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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5424
DELTA AIR LINES, INC.
State of Incorporation: Delaware
IRS Employer Identification No.: 58-0218548
Hartsfield Atlanta International Airport, Atlanta, Georgia 30320
Telephone: (404) 715-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
Number of shares outstanding by each class of common stock,
as of October 31, 1997:
Common Stock, $3.00 par value - 74,007,056 shares outstanding
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DELTA AIR LINES, INC.
Consolidated Balance Sheets
(In Millions)
September 30 June 30
ASSETS 1997 1997
- --------------------------------------------------------------------------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,151 $ 662
Short-term investments 504 508
Accounts receivable, net of
allowance for uncollectible accounts
of $49 at September 30, 1997
and $48 at June 30, 1997 1,029 943
Maintenance and operating supplies,
at average cost 85 93
Deferred income taxes 437 413
Prepaid expenses and other 283 248
------- -------
Total current assets 3,489 2,867
------- -------
PROPERTY AND EQUIPMENT:
Flight equipment 10,037 9,619
Less: Accumulated depreciation 3,606 3,510
------- -------
6,431 6,109
------- -------
Flight equipment under capital leases 515 523
Less: Accumulated amortization 180 176
------- -------
335 347
------- -------
Ground property and equipment 3,085 3,032
Less: Accumulated depreciation 1,821 1,758
------- -------
1,264 1,274
------- -------
Advance payments for equipment 277 312
------- -------
Total property and equipment 8,307 8,042
------- -------
OTHER ASSETS:
Marketable equity securities 401 432
Deferred income taxes 20 103
Investments in associated companies 328 317
Cost in excess of net assets acquired, net 254 257
Leasehold and operating rights, net 132 134
Other 604 589
------- -------
Total other assets 1,739 1,832
------- -------
Total assets $13,535 $12,741
======= =======
The accompanying notes are an integral part of these consolidated balance
sheets.
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DELTA AIR LINES, INC.
Consolidated Balance Sheets
(In Millions)
September 30 June 30
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
- --------------------------------------------------------------------------------
(Unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 227 $ 236
Current obligations under capital leases 59 62
Accounts payable and miscellaneous
accrued liabilities 2,307 1,691
Air traffic liability 1,437 1,418
Accrued salaries and vacation pay 376 463
Accrued rent 195 213
-------- --------
Total current liabilities 4,601 4,083
-------- --------
NONCURRENT LIABILITIES:
Long-term debt 1,473 1,475
Postretirement benefits 1,851 1,839
Accrued rent 605 602
Capital leases 306 322
Other 454 406
-------- --------
Total noncurrent liabilities 4,689 4,644
-------- --------
DEFERRED CREDITS:
Deferred gain on sale and leaseback
transactions 733 746
Manufacturers' and other credits 103 105
-------- --------
836 851
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
EMPLOYEE STOCK OWNERSHIP PLAN
PREFERRED STOCK:
Series B ESOP Convertible Preferred Stock 478 480
Unearned compensation under
employee stock ownership plan (309) (324)
-------- --------
169 156
-------- --------
SHAREHOLDERS' EQUITY:
Common Stock at par 251 251
Additional paid-in capital 2,648 2,645
Net unrealized gain on noncurrent
marketable equity securities 84 101
Retained earnings 958 711
Treasury stock at cost (701) (701)
-------- --------
Total shareholders' equity 3,240 3,007
-------- --------
Total liabilities and shareholders' equity $ 13,535 $ 12,741
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
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DELTA AIR LINES, INC.
