<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 September 30, 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 October 31, 1997:
Common Stock, $3.00 par value - 74,007,056 shares outstanding
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DELTA AIR LINES, INC.
Consolidated Balance Sheets
(In Millions)
<TABLE>
<CAPTION>
September 30 June 30
ASSETS 1997 1997
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,151 $ 662
Short-term investments 504 508
Accounts receivable, net of
allowance for uncollectible accounts
of $49 at September 30, 1997
and $48 at June 30, 1997 1,029 943
Maintenance and operating supplies,
at average cost 85 93
Deferred income taxes 437 413
Prepaid expenses and other 283 248
------- -------
Total current assets 3,489 2,867
------- -------
PROPERTY AND EQUIPMENT:
Flight equipment 10,037 9,619
Less: Accumulated depreciation 3,606 3,510
------- -------
6,431 6,109
------- -------
Flight equipment under capital leases 515 523
Less: Accumulated amortization 180 176
------- -------
335 347
------- -------
Ground property and equipment 3,085 3,032
Less: Accumulated depreciation 1,821 1,758
------- -------
1,264 1,274
------- -------
Advance payments for equipment 277 312
------- -------
Total property and equipment 8,307 8,042
------- -------
OTHER ASSETS:
Marketable equity securities 401 432
Deferred income taxes 20 103
Investments in associated companies 328 317
Cost in excess of net assets acquired, net 254 257
Leasehold and operating rights, net 132 134
Other 604 589
------- -------
Total other assets 1,739 1,832
------- -------
Total assets $13,535 $12,741
======= =======
</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>
September 30 June 30
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 227 $ 236
Current obligations under capital leases 59 62
Accounts payable and miscellaneous
accrued liabilities 2,307 1,691
Air traffic liability 1,437 1,418
Accrued salaries and vacation pay 376 463
Accrued rent 195 213
-------- --------
Total current liabilities 4,601 4,083
-------- --------
NONCURRENT LIABILITIES:
Long-term debt 1,473 1,475
Postretirement benefits 1,851 1,839
Accrued rent 605 602
Capital leases 306 322
Other 454 406
-------- --------
Total noncurrent liabilities 4,689 4,644
-------- --------
DEFERRED CREDITS:
Deferred gain on sale and leaseback
transactions 733 746
Manufacturers' and other credits 103 105
-------- --------
836 851
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
EMPLOYEE STOCK OWNERSHIP PLAN
PREFERRED STOCK:
Series B ESOP Convertible Preferred Stock 478 480
Unearned compensation under
employee stock ownership plan (309) (324)
-------- --------
169 156
-------- --------
SHAREHOLDERS' EQUITY:
Common Stock at par 251 251
Additional paid-in capital 2,648 2,645
Net unrealized gain on noncurrent
marketable equity securities 84 101
Retained earnings 958 711
Treasury stock at cost (701) (701)
-------- --------
Total shareholders' equity 3,240 3,007
-------- --------
Total liabilities and shareholders' equity $ 13,535 $ 12,741
======== ========
</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
September 30
------------------------------
1997 1996
------------- ------------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 3,260 $ 3,170
Cargo 142 124
Other, net 150 138
------------ ------------
Total operating revenues 3,552 3,432
------------ ------------
OPERATING EXPENSES:
Salaries and related costs 1,178 1,092
Aircraft fuel 409 416
Passenger commissions 266 278
Contracted services 206 199
Depreciation and amortization 198 166
Other selling expenses 164 179
Aircraft rent 137 137
Aircraft maintenance materials
and outside repairs 124 108
Passenger service 111 105
Facilities and other rent 103 99
Landing fees 64 64
Other 161 151
------------ ------------
Total operating expenses 3,121 2,994
------------ ------------
OPERATING INCOME 431 438
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (50) (54)
Interest capitalized 9 8
Interest income 17 19
Miscellaneous income
(expense), net 11 (13)
------------ ------------
(13) (40)
------------ ------------
INCOME BEFORE INCOME TAXES 418 398
INCOME TAXES PROVIDED (164) (160)
------------ ------------
NET INCOME 254 238
PREFERRED STOCK DIVIDENDS (2) (2)
------------ ------------
NET INCOME AVAILABLE
TO COMMON SHAREHOLDERS $ 252 $ 236
============ ============
PRIMARY INCOME PER COMMON SHARE $ 3.34 $ 3.09
============ ============
FULLY DILUTED INCOME PER
COMMON SHARE $ 3.26 $ 2.98
============ ============
WEIGHTED AVERAGE SHARES USED IN
PER SHARE COMPUTATION:
Primary 75,160,664 76,490,970
Fully Diluted 77,454,150 79,533,689
DIVIDENDS PER COMMON SHARE $ 0.05 $ 0.05
============ ============
</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
September 30
-----------------------------
Statistical Summary: 1997 1996
------------ ------------
<S> <C> <C>
Revenue Passengers Enplaned (thousands) 26,506 25,260
Revenue Passenger Miles (millions) 26,585 25,395
Available Seat Miles (millions) 35,683 34,386
Passenger Mile Yield 12.26(cent) 12.49(cent)
Operating Revenue Per Available Seat Mile 9.95(cent) 9.98(cent)
Operating Cost Per Available Seat Mile 8.75(cent) 8.71(cent)
Passenger Load Factor 74.50% 73.85%
Breakeven Passenger Load Factor 64.66% 63.65%
Revenue Ton Miles (millions) 3,073 2,873
Cargo Ton Miles (millions) 415 333
Cargo Ton Mile Yield 34.29(cent) 37.18(cent)
Fuel Gallons Consumed (millions) 682 658
Average Price Per Fuel Gallon 59.93(cent) 63.21(cent)
Number of Aircraft in Fleet at End of Period 558 538
Full-Time Equivalent Employees at End of Period 63,708 60,888
</TABLE>
5
<PAGE> 6
DELTA AIR LINES, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In Millions)
<TABLE>
<CAPTION>
Three Months Ended
September 30
------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 254 $ 238
Adjustments to reconcile net income to cash
provided by operating activities, net 273 254
Changes in certain assets and liabilities, net 451 (58)
------- -------
Net cash provided by operating activities 978 434
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (405) (295)
Ground property and equipment (62) (65)
Decrease in short-term investments, net 9 3
------- -------
Net cash used in investing activities (458) (357)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 3 1
Repurchase of common stock -- (234)
Payments on long-term debt and
capital lease obligations (30) (103)
Cash dividends (4) (4)
------- -------
Net cash used in financing activities (31) (340)
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 489 (263)
Cash and cash equivalents at beginning of period 662 1,145
------- -------
Cash and cash equivalents at end of period $ 1,151 $ 882
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 56 $ 65
Income taxes $ 19 $ 45
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
6
<PAGE> 7
DELTA AIR LINES, INC.
Notes to Consolidated Financial Statements
September 30, 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 1997 Annual Report to Shareholders. These interim financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's 1997 Annual Report to
Shareholders. 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.
2. LONG-TERM DEBT:
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 September 30, 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 $500 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 September 30,
1997, the face amount of the letter of credit under the Letter of
Credit Facility was $450 million, which covers the $290 million
outstanding principal amount of the Series C ESOP Notes, up to $128
million of Make Whole Premium Amount and approximately one year of
interest on the Series C ESOP Notes. For additional information
regarding the Letter of Credit Facility and Delta's long-term debt,
including the Series C ESOP Notes, see Note 7 (page 38) of the Notes to
Consolidated Financial Statements in Delta's 1997 Annual Report to
Shareholders.
7
<PAGE> 8
3. AIRCRAFT PURCHASE COMMITMENTS:
At October 31, 1997, the Company's aircraft fleet, purchase
commitments, options (which have scheduled delivery slots), and rolling
options (which replace options and are assigned delivery slots as
options expire or are exercised) were:
<TABLE>
<CAPTION>
CURRENT FLEET
-----------------------------
ROLLING
AIRCRAFT TYPE OWNED LEASED TOTAL ORDERS OPTIONS OPTIONS
------------- ----- ------ ----- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
B-727-200 118 13 131 -- -- --
B-737-200 1 53 54 -- -- --
B-737-300 -- 13 13 -- -- --
B-737-600/700/800 -- -- -- 70 60 280
B-757-200 50 41 91 9 20 90
B-767-200 15 -- 15 -- -- --
B-767-300 2 24 26 2 -- --
B-767-300ER 25 7 32 15 10 19
B-767-400 -- -- -- 21 24 25
B-777-200 -- -- -- -- 10 --
L-1011-1 24 -- 24 -- -- --
L-1011-250 6 -- 6 -- -- --
L-1011-500 17 -- 17 -- -- --
MD-11 7 7 14 1 -- --
MD-88 63 57 120 -- -- --
MD-90 16 -- 16 -- -- --
--- --- --- --- --- ---
344 215 559 118 124 414
=== === === === === ===
</TABLE>
During the September 1997 quarter, Delta took delivery of three new B-767-300ER
aircraft and one used B-767-300ER aircraft; purchased one B-727-200 aircraft
which it had been operating under lease; purchased two additional used B-727-200
aircraft; and retired one L-1011-200 aircraft. The Company also exercised
options to purchase five shipsets of Stage 3 heavyweight hushkits for B-737-200
aircraft and four shipsets of Stage 3 heavyweight hushkits for B-727-200
aircraft.
Subsequent to September 30, 1997, Delta took delivery of one new B-767-300ER
aircraft. Also subsequent to September 30, 1997, Delta and Federal Express
Corporation entered into an agreement which provides Delta with options to
purchase 36 shipsets of Stage 3 heavyweight hushkits and seven spare engine
hushkits for B-727-200 aircraft by the end of calendar year 1999.
On October 21, 1997, Delta and The Boeing Company (Boeing) entered into
definitive aircraft purchase agreements under which Delta placed orders to
purchase, and obtained options and rolling options to purchase, certain
aircraft. All orders in the above table are the result of the new Boeing
agreements except for preexisting orders for four B-757-200, two B-767-300, five
B-767-300ER and one MD-11 aircraft. All orders for MD-90 aircraft were canceled.
