<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5424
DELTA AIR LINES, INC.
State of Incorporation: Delaware
IRS Employer Identification No.: 58-0218548
Hartsfield Atlanta International Airport, Atlanta, Georgia 30320
Telephone: (404) 715-2600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Number of shares outstanding by each class of common
stock, as of April 30, 2000:
Common Stock, $1.50 par value - 122,475,878 shares outstanding
<PAGE> 2
DELTA AIR LINES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
ASSETS 2000 1999
- --------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,190 $ 1,124
Short-term investments 817 19
Accounts receivable, net of allowance for uncollectible accounts
of $33 at March 31, 2000 and $30 at June 30, 1999 732 602
Deferred income taxes 485 403
Prepaid expenses and other 557 524
------------ ------------
Total current assets 3,781 2,672
------------ ------------
PROPERTY AND EQUIPMENT:
Flight equipment 14,927 13,389
Less: Accumulated depreciation 4,933 4,405
------------ ------------
9,994 8,984
------------ ------------
Flight equipment under capital leases 506 515
Less: Accumulated amortization 291 264
------------ ------------
215 251
------------ ------------
Ground property and equipment 4,039 3,862
Less: Accumulated depreciation 2,186 2,123
------------ ------------
1,853 1,739
------------ ------------
Advance payments for equipment 587 493
------------ ------------
Total property and equipment 12,649 11,467
------------ ------------
OTHER ASSETS:
Marketable equity securities 681 523
Investments in associated companies 149 300
Cost in excess of net assets acquired, net 2,230 782
Leasehold and operating rights, net 105 113
Other 589 687
------------ ------------
Total other assets 3,754 2,405
------------ ------------
Total assets $ 20,184 $ 16,544
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE> 3
DELTA AIR LINES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
LIABILITIES AND SHAREOWNERS' EQUITY 2000 1999
- --------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 669 $ 660
Current obligations under capital leases 42 39
Accounts payable and miscellaneous accrued liabilities 2,440 2,209
Air traffic liability 1,954 1,819
Accrued salaries and vacation pay 503 470
Accrued rent 196 195
------------ ------------
Total current liabilities 5,804 5,392
------------ ------------
NONCURRENT LIABILITIES:
Long-term debt 4,141 1,756
Postretirement benefits 1,918 1,894
Accrued rent 746 720
Capital leases 153 196
Deferred income taxes 1,089 755
Other 475 470
------------ ------------
Total noncurrent liabilities 8,522 5,791
------------ ------------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions 604 642
Manufacturers' and other credits 235 76
------------ ------------
Total deferred credits 839 718
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
EMPLOYEE STOCK OWNERSHIP PLAN
PREFERRED STOCK:
Series B ESOP Convertible Preferred Stock (issued and outstanding
6,477,088 shares at March 31, 2000 and 6,547,495 shares at
June 30, 1999) 466 471
Unearned compensation under
employee stock ownership plan (251) (276)
------------ ------------
215 195
------------ ------------
SHAREOWNERS' EQUITY:
Common Stock at par (total shares issued: 180,128,355 shares at
March 31, 2000 and 179,763,547 shares at June 30, 1999) 270 270
Additional paid-in capital 3,229 3,208
Accumulated other comprehensive income 366 149
Retained earnings 3,666 2,756
Treasury stock at cost (57,734,206 shares at March 31, 2000
and 41,209,828 shares at June 30, 1999) (2,727) (1,935)
------------ ------------
Total shareowners' equity 4,804 4,448
------------ ------------
Total liabilities and shareowners' equity $ 20,184 $ 16,544
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE> 4
DELTA AIR LINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------------------- -------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 3,589 $ 3,203 $ 10,473 $ 9,825
Cargo 141 134 434 424
Other, net 230 167 643 505
------------- ------------- ------------- -------------
Total operating revenues 3,960 3,504 11,550 10,754
OPERATING EXPENSES:
Salaries and related costs 1,428 1,268 4,082 3,721
Aircraft fuel 434 316 1,184 1,006
Depreciation and amortization 297 241 845 692
Other selling expenses 198 192 574 567
Passenger commissions 169 191 545 650
Contracted services 228 190 656 566
Landing fees and other rents 188 176 547 520
Aircraft rent 185 146 508 437
Aircraft maintenance materials and outside repairs 171 134 486 415
Passenger service 102 113 357 370
Asset writedowns and other special charges -- -- 469 --
Other 205 181 585 582
------------- ------------- ------------- -------------
Total operating expenses 3,605 3,148 10,838 9,526
------------- ------------- ------------- -------------
OPERATING INCOME 355 356 712 1,228
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (106) (47) (249) (139)
Interest capitalized 12 12 36 34
Interest income 25 8 83 41
Gains from sales of investments 73 26 974 26
Miscellaneous income (expense), net 17 3 (17) 26
------------- ------------- ------------- -------------
21 2 827 (12)
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 376 358 1,539 1,216
INCOME TAXES PROVIDED, NET (153) (142) (612) (479)
------------- ------------- ------------- -------------
NET INCOME 223 216 927 737
PREFERRED STOCK DIVIDENDS (3) (2) (9) (8)
------------- ------------- ------------- -------------
NET INCOME AVAILABLE TO COMMON
SHAREOWNERS $ 220 $ 214 $ 918 $ 729
============= ============= ============= =============
BASIC EARNINGS PER SHARE $ 1.74 $ 1.51 $ 6.92 $ 5.06
============= ============= ============= =============
DILUTED EARNINGS PER SHARE $ 1.67 $ 1.42 $ 6.59 $ 4.80
============= ============= ============= =============
WEIGHTED AVERAGE SHARES USED IN
PER SHARE COMPUTATION:
Basic 126,883,323 141,438,912 132,706,384 144,026,858
Diluted 133,587,179 152,034,789 140,206,030 152,837,902
DIVIDENDS PER COMMON SHARE $ 0.025 $ 0.025 $ 0.075 $ 0.075
============= ============= ============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
4
<PAGE> 5
DELTA AIR LINES, INC.
CONSOLIDATED STATISTICAL SUMMARY*
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------------------- --------------------------------
STATISTICAL SUMMARY: 2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenue Passenger Miles (millions) 24,490 24,336 77,955 77,272
Available Seat Miles (millions) 35,484 34,829 109,429 107,425
Passenger Mile Yield 13.25cents 13.16cents 12.57cents 12.71cents
Operating Revenue Per Available Seat Mile 10.16cents 10.06cents 9.93cents 10.01cents
Operating Cost Per Available Seat Mile 9.33cents 9.04cents 8.96cents 8.87cents
Passenger Load Factor 69.02% 69.87% 71.24% 71.93%
Breakeven Passenger Load Factor 62.71% 62.10% 63.58% 62.94%
Passengers Enplaned 25,093 25,174 78,015 78,323
Revenue Ton Miles (millions) 2,888 2,840 9,150 8,989
Cargo Ton Miles (millions) 439 406 1,351 1,262
Cargo Ton Mile Yield 31.51cents 33.04cents 31.74cents 33.58cents
Fuel Gallons Consumed (millions) 657 652 2,044 2,034
Average Price Per Fuel Gallon, net of hedging gains 59.54cents 48.52cents 54.34cents 49.44cents
Number of Aircraft in Fleet at End of Period 585 580 585 580
Average Full-Time Equivalent Employees 72,300 71,700 72,200 71,300
* This summary excludes the statistics of Atlantic Southeast Airlines,
Inc. and Comair, Inc., as well as the impact of asset writedowns and
other special charges for the periods presented. See Note 8 of the
Notes to the Consolidated Financial Statements in this Form 10-Q for
information concerning asset writedowns and other special charges.
