DELTA AIR LINES, INC. }> DELTA AIR LINES, INC. Comparative Summary of Operations YEARs ENDED JUNE ao Dollars expressed in thousands except per share figures 1964 1963 Operating Revenues .......................................... . $224,672 $210,073 Operating Expenses ........................................... . $189,871 $177,622 Net Income ................................................. . $ 15,694 $ 13,824 Shares Outstanding at year end ................................ . 2,550,000 2,550,000 Earnings Per Share ........................................... . $6.15 $5.42 Total Stockholder Equity ...................................... . $ 77,017 $ 64,893 Stockholder Equity Per Share ................................. '. . $30.20 $25.45 Revenue Passengers Carried ................................... . 5,233,548 4,606,367 Available Seat Miles (000) ............................. . ...... . 5,582,349 4,953,787 Revenue Passenger Miles (000) ................................. . 3,353,842 3,004,157 Passenger Load Factor .................. . ..................... . 60.08% 60.64% Five years of jet progress This is in essence the annual report to our stockholders, but it also is the story of your Company's continuous growth over three decades. Late in fiscal year 1964, which ended on June 30, your Company's 40-millionth passenger since its certification as an air mail carrier in 1934 received a warm, friendly "Welcome Aboard." Forty million seats occupied - more than enough to accommodate the combined populations of the world's five largest cities: Tokyo, London, New York, Shanghai, and Moscow. Such a number is a remarkable achievement by any standards, but an even more graphic story of rapid progress unfolds with a breakdown of the figure. It shows that 49% of those passengers were carried since the arrival of the jet airplane in 1959. And the revenue passenger miles flown in that short period were 55% of the company's 30-year total of 22 billion. The early jet years plagued the industry with over capacity and spiraling costs, creating a period of severely depressed industry earnings. Your Company, however, minimized enough of the adversities to emerge as an industry pace-setter with profits increasing each year. It was a five-year period of steady growth with Delta's participation in the total trunkline market climbing from 5.5% in 1959 to almost 9% today. As the industry recovered from its most costly equipment transition in history, your Company also benefited from the basic efficiencies of the jet. The downward trend of unit costs and a continuing improvement in the nation's economy contributed significantly to making the 1964 fiscal year the most prosperous ever for your Company. Operating revenues, expenses and income each rose 7%. Operating revenues reached a record $224,672,000, the second 200-million dollar year of sales in the company's history. Operating expenses totaled $189,871,000 but again there were significant declines in available ton mile costs and available seat mile costs of 6% and 5% respectively. Operating income rose to $34,801,000 and, after deduction of non-operating charges, net income before taxes was $32,217,000. Record earnings of $15,694,000, equal to $6.15 per share and a 14 % increase over the previous year, were achieved on the 2,550,000 common shares outstanding. Earnings for the year were without benefits from any unusual traffic windfalls which had enhanced some prior years' results. Available seat miles rose 13% from 5 billion to a record of almost 5.6 billion, reflecting the addition of three DC-8 Fanjets and an increase in daily utilization of jet aircraft which at the year's end was 14% above the previous year's performance. Your Company will accept delivery of three additional DC-8 Fanjets during the.coming fiscal year which will increase the jet fleet to 16 DC-8 Fanjets and 16 Convair 880 jets. Revenue passenger miles last year increased 12% to a new high of almost 3.4 billion, virtually doubling the total for the first year of jet operations. In five years available seat miles increased 113% while the passenger load factor was at a consistently stable level. 1 2 During the fiscal year your Company obtained Civil Aeronautics Board approval to start an interchange with Pan American Airways which provided the first through-plane service from New Orleans and Atlanta to London and Paris, starting May 29. Your Company provided northern Louisiana and the State of Mississippi with their first pure jet service in November 1963, operating into Shreveport and Jackson, both of which were on Delta's original route of passenger service. Progress reports on the DC-9 twin-jet are most encouraging. This aircraft, which will begin its test flights in 1965 with deliveries scheduled to start in early 1966, insures your Company of jet coverage for all but the shortest trip lengths when it is placed in operation. The DC-9 will be the third member of the commercial jetliner family which your Company has been privileged to offer first to the world's scheduled transportation operations. Looking to the future, there is every indication your Company will continue to enjoy full participation in the industry's improved traffic picture and by dedicated, diligent development of all markets the result will be further improvement of the company's relative position. PRESIDENT AND GENERAL MANAGER September 11, 1964 REVENUES Operating revenues more than doubled in the five years of jet progress, a continuation of the growth that has produced impressive revenue gains each year of the last decade as shown on the adjacent chart. Revenues rose 7% to a record $224,672,000 for fiscal year 1964. This