1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995
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, 1995:
Common Stock, $3.00 par value - 51,156,963 shares outstanding
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DELTA AIR LINES, INC.
Consolidated Balance Sheets (Unaudited)
(In Millions)
September 30 June 30
ASSETS 1995 1995
- -------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,129 $ 1,233
Short-term investments 503 529
Accounts and notes receivable, net 1,015 755
Maintenance and operating supplies 66 68
Deferred income taxes 247 234
Prepaid expenses and other 181 195
---------- ----------
Total current assets 3,141 3,014
---------- ----------
PROPERTY AND EQUIPMENT:
Flight equipment owned 9,516 9,288
Less: Accumulated depreciation 4,288 4,209
---------- ----------
5,228 5,079
---------- ----------
Flight equipment under capital leases 537 537
Less: Accumulated amortization 111 99
---------- ----------
426 438
---------- ----------
Ground property and equipment 2,484 2,442
Less: Accumulated depreciation 1,401 1,354
---------- ----------
1,083 1,088
---------- ----------
Advance payments for equipment 290 331
---------- ----------
7,027 6,936
---------- ----------
OTHER ASSETS:
Deferred income taxes 422 506
Marketable equity securities 399 398
Postemployment benefits 300 294
Cost in excess of net assets acquired, net 272 274
Non-operating property, net 148 155
Investments in associated companies 273 265
Leasehold and operating rights, net 172 177
Other 135 124
---------- ----------
2,121 2,193
---------- ----------
$ 12,289 $ 12,143
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
2
3
DELTA AIR LINES, INC.
Consolidated Balance Sheets (Unaudited)
(In Millions except Share Amounts)
September 30 June 30
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
- ------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 150 $ 151
Current obligations under capital leases 56 61
Accounts payable and accrued liabilities 1,742 1,621
Air traffic liability 1,153 1,143
Accrued vacation pay 185 167
Accrued rent 234 235
Income taxes payable 55 63
---------- ----------
Total current liabilities 3,575 3,441
---------- ----------
NONCURRENT LIABILITIES:
Long-term debt 2,624 2,683
Postretirement benefits 1,731 1,714
Accrued rent 557 556
Capital leases 424 438
Other 267 395
---------- ----------
5,603 5,786
---------- ----------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions 845 860
Manufacturers and other credits 110 109
---------- ----------
955 969
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
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 6,776,220 shares at September 30,
1995 and 6,876,632 shares at June 30, 1995 488 489
Less: Unearned compensation under
employee stock ownership plan 356 369
---------- ----------
132 120
---------- ----------
STOCKHOLDERS' EQUITY:
Series C Convertible Preferred Stock,
$1.00 par value, $50,000 liquidation preference;
Issued and outstanding 22,998 shares at September 30, 1995
and 23,000 shares at June 30, 1995 - -
Common stock, $3.00 par value; Authorized, 150,000,000 shares;
Issued 54,825,776 shares at September 30, 1995
and 54,537,103 shares at June 30, 1995 164 164
Additional paid-in capital 2,033 2,016
Net unrealized gain on marketable equity securities 84 83
Accumulated deficit (8) (184)
Less: Treasury stock at cost, 3,669,838 shares at
September 30, 1995, and 3,721,093 shares at June 30, 1995 249 252
---------- ----------
2,024 1,827
---------- ----------
$ 12,289 $ 12,143
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
3
4
DELTA AIR LINES, INC.
