Delta Air Lines annual report 1976

DELTA AIR LINES, INC.
ANNUALREPORT1976
Contents
1 Highlights of the Year
2 Description of Business
3 Report to the Stockholders
7 Earnings and Dividends
8 Operating Revenues
10 Operating Expenses
11 Capitalization and Financing
13 Flight Equipment and Purchase
Commitments
15 Personnel
16 Regulatory Matters
24 Route Map
Financial Statements-
26 Balance Sheets
28 Statements of Income
29 Statements of Retained Earnings
29 Statements of Additional Paid-in Capital
30 Statements of Changes in Financial Position
31 Notes to Financial Statements
41 Auditors' Report
42 Summary of Operations
42 Other Financial and Statistical Data
44 Management's Analysis and Discussion
of Summary of Operations
45 Board of Directors
46 Officers
Highlights of the Year
The following comparative summary highlights
the accomplishments of the past year in a num-
ber of major categories. Net income and earn-
ings per share for 197 5 have been restated to
reflect a change in accounting method. (See Note
2 to the financial statements). Dollars are ex-
pressed in thousands, except per share figures.
Per Cent
1976 1975 Change
Operating
Revenues . .. . . . . ... .. $1,528,942 $1 ,377,030 + 11 %
Operating
Expenses .. . . . .. . . . . . $1 ,411,333 $1,282,000 + 10%
Net Income .. . . . .. . . . $70,207 $51 ,880 + 35%
Earnings Per
Share . . ..... . .... . .. $3.53 $2.61 + 35%
Revenue Passengers
Enplaned . . . ..... . . .. 27,996,665 25,831,631 + 8%
Available Seat
Miles (000) . .. ...... . . 30,389,761 29,497,234 + 3%
Revenue Passenger
Miles (000) . ... ... . . .. 17,621 ,247 15,916,860 + 11 %
Passenger Load
Factor . . . .. . . . .. . . ... 57.98% 53.96% + 7%
1
Description of Business
Delta Air Lines, Inc., is a certificated trunk air
carrier providing scheduled air transportation
for passengers and cargo over a network of
routes covering approximately 32,000 miles.
Delta's route structure connects the Northeast
and Midwest with the Southern States from
Texas to Florida, the Southeast to California,
and the East Coast to Florida. In addition
Delta operates international flights to Canada,
Bermuda, the Bahamas, Jamaica, Venezuela,
and Puerto Rico. Service over nearly all of
Delta's routes is highly competitive. As an air
carrier, Delta is subject to exten.sive federal
regulation pursuant to the Federal Aviation Act
of 1958, as amended, as well as other federal
and state statutes.
2
Report to the Stockholders
We are pleased to report that fiscal 1976 was
a very successful year. Earnings totaled
$70.2 million or $3.53 per share, the second
highest in Delta's history and 35% above last
year. Total operating revenues for the year,
which began during the depth of the recession,
were up 11%. Passenger traffic grew 11% for
the year and 15 % in the last half of the year.
Cargo ton miles increased 15 % for the year and
25% in the last six months.
In addition to an improvement in consumer
confidence and the stimulation of a recovering
economy, traffic in the first half of the year was
favorably impacted by strikes against major
competitors totaling 142 strike days. Traffic also
was positively influenced in fiscal 1975 by
a strike against a major competitor lasting
109 days.
Despite major efforts to counter the effects
of inflation, operating expenses increased 10%
while operating capacity was up 3%. Salaries
and related costs and aircraft fuel continuedto
show substantial increases, accounting for more
than 83% of the increase in cash costs. Signifi-
cant productivity gains were realized, however,
in several areas. The increases in traffic and
operations were accomplished with average
employment about 1% below that of 1975. The
aircraft fleet modernization and standardiza-
tion program, which will be largely complete
by the end of calendar 1976, made a major
contribution to the effort to minimize costs,
particularly in the areas of maintenance, crew
training and fuel efficiency.
Our commitment to the efficient use of
fuel, which is demonstrated by the more than
one billion dollar investment in fuel-efficient
aircraft in the last four years, continued to pay
dividends. Since fiscal 1973 when the fleet
modernization plan was begun, Delta has in-
creased the seat miles flown per gallon of fuel
3
DAVID C. GARRETT, JR.
President
W. T. BEEBE
Chairman of the Board and
Chief Executive Officer
used by 17 %, and efficient scheduling of this
improved aircraft fleet has produced a 31%
increase in revenue passenger miles per gallon
of fuel used. During the year we took delivery
of 14 B-727-200 and three L-1011 aircraft. Five
aircraft were sold which resulted in an after-
tax gain of $3.9 million or 20 per share.
The new aircraft purchases were financed
with borrowings of $40 million available
under the 1973 Bank Credit Agreement and
$10.5 million under the loan agreement with
Lazard Brothers & Co., Limited, and with
internally generated funds. Long-term debt
at year-end totaled $402 .4 million, including
current maturities, down $35 million from the
restated $437.4 million for the previous year
and was only 74% of equity. No new financing
was arranged during the year. Capital needs for
the coming year will be met by internally gener-
ated funds, and debt should continue to decline.
4
During the year, the Civil Aeronautics
Board approved three passenger fare increases
totaling 8%. The benefits of these fare increases
were nullified, however, by discount fares ap-
proved last year which were intended to stimu-
late traffic during the recession, and revenue
per passenger mile was almost unchanged at
7.98. Late in the year the trend in traffic mix
began to shift away from discount fares back
into full fares. This, combined with the Board's
approval of a reduction in the discount rates
applicable to the major discount fares, resulted
in a 5% increase in the passenger mile yield in
the June,1976 quarter. A further 2% fare in-
crease has been approved to be effective
September 15,1976.
Regulatory reform efforts during the past
year have greatly accelerated with a number of
legislative proposals being offered by members
of Congress and the Administration. Some of
these proposals reveal a frightening lack of
understanding of our nation's air transportation
system, the finest and most efficient in the
world. While we believe that changes can be
made in the administration of the Federal
Aviation Act of 1958 which will improve the
quality of our air transportation system, many
of the proposals contain provisions which could
seriously undermine the present system. It is
too early to determine which of the proposals
will be considered by the Congress or when the
Congress will act upon them.
The outlook for fiscal 1977 is one of cau-
tious optimism as we continue to be faced with
great challenges. It is expected that the econ-
omy will continue to recover but at a more
deliberate pace than in similar situations in
the past. Traffic growth is expected to remain
firm, although comparisons with the strike
period last year will be somewhat difficult. The
problem of inflation has not yet been solved.
Despite a continued strong effort to minimize
cost increases, expenses in the areas of wages,
5
fuel, landing fees, services and taxes are ex-
pected to continue to increase in response to
inflationary pressures. Traffic related expenses
will continue to rise as traffic grows.
The 28,000 Delta professionals have dem-
onstrated countless times in the past that they
can meet great challenges and turn them into
great opportunities. We strongly believe that
the coming year will be no different. We begin
fiscal 1977 with a renewed dedication to main-
tain our industry leadership, both in financial
results and in service to our customers.
DAVID C. GARRETT, JR.
President
September 7, 1976
6
W. T. BEEBE
Chairman of the Board and
Chief Executive Officer
Earnings and Dividends
Fiscal 1976 net earnings were $70.2 million
($3.53 per share), an increase of 35% over 1975
earnings of $51.9 million ($2.61 per share).
Both years include gains of 20<P per share after
taxes from the disposition of aircraft. The
current year's results include an unrealized
gain of $10.6 million (27 per share after taxes)
from the translation of the long-term portion of
debt repayable in foreign currency. The pre-
vious year's results have been restated to in-
clude a similar unrealized gain of $5.2 million
(13 per share after taxes). (See Note 2 to the
financial statements).
Operating income increased 24% to
$117.6 million on an 11% growth in operating
revenue to $1.53 billion and a 10% rise in
operating expenses to $1.41 billion. Net interest
expense of $31.4 million was essentially the
same as last year. The effect of reduced interest
rates in the current year was offset by a higher
average level of outstanding debt and a reduced
amount of interest capitalized. Income taxes
were provided on book income at the rate of
49.25% in both the current and the previous
Earnings per Share*
For the years ended June 30
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
0 These data reflect the operations of Delta Air
Lines, Inc. , and do not include the Northeast
Airlines' system prior to August 1,197 2. Earnings
for fiscal 1975 have been restated as described
in Note 2 to the financial statements.
7
year. The provisions for income taxes were
reduced by investment tax credit amortization
of $14.6 million in 1976 and $11.4 million in
1975. The following table compares 1976
earnings with restated 197 5 earnings.