total included passenger revenues of $205,346,000, above $200-million for the first time in your Company's history and reflecting a 14% increase in the number of revenue passengers carried, which totaled a record 5,233,548. Revenue passenger mi1es were up 12% to 3,353,842,000 with the increase accounting for $13,991,000 in passenger revenues. EXPENSES Operating expenses totaled $189,871,000 or 7% above 1963. The increase reflected the integration of three additional DC-S's into the Fanjet fleet and improved utilization of the jet fleet with a resulting 13% rise in available seat miles and a 14% increase in available ton miles. The largest dollar rise was $7,711,000 for employee salaries and related costs attributable largely to a general wage increase in May 1963 and the addition of 1,026 new employees. The relationship of expense increase to capacity increase demonstrated for the third successive year substantial reductions in unit costs. For fiscal 1964 operating expenses per available ton mile declined 6% and available seat mile costs were reduced 5% below 1963. Compared to the peak reached subsequent to the costly preparation and introduction period of the jets, available ton mile costs have been reduced 15.6%. EARNINGS AND DIVIDENDS This was the 17th consecutive year of profitable operations by your Company. Operating income for fiscal year 1964 exceeded the previous record high by $2,350,000 reaching $34,801,000. Net income before taxes was up 10% from $29,296,000 to $32,217,000. Net earnings, derived entirely from operations, increased 14% to $15,694,000, equal to $6.15 per share on the 2,550,000 common shares outstanding. For the previous year, net earnings were $13,824,000, or $5.42 per share, when a major competitor experienced labor difficulties in the September quarter. The quarter- OPERATING REVENUES In Mi ll ions of Dollars 250 - - - - - - - - - - - - - - - - 55 56 57 58 59 60 61 62 63 64 by-quarter comparison following shows the significant normal growth of the last three quarters, which overcame the poor first-quarter comparison with the 1963 windfall* and resulted in a significant gain for the year. QUARTERLY COMPARISONS OF NET EARNINGS (In Thousands) Fiscal Years Per Cent Quarters Ended 1964 1963 Change September 30 $ 3,353 $ 5,503 * -39% December 31 3,592 2,231 +61% March 31 4,413 2,471 +79% June 30 4,336 3,619 +20% Year Ended June 30 $15,694 $13,824 +14% Cash dividend payments for the year were $3,570,000, or $1.40 per share on the 2,550,000 shares outstanding. Quarterly dividends of 30 per share were paid on September 1, 1963 and December 1, 1963. The amount was increased to 40 per share on March 1, 1964 which was repeated on June 1, 1964. The Board of Directors, at the regular meeting on July 23, 1964 voted a stock split in the form of a 25% stock dividend, payable on September 8, 1964 to stockholders of record August 14, 1964. The split increases the number of common shares outstanding to 3,187,500. The Board stated its intention to continue the usual quarterly cash dividend of 40 a share on the new total of outstanding shares. 3 4 PERSONNEL Employment provided another milestone in your Company's history. During the month of April the 10,000th employee was welcomed into the Delta family, and at the year's end employment totaled 10,283. This represented an increase of 1,026 over the previous year. It was the largest single-year rise of the 1960's and resulted from the requirements of expanded services and the associated growth of your Company. Stability in employment contributes immeasurably to the maintenance of Delta's high standards and is becoming increasingly essential as competition intensifies. At the year's end, 48% of the total employees had five or more years of company experience. EMPLOYEES BY LENGTH OF SERVICE AS OF JUNE 30, 1964 Over 20 years 15 - 20 years 10- 15 years 5 - 10 years 1- 5 years Less than 1 year 405 1,171 1,048 2,345 3,420 1,894 10,283 General wage and salary scales again were adjusted in May 1964, which with the additional employees, resulted in total compensation of $82,033,000. After careful evaluation over a long period the employees' comprehensive medical and general insurance program will be expanded early in the new fiscal year, providing numerous broader benefits. The insurance program is among the outstanding employee benefits provided by your Company; others include a liberal policy of "space available" free air transportation, an employee credit union, and an adequate retirement income plan. Capable, stable management with more than a century of airline experience Top - Paul W. Pate (left), Vice President- Properties and W. T. Beebe, Vice President- Personnel Center - R. S. Maurer (left), Vice President - Legal and Secretary and T. M. Miller, Executive Vice President- Traffic and Sales Lower - C. H. Dolson (left), Executive Vice President - Operations, and Robert Oppenlander, Vice President- Finance and Treasurer, and (inset) Robert L. Griffith, Vice President Promotions during the year were Thomas M. Miller to Executive Vice President-Traffic & Sales; Robert Oppenlander to Vice President-Finance and Treasurer; Paul W. Pate to Vice President-Properties; and David C. Garrett, Jr. to Assistant Vice President- Operations. None of the promotions resulted from vacancies, but instead were based on an endeavor to further solidify an already strong and stable management team. Prior to the close of the fiscal year, Mr. Earl D. Johnson, by mutual agreement, submitted his resignation as Executive Vice President and as a member of the Board of Directors. Under the terms of his employment contract, he assumed duties as an adviser and