INES INC. DELTA AIR ULAL REPORT 2000 ANN Fiscal Year 2000 Highlights Most traveled airline in the world, carrying 117 million passengers Reported net income of $1.0 billion (excluding nonrecurring items) Acquired Comair, a Delta Connection carrier Monetized $1.2 billion of non-core assets, including $784 million of priceline.com common stock Launched SkyTeam , a global alliance partnering Delta with Aeromexico, Air France and Korean Air Repurchased 16.5 million shares of Delta's common stock for $790 million Announced industry's largest regional jet order of 94 Canadair Regional Jets (RJ) plus options to purchase 406 additional RJ aircraft Named one of 12 Digital Innovators for the Year 2000 E-Gang by Forbes Magazine Ranked in the top tier of U.S. airlines in the U.S. Launched a redesigned delta.com Web site Department of Transportation's four operational performance measures Received the 2000 Computerworld Smithsonian Award for Technology Innovation Ranked #2 in University of Michigan's Airline Customer Satisfaction Index Ranked #2 in Harris lnteractive's survey of top domestic airline carriers Announced program to offer employees home computers and Internet access at a low cost in conjunction with PeoplePC Reported record diluted earnings per share of $7 .36 (excluding nonrecurring items) Named "Corporation of the Year" by the Georgia Minority Supplier Development Council Ranked by the Council on Economic Priorities as the Top Environmental Performer within the airline industry Business Description Delta Air Lines, Inc. provides air transportation for passen- gers and freight throughout the U.S. and around the world. As of September 1, 2000, Delta (including its wholly owned subsidiaries, Atlantic S_ outheast Airlines, Inc. and Comair, Inc.) served 205 domestic cities in 45 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands, as well as 44 cities in 28 countries. With its domestic and international codeshare partners, Delta's route network covers 221 domestic cities in 48 states, and 118 cities in 4 7 countries. Based on calendar 1999 data, Delta is the largest U.S. airline in terms of aircraft departures and passengers enplaned, and the third largest as measured by operat- ing revenues and revenue passenger miles flown. Delta is the leading U.S. airline in the transatlantic, offering the most daily flight departures, serving the largest num- ber of nonstop markets and carrying more passengers than any other U.S. airline. Delta is a Delaware corporation headquartered in Atlanta, Georgia. Delta is subject to government regulation under the Federal Aviation Act of 1958, as amended, as well as many other federal, state and foreign laws. Table of Contents 1 Financial and Operating Highlights 2 Letter to Shareowners, Customers and Employees 6 Fly Hassle Free 10 Fly From Anywhere to Everywhere 12 Network and Route Maps 16 Fly With a Superior Team 18 Fly Connected 20 Fly With a Company That Cares 22 Officers 24 Board of Directors 25 Financial Review 56 Shareowner Information Back Delta's Aircraft Fleet Cover Consolidated Financial Highlights Excludes nonrecurring items Dollar amounts in millions, except per share data. Fiscal Year Ended June 30 Operating Revenues Operating Expenses Operating Income Operating Margin Net Income Diluted Earnings Per Share Dividends Declared on Common Stock Dividends Per Common Share Common Shares Issued and Outstanding at Year End (000's) Passenger Mile Yield Operating Revenue Per Available Seat Mile Operating Cost Per Available Seat Mile Consolidated Operating Highlights Fiscal Year Ended June 30 Revenue Passengers Enplaned (Thousands) Revenue Passenger Miles (Millions) Available Seat Miles (Millions) Passenger Load Factor Breakeven Passenger Load Factor Cargo Ton Miles (Millions) Cargo Ton Mile Yield Fuel Gallons Consumed (Millions) Average Aircraft Fuel Price Per Gallon Number of Aircraft in Fleet at Year End Average Age of Aircraft Fleet at Year End (Years) Average Aircraft Utilization (Hours per Day) Average Full-Time Equivalent Employees 2000 $15,922 $14,045 $ 1,877 11.8% $ 1,019 $ 7.36 $ 13 $ 0.10 122,640 13.51 10.48 I 9.25 2000 116,595 110,347 151,913 72.6% 63.5% 1,814 31.94 2,876 57.23 809 10.1 8.2 77,860 DELT A AIR L I N E S , INC . 1999 Change $14,597 9% $12,727 10% $ 1,870 12.8% (1.0) pts. $ 1,085 (6%) $ 7.09 4% $ 14 (7%) $ 0.10 138,554 (11%) 13.09 3% 10.14 3% 8.84 5% D ELT A AIR LI N E S , INC. 1999 Change 106,902 9% 104,575 6% 144,003 5% 72.6% - pts. 62.5% 1.0 pts. 1,690 7% 32.97 (3%) 2,730 5% 49.83 15% 676 20% 11.6 (13%) 8.7 (6%) 74,000 5% 1 The Consolidated Financial and Operating Highlights include the results of operations of ASA Holdings, Inc. and Comair Holdings, Inc. since April 1, 1999 and November 22, 1999, respectively. 2 Nonrecurring items include gains from the sale of investments, asset writedowns and other special charges, the effects of a change in accounting principle and a charge for the voluntary prepayment of debt. See page 26 for further information. 1 "Delta has consistently delivered industry-leading customer service and financial results by keeping our five key objectives at the center of our efforts. " Leo F. Mullin Chairman and Chief Executive Officer To Delta's Shareowners, Customers and Employees: Delta made excellent progress during the last year, outpacing the industry in virtually every category and building on our core strengths in new and innovative ways . This continued strong performance ensures that we are on track to reach our goal of becoming the world 's best airline , prepared to suc- ceed in any environment. And that's a crucial point, given the immense challenges and rapid changes occurring all around us. From potential restructuring of the industry to serious concerns about the worldwide air traffic control (ATC) system, aviation is poised on the cusp of a new era. Regardless of what direction the industry takes in the coming months, we are ready to meet the future. Delta is: Maintaining an unwavering focus on our basic mission of providing safe, comfortable and efficient air transportation. Continuing to provide excellent value to the constituencies we serve: shareowners, customers and employees. Delivering consistent, solid financial and operational results with cost levels that remain below the industry average. Making investments to ensure that we maintain our industry-leading position, from e-commerce initiatives to new mainline aircraft and regional jet orders. 2 An Industry in Motion A key issue facing the airline industry today is the possibility of consolidation and restructuring. For U.S. airlines as well as those in Europe, Asia and Latin America, major alterations in the industry landscape are under consideration or already in progress. Airline combinations can increase competitiveness and enhance efficiency, but there is an important caveat. The basic free market principles that served to create the world 's finest system of air travel must not be sacrificed. The U.S. aviation system is too critical a part of our nation 's eco- nomic and social fabric -as well as the global economy-to risk serious alterations to levels of service or competition. The primary industry concern is that if any two current airlines combine, the resulting "mega" airline would have a significant destabilizing effect on the industry. Such an imbalance would almost certainly lead to full industry con- solidation, bringing with it broad implications for the competi- tive landscape and, thereby, the flying public. For those reasons, Delta believes any such proposals require careful consideration if we are to preserve the free market charac- teristics that have made air travel increasingly affordable and available to the public. But whatever direction the industry takes, Delta enters this latest period of potential change in a strong position, with resources and opportunities that will allow us to choose how we continue building the world's best airline. We fully realize that, viewed from the investor's perspective, many actions taken by airlines- including some proposed changes to the industry structure- appear to give shareowner value short shrift. We know that the activity of getting bigger sometimes suppresses the pursuit of share- owner value. As we consider our options in this and other matters, we can assure you that we will make any decision with full respect for our core responsibility of enhancing value for shareowners, customers and employees. A Clear Focus on the Future For the past few years, Delta has consistently delivered industry-leading customer service and financial results by keeping our five key objectives at the center of our efforts: Become #1 in the eyes of our customers Develop an airline network to take passengers from any- where to everywhere Build a superior team with the will and the means to win Make continued excellent financial performance an inevitable result of all that we do Find innovative ways to maximize the value of the com- pany's core resources Delta's core function is to provide the level of passenger service that will help us reach the first strategic objective - become #1 in the eyes of our customers . In today's travel environment, this is a tough challenge - not just for Delta, but for the entire industry. Despite the hurdles, Delta has made substantial progress over the past year in the area of customer satisfaction. In fact, Delta ranked #2 in passenger preference (second only to Southwest Airlines) in two polls featured earlier this year in the Wall Street Jouma/. 1 But we know very well that the task of keeping cus- tomer satisfaction at high levels is increasingly difficult. The good and bad news for the airline industry is that we are serving more people than ever before. Beginning with the Airline Deregulation Act of 1978, air travel has become so affordable that almost everyone in America who wants to fly can-and the majority do. That's good news. 1 University of Michigan's Airline Customer Satisfaction Index and Harris lnteractive 's survey of top domestic airline carriers. The bad news, though, is that airlines, airports, and- more importantly-the ATC systems were not prepared for these crowds. The airlines have now built the network infras- tructure and purchased the planes to accommodate the wants and needs of travelers who are responding enthusi- astically to more competition and lower fares. However, our airports and ATC systems remain woefully inadequate, both in capacity and in many measures of operational perfor- mance. We are continuing to work closely with governmental representatives to find solutions that will fix the interrelated ATC problems of uncertain funding, inadequate equipment, an unresponsive organizational structure , and outmoded systems. We urge public support of these same issues. Making Technology Work for the Customer Despite these challenges, Delta has continued to make important advances in customer service. We know what pas- sengers really want is essentially straightforward. In addi- tion to on-time arrivals, they also seek fast, polite service; convenient schedules; good fares ; and baggage that arrives with them. When bad weather and heavy air traffic cause delays or cancellations, passengers want good recovery on our part, supported by frequent and accurate reports on the status of recovery efforts and its implications for them. That's not too much to ask-in fact, it 's the minimum. And through both improved processes and significant leaps in technology, Delta is making real strides in providing these basics, and more. You 'll find many examples of our progress in other sections of this Annual Report. From new services for passengers that speed up the gate and boarding process to new partnerships that will eventually give passengers wire- less access to Internet services throughout their travels, Delta is making sure that the technology revolution serves our customers well. From Anywhere to Everywhere Delta has also made significant advances in another arena of customer service - developing an airline network that takes passengers from anywhere to everywhere. Throughout our 71-year history, Delta has consistently worked to create 3 "Delta's global reach received a significant boost this summer when we joinedAeromexico, Air France and Korean Air to launch \"'k_yTet1m. Over tinie, our teanz will change the ,lirline alliance landscape entire~y as we grow to be the best international network ever founded. " an exemplary network. Today, we're exceedingly proud that our company's network holds the industry record for the number of customers flown. We carry more passengers than any airline in the world: 117 million in fiscal year 2000 alone. Delta is growing in ways that bring more and improved service to our customers while enhancing our competitive and strategic position. We're building on our strong position at the Atlanta Worldport and strengthening our East Coast presence, including plans for a new, consolidated airport terminal at Boston-Logan International Airport. Delta's gateway at New York-Kennedy and hubs in Cincinnati , Dallas/ Ft. Worth and Salt Lake City complete the network that gives customers the best connections available through- out North America. But our story doesn 't stop there. Delta flies nonstop to more European cities than any U.S. airline, and this year we added new or increased service to Dublin, London , Lyon , Venice and Zurich. We 're continuing to grow swiftly and profitably in Latin America, where we now serve 11 cities through our dual gateways at the Atlanta Worldport and New York-Kennedy. Connecting the World and America's Heartland Delta's global reach received a significant boost this summer when we joined Aeromexico, Air France and Korean Air to launch SkyTeam , our new international airline alliance. Over time, our team will change the airline alliance landscape entirely as we grow to be the best international network ever founded. We believe we can do that because we have three important advantages: We 're intensely customer focused; our network of hubs is unsurpassed; and our long standing rela- tionships have been proven to work-not just on paper but in the real world of day-to-day, airport-to-airport travel. SkyTeam airlines have a time-tested history of codeshares and other working relationships prior to this partnership, so we know and understand each other. Our similar corporate cultures, matched networks, and common performance ethics mean a smoother flight for customers, right from the start. Delta also continues to expand into the U.S. heart- land, reaching small- and medium-sized cities and towns of America with our growing fleet of regional jets, or RJs. RJs allow Delta to reallocate larger aircraft to meet customer 4 demand on longer-haul routes while efficiently preserving our presence in small markets. They also place us in a clear lead- ership role in markets characterized by strong performance and excellent growth potential. Delta is positioned for continued RJ industry leadership through our fiscal 1999 purchase of Atlantic Southeast Airlines and our fiscal 2000 purchase of Comair, the carrier named "1999 Best Managed Regional Airline " by Aviation Week & Space Technology. This year we also announced the industry's largest regional jet order ever-94 Canadair RJs plus options to purchase 406 additional RJ aircraft- a move that cements our competitive advantage in this important market. Building a Winning Team Delta's continued progress is the result of our clear focus on strategic initiatives. This vision must be shared and then implemented by a superior team with the will and the means to win. At Delta, we have assembled a highly quali- fied senior management group that is well respected in the industry. One of the first responsibilities of this leadership group is to continue building a highly skilled and diverse workforce, then retain and motivate these employees . An important aspect of building the best possible team is Delta's unwavering commitment to diversity in the work- place. We know that maintaining our competitive edge requires the contributions of a team whose members have full and equal opportunity to grow as professionals in a demanding and rewarding business. We will continue to take active steps to ensure that we remain attractive to the widest array of people who can contribute to Delta's success. We also believe that people work best when they know that high performance is recognized and rewarded, and that they share materially in their company's success. We support top-level pay scales for top-level performance throughout our organization . We backed up that commitment this year with compensation increases to ensure that Delta's pay scales remain among the highest in the industry. This premise guides our negotiations with the Air Line Pilots Association, International (ALPA) and led to an agree- ment this year on industry-leading pilot pay rates and work rules for new Boeing 767-400 and 777 aircraft. In the com- prehensive contract negotiations now underway, Delta's leadership team has already indicated its continued will- ingness to provide top-level compensation for pilots. Our goal is to reach a timely, mutually rewarding outcome. Keeping an Eye on the Bottom Line Delta's strategic initiatives are part of an overarching commit- ment to our shareowners to create and operate an excellent business where continued superior financial performance is an inevitable result of all we do. Our company's disciplined and innovative financial strategy has consistently set the industry standard-and this year was no exception. For the past fiscal year Delta posted: Record diluted earnings per share of $7 .36 * Net income of $1 billion * (the third consecutive year Delta has reached or exceeded the billion-dollar threshold). When all nonrecurring items, including the sale of priceline.com stock, are considered, net income rises to $1.3 billion for fiscal 2000. Operating margin of 11.8 percent* Continued 6 percent unit cost advantage over the industry. Delta 's financial performance is the result of a disci- plined and thorough planning process that provides the solid platform necessary for innovations such as our fuel hedging program, which saved Delta $442 million during fiscal 2000. Initiatives like this one, combined with strong cash returns and a solid capital structure, have allowed Delta the flexibil- ity to continue reinvesting in our company's future. Our excel- lent financial performance supported $3.3 billion in funding during fiscal year 2000 for aircraft acquisitions and facility improvements, strengthening our ability to grow and prosper. And while making these investments, we further enhanced shareowner value with the repurchase of 16.5 million shares of common stock for $790 million. Our commitment to excellent profitability is also sup- ported by the strategic goal of finding innovative ways to maximize the value of the company's core resources. Technology has proved to be an excellent tool in that quest. Delta's role as the industry leader in e-commerce is gaining increasing attention - in fact, Forbes recently named Delta among the nation 's top 12 digital innovators. * Excluding nonrecurring items We're also making sure that our employees are ready for this digital revolution with new programs such as our Wired Workforce. This initiative provides home computers and Internet access to all interested employees and their families at low, subsidized rates. The Wired Workforce brings a real benefit to our people both in the workplace and at home, and it also ensures that we develop employ- ees who are proficient in the wired world. As exciting as the new e-world is for Delta, we have been careful to base our strategy on value. For example, during fis- cal year 2000 we realized $784 million in cash from the sale of a portion of the early and industry-leading equity stake we took in priceline.com . Our current course of e-commerce action was developed and is being implemented with future benefits to shareowners always at top of mind. Continuing the Course Taken individually, each of Delta's areas of operational and financial achievement over the past few years is positive. But taken as a whole , a portrait emerges of a powerful company operating well and profitably, with high potential for finding new ways to grow and expand . You can be sure that Delta enters this new and chal- lenging phase of aviation history in a position of strength . We have the resources and the opportunities that will allow us to choose how we will continue this journey as we work to build the world 's best airline. And you can be confident that we will develop our next steps with full and total respect for the very critical issue of creating value for our share- owners, our customers and our employees. Leo F. Mullin Chairman and Chief Executive Officer September 1, 2000 5 A DeJta Becoming #1 in the Eyes of Our Customers Delta is listening to customers and seeing the world through their eyes to reach our goal of becoming #1 in customer ser- vice. Customer feedback received through day-to-day inter- actions , focus group sessions , a series of independent interactive polls and our Web site is driving our customer experience strategy. This strategy is designed to enhance our passengers' travel experience from booking to baggage claim by achieving operational excellence, providing helpful and caring service, making time fly for our customers and building relationships with them. Operational Excellence Operational excellence is the flawless execution of every task, every time, by every member of the Delta team. It means providing our customers with a safe, on-time travel experience that includes professional and dedicated service. During fiscal 2000, we achieved excellent ratings in the U.S. Our new baggage tracking system and scanning technology farther ensure that passengers and their bags travel together; automated ticketing kiosks simplify and expedite the ticketing process. Department of Transportation's four customer service mea- sures among the ten major U.S. airlines, ranking: 3rd in on-time arrivals 2nd in fewest customer complaints 2nd in fewest involuntary denied boardings 4th in fewest mishandled bags We also took a leadership position on the Airline Customer Service Commitment, a set of 12 guidelines (listed below) developed by major carriers that provide passengers with a clear understanding of our commitment to meet essential performance objectives. Our plan meets all 12, and exceeds nine, of the industry guidelines. Helpful and Caring Service During fiscal 2000, we integrated customer service attributes of Delta-Style Service into our initial and recurrent frontline training programs. These programs teach our people leadership and conflict resolution skills, the tenets of personalizing ser- vice, and the importance of giving our customers information Before you Fly, Delta will: 12 Customer Service Commitments 1. Offer on our telepl1one reservations system tile lowest fa1-e for wilwl1 tl1e customer is eligible fo1- tile date. flight and class of service requested. 