-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HVLgX/cAwNuLXiWdgiFnyBLZ+yhUuc5HznaGiV9bmOfB8J9/YlQjvDcLVqsJMdIs owxYVZH4jkOHhtG04AWqsg== 0000950144-97-001340.txt : 19970222 0000950144-97-001340.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950144-97-001340 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: BSE SROS: CSE SROS: CSX SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELTA AIR LINES INC /DE/ CENTRAL INDEX KEY: 0000027904 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 580218548 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20319 FILM NUMBER: 97532652 BUSINESS ADDRESS: STREET 1: HARTSFIELD ATLANTA INTL AIRPORT STREET 2: 1030 DELTA BLVD CITY: ATLANTA STATE: GA ZIP: 30320-6001 BUSINESS PHONE: 4047152600 MAIL ADDRESS: STREET 1: 1030 DELTA BLVD STREET 2: DEPT 971 CITY: ATLANTA STATE: GA ZIP: 30320-6001 FORMER COMPANY: FORMER CONFORMED NAME: DELTA AIR CORP DATE OF NAME CHANGE: 19660908 10-Q 1 DELTA AIRLINES 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended December 31, 1996 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 January 31, 1997: Common Stock, $3.00 par value - 73,140,705 shares outstanding 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DELTA AIR LINES, INC. CONSOLIDATED BALANCE SHEETS (IN MILLIONS)
December 31 June 30 ASSETS 1996 1996 - ----------------------------------------------------------------------------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 526 $ 1,145 Short-term investments 504 507 Accounts and notes receivable, net 951 968 Maintenance and operating supplies, at average cost 87 73 Deferred income taxes 353 352 Prepaid expenses and other 266 237 ------- ------- Total current assets 2,687 3,282 ------- ------- PROPERTY AND EQUIPMENT: Flight equipment owned 8,772 8,202 Less: Accumulated depreciation 3,342 3,235 ------- ------- 5,430 4,967 ------- ------- Flight equipment under capital leases 515 515 Less: Accumulated amortization 151 127 ------- ------- 364 388 ------- ------- Ground property and equipment 2,814 2,697 Less: Accumulated depreciation 1,639 1,532 ------- ------- 1,175 1,165 ------- ------- Advance payments for equipment 316 275 ------- ------- 7,285 6,795 ------- ------- OTHER ASSETS: Marketable equity securities 404 473 Deferred income taxes 366 415 Investments in associated companies 287 266 Cost in excess of net assets acquired, net 261 265 Leasehold and operating rights, net 131 140 Other 605 590 ------- ------- 2,054 2,149 ------- ------- $12,026 $12,226 ======= =======
The accompanying notes are an integral part of these consolidated balance sheets. 2 3 DELTA AIR LINES, INC. CONSOLIDATED BALANCE SHEETS (IN MILLIONS)
December 31 June 30 LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996 - ---------------------------------------------------------------------------- (Unaudited) CURRENT LIABILITIES: Current maturities of long-term debt $ 51 $ 40 Current obligations under capital leases 60 58 Accounts payable and miscellaneous accrued liabilities 1,809 1,540 Air traffic liability 1,144 1,414 Accrued salaries and vacation pay 414 385 Accrued rent 220 201 -------- -------- Total current liabilities 3,698 3,638 -------- -------- NONCURRENT LIABILITIES: Long-term debt 1,700 1,799 Postretirement benefits 1,815 1,796 Accrued rent 571 616 Capital leases 345 376 Other 396 425 -------- -------- 4,827 5,012 -------- -------- DEFERRED CREDITS: Deferred gain on sale and leaseback transactions 774 802 Manufacturers' and other credits 98 96 -------- -------- 872 898 -------- -------- COMMITMENTS AND CONTINGENCIES (Notes 3 and 4) EMPLOYEE STOCK OWNERSHIP PLAN PREFERRED STOCK: Series B ESOP Convertible Preferred Stock 483 485 Unearned compensation under employee stock ownership plan (324) (347) -------- -------- 159 138 -------- -------- STOCKHOLDERS' EQUITY: Series C Convertible Preferred Stock - - Common Stock at par 249 217 Additional paid-in capital 2,598 2,627 Net unrealized gain on marketable equity securities 85 126 Retained earnings (deficit) 232 (119) Treasury stock at cost (694) (311) -------- -------- 2,470 2,540 -------- -------- $ 12,026 $ 12,226 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. 3 4 DELTA AIR LINES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN MILLIONS, EXCEPT SHARE DATA)
