<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5424
DELTA AIR LINES, INC.
State of Incorporation: Delaware
IRS Employer Identification No.: 58-0218548
Hartsfield Atlanta International Airport, Atlanta, Georgia 30320
Telephone: (404) 715-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Number of shares outstanding by each class of common stock,
as of April 30, 1997:
Common Stock, $3.00 par value - 73,467,829 shares outstanding
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA AIR LINES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
March 31 June 30
ASSETS 1997 1996
- ---------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 682 $ 1,145
Short-term investments 402 507
Accounts and notes receivable, net 1,034 968
Maintenance and operating supplies, at average cost 92 73
Deferred income taxes 370 352
Prepaid expenses and other 291 237
------- -------
Total current assets 2,871 3,282
------- -------
PROPERTY AND EQUIPMENT:
Flight equipment owned 9,211 8,202
Less: Accumulated depreciation 3,482 3,235
------- -------
5,729 4,967
------- -------
Flight equipment under capital leases 515 515
Less: Accumulated amortization 164 127
------- -------
351 388
------- -------
Ground property and equipment 2,890 2,697
Less: Accumulated depreciation 1,693 1,532
------- -------
1,197 1,165
------- -------
Advance payments for equipment 320 275
------- -------
7,597 6,795
------- -------
OTHER ASSETS:
Marketable equity securities 376 473
Deferred income taxes 331 415
Investments in associated companies 298 266
Cost in excess of net assets acquired, net 259 265
Leasehold and operating rights, net 127 140
Other 633 590
------- -------
2,024 2,149
------- -------
$12,492 $12,226
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE> 3
DELTA AIR LINES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
March 31 June 30
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ---------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 51 $ 40
Current obligations under capital leases 63 58
Accounts payable and miscellaneous accrued liabilities 1,757 1,540
Air traffic liability 1,461 1,414
Accrued salaries and vacation pay 471 385
Accrued rent 163 201
-------- --------
Total current liabilities 3,966 3,638
-------- --------
NONCURRENT LIABILITIES:
Long-term debt 1,700 1,799
Postretirement benefits 1,827 1,796
Accrued rent 591 616
Capital leases 325 376
Other 407 425
-------- --------
4,850 5,012
-------- --------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions 761 802
Manufacturers' and other credits 109 96
-------- --------
870 898
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
EMPLOYEE STOCK OWNERSHIP PLAN
PREFERRED STOCK:
Series B ESOP Convertible Preferred Stock 481 485
Unearned compensation under
employee stock ownership plan (324) (347)
-------- --------
157 138
-------- --------
STOCKHOLDERS' EQUITY:
Series C Convertible Preferred Stock -- --
Common Stock at par 250 217
Additional paid-in capital 2,614 2,627
Net unrealized gain on marketable equity securities 66 126
Retained earnings (deficit) 416 (119)
Treasury stock at cost (697) (311)
-------- --------
2,649 2,540
-------- --------
$ 12,492 $ 12,226
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE> 4
DELTA AIR LINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------------------ -----------------------------
1997 1996 1997 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 3,160 $ 2,774 $ 9,255 $ 8,486
Cargo 142 126 411 389
Other, net 118 64 383 220
------------ ------------ ------------ ------------
Total operating revenues 3,420 2,964 10,049 9,095
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Salaries and related costs 1,118 1,077 3,317 3,165
Aircraft fuel 444 365 1,326 1,068
Passenger commissions 250 241 765 765
Depreciation and amortization 180 156 520 476
Contracted services 179 187 560 522
Other selling expenses 172 159 500 454
Aircraft rent 136 138 410 417
Aircraft maintenance materials and outside repairs 106 88 317 299
Facilities and other rent 99 82 290 304
Passenger service 92 87 291 282
Landing fees 63 59 189 184
Restructuring and other non-recurring charges 52 556 52 556
Other 183 156 501 436
------------ ------------ ------------ ------------
Total operating expenses 3,074 3,351 9,038 8,928
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 346 (387) 1,011 167
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (52) (56) (158) (204)
Interest capitalized 9 6 25 20
Interest income 12 18 47 65
Miscellaneous income (expense), net 2 (27) (5) (35)
------------ ------------ ------------ ------------
(29) (59) (91) (154)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 317 (446) 920 13
INCOME TAXES (PROVIDED) CREDITED, NET (128) 170 (368) (19)
------------ ------------ ------------ ------------
NET INCOME (LOSS) 189 (276) 552 (6)
PREFERRED STOCK DIVIDENDS (2) (22) (6) (66)
------------ ------------ ------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ 187 $ (298) $ 546 $ (72)
============ ============ ============ ============
PRIMARY INCOME (LOSS) PER
COMMON SHARE: $ 2.52 $ (5.77) $ 7.30 $ (1.39)
============ ============ ============ ============
FULLY DILUTED INCOME (LOSS) PER
COMMON SHARE: $ 2.47 $ (5.77) $ 7.09 $ (1.39)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES USED IN
PER SHARE COMPUTATION:
Primary 74,160,290 51,652,524 74,820,998 51,484,055
Fully Diluted 76,258,570 51,652,524 77,486,702 51,484,055
DIVIDENDS PER COMMON SHARE $ 0.05 $ 0.05 $ 0.15 $ 0.15
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
DELTA AIR LINES, INC.