Consolidated Statements of Operations
(Unaudited)
(In Millions, except Share Data)
Three Months Ended
September 30
----------- -----------
1995 1994
----------- -----------
OPERATING REVENUES:
Passenger $ 2,973 $ 2,933
Cargo 129 138
Other, net 86 86
----------- -----------
Total operating revenues 3,188 3,157
----------- -----------
OPERATING EXPENSES:
Salaries and related costs 1,037 1,138
Aircraft fuel 348 362
Passenger commissions 278 322
Contracted services 172 118
Depreciation and amortization 161 164
Other selling expenses 145 150
Aircraft rent 140 172
Facilities and other rent 113 102
Aircraft maintenance materials and outside repairs 109 111
Passenger service 104 135
Landing fees 69 73
Other 126 156
----------- -----------
Total operating expenses 2,802 3,003
----------- -----------
OPERATING INCOME 386 154
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (75) (76)
Interest capitalized 7 7
Interest income 23 22
Gain on disposition of flight equipment 1 1
Miscellaneous, net (5) 13
----------- -----------
(49) (33)
----------- -----------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 337 121
INCOME TAXES PROVIDED, NET (136) (49)
----------- -----------
NET INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 201 72
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX - 114
----------- -----------
NET INCOME 201 186
PREFERRED STOCK DIVIDENDS (22) (22)
----------- -----------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 179 $ 164
=========== ===========
PRIMARY INCOME PER COMMON SHARE:
Before cumulative effect of accounting change $ 3.47 $ 1.00
Cumulative effect of accounting change - 2.25
----------- -----------
$ 3.47 $ 3.25
=========== ===========
FULLY DILUTED INCOME PER COMMON SHARE:
Before cumulative effect of accounting change $ 2.57 $ 0.99
Cumulative effect of accounting change - 1.43
----------- -----------
$ 2.57 $ 2.42
=========== ===========
WEIGHTED AVERAGE SHARES USED IN PER SHARE COMPUTATION:
Primary 51,445,077 50,558,882
Fully Diluted 80,513,991 79,680,800
DIVIDENDS PER COMMON SHARE $ 0.05 $ 0.05
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
4
5
DELTA AIR LINES, INC.
STATISTICAL SUMMARY
(Unaudited)
Three Months Ended
September 30
---------- ----------
1995 1994
---------- ----------
STATISTICAL SUMMARY:
Revenue Passengers Enplaned 22,104,209 23,490,082
Revenue Passenger Miles (000) 22,745,151 23,652,376
Available Seat Miles (000) 33,368,027 33,563,888
Passenger Mile Yield 13.07 c. 12.40 c.
Operating Revenue Per Available Seat Mile 9.55 c. 9.41 c.
Operating Cost Per Available Seat Mile 8.40 c. 8.95 c.
Passenger Load Factor 68.16 % 70.47 %
Breakeven Passenger Load Factor 59.33 % 66.77 %
Revenue Ton Miles (000) 2,614,611 2,727,032
Cargo Ton Miles (000) 338,762 360,012
Cargo Ton Mile Yield 38.10 c. 38.42 c.
Fuel Gallons Consumed (000) 640,942 659,688
Average Price Per Fuel Gallon 54.32 c. 54.80 c.
Number of Aircraft in Fleet at End of Period 542 544
Full-Time Equivalent Employees at End of Period 58,007 65,133
5
6
DELTA AIR LINES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(In Millions)
Three Months Ended
September 30
------------------------
1995 1994
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 201 $ 186
Adjustments to reconcile net income to cash
provided by operating activities:
Cumulative effect of accounting change - (114)
Depreciation and amortization 161 164
Deferred income taxes 70 37
Amortization of deferred gain on sale and
leaseback transactions (15) (14)
Gain on disposition of flight equipment (1) (1)
Rental expense less than payments - (7)
Postemployment benefits expense less than payments (43) -
Pension expense less than payments (13) (18)
Compensation under ESOP 12 12
Postretirement benefits expense in excess
of payments 17 20
Changes in certain assets and liabilities:
Decrease (increase) in receivables (260) 3
Decrease in other current assets 16 7
Increase (decrease) in air traffic liability 10 (97)
Increase in accounts payable and accrued
liabilities 121 42
Increase in other payables 10 22
Decrease in other noncurrent liabilities (38) (17)
Other, net (49) 13
---------- -----------
Net cash provided by operating activities 199 238
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (191) (49)
Ground property and equipment (51) (37)
Decrease (increase) in short-term investments, net 26 (503)
Proceeds from sale of flight equipment 6 68
---------- -----------
Net cash used in investing activities (210) (521)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 14 -
Payments on long-term debt and capital lease obligations (85) (215)
Cash dividends (22) (22)
---------- -----------
Net cash used in financing activities (93) (237)
---------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (104) (520)
Cash and cash equivalents at beginning of period 1,233 1,302
---------- -----------
Cash and cash equivalents at end of period $ 1,129 $ 782
========== ===========
The accompanying notes are an integral part of these consolidated statements.