2. Give our customers time to compare our fares witil tl1ose of othe1- a1rlines. We will l1old reservations fm travel witilin tl,e continental U.S. until midnight. one day after the reservation is rnacle. 3. Issue refunds for eligible domestic tickets witilin seven business clays for credit card purchases and 20 l)usiness days for purchases made l)y cash 01- check. 4 . lnforn, custorne1-s upon tl1eir request if the fligilt on whicl1 they are ticketed is ove1'L1ooked. We also will provide information at airports about our policies and procedures for l1anclling situations when all ticketed customers cannot be accommodated on a flight. promptly. We are recognizing and rewarding employees on the spot who demonstrate outstanding Delta-Style Service and Customer Commitment behaviors. We also implemented new field management programs in customer contact areas to enable our frontline employees to respond to customer issues quickly and effectively. Making Time Fly for Our Customers During the last three years, Delta has invested heavily in developing a cross-functional technology platform that commu- nicates with every part of our organization , transforming our technological infrastructure from trailing edge to leading edge. The center of our program is Airport Renewal, which was hon- ored with the 2000 Computerworld Smithsonian Award for Technology Innovation in the Transportation Industry. During fiscal 2000, we implemented Airport Renewal in our top 26 airports. We will complete implementation at an additional 28 airports by the end of the calendar year. Airport Renewal provides the infrastructure for our planned technology deployments and allows all operating units within Delta to be connected real time to key operational information. Many of Delta's advances in technology are designed to reduce or eliminate the need for our customers to wait in line. During the year, we: Expanded the availability of Skycap-to-Sky service, which enables customers with electronic tickets to check their 5. Provide customers timely and complete information about policies and procedures tl1at affect their travel. Captain Donald Williams and First Officer Tom Duda make sure our passengers fly "in the know" by providing up-to-the minute information on their flight status; Flight 1999 's Orlando-based crew, Christine Singman, Cari Oen, Chris Tepovich, Flo Allen and Cathy Shoemake received high accolades from passengers for their outstanding service during a lengthy weather delay. luggage, confirm their seat assignments and receive their board- ing cards at curbside. This service is more convenient than checking in at the ticket counter and is available in 95 of our top 100 U.S. airports-reaching 98 percent of our customers. Streamlined gate and boarding technology, which reduces customer processing time by approximately 15 minutes. Bar- coded boarding cards allow us to automatically update pas- sengers' records when they board the aircraft. This process speeds up flight close-out procedures and enhances on-time departures. Also, Medallion SkyMiles members will soon be able to check in via the telephone or Internet, proceed directly to the gate and board the air- craft using their bar-coded SkyMiles card in lieu of a boarding pass. Added Gate Information Display screens to give customers answers to the 10 most frequently asked questions -from up-to-the-minute information on boarding times to meal ser- vice. These screens are currently available in the Atlanta Worldport's T-Concourse and in Jacksonville. Additional units will be installed in Boston-Logan, Chicago-O 'Hare, 6. Ensure t11at our domestic codeshare partners cornrnit to providing cornpa1al)le consumer plans and policies. Our partners are 1egional airlines tl1at connect small- and medium-sized ma1kets witl1 Deltas netwo1k. 1Cont11we(/ on P,1ge 8) 7 Improved gate and boarding technowgy has greatly expedited the boarding process; Gate agent Deborah Franklin and Ramp Agent Chris Rossing are exampks of Delta's commitment to customer service. They recently helped a concerned passenger locate a lost item of sentimental value on board the aircraft. New York-La Guardia and Washington, D.C.-Reagan by the end of the calendar year. Installed automated ticketing kiosks , which enable cus- tomers to avoid ticket and gate counters altogether. Currently available to our Delta Shuttle customers, the kiosks will be installed in Boston-Logan , Chicago-O'Hare and New York- La Guardia for mainline use by the end of the calendar year. Improved the ticket change and reissue process for all ticketed customers. Ticket changes or reissues are now available over the phone, eliminating the need to stand in ticketing lines. New technology has expedited the process- ing time by streamlining the transaction process. During the year, Delta made other improvements to show our passengers that we value their time. Customers may now access their flight itineraries, up-to-the minute flight arrival and departure information, same-day gate information and worldwide flight schedules via their hand-held personal digital assistants and Web-enabled wireless phones. We also con- tact our customers in advance when irregular operations occur. Customers for whom we have contact information are noti- fied when a cancellation occurs two or more hours in advance of the scheduled flight time. At the Airport, Delta will: 7. Provide customers with infom,ation about our policies and proce- clures fm accommodating disabled and special needs custon,ers. ancl unaccompanied minors. 8. Prnvicle full ancl timely information on the status of delayed and canceled flights. New technology is helping reduce the possibility of mishandling luggage at the world's busiest airport . Delta's baggage tugs at the Atlanta Worldport are being equipped with wireless devices which give drivers real-time data on gate changes and other information to ensure that bags and passengers travel together. We have also improved our Crown Room Club program by adding industry-leading amenities, including desktop com- puters in all domestic clubs and plasma screens featuring news broadcasts in 30 of our domestic clubs. To fu rther expedite the boarding process and allow more room for carry-on baggage, we began expanding overhead bins in the MD-88 and B-757 aircraft. Installation will be complete by Spring 2001. Our new venture with SoftNet Systems, Inc. will provide our customers with wireless Internet access through a sophisti- cated broadband network. This access will be available in our Crown Room Clubs and at our gates, providing new opportuni- ties for customers to stay connected to the Internet or their office network. Building Relationships Delivering distinguished products and services based on a customer's personal needs is the goal of our Customer Relationship Management (CRM) program , which we began developing in fiscal 2000. Building on information obtained 9. Provide full and timely information regarding the status of a flight if tl,ere is an extreme delay after customers have boarded or after the plane l,as landed. and we will provide for customers' essential neecls while on board. from the SkyMiles program, the CRM database serves as the centralized information source for all customer interactions. Over time, all customer touch points-from Marketing to Customer Service to Operations -will have access to this data, allowing Delta to tailor products, marketing programs and services to individual needs and preferences. The technology platform will store information about cus- tomer preferences, such as preferred seating, special meals, personal contact information and special handling requirements, as well as detailed information about travel patterns and experi- ences. This information, combined with new ways of commu- nicating, will allow Delta to be more proactive across the travel experience, ultimately reducing transaction times and enhancing the ability of our employees to provide superior service. Air Logistics Cargo customers are also important to Delta. We changed the name of Delta's cargo operation to Air Logistics during fiscal 2000 to better represent the comprehensive service we pro- vide our cargo customers. This service -from sourcing, ware- housing and inventory management, to distribution and supply to the end user- is actually a management process and a partnership with our customers. In some cases we even assign employees to work on-site at our customers' After landing, Delta will: 10. Strive to return custon1ers misplaced baggage witl1in 24 l1ours. for travel witl1in tl1e continental U.S. Additionally, we will attempt to contact owners of unclairnecl baggage when a name and add1ess or telepl1one number is available. Gate information display screens give our passengers access to real-time flight information; Delta's passengers can access their flight information anytime and anywhere using their personal digital assis- tant devices. businesses to strengthen this partnership. We are making significant strides to improve our Air Logistics service. During fiscal 2000, we installed new call center technology, which increased our efficiency and reduced waiting time for our customers. We also successfully tested VISion technology, which will improve our booking and track- ing of cargo throughout our system. We expect to implement VISion technology before the end of the year. These improve- ments enable our professionals to work more effectively with our cargo customers in transporting freight across the coun- try- or the world. To achieve our customer service goals, we will continue to view the travel experience through the eyes of our passengers, provide the service our customers desire and carefully man- age every aspect of their travel with us. Their needs will drive 11. Increase tl1e per passenge1 domestic bc1ggage lialJility l1111itc1tion from $1,250 to $2.500. 12. Respond to written customer complaints witl1in 30 days. From Anywhere to Everywhere This year 117 million passengers chose to fly Delta, more than any other airline in the world. Behind this success stands a global network strategy that continues to build on the strengths of the Delta system , extending our reach and penetration around the world. Unlike any other carrier, Delta has five products that allow us to compete successfully in multiple markets, making it possible for customers to use Delta service regardless of their air travel needs - domestic, international, business or leisure. Delta Mainline - Domestic and International Service Delta blankets North America with air service through effi- cient and strategically located hubs in Atlanta, Cincinnati , Dallas/Ft. Worth, and Salt Lake City. At the Atlanta Worldport, improved scheduling and management have confirmed the air- port's status as the world 's largest and most efficient hub. We are further strengthening our position in the eastern U.S. by adding regional, transcontinental and international service at New York and Boston, which positions us to expand market share in these important cities. Delta's international service gives our customers access to the world. During the past year, we reaffirmed our position as the #1 U.S. carrier over the Atlantic with the introduction of new 10 Delta's Sky Team partnership creates greater opportunities to get our passengers from anywhere to everywhere; ''Delta provides many options for travel to European cities through its gateways inAtlanta and New York-Kennedy," says Platinum SkyMil.es program member jean Scott. or increased service to Dublin, London, Lyon, Venice and Zurich. Today, Delta flies to more nonstop destinations in Europe than any other U.S. airline. And as we enter the third year of our Latin American expansion strategy, Delta has become a major competitor in the region, with service to 11 destinations in 8 countries. This fall, we continue that growth as we inaugurate new flights to Bogota, Colombia; Leon, Los Cabos, Monterrey and Puebla, Mexico; and Santiago, Chile. Our success in the region underscores the importance of our gateways in Atlanta and at New York-Kennedy. And we've further expanded our inter- national system by adding Caribbean destinations from two new gateways, Cincinnati and New York-Kennedy. SkyTeam and Other Delta Alliances Despite our excellent network and continued growth, Delta can 't fly to every destination - no single airline can. With the launch of our global SkyTeam alliance this year, Delta and its partners -Aeromexico, Air France and Korean Air - now offer customers access to an unsurpassed network that covers the world's major travel markets. SkyTeam also gives passengers enhanced benefits such as frequent flyer mileage and lounge access throughout the global network. We hold an important advantage in the competitive world of interna- tional airline networks because we lead the pack in growth potential at SkyTeam's key hubs. Major expansions are already planned at Paris-Charles deGaulle, Seoul, and Atlanta Worldport during the coming years. Integration of operations and services among SkyTeam partners continues to bring significant value to the Delta net- work. Air France has added new transatlantic frequencies at Atlanta, Boston and Philadelphia, and Delta has expanded codeshare services with Air France via Paris-Charles deGaulle. Our codeshare relationship with Aeromexico is now the most extensive partnership of any airline alliance in the industry. Together we serve 11 U.S. gateways to Mexico and provide access to 27 nonstop destinations in Mexico, bringing an easy, convenient codeshare exchange service to more than 750 passengers in each direction every day. And as Delta's codeshare operations expand, passengers get more travel options to more international destinations. Delta Shuttle Business travelers in the Northeastern U.S. rely on the Delta Shuttle. Ranked #1 in customer satisfaction and on-time per- formance, the Delta Shuttle consistently demonstrates its ability to maintain high service standards even while expand- ing. This year we added the new Boston-Washington, D.C.- Reagan route, which gives customers yet another travel option among the busy Northeastern corridor destinations of Boston- Logan, New York-LaGuardia, and Washington, D.C.-Reagan. To increase customer comfort, Delta Shuttle began replacing its fleet of B-727 aircraft with new, state-of-the-art B-737-800s. We added the first new aircraft in August 2000 and will com- plete the initiative by February 2001. Regi,onal jets provide passengers in smaller cities with greater access to their destinations. Delta placed the largest Rf order ever for 94 Canadair aircraft and 406 options; Delta Express provides service from major mar- kets in the Northeast and Midwest to five leisure destinations in F/,orida. Delta Express Drawn by low fares and reliable service, more Northeast and Midwest passengers are flying Delta Express to vacation desti- nations throughout Florida than ever before. We grew the Delta Express fleet to 40 aircraft and expanded service to include flights from New York-Kennedy to Ft. Lauderdale. Additional flights from New York-Kennedy to Orlando and Tampa are planned for this fall. Delta Connection Our regional carrier service provides passengers in small and medium-sized cities greater access to their destinations, especially with our growing fleet of RJs. The RJ market is the fastest-growing in the industry, spurred on by passenger appreciation of the aircraft's speed and reliability. RJs are an industry-changing phenomenon. Their longer range and effi- cient operating costs are opening smaller cities to jet service and permitting increased frequencies on existing routes - and for Delta, that means more traffic feed to our hubs. Capitalizing on our growing strength in this dynamic sec- tor, Delta has become the world 's largest operator of RJs. In fiscal 1999, we purchased Atlanta-based Atlantic Southeast Airlines; in fiscal 2000, we acquired Cincinnati-based Comair. This year we also significantly expanded RJ service from Atlanta, Cincinnati, Dallas/Ft. Worth and New York-LaGuardia, and placed the largest RJ order in airline history. 11 Building a Superior Team At Delta , we are building a highly skilled , motivated and globally diverse team. Reaching that goal requires strong lead- ership to drive the necessary innovation, growth and world- class performance-and our leadership team is ready to meet the challenge. Delta veterans and more recent additions have joined together all across Delta, blending our traditional strengths with fresh ideas. Delta is committed to a positive, inclusive work environ- ment that recognizes and rewards employees for a job well done. We 're forging a new partnership with all employees founded upon the following core ideas and values: Safety Teamwork and participation Customer-focused professionalism Speed and simplicity World-class performance Leading-edge technology Trust and respect Flexibility We are building a team with the will and the means to win. Listening to Employees Employee opinions and concerns are a vital part of building a highly motivated team. As a result of listening to Delta peo- ple, we know that a key challenge for many in our work- force is the need to balance work life and home life. New enhancements such as a two-year leave of absence program and a part-time employment category with a full benefits 16 We strive to provide a workplace that exhibits a spirit of winning to Jeff Simons and more than 81,000 Delta employees; self-managed work teams are motivating and give Technical Operation's High Performance Workplace employees Roosevelt Cooper, Dan Buhler and Guy Wells a sense of inclusion and ownership. package are helping Delta people find the right balance- and helping us create a better, more satisfied workforce. To find out even more about what our employees think, we 're also in the midst of a broad-reaching survey. Delta Survey 2000 gives our workforce the opportunity to tell us what they think we're doing well and what they think we could do better. It will measure employee opinions in areas such as leadership trust, customer service, safety, job satisfaction, and rewards and recognition. Once the results are provided to us later this year by the independent surveying firm , we 'll have a new resource for future decisions about how we improve our operations and enhance our workplace. In addition, Delta exec- utives have held nearly 100 face-to-face meetings with Delta frontline people all across the company. Another communication link for frontline employees to Delta's leadership team and the Delta Board of Directors is through the ALPA representative to the Board of Directors and the seven Delta Board Council (DBC) representatives - one member from each of the seven non-pilot employee groups. These representatives serve as employee advocates while also providing a sounding board for Delta's management team and the Board on employee issues. Top Rewards for Top Performance Delta recognizes and rewards high performance. Our out- standing financial performance over the last three years has translated into total compensation packages that rank at or near the top among our competitive peers for all employee groups. Delta also values the extraordinary service commitment shown by our employees, and we demonstrate our thanks with a wide range of recognition programs. Our Chairman 's Club, for example, is an annual gala event in honor of 100 employees chosen by their peers for consistently exemplifying our leadership values through their superior job perfor- mance . These employees are honored at a celebratory recep- tion and banquet hosted by Delta's Chairman & CEO and the entire senior management team. Learning and Education at Delta Delta is creating a learning environment to drive world-class performance and to develop and retain the best talent. Training is offered worldwide via classroom , computer and Web-based programs. Courses and programs are designed to build interpersonal skills and develop management and leadership capabilities. As part of this leadership training, we 've also introduced two new assessment tools that pro- vide managers access to specific feedback on their leader- ship performance from their manager, direct reports, peers, and internal customers. Employees can pursue lifelong learning opportunities for career and professional development. Delta is establishing alliances with a global network of academic partners to form Delta University, which gives employees access to college Debbie Dorsey, Michiko Palmer and Seni Bulger share our vision to become the world's best airline. Delta employee Art Ross provides helpful and caring service to a special needs passenger. credit and degree programs at those institutions. Delta is also partnering with the American Council on Education (ACE) to approve in-house company training courses for college credit. To date, ACE has qualified nearly 40 Delta courses for college credit. Delta's enhanced tuition reimbursement policy helps employees take advantage of these programs as well as other continuing education opportunities. Continuing to Build a Superior Delta Team Delta's corporate succession planning system and mentoring process provide the foundation for developing and retaining a superior leadership team. Through mentoring and coaching pro- cesses, the knowledge, skills and experience of our current leaders are transferred to emerging leaders, allowing Delta to build a diverse pool of potential leaders. Our vision to become the world's best airline requires a shared sense of purpose that extends throughout the company and provides for a fully inclusive workplace. The Delta team con- tinues to grow and thrive as a result of open communication with leadership, rewards and recognition for top performance, and the means to futher professional and personal development. 