STATISTICAL SUMMARY
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
--------------------- ----------------------
STATISTICAL SUMMARY: 1997 1996 1997 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue Passengers Enplaned (thousands) 24,599 22,458 74,506 66,426
Revenue Passenger Miles (millions) 23,199 20,972 71,998 64,515
Available Seat Miles (millions) 33,688 31,634 102,269 97,251
Passenger Mile Yield 13.62 c. 13.23 c. 12.85 c. 13.15 c.
Operating Revenue Per Available Seat Mile 10.15 c. 9.37 c. 9.83 c. 9.35 c.
Operating Cost Per Available Seat Mile 9.12 c. 10.59 c. 8.84 c. 9.18 c.
Operating Cost Per Available Seat Mile - Excluding
restructuring and other non-recurring charges 8.97 c. 8.84 c. 8.79 c. 8.61 c.
Passenger Load Factor 68.86 % 66.30 % 70.40 % 66.34 %
Breakeven Passenger Load Factor 61.32 % 75.55 % 62.71 % 65.03 %
Breakeven Passenger Load Factor - Excluding
restructuring and other non-recurring charges 60.19 % 62.26 % 62.32 % 60.68 %
Revenue Ton Miles (millions) 2,706 2,427 8,326 7,477
Cargo Ton Miles (millions) 386 330 1,126 1,025
Cargo Ton Mile Yield 36.84 c. 38.06 c. 36.49 c. 37.99 c.
Fuel Gallons Consumed (millions) 636 604 1,943 1,863
Average Price Per Fuel Gallon 69.93 c. 60.39 c. 68.27 c. 57.30 c.
Number of Aircraft in Fleet at End of Period 549 539 549 539
Full-Time Equivalent Employees at End of Period 62,141 57,278 62,141 57,278
</TABLE>
5
<PAGE> 6
DELTA AIR LINES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
------------------
1997 1996
------- -------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income (loss) $ 552 $ (6)
Adjustments to reconcile net income to cash
provided by operating activities, net 511 143
Restructuring and other non-recurring charges 52 556
Changes in certain assets and liabilities, net 204 (34)
------- -------
Net cash provided by operating activities 1,319 659
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (1,154) (381)
Ground property and equipment (211) (177)
Decrease in short-term investments, net 105 25
Proceeds from sale of flight equipment 6 23
------- -------
Net cash used in investing activities (1,254) (510)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 17 24
Repurchase of common stock (379) --
Payments on long-term debt and capital lease obligations (140) (267)
Cash dividends (26) (83)
------- -------
Net cash used in financing activities (528) (326)
------- -------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (463) (177)
Cash and cash equivalents at beginning of period 1,145 1,233
------- -------
Cash and cash equivalents at end of period $ 682 $ 1,056
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 111 $ 151
Income taxes $ 221 $ 191
Non-cash activities:
Capital lease obligations incurred $ 6 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 7
DELTA AIR LINES, INC.
Notes to Consolidated Financial Statements
March 31, 1997
(Unaudited)
1. ACCOUNTING AND REPORTING POLICIES:
The Company's accounting and reporting policies are summarized in Note
1 (page 33) of the Notes to Consolidated Financial Statements in
Delta's 1996 Annual Report to Stockholders. These interim financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's 1996 Annual Report to
Stockholders. In the opinion of management, the accompanying unaudited
financial statements reflect all adjustments, consisting of normal
recurring accruals (except with respect to the $52 million and $556
million pre-tax charges for restructuring and other non-recurring
charges recorded during the March 1997 quarter and the March 1996
quarter, respectively - See Note 7), necessary for a fair statement of
results for the interim periods.
2. LONG-TERM DEBT:
During the nine months ended March 31, 1997, Delta voluntarily
repurchased and retired $88 million principal amount of its long-term
debt, none of which was repurchased in the March 1997 quarter. As a
result of these transactions, the Company recognized pretax losses of
$8 million for the nine months ended March 31, 1997; this amount is
included in miscellaneous income (expense), net in the Company's
Consolidated Statements of Operations.
On May 2, 1997, the Company and a group of banks entered into the 1997
Bank Credit Agreement and terminated the 1995 Bank Credit Agreement.
The 1997 Bank Credit Agreement provides for unsecured borrowings by the
Company of up to $1.25 billion on a revolving basis until May 1, 2002.
Up to $700 million of this facility may be used for the issuance of
letters of credit. The interest rate under this facility is, at the
Company's option, 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 1997 Bank Credit Agreement contains certain negative
covenants that restrict the Company's ability to grant liens, incur or
guarantee debt and enter into flight equipment leases. It also provides
that if there is a change of control (as defined) of the Company, the
banks' obligation to extend credit terminates, any amounts outstanding
become immediately due and payable and the Company will immediately
deposit cash collateral with the banks in an amount equal to all
outstanding letters of credit. At May 14, 1997, no borrowings or
letters of credit were outstanding under the 1997 Bank Credit
Agreement.
The Company's credit agreement with ABN AMRO Bank, N.V. and a group of
banks (Letter of Credit Facility) provides for the issuance of letters
of credit for up to $550 million in stated amount to credit enhance the
Delta Family-Care Savings Plan's Series C Guaranteed Serial ESOP Notes
(Series C ESOP Notes), which are guaranteed by Delta. At
7
<PAGE> 8
March 31, 1997, the face amount of the letter of credit under the
Letter of Credit Facility was $470 million, which 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. For additional information
regarding Delta's long-term debt, including the Series C ESOP Notes,
see Note 7 (page 37) of the Notes to Consolidated Financial Statements
in Delta's 1996 Annual Report to Stockholders.
