-----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, CDyPmR4BLrMQqm1ZKWnmlVqKO2eISA6mLerv7HavxBq5Rw3t3Oh/pHVUrxLOgxwx A8JZ/kBXg4F2dze2gJjLTg== 0000950144-97-012345.txt : 19971117 0000950144-97-012345.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950144-97-012345 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 000-20319 FILM NUMBER: 97719935 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 AIR LINES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 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 2 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. 2 3 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. 3 4 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. 4 5 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
5 6 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. 6 7 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. 7 8 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 8 9 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 ======
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 9 10 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 === === ===
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 $1.65 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. 11 12 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- 12 13 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. 13 14 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 14 15 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. 15 16 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. 16 17 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. 17 18 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. 18 19 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Delta Air Lines, Inc. ---------------------------------- (Registrant) By: /s/ Thomas J. Roeck, Jr. ------------------------------- Thomas J. Roeck, Jr. Senior Vice President - Finance and Chief Financial Officer November 13, 1997 19 EX-10.1 2 DELTA'S INCENTIVE COMPENSATION PLAN 1 EXHIBIT 10.1 THE DELTA AIR LINES, INC. INCENTIVE COMPENSATION PLAN AS AMENDED THROUGH JULY 24, 1997 ARTICLE 1. ESTABLISHMENT AND PURPOSE 1.1 ESTABLISHMENT OF THE PLAN. Delta Air Lines, Inc., a Delaware corporation (the "Company"), hereby establishes an annual incentive compensation plan to be known as "The Delta Air Lines, Inc. Incentive Compensation Plan" (the "Plan"), as set forth in this document. The Plan permits annual cash awards to Employees of the Company, based on the achievement of pre-established performance goals. The Plan shall become effective as of July 1, 1994 (the "Effective Date") and shall remain in effect until terminated as provided in Article 12 herein. 1.2 PURPOSE. The purposes of the Plan are to: (a) increase the incentives to Participants to achieve annual goals that are within group and/or individual control, and are considered key to the Company's success; (b) encourage teamwork among Participants in various segments of the Company; and (c) reward performance with pay that varies in relation to the extent to which the pre-established goals are achieved. ARTICLE 2. DEFINITIONS. Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the defined meaning is intended, the term is capitalized: "AFFILIATE" AND "ASSOCIATE" have the respective meanings accorded to such terms in Rule 12b-2 under the Exchange Act as in effect on July 24, 1997. "AWARD OPPORTUNITY" means the various levels of incentive award payouts which a Participant may earn under the Plan, including Target Incentive Awards, as established by the Committee pursuant to Sections 5.1 and 5.2 herein. "BENEFICIAL OWNERSHIP". A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," securities pursuant to Rule 13d-3 under the Exchange Act as in effect on July 24, 1997. "BOARD" OR "BOARD OF DIRECTORS" means the Board of Directors of the Company. "CHANGE IN CONTROL" means, and shall be deemed to have occurred upon, the first to occur of any of the following events: 2 (a) Any Person (other than an Excluded Person) acquires, together with all Affiliates and Associates of such Person, Beneficial Ownership of securities representing 20% or more of the combined voting power of the Voting Stock then outstanding, unless such Person acquires Beneficial Ownership of 20% or more of the combined voting power of the Voting Stock then outstanding solely as a result of an acquisition of Voting Stock by the Company which, by reducing the Voting Stock outstanding, increases the proportionate Voting Stock beneficially owned by such Person (together with all Affiliates and Associates of such Person) to 20% or more of the combined voting power of the Voting Stock then outstanding; provided, that if a Person shall become the Beneficial Owner of 20% or more of the combined voting power of the Voting Stock then outstanding by reason of such Voting Stock acquisition by the Company and shall thereafter become the Beneficial Owner of any additional Voting Stock which causes the proportionate voting power of Voting Stock beneficially owned by such Person to increase to 20% or more of the combined voting power of the Voting Stock then outstanding, such Person shall, upon becoming the Beneficial Owner of such additional Voting Stock, be deemed to have become the Beneficial Owner of 20% or more of the combined voting power of the Voting Stock then outstanding other than solely as a result of such Voting Stock acquisition by the Company; (b) During any period of two consecutive years (not including any period prior to July 24, 1997), individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was so approved), cease for any reason to constitute a majority of Directors then constituting the Board; (c) A reorganization, merger or consolidation of the Company is consummated, in each case, unless, immediately following such reorganization, merger or consolidation, (i) more than 50% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Voting Stock outstanding immediately prior to such reorganization, merger or consolidation, (ii) no Person (but excluding for this purpose any Excluded Person and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the voting power of the outstanding Voting Stock) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the 2 3 members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) The shareholders of the Company approve (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to any corporation with respect to which, immediately following such sale or other disposition, (A) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Voting Stock outstanding immediately prior to such sale or other disposition of assets, (B) no Person (but excluding for this purpose any Excluded Person and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the voting power of the outstanding Voting Stock) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. Notwithstanding the foregoing, in no event shall a "Change in Control" be deemed to have occurred (i) as a result of the formation of a Holding Company, or (ii) with respect to a Participant, if Participant is part of a "group," within the meaning of Section 13(d)(3) of the Exchange Act as in effect on July 24, 1997, which consummates the Change in Control transaction. In addition, for purposes of the definition of "Change in Control" a Person engaged in business as an underwriter of securities shall not be deemed to be the "Beneficial Owner" of, or to "beneficially own," any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means a committee of two (2) or more individuals, all of whom shall be "outside directors" within the meaning of the Regulations under Code Section 162(m), appointed by the Board to administer the Plan, pursuant to Article 3 herein. "DISABILITY" means a disability which would qualify the Participant for Long-Term Disability benefits as defined in Section 4.03 of the Delta Family-Care Disability and Survivorship Plan, as may be amended from time to time. 3 4 "EFFECTIVE DATE" means the date the Plan becomes effective, as set forth in Section 1.1 herein. "EMPLOYEE" means a full-time, salaried employee of the Company, including any Subsidiary of the Company. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCLUDED PERSON" means (i) the Company; (ii) any of the Company's Subsidiaries; (iii) any Holding Company; (iv) any employee benefit plan of the Company, any of its Subsidiaries or a Holding Company; or (v) any Person organized, appointed or established by the Company, any of its Subsidiaries or a Holding Company for or pursuant to the terms of any plan described in clause (iv). "EXECUTIVE OFFICER" means a Participant who, as of the last day of the applicable Plan Year, is an officer of the Company at or above the level of Senior Vice President. "FINAL AWARD" means the actual award earned during a Plan Year by a Participant, as determined by the Committee. "HOLDING COMPANY" means an entity that becomes a holding company for the Company or its businesses as a part of any reorganization, merger, consolidation or other transaction, provided that the outstanding shares of common stock of such entity and the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors is, immediately after such reorganization, merger, consolidation or other transaction, beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock outstanding immediately prior to such reorganization, merger, consolidation or other transaction in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or other transaction, of such outstanding Voting Stock. "PARTICIPANT" means an Employee who is actively participating in the Plan. "PERSON" means an individual, corporation, partnership, association, trust or any other entity or organization. "PLAN YEAR" means the Company's fiscal year. "REFERENCE INCENTIVE COMPENSATION AWARD" means the greater of the annual Target Incentive Award (a) for the Company's most recently completed fiscal year prior to the Change in Control; and (b) for the Company's fiscal year that includes the Change in Control. For purposes of this definition, the annual Target Incentive Award for a Participant with respect to any fiscal year shall be determined by multiplying the target salary percentage applicable to Participant for 4 5 such fiscal year by the regular annual rate of pay which such Participant is receiving as annual salary immediately prior to the Change in Control. "RETIREMENT" shall have the meanings ascribed to Early, Normal or Deferred Retirement in the Company's defined benefits tax-qualified retirement pension plan applicable to the Participant. "SUBSIDIARY" of any Person means any other Person of which securities or other ownership interests having voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "TARGET INCENTIVE AWARD" means the award which may be paid to a Participant when "targeted" performance results, as established by the Committee, are attained. "VOTING STOCK" means securities of the Company entitled to vote generally in the election of members of the Board. ARTICLE 3. ADMINISTRATION 3.1 THE COMMITTEE. The Plan shall initially be administered by the Personnel, Compensation & Nominating Committee of the Board. Subject to the terms of this Plan, the Board may appoint a successor Committee to administer the Plan. The members of the Committee shall be appointed by, must be members of, and shall serve at the discretion of, the Board. 3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions herein, the Committee shall have full power to select Employees who shall participate in the Plan; determine the size and types of Award Opportunities and Final Awards; determine the terms and conditions of Award Opportunities in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend, or waive rules and regulations for the Plan's administration; and (subject to the provisions of Article 8 herein) amend the terms and conditions of any outstanding Award Opportunity to the extent such terms and conditions are within the sole discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate its authority hereunder. 3.3 DECISIONS BINDING. All determinations and decisions of the Committee as to any disputed question arising under the Plan, including questions of construction and interpretation, shall be final, binding, and conclusive upon all parties. ARTICLE 4. ELIGIBILITY AND PARTICIPATION 4.1 ELIGIBILITY. All Employees who are deemed by the Committee to be key employees shall be eligible to participate in the Plan for such Plan Year. 5 6 4.2 PARTICIPATION. No later than ninety (90) days after the beginning of each Plan Year, the Committee shall determine participation in the Plan based upon the criteria set forth in Section 4.1 herein. Employees who are chosen to participate in the Plan in any given Plan Year shall be so notified in writing, and shall be apprised of the performance measure(s), performance goal(s), and related Award Opportunities for the relevant Plan Year, as soon as is practicable. 4.3 PARTIAL PLAN YEAR PARTICIPATION. An Employee who becomes eligible after the beginning of a Plan Year may participate in the Plan for that Plan Year; however, such Employee's Target Incentive Award shall be prorated to reflect his or her months of participation during the Plan Year. Such situations may include, but are not limited to (a) new hires; (b) when an Employee is promoted to a position which meets the eligibility criteria; or (c) when an Employee is transferred from an affiliate which does not participate in the Plan. The Committee, in its sole discretion, retains the right to prohibit or allow participation in the initial Plan Year of eligibility for any of the aforementioned Employees. 4.4 NO RIGHT TO PARTICIPATE. No Participant or other Employee shall at any time have a right to be selected for participation in the Plan for any Plan Year, despite having previously participated in the Plan. ARTICLE 5. AWARD DETERMINATION 5.1 PERFORMANCE MEASURES AND PERFORMANCE GOALS. No later than ninety (90) days after the beginning of each Plan Year, the Committee shall select performance measures and shall establish in writing performance goals for that Plan Year. Except as provided in Article 8 herein, the performance measures may be based on any combination of corporate, divisional, and/or individual goals. For each Plan Year, the Committee shall establish ranges of attainment of the performance goals which will correspond to various levels of Award Opportunities. Each performance goal range shall include a level of performance at which one hundred percent (100%) of the Target Incentive Award may be earned. In addition, each range shall include levels of performance above and below the one hundred percent (100%) performance level at which a greater or lesser percent of the Target Incentive Award may be earned. After the performance goals are established, the Committee will align the achievement of the performance goals with the Award Opportunities (as described in Section 5.2 herein), such that the level of achievement of the pre-established performance goals at the end of the Plan Year will determine the Final Awards. Except as provided in Article 8 herein, the Committee shall have the authority to exercise discretion in the determination of Final Awards. The Committee may establish one or more Company-wide performance measures which must be achieved for any Participant to receive a Final Award payment for that Plan Year. 6 7 Following the completion of each Plan Year, if the performance goals were met, the Committee shall certify in writing prior to payment of Final Awards that the performance goals for such Plan Year were satisfied. 5.2 AWARD OPPORTUNITIES. No later than ninety (90) days after the beginning of each Plan Year, the Committee shall establish, in writing, Award Opportunities which correspond to various levels of achievement of the pre-established performance goals. The established Award Opportunities may vary in relation to the job classification of each Participant or among Participants in the same job classification. Except as provided in Article 8 herein, in the event a Participant changes job levels during a Plan Year, the Participant's Award Opportunity may be adjusted to reflect the amount of time at each job level during the Plan Year. 5.3 ADJUSTMENT OF PERFORMANCE GOALS AND AWARD OPPORTUNITIES. Once established, performance goals normally shall not be changed during the Plan Year. However, except as provided in Article 8 herein, if the Committee determines in its sole discretion that external changes or other unanticipated business conditions have materially affected the fairness of the goals, then the Committee may approve appropriate adjustments to the performance goals (either up or down) during the Plan Year as such goals apply to the Award Opportunities of specified Participants. Notwithstanding any other provision of this Plan, in the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368), or any partial or complete liquidation of the Company, such adjustment shall be made in the Award Opportunities and/or the performance measures or performance goals related to then-current performance periods, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that subject to Article 8 herein, any such adjustment shall not be made if it would eliminate the ability of Award Opportunities held by Executive Officers to qualify for the "performance-based compensation" exception under Code Section 162(m). 