UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5424
DELTA AIR LINES, INC.
State of Incorporation: Delaware
IRS Employer Identification No.: 58-0218548
Hartsfield Atlanta International Airport, Atlanta, Georgia 30320
Telephone: (404) 715-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
----- -----
Number of shares outstanding by each class of common stock,
as of October 31, 1996:
Common Stock, $3.00 par value - 74,677,809 shares outstanding
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DELTA AIR LINES, INC.
Consolidated Balance Sheets
(Unaudited)
(In Millions)
SEPTEMBER 30 JUNE 30
ASSETS 1996 1996
- ------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 882 $ 1,145
Short-term investments 505 507
Accounts and notes receivable, net 1,085 968
Maintenance and operating supplies,
at average cost 68 73
Deferred income taxes 325 352
Prepaid expenses and other 247 237
------------ -----------
Total current assets 3,112 3,282
------------ -----------
PROPERTY AND EQUIPMENT:
Flight equipment owned 8,359 8,202
Less: Accumulated depreciation 3,264 3,235
------------ -----------
5,095 4,967
------------ -----------
Flight equipment under capital leases 515 515
Less: Accumulated amortization 139 127
------------ -----------
376 388
------------ -----------
Ground property and equipment 2,756 2,697
Less: Accumulated depreciation 1,586 1,532
------------ -----------
1,170 1,165
------------ -----------
Advance payments for equipment 334 275
------------ -----------
6,975 6,795
------------ -----------
OTHER ASSETS:
Marketable equity securities 441 473
Deferred income taxes 377 415
Postemployment benefits 294 294
Investments in associated companies 280 266
Cost in excess of net assets acquired, net 263 265
Leasehold and operating rights, net 135 140
Non-operating property, net 113 151
Other 149 145
------------ -----------
2,052 2,149
------------ -----------
$ 12,139 $ 12,226
============ ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
2
DELTA AIR LINES, INC.
Consolidated Balance Sheets
(Unaudited)
(In Millions except Share Amounts)
SEPTEMBER 30 JUNE 3O
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
- ------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 51 $ 40
Current obligations under capital leases 56 58
Accounts payable and miscellaneous accrued liabilities 1,660 1,540
Air traffic liability 1,372 1,414
Accrued salaries and vacation pay 371 385
Accrued rent 193 201
------------ -----------
Total current liabilities 3,703 3,638
------------ -----------
NONCURRENT LIABILITIES:
Long-term debt 1,701 1,799
Postretirement benefits 1,804 1,796
Accrued rent 609 616
Capital leases 363 376
Other 409 425
------------ -----------
4,886 5,012
------------ -----------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions 788 802
Manufacturers' and other credits 96 96
------------ -----------
884 898
------------ -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
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 6,727,521 shares at September 30,
1996 and 6,738,740 shares at June 30, 1996 484 485
Unearned compensation under
employee stock ownership plan (334) (347)
------------ -----------
150 138
------------ -----------
STOCKHOLDERS' EQUITY:
Series C Convertible Preferred Stock,
$1.00 par value, $50,000 liquidation preference;
Issued and outstanding 13,978 shares at June 30, 1996. - -
Common stock, $3.00 par value; Authorized, 150,000,000 shares;
Issued 82,915,261 shares at September 30, 1996
and 72,265,994 shares at June 30, 1996 249 217
Additional paid-in capital 2,596 2,627
Net unrealized gain on noncurrent marketable equity securities 107 126
Retained earnings (deficit) 113 (119)
Treasury stock at cost, 7,836,392 shares at
September 30, 1996, and 4,487,888 shares at June 30, 1996 (549) (311)
------------ -----------
2,516 2,540
------------ -----------
$ 12,139 $ 12,226
============ ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
3
DELTA AIR LINES, INC.
