservations systems increased 22%, primarily
due to increased passenger traffic. Insurance expense grew 42%, a result of
industry-wide premium increases. The Company also recorded a $14 million one-
time charge in fiscal 1994 related to Frequent Flyer program changes.
The following table compares significant operating statistics for fiscal
1994 and 1993:
<TABLE>
<CAPTION>
Operating Statistics 1994 1993 Change
- -------------------- ------- ------- -----------
<S> <C> <C> <C>
Available Seat Miles (Millions)............... 131,780 132,282 --
Available Ton Miles (Millions)................ 18,302 18,182 + 1%
Fuel Gallons
Consumed (Millions)......................... 2,550 2,529 + 1%
Average Fuel Price Per Gallon................. 55.34c 62.95c -12%
Passenger Load Factor......................... 64.66% 62.30% +2.36 pts.
Breakeven Passenger Load Factor:
Including Restructuring
Charges..................................... 67.21% 65.53% +1.68 pts.
Excluding Restructuring
Charges..................................... 64.21% 65.07% -0.86 pts.
Cost Per Available Seat Mile:
Including Restructuring
Charges..................................... 9.72c 9.50c + 2%
Excluding Restructuring
Charges..................................... 9.32c 9.44c - 1%
</TABLE>
See page 4 for information regarding Leadership 7.5, a three-year plan
introduced during fiscal 1994, with the goal of reducing annual operating
expenses by approximately $2 billion by the end of the June 1997 quarter.
Other Income and Expenses
Nonoperating expense for fiscal 1994 totaled $213 million, compared to $76
million in fiscal 1993. Interest expense rose 27% to $304 million, principally
due to a full year's interest incurred on debt issued in fiscal 1993. Interest
capitalized on funds advanced for the purchase of flight equipment and
construction of facilities totaled $33 million, down 46% from fiscal 1993,
resulting from a decline in the average balance of advance payments for
aircraft. The average monthly balance of such advance payments was $301 million
in fiscal 1994, compared to $587 million in fiscal 1993. Interest income for
fiscal 1994 totaled $57 million, up from $22 million in fiscal 1993, primarily
due to a higher average level of short-term investments. Gains from the
disposition of flight equipment totaled $2 million in fiscal 1994, compared to
$65 million in fiscal 1993, which included the sale of 18 DC-9-32 aircraft.
Miscellaneous expense was $1 million in fiscal 1994, compared to miscellaneous
income of $14 million in fiscal 1993, primarily due to costs associated with the
sale of certain accounts receivables and the letter of credit used to credit
enhance the Guaranteed Serial ESOP Notes (see Notes 4 and 5, respectively, of
Notes to Consolidated Financial Statements).
Tax Provision
The $660 million pretax loss for fiscal 1994 was reduced by an income tax
benefit of $250 million and by the amortization of $1 million of investment tax
credits.
RESULTS OF OPERATIONS-
FISCAL 1993 COMPARED WITH FISCAL 1992
For fiscal 1993, Delta recorded a net loss of $1.0 billion ($22.32 primary
and fully diluted loss per common share after preferred stock dividend
requirements) and an operating loss of $575 million. Excluding the $82 million
fleet restructuring charge and the cumulative effect of the adoption of SFAS 106
and SFAS 109 previously discussed, the net loss was $363 million ($9.49 primary
and fully diluted loss per common share after preferred stock dividend
requirements), and the operating loss was $493 million. In fiscal 1992, Delta
recorded a net loss of $506 million ($10.60 primary and fully diluted loss per
common share after preferred stock dividend requirements) and an operating loss
of $675 million.
Operating Revenues
Operating revenues for fiscal 1993 were $12.0 billion, up 11% from $10.8
billion in fiscal 1992. Passenger revenue in fiscal 1993 increased 9% to $11.1
billion, the result of 13% growth in revenue passenger miles offset by a 3%
decline in the passenger mile yield to 13.44 cents. Delta's traffic growth in
fiscal 1993 primarily resulted from route expansion and discount fare promotions
in domestic and international markets, as domestic revenue passenger miles
increased 8% and international revenue passenger miles grew 35%. International
traffic growth also reflected Delta's operation of the international routes
acquired from Pan Am on November 1, 1991, for the entire 1993 fiscal year
compared to eight months of operation during fiscal 1992.
The domestic passenger mile yield for fiscal 1993 decreased 2% and the
international passenger mile yield fell 3%. Declines in passenger mile yield
were primarily due to widespread domestic and international discount fares.
Cargo revenues increased 19% to $698 million in fiscal 1993. Cargo ton
miles grew 16%, primarily due to international expansion, and the cargo ton mile
yield increased 3%.
All other revenues were up 67% to $224 million, mainly due to fees
collected for passenger ticket changes and additional revenue related to certain
marketing programs.
10
<PAGE>
Operating Expenses
Operating expenses in fiscal 1993 totaled $12.6 billion, up 9% from $11.5
billion in fiscal 1992. Operating capacity grew 7% to 132.3 billion available
seat miles. The cost per available seat mile increased 2% to 9.50 cents.
Excluding the $82 million fleet restructuring charge, the cost per available
seat mile increased 1% to 9.44 cents.
Salaries and related expenses grew 8% to $4.8 billion, the result of higher
payroll overhead costs, a 1% increase in the average level of employment, and a
$129 million increase in operating expenses related to the Company's adoption of
SFAS 106, partly offset by a 5% wage reduction for domestic noncontract
personnel effective February 1, 1993, which reduced salaries expense by $51
million, and a $13 million benefit from the change in accounting estimate
related to pension expense. While the average level of employment increased 1%
in fiscal 1993, the Company's efforts to reduce staffing resulted in a 6%
decrease in active employees at June 30, 1993, compared to June 30, 1992.
Aircraft fuel expense increased 7% to $1.6 billion, as fuel gallons
consumed increased 6% and the average fuel cost per gallon increased 1% to
62.95 cents.
Passenger commissions rose 8%, principally due to 25% of total passenger
traffic traveling in international markets in fiscal 1993, compared to 21% in
fiscal 1992. International commission rates are generally significantly higher
than domestic rates.
Depreciation and amortization expense in fiscal 1993 rose 16%, primarily
from the addition of owned flight and ground equipment, as well as the November
1, 1991, acquisition of international route authorities from Pan Am.
Depreciation expense was partially offset by a $34 million reduction related to
the change in depreciation policy previously discussed.
Aircraft rent expense increased 13% during fiscal 1993, reflecting
additional leased aircraft in the fleet.
Passenger service expense increased 5%, the result of traffic growth and
increased catering costs related to a larger international operation, partially
offset by lower food costs associated with new menus and other cost control
efforts.
Aircraft maintenance materials and outside repairs expense increased 4%,
primarily due to the addition of new and used aircraft to the fleet, increased
engine repairs expense, and a higher level of aircraft maintenance contracted
outside the Company.
Facilities and other rent expenses remained unchanged due to lower rental
rates from the renegotiation of certain leases, the consolidation of certain
city ticket offices and other cost reduction programs, offset by increases
related to growth in operations and various rate increases.
Landing fees rose 17%, primarily the result of rate increases and growth in
international operations, where rates are generally substantially higher than
domestic operations.
All other operating expenses for fiscal 1993 increased 9%, primarily the
result of growth in traffic and capacity, particularly in international markets.
Cargo commissions increased 60%, reflecting 19% growth in cargo revenues and an
increase in commission rates in international markets. Outside services expense
grew 13%, primarily due to increased outsourcing of certain ground services and
a higher level of international departures. Bad debt expense decreased 28%,
largely reflecting higher expenses in fiscal 1992 related to Delta's
participation in Pan Am's failed reorganization and weaker financial positions
of several competitors. Credit card service charges increased 9%, due to growth
in passenger revenue and an increase in the number of tickets purchased with
credit cards. Advertising and promotion expenses decreased 17%, primarily the
result of cost control programs implemented during fiscal 1993 and higher levels
of promotion expense during fiscal 1992 to support Delta's inauguration of
service on domestic routes and the international routes purchased from Pan Am.
Other Income and Expenses
Nonoperating expense for fiscal 1993 totaled $76 million, compared to $111
million in fiscal 1992. Interest expense rose 8% to $239 million, principally
due to an increased level of outstanding debt. Interest capitalized on funds
advanced for the purchase of flight equipment and construction of facilities
totaled $62 million, down 11% from fiscal 1992, primarily due to lower advance
deposits for flight equipment, reductions in aircraft deliveries and a decline
in interest rates. The average monthly balance of such advance payments was $587
million in fiscal 1993, compared to $757 million in fiscal 1992. Gains from the
disposition of flight equipment totaled $65 million in fiscal 1993, reflecting
the sale of 18 DC-9-32 aircraft, compared to $35 million in fiscal 1992, which
included the sale of eight DC-9-32 aircraft. Interest income decreased $4
million and miscellaneous income declined $8 million, primarily due to the
settlement of certain litigation. Fiscal 1992 results included $43 million of
nonoperating expenses included in a $50 million write-off related to Delta's
participation in Pan Am's failed reorganization.
Tax Provision
The $651 million pretax loss for fiscal 1993 was reduced by an income tax
benefit of $234 million and by the amortization of $2 million of investment tax
credits.
11
<PAGE>
CAPITALIZATION, FINANCING AND LIQUIDITY -- FISCAL YEAR 1994
Cash and cash equivalents and short-term investments totaled $1.7 billion
at June 30, 1994, compared to $1.2 billion at June 30, 1993. The principal
sources of funds during fiscal 1994 were $1.3 billion of cash from operations,
which includes $300 million from the sale of certain receivables (see Note 4 of
Notes to Consolidated Financial Statements); $748 million proceeds from aircraft
sale and leaseback transactions; $226 million of long-term borrowings; and $103
million from the sale of flight equipment.
During fiscal 1994, Delta invested $1.0 billion in flight equipment, net of
advance payment refunds of $94 million, and $173 million in ground property and
equipment. The Company also made payments of $547 million on long-term debt and
capital lease obligations, and paid cash dividends of $80 million on its Series
C Convertible Preferred Stock, $30 million on its Series B ESOP Convertible
Preferred Stock, and $10 million on its Common Stock. Subsequent to June 30,
1994, the Company repurchased $202 million of its long-term debt.
As of June 30, 1994, the Company had negative working capital of $313
million, compared to negative working capital of $197 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 available cash and internally generated funds, supplemented
as necessary by debt financings and proceeds from sale and leaseback
transactions. At August 12, 1994, the Company also had a total of $866 million
of credit available under its bank credit agreements, subject to compliance with
certain conditions.
Long-term debt and capital lease obligations, including current maturities,
totaled $3.5 billion at June 30, 1994, compared to $3.8 billion at June 30,
1993. Stockholders' equity was $1.5 billion at June 30, 1994, compared to $1.9
billion at June 30, 1993. The Company's debt-to-equity position, including
current maturities, was 70% debt and 30% equity at June 30, 1994, compared to
66% debt and 34% equity at June 30, 1993.
Capital Expenditures
In millions of dollars
(Graphic material omitted)
<TABLE>
<CAPTION>
Flight (Includes
Fiscal Year Leased Aircraft) Ground Total
- ----------- ---------------- ------ -----
<S> <C> <C> <C>
1985 530 152 682
1986 504 98 602
1987 1,133 92 1,225
1988 1,184 146 1,330
1989 1,205 276 1,481
1990 1,425 265 1,690
1991 1,875 269 2,144
1992 2,164 317 2,481
1993 1,221 192 1,413
1994 1,032 173 1,205
</TABLE>
At August 12, 1994, there was outstanding $421 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
and A- or higher by 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. Prior to
September 15, 1993, Delta obtained an Approved Credit Enhancement in the form of
a letter of credit under its 1992 Bank Credit Agreement which, as of August 12,
1994, was in the face amount of $634 million. Due to the issuance of the letter
of credit, the ESOP Notes received the Required Ratings. Accordingly, Delta no
longer has an obligation to purchase 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. See Note 5 of Notes
to Consolidated Financial Statements.
Invested Capital
In millions of dollars
(Graphic material omitted)
<TABLE>
<CAPTION>
Long-Term Debt
Fiscal Stockholders' and Capital
Year Equity Leases Total
- ------ ------------- -------------- -----
<S> <C> <C> <C>
1985 1,287 535 1,822
1986 1,302 869 2,171
1987 1,938 1,018 2,956
1988 2,209 729 2,938
1989 2,620 703 3,323
1990 2,596 1,315 3,911
1991 2,457 2,059 4,516
1992 1,894 2,833 4,727
1993 1,913 3,716 5,629
1994 1,467 3,228 4,695
</TABLE>
Commitments
Future expenditures for aircraft and engines on firm order as of July 31,
1994, are estimated to be $3.2 billion, excluding aircraft orders subject to
reconfirmation. The Company expects to finance these commitments using available
cash, internally generated funds, debt financings, and proceeds from sale and
leaseback transactions. See Note 2 of Notes to Consolidated Financial
Statements. Also, see Note 6 of Notes to Consolidated Financial Statements for
information on the Company's lease commitments.
12
<PAGE>
Deferred Tax Asset
At June 30, 1994, Delta had net cumulative deferred tax assets of $896
million. The net cumulative deferred tax assets consist of $2.1 billion of
deferred tax assets, offset by $1.2 billion of deferred tax liabilities.