All options and rolling options reflected in the above table are the result of
the new Boeing agreements. These agreements provide that, subject to certain
conditions, Delta may switch orders among these aircraft types and defer the
delivery of aircraft. The agreements also provide that Boeing will be the sole
supplier of new aircraft to Delta for 20
8
<PAGE> 9
years, subject to certain exceptions, but that this provision is not
enforceable by Boeing until the European Commission permits such
enforcement. Delta is continuing negotiations with the manufacturers of
the engines for the aircraft covered by these agreements.
Future expenditures for aircraft, engines and engine hushkits on firm
order at October 31, 1997 are estimated to be $5.4 billion, as follows:
<TABLE>
<CAPTION>
AMOUNT
YEARS ENDING JUNE 30 (IN MILLIONS)
-------------------- -------------
<S> <C>
Remainder of fiscal year 1998 $ 670
1999 970
2000 260
2001 1,300
2002 300
After 2002 1,870
------
Total $5,370
======
</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,
management presently believes that the resolution of these actions is
not likely to have a material adverse effect on Delta's consolidated
financial condition or results of operations.
5. SHAREHOLDERS' EQUITY:
During the September 1997 quarter, the Company issued a total of 50,234
common shares, at an average price of $66.07 per share, under the 1989
Stock Incentive Plan, the Dividend Reinvestment and Stock Purchase Plan
and the Non-Employee Directors' Stock Plan.
At September 30, 1997, 24,700,000 common shares were reserved for
issuance under the Company's broad-based employee stock option plans;
4,329,357 common shares were reserved for issuance under the 1989 Stock
Incentive Plan; 5,703,269 common shares were reserved for conversion of
the Series B ESOP Convertible Preferred Stock; and 248,892 common shares
were reserved for issuance under the Non-Employee Directors' Stock Plan.
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
9
<PAGE> 10
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 fiscal years 1997 and 1996, Delta recorded pre-tax restructuring
and other non-recurring charges of $52 million and $829 million,
respectively (see Note 16 on page 46 of the Notes to Consolidated
Financial Statements in Delta's 1997 Annual Report to Shareholders). The
following table reflects the activity in the restructuring accruals
during the three months ended September 30, 1997. All reductions in
reserves represent payments of liabilities.
<TABLE>
<CAPTION>
Balance at Balance at
June 30, 1997 Reductions September 30, 1997
------------- ---------- ------------------
(Amounts in Millions)
<S> <C> <C> <C>
Leadership 7.5
Workforce Reductions $ 4 $- $ 4
Abandoned Facilities 38 1 37
Transatlantic and
European Realignment
Workforce Reductions 39 12 27
Abandoned Facilities 2 - 2
Other 5 1 4
--- --- ---
Totals $88 $14 $74
=== === ===
</TABLE>
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 $1.65 billion at
September 30, 1997, compared to $1.17 billion at June 30, 1997. During the three
months ended September 30, 1997, the principal source of funds was $978 million
of cash from operations, which included $310 million received from the Company's
frequent flyer partners for the prepayment of mileage credits. During the three
months ended September 30, 1997, Delta invested $405 million in flight equipment
and $62 million in ground property and equipment; made payments of $30 million
on long-term debt and capital lease obligations; and paid $4 million in cash
dividends. The Company may repurchase its long-term debt and Common Stock from
time to time. For additional information regarding Delta's Common Stock
repurchase authorization, see Note 15, (page 46), of the Notes to Consolidated
Financial Statements in Delta's 1997 Annual Report to Shareholders.
As of September 30, 1997, the Company had negative working capital of $1.11
billion, compared to negative working capital of $1.22 billion at June 30, 1997.
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 September 30, 1997, long-term debt and capital lease obligations, including
current maturities, totaled $2.07 billion, compared to $2.10 billion at June 30,
1997. Shareholders' equity was $3.24 billion at September 30, 1997 and $3.01
billion at June 30, 1997. The Company's debt-to-equity position, including
current maturities, was 39% debt and 61% equity at September 30, 1997, compared
to 41% debt and 59% equity at June 30, 1997.
At September 30, 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 $450 million under Delta's Credit Agreement with ABN
AMRO Bank and a group of banks (Letter of Credit Facility). Delta is required to
purchase the Series C ESOP Notes in certain circumstances. For additional
information regarding the Series C ESOP Notes and the Letter of Credit Facility,
see Note 7 (page 38) of the Notes to Consolidated Financial Statements in
Delta's 1997 Annual Report to Shareholders.
At September 30, 1997, the Company had $1.25 billion of credit available on a
revolving basis under its 1997 Bank Credit Agreement. Up to $700 million of this
facility may be used for the issuance of letters of credit. At October 31, 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.
During September 1997, Standard & Poors upgraded the credit rating of Delta's
long-term senior unsecured debt from BB+ to BBB-. Moody's Investor Service's
rating of Delta's long-term senior unsecured debt is Baa3.
11
<PAGE> 12
On September 23, 1997, Delta introduced a new travel agency commission rate
structure for tickets issued by travel agents in the U.S. and Canada. Tickets
purchased in the United States for domestic travel will earn an eight percent
base commission rate with a maximum payment of $50 for each round-trip and $25
for each one-way flight. Tickets purchased in Canada for flights between Canada
and the U.S. will earn an eight percent base commission rate with a maximum
payment of $70 Canadian for round-trips and $35 Canadian for one-way flights.
Tickets purchased in the U.S. and Canada to international destinations will earn
an eight percent base with no maximum payment amount. Management estimates these
changes in the travel agency commission rate structure will reduce Delta's
operating expenses by approximately $90 million to $100 million a year. This
estimate 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. See "Forward-Looking Information" on page 17 of this Form
10-Q.
At its meeting on October 23, 1997, Delta's Board of Directors declared a cash
dividend of five cents per common share, payable December 1, 1997, to
shareholders of record at the close of business on November 12, 1997.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1996
For the quarter ended September 30, 1997, Delta recorded unaudited operating
income of $431 million and net income of $254 million. For the quarter ended
September 30, 1996, the Company recorded operating income of $438 million and
net income of $238 million.
Operating revenues in the September 1997 quarter totaled $3.55 billion, an
increase of 3% from $3.43 billion in the September 1996 quarter. Passenger
revenue increased 3% to $3.26 billion, reflecting a 5% increase in revenue
passenger miles, partially offset by a 2% decline in the passenger mile yield.
The increase in revenue passenger miles is mainly attributed to a 4% increase in
capacity, favorable economic conditions and improved asset utilization. The
decrease in the passenger mile yield reflects the positive impact of the 1996
Centennial Olympic Games and the temporary expiration of the U.S. transportation
excise tax on the Company's passenger mile yield in the September 1996 quarter;
and the continued presence of low-cost, low-fare carriers in domestic markets
served by Delta.
Cargo revenue increased 15% to $142 million. Cargo ton miles increased 25%,
while cargo ton mile yield declined 8%, 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 9% to
$150 million, largely due to an increase in administrative service charge
revenue driven in part by higher system traffic.
Operating expenses for the September 1997 quarter totaled $3.12 billion, an
increase of 4% from the September 1996 quarter, and operating capacity increased
4% to 35.68 billion available seat miles. Salaries and related costs increased
8% primarily due to a 5% increase in full-time equivalent employees and
previously announced compensation and benefit enhancements for non-
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<PAGE> 13
contract domestic employees, which became effective July 1, 1997. Aircraft fuel
expense decreased 2% as the average fuel price per gallon declined 5% to 59.93
cents, partially offset by a 4% increase in fuel gallons consumed. Passenger
commissions decreased 4% reflecting lower expenses for certain travel agent
incentive programs. Contracted services increased 4%, primarily the result of
higher costs associated with certain outsourced airport functions and higher
cargo handling costs related to increased volume. Depreciation and amortization
expense rose 19% due to the acquisition of 30 additional aircraft, including the
purchase of 10 B-727-200 aircraft which the Company had previously been
operating under operating leases, the acquisition of additional ground
equipment, and the amortization of software development costs. Other selling
expenses decreased 8% primarily the result of higher advertising expense
incurred in September 1996 quarter related to the 1996 Centennial Olympic games,
partially offset by increased credit card transaction fees. Aircraft maintenance
materials and outside repairs increased 15% due to the timing of scheduled
maintenance visits and other costs associated with the maturation of the fleet.
Passenger service expense rose 6% due to increased passenger traffic and
enhanced transatlantic business class service. Other operating expenses
increased 7% primarily due to increased usage of miscellaneous supplies and
higher consulting fees.
Nonoperating expense in the September 1997 quarter totaled $13 million, compared
to $40 million in the September 1996 quarter. The decrease is largely due to the
inclusion in the September 1996 quarter of a $20 million payment to settle
certain class action antitrust lawsuits and losses related to the voluntary
repurchase and retirement of long-term debt.
Pretax income of $418 million for the September 1997 quarter resulted in an
income tax provision of $164 million. After a $2 million provision for preferred
stock dividends, net income available to common shareholders was $252 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding the Company's exposure to certain market risks, see
"Market Risks Associated With Financial Instruments" (page 25) in Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
Note 4 (page 36) of the Notes to Consolidated Financial Statements contained in
Delta's 1997 Annual Report to Shareholders.
13
<PAGE> 14
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Delta Air Lines, Inc.:
We have reviewed the accompanying consolidated balance sheet of DELTA AIR LINES,
INC. (a Delaware Corporation) AND SUBSIDIARIES as of September 30, 1997 and the
related consolidated statements of operations and consolidated condensed
statements of cash flows for the three-month periods ended September 30, 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
October 31, 1997
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported on page 11 of Delta's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997, ValuJet Airlines, Inc. (ValuJet) filed a lawsuit against
Delta alleging, among other things, that Delta violated the antitrust laws by
leasing certain takeoff/landing slots at New York's La Guardia Airport. On
November 3, 1997, Delta and ValuJet entered into an agreement to settle this
lawsuit.
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 any part of their cash compensation earned as a director. A participating
director may choose an investment return on the deferred amount from among the
17 investment return choices available under the Delta Family-Care Savings Plan,
a qualified defined contribution pension plan for eligible Delta personnel. One
of the investment return choices under the Delta Family-Care Savings Plan is a
fund invested primarily in Delta's Common Stock (Delta Common Stock Fund).