Consolidated Statements of Operations
(Unaudited)
(In Millions, except Share Data)
Three Months Ended
September 30
------------------------------
1997 1996
------------- ------------
OPERATING REVENUES:
Passenger $ 3,260 $ 3,170
Cargo 142 124
Other, net 150 138
------------ ------------
Total operating revenues 3,552 3,432
------------ ------------
OPERATING EXPENSES:
Salaries and related costs 1,178 1,092
Aircraft fuel 409 416
Passenger commissions 266 278
Contracted services 206 199
Depreciation and amortization 198 166
Other selling expenses 164 179
Aircraft rent 137 137
Aircraft maintenance materials
and outside repairs 124 108
Passenger service 111 105
Facilities and other rent 103 99
Landing fees 64 64
Other 161 151
------------ ------------
Total operating expenses 3,121 2,994
------------ ------------
OPERATING INCOME 431 438
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (50) (54)
Interest capitalized 9 8
Interest income 17 19
Miscellaneous income
(expense), net 11 (13)
------------ ------------
(13) (40)
------------ ------------
INCOME BEFORE INCOME TAXES 418 398
INCOME TAXES PROVIDED (164) (160)
------------ ------------
NET INCOME 254 238
PREFERRED STOCK DIVIDENDS (2) (2)
------------ ------------
NET INCOME AVAILABLE
TO COMMON SHAREHOLDERS $ 252 $ 236
============ ============
PRIMARY INCOME PER COMMON SHARE $ 3.34 $ 3.09
============ ============
FULLY DILUTED INCOME PER
COMMON SHARE $ 3.26 $ 2.98
============ ============
WEIGHTED AVERAGE SHARES USED IN
PER SHARE COMPUTATION:
Primary 75,160,664 76,490,970
Fully Diluted 77,454,150 79,533,689
DIVIDENDS PER COMMON SHARE $ 0.05 $ 0.05
============ ============
The accompanying notes are an integral part of these consolidated statements.
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DELTA AIR LINES, INC.
Statistical Summary
(Unaudited)
Three Months Ended
September 30
-----------------------------
Statistical Summary: 1997 1996
------------ ------------
Revenue Passengers Enplaned (thousands) 26,506 25,260
Revenue Passenger Miles (millions) 26,585 25,395
Available Seat Miles (millions) 35,683 34,386
Passenger Mile Yield 12.26(cent) 12.49(cent)
Operating Revenue Per Available Seat Mile 9.95(cent) 9.98(cent)
Operating Cost Per Available Seat Mile 8.75(cent) 8.71(cent)
Passenger Load Factor 74.50% 73.85%
Breakeven Passenger Load Factor 64.66% 63.65%
Revenue Ton Miles (millions) 3,073 2,873
Cargo Ton Miles (millions) 415 333
Cargo Ton Mile Yield 34.29(cent) 37.18(cent)
Fuel Gallons Consumed (millions) 682 658
Average Price Per Fuel Gallon 59.93(cent) 63.21(cent)
Number of Aircraft in Fleet at End of Period 558 538
Full-Time Equivalent Employees at End of Period 63,708 60,888
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DELTA AIR LINES, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In Millions)
Three Months Ended
September 30
------------------------
1997 1996
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 254 $ 238
Adjustments to reconcile net income to cash
provided by operating activities, net 273 254
Changes in certain assets and liabilities, net 451 (58)
------- -------
Net cash provided by operating activities 978 434
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (405) (295)
Ground property and equipment (62) (65)
Decrease in short-term investments, net 9 3
------- -------
Net cash used in investing activities (458) (357)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 3 1
Repurchase of common stock -- (234)
Payments on long-term debt and
capital lease obligations (30) (103)
Cash dividends (4) (4)
------- -------
Net cash used in financing activities (31) (340)
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 489 (263)
Cash and cash equivalents at beginning of period 662 1,145
------- -------
Cash and cash equivalents at end of period $ 1,151 $ 882
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 56 $ 65
Income taxes $ 19 $ 45
The accompanying notes are an integral part of these condensed consolidated
statements.
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DELTA AIR LINES, INC.
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
1. ACCOUNTING AND REPORTING POLICIES:
The Company's accounting and reporting policies are summarized in Note
1 (page 33) of the Notes to Consolidated Financial Statements in
Delta's 1997 Annual Report to Shareholders. These interim financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's 1997 Annual Report to
Shareholders. In the opinion of management, the accompanying unaudited
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary for a fair statement of results for the
interim periods.
2. LONG-TERM DEBT:
The 1997 Bank Credit Agreement provides for unsecured borrowings by the
Company of up to $1.25 billion on a revolving basis until May 1, 2002.
