<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1995
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5424
DELTA AIR LINES, INC.
State of Incorporation: Delaware
IRS Employer Identification No.: 58-0218548
Hartsfield Atlanta International Airport, Atlanta, Georgia 30320
Telephone: (404) 715-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ____
-----
Number of shares outstanding by each class of common stock,
as of April 30, 1995:
Common Stock, $3.00 par value - 50,761,951 shares outstanding
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
DELTA AIR LINES, INC.
Consolidated Balance Sheets (Unaudited)
(In Millions)
<TABLE>
<CAPTION>
March 31 June 30
ASSETS 1995 1994
________________________________________________________________________
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 766 $ 1,302
Short-term investments 761 408
Accounts and notes receivable, net 662 886
Maintenance and operating supplies 66 67
Deferred income taxes 334 336
Prepaid expenses and other 222 224
----------- ---------
Total current assets 2,811 3,223
----------- ---------
PROPERTY AND EQUIPMENT:
Flight equipment owned 9,057 9,063
Less: Accumulated depreciation 4,119 3,880
----------- ----------
4,938 5,183
----------- ----------
Flight equipment under capital leases 152 173
Less: Accumulated amortization 131 142
----------- ----------
21 31
----------- ----------
Ground property and equipment 2,397 2,398
Less: Accumulated depreciation 1,309 1,250
----------- ----------
1,088 1,148
----------- ----------
Advance payments for equipment 313 241
----------- ----------
6,360 6,603
----------- ----------
OTHER ASSETS:
Deferred income taxes 513 560
Marketable equity securities 410 351
Cost in excess of net assets acquired, net 276 283
Non-operating property, net 271 211
Investments in associated companies 263 219
Leasehold and operating rights, net 182 207
Other 412 239
----------- ----------
2,327 2,070
----------- ----------
$ 11,498 $ 11,896
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
DELTA AIR LINES, INC.
Consolidated Balance Sheets (Unaudited)
(In Millions except Share Amounts)
<TABLE>
<CAPTION>
March 31 June 30
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 13 $ 227
Current obligations under capital leases 12 11
Short-term notes payable 29 -
Accounts payable and accrued liabilities 1,619 1,654
Air traffic liability 1,103 1,247
Accrued vacation pay 229 196
Accrued rent 182 195
Accrued income taxes 24 6
------------ -------------
Total current liabilities 3,211 3,536
------------ -------------
NONCURRENT LIABILITIES:
Long-term debt 2,827 3,142
Postretirement benefits 1,696 1,641
Accrued rent 563 541
Capital leases 75 86
Other 423 395
------------ -------------
5,584 5,805
------------ -------------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions 879 923
Manufacturers and other credits 105 63
------------ -------------
984 986
------------ -------------
COMMITMENTS AND CONTINGENCIES (Notes 7, 8 and 9)
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 6,827,487 shares at March 31,
1995 and 6,878,292 shares at June 30, 1994 491 495
Less: Unearned compensation under
employee stock ownership plan 368 393
------------ -------------
123 102
------------ -------------
STOCKHOLDERS' EQUITY:
Series C Convertible Preferred Stock,
$1.00 par value, $50,000 liquidation preference;
Issued and outstanding 23,000 shares at March 31, 1995
and June 30, 1994 - -
Common stock, $3.00 par value; Authorized, 150,000,000 shares;
Issued 54,479,102 shares at March 31, 1995
and 54,469,491 shares at June 30, 1994 163 163
Additional paid-in capital 2,013 2,013
Net unrealized gain on marketable equity securities 89 53
Accumulated deficit (410) (490)
Less: Treasury stock at cost, 3,826,112 shares at
March 31, 1995, and 4,016,219 shares at June 30, 1994 259 272
------------ -------------
1,596 1,467
------------ -------------
$ 11,498 $ 11,896
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
DELTA AIR LINES, INC.
Consolidated Statements of Operations
(Unaudited)
(In Millions, except Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------- -----------------
1995 1994
----------------- -----------------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 2,682 $ 2,681
Cargo 134 132
Other, net 86 65
----------------- -----------------
Total operating revenues 2,902 2,878
----------------- -----------------
OPERATING EXPENSES:
Salaries and related costs 1,102 1,145
Aircraft fuel 321 331
Passenger commissions 285 300
Aircraft rent 171 182
Other selling expenses 172 145
Depreciation and amortization 147 170
Contracted services 155 114
Passenger service 92 125
Aircraft maintenance materials and outside
repairs 109 102
Facilities and other rent 110 98
Landing fees 65 64
Other 133 169
----------------- -----------------
Total operating expenses 2,862 2,945
----------------- -----------------
OPERATING INCOME (LOSS) 40 (67)
----------------- -----------------
OTHER INCOME (EXPENSE):
Interest expense (70) (76)
Interest capitalized 8 8
Interest income 21 12
Loss on disposition of flight equipment (1) -
Miscellaneous, net (9) -
----------------- -----------------
(51) (56)
----------------- -----------------
LOSS BEFORE INCOME TAXES (11) (123)
INCOME TAXES CREDITED, NET - 45
----------------- -----------------
NET LOSS (11) (78)
PREFERRED STOCK DIVIDENDS (22) (27)
----------------- -----------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (33) $ (105)
================= =================
PRIMARY AND FULLY DILUTED LOSS PER SHARE $ (0.66) $ (2.10)
================= =================
WEIGHTED AVERAGE SHARES USED IN PER SHARE
COMPUTATION:
Primary 50,637,033 50,256,860
Fully Diluted 50,637,033 50,256,860
DIVIDENDS PER COMMON SHARE $0.05 $0.05
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
DELTA AIR LINES, INC.
STATISTICAL SUMMARY
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------- ----------------
1995 1994
---------------- ----------------
STATISTICAL SUMMARY:
<S> <C> <C>
Available Seat Miles (000) 31,548,707 31,384,928
Available Ton Miles (000) 4,382,084 4,349,273
Revenue Passengers Enplaned 20,900,349 20,494,686
Revenue Passenger Miles (000) 19,748,046 19,398,604
Cargo Ton Miles (000) 356,085 337,636
Revenue Ton Miles (000) 2,331,902 2,278,167
Passenger Load Factor 62.60% 61.81%
Breakeven Passenger Load Factor 61.65% 63.36%
Fuel Gallons Consumed (000) 608,507 607,394
Average Price Per Fuel Gallon 52.72c 54.43c
Cost Per Available Seat Mile 9.07c 9.38c
Passenger Mile Yield 13.58c 13.82c
Cargo Ton Mile Yield 37.77c 39.27c
Operating Revenue per Available Seat Mile 9.20c 9.17c
</TABLE>
5
<PAGE>
DELTA AIR LINES, INC.
