1
EXHIBIT 13
LEADERSHIP 7.5 AND BEYOND
In April 1994, Delta announced Leadership 7.5, a three year plan to return
the Company to sustained profitability and position it for future growth. The
core of the program was a goal of reducing the Company's annual operating
expense by approximately $2 billion by the end of the June 1997 quarter. Delta
also established operating cost per available seat mile (unit cost) goals of
8.6c. for the June 1995 quarter, 8.0c. for the June 1996 quarter, and 7.5c. for
the June 1997 quarter. The unit cost goals reflected the phase-in of the
$2 billion in targeted cost savings, excluding restructuring and other
non-recurring charges, and assumed other costs and operating capacity remain at
calendar 1993 levels.
Developments in the airline industry during fiscal 1996 reaffirmed Delta's
belief that the only way for the Company to succeed in the highly competitive
environment in which it operates is to permanently reduce operating costs to a
competitive level. The level of low-cost, low-fare competition in Delta's
domestic markets continued to rise during fiscal 1996 at a rate faster than
that experienced by Delta's major competitors, negatively impacting average
fare levels in affected markets. Traffic patterns during fiscal 1996 validated
the prediction that business traffic growth would stabilize while leisure
traffic growth would accelerate.
As of June 30, 1995, Delta had succeeded in achieving its first
Leadership 7.5 unit cost goal, beating the 8.6c. goal by a generous margin with
a unit cost of 8.39c. for the June 1995 quarter. By the end of fiscal 1995,
Delta had already implemented initiatives estimated to generate approximately
$1.6 billion in annual cost reductions. During fiscal 1996, the Company
continued to reduce costs, recording a 3% reduction in both total operating
expenses and unit costs for the year, excluding restructuring and other
non-recurring charges. Actual June 1996 quarter unit cost came in at 8.33c.,
excluding a restructuring charge. The June 1996 quarter unit cost reflects
expense reductions in several categories which were partially offset by a
significant increase in the price of jet fuel, a
(Graph Omitted)
Quarterly Unit Cost*
(in cents)
- ---------------------------
Cost Per ASM
[C] [C]
June 1994 9.20
June 1995 8.39
June 1996 8.33
Long-term Goal 7.5
- ---------------------------
* Excludes restructuring
charges
DELTA AIR LINES, INC. 7
2
4.3c. per gallon federal tax on jet fuel and costs associated with carrying
record levels of passenger traffic during the quarter.
A major milestone was reached in the Leadership 7.5 program in April 1996,
when Delta pilots ratified a new four year collective bargaining agreement,
which became effective May 1, 1996. The new agreement is expected to
contribute approximately $760 million to Leadership 7.5 cost reductions over
the four year term of the contract, before considering any payments under the
pilots' profit sharing program.
A key outcome of the new pilot agreement is the formation of a low-fare
operation. Subsequent to the end of fiscal 1996, the Company announced the
October 1, 1996 launch of Delta Express, a low-fare business unit within Delta
operating in certain highly competitive, leisure-oriented markets within
Delta's system. Delta Express will begin daily nonstop service connecting 10
midwest and northeast cities with Orlando and four other Florida cities,
operating with a dedicated fleet of Boeing 737-200 aircraft. Delta Express is
scheduled to grow to 25 aircraft by January, 1997.
In July 1996, the Company announced a shift in strategy from a strict
focus on operating costs to a more balanced approach that focuses on both
operating cost reduction and revenue improvement. Delta's success in
strengthening its financial condition, changes in the industry environment, and
a renewed emphasis on customer service motivated the shift. While the unit
cost goal of 7.5c. per available seat mile will be maintained as a long-term
goal, the Company no longer expects to reach this goal by the June 1997
quarter. Delta increased its three year operating margin goal to 12% by the
end of fiscal 1999. Delta's operating margin goal is aggressive, and no
assurance can be given that the Company will meet this goal.
8
DELTA AIR LINES, INC.
3
AIRCRAFT FLEET
Delta continues to maintain one of the youngest, most efficient and
technologically advanced fleets in the U.S. airline industry. During fiscal
1996, the Company continued to refine its aircraft fleet plan to simplify the
fleet, improve operating efficiency, and better meet customer expectations.
Aircraft Fleet
At June 30, 1996
Average Age of
Aircraft Type
Type of Aircraft (Years) Owned Leased Total
- ---------------- -------------- -------- ------ -----
B-727-200....... 19.3 106 23 129
B-737-200....... 11.6 1 53 54
B-737-300....... 10.4 - 13 13
B-757-200....... 7.4 45 41 86
B-767-200....... 13.1 15 - 15
B-767-300....... 7.1 2 24 26
B-767-300ER..... 4.2 10 7 17
L-1011-1........ 19.2 31 - 31
L-1011-200...... 18.0 1 - 1
L-1011-250...... 13.7 6 - 6
L-1011-500...... 15.4 17 - 17
MD-11........... 3.1 5 7 12
MD-88........... 6.0 63 57 120
MD-90........... 0.9 12 - 12
--- --- ---
Total......... 11.2 314 225 539
=== === ===
During fiscal 1996, Delta announced plans to retire all 55 Lockheed L-1011
aircraft from its fleet, including the removal of all L-1011 aircraft from
transatlantic service by the end of fiscal 1998. At the same time, Delta
announced an agreement with The Boeing Company to purchase 12 additional Boeing
767-300ER aircraft for delivery in fiscal 1997 and 1998, and to cancel its 52
orders (22 of which were subject to reconfirmation by Delta) and 56 options to
purchase Boeing 737-300 aircraft.
The newly ordered 767-300ER aircraft, together with aircraft already on
order, will replace all L-1011 aircraft now being used in transatlantic
service. The L-1011 aircraft being removed from transatlantic service will be
reconfigured and used for domestic service, where they will replace older, less
efficient versions of the L-1011. See Note 17 of Notes to Consolidated
Financial Statements.
During fiscal 1996, Delta accepted delivery of 11 new aircraft, including
one B-757-200 aircraft; two B-767-300ER aircraft; one MD-11 aircraft; and seven
MD-90 aircraft.
Also during fiscal 1996, the Company sold one L-1011-1 aircraft, and
returned to lessors the remaining nine A310-300 aircraft and five B-727-200
aircraft.
Subsequent to June 30, 1996, Delta entered into a definitive agreement
with the Nordam Group, Inc., to purchase, between fiscal years 1997 and 2000,
25 shipsets of Stage 3 engine hushkits for B-737-200 aircraft, with an option
to purchase an additional 30 shipsets.
The aircraft orders include four MD-90 aircraft scheduled for delivery
after fiscal 1997 that are subject to reconfirmation by Delta. See Note 9 of
Notes to Consolidated Financial Statements.
Aircraft Delivery Schedule
Aircraft on Firm Order at June 30, 1996
Delivery in Year Ending June 30:
-----------------------------------------------
After
Orders: 1997 1998 1999 2000 2001 2001 Total
- ------- ---- ---- ---- ---- ---- ----- -----
B-757-200...... - - - 1 3 - 4
B-767-300...... - - 2 - - - 2
B-767-300ER.... 5 9 - - - - 14
MD-11.......... 2 1 - - - - 3
MD-90.......... 4 - 9 5 3 2 23
----- ----- ----- ----- ----- ----- -----
Total....... 11 10 11 6 6 2 46
===== ===== ===== ===== ===== ===== =====
11
DELTA AIR LINES, INC.
4
Aircraft Delivery Schedule
Aircraft on Option at June 30, 1996
Delivery in Year Ending June 30:
-----------------------------------------------
After
Options 1997 1998 1999 2000 2001 2001 Total
- ------- ----- ----- ----- ----- ----- ----- -----
B-757-200... - - 2 2 - 24 28
B-767-300ER. - - 9 5 - - 14
MD-11....... - - 5 5 5 2 17
MD-88....... - - 15 - - - 15
MD-90....... - - 11 7 8 24 50
----- ----- ----- ----- ----- ----- -----
Total..... - - 42 19 13 50 124
===== ===== ===== ===== ===== ===== =====
(Graph Omitted)
-----------------------------------
Capital Expenditures
(in millions of dollars)
-----------------------------------
Flight
Equipment
(includes Ground
leased Property and
aircraft) Equipment
---------- -----------
1987 1,133 92
1988 1,184 146
1989 1,205 276
1990 1,425 265
1991 1,875 269
1992 2,164 317
1993 1,221 192
1994 1,032 173
1995 458 168
1996 638 267
-----------------------------------
Delta's aircraft which are subject to reconfirmation or are on option
provide the Company with the flexibility to adjust scheduled aircraft
deliveries.
The MD-88 options may be converted into MD-90 orders, and the B-767-300ER
options may be converted into B-767-300 orders, all at Delta's election.
Delta continues to evaluate long-term aircraft alternatives with the goal
of achieving the optimal mix of aircraft to meet operational needs. Delta also
intends to continue its efforts to carefully manage capital spending and
simplify the fleet.
FINANCIAL REVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS - FISCAL 1996 COMPARED WITH FISCAL 1995
For fiscal 1996, Delta recorded net income of $156 million ($1.42
primary and fully diluted earnings per common share after preferred
stock dividend requirements) and operating income of $463 million. In
fiscal 1995, Delta recorded net income of $408 million ($6.32 primary
and $5.43 fully diluted earnings per common share after preferred stock
dividend requirements), and operating income of $661 million.
Fiscal 1996 results include pretax restructuring and other
non-recurring charges totaling $829 million ($506 million after-tax or
$9.71 per common share) related to the write-down of Delta's Lockheed
L-1011 fleet and the continuation of the Company's Leadership 7.5 cost
reduction program. See Note 17 of Notes to Consolidated Financial
Statements.
Fiscal 1995 results include a one-time $114 million after-tax benefit
($2.25 primary and $1.42 fully diluted benefit per common share) related to the
adoption of Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS 112). See Note 10 of Notes to
Consolidated Financial Statements.
(Graph Omitted)
- -----------------------
Primary Earnings (Loss)
Per Common Share*
(in dollars)
1987 5.90
1988 6.30
1989 9.37
1990 5.79
1991 (7.73)
1992 (10.60)
1993 (9.49)
1994 (3.73)
1995 4.07
1996 11.13
- -----------------------
* Excludes restructuring and other
non-recurring charges and
cumulative effects of accounting
changes
12
DELTA AIR LINES, INC.
5
Excluding the restructuring and other non-recurring charges in fiscal
1996 and the cumulative effect of the adoption of SFAS 112 in fiscal 1995, net
income for fiscal 1996 totaled $662 million ($11.13 primary and $8.49 fully
diluted earnings per common share after preferred stock dividend requirements)
and operating income was $1.3 billion, compared to net income of $294 million
($4.07 primary and $4.01 fully diluted earnings per common share after
preferred stock dividend requirements) and operating income of $661 million in
fiscal 1995.
The improvement in financial results for fiscal 1996 as compared to
fiscal 1995 primarily reflects cost reductions in most operating expense
categories under the Company's Leadership 7.5 program. These reductions
resulted in a $370 million, or 3%, decline in operating expenses, excluding
restructuring and other non-recurring charges in fiscal 1996. Passenger
revenue increased $297 million, or 3%, due to increased traffic stimulated by
competitive pricing actions, the expiration of the U.S. transportation excise
tax and general improvements in economies worldwide.
Financial Results Summary
1996 1995 Change
---------- -------------- ------
(In Millions, Except
Share Data)
Operating Revenues .............................. $ $12,455 $ 12,194 + 2%
Operating Expenses .............................. 11,992 11,533 + 4
---------- -----------
Operating Income ................................ 463 661 -30
Other Expenses, Net.............................. (187) (167) +12
---------- -----------
Income Before Income Taxes
and Cumulative Effect of Accounting Change ..... 276 494 -44
Income Taxes Provided, Net ...................... (120) (200) -40
---------- -----------
Income Before Cumulative
Effect of Accounting Change .................... 156 294 -47
Cumulative Effect of Accounting Change,
Net of Tax ................................... - 114 -
---------- -----------
Net Income ...................................... 156 408 -62
Preferred Stock Dividends ....................... (82) (88) - 7
---------- -----------
Net Income Available to
Common Stockholders ............................ $ 74 $ $320 -77%
========== ===========
Primary Income Per Common Share:
Before Cumulative Effect of Accounting Change .. $ 1.42 $ 4.07 -65%
Cumulative Effect of Accounting Change ......... - 2.25 -
---------- -----------
$ 1.42 $ 6.32 -78%
========== ===========
Fully Diluted Income Per Common Share:
Before Cumulative Effect of Accounting Change .. $ 1.42 $ 4.01 -65%
Cumulative Effect of Accounting Change ......... - 1.42 -
---------- -----------
$ 1.42 $ 5.43 -74%
========== ===========
Number of Shares Used to Compute
Net Income Per Common Share:
Primary ...................................... 52,101,152 50,657,613 N/A
Fully Diluted ................................ 52,101,152 80,118,720 N/A
Operating revenues for fiscal 1996 were $12.5 billion, up 2% from
$12.2 billion in fiscal 1995. Passenger revenue increased 3%, the
result of 3% growth in revenue passenger miles. The passenger mile
yield was virtually unchanged. Domestic load factor increased two
points to 66%, as domestic revenue passenger miles and domestic capacity
rose 6% and 3%, respectively. The domestic passenger mile yield
decreased 1%, the result of discount fare promotions and the continued
presence of low-cost, low-fare carriers in markets served by Delta.
International load
Operating Revenue Detail
1996 1995 Change
------- ------- ------
(In Millions)
Passenger ... $11,616 $11,319 +3%
Cargo ....... 521 565 -8
Other, Net .. 318 310 +3
------- -------
Total ....... $12,455 $12,194 +2%
======= =======
13
DELTA AIR LINES, INC.
6
(Pie Chart Omitted)
- -------------------------------------------
1996 Distribution Of Operating Revenues
Domestic Passenger 75%
International Passenger 18%
Cargo 4%
Other 3%
- -------------------------------------------
Revenue-Related Statistics
1996 1995 Change
------ ------ ------
Revenue Passengers Enplaned (Thousands) .... 91,341 88,893 + 3%
Revenue Passenger Miles (Millions) ......... 88,673 86,417 + 3%
Passenger Load Factor ...................... 67.8% 66.2% +1.6 pts.
Passenger Mile Yield ....................... 13.10c. 13.10c. -
Cargo Ton Miles (Millions).................. 1,368 1,500 - 9%
Cargo Ton Mile Yield ....................... 38.08c. 37.67c. + 1%
Operating Revenue Per Available Seat Mile .. 9.53c. 9.33c. + 2%
factor increased one point to 73%, as international revenue passenger
miles decreased 7% while operating capacity decreased 8%. The decline in
international capacity is mainly due to the cancellation of service on
certain international routes. The international passenger mile yield
increased 2%, primarily due to higher average fare levels in certain
international markets.
Cargo revenues in fiscal 1996 decreased 8% to $521 million, the
result of a 9% decline in cargo ton miles, partially offset by a 1%
increase in the ton mile yield. The decrease in cargo ton miles is
primarily due to the cancellation of service on certain international
routes and the resulting decrease in the average cargo trip length.
