<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 December 31, 1996
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 January 31, 1997:
Common Stock, $3.00 par value - 73,140,705 shares outstanding
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA AIR LINES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
December 31 June 30
ASSETS 1996 1996
- -----------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 526 $ 1,145
Short-term investments 504 507
Accounts and notes receivable, net 951 968
Maintenance and operating supplies, at average cost 87 73
Deferred income taxes 353 352
Prepaid expenses and other 266 237
------- -------
Total current assets 2,687 3,282
------- -------
PROPERTY AND EQUIPMENT:
Flight equipment owned 8,772 8,202
Less: Accumulated depreciation 3,342 3,235
------- -------
5,430 4,967
------- -------
Flight equipment under capital leases 515 515
Less: Accumulated amortization 151 127
------- -------
364 388
------- -------
Ground property and equipment 2,814 2,697
Less: Accumulated depreciation 1,639 1,532
------- -------
1,175 1,165
------- -------
Advance payments for equipment 316 275
------- -------
7,285 6,795
------- -------
OTHER ASSETS:
Marketable equity securities 404 473
Deferred income taxes 366 415
Investments in associated companies 287 266
Cost in excess of net assets acquired, net 261 265
Leasehold and operating rights, net 131 140
Other 605 590
------- -------
2,054 2,149
------- -------
$12,026 $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>
December 31 June 30
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
- ----------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 51 $ 40
Current obligations under capital leases 60 58
Accounts payable and miscellaneous accrued
liabilities 1,809 1,540
Air traffic liability 1,144 1,414
Accrued salaries and vacation pay 414 385
Accrued rent 220 201
-------- --------
Total current liabilities 3,698 3,638
-------- --------
NONCURRENT LIABILITIES:
Long-term debt 1,700 1,799
Postretirement benefits 1,815 1,796
Accrued rent 571 616
Capital leases 345 376
Other 396 425
-------- --------
4,827 5,012
-------- --------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions 774 802
Manufacturers' and other credits 98 96
-------- --------
872 898
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
EMPLOYEE STOCK OWNERSHIP PLAN
PREFERRED STOCK:
Series B ESOP Convertible Preferred Stock 483 485
Unearned compensation under
employee stock ownership plan (324) (347)
-------- --------
159 138
-------- --------
STOCKHOLDERS' EQUITY:
Series C Convertible Preferred Stock - -
Common Stock at par 249 217
Additional paid-in capital 2,598 2,627
Net unrealized gain on marketable equity securities 85 126
Retained earnings (deficit) 232 (119)
Treasury stock at cost (694) (311)
-------- --------
2,470 2,540
-------- --------
$ 12,026 $ 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 Six Months Ended
December 31 December 31
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 2,925 $ 2,735 $ 6,095 $ 5,712
Cargo 145 135 269 264
Other, net 127 74 265 156
------------ ------------ ------------ ------------
Total operating revenues 3,197 2,944 6,629 6,132
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Salaries and related costs 1,107 1,051 2,199 2,088
Aircraft fuel 466 355 882 703
Passenger commissions 237 246 515 524
Contracted services 182 163 381 335
Depreciation and amortization 174 159 340 320
Other selling expenses 149 150 328 295
Aircraft rent 137 139 274 279
Aircraft maintenance materials and outside repairs 103 102 211 211
Passenger service 94 91 199 195
Facilities and other rent 92 109 191 222
Landing fees 62 56 126 125
Other 167 154 318 280
------------ ------------ ------------ ------------
Total operating expenses 2,970 2,775 5,964 5,577
------------ ------------ ------------ ------------
OPERATING INCOME 227 169 665 555
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (52) (73) (106) (148)
Interest capitalized 8 7 16 14
Interest income 16 24 35 47
Miscellaneous income (expense), net 6 (4) (7) (9)
------------ ------------ ------------ ------------
