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DELTA AIR LINES ANNOUNCES FINANCIAL INFORMATION
ATLANTA, Nov. 12, 2003 -- Delta Air Lines (NYSE: DAL) today reported certain
financial information. The key points are, Delta:
- - Will record at Dec. 31, 2003 a non-cash adjustment reducing equity
which is related to its defined benefit pension plans.
- - Will record during the December 2003 quarter a non-cash charge related
to its defined benefit pension plan for pilots.
- - Suspended the payment of dividends on its Series B ESOP Convertible
Preferred Stock.
- - Changed the form of payment Delta will use to redeem shares of Series
B ESOP Convertible Preferred Stock when redemptions are required under
the Delta Family-Care Savings Plan, a broad-based employee benefit
plan.
- - Is updating its projected GAAP net loss for the December 2003 quarter.
The non-cash charges announced today do not adversely affect the
current funding requirements of Delta's defined benefit pension plans (Pension
Plans). Delta has paid its funding obligations for the Pension Plans for 2003.
As previously reported, Delta estimates that its funding obligations under the
Pension Plans will be between $350 million and $450 million for 2004. The
Pension Plans meet all funding requirements, and Delta intends to continue to
fund the Pension Plans as required by law.
Payment of dividends on the Series B ESOP Convertible Preferred Stock
(ESOP Preferred Stock) will be suspended effective Dec. 28, 2003.(1) Although
the dividend is being suspended, participants in the Delta Family-Care Savings
Plan (Savings Plan) will still receive all accrued and unpaid dividends on
their ESOP Preferred Stock when that stock is redeemed (i.e., when Savings Plan
participants terminate employment with Delta or make annual diversification
elections) or the dividend is reinstated. Delta expects the suspension of the
dividend will have a minimal impact on individual Savings Plan accounts.(2) The
actions announced today will not otherwise negatively impact Delta's
contributions to or the operation of the Savings Plan.
Additional information about each of these matters is set forth below.
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Adjustment to Equity
Similar to the charge recorded last year, at Dec. 31, 2003, Delta will
record a non-cash charge to equity relating to its Pension Plans.(3) Delta
estimates this non-cash charge will be approximately $700 million, net of tax.
It will affect Delta's balance sheet at Dec. 31, 2003, but will not impact its
results of operations for the December 2003 quarter. The actual charge to
equity may differ materially from Delta's estimate because Delta has not yet
finally determined its accumulated benefit obligations under the Pension Plans
as of Sept. 30, 2003.
Charge Related to Pilot Pension Plan
During the December 2003 quarter, Delta will record a non-cash charge
related to its defined benefit pension plan for pilots.(4) Delta estimates this
non-cash charge will be approximately $140 million, net of tax. As a result of
the significant increase in pilot retirements, Delta is required to accelerate
recognition of previously unrecognized actuarial losses which were scheduled to
be recorded in future periods.(5) This charge will impact Delta's results of
operations for the December 2003 quarter. The actual charge may differ
materially from Delta's estimate because Delta has not yet finally determined
its projected benefit obligation under the pilot pension plan as of Sept. 30,
2003.
Suspension of Dividends on Series B ESOP Convertible Preferred Stock
To comply with Delaware law, Delta's Board of Directors suspended
indefinitely the payment of dividends on the ESOP Preferred Stock. Delaware law
limits a company's ability to pay dividends in certain circumstances.(6)
The Savings Plan is a broad-based plan that allows eligible employees
to contribute a portion of their pay to various investment funds. Delta also
makes contributions to the Savings Plan. All shares of ESOP Preferred Stock are
held by Fidelity Management Trust Company in its capacity as trustee for the
Savings Plan. At Oct. 31, 2003, the total value of the Savings Plan's assets
was $4.3 billion, approximately 15 percent of which consisted of ESOP Preferred
Stock and Delta common stock.(7)
A holder of ESOP Preferred Stock is entitled to receive, as and if
declared by the Board of Directors, a per share cash dividend of $4.32 per
year. Unpaid dividends will accrue without interest until paid. The terms of
the ESOP Preferred Stock prohibit Delta from paying any dividend on, or
redeeming or purchasing, its common stock until all accrued dividends on the
ESOP Preferred Stock have been paid.
At Oct. 31, 2003, approximately 5.9 million shares of ESOP Preferred
Stock were held by the Savings Plan. About 3.7 million shares of ESOP Preferred
Stock are currently allocated to the accounts of Savings Plan participants; the
remainder of the shares is available for allocation in the future.
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Redemption of Series B ESOP Convertible Preferred Stock
To comply with Delaware law,(8) Delta's Board of Directors changed the
form of payment Delta will use to redeem shares of ESOP Preferred Stock when
redemptions are required under the Savings Plan. For the indefinite future,
Delta will redeem the ESOP Preferred Stock with shares of Delta common stock
rather than cash. The change in the form of payment that Delta uses to redeem
ESOP Preferred Stock should not impact Savings Plan participants. Participants
may continue to elect to receive the value of their account in cash or Delta
common stock.
