DELTA AIR 1981 COMPARATIVE SUMMARY 0 F OPERATIONS DELTA AIR LINES, INC. Dollars expressed in thousands except per share figures Years ended June 30 1961 1960 1959 Operating Revenues .. . ............... . $146,132 $120,191 $103,805 Operating Expenses (excluding depreciation) .. $119,226 $101,708 $ 85,550 Operating Income (excluding depreciation) .. . $ 26,906 $ ~8,483 $ 18,255 Depreciation expense ................ . $ 15,205 $ 11,752 $ 8,870 Operating Income after depreciation .... . $ 11,701 $ 6,731 $ 9,385 Net Income from Operations, after Taxes and other charges ............... . $ 4,126 $ 2,683 $ 4,062 Total Earnings ...................... . $ 4,652 $ 2,839 $ 4,062 Shares Outstanding . .. . . 1,122,235 1,122,233 1,122,221 Earnings Per Share ................... . $4.15 $2.53 $3.62 Total Stockholder Equity ............... . $ 41,056 $ 38,902 $ 37,410 Stockholder Equity per Share ............ . $36.58 $34.67 $33.34 Revenue Passengers Carried ............ . 3,569,778 3,241,511 2,988,241 Available Seat Miles (000) ...... ........ . 3,389,547 3,027,450 2,622,740 Revenue Passenger Miles (000) . .......... . 2,034,047 1,757,208 1,554,630 Passenger Load Factor ................. . 60.01% 58.04% 59.28% LINES, I N C. C O N'T E NT S Report from the President Page and General Manager. . . . 2-9 Revenues ............. . Expenses ............. . Earnings .............. . Dividends ............. . 2 4 4 4 Jet Services . . . . . . . . . . . . 4 Aircoach Services. . . . . . . . 4 West Coast Route Extension 5 International Services . . . . . 7 Regulatory Matters . . . . . . . 7 Personnel. . . . . . . . . . . . . . 7 Flight Equipment. . . . . . . . . 7 Ground Facilities. . . . . . . . . 8 Capitalization and Financing 9 Conclusion . . . . . . . . . . . . . 9 System Route Map ....... 10-11 Financial Statements ...... 12-16 Balance Sheets .......... 12-13 Statements of Income . . . . . 14 Statements of Capital Surplus and Retained Earnings. . . . 15 Auditor's Opinion. . . . . . . . 15 Notes to Financial Statements 16 Ten Year Summary ....... 18-19 Ticket Offices . . . . . . . . . . . 20 Directors and Officers . . . . . 21 2 The fiscal year which ended on June 30, 1961, was one of significant expansion for Delta Air Lines. It encompassed the first full fiscal period of your Company's pure-jet operations and the launching of service to California. Delta Air Lines was first in the world to place the Douglas DC-8 in scheduled operation on September 18, 1959 and followed this with the introduction of the Convair 880 to com- mercial aviation on May 15, 1960. Passenger acceptance and efficiency of jet air- craft were confirmed and the scope of jet service was significantly expanded as six new aircraft were delivered during the year. ANNUAL REPORT TO THE STOCKHOLDERS Passengers board one of Delta's Convair 880 Jets, holder of a transcontinental ocean-to-ocean record of 3 hrs., 31 min., 54 sec. Continuing jet leadership and high service stand- ards improved your Company's position in its major markets. Revenues and traffic volumes, increased by a brief interruption of competitive services, reached record levels. Net earnings from opera- tions were $4,126,000 with disposition of flight equipment boosting total earnings to $4,652,000, equal to $4.15 per share of outstanding common stock. The Civil Aeronautics Board's award in the Southern Transcontinental Service Case, an- nounced on March 14, 1961, extended your Com- pany's routes westward from Dallas and Fort Worth to California. This decision authorized service to San Diego, Los Angeles, San Francisco and Las Vegas and designated the Florida cities of Jacksonville and Orlando as co-terminals on the new transcontinental route. The extensions in- creased unduplicated route mileage from 11,338 miles to 14,122 miles. Access to these _ long-haul traffic markets should materially strengthen your Company. In its deci- sion, the CAB wisely avoided severely destructive competitive certifications, although major awards were also made to other carriers. Operations over this new southern transcontinental route began on June 11, 1961, the effective date of the award, and reception of the initial services has been gratifying. REVENUES Operating revenues were a record $146,132,000, up $25,941,000 (22%) over the preceding year. The more than 3 million passengers carried generated 2.03 billion revenue passenger miles, an increase of 16%. The higher passenger fares placed into effect on July 1, 1960, and minor adjustments sub- sequently made, resulted in an average return per passenger mile 6% greater than for the previous year. Passenger revenues accordingly rose 23%, to $134,946,000, and represented 92% of total operat- ing revenues. Revenues from cargo (mail, freight and express) were $8,057,000, a 4% increase over the $7,752,000 for the previous year. Combined express and air freight revenues were relatively unchanged. Th~ largest individual gain occurred in the movement of U.S. mail - ton miles up 34% and revenues up 20%. U.S. mail carried by air includes both regu- lar air mail and an increasing volume of first class mail being routed by air on a non-priority, space available basis by the Post Office Department to expedite delivery. The airlines are paid for the movement of this non-priority mail at rates which are approximately 50% of the rates for air mail. The volumes of air mail and ffrst class mail, and the average yields for each, for the last three years are shown by the following tabulation: Air Mail First Class Mail Ton Ton Mile Ton Ton Mile Fiscal year ended Miles Yield Miles Yield June 30, 1959 ... .. 