(22) (46) (62) (96)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 205 123 603 459
INCOME TAXES PROVIDED (80) (53) (240) (189)
------------ ------------ ------------ ------------
NET INCOME 125 70 363 270
PREFERRED STOCK DIVIDENDS (2) (22) (4) (44)
------------ ------------ ------------ ------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 123 $ 48 $ 359 $ 226
============ ============ ============ ============
PRIMARY INCOME PER COMMON SHARE: $ 1.66 $ 0.93 $ 4.77 $ 4.40
============ ============ ------------ ------------
FULLY DILUTED INCOME PER COMMON SHARE: $ 1.63 $ 0.93 $ 4.64 $ 3.52
============ ============ ============ ============
WEIGHTED AVERAGE SHARES USED IN
PER SHARE COMPUTATION:
Primary 74,173,070 51,476,488 75,276,812 51,450,876
Fully Diluted 76,078,233 51,476,488 77,748,372 80,585,714
DIVIDENDS PER COMMON SHARE $ 0.05 $ 0.05 $ 0.10 $ 0.10
============ ============ ============ ============
</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 SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
-------------------- ---------------------
STATISTICAL SUMMARY: 1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue Passenger Enplaned (thousands) 24,647 21,864 49,907 43,968
Revenue Passenger Miles (millions) 23,404 20,785 48,799 43,543
Available Seat Miles (millions) 34,195 32,220 68,581 65,618
Passenger Mile Yield 12.50 c. 13.16 c. 12.49 c. 13.12 c.
Operating Revenue Per Available Seat Mile 9.35 c. 9.14 c. 9.67 c. 9.34 c.
Operating Cost Per Available Seat Mile 8.69 c. 8.61 c. 8.70 c. 8.50 c.
Passenger Load Factor 68.44 % 64.51 % 71.16 % 66.36 %
Breakeven Passenger Load Factor 63.14 % 60.52 % 63.39 % 59.92 %
Revenue Ton Miles (millions) 2,747 2,435 5,620 5,049
Cargo Ton Miles (millions) 407 356 740 695
Cargo Ton Mile Yield 35.60 c. 37.83 c. 36.31 c. 37.96 c.
Fuel Gallons Consumed (millions) 649 618 1,307 1,259
Average Price Per Fuel Gallon 71.78 c. 57.37 c. 67.47 c. 55.82 c.
Number of Aircraft in Fleet at End of Period 544 539 544 539
Full-Time Equivalent Employees at End of Period 61,872 58,097 61,872 58,097
</TABLE>
5
<PAGE> 6
DELTA AIR LINES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Six Months Ended
December 31
------------------
1996 1995
------- -------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 363 $ 270
Adjustments to reconcile net income to cash
provided by operating activities, net 392 346
Changes in certain assets and liabilities, net (12) (303)
------- -------
Net cash provided by operating activities 743 313
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (720) (402)
Ground property and equipment (128) (114)
Decrease in short-term investments, net 5 28
Proceeds from sale of flight equipment 4 23
------- -------
Net cash used in investing activities (839) (465)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 2 15
Repurchase of common stock (379) -
Payments on long-term debt and capital lease obligations (124) (155)
Cash dividends (22) (60)
------- -------
Net cash used in financing activities (523) (200)
------- -------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (619) (352)
Cash and cash equivalents at beginning of period 1,145 1,233
------- -------
Cash and cash equivalents at end of period $ 526 $ 881
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 79 $ 106
Income taxes $ 198 $ 186
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
December 31, 1996
(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, necessary for a fair statement of results for the
interim periods.
Certain amounts in the Consolidated Statements of Operations for the
three and six months ended December 31, 1995, have been reclassified to
conform with the current financial statement presentation.
2. LONG-TERM DEBT:
During the six months ended December 31, 1996, Delta voluntarily
repurchased and retired $88 million principal amount of its long-term
debt, of which $1 million was repurchased and retired in the December
1996 quarter. As a result of these transactions, the Company recognized
pretax losses of $8 million for the six months ended December 31, 1996;
this amount is included in miscellaneous, net in the Company's
Consolidated Statements of Operations.
