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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
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.
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(Exact name of registrant as specified in its charter)
Delaware 58-0218548
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Hartsfield Atlanta International Airport
Post Office Box 20706
Atlanta, Georgia 30320
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (404) 715-2600
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
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<S> <C>
Common Stock, par value $1.50 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
8 1/8% Notes Due July 1, 2039 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of August 31, 1999, was
approximately $7,038,312,000. As of August 31, 1999, 138,756,756 shares of the
registrant's common stock were outstanding.
Documents Incorporated By Reference
Parts I and II of this Form 10-K incorporate by reference certain
information from the registrant's 1999 Annual Report to Shareowners. Part III of
this Form 10-K incorporates by reference certain information from the
registrant's definitive Proxy Statement dated September 24, 1999, for its Annual
Meeting of Shareowners to be held on October 28, 1999.
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DELTA AIR LINES, INC.
PART I
ITEM 1. BUSINESS
General Description
Delta Air Lines, Inc. ("Delta" or the "Company") is a major air carrier
that provides scheduled air transportation for passengers, freight and mail
throughout the United States and around the world. Based on calendar 1998 data,
Delta is the largest United States airline in terms of aircraft departures and
passengers enplaned, and the third largest United States airline as measured by
operating revenues and revenue passenger miles flown. As of August 1, 1999,
Delta (including its wholly owned subsidiary, Atlantic Southeast Airlines, Inc.)
served 184 domestic cities in 44 states, the District of Columbia, Puerto Rico
and the United States Virgin Islands, as well as 42 cities in 29 foreign
countries.
An important characteristic of Delta's domestic route system is its four
hub airports in Atlanta, Cincinnati, Dallas-Fort Worth and Salt Lake City. Each
of these hub operations includes Delta flights that gather and distribute
traffic from markets in the geographic region surrounding the hub to other major
cities and to other Delta hubs. These hubs also provide connecting passengers
with access to Delta's international gateway at New York's Kennedy Airport and
its Pacific gateway in Portland, Oregon.
Delta conducts operations in various foreign countries. Operating
revenues from the Company's international operations were approximately $2.64
billion, $2.64 billion and $2.57 billion in the years ended June 30, 1999, 1998
and 1997, respectively.
For the year ended June 30, 1999, passenger revenues accounted for 91%
of Delta's operating revenues. Cargo revenues, which include freight and mail,
accounted for 4% of Delta's operating revenues, and other sources accounted for
5% of the Company's operating revenues.
Delta's operating results for any interim period are not necessarily
indicative of operating results for an entire year because of seasonal
variations in the demand for air travel. In general, demand for air travel is
higher in the June and September quarters, particularly in international
markets, because there is more vacation travel during these periods than during
the remainder of the year. Demand for air travel is also affected by factors
such as economic conditions and fare levels.
Delta is managed as a single business unit. For additional information
on this subject, see Note 13 of the Notes to the Consolidated Financial
Statements on page 54 of Delta's 1999 Annual Report to Shareowners.
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Delta is incorporated under the laws of the State of Delaware. Its
principal executive offices are located at Hartsfield Atlanta International
Airport, Atlanta, Georgia 30320, and its telephone number is (404) 715-2600.
Regulatory Environment
While the United States Department of Transportation (the "DOT") and the
Federal Aviation Administration (the "FAA") exercise regulatory authority over
air carriers under the Federal Aviation Act of 1958, as amended (the "Act"),
most domestic economic regulation of passenger and freight services was
eliminated pursuant to the Airline Deregulation Act of 1978 and other statutes
amending the Act. The DOT has jurisdiction over international tariffs and
pricing; international routes; computer reservations systems; disabled passenger
transportation; and certain economic and consumer protection matters such as
advertising, denied boarding compensation, baggage liability and smoking aboard
aircraft. The FAA regulates flying operations generally, including control of
navigable air space, flight personnel, aircraft certification and maintenance,
and other matters affecting air safety. The United States Department of Justice
has jurisdiction over airline competition matters, including mergers and
acquisitions.
Any air carrier which the DOT finds "fit" to operate is given
unrestricted authority to operate domestic air transportation (including the
carriage of passengers and cargo). Authority to operate international routes
continues to be regulated by the DOT and by the foreign governments involved.
International route awards are also subject to the approval of the President of
the United States for conformance with national defense and foreign policy
objectives.
The economic deregulation of the industry permits unfettered competition
with respect to domestic routes, services, fares and rates, and Delta faces
significant competition on its routes. Except for constraints imposed by the
Act's Essential Air Service provisions, which are applicable to certain small
communities, airlines may terminate service to a city without restriction.
On April 6, 1998, the DOT published a proposed statement of enforcement
policy to address DOT concerns that major carriers are taking actions designed
to exclude new carriers in certain airline markets, particularly at hub
airports. Information on this subject is set forth under "Governmental Matters"
on page 33 of Delta's 1999 Annual Report to Shareowners, and is incorporated
herein by reference.
The FAA has implemented a number of requirements which are incorporated
into Delta's maintenance programs. These matters relate to, among other things,
inspection and maintenance of aging aircraft, and corrosion control.
Delta is also subject to various other federal, state, local and foreign
laws and regulations. The United States Postal Service has authority over
certain aspects of the transportation of mail, and rates for the carriage of
domestic mail are determined through
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negotiations or competitive bidding. The Communications Act of 1934, as amended,
governs Delta's use and operation of radio facilities. Labor relations in the
airline industry are generally governed by the Railway Labor Act. Environmental
matters (including noise pollution) are regulated by various federal, state and
local governmental entities.
Fares and Rates
Airlines are permitted to set domestic ticket prices without
governmental regulation, and the industry is characterized by substantial price
competition. International fares and rates are subject to the jurisdiction of
the DOT and governments of the foreign countries involved. Most international
markets are characterized by significant price competition and substantial
commissions, overrides and discounts to travel agents, brokers and wholesalers.
Delta's system passenger mile yield remained virtually flat in fiscal
1999 compared to fiscal 1998. The Company's domestic passenger mile yield
increased 1% due to the full-year effect of a domestic fare increase implemented
in September 1997 and improved asset utilization, partially offset by increased
low-fare competition and matching sale fares implemented by a competitor after
its pilot strike. Delta's international passenger mile yield decreased 6% as a
result of increased competitive pressures due to industry-wide capacity growth
in the Atlantic and Latin American markets.
Delta expects that low-fare competition will continue in domestic and
international markets. If price reductions are not offset by increases in
traffic or changes in the mix of traffic that improve the passenger mile yield,
Delta's operating results will be adversely affected.
Competition and Route Authority
All domestic routes served by Delta are subject to competition from both
new and existing carriers, and service over virtually all of Delta's domestic
routes is highly competitive. On most of its principal domestic routes, the
Company competes with at least one, and usually more than one, major airline.
Delta also competes with regional and national carriers, all-cargo carriers,
charter airlines and, particularly on its shorter routes, with surface
transportation. Service over most of Delta's international routes is also highly
competitive.
Certain major United States airlines have established marketing
alliances with each other. These include the alliances between Continental
Airlines, Inc. and Northwest Airlines, Inc., and between American Airlines, Inc.
and US Airways, Inc. Delta and United Air Lines, Inc. began reciprocal frequent
flyer program participation on September 1, 1998 (see "Frequent Flyer Program"
on pages 9-10 of this Form 10-K for additional information on this subject), but
have discontinued discussions to establish code-sharing arrangements between the
two airlines.
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International alliances between domestic and foreign carriers, such as
the marketing and code-sharing arrangements between Northwest Airlines, Inc. and
KLM-Royal Dutch Airlines, and among United Air Lines, Inc., Lufthansa German
Airlines, Scandinavian Airline Systems and certain other foreign airlines, have
significantly increased competition in international markets. Through
code-sharing arrangements with United States carriers, foreign carriers have
obtained access to interior United States passenger traffic. Similarly, United
States carriers have increased their ability to sell international
transportation such as transatlantic services to and beyond European cities.
On June 22, 1999, Delta and Air France entered into a long-term
marketing agreement which will include code-sharing arrangements, reciprocal
frequent flyer programs and coordinated cargo operations. Aeromexico recently
announced that it will join this alliance, which will compete with other
international alliances.
Delta's flight operations are authorized by certificates of public
convenience and necessity and, to a limited extent, by exemptions issued by the
DOT. The requisite approvals of other governments for international operations
are provided by bilateral agreements with, or permits issued by, foreign
countries. Because international air transportation is governed by bilateral or
other agreements between the United States and the foreign country or countries
involved, changes in United States or foreign government aviation policies could
result in the alteration or termination of such agreements, diminish the value
of Delta's international route authorities or otherwise affect Delta's
international operations. Bilateral agreements between the United States and
various foreign countries served by Delta are subject to renegotiation from time
to time.
Certain of Delta's international route authorities are subject to
periodic renewal requirements. Delta requests extension of these authorities
when and as appropriate. While the DOT usually renews temporary authorities on
routes where the authorized carrier is providing a reasonable level of service,
there is no assurance of this result. Dormant authority may not be renewed in
some cases, especially where another United States carrier indicates a
willingness to provide service.
Code-Sharing
Delta has entered into marketing agreements with certain foreign
carriers to maintain or improve Delta's access to international markets. Under
these code-sharing arrangements, Delta and the foreign carriers publish their
respective airline designator codes on a single flight operation, thereby
allowing Delta and the foreign carrier to provide joint service with one
aircraft rather than operating separate services with two aircraft.
Many of Delta's international code-sharing arrangements operate in
discrete international city pairs. Delta purchases seats that are marketed under
Delta's "DL" designator code and sells seats that are marketed under the foreign
carrier's two-letter designator code pursuant to these code-sharing
arrangements.
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Airport Access
Operations at four major United States and certain foreign airports
served by Delta are regulated by governmental entities through "slot"
allocations. Each slot represents the authorization to land at or take off from
the particular airport during a specified time period. In the United States, the
FAA regulates slot allocations at Kennedy Airport in New York, La Guardia
Airport in New York, Ronald Reagan National Airport in Washington, D. C., and
O'Hare International Airport in Chicago. Delta's operations at those four
airports generally require slot allocations. Certain foreign airports also have
slot allocations.
Delta currently has sufficient slot authorizations to operate its
existing flights, and has generally been able to obtain slots to expand its
operations and to change its schedules. There is no assurance, however, that
Delta will be able to obtain slots for these purposes in the future because,
among other reasons, slot allocations are subject to changes in governmental
policies.
Delta Express
Delta Express is the Company's low-fare, leisure-oriented operation
which provides service from certain cities in the Northeast and Midwest to
Orlando and four other Florida destinations. On October 1, 1996, Delta Express
initiated service, operating a fleet of 12 737-200 aircraft with 62 daily
departures to 13 cities. Since that time, Delta Express has expanded its
operations and currently operates a fleet of 37 737-200 aircraft with 168
daily flights to 22 cities.
Delta Shuttle
The Delta Shuttle is the Company's high-frequency specialty product
providing service targeted to the Northeast business traveler. It provides
hourly service between New York's LaGuardia Marine Terminal and each of
Washington, D.C.'s Ronald Reagan National Airport and Boston's Logan
International Airport. Effective June 1, 1999, the Delta Shuttle began nonstop
service between Boston and Washington, D.C.
The Delta Connection Program
During fiscal 1999, Delta acquired ASA Holdings, Inc., the parent of
Atlantic Southeast Airlines, Inc. ("ASA"). As a result of this acquisition, ASA
became a wholly owned subsidiary of Delta. ASA operates in the Southeast through
Atlanta and in the Southwest through Dallas-Fort Worth. It uses Delta's "DL"
code on its flights and exchanges connecting traffic with Delta.
Delta has marketing agreements with four other regional carriers that
use Delta's "DL" code on some or all of their flights, and also exchange
connecting traffic with Delta. These carriers are Business Express, Inc.,
Comair, Inc. ("Comair"), SkyWest Airlines, Inc. ("SkyWest") and Trans States
Airlines. At June 30, 1999, Delta held equity interests in
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Comair Holdings, Inc. (the parent of Comair) and SkyWest, Inc. (the parent of
SkyWest) of 22% and 13%, respectively.
In September 1999, Delta entered into an agreement with Atlantic Coast
Airlines Holdings, Inc. ("ACA") under which a new business unit of ACA will
operate regional jet aircraft as a Delta Connection carrier.
Computer Reservation System Partnership
Delta owns 40% of WORLDSPAN, L.P. ("WORLDSPAN"), a Delaware limited
partnership which operates and markets a computer reservation system ("CRS") and
related systems for the travel industry. Northwest Airlines, Inc., and Trans
World Airlines, Inc. own 34% and 26%, respectively, of WORLDSPAN.
CRS services are used primarily by travel agents to book airline, hotel,
car rental and other travel reservations and issue airline tickets. CRS services
are provided by several companies in the United States and worldwide. In the
United States, other CRS competitors are SABRE (owned primarily by AMR
Corporation), Galileo International, Inc. (owned by United Air Lines, Inc., US
Airways, Inc. and certain foreign carriers) and AMADEUS (owned by Continental
Airlines, Inc., and certain foreign carriers). CRS vendors are subject to
regulations promulgated by the DOT and certain foreign governments.
The CRS industry is highly competitive. Delta believes that, based on
the number of travel agents in the United States using a CRS, WORLDSPAN ranks
third, behind SABRE and Galileo International, Inc. in market share among travel
agents in the United States.
Fuel
Delta's results of operations could be significantly impacted by changes
in the price and availability of jet fuel. The following table shows Delta's jet
fuel consumption and costs for fiscal years 1995-1999.
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Gallons Percent of
Fiscal Consumed Cost Average Price Operating
Year (Millions) (Millions) Per Gallon Expenses*
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<S> <C> <C> <C> <C>
1995 2,533 $1,370 54.09(cents) 12%
1996 2,500 1,464 58.53 13
1997 2,599 1,722 66.23 14
1998 2,664 1,507 56.54 12
1999 2,730 1,360 49.83 11
</TABLE>
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* Excludes restructuring and other non-recurring charges.
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Aircraft fuel expense decreased 10% in fiscal 1999 compared to fiscal
1998, with the average fuel price per gallon falling 12% to 49.83(cents). Total
gallons consumed increased 2% due to increased operations on a 3% rise in
capacity.
Changes in jet fuel prices have industry-wide impact and benefit or harm
Delta's competitors as well as Delta. Accordingly, lower jet fuel prices may be
offset by increased price competition and lower revenues for all air carriers.
Moreover, there can be no assurance that Delta will be able to increase its
fares in response to any future increases in fuel prices.
Delta's jet fuel purchase contracts do not provide material protection
against price increases or for assured availability of supplies. The Company
purchases most of its jet fuel from petroleum refiners under contracts which
establish the price based on various market indices. The Company also purchases
aircraft fuel on the spot market, from off-shore sources and under contracts
which permit the refiners to set the price and give the Company the right to
terminate upon short notice if the price is unacceptable.
Delta uses options and other non-leveraged, over-the-counter instruments
to manage the risk associated with changes in aircraft fuel prices. Information
regarding Delta's fuel hedging program is set forth in Note 4 of the Notes to
the Consolidated Financial Statements on page 45 of Delta's 1999 Annual Report
to Shareowners, and is incorporated herein by reference.
Although Delta is currently able to obtain adequate supplies of jet
fuel, it is impossible to predict the future availability or price of jet fuel.
Political disruptions in oil producing countries, changes in government policy
concerning aircraft fuel production, transportation or marketing, changes in
aircraft fuel production capacity, environmental concerns and other
unpredictable events may result in fuel supply shortages and fuel price
increases in the future. Such shortages and price increases could have a
material adverse effect on Delta's business.
Personnel
Delta's average number of full-time equivalent employees increased to
74,000 (including 2,500 ASA full-time equivalent personnel) for fiscal 1999
compared to 67,400 for fiscal 1998. Information concerning Delta's personnel is
set forth under "Personnel Matters" on pages 31-33 of Delta's 1999 Annual Report
to Shareowners, and is incorporated herein by reference.
Delta's relations with labor unions in the United States are governed by
the Railway Labor Act. Under the Railway Labor Act, a labor union seeking to
represent a craft or class of employees is required to file with the National
Mediation Board ("NMB") an application alleging a representation dispute, along
with representation cards signed by at least 35% of the employees in that craft
or class. The NMB then investigates the dispute and, if it finds the labor union
has obtained a sufficient number of representation cards, will conduct an
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election to determine whether to certify the labor union as the collective
bargaining representative of that craft or class.
On September 23, 1999, Delta announced that the Company and the
Negotiating Committee of the Delta Air Line Pilots Association ("ALPA") reached
a tentative agreement which, among other things, sets pilot pay rates and work
rules for 777 and 767-400 aircraft. The tentative agreement is subject to the
approval of the Delta ALPA Master Executive Council ("MEC") and, if approved by
the MEC, ratification by Delta pilots. The outcome of these matters cannot
presently be determined.
The preceding paragraph supplements the information under "777-200
Negotiations" and "767-400 Negotiations" on pages 32-33 of Delta's 1999 Annual
Report to Shareowners.
Environmental Matters
The Airport Noise and Capacity Act of 1990 (the "ANCA") requires the
phase-out of Stage 2 aircraft by December 31, 1999, subject to certain
exceptions. In 1991, the FAA issued regulations which implement the ANCA by
requiring air carriers to reduce (by modification or retirement) the number of
Stage 2 aircraft operated by 25% by December 31, 1994, 50% by December 31, 1996,
75% by December 31, 1998, and 100% by December 31, 1999. Alternatively, a
carrier may satisfy the regulations by operating a fleet that is at least 55%,
65%, 75% and 100% Stage 3 by the respective dates set forth in the preceding
sentence.
Delta complied with the ANCA's December 31, 1994, 1996 and 1998
requirements. As of August 31, 1999, Delta operated 547 Stage 3 aircraft,
constituting 94% of its fleet. The Company expects to comply with the ANCA's
December 31, 1999 requirement by hushkitting or retiring its 36 remaining Stage
2 aircraft: 28 727-200 aircraft and 8 737-200 aircraft. ASA is in compliance
with the December 31, 1999 Stage 3 deadline.
The ANCA recognizes the rights of operators of airports with noise
problems to implement local noise abatement procedures so long as such
procedures do not interfere unreasonably with interstate or foreign commerce or
the national air transportation system. It generally provides that local noise
restrictions on Stage 3 aircraft first effective after October 1, 1990, require
FAA approval, and establishes a regulatory notice and review process for local
restrictions on Stage 2 aircraft first proposed after October 1, 1990. While
Delta has had sufficient scheduling flexibility to accommodate local noise
restrictions in the past, the Company's operations could be adversely impacted
if locally-imposed regulations become more restrictive or widespread.
The United States Environmental Protection Agency (the "EPA") is
authorized to regulate aircraft emissions. The engines on Delta's and ASA's
aircraft comply with the applicable EPA standards.
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In February 1998, the EPA and the FAA signed a Memorandum of Agreement
("MOA") to develop a voluntary process with the airline industry to reduce
emissions that lead to ozone formation. The MOA includes a proposal with a
voluntary engine retrofit program to reduce emissions from aircraft engines. As
a result of the MOA, air carriers, the EPA, the FAA and local and state
regulators have had discussions regarding the scope and content of a voluntary
emissions reductions program, but no agreement has been reached.
Delta has been identified by the EPA as a potentially responsible party
(a "PRP") with respect to certain Superfund Sites, and has entered into consent
decrees regarding some of these sites. Delta's alleged disposal volume at each
of these sites is small when compared to the total contributions of all PRPs at
each site. Delta is aware of soil and/or ground water contamination present on
its current or former leaseholds at several domestic airports; to address this
contamination, the Company has a program in place to investigate and, if
appropriate, remediate these sites. Management believes that the resolution of
these matters is not likely to have a material adverse effect on Delta's
consolidated financial statements.
Frequent Flyer Program
Delta, like other major airlines, has established a frequent flyer
program offering incentives to maximize travel on Delta. This program allows
participants to accrue mileage for travel awards while flying on Delta, the
Delta Connection carriers and participating airlines. Mileage credit may also be
accrued for the use of certain services offered by program partners such as
hotels, car rental agencies and credit card companies. Delta reserves the right
to terminate the program with six months advance notice, and to change the
program's terms and conditions at any time without notice.
Mileage credits earned can be redeemed for free or upgraded air travel
on Delta and participating airline partners, for membership in Delta's Crown
Room Club and for other program partner awards. Travel awards are subject to
certain transfer restrictions and, in most cases, blackout dates and capacity
controlled seating. Miles earned prior to May 1, 1995 do not expire so long as
Delta has a frequent flyer program. Miles earned on or after May 1, 1995 will
not expire as long as, at least once every three years, the participant (1)
takes a qualifying flight on Delta or a Delta Connection carrier; (2) earns
miles through one of Delta's program partners; or (3) redeems miles for any
program award.
On September 1, 1998, Delta and United Air Lines, Inc. ("United")
introduced a reciprocal frequent flyer program. Each carrier's frequent flyer
members may (1) accrue miles in either carrier's program when they fly on Delta
or United operated domestic flights; and (2) effective October 15, 1998, redeem
frequent flyer awards on domestic flights operated by either carrier.
Delta accounts for its frequent flyer program obligations by recording
a liability for the estimated incremental cost of flight awards the Company
expects to be redeemed. The estimated incremental cost associated with a flight
award does not include any contribution to overhead or profit. Such incremental
cost is based on Delta's system average cost per
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passenger for fuel, food and other direct passenger costs. Delta does not record
a liability for mileage earned by participants who have not reached the level to
become eligible for a free travel award. Delta believes this exclusion is
immaterial and appropriate because the large majority of these participants are
not expected to earn a free flight award. Delta does not record a liability for
the expected redemption of miles for non-travel awards since the cost of these
awards to Delta is negligible.
Delta estimated the potential number of round-trip flight awards
outstanding to be 9.1 million at June 30, 1997, 9.6 million at June 30, 1998 and
10.6 million at June 30, 1999. Of these earned awards, Delta expected that
approximately 6.0 million, 7.2 million and 8.0 million, respectively, would be
redeemed. At June 30, 1997, 1998 and 1999, Delta had recorded a liability for
these awards of $122 million, $140 million and $172 million, respectively. The
difference between the round-trip awards outstanding and the awards expected to
be redeemed is the estimate, based on historical data, of awards which will (1)
never be redeemed; or (2) be redeemed for something other than a free trip.
Frequent flyer program participants flew 1.7 million, 1.9 million and
2.0 million free round-trips on Delta in fiscal years 1997, 1998 and 1999,
respectively. These round-trips accounted for approximately 6%, 7% and 7% of the
total passenger miles flown for the respective periods. Delta believes that the
low percentage of free passenger miles and the restrictions applied to free
travel awards minimize the displacement of revenue passengers.
The DOT is conducting a review of the frequent flyer programs of the
larger U.S. airlines. The focus of the review relates to limitations placed by
the carriers on the availability of award seats and the adequacy of consumer
notices concerning such limitations. The outcome of this matter cannot presently
be determined.
Civil Reserve Air Fleet Program
Delta is a participant in the Civil Reserve Air Fleet Program pursuant
to which the Company has agreed to make available, during the period beginning
October 1, 1999 and ending September 30, 2000, up to 75 of its international
range aircraft for use by the United States military under certain stages of
readiness related to national emergencies.
ITEM 2. PROPERTIES
Flight Equipment
Information relating to Delta's and ASA's aircraft fleet is set forth on
page 18, in the charts titled "Aircraft Fleet at June 30, 1999" and "Aircraft
Delivery Schedules at June 30, 1999" on page 21, under "Personnel Matters" on
pages 31-33, and in Notes 6 and 7 of the Notes to the Consolidated Financial
Statements on pages 48-49, of Delta's 1999 Annual Report to Shareowners, and is
incorporated herein by reference.
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Ground Facilities
Delta leases most of the land and buildings that it occupies. The
Company's largest aircraft maintenance base, various computer, cargo, flight
kitchen and training facilities and most of its principal offices are located at
or near Hartsfield Atlanta International Airport in Atlanta, Georgia, on land
leased from the City of Atlanta under long-term leases. Delta owns a portion of
its principal offices, its Atlanta reservations center and other improved and
unimproved real property in Atlanta, as well as a limited number of radio
transmitting and receiving sites and certain other facilities.
The City of Atlanta, with the support of Delta and other airlines,
intends to undertake a ten year capital improvement program (the "CIP") at
Hartsfield Atlanta International Airport. Implementation of the CIP should
increase the number of flights that may operate at the airport, reduce flight
delays and enable Hartsfield Atlanta International Airport to remain one of the
preeminent airports in the world. The CIP includes, among other things, a new
approximately 9,000 foot full-service runway (targeted for completion in
December 2004), related airfield improvements, additional terminal and gate
capacity, new cargo and other support facilities and roadway and other
infrastructure improvements. If fully implemented, the CIP is currently
estimated to cost approximately $5.4 billion. The CIP runs through 2010, with
individual projects scheduled to be constructed at different times. A
combination of federal grants, passenger facility charge revenues, increased
user rentals and fees, and other airport funds are expected to be used to pay
CIP costs directly and through the payment of debt service on bonds. There is no
assurance the CIP will be implemented on schedule and within budget, or that it
will be fully implemented. Some of the factors potentially impacting
implementation of the CIP are the need to obtain certain environmental approvals
as well as the ability of the City of Atlanta to acquire public property from
certain local governments and to obtain their consent to condemn private
property. Failure to implement certain portions of the CIP in a timely manner
could adversely impact Delta's operations at Hartsfield Atlanta International
Airport.
Delta leases ticket counter and other terminal space, operating areas
and air cargo facilities in most of the airports which it serves. These leases
generally run for periods of less than one year to thirty years or more, and
contain provisions for periodic adjustment of lease rates. At most airports
which it serves, Delta has entered into use agreements which provide for the
non-exclusive use of runways, taxiways, and other facilities; landing fees under
these agreements normally are based on the number of landings and weight of
aircraft. The Company also leases aircraft maintenance facilities at certain
airports, generally under long-term leases which cover the cost of providing,
operating and maintaining such facilities. In addition, Delta leases marketing,
ticket and reservations offices in certain major cities which it serves; these
leases are generally for shorter terms than the airport leases. Additional
information relating to Delta's ground facilities is set forth in Notes 6 and 7
of the Notes to the Consolidated Financial Statements on page 48-49 of Delta's
1999 Annual Report to Shareowners, and is incorporated herein by reference.
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In recent years, some airports have increased or sought to increase the
rates charged to airlines to levels that, in the airlines' opinion, are
unreasonable. The extent to which such charges are limited by statute or
regulation and the ability of airlines to contest such charges has been subject
to litigation and to administrative proceedings before the DOT. If the
limitations on such charges are relaxed or the ability of airlines to challenge
such charges is restricted, the rates charged by airports to airlines may
increase substantially.
ITEM 3. LEGAL PROCEEDINGS
Certain Antitrust Actions. In June 1999, two purported class action
antitrust lawsuits were filed in the United States District Court for the
Eastern District of Michigan against Delta, US Airways, Inc., Northwest
Airlines, Inc. and the Airlines Reporting Corporation, an airline-owned company
that operates a centralized clearinghouse for travel agents to report and
account for airline ticket sales.
