Delta's outstanding safety record was recognized in October 1961 when C. E. Woolman, President and Gen- eral Manager, received the Marsh and McLennan award attesting to 11,280,000,000 passenger miles without a fatality. The total now exceeds 14,000,000,000 revenue passenger miles. COMPARATIVE SUMMARY OF OPERATIONS Dollars expressed in thousands except per share figures Operating Revenues . . . . . . . . . Operating Expenses ( excluding depreciation) . Operating Income ( excluding depreciation) . . . . Depreciation and amortization expense . Operating Income after depreciation . . . . Net Income from Operations, after Taxes and other charges Total 'Earnings . . . . . . . . . . Shares Outstanding at year end* Earnings Per Share* . . . . . Total Stockholder Equity . . . Stockholder Equity Per Share* . . Revenue Passengers Carried . . Available Seat Miles (000) . . Revenue Passenger Miles ( 000) Passenger Load Factor . . . . * Adjusted to reflect 33% stock split recorded March 15, 1962 YEARS ENDED JUNE 30 1962 $169,777 $136,935 $ 32,842 $ 17,736 $ 15,106 $ 5,665 $ 6,985 1,700,000 $4.11 $53,619 $31.54 3,768,707 4,123,318 2,393,991 58.06% 1961 $146,132 $119,226 $ 26,906 $ 15,205 $ 11,701 $ 4,126 $ 4,652 1,496,313 $3.11 $41,056 $27.44 3,569,778 3,389,547 2,034,047 60.01% Delta Air Lines, Inc. Annual Report to the Stockholders FROM EVERY VIEWPOINT the fiscal year ended June 30, 1962 was a most im- pressive year in the history of Delta Air Lines. Traffic, revenues, and earnings reached new highs. Service over the Southern Transcontinental Route was ex- panded, including inauguration of service to San Francisco and Las Vegas, and was all-jet by the end of the year. Your Company broadened its equity base, by a common stock split effected in the form of a 33 % stock dividend and the sale of 203,687 shares of common stock in a public offering. Net earnings from operations after all charges and taxes were $5,665,000, and profits from sales of flight equipment brought total earnings to $6,985,000 ( $4.11 a share). Stockholder equity rose $12,563,000 during the year to $53,619,000 ($31.54 a share). REVENUES TOTAL OPERATING REVENUES climbed to $169,777,000, up 16% over the pre- ceding year. Passenger revenues also increased 16%, to $155,994,000. A total of 3,769,000 revenue passengers were carried in producing 2,394 million revenue passenger miles, a gain of 18%. A continuing shift of traffic from first class to the lower-priced coach accommodations more than offset a 3 % fare increase effective February 1, 1962, and the average return per passenger mile actually dropped 2% below the previous year's level. Revenues of $3,414,000 from U. S. mail represented a 32% increase over the previous year, as mail ton miles rose 35%. In addition to regular air mail, which is given priority handling, the nation's airlines also carry first class mail between certain designated points on a non-priority, space available basis to expedite delivery. The Post Office Department pays for the movement of this non-priority mail at approximately 50% of normal air mail rates. The volumes of air mail and first class mail and the average yields over the past four years are set forth in the following summary: AIR MAIL Ton Ton Mile FISCAL YEAR ENDED Miles Yield June 30, 1959 ......... 5,006,000 June 30, 1960 ......... 4,752,000 June 30, 1961 ......... 5,628,000 June 30, 1962 ......... 8,013,000 41.43 42.85 40.92 39.11 FIRST CLASS MAIL Ton Ton Mile Miles Yield 390,000 523,000 1,432,000 1,502,000 19.99 19.92 19.27 18.68 Carriage of air freight generated revenues of $5,814,000, 43% above the preceding year, and air express revenues rose 19% to $1,669,000. These substantial increases can be attributed to the excellent cargo carrying capa- bilities of jet aircraft, to the Southern Transcontinental Route, and to the higher level of economic activity over the country. EXPENSES OPERATING EXPENSES increased 15% over the preceding year as a result of expanding operations and upward trending cost levels in some areas. The largest dollar increase occurred in employee earnings, which rose $7,175,000 ? as a result of both additional employment and higher wage and salary scales placed into effect during the year. Advertising expenditures experienced the largest percentage increase (361/c ) because of the promotional efforts ex- pended in merchandising your Company's new services to the West Coast and its expanded jet operations. Depreciation and amortization expenses, reflect- ing the addition of three DC-8 and three Convair 880 jet transports to your Company's fleet during the year, rose 17% to $17,736,000; an analysis of depreciation and amortization charges for the last three years follows: (IN THOUSANDS) Flight equipment depreciation Propeller equipment ....... . Pure-jet equipment .......... . Ground equipment depreciation ..... Amortization of pre-operating expenses ................ . Credits from equipment interchange operations . . . . . . . . . . . . . . . . Totals ................ . FISCAL YEAR ENDED JUNE 30 1962 1961 1960 $ 5,961 $ 6,699 $ 8,490 8,987 6,584 2,697 $14,947 $13,283 $11,187 1,365 1,129 1,012 1,424 1,511 553 (717) (1,000) $17,736 $15,206 $11,752 Notwithstanding the dollar increases in operating expenses, unit costs were down from the previous year. The cost of producing an available seat- mile dropped 5% , to 3.74, and the available ton mile cost was down 6% . These lower unit costs can be attributed to three principal factors: ( 1) more economical long-haul operations over the West Coast routes, (2) improved utilization of jet aircraft, and (3) continuing improvement in the excellent reliability of the jets which has, for example, permitted a 64% increase in authorized flying hours between jet engine overhauls during the year. EARNINGS AND DIVIDENDS OPERATING INCOME for the year was a record $15,106,000, an increase of 29% over the $11,701,000 for the preceding period. Interest costs showed a modest rise ( from $2,852,000 to $2,938,000) and net income before taxes was up 37% to $12,244,000. Net earnings of $5,665,000 from operations, after all charges and taxes, were the highest in the history of Delta Air Lines. An additional profit on aircraft sales of $1,320,000 ( after applicable taxes) brought total net earnings to $6,985,000, equal to $4.11 for each of the 1,700,000 shares outstanding at year end. This compares to the previous year's net earnings of $4,652,000 and $3.11 per share on 1,496,313 shares after adjustment for the stock split. Four cash dividends of 30 per share paid on September 1, 1961, Decem- ber 1, 1961, March 1, 1962 and June 1, 1962 were declared by the Board of Directors during the year, marking the fourteenth consecutive year in which cash dividends have been paid. In the past 21 years your Company has paid dividends in all but one year. Aggregate dollar amount of cash dividends dur- ing the fiscal year was $1,520,012, as follows: DATE DATE DIVIDEND SHARES TOTAL DECLARED PAID PER SHARE OUTSTANDING DIVIDEND July 27, 1961 September 1, 1961 30 1,122,235 $ 336,670.50 October 26, 1961 December 1, 1961 30 1,122,235 336,670.50 January 25, 1962 March 1, 1962 30ef, 1,122,235 336,670.50 April 26, 1962 June 1, 1962 30 1,700,000 510,000.00 $1,520,011.50 Sources Amount in Thousands Passengers and Their Excess Baggage ... $157,823 92.96 Mail ....... 3,414 2.01 Freight and Express 7,483 4.41 Other ..... 1,057 .62 Total Revenue $169,777 100.00 SERVICE ON JuNE 11, 1962, Delta completed its first full year of operations to Cali- fornia. Initial service patterns, begun in June, 1961, provided jet service be- tween Los Angeles and Atlanta via Dallas/Fort Worth and New Orleans. Service to Las Vegas began on July 1, employing DC-7 aircraft, and in October your Company expanded West Coast operations with jets to San Francisco. A vital need in the nation's arms program was filled with the inauguration of jet transportation between the major missile centers of Orlando ( Cape Canaveral) and Los Angeles in October, 1961. During the same month Delta provided Birmingham with its first jet schedules, offering through-plane service to California. In June, 1962, your Company scheduled jet flights via Las Vegas on its expanded San Francisco-Atlanta service pattern following the lifting of' a restriction on carriage of local traffic between Las Vegas and San Francisco and now provides an all-jet operation over its Southern Transcontinental Route. The Caribbean was linked with the West Coast in December, 1961, when Delta inaugurated the first jet service from California to Montego Bay and Caracas. In May, 1962 Caribbean service was upgraded to an all-jet pattern, and one-stop jet service began between Los Angeles and San Juan via New Orleans. Political and economic instability in certain Caribbean areas has necessitated the suspension of service to Havana, Port-au-Prince, Aruba, and Santo Domingo. With the new services, available seat miles increased 22% to 4,123 million. This was accompanied by an 18% increase in revenue passenger miles, and the passenger load factor (percentage of seats occupied) dipped to 58.06% from the 60.01 % registered in 1961. 