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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, 1996
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.
(Exact name of registrant as specified in its charter)
Delaware 58-0218548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (404) 715-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -----------------
Common Stock, par value $3.00 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 30, 1996, was approximately $5,450,766,000. As
of August 30, 1996, 77,045,178 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 1996 Annual Report to Stockholders. Parts I
and III of this Form 10-K incorporate by reference certain information from the
registrant's definitive Proxy Statement dated September 16, 1996, for its
Annual Meeting of Stockholders to be held on October 24, 1996.
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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
1995 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. As of
August 16, 1996, the Company served 153 domestic cities in 43 states, the
District of Columbia, Puerto Rico and the United States Virgin Islands, as well
as 44 cities in 25 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 and Asia. Operating revenues from the Company's foreign
operations were approximately $2.7 billion, $2.6 billion and $2.5 billion in
the years ended June 30, 1996, 1995 and 1994, respectively.
For the year ended June 30, 1996, passenger revenues accounted for 93%
of Delta's operating revenues. Cargo revenues, which include freight and mail,
accounted for 4% 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.
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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 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 requirements which are incorporated
into Delta's maintenance programs. These matters relate to, among other
things, inspection and maintenance of aging aircraft, and corrosion control.
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.
The system passenger mile yield was virtually unchanged in fiscal 1996
compared to fiscal 1995. The domestic passenger mile yield decreased 1%, the
result of discount fare promotions and the continued presence of low-cost,
low-fare carriers in markets served by Delta. The international passenger mile
yield increased 2%, primarily due to higher average fare levels in certain
international markets.
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. A proposed marketing alliance
between British Airways Plc and American Airlines, Inc. is under review by
United States governmental authorities. Through code sharing arrangements with
United States carriers, foreign carriers have obtained access to interior
United States passenger traffic. Similarly, United States carriers have
increased their ability to sell transatlantic services and destinations to and
beyond European cities.
On June 14, 1996, Delta, Swissair, Sabena Belgian World Airlines and
Austrian Airlines received antitrust immunity from the DOT to pursue a global
marketing alliance. The alliance agreements establish a legal framework,
subject to the negotiation of definitive operating agreements, to allow the
four carriers to form a transatlantic air transport system which would link
Delta's domestic hub system with the European hubs of Swissair, Sabena and
Austrian Airlines. The alliance will enable the carriers to pursue a
coordinated approach to worldwide sales and marketing; common pricing and
inventory control; coordination of airline schedules and route planning; and
the pooling of revenues on code share flights.
Delta's flight operations are authorized by certificates of public
convenience and necessity and, to a limited extent, by exemptions issued by the
DOT. The requisite approvals of other governments for international operations
are provided by bilateral agreements with, or permits issued by, foreign
countries. Because international air transportation is governed by bilateral
or other agreements between the United States and the foreign country or
countries involved, changes in United States or foreign government aviation
policies could result in the alteration or
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termination of such agreements, diminish the value of Delta's international
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.
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 and sells seats that are marketed under
foreign carriers' two-letter designator code pursuant to code sharing
arrangements with certain foreign airlines.
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 at 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.
Delta Express
On October 1, 1996, Delta plans to begin Delta Express, a low-fare
business unit within Delta that will operate a dedicated fleet of Boeing
737-200 aircraft in certain highly competitive, leisure-oriented markets within
Delta's system. Delta Express will initially serve 10 cities in the northeast
and midwest with 62 daily non-stop flights to Orlando and four other Florida
cities.
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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/Ft. Worth; Business Express, Inc. operates in the
Northeast through Boston and New York; 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, 1996, Delta held equity interests in ASA, Comair Holdings, Inc.
(the parent of Comair) and SkyWest, Inc. (the parent of SkyWest) of 26%, 21%
and 15%, respectively.
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, car rental and other travel 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.
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Fuel
Delta's operations are significantly affected by the availability and
price of jet fuel. Based on the Company's fiscal 1996 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
1992-1996.
<TABLE>
<CAPTION>
Gallons Percent of
Fiscal Consumed Cost Average Price Operating
Year (Millions) (Millions) Per Gallon Expenses*
- ---- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1992 2,384 $1,482 62.19c. 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
1996 2,500 1,464 58.53 13
</TABLE>
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* Excluding restructuring and other non-recurring charges
Aircraft fuel expense increased 7% in fiscal 1996 compared to fiscal
1995, as the average fuel price per gallon rose 8% to 58.53c., partially offset
by a 1% reduction in gallons consumed.
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. Information regarding
Delta's fuel hedging program is set forth in Note 4 of the Notes to
Consolidated Financial Statements on page 36 of Delta's 1996 Annual Report to
Stockholders, and is incorporated herein by reference.
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. Based on Delta's fiscal 1997 expected domestic fuel requirement of
2.1 billion gallons, the continued imposition of this
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fuel tax will result in operating expense of approximately $90 million
annually. Delta and other United States airlines are actively lobbying
for a repeal of this tax. The outcome of these efforts cannot be determined.
Personnel
At June 30, 1996, Delta employed 60,289 full-time equivalent personnel,
compared to 59,717 full-time equivalent personnel at June 30, 1995.
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 8,000 Air Line Pilots May 2, 2000
Association,
International
Flight 170 Professional Airline January 1, 1998
Superintendents Flight Control
Association
</TABLE>
Approximately 2,900 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.
On April 24, 1996, Delta's Board of Directors adopted, subject to
stockholder approval, two broad-based, non-qualified stock option plans
("Plans") for Delta personnel providing for the issuance of stock options to
purchase 24.7 million shares of Delta common stock.
One plan is for eligible non-pilot personnel and the other is for
Company pilots. The non-pilot and pilot plans involve stock options to
purchase 14.7 million and 10 million shares of Delta common stock,
respectively. The non-pilot and pilot plans are being presented to
stockholders as one proposal.
The pilot stock option plan is an integral part of the new collective
bargaining agreement between the Company and the Air Line Pilots Association,
International ("ALPA"), which represents Delta's pilots. ALPA has the right to
reopen the new collective bargaining agreement in its entirety if any required
stockholder approval of the pilot stock option plan is not obtained, and Delta
and ALPA are unable to reach agreement within 30 days on providing pilots with
equivalent value to the pilot stock option plan.
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Information regarding the Plans and a summary of the Company's
collective bargaining agreement with ALPA are set forth on pages 25-30, and
Appendices B and C, of Delta's Proxy Statement dated September 16, 1996, and is
incorporated herein by reference.
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, 1996, Delta operated 368 Stage 3 aircraft, constituting
68% of its fleet. Accordingly, Delta expects to comply with the requirement
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.
Delta has entered into definitive agreements to purchase (1) 46
shipsets of Stage 3 engine hushkits and 9 spare engine hushkits for B-727-200
aircraft between fiscal years 1995 and 2000; and (2) 25 shipsets of Stage 3
engine hushkits for B-737-200 aircraft between fiscal years 1997 and 2000.
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.
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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; the Petroleum Products Corporation Site in Pembroke Park, Florida; and
the Safety Engineered Disposal Site in Hillsboro, Ohio. 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 $372,000 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 current or former 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.
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 modifications included reducing the threshold for a free
travel award from 30,000 miles to 25,000 miles; 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.
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 for fuel; food and food supplies; passenger
insurance, injuries, losses and damages; interrupted
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trips and oversales; porter service; ticket forms; bag tags; boarding forms;
in-flight entertainment; and customs. 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.
Delta estimates the potential number of roundtrip flight awards
outstanding to be 7.9 million at June 30, 1994, 8.8 million at June 30, 1995
and 8.6 million at June 30, 1996. Of these earned awards, Delta expects up to
approximately 5.1 million, 5.7 million and 5.7 million, respectively, to be
redeemed. At June 30, 1994, 1995 and 1996, the accrued liability for these
awards was $95 million, $101 million and $103 million, respectively. 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.
Frequent flyer program participants flew 1.5 million, 2.0 million and
1.7 million free round-trips in fiscal years 1994, 1995 and 1996, respectively.
These round-trips accounted for approximately 7%, 8% 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.
Civil Reserve Air Fleet Program
Delta is a participant in the Civil Reserve Air Fleet Program pursuant
to which Delta has agreed to make available, during the period beginning
October 1, 1996 and ending September 30, 1997, 21 of its international range
aircraft for use by the United States military under certain stages of
readiness related to national emergencies.
ITEM 2. PROPERTIES
Flight Equipment
Information relating to Delta's aircraft fleet is set forth under
"Operational Review - Aircraft Fleet" on pages 11-12, and in Notes 8 and 9 of
the Notes to Consolidated Financial Statements on pages 40-41, of Delta's 1996
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.
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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 36-37 and 40 of Delta's 1996 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.
ITEM 3. LEGAL PROCEEDINGS
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 United States Court of Appeals for the
Eleventh Circuit, which affirmed the District Court's
11
<PAGE> 13
November 4, 1994 decision on August 5, 1996, and denied the plaintiffs' request
for reconsideration on September 20, 1996. Delta intends to defend this matter
vigorously.
On June 27, 1996, many of the named plaintiffs in the case described in
the preceding paragraph and approximately 225 additional Delta retirees filed a
complaint 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 Delta
employee benefit plans. The complaint makes the same allegations and seeks the
same relief as the purported class action lawsuit described in the preceding
paragraph, but does not seek class action certification. Delta has not yet
responded to this complaint but intends to file an answer denying liability and
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 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 were seeking damages of approximately $725
million (to be trebled under the antitrust laws), and an injunction to prevent
the airlines from maintaining the new commission cap programs, alleged 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 certified a
plaintiff class consisting of all travel agents in the United States who sold
airline tickets subject to the commission cap on American Airlines, Inc.,
Continental Airlines, Inc., Delta, Northwest Airlines Corporation, Trans World
Airlines, Inc. ("TWA"), United Air Lines, Inc. or USAir, Inc. 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. On September 27, 1995, the District Court denied a motion by the
airline defendants to permit an immediate appeal of the District Court's ruling
denying the airlines' motions for summary judgment. The airline defendants and
the plaintiffs have entered into agreements to settle this litigation. Under
the terms of the Delta settlement, the Company agreed to pay the plaintiffs $20
million. The settlement is subject to the approval of the District Court,
which has scheduled a hearing to consider final approval of the settlement for
November 15, 1996. Delta believes this lawsuit is without merit, but settled
this litigation to avoid the uncertainty, expense and diversion of management
time associated with a lengthy trial.
On November 2, 1995, Delta reached an agreement with TWA to lease ten
takeoff/landing slots ("Slots") at New York's LaGuardia Airport ("LaGuardia").
On November 9, 1995, ValuJet Airlines, Inc. ("ValuJet") filed suit against
Delta and TWA in the United States District Court for the Northern District of
Georgia. ValuJet alleges, among other things, that (1) TWA breached an alleged
agreement to lease the Slots to ValuJet; (2) Delta tortiously interfered with
12
<PAGE> 14
the alleged contract between ValuJet and TWA; (3) Delta and TWA conspired to
restrain trade in violation of Section 1 of the Sherman Act; and (4) Delta
engaged in acts of monopolization and attempted monopolization in violation of
Section 2 of the Sherman Act. ValuJet, which has requested a jury trial, is
seeking injunctive relief, unspecified compensatory damages, treble damages
under the antitrust laws, punitive damages, costs and attorney's fees, and such
other relief as the Court deems appropriate. On November 17, 1995, the
District Court denied ValuJet's motion for a preliminary injunction. On
December 7, 1995, Delta filed its answer denying liability and asserting
various affirmative defenses. On July 12, 1996, the District Court granted
TWA's motion for summary judgment in whole, and granted Delta's motion for
summary judgment with respect to ValuJet's claims of tortious interference and
conspiracy. The District Court denied Delta's motion for summary judgment with
respect to ValuJet's remaining claim under Section 2 of the Sherman Act on the
ground that those claims were not subject to resolution without further
discovery at this stage of the case, but without prejudice to Delta's right to
renew the motion after discovery has been completed. Delta intends to defend
this matter vigorously.
On January 10, 1996, a purported class action complaint was filed
against Delta and TWA in the United States District Court for the Eastern
District of New York on behalf of persons who purchased tickets on Delta for
travel between LaGuardia and Atlanta beginning November 1, 1995. The named
plaintiff, who has requested a jury trial, makes antitrust allegations and
claims similar to those asserted by ValuJet in the lawsuit described in the
preceding paragraph. The named plaintiff seeks, on behalf of the purported
class, unspecified compensatory damages, treble damages under the antitrust
laws, injunctive relief, costs and attorney's fees, and such other relief as
the Court deems appropriate. On April 11, 1996, the United States District
Court for the Eastern District of New York granted Delta's and TWA's motions to
transfer this lawsuit to the United States District Court for the Northern
District of Georgia which, on August 6, 1996, denied the plaintiff's motion for
class action certification. Delta intends to defend this matter vigorously.
Delta also received a Civil Investigative Demand from the United States
Department of Justice ("DOJ") requesting information and documents concerning
Delta's lease of the Slots. Delta is cooperating with the DOJ investigation.
Delta is also a defendant in certain other legal actions relating to
alleged employment discrimination practices, other matters concerning past and
present employees, environmental issues and other matters concerning Delta's
business. Although the ultimate outcome of these matters and the matters
discussed above in this Item 3 cannot be predicted with certainty and could
have a material adverse effect on Delta's consolidated financial condition,
results of operations or liquidity, management presently believes that the
resolution of these actions is not likely to have a material adverse effect on
Delta's consolidated financial condition, results of operations or liquidity.
For a discussion of certain environmental matters, see "ITEM 1.
Business - Environmental Matters" on pages 8-9 of this Form 10-K.
13
<PAGE> 15
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.
Unless otherwise indicated, all positions shown are with Delta. There are no
family relationships between any of Delta's executive officers.
<TABLE>
<S> <C>
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 54.
Harry 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 58.
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 60.
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 56.
W. Martin Braham Senior Vice President - Delta Staffing Services Business
Unit Development, July 26, 1996 to date; Senior Vice
President - Airport Customer Service, March 1993 to July 25,
1996; 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 51.
</TABLE>
14
<PAGE> 16
<TABLE>
<S> <C>
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 55.
Thomas J. Roeck, Jr. Senior Vice President - Finance and Chief Financial
Officer, June 1988 to date. Age 52.
Robert G. Adams Vice President - Personnel, September 16, 1995 to date;
Vice President - Personnel Services, November 1, 1993
through September 15, 1995; Assistant Vice President -
Personnel Services, August 1, 1993 through October 31,
1993; Assistant Vice President - Personnel -
International, November 1, 1991 through July 31, 1993;
Vice President - Human Resources, Pan American World
Airways, Inc., 1982 through October 31, 1991.
Age 58.
</TABLE>
15
<PAGE> 17
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",
"Number of Stockholders" and "Market Prices and Dividends" on page 52 of
Delta's 1996 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 50-51 of
Delta's 1996 Annual Report to Stockholders, and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information required by this item is set forth under "Operational
Review - Leadership 7.5 and Beyond" on pages 7-8, and under "Financial Review"
on pages 12-21, of Delta's 1996 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 in "Report of
Independent Public Accountants" on page 22, and on pages 28-49, of Delta's 1996
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 - Section 16(a)
Beneficial Ownership Reporting Compliance" on page 12, of Delta's Proxy
Statement dated September 16, 1996, and is incorporated herein by reference.
Certain information regarding executive officers is contained in Part I of this
Form 10-K.
16
<PAGE> 18
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, under "Other Matters Involving Directors and Executive
Officers" on pages 11-12, and on pages 17-20, of Delta's Proxy Statement dated
September 16, 1996, 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 16, 1996, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth under "Other Matters
Involving Directors and Executive Officers" on pages 11-12 of Delta's Proxy
Statement dated September 16, 1996, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a)(1), (2). The financial statements and schedule required by this
item are listed in the Index to Consolidated Financial Statements and Schedule
on page 20 of this Form 10-K.
(3). The exhibits required by this item are listed in the
Exhibit Index on pages 25-28 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 Exhibit 10.1 and Exhibits 10.8 to 10.14 in the Exhibit
Index.
(b) During the quarter ended June 30, 1996, Delta filed a
Current Report on Form 8-K dated May 2, 1996 regarding its new collective
bargaining agreement with the Air Line Pilots Association, International.
17
<PAGE> 19
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 27th day of
September, 1996.
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 27th day of September, 1996 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
18
<PAGE> 20
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.
19
<PAGE> 21
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - Incorporated herein by reference to
"Report of Independent Public Accountants" on page 22 of Delta's 1996
Annual Report to Stockholders.
FINANCIAL STATEMENTS - All of which are incorporated herein by reference to
Delta's 1996 Annual Report to Stockholders.
Consolidated Balance Sheets - June 30, 1996 and 1995
Consolidated Statements of Operations for the years ended June 30, 1996,
1995 and 1994
Consolidated Statements of Cash Flows for the years ended June 30, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements - June 30, 1996, 1995 and 1994
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
SCHEDULE SUPPORTING FINANCIAL STATEMENTS:
<TABLE>
Schedule
Number
- --------
<S> <C>
II Valuation and Qualifying Accounts for the years ended June 30, 1996,
1995 and 1994
</TABLE>
All other schedules have been omitted as not applicable or because the
required information is included in the financial statements or notes thereto.
20
<PAGE> 22
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 16, 1996. 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 16, 1996
21
<PAGE> 23
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JUNE 30, 1996
(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 of Costs and Accounts- Deductions- End of
Description 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: $ 29 $15 - $ - $ 44
Allowance for
unrealized losses
(gains) on
marketable
securities: $(131) - $(75) (a) - $(206)
</TABLE>
(a) Represents net unrealized gain resulting from changes in market values.
22
<PAGE> 24
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 of Costs and Accounts- Deductions- End of
Description 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.
23
<PAGE> 25
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 of Costs and Accounts- Deductions- End of
Description 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.
24
<PAGE> 26
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 and Series B ESOP 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)).*
25
<PAGE> 27
4.8 Second Amended and Restated Credit Agreement dated as of September
27, 1995, among Delta, Certain Banks and NationsBank of Georgia, N.A., as Agent
Bank (Filed as Exhibit 4 to Delta's Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1995).*
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).*
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 Delta's Incentive Compensation Plan, as amended (Filed as Appendix
A to Delta's Proxy Statement dated September 16, 1996).*
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).*
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
26
<PAGE> 28
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 Amendment dated August 16, 1996, to the Employment Agreement dated
July 29, 1987, between Delta and Mr. Ronald W. Allen.
10.10 Delta's 1989 Stock Incentive Plan, as amended.
10.11 Delta's Executive Deferred Compensation Plan, as amended (Filed as
Exhibit 10.11 to Delta's Annual Report on Form 10-K for the year ended June 30,
1995).*
10.12 Directors' Deferred Compensation Plan.
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 dated April 29, 1996, between Delta and The Air Line
Pilots in the service of Delta as represented by the Air Line Pilots
Association, International (Filed as Exhibit 10 to Delta's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1996).*
10.16 Delta's Non-employee Directors' Stock Plan (Filed as Exhibit 4.5
to Delta's Registration Statement on Form S-8 (Registration No. 33-65391)).*
10.17 Form of Stock Option and Restricted Stock Award Agreements under
1989 Stock Incentive Plan.
11. Statement regarding computation of per share earnings for the
years ended June 30, 1994, 1995 and 1996.
12. Statement regarding computation of ratio of earnings to fixed
charges for the years ended June 30, 1992, 1993, 1994, 1995 and 1996.
13. Portions of Delta's 1996 Annual Report to Stockholders.
27
<PAGE> 29
23. Consent of Arthur Andersen LLP.
24. Powers of Attorney.
27. Financial Data Schedule. (for SEC use only).
___________________________
*Incorporated herein by reference
28
<PAGE> 1
EXHIBIT 10.9
AMENDMENT TO
EMPLOYMENT AGREEMENT
This Amendment is entered into as of August 16, 1996 between Delta Air
Lines, Inc. (hereinafter called "Delta"), and Mr. Ronald W. Allen of Atlanta,
Georgia ("Employee").
WITNESSETH:
WHEREAS, the parties entered into an Employment Agreement dated
July 29, 1987, which previously has been amended; and
WHEREAS, effective August 15, 1992, the Employment Agreement was amended
at Employee's request to reflect a reduction in Employee's basic annual
compensation rate of Five Hundred Seventy-Five Thousand Dollars ($575,000) (the
Employee's salary of record) to Four Hundred Seventy-Five Thousand Dollars
($475,000) per year; and
WHEREAS, consistent with Delta's use of the salaries of record for other
personnel to protect certain benefits (including but not limited to disability
and retirement benefits) from being reduced by the salary reductions taken by
non-pilot personnel during fiscal year 1993, Employee's benefits under the
Employment Agreement were also protected; and
<PAGE> 2
WHEREAS, Delta's Board of Directors has determined that, effective August
16, 1996, Employee's basic annual compensation rate should be restored to the
level that existed prior to his above described voluntary salary reduction, and
that Employee's benefits under the Employment Agreement should continue to be
protected by disregarding such voluntary salary reduction;
NOW, THEREFORE, in consideration of the premises and the mutual
considerations herein mentioned or contained, it is agreed as follows:
Section 3(a) of the said Employment Agreement shall be amended by
striking the existing clause and substituting the following,
effective August 16, 1996:
(a) basic compensation (herein sometimes called "Basic
Compensation") at a rate of not less than Five Hundred
Seventy-Five Thousand ($575,000) Dollars per year, payable in
equal installments at such periods as may be convenient to Delta
but not less often than monthly, provided, however, that for
purposes of calculating the amounts payable under Sections 5 and 7
of this Employment Agreement, Employee's Basic Compensation shall
be deemed to have been Five Hundred Seventy-Five Thousand
($575,000) Dollars per year for the period beginning August 15,
1992 and ending August 15, 1996.