Up to $700 million of this facility may be used for the issuance of
letters of credit. The interest rate under this facility is, at the
Company's option, the LIBOR 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 1997 Bank Credit Agreement contains certain negative
covenants that restrict the Company's ability to grant liens, incur or
guarantee debt and enter into flight equipment leases. It also provides
that if there is a change of control (as defined) of the Company, the
banks' obligation to extend credit terminates, any amounts outstanding
become immediately due and payable and the Company will immediately
deposit cash collateral with the banks in an amount equal to all
outstanding letters of credit. At September 30, 1997, no borrowings or
letters of credit were outstanding under the 1997 Bank Credit
Agreement.
The Company's credit agreement with ABN AMRO Bank, N.V. and a group of
banks (Letter of Credit Facility) provides for the issuance of letters
of credit for up to $500 million in stated amount to credit enhance the
Delta Family-Care Savings Plan's Series C Guaranteed Serial ESOP Notes
(Series C ESOP Notes), which are guaranteed by Delta. At September 30,
1997, the face amount of the letter of credit under the Letter of
Credit Facility was $450 million, which covers the $290 million
outstanding principal amount of the Series C ESOP Notes, up to $128
million of Make Whole Premium Amount and approximately one year of
interest on the Series C ESOP Notes. For additional information
regarding the Letter of Credit Facility and Delta's long-term debt,
including the Series C ESOP Notes, see Note 7 (page 38) of the Notes to
Consolidated Financial Statements in Delta's 1997 Annual Report to
Shareholders.
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3. AIRCRAFT PURCHASE COMMITMENTS:
At October 31, 1997, the Company's aircraft fleet, purchase
commitments, options (which have scheduled delivery slots), and rolling
options (which replace options and are assigned delivery slots as
options expire or are exercised) were:
CURRENT FLEET
-----------------------------
ROLLING
AIRCRAFT TYPE OWNED LEASED TOTAL ORDERS OPTIONS OPTIONS
------------- ----- ------ ----- ------ ------- -------
B-727-200 118 13 131 -- -- --
B-737-200 1 53 54 -- -- --
B-737-300 -- 13 13 -- -- --
B-737-600/700/800 -- -- -- 70 60 280
B-757-200 50 41 91 9 20 90
B-767-200 15 -- 15 -- -- --
B-767-300 2 24 26 2 -- --
B-767-300ER 25 7 32 15 10 19
B-767-400 -- -- -- 21 24 25
B-777-200 -- -- -- -- 10 --
L-1011-1 24 -- 24 -- -- --
L-1011-250 6 -- 6 -- -- --
L-1011-500 17 -- 17 -- -- --
MD-11 7 7 14 1 -- --
MD-88 63 57 120 -- -- --
MD-90 16 -- 16 -- -- --
--- --- --- --- --- ---
344 215 559 118 124 414
=== === === === === ===
During the September 1997 quarter, Delta took delivery of three new B-767-300ER
aircraft and one used B-767-300ER aircraft; purchased one B-727-200 aircraft
which it had been operating under lease; purchased two additional used B-727-200
aircraft; and retired one L-1011-200 aircraft. The Company also exercised
options to purchase five shipsets of Stage 3 heavyweight hushkits for B-737-200
aircraft and four shipsets of Stage 3 heavyweight hushkits for B-727-200
aircraft.
Subsequent to September 30, 1997, Delta took delivery of one new B-767-300ER
aircraft. Also subsequent to September 30, 1997, Delta and Federal Express
Corporation entered into an agreement which provides Delta with options to
purchase 36 shipsets of Stage 3 heavyweight hushkits and seven spare engine
hushkits for B-727-200 aircraft by the end of calendar year 1999.
On October 21, 1997, Delta and The Boeing Company (Boeing) entered into
definitive aircraft purchase agreements under which Delta placed orders to
purchase, and obtained options and rolling options to purchase, certain
aircraft. All orders in the above table are the result of the new Boeing
agreements except for preexisting orders for four B-757-200, two B-767-300, five
B-767-300ER and one MD-11 aircraft. All orders for MD-90 aircraft were canceled.
All options and rolling options reflected in the above table are the result of
the new Boeing agreements. These agreements provide that, subject to certain
conditions, Delta may switch orders among these aircraft types and defer the
delivery of aircraft. The agreements also provide that Boeing will be the sole
supplier of new aircraft to Delta for 20
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years, subject to certain exceptions, but that this provision is not
enforceable by Boeing until the European Commission permits such
enforcement. Delta is continuing negotiations with the manufacturers of
the engines for the aircraft covered by these agreements.
