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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, 2001
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, 2001:
Common Stock, $1.50 par value - 123,042,814 shares outstanding
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FORWARD-LOOKING INFORMATION
Statements in this Form 10-Q which are not purely historical facts,
including statements about our estimates, expectations, beliefs, intentions, or
strategies for the future, may be "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from historical experience or our present expectations.
Factors that could cause these differences include, but are not limited
to, general economic conditions; competitive factors in our industry, including
mergers and acquisitions; outcomes of negotiations on collective bargaining
agreements; changes in aircraft fuel prices; disruptions to operations due to
adverse weather conditions, air traffic control-related constraints and labor
matters such as the duration of the Comair pilot strike and whether Delta pilots
ratify the new tentative collective bargaining agreement; fluctuations in
foreign currency exchange rates; governmental actions; the willingness of
customers to travel generally and with us specifically; and the outcome of our
litigation.
Caution should be taken not to place undue reliance on our
forward-looking statements, which are current only as of the date of this Form
10-Q. More detailed information about risks and uncertainties as of other dates
can be read in Delta's past and future Forms 10-K and 10-Q and certain Forms 8-K
filed with the Securities and Exchange Commission.
CHANGE IN YEAR END
Effective December 31, 2000, Delta changed its year end from June 30 to
December 31. This Form 10-Q includes Consolidated Balance Sheets as of March 31,
2001 (unaudited) and December 31, 2000, unaudited Consolidated Statements of
Operations for the three months ended March 31, 2001 and 2000, and unaudited
Condensed Consolidated Statements of Cash Flows for the three months ended March
31, 2001 and 2000.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA AIR LINES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
ASSETS 2001 2000
----------- ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,172 $ 1,364
Short-term investments 5 243
Accounts receivable, net of allowance for uncollectible accounts
of $28 at March 31, 2001 and $31 at December 31, 2000 590 406
Deferred income taxes 345 345
Fuel hedge contracts, at fair market value 244 319
Prepaid expenses and other 574 528
------- -------
Total current assets 2,930 3,205
------- -------
PROPERTY AND EQUIPMENT:
Flight equipment 17,606 17,081
Less: Accumulated depreciation 4,882 4,849
------- -------
12,724 12,232
------- -------
Flight equipment under capital leases 484 484
Less: Accumulated amortization 335 324
------- -------
149 160
------- -------
Ground property and equipment 4,198 4,371
Less: Accumulated depreciation 2,105 2,313
------- -------
2,093 2,058
------- -------
Advance payments for equipment 371 390
------- -------
Total property and equipment, net 15,337 14,840
------- -------
OTHER ASSETS:
Investments in debt and equity securities 318 339
Investments in associated companies 230 222
Cost in excess of net assets acquired, net 2,134 2,149
Operating rights and other intangibles, net 100 102
Other noncurrent assets 1,051 1,074
------- -------
Total other assets 3,833 3,886
------- -------
Total assets $22,100 $21,931
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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DELTA AIR LINES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
LIABILITIES AND SHAREOWNERS' EQUITY 2001 2000
----------- ------------
(Unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 63 $ 62
Current obligations under capital leases 40 40
Accounts payable and miscellaneous accrued liabilities 2,140 2,248
Air traffic liability 1,817 1,442
Accrued salaries and related benefits 1,306 1,170
Accrued rent 188 283
-------- --------
Total current liabilities 5,554 5,245
-------- --------
NONCURRENT LIABILITIES:
Long-term debt 5,896 5,797
Capital leases 94 99
Postretirement benefits 2,026 2,026
Accrued rent 741 721
Deferred income taxes 1,226 1,220
Other 363 388
-------- --------
Total noncurrent liabilities 10,346 10,251
-------- --------
DEFERRED CREDITS:
Deferred gains on sale and leaseback transactions 556 568
Manufacturers' and other credits 283 290
-------- --------
Total deferred credits 839 858
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 10)
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 6,368,840 shares at
March 31, 2001 and 6,405,563 at December 31, 2000 458 460
Unearned compensation under employee stock ownership plan (225) (226)
-------- --------
Total Employee Stock Ownership Plan Preferred Stock 233 234
-------- --------
SHAREOWNERS' EQUITY:
Common stock, $1.50 par value; 450,000,000 shares authorized;
180,789,151 shares issued at March 31, 2001 and 180,764,057
shares issued at December 31, 2000 271 271
Additional paid-in capital 3,264 3,264
Retained earnings 4,037 4,176
Accumulated other comprehensive income 284 360
Treasury stock at cost, 57,751,198 shares at March 31, 2001 and
57,750,685 shares at December 31, 2000 (2,728) (2,728)
-------- --------
Total shareowners' equity 5,128 5,343
-------- --------
Total liabilities and shareowners' equity $ 22,100 $ 21,931
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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DELTA AIR LINES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)
Three Months Ended
March 31
--------------------------------------
2001 2000
-------------- --------------
OPERATING REVENUES:
Passenger $ 3,598 $ 3,666
Cargo 140 141
Other, net 104 104
-------------- --------------
Total operating revenues 3,842 3,911
OPERATING EXPENSES:
Salaries and related costs 1,614 1,428
Aircraft fuel 514 434
Depreciation and amortization 324 297
Other selling expenses 180 161
Passenger commissions 141 169
Contracted services 258 228
Landing fees and other rents 202 188
Aircraft rent 188 185
Aircraft maintenance materials and outside repairs 187 171
Passenger service 115 102
Other 234 205
-------------- --------------
Total operating expenses 3,957 3,568
-------------- --------------
OPERATING INCOME (LOSS) (115) 343
-------------- --------------
OTHER INCOME (EXPENSE):
Interest expense, net (86) (69)
Gains from the sale of investments -- 73
Miscellaneous income (expense), net (4) 17
Fair value adjustments of SFAS 133 derivatives (17) --
-------------- --------------
Total other income (expense) (107) 21
-------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES (222) 364
INCOME TAX BENEFIT (PROVISION), NET 89 (147)
-------------- --------------
NET INCOME (LOSS) (133) 217
PREFERRED STOCK DIVIDENDS (3) (3)
-------------- --------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREOWNERS $ (136) $ 214
============== ==============
BASIC EARNINGS (LOSS) PER SHARE $ (1.11) $ 1.68
============== ==============
DILUTED EARNINGS (LOSS) PER SHARE $ (1.11) $ 1.61
============== ==============
WEIGHTED AVERAGE SHARES USED IN
PER SHARE COMPUTATION:
Basic 123,030,903 126,883,323
Diluted 123,030,903 133,587,179
DIVIDENDS PER COMMON SHARE $ 0.025 $ 0.025
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
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DELTA AIR LINES, INC.