17 ~ -Delta delta.com Leveraging Our Strengths Delta's e-business strategy is derived from our success in building a great airline. Our initiatives in the e-world focus on three important areas: Business-to-customer programs to strengthen our relation- ship with our customers Business-to-employee strategies to enhance our partner- ship with our employees Business-to-business initiatives to streamline our business processes Business-to-Customer We know that our customers want simplicity and flexibility when purchasing airl ine tickets. Our business-to-customer initiatives have enhanced existing distribution channels and created new ones that meet customers' needs. In February 2000, Delta completed the redesign of its Web site to provide users with quicker and easier access to information. In addition to making flight reservations, customers who use our Web site can check flight arrival and departure information, check their SkyMiles account Delta was recently recognized by Forbes magazine as an industry leader in the new e-world; the newly redesigned delta.com Web site has been well received by our customers. balance, upgrade to first or business class on certain flights and enroll in special programs such as our Internet fares e-mail program. SkyMiles members can also view and select seating assignments using our Web site, whether their reser- vation was made online, at a Delta reservation office or tick- eting location , or through a travel agent. The redesigned site has been an overwhelming success as evidenced by increased usage, customer feedback and a survey conducted by The NPD Group, an independent research firm that ranked Delta's Web site #1 in both "Online User Loyalty" and "Intent to Repurchase" categories in its Summer 2000 survey. To leverage the strength of the Delta brand , Delta has changed its Web site URL address from delta-air.com to delta.com. The new address makes it even easier for cus- tomers to locate Delta's customer-friendly site. Future enhance- ments to delta.com include an award calendar showing destinations available to SkyMiles members using mileage awards and the ability to redeem mileage credits online. Delta is an industry leader in developing new distribu- tion channels to meet the unique needs of its customers. For our corporate accounts, we are partnering with e-Travel, Inc. to enable business customers to purchase tickets through a direct link to our internal reservations system. Reprinted by Permission of Forbes Magazine 2000 Forbes 2000. 18 Delta /,ed the industry with its Wired Workforce initiative to provide its employees including Brian Smith and his family with home com- puters; Delta is an industry kader in providing its customers with a variety of channels to make travel reservations. For small businesses , Delta is creating myobtravel.com (Mind Your Own Business Travel), a new travel Web site providing access to airline reservations as well as car rental and hotel bookings. Site users can also modify itineraries online, create and store traveler profiles and create user- defined travel reports. Myobtravel.com will begin operations later this year. Delta is a founding partner of Orbitz, the first multi-airline travel Web site featuring published fares from virtually all air carriers worldwide. Orbitz will partner with hotels, car rental companies, cruise lines and other travel partners to help cus- tomers build an entire travel experience at just one site. Orbitz is planning to begin operations in 2001. Business-to-Employee We were one of the first companies to announce our Wired Workforce program to offer home computers and Internet con- nection to employees. This program will help our employees become more informed and effective in both their personal and professional lives. Delta is also leveraging technologies to enhance its relationship with employees, including "self- service" tools that allow them to make changes to their benefit elections and other information changes through our Intranet site. These tools will reduce administrative costs while improving service levels by creating a more effective infrastructure and by eliminating process inefficiencies. Business-to-Business Our business-to-business efforts are aimed at streamlin- ing and integrating business processes, achieving cost efficiencies and developing collaborative ways to work with our suppliers. In April 2000, Delta announced a new ven- ture with six airlines to create and operate an Internet marketplace that will link airline carriers worldwide with quali- fied sellers of airline-related goods and services. Specific items bought and sold through this marketplace may include fuel , airframes, avionic and engine components, and main- tenance and airport services. In addition, Delta implemented new technology during fiscal 2000 to simplify the process of procuring goods and services. This new technology also establishes a common platform to be used for future business-to-business opportunities. Additionally, our strategic airline catering partnership with e-gatematrix, a new business formed by Gate Gourmet Holding AG and i2 Technologies, Inc., will provide Delta with a single point of accountability across all catering functions. Customers will benefit from improved product consistency and quality through this new partnership. Delta understands the importance of being well- positioned to participate in the new e-world. Last year we carried 117 million passengers, served 27 million frequent fliers, interacted with over one million customers a day and employed 81,000 people worldwide. Delta is leveraging these core assets to assume a leadership position in shaping the new e-world. 19 Community and Environment Our community involvement is derived from the core values that are the heart of our company. Delta has established a philanthropic program that melds need, strategic initiatives and effective use of financial and human resources. The quest to become the world's best airline also drives Delta to be a leader in charitable contributions, volunteerism and par- ticipation in the communities we serve. Our financial support to the community is provided by The Delta Air Lines Foundation, corporate contributions and employee giving through the United Way. During fiscal 2000, we contributed over $10 million to charitable organizations. We also continued to organize the energies and skills of our employees, who contribute countless hours building homes, leading organizations, participating in charity walks and engaging in other activities to build communities. Our Focus Delta believes that a healthy start in life encourages children to become productive citizens. Consistent with this philoso- phy, our focus areas for company giving are: Youth Wellness programs that promote the physical and mental health of children; and 20 Our employees join together to build a home for Habitat for Humanity; Joycelyn Benham and fellow employees volunteer as mentors and tutors to children in their communities. Youth Leadership Development programs that help young people develop character, leadership skills , self-esteem , trust, conflict resolution skills and compassion. Our Partnership with United Way This year, Delta began a partnership with United Way to create larger and more focused giving opportunities. A key component of our United Way program is to encourage all employees to do their fair share by contributing via payroll deductions. Last year, Delta donated more than $1.1 million to the United Way and our employees pledged a record $2.6 million. Signature Partners Delta is also proud to sponsor four organizations, known as "Signature Partners, " who focus on our two key areas of Youth Wellness and Youth Leadership Development: American Red Cross, CARE, Children's Miracle Network and the Juvenile Diabetes Foundation. Our Signature Partners provide signifi- cant support to organizations that truly make a difference for the individuals they serve. Last year, Delta donated over $1 million and our employees volunteered more than 5,000 hours to these outstanding organizations. Environmental Performance Delta is fully committed to protecting the environment, as well as the health and safety of our communities. As a responsible corporate citizen, we work diligently to ensure our operations are conducted in total compliance with the law and sound risk management practices. We also continually evaluate our processes to prevent environ- mental, health or safety incidents, to eliminate condi- tions or behaviors that may cause personal injury, and to enhance environmental performance. Delta is proud to have established a track record of going beyond com- pliance, encouraging environmental stewardship and mov- ing toward sustainability. The involvement of each and every Delta employee is vital to the development and success of our environmental, health and safety program. All employees are trained and empowered to operate in a responsible manner and to identify opportunities for improvement. As part of our commitment to the environment, we are working with other stakeholders, the Environmental Protection Agency and the Federal Aviation Administration to create a voluntary framework for an emissions reduction program. We are examining a host of potential opportunities, such as ground support equipment, air conditioning trucks and stationary sources, to reduce emissions. This is a large undertaking to help airlines and airports go beyond regulatory requirements to help mitigate local air quality challenges. During fiscal 2000, we reduced our hazardous Delta sponsored its fifth successful Waste to Work Day in conjunc- tion with Earth Day 2000; David Warren and Paul Dellinger work together to protect the environment from hazardous wastes. waste stream by 35 percent compared to fiscal 1999 and by 51 percent compared to fiscal 1998. This was a direct result of the hard work and initiatives of our employees around the world. For the fifth consecutive year, in conjunction with Earth Day, we sponsored our Waste to Work Day. This program encourages employees to bring household haz- ardous wastes (used oil , antifreeze, pesticides and other hazardous materials) to work for proper disposal in order to avoid contaminating our municipal landfills. Delta continues to provide leadership in the airline industry through our improved technology and key innova- tions. We constantly search for better ways to serve our customers and communities. During fiscal 2000, our environmental program was recognized by the Council on Economic Priorities as the #1 program among Fortune 500 companies in our industry. A complete copy of our 2000 Environmental, Health and Safety Report is available on our delta.com Web site. 21 Officers Leo F. Mullin Chairman and Chief Executive Officer Malcolm B. Armstrong Executive Vice President-Operations M. Michele Burns Executive Vice President and Chief Financial Officer Robert L. Colman Executive Vice President- Human Resources Vicki B. Escarra Executive Vice President- Customer Service Frederick W. Reid Executive Vice President and Chief Marketing Officer Delta Subsidiaries Robert P. DeRodes President and Chief Executive Officer- Delta Technology, Inc. David A. Siebenburgen President and Chief Executive Officer- Delta Connection , Inc. W. E. {Skip) Barnette President-ASA Holdings Inc., and Atlantic Southeast Airlines, Inc. Randy D. Rademacher President- Comair Holdings, Inc., and Comair, Inc. 22 Left to right: Mac Armstrong, Michele Burns, Bob DeRodes, Leo Mullin, Vicki Escarra, David Siebenburgen, Fred Reid, Bob Colman Edward H. Bastian Senior Vice President- Finance and Controller David S. Bushy Senior Vice President- Flight Operations Fred Buttrell Senior Vice President- Strategy and Business Development Vincent F. Caminiti Senior Vice President- e-Business Anthony N. Charaf Senior Vice President- Air Logistics Mark A. P. Drusch Senior Vice President- Network Management Robert S. Harkey Senior Vice President- General Counsel and Secretary Lee A. Macenczak Senior Vice President- Sales and Distribution Paul G. Matsen Senior Vice President-International and Alliances John N. Selvaggio Senior Vice President- Airport Customer Service Thomas J. Slocum Senior Vice President- Corporate Communications Ray Valeika Senior Vice President- Technical Operations Sharon I. Wibben Senior Vice President- In-Flight Service D. Scott Yohe Senior Vice President- Government Affairs Anthony L. Austin Vice President- Human Resources-Customer Service R. Michael Bell Vice President- Schedule Development Harlan R. Bennett Vice President- Reservation Sales Harold L. Bevis Vice President-Public Affairs Doug W. Blissit Vice President- Network Analysis John W. Boatright Vice President- Properties and Facilities W. Martin Braham Vice President-Delta Global Services Robert T. Cirulnick Vice President- Finance-Customer Service Paulette L. Corbin Vice President- Airport Customer Service-West Richard W. Cordell Vice President- Airport Customer Service- Central Jack A. Daulton Vice President - Corporate Security Terry M. Erskine Vice President- Employee Relations Jeffrey T. Fisher Vice President- Financial Planning and Analysis Hank Halter Vice President- Finance-Operations Subodh Karnik Vice President- Finance-Corporate Development William D. Kline Vice President-Chief Learning Officer Joseph Licitra Vice President- Airport Customer Service- East John C. Marshall Vice President- Corporate Safety and Compliance James V. Maucere Vice President- Aircraft Base Maintenance Patrice G. Miles Vice President- Distribution Planning Leon A. Piper Vice President- Worldwide Benefits and Health Resources Udo Rieder Vice President- Engineering and Quality Gregory L. Riggs Vice President- Deputy General Counsel and Assistant Secretary Dave J. Smith Vice President- Global Rewards and Recognition Belinda R. Stubblefield Vice President-Global Diversity William F. Wangerien Vice President-Operational Planning, Control and Reliability Martin C. White Vice President-Consumer Marketing Lemuel R. Wimbish Vice President - Atlanta Worldport Michael M. Young Vice President-Community Affairs Dean C. Arvidson Assistant Secretary Susan T. Hudson Assistant Secretary Leslie P. Klemperer Assistant Secretary 23 Board of Directors Edwin L. Artzt Retired Chairman of the Board and Chief E ecutive Officer, The Procter & Gamble Company James L. Broadhead Chairman of the Board and Chief Executive Officer, FPL Group, Inc. and Florida Power & Light Company Edward H. Budd Retired Chairman of the Board and Chief E ecutive Officer, The Travelers Corporation R. Eugene Cartledge Former Chairman of the Board, Savannah Foods & Industries, Inc.; Retired Chairman of the Board and Chief E ecutive Officer, Union Camp Corporation Mary Johnston Evans Director of Ba ter International, Inc.; Household International, Inc.; Sunoco, Inc. and The Dun & Bradstreet Corporation George M.C. Fisher Chairman of the Board , Eastman Kodak Company David R. Goode Chairman of the Board, President and Chief Executive Officer, Norfolk Southern Corporation Gerald Grinstein Non-Executive Chairman of the Board, Agilent Technologies, Inc.; Retired Chairman of the Board, Burlington Northern Santa Fe Corporation; former Chief Executive Officer, Western Air Lines, Inc. Leo F. Mullin Chairman and Chief Executive Officer, Delta Air Lines, Inc.; Former Vice Chairman , Unicom Corporation and Commonwealth Edison Company; former President and Chief Operating Officer, First Chicago Corporation Andrew J. Young Chairman of the Board and Senior Partner, Goodworks International , Inc.; Chairman of the Southern Africa Enterprise Development Fund; former Mayor of Atlanta, Georgia; former United States Ambassador to the United Nations, former member of the U.S. House of Representatives Standing, from left to right: David Goode, Eugene Cartledge, George Fisher, Edwin A rtzt, Mary Johnston Evans, James Broadhead, Edward Budd; sitting, from left to right: Andrew Young, Leo Mullin and Gerald Grinstein. Board Committees Audit James L. Broadhead, Chairman Mary Johnston Evans George M.C. Fisher Andrew J. Young Benefit Funds Investment Andrew J. Young, Chairman James L. Broadhead Mary Johnston Evans George M.C. Fisher Corporate Governance Mary Johnston Evans, Chairman James L. Broadhead Gerald Grinstein Andrew J. Young Corporate Strategy R. Eugene Cartledge Edwin L. Artzt James L. Broadhead Edward H. Budd Gerald Grinstein Representative of Air Line Pilots Association, International Executive Gerald Grinstein , Chairman Edwin L. Artzt James L. Broadhead Edward H. Budd R. Eugene Cartledge Mary Johnston Evans Andrew J. Young Captain Mark D. Halsor- Associate non-voting member of the Board of Directors Delta Board Council Representatives Operational Support/Clerical Supervisory/ Administrative Richard C. Buckalew Theresa Hicks Field and Cargo Sales Michele F. Chase 24 Technical Operations Paul A. Letourneau Reservation Sales and City Ticket Offices William M. Morey Finance Edwin L. Artzt , Chairman Edward H. Budd R. Eugene Cartledge David R. Goode Gerald Grinstein Personnel & Compensation Edward H. Budd, Chairman R. Eugene Cartledge David R. Goode Gerald Grinstein Airport Customer Service and Air Logistics Larry J. Stites In-Flight Service Dale C. Willi ams Glossary of Defined Terms Accumulated Postretirement Benefit Obligation - a measure of the deferred compensation obligation, other than pen- sions, that Delta has to its employees under postretirement welfare benefit plans. Air Traffic Liability-a liability on Delta's balance sheet that represents the payment received for passenger ticket sales and cargo transportation services which have not yet been provided. As the transportation service is provided by Delta, the amount is removed from the air traffic liability and is recognized as revenue. ASM-Available Seat Miles. A measure of capacity which is calculated by multiplying the total number of seats available for transporting passengers by the total number of miles flown during a reporting period. Cargo Ton Miles -the total number of tons of cargo trans- ported during a reporting period, multiplied by the total number of miles cargo is flown. CASM-(Operating) Cost per Available Seat Mile. The amount of operating cost incurred per available seat mile during a reporting period. Also referred to as unit cost. Collective Bargaining Agreement- an agreement between an employer and a union representing a group of employees which details pay rates and working conditions for that group of employees. Common Stock -the common stock, par value $1.50 per share, of Delta Air Lines, Inc. Net Debt-to-Capital Ratio- a measure of leverage which is calculated by dividing net debt by total capitalization. Net debt includes short-term and long-term debt, capital lease obligations and the present value of operating lease obliga- tions, reduced by cash and short-term investments. Capital includes total debt and shareowners ' equity, including Series B ESOP Convertible Preferred Stock. DELTA AIR LINES , INC . ER/SA- The Employee Retirement Income and Security Act of 197 4. This federal law governs employee benefit and retirement plans. Non-Fuel CASM-the amount of operating cost incurred per available seat mile during a reporting period, excluding air- craft fuel expense. Operating Margin-operating income divided by operating revenues. Passenger Load Factor- a measure of aircraft utilization which is calculated by dividing RPMs by ASMs for a report- ing period. Passenger Mile Yield - amount of passenger revenue earned per revenue passenger mile during a reporting period. Projected Benefit Obligation- a measure of the deferred compensation obligation that Delta has to its employees under its pension plans. RASM-(Operating) Revenue per Available Seat Mile. The amount of operating revenue earned per available seat mile during a reporting period. Also referred to as unit revenue. RPM- Revenue Passenger Mile. One revenue-paying passen- ger transported one mile. RPMs are calculated by multiply- ing the number of revenue passengers by the number of miles they are flown for the reporting period. Series B ESOP Convertible Preferred Stock-convertible pre- ferred stock, $1.00 par value, $72.00 stated and liquidation value, which is allocated to participants as part of the Employee Stock Ownership Plan (ESOP). Ton Mile Yield- amount of cargo revenue earned per cargo ton mile during a reporting period. Working Capital Position- current assets minus current liabilities. Financial Review Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Consolidated Statements of Income 33 Consolidated Balance Sheets 34 Consolidated Statements of Cash Flows 36 Consolidated Statements of Shareowners' Equity 37 Notes to the Consolidated Financial Statements 38 Report of Management 53 Report of Independent Public Accountants 53 Consolidated Summary of Operations 54 25 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations FISCAL 2000 COMPARED TO FISCAL 1999 Net Income and Earnings per Share (EPS) For the year ended June 30, 2000, we reported record net income of $1.3 billion, an 18% increase over our previous record of $1.1 billion for fiscal I Diluted EPS* (In Dollars) $7.36 $7.09 $6.34 1998 1999 2000 Excludes nonrecumng items Nonrecurring Items 1999. Basic EPS was $9.92 in fiscal 2000, a 30% increase over fiscal 1999 basic EPS of $7 .63. Diluted EPS was $9.42 for fiscal 2000, a 31% increase over fiscal 1999 diluted EPS of $7 .20. Excluding the nonrecurring items described below, net income for fiscal 2000 totaled $1.0 billion, basic EPS was $7. 