5.4 FINAL AWARD DETERMINATIONS. As soon as practicable after the end of each Plan Year, Final Awards shall be computed for each Participant as determined by the Committee. Subject to the terms of Article 8 herein, Final Award amounts may vary above or below the Target Incentive Award, based on the level of achievement of the pre-established corporate, divisional, and/or individual performance goals. Except as provided in Article 8 herein, the Committee shall have discretion to increase, reduce or eliminate any or all Final Awards that otherwise would be paid; provided however, the Committee may determine prior to the end of the Plan year that it will not exercise such discretion. 5.5 AWARD LIMIT. The Committee may establish guidelines governing the maximum Final Awards that may be earned by Participants (either in the aggregate, by Employee class, or among individual Participants) in each Plan Year. The guidelines may be expressed as a percentage of 7 8 Company-wide goals of financial measures, or such other measures as the Committee shall from time to time determine; provided, however, that the maximum payout with respect to a Final Award payable to any one Participant in connection with performance in any one Plan Year shall be one million five hundred thousand dollars ($1,500,000). 5.6 THRESHOLD LEVELS OF PERFORMANCE. The Committee may establish minimum levels of performance goal achievement, below which no payouts of Final Awards shall be made to any Participant. ARTICLE 6. PAYMENT OF FINAL AWARDS 6.1 FORM AND TIMING OF PAYMENT. Unless a deferral election is made by a Participant pursuant to Section 6.2 herein, or deferral of all or a portion of a Participant's Final Award is required by Section 6.3, each Participant's Final Award shall be paid in cash, in one lump sum, within seventy-five (75) days after the end of each Plan Year. 6.2 VOLUNTARY DEFERRAL OF FINAL AWARD PAYOUTS. A Participant may defer receipt of some or all payments otherwise due under the Plan pursuant to the terms of the Company's Executive Deferred Compensation Plan. 6.3 DEFERRAL OF FINAL AWARD PAYOUTS. In the event that all or a portion of a Participant's Final Award is not deductible by the Company due to limits contained in Code Section 162(m) or any successor Code Section, the Committee may, in its discretion, require that payment of the nondeductible portion of such Final Award shall be deferred until such time as it may be deducted by the Company, subject to such terms and conditions as the Committee determines to be appropriate. Rates of interest on such deferred amounts shall be determined by the Committee in a manner consistent with the requirements of Code Section 162(m) and the Regulations thereunder. 6.4 UNSECURED INTEREST. No Participant or any other party claiming an interest in amounts earned under the Plan shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company. ARTICLE 7. TERMINATION OF EMPLOYMENT 7.1 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT. In the event Participant's employment is terminated by reason of death, Disability, or Retirement, the Final Award determined in accordance with Section 5.4 herein shall be reduced to reflect participation prior to termination only. The reduced award shall be determined by multiplying said Final Award by a fraction, the numerator of which is the number of days of employment in the Plan Year through the date of employment termination, and the denominator of which is three hundred sixty-five (365). In the case of a Participant's Disability, the employment termination shall be deemed to have occurred on the date that the Committee determines the definition of Disability to have been satisfied. 8 9 The Final Award thus determined shall be paid within seventy-five (75) days following the end of the Plan Year in which employment termination occurs. 7.2 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event a Participant's employment is terminated for any reason other than death, Disability, or Retirement (of which the Committee shall be the sole judge), the Participant's opportunity to receive a Final Award for the Plan Year then in progress shall be forfeited. Except as provided in Article 8 herein, the Committee, in its sole discretion, may pay a prorated award for the portion of the Plan Year that the Participant was employed by the Company, computed as determined by the Committee. ARTICLE 8. EXECUTIVE OFFICERS 8.1 APPLICABILITY OF ARTICLE 8. The provisions of this Article 8 shall apply only to Executive Officers. Except as provided in Article 11 herein, in the event of any inconsistencies between this Article 8 and the other Plan provisions as they pertain to Executive Officers, the provisions of this Article 8 shall control. 8.2 ESTABLISHMENT OF AWARD OPPORTUNITIES. Except as provided in Section 8.7 herein, Award Opportunities for Executive Officers shall be established as a function of each Executive Officer's Base Salary (as defined below). No later than ninety (90) days after the beginning of each Plan Year, the Committee shall establish, in writing, various levels of Final Awards which may be paid with respect to specified levels of attainment of the pre-established performance goals. For purposes of this Article 8, "Base Salary" shall mean, as to any specific Plan Year, a Participant's regular annual salary rate as of the last day of the Plan Year. Regular salary shall not be reduced by any voluntary salary reductions or any salary reduction contributions made to any salary reduction plan, defined contribution plan or other deferred compensation plans of the Company, but shall not include any payments under this Plan, the 1989 Stock Incentive Plan, or any other bonuses, incentive pay, or special awards. 8.3 COMPUTATION OF FINAL AWARDS. Each Executive Officer's Final Award shall be based on: (a) the Executive Officer's Target Incentive Award; (b) the potential Final Awards corresponding to various levels of achievement of the pre-established performance goals, as established by the Committee; and (c) Company performance in relation to the pre-established performance goals. Except as provided in Section 8.7 herein, performance measures which may serve as determinants of Executive Officers' Award Opportunities shall be limited to the Company's Pretax Income, Net Income, Earnings Per Share, Revenues, Expenses, Return on Assets, Return on Equity, Return on Investment, Net Profit Margin, Operating Profit Margin, Operating Cash Flow, Total Shareholder Return, Capitalization, Liquidity, Results of Customer Satisfaction Surveys, and other measures of Quality, Safety, Productivity or Process Improvement. Such performance goal may be determined solely by reference to the performance of the Company, a Subsidiary of the Company, or a division or unit of either of the foregoing, or based upon comparisons of any of the performance measures relative to other companies. In 9 10 establishing a performance goal, the Committee may exclude the impact of any event or occurrence which the Committee determines should appropriately be excluded such as, for example, a restructuring or other non-recurring charge, an event either not directly related to the operations of the Company or not within the reasonable control of the Company's management, or a change in accounting standards required by the Financial Accounting Standards Board. 8.4 NO MID-YEAR CHANGE IN AWARD OPPORTUNITIES. Except as provided in Section 8.7 herein, each Executive Officer's Final Award shall be based exclusively on the Award Opportunity levels established by the Committee pursuant to Section 8.2 above. 8.5 NONADJUSTMENT OF PERFORMANCE GOALS. Except as provided in Section 8.7 herein, performance goals shall not be changed following their establishment, and Executive Officers shall not receive any payout when the minimum performance goals are not met or exceeded. 