STATISTICAL SUMMARY
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
----------------------------
STATISTICAL SUMMARY: 2001 2000
------ ------
Revenue Passenger Miles (millions) 25,285 25,559
Available Seat Miles (millions) 37,727 37,224
Passenger Mile Yield 14.23(cents) 14.34(cents)
Operating Revenue Per Available Seat Mile 10.18(cents) 10.51(cents)
Operating Cost Per Available Seat Mile 10.49(cents) 9.58(cents)
Passenger Load Factor 67.02% 68.66%
Breakeven Passenger Load Factor 69.16% 62.23%
Passengers Enplaned (thousands) 26,932 28,158
Revenue Ton Miles (millions) 2,977 2,888
Cargo Ton Miles (millions) 437 439
Cargo Ton Mile Yield 31.93(cents) 32.08(cents)
Fuel Gallons Consumed (millions) 696 703
Average Price Per Fuel Gallon, net of hedging gains 73.81(cents) 61.71(cents)
Number of Aircraft in Fleet at End of Period 829 792
Average Full-Time Equivalent Employees 84,000 80,100
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DELTA AIR LINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
THREE MONTHS ENDED
MARCH 31
--------------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (133) $ 217
Adjustments to reconcile net income (loss) to cash
provided by operating activities, net 286 250
Changes in certain assets and liabilities, net 143 276
-------- --------
Net cash provided by operating activities 296 743
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (633) (304)
Ground property and equipment (187) (130)
Decrease (increase) in short-term investments, net 239 (165)
Proceeds from sale of investments -- 73
Acquisition of Comair, net of cash acquired -- (233)
Proceeds from sale of flight equipment 16 51
Other, net (13) 1
-------- --------
Net cash used in investing activities (578) (707)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1 4
Repurchase of common stock -- (500)
Payments on long-term debt and capital lease obligations (11) (11)
Issuance of long-term obligations 105 --
Cash dividends on common stock (3) (3)
Other, net (2) --
-------- --------
Net cash provided by (used in) financing activities 90 (510)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (192) (474)
Cash and cash equivalents at beginning of period 1,364 1,623
-------- --------
Cash and cash equivalents at end of period $ 1,172 $ 1,149
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest (net of amounts capitalized) $ 40 $ 50
Income taxes $ (79) $ 57
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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DELTA AIR LINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
1. ACCOUNTING AND REPORTING POLICIES
Delta's accounting and reporting policies are summarized in
Note 1 of the Notes to the Consolidated Financial Statements (pages
19-20) in our Calendar Year 2000 Annual Report to Shareowners (Annual
Report) and in Note 4 of this Form 10-Q. These interim financial
statements should be read in conjunction with the consolidated
financial statements and the accompanying notes in our Annual Report.
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 and
other factors, operating results for the interim period are not
necessarily indicative of operating results for the entire year. We
have reclassified certain amounts in the prior period to be consistent
with the presentation of our current period financial statements.
2. SALE OF RECEIVABLES
During 1999, we entered into an agreement under which we sold
a defined pool of our accounts receivable, on a revolving basis,
through a special purpose, wholly owned subsidiary to a third party. We
initially sold receivables having a fair value of $547 million to the
subsidiary. In exchange for the receivables sold, we received cash and
a subordinated promissory note. The principal amount of the promissory
note was $137 million at March 31, 2001, and is included in accounts
receivable on our Consolidated Balance Sheets. This agreement was
renewed on June 15, 2000, and will expire on June 15, 2001, unless
renewed.
As part of the agreement, the subsidiary is required to pay
fees to a third party based on the amounts invested by the third party.
For the three months ended March 31, 2001, these fees were $4.6
million. These fees are included in other income (expense) under
miscellaneous income (expense), net in our Consolidated Statements of
Operations.
For additional information regarding these transactions, see
Note 17 of the Notes to the Consolidated Financial Statements (pages
33-34) in the Annual Report.
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3. MARKETABLE AND OTHER EQUITY SECURITIES
At December 31, 2000, our equity investment in priceline.com
Incorporated (priceline) consisted of (1) six million shares of
priceline Series A Convertible Redeemable Preferred Stock (Series A
Preferred Stock); (2) a warrant to purchase up to 4.7 million shares of
priceline common stock for $4.72 per share (Amended 1999 Warrant); and
(3) 589,831 shares of priceline common stock. For additional
information regarding the Series A Preferred Stock and the Amended 1999
Warrant, see Note 2 of the Notes to the Consolidated Financial
Statements (pages 20-21) in our Annual Report.
On February 6, 2001, Delta and priceline agreed to restructure
Delta's investment in priceline. In accordance with this agreement, we
exchanged our six million shares of Series A Preferred Stock for the
following: (1) 80,000 shares of a new priceline Series B Redeemable
Preferred Stock (Series B Preferred Stock); and (2) a warrant to
purchase up to 26.9 million shares of priceline common stock for $2.97
per share (2001 Warrant).
The Series B Preferred Stock (1) bears an annual per share
dividend of 35 shares of priceline common stock; (2) has a liquidation
preference of $1,000 per share plus any dividends accrued or
accumulated but not yet paid (Liquidation Preference); (3) is subject
to mandatory redemption on February 6, 2007 at a price per share equal
to the Liquidation Preference; (4) is subject to redemption in whole,
at the option of Delta or priceline, in the event priceline consummates
any of certain business combination transactions (Optional Redemption);
and (5) entitles Delta to a premium payment of $625 per share in the
event any of these business combination transactions occurs on or
before November 16, 2002.