Consolidated Statements of Operations
(Unaudited)
(In Millions, except Share Data)
Three Months Ended
September 30
------------------------
1996 1995
---------- ----------
OPERATING REVENUES:
Passenger $ 3,170 $ 2,977
Cargo 124 129
Other, net 138 82
---------- ----------
Total operating revenues 3,432 3,188
---------- ----------
OPERATING EXPENSES:
Salaries and related costs 1,092 1,037
Aircraft fuel 416 348
Passenger commissions 278 278
Contracted services 199 172
Other selling expenses 179 145
Depreciation and amortization 166 161
Aircraft rent 137 140
Aircraft maintenance materials and
outside repairs 108 109
Passenger service 105 104
Facilities and other rent 99 113
Landing fees 64 69
Other 151 126
---------- ----------
Total operating expenses 2,994 2,802
---------- ----------
OPERATING INCOME 438 386
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (54) (75)
Interest capitalized 8 7
Interest income 19 23
Miscellaneous, net (13) (4)
---------- ----------
(40) (49)
---------- ----------
INCOME BEFORE INCOME TAXES 398 337
INCOME TAXES PROVIDED (160) (136)
---------- ----------
NET INCOME 238 201
PREFERRED STOCK DIVIDENDS (2) (22)
---------- ----------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 236 $ 179
========== ==========
PRIMARY INCOME PER COMMON SHARE $ 3.09 $ 3.47
========== ==========
FULLY DILUTED INCOME PER COMMON SHARE $ 2.98 $ 2.57
========== ==========
WEIGHTED AVERAGE SHARES USED IN
PER SHARE COMPUTATION:
Primary 76,490,970 51,445,077
Fully Diluted 79,533,689 80,513,991
DIVIDENDS PER COMMON SHARE $ 0.05 $ 0.05
========== ==========
The accompanying notes are an integral part of these consolidated statements.
4
DELTA AIR LINES, INC.
Statistical Summary
(Unaudited)
Three Months Ended
September 30
------------------------
1996 1995
-------- --------
STATISTICAL SUMMARY:
Revenue Passengers Enplaned (000) 25,260 22,104
Revenue Passenger Miles (millions) 25,395 22,758
Available Seat Miles (millions) 34,386 33,397
Passenger Mile Yield 12.49 c 13.08 c
Operating Revenue Per Available Seat Mile 9.98 c 9.54 c
Operating Cost Per Available Seat Mile 8.71 c 8.39 c
Passenger Load Factor 73.85 % 68.14 %
Breakeven Passenger Load Factor 63.65 % 59.32 %
Revenue Ton Miles (millions) 2,873 2,615
Cargo Ton Miles (millions) 333 339
Cargo Ton Mile Yield 37.18 c 38.10 c
Fuel Gallons Consumed (millions) 658 641
Average Price Per Fuel Gallon 63.21 c 54.32 c
Number of Aircraft in Fleet at End of Period 538 542
Full-Time Equivalent Employees at End of Period 60,888 58,007
5
DELTA AIR LINES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(In Millions)
Three Months Ended
September 30
--------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 238 $ 201
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 166 161
Deferred income taxes 77 70
Amortization of deferred gain on sale and
leaseback transactions (14) (15)
Rental expense less than payments (15) -
Employee benefits expense in excess of
(less than) payments 14 (27)
Changes in certain assets and liabilities:
Increase in receivables (117) (260)
Decrease (increase) in other current assets (5) 16
Increase (decrease) in air traffic liability (42) 10
Increase in accounts payable and accrued
liabilities 120 121
Increase (decrease) in other payables (14) 10
Decrease in other noncurrent liabilities - (38)
Other, net 26 (50)
--------- ---------
Net cash provided by operating activities 434 199
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (295) (191)
Ground property and equipment (65) (51)
Decrease in short-term investments, net 3 26
Proceeds from sale of flight equipment - 6
--------- ---------
Net cash used in investing activities (357) (210)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1 14
Repurchase of common stock (234) -
Payments on long-term debt and capital lease obligations (103) (85)
Cash dividends (4) (22)
--------- ---------
Net cash used in financing activities (340) (93)
--------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (263) (104)
Cash and cash equivalents at beginning of period 1,145 1,233
--------- ---------
Cash and cash equivalents at end of period $ 882 $ 1,129
========= =========
The accompanying notes are an integral part of these consolidated statements.