6
7
DELTA AIR LINES, INC.
Notes to Consolidated Financial Statements
September 30, 1995
(Unaudited)
1. ACCOUNTING AND REPORTING POLICIES:
The Company's accounting and reporting policies are summarized in Note 1
(page 27) of the Notes to Consolidated Financial Statements in Delta's
1995 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 1995 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.
2. INVESTMENTS IN DEBT AND EQUITY SECURITIES:
At September 30, 1995, the gross unrealized gain on the Company's
investment in Singapore Airlines Limited was $145 million and the gross
unrealized loss on the Company's investment in Swissair, Swiss Air
Transport Company Ltd. was $12 million. The $84 million net unrealized
gain, net of the related $49 million deferred tax provision, on these
investments is reflected in stockholders' equity.
Delta's other investments in available-for-sale securities are recorded
as short-term investments in the Company's Consolidated Balance Sheets.
The proceeds from sales of these securities during the September 1995
quarter totaled $150 million, which resulted in realized losses,
computed on a specific identification basis, of less than $1 million.
The amount of net unrealized losses on short-term investments reflected
in stockholders' equity at September 30, 1995, was less than $1 million,
net of the related tax benefit.
3. SALE OF RECEIVABLES:
During fiscal 1995, Delta elected to discontinue selling new receivables
under a revolving accounts receivable facility, and the Senior
Certificate related to this facility, which was in the principal amount
of $229 million at June 30, 1995, was reduced to $0 on August 14, 1995.
This transaction was recorded as a reduction of cash from operating
activities in the Company's Consolidated Statements of Cash Flows for
the three months ended September 30, 1995, and an increase in accounts
receivable on the Company's Consolidated Balance Sheets at September 30,
1995. For additional information regarding the sale of receivables, see
Note 5 (page 30) of the Notes to Consolidated Financial Statements in
Delta's 1995 Annual Report to Stockholders.
7
8
4. LONG-TERM DEBT:
During the September 1995 quarter, the Company voluntarily repurchased
and retired $65 million principal amount of its long-term debt. As a
result of these transactions, the Company recognized a net pretax loss
of $5 million during the quarter ended September 30, 1995; this amount
is included in miscellaneous income (expense) in the Company's
Consolidated Statements of Operations.
On September 27, 1995, the Company entered into the 1995 Bank Credit
Agreement, an amendment and restatement of the 1992 Bank Credit
Agreement, which provides for unsecured borrowings by the Company of up
to $1.25 billion on a revolving basis until September 26, 2000. Up to
$700 million of this facility may be used for the issuance of letters of
credit. The interest rate under this facility is, at the Company's
option, the LIBOR rate or the prime rate, in each case plus a margin
which is subject to adjustment based on certain changes in the credit
ratings of the Company's long-term senior unsecured debt. The Company
also has the option to obtain loans through a competitive bid procedure.
The 1995 Bank Credit Agreement contains certain negative covenants that
restrict the Company's ability to grant liens, incur or guarantee debt,
and enter into flight equipment leases. It also provides that if there
is a change of control (as defined) of the Company, the banks'
obligation to extend credit terminates, any amounts outstanding become
immediately due and payable, and the Company will immediately deposit
cash collateral with the banks in an amount equal to all outstanding
letters of credit.
At September 30, 1995, no borrowings were outstanding under the 1995
Bank Credit Agreement, but there is currently outstanding a letter of
credit in the amount of $470 million to credit enhance the Delta
Family-Care Savings Plan's 1990 Series C Guaranteed Serial ESOP Notes.
The letter of credit, which is utilizing $470 million of the available
commitment under the 1995 Bank Credit Agreement, covers the $290 million
outstanding principal amount of the 1990 Series C Guaranteed Serial ESOP
Notes, up to $148 million of Make Whole Premium Amount and approximately
one year of interest on the 1990 Series C Guaranteed Serial ESOP Notes.