As discussed above, the 2001 Warrant provides Delta the right
to purchase up to an additional 26.9 million shares of priceline common
stock at an exercise price of $2.97 per share. Delta may exercise the
2001 Warrant, in whole or in part, at any time prior to the close of
business on February 6, 2007, unless all of the shares of Series B
Preferred Stock owned by Delta are redeemed in an Optional Redemption,
in which case Delta may not exercise the 2001 Warrant after the date of
the Optional Redemption. The exercise price may be paid by Delta only
by the surrender of shares of Series B Preferred Stock, valued at
$1,000 per share.
The 2001 Warrant also provides that it will automatically be
deemed exercised if the closing sales price of priceline common stock
exceeds $8.91 for twenty consecutive trading days. In such event,
Delta's rights in the shares of Series B Preferred Stock necessary to
pay the exercise price of the 2001 Warrant would automatically be
converted into the right to receive shares of priceline common stock
pursuant to the 2001 Warrant.
On February 6, 2001, Delta and priceline also entered into a
stockholder agreement which provides that Delta and priceline will
enter into a registration rights agreement providing Delta with shelf
registration rights with respect to priceline common stock owned by
Delta on February 6, 2001, and priceline common stock that might be
owned by Delta in
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the future as a result of (1) the exercise of the Amended 1999 Warrant;
(2) the exercise of the 2001 Warrant; or (3) dividends received on the
Series B Preferred Stock.
Based on an independent third-party appraisal, we estimated
the fair value of the Series B Preferred Stock to be $80 million and
the 2001 Warrant to be $46 million at February 6, 2001. The total fair
value of these securities equaled the carrying amount of the Series A
Preferred Stock, including its conversion feature and accumulated
dividends on the date the Series A Preferred Stock was exchanged for
the Series B Preferred Stock and the 2001 Warrant. Accordingly, we did
not recognize a gain or a loss on this transaction.
At March 31, 2001, Delta's equity interest in priceline
consisted of (1) 80,000 shares of Series B Preferred Stock; (2) the
2001 Warrant to purchase up to 26.9 million shares of priceline common
stock; (3) the Amended 1999 Warrant to purchase up to 4.7 million
shares of priceline common stock; and (4) 589,831 shares of priceline
common stock.
At March 31, 2001, the carrying value of our holdings in
priceline Series B Preferred Stock was $80 million, which approximates
fair value. The priceline Series B Preferred Stock is accounted for as
an available-for-sale debt security and recorded at fair value in
investments in debt and equity securities on our Consolidated Balance
Sheet in accordance with Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The 2001 Warrant is recorded at fair value in accordance
with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." For additional information regarding our holdings in
priceline, see Note 4 of the Notes to the Consolidated Financial
Statements in this Form 10-Q.
4. DERIVATIVE INSTRUMENTS
On July 1, 2000, we adopted SFAS 133, which requires us to
record on the balance sheet all derivative instruments at fair value
and to recognize certain non-cash changes in these fair values in the
statement of operations. SFAS 133 applies to the accounting for our
fuel hedging program and our holdings of equity warrants and other
similar rights in other companies. For additional information regarding
the adoption of SFAS 133, see Note 3 of the Notes to the Consolidated
Financial Statements (pages 21-22) in the Annual Report.
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The impact of SFAS 133 on our Consolidated Statements of
Operations is summarized as follows (in millions):
Income (Expense)
For the Three
Months Ended
March 31, 2001
----------------
Ineffective portion of fuel hedge contracts $ (9)
Fair value adjustment of equity rights (8)
----
Total pre-tax $(27)
====
Total after-tax $(11)
====
FUEL HEDGING
At March 31, 2001, our fuel hedge contracts had an estimated
short-term value of $244 million and an estimated long-term fair value
of $102 million. Unrealized gains of $212 million, net of tax, were
recorded in accumulated other comprehensive income. For additional
information regarding our fuel hedging policy, see Note 3 of the Notes
to the Consolidated Financial Statements (pages 21-22) in the Annual
Report.
EQUITY WARRANTS AND OTHER SIMILAR RIGHTS
We own equity warrants and other similar rights in certain
companies, primarily priceline. At March 31, 2001, the total fair
market value of our priceline warrants was $39 million. The change in
market value of our priceline warrants and our warrants in other
companies is recorded in our Consolidated Statements of Operations as
fair value adjustments of SFAS 133 derivatives. For additional
information regarding these equity interests, see Note 2 of the Notes
to the Consolidated Financial Statements (page 20-21) in our Annual
Report and Note 3 of the Notes to Consolidated Financial Statements in
this Form 10-Q.
5. AIRCRAFT PURCHASE COMMITMENTS
Our total aircraft fleet, options and rolling options at March
31, 2001 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.
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Current Fleet
-------------------------------
Rolling
Aircraft Type Owned Leased Total Orders Options Options
------------- ----- ------ ----- ------ ------- -------
B-727-200 64 10 74 -- -- --
B-737-200 1 53 54 -- -- --
B-737-300 -- 26 26 -- -- --
B-737-600/700/800 43 -- 43 89 60 251
B-757-200 79 41 120 1 20 68
B-767-200 15 -- 15 -- -- --
B-767-300/300ER 53 32 85 2 11 12
B-767-400 15 -- 15 6 24 11
B-777-200 7 -- 7 6 20 23
L-1011-100 4 -- 4 -- -- --
L-1011-250 4 -- 4 -- -- --
MD-11 8 7 15 -- -- --
MD-88 63 57 120 -- -- --
MD-90 16 -- 16 -- -- --
EMB-120 49 8 57 -- -- --
ATR-72 4 15 19 -- -- --
CRJ-100/200 30 125 155 79 231 --
CRJ-700 -- -- -- 57 165 --
--- --- --- --- --- ---
Total 455 374 829 240 531 365
=== === === === === ===
During the March 2001 quarter, we accepted delivery of the
following new aircraft: three B-737-800 aircraft, two B-757-200
aircraft, three B-767-400 aircraft and eight CRJ-200 aircraft, one of
which was subsequently sold and leased back. We retired two L-1011-100
aircraft, four L-1011-500 aircraft, one L-1011-250 aircraft and eight
B-727-200 aircraft. We also returned three EMB-120 aircraft to their
lessors.