During the quarter ended September 30, 1997, participants in the Plan deferred a
total of $40,177 in the Delta Common Stock Fund investment return choice
(equivalent to approximately 427 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.
15
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Delta's Annual Meeting of Shareholders held on October 23, 1997, the holders
of Delta's Common Stock and Series B ESOP Convertible Preferred Stock, voting
together as a single class, took the following actions:
1. Elected the persons named below to Delta's Board of Directors by the
following vote:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
Edwin L. Artzt 71,762,220 955,545
Henry A. Biedenharn, III 71,780,711 937,054
James L. Broadhead 71,724,034 993,731
Edward H. Budd 71,803,699 914,066
R. Eugene Cartledge 71,797,483 920,282
Mary Johnston Evans 71,772,607 945,158
Gerald Grinstein 71,771,882 945,883
Jesse Hill, Jr. 71,694,787 1,022,978
Leo F. Mullin 71,809,090 908,675
Andrew J. Young 70,313,211 2,404,554
</TABLE>
There were no broker non-votes on this matter.
2. Ratified the appointment of Arthur Andersen LLP as independent auditors
of Delta for fiscal year 1998 by a vote of 72,222,646 FOR; 326,362
AGAINST; and 168,757 ABSTENTIONS. There were no broker non-votes on
this matter.
3. Approved the 1989 Stock Incentive Plan, as amended, by a vote of
42,547,887 FOR; 22,731,834 AGAINST; and 346,702 ABSTENTIONS. There were
7,091,342 broker non-votes on this matter.
4. Defeated a shareholder proposal relating to the location of future
Annual Meetings of Shareholders by a vote of 3,578,628 FOR; 59,304,781
AGAINST; and 2,743,014 ABSTENTIONS. There were 7,091,342 broker
non-votes on this matter.
5. Defeated a shareholder proposal relating to Company employment matters
by a vote of 4,371,236 FOR; 56,927,244 AGAINST; and 4,327,943
ABSTENTIONS. There were 7,091,342 broker non-votes on this matter.
16
<PAGE> 17
ITEM 5. OTHER INFORMATION
BROAD-BASED STOCK OPTION PLANS
On October 24, 1996, the Company's shareholders approved two plans providing for
the issuance of non-qualified stock options to substantially all of Delta's
non-officer personnel in their individual capacity to purchase a total of 24.7
million shares of Delta Common Stock. One plan is for eligible Delta personnel
who are not pilots (Nonpilot Plan); the other plan covers the Company's pilots
(Pilot Plan).
The Nonpilot and Pilot Plans involve non-qualified stock options to purchase
14.7 million and 10 million shares of Delta Common Stock, respectively. The
Plans provide for grants in three equal annual installments at an exercise price
equal to the opening price of the Common Stock on the New York Stock Exchange on
the grant date. Stock options awarded under the Plans are generally exercisable
beginning one year, and ending 10 years, after their grant dates, and are not
transferable other than upon the death of the person granted the stock options.
Under the terms of the Plans, Delta granted eligible personnel non-qualified
stock options to purchase a total of (1) 8.2 million shares of Common Stock at
an exercise price of $69 per share on October 30, 1996; and (2) 8.2 million
shares of Common Stock at an exercise price of $98 per share on October 30,
1997. The third grant date under the Nonpilot and Pilot Plans is scheduled to
occur on October 30, 1998.
BOEING AGREEMENT
On October 21, 1997, Delta and The Boeing Company entered into definitive
aircraft purchase agreements under which Delta placed orders to purchase, and
obtained options and rolling options to purchase, certain aircraft. For
additional information regarding these agreements, see Note 3 of this Form 10-Q
and Note 9 of the Notes to Consolidated Financial Statements in Delta's 1997
Annual Report to Shareholders.
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 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.
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.1 Delta's Incentive Compensation Plan, as amended.
10.2 Delta's Executive Deferred Compensation Plan, as amended.
10.3 Directors' Charitable Award Program, as amended.
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).
</TABLE>
(b) Reports on Form 8-K:
During the quarter ended September 30, 1997, Delta did not file any
Current Reports on Form 8-K.
18
<PAGE> 19
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
November 13, 1997
19
<PAGE> 1
EXHIBIT 10.1
THE DELTA AIR LINES, INC.
INCENTIVE COMPENSATION PLAN
AS AMENDED THROUGH JULY 24, 1997
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT OF THE PLAN. Delta Air Lines, Inc., a Delaware
corporation (the "Company"), hereby establishes an annual incentive
compensation plan to be known as "The Delta Air Lines, Inc. Incentive
Compensation Plan" (the "Plan"), as set forth in this document. The Plan
permits annual cash awards to Employees of the Company, based on the
achievement of pre-established performance goals.
The Plan shall become effective as of July 1, 1994 (the "Effective Date")
and shall remain in effect until terminated as provided in Article 12 herein.
1.2 PURPOSE. The purposes of the Plan are to: (a) increase the incentives
to Participants to achieve annual goals that are within group and/or individual
control, and are considered key to the Company's success; (b) encourage
teamwork among Participants in various segments of the Company; and (c) reward
performance with pay that varies in relation to the extent to which the
pre-established goals are achieved.
ARTICLE 2. DEFINITIONS.
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when the defined meaning is intended, the term is capitalized:
"AFFILIATE" AND "ASSOCIATE" have the respective meanings accorded to such
terms in Rule 12b-2 under the Exchange Act as in effect on July 24, 1997.
"AWARD OPPORTUNITY" means the various levels of incentive award payouts
which a Participant may earn under the Plan, including Target Incentive Awards,
as established by the Committee pursuant to Sections 5.1 and 5.2 herein.
"BENEFICIAL OWNERSHIP". A Person shall be deemed the "Beneficial Owner"
of, and shall be deemed to "beneficially own," securities pursuant to Rule
13d-3 under the Exchange Act as in effect on July 24, 1997.
"BOARD" OR "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"CHANGE IN CONTROL" means, and shall be deemed to have occurred upon,
the first to occur of any of the following events:
<PAGE> 2
(a) Any Person (other than an Excluded Person) acquires,
together with all Affiliates and Associates of such Person,
Beneficial Ownership of securities representing 20% or more of
the combined voting power of the Voting Stock then outstanding,
unless such Person acquires Beneficial Ownership of 20% or more
of the combined voting power of the Voting Stock then outstanding
solely as a result of an acquisition of Voting Stock by the
Company which, by reducing the Voting Stock outstanding,
increases the proportionate Voting Stock beneficially owned by
such Person (together with all Affiliates and Associates of such
Person) to 20% or more of the combined voting power of the Voting
Stock then outstanding; provided, that if a Person shall become
the Beneficial Owner of 20% or more of the combined voting power
of the Voting Stock then outstanding by reason of such Voting
Stock acquisition by the Company and shall thereafter become the
Beneficial Owner of any additional Voting Stock which causes the
proportionate voting power of Voting Stock beneficially owned by
such Person to increase to 20% or more of the combined voting
power of the Voting Stock then outstanding, such Person shall,
upon becoming the Beneficial Owner of such additional Voting
Stock, be deemed to have become the Beneficial Owner of 20% or
more of the combined voting power of the Voting Stock then
outstanding other than solely as a result of such Voting Stock
acquisition by the Company;
(b) During any period of two consecutive years (not including
any period prior to July 24, 1997), individuals who at the
beginning of such period constitute the Board (and any new
Director, whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least
two-thirds of the Directors then still in office who either were
Directors at the beginning of the period or whose election or
nomination for election was so approved), cease for any reason to
constitute a majority of Directors then constituting the Board;
(c) A reorganization, merger or consolidation of the Company
is consummated, in each case, unless, immediately following such
reorganization, merger or consolidation, (i) more than 50% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners of the
Voting Stock outstanding immediately prior to such
reorganization, merger or consolidation, (ii) no Person (but
excluding for this purpose any Excluded Person and any Person
beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 20% or more of
the voting power of the outstanding Voting Stock) beneficially
owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors and (iii) at least a majority of the
2
<PAGE> 3
members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of
the Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(d) The shareholders of the Company approve (i) a complete
liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of
the Company, other than to any corporation with respect to which,
immediately following such sale or other disposition, (A) more
than 50% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled
to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the Voting Stock outstanding immediately
prior to such sale or other disposition of assets, (B) no Person
(but excluding for this purpose any Excluded Person and any
Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 20% or more of the
voting power of the outstanding Voting Stock) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation or the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Board at the
time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition of assets of
the Company.
Notwithstanding the foregoing, in no event shall a "Change in Control"
be deemed to have occurred (i) as a result of the formation of a
Holding Company, or (ii) with respect to a Participant, if Participant
is part of a "group," within the meaning of Section 13(d)(3) of the
Exchange Act as in effect on July 24, 1997, which consummates the
Change in Control transaction. In addition, for purposes of the
definition of "Change in Control" a Person engaged in business as an
underwriter of securities shall not be deemed to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through
such Person's participation in good faith in a firm commitment
underwriting until the expiration of forty days after the date of such
acquisition.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means a committee of two (2) or more individuals, all of whom
shall be "outside directors" within the meaning of the Regulations under Code
Section 162(m), appointed by the Board to administer the Plan, pursuant to
Article 3 herein.
"DISABILITY" means a disability which would qualify the Participant for
Long-Term Disability benefits as defined in Section 4.03 of the Delta
Family-Care Disability and Survivorship Plan, as may be amended from time to
time.
3
<PAGE> 4
"EFFECTIVE DATE" means the date the Plan becomes effective, as set forth
in Section 1.1 herein.
"EMPLOYEE" means a full-time, salaried employee of the Company, including
any Subsidiary of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED PERSON" means (i) the Company; (ii) any of the Company's
Subsidiaries; (iii) any Holding Company; (iv) any employee benefit plan of the
Company, any of its Subsidiaries or a Holding Company; or (v) any Person
organized, appointed or established by the Company, any of its Subsidiaries or
a Holding Company for or pursuant to the terms of any plan described in clause
(iv).
"EXECUTIVE OFFICER" means a Participant who, as of the last day of the
applicable Plan Year, is an officer of the Company at or above the level of
Senior Vice President.
"FINAL AWARD" means the actual award earned during a Plan Year by a
Participant, as determined by the Committee.