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,
2001. Up to $500 million of this facility may be used for the issuance of
letters of credit. At December 31, 1996, no borrowings or letters of
credit were outstanding under the 1995 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 December 31,
1996, the face amount of the letter of credit under the Letter of Credit
Facility was $470 million, which covers $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.
7
<PAGE> 8
3. AIRCRAFT PURCHASE COMMITMENTS:
At December 31, 1996, 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-727-200 106 23 129 - -
B-737-200 1 53 54 - -
B-737-300 - 13 13 - -
B-757-200 49 41 90 4 27
B-767-200 15 - 15 - -
B-767-300 2 24 26 2 -
B-767-300ER 11 7 18 13 10
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 17
MD-88 63 57 120 - 10
MD-90 16 - 16 15 47
--- --- --- -- ---
319 225 544 35 111
=== === === == ===
</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 December 1996 quarter, the Company accepted delivery of two
B-757-200 aircraft, one B-767-300ER aircraft, one MD-11 aircraft and four
MD-90 aircraft. Additionally, the Company retired two L-1011-1 aircraft.
Subsequent to December 31, 1996, Delta entered into an agreement to
purchase, and completed the purchase of, one new B-757-200 aircraft.
Delta also purchased nine B-727-200 aircraft which it had been operating
under lease. In addition, the Company agreed to purchase six used
B-767-300ER aircraft, subject to the negotiation of a definitive purchase
agreement and certain other conditions.
8
<PAGE> 9
Future expenditures for aircraft, engines and engine hushkits on firm
order at December 31, 1996, and for the aircraft described in the
preceding paragraph, are estimated to be approximately $2.4 billion, as
follows:
<TABLE>
<CAPTION>
AMOUNT
YEARS ENDING JUNE 30 (IN MILLIONS)
-------------------- -------------
<S> <C>
Remainder of fiscal year 1997 $ 720
1998 820
1999 330
2000 240
2001 210
After 2001 70
-------
Total $ 2,390
=======
</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 December 1996 quarter, the Company issued a total of 28,947
common shares, at an average price of $57.63 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 December 1996 quarter, the Company repurchased 2,034,400
shares of its common stock at an average price of $71.30 per share under
this authorization. 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.
At December 31, 1996, 24,700,000 common shares were reserved for
issuance under the Company's broad-based employee stock option plans;
5,076,919 common shares were reserved for issuance under the 1989 Stock
Incentive Plan; 5,758,591 common shares were reserved for conversion of
the Series B ESOP Convertible Preferred Stock; and 249,887 common shares
were reserved for issuance under the Non-Employee Directors' Stock Plan.
9
<PAGE> 10
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 CHARGES:
During fiscal years ended 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). Of these amounts, $524 million related to asset
writedowns of certain flight equipment, inventories, and route
authorities; and $641 million related to curtailment losses and special
termination benefits to be paid in future years as part of the
Company's pension and other postretirement benefit plans. The remaining
$190 million was accrued for cash payments, of which $126 million had
been made through September 30, 1996. The following table reflects the
accrual balances at September 30, 1996 and as of December 31, 1996. All
reductions in reserves represent payments of liabilities and other
settlements of outstanding issues.
<TABLE>
<CAPTION>
Balance at Balance at
September 30, 1996 Payments December 31, 1996
------------------ -------- -----------------
(Amounts in Millions)
<S> <C> <C> <C>
Leadership 7.5
Workforce Reductions $ 6 $ 1 $ 5
Abandoned Facilities 40 1 39
Pilot Special Early
Retirement Program 18 5 13
---- ---- ----
Totals $ 64 $ 7 $ 57
</TABLE>
8. SUBSEQUENT EVENTS:
On January 7, 1997, the Company announced a series of planned actions to
strengthen its international operations. As a result of these actions,
Delta will record during the March 1997 quarter pre-tax restructuring
and other non-recurring charges of up to $60 million, primarily
consisting of personnel severance charges. Management believes that
these charges are not likely to have a material adverse effect on
Delta's consolidated financial condition or liquidity. For additional
information, see Delta's Current Report on Form 8-K dated January 7,
1997.