Three Months Ended Six Months Ended December 31 December 31 ---------------------------- ---------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ OPERATING REVENUES: Passenger $ 2,925 $ 2,735 $ 6,095 $ 5,712 Cargo 145 135 269 264 Other, net 127 74 265 156 ------------ ------------ ------------ ------------ Total operating revenues 3,197 2,944 6,629 6,132 ------------ ------------ ------------ ------------ OPERATING EXPENSES: Salaries and related costs 1,107 1,051 2,199 2,088 Aircraft fuel 466 355 882 703 Passenger commissions 237 246 515 524 Contracted services 182 163 381 335 Depreciation and amortization 174 159 340 320 Other selling expenses 149 150 328 295 Aircraft rent 137 139 274 279 Aircraft maintenance materials and outside repairs 103 102 211 211 Passenger service 94 91 199 195 Facilities and other rent 92 109 191 222 Landing fees 62 56 126 125 Other 167 154 318 280 ------------ ------------ ------------ ------------ Total operating expenses 2,970 2,775 5,964 5,577 ------------ ------------ ------------ ------------ OPERATING INCOME 227 169 665 555 ------------ ------------ ------------ ------------ OTHER INCOME (EXPENSE) Interest expense (52) (73) (106) (148) Interest capitalized 8 7 16 14 Interest income 16 24 35 47 Miscellaneous income (expense), net 6 (4) (7) (9) ------------ ------------ ------------ ------------ (22) (46) (62) (96) ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 205 123 603 459 INCOME TAXES PROVIDED (80) (53) (240) (189) ------------ ------------ ------------ ------------ NET INCOME 125 70 363 270 PREFERRED STOCK DIVIDENDS (2) (22) (4) (44) ------------ ------------ ------------ ------------ NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 123 $ 48 $ 359 $ 226 ============ ============ ============ ============ PRIMARY INCOME PER COMMON SHARE: $ 1.66 $ 0.93 $ 4.77 $ 4.40 ============ ============ ------------ ------------ FULLY DILUTED INCOME PER COMMON SHARE: $ 1.63 $ 0.93 $ 4.64 $ 3.52 ============ ============ ============ ============ WEIGHTED AVERAGE SHARES USED IN PER SHARE COMPUTATION: Primary 74,173,070 51,476,488 75,276,812 51,450,876 Fully Diluted 76,078,233 51,476,488 77,748,372 80,585,714 DIVIDENDS PER COMMON SHARE $ 0.05 $ 0.05 $ 0.10 $ 0.10 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. 4 5 DELTA AIR LINES, INC. STATISTICAL SUMMARY (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 -------------------- --------------------- STATISTICAL SUMMARY: 1996 1995 1996 1995 ------ ------ ------ ------ Revenue Passenger Enplaned (thousands) 24,647 21,864 49,907 43,968 Revenue Passenger Miles (millions) 23,404 20,785 48,799 43,543 Available Seat Miles (millions) 34,195 32,220 68,581 65,618 Passenger Mile Yield 12.50 c. 13.16 c. 12.49 c. 13.12 c. Operating Revenue Per Available Seat Mile 9.35 c. 9.14 c. 9.67 c. 9.34 c. Operating Cost Per Available Seat Mile 8.69 c. 8.61 c. 8.70 c. 8.50 c. Passenger Load Factor 68.44 % 64.51 % 71.16 % 66.36 % Breakeven Passenger Load Factor 63.14 % 60.52 % 63.39 % 59.92 % Revenue Ton Miles (millions) 2,747 2,435 5,620 5,049 Cargo Ton Miles (millions) 407 356 740 695 Cargo Ton Mile Yield 35.60 c. 37.83 c. 36.31 c. 37.96 c. Fuel Gallons Consumed (millions) 649 618 1,307 1,259 Average Price Per Fuel Gallon 71.78 c. 57.37 c. 67.47 c. 55.82 c. Number of Aircraft in Fleet at End of Period 544 539 544 539 Full-Time Equivalent Employees at End of Period 61,872 58,097 61,872 58,097
5 6 DELTA AIR LINES, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN MILLIONS)
Six Months Ended December 31 ------------------ 1996 1995 ------- ------- CASH PROVIDED BY OPERATING ACTIVITIES: Net Income $ 363 $ 270 Adjustments to reconcile net income to cash provided by operating activities, net 392 346 Changes in certain assets and liabilities, net (12) (303) ------- ------- Net cash provided by operating activities 743 313 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Property and equipment additions: Flight equipment, including advance payments (720) (402) Ground property and equipment (128) (114) Decrease in short-term investments, net 5 28 Proceeds from sale of flight equipment 4 23 ------- ------- Net cash used in investing activities (839) (465) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 2 15 Repurchase of common stock (379) - Payments on long-term debt and capital lease obligations (124) (155) Cash dividends (22) (60) ------- ------- Net cash used in financing activities (523) (200) ------- ------- NET DECREASE IN CASH AND CASH EQUIVALENTS (619) (352) Cash and cash equivalents at beginning of period 1,145 1,233 ------- ------- Cash and cash equivalents at end of period $ 526 $ 881 ======= ======= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amounts capitalized) $ 79 $ 106 Income taxes $ 198 $ 186 Non-cash activities: Capital lease obligations incurred $ 6 $ -
The accompanying notes are an integral part of these consolidated statements. 6 7 DELTA AIR LINES, INC. Notes to Consolidated Financial Statements December 31, 1996 (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 1996 Annual Report to Stockholders. These interim financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's 1996 Annual Report to Stockholders. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair statement of results for the interim periods. Certain amounts in the Consolidated Statements of Operations for the three and six months ended December 31, 1995, have been reclassified to conform with the current financial statement presentation. 