"HOLDING COMPANY" means an entity that becomes a holding company for the
Company or its businesses as a part of any reorganization, merger,
consolidation or other transaction, provided that the outstanding shares of
common stock of such entity and the combined voting power of the then
outstanding voting securities of such entity entitled to vote generally in the
election of directors is, immediately after such reorganization, merger,
consolidation or other transaction, beneficially owned, directly or indirectly,
by all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Voting Stock outstanding immediately
prior to such reorganization, merger, consolidation or other transaction in
substantially the same proportions as their ownership, immediately prior to
such reorganization, merger, consolidation or other transaction, of such
outstanding Voting Stock.
"PARTICIPANT" means an Employee who is actively participating in the Plan.
"PERSON" means an individual, corporation, partnership, association, trust
or any other entity or organization.
"PLAN YEAR" means the Company's fiscal year.
"REFERENCE INCENTIVE COMPENSATION AWARD" means the greater of the annual
Target Incentive Award (a) for the Company's most recently completed fiscal
year prior to the Change in Control; and (b) for the Company's fiscal year that
includes the Change in Control. For purposes of this definition, the annual
Target Incentive Award for a Participant with respect to any fiscal year shall
be determined by multiplying the target salary percentage applicable to
Participant for
4
<PAGE> 5
such fiscal year by the regular annual rate of pay which such Participant is
receiving as annual salary immediately prior to the Change in Control.
"RETIREMENT" shall have the meanings ascribed to Early, Normal or Deferred
Retirement in the Company's defined benefits tax-qualified retirement pension
plan applicable to the Participant.
"SUBSIDIARY" of any Person means any other Person of which securities or
other ownership interests having voting power to elect a majority of the board
of directors or other Persons performing similar functions are at the time
directly or indirectly owned by such Person.
"TARGET INCENTIVE AWARD" means the award which may be paid to a
Participant when "targeted" performance results, as established by the
Committee, are attained.
"VOTING STOCK" means securities of the Company entitled to vote generally
in the election of members of the Board.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall initially be administered by the
Personnel, Compensation & Nominating Committee of the Board. Subject to the
terms of this Plan, the Board may appoint a successor Committee to administer
the Plan. The members of the Committee shall be appointed by, must be members
of, and shall serve at the discretion of, the Board.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions herein, the
Committee shall have full power to select Employees who shall participate in
the Plan; determine the size and types of Award Opportunities and Final Awards;
determine the terms and conditions of Award Opportunities in a manner
consistent with the Plan; construe and interpret the Plan and any agreement or
instrument entered into under the Plan; establish, amend, or waive rules and
regulations for the Plan's administration; and (subject to the provisions of
Article 8 herein) amend the terms and conditions of any outstanding Award
Opportunity to the extent such terms and conditions are within the sole
discretion of the Committee as provided in the Plan. Further, the Committee
shall make all other determinations which may be necessary or advisable for the
administration of the Plan. As permitted by law, the Committee may delegate its
authority hereunder.
3.3 DECISIONS BINDING. All determinations and decisions of the Committee
as to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, binding, and conclusive upon
all parties.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBILITY. All Employees who are deemed by the Committee to be key
employees shall be eligible to participate in the Plan for such Plan Year.
5
<PAGE> 6
4.2 PARTICIPATION. No later than ninety (90) days after the beginning of
each Plan Year, the Committee shall determine participation in the Plan based
upon the criteria set forth in Section 4.1 herein. Employees who are chosen to
participate in the Plan in any given Plan Year shall be so notified in writing,
and shall be apprised of the performance measure(s), performance goal(s), and
related Award Opportunities for the relevant Plan Year, as soon as is
practicable.
4.3 PARTIAL PLAN YEAR PARTICIPATION. An Employee who becomes eligible
after the beginning of a Plan Year may participate in the Plan for that Plan
Year; however, such Employee's Target Incentive Award shall be prorated to
reflect his or her months of participation during the Plan Year. Such
situations may include, but are not limited to (a) new hires; (b) when an
Employee is promoted to a position which meets the eligibility criteria; or (c)
when an Employee is transferred from an affiliate which does not participate in
the Plan.
The Committee, in its sole discretion, retains the right to prohibit or
allow participation in the initial Plan Year of eligibility for any of the
aforementioned Employees.
4.4 NO RIGHT TO PARTICIPATE. No Participant or other Employee shall at any
time have a right to be selected for participation in the Plan for any Plan
Year, despite having previously participated in the Plan.
ARTICLE 5. AWARD DETERMINATION
5.1 PERFORMANCE MEASURES AND PERFORMANCE GOALS. No later than ninety (90)
days after the beginning of each Plan Year, the Committee shall select
performance measures and shall establish in writing performance goals for that
Plan Year. Except as provided in Article 8 herein, the performance measures may
be based on any combination of corporate, divisional, and/or individual goals.
For each Plan Year, the Committee shall establish ranges of attainment of
the performance goals which will correspond to various levels of Award
Opportunities. Each performance goal range shall include a level of performance
at which one hundred percent (100%) of the Target Incentive Award may be
earned. In addition, each range shall include levels of performance above and
below the one hundred percent (100%) performance level at which a greater or
lesser percent of the Target Incentive Award may be earned.
After the performance goals are established, the Committee will align the
achievement of the performance goals with the Award Opportunities (as described
in Section 5.2 herein), such that the level of achievement of the
pre-established performance goals at the end of the Plan Year will determine
the Final Awards. Except as provided in Article 8 herein, the Committee shall
have the authority to exercise discretion in the determination of Final Awards.
The Committee may establish one or more Company-wide performance measures
which must be achieved for any Participant to receive a Final Award payment for
that Plan Year.
6
<PAGE> 7
Following the completion of each Plan Year, if the performance goals were
met, the Committee shall certify in writing prior to payment of Final Awards
that the performance goals for such Plan Year were satisfied.
5.2 AWARD OPPORTUNITIES. No later than ninety (90) days after the
beginning of each Plan Year, the Committee shall establish, in writing, Award
Opportunities which correspond to various levels of achievement of the
pre-established performance goals. The established Award Opportunities may vary
in relation to the job classification of each Participant or among Participants
in the same job classification. Except as provided in Article 8 herein, in the
event a Participant changes job levels during a Plan Year, the Participant's
Award Opportunity may be adjusted to reflect the amount of time at each job
level during the Plan Year.
5.3 ADJUSTMENT OF PERFORMANCE GOALS AND AWARD OPPORTUNITIES. Once
established, performance goals normally shall not be changed during the Plan
Year. However, except as provided in Article 8 herein, if the Committee
determines in its sole discretion that external changes or other unanticipated
business conditions have materially affected the fairness of the goals, then
the Committee may approve appropriate adjustments to the performance goals
(either up or down) during the Plan Year as such goals apply to the Award
Opportunities of specified Participants.
Notwithstanding any other provision of this Plan, in the event of any
change in corporate capitalization, such as a stock split, or a corporate
transaction, such as any merger, consolidation, separation, including a
spin-off, or other distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Code Section 368), or any partial or complete liquidation of
the Company, such adjustment shall be made in the Award Opportunities and/or
the performance measures or performance goals related to then-current
performance periods, as may be determined to be appropriate and equitable by
the Committee, in its sole discretion, to prevent dilution or enlargement of
rights; provided, however, that subject to Article 8 herein, any such
adjustment shall not be made if it would eliminate the ability of Award
Opportunities held by Executive Officers to qualify for the "performance-based
compensation" exception under Code Section 162(m).
5.4 FINAL AWARD DETERMINATIONS. As soon as practicable after the end of
each Plan Year, Final Awards shall be computed for each Participant as
determined by the Committee. Subject to the terms of Article 8 herein, Final
Award amounts may vary above or below the Target Incentive Award, based on the
level of achievement of the pre-established corporate, divisional, and/or
individual performance goals. Except as provided in Article 8 herein, the
Committee shall have discretion to increase, reduce or eliminate any or all
Final Awards that otherwise would be paid; provided however, the Committee may
determine prior to the end of the Plan year that it will not exercise such
discretion.
5.5 AWARD LIMIT. The Committee may establish guidelines governing the
maximum Final Awards that may be earned by Participants (either in the
aggregate, by Employee class, or among individual Participants) in each Plan
Year. The guidelines may be expressed as a percentage of
7
<PAGE> 8
Company-wide goals of financial measures, or such other measures as the
Committee shall from time to time determine; provided, however, that the
maximum payout with respect to a Final Award payable to any one Participant in
connection with performance in any one Plan Year shall be one million five
hundred thousand dollars ($1,500,000).
5.6 THRESHOLD LEVELS OF PERFORMANCE. The Committee may establish minimum
levels of performance goal achievement, below which no payouts of Final Awards
shall be made to any Participant.
ARTICLE 6. PAYMENT OF FINAL AWARDS
6.1 FORM AND TIMING OF PAYMENT. Unless a deferral election is made by a
Participant pursuant to Section 6.2 herein, or deferral of all or a portion of
a Participant's Final Award is required by Section 6.3, each Participant's
Final Award shall be paid in cash, in one lump sum, within seventy-five (75)
days after the end of each Plan Year.
6.2 VOLUNTARY DEFERRAL OF FINAL AWARD PAYOUTS. A Participant may defer
receipt of some or all payments otherwise due under the Plan pursuant to the
terms of the Company's Executive Deferred Compensation Plan.
6.3 DEFERRAL OF FINAL AWARD PAYOUTS. In the event that all or a portion of
a Participant's Final Award is not deductible by the Company due to limits
contained in Code Section 162(m) or any successor Code Section, the Committee
may, in its discretion, require that payment of the nondeductible portion of
such Final Award shall be deferred until such time as it may be deducted by the
Company, subject to such terms and conditions as the Committee determines to be
appropriate. Rates of interest on such deferred amounts shall be determined by
the Committee in a manner consistent with the requirements of Code Section
162(m) and the Regulations thereunder.
6.4 UNSECURED INTEREST. No Participant or any other party claiming an
interest in amounts earned under the Plan shall have any interest whatsoever in
any specific asset of the Company. To the extent that any party acquires a
right to receive payments under the Plan, such right shall be equivalent to
that of an unsecured general creditor of the Company.