10
<PAGE> 11
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 $1.03 billion at
December 31, 1996, compared to $1.65 billion at June 30, 1996. During the six
months ended December 31, 1996, the principal sources of funds were $743 million
of cash from operations and $619 million from cash reserves. Delta invested $720
million in flight equipment and $128 million in ground property and equipment;
paid $379 million to repurchase 5,378,700 shares of the Company's common stock;
made payments of $124 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 $22 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 Item 5 of Part II of this Form 10-Q.
As of December 31, 1996, the Company had negative working capital of $1.01
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 December 31, 1996, the Company had $1.25 billion of credit available under
its 1995 Bank Credit Agreement, subject to compliance with certain conditions.
At December 31, 1996, long-term debt and capital lease obligations, including
current maturities, totaled $2.16 billion, compared to $2.27 billion at June 30,
1996. Stockholders' equity was $2.47 billion at December 31, 1996 and $2.54
billion at June 30, 1996. The Company's debt-to-equity position, including
current maturities, was 47% debt and 53% equity at both December 31, 1996, and
June 30, 1996.
At December 31, 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. 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.
On January 7, 1997, the Company announced a series of actions to strengthen its
international 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 will record during the March 1997 quarter pre-tax restructuring
and other non-recurring charges of up to $60 million, primarily consisting of
personnel severance charges.
11
<PAGE> 12
Management believes that these charges are not likely to have a material adverse
effect on Delta's consolidated financial condition or liquidity. For additional
information regarding these matters, see Delta's Current Report on Form 8-K
dated January 7, 1997.
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.
At its meeting on January 23, 1997, Delta's Board of Directors declared a cash
dividend of five cents per common share, payable March 1, 1997, to stockholders
of record on February 12, 1997.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1996 and 1995
For the quarter ended December 31, 1996, Delta recorded unaudited operating
income of $227 million and net income of $125 million. For the quarter ended
December 31, 1995, the Company recorded operating income of $169 million and net
income of $70 million.
Operating revenues in the December 1996 quarter totaled $3.2 billion, an
increase of 9% from $2.9 billion in the December 1995 quarter. Passenger revenue
increased 7% to $2.9 billion, reflecting a 13% increase in revenue passenger
miles, partially offset by a 5% decline in the passenger mile yield. The
increase in passenger traffic is primarily due to the Company's continued use of
more competitive pricing strategies; Delta's realignment of its domestic route
system on December 1, 1995, which increased the Company's operations at its
Atlanta and Cincinnati hubs; and favorable economic conditions. The decrease in
the passenger mile yield reflects the Company's continued 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 7% to $145 million. Cargo ton miles increased 14%, and
the cargo ton mile yield declined 6%, 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 72% to
$127 million, due to improved results from code share arrangements and the
expansion of joint marketing and other marketing programs.
Operating expenses for the December 1996 quarter totaled $3.0 billion, an
increase of 7% from the December 1995 quarter, and operating capacity increased
6% to 34.20 billion available seat miles. As discussed below, the increase in
operating expenses is primarily due to higher jet fuel prices and an increase in
full-time equivalent employees to improve customer service.
12
<PAGE> 13
Salaries and related costs increased 5% primarily due to a 6% increase in
full-time equivalent employees. Aircraft fuel expense increased 31% as the
average fuel price per gallon increased 25% to 71.78 cents and fuel gallons
consumed increased 5%. Passenger commissions decreased 4% due to lower expenses
associated with certain incentive programs. Contracted services expense rose 12%
mainly due to increased information technology services. Depreciation and
amortization expense rose 9% largely due to the acquisition of additional ground
equipment and higher amortization of software development costs. Other selling
expenses remained virtually unchanged as increased booking payments to computer
reservations system providers were offset by decreased advertising and promotion
costs. Facilities and other rent decreased 16% due to certain facilities rent
adjustments and the reclassification of certain unoccupied airport facilities
costs to nonoperating expense. Landing fees increased 11% due to increased
operations at certain domestic locations. Other operating expenses increased 8%
primarily due to increased usage of miscellaneous supplies, higher fuel taxes
resulting from higher fuel prices and consumption, and higher insurance costs
due to higher estimates of probable losses, partially offset by increased
services provided to outside parties.