Included in the deferred tax assets are, among other items, $564 million related
to obligations for postretirement benefits, $185 million related to alternative
minimum tax (AMT) credit carryforwards and $237 million of net operating loss
(NOL) carryforwards. The AMT credit carryforwards do not expire; the NOL
carryforwards will generally expire in 2008 and 2009 if not utilized prior to
that time.
Management believes that a significant portion of the deferred tax assets
will be realized through reversals of existing taxable temporary differences
with similar reversal patterns. To realize the benefits of the remaining
deferred tax assets, excluding AMT credits, Delta needs to generate
approximately $1.9 billion in future taxable income. Based on the expectations
for future taxable income, the extended period over which postretirement
benefits will be recognized, and the fact that AMT credits do not expire,
management believes that it is more likely than not that the deferred tax assets
will be realized.
Although Delta has experienced book and tax losses in the past four fiscal
years, the Company reported book income in all other fiscal years since 1947,
with the exception of fiscal 1983. Following is a summary of Delta's pretax book
income (loss) and taxable income (loss) for the last five fiscal years, prior to
NOL carrybacks:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
(In Millions)
<S> <C> <C> <C> <C> <C>
Pretax Book
Income (Loss)................ $(660) $(651) $(786) $(500) $468
Taxable Income (Loss).......... $(411) $(580) $(568) $(204) $411
</TABLE>
The Company's losses in the past four years reflect numerous factors, many
of which were beyond management's control, including, in recent years, weak
economies in a number of regions worldwide and the effects of many discount fare
promotions initiated by other airlines and matched by Delta for competitive
reasons; the Middle East crisis during fiscal 1991; an uneconomic fare structure
implemented by another airline late in fiscal 1992, which spurred a half-off
fare sale in fiscal 1993, both of which Delta matched; and most recently, the
growing presence of low-cost, low-fare carriers in many of the domestic markets
served by Delta.
Management believes it has taken and is taking appropriate action to
improve the Company's financial performance through a number of initiatives,
many of which are discussed throughout this report, including the implementation
of Leadership 7.5, a three-year plan introduced during fiscal 1994 with the goal
of reducing annual operating expenses by approximately $2 billion by the end of
the June 1997 quarter.
Prior to the implementation of Leadership 7.5, the Company took a number of
steps to improve its financial performance, including:
* Completion of the Profit Improvement Program, which improved the
Company's operating results by $700 million in fiscal 1994 and held
operating cost per available seat mile, excluding fuel and restructuring
charges, flat for the past two fiscal years.
* Changes to transatlantic operations, which resulted in improved
transatlantic operating results for fiscal 1994 compared to fiscal 1993.
* A 10% reduction in staffing from the peak level in June 1992 and a 5%
wage reduction for domestic noncontract personnel.
* A $7 billion reduction in planned capital expenditures from fiscal 1993
through 1996.
* An ongoing reallocation of certain aircraft to markets with greater
profit potential.
The Company has begun to realize benefits from these initiatives. Excluding
restructuring charges, Delta recorded operating income of $79 million for fiscal
1994, partly attributable to cost reduction efforts. Management is prepared to
take further actions to return the Company to consistent levels of
profitability.
Delta's ability to generate the expected amounts of taxable income from
future operations is dependent upon various factors, many of which are beyond
management's control. Accordingly, there can be no assurances that Delta will
meet its expectation of future taxable income. However, after considering
Delta's earnings history, the actions that Delta has already taken and will
continue to take to improve its financial performance, expectations of future
taxable income, and other relevant considerations, management believes that it
is more likely than not that future taxable income will be sufficient to fully
utilize the deferred tax assets which existed at June 30, 1994. See Note 10 of
Notes to Consolidated Financial Statements.
New Accounting Standards
Effective June 30, 1994, Delta adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). The adoption of SFAS 115 resulted in a net increase in
stockholders' equity of $53 million at June 30, 1994, and may result in
volatility in stockholders' equity due to changes in unrealized gains and losses
on securities classified as available-for-sale. See Note 3 of Notes to
Consolidated Financial Statements.
13
<PAGE>
Effective July 1, 1994, Delta adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" (see Note
12 of Notes to Consolidated Financial Statements) and American Institute of
Certified Public Accountants Statement of Position 93-6, "Employers' Accounting
for Employee Stock Ownership Plans" (see Note 11 of Notes to Consolidated
Financial Statements).
Antitrust Settlement
During 1992, Delta and five other U.S. airlines agreed to settle class
action claims asserted against them in the Domestic Air Transportation Antitrust
Litigation. Under the settlement, which has been approved by the United States
District Court for the Northern District of Georgia, the six carriers paid $45
million in cash (of which Delta's share was $12 million) and will issue $397
million in face amount of certificates for discounts of approximately 10% on
future domestic air travel on any of the six carriers.
Delta recorded its $12 million share of the cash settlement as a
nonoperating expense during fiscal 1992, and will account for the certificates
that are redeemed for travel on Delta as a reduction to revenue equal to the
value of the redeemed certificates when transportation is provided. The Company
anticipates that its share of certificate redemption will approximate, but will
not necessarily be limited to, its relative domestic market share among the six
carriers, which was approximately 22% in calendar 1993. The ultimate impact of
the settlement on Delta's future results of operations is not reasonably
estimable, because neither the face amount of the certificates to be redeemed on
Delta nor the generative or dilutive revenue effect of certificate redemptions
is known.
Pan Am Litigation
Delta is a defendant in certain legal actions relating to its participation
in the proposed plan of reorganization of Pan Am, including a lawsuit filed by
Pan Am and others, the trial of which began on May 4, 1994, and ended on June
10, 1994. The United States District Court for the Southern District of New York
has not yet issued its decision in this lawsuit. See Note 16 of Notes to
Consolidated Financial Statements.
At June 30, 1994, there was outstanding and reflected as an asset in the
Company's Consolidated Balance Sheets $115 million principal amount of certain
debtor-in-possession financing Delta provided to Pan Am plus accrued interest of
$30 million. See Notes 15 and 16 of Notes to Consolidated Financial Statements.
Aircraft Fuel
The Omnibus Budget Reconciliation Act imposes a 4.3 cents per gallon tax on
commercial aviation jet fuel purchased for use in domestic operations, effective
October 1, 1995. Based on Delta's fiscal 1994 domestic fuel requirement of 1.9
billion gallons, the new fuel tax, when effective, is expected to increase
Delta's operating expenses by approximately $82 million annually.
FISCAL YEAR 1993
In fiscal 1993, the principal sources of cash were $1.1 billion from the
issuance of Series C Convertible Preferred Stock, $1.4 billion of long-term
borrowings, $684 million proceeds from aircraft sale and leaseback transactions,
$677 million of cash from operations, and $87 million from the sale of flight
equipment. Delta invested $1.2 billion in flight equipment, net of $104 million
of advance payment refunds received, and $192 million in ground property and
equipment. The Company made payments of $801 million on short-term borrowings,
$519 million on long-term debt and capital lease obligations, and paid cash
dividends of $73 million on its Series C Convertible Preferred Stock, $35
million on its Common Stock, and $30 million on its Series B ESOP Convertible
Preferred Stock.
FISCAL YEAR 1992
In fiscal 1992, the principal sources of cash were long-term borrowings of
$1.5 billion, proceeds from sale and leaseback transactions of $813 million, net
short-term borrowings of $744 million, cash reserves of $714 million, net cash
provided from operations of $149 million, and proceeds from the sale of flight
equipment of $43 million. Delta invested $2.2 billion in flight equipment, $317
million in ground property and equipment, and $70 million in leasehold and
operating rights. The Company made payments of $794 million on long-term debt
and capital lease obligations and paid cash dividends of $89 million on its
Common Stock and Series B ESOP Convertible Preferred Stock. Additionally, Delta
made payments of $416 million for assets purchased from Pan Am, and provided a
net of $115 million of debtor-in-possession financing to Pan Am.
14
<PAGE>
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
RONALD W. ALLEN Chairman of the Board, President and Chief Executive
Officer, Delta Air Lines, Inc.
EDWIN L. ARTZT Chairman of the Board and Chief Executive Officer,
The Procter & Gamble Company, Cincinnati, Ohio
HENRY A. BIEDENHARN, III Chairman of the Board, President and Chief Executive
Officer, Ouachita Coca-Cola Bottling Company, Inc.,
Monroe, Louisiana
JAMES L. BROADHEAD Chairman of the Board, President and Chief Executive
Officer, FPL Group, Inc., Juno Beach, Florida
EDWARD H. BUDD Chairman of the Executive Committee and Director, The
Travelers Inc., Hartford, Connecticut
GEORGE D. BUSBEE Of counsel to law firm of King & Spalding, Atlanta,
Georgia; former Governor of Georgia
R. EUGENE CARTLEDGE Retired Chairman of the Board and Chief Executive
Officer, Union Camp Corporation, Wayne, New Jersey
MARY JOHNSTON EVANS Director of various corporations
DAVID C. GARRETT, JR. Retired Chairman of the Board and Chief Executive
Officer, Delta Air Lines, Inc.
GERALD GRINSTEIN Chairman and Chief Executive Officer, Burlington
Northern Inc.; Chairman and Chief Executive Officer,
Burlington Northern Railroad Company, Fort Worth,
Texas
JESSE HILL, JR. Chairman of the Board, Atlanta Life Insurance
Company, Atlanta, Georgia
ANDREW J. YOUNG Vice Chairman of the Board, Law Companies Group,
Inc.; Chairman of Law International, Inc., Atlanta,
Georgia; former Mayor of Atlanta, Georgia
AUDIT COMMITTEE
JESSE HILL, JR., Chairman
EDWIN L. ARTZT
HENRY A. BIEDENHARN, III
JAMES L. BROADHEAD
GEORGE D. BUSBEE
MARY JOHNSTON EVANS
BENEFIT FUNDS INVESTMENT
COMMITTEE
EDWARD H. BUDD, Chairman
EDWIN L. ARTZT
HENRY A. BIEDENHARN, III
JAMES L. BROADHEAD
JESSE HILL, JR.
EXECUTIVE COMMITTEE
DAVID C. GARRETT, JR., Chairman
RONALD W. ALLEN
EDWARD H. BUDD
R. EUGENE CARTLEDGE
GERALD GRINSTEIN
JESSE HILL, JR.
FINANCE COMMITTEE
R. EUGENE CARTLEDGE, Chairman
EDWARD H. BUDD
GEORGE D. BUSBEE
DAVID C. GARRETT, JR.
GERALD GRINSTEIN
PERSONNEL, COMPENSATION AND
NOMINATING COMMITTEE
GERALD GRINSTEIN, Chairman
R. EUGENE CARTLEDGE
MARY JOHNSTON EVANS
DAVID C. GARRETT, JR.
STOCK INCENTIVE PLAN COMMITTEE
GERALD GRINSTEIN, Chairman
R. EUGENE CARTLEDGE
MARY JOHNSTON EVANS
OFFICERS
RONALD W. ALLEN Chairman of the Board, President and Chief Executive
Officer
HARRY C. ALGER Executive Vice President - Operations
W. MARTIN BRAHAM Senior Vice President - Airport Customer Service
ROBERT W. COGGIN Senior Vice President - Marketing
ROBERT S. HARKEY Senior Vice President - General Counsel
RUSSELL H. HEIL Senior Vice President - Technical Operations
REX A. McCLELLAND Senior Vice President - Corporate Services
THOMAS J. ROECK, JR. Senior Vice President - Finance and Chief Financial
Officer
MAURICE W. WORTH Senior Vice President - Personnel
ROBERT G. ADAMS Vice President - Personnel Services
HAROLD L. BEVIS Vice President - Public Affairs
VINCENT F. CAMINITI Vice President - Sales
FRANK S. CHEW Vice President - Investment Management
JOHN W. COX Vice President - Community Affairs
W. E. DOLL Vice President - Engineering
TERRY M. ERSKINE Vice President - Personnel Relations
H. D. GREENBERG Vice President - Flight Operations
JULIUS P. GWIN Vice President - Finance
JOHN C. KING Vice President - Information Technologies
AL H. KOLAKOWSKI Vice President - Marketing Technologies
PAUL G. MATSEN Vice President - Advertising and Consumer Marketing
MARCEY McCANN Vice President - Reservations Sales
HAROLD G. McDONALD Vice President - Maintenance
MICHAEL G. MEDLICOTT Vice President - Europe
LEON A. PIPER Vice President - Personnel Benefits
JENNY POOLE Vice President - In-Flight Service
THOMAS J. SLOCUM Vice President - Corporate Communications
W. B. SUGGS Vice President - Production Control and Materiel
Services
D. SCOTT YOHE Vice President - Government Affairs
JAMES G. MATHEWS Controller
JAMES H. SANREGRET Treasurer
MARY E. RAINES Corporate Secretary
SUSAN T. HUDSON Assistant Secretary
LESLIE P. KLEMPERER Assistant Secretary
KIMBERLY A. SHRECKENGOST Assistant Secretary
16
<PAGE>
STOCKHOLDER INFORMATION
TRANSFER AGENT, REGISTRAR AND DIVIDEND
PAYING AGENT FOR SERIES C CONVERTIBLE
PREFERRED STOCK AND COMMON STOCK
Registered stockholder inquiries regarding stock transfers, address changes,
lost stock certificates, dividend payments, or account consolidations should be
directed to the following address or phone number:
First Chicago Trust Company of New York
P. O. Box 2500
Jersey City, New Jersey 07303-2500
Telephone (201) 324-0498
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Registered holders of Common Stock may purchase additional shares of such stock
through automatic dividend reinvestment or cash contributions under the
Company's Dividend Reinvestment and Stock Purchase Plan. Delta pays all service
and brokerage charges for the purchase of these shares. Inquiries, notices,
requests and other communications regarding participation in the plan should be
directed to:
First Chicago Trust Company of New York
P.O. Box 2598
Jersey City, New Jersey 07303-2598
Telephone (201) 324-0498
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co.