For additional information regarding Delta's long-term debt, including
the 1990 Series C Guaranteed Serial ESOP Notes, see Note 7 (page 30) of
the Notes to Consolidated Financial Statements in Delta's 1995 Annual
Report to Stockholders.
During the three months ended September 30, 1995 and 1994, Delta made
cash interest payments, net of interest capitalized, of $43 million and
$44 million, respectively.
8
9
5. AIRCRAFT PURCHASE AND SALE COMMITMENTS:
At September 30, 1995, the Company's aircraft fleet, purchase
commitments and options were:
CURRENT FLEET
AIRCRAFT TYPE OWNED LEASED TOTAL ORDERS OPTIONS
------------- ----- ------ ----- ------ -------
A310-300 - 3 3 - -
B-727-200 106 28 134 - -
B-737-200 1 53 54 - -
B-737-300 - 13 13 52 56
B-757-200 45 41 86 4 36
B-767-200 15 - 15 - -
B-767-300 2 24 26 - -
B-767-300ER 9 7 16 5 9
L-1011-1 32 - 32 - -
L-1011-200 1 - 1 - -
L-1011-250 6 - 6 - -
L-1011-500 17 - 17 - -
MD-11 4 7 11 4 22
MD-88 63 57 120 - 30
MD-90 8 - 8 36 50
--- --- --- --- ---
309 233 542 101 203
=== === === === ===
The aircraft orders include 22 B-737-300 aircraft and 13 MD-90 aircraft
scheduled for delivery after fiscal 2001 and fiscal 1996 respectively,
that are subject to reconfirmation by Delta. The MD-88 aircraft options
may be converted to MD-90 aircraft orders, the B-737-300 aircraft orders
and options may be converted to B-737-400 or B-737-500 aircraft orders,
and the B-767-300ER aircraft options may be converted to B-767-300
aircraft orders, all at Delta's election.
During the September 1995 quarter, Delta accepted delivery of three MD-90
aircraft, one B-767-300ER aircraft and one B-757-200 aircraft.
Additionally, Delta returned six A310-300 aircraft to their lessor.
9
10
Future expenditures for aircraft, engines and engine hushkits on firm
order at September 30, 1995, are estimated to be $2.7 billion, excluding
aircraft orders subject to reconfirmation by Delta, as follows:
AMOUNT
YEARS ENDING JUNE 30 (IN MILLIONS)
-------------------- -------------
Nine months ending June 30, 1996 $ 330
1997 940
1998 720
1999 320
2000 190
After 2000 220
------
Total $2,720
======
6. POSTEMPLOYMENT BENEFITS:
The Company provides certain benefits to its former or inactive
employees after employment but before retirement. Such benefits
primarily include those related to disability and survivorship plans.
Effective July 1, 1994, Delta adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits"
(SFAS 112), which requires recognition of the liability for
postemployment benefits during the period of employment.
Adoption of SFAS 112 resulted in a cumulative after-tax transition
benefit of $114 million for the quarter ended September 30, 1994,
primarily due to the net overfunded status of the Company's disability
and survivorship plans. Future period expenses will vary based on
actual claims experience and the return on plan assets.
7. CONTINGENCIES:
The Company is a defendant in certain legal actions relating to alleged
employment discrimination practices, antitrust matters, environmental
issues and other matters concerning the Company'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 a material adverse effect on Delta's consolidated financial
condition, results of operations or liquidity.
8. STOCKHOLDERS' EQUITY:
During the September 1995 quarter, the Company issued 284,858 common
shares, at an average price of $58.91 per share, under the 1989 Stock
Incentive Plan, and 1,325 common shares, at an average price of $74.97
per share, under the Dividend Reinvestment and Stock
10
11
Purchase Plan. The Company also issued 1,274 common shares upon the
conversion of 1,675 depositary shares (each of which represents
1/1,000th of a share of Series C Convertible Preferred Stock), and 1,216
common shares upon the conversion of less than $1 million principal
amount of the 3.23% Convertible Subordinated Notes due 2003.