8.6 INDIVIDUAL PERFORMANCE AND DISCRETIONARY ADJUSTMENTS. Except as provided in the second sentence of this Section 8.6 and in Section 8.7 herein, subjective evaluations of individual performance of Executive Officers shall not be reflected in their Final Awards. However, the Committee shall have the discretion to reduce or eliminate the amount of the Final Award otherwise payable to an Executive Officer. 8.7 POSSIBLE MODIFICATIONS. If, on the advice of the Company's counsel, the Committee determines that Code Section 162(m) and the Regulations thereunder will not adversely affect the deductibility for federal income tax purposes of any amount paid under the Plan by permitting greater discretion and/or flexibility with respect to Award Opportunities granted to Executive Officers pursuant to this Article 8, then the Committee may, in its sole discretion, apply such greater discretion and/or flexibility to such Award Opportunities as is consistent with such advice and the terms of this Plan, and, to the extent permitted by such advice, without regard to the restrictive provisions of this Article 8. In addition, in the event that changes are made to Code Section 162(m) or the Regulations thereunder to permit greater flexibility with respect to any Award Opportunities under the Plan, the Committee may exercise such greater flexibility consistent with the terms of the Plan and, to the extent of such changes, without regard to the restrictive provisions of this Article 8. ARTICLE 9. RIGHTS OF PARTICIPANTS 9.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary of the Company. 9.2 NONTRANSFERABILITY. No right or interest of any Participant in the Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law or otherwise, including, but not limited to, execution, levy, garnishment, attachment, pledge, and bankruptcy. 10 11 ARTICLE 10. BENEFICIARY DESIGNATION Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his or her lifetime. Beneficiary designations filed with respect to predecessor plans prior to the adoption of this Plan shall be effective with respect to this Plan. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. ARTICLE 11. CHANGE IN CONTROL Upon the occurrence of a Change in Control while a Participant is employed by the Company, the Company shall promptly thereafter pay in cash to each such Participant his Reference Incentive Compensation Award, prorated to reflect the portion of the fiscal year elapsed through the date of the Change in Control. This payment shall discharge all liabilities of the Company to Participant under the Plan with respect to the portion of the fiscal year elapsed through the date of such Change in Control. ARTICLE 12. AMENDMENTS The Committee or the Board, without notice, at any time and from time to time, may modify or amend, in whole or in part, any or all of the provisions of the Plan, or suspend or terminate it entirely; provided, however, that no such modification, amendment, suspension, or termination may, without the consent of a Participant (or his or her beneficiary in the case of the death of the Participant), reduce the right of a Participant (or his or her beneficiary as the case may be) to a payment or distribution hereunder to which he or she is entitled. ARTICLE 13. MISCELLANEOUS 13.1 GOVERNING LAW. The Plan, and all agreements hereunder, shall be governed by and construed in accordance with the laws of the state of Georgia. 13.2 WITHHOLDING TAXES. The Company shall have the right to deduct from all payments under the Plan any foreign, Federal, state, or local income or other taxes required by law to be withheld with respect to such payments. Before payment of any Final Award may be deferred under Article 6, the Company may require that the Participant pay or agree to withholding for any 11 12 foreign, Federal, state or local income or other taxes which may be imposed on any amount deferred. ---------------------------------------- Robert S. Harkey Senior Vice President - General Counsel & Secretary 12 EX-10.2 3 DELTA'S EXECUTIVE DEFERRED COMPENSATION PLAN 1 EXIHIBIT 10.2 DELTA AIR LINES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN AS AMENDED THROUGH JULY 24, 1997 ARTICLE 1. ESTABLISHMENT AND PURPOSES 1.1 ESTABLISHMENT. Delta Air Lines, Inc., a Delaware corporation (the "Company"), hereby establishes, effective as of July 1, 1994, a deferred compensation plan for key employees as described herein, which shall be known as the "Delta Air Lines, Inc. Executive Deferred Compensation Plan" (the "Plan"). 1.2 PURPOSE. The purpose of the Plan is to provide certain key employees of the Company with the opportunity to voluntarily defer a portion of their compensation, subject to the terms of the Plan. By adopting the Plan, the Company desires to enhance its ability to attract and retain employees of outstanding competence. ARTICLE 2. DEFINITIONS Whenever used herein, the following terms shall have the meanings set forth below, and, when the defined meaning is intended, the term is capitalized: "Affiliate" and "Associate" have the respective meanings accorded to such terms in Rule 12b-2 under the Exchange Act as in effect on July 24, 1997. "Beneficial Ownership". A Person shall be deemed the "Beneficial Owner" of, and shall be deemed to "beneficially own," securities pursuant to Rule 13d-3 under the Exchange Act as in effect on July 24, 1997. "Board" or "Board of Directors" means the Board of Directors of the Company. "Bonus" means any incentive award based on an assessment of performance, payable by the Company to a Participant with respect to the Participant's services during a given fiscal year of the Company, and shall be deemed earned only upon award by the Company. For purposes of the Plan, "Bonus" shall not include incentive awards which relate to a period exceeding one (1) fiscal year. "Change in Control" means, and shall be deemed to have occurred upon, the first to occur of any of the following events: (a) Any Person (other than an Excluded Person) acquires, together with all Affiliates and Associates of such Person, Beneficial Ownership of securities representing 20% or more of the combined voting power of the Voting Stock then outstanding, unless such Person acquires Beneficial Ownership of 20% or more of the combined voting power of the Voting Stock then outstanding solely as a result of an 2 acquisition of Voting Stock by the Company which, by reducing the Voting Stock outstanding, increases the proportionate Voting Stock beneficially owned by such Person (together with all Affiliates and Associates of such Person) to 20% or more of the combined voting power of the Voting Stock then outstanding; provided, that if a Person shall become the Beneficial Owner of 20% or more of the combined voting power of the Voting Stock then outstanding by reason of such Voting Stock acquisition by the Company and shall thereafter become the Beneficial Owner of any additional Voting Stock which causes the proportionate voting power of Voting Stock beneficially owned by such Person to increase to 20% or more of the combined voting power of the Voting Stock then outstanding, such Person shall, upon becoming the Beneficial Owner of such additional Voting Stock, be deemed to have become the Beneficial Owner of 20% or more of the combined voting power of the Voting Stock then outstanding other than solely as a result of such Voting Stock acquisition by the Company; (b) During any period of two consecutive years (not including any period prior to July 24, 1997), individuals who at the beginning of such period constitute the Board (and any new Director, whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was so approved), cease for any reason to constitute a majority of Directors then constituting the Board; (c) A reorganization, merger or consolidation of the Company is consummated, in each case, unless, immediately following such reorganization, merger or consolidation, (i) more than 50% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Voting Stock outstanding immediately prior to such reorganization, merger or consolidation, (ii) no Person (but excluding for this purpose any Excluded Person and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the voting power of the outstanding Voting Stock) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or 2 3 (d) The shareholders of the Company approve (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to any corporation with respect to which, immediately