Per Cent
1976 1975 Change
(In Thousands)
Operating Income ....... $117,609 $95,030 +24%
Other Expense (Income),
Net ............... 82066 15,185 -47
Income before Taxes ..... 109,543 79,845 +37
Income Taxes .......... 392336 272965 +41
Net Income ............ $ 702207 $512880 +35%
Per Share ........... $3.53 $2.61 +35%
Dividend payments totaled $11.9 million
or 60 per share in both years. At the July,1976
meeting of the Board of Directors, the quarterly
dividend was raised 17 % to 17.5 per share
or an annual rate of 70 per share. Fiscal 1976
marked the 27th consecutive year in which
Delta has made cash dividend payments.
Operating Revenues
The following table compares operating
revenues for fiscal 1976 and 1975 by major
revenue category. During the current year,
passenger security charges were incorporated
into the basic passenger fare structure. To
reflect this change, security charges in fiscal
1975 totaling $10.6 million have been reclassi-
fied from other net revenue to passenger reve-
nue to conform with the 1976 presentation.
1976 1975
(In Thousands)
Per Cent
Chan1;e
Passenger.. . . . . . . . $1,406,417 $1,271,720 + 11%
Cargo. . . . . . . . . . . . 100,626 85,388 + 18
Other, Net. . . . . . . . 21,899 19,922 + 10
Total .......... $1 2
5282
942 $1,377,030 +11%
Total operating revenues increased
$151.9 million or 11% to $1.53 billion. Rev-
enues were favorably impacted by a strike
against a major competitor from September 1,
1975 to January 6, 1976 and by a strike against
8
another competitor from December 6 to
December 22, 1975. Traffic also was positively
influenced in fiscal 197 5 by a strike against a
major competitor from July 15, 1974 to
November 1, 1974.
Passenger revenues rose 11% to
$1.41 billion. Revenue passenger miles totaled
17 .62 billion, up 11%, as traffic responded to
the economic recovery which began during the
summer of 197 5. Passenger traffic in the last
half of the fiscal year was up 15% over the de-
pressed levels of the same period in fiscal 197 5.
The passenger mile yield remained almost
unchanged from last year at 7.98 despite fare
increases granted by the CAB at various times
during the year totaling 8%. Circuitous routing
of strike-generated passengers and discount
fares filed last year which were intended to
stimulate traffic during the recession combined
to offset the fare increases. Effective June 1,
1976, however, the CAB approved reductions
in the discount rates applicable to the major
discount fares, and the passenger mile yield
grew 8% in that month. It is expected that the
yield will continue to show positive growth
during the coming fiscal year.
Cargo revenues, reflecting traffic gains
during the strike and the effects of the recover-
ing economy, increased 18% to $100.6 million.
Cargo ton miles increased 15 % and the average
yield increased 2%. In addition, a $3.1 million
increase in cargo revenues resulted from the
fact that air express service was offered by
Delta for the entire year during fiscal 1976 but
only four months of the previous year.
Other net revenue gained 10% over the
previous year primarily as a result of expanded
charter operations.
Per Cent
Revenue Statistics 1976 1975 Change
Revenue Passenger
Miles (000 ) ...... 17,621,247 15,916,860 +11%
Revenue Passengers
Enplaned ....... 27,996,665 25,831,631 + 8
Cargo Ton Miles
(000) .......... 261,622 228,057 +15
Passenger Load
Factor ......... 57.98% 53.96% + 7
Passenger Mile Yield 7.98 7.99
9
Operating Expenses
The following table compares operating ex-
penses by major expense functions for fiscal
1976 with 1975.
Per Cent
1976 1975 C/rn111-;e
(In Thousands)
Salaries and Related
Costs ............ . $ 626,511 $ 572,982 + 9%
Aircraft Fuel. ....... . 272,404 235,849 +15
Aircraft Maintenance
Materials and Repairs 36,022 40,007 -10
Aircraft Rentals ..... . 10,451 24,954 -58
Other Rentals ....... . 27,875 29,104 - 4
Landing Fees ....... . 31,840 27,925 +14
Passenger Food and
Related Supplies .... 52,316 49,679 + 5
Passenger Commissions 45,320 37,329 +21
Advertising ......... . 21,143 18,264 +16
Other Cash Expenses .. 137,863 117,472 +17
Total Cash Expenses $1,261,745 $1,153,565 + 9%
Depreciation ....... . 149,588 128,435 +16
Total Operating
Expenses . . ...... . $1,411,333 $1,282,000 +10%
Despite determined efforts to minimize
controllable expenditures, total operating ex-
penses increased 10% in fiscal 1976 as cash
expenses were up 9%. Operating capacity grew
3% to 30 .39 billion available seat miles, and
revenue plane miles also increased 3%. Delta's
fleet modernization and standardization pro-
gram and other programs to improve aircraft
performance contributed substantially to a 10%
reduction in aircraft materials and outside
repair costs. Aircraft rentals were down
$14.5 million in the current year as a result
of the phase-out of leased DC-10 aircraft during
fiscal 1975.
Salaries and related costs increased 9 %
while average employment was 1% below the
average of the previous year. The average price
of fuel rose 15% to 29.97 per gallon, and the
number of gallons used increased less than 1 %
to 908.8 million. During the last half of the
year, the price of fuel was up only 1% over the
average price for the first half of the year.
10
Passenger commissions were up 21%, as much
of the passenger traffic gained during and after
the strike period used the services of travel
agents. Other cash expenses were up generally
as a result of inflation and increased traffic.
Depreciation expense increased 16% due
to the continued introduction of new aircraft as
part of Delta's fleet modernization plan.
Per Cent
Op_erating Statistics 1976 1975 Change
Revenue Plane
Miles (000) ......... 216,257 210,412 + 3%
Available Seat
Miles (000) ......... 30,389,761 29,497,234 + 3
Available Ton
Miles (000) ......... 4,145,183 4,030,116 . + 3
Fuel Gallons
Consumed (000) .... 908,776 903,478 + 1
Average Price per Fuel
Gallon ............ 29.97<P 26.10 +15
Breakeven Load Factor 53.14% 49.93% + 6
Capitalization and Financing
During fiscal 1976, Delta borrowed the remain-
ing $40 million available under the 1973 Bank
Credit Agreement. On September 30,1975 the
$300 million outstanding balance under this
agreement and the $40 million outstanding
under the 1975 Bank Credit Agreement were
converted to five-year term loans. Repayment
in quarterly installments of $11 million
and $1.5 million, respectively, began on
December 31, 1975. The remaining balances
of $91 million on the 1973 agreement and
$11.5 million on the 1975 agreement are pay-
able on September 30, 1980.
Under the loan agreement with Lazard
Brothers & Co., Limited, $10.5 million was
borrowed to finance Rolls-Royce engines for
the L-1011 aircraft. Based on the exchange
rate for the British pound sterling on June 30,
1976, the balance outstanding under this agree-
ment was $61.1 million. In accordance with the
provisions of the Financial Accounting Stan-
dards Board's Statement No.8, long-term debt
11
was reduced $15 .8 million as a result of the
translation (at June 30, 1976 exchange rates)
of the long-term portion of the Lazard debt
which is repayable in pounds sterling. Of the
$15.8 million reduction, $10.6 million was
applicable to the current year and $5 .2 million
was applicable to fiscal 1975. (See Note 2
to the financial statements).
Long-term debt at June 30,1976 totaled
$402.4 million, including current maturities,
a decrease of $35 million from the restated
$437.4 million for the previous year. At the
end of the fiscal year, long-term debt, including
current maturities, was 74% of equity. Internally
generated funds of $234.3 million, plus borrow-
ings totaling $50 .5 million, were used primarily
for the purchase of flight and ground equip-
ment totaling $212.8 million and debt repay-
ments totaling $79 .4 million.
At June 30,1976, outstanding purchase
commitments for aircraft and related spares
will require future expenditures of approxi-
mately $417 million during fiscal years 1977
through 1981. Mandatory debt repayments due
in fiscal 1977 total $51.5 million after the
prepayment on June 30,1976 of the September
and December, 1976 quarterly payments under
the 1973 and 1975 Bank Credit Agreements.
Total stockholder equity at June 30, 1976
was $542.1 million or $27.27 per share, up
12% from the restated $24.34 per share
last year.
12
Flight Equipment and
Purchase Commitments
During the past fiscal year Delta accepted
delivery of three Lockheed L-1011 aircraft and
14 advanced model Boeing 727-200 aircraft.