3. AIRCRAFT PURCHASE COMMITMENTS:
At March 31, 1997, the Company's aircraft fleet, purchase commitments
and options were:
<TABLE>
<CAPTION>
CURRENT FLEET
---------------------------------------
AIRCRAFT TYPE OWNED LEASED TOTAL ORDERS OPTIONS
------------- ----- ------ ----- ------ -------
<S> <C> <C> <C> <C> <C>
B-727-200 115 14 129 -- --
B-737-200 1 53 54 -- --
B-737-300 -- 13 13 -- --
B-757-200 50 41 91 4 27
B-767-200 15 -- 15 -- --
B-767-300 2 24 26 2 --
B-767-300ER 15 7 22 11 7
L-1011-1 25 -- 25 -- --
L-1011-200 1 -- 1 -- --
L-1011-250 6 -- 6 -- --
L-1011-500 17 -- 17 -- --
MD-11 7 7 14 1 16
MD-88 63 57 120 -- 4
MD-90 16 -- 16 15 44
--- --- --- -- --
333 216 549 33 98
=== === === == ==
</TABLE>
The MD-88 aircraft options may be converted to MD-90 aircraft orders,
and the B-767-300ER aircraft options may be converted to B-767-300
aircraft orders, at Delta's election.
During the March 1997 quarter, Delta agreed to purchase six used
B-767-300ER aircraft, subject to the negotiation of definitive purchase
agreements and certain other conditions. The Company took delivery of
two of these aircraft during the March 1997 quarter. In addition, the
Company purchased nine B-727-200 aircraft which it had been operating
under lease; agreed to purchase and took delivery of one new B-757-200
aircraft; and accepted delivery of two new B-767-300ER aircraft.
Subsequent to March 31, 1997, Delta accepted delivery of two additional
used B-767-300ER aircraft under the arrangement described in the
preceding paragraph and one new B-767-300ER aircraft.
8
<PAGE> 9
Future expenditures for aircraft, engines and engine hushkits on firm
order at March 31, 1997, and for the remaining four used B-767-300ER
aircraft Delta agreed to purchase subject to certain conditions
discussed above, are estimated to be approximately $2.0 billion, as
follows:
<TABLE>
<CAPTION>
AMOUNT
YEARS ENDING JUNE 30 (IN MILLIONS)
-------------------- -------------
<S> <C>
Remainder of fiscal year 1997 $ 360
1998 820
1999 330
2000 240
2001 210
After 2001 70
------
Total $2,030
======
</TABLE>
During the March 1997 quarter, Delta and The Boeing Company (Boeing)
reached an understanding which provides for Delta placing the following
number of orders to purchase, and obtaining the following number of
options (which are guaranteed delivery slots) and rolling options
(which are aircraft delivery positions without fixed delivery dates
that replace options and are assigned fixed delivery dates as the
options expire or are exercised) to purchase, the following aircraft
types:
<TABLE>
<CAPTION>
================================================================================
Orders
Aircraft Type (Scheduled Fiscal Years Options Rolling Options
of Delivery)
================================================================================
<S> <C> <C> <C>
B-737-600/700/800* 70
(1999-2007) 60 280
--------------------------------------------------------------------------------
B-757-200 5
(1998-1999) 20 90
--------------------------------------------------------------------------------
B-767-300ER 10
(1998-1999) 10 19
--------------------------------------------------------------------------------
B-767-400 21
(2000-2001) 24 25
--------------------------------------------------------------------------------
B-777-200 -- 10 --
--------------------------------------------------------------------------------
</TABLE>
*or any mix of any of these models within the general aircraft
type
The understanding is subject to (1) the negotiation of mutually
acceptable definitive purchase agreements between Delta and Boeing and
(2) definitive agreements acceptable to Delta with the respective
engine manufacturers. The understanding provides, subject to certain
conditions, that Boeing will be the provider of new aircraft
for Delta for twenty years, and that Delta may switch orders
among these aircraft types and defer firm orders. The understanding
would also accelerate the delivery dates for certain of Delta's
existing orders and terminate Delta's existing options for B-757-200
and B-767-300ER aircraft.
9
<PAGE> 10
Future expenditures for aircraft, engines and engine hushkits on firm
order at March 31, 1997, the remaining four used B-767-300ER aircraft
which Delta agreed to purchase subject to certain conditions discussed
above, and the aircraft orders provided for under Delta's understanding
with Boeing, are estimated to be approximately $6.8 billion as follows:
<TABLE>
<CAPTION>
AMOUNT
YEARS ENDING JUNE 30 (IN MILLIONS)
<S> <C>
Remainder of fiscal year 1997 $ 450
1998 1,100
1999 1,210
2000 440
2001 1,380
After 2001 2,220
------
Total $6,800
======
</TABLE>
4. CONTINGENCIES:
Delta is a defendant in certain legal actions relating to alleged
employment discrimination practices, antitrust matters, environmental
issues and other matters concerning Delta'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 such effects.
5. STOCKHOLDERS' EQUITY:
During the March 1997 quarter, the Company issued a total of 292,752
common shares, at an average price of $61.66 per share, under the 1989
Stock Incentive Plan, the Dividend Reinvestment and Stock Purchase Plan
and the Non-Employee Directors' Stock Plan.
