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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, 1995
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
DELTA AIR LINES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-0218548
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320
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(Address of principal executive offices) (Zip code)
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
Title of each class which 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 1/1,000 of New York Stock Exchange
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
preference $50,000 per share
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(Title of class)
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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 the voting stock held by non-affiliates of
the registrant as of August 31, 1995, was approximately $4,281,249,000. As of
August 31, 1995, 51,144,098 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 1995 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 15, 1995, for its
Annual Meeting of Stockholders to be held on October 26, 1995.
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DELTA AIR LINES, INC.
PART I
ITEM 1. BUSINESS
General Description
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. Based on calendar
1994 data, Delta is the largest United States airline as measured by aircraft
departures and passengers enplaned, and the third largest United States airline
as measured by operating revenues and revenue passenger miles flown. At
September 1, 1995, the Company served 153 domestic cities in 43 states, the
District of Columbia, Puerto Rico and the United States Virgin Islands, as well
as 51 cities in 31 foreign countries.
An important characteristic of Delta's domestic route system is its four
hub airports in Atlanta, Cincinnati, Dallas/Ft. Worth and Salt Lake City. Each
of these hub operations includes Delta flights that 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 hub at New York's Kennedy Airport, its Pacific gateway in
Portland, Oregon and its European hub in Frankfurt, Germany.
Delta conducts operations in various foreign countries, principally in
North America, Europe, the Middle East and Asia. Operating revenues from the
Company's foreign operations were approximately $2.6 billion, $2.5 billion and
$2.3 billion in the years ended June 30, 1995, 1994 and 1993, respectively.
For the year ended June 30, 1995, passenger revenues accounted for 92%
of Delta's operating revenues. Cargo revenues, which include freight and mail,
accounted for 5% of Delta's operating revenues, and other sources accounted for
3% 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.
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
While the United States Department of Transportation (the "DOT") and the
Federal Aviation Administration (the "FAA") exercise regulatory authority over
air carriers under the
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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 economic and 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 FAA has implemented a number of provisions and requirements which
are being incorporated into Delta's maintenance programs. These matters relate
to, among other things, inspection and maintenance of aging aircraft, and
corrosion control. 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) are regulated by various federal, state and local governmental
entities.
Fares and Rates
Airlines are permitted to set domestic ticket 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.
During fiscal 1995, low-cost, low-fare carriers increased their presence
in domestic markets served by Delta. This contributed to a 1% decline in the
system passenger mile yield in fiscal 1995 compared to fiscal 1994. See "ITEM
1. Business - Leadership 7.5" on pages 6-7.
Delta expects that low-fare competition is likely to continue in
domestic and international markets. If price 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 adversely affected.
Competition and Route Authority
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 United States carriers, British Airways, KLM and Lufthansa
have obtained access to interior United States 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 termination of such agreements,
diminish the value of Delta's international route 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 of Delta's international route 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.
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Code Sharing
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 provide 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 that are marketed
under Delta's "DL" designator code pursuant to code sharing arrangements with a
number of foreign airlines, including Aeromexico, Austrian Airlines, Korean Air
(effective September 30, 1995), Malev Hungarian Airlines, Sabena Belgian World
Airlines, Singapore Airlines, Swissair, Varig and Virgin Atlantic Airways.
Delta sells seats that are marketed under foreign airlines' two-letter
designator codes pursuant to code sharing arrangements with Aeroflot,
Aeromexico, Sabena and Swissair.
Slot Allocations
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 Kennedy Airport in New York, 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.
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
Delta has marketing agreements with four air carriers serving
principally the following areas 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. At June 30, 1995, Delta
held equity interests in ASA, Comair Holdings, Inc. (the parent of Comair) and
SkyWest, Inc. (the parent of SkyWest) of 24%, 21% and 15%, respectively.
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Computer Reservation System Partnership
Delta owns 38% of WORLDSPAN, L.P. ("WORLDSPAN"), a Delaware limited
partnership which operates and markets a computer reservation system ("CRS")
and related systems 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 Galileo International Partnership (owned by United Air Lines, Inc.,
USAir, Inc. and certain foreign carriers) and System One AMADEUS (owned by
Continental Airlines, Inc., AMADEUS and Electronic Data Systems Corporation).
CRS vendors are subject to regulations promulgated by the DOT and certain
foreign governments.
The CRS industry is highly competitive. Delta believes that, based on
the number of travel agents in the United States using a CRS, WORLDSPAN ranks
third, behind SABRE and the Galileo International Partnership, in market share
among travel agents in the United States.
Information Technology Joint Venture
During the December 1994 quarter, Delta and AT&T Global Information
Solutions Company ("AT&T") formed TransQuest Information Solutions
("TransQuest"), a joint venture to provide information technology services to
Delta and others in the travel and transportation industries. Delta and AT&T
each own a 50% interest in TransQuest.
Fuel
Delta's operations are significantly affected by the availability and
price of jet fuel. Based on the Company's fiscal 1995 jet 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
1991-1995.
<TABLE>
<CAPTION>
Gallons Percent of
Fiscal Consumed Cost Average Price Operating
Year (Millions) (Millions) Per Gallon Expenses*
------ ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
1991 2,060 $1,599 77.63c. 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
1995 2,533 1,370 54.09 12
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</TABLE>
* Excluding restructuring charges
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Aircraft fuel expense decreased 3% in fiscal 1995 compared to fiscal
1994, as fuel gallons consumed declined 1% and the average price per fuel
gallon decreased 2% to 54.09c., Delta's lowest average price per fuel gallon
for any fiscal year since fiscal 1989.
Changes in jet fuel prices have industry-wide impact and benefit or harm
Delta's competitors as well as Delta. Accordingly, lower jet 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's jet fuel contracts do not provide material protection against
price increases or for assured availability of supplies. The Company purchases
most of its jet fuel from petroleum refiners under contracts which establish
the price based on various market indices. The Company also purchases aircraft
fuel on the spot market, from off-shore sources and 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.
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 of 1993 imposes a 4.3c. per gallon
tax on commercial aviation jet fuel purchased for use in domestic operations,
effective October 1, 1995. Based on Delta's fiscal 1996 expected domestic fuel
requirement of 1.9 billion gallons, the new fuel tax, when effective, is
expected to increase Delta's operating expenses by approximately $80 million
annually. Delta and other United States airlines are actively lobbying for a
repeal of this tax. The outcome of these efforts cannot presently be
determined.
Leadership 7.5
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 also
established operating cost per available seat mile ("unit cost") goals of 8.6c.
by the June 1995 quarter, 8.0c. by the June 1996 quarter and 7.5c. 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.
Industry events during fiscal 1995 validated Delta's determination that
cost reductions are essential to compete in today's highly competitive airline
industry. Low-cost, low-fare carriers increased their presence in domestic
markets, resulting in continued reductions in Delta's domestic passenger mile
yield and flat or declining domestic unit revenue. At the end of fiscal
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1995, approximately 60% of Delta's domestic origin and destination revenue
passenger miles were in markets also served by low-cost, low-fare carriers, up
from 57% at the end of fiscal 1994 and 32% at the end of fiscal 1993. The
airline industry has experienced a permanent shift in the preferences of its
customers, with more business and leisure passengers citing ticket prices as
the most important factor in their purchase decisions.
Leadership 7.5 initiatives made a significant contribution to Delta's
operating profit in fiscal 1995. The Company achieved its first Leadership 7.5
unit cost target, recording a unit cost of 8.39c. for the June 1995 quarter.
By the end of fiscal 1995, the implementation of initiatives expected to
generate approximately $1.6 billion in annual cost reductions was in process or
completed.
Changes in the Company's collective bargaining agreement with the Air
Line Pilots Association ("ALPA"), which represents Delta's 8,100 pilots, are
critical to the continued success of Leadership 7.5 and the Company's ability
to achieve its future unit cost targets. Delta is seeking $340 million in
annual productivity improvements and wage and benefit reductions from ALPA.
See "ITEM 1. Business - Personnel" on pages 7-8.
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 page 6 of Delta's 1995 Annual Report
to Stockholders, and is incorporated herein by reference.
Personnel
At June 30, 1995, Delta employed 59,717 full-time equivalent personnel,
compared to 69,555 full-time equivalent personnel at June 30, 1994. This 14%
reduction in staffing was achieved through voluntary early retirement
incentives, leaves of absence, severance programs, the transfer of employees to
TransQuest and WORLDSPAN, and furloughs.
The following table presents certain information concerning Delta's
domestic collective bargaining agreements.
<TABLE>
<CAPTION>
Approximate
Number of Contract
Personnel Amendable
Personnel Group Represented Union Date
---------------- ----------- -------------------- --------------
<S> <C> <C> <C>
Pilots 8,100 Air Line Pilots 1/1/95
Association
Flight 170 Professional Airline 1/1/95
Superintendents Flight Control
Association
</TABLE>
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Approximately 3,600 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.
Delta's relations with labor unions in the United States are governed by
the Railway Labor Act. Under the Railway Labor Act, the collective bargaining
agreements between Delta and labor unions do not expire but instead become
amendable as of a stated date. If either party wishes to modify the terms of
any such agreement, it must notify the other party before the contract becomes
amendable. After receipt of such notice, the parties must meet for direct
negotiations and, if no agreement is reached, either party may request the
National Mediation Board ("NMB") to appoint a federal mediator. If no
agreement is reached in mediation, the NMB may determine, at any time, that an
impasse exists and proffer binding arbitration. Either party may decline to
submit to arbitration. If arbitration is rejected, a 30-day "cooling-off"
period commences, following which the union may strike and the airline may
resort to "self-help," including the imposition of its proposed changes to the
collective bargaining agreement and the hiring of replacement workers.
Delta's collective bargaining agreements with ALPA and the Professional
Airline Flight Control Association ("PAFCA") became amendable on January 1,
1995, and formal negotiations with ALPA and PAFCA began in November 1994. As
part of its Leadership 7.5 program, the Company is seeking $340 million in
annual productivity improvements and wage and benefit reductions from ALPA. On
May 8, 1995, the NMB, at the Company's request, appointed federal mediators to
participate in the collective bargaining negotiations between Delta and ALPA.
Delta and PAFCA reached agreement on a new collective bargaining
contract, subject to ratification by the flight superintendents employed by the
Company. On September 8, 1995, however, the flight superintendents rejected
the proposed contract. Delta and PAFCA intend to continue negotiations on a
new agreement.
The outcome of Delta's negotiations with ALPA and PAFCA cannot presently
be determined.
Environmental Matters
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.
On December 31, 1994, Delta operated 364 Stage 3 aircraft, constituting
67% of the Company's fleet, and thus complied with the first phase-out
deadline. On June 30, 1995, Delta operated 367 Stage 3 aircraft, constituting
68% of the Company's fleet. Accordingly, Delta
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anticipates that it will be able to comply with the requirements for December
31, 1996, by operating a fleet comprised of at least 65% Stage 3 aircraft.
Delta anticipates it will comply with the later compliance deadlines, although
the Company has not yet determined which alternative it will select with
respect to such deadlines. Information relating to Delta's agreement to
purchase certain aircraft engine hushkits is set forth under "Operational
Review - Aircraft Fleet" on page 9 of Delta's 1995 Annual Report to
Stockholders, and is incorporated herein by reference.
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 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 began 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; the Peak Oil Site
in Tampa, Florida; and the Petroleum Products Corporation Site in Pembroke
Park, Florida. In addition, Delta is a third party defendant in United States
of America v. J.B. Stringfellow, Jr., a lawsuit involving the cleanup of the
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 has executed a consent order
with the Georgia EPD, which includes a monetary penalty of $310,000 (which may
be reduced by $100,000 under certain circumstances), and an additional, not yet
determined, monetary penalty covering certain emissions. Delta is currently
aware of soil and/or ground water contamination present on its leaseholds at
several domestic airports; the Company has a program in place to investigate
and, if appropriate, remediate these sites. 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.
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Frequent Flyer Program
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 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 at any time without notice.
Effective May 1, 1995, Delta modified its frequent flyer program in
certain respects. The changes included reducing the threshold for a free
travel award; making free travel awards more readily transferable; providing
that miles earned expire in certain circumstances; and reducing minimum mileage
credit.
Mileage credits earned can be redeemed for free or upgraded travel, for
membership in Delta's Crown Room Club and for other program partner awards.
Travel awards are subject to certain transfer restrictions and, in most cases,
blackout dates and capacity controlled seating. Miles earned prior to May 1,
1995 do not expire so long as Delta has a frequent flyer program. Miles earned
on or after May 1, 1995 are valid for 36 months from the month of the
participant's last qualifying Delta or Delta Connection flight; every time a
participant completes a qualifying Delta or Delta Connection flight, his
mileage balance is extended for another 36 months.
As of June 30, 1993, a participant in the frequent flyer program became
eligible for a free travel award after accruing 30,000 miles. Effective May 1,
1995, Delta modified the program by reducing the number of miles required to
become eligible for a free travel award to 25,000. Delta estimates the
potential number of roundtrip flight awards outstanding to be 5.0 million at
June 30, 1993, 7.9 million at June 30, 1994 and 8.8 million at June 30, 1995
(based on program accounts with balances in excess of 30,000 miles, 25,000
miles and 25,000 miles, respectively). Of these earned awards, Delta expects
up to approximately 3.3 million, 5.1 million and 5.7 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
program. 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% and 69%, respectively, of
the total mileage balance of all participants at June 30, 1994 and 1995.
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 does not include any
contribution to overhead or profit. Such incremental cost is based on Delta's
system average cost per passenger
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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,
1993, 1994 and 1995, the accrued liability was $69 million, $95 million and
$101 million, respectively.
Frequent flyer program participants flew 4.5 million, 5.7 million and
5.8 million free round-trips in fiscal years 1993, 1994 and 1995, respectively.
These round-trips accounted for approximately 6%, 7% and 8% 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.
Transactions with Pan Am Corporation
Asset Purchase Agreement. Pursuant to an asset purchase agreement dated
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, in 1991, 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
(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 certain aircraft, aircraft spare engines and
spare parts; and (4) leasehold interests in certain airport facilities.
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, 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.
- 11 -
<PAGE> 14
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.
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 26 of its
international-range aircraft 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 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 alleged, 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 United States District Court
for the Southern District of New York ("District Court") conducted a trial
between May 4, 1994 and June 10, 1994 on liability issues. In an opinion and
order dated December 22, 1994, the District Court (1) ruled that Delta had no
liability in this lawsuit; (2) ordered Pan Am to repay to Delta the DIP Loan;
and (3) held that the Creditors Committee had no liability to Delta under
Delta's counterclaims. No party appealed the District Court's decision, and
the time period for filing an appeal expired on February 6, 1995.
Certain other legal actions relating to Delta's participation in Pan
Am's proposed plan of reorganization are still pending including, among others,
the following actions.
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,
- 12 -
<PAGE> 15
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. On April 28, 1995, Delta filed a supplementary memorandum in support
of its motion for summary judgment on all of plaintiffs' claims; the plaintiffs
continue to oppose this motion, which is pending before the District Court. On
or about September 15, 1995, Delta and the plaintiffs agreed to settle this
lawsuit subject to the completion of definitive settlement documents and
approval of the settlement by the District Court.
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. On April 28, 1995, Delta filed a supplementary
memorandum in support of its motion for summary judgment on all of plaintiffs'
claims; the plaintiffs continue to oppose this motion, which is pending before
the District Court. On or about September 15, 1995, Delta and the plaintiffs
(except one plaintiff who cannot be located) agreed to settle this lawsuit
subject to the completion of definitive settlement documents and approval of
the settlement by the District Court.
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.
- 13 -
<PAGE> 16
The WorldPass participants were seeking unspecified damages, costs and
attorneys' fees, and other unspecified relief. Delta 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. On July
5, 1995, the plaintiff and Delta filed with the Bankruptcy Court a joint
application for the voluntary dismissal of this lawsuit with prejudice as to
the plaintiff and without prejudice as to all other putative class members.
The Bankruptcy Court approved the joint application on September 21, 1995.
ITEM 2. PROPERTIES
Flight Equipment
Information relating to Delta's aircraft fleet is set forth under
"Operational Review - Aircraft Fleet" on pages 9-10, and in Notes 8 and 9 of
the Notes to Consolidated Financial Statements on pages 32-33, of Delta's 1995
Annual Report to Stockholders, and is incorporated herein by reference.
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,
and contain provisions for periodic adjustment of lease 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 generally for shorter terms than the airport
leases. Additional information relating to Delta's ground facilities is set
forth in Notes 4 and 8 of the Notes to Consolidated Financial Statements on
pages 29 and 32-33 of Delta's 1995 Annual Report to Stockholders, and is
incorporated herein by reference.
In recent years, some airports have increased or sought to increase the
rates charged to airlines to levels that, in the airlines' opinion, are
unreasonable. The extent to which such charges are limited by statute or
regulation and the ability of airlines to contest such charges has been subject
to litigation and to administrative proceedings before the DOT. If the
limitations on such charges are relaxed or the ability of airlines to challenge
such charges is restricted, the rates charged by airports to airlines may
increase substantially.