All other revenues were up 3% to $318 million, mainly due to
increased revenues from joint marketing programs associated with the
Company's SkyMiles(R) frequent flyer program. See Note 1 of Notes to
Consolidated Financial Statements.
Operating expenses in fiscal 1996 totaled $12.0 billion, up 4% from $11.5
billion in fiscal 1995. Operating capacity increased less than 1% to 130.8
billion available seat miles, and operating cost per available seat mile
increased 4% to 9.17c.. Excluding restructuring and other non-recurring charges
in fiscal 1996, operating expenses were down 3%, and operating cost per
available seat mile decreased 3%.
Salaries and related costs decreased 3%, primarily due to a lower
average number of employees during the year and lower employee travel
and benefit expenses, partly offset by increased costs associated with
other employee compensation plans, primarily profit sharing.
Aircraft fuel expense increased 7%, as the average fuel price per
gallon rose 8% to 58.53c., partially offset by a 1% reduction in gallons
consumed.
Passenger commissions expense declined 13%, mainly due to the
implemen-
Operating Expense Detail
1996 1995 Change
------ ------ ------
(In Millions)
Salaries and Related Costs ........ $4,206 $4,354 - 3%
Aircraft Fuel ..................... 1,464 1,370 + 7
Passenger Commissions ............. 1,042 1,195 -13
Contracted Services ............... 704 556 +27
Depreciation and Amortization...... 634 622 + 2
Other Selling Expenses ............ 594 618 - 4
Aircraft Rent ..................... 555 671 -17
Facilities and Other Rent ......... 379 436 -13
Aircraft Maintenance Materials
and Outside Repairs .............. 376 430 -13
Passenger Service ................. 368 443 -17
Landing Fees ...................... 248 266 - 7
Restructuring and Other
Non-Recurring Charges ............ 829 - -
Other ............................. 593 572 + 4
------- -------
Total .......................... $11,992 $11,533 + 4%
======= =======
14
DELTA AIR LINES, INC.
7
tation of a maximum commission payment on domestic tickets and
lower base commission rates.
Contracted services expense rose 27%, the result of increased
outsourcing of information technologies services and certain airport
functions.
(Pie Chart Omitted)
1996 Distribution of Operating Expenses
(as a percent of total operating expenses)*
- -----------------------------------------------------------
Salaries & Related Costs 38%
Aircraft Fuel 13%
Rentals & Landing Fees 12%
Passenger Commissions 9%
Contracted Services 6%
Depreciation & Amortization 6%
Other Selling Expenses 5%
Aircraft Maintenance Materials & Outside Repairs 3%
Passenger Service 3%
Other 5%
* Excludes restructuring and other non-recurring charges
- -----------------------------------------------------------
Depreciation and amortization expense increased 2%, the result of
the acquisition of additional owned aircraft and the extension of leases
on 40 B-737-200 aircraft in the June 1995 quarter which, for accounting
purposes, resulted in those leases being reclassified from operating to
capital leases. This increase was partially offset by certain
international routes becoming fully amortized and the write-down of the
L-1011 fleet. See Note 17 of Notes to Consolidated Financial
Statements.
Other selling expenses decreased 4%, primarily the result of lower
advertising and promotion expense, partially offset by higher booking
fee payments to computer reservation system providers related to
domestic traffic growth.
Aircraft rent expense decreased 17% due to the return of certain
aircraft to lessors and the extension of leases on 40 B-737-200 aircraft
previously discussed.
Facilities and other rent expense declined 13%, the result of
reduced charges for certain airport facilities and the subleasing of
excess space in some locations.
Aircraft maintenance materials and outside repairs expense
decreased 13%, reflecting credits received from engine and brake
manufacturers, improved engine reliability resulting in fewer engine
removals, the elimination of certain engine types from service due to
fleet simplification, and lower material cost resulting from the
write-down of inventory related to the L-1011 aircraft. See Note 17 of
Notes to Consolidated Financial Statements.
Passenger service expense declined 17%, reflecting continued
benefits from catering changes and other cost reduction programs,
partially offset by increased passenger traffic, primarily on domestic
routes.
Landing fees expense declined 7%, mainly reflecting favorable rate
adjustments and credits received at certain airports.
Fiscal 1996 operating expenses include $829 million pretax
restructuring and other non-recurring charges. The charges include a
$452 million write-down of Delta's Lockheed L-1011 fleet and related
assets and $377 million related to the continuation of the Company's
Leadership 7.5 cost reduction programs. See Note 17 of Notes to
Consolidated Financial Statements.
Operating Statistics
1996 1995 Change
------- ------- ------
Available Seat Miles (Millions)....................... 130,751 130,645 -
Available Ton Miles (Millions) ....................... 18,084 18,150 -
Fuel Gallons Consumed (Millions)...................... 2,500 2,533 -1%
Average Fuel Price Per Gallon ........................ 58.53c. 54.09c. +8%
Breakeven Passenger Load Factor:
Including Restructuring and other
Non-Recurring Charges .............................. 65.1% 62.3% +2.8 pts.
Excluding Restructuring and other
Non-Recurring Charges .............................. 60.3% 62.3% -2.0 pts.
Operating Cost Per Available Seat Mile:
Including Restructuring and other
Non-Recurring Charges .............................. 9.17c. 8.83c. +4%
Excluding Restructuring and other
Non-Recurring Charges .............................. 8.54c. 8.83c. -3%
15
DELTA AIR LINES, INC.
8
All other operating expenses increased 4%, primarily reflecting the
October 1, 1995, expiration of the exemption from the 4.3c. per gallon
federal tax on commercial aviation jet fuel used in domestic operations,
partially offset by an increase in services provided to outside parties.
Nonoperating expense for fiscal 1996 totaled $187 million, compared
to $167 million in fiscal 1995. Interest expense decreased 8%,
primarily due to a lower average level of outstanding debt, partly
offset by an increase in interest related to the extension and
reclassification of 40 B-737-200 aircraft leases previously discussed.
Interest capitalized on funds advanced for the purchase of flight
equipment and construction of facilities decreased 13%, primarily
resulting from a lower average balance of outstanding advance payments
for equipment. Interest income declined 9% to $86 million, primarily
due to a lower average level of short-term investments and lower
interest rates during the year. Miscellaneous expense, net was $30
million for fiscal 1996 compared to less than $1 million for fiscal
1995. This expense was primarily due to costs associated with the
repurchase and retirement of long-term debt and foreign exchange losses.
RESULTS OF OPERATIONS - FISCAL 1995 COMPARED WITH FISCAL 1994
For fiscal 1995, Delta recorded net income of $408 million ($6.32
primary and $5.43 fully diluted earnings per common share after
preferred stock dividend requirements) and operating income of $661
million. In fiscal 1994, Delta recorded a net loss of $409 million
($10.32 primary and fully diluted loss per common share after preferred
stock dividend requirements), and an operating loss of $447 million.
Fiscal 1995 results include a one-time $114 million after-tax
benefit ($2.25 primary and $1.42 fully diluted benefit per common share)
related to the adoption, effective July 1, 1994, of SFAS 112. See Note
10 of Notes to Consolidated Financial Statements. Fiscal 1994 results
include pretax restructuring charges totaling $526 million ($331 million
after tax, or $6.59 per common share) related to the Company's
Leadership 7.5 program, and an early retirement program completed during
the December 1993 quarter. See Note 17 of Notes to Consolidated
Financial Statements.
Excluding the cumulative effect of the adoption of SFAS 112, net
income for fiscal 1995 totaled $294 million ($4.07 primary and $4.01
fully diluted earnings per common share after preferred stock dividend
requirements) and operating income was $661 million. Excluding
restructuring charges, the net loss for fiscal 1994 totaled $77 million
($3.73 primary and fully diluted loss per common share after preferred
stock dividend requirements) and operating income was $79 million.
The improvement in financial results for fiscal 1995 versus fiscal
1994 was primarily due to cost reductions under the Company's Leadership
7.5 program. Leadership 7.5 initiatives contributed to cost reductions
in most operating expense categories, resulting in a $465 million, or
4%, decline in operating expenses in fiscal 1995 compared to fiscal
1994, excluding restructuring charges in fiscal 1994.
Operating revenues for fiscal 1995 were $12.2 billion, up 1% from
$12.1 billion in fiscal 1994. Passenger revenue increased less than 1%,
the result of 1% growth in revenue passenger miles partly offset by a 1%
decline in the passenger mile yield to 13.10c.. Domestic load factor
increased slightly, as domestic revenue passenger miles grew 2% while
domestic capacity rose 1%. Domestic traffic growth was primarily due to
traffic stimulated through discount fare promotions and other
competitive pricing actions, which contributed to a 1% decrease in the
domestic passenger mile yield. International load factor rose five
points to 72%, as international revenue passenger miles grew 1% and
international operating capacity fell 6%. The international passenger
mile yield was unchanged.
Cargo revenues in fiscal 1995 increased 3% to $565 million. Cargo
ton miles increased 8%, primarily due to international cargo traffic
growth, and the ton mile yield declined 5%, mainly the result of
increases in long-haul cargo traffic
16
DELTA AIR LINES, INC.
9
and lower domestic mail contract rates. All other revenues were up 21% to $310
million, mainly due to increased revenues from joint marketing programs.
Operating expenses in fiscal 1995 totaled $11.5 billion, down 8% from
$12.5 billion in fiscal 1994. Operating capacity decreased 1% to 130.6 billion
available seat miles, and operating cost per available seat mile declined 7% to
8.83c.. Excluding the fiscal 1994 restructuring charges, operating expenses
for fiscal 1995 were down 4%, and operating cost per available seat mile
decreased 3%, in fiscal 1995 compared to fiscal 1994.
Nonoperating expense for fiscal 1995 totaled $167 million, compared
to $213 million in fiscal 1994. Interest expense decreased 4%,
primarily due to a lower average level of outstanding debt, partially
offset by an increase in interest expense related to the extension of 40
B-737-200 aircraft leases previously discussed. Interest capitalized on
funds advanced for the purchase of flight equipment and construction of
facilities declined 9%, primarily resulting from a lower average balance
in construction work in progress. Interest income increased 67%, or $38
million, primarily due to a higher average level of short-term
investments and higher interest rates during the year.
CAPITALIZATION, FINANCING AND LIQUIDITY - FISCAL YEAR 1996
Cash and cash equivalents and short-term investments totaled $1.6
billion at June 30, 1996, compared to $1.8 billion at June 30, 1995.
The principal sources of funds during fiscal 1996 were $1.4 billion of
cash from operations; $35 million from the issuance of common stock; and
$26 million from the sale of flight equipment.
During fiscal 1996, Delta invested $639 million in flight equipment
and $297 million in ground property and equipment. The Company also
made payments of $440 million on long-term debt and capital lease
obligations, including Delta's voluntary repurchase and retirement of
$224 million principal amount of long-term debt. The Company paid cash
dividends of $80 million on its Series C Convertible Preferred Stock,
$30 million on its Series B ESOP Convertible Preferred Stock, and $10
million on its Common Stock. In addition, Delta paid $66 million to
repurchase 821,300 common shares under the common stock repurchase
program discussed below. The Company may repurchase additional
long-term debt and common stock from time to time.
(Graph Omitted)
Long-term debt & capital leases
(in millions of dollars)
-------------------------------
[S] [C]
1987 1,018
1988 729
1989 703
1990 1,315
1991 2,059
1992 2,833
1993 3,716
1994 3,228
1995 3,121
1996 2,175
-------------------------------
As of June 30, 1996, the Company had negative working capital of
$356 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 financing and proceeds from sale and leaseback
transactions. At August 16, 1996, the Company had $1.25 billion of
credit available under its 1995 Bank Credit Agreement, subject to
compliance with certain conditions. See Note 7 of Notes to Consolidated
Financial Statements.
Long-term debt and capital lease obligations, including current
maturities, totaled $2.3 billion at June 30, 1996, compared
17
DELTA AIR LINES, INC.
10
to $3.3 billion at June 30, 1995. Stockholders' equity was $2.5 billion at June
30, 1996, compared to $1.8 billion at June 30, 1995. The Company's
debt-to-equity position, including current maturities, was 47% debt and 53%
equity at June 30, 1996, compared to 65% debt and 35% equity at June 30, 1995.
At August 16, 1996, there was outstanding $290 million principal
amount of the Delta Family-Care Savings Plan's Series C Guaranteed Serial ESOP
Notes (Series C ESOP Notes), which are guaranteed by Delta. The Series C ESOP
Notes currently have the benefit of a credit enhancement in the form of a
letter of credit in the amount of $470 million under Delta's Credit Agreement
with ABN AMRO Bank and a group of banks. Delta is required to purchase the
Series C ESOP Notes in certain circumstances. See Note 7 of Notes to
Consolidated Financial Statements.
(Graph Omitted)
--------------------
Stockholders' Equity
(in millions of dollars)
1987 $1,938
1988 $2,209
1989 $2,620
1990 $2,596
1991 $2,457
1992 $1,894
1993 $1,913
1994 $1,467
1995 $1,827
1996 $2,540
--------------------
FISCAL YEAR 1995
In fiscal 1995, the principal sources of funds were $1.1 billion of
cash from operations, $139 million from Pan Am Corporation for the repayment of
certain debtor-in-possession financing (including $24 million recorded in cash
from operations representing accrued interest, net of the settlement of certain
other claims); and $137 million from the sale of flight equipment. During
fiscal 1995, Delta invested $458 million in flight equipment and $168 million
in ground property and equipment. The Company also made payments of $572
million on long-term debt and capital lease obligations, including Delta's
voluntary repurchase and retirement of $534 million principal amount of
long-term debt. In addition, the Company paid cash dividends of $80 million on
its Series C Convertible Preferred Stock, $30 million on its Series B ESOP
Convertible Preferred Stock, and $10 million on its Common Stock.
FISCAL YEAR 1994
In fiscal 1994, the principal sources of funds were $1.3 billion of
cash from operations, which included $300 million from the sale of certain
accounts receivable (see Note 5 of Notes to Consolidated Financial Statements);
$748 million proceeds from aircraft sale and leaseback transactions; $226
million of long-term borrowings; and $103 million from the sale of flight
equipment. Delta invested $1.0 billion in flight equipment, net of advance
payment refunds of $94 million, and $173 million in ground property and
equipment. The Company made payments of $547 million on long-term debt and
capital lease obligations, and paid cash dividends of $80 million on its Series
C Convertible Preferred Stock, $30 million on its Series B ESOP Convertible
Preferred Stock, and $10 million on its Common Stock.
18
DELTA AIR LINES, INC.
11
NEW ACCOUNTING STANDARDS
During fiscal 1996, Delta adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS 121). This statement requires that
the carrying values of long-lived assets, including certain identifiable
intangibles held and used by an entity, be reviewed for impairment, and
potentially written down, whenever events or changes in circumstances indicate
that the carrying amounts of the assets may not be recoverable. See Note 17 of
Notes to Consolidated Financial Statements for information regarding the
write-down of Delta's L-1011 aircraft and related assets due to the early
retirement of this fleet.