2. LONG-TERM DEBT: During the six months ended December 31, 1996, Delta voluntarily repurchased and retired $88 million principal amount of its long-term debt, of which $1 million was repurchased and retired in the December 1996 quarter. As a result of these transactions, the Company recognized pretax losses of $8 million for the six months ended December 31, 1996; this amount is included in miscellaneous, net in the Company's Consolidated Statements of Operations. 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, 2001. Up to $500 million of this facility may be used for the issuance of letters of credit. At December 31, 1996, no borrowings or letters of credit were outstanding under the 1995 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 $550 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 December 31, 1996, the face amount of the letter of credit under the Letter of Credit Facility was $470 million, which covers $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. For additional information regarding Delta's long-term debt, including the Series C ESOP Notes, see Note 7 (page 37) of the Notes to Consolidated Financial Statements in Delta's 1996 Annual Report to Stockholders. 7 8 3. AIRCRAFT PURCHASE COMMITMENTS: At December 31, 1996, the Company's aircraft fleet, purchase commitments and options were:
CURRENT FLEET ------------------------- AIRCRAFT TYPE OWNED LEASED TOTAL ORDERS OPTIONS ------------- ----- ------ ----- ------ ------- B-727-200 106 23 129 - - B-737-200 1 53 54 - - B-737-300 - 13 13 - - B-757-200 49 41 90 4 27 B-767-200 15 - 15 - - B-767-300 2 24 26 2 - B-767-300ER 11 7 18 13 10 L-1011-1 25 - 25 - - L-1011-200 1 - 1 - - L-1011-250 6 - 6 - - L-1011-500 17 - 17 - - MD-11 7 7 14 1 17 MD-88 63 57 120 - 10 MD-90 16 - 16 15 47 --- --- --- -- --- 319 225 544 35 111 === === === == ===
The MD-88 aircraft options may be converted to MD-90 aircraft orders, and the B-767-300ER aircraft options may be converted to B-767-300 aircraft orders, at Delta's election. During the December 1996 quarter, the Company accepted delivery of two B-757-200 aircraft, one B-767-300ER aircraft, one MD-11 aircraft and four MD-90 aircraft. Additionally, the Company retired two L-1011-1 aircraft. Subsequent to December 31, 1996, Delta entered into an agreement to purchase, and completed the purchase of, one new B-757-200 aircraft. Delta also purchased nine B-727-200 aircraft which it had been operating under lease. In addition, the Company agreed to purchase six used B-767-300ER aircraft, subject to the negotiation of a definitive purchase agreement and certain other conditions. 8 9 Future expenditures for aircraft, engines and engine hushkits on firm order at December 31, 1996, and for the aircraft described in the preceding paragraph, are estimated to be approximately $2.4 billion, as follows:
AMOUNT YEARS ENDING JUNE 30 (IN MILLIONS) -------------------- ------------- Remainder of fiscal year 1997 $ 720 1998 820 1999 330 2000 240 2001 210 After 2001 70 ------- Total $ 2,390 =======
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 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 such effects. 5. STOCKHOLDERS' EQUITY: During the December 1996 quarter, the Company issued a total of 28,947 common shares, at an average price of $57.63 per share, under the 1989 Stock Incentive Plan, the Dividend Reinvestment and Stock Purchase Plan and the Non-Employee Directors' Stock Plan. 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 (see Note 14 on page 45 of the Notes to Consolidated Financial Statements in Delta's 1996 Annual Report to Stockholders). During the December 1996 quarter, the Company repurchased 2,034,400 shares of its common stock at an average price of $71.30 per share under this authorization. Since April 24, 1996, the Company has repurchased a total of 6,200,000 common shares at an average price of $71.75 per share. At December 31, 1996, 24,700,000 common shares were reserved for issuance under the Company's broad-based employee stock option plans; 5,076,919 common shares were reserved for issuance under the 1989 Stock Incentive Plan; 5,758,591 common shares were reserved for conversion of the Series B ESOP Convertible Preferred Stock; and 249,887 common shares were reserved for issuance under the Non-Employee Directors' Stock Plan. 9 10 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 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 CHARGES: During fiscal years ended 1996 and 1994, Delta recorded pre-tax restructuring and other non-recurring charges of $829 million and $526 million, respectively (see Note 17 on page 47 of the Notes to Consolidated Financial Statements in Delta's 1996 Annual Report to Stockholders). Of these amounts, $524 million related to asset writedowns of certain flight equipment, inventories, and route authorities; and $641 million related to curtailment losses and special termination benefits to be paid in future years as part of the Company's pension and other postretirement benefit plans. The remaining $190 million was accrued for cash payments, of which $126 million had been made through September 30, 1996. The following table reflects the accrual balances at September 30, 1996 and as of December 31, 1996. All reductions in reserves represent payments of liabilities and other settlements of outstanding issues.