Consolidated Statements of Operations
(Unaudited)
(In Millions, except Share Data)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
---------------- ----------------
1995 1994
---------------- ----------------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 8,302 $ 8,357
Cargo 427 411
Other, net 249 200
---------------- ----------------
Total operating revenues 8,978 8,968
---------------- ----------------
OPERATING EXPENSES:
Salaries and related costs 3,314 3,451
Aircraft fuel 1,039 1,086
Passenger commissions 905 919
Aircraft rent 515 559
Other selling expenses 487 459
Depreciation and amortization 467 508
Contracted services 397 347
Passenger service 343 392
Aircraft maintenance materials and outside repairs 332 305
Facilities and other rent 322 284
Landing fees 198 194
Restructuring charge - 112
Other 447 478
---------------- ----------------
Total operating expenses 8,766 9,094
---------------- ----------------
OPERATING INCOME (LOSS) 212 (126)
---------------- ----------------
OTHER INCOME (EXPENSE):
Interest expense (220) (229)
Interest capitalized 23 26
Interest income 71 38
Gain on disposition of flight equipment - 1
Miscellaneous, net 2 20
---------------- ----------------
(124) (144)
---------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 88 (270)
INCOME TAXES (PROVIDED) CREDITED, NET (45) 111
---------------- ----------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 43 (159)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX 114 -
---------------- ----------------
NET INCOME (LOSS) 157 (159)
PREFERRED STOCK DIVIDENDS (66) (82)
---------------- ----------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 91 $ (241)
================ ================
PRIMARY AND FULLY DILUTED INCOME (LOSS)
PER COMMON SHARE:
Before cumulative effect of accounting change $ (0.45) $ (4.81)
Cumulative effect of accounting change 2.25 -
---------------- ----------------
$ 1.80 $ (4.81)
================ ================
WEIGHTED AVERAGE SHARES USED IN PER SHARE COMPUTATION:
Primary 50,600,736 50,210,671
Fully Diluted 50,600,736 50,210,671
DIVIDENDS PER COMMON SHARE $0.15 $0.15
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
DELTA AIR LINES, INC.
STATISTICAL SUMMARY
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
--------------- --------------
1995 1994
--------------- --------------
<S> <C> <C>
STATISTICAL SUMMARY:
Available Seat Miles (000) 97,562,081 98,980,635
Available Ton Miles (000) 13,577,594 13,737,694
Revenue Passengers Enplaned 66,768,957 64,708,663
Revenue Passenger Miles (000) 64,513,443 63,073,914
Cargo Ton Miles (000) 1,140,031 1,024,362
Revenue Ton Miles (000) 7,596,617 7,337,645
Passenger Load Factor 66.13% 63.72%
Breakeven Passenger Load Factor 64.44% 64.68%
Fuel Gallons Consumed (000) 1,901,876 1,910,376
Average Price Per Fuel Gallon 54.66c 56.82c
Cost Per Available Seat Mile 8.99c 9.19c
Cost Per Available Seat Mile-Excluding Restructuring Charge 8.99c 9.07c
Passenger Mile Yield 12.87c 13.25c
Cargo Ton Mile Yield 37.45c 40.16c
Operating Revenue per Available Seat Mile 9.20c 9.06c
</TABLE>
7
<PAGE>
DELTA AIR LINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Millions)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 157 $ (159)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Cumulative effect of accounting change (114) -
Depreciation and amortization 467 508
Deferred income taxes (38) (93)
Amortization of investment tax credits - (1)
Amortization of deferred gain on sale and
leaseback transactions (44) (45)
Gain on disposition of flight equipment - (1)
Rental expense in excess of payments 9 63
Postemployment benefits expense (less than) payments (14) -
Pension expense (less than) payments (71) (5)
Compensation under ESOP 31 24
Other postretirement benefits expense in excess
of payments 55 140
Changes in certain assets and liabilities:
Decrease in receivables 224 214
Decrease in other current assets 3 78
Decrease in air traffic liability (144) (76)
Increase (decrease) in accounts payable and accrued
liabilities (35) 127
Increase (decrease) in other payables 51 (23)
Increase in other noncurrent liabilities - 93
Other, net 47 29
----------- -----------
Net cash provided by operating activities 584 873
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (255) (885)
Ground property and equipment (113) (120)
Increase in short-term investments, net (355) -
Debtor-in-possession loan repayment 115 -
Proceeds from sale of flight equipment 99 96
----------- -----------
Net cash used in investing activities (509) (909)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock - 1
Payments on long-term debt and capital lease obligations (557) (523)
Long-term borrowings - 226
Net short-term borrowings 29 -
Cash dividends (83) (83)
Proceeds from sale and leaseback transactions - 649
----------- -----------
Net cash (used) provided by financing activities (611) 270
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (536) 234
Cash and cash equivalents at beginning of period 1,302 1,180
----------- -----------
Cash and cash equivalents at end of period $ 766 $ 1,414
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE>
DELTA AIR LINES, INC.
Notes to Consolidated Financial Statements
March 31, 1995
(Unaudited)
1. ACCOUNTING AND REPORTING POLICIES:
The Company's accounting and reporting policies are summarized in Note 1
(page 27 ) of the Notes to Consolidated Financial Statements in Delta's 1994
Annual Report to Stockholders. These interim financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's 1994 Annual Report to Stockholders. In the
opinion of management, the accompanying unaudited financial statements
reflect all adjustments, consisting of normal recurring accruals (except
with respect to the restructuring charge as discussed in Note 11), necessary
for a fair statement of results for the interim periods.
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. Certain amounts in the
Consolidated Statements of Operations for the three months and nine months
ended March 31, 1994, have been reclassified to conform with the current
financial statement presentation.