</TABLE>
5
<PAGE> 6
DELTA AIR LINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
2000 1999
-------- --------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 927 $ 737
Adjustments to reconcile net income to cash
provided by operating activities, net 434 961
Changes in certain assets and liabilities, net 23 97
-------- --------
Net cash provided by operating activities 1,384 1,795
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (1,716) (1,887)
Ground property and equipment (350) (339)
(Increase) decrease in short-term investments, net (640) 554
Proceeds from sale of flight equipment 244 14
Proceeds from sale of investments 1,240 --
Acquisitions of Comair and ASA, net of cash acquired (1,584) (480)
-------- --------
Net cash used in investing activities (2,806) (2,138)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 16 98
Repurchase of common stock (790) (668)
Payments on long-term debt and capital lease obligations (1,899) (134)
Payments on notes payable -- (27)
Issuance of long-term obligations 4,171 300
Issuance of notes payable 14 677
Income tax benefit from exercise of stock options 1 24
Cash dividends (25) (25)
-------- --------
Net cash provided by financing activities 1,488 245
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 66 (98)
Cash and cash equivalents at beginning of period 1,124 1,077
-------- --------
Cash and cash equivalents at end of period $ 1,190 $ 979
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 182 $ 103
Income taxes $ 322 $ 211
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
6
<PAGE> 7
DELTA AIR LINES, INC.
Notes to the Consolidated Financial Statements
March 31, 2000
(Unaudited)
1. ACCOUNTING AND REPORTING POLICIES
Our Company's accounting and reporting policies are
summarized in Note 1 of the Notes to the Consolidated Financial
Statements (pages 41-42) in our 1999 Annual Report to Shareowners.
These interim financial statements should be read in conjunction with
the consolidated financial statements and the accompanying footnotes
included in our 1999 Annual Report to Shareowners. Management believes
that the accompanying unaudited condensed consolidated financial
statements reflect all adjustments, consisting of normal recurring
items, necessary for a fair statement of results for the interim
periods presented. Due to seasonal variations in the demand for air
travel, operating results for the periods presented do not necessarily
indicate operating results for the entire year. We have reclassified
certain amounts from prior periods to be consistent with the
presentation in our current period financial statements.
2. LONG-TERM DEBT
In July 1999, we issued $538 million of 8.125% unsecured
notes in a public offering for general corporate purposes. The notes
mature on July 1, 2039, but we may redeem the notes at par on or after
July 1, 2004.
In November 1999, we borrowed $1.6 billion under a new term
loan facility to finance our acquisition of Comair Holdings, Inc.
(Comair).
In December 1999, we issued $2.0 billion aggregate principal
amount of senior unsecured notes in a private placement, consisting of
$500 million of 7.70% notes due 2005, $500 million of 7.90% notes due
2009, and $1 billion of 8.30% notes due 2029. The net proceeds from
this offering were used to repay the $1.6 billion outstanding under
the term loan facility described above; to fund the $200 million
balance of the purchase price of our acquisition of Comair; and for
general corporate purposes. In March 2000, we completed an exchange
offer under which the notes issued in December 1999 (Old Notes) were
exchanged for new notes (New Notes). The New Notes are substantially
similar to the related series of Old Notes, except that the New Notes
are registered under the Securities Act of 1933.
On February 23, 2000, Delta filed a shelf registration
statement covering an additional $1 billion principal amount of
unsecured debt securities, pass through certificates, and equipment
trust certificates. The registration statement was declared effective
by the SEC on March 1, 2000. The net proceeds from any sale of these
securities will be used for general corporate purposes, unless
otherwise specified in the related prospectus supplement.
7
<PAGE> 8
3. GEOGRAPHIC INFORMATION
Our Company is managed as a single business unit that
provides air transportation for passengers and cargo. Our operating
revenues by geographic region are summarized in the following table:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended March 31 Ended March 31
----------------------- -----------------------
2000 1999 2000 1999
-------- ------- ------- --------
<S> <C> <C> <C> <C>
North America $ 3,408 $ 2,979 $ 9,558 $ 8,784
Atlantic 379 360 1,447 1,472
Latin America 106 90 306 244
Pacific 67 75 239 254
------- ------- ------- -------
Total $ 3,960 $ 3,504 $11,550 $10,754
======== ======= ======= =======
</TABLE>
4. SHAREOWNERS' EQUITY
On January 12, 2000, our Board of Directors authorized us to
repurchase up to $500 million of our common stock through June 30,
2000. We completed this repurchase program during the March 2000
quarter and repurchased 10,593,100 shares of our common stock.
Also in the March 2000 quarter, we issued 93,724 shares of
common stock under our broad-based employee stock option plans, 1989
Stock Incentive Plan, Dividend Reinvestment and Stock Purchase Plan,
and Non-Employee Directors' Stock Plan.
5. SALE OF RECEIVABLES
During fiscal 1999, we sold a defined pool of our accounts
receivable, on a revolving basis, through a special purpose, wholly
owned subsidiary to a third party. In exchange for the receivables
sold, we received cash and a subordinated promissory note, which
totaled $262 million at March 31, 2000. The balance of the
subordinated promissory note is included in accounts receivable, net
on our Consolidated Balance Sheets.
As part of the agreement, the subsidiary is required to pay
fees to a third party based upon the amounts invested. This expense is
included in other income (expense) under miscellaneous income
(expense), net in our Consolidated Statements of Operations.
For additional information regarding Delta's sale of a
defined pool of our accounts receivable, see Note 16 of the Notes to
the Consolidated Financial Statements (page 56) in our 1999 Annual
Report to Shareowners.
8
<PAGE> 9
6. AIRCRAFT PURCHASE COMMITMENTS
Our aircraft fleet, purchase commitments, options and rolling
options at March 31, 2000 are summarized in the following table.
Options have scheduled delivery slots. Rolling options replace options
and are assigned delivery slots as options expire or are exercised.