- 14 -
<PAGE> 17
ITEM 3. LEGAL PROCEEDINGS
In January 1987, the Association of Flight Attendants ("AFA"), the
collective bargaining agent for the flight attendants at Western Air Lines,
Inc. ("Western") prior to the merger of Western into Delta on April 1, 1987
(the "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 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. On November 4,
1994, the District Court (1) denied the plaintiffs' motion for class action
certification; and (2) granted Delta's motion to dismiss plaintiffs' claims
concerning Delta's pass policy for lack of subject matter jurisdiction. On
January 11, 1995, the District Court denied plaintiffs' motion requesting the
District Court to reconsider its November 4, 1994 decision, but granted
plaintiffs' motion to permit an immediate appeal of that order. The plaintiffs
then filed a petition to appeal with the
- 15 -
<PAGE> 18
United States Court of Appeals for the Eleventh Circuit which, on March 8,
1995, agreed to hear plaintiffs' appeal of the District Court's November 4,
1994 decision. Delta intends to defend this matter vigorously.
On February 10, 1995, Delta changed its domestic travel agency
commission program by introducing a maximum commission payment of $50 for any
round trip domestic airline ticket with a base fare in excess of $500, and $25
for any one-way domestic airline ticket with a base fare in excess of $250.
The maximum commission applies to all tickets issued by United States and
Canada-based travel agencies for travel on Delta flights within and between the
Continental United States, Alaska, Hawaii, Puerto Rico and the United States
Virgin Islands. Most of the major United States airlines subsequently adopted
similar commission cap programs.
Travel agents and a travel agency trade association have filed more than
30 class action antitrust lawsuits in various federal district courts against
airlines, including Delta, that implemented new travel agent commission cap
programs. The plaintiffs, who are seeking unspecified treble damages under the
antitrust laws and an injunction to prevent the airlines from maintaining the
new commission cap programs, allege that the defendants conspired to reduce the
commissions paid to travel agents in violation of the Sherman Act. On June 1,
1995, the Judicial Panel on Multidistrict Litigation consolidated these cases
for pretrial proceedings before the United States District Court in
Minneapolis, which has certified a plaintiff class consisting of all travel
agents in the United States who sold airline tickets subject to the commission
cap on American, Continental, Delta, Northwest, TWA, United or USAir. On
August 18, 1995, the District Court approved a settlement agreement between TWA
and the plaintiffs under which TWA represented it had terminated its commission
cap program and agreed, among other things, to pay the commissions it would
have paid between specified dates had its commission cap program not been in
place. On August 23, 1995, the District Court denied the plaintiffs' motion
for a preliminary injunction, as well as the motions for summary judgment filed
by the airline defendants (except TWA). On September 12, 1995, the airlines
(except TWA) filed a motion with the District Court to permit an immediate
appeal of the District Court's ruling denying the airlines' motions for summary
judgment; the District Court has not yet ruled on this motion. Delta believes
the allegations against it are without merit, and it intends to defend these
matters vigorously.
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, the matters
discussed above in this Item 3, and the litigation relating to Delta's
participation in Pan Am's proposed plan of reorganization (see "ITEM 1.
Business-Transactions with Pan Am Corporation" on pages 11-14 of this Form 10-K)
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.
- 16 -
<PAGE> 19
For a discussion of certain environmental matters, see "ITEM 1.
Business - Environmental Matters" on pages 8-9 of this Form 10-K. For a
discussion of the settlement of certain antitrust litigation, see "Financial
Review - Future Outlook - Antitrust Settlement" on page 17 of Delta's 1995
Annual Report to Stockholders, which is incorporated herein by reference.
Several United States carriers, including Delta, have received civil
investigative demands from the United States Department of Justice related to
an antitrust investigation of incentives paid by airlines to travel agents in
excess of base commission payments. In response to the civil investigative
demands, Delta has produced documents relating to its travel agent programs.
Delta believes that its travel agent programs are legal and that it has not
violated the antitrust laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 53.
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 57.
Robert W. Coggin Executive Vice President - Marketing,
September 13, 1995 to date; Senior Vice
President - Marketing, August 1992
through September 12, 1995; 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 59.
Maurice W. Worth Executive Vice President - Customer
Service, September 13, 1995 to date;
Senior Vice President - Personnel, May
1991 through September 12, 1995; Vice
President - Personnel, November 1989
through April 1991. Age 55.
- 17 -
<PAGE> 20
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 50.
Robert S. Harkey Senior Vice President - General Counsel
and Secretary, November 1994 to date;
Senior Vice President - General
Counsel, November 1990 through October
1994; Vice President - General Counsel,
November 1988 through October 1990.
Age 54.
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 53.
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 59.
Thomas J. Roeck, Jr. Senior Vice President - Finance and
Chief Financial Officer, June 1988 to
date. Age 51.
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 44 of Delta's 1995
Annual Report to Stockholders, and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is set forth on pages 42-43 of Delta's
1995 Annual Report to Stockholders, and is incorporated herein by reference.
- 18 -
<PAGE> 21
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 page 6, and under "Financial Review" on pages 10-17, of
Delta's 1995 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 22-39, and in
"Report of Independent Public Accountants" on page 40, of Delta's 1995 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.
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 - Compliance with
Section 16(a) of the Securities Exchange Act of 1934" on page 12, of Delta's
Proxy Statement dated September 15, 1995, 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 11 and 17-20, of Delta's Proxy Statement dated
September 15, 1995, 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 8-10 of Delta's
Proxy Statement dated September 15, 1995, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth on page 11 of Delta's
Proxy Statement dated September 15, 1995, and is incorporated herein by
reference.
- 19 -
<PAGE> 22
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 23 of this Form 10-K.
(3). The exhibits required by this item are listed in the Exhibit
Index on pages 28-31 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 10.8 to 10.14 in the Exhibit Index.
(b) During the quarter ended June 30, 1995, Delta did not file
any Current Reports on Form 8-K.
- 20 -
<PAGE> 23
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, 1995.
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, 1995 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
- 21 -
<PAGE> 24
Signature Title
--------- -----
George D. Busbee* Director
- ------------------------------------
George D. Busbee
R. Eugene Cartledge* Director
- -----------------------------------
R. Eugene Cartledge
Mary Johnston Evans* Director
- -----------------------------------
Mary Johnston Evans
Gerald Grinstein* Director
- -----------------------------------
Gerald Grinstein
Jesse Hill, Jr.* Director
- -----------------------------------
Jesse Hill, Jr.
Peter D. Sutherland* Director
- -----------------------------------
Peter D. Sutherland
Andrew J. Young* Director
- -----------------------------------
Andrew J. 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.
- 22 -
<PAGE> 25
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - Incorporated herein by reference to
"Report of Independent Public Accountants" on page 40 of Delta's 1995
Annual Report to Stockholders.
FINANCIAL STATEMENTS - All of which are incorporated herein by reference to
Delta's 1995 Annual Report to Stockholders.
Consolidated Balance Sheets - June 30, 1995 and 1994
Consolidated Statements of Operations for the years ended June 30, 1995,
1994 and 1993
Consolidated Statements of Cash Flows for the years ended June 30, 1995,
1994 and 1993
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements - June 30, 1995, 1994 and 1993
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
SCHEDULES SUPPORTING FINANCIAL STATEMENTS:
Schedule
Number
------
II Valuation and Qualifying Accounts for the years ended June 30, 1995,
1994 and 1993
All other schedules have been omitted as not applicable or because the
required information is included in the financial statements or notes thereto.
- 23 -
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Delta Air Lines, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated 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 18, 1995. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the accompanying index is the responsibility of the
Company's management, is presented for purposes of complying with the
Securities and Exchange Commission's rules, and is not part of the basic
financial statements. The schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 18, 1995
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<PAGE> 27
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JUNE 30, 1995
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
---------
Charged to
Balance At Charged to Other Balance at
Beginning Costs and Accounts- Deductions- End of
Description of Period Expenses describe describe Period
----------- --------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTION (INCREASE) IN THE BALANCE SHEET
FROM THE ASSET TO WHICH IT APPLIES:
Allowance for uncollectible accounts
receivable: $ 50 $21 $ - $42 (a) $ 29
Allowance for unrealized losses (gains) on
marketable securities: $(85) $ - $(46) (b) $ - $(131)
</TABLE>
(a) Represents write-off of accounts considered to be uncollectible, less
collections.
(b) Represents net unrealized gain resulting from changes in market values.
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<PAGE> 28
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JUNE 30, 1994
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
---------
Charged to
Balance At Charged to Other Balance at
Beginning Costs and Accounts- Deductions- End of
Description of Period Expenses describe describe Period
----------- --------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTION (INCREASE) IN THE BALANCE SHEET
FROM THE ASSET TO WHICH IT APPLIES:
Allowance for uncollectible accounts
receivable: $82 $23 $ - $55 (a) $ 50
Allowance for unrealized losses (gains) on
marketable securities: $ 1 $ - $(85) (b) $ 1 $(85)
</TABLE>
(a) Represents write-off of accounts considered to be uncollectible, less
collections.
(b) Represents net unrealized gain resulting from changes in market values.
-26-
<PAGE> 29
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JUNE 30, 1993
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
---------
Charged to
Balance At Charged to Other Balance at
Beginning Costs and Accounts- Deductions- End of
Description of Period Expenses describe describe Period
----------- --------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTION 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
marketable securities: $19 $ - $ - $18 (b) $ 1
</TABLE>
(a) Represents write-off of accounts considered to be uncollectible, less
collections.
(b) Represents reversal of previously recognized losses resulting from changes
in market values.
-27-
<PAGE> 30
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)).*
- 28 -
<PAGE> 31
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 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).*
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).*
-29-
<PAGE> 32
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 Purchase Agreement No. DAC 90-10-D between McDonnell Douglas
Corporation and Delta relating to MD-90 aircraft, as amended (Filed as Exhibit
10.1 to Delta's Quarterly Report on Form 10-Q for the quarter ended September
30, 1990, and Exhibit 10 to Delta's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994). *
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 (Filed as
Exhibit 10.10 to Delta's Annual Report on Form 10-K for the year ended June 30,
1994).*
10.11 Delta's Executive Deferred Compensation Plan, as amended.
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).*
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
-30-
<PAGE> 33
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).*
11. Statement regarding computation of per share earnings for
the years ended June 30, 1993, 1994 and 1995.
12. Statement regarding computation of ratio of earnings to
fixed charges for the years ended June 30, 1991, 1992, 1993, 1994 and 1995.
13. Portions of Delta's 1995 Annual Report to Stockholders.
23. Consent of Arthur Andersen LLP.
24. Powers of Attorney.
27. Financial Data Schedule (for SEC use only).
- --------------------
*Incorporated herein by reference
- 31 -
<PAGE> 1
EXHIBIT 10.9
[As amended through July 18, 1995]
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 pre-established 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 pre-established 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, including Target Incentive
Awards, 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
<PAGE> 2
(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.
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 "EXECUTIVE OFFICER" means a Participant who, as of the last
day of the applicable Plan Year, is an officer of the Company at or above the
level of Senior Vice President.
2.12 "FINAL AWARD" means the actual award earned during a Plan Year
by a Participant, as determined by the Committee.
2.13 "PARTICIPANT" means an Employee who is actively participating in
the Plan.
2.14 "PLAN YEAR" means the Company's fiscal year.
2.15 "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.
2.16 "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
<PAGE> 3
2.17 "TARGET INCENTIVE AWARD" means the award which may be paid to a
Participant when "targeted" performance results, as established by the
Committee, are attained.
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 authority 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. No later than ninety (90) days after the
beginning of each Plan Year, the Committee shall determine participation in the
Plan 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. An Employee who becomes eligible
after the beginning of a Plan Year may participate in the Plan for that Plan
Year; however, such Employee's Target Incentive Award shall be prorated to
reflect his or her months of participation during the Plan Year. Such
situations may include, but are not limited to (a)
3
<PAGE> 4
new hires; (b) when an Employee is promoted to a position which meets the
eligibility criteria; or (c) when an Employee is transferred from an affiliate
which does not participate in the Plan.
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. No later than ninety
(90) days after the beginning of each Plan Year, 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 attainment
of the 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
may be earned. In addition, each range shall include levels of performance
above and below the one hundred percent (100%) performance level at which a
greater or lesser percent of the Target Incentive Award may be earned.
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
pre-established 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.
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.
Following the completion of each Plan Year, if the performance goals
were met, the Committee shall certify in writing that the performance goals for
such Plan Year were satisfied.
5.2 AWARD OPPORTUNITIES. No later than ninety (90) days after the
beginning of each Plan Year, the Committee shall establish, in writing, Award
Opportunities, which correspond to various levels of achievement of the pre-
established performance goals. The established Award Opportunities may vary in
relation to the job classification of each Participant or
4
<PAGE> 5
among Participants in the same job classification. 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 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 Executive Officers to qualify for the
"performance-based" exception under Code Section 162(m).
5.4 FINAL AWARD DETERMINATIONS. As soon as practicable after 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 pre-established corporate, divisional, and/or
individual performance goals. Except as provided in Article 8 herein, the
Committee shall have discretion to increase, reduce or eliminate any or all
Final Awards that otherwise would be paid.
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.
5
<PAGE> 6
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) days after the end of each Plan Year.
6.2 VOLUNTARY DEFERRAL OF FINAL AWARD PAYOUTS. A Participant may
defer receipt of some or all payments otherwise due under the Plan pursuant to
the terms of the Company's Executive Deferred Compensation Plan.
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 subject to such terms and
conditions as the Committee determines to be appropriate. Rates of interest on
such deferred amounts shall be determined by the Committee in a manner
consistent with the requirements of Code Section 162(m) and the Regulations
thereunder.
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 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)
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), the
Participant's opportunity to receive a Final Award for the Plan Year then in
progress shall be forfeited. However, the Committee, in its sole
6
<PAGE> 7
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. EXECUTIVE OFFICERS
8.1 APPLICABILITY OF ARTICLE 8. The provisions of this Article 8
shall apply only to Executive Officers. In the event of any inconsistencies
between this Article 8 and the other Plan provisions as they pertain to
Executive Officers, the provisions of this Article 8 shall control.
8.2 ESTABLISHMENT OF AWARD OPPORTUNITIES. Except as provided in
Section 8.7 herein, Award Opportunities for Executive Officers shall be
established as a function of each Executive Officer's Base Salary (as defined
below). No later than ninety (90) days after the beginning of each Plan Year,
the Committee shall establish, in writing, various levels of Final Awards which
may be paid with respect to specified levels of attainment of the
pre-established 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 voluntary
salary reductions or 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 COMPUTATION OF FINAL AWARDS. Each Executive Officer's Final
Award shall be based on: (a) the Executive Officer's Target Incentive Award;
(b) the potential Final Awards corresponding to various levels of achievement
of the pre-established performance goals, as established by the Committee; and
(c) Company performance in relation to the pre-established performance goals.
Except as provided in Section 8.7 herein, performance measures which may serve
as determinants of Executive Officers' Award Opportunities shall be limited to
the Company's Pretax Income, Return on Assets, Operating Cash Flow, Return on
Equity, Growth in Revenues, Net Income, Net Profit Margin, Operating Profit
Margin and Earnings per Share.
8.4 NO MID-YEAR CHANGE IN AWARD OPPORTUNITIES. Except as provided in
Section 8.7 herein, each Executive Officer's Final Award shall be based
exclusively on the Award Opportunity levels established by the Committee
pursuant to Section 8.2 above.
8.5 NONADJUSTMENT OF PERFORMANCE GOALS. Except as provided in
Section 8.7 herein, performance goals shall not be changed following their
establishment, and Executive Officers shall not receive any payout when the
minimum performance goals are not met or exceeded.
8.6 INDIVIDUAL PERFORMANCE AND DISCRETIONARY ADJUSTMENTS. Except as
provided in the second sentence of this Section 8.6 and in Section 8.7 herein,
subjective evaluations of
7
<PAGE> 8
individual performance of Executive Officers shall not be reflected in their
Final Awards. However, the Committee shall have the discretion to reduce or
eliminate the amount of the Final Award otherwise payable to an Executive
Officer.
8.7 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 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 such advice and the terms of this Plan,
and, to the extent permitted by such advice, 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 exercise such greater
flexibility consistent with the terms of the Plan and, to the extent of such
changes, without regard to the restrictive provisions of this Article 8.
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.
Beneficiary designations filed with respect to predecessor plans prior to the
adoption of this Plan shall be effective with respect to this Plan. In the
absence of any such designation, benefits remaining unpaid at the Participant's
death shall be paid to the Participant's estate.
8
<PAGE> 9
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 Final Award for the Plan Year during which such Change in Control occurs,
as determined by the Committee. In such circumstances the Committee shall
determine the Final Award based upon performance during the Plan Year until the
date of the Change of Control. 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.
ARTICLE 12. AMENDMENTS
The Committee or the Board, 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), reduce the right of a Participant (or his or her beneficiary
as the case may be) to a payment or distribution hereunder to 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
9
<PAGE> 10
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.
10
<PAGE> 1
EXHIBIT 10.11
[As amended through July 18, 1995]
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 given fiscal
year of the Company, 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) fiscal 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.
<PAGE> 2
(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 herein.
(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 specified period.
(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 has elected to participate
in the Plan.
(n) "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 calendar 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.
(o) "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
<PAGE> 3
ARTICLE 3. ADMINISTRATION
3.1 AUTHORITY OF 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.
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 in 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 Plan, except the
right to make any further deferrals, until such time that the Participant again
becomes an active Participant.