During April 2001, we accepted delivery of one new B-757-200
aircraft.
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Future expenditures for aircraft and engines on order at April
30, 2001 are estimated to be $8.9 billion, as follows:
Amount
Year Ending December 31 (In Billions)
----------------------- -------------
Remainder of 2001 $ 1.7
2002 1.6
2003 2.0
2004 1.9
2005 1.3
After 2005 0.4
------
Total $ 8.9
======
6. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes unrealized gains and
losses on marketable equity securities and changes in the fair value of
certain derivative instruments which qualify for hedge accounting.
Comprehensive income (loss) totaled $(209) million and $317 million for
the three months ended March 31, 2001 and 2000, respectively. The
differences between net income (loss) and comprehensive income (loss)
for the quarters ended March 31, 2001 and March 31, 2000 are detailed
in the following table:
For the Three Months Ended
------------------------------------
(In Millions) March 31, 2001 March 31, 2000
-------------- --------------
Net income (loss) $ (133) $ 217
------ ------
Realization of gains on marketable
equity securities -- (73)
Unrealized gains (losses) on marketable
equity securities (33) 237
Realization of gains on derivative
instruments (106) --
Unrealized gains on derivative
instruments 15 --
------ ------
Total other comprehensive income (loss) (124) 164
Income tax effect on other
comprehensive income (loss) 48 (64)
------ ------
Total other comprehensive income (loss),
net of income taxes (76) 100
------ ------
Comprehensive income (loss), net of
income taxes $ (209) $ 317
====== ======
As of March 31, 2001, we had recorded $347 million ($212
million net of tax) as total unrealized gains on open fuel hedge
contracts in accordance with SFAS 133. Of that
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amount, we estimate that $152 million, net of tax, will be realized
over the 12 months ending March 31, 2002. For additional information on
the adoption of SFAS 133, see Note 3 of the Notes to the Consolidated
Financial Statements (pages 21-22) in the Annual Report.
7. SHAREOWNERS' EQUITY
During the March 2001 quarter, we issued a total of 25,094
shares of common stock under our broad-based employee stock option
plans, Delta 2000 Performance Compensation Plan, Dividend Reinvestment
and Stock Purchase Plan and Non-Employee Directors' Stock Plan.
8. GEOGRAPHIC INFORMATION
Delta 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:
For the Three Months Ended:
-----------------------------------
(In Millions) March 31, 2001 March 31, 2000
-------------- --------------
North America $3,213 $3,359
Atlantic 418 379
Latin America 152 106
Pacific 59 67
------ ------
Total $3,842 $3,911
====== ======
9. EARNINGS (LOSS) PER SHARE
We calculate basic earnings per share by dividing the income
(loss) 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. To the
extent stock options and convertible securities are anti-dilutive, they
are excluded from the calculation of dilutive earnings per share. The
following table shows our computation of basic and diluted earnings per
share:
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Three Months Ended
March 31, March 31,
2001 2000
--------- ---------
(In millions, except per share data)
BASIC:
Net income (loss) $ (133) $ 217
Dividends on allocated Series B ESOP
Convertible Preferred Stock (3) (3)
-------- --------
Income (loss) available to common shareowners $ (136) $ 214
======== ========
Weighted average shares outstanding 123.0 126.9
======== ========
Basic earnings (loss) per share $ (1.11) $ 1.68
======== ========
DILUTED:
Income (loss) available to common shareowners $ (136) $ 214
Adjustment assuming conversion of allocated Series B
ESOP Convertible Preferred Stock -- 2
-------- --------
Net income (loss) available to common shareowners,
plus assumed conversions $ (136) $ 216
======== ========
Weighted average shares outstanding 123.0 126.9
Additional shares assuming:
Conversion of allocated Series B ESOP
Convertible Preferred Stock -- 5.2
Exercise of stock options -- 1.4
Conversion of performance-based stock units -- 0.1
-------- --------
Weighted average shares outstanding as adjusted 123.0 133.6
======== ========
Diluted earnings (loss) per share $ (1.11) $ 1.61
======== ========
10. CONTINGENCIES
Comair, Inc. (Comair), a regional jet subsidiary of Delta, has
been in negotiations with the Air Line Pilots Association,
International (ALPA), the union that represents Comair's approximately
1,300 pilots, on a new collective bargaining agreement to replace the
existing pilot contract that became amendable in June 1998. Comair and
ALPA have not been able to reach agreement on a new contract. On March
26, 2001, Comair pilots began a strike. As a result of the strike,
which is continuing, Comair suspended its flight operations. To
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minimize disruption to customers, Comair has announced its intention to
continue to suspend flights on a 30-day rolling forward basis each day
the strike continues.
11. SUBSEQUENT EVENTS
2001 Bank Credit Agreement
On April 6, 2001, we entered into a credit agreement with a
group of banks under which we may borrow up to $1 billion on an
unsecured and revolving basis until April 4, 2003, subject to our
compliance with certain conditions (2001 Bank Credit Agreement). We may
borrow under this facility only to finance our liquidity and working
capital needs in the event of an actual business interruption or if, in
our reasonable judgment, there is the prospect of a business
interruption, or to fund contingency plans in connection with such
business interruption. The interest rate for borrowings under this
facility is, at our option, (1) the base rate; or (2) LIBOR plus a
margin that varies between 0.625% and 1.700% depending on our long-term
senior unsecured debt ratings.
The 2001 Bank Credit Agreement contains negative covenants and
a change in control provision that are substantially similar to the
corresponding provisions in our 1997 Bank Credit Agreement. The 2001
Bank Credit Agreement also requires us to maintain a specified earnings
coverage ratio. At May 9, 2001, there were no borrowings outstanding
under the 2001 Bank Credit Agreement.