following such sale or other disposition, (A) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Voting Stock outstanding immediately prior to such sale or other disposition of assets, (B) no Person (but excluding for this purpose any Excluded Person and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the voting power of the outstanding Voting Stock) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of such corporation were members of the Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. Notwithstanding the foregoing, in no event shall a "Change in Control" be deemed to have occurred (i) as a result of the formation of a Holding Company, or (ii) with respect to a Participant, if Participant is part of a "group," within the meaning of Section 13(d)(3) of the Exchange Act as in effect on July 24, 1997, which consummates the Change in Control transaction. In addition, for purposes of the definition of "Change in Control" a Person engaged in business as an underwriter of securities shall not be deemed to be the "Beneficial Owner" of, or to " beneficially own," any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means a committee of two (2) or more individuals, appointed by the Board to administer the Plan, pursuant to Article 3 herein. "Compensation" means the gross Salary, Bonus, Long-Term Awards, and other payments eligible for deferral under the Plan, which are payable to a Participant with respect to services performed during a specified period. "Disability" means a disability which would qualify the Participant for Long-Term Disability benefits as defined in Section 4.03 of the Delta Family-Care Disability and Survivorship Plan, as may be amended from time to time. "Effective Date" means the date the Plan becomes effective, as set forth in Section 1.1 herein. 3 4 "Employee" means a full-time, salaried employee of the Company including any Subsidiary of the Company. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor Act thereto. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Person" means (i) the Company; (ii) any of the Company's Subsidiaries; (iii) any Holding Company; (iv) any employee benefit plan of the Company, any of its Subsidiaries or a Holding Company; or (v) any Person organized, appointed or established by the Company, any of its Subsidiaries or a Holding Company for or pursuant to the terms of any plan described in clause (iv). "Holding Company" means an entity that becomes a holding company for the Company or its businesses as a part of any reorganization, merger, consolidation or other transaction, provided that the outstanding shares of common stock of such entity and the combined voting power of the then outstanding voting securities of such entity entitled to vote generally in the election of directors is, immediately after such reorganization, merger, consolidation or other transaction, beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock outstanding immediately prior to such reorganization, merger, consolidation or other transaction in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or other transaction, of such outstanding Voting Stock. "Long-Term Award" means any cash award (other than cash payment in connection with any stock option or stock appreciation right awards under the 1989 Stock Incentive Plan) payable to a Participant pursuant to a Company program which establishes incentive award opportunities which are contingent upon performance which is measured over periods greater than one (1) year. "Participant" means an Employee who has elected to participate in the Plan. "Person" means an individual, corporation, partnership, association, trust or any other entity or organization. "Salary" means all regular, basic wages, before reduction for amounts deferred pursuant to the Plan or any other plan of the Company, payable in cash to a Participant for services to be rendered during the calendar year, exclusive of any Bonus, Long-Term Awards, other special fees, awards, or incentive compensation, allowances, or amounts designated by the Company as payment toward or reimbursement of expenses. 4 5 "Subsidiary" of any Person means any other Person of which securities or other ownership interests having voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "Voting Stock" means securities of the Company entitled to vote generally in the election of members of the Board. ARTICLE 3. ADMINISTRATION 3.1 AUTHORITY OF THE COMMITTEE. The Plan shall initially be administered by the Personnel, Compensation & Nominating Committee of the Board. Subject to the terms of this Plan, the Board may appoint a successor Committee to administer the Plan. The members of the Committee shall be appointed by, must be members of, and shall serve at the discretion of the Board. Subject to the provisions herein, the Committee shall have the exclusive discretion to select Employees for participation in the Plan; to determine the terms and conditions of each Employee's participation in the Plan; to construe and interpret the Plan and any agreement or instrument entered into under the Plan; to establish, amend, or waive rules and regulations for the Plan's administration; to amend (subject to the provisions of Article 9 herein) the terms and conditions of the Plan and any agreement entered into under the Plan; and to make other determinations which may be necessary or advisable for the administration of the Plan. Subject to the terms of the Plan, the Committee may delegate any or all of its authority granted under the Plan to an executive or executives of the Company. 3.2 CLAIMS PROCEDURE. If a request for benefits by a Participant or beneficiary is wholly or partially denied, the Committee will provide such claimant written notice setting forth the denial. A review procedure is available upon written request by the claimant to the Committee within 90 days after the date of the Committee's written notice of the denial of the claim, and includes the right to examine pertinent documents and submit issues and comments in writing to the Committee. The decision on review will be made within 90 days after receipt of the request for review, unless circumstances warrant an extension of time not to exceed an additional 90 days, and shall be in writing. If a decision on review is not made within such period, the Participant's claim shall be deemed denied. 3.3 DECISIONS BINDING. All determinations and decisions of the Committee as to any disputed question arising under the Plan, including questions of construction and interpretation, shall be final, conclusive and binding on all parties. ARTICLE 4. ELIGIBILITY AND PARTICIPATION 4.1 ELIGIBILITY. Employees eligible to participate in the Plan include key policy-makers and decision-makers of the Company, as selected by the Committee in its sole discretion. It is the intent of the Company to extend eligibility only to those executives who comprise a select group 5 6 of management or highly compensated employees, such that the Plan will qualify for treatment as a "Top Hat" plan under ERISA. In the event a Participant no longer meets the requirements for participation in the Plan, such Participant shall become an inactive Participant, retaining all the rights described under the Plan, except the right to make any further deferrals, until such time that the Participant again becomes an active Participant. 4.2 PARTICIPATION. Participation in the Plan shall be determined annually by the Committee based upon the criteria set forth in Section 4.1 herein. Employees who are chosen to participate in the Plan in any given year shall be so notified in writing. 4.3 PARTIAL YEAR ELIGIBILITY. In the event that an Employee first becomes eligible to participate in the Plan during any given year, such Employee shall as soon as practicable be so notified in writing by the Company and provided with an "Election to Defer Form," which must be completed by the Employee as provided in Section 5.2 herein; provided, however, that such Employee may only make an election to defer with respect to that portion of his or her Compensation for such year which is to be paid after the date of filing of the deferral election. 