5,006,000 41.43 390,000 19.99 June 30, 1960 . . ... 4,752,000 42.85 523,000 19.92 June 30, 1961 ..... 5,628,000 40.92 1,432,000 19.27 1 Passenger and Excess Baggage $136,742,888 93.58 2 Mail $2,578,792. . . . . 1.76 3 Freight and Express $5,478,408 ......... 3.75 4 Other $1,332,245 . . . . .91 1961 REVENUE DOLLAR SOURCES Twelve months ended June 30, 1961 Total Dollar Revenue $146,132,333 1 Employee salaries and related costs* $56,239,570 ... 38.49 2 Depreciation and Obsolescence of Property and Equipment $15,205,584 .. . 10.41 3 Gasoline and Oil $17,338,196 ... 11.86 4 Materials and outside repairs for Maintenance of Equipment $11,812,118 ... 8.08 5 Food and supplies for Passengers $4,573,460 ... 3.13 6 Advertising $3,726,058 ... 2.55 7 Other operating costs $22,580,015 . .. 15.45 8 Capital Costs (Interest and Dividends) $4,198,568 ... 2.87 9 Taxes $7,153,609 . .. 4.90 10 Retained for use in business $3,305,155 ... 2.26 *Salaries, travel, employee welfare and payroll taxes DISTRIBUTION 3 38 36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 4 WI - - - - ~ -- - a - - - ~ -- - - '52 '53 '54 '55 '56 '57 '58 '59 '60 '61 EXPENSES Total operating expenses of $134,431,000 repre- sented an 18% increase over 1960 fiscal year ex- penses, for the operation of 12% more seat miles and the carriage of 14% more ton miles of revenue traffic. Cash expenses (excluding depreciation and amortization charges) rose 17%, depreciation ex- penses increased $2,496,000 (22%) reflecting the addition of six Convair jet aircraft to the fleet dur- ing the year, and amortization of preoperating costs rose from $553,000 to $1,511,000. During the year charges against operations through amortization of preoperating costs exceeded by $747,000 the amount of such costs that were deferred, and the balance of $1,294,000 remaining to be amortized at June 30, 1961 will be substantially eliminated dur- ing the ensuing twelve months. Payments to or for the benefit of employees increased 12%, to $56,240,000 (from $50,402,000) and represented 38% of total cash expenses. Advances in price levels could not be fully offset by operating economies, and the volume of service could not economically be increased in direct pro- portion to the higher depreciation and amortiza- tion charges. Un it costs therefore increased slightly - the cost per available seat mile rose 6% to 3.95 and the cost of producing an available ton mile rose 4%to30.40.These increases in capacity costs were almost exactly equalled by the improvement in revenue yields, and the passenger load factor re- quired to achieve breakeven operations remained relatively unchanged at approximately 55%. EARNINGS The factors previously noted which contributed to the traffic and revenue increases were also largely responsible for the improvement in the percentage of available seat miles sold, which rose to 60.0% in the 1961 fiscal year from 58.0% in the 1960 year. Each one percentage point of passenger load fac- tor represented $2 million of passenger revenues during the year, and operating income for the 1961 fiscal year of $11,701,000 was up sharply from the $6,731,000 in the preceding year. Interest expense rose from $1,491,000 to $2,852,000 in keeping with the increase in outstanding borrowings. Taxes on income were$4,842,000as compared with$2,735,000 for the preceding year, and net income from opera- tions (after all charges and taxes) was $4,126,000. Net profits of $526,000 after taxes from sales of piston-engined aircraft no longer required in our operations brought total earnings to $4,652,000, equivalent to $4.15 per share of common stock. To- tal earnings for the 1960 fiscal year were $2,839,000 ($2.53 per share), including $156,000 in equipment sale profits. Although the net income from operations of $4,126,000 for the 1961 fiscal year is the highest in your Company's history, it represents only 2.82% of sales - a profit margin that was bettered in three of the preceding five years. It represents a 7,4% return on investment, determined in accordance with the standards established by the Civil Aero- nautics Board in the General Passenger Fare In- vestigation Case, and in that decision (issued in November, 1960) the CAB found that the fair over- all rate of return for the domestic trunkline industry would be approximately 10.5% based upon a some- what lower return for the four largest carriers and a slightly higher return for Delta and the remaining carriers. Total earnings, including equipment sale profits, represent a 7 .9% return on investment, still well below the level found reasonable. DIVIDENDS Four cash dividends of 30 each were declared by your Directors during the year and paid on the first of September and December, 1960 and March and June, 1961. Cash dividends have been paid for thirteen consecutive years and in nineteen of the last twenty years. This outstanding dividend record was continued by the declaration of the 53rd cash dividend, of 30 a share, on July 27, 1961, payable on September 1, 1961 to stockholders of record August 11 , 1961 . JET SERVICES A full year's operation of the nine