3
<PAGE> 4
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 any given year, such
Employee shall as soon as practicable be so notified in writing by the Company
and provided 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 paid after the date of 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 given
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 such year. The minimum amount of any single eligible
component of Compensation which may be deferred in any given year is the lesser
of ten percent (10%) of such component or ten thousand dollars ($10,000). In
addition, an election to defer Compensation in any given year shall be
expressed by each Participant in 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 Bonuses under the Plan for a given fiscal year not later than (a) thirty
(30) days prior to the beginning of such fiscal year or (b) if Participants are
notified after the beginning of the fiscal year of their selection to
participate in the Plan for such fiscal year or a partial fiscal year, within
thirty (30) days of receipt of such notice. Elections to defer Salary under
the Plan for a given calendar year shall be made not later than (x) thirty (30)
days prior to the beginning of such calendar year or (y) if Participants are
notified after the beginning of the calendar year of their selection to
participate in the Plan for such calendar year or a partial calendar year,
within thirty (30) days of receipt of such notice. Elections to defer
Long-Term Awards and other payments eligible for deferral under the Plan shall
be made in accordance with the foregoing rules for fiscal or calendar years, as
the Committee deems appropriate. All deferral elections shall be irrevocable;
shall relate solely to amounts earned after the filing of a deferral election
with the Committee; and shall be made on an "Election to Defer Form," as
described herein.
Participants shall make the following irrevocable elections on each
"Election to Defer Form":
4
<PAGE> 5
(a) The amount to be deferred with respect to each eligible
component of Compensation for the specified 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;
(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; and
(d) The interest rate alternative(s) with respect to deferrals of
Compensation, pursuant to Section 6.2 herein.
5.3 LENGTH OF DEFERRAL. The deferral periods elected by each
Participant with respect to deferrals of Compensation for any given year shall
be selected from among the choices specified by the Committee. The Committee
shall specify one or more deferral periods which are at least one (1) year
following the end of the calendar year in which the Compensation is earned, and
no greater than ten (10) years following such date; provided, that in no event
shall the deferral period extend beyond the end of the calendar year in which
the Participant reaches the age of 65. If the Committee does not specify one
or more deferral periods, the deferral period choices shall be five (5) years
and ten (10) years. Notwithstanding the deferral periods elected by a
Participant, payment of deferred amounts and accumulated interest thereon shall
be made to the Participant, or the Participant's beneficiary designated
pursuant to Section 6.4 hereof, as the case may be, 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 scheduled payment of deferred amounts
and interest thereon. Such payment following employment termination shall be
made in cash, within thirty (30) days after the effective date of 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 receive payment
of deferred amounts, together with interest earned thereon, at the end of the
deferral period in a single lump-sum cash payment or, if approved by the
Committee, by the Participant electing another means of payment such as in
installments. If alternative methods for receiving payment are approved by the
Committee, elections of the method of payment shall be made by the Participant
within the same time periods as required in Section 5.2 of the Plan.
(a) LUMP-SUM PAYMENT. A lump sum payment shall be made in cash
within sixty (60) days of the end of the deferral period
specified by the Participant, as described in Sections 5.2 and
5.3 herein.
(b) INSTALLMENT PAYMENTS. If approved by the Committee,
Participants may elect payout in annual 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) days after the commencement date selected by
the Participant pursuant
5
<PAGE> 6
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 the 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.
(c) ALTERNATIVE PAYMENT SCHEDULE. If approved by the Committee, a
Participant may elect an alternate payment schedule.
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;
(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;
(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 another 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; or (iii) by cessation of existing
deferrals or new deferrals under the Plan.
Withdrawals of deferred 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 (and
debited for any losses) 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 eliminated, and/or the manner in which, if at all,
6
<PAGE> 7
the payment of deferred amounts to the Participant shall be altered or
modified, shall be final, conclusive and not subject to appeal.
5.6 CHANGE IN CONTROL. Notwithstanding any provision contained in
the Plan, in the event of a Change in Control, the Committee in its sole
discretion may direct that all or certain 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 basis to be specified by the Committee,
consistent with the provisions of Section 162(m) of the Code and the rules and
regulations promulgated thereunder, at a rate equal to the return on the rate
of return choice(s) selected by the Participant from among the alternatives
specified by the Committee from time to time. Interest credited on deferred
amounts (less the amount of any debits for any losses) 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 from
the Participant by the Corporate Secretary of the Company.
Participants may change their designations of beneficiary on a form
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 Corporate 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
7
<PAGE> 8
the Participant or the Participant's beneficiaries under the Plan shall
be paid to the Participant's estate.
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 through 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(s) as
the Committee may approve, for the purpose of providing for the payment of
deferred amounts. Any such trust created by the Company will conform to the
terms of the model trust approved by the Internal Revenue Service pursuant to
Revenue Procedure 92-64, or any amendment thereof or successor procedure
thereto. 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 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 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 or the Board of Directors.
Except as described below in this Article 9, no such amendment, modification 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.
8
<PAGE> 9
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 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, 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
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> 1
EXHIBIT 11
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR YEARS ENDED JUNE 30, 1993, 1994, AND 1995
(In millions except per share amounts)
<TABLE>
<CAPTION>
1993 1994 1995
-------------- ------------- -----------
<S> <C> <C> <C>
PRIMARY:
Weighted average shares outstanding 50 50 51
Additional shares assuming
exercise of stock options * * -
-------------- -------------- -----------
Average shares outstanding as adjusted 50 50 51
============== ============= ===========
Income (loss) before cumulative effect of
accounting changes $ (415) $ (409) $ 294
Preferred dividends series C (80) (80) (80)
Preferred dividends series B (30) (30) (8)
-------------- -------------- -----------
Income (loss) before cumulative effect of
accounting changes attributable to primary shares (525) (519) 206
Cumulative effect of accounting changes (587) - 114
-------------- -------------- -----------
Net income (loss) attributable to primary shares $ (1,112) $ (519) $ 320
============== ============= ===========
Primary earnings (loss) per share before
cumulative effect of accounting changes $ (10.54) $ (10.32) $ 4.07
Cumulative effect of accounting changes (11.78) - 2.25
-------------- -------------- -----------
Primary earnings (loss) per common share $ (22.32) $ (10.32) $ 6.32
============== ============= ===========
FULLY DILUTED:
Weighted average shares outstanding 50 50 51
Additional shares assuming:
Conversion of series C convertible preferred stock 17 17 17
Conversion of series B ESOP convertible
preferred stock 6 7 2
Conversion of 3.23% convertible subordinated notes - 10 10
Exercise of stock options * * -
-------------- -------------- -----------
Average shares outstanding as adjusted 73 84 80
============== ============= ===========
Income (loss) before cumulative effect of
accounting changes $ (415) $ (409) $ 294
Interest on 3.23% convertible subordinated
notes net of taxes - 32 32
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock (16) (18) (5)
-------------- -------------- -----------
Income (loss) before cumulative effect of
accounting changes (431) (395) 321
Cumulative effect of accounting changes (587) - 114
-------------- -------------- -----------
Net income (loss) attributable to fully
diluted common shares $ (1,018) $ (395) $ 435
============== ============= ===========
Fully diluted earnings (loss) per common share
before cumulative effect of accounting changes $ (5.86) $ (4.72) $ 4.01
Cumulative effect of accounting changes (7.99) - 1.42
-------------- -------------- -----------
Fully diluted earnings (loss) common share $ (13.85)* $ (4.72)* $ 5.43
============== ============= ===========
</TABLE>
*Antidilutive
<PAGE> 1
EXHIBIT 12
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions except ratio)
<TABLE>
<CAPTION>
----------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (before cumulative effect of accounting changes):
Net income (loss) $ (324) $ (506) $ (415) $ (409) $ 294
Add (deduct):
Income tax (credit) provision (163) (271) (236) (251) 200
Fixed charges 402 569 616 689 665
Interest capitalized (65) (70) (62) (33) (30)
Interest offset on
Guaranteed Serial
ESOP Notes (16) (15) (15) (14) (4)
----------------------------------------------
Earnings (loss) as adjusted $ (166) $ (293) $ (113) $ (17) $1,125
==============================================
Fixed charges:
Interest expense $ 162 $ 221 $ 239 $ 304 $ 292
1/3 of rentals 224 333 362 371 369
Additional interest on
Guaranteed Serial
ESOP Notes 16 15 15 14 4
----------------------------------------------
Total fixed charges $ 402 $ 569 $ 616 $ 689 $ 665
==============================================
Ratio of earnings to fixed charges - - - - 1.69
</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 $729 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> 1
EXHIBIT 13
OPERATIONAL
REVIEW
LEADERSHIP 7.5
On April 28, 1994, Delta announced Leadership 7.5, a three-year plan
for with the goal of reducing the Company's annual operating expenses by
approximately $2 billion by the end of the June 1997 quarter. Delta also
established operating cost per available seat mile (unit cost) goals of 8.6c.
for the June 1995 quarter, 8.0c. for the June 1996 quarter and 7.5c. for 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 other costs increase,
the Company will seek additional cost reductions to achieve its goals.
Industry events during fiscal 1995 validated Delta's determination
that cost reductions are essential to compete in today's highly competitive
airline industry. Low-cost, low-fare carriers increased their presence in
domestic markets, resulting in continued reductions in Delta's domestic
passenger mile yield and flat or declining domestic unit revenue. At the end
of fiscal 1995, approximately 60% of Delta's domestic origin and destination
revenue passenger miles were in markets also served by low-cost, low-fare
[GRAPH]
Percent of Delta's Domestic RPM's Competitive with
Low-Fare Carriers
Period Percent
------ -------
June 1995 60%
June 1994 57
June 1993 32
carriers, up from 57% at the end of fiscal 1994. The airline industry has
experienced a permanent shift in the preferences of its customers, with more
business and leisure passengers citing ticket prices as the most important
factor in their purchase decisions.
At the beginning of the Leadership 7.5 program, 11 internal teams
developed plans to reach cost reduction goals for their areas. During fiscal
1995, additional teams were established to examine areas outside or
beyond the scope of the first phase of Leadership 7.5.
Leadership 7.5 initiatives made a significant contribution to Delta's
operating profit in fiscal 1995. The Company achieved its first Leadership 7.5
unit cost target, recording a unit cost of 8.39c. for the June 1995 quarter.
By the end of fiscal 1995, the implementation of initiatives expected to
generate approximately $1.6 billion in annual cost reductions was in process or
completed.
Key initiatives contributing to fiscal 1995 cost reductions included:
- Outsourcing of certain non-passenger contact functions and changes in
staffing formulas in Airport Customer Service, resulting in the
reduction of approximately 3,700 full-time equivalent employees.
- Re-engineering of processes in Technical Operations, resulting in the
elimination of approximately 2,300 full-time equivalent employees and
reductions in inventory.
- Implementing a maximum travel agent commission payment of $25 one-way
or $50 roundtrip for any domestic ticket with a base fare in excess
of $250 or $500, respectively.
- Adjusting service levels on certain flights and improving flight
attendant productivity through staffing changes.
- Changing a number of employee medical and other benefit programs, with
greater emphasis on managed care through preferred provider networks.
- Realigning the Company's domestic route system, with a focus on
increasing flying in longer-haul markets and repositioning resources
to produce greater revenue and operating efficiencies.
- Implementing the planned phase-out of the Airbus A310 fleet.
Changes in the Company's collective bargaining agreement with the Air
Line Pilots Association (ALPA), which represents the Company's 8,100 pilots,
are critical to the continued success of Leadership 7.5 and the Company's
ability to achieve its future unit cost targets. Delta is seeking $340 million
in annual productivity improvements and wage and benefit reductions from its
pilots. The collective bargaining agreement became amendable January 1, 1995,
and federally mediated negotiations are currently in progress. The outcome of
these negotiations cannot presently be determined.
Delta's cost reduction and unit cost goals are aggressive, and no
assurance can be given that Delta will achieve these goals.
[GRAPH]
Leadership 7.5 Targets
Operating Cost/ASM (in cents)
June Quarters Actual Target
- ------------- ------ ------
1995 8.39 c 8.6 c
1996 - 8.0
1997 - 7.5
DELTA AIR LINES, INC.
6
<PAGE> 2
AIRCRAFT FLEET
Delta's fleet of 543 aircraft is among the youngest and most
technologically advanced in the U.S. airline industry. During fiscal 1995,
Delta focused on refining its aircraft fleet plan to increase
operating efficiency and reduce costs.
AIRCRAFT FLEET
At June 30, 1995
<TABLE>
<CAPTION>
Average Age of
Aircraft Type
Type of Aircraft (Years) Owned Leased Total
- ---------------- --------------- ----- ------ -----
<S> <C> <C> <C> <C>
A310-300 . . . . . . . . . 1.7 - 9 9
B-727-200 . . . . . . . . . 18.3 106 28 134
B-737-200 . . . . . . . . . 10.6 1 53 54
B-737-300 . . . . . . . . . 9.4 - 13 13
B-757-200 . . . . . . . . . 6.5 44 41 85
B-767-200 . . . . . . . . . 12.1 15 - 15
B-767-300 . . . . . . . . . 6.1 2 24 26
B-767-300ER . . . . . . . . 3.4 8 7 15
L-1011-1 . . . . . . . . . 18.3 32 - 32
L-1011-200 . . . . . . . . 17.0 1 - 1
L-1011-250 . . . . . . . . 12.7 6 - 6
L-1011-500 . . . . . . . . 14.4 17 - 17
MD-11 . . . . . . . . . . . 2.4 4 7 11
MD-88 . . . . . . . . . . . 5.0 63 57 120
MD-90 . . . . . . . . . . . 0.2 5 - 5
---- --- --- ---
Total . . . . . . . . . 10.4 304 239 543
==== === === ===
</TABLE>
During fiscal 1995, Delta accepted delivery of one B-757-200 aircraft,
one B-767-300ER aircraft, and also introduced the MD-90 aircraft into the fleet,
accepting delivery of five MD-90 aircraft. The Company returned to lessors
four B-727-200 aircraft, four B-737-200 aircraft and one A310-200 aircraft,
and sold two B-737-300 aircraft and three A310-200 aircraft. In addition, the
Company extended the lease terms for 40 B-737-200 aircraft (see Note 8 of Notes
to Consolidated Financial Statements).
[GRAPH]
Capital Expenditures (In Million of Dollars)
Flight Equipment
Fiscal Year (includes leased aircraft) Ground Property and Equipment
- ----------- -------------------------- -----------------------------
1986 504 98
1987 1,133 92
1988 1,184 146
1989 1,205 276
1990 1,425 265
1991 1,875 269
1992 2,164 317
1993 1,221 192
1994 1,032 173
1995 458 168
Also during fiscal 1995, Delta entered into a definitive agreement with
Federal Express Corporation to purchase, between fiscal years 1995 and 2000, 46
shipsets of Stage 3 heavyweight engine hushkits and 9 spare engine hushkits for
B-727-200 aircraft, with an option to purchase an additional 52 shipsets of
Stage 3 heavyweight engine hushkits and 10 spare engine hushkits.
AIRCRAFT DELIVERY SCHEDULE
Aircraft on Firm Order at June 30, 1995
<TABLE>
<CAPTION>
Delivery in Year Ending June 30:
------------------------------------------------------------------
After
Orders: 1996 1997 1998 1999 2000 2000 Total
------- ---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
B-737-300 . . . . . . . . . - 6 6 5 5 30 52
B-757-200 . . . . . . . . . 1 2 2 - - - 5
B-767-300ER . . . . . . . . 2 4 - - - - 6
MD-11 . . . . . . . . . . . - 2 2 - - - 4
MD-90 . . . . . . . . . . . 6 8 20 8 - - 42
-- --- --- --- -- --- ---
Total . . . . . . . . . . 9 22 30 13 5 30 109
</TABLE>
The aircraft orders include 22 B-737-300 aircraft and 16 MD-90 aircraft
scheduled for delivery after fiscal 2001 and fiscal 1996, respectively, that
are subject to reconfirmation by Delta. The B-737-300 aircraft orders may be
converted to B-737-400 or B-737-500 aircraft orders at Delta's election.
DELTA AIR LINES, INC.
9
<PAGE> 3
Delta's aircraft subject to reconfirmation and on option provide the
Company with flexibility to adjust aircraft deliveries. During fiscal 1995,
Delta allowed to expire 8 aircraft subject to reconfirmation and 22 aircraft
options.
AIRCRAFT DELIVERY SCHEDULE
Aircraft on Option at June 30, 1995
<TABLE>
<CAPTION>
Delivery in Year Ending June 30:
-------------------------------------------------------------------
After
Options: 1996 1997 1998 1999 2000 2000 Total
-------- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
B-737-300.................... - - 2 6 5 43 56
B-757-200.................... - - 3 5 6 22 36
B-767-300ER.................. - - 5 4 - - 9
MD-11........................ - - 5 5 5 7 22
MD-88........................ - - 15 15 - - 30
MD-90........................ - - - 11 7 32 50
--- --- --- --- --- ---- ----
Total..................... - - 30 46 23 104 203
</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.
Delta intends to continue its efforts to control capital spending and
simplify the Company's fleet. Certain aircraft returned to lessors or
sold during fiscal 1995 were part of Delta's fleet simplification program.
Delta also plans to phase out its remaining fleet of A-310-300 aircraft by the
end of calendar 1995.