73 and diluted EPS was $7 .36. Our fiscal 2000 results of operations include the following nonrecurring items: gains from the sale of investments; asset writedowns and other special charges; the effects of a change in accounting princi- ple; and a loss on the voluntary prepayment of debt. These items, as described below, are collec- tively referred to in this report as "nonrecurring items." We recorded pretax gains from the sale of investments totaling $1.2 billion ($733 million after tax, or $5.63 basic and $5.32 diluted EPS) in fiscal 2000. This includes pretax cash gains of (1) $784 million from the sale of 12.3 million shares of priceline.com Incorporated (priceline) common stock; (2) $137 million from the sale of our equity interest in Singapore Airlines Limited (Singapore Airlines); (3) $29 million from the sale of our equity interest in SAirGroup; and (4) $24 million from the sale of a portion of our equity investment in Equant, N.V. , an international data network ser- vices company. It also includes a pretax non-cash gain of $228 million from the exchange of six million shares of priceline common stock for priceline preferred stock. (See Note 2 of the Notes to the Consolidated Financial Statements.) During fiscal 2000, we recorded pretax asset writedowns and other special charges totaling $555 million ($339 million after tax, or $2.60 basic and $2.45 diluted EPS). This includes pretax charges 26 DELTA A I R L I NES, I NC . of (1) $320 million for an asset writedown resulting from the decision to retire certain aircraft earlier than previously planned; (2) $149 million for asset impair- ment losses and costs incurred to streamline certain operations; and (3) $86 million for our early retire- ment medical option program. (See Note 6 of the Notes to the Consolidated Financial Statements.) Delta changed its method of accounting for the sale of frequent flyer mileage credits to participating partners to comply with SEC Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements. " Under the new accounting method, a portion of the revenue from the sale of mileage credits is deferred and recognized when the credits are redeemed for travel. We retroactively adopted SAB 101 as of July 1, 1999, which resulted in a cumulative effect charge of $66 million after tax ($.51 basic and $.48 diluted EPS). The adoption of SAB 101 also decreased fiscal 2000 operating income by $34 million ($21 million after tax, or $.16 basic and $.15 diluted EPS). (See Note 18 of the Notes to the Consolidated Financial Statements.) Also during fiscal 2000, we recorded a $40 mil- lion charge ($24 million after tax, or $.19 basic and $.18 diluted EPS) for the voluntary prepayment of certain long-term debt obligations. In fiscal 1999, we recorded a pretax gain of $26 million ($16 million after tax, or $.11 basic and $.10 diluted EPS) from the sale of a portion of our equity investment in Equant. Acquisition of ASA Holdings, Inc. and Comair Holdings, Inc. Delta strengthened its competitive position by acquiring ASA Holdings, Inc. (ASA Holdings) in fiscal 1999 and Comair Holdings, Inc. (Comair Holdings) in fiscal 2000. ASA Holdings and Comair Holdings are the parent companies of regional jet carriers Atlantic Southeast Airlines, Inc. (ASA) and Comair, Inc. (Comair), respectively. Our consolidated results of operations for fiscal 2000 include the results of operations of ASA Holdings for the entire fiscal year and of Comair Holdings from November 22, 1999 through June 30, 2000. Our consolidated results of operations for fiscal 1999 include the results of oper- ations of ASA Holdings from April 1, 1999 through June 30, 1999. (See Note 17 of the Notes to the Consolidated Financial Statements.) Operating Revenues (In Millions of Dollars) $15,888 $14,597 $14,057 1998 1999 2000 Operating Revenues Operating revenues were $15.9 billion for fiscal 2000, increasing 9% from $14.6 billion in fiscal 1999. Passenger revenue grew 9%, reflect- ing a 6% increase in RPMs on 5% capacity growth and a 3% increase in passenger mile yield. North American Passenger Revenues - North American passenger revenues grew 10% to $12.5 billion. RPMs increased 5% on capacity growth of 6%, while passen- ger mile yield rose 5%. The increase in RPMs primarily reflects favorable economic conditions, the inclusion of ASA and Comair in our results of operations and the expansion of our fleet. The increase in passenger mile yield is largely due to the inclusion of ASA and Comair, partially offset by increased low-fare com- petition and capacity increases by competitors. International Passenger Revenues - International passenger revenues increased 2% to $2.4 billion during fiscal 2000. RPMs increased 7% on capacity growth of 2%, while passenger mile yield declined 4%. The increase in RPMs primarily reflects our con- tinued expansion in Latin America, which resulted in 21% traffic growth in that region. The decline in pas- senger mile yield is primarily attributable to increased pricing pressures resulting from industry-wide capacity growth in the Atlantic market. Cargo and Other Revenues - Cargo revenues increased 4% to $579 million, reflecting a 7% increase in cargo ton miles and a 3% decrease in ton mile yield. The increase in cargo ton miles is pri- marily due to capacity increases and higher mail vol- ume from the growth in e-commerce activity. The decrease in ton mile yield is due to pricing pressure resulting from industry-wide capacity growth in inter- national markets. Other revenues increased 22% to $433 million, mainly a result of higher revenues from codeshare activity and frequent flyer partner- ship programs. I CASM* 9.25 8.88 8.84 1998 1999 2000 Excludes nonrecurring items Operating Expenses Operating expenses totaled $14.6 billion for fiscal 2000, increasing 15% from $12. 7 billion in fiscal 1999. Operating capacity rose 5% to 152 billion ASMs. CASM increased 9% to 9.61 , while non-fuel CASM grew 8% to 8.53. Excluding nonrecurring items, CASM increased 5% to 9.25. Salaries and related costs increased 12% dur- ing fiscal 2000. The number of full-time equivalent employees increased 9%, largely from the inclusion of ASA and Comair. The increase in salaries and related costs also reflects salary increases for most domestic employees of 2% on January 1, 1999, and 3% on April 1, 2000. Aircraft fuel expense increased 21% in fiscal 2000, with the average fuel price per gallon rising 15% to 57.23. Total gallons consumed increased 5% due to increased operations on a 5% rise in capacity. Delta's fuel cost per gallon is net of gains of $442 million on fuel hedging contracts, which hedged approximately 75% of our aircraft fuel requirements during fiscal 2000. Depreciation and amortization expense rose 19% due to the acquisi- tion of additional aircraft and ground equipment, as well as the inclusion of ASA and Comair. Other sell- ing expenses increased less than 1.0%. Passenger commissions expense declined 17%, reflecting changes to the travel agent commission rate structure and our customers' increased use of lower cost distribution channels such as the Internet. Internet sales accounted for approximately 10% of total tickets flown in fiscal 2000 compared to 3% in fiscal 1999. Contracted services expense increased 16% due to the inclusion of ASA and Comair, as well as higher costs related to customer service and technology initiatives. Landing fees and other rents increased 5%, aircraft rental expense increased 18%, and aircraft maintenance materials and outside repair expense grew 21%, primarily due to the inclusion of ASA and 27 Management's Discussion and Analysis of Financial Condition and Results of Operations Comair. Passenger service expense declined 6% due to process improvements which streamlined our catering operations. Other costs increased 4% due to higher expenses associated with fuel-related taxes and supplies, as well as the inclusion of ASA and Comair. Operating Income* (In Millions of Dollars) $1,870 $1,877 $1,694 1998 1999 2000 'Excludes nonrecurnng items Operating Income and Operating Margin Operating income was $1.3 billion for fiscal 2000, compared to $1.9 billion in fiscal 1999. Excluding non- recurring items, operating income totaled $1.9 billion in fiscal 2000. Operating margin declined to 8.1% during fiscal 2000 from 12.8% in fiscal 1999. Excluding nonrecurring items, operating margin was 11.8% in . fiscal 2000. Other Income Other income was $995 million during fis- cal 2000 compared to other expense of $44 million in fiscal 1999. The increase is primarily a result of pretax gains from the sale of investments total- ing $1.2 billion. (See Note 2 of the Notes to the Consolidated Financial Statements.) Interest expense, net increased to $197 million in fiscal 2000 from $101 million in fiscal 1999 primarily from increased levels of debt outstanding and higher inter- est rates, partially offset by higher levels of cash invested. Miscellaneous expense was $10 million dur- ing fiscal 2000 compared to miscellaneous income of $31 million during fiscal 1999 due to a $40 million loss on the voluntary prepayment of certain long-term debt obligations. FISCAL 1999 COMPARED TO FISCAL 1998 Net Income and Earnings per Share Net income grew 10% to $1.1 billion during fis- cal 1999, from $1.0 billion in fiscal 1998. Our fiscal 1999 results include the results of operations for ASA Holdings from April 1, 1999 through June 30, 1999. (See Note 17 of the Notes to the Consolidated Financial Statements.) Basic EPS was $7 .63 in fiscal 1999, compared to $6.64 in fiscal 1998, a 15% increase. Diluted EPS was $7 .20 for fiscal 1999, a 14% increase from fiscal 1998 diluted EPS of $6.34. Fiscal 1998 EPS has been restated to reflect our two-for-one com- mon stock split which became effective in November 28 DELTA AIR LINES, INC . 1998. (See Note 1 of the Notes to the Consolidated Financial Statements.) Operating Revenues Operating revenues were $14.6 billion for fiscal 1999, increasing 4% from $14.1 billion in fiscal 1998. Passenger revenue growth of 4% reflects a 3% increase in RPMs on 3% capacity growth. Passenger mile yield increased less than 1% to 13.09. North American Passenger Revenues - North American passenger revenues grew 5% to $11.4 billion, driven by a 3% increase in RPMs on capacity growth of 2%. The increase in RPMs was a result of favorable economic conditions and increased traffic (including the effects of pilot labor actions at two of our com- petitors), as well as our reallocation of aircraft to higher-demand markets. Passenger mile yield rose 2% due to the full-year effect of a domestic fare increase in September 1997 and improved asset utilization, partially offset by increased low-fare competition and matching sale fares implemented by a competitor after its pilot strike. International Passenger Revenues - International passenger revenues remained flat at $2.3 billion during fiscal 1999. A 5% increase in RPMs on capacity growth of 7% was offset by a 6% decline in passenger mile yield. The increase in RPMs pri- marily reflects the addition of new Atlantic routes and continued expansion into Latin America. The decline in passenger mile yield is a result of increased competitive pressures due to industry- wide capacity growth in the Atlantic and Latin American markets. Cargo and Other Revenues- Cargo revenues declined 4% during fiscal 1999, reflecting a 3% decrease in cargo ton miles and a 1% decrease in ton mile yield. Other revenues increased 20%, mainly a result of higher revenues from codeshare programs. Operating Expenses In fiscal 1999, operating expenses totaled $12.7 billion, increasing 3% from $12.4 billion in fiscal 1998. Operating capacity rose 3% to 144 bil- lion ASMs. CASM remained flat year over year while non-fuel CASM grew 2% to 7 .89. The increase in operating expenses primarily resulted from higher salaries and related costs due to headcount growth and a general salary increase; higher depreciation and amortization expense due to the acquisition of additional aircraft and ground equipment; an increase in other selling expenses resulting from increased advertising and promotional activities, as well as increased credit card charges due to higher pas- senger volume; and increased contracted services expense due to expanded operations into new and existing markets and contract rate increases. Aircraft fuel expense decreased 10%, with the average fuel price per gallon falling 12%. Passenger commission expense fell 12% due to lower effective commission rates and increased utilization of lower cost distri- bution channels. Operating Income and Operating Margin During fiscal 1999, operating income totaled $1.9 billion, which represented an increase of 10% over fiscal 1998. Operating margin increased to 12.8% in fiscal 1999 from 12.1% in fiscal 1998. Other Expense Other expense decreased 4% to $44 million during fiscal 1999 due to higher interest expense, net, offset by a $26 million gain from the sale of a portion of our equity investment in Equant and an increase in miscellaneous income. Financial Condition and Liquidity FISCAL YEAR 2000 Cash and cash equivalents and short-term investments totaled $1. 7 billion at June 30, 2000, compared to $1.1 billion at June 30, 1999. Our principal sources and uses of cash during fiscal 2000 are summarized below. Sources Generated $2.4 billion of cash from operations. Generated $256 million from the sale of flight equipment. Issued $2.1 billion, net, of unsecured long-term notes to pay the $1.8 billion purchase price of Comair Holdings and for general corporate pur- poses. (See Note 5 of the Notes to the Consolidated Financial Statements.) Borrowed $301 million from the Development Authority of Clayton County to refund bonds that had been issued to finance certain Delta facilities at Hartsfield Atlanta International Airport. (See Note 5 of the Notes to the Consolidated Financial Statements.) Issued 0.6 million shares of common stock for $32 million (including an income tax benefit of $4 million for stock options exercised). These shares were primarily issued under our broad-based employee stock option plans. (See Note 10 of the Notes to the Consolidated Financial Statements.) Generated $1.2 billion from the sale of invest- ments. (These sales resulted in pretax cash gains of $97 4 million. See Note 2 of the Notes to the Consolidated Financial Statements.) Uses Invested $2. 7 billion in flight equipment and $556 million in ground property and equipment. Paid $790 million to repurchase 16.5 million shares of common stock. (See Note 11 of the Notes to the Consolidated Financial Statements.) Paid $1.8 billion to acquire Comair Holdings. (See Note 17 of the Notes to the Consolidated Financial Statements.) Paid $42 million in cash dividends on preferred and common stock. Cash flows from operations for fiscal 2000 totaled $2.4 billion. We invested in future growth opportunities during fiscal 2000 by purchasing Comair Holdings, upgrading airport and administra- tive technology, investing in customer service improvements and acquiring new aircraft. Cash Reinvested in the Business (In Millions of Dollars) $3,902 $2,765 $2,324 1998 1999 2000 We have increased the amount of cash used in investing activities over the past three fiscal years, highlighting our emphasis on business reinvestment and growth opportunities. As of June 30, 2000, we had a negative working capital position of $2.6 bil- lion, compared to negative working capital of $2. 7 bil- lion at June 30, 1999. A negative working capital position is normal for us, primarily due to our air traf- fic liability, and does not indicate a lack of liquid- ity. We expect to meet our obligations as they become due through available cash, short-term investments and internally generated funds, supplemented as necessary by debt financings and proceeds from sale and leaseback transactions. At June 30, 2000, we had $1.25 billion of credit available under our 1997 Bank Credit Agreement. (See Note 5 of the Notes to the Consolidated Financial Statements.) Long-term debt and capital lease obligations, including current maturities, totaled $5.1 billion at June 30, 2000, compared to $2. 7 billion at June 30, 1999. The increase in debt is primarily the result of borrowings to finance our acquisition of Comair Holdings. Shareowners' equity was $4.9 bil- lion at June 30, 2000, compared to $4.5 billion at June 30, 1999. Our net debt-to-capital position, 29 Management's Discussion and Analysis of Financial Condition and Results of Operations including current maturities, was 71% at June 30, 2000, compared to 68% at June 30, 1999. For additional information regarding Delta's credit agreements and long-term debt, see Note 5 of the Notes to the Consolidated Financial Statements. PRIOR YEARS Fiscal 1999 In fiscal 1999, our principal source of funds was $2.9 billion of cash from operations and $1.1 billion from the issuance of debt. We invested $2.3 billion in flight equipment and $561 million in ground property and equipment. We made payments of $431 million on debt and capital lease obligations, and paid $700 million to acquire ASA Holdings. In addition, we repurchased $885 million of common stock and paid $43 million in cash dividends on preferred and common stock. Fiscal 1998 During fiscal 1998, our principal source of funds was $3.0 billion of cash from operations. We invested $1.8 billion in flight equipment and $531 million in ground property and equipment, and made payments of $307 million on long-term debt and capital lease obligations. We also repurchased $354 million of common stock and paid $43 million in cash dividends on preferred and common stock. COMMITMENTS Estimated future expenditures for aircraft and engines on firm order as of August 11, 2000 totaled $9.5 billion. In addition, we have planned capital expenditures of $986 million for the twelve months ending June 30, 2001 for airport and office facility improvements, aircraft modifications and the pur- chase of ground equipment and other assets. (See Notes 7 and 8 of the Notes to the Consolidated Financial Statements for additional information regard- ing our lease obligations and purchase commitments.) Other Matters NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not designated as part of a hedging relationship must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, the effective portion of the hedge's change in fair value is either 30 DELTA AIR L IN E S, IN C . (1) offset against the change in fair value of the hedged asset, liability or firm commitment through income or (2) held in equity until the hedged item is recognized in income. The ineffective portion of a hedge's change in fair value is immediately recog- nized in income. We will adopt SFAS 133, as amended, on July 1, 2000. The adoption of SFAS 133 will result in a $100 million charge, net of tax, from a cumulative effect of a change in accounting principle, and a $440 million increase, net of tax, in shareowners' equity in our financial statements for the quarter ending September 30, 2000. FISCAL YEAR CHANGE On June 29, 2000, our Board of Directors approved a change of Delta's fiscal year end from June 30 to December 31, effective December 31, 2000. We plan to file a transition report on Form 10-K covering the transition period from July 1, 2000 through December 31, 2000. This filing will include audited financial statements for the twelve months ended December 31, 2000, 1999 and 1998. COLLECTIVE BARGAINING MATTERS Approximately 16% of the 81,000 total employees of Delta, ASA and Comair are represented by unions. In September 1999, Delta began negotiations with the Air Line Pilots Association, International (ALPA), on a new collective bargaining agreement to replace the existing contract for Delta's approxi- mately 9,000 pilots that became amendable in May 2000. Delta is also in negotiations on an initial collec- tive bargaining agreement with the Transport Workers Union of America (TWU), which became the represen- tative of Delta's approximately 110 pilot ground train- ing instructors in October 1999. In March 2000, Delta's approximately 11,000 ramp and cargo employees rejected representation by the TWU, with 17% of the employees voting in favor of union representation. The National Mediation Board (NMB) recently ordered a rerun election. The NMB plans to mail ballots to employees on September 1, 2000, and to announce the results of the voting on October 2, 2000. ASA is in negotiations with the TWU on an initial collective bargaining agreement for ASA's approxi- mately 30 flight dispatchers. The TWU became the rep- resentative of this employee group in November 1998. Comair is in negotiations with ALPA on a new collective bargaining agreement for Comair's approximately 1,300 pilots, and with the International Brotherhood of Teamsters (IBT) on an initial contract for Comair's approximately 550 flight attendants. Comair's existing collective bargaining agreement with ALPA became amendable in June 1998. The IBT became the representative of Comair's flight attendants in September 1998. Unions are currently engaged in organizing efforts to represent various groups of employees of Delta, ASA and Comair. The outcome of these union organiz- ing efforts, as well as the TWU rerun election and the collective bargaining negotiations outlined above, can- not presently be determined. COMPETITIVE ENVIRONMENT AND SEASONALITY The airline industry is highly competitive and is characterized by substantial price competition. If price reductions are not offset by increases in traffic or changes in the mix of traffic that improve our passenger mile yield, our operating results will be adversely affected. Two of our competitors, UAL Corporation and US Airways Group, Inc., recently entered into a definitive merger agreement. If that merger were to occur, conditions and competition in the airline industry could be significantly altered. There are seasonal variations in the demand for air travel. Therefore, operating results for an interim period do not necessarily indicate results for an entire year. In general, demand for air travel is higher in the June and September quarters, particu- larly in international markets, because there is more vacation travel during these periods than during the remainder of the year. Demand is also affected by factors such as economic conditions and fare levels. ENVIRONMENTAL AND LEGAL CONTINGENCIES Delta is a defendant in legal actions relating to antitrust matters, employment practices, environmen- tal issues and other matters concerning our business. Although the ultimate outcome of these matters can- not be predicted with certainty, we believe that the resolution of these actions is not likely to have a material adverse effect on our consolidated finan- cial statements. MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS Delta has market risk exposure related to air- craft fuel prices, stock prices, interest rates and for- eign currency exchange rates. The market risk is the potential negative impact of adverse changes in these prices or rates on our consolidated financial statements. To manage the volatility relating to these exposures, we periodically enter into derivative trans- actions pursuant to stated policies. (See Note 4 of the Notes to the Consolidated Financial Statements for further discussion of our policies for managing such exposures.) The following sensitivity analyses do not consider the effects that an adverse change would have on demand for air travel, the economy as a whole, or additional actions by management to mitigate our exposure to a particular risk. For these and other rea- sons, the actual results of changes in these prices or rates may differ materially from the following hypo- thetical results. Aircraft Fuel Price Risk Our results of operations could be significantly impacted by changes in the price and availability of aircraft fuel. During fiscal 2000, aircraft fuel accounted for 11% of our operating expenses. Based on our projected aircraft fuel consumption of 3.0 billion gallons for the twelve months ending June 30, 2001, a 10% rise in our projected jet fuel prices would increase our aircraft fuel expense by approximately $99 million for that period. This analy- sis includes the effects of fuel hedging instruments in place at June 30, 2000. Based on our fiscal 2000 aircraft fuel consumption of 2.9 billion gallons, a 10% rise in our jet fuel prices would have increased our aircraft fuel expense by approximately $40 million in fiscal 2000. This analysis includes the effects of fuel hedging instruments in place at June 30, 1999. For additional information regarding our aircraft fuel price risk management program, see Note 4 of the Notes to the Consolidated Financial Statements. Equity Securities Risk At June 30, 2000, our ownership interest in SkyWest, Inc. was our only readily marketable equity investment. The estimated fair value and aggregate unrealized gain from this investment was $11'5 million and $101 million, respectively, at June 30, 2000. The market risk associated with this investment is the potential loss in fair value resulting from a decrease in SkyWest's common stock price. At June 30, 1999, the estimated fair value of all our equity investments totaled $962 million, with an aggregate unrealized gain of $568 million. The decrease in fair value of our equity investments at June 30, 2000 compared to June 30, 1999 is due to the sale of our equity interests in Singapore Airlines Limited and SAirGroup during fiscal 2000, and the fact that our equity investments at June 30, 1999 included our minority ownership interest in Comair Holdings. During fiscal 2000, we acquired a 100% ownership interest in Comair Holdings. As a result of that acquisition, at June 30, 2000, Delta and Comair Holdings are consolidated for financial reporting purposes. (See Note 17 of the Notes to the Consolidated Financial Statements.) 