In the first case, the plaintiffs allege, among other things: (1) that
the defendants and certain other airlines conspired with Delta in violation of
Section 1 of the Sherman Act to restrain competition and assist Delta in fixing
and maintaining anti-competitive prices for air passenger service to and from
its Atlanta and Cincinnati hubs; and (2) that Delta violated Section 2 of the
Sherman Act by exercising monopoly power to establish such prices in an
anti-competitive or exclusionary manner. The complaint asserts that, for
purposes of plaintiffs' damages claims, the purported plaintiff class consists
of all persons who purchased a Delta full fare ticket from June 11, 1995 to the
present on routes (1) that start or end at Delta's hubs in Atlanta or
Cincinnati; (2) on which Delta has over a 50% market share; (3) that are longer
than 150 miles; and (4) that have total annual traffic of over 30,000
passengers.
In the second case, the plaintiffs assert similar allegations and
claims under Sections 1 and 2 of the Sherman Act with respect to US Airways'
pricing practices at its Pittsburgh and Charlotte hubs ("US Airways Hubs").
The complaint asserts, among other things, that Delta, the other defendants and
certain other airlines conspired with US Airways to restrain competition and
assist US Airways in fixing and maintaining prices for air passenger service
to and from the US Airways Hubs.
In both cases, plaintiffs have requested a jury trial, and are seeking
injunctive relief; costs and attorneys' fees; unspecified damages, to be trebled
under the antitrust laws; and such further relief as the Court deems
appropriate. Delta believes that the allegations and claims asserted against it
in these cases are without merit and it intends to defend these lawsuits
vigorously.
ASA Holdings Shareholder Litigation. On February 25, 1999, two
individual shareholders of ASA Holdings, Inc. ("ASA Holdings"), on behalf of
themselves and other shareholders of ASA Holdings, filed a purported class
action complaint in the Superior Court of Fulton County in the state of Georgia
against ASA Holdings, its directors (collectively, the
12
<PAGE> 15
"ASA Holdings Defendants") and Delta. The complaint seeks (1) to enjoin Delta's
acquisition of ASA Holdings or to rescind the acquisition if consummated; (2)
unspecified compensatory and rescissory damages; and (3) costs and disbursements
of the action. The complaint alleges, among other things: (1) that the ASA
Holdings Defendants violated their fiduciary duties to shareholders of ASA
Holdings by entering into an acquisition agreement with Delta and by
recommending the acquisition; and (2) that Delta is a controlling shareholder of
ASA Holdings, violated its fiduciary duties to shareholders of ASA Holdings
because it "wrongfully used its superior position and control to bring to bear
pressure on the [Board of Directors of ASA Holdings]," and caused the ASA
Holdings Defendants to accept an inadequate price for Delta's purchase of ASA
Holdings.
On March 9, 1999, the parties entered into a memorandum of
understanding ("Memorandum of Understanding") setting forth the terms of an
agreement-in-principle to settle this litigation. Under the Memorandum of
Understanding, which was agreed to by the ASA Holdings Defendants and Delta
solely to avoid the burden, expense and distraction of further litigation, Delta
and ASA Holdings amended the acquisition agreement to eliminate the $5 million
termination fee that would otherwise have been payable to Delta if the
acquisition agreement was terminated as a result of ASA Holdings receiving and
accepting a superior acquisition offer. The proposed settlement is subject to
certain conditions, including completion by plaintiffs of appropriate discovery
reasonably satisfactory to plaintiffs' counsel; the preparation and execution of
definitive settlement documents; and final court approval of the settlement,
which would be binding upon a class consisting of all shareholders of ASA
Holdings from February 15, 1999 through May 11, 1999. ASA Holdings has agreed to
pay the fees and expenses of plaintiffs' counsel up to an aggregate amount of
$400,000, subject to final court approval of the settlement.
Other Matters. Delta is a defendant in certain other 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
believes that the resolution of these actions is not likely to have a material
adverse effect on Delta's consolidated financial statements.
For a discussion of certain environmental matters, see "ITEM 1. Business
- - Environmental Matters" on pages 8-9 of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information concerning Delta's executive officers follows.
Unless otherwise indicated, all positions shown are with Delta. There are no
family relationships between any of Delta's executive officers.
13
<PAGE> 16
Leo F. Mullin President and Chief Executive Officer, August 14,
1997 to date. Mr. Mullin was Vice Chairman of Unicom
Corporation and its principal subsidiary,
Commonwealth Edison Company, from 1995 through August
13, 1997. He was an executive of First Chicago
Corporation from 1981 to 1995, serving as that
company's President and Chief Operating Officer from
1993 to 1995, and as Chairman and Chief Executive
Officer of American National Bank, a subsidiary of
First Chicago Corporation, from 1991 to 1993. Age 56.
Maurice W. Worth Chief Operating Officer, August 14, 1997 to date;
Acting Chief Executive Officer, August 1, 1997
through August 13, 1997; Executive Vice President -
Customer Service and Acting Chief Operating Officer,
May 12, 1997 through July 31, 1997; Executive Vice
President - Customer Service, September 13, 1995
through May 11, 1997; Senior Vice President -
Personnel, May 1991 through September 12, 1995. Mr.
Worth is retiring from Delta on October 1, 1999. Age
59.
Malcolm B. Armstrong Executive Vice President - Operations, October 1998
to date; Vice President - Corporate Safety and
Compliance, June 1997 through September 1998. Mr.
Armstrong was Vice President - Corporate Safety and
Compliance of US Airways, Inc. from July 1995 to June
1997. He served as a Lieutenant General in the United
States Air Force from May 1992 to June 1995. Age 57.
Robert L. Colman Executive Vice President - Human Resources,
October 2, 1998 to date. Mr. Colman was Vice
President - Human Resources for General Electric
Aircraft Engines Business from October 1993 to
October 1998. Age 54.
Vicki B. Escarra Executive Vice President - Customer Service, July
1998 to date; Senior Vice President - Airport
Customer Service, November 1996 through June 1998;
Vice President - Airport Customer Service, August
1996 through October 1996; Vice President -
Reservation Sales and Distribution Planning, May 1996
through July 1996; Vice President - Reservation
Sales, November 1994 to May 1996; Director -
Reservations Sales, October 1994 to November 1994;
Director - In-Flight Service Operations, May 1992 to
October 1994. Age 47.
14
<PAGE> 17
Frederick W. Reid Executive Vice President and Chief Marketing Officer,
July 1, 1998 to date. Mr. Reid was an executive of
Lufthansa German Airlines from 1991 to 1998, serving
as that company's President and Chief Operating
Officer from April 1997 to June 1998, as Executive
Vice President from 1996 to March 1997, and as Senior
Vice President, The Americas, from 1991 to 1996. Age
49.
Edward H. West Executive Vice President and Chief Financial Officer,
September 16, 1999 to date; Chief Financial Officer,
September 7, 1999 through September 15, 1999; Senior
Vice President - Corporate Strategy and Business
Development, July 1999 through September 6, 1999;
Vice President - Financial Planning and Analysis,
April 1998 through June 1999; Chief Financial Officer
(Acting), December 1997 to April 1998; Vice President
- Financial Planning and Analysis, June 1997 through
November 1997; Controller, November 1996 through May
1997; Director - Corporate Finance, December 1995
through October 1996; General Manager - Corporate
Finance, January 1995 through November 1995;
Assistant to the Senior Vice President - Finance and
Chief Financial Officer, June 1994 through December
1994. Prior to joining Delta in 1994, Mr. West had a
seven year career in corporate banking. Age 33.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this item is set forth under "Common Stock",
"Number of Shareowners" and "Market Prices and Dividends" on page 62 of Delta's
1999 Annual Report to Shareowners, and is incorporated herein by reference.
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 certain of the 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 that a participating director may select is a fund
invested
15
<PAGE> 18
primarily in Delta's common stock ("Delta Common Stock Fund"). During the
quarter ended June 30, 1999, a participant in the Plan deferred $17,125 in the
Delta Common Stock Fund investment return choice (equivalent to 264 shares of
Delta common stock at prevailing market prices). These transactions were not
registered under the Securities Act of 1933, as amended, in reliance on Section
4(2) of such Act.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is set forth on pages 60-61 of Delta's
1999 Annual Report to Shareowners, and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information required by this item is set forth on pages 26-35 of Delta's
1999 Annual Report to Shareowners, and is incorporated herein by reference
(except for the first and second paragraphs on page 26.)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is set forth under "Market Risks
Associated With Financial Instruments" on pages 34-35, and in Notes 2 and 4 of
the Notes to the Consolidated Financial Statements on pages 43-44 and page 45,
respectively, of Delta's 1999 Annual Report to Shareowners, and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is set forth on pages 36-57, and in
"Report of Independent Public Accountants" on page 58, of Delta's 1999 Annual
Report to Shareowners, and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is set forth on pages 7-9, and under
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 24, of Delta's
Proxy Statement dated
16
<PAGE> 19
September 24, 1999, and is incorporated herein by reference. Certain information
regarding executive officers is contained in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth on page 6, and on pages
17-24, of Delta's Proxy Statement dated September 24, 1999, and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this item is set forth under "Beneficial
Ownership of Securities" on pages 10-12 of Delta's Proxy Statement dated
September 24, 1999, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Additional information required by this item is set forth on page 24 of
Delta's Proxy Statement dated September 24, 1999, and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1), (2). The financial statements and schedule required by this item are
listed in the Index to Consolidated Financial Statements and Schedule on page 20
of this Form 10-K.
(3). The exhibits required by this item are listed in the Exhibit
Index on page 25-28 of this Form 10-K. The management contracts and compensatory
plans or arrangements required to be filed as an exhibit to this Form 10-K are
listed as Exhibits 10.6 to 10.19 in the Exhibit Index.
(b). During the quarter ended June 30, 1999, Delta did not file any
Current Reports on Form 8-K.
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 27th day of
September, 1999.
DELTA AIR LINES, INC.
By: /s/ Leo F. Mullin
----------------------------------------
Leo F. Mullin
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on the 27th day of September, 1999 by the
following persons on behalf of the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Edwin L. Artzt* Director
- ------------------------------------------------
Edwin L. Artzt
Henry A. Biedenharn, III* Director
- ------------------------------------------------
Henry A. Biedenharn, III
James L. Broadhead* Director
- ------------------------------------------------
James L. Broadhead
Edward H. Budd* Director
- ------------------------------------------------
Edward H. Budd
R. Eugene Cartledge* Director
- ------------------------------------------------
R. Eugene Cartledge
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Mary Johnston Evans* Director
- ------------------------------------------------
Mary Johnston Evans
David R. Goode* Director
- ------------------------------------------------
David R. Goode
Gerald Grinstein* Non-executive Chairman of the Board
- ------------------------------------------------
Gerald Grinstein
/s/ Leo F. Mullin President and Chief Executive
- ------------------------------------------------- Officer and a Director
Leo F. Mullin (Principal Executive Officer)
Andrew J. Young* Director
- ------------------------------------------------
Andrew J. Young
/s/ Edward H. West Executive Vice President and
- ------------------------------------------------- Chief Financial Officer
Edward H. West (Principal Financial Officer and Principal
Accounting Officer)
*By: /s/ Leo F. Mullin Attorney-In-Fact
------------------------------------
Leo F. Mullin
</TABLE>
19
<PAGE> 22
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - Incorporated herein by reference to
"Report of Independent Public Accountants" on page 58 of Delta's 1999 Annual
Report to Shareowners.
FINANCIAL STATEMENTS - All of which are incorporated herein by reference to
Delta's 1999 Annual Report to Shareowners.
Consolidated Balance Sheets - June 30, 1999 and 1998
Consolidated Statements of Operations for the years ended June 30, 1999, 1998
and 1997
Consolidated Statements of Cash Flows for the years ended June 30, 1999, 1998
and 1997
Consolidated Statements of Shareowners' Equity for the years ended June 30,
1999, 1998 and 1997
Notes to the Consolidated Financial Statements - June 30, 1999, 1998 and 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
SCHEDULE SUPPORTING FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
Schedule
Number
------
<S> <C>
II Valuation and Qualifying Accounts for the fiscal years ended
June 30, 1999, 1998 and 1997
</TABLE>
All other schedules have been omitted as not applicable.
20
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Delta Air Lines, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Delta Air Lines, Inc.'s annual
report to shareowners incorporated by reference in this Form 10-K and have
issued our report thereon dated August 13, 1999. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in the accompanying index is the responsibility of the Company's
management, is presented for purposes of complying with the Securities and
Exchange Commission's rules, and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 13, 1999
21
<PAGE> 24
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
------------------------------
Balance at Charged to Charged to Other Balance at
Beginning of Costs and Accounts- Deductions- End of
Description Period Expenses Describe Describe Period
----------- ------------ ------------------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTION (INCREASE) IN THE BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for uncollectible accounts receivable: $ 36 $ 19 -- $ 25(a) $ 30
Allowance for unrealized gains on marketable equity
securities: $(144) -- $ (99)(b) -- $(243)
Reserve for restructuring and other non-recurring
charges: $ 36 -- -- $ 10(c) $ 26
(a) Represents write-off of accounts considered to be
uncollectible, less collections.
(b) Represents increase in unrealized gain resulting
from changes in market values.
(c) Represents payments made against restructuring
reserves.
</TABLE>
22
<PAGE> 25
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
------------------------------
Balance at Charged to Charged to Other Balance at
Beginning of Costs and Accounts- Deductions- End of
Description Period Expenses Describe Describe Period
----------- ------------ ------------------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTION (INCREASE) IN THE BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for uncollectible accounts receivable: $ 48 $ 23 -- $ 35 (a) $ 36
Allowance for unrealized gains on marketable equity
securities: $(166) -- -- $ 22 (b) $(144)
Reserve for restructuring and other non-recurring
charges: $ 88 -- -- $ 52 (c) $ 36
(a) Represents write-off of accounts considered to
be uncollectible, less collections.
(b) Represents decrease in unrealized gain resulting
from changes in market values.
(c) Represents payments made against restructuring reserves.
</TABLE>
23
<PAGE> 26
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
------------------------------
Balance at Charged to Charged to Other Balance at
Beginning of Costs and Accounts- Deductions- End of
Description Period Expenses Describe Describe Period
----------- ------------ ------------------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTION (INCREASE) IN THE BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for uncollectible accounts receivable: $ 44 $ 30 -- $ 26 (a) $ 48
Allowance for unrealized gains on marketable equity
securities: $(206) -- -- $ 40 (b) $(166)
Reserve for restructuring and other non-recurring
charges: $ 69 $ 52 -- $ 33 (c) $ 88
(a) Represents write-off of accounts considered to be
uncollectible, less collections.
(b) Represents decrease in unrealized gain resulting
from changes in market values.
(c) Represents payments made against restructuring reserves.
</TABLE>
24
<PAGE> 27
EXHIBIT INDEX
3.1 Delta's Certificate of Incorporation (Filed as Exhibit 3.1 to
Delta's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998).*
3.2 Delta's By-Laws.
4.1 Rights Agreement dated as of October 24, 1996, between Delta and
First Chicago Trust Company of New York, as Rights Agent, as amended by
Amendment No. 1 thereto dated as of July 22, 1999 (Filed as Exhibit 1 to Delta's
Form 8-A/A Registration Statement dated November 4, 1996, and Exhibit 3 to
Delta's Amendment No. 1 to Form 8-A/A Registration Statement dated July 30,
1999).*
4.2 Certificate of Designations, Preferences and Rights of Series B
ESOP Convertible Preferred Stock and Series D Junior Participating Preferred
Stock (Filed as part of Exhibit 3.1 of this Form 10-K).
4.3 Indenture dated as of March 1, 1983, between Delta and The Citizens
and Southern National Bank, as trustee, as supplemented by the First and Second
Supplemental Indentures thereto dated as of January 27, 1986 and May 26, 1989,
respectively (Filed as Exhibit 4 to Delta's Registration Statement on Form S-3
(Registration No. 2-82412), Exhibit 4(b) to Delta's Registration Statement on
Form S-3 (Registration No. 33-2972), and Exhibit 4.5 to Delta's Annual Report on
Form 10-K for the year ended June 30, 1989).*
4.4 Agreement dated May 31, 1989, among Delta, The Citizens and Southern
National Bank and The Citizens and Southern National Bank of Florida relating to
the appointment of a successor trustee under the Indenture dated as of March 1,
1983, as supplemented, between Delta and The Citizens and Southern National Bank
(Filed as Exhibit 4.6 to Delta's Annual Report on Form 10-K for the year ended
June 30, 1989).*
4.5 Third Supplemental Indenture dated as of August 10, 1998, between
Delta and The Bank of New York, as successor trustee, to the Indenture dated as
of March 1, 1983, as supplemented, between Delta and The Citizens and Southern
National Bank of Florida, as predecessor trustee (Filed as Exhibit 4.5 to
Delta's Annual Report on Form 10-K for the year ended June 30, 1998).*
4.6 Indenture dated as of April 30, 1990, between Delta and The
Citizens and Southern National Bank of Florida, as trustee (Filed as Exhibit
4(a) to Amendment No. 1 to Delta's Registration Statement on Form S-3
(Registration No. 33-34523)).*
4.7 First Supplemental Indenture dated as of August 10, 1998, between
Delta and The Bank of New York, as successor trustee, to the Indenture dated as
of April 30, 1990, between Delta and The Citizens and Southern National Bank of
Florida, as predecessor trustee (Filed as Exhibit 4.7 to Delta's Annual Report
on Form 10-K for the year ended June 30, 1998).*
25
<PAGE> 28
4.8 Indenture dated as of May 1, 1991, between Delta and The Citizens
and Southern National Bank of Florida, Trustee (Filed as Exhibit 4 to Delta's
Registration Statement on Form S-3 (Registration No. 33-40190)).*
4.9 Credit Agreement dated as of May 2, 1997, by and among Delta,
Certain Banks and NationsBank, N.A. (South), as Agent Bank (Filed as Exhibit 4.7
to Delta's Annual Report on Form 10-K for the year ended June 30, 1997).*
4.10 Note Purchase Agreement dated February 22, 1990, among the Delta
Family-Care Savings Plan, Issuer, Delta, Guarantor, and Various Lenders relating
to the Guaranteed Serial ESOP Notes (Filed as Exhibit 10 to Delta's Current
Report on Form 8-K dated April 25, 1990).*
4.11 Amendment No. 1 dated July 27, 1999, to the Note Purchase Agreement
dated February 22, 1990, among the Delta Family-Care Savings Plan, Issuer,
Delta, Guarantor, and Various Lenders relating to the Guaranteed Serial ESOP
Notes.
4.12 Indenture of Trust dated as of August 1, 1993, among Delta,
Fidelity Management Trust Company, ESOP Trustee, and Wilmington Trust Company,
Trustee, relating to the Guaranteed Serial ESOP Notes (Filed as Exhibit 4.12 to
Delta's Annual Report on Form 10-K for the year ended June 30, 1993).*
Delta is not filing any other instruments evidencing any indebtedness
because the total amount of securities authorized under any single such
instrument does not exceed 10% of the total assets of Delta and its subsidiaries
on a consolidated basis. Copies of such instruments will be furnished to the
Securities and Exchange Commission upon request.
10.1 Stock Purchase Agreement dated July 10, 1989, between Delta and
Swissair, Swiss Air Transport Company Ltd. (Filed as Exhibit 10.2 to Delta's
Current Report on Form 8-K dated July 24, 1989).*
10.2 Stock Purchase Agreement dated August 21, 1989, between Delta and
Swissair, Swiss Air Transport Company Ltd.(Filed as Exhibit 10.9 to Delta's
Annual Report on Form 10-K for the year ended June 30, 1989).*
10.3 Stock Purchase Agreement dated October 26, 1989, between Singapore
Airlines Limited and Delta (Filed as Exhibit 10.1 to Delta's Current Report on
Form 8-K dated November 2, 1989).*
10.4 Stock Purchase Agreement dated October 26, 1989, between Delta and
Singapore Airlines Limited (Filed as Exhibit 10.2 to Delta's Current Report on
Form 8-K dated November 2, 1989).*
10.5 Sixth Amended and Restated Limited Partnership Agreement of
WORLDSPAN, L.P. dated as of April 30, 1993 (Filed as Exhibit 10.6 to Delta's
Annual Report on Form 10-K for the year ended June 30, 1993).*
26
<PAGE> 29
10.6 Delta's Incentive Compensation Plan, as amended (Filed as Exhibit
10.1 to Delta's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997).*
10.7 Delta's 1989 Stock Incentive Plan, as amended (Filed as Appendix A
to Delta's Proxy Statement dated September 15, 1997.)*
10.8 Delta's Executive Deferred Compensation Plan, as amended (Filed as
Exhibit 10.2 to Delta's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).*
10.9 Directors' Deferred Compensation Plan (Filed as Exhibit 10.12 to
Delta's Annual Report on Form 10-K for the year ended June 30, 1996).*
10.10 Directors' Charitable Award Program (Filed as Exhibit 10.3 to
Delta's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997).*
10.11 1991 Delta Excess Benefit Plan, The Delta Supplemental Excess
Benefit Plan and Form of Senior Officer Excess Benefit Plan Agreement (Filed as
Exhibit 10.18 to Delta's Annual Report on Form 10-K for the year ended June 30,
1992, and Exhibit 10.17 to Delta's Annual Report on Form 10-K for the year ended
June 30, 1998).*
10.12 Delta's Non-employee Directors' Stock Plan (Filed as Exhibit 4.5
to Delta's Registration Statement on Form S-8 (Registration No. 33-65391)).*
10.13 Delta's Non-employee Directors' Stock Option Plan and Form of
Award Agreement dated October 22, 1998 (Filed as Exhibit 10 to Delta's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1998).*
10.14 Form of Stock Option and Restricted Stock Award Agreements under
Delta's 1989 Stock Incentive Plan (Filed as Exhibit 10.17 to Delta's Annual
Report on Form 10-K for the year ended June 30, 1996).*
10.15 Forms of Executive Retention Protection Agreements for Certain
Officers (Filed as Exhibit 10.16 of Delta's Annual Report on Form 10-K for the
year ended June 30, 1997).*
10.16 Employment Agreement dated as of August 14, 1997 between Delta and
Leo F. Mullin (Filed as Exhibit 10.1 to Delta's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1997).*
10.17 Employment Agreement dated March 23, 1998 between Delta and Warren
C. Jenson (Filed as Exhibit 10.19 to Delta's Annual Report on Form 10-K for the
year ended June 30, 1998).*
10.18 Employment Agreement dated June 5, 1998 between Delta and
Frederick W. Reid (Filed as Exhibit 10.20 to Delta's Annual Report on Form 10-K
for the year ended June 30, 1998).*
27
<PAGE> 30
10.19 Employment Agreement dated September 17, 1998 between Delta and
Robert L. Colman (Filed as Exhibit 10 to Delta's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).*
10.20 Purchase Agreement No. 2022 between The Boeing Company and Delta
relating to Boeing Model 737-632/-732/-832 Aircraft (Filed as Exhibit 10.3 to
Delta's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).*/**
10.21 Purchase Agreement No. 2025 between The Boeing Company and Delta
relating to Boeing Model 767-432ER Aircraft (Filed as Exhibit 10.4 to Delta's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).*/**
10.22 Letter Agreements related to Purchase Agreements No. 2022 and/or
No. 2025 between The Boeing Company and Delta (Filed as Exhibit 10.5 to Delta's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).*/**
10.23 Aircraft General Terms Agreement AGTA-DAL between The Boeing
Company and Delta (Filed as Exhibit 10.6 to Delta's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998).*/**
10.24 Agreement dated April 29, 1996, between Delta and The Air Line
Pilots in the service of Delta as represented by the Air Line Pilots
Association, International (Filed as Exhibit 10 to Delta's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996).*
12. Statement regarding computation of ratio of earnings to fixed
charges for the years ended June 30, 1999, 1998, 1997, 1996 and 1995.
13. Portions of Delta's 1999 Annual Report to Shareowners.
23. Consent of Arthur Andersen LLP.
24. Powers of Attorney.
27. Financial Data Schedule.
- ----------------------------
*Incorporated herein by reference
** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to Delta's request for confidential treatment.
28
<PAGE> 1
EXHIBIT 3.2
DELTA AIR LINES, INC.
BY-LAWS
AS AMENDED
THROUGH
SEPTEMBER 24, 1999
INCORPORATED
UNDER THE LAWS OF
DELAWARE
<PAGE> 2
TABLE OF CONTENTS
BY-LAWS
<TABLE>
<CAPTION>
ARTICLE SECTION SUBJECT PAGE
- ------- ------- ------- ----
<S> <C> <C>
I NAME, INCORPORATION AND LOCATION OF OFFICES.. 3
1.1 Name and Incorporation....................... 3
1.2 Location of Registered Agent and Offices..... 3
II CAPITAL STOCK................................ 3
2.1 Amount and Class Authorized.................. 3
2.2 Stock Certificates........................... 3
2.3 Transfer Agents and Registrars............... 4
2.4 Transfers of Stock........................... 4
2.5 Lost or Destroyed Certificates............... 4
2.6 No Preemptive Rights......................... 5
III MEETINGS OF STOCKHOLDERS..................... 5
3.1 Annual Meeting............................... 5
3.2 Special Meetings............................. 6
3.3 Notices of Meetings.......................... 6
3.4 Record Date.................................. 6
3.5 Quorum and Adjournment....................... 6
3.6 Voting Rights and Proxies.................... 7
3.7 Presiding Officer............................ 7
3.8 List of Stockholders Entitled To Vote........ 7
IV BOARD OF DIRECTORS........................... 7
4.1 Power and Authority.......................... 7
4.2 Number, Nomination and Election of Directors. 8
4.2.1 Eligibility, Tenure and Vacancies............ 8
4.3 Regular Meetings of the Board of Directors... 9
4.4 Special Meetings............................. 10
4.5 Committees Appointed by the Board............ 10
4.6 Meetings of Committees Appointed by the Board 10
4.7 Quorum and Voting............................ 11
4.8 Meeting by Conference Telephone.............. 11
4.9 Action Without Meeting....................... 11
4.10 Compensation................................. 11
OFFICERS..................................... 11
V 5.1 Election, Qualification, Tenure and
Compensation................................. 11
5.2 Chief Executive Officer...................... 12
5.3 Chairman of the Board........................ 12
5.4 President.................................... 12
5.5 Vice Chairman of the Board................... 13
5.6 Absence or Disability of Chairman and
President.................................... 13
5.7 Secretary.................................... 13
5.8 Assistant Secretaries........................ 13
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE SECTION SUBJECT PAGE
- ------- ------- ------- ----
<S> <C> <C>
5.9 Comptroller................................. 14
5.10 Treasurer................................... 14
5.11 Assistant Treasurers........................ 14
5.12 Bonds....................................... 14
VI 6.1 CORPORATE SEAL.............................. 15
VII 7.1 FISCAL YEAR................................. 15
VIII DIVIDENDS................................... 15
8.1 $1.50 Par Value Common Stock................ 15
8.2 Record Date for Payment of Dividends........ 15
IX FINANCIAL TRANSACTIONS AND EXECUTION OF
INSTRUMENTS IN WRITING...................... 16
9.1 Depositories................................ 16
9.2 Withdrawals and Payments.................... 16
9.3 Evidence of Indebtedness and Instruments
under Seal.................................. 16
X BOOKS AND RECORDS........................... 16
10.1 Location.................................... 16
10.2 Inspection.................................. 16
XI TRANSACTIONS WITH OFFICERS AND DIRECTORS.... 17
11.1 Validation.................................. 17
XII 12.1 AMENDMENT, REPEAL OR ALTERATION............. 17
EMERGENCY BY-LAWS............................................ 17
</TABLE>
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BY-LAWS OF
DELTA AIR LINES, INC.