2. EMPLOYEE STOCK OWNERSHIP PLAN:
Effective July 1, 1994, Delta adopted American Institute of Certified Public
Accountants Statement of Position 93-6, "Employers' Accounting for Employee
Stock Ownership Plans" (SOP 93-6). This standard changed the Company's
method of accounting for certain dividends on the Series B ESOP Convertible
Preferred Stock and also altered the way such dividends are included in the
earnings per share calculations, both on a prospective basis. The adoption
of SOP 93-6 reduced the reported net loss attributable to common
stockholders shown on the Consolidated Statements of Operations by $2
million for the quarter ended March 31, 1995, and decreased the primary and
fully diluted loss per common share for that period by $0.04. For the nine
months ended March 31, 1995, the adoption of SOP 93-6 increased net income
attributable to common stockholders by $6 million and increased primary and
fully diluted earnings per common share by $0.12.
3. POSTEMPLOYMENT BENEFITS:
The Company provides certain benefits to its former or inactive employees
after employment but before retirement. Such benefits primarily include
those related to disability and survivorship plans. Effective July 1, 1994,
Delta adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (SFAS 112), which
requires recognition of the liability for postemployment benefits during the
period of employment.
9
<PAGE>
Adoption of SFAS 112 resulted in a cumulative after-tax transition benefit
of $114 million for the nine months ended March 31, 1995, primarily due to
the net overfunded status of the Company's disability and survivorship
plans. Future period expenses will vary based on actual claims experience
and the return on plan assets.
4. INVESTMENTS IN DEBT AND EQUITY SECURITIES:
At March 31, 1995, the gross unrealized gain on the Company's investment in
Singapore Airlines Limited was $171 million and the gross unrealized loss on
the Company's investment in Swissair, Swiss Air Transport Company Ltd. was
$27 million. The $91 million net unrealized gain, net of the related $53
million deferred tax provision, on these investments is reflected in
stockholders' equity.
Delta's other investments in available-for-sale securities are recorded as
short-term investments in the Company's Consolidated Balance Sheets. The
proceeds from sales of these securities during the March 1995 quarter
totaled $336 million, which resulted in realized losses, computed on a
specific identification basis, of $2 million. The amount of net unrealized
losses on short-term investments reflected in stockholders' equity at March
31, 1995, was $2 million, net of the related tax benefit.
5. SALE OF RECEIVABLES:
During fiscal 1994, the Company entered into a revolving accounts receivable
facility providing for the sale of $489 million of a defined pool of
accounts receivable through a wholly-owned subsidiary to a trust in exchange
for a Senior Certificate in the principal amount of $300 million and a
Subordinate Certificate in the principal amount of $189 million. The
subsidiary retained the Subordinate Certificate and the Company received
$300 million in cash from the sale of the Senior Certificate to a third
party. The principal amount of the Subordinate Certificate fluctuates daily
depending upon the volume of receivables sold, and is payable to the
subsidiary only to the extent the collections received on the receivables
exceed amounts due on the Senior Certificate. At March 31, 1995, the
principal amount of the Subordinate Certificate was $304 million and is
included in accounts and notes receivable in the Company's Consolidated
Balance Sheets.
6. INCOME TAXES:
Income taxes are provided at the estimated annual effective tax rate, which
differs from the federal statutory rate of 35%, primarily due to state
income taxes and the effect of certain expenses that are not deductible for
income tax purposes.
The Company made tax payments in excess of refunds received of $25 million
during the nine months ended March 31, 1995, and received refunds in excess
of tax payments of $13 million during the nine months ended March 31, 1994.
10
<PAGE>
7. CONTINGENCIES:
On March 6, 1992, Pan Am Corporation and certain of its subsidiaries,
debtors-in-possession under the Bankruptcy Code (Pan Am), and the Official
Committee of Unsecured Creditors of Pan Am (Creditors Committee), together
with the Ad Hoc Committee of Administrative and Priority Creditors of Pan
Am, filed a consolidated amended complaint against Delta relating to Delta's
participation in Pan Am's proposed plan of reorganization. The trial of
liability issues in this lawsuit occurred between May 4, 1994, and June 10,
1994, before the United States District Court for the Southern District of
New York (District Court). 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 $115 million principal amount of
debtor-in-possession financing (DIP Loan) Delta had provided to Pan Am plus
interest; 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 January 9,
1995, Pan Am paid Delta $139 million, which reflects the $115 million
principal amount of the DIP Loan plus accrued interest, net of the
settlement of certain other claims. Several other lawsuits have been filed
and are pending against Delta relating to its participation in Pan Am's
proposed plan of reorganization.
The Company is also a defendant in certain legal actions relating to alleged
employment discrimination practices, other matters concerning past and
present employees, environmental issues and other matters concerning the
Company's business. 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.
8. LONG-TERM DEBT:
During the March 1995 quarter, the Company voluntarily repurchased and
retired $185 million principal amount of its long-term debt. As a result of
these transactions, the Company recognized a net pretax loss of $3 million
during the quarter ended March 31, 1995; this amount is included in
miscellaneous income (expense) in the Company's Consolidated Statements of
Operations.
The 1992 Bank Credit Agreement provides for unsecured borrowing by the
Company of up to $1.25 billion on a revolving basis until December 4, 1996.
At March 31, 1995, no borrowings were outstanding under the 1992 Bank Credit
Agreement, but there is currently outstanding a letter of credit in the
amount of $466 million to credit enhance the Delta Family-Care Savings
Plan's 1990 Series C Guaranteed Serial ESOP Notes. The letter of credit,
which is utilizing $466 million of the available commitment under the 1992
Bank Credit Agreement, covers the $290 million outstanding principal amount
of the 1990 Series
11
<PAGE>
C Guaranteed Serial ESOP Notes, up to $144 million of Make Whole Premium
Amount and approximately one year of interest on the 1990 Series C
Guaranteed Serial ESOP Notes. For additional information regarding Delta's
long-term debt, including the 1992 Bank Credit Agreement and the 1990 Series
C Guaranteed Serial ESOP Notes, see Note 5 (page 28) and Note 9 (page 11) of
the Notes to Consolidated Financial Statements in Delta's 1994 Annual Report
to Stockholders and Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994, respectively.