1997 Bank Credit Agreement
On April 30, 2001, we borrowed $800 million under our 1997
Bank Credit Agreement. Subject to our compliance with certain
conditions, we may borrow up to a total of $1.25 billion under this
facility on an unsecured and revolving basis until May 1, 2002.
Borrowings under this facility are available for general corporate
purposes, may be prepaid by us at any time without penalty and
currently bear interest at LIBOR plus a margin of 0.375% (with the
existing interest rate being 4.845%).
The 1997 Bank Credit Agreement contains certain negative
covenants, including a negative covenant that provides that our
consolidated Current Debt (as defined) outstanding at any time may not
exceed 100% of our consolidated accounts receivable outstanding as of
the last day of the second calendar month next preceding the month in
which the calculation of Current Debt is made (Current Debt Covenant).
For purposes of this covenant, Current Debt means any obligation for
borrowed money payable on demand or within a period of one year from
its date of creation.
Our $800 million borrowing under the 1997 Bank Credit
Agreement on April 30, 2001 is intended to enable us to access this
additional liquidity under the Current Debt Covenant. This borrowing
will not be treated as Current Debt under the Current Debt Covenant
because it is not payable within one year from
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its date of creation. This borrowing would have constituted Current
Debt under the Current Debt Covenant, however, had it occurred after
May 1, 2001.
Our ability to incur additional indebtedness under the 1997
Bank Credit Agreement prior to its termination on May 1, 2002 will
depend on the application of the Current Debt Covenant to us in the
future. At March 31, 2001, our consolidated Current Debt (as defined in
the 1997 Bank Credit Agreement) and consolidated accounts receivable
were $0 and $618 million, respectively.
At May 9, 2001, $800 million of borrowings were outstanding
under the 1997 Bank Credit Agreement. For additional information about
this facility, see Note 7 of the Notes to the Consolidated Financial
Statements (pages 24-26) in our Annual Report.
Tentative Contract Agreement with Delta Pilots
On April 22, 2001, Delta and ALPA, the collective bargaining
representative of Delta's approximately 10,000 pilots, reached a
tentative agreement on a new collective bargaining agreement to replace
the existing pilot contract that became amendable on May 1, 2000. The
tentative agreement is subject to the approval of the Delta ALPA Master
Executive Council (MEC) and to ratification by Delta pilots. The MEC
approved the tentative agreement on May 2, 2001, and Delta pilots will
vote by June 20, 2001. If ratified, the new agreement would be
amendable on May 1, 2005. Delta cannot predict whether the new
agreement will be ratified.
Comair Pilot Strike
As a result of the ongoing strike by Comair pilots (see Note
10 of the Notes to Consolidated Financial Statements in this Form
10-Q), in April 2001, Comair announced plans to accelerate the
retirement of its remaining fleet of nine EMB-120 aircraft; to remove
eight CRJ-100 aircraft from its fleet; to eliminate 200 pilot positions
as a result of these fleet reductions; and to lay off on May 13, 2001
approximately 2,000 of its 4,000 nonpilot employees.
The National Mediation Board has recommended a settlement
offer to Comair and ALPA to end the Comair pilot strike. On May 4,
2001, Comair agreed to accept the settlement offer, and ALPA agreed to
submit the offer to Comair pilots for ratification. Comair pilots will
vote on the settlement offer by May 12, 2001. Delta cannot predict
whether the settlement offer will be ratified or, if the settlement
offer is not ratified, the duration of the strike and the outcome of
Comair's negotiations with ALPA.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
Our financial results for the March 2001 quarter were materially
adversely affected by the slowing U.S. economy and by pilot labor issues at
Delta and Comair. The slowing U.S. economy reduced the demand for air travel,
particularly among higher yielding business travelers. Pilot labor issues had
the following negative impacts:
Reduced Flight Schedules. In December 2000, we canceled a substantial
number of flights due to a job action by some Delta pilots which significantly
reduced pilot availability for overtime (or additional) flying. To provide more
reliable service to our customers, we lowered the need for overtime flying by
reducing Delta's mainline flight schedule for the March 2001 quarter by 2.7%
from the level we had planned. We also reduced our mainline schedule by 2.4%
from the previously planned level for the June 2001 quarter.
Public Concern Over Possible Delta Pilot Strike. During the March 2001
quarter, Delta and ALPA continued negotiations on a new collective bargaining
agreement for Delta pilots. Public concern about a possible strike by Delta
pilots, however, caused some customers to make reservations and travel with
airlines other than Delta during the March 2001 quarter and thereafter.
Comair Pilot Strike. On March 26, 2001, Comair pilots began a strike,
which is continuing. As a result of the strike, Comair suspended its flight
operations. We estimate that the Comair pilot strike reduced our consolidated
revenue by approximately $4 million per day, or $24 million, during the March
2001 quarter.
Although Delta and ALPA reached a tentative agreement on a new
collective bargaining agreement on April 22, 2001, we believe that the softening
U.S. economy and pilot labor issues at Delta and Comair will have a material
adverse effect on our financial results in the June 2001 quarter.
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THREE MONTHS ENDED MARCH 31, 2001 AND 2000
NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE
Our unaudited consolidated net loss was $133 million for the March 2001
quarter ($1.11 diluted loss per share), compared to net income of $217 million
($1.61 diluted earnings per share) in the March 2000 quarter.
Excluding the unusual items described below, our net loss was $122
million in the March 2001 quarter ($1.02 diluted loss per share), compared to
net income of $172 million ($1.27 diluted earnings per share) in the March 2000
quarter.
UNUSUAL ITEMS
Our results of operations for the March 2001 and March 2000 quarters
include the following items, which are collectively referred to in this Form
10-Q as "unusual items."
During the March 2001 quarter, we recorded a $17 million charge ($11
million after tax, or $0.09 diluted earnings per share) for fair value
adjustments under SFAS 133. This charge relates to derivative instruments we use
in our fuel hedging program and to our equity warrants and other similar rights
in other companies, primarily priceline. Because we adopted SFAS 133 on July 1,
2000, there were no corresponding fair value adjustments under SFAS 133 in the
March 2000 quarter.
During the March 2000 quarter, we recorded a $73 million gain ($45
million after tax, or $0.34 diluted earnings per share) from our sale of 1.2
million shares of priceline common stock.