ARTICLE I.
NAME, INCORPORATION AND LOCATION OF OFFICES
SECTION 1.1 NAME AND INCORPORATION.
The name of this corporation is DELTA AIR LINES, INC. It is incorporated
under the laws of Delaware in perpetuity.
SECTION 1.2 LOCATION OF REGISTERED AGENT AND OFFICES.
The name of the registered agent of the corporation is the Corporation
Trust Co., and its address and the address of the corporation's principal
office in Delaware is No. 100 West 10th Street, Wilmington, Delaware 19801.
Said registered agent and office may be changed as provided by the General
Corporation law of Delaware, as now or hereafter in effect.
The corporation may also have an office in Atlanta, Georgia, and may have
offices at such other places as the business of the corporation may require.
ARTICLE II.
CAPITAL STOCK
SECTION 2.1 AMOUNT AND CLASS AUTHORIZED.
Until otherwise provided by amendment to its Certificate of Incorporation,
the authorized capital stock of the corporation shall consist of 470,000,000
shares, of which 450,000,000 shall be common stock of the par value of $1.50
per share and 20,000,000 shall be preferred stock of the par value of $1.00 per
share. Shares of such authorized $1.50 par value common stock, in addition to
the shares now outstanding, up to the authorized maximum of 450,000,000 shares,
may be issued at such times, and from time to time, and may be sold for such
considerations, not less than the par value thereof, as shall be fixed and
determined by the board of directors. Shares of such authorized preferred stock
up to the authorized maximum of 20,000,000 shares may be issued at such times,
and from time to time, in such series and with such rights, including voting
rights, preferences, and limitations, and may be sold for such considerations,
not less than the par value thereof, as shall be fixed and determined by the
board of directors.
SECTION 2.2 STOCK CERTIFICATES.
Certificates evidencing the stock of the corporation shall be in such
forms as shall be authorized and approved by the board of directors. Such
certificates shall be signed by the chairman of the board, the president or a
vice president and by the secretary or an assistant secretary of the
corporation, and the seal of the corporation shall be affixed thereto. The seal
of the corporation and any or
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all the signatures on such certificate may be facsimile engraved, stamped or
printed.
If any officer, transfer agent or registrar who has signed, or whose
facsimile signature has been used on, a certificate has ceased to be an
officer, transfer agent or registrar or if any officer who has signed has had a
change in title before the certificate is delivered, such certificate may
nevertheless be issued and delivered by the corporation as though the officer,
transfer agent or registrar who signed or whose facsimile signature shall have
been used had not ceased to be such officer, transfer agent or registrar or
such officer had not had such change in title.
SECTION 2.3 TRANSFER AGENTS AND REGISTRARS.
The board of directors may appoint transfer agents and co-transfer agents
and registrars and co-registrars for the stock of the corporation and, if it so
elects, may appoint a single agency to serve as both transfer agent and
registrar, and may require all certificates evidencing stock to bear the
signature or signatures of any of them.
SECTION 2.4 TRANSFERS OF STOCK.
Transfers of stock of the corporation shall be made only on the books of
the corporation by the registered holder thereof in person or by attorney
thereunto duly authorized in writing. Powers of attorney to transfer stock of
the corporation shall be filed with the duly authorized transfer agent of the
corporation, when appointed, and the certificates evidencing the stock to be
transferred shall be surrendered to such transfer agent for cancellation, and
shall be cancelled by it at the time of transfer.
Until transfer shall have been made as provided above, possession of a
certificate evidencing stock of the corporation shall not vest any ownership of
such certificate, or of the stock evidenced thereby, in any person other than
the person in whose name said stock stands registered on the books of the
corporation and the corporation shall be entitled to treat the holder of record
of any share or shares of stock as the holder thereof in fact and shall not be
bound to recognize any equitable or other claim to or interest in any such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof. Notwithstanding the foregoing, the corporation
shall have the power and is authorized to effect through the duly authorized
transfer agent and registrar or otherwise transfers of stock of the corporation
to various states or appropriate state authorities when applicable state laws
of escheat or abandonment so require.
SECTION 2.5 LOST OR DESTROYED CERTIFICATES.
In case of the loss or destruction of an outstanding certificate of stock,
another certificate for a like number of shares may be issued in place of the
lost or destroyed certificate upon proof satisfactory to the board of directors
or its delegate, and upon payment of the expenses, if any, incident to the
issuance of such new certificate; provided, however, that the board of
directors or its delegate, if it sees fit, may require that such lost or
destroyed certificate be established as by the laws of Delaware in such cases
made and provided, and further provided that, any provision of law to the
contrary notwithstanding, the board of directors or its delegate may require
the owner of such lost or destroyed certificate, or the legal representative of
such owner, to give the corporation a bond sufficient, in the opinion of the
board of directors or its delegate, to indemnify the corporation against and
hold it harmless from any and all loss, damage, liability and claims (whether
or not such claims be meritorious) on account of and with respect to such lost
or destroyed certificate
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and the stock evidenced thereby and the issuance or establishment of such new
certificate.
SECTION 2.6 NO PREEMPTIVE RIGHTS.
No holder of any stock of the corporation which shall at any time be
outstanding shall have any preemptive rights to subscribe for or purchase
additional shares of stock of the corporation of any class which at any time
may be authorized or issued.
ARTICLE III.
MEETINGS OF STOCKHOLDERS
SECTION 3.1 ANNUAL MEETING.
The annual meeting of stockholders shall be held on the fourth Thursday in
October of each year or at such other time as the board of directors shall
specify, at such place, either within or without the State of Delaware, as may
be designated by the board of directors from time to time, for the purpose of
electing directors and for the transaction of only such other business as is
properly brought before the meeting in accordance with these By-Laws.
To be properly brought before the meeting, business must be either
(a) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the board, (b) otherwise properly brought before the
meeting by or at the direction of the board, or (c) otherwise properly brought
before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the secretary of the corporation. To be timely, a stockholder's notice shall
be delivered to or mailed and received at the principal executive offices of
the corporation not less than 90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided that if the board calls the annual meeting for a date that is not
within 30 days before or after such anniversary date, notice by the stockholder
to be timely must be so delivered or mailed and received not later than the
close of business on the 10th business day following the day on which the board
gave such notice or made such public disclosure of the date of the annual
meeting, whichever first occurs. Such stockholder's notice to the secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the stockholder proposing
such business, (iii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Article III, provided, that nothing in this Article III shall be
deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting.
If business is not properly brought before the meeting in accordance with
the provisions of this Article III, the Presiding Officer at an annual meeting
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
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SECTION 3.2 SPECIAL MEETINGS.
Special meetings of the stockholders shall be held at such times, and at
such places, either within or without the State of Delaware, as shall be
designated in the notice of call of the meeting, and may be called by the
chairman of the board or the president at any time and must be called by the
chairman of the board or the president whenever requested in writing by a
majority of the board of directors.
SECTION 3.3 NOTICES OF MEETINGS.
Written or printed notices of every annual or special meeting of the
stockholders shall be mailed to each stockholder of record at the close of
business on the record date hereinafter provided for, at the address shown on
the stock book of the corporation or its transfer agents, not less than ten nor
more than sixty days prior to the date of such meeting. Notices of special
meetings shall briefly state or summarize the purpose or purposes of such
meetings, and no business except that specified in the notice shall be
transacted at any special meeting. It shall not be necessary that notices of
annual meetings specify the business to be transacted at such annual meetings,
and any business of the corporation may be transacted at any annual meeting of
the stockholders to the extent not prohibited by applicable law, the
Certificate of Incorporation or these By-Laws.
SECTION 3.4 RECORD DATE.
It shall not be necessary to close the stock transfer books of the
corporation for the purpose of determining the stockholders entitled to notice
of and to participate in and vote at any meeting of the stockholders. In lieu
of closing the stock transfer books of the corporation, and for all purposes
that might be served by closing the stock transfer books, the board of
directors may fix and declare a date not less than ten days nor more than sixty
days prior to the date of any annual or special meeting as the record date for
the determination of stockholders entitled to notice of and to participate in
and vote at such meeting of the stockholders and any adjournment thereof; and
the corporation and its transfer agents may continue to receive and record
transfers of stock after any record date as so provided. In any such case, such
stockholders, and only such stockholders as shall have been stockholders of
record at the close of business on the record date shall be entitled to notice
and to participate in and vote at any such meeting of the stockholders,
notwithstanding any transfers of stock which may have been made on the books of
the corporation or its transfer agents after such record date.
SECTION 3.5 QUORUM AND ADJOURNMENT.
Except as otherwise provided or required by law, by the Certificate of
Incorporation or by these By-Laws, a quorum at any meeting of the stockholders
shall consist of the holders of shares representing a majority of the number of
votes entitled to be cast by the holders of all shares of stock then
outstanding and entitled to vote, present in person or by proxy. If a quorum is
not present at any duly called meeting, the Presiding Officer or the holders of
a majority of the votes present may adjourn the meeting from day to day, or to
a fixed date, without notice other than announcement at the meeting, but no
other business may be transacted until a quorum is present; provided, however,
that any meeting at which directors are to be elected shall be adjourned only
from day to day until such directors have been elected, and further provided
that those who attend the second of such adjourned meetings, although less than
a quorum as fixed hereinabove, shall nevertheless constitute a quorum for the
purpose of electing directors.
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The stockholders present at a duly organized meeting at which a quorum is
present at the outset may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to result in less than a
quorum or the refusal of any stockholder present to vote.
The Presiding Officer may in his discretion defer voting on any proposed
action and adjourn any meeting of the stockholders until a later date, provided
such actions are otherwise permitted by law and are not inconsistent with the
Certificate of Incorporation or other provisions of these By-Laws.
SECTION 3.6 VOTING RIGHTS AND PROXIES.
At all meetings of stockholders, whether annual or special, the holder of
each share of common stock which is then outstanding and entitled to vote shall
be entitled to one vote for each share held and the holder of each share of any
series of preferred stock which is then outstanding shall be entitled to such
voting rights, if any, and such number of votes, as shall be specified in the
resolution or resolutions of the board of directors providing for the issuance
of such series. Stockholders may vote at all such meetings in person or by
proxy duly authorized in writing or by a transmission permitted by law filed in
accordance with the procedures established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this section may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. Except as
otherwise specifically provided by law, by the Certificate of Incorporation or
by these By-Laws, a majority of the valid votes present shall be necessary and
sufficient to decide any question which shall come before any meeting of the
stockholders. In case of any challenge of the right of a given stockholder to
vote in person or by proxy, the Presiding Officer hereinafter provided for
shall be authorized to make the appropriate determination, and his decision
shall be final.
SECTION 3.7 PRESIDING OFFICER.
All meetings of the stockholders shall be presided over by the chairman of
the board or, in the absence or disability of the chairman, by the president,
or in his absence or disability, by the vice chairman, if any, or, in his
absence or disability, by the senior director (in terms of length of service on
the board of directors) present.
SECTION 3.8 LIST OF STOCKHOLDERS ENTITLED TO VOTE.
A complete list of the stockholders entitled to vote, arranged in
alphabetical order and indicating the number of shares held by each, shall be
prepared by the secretary and shall be available at the place where any
stockholders' meeting is being held, and shall be open to the examination of
any stockholder for any proper purpose during the whole of such meeting.
ARTICLE IV.
BOARD OF DIRECTORS
SECTION 4.1 POWER AND AUTHORITY.
All of the corporate powers of this corporation shall be vested in and the
business, property and affairs of the corporation shall be managed by, or under
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the direction of, the board of directors; and the board of directors shall be,
and hereby is, fully authorized and empowered to exercise all of the powers of
the corporation and to do, and to authorize, direct and regulate the doing of,
any and all things which the corporation has the lawful right to do which are
not by statute, the Certificate of Incorporation or these By-Laws expressly
directed or required to be exercised or done by the stockholders.
SECTION 4.2 NUMBER, NOMINATION AND ELECTION OF DIRECTORS.
The board of directors shall consist of not less than five nor more than
nineteen directors who shall be stockholders of the corporation. The members of
the board of directors shall be elected by the stockholders at the annual
meeting of stockholders, or at a duly convened adjournment thereof or at a
special meeting of stockholders duly called and convened for that purpose,
provided, however, that only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors. Nominations
of persons for election to the board of the corporation at the annual meeting
or a duly convened adjournment thereof may be made by or at the direction of
the board of directors, by any nominating committee or person appointed by the
board, or by any stockholder of the corporation entitled to vote for the
election of directors at the meeting or a duly convened adjournment thereof who
complies with the notice procedures set forth in this Article IV. Such
nominations, other than those made by or at the direction of the board, or by
any nominating committee or person appointed by the board, shall be made
pursuant to timely notice in writing to the secretary of the corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the corporation not less than 90 days nor
more than 120 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided that if the board calls the annual
meeting for a date that is not within 30 days before or after such anniversary
date, notice by the stockholder to be timely must be so delivered or mailed and
received not later than the close of business on the 10th business day
following the day on which the board gave such notice or made such public
disclosure of the date of the meeting, whichever first occurs. Such
stockholder's notice to the secretary shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of capital stock of the corporation which are
beneficially owned by the person and (iv) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Rule 14a under the Securities Exchange Act of
1934, as amended; and (b) as to the stockholder giving the notice, (i) the name
and record address of the stockholder and (ii) the class and number of shares
of capital stock of the corporation which are beneficially owned by the
stockholder. The corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the corporation to determine
the qualifications of such proposed nominee to serve as director of the
corporation. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth
herein.
If a nomination is made that is not in accordance with the foregoing
procedure, the Presiding Officer at an annual meeting shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 4.2.1 ELIGIBILITY, TENURE AND VACANCIES.
A nomination to serve as a director shall be accepted and votes cast for a
nominee shall be counted only if the secretary has received, at least thirty
days before the annual or a special meeting of stockholders, a statement signed
by
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the nominee advising that he or she consents to being a nominee and, if
elected, intends to serve as a director, and further provided that:
(a) Directors who are full-time employees of the company shall resign from
the board coincident with their retirement from full-time employment.
(b) The age limit for directors not covered by subparagraph (a), above, or
who, after resigning from the board upon retirement from full-time
employment are re-elected to the board, shall be seventy-two, and such
directors shall retire from the board as of the date and time of the
annual meeting of stockholders which next follows their attainment of age
seventy-two.
Each member of the board of directors shall hold office from the time of his
election and qualification until the next annual meeting of the stockholders
and until his successor shall have been elected and qualified; provided,
however, that any member of the board of directors may be removed from such
office by the stockholders at any time, with or without cause, at any meeting
of the stockholders, duly called for such purpose, in which event a successor
may be elected by the stockholders at such meeting or at any subsequent meeting
of the stockholders duly called for such purpose.
The number of members of the board of directors may be increased or
decreased at any time and from time to time to not less than five nor more than
nineteen members by resolution adopted by the board of directors and in such
event, and in the event any vacancy on the board of directors shall occur by
death, resignation, retirement, disqualification or otherwise, additional or
successor members of the board of directors may be elected by majority vote of
the remaining members of the board of directors present in person at any duly
convened meeting of said board.
Any director may resign at any time upon written notice to the
corporation.
SECTION 4.3 REGULAR MEETINGS OF THE BOARD OF DIRECTORS.
The first organizational meeting of each newly-elected board shall be held
at such time and place, either within or without the State of Delaware, as
shall be fixed by the outgoing board of directors at or before its last regular
meeting preceding the annual meeting of the stockholders, and no notice of such
meeting shall be necessary to the newly-elected directors in order to
constitute the meeting legally, provided that a majority of the whole board
shall be present, and further provided that such newly-elected board may meet
at such other place and time as shall be fixed by the consent in writing of all
of the said directors.
At such organizational meeting the board, by a vote of a majority of all
of the members thereof, shall elect a chairman from among its members. The
chairman shall preside over all meetings of the board of directors, if present,
and shall have such other powers and perform such other duties as may be
assigned to him by the board from time to time. In his capacity as chairman of
the board he shall not necessarily be an officer of the corporation but he
shall be eligible to serve, in addition, as an officer pursuant to Section 5.1
of these By-Laws.
All meetings of the directors shall be presided over by the chairman of
the board or, in his absence or disability, by the chief executive officer of
the corporation if he is a member of the Board or, in his absence or
disability, by the president if he is a member of the Board or, in his absence
or disability, by the vice chairman, if any, or, in his absence or disability,
by the senior director (in terms of length of service on the board of
directors) present.
Regular meetings of the board of directors shall be held during the months
of January, April, June and July, on such dates and at such places as the board
by resolution or, failing such resolution, as the chairman of the board or,
during his absence or disability, the president or the secretary of the
corporation may determine, and if not previously specified in a board
resolution, each director
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shall be advised in writing of the date, place and time of each such meeting at
least two days in advance, unless such notice be waived in writing.
SECTION 4.4 SPECIAL MEETINGS.
Special meetings of the board of directors shall be held at such time and
place, within or without the State of Delaware, as shall be designated in the
call and notice of the meeting; and may be called by the chairman of the board,
or in his absence or disability by the president or the secretary of the
company, at any time, and must be called by the chairman, or in his absence or
disability by the president or the secretary of the corporation, whenever so
requested in writing by three or more members of the board. Notices of special
meetings shall be given to each member of the board not less than twenty-four
hours before the time at which each such meeting is to convene. Such notices
may be given by telephone or by any other form of written or verbal
communication. It shall not be necessary that notices of special meetings state
the purposes or the objects of the meetings, and any business which may come
before any duly called and convened special meeting of the board may be
transacted at such meeting.
The members of the board of directors, before or after any meeting of the
board, may waive notice thereof and, if all members of the board be present in
person at any meeting or waive notice of the meeting, the fact that proper
notice of the meeting was not given shall not in any way affect the validity of
the meeting or the business transacted at the meeting.
SECTION 4.5 COMMITTEES APPOINTED BY THE BOARD.
A majority of the whole board may from time to time appoint (a) committees
of the board, the membership of which shall consist entirely of board members
and (b) other committees, the membership of which may be either a mixture of
board and non-board members or entirely non-members of the board. All
committees so appointed shall elect a chairman and keep regular minutes of
their meetings and transactions and such minutes shall be accessible to all
members of the board at all reasonable times.
No such committee shall have the power or authority to amend the
Certificate of Incorporation (except that a committee may, to the extent
authorized in a resolution of the board of directors providing for the issuance
of shares of stock, fix the designations and any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the corporation or fix the
number of shares of any series of stock or authorize the increase or decrease
of the shares of any series); to adopt an agreement of merger or consolidation;
to recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets; to recommend to the
stockholders a dissolution of the corporation or a revocation of a dissolution;
to amend the By-Laws of the corporation; or, unless a resolution of the board
of directors, the By-Laws or the Certificate of Incorporation expressly so
provides, to declare a dividend or authorize the issuance of stock.
SECTION 4.6 MEETINGS OF COMMITTEES APPOINTED BY THE BOARD.
Meetings of any committee appointed by the Board shall be called by the
secretary or any assistant secretary of the corporation (or, in the case of
committees appointed by the board whose membership does not consist exclusively
of board members, by such employee of the corporation as has been designated
pursuant to By-Law 5.7 to record the votes and the minutes of such committee)
upon the request of the chairman of the committee, the chairman of
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the Board, the chief executive officer of the corporation, or any two members
of the committee. Notice of each such meeting shall be given in the same manner
specified in Section 4.4 for special meetings of the board of directors.
SECTION 4.7 QUORUM AND VOTING.
A majority of the members of the board of directors or of any committee
appointed by the board shall be present at any meeting of the board or such
committee in order to constitute a quorum, and a majority of the members
present at any duly constituted meeting of the board or such committee may
decide any question which properly may come before the meeting, unless a
different vote is specifically required by these By-Laws, the Certificate of
Incorporation or applicable law.
SECTION 4.8 MEETING BY CONFERENCE TELEPHONE.
Members of the board of directors or any committee appointed by the board
may participate in a meeting by means of conference telephone or similar
communications equipment whereby all persons participating in the meeting can
hear each other, and participation in such meeting in such manner shall
constitute presence in person at such meeting.
Notwithstanding the notice provisions of Sections 4.3, 4.4 and 4.6 above,
participation in a meeting by means of conference telephone by a member of the
board of directors or a committee appointed by the board shall constitute
waiver of notice of the meeting by such director.
SECTION 4.9 ACTION WITHOUT MEETING.
Any action required or permitted to be taken at any meeting of the board of
directors or any committee appointed by the board may be taken without a
meeting if all of the directors or all of the members of such a committee, as
the case may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the board of directors or of such
committee.
SECTION 4.10 COMPENSATION.
A director shall receive such reasonable compensation for his services as
a director or as a member of a committee appointed by the board of directors
(including service as chairman of the board or as chairman of a committee of
the board) as may be fixed from time to time by the board of directors and
shall be reimbursed for his reasonable expenses, if any, in attending any
meeting of the board of directors or such a committee. A director shall not be
barred from also serving the corporation in any other capacity and receiving
reasonable compensation therefor.
ARTICLE V.
OFFICERS
SECTION 5.1 ELECTION, QUALIFICATION, TENURE AND COMPENSATION.
The officers of the corporation shall be elected by the board of directors
and shall include a president, one or more vice presidents (one or more of whom
may be designated as an executive vice president or senior vice president), a
secretary, a comptroller, a treasurer and such other officers, including a vice
chairman, as from time to time the board of directors shall
11
<PAGE> 13
deem necessary or desirable. At the discretion of the board, the chairman of
the board may also be elected under the same title as an officer of the
corporation.
The chairman of the board and president (and the vice chairman, if any)
shall be, and the other officers may be but need not be, members of the board
of directors and stockholders.
Unless otherwise provided by the board of directors, each officer shall
hold office from the time of his election until his successor shall have been
elected and qualified, provided, however (except as otherwise provided in a
contract duly authorized by the board of directors), any officer may be removed
from office by the board of directors at any time, with or without cause, and
any officer may resign at any time upon written notice to the corporation. Any
two offices may be united in any one person, provided that no person shall act
in more than one capacity in any one transaction.
The compensation of all officers shall be fixed and determined by the board
of directors or pursuant to its delegated authority.
From time to time the board of directors, or its delegates, may appoint
such other agents, for such terms and with such rights, powers and authorities,
on such conditions, subject to such limitations and restrictions and at such
compensation as shall seem right and proper to it or them, and any such agent
may be removed from office by the board of directors or its delegates at any
time, with or without cause.
SECTION 5.2 CHIEF EXECUTIVE OFFICER.
From time to time the board of directors shall designate by resolution
either the chairman of the board, if elected as an officer of the corporation,
or the president to act as the chief executive officer of the corporation. The
chief executive officer shall have responsibility for the active and general
management of the corporation and such authorities and duties as are usually
incident to the office of chief executive officer and as from time to time
shall be specified by the board of directors. He shall prescribe the duties of
all subordinate officers, agents and employees of the company to the extent not
otherwise prescribed by the Certificate of Incorporation, the By-Laws or the
board of directors. Such designation shall continue in full force and effect
until modified or rescinded by further resolution of the board.
SECTION 5.3 CHAIRMAN OF THE BOARD.
The chairman of the board shall preside over all meetings of the board of
directors and the stockholders of the corporation. He shall have such other
authorities and duties as are usually incident to the office of chairman of the
board and as from time to time shall be specifically directed by the board of
directors. Except where by law the signature of the president is required, the
chairman of the board shall possess the same power as the president to sign all
certificates, contracts and other instruments of the corporation which may be
authorized by the board of directors. During the absence or disability of the
president, if the chairman has been elected as an officer of the corporation he
shall exercise all of the powers and discharge all of the duties of the
president. If the chairman has not been elected as an officer of the
corporation, then the provisions of Section 5.6 shall apply.
SECTION 5.4 PRESIDENT.
Subject to the powers and duties hereinbefore delegated to the chairman of
the board, and to the powers and duties hereinbefore delegated to the chief
executive officer if the chairman of the board is designated by the board of
directors to act as chief executive officer, the president shall direct the
operations of the company. He shall have such other authorities and duties as
are usually incident to the office of president and as, from time to time,
shall be
12
<PAGE> 14
specifically directed by the board of directors. During the absence or
disability of the chairman, the president shall exercise all of the powers and
discharge all of the duties of the chairman.
SECTION 5.5 VICE CHAIRMAN OF THE BOARD.
The vice chairman of the board, if any, who shall be an officer of the
corporation, shall have such specific powers, duties and authority, and shall
perform such administrative and executive duties as, from time to time, may be
assigned by the board of directors, or the chief executive officer.
SECTION 5.6 ABSENCE OR DISABILITY OF CHAIRMAN AND PRESIDENT.
In the absence or disability of both the chairman of the board if he has
been elected an officer of the corporation, and the president, or in the
absence or disability of the president if the chairman has not been elected as
an officer of the corporation, the vice chairman, if any, or if there is no
vice chairman, an officer previously designated in writing by the chief
executive officer or, in the absence of such designation, an officer designated
by the board of directors, shall exercise all of the powers and discharge all
of the duties of the said officer or officers until one or both return to
active duty or until the board of directors authorizes another person or
persons to act in their capacities.
SECTION 5.7 SECRETARY.
The secretary or an assistant secretary shall record the votes and the
minutes, in books to be kept for that purpose, of all meetings of the
stockholders, of the board of directors, and of those committees of the board
of directors whose membership is confined to members of the board, provided,
however, that in the absence of the secretary and the assistant secretaries the
chairman of any such meeting may designate another officer of the company to
act as secretary of that meeting. Any employee of the corporation may be
designated by committees which are appointed by the board, but whose membership
is not confined to members of the board, to record the votes and minutes of the
proceedings of such committees in books to be kept for that purpose. The
secretary or an assistant secretary shall give or cause to be given, notice of
all meetings of the stockholders, the board of directors and committees of the
board of directors. The secretary and assistant secretaries shall keep in safe
custody the seal of the corporation and shall affix the same to any instrument
requiring it and, when required, it shall be attested by his signature or by
the signature of an assistant secretary. In the absence or disability of the
secretary and all assistant secretaries, the seal may be affixed and the
instrument attested by any vice president. The secretary also shall perform
such other duties as may be assigned to him by the board of directors, or the
chief executive officer.
SECTION 5.8 ASSISTANT SECRETARIES.
In the absence or disability of the secretary, an assistant secretary, if
specifically designated and directed by the chairman of the board or the
president, shall perform the prescribed duties and functions of the secretary.