6
DELTA AIR LINES, INC.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
1. ACCOUNTING AND REPORTING POLICIES:
The Company's accounting and reporting policies are summarized in Note 1
(page 33) of the Notes to Consolidated Financial Statements in Delta's 1996
Annual Report to Stockholders. These interim financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's 1996 Annual Report to Stockholders. In the
opinion of management, the accompanying unaudited financial statements
reflect all adjustments, consisting of normal recurring accruals, necessary
for a fair statement of results for the interim periods.
Certain amounts in the Consolidated Statements of Operations for the three
months ended September 30, 1995, have been reclassified to conform with the
current financial statement presentation.
2. LONG-TERM DEBT:
During the September 1996 quarter, the Company voluntarily repurchased and
retired $87 million principal amount of its long-term debt. As a result of
these transactions, the Company recognized a net pretax loss of $8 million
during the quarter ended September 30, 1996; this amount is included in
miscellaneous, net in the Company's Consolidated Statements of Operations.
The 1995 Bank Credit Agreement provides for unsecured borrowings by the
Company of up to $1.25 billion on a revolving basis until September 26,
2001. Up to $500 million of this facility may be used for the issuance of
letters of credit. At September 30, 1996, no borrowings or letters of credit
were outstanding under the 1995 Bank Credit Agreement.
The Company's credit agreement with ABN AMRO Bank, N.V. and a group of banks
(Letter of Credit Facility) provides for the issuance of letters of credit
for up to $550 million in stated amount to credit enhance the Delta Family-
Care Savings Plan's Series C Guaranteed Serial ESOP Notes (Series C ESOP
Notes), which are guaranteed by Delta. At September 30, 1996, the face
amount of the letter of credit under the Letter of Credit Facility was $470
million, which covers $290 million outstanding principal amount of the
Series C ESOP Notes, up to $148 million of Make Whole Premium Amount and
approximately one year of interest on the Series C ESOP Notes. For
additional information regarding Delta's long-term debt, including the
Series C ESOP Notes, see Note 7 (page 37) of the Notes to Consolidated
Financial Statements in Delta's 1996 Annual Report to Stockholders.
During the three months ended September 30, 1996 and 1995, Delta made cash
interest payments, net of interest capitalized, of $42 million and $43
million, respectively.
7
3. AIRCRAFT PURCHASE COMMITMENTS:
At September 30, 1996, the Company's aircraft fleet, purchase commitments
and options were:
CURRENT FLEET
-----------------------------
AIRCRAFT TYPE OWNED LEASED TOTAL ORDERS OPTIONS
--------------- ----- ------ ----- ------- -------
B-727-200 106 23 129 - -
B-737-200 1 53 54 - -
B-737-300 - 13 13 - -
B-757-200 47 41 88 6* 28
B-767-200 15 - 15 - -
B-767-300 2 24 26 2 -
B-767-300ER 10 7 17 14 12
L-1011-1 27 - 27 - -
L-1011-200 1 - 1 - -
L-1011-250 6 - 6 - -
L-1011-500 17 - 17 - -
MD-11 6 7 13 2 17
MD-88 63 57 120 - 15
MD-90 12 - 12 19 50
--- --- --- -- ---
313 225 538 43 122
=== === === == ===
*Includes two used aircraft to be delivered after September 30, 1996.
The MD-88 aircraft options may be converted to MD-90 aircraft orders, and
the B-767-300ER aircraft options may be converted to B-767-300 aircraft
orders, at Delta's election.
During the September 1996 quarter, the Company accepted delivery of one
MD-11 aircraft. In addition, Delta entered into an agreement to purchase
nine B-727-200 aircraft, which the Company currently leases under operating
leases, and an agreement to purchase four used B-757-200 aircraft, two of
which were delivered during the quarter. Delta also exercised options to
purchase an additional 32 shipsets of Stage 3 engine hushkits for B-727-200
aircraft. Additionally, the Company retired four L-1011-1 aircraft.
Subsequent to September 30, 1996, Delta accepted delivery of one B-767-300ER
aircraft, one used B-757-200 aircraft, one MD-11 aircraft and one MD-90
aircraft.