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 (see Note 14 on page 45 of the Notes to Consolidated
Financial Statements in Delta's 1996 Annual Report to Stockholders).
During the March 1997 quarter, the Company did not repurchase any
shares of its common stock. Since April 24, 1996, the Company has
repurchased a total of 6,200,000 common shares at an average price of
$71.75 per share under this authorization.
At March 31, 1997, 24,700,000 common shares were reserved for issuance
under the Company's broad-based employee stock option plans; 4,786,783
common shares were reserved for issuance under the 1989 Stock Incentive
Plan; 5,737,961 common shares were reserved for conversion of the
Series B ESOP Convertible Preferred Stock; and 249,105 common shares
were reserved for issuance under the Non-Employee Directors' Stock
Plan.
10
<PAGE> 11
6. INCOME TAXES:
Income taxes are provided at the estimated annual effective tax rate,
which differs from the federal statutory rate of 35% primarily due to
state income taxes and the effect of certain expenses that are not
deductible for income tax purposes. Deferred income taxes reflect the
net effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes.
7. RESTRUCTURING AND OTHER NON-RECURRING CHARGES:
During the March 1997 quarter, Delta recorded pre-tax restructuring and
other non-recurring charges totaling $52 million as part of its
previously announced plans to realign its transatlantic and European
operations. Of this amount, $45 million relates to personnel severance
costs; $5 million relates to reorganization of the Frankfurt operation;
and $2 million relates to abandoned facilities in Frankfurt and other
European locations.
During fiscal years 1996 and 1994, Delta recorded pre-tax restructuring
and other non-recurring charges of $829 million and $526 million,
respectively (see Note 17 on page 47 of the Notes to Consolidated
Financial Statements in Delta's 1996 Annual Report to Stockholders).
The following table reflects the combined restructuring accrual
balances at December 31, 1996 and at March 31, 1997. All reductions in
reserves represent payments of liabilities and other settlements of
outstanding issues.
<TABLE>
<CAPTION>
Balance at Balance at
December 31, 1996 Additions Reductions March 31, 1997
----------------- --------- ---------- --------------
(Amounts in Millions)
<S> <C> <C> <C> <C>
Leadership 7.5
Workforce Reductions $ 5 -- -- $ 5
Abandoned Facilities 39 -- 1 38
Pilot Special Early
Retirement Program 13 -- 8 5
Transatlantic and
European Realignment
Workforce Reductions -- 45 1 44
Abandoned Facilities -- 2 -- 2
Other -- 5 -- 5
--- --- --- ---
Totals $57 $52 $10 $99
=== === === ===
</TABLE>
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Cash and cash equivalents and short-term investments totaled $1.08 billion at
March 31, 1997, compared to $1.65 billion at June 30, 1996. During the nine
months ended March 31, 1997, the principal sources of funds were $1.32 billion
of cash from operations, $568 million from cash reserves, and $17 million from
the issuance of the Company's common stock. During the nine months ended March
31, 1997, Delta invested $1.15 billion in flight equipment and $211 million in
ground property and equipment; paid $379 million to repurchase 5,378,700 shares
of the Company's common stock; made payments of $140 million on long-term debt
and capital lease obligations, which included Delta's voluntary repurchase and
retirement of $88 million principal amount of long-term debt; and paid $26
million in cash dividends. The Company may repurchase additional long-term debt
from time to time. For additional information regarding Delta's common stock
repurchase authorization, see Note 5 of the Notes to Consolidated Financial
Statements in this Form 10-Q and Note 14 (page 45) of the Notes to Consolidated
Financial Statements in Delta's 1996 Annual Report to Stockholders.
As of March 31, 1997, the Company had negative working capital of $1.10 billion,
compared to negative working capital of $356 million at June 30, 1996. This
increase in negative working capital is largely due to the use of cash for
payments on flight equipment and repurchases of the Company's common stock under
the common stock repurchase authorization. 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 March 31, 1997, long-term debt and capital lease obligations, including
current maturities, totaled $2.14 billion, compared to $2.27 billion at June 30,
1996. Stockholders' equity was $2.65 billion at March 31, 1997 and $2.54 billion
at June 30, 1996. The Company's debt-to-equity position, including current
maturities, was 45% debt and 55% equity at March 31, 1997, compared to 47% debt
and 53% equity at June 30, 1996.
At March 31, 1997, 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. For additional information regarding the Series C ESOP
Notes, see Note 7 (page 37) of the Notes to Consolidated Financial Statements in
Delta's 1996 Annual Report to Stockholders.
12
<PAGE> 13
On January 7, 1997, the Company announced a series of actions to strengthen its
transatlantic and European operations. These actions, which are scheduled to be
implemented between April 1997 and June 1997, include increasing the Company's
operations at New York's John F. Kennedy International Airport and decreasing
its operations at Frankfurt, Germany. Delta expects these actions will improve
its system operating income by approximately $62 million a year. As a result of
these actions, Delta recorded during the March 1997 quarter pre-tax
restructuring and other non-recurring charges of $52 million, as described in
Note 7 of the Notes to Consolidated Financial Statements in this Form 10-Q.
Management believes that these charges are not likely to have a material adverse
effect on Delta's consolidated financial condition or liquidity.