ARTICLE 7. TERMINATION OF EMPLOYMENT
7.1 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT. In
the event Participant's employment is terminated by reason of death,
Disability, or Retirement, the Final Award determined in accordance with
Section 5.4 herein shall be reduced to reflect participation prior to
termination only. The reduced award shall be determined by multiplying said
Final Award by a fraction, the numerator of which is the number of days of
employment in the Plan Year through the date of employment termination, and the
denominator of which is three hundred sixty-five (365). In the case of a
Participant's Disability, the employment termination shall be deemed to have
occurred on the date that the Committee determines the definition of Disability
to have been satisfied.
8
<PAGE> 9
The Final Award thus determined shall be paid within seventy-five (75)
days following the end of the Plan Year in which employment termination occurs.
7.2 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event a
Participant's employment is terminated for any reason other than death,
Disability, or Retirement (of which the Committee shall be the sole judge), the
Participant's opportunity to receive a Final Award for the Plan Year then in
progress shall be forfeited. Except as provided in Article 8 herein, the
Committee, in its sole discretion, may pay a prorated award for the portion of
the Plan Year that the Participant was employed by the Company, computed as
determined by the Committee.
ARTICLE 8. EXECUTIVE OFFICERS
8.1 APPLICABILITY OF ARTICLE 8. The provisions of this Article 8 shall
apply only to Executive Officers. Except as provided in Article 11 herein, in
the event of any inconsistencies between this Article 8 and the other Plan
provisions as they pertain to Executive Officers, the provisions of this
Article 8 shall control.
8.2 ESTABLISHMENT OF AWARD OPPORTUNITIES. Except as provided in Section
8.7 herein, Award Opportunities for Executive Officers shall be established as
a function of each Executive Officer's Base Salary (as defined below). No later
than ninety (90) days after the beginning of each Plan Year, the Committee
shall establish, in writing, various levels of Final Awards which may be paid
with respect to specified levels of attainment of the pre-established
performance goals.
For purposes of this Article 8, "Base Salary" shall mean, as to any
specific Plan Year, a Participant's regular annual salary rate as of the last
day of the Plan Year. Regular salary shall not be reduced by any voluntary
salary reductions or any salary reduction contributions made to any salary
reduction plan, defined contribution plan or other deferred compensation plans
of the Company, but shall not include any payments under this Plan, the 1989
Stock Incentive Plan, or any other bonuses, incentive pay, or special awards.
8.3 COMPUTATION OF FINAL AWARDS. Each Executive Officer's Final Award
shall be based on: (a) the Executive Officer's Target Incentive Award; (b) the
potential Final Awards corresponding to various levels of achievement of the
pre-established performance goals, as established by the Committee; and (c)
Company performance in relation to the pre-established performance goals.
Except as provided in Section 8.7 herein, performance measures which may serve
as determinants of Executive Officers' Award Opportunities shall be limited to
the Company's Pretax Income, Net Income, Earnings Per Share, Revenues,
Expenses, Return on Assets, Return on Equity, Return on Investment, Net Profit
Margin, Operating Profit Margin, Operating Cash Flow, Total Shareholder Return,
Capitalization, Liquidity, Results of Customer Satisfaction Surveys, and other
measures of Quality, Safety, Productivity or Process Improvement. Such
performance goal may be determined solely by reference to the performance of
the Company, a Subsidiary of the Company, or a division or unit of either of
the foregoing, or based upon comparisons of any of the performance measures
relative to other companies. In
9
<PAGE> 10
establishing a performance goal, the Committee may exclude the impact of any
event or occurrence which the Committee determines should appropriately be
excluded such as, for example, a restructuring or other non-recurring charge,
an event either not directly related to the operations of the Company or not
within the reasonable control of the Company's management, or a change in
accounting standards required by the Financial Accounting Standards Board.
8.4 NO MID-YEAR CHANGE IN AWARD OPPORTUNITIES. Except as provided in
Section 8.7 herein, each Executive Officer's Final Award shall be based
exclusively on the Award Opportunity levels established by the Committee
pursuant to Section 8.2 above.
8.5 NONADJUSTMENT OF PERFORMANCE GOALS. Except as provided in Section 8.7
herein, performance goals shall not be changed following their establishment,
and Executive Officers shall not receive any payout when the minimum
performance goals are not met or exceeded.
8.6 INDIVIDUAL PERFORMANCE AND DISCRETIONARY ADJUSTMENTS. Except as
provided in the second sentence of this Section 8.6 and in Section 8.7 herein,
subjective evaluations of individual performance of Executive Officers shall
not be reflected in their Final Awards. However, the Committee shall have the
discretion to reduce or eliminate the amount of the Final Award otherwise
payable to an Executive Officer.
8.7 POSSIBLE MODIFICATIONS. If, on the advice of the Company's counsel,
the Committee determines that Code Section 162(m) and the Regulations
thereunder will not adversely affect the deductibility for federal income tax
purposes of any amount paid under the Plan by permitting greater discretion
and/or flexibility with respect to Award Opportunities granted to Executive
Officers pursuant to this Article 8, then the Committee may, in its sole
discretion, apply such greater discretion and/or flexibility to such Award
Opportunities as is consistent with such advice and the terms of this Plan,
and, to the extent permitted by such advice, without regard to the restrictive
provisions of this Article 8.
In addition, in the event that changes are made to Code Section 162(m) or
the Regulations thereunder to permit greater flexibility with respect to any
Award Opportunities under the Plan, the Committee may exercise such greater
flexibility consistent with the terms of the Plan and, to the extent of such
changes, without regard to the restrictive provisions of this Article 8.
ARTICLE 9. RIGHTS OF PARTICIPANTS
9.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company or any Subsidiary of the Company to terminate any
Participant's employment at any time, nor confer upon any Participant any right
to continue in the employ of the Company or any Subsidiary of the Company.
9.2 NONTRANSFERABILITY. No right or interest of any Participant in the
Plan shall be assignable or transferable, or subject to any lien, directly, by
operation of law or otherwise, including, but not limited to, execution, levy,
garnishment, attachment, pledge, and bankruptcy.
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ARTICLE 10. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each designation will
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Committee, and will be effective only when filed by the
Participant in writing with the Committee during his or her lifetime.
Beneficiary designations filed with respect to predecessor plans prior to the
adoption of this Plan shall be effective with respect to this Plan. In the
absence of any such designation, benefits remaining unpaid at the Participant's
death shall be paid to the Participant's estate.
ARTICLE 11. CHANGE IN CONTROL
Upon the occurrence of a Change in Control while a Participant is
employed by the Company, the Company shall promptly thereafter pay in cash to
each such Participant his Reference Incentive Compensation Award, prorated to
reflect the portion of the fiscal year elapsed through the date of the Change
in Control. This payment shall discharge all liabilities of the Company to
Participant under the Plan with respect to the portion of the fiscal year
elapsed through the date of such Change in Control.
ARTICLE 12. AMENDMENTS
The Committee or the Board, without notice, at any time and from time to
time, may modify or amend, in whole or in part, any or all of the provisions of
the Plan, or suspend or terminate it entirely; provided, however, that no such
modification, amendment, suspension, or termination may, without the consent of
a Participant (or his or her beneficiary in the case of the death of the
Participant), reduce the right of a Participant (or his or her beneficiary as
the case may be) to a payment or distribution hereunder to which he or she is
entitled.
ARTICLE 13. MISCELLANEOUS
13.1 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
governed by and construed in accordance with the laws of the state of Georgia.
13.2 WITHHOLDING TAXES. The Company shall have the right to deduct from
all payments under the Plan any foreign, Federal, state, or local income or
other taxes required by law to be withheld with respect to such payments.
Before payment of any Final Award may be deferred under Article 6, the Company
may require that the Participant pay or agree to withholding for any
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foreign, Federal, state or local income or other taxes which may be imposed on
any amount deferred.
----------------------------------------
Robert S. Harkey
Senior Vice President - General Counsel
& Secretary
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EXIHIBIT 10.2
DELTA AIR LINES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
AS AMENDED THROUGH JULY 24, 1997
ARTICLE 1. ESTABLISHMENT AND PURPOSES
1.1 ESTABLISHMENT. Delta Air Lines, Inc., a Delaware corporation (the
"Company"), hereby establishes, effective as of July 1, 1994, a deferred
compensation plan for key employees as described herein, which shall be known
as the "Delta Air Lines, Inc. Executive Deferred Compensation Plan" (the
"Plan").
1.2 PURPOSE. The purpose of the Plan is to provide certain key
employees of the Company with the opportunity to voluntarily defer a portion of
their compensation, subject to the terms of the Plan. By adopting the Plan, the
Company desires to enhance its ability to attract and retain employees of
outstanding competence.
ARTICLE 2. DEFINITIONS
Whenever used herein, the following terms shall have the meanings set
forth below, and, when the defined meaning is intended, the term is
capitalized:
"Affiliate" and "Associate" have the respective meanings accorded to
such terms in Rule 12b-2 under the Exchange Act as in effect on July
24, 1997.
"Beneficial Ownership". A Person shall be deemed the "Beneficial
Owner" of, and shall be deemed to "beneficially own," securities
pursuant to Rule 13d-3 under the Exchange Act as in effect on July
24, 1997.
"Board" or "Board of Directors" means the Board of Directors of the
Company.
"Bonus" means any incentive award based on an assessment of
performance, payable by the Company to a Participant with respect to
the Participant's services during a given fiscal year of the Company,
and shall be deemed earned only upon award by the Company. For
purposes of the Plan, "Bonus" shall not include incentive awards which
relate to a period exceeding one (1) fiscal year.