31 Management's Discussion and Analysis of Financial Condition and Results of Operations We own depository certificates that are convert- ible, subject to certain restrictions, into the common stock of Equant. The market risk relating to this investment is the potential reduction in value result- ing from a decrease in Equant's common stock price. (See Note 2 of the Notes to the Consolidated Financial Statements.) At June 30, 2000, we had warrants to purchase 5.5 million shares of priceline common stock. Our market risk associated with these warrants is the potential loss of gain based on decreases in the price of priceline common stock. (See Note 2 of the Notes to the Consolidated Financial Statements.) Interest Rate Risk Our exposure to market risk due to changes in interest rates relates to our long-term debt obliga- tions and cash investment portfolio. Market risk associated with our long-term debt is the potential change in fair value resulting from a change in interest rates. An assumed 10% decrease in interest rates would increase the estimated fair value of our long-term debt by $270 million and $100 million at June 30, 2000 and June 30, 1999, respectively. A 10% increase in average annual inter- est rates would not have had a material impact on our interest expense for fiscal 2000 or fiscal 1999. Based on our average balance of cash and cash equivalents and short-term investments during fiscal 2000 and fiscal 1999, a 10% decrease in average annual interest rates would not have had a material impact on our interest income. We may use non-leveraged, over-the-counter financial instruments to manage our interest rate risk. Foreign Currency Exchange Rate Risk Delta is subject to foreign currency exchange rate fluctuations in the U.S. dollar value of foreign currency-denominated transactions. Based on our average annual net currency positions in fiscal 2000 and 1999, a 10% adverse change in average annual foreign currency exchange rates would not have been material to our consolidated financial statements for the years ended June 30, 2000 or 1999. We may use foreign currency options and for- ward contracts with maturities of up to 12 months to manage our foreign currency exchange rate risk. 32 DE LT A A I R L INES , I NC . FORWARD-LOOKING INFORMATION Statements in this Annual Report which are not purely historical facts, including statements regarding our beliefs, expectations, intentions, or strategies for the future, may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Any forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Factors and events that could cause these differences include, but are not limited to: general economic conditions, both in the United States and in our markets outside the United States; competitive factors , such as the airline pricing environment, international alliances, codesharing programs and capacity decisions by competitors; outcomes of negotiations on collective bargaining agreements; changes in aircraft fuel prices; fluctuations in foreign currency exchange rates; actions by the United States and foreign governments; the willingness of customers to travel generally and with us specifically, which could be affected by factors such as our on-time performance, our bag- gage handling performance, how well we respond to customer complaints and our and the industry's safety record; and the outcome of our litigation. Forward-looking statements made by us are based on our knowledge of our business and the environment in which we operate. Due to the factors listed above, as well as other factors beyond our control, actual results may differ materially from those anticipated in the forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We assume no obligation to update these forward-looking statements even though our situation will change in the future. Consolidated Statements of Income For the years ended June 30, 2000, 1999 and 1998 DELTA A IR LI N E S , INC . 2000 1999 1998 I (In Millions, Except Per Share Data) Operating Revenues: Passenger $14,876 $13,685 $13,180 Cargo 579 557 582 Other, net 433 355 295 Total operating revenues 15,888 14,597 14,057 Operating Expenses: Salaries and related costs 5,597 4,993 4,850 Aircraft fuel 1,646 1,360 1,507 Depreciation and amortization 1,146 961 860 Other selling expenses 644 641 600 Passenger commissions 722 867 980 Contracted services 893 772 694 Landing fees and other rents 742 707 649 Aircraft rent 694 590 552 Aircraft maintenance materials and outside repairs 681 561 495 Passenger service 471 500 450 Asset writedowns and other special charges 555 Other 809 775 726 Total operating expenses 14,600 12,727 12,363 Operating Income 1,288 1,870 1,694 Other Income (Expense): Interest income (expense), net (197) (101) (69) Gains from the sale of investments 1,202 26 - I Miscellaneous income (expense), net (10) 31 23 Total other income (expense) 995 (44) (46) Income Before Income Taxes 2,283 1,826 1,648 Income Taxes Provided (914) (725) (647) Net Income Before Cumulative Effect of 1.00~ I Change in Accounting Principle, Net of Tax 1,369 1,101 Cumulative Effect of Change in Accounting Principle, Net of Tax (66) Net Income 1,303 1,101 1,001 Preferred Stock Dividends (12) (11) (11) Net Income Available to Common Shareowners $ 1,291 $ 1,090 $ 990 Basic Earnings Per Share Before Cumulative Effect of Change in Accounting Principle $ 10.42 $ 7.63 $ 6.64 Basic Earnings Per Share $ 9.92 $ 7.63 $ 6.64 Diluted Earnings Per Share Before Cumulative Effect of Change in Accounting Principle $ 9.90 $ 7.20 $ 6.34 Diluted Earnings Per Share $ 9.42 $ 7.20 $ 6.34 The accompanying notes are an integral part of these consolidated financial statements. 33 Consolidated Balance Sheets June 30, 2000 and 1999 ASSETS (In Millions) Current Assets: Cash and cash equivalents Short-term investments Accounts receivable, net of allowance for uncollectible accounts of $34 at June 30, 2000 and $30 at June 30, 1999 Deferred income taxes Prepaid expenses and other Total current assets Property and Equipment: Flight equipment Less: Accumulated depreciation Flight equipment under capital leases Less: Accumulated amortization Ground property and equipment Less: Accumulated depreciation Advance payments for equipment Total property and equipment Other Assets: Marketable equity securities Investments in associated companies Cost in excess of net assets acquired, net of accumulated amortization of $166 at June 30, 2000 and $121 at June 30, 1999 Leasehold and operating rights, net of accumulated amortization of $231 at June 30, 2000 and $220 at June 30, 1999 Other noncurrent assets Total other assets Total assets 34 2000 $ 1,252 493 739 356 506 3,346 15,838 5,037 10,801 506 303 203 4,212 2,250 1,962 525 13,491 396 242 2,183 104 804 3,729 $20,566 DELTA AIR LINES , INC . 1999 $ 1,124 19 602 403 524 2,672 13,595 4,405 9,190 515 264 251 3,862 2,123 1,739 493 11,673 523 300 782 113 687 2,405 $16. 750 l LIABILITIES AND SHAREOWNERS' EQUITY (In Millions, Except Share Data) Current Liabilities: Current maturities of long-term debt Current obligations under capital leases Accounts payable and miscellaneous accrued liabilities Air traffic liability Accrued salaries and vacation pay Accrued rent Total current liabilities Noncurrent Liabilities: Long-term debt Capital leases Postretirement benefits Accrued rent Deferred income taxes Other Total noncurrent liabilities Deferred Credits: Deferred gains on sale and leaseback transactions Manufacturers' and other credits Total deferred credits Commitments and Contingencies ( Notes 4, 5, 7 and 8) Employee Stock Ownership Plan Preferred Stock: Series B ESOP Convertible Preferred Stock, $1.00 par value, $72.00 stated and liquidation value; issued and outstanding 6,455,372 shares at June 30, 2000 and 6,547,495 shares at June 30, 1999 Unearned compensation under employee stock ownership plan Total Employee Stock Ownership Plan Preferred Stock Shareowners' Equity: Common stock, $1.50 par value; 450,000,000 shares authorized; 180,356,181 shares issued at June 30, 2000 and 179,763,547 shares at June 30, 1999 Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock at cost, 57,716,615 shares at June 30, 2000 and 41,209,828 shares at June 30, 1999 Total shareowners' equity Total liabilities and shareowners' equity The accompanying notes are an integral part of these consolidated financial statements. $ 2000 526 43 2,738 1,920 500 213 5,940 4,378 147 2,008 742 869 458 8,602 592 345 937 465 (251) 214 271 3,245 4,043 40 (2,726) 4,873 $20,566 I $ 1999 660 39 2,209 1,819 470 195 5,392 1,756 196 1,894 720 755 470 5,791 642 282 924 471 (276) 195 270 3,208 2,756 149 (1,935) 4,448 $16,750 I 35 Consolidated Statements of Cash Flows For the years ended June 30, 2000, 1999 and 1998 DELTA AIR LINES , IN C . 2000 1999 1998 (In Millions) Cash Flows From Operating Activities: Net income $1,303 $1,101 $1,001 Adjustments to reconcile net income to cash provided by operating activities: Cumulative effect of change in accounting principle 66 Asset writedowns and other special charges 555 Depreciation and amortization 1,146 961 860 Deferred income taxes 250 353 294 Pension, postretirement and postemployment expense in excess of payments 36 34 179 Dividends in excess of (less than) equity income 52 (53) (51) Gains from the sale of investments (1,202) (26) Income tax benefit from exercise of stock options 4 34 84 Changes in certain current assets and liabilities: (Increase) decrease in accounts receivable (189) 339 5 Decrease (increase) in prepaid expenses and other current assets 58 (176) 15 Increase in air traffic liability 89 152 249 Increase in other payables and accrued expenses 14 77 330 Other, net 196 141 34 Net cash provided by operating activities 2,378 2,937 3,000 Cash Flows From Investing Activities: Property and equipment additions: Flight equipment, including advance payments (2,733) (2,258) (1,760) Ground property and equipment (556) (561) (531) (Increase) decrease in short-term investments, net (310) 568 (43) Proceeds from sale of flight equipment 256 30 10 Proceeds from sale of investments 1,240 26 Prepayment of long-term lease obligations (215) Acquisition, net of cash acquired (1,584) (570) Net cash used in investing activities (3,902) (2,765) (2,324) Cash Flows From Financing Activities: Payments on long-term debt and capital lease obligations (2,099) (154) (307) Payments on notes payable - (277) Cash dividends (42) (43) (43) Issuance of long-term obligations 4,472 324 125 Issuance of short-term obligations 83 779 Issuance of common stock 28 131 318 Repurchase of common stock (790) (885) (354) Net cash provided by (used in) financing activities 1,652 (125) (261) Net Increase in Cash and Cash Equivalents 128 Cash and cash equivalents at beginning of year 1,124 Cash and cash equivalents at end of year $1,252 = Supplemental disclosure of cash paid for: Interest, net of amounts capitalized 320 Income taxes 332 47 j 415 1,077 662 $1,124 $1,077 ~ 152 2 244 The accompanying notes are an integral part of these consolidated financial statements. 36 Consolidated Statements of Shareowners' Equity For the years ended June 30, 2000, 1999 and 1998 DELTA AIR LINES , INC . Accumulated Additional Other Common Paid-In Retained Comprehensive Treasury (In Millions, Except Share Data) Stock Capital Earnings Income Stock Total Balance at June 30, 1997 $251 $2,645 $ 711 $101 $ (701) $3,007 I Fiscal Year 1998: Net income 1,001 1,001 Dividends on common stock ($0.10 per share) (15) (15) Dividends on Series B ESOP Convertible Preferred Stock allocated shares (11) (11) Issuance of 9,276,084 shares of common stock under dividend reinvestment and stock purchase plan and stock options ($34.28 per share*) 14 304 318 Repurchase of 6,316,746 common shares ($56.04 per share*) (354) (354) Income tax benefit from exercise of stock options 84 84 Transfer of 99,082 shares of common stock from treasury under stock incentive plan ($38.59 per share*) 3 3 Accumulated other comprehensive income (12) (12) Other 1 1.68~ I 2 Balance at June 30, 1998 265 3,034 89 (1,052) 4,023 Fiscal Year 1999: Net income 1,101 1,101 Dividends on common stock ($0.10 per share) (14) (14) Qividends on Series B ESOP Convertible Preferred Stock allocated shares (11) (11) Issuance of 3,197,369 shares of common stock under dividend reinvestment and stock purchase plan and stock options ($41.01 per share*) 5 126 131 Repurchase of 15,149,658 common shares ($58.45 per share*) (885) (885) Income tax benefit from exercise of stock options 34 34 Transfer of 55,614 shares of common stock from treasury under stock incentive plan ($36.54 per share*) 2 2 Accumulated other comprehensive income 60 60 Other 14 (7) 7 Balance at June 30, 1999 270 3,208 2,756 149 (1,935) 4,448 Fiscal Year 2000: Net income 1,303 1,303 Dividends on common stock ($0.10 per share) (13) (13) Dividends on Series B ESOP Convertible Preferred Stock allocated shares (12) (12) Issuance of 592,634 shares of common stock under dividend reinvestment and stock purchase plan and stock options ($47.83 per share*) 1 27 28 Repurchase of 16,480,400 common shares ($47.93 per share*) (790) (790) Income tax benefit from exercise of stock options 4 4 Transfers and forfeitures of 28,967 shares of common stock under stock incentive plan ($56.48 per share*) (1) (1) Accumulated other comprehensive income (109) (109) Other 6 9 15 Balance at June 30, 2000 $271 $3,245 $4,043 $ 40 $(2,726) $4,873 * Average price per share. The accompanying notes are an integral part of these consolidated financial statements. 37 Notes to the Consolidated Financial Statements June 30, 2000, 1999 and 1998 1. Summary of Significant Accounting Policies Basis of Presentation - Delta Air Lines, Inc. (a Delaware corporation) is a major air carrier that provides air transportation for passengers and freight throughout the United States and around the world. Our consolidated financial statements include the accounts of Delta Air Lines, Inc. and our majority-owned subsidiaries (Delta). We have eliminated all significant inter- company transactions. Purchased companies are included from the date of acquisition. We have reclassified certain amounts from prior years to be consistent with the presentation in our fiscal 2000 financial statements. (See Note 18 of the Notes to the Consolidated Financial Statements.) Use of Estimates-We are required to make estimates and assumptions when preparing our financial state- ments in conformity with generally accepted account- ing principles. These estimates and assumptions affect the amounts reported in our financial state- ments and the accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents-We classify short-term, highly liquid investments with original maturities of three months or less as cash and cash equivalents. These investments are stated at cost, which approxi- mates fair value. Passenger and Cargo Revenues - We record sales of passenger tickets and cargo services as air traffic liability on our Consolidated Balance Sheets. Passenger and cargo revenues are recognized and the related air traffic liability is reduced when we provide the transportation. We periodically evaluate the estimated air traffic liability. Any resulting adjustments, which can be significant, are included in the Consolidated Statements of Income in the period that the evaluations are completed. Property and Equipment-Property and equipment is recorded at cost and depreciated on a straight-line basis to estimated residual values over their esti- mated useful lives. The estimated useful lives for major asset classifications are as follows: Asset Classification Owned flight equipment Flight equipment under capital lease Ground property and equipment Leasehold rights and landing slots Estimated Useful Life 15-25 years Lease Term 3 -30 years Lease Term Residual values for flight equipment range from 5%-25% of cost. Purchased international route 38 DELTA AIR LINES , INC . authorities are amortized over the lives of the authorities as determined by their expiration dates. Permanent route authorities with no stated expira- tion dates are amortized over 40 years. Our cost in excess of net assets acquired (goodwill) is amor- tized over 40 years and is primarily related to our acquisitions of Comair Holdings, Inc. (Comair Holdings) in November 1999, ASA Holdings, Inc. (ASA Holdings) in March 1999, and Western Air Lines, Inc. in December 1986. Comair Holdings is the parent of Comair, Inc. (Comair) and ASA Holdings is the parent of Atlantic Southeast Airlines, Inc. (ASA). Comair and ASA are participants in the Delta Connection program. Interest Capitalized - Interest paid on advance pay- ments used to acquire new aircraft and to construct ground facilities is capitalized as an additional cost of the related assets. We capitalize interest at our weighted average interest rate on long-term debt or, if applicable, the interest rate related to specific borrow- ings. Interest capitalization ends when the property or equipment is ready for service or its intended use. Measurement of Impairment- In accordance with Statement of Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, " we record impairment losses on long- lived assets used in operations, goodwill and other intangible assets when events and circumstances indicate the assets may be impaired and the undis- counted cash flows estimated to be generated by those assets are less than their carrying amounts. If an impairment has occurred , the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a provi- sion for loss if the carrying value is greater than the fair value. Investments in Associated Companies - We use the equity method to account for our 40% owner- ship interest in WORLDSPAN, L.P., a computer reser- vations system partnership. Our equity earnings from this investment totaled $48 million in fiscal 2000, $22 million in fiscal 1999, and $14 million in fiscal 1998. We accounted for our investments in Comair Holdings and ASA Holdings under the equity method until November 22, 1999 and March 22, 1999, the respective dates of acquisition. Frequent Flyer Program- Delta records an esti- mated liability for the incremental cost associated with providing free transportation under its SkyMiles frequent flyer program when a free travel award is earned. The liability is included in accounts payable and miscellaneous accrued liabilities, and is adjusted periodically based on awards earned, awards redeemed and changes in the SkyMiles program. Deferred Gains on Sale and Leaseback Transactions - Deferred gains on the sale and leaseback of prop- erty and equipment under operating leases are amor- tized over the lives of these leases. The gains are reflected as a reduction in rent expense. Gains on the sale and leaseback of property and equipment under capital leases reduce the carrying value of the related assets. Manufacturers ' Credits- We periodically receive credits in connection with the acquisition of aircraft and engines. These credits are deferred until the aircraft and engines are delivered, then applied on a pro rata basis as a reduction to the cost of the related equipment. Advertising Costs- We expense advertising costs as other selling expenses in the fiscal year incurred. Advertising expense for fiscal 2000, 1999 and 1998 totaled $134 million, $136 million and $105 million, respectively. Foreign Currency Remeasurement- Assets and liabilities denominated in foreign currencies are generally remeasured using exchange rates in effect on the balance sheet date. Revenues and expenses denominated in foreign currencies are generally remeasured using average exchange rates for the periods presented. We recognize the resulting foreign exchange gains and losses as a component of miscellaneous income (expense). Fixed assets and the related depreciation or amortization charges are recorded at the exchange rates in effect on the date we acquired the assets. Stock-Based Compensation - Stock-based compensa- tion is accounted for in accordance with Accounting Principles Board Opinion (APB) 25, "Accounting for Stock Issued to Employees." Under APB 25, we do not recognize compensation expense for a stock option grant if the exercise price at the measurement date is equal to or greater than the fair market value of our common stock on the grant date (see Note 15). Stock Split- On November 2, 1998, our two-for-one common stock split became effective. All references in this annual report to the number of shares of common stock (including references to our broad- based employee stock option programs and our common stock repurchase programs), our earnings per share and our per share common stock prices have been restated to reflect the stock split. Derivatives and Hedging Activities- In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities. " SFAS 133 requires us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not designated as part of a hedging relationship must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, the effective portion of the hedge's change in fair value is either (1) offset against the change in fair value of the hedged asset, liability or firm commitment through income or (2) held in equity until the hedged item is recognized in income. The ineffective portion of a hedge's change in fair value is immediately recognized in income. We will adopt SFAS 133, as amended, on July 1, 2000. New Accounting Standards- During fiscal 2000, we adopted Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements" (see Note 18). We also adopted Statement of Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use. " The adoption of SOP 98-1 did not have a material impact on our consolidated finan- cial statements. During fiscal 1999, we adopted SFAS 130, "Reporting Comprehensive Income" (see Note 12), and SFAS 131, "Disclosures about Segments of an Enterprise and Related Information" (see Note 13). During fiscal 1998, we adopted SFAS 128, "Earnings Per Share" (see Note 14), and SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" (see Note 9). 