Future expenditures for aircraft, engines and engine hushkits on firm
order at October 31, 1997 are estimated to be $5.4 billion, as follows:
AMOUNT
YEARS ENDING JUNE 30 (IN MILLIONS)
-------------------- -------------
Remainder of fiscal year 1998 $ 670
1999 970
2000 260
2001 1,300
2002 300
After 2002 1,870
------
Total $5,370
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4. CONTINGENCIES:
Delta is a defendant in certain legal actions relating to alleged
employment discrimination practices, antitrust matters, environmental
issues and other matters concerning Delta's business. Although the
ultimate outcome of these matters cannot be predicted with certainty,
management presently believes that the resolution of these actions is
not likely to have a material adverse effect on Delta's consolidated
financial condition or results of operations.
5. SHAREHOLDERS' EQUITY:
During the September 1997 quarter, the Company issued a total of 50,234
common shares, at an average price of $66.07 per share, under the 1989
Stock Incentive Plan, the Dividend Reinvestment and Stock Purchase Plan
and the Non-Employee Directors' Stock Plan.
At September 30, 1997, 24,700,000 common shares were reserved for
issuance under the Company's broad-based employee stock option plans;
4,329,357 common shares were reserved for issuance under the 1989 Stock
Incentive Plan; 5,703,269 common shares were reserved for conversion of
the Series B ESOP Convertible Preferred Stock; and 248,892 common shares
were reserved for issuance under the Non-Employee Directors' Stock Plan.
6. INCOME TAXES:
Income taxes are provided at the estimated annual effective tax rate,
which differs from the federal statutory rate of 35% primarily due to
state income taxes and the effect of certain expenses that are not
deductible for income tax purposes. Deferred income taxes reflect the
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net effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes.
7. RESTRUCTURING AND OTHER NON-RECURRING CHARGES:
During fiscal years 1997 and 1996, Delta recorded pre-tax restructuring
and other non-recurring charges of $52 million and $829 million,
respectively (see Note 16 on page 46 of the Notes to Consolidated
Financial Statements in Delta's 1997 Annual Report to Shareholders). The
following table reflects the activity in the restructuring accruals
during the three months ended September 30, 1997. All reductions in
reserves represent payments of liabilities.
Balance at Balance at
June 30, 1997 Reductions September 30, 1997
------------- ---------- ------------------
(Amounts in Millions)
Leadership 7.5
Workforce Reductions $ 4 $- $ 4
Abandoned Facilities 38 1 37
Transatlantic and
European Realignment
Workforce Reductions 39 12 27
Abandoned Facilities 2 - 2
Other 5 1 4
--- --- ---
Totals $88 $14 $74
=== === ===
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Cash and cash equivalents and short-term investments totaled $1.65 billion at
September 30, 1997, compared to $1.17 billion at June 30, 1997. During the three
months ended September 30, 1997, the principal source of funds was $978 million
of cash from operations, which included $310 million received from the Company's
frequent flyer partners for the prepayment of mileage credits. During the three
months ended September 30, 1997, Delta invested $405 million in flight equipment
and $62 million in ground property and equipment; made payments of $30 million
on long-term debt and capital lease obligations; and paid $4 million in cash
dividends. The Company may repurchase its long-term debt and Common Stock from
time to time. For additional information regarding Delta's Common Stock
repurchase authorization, see Note 15, (page 46), of the Notes to Consolidated
Financial Statements in Delta's 1997 Annual Report to Shareholders.
As of September 30, 1997, the Company had negative working capital of $1.11
billion, compared to negative working capital of $1.22 billion at June 30, 1997.
A negative working capital position is normal for Delta and does not indicate a
lack of liquidity. The Company expects to meet its current obligations as they
become due through available cash, short-term investments and internally
generated funds, supplemented as necessary by debt financing and proceeds from
sale and leaseback transactions.