"Change in Control" means, and shall be deemed to have occurred upon,
the first to occur of any of the following events:
(a) Any Person (other than an Excluded Person) acquires,
together with all Affiliates and Associates of such Person,
Beneficial Ownership of securities representing 20% or more of
the combined voting power of the Voting Stock then outstanding,
unless such Person acquires Beneficial Ownership of 20% or more
of the combined voting power of the Voting Stock then outstanding
solely as a result of an
<PAGE> 2
acquisition of Voting Stock by the Company which, by reducing the
Voting Stock outstanding, increases the proportionate Voting
Stock beneficially owned by such Person (together with all
Affiliates and Associates of such Person) to 20% or more of the
combined voting power of the Voting Stock then outstanding;
provided, that if a Person shall become the Beneficial Owner of
20% or more of the combined voting power of the Voting Stock then
outstanding by reason of such Voting Stock acquisition by the
Company and shall thereafter become the Beneficial Owner of any
additional Voting Stock which causes the proportionate voting
power of Voting Stock beneficially owned by such Person to
increase to 20% or more of the combined voting power of the
Voting Stock then outstanding, such Person shall, upon becoming
the Beneficial Owner of such additional Voting Stock, be deemed
to have become the Beneficial Owner of 20% or more of the
combined voting power of the Voting Stock then outstanding other
than solely as a result of such Voting Stock acquisition by the
Company;
(b) During any period of two consecutive years (not including
any period prior to July 24, 1997), individuals who at the
beginning of such period constitute the Board (and any new
Director, whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least
two-thirds of the Directors then still in office who either were
Directors at the beginning of the period or whose election or
nomination for election was so approved), cease for any reason to
constitute a majority of Directors then constituting the Board;
(c) A reorganization, merger or consolidation of the Company
is consummated, in each case, unless, immediately following such
reorganization, merger or consolidation, (i) more than 50% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners of the
Voting Stock outstanding immediately prior to such
reorganization, merger or consolidation, (ii) no Person (but
excluding for this purpose any Excluded Person and any Person
beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 20% or more of
the voting power of the outstanding Voting Stock) beneficially
owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors and (iii) at least a majority of the
members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of
the Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
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<PAGE> 3
(d) The shareholders of the Company approve (i) a complete
liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of
the Company, other than to any corporation with respect to which,
immediately following such sale or other disposition, (A) more
than 50% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled
to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners of the Voting Stock outstanding immediately
prior to such sale or other disposition of assets, (B) no Person
(but excluding for this purpose any Excluded Person and any
Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 20% or more of the
voting power of the outstanding Voting Stock) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation or the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Board at the
time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition of assets of
the Company.
Notwithstanding the foregoing, in no event shall a "Change in Control"
be deemed to have occurred (i) as a result of the formation of a
Holding Company, or (ii) with respect to a Participant, if Participant
is part of a "group," within the meaning of Section 13(d)(3) of the
Exchange Act as in effect on July 24, 1997, which consummates the
Change in Control transaction. In addition, for purposes of the
definition of "Change in Control" a Person engaged in business as an
underwriter of securities shall not be deemed to be the "Beneficial
Owner" of, or to " beneficially own," any securities acquired through
such Person's participation in good faith in a firm commitment
underwriting until the expiration of forty days after the date of such
acquisition.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a committee of two (2) or more individuals,
appointed by the Board to administer the Plan, pursuant to Article 3
herein.
"Compensation" means the gross Salary, Bonus, Long-Term Awards, and
other payments eligible for deferral under the Plan, which are payable
to a Participant with respect to services performed during a specified
period.
"Disability" means a disability which would qualify the Participant
for Long-Term Disability benefits as defined in Section 4.03 of the
Delta Family-Care Disability and Survivorship Plan, as may be amended
from time to time.
"Effective Date" means the date the Plan becomes effective, as set
forth in Section 1.1 herein.
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<PAGE> 4
"Employee" means a full-time, salaried employee of the Company
including any Subsidiary of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor Act thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Person" means (i) the Company; (ii) any of the Company's
Subsidiaries; (iii) any Holding Company; (iv) any employee benefit
plan of the Company, any of its Subsidiaries or a Holding Company; or
(v) any Person organized, appointed or established by the Company, any
of its Subsidiaries or a Holding Company for or pursuant to the terms
of any plan described in clause (iv).
"Holding Company" means an entity that becomes a holding company for
the Company or its businesses as a part of any reorganization, merger,
consolidation or other transaction, provided that the outstanding
shares of common stock of such entity and the combined voting power of
the then outstanding voting securities of such entity entitled to vote
generally in the election of directors is, immediately after such
reorganization, merger, consolidation or other transaction,
beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Voting Stock outstanding immediately prior to
such reorganization, merger, consolidation or other transaction in
substantially the same proportions as their ownership, immediately
prior to such reorganization, merger, consolidation or other
transaction, of such outstanding Voting Stock.
"Long-Term Award" means any cash award (other than cash payment in
connection with any stock option or stock appreciation right awards
under the 1989 Stock Incentive Plan) payable to a Participant pursuant
to a Company program which establishes incentive award opportunities
which are contingent upon performance which is measured over periods
greater than one (1) year.
"Participant" means an Employee who has elected to participate in the
Plan.
"Person" means an individual, corporation, partnership, association,
trust or any other entity or organization.
"Salary" means all regular, basic wages, before reduction for amounts
deferred pursuant to the Plan or any other plan of the Company,
payable in cash to a Participant for services to be rendered during
the calendar year, exclusive of any Bonus, Long-Term Awards, other
special fees, awards, or incentive compensation, allowances, or
amounts designated by the Company as payment toward or reimbursement
of expenses.
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<PAGE> 5
"Subsidiary" of any Person means any other Person of which securities
or other ownership interests having voting power to elect a majority
of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Voting Stock" means securities of the Company entitled to vote
generally in the election of members of the Board.
ARTICLE 3. ADMINISTRATION
3.1 AUTHORITY OF THE COMMITTEE. The Plan shall initially be
administered by the Personnel, Compensation & Nominating Committee of the
Board. Subject to the terms of this Plan, the Board may appoint a successor
Committee to administer the Plan. The members of the Committee shall be
appointed by, must be members of, and shall serve at the discretion of the
Board.
Subject to the provisions herein, the Committee shall have the
exclusive discretion to select Employees for participation in the Plan; to
determine the terms and conditions of each Employee's participation in the
Plan; to construe and interpret the Plan and any agreement or instrument
entered into under the Plan; to establish, amend, or waive rules and
regulations for the Plan's administration; to amend (subject to the provisions
of Article 9 herein) the terms and conditions of the Plan and any agreement
entered into under the Plan; and to make other determinations which may be
necessary or advisable for the administration of the Plan. Subject to the terms
of the Plan, the Committee may delegate any or all of its authority granted
under the Plan to an executive or executives of the Company.
3.2 CLAIMS PROCEDURE. If a request for benefits by a Participant or
beneficiary is wholly or partially denied, the Committee will provide such
claimant written notice setting forth the denial. A review procedure is
available upon written request by the claimant to the Committee within 90 days
after the date of the Committee's written notice of the denial of the claim,
and includes the right to examine pertinent documents and submit issues and
comments in writing to the Committee. The decision on review will be made
within 90 days after receipt of the request for review, unless circumstances
warrant an extension of time not to exceed an additional 90 days, and shall be
in writing. If a decision on review is not made within such period, the
Participant's claim shall be deemed denied.
3.3 DECISIONS BINDING. All determinations and decisions of the
Committee as to any disputed question arising under the Plan, including
questions of construction and interpretation, shall be final, conclusive and
binding on all parties.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBILITY. Employees eligible to participate in the Plan
include key policy-makers and decision-makers of the Company, as selected by
the Committee in its sole discretion. It is the intent of the Company to extend
eligibility only to those executives who comprise a select group
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<PAGE> 6
of management or highly compensated employees, such that the Plan will qualify
for treatment as a "Top Hat" plan under ERISA.
In the event a Participant no longer meets the requirements for
participation in the Plan, such Participant shall become an inactive
Participant, retaining all the rights described under the Plan, except the
right to make any further deferrals, until such time that the Participant again
becomes an active Participant.
4.2 PARTICIPATION. Participation in the Plan shall be determined
annually by the Committee based upon the criteria set forth in Section 4.1
herein. Employees who are chosen to participate in the Plan in any given year
shall be so notified in writing.
4.3 PARTIAL YEAR ELIGIBILITY. In the event that an Employee first
becomes eligible to participate in the Plan during any given year, such
Employee shall as soon as practicable be so notified in writing by the Company
and provided with an "Election to Defer Form," which must be completed by the
Employee as provided in Section 5.2 herein; provided, however, that such
Employee may only make an election to defer with respect to that portion of his
or her Compensation for such year which is to be paid after the date of filing
of the deferral election.
4.4 NO RIGHT TO PARTICIPATE. No Employee shall have the right
to be selected as a Participant, or, having been so selected for any given
year, to be selected again as a Participant for any other year.
ARTICLE 5. DEFERRAL OPPORTUNITY
5.1 AMOUNT WHICH MAY BE DEFERRED. A Participant may elect to defer up
to one hundred percent (100%) of eligible components of Compensation, including
but not limited to Salary, Bonus and Long-Term Awards, in any given year;
provided, however, that the Committee shall have sole discretion to designate
which components of Compensation are eligible for deferral elections under the
Plan in any such year. The minimum amount of any single eligible component of
Compensation which may be deferred in any given year is the lesser of ten
percent (10%) of such component or ten thousand dollars ($10,000). In addition,
an election to defer Compensation in any given year shall be expressed by each
Participant in increments of either ten percent (10%) of the applicable
component of Compensation or ten thousand dollars ($10,000).
5.2 DEFERRAL ELECTION. Participants shall make their elections to
defer Bonuses under the Plan for a given fiscal year not later than (a) thirty
(30) days prior to the beginning of such fiscal year or (b) if Participants are
notified after the beginning of the fiscal year of their selection to
participate in the Plan for such fiscal year or a partial fiscal year, within
thirty (30) days of receipt of such notice. Elections to defer Salary under the
Plan for a given calendar year shall be made not later than (x) thirty (30)
days prior to the beginning of such calendar year or (y) if Participants are
notified after the beginning of the calendar year of their selection to
participate in the Plan for such calendar year or a partial calendar year,
within thirty (30) days of receipt of such notice. Elections to defer Long-Term
Awards and other payments eligible for deferral under the Plan shall be made in
accordance with the foregoing rules for fiscal or calendar years, as the
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<PAGE> 7
Committee deems appropriate. All deferral elections shall be irrevocable; shall
relate solely to amounts earned after the filing of a deferral election with
the Committee; and shall be made on an "Election to Defer Form," as described
herein.