2. Financial Instruments Our financial instruments, except long-term debt and our investment in Worldspan , are carried at fair value or have a carrying value which approximates fair value. Short-Term Investments Delta invests cash in excess of operating require- ments in short-term, highly liquid investments. These investments are classified as available-for-sale 39 Notes to the Consolidated Financial Statements June 30, 2000, 1999 and 1998 securities and are stated at fair value. The aggre- gate fair value of short-term investments totaled $493 million and $19 million at June 30, 2000 and 1999, respectively. Accumulated other comprehen- sive income includes unrealized gains and losses from these investments, net of related deferred taxes. The unrealized gains and losses from our short-term investments were not material at June 30, 2000 and 1999. Marketable Equity Securities We sold our equity investments in Singapore Airlines and SAirGroup during fiscal 2000, and recog- nized pretax gains of $137 million and $29 million, respectively. Our investment in SkyWest, Inc. is classified as an available-for-sale security under SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," and is recorded at fair value. The following table summarizes these invest- ments at June 30, 2000 and 1999: Quoted Cost Unrealized (In Millions) Fair Value Basis Gain June 30, June 30, 2000 1999 2000 1999 Singapore Airlines $ - $335 $ - $ - $154 SAirGroup $ - $110 $ - $ - $ 25 SkyWest $1.1.5 $ 78 $14 $101 $ 64 Accumulated other comprehensive income includes the aggregate unrealized gains from our outstanding investments, net of the related deferred tax provision, at June 30, 2000 and 1999. Convertible Securities priceline.com, Inc. - During fiscal 1999, we entered into an agreement with priceline.com (priceline) under which ticket inventory provided by Delta may be sold through priceline's Internet-based e-commerce sys- tem. As part of this agreement, we received a warrant to purchase up to 18.6 million shares of priceline common stock for $0.93 per share. We did not recognize the value of the warrant in fiscal 1999 because its estimated fair value was not material. The warrant became fully exercisable on July 25, 1999. We partially exercised the warrant on August 17, 1999, and exercised the remainder of the warrant on November 17, 1999. As a result of these exercises, we acquired 18.3 million shares of price- line common stock. We sold 12.3 million of these shares during fiscal 2000, and recognized a pretax 40 DELTA AIR LINES , IN C . cash gain of $784 million. On November 17, 1999, price line and Delta amended their original agreement. As a result of the amendment, Delta received (1) the right to exchange (exchange right) 6 million shares of priceline com- mon stock for 6 million shares of priceline convert- ible preferred stock; and (2) a new warrant (new warrant) to acquire 5.5 million shares of priceline common stock for $56.625 per share. The new warrant may become exercisable in phases prior to December 31, 2000 if certain conditions are met. To the extent the conditions are met and the warrant becomes exercisable, it will expire on November 17, 2004. To the extent the conditions are not met, the new warrant will become exercisable on November 17, 2004 for a period of six months. On June 30, 2000, we exercised our exchange right in full, receiving six million shares of priceline convertible preferred stock. These shares (1) have a stated value of $59.93 per share; (2) are convert- ible into shares of priceline common stock on a one-for-one basis; (3) bear a dividend of 8% per year, payable in shares of priceline common stock; (4) may be redeemed by priceline after April 1, 2003 for $59.93 per share plus accrued and unpaid divi- dends; and (5) are subject to mandatory redemption on April 1, 2010. As a result of the exchange, we recognized a pretax non-cash gain of $228 million. The convertible preferred stock, the new war- rant, and the shares of priceline common stock underlying these securities are not registered under the Securities Act of 1933, but we have certain demand and piggyback registration rights relating to the underlying shares of priceline common stock. Based on an independent third party appraisal, the total fair value of the new warrant on the date received was determined to be $61 million. This amount will be recognized in income ratably over a three year period. The new warrant is reflected at its current estimated fair value in marketable equity securities on our Consolidated Balance Sheet as of June 30, 2000. Under our agreement with priceline, we are required to provide priceline access to unpublished fares. Equant, N. V. -During fiscal 2000 and fiscal 1999, we sold a portion of our equity interest in Equant, realizing pretax gains of $24 million and $26 million, respectively. At June 30, 2000, we owned 540,852 depository certificates convertible, subject to cer- tain conditions, into common stock of Equant. Our equity interest is not recorded on our Consolidated Balance Sheets at June 30, 2000. The shares of Equant common stock underlying these certificates had an estimated fair market value of $23 million at June 30, 2000. Long-Term Debt The following table shows the estimated fair value and carrying value of our long-term debt, including cur- rent maturities, at June 30, 2000 and 1999: (In Billions) Fair value Carrying value 2000 $4.7 $4.9 Fair values are estimated based on quoted market prices, where available, or on discounted cash flow analyses. Changes in assumptions or estimation methods may significantly affect these fair value estimates. 3. Income Taxes Deferred income taxes reflect the net tax effect of timing differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes. The table below shows significant components of our deferred tax assets and liabilities at June 30, 2000 and 1999: (In Millions) 2000 1999 Deferred Tax Assets: Postretirement benefits $ 810 $ 766 Other employee benefits 340 335 Gains on sale and leaseback transactions (net) 216 296 Rent expense 218 206 Spare parts repair expense 159 151 Alternative minimum tax credit carryforwards 27 Other 271 171 Total deferred tax assets $2,014 $1,952 Deferred Tax Liabilities: Depreciation and amortization $2,158 $1,960 Other 369 344 Total deferred tax liabilities $2,527 $2,304 Income taxes provided in fiscal 2000, 1999 and 1998 consisted of: (In Millions) 2000 1999 1998 Current taxes $(665) $(372) I $(353) Deferred taxes (254) (358) (298) Tax benefit of dividends on allocated Series B ESOP Convertible Preferred Stock 5 5 4 Income taxes provided $(914) $(725) $(647) The following table presents the principal rea- sons for the difference between the effective tax rate and the United States federal statutory income tax rate for fiscal 2000, 1999 and 1998: 2000 1999 1998 U.S. federal statutory income tax rate 35% 35% 35% State taxes, net of federal income tax effect 3.6% 3.6% 3.3% Meals and entertainment .8% .8% .8% Amortization .6% .2% .2% Other, net -% .1% ~ Effective income tax rate 40.0% 39.7% 39.3% 4. Risk Management Fuel Price Risk Management We use options and other non-leveraged, over- the-counter instruments, which have maturities of up to 36 months, to manage the risk associated with changes in aircraft fuel prices. The changes in the market value of our hedging contracts have a high cor- relation to changes in aircraft fuel prices. Gains and losses from fuel hedging contracts are recognized as part of fuel expense when we use the underly- ing fuel being hedged. Premiums paid to enter into hedging contracts are recorded as prepaid expenses and amortized on a straight-line basis to fuel expense over the contract settlement period. We do not enter into fuel hedging contracts for speculative purposes. At June 30, 2000, we had outstanding hedge agreements for a total of 2.8 billion gallons of our pro- jected aircraft fuel requirements for the period July 1, 2000 through June 30, 2003, including approximately 51% of our projected aircraft fuel requirements for the year ending June 30, 2001. At June 30, 2000, our fuel hedging contracts had an estimated fair value of $704 million, with unrealized gains of $555 million. 41 Notes to the Consolidated Financial Statements June 30, 2000, 1999 and 1998 Foreign Currency Exchange Risk Management From time to time, Delta enters into foreign cur- rency option and forward contracts to manage the risk associated with foreign currency-denominated transactions. Contracts are denominated in the same currency in which the projected foreign cash flows are expected to occur and have maturities of up to twelve months. The estimated fair value of our foreign cur- rency contracts was not material at June 30, 2000 and 1999. We do not enter into foreign currency hedg- ing contracts for speculative purposes. We recognize the gains and losses from foreign currency exchange contracts as a component of mis- cellaneous income (expense) as we recognize the underlying transaction. These gains and losses were not material for any period presented in our consoli- dated financial statements. 5. Long-Term Debt D E LT A A IR L I NES , I NC Credit Risk Management To manage credit risk associated with our fuel price and foreign currency exchange risk management programs, we select counterparties based on their credit ratings and limit our exposure to any one coun- terparty under defined guidelines. We also monitor the market position of these programs and our relative market position with each counterparty. The credit exposure related to these programs was not signif- icant at June 30, 2000. Our accounts receivable are generated largely from the sale of passenger airline tickets and cargo transportation services to customers who are economically and geographically dispersed. In addition, our accounts receivable are generally short-term in duration. Therefore, we believe we have no significant concentration of credit risk. The following table summarizes our long-term debt, including current maturities, at June 30, 2000 and 1999: (In Millions) 8.3% Notes, unsecured, due December 15, 2029 8.125% Notes, unsecured, due July 1, 2039 2000 I $1,000 1 538 1999 ! $ 1999 Bank Credit Agreement, unsecured, 5.92% interest, due March 22, 2001 7.7% Notes, unsecured, due December 15, 2005 500 500 500 7 .9% Notes, unsecured, due December 15, 2009 500 Development Authority of Clayton County 2000, unsecured loan agreement, -1 Series 2000A $65 million due June 1, 2029, 4. 7% interest; Series 2000B $116 million due May 1, 2035, 4.8% interest; and Series 2000C $120 million due May 1, 2035, 4.9% interest 6.65% Medium-Term Notes, Series C, unsecured, due March 15, 2004 301 300 300 8.1% Series C Guaranteed Serial ESOP Notes, unsecured, due in installments between 2002 and 2009 290 290 9.75% Debentures, unsecured, due May 15, 2021 250 Other unsecured debt due 2000 to 2022; Interest rates of 5.3% to 10.375% 158 I 817 1,076 Total 4,904 2,416 Less: Current maturities 526 660 Total long-term debt $4,378 $1,756 Our variable interest rate long-term debt is shown using interest rates in effect at June 30, 2000. Fiscal 2000 Financings In July 1999, we issued $538 million of 8.125% unsecured notes in a public offering for general cor- porate purposes. The notes mature on July 1, 2039, but we may redeem the notes, in whole or in part, at par on or after July 1, 2004. In November 1999, we borrowed $1.6 billion under a new term loan facility to finance our acquisi- tion of Comair Holdings (see Note 17). In December 1999, we issued $2.0 billion aggregate principal amount of senior unsecured notes in a private 42 placement, consisting of $500 million of 7. 7% notes due 2005, $500 million of 7 .9% notes due 2009, and $1 billion of 8.3% notes due 2029. The net proceeds from this offering were used to repay the $1.6 billion outstanding under the term loan facility described above; to fund the $200 million balance of the pur- chase price of our acquisition of Comair Holdings; and for general corporate purposes. In March 2000, we completed an exchange offer under which the notes issued in December 1999 (Old Notes) were exchanged for new notes (New Notes). The New Notes are substantially similar to the related series of Old Notes, except the New Notes are registered under the Securities Act of 1933. In June 2000, the Development Authority of Clayton County (Development Authority) issued $301 million aggregate principal amount of bonds in three series with scheduled maturities between 2029 and 2035. The proceeds of this sale were loaned to us to refund bonds that had been issued to finance certain Delta facilities at Hartsfield Atlanta International Airport. The Development Authority bonds currently bear interest at a variable rate which is determined weekly. The bonds may be tendered for purchase by their holders on seven days notice. Subject to certain con- ditions, tendered bonds will be remarketed at then prevailing interest rates. Principal and interest on the bonds, and the payment of the purchase price of bonds tendered for purchase, are presently paid under three uncondi- tional, direct-pay letters of credit totaling $305 million issued by a bank under a Reimbursement Agreement between Delta and a group of banks (Reimbursement Agreement). The Reimbursement Agreement generally provides that, if there is a drawing under the letters of credit to purchase bonds that have been tendered for purchase, Delta may convert its repayment obligation to a loan that becomes due and payable on the earlier of (1) the date the bonds are remarketed; or (2) the June 8, 2003 expiration date of the related letters of credit. Unless the existing letters of credit are extended, a mandatory tender of the bonds for pur- chase will occur on the fifth day prior to the expiration of such letters of credit. Among other options, Delta could seek to replace the expiring letters of credit with new letters of credit from an alternate credit provider and remarket the bonds. 1997 Bank Credit Agreement Under our 1997 Bank Credit Agreement with a group of banks, we may borrow up to $1.25 billion on an unsecured and revolving basis until May 1, 2002, subject to our compliance with certain conditions. We may use up to $700 million of this facility for the issuance of letters of credit. The interest rate under this facility is, at our option, LIBOR or the prime rate, plus a margin that is dependent on Delta's long-term senior unsecured debt ratings. We can also obtain loans through a competitive bid procedure. The 1997 Bank Credit Agreement contains nega- tive covenants that place certain limits on our ability to secure our property or assets; to incur or guarantee debt; and to enter into flight equipment leases. It also provides that, upon the occurrence of a change in control of Delta, (1) the banks' obligation to extend credit terminates; (2) any amounts outstanding under the 1997 Bank Credit Agreement become due and payable; and (3) Delta must deposit cash collateral with the banks in an amount equal to all letters of credit outstanding under that agreement. At June 30, 2000, there were no borrowings or letters of credit outstanding under the 1997 Bank Credit Agreement. 1999 Bank Credit Agreement During fiscal 1999, we entered into a $500 mil- lion credit agreement with a group of banks to finance a portion of our acquisition of ASA Holdings (see Note 17). The interest rate is, at our option , LIBOR or the prime rate, plus a margin that is depen- dent on Delta's long-term senior unsecured debt ratings. This agreement expires on March 22, 2001, and we may prepay the outstanding borrowings at any time. At June 30, 2000, $500 million was out- standing under this agreement. Series C ESOP Notes At June 30, 2000, there were outstanding $290 million principal amount of the Delta Family- Care Savings Plan's Series C Guaranteed Series ESOP Notes (Series C ESOP Notes). The notes, which are payable in installments between 2002 and 2009, are guaranteed by Delta. We are required to purchase the Series C ESOP Notes at the option of the note- holders in certain circumstances if the notes are not rated at least A3 by Moody's and A- by Standard & Poor's (required ratings). Our purchase price would be equal to the principal amount of the Series C ESOP Notes being purchased plus accrued interest and, if applicable, a make whole premium amount. The holders of the Series C ESOP Notes are presently entitled to the benefits of an unconditional, direct-pay letter of credit issued by Bayerische Hypo-Und Vereinsbank AG under a credit agreement between Delta and a group of banks (the Letter of Credit Facility). Required payments of principal, inter- est and make whole premium amount on the Series C ESOP Notes are paid under the letter of credit. At 43 Notes to the Consolidated Financial Statements June 30, 2000, 1999 and 1998 June 30, 2000, the letter of credit totaled $421 mil- lion, covering the $290 million outstanding principal amount of the Series C ESOP Notes, approximately one year of interest on the notes and $98 million of make whole premium amount. The Letter of Credit Facility and the related letter of credit expire on May 19, 2003. The Letter of Credit Facility provides that, if there is a drawing under the letter of credit, Delta must immediately repay the amount drawn or convert its repayment obligation to a short-term loan. Due to the existence of the letter of credit, the Series C ESOP Notes currently have the required rat- ings. However, these ratings are subject to change at any time. The Series C ESOP Notes are not likely to receive the required ratings without a credit enhance- ment such as the letter of credit, unless Delta's long- term senior unsecured debt is rated at least A3 by Moody's and A- by Standard & Poor's. At June 30, 2000, our long-term senior unsecured debt was rated Baa3 and BBB-, respectively. Covenants and Change in Control Provisions The Reimbursement Agreement, the 1999 Bank Credit Agreement and the Letter of Credit Facility con- tain negative covenants and a change in control pro- vision that are similar to or less restrictive than the corresponding provisions in our 1997 Bank Credit Agreement. The 1999 Bank Credit Agreement also requires us to maintain a specified coverage ratio as of the last day of each fiscal quarter if our senior unsecured debt is rated below investment grade. Our debt agreements do not limit the payment of dividends on our capital stock. The terms of the Series B ESOP Convertible Preferred Stock limit our ability to pay cash dividends to our common share- owners in certain circumstances (see Note 10). ASA's credit agreements contain negative covenants that apply only to the financial position of ASA. The covenants, among other things, limit ASA's ability to transfer funds in the form of cash divi- dends, loans or advances. At June 30, 2000, approxi- mately $300 million of ASA's net assets were subject to these restrictions and approximately $60 million of net assets were available for distribution by ASA to Delta under the most restrictive of these provisions. 44 DELTA A I R LINES , INC . Future Maturities At June 30, 2000, the scheduled maturities of our long-term debt during the next five fiscal years were as follows: Year Ending June 30, (In Millions) 2001 2002 2003 2004 2005 After 2005 Principal Amount $ 526 90 61 356 569 3,302 Capitalized interest totaled $49 million, $46 million and $38 million in fiscal 2000, 1999 and 1998, respectively. 