jet aircraft in service at the beginning of the year and receipt of six additional jets during the period permitted a significant increase in the scope and volume of jet service. Your Company provided the first jet serv- ice to several cities and in many of its major mar- kets. Sixteen cities were receiving jet service at year-end. Jet seat miles increased from 481 million (16% of the total) to 1,271 million (37% of the total) during the 1961 fiscal year and represented 43% of total seat miles being produced at the end of the year. Seat miles operated with piston-engined equipment were 428 million below the preceding year, in order to reasonably relate volume of serv- ice to available traffic. System seat miles were up 362 million (12%). The quarter-by-quarter growth of jet service since its introduction in September, 1959 is shown below: Jet Seat Miles Jet Seat Miles as (000) Percent of Total 1961 1960 1961 1960 Fiscal Fiscal Fiscal Fiscal Quarter Ended Year Year Year Year September 30th . ..... , 239,394 4,661 30.2% .7% December 31st ... . ... 293,072 109,158 36.0% 14.5% March 31st .. . ... . ... 368,876 168,341 41.2% 21.5% June 30th ........ . .. 369,743 198,708 41.6% 25.2% - - Fiscal Year Totals ..... 1,271,085 480,868 37.5% 15.9% The 68.56% passenger load factor on jet flights was well above the 60.01 % system load factor, evidenc- ing the public preference for jet service. AIRCOACH SERVICES Delta Air Lines serves 58 cities on its domestic route system and provides reduced-fare aircoach Meal service varies with the flight and type of equipment, ranging from Royal Service champagne luncheons and dinners to snacks and attractive box lunches. service to 34 of those cities. Some 42% of total seat miles produced were in aircoach service, and air- coach passenger miles represented 44% of total passenger miles (approximately the same percent- ages as in the previous year). Recent months have seen a definite shift in airline passenger traffic from first class to coach service, and in early 1961 for the first time industry coach passenger miles exceeded first class passenger miles. This shift has been largely brought about by the increase in jet coach seats being offered and by a fare structure that creates significant dollar savings on long trips that are perhaps dispropor- tionate to the service differentials. This industry trend has not been as pronounced in your Com- pany's operations, partly because of its route structure and partly because of the attractiveness of the luxury service provided by Delta's Convair 880 jet aircraft that are operated in all-first-class configuration. Further developments in this area will be closely followed and appropriate steps taken if subsequent events confirm the permanence of this recently-manifested popularity of coach travel. ROUTE EXTENSION TO THE WEST COAST Operations to California were begun on June 11, 1961, the effective date of the certification. The initial schedule pattern provided (among others) three southern transcontinental jet round trips, including a DC-8 non-stop round trip between Atlanta and Los Angeles. These substantial initial services utilized equipment that had been as- signed to transcontinental interchange operations (which were discontinued concurrently with ac- tivation of the new routes on June 11th) or that became available through the usual summer cur- tailment of service to Florida. The twenty days of operation over the West Coast routes in June, 1961 did not make a material contribution to revenues and earnings for the 1961 fiscal year, but overall experience with the new services has been satisfactory and encouraging. Our identification for three decades with southern transcontinental traffic, first by interline connec- tions and then by through-plane equipment inter- change operations, reduced the lengthy and costly developmental period that is usually associated with activation of new routes. A more complete schedule pattern will be possible when the three new Convair 880's are added to the fleet during September and October, 1961, including initial service to San Francisco and non-stop jet service between New Orleans and Los Angeles. The Civil Aeronautics Board estimated that full implementa- tion of these West Coast route extensions should add approximately $30 million to Delta's annual revenues. This estimate presently does not appear unreasonable. 5 SOURCES AND DISPOSITION OF FUNDS as of June 30 Over 20 years . ' ' IO O 199 130 15- 20 years ... ' ' ' .. ' 880 446 10-:-15 years ' . ' . . . ' ' . 968 1,224 5-10 years 1,656 1,432 1- 5 years 3,132 2,799 Less than one year .... . 1,455 1,536 I I I O O I I I o 8,290 7,567 1961 1960 (All amounts in thousands) FUNDS PROVIDED BY: Net earnings, excluding equipment sales .... . ..... . .. Equipment retirement proceeds, less taxes .. . ........ Deferred income taxes, net, payable in later years .... , . Depreciation and amortization accruals ......... . .... Sale of common stock . . . . . .. . ... . ............ .. Borrowings under credit agreements . . ... . .... . ..... Miscellaneous, principally expenses not requiring cash expenditures ..... . ............. . . FUNDS USED FOR: Flight equipment additions, including advances ........ Preoperating expenditures . ........ . ........ . .. . . Ground facility and equipment additions .... . .. . ..... . Reduction of long-term debt ...... . .. .......... . .. Cash dividends ..... . ..................... . ... All other purposes . .......... . ...... . ...... . ... Net Change in Working Capital ................... . . Working Capital at beginning of period ..... .. ... . .... Working Capital at end of period ... . ..... . . . .. . . . . .. It takes a skilled team to dispatch one of Delta's Big Jets from the all-weather "Jetway" ramps, now in service in Atlanta, Miami, New York and coming soon to other cities. 94 367 1,282 1,237 2,465 1,278 6,723 1959 Total for 5 Years $ 14,342 3,532 11,682 55,424 4,329 48,600 861 $138,770 $109,431 3,357 10,457 7,500 5,721 ~ $138,198 + $ 572 ~ $ 4,058 Fiscal Years Ended June 30 1961 1960 1959 1958 1957 $ 4,126 $ 2,683 $ 4,062 $ 932 $ 2,539 699 2,582 158 93 2,545 2.780 2,120 2,817 1,420 15,922 12,753 9,637 9,873 7,239 4,329 5,000 20,000 5,000 12,600 6,000 515 81 178 16 71 $28,807 $40,879 $20,997 $26,396 $21,691 $20,941 $34,306 $13,960 $23,856 $16,368 763 2,244 350 4,477 2,173 1,269 1,298 1,240 5,357 2,143 1,346 1,346 673 1,010 1,346 606 189 234 161 542 $33,490 $42,401 $16,486 $26,325 $19,496 -$ 4,683 -$ 1,522 +$ 4,511 +$ 71 + $ 2,195 ~ 10,263 5.752 ~ 3,486 $ 4,058 $ 8,741 $10,263 $ 5,752 $ 5,681 INTERNATIONAL SERVICES Political and economic conditions in the Caribbean and Venezuela continue to inhibit travel in those areas. Your Company's international operations were further reduced, from 114 million to 66 million seat miles, and represented 2% of total system operations in the 1961 fiscal year. The new access to the West Coast should have a salutary effect on traffic over those routes, but it is difficult to foresee a return to profitability for this operation until a greater measure of political and economic stability is restored. REGULATORY MATTERS The decision of the Civil Aeronautics Board in the Southern Transcontinental Service Case extended Delta's east-west Route 24 westward from Dallas and Fort Worth (1) to San Diego and Los Angeles, and (2) to Las Vegas and San Francisco. Route 24 was also extended from Atlanta to the cities of Jacksonville and Orlando, Florida, previously served by Delta on Route 54 only, permitting non- stop flights between these Florida points and cities to the West on Route 24 (excluding New Orleans). Certain restrictions were placed on Delta's service in connection with this new operating authority, the more significant being (1) a temporary restric- tion against carrying local passengers between Las Vegas and San Francisco, pending conclu- sion of a separate proceeding involving air service in that area, and (2) the prohibition againstthrough- plane service between Miami /Tampa and cities west of Fort Worth. During the year Delta's application in the Sara- sota/ Bradenton Investigation Case was denied and the authority sought was granted to another carrier. In the Toronto-Buffalo Case, which will deter- mine the selection of a United States flag carrier to provide service between Toronto and Florida via various intermediate points, the Examiner's Initial Decision has been issued recommending against the authority sought by Delta; the case has not been finally decided. The Domestic Cargo Mail Service Case is awaiting final decision of the Civil Aeronatutics Board. The New York-Florida Renewal Case was begun by the Civil Aeronautics Board on June 12, 1961 to determine (1) whether the temporary authority of Northeast Airlines to serve Miami, Florida and in- termediate points south of New York should be renewed, (2) if said renewal is required by public convenience and necessity, whether the routes of Northeast and another carrier should be integrated by merger or other lawful manner, and (3) whether any applications of other air carriers (including those of Delta Air Lines) for additional operating authority between Boston and Miami should be granted. On August 9, 1961 the Civil Aeronautics Board instituted a general investigation (identified as the South American Route Investigation) of the air service pattern between the United States and South America, tentatively concluding that there should be only one U. S. airline from the United States to the east coast and one airline to the west coast of the South American continent. In this connection, the Civil Aeronautics Board will also investigate the possible elimination of Venezuelan points from the Company's certificate, a sugges- tion which will be vigorously opposed. The Mail Rate Off-Set Issue was concluded by denial of the Company's petition to the Supreme Court of the United States for certiorari, and the order of the Civil Aeronautics Board in the case became final. The effect of that order is summa- rized in Note (2) to the Financial Statements. PERSONNEL Inauguration of service with two new types of jet aircraft - the world's first, in each instance - within the short span of eight months placed un- precedented responsibilities upon the employees of Delta Air Lines. The successful accomplish- ment of the difficult transition into jet operations was made possible by the satisfactory discharge of those responsibilities and is a tribute to the out- standing dedication and loyalty of your Company's personnel. General wage and salary scales were adjusted upward during the year, in keeping with the pre- vailing pattern. The several employee benefit pro- grams were