1962 REVENUE DOLLAR (Twelve months ended June 30, 1962) Distribution Employee salaries Amount in Thousands and related costs* .. $65,431 Depreciation . . . . . . 17,736 Gasoline and Oil . . . . 20,454 Maintenance materials . 11,963 Food and supplies for passengers . . . . . . 5,475 Rentals, Landing Fees . 5,830 Advertising . . . . . . . 5,134 Communications . . . . 3,687 Other operating costs . . 14,667 Capital Costs (Interest and Dividends) . . . 5,581 Taxes ......... . in business . . 4,342 Total ........ $169,777 ''Salaries, travel, employee welfare and payroll taxes 38.54 10.45 12.05 7.05 3.22 3.43 3.02 2.17 8.64 3.29 5.58 2.56 100.00 3 Two significant changes occurred in the pattern of your Company's services during the year, generally paralleling industry trends. First, cabin configurations were modified during the year to provide first class and coach accommodations in all four-engined aircraft, both piston and jet. This was necessary to meet the increasing demand for coach service created by the industry's fare structure which provides a differential between first class and coach fares that is disproportionate to the service differentials. As a conse- quence, coach seat miles increased 37.78% and first class seat miles increased 9.75% ; corresponding changes in revenue passenger miles were an increase of 45.02% in coach service and a decrease of 3.44% in first class service. Second, as a result of the acquisition of additional jet aircraft during the year and the public preference for jet service, the 22% increase in total seat miles was achieved with a 70% increase in seat miles flown with jet aircraft and a 7% decrease in seat miles flown with piston-engined aircraft. At year-end, jet seat miles represented 61.60% of the total. The cities provided with jet service by your Company numbered 23 at the end of the year, as compared with 15 at the beginning of the year. Also, jet service to Newark and Jacksonville began shortly after the close of the year. FLIGHT EQUIPMENT THREE CoNVAIR MooEL 880 jet aircraft and three fan-engine DC-8 jet aircraft were received during the year. The fan-jet DC-8 is the latest and most powerful model of the DC-8 to be built by the Douglas Company, with increased ef- ficiency and longer range. In July, 1962 your Company accepted delivery of four Convair 880's, bringing the jet fleet to a total of 25 aircraft. Shortly after the close of the year, an order was placed for an additional fan-jet DC-8 to be delivered in December, 1962. Arrangements have also been made for the installation of new fan-jet engines in the six DC-8's acquired in 1959 over a six-month period beginning in May, 1963; this conversion is part of the planned program involving use of the already-proven JT3C-6 engine until superior engines became available. JET-537,062 (48.50%) JET-471,189 (41.08%) JET-784,014 (60.94%) PROPELLER-570,381 (51.50%) PROPELLER -675,714 (58.92%) PROPELLER-502,534 (39.06%) JET-400,221 (45.11%) PROPELLER -486,923 (54.89%) Deliveries of jet aircraft permitted the sale of five Convair 340/440 air- craft, for which a firm demand exists, at advantageous prices. Two DC-3 air- craft were also sold during the year. As of June 30, 1962 Delta's operating fleet consisted of 77 aircraft: MANUFACTURER MODEL NUMBER Douglas DC-8 Jet 9 Convair 880 Jet 12 Douglas DC-7/7B 19 Douglas DC-6 11 Convair 340/440 21 Curtiss C-46 5 with a net book value of $107,777,000 as detailed below: (IN THOUSANDS) TOTAL Original cost ................. $182,707 Depreciation accrued to June 30, 1962 . . 74,930 Net book value at June 30, 1962 ...... $107,777 JET EQUIPMENT $110,298 18,462 $ 91,836 NUMBER OF SEATS 126 92 75 67 44 Cargo PROPELLER EQUIPMENT $72,409 56,468 $15,941 Your Company continues to take advantage of technical advances which contribute to flight reliability and regularity. Among the more recent develop- ments in this field are: Distance measuring equipment ( D ME), which provides the pilot with the exact distance from his position to the radio station check point to which he is tuned, through a direct reading odometer. Beacon transponder equipment, an electronic device that provides positive identification of each aircraft so equipped to ground control radar stations. Your Company is following closely the development of short range jet air- craft. However, the economic characteristics of the Convair 880 and its ability to serve intermediate range markets remove any sense of urgency from evalua- tion and analysis of short haul jet aircraft. (All amounts in thousands) TOTAL FOR FIVE YEARS FUNDS PROVIDED BY: 1962 Net earnings, excluding equipment sales . $ 17,468 $ 5,665 Equipment retirement proceeds, less taxes 5,399 1,960 Deferred income taxes, net, payable in later years . 