OPERATING REVENUES
Our operating revenues totaled $3.8 billion in the March 2001 quarter, a
2% decrease from $3.9 billion in the March 2000 quarter. Passenger revenue
decreased 2% to $3.6 billion, reflecting a 1% decrease in revenue passenger
miles and a 1% decrease in passenger mile yield. These decreases were primarily
the result of the softening U.S. economy and pilot labor issues at Delta and
Comair.
NORTH AMERICAN PASSENGER REVENUES - North American passenger revenues fell 5% to
$3.0 billion for the March 2001 quarter. Revenue passenger miles decreased 4% on
a capacity decrease of 2%, while passenger mile yield decreased 1%. The decline
in North America passenger revenue was the result of the slowing of the U.S.
economy and the pilot labor issues that we faced during the March 2001 quarter.
INTERNATIONAL PASSENGER REVENUES - International passenger revenues increased
19% to $558 million during the March 2001 quarter. Revenue passenger miles
increased 10% on a capacity increase of 15%, and passenger mile yield rose 8%.
The increase in revenue passenger miles
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reflects Delta's continued international expansion, particularly in Latin
American markets. The increase in passenger mile yield is primarily a result of
stronger demand in the Atlantic market.
CARGO AND OTHER REVENUES - Cargo revenue fell 1% in the March 2001 quarter.
Cargo ton miles decreased less than 1%, and the cargo ton mile yield declined
less than 1%. All other revenues, net, were flat.
OPERATING EXPENSES
Operating expenses for the March 2001 quarter totaled $4.0 billion,
rising 11% from the March 2000 quarter. Operating capacity increased 1% to 38
billion available seat miles. Cost per available seat mile (CASM) increased 9%
to 10.49(cents), while non-fuel CASM grew 8% to 9.13(cents). The increase in
CASM is due in part to our decision to reduce Delta's mainline capacity for the
March 2001 quarter by 2.7% from the previously planned level due to Delta pilot
labor issues, while retaining related costs incurred prior to that decision.
Salaries and related costs totaled $1.6 billion in the March 2001
quarter, a 13% increase from $1.4 billion recorded in the March 2000 quarter.
The increase in salaries and related costs primarily relates to a salary
increase of 3% for most domestic non-union employees on April 1, 2000 and a
headcount increase of 4.6%.
Aircraft fuel expense increased 19% during the March 2001 quarter. The
average fuel price per gallon rose 20% to 73.81(cents) and total gallons
consumed decreased 1%. Our fuel cost is shown net of fuel hedge gains of $106
million in the March 2001 quarter and $146 million in the March 2000 quarter.
Approximately 52% and 75% of our aircraft fuel requirements were hedged during
the March 2001 and 2000 quarters, respectively.
Depreciation and amortization expense rose 9% due to the acquisition of
new aircraft since March 31, 2000. Other selling expenses increased 12% due to
higher advertising costs related to new service promotions and the 2002 Winter
Olympics. Passenger commissions expense declined 17%, primarily as a result of
our customers' increased use of lower cost distribution channels such as the
Internet. Internet sales accounted for approximately 12% of passenger revenue in
the March 2001 quarter compared to 8% in the March 2000 quarter. Contracted
services expense increased 13%, primarily a result of higher maintenance,
technology and airport outsourcing costs.
Landing fees and other rents rose 7%, aircraft rental expense increased
2%, and aircraft maintenance materials and outside repair expense grew 9%.
Passenger service expense increased 13% due to higher food costs. Other costs
increased 13%, primarily the result of higher interrupted trip expense,
increased professional fees and the company-wide rollout of new uniforms to
employees.
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OPERATING INCOME AND OPERATING MARGIN
We incurred an operating loss of $115 million for the March 2001
quarter, compared to operating income of $343 million in the March 2000 quarter.
Operating margin, which is the ratio of operating income (loss) to operating
revenues, was (3%) and 9% for the March 2001 and March 2000 quarters,
respectively.
OTHER INCOME (EXPENSE)
Other expense in the March 2001 quarter was $107 million, compared to
other income of $21 million in the March 2000 quarter. Interest expense, net
increased 25% primarily due to higher levels of debt outstanding. As discussed
previously, the March 2001 quarter includes a $17 million charge for fair value
adjustments under SFAS 133 (see Note 4 of the Notes to Consolidated Financial
Statements in this Form 10-Q), and the March 2000 quarter includes a $73 million
gain from our sale of priceline common stock.
FINANCIAL CONDITION AND LIQUIDITY
Cash, cash equivalents and short-term investments totaled $1.2 billion
at March 31, 2001, compared to $1.6 billion at December 31, 2000. Our principal
sources and uses of cash during the three months ended March 31, 2001 are
summarized below:
SOURCES:
- - Generated $296 million of cash from operations.
- - Issued $105 million in long-term debt.
- - Generated $16 million from the sale of twelve B-727-200 aircraft
(including four that had been retired in an earlier period) and one
L-1011 aircraft.
- - Generated $239 million from the sale of short-term investments.
USES:
- - Invested $633 million in flight equipment.
- - Invested $187 million in ground property and equipment.
Delta may prepay its long-term debt and repurchase its common stock
from time to time. For information regarding our common stock repurchase
authorization, see Note 14 of the Notes to the Consolidated Financial Statements
(page 32) in our Annual Report.
As of March 31, 2001, we had a negative working capital position of
$2.6 billion, compared to negative working capital of $2.0 billion at December
31, 2000. The change in our working capital position was the result of our $820
million investment in capital assets, and the adverse impact of the slowing U.S.
economy and pilot labor issues on passenger revenue, during the March 2001
quarter. 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
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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 $6.1 billion at March 31, 2001, compared to $6.0 billion at
December 31, 2000. Shareowners' equity was $5.1 billion at March 31, 2001 and
$5.3 billion at December 31, 2000. Our net debt-to-capital position was 73% at
March 31, 2001, and 71% at December 31, 2000.