<TABLE>
<CAPTION>
Current Fleet
-----------------------------
Rolling
Aircraft Type Owned Leased Total Orders Options Options
-------------------- ----- ------- ----- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
B-727-200 93 10 103 -- -- --
B-737-200 1 53 54 -- -- --
B-737-300 -- 26 26 -- -- --
B-737-600/700/800 18 -- 18 113 60 258
B-757-200 66 41 107 14 20 76
B-767-200 15 -- 15 -- -- --
B-767-300 4 24 28 -- -- --
B-767-300ER 43 8 51 8 11 14
B-767-400 -- -- -- 21 24 20
B-777-200 7 -- 7 6 20 28
L-1011-1 10 -- 10 -- -- --
L-1011-250 6 -- 6 -- -- --
L-1011-500 9 -- 9 -- -- --
MD-11 8 7 15 -- -- --
MD-88 63 57 120 -- -- --
MD-90 16 -- 16 -- -- --
ATR-72 4 12 16 -- -- --
EMB-120 52 14 66 -- -- --
CRJ-200 16 109 125 30 90 --
CRJ-700 -- -- -- 32 78 --
--- --- --- --- --- ---
Total 431 361 792 224 303 396
=== === === === === ===
</TABLE>
During the March 2000 quarter, we accepted delivery of two new
B-737-800 aircraft, one new B-757-200 aircraft, eight new CRJ-200
aircraft, and four new ATR-72 aircraft. We exercised an option for one
B-737-800 aircraft and we retired one B-727-200 aircraft, one
L-1011-500 aircraft and three EMB-120 aircraft.
Also in the March 2000 quarter, Atlantic Southeast Airlines,
Inc. (ASA) and Comair entered into letters of intent with Bombardier,
Inc. to order a total of 69 CRJ-200 aircraft with a mix of 40, 44 and
50 seats, and 25 CRJ-700 aircraft with 70 seats, through 2004. The
letters of intent also provide that ASA and Comair will receive
options to acquire a total of 406 additional CRJ aircraft over the next
ten years. These orders and options are subject to ASA's and Comair's
entering into mutually acceptable definitive agreements with
Bombardier and General Electric Company, the manufacturer of the
engines on the CRJ aircraft.
During April 2000, we accepted delivery of two new B-737-800
aircraft, two new B-757-200 aircraft, four new B-767-300 aircraft, two
new ATR-72 aircraft and one new CRJ-200 aircraft.
9
<PAGE> 10
Future expenditures for aircraft and engines on firm order at April 30,
2000 are estimated to be $7.7 billion, as follows:
<TABLE>
<CAPTION>
Amount
Fiscal Year Ending June 30 (In Millions)
-------------------------- --------------------
<S> <C>
Remainder of fiscal year 2000 $ 380
2001 2,630
2002 1,530
2003 820
2004 650
After 2004 1,660
--------------------
Total $7,670
====================
</TABLE>
7. COMPREHENSIVE INCOME
During fiscal 1999, we adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," 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 the three and nine months ended
March 31, 2000 and 1999. Total comprehensive income for the three
months ended March 31, 2000 and 1999 was $323 million and $200
million, respectively. For the nine months ended March 31, 2000 and
1999, total comprehensive income was $1.1 billion and $757 million,
respectively.
8. ASSET WRITEDOWNS AND OTHER SPECIAL CHARGES
During the September 1999 quarter, we recorded non-recurring
pretax charges totaling $149 million, comprised of asset impairment
charges as well as costs to streamline certain operations. For
additional information regarding these charges, see Note 8 of the
Notes to the Consolidated Financial Statements in our Form 10-Q for
the quarter ended September 30, 1999.
During the December 1999 quarter, management decided to
retire early our 16 MD-90 aircraft and 8 owned MD-11 aircraft over the
next seven to nine years as part of our fleet simplification strategy.
As a result of this decision, we recorded a pretax asset writedown of
$320 million. For additional information regarding this charge, see
Note 7 of the Notes to the Consolidated Financial Statements in our
Form 10-Q for the quarter ended December 31, 1999.
9. FINANCIAL INSTRUMENTS
INVESTMENT IN PRICELINE.COM INCORPORATED - During fiscal 1999, we
entered into an agreement with priceline.com Incorporated (priceline)
whereby ticket inventory provided by Delta may be sold through
priceline's Internet-based e-commerce system. As part of this
agreement, we received a warrant to purchase up to 18.6 million shares
of priceline common stock for $0.93 per share. The warrant became
fully exercisable on July 25, 1999.
We partially exercised the warrant on August 17, 1999, and
exercised the remainder of the warrant in a cashless exercise on
November 12, 1999. As a result of these exercises, we acquired 18.3
million shares of priceline common stock. During the nine months ended
March 31, 2000,
10
<PAGE> 11
we sold 12.3 million shares of priceline common stock and recorded a
pretax gain of $784 million. These sales were primarily in the open
market.
At March 31, 2000, we held 6.0 million shares of priceline
common stock. These shares are recorded on our Consolidated Balance
Sheet as marketable equity securities at their estimated fair value of
$483 million, in accordance with SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities."
On November 17, 1999, priceline and Delta amended their
original agreement. As a result of the amendment, Delta received the
right to exchange (exchange right) 6 million shares of priceline common
stock for 6 million shares of priceline convertible preferred stock.
The convertible preferred stock will (1) have a par value of $59.93 per
share; (2) be convertible into shares of priceline common stock on a
one-for-one basis; (3) bear a dividend of 8% per year, payable in
shares of priceline common stock; (4) be subject to mandatory
redemption on the tenth anniversary of its date of issuance; and (5) be
callable by priceline at its par value after three years.
Delta also received from priceline a new warrant to acquire
5.5 million shares of priceline common stock for $56.625 per share.
The warrant may become exercisable in phases between March 16, 2000
and December 31, 2000 if certain conditions are met and, to the extent
the warrant becomes exercisable because these conditions are met, the
warrant will expire on November 17, 2004. To the extent the conditions
are not met, the new warrant will become exercisable on November 17,
2004 for a period of six months.
The convertible preferred stock, the new warrant, and the
shares of priceline common stock underlying these securities are not
registered under the Securities Act of 1933, but we have certain
demand and piggyback registration rights relating to the shares of
priceline common stock underlying the convertible preferred stock and
the new warrant.
Based on independent third party appraisals, the total fair
value of the exchange right and the new warrant on the date received
was determined to be approximately $78 million. Both items are
reflected in marketable equity securities on our Consolidated Balance
Sheet as of March 31, 2000.
INVESTMENT IN EQUANT - Delta is a member of the SITA Foundation, whose
principal assets are the shares of Equant, N.V. (Equant), an
international data network services company. During the December 1999
quarter, we sold one-third of our investment in Equant, resulting in a
pretax gain of $24 million. Currently, we hold depository certificates
that may become convertible into 540,852 shares of Equant. These
certificates are not marketable under SFAS 115. Therefore, our
investment is carried at cost on our Consolidated Balance Sheets. The
shares underlying the value of these certificates had an estimated
fair market value of $46 million at March 31, 2000.
INVESTMENT IN SAIRGROUP - In October 1999, we sold our equity interest
in SAirGroup, the parent company of Swissair. The sale resulted in a
pretax gain of $29 million and net proceeds of $114 million.