continued throughout the year, in- cluding (a) a liberal "space available" free trans- portation policy, (b) an employee credit union, (c) an adequate retirement income plan, and (d) com- prehensive group life and hospitalization insurance for employees and dependents. There were 8,290 employees of Delta Air Lines at year-end, 723 more than at the beginning of the year. This rise in employment, at a time when em- ployment nationwide was declining slightly, re- flects additions to the aircraft fleet, expanded service, and activation of new cities on the West Coast route extensions. Employees with more than five years of service at June 30, 1961 numbered 3,703, a gain of 471 during the year, providing a firm foundation of skills and experience for future growth. FLIGHT EQUIPMENT Delivery of six Convair 880 aircraft during the year completed the initial orders for jet aircraft and brought your Company's jet fleet to 15 aircraft - six Douglas DC-S's and nine Convair 880's. Four leased DC-6's were purchased at the lease expira- tion date, and two Convair 340/440's became sur- plus to our. needs and were sold. On October 29, 1960, Delta completed its last scheduled DC-3 flight and thus ended a chapter in its history that began almost twenty years earlier, in December, 1940, with the first DC-3 flight. 7 8 Your Company's operating fleet at June 30, 1961 consisted of 77 airplanes, as follows: Seating Manufacturer Model Number Configuration Douglas . ... . ...... DC-8 Jet 6- 122 Convair . . . .. . .. . ... 880 Jet 9 86 Douglas . ... . ...... DC-7 /7B 20 75 Douglas ....... . ... DC-6 11 60/76 Convair . ... . . . .. . . 340/440 '26.., 44 . Curtiss .. . ... ... ... C-46 5 Cargo The three Convair BBO's ordered in mid-1960 are scheduled for delivery in September and October, 1961 ~ Shortly after the close of the fiscal year orders were placed for three turbo-fan DC-B's (the most powerful model built by Douglas) and four Convair BBO's, to enable your Company to provide a full measure of jet service over its system. The DC-B's are to be delivered in the April-July, 1962 period (Delta has the right to defer delivery of one DC-Bto January, 1963), and thefourBB0's are to be delivered in the Summer of 1962. The turbo-fan engine was developed by Pratt & Whitney as a more efficient model of the basic jet engine that now powers Delta's DC-B's. These follow-on air- craft can be added to the existing jet fleets with a minimum of integration problems and should im- prove overall jet utilization. Present planning indi- cates that receipt of these additional aircraft will result in the operation of some 60% to 65% of total seat miles with the finest and most modern jet aircraft flying anywhere in the world. GROUND FACILITIES New airport terminal facilities constructed to your Company's specifications were occupied at At- lanta, Miami, and New York International Airport at ldlewild. At all of these points Delta-designed "Jetways" installed in passenger concourses pro- vide complete protection from the weather for boarding or deplaning jet passengers. Occupancy of the new eight-acre maintenance facility at At- lanta was completed during the year, and over- hauls of all engines and major components are now performed by the Company. The American Telephone and Telegraph Com- pany substantially completed construction and in- stallation of the world's most advanced teletype- writer network, utilizing Wide Area Data System concepts, for Delta's exclusive use. Expected to be in full operation by late 1961, this system replaces the B1-D1 equipment installed in 1953 and provides for more efficient and economical processing of the increasing volume of messages. Arrangements have also been concluded with International Busi- ness Machines Corporation for a "SABRE" elec- tronics reservation system that is programmed for activation in mid-1963. Headquarters of Delta Air Lines at Atlanta, Ga. Above: New 8-acre maintenance facility Below: Admin- istrative offices CAPITALIZATION AND FINANCING Th.e remaining $5,000,000 available under the 1958 Credit Agreements with banks and insurance companies was taken down during the year and applied to the $20,941,000 paid for procurement of flight equipment. The entire $60,000,000 provided by those Agreements has thus been borrowed, and at June 30, 1961 repayments of $2,500,000 had been made and $5,000,000 had been transferred to "Cur- rent Liabilities" representing repayments to be made in the following twelve months. Further de- tails of these Credit Agreements are set forth in Note (1) to the Financial Statements. Stockholder equity of $41,055,770 at June 30, 1961 is equivalent to $36.58 for each share of outstand- ing stock, a record high and up from $34.67 a share at the end of the preceding year. Internally gener- ated funds are expected to prove adequate for payments due on the aircraft to be purchased in the last half of 1961. Additional financing will be required in connection with orders placed for later delivery, but firm arrangements for that financing have .not yet been concluded. CONCLUSION The airlines of this country have now substantially completed the initial phase of their jet reequipment program, relatively one of the largest undertakings ever assumed by American industry. The rapidity with which the traveling and shipping public recog- nized and endorsed the