It is further agreed that all other terms and conditions of the said
Employment Agreement shall remain in full force and effect.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
DELTA AIR LINES, INC.
By /s/ Gerald Grinstein
------------------------------
Gerald Grinstein, Chairman
Personnel, Compensation &
Nominating Committee
/s/ Ronald W. Allen
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Ronald W. Allen
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EXHIBIT 10.10
1989 STOCK INCENTIVE PLAN
OF
DELTA AIR LINES, INC.
As Amended Through January 26, 1995
SECTION 1. Purpose; Definitions.
The purpose of this plan, which shall be known as the "1989 Stock Incentive
Plan of Delta Air Lines, Inc." (the "Plan"), is to promote the interests of
Delta Air Lines, Inc. (the "Company") by attracting and retaining in its
employment persons of outstanding ability, and to provide present and future
officers and key employees of the Company, or any of its present or future
Subsidiaries, greater incentive to make material contributions to the success
of the Company by increasing their proprietary interest in the welfare and
success of the Company through increased direct stock ownership and other
incentives related to the value of the stock, all to the benefit of the Company
and its shareholders.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
(c) "Committee" means the Committee referred to in Section 2 of the Plan.
If at any time no Committee shall be designated, then the functions of
the Committee specified in the Plan shall be exercised by the Board.
(d) "Company" means Delta Air Lines, Inc., a corporation organized under
the laws of the State of Delaware, or any successor corporation.
(e) "Disability" means disability as determined under the disability plan
of the Company or Subsidiary applicable to the Participant.
(f) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) as promulgated by the Securities and Exchange Commission
under the Exchange Act, or any successor definition adopted by the
Commission.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(h) "Fair Market Value" means, as of any given date, the opening or
closing price, as determined by the Committee, of the Stock on the New
York Stock Exchange or, if no sale of Stock occurs on the New York Stock
Exchange on such date, the opening or closing price, as determined by
the Committee, of the Stock on said exchange on the last preceding day
on which such sale occurred.
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(i) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section
422 of the Code.
(j) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(k) "Other Stock-Based Award" means an award under Section 8 below of
Stock or that is valued in whole or in part by reference to, or is
otherwise based on, Stock.
(1) "Option Price" means the price specified in Section 5 below.
(m) "Participant" means the recipient of an award under the Plan.
(n) "Plan" means the 1989 Stock Incentive Plan of Delta Air Lines, Inc.,
as amended from time to time.
(o) "Restricted Stock" means Stock granted under an award pursuant to
Section 7 below which is subject to the restrictions specified therein.
(p) "Retirement" means retirement from active employment with the Company
or any Subsidiary pursuant to the retirement or pension plan of such
entity applicable to the Participant.
(q) "Stock" means the Common Stock, $3.00 par value, of the Company.
(r) "Stock Appreciation Right" means a right granted under an award
pursuant to Section 6 below to receive an amount equal to the excess of
the Fair Market Value of the shares of Stock covered by such right over
the Option Price applicable to such shares, as specified in Section 6
below.
(s) "Stock Option" or "Option" means any option to purchase shares of
Stock granted pursuant to Section 5 below.
(t) "Subsidiary" means any corporation (other than the Company) in which
the Company or a Subsidiary of the Company owns 50% or more of the total
combined voting power of all classes of stock.
SECTION 2. Administration.
The Plan shall be administered by a Committee of the Board of Directors,
designated by the Board and to be comprised of not less than three members of
the Board. All the members of the Committee shall be Disinterested Persons.
Each director, while serving as a member of the Committee, shall be considered
to be acting in his capacity as a director of the Company. Members of the
Committee shall be appointed from time to time for such terms as the Board
shall determine, and may be removed by the Board at any time with or without
cause. Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to construe and interpret the Plan, to establish, amend and
rescind appropriate rules and regulations relating to the
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Plan, to determine the persons to whom and the time or times at which to grant
awards thereunder, to administer the Plan, and to take all such steps and make
all such determinations in connection with the Plan and the awards granted
thereunder as it may deem necessary or advisable to carry out the provisions
and intent of the Plan. All determinations of the Committee shall be by a
majority of its members, and its determinations shall be final and conclusive
for all purposes and upon all persons, including but without limitation, the
Company, the Committee, the directors, officers and employees of the Company,
the Participants and their respective successors in interest.
Except as provided in the Plan, the Committee may make awards under Sections 5,
6, 7 and 8 of this Plan either alone or in such combinations as it deems
appropriate, and awards need not be the same with respect to each Participant.
When granting Stock Options under Section 5 of this Plan, the Committee shall
designate the Stock Option as either an Incentive Stock Option or a
Non-Qualified Stock Option. The Committee shall also designate whether the
Stock Option is granted with Stock Appreciation Rights.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 6,000,000, subject to adjustment as provided in this
Section. Stock issued under the Plan may be either authorized and unissued
shares or treasury shares.
To the extent that any award under the Plan, or any portion thereof, is settled
in cash rather than in shares of Stock, the number of shares of Stock subject
to such award, less the number of shares of Stock issued, if any, in connection
with such settlement, shall again be available for distribution in connection
with future awards under the Plan. Subject to Section 6(d) below, if any
shares of Stock subject to a Stock Option cease to be subject to such Option
for any reason other than the exercise of such Option, or if any shares of
Stock subject to a Restricted Stock award or Other Stock-Based Award are
forfeited or any such award otherwise terminates, in whole or part, without a
payment being made to the Participant in the form of Stock, the shares of Stock
previously subject to such Option or award shall again be available for
distribution in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
Stock dividend, Stock split or other change in corporate structure affecting
the Stock, the Committee, in its sole discretion, shall make such
modifications, substitutions or adjustments as it deems necessary to reflect
such change so as to prevent the deletion or enlargement of rights, including
but not limited to, modifications, substitutions, or adjustments in the
aggregate number of shares reserved for issuance under the Plan, in the number
and Option Price of shares subject to outstanding Options or Stock Appreciation
Rights granted under the Plan, and in the number of shares subject to other
outstanding awards granted under the Plan, provided that the number of shares
subject to any award shall always be a whole number.
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SECTION 4. Eligibility.
Officers and other key employees of the Company and its Subsidiaries who are
responsible for or contribute to the management, growth and/or profitability of
the Company and/or its Subsidiaries, as determined by the Committee, are
eligible to be granted awards under the Plan.
SECTION 5. Stock Options.
Award Limitation
The number of shares of Stock subject to Stock Options that may be awarded to a
Participant under the Plan shall not exceed ten percent of the maximum total
number of shares of Stock reserved for distribution under Section 3 of the
Plan.
Grant
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the persons to whom Stock Options shall be
granted, the number of shares to be covered by each Stock Option and the
conditions and limitations, if any, in addition to those set forth in this
Section 5, applicable to such Stock Options. The Committee shall have the
authority to grant both Incentive Stock Options and Non-Qualified Stock
Options. In the case of Incentive Stock Options, the terms and conditions of
such grants shall be subject to and comply with the requirements of Section 422
of the Code, as from time to time amended, and any implementing regulations.
Each such award shall be confirmed by an agreement executed by the Committee
and the Participant, which agreement shall contain such provisions as the
Committee determines to be necessary or appropriate to carry out the intent of
this Plan with respect to such award. Each such agreement shall provide that
the Option (and any related Stock Appreciation Right) is not transferable by
the Participant otherwise than by will, by the laws of descent and
distribution, or by a written designation referred to in Section 10(c) below,
and is exercisable, during the Participant's lifetime, only by such
Participant.
Option Price
The Committee shall establish the Option Price at the time each Stock Option is
granted, which price shall not be less than 100% of the Fair Market Value of
the Stock on the date of grant. The Option Price shall be the price payable by
the Participant for a share of Stock upon the exercise of a Stock Option. The
Option Price shall be subject to adjustment in accordance with the provisions
of Section 3 hereof.
Exercise
The Committee shall determine when a Stock Option shall become exercisable, and
may provide that a Stock Option is exercisable in installments, provided that
no Stock Option shall be exercisable earlier than one (1) year or later than
ten (10) years after the date of grant, except that if a Participant dies prior
to one (1) year after the date of grant the one (1) year limitation shall not
apply and the Option may be exercised as provided in Section 10 hereof.
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The Option Price of each share as to which an Option is exercised shall be paid
in full at the time of such exercise. Such payment shall be made in cash, or,
subject to the consent of the Committee and to such limitations as the
Committee may impose, by tender of shares of unrestricted Stock valued at Fair
Market Value as of the date of exercise, or by a combination of cash and shares
of unrestricted Stock.
Incentive Stock Options
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised,
so as to disqualify the Plan under Section 422 of the Code, or, without the
consent of the Participant(s) affected, to disqualify any Incentive Stock
Option under such Section 422.
To the extent permitted under Section 422 of the Code or the applicable
regulations thereunder or any applicable Internal Revenue Service
pronouncement, and subject to such terms and conditions as the Committee shall
prescribe, any Incentive Stock Option that does not continue to comply with the
requirements of the Code shall be treated as a Non-Qualified Stock Option.
SECTION 6. Stock Appreciation Rights.
Grant
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the persons who shall receive Stock
Appreciation Rights and the number of shares of Stock with respect to which
each Stock Appreciation Right is granted. Stock Appreciation Rights may be
granted only in conjunction with Stock Options granted under the Plan. Whenever
Stock Appreciation Rights are granted, they shall be provided for in the
agreement referred to in Section 5 above, or an amendment thereto.
A Stock Appreciation Right or applicable portion thereof granted in conjunction
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, and a Stock Option or
applicable portion thereof granted in conjunction with a Stock Appreciation
Right shall terminate and no longer be exercisable upon the termination or
exercise of the related Stock Appreciation Right.
Terms and Conditions
Stock Appreciation Rights shall be exercisable in accordance with procedures
established by the Committee and shall be subject to such terms and conditions,
not inconsistent with the provisions of the Plan, as shall be determined from
time to time by the Committee, in addition to the following:
(a) Stock Appreciation Rights shall be exercisable only at such time or times
and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 of the Plan. The
exercise of Stock Appreciation Rights by Participants who are subject to
Section 16(b) of the Exchange Act shall comply with Rule 16b-3 (or any
successor rule)
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thereunder, to the extent applicable; provided, however, that
the Committee, in its sole discretion, may require the exercise of Stock
Appreciation Rights by any Participant to comply with the requirements of Rule
16b-3 (or any successor rule).
(b) Upon the exercise of a Stock Appreciation Right, a Participant shall be
entitled to receive an amount in cash or shares of Stock or a combination
thereof, as determined by the Committee, equal in value to the excess of the
Fair Market Value of one share of Stock over the Option Price per share
specified in the related Stock Option multiplied by the number of shares in
respect of which the Stock Appreciation Right shall have been exercised. The
Fair Market Value used to determine the amount payable (and the number of
shares payable to the extent that the payment is in the form of Stock) shall be
the Fair Market Value on the last trading day preceding the date of exercise of
the Stock Appreciation Right or, if so specified by the Committee, the highest
Fair Market Value during the applicable period referred to in Rule
16b-3(e)(3)(iii) (or any successor rule) under the Exchange Act in which the
Stock Appreciation Right is exercised.
(c) Stock Appreciation Rights shall be transferable only when and to the extent
that the related Stock Option would be transferable under Section 5 of the
Plan.
(d) Upon the exercise of a Stock Appreciation Right, the Stock Option or part
thereof to which such Stock Appreciation Right is related shall be deemed to
have been exercised for the purpose of the limitation set forth in Section 3 of
the Plan on the number of shares of Stock to be issued under the Plan, but only
to the extent of the number of shares actually issued, if any, upon the
exercise of the Stock Appreciation Right.
SECTION 7. Restricted Stock.
Grant
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares to be
awarded, the price (if any) to be paid by the recipient of Restricted Stock,
the time or times within which such awards may be subject to forfeiture, and
all other terms and conditions of the awards.
The Committee may condition the grant of Restricted Stock upon the attainment
of specified performance goals or such other factors as the Committee may
determine, in its sole discretion.
Each Restricted Stock award shall be confirmed by an agreement executed by the
Committee and the Participant, which agreement shall contain such provisions as
the Committee determines to be necessary or appropriate to carry out the intent
of this Plan with respect to such award.
Each Participant receiving a Restricted Stock award shall be issued a Stock
certificate in respect of such shares of Restricted Stock. Such certificate
shall be registered in the name of such Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award.
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The Committee shall require that Stock certificates evidencing such shares be
held by the Company until the restrictions thereon shall have lapsed, and that,
as a condition of any Restricted Stock award, the Participant shall have
delivered to the Company a stock power, endorsed in blank, relating to the
Stock covered by such award.
Restrictions and Conditions
The shares of Restricted Stock awarded pursuant to this Section 7 shall be
subject to the following restrictions and conditions:
(a) During a period set by the Committee commencing with the date of such award
(the "Restriction Period"), the Participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded under the Plan.
Within these limits, the Committee, in its sole discretion, may provide for the
lapse of such restrictions in installments and may accelerate or waive such
restrictions in whole or in part, based on service, performance and/or such
other factors or criteria as the Committee may determine.
(b) Except as provided in this paragraph (b) and paragraph (a) above, the
Participant shall have, with respect to the shares of Restricted Stock, all of
the rights of a shareholder of the Company, including the right to vote the
shares, and the right to receive any cash dividends. The Committee, in its sole
discretion, as determined at the time of award, may provide that the payment of
cash dividends shall or may be deferred and, if the Committee so determines,
reinvested in additional shares of Stock or Restricted Stock to the extent
shares are available under Section 3, or otherwise reinvested. Pursuant to
Section 3 above, Stock dividends issued with respect to Restricted Stock shall
be treated as additional shares of Restricted Stock that are subject to the
same restrictions and other terms and conditions that apply to the shares with
respect to which such dividends are issued.
(c) Upon termination of a Participant's employment with the Company or any
Subsidiary for any reason during the Restriction Period, all shares still
subject to restriction will vest, or be forfeited, in accordance with the terms
and conditions established by the Committee in the award agreement.
(d) If and when the Restriction Period expires without a prior forfeiture of
the Restricted Stock subject to such Restriction Period, certificates for an
appropriate number of unrestricted shares of Stock shall be delivered promptly
to the Participant, and the certificates for the shares of Restricted Stock
shall be cancelled.
SECTION 8. Other Stock-Based Awards.
Grant
Other awards of Stock and other awards that are valued in whole or in part by
reference to, or are otherwise based on, Stock ("Other Stock-Based Awards"),
may be granted either alone or in addition to or in conjunction with other
awards under this Plan. Awards under this section may include, but are not
limited to, the grant of Stock upon the continued employment of a Participant
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for a specified period of time, the payment of cash based upon the performance
of the Stock, or the grant of securities convertible into Stock.
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the persons to whom and the time or times at
which such awards shall be made, the number of shares of Stock or other
securities, if any, to be granted pursuant to such awards, and all other
conditions of the awards. Any such award shall be subject to an agreement
between the Company and the Participant.
Each Other Stock-Based Award shall be confirmed by an agreement executed by the
Committee and the Participant, which agreement shall contain such provisions as
the Committee determines to be necessary or appropriate to carry out the intent
of this Plan with respect to such award.
Terms and Conditions
In addition to the terms and conditions specified in the award agreement, Other
Stock-Based Awards made pursuant to this Section 8 shall be subject to the
following:
(a) Any shares of Stock subject to awards made under this Section 8 may not be
sold, assigned, transferred, pledged or otherwise encumbered prior to the date
on which the shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
(b) If specified by the Committee in the award agreement, the recipient of an
award under this Section 8 shall be entitled to receive, currently or on a
deferred basis, interest or dividends or dividend equivalents with respect to
the Stock or other securities covered by the award, and the Committee may
provide that such amounts (if any) shall be deemed to have been reinvested in
additional Stock or otherwise reinvested.
(c) The award agreement with respect to any Other Stock-Based Award shall
contain provisions dealing with the disposition of such award in the event of a
termination of the Participant's employment prior to the exercise, realization
or payment of such award, whether such termination occurs because of
Retirement, Disability, death or other reason, with such provisions to take
account of the specific nature and purpose of the award.
SECTION 9. Change in Control.
In order to maintain the Participants' rights in the event of a "Change in
Control" of the Company, as hereinafter defined, the Committee, in its sole
discretion, may, either at the time an Award is made hereunder or at any time
prior to, or simultaneously with, a Change in Control (i) provide for the
acceleration of any time periods relating to the exercise or realization of
such Awards so that such Awards may be exercised or realized in full on or
before a date fixed by the Committee; (ii) provide for the purchase of such
Awards, upon the Participant's request, for an amount of cash equal to the
amount which could have been attained upon the exercise or realization of such
Awards had such Awards been currently exercisable or payable; (iii) make such
adjustment to the Awards then outstanding as the Committee deems appropriate to
reflect such transaction or change; or (iv) with the approval of and through
the Board of Directors, cause the Awards then outstanding to be assumed, or new
Awards substituted therefor, by the surviving
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corporation in such change. The Committee may, in its discretion, include such
further provisions and limitations with respect to a Change in Control in any
agreement entered into pursuant to this Plan as it may deem appropriate and in
the best interests of the Company. A "Change in Control" shall be deemed to
have occurred (i) fifteen (15) days after public announcement that any person,
entity or group, without prior approval of the Board of Directors, has
acquired, either directly or indirectly, beneficial ownership of securities
representing twenty percent (20%) or more of the total votes that could be cast
by the holders of all of the Company's outstanding securities entitled to vote
in elections of directors; or (ii) when individuals currently constituting the
Board of Directors (or the successors of such individuals nominated by a Board
of Directors on which such individuals or such successors constituted a
majority) cease to constitute a majority of the Board of Directors.
SECTION 10. Termination of Employment, Retirement, Disability, Death and
Voluntary Demotion.
Except as provided in award agreements under Sections 7 or 8, the following
shall apply:
(a) If a Participant's employment shall be terminated by the Company or a
Subsidiary, or if a Participant resigns from employment with the Company or a
Subsidiary, the Stock Options or Stock Appreciation Rights held by such
Participant shall be forfeited unless the Committee authorizes the exercise of
such Stock Options or Stock Appreciation Rights, provided that any such
exercise shall be permissible only for a period of up to four (4) months
following such termination or resignation and only if such exercise is
otherwise permissible under the Plan and the applicable award agreement.
(b) With respect to awards made prior to October 28, 1993, a Participant whose
employment is terminated because of his Retirement or Disability shall be
treated as though he remains in active employment, unless the applicable award
agreement is amended to shorten the exercise period following Retirement or
Disability. With respect to awards made on or after October 28, 1993, a
Participant whose employment is terminated because of his Retirement or
Disability may exercise his outstanding Stock Options or Stock Appreciation
Rights only during the shorter of the exercise period remaining under the
applicable award agreement or the three years after such Retirement or
Disability. In the case of an exercise under either of the two preceding
sentences, such exercise must otherwise comply with the Plan and the applicable
award agreement. Notwithstanding the preceding sentences, however, if a
Participant's employment is terminated because of Retirement prior to his
normal retirement date (as determined under the retirement or pension plan of
the Company or Subsidiary applicable to the Participant) and, within two years
after such early Retirement and without the Committee's approval, such
Participant is employed or retained by any air carrier or organization which
the Committee determines is in direct and substantial competition with the
Company or any of its affiliates, then such Participant shall (i) immediately
forfeit any Stock Options and Stock Appreciation Rights held by him; and (ii)
within 30 days after the Committee makes a determination hereunder, repay the
Company in cash an amount equal to the amount realized in cash and/or stock at
the time of exercise of any Stock Options or Stock Appreciation Rights
exercised by such Participant after such early Retirement.
(c) With respect to awards made prior to October 28, 1993, in the event of the
death of a Participant while employed by the Company or a Subsidiary or while
covered by Section 10(b)
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above, such Participant's Stock Options or Stock Appreciation Rights may only
be exercised within one year after the Participant's death, unless the
applicable award agreement is amended to provide a maximum exercise period of
up to three years as described in the next sentence. With respect to awards
made on or after October 28, 1993, in the event of the death of a Participant
while employed by the Company or a Subsidiary, such Participant's Stock Options
or Stock Appreciation Rights may be exercised only within the shorter of the
exercise period remaining under the applicable award agreement or the three
years after the Participant's death. In the case of an exercise under either
of the two preceding sentences, such exercise may be made by the person or
persons named in a written designation by the Participant delivered to and
approved by the Committee, or if there is no such approved designation, by the
executor or administrator of the Participant's estate or such other personal
representative, legatee or devisee, as may be designated in the Participant's
last will and testament; provided, however, that such exercise must otherwise
comply with the Plan and the applicable award agreement.
(d) In the event that prior to or after the time that a Stock Option or Stock
Appreciation Right first becomes exercisable, a Participant either voluntarily
suggests and later accepts a demotion, or is involuntarily demoted, to a job
involving lesser responsibilities than those of the job held by the Participant
at the time of an award hereunder, the Committee may in its sole discretion,
not later than six months from the date of the demotion, revoke or modify such
award in any manner as it deems appropriate under the circumstances. The
Committee shall determine in its sole discretion what constitutes a demotion to
a job involving lesser responsibilities for purposes of this Section 10(d).