Balance at Balance at September 30, 1996 Payments December 31, 1996 ------------------ -------- ----------------- (Amounts in Millions) Leadership 7.5 Workforce Reductions $ 6 $ 1 $ 5 Abandoned Facilities 40 1 39 Pilot Special Early Retirement Program 18 5 13 ---- ---- ---- Totals $ 64 $ 7 $ 57
8. SUBSEQUENT EVENTS: On January 7, 1997, the Company announced a series of planned actions to strengthen its international operations. As a result of these actions, Delta will record during the March 1997 quarter pre-tax restructuring and other non-recurring charges of up to $60 million, primarily consisting of personnel severance charges. Management believes that these charges are not likely to have a material adverse effect on Delta's consolidated financial condition or liquidity. For additional information, see Delta's Current Report on Form 8-K dated January 7, 1997. 10 11 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 $1.03 billion at December 31, 1996, compared to $1.65 billion at June 30, 1996. During the six months ended December 31, 1996, the principal sources of funds were $743 million of cash from operations and $619 million from cash reserves. Delta invested $720 million in flight equipment and $128 million in ground property and equipment; paid $379 million to repurchase 5,378,700 shares of the Company's common stock; made payments of $124 million on long-term debt and capital lease obligations, which included Delta's voluntary repurchase and retirement of $88 million principal amount of long-term debt; and paid $22 million in cash dividends. The Company may repurchase additional long-term debt from time to time. For additional information regarding Delta's common stock repurchase authorization, see Item 5 of Part II of this Form 10-Q. As of December 31, 1996, the Company had negative working capital of $1.01 billion, compared to negative working capital of $356 million at June 30, 1996. This increase in negative working capital is largely due to the use of cash for payments on flight equipment and repurchases of the Company's common stock under the common stock repurchase authorization. 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 December 31, 1996, the Company had $1.25 billion of credit available under its 1995 Bank Credit Agreement, subject to compliance with certain conditions. At December 31, 1996, long-term debt and capital lease obligations, including current maturities, totaled $2.16 billion, compared to $2.27 billion at June 30, 1996. Stockholders' equity was $2.47 billion at December 31, 1996 and $2.54 billion at June 30, 1996. The Company's debt-to-equity position, including current maturities, was 47% debt and 53% equity at both December 31, 1996, and June 30, 1996. At December 31, 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. For additional information regarding the Series C ESOP Notes, see Note 7 (page 37) of the Notes to Consolidated Financial Statements in Delta's 1996 Annual Report to Stockholders. On January 7, 1997, the Company announced a series of actions to strengthen its international operations. These actions, which are scheduled to be implemented between April 1997 and June 1997, include increasing the Company's operations at New York's John F. Kennedy International Airport and decreasing its operations at Frankfurt, Germany. Delta expects these actions will improve its system operating income by approximately $62 million a year. As a result of these actions, Delta will record during the March 1997 quarter pre-tax restructuring and other non-recurring charges of up to $60 million, primarily consisting of personnel severance charges. 11 12 Management believes that these charges are not likely to have a material adverse effect on Delta's consolidated financial condition or liquidity. For additional information regarding these matters, see Delta's Current Report on Form 8-K dated January 7, 1997. The information in the preceding paragraph regarding Delta's projected improvement in system operating income 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. The specific factors and events that could cause the actual results to differ materially from the expected results include, among other things, (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. At its meeting on January 23, 1997, Delta's Board of Directors declared a cash dividend of five cents per common share, payable March 1, 1997, to stockholders of record on February 12, 1997. RESULTS OF OPERATIONS Three Months Ended December 31, 1996 and 1995 For the quarter ended December 31, 1996, Delta recorded unaudited operating income of $227 million and net income of $125 million. For the quarter ended December 31, 1995, the Company recorded operating income of $169 million and net income of $70 million. Operating revenues in the December 1996 quarter totaled $3.2 billion, an