11
<PAGE> 12
INVESTMENT IN SINGAPORE AIRLINES - In September 1999, we recorded a
pretax gain of $137 million and net proceeds of $318 million from the
sale of our equity interest in Singapore Airlines.
Pretax gains from sales of our investments in priceline,
Equant, SAirGroup, and Singapore Airlines totaled $974 million for the
nine months ended March 31, 2000, and are recorded in gains from sales
of investments on our Consolidated Statements of Operations.
10. 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>
Three Months Ended Nine Months Ended
March 31 March 31 March 31 March 31
2000 1999 2000 1999
-------------------------- ---------------------------
(In millions, except per share data)
BASIC:
<S> <C> <C> <C> <C>
Net income $ 223 $ 216 $ 927 $ 737
Dividends on allocated Series B ESOP
Convertible Preferred Stock (3) (2) (9) (8)
------- ------- ------- -------
Income available to common shareowners 220 214 918 729
======= ======= ======= =======
Weighted average shares outstanding 126.9 141.4 132.7 144.0
======= ======= ======= =======
Basic earnings per share $ 1.74 $ 1.51 $ 6.92 $ 5.06
======= ======= ======= =======
DILUTED:
Net income $ 223 $ 216 $ 927 $ 737
Adjustment to income assuming conversion
of Series B ESOP Convertible Preferred Stock (1) (1) (3) (3)
------- ------- ------- -------
Income available to common shareowners 222 215 924 734
======= ======= ======= =======
Weighted average shares outstanding 126.9 141.4 132.7 144.0
Additional shares assuming:
Conversion of Series B ESOP Convertible
Preferred Stock 5.2 4.7 5.1 4.7
Exercise of stock options 1.4 5.9 2.3 4.1
Conversion of performance-based stock units 0.1 0.0 0.1 0.0
------- ------- ------- -------
Weighted average shares outstanding as adjusted 133.6 152.0 140.2 152.8
======= ======= ======= =======
Diluted earnings per share $ 1.67 $ 1.42 $ 6.59 $ 4.80
======= ======= ======= =======
</TABLE>
12
<PAGE> 13
11. ACQUISITION OF COMAIR HOLDINGS, INC.
On October 17, 1999, we entered into an agreement with Comair
to acquire its outstanding common stock in exchange for aggregate cash
proceeds totaling $1.8 billion. Comair is a holding company whose
principal asset is its 100% ownership of Comair, Inc., a certificated
regional jet carrier and a participant in the Delta Connection
program. Prior to this agreement, we owned approximately 22% of
Comair's outstanding common stock.
Delta acquired Comair in two steps. In the first step, a
wholly owned subsidiary of Delta made a tender offer to purchase all
of the outstanding shares of common stock of Comair (excluding shares
already owned by Delta) for $23.50 per share in cash. As a result of
the completion of the tender offer in November 1999, we had increased
our ownership interest in Comair to approximately 90%. The second step
occurred in January 2000, when our wholly owned subsidiary merged into
Comair. At the effective time of this merger, each remaining share of
Comair's outstanding common stock (other than those shares owned by
Delta) was converted into the right to receive from Delta $23.50 per
share in cash, and Comair became an indirect, wholly owned subsidiary
of Delta.
We used the purchase method of accounting to record the
acquisition of Comair. The acquisition cost totaled $1.8 billion and
was allocated to the assets and liabilities assumed. The allocation
was based on the preliminary estimated fair values at the acquisition
date. Based on the preliminary allocation as of March 31, 2000, the
total cost of the acquisition exceeded the estimated fair value of
Comair's net assets by approximately $1.5 billion, which will be
amortized over 40 years. Our consolidated financial statements as of
March 31, 2000 include Comair's balance sheet as of March 31, 2000 and
results of operations from November 22, 1999.
12. SUBSEQUENT EVENTS
Our Company offered an early retirement medical option from
March 1, 2000 to April 14, 2000. Under this option, eligible Delta
employees could retire with continued medical coverage, but without
paying certain early retirement medical premiums. As of April 25,
2000, approximately 2,500 employees had elected this option. We expect
to record a one-time charge of $80 to $90 million for this program
during the June 2000 quarter.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
RESULTS OF OPERATIONS
INTRODUCTION
- ------------
ASA HOLDINGS, INC. AND COMAIR HOLDINGS, INC.
Our consolidated results of operations for the three months ended
March 31, 2000 include the results of operations of ASA Holdings, Inc. (ASA)
and Comair. Our results of operations for the nine month period ended March 31,
2000 include the results of operations of ASA from July 1, 1999 and Comair from
November 22, 1999.
For information regarding our acquisition of ASA, see Note 17 of the
Notes to the Consolidated Financial Statements (page 57) in our 1999 Annual
Report to Shareowners.
For information regarding our acquisition of Comair, see Note 11 of
the Notes to the Consolidated Financial Statements in this Form 10-Q.
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
- ------------------------------------------
NET INCOME AND EARNINGS PER SHARE
For the quarter ended March 31, 2000, our Company reported unaudited
consolidated operating income of $355 million and net income of $223 million.
Operating margin, which is the ratio of operating income to operating revenues,
was 9%. For the quarter ended March 31, 1999, we recorded operating income of
$356 million, net income of $216 million, and an operating margin of 10%.
Excluding gains from the sale of investments (as described below), net income
was $179 million in the March 2000 quarter and $201 million for the March 1999
quarter.
Pretax income of $376 million for the March 2000 quarter resulted in
an income tax provision of $153 million. After a $3 million provision for
preferred stock dividends, net income available to common shareowners was $220
million.
Basic earnings per share totaled $1.74 for the March 2000 quarter,
compared to $1.51 for the March 1999 quarter, a 15% increase. Diluted earnings
per share increased 18% to $1.67 in the March 2000 quarter from $1.42 in the
March 1999 quarter. Excluding gains from the sale of investments, diluted
earnings per share was $1.33 for the March 2000 quarter and $1.31 for the March
1999 quarter.
During the March 2000 quarter, we recorded a $73 million pretax gain
($45 million after tax, or $0.35 basic and $0.34 diluted earnings per share)
from our sale of 1.2 million shares of common stock of priceline. For
additional information regarding this transaction, see Note 9 of the Notes to
the Consolidated Financial Statements in this Form 10-Q. During the March 1999
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<PAGE> 15
quarter, we recorded a $26 million pretax gain ($16 million after tax, or $0.11
basic and $0.10 diluted earnings per share) from our sale of a portion of our
interest in Equant, an international data network services company.
OPERATING REVENUES
Our operating revenues totaled $4.0 billion in the March 2000 quarter,
a 13% increase from $3.5 billion in the March 1999 quarter. Passenger revenue
increased 12% to $3.6 billion, reflecting a 5% increase in revenue passenger
miles on a 7% capacity increase and a 7% increase in passenger mile yield.