The information in the preceding paragraph regarding Delta's projected
improvement in system operating income is a forward-looking statement that
involves a number of risks and uncertainties that could cause the actual results
to differ materially from the projected results. The specific factors and events
that could cause the actual results to differ materially from the expected
results include, among other things, (1) competitive factors such as the airline
pricing environment and the capacity decisions of other airlines; (2) general
economic conditions; (3) changes in jet fuel prices; (4) fluctuations in foreign
currency exchange rates; (5) actions by the United States and foreign
governments; and (6) the willingness of customers to travel.
During the March 1997 quarter, Delta and Boeing reached an understanding which
provides for Delta placing orders to purchase, and obtaining options and rolling
options to purchase, certain aircraft. See Note 3 of the Notes to Consolidated
Financial Statements in this Form 10-Q for additional information on this
subject.
On April 17, 1997, the Company announced compensation and benefit enhancements
for its non-contract domestic employees, effective July 1, 1997. These changes
are expected to increase Delta's salary and related costs by approximately $137
million annually.
On May 2, 1997, the Company and a group of banks entered into the 1997 Bank
Credit Agreement and terminated the 1995 Bank Credit Agreement. The 1997 Bank
Credit Agreement provides for unsecured borrowings by the Company of up to $1.25
billion on a revolving basis until May 1, 2002. Up to $700 million of this
facility may be used for the issuance of letters of credit. At May 14, 1997, no
borrowings or letters of credit were outstanding under the 1997 Bank Credit
Agreement. See Note 2 of the Notes to Consolidated Financial Statements in this
Form 10-Q for additional information regarding the 1997 Bank Credit Agreement.
On March 3, 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" (SFAS 128) which redefines how entities compute
earnings per share. This statement is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods and
requires restatement of all prior-period earnings per share data presented. The
adoption of SFAS 128 is not expected to have a material impact on the Company's
earnings per share data.
At its meeting on April 24, 1997, Delta's Board of Directors declared a cash
dividend of five cents per common share, payable June 1, 1997, to stockholders
of record on May 14, 1997.
13
<PAGE> 14
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996
For the quarter ended March 31, 1997, Delta recorded unaudited operating income
of $346 million and net income of $189 million. For the quarter ended March 31,
1996, the Company recorded an operating loss of $387 million and a net loss of
$276 million. The results for the March 1997 quarter and the March 1996 quarter
include pre-tax restructuring and other non-recurring charges of $52 million and
$556 million, respectively. For additional information regarding these charges,
see Note 7 of the Notes to Consolidated Financial Statements in this Form 10-Q
and Note 14 (page 45) of the Notes to Consolidated Financial Statements in
Delta's 1996 Annual Report to Stockholders.
Excluding the effect of the pre-tax restructuring and other non-recurring
charges noted in the preceding paragraph, the Company recorded unaudited
operating income of $398 million and net income of $221 million for the quarter
ended March 31, 1997, compared to operating income of $169 million and net
income of $63 million for the quarter ended March 31, 1996.
Operating revenues in the March 1997 quarter totaled $3.42 billion, an increase
of 15% from $2.96 billion in the March 1996 quarter. Passenger revenue increased
14% to $3.16 billion, reflecting an 11% increase in revenue passenger miles and
a 3% improvement in the passenger mile yield. These results reflect favorable
economic conditions, the Company's improved asset utilization and revenue
management, and reduced operations by a low-cost, low-fare competitor.
Cargo revenue increased 13% to $142 million. Cargo ton miles increased 17%,
while the cargo ton mile yield declined 3%, largely due to the Company's
utilization of more competitive pricing strategies and an increase in the
average stage length related to freight shipments. All other revenue, net
increased 84% to $118 million, due to improved results from code share
arrangements and the expansion of joint marketing and other marketing programs.
Operating expenses for the March 1997 quarter totaled $3.07 billion, a decrease
of 8% from the March 1996 quarter. Excluding restructuring and other
non-recurring charges in both the March 1997 quarter and March 1996 quarter,
operating expenses increased 8% to $3.02 billion. Operating capacity increased
6% to 33.69 billion available seat miles. As discussed below, the increase in
operating expenses (excluding restructuring and other non-recurring charges) is
primarily due to higher jet fuel prices and an increase in full-time equivalent
employees to improve customer service and to handle higher passenger traffic.
Salaries and related costs increased 4% primarily due to an 8% increase in
full-time equivalent employees. Aircraft fuel expense increased 22% as the
average fuel price per gallon increased 16% to 69.93 cents and fuel gallons
consumed increased 5%. Passenger commissions and other selling expenses
increased 4% and 8%, respectively, primarily due to higher passenger traffic.
Depreciation and amortization expense rose 15% due to the acquisition of
additional aircraft and ground equipment and higher software development costs.
Aircraft maintenance and outside repairs increased 20% due to higher usage of
airframe and engine materials related to the timing of scheduled heavy
maintenance visits. Facilities and other rent increased 21% due to certain
facilities rent accrual adjustments recorded in the March 1996 quarter. Other
operating expenses
14
<PAGE> 15
increased 17% primarily due to higher frequent flyer expense related to the
expansion of the Company's joint marketing programs, higher insurance expense
and increased usage of miscellaneous supplies, partially offset by increased
services provided to outside parties.