increase of 9% from $2.9 billion in the December 1995 quarter. Passenger revenue increased 7% to $2.9 billion, reflecting a 13% increase in revenue passenger miles, partially offset by a 5% decline in the passenger mile yield. The increase in passenger traffic is primarily due to the Company's continued use of more competitive pricing strategies; Delta's realignment of its domestic route system on December 1, 1995, which increased the Company's operations at its Atlanta and Cincinnati hubs; and favorable economic conditions. The decrease in the passenger mile yield reflects the Company's continued use of more competitive pricing strategies and the continued presence of low-cost, low-fare carriers in domestic markets served by Delta. Cargo revenue increased 7% to $145 million. Cargo ton miles increased 14%, and the cargo ton mile yield declined 6%, 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 72% to $127 million, due to improved results from code share arrangements and the expansion of joint marketing and other marketing programs. Operating expenses for the December 1996 quarter totaled $3.0 billion, an increase of 7% from the December 1995 quarter, and operating capacity increased 6% to 34.20 billion available seat miles. As discussed below, the increase in operating expenses is primarily due to higher jet fuel prices and an increase in full-time equivalent employees to improve customer service. 12 13 Salaries and related costs increased 5% primarily due to a 6% increase in full-time equivalent employees. Aircraft fuel expense increased 31% as the average fuel price per gallon increased 25% to 71.78 cents and fuel gallons consumed increased 5%. Passenger commissions decreased 4% due to lower expenses associated with certain incentive programs. Contracted services expense rose 12% mainly due to increased information technology services. Depreciation and amortization expense rose 9% largely due to the acquisition of additional ground equipment and higher amortization of software development costs. Other selling expenses remained virtually unchanged as increased booking payments to computer reservations system providers were offset by decreased advertising and promotion costs. Facilities and other rent decreased 16% due to certain facilities rent adjustments and the reclassification of certain unoccupied airport facilities costs to nonoperating expense. Landing fees increased 11% due to increased operations at certain domestic locations. Other operating expenses increased 8% primarily due to increased usage of miscellaneous supplies, higher fuel taxes resulting from higher fuel prices and consumption, and higher insurance costs due to higher estimates of probable losses, partially offset by increased services provided to outside parties. Nonoperating expense in the December 1996 quarter totaled $22 million, compared to nonoperating expense of $46 million in the December 1995 quarter. Interest expense decreased 29% to $52 million, due to a lower average level of long-term debt outstanding. Interest income decreased 33% to $16 million, due to lower average levels of cash invested and a slight decline in interest rates. Miscellaneous income, net increased to $6 million in the December 1996 quarter compared to miscellaneous expense of $4 million in the December 1995 quarter, due to increased income from associated companies and the reduction of losses associated with voluntary debt retirements and foreign exchange losses, partially offset by the reclassification of certain unoccupied airport facilities costs as noted above. Pretax income of $205 million for the December 1996 quarter resulted in an income tax provision of $80 million. After a $2 million provision for preferred stock dividends, net income available to common stockholders was $123 million. 13 14 Six Months Ended December 31, 1996 and 1995 For the six months ended December 31, 1996, Delta recorded unaudited operating income of $665 million and net income of $363 million. For the six months ended December 31, 1995, the Company recorded operating income of $555 million and net income of $270 million. Operating revenues for the six months ended December 1996 totaled $6.6 billion, an increase of 8% from $6.1 billion for the six months ended December 1995. Passenger revenue increased 7% to $6.1 billion, reflecting a 12% increase in revenue passenger miles, partially offset by a 5% decline in the passenger mile yield. The increase in passenger traffic is due to the Company's use of more competitive pricing strategies; Delta's realignment of its domestic route system on December 1, 1995, which increased the Company's operations at its Atlanta and Cincinnati hubs; the suspension of service during the September 1996 quarter by a low-cost, low-fare competitor; and favorable economic conditions. The decrease in the passenger mile yield reflects the Company's continued use of more competitive pricing strategies and the continued presence of low-cost, low-fare