Effective July 1, 1994, Delta adopted SFAS 112, which resulted in a
cumulative after-tax transition benefit of $114 million ($2.25 primary and
$1.42 fully diluted benefit per common share) in fiscal 1995, primarily due to
the net overfunded status of the Company's disability and survivorship plans.
See Note 10 of Notes to Consolidated Financial Statements.
Also effective July 1, 1994, the Company adopted American Institute
of Certified Public Accountants Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" (SOP 93-6). The adoption of SOP
93-6 increased reported net income available to common stockholders shown in
the Consolidated Statements of Operations by $8 million for fiscal 1995, and
increased primary and fully diluted earnings per common share for that period
by $0.16 and $0.28, respectively. See Note 15 of Notes to Consolidated
Financial Statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). SFAS 123 establishes a fair value based
method of accounting for stock options. Entities may elect to either adopt the
measurement criteria of the statement for accounting purposes, thereby
recognizing an amount in results of operations on a prospective basis, or
disclose the pro forma effects of the new measurement criteria in Notes to
Consolidated Financial Statements. The Company intends to adopt the pro forma
disclosure features of SFAS 123, which are effective for fiscal year 1997.
FUTURE OUTLOOK
DEFERRED TAX ASSET
At June 30, 1996, Delta had a net cumulative deferred tax asset of $767
million, which consists of $2.2 billion of deferred tax assets, offset by $1.4
billion of deferred tax liabilities. Included in the deferred tax assets are,
among other items, $724 million related to obligations for postretirement
benefits and $354 million related to alternative minimum tax (AMT) credit
carryforwards. The AMT credit carryforwards do not expire.
Management believes that a significant portion of the deferred tax assets
will be realized through reversals of existing taxable temporary differences
with similar reversal patterns. To realize the benefits of the remaining
deferred tax assets, excluding AMT credits, Delta needs to generate
approximately $1.1 billion in future taxable income. Based on expectations
for future taxable income, the extended period over which postretirement
benefits will be recognized, and the fact that AMT credits do not expire,
management believes that it is more likely than not that the deferred tax
assets will be realized.
Although Delta experienced book and tax losses in fiscal years 1991
through 1994, the Company reported book and tax income in fiscal years 1995 and
1996. Furthermore, the Company has consistently reported book income in all
19
DELTA AIR LINES, INC.
12
other fiscal years since 1947 with the exception of fiscal year 1983.
The accompanying chart is a summary of Delta's pretax book income (loss)
and taxable income (loss) for the last three fiscal years, prior to net
operating loss carrybacks:
1996 1995 1994
----- ----- ------
(In Millions)
Pretax Book Income (Loss) .. $276 $494 $(660)
Taxable Income (Loss) ...... $635 $282 $(411)
The book and tax income reported for fiscal years 1995 and 1996
reflect significant improvements in the Company's financial performance,
primarily resulting from operating expense reductions achieved under the
Leadership 7.5 program.
Delta's ability to generate the expected amounts of taxable income
from future operations is dependent upon various factors, many of which are
beyond management's control. Accordingly, there can be no assurance that Delta
will meet its expectations of future taxable income. However, after considering
Delta's earnings history, the actions that Delta has already taken and will
continue to take to improve its financial performance, expectations of future
taxable income, and other relevant considerations, management believes that it
is more likely than not that future taxable income will be sufficient to fully
utilize the deferred tax assets which existed at June 30, 1996. See Note 16 of
Notes to Consolidated Financial Statements.
COMMITMENTS
Future expenditures for aircraft, engines and engine hushkits on firm
order as of August 16, 1996, are estimated to be $2.4 billion, excluding
aircraft orders subject to reconfirmation by Delta. The Company expects to
finance these commitments using available cash, short-term investments and
internally generated funds, supplemented as necessary by debt financings and
proceeds from sale and leaseback transactions. The Company also has certain
commitments related to its code sharing arrangements. See Note 9 of Notes to
Consolidated Financial Statements. Also, see Note 8 of Notes to Consolidated
Financial Statements for information on the Company's lease commitments.
COMPETITIVE ENVIRONMENT
Delta expects that low-fare competition is likely to continue in domestic
and international markets. If price reductions are not offset by increases in
traffic or changes in the mix of traffic that improve the passenger mile yield,
Delta's operating results will be adversely affected.
FUEL TAX
The Omnibus Budget Reconciliation Act of 1993 imposes a 4.3c. per gallon
tax on commercial aviation jet fuel purchased for use in domestic operations.
Based on Delta's fiscal 1997 expected domestic fuel requirement of 2.1 billion
gallons, the continued imposition of this fuel tax will result in operating
expense of approximately $90 million annually. Delta and other U.S. airlines
are actively lobbying for a repeal of this tax. The outcome of these efforts
cannot be determined.
TRANSPORTATION EXCISE TAX
Upon the January 1, 1996, expiration of the 10% transportation excise tax
applicable to domestic travel, the 6.25% domestic cargo waybill tax and the $6
per passenger international departure tax, the Company discontinued collecting
these taxes. These taxes were reinstated during August 1996, effective for the
remainder of the calendar year. The impact of this reinstatement on Delta
cannot be determined.
20
DELTA AIR LINES, INC.
13
BROAD-BASED STOCK OPTION PLANS
On April 24, 1996, Delta's Board of Directors adopted, subject to
stockholder approval, two broad-based, non-qualified stock option plans for
Delta personnel providing for the issuance of stock options to purchase 24.7
million shares of Delta common stock.
One plan is for eligible non-pilot personnel and the other is for
Company pilots. The non-pilot and pilot plans involve stock options to
purchase 14.7 million and 10 million shares of common stock, respectively. The
non-pilot and pilot plans are being presented to stockholders as one proposal.
For additional information, see Note 13 of Notes to Consolidated Financial
Statements.
The pilot stock option plan is an integral part of the new collective
bargaining agreement between the Company and the Air Line Pilots Association
(ALPA), which represents Delta's pilots. ALPA has the right to reopen the new
collective bargaining agreement in its entirety if any required stockholder
approval of the pilot stock option plan is not obtained, and Delta and ALPA are
unable to reach agreement within 30 days on providing pilots with equivalent
value to the pilot stock option plan.
STOCK REPURCHASE AUTHORIZATION
On April 24, 1996, Delta's Board of Directors authorized the Company to
repurchase up to 24.7 million shares of its common stock and common stock
equivalents. For additional information see Note 14 of Notes to Consolidated
Financial Statements.
ANTITRUST LITIGATION
In February 1995, Delta changed its travel agency commission program by
implementing certain maximum commission payments for the sale of domestic
airline tickets. Class action antitrust litigation filed by travel agents
against Delta and several other airlines that initiated travel agent commission
cap programs is pending in the United States District Court in Minneapolis.
The travel agents allege that the defendant airlines conspired to reduce the
commissions paid to travel agents in violation of the federal antitrust laws,
and are seeking damages of approximately $725 million, to be trebled under the
antitrust laws. The District Court has denied the motions for summary judgment
filed by the airlines. The jury trial of this lawsuit is scheduled to begin on
September 3, 1996. See Note 11 of Notes to Consolidated Financial Statements.
FORWARD-LOOKING INFORMATION
The information contained in this Annual Report regarding the cost savings
that Delta currently anticipates under the new collective bargaining agreement
with ALPA is forward-looking, and the actual results could differ materially
from the results that Delta currently anticipates. The specific factors that
could cause the actual results to differ materially from the expected results
include, among other things, (1) ALPA's right to reopen the new contract if
there is a Change of Control (as defined) of Delta or if any required
stockholder approval of the pilot stock option plan is not obtained; (2) the
number of B-737-200 aircraft that Delta utilizes under reduced operating costs;
(3) aircraft deployment and utilization rates; and (4) competitive factors and
general economic conditions.
21
DELTA AIR LINES, INC.
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Delta Air Lines, Inc.:
We have audited the accompanying consolidated balance sheets of Delta
Air Lines, Inc. (a Delaware corporation) and subsidiaries as of June 30,
1996 and 1995, and the related consolidated statements of operations, cash
flows and stockholders' equity for each of the three years in the period ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements (pages 28-49) referred to
above present fairly, in all material respects, the financial position of Delta
Air Lines, Inc. and subsidiaries as of June 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in Notes 15 and 10 in the Notes to Consolidated Financial
Statements, effective July 1, 1994, the Company changed its methods of
accounting for employee stock ownership plans and postemployment benefits.
/s/ Arthur Andersen LLP
Atlanta, Georgia
August 16, 1996
REPORT OF MANAGEMENT
The integrity and objectivity of the information presented in this
Annual Report are the responsibility of Delta management. The financial
statements contained in this report have been audited by Arthur Andersen LLP,
independent public accountants, whose report appears on this page.
Delta maintains a system of internal financial controls which are
independently assessed on an ongoing basis through a program of internal
audits. These controls include the selection and training of the Company's
managers, organizational arrangements that provide a division of
responsibilities, and communication programs explaining the Company's policies
and standards. We believe that this system provides reasonable assurance that
transactions are executed in accordance with management's authorization; that
transactions are appropriately recorded to permit preparation of financial
statements that, in all material respects, are presented in conformity with
generally accepted accounting principles; and that assets are properly
accounted for and safeguarded against loss from unauthorized use.
The Board of Directors pursues its responsibilities for these financial
statements through its Audit Committee, which consists solely of directors who
are neither officers nor employees of the Company. The Audit Committee meets
periodically with the independent public accountants, the internal auditors and
representatives of management to discuss internal accounting control, auditing
and financial reporting matters.
/s/ Tom Roeck /s/ Ronald W. Allen
------------------------------- --------------------------------
THOMAS J. ROECK, JR. RONALD W. ALLEN
Senior Vice President - Finance Chairman of the Board, President
and Chief Financial Officer and Chief Executive Officer
22
DELTA AIR LINES, INC.
15
CONSOLIDATED balance sheets
June 30, 1996 and 1995
ASSETS
- ------------------------------------------------------------------------------------------
1996 1995
---------- ----------
(In Millions)
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $1,145 $1,233
Short-term investments . . . . . . . . . . . . . . . . . . . 507 529
Accounts receivable, net of allowance for
uncollectible accounts of $44 at June 30,
1996, and $29 at June 30, 1995 . . . . . . . . . . . . . . 968 755
Maintenance and operating supplies, at average cost . . . . . 73 68
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 352 234
Prepaid expenses and other . . . . . . . . . . . . . . . . . 237 195
------- -------
Total current assets . . . . . . . . . . . . . . . . . . 3,282 3,014
------- -------
PROPERTY AND EQUIPMENT:
Flight equipment . . . . . . . . . . . . . . . . . . . . . . 8,202 9,288
Less: Accumulated depreciation . . . . . . . . . . . . . 3,235 4,209
------- -------
4,967 5,079
------- -------
Flight equipment under capital leases . . . . . . . . . . . . 515 537
Less: Accumulated amortization . . . . . . . . . . . . . 127 99
------- -------
388 438
------- -------
Ground property and equipment . . . . . . . . . . . . . . . . 2,697 2,442
Less: Accumulated depreciation . . . . . . . . . . . . . 1,532 1,354
------- -------
1,165 1,088
------- -------
Advance payments for equipment . . . . . . . . . . . . . . . 275 331
------- -------
6,795 6,936
------- -------
OTHER ASSETS:
Marketable equity securities . . . . . . . . . . . . . . . . 473 398
Deferred income taxes . . . . . . . . . . . . . . . . . . . 415 506
Investments in associated companies . . . . . . . . . . . . 266 265
Cost in excess of net assets acquired, net of
accumulated amortization of $84 at
June 30, 1996, and $75 at June 30, 1995 . . . . . . . . . 265 274
Leasehold and operating rights, net of accumulated
amortization of $183 at June 30, 1996, and
$165 at June 30, 1995 . . . . . . . . . . . . . . . . . . 140 177
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 590 573
------- -------
2,149 2,193
------- -------
$12,226 $12,143
======= =======
28
DELTA AIR LINES, INC.
16
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ----------------------------------------------------------------------------------------
(In Millions, Except Share Data)
CURRENT LIABILITIES:
Current maturities of long-term debt . . . . . . . . . . .$ 40 $ 151
Current obligations under capital leases . . . . . . . . . 58 61
Accounts payable and miscellaneous accrued liabilities . . 1,540 1,473
Air traffic liability . . . . . . . . . . . . . . . . . . 1,414 1,143
Accrued rent . . . . . . . . . . . . . . . . . . . . . . . 201 235
Accrued salaries and vacation pay . . . . . . . . . . . . 385 378
--------- --------
Total current liabilities . . . . . . . . . . . . . . . 3,638 3,441
--------- --------
NONCURRENT LIABILITIES:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 1,799 2,683
Postretirement benefits . . . . . . . . . . . . . . . . . 1,796 1,714
Accrued rent . . . . . . . . . . . . . . . . . . . . . . . 616 556
Capital leases . . . . . . . . . . . . . . . . . . . . . . 376 438
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 425 395
--------- --------
5,012 5,786
--------- --------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions . . . . . 802 860
Manufacturers' and other credits . . . . . . . . . . . . . 96 109
--------- --------
898 969
--------- --------
COMMITMENTS AND CONTINGENCIES (Notes 7,8,9 and 11)
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 6,738,740 shares at June 30,
1996, and 6,786,632 shares at June 30, 1995 . . . . . . 485 489
Unearned compensation under employee
stock ownership plan . . . . . . . . . . . . . . . . . (347) (369)
--------- --------
138 120
--------- --------
STOCKHOLDERS' EQUITY :
Series C Convertible Preferred Stock, $1.00 par
value, $50,000 liquidation preference; issued and
outstanding 13,978 shares at June 30, 1996 and 23,000
shares at June 30, 1995 . . . . . . . . . . . . . . . - -
Common Stock, $3.00 par value;
authorized 150,000,000 shares;
issued 72,265,994 shares at June 30, 1996,
and 54,537,103 shares at June 30, 1995. . . . . . . . . 217 164
Additional paid-in capital . . . . . . . . . . . . . . . . 2,627 2,016
Accumulated deficit. . . . . . . . . . . . . . . . . . . . (119) (184)
Net unrealized gain on noncurrent marketable equity
securities . . . . . . . . . . . . . . . . . . . . . . 126 83
Treasury stock at cost, 4,487,888 shares at June 30,
1996, and 3,721,093 shares at June 30, 1995 . . . . . (311) (252)
--------- --------
2,540 1,827
--------- --------
12,226 12,143
========= ========
The accompanying notes are an integral part of these consolidated balance
sheets.
29
DELTA AIR LINES, INC.