During the nine months ended March 31, 1995 and 1994, Delta made cash
interest payments, net of interest capitalized, of $159 million and $155
million, respectively.
9. AIRCRAFT PURCHASE AND SALE COMMITMENTS:
At March 31, 1995, the Company's aircraft fleet, purchase commitments and
options were:
<TABLE>
<CAPTION>
CURRENT FLEET
--------------------------
AIRCRAFT TYPE OWNED LEASED TOTAL ORDERS OPTIONS
------------- ----- ------ ----- ------ -------
<S> <C> <C> <C> <C> <C>
A310-200 2 - 2 - -
A310-300 - 9 9 - -
B-727-200 106 28 134 - -
B-737-200 1 55 56 - -
B-737-300 - 13 13 52 56
B-757-200 44 41 85 5 36
B-767-200 15 - 15 - -
B-767-300 2 24 26 - -
B-767-300ER 7 7 14 7 10
L-1011-1 32 - 32 - -
L-1011-200 1 - 1 - -
L-1011-250 6 - 6 - -
L-1011-500 17 - 17 - -
MD-11 4 7 11 4 26
MD-88 63 57 120 - 34
MD-90 3 - 3 47 50
--- --- --- --- ---
303 241 544 115 212
=== === === === ===
</TABLE>
The aircraft orders include 22 B-737-300 aircraft and 19 MD-90 aircraft
scheduled for delivery after fiscal 2001 and fiscal 1996 respectively, that
are subject to reconfirmation by Delta. The MD-88 aircraft options may be
converted to MD-90 aircraft orders, the B-737-300 aircraft orders and
options may be converted to B-737-400 or B-737-500 aircraft orders, and the
B-767-300ER aircraft options and two of the B-767-300ER aircraft orders may
be converted to B-767-300 aircraft orders, all at Delta's election.
12
<PAGE>
During the March 1995 quarter, Delta accepted delivery of three MD-90
aircraft and one B-757-200 aircraft. Additionally, Delta sold one A310-200
aircraft and returned two B-737-200 aircraft and one A310-200 aircraft to
their lessors.
Subsequent to March 31, 1995, Delta accepted delivery of one MD-90 aircraft
and one B767-300ER aircraft, and sold two A310-200 aircraft.
Future expenditures for aircraft, engines and hushkits on firm order at
March 31, 1995, are estimated to be $3.0 billion, excluding aircraft orders
subject to reconfirmation by Delta, as follows:
<TABLE>
<CAPTION>
AMOUNT
YEARS ENDING JUNE 30 (IN MILLIONS)
-------------------- -------------
<S> <C>
Three months ending June 30, 1995 $ 190
1996 420
1997 920
1998 720
1999 320
After 1999 400
------
Total $2,970
======
</TABLE>
10. STOCKHOLDERS' EQUITY:
During the March 1995 quarter, the Company issued 2,000 common shares, at an
average price of $54.70 per share, under the Dividend Reinvestment and Stock
Purchase Plan. Also during the March 1995 quarter, the Company transferred
from its treasury, at an average cost of $67.75 per share, 40,955 common
shares under the 1989 Stock Incentive Plan, and 1,238 common shares to the
Delta Family-Care Savings Plan.
At March 31, 1995, 5,880,667 common shares were reserved for issuance under
the 1989 Stock Incentive Plan; 5,856,618 common shares were reserved for
conversion of the Series B ESOP Convertible Preferred Stock; 17,490,494
common shares were reserved for conversion of the Series C Convertible
Preferred Stock; and 10,149,072 common shares were reserved for conversion
of the 3.23% Convertible Subordinated Notes due 2003.
13
<PAGE>
11. RESTRUCTURING CHARGE:
The operating results for the nine months ended March 31, 1994, include a
$112 million restructuring charge primarily for special termination benefits
relating to an early retirement program under which approximately 1,500
employees elected to retire effective November 1, 1993.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
---------------------
FINANCIAL CONDITION
During the nine months ended March 31, 1995, Delta invested $255 million in
flight equipment, including $133 million for aircraft deposits, and $113 million
in ground property and equipment; made payments of $557 million on long-term
debt and capital lease obligations, which included 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) voluntarily 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; and paid $83 million in cash dividends. The principal
sources of these funds were $584 million cash from operations; $181 million from
available cash reserves; $139 million from Pan Am Corporation for the repayment
of certain debtor-in-possession financing (which includes $24 million recorded
in cash from operations representing accrued interest, net of the settlement of
certain other claims); $99 million from the sale of flight equipment; and $29
million from short-term borrowings. Cash and cash equivalents and short-term
investments totaled $1.5 billion at March 31, 1995, compared to $1.7 billion at
June 30, 1994. The Company may repurchase additional long-term debt from time
to time.
As of March 31, 1995, the Company had negative working capital of $400 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 and internally generated funds, supplemented
as necessary by debt financings and proceeds from sale and leaseback
transactions. At March 31, 1995, the Company had $784 million of credit
available under its 1992 Bank Credit Agreement, subject to compliance with
certain conditions. For additional information, see Note 8 of the Notes to
Consolidated Financial Statements.
At March 31, 1995, long-term debt and capital lease obligations, including
current maturities and excluding short-term borrowings, totaled $2.9 billion,
compared to $3.5 billion at June 30, 1994. Stockholders' equity was $1.6
billion at March 31, 1995, compared to $1.5 billion at June 30, 1994. The
Company's debt-to-equity position, including current maturities and excluding
short-term borrowings, was 65% debt and 35% equity at March 31, 1995, compared
to 70% debt and 30% equity at June 30, 1994.