benefits of jet travel was unique in transportation annals, and in response the airlines have placed orders for additional jet aircraft (including new models, in some instances) with deliveries extending into 1964 and 1965. Your Company's equipment leadership has con- tributed importantly to maintaining its revenue growth and earnings above industry levels. The margin of equipment leadership may diminish somewhat as outstanding equipment orders of other airlines are filled, but the loyal, able and courteous employees of Delta Air Lines can be counted upon to sustain our position in today's era of intense competition. We therefore eagerly accept the challenges and opportunities presented by the recent route extensions to California as we direct our efforts toward continuing a full measure of the finest air service over our entire system. President and General Manager September 15, 1961 9 SAN FRANCISCO Jet service to the big Bay City market, with its 2,800,000 metropoli- tan population, com- mencing in October will link the Southeast directly to Northern California. LAS VEGAS Delta now serves the entertainment capital of the world - an attrac- tion for 11 million visi- tors annually - with the only non-stop serv- ice to Dallas and direct connections to all the Southeast. LOS ANGELES The vast sea of lights which greets the Delta passenger arriving at night is an indication of the nearly 7,000,000 people who make up this amazing metropol- itan area. SAN DIEGO The erstwhile quiet little town around the naval base has become a bustling industrial complex of more than a million persons, with close ties to missile activity and national de- fense establishments in the Southeast. ASSETS 12 CURRENT ASSETS: Cash .. .. .. . . . . . ...... ..... . .......... .. . ..... ... .... ... . . U. S. Government securities, at cost ................. . ......... .. . Accounts receivable - Traffic (net) ... ... .......... . ........... . ... ..... : ..... . Other ................................................ . Maintenance and operating supplies, at average cost. .... . ... ...... . . . . Prepaid expenses .......... ......... .. ...................... . Other current assets .. .......................... ..... .. ...... . Total current assets .... .. .. . ... .... .. .......... , ... . OTHER ASSETS (Net assets of dusting division and other investments) ................................. . PROPERTY AND EQUIPMENT: Cost- 1961 ... . ........... . .......... . 1960 ..................... . .... . Reserves for depreciation - 1961 ........ .. ................ . 1960 ..... . ... . .. . ..... . . . . . ... . Fli ght Equipment $150,854,935 130,099,752 63,932,487 51,325,271 Other Property and Equipment $ 17,691 ,053 13,350,482 7,527,069 6,533,839 Advance payments for new flight equipment . . .. ..... .. . . ........... . DEFERRED CHARGES, ETC.: Preoperating costs, being amortized .............................. . Advances for leased facilities, being amortized .... ....... . ... .. .... . . Other deferred charges .......... . . .... ... .... .. .............. . 1961 $ 13,076,946 3,485,706 8,577,320 1,814,444 1,734,807 1,157,353 295,187 $ 30,141,763 $ 408,201 $168,545,988 71,459,556 $ 97,086,432 5,778,033 $102,864,465 $ 1,293,825 135,015 94,525 $ 1,523,365 $134,937,794 1960 $ 8,601,649 6,794,680 6,511,886 2,164,890 1,442,696 1,066,251 141,441 $ 26,723,493 $ 422,047 $143,450,234 57,859,110 $ 85,591,124 6,942,100 $ 92,533,224 $ 2,040,720 134,340 35,683 $ 2,210,743 $121,889,507 ~ \ l June 30, 1961 and 1960 CURRENT LIABILITIES: Notes payable to banks maturing within one year .................... . . Accounts payable and accrued liabilities .......................... . Accrued vacation pay . ............... .. .......... , .. , ........ . Tickets outstanding subject to refund or use ............... , ........ . Air travel plan deposits ....................................... . Accrued Federal and state taxes on income ........................ . Total current liabilities .......... .. . .. .... . . . .... . ... . NONCURRENT LIABILITIES: Long-term notes payable (Note 1) ........................ . ....... . Other (Note 2) ..... , , ................ . .................. . ... . RESERVES AND DEFERRED CREDITS: Deferred Federal income taxes .. ... .. ....... ............. . ... .. . . Reserve for contingencies (Note 2) ........ ... .................... . Other .................................................... . STOCKHOLDER EQUITY: Common stock, par value $3.00 per share - Authorized 1,500,000 shares Issued and outstanding 1,122,235 shares at June 30, 1961, and 1,122,233 shares at June 30, 1960 .... . ....... .. ............. . Capital surplus .............................. , ...... .... , . . . , Retained earnings (of which $16,483,682 is not presently available for cash dividends under terms of credit agreements) ................ . PURCHASE COMMITMENTS (Note 3) The accompanying notes are an integral part of these statements. 1961 $ 5,000,000 13,191,525 1,818,263 1,925,569 1,284,350 2,864,461 $ 26,084,168 $ 52,500,000 1,171,863 $ 53,671,863 $14,116,000 9,993 $ 14,125,993 $ 3,366,705 15,962,536 21,726,529 $ 41,055,770 $134,937,794 1960 $ 2,143,000 9,900,825 1,995,000 1,808,129 1,211,250 924,786 $ 17,982,990 $ 52,857,000 $ 52,857,000 $ 11 ,571 ,000 500,000 76,108 $ 12,147,108 $ 3,366,699 15,962,472 19,573,238 $ 38,902,409 $121,889,507 LIAB I Lill ES and Stockholder Equity 13 14 OPERATING REVENUES: _ Passenger .............................................. . U.S. Mail .............................................. . Freight ................................................ . Express ................................................ . Excess baggage .......................................... . Other operating revenue- net. ............................... . Total operating revenues ........................... . OPERATING EXPENSES: Flying operations ...................................... , .. . Maintenance ............... , ..... , ............ , , ..... , .. . Aircraft and traffic servicing ................................. . Promotion and sales ...... , , ................ , ........... , .. . Passenger service ........................................ . General and administrative ........................ , ......... . Operating expenses before depreciation and amortization ...................... . Depreciation and amortization - Flight equipment owned .. , ................................ . Less - Net depreciation credits arising from equipment interchange agreements ............... . Ground property and equipment ................... , ......... . Amortization of jet preoperating costs ......................... . Depreciation and amortization ........................ . Total operating expenses ........................... . Income from operations before income taxes .......... ... . OTHER EXPENSE (INCOME): Interest expense (less capitalized interest on advances for flight equipment-$192,000 in 1961 and$771,000 in 1960) ............. Other - net .............................................. Total other expense ................................ Income before income taxes .. , , .................. .. .. PROVISION FORT AXES ON INCOME: Current Federal and state income taxes .......................... Deferred Federal income taxes ........ ' .......... '. ' ..... ' .... Net income ...................................... SPECIAL ITEM - Profit on disposition of flight equipment, less applicable income taxes of $205,000 in 1961 and $59,400 in 1960 Net income and special item ......................... . The accompanying notes are an integral part of these statements. 1961 1960 $134,946,466 $109,671,406 2,578,792 2,140,292 4,070,462 4,250,345 1,407,946 1,361,837 1,796,422 1,577,791 1,332,245 1,189,554 $146,132,333 $120,191,225 $ 37,261 ,096 $ 32,151,166 30,597,186 24,455,871 21,721,061 18,824,184 14,958,966 13,573,386 10,779,439 9,364,591 3,907,782 3,339,317 $119,225,530 $101,708,515 $ 13,282,843 $ 11,187,210 (716,898) (1,000,568) 1,129,076 1,012,384 1,510,563 553,048 $ 15,205,584 $ 11,752,074 $134,431,114 $113,460,589 $11,701,219 ,.. $ 6,730,636 $ 2,851,887 $ 1,490,683 (118,180) (177,982) $ 2,733,707 $ 1,312,701 $ 8,967,512 $ 5,417,935 $ 2,038,000 $ 520,000 2,804,000 2,215,000 $ 4,842,000 $ 2,735,000 $ 4,125,512 $ 2,682,935 526,324 156,148 $ 4,651,836 $ 2,839,083 STATEMENTS OF CAPITAL SURPLUS AND RETAINED EARNINGS For the yei'lr ended June 30, 1961 Capital Retained Surplus Earnings Balance at beginning of year ...................... . $15 I 962,472 $19,573,238 Add: Net income ................................. . 4,125,512 Special item - Profit on disposition of flight equipment, less applicable income taxes of $205,000 ........... . 526,324 Excess of proceeds over par value of 2 shares of common stock issued during year in exchange for scrip ...... . 64 $15,962,536 $24,225,074 Deduct: Cash dividends on common stock -$1.20 per share ..... 1,346,682 Refund of mail payments received by Chicago and Southern Air Lines prior to its merger with Delta Air Lines on May 1, 1953 (Note 2) ............ . Balance at end of year ($16,483,682 of retained earnings is restricted as indicated on balance sheet) ............ . The accompanying notes are an integral part of these statements. ARTHUR ANDERSEN & CO. To the Board of Directors, Delta Air Lines, Inc.: 1,151,863 $15,962,536 $21,726,529 34 Peachtree Street NW Atlanta 3 We have examined the balance sheet of Delta Air Lines, Inc. (a Louisiana corpo- ration) as of June 30, 1961, and the related statements of income, capital surplus and re- tained earnings for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the account- ing records and such other auditing procedures as we considered necessary in the circum- stances. We had made a similar exam ination for the year ended June 30, 1960. In our opinion, the accompanying balance sheet and statements of income, capital surplus and retained earnings present fairly the financial position of Delta Air Lines, Inc. as of June 30, 1961, and the results of its operations for the year then e~ded, and were prepared in conformity with generally accepted accounting principles app.lied on a basis consistent with that of the preceding year. Atlanta, Georgia August 17, 1961 15 16 NOTES TO FINANCIAL STATEMENTS 1. LONG-TERM NOTES PAYABLE: The Company's outstanding indebtedness of $32,500,000 to a group of twenty-four banks under 4 % unsecured notes is repayable in quarterly installments of $1,250,000 extending to December 31, 1967. The Company has also borrowed $25,000,000 from four insurance companies on 6% unsecured notes. Repayments of these notes are to be made on a semi- annual basis beginning on April 1, 1968, with final maturity in 1974. 