At September 30, 1997, long-term debt and capital lease obligations, including
current maturities, totaled $2.07 billion, compared to $2.10 billion at June 30,
1997. Shareholders' equity was $3.24 billion at September 30, 1997 and $3.01
billion at June 30, 1997. The Company's debt-to-equity position, including
current maturities, was 39% debt and 61% equity at September 30, 1997, compared
to 41% debt and 59% equity at June 30, 1997.
At September 30, 1997, 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 $450 million under Delta's Credit Agreement with ABN
AMRO Bank and a group of banks (Letter of Credit Facility). Delta is required to
purchase the Series C ESOP Notes in certain circumstances. For additional
information regarding the Series C ESOP Notes and the Letter of Credit Facility,
see Note 7 (page 38) of the Notes to Consolidated Financial Statements in
Delta's 1997 Annual Report to Shareholders.
At September 30, 1997, the Company had $1.25 billion of credit available on a
revolving basis under its 1997 Bank Credit Agreement. Up to $700 million of this
facility may be used for the issuance of letters of credit. At October 31, 1997,
no borrowings or letters of credit were outstanding under the 1997 Bank Credit
Agreement. See Note 2 of the Notes to Consolidated Financial Statements in this
Form 10-Q for additional information regarding the 1997 Bank Credit Agreement.
During September 1997, Standard & Poors upgraded the credit rating of Delta's
long-term senior unsecured debt from BB+ to BBB-. Moody's Investor Service's
rating of Delta's long-term senior unsecured debt is Baa3.
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On September 23, 1997, Delta introduced a new travel agency commission rate
structure for tickets issued by travel agents in the U.S. and Canada. Tickets
purchased in the United States for domestic travel will earn an eight percent
base commission rate with a maximum payment of $50 for each round-trip and $25
for each one-way flight. Tickets purchased in Canada for flights between Canada
and the U.S. will earn an eight percent base commission rate with a maximum
payment of $70 Canadian for round-trips and $35 Canadian for one-way flights.
Tickets purchased in the U.S. and Canada to international destinations will earn
an eight percent base with no maximum payment amount. Management estimates these
changes in the travel agency commission rate structure will reduce Delta's
operating expenses by approximately $90 million to $100 million a year. This
estimate is a forward-looking statement that involves a number of risks and
uncertainties that could cause the actual results to differ materially from the
projected results. See "Forward-Looking Information" on page 17 of this Form
10-Q.
At its meeting on October 23, 1997, Delta's Board of Directors declared a cash
dividend of five cents per common share, payable December 1, 1997, to
shareholders of record at the close of business on November 12, 1997.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1996
For the quarter ended September 30, 1997, Delta recorded unaudited operating
income of $431 million and net income of $254 million. For the quarter ended
September 30, 1996, the Company recorded operating income of $438 million and
net income of $238 million.
Operating revenues in the September 1997 quarter totaled $3.55 billion, an
increase of 3% from $3.43 billion in the September 1996 quarter. Passenger
revenue increased 3% to $3.26 billion, reflecting a 5% increase in revenue
passenger miles, partially offset by a 2% decline in the passenger mile yield.
The increase in revenue passenger miles is mainly attributed to a 4% increase in
capacity, favorable economic conditions and improved asset utilization. The
decrease in the passenger mile yield reflects the positive impact of the 1996
Centennial Olympic Games and the temporary expiration of the U.S. transportation
excise tax on the Company's passenger mile yield in the September 1996 quarter;
and the continued presence of low-cost, low-fare carriers in domestic markets
served by Delta.
Cargo revenue increased 15% to $142 million. Cargo ton miles increased 25%,
while cargo ton mile yield declined 8%, largely due to the Company's utilization
of more competitive pricing strategies and an increase in the average stage
length related to freight shipments. All other revenue, net, increased 9% to
$150 million, largely due to an increase in administrative service charge
revenue driven in part by higher system traffic.