6. Asset Writedowns and Other Special Charges In fiscal 2000, we recorded pretax charges total ing $555 million for the following: Management decided to accelerate the planned retirement of our 16 MD-90 aircraft and 8 owned MD-11 aircraft as part of our fleet simplification strategy. As a result, we reviewed these fleet types for impairment, determining that the estimated future cash flows generated by these aircraft are less than their carrying values. The estimated future cash flows were based on projections of passenger yield, fuel costs, labor costs and other relevant fac- tors in the markets in which these aircraft will oper- ate. These aircraft were written down to their fair values, as estimated by management using pub- lished sources and bids received from third parties. Due to this impairment analysis, we recorded a pre- tax asset writedown of $320 million in the quarter ended December 31, 1999. We changed our business practice regarding the dis- posal of surplus aircraft parts and entered into an agreement to sell all of our existing surplus aircraft parts inventory to a third party. Accordingly, we wrote down surplus aircraft parts and obsolete flight equipment and parts to their estimated fair values. We determined the estimated fair value of inventory using the negotiated purchase price. This resulted in a pretax charge of $107 million in the quarter ended September 30, 1999. As of June 30, 2000, substantially all of the equipment and parts under this agreement had been sold and transferred. We offered an early retirement medical option to allow eligible Delta employees to retire with continued medical coverage without paying cer- tain early retirement medical premiums. Approxi- mately 2,500 employees elected to participate in the program. We recorded a pretax charge of $86 million ($53 million after tax, or $.40 basic and $.38 diluted EPS) as a result of this program in the quarter ended June 30, 2000. Delta implemented certain technology initiatives which resulted in an abandonment of certain legacy hardware and software assets. We also decided to streamline certain administrative pro- cesses. Accordingly, we recorded a pretax charge of $42 million in the quarter ended September 30, 1999. We also remeasured the useful lives of cer- tain technology assets that are still in use but that will be replaced earlier than originally planned. The effect on depreciation expense was immate- rial. 7. Lease Obligations Delta leases aircraft, airport terminal and main- tenance facilities, ticket offices, and other property and equipment. We record rent expense on a straight- line basis over the life of the lease. Rental expense for operating leases totaled $1.2 billion, $1.1 billion and $0.9 billion in fiscal 2000, 1999 and 1998, respectively. Amounts due under capital leases are recorded as liabilities. Our interest in assets acquired under capital leases is shown as assets on our Consolidated Balance Sheets. Amortization of assets recorded under capital leases is included in depreciation expense in our Consolidated Statements of Income. The following table summarizes, as of June 30, 2000, our minimum rental commitments under capital leases and operating leases with initial or remaining terms of more than one year: Years Ending June 30, Capital Operating (In Millions) Leases Leases 2001 $ 57 $1,200 2002 57 1,200 2003 48 1,170 2004 32 1,120 2005 17 1,110 After 2005 23 9,060 Total minimum lease payments 234 $14,860 Less: Amounts of lease payments which represent interest 44 Present value of future minimum capital lease payments 190 Less: Current obligations under capital leases 43 Long-term capital lease obligations $147 As of June 30, 2000, we operated 317 aircraft under operating leases and 48 aircraft under capital leases. These leases have remaining terms ranging from five months to 18 years. Certain municipalities have issued special facility revenue bonds to build or improve airport and maintenance facilities leased to Delta. The facility lease agreements require Delta to make rental pay- ments sufficient to pay principal and interest on the bonds. The above table includes $2.1 billion of rental commitments for such payments. 8. Purchase Commitments and Contingencies Future expenditures for aircraft and engines on firm order as of August 11, 2000 are estimated to be $9.5 billion. The following table shows the timing of these commitments: Years Ending June 30 , (In Millions) 2001 2002 2003 2004 2005 After2005 Total Amount $2,700 2,300 1,350 1,110 1,360 710 $9,530 45 Notes to the Consolidated Financial Statements June 30, 2000, 1999 and 1998 We have entered into a joint marketing and Delta Connection carrier agreement with Atlantic Coast Airlines Holdings, Inc. (ACA) and its newly formed operating affiliate, Atlantic Coast Jet, Inc. (ACJet). Under this agreement, Delta schedules certain regional jets operated by ACJet, and sells the seats on and retains the revenue from those flights. We pay ACJet an amount that is based on its costs to operate those flights and a specified margin. We estimate these payments will be $73 million for the twelve months ending June 30, 2001. This agreement expires on March 31, 2010, but may be terminated by Delta at an earlier date in certain circumstances. Delta is a defendant in legal actions relating to antitrust matters, employment practices, environ- mental issues, and other matters concerning our business. Although the ultimate outcome of these matters cannot be predicted with certainty, we believe that the resolution of these actions is not likely to have a material adverse effect on our consolidated financial statements. Delta self-insures a portion of its losses from claims related to workers' compensation, environ- mental, physical damage and general liability. Losses are accrued based on an estimate of the ultimate aggregate liability for claims incurred, using certain actuarial assumptions followed in the insurance industry and based on Delta's experience. Approximately 16% of our employees are covered by collective bargaining agreements. See "Collective Bargaining Matters" on page 30 of Management's Discussion and Analysis for additional information on this subject. 9. Employee Benefit Plans Delta sponsors defined benefit and defined contri- bution pension plans, healthcare plans, and disability and survivorship plans for eligible employees, their eli- gible family members and retirees. We reserve the right to modify or terminate these plans as to all par- ticipants and beneficiaries at any time, except as restricted by the Internal Revenue Code or ERISA. Defined Benefit Pension Plans Our qualified defined benefit pension plans cur- rently meet or exceed ERISA's minimum funding requirements. DELTA A I R LINES , I NC The following table shows the change in pro- jected benefit obligation for our defined benefit pen- sion plans for the plan years ended June 30, 2000 and 1999: (In M1ll1ons) Projected benefit obligation at beginning of year Service cost Interest cost Actuarial (gain) loss Benefits paid Plan amendments Projected benefit obligation at end of year 2000 $8,872 251 644 (402) (491) 27 $8,901 1999 $8,342 240 585 158 (45~) I $8,872 The following table shows the change in the fair value of our defined benefit pension plan assets for the plan years ended June 30, 2000 and 1999: (In Millions) Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets at end of year 2000 $ 9,020 2,144 48 (491) I $10,721 1999 $9,121 1 310 45 (456) $9,020 The accrued pension cost recognized for these plans on our Consolidated Balance Sheets at June 30, 2000 and 1999 is computed as follows: (In M1ll1ons) Funded status Unrecognized net actuarial gain Unrecognized transition obligation Unrecognized prior service cost Contributions made between April 1 and June 30 Intangible asset Other comprehensive income Accrued pension cost recognized in the Consolidated Balance Sheets 2000 $1,820 (2,301) 58 57 14 (9) (1) $ (362) 1999 I $ 148 (607) 60 37 12 (13) ___@_ $(365) Net periodic pension cost for fiscal 2000, 1999 and 1998 included the following components: (In Millions) 2000 1999 1998 Service cost $ 251 $ 240 $ 209 Interest cost 644 585 575 Expected return on plan assets (852) (776) (685) Amortization of prior service cost 4 5 3 Recognized net actuarial - I I (gain) loss - (4) Amortization of net transition obligation 2 2 2 Net periodic pension cost $ 49 $ 56 $100 We used the following actuarial assumptions to determine the actuarial present value of our projected benefit obligation: March 31: 2000 1999 Weighted average discount rate 8.25% 7.25% Rate of increase in future compensation levels 4.93% 4.43% Expected long-term rate of return on plan assets 10.00% 10.00% Delta also sponsors non-qualified pension plans which are funded from current assets. The accumulated benefit obligation of these plans totaled $337 million at March 31, 2000, and $301 million at March 31, 1999. Defined Contribution Pension Plans Delta Pilots Money Purchase Pension Plan (MPPP) - We contribute 5% of covered pay to the MPPP for each eligible Delta pilot. The MPPP is related to the Delta Pilots Retirement Plan. The defined benefit pension payable to a pilot is reduced by the actuarial equiva- lent of the accumulated account balance in the MPPP. During fiscal 2000, 1999 and 1998, we recognized expense of $57 million, $53 million and $54 million, respectively, for this plan. Delta Family-Care Savings Plan -Our Savings Plan includes an employee stock ownership plan (ESOP) feature. Eligible personnel may contribute a portion of their earnings to the Savings Plan. Delta matches 50% of those contributions with a maximum employer contribution of 2% of a participant's earnings. We make quarterly employer contributions by allocating Series B ESOP Convertible Preferred Stock, common stock or cash to the plan. These contributions, which are recorded as salaries and related costs in our Consolidated Statements of Income, totaled $58 mil- lion, $52 million and $49 million in fiscal 2000, 1999 and 1998, respectively. When we adopted the ESOP in 1989, we sold 6,944,450 shares of Series B ESOP Convertible Preferred Stock to the Savings Plan for $500 million. We have recorded unearned compensation equal to the value of the shares of preferred stock not yet allocated to participants' accounts. We reduce the unearned compensation as shares of preferred stock are allocated to participants' accounts. Dividends on unallocated shares of preferred stock are used for debt service on the Savings Plan 's Series C ESOP Notes and are not considered dividends for financial reporting purposes. Dividends on allocated shares of preferred stock are credited to participants' accounts and are considered dividends for financial reporting purposes. Only allocated shares of preferred stock are considered outstanding when we compute diluted earnings per share. At June 30, 2000, 2,971,790 shares of Series B ESOP Convertible Preferred Stock were allocated to participants' accounts. Delta Connection Carrier Savings Plans - ASA and Comair sponsor defined contribution retirement plans for eligible employees. Eligible personnel may con- tribute a portion of their earnings to the plans through payroll deduction. Neither plan had a material impact on our consolidated financial statements for the year ended June 30, 2000. Postretirement Benefits Other Than Pensions Our medical plans provide medical and dental benefits to substantially all Delta retirees and their eligible dependents. Benefits are funded from our general assets on a current basis. Plan benefits are subject to copayments, deductibles and other limits as described in the plans. Benefits are reduced when a retiree is eligible for Medicare. The following table shows the change in our accu- mulated postretirement benefit obligation (APBO) for the plan years ended June 30, 2000 and 1999: (In Millions) 2000 1999 APBO at beginning of year $1,612 $1,627 Service cost 38 37 Interest cost 117 112 Benefits paid (80) (71) Actuarial gain (52) (65) Substantive plan change 28 (28) Special termination benefits 86 APBO at end of year $1,749 $1,612 The special termination benefits reflected in the above table relate to the early retirement medi- cal option offered to certain Delta employees (see Note 6). The following table shows the calculation of the accrued postretirement benefit cost recognized on 47 Notes to the Consolidated Financial Statements June 30, 2000, 1999 and 1998 our Consolidated Balance Sheets at June 30, 2000 and 1999: (In Millions) 2000 1999 Funded status $(1,749) $(1,612) I Unrecognized net (gain) loss (51) 1 Unrecognized prior service cost (302) (371) Contributions made between April 1 and June 30 20 17 I Accrued postretirement benefit cost recognized in the Consolidated Balance Sheets $(2,082) $(1,965) Our net periodic postretirement benefit cost for fiscal 2000, 1999 and 1998 included the follow- ing components: (In Millions) 2000 1999 Service cost $ 38 $37 Interest cost 117 112 110 Amortization of prior service cost (41) (40) (38) Recognized net actuarial (gain) loss -I (2) Other ~ Net periodic postretirement -----1 benefit cost $114 $ 99 $103 We used the following actuarial assumptions to determine the actuarial present value of our APBO: March 31: Weighted average discount rate Assumed health care cost trend rate* 2000 8.25% 7.00% 1999 7.25% 5.50% I * The assumed healthcare cost trend rate is assumed to decline gradually to 5.25% in 2003 and remain level thereafter. A 1% change in the health care cost rate used in measuring the APBO at March 31, 2000 would have the following effects: (In Millions) 1% Increase Increase (decrease) in total service and interest cost $ 14 Increase (decrease) in the APBO $176 1% Decrease $ (16) $(149) Postemployment Benefits- Delta provides certain other welfare benefits to eligible former or inactive employees after employment but before retirement, primarily as part of the disability and survivorship plans. Postemployment benefit expense (income) was $11 million in fiscal 2000, $(13) million in fiscal 1999, and $7 4 million in fiscal 1998. We include the amount funded in excess of the liability in other non- current assets on our Consolidated Balance Sheets. 48 DELTA A I R LINES, INC . Future period expenses will vary based on actual claims experience and the return on plan assets. Gains and losses occur because actual experience differs from assumed experience. These gains and losses are amortized over the average future service period of employees. We also amortize differences in prior service costs resulting from amendments affect- ing the benefits of retired and inactive employees. We continually evaluate ways to better manage employee benefits and control costs. Any changes to the plans or assumptions used to estimate future benefits could have a significant effect on the amount of the reported obligation and future annual expense. 10. Common and Preferred Stock In fiscal 2000, we issued 376,412 shares of common stock under our broad-based employee stock option plans, and a total of 216,222 shares of com- mon stock under our 1989 Stock Incentive Plan , Dividend Reinvestment and Stock Purchase Plan, and Non-Employee Directors' Stock Plan. During fiscal 2000, we repurchased 16.5 million shares of com- mon stock as part of our share repurchase programs described in Note 11. At June 30, 2000, 66.6 million shares of our common stock were reserved for issuance, including 38.2 million common shares under our broad-based employee stock option plans, and 11.1 million common shares for conversion of the Series B ESOP Convertible Preferred Stock. The Series B ESOP Convertible Preferred Stock pays a cumulative cash dividend of 6% per year per share; is convertible into 1. 7155 shares of common stock at a conversion price of $41.97 per share; and has a liquidation price of $72 per share, plus accrued and unpaid dividends. The preferred stock generally votes together as a single class with the common stock and has two votes per share. It is redeemable at our option at $72 per share, payable in cash or common stock. We cannot pay cash divi- dends on common stock until all cumulative divi- dends on the preferred stock have been paid. The conversion rate, conversion price and voting rights of the preferred stock are subject to adjustment in certain circumstances. The Shareowner Rights Plan is designed to pro- tect shareowners against attempts to acquire Delta that do not offer an adequate purchase price to all shareowners, or are otherwise not in the best interest of Delta and our shareowners. Under the plan, each outstanding share of common stock is accompanied by one-half of a preferred stock purchase right. Each whole right entitles the holder to purchase 1/ 100 of a share of Series D Junior Participating Preferred Stock at an exercise price of $300, subject to adjustment. The rights become exercisable only after a person acquires, or makes a tender or exchange offer that would result in the person acquiring, beneficial owner- ship of 15% or more of our common stock. If a person acquires beneficial ownership of 15% or more of our common stock, each right will entitle its holder (other than the acquiring person) to exercise his rights to purchase our common stock having a market value of twice the exercise price. If a person acquires beneficial ownership of 15% or more of our common stock and (1) we are involved in a merger or other business combination in which Delta is not the surviving corporation, or (2) we sell more than 50% of our assets or earning power, then each right will entitle its holder (other than the acquiring person) to exercise his rights to purchase common stock of the acquiring company having a market value of twice the exercise price. The rights expire on November 4, 2006. Delta may redeem the rights for $0.01 per right at any time before a person becomes the beneficial owner of 15% or more of our common stock. 11. Common Stock Repurchases Our Board of Directors has authorized various repurchases of our common stock. In fiscal 2000, we repurchased 16.5 million shares of common stock for $790 million. This included five million shares held by Singapore Airlines. In fiscal 1999, we repur- chased 15.0 million shares of common stock for $878 million. We are also authorized to repurchase the 49.4 million shares of common stock that may be issued under our broad-based employee stock option plans (See Note 15). As of June 30, 2000, we had repurchased 21.4 million shares for $962 million under this authorization. We are autho- rized to repurchase the remaining shares as employ- ees exercise their stock options under those plans. Repurchases are subject to market conditions, and may be made on the open market or in privately negotiated transactions. 12. Comprehensive Income Comprehensive income for the fiscal years ended June 30, 2000, 1999 and 1998 included the fol- lowing components: (In Millions) 2000 1999 1998 Net income $1,303 $1,101 $1,001 Realization of gain from I -I Singapore and Swissair (179) - Unrealized gain (loss) on marketable equity securities 4 99 (22) Other (3) 1 Total other comprehensive income (178) 99 (21) Income tax effect on other comprehensive income 69 (39) 9 Total other comprehensive income, net of income taxes (109) 60 (12) Comprehensive income, net of income taxes $1,194 $1,161 $ 989 13. Geographic Information SFAS 131 requires us to disclose certain informa- tion about our operating segments. Operating seg- ments are defined as components of an enterprise with separate financial information which is evaluated regularly by the chief operating decision maker and is used in resource allocation and performance assess- ments. We are managed as a single business unit that provides air transportation of passengers and cargo. Our operating revenues by geographic region for fiscal 2000, 1999 and 1998 are summarized in the following table: (In Millions) 2000 1999 1998 North America $13,211 $11,956 $11,416 Atlantic 1,960 1,973 2,092 Pacific 302 326 304 Latin America 415 342 245 Total $15,888 $14,597 $14,057 Operating revenues are assigned to a specific geographic region based on the origin and destina- tion of each flight segment. Our tangible assets con- sist primarily of flight equipment, which is mobile across geographic markets. Accordingly, assets are not allocated to specific geographic regions. 14. Earnings Per Share We calculate basic EPS by dividing the income available to common shareowners by the weighted average number of common shares outstanding. 49 Notes to the Consolidated Financial Statements June 30, 2000, 1999 and 1998 Diluted EPS includes the dilutive effects of stock options and convertible securities. The following table shows our computation of basic and diluted EPS: Fiscal Year Ended June 30, (In Millions, except per share data) Basic: Net income Dividends on allocated Series B ESOP Convertible Preferred Stock Income available to common shareowners Weighted average shares outstanding Basic earnings per share Diluted: Net income Adjustment to net income assuming conversion of allocated Series B ESOP Convertible Preferred Stock Income available to common shareowners Weighted average shares outstanding Additional shares assuming: Exercise of stock options Conversion of allocated Series B ESOP Convertible Preferred Stock Conversion of performance-based stock units Weighted average shares outstanding as adjusted Diluted earnings per share 2000 $1,303 (12) $1,291 130.2 $ 9.92 $1,303 (5) $1,298 130.2 5.1 2.4 .2 137.9 $ 9.42 1999 $1,101 (11) $1,090 142.9 $ 7.63 $1,101 (4) $1,097 142.9 4.7 4.7 152.3 $ 7.20 1998 $1,001 (11) $ 990 149.2 $ 6.64 $1,001 (4) $ 997 149.2 3.8 4.2 157.2 $ 6.34 DELTA AIR LINES , INC . 