FINANCIAL
REVIEW
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS -
FISCAL 1995 COMPARED WITH FISCAL 1994
For fiscal 1995, Delta recorded net income of $408 million ($6.32 primary
and $5.43 fully diluted earnings per common share after preferred stock
dividend requirements) and operating income of $661 million. In 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.
[GRAPH]
Primary Earnings (Loss) Per Common Share (In Dollars)
Fiscal Year Amount
- ----------- ------
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)
1995 4.07
Fiscal 1995 results include a one-time $114 million after-tax benefit
($2.25 primary and $1.42 fully diluted benefit per common share) related to the
adoption, effective July 1, 1994, of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS
112). See Note 10 of Notes to Consolidated Financial Statements.
Fiscal 1995 results include a one-time $114 million after-tax benefit
($2.25 primary and $1.42 fully diluted benefit per common share) related to the
adoption, effective July 1, 1994, of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS
112), See Note 10 of Notes to Consolidated Financial Statements.
Fiscal 1994 results include pretax restructuring charges totaling $526
million ($331 million after tax, or $6.59 per common share) related to the
Company's Leadership 7.5 program, and an early retirement program completed
during the December 1993 quarter.
Excluding the cumulative effect of the adoption of SFAS 112 and
restructuring charges, net income for fiscal 1995 totaled $294 million ($4.07
primary and $4.01 fully diluted earnings per common share after preferred stock
dividend requirements) and operating income was $661 million, compared to a net
loss of $77 million ($3.73 primary and fully diluted loss per common share
after preferred stock dividend requirements) and operating income of $79
million in fiscal 1994.
The improvement in financial results for fiscal 1995 versus fiscal 1994
was primarily due to cost reductions under the Company's Leadership 7.5
program. Leadership 7.5 initiatives contributed to cost reductions in most
DELTA AIR LINES, INC.
10
<PAGE> 4
expense categories, resulting in a $465 million, or 4%, decline in operating
expenses for fiscal 1995 compared to fiscal 1994, excluding restructuring
charges in fiscal 1994. During fiscal 1995, low-cost, low-fare carriers
increased their presence in domestic markets served by Delta, which contributed
to a 1% decline in the system passenger mile yield. Traffic stimulated by the
influence of low-cost, low-fare carriers, discount fare promotions and general
improvements in economies worldwide offset the yield decline, resulting in a
less than 1% increase in passenger revenue from the previous year.
FINANCIAL RESULTS SUMMARY
<TABLE>
<CAPTION>
1995 1994 CHANGE
-------- -------- ------
(IN MILLIONS, EXCEPT
SHARE DATA)
<S> <C> <C> <C>
OPERATING REVENUES........ $12,194 $12,077 + 1%
OPERATING EXPENSES........ 11,533 12,524 - 8
------- ------- ---
OPERATING INCOME (LOSS)... 661 (447) *
OTHER EXPENSE, NET........ (167) (213) -22
------- ------- ---
INCOME (LOSS) BEFORE
INCOME TAXES AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES...... 494 (660) *
INCOME TAXES (PROVIDED)
CREDITED, NET........... (200) 251 *
------- ------- ---
INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES....... 294 (409) *
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES,
NET OF TAX............... 114 - *
------- ------- ---
NET INCOME (LOSS)......... 408 (409) *
PREFERRED STOCK DIVIDENDS. (88) (110) -20
------- ------- ---
NET INCOME (LOSS)
ATTRIBUTABLE TO
COMMON STOCKHOLDERS...... $ 320 $ (519) * %
======= ======= ===
PRIMARY INCOME (LOSS)
PER COMMON SHARE:
BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGES................ $ 4.07 $(10.32) * %
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES..... 2.25 - *
------- ------- ---
$ 6.32 $(10.32) * %
======= ======= ===
FULLY DILUTED INCOME (LOSS)
PER COMMON SHARE:
BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGES................ $ 4.01 $(10.32) * %
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES..... 1.42 - *
------- ------- ---
$ 5.43 $(10.32) * %
======= ======= ===
NUMBER OF SHARES USED TO
COMPUTE NET INCOME
(LOSS) PER COMMON SHARE:
PRIMARY................. 50,657,613 50,257,721 N/A
FULLY DILUTED........... 80,118,720 50,257,721 N/A
*EXCEEDS 100%
</TABLE>
Transatlantic and intra-European operations improved in fiscal 1995 from
fiscal 1994, but negatively impacted financial results in both years. In fiscal
1995 and 1994, these operations accounted for 18% and 20%, respectively, of the
Company's system available seat miles, and 75% and 78%, respectively, of the
Company's international available seat miles.
OPERATING REVENUE DETAIL
<TABLE>
<CAPTION>
1995 1994 CHANGE
---- ---- ------
(IN MILLIONS)
<S> <C> <C> <C>
PASSENGER................ $11,303 $11,252 -%
CARGO.................... 565 551 + 3
OTHER, NET............... 326 274 +19
------- ------- ---
TOTAL.................. $12,194 $12,077 + 1%
======= ======= ===
</TABLE>
Operating revenues for fiscal 1995 were $12.2 billion, up 1% from $12.1
billion in fiscal 1994. Passenger revenue increased less than 1%, the result of
1% growth in revenue passenger miles, partly offset by a 1% decline in the
passenger mile yield to 13.09(cent). Domestic load factor increased slightly,
as domestic revenue passenger miles grew 2%, while domestic capacity rose 1%.
Domestic traffic growth is primarily due to traffic stimulated through the
increased presence of low-cost, low-fare carriers in markets served by Delta
and discount fare promotions, both of which contributed to a 1% decrease in the
domestic passenger mile yield. International load factor rose five points, as
international revenue passenger miles grew 1% and international operating
capacity fell 6%. International traffic growth is mainly the result of
generally improved economies, discount fare promotions and other marketing
programs. The international passenger mile yield was unchanged, primarily due
to an increase in full-fare passengers, which offset the impact of discount
fare promotions.
[GRAPH]
1995 Distribution of Operating Revenues
Description Percent
----------- -------
Domestic Passenger 73%
International Passenger 19
Cargo 5
Other 3
Cargo revenues in fiscal 1995 increased 3% to $565 million. Cargo ton
miles increased 8%, primarily due to international cargo traffic growth, and
the ton mile yield declined 5%, mainly the result of increases in long-haul
cargo traffic, which has lower ton mile yields than short-haul cargo traffic,
and lower domestic mail contract rates.
DELTA AIR LINES, INC.
11
<PAGE> 5
All other revenues were up 19% to $326 million, mainly due to increased
revenues from joint marketing programs.
Revenue-Related Statistics
<TABLE>
<CAPTION>
1995 1994 Change
---- ---- ------
<S> <C> <C> <C>
Revenue Passengers
Enplaned (Thousands)..... 88,893 87,399 + 2%
Revenue Passenger Miles
(Millions)............... 86,355 85,206 + 1%
Passenger Load Factor...... 66.2% 64.7% +1.5Pts.
Passenger Mile Yield....... 13.09c. 13.21c. - 1%
Cargo Ton Miles (Millions). 1,500 1,384 + 8%
Cargo Ton Mile Yield....... 37.67c. 39.80c. - 5%
Operating Revenue Per
Available Seat Mile...... 9.34c. 9.16c. + 2%
</TABLE>
Operating expenses in fiscal 1995 totaled $11.5 billion, down 8% from
$12.5 billion in fiscal 1994. Operating capacity decreased 1% to 130.5 billion
available seat miles, and cost per available seat mile declined 7% to
8.84(cent). Excluding restructuring charges in fiscal 1994, operating expenses
were down 4%, and cost per available seat mile decreased 3%.
Operating Expense Detail
<TABLE>
<CAPTION>
1995 1994 Change
---- ---- ------
(In Millions)
<S> <C> <C> <C>
Salaries and Related Costs. $ 4,354 $ 4,589 - 5%
Aircraft Fuel.............. 1,370 1,411 - 3%
Passenger Commissions...... 1,195 1,255 - 5%
Aircraft Rent.............. 671 732 - 8%
Depreciation and
Amortization............. 622 678 - 8%
Other Selling Expenses..... 618 614 + 1%
Contracted Services........ 556 457 +22%
Passenger Service.......... 443 522 -15%
Facilities and Other Rent.. 436 380 +15%
Aircraft Maintenance
Materials and Outside
Repairs.................. 430 418 + 3%
Landing Fees............... 266 261 + 2%
Restructuring Charges...... - 526 *%
Other...................... 572 681 -16%
------- ------- ---
Total.................. $11,533 $12,524 - 8%
======= ======= ===
*Exceeds 100%
</TABLE>
Salaries and related expenses decreased 5%, due to a 14% reduction in
full-time equivalent employees and lower employee travel and benefit expenses,
partly offset by increased costs associated with employee profit sharing and
other incentive compensation plans. The decrease in the number of employees is
primarily the result of workforce reductions under the Company's Leadership 7.5
program.
Aircraft fuel expense decreased 3%, as fuel gallons consumed declined 1%
and the average price per fuel gallon dropped 2% to 54.09(cent), Delta's lowest
average price per fuel gallon for any fiscal year since 1989.
Passenger commissions expense declined 5%, mainly due to the
implementation of a maximum commission payment on domestic tickets and
reductions in commission rates for certain international fares. Aircraft rent
expense decreased 8% due to the return of nine aircraft to lessors and the
extension of leases on 40 B-737-200 aircraft in the June 1995 quarter which,
for accounting purposes, resulted in those leases being reclassified from
operating leases to capital leases.
[GRAPH]
1995 Operating Expenses (As a Percent of Total Operating Expenses)
Description Percent
----------- -------
Salaries and Related 38%
Aircraft Fuel 12
Rentals and Landing Fees 12
Passenger Commissions 10
Other Selling Expenses 5
Depreciation and Amortization 5
Contracted Services 5
Passenger Service 4
Aircraft Maintenance,
Materials and Repairs 4
Other Costs 5
Depreciation and amortization expense decreased 8%, primarily related to
the early termination of certain routes at the end of fiscal 1994 and other
routes becoming fully amortized during fiscal 1995, and reduced amortization of
spare parts due to lower inventory levels. Other selling expenses increased 1%,
primarily the result of higher credit card service charges and increased
booking fee payments to computer reservation system providers, partly offset by
lower advertising and promotion expenses.
Contracted services expenses rose 22%, the result of increased outsourcing
of information technologies services and certain airport functions. Passenger
service expense declined 15%, reflecting continued benefits from catering
changes and other cost reduction programs, partially offset by increased
passenger traffic.
Facilities and other rent expenses increased 15%, the result of new
passenger facilities and increased rental rates at certain locations. Aircraft
maintenance materials and outside repairs expense rose 3%, reflecting an
increase in scheduled engine repair activity and higher airframe maintenance
costs. Landing fees expense increased 2%, mainly reflecting rate increases at
some domestic and international locations.
DELTA AIR LINES, INC.
12
<PAGE> 6
All other operating expenses decreased 16%, largely due to reductions in
certain navigation charges and other miscellaneous expenses, and favorable
foreign exchange rates in fiscal 1995; and higher litigation costs and a $14
million one-time charge related to frequent flyer program changes in fiscal
1994.
Fiscal 1994 operating expenses include a $414 million restructuring charge
related to the Leadership 7.5 program, which includes costs associated with
workforce reductions, reductions in inventory, facilities closings and route
terminations, and 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.
The cash payments for the fiscal 1994 restructuring charges will
approximate $473 million, of which $49 million has been incurred; $310 million
is associated with workforce reductions and represents future funding of
pension and postretirement benefits that will occur over many periods; and $114
million is designated for costs associated with severance payments and lease
termination fees for aircraft and facilities, of which approximately $90
million is expected to occur during fiscal 1996. See Note 16 of Notes to
Consolidated Financial Statements.
Operating Statistics
<TABLE>
<CAPTION>
1995 1994 Change
---- ---- ------
<S> <C> <C> <C>
Available Seat Miles (Millions) 130,525 131,780 - 1%
Available Ton Miles (Millions) 18,150 18,302 - 1%
Fuel Gallons Consumed
(Millions)................... 2,533 2,550 - 1%
Average Fuel Price Per Gallon.. 54.09c. 55.34c. - 2%
Breakeven Passenger
Load Factor:
Including Restructuring
Charges................... 62.3% 67.2% -4.9Pts.
Excluding Restructuring
Charges................... 62.3% 64.2% -1.9Pts.
Cost Per Available Seat Mile:
Including Restructuring
Charges..................... 8.84c. 9.50c. - 7%
Excluding Restructuring
Charges..................... 8.84c. 9.10c. - 3%
</TABLE>
Nonoperating expense for fiscal 1995 totaled $167 million, compared to
$213 million in fiscal 1994. Interest expense decreased 4%, primarily due to a
lower average level of outstanding debt, partly offset by an increase in
interest expense related to the extension of 40 B-737-200 aircraft leases, as
previously discussed. Interest capitalized on funds advanced for the purchase
of flight equipment and construction of facilities declined 9%, primarily
resulting from a lower average balance in construction work in progress.
Interest income increased 67%, or $38 million, primarily due to a higher
average level of short-term investments and higher interest rates during the
year.
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.
Fiscal 1994 results include pretax restructuring charges totaling $526
million ($331 million after tax, or $6.59 per common share), as previously
discussed. 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 10 and 15, 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.
Operating revenues for fiscal 1994 were $12.1 billion, up 4% from $11.7
billion in fiscal 1993. Passenger revenue increased 3% to $11.3 billion, the
result of 3% growth in revenue passenger miles. The passenger mile yield was
13.21(cent) in fiscal 1994, down slightly from the previous year. 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
DELTA AIR LINES, INC.
13
<PAGE> 7
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 increased 3%.
Cargo revenues increased 3% to $551 million in fiscal 1994. Cargo ton
miles increased 10%, primarily due to Delta's international expansion, and the
ton mile yield declined 6%. 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.
Operating expenses in fiscal 1994 totaled $12.5 billion, up 2% from $12.2
billion in fiscal 1993. Operating capacity decreased less than 1% to 131.8
billion available seat miles. Domestic operating capacity declined 2% and
international operating capacity rose 4%, compared to fiscal 1993. The cost per
available seat mile increased 3% to 9.50(cent). Excluding restructuring charges
in both periods, operating expenses totaled $12.0 billion in fiscal 1994, down
1% from $12.1 billion in fiscal 1993, and the cost per available seat mile
decreased 1% to 9.10(cent).
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. 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.
CAPITALIZATION, FINANCING AND LIQUIDITY-
FISCAL YEAR 1995
Cash and cash equivalents and short-term investments totaled $1.8 billion
at June 30, 1995, compared to $1.7 billion at June 30, 1994. The principal
sources of funds during fiscal 1995 were $1.1 billion of cash from operations;
$139 million from Pan Am Corporation for the repayment of certain
debtor-in-possession financing (including $24 million recorded in cash from
operations representing accrued interest, net of the settlement of certain
other claims); and $137 million from the sale of flight equipment.
During fiscal 1995, Delta invested $458 million in flight equipment and
$168 million in ground property and equipment. The Company also made payments
of $572 million on long-term debt and capital lease obligations, including
Delta's voluntary repurchase and retirement of $403 million principal amount of
long-term debt and the Delta Family-Care Savings Plan's (Savings Plan)
voluntary prepayment in whole, with funds provided by Delta, of the $131
million aggregate principal amount of the Savings Plan's 1990 Series A and
Series B Guaranteed Serial ESOP Notes, which were guaranteed by Delta. In
addition, the Company 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. The Company may
repurchase additional long-term debt from time to time.
As of June 30, 1995, the Company had negative working capital of $427
million, compared to negative working capital of $313 million at June 30, 1994.
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, short-term investments and internally
generated funds, supplemented as necessary by debt financings and proceeds from
sale and leaseback transactions. At August 18, 1995, the Company also had $780
million of credit available under its 1992 Bank Credit Agreement, subject to
compliance with certain conditions (see Note 7 of Notes to Consolidated
Financial Statements).
[GRAPH]
Invested Capital (In Millions of Dollars)
Fiscal Year Stockholders' Equity Long-Term Debt and Capital Leases
- ----------- -------------------- --------------------------------
1986 $ 1,302 $ 869
1987 1,938 1,018
1988 2,209 729
1989 2,620 703
1990 2,596 1,315
1991 2,457 2,059
1992 1,894 2,833
1993 1,913 3,716
1994 1,467 3,228
1995 1,827 3,121
During fiscal 1995, Delta extended the lease terms of 40 B-737-200
aircraft which, for accounting purposes, resulted in the reclassification of
the leases from operating leases to capital leases. The Company recorded in its
Consolidated Balance Sheets a $385 million increase in flight equipment under
capital leases, net of deferred rent credits, and a $415 million increase in
capital lease obligations. See Note 8 of Notes to Consolidated Financial
Statements.
DELTA AIR LINES, INC.
14
<PAGE> 8
Long-term debt and capital lease obligations, including current
maturities, totaled $3.3 billion at June 30, 1995, compared to $3.5 billion at
June 30, 1994. Stockholders' equity was $1.8 billion at June 30, 1995, compared
to $1.5 billion at June 30, 1994. The Company's debt-to-equity position,
including current maturities, was 65% debt and 35% equity at June 30, 1995,
compared to 70% debt and 30% equity at June 30, 1994.
During fiscal 1995, Delta elected to discontinue selling new receivables
under its revolving accounts receivable facility. See Note 5 of Notes to
Consolidated Financial Statements.