At March 31, 1995, there was outstanding $290 million principal amount of 1990
Series C Guaranteed Serial ESOP Notes (ESOP Notes) guaranteed by Delta. The
terms of the ESOP Notes require Delta to purchase the ESOP Notes at the option
of the holders thereof if the credit rating of Delta's long-term senior
unsecured debt falls below certain levels (Purchase Event), unless Delta obtains
within a specified period of a Purchase Event certain credit enhancements
(Approved Credit Enhancement) that result in the ESOP Notes being rated A3 or
higher by Moody's Investors Service, Inc. (Moody's) and A- or higher by Standard
& Poor's Ratings Group (Required Ratings). As a result of Moody's rating action
on May 11, 1993, a Purchase Event
15
<PAGE>
occurred, and Delta became obligated to purchase on September 15, 1993, any ESOP
Notes properly tendered to it. Prior to September 15, 1993, Delta obtained an
Approved Credit Enhancement in the form of a letter of credit under its 1992
Bank Credit Agreement. As of March 31, 1995, the letter of credit was in the
face amount of $466 million. Due to the issuance of the letter of credit, the
ESOP Notes received the Required Ratings. Accordingly, Delta no longer has an
obligation to purchase ESOP Notes as a result of the Purchase Event that
occurred on May 11, 1993. There can be no assurance that Delta will not be
required to purchase the ESOP Notes at a later date. For additional information,
see Notes 5 and 9 of the Notes to Consolidated Financial Statements in Delta's
1994 Annual Report to Stockholders.
During 1991, Delta provided $115 million principal amount of debtor-in-
possession financing to Pan Am (DIP Loan). In an opinion and order dated
December 22, 1994, the United States District Court for the Southern District of
New York ordered Pan Am to repay the DIP Loan plus accrued interest. On January
9, 1995, Pan Am paid Delta $139 million, which reflects the $115 million
principal amount of the DIP Loan plus accrued interest, net of the settlement of
certain other claims. See Item I of Part II of this Form 10-Q for additional
information regarding the District Court's decision.
At its regular meeting on April 27, 1995, Delta's Board of Directors declared
cash dividends of five cents per common share and $875.00 per share of Series C
Convertible Preferred Stock ($0.875 per depositary share), both payable June 1,
1995, to stockholders of record on May 10, 1995.
During the nine months ended March 31, 1995, the Company reduced its staffing
by approximately 8,650 personnel and made cash payments of $30 million related
to its Leadership 7.5 program initiatives. For additional information
concerning Leadership 7.5, see Operational Review - Leadership 7.5 (page 4) and
Note 14 (page 35) of the Notes to Consolidated Financial Statements in Delta's
1994 Annual Report to Stockholders.
See Item 5 in Part II of this Form 10-Q for information regarding Delta's: (1)
collective bargaining negotiations with the Air Line Pilots Association and the
Professional Airline Flight Control Association; (2) realignment of its
domestic route system; (3) blocked-space, code-sharing agreement with Virgin
Atlantic Airways; and (4) cap on domestic travel agency commissions.
16
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 and 1994
- ------------------------------------------
For the quarter ended March 31, 1995, Delta recorded an unaudited net loss of
$11 million ($0.66 primary and fully diluted loss per common share after
preferred stock dividend requirements) and operating income of $40 million. For
the quarter ended March 31, 1994, the Company recorded a net loss of $78 million
($2.10 primary and fully diluted loss per common share after preferred stock
dividend requirements) and an operating loss of $67 million. The improved
results are primarily related to operating expense reductions driven by the
Company's Leadership 7.5 program.
Operating revenues in the March 1995 quarter totaled $2.90 billion, an increase
of less than 1%, from $2.88 billion recorded in the March 1994 quarter.
Passenger revenue was unchanged at $2.68 billion, the result of a 2% decline in
the passenger mile yield offset by a 2% increase in revenue passenger miles.
The reduction in the passenger mile yield is primarily attributable to the
continuing presence of low-cost, low-fare carriers in domestic markets, as well
as discount fare promotions. Growth in passenger traffic is mainly due to
discount fare promotions in the domestic market. Cargo revenue increased 1% to
$134 million, as cargo ton miles grew 5% and the ton mile yield decreased 4%.
The decrease in the cargo ton mile yield is primarily due to declines in
domestic and international mail contract rates and increases in long-haul cargo
traffic, which has lower ton mile yields than short-haul cargo traffic. All
other revenue increased 32% to $86 million, primarily due to increased revenue
from joint marketing programs.
Operating expenses for the March 1995 quarter decreased 3% to $2.86 billion.
Operating capacity increased less than 1% to 31.55 billion available seat miles,
and operating cost per available seat mile declined 3% to 9.07 cents. Salaries
and related costs decreased 4%, due to a 12% reduction in the average level of
employment from the March 31, 1994 quarter and lower employee benefit costs.
The decrease in the average level of employment was primarily due to workforce
reductions under the Company's Leadership 7.5 program. Aircraft fuel expense
decreased 3%, as consumption of fuel gallons remained virtually unchanged and
the average price per fuel gallon declined 3% to 52.72 cents, Delta's lowest
average fuel price per gallon in a March quarter since 1987. Passenger
commissions declined 5%, mainly due to certain reductions in international
commission base rates and lower revenues in certain regions of the route system.
Aircraft rent expense decreased 6% due to the return of certain aircraft to
lessors. Other selling expenses increased 19%, primarily due to higher
advertising and promotion expense and increased booking fee payments to computer
reservations system providers. Depreciation and amortization expense decreased
14%, primarily due to lower amortization of leasehold and operating rights and
lower ground equipment depreciation resulting from the writedown of certain
assets recorded in the June 1994 quarter restructuring charge and lower flight
equipment depreciation, partially offset by higher amortization of software
development costs related to new and enhanced systems. Contracted services
increased 36%, the result of increased outsourcing of information technologies
services and certain airport functions. Passenger service expense decreased
26%, the result of ongoing cost control programs implemented since 1993.
Aircraft maintenance materials and outside repairs expense rose 7%, reflecting
an increase in the number of engines repaired and higher airframe maintenance.
Facilities and other rent increased 12%, primarily due
17
<PAGE>
to additional passenger terminal facilities. Landing fees increased 2%, mainly
reflecting systemwide rate increases. All other operating expenses decreased
21%, primarily reflecting certain litigation costs incurred during the March
1994 quarter and increased revenues from services provided to outside parties
during the March 1995 quarter.
Nonoperating expense in the March 1995 quarter totaled $51 million, compared to
nonoperating expense of $56 million in the March 1994 quarter. Interest expense
decreased 8% to $70 million, due to a lower average level of long-term debt.