The fleet was reduced by the disposition of two
DC-9-32's and three DC-8-5l's. At June 30,
1976,Deltaoperated the following aircraft fleet:
Type of
Aircraft Seats Owned Leased
B-747. . . . . . . . . . . 370 3
L-1011. . . . . . . . . . . 256 21
DC-8-61. . . . . . . . . 199 13
DC-8-51. ........ 135/ 150 18
B-727-200 ....... 135 58
B-727-100.. . . . . . . 97
DC-9-32. . . . . . . . . 90 _Q_
Total...... . . . . . 173
13
5
18
Total
3
21
13
18
71
5
60
191
Two of the three DC-8-51 aircraft disposed
of during the year were delivered prior to the
end of the year on a contingent sales agree-
ment, and payment for these aircraft was
received after the close of the fiscal year. An
agreement has been reached with Frederick
B. Ayer for the sale of five more DC-8-5l's with
tentative delivery scheduled for the December,
1976 quarter. The remaining 13 DC-8-5l's will
be phased out of scheduled service by the end
of the March, 1977 quarter, and the Company
is negotiating for the sale of these aircraft.
13
Arrangements were completed during the
year for the sale of the three remaining B-7 4 7 's
to The Boeing Company. The aircraft will be
delivered to Boeing in the March and in the
June, 1977 quarters.
After the end of the fiscal year, negotia-
tions were completed for the sale of one
DC-9-32 aircraft to Allegheny Airlines for
delivery in the September, 1976 quarter. The
Company is currently negotiating for the sale
of six DC-9-32 aircraft to various parties with
delivery of one in each quarter of fiscal 1977
and two in July,1977.
Negotiations for the purchase of all the
capital stock of Storer Leasing Co., a wholly-
owned subsidiary of Storer Broadcasting Com-
pany, were completed during the year, and the
purchase was consummated on July 27,1976.
The purchase price to Delta was $30.4 million
cash plus the assumption of $3.6 million of
Storer Leasing's obligations. The assets of
Storer Leasing consisted of six B-727-200
aircraft, five B-727-100 aircraft, and 18 spare
engines, all of which were leased to Delta. On
July 30, 1976 the assets of Storer Leasing were
transferred to Delta, and the leasing company
was liquidated.
At June 30,1976, Delta had purchase com-
mitments for 25 B-727-200 aircraft and nine
L-1011 aircraft. The B-727-200 delivery sched-
ule includes 17 in fiscal 1977 and four each in
fiscal 1978 and 1979. One L-1011 is scheduled
for delivery in each of the December, 1977, and
June and December, 1978 quarters. The six
remaining L-lOll's are tentatively scheduled
for delivery in fiscal years 1979 through 1981
and are subject to cancellation on specified
interim dates at a cost to Delta of $40,000 per
aircraft.
14
Personnel
At June 30, 1976, the team of Delta profes-
sionals numbered 27,891 (an average of 27,674
during the year) compared to the June 30,1975
total of 27,801 (an average of 28,008 during
the year), excluding temporary and part-time
personnel in both years. Salaries and related
fringe benefits totaled $626 .5 million, an in-
crease of 9% over last year, and equal to 41.0
of each revenue dollar versus 41.6 for the
previous year.
Delta's commitment to its policy of pro-
viding a stable and rewarding work environ-
ment was highlighted during the year as five
individuals completed forty years of service
with the Company.
During the year Mr. R. L. Gibson was
advanced to the position of Vice President-
Traffic. Mr. Gibson's career spans 30 years, and
he has been associated with many outstanding
developments in Delta's marketing operations.
On January 2,1976, Mr. Herman S. Stanley,
Assistant Vice President-Dining Service, retired
after more than 29 years service with the Com-
pany. Also retiring as of the end of this fiscal
year was Mr. J. W. Meyer, Assistant Vice
President-Customer Relations, after a career
of more than 40 years service with Delta. These
two fine individuals made many contributions
to the success of our Company during their
long careers with Delta.
On October 1,1975, we were deeply sad-
dened by the death of Mr. Charles H. Kellstadt,
a member of the Board of Directors since 1964.
Mr. Kellstadt made many significant contribu-
tions to Delta in his capacity as a Board member.
Mr. Emery Flinn chose not to stand for re-
election as a Director and was elected Director
Emeritus in recognition of his more than 17
years of service on the Board.
Mr. Jesse Hill, Jr., President of Atlanta Life
Insurance Company, and Mr. R. W. Allen,
Delta's Senior Vice President-Personnel, were
elected Directors at the Annual Stockholders
Meeting on October 23,1975, to fill the above
vacancies.
15
We were also saddened during the year
by the deaths of Mr. Winship Nunnally and
Mr. George B. Storer, Sr. Mr. Nunnally was a
Delta Board member for more than 24 years
and was elected Director Emeritus in 1971 in
recognition of his many contributions to Delta's
development. Mr. Storer became a member of
the Delta Board on August 1, 1972, concurrent
with the consummation of the merger between
Delta Air Lines, Inc., and Northeast Airlines,
Inc., and was elected Director Emeritus in
October, 1972.
Regulatory Matters
Both the quantity and pace of regulatory
activity increased during the year, particularly
in the area of new and competitive routes. At
the same time, however, regulatory reform
(often improperly called "deregulation") efforts
greatly intensified.
Regulatory Reform
These latter efforts included introduction
of a number of legislative proposals in Congress
during the past year, with others promised for
1977. Each of these would significantly modify
the current method and degree of regulation of
the air transport industry.
Among the changes proposed are ( 1) a
revised policy directive to the Civil Aeronautics
Board which would increase emphasis on
industry competition; (2) relaxation of the cur-
rent certificate requirement and other means
of facilitating entry and exit of air carriers into
and from interstate markets; (3) "dual" certi-
fication provisions which would permit the
present supplemental air carriers to seek
certification as scheduled carriers on particular
routes, and would permit the present sched-
uled carriers to seek increased charter authority
by means of certificates to engage in supple-
mental air transportation; ( 4) provisions for
replacing unused "dormant" authority with
new certifications; (5) a relaxation in the
authority of the CAB to control rates and fares;
(6) expedited administrative procedures; and
(7) a reduction or elimination of certain anti-
trust exemptions. Committee hearings have
been held on a number of the proposals, and
more hearings are expected in the remaining
months of the current Congressional session,
and in 1977. In the meantime, the CAB is ex-
amining its own procedures with a view toward
expedition of the administrative process.
Delta supports some of these proposals,
including increased pricing flexibility, prompt
disposition of air carrier route applications, and
greater administrative expedition in general.
Expedition alone would help achieve many of
the goals of those suggesting legislative change,
most of which can be accomplished under
existing legislation.
Delta does oppose, however, any major
revision of the existing Federal Aviation Act
under which this country has developed the
world's foremost air transportation system,
with more service, by more carriers, in more
markets, with more competition and at lower
fares than exist elsewhere. The present law is
sufficiently flexible and adaptable to changing
circumstances to negate the need for major
revision to achieve the desired goals. Delta is
vigorously opposing efforts to eliminate or
significantly weaken the current certification
process, which provides carriers with both the
obligation to serve and the "security of route"
necessary to permit stable operations and
adequate financing.
Because of the multitude of legislative and
administrative proposals and the generally
fluid nature of the regulatory reform situation
at this time, it is too early for adequate assess-
ment of the impact of any specific proposed
change in the regulatory scheme upon Delta's
operations.
In the meantime, regulation under the
present law has continued, including the
following matters of major interest.
Route Cases - International
Atlanta-London. The CAB has recom-
mended grant to Delta of a nonstop route
between Atlanta and London, England, which
would also permit Delta to provide single-
plane London service via Atlanta from
Dallas/Ft.Worth and Houston. This decision
remains subject to Presidential approval and to
negotiation of a bilateral agreement between
the United States and the United Kingdom
covering the route. In the meantime, the
Delta/ Pan American single-plane interchange
service between Atlanta and London was
replaced with a coordinated, connecting
service at Dulles which will continue through
October, 197 6.
Chicago-Montreal. Delta and other car-
riers are seeking nonstop authority between
these two cities, as authorized for a U.S. Flag
carrier by the most recent U.S.-Canadian
bilateral agreement. The market is now served
by Air Canada and Air France. An Adminis-
trative Law Judge has recommended another
applicant, but the case is being reviewed by
the CAB.
Route Cases-Domestic
Boston-Atlanta. The CAB has granted
Delta competitive nonstop authority between
Boston and Atlanta, which Delta will imple-
ment in mid-September, 1976.
19
Cleveland-Atlanta. A hearing has been
completed on the applications of Delta and
others for competitive nonstop Cleveland-
Atlanta authority. The CAB's Bureau of Oper-
ating Rights has recommended grant of Delta's
application if competitive service is to be
established in this market. The Judge's Initial
Decision is expected sometime in 1976, but
the case probably will be reviewed by the
CAB itself.
Oklahoma/Denver-Southeast. Delta
seeks operating rights between Atlanta, on the
one hand, and Denver, Oklahoma City, and
Tulsa, on the other hand. The CAB's Bureau
of Operating Rights has recommended that
Delta be granted the nonstop Atlanta-Denver
portion of this route. A Law Judge's Initial
Decision in this case is expected later in 1976,
with final CAB decision sometime in 1977.