4.4 NO RIGHT TO PARTICIPATE. No Employee shall have the right to be selected as a Participant, or, having been so selected for any given year, to be selected again as a Participant for any other year. ARTICLE 5. DEFERRAL OPPORTUNITY 5.1 AMOUNT WHICH MAY BE DEFERRED. A Participant may elect to defer up to one hundred percent (100%) of eligible components of Compensation, including but not limited to Salary, Bonus and Long-Term Awards, in any given year; provided, however, that the Committee shall have sole discretion to designate which components of Compensation are eligible for deferral elections under the Plan in any such year. The minimum amount of any single eligible component of Compensation which may be deferred in any given year is the lesser of ten percent (10%) of such component or ten thousand dollars ($10,000). In addition, an election to defer Compensation in any given year shall be expressed by each Participant in increments of either ten percent (10%) of the applicable component of Compensation or ten thousand dollars ($10,000). 5.2 DEFERRAL ELECTION. Participants shall make their elections to defer Bonuses under the Plan for a given fiscal year not later than (a) thirty (30) days prior to the beginning of such fiscal year or (b) if Participants are notified after the beginning of the fiscal year of their selection to participate in the Plan for such fiscal year or a partial fiscal year, within thirty (30) days of receipt of such notice. Elections to defer Salary under the Plan for a given calendar year shall be made not later than (x) thirty (30) days prior to the beginning of such calendar year or (y) if Participants are notified after the beginning of the calendar year of their selection to participate in the Plan for such calendar year or a partial calendar year, within thirty (30) days of receipt of such notice. Elections to defer Long-Term Awards and other payments eligible for deferral under the Plan shall be made in accordance with the foregoing rules for fiscal or calendar years, as the 6 7 Committee deems appropriate. All deferral elections shall be irrevocable; shall relate solely to amounts earned after the filing of a deferral election with the Committee; and shall be made on an "Election to Defer Form," as described herein. Participants shall make the following irrevocable elections on each "Election to Defer Form": (a) The amount to be deferred with respect to each eligible component of Compensation for the specified year; (b) The length of the deferral period with respect to each eligible component of Compensation, pursuant to the terms of Section 5.3 herein; (c) The form of payment to be made to the Participant at the end of the deferral period(s), pursuant to the terms of Section 5.4 herein; and (d) The interest rate alternative(s) with respect to deferrals of Compensation, pursuant to Section 6.2 herein. 5.3 LENGTH OF DEFERRAL. The deferral periods elected by each Participant with respect to deferrals of Compensation for any given year shall be selected from among the choices specified by the Committee. For deferral elections made prior to July 24, 1997, the deferral periods shall be for at least one (1) year following the end of the calendar year in which the Compensation is earned, and shall not exceed ten (10) years following such date; provided, that in no event shall the deferral period extend beyond the end of the calendar year in which the Participant reaches the age of 65. Notwithstanding the deferral periods elected by a Participant, payment of deferred amounts and accumulated interest thereon shall be made to the Participant, or the Participant's beneficiary designated pursuant to Section 6.4 hereof, as the case may be, in a single lump sum in the event the Participant's employment with the Company is terminated by reason of death or Disability at any time prior to scheduled payment of deferred amounts and interest thereon. Such payment following employment termination shall be made in cash, within thirty (30) days after the effective date of termination of the Participant's employment. Deferral elections made on or after July 24, 1997 shall comply with the terms and conditions specified by the Committee from time to time. 5.4 PAYMENT OF DEFERRED AMOUNTS. Subject to the provisions of Section 5.5, 5.6 and Article 9 of the Plan, Participants shall receive payment of deferred amounts, together with interest earned thereon, at the end of the deferral period in a single lump-sum cash payment or, if approved by the Committee, by the Participant electing another means of payment such as in installments. If alternative methods for receiving payment are approved by the Committee, elections of the method of payment shall be made by the Participant within the same time periods as required in Section 5.2 of the Plan. 7 8 (a) LUMP-SUM PAYMENT. A lump sum payment shall be made in cash within sixty (60) days of the end of the deferral period specified by the Participant, as described in Sections 5.2 and 5.3 herein. (b) INSTALLMENT PAYMENTS. If approved by the Committee, Participants may elect payout in annual installments, with a minimum number of installments of two (2), and a maximum of fifteen (15). The initial payment shall be made in cash within sixty (60) days after the commencement date selected by the Participant pursuant to Sections 5.2 and 5.3 herein. The remaining installment payments shall be made in cash each year thereafter, until the Participant's entire deferred compensation account has been paid. Interest shall accrue on the deferred amounts in the Participant's deferred compensation account, as provided in Section 6.2 of the Plan. The amount of each installment payment shall be equal to the balance remaining in the Participant's deferred compensation account immediately prior to each such payment, multiplied by a fraction, the numerator of which is one (1), and the denominator of which is the number of installment payments remaining. (c) ALTERNATIVE PAYMENT SCHEDULE. If approved by the Committee, a Participant may elect an alternate payment schedule. 5.5 FINANCIAL HARDSHIP. The Committee shall have the authority to alter the timing or manner of payment of deferred amounts in the event that the Participant establishes, to the satisfaction of the Committee, severe financial hardship. In such event, the Committee may, in its sole discretion: (a) Authorize the cessation of deferrals by such Participant under the Plan; (b) Provide that all, or a portion, of the amount previously deferred by the Participant shall immediately be paid in a lump-sum cash payment; (c) Provide that all, or a portion, of the installments payable over a period of time shall immediately be paid in a lump-sum cash payment; or (d) Provide for another installment payment schedule as deemed appropriate by the Committee under the circumstances. For purposes of this Section 5.5, "severe financial hardship" shall mean any financial hardship resulting from extraordinary and unforeseeable circumstances arising as a result of one or more recent events beyond the control of the Participant. In any event, payment may not be made to the extent such emergency is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or (iii) by cessation of existing deferrals or new deferrals under the Plan. 8 9 Withdrawals of deferred amounts because of a severe financial hardship may only be permitted to the extent reasonably necessary to satisfy the hardship. Examples of what are not considered to be severe financial hardships include the need to send a Participant's child to college or the desire to purchase a home. The Participant's account will be credited with earnings (and debited for any losses) in accordance with the Plan up to the date of distribution. The severity of the financial hardship shall be judged by the Committee. The Committee's decision with respect to the severity of financial hardship and the manner in which, if at all, the Participant's future deferral opportunities shall be eliminated, and/or the manner in which, if at all, the payment of deferred amounts to the Participant shall be altered or modified, shall be final, conclusive and not subject to appeal. 5.6 CHANGE IN CONTROL. Notwithstanding any provision contained in the Plan, in the event of a Change in Control, the Committee in its sole discretion may direct that all or certain Participants shall be entitled to an immediate lump sum payment of their deferred amounts, together with interest earned thereon. ARTICLE 6. DEFERRED COMPENSATION ACCOUNTS 6.1 PARTICIPANTS' ACCOUNTS. The Company shall establish and maintain an individual bookkeeping account for deferrals made by each Participant under Article 5 herein. Each account shall be credited as of the date the amount deferred otherwise would have become due and payable to the Participant. 