NORTH AMERICAN PASSENGER REVENUES - North American passenger revenues rose 14%
to $3.1 billion for the March 2000 quarter. Revenue passenger miles increased 5%
on a capacity increase of 9%, while passenger mile yield increased 8%. These
increases are primarily due to the inclusion of ASA and Comair in our results of
operations for the March 2000 quarter. The March 2000 quarter results were also
positively impacted by strong traffic in March. These results were negatively
affected by ice storms in the Southeastern United States and traffic weakness
related to public concerns relating to the Year 2000 computer issue in January,
as well as low fare competition.
INTERNATIONAL PASSENGER REVENUES - International passenger revenues increased
2% to $467 million during the March 2000 quarter. Revenue passenger miles
increased 4% on a capacity decrease of 1%, while passenger mile yield declined
2%.
The increase in revenue passenger miles is primarily due to traffic
growth in Latin America, which has been a strategic focus of our Company.
Revenue passenger miles for the Latin America region increased 16% during the
March 2000 quarter on capacity growth of 9%. Passenger mile yield in Latin
America increased 1%.
The decline in international passenger mile yield is attributable to
industry capacity growth in the Atlantic market, which has resulted in discount
fare sales. Passenger mile yield in the Atlantic declined 5% while revenue
passenger miles increased 5% on capacity growth of 3%.
Revenue passenger miles in the Pacific market decreased 10% on a
capacity decrease of 25%. The reduction in capacity is due to the cancellation
of service to Seoul, Korea and Fukuoka, Japan since March 1999. Passenger mile
yield in the Pacific market increased 6% and our percentage of seats occupied
increased 20% in the March 2000 quarter.
CARGO REVENUES AND OTHER REVENUES - Cargo revenue rose 5% in the March 2000
quarter. Cargo ton miles increased 8%, while the cargo ton mile yield decreased
3%. The increase in cargo ton miles is attributable to higher mail and package
volume due to the growth in e-commerce. The decline in ton mile yield is mainly
a result of higher industry capacity and increased competition, particularly in
the U.S. to Europe market. Other revenues increased 38% to $230 million,
largely due to increases in revenue from codeshare agreements and frequent
flyer partnership programs.
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<PAGE> 16
OPERATING EXPENSES
Operating expenses for the March 2000 quarter totaled $3.6 billion,
rising 15% from the March 1999 quarter. Operating capacity increased 7% to 37.2
billion available seat miles. Excluding the impact of the inclusion of ASA and
Comair in the March 2000 quarter, operating expenses increased 5% and capacity
increased 2% from the March 1999 quarter.
Salaries and related costs grew 13%, reflecting a 12% increase in
average full-time equivalent employees largely from the inclusion of ASA and
Comair employees. The increase is also attributable to a 3% pilot pay increase
effective January 1, 2000 and additional pilot hiring.
Aircraft fuel expense increased 37%, the result of a 27% rise in our
average net fuel price per gallon to 61.71 cents and an 8% increase in fuel
gallons consumed from the inclusion of ASA and Comair. Delta's cost per gallon
reflects gains of $146 million on fuel hedging contracts, which covered
approximately 75% of our aircraft fuel requirements for the March 2000 quarter.
Depreciation and amortization expense rose 23% primarily due to the acquisition
of 44 new aircraft since March 31, 1999 and the inclusion of ASA and Comair
expense.
Passenger commissions decreased 12%, reflecting changes to the travel
agent commission rate structure as well as our customers' increased use of
lower cost distribution channels such as the Internet. Internet sales accounted
for approximately 8% of total sales in the March 2000 quarter compared to 3% in
the March 1999 quarter. Contracted services expense increased 20% largely due
to the inclusion of ASA and Comair expense, as well as technology and customer
service related initiatives.
Landing fees and other rents rose 7%, aircraft maintenance materials
and outside repairs expense rose 28%, and aircraft rent increased 27%,
primarily due to the inclusion of ASA and Comair. Other cash costs increased
13% due to the inclusion of ASA and Comair and higher fuel-related taxes.
OTHER INCOME (EXPENSE)
Other income in the March 2000 quarter was $21 million, compared to $2
million in the March 1999 quarter. Interest expense increased $59 million, or
126%, due to the higher levels of long-term debt outstanding used primarily to
finance our acquisition of Comair. Interest income increased $17 million, or
213%, due to a higher cash balance from sales of equity investments as well as
higher average interest rates.
Miscellaneous other income totaled $17 million compared to $3 million
in the March 1999 quarter. The increase is attributable to higher equity income
from our investment in Worldspan, a computer reservation system that provides
global communications and electronic distribution of information for travel
service providers. Worldspan's revenue growth is attributable to its increased
market share in the online travel agency service market and the growth in online
ticket sales. As discussed above, we recorded pretax gains of $73 million and
$26 million from our sale of investments in the March 2000 quarter and the March
1999 quarter, respectively.
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<PAGE> 17
NINE MONTHS ENDED MARCH 31, 2000 AND 1999
- -----------------------------------------
NET INCOME AND EARNINGS PER SHARE
For the nine months ended March 31, 2000, we recorded unaudited
operating income of $712 million, net income of $927 million, and an operating
margin of 6%. For the nine months ended March 31, 1999, we recorded operating
income of $1.2 billion, net income of $737 million and an operating margin of
11%. Excluding asset writedowns and other special charges and gains from the
sale of investments (as described below), net income was $643 million in the
nine months ended March 31, 2000 and $721 million in the nine months ended
March 31, 1999.
Pretax income of $1.5 billion for the nine months ended March 31, 2000
resulted in an income tax provision of $612 million. After a $9 million
provision for preferred stock dividends, net income available to common
shareowners was $918 million.
Basic earnings per share totaled $6.92 for the nine months ended March
31, 2000, compared to $5.06 for the nine months ended March 31, 1999, a 37%
increase. Diluted earnings per share increased 37% from $4.80 for the nine
months ended March 31, 1999 to $6.59 for the nine months ended March 31, 2000.
Excluding asset writedowns and other special charges and gains from the sale of
investments, diluted earnings per share was $4.53 for the nine months ended
March 31, 2000 and $4.69 for the nine months ended March 31, 1999.
During the nine months ended March 31, 2000, we recorded pretax asset
writedowns and other special charges totaling $469 million ($286 million after
tax, or $2.16 basic and $2.04 diluted earnings per share). This includes a $320
million pretax asset writedown resulting from the decision to retire early
certain aircraft and a $149 million pretax charge for asset impairment losses
and costs incurred to streamline certain operations. For additional information
on these charges, see Note 7 of the Notes to the Consolidated Financial
Statements in our Form 10-Q for the quarter ended December 31, 1999, and Note 8
of the Notes to the Consolidated Financial Statements in our Form 10-Q for the
quarter ended September 30, 1999, respectively.