In a related case, still in preliminary stages,
Delta and others seek authority in the Wichita-
Memphis and Wichita-Denver markets, with
the right to operate between Memphis and
Denver via Wichita.
Nashville-St.Louis/ Atlanta/ Tampa/ Miami.
Following disapproval of the agreement
whereby TWA would have transferred its
authority in these Nashville markets to Delta,
TWA entered into a similar transfer agreement
with another carrier. Delta has asked that any
case considering the new agreement be
expanded to also consider a new Delta appli-
cation for authority of its own in these Nash-
ville markets. This proceeding is in
preliminary stages.
Other Markets. In other pending cases,
Delta seeks (1) nonstop authority in both the
Memphis-Minneapolis/ St.Paul and Memphis-
Milwaukee markets; (2) Memphis-Tampa
nonstop authority; (3) competitive nonstop
authority between Detroit and Boston; and
(4) nonstop Cleveland-Indianapolis authority.
In line with the generally renewed interest in
route proceedings, Delta has applied for
20
authority in a number of other markets,
including Atlanta-Daytona Beach, Atlanta-
Sarasota/ Bradenton, Savannah-Northeast,
Cleveland-Cincinnati, Las Vegas-Phoenix, and
Dallas-Albuquerque-Las Vegas, and is con-
sidering other applications. Civic requests
have been filed for expedited procedures with
respect to some of the markets for which
Delta has sought new authority.
Court Cases. Delta's applications for
nonstop authority in the Atlanta-Fort Myers
and Miami-Los Angeles markets have both
been denied, but Delta has appealed these
decisions to the Federal Courts of Appeal.
Route Realignment
Under new guidelines announced by the
CAB, Delta will seek a "realignment" of its
routes which will both simplify the certificate
under which Delta operates and result in the
grant of some new authority, including
particularly the relaxation of some of the
burdensome "restrictions" in the present cer-
tificates. Such restrictions were placed on
Delta in years past in order to avoid grant of
authority in markets not at issue in a particular
proceeding, to control the degree of competi-
tion in earlier years, or for other reasons. By
and large, these restrictions are no longer valid
regulatory devices. To the extent that the
outmoded restrictions on Delta's authority are
not removed in the realignment proceeding,
Delta expects to pursue individual applications
for modification.
Route Cases-Competitive
Other carriers seek authority in a number
of Delta markets, including Atlanta-Detroit,
Atlanta-Cincinnati, Dallas/ Ft.Worth-Las Vegas,
Dallas/Ft.Worth-Shreveport, and Atlanta-
Savannah. Consideration is also being given
to the substitution of Eastern Air Lines for
Piedmont between Atlanta and Columbia, and
Piedmont in lieu of Eastern between Chicago
and Louisville.
21
Suspensions
Delta has reinstituted nonstop service
between Miami and San Francisco, but
remains suspended at Brunswick, Georgia,
and at a number of points in New England
currently served by other carriers.
Rate and Fare Cases
Under modified versions of the fare
standards adopted in the major Domestic
Passenger Fare Investigation, the industry has
been allowed to increase standard day coach,
first clas and night coach fares during 1976
as noted elsewhere. But the standards them-
selves are under examination, both in CAB
proceedings designed to update them and in
court cases which protest certain modifications
of the standards which were made by the
agency without proceedings in which the
carriers could express their views. There is
also considerable Congressional interest in the
standards and their possible modification.
In the meantime, a Judge's Initial Deci-
sion has been issued in the Domestic Night
Coach Fare Investigation which adopts most of
the positions advocated by Delta. Because
Delta is the world's largest operator of stan-
dard, low fare night coach services, known on
the Delta system as "Early Bird" and "Owly
Bird" services, this decision is of considerable
importance to Delta. Final Board decision is
expected later in 1976.
Various types of discounted fares continue
to exist, but the so-called "no-frills" fares have
been withdrawn and the CAB has terminated
the proceeding which had been started to
assess the legality of such fares.
The industry air freight and mail rates
remain under investigation.
Charter and Tour Services
Although the highly liberal one-stop
inclusive tour and special event charter regula-
tions are still relatively new, the CAB has
already adopted additional and even more
liberal charter regulations, which would
further blur the distinction between individ-
ually ticketed services and charter services. The
proposed regulations would authorize "ad-
vance booking charters:' which would permit
members of the general public to use charter
services to be sold through tour operators,
including short duration trips with only a
limited advance purchase/ payment require-
ment, and even for a single destination. In
addition, the CAB is considering the authori-
zation of "contract bulk inclusive tours:' which
would permit groups to purchase reduced rate
transportation on regularly scheduled
flights through tour operators, with
minimal limitations.
]
Delta Air Lines System Route Map ]
24
SOUE ISLE-
OULTON
NGOR
ESTER-CONCORD
DELTA AIR LINES, INC.
Balance Sheets
June 30, 1976 and 1975
ASSETS
CURRENT ASSETS:
1976 1975*
(In Thousands)
Cash . . . . .... . .... . ....... . $ 28,773 $ 50,838
Short-term cash investments,
at cost. ...... . .. .. .. ... .. .
Accounts receivable, net. ... .
Refundable income taxes . ... .
Maintenance and operating
supplies, at average cost. . . .
Prepaid expenses, etc ....... .
Total current assets ...... .
PROPERTY AND EQUIPMENT
(Notes 3 and 5):
Cost-
Flight
Equipment Other
54,135
82,908 50,838
126,228 107,944
17,300
12,807 14,109
8,510 8,033
230,453 1981224
1976 $1,658,359 $239,108 1,897,467
1975 1A82J67 2281
313 1,111,080
Accumulated depreciation-
1976 592,092 116,023 708,115
1975 487 014 99,542 - - - - 586,556
Advance payments for new
equipment (Note 3) ... .. .. .
OTHER ASSETS:
Nonoperating property and
equipment. ...... .. .. ... . .
Long-term receivables and
prepayments, etc .... . .... . .
26
1,189,352 1,124,524
41,302 47 950
1,230,654 1,172,474
1,238
5,149
6,387
2,643
6 769
9,412
$1,467,494 $113801 110
LIABILITIES AND
STOCKHOLDER EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt ..... . . . .. .......... . $
Short-term notes payable .. .. .
Accounts payable and accrued
liabilities ........ ...... ... .
Air traffic liability . .... . .. .. . .
Accrued income taxes ...... .
Total current liabilities .... .
LONG-TERM DEBT (Notes 2
and4) ......... . .......... .
DEFERRED CREDITS:
Deferred income taxes ...... .
Unamortized investment tax
credits .................. .
Other ..................... .
COMMITMENTS AND
CONTINGENCIES (Notes 3,
5, 8 and 9)
STOCKHOLDER EQUITY (Note 7):
Common stock, par value
$3.00 per share-Authorized
25,000,000 shares;
Outstanding 19,880,577
shares ............... . . .
Common stock purchase
warrants . .... . . . . ... .. . .
Additional paid-in capital. .. .
Retained earnings (of which
$246,472,000 is restricted
at June 30, 1976 as to the
payment of cash dividends
under credit agreements)
DELTA AIR LINES, INC.
1976 1975*
(In Thousands)
51,454
128,253
76,856
8.769
265.332
350.968
273,664
28,954
6.464
309,082
59,642
6,750
73,331
402,389
$ 46,991
3,000
126,673
52,393
229,057
390,437
232,881
37,059
6,843
276,783
59,642
6,750
73,331
344,110
542.112 483,833
$1,467,494 $1,380,110
*Certain 1975 amounts have been reclassified to conform with the
1976 presentation.
The accompanying notes are an integral part of these balance sheets.
27
DELTA AIR LINES, INC.
Statements of Income
For the years ended June 30, 1976 and 1975
1976 1975*
OPERATING REVENUES:
(In Thousands)
Passenger .. .... . ...... . . .. $1,406,417 $1,271,720
Cargo ..... . . .. ... . . . ...... 100,626 85,388
Other, net. .. . ......... .. .. . 211899 191922
Total operating revenues .. 115281942 113771030
OPERATING EXPENSES:
Flying operations ........ . .. 464,854 425,300
Maintenance ....... .. . ..... 162,047 162,486
Aircraft and traffic servicing . .. 279,262 259,522
Promotion and sales ......... 170,747 147,055
Passenger service . . .. . . . .... 138,388 127,452
Depreciation . .. .. ... .... . . . 148,897 127,191
General and administrative ... 471138 321994
Total operating expenses 114111333 112821000
OPERATING INCOME .. .. .... 1171609 95,030
OTHER EXPENSE (INCOME):
Interest expense . .... . . ..... 34,634 37,380
Less-Interest capitalized on
advances for equipment . ... 31247 6,099
31,387 31,281
Realized and unrealized gains
on foreign currency
translation (Note 2) ....... . . (13,357) (5,855)
Gain on disposition of aircraft (7,680) (7,944)
Miscellaneous income, net. ... (21284) (2,297)
81066 15,185
INCOME BEFORE INCOME
TAXES .. . .. ....... ... .. .. . 1091543 79,845
PROVISION FOR INCOME
TAXES (Note 6):
Income taxes provided ....... 53,949 39,324
Less-Amortization of
investment tax credits . .. . . . (141613) (11,359)
39,336 27,965
NET INCOME (Note 2) . . .. .... $ 701207 $ 51,880
NET INCOME PER COMMON
SHARE (Note 2) .... ...... .. $3.53 $2.61
*Certain 1975 amounts have been reclassified to conform with the
1976 presentation.