At August 18, 1995, there was outstanding $290 million principal amount of
the Savings Plan's Series C Guaranteed Serial ESOP Notes (Series C ESOP Notes),
which are guaranteed by Delta. The Series C ESOP Notes currently have the
benefit of a credit enhancement in the form of a letter of credit in the amount
of $470 million under Delta's 1992 Bank Credit Agreement. Delta is required to
purchase the Series C ESOP Notes in certain circumstances. See Note 7 of Notes
to Consolidated Financial Statements.
FISCAL YEAR 1994
In fiscal 1994, the principal sources of funds were $1.3 billion of cash
from operations, which included $300 million from the sale of certain accounts
receivable (see Note 5 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. 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
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.
FISCAL YEAR 1993
In fiscal 1993, the principal sources of funds were $1.4 billion of
long-term borrowings; $1.1 billion from the issuance of Series C Convertible
Preferred Stock; $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 $193 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.
NEW ACCOUNTING STANDARDS
Effective June 30, 1995, Delta adopted Statement of Financial Accounting
Standards No. 119, "Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments." See Note 4 of Notes to Consolidated Financial
Statements.
Effective July 1, 1994, Delta adopted SFAS 112, which resulted in a
cumulative after-tax transition benefit of $114 million ($2.25 primary and
$1.42 fully diluted benefit per common share) in fiscal 1995, primarily due to
the net overfunded status of the Company's disability and survivorship plans.
See Note 10 of Notes to Consolidated Financial Statements.
Also effective July 1, 1994, the Company adopted American Institute of
Certified Public Accountants Statement of Position 93-6, "Employers' Accounting
for Employee Stock Ownership Plans" (SOP 93-6). The adoption of SOP 93-6
increased reported net income available to common stockholders shown in the
Consolidated Statements of Operations by $8 million for fiscal 1995, and
increased primary and fully diluted earnings per common share for that period
by $0.16 and $0.28, respectively. See Note 14 of Notes to Consolidated
Financial Statements.
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, primarily related to its
investments in Singapore Airlines and Swissair, 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 2 of Notes to
Consolidated Financial Statements.
The Financial Accounting Standards Board has issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (SFAS 121), which will be effective for fiscal 1997. SFAS
121 requires that the carrying values of long-lived assets, including certain
identifiable intangibles, held and used by an entity be reviewed for
impairment, and potentially written down, whenever events or changes in
circumstances indicate that the carrying amount of the
DELTA AIR LINES, INC.
15
<PAGE> 9
asset may not be recoverable. The adoption of SFAS 121 is not expected to
have a material impact on the Company's consolidated financial statements.
FUTURE OUTLOOK
DEFERRED TAX ASSET - At June 30, 1995, Delta had net cumulative deferred
tax assets of $740 million, which consist of $2.1 billion of deferred tax
assets, offset by $1.3 billion of deferred tax liabilities. Included in the
deferred tax assets are, among other items, $655 million related to obligations
for postretirement benefits, $284 million related to alternative minimum tax
(AMT) credit carryforwards and $122 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 $1.2 billion in future taxable income. Based on 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 experienced book and tax losses in fiscal years 1991
through 1994, the Company reported book and tax income in fiscal 1995.
Furthermore, 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>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In Millions)
<S> <C> <C> <C> <C> <C>
Pretax Book
Income (Loss).......... $494 $(660) $(651) $(786) $(500)
Taxable Income (Loss).... $282 $(411) $(580) $(568) $(204)
</TABLE>
The Company's losses in fiscal years 1991 through 1994 reflect numerous
external factors beyond management's control, including weak economies in a
number of regions worldwide and the effects of many deeply discounted fare
promotions initiated by other airlines; 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; and the growing
presence of low-cost, low-fare carriers in many of the domestic markets served
by Delta.
Management believes that it has taken and continues to take appropriate
actions to improve the Company's financial performance, 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. During fiscal 1995, Leadership 7.5
cost reduction initiatives contributed to a $465 million, or 4%, decline in
operating expenses from fiscal 1994, excluding restructuring charges in the
1994 period as previously discussed. 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 assurance that Delta will
meet its expectations 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, 1995. See Note 15 of
Notes to Consolidated Financial Statements.
COMMITMENTS - Future expenditures for aircraft, engines and engine
hushkits on firm order as of June 30, 1995, are estimated to be $2.9 billion,
excluding aircraft orders subject to reconfirmation by Delta. The Company
expects to finance these commitments using available cash, short-term
investments and internally generated funds, supplemented as necessary by debt
financings and proceeds from sale and leaseback transactions. The Company also
has certain commitments related to its code sharing arrangements and
TransQuest. See Note 9 of Notes to Consolidated Financial Statements. Also, see
Note 8 of Notes to Consolidated Financial Statements for information on the
Company's lease commitments.
AIRCRAFT FUEL - The Omnibus Budget Reconciliation Act of 1993 imposes a
4.3(cent) per gallon tax on commercial aviation jet fuel purchased for use in
domestic operations, effective October 1, 1995. Based on Delta's fiscal 1996
expected domestic fuel requirement of 1.9 billion gallons, the new fuel tax, if
implemented, is expected to increase Delta's operating expenses by
approximately $80 million annually. Delta and other U.S. airlines are actively
lobbying for a repeal of this tax. The outcome of these efforts cannot
presently be determined.
DELTA AIR LINES, INC.
16
<PAGE> 10
TRAVEL AGENCY COMMISSIONS - On February 10, 1995, Delta changed its
domestic travel agency commission program by introducing a maximum commission
payment of $50 for any roundtrip domestic ticket with a base fare in excess of
$500 and $25 for any one-way ticket with a base fare in excess of $250. The
maximum commission applies to all tickets issued by U.S. and Canada-based
travel agents for travel within and between the Continental U.S., Alaska,
Hawaii, Puerto Rico and the U.S. Virgin Islands. The Company expects that this
change in commission structure will result in lower future commissions
expenses; however, the impact cannot presently be determined. Certain
litigation challenging these changes is pending (see Note 11 of Notes to
Consolidated Financial Statements).
DOMESTIC ROUTE SYSTEM REALIGNMENTS - On May 1, 1995, Delta realigned its
domestic route system to position the Company's aircraft and other resources in
areas offering greater revenue-generating potential. As a result of the
realignment, Delta increased flights at its Atlanta, Cincinnati and Salt Lake
City hubs, and decreased flights at Boston and its Dallas/Fort Worth, Los
Angeles and Orlando hubs.
On August 3, 1995, Delta announced plans to further increase flights at
Atlanta and Cincinnati, and further reduce flights at Dallas/Fort Worth,
effective December 1, 1995. Delta Connection carriers replaced or plan to
replace Delta service in certain markets as part of the May 1, 1995 and
December 1, 1995 route alignments. Due mainly to competitive factors, there can
be no assurance that these route realignments will result in increased
passenger revenues.
COMPETITIVE ENVIRONMENT - Delta expects that low-fare competition is
likely to continue in domestic and international markets. If price 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 adversely
affected.
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 was approved
by the United States District Court for the Northern District of Georgia in
1994, the six carriers issued $397 million in face amount of certificates for
discounts of approximately 10% on future domestic air travel on any of the six
carriers.
Delta 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 redemptions will approximate, but will not necessarily be limited
to, its relative domestic market share among the six carriers, which was
approximately 22% in calendar 1994. The ultimate impact of the settlement on
Delta's future revenues, operating margins and earnings 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.
DELTA AIR LINES, INC.
17
<PAGE> 11
CONSOLIDATED
BALANCE SHEETS
June 30, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- -----------------------------------------------------------------------------------
(In Millions)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 1,233 $ 1,302
Short-term investments .................................. 529 408
Accounts receivable, net of allowance for
uncollectible accounts of $29 at June 30,
1995, and $50 at June 30, 1994 ........................ 755 886
Maintenance and operating supplies, at average cost...... 68 67
Deferred income taxes ................................... 234 336
Prepaid expenses and other .............................. 195 224
------- -------
Total current assets ................................ 3,014 3,223
------- -------
PROPERTY AND EQUIPMENT:
Flight equipment ........................................ 9,288 9,063
Less: Accumulated depreciation....................... 4,209 3,880
------- -------
5,079 5,183
------- -------
Flight equipment under capital leases ................... 537 173
Less: Accumulated amortization....................... 99 142
------- -------
438 31
------- -------
Ground property and equipment ........................... 2,442 2,398
Less: Accumulated depreciation....................... 1,354 1,250
------- -------
1,088 1,148
------- -------
Advance payments for equipment .......................... 331 241
------- -------
6,936 6,603
------- -------
OTHER ASSETS:
Marketable equity securities ............................ 398 351
Deferred income taxes ................................... 506 560
Investments in associated companies ..................... 265 219
Cost in excess of net assets acquired, net of
accumulated amortization of $75 at
June 30, 1995, and $66 at June 30, 1994 ............... 274 283
Leasehold and operating rights, net of accumulated
amortization of $165 at June 30, 1995,
and $135 at June 30, 1994 ............................. 177 207
Other ................................................... 573 450
------- -------
2,193 2,070
------- -------
$12,143 $11,896
======= =======
</TABLE>
DELTA AIR LINES, INC.
22
<PAGE> 12
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- --------------------------------------------------------------------------------------------------------------
(In Millions, Except Share Data)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt ............................................ $ 151 $ 227
Current obligations under capital leases ........................................ 61 11
Accounts payable and miscellaneous accrued liabilities .......................... 1,578 1,552
Air traffic liability ........................................................... 1,143 1,247
Accrued rent .................................................................... 235 195
Accrued vacation pay ............................................................ 167 196
Transportation tax payable ...................................................... 106 108
-------- --------
Total current liabilities ................................................... 3,441 3,536
-------- --------
NONCURRENT LIABILITIES:
Long-term debt .................................................................. 2,683 3,142
Postretirement benefits ......................................................... 1,714 1,641
Accrued rent .................................................................... 556 541
Capital leases .................................................................. 438 86
Other ........................................................................... 395 395
-------- --------
5,786 5,805
-------- --------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions ................................ 860 923
Manufacturers and other credits ................................................. 109 63
-------- --------
969 986
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 7, 8, 9 and 11)
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 6,786,632 shares
at June 30, 1995, and 6,878,292 shares at June 30, 1994 ....................... 489 495
Less: Unearned compensation under employee stock ownership plan.................. 369 393
-------- --------
120 102
-------- --------
STOCKHOLDERS' EQUITY:
Series C Convertible Preferred Stock, $1.00 par value, $50,000 liquidation
preference; issued and outstanding 23,000 shares at June 30, 1995 and 1994..... -- --
Common Stock, $3.00 par value; authorized 150,000,000 shares; issued
54,537,103 shares at June 30, 1995, and 54,469,491 shares at June 30, 1994..... 164 163
Additional paid-in capital ...................................................... 2,016 2,013
Accumulated deficit ............................................................. (184) (490)
Net unrealized gain on marketable securities .................................... 83 53
Less: Treasury stock at cost, 3,721,093 shares at June 30, 1995, and
4,016,219 shares at June 30, 1994 ............................................. 252 272
-------- --------
1,827 1,467
-------- --------
$ 12,143 $ 11,896
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
DELTA AIR LINES, INC.
23
<PAGE> 13
CONSOLIDATED STATEMENTS
OF OPERATIONS
For the years ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
(In Millions, Except Per Share Data)
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger ................................................ $ 11,303 $ 11,252 $ 10,899
Cargo .................................................... 565 551 534
Other, net ............................................... 326 274 224
-------- -------- --------
Total operating revenues ............................. 12,194 12,077 11,657
-------- -------- --------
OPERATING EXPENSES:
Salaries and related costs ............................... 4,354 4,589 4,798
Aircraft fuel ............................................ 1,370 1,411 1,592
Passenger commissions .................................... 1,195 1,255 1,074
Aircraft rent ............................................ 671 732 729
Depreciation and amortization ............................ 622 678 735
Other selling expenses ................................... 618 614 569
Contracted services ...................................... 556 457 450
Passenger service ........................................ 443 522 542
Facilities and other rent ................................ 436 380 356
Aircraft maintenance materials and outside repairs ....... 430 418 465
Landing fees ............................................. 266 261 262
Restructuring charges .................................... -- 526 82
Other .................................................... 572 681 578
-------- -------- --------
Total operating expenses ............................. 11,533 12,524 12,232
-------- -------- --------
OPERATING INCOME (LOSS) ...................................... 661 (447) (575)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense ......................................... (292) (304) (239)
Interest capitalized ..................................... 30 33 62
Interest income .......................................... 95 57 22
Gain on disposition of flight equipment .................. -- 2 65
Miscellaneous income (expense), net ...................... -- (1) 14
-------- -------- --------
(167) (213) (76)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES ............................... 494 (660) (651)
INCOME TAXES (PROVIDED) CREDITED, NET ........................ (200) 251 236
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES.. 294 (409) (415)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES, NET OF TAX .......... 114 -- (587)
-------- -------- --------
NET INCOME (LOSS) ............................................ 408 (409) (1,002)
PREFERRED STOCK DIVIDENDS .................................... (88) (110) (110)
-------- -------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS ........ $ 320 $ (519) $ (1,112)
======== ======== ========
PRIMARY INCOME (LOSS) PER COMMON SHARE:
Before cumulative effect of accounting changes ........... $ 4.07 $ (10.32) $ (10.54)
Cumulative effect of accounting changes .................. 2.25 -- (11.78)
-------- -------- --------
$ 6.32 $ (10.32) $ (22.32)
======== ======== ========
FULLY DILUTED INCOME (LOSS) PER COMMON SHARE:
Before cumulative effect of accounting changes ........... $ 4.01 $ (10.32) $ (10.54)
Cumulative effect of accounting changes .................. 1.42 -- (11.78)
-------- -------- --------
$ 5.43 $ (10.32) $ (22.32)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
DELTA AIR LINES, INC.
24
<PAGE> 14
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the years ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................. $ 408 $ (409) $(1,002)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Cumulative effect of accounting changes ....................... (114) -- 587
Restructuring charges ......................................... -- 526 82
Depreciation and amortization ................................. 622 678 735
Deferred income taxes ......................................... 96 (242) (209)
Amortization of investment tax credits ........................ -- (1) (2)
Amortization of deferred gain on sale and
leaseback transactions ...................................... (63) (62) (57)
Gain on disposition of flight equipment ....................... -- (2) (65)
Rental expense in excess of rent payments ..................... 54 134 89
Postemployment benefits expense less than payments ............ (22) -- --
Pension expense in excess of (less than) payments ............. (89) (45) 47
Compensation under ESOP ....................................... 38 29 27
Other postretirement expense in excess of payments ............ 73 66 129
Changes in certain assets and liabilities:
Decrease in accounts receivable ............................... 131 169 199
Decrease (increase) in prepaid expenses and other
current assets .............................................. 28 123 (19)
Increase (decrease) in air traffic liability .................. (104) 57 (58)
Increase in accounts payable and
miscellaneous accrued liabilities ........................... 26 207 215
Increase (decrease) in other payables and
accrued expenses ............................................ (31) (34) 50
Increase in other noncurrent liabilities ...................... -- 64 14
Other, net ........................................................ 61 66 (85)
------- ------- -------
Net cash provided by operating activities ................. 1,114 1,324 677
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments .................. (458) (1,032) (1,221)
Ground property and equipment ................................. (168) (173) (193)
Increase in short-term investments, net ........................... (121) (408) --
Proceeds from sale of flight equipment ............................ 137 103 87
Debtor-in-possession loan repayment ............................... 115 -- --
------- ------- -------
Net cash used in investing activities ..................... (495) (1,510) (1,327)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations .......... (572) (547) (519)
Cash dividends .................................................... (120) (120) (138)
Issuance of common stock .......................................... 4 1 1
Proceeds from sale and leaseback transactions ..................... -- 748 684
Issuance of long-term obligations ................................. -- 226 1,427
Issuance of Series C Convertible Preferred Stock, net ............. -- -- 1,126
Net short-term borrowings (repayments) ............................ -- -- (801)
------- ------- -------
Net cash provided by (used for) financing activities....... (688) 308 1,780
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. (69) 122 1,130
Cash and cash equivalents at beginning of period ...................... 1,302 1,180 50
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $ 1,233 $ 1,302 $ 1,180
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
DELTA AIR LINES, INC.
25
<PAGE> 15
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
For the years ended June 30, 1995, 1994 and 1993
<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, 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
Fiscal Year 1995:
Net income ............................................ -- -- 408 -- -- 408
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 allocated shares .................... -- -- (8) -- -- (8)
Issuance of 67,612 shares of common stock under
dividend reinvestment and stock purchase
plan, stock incentive plan and Series C Preferred
Stock conversions ($56.13 per share) ................ 1 3 -- -- -- 4
Transfer of 295,126 net shares of common stock
from treasury under ESOP and
stock incentive plan ($67.75 per share) ............. -- -- (4) -- 20 16
Net unrealized gain on marketable
equity securities ................................... -- -- -- 30 -- 30
------- ------- ------- ------- ------- -------
BALANCE AT JUNE 30, 1995 .................................. $ 164 $ 2,016 $ (184) $ 83 $ (252) $ 1,827
======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
DELTA AIR LINES, INC.