During the nine months ended March 31, 2000, we recorded pretax gains
from the sale of investments totaling $974 million ($594 million after tax, or
$4.48 basic and $4.24 diluted earnings per share). This consists of pretax
gains of (1) $784 million from the sale of 12.3 million shares of priceline
common stock; (2) $137 million from the sale of our equity interest in
Singapore Airlines; (3) $29 million from the sale of our equity interest in
SAirGroup; and (4) $24 million from the sale of a portion of our equity
investment in Equant. For additional information regarding these sales, see
Note 9 of the Notes to the Consolidated Financial Statements in this Form 10-Q.
During the nine months ended March 31, 1999, we sold a portion of our
investment in Equant for a pretax gain of $26 million.
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<PAGE> 18
OPERATING REVENUES
Operating revenues for the nine months ended March 31, 2000 totaled
$11.6 billion, a 7% increase from $10.8 billion for the nine months ended March
31, 1999. Passenger revenue rose 7% to $10.5 billion, reflecting a 4% increase
in revenue passenger miles on a 5% capacity increase and a 3% increase in
passenger mile yield.
NORTH AMERICAN PASSENGER REVENUES - North American passenger revenues rose 8% to
$8.8 billion for the nine months ended March 31, 2000. Revenue passenger miles
increased 4% on a capacity increase of 6%, while passenger mile yield increased
5%. These increases are primarily due to the inclusion of ASA and Comair in our
results of operations. Passenger mile yield was negatively impacted by low fare
competition and capacity increases by competitors. In addition, our operations
for the nine months ended March 31, 2000 were adversely affected by Hurricane
Floyd, ice storms in the Southeastern United States and traffic weakness due to
public concerns relating to the Year 2000 computer issue.
INTERNATIONAL PASSENGER REVENUES - International passenger revenues declined 2%
to $1.7 billion during the nine months ended March 31, 2000. Revenue passenger
miles increased 4% on a 0.2% increase in capacity, while passenger mile yield
declined 5%. The increase in revenue passenger miles is primarily due to our
21% traffic growth in Latin America. The decline in passenger mile yield is
primarily attributable to competitive pressures from industry-wide capacity
increases in the Atlantic market.
CARGO REVENUES AND OTHER REVENUES - Cargo revenues increased 2% to $434 million
for the nine months ended March 31, 2000. Cargo ton miles rose 7% and the cargo
ton mile yield decreased 4%, largely due to industry-wide capacity increases in
international markets, as well as a decline in our domestic yield. All other
revenues, net, increased 27% to $643 million, due to higher revenues from
codeshare activity and frequent flyer partnership programs.
OPERATING EXPENSES
Operating expenses for the nine months ended March 31, 2000 totaled
$10.8 billion, an increase of 14% compared to the nine months ended March 31,
1999. Operating capacity increased 5% to 112.8 billion available seat miles.
Excluding asset writedowns and other special charges and the expenses of ASA
and Comair in the nine months ended March 31, 2000, operating expenses
increased 3% and capacity increased 2% from the nine months ended March 31,
1999.
Salaries and related costs increased 10% due to a 9% growth in average
full-time equivalent employees largely from the inclusion of ASA and Comair
employees. The increase is also attributable to a 2% general salary increase
effective January 1, 1999 and a 3% pilot pay increase effective January 1,
2000.
Aircraft fuel expense increased 18% as the average fuel price per
gallon rose 12% to 55.47 cents, and fuel gallons consumed increased 5%. Delta's
cost per gallon reflects gains of
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<PAGE> 19
$309 million on fuel hedging contracts, which covered approximately 75% of our
aircraft fuel requirements during the nine months ended March 31, 2000.
Depreciation and amortization expense increased 22%, largely due to the
acquisition of additional flight and ground equipment and the inclusion of ASA
and Comair expense.
Passenger commissions decreased 16%, reflecting changes to the travel
agent commission rate structure and our customers' increased use of lower cost
distribution channels such as the Internet. Contracted services expense was up
16% due to higher information technology and customer service costs, as well as
the inclusion of ASA and Comair expense.
Landing fees and other rents rose 5%, aircraft maintenance materials
and outside repair expense rose 17%, and aircraft rent expense increased 16%,
largely due to the inclusion of ASA and Comair. As discussed above, we recorded
asset writedowns and other special charges of $469 million during the nine
months ended March 31, 2000.
OTHER INCOME (EXPENSE)
Other income for the nine months ended March 31, 2000 totaled $827
million, compared to other expense of $12 million for the nine months ended
March 31, 1999. The increase is primarily driven by pretax gains from the sale
of investments totaling $974 million for the nine months ended March 31, 2000,
as discussed above. In the nine months ended March 31, 1999, we recorded a $26
million pretax gain from the sale of investments.
Interest expense increased 79% to $249 million, due to higher levels
of long-term debt outstanding. Interest income increased 102% to $83 million
due to higher average cash balances, as well as higher average interest rates.
Miscellaneous expense totaled $17 million for the nine months ended
March 31, 2000 compared to miscellaneous income of $26 million for the nine
months ended March 31, 1999. This decrease is a result of a $40 million loss on
the voluntary prepayment of certain long-term debt obligations during the
December 1999 quarter.
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FINANCIAL CONDITION
Cash and cash equivalents and short-term investments totaled $2.0
billion at March 31, 2000, compared to $1.1 billion at June 30, 1999. Our
principal sources and uses of cash during the nine months ended March 31, 2000
are detailed below.
SOURCES OF CASH:
- - Generated $1.4 billion of cash from operations.
- - Issued $4.2 billion in long-term debt.
- - Generated $244 million from the sale of flight equipment.
- - Generated $1.2 billion in proceeds primarily from the sale of a
portion of our equity interests in priceline and Equant, and the sale
of our equity interests in Singapore Airlines and SAirGroup.
USES OF CASH:
- - Invested $1.7 billion in flight equipment and $350 million in ground
property and equipment.
- - Paid $790 million to repurchase 16,490,218 shares of our common stock.
- - Made principal payments of $1.9 billion on long-term debt and capital
lease obligations.
- - Paid $25 million in cash dividends on our common and preferred stock.
- - Paid $1.6 billion to purchase 74,212,825 shares of Comair common stock,
net of cash acquired.
Delta may prepay its long-term debt and repurchase its common stock
from time to time. For information regarding common stock repurchases, see Note
4 of the Notes to the Consolidated Financial Statements in this Form 10-Q and
Note 11 of the Notes to the Consolidated Financial Statements (page 53) in our
1999 Annual Report to Shareowners.
As of March 31, 2000, our Company had a negative working capital
position of $2.0 billion, compared to negative working capital of $2.7 billion
at June 30, 1999. 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 borrowings and proceeds from sale and leaseback
transactions.
Long-term debt and capital lease obligations (including current
maturities) totaled $5.0 billion at March 31, 2000, compared to $2.7 billion at
June 30, 1999. Shareowners' equity was $4.8 billion at March 31, 2000 and $4.5
billion at June 30, 1999. Our debt-to-equity position, including current
maturities, was 50% debt and 50% equity at March 31, 2000, and 36% debt and 64%
equity at June 30, 1999. The change in the debt-to-equity position since June
30, 1999 primarily reflects the issuance of long-term debt during the December
1999 quarter to fund the acquisition of Comair, and the repurchase of common
stock during the nine months ended March 31, 2000.