Nonoperating expense in the December 1996 quarter totaled $22 million, compared
to nonoperating expense of $46 million in the December 1995 quarter. Interest
expense decreased 29% to $52 million, due to a lower average level of long-term
debt outstanding. Interest income decreased 33% to $16 million, due to lower
average levels of cash invested and a slight decline in interest rates.
Miscellaneous income, net increased to $6 million in the December 1996 quarter
compared to miscellaneous expense of $4 million in the December 1995 quarter,
due to increased income from associated companies and the reduction of losses
associated with voluntary debt retirements and foreign exchange losses,
partially offset by the reclassification of certain unoccupied airport
facilities costs as noted above.
Pretax income of $205 million for the December 1996 quarter resulted in an
income tax provision of $80 million. After a $2 million provision for preferred
stock dividends, net income available to common stockholders was $123 million.
13
<PAGE> 14
Six Months Ended December 31, 1996 and 1995
For the six months ended December 31, 1996, Delta recorded unaudited operating
income of $665 million and net income of $363 million. For the six months ended
December 31, 1995, the Company recorded operating income of $555 million and net
income of $270 million.
Operating revenues for the six months ended December 1996 totaled $6.6 billion,
an increase of 8% from $6.1 billion for the six months ended December 1995.
Passenger revenue increased 7% to $6.1 billion, reflecting a 12% increase in
revenue passenger miles, partially offset by a 5% decline in the passenger mile
yield. The increase in passenger traffic is due to the Company's use of more
competitive pricing strategies; Delta's realignment of its domestic route system
on December 1, 1995, which increased the Company's operations at its Atlanta and
Cincinnati hubs; the suspension of service during the September 1996 quarter by
a low-cost, low-fare competitor; and favorable economic conditions. The decrease
in the passenger mile yield reflects the Company's continued 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 2% to $269 million. Cargo ton miles increased 6%, and
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 revenue, net increased 70% to
$265 million due to improved results from code share arrangements and the
expansion of joint marketing and other marketing programs.
Operating expenses for the six months ended December 1996 totaled $6.0 billion,
an increase of 7% compared to the six months ended December 1995, and operating
capacity increased 5% to 68.58 billion available seat miles. As discussed below,
the increase in operating expenses is primarily due to higher jet fuel prices
and an increase in full-time equivalent employees to improve customer service.
Salaries and related costs increased 5% primarily due to a 6% increase in
full-time equivalent employees. Aircraft fuel expense increased 25% as the
average fuel price per gallon increased 21% to 67.47 cents and fuel gallons
consumed increased 4%. Passenger commissions decreased 2% primarily due to lower
expenses associated with certain incentive programs. Contracted services expense
rose 14% mainly due to increased information technology services. Depreciation
and amortization expense rose 6% largely due to the acquisition of additional
ground equipment and higher amortization of software development costs. Other
selling expenses increased 11%, mainly the result of higher booking fee payments
to computer reservations system providers. Facilities and other rent decreased
14% due to certain facilities rent adjustments, the reclassification of certain
unoccupied airport facilities costs to nonoperating expense and the subleasing
of certain airport facilities. Landing fees increased 1% due to increased
operations at certain domestic locations mitigated by reduced operations in
certain international markets. Other operating expenses increased 14%, due to
higher fuel taxes resulting from higher fuel prices, higher consumption and 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, as well
as increased usage of miscellaneous supplies, partially offset by increased
services provided to outside parties.