(e) Notwithstanding anything in Section 10(a)-(d) above to the contrary, if a
Participant resigns from employment with the Company and coincident with such
resignation becomes an employee of WORLDSPAN L.P. ("WORLDSPAN") or of the
Delta/AT&T Global Information Solutions Joint Venture (the "Joint Venture"),
such Participant shall be treated as though he remains in active employment
with the Company with respect to Stock Options and Stock Appreciation Rights
outstanding at the time of such resignation; provided, however, that, after
becoming an employee of WORLDSPAN or the Joint Venture coincident with his
resignation from the Company:
(i) If a Participant's employment is terminated by WORLDSPAN or the Joint
Venture, or if a Participant resigns from employment with WORLDSPAN or
the Joint Venture (other than if such Participant becomes an employee of
the Company or a Subsidiary coincident with his resignation from
WORLDSPAN or the Joint Venture), the Stock Options or Stock Appreciation
Rights held by such Participant shall be forfeited unless the Committee
authorizes the exercise of such Stock Options or Stock Appreciation
Rights, provided that any such exercise shall be permissible only for a
period of up to four (4) months following such termination or resignation
and only if such exercise is otherwise permissible under the Plan and the
applicable award agreement; and provided further that if a Participant
resigns from WORLDSPAN or the Joint Venture and coincident with such
resignation becomes an employee of the Company or a Subsidiary, such
Participant shall, subject to Sections 10(a)-(d) above, be treated as in
active employment with the Company.
(ii) If a Participant's employment with WORLDSPAN or the Joint Venture is
terminated because of his retirement or disability under WORLDSPAN's or
the Joint Venture's
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retirement or disability plan applicable to such Participant, such
Participant's Stock Options or Stock Appreciation Rights may only be
exercised during the shorter of the exercise period remaining under the
applicable award agreement or the three years after such retirement or
disability; provided, however, that such exercise must otherwise comply
with the Plan and the applicable award agreement. Notwithstanding the
preceding sentence, however, if a Participant's employment is terminated
because of retirement prior to his normal retirement date (as determined
under WORLDSPAN's or the Joint Venture's retirement or pension plan
applicable to the Participant) and, within two years after such early
retirement and without the Committee's approval, such Participant is
employed or retained by any air carrier or organization which the
Committee determines is in direct and substantial competition with the
Company or any of its affiliates, then such Participant shall (i)
immediately forfeit any Stock Options and Stock Appreciation Rights held
by him; and (ii) within 30 days after the Committee makes a determination
hereunder, repay the Company in cash an amount equal to the amount
realized in cash and/or stock at the time of exercise of any Stock
Options or Stock Appreciation Rights exercised by such
Participant after such early retirement.
(iii) If a Participant dies while employed by WORLDSPAN or the Joint
Venture or while covered by Section 10(e)(ii) above, such Participant's
Stock Options or Stock Appreciation Rights may only be exercised within
the shorter of the exercise period remaining under the applicable award
agreement or the three years after the Participant's death by the person
or persons named in a written designation by the Participant delivered to
and approved by the Committee, or if there is no such approved
designation, by the executor or administrator of the Participant's estate
or such other personal representative, legatee or devisee, as may be
designated in the Participant's last will and testament; provided,
however, that such exercise must otherwise comply with the Plan and the
applicable award agreement.
(iv) If prior to the time that a Stock Option or Stock Appreciation Right
is exercisable, a Participant voluntarily suggests and later accepts a
demotion to a job involving lesser responsibilities than those of the job
held by the Participant at the time of first becoming an employee of
WORLDSPAN or the Joint Venture, the Committee in its sole discretion may
revoke or modify such award as it deems appropriate under the
circumstances.
SECTION 11. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of a
Participant under a Stock Option, Stock Appreciation Right, Restricted Stock
award, or Other Stock-Based Award theretofore granted, without the
Participant's consent, or which, without the approval of the Company's
stockholders, would cause the Plan not to continue to comply with Rule 16b-3
under the Exchange Act, or any successor to such Rule.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, including but not limited to extending the time during
which awards granted prior to October 28, 1993 may be exercised to the full
period of time permitted by the Plan; provided, however, that,
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subject to Section 3 above, no such amendment shall impair the rights of any
Participant without the Participant's consent, except as provided in Section
10(d) above.
Subject to the above provisions, the Board shall have broad authority to amend
the Plan to take into account changes in applicable securities and tax laws and
accounting rules, as well as other developments.
SECTION 12. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to a Stock
Option, Stock Appreciation Right or other award under the Plan to represent to
and agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock or other securities delivered under the
Plan shall be subject to such stock-transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate references to such restrictions. Except as
otherwise provided in the Plan, Participants shall have no rights as
stockholders of Stock covered by an award prior to the issuance of a Stock
certificate to such Participant.
(b) Nothing contained in this Plan shall prevent the Board from adopting other
or additional compensation arrangements, subject to stockholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee of the Company
or any Subsidiary any right to continued employment with the Company or a
Subsidiary, as the case may be, nor shall it interfere in any way with the
right of the Company or a Subsidiary to terminate the employment of any of its
employees at any time.
(d) No later than the date as of which an amount first becomes includible in
the gross income of the Participant for Federal income tax purposes with
respect to any award under the Plan, the Participant shall pay to the Company,
or make arrangements satisfactory to the Company regarding the payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such amount. Subject to the consent of the Committee and to such
limitations as the Committee may impose, withholding obligations may be settled
with Stock, including Stock that is part of the award that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall be
conditioned on such payment or arrangements and the Company and its
Subsidiaries shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the Participant.
(e) The Plan and all awards made and actions taken thereunder shall be governed
by and construed in accordance with the laws of the State of Georgia.
12
<PAGE> 13
(f) Agreements with respect to awards pursuant to the Plan may contain, in
addition to terms and conditions prescribed in the Plan, such other terms and
conditions as the Committee may deem appropriate provided such terms and
conditions are not inconsistent with the provisions of the Plan.
SECTION 13. Effective Date of Plan.
The Plan shall be effective as of January 1, 1989, subject to the approval of
the Plan by the affirmative votes of the holders of a majority of the Stock
present and entitled to vote at the 1988 annual meeting of stockholders. Any
grants made under the Plan prior to such approval shall be effective when made
(unless otherwise specified by the Committee at the time of grant), but shall
be conditioned on, and subject to, such approval of the Plan by such
stockholders.
SECTION 14. Term of Plan.
No Stock Option, Stock Appreciation Right, Restricted Stock award or Other
Stock-Based Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the effective date of the Plan, but awards granted prior to such
tenth anniversary may extend beyond that date.
NOTE: The foregoing is the original 1989 Stock Incentive Plan as adopted by
Delta Air Lines' Board of Directors on July 28, 1988, for effectiveness on
January 1, 1989, and as amended April 26, 1990, January 24, 1991, July 22,
1993, October 28, 1993, October 27, 1994 and January 26, 1995.
/s/ Robert S. Harkey
---------------------------------------
Robert S. Harkey
Senior Vice President - General Counsel
& Secretary
13
<PAGE> 1
EXHIBIT 10.12
DELTA AIR LINES, INC.
DIRECTORS' DEFERRED COMPENSATION PLAN
(As Proposed to be Amended and Restated Through October 26, 1995)
SECTION 1. Purpose.
The purpose of the Delta Air Lines, Inc. Directors' Deferred Compensation Plan
(the "Plan") is to provide members of the Board of Directors (the "Board") of
Delta Air Lines, Inc. (the "Company") who are not employees of the Company
("Participants") with the opportunity to defer receipt of payment of their fees
for services as a Director.
SECTION 2. Administration.
The Plan shall be administered by a committee (the "Committee") of three or
more individuals appointed by the Board to administer the Plan. The members of
the Committee must be members of, and shall serve at the discretion of, the
Board. The Plan initially shall be administered by the Personnel, Compensation
& Nominating Committee of the Board.
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to construe and interpret the Plan; to establish, amend and
rescind appropriate rules and regulations relating to the Plan; to administer
the Plan; and to take all such steps and make all such determinations in
connection with the Plan as it may deem necessary or advisable to carry out the
provisions and intent of the Plan. All determinations of the Committee shall
be by a majority of its members, and its determinations shall be final and
conclusive for all purposes and upon all persons, including, but without
limitation, the Company, the Committee, the Participants and their respective
successors in interest.
SECTION 3. Eligibility and Participation.
Participation in the Plan shall be limited to members of the Board who are not
employees of the Company.
A Participant may elect to defer receipt of all or a portion of his or her fees
for services as a member of the Board. These fees include, without limitation,
the annual retainer, the committee chairperson retainer and any meeting fees
for attendance at meetings of the Board and its committees (collectively, the
"Fees").
<PAGE> 2
SECTION 4. Deferral Election.
A Director of the Company who desires to defer receipt of payment of all or a
portion of his or her Fees must complete and deliver an Election Agreement,
substantially in the form attached hereto as Attachment A, to the Corporate
Secretary of the Company no later than December 31 prior to the calendar year
in which the Fees otherwise would be paid; provided, however, that any Director
hereafter elected to the Board who was not a Director on the preceding December
31 may make an election to defer payment of Fees not yet received for the
calendar year in which he or she is first elected to the Board by delivering an
Election Agreement to the Corporate Secretary of the Company within thirty (30)
days after such election. An Election Agreement, once timely delivered, shall
be effective for the succeeding calendar year (or the remainder of the current
calendar year in the case of a newly elected Director).
Any deferral elections made by a Director of the Company prior to October 26,
1995, shall remain in effect in accordance with the terms of such deferral
election agreement and the Directors' Deferred Compensation Plan in effect when
such elections were made.
A Participant's election to join the Plan shall be irrevocable; shall relate
solely to amounts earned after the filing of a deferral election with the
Corporate Secretary; and shall be made on the Election Agreement, as described
herein.
Participants shall make the following irrevocable elections on each Election
Agreement:
(a) The amount of Fees to be deferred;
(b) The length of the deferral period, pursuant to Section 5 herein;
(c) The investment return choice(s) with respect to deferred amounts,
pursuant to Section 6 herein; and
(d) The form of payment of deferred amounts following the end of the
deferral period, pursuant to Section 7 herein.
SECTION 5. Deferral Period.
Unless the Committee determines otherwise, the deferral period elected by each
Participant with respect to deferrals of Fees for any given year shall be at
least equal to one (1) year, and no more than ten (10) years, following the end
of the calendar year in which the Fees are earned. However, notwithstanding
the deferral periods elected by a Participant, payment of deferred amounts and
accrued investment return thereon shall be made to the Participant, or the
Participant's beneficiary designated pursuant to Section 8 herein, as the case
may be, in a single lump sum within 30 days in the event the Participant's
service as a Director of the Company is terminated by reason of death or
disability at any time prior to full payment of deferred amounts
and accrued investment return thereon. "Disability" for this purpose shall
mean a long-term disability as determined in the sole discretion of the
Committee.
- 2 -
<PAGE> 3
SECTION 6. Deferred Compensation Accounts.
The Fees which a Participant elects to defer shall be treated as if they were
set aside in an unfunded deferred compensation account, maintained by the
Company or its agent for bookkeeping purposes, on the date the Fees otherwise
would have been paid to the Participant (the "Account"). The obligation of the
Company under the Plan to make payment of Fees and the accrued investment
return with respect to a Participant's account constitutes the Company's
unsecured promise to make payments from its general assets as provided herein.
A Participant shall have the status of a general unsecured creditor of the
Company.
A Participant's Account will be credited with the amount of the deferred Fees
and the investment return on the investment choice (and debited with any losses
thereon) specified by the Participant. The investment return shall be
equivalent to the investment performance during the applicable deferral period
of the Delta Family-Care Savings Plan Core Options/Window of Choices Funds
specified by the Participant or, in lieu of or in addition to such investment
choices, such other investment return choices as may be specified from time to
time by the Committee.
Unless the Committee otherwise determines, Participants may change their
investment return choices for amounts deferred under this Plan as often as they
wish by notifying the Corporate Secretary of the Company or agent of the
Company appointed to manage Accounts under this Plan, except that changes to
amounts invested in the investment account equivalent of the Delta Common Stock
Fund may only be made during any period when the Participant is not subject to
the reporting and short-swing trading profits rules of Section 16 of the
Securities Exchange Act of 1934, as amended.
SECTION 7. Payment of Account.
A Participant's Account balance shall be paid following the end of the deferral
period, as determined under Section 5 herein, in either (a) a single lump sum
cash payment, together with the accrued investment return thereon, as soon as
practicable thereafter, or (b) quarterly installments over a period not to
exceed five (5) years, in either case as elected by the Participant on his or
her Election Agreement pursuant to Section 4 herein. The quarterly installment
payments, if elected, will be based upon a Participant's then existing Account
balance divided by the number of installment payments remaining to be made. A
Participant may submit an alternate payment schedule to the Committee for
approval in its sole discretion.
SECTION 8. Death of Participant.
A Participant may designate a beneficiary or beneficiaries (who may be named or
successively) who, upon the Participant's death, will receive the amounts which
otherwise would have been paid to the Participant under the Plan. All
designations shall be signed by the Participant, and shall be in substantially
the form attached hereto as Attachment B or as otherwise prescribed by
- 3 -
<PAGE> 4
the Committee. Each designation shall be effective as of the date received by
the Corporate Secretary of the Company from the Participant.
Participants may change their designations of beneficiary by submitting a new
designation form. The payment of amounts deferred under the Plan shall be in
accordance with the last unrevoked
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 8 predecease the Participant, the deferred amounts that would have been
paid to the Participant or the Participant's beneficiaries shall be paid to the
Participant's estate.
In the event a Participant does not designate a beneficiary, or for any reason
such designation is ineffective, in whole or in part, the amounts that
otherwise would have been paid to the Participant or the Participant's
beneficiaries under the Plan shall be paid to the Participant's estate.
SECTION 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 by the Board of Directors. No such
amendment, modification or termination shall in any material manner adversely
affect any Participant's right to deferred amounts, contributions, or accrued
investment return thereon, without the consent of the Participant.
SECTION 10. Additional Provisions.
Any notice or filing required to be given to the Company or the Corporate
Secretary 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 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.
Participants' rights with respect to deferred amounts, contributions and
accrued investment return 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 will the Company make any
payment under the Plan to any assignee or creditor of a Participant.
In the event that 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.
All costs of implementing and administering the Plan shall be borne by the
Company. The Plan shall be construed and enforced in accordance with the laws
of the State of Georgia. All obligations of the Company under the Plan shall
be binding upon any successor to the Company,
- 4 -
<PAGE> 5
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.
- 5 -
<PAGE> 6
DELTA AIR LINES, INC.
DIRECTORS' DEFERRED COMPENSATION PLAN
ELECTION AGREEMENT (CALENDAR YEAR 1996)
To: Corporate Secretary
I hereby irrevocably elect to participate in the Delta Air Lines, Inc.
Directors' Deferred Compensation Plan (the "Plan") with respect to the
compensation designated below which I may be entitled to receive from Delta Air
Lines, Inc. (the "Company") as a member of its Board of Directors, beginning
January 1, 1996 and ending on December 31, 1996.
I. AMOUNT DEFERRED
I hereby elect to defer payment of my annual retainer, committee
chairperson retainer and meeting fees which I am entitled to receive for
services as a member of the Board of Directors of the Company, as follows:
A. Annual retainer and committee chairperson retainer fees (check one):
________100%
________Other (specify percentage)
B. Board and Committee meeting fees (check one):
________100%
________Other (specify percentage)
II. DEFERRAL PERIOD
Please defer my fees as specified above until the following date (specify
date, which must be at least one (1) year, but no more than ten (10) years,
following the end of the calendar year in which the Fees are earned): December
31, 19___.
III. FORM OF PAYMENT OF DEFERRED AMOUNTS
Please make payment following the end of the deferral period specified
above of amounts deferred under the Plan and the accrued investment return
thereon as follows (check one):
A. _____Single lump sum payment.
B. _____Quarterly installment payments, beginning on the January
1st following the end of the deferral period specified
above (specify number, not to exceed 20 installments
[five years]:_____).
<PAGE> 7
IV. INVESTMENT CHOICES
Please credit (debit) my unfunded Account, which is being maintained by
the Company or its agent for bookkeeping purposes, with investment returns
(losses) on deferral amounts pursuant to the investment return choice(s)
specified below equivalent to the Delta Family-Care Savings Plan Core
Options/Window of Choices Funds, as provided in Section 6 of the Plan (specify
one or more funds, giving percentages for each, totaling 100%):
Core Options
% Insurance Contracts/Stable Value Fund
------
% Commingled Bonds Fund
------
% Conservative Growth Balanced Fund
------
% Growth Balanced Fund
------
% Fidelity U.S. Equity Index Commingled Pool
------
% Commingled Stocks Fund
------
% Delta Common Stock Fund
------
Window of Choices Funds
% Merrill Lynch Capital Fund (Class A)
------
% Fidelity Equity-Income Fund
------
% Fidelity Growth & Portfolio
------
% Fidelity Magellan (R) Fund
------
% Twentieth Century Select Investors Fund
------
% Fidelity Contrafund
------
% Twentieth Century Ultra Investors Fund
------
% Fidelity OTC Portfolio
------
% Delaware Group Trend Fund
------
% Templeton Foreign Equity Series
------
100%
I acknowledge that I have reviewed the Plan and understand that my
participation is subject to the terms and conditions contained in the Plan.
Words and phrases used in this Election Agreement shall have the meanings
assigned by the Plan.
I acknowledge that I have been advised to consult with my own tax and
estate planning advisors before making this election to defer in order to
determine the tax effect of my participation in the Plan.
Date:
------------- --------------------
(Signature)
--------------------
(Printed Name)
<PAGE> 8
DELTA AIR LINES, INC.
DIRECTORS' DEFERRED COMPENSATION PLAN
BENEFICIARY DESIGNATION
In accordance with the terms and conditions of the Delta Air Lines, Inc.
Directors' Deferred Compensation Plan (the "Plan"), in the event of my death, I
hereby designate the person(s) indicated below as my beneficiary(ies) to
receive all amounts payable to me under said Plan:
Name:
--------------------------
Address:
--------------------------
--------------------------
--------------------------
Social Security Number of Beneficiary:
---------------
Relationship: Date of Birth:
--------------------------- -----------------
In the event that the above-named beneficiary predeceases me, I hereby
designate the following person as beneficiary:
Name:
--------------------------
Address:
--------------------------
--------------------------
--------------------------
Social Security Number of Beneficiary:
---------------
Relationship: Date of Birth:
--------------------------- -----------------
I hereby expressly revoke all prior designations of beneficiaries, reserve
the right to change the beneficiary(ies) herein designated, and agree that the
rights of said beneficiary(ies) shall be subject to the terms of said Plan. In
the event that there is no beneficiary living at the time of my death, I
understand that the amounts payable under said Plan will be paid to my estate.
Date:
------------- --------------------
(Signature)
--------------------
(Printed Name)
<PAGE> 1
EXHIBIT 10.17
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE 1989 STOCK INCENTIVE PLAN
January 26, 1995
Dear
The 1989 Stock Incentive Plan of Delta Air Lines, Inc., as amended
("Plan"), is intended as an inducement for officers, executives and key
employees of Delta Air Lines, Inc. (the "Company") to continue in the
employment of the Company, and to provide a greater incentive to such employees
to make material contributions to the Company's success by increasing their
proprietary interest in the Company through increased direct common stock
ownership. The Plan, which provides for certain awards to eligible employees,
is administered by the Personnel, Compensation & Nominating Committee of the
Board of Directors (the "Committee"). Pursuant to the Plan, the Committee has
selected you to receive an award of Restricted Stock (as defined in the Plan)
effective as of the close of business on January 26, 1995, and has instructed
me to direct this letter to you.
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, the Company and you as an employee of the
Company (hereinafter called "Employee"), do hereby agree as follows:
1. Grant of Shares. Pursuant to action of the Committee, the Company has
granted to the Employee ______________ shares of Restricted Stock (the
"Shares"). This award is in all respects made subject to the terms and
conditions of the Plan, a copy of which has been provided to you, and by
signing and returning a copy of this Agreement to the Secretary of the Company,
you acknowledge that you have read the Plan and agree to all of the terms and
conditions thereof for yourself, any designated beneficiary and your heirs,
executors, administrators or personal representative. Terms used in this
Agreement which are defined in the Plan shall have the meanings set forth in
the Plan. In the event of any conflict between the Plan and this Agreement,
the Plan shall control. You also acknowledge receipt of the Prospectus dated
January 26, 1995, relating to the Plan.
As soon as practicable following the Employee's execution of this
Agreement and the stock power described below in Section 7, a certificate or
certificates representing the Shares and bearing the legend described below in
Section 7 shall be issued to the Employee. Upon issuance of the certificates
representing the Shares, the Employee shall have all rights of a stockholder
with respect to the Shares, including the right to vote and, subject to Section
11 of this Agreement, to receive all dividends or other distributions paid or
made with respect to the Shares; provided, however, that the Shares (and any
securities of the Company which may be issued with respect to the Shares by
virtue of any dividend
Page 1 of 4
<PAGE> 2
reinvestment, stock split, combination, stock dividend or recapitalization,
which securities shall be deemed to be "Shares" hereunder) shall be subject to
the terms and all of the restrictions set forth in this Agreement.
2. Restriction. Until the restriction imposed by this Section 2 (the
"Restriction") has lapsed pursuant to Section 3 or 4 below, Employee shall not
be permitted to sell, exchange, assign, transfer, pledge or otherwise dispose
of the Shares, and the Shares shall be subject to forfeiture as set forth in
Section 5 below.
3. Lapse of Restriction by Passage of Time or at Retirement. The
Restriction shall lapse and have no further force or effect upon the earlier
of: (a) the fifth anniversary of the date of this Agreement; or (b) Employee's
Retirement (as defined in the Plan) at or after his normal retirement date as
determined under the retirement or pension plan of the Company applicable to
Employee and then in effect ("Normal Retirement").