133 Peachtree Street N.E.
Atlanta, Georgia 30303
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on Thursday, October 27, 1994,
at 9:00 a.m., local time, at the Holiday Inn Professional Centre/Atrium, 2001
Louisville Avenue, Monroe, Louisiana.
AVAILABILITY OF FORM 10-K AND OTHER FINANCIAL INFORMATION
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994, will be provided without charge upon written request. Stockholder
inquiries and requests for other financial documents may also be directed to:
Delta Air Lines, Inc.
Department 827
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320
Telephone (404) 715-2391
All other financial information may be obtained from:
Delta Air Lines, Inc.
Investor Relations
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320
Telephone (404) 715-6679
COMMON STOCK AND DEPOSITARY SHARES REPRESENTING SERIES C CONVERTIBLE PREFERRED
STOCK
Listed on the New York Stock Exchange
NUMBER OF STOCKHOLDERS
As of August 10, 1994, there were 26,315 registered holders of Common Stock.
MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
Market Price Range of Cash
Common Stock on Dividends Per
Fiscal Year 1994 New York Stock Exchange Common Share
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Quarter Ended: High Low
September 30........................ 56 46 1/8 $.05
December 31......................... 61 1/8 52 .05
March 31............................ 57 7/8 43 7/8 .05
June 30............................. 47 3/4 39 1/2 .05
Fiscal Year 1993
- --------------------------------------------------------------------------------------
Quarter Ended: High Low
September 30........................ 58 1/4 48 7/8 $.30
December 31......................... 60 1/4 47 3/4 .30
March 31............................ 55 45 3/4 .05
June 30............................. 61 3/8 46 1/2 .05
</TABLE>
17
<PAGE>
Report of Independent Public Accountants
[ARTHUR ANDERSEN & CO. LOGO APPEARS HERE]
To the Stockholders and the Board of Directors of Delta Air Lines, Inc.:
We have audited the accompanying consolidated balance sheets of Delta Air
Lines, Inc. (a Delaware corporation) and subsidiaries as of June 30, 1994 and
1993, and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended June 30,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Delta Air Lines, Inc., and
subsidiaries as of June 30, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1994, in conformity with generally accepted accounting principles.
As discussed in Note 3 of the Notes to Consolidated Financial Statements,
effective June 30, 1994, the Company changed its method of accounting for
certain debt and equity securities. Also, as discussed in Notes 10 and 12 of the
Notes to Consolidated Financial Statements, effective July 1, 1992, the Company
changed its methods of accounting for income taxes and postretirement benefits
other than pensions.
ARTHUR ANDERSEN & CO.
Atlanta, Georgia
August 12, 1994
REPORT OF MANAGEMENT
The integrity and objectivity of the information presented in this Annual
Report are the responsibility of Delta management. The financial statements
contained in this report have been audited by Arthur Andersen & Co., independent
public accountants, whose report appears on this page.
Delta maintains a system of internal financial controls which are
independently assessed on an ongoing basis through a program of internal audits.
These controls include the selection and training of the Company's managers,
organizational arrangements that provide a division of responsibilities, and
communication programs explaining the Company's policies and standards. We
believe that this system provides reasonable assurance that transactions are
executed in accordance with management's authorization; that transactions are
appropriately recorded to permit preparation of financial statements that, in
all material respects, are presented in conformity with generally accepted
accounting principles; and that assets are properly accounted for and
safeguarded against loss from unauthorized use.
The Board of Directors pursues its responsibilities for these financial
statements through its Audit Committee, which consists solely of directors who
are neither officers nor employees of the Company. The Audit Committee meets
periodically with the independent public accountants, the internal auditors and
representatives of management to discuss internal accounting control, auditing
and financial reporting matters.
/s/ Thomas J. Roeck, Jr. /s/ Ronald W. Allen
------------------------------- --------------------------------
THOMAS J. ROECK, JR. RONALD W. ALLEN
Senior Vice President-Finance Chairman of the Board, President
and Chief Financial Officer and Chief Executive Officer
21
<PAGE>
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
- -------------------------------------------------------------------------------
(In Millions)
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................ $ 1,302 $ 1,180
Short-term investments........................... 408 --
Accounts receivable, net of allowance for
uncollectible accounts of $50 at June 30,
1994, and $83 at June 30, 1993................. 886 1,055
Maintenance and operating supplies, at
average cost................................... 67 91
Deferred income taxes............................ 336 173
Prepaid expenses and other....................... 224 323
------- -------
Total current assets......................... 3,223 2,822
------- -------
Property and Equipment:
Flight equipment................................. 9,063 9,043
Less: Accumulated depreciation............... 3,880 3,559
------- -------
5,183 5,484
------- -------
Flight equipment under capital leases............ 173 173
Less: Accumulated amortization............... 142 128
------- -------
31 45
------- -------
Ground property and equipment.................... 2,398 2,372
Less: Accumulated depreciation............... 1,250 1,143
------- -------
1,148 1,229
------- -------
Advance payments for equipment................... 241 383
------- -------
6,603 7,141
------- -------
Other Assets:
Marketable equity securities..................... 351 265
Deferred income taxes............................ 560 505
Investments in associated companies.............. 219 202
Cost in excess of net assets acquired,
net of accumulated amortization
of $66 at June 30, 1994, and $58
at June 30, 1993................................ 283 291
Leasehold and operating rights, net of
accumulated amortization of $135 at
June 30, 1994, and $101 at June 30, 1993......... 207 306
Other............................................ 450 339
------- -------
2,070 1,908
------- -------
$11,896 $11,871
======= =======
</TABLE>
22
<PAGE>
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and 1993
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
- -------------------------------------------------------------------------------
(In Millions, Except Share Amounts)
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt............. $ 227 $ 35
Current obligations under capital leases......... 11 12
Accounts payable and miscellaneous accrued
liabilities..................................... 1,552 1,248
Air traffic liability............................ 1,247 1,190
Accrued rent..................................... 195 201
Accrued vacation pay............................. 196 194
Transportation tax payable....................... 108 139
------- -------
Total current liabilities.................... 3,536 3,019
------- -------
Noncurrent Liabilities:
Long-term debt................................... 3,142 3,619
Postretirement benefits.......................... 1,641 1,381
Accrued rent..................................... 541 440
Capital leases................................... 86 97
Other............................................ 395 223
------- -------
5,805 5,760
------- -------
Deferred Credits:
Deferred gain on sale and
leaseback transactions.......................... 923 991
Manufacturers and other credits.................. 63 105
------- -------
986 1,096
------- -------
Commitments and Contingencies (Notes 2, 5, 6 and 16)
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,
6,878,292 shares at June 30, 1994, and
6,913,171 shares at June 30, 1993............... 495 498
Less: Unearned compensation under
employee stock ownership plan................... 393 415
------- -------
102 83
------- -------
Stockholders' Equity:
Series C Convertible Preferred Stock, $1.00
par value, $50,000 liquidation preference;
issued and outstanding 23,000 shares at June 30,
1994 and 1993................................... -- --
Common Stock, $3.00 par value; authorized
150,000,000 shares; issued 54,469,491
shares at June 30, 1994, and 54,450,286
shares at June 30, 1993......................... 163 163
Additional paid-in capital....................... 2,013 2,012
Retained earnings (deficit)...................... (490) 36
Net unrealized gain (loss) on marketable
equity securities............................... 53 (1)
Less: Treasury stock at cost, 4,016,219
shares at June 30, 1994, and 4,386,445
shares at June 30, 1993.......................... 272 297
------- -------
1,467 1,913
------- -------
$11,896 $11,871
======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
23
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended June 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
- ----------------------------------------------------------------------------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C>
Operating Revenues:
Passenger...........................$11,316 $11,075 $10,115
Cargo............................... 769 698 588
Other, net.......................... 274 224 134
------- ------- -------
Total operating revenues....... 12,359 11,997 10,837
------- ------- -------
Operating Expenses:
Salaries and related costs.......... 4,589 4,798 4,437
Aircraft fuel....................... 1,411 1,592 1,482
Passenger commissions............... 1,318 1,250 1,153
Aircraft rent....................... 732 729 642
Depreciation and amortization....... 678 735 635
Passenger service................... 530 549 524
Aircraft maintenance materials and
outside repairs.................... 418 465 446
Facilities and other rent........... 380 356 356
Landing fees........................ 261 262 224
Restructuring charges............... 526 82 -
Other............................... 1,963 1,754 1,613
------- ------- -------
Total operating expenses........ 12,806 12,572 11,512
------- ------- -------
Operating Loss......................... (447) (575) (675)
------- ------- -------
Other Income (Expense):
Interest expense.................... (304) (239) (221)
Interest capitalized................ 33 62 70
Interest income..................... 57 22 26
Gain on disposition of flight
equipment.......................... 2 65 35
Write-off of Pan Am reorganization
costs.............................. -- -- (43)
Miscellaneous income (expense), net. (1) 14 22
------- ------- -------
(213) (76) (111)
------- ------- -------
Loss Before Income Taxes and Cumulative
Effect of Accounting Changes........ (660) (651) (786)
Income Tax Benefit..................... 251 236 280
------- ------- -------
Loss Before Cumulative Effect of
Accounting Changes.................... (409) (415) (506)
Cumulative Effect of Accounting Changes:
Postretirement benefits other
than pensions, net of tax.......... -- (818) --
Income taxes........................ -- 231 --
------- ------- -------
Net Loss............................... (409) (1,002) (506)
Preferred Stock Dividends.............. (110) (110) (19)
------- ------- -------
Net Loss Attributable to Common
Stockholders.......................... $ (519) $(1,112) $ (525)
======= ======= ========
Primary and Fully Diluted Per
Share Amounts:
Loss before cumulative effect of
accounting changes................. $(10.32) $(10.54) $(10.60)
Cumulative effect of accounting
changes............................ -- (11.78) --
------- ------- -------
Loss per common share............... $(10.32) $(22.32) $(10.60)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended June 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
- --------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss............................... $ (409) $(1,002) $ (506)
Adjustments to reconcile net loss
to cash provided by operating
activities:
Cumulative effect of accounting
changes........................... -- 587 --
Restructuring charges.............. 526 82 --
Depreciation and amortization...... 678 735 635
Deferred income taxes.............. (242) (209) (123)
Amortization of investment
tax credits....................... (1) (2) (9)
Amortization of deferred
gain on sale and
leaseback transactions............ (62) (57) (49)
Gain on disposition of
flight equipment.................. (2) (65) (35)
Rental expense in excess
of rent payments.................. 134 89 158
Pension expense in excess of
(less than) funding................ (45) 47 67
Compensation under ESOP............ 29 27 23
Other postretirement expense
in excess of payments............. 66 129 --
Changes in certain assets and
liabilities, net of effects of
asset acquisition from Pan Am:
Decrease (increase) in
accounts receivable............... 169 199 (421)
Increase (decrease) in prepaid
expenses and other current assets. 123 (19) (69)
Increase (decrease) in air
traffic liability................. 57 (58) 239
Increase in accounts payable
and miscellaneous accrued
liabilities....................... 207 215 258
Increase (decrease) in
other payables and
accrued expenses.................. (34) 50 31
Increase in other noncurrent
liabilities....................... 64 14 --
Other, net............................. 66 (85) (50)
------- ------- -------
Net cash provided by operating
activities.................... 1,324 677 149
------- ------- -------
Cash Flows From Investing Activities:
Property and equipment additions:
Flight equipment, including
advance payments................... (1,032) (1,221) (2,164)
Ground property and equipment...... (173) (192) (317)
Increase in short-term
investments, net..................... (408) -- --
Purchase of leasehold and
operating rights...................... -- -- (70)
Proceeds from sale of
flight equipment...................... 103 87 43
Purchase of assets from Pan Am......... -- -- (416)
Advances to Pan Am..................... -- -- (115)
Investments in associated companies.... -- (1) --
------- ------- -------
Net cash used in investing
activities...................... (1,510) (1,327) (3,039)
------- ------- -------
Cash Flows From Financing Activities:
Issuance of Series C Convertible
Preferred Stock, net.................. -- 1,126 --
Issuance of long-term
obligations........................... 226 1,427 1,500
Issuance of common stock............... 1 1 2
Net short-term borrowings.............. -- (801) 744
Payments on long-term debt and
capital lease obligations............. (547) (519) (794)
Cash dividends......................... (120) (138) (89)
Proceeds from sale and leaseback
transactions.......................... 748 684 813
------- ------- -------
Net cash provided by financing
activities...................... 308 1,780 2,176
------- ------- -------
Net Increase (Decrease) in Cash and Cash
Equivalents............................... 122 1,130 (714)
Cash and cash equivalents at beginning of
period.................................... 1,180 50 764
------- ------- -------
Cash and cash equivalents
at end of period......................... $ 1,302 $ 1,180 $ 50
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended June 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Unrealized
Additional Retained Gain (Loss)
Common Paid-In Earnings on Equity Treasury
Stock Capital (Deficit) Securities Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
(In Millions, Except Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1991............... $ 163 $ 884 $1,761 $ (13) $ (338) $2,457
Fiscal Year 1992:
Net loss........................... -- -- (506) -- -- (506)
Dividends on common stock
($1.20 per share)................. -- -- (59) -- -- (59)
Dividends on Series B ESOP
Convertible Preferred Stock, net
of tax benefit of $11............. -- -- (19) -- -- (19)
Issuance of 27,441 shares of
common stock under dividend
reinvestment and stock
purchase plan ($63.39 per share).. -- 1 -- -- -- 1
Issuance of 8,428 shares
of common stock under stock
option and stock incentive plans
($72.20 per share)................ -- 1 -- -- -- 1
Transfer of 261,450 shares
of common stock
from treasury under ESOP
and stock incentive plan
($67.76 per share)................ -- -- -- -- 18 18
Net unrealized gain on
marketable
equity securities................. -- -- -- 1 -- 1
------ ------ ------- ------ ------ ------
Balance at June 30, 1992............... 163 886 1,177 (12) (320) 1,894
Fiscal Year 1993:
Net loss........................... -- -- (1,002) -- -- (1,002)
Issuance of Series C Convertible
Preferred Stock................... -- 1,126 -- -- -- 1,126
Dividends on Series C Convertible
Preferred Stock................... -- -- (80) -- -- (80)
Dividends on common stock ($0.70
per share)........................ -- -- (35) -- -- (35)
Dividends on Series B ESOP
Convertible Preferred Stock,
net of tax benefit of $9.......... -- -- (21) -- -- (21)
Issuance of 26,202 shares of common
stock under dividend reinvestment
and stock purchase plan ($53.13
per share)........................ -- 1 -- -- -- 1
Transfer of 336,064 shares of
common stock from treasury under
ESOP and stock incentive plan
($67.75 per share)................ -- (1) (3) -- 23 19
Net unrealized gain on marketable
equity securities................. -- -- -- 11 -- 11
------ ------ ------- ------ ------ ------
Balance at June 30, 1993............... 163 2,012 36 (1) (297) 1,913
Fiscal Year 1994:
Net loss........................... -- -- (409) -- -- (409)
Dividends on Series C Convertible
Preferred Stock................... -- -- (80) -- -- (80)
Dividends on common stock ($0.20
per share)........................ -- -- (10) -- -- (10)
Dividends on Series B ESOP
Convertible Preferred Stock, net
of tax benefit of $8.............. -- -- (22) -- -- (22)
Issuance of 17,140 shares of common
stock under dividend reinvestment
and stock purchase plan ($50.38
per share)........................ -- 1 -- -- -- 1
Transfer of 370,226 net shares of
common stock from treasury under
ESOP and stock incentive plan
($67.75 per share)................ -- -- (5) -- 25 20
Net unrealized gain on
marketable equity securities...... -- -- -- 54 -- 54
------ ------ ------- ------ ------ ------
Balance at June 30, 1994............... $ 163 $2,013 $ (490) $ 53 $ (272) $1,467
====== ====== ======= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994, 1993 and 1992
1. Summary of Significant Accounting Policies:
Basis of Presentation -- The consolidated financial statements include the
accounts of Delta Air Lines, Inc., and its wholly-owned subsidiaries (Delta or
the Company). All significant intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to conform with
the current financial statement presentation.