16,144 5,882 Depreciation and amortization accruals . 65,921 17,736 Sale of common stock (203,687 shares) . 7,099 7,099 Borrowings under credit agreements . 52,600 10,000 Miscellaneous, principally expenses not requiring cash expenditures 1,384 594 - - - $166,015 $48,936 FUNDS USED FOR: Flight equipment additions, including advances $128,946 $35,883 Preoperating expenditures 3,487 130 Ground facility and equipment additions 11,706 2,489 Reduction of long-term debt 12,727 5,227 Cash dividends 5,895 1,520 All other purposes . 1,785 595 - - - $164,546 $45,844 Net Change in Working Capital .+ $ 1,469 + $ 3,092 Working Capital at beginning of period 5,681 4,058 --- Working Capital at end of period . $ 7,150 $ 7,150 FISCAL YEARS ENDED JUNE 30 1961 1960 1959 1958 $ 4,126 $ 2,683 $ 4,062 $ 932 699 2,582 158 2,545 2,780 2,120 2,817 15,922 12,753 9,637 9,873 5,000 20,000 5,000 12,600 515 81 178 16 $28,807 $40,879 $20,997 $26,396 $20,941 $34,306 $13,960 $23,856 763 2,244 350 4,477 2,173 1,269 1,298 5,357 2,143 1,346 1,346 673 1,010 606 189 234 161 $33,490 $42,401 $16,486 $26,325 -$ 4,683 -$ 1,522 , + $ 4,511 +$ 71 8,741 10,263 5,752 5,681 --- --- --- $ 4,058 $ 8,741 $10,263 $ 5,752 6 GROUND EQUIPMENT AND FACILITIES DURING THE YEAR your Company moved into new airport facilities at Ashe- ville, Birmingham, Dayton and Chicago's O'Hare International Airport. Coinciding with the beginning of operations with a direct dial teletype system and improved new radio and telephone communications equipment, Delta moved its Atlanta communications and flight control functions into one cen- trally-located building at the Atlanta Airport remodeled for these specific tasks. By the end of the fiscal year programming work had passed the halfway mark for the SABRE electronic reservations system being constructed by International Business Machines Corporation to your Company's specifica- tions. SABRE will offer to Delta customers the most advanced reservations service yet devised. It will, in addition to providing instantaneous space availability information, store complete passenger name records, automatically obtain space on interline flights, order meals, check for duplicate reservations and expired time limits, automatically clear passengers on waiting lists, and disseminate flight information. Answers to any of more than 200 different types of inquiries can be obtained within three seconds. Initial components of the system will become operational in the second half of 1963. PERSONNEL THE RANKS of the men and women of Delta Air Lines increased 493 during the year, to 8,783 at year end. Their skills, loyalties, and courtesy appropriately complement your Company's aircraft fleet - the finest in the world - in providing the friendly, efficient air transportation for the nation's travelers and shippers which is responsible for the continuing growth in traffic volumes and employment opportunities. PERSONNEL AT JUNE 30, 1962 Pilots ...................... . Stewardesses . . . . . . . . . . . . . . . . . . NUMBER 793 622 PER CENT OF TOTAL 9o/o 7 Maintenance and engineering personnel . . . 2,902 33 Sales, reservations, and ticketing personnel . . . 1,850 21 Stations operations personnel . . . . . . . . . . 1,856 21 All other personnel . . . . . . . . . . . . . . . . . . . . . . . . 760 9 Totals .............................. 8,783 100% Delta's electronic SABRE system for "instant" reservations will advise the status of seat availability on any Delta flight within 3 sec- onds and handle connecting reservations on other airlines as well. It also makes cancelled reservations immediately available for resale. This electronic aid to Delta's traditional "serv- ice with a smile" will be installed late next year. 200 180 160 140 Cf) a:: 120 j 0 0 LL 0 Cf) 100 z 0 j ~ ~ 80 60 40 20 0 FLIGHT EQUIPMENT - .. COST NET BOOK VALUE DEPRECIATION 58 59 60 61 62 CAPITALIZATION AND FINANCING ON JANUARY 25, 1962, the Board of Directors declared a split of the common stock, to be effected in the form of a 33 % stock dividend. In payment of this dividend, a total of 374,078 shares of stock were distributed on March 15, 1962 to stockholders of record on February 9, 1962 bringing the outstand- ing