consultant. On July 23, 1964, your Board of Directors elected two new directors. They are Mr. Thomas M. Miller, an additional representative of management, and Mr. Charles H. Kellstadt, Chairman of the Board of Directors of General Development Corporation, Miami, and a former Chairman of the Board and Chief Executive Officer of Sears, Roebuck and Co. PASSENGER FARES The 4% decline in passenger revenue per revenue passenger mile from 1963 was principally attributable to the Military Discount plan which permits military personnel in uniform and traveling on leave to be Checking and double checking for your pleasant and safe flight carried as standby passengers at a 50% discount. This fare, however, generated in its first full fiscal year $7 million in revenues, most of which is believed to be from new traffic, utilizing seats which otherwise would have been empty. In the second half of fiscal 1964 two major fare changes were made principally to meet competition. On January 15 certain long-haul first class fares were lowered. On June 18 the Family Plan discount was reduced from 50% to 25% and extended to coach as well as first class. It was again excluded from peak-traffic days, Fridays through Sundays, systemwide. The effect of these changes on total revenues cannot be measured readily; however, they do appear to have stabilized or slightly improved the passenger revenue per revenue passenger mile since their start. SERVICES Foremost among the year's numerous achievements was the continuing expansion and public acceptance of jet services. For the entire fiscal period, jets accounted for 73.53% or 2,466,189,000 of the 3,353,842,000 revenue passenger miles flown, representing a substantial increase over the previous year. By the end of the 1964 fiscal year, jets were flying in excess of 75% of the revenue passenger miles. There was a significant expansion of the southern transcontinental service pattern with the inauguration Experienced coordinators handle the dispatch of aircraft 5 6 of a daily, roundtrip nonstop flight between Atlanta and San Francisco and the addition of a daily, onestop flight from Atlanta to both San Francisco and Los Angeles. At the year's end there was a total of 20 jet flights daily to and from California, in addition to a turn-around jet flight that serves Las Vegas. In November 1963 your Company provided the first pure-jet service for northern Louisiana and the State of Mississippi, operating a Convair 880 through Shreveport and Jackson, and giving Birmingham nonstop service to New York. The first Delta jet service into Indianapolis was scheduled on a seasonal basis, a Convair 880 night coach that began operation in the late spring to accommodate the summer tourist traffic. A more flexible service pattern in the Caribbean resulted from the inauguration of flights between Jamaica and Puerto Rico, the culmination of the award granted by the Jamaica Air Transport Licensing Authority in fiscal year 1963. Jamaican operations increased from three to eight weekly and included the initial Kingston-Caracas jet flight. The Caribbean expansion coincided with the start of an attractive "circle fare," introduced by your Company to offer a Los Angeles-New York roundtrip via Jamaica and/or Puerto Rico for $325, or only $35 Last night's order delivered this morning more than a roundtrip tourist ticket to New York alone. This fare was designed to encourage travel via Delta to the New York World's Fair and the Caribbean on the same trip. Further efforts to stimulate New York World's Fair traffic was the scheduling of the first jet night coach from Atlanta to New York. This was in addition to the conversion of a DC-7 to a high-density configuration of 95 seats, solely for charters, advance sections and group movements to the Fair. The first through-plane jet service from New Orleans and Atlanta to Europe was begun on May 29, 1964 on an interchange basis with Pan American Airways. The service began only 17 days after approval of the application by the Civil Aeronautics Board. Your Company occupied modern new facilities in Satellite Six at Los Angeles International Airport and plans were begun in San Francisco to provide expanded, more adequate quarters in both the concourse and ticket counter areas. CAPITALIZATION AND FINANCING Five years of jet progress has seen stockholder equity more than double from $37,410,000 in fiscal 1959 to $77,017,000 at the end of fiscal year 1964. The $77,017,000 compared with $64,893,000 at the beginning of the year, or on a per share basis it was an increase from $25.45 to $30.20. The 1961 Bank Credit Agreement, as amended, provided a maximum credit of $12,939,000 to be borrowed by June 30, 1964. The substantial improvements in operating revenues and net income since the establishment of this line of credit resulted in a steadily improved financial strength and a gradual reduction of the need for the credit this Agreement was originally designed to provide. During the year it became apparent that the credit was no longer required, and on April 28, 1964 your Company exercised its privilege under the Agreement to cancel the banks' commitments and terminate the Agreement in its entirety. Under the 1958 Bank Credit Agreement, your Company has prepaid the two $1,250,000 quarterly installments due in September and December of 1964. No additional financing will be needed to meet currently outstanding purchase commitments, including the DC-9 jet aircraft. FLIGHT EQUIPMENT In 1959 your Company introduced the Douglas DC-8 jet to scheduled commercial operations and in major markets earned recognition as "the jet leader." Steady expansion of the fleet has enabled