If Employee's employment is terminated because of early Retirement prior
to his Normal Retirement as permitted under the retirement or pension plan of
the Company applicable to Employee, the Restriction shall be deemed to have
lapsed on 33-1/3% of the Shares (including 33-1/3% of any additional Shares
which at the time have been purchased with dividends on the Shares) awarded
hereunder for each full year after the second full year which shall have
elapsed between the date of this Agreement and the date of such early
Retirement, and the remaining Shares awarded hereunder shall be forfeited and
transferred to the Company in the manner described in Section 5; provided,
however, that if within two years of any such early Retirement and without the
Committee's approval the Employee is employed or retained by any air carrier or
organization which the Committee determines is in direct and substantial
competition with the Company or any of its affiliates, Employee shall be
required to repay to the Company the cash value of any Shares and any cash
which vested at such early Retirement. The amount of such repayment shall be
the closing price of the Company's common stock ("Common Stock") on the New
York Stock Exchange ("NYSE") on the day that the Restriction on such Shares
lapsed (or, in the event that no sale of the Common Stock takes place on the
NYSE on such date, the closing price of the Common Stock on the NYSE on the
immediately preceding date on which such a sale occurred) multiplied by the
number of such Shares.
4. Lapse of Restriction by Death or Disability. The Restriction shall
lapse with respect to all Shares hereunder, and have no further force or
effect, upon the Employee's death or Disability (as defined in the Plan).
Employee may provide to the Company written designation naming a person or
persons who shall receive the Shares in the event of Employee's death, and such
designation must be in a form approved by counsel for the Company. If there is
no such approved designation, Shares shall be distributed upon Employee's
death pursuant to Employee's last will and testament or as provided by law.
Page 2 of 4
<PAGE> 3
5. Forfeiture of Shares. In the event of termination of the Employee's
employment with the Company due to the Employee's voluntary resignation (other
than Normal Retirement), involuntary discharge or early Retirement to the
extent provided for in Section 3, prior to lapse of the Restriction under
Section 3 or 4, Employee shall immediately forfeit all right, title, and
interest to the Shares (and in the case of early Retirement the remaining
Shares referred to in Section 3), and such Shares shall be canceled or
transferred to the Company by the Employee, without consideration to the
Employee or his heirs, executors, administrators or personal representative.
6. Revocation or Modification of Award. In the event that Employee either
voluntarily suggests and later accepts a demotion, or is involuntarily demoted,
to a job involving lesser responsibilities than those of the job held by
Employee at the time of this Agreement, the Committee may in its sole
discretion, prior to the earlier of six months from the date of the demotion or
the lapse of the Restriction pursuant to Section 3 or 4 above, revoke or modify
this award of Shares in any manner as it deems appropriate under the
circumstances. The Committee shall determine in its sole discretion what
constitutes a demotion to a job involving lesser responsibilities for purposes
of this Section 6.
7. Endorsement and Retention of Certificates. All certificates
representing the Shares shall be endorsed on the face thereof with the
following legend:
"The shares of stock represented by this
certificate and the sale, transfer or other
disposition of such shares are restricted by
and subject to a Restricted Stock Award
Agreement dated January 26, 1995 between
____________________________ and the Company,
a copy of which is on file with the Secretary
of the Company."
All certificates for Shares shall be held by the Company until the restrictions
thereon shall have lapsed, and as a condition to this award, Employee shall
execute and deliver to the Company a stock power, endorsed in blank and
approved by counsel for the Company, relating to the Shares, as set forth in
the Plan.
Upon lapse of the Restriction pursuant to Section 3 or 4 of this Agreement
without a prior forfeiture of the Shares, a certificate or certificates for an
appropriate number of unrestricted Shares shall be delivered to Employee and
the certificate with the legend indicated above shall be canceled.
8. Withholding Taxes. Upon lapse of the Restriction on the Shares
pursuant to Section 3 or 4 above, sufficient Shares shall be transferred to the
Company to provide for the payment of any taxes required to be withheld by
federal, state, or local law with respect to income resulting from such lapse.
The value of the Shares so transferred shall be the closing price of the Common
Stock on the NYSE on the date the Restriction lapses (or, in the event that no
sale of the Common Stock takes place on the NYSE on such date,
Page 3 of 4
<PAGE> 4
the closing price of the Common Stock on the NYSE on the immediately
preceding date on which such a sale occurred).
9. Rights Not Enlarged. Nothing herein confers on the Employee any right
to continue in the employ of the Company or any of its subsidiaries.
10. Succession. This Agreement shall be binding upon and operate for the
benefit of the Company and its successors and assigns, and the Employee and his
heirs, executors, administrators or personal representative.
11. Dividends. Any cash dividends which may become payable on the Shares
shall be reinvested by the Company in shares of Common Stock, to the extent
Shares are available under the Plan. If Shares are not so available, dividends
shall be paid in cash and held by the Company for the account of the Employee
until the Restriction lapses. In such event the Company shall pay interest on
the amount so held as determined by the Committee, and the accumulated amount
of such dividends and interest shall be payable to the Employee upon the lapse
of the Restriction. Those Shares and any cash held for the account of the
Employer shall be governed by the Restriction set forth in the Agreement; the
Restriction with respect to such Shares and such cash shall lapse as provided
in Sections 3 and 4 of this Agreement; and such Shares and such cash shall be
forfeited pursuant to Section 5 to the extent that the Shares on which such
dividends were paid shall be so forfeited.
12. Fractional Shares. Upon lapse of the Restriction, certificates for
fractional Shares shall not be delivered to the Employee, and any fractional
Shares which may result from the application of Sections 3 or 4 of this
Agreement shall be paid in cash to Employee, as determined in the last sentence
of Section 8, above.
This Agreement has been prepared in duplicate. Please note your
acceptance in the space provided below, and return the original for the
Company's records.
IN WITNESS WHEREOF, the Company, acting through the Committee, has caused
this Agreement to be duly executed and the Employee has hereunto set his or her
hand, all as of the day and year first written above.
DELTA AIR LINES, INC.
By:
--------------------------
EMPLOYEE
--------------------------
Page 4 of 4
<PAGE> 5
NONQUALIFIED STOCK OPTION AWARD AGREEMENT
UNDER THE 1989 STOCK INCENTIVE PLAN
January 25, 1996
Dear
The 1989 Stock Incentive Plan of Delta Air Lines, Inc., as amended
("Plan"), is intended as an inducement for officers, executives and key
employees of Delta Air Lines, Inc. (the "Company") to continue in the
employment of the Company, and to provide a greater incentive to such employees
to make material contributions to the Company's success by increasing their
proprietary interest in the Company through increased direct stock ownership.
The Plan, which provides for certain awards to eligible employees, is
administered by the Personnel, Compensation & Nominating Committee of the Board
of Directors (the "Committee"). Pursuant to the Plan, the Committee selected
you to receive an award of a Nonqualified Stock Option under the Plan,
effective as of the close of business on January 25, 1996, and has instructed
me, on behalf of the Company, to provide this Agreement to you.
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, the Company and you as an employee of the
Company (hereinafter called "Employee"), do hereby agree as follows:
A. 1996 Stock Option Awards
1. The Company hereby grants to Employee a Nonqualified Stock Option
("Stock Option") covering _____________________ shares of Stock, as defined in
the Plan, a copy of which has been furnished to you. This award is in all
respects made subject to the terms and conditions of the Plan and, by signing
and returning a copy of this Agreement to the Secretary of the Company, you
acknowledge that you have read this Agreement and the Plan and agree to all of
the terms and conditions thereof for yourself, any designated beneficiary and
your heirs, executors, administrators or personal representative. Terms used
in this Agreement which are defined in the Plan shall have the meanings set
forth in the Plan. In the event of any conflict between the Plan and this
Agreement, the Plan shall control. You also acknowledge receipt of the
Prospectus dated January 26, 1995, relating to the Plan.
2. The Option Price of the Stock Option covered by this award shall be
$______ per share, which price was the closing price of the Stock on the New
York Stock Exchange (the "NYSE") on the date of this award.
3. Subject to the terms and conditions of the Plan and Paragraph 7 below,
the Stock Option granted to you herein may be exercised during the period
beginning January 25, 1997 and
<PAGE> 6
ending January 24, 2006, except as provided in Sections 5 and 10 of the Plan.
Subject to the terms and conditions of the Plan, Employee (or a party acting on
behalf of a deceased employee pursuant to Section 10 of the Plan) may exercise
the Stock Option granted herein in whole or, from time to time, in part by way
of a written notice delivered to the Secretary of the Company which includes
the following: (i) name, mailing address and social security number of
Employee and the date, which shall be the actual date of the notice; (ii) the
number of shares of Stock with respect to which the Stock Option is being
exercised; (iii) the date of grant and the Option Price with respect to the
Stock Option being exercised; and (iv) the signature of Employee or a party
acting on behalf of a deceased employee. Such notice shall be accompanied by
payment of the full purchase price of the shares of Stock covered by the
exercise, in a check made payable to the order of the Company. If the
Committee, in its sole discretion, shall determine that it is appropriate to do
so, such payment may be made in whole or in part by tender of shares of
unrestricted Stock, as set forth in Section 5 of the Plan, subject to such
requirements or procedures as the Committee may specify.
4. When the Stock Option is exercised, the Company shall make the
appropriate calculations under the Plan and deliver to Employee, as soon as
practicable, a certificate or certificates representing the net number of
shares of Stock due to Employee pursuant to such exercise, calculated in
accordance with this paragraph. The Company shall withhold from the shares of
Stock issued to Employee a sufficient number of shares (rounded down to the
nearest whole share) of Stock based on its fair market value on the date of
exercise to cover any amounts which the Company is required to withhold to
comply with withholding requirements of federal, state or local tax laws, rules
or regulations. The fair market value for purposes of the second sentence of
this paragraph shall be as determined by the Committee.
5. The Stock Option granted herein is not transferable otherwise than by
will, by the laws of descent and distribution, or by a written designation
referred to in Section 10(c) of the Plan, and is exercisable during the
Employee's lifetime only by the Employee. In the event that the Stock Option
is exercised pursuant to Section 10 of the Plan by any person other than
Employee, such notice shall be accompanied by appropriate proof of the right of
such person to exercise the Stock Option.
6. The Stock Option granted herein is subject to all terms of the Plan,
including, but not limited to, (i) Section 10(b), which provides for the
forfeiture and repayment of certain benefits in certain circumstances in the
event of Employee's Retirement prior to his normal retirement date; and (ii)
Section 10(d), which provides that the Committee may in its sole discretion
revoke or modify this award in any manner as it deems appropriate under the
circumstances if Employee either voluntarily suggests and later accepts a
demotion, or is involuntarily demoted, to a job involving lesser
responsibilities than those of the job held by Employee at the time of this
award.
7. Employee acknowledges that the federal securities laws and/or the
Company's policies regarding trading in its securities may limit or restrict
Employee's right to buy or sell shares of Stock, including, without limitation,
sales of Stock to exercise the Stock Option or sales of Stock acquired pursuant
to the exercise of the Stock Option. Employee agrees to comply with such
federal securities law requirements and Company policies, as such laws and
policies are amended from time to time.
-2-
<PAGE> 7
This Agreement has been prepared in duplicate. Please note your
acceptance in the space provided therefor and return the original for the
Company's records.
IN WITNESS WHEREOF, the Company, acting through the Committee, has caused
this Agreement to be duly executed, and Employee has hereunto set his or her
hand, all as of the day and year first written above.
DELTA AIR LINES, INC.
By
--------------------------
EMPLOYEE
-----------------------------
-3-
<PAGE> 1
EXHIBIT 11
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR YEARS ENDED JUNE 30, 1994, 1995, AND 1996
(In millions except per share amounts)
<TABLE>
<CAPTION>
PRIMARY: 1994 1995 1996
------------- ------------- -----------
<S> <C> <C> <C>
Weighted average shares outstanding 50 51 52
Additional shares assuming
exercise of stock options * - -
------------- ------------- -----------
Average shares outstanding as adjusted 50 51 52
============= ============= ===========
Income (loss) before cumulative effect of
accounting changes $ (409) $ 294 $ 156
Preferred dividends series C (80) (80) (74)
Preferred dividends series B (30) (8) (8)
------------- ------------- -----------
Income (loss) before cumulative effect of
accounting changes attributable to primary shares (519) 206 74
Cumulative effect of accounting changes - 114 -
------------- ------------- -----------
Net income (loss) attributable to primary shares $ (519) $ 320 $ 74
============= ============= ===========
Primary earnings (loss) per share before
cumulative effect of accounting changes $ (10.32) $ 4.07 $ 1.42
Cumulative effect of accounting changes - 2.25 -
------------- ------------- -----------
Primary earnings (loss) per common share $ (10.32) $ 6.32 $ 1.42
============= ============= ===========
FULLY DILUTED:
Weighted average shares outstanding 50 51 52
Additional shares assuming:
Conversion of series C convertible preferred stock 17 17 17
Conversion of series B ESOP convertible
preferred stock 7 2 2
Conversion of 3.23% convertible subordinated notes 10 10 9
Exercise of stock options * - -
------------- ------------- -----------
Average shares outstanding as adjusted 84 80 80
============= ============= ===========
Income (loss) before cumulative effect of
accounting changes $ (409) $ 294 $ 156
Interest on 3.23% convertible subordinated
notes net of taxes 32 32 26
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock (18) (5) (4)
------------- ------------- -----------
Income (loss) before cumulative effect of
accounting changes (395) 321 178
Cumulative effect of accounting changes - 114 -
Net income (loss) attributable to fully ------------- ------------- -----------
diluted common shares $ (395) $ 435 $ 178
============= ============= ===========
Fully diluted earnings (loss) per common share
before cumulative effect of accounting changes $ (4.72)* $ 4.01 $ 2.21 *
Cumulative effect of accounting changes - 1.42 -
------------- ------------- -----------
Fully diluted earnings (loss) common share $ (4.72)* $ 5.43 $ 2.21 *
============= ============= ===========
</TABLE>
*Antidilutive
<PAGE> 1
EXHIBIT 12
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions except ratios)
<TABLE>
<CAPTION>
-----------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (before cumulative effect of accounting changes):
Net income (loss) $ (506) $ (415) $ (409) $ 294 $ 156
Add (deduct):
Income tax (credit) provision (271) (236) (251) 200 120
Fixed charges 569 616 689 665 582
Interest capitalized (70) (62) (33) (30) (26)
Interest offset on
Guaranteed Serial
ESOP Notes (15) (15) (14) (4) (2)
-------------------------------------------
Earnings (loss) as adjusted $ (293) $ (112) $ (18) $ 1,125 $ 830
===========================================
Fixed charges:
Interest expense $ 221 $ 239 $ 304 $ 292 $ 269
1/3 of rentals 333 362 371 369 311
Additional interest on
Guaranteed Serial
ESOP Notes 15 15 14 4 2
-------------------------------------------
Total fixed charges $ 569 $ 616 $ 689 $ 665 $ 582
===========================================
Ratio of earnings to fixed charges - - - 1.69 1.43
</TABLE>
- ----------------------------------------------
Earnings for the fiscal years ended June 30, 1992, 1993, and 1994 were
inadequate to cover fixed charges. Additional earnings of $862 million for the
fiscal year ended June 30, 1992, of $728 million for the fiscal year ended June
30, 1993, and of $ 707 million for the fiscal year ended June 30, 1994, would
have been necessary to bring the ratio to 1.0.
<PAGE> 1
EXHIBIT 13
LEADERSHIP 7.5 AND BEYOND
In April 1994, Delta announced Leadership 7.5, a three year plan to return
the Company to sustained profitability and position it for future growth. The
core of the program was a goal of reducing the Company's annual operating
expense 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. The unit cost goals reflected the phase-in of the
$2 billion in targeted cost savings, excluding restructuring and other
non-recurring charges, and assumed other costs and operating capacity remain at
calendar 1993 levels.
Developments in the airline industry during fiscal 1996 reaffirmed Delta's
belief that the only way for the Company to succeed in the highly competitive
environment in which it operates is to permanently reduce operating costs to a
competitive level. The level of low-cost, low-fare competition in Delta's
domestic markets continued to rise during fiscal 1996 at a rate faster than
that experienced by Delta's major competitors, negatively impacting average
fare levels in affected markets. Traffic patterns during fiscal 1996 validated
the prediction that business traffic growth would stabilize while leisure
traffic growth would accelerate.
As of June 30, 1995, Delta had succeeded in achieving its first
Leadership 7.5 unit cost goal, beating the 8.6c. goal by a generous margin with
a unit cost of 8.39c. for the June 1995 quarter. By the end of fiscal 1995,
Delta had already implemented initiatives estimated to generate approximately
$1.6 billion in annual cost reductions. During fiscal 1996, the Company
continued to reduce costs, recording a 3% reduction in both total operating
expenses and unit costs for the year, excluding restructuring and other
non-recurring charges. Actual June 1996 quarter unit cost came in at 8.33c.,
excluding a restructuring charge. The June 1996 quarter unit cost reflects
expense reductions in several categories which were partially offset by a
significant increase in the price of jet fuel, a
(Graph Omitted)
Quarterly Unit Cost*
(in cents)
- ---------------------------
Cost Per ASM
[C] [C]
June 1994 9.20
June 1995 8.39
June 1996 8.33
Long-term Goal 7.5
- ---------------------------
* Excludes restructuring
charges
DELTA AIR LINES, INC. 7
<PAGE> 2
4.3c. per gallon federal tax on jet fuel and costs associated with carrying
record levels of passenger traffic during the quarter.
A major milestone was reached in the Leadership 7.5 program in April 1996,
when Delta pilots ratified a new four year collective bargaining agreement,
which became effective May 1, 1996. The new agreement is expected to
contribute approximately $760 million to Leadership 7.5 cost reductions over
the four year term of the contract, before considering any payments under the
pilots' profit sharing program.
A key outcome of the new pilot agreement is the formation of a low-fare
operation. Subsequent to the end of fiscal 1996, the Company announced the
October 1, 1996 launch of Delta Express, a low-fare business unit within Delta
operating in certain highly competitive, leisure-oriented markets within
Delta's system. Delta Express will begin daily nonstop service connecting 10
midwest and northeast cities with Orlando and four other Florida cities,
operating with a dedicated fleet of Boeing 737-200 aircraft. Delta Express is
scheduled to grow to 25 aircraft by January, 1997.
In July 1996, the Company announced a shift in strategy from a strict
focus on operating costs to a more balanced approach that focuses on both
operating cost reduction and revenue improvement. Delta's success in
strengthening its financial condition, changes in the industry environment, and
a renewed emphasis on customer service motivated the shift. While the unit
cost goal of 7.5c. per available seat mile will be maintained as a long-term
goal, the Company no longer expects to reach this goal by the June 1997
quarter. Delta increased its three year operating margin goal to 12% by the
end of fiscal 1999. Delta's operating margin goal is aggressive, and no
assurance can be given that the Company will meet this goal.
8
DELTA AIR LINES, INC.
<PAGE> 3
AIRCRAFT FLEET
Delta continues to maintain one of the youngest, most efficient and
technologically advanced fleets in the U.S. airline industry. During fiscal
1996, the Company continued to refine its aircraft fleet plan to simplify the
fleet, improve operating efficiency, and better meet customer expectations.
<TABLE>
<CAPTION>
Aircraft Fleet
At June 30, 1996
Average Age of
Aircraft Type
Type of Aircraft (Years) Owned Leased Total
- ---------------- -------------- -------- ------ -----
<S> <C> <C> <C> <C>
B-727-200....... 19.3 106 23 129
B-737-200....... 11.6 1 53 54
B-737-300....... 10.4 - 13 13
B-757-200....... 7.4 45 41 86
B-767-200....... 13.1 15 - 15
B-767-300....... 7.1 2 24 26
B-767-300ER..... 4.2 10 7 17
L-1011-1........ 19.2 31 - 31
L-1011-200...... 18.0 1 - 1
L-1011-250...... 13.7 6 - 6
L-1011-500...... 15.4 17 - 17
MD-11........... 3.1 5 7 12
MD-88........... 6.0 63 57 120
MD-90........... 0.9 12 - 12
--- --- ---
Total......... 11.2 314 225 539
=== === ===
</TABLE>
During fiscal 1996, Delta announced plans to retire all 55 Lockheed L-1011
aircraft from its fleet, including the removal of all L-1011 aircraft from
transatlantic service by the end of fiscal 1998. At the same time, Delta
announced an agreement with The Boeing Company to purchase 12 additional Boeing
767-300ER aircraft for delivery in fiscal 1997 and 1998, and to cancel its 52
orders (22 of which were subject to reconfirmation by Delta) and 56 options to
purchase Boeing 737-300 aircraft.
The newly ordered 767-300ER aircraft, together with aircraft already on
order, will replace all L-1011 aircraft now being used in transatlantic
service. The L-1011 aircraft being removed from transatlantic service will be
reconfigured and used for domestic service, where they will replace older, less
efficient versions of the L-1011. See Note 17 of Notes to Consolidated
Financial Statements.
During fiscal 1996, Delta accepted delivery of 11 new aircraft, including
one B-757-200 aircraft; two B-767-300ER aircraft; one MD-11 aircraft; and seven
MD-90 aircraft.
Also during fiscal 1996, the Company sold one L-1011-1 aircraft, and
returned to lessors the remaining nine A310-300 aircraft and five B-727-200
aircraft.
Subsequent to June 30, 1996, Delta entered into a definitive agreement
with the Nordam Group, Inc., to purchase, between fiscal years 1997 and 2000,
25 shipsets of Stage 3 engine hushkits for B-737-200 aircraft, with an option
to purchase an additional 30 shipsets.