Interest income increased 75% to $21 million, primarily due to a higher level of
short-term investments. Miscellaneous expense increased by $9 million in the
March 1995 quarter, due to fees related to the sale of certain receivables and
costs associated with the voluntary repurchase of long-term debt, partially
offset by equity income from associated companies.
After recording an $11 million net loss and a $22 million provision for
preferred stock dividends, the net loss attributable to common stockholders was
$33 million.
Nine Months Ended March 31, 1995 and 1994
- -----------------------------------------
For the nine months ended March 31, 1995, Delta recorded unaudited net income of
$157 million ($1.80 primary and fully diluted earnings per common share after
preferred stock dividend requirements) and operating income of $212 million.
For the nine months ended March 31, 1994, the Company recorded a net loss of
$159 million ($4.81 primary and fully diluted loss per common share after
preferred stock dividend requirements) and an operating loss of $126 million.
Net income for the nine months ended March 31, 1995, includes a one-time $114
million after-tax benefit ($2.25 primary and fully diluted benefit per common
share) related to the adoption, effective July 1,1994, of SFAS 112, "Employers'
Accounting for Postemployment Benefits" (See Note 3 of Notes to Consolidated
Financial Statements). Results for the nine months ended March 31, 1994,
include a $112 million pretax restructuring charge for costs associated with an
early retirement program under which approximately 1,500 employees elected to
retire effective November 1, 1993. Excluding the effect of the accounting
change and the restructuring charge, net income for the nine months ended March
31, 1995, totaled $43 million ($0.45 primary and fully diluted loss per common
share after preferred stock dividend requirements) and operating income totaled
$212 million, compared to a net loss of $88 million ($3.40 primary and fully
diluted loss per common share after preferred stock dividend requirements) and
an operating loss of $14 million for the nine months ended March 31, 1994.
Operating revenues for the nine months ended March 31, 1995, increased less than
1% to $8.98 billion. Passenger revenue decreased less than 1% to $8.30 billion
due to a 3% decrease in the passenger mile yield, partially offset by 2% growth
in revenue passenger miles. The reduction in the passenger mile yield is mainly
due to the continuing presence of low-cost, low-fare carriers in domestic
markets, as well as other discount fare promotions in domestic and international
markets. The increase in passenger traffic was due to discount fare promotions
in domestic and international markets and improved economies in Europe. Cargo
revenue grew 4% to $427 million, the result of an 11% increase in cargo ton
miles, partially offset by a 7% decrease in the cargo ton mile yield. The
decrease in the cargo ton mile yield is primarily due to declines in
18
<PAGE>
domestic and international mail contract rates and increases in long-haul cargo
traffic, which has lower ton mile yields than short-haul cargo traffic. All
other revenue increased 24% to $49 million, mainly due to higher revenues from
certain marketing programs.
Operating expenses for the nine months ended March 31, 1995, decreased 4% to
$8.77 billion. Operating capacity decreased 1% to 97.56 billion available seat
miles, and operating cost per available seat mile declined 2% to 8.99 cents.
Excluding the restructuring charge in the nine months ended March 31, 1994,
operating expenses decreased 2%, and operating cost per available seat mile
decreased 1%. Salaries and related costs decreased 4%, the result of a 12%
decline in the average number of employees, primarily due to the Leadership 7.5
program and the early retirement program discussed earlier, and lower employee
benefit costs. Aircraft fuel expense decreased 4%, as fuel gallons consumed
decreased less than 1% and the average fuel cost per gallon dropped 4% to 54.66
cents, Delta's lowest average fuel price per gallon for any nine month period
ending March 31 since 1989. Passenger commissions declined 2%, due to lower
passenger revenue and decreased international commission base rates. Aircraft
rent expense decreased 8% due to the return of certain aircraft to lessors.
Other selling expenses increased 6%, primarily due to higher booking fee
payments to computer reservations system providers and higher credit card
service charges. Depreciation and amortization expense decreased 8%, primarily
the result of lower amortization of leasehold and operating rights and lower
ground equipment depreciation resulting from the writedown of certain assets
recorded in the June 1994 quarter restructuring charge, partially offset by
higher amortization of software development costs. Contracted services
increased 14%, the result of increased outsourcing of information technologies
services and certain airport functions. Passenger service expense decreased
13%, reflecting the continuation of cost control programs implemented since
1993. Aircraft maintenance materials and outside repairs expense increased 9%,
due to a higher number of engines repaired and an increase in airframe
maintenance. Facilities and other rents increased 13%, primarily the result of
additional passenger terminal facilities. Landing fees increased 2%, mainly due
to rate increases throughout the system. All other operating expenses were down
6%, the result of favorable foreign exchange rates, increased revenues from
services provided to outside parties and certain litigation costs incurred
during the nine months ended March 31, 1994.
Nonoperating expense totaled $124 million in the nine months ended March 31,
1995, compared to $144 million in the nine months ended March 31, 1994.
Interest expense decreased $9 million, due to a lower average level of
outstanding debt. Capitalized interest decreased $3 million, resulting from a
decline in the average balance of advance payments for aircraft purchases.
Interest income increased $33 million, due to a higher average level of short-
term investments. Miscellaneous income was $2 million in the nine months ended
March 31, 1995, compared to $20 million in the nine months ended March 31, 1994,
primarily due to fees related to the sale of certain receivables and costs
associated with the voluntary repurchase of long-term debt, partially offset by
equity income from associated companies.
Pretax income of $88 million for the nine months ended March 31, 1995, was
reduced by an income tax provision of $45 million. After recording a $114
million after-tax benefit related to the adoption of SFAS 112, as discussed
above, and a $66 million provision for preferred stock dividends, net income
available to common stockholders was $91 million.
19
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
the Board of Directors of
Delta Air Lines, Inc.:
We have reviewed the accompanying consolidated balance sheet of DELTA AIR LINES,
INC. (a Delaware Corporation) AND SUBSIDIARIES as of March 31, 1995, the related
consolidated statements of operations for the three and nine-month periods ended
March 31, 1995 and 1994, and cash flows for the nine-month periods ended March
31, 1995 and 1994. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Delta Air Lines, Inc. and
Subsidiaries as of June 30, 1994 (not presented herein), and in our report dated
August 12, 1994, we expressed an unqualified opinion on that balance sheet. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of June 30, 1994 is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived.