6.2 INTEREST ON DEFERRED AMOUNTS. Compensation deferred under Article 5 shall accrue interest on a basis to be specified by the Committee, consistent with the provisions of Section 162(m) of the Code and the rules and regulations promulgated thereunder, at a rate equal to the return on the rate of return choice(s) selected by the Participant from among the alternatives specified by the Committee from time to time. Interest credited on deferred amounts (less the amount of any debits for any losses) shall be paid out to Participants at the same time and in the same manner as the underlying deferred amounts. 6.3 CHARGES AGAINST ACCOUNTS. There shall be charged against each Participant's deferred compensation account any payments made to the Participant or to his or her beneficiary. 6.4 DESIGNATION OF BENEFICIARY. Each Participant may designate a beneficiary or beneficiaries (who may be named contingently or successively) who, upon the Participant's death, will receive the amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in such form as prescribed by the Committee. Each designation shall be effective as of the date received from the Participant by the Corporate Secretary of the Company. Participants may change their designations of beneficiary on a form prescribed by the Committee. The payment of amounts deferred under the Plan shall be in accordance with the last 9 10 unrevoked written designation of beneficiary that has been signed by the Participant and delivered by the Participant to the Corporate Secretary of the Company prior to the Participant's death. In the event that all the beneficiaries named by a Participant pursuant to this Section 6.4 predecease the Participant, the deferred amounts that would have been paid to the Participant or the Participant's beneficiaries shall be paid to the Participant's estate. In the event a Participant does not designate a beneficiary, or for any reason such designation is ineffective, in whole or in part, the amounts that otherwise would have been paid to the Participant or the Participant's beneficiaries under the Plan shall be paid to the Participant's estate. ARTICLE 7. RIGHTS OF PARTICIPANTS 7.1 CONTRACTUAL OBLIGATION. The Plan shall create a contractual obligation on the part of the Company to make payments from the Participants' accounts when due. Payment of account balances shall be made out of the general funds of the Company. 7.2 UNSECURED INTEREST. No Participant, or party claiming an interest in deferred amounts or contributions through a Participant, shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, such right shall be equivalent to that of an unsecured general creditor of the Company. The Company may establish one or more trusts, with such trustee(s) as the Committee may approve, for the purpose of providing for the payment of deferred amounts. Any such trust created by the Company will conform to the terms of the model trust approved by the Internal Revenue Service pursuant to Revenue Procedure 92-64, or any amendment thereof or successor procedure thereto. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Company's general creditors. To the extent any deferred amounts under the Plan are actually paid from any such trust, the Company shall have no further obligation with respect thereto, but to the extent not so paid, such deferred amounts shall remain the obligation of, and shall be paid by, the Company. 7.3 EMPLOYMENT. Nothing in the Plan shall interfere with nor limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. ARTICLE 8. WITHHOLDING OF TAXES The Company shall withhold from an employee's regular compensation from the Company an amount sufficient to satisfy foreign, Federal, state, and local income or other withholding tax requirements with regard to amounts deferred under the Plan. However, the Company reserves the right to institute alternative methods for satisfying the applicable income and withholding tax requirements. 10 11 ARTICLE 9. AMENDMENT AND TERMINATION The Company hereby reserves the right to amend, modify or terminate the Plan at any time by action of the Committee or the Board of Directors. Except as described below in this Article 9, no such amendment, modification or termination shall in any material manner adversely affect any Participant's rights to deferred amounts, contributions or interest earned thereon, without the consent of the Participant. The Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly compensated employees" within the meaning of Sections 201, 301 and 401 of ERISA, and therefore to be exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, the Board may terminate the Plan and commence termination payout for all or certain Participants, or remove certain employees as Participants, if it is determined by the United States Department of Labor or a court of competent jurisdiction that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA which is not so exempt. If payout is commenced pursuant to the operation of this Article 9, the payment of such amounts shall be made in a lump sum regardless of the manner selected by each Participant under Section 5.4 herein as applicable. ARTICLE 10. MISCELLANEOUS 10.1 NOTICE. Any notice or filing required or permitted to be given to the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail to the Corporate Secretary of the Company. Notice to the Corporate Secretary, if mailed, shall be addressed to the principal executive offices of the Company. Notice mailed to a Participant shall be at such address as is given in the records of the Company. Notices shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. 10.2 NONTRANSFERABILITY. Participants' rights to deferred amounts and interest earned thereon under the Plan may not be sold, transferred, assigned or otherwise alienated or hypothecated other than by will or by the laws of descent and distribution. In no event shall the Company make any payment under the Plan to any assignee or creditor of a Participant. 10.3 SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 10.4 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural. 10.5 COSTS OF THE PLAN. All costs of implementing and administering the Plan shall be borne by the Company. 11 12 10.6 APPLICABLE LAW. The Plan shall be construed and enforced in accordance with the provisions of ERISA. In the event that ERISA is not applicable or does not preempt State law, the laws of the State of Georgia shall govern. 10.7 SUCCESSORS. All obligations of the Company under the Plan shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 10.8 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary of the Company. ---------------------------------------- Robert S. Harkey Senior Vice President - General Counsel & Secretary 12 EX-10.3 4 DIRECTORS CHARITABLE AWARD PROGRAM 1 EXHIBIT 10.3 DELTA AIR LINES, INC. DIRECTOR'S CHARITABLE AWARD PROGRAM (AS AMENDED EFFECTIVE OCTOBER 23, 1997) 1. PURPOSE OF THE PROGRAM The Delta Air Lines, Inc. Director's Charitable Award Program (the "Program") allows each eligible Director of Delta Air Lines, Inc. (the "Company") to recommend that the Company, through The Delta Air Lines Foundation or otherwise under Section 10 of the Program (the "Foundation"), make a $1,000,000 donation to the eligible tax-exempt organizations(s) (the "Donee(s)") selected by the Director, with the donation to be made, in honor of the Director, in five equal annual installments of $200,000, with the first installment to be made as soon as is practicable after the Director's death. The purpose of the Program is to acknowledge the service of the Company's Directors, and recognize the charitable interest of the Company and its Directors in supporting worthy institutions. 2. ELIGIBILITY All persons serving as Directors of the Company as of June 1, 1991, and all Directors who join the Board of Directors after that date but prior to July 29, 1994, shall be immediately eligible to participate in the Program on the effective date of their election to the Board. 3. RECOMMENDATION OF DONATION When a Director becomes eligible to participate in the Program, he or she may make a written recommendation to the Company, on a form approved by the Company for this purpose, designating the Donee(s) which he or she intends to be the recipient(s) of the donation to be made in his or her honor. Subject to Section 10 of the Program, a Director may revise or revoke any such 2 recommendation prior to his or her death by signing a new recommendation form and submitting it to the Company. 