The aircraft orders include four MD-90 aircraft scheduled for delivery
after fiscal 1997 that are subject to reconfirmation by Delta. See Note 9 of
Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Aircraft Delivery Schedule
Aircraft on Firm Order at June 30, 1996
Delivery in Year Ending June 30:
-----------------------------------------------
After
Orders: 1997 1998 1999 2000 2001 2001 Total
- ------- ---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
B-757-200...... - - - 1 3 - 4
B-767-300...... - - 2 - - - 2
B-767-300ER.... 5 9 - - - - 14
MD-11.......... 2 1 - - - - 3
MD-90.......... 4 - 9 5 3 2 23
----- ----- ----- ----- ----- ----- -----
Total....... 11 10 11 6 6 2 46
===== ===== ===== ===== ===== ===== =====
</TABLE>
11
DELTA AIR LINES, INC.
<PAGE> 4
<TABLE>
<CAPTION>
Aircraft Delivery Schedule
Aircraft on Option at June 30, 1996
Delivery in Year Ending June 30:
-----------------------------------------------
After
Options 1997 1998 1999 2000 2001 2001 Total
- ------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
B-757-200... - - 2 2 - 24 28
B-767-300ER. - - 9 5 - - 14
MD-11....... - - 5 5 5 2 17
MD-88....... - - 15 - - - 15
MD-90....... - - 11 7 8 24 50
----- ----- ----- ----- ----- ----- -----
Total..... - - 42 19 13 50 124
===== ===== ===== ===== ===== ===== =====
</TABLE>
(Graph Omitted)
-----------------------------------
Capital Expenditures
(in millions of dollars)
-----------------------------------
Flight
Equipment
(includes Ground
leased Property and
aircraft) Equipment
---------- -----------
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
1996 638 267
-----------------------------------
Delta's aircraft which are subject to reconfirmation or are on option
provide the Company with the flexibility to adjust scheduled aircraft
deliveries.
The MD-88 options may be converted into MD-90 orders, and the B-767-300ER
options may be converted into B-767-300 orders, all at Delta's election.
Delta continues to evaluate long-term aircraft alternatives with the goal
of achieving the optimal mix of aircraft to meet operational needs. Delta also
intends to continue its efforts to carefully manage capital spending and
simplify the fleet.
FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS - FISCAL 1996 COMPARED WITH FISCAL 1995
For fiscal 1996, Delta recorded net income of $156 million ($1.42
primary and fully diluted earnings per common share after preferred
stock dividend requirements) and operating income of $463 million. In
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.
Fiscal 1996 results include pretax restructuring and other
non-recurring charges totaling $829 million ($506 million after-tax or
$9.71 per common share) related to the write-down of Delta's Lockheed
L-1011 fleet and the continuation of the Company's Leadership 7.5 cost
reduction program. See Note 17 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 of Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS 112). See Note 10 of Notes to
Consolidated Financial Statements.
(Graph Omitted)
<TABLE>
<CAPTION>
- -----------------------
Primary Earnings (Loss)
Per Common Share*
(in dollars)
<S> <C>
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
1996 11.13
- -----------------------
* Excludes restructuring and other
non-recurring charges and
cumulative effects of accounting
changes
</TABLE>
12
DELTA AIR LINES, INC.
<PAGE> 5
Excluding the restructuring and other non-recurring charges in fiscal
1996 and the cumulative effect of the adoption of SFAS 112 in fiscal 1995, net
income for fiscal 1996 totaled $662 million ($11.13 primary and $8.49 fully
diluted earnings per common share after preferred stock dividend requirements)
and operating income was $1.3 billion, compared to net income of $294 million
($4.07 primary and $4.01 fully diluted earnings per common share after
preferred stock dividend requirements) and operating income of $661 million in
fiscal 1995.
The improvement in financial results for fiscal 1996 as compared to
fiscal 1995 primarily reflects cost reductions in most operating expense
categories under the Company's Leadership 7.5 program. These reductions
resulted in a $370 million, or 3%, decline in operating expenses, excluding
restructuring and other non-recurring charges in fiscal 1996. Passenger
revenue increased $297 million, or 3%, due to increased traffic stimulated by
competitive pricing actions, the expiration of the U.S. transportation excise
tax and general improvements in economies worldwide.
Financial Results Summary
<TABLE>
<CAPTION>
1996 1995 Change
---------- -------------- ------
(In Millions, Except
Share Data)
<S> <C> <C> <C>
Operating Revenues .............................. $ $12,455 $ 12,194 + 2%
Operating Expenses .............................. 11,992 11,533 + 4
---------- -----------
Operating Income ................................ 463 661 -30
Other Expenses, Net.............................. (187) (167) +12
---------- -----------
Income Before Income Taxes
and Cumulative Effect of Accounting Change ..... 276 494 -44
Income Taxes Provided, Net ...................... (120) (200) -40
---------- -----------
Income Before Cumulative
Effect of Accounting Change .................... 156 294 -47
Cumulative Effect of Accounting Change,
Net of Tax ................................... - 114 -
---------- -----------
Net Income ...................................... 156 408 -62
Preferred Stock Dividends ....................... (82) (88) - 7
---------- -----------
Net Income Available to
Common Stockholders ............................ $ 74 $ $320 -77%
========== ===========
Primary Income Per Common Share:
Before Cumulative Effect of Accounting Change .. $ 1.42 $ 4.07 -65%
Cumulative Effect of Accounting Change ......... - 2.25 -
---------- -----------
$ 1.42 $ 6.32 -78%
========== ===========
Fully Diluted Income Per Common Share:
Before Cumulative Effect of Accounting Change .. $ 1.42 $ 4.01 -65%
Cumulative Effect of Accounting Change ......... - 1.42 -
---------- -----------
$ 1.42 $ 5.43 -74%
========== ===========
Number of Shares Used to Compute
Net Income Per Common Share:
Primary ...................................... 52,101,152 50,657,613 N/A
Fully Diluted ................................ 52,101,152 80,118,720 N/A
</TABLE>
Operating revenues for fiscal 1996 were $12.5 billion, up 2% from
$12.2 billion in fiscal 1995. Passenger revenue increased 3%, the
result of 3% growth in revenue passenger miles. The passenger mile
yield was virtually unchanged. Domestic load factor increased two
points to 66%, as domestic revenue passenger miles and domestic capacity
rose 6% and 3%, respectively. The domestic passenger mile yield
decreased 1%, the result of discount fare promotions and the continued
presence of low-cost, low-fare carriers in markets served by Delta.
International load
<TABLE>
<CAPTION>
Operating Revenue Detail
1996 1995 Change
------- ------- ------
<S> <C> <C> <C>
(In Millions)
Passenger ... $11,616 $11,319 +3%
Cargo ....... 521 565 -8
Other, Net .. 318 310 +3
------- -------
Total ....... $12,455 $12,194 +2%
======= =======
</TABLE>
13
DELTA AIR LINES, INC.
<PAGE> 6
(Pie Chart Omitted)
<TABLE>
<CAPTION>
- -------------------------------------------
1996 Distribution Of Operating Revenues
<S> <C>
Domestic Passenger 75%
International Passenger 18%
Cargo 4%
Other 3%
- -------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Revenue-Related Statistics
1996 1995 Change
------ ------ ------
<S> <C> <C> <C>
Revenue Passengers Enplaned (Thousands) .... 91,341 88,893 + 3%
Revenue Passenger Miles (Millions) ......... 88,673 86,417 + 3%
Passenger Load Factor ...................... 67.8% 66.2% +1.6 pts.
Passenger Mile Yield ....................... 13.10c. 13.10c. -
Cargo Ton Miles (Millions).................. 1,368 1,500 - 9%
Cargo Ton Mile Yield ....................... 38.08c. 37.67c. + 1%
Operating Revenue Per Available Seat Mile .. 9.53c. 9.33c. + 2%
</TABLE>
factor increased one point to 73%, as international revenue passenger
miles decreased 7% while operating capacity decreased 8%. The decline in
international capacity is mainly due to the cancellation of service on
certain international routes. The international passenger mile yield
increased 2%, primarily due to higher average fare levels in certain
international markets.
Cargo revenues in fiscal 1996 decreased 8% to $521 million, the
result of a 9% decline in cargo ton miles, partially offset by a 1%
increase in the ton mile yield. The decrease in cargo ton miles is
primarily due to the cancellation of service on certain international
routes and the resulting decrease in the average cargo trip length.
All other revenues were up 3% to $318 million, mainly due to
increased revenues from joint marketing programs associated with the
Company's SkyMiles(R) frequent flyer program. See Note 1 of Notes to
Consolidated Financial Statements.
Operating expenses in fiscal 1996 totaled $12.0 billion, up 4% from $11.5
billion in fiscal 1995. Operating capacity increased less than 1% to 130.8
billion available seat miles, and operating cost per available seat mile
increased 4% to 9.17c.. Excluding restructuring and other non-recurring charges
in fiscal 1996, operating expenses were down 3%, and operating cost per
available seat mile decreased 3%.
Salaries and related costs decreased 3%, primarily due to a lower
average number of employees during the year and lower employee travel
and benefit expenses, partly offset by increased costs associated with
other employee compensation plans, primarily profit sharing.
Aircraft fuel expense increased 7%, as the average fuel price per
gallon rose 8% to 58.53c., partially offset by a 1% reduction in gallons
consumed.
Passenger commissions expense declined 13%, mainly due to the
implemen-
<TABLE>
<CAPTION>
Operating Expense Detail
1996 1995 Change
------ ------ ------
<S> <C> <C> <C>
(In Millions)
Salaries and Related Costs ........ $4,206 $4,354 - 3%
Aircraft Fuel ..................... 1,464 1,370 + 7
Passenger Commissions ............. 1,042 1,195 -13
Contracted Services ............... 704 556 +27
Depreciation and Amortization...... 634 622 + 2
Other Selling Expenses ............ 594 618 - 4
Aircraft Rent ..................... 555 671 -17
Facilities and Other Rent ......... 379 436 -13
Aircraft Maintenance Materials
and Outside Repairs .............. 376 430 -13
Passenger Service ................. 368 443 -17
Landing Fees ...................... 248 266 - 7
Restructuring and Other
Non-Recurring Charges ............ 829 - -
Other ............................. 593 572 + 4
------- -------
Total .......................... $11,992 $11,533 + 4%
======= =======
</TABLE>
14
DELTA AIR LINES, INC.
<PAGE> 7
tation of a maximum commission payment on domestic tickets and
lower base commission rates.
Contracted services expense rose 27%, the result of increased
outsourcing of information technologies services and certain airport
functions.
(Pie Chart Omitted)
<TABLE>
<CAPTION>
1996 Distribution of Operating Expenses
(as a percent of total operating expenses)*
<S> <C>
- -----------------------------------------------------------
Salaries & Related Costs 38%
Aircraft Fuel 13%
Rentals & Landing Fees 12%
Passenger Commissions 9%
Contracted Services 6%
Depreciation & Amortization 6%
Other Selling Expenses 5%
Aircraft Maintenance Materials & Outside Repairs 3%
Passenger Service 3%
Other 5%
* Excludes restructuring and other non-recurring charges
- -----------------------------------------------------------
</TABLE>
Depreciation and amortization expense increased 2%, the result of
the acquisition of additional owned aircraft 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 to
capital leases. This increase was partially offset by certain
international routes becoming fully amortized and the write-down of the
L-1011 fleet. See Note 17 of Notes to Consolidated Financial
Statements.
Other selling expenses decreased 4%, primarily the result of lower
advertising and promotion expense, partially offset by higher booking
fee payments to computer reservation system providers related to
domestic traffic growth.
Aircraft rent expense decreased 17% due to the return of certain
aircraft to lessors and the extension of leases on 40 B-737-200 aircraft
previously discussed.
Facilities and other rent expense declined 13%, the result of
reduced charges for certain airport facilities and the subleasing of
excess space in some locations.
Aircraft maintenance materials and outside repairs expense
decreased 13%, reflecting credits received from engine and brake
manufacturers, improved engine reliability resulting in fewer engine
removals, the elimination of certain engine types from service due to
fleet simplification, and lower material cost resulting from the
write-down of inventory related to the L-1011 aircraft. See Note 17 of
Notes to Consolidated Financial Statements.
Passenger service expense declined 17%, reflecting continued
benefits from catering changes and other cost reduction programs,
partially offset by increased passenger traffic, primarily on domestic
routes.
Landing fees expense declined 7%, mainly reflecting favorable rate
adjustments and credits received at certain airports.
Fiscal 1996 operating expenses include $829 million pretax
restructuring and other non-recurring charges. The charges include a
$452 million write-down of Delta's Lockheed L-1011 fleet and related
assets and $377 million related to the continuation of the Company's
Leadership 7.5 cost reduction programs. See Note 17 of Notes to
Consolidated Financial Statements.
Operating Statistics
<TABLE>
1996 1995 Change
------- ------- ------
<S> <C> <C> <C>
Available Seat Miles (Millions)....................... 130,751 130,645 -
Available Ton Miles (Millions) ....................... 18,084 18,150 -
Fuel Gallons Consumed (Millions)...................... 2,500 2,533 -1%
Average Fuel Price Per Gallon ........................ 58.53c. 54.09c. +8%
Breakeven Passenger Load Factor:
Including Restructuring and other
Non-Recurring Charges .............................. 65.1% 62.3% +2.8 pts.
Excluding Restructuring and other
Non-Recurring Charges .............................. 60.3% 62.3% -2.0 pts.
Operating Cost Per Available Seat Mile:
Including Restructuring and other
Non-Recurring Charges .............................. 9.17c. 8.83c. +4%
Excluding Restructuring and other
Non-Recurring Charges .............................. 8.54c. 8.83c. -3%
</TABLE>
15
DELTA AIR LINES, INC.
<PAGE> 8
All other operating expenses increased 4%, primarily reflecting the
October 1, 1995, expiration of the exemption from the 4.3c. per gallon
federal tax on commercial aviation jet fuel used in domestic operations,
partially offset by an increase in services provided to outside parties.
Nonoperating expense for fiscal 1996 totaled $187 million, compared
to $167 million in fiscal 1995. Interest expense decreased 8%,
primarily due to a lower average level of outstanding debt, partly
offset by an increase in interest related to the extension and
reclassification of 40 B-737-200 aircraft leases previously discussed.
Interest capitalized on funds advanced for the purchase of flight
equipment and construction of facilities decreased 13%, primarily
resulting from a lower average balance of outstanding advance payments
for equipment. Interest income declined 9% to $86 million, primarily
due to a lower average level of short-term investments and lower
interest rates during the year. Miscellaneous expense, net was $30
million for fiscal 1996 compared to less than $1 million for fiscal
1995. This expense was primarily due to costs associated with the
repurchase and retirement of long-term debt and foreign exchange losses.
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.
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 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. See Note 17 of Notes to Consolidated
Financial Statements.
Excluding the cumulative effect of the adoption of SFAS 112, 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. Excluding
restructuring charges, the net loss for fiscal 1994 totaled $77 million
($3.73 primary and fully diluted loss per common share after preferred
stock dividend requirements) and operating income was $79 million.
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 operating expense categories, resulting in a $465 million, or
4%, decline in operating expenses in fiscal 1995 compared to fiscal
1994, excluding restructuring charges in fiscal 1994.
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 13.10c.. Domestic load factor
increased slightly, as domestic revenue passenger miles grew 2% while
domestic capacity rose 1%. Domestic traffic growth was primarily due to
traffic stimulated through discount fare promotions and other
competitive pricing actions, which contributed to a 1% decrease in the
domestic passenger mile yield. International load factor rose five
points to 72%, as international revenue passenger miles grew 1% and
international operating capacity fell 6%. The international passenger
mile yield was unchanged.
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
16
DELTA AIR LINES, INC.
<PAGE> 9
and lower domestic mail contract rates. All other revenues were up 21% to $310
million, mainly due to increased revenues from joint marketing programs.
Operating expenses in fiscal 1995 totaled $11.5 billion, down 8% from
$12.5 billion in fiscal 1994. Operating capacity decreased 1% to 130.6 billion
available seat miles, and operating cost per available seat mile declined 7% to
8.83c.. Excluding the fiscal 1994 restructuring charges, operating expenses
for fiscal 1995 were down 4%, and operating cost per available seat mile
decreased 3%, in fiscal 1995 compared to fiscal 1994.
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, partially
offset by an increase in interest expense related to the extension of 40
B-737-200 aircraft leases 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.
CAPITALIZATION, FINANCING AND LIQUIDITY - FISCAL YEAR 1996
Cash and cash equivalents and short-term investments totaled $1.6
billion at June 30, 1996, compared to $1.8 billion at June 30, 1995.
The principal sources of funds during fiscal 1996 were $1.4 billion of
cash from operations; $35 million from the issuance of common stock; and
$26 million from the sale of flight equipment.
During fiscal 1996, Delta invested $639 million in flight equipment
and $297 million in ground property and equipment. The Company also
made payments of $440 million on long-term debt and capital lease
obligations, including Delta's voluntary repurchase and retirement of
$224 million principal amount of long-term debt. 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. In addition, Delta paid $66 million to
repurchase 821,300 common shares under the common stock repurchase
program discussed below. The Company may repurchase additional
long-term debt and common stock from time to time.
(Graph Omitted)
Long-term debt & capital leases
(in millions of dollars)
-------------------------------
[S] [C]
1987 1,018
1988 729
1989 703
1990 1,315
1991 2,059
1992 2,833
1993 3,716
1994 3,228
1995 3,121
1996 2,175
-------------------------------
As of June 30, 1996, the Company had negative working capital of
$356 million, compared to negative working capital of $427 million at
June 30, 1995. 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 financing and proceeds from sale and leaseback
transactions. At August 16, 1996, the Company had $1.25 billion of
credit available under its 1995 Bank Credit Agreement, subject to
compliance with certain conditions. See Note 7 of Notes to Consolidated
Financial Statements.
Long-term debt and capital lease obligations, including current
maturities, totaled $2.3 billion at June 30, 1996, compared
17
DELTA AIR LINES, INC.
<PAGE> 10
to $3.3 billion at June 30, 1995. Stockholders' equity was $2.5 billion at June
30, 1996, compared to $1.8 billion at June 30, 1995. The Company's
debt-to-equity position, including current maturities, was 47% debt and 53%
equity at June 30, 1996, compared to 65% debt and 35% equity at June 30, 1995.
At August 16, 1996, there was outstanding $290 million principal
amount of the Delta Family-Care 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 Credit Agreement
with ABN AMRO Bank and a group of banks. Delta is required to purchase the
Series C ESOP Notes in certain circumstances. See Note 7 of Notes to
Consolidated Financial Statements.
(Graph Omitted)
--------------------
Stockholders' Equity
(in millions of dollars)
1987 $1,938
1988 $2,209
1989 $2,620
1990 $2,596
1991 $2,457
1992 $1,894
1993 $1,913
1994 $1,467
1995 $1,827
1996 $2,540
--------------------
FISCAL YEAR 1995
In fiscal 1995, the principal sources of funds 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 $534 million principal amount of
long-term debt. 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.
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.
18
DELTA AIR LINES, INC.
<PAGE> 11
NEW ACCOUNTING STANDARDS
During fiscal 1996, Delta adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS 121). This statement 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 amounts of the assets may not be recoverable. See Note 17 of
Notes to Consolidated Financial Statements for information regarding the
write-down of Delta's L-1011 aircraft and related assets due to the early
retirement of this fleet.
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 15 of Notes to Consolidated
Financial Statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). SFAS 123 establishes a fair value based
method of accounting for stock options. Entities may elect to either adopt the
measurement criteria of the statement for accounting purposes, thereby
recognizing an amount in results of operations on a prospective basis, or
disclose the pro forma effects of the new measurement criteria in Notes to
Consolidated Financial Statements. The Company intends to adopt the pro forma
disclosure features of SFAS 123, which are effective for fiscal year 1997.
FUTURE OUTLOOK
DEFERRED TAX ASSET
At June 30, 1996, Delta had a net cumulative deferred tax asset of $767
million, which consists of $2.2 billion of deferred tax assets, offset by $1.4
billion of deferred tax liabilities. Included in the deferred tax assets are,
among other items, $724 million related to obligations for postretirement
benefits and $354 million related to alternative minimum tax (AMT) credit
carryforwards. The AMT credit carryforwards do not expire.
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 $1.1 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 years 1995 and
1996. Furthermore, the Company has consistently reported book income in all
19
DELTA AIR LINES, INC.
<PAGE> 12
other fiscal years since 1947 with the exception of fiscal year 1983.
The accompanying chart is a summary of Delta's pretax book income (loss)
and taxable income (loss) for the last three fiscal years, prior to net
operating loss carrybacks:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ------
<S> <C> <C> <C>
(In Millions)
Pretax Book Income (Loss) .. $276 $494 $(660)
Taxable Income (Loss) ...... $635 $282 $(411)
</TABLE>
The book and tax income reported for fiscal years 1995 and 1996
reflect significant improvements in the Company's financial performance,
primarily resulting from operating expense reductions achieved under the
Leadership 7.5 program.
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, 1996. See Note 16 of
Notes to Consolidated Financial Statements.
COMMITMENTS
Future expenditures for aircraft, engines and engine hushkits on firm
order as of August 16, 1996, are estimated to be $2.4 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. 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.
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.
FUEL TAX
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.
Based on Delta's fiscal 1997 expected domestic fuel requirement of 2.1 billion
gallons, the continued imposition of this fuel tax will result in operating
expense of approximately $90 million annually. Delta and other U.S. airlines
are actively lobbying for a repeal of this tax. The outcome of these efforts
cannot be determined.
TRANSPORTATION EXCISE TAX
Upon the January 1, 1996, expiration of the 10% transportation excise tax
applicable to domestic travel, the 6.25% domestic cargo waybill tax and the $6
per passenger international departure tax, the Company discontinued collecting
these taxes. These taxes were reinstated during August 1996, effective for the
remainder of the calendar year. The impact of this reinstatement on Delta
cannot be determined.