Operating expenses for the September 1997 quarter totaled $3.12 billion, an
increase of 4% from the September 1996 quarter, and operating capacity increased
4% to 35.68 billion available seat miles. Salaries and related costs increased
8% primarily due to a 5% increase in full-time equivalent employees and
previously announced compensation and benefit enhancements for non-
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contract domestic employees, which became effective July 1, 1997. Aircraft fuel
expense decreased 2% as the average fuel price per gallon declined 5% to 59.93
cents, partially offset by a 4% increase in fuel gallons consumed. Passenger
commissions decreased 4% reflecting lower expenses for certain travel agent
incentive programs. Contracted services increased 4%, primarily the result of
higher costs associated with certain outsourced airport functions and higher
cargo handling costs related to increased volume. Depreciation and amortization
expense rose 19% due to the acquisition of 30 additional aircraft, including the
purchase of 10 B-727-200 aircraft which the Company had previously been
operating under operating leases, the acquisition of additional ground
equipment, and the amortization of software development costs. Other selling
expenses decreased 8% primarily the result of higher advertising expense
incurred in September 1996 quarter related to the 1996 Centennial Olympic games,
partially offset by increased credit card transaction fees. Aircraft maintenance
materials and outside repairs increased 15% due to the timing of scheduled
maintenance visits and other costs associated with the maturation of the fleet.
Passenger service expense rose 6% due to increased passenger traffic and
enhanced transatlantic business class service. Other operating expenses
increased 7% primarily due to increased usage of miscellaneous supplies and
higher consulting fees.
Nonoperating expense in the September 1997 quarter totaled $13 million, compared
to $40 million in the September 1996 quarter. The decrease is largely due to the
inclusion in the September 1996 quarter of a $20 million payment to settle
certain class action antitrust lawsuits and losses related to the voluntary
repurchase and retirement of long-term debt.
Pretax income of $418 million for the September 1997 quarter resulted in an
income tax provision of $164 million. After a $2 million provision for preferred
stock dividends, net income available to common shareholders was $252 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding the Company's exposure to certain market risks, see
"Market Risks Associated With Financial Instruments" (page 25) in Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
Note 4 (page 36) of the Notes to Consolidated Financial Statements contained in
Delta's 1997 Annual Report to Shareholders.
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ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Delta Air Lines, Inc.:
We have reviewed the accompanying consolidated balance sheet of DELTA AIR LINES,
INC. (a Delaware Corporation) AND SUBSIDIARIES as of September 30, 1997 and the
related consolidated statements of operations and consolidated condensed
statements of cash flows for the three-month periods ended September 30, 1997
and 1996. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
October 31, 1997
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported on page 11 of Delta's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997, ValuJet Airlines, Inc. (ValuJet) filed a lawsuit against
Delta alleging, among other things, that Delta violated the antitrust laws by
leasing certain takeoff/landing slots at New York's La Guardia Airport. On
November 3, 1997, Delta and ValuJet entered into an agreement to settle this
lawsuit.
ITEM 2. CHANGES IN SECURITIES
Under the Delta Air Lines, Inc. Directors' Deferred Compensation Plan (Plan),
members of the Company's Board of Directors may defer for a specified period all
or any part of their cash compensation earned as a director. A participating
director may choose an investment return on the deferred amount from among the
17 investment return choices available under the Delta Family-Care Savings Plan,
a qualified defined contribution pension plan for eligible Delta personnel. One
of the investment return choices under the Delta Family-Care Savings Plan is a
fund invested primarily in Delta's Common Stock (Delta Common Stock Fund).
During the quarter ended September 30, 1997, participants in the Plan deferred a
total of $40,177 in the Delta Common Stock Fund investment return choice
(equivalent to approximately 427 shares of Delta Common Stock at prevailing
market prices). These transactions were not registered under the Securities Act
of 1933, as amended, in reliance on Section 4(2) of such Act.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Delta's Annual Meeting of Shareholders held on October 23, 1997, the holders
of Delta's Common Stock and Series B ESOP Convertible Preferred Stock, voting
together as a single class, took the following actions:
1. Elected the persons named below to Delta's Board of Directors by the
following vote:
FOR WITHHELD
--- --------
Edwin L. Artzt 71,762,220 955,545
Henry A. Biedenharn, III 71,780,711 937,054
James L. Broadhead 71,724,034 993,731
Edward H. Budd 71,803,699 914,066
R. Eugene Cartledge 71,797,483 920,282
Mary Johnston Evans 71,772,607 945,158
Gerald Grinstein 71,771,882 945,883
Jesse Hill, Jr. 71,694,787 1,022,978
Leo F. Mullin 71,809,090 908,675
Andrew J. Young 70,313,211 2,404,554
There were no broker non-votes on this matter.