The assistant secretaries also shall have such specific powers and authorities
and shall perform such other duties and functions as from time to time may be
assigned by the board of directors, or the chief executive officer.
13
<PAGE> 15
SECTION 5.9 COMPTROLLER.
The comptroller shall cause to be kept full and accurate books and
accounts of all assets, liabilities and transactions of the corporation. The
comptroller shall establish and administer an adequate plan for the control of
operations, including systems and procedures required to properly maintain
internal controls on all financial transactions of the corporation. The
comptroller shall prepare, or cause to be prepared, statements of the financial
condition of the corporation and proper profit and loss statements covering the
operations of the corporation and such other and additional financial
statements, if any, as the chief executive officer or the board of directors
from time to time shall require. The comptroller also shall perform such other
duties as may be assigned to him by the board of directors, or the chief
executive officer.
SECTION 5.10 TREASURER.
The treasurer shall be responsible for the custody and care of all the
funds and securities of the corporation and shall cause to be kept full and
accurate books and records of account of all receipts and disbursements of the
corporation. The treasurer shall cause all money and other valuable effects of
the corporation to be deposited in the name and to the credit of the
corporation in such depositories as shall be designated from time to time by
the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, or the chief executive officer. The
treasurer also shall perform such other duties as may be assigned to him by the
board of directors, or the chief executive officer.
SECTION 5.11 ASSISTANT TREASURERS.
In the absence or disability of the treasurer, an assistant treasurer, if
any, or any other officer of the corporation, if specifically designated and
directed by the chairman of the board or the president, shall perform the
prescribed duties and functions of the treasurer. Any such assistant treasurer
also shall have such specific powers and authorities and shall perform such
other duties and functions as from time to time shall be assigned by the board
of directors, or the chief executive officer of the corporation.
SECTION 5.12 BONDS.
Any officer or agent of the corporation shall furnish to the corporation
such bond or bonds, with security for the faithful performance of his duties,
as from time to time may be required by the board of directors.
14
<PAGE> 16
ARTICLE VI.
CORPORATE SEAL
SECTION 6.1 CORPORATE SEAL.
The corporate seal shall have inscribed thereon the name of the
corporation, the word "SEAL" and the word "Delaware". Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE VII.
FISCAL YEAR
SECTION 7.1 FISCAL YEAR.
The fiscal year of the corporation shall commence on the first day of July
of each year and shall end on the thirtieth day of June of the next following
year.
ARTICLE VIII.
DIVIDENDS
SECTION 8.1 $1.50 PAR VALUE COMMON STOCK.
Dividends may be paid on the $1.50 par value common stock of the
corporation in such amounts and at such times as the board of directors shall
determine.
SECTION 8.2 RECORD DATE FOR PAYMENT OF DIVIDENDS.
It shall not be necessary to close the stock transfer books of the
corporation for the purpose of determining the stockholders entitled to receive
payment of any dividend on the stock of the corporation; but in lieu of closing
the stock transfer books, and for all purposes that might be served by closing
the stock transfer books, the board of directors, in declaring any dividend on
the common stock, shall fix either the date on which the dividend is declared
or a date between that date and the date on which the dividend is to be paid as
the record date for determining stockholders entitled to receive payment of
said dividend; and the corporation and its transfer agents may continue to
receive and record transfers of stock after the record date so fixed and
determined but, in any such case, such stockholders and only such stockholders
as shall have been stockholders of record at the close of business on the
record date so fixed and determined by the board of directors shall be entitled
to receive payment of said dividend, notwithstanding any transfer of any stock
which may have been made on the books of the corporation or its transfer agents
after said record date.
15
<PAGE> 17
ARTICLE IX.
FINANCIAL TRANSACTIONS AND EXECUTION OF
INSTRUMENTS IN WRITING
SECTION 9.1 DEPOSITORIES.
The funds and securities of the corporation shall be deposited, in the
name of and to the credit of the corporation, in such banks, trust companies
and other financial institutions as shall from time to time be determined and
designated by the board of directors or its delegate.
SECTION 9.2 WITHDRAWALS AND PAYMENTS.
All checks and orders for the withdrawal or payment of funds of the
corporation, shall be signed in the name of the corporation in such manner and
form and by such officer, officers or other employees as from time to time may
be authorized and provided by the board of directors or its delegate. Facsimile
signatures may be used when authorized by the board or its delegate.
It shall be the duty of the secretary, an assistant secretary or the
corporation's official in charge of internal auditing to certify to the
designated depositories of the funds and securities of the corporation the
names and signatures of the officers and other employees of the corporation
who, from time to time, are authorized to sign checks, drafts or orders for the
withdrawal of funds and/or securities. No check, drafts or order for the
withdrawal or payment of funds of the corporation shall be signed in blank.
SECTION 9.3 EVIDENCE OF INDEBTEDNESS AND INSTRUMENTS UNDER SEAL.
Unless otherwise authorized by the board of directors, all notes, bonds,
and other evidences of indebtedness of the corporation, and all deeds,
indentures, contracts and other instruments in writing required to be executed
under the seal of the corporation, shall be signed in the name and on behalf of
the corporation by the chairman of the board, the president, the vice chairman,
if any, or a vice president of the corporation and shall be attested by the
secretary or an assistant secretary.
ARTICLE X.
BOOKS AND RECORDS
SECTION 10.1 LOCATION.
The books, accounts and records of the corporation, except as may be
otherwise required by the laws of the State of Delaware, may be kept outside of
the State of Delaware, at such place or places as the board of directors may
from time to time appoint.
SECTION 10.2 INSPECTION.
Except as otherwise required by law, the board of directors or its
delegate shall determine whether and to what extent the books, accounts and
records of the corporation, or any of them other than the stock books, shall be
open to the inspection of the stockholders.
16
<PAGE> 18
ARTICLE XI.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
SECTION 11.1 VALIDATION.
Contracts and all other transactions, including but not limited to
purchases and sales, by and between this corporation and one or more of its
officers or directors, or by and between this corporation and any firm,
partnership, association or corporation of which one or more of the officers or
directors of this corporation shall be members, partners, officers or directors
or in which one or more of the officers or directors of this corporation shall
be interested, shall be valid, binding and enforceable, and shall not be
voidable by this corporation or its stockholders notwithstanding the
participation of any such interested director in any meeting of the board of
directors of this corporation at which such contract or other transaction shall
be considered, acted upon or authorized, and notwithstanding the participation
of any such interested officer or director in the making or performance of such
contract or transaction, if the material facts of such interest shall be
disclosed to or be known by the members of the board of directors of this
corporation who shall be present at the meeting of said board at which such
contract or transaction, and such participation therein, shall be authorized or
approved and if the board in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum.
ARTICLE XII.
AMENDMENT, REPEAL OR ALTERATION
SECTION 12.1 AMENDMENT, REPEAL OR ALTERATION.
These By-Laws may be amended, repealed or altered, in whole or in part, by
a majority of the valid votes cast at any duly convened regular annual meeting
of the stockholders or at any duly convened special meeting of stockholders
when such object shall have been announced in the call and notice of the
meeting. These By-Laws also may be amended, repealed or altered by vote of a
majority of the whole board of directors at any duly convened meeting of the
board of directors; provided, however, that any such action of the board of
directors may be repealed by the stockholders. The repeal of any such action of
the board of directors by the stockholders, however, shall not invalidate or in
anywise affect the validity of any act or thing done in reliance upon said
action of the board of directors.
EMERGENCY BY-LAWS
ADOPTED OCTOBER 27, 1967
Subject to repeal or change by the stockholders, and notwithstanding any
different provision contained in the Delaware Corporation Law or in the
Certificate of Incorporation or By-Laws of this corporation, the following
emergency by-laws shall be operative in any emergency arising from an attack on
the United States or on a locality in which the corporation conducts its
business or customarily holds meetings of its board of directors or
stockholders,
17
<PAGE> 19
or during any atomic or nuclear disaster or during the existence of any
catastrophe or other similar emergency condition as a result of which a quorum
of the board of directors cannot readily be convened for action.
1. In the event of emergency or disaster as described above, an
emergency board of directors shall forthwith assume direction and control
of the affairs of the corporation.
2. Such emergency board of directors shall consist of all living
directors, and meetings of the emergency board may be called by the
chairman of the board, the president, the vice chairman or the secretary
or, in the event of the death or inability of any of the four to act, by
any surviving director with the capacity and ability to act.
3. To the extent possible, notice of emergency board meetings shall be
given in each instance to each known living member of the board at his
last known business address, either orally or in writing delivered
personally or by mail, telegraph, telephone or radio, or by publication;
provided however, that if notice by such means is impossible insofar as
specific individual directors are concerned, then the person calling the
meeting shall give such directors such notice as is reasonably possible
under the circumstances.
4. At any properly called meeting of the emergency board a quorum
shall not be necessary, and the acts of a majority of the members of the
emergency board present shall be and shall constitute the acts of the
emergency board.
5. During its existence, the emergency board shall have the following
powers:
(a) To appoint officers and agents of the corporation and to determine
their compensation and duties;
(b) To borrow money and to issue bonds, notes or other obligations and
evidence of indebtedness therefor;
(c) To determine questions of general policy with respect to the business
of the corporation;
(d) To call stockholders' meetings; and
(e) To take all actions and to do all things necessary to preserve the
corporation as an operating entity, and to direct and control its affairs
and operations, until the regular board of directors has been
reconstituted, either by the passage of time, by action of the
stockholders, or otherwise in accordance with law.
6. No officer, director or employee acting in accordance with these
emergency by-laws shall be liable to the corporation or its stockholders
with respect to action taken under power granted herein except for willful
misconduct.
7. As soon as reasonably possible following the creation of an
emergency board of directors, if it appears clear that such action is
required because of the number of directors killed or indefinitely
incapacitated, the emergency board shall call a regular or special meeting
of the stockholders of the corporation for the election of a new board of
directors, or otherwise to reconstitute the board, and upon the election
and qualification or reconstitution of such board, the emergency board
established pursuant to these emergency by-laws shall cease and terminate
and the direction and control of the affairs of the corporation shall vest
in such new or reconstituted board of directors.
8. To the extent not inconsistent with these emergency by-laws, the
regular by-laws of the corporation shall remain in effect during the
emergency.
18
<PAGE> 1
EXHIBIT 4.11
DELTA FAMILY-CARE
SAVINGS PLAN
AMENDMENT NO. 1
to the
NOTE PURCHASE AGREEMENT
among
DELTA FAMILY-CARE SAVINGS
SAVINGS PLAN,
Issuer
DELTA AIR LINES, INC.,
Guarantor
and
the
PARTY NAMED HEREIN AS THE PURCHASER,
Purchaser
Dated as of July 27, 1999
<PAGE> 2
THIS AMENDMENT (the "AMENDMENT"), dated as of July 27, 1999 to the Note
Purchase Agreement (the "NOTE PURCHASE AGREEMENT") dated as of February 22, 1990
among the Delta Family-Care Savings Plan and the trust established thereunder
(together, the "ESOP"), Delta Air Lines, Inc., a Delaware corporation (together
with its successors and assigns, the "COMPANY"), and the party identified on the
signature page hereof as the Purchaser (the "PURCHASER").
RECITALS
WHEREAS, the ESOP has previously issued $481,400,000 aggregate
principal amount of Guaranteed Serial ESOP Notes (the "NOTES") in three series
pursuant to several Note Purchase Agreements, each dated February 22, 1990,
among the ESOP, as issuer, the Company, as guarantor, and the respective
purchasers named therein, (collectively, including the Note Purchase Agreement,
the "NOTE PURCHASE AGREEMENTS");
WHEREAS, the ESOP has repaid in whole the Series A Notes and the Series
B Notes issued under the Note Purchase Agreements, and there is currently
outstanding $290,194,981 aggregate principal amount of Series C Notes under the
Note Purchase Agreements;
WHEREAS, the Purchaser is the holder of record as of 5:00 p.m., New
York City time, on July 8, 1999 (such time and date, the "RECORD DATE") of the
principal amount of Series C Notes issued under the Note Purchase Agreement as
set forth opposite its name on the signature page hereto;
WHEREAS, the Company desires to execute and deliver this Amendment for
the purpose of eliminating from the Note Purchase Agreements certain negative
covenants applicable to the Company, and the ESOP has consented to this
Amendment;
WHEREAS, Section 14.3 of each of the Note Purchase Agreements provides
that the Note Purchase Agreements may be amended, subject to certain exceptions
specified in such Section 14.3, which are not applicable to the Amendment, with
the consent of the ESOP, the Company and the holders of at least two-thirds of
the aggregate principal amount of the Notes of all series outstanding at the
time of a determination required under the Note Purchase Agreements (the
"REQUISITE CONSENTS");
WHEREAS, contemporaneously with this Amendment, the ESOP and the
Company propose to enter into similar agreements with the other holders of
Series C Notes in order to obtain the Requisite Consents to amend the Note
Purchase Agreements as set forth in Article 1 of this Amendment (the "PROPOSED
AMENDMENT");
<PAGE> 3
WHEREAS, the ESOP, the Company and the Purchaser have agreed that the
Note Purchase Agreement be amended in the manner provided for in this Amendment;
WHEREAS, all other conditions and requirements necessary to make this
Amendment valid and binding in accordance with its terms and the terms of the
Note Purchase Agreement have been satisfied.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the ESOP, the Company and the Purchaser hereby
covenant and agree as follows:
All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Note Purchase Agreement.
ARTICLE 1
AMENDMENTS TO CERTAIN PROVISIONS OF THE NOTE PURCHASE AGREEMENT
SECTION 1.1. Amendment of Certain Provisions of the Note Purchase
Agreement. The Note Purchase Agreement is hereby amended in the following
respects:
The Section headings and the text of each of Sections 6.1 and 6.2, and
all references thereto, are hereby deleted in their entirety and replaced with
the following:
"[Intentionally Deleted by Amendment]".
ARTICLE 2
SUNDRY PROVISIONS
SECTION 2.1. Effect of Amendment. Subject to Section 3.01 of this
Amendment, upon the execution and delivery of this Amendment by the ESOP, the
Company and the Purchaser, the Note Purchase Agreement shall be modified in
accordance herewith, and this Amendment shall form a part of the Note Purchase
Agreement for all purposes; and every holder of Notes issued under the Note
Purchase Agreement shall be bound thereby. Subject to Section 3.01 of this
Amendment, upon the execution of this Amendment, the Proposed Amendment
2
<PAGE> 4
shall automatically take effect.
SECTION 2.2. Note Purchase Agreement Remains in Full Force and Effect.
Except as amended hereby, all provisions in the Note Purchase Agreement shall
remain in full force and effect.
SECTION 2.3. Note Purchase Agreement and Amendment Construed Together.
The Note Purchase Agreement and this Amendment shall henceforth be read and
construed together.
ARTICLE 3
MISCELLANEOUS
SECTION 3.1. Effectiveness. The effectiveness of this Amendment is
conditioned upon the Required Holders having executed an amendment to the Note
Purchase Agreements in substantially the form hereof. This Amendment may be
executed in two or more counterparts, each of which shall be deemed an original
and all of which shall constitute but one and the same instrument.
SECTION 3.2. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
SECTION 3.3. Separability Clause. In case any provision in this
Amendment shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 3.4. Governing Law. This Amendment shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of New York, without giving effect to the principles of
conflict of law thereof.
3
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their duly authorized officers as of the date first above
written.
Guarantor:
DELTA AIR LINES, INC.
By:
--------------------------------
Name:
Title:
Issuer:
DELTA FAMILY-CARE SAVINGS PLAN
By: FIDELITY MANAGEMENT TRUST
COMPANY, as ESOP Trustee
By:
--------------------------------
Name:
Title:
-----------------------------------
Outstanding principal
amount of Notes held
on the Record Date: Purchaser:
$
-------------------------------- By:
--------------------------------
Name:
Title:
4
<PAGE> 1
Exhibit 12
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratios)
<TABLE>
<CAPTION>
----------- ----------- ----------- ----------- -----------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Earnings (loss):
Earnings (loss) before income taxes and cumulative
effect of accounting change $ 1,826 $ 1,648 $ 1,415 $ 276 $ 494
Add (deduct):
Fixed charges from below 728 669 673 582 665
Interest capitalized (46) (38) (33) (26) (30)
Interest offset on Guaranteed Serial ESOP Notes -- -- -- (2) (4)
------- ------- ------- ------- -------
Earnings (loss) as adjusted $ 2,508 $ 2,279 $ 2,055 $ 830 $ 1,125
Fixed charges:
Interest expense $ 199 $ 186 $ 207 $ 269 $ 292
Portion of rental expense representative of the
interest factor 529 483 466 311 369
Additional interest on Guaranteed Serial ESOP Notes -- -- -- 2 4
------- ------- ------- ------- -------
Total fixed charges $ 728 $ 669 $ 673 $ 582 $ 665
Ratio of earnings to fixed charges 3.45 3.41 3.05 1.43 1.69
</TABLE>
<PAGE> 1
EXHIBIT 13
----------
Portions of 1999 Annual Report
to Shareowners
DELTA'S AIRCRAFT FLEET
DELTA AIRCRAFT FLEET AT JUNE 30, 1999
(For information regarding ASA's fleet, see page 21 of this report.)
<TABLE>
<CAPTION>
Leased
Average ---------------------
Aircraft Type Age Owned Capital Operating Total
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
B-727-200 21.9 110 -- 10 120
B-737-200 14.6 1 45 8 54
B-737-300 12.6 -- 3 23 26
B-737-800 0.6 7 -- -- 7
B-757-200 9.6 59 -- 41 100
B-767-200 16.1 15 -- -- 15
B-767-300 9.4 4 -- 24 28
B-767-300ER 4.1 43 -- 8 51
B-777-200 0.3 2 -- -- 2
L-1011-1 19.9 13 -- -- 13
L-1011-250 16.7 6 -- -- 6
L-1011-500 18.4 11 -- -- 11
MD-11 5.4 8 -- 7 15
MD-88 9.0 63 -- 57 120
MD-90 3.6 16 -- -- 16
- --------------------------------------------------------------------
Totals 12.3 358 48 178 584
=======================================
</TABLE>
AIRCRAFT DELIVERY SCHEDULES AT JUNE 30, 1999
<TABLE>
<CAPTION>
Delivery in Year Ending June 30
---------------------------------
After
Aircraft on Firm Order 2000 2001 2002 2003 2003 Total
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B-737-600/700/800 17 17 12 11 43 100
B-757-200 11 8 -- -- -- 19
B-767-300/300ER 7 1 -- -- -- 8
B-767-400 2 19 -- -- -- 21
B-777-200(*) 5 -- 1 1 4 11
- -----------------------------------------------------------------
Total 42 45 13 12 47 159
=================================================================
</TABLE>
(*) Delivery of B-777's have been deferred indefinitely (see "Pilot
Collective Bargaining Agreement" on page 32 of this report).
AIRCRAFT ON OPTION
Delivery in Year Ending June 30
-------------------------------------
After Rolling
Aircraft on Option(*) 2000 2001 2002 2003 2003 Total Options
- ------------------------------------------------------------------------------
B-737-600/700/800 -- 9 7 7 37 60 267
B-757-200 -- 2 8 10 -- 20 80
B-767-300/300ER -- 2 2 2 5 11 16
B-767-400 -- -- 12 5 7 24 25
B-777-200 -- 1 5 5 9 20 30
- ------------------------------------------------------------------------------
Total -- 14 34 29 58 135 418
==============================================================================
(*) Aircraft options have scheduled delivery slots, while rolling options
replace options and are assigned delivery slots as options expire or are
exercised.
18
<PAGE> 2
ATLANTIC SOUTHEAST AIRLINES (ASA)
Atlantic Southeast Airlines (ASA) became a wholly owned subsidiary of Delta on
May 11, 1999. Through more closely integrated schedules, Delta and ASA will
offer customers better connections and service. ASA service is being enhanced by
the introduction of operational improvements that have been successful at Delta.
These improvements will produce positive results in the areas of on-time
performance, baggage handling and other customer service activities. Delta's
acquisition of ASA also enables both airlines to allocate aircraft more
efficiently across their respective route systems.
[GRAPHIC]
AIRCRAFT FLEET AT JUNE 30, 1999
<TABLE>
<CAPTION>
Average Leased
Aircraft Type Age Owned Capital Operating Total
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EMB-120 10.0 56 -- 1 57
ATR-72 5.7 4 -- 8 12
CRJ-200 (Regional Jet) 0.9 2 -- 21 23
- --------------------------------------------------------------------------
Total 7.2 62 -- 30 92
======================================
</TABLE>
AIRCRAFT DELIVERY SCHEDULES AT JUNE 30, 1999
<TABLE>
<CAPTION>
Delivery in Year Ending June 30
---------------------------------
After
Aircraft on Firm Order 2000 2001 2002 2003 2003 Total
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CRJ-200 (Regional Jet) 12 10 -- -- -- 22
CRJ-700 (Regional Jet) -- -- 5 7 -- 12
- ----------------------------------------------------------------------
Total 12 10 5 7 -- 34
======================================================================
</TABLE>
ASA has options to purchase 45 CRJ-200 aircraft and eight CRJ-700 aircraft. On
August 9, 1999, ASA entered into a memorandum of understanding to lease seven
ATR-72 aircraft during fiscal 2000.
ASA HIGHLIGHTS
- - Atlanta's largest regional airline with service to 44 markets
- - Dallas/Fort Worth hub serves 17 markets
- - Average number of full-time equivalent employees: 2,500
CANADAIR REGIONAL JET (CRJ) SERVICE
- - As of August 1, 1999, ASA provided CRJ service to 32 cities from Atlanta.
Most recent additions include:
Austin, Texas
Daytona Beach, Florida
Houston (Hobby), Texas
Long Island/Islip, New York
Melbourne, Florida
Montgomery, Alabama
San Antonio, Texas
- - By the end of calendar 1999, additional CRJ service is planned for:
Des Moines, Iowa
Fort Wayne, Indiana
Toledo, Ohio
See ASA's route map on back cover foldout of this Annual Report.
21
<PAGE> 3
FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LINES, INC.
Consistently superior financial performance is an integral part of our goal
to become the world's greatest airline. For Delta, "consistently superior
financial performance" means that our management team is focused on executing
business strategies that increase shareowner value and provide the resources
needed to reinvest in our business.
Using the capital generated by our business in fiscal 1999, we are laying the
foundation to continue producing strong financial results by concentrating
reinvestment on high-priority business initiatives. Current initiatives include
network growth, customer service and technology enhancements and partnering with
employees. Focus on these initiatives in fiscal 1999 contributed to financial
results that were the best in Delta's 70-year history.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
Net Income and Earnings per Share
For the year ended June 30, 1999, our Company reported record net income of
$1.1 billion, a 10% increase from our previous record of $1.0 billion reported
for fiscal 1998. Our fiscal 1999 results include the results of operations for
ASA Holdings, Inc. (ASA Holdings) for the period April 1, 1999 through June 30,
1999 (see Note 17 of the Notes to the Consolidated Financial Statements).
<TABLE>
<CAPTION>
- ------------------------------------
Diluted EPS*
In Dollars
<S> <C>
95 $2.72
96 5.60
97 5.73
98 6.34
99 7.20
- ------------------------------------
</TABLE>
* Excludes restructuring and other non-recurring charges and cumulative
effects of changes in accounting standards.
Basic earnings per share totaled $7.63 in fiscal 1999, compared to $6.64 in
fiscal 1998, a 15% increase. Diluted EPS was $7.20 for fiscal 1999, a 14%
increase from fiscal 1998 diluted EPS of $6.34. EPS for years prior to fiscal
1999 has been restated to reflect our two-for-one common stock split, which
became effective in November 1998. Excluding restructuring and other non-
recurring charges and cumulative effects of changes in accounting standards,
diluted EPS has grown over 150% over the past four fiscal years.
Operating Revenues
Operating revenues were $14.7 billion for fiscal 1999, increasing 4% from
$14.1 billion in fiscal 1998.
Passenger revenue growth of 3% reflects a 3% increase in RPMs on 3% capacity
growth. Passenger mile yield remained virtually flat at 12.83 cents.
<TABLE>
<CAPTION>
- ------------------------------------
Operating Revenues
In Millions of Dollars
<S> <C>
95 $12,194
96 12,455
97 13,594
98 14,138
99 14,711
- ------------------------------------
</TABLE>
* Excludes restructuring and other non-recurring charges and cumulative
effects of changes in accounting standards.
Domestic Passenger Revenues -- Domestic passenger revenues grew 4% to $11.1
billion, driven by a 3% increase in RPMs on capacity growth of 2%. The increase
in RPMs is a result of favorable economic conditions and increased traffic
(including the effects of pilot labor actions at two of our competitors), as
well as our reallocation of aircraft to higher-demand markets. Passenger mile
yield rose 1% due to the full-year effect of a domestic fare increase in
September 1997 and improved asset utilization, partially offset by increased
low-fare competition and matching sale fares implemented by a competitor after
its pilot strike.
International Passenger Revenues -- International passenger revenues remained
flat at $2.3 billion during fiscal 1999. A 5% increase in RPMs on capacity
growth of 7% was offset by a 6% decline in passenger mile yield. The increase in
RPMs reflects the addition of new Atlantic routes, continued expansion into
Latin America and implementation of additional service to Japan. The decline in
passenger mile yield is a result of increased competitive pressures due to
industry-wide capacity growth in the Atlantic and Latin American markets.
Cargo Revenues and Other Revenues -- Cargo revenues fell 4% to $557 million,
reflecting a 3% decrease in cargo ton miles and a 1% decrease in ton mile yield.
The decrease in cargo ton miles reflects an industry-wide decrease in demand in
the Atlantic freight market. Mail volume also decreased as the U.S. Postal
Service shifted certain business from major passenger carriers to ground service
and dedicated air freight carriers. The decrease in ton mile yield is due to
competitive pricing strategies.
Other revenues increased 31% to $737 million, mainly a result of higher
revenues from frequent flyer programs. During fiscal 1999, we initiated programs
with new frequent flyer partners and expanded programs with existing partners.
Other revenues also increased due to higher revenue from code-sharing programs
and other fee-based income.
26
<PAGE> 4
Operating Expenses
Operating expenses totaled $12.8 billion for fiscal 1999, increasing 3% from
$12.4 billion in fiscal 1998. Operating capacity rose 3% to 144 billion ASMs.
CASM remained flat year over year. Non-fuel CASM grew 2% to 7.97 cents.
Salaries and related costs increased 3% during fiscal 1999. We increased the
number of full-time equivalent employees to implement our customer service
initiatives and support our growth. On January 1, 1999, we implemented a general
salary increase for most domestic employees. The increase in salary expense due
to our increase in staffing and the general salary increase is partially offset
by lower retirement and survivor expense, mainly due to higher returns on plan
assets.
Aircraft fuel expense decreased 10% in fiscal 1999, with the average fuel
price per gallon falling 12% to 49.83 cents. Total gallons consumed increased 2%
due to increased operations on a 3% rise in capacity. Passenger commissions
expense declined 12%, reflecting lower effective commission rates and increased
utilization of low-cost distribution channels, partially offset by higher
passenger volume. Depreciation and amortization expense rose 12% due to the
acquisition of additional aircraft and ground equipment, partially offset by an
increase in the useful lives of certain aircraft types (see Note 1 of the Notes
to the Consolidated Financial Statements).