The accompanying notes are an integral part of these statements.
28
DELTA AIR LINES, INC.
Statements of Retained Earnings
For the years ended June 30, 1976 and 1975
BALANCE AT BEGINNING
OF YEAR ... ..... . ....... . .
Add (Deduct):
Net income (Note 2) ........ .
Cash dividends-$.60 per
share .. ......... . . . .. ... .
BALANCE AT END OF YEAR
(restricted as indicated on
balance sheet) .. .. . ..... ... .
1976 1975
(In Thousands)
$344,110
70,207
(11,928)
$402,389
$304,158
51 ,880
(11,928)
$344,110
Statements of Additional Paid-in Capital
For the years ended June 30, 1976 and 1975
BALANCE AT BEGINNING
OF YEAR .............. .. . .
Add:
Excessofproceedsoverpar
value of 1,200 common
shares issued in 1975 under
employee stock option plan
(Note 7) . .. . ............. .
Income tax reduction to Com-
pany resulting from sales by
employees of common
shares issued under stock
option plan ... .. ... ..... . . .
BALANCE AT END OF YEAR . .
1976 1975
(In Thousands)
$73,331 $73,280
38
13
$73,331 $73,331
The accompanying notes are an integral part of these statements.
29
DELTA AIR LINES, INC.
Statements of Changes in Financial Position
For the years ended June 30, 1976 and 1975
FUNDS PROVIDED BY:
Net income (Note 2) . ..... . ...... $
Add (deduct) items not affecting
working capital-
Depreciation . ....... ... . .. . . .
Deferred income taxes ....... .
Unrealized gain on translation
of long-term portion of debt
payable in pounds sterling . . . .
Investment tax credits, net of
amortization ...... ........ . .
Other . . . . . .. ..... .. . .... . . . .
Total from operations ...... .
Long-term financing ....... . .... .
Disposition of property and
equipment (book value) ..... .. . .
Common stock issued under
employee stock option plan .... . .
Other ...... . ... ..... . .... .. . . .
FUNDS USED FOR:
Property and equipment additions-
Flight equipment, including
advances .... .......... ..... .
Ground property and equipment
Reduction of long-term debt, net of
unrealized foreign currency gains
Cash dividends ... ... ...... . ... .
1976 1975
(In Thousands)
70,207
150,189
36,849
(10,620)
(6,282)
68
240,411
50,543
5,790
31284
3001028
197,328
1si426
212,754
79,392
111928
$ 51 ,880
128,435
48,069
(5,237)
(7,733)
78
215,492
97,833
39,001
55
517
3521898
266,374
331741
300,115
3041074
DECREASE IN WORKING CAPITAL $ (41
046)
47,279
111928
3591322
$ (6,424)
CHANGES IN WORKING CAPITAL
COMPONENTS:
Increase (decrease) in-
Cash and short-term investments $ 32,070 $ (10,193)
Accounts receivable, net... . .... 18,284 (2,265)
Refundable income taxes. . . . . . . (17,300) 17,300
Other current assets. . . . . . . . . . . . (825) (768)
Decrease (increase) in-
Current maturities of long-term
debt. ......... .. .. . ........ .
Short-term notes payable . ..... .
Accounts payable and accrued
I iabi I ities ... . .... ... ..... . .. .
Air traffic liability ..... .. . .. .... .
Accrued income taxes ... . . . .. . .
(4,463)
3,000
(25,747)
(3,000)
(1,580) (11,499)
(24,463) 16,386
(81769) 131362
$ (41
046) $ (6A24)
The accompanying notes are an integral part of these statements.
30
DELTA AIR LINES, INC.
Notes to Financial Statements
June 30, 1976 and 1975
1. SUMMARY OF ACCOUNTING POLICIES:
Passenger Revenue - Passenger ticket sales are
recorded as revenue when the transportation is used.
The value of unused tickets is included in current
liabilities in the financial statements.
Depreciation-Substantially all of the Com-
pany's flight equipment is being depreciated on a
straight-line basis to residual values (10% of cost)
over a 10-year period from dates placed in service.
Ground property and equipment is depreciated on a
straight-line basis over its estimated service
life (various lives ranging from 3 to 30 years).
Maintenance and Repairs-All maintenance
and repair costs, including engine and airframe over-
hauls, are charged to maintenance expense when
incurred. Major replacements and betterments
are capitalized.
Interest Capitalized-Interest on advances for
new equipment is capitalized based on the Com-
pany's current interest rate on long-term debt in
order to properly reflect the total cost of acquiring
such equipment. Capitalization of interest ceases
when the equipment is placed in service. Assuming
all interest had been charged to expense as incurred,
net income would have been higher by approxi-
mately $88,000 in 1976 and lower by $850,000
in 1975.
Foreign Currency Transactions - Realized and
unrealized foreign exchange adjustments are in-
cluded in income on a current basis. (See Note 2).
Retirement Plans-All of the Company's per-
manent employees are covered under its noncontri-
butory trusteed plans providing for retirement, dis-
ability and survivor benefits. The total expense
under these plans amounted to approximately
$44,300,000 in 1976 and $35,600,000 in 1975. The
Company's policy is to fund each year's accrued
costs under the plans, which costs include amorti-
zation of prior service costs ($34,700,000 at
June 30, 1976) over a thirty-year period to 1991. As
ofJune30, 1975 (date of most recent actuarial study),
31
DELTA AIR LINES, INC.
the assets of the plans exceeded the actuarially
computed present value of vested benefits under
the plans.
The Company's retirement plans were amended
in 1976 to conform with the provisions of the Em-
ployee Retirement Income Security Act of 197 4.
The effect of such amendments on the Company's
annual pension costs, the funding thereof, vested
benefits and unfunded prior service costs was not
significant in 1976 and is not expected to be signifi-
cant in future years.
Income Taxes - Total income taxes are provided
by applying the applicable tax rates to book income
before income taxes. Deferred income taxes are
provided for all significant items (principally depre-
ciation) where there is a timing difference in record-
ing such items for financial reporting purposes and
for income tax purposes. Investment tax credits are
amortized (as a reduction of the provision for in-
come taxes) over seven years. (See Note 6).
Earnings Per Share-Net income per common
share is computed based on the weighted average
number of outstanding shares during the year
(19,880,577 shares in 1976 and 19,880,277 shares
in 1975). Outstanding stock options and warrants
(see Note 7) have no material dilutive effect on net
income per common share in 1976 and 1975.
2. CHANGE IN ACCOUNTING FOR FOREIGN
CURRENCY TRANSACTIONS:
In order to conform with the requirements of
Statement No. 8 of the Financial Accounting Stand-
ards Board, the Company changed its accounting
effective June 30, 1976, to also record on a current
basis unrealized gains and losses on translation of
the long-term portion of its debt payable in pounds
sterling to Lazard Brothers & Co., Limited (see
Note 4). The 1975 financial statements have been
restated to reflect this change in accounting method,
and the effect on 197 4 and prior years is immaterial.
The effect of the change was to increase net income
by $5,390,000 ($.27 per share) in 1976 and
$2,657,000 ($.13 per share) in 1975.
32
DELTA AIR LINES, INC.
The realized and unrealized gains on transla-
tion of this debt at June 30, 1976 and 1975, shown
separately in the accompanying statements of in-
come, were as follows:
1976 ~
Un Thousands)
Unrealized gain-
Current maturities .. .
Long-term portion .. .
Realized gain .. .... .. .
$ 1,548
10,620
12,168
1,189
$13,357
3. AIRCRAFT PURCHASE AND SALE
COMMITMENTS:
$ 566
5,237
5,803
52
$5,855
At June 30, 1976, the Company had outstanding
purchase commitments for the acquisition of 25
Boeing B-727-200 aircraft and 9 Lockheed I.rl0ll
aircraft, including related spare engines, which will
require future expenditures of approximately $417
million during fiscal years 1977 through 1981. The
last 6 Lockheed L-1011 aircraft are cancelable by
specified interim dates to February 28, 1979. At
June 30, 1976, advance payments and other capi-
talized expenditures relating to aircraft to be
delivered amounted to $39,820,000 on the Boeing
aircraft and $3,545,000 on the Lockheed aircraft.