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For additional information regarding our outstanding debt, see Note 2
of the Notes to the Consolidated Financial Statements in this Form 10-Q and
Note 5 of the Notes to the Consolidated Financial Statements (pages 46-48) in
our 1999 Annual Report to Shareowners.
At its meeting on April 27, 2000, our Board of Directors declared a
cash dividend of 2.5 cents per common share payable June 1, 2000 to shareowners
of record on May 10, 2000.
RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
In December 1999, the SEC staff released Staff Accounting Bulletin
(SAB) No. 101, "Revenue Recognition." SAB 101 provides guidance on revenue
recognition. We are required to adopt this guidance no later than July 1, 2000.
We are currently evaluating the impact of SAB 101 on our consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS
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 on July 1, 2000. We are currently
evaluating the impact of SFAS 133 on our consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------------------------------------------------------------------
For information regarding our membership in the SITA Foundation and
our investment in priceline, see Note 9 of the Notes to the Consolidated
Financial Statements in this Form 10-Q. For additional information regarding
Delta's exposure to market risks, see "Market Risks Associated With Financial
Instruments" (pages 34-35), as well as Notes 2 and 4 (pages 43-44 and 45,
respectively) of the Notes to the Consolidated Financial Statements in our 1999
Annual Report to Shareowners.
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. Gains and losses from fuel
hedging contracts are recognized as part of fuel expense when we use the
underlying fuel hedged. At March 31, 2000, we had entered into hedge agreements
for 3.5 billion gallons of our projected aircraft fuel requirements for fiscal
years 2000 through 2003. These contracts have an estimated fair value of $518
million. For the three months ending June 30, 2000, we currently have hedge
agreements covering 540 million gallons of fuel, representing approximately 75%
of our estimated fuel requirements for that period, at an average price of
approximately 48.50 cents per gallon.
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[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Delta Air Lines, Inc.:
We have reviewed the accompanying consolidated balance sheet of DELTA
AIR LINES, INC. (a Delaware corporation) AND SUBSIDIARIES as of March 31, 2000,
and the related consolidated statements of operations for the three-month and
nine-month periods ended March 31, 2000 and 1999, and the condensed
consolidated statements of cash flows for the nine-month periods ended March
31, 2000 and 1999. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States.
/s/Arthur Andersen LLP
- -------------------------
Atlanta, Georgia
May 12, 2000
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
- -----------------------------
Under the Delta Air Lines, Inc. Directors' Deferred Compensation Plan,
members of our Board of Directors may defer all or a part of their cash
compensation earned as a director for a specific period of time. A participating
director can choose an investment return on the deferred amount from 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 Savings Plan is the Delta Common Stock
Fund, a fund invested primarily in our Company's common stock. During the
quarter ended March 31, 2000, participants in the Directors' Deferred
Compensation Plan deferred $11,440 in the Delta Common Stock Fund, which is
equivalent to approximately 215 shares of common stock at prevailing market
prices. These transactions were not registered under the Securities Act of 1933
as amended, in reliance on Section 4(2) of such Act.
ITEM 5. OTHER INFORMATION
- -------------------------
REGULATORY MATTERS
- ------------------
Operations at four major United States airports served by Delta are
regulated by the Federal Aviation Administration through "slot" allocations.
Each slot represents the authorization to land at or take off from the
particular airport during a specified time period.
In April 2000, President Clinton signed legislation which phases out
slot rules at O'Hare International Airport in Chicago by 2002 and at La Guardia
Airport and John F. Kennedy International Airport in New York by 2007. In the
opinion of management, the elimination of these slot rules will not have a
material adverse effect on our operating results.
YEAR 2000
- ---------
During calendar 1999, our Company completed all phases of our Year 2000
program for our aircraft fleet, onboard flight support systems, onboard flight
management systems, ground-based, safety-related computer systems and equipment,
and all critical internal business systems. We operated our normal flight
schedule and did not experience any problems due to the date change to 2000. We
will continue to test selected systems and equipment well into calendar year
2000 to confirm that our hardware and software are operating correctly.
Due to the success of our Year 2000 program, we have reassessed the total
cost of remediating, testing, and monitoring our computer systems. We currently
estimate the total costs of the program to be approximately $105 million. We
have recognized $103 million as expense ($2 million of which was incurred in the
March 2000 quarter) in our Consolidated Statements of Operations through March
31, 2000.
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This "Year 2000" section is a "Year 2000 Readiness Disclosure" within
the meaning of the Year 2000 Information and Readiness Disclosure Act. For
additional information regarding our Year 2000 program, see pages 29-31 of our
1999 Annual Report to Shareowners.
BROAD-BASED STOCK OPTION PLANS
- ------------------------------
For information regarding our broad-based stock option plans, see Note 15
of our 1999 Annual Report to Shareowners (pages 55-56).
PERSONNEL MATTERS
- -----------------
DELTA AND ASA COLLECTIVE BARGAINING AGREEMENTS
For information regarding employees of Delta and ASA who are
represented by unions, see "Collective Bargaining Agreements" on page 32 of our
1999 Annual Report to Shareowners.
On October 26, 1999, the National Mediation Board (NMB) certified the
Transport Workers Union of America (TWU) as the collective bargaining
representatives for Delta's approximately 110 pilot ground training instructors.
Delta and the TWU are in negotiations on the terms of a collective bargaining
agreement.
On November 29, 1999, the Air Line Pilots Association, International
(ALPA), the collective bargaining representative of Delta's pilots, announced
that Delta pilots had ratified a new agreement between Delta and ALPA which sets
pilot pay rates and working conditions for B-777 and B-767-400 aircraft.
Effective January 1, 2000, the new agreement also (1) converted the maximum 6%
of annual base salary payout for eligible pilots under the pilot profit sharing
program to a 6% pay increase; and (2) granted an additional 3% pay increase for
pilots other than those who operate certain new aircraft types.
On December 21, 1999, the NMB authorized an election to determine
whether to certify the TWU as the collective bargaining representative of
Delta's approximately 11,000 ramp and cargo employees. On March 3, 2000, the NMB
announced that these employees voted to reject union representation, with only
17% of the employees voting in favor of the union. The TWU has filed a claim
with the NMB alleging that Delta interfered in the election process and
requesting the NMB to conduct a rerun election. Delta believes the TWU's claim
is without merit. The NMB is investigating this matter.
Delta and ALPA are in negotiations, which began on September 8, 1999,
on a new collective bargaining agreement to replace the existing contract, which
became amendable on May 2, 2000.
Unions are currently engaged in organizing efforts to become the
collective bargaining representative of various other groups of Delta employees.