17
CONSOLIDATED STATEMENTS of operations
For the years ended June 30, 1996, 1995, and 1994
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
(In Millions, Except Per Share Data)
OPERATING REVENUES:
Passenger . . . . . . . . . . . . . . . . . . . . . $ 11,616 $ 11,319 $ 11,269
Cargo . . . . . . . . . . . . . . . . . . . . . . . 521 565 551
Other, net . . . . . . . . . . . . . . . . . . . . 318 310 257
----------- ----------- ------------
Total operating revenues . . . . . . . . . . . . 12,455 12,194 12,077
----------- ----------- ------------
OPERATING EXPENSES:
Salaries and related costs . . . . . . . . . . . . 4,206 4,354 4,589
Aircraft fuel . . . . . . . . . . . . . . . . . . . 1,464 1,370 1,411
Passenger commissions . . . . . . . . . . . . . . . 1,042 1,195 1,255
Contracted services . . . . . . . . . . . . . . . . 704 556 457
Depreciation and amortization . . . . . . . . . . . 634 622 678
Other selling expenses . . . . . . . . . . . . . . 594 618 614
Aircraft rent . . . . . . . . . . . . . . . . . . . 555 671 732
Facilities and other rent . . . . . . . . . . . . . 379 436 380
Aircraft maintenance materials and outside repairs. 376 430 418
Passenger service . . . . . . . . . . . . . . . . . 368 443 522
Landing fees . . . . . . . . . . . . . . . . . . . 248 266 261
Restructuring and other non-recurring charges . . . 829 - 526
Other . . . . . . . . . . . . . . . . . . . . . . 593 572 681
----------- ----------- ------------
Total operating expenses . . . . . . . . . . . . 11,992 11,533 12,524
----------- ----------- ------------
OPERATING INCOME (LOSS) 463 661 (447)
----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . . . . . . . . (269) (292) (304)
Interest capitalized . . . . . . . . . . . . . . . 26 30 33
Interest income . . . . . . . . . . . . . . . . . . 86 95 57
Miscellaneous income (expense), net . . . . . . . . (30) - 1
----------- ----------- ------------
(187) (167) (213)
----------- ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES . . . . . . 276 494 (660)
INCOME TAXES (PROVIDED) CREDITED, NET . . . . . . . . (120) (200) 251
----------- ----------- ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES. . . . . . . . . . . . . . . . . 156 294 (409)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES,
NET OF TAX. . . . . . . . . . . . . . . . . . . . . - 114 -
----------- ----------- ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . 156 408 (409)
PREFERRED STOCK DIVIDENDS . . . . . . . . . . . . . . (82) (88) (110)
----------- ----------- ------------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ 74 $ 320 $ (519)
=========== =========== ============
PRIMARY INCOME (LOSS) PER COMMON SHARE:
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES. . $ 1.42 $ 4.07 $ (10.32)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES . . . . . - 2.25 -
----------- ----------- ------------
$ 1.42 $ 6.32 $ (10.32)
=========== =========== ============
FULLY DILUTED INCOME (LOSS) PER COMMON SHARE:
Before cumulative effect of accounting changes. . $ 1.42 $ 4.01 $ (10.32)
Cumulative effect of accounting changes . . . . . - 1.42 -
----------- ----------- ------------
$ 1.42 $ 5.43 $ (10.32)
=========== =========== ============
The accompanying notes are an integral part of these consolidated statements.
30
DELTA AIR LINES, INC.
18
CONSOLIDATED STATEMENTS of cash flows
For the years ended June 30, 1996, 1995 and 1994
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
(In Millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 156 $ 408 $ (409)
Adjustments to reconcile net income (loss) to cash. . . . . . . . . .
provided by operating activities:
Cumulative effect of accounting changes . . . . . . . . . . . . . - (114) -
Restructuring and other non-recurring charges . . . . . . . . . . 829 - 526
Depreciation and amortization . . . . . . . . . . . . . . . . . . 634 622 678
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (57) 96 (242)
Amortization of deferred gain on sale and
leaseback transactions. . . . . . . . . . . . . . . . . . . . . (58) (63) (62)
Rental expense in excess of rent payments . . . . . . . . . . . . 26 54 134
Postemployment benefits expense
less than payments. . . . . . . . . . . . . . . . . . . . . . . (6) (22) -
Pension expense less than payments. . . . . . . . . . . . . . . . (141) (89) (45)
Compensation under ESOP. . . . . . . . . . . . . . . . . . . . . 37 38 29
Other postretirement expense in excess of payments. . . . . . . . 56 73 66
Changes in certain assets and liabilities:
Decrease (increase) in accounts receivable. . . . . . . . . . . . (213) 131 169
Decrease (increase) in prepaid expenses and other
current assets. . . . . . . . . . . . . . . . . . . . . . . . . (47) 28 123
Increase (decrease) in air traffic liability. . . . . . . . . . . 271 (104) 57
Increase in accounts payable and
miscellaneous accrued liabilities . . . . . . . . . . . . . . . 67 26 207
Decrease in other payables and accrued expenses . . . . . . . . . (57) (31) (34)
Increase (decrease) in other noncurrent liabilities . . . . . . . (48) - 64
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58) 61 63
----------- ----------- -----------
Net cash provided by operating activities . . . . . . . 1,391 1,114 1,324
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments. . . . . . . . . . . (639) (458) (1,032)
Ground property and equipment . . . . . . . . . . . . . . . . . . (297) (168) (173)
Decrease (increase) in short-term investments, net. . . . . . . . . . 22 (121) (408)
Proceeds from sale of flight equipment . . . . . . . . . . . . . . . 26 137 103
Debtor-in-possession loan repayment . . . . . . . . . . . . . . . . . - 115 -
----------- ----------- -----------
Net cash used in investing activities . . . . . . . . . (888) (495) (1,510)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital
lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . (440) (572) (547)
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . (120) (120) (120)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . 35 4 1
Proceeds from sale and leaseback transactions. . . . . . . . . . . . - - 748
Issuance of long-term obligations. . . . . . . . . . . . . . . . . . - - 226
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . (66) - -
----------- ----------- -----------
Net cash provided by (used in) financing activities . (591) (688) 308
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . (88) (69) 122
Cash and cash equivalents at beginning of period . . . . . . . . . . . 1,233 1,302 1,180
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $ 1,145 $ 1,233 $ 1,302
=========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
31
DELTA AIR LINES, INC.
19
CONSOLIDATED STATEMENTS of stockholders' equity
For the years ended June 30, 1996, 1995 and 1994
Unrealized
Additional Retained Gain (Loss)
Common Paid-In Earnings on Equity Treasury
Stock Capital (Deficit) Securities Stock Total
- -----------------------------------------------------------------------------------------------------------------------
(In Millions, Except Share Amounts)
BALANCE AT JUNE 30, 1993 . . . . . . . . . . . . . $ 163 $ 2,012 $ 36 $ (1) $ (297) $ 1,913
Fiscal Year 1994:
Net loss . . . . . . . . . . . . . . . . . . - - (409) - - (409)
Dividends on Series C Convertible
Preferred Stock. . . . . . . . . . . . . . . - - (80) - - (80)
Dividends on common stock ($0.20 per share). . - - (10) - - (10)
Dividends on Series B ESOP Convertible
Preferred Stock, net of tax benefit of $8 . - - (22) - - (22)
Issuance of 17,140 shares of common stock under
dividend reinvestment and stock
purchase plan ($50.38 per share) . . . . . . - 1 - - - 1
Transfer of 370,226 net shares of common stock
from treasury under ESOP and
stock incentive plan ($67.75 per share). . . - - (5) - 25 20
Net unrealized gain on marketable
equity securities. . . . . . . . . . . . . . - - - 54 - 54
------ ----------- -------- ---------- -------- -------
BALANCE AT JUNE 30, 1994 . . . . . . . . . . . . . 163 2,013 (490) 53 (272) 1,467
Fiscal Year 1995:
Net income . . . . . . . . . . . . . . . . . . - - 408 - - 408
Dividends on Series C Convertible
Preferred Stock. . . . . . . . . . . . . . . - - (80) - - (80)
Dividends on common stock ($0.20 per share). . - - (10) - - (10)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares. . . . . . - - (8) - - (8)
Issuance of 67,612 shares of common stock under
dividend reinvestment and stock purchase plan,
stock options and Series C Preferred Stock
conversions ($56.13 per share) . . . . . . . 1 3 - - - 4
Transfer of 295,126 net shares of common stock
from treasury under ESOP and
stock incentive plan ($67.75 per share). . . - - (4) - 20 16
Net unrealized gain on marketable
equity securities . . . . . . . . . . . . . - - - 30 - 30
------ ----------- -------- ---------- -------- -------
BALANCE AT JUNE 30, 1995 . . . . . . . . . . . . . 164 2,016 (184) 83 (252) 1,827
Fiscal Year 1996:
Net income . . . . . . . . . . . . . . . . . . - - 156 - - 156
Dividends on Series C Convertible
Preferred Stock. . . . . . . . . . . . . . . - - (74) - - (74)
Dividends on common stock ($0.20 per share). . - - (10) - - (10)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares. . . . . . - - (8) - - (8)
Issuance of 719,562 shares of common stock under
dividend reinvestment and stock purchase plan
and stock options ($58.15 per share) . . . . 2 40 - - (5) 37
Issuance of 6,861,377 shares of common stock on
conversions of Series C Preferred
Stock ($64.37 per share) . . . . . . . . . . 21 (21) - - - -
Issuance of 10,147,952 shares of common stock
on conversions of 3.23% Convertible
Subordinated Notes ($61.17 per share). . . . 30 592 - - - 622
Transfer of 176,794 net shares of common stock
from treasury under ESOP and stock incentive
plan ($67.77 per share). . . . . . . . . . . - - 1 - 12 13
Repurchase of 821,300 common shares
($80.00 per share) . . . . . . . . . . . . . - - - - (66) (66)
Net unrealized gain on marketable
equity securities . . . . . . . . . . . . . - - - 43 - 43
------ ----------- -------- ---------- -------- -------
BALANCE AT JUNE 30, 1996 . . . . . . . . . . . . . $ 217 2,627 (119) 126 (311) 2,540
======= ========== ======== ========== ======== =======
The accompanying notes are an integral part of these consolidated statements.
32
DELTA AIR LINES, INC.
20
NOTES TO CONSOLIDATED Financial Statements
June 30, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS - Delta Air Lines, Inc. is a major air carrier
providing scheduled air transportation for passengers, freight and mail over a
network of routes throughout the United States and abroad. At August 16, 1996,
Delta Air Lines served 153 domestic cities in 43 states, the District of
Columbia, Puerto Rico and the U.S. Virgin Islands as well as 44 cities in 25
foreign countries.
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Delta Air Lines, Inc. and its wholly owned subsidiaries (Delta or
the Company). All significant intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to conform with
the current financial statement presentation.
USE OF ESTIMATES - The Company follows generally accepted accounting
principles (GAAP). The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
INVESTMENTS IN ASSOCIATED COMPANIES - The Company's investments in the
following companies are accounted for under the equity method: TransQuest
Information Solutions (TransQuest), an information technology joint venture;
WORLDSPAN, L.P. (WORLDSPAN), a computer reservations system partnership;
Atlantic Southeast Airlines, Inc. (ASA); Comair Holdings, Inc. (Comair), the
parent of Comair, Inc.; and SkyWest, Inc. (SkyWest), the parent of SkyWest
Airlines, Inc. ASA, Comair, Inc., and SkyWest Airlines, Inc. are participants
in the Delta Connection program. (See Note 3.)
ACCOUNTING CHANGES - During fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121).
(See Note 17.) During fiscal 1995, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" (SFAS 112), and American Institute of Certified Public Accountants
Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership
Plans" (SOP 93-6). (See Notes 10 and 15, respectively.)
CASH AND CASH EQUIVALENTS - Investments with an original maturity of three
months or less are classified as cash and cash equivalents. These investments
are stated at cost, which approximates fair value.
SHORT-TERM INVESTMENTS - Cash in excess of operating requirements is
invested in short-term, highly liquid investments. These investments are
classified as available-for-sale under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115) and are stated at fair value. (See Note 2.)
COST IN EXCESS OF NET ASSETS ACQUIRED - The cost in excess of net assets
acquired (goodwill), which is being amortized over 40 years, is related to the
Company's acquisition of Western Air Lines, Inc. on December 18, 1986. The
Company periodically reviews the value assigned to goodwill to determine
whether there exists any impairment, as defined by SFAS 121. Management
believes that goodwill is appropriately valued.
LEASEHOLD AND OPERATING RIGHTS - Costs assigned to the purchase of
leasehold rights and landing slots are amortized over the lives of the
respective leases at the associated airports. Purchased international route
authorities are amortized over the lives of the authorities as determined by
their expiration dates. Permanent route authorities with no stated expiration
dates are amortized over 40 years. The Company periodically reviews the value
assigned to leasehold rights, landing slots and route authorities to determine
whether there exists any impairment, as defined by SFAS 121. Management
believes that leasehold rights, landing slots and route authorities are
appropriately valued.
33
DELTA AIR LINES, INC.
21
DEFERRED GAINS ON SALE AND LEASEBACK TRANSACTIONS - Gains on the sale and
leaseback of property and equipment under operating leases are deferred and
amortized over the lives of the respective leases as a reduction in rent
expense. Gains on the sale and leaseback of property under capital leases are
credited directly to the carrying value of the related asset.
MANUFACTURERS' CREDITS - In connection with the acquisition of certain
aircraft and engines, the Company receives various credits. These credits are
deferred until the aircraft and engines are delivered, at which time the
credits are applied on a pro rata basis as a reduction of the acquisition cost
of the related equipment.
FREQUENT FLYER PROGRAM - The Company accrues the estimated incremental
cost of providing free travel awards earned under its SkyMiles(R) frequent
flyer program when free travel award levels are achieved. The accrued
incremental cost is included in accounts payable and miscellaneous accrued
liabilities in the Company's Consolidated Balance Sheets.
The Company also sells mileage credits to participating partners in the
SkyMiles(R) program, such as hotels, car rental agencies and credit card
companies. The resulting revenue, net of the estimated incremental cost of
the credits sold, is recorded as other operating revenue in the Company's
Consolidated Statements of Operations during the period in which the credits
are sold.
PASSENGER AND CARGO REVENUES - Passenger ticket sales are recorded as air
traffic liability in the Company's Consolidated Balance Sheets. Passenger and
cargo revenues are recognized when the transportation is provided, reducing the
air traffic liability. Due to interline agreements throughout the industry,
certain amounts are recognized in revenue using estimates regarding the amount
of revenue to be recognized and the timing of recognition. Actual results
could differ from those estimates.
Delta is a party to code sharing agreements with certain foreign airlines.
Under these agreements, the Company purchases seats from and sells seats to
these airlines, with each airline separately marketing its respective seats.
The revenue from Delta's sale of code sharing seats purchased from and flown by
other airlines is reported in the Company's Consolidated Statements of
Operations as other operating revenue, offset by the cost of acquiring these
code sharing seats and other direct costs incurred in operating the code
sharing flights. The revenue generated from Delta's sale of code sharing seats
to other airlines is reported as passenger revenue in the Company's
Consolidated Statements of Operations.