Participants shall make the following irrevocable elections on each
"Election to Defer Form":
(a) The amount to be deferred with respect to each eligible
component of Compensation for the specified year;
(b) The length of the deferral period with respect to each
eligible component of Compensation, pursuant to the terms
of Section 5.3 herein;
(c) The form of payment to be made to the Participant at the end
of the deferral period(s), pursuant to the terms of
Section 5.4 herein; and
(d) The interest rate alternative(s) with respect to deferrals of
Compensation, pursuant to Section 6.2 herein.
5.3 LENGTH OF DEFERRAL. The deferral periods elected by each
Participant with respect to deferrals of Compensation for any given year shall
be selected from among the choices specified by the Committee. For deferral
elections made prior to July 24, 1997, the deferral periods shall be for at
least one (1) year following the end of the calendar year in which the
Compensation is earned, and shall not exceed ten (10) years following such
date; provided, that in no event shall the deferral period extend beyond the
end of the calendar year in which the Participant reaches the age of 65.
Notwithstanding the deferral periods elected by a Participant, payment of
deferred amounts and accumulated interest thereon shall be made to the
Participant, or the Participant's beneficiary designated pursuant to Section
6.4 hereof, as the case may be, in a single lump sum in the event the
Participant's employment with the Company is terminated by reason of death or
Disability at any time prior to scheduled payment of deferred amounts and
interest thereon. Such payment following employment termination shall be made
in cash, within thirty (30) days after the effective date of termination of the
Participant's employment. Deferral elections made on or after July 24, 1997
shall comply with the terms and conditions specified by the Committee from time
to time.
5.4 PAYMENT OF DEFERRED AMOUNTS. Subject to the provisions of Section
5.5, 5.6 and Article 9 of the Plan, Participants shall receive payment of
deferred amounts, together with interest earned thereon, at the end of the
deferral period in a single lump-sum cash payment or, if approved by the
Committee, by the Participant electing another means of payment such as in
installments. If alternative methods for receiving payment are approved by the
Committee, elections of the method of payment shall be made by the Participant
within the same time periods as required in Section 5.2 of the Plan.
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<PAGE> 8
(a) LUMP-SUM PAYMENT. A lump sum payment shall be made in cash
within sixty (60) days of the end of the deferral period
specified by the Participant, as described in Sections 5.2
and 5.3 herein.
(b) INSTALLMENT PAYMENTS. If approved by the Committee,
Participants may elect payout in annual installments, with a
minimum number of installments of two (2), and a maximum of
fifteen (15). The initial payment shall be made in cash
within sixty (60) days after the commencement date selected
by the Participant pursuant to Sections 5.2 and 5.3 herein.
The remaining installment payments shall be made in cash each
year thereafter, until the Participant's entire deferred
compensation account has been paid. Interest shall accrue on
the deferred amounts in the Participant's deferred
compensation account, as provided in Section 6.2 of the Plan.
The amount of each installment payment shall be equal to the
balance remaining in the Participant's deferred compensation
account immediately prior to each such payment, multiplied by
a fraction, the numerator of which is one (1), and the
denominator of which is the number of installment payments
remaining.
(c) ALTERNATIVE PAYMENT SCHEDULE. If approved by the Committee, a
Participant may elect an alternate payment schedule.
5.5 FINANCIAL HARDSHIP. The Committee shall have the authority to
alter the timing or manner of payment of deferred amounts in the event that the
Participant establishes, to the satisfaction of the Committee, severe financial
hardship. In such event, the Committee may, in its sole discretion:
(a) Authorize the cessation of deferrals by such Participant
under the Plan;
(b) Provide that all, or a portion, of the amount previously
deferred by the Participant shall immediately be paid in a
lump-sum cash payment;
(c) Provide that all, or a portion, of the installments payable
over a period of time shall immediately be paid in a lump-sum
cash payment; or
(d) Provide for another installment payment schedule as deemed
appropriate by the Committee under the circumstances.
For purposes of this Section 5.5, "severe financial hardship" shall
mean any financial hardship resulting from extraordinary and unforeseeable
circumstances arising as a result of one or more recent events beyond the
control of the Participant. In any event, payment may not be made to the extent
such emergency is or may be relieved: (i) through reimbursement or compensation
by insurance or otherwise; (ii) by liquidation of the Participant's assets, to
the extent the liquidation of such assets would not itself cause severe
financial hardship; or (iii) by cessation of existing deferrals or new
deferrals under the Plan.
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<PAGE> 9
Withdrawals of deferred amounts because of a severe financial hardship
may only be permitted to the extent reasonably necessary to satisfy the
hardship. Examples of what are not considered to be severe financial hardships
include the need to send a Participant's child to college or the desire to
purchase a home. The Participant's account will be credited with earnings (and
debited for any losses) in accordance with the Plan up to the date of
distribution.
The severity of the financial hardship shall be judged by the
Committee. The Committee's decision with respect to the severity of financial
hardship and the manner in which, if at all, the Participant's future deferral
opportunities shall be eliminated, and/or the manner in which, if at all, the
payment of deferred amounts to the Participant shall be altered or modified,
shall be final, conclusive and not subject to appeal.
5.6 CHANGE IN CONTROL. Notwithstanding any provision contained in the
Plan, in the event of a Change in Control, the Committee in its sole discretion
may direct that all or certain Participants shall be entitled to an immediate
lump sum payment of their deferred amounts, together with interest earned
thereon.
ARTICLE 6. DEFERRED COMPENSATION ACCOUNTS
6.1 PARTICIPANTS' ACCOUNTS. The Company shall establish and maintain
an individual bookkeeping account for deferrals made by each Participant under
Article 5 herein. Each account shall be credited as of the date the amount
deferred otherwise would have become due and payable to the Participant.
6.2 INTEREST ON DEFERRED AMOUNTS. Compensation deferred under Article
5 shall accrue interest on a basis to be specified by the Committee, consistent
with the provisions of Section 162(m) of the Code and the rules and regulations
promulgated thereunder, at a rate equal to the return on the rate of return
choice(s) selected by the Participant from among the alternatives specified by
the Committee from time to time. Interest credited on deferred amounts (less
the amount of any debits for any losses) shall be paid out to Participants at
the same time and in the same manner as the underlying deferred amounts.
6.3 CHARGES AGAINST ACCOUNTS. There shall be charged against each
Participant's deferred compensation account any payments made to the
Participant or to his or her beneficiary.
6.4 DESIGNATION OF BENEFICIARY. Each Participant may designate a
beneficiary or beneficiaries (who may be named contingently or successively)
who, upon the Participant's death, will receive the amounts that otherwise
would have been paid to the Participant under the Plan. All designations shall
be signed by the Participant, and shall be in such form as prescribed by the
Committee. Each designation shall be effective as of the date received from the
Participant by the Corporate Secretary of the Company.
Participants may change their designations of beneficiary on a form
prescribed by the Committee. The payment of amounts deferred under the Plan
shall be in accordance with the last
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<PAGE> 10
unrevoked written designation of beneficiary that has been signed by the
Participant and delivered by the Participant to the Corporate Secretary of the
Company prior to the Participant's death.
In the event that all the beneficiaries named by a Participant
pursuant to this Section 6.4 predecease the Participant, the deferred amounts
that would have been paid to the Participant or the Participant's beneficiaries
shall be paid to the Participant's estate.
In the event a Participant does not designate a beneficiary, or for
any reason such designation is ineffective, in whole or in part, the amounts
that otherwise would have been paid to the Participant or the Participant's
beneficiaries under the Plan shall be paid to the Participant's estate.
ARTICLE 7. RIGHTS OF PARTICIPANTS
7.1 CONTRACTUAL OBLIGATION. The Plan shall create a contractual
obligation on the part of the Company to make payments from the Participants'
accounts when due. Payment of account balances shall be made out of the general
funds of the Company.
7.2 UNSECURED INTEREST. No Participant, or party claiming an interest
in deferred amounts or contributions through a Participant, shall have any
interest whatsoever in any specific asset of the Company. To the extent that
any party acquires a right to receive payments under the Plan, such right shall
be equivalent to that of an unsecured general creditor of the Company.
The Company may establish one or more trusts, with such trustee(s) as
the Committee may approve, for the purpose of providing for the payment of
deferred amounts. Any such trust created by the Company will conform to the
terms of the model trust approved by the Internal Revenue Service pursuant to
Revenue Procedure 92-64, or any amendment thereof or successor procedure
thereto. Such trust or trusts may be irrevocable, but the assets thereof shall
be subject to the claims of the Company's general creditors. To the extent any
deferred amounts under the Plan are actually paid from any such trust, the
Company shall have no further obligation with respect thereto, but to the
extent not so paid, such deferred amounts shall remain the obligation of, and
shall be paid by, the Company.
7.3 EMPLOYMENT. Nothing in the Plan shall interfere with nor limit in
any way the right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue in the employ
of the Company.
ARTICLE 8. WITHHOLDING OF TAXES
The Company shall withhold from an employee's regular compensation
from the Company an amount sufficient to satisfy foreign, Federal, state, and
local income or other withholding tax requirements with regard to amounts
deferred under the Plan. However, the Company reserves the right to institute
alternative methods for satisfying the applicable income and withholding tax
requirements.
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ARTICLE 9. AMENDMENT AND TERMINATION
The Company hereby reserves the right to amend, modify or terminate
the Plan at any time by action of the Committee or the Board of Directors.
Except as described below in this Article 9, no such amendment, modification or
termination shall in any material manner adversely affect any Participant's
rights to deferred amounts, contributions or interest earned thereon, without
the consent of the Participant.
The Plan is intended to be an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management or
highly compensated employees" within the meaning of Sections 201, 301 and 401
of ERISA, and therefore to be exempt from the provisions of Parts 2, 3 and 4 of
Title I of ERISA. Accordingly, the Board may terminate the Plan and commence
termination payout for all or certain Participants, or remove certain employees
as Participants, if it is determined by the United States Department of Labor
or a court of competent jurisdiction that the Plan constitutes an employee
pension benefit plan within the meaning of Section 3(2) of ERISA which is not
so exempt. If payout is commenced pursuant to the operation of this Article 9,
the payment of such amounts shall be made in a lump sum regardless of the
manner selected by each Participant under Section 5.4 herein as applicable.