Nonoperating expense in the March 1997 quarter totaled $29 million, compared to
$59 million in the March 1996 quarter. Interest expense decreased 7% to $52
million, due to a lower average level of long-term debt outstanding. Interest
income decreased 33% to $12 million, due to lower average levels of cash
invested and a slight decline in interest rates. Miscellaneous income increased
to $2 million in the March 1997 quarter compared to miscellaneous expense of $27
million in the March 1996 quarter, primarily due to improved results from
investments in associated companies and the elimination of losses associated
with voluntary debt retirements incurred in the March 1996 quarter.
Pretax income of $317 million for the March 1997 quarter resulted in an income
tax provision of $128 million. After a $2 million provision for preferred stock
dividends, net income available to common stockholders was $187 million.
Nine months ended March 31, 1997 and 1996
For the nine months ended March 31, 1997, Delta recorded unaudited operating
income of $1.011 billion and net income of $552 million. For the nine months
ended March 31, 1996, the Company recorded operating income of $167 million and
a net loss of $6 million. The results for the nine months ended March 31, 1997
and the nine months ended March 31, 1996, include pre-tax restructuring and
other non-recurring charges of $52 million and $556 million, respectively. For
additional information regarding these charges, see Note 7 of the Notes to
Consolidated Financial Statements in this Form 10-Q and Note 14 (page 45) of the
Notes to Consolidated Financial Statements in Delta's 1996 Annual Report to
Stockholders.
Excluding the effect of the pre-tax restructuring and other non-recurring
charges noted in the preceding paragraph, the Company recorded unaudited
operating income of $1.063 billion and net income of $585 million for the nine
months ended March 31, 1997, compared to operating income of $723 million and
net income of $333 million for the nine months ended March 31, 1996.
Operating revenues for the nine months ended March 1997 totaled $10.05 billion,
an increase of 10% from $9.10 billion for the nine months ended March 1996.
Passenger revenue increased 9% to $9.26 billion, reflecting a 12% increase in
revenue passenger miles, partially offset by a 2% decline in the passenger mile
yield. The increase in passenger traffic is due to favorable economic
conditions; the Company's realignment of its domestic route system on December
1, 1995, which increased the Company's operations at its Atlanta and Cincinnati
hubs; improved asset utilization; and reduced operations by a low-cost, low-fare
competitor. The decrease in the passenger mile yield reflects the Company's use
of more competitive pricing strategies and the continued presence of low-cost,
low-fare carriers in domestic markets served by Delta.
Cargo revenue increased 6% to $411 million. Cargo ton miles increased 10%, while
the cargo ton mile yield decreased 4%, largely due to the Company's utilization
of more competitive pricing strategies and an increase in the average stage
length related to freight shipments. All other
15
<PAGE> 16
revenue, net increased 74% to $383 million due to improved results from code
share arrangements and the expansion of joint marketing and other marketing
programs.
Operating expenses for the nine months ended March 1997 totaled $9.04 billion,
an increase of 1% compared to the nine months ended March 1996. Excluding
restructuring and other non-recurring charges in both the nine months ended
March 31, 1997 and the nine months ended March 31, 1996, operating expenses
increased 7% to $8.99 billion. Operating capacity increased 5% to 102.27 billion
available seat miles. As discussed below, the increase in operating expenses
(excluding restructuring and other non-recurring charges) is primarily due to
higher jet fuel prices and an increase in full-time equivalent employees to
improve customer service and to handle higher passenger traffic.
Salaries and related costs increased 5% primarily due to an 8% increase in
full-time equivalent employees. Aircraft fuel expense increased 24% as the
average fuel price per gallon increased 19% to 68.27 cents and fuel gallons
consumed increased 4%. Passenger commissions remained virtually unchanged as
higher costs associated with increased passenger traffic were offset by lower
expenses for certain incentive programs. Depreciation and amortization expense
rose 9% due to the acquisition of additional aircraft and ground equipment and
software development costs. Contracted services expense rose 7% mainly due to
increased information technology services. Other selling expenses increased 10%,
mainly the result of higher booking fee payments to computer reservations system
providers due to higher passenger traffic. Aircraft maintenance and outside
repairs increased 6% due to higher usage of airframe and engine materials
related to the timing of scheduled heavy maintenance visits. Facilities and
other rent decreased 5% due to certain facilities rent accrual adjustments, the
reclassification of certain unoccupied airport facilities costs to nonoperating
expense and the subleasing of certain airport facilities. Other operating
expenses increased 15%, due to higher fuel taxes resulting from the October 1,
1995 expiration of the exemption from the 4.3 cents per gallon federal tax on
commercial aviation jet fuel used in domestic operations, higher frequent flyer
expense related to the expansion of the Company's joint marketing programs,
increased usage of miscellaneous supplies and higher insurance expense,
partially offset by increased services provided to outside parties.
Nonoperating expense for the nine months ended March 1997 totaled $91 million,
compared to nonoperating expense of $154 million for the nine months ended March
1996. Interest expense decreased 23% to $158 million, due to a lower average
level of long-term debt outstanding. Interest income decreased 28% to $47
million, due to lower average levels of cash invested and a slight decline in
interest rates. Miscellaneous expense decreased 85% to $5 million due to
increased income from associated companies and reduced voluntary debt retirement
and foreign exchange losses, partially offset by Delta's $20 million payment to
settle certain class action antitrust lawsuits filed by travel agents. For
additional information regarding the antitrust settlement, see page 12 of
Delta's Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
Pretax income of $920 million for the nine months ended March 1997 resulted in
an income tax provision of $368 million. After a $6 million provision for
preferred stock dividends, net income available to common stockholders was $546
million.