At its meeting on April 26, 2001, our Board of Directors declared a cash
dividend of 2.5 cents per common share, payable June 1, 2001, to shareowners of
record on May 9, 2001.
2001 Bank Credit Agreement
On April 6, 2001, we entered into a credit agreement with a group of
banks under which we may borrow up to $1 billion on an unsecured and revolving
basis until April 4, 2003, subject to our compliance with certain conditions
(2001 Bank Credit Agreement). We may borrow under this facility only to finance
our liquidity and working capital needs in the event of an actual business
interruption or if, in our reasonable judgment, there is the prospect of a
business interruption, or to fund contingency plans in connection with such
business interruption. The interest rate for borrowings under this facility is,
at our option, (1) the base rate; or (2) LIBOR plus a margin that varies between
0.625% and 1.700% depending on our long-term senior unsecured debt ratings.
The 2001 Bank Credit Agreement contains negative covenants and a change
in control provision that are substantially similar to the corresponding
provisions in our 1997 Bank Credit Agreement. The 2001 Bank Credit Agreement
also requires us to maintain a specified earnings coverage ratio. At May 9,
2001, there were no borrowings outstanding under the 2001 Bank Credit Agreement.
1997 Bank Credit Agreement
On April 30, 2001, we borrowed $800 million under our 1997 Bank Credit
Agreement. Subject to our compliance with certain conditions, we may borrow up
to a total of $1.25 billion under this facility on an unsecured and revolving
basis until May 1, 2002. Borrowings under this facility are available for
general corporate purposes, may be prepaid by us at any time without penalty and
currently bear interest at LIBOR plus a margin of 0.375% (with the existing
interest rate being 4.845%).
The 1997 Bank Credit Agreement contains certain negative covenants,
including a negative covenant that provides that our consolidated Current Debt
(as defined) outstanding at any time may not exceed 100% of our consolidated
accounts receivable outstanding as of the last day of the second calendar month
next preceding the month in which the calculation of Current Debt is made
(Current Debt Covenant). For purposes of this covenant, Current Debt means any
obligation for borrowed money payable on demand or within a period of one year
from its date of creation.
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Our $800 million borrowing under the 1997 Bank Credit Agreement on
April 30, 2001 is intended to enable us to access this additional liquidity
under the Current Debt Covenant. This borrowing will not be treated as Current
Debt under the Current Debt Covenant because it is not payable within one year
from its date of creation. This borrowing would have constituted Current Debt
under the Current Debt Covenant, however, had it occurred after May 1, 2001.
Our ability to incur additional indebtedness under the 1997 Bank Credit
Agreement prior to its termination on May 1, 2002 will depend on the application
of the Current Debt Covenant to us in the future. At March 31, 2001, our
consolidated Current Debt (as defined in the 1997 Bank Credit Agreement) and
consolidated accounts receivable were $0 and $618 million, respectively.
At May 9, 2001, $800 million of borrowings were outstanding under the
1997 Bank Credit Agreement. For additional information about this facility and
our long-term debt, see Note 7 of the Notes to the Consolidated Financial
Statements (pages 24-26) in our Annual Report.
PERSONNEL MATTERS
Tentative Contract Agreement with Delta Pilots
On April 22, 2001, Delta and ALPA, the collective bargaining
representative of Delta's approximately 10,000 pilots, reached a tentative
agreement on a new collective bargaining agreement to replace the existing pilot
contract that became amendable on May 1, 2000. The tentative agreement is
subject to the approval of the Delta ALPA Master Executive Council (MEC) and to
ratification by Delta pilots. The MEC approved the tentative agreement on May 2,
2001, and Delta pilots will vote by June 20, 2001. Delta cannot predict whether
the new agreement will be ratified.
The tentative agreement, if ratified by Delta pilots, will become
amendable on May 1, 2005, five years from the May 1, 2000 amendable date of the
existing pilot contract. Delta estimates that, for the period May 1, 2000
through May 1, 2005, the new agreement will increase its pilot costs by
approximately $2.4 billion compared to the existing pilot contract. The new
agreement provides for retroactive salary increases to May 1, 2000; Delta has
accrued an amount equal to its retroactive obligation. Delta does not expect to
record any one-time charges in connection with the tentative agreement.
If Delta pilots do not ratify the tentative agreement, the 30-day
"cooling off" period (which was suspended when Delta and ALPA reached a
tentative agreement on April 22, 2001) will resume, with seven days remaining in
that period. At the end of the 30-day "cooling off" period, the parties may
engage in self help unless the President of the United States appoints a
Presidential Emergency Board (PEB) to investigate the dispute. The appointment
of a PEB maintains the "status quo" for an additional 60 days. If the parties do
not reach agreement during this period, the parties may then engage in self
help. Self help includes, among other things, a strike by the union or the
imposition of proposed changes to the collective bargaining agreement by the
airline.
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Congress and the President have the authority to prevent self help by enacting
legislation which, among other things, imposes a settlement on the parties.
Comair Pilot Strike
Comair has been in negotiations with ALPA, the union that represents
Comair's approximately 1,300 pilots, on a new collective bargaining agreement to
replace the existing pilot contract that became amendable in June 1998. Comair
and ALPA have not reached agreement on a new contract. On March 26, 2001, Comair
pilots began a strike. As a result of the strike, which is continuing, Comair
suspended its flight operations. To minimize disruption to customers, Comair has
announced its intention to continue to suspend flights on a 30-day rolling
forward basis each day the strike continues. As a result of the strike, Comair
has also announced plans to accelerate the retirement of its remaining fleet of
nine EMB-120 aircraft; to remove eight CRJ-100 aircraft from its fleet; to
eliminate 200 pilot positions as a result of these fleet reductions; and to lay
off on May 13, 2001 approximately 2,000 of its 4,000 nonpilot employees.
The National Mediation Board has recommended a settlement offer to
Comair and ALPA to end the Comair pilot strike. On May 4, 2001, Comair agreed to
accept the settlement offer, and ALPA agreed to submit the offer to Comair
pilots for ratification. Comair pilots will vote on the settlement offer by May
12, 2001. Delta cannot predict whether the settlement offer will be ratified or,
if the settlement offer is not ratified, the duration of the strike and the
outcome of Comair's negotiations with ALPA.