Investments in Associated Companies -- The Company's investments in
WORLDSPAN, L.P. (WORLDSPAN), a computer reservations system partnership,
Atlantic Southeast Airlines, Inc. (ASA), Comair Holdings, Inc. (Comair), the
parent of Comair, Inc., and SkyWest, Inc. (SkyWest), the parent of SkyWest
Airlines, Inc., are accounted for under the equity method. ASA, Comair, Inc.,
and SkyWest Airlines, Inc., are participants in the Delta Connection program.
(See Note 13.)
Accounting Changes -- Effective July 1, 1992, the Company 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). Effective June 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). (See Notes 12, 10 and 3, respectively.)
Cash and Cash Equivalents -- Investments with an original maturity of three
months or less on their acquisition date are classified as cash and cash
equivalents. These investments are stated at cost, which approximates fair
value.
Short-Term Investments -- Cash in excess of operating requirements is
invested in short-term, highly liquid investments. These investments are
classified as available-for-sale under SFAS 115 and stated at fair value. (See
Note 3.)
Cost in Excess of Net Assets Acquired -- The cost in excess of net assets
acquired, which is being amortized over 40 years, is related to the Company's
acquisition of Western Air Lines, Inc., on December 18, 1986. The Company
periodically reviews the value assigned to goodwill to determine if it has been
other than temporarily impaired by adverse conditions affecting the Company.
Management believes that goodwill is appropriately valued.
Leasehold and Operating Rights -- Leasehold rights and landing slots are
amortized over the lives of the respective leases at the associated airports.
Purchased international route authorities are amortized over the lives of the
authorities as determined by the expiration dates of such authorities. Permanent
route authorities with no stated expiration dates are amortized over 40 years.
Deferred Gains on Sale and Leaseback Transactions -- Gains on the sale and
leaseback of property and equipment under operating leases are deferred and
amortized over the lives of the respective leases as a reduction in rent
expense.
Manufacturers Credits -- In connection with the acquisition of certain
aircraft and engines, the Company receives various credits. These credits are
deferred until the aircraft and engines are delivered, at which time the credits
are applied on a pro rata basis as a reduction of the acquisition cost of the
related equipment.
Frequent Flyer Program -- The Company sponsors a travel incentive program
whereby frequent travelers accumulate mileage credits that entitle them to
certain awards, including free travel. The Company accrues the estimated
incremental cost of providing free travel awards under its Frequent Flyer
program when free travel award levels are achieved. The accrued incremental cost
is included in accounts payable and miscellaneous accrued liabilities as a
current liability.
Passenger and Cargo Revenues -- Passenger and cargo revenues are recorded
when the transportation is provided. The value of unused passenger tickets is
included in current liabilities as air traffic liability.
Depreciation and Amortization -- Prior to April 1, 1993, substantially all
of the Company's flight equipment was being depreciated on a straight-line basis
to residual values (10% of cost) over a 15-year period from the dates placed in
service. As a result of a review of its fleet plan, effective April 1, 1993, the
Company increased the estimated useful lives of substantially all of its flight
equipment. Flight equipment that was not already fully depreciated is being
depreciated on a straight-line basis to residual values (5% of cost) over a
20-year period from the dates placed in service. The effect of this change was a
$34 million decrease in depreciation expense and a $22 million ($0.44 per common
share) decrease in net loss for fiscal 1993. Ground property and equipment are
depreciated on a straight-line basis over their estimated service lives, which
range from three years to thirty years.
Interest Capitalized -- Interest attributable to funds used to finance the
acquisition of new aircraft and construction of major ground facilities is
capitalized as an additional cost of the related asset. Interest is capitalized
at the Company's weighted average interest rate on long-term debt or, where
applicable, the interest rate related to specific borrowings. Capitalization of
interest ceases when the property or equipment is placed in service.
Loss Per Share -- Primary and fully diluted loss per share is computed by
dividing net loss attributable to common stockholders by the weighted average
number of shares of Delta common stock (Common Stock) and, if dilutive, Common
Stock equivalents outstanding during the year, which was 50,257,721 for fiscal
1994; 49,836,959 for fiscal 1993; and 49,498,411 for fiscal 1992. Common Stock
equivalents consist of the shares issuable upon exercise of outstanding stock
options less the number of shares deemed to be repurchased under application of
the treasury stock method.
Prior to fiscal 1993, the tax benefits resulting from deductible Series B
ESOP Convertible Preferred Stock (ESOP Preferred Stock) dividends paid to
service debt related to the Guaranteed Serial ESOP Notes were credited directly
to retained earnings and were considered earnings for the purpose of calculating
earnings per share. With the adoption of SFAS 109, effective July 1, 1992, the
tax benefits related to dividends on unallocated shares of ESOP Preferred Stock
are no longer considered earnings for per share calculations, but continue to be
credited directly to retained earnings.
27
<PAGE>
Foreign Currency Translation -- Assets and liabilities denominated in
foreign currencies are translated at exchange rates in effect at the balance
sheet date, except that fixed assets are translated at exchange rates in effect
when these assets are acquired. Revenues and expenses of foreign operations are
translated at average monthly exchange rates prevailing during the year, except
that depreciation and amortization charges are translated at the exchange rates
in effect when the related assets are acquired. The resulting foreign exchange
gains and losses are recognized as incurred. Such amounts were not significant
for any of the years presented in this report.
2. Purchase Commitments:
Future expenditures for aircraft and engines on firm order as of July 31,
1994, are estimated to be $3.2 billion, excluding aircraft orders subject to
reconfirmation, as follows:
<TABLE>
<CAPTION>
Years Ending
June 30 Amount
------------ -----------
(In Millions)
<S> <C>
1995............ $ 400
1996............ 440
1997............ 930
1998............ 710
1999............ 310
After 1999...... 410
------
Total....... $3,200
======
</TABLE>
In addition, at July 31, 1994, the Company had authorized capital
expenditures of approximately $250 million for fiscal 1995 for improvement of
airport and office facilities, various ground equipment and other assets.
The Company expects to finance its aircraft and engine commitments, as well
as other authorized capital expenditures, using available cash, internally
generated funds, debt financings, and proceeds from sale and leaseback
transactions.
3. Investments in Debt and Equity Securities:
Effective June 30, 1994, the Company adopted SFAS 115, which changes the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities.
Under SFAS 115, the Company's investments in Singapore Airlines Limited
(Singapore Airlines) and Swissair, Swiss Air Transport Company Ltd. (Swissair)
are classified as available-for-sale and carried at aggregate market value.
Prior to the adoption of SFAS 115, these investments were carried at the lower
of aggregate cost or market value.
At June 30, 1994 and 1993, the gross unrealized gain on the Company's
investment in Singapore Airlines was $109 million and $35 million, respectively,
and the gross unrealized loss on the Company's investment in Swissair was $24
million and $37 million, respectively. The $53 million net unrealized gain, net
of the related deferred tax provision, on these investments at June 30, 1994,
and the $1 million net unrealized loss, net of the related tax benefit, on these
investments at June 30, 1993, are reflected in stockholders' equity. Delta's
rights to vote, transfer or acquire additional shares of the stock of Singapore
Airlines and Swissair are subject to certain restrictions.
Delta's other investments in available-for-sale securities, recorded as
short-term investments in the Company's Consolidated Balance Sheets, include
government agency debt (52%) and corporate debt securities (48%) with average
stated maturity dates of 21 and 23 months, respectively. These investments
approximate fair value at June 30, 1994.
The proceeds from sales of available-for-sale securities during fiscal 1994
were $473 million, which resulted in realized losses of $3 million.
4. Sale of Receivables:
On June 24, 1994, Delta entered into a revolving accounts receivable
facility (Facility) providing for the sale of $489 million of a defined pool of
accounts receivable (Receivables) through a wholly-owned subsidiary to a trust
in exchange for a senior certificate in the principal amount of $300 million
(Senior Certificate) and a subordinate certificate in the principal amount of
$189 million (Subordinate Certificate). The subsidiary retained the Subordinate
Certificate and the Company received $300 million in cash from the sale of the
Senior Certificate to a third party. The principal amount of the Subordinate
Certificate fluctuates daily depending upon the volume of Receivables sold, and
is payable to the subsidiary only to the extent the collections received on the
Receivables exceed amounts due on the Senior Certificate. The Facility, which
replaced an interim facility established in March 1994, is scheduled to
terminate in July 1995, subject to earlier termination in certain circumstances.
At June 30, 1994, the $300 million net proceeds from the sale were reported
as operating cash flows in the Company's Consolidated Statements of Cash Flows
and as a reduction in accounts receivable on the Company's Consolidated Balance
Sheets. The Subordinate Certificate is included in accounts receivable on the
Company's Consolidated Balance Sheets. The full amount of the allowance for
doubtful accounts related to the Receivables sold has been retained, as the
Company has substantially the same credit risk as if the Receivables had not
been sold. Under the terms of the Facility, the Company is obligated to pay fees
which approximate the purchaser's cost of issuing a like amount of commercial
paper plus certain administrative costs. These fees totaling $7 million are
included in other income (expense) under miscellaneous, net in the Company's
Consolidated Statements of Operations.