Additionally, during the September 1995 quarter, the Company transferred
from its treasury, at an average cost of $67.75 per share, 75,011 common
shares to the Delta Family-Care Savings Plan and 42 common shares under
the 1989 Stock Incentive Plan.
At September 30, 1995, 5,541,375 common shares were reserved for
issuance under the 1989 Stock Incentive Plan; 5,812,642 common shares
were reserved for conversion of the Series B ESOP Convertible Preferred
Stock; 17,489,031 common shares were reserved for conversion of the
Series C Convertible Preferred Stock; and 10,147,855 common shares were
reserved for conversion of the 3.23% Convertible Subordinated Notes due
2003.
9. 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 tax payments in excess of refunds received of $75
million and less than $1 million during the three months ended September
30, 1995 and 1994, respectively.
11
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION
During the three months ended September 30, 1995, Delta invested $191 million
in flight equipment and $51 million in ground property and equipment; made
payments of $85 million on long-term debt and capital lease obligations, which
included Delta's voluntary repurchase and retirement of $65 million principal
amount of long-term debt; and paid $22 million in cash dividends. The
principal sources of these funds were $199 million from operations, net of $229
million used to reduce to $0 the Senior Certificate related to the sale of
receivables (see Note 3 of Notes to Consolidated Financial Statements); $130
million from cash reserves; $14 million from the issuance of common stock; and
$6 million from the sale of flight equipment. Cash and cash equivalents and
short-term investments totaled $1.6 billion at September 30, 1995, compared to
$1.8 billion at June 30, 1995. The Company may repurchase additional long-term
debt from time to time.
As of September 30, 1995, the Company had negative working capital of $434
million, compared to negative working capital of $427 million at June 30, 1995.
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 financings and proceeds from
sale and leaseback transactions. At September 30, 1995, the Company had $780
million of credit available under its 1995 Bank Credit Agreement, subject to
compliance with certain conditions. For additional information, see Note 4 of
the Notes to Consolidated Financial Statements.
Long-term debt and capital lease obligations, including current maturities,
totaled $3.3 billion at September 30, 1995 and June 30, 1995. Stockholders'
equity was $2.0 billion at September 30, 1995, compared to $1.8 billion at June
30, 1995. The Company's debt-to-equity position, including current maturities
was 62% debt and 38% equity at September 30, 1995, compared to 65% debt and 35%
equity at June 30, 1995.
At September 30, 1995, 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 1995 Bank Credit Agreement.
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
30) of the Notes to Consolidated Financial Statements in Delta's 1995 Annual
Report to Stockholders.
At its meeting on October 26, 1995, Delta's Board of Directors declared cash
dividends of five cents per common share and $875.00 per share of Series C
Convertible Preferred Stock ($0.875 per depositary share), both payable
December 1, 1995, to stockholders of record on November 9, 1995.
12
13
See Part II, Item 5 of this Form 10-Q for information regarding Delta's
collective bargaining negotiations with the Air Line Pilots Association and the
Professional Airline Flight Control Association.
13
14
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 and 1994
For the quarter ended September 30, 1995, Delta recorded unaudited 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. For the quarter ended September 30, 1994, the Company recorded net
income of $164 million ($3.25 primary and $2.42 fully diluted income per common
share after preferred stock dividend requirements) and operating income of $154
million. Net income for the September 1994 quarter includes a one-time $114
million after-tax benefit ($2.25 primary and $1.43 fully diluted benefit per
common share) related to the adoption, effective July 1, 1994, of SFAS 112,
"Employers' Accounting for Postemployment Benefits" (see Note 6 of Notes to
Consolidated Financial Statements).
The improvement in operating results for the September 1995 quarter compared to
the September 1994 quarter reflects a 7% decrease in operating expenses
primarily due to initiatives under the Company's Leadership 7.5 program and a
1% increase in operating revenues.