Contracted services expense grew 11% due to expanded operations into new and
existing markets, rate increases in ground handling and cabin cleaning
contracts, and higher passenger volume. Other selling expenses increased 11%,
resulting from increased advertising and promotional activities, as well as an
increase in credit card charges due to higher passenger volume. Landing fees and
other rents increased 9% primarily due to increased terminal rentals, resulting
from our expansion into new and existing markets.
Aircraft rental expense increased 7% due to an increased number of leased
aircraft. Aircraft maintenance materials and outside repair expense grew 13% due
to the expiration of certain engine warranties and other costs associated with
the maturation of the fleet. Passenger service expense increased 11% due to
higher food costs, which are associated with higher passenger volume and product
upgrades. Other costs increased 7% due to higher expenses associated with
enhanced customer loyalty programs, supplies, and communications expense,
partially offset by lower insurance costs.
<TABLE>
<CAPTION>
- ---------------------------------
Operating Income*
In Millions of Dollars
<S> <C>
95 $ 661
96 1,294
97 1,583
98 1,694
99 1,870
- ---------------------------------
</TABLE>
* Excludes restructuring and other non-recurring charges.
Operating Income and Operating Margin
Operating income totaled $1.9 billion for fiscal 1999, which represented an
increase of 10% over fiscal 1998. Delta has nearly tripled operating income
(excluding restructuring and other non-recurring charges) over the past four
fiscal years.
Our revenue growth combined with our focus on cost management resulted in a
fiscal 1999 record operating margin of 12.7%, a 6% increase from the prior
year.
<TABLE>
<CAPTION>
- ---------------------------------
Operating Margin*
<S> <C>
95 5.4%
96 10.4%
97 11.6%
98 12.0%
99 12.7%
- ---------------------------------
</TABLE>
* Excludes restructuring and other non-recurring charges.
Other Income (Expense)
Other expense decreased 4% to $44 million during fiscal 1999. Higher interest
expense, due to higher average outstanding debt balances, and lower interest
income, due to lower average balances in short-term investments, were offset by
a $34 million increase in miscellaneous income. Miscellaneous income increased
primarily due to a $26 million gain on the sale of a portion of our interest in
Equant N.V., an international data network services company.
FISCAL 1998 COMPARED TO FISCAL 1997
Net Income and Earnings per Share
Net income grew 17% during fiscal 1998, from $854 million reported in fiscal
1997. Basic EPS was $6.64 in fiscal 1998 and $5.70 in fiscal 1997. Diluted EPS
was $6.34 for fiscal 1998, compared to $5.52 for fiscal 1997. Fiscal 1997
operating results include pretax restructuring and other non-recurring charges
of $52 million ($32 million after-tax or $0.22 basic and $0.21 diluted EPS)
related to the realignment of our transatlantic and European operations.
Operating Revenues
Fiscal 1998 operating revenues rose 4% over fiscal 1997. Passenger revenues
increased 4%, reflecting a 3% rise in RPMs on ASM growth of 2%. Passenger mile
yield increased slightly to 12.85(cent).
27
<PAGE> 5
FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LINES, INC.
Domestic Passenger Revenues -- During fiscal 1998, domestic passenger revenues
grew 4% to $10.7 billion, driven by a 3% rise in RPMs on a 2% increase in
capacity, and 1% passenger mile yield growth. We experienced greater demand for
air traffic and favorable economic conditions in fiscal 1998, and allocated more
aircraft to higher-demand markets. Passenger mile yield increased due to a
domestic fare increase implemented during the September 1997 quarter, offset by
more low-fare competition and the full-year impact of the U.S. transportation
excise tax.
International Passenger Revenues -- As a result of our efforts to expand our
global reach, international passenger revenues increased 3% to $2.3 billion
during fiscal 1998. RPMs grew 6% on a 5% increase in ASMs. The growth in RPMs
was offset by a 3% decline in passenger mile yield. The increase in RPMs is due
to our addition of new routes to Latin America and other markets, strong demand
in the Atlantic market and improved asset utilization. The decline in passenger
mile yield was mainly due to overall industry capacity growth in the Atlantic
market.
Cargo Revenues and Other Revenues -- Cargo revenues grew 5% during fiscal 1998,
reflecting a 14% increase in cargo ton miles and an 8% decline in ton mile
yield. Other revenues increased 5%, mainly due to higher revenues from frequent
flyer programs and fee-based income.
Operating Expenses
In fiscal 1998, operating expenses grew to $12.4 billion, up 3% from $12.1
billion in fiscal 1997. Operating capacity increased 2% to 140 billion ASMs.
CASM increased 1% during fiscal 1998. Non-fuel CASM increased 3% to 7.80(cent).
The increase in operating expenses resulted from higher salaries and related
costs due to headcount growth and compensation enhancements, increased
technology spending, onboard passenger enhancements and increased passenger
volume, offset by lower fuel expense.
Operating Income and Operating Margin
During fiscal 1998, operating income grew to $1.7 billion, an 11% increase.
Operating margin increased from 11.3% in fiscal 1997 to 12.0% in fiscal 1998.
Other Income (Expense)
Other expense for fiscal 1998 decreased $70 million to $46 million, primarily
a result of lower interest expense and higher interest income.
FINANCIAL CONDITION AND LIQUIDITY
FISCAL YEAR 1999
Cash and cash equivalents and short-term investments totaled $1.1 billion at
June 30, 1999, compared to $1.6 billion at June 30, 1998. The decrease in cash
and cash equivalents and short-term investments is due to aircraft acquisitions
and common stock repurchases during fiscal 1999. Our principal sources and uses
of cash are detailed below.
Sources:
- - Generated $2.9 billion of cash from operations.
- - Borrowed $500 million under our 1999 Bank Credit Agreement to finance a
portion of our purchase of ASA Holdings. These borrowings are due on March
22, 2001 (see Note 5 of the Notes to the Consolidated Financial Statements).
- - Issued $300 million of Medium-Term Notes, a portion of which were used to
fund our purchase of ASA Holdings. These notes mature during fiscal 2004 (see
Note 5 of the Notes to the Consolidated Financial Statements).
- - Received $325 million from the sale of a defined pool of our accounts
receivable, accelerating our cash flows at a low effective rate (see Note 16
of the Notes to the Consolidated Financial Statements).
- - Issued 3.2 million shares of common stock for $165 million (including an
income tax benefit of $34 million for stock options exercised). These shares
were primarily issued under our broad-based stock option plans (see Note 15
of the Notes to the Consolidated Financial Statements).
Uses:
- - Invested $2.3 billion in flight equipment and $561 million in ground property
and equipment.
- - Repurchased 15.1 million shares of common stock for $885 million as part of
our share repurchase programs (see Note 11 of the Notes to the Consolidated
Financial Statements).
- - Paid $700 million to acquire ASA Holdings (see Note 17 of the Notes to the
Consolidated Financial Statements).
- - Repaid $431 million of long-term and short-term debt and capital lease
obligations.
- - Paid $43 million in cash dividends on our preferred and common stock.
28
<PAGE> 6
<TABLE>
<CAPTION>
- ---------------------------------------
Cash Used in Investing Activities
In Millions of Dollars
<S> <C>
95 $ 495
96 888
97 1,941
98 2,324
99 2,791
- ---------------------------------------
</TABLE>
Cash flows from operations for fiscal 1999 totaled $2.9 billion, a slight
increase over the prior year and a new record for our Company.
We have reinvested cash generated during fiscal 1999 in future growth
opportunities by purchasing ASA Holdings, implementing fleet initiatives,
upgrading airport and administrative technology and investing in customer
service improvements. We have increased the amount of cash used in investing
activities every year since fiscal 1995, highlighting our emphasis on business
reinvestment and growth opportunities.
As of June 30, 1999, our Company had a negative working capital position of
$2.7 billion, compared to negative working capital of $1.2 billion at June 30,
1998. The increase results from our use of cash for aircraft acquisitions and
common stock repurchases, as well as increased current maturities of long-term
debt.
A negative working capital position is normal for us, primarily due to our
air traffic liability, and does not indicate a lack of liquidity. We expect to
meet our obligations as they become due through available cash, short-term
investments and internally generated funds, supplemented as necessary by debt
financings and proceeds from sale and leaseback transactions. At August 13,
1999, we had $1.25 billion of credit available under our 1997 Bank Credit
Agreement (see Note 5 of the Notes to the Consolidated Financial Statements).
Long-term debt and capital lease obligations, including current maturities,
totaled $2.7 billion at June 30, 1999, compared to $1.9 billion at June 30,
1998. The increase in debt is a result of borrowings to finance our acquisition
of ASA Holdings. Shareowners' equity was $4.5 billion at June 30, 1999, compared
to $4.0 billion at June 30, 1998. Our debt-to-equity position, including current
maturities, was 36% debt and 64% equity at June 30, 1999, compared to 32% debt
and 68% equity at June 30, 1998.
In July 1999, we issued $538 million of 8.125% notes in a public offering. We
will use the proceeds of this offering for general corporate purposes. The notes
mature on July 1, 2039, but may be redeemed at par on or after July 1, 2004.
At August 13, 1999, $290 million in Delta Family-Care Savings Plan's Series C
Guaranteed Serial ESOP Notes were outstanding. Delta guarantees the Series C
ESOP Notes and is required to purchase these notes in certain circumstances (see
Note 5 of the Notes to the Consolidated Financial Statements).
PRIOR YEARS
FISCAL 1998
During fiscal 1998, our principal source of funds was $2.9 billion of cash
from operations. We invested $1.8 billion in flight equipment and $531 million
in ground property and equipment, and made payments of $307 million on long-term
debt and capital lease obligations. Delta also repurchased $354 million of
common stock and paid cash dividends of $43 million to our preferred and common
shareowners.
FISCAL 1997
In fiscal 1997, our principal source of funds was $2.0 billion of cash from
operations. We invested $1.6 billion in flight equipment and $350 million in
ground property and equipment. We made payments of $196 million on long-term
debt and capital lease obligations. We also repurchased $379 million of common
stock and paid cash dividends of $44 million to our preferred and common
shareowners.
COMMITMENTS
Estimated future expenditures for aircraft and engines on firm order as of
August 13, 1999 total approximately $10 billion. In addition, we have authorized
capital expenditures of approximately $794 million for fiscal 2000 to be used
for facilities improvements, aircraft modifications and the purchase of ground
equipment and other assets. See Notes 6 and 7 of the Notes to the Consolidated
Financial Statements for additional information on our lease obligations and
purchase commitments.
OTHER MATTERS
YEAR 2000 READINESS
BACKGROUND
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, these systems may
recognize the year 2000 as "00." This could cause many computer applications to
fail or to create errors unless corrective measures are taken.
OUR YEAR 2000 PROGRAM
Our Company's flight operations, flight support units and other business
support units depend on internal and external computer systems and equipment
that
29
<PAGE> 7
FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LINES, INC.
may be affected by the Year 2000 issue. Accordingly, achieving Year 2000
readiness is one of our top priorities. We have implemented a Year 2000 program
for our internal systems and equipment which has four phases:
1. identification;
2. assessment of issues (including prioritization);
3. remediation, which includes the modification, upgrading and replacement of
noncompliant systems; and
4. testing of remediated systems, including monitoring.
We are also reviewing the Year 2000 readiness of third parties who provide
goods or services essential to our operations. In addition, we have revised our
existing business interruption contingency plans to address issues that could
arise from the Year 2000 problem. Senior management and the Board of Directors
receive regular status updates on our Year 2000 program.
SAFETY-OF-FLIGHT SYSTEMS
We have completed our review of the potential impact of Year 2000 issues on
our aircraft fleet and onboard flight support systems, and have determined that
there are no safety-of-flight issues with this equipment or these systems. We
have also completed all phases of our Year 2000 program for onboard flight
management systems. These management systems help us to operate efficiently but
are not essential to the safe operation of flights.
We use ground-based, safety-related computer systems and equipment that are
vital to the maintenance of aircraft and the control of flight operations. All
Year 2000 program phases for these systems and equipment are complete.
Selective testing of safety-of-flight systems will continue through December
31, 1999 as part of normal systems maintenance. In addition, we will monitor
remediated and tested systems well into calendar year 2000 to confirm that
these systems operate correctly.
CRITICAL INTERNAL BUSINESS SYSTEMS
Our critical internal business systems and equipment include computer
hardware, software and related equipment essential for the following functions:
- - customer reservations
- - ticketing
- - flight scheduling
- - seat inventory management
- - airport customer services
- - finance administration
- - internal voice and data communications
- - aircraft ground handling
- - baggage handling
- - facility management
- - security
We have completed the identification and assessment phases for all of our
critical internal business systems and equipment. Remediation is in process for
one of our vendor-supported baggage handling systems, and we expect to complete
its remediation and testing by October 1999. We have completed the remediation
and testing phases for all other critical internal business systems and
equipment. We will continue selective testing of our critical internal business
systems through December 31, 1999 as part of normal systems maintenance. We will
monitor remediated and tested systems well into calendar year 2000 to confirm
that our hardware and software operates correctly.
We are replacing customer service hardware that is currently installed at our
airport facilities with upgraded, Year 2000 compliant hardware. We began this
effort in September 1998 and expect to complete installation during the December
1999 quarter.
INTERFACES WITH THIRD PARTIES
Our Company has communicated with, and continues to review, third parties
that provide essential goods or services to our Company in order to:
1. determine the extent to which we are vulnerable to the failure of these third
parties to remediate their Year 2000 issues, and
2. resolve any problems discovered to the extent practicable.
These third parties include suppliers of infrastructure critical to the
airline industry, such as air traffic control and related systems of the U.S.
Federal Aviation Administration and international aviation authorities, the U.S.
Department of Transportation (DOT) and local airport authorities. Other critical
third parties include other airlines as well as suppliers of aircraft fuel,
utilities, external computer reservations services and communication services.
We are actively involved in airline industry Year 2000 review efforts led by the
Air Transport Association (ATA), the International Civil Aviation Organization
(ICAO) and the International Air Transport Association (IATA). This review has
identified potential Year 2000 compliance issues at several international
locations. Delta, along with other airlines and the ATA, ICAO and IATA, is
continuing to assess these specific situations. We will make future flight
schedule revisions if necessary to ensure safe operations.
30
<PAGE> 8
ESTIMATED YEAR 2000 COSTS
Our Company estimates the total cost of achieving Year 2000 readiness for our
internal systems and equipment is approximately $105 million to $120 million, of
which $91 million has been recognized as expense in the Consolidated Statements
of Operations through June 30, 1999. The majority of the estimated Year 2000
compliance costs have been funded by reallocating existing resources rather than
incurring incremental costs.
CONTINGENCY PLANNING
We revised our existing business interruption contingency plans to address
internal and external issues specific to the Year 2000 problem. These plans are
intended to enable us to continue to operate, to the extent that we can do so
safely. Our contingency plans include performing processes manually, repairing
or obtaining replacement systems, changing suppliers and reducing or suspending
operations.
We believe, however, that due to the widespread nature of potential Year 2000
issues, the contingency planning process is ongoing and will require further
modifications as we receive information about the results of the Year 2000
programs of Delta and of third parties.
POSSIBLE CONSEQUENCES OF YEAR 2000 PROBLEMS
Management believes that completed and planned modifications and conversions
of our Company's internal systems and equipment will allow us to be Year 2000
compliant in a timely manner. There can be no assurance, however, that our
internal systems or equipment or those of the third parties on whom we rely will
be Year 2000 compliant in a timely manner, or that our Company's or third
parties' contingency plans will mitigate the effects of issues that arise. The
failure of our systems or equipment or of an essential third party (whose
failure we believe is the most reasonably likely worst-case scenario) could
result in the reduction or suspension of our operations and could have a
material adverse effect on our business or consolidated financial statements.
OTHER MATTERS
The section above entitled "Year 2000 Readiness" is a "Year 2000 Readiness
Disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act (Public Law 105-271) enacted in October 1998.
This "Year 2000 Readiness" section includes forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. Our Company
uses the words "believes," "expects," "estimates" and similar expressions to
identify forward-looking statements. See the "Forward-Looking Information"
section on page 35.
PRICELINE.COM
During fiscal 1999, Delta entered into an agreement with priceline.com
Incorporated. Under this agreement, ticket inventory provided by Delta is sold
through priceline.com's Internet-based e-commerce system. As part of this
agreement, we received warrants to purchase up to 18.6 million shares of
priceline.com's common stock for $0.93 per share. These warrants are exercisable
beginning when certain performance thresholds are met and ending December 31,
2005. Delta has now met the performance thresholds relating to the exercise of
the warrants. These warrants, and the shares issuable when the warrants are
exercised, are not registered under the Securities Act of 1933. We have certain
demand and piggyback registration rights relating to the shares.
On August 10, 1999, priceline.com filed a registration statement with the SEC
for a proposed public offering of its common stock. On August 17, 1999, we
exercised 1.8 million of our warrants and sold the related shares in the public
offering. The exercise of the warrants and the sale of the related stock
resulted in a pretax gain of approximately $115 million.
ALLIANCE AGREEMENTS
On June 22, 1999, we entered into a long-term marketing agreement with Air
France which facilitates our growth in Atlantic markets. The alliance will
include code-sharing arrangements, reciprocal frequent flyer programs and
coordinated cargo operations.
PERSONNEL MATTERS
COMPENSATION CHANGES
During fiscal 1999, we changed the compensation program for most of our
domestic, noncontract employees. On January 1, 1999, we discontinued our
broad-based employee profit-sharing program. We converted the annual
profit-sharing payout, of up to 6% of annual base salary, to a 6% base salary
increase for all eligible employees. On the same date, we also increased base
salaries by an additional 2% for all eligible personnel. In January 1999,
eligible employees received a profit-sharing payment equal to 6% of their base
salary for the period July 1, 1998 through December 31, 1998. Our Company made
similar compensation program changes for our pilots and flight superintendents.
31
<PAGE> 9
FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LINES, INC.
COLLECTIVE BARGAINING AGREEMENTS
<TABLE>
<CAPTION>
Approximate Number Amendable Date of
Group of Employees of Employees Representing Union Collective Bargaining Agreement
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Delta Pilots 9,000 Air Line Pilots Association, May 2000
International (ALPA)
Delta Flight Superintendents 210 Professional Airline Flight January 2003
Controllers Association
ASA Pilots 770 ALPA September 2002
ASA Flight Attendants 370 Association of Flight Attendants September 2002
ASA Flight Dispatchers 30 Transport Workers' Union (*)
of America (TWU)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(*) In November 1998, the National Mediation Board (NMB) certified the TWU as
the collective bargaining representative of ASA's flight dispatchers.
Negotiations for the initial collective bargaining agreement between ASA and
TWU have not yet begun.
No other domestic employees of our Company are represented by unions.
In March 1999, the TWU filed an application with the NMB to represent Delta's
approximately 110 pilot ground training instructors. On August 9, 1999, the NMB
authorized an election to determine whether to certify the TWU as the collective
bargaining representative of this group of employees. Unions are currently
seeking to become the collective bargaining representative of various groups of
our employees. None of these unions other than the TWU has filed an application
with the NMB. The outcome of these matters cannot presently be determined.
PILOT COLLECTIVE BARGAINING AGREEMENT
In May 1996, our Company and ALPA entered into a new collective bargaining
agreement that establishes the pay rates and working conditions for Delta
pilots. This agreement becomes amendable on May 2, 2000. It provides in part
that, if we operate an aircraft type for which the pay rates and working
conditions are not set forth in the collective bargaining agreement: (1) our
Company and ALPA will negotiate the pay rates and working conditions for the new
aircraft type; (2) Delta pilots will fly the new aircraft type whether or not
these matters have been agreed to; but (3) the obligation of Delta pilots to fly
the new aircraft type will end six months after we place that new aircraft type
in service if an agreement has not been reached on pay rates and working
conditions.
In October 1997, we entered into aircraft purchase agreements with Boeing
under which we agreed to purchase various aircraft, including the following
three types that we had not previously operated: the 737-600/700/800, the
777-200 and the 767-400. The May 1996 collective bargaining agreement with ALPA
does not cover the pay rates and working conditions for these aircraft types.
737-600/700/800 NEGOTIATIONS
Our Company and ALPA began negotiations on pilot pay rates and working
conditions for the 737-600/700/ 800 aircraft types in October 1997. In July
1998, we and ALPA reached an agreement, subject to ratification by Delta pilots,
that established industry-leading pilot pay rates for these new aircraft types.
In October 1998, ALPA announced that 60% of voting Delta pilots approved this
agreement.
777-200 NEGOTIATIONS
In February 1999, Delta and ALPA began negotiations on pay rates and working
conditions for 777 aircraft, but the parties remain far apart. We have offered
to provide industry-leading pay rates for 777 pilots; ALPA is seeking pay rates
significantly higher than our offer, as well as work rules that would further
increase our cost of operating 777 aircraft.
During fiscal 1999, our Company accepted delivery of two 777 aircraft, which
we placed in service on May 1, 1999. We have orders to purchase 11 additional
777 aircraft. The scheduled delivery dates for these aircraft are as follows:
five in fiscal 2000; one in each of fiscal 2002 and fiscal 2003; and four in
fiscal 2005.
ALPA has announced plans to request Delta pilots not to fly 777 aircraft as
early as November 1, 1999 - six months after we initially placed that aircraft
type in service - unless an agreement on pay rates and working conditions for
777 aircraft is reached by that time. In June 1999, Delta pilots authorized ALPA
to assess pilots 3.5% of their gross pay for up to nine months to finance a
contingency fund for pilots who would have flown 777 aircraft.
32
<PAGE> 10
In June 1999, our Company announced that we would indefinitely defer the
delivery of the eleven 777 aircraft on order, and would remove from service on
November 1, 1999 the two 777 aircraft we currently operate. We made this
decision to protect our customers against schedule disruptions that would result
if Delta pilots stopped flying 777 aircraft. We published our winter 1999/2000
flight schedule, which begins November 1, 1999, in computer reservations systems
on or about August 1, 1999. ALPA had previously informed us that a tentative
agreement on 777 pay rates and working conditions would have to be reached by
May 28, 1999 to achieve a pilot-ratified 777 agreement by August 1, 1999.
Accordingly, 777 aircraft are not included in our winter flight schedule.
Delta intends to continue to negotiate in good faith with ALPA on 777 pay
rates and working conditions. Concurrently, we are marketing the two 777
aircraft we own and are reviewing our alternatives regarding the 11 remaining
777 aircraft on order.
767-400 NEGOTIATIONS
In August 1999, our Company and ALPA began negotiations on pay rates and
working conditions for 767-400 aircraft. We have 21 767-400 aircraft on order,
which are scheduled to be delivered beginning in May 2000.
OTHER PERSONNEL MATTERS
Our Company will begin negotiations with ALPA in September 1999 on a new
collective bargaining agreement to replace the existing contract that becomes
amendable on May 2, 2000.
The outcome of our negotiations with ALPA regarding 777 aircraft, 767-400
aircraft and a new collective bargaining agreement cannot presently be
determined.
NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use," which defines the type of costs related to
internal use software that should be capitalized, versus those that should be
expensed as incurred.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which requires all costs related to the start-up of a new business
or business segment to be expensed as incurred. Any start-up costs which have
been capitalized are required to be expensed when SOP 98-5 is adopted.
Delta is required to adopt SOP 98-1 and SOP 98-5 in fiscal 2000. The adoption
of these statements will not have a material impact on our Company's
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes accounting and reporting standards
for derivatives and hedging activities. We are required to adopt SFAS 133 during
fiscal 2001. We are currently evaluating whether the implementation of SFAS 133
will have a material impact on our consolidated financial statements.
GOVERNMENTAL MATTERS
During fiscal 1999, the ATA and the major U.S. airlines worked with
Congressional leaders to create a voluntary program to improve customer service.
Under this program, known as the "Airline Customer Service Commitment," each
major carrier will develop a plan for achieving stated goals. These goals
include providing customers with timely information concerning flight delays and
cancellations, on-time baggage delivery, meeting customers' needs during lengthy
delays and being responsive to customer complaints.
Each major U.S. carrier agreed to file its customer service plan with the DOT
by September 15, 1999 and implement its plan by December 15, 1999. The DOT will
audit carriers for compliance starting on June 15, 2000 and will issue its first
assessment on December 15, 2000.
On April 6, 1998, the DOT published a proposed statement of enforcement
policy to address DOT concerns that major air carriers were taking actions
designed to exclude new carriers in certain airline markets, particularly at hub
airports. The proposed guidelines focus on unreasonable price cuts and/or
capacity increases by major carriers in response to entry by new carriers at hub
airports, and on whether the major carriers could have pursued a more reasonable
alternative strategy for competing with new entrants. The proposed policy, if
adopted, could adversely affect our ability to respond to competitive challenges
by new entrant carriers.
COMPETITIVE ENVIRONMENT AND SEASONALITY
We expect low-fare competition to continue in domestic and international
markets. If price reductions are not offset by increases in traffic or changes
in the mix of traffic that improve our passenger mile yield, our operating
results will be adversely affected.
33
<PAGE> 11
FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LINES, INC.
There are seasonal variations in the demand for air travel. Therefore,
operating results for an interim period do not necessarily indicate results for
an entire year. In general, demand for air travel is higher in the June and
September quarters, particularly in international markets, because there is more
vacation travel during these periods than during the remainder of the year.
Demand is also affected by factors such as economic conditions and fare levels.
ENVIRONMENTAL AND LEGAL CONTINGENCIES
Delta is a defendant in legal actions relating to alleged employment
discrimination practices, antitrust matters, environmental issues and other
matters concerning our business. Although the ultimate outcome of these matters
cannot be predicted with certainty, we believe that the resolution of these
actions is not likely to have a material adverse effect on our consolidated
financial statements.
MARKET RISKS ASSOCIATED WITH
FINANCIAL INSTRUMENTS
Our Company has market risk exposure related to aircraft fuel prices, stock
prices, interest rates and foreign currency exchange rates. The market risk is
the potential negative impact of adverse changes in these prices or rates on our
consolidated financial statements.
To manage the volatility relating to these exposures, our Company enters into
derivative transactions pursuant to our stated policies. See Note 4 of the Notes
to the Consolidated Financial Statements for further discussion of our policies
for managing such exposures.
The following sensitivity analyses do not consider the effects that an
adverse change would have on demand for air travel, the economy as a whole, or
additional actions by management to mitigate our exposure to that risk. For
these and other reasons, the actual results of adverse changes in these prices
or rates may differ materially from the following hypothetical results.
AIRCRAFT FUEL PRICE RISK
Our Company's results of operations could be significantly impacted by
changes in the price and availability of aircraft fuel. During fiscal 1999,
aircraft fuel accounted for 11% of our operating expenses. Based on our
projected fiscal 2000 aircraft fuel consumption of 2.8 billion gallons, a 10%
increase in our projected jet fuel prices would increase our aircraft fuel
expense by approximately $31 million for fiscal 2000. This analysis includes the
effects of fuel hedging instruments in place at June 30, 1999. Based on our
fiscal 1999 aircraft fuel consumption of 2.7 billion gallons, a 10% rise in our
jet fuel prices would have increased our aircraft fuel expense by approximately
$25 million in fiscal 1999. This analysis includes the effects of fuel hedging
instruments in place at June 30, 1998.