5. Long-Term Debt:
At June 30, 1994 and 1993, the Company's long-term debt (including current
maturities) was as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
(In Millions)
<S> <C> <C>
3.23% Convertible Subordinated
Notes, unsecured, due June 15, 2003,
net of unamortized discount of
$202 million and $225 million at
June 30, 1994 and 1993, respectively..... $ 598 $ 575
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
1994 1993
------ ------
(In Millions)
<S> <C> <C>
7.26% -- 8.10% Guaranteed Serial
ESOP Notes, unsecured, payable in
installments through 2009................ 432 441
Medium-Term Notes, Series A and B,
unsecured, interest rates ranging from
6.52% to 9.15% and with maturities
ranging from 1995 to 2007................ 381 177
9 3/4% Debentures, unsecured, due
May 15, 2021............................. 350 350
9 7/8% Notes, unsecured, due
January 1, 1998.......................... 225 225
10 3/8% Debentures, unsecured, due
February 1, 2011......................... 200 200
9 1/4% Debentures, unsecured, due
March 15, 2022........................... 200 200
9 7/8% Notes, unsecured, due
May 15, 2000............................. 175 175
10 3/8% Debentures, unsecured, due
December 15, 2022........................ 175 175
8 1/4% Notes, unsecured, due
May 15, 1996............................. 150 150
9% Debentures, unsecured, due
May 15, 2016............................. 150 150
10 1/8% Debentures, unsecured, due
May 15, 2010............................. 125 125
8 1/2% Notes, unsecured, due
March 15, 2002........................... 100 100
Clayton County Development Authority,
7 5/8% unsecured loan agreement,
repayable on January 1, 2020............. 45 45
Development Authority of Clayton
County, 6 5/8% unsecured loan
agreement, repayable in installments
beginning in 2000, with the
remaining balance payable in 2011........ 35 35
Development Authority of Fulton
County, unsecured loan agreement,
repayable $10 million on
November 1, 2007 and $20 million on
November 1, 2022. Interest ranges
from 6.85% to 6.95% over the life
of the loan.............................. 30 30
1992 Amended and Restated Bank Credit
Agreement, providing unsecured
borrowings up to $1 billion payable
on or before December 4, 1996............ -- 275
1991 Bank Credit Agreement,
providing unsecured borrowings up
to $500 million payable on or before
December 19, 1994........................ -- 225
Other, net................................. (2) 1
------ ------
Total.............................. 3,369 3,654
Less: Current maturities................... 227 35
------ ------
Total long-term debt............... $3,142 $3,619
====== ======
</TABLE>
The fair value of long-term debt, including current maturities, at June 30,
1994, is estimated to be $3.3 billion, based on quoted market prices, where
available, or discounted cash flow analyses.
Current maturities of long-term debt include $202 million principal amount
of debt that the Company voluntarily repurchased and retired subsequent to June
30, 1994. As a result of these transactions, the Company will recognize a net
pretax gain of approximately $7 million during the quarter ending September 30,
1994.
The 1991 and 1992 Bank Credit Agreements provide for unsecured borrowings
by the Company on a revolving basis of up to $500 million until December 19,
1994, and $1 billion until December 4, 1996, respectively. Up to $700 million of
the facility available under the 1992 Bank Credit Agreement may be used for the
issuance of letters of credit. The interest rate under these agreements is, at
the Company's option, an adjusted certificate of deposit rate, the LIBOR rate,
or the prime rate, in each case plus a margin which is subject to adjustment
based on certain changes in the credit ratings of the Company's long-term senior
unsecured debt. The Bank Credit Agreements contain certain negative covenants
that restrict the Company's ability to grant liens, incur or guarantee debt, and
enter into flight equipment leases. These agreements also provide that if there
is a change of control (as defined) of the Company, the banks' obligation to
extend credit terminates, any amounts outstanding become immediately due and
payable and, with respect to the 1992 Bank Credit Agreement, the Company will
immediately deposit cash collateral with the banks in an amount equal to all
outstanding letters of credit. At June 30, 1994, there were no borrowings
outstanding under the 1991 and 1992 Bank Credit Agreements, but there was
outstanding under the 1992 Bank Credit Agreement a letter of credit in the
amount of $699 million (which was reduced to $634 million at August 12, 1994) to
credit enhance the Guaranteed Serial ESOP Notes.
At August 12, 1994, there was outstanding $421 million principal amount of
Guaranteed Serial ESOP Notes (ESOP Notes) guaranteed by Delta. The ESOP Notes,
which were issued in three series pursuant to certain note purchase agreements,
have final maturity dates between July 1, 1999 and January 1, 2009. The note
purchase agreements require Delta to purchase the ESOP Notes at the option of
the holders thereof (Noteholders) if the credit rating of Delta's long-term
senior unsecured debt falls below Baa3 by Moody's and BBB- by Standard & Poor's
(Purchase Event); provided that Delta has no obligation to purchase the ESOP
Notes under the note purchase agreements so long as it obtains, within 127 days
of a Purchase Event, certain credit enhancements (Approved Credit Enhancement)
that result in the ESOP Notes being rated A3 or higher by Moody's and A- or
higher by Standard & Poor's (Required Ratings). If Delta is required to purchase
the ESOP Notes because of the occurrence of a Purchase Event, such purchase
would be made at a price (Purchase Price) equal to the outstanding principal
amount of the ESOP Notes being purchased, together with accrued interest and a
Make Whole
29
<PAGE>
Premium Amount. The Make Whole Premium Amount for each series of ESOP
Notes is based on, among other factors, the yield to maturity of U.S. Treasury
Notes having maturities equal to the remaining average life to maturity of such
series as of the date Delta purchases the ESOP Notes.
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. Prior to September 15, 1993, Delta obtained an
Approved Credit Enhancement in the form of a letter of credit (Letter of Credit)
to credit enhance the ESOP Notes. The Letter of Credit was issued by NationsBank
of Georgia, National Association (NationsBank), in favor of Wilmington Trust
Company, as trustee (Trustee), under Delta's 1992 Bank Credit Agreement. Due to
the issuance of the Letter of Credit, which is scheduled to expire on December
4, 1996, the ESOP Notes received the Required Ratings. Accordingly, Delta no
longer has an obligation to purchase the ESOP Notes as a result of the Purchase
Event that occurred on May 11, 1993.
At August 12, 1994, the face amount of the Letter of Credit was $634
million. It covers the $421 million outstanding principal amount of the ESOP
Notes, up to $167 million of Make Whole Premium Amount and approximately one
year of interest on the ESOP Notes.
Delta, the Trustee, and Fidelity Management Trust Company, as ESOP trustee,
entered into an Indenture of Trust, dated as of August 1, 1993 (Indenture), that
contains certain terms and conditions relating to the Letter of Credit. The
Indenture requires the Trustee to draw under the Letter of Credit to make
regularly scheduled payments of principal and interest on the ESOP Notes. The
Indenture also requires the Trustee to draw under the Letter of Credit to
purchase the ESOP Notes in certain circumstances in which Delta would not be
required to purchase the ESOP Notes under the note purchase agreements. Subject
to certain conditions, the Indenture requires the Trustee to purchase the ESOP
Notes at the Purchase Price at the option of the Noteholders in the event that
(1) the Required Ratings on the ESOP Notes are not maintained; (2) the Letter of
Credit is not extended 20 days before its scheduled expiration date; (3) Delta
elects to terminate the Letter of Credit; or (4) the Trustee receives notice
there has occurred an Event of Default (as defined) under the 1992 Bank Credit
Agreement; unless, generally within 10 days of any such event, the ESOP Notes
receive the Required Ratings due to Delta's obtaining a substitute credit
enhancement or otherwise.
The Required Ratings on the ESOP Notes are subject to reconsideration at
any time, and to annual confirmation, by Moody's and Standard & Poor's.
Circumstances that might cause either rating agency to lower or fail to confirm
its rating include, without limitation, a downgrading of the deposits of
NationsBank below A3 by Moody's or A- by Standard & Poor's, or a determination
that the Make Whole Premium Amount covered by the Letter of Credit is
insufficient.
Subject to certain conditions, the Indenture does not permit the Trustee to
purchase the ESOP Notes at the option of the Noteholders if the ESOP Notes
receive the Required Ratings without the benefit of a credit enhancement. The
ESOP Notes are not likely to receive the Required Ratings absent a credit
enhancement unless Delta's long-term senior unsecured debt is rated at least A3
by Moody's and A- by Standard & Poor's. On August 12, 1994, Delta's long-term
senior unsecured debt was rated Ba1 by Moody's and BB by Standard & Poor's.
If the Trustee draws under the Letter of Credit to purchase the ESOP Notes,
Delta is required to reimburse NationsBank under the 1992 Bank Credit Agreement
by, at Delta's election, (1) immediately repaying the amount drawn; or (2)
converting its reimbursement obligation to an outstanding borrowing under that
Agreement. The 1992 Bank Credit Agreement is scheduled to expire on December 4,
1996.
On June 24, 1993, the Company issued $800 million principal amount at
stated maturity of 3.23% Convertible Subordinated Notes due June 15, 2003
(Notes). The Notes were issued at an original issue discount of 28.2% from, and
bear interest at the rate of 3.23% per annum on, the principal amount at stated
maturity. This original issue discount and rate of interest represents a yield
to maturity, compounded semiannually, of 7.25% per annum. The Notes are
convertible at any time prior to stated maturity by the holders thereof, unless
previously redeemed, into shares of Common Stock, at a conversion rate of 12.68
shares per $1,000 principal amount at stated maturity of the Notes, subject to
adjustment in certain circumstances. The Notes are redeemable at any time on or
after June 15, 1996, at the Company's option at a price (Repurchase Price) for
each Note equal to the issue price plus accrued original issue discount to the
redemption date, together with accrued and unpaid interest to the redemption
date. If a Change in Control (as defined) of the Company occurs, the holders of
the Notes may require the Company to repurchase their Notes at the Repurchase
Price, payable in cash or, at the Company's option, in shares of Common Stock.
At June 30, 1994, the annual scheduled maturities of long-term debt during
the next five fiscal years were as follows:
<TABLE>
<CAPTION>
Years Ending
June 30 Amount
------------ -------------
(In Millions)
<S> <C>
1995........... $227
1996........... 163
1997........... 54
1998........... 270
1999........... 124
</TABLE>
The Company's debt agreements contain certain restrictive covenants, but do
not limit the payment of dividends on the Company's capital stock. The terms of
the ESOP Preferred Stock and Series C Convertible Preferred Stock (Series C
Preferred Stock) limit the Company's ability to pay cash dividends on Common
Stock in certain circumstances.
Cash payments of interest, net of interest capitalized, totaled $231
million in fiscal 1994; $171 million in fiscal 1993; and $151 million in fiscal
1992.
30
<PAGE>
6. Lease Obligations:
The Company leases certain aircraft, airport terminal and maintenance
facilities, ticket offices, and other property and equipment under agreements
with terms of more than one year. Rent expense is generally recorded on a
straight-line basis over the lease term.
Amounts charged to rental expense for operating leases were $1.1 billion in
fiscal 1994; $1.1 billion in fiscal 1993; and $1.0 billion in fiscal 1992.
At June 30, 1994, the Company's minimum rental commitments under capital
leases and noncancelable operating leases with initial or remaining terms of
more than one year were as follows:
<TABLE>
<CAPTION>
Years Ending Capital Operating
June 30 Leases Leases
- ------------ -------- ----------
(In Millions)
<S> <C> <C>
1995.................................. $ 18 $ 952
1996.................................. 18 965
1997.................................. 18 961
1998.................................. 15 940
1999.................................. 14 953
After 1999............................ 44 12,605
----- -------
Total minimum lease payments...... 127 $17,376
=======
Less: Amounts representing interest... 30
-----
Present value of future minimum
capital lease payments.............. 97
Less: Current obligations under
capital leases...................... 11
-----
Long-term capital lease obligations... $ 86
=====
</TABLE>
Special facility revenue bonds have been issued by certain municipalities
and airport authorities to build or improve airport terminal and maintenance
facilities that are leased under operating leases by Delta. Under these lease
agreements, the Company is required to make rental payments sufficient to pay
principal and interest on the bonds as they become due. At June 30, 1994, Delta
had guaranteed $675 million principal amount of such bonds.
7. Short-Term Borrowings:
The maximum and average outstanding balances of short-term borrowings and
the weighted average interest rates during fiscal 1994, 1993 and 1992 were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Maximum amount of
borrowings outstanding
during period........................ $164 $917 $933
Average daily borrowings
during period........................ $ 2 $251 $385
Weighted average interest
rate on borrowings
during period........................ 5.03% 3.86% 4.60%
</TABLE>
At June 30, 1994 and 1993, no commercial paper or short-term notes were
outstanding.
8. Stock Options and Awards:
Under the Company's stock option plans, selected employees have received
awards of stock options and, prior to fiscal 1994, tandem stock appreciation
rights.
The option price for all stock options, and the base upon which stock
appreciation rights are measured, is the fair market value of Common Stock on
the date of grant. Awards exercised as stock appreciation rights are payable in
a combination of cash and Common Stock.