Delta to retain this distinction. During the fiscal year three additional DC-8 Fanjets were placed in operation, increasing the jet fleet to 29 aircraft of which 16 are Convair 880's and 13 are DC-8 Fanjets. Conversion of the first six DC-8's to Fanjets was completed in October 1963. This modification resulted in significantly greater operating economy and efficiency. Three DC-8 Fanjets on order will be delivered during the coming fiscal year. A team of 2,500 maintenance experts keep downtime at a minimum Since your Company's order for 15 DC-9's, and an option for 15 more, Douglas has negotiated firm purchase agreements from four other airlines for 39 aircraft and options for 23 more, making a total of 54 orders and 38 on option. There are indications that this number will increase within coming months. Another step in staying abreast of the times in aircraft development was a deposit of $300,000 with the Federal Aviation Agency on April 28, 1964 for delivery positions of three U.S. built Super Sonic Transports. This amount is refundable if your Company should decide to forego further participation after current studies and evaluations of the program. PISTON AIRCRAFT JET AIRCRAFT FLIGHT EQUIPMENT In Millions of Dollars 1960 1961 1962 1963 1964 100 80 60 40 20 0 I I I I I I { 1111 NET BOOK VALUE COST DEPRECIATION 0 20 40 60 80 100 120 140 160 180 200 7 8 1964 REVENUE DOLLAR Twelve Months Ended June 30, 1964 SOURCES Passengers and Their Excess (000) Baggage. . . . . . . $207,429 Mail . . . . . . . . . . . 4,299 Freight and Express ...... . Other ......... . 11,265 1,679 92.33 1.91 5.01 .75 Total Revenue $224,672 100.00 DISTRIBUTION (000) Employee salaries and related costs 1 $ 82,033 36.51 Depreciation and Obsolescence of Property and Equipment ...... 19,930 8.87 Gasoline and Oil 24,025 10.69 Materials and outside repairs for Maintenance of Equipment ... 15,453 6.88 Food and supplies for passengers ... 7,198 3.20 Rentals and Landing Fees .... 7,387 3.29 -- - ~ ti t Salaries, travel, employee welfare and payroll taxes Advertising ....... 6,595 2.94 Communications ... 4,251 1.89 Other operating " costs ............ 20,265 9.02 Capital Costs (Interest and Dividends) ...... 6,361 2.83 Taxes ............ 19,050 8.48 Retained for use in business ...... 12,124 5.40 Total ......... $224,672 100.00 --- There were no sales of aircraft during the year and at June 30, 1964, Delta's operating fleet consisted of 8 5 aircraft : Number of Manufacturer Model Number Seats Douglas DC-8 Fanjet 13 128 Convair 880 Jet 16 92 Douglas DC-7/7B 19 77 Douglas DC-6 11 67 Convair 340/440 21 44 Curtiss C-46 5 Cargo The fleet had a net book value of $138,805,000, of which $129,227,000 represents the value of jet aircraft with the balance of $9,578,000 for pistons. The piston fleet is now largely depreciated to the established normal residual values and DC-7's, which now have A picture of precision in the overhaul of an air speed indicator a doubtful market value, are being further depreciated to scrap value by the end of 1965, just prior to delivery of their replacements, the DC-9's. REGULATORY MATTERS Service To Huntsville: In December 1963 the Civil Aeronautics Board denied your Company's application to serve Huntsville, Alabama. One of the primary reasons for denial of the application was the Board's conclusion that Delta's operation would endanger the revenues of the subsidized local service carrier which now provides the bulk of Huntsville's scheduled air service. Delta will continue to study the developing trunk air service needs of the Huntsville area, however, in relation to the requirements of the National Defense. The Competitive Trunkline Service Investigation: This Civil Aeronautics Board investigation, in progress since December 1961 had as its purpose the determination as to whether or not competitive trunkline service between New Orleans and New York via intermediate points and between Memphis and New York via intermediate points should be modified or suspended. On June 3, 1964 the Board in effect terminated the investigation when it found that no change in existing authority was required. South American Route Investigation Case: This extremely complex proceeding involves the investigation of all air service needs between the United States and South America. The Civil Aeronautics Board recently defined the final issues to be resolved, thus clearing the way for the public hearing which is now scheduled to begin in January 1965. Your Company's primary position is to protect and improve its existing operating authority in this area. Pacific Northwest-Southwest Service Investigation: Shortly after the close of the fiscal year the Civil Aeronautics Board announced its intention to institute a proceeding covering the need for single-carrier service between the Pacific Northwest and the Southwest areas. Your Company filed a route application and will be an active party in the proceedings, hearings on which are not anticipated until the calendar year 1965. The service areas involved are the states of Washington, Oregon, Idaho, Wyoming, Utah and Northwest Colorado, on the one hand, and Southwest Colorado, New Mexico, Kansas, Oklahoma, Texas and Louisiana, and the cities of Kansas City and St. Louis, on the other hand. 9 10 The heart of DELTAMATIC is the computer center in Atlanta SA .....,-,..,, .. 