26
<PAGE> 16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
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 the
following companies are accounted for under the equity method: TransQuest
Information Solutions (TransQuest), an information technology joint venture;
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. ASA, Comair, Inc., and SkyWest Airlines, Inc. are participants
in the Delta Connection program. (See Note 3.)
ACCOUNTING CHANGES - Effective July 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (SFAS 112), and American Institute of Certified
Public Accountants Statement of Position 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" (SOP 93-6). (See Notes 10 and 14,
respectively.) 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 Note 2.) 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). (See Notes 10 and 15, respectively.)
CASH AND CASH EQUIVALENTS - Investments with an original maturity of
three months or less 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 2.)
COST IN EXCESS OF NET ASSETS ACQUIRED - The cost in excess of net assets
acquired (goodwill), 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. Management believes that goodwill is
appropriately valued.
LEASEHOLD AND OPERATING RIGHTS - Costs assigned to the purchase of
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. The Company periodically
reviews the values assigned to leasehold and operating rights to determine if
they have been other than temporarily impaired. Management believes that
leasehold and operating rights are appropriately valued.
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. Gains on the sale and leaseback of property under capital leases are
credited directly to the carrying value of the related asset.
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
(Sky Miles TM) 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 SkyMiles
program when free travel award levels are achieved. The accrued incremental
cost is included in accounts payable and miscellaneous accrued liabilities in
the Company's Consolidated Balance Sheets.
The Company also sells mileage credits to participating partners in the
SkyMiles program such as hotels, car rental agencies and credit card companies.
The resulting revenue, net of the incremental cost of the credits sold, is
recorded as other operating revenue in the Company's Consolidated Statements of
Operations during the period in which the credits are sold.
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 in the Company's
Consolidated Balance Sheets.
Effective July 1, 1994, Delta began recording as reductions of revenue
certain international air transportation price adjustments which had previously
been recorded as commissions expense. The related amounts in the Consolidated
Statements of Operations for fiscal years 1994 and 1993 have been reclassified
to conform with the current financial statement presentation.
DELTA AIR LINES, INC.
27
<PAGE> 17
Delta has entered into code-sharing agreements under which the Company
purchases seats from and sells seats to certain foreign airlines. Under these
agreements, each airline separately markets its respective seats. The revenue
resulting from Delta's sale of code-sharing seats purchased from other airlines
is reported as other operating revenue, offset by the cost of acquiring these
code-sharing seats and other direct costs incurred in operating the
code-sharing flights, in the Company's Consolidated Statements of Operations.
The revenue generated from Delta's code sharing seat sales to other airlines is
reported as passenger revenue in the Company's Consolidated Statements of
Operations.
DEPRECIATION AND AMORTIZATION - Prior to April 1, 1993, the Company
depreciated substantially all of its flight equipment 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 fleet plan review, 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 3 to 30 years. Flight
equipment under capital leases are amortized on a straight-line basis over the
lives of the respective leases, which range from 8 to 15 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.
EARNINGS (LOSS) PER SHARE - Primary earnings (loss) per common share is
computed by dividing net income (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. 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. The weighted average number of
shares of Common Stock outstanding was 50,657,613 for fiscal 1995; 50,257,721
for fiscal 1994; and 49,836,959 for fiscal 1993.
To compute fully diluted earnings (loss) per common share, it is assumed
that all outstanding shares of Series C Convertible Preferred Stock (Series C
Preferred Stock), all allocated shares of Series B ESOP Convertible Preferred
Stock (ESOP Preferred Stock), the 3.23% Convertible Subordinated Notes due 2003
and Common Stock equivalents are converted, if dilutive, into Common Stock.
The weighted average number of shares of Common Stock used to compute fully
diluted earnings (loss) per common share was 80,118,720 for fiscal 1995;
50,257,721 for fiscal 1994; and 49,836,959 for fiscal 1993. In addition, to
compute fully diluted earnings (loss) per common share, net income or loss is
adjusted for the additional contribution that would be required to service the
ESOP's long-term debt if the ESOP Preferred Stock was converted into Common
Stock and for the interest expense that would be avoided if the 3.23%
Convertible Subordinated Notes due 2003 were converted into Common Stock. (See
Notes 7, 12, 13 and 14.)
FOREIGN CURRENCY TRANSLATION - Assets and liabilities denominated in
foreign currencies are translated generally at exchange rates in effect at the
balance sheet date, except that fixed assets are translated at exchange rates
in effect when these assets were 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 were 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. INVESTMENTS IN DEBT AND EQUITY SECURITIES:
Under SFAS 115, which Delta adopted effective June 30, 1994, the
Company's investments in Singapore Airlines Limited (Singapore Airlines) and
Swissair, Swiss Air Transport Company Ltd. (Swissair), which are accounted for
under the cost method, are classified as available-for-sale and carried at
aggregate market value. Prior to June 30, 1994, these investments were carried
at the lower of aggregate cost or market. At June 30, 1995 and 1994, the gross
unrealized gain on the Company's investment in Singapore Airlines was $143
million and $109 million, respectively, and the gross unrealized loss on the
Company's investment in Swissair was $12 million and $24 million, respectively.
The $83 million and $53 million net unrealized gains, net of the related
deferred tax provision, on these investments at June 30, 1995 and 1994,
respectively, 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 AIR LINES, INC.
28
<PAGE> 18
Delta's other investments in available-for-sale securities, which were
also carried at the lower of aggregate cost or market prior to the adoption of
SFAS 115, are recorded as short-term investments in the Company's Consolidated
Balance Sheets. These investments at June 30, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
Average
Stated
Maturity
Percentage (Months)
------------------------- ------------------------
Type 1995 1994 1995 1994
- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Government
agency debt . . . . 36% 52% 12 21
Corporate debt
securities . . . . 64 48% 5 23
</TABLE>
During fiscal years 1995 and 1994, the proceeds from sales of
available-for-sale securities were $926 million and $473 million, respectively,
which resulted in realized losses of $4 million and $3 million, respectively.
The unrealized gains on these investments were less than $1 million and were
reflected in stockholders' equity at June 30, 1995 and 1994, respectively.
3. INVESTMENTS IN ASSOCIATED COMPANIES:
The Company's percent ownership in associated companies at June 30,
1995, and equity earnings (losses) for fiscal 1995, 1994 and 1993, were as
follows:
<TABLE>
<CAPTION>
Equity Earnings (Losses)
Percent -------------------------
Investment Ownership 1995 1994 1993
- ---------- --------- ---- ---- ----
(In Millions)
<S> <C> <C> <C> <C>
TransQuest . . . . . . . . 50.0% $(3) $ - $-
WORLDSPAN . . . . . . . . 38.0 (4) 1 5
ASA . . . . . . . . . . . 24.2 12 12 9
Comair . . . . . . . . . . 21.3 6 6 4
SkyWest . . . . . . . . . 15.0 2 2 1
</TABLE>
During the December 1994 quarter, Delta and AT&T Global Information
Solutions Company (AT&T) formed TransQuest, a joint venture to provide
information technology services to Delta and others in the travel and
transportation industries. Delta and AT&T each own a 50% interest in
TransQuest. Delta's investment in TransQuest, which initially consisted of
software valued at $25 million, is being accounted for under the equity method.
This investment is recorded as an investment in associated companies in the
accompanying Consolidated Balance Sheets. Billings for information technology
services provided by TransQuest to Delta totaled $66 million in fiscal 1995.
WORLDSPAN provides computer reservations services to Delta. Fees billed
to Delta for these services were $78 million in fiscal 1995, $60 million in
fiscal 1994 and $47 million in fiscal 1993. Additionally, Delta made monthly
subscriber support payments to WORLDSPAN; these payments totaled $18 million in
fiscal 1995, $23 million in fiscal 1994 and $32 million in fiscal 1993. Delta
provides communications, information processing and administrative services to
WORLDSPAN; WORLDSPAN reimbursed Delta for these services in the amount of $3
million in fiscal 1995, $15 million in fiscal 1994, and $26 million in fiscal
1993.
4. FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET RISK:
BALANCE SHEET FINANCIAL INSTRUMENTS: FAIR VALUES - The carrying
amounts reported in the Company's Consolidated Balance Sheets for cash and cash
equivalents approximate fair values at June 30, 1995 and 1994. Short-term
investments classified as available-for-sale are recorded at fair value in
accordance with SFAS 115. (See Note 2).
The fair values and carrying values of long-term debt, including current
maturities, at June 30, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In Billions)
<S> <C> <C>
Fair value . . . . . . . . . . . $3.0 $3.3
Carrying value . . . . . . . . . $2.8 $3.4
</TABLE>
These values are based on quoted market prices, where available, or
discounted cash flow analyses. The carrying values of all other financial
instruments approximate their fair values.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: RISKS AND FAIR VALUES -
The Company has entered into certain foreign exchange forward contracts, all
with maturities of less than one month, in an effort to manage risks associated
with foreign currency exchange rate and interest rate volatility. The
aggregate face amount of such contracts was approximately $20 million at June
30, 1995. The related realized and unrealized gains and losses for such
contracts were not material for any of the years presented.
Under the Company's revolving accounts receivable facility (see Note 5),
the full amount of the allowance for doubtful accounts related to the
receivables sold was retained, as the Company had substantially the same credit
risk as if the receivables had not been sold.
FINANCIAL GUARANTEES - Certain municipalities and airport authorities
have issued special facility revenue bonds to build or improve airport terminal
and maintenance facilities that Delta leases under operating leases. 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, 1995, Delta had guaranteed $675 million principal amount of such bonds.
(See Note 8.)
CONCENTRATION OF CREDIT RISK - Delta's accounts receivable are generated
primarily from airline ticket and cargo services sales to individuals and
various commercial enterprises that are economically and geographically
dispersed, and the accounts receivable are generally short-term in duration.
Accordingly, Delta does not believe it is subject to any significant
concentration of credit risk.
DELTA AIR LINES, INC.
29
<PAGE> 19
5. SALE OF RECEIVABLES:
In June 1994, Delta entered into a revolving accounts receivable
facility (Facility) providing for the sale 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. At June 30, 1995 and 1994, the principal amount of the
Senior Certificate was $229 million and $300 million, respectively, and is
recorded as a reduction in accounts receivable in the Company's Consolidated
Balance Sheets. The principal amount of the Subordinate Certificate at June
30, 1995 and 1994, was $190 million and $164 million, respectively, and is
included in accounts receivable in the Company's Consolidated Balance Sheets.
Under the terms of the Facility, the Company is obligated to pay fees
which approximate the Senior Certificate holder's cost of issuing an amount of
commercial paper equivalent to the principal amount of the Senior Certificate
plus certain administrative costs. For fiscal 1995 and 1994, these fees
totaled $19 million and $7 million, respectively, and are included in other
income (expense) under miscellaneous, net in the Company's Consolidated
Statements of Operations.
During fiscal 1995, Delta elected to discontinure selling new
receivables under the Facility, and the Senior Certificate was reduced to $0
on August 14, 1995.
6. SHORT-TERM BORROWINGS:
The maximum and average outstanding balances of short-term bank
borrowings and the weighted average interest rates during fiscal 1995, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(Dollar Amounts In Millions)
<S> <C> <C> <C>
Maximum amount of borrowings
outstanding during period . . . . . . . . . . $ - $ 164 $ 917
Average daily borrowings
during period . . . . . . . . . . . . . . . $ - $ 2 $ 251
Weighted average interest
rate on borrowings
during period . . . . . . . . . . . . . . . . $ - 5.03% 3.86%
</TABLE>
At June 30, 1995 and 1994, no commercial paper or short-term notes were
outstanding.
7. LONG-TERM DEBT:
At June 30, 1995 and 1994, the Company's long-term debt (including
current maturities) was as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In Millions)
<S> <C> <C>
3.23% Convertible Subordinated Notes, unsecured,
due June 15, 2003, net of unamortized
discount of $179 million and $202 million
at June 30, 1995 and 1994, respectively . . . . . . . . . . $ 621 $ 598
8.10% Series C Guaranteed Serial ESOP
Notes, unsecured, payable in installments
between 2002 and 2009 . . . . . . . . . . . . . . . . . . . 290 290
9 3/4% Debentures, unsecured, due
May 15, 2021 . . . . . . . . . . . . . . . . . . . . . . . . 271 350
Medium-Term Notes, Series A and B, unsecured,
interest rates ranging from 7.55% to 9.15% and
with maturities ranging from 1997 to 2007 . . . . . . . . . 235 381
9 7/8% Notes, unsecured, due
January 1, 1998 . . . . . . . . . . . . . . . . . . . . . . 225 225
9 1/4% Debentures, unsecured, due
March 15, 2022 . . . . . . . . . . . . . . . . . . . . . . . 184 200
10 3/8% Debentures, unsecured, due
February 1, 2011 . . . . . . . . . . . . . . . . . . . . . . 176 200
9 7/8% Notes, unsecured, due
May 15, 2000 . . . . . . . . . . . . . . . . . . . . . . . . 165 175
8 1/4% Notes, unsecured, due May 15, 1996 . . . . . . . . . . . . . 150 150
9% Debentures, unsecured, due
May 15, 2016 . . . . . . . . . . . . . . . . . . . . . . . . 135 150
10 1/8% Debentures, unsecured, due May 15, 2010 . . . . . . . . . . 113 125
8 1/2% Notes, unsecured, due March 15, 2002 . . . . . . . . . . . . 96 100
10 3/8% Debentures, unsecured, due
December 15, 2022 . . . . . . . . . . . . . . . . . . . . . 66 175
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, 2012. Interest ranges from 6.85%
to 6.95% over the life of the loan . . . . . . . . . . . . . 30 30
7.26%-7.63% 1990 Series A and Series B Guaranteed
Serial ESOP Notes, unsecured . . . . . . . . . . . . . . . . - 142
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (2)
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,834 3,369
Less: Current maturities . . . . . . . . . . . . . . . . . . . . . 151 227
------ ------
Total long-term debt . . . . . . . . . . . . . . . . . . . . $2,683 $3,142
====== ======
</TABLE>
DELTA AIR LINES, INC.
30
<PAGE> 20
During fiscal 1995, the Company voluntarily repurchased and retired $403
million principal amount of its long-term debt, and the Delta Family-Care
Savings Plan (Savings Plan) voluntarily prepaid in whole, with funds provided by
Delta, the Savings Plan's 1990 Series A and Series B Guaranteed Serial ESOP
Notes, which were guaranteed by Delta. As a result of these transactions, the
Company recognized a net pretax loss of $4 million, which is included in
miscellaneous income (expense) in the Company's Consolidated Statements of
Operations.
The 1992 Bank Credit Agreement provides for unsecured borrowings by the
Company of up to $1.25 billion on a revolving basis until December 4, 1996. Up
to $700 million of this facility may be used for the issuance of letters of
credit. The interest rate under this facility 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
1992 Bank Credit Agreement contains certain negative covenants that restrict
the Company's ability to grant liens, incur or guarantee debt, and enter into
flight equipment leases. It also provides 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 the Company will
immediately deposit cash collateral with the banks in an amount equal to all
outstanding letters of credit. At June 30, 1995, there were no borrowings
outstanding under the 1992 Bank Credit Agreement, but there was outstanding
a letter of credit in the amount of $466 million (which was increased to $470
million at July 28, 1995) to credit enhance the Savings Plan's Series C
Guaranteed Serial ESOP Notes (Series C ESOP Notes).
At August 18, 1995, there was outstanding $290 million principal amount
of Series C ESOP Notes guaranteed by Delta. The Series C ESOP Notes, which
were issued pursuant to certain note purchase agreements, are payable in
installments between July 1, 2002 and January 1, 2009. The note purchase
agreements require Delta to purchase the Series C 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 Series
C 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 Series C 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 Series C 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 Series C ESOP Notes being purchased,
together with accrued interest and a Make Whole Premium Amount. The Make Whole
Premium Amount for the Series C 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 the Series C ESOP Notes as of the date
Delta purchases the Series C 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
Series C 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 Series C 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 Series C ESOP
Notes received the Required Ratings. Accordingly, Delta no longer has an
obligation to purchase the Series C ESOP Notes as a result of the Purchase
Event that occurred on May 11, 1993.
At August 18, 1995, the face amount of the Letter of Credit was $470
million. It covers the $290 million outstanding principal amount of the Series
C ESOP Notes, up to $148 million of Make Whole Premium Amount and approximately
one year of interest on the Series C 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
Series C ESOP Notes. The Indenture also requires the Trustee to draw under the
Letter of Credit to purchase the Series C ESOP Notes in certain circumstances
in which Delta would not be required to purchase the Series C ESOP Notes under
the note purchase agreements. Subject to certain conditions, the Indenture
requires the Trustee to purchase the Series C ESOP Notes at the Purchase Price
at the option of the Noteholders in the event that (1) the Required Ratings on
the Series C 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 Series C ESOP Notes
receive the Required Ratings due to Delta's obtaining a substitute credit
enhancement or otherwise.
DELTA AIR LINES, INC.
31
<PAGE> 21
The Required Ratings on the Series C 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 Series C ESOP Notes at the option of the Noteholders if the
Series C ESOP Notes receive the Required Ratings without the benefit of a
credit enhancement. The Series C 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 18, 1995, 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 Series C
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 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, 1995, 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>
1996 . . . . . . . . . $151
1997 . . . . . . . . . 40
1998 . . . . . . . . . 254
1999 . . . . . . . . . 106
2000 . . . . . . . . . 165
</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 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 $210
million in fiscal 1995; $231 million in fiscal 1994; and $171 million in fiscal
1993.