Operating revenues in the September 1995 quarter totaled $3.19 billion, an
increase of 1% from $3.16 billion in the September 1994 quarter. Passenger
revenue increased 1% to $2.97 billion, as a 5% passenger mile yield improvement
more than offset a 4% decline in revenue passenger miles. The increase in the
passenger mile yield and reduction in passenger traffic are primarily due to
higher average fare levels in domestic and certain international markets, an
increase in full-fare traffic in certain international markets, and a 6%
reduction in transatlantic operating capacity.
Cargo revenue decreased 6% to $129 million, as cargo ton miles declined 6% and
the ton mile yield fell less than 1%. The decrease in the cargo ton miles is
due to lower cargo bin capacity related to the retirement of certain aircraft
and reduced operating capacity of other aircraft. The ton mile yield decline
is primarily the result of lower average domestic freight rates and a decrease
in international mail contract rates. All other revenue was unchanged at $86
million.
Operating expenses for the September 1995 quarter totaled $2.80 billion, down
7% from the September 1994 quarter. Operating capacity decreased less than 1%
to 33.37 billion available seat miles, and operating cost per available seat
mile declined 6% to 8.40 cents. Salaries and related costs decreased 9%, due
to an 11% reduction in full-time equivalent employees and lower employee
benefit costs. The decrease in employees was primarily due to workforce
reductions under the Company's Leadership 7.5 program. Aircraft fuel expense
declined 4%, as fuel gallons consumed decreased 3% and the average price per
fuel gallon declined 1% to 54.32 cents, Delta's lowest average fuel price per
gallon in a September quarter since 1988. Passenger commissions declined 14%,
mainly due to the implementation of a maximum commission payment on domestic
tickets and reductions in commission rates for certain international fares.
Contracted services expense rose 46%, the result of increased outsourcing of
information technologies services and certain airport functions. Aircraft rent
expense decreased 19% due to the return of certain aircraft to lessors and the
extension of leases on 40 B-737-200 aircraft in the June 1995 quarter which,
for accounting purposes, resulted in these leases being reclassified from
operating leases to capital leases. Depreciation and amortization expense
decreased 2%, the result of the transfer of certain ground equipment to
associated companies and certain international routes becoming fully amortized,
partially offset by increased aircraft depreciation and amortization due to the
extension
14
15
and reclassification of the B-737-200 aircraft leases discussed above. Other
selling expenses decreased 3%, primarily due to lower advertising and promotion
expense, partially offset by increased credit card service charges. Facilities
and other rent increased 11%, primarily due to expanded passenger terminal
facilities in certain locations. Aircraft maintenance materials and outside
repairs expense declined 2%, mainly due to certain credits received and the
retirement of certain engines, offset by increased engine and airframe
maintenance activity. Passenger service expense decreased 23%, the result of
ongoing cost control programs. Landing fees decreased 5%, mainly reflecting
rate adjustments at certain airports. All other operating expenses decreased
19%, primarily reflecting lower professional and technical fees and increased
revenues from services provided to outside parties during the September 1995
quarter.
Nonoperating expense in the September 1995 quarter totaled $49 million,
compared to nonoperating expense of $33 million in the September 1994 quarter.
Interest expense decreased 1% to $75 million, due to a lower average level of
long-term debt, partly offset by an increase in interest expense related to the
extension and reclassification of the B-737-200 aircraft leases previously
discussed. Interest income increased 5% to $23 million, primarily due to a
higher level of short-term investments. Miscellaneous expense increased $18
million in the September 1995 quarter, due to foreign exchange losses and costs
associated with the voluntary repurchase and retirement of long-term debt,
partially offset by equity income from associated companies.
Pretax income of $337 million for the September 1995 quarter resulted in an
income tax provision of $136 million. After a $22 million provision for
preferred stock dividends, net income available to common stockholders was $179
million.