shares to 1,496,313. In April, 1962, an additional 203,687 shares were sold in a public offering at $37.25 per share. This increase, the first in new equity capital since 1956, furnishes a desirable broadening of your Company's equity base in keeping with the expanding scope of operations. Stockholder equity at year end amounted to $53,619,000, or $31.54 for each of the 1,700,000 shares. This compares to $41,056,000 and $27.44 per share (adjusted for the stock dividend) at the beginning of this fiscal period. It is significant to note that the current net book value of each share of Delta stock stands at more than double that of a decade ago. In the latter part of 1961 your Company completed arrangements with banks and insurance companies providing additional capital for the financing of Delta's jet program. Under the arrangement with the banks, $15,000,000 will be made available as a revolving credit through March, 1963 to be repaid in 22 quarterly installments beginning May 1, 1963 and extending to August, 1968. Credit agreements with three insurance companies provide an additional $10,000,000 payable over a four year period beginning in mid-1969. A total of $10,000,000 had been borrowed under these new agreements as of June 30, 1962, and repayments under earlier credit agreements amounted to $5,000,000 during the year then ended. No additional financing will be required to meet currently outstanding purchase commitments. REGULATORY MATTERS THE PENDING PROPOSAL of American Airlines and Eastern Air Lines that they be allowed to merge is opposed by your Company, virtually all other trunk airlines, numerous labor organizations, the CAB's own Bureau of Economic Regulation, and the Department of Justice. Approval of this merger would give the new company control of more than 35% of the nation's air traffic thereby creating a giant air carrier of unprecedented size and greatly intensify- ing the problems of excessive competition within the industry rather than alleviating them. The Department of Justice, in a brief filed with the Civil Aeronautics Board Examiner on behalf of the Federal government, asking that the merger be denied, said in part: "Because the merger of American and Eastern cannot under the first proviso of Section 408 ( b) [ of the Federal Aviation Act] be approved by the Board and because the proposal is otherwise not consistent with the public interest, the Board should disapprove the application ... " "Pursuant to the first proviso to Section 408 ( b) the Board has no alternative than to deny the instant application for merger, since the merger would result in the creation of monopolies which would restrain competition and which would jeopardize other air carriers." "A merger creating ... drastic industry imbalance ... cannot be justi- fied unless there is some compelling or overriding benefit to be served thereby in the public interest, and none has been shown ... It is the position of the United States of America that the Board should deny the instant merger application." A Civil Aeronautics Board order of December 19, 1961 instituted a pro- ceeding to be known as The Competitive Trunkline~~!vice Investigation. The 7 8 purpose of the investigation is to determine if competitive trunkline service between Memphis, various intermediate points and New York and between New Orleans, various intermediate points and New York should be modified or suspended. Delta is a party to the investigation. At the request of the Huntsville-Madison County Airport Authority, Delta on June 8, 1962 filed for exemption authority to serve Huntsville, Ala- bama as an intermediate point on Route 24 between Atlanta and Birmingham. If granted, the authority sought will permit the operation of a daily round trip jet flight from Huntsville to Dallas and Los Angeles, advancing the interest of national defense and furthering our country's peaceful exploration of space. The application now awaits a decision by the Civil Aeronautics Board. The New York-Florida Renewal Case is a proceeding that involves the issue of whether or not the Civil Aeronautics Board should renew the tem- porary authority now held by Northeast Air Lines for operations between the Boston/New York/Washington and Florida areas. Your Company has taken no position in regard to the renewal of Northeast, but does seek the removal of its certificate restriction which presently prohibits any through-plane opera- tion between New York and Florida. In addition, Delta has proposed that it be allowed to