20
DELTA AIR LINES, INC.
<PAGE> 13
BROAD-BASED STOCK OPTION PLANS
On April 24, 1996, Delta's Board of Directors adopted, subject to
stockholder approval, two broad-based, non-qualified stock option plans for
Delta personnel providing for the issuance of stock options to purchase 24.7
million shares of Delta common stock.
One plan is for eligible non-pilot personnel and the other is for
Company pilots. The non-pilot and pilot plans involve stock options to
purchase 14.7 million and 10 million shares of common stock, respectively. The
non-pilot and pilot plans are being presented to stockholders as one proposal.
For additional information, see Note 13 of Notes to Consolidated Financial
Statements.
The pilot stock option plan is an integral part of the new collective
bargaining agreement between the Company and the Air Line Pilots Association
(ALPA), which represents Delta's pilots. ALPA has the right to reopen the new
collective bargaining agreement in its entirety if any required stockholder
approval of the pilot stock option plan is not obtained, and Delta and ALPA are
unable to reach agreement within 30 days on providing pilots with equivalent
value to the pilot stock option plan.
STOCK REPURCHASE AUTHORIZATION
On April 24, 1996, Delta's Board of Directors authorized the Company to
repurchase up to 24.7 million shares of its common stock and common stock
equivalents. For additional information see Note 14 of Notes to Consolidated
Financial Statements.
ANTITRUST LITIGATION
In February 1995, Delta changed its travel agency commission program by
implementing certain maximum commission payments for the sale of domestic
airline tickets. Class action antitrust litigation filed by travel agents
against Delta and several other airlines that initiated travel agent commission
cap programs is pending in the United States District Court in Minneapolis.
The travel agents allege that the defendant airlines conspired to reduce the
commissions paid to travel agents in violation of the federal antitrust laws,
and are seeking damages of approximately $725 million, to be trebled under the
antitrust laws. The District Court has denied the motions for summary judgment
filed by the airlines. The jury trial of this lawsuit is scheduled to begin on
September 3, 1996. See Note 11 of Notes to Consolidated Financial Statements.
FORWARD-LOOKING INFORMATION
The information contained in this Annual Report regarding the cost savings
that Delta currently anticipates under the new collective bargaining agreement
with ALPA is forward-looking, and the actual results could differ materially
from the results that Delta currently anticipates. The specific factors that
could cause the actual results to differ materially from the expected results
include, among other things, (1) ALPA's right to reopen the new contract if
there is a Change of Control (as defined) of Delta or if any required
stockholder approval of the pilot stock option plan is not obtained; (2) the
number of B-737-200 aircraft that Delta utilizes under reduced operating costs;
(3) aircraft deployment and utilization rates; and (4) competitive factors and
general economic conditions.
21
DELTA AIR LINES, INC.
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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,
1996 and 1995, and the related consolidated statements of operations, cash
flows and stockholders' equity for each of the three years in the period ended
June 30, 1996. 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 (pages 28-49) referred to
above present fairly, in all material respects, the financial position of Delta
Air Lines, Inc. and subsidiaries as of June 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in Notes 15 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.
/s/ Arthur Andersen LLP
Atlanta, Georgia
August 16, 1996
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/ Tom Roeck /s/ Ronald W. Allen
------------------------------- --------------------------------
THOMAS J. ROECK, JR. RONALD W. ALLEN
Senior Vice President - Finance Chairman of the Board, President
and Chief Financial Officer and Chief Executive Officer
22
DELTA AIR LINES, INC.
<PAGE> 15
CONSOLIDATED balance sheets
June 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
- ------------------------------------------------------------------------------------------
1996 1995
---------- ----------
(In Millions)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $1,145 $1,233
Short-term investments . . . . . . . . . . . . . . . . . . . 507 529
Accounts receivable, net of allowance for
uncollectible accounts of $44 at June 30,
1996, and $29 at June 30, 1995 . . . . . . . . . . . . . . 968 755
Maintenance and operating supplies, at average cost . . . . . 73 68
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 352 234
Prepaid expenses and other . . . . . . . . . . . . . . . . . 237 195
------- -------
Total current assets . . . . . . . . . . . . . . . . . . 3,282 3,014
------- -------
PROPERTY AND EQUIPMENT:
Flight equipment . . . . . . . . . . . . . . . . . . . . . . 8,202 9,288
Less: Accumulated depreciation . . . . . . . . . . . . . 3,235 4,209
------- -------
4,967 5,079
------- -------
Flight equipment under capital leases . . . . . . . . . . . . 515 537
Less: Accumulated amortization . . . . . . . . . . . . . 127 99
------- -------
388 438
------- -------
Ground property and equipment . . . . . . . . . . . . . . . . 2,697 2,442
Less: Accumulated depreciation . . . . . . . . . . . . . 1,532 1,354
------- -------
1,165 1,088
------- -------
Advance payments for equipment . . . . . . . . . . . . . . . 275 331
------- -------
6,795 6,936
------- -------
OTHER ASSETS:
Marketable equity securities . . . . . . . . . . . . . . . . 473 398
Deferred income taxes . . . . . . . . . . . . . . . . . . . 415 506
Investments in associated companies . . . . . . . . . . . . 266 265
Cost in excess of net assets acquired, net of
accumulated amortization of $84 at
June 30, 1996, and $75 at June 30, 1995 . . . . . . . . . 265 274
Leasehold and operating rights, net of accumulated
amortization of $183 at June 30, 1996, and
$165 at June 30, 1995 . . . . . . . . . . . . . . . . . . 140 177
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 590 573
------- -------
2,149 2,193
------- -------
$12,226 $12,143
======= =======
</TABLE>
28
DELTA AIR LINES, INC.
<PAGE> 16
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ----------------------------------------------------------------------------------------
(In Millions, Except Share Data)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt . . . . . . . . . . .$ 40 $ 151
Current obligations under capital leases . . . . . . . . . 58 61
Accounts payable and miscellaneous accrued liabilities . . 1,540 1,473
Air traffic liability . . . . . . . . . . . . . . . . . . 1,414 1,143
Accrued rent . . . . . . . . . . . . . . . . . . . . . . . 201 235
Accrued salaries and vacation pay . . . . . . . . . . . . 385 378
--------- --------
Total current liabilities . . . . . . . . . . . . . . . 3,638 3,441
--------- --------
NONCURRENT LIABILITIES:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 1,799 2,683
Postretirement benefits . . . . . . . . . . . . . . . . . 1,796 1,714
Accrued rent . . . . . . . . . . . . . . . . . . . . . . . 616 556
Capital leases . . . . . . . . . . . . . . . . . . . . . . 376 438
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 425 395
--------- --------
5,012 5,786
--------- --------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions . . . . . 802 860
Manufacturers' and other credits . . . . . . . . . . . . . 96 109
--------- --------
898 969
--------- --------
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 6,738,740 shares at June 30,
1996, and 6,786,632 shares at June 30, 1995 . . . . . . 485 489
Unearned compensation under employee
stock ownership plan . . . . . . . . . . . . . . . . . (347) (369)
--------- --------
138 120
--------- --------
STOCKHOLDERS' EQUITY :
Series C Convertible Preferred Stock, $1.00 par
value, $50,000 liquidation preference; issued and
outstanding 13,978 shares at June 30, 1996 and 23,000
shares at June 30, 1995 . . . . . . . . . . . . . . . - -
Common Stock, $3.00 par value;
authorized 150,000,000 shares;
issued 72,265,994 shares at June 30, 1996,
and 54,537,103 shares at June 30, 1995. . . . . . . . . 217 164
Additional paid-in capital . . . . . . . . . . . . . . . . 2,627 2,016
Accumulated deficit. . . . . . . . . . . . . . . . . . . . (119) (184)
Net unrealized gain on noncurrent marketable equity
securities . . . . . . . . . . . . . . . . . . . . . . 126 83
Treasury stock at cost, 4,487,888 shares at June 30,
1996, and 3,721,093 shares at June 30, 1995 . . . . . (311) (252)
--------- --------
2,540 1,827
--------- --------
12,226 12,143
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
29
DELTA AIR LINES, INC.
<PAGE> 17
CONSOLIDATED STATEMENTS of operations
For the years ended June 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
(In Millions, Except Per Share Data)
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger . . . . . . . . . . . . . . . . . . . . . $ 11,616 $ 11,319 $ 11,269
Cargo . . . . . . . . . . . . . . . . . . . . . . . 521 565 551
Other, net . . . . . . . . . . . . . . . . . . . . 318 310 257
----------- ----------- ------------
Total operating revenues . . . . . . . . . . . . 12,455 12,194 12,077
----------- ----------- ------------
OPERATING EXPENSES:
Salaries and related costs . . . . . . . . . . . . 4,206 4,354 4,589
Aircraft fuel . . . . . . . . . . . . . . . . . . . 1,464 1,370 1,411
Passenger commissions . . . . . . . . . . . . . . . 1,042 1,195 1,255
Contracted services . . . . . . . . . . . . . . . . 704 556 457
Depreciation and amortization . . . . . . . . . . . 634 622 678
Other selling expenses . . . . . . . . . . . . . . 594 618 614
Aircraft rent . . . . . . . . . . . . . . . . . . . 555 671 732
Facilities and other rent . . . . . . . . . . . . . 379 436 380
Aircraft maintenance materials and outside repairs. 376 430 418
Passenger service . . . . . . . . . . . . . . . . . 368 443 522
Landing fees . . . . . . . . . . . . . . . . . . . 248 266 261
Restructuring and other non-recurring charges . . . 829 - 526
Other . . . . . . . . . . . . . . . . . . . . . . 593 572 681
----------- ----------- ------------
Total operating expenses . . . . . . . . . . . . 11,992 11,533 12,524
----------- ----------- ------------
OPERATING INCOME (LOSS) 463 661 (447)
----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . . . . . . . . (269) (292) (304)
Interest capitalized . . . . . . . . . . . . . . . 26 30 33
Interest income . . . . . . . . . . . . . . . . . . 86 95 57
Miscellaneous income (expense), net . . . . . . . . (30) - 1
----------- ----------- ------------
(187) (167) (213)
----------- ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES . . . . . . 276 494 (660)
INCOME TAXES (PROVIDED) CREDITED, NET . . . . . . . . (120) (200) 251
----------- ----------- ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES. . . . . . . . . . . . . . . . . 156 294 (409)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES,
NET OF TAX. . . . . . . . . . . . . . . . . . . . . - 114 -
----------- ----------- ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . 156 408 (409)
PREFERRED STOCK DIVIDENDS . . . . . . . . . . . . . . (82) (88) (110)
----------- ----------- ------------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ 74 $ 320 $ (519)
=========== =========== ============
PRIMARY INCOME (LOSS) PER COMMON SHARE:
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES. . $ 1.42 $ 4.07 $ (10.32)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES . . . . . - 2.25 -
----------- ----------- ------------
$ 1.42 $ 6.32 $ (10.32)
=========== =========== ============
FULLY DILUTED INCOME (LOSS) PER COMMON SHARE:
Before cumulative effect of accounting changes. . $ 1.42 $ 4.01 $ (10.32)
Cumulative effect of accounting changes . . . . . - 1.42 -
----------- ----------- ------------
$ 1.42 $ 5.43 $ (10.32)
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
30
DELTA AIR LINES, INC.
<PAGE> 18
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS of cash flows
For the years ended June 30, 1996, 1995 and 1994
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 156 $ 408 $ (409)
Adjustments to reconcile net income (loss) to cash. . . . . . . . . .
provided by operating activities:
Cumulative effect of accounting changes . . . . . . . . . . . . . - (114) -
Restructuring and other non-recurring charges . . . . . . . . . . 829 - 526
Depreciation and amortization . . . . . . . . . . . . . . . . . . 634 622 678
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (57) 96 (242)
Amortization of deferred gain on sale and
leaseback transactions. . . . . . . . . . . . . . . . . . . . . (58) (63) (62)
Rental expense in excess of rent payments . . . . . . . . . . . . 26 54 134
Postemployment benefits expense
less than payments. . . . . . . . . . . . . . . . . . . . . . . (6) (22) -
Pension expense less than payments. . . . . . . . . . . . . . . . (141) (89) (45)
Compensation under ESOP. . . . . . . . . . . . . . . . . . . . . 37 38 29
Other postretirement expense in excess of payments. . . . . . . . 56 73 66
Changes in certain assets and liabilities:
Decrease (increase) in accounts receivable. . . . . . . . . . . . (213) 131 169
Decrease (increase) in prepaid expenses and other
current assets. . . . . . . . . . . . . . . . . . . . . . . . . (47) 28 123
Increase (decrease) in air traffic liability. . . . . . . . . . . 271 (104) 57
Increase in accounts payable and
miscellaneous accrued liabilities . . . . . . . . . . . . . . . 67 26 207
Decrease in other payables and accrued expenses . . . . . . . . . (57) (31) (34)
Increase (decrease) in other noncurrent liabilities . . . . . . . (48) - 64
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58) 61 63
----------- ----------- -----------
Net cash provided by operating activities . . . . . . . 1,391 1,114 1,324
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments. . . . . . . . . . . (639) (458) (1,032)
Ground property and equipment . . . . . . . . . . . . . . . . . . (297) (168) (173)
Decrease (increase) in short-term investments, net. . . . . . . . . . 22 (121) (408)
Proceeds from sale of flight equipment . . . . . . . . . . . . . . . 26 137 103
Debtor-in-possession loan repayment . . . . . . . . . . . . . . . . . - 115 -
----------- ----------- -----------
Net cash used in investing activities . . . . . . . . . (888) (495) (1,510)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital
lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . (440) (572) (547)
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . (120) (120) (120)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . 35 4 1
Proceeds from sale and leaseback transactions. . . . . . . . . . . . - - 748
Issuance of long-term obligations. . . . . . . . . . . . . . . . . . - - 226
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . (66) - -
----------- ----------- -----------
Net cash provided by (used in) financing activities . (591) (688) 308
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . (88) (69) 122
Cash and cash equivalents at beginning of period . . . . . . . . . . . 1,233 1,302 1,180
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $ 1,145 $ 1,233 $ 1,302
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
31
DELTA AIR LINES, INC.
<PAGE> 19
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS of stockholders' equity
For the years ended June 30, 1996, 1995 and 1994
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, 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 options 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
Fiscal Year 1996:
Net income . . . . . . . . . . . . . . . . . . - - 156 - - 156
Dividends on Series C Convertible
Preferred Stock. . . . . . . . . . . . . . . - - (74) - - (74)
Dividends on common stock ($0.20 per share). . - - (10) - - (10)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares. . . . . . - - (8) - - (8)
Issuance of 719,562 shares of common stock under
dividend reinvestment and stock purchase plan
and stock options ($58.15 per share) . . . . 2 40 - - (5) 37
Issuance of 6,861,377 shares of common stock on
conversions of Series C Preferred
Stock ($64.37 per share) . . . . . . . . . . 21 (21) - - - -
Issuance of 10,147,952 shares of common stock
on conversions of 3.23% Convertible
Subordinated Notes ($61.17 per share). . . . 30 592 - - - 622
Transfer of 176,794 net shares of common stock
from treasury under ESOP and stock incentive
plan ($67.77 per share). . . . . . . . . . . - - 1 - 12 13
Repurchase of 821,300 common shares
($80.00 per share) . . . . . . . . . . . . . - - - - (66) (66)
Net unrealized gain on marketable
equity securities . . . . . . . . . . . . . - - - 43 - 43
------ ----------- -------- ---------- -------- -------
BALANCE AT JUNE 30, 1996 . . . . . . . . . . . . . $ 217 2,627 (119) 126 (311) 2,540
======= ========== ======== ========== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
32
DELTA AIR LINES, INC.
<PAGE> 20
NOTES TO CONSOLIDATED Financial Statements
June 30, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS - Delta Air Lines, Inc. is a major air carrier
providing scheduled air transportation for passengers, freight and mail over a
network of routes throughout the United States and abroad. At August 16, 1996,
Delta Air Lines served 153 domestic cities in 43 states, the District of
Columbia, Puerto Rico and the U.S. Virgin Islands as well as 44 cities in 25
foreign countries.
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.
USE OF ESTIMATES - The Company follows generally accepted accounting
principles (GAAP). The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
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 - During fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121).
(See Note 17.) During fiscal 1995, 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 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 Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115) and are 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
whether there exists any impairment, as defined by SFAS 121. 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
their expiration dates. Permanent route authorities with no stated expiration
dates are amortized over 40 years. The Company periodically reviews the value
assigned to leasehold rights, landing slots and route authorities to determine
whether there exists any impairment, as defined by SFAS 121. Management
believes that leasehold rights, landing slots and route authorities are
appropriately valued.
33
DELTA AIR LINES, INC.
<PAGE> 21
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 accrues the estimated incremental
cost of providing free travel awards earned under its SkyMiles(R) frequent
flyer 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(R) program, such as hotels, car rental agencies and credit card
companies. The resulting revenue, net of the estimated 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 ticket sales are recorded as air
traffic liability in the Company's Consolidated Balance Sheets. Passenger and
cargo revenues are recognized when the transportation is provided, reducing the
air traffic liability. Due to interline agreements throughout the industry,
certain amounts are recognized in revenue using estimates regarding the amount
of revenue to be recognized and the timing of recognition. Actual results
could differ from those estimates.
Delta is a party to code sharing agreements with certain foreign airlines.
Under these agreements, the Company purchases seats from and sells seats to
these airlines, with each airline separately marketing its respective seats.
The revenue from Delta's sale of code sharing seats purchased from and flown by
other airlines is reported in the Company's Consolidated Statements of
Operations 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. The revenue generated from Delta's sale of code sharing seats
to other airlines is reported as passenger revenue in the Company's
Consolidated Statements of Operations.
DEPRECIATION AND AMORTIZATION - Flight equipment is depreciated on a
straight-line basis to residual values (5% of cost) over a 20-year period from
the dates placed in service (unless earlier retirement of the aircraft is
planned). Flight equipment under capital leases is amortized on a
straight-line basis over the term of the respective leases, which range from 6
to 12 years. Ground property and equipment are depreciated on a straight-line
basis over their estimated service lives, which range from 3 to 30 years. Due
to the Company's decision to accelerate the replacement of its L-1011 fleet
(see Note 17), the remaining depreciable lives of these aircraft have been
adjusted.
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 and dilutive Common Stock equivalents outstanding was
52,101,152 for fiscal 1996, 50,657,613 for fiscal 1995, and 50,257,721 for
fiscal 1994.
34
DELTA AIR LINES, INC.
<PAGE> 22
The computation of fully diluted earnings (loss) per common share assumes
that the 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 were converted, if dilutive, into Common Stock at the beginning of
the fiscal year. The weighted average number of shares of Common Stock used to
compute fully diluted earnings (loss) per common share was 52,101,152 for
fiscal 1996, 80,118,720 for fiscal 1995, and 50,257,721 for fiscal 1994. In
addition, fully diluted earnings (loss) per common share amounts reflect the
adjustment of net income or loss for the additional contribution that would
have been required to service the ESOP's long-term debt if the ESOP Preferred
Stock were converted into Common Stock and for the interest expense that would
have been avoided if the 3.23% Convertible Subordinated Notes due 2003 had been
converted into Common Stock at the beginning of the fiscal year. (See Notes 7,
12, 13, 14 and 15.)
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.
2. INVESTMENTS IN DEBT AND EQUITY SECURITIES:
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
are carried at aggregate market value. At June 30, 1996 and 1995, the gross
unrealized gain on the Company's investment in Singapore Airlines was $190
million and $143 million, respectively. The gross unrealized gain on the
Company's investment in Swissair was $16 million at June 30, 1996, compared to
a $12 million gross unrealized loss at June 30, 1995. The $126 million and $83
million unrealized gains, net of the related deferred tax provision, on these
combined investments at June 30, 1996 and 1995, 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.
During fiscal years 1996 and 1995, the proceeds from sales of
available-for-sale securities were $626 million and $926 million, respectively,
which resulted in realized losses of $1 million and $4 million, respectively.
The unrealized gains (losses) on these investments were less than $1 million
and were reflected in stockholders' equity at June 30, 1996 and 1995. Interest
income was $33 million and $31 million from these investments for fiscal years
1996 and 1995, respectively.
Delta's other investments in available-for-sale securities were recorded
as short-term investments in the Company's Consolidated Balance Sheets. These
investments at June 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Average
Stated
Maturity
Percentage (Months)
---------------- ------------------------
Type 1996 1995 1996 1995
- ---- ------- ------- --------- -------------
<S> <C> <C> <C> <C>
Government
agency debt..... 25% 36% 8 12
Corporate debt
securities...... 75 64 19 5
</TABLE>
35
DELTA AIR LINES, INC.
<PAGE> 23
3. INVESTMENTS IN ASSOCIATED COMPANIES:
During the December 1994 quarter, Delta and AT&T Global Information
Solutions Company formed TransQuest, an equally owned joint venture
partnership, to provide information technology services to Delta and others in
the travel and transportation industries. On June 26, 1996, Delta and NCR
Corporation (formerly AT&T Global Information Solutions Company) announced an
agreement to discontinue the TransQuest partnership. Effective July 1, 1996,
the partnership ended and TransQuest, Inc. was formed as a wholly owned
subsidiary of Delta. TransQuest, Inc. will provide information technology
services to Delta and others in the travel and transportation industries.
WORLDSPAN provides certain computer reservations services to Delta and
Delta provides certain communications, information processing and
administrative services to WORLDSPAN. (See Note 1 for additional information
regarding investments in associated companies.)