The Company has entered into agreements to
sell 5 Douglas DC-8-51 aircraft and its remaining
3 Boeing B-7 4 7 aircraft, which agreements provide
for delivery of the aircraft during fiscal 1977.
33
DELTA AIR LIN ES, INC.
4. LONG-TERM DEBT :
AtJune30,1976 and 1975, the Company's long-
term debt (including current maturities) was as
follows:
(a) Due banks under 1973 credit
agreement which provided
for unsecured borrowings up
to $300,000,000 on a revolv-
ing basis through September,
1975, at which time the out-
standing balance was con-
verted to a five-year term
loan, repayable in quarterly
installments of $11,000,000
beginning December 31 ,
1975, with the remaining
$91,000,000 balance payable
on September 30, 1980. The
interest rate is equal to the
prime rate through Septem-
ber, 1975, then 1/4% above
the prime rate through Sep-
tember, 1978, then 1/2%
above the prime rate through
September, 1980
($22,000,000 payable in fiscal
1977, as the September 30
and December 31, 1976
installments were voluntarily
1976 1975
(In Thousands)
prepaid at June 30, 1976) .. . . . $245,000 $260,000
(b) Due banks under 1975
unsecured credit agreement,
repayable in quarterly install-
ments of $1 ,500,000 begin-
ning December31 ,1975,with
the remaining $11,500,000
balance payable on Septem-
ber 30, 1980. The interest
rate is equal to 119% of the
prime rate through Septem-
ber, 1975, then 119% of the
prime rate plus 1/4% through
September, 1978, and then
119% of the prime rate plus
1/2% through September,
1980 ($3,000,000 payable in
fiscal 1977, as the Septem-
ber 30 and December 31 ,
1976 installments were
voluntarily prepaid at June
30, 1976) . .... . . ... . . .. . . .
34
32,500 40,000
DELTA AIR LINES, INC.
1976 1975
(In Thousands)
(c) Due Lazard Brothers & Co.,
Limited under 5-1/2%, 6% and
7-1/2% unsecured notes, re-
payable in pounds sterling in
20 semiannual installments
to 1986 ($6,990,000 payable
in fiscal 1977), translated at
June 30, exchange rates
(Note2).. . .. ....... . ... .. 61,127
(d) Due Rolls-Royce (1971)
Limited, repayable in
monthly installments (includ-
ing 6-1 /2% interest) to
January, 1984 ($464,000
payable in fiscal 1977).. . . . . 3,421
(e) Due an insurance company
under a 9-3/8% unsecured
note, repayable in installments
of $17,500,000 on April 30,
1977 and 1978 ($17,500,000
payable in fiscal 1977).. . . . . 35,000
(f) Due insurance companies
under 7% unsecured notes,
repayable in installments to
December 31, 1979
($1,500,000 payable in
fiscal 1977). . . . . . . . . . . . . . . 5,250
(g) Convertible Subordinated
Debentures, 6-1/2%, maturing
August 1, 1986, with annual
sinking fund redemptions of
$1,100,000 beginning July
31, 1976 ($1,876,000 and
$1,100,000 acquired at June
30, 1976 and 1975, respec-
tively, for future sinking
fund purposes)-(Note 7). . . 20,124
Total. . . . . . . . . . . . . . . . . . . 402,422
Less-Current maturities 51,454
$350,968
70,893
3,885
35,000
6,750
20,900
437,428
46,991
$390,437
At June 30, 1976, an additional $6,500,000
(based on June 30, 1976 currency exchange rates)
was available under the 7-1/ 2% loan agreement
with Lazard Brothers & Co., Limited to finance the
purchase of engines for the Company's L-1011 air-
craft. In the opinion of management, funds provided
35
DELTA AIR LINES, INC.
from operations will sufficiently cover future expen-
ditures for aircraft (see Note 3) and scheduled debt
maturities. At June30,1976, the aggregate annual
maturities of long-term debt for the next five fiscal
years were as follows:
Amount
(In Thousands)
1977 . ....... . ......... .... $51,454
1978 . . . . . . . . . . . . . . . . . . . . . . 76,915
1979 .. .. . . . . .. . ....... ... . 60,191
1980 . . . . . . . . . . . . . . . . . . . . . . 59,441
1981 . . . . . . . . . . . . . . . . . . . . . . 111 , 191
In addition to restrictions on cash dividends as
indicated on the balance sheet, the Company's credit
agreements include requirements for maintenance
of working capital (as defined) and limitations on
indebtedness, leases and other obligations. In con-
nection with the 1973 bank credit agreement, the
Company has informally agreed to maintain on
deposit with the lending banks average balances (in-
cluding normal working balances) equal to 15% of
the average daily outstanding borrowings, with the
average balances and borrowings being computed
over the term of the agreement. While a substantial
portion of the cash balances at June 30, 1976 and
197 5 is maintained for this purpose, there are no
legal restrictions on the Company's use of these
funds. No such balance requirements or agreements
apply to the 1975 bank credit agreement.
36
DELTA AIR LINES, INC.
5. LEASE OBLIGATIONS:
AtJuneS0,1976, the Company leased 18 Boeing
B-727 aircraft and certain airport terminal and
maintenance facilities, ticket offices, etc., under
long-term agreements. (As discussed in Note 8, on
July 27, 1976, the Company purchased the capital
stock of Storer Leasing, Inc. ("Storer") and acquired
11 of these leased aircraft). Rental expense
was $38,326,000 in 1976 and $54,058,000 in 1975,
including rentals under "financing leases" (as de-
fined by the Securities and Exchange Commission)
of $29,360,000 in 1976 and $28,662,000 in 1975.
At June 30, 1976 (after giving effect to the
subsequent Storer acquisition), the Company's
minimum rental commitments under noncancelable
leases with initial or remaining terms of more than
one year were as follows:
Payable for Financing Other
Fiscal Year Leases Leases Total
(In Thousands)
1977 $ 23,300 $ 3,470 $ 26,770
1978 22,230 2,710 24,940
1979 21,140 2,100 23',240
1980 20,910 1,410 22,320
1981 19,750 1,090 20,840
1982-1986 71,220 2,790 74,010
1987-1991 61,920 120 62,040
1992-1996 52,550 110 52,660
After 1996 40,100 40,100
$333,120 $13,800 $346,920
The estimated present value (based on a
weighted average interest rate in 1976 of 6.8%, with
such interest rates used ranging from 3.1% to 13.5%)
of the minimum rental commitments under financing
leases was as follows at JuneS0,1976 (after giving
effect to the subsequent Storer acquisition) and
JuneS0,1975:
Applicable to 1976 1975
(In Thousands)
Terminal facilities ............... $ 95,930
Maintenance facilities.. . . . . . . . . . 66,270
Aircraft... .. . .. .... . .......... 22,740
Other.. . . . . . . . . . . . . . . . . . . . . . . . 9,980
$194,920
$ 89,930
67,630
47,640
11,380
$216,580
37
DELTA AIR LINES, INC.
Assuming all financing leases were capitalized
and the related leasehold rights amortized on a
straight-line basis and interest accrued on the out-
standing present value, the effect on 1976 and 1975
net income would have been less than 3%.
6. INCOME TAXES:
The provision for income taxes in 1976 and
197 5 consisted of:
1976 1975
(In Thousands)
Currently payable (refundable). . . . . . . $ 8,769 $(12,371)
Deferred income taxes. . .. . . . . . . . . . . 36,849 48,069
Investment tax credits . . . . . . . . . . . . . . 8,331 3,626
Income taxes provided. . . . . . . . . . 53,949 39,324
Less-Amortization of investment
tax credits ... . . . . ..... . .. ....... . (14,613) (11,359)
$39,336 $27,965
Total income taxes provided were 49.25% of
1976 and 1975 book income before income taxes,
representing taxes provided at the 48.0% Federal
statutory rate plus net state income taxes. As of
June 30, 1976, approximately $34,000,000 of un-
utilizedinvestment tax credits, of which $22,500,000
expires in fiscal year 1982 and $11,500,000 in fiscal
year 1983, are available to reduce future Federal
income taxes payable.
The provision for deferred income taxes re-
sulted from the tax effect of the following timing
differences:
1976 1975
(In Thousands)
Depreciation and other property
items. . . . . . . . . . . . . . . . . . . . . . . . . . . $34,069 $42,598
Unrealized gain on foreign currency
translation (Note 2) .. ............ .