Final Agreement with ASA Flight Dispatchers
In March 2001, ASA and the Professional Airline Flight Control
Association, which represents ASA's 33 flight dispatchers, reached a tentative
agreement on an initial collective bargaining agreement. In April 2001, ASA's
flight dispatchers ratified the new contract, which will become amendable on
April 19, 2006.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the March 2001 quarter, Delta exchanged six million shares of
priceline's Series A Convertible Redeemable Preferred Stock for (1) 80,000
shares of priceline's new Series B Redeemable Preferred Stock (Series B
Preferred Stock) and (2) a warrant to purchase up to 26.9 million shares of
priceline common stock for $2.97 per share (2001 Warrant). For information
regarding the terms for the Series B Preferred Stock and the 2001 Warrant, see
Note 3 of the Notes to the Consolidated Financial Statements in this Form 10-Q.
At March 31, 2001, the fair value of the priceline Series B Preferred
Stock was $80 million and the fair value of the 2001 Warrant was $36 million.
The fair value of the 2001 Warrant is primarily related to the price of the
underlying common stock (see Equity Securities Risk (page 11) in our Annual
Report for our equity risk exposure at December 31, 2000). A 10% decline in the
price of priceline common stock would have had a $4.6 million impact on the fair
value of the 2001 Warrant, which would be reflected in our non-operating
earnings.
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We manage our risk in relation to changes in aircraft fuel prices with
our fuel hedging program. At March 31, 2001, Delta held fuel hedge contracts
covering 46% of our projected aircraft fuel requirements for the nine months
ended December 31, 2001 with an average hedge price of 50.13 cents per gallon.
For additional information regarding our fuel hedging program, see Note 3 of the
Notes to the Consolidated Financial Statements (pages 21-22) in the Annual
Report.
We are subject to foreign currency exchange risk because we have
revenues and expenses dominated in foreign currencies - primarily the Euro, the
British Pound and the Japanese Yen. To manage exchange rate risk, we net foreign
currency revenues and expenses, to the extent practicable. From time to time, we
may also enter into foreign currency options and forward contracts with
maturities of up to 12 months. The estimated fair value of our foreign currency
hedging contracts was not material at March 31, 2001. We do not enter into
foreign currency hedging contracts for speculative purposes.
For additional information regarding Delta's other exposures to market
risks, see "Market Risks Associated With Financial Instruments" (pages 10-12),
as well as Notes 2, 3 and 4 (pages 20-23) of the Notes to the Consolidated
Financial Statements, in our Annual Report.
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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, 2001 and
the related consolidated statements of operations and the condensed consolidated
statements of cash flows for the three-month periods ended March 31, 2001 and
2000. 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 9, 2001
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Under the Delta Air Lines, Inc. Directors' Deferred Compensation Plan
(Plan), members of our Board of Directors may defer for a specified period all
or any part of their cash compensation earned as a director. A participating
director may choose an investment return on the deferred amount from the
investment return choices available under the Delta Family-Care Savings Plan, a
qualified defined contribution pension plan for eligible Delta personnel. One of
the investment return choices under the Delta Family-Care Savings Plan is the
Delta Common Stock Fund, a fund invested primarily in Delta's common stock.
During the quarter ended March 31, 2001, participants in the Plan deferred
$25,375 in the Delta Common Stock Fund investment return choice, which is
equivalent to 642 shares of Delta common stock at prevailing market prices.
These transactions were not registered under the Securities Act of 1933 as
amended, in reliance on Section 4(2) of that Act.
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ITEM 5. OTHER INFORMATION
EXECUTIVE OFFICERS
Effective May 2, 2001, Delta's Board of Directors elected Frederick W.
Reid as President and Chief Operating Officer and Vicki Escarra as Executive
Vice President and Chief Marketing Officer. Malcolm Armstrong, Executive Vice
President - Operations, announced his retirement from Delta, effective July 1,
2001.
BROAD-BASED STOCK OPTION PLANS
For information regarding our broad-based employee stock option plans,
see Note 13 of the Notes to the Consolidated Financial Statements (pages 31-32)
in the Annual Report.
LEGAL PROCEEDINGS
As discussed on page 14 of Delta's Form 10-K for the transition period
from July 1, 2000 to December 31, 2000, in February 2001, a retired and an
active Delta pilot filed a purported class action lawsuit against the Delta
Pilots Retirement Plan (Retirement Plan) in the United States District Court for
the Southern District of Illinois. The complaint (1) seeks to assert claims on
behalf of a class consisting of certain groups of retired and active Delta
pilots; (2) alleges that the calculation of the retirement benefits of the
plaintiffs and the class violated the Retirement Plan and the Internal Revenue
Code; and (3) seeks unspecified damages which plaintiffs state they believe to
be in excess of $1 billion. On March 30, 2001, the District Court dismissed this
lawsuit without prejudice for lack of venue. Plaintiffs have appealed to the
United States Court of Appeals for the Seventh Circuit.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4. Credit Agreement dated as of April 6, 2001 among Delta and
Certain Banks.
10.1 Delta Air Lines, Inc. Directors' Deferred Compensation Plan,
as amended.
10.2 Delta Air Lines, Inc. Non-Employee Directors' Stock Option
Plan, as amended.
12. Computation of ratio of earnings to fixed charges.
15. Letter from Arthur Andersen LLP regarding unaudited interim
financial information.
(b) Reports on Form 8-K
During the quarter ended March 31, 2001, Delta filed a Current Report
on Form 8-K dated March 13, 2001 to file, under Item 9 - Regulation FD,
a letter from Delta to certain investors and analysts concerning
Delta's expected financial performance for the March 2001 quarter, the
status of pilot collective bargaining negotiations at Delta and Comair
and a cautionary statement for purposes of the "Safe Harbor for
Forward-Looking Statements" provision of the Private Securities
Litigation Reform Act of 1995.
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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/ M. Michele Burns
---------------------------
M. Michele Burns
Executive Vice President
and Chief Financial Officer
May 11, 2001
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