Arthur Andersen LLP
Atlanta, Georgia
April 28, 1995
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Litigation Relating to Delta's Participation in Pan Am's Plan of Reorganization
- -------------------------------------------------------------------------------
Various persons have filed legal actions against Delta relating to Delta's
participation in Pan Am's proposed plan of reorganization. The following
discussion of recent developments regarding that litigation supplements the
discussion set forth on pages 12-15 of Delta's Annual Report on Form 10-K for
the fiscal year ended June 30, 1994 (1994 Form 10-K).
As previously reported, 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 the lawsuit filed against Delta by Pan Am,
the Official Committee of Unsecured Creditors of Pan Am (Creditors Committee)
and the Ad Hoc Committee of Administrative and Priority Creditors of Pan Am (Ad
Hoc Committee). 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 $115 million principal amount of debtor-in-possession
financing Delta had provided to Pan Am plus interest; 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.
As previously reported, Pan Am filed a third party complaint in the United
States Bankruptcy Court for the Southern District of New York (Bankruptcy Court)
against Delta alleging that, to the extent the U.S. Air Force has a valid claim
against Pan Am for Pan Am's alleged breach of its obligations under the Civil
Reserve Air Fleet Enhancement Program, Pan Am is entitled to recover from Delta
such amounts as are required to satisfy any such claim. In March 1995, Pan Am,
Delta, the Creditors Committee and the Ad Hoc Committee entered into a
Stipulation and Order under which, subject to Bankruptcy Court approval, the
parties agreed, among other things, that Pan Am would dismiss with prejudice its
third party complaint against Delta. The Bankruptcy Court approved the
Stipulation and Order on April 27, 1995.
As previously reported, there are pending in the District Court two separate
lawsuits filed against Delta by former Pan Am employees who allege, among other
things, that they were intended third party beneficiaries of Delta's agreement
with Pan Am to participate in Pan Am's proposed plan of reorganization. On
April 28, 1995, Delta filed supplementary memoranda in support of its earlier
motions for summary judgment on all of plaintiffs' claims in these lawsuits.
The plaintiffs are opposing Delta's motions for summary judgment.
Travel Agency Commission Antitrust Litigation
- ---------------------------------------------
On February 10, 1995, Delta changed its domestic travel agency commission
program by implementing 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. This commission
cap applies to all tickets issued by U.S. travel agencies
21
<PAGE>
for travel within and between the Continental U.S., Alaska, Puerto Rico and the
U.S. Virgin Islands. Most of the major U.S. 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 Section 1 of the Sherman Act.
The purported plaintiff class is all U.S. travel agents who sold airline tickets
subject to the commission cap on American, Continental, Delta, Northwest, TWA,
United or USAir.
Several of the plaintiffs' lawsuits have been filed in the United States
District Court in Minneapolis. The Minneapolis cases have been consolidated
before one judge, who has adopted an expedited schedule under which the
plaintiffs' motion for a preliminary injunction and the defendants' motion for
summary judgment are scheduled to be argued on July 7, 1995. The Judicial Panel
for Multidistrict Litigation has scheduled a hearing for May 26, 1995 to
determine whether to consolidate this litigation in Minneapolis or another
jurisdiction.
Department of Justice Investigation
- -----------------------------------
In March 1995, several U.S. carriers, including Delta, received a civil
investigative demand from the U.S. Department of Justice related to an
investigation of incentives paid by airlines to travel agents in excess of base
commission payments. Delta intends to comply with the civil investigative
demand, which requires Delta to produce documents relating to its travel agent
programs. Delta responded to earlier civil investigative demands on this
subject in 1993 and 1994.
Other Litigation
- ----------------
As reported on page 17 of the 1994 Form 10-K and page 23 of Delta's Quarterly
Report on Form 10-Q for the quarter ended December 31, 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. On
November 4,
22
<PAGE>
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 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.
23
<PAGE>
Item 5. Other Information
- -------------------------
Personnel
- ---------
Delta's relations with labor unions in the United States are governed by the
Railway Labor Act (RLA). Under the RLA, 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 the Air Line Pilots Association
(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 April 17, 1995, Delta requested and, on May 8, 1995, the NMB
appointed federal mediators to participate in the collective bargaining
negotiations between Delta and ALPA. The outcome of Delta's negotiations with
ALPA and PAFCA cannot presently be determined.
Other Matters
- -------------
On February 1, 1995, Delta announced a realignment of its domestic route system
effective May 1, 1995. The realignment is intended to position Delta's aircraft
and other resources in areas offering greater revenue-generating potential. As
a result of the realignment, Delta will increase the number of departures from
its Atlanta, Cincinnati, and Salt Lake City hubs, while decreasing the number of
departures from Boston and its Dallas/Ft. Worth, Los Angeles and Orlando hubs.
Due mainly to competitive factors, there can be no assurance that this route
realignment will result in increased passenger revenues.
Delta and Virgin Atlantic Airways have entered into a blocked-space,
code-sharing agreement under which Delta would purchase seats on Virgin
Atlantic's flights between (1) London-Heathrow and Los Angeles, New
York-Kennedy, Newark and San Francisco; and (2) London-Gatwick and Boston, Miami
and Orlando. The agreement was approved by the U.S. Department of Transportation
on February 10, 1995.
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 ticket with a base fare in excess of $500 and $25 for any one-way
domestic ticket with a base fare in excess of $250. The maximum commission
applies to all tickets issued by U.S. travel agents for travel within and
between the Continental U.S., Alaska, Hawaii, Puerto Rico and the U.S. Virgin
Islands. The impact of this change on Delta cannot presently by determined.
24
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
11. Statement regarding computation of per share earnings.
12. Statement regarding computation of ratio of earnings to fixed charges.
15. Letter from Arthur Andersen LLP regarding unaudited interim
financial information.
27. Financial Data Schedule.
(b) Reports on Form 8-K:
During the quarter ended March 31, 1995, Delta did not file any Current Reports
on Form 8-K.
25
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delta Air Lines, Inc.
-----------------------------------
(Registrant)
By: /s/ Thomas J. Roeck, Jr.