Transactions involving stock options and tandem stock appreciation rights
during fiscal 1992, 1993 and 1994 were as follows:
<TABLE>
<CAPTION>
Awards Award Price
--------- ---------------
<S> <C> <C>
Balance July 1, 1991......... 1,705,800 $ 43.25-$68.375
Fiscal 1992:
Granted.................... 864,000 $73.125
Exercised.................. (66,450) $ 43.25-$67.375
---------
Balance June 30, 1992........ 2,503,350 $ 43.25-$73.125
Fiscal 1993:
Exercised.................. (55,400) $ 43.25-$54.00
---------
Balance June 30, 1993........ 2,477,950 $ 54.00-$73.125
Fiscal 1994:
Granted.................... 650,200 $54.375
Exercised.................. (56,400) $54.00
Forfeited.................. (27,000) $68.375-$73.125
---------
Balance June 30, 1994........ 3,014,750 $ 54.00-$73.125
=========
</TABLE>
Awards in fiscal 1994 were granted without tandem stock appreciation
rights. Stock options and tandem stock appreciation rights are generally
exercisable between one and ten years after the date of award. Awards
outstanding as of June 30, 1994, and the option prices of those awards were as
follows:
<TABLE>
<CAPTION>
Date of Award Awards Outstanding Award Price
- ------------- ------------------ -----------
<S> <C> <C>
January 26, 1989....... 106,000 $54.00
January 25, 1990....... 662,550 $67.375
January 24, 1991....... 747,500 $68.375
January 23, 1992....... 848,500 $73.125
January 27, 1994....... 650,200 $54.375
---------
3,014,750 $54.00-$73.125
=========
</TABLE>
Substantially all awards of stock options and tandem stock appreciation
rights have been exercised as stock appreciation rights. In fiscal 1994, the
Company issued 2,065 shares of Common Stock at $60.625 per common share in
connection with the exercise of stock appreciation rights.
9. Common and Preferred Stock:
At June 30, 1994, 5,922,758 common shares were reserved for issuance under
the 1989 Stock Incentive Plan, 5,900,199 common shares were reserved for
conversion of the ESOP Preferred Stock, 17,490,494 common shares were reserved
for conversion of the Series C Preferred Stock and 10,149,072 common shares were
reserved for conversion of the 3.23% Convertible Subordinated Notes due 2003.
31
<PAGE>
Each outstanding share of Common Stock is accompanied by a preferred stock
purchase right which entitles the holder to purchase from the Company 1/100th of
a share of Series A Junior Participating Preferred Stock for $200, subject to
adjustment in certain circumstances. The rights become exercisable only after a
person or group acquires beneficial ownership of 20% or more of the Common
Stock, or commences a tender or exchange offer that would result in such person
or group beneficially owning 30% or more of the Common Stock. The rights expire
on November 4, 1996, and may be redeemed by Delta for $0.05 per right until 15
days following the announcement that a person or group beneficially owns 20% or
more of the Common Stock. Subject to certain conditions, if a person or group
becomes the beneficial owner of 30% or more of the Common Stock, or a person or
group beneficially owning 20% or more of the Common Stock receives compensation
from Delta other than compensation for full-time employment as a regular
employee, each right will entitle its holder (other than certain acquiring
persons) to receive, upon exercise, Common Stock having a value equal to two
times the right's exercise price. In addition, subject to certain conditions, if
Delta is involved in a merger or certain other business combination
transactions, each right will entitle its holder (other than certain acquiring
persons) to receive, upon exercise, common stock of the acquiring company having
a value equal to two times the right's exercise price.
Each share of ESOP Preferred Stock has a stated value of $72; bears an
annual cumulative cash dividend of 6%, or $4.32; is convertible into 0.8578
shares of Common Stock (a conversion price of $83.94), subject to adjustment in
certain circumstances; has a liquidation preference of $72, plus any accrued and
unpaid dividends; generally votes together as a single class with the Common
Stock on matters upon which the Common Stock is entitled to vote; and has one
vote, subject to adjustment in certain circumstances. If full cumulative
dividends on the ESOP Preferred Stock have not been paid when due, Delta may not
pay cash dividends on the Common Stock.
On July 1, 1992, the Company issued 23 million Depositary Shares, each
representing 1/1000th of a share of Series C Preferred Stock. Each share of
Series C Preferred Stock bears annual cumulative cash dividends of $3,500
(equivalent to $3.50 per annum per Depositary Share); has a liquidation
preference of $50,000 (equivalent to $50 per Depositary Share) plus accrued and
unpaid dividends; and is convertible at any time at the option of the holder
into shares of Common Stock at a conversion price of $65.75 per share of Common
Stock (equivalent to a conversion rate of 0.7605 shares of Common Stock per
Depositary Share), subject to adjustment in certain circumstances. Except under
certain circumstances, the holders of the Series C Preferred Stock have no
voting rights.
The Series C Preferred Stock is redeemable by Delta at its option on and
after July 1, 1995, for such number of shares of Common Stock as equals the
liquidation preference of the Series C Preferred Stock being redeemed divided by
the conversion price (equivalent to a conversion rate of 0.7605 shares of Common
Stock for each Depositary Share), subject to adjustment in certain
circumstances. Delta may exercise its redemption option only if for 20 trading
days within any period of 30 consecutive trading days, including the last
trading day of such period, the closing price of the Common Stock on the New
York Stock Exchange exceeds $82.125, subject to adjustment in certain
circumstances.
The Series C Preferred Stock ranks senior to the Common Stock and on a
parity with the ESOP Preferred Stock with respect to payment of dividends and
amounts upon liquidation, dissolution or winding up. The terms of the Series C
Preferred Stock prohibit Delta from paying cash dividends on the Common Stock
unless (1) all accrued and unpaid dividends on the Series C Preferred Stock and
the ESOP Preferred Stock have been paid or set apart for payment; and (2)
sufficient funds have been paid or set apart for payment for the current
dividend period with respect to the Series C Preferred Stock and the ESOP
Preferred Stock.
10. Income Taxes:
Effective July 1, 1992, Delta adopted SFAS 109, which changed the Company's
method of accounting for income taxes from the deferred method to the liability
method. As permitted under the new rules, prior years' financial statements have
not been restated to reflect the change in accounting method. The cumulative
effect of adopting SFAS 109 decreased the net loss for fiscal 1993 by $231
million.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of June 30, 1994 and 1993,
are a result of temporary differences related to the items described as follows:
<TABLE>
<CAPTION>
1994 1993
Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
(In Millions)
<S> <C> <C> <C> <C>
Postretirement benefits........... $ 564 $ -- $ 528 $ --
Gains on sale and lease-
back transactions (net)......... 380 -- 371 --
Net operating loss
carryforwards................... 237 -- 74 --
Alternative minimum tax
credit carryforwards............ 185 -- 193 --
Rent expense...................... 167 -- 142 --
Restructuring charges............. 162 -- 22 --
Other employee benefits........... 137 -- 150 --
Spare parts repair expense........ 85 -- 74 --
Depreciation and
amortization.................... -- 1,008 -- 857
Other............................. 172 185 127 146
------ ------ ------ ------
$2,089 $1,193 $1,681 $1,003
====== ====== ====== ======
</TABLE>
Management believes, based on the Company's earnings history, the actions
that the Company has already taken and will continue to take to improve its
financial performance, expectations of future taxable income, and other relevant
considerations,
32
<PAGE>
that it is more likely than not that future taxable income will be sufficient to
fully utilize the deferred tax assets which existed at June 30, 1994.
The income tax benefit generated in fiscal 1994, 1993 and 1992 consisted
of:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Current taxes................................... $ 8 $ 25 $ 148
Deferred taxes.................................. 227 207 123
Increase in corporate
statutory rate................................ 13 -- --
Tax benefit of dividends on
allocated ESOP Preferred Stock................ 2 2 --
----- ----- -----
250 234 271
----- ----- -----
Amortization of investment
tax credits 1 2 9
----- ----- -----
Income tax benefit $ 251 $ 236 $ 280
===== ===== =====
</TABLE>
Components of the deferred tax benefits (provisions) are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Postretirement benefits......................... $ 36 $ 48 $ --
Gains on sale and leaseback
transactions.................................. 9 4 68
Net operating loss carryforwards................ 163 74 --
Alternative minimum tax
credit carryforwards.......................... (8) 114 58
Rent expense.................................... 25 22 36
Restructuring charges........................... 140 22 --
Pension expense................................. (15) 22 35
Depreciation and amortization................... (151) (117) (106)
Software development costs...................... (17) (12) 3
Other, net...................................... 45 30 29
----- ----- -----
$ 227 $ 207 $ 123
===== ===== =====
</TABLE>
The income tax benefits generated for fiscal 1994, 1993 and 1992 differ
from amounts which would result from applying the federal statutory tax rate to
pretax loss, as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Loss before income taxes........... $ 660 $ 651 $ 786
Depreciation and amortization
not deductible for tax purposes.. (9) (11) (33)
Other, net......................... (16) (8) (13)
----- ----- -----
Adjusted pretax loss............... 635 632 740
Statutory rate..................... x 35% x 34% x 34%
----- ----- -----
Income tax benefit at
statutory rate................... 222 215 251
State and other income taxes, net
of federal income tax benefit.... 15 19 20
Benefit due to increase in
corporate statutory tax rate..... 13 -- --
Amortization of investment
tax credits...................... 1 2 9
----- ----- -----
Income tax benefit................. $ 251 $ 236 $ 280
===== ===== =====
</TABLE>
The Company received income tax refunds, net of cash income tax payments,
of $13 million in fiscal 1994, $166 million in fiscal 1993 and $34 million in
fiscal 1992.
11. Employee Stock Ownership Plan:
The Company sponsors the Delta Family-Care Savings Plan (Savings Plan), a
qualified defined contribution pension plan under which eligible Delta personnel
may contribute a portion of their earnings. The Savings Plan includes an
employee stock ownership plan (ESOP) feature. Subject to certain conditions, the
Company contributes to the ESOP 50% of a participant's contributions to the
Savings Plan, up to a maximum employer contribution of 2% of a participant's
earnings.
In connection with the adoption of the ESOP, the Company sold 6,944,450
shares of ESOP Preferred Stock to the Savings Plan for approximately $500
million. The Company has recorded unearned compensation to reflect the value of
ESOP Preferred Stock sold to the ESOP but not yet allocated to individual
participants' accounts. As shares of the ESOP Preferred Stock are allocated to
participants, compensation expense is recorded and unearned compensation is
reduced. Interest expense on the ESOP Notes is also recorded as an additional
component of ESOP expense. The compensation and interest components of ESOP
costs are reduced by the amount of dividends accrued on the ESOP Preferred
Stock.
Delta recorded compensation and interest expense, made cash contributions
to the ESOP, and incurred actual interest on the ESOP Notes in fiscal 1994, 1993
and 1992, as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Compensation expense........... $29 $27 $23
Interest expense............... 20 20 20
Cash contributions, including
dividends on the ESOP
Preferred Stock.............. 50 43 52
Actual interest on ESOP Notes.. 34 35 36
</TABLE>
Effective July 1, 1994, Delta adopted American Institute of Certified
Public Accountants Statement of Position 93-6, "Employers' Accounting for
Employee Stock Ownership Plans," which changed the Company's method of
accounting for the dividends on unallocated shares of ESOP Preferred Stock. This
change will not have a material effect on Delta's financial position or results
of operations.
12. Employee Benefit Plans:
Substantially all of the Company's permanent employees are covered under
various defined benefit pension plans, medical plans, and disability and
survivorship plans, and certain employees meeting service requirements are
eligible to participate in the Savings Plan discussed in Note 11.
33
<PAGE>
Defined Benefit Pension Plans
The following table sets forth the defined benefit pension plans' funded
status and amounts recognized in Delta's Consolidated Balance Sheets as of June
30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------ ------
(In Millions)
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation/1/........................ $4,518 $3,823
====== ======
Projected benefit obligation............................. $5,846 $5,344
Plan assets at fair value/2/................................. 5,365 4,974
------ ------
Projected benefit obligation in
excess of plan assets...................................... 481 370
Unrecognized net loss........................................ (176) (122)
Unrecognized transition obligation........................... (67) (72)
Unrecognized prior service cost.............................. (8) (9)
------ ------
Accrued pension cost recognized in the
consolidated balance sheets................................ $ 230 $ 167
====== ======
</TABLE>
/1/Substantially all of the accumulated benefit obligation is vested.
/2/Plan assets were invested at June 30, 1994, approximately as follows: cash
equivalents (8%), government and corporate bonds and notes (21%), common stock
and other equity-oriented investments (67%) and real estate investments (4%).
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.25% and 4.8%, respectively, at June 30,
1994, and 8.5% and 4.9%, respectively, at June 30, 1993. The expected long-term
rate of return on assets was 10% at June 30, 1994 and 1993.
Effective April 1, 1993, the Company increased the expected annual return
on plan assets associated with defined benefit pension plans from 9% to 10%.
This change reduced pretax operating expenses by $13 million and decreased net
loss by $8 million ($0.16 per common share) in fiscal 1993.
The net periodic cost of defined benefit pension plans for fiscal 1994,
1993 and 1992 included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(In Millions)
<S> <C> <C> <C>
Service cost -- benefits earned
during the year.......................... $ 248 $ 240 $ 217
Interest cost on projected
benefit obligation....................... 466 431 389
Actual return on plan assets............... (355) (647) (494)
Net amortization and deferral.............. (119) 259 153
----- ----- -----
Net periodic pension cost.................. $ 240 $ 283 $ 265
===== ===== =====
</TABLE>
Postretirement Benefits Other Than Pensions
Delta's medical plans provide medical and dental benefits to substantially
all retirees and their eligible dependents. Benefits are funded from general
assets on a current basis, although amounts sufficient to pay claims incurred,
but not yet paid, are held in trust. Plan benefits are subject to co-payments,
deductibles and certain other limits described in the plans and are reduced once
a retiree is eligible for Medicare. The Company has reserved the right to modify
or terminate the medical and dental plans for both current and future retirees.