4. AMOUNT AND TIMING OF DONATION Each eligible Director may recommend one organization to receive a donation of $1,000,000, or up to five organizations to receive donations aggregating $1,000,000. If and to the extent approved by the Foundation, the donation will be made by the Foundation in honor of the Director in five equal annual installments of $200,000, with the first installment to be made as soon as is practicable after the Director's death. If a Director recommends more than one Donee, each Donee will receive a prorated portion of each annual installment. If and to the extent approved by the Foundation, each annual installment payment will be divided among the recommended organizations in the same proportions as the total donation amount has been allocated among the organizations by the Director, except that a Director may request the Company to request the Foundation to allocate the installment payments in a different manner. 5. DONEES In order to be eligible to receive a donation, a recommended organization must qualify as a tax-exempt organization under Internal Revenue Code Section 501(c)(3), and must be reviewed and approved by the Committee (as defined in Section 9 of the Program). A recommendation will be approved only if the Committee, in its sole discretion, determines that the goals and purposes of the organization are consistent with the business purposes and charitable philosophy of the Company. 6. FORFEITURE Subject to Section 10 of the Program, no donation will be made in honor of a Director after he or she terminates Board service, unless such termination of service is as a result of death, disability, retirement at the date applicable to such Director pursuant to the Company's By-Laws, or such other - 2 - 3 circumstances as deemed appropriate by the Committee; provided, however, that a donation may be made in honor of a Director who is or was a full-time employee of the Company and pursuant to the Company's By-Laws has resigned from the Board coincident with retirement from full-time employment if such Director retires from or has already retired from the Company at the normal retirement date determined under the retirement or pension plan of the Company or subsidiary applicable to the Director. 7. FUNDING AND PROGRAM ASSETS The Company plans to fund the Program through corporate contributions to the Foundation, subject to Section 10 of the Program. No Director shall have any right or interest in any asset or trust fund of the Company or the Foundation, or be deemed to have any beneficial interest in any trust, actual or constructive, created under the Program, including without limitation any insurance policy acquired under Section 10 of the Program. No recommended Donee shall have any right or interest in any asset or trust fund of the Company or the Foundation, or be deemed to have any beneficial interest in any trust, actual or constructive, created under the Program, except to the extent specified in Section 10 of the Program. 8. AMENDMENT OR TERMINATION Subject to Section 10 of the Program, the Board of Directors of the Company may, at any time, without the consent of the Directors participating in the Program, amend, suspend, or terminate the Program. There can be no assurance that a donation will be made, and neither the Director nor the recommended organization acquires any legal right to such donation by virtue of the recommendation. - 3 - 4 9. ADMINISTRATION The Program shall be administered by the Personnel, Compensation & Nominating Committee of the Board prior to August 29, 1997, and the Corporate Governance Committee of the Board after that date (the "Committee"). The Committee shall have plenary authority in its discretion, but subject to the provisions of the Program, to prescribe, amend, and rescind rules, regulations and procedures relating to the Program. The determination of the Committee on the foregoing matters shall be conclusive and binding on all interested parties. Notwithstanding anything in the Program to the contrary, the Foundation, in its sole discretion, shall have authority to determine whether to make contributions to recommended Donees and, if the Foundation determines to make a contribution, the amount and manner of such contribution. 10. CHANGE IN CONTROL In the event of a "Change in Control," (a) the Program may not be amended or terminated with respect to a former or then serving Director eligible to participate in the Program under Section 2, and (b) the Company will immediately purchase insurance policies to fund recommended donations, pay all premiums necessary to support any such insurance policies (for the entire term of the policies) and place the policies into a trust administered by an independent trustee, and the Company will immediately designate the recommended Donees previously approved by the Committee as beneficiaries for all such policies. For purposes of the Program, the term "Change in Control", and the following additional terms used in that definition, "Affiliate", "Associate", "Beneficial Ownership", "Board", "Company", "Exchange Act", "Excluded Person", "Holding Company", "Person", "Subsidiary" and "Voting Stock", will be as defined in the Company's 1989 Stock Incentive Plan as in effect on July 24, 1997, and "Participant", as used in the definition of "Change in Control" shall mean a former or then serving Director eligible to participate in the Program. - 4 - 5 11. GOVERNING LAW The Program shall be construed and enforced according to the laws of the State of Georgia, and all provisions thereof shall be administered according to the laws of said State. 12. EFFECTIVE DATE The effective date of the Program shall be September 1, 1991. - 5 - EX-11 5 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 DELTA AIR LINES, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (In millions, except per share amounts)
1997 1996 ---- ---- PRIMARY: Weighted average shares outstanding 74 76 Additional shares assuming exercise of stock options 1 -- ----- ----- Average shares outstanding as adjusted 75 76 ===== ===== Net income $ 254 $ 238 Preferred series B dividends (2) (2) ----- ----- Net income available to primary common shares $ 252 $ 236 ===== ===== Primary income per common share $3.34 $3.09 ===== ===== FULLY DILUTED: Weighted average shares outstanding 74 76 Additional shares assuming: Conversion of series C convertible preferred stock -- 1 Conversion of series B ESOP convertible preferred stock 2 2 Exercise of stock options 1 -- ----- ----- Average shares outstanding as adjusted 77 79 ===== ===== Net income $ 254 $ 238 Additional required ESOP contribution assuming conversion of series B ESOP convertible preferred stock, net of tax (2) (1) ----- ----- Net income available to fully diluted common shares $ 252 $ 237 ===== ===== Fully diluted income per common share $3.26 $2.98 ===== =====
EX-12 6 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12 DELTA AIR LINES, INC. STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (In Millions, except ratios) - --------------------------------------------------------------------------------
Three Months Three Months Ended Ended September 30, September 30, 1997 1996 ------------- ------------- Earnings : Earnings before income taxes $ 418 $ 398 Add (deduct): Fixed charges 170 133 Interest capitalized (9) (8) ----- ----- Earnings as adjusted $ 579 $ 523 ===== ===== Fixed charges: Interest expense $ 50 $ 54 Portion of rental expense representative of the interest factor 120 79 ----- ----- Total fixed charges $ 170 $ 133 ===== ===== Ratio of earnings to fixed charges 3.41 3.93
EX-15 7 LETTER FROM ARTHUR ANDERSEN 1 ARTHUR ANDERSEN LLP EXHIBIT 15 To 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 September 30, 1997, which includes our report dated October 31, 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 October 31, 1997 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELTA AIR LINES, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RELATED FINANCIAL STATEMENTS. 1,000,000 3-MOS JUN-30-1998 JUL-01-1997 SEP-30-1997 1,151 504 1,078 49 85 3,489 13,914 5,607 13,535 4,601 2,065 0 0 251 2,989 13,535 0 3,552 0 3,121 (37) 6 50 418 164 254 0 0 0 254 3.34 3.26
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