16
<PAGE> 17
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
the Board of Directors of
Delta Air Lines, Inc.:
We have reviewed the accompanying consolidated balance sheet of DELTA AIR LINES,
INC. (a Delaware Corporation) AND SUBSIDIARIES as of March 31, 1997 and the
related consolidated statements of operations for the three-month and nine-month
periods ended March 31, 1997 and 1996 and consolidated condensed statements of
cash flows for the nine-month periods ended March 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
April 25, 1997
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported on pages 11-12 of Delta's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 (1996 Form 10-K), a purported class action complaint
was filed in the United States District Court for the Northern District of
Georgia against Delta and certain Delta officers in their capacity as members of
the Administrative Committee responsible for administering certain Company
employee benefit plans. The plaintiffs, who have requested a jury trial, are 21
former Delta employees who seek to represent the class consisting of the
approximately 1,800 former non-pilot employees of Delta who retired from active
service between July 23, 1992 and January 1, 1993. The complaint alleges that
Delta violated the Employee Retirement Income Security Act by (1) modifying
health benefits for this group of retirees in spite of alleged oral and written
representations that it would not make any such modifications; (2) breaching its
fiduciary duties and interfering with plaintiffs' benefits by making such
modifications and by allegedly giving false assurances that no enhanced
retirement benefit incentives were being considered or would be offered in the
future; and (3) discriminating against certain benefit plan participants. The
complaint also alleges, among other things, that Delta breached a contract with
plaintiffs by amending Delta's pass policy to suspend the flight privileges of a
retiree during any period such retiree is employed by certain other airlines. On
November 4, 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.
The plaintiffs appealed to the United States Court of Appeals for the Eleventh
Circuit which, on August 5, 1996, affirmed the District Court's November 4, 1994
decision. On February 24, 1997, the United States Supreme Court denied
plaintiffs' request to review the Court of Appeals' decision affirming the
District Court's ruling denying the plaintiffs' motion for class action
certification. On May 1, 1997, the District Court dismissed this matter without
prejudice.
As reported on page 12 of the 1996 Form 10-K, 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 certification. On March 14, 1997, the plaintiffs in this action
dismissed this case without prejudice.
As reported on page 12 of the 1996 Form 10-K, travel agents and a travel agency
trade association filed numerous class action antitrust lawsuits in various
federal district courts against airlines, including Delta, that implemented
travel agent commission cap programs. These lawsuits were consolidated before
the United States District Court in Minneapolis which, on January 28, 1997,
granted final approval of the settlement of this litigation. The time period for
appealing the District Court's order granting final approval of the settlement
has expired.
18
<PAGE> 19
ITEM 2. CHANGES IN SECURITIES
Under the Delta Air Lines, Inc. Directors' Deferred Compensation Plan (Plan),
members of the Company's Board of Directors may defer for a specified period all
or a portion of their cash compensation for service as a director. Amounts
deferred under the Plan are paid in cash at the end of the applicable deferral
period.
A director who participates in the Plan may choose an investment return on
deferred amounts equivalent to one or more of the 17 investment funds available
under the Delta Family-Care Savings Plan, a qualified defined contribution
pension plan for eligible Delta personnel. One of the available investment funds
under the Delta Family-Care Savings Plan is invested primarily in the Company's
common stock (Delta Common Stock Fund).
During the quarter ended March 31, 1997, participants in the Plan deferred a
total of $19,625 in the investment return choice equivalent to the Delta Common
Stock Fund (equivalent to approximately 250 shares of Delta common stock at
prevailing market prices). These transactions were not registered under the
Securities Act of 1933, as amended, in reliance on Section 4 (2) of such Act.
ITEM 5. OTHER INFORMATION
On May 12, 1997, Delta said that Ronald W. Allen, the Company's Chairman of the
Board, President and Chief Executive Officer, announced he will retire from the
Company and resign from the Board of Directors effective July 31, 1997, when
his current employment contract expires.
The Board of Directors has formed a search committee to identify and recruit a
successor. The committee will be chaired by Gerald Grinstein, a member of the
Board and former head of Western Air Lines, Inc. and Burlington Northern Santa
Fe Corporation. Mr. Allen will work with the Board to find a successor and,
after his retirement, will serve as a consultant and advisory director to the
Board.
The Board has named Maurice W. Worth, currently Executive Vice President -
Customer Service, as acting Chief Operating Officer. Mr Worth will be
responsible for the day-to-day operation of the airline. He has 36 years of
service at Delta in operations, station management and personnel.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Statement regarding computation of per share earnings.
12. Statement regarding computation of ratio of earnings to fixed
charges.
15. Letter from Arthur Andersen LLP regarding unaudited interim
financial information.
27. Financial Data Schedule (For SEC use only).
(b) Reports on Form 8-K:
During the quarter ended March 31, 1997, Delta filed a Current Report
on Form 8-K dated January 7, 1997 relating to its announcement of
certain planned actions to strengthen its transatlantic and European
operations.
20
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delta Air Lines, Inc.
-----------------------------------
(Registrant)
By: /s/ Thomas J. Roeck, Jr.
--------------------------------
Thomas J. Roeck, Jr.