1 ",Jo: @ LOS ANGELES Late in the fiscal year your Company acti- vated the initial phase of DELTAMATIC which operates with IBM equipment and is the most comprehensive electronic reservations system in the airline industry. The first operation was conversion of reservations control from manual pro- cedures to DELTAMATIC. Electronic control of all space was necessary prior to linking individual reservations offices to the com- puter. Tie-in of the first cities began early in the new fiscal year with a progressive cut- over program which will result in DELTA- MATIC's benefits for many major cities on the system by the end of calendar year 1964. Coinciding with the activation of DELTAMATIC was the installation of the world's largest privately owned computer controlled teletypewriter message switching center, developed by Collins Radio Com- pany. The compatibility of the two systems L accentuates the simplification of trans- mission, with a related increase in capability and efficiency. DELTAMATIC, which had more than 7,000 hours of simulated, real-time environmen- tal testing subsequent to the completion of two years of programming, handles every phase of reservations including seat avail- ability and the recording of all passenger name records associated with the person occupying the seat. It reduces many present manual procedures from as much as 30 minutes to only seconds, but there still is the same friendly personal service at each reservations telephone. Your Company is making the transition to improved reservations service with full . employment; convinced that continuing expansion, transfers, promotions and nor- mal attrition create an ever-expanding need for additional employees. DELTA/PAN AM THRU JETS TO AND FROM LONDON - PARIS 11 12 ASSETS CURRENT ASSETS: Cash ................................................ . Short-term cash investments, at cost .................... . Accounts receivable- Traffic-net ....................................... . Other ............................................. . Maintenance and operating supplies, at average cost ....... . Prepaid expenses, etc ................................... . Total current assets ..................... . OTHER ASSETS ( Net assets of dusting division and other investments) ......................... . PROPERTY AND EQUIPMENT: Cost- Flight Equipment 1964 ..................... $243,193,140 1963.... . . .. . . . . . . . . .. .. . 217,026,899 Reserves for depreciation- 1964 .................... . 1963 .................... . 104,388,285 92,262,823 Other Property and Equipment $ 24,484,870 21,905,993 11,462,924 9,790,732 Advance payments for new flight equipment .............. . DELTA AIR LINES, INC. 1964 $ 11,708,854 8,062,000 12,433,887 2,540,862 2,412,615 910,916 $ 38,069,134 $ 485,065 $267,678,010 115,851,209 $151,826,801 3,859,773 $155,686,574 $194,240,773 1963 $ 13,056,477 11,041,647 12,380,854 2,488,001 2,297,858 743,626 $ 42,008,463 $ 565,772 $238,932,892 102,053,555 $136,879,337 1,979,076 $138,858,413 $181,432,648 BALANCE SHEETS JUNE 30, 1964 AND 1963 LIABILITIES AND STOCKHOLDER EQUITY CURRENT LIABILITIES: Current maturities of long-term notes .................... . Accounts payable and accrued liabilities .................. . Tickets outstanding subject to refund or use .............. . Air travel plan deposits ................................ . Accrued Federal and state income taxes .................. . Total current liabilities .................. . LONG-TERM DEBT: Notes payable (Note I) ................................ . Other ................................................ . DEFERRED FEDERAL INCOME TAXES ............... . STOCKHOLDER EQUITY: Common stock, par value $3.00 per share- Authorized 4,000,000 shares Outstanding 2,550,000 shares (Note 4) ................. . Capital surplus ....................................... . Retained earnings (of which $24,741,133 is not presently available for cash dividends under terms of credit agreements) ..................... . PURCHASE COMMITMENTS (Note 2) The accompanying notes are an integral part of these statements. 1964 $ 2,500,000 17,529,762 2,714,039 1,613,725 4,051,416 $ 28,408,942 $ 47,500,000 179,762 $ 47,679,762 $ 41,135,000 $ 7,650,000 22,450,114 46,916,955 $ 77,017,069 $194,240,773 1963 $ 3,026,316 15,922,314 2,864,957 1,490,900 3,774,992 $ 27,079,479 $ 56,973,684 272,013 $ 57,245,697 $ 32,214,000 $ 7,650,000 22,450,114 34,793,358 $ 64,893,472 $181,432,648 13 DELTA AIR LINES, INC. STATEME TS OF I COM FOR THE YEARS ENDED JUNE 30, 1964 AND 1963 14 OPERA TING REVENUES: Passenger ............................ . ................ . Freight ............................................... . U.S. Mail .................. . ......................... . Express .............................................. . Excess baggage ...... .................................. . Other operating revenue-net ........................... . Total operating revenues ............................. . OPERA TING EXPENSES: Flying operations ...................................... . Maintenance .......................................... . Aircraft and traffic servicing ............................ . Promotion and sales ................................... . Depreciation .......................................... . Passenger service ...................................... . General and administrative ............................. . Total operating expenses ............................. . Income from operations before income taxes ............................... . OTHER EXPENSE (INCOME): Interest expense (less capitalized interest on advances for flight equipment-$275,000 in 1964 and $143,000 in 1963) ............................... . Other-net . .......................................... . Total other expense ................................. . Income before income taxes .......................... . PROVISION FOR INCOME TAXES: Current Federal and state income taxes ................... . Deferred Federal income taxes .................. . ....... . Net income ......................................... . The accompanying notes are an integral part of these statements. 