The Company's percentage ownership in associated companies at June 30,
1996 and equity earnings (losses) for fiscal 1996, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
Equity Earnings (Losses)
Percent -------------------------
Investment Ownership 1996 1995 1994
- ---------- --------- ------ -------- --------
(In Millions)
<S> <C> <C> <C> <C>
TransQuest.... 50% $(8) $(3) $-
WORLDSPAN..... 38 (5) (4) 1
ASA........... 26 13 12 12
Comair........ 21 13 6 6
SkyWest....... 15 1 2 2
</TABLE>
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, 1996 and 1995. Short-term
investments classified as available-for-sale are recorded at fair value in
accordance with SFAS 115.
These values are based on quoted market prices, where available, or on the
estimated current rates offered to the Company for debt of the same remaining
maturities. The carrying values of all other financial instruments approximate
their fair values.
The fair values and carrying values of long-term debt, including current
maturities, at June 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
------ -------
(In Billions)
<S> <C> <C>
Fair value................ $ 2.0 $3.0
Carrying value............ 1.8 2.8
</TABLE>
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: RISKS AND FAIR VALUES - During
fiscal 1996, Delta initiated a fuel hedging program under which the Company may
enter into certain contracts with counterparties, not to exceed one year in
duration, to manage the Company's exposure to jet fuel price volatility. Gains
and losses resulting from fuel hedging transactions are recognized as a
component of fuel expense when the underlying fuel being hedged is used. Any
premiums paid to enter into hedging contracts are recorded as a prepaid expense
and are amortized to fuel expense over the respective contract periods. At
June 30, 1996, Delta had contracted for approximately 200 million gallons of
its projected fiscal 1997 fuel requirements. At June 30, 1996, the fair value
of option contracts used for purchases of jet fuel at fixed average prices was
immaterial. The Company is exposed to fuel hedging transaction losses in the
event of nonperformance by counterparties, but management does not expect any
counterparty to fail to meet its obligations. To manage its credit risk, the
Company selects counterparties based on their credit ratings, limits its
exposure to any one counterparty under defined guidelines and monitors the
market position of the program and its relative market position with each
counterparty.
The Company has entered into certain foreign exchange forward contracts,
all with maturities of less than two months, to manage risks associated with
foreign currency exchange rate and interest rate volatility. The aggregate
face amount of such contracts was
36
DELTA AIR LINES, INC.
<PAGE> 24
approximately $40 million at June 30, 1996. The related realized and
unrealized gains and losses for such contracts were not material for any of the
years presented.
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 (See Note 8).
CONCENTRATION OF CREDIT RISK- Delta's accounts receivable are generated
primarily from airline ticket and cargo service 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 that it is subject to any significant
concentration of credit risk.
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. At June 30, 1995, the principal amount of
the Senior Certificate was $229 million and was 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 was $190
million and was included in accounts receivable on the Company's Consolidated
Balance Sheets.
In fiscal 1995, the Company paid $19 million in fees under the Facility.
These fees are included in miscellaneous income (expense), net in the Company's
Consolidated Statements of Operations. During fiscal 1995, Delta elected to
pay down the Facility, and the Senior Certificate was reduced to $0 on August
14, 1995.
In March 1996, Delta reactivated the Facility on a reserve basis. At June
30, 1996, no Receivables had been sold under the Facility. While the Facility
is in reserve, the Company is obligated to pay commitment fees. For fiscal
1996, these fees were immaterial.
6. SHORT-TERM BORROWINGS:
During fiscal 1996 and 1995, the Company had no commercial paper or
short-term bank borrowings. The maximum and average outstanding balances of the
Company's short-term bank borrowings during fiscal 1994 were $164 million and
$2 million, respectively. The weighted average interest rate of these
borrowings during fiscal 1994 was 5.03%.
7. LONG-TERM DEBT:
During fiscal 1996 and 1995, the Company voluntarily repurchased and
retired $224 million and $534 million, respectively, principal amount of its
long-term debt. As a result of these transactions, the Company recognized net
pretax losses of $18 million and $4 million in fiscal 1996 and 1995,
respectively, which are included in miscellaneous income (expense), net in the
Company's Consolidated Statements of Operations.
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 the
principal amount at stated maturity, were convertible by the holders thereof
into shares of Common Stock at a conversion rate of 12.68 shares per $1,000
principal amount at stated maturity of the Notes, and were redeemable by the
Company on or after June 15, 1996 at a 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
37
DELTA AIR LINES, INC.
<PAGE> 25
date. On May 15, 1996, the Company gave notice that it elected to redeem
effective June 15, 1996, all outstanding Notes. Substantially all outstanding
Notes were then converted by the holders thereof into approximately 10 million
shares of Common Stock, and the Company redeemed the remaining outstanding
Notes. As a result of the conversion of substantially all the Notes,
long-term debt declined by $626 million and stockholders' equity increased by
approximately the same amount in the Company's Consolidated Balance Sheet.
This transaction was treated as a noncash transaction in the Company's
Consolidated Statement of Cash Flows for the year ended June 30, 1996.
At June 30, 1996 and 1995, the Company's long-term debt (including current
maturities) was as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(In Millions)
<S> <C> <C>
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.................................................. 251 271
9 7/8% Notes, unsecured, due January 1, 1998.................................................... 220 225
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...................................................... 196 235
10 3/8% Debentures, unsecured, due February 1, 2011............................................ 176 176
9 7/8% Notes, unsecured, due May 15, 2000...................................................... 142 165
9% Debentures, unsecured, due May 15, 2016..................................................... 126 135
9 1/4% Debentures, unsecured, due March 15, 2022............................................... 116 184
10 1/8% Debentures, unsecured, due May 15, 2010................................................. 113 113
8 1/2% Notes, unsecured, due March 15, 2002..................................................... 71 96
10 3/8% Debentures, unsecured, due December 15, 2022........................................... 66 66
Development Authority of Clayton County, 7 5/8% unsecured loan agreement, repayable
on January 1, 2020............................................................................. 45 45
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
3.23% Convertible Subordinated Notes, unsecured, due June 15, 2003, net of unamortized
discount of $0 and $179 million at June 30, 1996 and 1995, respectively........................ 0 621
8 1/4% Notes, unsecured, due May 15, 1996....................................................... 0 150
Development Authority of Clayton County, 6 5/8% unsecured loan agreement, repayable
in installments beginning in 2000, with the remaining balance payable in 2011.................. 0 35
Other, net...................................................................................... (3) (3)
------ ------
Total..................................................................................... 1,839 2,834
Less: Current maturities........................................................................ 40 151
------ ------
Total long-term debt...................................................................... $1,799 $2,683
====== ======
</TABLE>
At June 30, 1996, 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>
1997 .......................... $ 40
1998 .......................... 249
1999 .......................... 67
2000 .......................... 142
2001 .......................... 0
</TABLE>
On September 27, 1995, the Company and a group of banks entered into the
1995 Bank Credit Agreement, an amendment and restatement of the 1992 Bank
Credit Agreement. The 1995 Bank Credit Agreement provides for unsecured
borrowings by the Company of up to $1.25 billion on a revolving basis until
September 26, 2000. Up to $500 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, the LIBOR 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 Company also has
the option to obtain loans through a competitive bid procedure. The 1995 Bank
Credit Agreement contains certain negative covenants that restrict the
Company's ability to grant liens, incur or guarantee debt and enter into flight
38
DELTA AIR LINES, INC.
<PAGE> 26
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, 1996, no borrowings or letters of
credit were outstanding under the 1995 Bank Credit Agreement.
At August 16, 1996, there were outstanding $290 million principal amount
of the Delta Family-Care Savings Plan's Series C Guaranteed Serial ESOP Notes
(Series C ESOP Notes) which are 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
to credit enhance the Series C ESOP Notes. This letter of credit was issued in
favor of Wilmington Trust Company, as trustee (Trustee), under Delta's 1992
Bank Credit Agreement (which, as discussed above, was amended and restated as
the 1995 Bank Credit Agreement). Due to the issuance of this letter of credit,
the Series C ESOP Notes received the Required Ratings, and Delta no longer had
an obligation to purchase the Series C ESOP Notes as a result of the Purchase
Event that occurred on May 11, 1993.
On June 6, 1996, the Company entered into a credit agreement with ABN AMRO
Bank, N.V. and a group of banks (Letter of Credit Facility) providing for the
issuance of letters of credit for up to $550 million in stated amount to credit
enhance the Series C ESOP Notes. The Letter of Credit Facility contains
negative covenants and a change of control provision that are substantially
similar to those contained in the 1995 Bank Credit Agreement. In the event of
any drawing under the Letter of Credit Facility, Delta is required, at its
election, (1) to immediately repay the amount drawn or (2) to convert its
reimbursement obligation to a loan for a period not to exceed one year at
varying rates of interest. On June 6, 1996, Delta obtained a letter of credit
under the Letter of Credit Facility to replace the letter of credit issued
under the 1995 Bank Credit Agreement to credit enhance the Series C ESOP Notes.
The Letter of Credit Facility expires June 6, 1999.
At August 16, 1996, the face amount of the letter of credit under the
Letter of Credit Facility 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.
An Indenture of Trust (Indenture), dated August 1, 1993, among Delta, the
Trustee and Fidelity Management Trust Company, as ESOP trustee, contains
certain terms and conditions relating to any letter of credit used to credit
enhance the Series C ESOP Notes. 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.
39
DELTA AIR LINES, INC.
<PAGE> 27
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 that there has occurred an event of default
under the credit agreement relating to the letter of credit; unless, generally
within ten 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.
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 the letter of credit issuer 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 16, 1996, Delta's long-term senior unsecured debt was rated Baa3 by
Moody's and BB+ by Standard & Poor's.
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 limit the Company's ability to pay cash dividends
on Common Stock in certain circumstances.
Cash payments of interest including that on Series C ESOP Notes and net of
interest capitalized totaled $232 million in fiscal 1996, $238 million in
fiscal 1995, and $265 million in fiscal 1994.
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 were $0.9 billion in fiscal 1996
and $1.1 billion in fiscal years 1995 and 1994.
During the June 1995 quarter, the Company extended the lease terms for 40
B-737-200 aircraft, which, for accounting purposes, resulted in the
reclassification of these leases from operating leases to capital leases. This
reclassification 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
Sheet at June 30, 1995. This transaction was treated as a noncash transaction
in the Company's Consolidated Statement of Cash Flows for the year ended June
30, 1995.
At June 30, 1996, 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
------------ ------- ----------
<S> <C> <C>
(In Millions)
1997 .................................. $101 $ 871
1998 .................................. 97 863
1999 .................................. 96 868
2000 .................................. 65 842
2001 .................................. 55 823
After 2001 ............................ 166 10,800
---- -------
Total minimum lease payments ... 580 $15,067
=======
Less: Amounts representing interest .. 146
----
Present value of future minimum
capital lease payments .............. 434
Less: Current obligations under
capital leases ...................... 58
----
Long-term capital lease
obligations ......................... $376
====
</TABLE>
40
DELTA AIR LINES, INC.
<PAGE> 28
9. PURCHASE COMMITMENTS:
Subsequent to June 30, 1996, Delta entered into a definitive agreement
with the Nordam Group, Inc. to purchase, between fiscal 1997 and 2000, 25
shipsets of Stage 3 engine hushkits for B-737-200 aircraft, with an option to
purchase an additional 30 shipsets.
In addition, at August 16, 1996, the Company had authorized capital
expenditures of approximately $250 million for fiscal 1997 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.
Future expenditures for aircraft, engines and engine hushkits on firm
order as of August 16, 1996 are estimated to be $2.4 billion, excluding
aircraft orders subject to reconfirmation by Delta, as follows:
<TABLE>
<CAPTION>
Years Ending June 30 Amount
-------------------- ------
(In Millions)
<S> <C>
1997 ............................................ $ 800
1998 ............................................ 700
1999 ............................................ 330
2000 ............................................ 250
2001 ............................................ 210
After 2001 ...................................... 70
------
Total............................................ $2,360
======
</TABLE>
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.
10. EMPLOYEE BENEFIT PLANS:
Substantially all of the Company's 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 15.
DEFINED BENEFIT PENSION PLANS-The Company's primary retirement plans
consist of defined benefit pension plans. The Company has reserved the right
to modify these plans to the extent permitted by the Internal Revenue Code and
ERISA.
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 7.75% and 4.7%, respectively, at June 30,
1996 and 8.0% and 4.7%, respectively, at June 30, 1995. The expected long-term
rate of return on assets was 10% at June 30, 1996 and 1995.
Included in the restructuring charges described in Note 17 are aggregate
related charges of $298 million and $108 million for fiscal 1996 and 1994,
respectively.
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, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------ ------
(In Millions)
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation(1)....... $6,186 $5,293
====== ======
Projected benefit obligation............ $7,420 $6,532
Plan assets at fair value(2)................ 7,222 6,108
------ ------
Projected benefit obligation in
excess of plan assets .................... 198 424
Unrecognized net gain (loss) ............... 195 (196)
Unrecognized transition obligation ......... (64) (67)
Unrecognized prior service cost ............ (31) (20)
------ ------
Accrued pension cost recognized in
the consolidated balance sheets .......... $ 298 $ 141
====== ======
</TABLE>
1 Substantially all of the accumulated benefit obligation is vested.
2 Plan assets were invested at June 30, 1996, approximately as follows:
cash equivalents (7%), government and corporate bonds and notes (18%), common
stock and other equity-oriented investments (71%) and real estate and other
investments (4%).
41
DELTA AIR LINES, INC.
<PAGE> 29
These charges represent costs primarily associated with special termination
benefits and curtailment losses related to the defined benefit pension plans as
a result of workforce reductions.
The net periodic cost of defined benefit pension plans for fiscal 1996,
1995 and 1994 included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
(In Millions)
<S> <C> <C> <C>
Service cost - benefits earned
during the year .................. $ 225 $ 221 $ 248
Interest cost on projected
benefit obligation ............... 526 489 466
Actual return on plan assets ....... (1,194) (795) (355)
Net amortization and deferral ...... 612 266 (119)
------ ------ -----
Net periodic pension cost .......... $ 169 $ 181 $ 240
====== ====== =====
</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 plans for both current and future retirees.
The weighted average discount rate used to estimate the accumulated
postretirement benefit obligation (APBO) was 7.75% at June 30, 1996, and 8.0% at
June 30, 1995. The assumed health care cost trend rate used in measuring the
APBO was 8.0% in fiscal 1996 and 8.5% in fiscal 1995, declining gradually to
4.25% by June 30, 2002, and remaining level thereafter. Increasing the assumed
health care cost trend rate annually by 1% for all future years would increase
the APBO as of June 30, 1996 by approximately $132 million and the net periodic
postretirement benefit cost by $19 million for fiscal 1996.
Net periodic postretirement benefit cost for fiscal 1996, 1995 and 1994
included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
(In Millions)
<S> <C> <C> <C>
Service cost - benefits earned
during the year ......................... $ 32 $ 32 $ 35
Interest cost on accumulated
postretirement benefit obligation ....... 118 118 101
Amortization of prior service cost ........ (31) (29) (31)
Amortization of accumulated losses ........ 4 4 6
----- ----- -----
Net periodic postretirement
benefit cost ............................ $ 123 $ 125 $ 111
===== ===== =====
</TABLE>
The accumulated postretirement benefit obligation (APBO) at June 30, 1996 and
1995 consisted of the following components:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
(In Millions)
Retirees and dependents ...................... $ 928 $ 879
Fully eligible participants .................. 323 333
Other active participants .................... 254 271
------ ------
Total accumulated postretirement
benefit obligation ......................... 1,505 1,483
Unamortized prior service cost
(from plan changes) ........................ 464 396
Unrecognized net loss ........................ (112) (109)
------ ------
Accrued postretirement benefit cost recognized
in the consolidated
balance sheets ............................. $1,857 $1,770
====== ======
</TABLE>
Included in the restructuring charges described in Note 17 are aggregate
charges of $32 million and $203 million for fiscal 1996 and 1994, respectively.
These charges represent costs primarily associated with special termination
benefits and curtailment losses related to the postretirement benefits other
than pensions as a result of workforce reductions.
POSTEMPLOYMENT BENEFITS - The Company provides certain welfare benefits to
its former or inactive employees after employment but before retirement. Such
benefits primarily include those related to disability and survivorship plans.
The Company has reserved the right to modify or terminate these plans at any
time for all participants.
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,
42
DELTA AIR LINES, INC.
<PAGE> 30
primarily due to the net overfunded status of the Company's disability and
survivorship plans. The Company's postemployment benefit expense for fiscal
years 1996 and 1995 was $78 million and $85 million, respectively. The amount
funded in excess of the liability is 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.
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 and inactive
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.
11. CONTINGENCIES:
The Company is a defendant in certain legal actions relating to alleged
employment discrimination practices, antitrust matters, 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.
During fiscal 1996, the Company renewed its aircraft hull and general
liability insurance policies (Policies). Beginning December 18, 1995, Delta's
captive insurance subsidiary agreed to reimburse the primary insurers for
losses under the Policies in an amount not to exceed $100 million per
occurrence and $118 million in the aggregate for each policy year. The
obligations of the primary insurers to the insureds under the Policies are not
limited or reduced in any way by this reimbursement obligation.
The reimbursement obligation of Delta's captive insurance subsidiary to
the primary insurers is supported by letters of credit. The letters of credit
have an aggregate stated amount equal to the maximum reimbursement obligation.
To the extent the primary insurers make a draw under a letter of credit, Delta
is required to reimburse the issuer of the letter of credit. Delta accrues
amounts estimated to be payable for probable losses under the reimbursement
agreements with the primary insurers, as incurred. The methods of making such
estimates and establishing the resulting accrued liabilities are periodically
reviewed and adjusted as required.
12. COMMON AND PREFERRED STOCK:
At June 30, 1996, 5,116,097 shares of Common Stock were reserved for
issuance under the 1989 Stock Incentive Plan, 5,780,491 shares of Common Stock
were reserved for conversion of the ESOP Preferred Stock and 10,629,285 shares
of Common Stock were reserved for conversion of the Series C Preferred Stock.
Each outstanding share of Common Stock is accompanied by a preferred
stock purchase right which entitles the holder to purchase from the Company
1/100 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
43
DELTA AIR LINES, INC.
<PAGE> 31
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
share 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 bore annual cumulative cash dividends of $3,500
(equivalent to $3.50 per annum per Depositary Share), had a liquidation
preference of $50,000 (equivalent to $50 per Depositary Share) plus accrued and
unpaid dividends, was convertible by 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 share of Common Stock per Depositary Share), and was
redeemable by Delta in certain circumstances for such number of shares of
Common Stock as equaled the liquidation preference of the Series C Preferred
Stock being redeemed divided by the conversion price (equivalent to a
conversion rate of 0.7605 share of Common Stock for each Depositary Share). On
June 11, 1996, Delta gave notice that it elected to redeem the Series C
Preferred Stock and the related Depositary Shares on July 11, 1996. Subsequent
to this notice, all the outstanding Series C Preferred Stock and related
Depositary Shares were converted or redeemed for a total of approximately 17.5
million shares of Common Stock. All conversions of Series C Preferred Stock
and the related Depositary Shares were treated as noncash transactions in the
Company's Consolidated Statement of Cash Flows.
13. STOCK OPTIONS AND AWARDS:
Under the Company's stock option plan for key employees, selected
employees have received awards of stock options and, prior to fiscal 1993,
tandem stock appreciation rights.
The exercise 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.
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.
Transactions involving stock options and tandem stock appreciation rights
during fiscal 1994, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
Awards Award Price Range
----------- -----------------
<S> <C> <C>
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
Fiscal 1996:
Granted .................. 643,500 $ 71.00
Exercised ................ (1,653,765) $ 52.00 - $73.125
Forfeited ................ (43,700) $ 52.00 - $73.125
----------
Balance June 30, 1996 ........ 2,332,185 $ 52.00 - $73.125
==========
</TABLE>
44
DELTA AIR LINES, INC.
<PAGE> 32
Substantially all awards of stock options with tandem stock appreciation
rights have been exercised as stock appreciation rights. In fiscal 1996, the
Company issued 711,830 shares of Common Stock, at an average price of $57.96
per share, in connection with the exercise of stock options and tandem stock
appreciation rights.
On April 24, 1996, Delta's Board of Directors adopted, subject to
stockholder approval at Delta's 1996 Annual Meeting of Stockholders, two
broad-based, non-qualified stock option plans for Delta personnel providing for
the issuance of stock options to purchase 24.7 million shares of Common Stock.
The plans are intended to cover substantially all of Delta's non-officer
personnel. One plan is for approximately 47,000 Delta employees who are not
pilots. The second plan is for approximately 8,000 Delta pilots.
Awards outstanding as of June 30, 1996 and the exercise prices of those awards
were as follows:
<TABLE>
<CAPTION>
Date of Award Awards Outstanding Award Price
------------- ------------------ -----------
<S> <C> <C>
January 26, 1989 ....... 1,000 $ 54.00
January 25, 1990 ....... 134,500 $ 67.375
January 24, 1991 ....... 247,050 $ 68.375
January 23, 1992 ....... 548,750 $ 73.125
January 27, 1994 ....... 335,210 $ 54.375
January 26, 1995 ....... 431,975 $ 52.00
January 25, 1996 ....... 633,700 $ 71.00
---------
2,332,185 $52.00-$73.125
=========
</TABLE>
The non-pilot and pilot plans involve stock options to purchase 14.7
million and 10 million shares of Common Stock, respectively. Both plans
provide for grants of non-qualified stock options in three equal annual
installments at a stock option exercise price equal to the opening price of the
Common Stock on the New York Stock Exchange on the applicable grant date.