DEPRECIATION AND AMORTIZATION - Flight equipment is depreciated on a
straight-line basis to residual values (5% of cost) over a 20-year period from
the dates placed in service (unless earlier retirement of the aircraft is
planned). Flight equipment under capital leases is amortized on a
straight-line basis over the term of the respective leases, which range from 6
to 12 years. Ground property and equipment are depreciated on a straight-line
basis over their estimated service lives, which range from 3 to 30 years. Due
to the Company's decision to accelerate the replacement of its L-1011 fleet
(see Note 17), the remaining depreciable lives of these aircraft have been
adjusted.
INTEREST CAPITALIZED - Interest attributable to funds used to finance the
acquisition of new aircraft and construction of major ground facilities is
capitalized as an additional cost of the related asset. Interest is
capitalized at the Company's weighted average interest rate on long-term debt
or, where applicable, the interest rate related to specific borrowings.
Capitalization of interest ceases when the property or equipment is placed in
service.
EARNINGS (LOSS) PER SHARE - Primary earnings (loss) per common share is
computed by dividing net income (loss) attributable to common stockholders by
the weighted average number of shares of Delta common stock (Common Stock) and,
if dilutive, Common Stock equivalents outstanding during the year. Common
Stock equivalents consist of the shares issuable upon exercise of outstanding
stock options, less the number of shares deemed to be repurchased under
application of the treasury stock method. The weighted average number of
shares of Common Stock and dilutive Common Stock equivalents outstanding was
52,101,152 for fiscal 1996, 50,657,613 for fiscal 1995, and 50,257,721 for
fiscal 1994.
34
DELTA AIR LINES, INC.
22
The computation of fully diluted earnings (loss) per common share assumes
that the Series C Convertible Preferred Stock (Series C Preferred Stock), all
allocated shares of Series B ESOP Convertible Preferred Stock (ESOP Preferred
Stock), the 3.23% Convertible Subordinated Notes due 2003 and Common Stock
equivalents were converted, if dilutive, into Common Stock at the beginning of
the fiscal year. The weighted average number of shares of Common Stock used to
compute fully diluted earnings (loss) per common share was 52,101,152 for
fiscal 1996, 80,118,720 for fiscal 1995, and 50,257,721 for fiscal 1994. In
addition, fully diluted earnings (loss) per common share amounts reflect the
adjustment of net income or loss for the additional contribution that would
have been required to service the ESOP's long-term debt if the ESOP Preferred
Stock were converted into Common Stock and for the interest expense that would
have been avoided if the 3.23% Convertible Subordinated Notes due 2003 had been
converted into Common Stock at the beginning of the fiscal year. (See Notes 7,
12, 13, 14 and 15.)
FOREIGN CURRENCY TRANSLATION - Assets and liabilities denominated in
foreign currencies are translated generally at exchange rates in effect at the
balance sheet date, except that fixed assets are translated at exchange rates
in effect when these assets were acquired. Revenues and expenses of foreign
operations are translated at average monthly exchange rates prevailing during
the year, except that depreciation and amortization charges are translated at
the exchange rates in effect when the related assets were acquired. The
resulting foreign exchange gains and losses are recognized as incurred.
2. INVESTMENTS IN DEBT AND EQUITY SECURITIES:
The Company's investments in Singapore Airlines Limited (Singapore
Airlines) and Swissair, Swiss Air Transport Company Ltd. (Swissair), which are
accounted for under the cost method, are classified as available-for-sale and
are carried at aggregate market value. At June 30, 1996 and 1995, the gross
unrealized gain on the Company's investment in Singapore Airlines was $190
million and $143 million, respectively. The gross unrealized gain on the
Company's investment in Swissair was $16 million at June 30, 1996, compared to
a $12 million gross unrealized loss at June 30, 1995. The $126 million and $83
million unrealized gains, net of the related deferred tax provision, on these
combined investments at June 30, 1996 and 1995, respectively, are reflected in
stockholders' equity. Delta's rights to vote, transfer or acquire additional
shares of the stock of Singapore Airlines and Swissair are subject to certain
restrictions.
During fiscal years 1996 and 1995, the proceeds from sales of
available-for-sale securities were $626 million and $926 million, respectively,
which resulted in realized losses of $1 million and $4 million, respectively.
The unrealized gains (losses) on these investments were less than $1 million
and were reflected in stockholders' equity at June 30, 1996 and 1995. Interest
income was $33 million and $31 million from these investments for fiscal years
1996 and 1995, respectively.
Delta's other investments in available-for-sale securities were recorded
as short-term investments in the Company's Consolidated Balance Sheets. These
investments at June 30, 1996 and 1995 were as follows:
Average
Stated
Maturity
Percentage (Months)
---------------- ------------------------
Type 1996 1995 1996 1995
- ---- ------- ------- --------- -------------
Government
agency debt..... 25% 36% 8 12
Corporate debt
securities...... 75 64 19 5
35
DELTA AIR LINES, INC.
23
3. INVESTMENTS IN ASSOCIATED COMPANIES:
During the December 1994 quarter, Delta and AT&T Global Information
Solutions Company formed TransQuest, an equally owned joint venture
partnership, to provide information technology services to Delta and others in
the travel and transportation industries. On June 26, 1996, Delta and NCR
Corporation (formerly AT&T Global Information Solutions Company) announced an
agreement to discontinue the TransQuest partnership. Effective July 1, 1996,
the partnership ended and TransQuest, Inc. was formed as a wholly owned
subsidiary of Delta. TransQuest, Inc. will provide information technology
services to Delta and others in the travel and transportation industries.
WORLDSPAN provides certain computer reservations services to Delta and
Delta provides certain communications, information processing and
administrative services to WORLDSPAN. (See Note 1 for additional information
regarding investments in associated companies.)
The Company's percentage ownership in associated companies at June 30,
1996 and equity earnings (losses) for fiscal 1996, 1995 and 1994 were as
follows:
Equity Earnings (Losses)
Percent -------------------------
Investment Ownership 1996 1995 1994
- ---------- --------- ------ -------- --------
(In Millions)
TransQuest.... 50% $(8) $(3) $-
WORLDSPAN..... 38 (5) (4) 1
ASA........... 26 13 12 12
Comair........ 21 13 6 6
SkyWest....... 15 1 2 2
4. FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET RISK:
BALANCE SHEET FINANCIAL INSTRUMENTS: FAIR VALUES - The carrying amounts
reported in the Company's Consolidated Balance Sheets for cash and cash
equivalents approximate fair values at June 30, 1996 and 1995. Short-term
investments classified as available-for-sale are recorded at fair value in
accordance with SFAS 115.
These values are based on quoted market prices, where available, or on the
estimated current rates offered to the Company for debt of the same remaining
maturities. The carrying values of all other financial instruments approximate
their fair values.
The fair values and carrying values of long-term debt, including current
maturities, at June 30, 1996 and 1995 were as follows:
1996 1995
------ -------
(In Billions)
Fair value................ $ 2.0 $3.0
Carrying value............ 1.8 2.8
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: RISKS AND FAIR VALUES - During
fiscal 1996, Delta initiated a fuel hedging program under which the Company may
enter into certain contracts with counterparties, not to exceed one year in
duration, to manage the Company's exposure to jet fuel price volatility. Gains
and losses resulting from fuel hedging transactions are recognized as a
component of fuel expense when the underlying fuel being hedged is used. Any
premiums paid to enter into hedging contracts are recorded as a prepaid expense
and are amortized to fuel expense over the respective contract periods. At
June 30, 1996, Delta had contracted for approximately 200 million gallons of
its projected fiscal 1997 fuel requirements. At June 30, 1996, the fair value
of option contracts used for purchases of jet fuel at fixed average prices was
immaterial. The Company is exposed to fuel hedging transaction losses in the
event of nonperformance by counterparties, but management does not expect any
counterparty to fail to meet its obligations. To manage its credit risk, the
Company selects counterparties based on their credit ratings, limits its
exposure to any one counterparty under defined guidelines and monitors the
market position of the program and its relative market position with each
counterparty.
The Company has entered into certain foreign exchange forward contracts,
all with maturities of less than two months, to manage risks associated with
foreign currency exchange rate and interest rate volatility. The aggregate
face amount of such contracts was
36
DELTA AIR LINES, INC.
24
approximately $40 million at June 30, 1996. The related realized and
unrealized gains and losses for such contracts were not material for any of the
years presented.
FINANCIAL GUARANTEES - Certain municipalities and airport authorities have
issued special facility revenue bonds to build or improve airport terminal and
maintenance facilities that Delta leases under operating leases. Under these
lease agreements, the Company is required to make rental payments sufficient to
pay principal and interest on the bonds as they become due (See Note 8).
CONCENTRATION OF CREDIT RISK- Delta's accounts receivable are generated
primarily from airline ticket and cargo service sales to individuals and
various commercial enterprises that are economically and geographically
dispersed, and the accounts receivable are generally short-term in duration.
Accordingly, Delta does not believe that it is subject to any significant
concentration of credit risk.
5. SALE OF RECEIVABLES:
In June 1994, Delta entered into a revolving accounts receivable facility
(Facility) providing for the sale of a defined pool of accounts receivable
(Receivables) through a wholly owned subsidiary to a trust in exchange for a
senior certificate in the principal amount of $300 million (Senior Certificate)
and a subordinate certificate in the principal amount of $189 million
(Subordinate Certificate). The subsidiary retained the Subordinate
Certificate, and the Company received $300 million in cash from the sale of the
Senior Certificate to a third party. At June 30, 1995, the principal amount of
the Senior Certificate was $229 million and was recorded as a reduction in
accounts receivable in the Company's Consolidated Balance Sheets. The
principal amount of the Subordinate Certificate at June 30, 1995 was $190
million and was included in accounts receivable on the Company's Consolidated
Balance Sheets.
In fiscal 1995, the Company paid $19 million in fees under the Facility.
These fees are included in miscellaneous income (expense), net in the Company's
Consolidated Statements of Operations. During fiscal 1995, Delta elected to
pay down the Facility, and the Senior Certificate was reduced to $0 on August
14, 1995.
In March 1996, Delta reactivated the Facility on a reserve basis. At June
30, 1996, no Receivables had been sold under the Facility. While the Facility
is in reserve, the Company is obligated to pay commitment fees. For fiscal
1996, these fees were immaterial.
6. SHORT-TERM BORROWINGS:
During fiscal 1996 and 1995, the Company had no commercial paper or
short-term bank borrowings. The maximum and average outstanding balances of the
Company's short-term bank borrowings during fiscal 1994 were $164 million and
$2 million, respectively. The weighted average interest rate of these
borrowings during fiscal 1994 was 5.03%.
7. LONG-TERM DEBT:
During fiscal 1996 and 1995, the Company voluntarily repurchased and
retired $224 million and $534 million, respectively, principal amount of its
long-term debt. As a result of these transactions, the Company recognized net
pretax losses of $18 million and $4 million in fiscal 1996 and 1995,
respectively, which are included in miscellaneous income (expense), net in the
Company's Consolidated Statements of Operations.
On June 24, 1993, the Company issued $800 million principal amount at
stated maturity of 3.23% Convertible Subordinated Notes due June 15, 2003
(Notes). The Notes were issued at an original issue discount of 28.2% from the
principal amount at stated maturity, were convertible by the holders thereof
into shares of Common Stock at a conversion rate of 12.68 shares per $1,000
principal amount at stated maturity of the Notes, and were redeemable by the
Company on or after June 15, 1996 at a price for each Note equal to the issue
price plus accrued original issue discount to the redemption date, together
with accrued and unpaid interest to the redemption
37
DELTA AIR LINES, INC.
25
date. On May 15, 1996, the Company gave notice that it elected to redeem
effective June 15, 1996, all outstanding Notes. Substantially all outstanding
Notes were then converted by the holders thereof into approximately 10 million
shares of Common Stock, and the Company redeemed the remaining outstanding
Notes. As a result of the conversion of substantially all the Notes,
long-term debt declined by $626 million and stockholders' equity increased by
approximately the same amount in the Company's Consolidated Balance Sheet.
This transaction was treated as a noncash transaction in the Company's
Consolidated Statement of Cash Flows for the year ended June 30, 1996.
At June 30, 1996 and 1995, the Company's long-term debt (including current
maturities) was as follows:
1996 1995
---- ----
(In Millions)
8.10% Series C Guaranteed Serial ESOP Notes, unsecured, payable in installments
between 2002 and 2009.......................................................................... $290 $290
9 3/4% Debentures, unsecured, due May 15, 2021.................................................. 251 271
9 7/8% Notes, unsecured, due January 1, 1998.................................................... 220 225
Medium-Term Notes, Series A and B, unsecured, interest rates ranging from 7.55% to 9.15% and
with maturities ranging from 1997 to 2007...................................................... 196 235
10 3/8% Debentures, unsecured, due February 1, 2011............................................ 176 176
9 7/8% Notes, unsecured, due May 15, 2000...................................................... 142 165
9% Debentures, unsecured, due May 15, 2016..................................................... 126 135
9 1/4% Debentures, unsecured, due March 15, 2022............................................... 116 184
10 1/8% Debentures, unsecured, due May 15, 2010................................................. 113 113
8 1/2% Notes, unsecured, due March 15, 2002..................................................... 71 96
10 3/8% Debentures, unsecured, due December 15, 2022........................................... 66 66
Development Authority of Clayton County, 7 5/8% unsecured loan agreement, repayable
on January 1, 2020............................................................................. 45 45
Development Authority of Fulton County, unsecured loan agreement, repayable
$10 million on November 1, 2007 and $20 million on November 1, 2012. Interest ranges
from 6.85% to 6.95% over the life of the loan.................................................. 30 30
3.23% Convertible Subordinated Notes, unsecured, due June 15, 2003, net of unamortized
discount of $0 and $179 million at June 30, 1996 and 1995, respectively........................ 0 621
8 1/4% Notes, unsecured, due May 15, 1996....................................................... 0 150
Development Authority of Clayton County, 6 5/8% unsecured loan agreement, repayable
in installments beginning in 2000, with the remaining balance payable in 2011.................. 0 35
Other, net...................................................................................... (3) (3)
------ ------
Total..................................................................................... 1,839 2,834
Less: Current maturities........................................................................ 40 151
------ ------
Total long-term debt...................................................................... $1,799 $2,683
====== ======
At June 30, 1996, the annual scheduled maturities of long-term debt during the
next five fiscal years were as follows:
Years Ending June 30 Amount
-------------------- ------
(In Millions)
1997 .......................... $ 40
1998 .......................... 249
1999 .......................... 67
2000 .......................... 142
2001 .......................... 0
On September 27, 1995, the Company and a group of banks entered into the
1995 Bank Credit Agreement, an amendment and restatement of the 1992 Bank
Credit Agreement. The 1995 Bank Credit Agreement provides for unsecured
borrowings by the Company of up to $1.25 billion on a revolving basis until
September 26, 2000. Up to $500 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 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
38
DELTA AIR LINES, INC.
26
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 June 30, 1996, no borrowings or letters of
credit were outstanding under the 1995 Bank Credit Agreement.