8
Future expenditures for aircraft, engines and engine hushkits on firm order
at September 30, 1996, are estimated to be $2.4 billion, as follows:
AMOUNT
YEARS ENDING JUNE 30 (IN MILLIONS)
------------------------------- -------------
Remainder of fiscal year 1997 $ 750
1998 760
1999 330
2000 240
2001 210
After 2001 70
------
Total $2,360
======
4. CONTINGENCIES:
Delta is a defendant in certain legal actions relating to alleged employment
discrimination practices, antitrust matters, environmental issues and other
matters concerning Delta's business. Although the ultimate outcome of these
matters cannot be predicted with certainty and could have a material adverse
effect on Delta's consolidated financial condition, results of operations or
liquidity, management presently believes that the resolution of these
actions is not likely to have such effects.
5. STOCKHOLDERS' EQUITY:
During the September 1996 quarter, the Company issued 10,629,465 common
shares upon the conversion or redemption of 13,977,510 Depositary Shares
(each of which represented 1/1,000th of a share of Series C Convertible
Preferred Stock). In addition, the Company issued a total of 19,650 common
shares, at an average price of $57.80 per share, under the 1989 Stock
Incentive Plan, the Dividend Reinvestment and Stock Purchase Plan and the
Non-Employee Directors' Stock Plan.
On April 24, 1996, Delta's Board of Directors authorized the Company to
repurchase up to 24.7 million shares of its common stock and common stock
equivalents. See Note 14 (page 45) of the Notes to Consolidated Financial
Statements in Delta's 1996 Annual Report to Stockholders. During the
September 1996 quarter, the Company repurchased 3,344,300 shares of its
common stock at an average price of $69.99 per share under this
authorization. Since April 24, 1996, the Company has repurchased a total of
4,165,600 common shares at an average price of $71.96 per share.
At September 30, 1996, 5,102,377 common shares were reserved for issuance
under the 1989 Stock Incentive Plan; 5,770,868 common shares were reserved
for conversion of the Series B ESOP Convertible Preferred Stock; and 249,927
common shares were reserved for issuance under the Non-Employee Directors'
Stock Plan.
9
6. INCOME TAXES:
Income taxes are provided at the estimated annual effective tax rate, which
differs from the federal statutory rate of 35% primarily due to state income
taxes and the effect of certain expenses that are not deductible for income
tax purposes.
The Company made income tax payments in excess of income tax refunds
received of $45 million and $75 million during the three months ended
September 30, 1996 and 1995, respectively.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
During the three months ended September 30, 1996, Delta invested $295 million in
flight equipment and $65 million in ground property and equipment; paid $234
million to repurchase 3,344,300 shares of the Company's common stock; made
payments of $103 million on long-term debt and capital lease obligations, which
included Delta's voluntary repurchase and retirement of $87 million principal
amount of long-term debt; and paid $4 million in cash dividends. The principal
sources of these funds were $434 million of cash from operations and $263
million from cash reserves. Cash and cash equivalents and short-term
investments totaled $1.39 billion at September 30, 1996, compared to $1.65
billion at June 30, 1996. The Company may repurchase additional long-term debt
and common stock from time to time.
As of September 30, 1996, the Company had negative working capital of $591
million, compared to negative working capital of $356 million at June 30, 1996.
A negative working capital position is normal for Delta and does not indicate a
lack of liquidity. The Company expects to meet its current obligations as they
become due through available cash, short-term investments and internally
generated funds, supplemented as necessary by debt financing and proceeds from
sale and leaseback transactions. At September 30, 1996, the Company had $1.25
billion of credit available under its 1995 Bank Credit Agreement, subject to
compliance with certain conditions. For additional information regarding
Delta's long-term debt, see Note 2 of the Notes to Consolidated Financial
Statements of this Form 10-Q.
At September 30, 1996, long-term debt and capital lease obligations, including
current maturities, totaled $2.17 billion, compared to $2.27 billion at June 30,
1996. Stockholders' equity was $2.52 billion at September 30, 1996 and $2.54
billion at June 30, 1996. The Company's debt-to-equity position, including
current maturities, was 46% debt and 54% equity at September 30, 1996, compared
to 47% debt and 53% equity at June 30, 1996.