Stock options awarded under these plans will generally be exercisable beginning
one year and ending ten years after their grant dates, and will not be
transferable other than upon the death of the person granted the option. The
non-pilot and pilot plans are being presented to stockholders as one proposal.
The pilot stock option plan is an integral part of the new collective
bargaining agreement between the Company and the Air Line Pilots Association,
International (ALPA), which represents Delta's pilots (13% of Delta's
employees). ALPA has the right to reopen the new collective bargaining
agreement in its entirety if any required stockholder approval of the pilot
stock option plan is not obtained, and Delta and ALPA are unable to reach
agreement within 30 days on providing pilots with equivalent value to the pilot
stock option plan.
14. STOCK REPURCHASE AUTHORIZATION:
On April 24, 1996, Delta's Board of Directors authorized the Company to
repurchase up to 24.7 million shares of its Common Stock and Common Stock
equivalents. Under this authorization, the Company may repurchase up to 6.2
million of these shares before the initial stock option grants become
exercisable under the two broad-based, non-qualified stock option plans and
repurchase the remaining shares as Delta personnel exercise their stock options
under those plans. Repurchases are subject to market conditions and may be
made on the open market or in privately negotiated transactions. During fiscal
1996, the Company repurchased 821,300 shares of Common Stock for $66 million
under this authorization.
15. 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. The Company's
contribution is made quarterly through the allocation of the ESOP Preferred
Stock, Common Stock or cash.
45
DELTA AIR LINES, INC.
<PAGE> 33
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.
Dividends on unallocated shares of ESOP Preferred Stock are used by the ESOP
for debt service on the Series C ESOP Notes and are not considered dividends
for financial reporting purposes. Dividends on allocated shares of ESOP
Preferred Stock are paid to participants and are considered dividends for
financial reporting purposes.
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 Consolidated
Statement 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.
16. INCOME TAXES:
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.
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
the Company has 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, 1996.
Significant components of the Company's deferred tax assets and liabilities as
of June 30, 1996 and 1995 are a result of temporary differences related to the
items described as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(In Millions)
<S> <C> <C>
Deferred Tax Assets:
Postretirement benefits .............. $ 724 $ 655
Alternative minimum tax credit
carryforwards ...................... 354 284
Gains on sale and leaseback
transactions (net) ................. 336 344
Other employee benefits .............. 232 161
Rent expense ......................... 202 174
Spare parts repair expense ........... 114 97
Tax accruals ......................... 43 33
Frequent flyer expense ............... 40 37
Accrued compensation expense ......... 36 42
Net operating loss carryforwards ..... 5 122
Other ................................ 93 134
------ ------
Total Deferred Tax Assets .......... $2,179 $2,083
====== ======
Deferred Tax Liabilities:
Depreciation and amortization ........ $1,083 $1,084
Postemployment benefits .............. 82 89
Marketable equity securities ......... 81 49
Software development costs ........... 58 35
Other ................................ 108 86
------ ------
Total Deferred Tax Liabilities ..... $1,412 $1,343
====== ======
</TABLE>
46
DELTA AIR LINES, INC.
<PAGE> 34
Income taxes (provided) credited in fiscal 1996, 1995, and 1994 consisted of:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ----
(In Millions)
<S> <C> <C> <C>
Current taxes ..................... (177) (104) 8
Deferred taxes .................... 54 (99) 227
Increase in corporate
statutory rate ............... - - 13
Tax benefit of dividends on
allocated ESOP
Preferred Stock .............. 3 3 3
----- ----- -----
(120) (200) 250
----- ----- -----
Amortization of investment
tax credits .................. - - 1
----- ----- -----
Income taxes (provided) credited .. $(120) $(200) $ 251
===== ===== =====
</TABLE>
The Company made income tax payments, net of income tax refunds, of
$192 million in fiscal 1996 and $25 million in fiscal 1995 and received income
tax refunds, net of cash income tax payments, of $13 million in fiscal 1994.
The income tax (provisions) credit generated for fiscal 1996, 1995 and
1994 differ from amounts which would result from applying the federal statutory
tax rate to pretax income (loss), as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
(In Millions)
<S> <C> <C> <C>
Income (loss) before income
taxes ................................... $ 276 $ 494 $(660)
Items not deductible for tax
purposes:
Meals and entertainment .................... 36 41 16
Amortization ............................... 9 9 9
Other, net ................................. (8) 3 -
----- ----- -----
Adjusted pretax income (loss) .............. 313 547 (635)
Federal statutory tax rate ................. 35% 35% 35%
----- ----- -----
Income tax (provision) credit at
statutory rate .......................... (110) (191) 222
State and other income taxes,
net of federal income tax
(provision) credit ...................... (10) (9) 15
Benefit due to increase in
corporate statutory tax rate............. - - 13
Amortization of investment
tax credits ............................. - - 1
----- ----- -----
Income taxes (provided) credited ........... $(120) $(200) $ 251
===== ===== =====
</TABLE>
17. RESTRUCTURING AND OTHER NON-RECURRING CHARGES:
During fiscal years 1994 and 1996, the Company recorded pretax
restructuring and other non-recurring charges of $526 million and $829 million,
respectively. The $526 million pretax restructuring charge recorded in fiscal
1994 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 cost reduction program, partially
offset by a $24 million reversal related to the fleet simplification charge
recorded in fiscal 1993.
The $438 million charge for the Leadership 7.5 program included $280
million for workforce reductions of approximately 8,700 employees expected to
occur during fiscal 1995. During fiscal 1995 and 1996, the Company reduced its
staffing by approximately 9,200 and 1,200 personnel, respectively. Cash
payments in fiscal 1995 and 1996 for workforce reductions totaled approximately
$30 million and
47
DELTA AIR LINES, INC.
<PAGE> 35
$9 million, respectively, primarily for severance payments, with an additional
$5 million expected to be paid during fiscal 1997. 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.
Fiscal 1996 and 1994 pretax restructuring and other non-recurring charges are
summarized in the table below:
<TABLE>
<CAPTION>
Charges (Credits)
1996 1994 Total
---- ---- -------
<S> <C> <C> <C>
Fleet Simplification.................... $ - $(24) $ (24)
Early Retirement Program................ - 112 112
Leadership 7.5.......................... 104 438 542
Pilot Special Early Retirement
Program............................... 273 - 273
Lockheed L-1011 fleet early
retirement............................ 452 - 452
---- ---- ------
Totals................................. $829 $526 $1,355
==== ==== ======
</TABLE>
The $438 million charge for the Leadership 7.5 program also included $158
million for 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. Through fiscal 1996, the
Company incurred cash costs of approximately $57 million for these initiatives
and expects to incur additional cash costs of $16 million related to this
program in future years. During fiscal 1996, approximately $8 million of the
fiscal 1994 restructuring charge was reversed due to changes in estimates
associated with lease terminations and abandoned facilities. The remaining $77
million represents noncash costs.
The $829 million pretax charge for restructuring and other non-recurring
charges recorded in fiscal 1996 includes a $452 million write-down of Delta's
Lockheed L-1011 fleet and related assets. In connection with its decision to
accelerate the replacement of its 55 L-1011 aircraft fleet, the Company
performed an evaluation to determine, in accordance with SFAS 121 (see Note 1),
whether future cash flows (undiscounted and without interest charges) expected
to result from the use and the eventual disposition of the L-1011 fleet will be
less than the aggregate carrying amount of the L-1011 aircraft and related
assets. As a result of the evaluation, management determined that the
estimated future cash flows expected to be generated by L-1011 assets will be
less than their carrying amount, and therefore, the L-1011 assets are impaired
as defined by SFAS 121. Consequently, the original cost basis of the L-1011
fleet was reduced to reflect the fair market value at the time of the
evaluation, resulting in a $452 million non-recurring charge. In determining
the fair market value of L-1011 assets, the Company considered recent
transactions involving sales of L-1011 aircraft and market trends in aircraft
dispositions.
The $829 million pretax charge for restructuring and other non-recurring
charges also included $273 million related to the special early retirement
program for approximately 500 pilots expected to retire during fiscal 1997.
Actual timing of the retirements is dependent upon the Company's operational
needs. 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 fiscal 1996 charge is $65 million (net of reversals
of $36 million related to the Company's $526 million restructuring charge
recorded in fiscal 1994) for previously announced non-pilot workforce
reductions, including pension plan curtailment losses and special termination
benefits of $62 million, post-retirement medical plan curtailment gains and
special termination benefits of $16 million (for approximately 525 employees)
and severance payments and related costs of $23 million.
The remaining $39 million of the $829 million charge for fiscal 1996
represents cash and noncash costs related to lease terminations and other costs
associated with discontinued routes and abandoned facilities. The charge
includes (net of reversals of $8 million related to the Company's $526 million
restructuring charge recorded in fiscal 1994) $37 million for lease termination
costs for abandoned facilities and $10 million noncash costs related to routes
discontinued as a result of the restructuring. Actual cash costs associated
with lease terminations and abandoned facilities are expected to be
approximately $4 million in fiscal 1997.
48
DELTA AIR LINES, INC.
<PAGE> 36
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.
18. 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 $2.7 billion in fiscal 1996, $2.6 billion
in fiscal 1995 and $2.5 billion in fiscal 1994.
19. QUARTERLY FINANCIAL DATA (UNAUDITED):
Operating expenses for the March 1996 quarter include $556 million pretax
restructuring and other non-recurring charges related to the write-down of the
Company's Lockheed L-1011 fleet and related assets and the continuation of the
Company's Leadership 7.5 cost reduction program. Operating expenses for the
June 1996 quarter include a $273 million pretax restructuring charge for costs
associated with a special early retirement program under which approximately
500 pilots are expected to retire during fiscal 1997. (See Note 17.)
The following is a summary of the unaudited quarterly results of operations for
fiscal 1996 and 1995 (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 1996
Operating revenues ............................................... $3,188 $2,944 $2,964 $3,359
====== ====== ====== ======
Operating income (loss) .......................................... $ 386 $ 169 $ (387) $ 295
====== ====== ====== ======
Net income (loss) ................................................ $ 201 $ 70 $ (276) $ 161
====== ====== ====== ======
Primary income (loss) per common share ........................... $ 3.47 $ 0.93 $(5.77) $ 2.69
====== ====== ====== ======
Fully diluted income (loss) per common share ..................... $ 2.57 $ 0.93 $(5.77) $ 2.08
====== ====== ====== ======
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 cumulative 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
====== ====== ====== ======
</TABLE>
49
DELTA AIR LINES, INC.
<PAGE> 37
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY of operations
(In Millions, Except Per Share Data)
For the years ended June 30
1996(1) 1995(2) 1994(3) 1993(4) 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 12,455 $ 12,194 $ 12,077 $ 11,657 $ 10,837 $ 9,171
Operating expenses 11,992 11,533 12,524 12,232 11,512 9,621
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) 463 661 (447) (575) (675) (450)
Interest expense, net (243) (262) (271) (177) (151) (97)
Gain (loss) on disposition of flight equipment 2 - 2 65 35 17
Miscellaneous income, net (5) 54 95 56 36 5 30
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 276 494 (660) (651) (786) (500)
Income taxes (provided) credited (120) (200) 250 233 271 163
Amortization of investment tax credits - - 1 3 9 13
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) 156 294 (409) (415) (506) (324)
Preferred stock dividends (82) (88) (110) (110) (19) (19)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) attributable to common
stockholders $ 74 $ 206 $ (519) $ (525) $ (525) $ (343)
=========== =========== =========== =========== =========== ===========
Net income (loss) per common share:
Primary $ 1.42 $ 4.07 $ (10.32) $ (10.54) $ (10.60) $ (7.73)
=========== =========== =========== =========== =========== ===========
Fully diluted $ 1.42 $ 4.01 $ (10.32) $ (10.54) $ (10.60) $ (7.73)
=========== =========== =========== =========== =========== ===========
Dividends declared on common stock $ 10 $ 10 $ 10 $ 35 $ 59 $ 54
Dividends declared per common share $ 0.20 $ 0.20 $ 0.20 $ 0.70 $ 1.20 $ 1.20
<CAPTION>
OTHER FINANCIAL and statistical data
(Dollars In Millions, Except Share Data)
For the years ended June 30
1996(1) 1995(2) 1994(3) 1993(4) 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total assets $ 12,226 $ 12,143 $ 11,896 $ 11,871 $ 10,162 $ 8,411
Long-term debt and capital leases (excluding $ 2,175 $ 3,121 $ 3,228 $ 3,716 $ 2,833 $ 2,059
current maturities)
Stockholders' equity $ 2,540 $ 1,827 $ 1,467 $ 1,913 $ 1,894 $ 2,457
Shares of common stock outstanding at year end 67,778,106 50,816,010 50,453,272 50,063,841 49,699,098 49,401,779
Revenue passengers enplaned (thousands) 91,341 88,893 87,399 85,085 77,038 69,127
Available seat miles (millions) 130,751 130,645 131,906 132,282 123,102 104,328
Revenue passenger miles (millions) 88,673 86,417 85,268 82,406 72,693 62,086
Operating revenue per available seat mile 9.53c. 9.33c. 9.16c. 8.81c. 8.80c. 8.79c.
Passenger mile yield 13.10c. 13.10c. 13.23c. 13.23c. 13.91c. 13.80c.
Operating cost per available seat mile 9.17c. 8.83c. 9.49c. 9.25c. 9.35c. 9.22c.
Passenger load factor 67.82% 66.15% 64.64% 62.30% 59.05% 59.51%
Breakeven passenger load factor 65.12% 62.28% 67.21% 65.58% 62.99% 62.64%
Available ton miles (millions) 18,084 18,150 18,302 18,182 16,625 13,825
Revenue ton miles (millions) 10,235 10,142 9,911 9,503 8,361 7,104
Operating cost per available ton mile 66.31c. 63.55c. 68.43c. 67.27c. 69.24c. 69.59c.
<CAPTION>
CONSOLIDATED SUMMARY of operations
(In Millions, Except Per Share Data)
For the years ended June 30
1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 8,583 $ 8,089 $ 6,915 $ 5,318 $ 4,460
Operating expenses 8,163 7,411 6,418 4,913 4,426
----------- ----------- ----------- ----------- -----------
Operating income (loss) 420 678 497 405 34
Interest expense, net (27) (39) (65) (62) (55)
Gain (loss) on disposition of flight equipment 18 17 (1) 96 16
Miscellaneous income, net (5) 57 55 25 8 8
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 468 711 456 447 3
Income taxes (provided) credited (187) (279) (181) (219) 2
Amortization of investment tax credits 22 29 32 36 42
----------- ----------- ----------- ----------- -----------
Net income (loss) 303 461 307 264 47
Preferred stock dividends (18) - - - -
----------- ----------- ----------- ----------- -----------
Net income (loss) attributable to common
stockholders $ 285 $ 461 $ 307 $ 264 $ $47
=========== =========== =========== =========== ===========
Net income (loss) per common share:
Primary $ 5.79 $ 9.37 $ $6.30 $ 5.90 $ 1.18
=========== =========== =========== =========== ===========
Fully diluted $ 5.28 $ 9.37 $ $6.30 $ 5.90 $ 1.18
=========== =========== =========== =========== ===========
Dividends declared on common stock $ 85 $ 59 $ 59 $ 44 $ 40
Dividends declared per common share $ 1.70 $ 1.20 $ $1.20 $ 1.00 $ 1.00
<CAPTION>
OTHER FINANCIAL and statistical data
(Dollars In Millions, Except Share Data)
For the years ended June 30
1990 1989 1988 1987 1986
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 7,227 $ 6,484 $ 5,748 $ 5,342 $ 3,785
Long-term debt and capital leases (excluding $ 1,315 $ 703 $ 729 $ 1,018 $ 869
current maturities)
Stockholders' equity $ 2,596 $ 2,620 $ 2,209 $ 1,938 $ 1,302
Shares of common stock outstanding at year end 46,086,110 49,265,884 49,101,271 48,639,469 40,116,383
Revenue passengers enplaned (thousands) 67,240 64,242 58,565 48,173 39,582
Available seat miles (millions) 96,463 90,742 85,834 69,014 53,336
Revenue passenger miles (millions) 58,987 55,904 49,009 38,415 30,123
Operating revenue per available seat mile 8.90c. 8.91c. 8.06c. 7.71c. 8.36c.
Passenger mile yield 13.63c. 13.56c. 13.15c. 12.81c. 13.72c.
Operating cost per available seat mile 8.46c. 8.17c. 7.48c. 7.12c. 8.30c.
Passenger load factor 61.15% 61.61% 57.10% 55.66% 56.48%
Breakeven passenger load factor 57.96% 56.09% 52.69% 51.09% 56.01%
Available ton miles (millions) 12,500 11,725 11,250 9,000 6,934
Revenue ton miles (millions) 6,694 6,338 5,557 4,327 3,372
Operating cost per available ton mile 65.30c. 63.21c. 57.05c. 54.60c. 63.82c.
</TABLE>
1 Summary of operations and other financial and statistical data include $829
million in pretax restructuring
and other non-recurring charges ($9.71 per common share).
2 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).
3 Summary of operations and other financial and statistical data
include $526 million in pretax restructuring charges
($6.59 after-tax per common share).
4 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).
5 Includes interest income.
50 51
DELTA AIR LINES, INC.
<PAGE> 38
COMMON STOCK
Listed on the New York Stock Exchange under the ticker symbol DAL.
NUMBER OF STOCKHOLDERS
As of August 16, 1996, there were 24,157 registered
holders of Common Stock.
MARKET PRICES AND DIVIDENDS
Market Closing Price Range Cash
of Common Stock on Dividends Per
Fiscal Year 1996 New York Stock Exchange Common Share
- ----------------------------------------------------------------
Quarter Ended: High Low
September 30.............$80 1/2 $66 1/4 $0.05
December 31...............79 5/8 64 0.05
March 31..................82 67 3/8 0.05
June 30...................86 77 1/4 0.05
Fiscal Year 1995
- ----------------------------------------------------------------
Quarter Ended: High Low
September 30.............$49 3/4 $43 1/2 $0.05
December 31...............52 1/2 43 1/8 0.05
March 31..................64 51 0.05
June 30...................75 58 3/4 0.05
52 DELTA AIR LINES, INC.
<PAGE> 1
EXHIBIT 23
[Letterhead of ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated August 16, 1996 included in or incorporated by
reference in Delta Air Lines, Inc.'s Annual Report on Form 10-K for the year
ending June 30, 1996 into the Company's previously filed Registration Statement
File Nos. 33-65391, 2-94541, 33-30454, 33-50175, and 33-52045.
/s/ ARTHUR ANDERSEN LLP
- ----------------------------
Atlanta, Georgia
September 27, 1996
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Thomas J. Roeck, Jr. as my true and
lawful attorney-in-fact and agent, 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, 1996, 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, 1996.
/s/ Ronald W. Allen
-------------------------------------------
Ronald W. Allen
Chairman of the Board, President and Chief
Executive Officer
Delta Air Lines, Inc.
<PAGE> 2
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ Edwin L. Artzt
---------------------------
Edwin L. Artzt
Director
Delta Air Lines, Inc.
<PAGE> 3
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ Henry A. Biedenharn, III
-------------------------------
Henry A. Biedenharn, III
Director
Delta Air Lines, Inc.
<PAGE> 4
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ James L. Broadhead
---------------------------
James L. Broadhead
Director
Delta Air Lines, Inc.
<PAGE> 5
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ Edward H. Budd
----------------------------
Edward H. Budd
Director
Delta Air Lines, Inc.
<PAGE> 6
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ George D. Busbee
----------------------------------
George D. Busbee
Director
Delta Air Lines, Inc.
<PAGE> 7
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ R. Eugene Cartledge
---------------------------------
R. Eugene Cartledge
Director
Delta Air Lines, Inc.
<PAGE> 8
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ Mary Johnston Evans
------------------------------
Mary Johnston Evans
Director
Delta Air Lines, Inc.
<PAGE> 9
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ Peter D. Sutherland
--------------------------------
Peter D. Sutherland
Director
Delta Air Lines, Inc.
<PAGE> 10
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ Gerald Grinstein
------------------------------
Gerald Grinstein
Director
Delta Air Lines, Inc.
<PAGE> 11
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ Jesse Hill, Jr.
--------------------------------
Jesse Hill, Jr.
Director
Delta Air Lines, Inc.
<PAGE> 12
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen, 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, 1996, 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, 1996.
/s/ Andrew J. Young
-------------------------------
Andrew J. Young
Director
Delta Air Lines, Inc.
<PAGE> 13
POWER OF ATTORNEY
I hereby constitute and appoint Ronald W. Allen as my true and lawful
attorney-in-fact and agent, 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,
1996, 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, 1996.
/s/ Thomas J. Roeck, Jr.
------------------------------------
Thomas J. Roeck, Jr.
Senior Vice President - Finance
and Chief Financial Officer
Delta Air Lines, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELTA AIR
LINES, INC. FORM 10K FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE RELATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,145
<SECURITIES> 507
<RECEIVABLES> 1,012
<ALLOWANCES> 44
<INVENTORY> 73
<CURRENT-ASSETS> 3,282
<PP&E> 11,689
<DEPRECIATION> 4,894
<TOTAL-ASSETS> 12,226
<CURRENT-LIABILITIES> 3,638
<BONDS> 2,273
0
0
<COMMON> 217
<OTHER-SE> 2,323
<TOTAL-LIABILITY-AND-EQUITY> 12,226
<SALES> 0
<TOTAL-REVENUES> 12,455
<CGS> 0
<TOTAL-COSTS> 11,992
<OTHER-EXPENSES> (82)
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 269
<INCOME-PRETAX> 276
<INCOME-TAX> 120
<INCOME-CONTINUING> 156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