1964 $205,345,711 8,869,003 4,299,533 2,395,638 2,082,546 1,679,961 $224,672,392 $ 49,931,093 42,004,704 32,401,307 24,238,688 19,929,963 15,990,278 5,375,124 $189,871,157 $ 34,801,235 $ 2,791,042 $ (206,404) $ 2,584,638 $ 32,216,597 $ 7,602,000 8,921,000 $ 16,523,000 $ 15,693,597 1963 $191,355,498 8,304,759 4,483,007 2,280,466 2,119,893 1,529,591 $210,073,214 $ 49,277,866 37,515,346 29,484,885 21,800,548 19,838,833 14,735,816 4,968,634 $177,621,928 $ 32,451,286 $ 3,416,683 (261,875) $ 3,154,808 $ 29,296,478 $ 4,820,000 10,652,000 $ 15,472,000 $ 13,824,478 DELTA AIR LINES, INC. STATEMENT OF RETAINED EARNINGS FOR THE YEAR ENDED JUNE 30, 1964 Balance June 30, 1963 .................................................... . Add: Net income for the year ................................................ . Deduct: Cash dividends-$ I .40 per share ........................................ . Balance June 30, 1964 ($24,741,133 is restricted as indicated on balance sheet) ........................................... . T u s ISPOSITION OF FUNDS FOR THE YEARS ENDED JUNE 30, 1964 AND 1963 1964 FUNDS PROVIDED BY: Net income for the year ................................ . $ 15,693,597 Add non-cash expenses: Depreciation ....................................... . 19,929,963 Deferred Federal income taxes ........................ . 8,921,000 Other ............................................. . 431,803 Total from operations ............................ . $ 44,976,363 Borrowing under credit agreements ...................... . $ 44,976,363 FUNDS USED FOR: Flight equipment additions, including advances ............ . $ 34,352,315 Other property and equipment additions .................. . 2,756,905 $ 37,109,220 Repayments of long-term debt ............... . .......... . 9,565,935 Cash dividends ........................................ . 3,570,000 $ 50,245,155 Increase (decrease) in working capital ...................... . $ (5,268,792) WORKING CAPITAL AT END OF YEAR .... . .......... . $ 9,660,192 The accompanying notes are an integral part of these statements. $ 34,793,358 15,693,597 $ 50,486,955 3,570,000 $ 46,916,955 1963 $ 13,824,478 19,838,833 10,652,000 1,374,308 $ 45,689,619 5,436,000 $ 51,125,619 $ 33,819,990 2,466,763 $ 36,286,753 6,071,911 2,550,000 $ 44,908,664 $ 6,216,955 $ 14,928,984 15 DELTA AIR LINES, INC. 16 NOTES TO FINANCIAL STATEMENTS JUNE 30, 1964 1. LONG-TERM NOTES PAYABLE: The Company's outstanding borrowings of $50 million at June 30, 1964, consist of $15 million due a group of twenty- four banks under 4% unsecured notes repayable in quarterly installments of $1,250,000 from March 31, 1965 through December 31, 1967, and $35 million payable to four insurance companies under 6% unsecured notes repayable on a semi-annual basis during the period 1968-1974. 2. FLIGHT EQUIPMENT PURCHASE COMMITMENTS: The Company has outstanding purchase commitments requiring expenditures of approximately $69 million subse- quent to June 30, 1964, for the acquisition of two Douglas DC-8 Fan jet aircraft scheduled for delivery in November 1964, one DC-8 Fanjet aircraft scheduled for delivery in April 1965, and fifteen Douglas DC-9 twin-jet aircraft to be delivered beginning in early 1966. 3. INVESTMENT CREDIT: The amount of investment credit used by the Company to satisfy Federal income taxes payable amounted to $2.4 million in 1964 and $2 million in prior years. These amounts (included with Deferred Federal Income Taxes) are being amortized to income over the approximate life of the properties which gave rise to the credit. At June 30, 1964, the Company also had approximately $2.3 million of unused investment credit which is available for future years. 4. SUBSEQUENT STOCK SPLIT: On July 23, 1964, the Board of Directors declared a stock split to be effected in the form of a 25% stock dividend. The 637,500 dividend shares will be distributed on September 8, 1964, to stockholders of record on August 14, 1964. AUDITORS' OPINION ARTHUR ANDERSEN & Co. To the Board of Directors, Delta Air Lines, Inc. : 34 PEACHTREE STREET,N.W. ATLANTA 3 We have examined the balance sheet of Delta Air Lines, Inc. (a Louisiana corpo- ration) as of June 30, 1964, and the related statements of income, retained earnings, and funds for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the ac- counting records and such other auditing procedures as we considered necessary in the circumstances. We had made a similar examination for the year ended June 30, 1963. In our opinion, the accompanying balance sheet and statements of income, re- tained earnings, and funds present fairly the financial position of Delta Air Lines, Inc. as of June 30, 1964, and the results of its operations and the sources and disposition of funds for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. Atlanta, Georgia, August 12, 1964. DELTA1S STORY TO THE PUBLIC While the theme of basic advertising continues to be the Delta Tradition of service, increased jet schedules and travel to the World's Fair have been actively promoted in the past year. Their spirit and pride make the big difference on DELTA You can't teach people to smile from the inside. Or add that alert twin.kle to their eyes. Or plant eagerness in their steps . .. These things are born of pride in a job, spo.rked by the spirit of a team that's "all go" and kno ws iL .. No air line sells the special kind of service such special people provide. You either get it or you d on't. On Delta you do! You'll remember how pleasant long after you've forgotten ~ C.IIDlt ' M,d"'R:uMl :' FI.L.a~ .. IIJAUlUl ; O<--T"""-' ~ Nobody beat, D1lt1 with Jet, to CH/CASO Non,otopaatl:2:lp,10:00p oolt... ce'i: .. =fA the air hnf with the BIG JETS 17 DELTA AIR LINES, INC. FIVE YEARS OF JET AGE GROWTH YEARS ENDED JUNE 30 Dollars expressed in thousands except per share figures Operating Revenues Passenger .................................................... . Mail ........................................................ . Freight ...................................................... . Express ..................................................... . All other .................................................... . Total operating revenues .......................................... . Operating expenses ............................... . ............... . Operating income ................................................ . Non-operating expense-net. ...................................... . Net income before taxes .......................................... . Taxes on income ................................................. . Net income ...................................................... . Special item-profit on disposition of flight equipment (after taxes) ........................................ . Total income and special item ..................................... . Per share of stock outstanding at year end* ...................... Dividends paid . . . . . . . . . . . . . . . . . . . . . . . ... . ................. . ..... . Dividends paid per share* ........................ . ............ . Total assets ................................. . ................... . Stockholder equity ............................................... . Stockholder equity per share* .................................... . . Shares of common stock outstanding at year end* .... . ............... . 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) .......................................... . Passenger revenue per passenger mile . .......................... . ... . Operating expenses per available seat mile ............... . ...... . ... . . Operating expenses per available ton mile ........................... . *Adjusted to reflect 50% stock split March 1963 and 33-1/3% stock split March 1962. 18 1964 $205,346 4,299 8,869 2,396 3,762 $224,672 189,871 $ 34,801 2,584 $ 32,217 16,523 $ 15,694 $ 15,694 $6.15 $ 3,570 $1.40 $194,241 $ 77,017 $30.20 2,550,000 65,815 5,233,548 5,582,349 3,353,842 60.08% 740,852 378,465 6.12 3.38 25.63 1963 $191,355 4,483 8,305 2,280 3,650 $210,073 177,622 $ 32,451 3,155 $ 29,296 15,472 $ 13,824 $ 13,824 $5.42 $ 2,550 $1.00 $181,433 $ 64,893 $25.45 2,550,000 61,242 4,606,367 4,953,787 3,004,157 60.64% 648,185 342,661 6.37 3.56 27.40 1962 1961 $155,994 $134,946 3,414 . 2,579 5,814 4,070 1,669 1,408 2,886 3,129 $169,777 $146,132 154,671 134,431 $ 15,106 $ 11,701 2,862 2,733 $ 12,244 $ 8,968 6,579 4,842 $ 5,665 $ 4,126 1,320 526 $ 6,985 $ 4,652 $2.74 $2.07 $ 1,520 $ 1,346 $0.65 $0.60 $158,088 $134,938 $ 53,619 $ 41,056 $21.03 $18.29 2,550,000 2,244,469 55,713 49,455 3,768,707 3,569,778 4,123,318 3,389,547 2,393,991 2,034,047 58.06% 60.01% 542,232 442,251 269,044 223,592 6.52 6.63 3.74 3.95 28.52 30.40 1960 $109,672 2,140 4,250 1,362 2,767 $120,191 113,460 $ 6,731 1,313 $ 5,418 2,735 $ 2,683 156 $ 2,839 $1.27 $ 1,346 $0.60 $121,890 $ 38,902 $17.33 2,244,467 49,405 3,241,511 3,027,450 1,757,208 58.04% 387,552 195,373 6.24 3.74 29.28 TOTAL EARNINGS In Millions of Dol lars 16.5 15.0 13.5 12.0 10.5 9.0 7.5 6.0 4.5 3.0 0 60 61 62 63 64 STOCKHOLDER EQUITY PER SHARE* In Dollars 35.0 32.5 30.0 27.5 25.0 L 22.5 20.0 17.5 60 61 62 63 64 DELTA AIR LINES, INC. REVENUE PASSENGERS CARRIED In Millions 5.5 5.0 4.5 4.0 3.5 1.5 ] 1.0 .5 - .0 60 61 62 63 REVENUE PASSENGER MILES In Bi llions F F F 64 3.50 - - - - - - - - - - - 3.25 - Ill JET 3.00 - PISTON - - 2.75 - - - - - ---: 1.25 1.00 .50 .25 .0 60 61 62 63 64 *Adjusted to reflect 50% stock split March 1963 and 33-1/3% stock split March 1962. 19 DELTA TICKET OFFICES City Ticket Offices Reservation Telephone ALEXANDRIA Airport ............................... Hillcrest 2-44 71 ASHEVILLE Lobby, Battery Park Hotel. ................. ALpine 2-7601 ATLANTA Fulton National Bank Bldg.; Piedmont and} 521-3000 Biltmore Hotels ; Merchandise Mart Bldg. ATLANTIC CITY Bellevue-Stratford & Sheraton Hotels .. SAratoga 7-9900 AUGUSTA Richmond Hotel ................................ 798-2251 BALTIMORE Lord Baltimore Hotel .................. Southfield 6-2100 BATON ROUGE Lobby, Capitol House Hotel .............. ELgin 6-4333 BEAUMONT Airport. ............................... RAndolph 2-3471 BIRMINGHAM 2002 Fifth Ave., North ........................ 592-9601 BRUNSWICK Airport ................................ MElrose 8-2531 CARACAS, YENZ. Edificio Roraima ........................... 339-349 and Macuto-Sheraton Hotel ................. 81-21-84 CHARLESTON Lobby, Francis Marion Hotel .......... SHerwood 4-2567 CHARLOTTE 201 S. Tryon St. (Cutter Building) ................ 392-4321 CHATTANOOGA Lobby, Hotel Patten ......................... 265-3631 CHICAGO 67 East Mon~oe, Co~rad Hilton Hotel } ..... Financial 6-5300 and 1649 Orrmgton m Evanston CINCINNATI Sheraton-Gibson and Netherl'd-Hilton Hotels ..... 241-1700 CLEARWATER Tampa International Airport .............. . .... 446-8318 COLUMBIA Lobby, Wade Hampton Hotel ............... . SWift 4-3000 COLUMBUS, GA. Ralston Hotel ........................ FAirfax 7-7458 COLUMBUS, OHIO Lobby, Deshler Cole Hotel ................. 237-7474 DALLAS 212 S. Akard St. (Baker Hotel);} .......... FLeetwood 7-6161 Statler Hotel Lobby DAYTON Biltmore Hotel ................................... 