conduct a limited winter-season-only non-stop operation be- tween New York and Miami should Northeast's authority not be renewed. On August 9, 1961 the Civil Aeronautics Board instituted a general in- vestigation (identified as the South American Route Investigation) of the air service pattern between the United States and South America, tentatively con- cluding 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. After granting your Company's request that its Route 114 to Venezuela be excluded from this proceeding, a prehearing conference was held in May, 1962. The Hearing Examiner in July, 1962 recommended to the Civil Aeronautics Board that overall consideration of U. S. flag carrier service to South America and Caribbean points move forward in three stages: ( 1) the determination of a route pattern between the United States and South America, (2) the establishment of a Caribbean route pattern, and ( 3) a hearing for the selection of carriers to operate the above-created route patterns. No action has yet been taken on the Examiner's recommendations. During the past year the Civil Aeronautics Board decided the Buffalo- Toronto Case, awarding to another carrier the authority sought by Delta. In the Domestic Cargo-Mail Service Case, the Board in May, 1962 renewed with modifications the operating rights of three of the four all-cargo carriers, but rejected Delta's request for permanent authority to conduct all-cargo operations between Houston and Dallas now performed under exemption authority; your Company has applied for continuance of this authority. On May 1, 1962, the Board lifted the restriction which prevented the carriage of local traffic between Las Vegas and San Francisco, thereby per- mitting Delta to provide jet service to Las Vegas on through flights between the South/Southwest and San Francisco. FEDERAL TRANSPORTATION TAX CONGRESS REPEALED the 10% Federal tax on all transportation, but simul- taneously imposed a 5% tax on all airline passenger transportation, related to use of the Federal airways, both to be effective November 15, 1962. The 5% tax is slated to expire on July 1, 1963. On November 15, 1962 the trans- portation tax will also be completely removed from the domestic portion of an international trip by air if the scheduled connection time to the international flight does not exceed six hours. OUTLOOK FOR THE FUTURE THE AIRLINE INDUSTRY is currently selling little more than 50% of its produc- tion, at prices that are only 12% above the 1947-49 average as compared to a 28% increase in the nationwide cost of living index and a 75% increase in hourly wages. For a highly regulated industry, excessive competition re- mains a troublesome problem. The industry has, however, demonstrated its ability to successfully finance new equipment requirements, including the third and fourth phases of jet equipment for some carriers. Airline traffic so far this year is again showing year-to-year increases, some 10% above 1961 levels, following an extended period in which growth in airline traffic was slight or non-existent. The airlines and the Civil Aeronautics Board are bending their efforts toward achieving economic results in keeping with the operational and service accomplishments which have given this country the world's finest air service. A further major step in this direction was taken last year through the route awards granted in the Southern Transcontinental Service Case, which achieved a larger measure of equality of opportunity for your Company and other of the smaller carriers without creating destructive point-to-point competition. Relief this fall from the full burden of the Federal tax on air travel should prove somewhat of a stimulus to air travel. There are no cases in process at the present time which threaten substantial increases in competi- tion, except as previously mentioned, and the industry should now experience a period of relative stability with respect to both routes and equipment. President and General Manager September 14, 1962 9 10 The Delta System-14J000_ Miles of Service THE ROUTES OF Delta Air Lines play an increasingly important role in the Nation's air trans- portation system. They serve the centers of government and finance in the East, the industrial areas of the Midwest, the dynamic South and Southwest, the growing West Coast, and the vaca- tion playgrounds in Florida and the Caribbean. The extension of Delta's original Trans-Southern Route to the West Coast in 1961 created a route system that is a vital link in _ this country's aerospace activities, providing transportation at jet speeds for the missile launching areas of Cape Canaveral, Florida' and Vandenberg Air Force Base, California, the engineering and manufacturing centers in Alabama; California, and Lou- isiana, and the new Manned Space Flight Center at Houston, Texas. 