The outcome of Delta's negotiations with ALPA and the TWU, and other union
organizing efforts, cannot presently be determined.
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COMAIR COLLECTIVE BARGAINING AGREEMENT NEGOTIATIONS
Comair is in negotiations with ALPA, representing Comair's pilots, and
the International Association of Machinists and Aerospace Workers (IAM),
representing Comair's maintenance employees, on new collective bargaining
agreements to replace existing contracts which became amendable on June 1, 1998,
and June 1, 1999, respectively.
Comair filed a lawsuit on December 16, 1999 against ALPA as a result of
an unlawful job action by Comair pilots. On December 21, 1999, the U.S. District
Court issued a preliminary injunction which restrained ALPA and Comair pilots
from disrupting normal airline operations.
On November 22, 1999, Comair reached a tentative agreement with the IAM
on a new labor contract covering Comair's maintenance employees, subject to the
ratification by those employees. In late December 1999, the IAM announced that
the maintenance employees had voted to reject the tentative agreement. Comair
and IAM are currently in negotiations with respect to a new agreement.
In September 1998, the NMB certified the International Brotherhood of
Teamsters (IBT) as the collective bargaining representative of Comair's flight
attendants. Comair is also in negotiations with the IBT with respect to an
initial contract.
The outcome of Comair's negotiations with ALPA, the IAM, and the IBT
cannot presently be determined.
BENEFIT ENHANCEMENTS
On January 12, 2000, our Company announced a 3% base salary increase
for substantially all of Delta's domestic, non-union employees. This pay
increase became effective April 1, 2000.
On February 4, 2000, we announced plans to offer home computers,
software and Internet connections to all Delta employees in conjunction with
PeoplePC. The "Wired Workforce" program will provide employees the ability to
connect to Delta electronically and is expected to be fully implemented by
December 2000.
LEGAL MATTERS
- -------------
On or about March 1, 2000, the Company was served with a federal grand
jury subpoena calling for our production of documents related to aircraft
de-icing operations at the Dallas/Fort Worth Airport since 1992. Delta cannot
currently determine the full scope of the grand jury's investigation or our role
in that investigation. We intend to cooperate with the government's
investigation.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
- -----------------------------------------------
Statements in this Form 10-Q which are not purely historical facts,
including statements regarding our beliefs, expectations, intentions or
strategies for the future, may be "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995.
Any forward-looking statements involve a number of risks and
uncertainties that could cause actual results to differ materially from the
plans, intentions and expectations reflected in or suggested by the
forward-looking statements. Factors and events that could cause these
differences include, but are not limited to:
- general economic conditions, both in the United States and in our
markets outside the United States;
- competitive factors, such as the airline pricing environment,
international alliances, codesharing 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;
- the willingness of customers to travel generally and with us
specifically, which could be affected by factors such as our on-time
performance, our baggage handling performance, how well we respond to
customer complaints and our and the industry's safety record;
- unforeseen or unknown issues arising out of our acquisitions of ASA
or Comair; and
- the outcome of our litigation.
Forward-looking statements made by us are based on our knowledge of our
business and the environment in which we operate, but because of the factors
listed above, as well as other factors beyond our control, actual results may
differ, perhaps materially, from those anticipated in the forward-looking
statements.
All forward-looking statements attributable to us or persons acting on
our behalf are expressly qualified in their entirety by these cautionary
statements. We assume no obligation to update these forward-looking statements
even though our situation will change in the future.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits
12. Statement Regarding computation of Ratio of Earnings to Fixed
Charges.
15. Letter from Arthur Andersen LLP regarding unaudited interim
financial information.
27. Financial Data Schedule (For SEC use only).
(b) Reports on Form 8-K:
We filed a Current Report on Form 8-K dated January 31, 2000 relating
to (1) our sale of $2 billion aggregate principal amount of senior
unsecured notes in a private placement; (2) the NMB's authorization of
an election to determine whether to certify the TWU as the collective
bargaining representative of Delta's ramp and cargo employees; (3) the
completion of our acquisition of Comair; (4) our new common stock
repurchase program; (5) a general salary increase for substantially all
of Delta's domestic, non-union employees and an early retirement
medical option for eligible Delta personnel; and (6) our unaudited
consolidated financial results for the three and six months ended
December 31, 1999.
27
<PAGE> 28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delta Air Lines, Inc.
-------------------------------
(Registrant)
By: /s/ Edward H. West
-------------------------------
Edward H. West
Executive Vice President
and Chief Financial Officer
May 15, 2000
28
<PAGE> 1
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIOS) EXHIBIT 12
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31 March 31 March 31 March 31
2000 1999 2000 1999
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Earnings (loss):
Earnings (loss) before income taxes $ 376 $ 358 $ 1,539 $ 1,216
Add (deduct):
Fixed charges from below 263 208 687 618
Interest capitalized (12) (12) (36) (34)
----- ----- ------- -------
Earnings (loss) as adjusted $ 627 $ 554 $ 2,190 $ 1,800
Fixed charges:
Interest expense $ 106 $ 47 $ 249 $ 139
Portion of rental expense representative
of the interest factor 157 161 438 479
----- ----- ------- -------
Total fixed charges $ 263 $ 208 $ 687 $ 618
Ratio of earnings to fixed charges 2.38 2.66 3.19 2.91
</TABLE>
<PAGE> 1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
EXHIBIT 15
To Delta Air Lines, Inc.:
We are aware that Delta Air Lines, Inc. has incorporated by reference in its
Registration Statement Nos. 2-94541, 33-30454, 33-65391, 333-16471, 33-32618,
33-52045, 333-49553, 333-92291, 33-50175, 333-58647, and 333-30974 its Form 10-Q
for the quarter ended March 31, 2000, which includes our report dated May 12,
2000 covering the unaudited interim financial information contained therein.
Pursuant to Regulation C of the Securities Act of 1933 (the "Act"), that report
is not considered a part of the Registration Statements prepared or certified by
our firm or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
/s/ Arthur Andersen LLP
Atlanta, Georgia
May 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELTA
AIR LINES, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RELATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 1,190
<SECURITIES> 817
<RECEIVABLES> 765
<ALLOWANCES> (33)
<INVENTORY> 114
<CURRENT-ASSETS> 3,781
<PP&E> 20,059
<DEPRECIATION> 7,410
<TOTAL-ASSETS> 20,184
<CURRENT-LIABILITIES> 5,804
<BONDS> 5,005
0
0
<COMMON> 270
<OTHER-SE> 4,534
<TOTAL-LIABILITY-AND-EQUITY> 20,184
<SALES> 0
<TOTAL-REVENUES> 11,550
<CGS> 0
<TOTAL-COSTS> 10,838
<OTHER-EXPENSES> 1,076
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 249
<INCOME-PRETAX> 1,539
<INCOME-TAX> 612
<INCOME-CONTINUING> 927
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 927
<EPS-BASIC> 6.92
<EPS-DILUTED> 6.59
</TABLE>