Other, net. ....................... .
5,992
(3,212)
2,785
2,686
$36,849 $48,069
The Internal Revenue Service has completed
an examination of the Company's income tax returns
for fiscal years 1966 through 1972, and on Septem-
ber 25, 1975, issued a statutory notice of deficiency
proposing additional income taxes of $25,681,000.
38
DELTA AIR LINES, INC.
The Company is contesting the proposed deficiency
and believes that it has substantial defenses to most
of the issues involved. The applicable law, however,
is unsettled and the ultimate outcome of the matter
is therefore uncertain. In the opinion of manage-
ment, adequate provisions have been made for the
alleged tax deficiency plus related interest, and
the outcome of this matter will not have a material
adverse effect on the Company's financial condition.
7. COMMON STOCK:
At JuneS0,1976, the Company had 1,080,496
shares of unissued common stock reserved for stock
options (500,000 shares), stock purchase warrants
(500,000 shares at $48 per share) and conversion of
Convertible Subordinated Debentures (80,496
shares at $250 per share).
Under the Company's Qualified Stock Option
Plans, options for 1,250 shares at $51.75 per share
were outstanding at JuneS0,1976. Transactions
during 1976 and 1975 were as follows:
Option Shares
~ ~
Outstanding at beginnin_
g of year. . . . . . 8,200
Exercised ... . . .. . . ............... . .
Expired. .... . . . . . . . . . . . . . . . . . . . . . . . (6,950)
Outstanding at end of year. . . . . . . . . . . . 1,250
Exercisable at end of year . . . . . . . . . . . . 937
13,150
(1,200)
(3,750)
8,200
7,575
39
DELTA AIR LINES, INC.
8. SUBSEQUENT ACQUISITION AND
LIQUIDATION OF STORER LEASING, INC.:
On July27,1976, the Company purchased all
of the outstanding capital stock of Storer Leasing,
Inc., a wholly-owned subsidiary of Storer Broad-
casting Company, for cash of $30,350,000 and
assumption of existing indebtedness of $3,649,000,
payable in monthly installments through January,
1978, with interest at 5-1/2% per annum. The
assets of Storer Leasing consisted of 6 Boeing 727-
200 and 5 Boeing 727-100 aircraft and 18 spare
engines, all of which were previously leased to the
Company. On July 30, 1976, Storer Leasing was
liquidated and the assets transferred to the Company.
9. CONTINGENCIES:
The Company is a defendant in certain legal
actions relating to environmental problems (pri-
marily noise), alleged employee discrimination and
other matters. Given the unsettled status of the
law in many of the areas involved, the outcome of
these actions is difficult to predict. In the present
opinion of management and its legal counsel, how-
ever, the disposition of these matters will not have a
material adverse effect on the Company's financial
condition or significantly interfere with its operations.
40
DELTA AIR LINES, INC.
Auditors' Report
ARTHUR ANDERSEN & Co.
ATLANTA, GEORGIA
To the Stockholders and the Board of Directors of
Delta Air Lines, Inc.:
We have examined the balance sheets of
Delta Air Lines, Inc. (a Delaware corporation) as of
June 30, 1976 and 1975, and the related statements
of income, retained earnings, additional paid-in
capital and changes in financial position for the
years then ended. Our examination was made in
accordance with generally accepted auditing
standards, and accordingly included such tests of
the accounting records and such other auditing
procedures as we considered necessary in the
circumstances.
In our opinion, the accompanying financial
statements present fairly the financial position of
Delta Air Lines, Inc. as of June 30, 1976 and 1975,
and the results of its operations and the changes in
its financial position for the years then ended, in
conformity with generally accepted accounting
principles consistently applied during the periods
after giving retroactive effect to the change (with
which we concur) in the method of accounting for
the translation of foreign currency transactions as
discussed in Note 2 to the financial statements.
Atlanta, Georgia,
August 13, 1976.
41
DELTA AIR LINES, INC.
Summary of Operations For the years ended June 30
(Dollars expressed in thousands except per share figures)
1976
Operating revenues:
Passenger2
...
.. . ...... . ..... .... . . .... $1,406,417
Cargo .... . ... . .... . . ....... . ......... 100,626
Other, net2 ... ........ . . .. .....
21,899
Total operating revenues . .. . . . .... . ..... .. 1,528,942
Operating expenses ............. . ..... ... 1,411,333
Operating income . .... . . . .. . . .. ... ... ... . $ 117,609
Interest expense, etc., net* .............. .. 29,103
Gain on disposition of aircraft .... . . ... . . .. . 7,680
Realized and unrealized gains on foreign
currency translation1
. . . ........ . .. .. . .. .
13,357
Income before income taxes . . . .......... . . $ 109,543
Income taxes ........ ... ....... . . .. : ..... 39,336
Net income .... .. ... .... .......... ... .... $ 70,207
Net income per share .. .... .. . ......... . . $3.53
Dividends paid ......... . .............. ... $11,928
Dividends paid per share ..... . . . . .. ..... . $.60
*Has been reduced by interest capitalized of $3,247
Other Financial and Statistical Data
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . $ 350,968
Stockholder equity . . . . . ... . .. .... . . .. . ... $ 542,112
Stockholder equity per share..... . . . . . . . . . . $27.27
Shares of common stock outstanding.. . . . . . . 19,880,577
Revenue passengers enplaned ............ .
Available seat miles (000) . .. . .... .. .. ... .. .
Revenue passenger miles (000) .. .. ... .... .
Passenger load factor .................... .
Break-even 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 .. .
27,996,665
30,389,761
17,621,247
57.98%
53.14%
4,145,183
2,034,848
7.98~
4.64~
34.05~
1Fiscal 1975 results have been restated to reflect a change in accounting
method (see Note 2 to financial statements).
2Passenger security charges for 1973 through 1975 have been
reclassified from other net revenue to passenger revenue to conform
with the 1976 presentation.
42
19751
$1,271,720
85,388
19,922
1,377,030
1,282,000
$ 95,030
28,984
7,944
5,855
$ 79,845
27,965
$ 51,880
$2.61
$11,928
$.60
$6,099
$ 390,437
$ 483,833
$24.34
19,880,577
25,831,631
29,497,234
15,916,860
53.96%
49.93%
4,030,116
1,822,574
7.99
4.35
31 .81
DELTA Al R LIN ES, I NC.
1974 1973 1972
$1,124,759 $962,558 $806,068
86,685 76,323 65,160
15,683 10,818 12,338
1,227,127 1,049,699 883,566
1,070,043 928,940 816,000
$ 157,084 $ 120,759 $ 67,566
14,377 9,171 13,500
18,607 4,653 1,897
$ 161,314 $ 116,241 $ 55,963
70,665 50,246 27,489
$ 90,649 $ 65,995 $ 28,474
$4.56 $3.32 $1.44
$11,926 $9,925 $9,570
$ ..
60 $.50 $.50
$10,810 $6,345 $3,770
$ 345,119 $ 168,000 $199,585
$ 443,826 $ 364,553 $306,637
$22.33 $18.35 $15.46
19,879,377 19,866,524 19,828,385
25,565,208 23,702,870 20,562,953
28,417,679 27,958,095 26,018,780
15,445,891 14,449,748 12,433,986
54.35% 51 .68% 47.79%
46.76% 45.20% 43.80%
3,847,226 3,815,285 3,613,790
1,800,400 1,711,229 1,482,453
7.28 6.66 6.48
3.77 3.32 3.14
27.81 24.35 22.58
43
DELTA AIR LINES, INC.
Management's Analysis and Discussion
of Summary of Operations
A comparison of the results of operations for fiscal
years 1976 and 1975 can be found in previous
sections of this report. The following is a com-
parison of the results of 1975 and 1974.
Restated earnings for fiscal 197 5 were
$51.9 million, a decline of 43% from fiscal 1974.
Included in fiscal 1975 are after-tax gains of
$4.0 million from the sale of aircraft and
$2.7 million from the translation of the long-term
portion of debt payable in foreign currency. Fiscal
197 4 results include a $9 .4 million after-tax gain on
aircraft sales.
Total operating revenues rose 12% in 1975 on
a 10 % increase in revenue per passenger mile and
a 3% gain in revenue passenger miles. Cargo
revenues declined 1% on a 10% reduction in cargo
ton miles and a 15% gain in yield. Cargo revenue in
197 4 included $3 .5 million in mail payments retro-
active to prior years. Other net revenue was up
$4.2 million in 1975 primarily as a result of finders
fees paid to Delta related to the sale of
leased aircraft.
Operating expenses in fiscal 197 5 were up
$212 million or 20% higher than 1974. Increases in
the price of fuel accounted for $91 million or 50%
of the increase in cash expenses. Depreciation
totaled $128.4 million, a 29% increase, which
resulted from the introduction of new aircraft.