14
<PAGE> 15
Nonoperating expense for the six months ended December 1996 totaled $62 million,
compared to nonoperating expense of $96 million for the six months ended
December 1995. Interest expense decreased 28% to $106 million, due to a lower
average level of long-term debt outstanding. Interest income decreased 26% to
$35 million, due to lower average levels of cash invested and a slight decline
in interest rates. Miscellaneous expense, net decreased 22% to $7 million due to
increased income from associated companies and the reduction of losses
associated with voluntary debt retirements and foreign exchange losses,
partially offset by Delta's $20 million payment to settle certain class action
antitrust lawsuits filed by travel agents and the reclassification of certain
unoccupied airport facilities costs as noted above. 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 $603 million for the six months ended December 1996 quarter
resulted in an income tax provision of $240 million. After a $4 million
provision for preferred stock dividends, net income available to common
stockholders was $359 million.
15
<PAGE> 16
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 December 31, 1996 and the
related consolidated statements of operations for the three-month and six-month
periods ended December 31, 1996 and 1995 and consolidated condensed statements
of cash flows for the six-month periods ended December 31, 1996 and 1995. 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
January 24, 1997
16
<PAGE> 17
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. The plaintiffs have filed a petition for writ of certiorari to the
United States Supreme Court seeking review of the decision by the Court of
Appeals affirming the District Court's ruling denying the plaintiffs' motion for
class action certification.
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 has not yet expired.
As reported on page 13 of the 1996 Form 10-K, on January 10, 1996, a purported
antitrust class action complaint was filed against Delta and Trans World
Airlines, Inc. (TWA) relating to Delta's agreement with TWA to lease ten
takeoff/landing slots at New York's LaGuardia Airport (LaGuardia). The lawsuit
was filed on behalf of persons who purchased tickets on Delta for travel between
LaGuardia and Atlanta beginning November 1, 1995. On August 6, 1996, the United
States District Court for the Northern District of Georgia denied the
plaintiff's motion for class action certification. The plaintiff subsequently
dismissed this action with prejudice.
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 December 31, 1996, participants in the Plan
deferred a total of $16,300 in the investment return choice equivalent to the
Delta Common Stock Fund (equivalent to approximately 225 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.
17
<PAGE> 18
ITEM 5. OTHER INFORMATION
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 under the
Company's broad-based employee stock option plans become exercisable on October
30, 1997, and repurchase the remaining shares as Delta personnel exercise their
stock options. As of December 31, 1996, the Company had repurchased 6.2 million
shares of common stock for $445 million under this authorization. For
additional information regarding Delta's broad-based employee stock option
plans, see Item 5 of Part II in Delta's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
DELTA EXPRESS
On October 1, 1996, Delta began operating Delta Express, a new low-fare service
within Delta that operates a dedicated fleet of Boeing 737-200 aircraft in
certain highly competitive, leisure-oriented markets within Delta's system,
connecting the northeast and midwest with Orlando and other Florida cities.
Delta Express currently operates a fleet of 25 Boeing 737-200 aircraft.
FORWARD-LOOKING INFORMATION
Delta and its representatives may make forward-looking statements about the
Company and its business from time to time, either orally or in writing. These
forward-looking statements involve a number of risks and uncertainties that
could cause the actual results to differ materially from the projected results.
It is not possible to list all of the many factors and events that could cause
the actual results to differ materially from the projected results. Such factors
and events may include, but are not limited to, (1) competitive factors such as
the airline pricing environment, the capacity decisions of other airlines and
the presence of low-cost, low-fare carriers; (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.
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).
18
<PAGE> 19
(b) Reports on Form 8-K:
During the quarter ended December 31, 1996, Delta filed a Current
Report on Form 8-K dated October 28, 1996 relating to the Company's
adoption of a new Stockholder Rights Plan. Subsequent to December 31,
1996, Delta filed a Current Report on Form 8-K dated January 7, 1997
relating to its announcement of certain planned actions to strengthen
its international operations.