8. LEASE OBLIGATIONS:
The Company leases certain aircraft, airport terminal and maintenance
facilities, ticket offices, and other property and equipment. Rent expense is
generally recorded on a straight-line basis over the lease term. Amounts
charged to rental expense for operating leases was $1.1 billion in each of
fiscal years 1995, 1994 and 1993.
During the June 1995 quarter, the Company extended the lease terms for
40 B-737-200 aircraft. As a result of the extensions, these aircraft leases
were reclassified, for accounting purposes, from operating leases to capital
leases. This event resulted in an increase of $385 million, net of deferred
rent credits, in flight equipment under capital leases, and an increase of $415
million in capital lease obligations in the Company's Consolidated Balance
Sheets at June 30, 1995. This transaction was treated as a noncash transaction
in the Company's Consolidated Statements of Cash Flows for the year ended June
30, 1995.
DELTA AIR LINES, INC.
32
<PAGE> 22
At June 30, 1995, 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>
1996 . . . . . . . . . . . . . . . . . $ 101 $ 929
1997 . . . . . . . . . . . . . . . . . 100 919
1998 . . . . . . . . . . . . . . . . . 97 893
1999 . . . . . . . . . . . . . . . . . 96 883
2000 . . . . . . . . . . . . . . . . . 65 865
After 2000 . . . . . . . . . . . . . . . 221 12,211
------ -------
Total minimum lease payments . . . 680 $16,700
=======
Less: Amounts representing interest . . 181
------
Present value of future minimum
capital lease payments . . . . . . . . 499
Less: Current obligations under
capital leases . . . . . . . . . . . . 61
------
Long-term capital lease
obligations . . . . . . . . . . . . . $ 438
======
</TABLE>
9. PURCHASE COMMITMENTS:
Future expenditures for aircraft, engines and engine hushkits on firm
order as of June 30, 1995, are estimated to be $2.9 billion, excluding aircraft
orders subject to reconfirmation by Delta, as follows:
<TABLE>
<CAPTION>
Years Ending
June 30 Amount
----------- ------
(In Millions)
<S> <C>
1996 . . . . . . . . . . . . . . . . $ 510
1997 . . . . . . . . . . . . . . . . 940
1998 . . . . . . . . . . . . . . . . 720
1999 . . . . . . . . . . . . . . . . 320
2000 . . . . . . . . . . . . . . . . 190
After 2000 . . . . . . . . . . . . . 220
-------
Total . . . . . . . . . . . . . $ 2,900
=======
</TABLE>
In addition, at August 18, 1995, the Company had authorized capital
expenditures of approximately $300 million for fiscal 1996 for improvement of
airport and office facilities, various ground equipment and other assets.
The Company expects to finance its aircraft, engine and engine hushkit
commitments, as well as other authorized capital expenditures, using available
cash, short-term investments and internally generated funds, supplemented as
necessary by debt financings and proceeds from sale and leaseback transactions.
The Company has entered into code sharing agreements under which it has
agreed to purchase seats at established prices from specific foreign airlines,
subject to certain conditions. None of these agreements has noncancelable
terms in excess of one year.
Subject to certain conditions, Delta has agreed to purchase a minimum
of $35 million of products and services from AT&T each calendar year during the
first five years of the TransQuest joint venture between Delta and AT&T. (See
Note 3.)
10. 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 14.
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, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In Millions)
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation(1) . . . . . . . . . $5,293 $4,518
====== ======
Projected benefit obligation . . . . . . . . . . . . $6,532 $5,846
Plan assets at fair value(2) . . . . . . . . . . . . . . 6,108 5,365
------ ------
Projected benefit obligation in
excess of plan assets . . . . . . . . . . . . . . . . . 424 481
Unrecognized net loss . . . . . . . . . . . . . . . . . . (196) (176)
Unrecognized transition obligation . . . . . . . . . . . (67) (67)
Unrecognized prior service cost . . . . . . . . . . . . . (20) (8)
------ ------
Accrued pension cost recognized in
the consolidated balance sheets . . . . . . . . . . . . $ 141 $ 230
====== ======
</TABLE>
(1)Substantially all of the accumulated benefit obligation is vested.
(2)Plan assets were invested at June 30, 1995, approximately as follows: cash
equivalents (7%), government and corporate bonds and notes (18%), common stock
and other equity-oriented investments (71%) 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 8.0% and 4.7%, respectively, at June 30,
1995, and 8.25% and 4.8%, respectively, at June 30, 1994. The expected
long-term rate of return on assets was 10% at June 30, 1995 and 1994.
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.
DELTA AIR LINES, INC.
33
<PAGE> 23
The net periodic cost of defined benefit pension plans for fiscal 1995,
1994 and 1993 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Service cost - benefits earned
during the year . . . . . . . . . . . . . . . $ 221 $ 248 $ 240
Interest cost on projected
benefit obligation . . . . . . . . . . . . . 489 466 431
Actual return on plan assets . . . . . . . . . (795) (355) (647)
Net amortization and deferral . . . . . . . . . 266 (119) 259
----- ----- -----
Net periodic pension cost . . . . . . . . . . . $ 181 $ 240 $ 283
===== ===== =====
</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.
Net periodic postretirement benefit cost for fiscal 1995, 1994 and 1993
included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Service cost - benefits earned
during the year . . . . . . . . . . . . . . . . . . . . . . . . $ 32 $ 35 $ 47
Interest cost on accumulated
postretirement benefit
obligation . . . . . . . . . . . . . . . . . . . . . . . . . . 118 101 119
Amortization of prior service cost . . . . . . . . . . . . . . . (29) (31) -
Amortization of accumulated losses . . . . . . . . . . . . . . . 4 6 -
---- ---- ----
Net periodic postretirement benefit cost . . . . . . . . . . . . $125 $111 $166
==== ==== ====
</TABLE>
The accumulated postretirement benefit obligation (APBO) at June 30,
1995 and 1994 consisted of the following components:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In Millions)
<S> <C> <C>
Retirees and dependents . . . . . . . . . . . . . . . . $ 879 $ 810
Fully eligible participants . . . . . . . . . . . . . . 333 352
Other active participants . . . . . . . . . . . . . . . 271 262
------ ------
Total accumulated postretirement
benefit obligation . . . . . . . . . . . . . . . . . 1,483 1,424
Unamortized prior service cost
(from plan changes) . . . . . . . . . . . . . . . . . 396 405
Unrecognized net loss . . . . . . . . . . . . . . . . . (109) (132)
------ ------
Accrued postretirement cost . . . . . . . . . . . . . . $1,770 $1,697
====== ======
</TABLE>
The weighted average discount rate used to estimate the APBO was 8.0%
at June 30, 1995, and 8.25% at June 30, 1994. The assumed health care cost
trend rate used in measuring the APBO was 8.5% in fiscal 1995, declining
gradually to 4.25% by 2002, and remaining level thereafter. The assumed health
care cost trend rate used in measuring the APBO was 9.5% in fiscal 1994,
declining gradually to 4.5% by 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, 1995, by approximately $156
million, and the net periodic postretirement benefit cost by $16 million for
fiscal 1995.
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.
Included in the restructuring charges described in Note 16 are
aggregate charges of $112 million and $198 million, respectively, for benefit
pension plans and postretirement benefit plans. These charges represent costs
primarily associated with special termination benefits and curtailment losses
related to workforce reductions.
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.
DELTA AIR LINES, INC.
34
<PAGE> 24
Effective July 1, 1994, Delta adopted SFAS 112, which requires
recognition of the liability for postemployment benefits during the period of
employment. The adoption of SFAS 112 resulted in a cumulative after-tax
transition benefit of $114 million in fiscal 1995, primarily due to the net
overfunded status of the Company's disability and survivorship plans. The
Company's postemployment benefit expense for fiscal 1995 was $85 million. The
amount funded in excess of the liability at transition was included in other
noncurrent assets in the Company's Consolidated Balance Sheets. Future period
expenses will vary based on actual claims experience and the return on plan
assets.
11. CONTINGENCIES:
The Company is a defendant in certain legal actions relating to alleged
employment discrimination practices, antitrust matters, the Company's
participation in Pan Am's proposed plan of reorganization, environmental issues
and other matters concerning the Company's business. 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.
12. COMMON AND PREFERRED STOCK:
At June 30, 1995, 5,824,575 common shares were reserved for issuance
under the 1989 Stock Incentive Plan, 5,821,573 common shares were reserved for
conversion of the ESOP Preferred Stock, 17,490,306 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.
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. The ESOP
Preferred Stock is redeemable at Delta's option at specified redemption prices
payable, at Delta's election, in cash or Common Stock. 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 1/1,000th 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
DELTA AIR LINES, INC.
35
<PAGE> 25
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.
13. STOCK OPTIONS AND AWARDS:
Under the Company's stock option plans, selected employees have received
awards of stock options and, prior to fiscal 1993, 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 1993, 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
Awards Award Price Range
------ -----------------
<S> <C> <C>
Balance June 30, 1992 . . . . . . . . . 2,503,350 $43.25 - $73.125
Fiscal 1993:
Exercised . . . . . . . . . . . (55,400) $43.25 - $54.00
---------
Balance June 30, 1993 . . . . . . . . . 2,447,950 $54.00 - $73.125
Fiscal 1994:
Granted . . . . . . . . . . . . 650,200 $54.375
Exercised . . . . . . . . . . . (47,400) $54.00
Expired . . . . . . . . . . . . (9,000) $54.00
Forfeited . . . . . . . . . . . (27,000) $68.375- $73.125
---------
Balance June 30, 1994 . . . . . . . . . 3,014,750 $54.00 - $73.125
Fiscal 1995:
Granted . . . . . . . . . . . . 718,750 $52.00
Exercised . . . . . . . . . . . (78,900) $54.00 - $68.375
Expired . . . . . . . . . . . . (257,750) $67.375
Forfeited . . . . . . . . . . . (10,700) $52.00 - $73.125
---------
Balance June 30, 1995 . . . . . . . . . 3,386,150 $52.00 - $73.125
=========
</TABLE>
Subject to certain exceptions, stock options and tandem stock
appreciation rights, if any, are generally exercisable between one and ten
years after the date of award. Awards outstanding as of June 30, 1995, 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. . . . . . . . . . . . . . . . 83,000 $54.00
January 25, 1990. . . . . . . . . . . . . . . . 404,800 $67.375
January 24, 1991. . . . . . . . . . . . . . . . 737,000 $68.375
January 23, 1992. . . . . . . . . . . . . . . . 843,000 $73.125
January 27, 1994. . . . . . . . . . . . . . . . 600,600 $54.375
January 26, 1995. . . . . . . . . . . . . . . . 717,750 $52.00
---------
3,386,150 $52.00-$73.125
=========
</TABLE>
Substantially all awards of stock options with tandem stock appreciation
rights have been exercised as stock appreciation rights. In fiscal 1995, the
Company issued 1,643 shares of Common Stock, at an average price of $65.75 per
share, in connection with the exercise of stock appreciation rights.
14. EMPLOYEE STOCK OWNERSHIP PLAN:
The Company sponsors the 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 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 Guaranteed Serial ESOP Notes is also recorded as an
additional component of ESOP expense.
Effective July 1, 1994, Delta adopted SOP 93-6. Under SOP 93-6, the
compensation and interest components of ESOP costs are reduced by the amount of
dividends accrued on the allocated ESOP Preferred Stock, and only the allocated
ESOP Preferred Stock is considered outstanding in computing primary and fully
diluted earnings per common share. Prior to adoption of SOP 93-6, the
compensation and interest components of ESOP costs were reduced by the amount
of dividends accrued on all ESOP Preferred Stock, and all ESOP Preferred Stock
was considered outstanding for primary and fully diluted earnings per common
share calculations.
The adoption of SOP 93-6 increased reported net income attributable to
common stockholders shown in the Company's
DELTA AIR LINES, INC.
36
<PAGE> 26
Consolidated Statements of Operations by $8 million for fiscal 1995 and
increased primary and fully diluted earnings per common share for that period by
$0.16 and $0.28, respectively. The provisions of SOP 93-6 require that it be
adopted prospectively.
Delta recorded compensation and interest expense, made cash
contributions to the ESOP, and incurred actual interest on the Guaranteed
Serial ESOP Notes in fiscal 1995, 1994 and 1993, as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Compensation expense . . . . . . . . . . . . . . . . . $38 $29 $27
Interest expense . . . . . . . . . . . . . . . . . . . 25 20 20
Cash contributions, including
dividends on the ESOP
Preferred Stock . . . . . . . . . . . . . . . . . 47 50 43
Interest on Guaranteed Serial
ESOP Notes . . . . . . . . . . . . . . . . . . . . 28 34 35
</TABLE>
15. 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. 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, 1995 and 1994, are a result of temporary differences related to the
items described as follows:
<TABLE>
<CAPTION>
1995 1994
Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
(In Millions)
<S> <C> <C> <C> <C>
Postretirement benefits . . . . . . $ 655 $ - $ 610 $ -
Gains on sale and lease-back
transactions (net) . . . . . . . 344 - 357 -
Alternative minimum tax
credit carryforwards . . . . . . 284 - 185 -
Rent expense . . . . . . . . . . . 174 - 153 -
Other employee benefits . . . . . . 161 - 164 -
Net operating loss
carryforwards . . . . . . . . 122 - 237 -
Spare parts repair expense . . . . 97 - 85 -
Accrued compensation
expense . . . . . . . . . . . 42 - 22 -
Frequent flyer expense . . . . . . 37 - 35 -
Depreciation and amortization . . . - 1,084 - 950
Postemployment benefits . . . . . . - 89 - -
Marketable equity securities . . . - 49 - 31
Other . . . . . . . . . . . . . . . 167 121 170 141
------ ------ ------ ------
$2,083 $1,343 $2,018 $1,122
====== ====== ====== ======
</TABLE>
The alternative minimum tax credit carryforwards do not expire; the net
operating loss carryforwards will generally expire in 2008 and 2009 if not
utilized prior to that time.
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, 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, 1995.
Income taxes (provided) credited in fiscal 1995, 1994 and 1993 consisted
of:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Current taxes . . . . . . . . . . . . . . . . . . $(104) $ 8 $ 25
Deferred taxes . . . . . . . . . . . . . . . . . (99) 227 207
Increase in corporate
statutory rate . . . . . . . . . . . . . . . . - 13 -
Tax benefit of dividends on
allocated ESOP
Preferred Stock . . . . . . . . . . . . . . . 3 2 2
----- ---- ----
(200) 250 234
----- ---- ----
Amortization of investment
tax credits . . . . . . . . . . . . . . . . . - 1 2
----- ---- ----
Income taxes (provided) credited . . . . . . . . $(200) $251 $236
===== ==== ====
</TABLE>
Components of the deferred tax (provision) credits are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Postretirement benefits . . . . . . . . . . . . . . . $ 45 $ 82 $ 48
Gains on sale and leaseback
transactions . . . . . . . . . . . . . . . . . . . (13) (14) 4
Alternative minimum tax
credit carryforwards . . . . . . . . . . . . . . . 99 (8) 114
Rent expense . . . . . . . . . . . . . . . . . . . . 21 11 22
Net operating loss
carryforwards . . . . . . . . . . . . . . . . . . (115) 163 74
Spare parts repair expense . . . . . . . . . . . . . 12 11 12
Accrued compensation expense . . . . . . . . . . . . 20 22 (1)
Depreciation and amortization . . . . . . . . . . . . (134) (93) (117)
Tax accruals . . . . . . . . . . . . . . . . . . . . 14 2 3
Pension expense . . . . . . . . . . . . . . . . . . . 5 12 22
Software development costs . . . . . . . . . . . . . (5) (17) (12)
Inventory . . . . . . . . . . . . . . . . . . . . . . 5 48 (26)
Other, net . . . . . . . . . . . . . . . . . . . . . (53) 8 64
----- ---- -----
$ (99) $227 $ 207
===== ==== =====
</TABLE>
DELTA AIR LINES, INC.
37
<PAGE> 27
The income tax (provision) credits generated for fiscal 1995, 1994 and
1993 differ from amounts which would result from applying the federal statutory
tax rate to pretax income (loss), as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In Millions)
<S> <C> <C> <C>
Income (loss) before income taxes . . . . . . $ 494 $(660) $(651)
Items not deductible for tax purposes:
Meals and entertainment . . . . . . . . . . . 41 16 16
Depreciation and amortization . . . . . . . . 9 9 11
Other, net . . . . . . . . . . . . . . . . . 3 - (8)
----- ----- -----
Adjusted pretax income (loss) . . . . . . . . 547 (635) (632)
Federal statutory tax rate . . . . . . . . . x35% x35% x34%
----- ----- -----
Income tax (provision) credit at
statutory rate . . . . . . . . . . . . . . (191) 222 215
State and other income taxes, net
of federal income tax (provision) credit . (9) 15 19
Benefit due to increase in
corporate statutory tax rate . . . . . . . - 13 -
Amortization of investment
tax credits . . . . . . . . . . . . . . . - 1 2
----- ----- -----
Income taxes (provided) credited . . . . . . $(200) $ 251 $ 236
===== ===== =====
</TABLE>
The Company made income tax payments, net of income tax refunds, of $25
million in fiscal 1995 and received income tax refunds, net of cash income tax
payments, of $13 million in fiscal 1994 and $166 million in fiscal 1993.