15
16
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, 1995,
and the related consolidated statements of operations and cash flows for the
three month periods ended September 30, 1995 and 1994. 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.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Delta Air Lines, Inc. and
Subsidiaries as of June 30, 1995 (not presented herein), and in our report
dated August 18, 1995, we expressed an unqualified opinion on that balance
sheet. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of June 30, 1995 is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
Arthur Andersen LLP
Atlanta, Georgia
November 10, 1995
16
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Litigation Relating to Delta's Participation in Pan Am's Plan of Reorganization
As reported on pages 12-13 of Delta's Annual Report on Form 10-K for the fiscal
year ended June 30, 1995 (1995 Form 10-K), there were pending in the United
States District Court for the Southern District of New York two separate
lawsuits filed against Delta by former Pan Am employees who alleged, among
other things, that they were intended third party beneficiaries of Delta's
agreement with Pan Am to participate in Pan Am's proposed plan of
reorganization. In October 1995, Delta, the plaintiffs and the third party
defendants entered into a stipulation of settlement and dismissal with respect
to each of these lawsuits. As a result, these actions were dismissed.
Travel Agency Commission Antitrust Litigation
As reported on page 16 of the 1995 Form 10-K, travel agents and a travel agency
trade association have filed more than 30 class action antitrust lawsuits in
various federal district courts against various airlines, including Delta, that
implemented new travel agent commission cap programs. These cases have been
consolidated for pretrial proceedings before the United States District Court
in Minneapolis which, on September 27, 1995, denied a motion by the airline
defendants to permit an immediate appeal of the District Court's ruling denying
the airlines' motions for summary judgment. The jury trial of these actions
has not yet been scheduled.
17
18
Item 4. Submission of Matters to a Vote of Security Holders
At Delta's Annual Meeting of Stockholders held on October 26, 1995, 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 49,523,052 3,261,402
Edwin L. Artzt 50,910,338 1,874,116
Henry A. Biedenharn, III 50,922,082 1,862,372
James L. Broadhead 50,831,114 1,953,340
Edward H. Budd 50,928,257 1,856,197
George D. Busbee 50,796,028 1,988,426
R. Eugene Cartledge 50,882,962 1,901,492
Mary Johnston Evans 50,867,429 1,917,025
Gerald Grinstein 50,824,164 1,960,290
Jesse Hill, Jr. 50,883,356 1,901,098
Peter D. Sutherland 50,888,953 1,895,501
Andrew J. Young 50,482,182 2,302,272
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 1996 by a vote of 51,796,271 FOR; 789,333
AGAINST; and 198,850 ABSTENTIONS. There were no broker non-votes on
this matter.
3. Approved the Delta Air Lines, Inc. Non-employee Directors' Stock Plan by
a vote of 49,411,512 FOR; 2,955,512 AGAINST; and 417,430 ABSTENTIONS.
There were no broker non-votes on this matter.
4. Defeated a stockholder proposal relating to political activities by the
Company by a vote of 2,173,686 FOR; 44,624,004 AGAINST; and
2,392,131 ABSTENTIONS. There were 3,594,633 broker non-votes on
this matter.
5. Defeated a stockholder proposal relating to Company employment matters
by a vote of 2,196,630 FOR; 43,509,764 AGAINST; and 3,483,426
ABSTENTIONS. There were 3,594,634 broker non-votes on this matter.
18
19
Item 5. Other Information
Personnel
Delta's collective bargaining agreements with the Air Line Pilots Association
("ALPA") and the Professional Airline Flight Control Association ("PAFCA")
became amendable on January 1, 1995, and formal negotiations with ALPA and
PAFCA began in November 1994. ALPA and PAFCA represent approximately 8,100
pilots and 170 flight superintendents, respectively. The outcome of Delta's
negotiations with ALPA and PAFCA cannot presently be determined. For
additional information regarding these negotiations, see pages 7-8 of the 1995
Form 10-K.
19
20
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4. Second Amended and Restated Credit Agreement dated as of September
27, 1995 by and among Delta, Certain Banks and NationsBank of
Georgia, National Association, 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, 1995, Delta did not file any
Current Reports on Form 8-K.
20
21
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/ Thomas J. Roeck, Jr.
---------------------------------
Thomas J. Roeck, Jr.
Senior Vice President - Finance
and Chief Financial Officer
November 14, 1995
- -----------------
(Date)
21