For additional information regarding our aircraft fuel price risk management
program, see Note 4 of the Notes to the Consolidated Financial Statements.
EQUITY SECURITIES RISK
At June 30, 1999, the estimated fair value of our marketable equity
investments in Comair Holdings, Inc., Singapore Airlines Limited, SAirGroup and
SkyWest, Inc. totaled $962 million. The aggregate unrealized gain from these
investments was $568 million at June 30, 1999. At June 30, 1998, the estimated
fair value of our equity investments totaled $1.3 billion, with an aggregated
unrealized gain of $785 million. The decrease in fair value of these investments
at June 30, 1999 compared to June 30, 1998 is due to the inclusion of our equity
interest in ASA Holdings at June 30, 1998. ASA Holdings was not included in
these investments at June 30, 1999, because it was consolidated into our Company
as a wholly owned subsidiary during fiscal 1999 (see Note 17 of the Notes to the
Consolidated Financial Statements). The market risk associated with these
investments is the potential loss in fair value resulting from a decrease in the
stock prices of these companies.
34
<PAGE> 12
We also have exposure to foreign currency exchange rate risk relating to our
investments in Singapore Airlines and SAirGroup. We believe the foreign currency
exchange rate risk related to these investments is not material to our Company.
See Notes 2 and 4 of the Notes to the Consolidated Financial Statements.
We are a member of the SITA Foundation, whose principal asset is its equity
interest in Equant, N.V., an international data network services company. The
market risk relating to our remaining investment in Equant is the potential
reduction in the value of our investment resulting from decreases in Equant's
stock price. For further discussion of our membership in the SITA Foundation,
see Note 2 of the Notes to the Consolidated Financial Statements.
At June 30, 1999, we had warrants to purchase approximately 18.6 million
shares of the common stock of priceline.com. Our market risk associated with
these warrants is the potential loss of gain based on decreases in the price of
the common stock of priceline.com. For additional information regarding these
warrants, see "Priceline.com" on page 31 and Note 2 of the Notes to the
Consolidated Financial Statements.
INTEREST RATE RISK
Our exposure to market risk due to changes in interest rates relates to our
long-term debt obligations and cash investment portfolio.
Market risk associated with our long-term debt is the potential change in
fair value resulting from a change in interest rates. A 10% adverse change in
assumed interest rates would increase the estimated fair value of our long-term
debt by $100 million and $117 million at June 30, 1999 and June 30, 1998,
respectively. A 10% increase in average annual interest rates would not have had
a material impact on our interest expense for fiscal 1999 or fiscal 1998.
Based on our average balance of cash and cash equivalents and short-term
investments during fiscal 1999, a 10% decrease in average annual interest rates
would not have a material impact on our interest income.
FOREIGN CURRENCY EXCHANGE RATE RISK
Our Company is subject to foreign currency exchange rate fluctuations on the
U.S. dollar value of foreign currency-denominated transactions. Based on our
average annual net currency positions in fiscal 1999 and 1998, a 10% adverse
change in average annual foreign currency exchange rates would not have been
material to our consolidated financial statements for the years ending June 30,
1999 or 1998.
We use foreign currency options and forward contracts with maturities of up
to 12 months to manage our foreign currency exchange rate risk.
In fiscal 1998, we used foreign currency forward contracts, generally with
maturities of less than two months, to mitigate foreign currency risk. We did
not use foreign currency option contracts in fiscal 1998. For additional
information regarding our foreign currency exchange rate risk management
program, see Note 4 of the Notes to the Consolidated Financial Statements.
FORWARD-LOOKING INFORMATION
This Annual Report to Shareowners includes forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. We may also
make forward-looking statements about our Company and our business either
verbally or in writing. We use the words "believes," "expects," "estimates" and
similar expressions to identify forward-looking statements.
All forward-looking statements involve a number of risks and uncertainties
that could cause actual results to differ materially from projected results.
Factors and events that could cause these differences include, but are not
limited to:
- - general economic conditions;
- - competitive factors, such as the airline pricing environment, international
alliances, code-sharing programs and capacity decisions by competitors;
- - outcomes of negotiations on collective bargaining agreements;
- - changes in aircraft fuel prices;
- - fluctuations in foreign currency exchange rates;
- - actions by the United States and foreign governments; and
- - the willingness of customers to travel.
In addition, the following factors relate to our Year 2000 program:
- - the ability to identify and remediate all date-sensitive lines of computer
code or to replace embedded computer chips in affected systems or equipment;
- - the availability of qualified information technology personnel and other
information technology resources; and
- - the actions of governmental agencies or other third parties with respect to
Year 2000 problems.
35
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
(In Millions)
CURRENT ASSETS:
Cash and cash equivalents $ 1,124 $ 1,077
Short-term investments 19 557
Accounts receivable, net of allowance for
uncollectible accounts of $30 at June 30,
1999 and $36 at June 30, 1998 602 938
Deferred income taxes 403 464
Prepaid expenses and other 524 326
- ---------------------------------------------------------------------------------
Total current assets 2,672 3,362
- ---------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Flight equipment 13,389 11,180
Less: Accumulated depreciation 4,405 3,895
- ---------------------------------------------------------------------------------
8,984 7,285
- ---------------------------------------------------------------------------------
Flight equipment under capital leases 515 515
Less: Accumulated amortization 264 216
- ---------------------------------------------------------------------------------
251 299
- ---------------------------------------------------------------------------------
Ground property and equipment 3,862 3,285
Less: Accumulated depreciation 2,123 1,854
- ---------------------------------------------------------------------------------
1,739 1,431
- ---------------------------------------------------------------------------------
Advance payments for equipment 493 306
- ---------------------------------------------------------------------------------
Total property and equipment 11,467 9,321
- ---------------------------------------------------------------------------------
OTHER ASSETS:
Marketable equity securities 523 424
Investments in associated companies 300 326
Cost in excess of net assets acquired, net of
accumulated amortization of $121 at
June 30, 1999 and $112 at June 30, 1998 782 265
Leasehold and operating rights, net of accumulated
amortization of $220 at June 30, 1999 and
$209 at June 30, 1998 113 124
Other noncurrent assets 687 781
- ---------------------------------------------------------------------------------
Total other assets 2,405 1,920
- ---------------------------------------------------------------------------------
Total assets $16,544 $14,603
=================================================================================
</TABLE>
36
<PAGE> 14
<TABLE>
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
(In Millions, Except Share Data)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 660 $ 67
Current obligations under capital leases 39 63
Accounts payable and miscellaneous accrued liabilities 2,144 2,025
Air traffic liability 1,819 1,667
Accrued rent 195 202
Accrued salaries and vacation pay 470 553
- ------------------------------------------------------------------------------------------------------
Total current liabilities 5,327 4,577
- ------------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt 1,756 1,533
Postretirement benefits 1,894 1,873
Accrued rent 720 651
Capital leases 196 249
Deferred income taxes 820 262
Other 470 511
- ------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 5,856 5,079
- ------------------------------------------------------------------------------------------------------
Deferred Credits:
Deferred gain on sale and leaseback transactions 642 694
Manufacturers' and other credits 76 55
- ------------------------------------------------------------------------------------------------------
Total deferred credits 718 749
- ------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 4, 5, 6, 7 AND 8)
EMPLOYEE STOCK OWNERSHIP PLAN PREFERRED STOCK:
Series B ESOP Convertible Preferred Stock, $1.00 par value, $72.00
stated and liquidation value; issued and outstanding 6,547,495 shares
at June 30, 1999 and 6,603,429 shares at June 30, 1998 471 475
Unearned compensation under employee stock ownership plan (276) (300)
- ------------------------------------------------------------------------------------------------------
Total Employee Stock Ownership Plan Preferred Stock 195 175
- ------------------------------------------------------------------------------------------------------
SHAREOWNERS' EQUITY:
Common stock, $1.50 par value; authorized 450,000,000 shares;
issued 179,763,547 shares at June 30, 1999
and 176,566,178 shares at June 30, 1998 270 265
Additional paid-in capital 3,208 3,034
Retained earnings 2,756 1,687
Accumulated other comprehensive income 149 89
Treasury stock at cost, 41,209,828 shares at June 30, 1999
and 26,115,784 shares at June 30, 1998 (1,935) (1,052)
- ------------------------------------------------------------------------------------------------------
Total shareowners' equity 4,448 4,023
- ------------------------------------------------------------------------------------------------------
Total liabilities and shareowners' equity $ 16,544 $ 14,603
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
37
<PAGE> 15
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
(In Millions, Except Per Share Data) 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger $13,417 $12,994 $12,505
Cargo 557 582 554
Other, net 737 562 535
- ------------------------------------------------------------------------------------------
Total operating revenues 14,711 14,138 13,594
- ------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and related costs 4,993 4,850 4,534
Aircraft fuel 1,360 1,507 1,722
Passenger commissions 867 980 1,017
Depreciation and amortization 961 860 710
Contracted services 772 694 630
Other selling expenses 755 681 677
Landing fees and other rents 707 649 649
Aircraft rent 590 552 547
Aircraft maintenance materials and outside repairs 561 495 434
Passenger service 500 450 389
Restructuring and other non-recurring charges -- -- 52
Other 775 726 702
- ------------------------------------------------------------------------------------------
Total operating expenses 12,841 12,444 12,063
- ------------------------------------------------------------------------------------------
OPERATING INCOME 1,870 1,694 1,531
- ------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (199) (186) (207)
Interest capitalized 46 38 33
Interest income 52 79 63
Miscellaneous income (expense), net 57 23 (5)
- ------------------------------------------------------------------------------------------
Total other income (expense) (44) (46) (116)
- ------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,826 1,648 1,415
INCOME TAXES PROVIDED (725) (647) (561)
- ------------------------------------------------------------------------------------------
NET INCOME 1,101 1,001 854
PREFERRED STOCK DIVIDENDS (11) (11) (9)
- ------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREOWNERS $ 1,090 $ 990 $ 845
==========================================================================================
BASIC EARNINGS PER SHARE $ 7.63 $ 6.64 $ 5.70
==========================================================================================
DILUTED EARNINGS PER SHARE $ 7.20 $ 6.34 $ 5.52
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
38
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
(In Millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,101 $ 1,001 $ 854
Adjustments to reconcile net income to cash
provided by operating activities:
Restructuring and other non-recurring charges -- -- 52
Depreciation and amortization 961 860 710
Deferred income taxes 418 294 240
Rental expense in excess of (less than) rent payments 10 (17) (58)
Pension, postretirement and postemployment expense
in excess of payments 34 179 92
Changes in certain current assets and liabilities:
Decrease in accounts receivable 339 5 25
(Increase) decrease in prepaid expenses and other
current assets (176) 15 (31)
Increase in air traffic liability 152 249 4
Increase in other payables and accrued expenses 12 330 186
Other, net 78 -- (35)
- ---------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,929 2,916 2,039
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (2,258) (1,760) (1,598)
Ground property and equipment (561) (531) (350)
Decrease (increase) in short-term investments, net 568 (43) (1)
Proceeds from sale of flight equipment 30 10 8
Acquisition, net of cash acquired (570) -- --
- ---------------------------------------------------------------------------------------------
Net cash used in investing activities (2,791) (2,324) (1,941)
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital
lease obligations (154) (307) (196)
Payments on notes payable (277) -- --
Cash dividends (43) (43) (44)
Issuance of long-term obligations 324 125 --
Issuance of short-term obligations 779 -- --
Issuance of common stock 131 318 38
Income tax benefit from exercise of stock options 34 84 --
Repurchase of common stock (885) (354) (379)
- ---------------------------------------------------------------------------------------------
Net cash used in financing activities (91) (177) (581)
- ---------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 47 415 (483)
Cash and cash equivalents at beginning of year 1,077 662 1,145
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,124 $ 1,077 $ 662
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
39
<PAGE> 17
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
Accumulated
Additional Retained Other
Common Paid-In Earnings Comprehensive Treasury
(In Millions, Except Share Data) Stock Capital (Deficit) Income Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996 $ 217 $ 2,627 $ (119) $ 126 $ (311) $ 2,540
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1997:
Net income -- -- 854 -- -- 854
Dividends on common stock ($0.10 per share) -- -- (15) -- -- (15)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares -- -- (9) -- -- (9)
Issuance of 1,496,984 shares of common stock
under dividend reinvestment and stock purchase
plan and stock options ($32.61 per share*) 2 47 -- -- (7) 42
Issuance of 21,258,930 shares of common stock
on conversions of Series C Preferred Stock
($32.19 per share*) 32 (32) -- -- -- --
Repurchase of 10,757,400 common shares
($35.27 per share*) -- -- -- -- (379) (379)
Accumulated other comprehensive income -- -- -- (25) -- (25)
Other -- 3 -- -- (4) (1)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 251 2,645 711 101 (701) 3,007
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1998:
Net income -- -- 1,001 -- -- 1,001
Dividends on common stock ($0.10 per share) -- -- (15) -- -- (15)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares -- -- (11) -- -- (11)
Issuance of 9,276,084 shares of common stock
under dividend reinvestment and stock purchase
plan and stock options ($34.28 per share*) 14 304 -- -- -- 318
Repurchase of 6,316,746 common shares
($56.04 per share*) -- -- -- -- (354) (354)
Income tax benefit from exercise of stock options -- 84 -- -- -- 84
Transfer of 99,082 shares of common stock from
treasury under stock incentive plan ($38.59 per share*) -- -- -- -- 3 3
Accumulated other comprehensive income -- -- -- (12) -- (12)
Other -- 1 1 -- -- 2
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 265 3,034 1,687 89 (1,052) 4,023
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1999:
Net income -- -- 1,101 -- -- 1,101
Dividends on common stock ($0.10 per share) -- -- (14) -- -- (14)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares -- -- (11) -- -- (11)
Issuance of 3,197,369 shares of common stock
under dividend reinvestment and stock purchase
plan and stock options ($41.01 per share*) 5 126 -- -- -- 131
Repurchase of 15,149,658 common shares
($58.45 per share*) -- -- -- -- (885) (885)
Income tax benefit from exercise of stock options -- 34 -- -- -- 34
Transfer of 55,614 shares of common stock from
treasury under stock incentive plan ($36.54 per share*) -- -- -- -- 2 2
Accumulated other comprehensive income -- -- -- 60 -- 60
Other -- 14 (7) -- -- 7
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $ 270 $ 3,208 $ 2,756 $ 149 $ (1,935) $ 4,448
==================================================================================================================================
</TABLE>
(*) Average price per share.
The accompanying notes are an integral part of these consolidated statements.
40
<PAGE> 18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS -- Delta Air Lines, Inc. (a Delaware corporation) is a major
air carrier that provides air transportation for passengers, freight and mail
throughout the United States and around the world. As of August 1999, we served
184 domestic cities in 44 states, the District of Columbia, Puerto Rico and the
U.S. Virgin Islands, as well as 42 cities in 29 international countries.
BASIS OF PRESENTATION -- Our consolidated financial statements contain
information for Delta Air Lines, Inc. and our wholly owned subsidiaries (Delta
or our Company). We have eliminated all significant intercompany account
balances and transactions. We have also reclassified certain amounts from prior
years to be consistent with the presentation in our 1999 financial statements.
USE OF ESTIMATES -- Preparing our financial statements in conformity with
generally accepted accounting principles requires us to make estimates and
assumptions that affect the amounts reported in our financial statements and the
accompanying footnotes. Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS -- During fiscal 1999, we adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (see
Note 12) and SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information" (see Note 13). During fiscal 1998, we adopted SFAS 128, "Earnings
Per Share" (see Note 14) and SFAS 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" (see Note 9). During fiscal 1997, we adopted
SFAS 123, "Accounting for Stock-Based Compensation" (see Note 15).
CASH AND CASH EQUIVALENTS -- We classify short-term, highly liquid investments
with original maturities of three months or less as cash and cash equivalents.
These investments are stated at cost, which approximates fair value.
DEPRECIATION AND AMORTIZATION -- Owned flight equipment is depreciated on a
straight-line basis over the estimated service lives, which range from 15 to 25
years, to a residual value ranging from 5% to 10% of cost. We amortize flight
equipment under capital leases on a straight-line basis over the original terms
of the leases, which range from 6 to 13 years. Ground property and equipment is
depreciated on a straight-line basis over the estimated service lives, which
range from 3 to 30 years. Costs assigned to the purchase of lease-hold rights
and landing slots are amortized over the lives of the leases at the associated
airports. We amortize purchased international route authorities over the lives
of the authorities as determined by their expiration dates. Permanent route
authorities with no stated expiration dates are amortized over 40 years. Our
cost in excess of net assets acquired (goodwill) is amortized over 40 years and
is primarily related to our acquisition of ASA Holdings, Inc. (ASA Holdings) in
March 1999 and Western Air Lines, Inc. in December 1986. ASA Holdings is the
parent of Atlantic Southeast Airlines, Inc. (ASA).
As of July 1, 1998, we increased the depreciable lives of certain aircraft
types from 20 to 25 years. The change in estimate reduced depreciation expense
by $92 million ($0.64 basic and $0.60 diluted earnings per share) for fiscal
1999.
INTEREST CAPITALIZED -- Interest paid on funds used to acquire new aircraft and
to construct ground facilities is capitalized as an additional cost of the
related assets. We capitalize interest at our weighted average interest rate on
long-term debt or, if applicable, the interest rate related to specific
borrowings. Interest capitalization ends when the property or equipment is ready
for service or its intended use.
INVESTMENTS IN ASSOCIATED COMPANIES -- The equity method of accounting is used
for our investments in WORLDSPAN, L.P., a computer reservations system
partnership, and Comair Holdings, Inc., the parent of Comair, Inc. We own a 40%
interest in WORLDSPAN and a 22% interest in Comair Holdings. Our equity earnings
in these investments totaled $54 million in fiscal 1999, $39 million in fiscal
1998 and $39 million in
41
<PAGE> 19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
fiscal 1997. We accounted for our investment in ASA Holdings under the equity
method until April 1, 1999, when we began to consolidate its results (see Note
17). We acquired a majority interest in ASA Holdings on March 22, 1999 and
completed the acquisition on May 11, 1999. Its results of operations for the
period March 22, 1999 through March 31, 1999 were not material to our
consolidated financial statements.
FREQUENT FLYER PROGRAM -- The estimated incremental cost of providing free
travel awards earned under our SkyMiles((R)) frequent flyer program is accrued
as our customers achieve free travel award levels. The accrued cost is included
in accounts payable and miscellaneous accrued liabilities on our Consolidated
Balance Sheets. Delta also sells mileage credits to participating partners in
the SkyMiles((R)) program, such as hotels, car rental agencies and credit card
companies, and recognizes the resulting revenue as other operating revenue at
the time of sale.
PASSENGER AND CARGO REVENUES -- We record sales of passenger tickets and cargo
services as air traffic liability on our Consolidated Balance Sheets. Passenger
and cargo revenues are recognized and the related air traffic liability is
reduced when we provide the transportation. Periodically, we evaluate the
estimated air traffic liability based on statistical and other reviews. Any
resulting adjustments, which can be significant, are included in our
Consolidated Statements of Operations in the period that the evaluations are
completed.
DEFERRED GAINS ON SALE AND LEASEBACK TRANSACTIONS -- Deferred gains on the sale
and lease-back of property and equipment under operating leases are amortized
over the lives of these leases. The gains are reflected as a reduction in rent
expense. Gains on the sale and leaseback of property and equipment under capital
leases reduce the carrying value of the related assets.
MANUFACTURERS' CREDITS -- Delta periodically receives credits in connection with
the acquisition of aircraft and engines. These credits are deferred until the
aircraft and engines are delivered, then applied on a pro rata basis as a
reduction to the cost of the related equipment.
ADVERTISING COSTS -- We expense advertising costs as other selling expense in
the fiscal year incurred. Advertising expense for fiscal 1999, 1998 and 1997
totaled $136 million, $105 million and $121 million, respectively.
FOREIGN CURRENCY REMEASUREMENT -- Assets and liabilities denominated in foreign
currencies are generally remeasured using exchange rates in effect on the
balance sheet date. We recognize the resulting foreign exchange gains and losses
as a component of miscellaneous income (expense). Fixed assets and the related
depreciation or amortization charges are recorded at the exchange rates in
effect on the date we acquired the assets.
STOCK-BASED COMPENSATION -- Stock-based compensation plans are accounted for in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Under APB 25, we do not recognize compensation
expense for a stock option grant if the exercise price at the measurement date
is equal to or greater than the fair market value of our common stock on the
grant date (see Note 15).
STOCK SPLIT -- On October 22, 1998, our shareowners approved an amendment to the
Certificate of Incorporation to increase our authorized common stock from 150
million shares to 450 million shares, and to decrease the par value of our
common stock from $3.00 to $1.50 per share. As part of this amendment, which
became effective on November 2, 1998, our shareowners also approved a
two-for-one split of the issued common stock. All references in this annual
report to the number of shares of common stock (including references to our
broad-based employee stock option programs and our common stock repurchase
programs), our earnings per share and our per share common stock prices have
been restated to reflect the stock split.
42
<PAGE> 20
2. FINANCIAL INSTRUMENTS
Our financial instruments, except long-term debt and certain investments, are
carried at fair value or have a carrying value which approximates fair value.
LONG-TERM DEBT -- The following table shows the estimated fair value and
carrying value of long-term debt, including current maturities, at June 30, 1999
and 1998:
<TABLE>
<CAPTION>
(In Billions) 1999 1998
- ----------------------------------------------------
<S> <C> <C>
Fair value $2.6 $1.9
Carrying value $2.4 $1.6
- ----------------------------------------------------
</TABLE>
Fair values are estimated based on quoted market prices, where available, or
on discounted cash flow analyses. Changes in assumptions or estimation methods
may significantly affect these fair value estimates.
MARKETABLE EQUITY SECURITIES -- On July 1, 1997, we began accounting for our
investment in SkyWest, Inc. under the cost method due to a decrease in our
ownership percentage. Our investments in Singapore Airlines Limited, SAirGroup
and SkyWest are classified as available-for-sale securities and are recorded at
fair value. The following table summarizes these investments:
<TABLE>
<CAPTION>
Quoted Cost Unrealized
(In Millions) Fair Value Basis Gain (Loss)
- ------------------------------------------------------
June 30, June 30,
1999 1998 1999 1998
- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Singapore Airlines $335 $165 $181 $154 $(16)
SAirGroup $110 $172 $ 85 $ 25 $ 87
SkyWest $ 78 $ 87 $ 14 $ 64 $ 73
- ------------------------------------------------------
</TABLE>
Accumulated other comprehensive income reflects the aggregate unrealized
gains of these investments, net of the related deferred tax provision, at June
30, 1999 and 1998. Our right to vote, transfer or acquire additional shares of
stock of Singapore Airlines and SAirGroup is subject to certain restrictions.
SHORT-TERM INVESTMENTS -- Delta invests cash in excess of operating requirements
in short-term, highly liquid investments. These investments are classified as
available-for-sale securities under SFAS 115 and are stated at fair value. The
aggregate fair value of short-term investments totaled $19 million at June 30,
1999 and $557 million at June 30, 1998. Accumulated other comprehensive income
reflects unrealized gains and losses from these investments, net of related
deferred taxes. The unrealized gains and losses on our short-term investments
were not material at June 30, 1999 and 1998.
CONVERTIBLE SECURITIES -- During fiscal 1999, we entered into an agreement with
priceline.com Incorporated. Under this agreement, ticket inventory provided by
Delta is sold through priceline.com's Internet-based e-commerce system. As part
of this agreement, we received warrants to purchase up to 18.6 million shares of
priceline.com's common stock for $0.93 per share. The warrants are exercisable
beginning when certain performance thresholds are met and ending December 31,
2005. We have now met the performance thresholds relating to the exercise of the
warrants. These warrants, and the shares issuable when the warrants are
exercised, are not registered under the Securities Act of 1933; accordingly, the
fair value of these warrants is not reflected on our Consolidated Balance Sheets
as of June 30, 1999.
The value of the priceline.com common stock underlying our warrants is $1.2
billion, based upon the NASDAQ closing price as quoted on August 13, 1999.
However, due to the nature of our equity interest in priceline.com, the fair
value of our unexercised warrants in priceline.com cannot be readily determined.
Subsequent to June 30, 1999 we executed a registration rights agreement with
priceline.com which gives us certain demand and piggyback registration rights
for the priceline.com common stock underlying our warrants. We are currently
evaluating which portion of the warrants will become readily available within
the next year. Upon completion of this evaluation during the first quarter of
fiscal 2000, we will record the estimated fair value of these warrants on our
Consolidated Balance Sheets.
43
<PAGE> 21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
We are a member of the SITA Foundation, whose principal asset is its
equity interest in Equant, N.V., an international data network services company.
In February 1999, SITA sold a portion of its interest in Equant and distributed
the proceeds on a pro rata basis to members that elected to participate in the
offering. We sold approximately one-third of our ownership in Equant as part of
this offering, resulting in a pretax gain of $26 million. We now hold depository
certificates that may become convertible into 816,228 shares of Equant, N.V. Our
equity interest is not recorded on our Consolidated Balance Sheets at June 30,
1999. The shares underlying the value of these certificates had an estimated
fair market value of $72 million at August 13, 1999.
3. INCOME TAXES
Deferred income taxes reflect the net tax effect of timing differences
between the carrying amounts of assets and liabilities for financial reporting
and for income tax purposes. The table below shows significant components of our
deferred tax assets and liabilities at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
(In Millions) 1999 1998
- ------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Postretirement benefits $ 766 $ 756
Other employee benefits 335 405
Gains on sale and leaseback
transactions (net) 278 257
Rent expense 206 200
Spare parts repair expense 151 139
Alternative minimum tax credit
carryforwards 27 107
Other 157 159
- ------------------------------------------------------------
Total deferred tax assets $1,920 $2,023
============================================================
Deferred Tax Liabilities:
Depreciation and amortization $1,960 $1,446
Other 377 375
- ------------------------------------------------------------
Total deferred tax liabilities $2,337 $1,821
============================================================
</TABLE>
Income taxes provided in fiscal 1999, 1998 and 1997 consisted of:
<TABLE>
<CAPTION>
(In Millions) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes $(307) $(353) $(321)
Deferred taxes (423) (298) (244)
Tax benefit of dividends on
allocated Series B ESOP
Convertible Preferred Stock 5 4 4
----- ----- -----
Income taxes provided $(725) $(647) $(561)
===== ===== =====
</TABLE>
The following table shows the difference between the income tax
provision recorded for fiscal 1999, 1998 and 1997 and the amount that would
result if we applied the federal statutory tax rate to pretax income:
<TABLE>
<CAPTION>
(In Millions) 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 1,826 $ 1,648 $ 1,415
Items not deductible for
tax purposes:
Meals and entertainment 41 42 39
Amortization of goodwill 11 9 9
Other, net (20) (27) (17)
- -------------------------------------------------------------------------------
Adjusted pretax income 1,858 1,672 1,446
Federal statutory tax rate 35% 35% 35%
- -------------------------------------------------------------------------------
Federal income tax provision
at statutory rate (650) (585) (506)
State and other
income taxes (75) (62) (55)
- -------------------------------------------------------------------------------
Income taxes provided $ (725) $ (647) $ (561)
===============================================================================
</TABLE>
Our income tax payments, net of income tax refunds, totaled $242
million in fiscal 1999, $244 million in fiscal 1998 and $336 million in fiscal
1997.