12 DELTA AIR Assets 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: Other Flight Property and Equipment Equipment Cost: 1962. $182,707,369 $19,653,278 1961 . 150,854,935 17,691,053 Reserves for depreciation: 1962 . 74,930,540 8,364,684 1961 . 63,932,487 7,527,069 Advance payments for new flight equipment DEFERRED CHARGES, ETC.: Preoperating costs, being amortized . Advances for leased facilities, being amortized Other deferred charges . . . . . . . . . LINES. 1962 $ 11,064,884 4,997,204 12,196,296 1,874,887 2,218,860 1,298,872 86,108 $ 33,737,111 $ 406,390 $202,360,647 83,295,224 $119,065,423 4,637,352 $123,702,775 $ 132,707 108,718 $ 241,425 $158,087,701 INC. 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 BALANCE SHEETS JUNE 30, 1962 AND 1961 Liabilities and Stockholder Equity 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 . . NON CURRENT LIABILITIES: Long-term notes payable (Note 1) . Other . . . . . . . . . . DEFERRED FEDERAL I COME TAX . . . . . . . STOCKHOLDER EQUITY: Common stock, par value $3.00 per share- Authorized 4,000,000 shares Outstanding 1,700,000 shares at June 30, 1962, and 1,122,235 shares at June 30, 1961 . . . . Capital surplus . . . . . . . . . . . . . . Retained earnings { of which $18,380,679 is not pres- ently available for cash dividends under terms of credit agreements) . . . . . . . . . . PURCHASE COMMITMENTS {Note 2) The accompanying notes are an integral part of these statements. 1962 $ 5,227,273 14,840,320 1,933,093 2,480,678 1,376,150 729,774 $ 26,587,288 $ 57,272,727 608,898 $ 57,881,625 $ 19,999,794 $ 5,100,000 22,450,114 26,068,880 $ 53,618,994 $158,087,701 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 $ 14,125,993 $ 3,366,705 15,962,536 21,726,529 $ 41,055,770 $134,937,794 13 14 Statements of Income for the years ended June 30, 1962 and 1961 OPERA TING 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 preoperating costs . Depreciation and amortization . Total operating expenses . . Income from operations before income taxes OTHER EXPENSE ( INCOME l: Interest expense (less capitalized interest on advances for flight equipment-$375,000 in 1962 and $192,000 in 1961) . . . . . . Other-net . . . . . . Total other expense Income before income taxes PROVISION FOR TAXES ON INCOME: Current Federal and state income taxes . Def erred Federal income taxes . . . Net income . . . . . . . . . . . . . . SPECIAL ITEM-Profit on disposition of flight equipment, plus applicable income taxes of $513,000 in 1962 and $205,000 in 1961 . . . . . . . . . . . . Net income and special item . . . . . . . . 1962 $155,993,859 3,413,954 5,814,132 1,668,906 1,828,980 1,057,631 $169,777,462 $ 42,804,849 32,847,127 25,907,774 18,655,791 12,254,864 4,464,964 $136,935,369 $ 14,946,987 1,364,929 1,423,822 $ 17,735,738 $154,671,107 $ 15,106,355 $ 2,938,470 (75,925) $ 2,862,545 $ 12,243,810 $ 762,000 5,817,000 $ 6,579,000 $ 5,664,810 1,319,787 $ 6,984,597 1961 $134,946,466 2,578,792 4,070,462 1,407,946 1,796,422 1,332,245 $146,132,333 $ 37,261,096 30,597,186 21,721,061 14,958,966 10,779,439 3,907,782 $119,225,530 $ 13,282,843 (716,898) 1,129,076 1,510,563 $ 15,205,584 $134,431,114 $ 11,701,219 $ 2,851,887 (118,180) $ 2,733,707 $ 8,967,512 $ 2,038,000 2,804,000 $ 4,842,000 $ 4,125,512 526,324 $ 4,651,836 Statements of Capital Surplus & Retained Earnings for the year ended June 30, 1962 Balance at beginning of year Add: Net income . Special item -Profit on disposition of flight equipment, less applicable income taxes of $513,000 . Excess of net proceeds over par value of 203,687 shares of common stock sold during year . Deduct: Cash dividends on common stock, at annual rate of $1.20 per share Transfer to common stock in connection with stock split ef- fected in the form of a 33 % stock dividend distributed on March 15, 1962 . Balance at end of year ($18,380,679 of retained earnings is re- stricted as indicated on balance sheet) . . ARTHUR ANDERSEN & Co. To the Board of Directors, Delta Air Lines, Inc. : CAPITAL RETAINED SURPLUS EARNINGS $15,962,536 $21,726,529 5,664,810 1,319,787 6,487,578 $22,450,114 $28,711,126 1,520,012 1,122,234 $22,450,114 $26,068,880 34 PEACHTREE STREET,N.W. ATLANTA 3 Auditors' Opinion We have examined the balance sheet of Delta Air Lines, Inc. ( a Louisiana corporation) as of June 30, 1962, and the related statements of income, capital surplus and retained earnings for the year then ended. Our examination was made in accordance with generally accepted auditing stand- ards, and accordingly included such tests of the accounting records and such other auditing pro- cedures as we considered necessary in the circumstances. We had made a similar examination for the year ended June 30, 1961. 