2. Ratified the appointment of Arthur Andersen LLP as independent auditors
of Delta for fiscal year 1998 by a vote of 72,222,646 FOR; 326,362
AGAINST; and 168,757 ABSTENTIONS. There were no broker non-votes on
this matter.
3. Approved the 1989 Stock Incentive Plan, as amended, by a vote of
42,547,887 FOR; 22,731,834 AGAINST; and 346,702 ABSTENTIONS. There were
7,091,342 broker non-votes on this matter.
4. Defeated a shareholder proposal relating to the location of future
Annual Meetings of Shareholders by a vote of 3,578,628 FOR; 59,304,781
AGAINST; and 2,743,014 ABSTENTIONS. There were 7,091,342 broker
non-votes on this matter.
5. Defeated a shareholder proposal relating to Company employment matters
by a vote of 4,371,236 FOR; 56,927,244 AGAINST; and 4,327,943
ABSTENTIONS. There were 7,091,342 broker non-votes on this matter.
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ITEM 5. OTHER INFORMATION
BROAD-BASED STOCK OPTION PLANS
On October 24, 1996, the Company's shareholders approved two plans providing for
the issuance of non-qualified stock options to substantially all of Delta's
non-officer personnel in their individual capacity to purchase a total of 24.7
million shares of Delta Common Stock. One plan is for eligible Delta personnel
who are not pilots (Nonpilot Plan); the other plan covers the Company's pilots
(Pilot Plan).
The Nonpilot and Pilot Plans involve non-qualified stock options to purchase
14.7 million and 10 million shares of Delta Common Stock, respectively. The
Plans provide for grants in three equal annual installments at an exercise price
equal to the opening price of the Common Stock on the New York Stock Exchange on
the grant date. Stock options awarded under the Plans are generally exercisable
beginning one year, and ending 10 years, after their grant dates, and are not
transferable other than upon the death of the person granted the stock options.
Under the terms of the Plans, Delta granted eligible personnel non-qualified
stock options to purchase a total of (1) 8.2 million shares of Common Stock at
an exercise price of $69 per share on October 30, 1996; and (2) 8.2 million
shares of Common Stock at an exercise price of $98 per share on October 30,
1997. The third grant date under the Nonpilot and Pilot Plans is scheduled to
occur on October 30, 1998.
BOEING AGREEMENT
On October 21, 1997, Delta and The Boeing Company entered into definitive
aircraft purchase agreements under which Delta placed orders to purchase, and
obtained options and rolling options to purchase, certain aircraft. For
additional information regarding these agreements, see Note 3 of this Form 10-Q
and Note 9 of the Notes to Consolidated Financial Statements in Delta's 1997
Annual Report to Shareholders.
FORWARD-LOOKING INFORMATION
Delta and its representatives may make forward-looking statements about the
Company and its business from time to time, either orally or in writing. These
forward-looking statements involve a number of risks and uncertainties that
could cause the actual results to differ materially from the projected results.
It is not possible to list all of the many factors and events that could cause
the actual results to differ materially from the projected results. Such factors
and events may include, but are not limited to, (1) competitive factors such as
the airline pricing environment and the capacity decisions of other airlines;
(2) general economic conditions; (3) changes in jet fuel prices; (4)
fluctuations in foreign currency exchange rates; (5) actions by the United
States and foreign governments; and (6) the willingness of customers to travel.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Delta's Incentive Compensation Plan, as amended.
10.2 Delta's Executive Deferred Compensation Plan, as amended.
10.3 Directors' Charitable Award Program, as amended.
11. Statement regarding computation of per share earnings.
12. Statement regarding computation of ratio of earnings to fixed
charges.
15. Letter from Arthur Andersen LLP regarding unaudited interim
financial information.
27. Financial Data Schedule (For SEC use only).
(b) Reports on Form 8-K:
During the quarter ended September 30, 1997, Delta did not file any
Current Reports on Form 8-K.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Delta Air Lines, Inc.
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(Registrant)
By: /s/ Thomas J. Roeck, Jr.
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Thomas J. Roeck, Jr.
Senior Vice President - Finance
and Chief Financial Officer
November 13, 1997
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