--------------------------------
Thomas J. Roeck, Jr.
Senior Vice President - Finance
and Chief Financial Officer
May 12, 1995
- ------------
(Date)
26
<PAGE>
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
EXHIBIT 11
(In millons except per share amounts)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
PRIMARY:
Weighted average shares outstanding 51 50
Additional shares assuming
exercise of stock options * *
------------ ------------
Average shares outstanding as adjusted 51 50
============ ============
Net Income (loss) $ (11) $ (78)
Preferred dividends series C (20) (20)
Preferred dividends series B (2) (7)
------------ ------------
Net income (loss) attributable to primary common shares $ (33) $ (105)
============ ============
Primary earnings (loss) per common share $ (0.66) $ (2.10)
============ ============
FULLY DILUTED:
Weighted average shares outstanding 51 50
Additional shares assuming:
Conversion of series C convertible preferred stock 17 17
Conversion of series B ESOP convertible
preferred stock 2 7
Conversion of 3.23% convertible subordinated
notes 10 10
Exercise of stock options * *
------------ ------------
Average shares outstanding as adjusted 80 84
============ ============
Net income (loss) $ (11) $ (78)
Interest on 3.23% convertible subordinated
notes net of taxes 8 8
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock (1) (5)
------------ ------------
Net income (loss) attributable to fully
diluted common shares $ (4) $ (75)
============ ============
Fully diluted earnings (loss) per common share $ (0.06) * $ (0.89) *
============ ============
</TABLE>
*Antidilutive
<PAGE>
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1994
EXHIBIT 11
(In millons except per share amounts)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
PRIMARY:
Weighted average shares outstanding 51 50
Additional shares assuming
exercise of stock options * *
------------ ------------
Average shares outstanding as adjusted 51 50
============ ============
Income (loss) before cumulative effect of
changes in accounting principles $ 43 $ (159)
Preferred dividends series C (60) (60)
Preferred dividends series B (6) (22)
------------ ------------
Income (loss) before cumulative effect of
changes in accounting principles
attributable to primary shares (23) (241)
Cumulative effect of changes in accounting principles 114 -
------------ ------------
Net income (loss) attributable to primary common shares $ 91 $ (241)
============ ============
Primary earnings (loss) per share common before
cumulative effect of changes in accounting principles $ (0.45) $ (4.81)
Cumulative effect of changes in accounting principles 2.25 -
------------ ------------
Primary earnings (loss) per common share $ 1.80 $ (4.81)
============ ============
FULLY DILUTED:
Weighted average shares outstanding 51 50
Additional shares assuming:
Conversion of series C convertible preferred stock 17 17
Conversion of series B ESOP convertible
preferred stock 2 7
Conversion of 3.23% convertible subordinated notes 10 10
Exercise of stock options * *
------------ ------------
Average shares outstanding as adjusted 80 84
============ ============
Income (loss) before cumulative effect of
changes in accounting principles $ 43 $ (159)
Interest on 3.23% convertible subordinated
notes net of taxes 23 23
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock (3) (13)
------------ ------------
Income (loss) before cumulative effect of
changes in accounting principles 63 (149)
Cumulative effect of changes in accounting principles 114 -
------------ ------------
Net income (loss) attributable to fully
diluted common shares $ 177 $ (149)
============ ============
Fully diluted earnings (loss) per common share
before cumulative effect of changes in
accounting principles $ 0.79 $ (1.78)
Cumulative effect of changes in accounting principles 1.43 -
------------ ------------
Fully diluted earnings (loss) per common share $ 2.22 * $ (1.78)*
============ ============
</TABLE>
*Antidilutive
<PAGE>
DELTA AIR LINES, INC. EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions except ratios)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
March 31, March 31,
1995 1994
--------------- ---------------
<S> <C> <C>
Earnings (before cumulative effect of accounting changes):
Income (loss) $ 43 $ (159)
Add (deduct):
Income tax (credit) provision 45 (111)
Fixed charges 502 520
Interest capitalized (23) (26)
Interest offset on
Guaranteed Serial
ESOP Notes (3) (10)
--------------- ---------------
Earnings as adjusted $ 564 $ 214
=============== ===============
Fixed charges:
Interest expense $ 220 $ 229
1/3 of rentals 279 281
Additional interest on
Guaranteed Serial
ESOP Notes 3 10
--------------- ---------------
Total fixed charges $ 502 $ 520
=============== ===============
Ratio of earnings to fixed charges 1.12 -
</TABLE>
______________________________________________________
Earnings for the nine months March 31, 1994 were inadequate to cover fixed
charges. Additional earnings of $306 million would have been necessary to bring
the ratio to 1.0.
<PAGE>
ARTHUR ANDERSEN LLP
EXHIBIT 15
To the Stockholders and
the Board of Directors of
Delta Air Lines, Inc.:
We are aware that Delta Air Lines, Inc. has incorporated by reference in its
Registration Statement Nos. 2-94541, 33-30454, 33-50175 and 33-52045 its Form
10-Q for the quarter ended March 31, 1995, which includes our report dated April
28, 1995 covering the unaudited interim financial information contained therein.
Pursuant to Regulation C of the Securities Act of 1933, that report is not
considered a part of the registration statements prepared or certified by our
firm or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
Arthur Andersen LLP
- -------------------
Atlanta, Georgia
April 28, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTER ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE RELATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 766
<SECURITIES> 761
<RECEIVABLES> 687
<ALLOWANCES> 25
<INVENTORY> 66
<CURRENT-ASSETS> 2,811
<PP&E> 11,919
<DEPRECIATION> 5,559
<TOTAL-ASSETS> 11,498
<CURRENT-LIABILITIES> 3,211
<BONDS> 2,927
<COMMON> 163
0
0
<OTHER-SE> 1,433
<TOTAL-LIABILITY-AND-EQUITY> 11,498
<SALES> 0
<TOTAL-REVENUES> 8,978
<CGS> 0
<TOTAL-COSTS> 8,766
<OTHER-EXPENSES> (96)
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 220
<INCOME-PRETAX> 88
<INCOME-TAX> 45
<INCOME-CONTINUING> 43
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 114
<NET-INCOME> 157
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
</TABLE>