At September 30, 1996, there was outstanding $290 million principal amount of
the Delta Family-Care Savings Plan's Series C Guaranteed Serial ESOP Notes
(Series C ESOP Notes), which are guaranteed by Delta. The Series C ESOP Notes
currently have the benefit of a credit enhancement in the form of a letter of
credit in the amount of $470 million under Delta's Credit Agreement with ABN
AMRO Bank and a group of banks. Delta is required to purchase the Series C
ESOP Notes in certain circumstances. For additional information regarding the
Series C ESOP Notes, see Note 7 (page 37) of the Notes to Consolidated Financial
Statements in Delta's 1996 Annual Report to Stockholders.
At its meeting on October 24, 1996, Delta's Board of Directors declared a cash
dividend of five cents per common share, payable December 1, 1996, to
stockholders of record on November 9, 1996.
See Part II, Item 5 of this Form 10-Q for information regarding (1) the
Company's adoption of a new stockholder rights plan; (2) the implementation of
the Company's two broad-based non-qualified stock option programs for Delta
personnel; (3) the Company's stock repurchase authorization; and (4) Delta
Express, the Company's new low-fare service.
11
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
- ----------------------------------------------
For the quarter ended September 30, 1996, Delta recorded unaudited net income of
$238 million ($3.09 primary and $2.98 fully diluted income per common share
after preferred stock dividend requirements) and operating income of $438
million. For the quarter ended September 30, 1995, the Company recorded net
income of $179 million ($3.47 primary and $2.57 fully diluted income per common
share after preferred stock dividend requirements) and operating income of $386
million. The September 1996 quarter primary earnings per common share reflect
an increase in the number of outstanding common shares due to the recent
conversion or redemption of the Series C Convertible Preferred Stock and the
conversion of the 3.23% Convertible Subordinated Notes. For additional
information on these conversions or redemptions see Notes 7 and 12 of the Notes
to Consolidated Financial Statements in Delta's 1996 Annual Report to
Stockholders and Note 5 of the Notes to Consolidated Financial Statements in
this Form 10-Q.
Operating revenues in the September 1996 quarter totaled $3.4 billion, an
increase of 8% from $3.2 billion in the September 1995 quarter. Passenger
revenue increased 6% to $3.2 billion, reflecting a 12% increase in revenue
passenger miles, partially offset by a 5% decline in the passenger mile yield.
The increase in passenger traffic is due to the Company's use of more
competitive pricing strategies; Delta's realignment of its domestic route system
on December 1, 1995, which increased the Company's operations at its Atlanta and
Cincinnati hubs; the suspension of service during the September 1996 quarter by
a low-cost, low-fare competitor; and favorable economic conditions. The
decrease in the passenger mile yield resulted from the Company's use of more
competitive pricing strategies and the continued presence of low-cost, low-fare
carriers in overall domestic markets served by Delta.
Cargo revenue decreased 4% to $124 million, as cargo ton miles and the cargo ton
mile yield each declined 2%. The decrease in cargo ton miles is primarily due
to reductions in service to certain international cities. The decrease in cargo
ton mile yield is a result of increased competition in the international cargo
market. All other revenue, net increased 68% to $138 million, primarily due to
the expansion of joint marketing programs and increased revenues from code share
agreements.
Operating expenses for the September 1996 quarter totaled $3.0 billion, an
increase of 7% from the September 1995 quarter, and operating capacity increased
3% to 34.39 billion available seat miles. As discussed below, the increase in
operating expenses during the September 1996 quarter is primarily due to higher
jet fuel prices and an increase in full-time equivalent employees to improve
customer service.
Salaries and related costs increased 5%, primarily due to a 5% increase in full-
time equivalent employees. Aircraft fuel expense increased 20%, as the average
fuel price per gallon increased 16% to 63.21 cents and fuel gallons consumed
increased 3%. Passenger commissions remained unchanged from the September 1995
quarter. Contracted services expense rose 16%, due to increased information
technology services. Other selling expenses increased 23%, the result of
increased advertising and promotion costs associated with the 1996 Centennial
Olympic Games and booking fee payments to computer reservations system
providers.