44
<PAGE> 22
4. RISK MANAGEMENT
FUEL PRICE RISK MANAGEMENT - Our Company uses options and other non-leveraged,
over-the-counter instruments, which have maturities of up to 36 months, to
manage the risk associated with changes in aircraft fuel prices. In fiscal 1998,
we primarily entered into swap contracts to manage fiscal 1999 risk. The changes
in the market value of fuel hedging contracts have a high correlation to changes
in aircraft fuel prices. Gains and losses from fuel hedging contracts are
recognized as part of fuel expense when we use the underlying fuel hedged.
Premiums paid to enter into hedging contracts are recorded as prepaid expenses
and amortized to fuel expense over the contract settlement period. We do not
enter into fuel hedging contracts for trading purposes.
At June 30, 1999, we had entered into hedge agreements for a total of
4.6 billion gallons of our projected aircraft fuel requirements for fiscal years
2000 through 2002, including approximately 80% of our projected fiscal 2000 fuel
requirements. At June 30, 1999, these contracts had an estimated fair value of
$333 million with unrealized gains of $137 million.
At June 30, 1998, we had entered into hedge agreements for 2.1 billion
gallons of our projected aircraft fuel requirements for fiscal 1999. On that
date, these contracts were in a loss position of $19 million, with unrealized
losses of $32 million.
During fiscal 1999, our Board of Directors increased our maximum fuel
hedging horizon from 12 months to 36 months. This change impacted the notional
amounts and estimated fair values of our fuel hedging contracts at June 30, 1999
compared to June 30, 1998.
FOREIGN CURRENCY EXCHANGE RISK MANAGEMENT - Foreign currency options and forward
contracts are used to manage the risk associated with our net foreign
currency-denominated transactions. The contracts are denominated in the same
currency in which the projected foreign cash flows are expected to occur and
have maturities of up to 12 months. The principal amount of outstanding foreign
currency forward contracts totaled approximately $26 million at June 30, 1999.
The notional amount of option contracts outstanding at June 30, 1999 was
approximately $330 million. At June 30, 1998, the principal amount of foreign
currency forward contracts outstanding totaled approximately $26 million. The
estimated fair value of our foreign currency contracts was not material at June
30, 1999 or 1998. We do not enter into foreign currency hedging contracts for
trading purposes.
We recognize the gains and losses from foreign currency exchange
contracts as a component of miscellaneous income (expense) as we recognize the
underlying transaction. These gains and losses are not material for any period
presented in our consolidated financial statements.
CREDIT RISK MANAGEMENT - To manage credit risk associated with our fuel price
and foreign currency exchange risk management programs, we select counterparties
based on their credit ratings and limit our exposure to any one counterparty
under defined guidelines. We also monitor the market position of these programs
and our relative market position with each counterparty. The credit exposure
related to these programs was not significant to our Company at June 30, 1999.
CONCENTRATION OF CREDIT RISK - Our accounts receivable are generated largely
from the sale of airline tickets and cargo services to customers who are
economically and geographically dispersed. In addition, our accounts receivable
are generally short-term in duration. Therefore, we believe we have no
significant concentration of credit risk.
45
<PAGE> 23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
5. LONG-TERM DEBT
The following table summarizes our long-term debt, including current
maturities, at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
(In Millions) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Medium-Term Notes, Series A and B, unsecured, interest rates from 8.25% to 9.15%;
maturities ranging from 1999 to 2007 $ 61 $ 128
9 7/8% Notes, unsecured, due May 15, 2000 142 142
1999 Bank Credit Agreement, 5.92% interest, due March 22, 2001 500 --
8 1/2% Notes, unsecured, due March 15, 2002 71 71
6.65% Medium-Term Notes, Series C, unsecured, due March 15, 2004 300 --
8.10% Series C Guaranteed Serial ESOP Notes, unsecured, due in installments between 2002 and 2009 290 290
10 1/8% Debentures, unsecured, due May 15, 2010 113 113
10 3/8% Debentures, unsecured, due February 1, 2011 175 175
Development Authority of Fulton County, unsecured loan agreement, $19 million due on May 1, 2013,
$85 million on May 1, 2023 and $21 million on May 1, 2033; interest rates from 5.30% to 5.50% 125 125
9% Debentures, unsecured, due May 15, 2016 101 101
9 3/4% Debentures, unsecured, due May 15, 2021 250 250
10 3/8% Debentures, unsecured, due December 15, 2022 66 66
Other 222 139
- ----------------------------------------------------------------------------------------------------------------------------------
Total 2,416 1,600
Less: Current maturities 660 67
- ----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt $1,756 $1,533
==================================================================================================================================
</TABLE>
Our variable interest rate long-term debt is shown using interest rates
in effect at June 30, 1999.
1999 BANK CREDIT AGREEMENT - During fiscal 1999, we entered into a $500 million
credit agreement with a group of banks to finance a portion of our purchase of
ASA Holdings (see Note 17). Our interest rate under this agreement is either the
base rate or the Eurodollar rate, plus a margin that is dependent on Delta's
long-term senior unsecured debt ratings. This agreement expires on March 22,
2001, but we may prepay the outstanding borrowings at any time.
The 1999 Bank Credit Agreement contains negative covenants. These
covenants restrict our ability to grant liens, to incur or guarantee debt and to
enter into flight equipment leases. This agreement also provides that, if our
long-term senior unsecured debt is rated below investment grade, we are required
to maintain a specific coverage ratio as of the last day of each fiscal quarter.
The banks have the right to terminate the agreement if there is a change of
control of Delta. In this event all outstanding borrowings would become due
immediately.
At August 13, 1999, $500 million was outstanding under our 1999 Bank
Credit Agreement. This obligation is included in current maturities of long-term
debt on our Consolidated Balance Sheets because we intend to repay the amounts
outstanding before June 30, 2000.
1997 BANK CREDIT AGREEMENT - Under our 1997 Bank Credit Agreement with a group
of banks, we may borrow up to $1.25 billion on an unsecured and revolving basis
until May 1, 2002, subject to our compliance with certain conditions. We may use
up to $700 million of this facility for the issuance of letters of credit. Our
interest rate under this facility is either LIBOR or the prime rate, plus a
margin that is dependent on Delta's long-term senior unsecured debt ratings. We
can also obtain loans through a competitive bid procedure.
46
<PAGE> 24
The 1997 Bank Credit Agreement contains negative covenants and a change
of control provision similar to the corresponding provisions of the 1999 Bank
Credit Agreement. At June 30 and August 13, 1999, no amounts were outstanding
under the 1997 Bank Credit Agreement.
SERIES C ESOP NOTES - At June 30, 1999, there were $290 million of Delta
Family-Care Savings Plan's Series C Guaranteed Serial ESOP Notes outstanding. We
guarantee the Series C ESOP Notes, which are payable in installments between
July 1, 2002 and January 1, 2009. Under the note purchase agreements related to
the Series C ESOP Notes, the noteholders have the option to require us to
purchase the Series C ESOP Notes if the credit rating of our long-term senior
unsecured debt falls below Baa3 by Moody's and BBB- by Standard & Poor's (a
purchase event). We have no obligation to purchase the Series C ESOP Notes if we
obtain, within a certain amount of time of a purchase event, a credit
enhancement that increases the debt rating for the Series C ESOP Notes to at
least A3 by Moody's and A- by Standard & Poor's (required ratings). The purchase
price of the Series C ESOP Notes would include their outstanding principal
amount, accrued interest and, potentially, a make whole premium amount.
During fiscal 1993, a purchase event occurred. We obtained a credit
enhancement that resulted in the Series C ESOP Notes receiving the required
ratings. Accordingly, we were not required to purchase the Series C ESOP Notes
as a result of this purchase event. The credit enhancement for the Series C ESOP
Notes is currently provided in the form of a letter of credit issued under a
$425 million letter of credit facility with ABN AMRO Bank and a group of banks.
This facility, which expires June 6, 2000, contains negative covenants and a
change of control provision similar to those in the 1999 and 1997 Bank Credit
Agreements. If there is a drawing on the letter of credit, we must repay it
immediately or convert our repayment obligation to a short-term loan. At August
13, 1999, the face amount of the letter of credit was $421 million. It covers
the $290 million of outstanding principal of the Series C ESOP Notes, up to $98
million of make whole premium amount and approximately one year of interest on
the Series C ESOP Notes.
We also have a trust indenture with a third-party trustee and the Delta
Family-Care Savings Plan which contains terms and conditions relating to any
letter of credit used to credit enhance the Series C ESOP Notes. The indenture
requires the trustee to draw under the letter of credit to make regularly
scheduled payments of principal and interest on the Series C ESOP Notes, and to
purchase the Series C ESOP Notes in certain circumstances in which we would not
be required to purchase the Series C ESOP Notes under the note purchase
agreements. The indenture requires the trustee to purchase the Series C ESOP
Notes at the option of the noteholders if:
1. the required ratings on the Series C ESOP Notes are not maintained;
2. the letter of credit is not extended 20 days before its scheduled
expiration date;
3. we terminate the letter of credit; or
4. the trustee receives notice that an event of default has occurred under the
letter of credit facility.
In the situations described above, the trustee may not repurchase the Series C
ESOP Notes if the Series C ESOP Notes receive the required ratings within 10
days of the event.
The required ratings on the Series C ESOP Notes can be changed at any
time, and are subject to confirmation annually, by Moody's and Standard &
Poor's. Circumstances that might cause either rating agency to lower or fail to
confirm its rating include, but are not limited to, the following:
1. downgrading of the deposits of the issuer of the letter of credit to below
A3 by Moody's or below A- by Standard & Poor's; or
2. a determination that the make whole premium amount covered by the letter of
credit is insufficient.
47
<PAGE> 25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
The indenture does not permit the trustee to purchase the Series C ESOP
Notes if they receive the required ratings without a credit enhancement. The
Series C ESOP Notes are not likely to receive the required ratings without a
credit enhancement unless our long-term senior unsecured debt is rated at least
A3 by Moody's and A- by Standard & Poor's. On August 13, 1999, our long-term
senior unsecured debt was rated Baa3 by Moody's and BBB- by Standard & Poor's.
FUTURE MATURITIES - At June 30, 1999, the annual scheduled maturities of
long-term debt during the next five fiscal years were as follows:
<TABLE>
<CAPTION>
Year Ending June 30
(In Millions) Amount
- --------------------------------------------------------
<S> <C>
2000 $ 660
2001 16
2002 86
2003 22
2004 312
After 2004 $ 1,320
- --------------------------------------------------------
</TABLE>
Cash payments for interest, net of interest capitalized, totaled $130
million in fiscal 1999, $152 million in fiscal 1998 and $171 million in fiscal
1997.
DEBT COVENANTS - Our debt agreements contain negative covenants, but these
covenants do not limit the payment of dividends on our capital stock. The terms
of the Series B ESOP Convertible Preferred Stock limit our ability to pay cash
dividends to our common shareowners in certain circumstances (see Note 10).
ASA's credit agreements contain negative covenants that apply only to
the financial position of ASA. The covenants, among other things, limit ASA's
ability to transfer funds in the form of cash dividends, loans or advances. At
June 30, 1999, approximately $218 million of ASA's net assets were subject to
these restrictions and approximately $57 million of net assets were available
for distribution by ASA to Delta under the most restrictive of these provisions.
6. LEASE OBLIGATIONS
Our Company leases aircraft, airport terminal and maintenance
facilities, ticket offices and other property and equipment. We record rent
expense on a straight-line basis over the life of the lease. Rental expense for
operating leases totaled $1.1 billion in fiscal 1999, $0.9 billion in fiscal
1998 and $0.9 billion in fiscal 1997. Amounts due under capital leases are
recorded as liabilities, and our interest in assets acquired under capital
leases are shown as assets on our Consolidated Balance Sheets.
The following table summarizes our minimum rental commitments under
capital leases and operating leases with initial or remaining terms of more than
one year as of June 30, 1999:
<TABLE>
<CAPTION>
Year Ending June 30 Capital Operating
(In Millions) Leases Leases
- -----------------------------------------------------------------------
<S> <C> <C>
2000 $ 63 $ 1,020
2001 57 1,030
2002 57 1,040
2003 48 1,020
2004 32 980
After 2004 40 9,440
- ----------------------------------------------------------------------
Total minimum lease payments 297 $14,530
=======
Less: Amounts of lease payments which
represent interest 62
- -------------------------------------------------
Present value of future minimum capital
lease payments 235
Less: Current obligations under capital
leases 39
- -------------------------------------------------
Long-term capital lease obligations $196
=================================================
</TABLE>
As of June 30, 1999, we operated 208 aircraft under operating leases
and 48 aircraft under capital leases. These leases have remaining terms ranging
from 6 months to 18 years. Several municipalities and airport authorities have
issued special facility revenue bonds to build or improve airport terminal and
maintenance facilities that we lease. Under these operating lease agreements, we
are required to make rental payments that are sufficient to pay principal and
interest on these bonds.
48
<PAGE> 26
7. PURCHASE COMMITMENTS
Future expenditures for aircraft and engines on firm order as of August
13, 1999 are estimated at approximately $10.0 billion. The following table shows
the timing of these commitments:
<TABLE>
<CAPTION>
Year Ending June 30
(In Millions) Amount
- -------------------------------------------------------
<S> <C>
2000 $2,310
2001 2,710
2002 1,190
2003 920
2004 740
After 2004 2,080
- -------------------------------------------------------
Total $9,950
=======================================================
</TABLE>
Our purchase commitments at August 13, 1999 include future payments for
eleven 777 aircraft on order. These future payments have been included in the
above table based on their delivery dates under the purchase agreement. As
discussed in "Personnel Matters - 777-200 Negotiations" on page 32 of
Management's Discussion and Analysis, delivery of these aircraft has been
deferred indefinitely. These deferrals may impact the timing of future payments.
Capital expenditures of approximately $794 million have also been
authorized for fiscal 2000 for airport and office facility improvements,
aircraft modifications, and the purchase of ground equipment and other assets.
We expect to finance our commitments and other capital expenditures with
available cash, short-term investments and internally generated funds,
supplemented as necessary by debt financings and proceeds from sale and
leaseback transactions.
Delta has code-sharing agreements with several airlines. Under some of
these agreements, we have commitments to purchase a block of seats at negotiated
prices. None of these agreements require a purchase commitment in excess of one
year.
8. CONTINGENCIES
Delta is a defendant in legal actions related to alleged employment
discrimination practices, antitrust matters, environmental issues and other
matters concerning our business. Although the ultimate outcome of these matters
cannot be predicted with certainty, we believe that the resolution of these
actions is not likely to have a material adverse effect on our consolidated
financial statements.
Approximately 14% of our employees are represented by unions. See
"Personnel Matters - Collective Bargaining Agreements" on page 32 of
Management's Discussion and Analysis for additional information on this subject.
9. EMPLOYEE BENEFIT PLANS
Delta sponsors defined benefit and defined contribution pension plans,
medical plans and disability and survivorship plans for eligible employees,
their eligible family members and retirees. We reserve the right to modify or
terminate these plans as to all participants and beneficiaries at any time,
except as restricted by the Internal Revenue Code or ERISA.
DEFINED BENEFIT PENSION PLANS:
The retirement plans we sponsor include defined benefit pension plans.
The qualified defined benefit plans are currently funded to meet the minimum
ERISA funding requirements.
The following table shows the change in projected benefit obligation
for our defined benefit pension plans for the plan years ended June 30, 1999 and
1998:
<TABLE>
<CAPTION>
(In Millions) 1999 1998
- ----------------------------------------------------------
<S> <C> <C>
Projected benefit obligation at
beginning of year $8,342 $7,591
- ----------------------------------------------------------
Service cost 240 209
Interest cost 585 575
Actuarial loss 158 608
Benefits paid (456) (648)
Curtailment loss -- 1
Plan amendments 3 6
- ----------------------------------------------------------
Projected benefit obligation at
end of year $8,872 $8,342
==========================================================
</TABLE>
49
<PAGE> 27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
The following table shows the change in the fair value of defined
benefit pension plan assets for the plan years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
(In Millions) 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Fair value of plan assets at beginning
of year $9,121 $7,512
- ------------------------------------------------------------------
Actual return on plan assets 310 2,203
Employer contributions 45 54
Benefits paid (456) (648)
- ------------------------------------------------------------------
Fair value of plan assets at end of year $9,020 $9,121
==================================================================
</TABLE>
The accrued pension cost recognized for these plans on our Consolidated
Balance Sheets is computed as follows:
<TABLE>
<CAPTION>
(In Millions) 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Funded status $148 $ 779
Unrecognized net actuarial gain (607) (1,231)
Unrecognized transition obligation 60 62
Unrecognized prior service cost 37 39
Contributions made between April 1
and June 30 12 12
Intangible asset (13) (12)
Other comprehensive income (2) (2)
- ------------------------------------------------------------------
Accrued pension cost recognized on the
Consolidated Balance Sheets $ (365) $ (353)
==================================================================
</TABLE>
Net periodic pension cost for fiscal 1999, 1998 and 1997 included the
following components:
<TABLE>
<CAPTION>
(In Millions) 1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 240 $ 209 $ 188
Interest cost 585 575 570
Expected return on plan assets (776) (685) (653)
Amortization of prior service cost 5 3 3
Recognized net actuarial (gain) loss -- (4) 3
Amortization of net transition
obligation 2 2 2
- ------------------------------------------------------------------------------
Net periodic pension cost $ 56 $ 100 $ 113
==============================================================================
</TABLE>
We used the following actuarial assumptions to determine the actuarial
present value of our projected benefit obligation:
<TABLE>
<CAPTION>
March 31: 1999 1998
- ------------------------------------------------------------
<S> <C> <C>
Weighted average discount rate 7.25% 7.00%
Rate of increase in future
compensation levels 4.43% 4.30%
Expected long-term rate of return
on plan assets 10.00% 10.00%
</TABLE>
Delta also sponsors several non-qualified pension plans which are
funded from current assets. The accumulated benefit obligation of these plans
totaled $301 million at March 31, 1999 and $285 million at March 31, 1998.
DEFINED CONTRIBUTION PENSION PLANS:
DELTA PILOTS MONEY PURCHASE PENSION PLAN (MPPP) - We contribute 5% of covered
pay to the MPPP for each eligible Delta pilot. The MPPP is related to the Delta
Pilots Retirement Plan. The defined benefit pension payable to a pilot is
reduced by the actuarial equivalent of the accumulated account balance in the
MPPP. During fiscal 1999, 1998 and 1997, we recognized expense of $53 million,
$54 million and $49 million, respectively, for this plan.
DELTA FAMILY-CARE SAVINGS PLAN - Our Savings Plan includes an employee stock
ownership plan (ESOP) feature. Eligible personnel may contribute a portion of
their earnings to the Savings Plan. Delta matches 50% of those contributions
with a maximum employer contribution of 2% of a participant's earnings. We make
quarterly employer contributions by allocating Series B ESOP Convertible
Preferred Stock, common stock or cash to the plan. These contributions, which
are recorded as salaries and related costs in our Consolidated Statements of
Operations, totaled $52 million in fiscal 1999, $49 million in fiscal 1998 and
$45 million in fiscal 1997.
50
<PAGE> 28
When we adopted the ESOP in 1989, we sold 6,944,450 shares of Series B
ESOP Convertible Preferred Stock to the Savings Plan for approximately $500
million. We have recorded unearned compensation equal to the value of the
preferred stock sold to the Savings Plan but not yet allocated to participants'
accounts. We reduce the unearned compensation as shares of the preferred stock
are allocated to participants' accounts. Dividends on unallocated shares of
preferred stock are used for debt service on the Savings Plan's Series C ESOP
Notes and are not considered dividends for financial reporting purposes.
Dividends on allocated shares of preferred stock are credited to participants
and are considered dividends for financial reporting purposes. Only allocated
shares of preferred stock are considered outstanding when we compute diluted
earnings per share.
ASA Investment Savings Plan - ASA sponsors a defined contribution retirement
plan for its eligible employees. Eligible personnel may contribute a portion of
their earnings to the plan and ASA matches from 20% to 75% of those
contributions, depending on the number of years an employee has participated in
the plan. The maximum annual employer contribution is 6% of a participant's
earnings. The ASA Investment Savings Plan did not have a material impact on our
consolidated financial statements for the year ended June 30, 1999.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
Our medical plans provide medical and dental benefits to substantially
all Delta retirees and their eligible dependents. Benefits are funded from
general assets on a current basis. Plan benefits are subject to copayments,
deductibles and other limits as described in the plans. Benefits are reduced
when a retiree is eligible for Medicare.
The following table shows the change in our accumulated postretirement
benefit obligation (APBO) for the plan years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
(In Millions) 1999 1998
- ---------------------------------------------------
<S> <C> <C>
APBO at beginning of year $1,627 $1,565
Service cost 37 33
Interest cost 112 110
Benefits paid (71) (64)
Actuarial gain (65) (17)
Substantive plan change (28) -
- ---------------------------------------------------
APBO at end of year $1,612 $1,627
===================================================
</TABLE>
The following table shows the calculation of the accrued postretirement
benefit cost recognized on our Consolidated Balance Sheets:
<TABLE>
<CAPTION>
(In Millions) 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Funded status $(1,612) $(1,627)
Unrecognized net loss 1 61
Unrecognized prior service cost (371) (388)
Contributions made between April 1
and June 30 17 16
- ------------------------------------------------------------------
Accrued postretirement benefit cost
on the Consolidated Balance Sheets $(1,965) $(1,938)
==================================================================
</TABLE>
Net periodic postretirement benefit cost for fiscal 1999, 1998 and 1997
included the following components:
<TABLE>
<CAPTION>
(In Millions) 1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 37 $ 33 $ 25
Interest cost 112 110 115
Amortization of prior
service cost (40) (38) (38)
Recognized net actuarial
(gain) loss - (2) 1
Other (10) - -
- -------------------------------------------------------------
Net periodic postretirement
benefit cost $ 99 $103 $103
=============================================================
</TABLE>
51
<PAGE> 29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
We used the following actuarial assumptions to determine the actuarial
present value of our APBO:
<TABLE>
<CAPTION>
March 31: 1999 1998
- ----------------------------------------------------------
<S> <C> <C>
Weighted average discount rate 7.25% 7.00%
Assumed health care cost trend rate(*) 5.50% 6.00%
- ----------------------------------------------------------
</TABLE>
(*) The assumed health care cost trend rate is assumed to decline gradually to
4.25% by March 31, 2000 and remain level after that point.
A 1% change in the health care cost rate used in measuring the APBO at
March 31, 1999 would have the following effects:
<TABLE>
<CAPTION>
(In Millions) 1% Increase 1% Decrease
- ----------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in total
service and interest cost $ 15 $ (13)
Increase (decrease) in the APBO $141 $(127)
- ----------------------------------------------------------------
</TABLE>
POSTEMPLOYMENT BENEFITS - Delta provides certain other welfare benefits to
eligible former or inactive employees after employment but before retirement,
primarily as part of disability and survivorship plans.
Postemployment benefit (income) expense was $(13) million in fiscal
1999, $74 million in fiscal 1998 and $71 million in fiscal 1997. We include the
amount funded in excess of the liability in other noncurrent assets on our
Consolidated Balance Sheets. Future period expenses will vary based on actual
claims experience and the return on plan assets.
Gains and losses occur because actual experience differs from assumed
experience. These gains and losses are amortized over the average future service
period of employees. We also amortize differences in prior service costs
resulting from amendments affecting the benefits of retired and inactive
employees.
We continually evaluate ways to better manage employee benefits and
control costs. Any changes to the plans or assumptions used to estimate
future benefits could have a significant effect on the amount of the reported
obligation and future annual expense.
10. COMMON AND PREFERRED STOCK
In fiscal 1999, we issued 2,463,427 shares of common stock under our
broad-based employee stock option plans and a total of 733,942 shares of common
stock under our 1989 Stock Incentive Plan and Dividend Reinvestment and Stock
Purchase Plan. We also distributed 55,614 shares of common stock from treasury
under the 1989 Stock Incentive Plan. During fiscal 1999, we repurchased
15,149,658 shares of common stock as part of our share repurchase programs
described in Note 11.
At June 30, 1999, our Company had shares of stock reserved as follows:
- - 38,615,471 shares of common stock for issuance
under our broad-based employee stock option plans;
- - 14,538,639 shares of common stock for issuance
under our 1989 Stock Incentive Plan;
- - 11,232,228 shares of common stock for conversion
of Series B ESOP Convertible Preferred Stock;
- - 500,000 shares of common stock for issuance under
our Non-Employee Directors' Stock Option Plan;
- - 494,341 shares of common stock for issuance under
our Non-Employee Directors' Stock Plan; and
- - 2,250,000 shares of preferred stock for issuance
under our Shareowner Rights Plan.
Each share of Series B ESOP Convertible Preferred Stock pays a
cumulative cash dividend of 6% per year. Each preferred share is convertible
into 1.7155 shares of common stock at a conversion price of $41.97 and has a
liquidation price of $72, plus accrued and unpaid dividends. The preferred stock
generally votes together as a single class with the common stock and has two
votes per share. The preferred stock is redeemable at our option at $72 per
share, payable in cash or common stock. We cannot pay cash dividends on common
stock until all cumulative dividends on the preferred stock have been paid. The
conversion rate, conversion price and voting rights of the preferred stock are
subject to adjustment in certain circumstances.
The Shareowner Rights Plan is designed to protect shareowners against
attempts to acquire our Company that do not offer an adequate purchase price to
all shareowners, or are otherwise not in the best interest
52
<PAGE> 30
of our Company and our shareowners. Under the plan, each outstanding share of
common stock is accompanied by one-half of a preferred stock purchase right.
Each whole right entitles the holder to purchase 1/100 of a share of Series D
Junior Participating Preferred Stock at an exercise price of $300, which is
subject to adjustment.
The rights become exercisable only after a person acquires, or makes a
tender or exchange offer that would result in the person acquiring, beneficial
ownership of 15% or more of our common stock. If a person acquires beneficial
ownership of 15% or more of our common stock, each right will entitle its holder
(other than the acquiring person) to exercise his or her rights to purchase our
common stock having a market value of twice the exercise price.
Alternatively, if a person acquires beneficial ownership of 15% or more
of our common stock and either (a) we are involved in a merger or other business
combination in which our Company is not the surviving corporation or (b) we sell
more than 50% of our assets or earning power, then each right will entitle its
holder (other than the acquiring person) to exercise his or her rights to
purchase the common stock of the acquiring company, having a market value of
twice the exercise price.
The rights expire on November 4, 2006. Delta may redeem the rights for
$0.01 per right until 10 business days following the announcement that a person
beneficially owns 15% or more of our common stock.