At August 16, 1996, there were 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,
which were issued pursuant to certain note purchase agreements, are payable in
installments between July 1, 2002 and January 1, 2009. The note purchase
agreements require Delta to purchase the Series C ESOP Notes at the option of
the holders thereof (Noteholders) if the credit rating of Delta's long-term
senior unsecured debt falls below Baa3 by Moody's and BBB- by Standard & Poor's
(Purchase Event) provided that Delta has no obligation to purchase the Series C
ESOP Notes under the note purchase agreements so long as it obtains, within 127
days of a Purchase Event, certain credit enhancements (Approved Credit
Enhancement) that result in the Series C ESOP Notes being rated A3 or higher by
Moody's and A- or higher by Standard & Poor's (Required Ratings). If Delta is
required to purchase the Series C ESOP Notes because of the occurrence of a
Purchase Event, such purchase would be made at a price (Purchase Price) equal
to the outstanding principal amount of the Series C ESOP Notes being purchased,
together with accrued interest and a Make Whole Premium Amount. The Make Whole
Premium Amount for the Series C ESOP Notes is based on, among other factors,
the yield to maturity of U.S. Treasury notes having maturities equal to the
remaining average life to maturity of the Series C ESOP Notes as of the date
Delta purchases the Series C ESOP Notes.
As a result of Moody's rating action on May 11, 1993, a Purchase Event
occurred, and Delta became obligated to purchase on September 15, 1993, any
Series C ESOP Notes properly tendered to it. Prior to September 15, 1993,
Delta obtained an Approved Credit Enhancement in the form of a letter of credit
to credit enhance the Series C ESOP Notes. This letter of credit was issued in
favor of Wilmington Trust Company, as trustee (Trustee), under Delta's 1992
Bank Credit Agreement (which, as discussed above, was amended and restated as
the 1995 Bank Credit Agreement). Due to the issuance of this letter of credit,
the Series C ESOP Notes received the Required Ratings, and Delta no longer had
an obligation to purchase the Series C ESOP Notes as a result of the Purchase
Event that occurred on May 11, 1993.
On June 6, 1996, the Company entered into a credit agreement with ABN AMRO
Bank, N.V. and a group of banks (Letter of Credit Facility) providing for the
issuance of letters of credit for up to $550 million in stated amount to credit
enhance the Series C ESOP Notes. The Letter of Credit Facility contains
negative covenants and a change of control provision that are substantially
similar to those contained in the 1995 Bank Credit Agreement. In the event of
any drawing under the Letter of Credit Facility, Delta is required, at its
election, (1) to immediately repay the amount drawn or (2) to convert its
reimbursement obligation to a loan for a period not to exceed one year at
varying rates of interest. On June 6, 1996, Delta obtained a letter of credit
under the Letter of Credit Facility to replace the letter of credit issued
under the 1995 Bank Credit Agreement to credit enhance the Series C ESOP Notes.
The Letter of Credit Facility expires June 6, 1999.
At August 16, 1996, the face amount of the letter of credit under the
Letter of Credit Facility was $470 million. It covers the $290 million
outstanding principal amount of the Series C ESOP Notes, up to $148 million of
Make Whole Premium Amount and approximately one year of interest on the Series
C ESOP Notes.
An Indenture of Trust (Indenture), dated August 1, 1993, among Delta, the
Trustee and Fidelity Management Trust Company, as ESOP trustee, contains
certain terms and conditions relating to any letter of credit used to credit
enhance the Series C ESOP Notes. The Indenture requires the Trustee to draw
under the letter of credit to make regularly scheduled payments of principal
and interest on the Series C ESOP Notes. The Indenture also requires the
Trustee to draw under the letter of credit to purchase the Series C ESOP Notes
in certain circumstances in which Delta would not be required to purchase the
Series C ESOP Notes under the note purchase agreements.
39
DELTA AIR LINES, INC.
27
Subject to certain conditions, the Indenture requires the Trustee to purchase
the Series C ESOP Notes at the Purchase Price at the option of the Noteholders
in the event that (1) the Required Ratings on the Series C ESOP Notes are not
maintained; (2) the letter of credit is not extended 20 days before its
scheduled expiration date; (3) Delta elects to terminate the letter of credit;
or (4) the Trustee receives notice that there has occurred an event of default
under the credit agreement relating to the letter of credit; unless, generally
within ten days of any such event, the Series C ESOP Notes receive the Required
Ratings due to Delta's obtaining a substitute credit enhancement or otherwise.
The Required Ratings on the Series C ESOP Notes are subject to
reconsideration at any time, and to annual confirmation, by Moody's and
Standard & Poor's. Circumstances that might cause either rating agency to
lower or fail to confirm its rating include, without limitation, a downgrading
of the deposits of the letter of credit issuer below A3 by Moody's or A- by
Standard & Poor's or a determination that the Make Whole Premium Amount covered
by the letter of credit is insufficient.
Subject to certain conditions, the Indenture does not permit the Trustee
to purchase the Series C ESOP Notes at the option of the Noteholders if the
Series C ESOP Notes receive the Required Ratings without the benefit of a
credit enhancement. The Series C ESOP Notes are not likely to receive the
Required Ratings absent a credit enhancement unless Delta's long-term senior
unsecured debt is rated at least A3 by Moody's and A- by Standard & Poor's. On
August 16, 1996, Delta's long-term senior unsecured debt was rated Baa3 by
Moody's and BB+ by Standard & Poor's.
The Company's debt agreements contain certain restrictive covenants but do
not limit the payment of dividends on the Company's capital stock. The terms
of the ESOP Preferred Stock limit the Company's ability to pay cash dividends
on Common Stock in certain circumstances.
Cash payments of interest including that on Series C ESOP Notes and net of
interest capitalized totaled $232 million in fiscal 1996, $238 million in
fiscal 1995, and $265 million in fiscal 1994.
8. LEASE OBLIGATIONS:
The Company leases certain aircraft, airport terminal and maintenance
facilities, ticket offices and other property and equipment. Rent expense is
generally recorded on a straight-line basis over the lease term. Amounts
charged to rental expense for operating leases were $0.9 billion in fiscal 1996
and $1.1 billion in fiscal years 1995 and 1994.
During the June 1995 quarter, the Company extended the lease terms for 40
B-737-200 aircraft, which, for accounting purposes, resulted in the
reclassification of these leases from operating leases to capital leases. This
reclassification resulted in an increase of $385 million, net of deferred rent
credits, in flight equipment under capital leases and an increase of $415
million in capital lease obligations in the Company's Consolidated Balance
Sheet at June 30, 1995. This transaction was treated as a noncash transaction
in the Company's Consolidated Statement of Cash Flows for the year ended June
30, 1995.
At June 30, 1996, the Company's minimum rental commitments under capital
leases and noncancelable operating leases with initial or remaining terms of
more than one year were as follows:
Years Ending Capital Operating
June 30 Leases Leases
------------ ------- ----------
(In Millions)
1997 .................................. $101 $ 871
1998 .................................. 97 863
1999 .................................. 96 868
2000 .................................. 65 842
2001 .................................. 55 823
After 2001 ............................ 166 10,800
---- -------
Total minimum lease payments ... 580 $15,067
=======
Less: Amounts representing interest .. 146
----
Present value of future minimum
capital lease payments .............. 434
Less: Current obligations under
capital leases ...................... 58
----
Long-term capital lease
obligations ......................... $376
====
40
DELTA AIR LINES, INC.
28
9. PURCHASE COMMITMENTS:
Subsequent to June 30, 1996, Delta entered into a definitive agreement
with the Nordam Group, Inc. to purchase, between fiscal 1997 and 2000, 25
shipsets of Stage 3 engine hushkits for B-737-200 aircraft, with an option to
purchase an additional 30 shipsets.
In addition, at August 16, 1996, the Company had authorized capital
expenditures of approximately $250 million for fiscal 1997 for improvement of
airport and office facilities, various ground equipment and other assets.
The Company expects to finance its aircraft, engine and engine hushkit
commitments as well as other authorized capital expenditures using available
cash, short-term investments and internally generated funds, supplemented as
necessary by debt financings and proceeds from sale and leaseback transactions.
Future expenditures for aircraft, engines and engine hushkits on firm
order as of August 16, 1996 are estimated to be $2.4 billion, excluding
aircraft orders subject to reconfirmation by Delta, as follows:
Years Ending June 30 Amount
-------------------- ------
(In Millions)
1997 ............................................ $ 800
1998 ............................................ 700
1999 ............................................ 330
2000 ............................................ 250
2001 ............................................ 210
After 2001 ...................................... 70
------
Total............................................ $2,360
======
The Company has entered into code sharing agreements under which it has
agreed to purchase seats at established prices from specific foreign airlines,
subject to certain conditions. None of these agreements has noncancelable
terms in excess of one year.
10. EMPLOYEE BENEFIT PLANS:
Substantially all of the Company's employees are covered under various
defined benefit pension plans, medical plans and disability and survivorship
plans, and certain employees meeting service requirements are eligible to
participate in the Savings Plan discussed in Note 15.
DEFINED BENEFIT PENSION PLANS-The Company's primary retirement plans
consist of defined benefit pension plans. The Company has reserved the right
to modify these plans to the extent permitted by the Internal Revenue Code and
ERISA.
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.75% and 4.7%, respectively, at June 30,
1996 and 8.0% and 4.7%, respectively, at June 30, 1995. The expected long-term
rate of return on assets was 10% at June 30, 1996 and 1995.
Included in the restructuring charges described in Note 17 are aggregate
related charges of $298 million and $108 million for fiscal 1996 and 1994,
respectively.
The following table sets forth the defined benefit pension plans' funded
status and amounts recognized in Delta's Consolidated Balance Sheets as of
June 30, 1996 and 1995:
1996 1995
------ ------
(In Millions)
Actuarial present value of benefit
obligations:
Accumulated benefit obligation(1)....... $6,186 $5,293
====== ======
Projected benefit obligation............ $7,420 $6,532
Plan assets at fair value(2)................ 7,222 6,108
------ ------
Projected benefit obligation in
excess of plan assets .................... 198 424
Unrecognized net gain (loss) ............... 195 (196)
Unrecognized transition obligation ......... (64) (67)
Unrecognized prior service cost ............ (31) (20)
------ ------
Accrued pension cost recognized in
the consolidated balance sheets .......... $ 298 $ 141
====== ======
1 Substantially all of the accumulated benefit obligation is vested.
2 Plan assets were invested at June 30, 1996, approximately as follows:
cash equivalents (7%), government and corporate bonds and notes (18%), common
stock and other equity-oriented investments (71%) and real estate and other
investments (4%).
41
DELTA AIR LINES, INC.
29
These charges represent costs primarily associated with special termination
benefits and curtailment losses related to the defined benefit pension plans as
a result of workforce reductions.
The net periodic cost of defined benefit pension plans for fiscal 1996,
1995 and 1994 included the following components:
1996 1995 1994
------ ------ -----
(In Millions)
Service cost - benefits earned
during the year .................. $ 225 $ 221 $ 248
Interest cost on projected
benefit obligation ............... 526 489 466
Actual return on plan assets ....... (1,194) (795) (355)
Net amortization and deferral ...... 612 266 (119)
------ ------ -----
Net periodic pension cost .......... $ 169 $ 181 $ 240
====== ====== =====
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - Delta's medical plans
provide medical and dental benefits to substantially all retirees and their
eligible dependents. Benefits are funded from general assets on a current
basis, although amounts sufficient to pay claims incurred but not yet paid are
held in trust. Plan benefits are subject to co-payments, deductibles and
certain other limits described in the plans and are reduced once a retiree is
eligible for Medicare. The Company has reserved the right to modify or
terminate the medical plans for both current and future retirees.
The weighted average discount rate used to estimate the accumulated
postretirement benefit obligation (APBO) was 7.75% at June 30, 1996, and 8.0% at
June 30, 1995. The assumed health care cost trend rate used in measuring the
APBO was 8.0% in fiscal 1996 and 8.5% in fiscal 1995, declining gradually to
4.25% by June 30, 2002, and remaining level thereafter. Increasing the assumed
health care cost trend rate annually by 1% for all future years would increase
the APBO as of June 30, 1996 by approximately $132 million and the net periodic
postretirement benefit cost by $19 million for fiscal 1996.
Net periodic postretirement benefit cost for fiscal 1996, 1995 and 1994
included the following components:
1996 1995 1994
----- ----- -----
(In Millions)
Service cost - benefits earned
during the year ......................... $ 32 $ 32 $ 35
Interest cost on accumulated
postretirement benefit obligation ....... 118 118 101
Amortization of prior service cost ........ (31) (29) (31)
Amortization of accumulated losses ........ 4 4 6
----- ----- -----
Net periodic postretirement
benefit cost ............................ $ 123 $ 125 $ 111
===== ===== =====
The accumulated postretirement benefit obligation (APBO) at June 30, 1996 and
1995 consisted of the following components:
1996 1995
------ ------
(In Millions)
Retirees and dependents ...................... $ 928 $ 879
Fully eligible participants .................. 323 333
Other active participants .................... 254 271
------ ------
Total accumulated postretirement
benefit obligation ......................... 1,505 1,483
Unamortized prior service cost
(from plan changes) ........................ 464 396
Unrecognized net loss ........................ (112) (109)
------ ------
Accrued postretirement benefit cost recognized
in the consolidated
balance sheets ............................. $1,857 $1,770
====== ======
Included in the restructuring charges described in Note 17 are aggregate
charges of $32 million and $203 million for fiscal 1996 and 1994, respectively.
These charges represent costs primarily associated with special termination
benefits and curtailment losses related to the postretirement benefits other
than pensions as a result of workforce reductions.
POSTEMPLOYMENT BENEFITS - The Company provides certain welfare benefits to
its former or inactive employees after employment but before retirement. Such
benefits primarily include those related to disability and survivorship plans.
The Company has reserved the right to modify or terminate these plans at any
time for all participants.
Effective July 1, 1994, Delta adopted SFAS 112, which requires recognition
of the liability for postemployment benefits during the period of employment.
The adoption of SFAS 112 resulted in a cumulative after-tax transition benefit
of $114 million in fiscal 1995,
42
DELTA AIR LINES, INC.
30
primarily due to the net overfunded status of the Company's disability and
survivorship plans. The Company's postemployment benefit expense for fiscal
years 1996 and 1995 was $78 million and $85 million, respectively. The amount
funded in excess of the liability is included in other noncurrent assets in the
Company's Consolidated Balance Sheets. Future period expenses will vary based
on actual claims experience and the return on plan assets.
Gains and losses that occur because actual experience differs from that
assumed will be amortized over the average future service period of employees.
Amounts allocable to prior service for amendments to retiree and inactive
insurance plans are amortized in a similar manner.
The Company continues to evaluate ways in which it can better manage
employee benefits and control costs. Any changes in the plan or revisions to
assumptions that affect the amount of expected future benefits may have a
significant effect on the amount of the reported obligation and future annual
expense.
11. 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.
During fiscal 1996, the Company renewed its aircraft hull and general
liability insurance policies (Policies). Beginning December 18, 1995, Delta's
captive insurance subsidiary agreed to reimburse the primary insurers for
losses under the Policies in an amount not to exceed $100 million per
occurrence and $118 million in the aggregate for each policy year. The
obligations of the primary insurers to the insureds under the Policies are not
limited or reduced in any way by this reimbursement obligation.