2. REFUND OF MAIL PAY: In conclusion of the mail pay proceedings begun in 1952, the Com- pany, as successor to Chicago and Southern Air Lines (C&S), has been ordered by the Civil Aero- nautics Board (CAB) to refund to the Post Office Department $1,651,863 of international mail pay received by C&S prior to 1953. Agreement has been reached with the Post Office Department whereby this refund may be paid in monthly installments over a three-year period beginning April 1, 1961. The amount due in fiscal 1962 ($390,000) is included in current liabilities and the balance ($1,171,863) is in noncurrent liabilities in the accompanying balance sheet. Of the total liability, $500,000 was charged to a special reserve for contingencies provided in prior years and the balance ($1,151,863) has been charged to retained earnings. 3. FLEET EXPANSION PROGRAM: At June 30, 1961, the Company had outstanding commit- ments for the purchase of five Convair Model 880 aircraft (three new aircraft and two at the expiration of one-year leases) to be delivered in 1961. The acquisition of these aircraft, together with related spare parts and accessories, will require the outlay of approximately $13,000,000 in 1961, in addition to advance payments made prior to that date. Subsequent to June 30, 1961, the Company entered into agreements to purchase four additional Convair 880's and three Douglas DC-8 aircraft for delivery in 1962. The purchase of these aircraft, together with related spare parts and accessories, will require the outlay of approximately $2,000,000 in 1961 and $34,000,000 in 1962. The Company has the right to postpone delivery of one Douglas DC-8 aircraft to 1963 which would, if exercised, also postpone the payment of $4,000,000 from 1962 to 1963. New high-frequency service by DELTA More JETS ... More low-cost tourist seats I ':.. . DELTA'S STORY TO THE PUBLIC Thanks to early acquisition of jet equipment, Delta was able to feature jet leadership in its advertising program during the past year. Vigorous advertising of the new Southern Transcontinental service helped achieve favor- able load factors even during initial operations. FLY DELTA'S BIG JETLINERS TO FLO RI D A'S Wimr W O NDER L A N D FLY DELTA'S new 7-11 non-stop to S ~ =UEGAS Now fly Delta the jet leader Non -atop to Los Angeles In 4%. hrs. LOS ANGELES -~ ~.-:::..._-~"-SM." ... . ~~~ ~ego _ . ~ v ~ ~~! .~ Pl. ~~- h_,:-- , N19WOt1eans ... w York Chtc.go z_~.::.,t::?=:::-f-~:..::-.: :;. .... ., ~~-::, Mot JU -.:..-.... -;;:~ Mo t Jet experience = The only Jets to TAMPA .:::. '57' Wort~v.. at~ t.t:t"' - ~=_:;~,::::::::::-.::-:.~"'."'\:: .. ""'"'"'~"' ~~Cf'< .. ~!!_!'!L U ;;,;;;:.~oo- 1 ;~;::~ ,:~ ... I ~~h,-:- --~-. -}-~ ~E~ ~~~=- :.::.:~ :;:--"-- DELTA '-:- rT. LAUoE,.DAL ~" .,.,-.., .. '"""'""'A"><, -.-F ,, ... ~ - th1 u, .. ,,.,,e with 1hr Bl(.z JETS , 1; .. :,.. . w-.< ,_.,,._,.,,,."~-="" --" IUl'#U 6 i4 ll"-!i"-ii,1JH-i P i@fWi&!it DELTA announces a New Southern Transcontinental Jet Route ATlANTA-l. A. NON-STOP4~ LO_ S ANGELES_,_ . ,, ,.., _,. ,,,,.,.,, ~~- ' -~ ., :i" Diego N~w ~r1~an~ 1-I J I 17 Years Ended June 30 Total assets ............................. Current assets .............. , . , ........ , , Current liabilities .......................... Net working capital ............... Stockholder equity ......................... Stockholder equity per share* ................. Shares of common stock outstanding* ...... , , .. Operating revenues Passenger ............... ............. Mail .. , . ................. , .. , ..... ,. Express ................... , ........ , . Freight ....... .. .... .... ............ .. All Other ............ ~ ................ Total revenues .................. Operating expenses (excluding depreciation and amortization) .. , ........... Depreciation and amortization ................. Total expenses .................. Operating ratio ......................... Net non-operating revenue or (expense) .......... Net income before taxes ..................... Taxes on income .......................... Net income .......... , .......... Net income as % of revenues ...... Special item - profit on disposition of flight equipment (after taxes) ........... Total income and special item ................ Per share of stock outstanding* ............. Dividends paid IO O O O O O I IO O O I IO O I I I I I I I IO I . Dividends paid per share* ................. Revenue plane miles (000) . ... ................ Revenue passengers carried ................ .. Available seat miles (000) , ................... Revenue passenger miles (000) ................ Passenger load factor . , .................. Available ton miles (000). , ......... , , ...... , . Revenue ton miles (000) ..................... Overall load factor .. . .................... Percent of scheduled miles flown ......... ... , . *Adjusted to reflect 25% stock dividend paid June 29, 1956. 18 1961 $134,937,794 30,141,763 26,084,168 $ 4,057,595 $ 41,055,770 $36.58 1,122,235 $134,946,466 2,578,792 1,407,946 4,070,462 3,128,667 $146,132,333 $119,225,530 15,205,584 $134,431,114 91.99% $ (2,733,707) . $ 8,967,512 4,842,000 $ 4,125,512 2.82% $ 526,324 $ 4,651,836 $4.15 $ 1,346,682 $1.20 49,455 3,569,778 3,389,547 2,034,047 60.01% 442,251 223,592 50.56% 97.14% 2,100 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 Mill . ., ,----------------,4 ., ',,_. ~.,,