223-7141 DETROIT 1205 Washington Blvd. and Lobby,} ...... WOodward 5-3000 General Motors Bldg. EVANSVILLE Lobby, Mccurdy Hotel. ................. HArrison 5-9023 FORT LAUDERDALE 10 S.E. Sixth Avenue ............... JAckson 4-0331 FORT WAYNE Lobby, Van Orman Hotel. ................ . .... 742-2201 FORT WORTH Lobby, Hotel Texas ...................... EDison 2-7871 HOT SPRINGS Airport. .............................. NAtional 3-1671 HOUSTON Rice and Shamrock-Hilton Hotels ............ CApitol 5-1361 INDIANAPOLIS Lobby, Claypool Hotel ................. MElrose 4-3200 JACKSON Heidelberg Hotel ................................. 939-5200 JACKSONVILLE Hotel Robert Meyer ..................... ELgin 3-3171 KANSAS CITY Muehlebach Hotel. ...................... GRand 1-7733 KINGSTON, JAMAICA Lobby, Myrtle Bank Hotel .................. 24816 KNOXVILLE Farragut Hotel. ................................ 577-6611 LAS VEGAS Sahara Hotel ................................... 382-0077 LEXINGTON Airport ....................................... 254-5569 LITTLE ROCK Lobby, Coachman's Inn ................ FRanklin 6-3141 LONDON, ENGLAND (PAA) 193 Piccadilly w. 1 ............... REG 7292 LOS ANGELES 529 w. Sixth Street. ................... MAdison 0-1050 BEVERLY HILLS Beverly Hilton Hotel. .............. CRestview 3-1813 20 City Ticket Offices Reservation Telephone HOLLYWOOD Hollywood Roosevelt Hotel. .......... MAdison 0-1050 LONG BEACH Jurgens Trust Building ............... NEwmark 9-4000 PASADENA 700 E. Colorado Blvd .................. SYcamore 5-0449 LOUISVILLE Shop 102, Starks Bldg ........................... 584-3142 MACON Lobby, Hotel Dempsey ............................. 788-3363 MARACAIBO, YENZ. Edificio Icuma, Ave. 5 de Julio Maracaibo .... 75-281 MEMPHIS Peabody Hotel .................................. 398-9211 MERIDIAN Airport. ....................................... 482-3141 MIAMI Columbus Hotel; Ashe Bldg., U. of Miami ..... FRanklin 3-0441 MIAMI BEACH 1632 Collins Ave. and 230 71st St ........ FRanklin 3-0441 MILWAUKEE 718 N. Plankington Ave .................. Division 2-4675 MONROE Lobby, Frances Hotel. ...................... FAirfax 3-5116 MONTEGO BAY, JAMAICA Casa Montego Hotel .................... 2811 MONTGOMERY Lobby, Jefferson Davis Hotel. ................. 263-6404 NEW ORLEANS Sheraton-Charles and Roosevelt Hotels ......... 524-8592 NEW YORK Rockefeller Center; Airlines Building; 100 } Broadway; Lobby, Statler Hotel; East Side Terminal; West Side Terminal; 635 PLaza 1-6600 Madison Ave. ; 200 Livingston St., Brooklyn; 35 Mamaroneck Ave., White Plains WESTCHESTER ... White Plains 6-1626 NASSAU AND SUFFOLK ....... !Vanhoe 1-6811 NEW ARK 3 Commerce Street ......................... Mitchell 2-2228 ORLANDO Lobby, San Juan Hotel ..................... CHerry 1-45Jl CAPE KENNEDY 7000 North Atlantic Ave .......... 262-4373, 636-3144 PADUCAH Airport ........................................ 443-1732 PARIS, FRANCE (PAA) 138 Champs Elysees; 1 Rue Scribe ...... BAL 9200 PHILADELPHIA Bellevue-Strat. and Sheraton Hotels ..... SAratoga 7-9900 PORT ARTHUR Airport ............................. RAndolph 2-3471 PORT AU PRINCE, HAITI 2 Rue Du Fort Per ... : .................. 3805 SAN DIEGO U .s. Grant Hotel ............................... 239-2345 SAN FRANCISCO Sheraton-Pala~e. Hotel; . } ....... EXbrook 7-3242 Downtown A1rhne Termmal OAKLAND 1922 Broadway ...................... TEmple Bar 4-6680 SAN JUAN, PUERTO RICO 311 Recinto Sur ..................... 791-0045 SAVANNAH Manger Hotel. ........................... ADams 3-0267 SHREVEPORT Captain Shreve Hotel .......................... 425-3232 SPRINGFIELD Airport. ............................. UNiversity 6-1951 ST. LOUIS Lobby, Statler Hotel. ........................ MAin 1-7580 ST. PETERSBURG Tampa International Airport. ............... 896-7141 TAMPA 500 Florida Ave. (Hillsboro Hotel) ............... . .. 877-8111 TOLEDO Commodore Perry Hotel Arcade ........... . ........ 244-8661 WASHINGTON, D.C. 1605 K Street, N.W. and } 296-7000 Washington Hotel WEST PALM BEACH Town House Motor Hotel, } 832-6411 (100 Datura Street) DIRECTORS R. W. COURTS Atlanta, Georgia EDWARD H. GERRY New York, New York R. S. MAURER Atlanta, Georgia CARLETON PUTNAM Washington, D.C. OFFICERS R. W. FREEMAN, Chairman New Orleans, Louisiana C.H. DOLSON Atlanta, Georgia CHARLES H. KELLSTADT Miami, Florida T. M. MILLER Atlanta, Georgia GEORGE M. SNELLINGS, JR. Monroe, Louisiana C. E. WOOLMAN President and General Manager DELTA AIR LINES, INC. EMERY FLINN Miami, Florida JOHN R. LONGMIRE St. Louis, Missouri WINSHIP NUNNALLY Atlanta, Georgia C. E. WOOLMAN Atlanta, Georgia C.H. DOLSON T. M. MILLER Executive Vice President-Operations W. T. BEEBE Vice President-Personnel ROBERT L. GRIFFITH Vice President ROBERT OPPENLANDER Vice President-Finance and Treasurer Executive Vice President-Traffic and Sales R. S. MAURER Vice President-Legal and Secretary PAUL W. PATE Vice President-Properties DA YID C. GARRETT, JR. CHARLES P. KNECHT R. H. WHARTON C. B. WILDER Assistant Vice President- Assistant Vice President- Assistant Vice President- Assistant Vice President- 0 perations Sales Personnel Operations-Technical CATHERINE FITZGERALD Assistant Treasurer J. R. HOWELL Assistant Treasurer TRANSFER AGENTS: The Citizens & Southern National Bank, Atlanta, Georgia and The First National City Bank, New York, New York REGISTRARS: Trust Company of Georgia, Atlanta, Georgia HUGH H. SAXON Assistant Treasurer and Morgan Guaranty Trust Company of New York, New York, New York COMMON STOCK: Listed on the New York Stock Exchange AUDITORS: Arthur Andersen & Co. ANNUAL MEETING: October 22, 1964, Monroe, Louisiana DELTA AIR LINES, INC., GENERAL OFFICES, ATL.ANTA AIRPORT, ATLANTA, GEORGIA