carriers in domestic markets served by Delta. Cargo revenue increased 2% to $269 million. Cargo ton miles increased 6%, and the cargo ton mile yield decreased 4%, 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 70% to $265 million due to improved results from code share arrangements and the expansion of joint marketing and other marketing programs. Operating expenses for the six months ended December 1996 totaled $6.0 billion, an increase of 7% compared to the six months ended December 1995, and operating capacity increased 5% to 68.58 billion available seat miles. As discussed below, the increase in operating expenses is primarily due to higher jet fuel prices and an increase in full-time equivalent employees to improve customer service. Salaries and related costs increased 5% primarily due to a 6% increase in full-time equivalent employees. Aircraft fuel expense increased 25% as the average fuel price per gallon increased 21% to 67.47 cents and fuel gallons consumed increased 4%. Passenger commissions decreased 2% primarily due to lower expenses associated with certain incentive programs. Contracted services expense rose 14% mainly due to increased information technology services. Depreciation and amortization expense rose 6% largely due to the acquisition of additional ground equipment and higher amortization of software development costs. Other selling expenses increased 11%, mainly the result of higher booking fee payments to computer reservations system providers. Facilities and other rent decreased 14% due to certain facilities rent adjustments, the reclassification of certain unoccupied airport facilities costs to nonoperating expense and the subleasing of certain airport facilities. Landing fees increased 1% due to increased operations at certain domestic locations mitigated by reduced operations in certain international markets. Other operating expenses increased 14%, due to higher fuel taxes resulting from higher fuel prices, higher consumption and the October 1, 1995 expiration of the exemption from the 4.3 cents per gallon federal tax on commercial aviation jet fuel used in domestic operations, as well as increased usage of miscellaneous supplies, partially offset by increased services provided to outside parties. 14 15 Nonoperating expense for the six months ended December 1996 totaled $62 million, compared to nonoperating expense of $96 million for the six months ended December 1995. Interest expense decreased 28% to $106 million, due to a lower average level of long-term debt outstanding. Interest income decreased 26% to $35 million, due to lower average levels of cash invested and a slight decline in interest rates. Miscellaneous expense, net decreased 22% to $7 million due to increased income from associated companies and the reduction of losses associated with voluntary debt retirements and foreign exchange losses, partially offset by Delta's $20 million payment to settle certain class action antitrust lawsuits filed by travel agents and the reclassification of certain unoccupied airport facilities costs as noted above. For additional information regarding the antitrust settlement, see page 12 of Delta's Annual Report on Form 10-K for the fiscal year ended June 30, 1996. Pretax income of $603 million for the six months ended December 1996 quarter resulted in an income tax provision of $240 million. After a $4 million provision for preferred stock dividends, net income available to common stockholders was $359 million. 15 16 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and the Board of Directors of Delta Air Lines, Inc.: We have reviewed the accompanying consolidated balance sheet of DELTA AIR LINES, INC. (a Delaware Corporation) AND SUBSIDIARIES as of December 31, 1996 and the related consolidated statements of operations for the three-month and six-month periods ended December 31, 1996 and 1995 and consolidated condensed statements of cash flows for the six-month periods ended December 31, 1996 and 1995. 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 January 24, 1997 16 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As reported on pages 11-12 of Delta's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 (1996 Form 10-K), a purported class action complaint was filed in the United States District Court for the Northern District of Georgia against Delta and certain Delta officers in their capacity as members of the Administrative Committee responsible for administering certain Company employee benefit plans. The plaintiffs, who have requested a jury trial, are 21 former Delta employees who seek to represent the class consisting of the approximately 1,800 former non-pilot employees of Delta who retired from active service between July 23, 1992 and January 1, 1993. The complaint alleges that Delta violated the Employee Retirement Income Security Act by (1) modifying health benefits for this group of retirees in spite of alleged oral and written representations that it would not