Senior Vice President - Finance
and Chief Financial Officer
May 14, 1997
21
<PAGE> 1
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
EXHIBIT 11
(In millions except per share amounts)
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
PRIMARY:
Weighted average shares outstanding 73 51
Additional shares assuming
exercise of stock options 1 --
----- ------
Average shares outstanding as adjusted 74 51
===== ======
Net income (loss) $ 189 $ (276)
Preferred dividends series C -- (20)
Preferred dividends series B (2) (2)
----- ------
Net income (loss) available to primary common shares $ 187 $ (298)
===== ======
Primary earnings (loss) per common share $2.52 $(5.77)
===== ======
FULLY DILUTED:
Weighted average shares outstanding 73 51
Additional shares assuming:
Conversion of series C convertible preferred stock -- 17
Conversion of series B ESOP convertible
preferred stock 2 3
Conversion of 3.23% convertible subordinated notes -- 10
Exercise of stock options 1 --
----- ------
Average shares outstanding as adjusted 76 81
===== ======
Net income (loss) $ 189 $ (276)
Interest on 3.23% convertible subordinated
notes net of taxes -- 7
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock (2) (1)
----- ------
Net income (loss) available to fully diluted common shares $ 187 $ (270)
===== ======
Fully diluted earnings (loss) per common share $2.47 $(3.33) *
===== ======
</TABLE>
*Antidilutive
<PAGE> 2
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR NINE MONTHS ENDED MARCH 31, 1997 AND 1996
EXHIBIT 11
(In millions except per share amounts)
<TABLE>
<CAPTION>
1997 1996
----- ------
<S> <C> <C>
PRIMARY:
Weighted average shares outstanding 74 51
Additional shares assuming
exercise of stock options 1 --
----- ------
Average shares outstanding as adjusted 75 51
===== ======
Net income (loss) $ 552 $ (6)
Preferred dividends series C -- (60)
Preferred dividends series B (6) (6)
----- ------
Net income (loss) available to primary common shares 546 (72)
===== ======
Primary earnings (loss) per common share $7.30 $(1.39)
===== ======
FULLY DILUTED:
Weighted average shares outstanding 74 51
Additional shares assuming:
Conversion of series C convertible preferred stock -- 17
Conversion of series B ESOP convertible
preferred stock 2 3
Conversion of 3.23% convertible subordinated notes -- 10
Exercise of stock options 1 --
----- ------
Average shares outstanding as adjusted 77 81
===== ======
Net income (loss) $ 552 $ (6)
Interest on 3.23% convertible subordinated
notes net of taxes -- 21
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock (4) (3)
----- ------
Net income (losss) available to fully diluted common shares $ 548 $ 12
===== ======
Fully diluted earnings (loss) per common share $7.09 $(0.15)*
===== ======
</TABLE>
* Antidilutive
<PAGE> 1
DELTA AIR LINES, INC. EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
(In Millions except ratios)
- ---------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
March 31, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Earnings:
Net income (loss) $ 552 $ (6)
Add (deduct):
Income tax provision 368 19
Fixed charges 391 446
Interest capitalized (25) (20)
Interest offset on
Guaranteed Serial
ESOP Notes -- (2)
------- -------
Earnings as adjusted $ 1,286 $ 437
======= =======
Fixed charges:
Interest expense $ 158 $ 204
1/3 of rentals 233 240
Additional interest on
Guaranteed Serial
ESOP Notes -- 2
------- -------
Total fixed charges $ 391 $ 446
======= =======
Ratio of earnings to fixed charges 3.29 --
- ---------------------------------------------------
</TABLE>
Earnings for the nine months ended March 31, 1996 were inadequate to cover fixed
charges. Additional earnings of $9 million would have been necessary to bring
the ratio to 1.0.
<PAGE> 1
ARTHUR ANDERSEN LLP
EXHIBIT 15
To the Stockholders and
the Board of Directors of
Delta Air Lines, Inc.:
We are aware that Delta Air Lines, Inc. has incorporated by reference in its
Registration Statement Nos. 2-94541, 33-30454, 33-50175, 33-52045, 33-65391 and
333-16471 its Form 10-Q for the quarter ended March 31, 1997, which includes our
report dated April 25, 1997 covering the unaudited interim financial information
contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the
"Act"), that report is not considered a part of the Registration Statements
prepared or certified by our firm or a report prepared or certified by our firm
within the meaning of Sections 7 and 11 of the Act.
Arthur Andersen LLP
Atlanta, Georgia
April 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELTA AIR
LINES, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE RELATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 682
<SECURITIES> 402
<RECEIVABLES> 1,084
<ALLOWANCES> 50
<INVENTORY> 92
<CURRENT-ASSETS> 2,871
<PP&E> 12,936
<DEPRECIATION> 5,339
<TOTAL-ASSETS> 12,492
<CURRENT-LIABILITIES> 3,966
<BONDS> 2,139
0
0
<COMMON> 250
<OTHER-SE> 2,399
<TOTAL-LIABILITY-AND-EQUITY> 12,492
<SALES> 0
<TOTAL-REVENUES> 10,049
<CGS> 0
<TOTAL-COSTS> 9,038
<OTHER-EXPENSES> (67)
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 158
<INCOME-PRETAX> 920
<INCOME-TAX> 368
<INCOME-CONTINUING> 552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 546
<EPS-PRIMARY> 7.30
<EPS-DILUTED> 7.09
</TABLE>