19
<PAGE> 20
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
February 13, 1997
20
<PAGE> 1
EXHIBIT 11
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(in millions except per share amounts)
<TABLE>
<CAPTION>
PRIMARY: 1996 1995
---------- -----------
<S> <C> <C>
Weighted average shares outstanding 74 51
Additional shares assuming
exercise of stock options - -
---------- -----------
Average shares outstanding as adjusted 74 51
========== ===========
Net income $ 125 $ 70
Preferred dividends series C - (20)
Preferred dividends series B (2) (2)
---------- -----------
Net income available to primary shares $ 123 $ 48
========== ===========
Primary earnings per common share $ 1.66 $ 0.93
========== ===========
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 2
Conversion of 3.23% convertible subordinated notes - 10
Exercise of stock options - -
---------- -----------
Average shares outstanding as adjusted 76 80
========== ===========
Net income $ 125 $ 70
Interest on 3.23% convertible subordinated
notes, net of taxes - 8
Additional required ESOP contribution
assuming conversion of series B ESOP convertible preferred
stock, net of taxes (1) (1)
---------- -----------
Net income available to fully diluted common shares $ 124 $ 77
========== ===========
Fully diluted earnings per common share $ 1.63 $ 0.95 *
========== ===========
* Antidilutive
</TABLE>
<PAGE> 2
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(In millions except per share amounts)
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
PRIMARY:
Weighted average shares outstanding 75 51
Additional shares assuming
exercise of stock options - -
----- -----
Average shares outstanding as adjusted 75 51
===== =====
Net income $ 363 $ 270
Preferred dividends series C - (40)
Preferred dividends series B (4) (4)
----- -----
Net income available to primary common shares 359 226
===== =====
Primary earnings per common share $4.77 $4.40
===== =====
FULLY DILUTED:
Weighted average shares outstanding 75 51
Additional shares assuming:
Conversion of series C convertible preferred stock 1 17
Conversion of series B ESOP convertible
preferred stock 2 3
Conversion of 3.23% convertible subordinated notes - 10
Exercise of stock options - -
----- -----
Average shares outstanding as adjusted 78 81
===== =====
Net income $ 363 $ 270
Interest on 3.23% convertible subordinated
notes, net of taxes - 16
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock, net of taxes (2) (2)
----- -----
Net income available to fully diluted common shares $ 361 $ 284
===== =====
Fully diluted earnings per common share $4.64 $3.52
===== =====
</TABLE>
*Antidilutive
<PAGE> 1
DELTA AIR LINES, INC. EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions except ratios)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Ended
December 31, December 31,
1996 1995
----- ----
<S> <C> <C>
Earnings :
Net income $ 363 $ 270
Add (deduct):
Income tax provision 240 189
Fixed charges 261 316
Interest capitalized (16) (14)
Interest offset on
Guaranteed Serial
ESOP Notes - (1)
----- -----
Earnings as adjusted $ 848 $ 760
===== =====
Fixed charges:
Interest expense $ 106 $ 148
1/3 of rentals 155 167
Additional interest on
Guaranteed Serial
ESOP Notes - 1
----- -----
Total fixed charges $ 261 $ 316
===== =====
Ratio of earnings to fixed charges 3.25 2.41
</TABLE>
- ---------------------------------------------
<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 December 31, 1996, which includes
our report dated January 24, 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
January 24, 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 DECEMBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE RELATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 526
<SECURITIES> 504
<RECEIVABLES> 1,001
<ALLOWANCES> 50
<INVENTORY> 87
<CURRENT-ASSETS> 2,687
<PP&E> 12,417
<DEPRECIATION> 5,132
<TOTAL-ASSETS> 12,026
<CURRENT-LIABILITIES> 3,698
<BONDS> 2,156
0
0
<COMMON> 249
<OTHER-SE> 2,221
<TOTAL-LIABILITY-AND-EQUITY> 12,026
<SALES> 0
<TOTAL-REVENUES> 6,629
<CGS> 0
<TOTAL-COSTS> 5,964
<OTHER-EXPENSES> (44)
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> 603
<INCOME-TAX> 240
<INCOME-CONTINUING> 363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 363
<EPS-PRIMARY> 4.77
<EPS-DILUTED> 4.64
</TABLE>