Each share of ESOP Preferred Stock is redeemable at $72.00 plus
accrued and unpaid dividends. The terms of the ESOP Preferred Stock permit
Delta to pay the redemption price in cash or shares of Delta common stock.
Delta is generally required to redeem shares of ESOP Preferred Stock (1) to
provide for distributions of the accounts of Savings Plan participants who
terminate employment with Delta; and (2) to implement annual diversification
elections by Savings Plan participants who are at least age 55 and have
participated in the Savings Plan for at least ten years.
An average of approximately 20,000 shares of ESOP Preferred Stock is
currently redeemed each month under the Savings Plan, for an average aggregate
monthly redemption price of $1.4 million plus accrued and unpaid dividends. At
this rate, and assuming a Delta common stock price of $12 per share, Delta
estimates that it will issue approximately 3.5 million shares of its common
stock over the next two years to redeem ESOP Preferred Stock. The actual number
of shares of Delta common stock issued may differ materially from this estimate
because the actual number of shares issued will depend on various factors.(9)
At Oct. 31, 2003, 123.5 million shares of Delta common stock were
outstanding.
December 2003 Quarter Estimated Net Loss
On Oct. 14, Delta announced its estimated net loss for the December
2003 quarter would be between $225 million and $275 million under generally
accepted accounting principles (GAAP). This included the previously announced
$26 million charge, net of tax, related to Delta's agreement to sell 11 Boeing
737-800 aircraft. As a result of the estimated non-cash charge of $140 million,
net of tax, discussed in this press release, Delta now expects to report a net
loss of approximately $365 million to $415 million for the December 2003
quarter under GAAP.
# # #
1103/431-DUK
Pension Plan
ENDNOTES
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(1) During 2002, Delta paid $26.4 million in dividends on the ESOP
Preferred Stock.
(2) Delta estimates the impact of the dividend suspension in the first
year would be two tenths of one percent of the $72 stated value of
each share of ESOP Preferred Stock held in a participant's account.
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(3) Delta will record this additional minimum pension liability charge to
equity in accordance with Statement of Financial Accounting Standards
No. 87, "Employers' Accounting for Pensions."
(4) Delta will record this settlement charge in accordance with Statement
of Financial Accounting Standards No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits."
(5) This non-cash charge relates to the retirement of approximately 620
pilots during the year ended Sept. 30, 2003. In contrast, an average
of approximately 290 pilots retired annually between calendar years
2000 and 2002.
(6) Delaware law generally prohibits a company from paying dividends on
its stock, or redeeming or purchasing its stock for cash or other
property, unless the company has sufficient "surplus." "Surplus"
generally is defined as the excess of a company's net assets over the
aggregate par value of its issued stock. Due to the effect of its
estimated net loss for the December 2003 quarter and the charge to
equity discussed in this press release, Delta believes it will have
negative equity of approximately $600 million at Dec. 31, 2003.
(7) The Savings Plan is distinct from Delta's defined benefit pension
plans. At Oct. 31, 2003, the total assets of Delta's defined benefit
pension plans were approximately $7 billion. The defined benefit plans
do not own any Delta stock.
(8) Endnote 6 to this press release summarizes the applicable limitation
under Delaware law.
(9) These factors include the duration of the period during which Delta
may not redeem ESOP Preferred Stock for cash under Delaware law; the
fair market value of Delta common stock when ESOP Preferred Stock is
redeemed; and the number of shares of ESOP Preferred Stock redeemed by
Savings Plan participants who terminate their employment with Delta or
elect to diversify their Savings Plan accounts.
Statements in this news release that are not historical facts,
including statements regarding Delta's beliefs, expectations, intentions or
strategies, may be "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All forward-looking statements
involve a number of risks and uncertainties that could cause actual results to
differ materially from the beliefs, expectations, intentions and strategies
reflected in or suggested by the forward-looking statements. These risks and
uncertainties include, but are not limited to, the effects of terrorist
attacks, military conflicts, the state of the domestic and international
economy, demand for air travel, the availability and cost of aircraft fuel,
competitive factors in the airline industry and the outcome of negotiations on
collective bargaining agreements and other labor issues. Additional information
concerning risks and uncertainties that could cause differences between actual
results and forward-looking statements is contained in Delta's Securities and
Exchange Commission filings, including its Form 10-K for the year ended Dec.
31, 2002 and Pre-Effective Amendment No. 1 to its Registration Statement on
Form S-3 filed with the Commission on Oct. 14, 2003. Caution should be taken
not to place undue reliance on Delta's forward-looking statements, which
represent Delta's views only as of Nov. 12, 2003, and which Delta has no
current intention to update.
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