12
Depreciation and amortization expense rose 3%, largely due to the acquisition of
additional ground equipment and higher amortization of software development
costs. Aircraft rent expense decreased 2% due to the return of certain aircraft
to lessors. Aircraft maintenance materials and outside repairs and passenger
service expense each remained virtually unchanged. Facilities and other rent
decreased 12%, due to certain facilities rent accrual adjustments, the
subleasing of certain airport facilities and the reclassification of certain
unoccupied airport facilities costs to nonoperating categories. Landing fees
decreased 7%, resulting from scheduled reductions in certain international
markets. Other operating expenses increased 20%, primarily reflecting the
October 1, 1995 expiration of the exemption from the 4.3 cents per gallon
federal tax on commercial aviation jet fuel used in domestic operations,
partially offset by increased services provided to outside parties.
Nonoperating expense in the September 1996 quarter totaled $40 million, compared
to nonoperating expense of $49 million in the September 1995 quarter. Interest
expense decreased 28% to $54 million, due to a lower average level of long-term
debt outstanding. Interest income decreased 17% to $19 million, primarily due
to a decline in interest rates and lower average levels of cash invested.
Miscellaneous expense, net increased to $13 million in the September 1996
quarter from $5 million in the September 1995 quarter, due to Delta's agreement
to pay $20 million to settle certain class action antitrust lawsuits filed by
travel agents and the voluntary repurchase and retirement of long-term debt,
partially offset by income from associated companies and foreign exchange gains.
For additional information regarding the antitrust settlement, see page 12 of
Delta's Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
Pretax income of $398 million for the September 1996 quarter resulted in an
income tax provision of $160 million. After a $2 million provision for
preferred stock dividends, net income available to common stockholders was $236
million.
13
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
the Board of Directors of
Delta Air Lines, Inc.:
We have reviewed the accompanying consolidated balance sheet of DELTA AIR LINES,
INC. (a Delaware Corporation) AND SUBSIDIARIES as of September 30, 1996 and the
related consolidated statements of operations and cash flows for the three-month
periods ended September 30, 1996 and 1995. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
November 1, 1996
14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
At Delta's Annual Meeting of Stockholders held on October 24, 1996, the holders
of Delta's Common Stock and Series B ESOP Convertible Preferred Stock, voting
together as a single class, took the following actions:
1. Elected the persons named below to Delta's Board of Directors by the
following vote:
FOR WITHHELD
---------- --------
Ronald W. Allen 70,879,791 2,790,650
Edwin L. Artzt 72,134,581 1,535,860
Henry A. Biedenharn, III 72,165,857 1,504,584
James L. Broadhead 72,052,844 1,617,597
Edward H. Budd 72,182,393 1,488,048
George D. Busbee 72,029,345 1,641,096
R. Eugene Cartledge 72,171,899 1,498,542
Mary Johnston Evans 72,117,290 1,553,151
Gerald Grinstein 72,087,431 1,583,010
Jesse Hill, Jr. 72,118,762 1,551,679
Peter D. Sutherland 72,133,095 1,537,346
Andrew J. Young 71,764,034 1,906,407
There were no broker non-votes on this matter.
2. Ratified the appointment of Arthur Andersen LLP as independent auditors of
Delta for fiscal year 1997 by a vote of 72,516,317 FOR; 974,642 AGAINST;
and 179,482 ABSTENTIONS. There were no broker non-votes on this matter.
3. Approved the material terms of the Incentive Compensation Plan by a vote of
70,282,502 FOR; 3,031,877 AGAINST; and 356,062 ABSTENTIONS. There were no
broker non-votes on this matter.
4. Approved the DeltaShare Stock Option Plan and the Pilots Stock Option Plan
by a vote of 57,346,005 FOR; 9,201,385 AGAINST; and 252,410 ABSTENTIONS.
There were 6,870,641 broker non-votes on this matter.
5. Defeated a stockholder proposal relating to political activities by the
Company by a vote of 7,032,021 FOR; 55,813,167 AGAINST; and 3,954,612
ABSTENTIONS. There were 6,870,641 broker non-votes on this matter.
6. Defeated a stockholder proposal relating to Company employment matters by a
vote of 10,477,082 FOR; 51,114,848 AGAINST; and 5,207,870 ABSTENTIONS.