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, 1962, and the results of its operations for the year then ended, and were prepared in conformity with gen- erally accepted accounting principles applied on a basis consistent with that of the preceding year. Atlanta, Georgia August 10, 1962. 16 Notes to Balance Sheet 1. LONG-TERM NOTES PAYABLE: Long-term notes payable (unsecured) at June 30, 1962, were as follows: Payable to banks- Payable in quarterly installments of $1,250,000 to December, 1967, interest at 4% . . $27,500,000 Payable in 22 quarterly installments beginning May 1, 1963, interest to vary with prime rate but not less than 4% nor more than 5%. (Loans may be increased to $15,000,000 by March 31, 1963) . . . . . . . . . . . . . . . . 5,000,000 $32,500,000 Payable to insurance companies- Payable in 14 semi-annual installments beginning April 1, 1968, interest at 6% . $25,000,000 Payable in 8 semi-annual installments beginning July 1, 1969, interest at 6%. (An ad- ditional $5,000,000 remains to be borrowed by December 28, 1962, under this agreement) . . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 $30,000,000 Total long-term notes payable . . . $62,500,000 2. FLIGHT EQUIPMENT PURCHASE COMMITMENTS: At June 30, 1962, the Company had outstanding commitments for the purchase of four Convair Model 880 air- craft which were delivered in July, 1962. The Company was also committed to purchase one Douglas DC-8 aircraft in June, 1963, which is presently being operated under a lease agreement. The acquisition of these aircraft, together with related spare parts and accessories, will require the outlay of approximately $17,500,000, in addition to advance payments made as of June 30, 1962. Subsequent to June 30, 1962, the Company entered into agreements for the purchase of one additional Douglas DC-8 aircraft to be delivered in December, 1962, and the installation in 1963 of new fan-jet engines in the six DC-8's acquired in 1959. These commitments involve an expenditure of approximately $17,000,000. 10 Year Operations Summary years ended June 30 1962 1961 Revenue plane miles ( 000) . 55,713 49,455 Revenue passengers carried . 3,768,707 3,569,778 Available seat miles ( 000) . 4,123,318 3,389,547 Revenue passenger miles ( 000) 2,393,991 2,034,047 Passenger load factor . 58.06% 60.01% Available ton miles ( 000) 542,232 442,251 Revenue ton miles ( 000) . ....... 269,044 223,592 Overall load factor . . . . . . . 49.62% 50.56% Percent of scheduled miles flown . 96.93% 97.14% 1960 49,405 3,241,511 3,027,450 1,757,208 58.04% 387,552 195,373 50.41% 97.03% 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 . 5 ' 53 54 55 56 57 58 59 60 61 62 PASSENGER LOAD FACTOR -- ,- >- - ,- I- - - ...... I- - ' rt L [ ..... ,._ ..... ,._ ,- - rt_ .... - - - - - 53 54 55 56 57 58 59 60 61 62 AVAILABLE TON MILES REVENUE TON MILES 1959 1958 1957 46,022 44,972 41,671 2,988,241 2,728,220 2,572,982 2,622,740 2,479,428 2,206,408 1,554,630 1,408,857 1,299,482 59.28% 56.82% SB.90% 324,018 301,105 260,431 174,936 156,332 141,861 53.99% 51.92% 54.47% 97.04% 97.40% 97.62% 5.0 4.5 4.0 3.5 3.0 2.5 ~ 2.0 1.5 1.0 .5 .0 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 53 54 55 56 57 58 59 60 61 62 REVENUE PASSENGERS CARRIED ~ . ~ 1-- '-- I - - .__ 1-- L-- L-- ,__ I - - I - - I---- ,___ L-- ~ .75 .50 .25 T ,__ ,__ I-- I - - ,__ I--- ,__ 1-- 53 54 55 56 57 58 59 60 61 62 REVENUE PASSENGER MILES 1956 1955 1954 33,962 31,579 31~916 2,261,770 2,039,018 1,712,562 1,726,941 1,517,891 1,344,069 1,080,267 952,426 769,653 62.55% 62.75% 57.26% 207,416 182,997 162,345 118,544 104,927 87,251 57.15% 57.34% 53.74% 98.39% 98.79% 98.29% - ~ ~ <-- 1953 20,672 1,119,688 776,157 507,713 65.41% 94,045 57,565 61.21% 98.83% These data reflect operations of Delta Air Lines, Inc., and do not include the C&S system prior to May 1, 1953. 17 50 5.00 4.50 4.00 3.50 CJ) 3.00 cc: :5 _J 2.50 0 0 CJ) 30 - - - - - - - - - - - - - - - - - -1 V.:: DELTA AIR LINES. INC. GENERAL OFFICES ATLANTA AIRPORT. ATLANTA, GEORGIA