The reimbursement obligation of Delta's captive insurance subsidiary to
the primary insurers is supported by letters of credit. The letters of credit
have an aggregate stated amount equal to the maximum reimbursement obligation.
To the extent the primary insurers make a draw under a letter of credit, Delta
is required to reimburse the issuer of the letter of credit. Delta accrues
amounts estimated to be payable for probable losses under the reimbursement
agreements with the primary insurers, as incurred. The methods of making such
estimates and establishing the resulting accrued liabilities are periodically
reviewed and adjusted as required.
12. COMMON AND PREFERRED STOCK:
At June 30, 1996, 5,116,097 shares of Common Stock were reserved for
issuance under the 1989 Stock Incentive Plan, 5,780,491 shares of Common Stock
were reserved for conversion of the ESOP Preferred Stock and 10,629,285 shares
of Common Stock were reserved for conversion of the Series C Preferred Stock.
Each outstanding share of Common Stock is accompanied by a preferred
stock purchase right which entitles the holder to purchase from the Company
1/100 of a share of Series A Junior Participating Preferred Stock for $200,
subject to adjustment in certain circumstances. The rights become exercisable
only after a person or group acquires beneficial ownership of 20% or more of
the Common Stock or commences a tender or exchange offer that would result in
such person or group beneficially owning 30% or more of the Common Stock. The
rights expire on November 4, 1996, and may be redeemed by Delta for $0.05 per
right until 15 days following the announcement that a person or group
beneficially owns 20% or more of the Common Stock. Subject to certain
conditions, if a person or group becomes the beneficial owner of 30% or more of
the Common Stock or a person or group beneficially owning 20% or
43
DELTA AIR LINES, INC.
31
more of the Common Stock receives compensation from Delta other than
compensation for full-time employment as a regular employee, each right will
entitle its holder (other than certain acquiring persons) to receive, upon
exercise, Common Stock having a value equal to two times the right's exercise
price. In addition, subject to certain conditions, if Delta is involved in a
merger or certain other business combination transactions, each right will
entitle its holder (other than certain acquiring persons) to receive, upon
exercise, common stock of the acquiring company having a value equal to two
times the right's exercise price.
Each share of ESOP Preferred Stock has a stated value of $72; bears an
annual cumulative cash dividend of 6%, or $4.32; is convertible into 0.8578
share of Common Stock (a conversion price of $83.94), subject to adjustment in
certain circumstances; has a liquidation preference of $72, plus any accrued
and unpaid dividends; generally votes together as a single class with the
Common Stock on matters upon which the Common Stock is entitled to vote; and
has one vote, subject to adjustment in certain circumstances. The ESOP
Preferred Stock is redeemable at Delta's option at specified redemption prices
payable, at Delta's election, in cash or Common Stock. If full cumulative
dividends on the ESOP Preferred Stock have not been paid when due, Delta may
not pay cash dividends on the Common Stock.
On July 1, 1992, the Company issued 23 million Depositary Shares, each
representing 1/1,000th of a share of Series C Preferred Stock. Each share of
Series C Preferred Stock bore annual cumulative cash dividends of $3,500
(equivalent to $3.50 per annum per Depositary Share), had a liquidation
preference of $50,000 (equivalent to $50 per Depositary Share) plus accrued and
unpaid dividends, was convertible by the holder into shares of Common Stock at
a conversion price of $65.75 per share of Common Stock (equivalent to a
conversion rate of 0.7605 share of Common Stock per Depositary Share), and was
redeemable by Delta in certain circumstances for such number of shares of
Common Stock as equaled the liquidation preference of the Series C Preferred
Stock being redeemed divided by the conversion price (equivalent to a
conversion rate of 0.7605 share of Common Stock for each Depositary Share). On
June 11, 1996, Delta gave notice that it elected to redeem the Series C
Preferred Stock and the related Depositary Shares on July 11, 1996. Subsequent
to this notice, all the outstanding Series C Preferred Stock and related
Depositary Shares were converted or redeemed for a total of approximately 17.5
million shares of Common Stock. All conversions of Series C Preferred Stock
and the related Depositary Shares were treated as noncash transactions in the
Company's Consolidated Statement of Cash Flows.
13. STOCK OPTIONS AND AWARDS:
Under the Company's stock option plan for key employees, selected
employees have received awards of stock options and, prior to fiscal 1993,
tandem stock appreciation rights.
The exercise price for all stock options, and the base upon which stock
appreciation rights are measured, is the fair market value of Common Stock on
the date of grant. Awards exercised as stock appreciation rights are payable
in a combination of cash and Common Stock.
Subject to certain exceptions, stock options and tandem stock appreciation
rights, if any, are generally exercisable between one and ten years after the
date of award.
Transactions involving stock options and tandem stock appreciation rights
during fiscal 1994, 1995 and 1996 were as follows:
Awards Award Price Range
----------- -----------------
Balance June 30, 1993 ........ 2,447,950 $ 54.00 - $73.125
Fiscal 1994:
Granted .................. 650,200 $ 54.375
Exercised ................ (47,400) $ 54.00
Expired .................. (9,000) $ 54.00
Forfeited ................ (27,000) $ 68.375 - $73.125
----------
Balance June 30, 1994 ........ 3,014,750 $ 54.00 - $73.125
Fiscal 1995:
Granted .................. 718,750 $ 52.00
Exercised ................ (78,900) $ 54.00 - $68.375
Expired .................. (257,750) $ 67.375
Forfeited ................ (10,700) $ 52.00 - $73.125
----------
Balance June 30, 1995 ........ 3,386,150 $ 52.00 - $73.125
Fiscal 1996:
Granted .................. 643,500 $ 71.00
Exercised ................ (1,653,765) $ 52.00 - $73.125
Forfeited ................ (43,700) $ 52.00 - $73.125
----------
Balance June 30, 1996 ........ 2,332,185 $ 52.00 - $73.125
==========
44
DELTA AIR LINES, INC.
32
Substantially all awards of stock options with tandem stock appreciation
rights have been exercised as stock appreciation rights. In fiscal 1996, the
Company issued 711,830 shares of Common Stock, at an average price of $57.96
per share, in connection with the exercise of stock options and tandem stock
appreciation rights.
On April 24, 1996, Delta's Board of Directors adopted, subject to
stockholder approval at Delta's 1996 Annual Meeting of Stockholders, two
broad-based, non-qualified stock option plans for Delta personnel providing for
the issuance of stock options to purchase 24.7 million shares of Common Stock.
The plans are intended to cover substantially all of Delta's non-officer
personnel. One plan is for approximately 47,000 Delta employees who are not
pilots. The second plan is for approximately 8,000 Delta pilots.
Awards outstanding as of June 30, 1996 and the exercise prices of those awards
were as follows:
Date of Award Awards Outstanding Award Price
------------- ------------------ -----------
January 26, 1989 ....... 1,000 $ 54.00
January 25, 1990 ....... 134,500 $ 67.375
January 24, 1991 ....... 247,050 $ 68.375
January 23, 1992 ....... 548,750 $ 73.125
January 27, 1994 ....... 335,210 $ 54.375
January 26, 1995 ....... 431,975 $ 52.00
January 25, 1996 ....... 633,700 $ 71.00
---------
2,332,185 $52.00-$73.125
=========
The non-pilot and pilot plans involve stock options to purchase 14.7
million and 10 million shares of Common Stock, respectively. Both plans
provide for grants of non-qualified stock options in three equal annual
installments at a stock option exercise price equal to the opening price of the
Common Stock on the New York Stock Exchange on the applicable grant date.
Stock options awarded under these plans will generally be exercisable beginning
one year and ending ten years after their grant dates, and will not be
transferable other than upon the death of the person granted the option. The
non-pilot and pilot plans are being presented to stockholders as one proposal.
The pilot stock option plan is an integral part of the new collective
bargaining agreement between the Company and the Air Line Pilots Association,
International (ALPA), which represents Delta's pilots (13% of Delta's
employees). ALPA has the right to reopen the new collective bargaining
agreement in its entirety if any required stockholder approval of the pilot
stock option plan is not obtained, and Delta and ALPA are unable to reach
agreement within 30 days on providing pilots with equivalent value to the pilot
stock option plan.
14. STOCK REPURCHASE AUTHORIZATION:
On April 24, 1996, Delta's Board of Directors authorized the Company to
repurchase up to 24.7 million shares of its Common Stock and Common Stock
equivalents. Under this authorization, the Company may repurchase up to 6.2
million of these shares before the initial stock option grants become
exercisable under the two broad-based, non-qualified stock option plans and
repurchase the remaining shares as Delta personnel exercise their stock options
under those plans. Repurchases are subject to market conditions and may be
made on the open market or in privately negotiated transactions. During fiscal
1996, the Company repurchased 821,300 shares of Common Stock for $66 million
under this authorization.
15. EMPLOYEE STOCK OWNERSHIP PLAN:
The Company sponsors the Savings Plan, a qualified defined contribution
pension plan under which eligible Delta personnel may contribute a portion of
their earnings. The Savings Plan includes an employee stock ownership plan
(ESOP) feature. Subject to certain conditions, the Company contributes to the
ESOP 50% of a participant's contributions to the Savings Plan, up to a maximum
employer contribution of 2% of a participant's earnings. The Company's
contribution is made quarterly through the allocation of the ESOP Preferred
Stock, Common Stock or cash.
45
DELTA AIR LINES, INC.
33
In connection with the adoption of the ESOP, the Company sold 6,944,450
shares of ESOP Preferred Stock to the Savings Plan for approximately $500
million. The Company has recorded unearned compensation to reflect the value
of ESOP Preferred Stock sold to the ESOP but not yet allocated to participants'
accounts. As shares of the ESOP Preferred Stock are allocated to participants,
compensation expense is recorded and unearned compensation is reduced.
Dividends on unallocated shares of ESOP Preferred Stock are used by the ESOP
for debt service on the Series C ESOP Notes and are not considered dividends
for financial reporting purposes. Dividends on allocated shares of ESOP
Preferred Stock are paid to participants and are considered dividends for
financial reporting purposes.
Effective July 1, 1994, Delta adopted SOP 93-6. Under SOP 93-6, the
compensation and interest components of ESOP costs are reduced by the amount of
dividends accrued on the allocated ESOP Preferred Stock, and only the allocated
ESOP Preferred Stock is considered outstanding in computing primary and fully
diluted earnings per common share. Prior to adoption of SOP 93-6, the
compensation and interest components of ESOP costs were reduced by the amount
of dividends accrued on all ESOP Preferred Stock, and all ESOP Preferred Stock
was considered outstanding for primary and fully diluted earnings per common
share calculations. The adoption of SOP 93-6 increased reported net income
attributable to common stockholders shown in the Company's Consolidated
Statement of Operations by $8 million for fiscal 1995 and increased primary and
fully diluted earnings per common share for that period by $0.16 and $0.28,
respectively. The provisions of SOP 93-6 require that it be adopted
prospectively.
16. INCOME TAXES:
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
The alternative minimum tax credit carryforwards do not expire. The net
operating loss carryforwards will generally expire in 2008 and 2009 if not
utilized prior to that time.
Management believes, based on the Company's earnings history, the actions
the Company has taken and will continue to take to improve its financial
performance, expectations of future taxable income, and other relevant
considerations, that it is more likely than not that future taxable income will
be sufficient to fully utilize the deferred tax assets which existed at June
30, 1996.
Significant components of the Company's deferred tax assets and liabilities as
of June 30, 1996 and 1995 are a result of temporary differences related to the
items described as follows:
1996 1995
------ ------
(In Millions)
Deferred Tax Assets:
Postretirement benefits .............. $ 724 $ 655
Alternative minimum tax credit
carryforwards ...................... 354 284
Gains on sale and leaseback
transactions (net) ................. 336 344
Other employee benefits .............. 232 161
Rent expense ......................... 202 174
Spare parts repair expense ........... 114 97
Tax accruals ......................... 43 33
Frequent flyer expense ............... 40 37
Accrued compensation expense ......... 36 42
Net operating loss carryforwards ..... 5 122
Other ................................ 93 134
------ ------
Total Deferred Tax Assets .......... $2,179 $2,083
====== ======
Deferred Tax Liabilities:
Depreciation and amortization ........ $1,083 $1,084
Postemployment benefits .............. 82 89
Marketable equity securities ......... 81 49
Software development costs ........... 58 35
Other ................................ 108 86
------ ------
Total Deferred Tax Liabilities ..... $1,412 $1,343
====== ======
46
DELTA AIR LINES, INC.
34
Income taxes (provided) credited in fiscal 1996, 1995, and 1994 consisted of:
1996 1995 1994
----- ----- ----
(In Millions)
Current taxes ..................... (177) (104) 8
Deferred taxes .................... 54 (99) 227
Increase in corporate
statutory rate ............... - - 13
Tax benefit of dividends on
allocated ESOP
Preferred Stock .............. 3 3 3
----- ----- -----
(120) (200) 250
----- ----- -----
Amortization of investment
tax credits .................. - - 1
----- ----- -----
Income taxes (provided) credited .. $(120) $(200) $ 251
===== ===== =====
The Company made income tax payments, net of income tax refunds, of
$192 million in fiscal 1996 and $25 million in fiscal 1995 and received income
tax refunds, net of cash income tax payments, of $13 million in fiscal 1994.
The income tax (provisions) credit generated for fiscal 1996, 1995 and
1994 differ from amounts which would result from applying the federal statutory
tax rate to pretax income (loss), as follows:
1996 1995 1994
------ ------ -----
(In Millions)
Income (loss) before income
taxes ................................... $ 276 $ 494 $(660)
Items not deductible for tax
purposes:
Meals and entertainment .................... 36 41 16
Amortization ............................... 9 9 9
Other, net ................................. (8) 3 -
----- ----- -----
Adjusted pretax income (loss) .............. 313 547 (635)
Federal statutory tax rate ................. 35% 35% 35%
----- ----- -----
Income tax (provision) credit at
statutory rate .......................... (110) (191) 222
State and other income taxes,
net of federal income tax
(provision) credit ...................... (10) (9) 15
Benefit due to increase in
corporate statutory tax rate............. - - 13
Amortization of investment
tax credits ............................. - - 1
----- ----- -----
Income taxes (provided) credited ........... $(120) $(200) $ 251
===== ===== =====
17. RESTRUCTURING AND OTHER NON-RECURRING CHARGES:
During fiscal years 1994 and 1996, the Company recorded pretax
restructuring and other non-recurring charges of $526 million and $829 million,
respectively. The $526 million pretax restructuring charge recorded in fiscal
1994 included a $112 million charge primarily for special termination benefits
relating to an early retirement program under which approximately 1,500
employees elected to retire effective November 1, 1993 and a $438 million
charge for the Company's Leadership 7.5 cost reduction program, partially
offset by a $24 million reversal related to the fleet simplification charge
recorded in fiscal 1993.