Revenue plane miles were reduced 3% and avail-
able seat miles rose 4%, reflecting the increased use
of larger aircraft.
Gross interest expense for 1975 increased 32%
over 197 4 as a result of higher interest rates and
increased borrowings to finance new aircraft pur-
chases. Net interest expense, however, increased
79% over 1974 due to a much lower level of
capitalized interest.
44
Board of Directors
R. W. ALLEN
W. T BEE BE
B. W. BIEDENHARN
R. W. COURTS
C.H. DOLSON
R. W. FREEMAN
DAVID C. GARRETT, JR.
EDWARD H. GERRY
JESSE HILL, JR.
JOHN R. LONGMIRE
R. S. MAURER
BILL MICHAELS
T. M. MILLER
ROBERT OPPENLANDER
STUART W. PATTON
DELTA AIR LINES, INC.
Se 11ior Vice Presicle 11t - Pe rso 1111e l
Chain11 a11 of th e Boa rd a11cl
Chief Exerntil'e Office r
Chairma11 of th e Boa rel a11d
Director. Ouachita Coca-Cola Bottli11!-f Co.
a11d Biede 11harn Realt!I Co .. lnc.
Preside nt and Directo,~ Ouachita
Canc/!J Co .. Monroe. Louisiana
Director and Chairman of th e Executil'e
Co mmittee. At/a11tic Realty Co ..
At/c111ta . Geo r!-{ia
Chairman of th e Executiie Committee
Chairnwn of th e Compe nsation and
Finance Committees:
Chairman of th e Board allll Director.
Louisiana Coca-Cola Bott/in!-{ Co .. Ltd.
New Orleans. Louisiana
Preside nt
Partne r of Ge rry Broth ers l- Co ..
I1westme 11t Mana1re me nt . New York.
N ew York
President. Chief Executii1e Office r and
Director. Atlanta Life Insurance
Company. Atlanta. Georgia
Partne r of ini1estm ent banking firm of
J.M. Simon & Co .. St.Louis. Missouri
Se nior Vice President -
Gene ral Counsel and Secretary
Chairman of the Aue/it Committee:
Chairman of the Board .
Chief Executive Officer and Director.
Storer Broadcastin1r Co .. Miami. Florida
Re tired Se nior Vice President -
Mark e ting
Senior Vice President - Finance
and Treasurer
Member of law firm of Patton. Kanner.
Nadeau. Segal. Zelle r & LaPorte and
Director of Storer Broadcastin1r Co ..
Miami. Florida
CARLETON PUTNAM Private In vestments
GEORGE M. SNELLINGS, JR. M ember of law firm of Sne llings.
Breard. Sartor. Shafto & Inabne tt .
Monroe. Louisiana
45
DELTA AIR LINES, INC.
Officers
W. T. BEEBE Chairman of th e Board and
Chief E.rnrntil'e Officer
DAVID C. GARRETT. JR. President
FINANCE
ROBERT OPPENLANDER Senior Vice Preside ,11 - Finance .!.: Treasurer
W. A. ATCHISON Vice President - Computer Serl'ices
J. D. DUNN Vice Preside ,11-Pu rchasin1<
M. 0. GALLOWAY Vice President - Comptroller
REX A. McCLELLAND Vice Preside nt - Properties
J. R. HOWELL Asst. Treasurer
HUGH H. SAXON Asst. Treasure r
AUDLY TOLLER, JR. Asst. Treasure r
LEGAL & CORPORATE AFFAIRS
R. S. MAURER Senior Vice President- Gen eral Counsel
J. W. CALLISON
FRANKF. ROX
MORRIS SHIPLEY
SIDNEY F. DAVIS
A. C. FORD
GEORGE E. SHEDD
C. G. SWEAZEA
E. A. THOMPSON
IKE LASSETER
MARKETING
J. A. COOPER
SHELBY D. DEMENT
R. L. GIBSON
CHARLES P. KNECHT
J. T. MAPLES
HENRY ROSS
OPERATIONS
HOYT T. FINCHER
D. P. HETTERMANN
C. A. SMITH
J. K. BURNETTE
ROBERT H. COWART
JOHN P. DAVIS
JACKS. KING
C.J. MAY
W. L. MILLER
L. G. RODEFELD
& Secretary
Vice President-Law & Re1<11latory Affairs
Vice President- Law & Public Affairs
Vice President-Got1
emment Affai,s
Asst. Vice President- Corporate Legal Affairs
& Asst. Secretary
Asst. Vice President-Long Range Planning
Asst. Vice President-Public Relations
Asst. Vice President-Public Affairs
Asst. Vice President-Economic Research
Asst. Secretary
Senior Vice President-Marketing
Vice President - Consumer Affairs
Vice President- Traffic
Vice President- Marketing
Asst. Vice President-Marketing Planning
Asst. Vice President- Sales Promotion
Senior Vice President- Operations
Vice President- Technical Operations
Vice President- Flight Operations
Asst. Vice President-Quality Control
Asst. Vice President- Operations
Administration
Asst. Vice President-Maintenance
Asst. Vice President-Flight Control
Asst. Vice President-Engineering
Asst. Vice President-Materiel Services
Asst. Vice President- Communications
OPERATIONS-PASSENGER SERVICE
HOLLIS L. HARRIS Senior Vice President- Operations-
E. L. HAMNER
FOY PHILLIPS
C. A. THOMPSON
PERSONNEL
R. W. ALLEN
J. A. YORK
RUSSELL H. HEIL
JOHN HUME
H. M. JOHNSON
EUGENE H. STEWART
46
Passenger Service
Vice President- Stations
Vice President- Passenger Service
Asst. Vice President- Stations
Senior Vice President-Personnel
Vice President- Personnel Benefits
Asst. Vice President- Personnel
Administration
Asst. Vice President-Training &
Personnel Communications
Asst. Vice President-Personnel Services
Asst. Vice President - Corporate Security
Transfer Agent and Registrar
The Citizens and Southern National Bank
99 Annex
Atlanta, Georgia 30399
Auditors
Arthur Andersen & Co.
25 Park Place, N.E.
Atlanta, Georgia 30303
Annual Meeting
October 28, 1976, Monroe, Louisiana
Common Stock
Listed on the New York Stock Exchange
Market Prices and Dividends
Market Price Range of
Common Stock on
Fiscal 1976 New York Stock Exchange
Quarter Ended : High Low
September 30 ..... 39 283/s
December 31. ..... 385/s 28
March 31 .... . .... 44 37
June 30 .......... 451/s 39
Fiscal 1975
Quarter Ended:
Sept em her 30 ...... 49 31
December 31. ..... 43 27 7
/s
March 31 ......... 4l3/s 25 3
/s
June 30 .......... 38 7/s 317/s
Availability of Form 10-K
DELTA AIR LINES, INC.
Cash
Dividends
Paid Per Share
$.15
.15
.15
.15
$.15
.15
.15
.15
The Company will supply, upon written request and
without charge, a copy of the Company's annual report
for the fiscal year 1976 on Form 10-K to any person bene-
ficially owning or owning of record any of the common
stock of the Company on September7,1976. Requests for
the report should be directed to R. S. Maurer, Secretary,
Delta Air Lines, Inc., Hartsfield Atlanta International
Airport, Atlanta, Georgia 30320.
47
DELTA AIR LINES, INC.
Notice to the Stockholders of Delta Air Lines, Inc.
Part 245 of the Economic Regulations of the Civil Aeronautics
Board provides that: (1) any person who either owns, as of
December 31st of the year preceding issuance of this annual
report, or subsequently acquires, beneficially or as trustee, more
than 5%, in the aggregate, of any class of the capital stock or
capital of Delta Air Lines, Inc., shall file with the Board a report
containing the information required by Sec.245.12 of Subpart
245, on or before April 1, as to the capital stock or capital owned
as of December 31 of the preceding year, and, in the case of
stock subsequently acquired, a report under Sec.245.13, within
10 days after such acquisition, unless such person has otherwise
filed with the Board a report covering such acquisition or owner-
ship, (2) any bank or broker covered by (1), to the extent that it
holds shares as trustee on the last day of any quarter of a calendar
year, shall file with the Board, within 30 days after the end of the
quarter, a report in accordance with the provisions of Section
245.14; and (3) any person required to report under this subpart
who grants a security interest in more than 5% of any class of the
capital stock or capital of Delta Air Lines, Inc. shall within 30
days after granting such security interest file with the Board a
report containing the information required in Section 245.15.
Any stockholder who believes that he may be required to file
such a report may obtain further information by writing to the
Director, Bureau of Operating Rights, Civil Aeronautics Board,
Washington ,D. C. 204 28.
48
Delta Air Lines, Inc.
General Offices
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320