ARTICLE 10. MISCELLANEOUS
10.1 NOTICE. Any notice or filing required or permitted to be given to
the Company under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail to the Corporate Secretary
of the Company. Notice to the Corporate Secretary, if mailed, shall be
addressed to the principal executive offices of the Company. Notice mailed to a
Participant shall be at such address as is given in the records of the Company.
Notices shall be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt for
registration or certification.
10.2 NONTRANSFERABILITY. Participants' rights to deferred amounts and
interest earned thereon under the Plan may not be sold, transferred, assigned
or otherwise alienated or hypothecated other than by will or by the laws of
descent and distribution. In no event shall the Company make any payment under
the Plan to any assignee or creditor of a Participant.
10.3 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
10.4 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular, and the singular shall include the plural.
10.5 COSTS OF THE PLAN. All costs of implementing and administering
the Plan shall be borne by the Company.
11
<PAGE> 12
10.6 APPLICABLE LAW. The Plan shall be construed and enforced in
accordance with the provisions of ERISA. In the event that ERISA is not
applicable or does not preempt State law, the laws of the State of Georgia
shall govern.
10.7 SUCCESSORS. All obligations of the Company under the Plan shall
be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the business and/or
assets of the Company.
10.8 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of the Company or any Subsidiary of the Company to terminate
any Participant's employment at any time, nor confer upon any Participant any
right to continue in the employ of the Company or any Subsidiary of the Company.
----------------------------------------
Robert S. Harkey
Senior Vice President - General Counsel
& Secretary
12
<PAGE> 1
EXHIBIT 10.3
DELTA AIR LINES, INC.
DIRECTOR'S CHARITABLE AWARD PROGRAM
(AS AMENDED EFFECTIVE OCTOBER 23, 1997)
1. PURPOSE OF THE PROGRAM
The Delta Air Lines, Inc. Director's Charitable Award Program (the "Program")
allows each eligible Director of Delta Air Lines, Inc. (the "Company") to
recommend that the Company, through The Delta Air Lines Foundation or otherwise
under Section 10 of the Program (the "Foundation"), make a $1,000,000 donation
to the eligible tax-exempt organizations(s) (the "Donee(s)") selected by the
Director, with the donation to be made, in honor of the Director, in five equal
annual installments of $200,000, with the first installment to be made as soon
as is practicable after the Director's death. The purpose of the Program is to
acknowledge the service of the Company's Directors, and recognize the
charitable interest of the Company and its Directors in supporting worthy
institutions.
2. ELIGIBILITY
All persons serving as Directors of the Company as of June 1, 1991, and all
Directors who join the Board of Directors after that date but prior to July 29,
1994, shall be immediately eligible to participate in the Program on the
effective date of their election to the Board.
3. RECOMMENDATION OF DONATION
When a Director becomes eligible to participate in the Program, he or she may
make a written recommendation to the Company, on a form approved by the Company
for this purpose, designating the Donee(s) which he or she intends to be the
recipient(s) of the donation to be made in his or her honor. Subject to Section
10 of the Program, a Director may revise or revoke any such
<PAGE> 2
recommendation prior to his or her death by signing a new recommendation form
and submitting it to the Company.
4. AMOUNT AND TIMING OF DONATION
Each eligible Director may recommend one organization to receive a donation of
$1,000,000, or up to five organizations to receive donations aggregating
$1,000,000. If and to the extent approved by the Foundation, the donation will
be made by the Foundation in honor of the Director in five equal annual
installments of $200,000, with the first installment to be made as soon as is
practicable after the Director's death. If a Director recommends more than one
Donee, each Donee will receive a prorated portion of each annual installment.
If and to the extent approved by the Foundation, each annual installment
payment will be divided among the recommended organizations in the same
proportions as the total donation amount has been allocated among the
organizations by the Director, except that a Director may request the Company
to request the Foundation to allocate the installment payments in a different
manner.
5. DONEES
In order to be eligible to receive a donation, a recommended organization must
qualify as a tax-exempt organization under Internal Revenue Code Section
501(c)(3), and must be reviewed and approved by the Committee (as defined in
Section 9 of the Program). A recommendation will be approved only if the
Committee, in its sole discretion, determines that the goals and purposes of
the organization are consistent with the business purposes and charitable
philosophy of the Company.
6. FORFEITURE
Subject to Section 10 of the Program, no donation will be made in honor of a
Director after he or she terminates Board service, unless such termination of
service is as a result of death, disability, retirement at the date applicable
to such Director pursuant to the Company's By-Laws, or such other
- 2 -
<PAGE> 3
circumstances as deemed appropriate by the Committee; provided, however, that a
donation may be made in honor of a Director who is or was a full-time employee
of the Company and pursuant to the Company's By-Laws has resigned from the
Board coincident with retirement from full-time employment if such Director
retires from or has already retired from the Company at the normal retirement
date determined under the retirement or pension plan of the Company or
subsidiary applicable to the Director.
7. FUNDING AND PROGRAM ASSETS
The Company plans to fund the Program through corporate contributions to the
Foundation, subject to Section 10 of the Program. No Director shall have any
right or interest in any asset or trust fund of the Company or the Foundation,
or be deemed to have any beneficial interest in any trust, actual or
constructive, created under the Program, including without limitation any
insurance policy acquired under Section 10 of the Program. No recommended Donee
shall have any right or interest in any asset or trust fund of the Company or
the Foundation, or be deemed to have any beneficial interest in any trust,
actual or constructive, created under the Program, except to the extent
specified in Section 10 of the Program.
8. AMENDMENT OR TERMINATION
Subject to Section 10 of the Program, the Board of Directors of the Company
may, at any time, without the consent of the Directors participating in the
Program, amend, suspend, or terminate the Program. There can be no assurance
that a donation will be made, and neither the Director nor the recommended
organization acquires any legal right to such donation by virtue of the
recommendation.
- 3 -
<PAGE> 4
9. ADMINISTRATION
The Program shall be administered by the Personnel, Compensation & Nominating
Committee of the Board prior to August 29, 1997, and the Corporate Governance
Committee of the Board after that date (the "Committee"). The Committee shall
have plenary authority in its discretion, but subject to the provisions of the
Program, to prescribe, amend, and rescind rules, regulations and procedures
relating to the Program. The determination of the Committee on the foregoing
matters shall be conclusive and binding on all interested parties.
Notwithstanding anything in the Program to the contrary, the Foundation, in its
sole discretion, shall have authority to determine whether to make
contributions to recommended Donees and, if the Foundation determines to make a
contribution, the amount and manner of such contribution.
10. CHANGE IN CONTROL
In the event of a "Change in Control," (a) the Program may not be amended or
terminated with respect to a former or then serving Director eligible to
participate in the Program under Section 2, and (b) the Company will
immediately purchase insurance policies to fund recommended donations, pay all
premiums necessary to support any such insurance policies (for the entire term
of the policies) and place the policies into a trust administered by an
independent trustee, and the Company will immediately designate the recommended
Donees previously approved by the Committee as beneficiaries for all such
policies. For purposes of the Program, the term "Change in Control", and
the following additional terms used in that definition, "Affiliate",
"Associate", "Beneficial Ownership", "Board", "Company", "Exchange Act",
"Excluded Person", "Holding Company", "Person", "Subsidiary" and "Voting
Stock", will be as defined in the Company's 1989 Stock Incentive Plan as in
effect on July 24, 1997, and "Participant", as used in the definition of
"Change in Control" shall mean a former or then serving Director eligible to
participate in the Program.
- 4 -
<PAGE> 5
11. GOVERNING LAW
The Program shall be construed and enforced according to the laws of the State
of Georgia, and all provisions thereof shall be administered according to the
laws of said State.
12. EFFECTIVE DATE
The effective date of the Program shall be September 1, 1991.
- 5 -
<PAGE> 1
EXHIBIT 11
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(In millions, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
PRIMARY:
Weighted average shares outstanding 74 76
Additional shares assuming
exercise of stock options 1 --
----- -----
Average shares outstanding as adjusted 75 76
===== =====
Net income $ 254 $ 238
Preferred series B dividends (2) (2)
----- -----
Net income available to primary common shares $ 252 $ 236
===== =====
Primary income per common share $3.34 $3.09
===== =====
FULLY DILUTED:
Weighted average shares outstanding 74 76
Additional shares assuming:
Conversion of series C convertible preferred stock -- 1
Conversion of series B ESOP convertible
preferred stock 2 2
Exercise of stock options 1 --
----- -----
Average shares outstanding as adjusted 77 79
===== =====
Net income $ 254 $ 238
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock, net of tax (2) (1)
----- -----
Net income available to fully
diluted common shares $ 252 $ 237
===== =====
Fully diluted income per common share $3.26 $2.98
===== =====
</TABLE>
<PAGE> 1
EXHIBIT 12
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions, except ratios)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Earnings :
Earnings before income taxes $ 418 $ 398
Add (deduct):
Fixed charges 170 133
Interest capitalized (9) (8)
----- -----
Earnings as adjusted $ 579 $ 523
===== =====
Fixed charges:
Interest expense $ 50 $ 54
Portion of rental expense
representative
of the interest factor 120 79
----- -----
Total fixed charges $ 170 $ 133
===== =====
Ratio of earnings to fixed charges 3.41 3.93
</TABLE>
<PAGE> 1
ARTHUR ANDERSEN LLP
EXHIBIT 15
To 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 September 30, 1997, which includes
our report dated October 31, 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
October 31, 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 SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE RELATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,151
<SECURITIES> 504
<RECEIVABLES> 1,078
<ALLOWANCES> 49
<INVENTORY> 85
<CURRENT-ASSETS> 3,489
<PP&E> 13,914
<DEPRECIATION> 5,607
<TOTAL-ASSETS> 13,535
<CURRENT-LIABILITIES> 4,601
<BONDS> 2,065
0
0
<COMMON> 251
<OTHER-SE> 2,989
<TOTAL-LIABILITY-AND-EQUITY> 13,535
<SALES> 0
<TOTAL-REVENUES> 3,552
<CGS> 0
<TOTAL-COSTS> 3,121
<OTHER-EXPENSES> (37)
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 418
<INCOME-TAX> 164
<INCOME-CONTINUING> 254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 254
<EPS-PRIMARY> 3.34
<EPS-DILUTED> 3.26
</TABLE>