There were 6,870,641 broker non-votes on this matter.
15
ITEM 5. OTHER INFORMATION
- -------------------------
STOCKHOLDER RIGHTS PLAN
- -----------------------
On October 24, 1996, Delta's Board of Directors adopted a new Stockholder Rights
Plan (Rights Plan) to replace the plan that expired on November 4, 1996. The new
Rights Plan, like the former plan, is designed to enhance the Board's ability to
protect stockholders against unsolicited attempts to acquire Delta that do not
offer an adequate price to all stockholders or are otherwise not in the best
interests of the Company and its stockholders. For additional information
concerning the Rights Plan and the rights issued thereunder, see Delta's Current
Report on Form 8-K dated October 28, 1996.
BROAD-BASED STOCK OPTION PLANS
- ------------------------------
On April 24, 1996, the Board of Directors adopted, subject to stockholder
approval, two broad-based non-qualified stock option plans (Plans) for Company
personnel. One plan is for eligible Delta personnel who are not pilots (Nonpilot
Plan); the other covers the Company's pilots (Pilot Plan). On October 24, 1996,
the Company's stockholders approved the Plans.
The Nonpilot and Pilot Plans provide for the grant of non-qualified stock
options to purchase 14.7 million and 10.0 million shares of the Company's Common
Stock (Common Stock), respectively.
The stock option grants under the Nonpilot and Pilot Plans will be made in three
equal annual installments to eligible personnel in their individual capacities.
Delta personnel who receive stock options may purchase from the Company shares
of Common Stock at a purchase price per share equal to the opening price of the
Common Stock on the New York Stock Exchange on the applicable grant date.
Stock options awarded under the plans are exercisable beginning one year, and
ending ten years, after the applicable grant date. The stock options are not
transferable other than upon the death of the person awarded the stock options.
The initial grant date under the Nonpilot and Pilot Plans was October 30, 1996.
On that date, Delta granted to eligible personnel non-qualified stock options to
purchase a total of approximately 8.2 million shares of Common Stock at a
purchase price of $69.00 per share.
The second and third grant dates under the Nonpilot and Pilot Plans are
scheduled to occur on October 30, 1997 and 1998, respectively.
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STOCK REPURCHASE AUTHORIZATION
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On April 24, 1996, Delta's Board of Directors authorized the Company to
repurchase up to 24.7 million shares of Common Stock and Common Stock
equivalents. Under this authorization, the Company may repurchase up to 6.2
million of these shares before the initial stock option grants under the broad-
based stock option plans become exercisable, and repurchase the remaining shares
as Delta personnel exercise their stock options. Repurchases are subject to
market conditions and may be made on the open market or in privately negotiated
transactions. Through September 30, 1996 the Company repurchased 4,165,600
shares of Common Stock for $300 million under this authorization.
DELTA EXPRESS
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On October 1, 1996, Delta began operating Delta Express, a new low-fare service
within Delta that operates a dedicated fleet of Boeing 737-200 aircraft in
certain highly competitive, leisure-oriented markets within Delta's system,
connecting the northeast and midwest with Orlando and other Florida cities. The
financial impact of this operation on Delta cannot presently be determined.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
4. First Amendment to the Second Amended and Restated Credit Agreement
dated as of September 27, 1995, among Delta, Certain Banks, and
NationsBank of Georgia, N.A., as Agent Bank.
11. Statement regarding computation of per share earnings.
12. Statement regarding computation of ratio of earnings to fixed charges.
15. Letter from Arthur Andersen LLP regarding unaudited interim financial
information.
27. Financial Data Schedule (For SEC use only).
(b) Reports on Form 8-K:
During the quarter ended September 30, 1996, Delta did not file any Current
Reports on Form 8-K. Subsequent to September 30, 1996, Delta filed a
Current Report on Form 8-K dated October 28, 1996 relating to the Company's
adoption of a new Stockholder Rights Plan.
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SIGNATURE
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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.
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(Registrant)
By: /s/ Thomas J. Roeck, Jr.
---------------------------------
Thomas J. Roeck, Jr.
Senior Vice President - Finance
and Chief Financial Officer
November 13, 1996
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(Date)
19