make any such modifications; (2) breaching its fiduciary duties and interfering with plaintiffs' benefits by making such modifications and by allegedly giving false assurances that no enhanced retirement benefit incentives were being considered or would be offered in the future; and (3) discriminating against certain benefit plan participants. The complaint also alleges, among other things, that Delta breached a contract with plaintiffs by amending Delta's pass policy to suspend the flight privileges of a retiree during any period such retiree is employed by certain other airlines. On November 4, 1994, the District Court (1) denied the plaintiffs' motion for class action certification; and (2) granted Delta's motion to dismiss plaintiffs' claims concerning Delta's pass policy for lack of subject matter jurisdiction. The plaintiffs appealed to the United States Court of Appeals for the Eleventh Circuit which, on August 5, 1996, affirmed the District Court's November 4, 1994 decision. The plaintiffs have filed a petition for writ of certiorari to the United States Supreme Court seeking review of the decision by the Court of Appeals affirming the District Court's ruling denying the plaintiffs' motion for class action certification. As reported on page 12 of the 1996 Form 10-K, travel agents and a travel agency trade association filed numerous class action antitrust lawsuits in various federal district courts against airlines, including Delta, that implemented travel agent commission cap programs. These lawsuits were consolidated before the United States District Court in Minneapolis which, on January 28, 1997, granted final approval of the settlement of this litigation. The time period for appealing the District Court's order has not yet expired. As reported on page 13 of the 1996 Form 10-K, on January 10, 1996, a purported antitrust class action complaint was filed against Delta and Trans World Airlines, Inc. (TWA) relating to Delta's agreement with TWA to lease ten takeoff/landing slots at New York's LaGuardia Airport (LaGuardia). The lawsuit was filed on behalf of persons who purchased tickets on Delta for travel between LaGuardia and Atlanta beginning November 1, 1995. On August 6, 1996, the United States District Court for the Northern District of Georgia denied the plaintiff's motion for class action certification. The plaintiff subsequently dismissed this action with prejudice. 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 a portion of their cash compensation for service as a director. Amounts deferred under the Plan are paid in cash at the end of the applicable deferral period. A director who participates in the Plan may choose an investment return on deferred amounts equivalent to one or more of the 17 investment funds available under the Delta Family-Care Savings Plan, a qualified defined contribution pension plan for eligible Delta personnel. One of the available investment funds under the Delta Family-Care Savings Plan is invested primarily in the Company's common stock (Delta Common Stock Fund). During the quarter ended December 31, 1996, participants in the Plan deferred a total of $16,300 in the investment return choice equivalent to the Delta Common Stock Fund (equivalent to approximately 225 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. 17 18 ITEM 5. OTHER INFORMATION 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 under the Company's broad-based employee stock option plans become exercisable on October 30, 1997, and repurchase the remaining shares as Delta personnel exercise their stock options. As of December 31, 1996, the Company had repurchased 6.2 million shares of common stock for $445 million under this authorization. For additional information regarding Delta's broad-based employee stock option plans, see Item 5 of Part II in Delta's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. DELTA EXPRESS On October 1, 1996, Delta began operating Delta Express, a new low-fare service within Delta that operates a dedicated fleet of Boeing 737-200 aircraft in certain highly competitive, leisure-oriented markets within Delta's system, connecting the northeast and midwest with Orlando and other Florida cities. Delta Express currently operates a fleet of 25 Boeing 737-200 aircraft. 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, the capacity decisions of other airlines and the presence of low-cost, low-fare carriers; (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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 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). 18 19 (b) Reports on Form 8-K: During the quarter ended December 31, 1996, Delta filed a Current Report on Form 8-K dated October 28, 1996 relating to the Company's adoption of a new Stockholder Rights Plan. Subsequent to December 31, 1996, Delta filed a Current Report on Form 8-K dated January 7, 1997 relating to its announcement of certain planned actions to strengthen its international operations. 19 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Delta Air Lines, Inc. ---------------------------------------- (Registrant) By: /s/ Thomas J. Roeck, Jr. ------------------------------------- Thomas J. Roeck, Jr. Senior Vice President - Finance and Chief Financial Officer February 13, 1997 20 EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 DELTA AIR LINES, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995 (in millions except per share amounts)