Effective July 1, 1992, the Company adopted SFAS 106, which requires the
accrual of the cost of providing postretirement benefits over the active service
period of the employee. The Company adopted SFAS 106 using the immediate
recognition transition option and recorded a one-time pretax charge of $1.3
billion ($818 million after tax) as the cumulative effect of the accounting
change. Prior to fiscal 1993, postretirement benefit expense was recognized when
claims were paid. The total cost of these postretirement benefits was $25
million in fiscal 1992.
Net periodic postretirement benefit cost for fiscal 1994 and 1993 included
the following components:
<TABLE>
<CAPTION>
1994 1993
------ ------
(In Millions)
<S> <C> <C>
Service cost -- benefits earned
during the year............................ $ 35 $ 47
Interest cost on accumulated postretirement
benefit obligation......................... 101 119
Amortization of prior service cost........... (31) --
Amortization of accumulated losses........... 6 --
------ ------
Net periodic postretirement benefit cost..... $ 111 $ 166
====== ======
</TABLE>
The accumulated postretirement benefit obligation (APBO) at June 30, 1994 and
1993 consisted of the following components:
<TABLE>
<CAPTION>
1994 1993
------ ------
(In Millions)
<S> <C> <C>
Retirees and dependents............ $ 810 $ 589
Fully eligible participants........ 352 358
Other active participants.......... 262 222
------ ------
Total accumulated postretirement
benefit obligation............... 1,424 1,169
Unamortized prior service cost
(from plan changes).............. 405 450
Unrecognized net loss.............. (132) (192)
------ ------
Accrued postretirement cost........ $1,697 $1,427
====== ======
</TABLE>
The weighted average discount rate used to estimate the APBO was 8.25% at
June 30, 1994, and 8.50% at June 30, 1993. The assumed health care cost trend
rate used in measuring the APBO was 9.5% and 10% at June 30, 1994 and 1993,
respectively, declining gradually to 4 1/2% by June 30, 2002, and remaining
level thereafter. Increasing the assumed health care cost trend rate annually by
1% for all future years would increase the APBO as of June 30, 1994, by
approximately $126 million, and the net periodic postretirement benefit cost by
$17 million for fiscal 1994.
Included in the restructuring charges described in Note 14 are aggregate
charges of $112 million and $198 million for defined benefit pension plans and
postretirement benefit plans, respectively. These charges represent costs
primarily associated with special termination benefits and curtailment losses
related to workforce reductions.
34
<PAGE>
Gains and losses that occur because actual experience differs from that
assumed will be amortized over the average future service period of employees.
Amounts allocable to prior service for amendments to retiree insurance plans are
amortized in a similar manner.
The Company continues to evaluate ways in which it can better manage
employee benefits and control costs. Any changes in the plan or revisions to
assumptions that affect the amount of expected future benefits may have a
significant effect on the amount of the reported obligation and future annual
expense.
Postemployment Benefits
The Company provides certain benefits to its former or inactive employees
after employment but before retirement. Such benefits primarily include those
related to disability and survivorship plans.
Effective July 1, 1994, Delta adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS
112), which requires recognition of the liability for postemployment benefits
during the period of employment.
Adoption of SFAS 112 will result in a cumulative after-tax transition
benefit of approximately $100 million, primarily due to the net overfunded
status of the Company's disability and survivorship plans. Future period
expenses will vary based on actual claims experience and the return on plan
assets.
13. Investments in Associated Companies:
The Company's percent ownership in associated companies at June 30, 1994,
and equity earnings for fiscal 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Equity Earnings
Percent ----------------------
Investment Ownership 1994 1993 1992
- ---------- --------- ------ ------ ------
(In Millions)
<S> <C> <C> <C> <C>
WORLDSPAN.......... 38.0% $ 1 $ 5 $ 3
ASA................ 23.3 12 9 8
Comair............. 20.6 6 4 3
SkyWest............ 13.6 2 1 --
</TABLE>
WORLDSPAN provides reservations services to Delta, which are billed to
Delta in the form of segment fees; such fees were $60 million in fiscal 1994,
$47 million in fiscal 1993 and $46 million in fiscal 1992. Additionally, Delta
made monthly subscriber support payments to WORLDSPAN; these payments totaled
$23 million in fiscal 1994, $32 million in fiscal 1993 and $40 million in fiscal
1992. Delta provides communications, information processing and administrative
services to WORLDSPAN; WORLDSPAN reimbursed Delta for these services in the
amount of $15 million in fiscal 1994, $26 million in fiscal 1993 and $32 million
in fiscal 1992.
14. Restructuring Charges:
During fiscal 1993 and 1994, the Company recorded pretax restructuring
charges of $82 million ($1.05 primary and fully diluted per common share) and
$526 million ($6.59 primary and fully diluted per common share), respectively.
These charges are summarized in the table below:
<TABLE>
<CAPTION>
Charges (Credits)
----------------------- Amounts
1993 1994 Total Utilized
------ ------ ----- --------
<S> <C> <C> <C> <C>
Fleet Simplification................. $ 82 $(24) $ 58 $ 58
Early Retirement
Program............................ -- 112 112 --
Leadership 7.5 Initiatives........... -- 438 438 77
----- ----- ---- ----
Totals............................. $ 82 $526 $608 $135
===== ===== ==== ====
</TABLE>
During fiscal 1993, the Company recorded an $82 million restructuring
charge related to the planned retirement of 21 Airbus A310 aircraft acquired in
1991 in connection with the Company's purchase of certain assets from Pan Am
Corporation and certain of its subsidiaries (Pan Am). The Company returned 17 of
these aircraft to lessors during fiscal 1994, recognizing cash and non-cash
costs totaling $28 million and $30 million, respectively, and reversed $24
million of the restructuring charge due to lower than expected maintenance costs
associated with the return of the 17 aircraft.
During the December 1993 quarter, Delta recorded a $112 million
restructuring charge primarily for special termination benefits relating to an
early retirement program under which approximately 1,500 employees elected to
retire effective November 1, 1993.
During the June 1994 quarter, the Company announced a three-year
restructuring program, Leadership 7.5, with a goal of reducing its annual
operating expenses by approximately $2 billion by the end of the June 1997
quarter. This program includes expected cost savings from planned workforce
reductions of 12,000 to 15,000 jobs, which will be accomplished through
voluntary programs, including early retirement incentives, leaves of absence and
severance programs, as well as furloughs; the reengineering of processes in the
Company's Technical Operations division, resulting in increased productivity and
reductions in inventory levels; the suspension of service in certain
transatlantic markets; the phase-out of the A310 fleet; and the closing of
certain facilities. During the June 1994 quarter, the Company recorded a
restructuring charge of $414 million for these Leadership 7.5 initiatives, net
of the $24 million reversal related to the fleet simplification charge discussed
above.
This $414 million charge includes $280 million for workforce reductions of
approximately 8,700 employees expected to occur during fiscal 1995, including
pension plan curtailment losses of $33 million, special termination benefits of
$165 million (for approximately 2,500 employees), and severance payments
35
<PAGE>
and related costs of $82 million. Cash outlays for severence payments are
expected to occur substantially during fiscal 1995. Payments associated with the
curtailment loss and special termination benefits will be expended as required
for funding appropriate pension and other postretirement plans in future years.
Also included in the $414 million restructuring charge is $134 million
representing cash and noncash costs associated with reductions in inventory
levels, the suspension of service in certain transatlantic markets, and lease
termination costs for facilities to be abandoned as a result of the
restructuring. Cash costs of approximately $81 million are expected to occur
primarily during fiscal 1995 and 1996. The remaining $53 million represents
noncash costs.
15. Transactions with Pan Am Corporation:
Pursuant to an asset purchase agreement with Pan Am dated July 27, 1991, as
amended, Delta purchased certain assets relating to Pan Am's Boston-New York-
Washington, D.C. Shuttle and route authorities to Europe, Asia and Africa. The
purchased assets included substantially all of Pan Am's transatlantic route
authorities and related beyond rights; certain take-off and landing
authorizations and slots; equity interests in three used A310-200 aircraft and
certain aircraft spare engines and spare parts; and leasehold interests in
certain airport facilities.
Delta's purchase price under the asset purchase agreement was $416 million,
subject to certain adjustments. Delta also assumed certain liabilities,
including $66 million in mortgages on acquired assets, and agreed to honor up to
$100 million of Pan Am's passenger tickets under certain circumstances. In
connection with these asset purchases, Delta hired approximately 7,800 Pan Am
personnel and entered into operating leases with respect to 42 used aircraft.
Delta also agreed, subject to certain terms and conditions, to participate in a
plan of reorganization for Pan Am and to provide Pan Am with certain debtor-in-
possession financing (DIP Loan) prior to the effective date of its proposed plan
of reorganization.
The $115 million principal amount of the DIP Loan, plus accrued interest of
$30 million, is outstanding and reflected as an asset in Delta's Consolidated
Balance Sheets as of June 30, 1994. These amounts are secured by a lien on
substantially all of Pan Am's remaining assets, but are subject to prior liens
of approximately $60 million in favor of the Pan Am Shuttle bankruptcy estate
and certain other liens on specific assets. As a result of the sale of Pan Am's
assets, Delta expects Pan Am will have sufficient funds to repay in full these
amounts due Delta under the DIP Loan, although there can be no assurance this
will be the case. Management believes the book value of the DIP Loan as recorded
in the Company's Consolidated Balance Sheets approximates its fair value.
Certain litigation involving the DIP Loan is discussed in Note 16.
16. Contingencies:
On March 6, 1992, 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 (the 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 million principal amount of the DIP
Loan; to impose a constructive trust for the benefit of Pan Am's 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 (See Note 15); 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 was held between May 4, 1994 and June 10, 1994 before the
United States District Court for the Southern District of New York, which has
not yet issued its decision. 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 continue 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.
36
<PAGE>
17. Foreign Operations:
Delta conducts operations in various foreign countries, principally in
North America, Europe, the Middle East and Asia. Operating revenues from foreign
operations were approximately $2.8 billion in fiscal 1994, $2.6 billion in
fiscal 1993 and $1.9 billion in fiscal 1992.
18. Quarterly Financial Data (Unaudited):
The following is a summary of the unaudited quarterly results of operations
for fiscal 1994 and 1993 (dollars in millions, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
Sept. 30 Dec. 31 Mar. 31 June 30
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal 1994
- -----------
Operating revenues................. $ 3,220 $ 3,017 $ 2,943 $ 3,179
======= ======= ======= =======
Operating income (loss)............ $ 121 $ (180) $ (67) $ (321)
======= ======= ======= =======
Net income (loss).................. $ 60 $ (141) $ (78) $ (250)
======= ======= ======= =======
Primary and fully
diluted income (loss)
per common share................. $ 0.65 $ (3.36) $ (2.10) $ (5.50)
======= ======= ======= =======
Fiscal 1993
- -----------
Operating revenues................. $ 3,064 $ 2,875 $ 2,927 $ 3,131
======= ======= ======= =======
Operating income (loss)............ $ (194) $ (227) $ (211) $ 57
======= ======= ======= =======
Income (loss) before
cumulative effect of
accounting changes............... $ (125) $ (145) $ (152) $ 7
Cumulative effect of
accounting changes............... (587) -- -- --
------- ------- ------- -------
Net income (loss).................. $ (712) $ (145) $ (152) $ 7
======= ======= ======= =======
Primary and fully
diluted loss per
common share:
Loss before
cumulative effect of
accounting
changes...................... $ (3.07) $ (3.46) $ (3.61) $ (0.41)
Cumulative effect
of accounting
changes...................... (11.81) -- -- --
------- ------- ------- -------
Net loss................... $(14.88) $ (3.46) $ (3.61) $ (0.41)
======= ======= ======= =======
</TABLE>
Operating expenses for the December 1993 quarter include a $112 million
restructuring charge for costs associated with the early retirement of
approximately 1,500 employees who elected to retire effective November 1, 1993.
Operating expenses for the June 1994 quarter include a $414 million
restructuring charge for costs associated with the Leadership 7.5 program. See
Note 14.
The September 1992 quarter was restated for a cumulative charge of $587
million as a result of the adoption of SFAS Nos. 106 and 109 (see Notes 12 and
10, respectively). The September 1992, December 1992, and March 1993 quarters
were restated for an operating expense increase of $32 million per quarter
related to SFAS 106. Operating expenses for the March 1993 quarter include an
$82 million restructuring charge associated with the retirement of certain
aircraft. The June 1993 quarter results reflect a $34 million decrease in
depreciation expense related to a change in depreciation policy (see Note 1),
and a $13 million operating expense reduction due to a change in assumption on
the expected annual return on plan assets associated with defined benefit
pension plans from 9% to 10% (see Note 12).