16. 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)
-------------------------------
1993 1994 Total
---- ---- -----
<S> <C> <C> <C>
Fleet Simplification . . . . . . $82 $ (24) $ 58
Early Retirement Program . . . . - 112 112
Leadership 7.5 . . . . . . . . . - 438 438
--- ----- ----
Total . . . . . . . . . $82 $ 526 $608
=== ===== ====
</TABLE>
The fiscal 1993 fleet simplification program included 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. The Company
returned 17 of these aircraft to lessors during fiscal 1994, recognizing cash
and noncash 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 fiscal 1994, the Company recorded restructuring charges totaling
$526 million, which included a $112 million 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, and
a $438 million charge for the Company's Leadership 7.5 program announced during
the June 1994 quarter, partially offset by a $24 million reversal related to
the fleet simplification charge discussed above.
The $438 million charge for the Leadership 7.5 program includes $280
million for workforce reductions of approximately 8,700 employees that were
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 and related costs of $82 million.
During fiscal 1995, the Company reduced its staffing by approximately 9,200
personnel, which included the transfer of approximately 1,200 employees to
TransQuest and WORLDSPAN. Cash payments in fiscal 1995 for workforce
reductions totaled approximately $30 million, primarily for severance payments,
with the remaining $52 million expected to occur during fiscal 1996. 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 $438 million restructuring charge is $158 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. The Company incurred cash costs of approximately $19 million
for these initiatives during fiscal 1995, and expects to incur approximately $38
million in cash costs during fiscal 1996.
Actual costs incurred for certain amounts accrued, realization on the
sales of excess inventories, and costs associated with lease terminations and
abandoned facilities may vary from current estimates. The appropriate accrued
liability will be adjusted upon completion of these activities.
DELTA AIR LINES, INC.
38
<PAGE> 28
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 $2.6 billion in fiscal 1995, $2.5 billion
in fiscal 1994 and $2.3 billion in fiscal 1993.
18. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of the unaudited quarterly results of
operations for fiscal 1995 and 1994 (in millions, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
------------------
Sept. 30 Dec. 31 Mar. 31 June 30
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal 1995
- -----------
Operating revenues . . . . . . . . $ 3,157 $ 2,919 $ 2,902 $ 3,216
========== ========== ========= ==========
Operating income . . . . . . . . . $ 154 $ 18 $ 40 $ 449
========== ========== ========= ==========
Income (loss) before
cumulative effect of
accounting changes . . . . . . . $ 72 $ (18) $ (11) $ 251
Cumulative effect of
accounting changes, net of tax $ 114 $ - $ - $ -
---------- ---------- --------- ----------
Net income (loss) . . . . . . . . . $ 186 $ (18) $ (11) $ 251
========== ========== ========= ==========
Primary income (loss)
per common share:
Before cumulative
effect of accounting
changes . . . . . . . . . . . . $ 1.00 $ (0.79) $ (0.66) $ 4.49
Cumulative effect
of accounting
changes . . . . . . . . . . . . . 2.25 - - -
---------- ---------- --------- ----------
$ 3.25 $ (0.79) $ (0.66) $ 4.49
========== ========== ========= ==========
Fully diluted income
(loss) per common share:
Before cumu-
lative effect of
accounting changes . . . . . . $ 0.99 $ (0.79) $ (0.66) $ 3.21
Cumulative effect
of accounting changes . . . . . . 1.43 - - -
---------- ---------- --------- ----------
$ 2.42 $ (0.79) $ (0.66) $ 3.21
========== ========== ========= ==========
Fiscal 1994
- -----------
Operating revenues . . . . . . . . $ 3,138 $ 2,952 $ 2,878 $ 3,109
========== ========== ========= ==========
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)
========== ========== ========= ==========
</TABLE>
Operating expenses for the June 1994 quarter include a $414 million
restructuring charge for costs associated with Leadership 7.5 initiatives.
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.
(See Note 16.)
DELTA AIR LINES, INC.
39
<PAGE> 29
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP
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, 1995
and 1994, and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the three years in the period ended June 30,
1995. 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, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 14 and 10 in the Notes to Consolidated Financial
Statements, effective July 1, 1994, the Company changed its methods of
accounting for employee stock ownership plans and postemployment benefits. As
discussed in Note 2 in the Notes to Consolidated Financial Statements,
effective June 30, 1994, the Company changed its method of accounting for
certain debt and equity securities. As discussed in Notes 15 and 10 in 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.
/s/ Arthur Andersen LLP
Atlanta, Georgia
August 18, 1995
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 LLP,
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 and Chairman of the Board, President
Chief Financial Officer and Chief Executive Officer
DELTA AIR LINES, INC.
40
<PAGE> 30
CONSOLIDATED SUMMARY
OF OPERATIONS
(In millions, except per share data)
<TABLE>
<CAPTION>
For the years ended June 30
1995(1) 1994(2) 1993(3) 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . . $ 12,194 $ 12,077 $ 11,657 $ 10,837
Operating expenses . . . . . . . . . . . 11,533 12,524 12,232 11,512
----------- ----------- ----------- -----------
Operating income (loss) . . . . . . . . . 661 (447) (575) (675)
Interest expense, net . . . . . . . . . . (262) (271) (177) (151)
Gain (loss) on disposition of flight
equipment . . . . . . . . . . . . . . . - 2 65 35
Miscellaneous income, net(4). . . . . . . 95 56 36 5
----------- ----------- ----------- -----------
Income (loss) before income taxes . . . . 494 (660) (651) (786)
Income taxes (provided) credited . . . . (200) 250 233 271
Amortization of investment tax credits. . - 1 3 9
----------- ----------- ----------- -----------
Net income (loss) . . . . . . . . . . . . 294 (409) (415) (506)
Preferred stock dividends . . . . . . . . (88) (110) (110) (19)
----------- ----------- ----------- -----------
Net income (loss) attributable to
common stockholders . . . . . . . . . . $ 206 $ (519) $ (525) $ (525)
=========== =========== =========== ===========
Net income (loss) per common
share:
Primary . . . . . . . . . . . . . $ 4.07 $ (10.32) $ (10.54) $ (10.60)
=========== =========== =========== ===========
Fully diluted . . . . . . . . . . $ 4.01 $ (10.32) $ (10.54) $ (10.60)
=========== =========== =========== ===========
Dividends declared on common stock . . . $ 10 $ 10 $ 35 $ 59
Dividends declared per common share . . . $ 0.20 $ 0.20 $ 0.70 $ 1.20
</TABLE>
OTHER FINANCIAL AND
STATISTICAL DATA
(Dollar amounts in millions)
<TABLE>
<CAPTION>
For the years ended June 30
1995 1994(2) 1993(3) 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . . $ 12,143 $ 11,896 $ 11,871 $ 10,162
Long-term debt and capital leases
(excluding current maturities) . . . . $ 3,121 $ 3,228 $ 3,716 $ 2,833
Stockholders' equity . . . . . . . . . . $ 1,827 $ 1,467 $ 1,913 $ 1,894
Shares of common stock outstanding
at year end . . . . . . . . . . . . . . 50,816,010 50,453,272 50,063,841 49,699,098
Revenue passengers enplaned
(thousands) . . . . . . . . . . . . . . 88,893 87,399 85,085 77,038
Available seat miles (millions) . . . . . 130,525 131,780 132,282 123,102
Revenue passenger miles (millions) . . . 86,355 85,206 82,406 72,693
Operating revenue per available seat
mile . . . . . . . . . . . . . . . . . 9.34c. 9.16c. 8.81c. 8.80c.
Passenger mile yield . . . . . . . . . . 13.09c. 13.21c. 13.23c. 13.91c.
Operating cost per available seat mile. . 8.84c. 9.50c. 9.25c 9.35c.
Passenger load factor . . . . . . . . . . 66.16% 64.66% 62.30% 59.05%
Breakeven passenger load factor . . . . . 62.29% 67.23% 65.58% 62.99%
Available ton miles (millions) . . . . . 18,150 18,302 18,182 16,625
Revenue ton miles (millions) . . . . . . 10,142 9,911 9,503 8,361
Cost per available ton mile . . . . . . . 63.55c. 68.43c. 67.27c. 69.24c.
</TABLE>
(1) Summary of operations excludes $114 million after-tax
cumulative effect of change in accounting standards ($2.25
primary and $1.42 fully diluted earnings per common share).
(2) Summary of operations and other financial and statistical data
include $526 million in pretax restructuring charges
($6.59 after-tax per common share).
(3) Summary of operations and other financial and statistical data
include $82 million pretax restructuring charge ($1.05 after-tax
per common share). Summary of operations excludes $587 million
after-tax cumulative effect of changes in accounting standards
($11.78 after-tax per common share).
(4) Includes interest income.
DELTA AIR LINES, INC.
42
<PAGE> 31
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986 1985
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 9,171 $ 8,583 $ 8,089 $ 6,915 $ 5,318 $ 4,460 $ 4,684
9,621 8,163 7,411 6,418 4,913 4,426 4,318
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(450) 420 678 497 405 34 366
(97) (27) (39) (65) (62) (55) (62)
17 18 17 (1) 96 16 94
30 57 55 25 8 8 7
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(500) 468 711 456 447 3 405
163 (187) (279) (181) (219) 2 (187)
13 22 29 32 36 42 41
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(324) 303 461 307 264 47 259
(19) (18) - - - - -
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ (343) $ 285 $ 461 $ 307 $ 264 $ 47 $ 259
=========== =========== =========== =========== =========== =========== ===========
$ (7.73) $ 5.79 $ 9.37 $ 6.30 $ 5.90 $ 1.18 $ 6.50
=========== =========== =========== =========== =========== =========== ===========
$ (7.73) $ 5.28 $ 9.37 $ 6.30 $ 5.90 $ 1.18 $ 6.50
=========== =========== =========== =========== =========== =========== ===========
$ 54 $ 85 $ 59 $ 59 $ 44 $ 40 $ 28
$ 1.20 $ 1.70 $ 1.20 $ 1.20 $ 1.00 $ 1.00 $ 0.70
</TABLE>
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986 1985
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 8,411 $ 7,227 $ 6,484 $ 5,748 $ 5,342 $ 3,785 $ 3,627
$ 2,059 $ 1,315 $ 703 $ 729 $ 1,018 $ 869 $ 535
$ 2,457 $ 2,596 $ 2,620 $ 2,209 $ 1,938 $ 1,302 $ 1,287
49,401,779 46,086,110 49,265,884 49,101,271 48,639,469 40,116,383 39,958,467
69,127 67,240 64,242 58,565 48,173 39,582 39,341
104,328 96,463 90,742 85,834 69,014 53,336 51,637
62,086 58,987 55,904 49,009 38,415 30,123 29,062
8.79c. 8.90c. 8.91c. 8.06c. 7.71c. 8.36c. 9.07c.
13.80c. 13.63c. 13.56c. 13.15c. 12.81c. 13.72c. 15.06c.
9.22c. 8.46c. 8.17c. 7.48c. 7.12c. 8.30c. 8.36c.
59.51% 61.15% 61.61% 57.10% 55.66% 56.48% 56.28%
62.64% 57.96% 56.09% 52.69% 51.09% 56.01% 51.57%
13,825 12,500 11,725 11,250 9,000 6,934 6,668
7,104 6,694 6,338 5,557 4,327 3,372 3,275
69.59c. 65.30c. 63.21c. 57.05c. 54.60c. 63.82c. 64.76c.
</TABLE>
DELTA AIR LINES, INC.
43
<PAGE> 32
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. 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 LLP
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on Thursday, October 26, 1995,
at 9:00 a.m., local time, in the Thomas B. Murphy Ballroom of the Georgia World
Congress Center, 285 International Boulevard, N.W., Atlanta, Georgia.
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, 1995, will be provided without charge upon written request. Requests
for other financial documents may also be directed to:
Delta Air Lines, Inc.
Investor Relations, Department 829
P.O. Box 20706
Atlanta, Georgia 30320-6001
Telephone (404) 715-2391
Telephone inquiries related to financial information, other than requests for
financial documents, may be directed to Delta Investor Relations at (404)
715-6679.
COMMON STOCK AND DEPOSITARY SHARES REPRESENTING SERIES C CONVERTIBLE
PREFERRED STOCK
Listed on the New York Stock Exchange under the ticker symbol DAL
NUMBER OF STOCKHOLDERS
As of August 11, 1995, there were 24,628 registered holders of Common Stock.
MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
Market Price Range of Cash
Common Stock on Dividends Per
Fiscal Year 1995 New York Stock Exchange Common Share
- -----------------------------------------------------------------
Quarter Ended: High Low
<S> <C> <C> <C>
September 30 . . . . . $50 1/4 $43 1/2 $0.05
December 31 . . . . . . 53 42 3/4 0.05
March 31 . . . . . . . 64 50 1/4 0.05
June 30 . . . . . . . . 75 3/8 58 1/4 0.05
Fiscal Year 1994
- -----------------------------------------------------------------
Quarter Ended: High Low
September 30 . . . . . $56 $45 7/8 $0.05
December 31 . . . . . . 61 1/8 52 0.05
March 31 . . . . . . . 57 7/8 43 7/8 0.05
June 30 . . . . . . . . 47 3/4 39 1/2 0.05
</TABLE>
DELTA AIR LINES, INC.
44
<PAGE> 33
<TABLE>
<CAPTION>
GRAPHICS APPENDIX LIST
EDGAR Version Typeset Version
- --------------------------------------- ---------------------------------------
<S> <C>
1995 Form 10-K, Exhibit 13 -- (Selected 1995 Form 10-K, Exhibit 13 -- (Selected
Portions of Delta's 1995 Annual Report Portions of Delta's 1995
to Stockholders) Annual Report to Stockholders).
Page 6 -- One pie chart and one Page 6 -- One pie chart showing the percent of
bar chart omitted Delta's Domestic RPM's Competitive with Low-Fare
Carriers. One bar chart depicting Leadership 7.5
Targets Operating Cost/ASM in cents. (The text
and numbers used in these charts appear in the text
of the EDGAR Version).
Page 9 -- One bar chart omitted Page 9 -- One bar chart depicting Capital Expenditures (in
millions of dollars) (Flight Equipment, including Leased
Aircraft, and Ground Property and Equipment).
Page 10 -- One bar chart omitted Page 10 -- One bar chart depicting Primary Earnings (Loss) Per
Common Share in dollars. (The text and numbers used in
this chart appear in the text of the EDGAR Version).
Page 11 -- One pie chart omitted Page 11 -- One pie chart depicting 1995 Distribution of
Operating Revenues. (The text and numbers used in this
chart appears in the text of the EDGAR Version).
Page 12 -- One pie chart omitted Page 12 -- One pie chart depicting 1995 Operating Expenses as a
percent of Total Operating Expenses. (The text and
numbers used in this chart appears in the test of the
EDGAR Version).
Page 14 -- One bar chart omitted Page 14 -- One bar chart depicting Invested Capital (in millions
of dollars) (Stockholders' Equity and Long-Term Debt and
Capital Leases). (The text and numbers used in this chart appears
in the text of the EDGAR Version).
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated August 18, 1995 included in or incorporated by
reference in Delta Air Lines, Inc.'s Annual Report on Form 10-K for the year
ending June 30, 1995 into the Company's previously filed Registration Statement
File Nos. 2-94541, 33-30454, 33-50175, and 33-52045.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
September 26, 1995
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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,
1995.
/s/ Edwin L. Artzt
----------------------------
Edwin L. Artzt
Director
Delta Air Lines, Inc.
<PAGE> 2
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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,
1995.
/s/ Henry A. Biedenharn, III
----------------------------
Henry A. Biedenharn, III
Director
Delta Air Lines, Inc.
<PAGE> 3
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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,
1995.
/s/ James L. Broadhead
----------------------------
James L. Broadhead
Director
Delta Air Lines, Inc.
<PAGE> 4
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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,
1995.
/s/ Edward H. Budd
----------------------------
Edward H. Budd
Director
Delta Air Lines, Inc.
<PAGE> 5
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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,
1995.
/s/ George D. Busbee
----------------------------
George D. Busbee
Director
Delta Air Lines, Inc.
<PAGE> 6
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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,
1995.
/s/ R. Eugene Cartledge
----------------------------
R. Eugene Cartledge
Director
Delta Air Lines, Inc.
<PAGE> 7
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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,
1995.
/s/ Mary Johnston Evans
----------------------------
Mary Johnston Evans
Director
Delta Air Lines, Inc.
<PAGE> 8
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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,
1995.
/s/ Gerald Grinstein
----------------------------
Gerald Grinstein
Director
Delta Air Lines, Inc.
<PAGE> 9
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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,
1995.
/s/ Jesse Hill, Jr.
----------------------------
Jesse Hill, Jr.
Director
Delta Air Lines, Inc.
<PAGE> 10
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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 1st day of
September, 1995.
/s/ Peter D. Sutherland
----------------------------
Peter D. Sutherland
Director
Delta Air Lines, Inc.
<PAGE> 11
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, Harry C. Alger and
Thomas J. Roeck, Jr., 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, 1995, 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,
1995.
/s/ Andrew J. Young
----------------------------
Andrew J. Young
Director
Delta Air Lines, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE RELATED FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
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<SECURITIES> 529
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0
0
<OTHER-SE> 1,663
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