PRIMARY: 1996 1995 ---------- ----------- Weighted average shares outstanding 74 51 Additional shares assuming exercise of stock options - - ---------- ----------- Average shares outstanding as adjusted 74 51 ========== =========== Net income $ 125 $ 70 Preferred dividends series C - (20) Preferred dividends series B (2) (2) ---------- ----------- Net income available to primary shares $ 123 $ 48 ========== =========== Primary earnings per common share $ 1.66 $ 0.93 ========== =========== FULLY DILUTED: Weighted average shares outstanding 74 51 Additional shares assuming: Conversion of series C convertible preferred stock - 17 Conversion of series B ESOP convertible preferred stock 2 2 Conversion of 3.23% convertible subordinated notes - 10 Exercise of stock options - - ---------- ----------- Average shares outstanding as adjusted 76 80 ========== =========== Net income $ 125 $ 70 Interest on 3.23% convertible subordinated notes, net of taxes - 8 Additional required ESOP contribution assuming conversion of series B ESOP convertible preferred stock, net of taxes (1) (1) ---------- ----------- Net income available to fully diluted common shares $ 124 $ 77 ========== =========== Fully diluted earnings per common share $ 1.63 $ 0.95 * ========== =========== * Antidilutive
2 DELTA AIR LINES, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (In millions except per share amounts)
1996 1995 ----- ----- PRIMARY: Weighted average shares outstanding 75 51 Additional shares assuming exercise of stock options - - ----- ----- Average shares outstanding as adjusted 75 51 ===== ===== Net income $ 363 $ 270 Preferred dividends series C - (40) Preferred dividends series B (4) (4) ----- ----- Net income available to primary common shares 359 226 ===== ===== Primary earnings per common share $4.77 $4.40 ===== ===== FULLY DILUTED: Weighted average shares outstanding 75 51 Additional shares assuming: Conversion of series C convertible preferred stock 1 17 Conversion of series B ESOP convertible preferred stock 2 3 Conversion of 3.23% convertible subordinated notes - 10 Exercise of stock options - - ----- ----- Average shares outstanding as adjusted 78 81 ===== ===== Net income $ 363 $ 270 Interest on 3.23% convertible subordinated notes, net of taxes - 16 Additional required ESOP contribution assuming conversion of series B ESOP convertible preferred stock, net of taxes (2) (2) ----- ----- Net income available to fully diluted common shares $ 361 $ 284 ===== ===== Fully diluted earnings per common share $4.64 $3.52 ===== =====
*Antidilutive EX-12 3 COMPUTATION OF EARNINGS TO FIXED CHARGES 1 DELTA AIR LINES, INC. EXHIBIT 12 STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (In Millions except ratios)
- ------------------------------------------------------------------------------------------------------------------------- Six Months Six Months Ended Ended December 31, December 31, 1996 1995 ----- ---- Earnings : Net income $ 363 $ 270 Add (deduct): Income tax provision 240 189 Fixed charges 261 316 Interest capitalized (16) (14) Interest offset on Guaranteed Serial ESOP Notes - (1) ----- ----- Earnings as adjusted $ 848 $ 760 ===== ===== Fixed charges: Interest expense $ 106 $ 148 1/3 of rentals 155 167 Additional interest on Guaranteed Serial ESOP Notes - 1 ----- ----- Total fixed charges $ 261 $ 316 ===== ===== Ratio of earnings to fixed charges 3.25 2.41
- --------------------------------------------- EX-15 4 CONSENT OF ARTHUR ANDERSEN LLP 1 ARTHUR ANDERSEN LLP EXHIBIT 15 To the Stockholders and the Board of Directors of Delta Air Lines, Inc.: We are aware that Delta Air Lines, Inc. has incorporated by reference in its Registration Statement Nos. 2-94541, 33-30454, 33-50175, 33-52045, 33-65391 and 333-16471 its Form 10-Q for the quarter ended December 31, 1996, which includes our report dated January 24, 1997 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933 (the "Act"), that report is not considered a part of the Registration Statements prepared or certified by our firm or a report prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Arthur Andersen LLP Atlanta, Georgia January 24, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELTA AIR LINES, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RELATED FINANCIAL STATEMENTS. 1,000,000 6-MOS JUN-30-1997 JUL-01-1996 DEC-31-1996 526 504 1,001 50 87 2,687 12,417 5,132 12,026 3,698 2,156 0 0 249 2,221 12,026 0 6,629 0 5,964 (44) 10 106 603 240 363 0 0 0 363 4.77 4.64
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