37
<PAGE>
CONSOLIDATED SUMMARY OF OPERATIONS For the years ended June 30
(Dollars in millions, except per share figures)
<TABLE>
<CAPTION>
1994/2/ 1993/3/ 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues
Passenger...................................................... $ 11,316 $ 11,075 $ 10,115 $ 8,567
Cargo.......................................................... 769 698 588 476
Other, net..................................................... 274 224 134 128
----------- ----------- ----------- -----------
Total operating revenues........................................... 12,359 11,997 10,837 9,171
Operating expenses................................................. 12,806 12,572 11,512 9,621
----------- ----------- ----------- -----------
Operating income (loss)............................................ (447) (575) (675) (450)
Interest expense, net/1/........................................... (271) (177) (151) (97)
Gain (loss) on disposition of flight equipment..................... 2 65 35 17
Miscellaneous income, net.......................................... 56 36 5 30
----------- ----------- ----------- -----------
Income (loss) before income taxes.................................. (660) (651) (786) (500)
Income tax benefit (provision)..................................... 250 233 271 163
Amortization of investment tax credits............................. 1 3 9 13
----------- ----------- ----------- -----------
Net income (loss).................................................. (409) (415) (506) (324)
Preferred stock dividends.......................................... (110) (110) (19) (19)
----------- ----------- ----------- -----------
Net income (loss) attributable to common
stockholders..................................................... $ (519) $ (525) $ (525) $ (343)
=========== =========== =========== ===========
Net income (loss) per common share:
Primary.................................................... $ (10.32) $ (10.54) $ (10.60) $ (7.73)
=========== =========== =========== ===========
Fully diluted.............................................. $ (10.32) $ (10.54) $ (10.60) $ (7.73)
=========== =========== =========== ===========
Dividends declared on common stock................................. $ 10 $ 35 $ 59 $ 54
Dividends declared per common share............................ $ 0.20 $ 0.70 $ 1.20 $ 1.20
/1/Has been reduced by interest capitalized of..................... $ 33 $ 62 $ 70 $ 65
</TABLE>
/2/Results include $526 million in pretax restructuring charges ($6.59 per
common share).
/3/Results include $82 million pretax restructuring charge ($1.05 per
common share) and exclude $587 million after-tax cumulative effect
of changes in accounting standards ($11.78 per common share).
<TABLE>
<CAPTION>
1990 1989 1988 1987
-------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues
Passenger...................................................... $ 8,043 $ 7,580 $ 6,443 $ 4,922
Cargo.......................................................... 416 393 350 280
Other, net..................................................... 124 116 122 116
---------- ----------- ----------- -----------
Total operating revenues........................................... 8,583 8,089 6,915 5,318
Operating expenses................................................. 8,163 7,411 6,418 4,913
---------- ----------- ----------- -----------
Operating income (loss)............................................ 420 678 497 405
Interest expense, net/1/........................................... (27) (39) (65) (62)
Gain (loss) on disposition of flight equipment..................... 18 17 (1) 96
Miscellaneous income, net.......................................... 57 55 25 8
---------- ----------- ----------- -----------
Income (loss) before income taxes.................................. 468 711 456 447
Income tax benefit (provision)..................................... (187) (279) (181) (219)
Amortization of investment tax credits............................. 22 29 32 36
---------- ----------- ----------- -----------
Net income (loss).................................................. 303 461 307 264
Preferred stock dividends.......................................... (18) -- -- --
Net income (loss) attributable to common ---------- ----------- ----------- -----------
stockholders..................................................... $ 285 $ 461 $ 307 $ 264
Net income (loss) per common share: ========== =========== =========== ===========
Primary.................................................... $ 5.79 $ 9.37 $ 6.30 $ 5.90
========== =========== =========== ===========
Fully diluted.............................................. $ 5.28 $ 9.37 $ 6.30 $ 5.90
========== =========== =========== ===========
Dividends declared on common stock................................. $ 85 $ 59 $ 59 $ 44
Dividends declared per common share............................ $ 1.70 $ 1.20 $ 1.20 $ 1.00
/1/Has been reduced by interest capitalized of..................... $ 57 $ 32 $ 32 $ 32
</TABLE>
<TABLE>
<CAPTION>
1986 1985 1984
-------------------------------------------
<S> <C> <C> <C>
Operating Revenues
Passenger...................................................... $ 4,132 $ 4,377 $ 3,964
Cargo.......................................................... 240 235 240
Other, net..................................................... 88 72 60
----------- ----------- -----------
Total operating revenues........................................... 4,460 4,684 4,264
Operating expenses................................................. 4,426 4,318 4,052
----------- ----------- -----------
Operating income (loss)............................................ 34 366 212
Interest expense, net/1/........................................... (55) (62) (110)
Gain (loss) on disposition of flight equipment..................... 16 94 130
Miscellaneous income, net.......................................... 8 7 9
----------- ----------- -----------
Income (loss) before income taxes.................................. 3 405 241
Income tax benefit (provision)..................................... 2 (187) (103)
Amortization of investment tax credits............................. 42 41 38
----------- ----------- -----------
Net income (loss).................................................. 47 259 176
Preferred stock dividends.......................................... -- -- --
Net income (loss) attributable to common ----------- ----------- -----------
stockholders..................................................... $ 47 $ 259 $ 176
Net income (loss) per common share: =========== =========== ===========
Primary.................................................... $ 1.18 $ 6.50 $ 4.42
=========== =========== ===========
Fully diluted.............................................. $ 1.18 $ 6.50 $ 4.42
=========== =========== ===========
Dividends declared on common stock................................. $ 40 $ 28 $ 24
Dividends declared per common share............................ $ 1.00 $ 0.70 $ 0.60
/1/Has been reduced by interest capitalized of..................... $ 24 $ 22 $ 18
</TABLE>
OTHER FINANCIAL AND STATISTICAL DATA For the years ended June 30
(Dollars in millions, except share figures)
<TABLE>
<CAPTION>
1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets......................................... $ 11,896 $ 11,871 $ 10,162 $ 8,411
Long-term debt and capital leases.................... $ 3,228 $ 3,716 $ 2,833 $ 2,059
Stockholders' equity................................. $ 1,467 $ 1,913 $ 1,894 $ 2,457
Shares of common stock outstanding at year end....... 50,453,272 50,063,841 49,699,098 49,401,779
Revenue passengers enplaned (Thousands).............. 87,399 85,085 77,038 69,127
Available seat miles (Millions)...................... 131,780 132,282 123,102 104,328
Revenue passenger miles (Millions)................... 85,206 82,406 72,693 62,086
Operating revenue per available seat mile............ 9.38c 9.07c 8.80c 8.79c
Passenger mile yield................................. 13.28c 13.44c 13.91c 13.80c
Cost per available seat mile......................... 9.72c 9.50c 9.35c 9.22c
Passenger load factor................................ 64.66% 62.30% 59.05% 59.51%
Breakeven passenger load factor...................... 67.21% 65.53% 62.99% 62.64%
Available ton miles (Millions)....................... 18,302 18,182 16,625 13,825
Revenue ton miles (Millions)......................... 9,911 9,503 8,361 7,104
Cost per available ton mile.......................... 69.97c 69.14c 69.24c 69.59c
</TABLE>
<TABLE>
<CAPTION>
1990 1989 1988 1987
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets......................................... $ 7,227 $ 6,484 $ 5,748 $ 5,342
Long-term debt and capital leases.................... $ 1,315 $ 703 $ 729 $ 1,018
Stockholders' equity................................. $ 2,596 $ 2,620 $ 2,209 $ 1,938
Shares of common stock outstanding at year end....... 46,086,110 49,265,884 49,101,271 48,639,469
Revenue passengers enplaned (Thousands).............. 67,240 64,242 58,565 48,173
Available seat miles (Millions)...................... 96,463 90,742 85,834 69,014
Revenue passenger miles (Millions)................... 58,987 55,904 49,009 38,415
Operating revenue per available seat mile............ 8.90c 8.91c 8.06c 7.71c
Passenger mile yield................................. 13.63c 13.56c 13.15c 12.81c
Cost per available seat mile......................... 8.46c 8.17c 7.48c 7.12c
Passenger load factor................................ 61.15% 61.61% 57.10% 55.66%
Breakeven passenger load factor...................... 57.96% 56.09% 52.69% 51.09%
Available ton miles (Millions)....................... 12,500 11,725 11,250 9,000
Revenue ton miles (Millions)......................... 6,694 6,338 5,557 4,327
Cost per available ton mile.......................... 65.30c 63.21c 57.05c 54.60c
</TABLE>
<TABLE>
<CAPTION>
1986 1985 1984
--------------------------------------------
<S> <C> <C> <C>
Total assets......................................... $ 3,785 $ 3,627 $ 3,269
Long-term debt and capital leases.................... $ 869 $ 535 $ 671
Stockholders' equity................................. $ 1,302 $ 1,287 $ 1,049
Shares of common stock outstanding at year end....... 40,116,383 39,958,467 39,761,154
Revenue passengers enplaned (Thousands).............. 39,582 39,341 36,320
Available seat miles (Millions)...................... 53,336 51,637 50,935
Revenue passenger miles (Millions)................... 30,123 29,062 26,099
Operating revenue per available seat mile............ 8.36c 9.07c 8.37c
Passenger mile yield................................. 13.72c 15.06c 15.19c
Cost per available seat mile......................... 8.30c 8.36c 7.96c
Passenger load factor................................ 56.48% 56.28% 51.24%
Breakeven passenger load factor...................... 56.01% 51.57% 48.51%
Available ton miles (Millions)....................... 6,934 6,668 6,569
Revenue ton miles (Millions)......................... 3,372 3,275 2,984
Cost per available ton mile.......................... 63.82c 64.76c 61.69c
</TABLE>
The financial and statistical information presented above reflects the Company's
acquisition of Western Air Lines, Inc. on December 18, 1986.
[Inside Back Cover]
<PAGE>
EXHIBIT 21
----------
Subsidiaries of Delta Air Lines, Inc.
-------------------------------------
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Incorporation or
Name of Subsidiary Organization
- ------------------------------- ----------------
<S> <C>
Crown Rooms, Inc. Nevada
Crown Rooms of Texas, Inc. Texas
DAL Foreign Sales, Inc. U.S. Virgin Islands
Delta Air Lines Holdings, Inc. Delaware
Delta Air Lines Funding Delaware
Corporation
Delta Ventures I, Inc. Delaware
Delta Ventures II, Inc. Delaware
Delta Ventures III, Inc. Delaware
Deltair U.K. Investments United Kingdom
Limited
DELTACAP, Ltd. Bermuda
Epsilon Trading, Inc. Delaware
Global Excellence (India) India
Private Limited
Lesteris Limited United Kingdom
DAL Moscow, Inc. Delaware
Delta Air Lines und Pan Germany
American World Airways
Unterstutzungkasse GmbH
</TABLE>
<PAGE>
EXHIBIT 23
----------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated August 12, 1994 included in or incorporated by
reference in Delta Air Lines, Inc.'s Annual Report on Form 10-K for the year
ending June 30, 1994 into the Company's previously filed Registration Statement
File Nos. 2-94541, 33-30454, 33-32618, 33-40190, 33-46663 and 33-50175.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
September 23, 1994
<PAGE>
Exhibit 24
----------
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of August,
1994.
/s/Edwin L. Artzt
--------------------------------
Edwin L. Artzt
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of August,
1994.
/s/Henry A. Biedenharn, III
--------------------------------
Henry A. Biedenharn, III
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of August,
1994.
/s/James L. Broadhead
--------------------------------
James L. Broadhead
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of August,
1994.
/s/Edward H. Budd
--------------------------------
Edward H. Budd
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of August,
1994.
/s/George D. Busbee
--------------------------------
George D. Busbee
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of August,
1994.
/s/R. Eugene Cartledge
--------------------------------
R. Eugene Cartledge
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of August,
1994.
/s/Mary Johnston Evans
--------------------------------
Mary Johnston Evans
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of August,
1994.
/s/David C. Garrett, Jr.
--------------------------------
David C. Garrett, Jr.
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of August,
1994.
/s/Gerald Grinstein
--------------------------------
Gerald Grinstein
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of August,
1994.
/s/Jesse Hill, Jr.
--------------------------------
Jesse Hill, Jr.
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr., Julius P. Gwin and
Mary E. Raines, and each of them separately, as my true and lawful attorneys-in-
fact and agents, with full power of substitution, for me and in my name, in any
and all capacities, to sign on my behalf the Annual Report on Form 10-K of Delta
Air Lines, Inc. for the fiscal year ended June 30, 1994, and any amendment or
supplement thereto; and to file such Annual Report on Form 10-K with the
Securities and Exchange Commission, the New York Stock Exchange, and any other
appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of August,
1994.
/s/Andrew Young
--------------------------------
Andrew Young
Director
Delta Air Lines, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the Form 10-K for
the fiscal year ended June 30, 1994 and is
qualified in its entirety by reference to
such financial statements.
<MULTIPLIER> 1,000,000
<S> <C>
<FISCAL-YEAR-END> Jun-30-1994
<PERIOD-START> Jul-01-1993
<PERIOD-END> Jun-30-1994
<PERIOD-TYPE> 12-MOS
<CASH> 1,302
<SECURITIES> 408
<RECEIVABLES> 936
<ALLOWANCES> 50
<INVENTORY> 67
<CURRENT-ASSETS> 3,223
<PP&E> 11,875
<DEPRECIATION> 5,272
<TOTAL-ASSETS> 11,896
<CURRENT-LIABILITIES> 3,536
<BONDS> 3,466
0
0
<COMMON> 163
<OTHER-SE> 1,304
<TOTAL-LIABILITY-AND-EQUITY> 11,896
<SALES> 0
<TOTAL-REVENUES> 12,359
<CGS> 0
<TOTAL-COSTS> 12,806
<OTHER-EXPENSES> (91)
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 304
<INCOME-PRETAX> (660)
<INCOME-TAX> (251)
<INCOME-CONTINUING> (409)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (409)
<EPS-PRIMARY> (10.32)
<EPS-DILUTED> (10.32)
</TABLE>