15. Stock Options and Awards Under our 1989 Stock Incentive Plan, we granted various stock based awards including non-qualified stock options and tandem stock appreciation rights (SARs) to officers and other key employees. The exercise price for all stock options, and the base measuring price of the SARs, is the fair market value of our common stock on the grant date. In fiscal 1997, our shareowners approved two broad-based employee stock option plans for non- pilot personnel and pilots. On October 30, 1996, 1997 and 1998, Delta granted eligible employees non-qualified stock options to purchase a total of 49.4 million shares of common stock at an exercise price equal to the fair market value of the common stock on the grant date. The stock options are gener- ally exercisable during the period beginning one year, and ending ten years, after the grant date, and are not transferable for any reason other than the death of the employee. The following table summarizes grant activity under the broad-based plans (including 200,000 options which were regranted after earlier forfeitures): Grant Date October 30, 1996 October 30, 1997 October 30, 1998 Options Granted (In Millions) 16.4 16.6 16.6 Exercise Price (Per Share) $34.50 $49.00 $50.59 During fiscal 2000, all options were granted under the 1989 Stock Incentive Plan. The following table summarizes all stock option and SAR activity during fiscal 2000, 1999 and 1998: 2000 1999 1998 Weighted Weighted Weighted Average Average Average Shares Exercise Shares Exercise Shares Exercise Stock Options (000) Price (000) Price (000) Price Outstanding at beginning of fiscal year 46,144 $48 30,006 $45 19,802 $35 Granted 3,039 57 19,639 51 19,698 50 Exercised (587) 43 (3,256) 41 (9,318) 35 Forfeited (851) 50 (245) 51 (176) 46 Outstanding at end of fiscal year 47,745 52 46,144 48 30,006 45 Stock options exercisable at fiscal year end 44,833 $47 26,640 $45 10,422 $35 The following table summarizes information about stock options outstanding and exercisable at June 30, 2000: Stock Options Outstanding Stock Options Exercisable Weighted Range of Number Average Weighted Number Weighted Exercise Outstanding Remaining Life Average Exercisable Average Prices (000) (Years) Exercise Price (000) Exercise Price $26 -$34 216 4 $26 216 $26 $35-$41 7,929 4 35 7,929 35 $42 -$63 39,600 5 51 36,688 50 50 The estimated fair values of stock options granted in fiscal 2000, 1999 and 1998 were derived using the Black-Scholes stock option pricing model. The fol- lowing table shows our assumptions and the weighted average fair values of stock options: Stock Options Granted in Fiscal Year Assumption 2000 1999 1998 Risk-free interest rate 6.0% 4.3% 5.8% Average expected life of stock options (in years) 7.9 5.1 3.3 Expected volatility of common stock 26.8% 26.3% 25.3% Expected annual dividends on common stock $0.10 $0.10 $0.10 Weighted average fair value of stock options $ 26 $ 16 $ 13 The following table shows our net income and earnings per share for fiscal 2000, 1999 and 1998 as if we accounted for our stock option plans under the fair value method of SFAS 123: 2000 1999 1998 Net income (in millions): As reported $1,303 $1,101 $1,001 Fair value method under SFAS 123 1,186 935 875 Basic earnings per share: As reported $ 9.92 $ 7.63 $ 6.64 Fair value method under SFAS 123 9.01 6.47 5.80 Diluted earnings per share: As reported $ 9.42 $ 7.20 $ 6.34 Fair value method under SFAS 123 8.53 6.11 5.54 Under SFAS 123, we are not required to include stock options granted before fiscal 1996 as com- pensation in determining pro forma net income. Therefore, the pro form a effects of SFAS 123 on net income and earnings per share for the periods pre- sented may not be representative of the pro forma effects of SFAS 123 in future years. Subsequent to June 30, 2000, we granted stock options covering a total of 3.1 million shares of common stock under the 1989 Stock Incentive Plan, with exercise prices ranging from $52. 75 to $55.81 per share. 16. Sale of Receivables During June 1999, we entered into an agreement under which we sold a defined pool of our accounts receivable, on a revolving basis, through a wholly owned subsidiary to a third party. We initially sold receivables with a fair value of $54 7 million to the subsidiary. In exchange for the receivables sold, we received (1) $325 million in cash from the sub- sidiary's sale of an undivided interest in the pool of receivables to a third party and (2) a $222 million subordinated promissory note from the subsidiary. The amount of the promissory note fluctuates because it represents the portion of the purchase price payable for the volume of receivables sold. We retained servicing and record-keeping responsibilities for the receivables sold. This agreement was renewed on June 15, 2000, and will expire on June 15, 2001. As part of the agreement, the subsidiary is obligated to pay fees to a third party based on the amounts invested by the third party. For fiscal 2000 and 1999, these fees were $20 million and $2 mil- lion, respectively. The fees are included in other income (expense) under miscellaneous income (expense), net in our Consolidated Statements of Income. The principal amount of the promissory note was $122 million and $175 million at June 30, 2000 and 1999, respectively, and is included as accounts receivable on our Consolidated Balance Sheets. 17. Business Acquisitions Comair Holdings, Inc. In fiscal 2000, we acquired all the remaining outstanding common stock of Comair Holdings for $1.8 billion. Comair Holdings is a holding company whose principal asset is its 100% ownership of Comair, a regional jet carrier. Prior to this acquisition, we owned 22% of Comair Holdings' outstanding common stock. We used the purchase method of accounting to record the acquisition of Comair Holdings. The pur- chase price of the shares acquired was allocated to the assets acquired and the liabilities assumed based on the preliminary estimated fair values at the acquisi- tion date. Based on the allocation as of June 30, 2000, the total cost of the acquisition exceeded the estimated fair value of the underlying net assets by $1.4 billion, which is being amortized on a straight- line basis over a 40 year period. Our consolidated financial statements as of June 30, 2000 include Comair Holdings' balance sheet as of June 30, 2000 and results of operations from November 22, 1999. ASA Holdings, Inc. In fiscal 1999, we acquired all the remaining out- standing common stock of ASA Holdings for $700 mil- lion. ASA Holdings is a holding company whose principal asset is its 100% ownership of ASA, a regional air carrier. Prior to this acquisition, we owned 28% of ASA Holdings' outstanding common stock. Notes to the Consolidated Financial Statements June 30, 2000, 1999 and 1998 We used the purchase method of accounting to record the acquisition of ASA Holdings. The purchase price of the shares acquired was allocated to the assets acquired and the liabilities assumed based on the estimated fair values at the acquisition date. The total cost of the acquisition exceeded the esti- mated fair value of the underlying net assets by $519 million, which is being amortized on a straight- line basis over a 40 year period. Our consolidated financial statements as of June 30, 1999 include ASA Holdings' balance sheet as of June 30, 1999, as well as its results of operations from April 1, 1999. 18. Change in Accounting Principle Delta sells mileage credits in the SkyMiles program to participating partners such as credit card companies, hotels, and car rental agencies. During fiscal 2000, in accordance with SAB 101, we changed our method of accounting for the sale of these mileage credits. Under the new account- ing method, a portion of the revenue from the sale of mileage credits is deferred until earned, and is recognized when the credits are redeemed for travel. The majority of the revenue from the sale of mileage credits is recorded in passenger revenue, and the remaining portion is recorded as an offset to expense. Previously, the revenue from the sale of mileage credits was recorded in other revenue in the period in which the credits were sold. All prior year amounts have been reclassified to conform with the current year presentation. 19. Quarterly Financial Data (Unaudited) DELTA A IR LI NES. IN C . We retroactively adopted this change in account- ing principle as of July 1, 1999. It resulted in a cumu- lative effect charge of $66 million ($108 million before income taxes), and decreased net income for fiscal 2000 by $21 million (a $34 million decrease before income taxes). Unaudited pro forma results assuming retroactive application of the change in accounting principle for fiscal 2000, 1999 and 1998 are shown below: (In millions, except for per share data): Net income before cumulative effect of change in accounting principle Basic EPS Diluted EPS 2000 $1,369 $10.42 $ 9.90 1999 $1,083 $ 7.50 $ 7.08 1998 $ 991 $6.57 $6.28 For comparative purposes, our results excluding implementation of the change in accounting principle for fiscal 2000, 1999 and 1998 are shown below: (In millions, except for per share data): Net income before cumulative effect of change in accounting principle Basic EPS Diluted EPS 2000 $1,390 $10.58 $10.04 1999 $1,101 $ 7.63 ~ 1998 $1,001 $ 6.64 $ 6.34 The following table summarizes our unaudited quarterly results of operations for fiscal 2000 and 1999 (in millions, except per share data): Three Months Ended Fiscal 2000 Sept. 30 Dec.31 Mar. 31 June 30 Operating revenues $3,829 $3,678 $3,911 $4,470 Operating income $ 336 $ 2 $ 343 $ 607 Net income $ 344 $ 348 $ 217 $ 460 Basic earnings per share* $ 1.99 $ 2.60 $ 1.68 $ 3.73 Diluted earnings per share* $ 1.88 $ 2.48 $ 1.61 $ 3.51 Three Months Ended Fiscal 1999 Sept. 30 Dec. 31 Mar. 31 June 30 Operating revenues $3,777 $3,424 $3,476 $3,920 Operating income $ 552 $ 320 $ 356 $ 642 Net income $ 327 $ 194 $ 216 $ 364 Basic earnings per share* $ 2.19 $ 1.34 $ 1.51 $ 2.59 Diluted earnings per share* $ 2.08 $ 1.29 $ 1.42 $ 2.40 *The sum of the quarterly earnings per share does not equal the fiscal earnings per share due to changes in average shares outstanding. 52 Report of Management The integrity and objectivity of the information presented in this Annual Report are the responsibility of Delta management. The financial statements con- tained in this report have been audited by Arthur Andersen LLP, independent public accountants, whose report appears below. Delta maintains a system of internal financial controls which are independently assessed on an ongoing basis through a program of internal audits. These controls include the selection and training of Delta's managers, organizational arrangements that provide a division of responsibilities, and communication programs explaining our policies and standards. We believe that this system provides rea- sonable assurance that transactions are executed in accordance with management's authorization; that transactions are appropriately recorded to permit preparation of financial statements that, in all material respects, are presented in conformity with Report of Independent Public Accountants To Delta Air Lines, Inc.: We have audited the accompanying consolidated balance sheets of Delta Air Lines, Inc. (a Delaware corporation) and subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of income, cash flows and shareowners' equity for each of the three years in the period ended June 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, D EL TA A I R L I NES, INC . accounting principles generally accepted in the United States; and that assets are properly accounted for and safeguarded against loss from unauthorized use. The Board of Directors pursues its responsibili- ties for these financial statements through its Audit Committee, which consists solely of directors who are neither officers nor employees of Delta. The Audit Committee meets periodically with the inde- pendent public accountants, the internal auditors and representatives of management to discuss inter- nal control, accounting, auditing and financial report- ing matters. M. Michele Burns Executive Vice President and Chief Financial Officer Leo F. Mullin Chairman and Chief Executive Officer DELTA AIR LINES , INC . as well as evaluating the overall financial statement presentation. We believe that our audits provide a rea- sonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Delta Air Lines, Inc. and subsidiaries as of June 30, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States. As discussed in Note 18 to the consolidated financial statements, effective July 1, 1999, the Company changed its method of accounting for the sale of mileage credits to participating partners in its frequent flyer program. Atlanta, Georgia August 11, 2000 53 Consolidated Summary of Operations DELTA AIR LINES, INC. For the fiscal years ended June 30, 20001 1999 1998 1997 2 (In Millions, Except Per Share Data) Operating revenues $15,888 $14,597 $14,057 $13,517 Operating expenses 14,600 12,727 12,363 11,986 Operating income (loss) 1,288 1,870 1,694 1,531 Interest expense, net (305) (153) (148) (174) Miscellaneous income, net7 1,300 109 102 58 Income (loss) before income taxes 2,283 1,826 1,648 1,415 Income tax (provision) benefit (914) (725) (647) (561) Amortization of investment tax credits Net income (loss) before cumulative effect of change in accounting principle 1,369 1,101 1,001 854 Net income {loss) after cumulative effect of change in accounting principle 1,303 1,101 1,001 854 Preferred stock dividends (12) (11) (11) (9) Net income (loss) attributable to common shareowners $ 1,291 $ 1,090 $ 990 $ 845 = Earnings (loss) per share before cumulative effect of change in accounting principle Basic $ 10.42 $ 7.63 $ 6.64 $ 5.70 Diluted $ 9.90 $ 7.20 $ 6.34 $ 5.52 Earnings (loss) per share8 Basic $ 9.92 $ 7.63 $ 6.64 $ 5.70 Diluted $ 9.42 $ 7.20 $ 6.34 $ 5.52 Dividends declared on Common Stock $ 13 $ 14 $ 15 $ 15 Dividends declared per common share 8 $ 0.10 $ 0.10 $ 0.10 $ 0.10 Other Financial and Statistical Data DELTA AIR LINES , INC . For the fiscal years ended June 30, 20001 1999 1998 1997 2 (Financial Data In Millions) Total assets $20,566 $16,750 $14,603 $12,741 Long-term debt and capital leases (excluding current maturities) $ 4,525 $ 1,952 $ 1,782 $ 1,797 Shareowners' equity $ 4,873 $ 4,448 $ 4,023 $ 3,007 Shares of Common Stock outstanding at year end 8 122,639,566 138,553,719 150,450,394 147,391,974 Revenue passengers enplaned (Thousands) 116,595 106,902 104,148 101,147 Available seat miles (Millions) 151,913 144,003 140,149 136,821 Revenue passenger miles (Millions) 110,347 104,575 101,136 97 ,758 Operating revenue per available seat mile 10.46 10.14 10.03 9.88 Passenger mile yield 13.48 13.09 13.03 12.98 Operating cost per available seat mile 9.61 8.84 8.82 8.76 Passenger load factor 72.6% 72.6% 72.2% 71.4% Breakeven passenger load factor 66.4% 62.7% 62.9% 62.8% Available ton miles (Millions) 22,068 20,627 19,890 18,984 Revenue ton miles (Millions) 12,504 12,115 11,859 11,308 Operating cost per available ton mile 66.16 61.70 62.16 63.14 ' Summary of operations and other financial and statistical data include pretax income of $574 million, net from nonrecurring items ($2.69 basic and $2.54 diluted after-tax earnings per share), excluding the cumulative effect of a change in accounting principle. 2 Summary of operations and other financial and statistical data include $52 million in pretax restructuring and other nonrecurring charges ($0.22 basic and $0.21 diluted after-tax earnings per share). ' Summary of operations and other financial and statistical data include $829 million in pretax restructuring and other nonrecurring charges ($4.88 after-tax earnings per share). ' Summary of operations and other financial and statistical data exclude $114 million after-tax cumulative effect of change in accounting principles ($1.13 primary and $0. 71 fully diluted earnings per share). 5 Summary of operations and other financial and statistical data include $526 million in pretax restructuring charges ($3.30 ater-tax per share). Summary of operations and other financial and statistical data include $82 million pretax restructuring charges ($0.53 after-tax per share). Summary of operations exclude $587 million after-tax cumulative effect of changes in accounting principles ($5.89 after-tax per share). 7 Includes interest income. All share and earnings per share amounts for fiscal years prior to 1999 have been restated to reflect the two-for-one common stock split that became effective on November 2, 1998. 54 19963 $12,418 11,953 465 (243) 54 276 (120) 156 156 (82) $ 74 $ 0.72 $ 0.72 $ 0.72 $ 0.72 $ 10 $ 0.10 19963 $12,226 $ 2,175 $ 2,540 135,556,212 91,341 130,751 88,673 9.50 13.19 9.14 67.8% 65.1% 18,084 10,235 66.10 19954 19945 19936 1992 1991 1990 ~ $12,162 $12,058 $11,657 $9,171 $8,583 11,501 12,503 12,167 11,477 9,604 8,145 661 (445) (510) (640) (433) 438 (262) (271) (177) (151) (97) (27) 95 56 36 5 30 57 494 (660) (651) (786) (500) 468 (200) 250 233 271 163 ~ 1 3 9 13 2 ~ (409) (415) (506) (324) 3 294 (409) (415) (506) (324) 303 (88) (110) (110) (19) (19) (18) $ 206 $ (519) $ (525) $ (525) $ (343) $ 285 $ 2.04 $ (5.16) $ (5.27) $ (5.30) $ (3.87) $ 2.90 $ 2.01 $ (5.16) $ (5.27) $ (5.30) $ (3.87) $ 2.64 $ 2.04 $ (5.16) $ (5.27) $ (5.30) $ (3.87) $ 2.90 $ 2.01 $ (5.16) $ (5.27) $ (5.30) $ (3.87) $ 2.64 $ 10 $ 10 $ 35 $ 59 $ 54 $ 85 $ 0.10 $ 0.10 $ 0.35 $ 0.60 $ 0.60 $ 0.85 19954 19945 19936 1992 1991 1990 $12,143 $11,896 $11,871 $10,162 $8,411 $7,227 $ 3,121 $ 3,228 $ 3,716 $ 2,833 $2,059 $1,315 $ 1,827 $ 1,467 $ 1,913 $ 1,894 $2,457 $2,596 101,632,020 100,906,544 100,127,682 99,398,196 98,803,558 92,172,220 88,893 87,399 85,085 77,038 69,127 67,240 130,645 131,906 132,282 123,102 104,328 96,463 86,417 85,268 82,406 72,693 62,086 58,987 9.31 9.14 8.81 8.80 8.79 8.90 13.18 13.27 13.23 13.91 13.80 13.63 8.80 9.48 9.20 9.32 9.21 8.44 66.2% 64.6% 62.3% 59.1% 59.5% 61.2% 62.3% 67.2% 65.6% 63.0% 62.6% 1 58.0% 18,150 18,302 18,182 16,625 12,500 13,825 10,142 9,911 9,503 8,361 7,104 6,694 63.37 68.32 66.92 69.03 69.47 65.16 55 Shareowner Information TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT FOR COMMON STOCK Registered shareowner inquiries regarding stock transfers, address changes, lost stock certificates, dividend payments or account consolidations should be directed to: EquiServe/First Chicago Division P. O. Box 2500 Jersey City, NJ 07303-2500 Telephone (201) 324-1225 www.equiserve.com DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN Registered holders of common stock may purchase additional shares of such stock through automatic dividend reinvestment or cash contributions under Delta's Dividend Reinvestment and Stock Purchase Plan. Inquiries, notices, requests and other commu- nications regarding participation in the plan should be directed to: EquiServe/First Chicago Division P. O. Box 2598 Jersey City, NJ 07303-2598 Telephone (201) 324-1225 www.equiserve.com INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP 133 Peachtree Street, NE Atlanta, GA 30303 ANNUAL MEETING The Annual Meeting of Shareowners will be on Wednesday, October 25, 2000, at 9:00 a.m., local time, at the Omni Netherland Plaza Hotel at 35 West Fifth Street, Cincinnati, Ohio. AVAILABILITY OF FORM 10-K AND OTHER FINANCIAL INFORMATION A copy of Delta's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 will be provided upon written request. Requests for other financial documents may also be directed to: Delta Air Lines, Inc. Investor Relations, Department 829 P. 0. Box 20706 Atlanta, GA 30320-6001 Telephone (404) 715-2170 56 D E LTA AIR L INE S , IN C. Company documents filed electronically with the SEC can also be found online at www.sec.gov. A copy of this Annual Report can be found at www.delta.com. Telephone inquiries related to financial informa- tion, other than requests for financial documents, may be directed to Delta Investor Relations at (404) 715-6679. COMMON STOCK Listed on the New York Stock Exchange under the ticker symbol DAL. NUMBER OF SHAREOWNERS As of June 30, 2000, there were 21,435 registered owners of common stock. MARKET PRICES AND DIVIDENDS Cash Dividends Closing Price of per Fiscal Year 2000 Common Stock on Common Share Quarter Ended: High Low September 30 $63 $46s $0.025 December 31 54s 47s 0.025 March 31 54 43% 0.025 June 30 57.s 49 0.025 Cash Dividends Closing Price of per Fiscal Year 1999 Common Stock on Common Share Quarter Ended: High Low September 30 $713/22 $4613 /is $0.025 December 31 579/is 4112 0.025 March 31 701 6 49 0.025 June 30 719/is I 55.s I 0.025 AVAILABILITY OF EQUAL EMPLOYMENT OPPORTUNITY REPORT A copy of Delta's Equal Employment Opportunity Report is available upon written request. Requests may be directed to: Delta Air Lines, Inc. Equal Opportunity, Department 955 P.O. Box 20706 Atlanta, GA 30320-6001 AVAILABILITY OF ENVIRONMENTAL REPORT A copy of Delta's Environmental, Health and Safety Report is available online at www.delta.com. 1- z w ~ l- a:: ~ 0 >- I Q. <( a:: (,'.) 0 l- o I Q. <( '::i w 0 ;;..: I Q. <( a:: (,'.) 0 l- o I Q. _, <( z 0 ;::: 0 0 <( z 3 a:: 0 u LL LL ~ ;;..: I Q. <( a:: (,'.) 0 l- o I Q. a:: 0 ~ ~ E i ~ a. I '- en l- a:: 0 ~ a:: _, <( ::J z z <( z :5 w I Q. Delta's Aircraft Fleet Mainline Aircraft Fleet Delta's modern and efficient aircraft fleet is at the center of our operations. Delta has entered into a long-term aircraft purchase agreement with The Boeing Company (Boeing), which covers firm orders, options and rolling options for certain aircraft through cal- endar year 2017. This agreement supports Delta's plan for disci- plined growth, aircraft rationalization and fleet replacement. It also provides Delta flexibility to adjust scheduled aircraft deliv- eries or substitute between aircraft models and aircraft types. The majority of the aircraft under firm order from Boeing will be used to replace older aircraft. Delta's long-term plan is to reduce aircraft family types from seven to three . We believe fleet standardization will improve reliability and produce long-term cost savings. We plan to Aircraft Fleet at June 30, 2000 Aircraft Type B-727-200 8-737-200 8-737-300 8-737-800 8-757-200 8-767-200 8-767-300 8-767-300ER B-777-200 L-1011-1 L-1011-250 Owned 90 1 24 70 15 4 50 7 7 5 L-1011-500 7 MD-11 8 MD-88 63 MD-90 16 EM8-120 51 ATR-72 4 CRJ-100/ 200 22 Total 444 Aircraft Delivery Schedule at June 30, 2000* D E LT A A IR LI N E S, I NC . retire (1) our remaining L-1011 aircraft by August 2001; (2) our B-727 fleet by the end of 2005; and (3) our MD-90 fleet and owned MD-11 aircraft over the next seven to nine years. In fiscal 1999, we entered into an agreement to sell our B- 727 fleet, with deliveries occurring through 2005. Regional Jet Aircraft In July 2000, ASA and Comair entered into purchase agreements with Bombardier, Inc. to purchase a total of 94 Canadair Regional Jet (CRJ) aircraft, including 69 CRJ-200 aircraft with a mix of 40, 44 and 50 seats, and 25 CRJ-700 aircraft with 70 seats. ASA and Comair also received options to purchase an additional 406 CRJ aircraft through 2010. Capital 45 3 48 Leased Operating 10 8 23 41 24 8 7 57 14 15 110 317 Total 100 54 26 24 111 15 28 58 7 7 5 7 15 120 16 65 19 132 809 Average Age 22.3 15.6 13.6 0.8 9.6 17.1 10.4 4.5 0.8 19.2 17.6 19.6 6.4 10.0 4.6 10.1 6.0 2.8 10.1 Delivery in Calendar Year Ending Aircraft on Firm Order 8-737-600/ 700/ 800 8-757-200 8-767-300/300ER 8-767-400 8-777-200 CRJ-100/ 200 CRJ-700 Total Aircraft on Option at June 30, 2000* Aircraft on Option ** 8-737-600/700/800 8-757-200 8-767-300/300ER 8-767-400 8-777-200 CRJ-100/200 CRJ-700 Total Remainder of 2000 16 7 12 16 51 Remainder of 2000 - - - - - - - - 2001 27 3 1 4 34 2 71 2002 18 5 1 29 20 73 2003 10 1 22 12 45 Delivery in Calendar Year Ending 2001 2002 2003 3 5 7 - 9 11 - 2 2 - 5 5 - 5 5 - 12 28 - - - 3 38 58 * Includes regional jet orders and options under purchase agreements entered into in July 2000. =- After 2003 37 4 2 23 66 After 2003 45 - 7 14 10 191 165 432 I = Total 108 10 1 21 6 103 57 306 Total 60 20 11 24 20 231 165 531 Rolling Options 256 74 14 16 27 387 ** Aircraft options have scheduled delivery slots , while rolling options replace options and are assigned delivery slots as options expire or are exercised . A .Delta Delta Air Lines, Inc. P.O. Box 20706 Atlanta, Georgia 30320-6001 (404) 715-2600 www.delta.com