11. SHARE REPURCHASE AUTHORIZATIONS
In April 1996, our Board of Directors authorized us to repurchase a
total of 49.4 million shares of common stock and common stock equivalents. Under
this authorization, we could repurchase up to 12.4 million of these shares
before October 30, 1997 - the date the initial stock option grants under the
broad-based employee stock option plans became exercisable. We may purchase the
remaining shares as employees exercise their stock options under those plans
(see Note 15). Repurchases are subject to market conditions, and may be made on
the open market or in privately negotiated transactions.
The following table summarizes our repurchase activity under this
authorization:
<TABLE>
<CAPTION>
Amount
Number of Shares Spent
Repurchased (In Millions)
- ----------------------------------------------------------
<S> <C> <C>
Fiscal 1999 1,943,053 $128
Fiscal 1998 6,158,000 $345
Fiscal 1997 10,757,400 $379
- ----------------------------------------------------------
</TABLE>
In July 1998, our Board of Directors authorized us to repurchase up to
$750 million of common stock through December 31, 1999. We completed this
repurchase program during fiscal 1999 by repurchasing 13,095,420 shares of
common stock for approximately $750 million.
12. COMPREHENSIVE INCOME
During fiscal 1999, we adopted SFAS 130, which establishes standards
for reporting comprehensive income and its components. The adoption of SFAS 130
had no net effect on our net income or shareowners' equity for fiscal years
ended June 30, 1999, 1998 and 1997. Comprehensive income for the fiscal years
ended June 30, 1999, 1998 and 1997 included the following components:
<TABLE>
<CAPTION>
For the Year Ended June 30,
(In Millions) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 1,101 $ 1,001 $ 854
Unrealized gain (loss) on
marketable equity securities 99 (22) (40)
Other -- 1 (1)
- -----------------------------------------------------------------------------
Total other comprehensive
income 99 (21) (41)
Income tax effect on other
comprehensive income (39) 9 16
- -----------------------------------------------------------------------------
Total other comprehensive
income, net of income taxes 60 (12) (25)
- -----------------------------------------------------------------------------
Comprehensive income,
net of income taxes $ 1,161 $ 989 $ 829
=============================================================================
</TABLE>
53
<PAGE> 31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
13. GEOGRAPHIC INFORMATION
During fiscal 1999, we adopted SFAS 131, which requires us to disclose
information about all operating segments. Under SFAS 131, operating segments are
defined as components of an enterprise with separate financial information which
is evaluated regularly by the chief operating decision maker and is used in
resource allocation and performance assessments. We are managed as a single
business unit that provides air transportation of passengers and cargo. Our
operating revenues by geographic region are summarized in the following table:
<TABLE>
<CAPTION>
(In Millions) 1999 1998 1997
- -------------------------------------------------------
<S> <C> <C> <C>
Domestic $12,070 $11,497 $11,027
Atlantic 1,973 2,092 2,024
Pacific 326 304 325
Latin America 342 245 218
- -------------------------------------------------------
Total $14,711 $14,138 $13,594
=======================================================
</TABLE>
Operating revenues are assigned to a specific geographic region based
on the origin and destination of each flight segment. Our tangible assets
consist primarily of flight equipment, which is mobile across geographic
markets. Therefore, assets are not allocated to specific geographic regions.
14. EARNINGS PER SHARE
We calculate basic earnings per share by dividing the income available
to common shareowners by the weighted average number of common shares
outstanding. Diluted earnings per share includes the dilutive effects of stock
options and convertible securities. The following table shows our computation of
basic and diluted earnings per share:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1999 1998 1997
- ------------------------------------------------------------------------
(In Millions, Except Per Share Data)
- ------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC:
Net income $ 1,101 $ 1,001 $ 854
Dividends on allocated
Series B ESOP Convertible
Preferred Stock (11) (11) (9)
- ------------------------------------------------------------------------
Income available to
common shareowners $ 1,090 $ 990 $ 845
Weighted average shares
outstanding 142.9 149.2 148.3
- ------------------------------------------------------------------------
Basic earnings per share $ 7.63 $ 6.64 $ 5.70
DILUTED:
Net income $ 1,101 $ 1,001 $ 854
Adjustment to net income
assuming conversion of
allocated Series B ESOP
Convertible Preferred Stock (4) (4) (5)
- ------------------------------------------------------------------------
Income available to
common shareowners $ 1,097 $ 997 $ 849
Weighted average shares
outstanding 142.9 149.2 148.3
Additional shares assuming:
Exercise of stock options 4.7 3.8 1.2
Conversion of allocated
Series B ESOP Convertible
Preferred Stock 4.7 4.2 3.8
Conversion of Series C
Convertible Preferred Stock -- -- .6
- ------------------------------------------------------------------------
Weighted average shares
outstanding as adjusted 152.3 157.2 153.9
- ------------------------------------------------------------------------
Diluted earnings per share $ 7.20 $ 6.34 $ 5.52
========================================================================
</TABLE>
54
<PAGE> 32
15. STOCK OPTIONS AND AWARDS
Under our 1989 Stock Incentive Plan and a predecessor plan, we granted
non-qualified stock options and, prior to fiscal 1993, tandem stock appreciation
rights (SARs) to officers and other key employees. The exercise price for all
stock options, and the base measuring price of the SARs, is the fair market
value of our common stock on the grant date.
In fiscal 1997, our shareowners approved two broad-based employee stock
option plans. One plan is for eligible nonpilot personnel and the other plan
covers eligible pilots.
The nonpilot and pilot plans involve non-qualified stock options to
purchase a total of 49.4 million shares of common stock. The plans provided for
grants in three annual installments on October 30, 1998, 1997 and 1996. The
exercise price of each grant equaled the opening per share price of the common
stock on the New York Stock Exchange on the grant date. Stock options are
generally exercisable during the period beginning one year after their grant
date and ending ten years after their grant date, and are not transferable for
any reason other than the death of the eligible employee. The following table
summarizes grant activity under the broad-based plans for the years ended June
30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Options Granted Exercise Price
Grant Date (In Millions) (Per Share)
- -----------------------------------------------------------
<S> <C> <C>
October 30, 1996 16.4 $34.50
October 30, 1997 16.6 $49.00
October 30, 1998 16.4 $50.59
- -----------------------------------------------------------
</TABLE>
The following table summarizes all stock option and SAR activity
during fiscal 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998 Fiscal 1997
- ---------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Stock Options (000) Price (000) Price (000) Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of fiscal year 30,006 $45 19,802 $35 4,664 $33
Granted 19,639 51 19,698 50 17,864 35
Exercised (3,256) 41 (9,318) 35 (2,558) 34
Forfeited (245) 51 (176) 46 (168) 38
- ---------------------------------------------------------------------------------------------------------------
Outstanding at end of fiscal year 46,144 48 30,006 45 19,802 35
- ---------------------------------------------------------------------------------------------------------------
Stock options exercisable at fiscal
year end 26,640 $45 10,422 $35 2,098 $32
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options
outstanding and exercisable at June 30, 1999:
<TABLE>
<CAPTION>
Stock Options Outstanding Stock Options Exercisable
- --------------------------------------------------------------------------------------------------------
Number Weighted Number
Range of Outstanding at Average Expected Weighted Exercisable at Weighted
Exercise June 30, 1999 Remaining Life Average June 30, 1999 Average
Prices (000) (Years) Exercise Price (000) Exercise Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$26-$34 240 5 $26 240 $26
$35-$41 8,242 4 35 8,242 35
$42-$63 37,662 5 50 18,158 50
</TABLE>
55
<PAGE> 33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999, 1998 AND 1997
DELTA AIR LINES, INC.
The estimated fair value of stock options granted in fiscal 1999, 1998
and 1997 was derived using the Black-Scholes stock option pricing model. The
following table shows our assumptions and the weighted average fair values of
stock options:
<TABLE>
<CAPTION>
Stock Options Granted in Fiscal Year
Assumption 1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 4.3% 5.8% 6.0%
Average expected life of
stock options (in years) 5.1 3.3 2.7
Expected volatility of
common stock 26.3% 25.3% 26.4%
Expected annual dividends
on common stock $0.10 $0.10 $0.10
Weighted average fair
value of stock options $ 16 $ 13 $ 9
- ----------------------------------------------------------------------
</TABLE>
The following table shows our net income and earnings per share as if
we accounted for our stock option plans under the fair value method of SFAS 123:
<TABLE>
<CAPTION>
For the Year Ended June 30,
1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net income (in millions):
As reported $1,101 $1,001 $ 854
Fair value method
under SFAS 123 935 875 791
Basic earnings per share:
As reported $ 7.63 $ 6.64 $5.70
Fair value method
under SFAS 123 6.47 5.80 5.27*
Diluted earnings per share:
As reported $ 7.20 $ 6.34 $5.52
Fair value method
under SFAS 123 6.11 5.54 5.11*
</TABLE>
* Restated in accordance with SFAS 128.
Under SFAS 123, we are not required to include stock options granted
before fiscal 1996 as compensation in determining pro forma net income.
Therefore, the pro forma effects of SFAS 123 on net income and earnings per
share for fiscal 1999 may not be representative of the pro forma effects of SFAS
123 in future years.
In July 1999, we granted approximately 1.7 million stock options, with
exercise prices ranging from $60 to $63 per share.
16. SALE OF RECEIVABLES
During June 1999, we entered into an agreement under which we sold a
defined pool of our accounts receivable, on a revolving basis, through a special
purpose, wholly owned subsidiary to a third party. We initially sold receivables
with a fair value of $547 million to the subsidiary. In exchange for the
receivables sold, we received (a) $325 million in cash from the subsidiary's
sale of an undivided interest in the pool of receivables to a third party and
(b) a $222 million subordinated promissory note from the subsidiary. The amount
of the promissory note fluctuates because it represents the portion of the
purchase price payable for the volume of receivables sold. We retained servicing
and record-keeping responsibilities for the receivables sold. This agreement
expires on June 15, 2000.
As part of the agreement, the subsidiary is obligated to pay fees to a
third party based on the amounts invested by the third party. For fiscal 1999,
these fees totaled approximately $2 million and are included in other income
(expense) under miscellaneous income (expense), net in our Consolidated
Statements of Operations. The promissory note totaled $175 million at June 30,
1999 and is included as accounts receivable on our Consolidated Balance Sheets.
56
<PAGE> 34
17. ACQUISITION OF ASA HOLDINGS, INC.
On February 16, 1999, we entered into an agreement with ASA Holdings to
acquire its outstanding common stock for approximately $700 million. ASA
Holdings is a holding company whose principal assets are its wholly owned
subsidiaries, ASA and ASA Investments, Inc. ASA is a regional air carrier that
serves airports primarily in the southeastern United States. ASA Investments,
Inc. manages cash for ASA Holdings and ASA. Prior to this agreement, we owned
approximately 28% of ASA Holdings' outstanding common stock.
Delta acquired ASA Holdings in two steps. In the first step, our wholly
owned subsidiary made a tender offer to purchase all of the outstanding shares
of ASA Holdings for $34 per share. At the completion of the tender offer in
March 1999, we owned approximately 91% of the outstanding common stock of ASA
Holdings. The second step occurred in May 1999, when our wholly owned subsidiary
merged into ASA Holdings. As a result of this merger, ASA Holdings' remaining
outstanding shares of common stock were converted into the right to receive $34
per share. ASA Holdings became an indirect, wholly owned subsidiary of our
Company.
We used the purchase method of accounting to record the acquisition of
ASA Holdings. The purchase price of the shares acquired was allocated to the
assets acquired and the liabilities assumed. The allocation was based on the
preliminary estimated fair values at the acquisition date. Based on the
allocation as of June 30, 1999, the total cost of the acquisition exceeded the
estimated fair value of the underlying net assets by approximately $508 million,
which will be amortized over 40 years. Our consolidated financial statements as
of June 30, 1999 include ASA Holdings' balance sheet as of June 30, 1999, as
well as its results of operations from April 1, 1999. The pro forma effects had
ASA Holdings been consolidated as of July 1, 1998 would not have been material
to our revenues, net income, or earnings per share for fiscal 1999.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes our unaudited quarterly results of
operations for fiscal 1999 and 1998 (in millions, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
- ----------------------------------------------------------------------------------
FISCAL 1999 Sept. 30 Dec. 31 Mar. 31 June 30
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $3,802 $3,448 $3,504 $3,957
Operating income $ 552 $ 320 $ 356 $ 642
Net income $ 327 $ 194 $ 216 $ 364
Basic earnings per share** $ 2.19 $ 1.34 $ 1.51 $ 2.59
Diluted earnings per share** $ 2.08 $ 1.29 $ 1.42 $ 2.40
- ----------------------------------------------------------------------------------
FISCAL 1998 Sept. 30 Dec. 31 Mar. 31 June 30
- ----------------------------------------------------------------------------------
Operating revenues $3,553 $3,434 $3,390 $3,761
Operating income $ 431 $ 332 $ 336 $ 595
Net income $ 254 $ 190 $ 195 $ 362
Basic earnings per share** $ 1.71* $ 1.26 $ 1.29 $ 2.39
Diluted earnings per share** $ 1.63* $ 1.20 $ 1.23 $ 2.26
- ----------------------------------------------------------------------------------
</TABLE>
* Restated to conform with SFAS 128.
** The sum of the quarterly earnings per share may not equal the fiscal
earnings per share due to changes in average share calculations.
57
<PAGE> 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
DELTA AIR LINES, INC.
TO DELTA AIR LINES, INC.:
We have audited the accompanying consolidated balance sheets of Delta Air Lines,
Inc. (a Delaware corporation) and subsidiaries as of June 30, 1999 and 1998, and
the related consolidated statements of operations, cash flows and shareowners'
equity for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Delta
Air Lines, Inc. and subsidiaries as of June 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1999, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
- -----------------------------
Atlanta, Georgia
August 13, 1999
58
<PAGE> 36
REPORT OF MANAGEMENT
DELTA AIR LINES, INC.
The integrity and objectivity of the information presented in this Annual Report
are the responsibility of Delta management. The financial statements contained
in this report have been audited by Arthur Andersen LLP, independent public
accountants, whose report appears on page 58 of this report.
Delta maintains a system of internal financial controls which are
independently assessed on an ongoing basis through a program of internal audits.
These controls include the selection and training of the Company's managers,
organizational arrangements that provide a division of responsibilities, and
communication programs explaining the Company's policies and standards. We
believe that this system provides reasonable assurance that transactions are
executed in accordance with management's authorization; that transactions are
appropriately recorded to permit preparation of financial statements that, in
all material respects, are presented in conformity with generally accepted
accounting principles; and that assets are properly accounted for and
safeguarded against loss from unauthorized use.
The Board of Directors pursues its responsibilities for these financial
statements through its Audit Committee, which consists solely of directors who
are neither officers nor employees of the Company. The Audit Committee meets
periodically with the independent public accountants, the internal auditors and
representatives of management to discuss internal accounting control, auditing
and financial reporting matters.
/s/ Edward H. West /s/ Leo F. Mullin
- --------------------------- ------------------------------
Edward H. West President and
Chief Financial Officer Chief Executive Officer
59
<PAGE> 37
CONSOLIDATED SUMMARY OF OPERATIONS
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
For the fiscal year ended June 30
- ---------------------------------------------------------------------------------------------------------------------------------
(In Millions, Except Per Share Data) 1999 1998 1997(1) 1996(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $14,711 $14,138 $13,594 $12,455
Operating expenses 12,841 12,444 12,063 11,990
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 1,870 1,694 1,531 465
Interest expense, net (153) (148) (174) (243)
Miscellaneous income, net(6) 109 102 58 54
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,826 1,648 1,415 276
Income tax benefit (provision) (725) (647) (561) (120)
Amortization of investment tax credits -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 1,101 1,001 854 156
Preferred stock dividends (11) (11) (9) (82)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common shareowners $ 1,090 $ 990 $ 845 $ 74
=================================================================================================================================
Earnings (loss) per share(7)
Basic $ 7.63 $ 6.64 $ 5.70 $ 0.72
=================================================================================================================================
Diluted $ 7.20 $ 6.34 $ 5.52 $ 0.72
=================================================================================================================================
Dividends declared on common stock $ 14 $ 15 $ 15 $ 10
Dividends declared per common share(7) $ 0.10 $ 0.10 $ 0.10 $ 0.10
</TABLE>
OTHER FINANCIAL AND STATISTICAL DATA
<TABLE>
<CAPTION>
For the fiscal year ended June 30
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997(1) 1996(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets (millions) $ 16,544 $ 14,603 $ 12,741 $ 12,226
Long-term debt and capital leases
(excluding current maturities) (millions) $ 1,952 $ 1,782 $ 1,797 $ 2,175
Shareowners' equity (millions) $ 4,448 $ 4,023 $ 3,007 $ 2,540
Shares of common stock outstanding at year end(7) 138,553,719 150,450,394 147,391,974 135,556,212
Revenue passengers enplaned (thousands) 106,902 104,148 101,147 91,341
Available seat miles (millions) 144,003 140,149 136,821 130,751
Revenue passenger miles (millions) 104,575 101,136 97,758 88,673
Operating revenue per available seat mile 10.22(cents) 10.09(cents) 9.94(cents) 9.53(cents)
Passenger mile yield 12.83(cents) 12.85(cents) 12.79(cents) 13.10(cents)
Operating cost per available seat mile 8.92(cents) 8.88(cents) 8.82(cents) 9.17(cents)
Passenger load factor 72.6% 72.2% 71.4% 67.8%
Breakeven passenger load factor 62.5% 62.8% 62.7% 65.1%
Available ton miles (millions) 20,627 19,890 18,984 18,084
Revenue ton miles (millions) 12,115 11,859 11,308 10,235
Operating cost per available ton mile 62.25(cents) 62.56(cents) 63.54(cents) 66.30(cents)
</TABLE>
(1) Summary of operations and other financial and statistical data include
$52 million in pretax restructuring and other non-recurring charges
($0.22 basic and $0.21 diluted after-tax earnings per share).
(2) Summary of operations and other financial and statistical data include
$829 million in pretax restructuring and other non-recurring charges
($4.88 after-tax earnings per share).
(3) Summary of operations and other financial and statistical data excludes
$114 million after-tax cumulative effect of change in accounting
standards ($1.13 basic and $0.71 diluted earnings per share).
(4) Summary of operations and other financial and statistical data include
$526 million in pretax restructuring charge ($3.30 after-tax per
share).
(5) Summary of operations and other financial and statistical
data include $82 million pretax restructuring charge ($0.53 after-tax
per share). Summary of operations excludes $587 million after-tax
cumulative effect of changes in accounting standards ($5.89 after-tax per
share).
(6) Includes interest income.
(7) All share and earnings per share amounts for fiscal years prior to 1999
have been restated to reflect the two-for-one common stock split that
became effective on November 2, 1998.
60
<PAGE> 38
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
1995(3) 1994(4) 1993(5) 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
$ 12,194 $ 12,077 $ 11,657 $ 10,837 $ 9,171 $ 8,583 $ 8,089
11,533 12,522 12,167 11,477 9,604 8,145 7,394
- -------------------------------------------------------------------------------------------------------------------------------
661 (445) (510) (640) (433) 438 695
(262) (271) (177) (151) (97) (27) (39)
95 56 36 5 30 57 55
- -------------------------------------------------------------------------------------------------------------------------------
494 (660) (651) (786) (500) 468 711
(200) 250 233 271 163 (187) (279)
-- 1 3 9 13 22 29
- -------------------------------------------------------------------------------------------------------------------------------
294 (409) (415) (506) (324) 303 461
(88) (110) (110) (19) (19) (18) --
- -------------------------------------------------------------------------------------------------------------------------------
$ 206 $ (519) $ (525) $ (525) $ (343) $ 285 $ 461
===============================================================================================================================
$ 2.04 $ (5.16) $ (5.27) $ (5.30) $ (3.87) $ 2.90 $ 4.69
===============================================================================================================================
$ 2.01 $ (5.16) $ (5.27) $ (5.30) $ (3.87) $ 2.64 $ 4.69
===============================================================================================================================
$ 10 $ 10 $ 35 $ 59 $ 54 $ 85 $ 59
$ 0.10 $ 0.10 $ 0.35 $ 0.60 $ 0.60 $ 0.85 $ 0.60
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1995(3) 1994(4) 1993(5) 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 12,143 $ 11,896 $ 11,871 $ 10,162 $ 8,411 $ 7,227 $ 6,484
$ 3,121 $ 3,228 $ 3,716 $ 2,833 $ 2,059 $ 1,315 $ 703
$ 1,827 $ 1,467 $ 1,913 $ 1,894 $ 2,457 $ 2,596 $ 2,620
101,632,020 100,906,544 100,127,682 99,398,196 98,803,558 92,172,220 98,531,768
88,893 87,399 85,085 77,038 69,127 67,240 64,242
130,645 131,906 132,282 123,102 104,328 96,463 90,742
86,417 85,268 82,406 72,693 62,086 58,987 55,904
9.33(cents) 9.16(cents) 8.81(cents) 8.80(cents) 8.79(cents) 8.90(cents) 8.91(cents)
13.10(cents) 13.23(cents) 13.23(cents) 13.91(cents) 13.80(cents) 13.63(cents) 13.56(cents)
8.83(cents) 9.49(cents) 9.20(cents) 9.32(cents) 9.21(cents) 8.44(cents) 8.15(cents)
66.2% 64.6% 62.3% 59.1% 59.5% 61.2% 61.6%
62.3% 67.2% 65.6% 63.0% 62.6% 58.0% 56.1%
18,150 18,302 18,182 16,625 13,825 12,500 11,725
10,142 9,911 9,503 8,361 7,104 6,694 6,338
63.54(cents) 68.42(cents) 66.92(cents) 69.03(cents) 69.47(cents) 65.16(cents) 63.06(cents)
</TABLE>
61
<PAGE> 39
COMMON STOCK
Listed on the New York Stock Exchange under the ticker symbol DAL.
NUMBER OF SHAREOWNERS
As of August 1, 1999, there were approximately 21,550 registered owners of
common stock.
MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
Cash Dividends
per
Fiscal Year 1999 Common Stock Common Share
Quarter Ended: High Low
- ------------------------------------------------------------
<S> <C> <C> <C>
September 30 $71 3/32 $46 13/16 $0.025
December 31 57 9/16 41 11/32 0.025
March 31 70 15/16 49 0.025
June 30 71 9/16 55 7/16 0.025
Fiscal Year 1998
Quarter Ended: High Low
- --------------------------------------------------------
<S> <C> <C> <C>
September 30 $53 9/16 $41 $0.025
December 31 60 3/16 47 5/16 0.025
March 31 61 9/16 55 1/16 0.025
June 30 64 11/16 55 1/8 0.025
</TABLE>
Note: The stock prices listed above have been adjusted to reflect the
two-for-one common stock split effective November 2, 1998.
62
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated August 13, 1999 included or incorporated by
reference in Delta Air Lines, Inc.'s Annual Report on Form 10-K for the year
ending June 30, 1999 into the Company's previously filed Registration Statement
File Nos. 2-94541, 33-30454, 33-65391, 333-16471, 333-49553, and 333-58647.
/s/ ARTHUR ANDERSEN LLP
- --------------------------------------
Atlanta, Georgia
September 24, 1999
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
I hereby constitute and appoint Leo F. Mullin, Warren C. Jenson and
Edward H. West, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1999, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand as of September 1, 1999.
/s/ Edwin L. Artzt
-------------------------------
Edwin L. Artzt
Director
Delta Air Lines, Inc.
<PAGE> 2
POWER OF ATTORNEY
I hereby constitute and appoint Leo F. Mullin, Warren C. Jenson and
Edward H. West, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1999, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand as of September 1,
1999.
/s/ Henry A. Biedenharn, III
--------------------------------------
Henry A. Biedenharn, III
Director
Delta Air Lines, Inc.
<PAGE> 3
POWER OF ATTORNEY
I hereby constitute and appoint Leo F. Mullin, Warren C. Jenson and
Edward H. West, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1999, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand as of September 1,
1999.
/s/ James L. Broadhead
--------------------------------------
James L. Broadhead
Director
Delta Air Lines, Inc.
<PAGE> 4
POWER OF ATTORNEY
I hereby constitute and appoint Leo F. Mullin, Warren C. Jenson and
Edward H. West, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1999, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand as of September 1,
1999.
/s/ Edward H. Budd
---------------------------------------
Edward H. Budd
Director
Delta Air Lines, Inc.
<PAGE> 5
POWER OF ATTORNEY
I hereby constitute and appoint Leo F. Mullin, Warren C. Jenson and
Edward H. West, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1999, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand as of September 1,
1999.
/s/ R. Eugene Cartledge
-----------------------
R. Eugene Cartledge
Director
Delta Air Lines, Inc.
<PAGE> 6
POWER OF ATTORNEY
I hereby constitute and appoint Leo F. Mullin, Warren C. Jenson and
Edward H. West, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1999, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand as of September 1,
1999.
/s/ Mary Johnston Evans
------------------------------------------
Mary Johnston Evans
Director
Delta Air Lines, Inc.
<PAGE> 7
POWER OF ATTORNEY
I hereby constitute and appoint Leo F. Mullin, Warren C. Jenson and
Edward H. West, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1999, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand as of September 1,
1999.
/s/ David R. Goode
---------------------------------------
David R. Goode
Director
Delta Air Lines, Inc.
<PAGE> 8
POWER OF ATTORNEY
I hereby constitute and appoint Leo F. Mullin, Warren C. Jenson and
Edward H. West, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1999, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand as of September 1,
1999.
/s/ Gerald Grinstein
--------------------------------------
Gerald Grinstein
Director
Delta Air Lines, Inc.
<PAGE> 9
POWER OF ATTORNEY
I hereby constitute and appoint Leo F. Mullin, Warren C. Jenson and
Edward H. West, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1999, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand as of September 1,
1999.
/s/ Leo F. Mullin
----------------------------------
Leo F. Mullin
Director
Delta Air Lines, Inc.
<PAGE> 10
POWER OF ATTORNEY
I hereby constitute and appoint Leo F. Mullin, Warren C. Jenson and
Edward H. West, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1999, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand as of September 1,
1999.
/s/ Andrew J. Young
--------------------------------------
Andrew J. Young
Director
Delta Air Lines, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELTA AIR
LINES, INC. FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE RELATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,124
<SECURITIES> 19
<RECEIVABLES> 632
<ALLOWANCES> 30
<INVENTORY> 65
<CURRENT-ASSETS> 2,672
<PP&E> 18,259
<DEPRECIATION> 6,792
<TOTAL-ASSETS> 16,544
<CURRENT-LIABILITIES> 5,327
<BONDS> 2,651
0
0
<COMMON> 270
<OTHER-SE> 4,178
<TOTAL-LIABILITY-AND-EQUITY> 16,544
<SALES> 0
<TOTAL-REVENUES> 14,711
<CGS> 0
<TOTAL-COSTS> 12,841
<OTHER-EXPENSES> (155)
<LOSS-PROVISION> 19
<INTEREST-EXPENSE> 199
<INCOME-PRETAX> 1,826
<INCOME-TAX> 725
<INCOME-CONTINUING> 1,101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,101
<EPS-BASIC> 7.63
<EPS-DILUTED> 7.20
</TABLE>