The $438 million charge for the Leadership 7.5 program included $280
million for workforce reductions of approximately 8,700 employees expected to
occur during fiscal 1995. During fiscal 1995 and 1996, the Company reduced its
staffing by approximately 9,200 and 1,200 personnel, respectively. Cash
payments in fiscal 1995 and 1996 for workforce reductions totaled approximately
$30 million and
47
DELTA AIR LINES, INC.
35
$9 million, respectively, primarily for severance payments, with an additional
$5 million expected to be paid during fiscal 1997. Payments associated with
the curtailment loss and special termination benefits will be expended as
required for funding appropriate pension and other postretirement plans in
future years.
Fiscal 1996 and 1994 pretax restructuring and other non-recurring charges are
summarized in the table below:
Charges (Credits)
1996 1994 Total
---- ---- -------
Fleet Simplification.................... $ - $(24) $ (24)
Early Retirement Program................ - 112 112
Leadership 7.5.......................... 104 438 542
Pilot Special Early Retirement
Program............................... 273 - 273
Lockheed L-1011 fleet early
retirement............................ 452 - 452
---- ---- ------
Totals................................. $829 $526 $1,355
==== ==== ======
The $438 million charge for the Leadership 7.5 program also included $158
million for cash and noncash costs associated with reductions in inventory
levels, the suspension of service in certain transatlantic markets and lease
termination costs for facilities to be abandoned. Through fiscal 1996, the
Company incurred cash costs of approximately $57 million for these initiatives
and expects to incur additional cash costs of $16 million related to this
program in future years. During fiscal 1996, approximately $8 million of the
fiscal 1994 restructuring charge was reversed due to changes in estimates
associated with lease terminations and abandoned facilities. The remaining $77
million represents noncash costs.
The $829 million pretax charge for restructuring and other non-recurring
charges recorded in fiscal 1996 includes a $452 million write-down of Delta's
Lockheed L-1011 fleet and related assets. In connection with its decision to
accelerate the replacement of its 55 L-1011 aircraft fleet, the Company
performed an evaluation to determine, in accordance with SFAS 121 (see Note 1),
whether future cash flows (undiscounted and without interest charges) expected
to result from the use and the eventual disposition of the L-1011 fleet will be
less than the aggregate carrying amount of the L-1011 aircraft and related
assets. As a result of the evaluation, management determined that the
estimated future cash flows expected to be generated by L-1011 assets will be
less than their carrying amount, and therefore, the L-1011 assets are impaired
as defined by SFAS 121. Consequently, the original cost basis of the L-1011
fleet was reduced to reflect the fair market value at the time of the
evaluation, resulting in a $452 million non-recurring charge. In determining
the fair market value of L-1011 assets, the Company considered recent
transactions involving sales of L-1011 aircraft and market trends in aircraft
dispositions.
The $829 million pretax charge for restructuring and other non-recurring
charges also included $273 million related to the special early retirement
program for approximately 500 pilots expected to retire during fiscal 1997.
Actual timing of the retirements is dependent upon the Company's operational
needs. Payments associated with the curtailment loss and special termination
benefits will be expended as required for funding appropriate pension and other
postretirement plans in future years.
Also included in the fiscal 1996 charge is $65 million (net of reversals
of $36 million related to the Company's $526 million restructuring charge
recorded in fiscal 1994) for previously announced non-pilot workforce
reductions, including pension plan curtailment losses and special termination
benefits of $62 million, post-retirement medical plan curtailment gains and
special termination benefits of $16 million (for approximately 525 employees)
and severance payments and related costs of $23 million.
The remaining $39 million of the $829 million charge for fiscal 1996
represents cash and noncash costs related to lease terminations and other costs
associated with discontinued routes and abandoned facilities. The charge
includes (net of reversals of $8 million related to the Company's $526 million
restructuring charge recorded in fiscal 1994) $37 million for lease termination
costs for abandoned facilities and $10 million noncash costs related to routes
discontinued as a result of the restructuring. Actual cash costs associated
with lease terminations and abandoned facilities are expected to be
approximately $4 million in fiscal 1997.
48
DELTA AIR LINES, INC.
36
Actual costs incurred for certain amounts accrued, realization on the
sales of excess inventories and costs associated with lease terminations and
abandoned facilities may vary from current estimates. The appropriate accrued
liability will be adjusted upon completion of these activities.
18. FOREIGN OPERATIONS:
Delta conducts operations in various foreign countries, principally in
North America, Europe, the Middle East and Asia. Operating revenues from
foreign operations were approximately $2.7 billion in fiscal 1996, $2.6 billion
in fiscal 1995 and $2.5 billion in fiscal 1994.
19. QUARTERLY FINANCIAL DATA (UNAUDITED):
Operating expenses for the March 1996 quarter include $556 million pretax
restructuring and other non-recurring charges related to the write-down of the
Company's Lockheed L-1011 fleet and related assets and the continuation of the
Company's Leadership 7.5 cost reduction program. Operating expenses for the
June 1996 quarter include a $273 million pretax restructuring charge for costs
associated with a special early retirement program under which approximately
500 pilots are expected to retire during fiscal 1997. (See Note 17.)
The following is a summary of the unaudited quarterly results of operations for
fiscal 1996 and 1995 (in millions, except per share data):
Three Months Ended
---------------------------------------------
Sept. 30 Dec. 31 Mar. 31 June 30
-------- ------- ------- -------
Fiscal 1996
Operating revenues ............................................... $3,188 $2,944 $2,964 $3,359
====== ====== ====== ======
Operating income (loss) .......................................... $ 386 $ 169 $ (387) $ 295
====== ====== ====== ======
Net income (loss) ................................................ $ 201 $ 70 $ (276) $ 161
====== ====== ====== ======
Primary income (loss) per common share ........................... $ 3.47 $ 0.93 $(5.77) $ 2.69
====== ====== ====== ======
Fully diluted income (loss) per common share ..................... $ 2.57 $ 0.93 $(5.77) $ 2.08
====== ====== ====== ======
Fiscal 1995
Operating revenues ............................................... $3,157 $2,919 $2,902 $3,216
====== ====== ====== ======
Operating income ................................................. $ 154 $ 18 $ 40 $ 449
====== ====== ====== ======
Income (loss) before cumulative effect of accounting changes ..... $ 72 $ (18) (11) 251
Cumulative effect of accounting changes, net of tax .............. 114 - $ - $ -
------ ------ ------ ------
Net income (loss) ................................................ $ 186 $ (18) $ (11) $ 251
====== ====== ====== ======
Primary income (loss) per common share:
Before cumulative effect of accounting changes ............. $ 1.00 $(0.79) $(0.66) $ 4.49
Cumulative effect of accounting changes .......................... 2.25 - - -
------ ------ ------ ------
$ 3.25 $(0.79) $(0.66) $ 4.49
====== ====== ====== ======
Fully diluted income (loss) per common share:
Before cumulative effect of accounting changes ............. $ 0.99 $(0.79) $(0.66) $ 3.21
Cumulative effect of accounting changes .......................... 1.43 - - -
------ ------ ------ ------
$ 2.42 $(0.79) $(0.66) $ 3.21
====== ====== ====== ======
49
DELTA AIR LINES, INC.
37
CONSOLIDATED SUMMARY of operations
(In Millions, Except Per Share Data)
For the years ended June 30
1996(1) 1995(2) 1994(3) 1993(4) 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Operating revenues $ 12,455 $ 12,194 $ 12,077 $ 11,657 $ 10,837 $ 9,171
Operating expenses 11,992 11,533 12,524 12,232 11,512 9,621
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) 463 661 (447) (575) (675) (450)
Interest expense, net (243) (262) (271) (177) (151) (97)
Gain (loss) on disposition of flight equipment 2 - 2 65 35 17
Miscellaneous income, net (5) 54 95 56 36 5 30
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 276 494 (660) (651) (786) (500)
Income taxes (provided) credited (120) (200) 250 233 271 163
Amortization of investment tax credits - - 1 3 9 13
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) 156 294 (409) (415) (506) (324)
Preferred stock dividends (82) (88) (110) (110) (19) (19)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) attributable to common
stockholders $ 74 $ 206 $ (519) $ (525) $ (525) $ (343)
=========== =========== =========== =========== =========== ===========
Net income (loss) per common share:
Primary $ 1.42 $ 4.07 $ (10.32) $ (10.54) $ (10.60) $ (7.73)
=========== =========== =========== =========== =========== ===========
Fully diluted $ 1.42 $ 4.01 $ (10.32) $ (10.54) $ (10.60) $ (7.73)
=========== =========== =========== =========== =========== ===========
Dividends declared on common stock $ 10 $ 10 $ 10 $ 35 $ 59 $ 54
Dividends declared per common share $ 0.20 $ 0.20 $ 0.20 $ 0.70 $ 1.20 $ 1.20
OTHER FINANCIAL and statistical data
(Dollars In Millions, Except Share Data)
For the years ended June 30
1996(1) 1995(2) 1994(3) 1993(4) 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 12,226 $ 12,143 $ 11,896 $ 11,871 $ 10,162 $ 8,411
Long-term debt and capital leases (excluding $ 2,175 $ 3,121 $ 3,228 $ 3,716 $ 2,833 $ 2,059
current maturities)
Stockholders' equity $ 2,540 $ 1,827 $ 1,467 $ 1,913 $ 1,894 $ 2,457
Shares of common stock outstanding at year end 67,778,106 50,816,010 50,453,272 50,063,841 49,699,098 49,401,779
Revenue passengers enplaned (thousands) 91,341 88,893 87,399 85,085 77,038 69,127
Available seat miles (millions) 130,751 130,645 131,906 132,282 123,102 104,328
Revenue passenger miles (millions) 88,673 86,417 85,268 82,406 72,693 62,086
Operating revenue per available seat mile 9.53c. 9.33c. 9.16c. 8.81c. 8.80c. 8.79c.
Passenger mile yield 13.10c. 13.10c. 13.23c. 13.23c. 13.91c. 13.80c.
Operating cost per available seat mile 9.17c. 8.83c. 9.49c. 9.25c. 9.35c. 9.22c.
Passenger load factor 67.82% 66.15% 64.64% 62.30% 59.05% 59.51%
Breakeven passenger load factor 65.12% 62.28% 67.21% 65.58% 62.99% 62.64%
Available ton miles (millions) 18,084 18,150 18,302 18,182 16,625 13,825
Revenue ton miles (millions) 10,235 10,142 9,911 9,503 8,361 7,104
Operating cost per available ton mile 66.31c. 63.55c. 68.43c. 67.27c. 69.24c. 69.59c.
CONSOLIDATED SUMMARY of operations
(In Millions, Except Per Share Data)
For the years ended June 30
1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------
Operating revenues $ 8,583 $ 8,089 $ 6,915 $ 5,318 $ 4,460
Operating expenses 8,163 7,411 6,418 4,913 4,426
----------- ----------- ----------- ----------- -----------
Operating income (loss) 420 678 497 405 34
Interest expense, net (27) (39) (65) (62) (55)
Gain (loss) on disposition of flight equipment 18 17 (1) 96 16
Miscellaneous income, net (5) 57 55 25 8 8
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 468 711 456 447 3
Income taxes (provided) credited (187) (279) (181) (219) 2
Amortization of investment tax credits 22 29 32 36 42
----------- ----------- ----------- ----------- -----------
Net income (loss) 303 461 307 264 47
Preferred stock dividends (18) - - - -
----------- ----------- ----------- ----------- -----------
Net income (loss) attributable to common
stockholders $ 285 $ 461 $ 307 $ 264 $ $47
=========== =========== =========== =========== ===========
Net income (loss) per common share:
Primary $ 5.79 $ 9.37 $ $6.30 $ 5.90 $ 1.18
=========== =========== =========== =========== ===========
Fully diluted $ 5.28 $ 9.37 $ $6.30 $ 5.90 $ 1.18
=========== =========== =========== =========== ===========
Dividends declared on common stock $ 85 $ 59 $ 59 $ 44 $ 40
Dividends declared per common share $ 1.70 $ 1.20 $ $1.20 $ 1.00 $ 1.00
OTHER FINANCIAL and statistical data
(Dollars In Millions, Except Share Data)
For the years ended June 30
1990 1989 1988 1987 1986
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 7,227 $ 6,484 $ 5,748 $ 5,342 $ 3,785
Long-term debt and capital leases (excluding $ 1,315 $ 703 $ 729 $ 1,018 $ 869
current maturities)
Stockholders' equity $ 2,596 $ 2,620 $ 2,209 $ 1,938 $ 1,302
Shares of common stock outstanding at year end 46,086,110 49,265,884 49,101,271 48,639,469 40,116,383
Revenue passengers enplaned (thousands) 67,240 64,242 58,565 48,173 39,582
Available seat miles (millions) 96,463 90,742 85,834 69,014 53,336
Revenue passenger miles (millions) 58,987 55,904 49,009 38,415 30,123
Operating revenue per available seat mile 8.90c. 8.91c. 8.06c. 7.71c. 8.36c.
Passenger mile yield 13.63c. 13.56c. 13.15c. 12.81c. 13.72c.
Operating cost per available seat mile 8.46c. 8.17c. 7.48c. 7.12c. 8.30c.
Passenger load factor 61.15% 61.61% 57.10% 55.66% 56.48%
Breakeven passenger load factor 57.96% 56.09% 52.69% 51.09% 56.01%
Available ton miles (millions) 12,500 11,725 11,250 9,000 6,934
Revenue ton miles (millions) 6,694 6,338 5,557 4,327 3,372
Operating cost per available ton mile 65.30c. 63.21c. 57.05c. 54.60c. 63.82c.
1 Summary of operations and other financial and statistical data include $829
million in pretax restructuring
and other non-recurring charges ($9.71 per common share).
2 Summary of operations excludes $114 million after-tax cumulative effect
of change in accounting standards ($2.25 primary and
$1.42 fully diluted earnings per common share).
3 Summary of operations and other financial and statistical data
include $526 million in pretax restructuring charges
($6.59 after-tax per common share).
4 Summary of operations and other financial and statistical data
include $82 million pretax restructuring charge ($1.05 after-tax
per common share). Summary of operations excludes $587 million
after-tax cumulative effect of changes in accounting standards
($11.78 after-tax per common share).
5 Includes interest income.
50 51
DELTA AIR LINES, INC.
38
COMMON STOCK
Listed on the New York Stock Exchange under the ticker symbol DAL.
NUMBER OF STOCKHOLDERS
As of August 16, 1996, there were 24,157 registered
holders of Common Stock.
MARKET PRICES AND DIVIDENDS
Market Closing Price Range Cash
of Common Stock on Dividends Per
Fiscal Year 1996 New York Stock Exchange Common Share
- ----------------------------------------------------------------
Quarter Ended: High Low
September 30.............$80 1/2 $66 1/4 $0.05
December 31...............79 5/8 64 0.05
March 31..................82 67 3/8 0.05
June 30...................86 77 1/4 0.05
Fiscal Year 1995
- ----------------------------------------------------------------
Quarter Ended: High Low
September 30.............$49 3/4 $43 1/2 $0.05
December 31...............52 1/2 43 1/8 0.05
March 31..................64 51 0.05
June 30...................75 58 3/4 0.05
52 DELTA AIR LINES, INC.