Delta Air Lines annual report 2001

"We are made wise not by
the recollection of our past,
but by the responsibility
for our future."
A Delta
2001 Annual Report
To Delta's Shareowners, Customers and Employees:
LEO F. MULLIN
Chairman and Chief
Executive Officer
"It is. ..the strength of the foundation we have laid and the steps we take going
forward that provide the best indicator of Delta s future. As George Bernard
Shaw once said, `We are made wise not by the recollection of our past, but by the
responsibility for our f uture.
The events and challenges of 2001 were unlike any encountered
in our nation's history, and certainly unlike any in the history
of aviation. Already in the middle of an economic decline that
began in January 2001, the airline industry was shaken to its
very roots on September 11 when terrorists turned commercial
aircraft into weapons of mass destruction. The saga of how
Delta worked through this crisis and its aftermath, and how
we have maintained stability while positioning the company for
a return to profitable growth, is a tribute to the strength and
ingenuity of our entire team.
2 0 0 2
March 15,
Given the far-reaching consequences set in motion
on September 11, it is easy to forget that not all of
Delta's 2001 challenges began on that date. Even as
the long-running economic boom of the last decade
was weakened sharply early in 2001, the company was
also working through difficult pilot contract negotia
tions at both Delta and Comair. Despite a painful
89-day strike at Comair, by the middle of the year,
contracts that were beneficial to pilots at both airlines
but that also provided a structure for continued prof
itable growth were in place. With these negotiations
completed and an upturn in the economy just begin
ning, Delta was poised for recovery. But on September
f 1, everything changed.
Swift and Decisive Action
On that date, for the first time ever, our nation's avia
tion system was called to a halt, grounding passengers,
crew members, and aircraft in unplanned destinations.
The skies were eerily silent and empty as airlines and
the government worked together around the clock to
design a safer and more secure air transportation sys
tem so that travel could resume. Though aircraft and
crews were out of position, many passengers stranded,
and many airports still closed, Delta's service levels
were back to more than 85 percent of normal levels
by the fifth day following the shutdown.
Leo F. Mullin (center) with United States Senators Tom Daschle and
Don Nickles.
In addition to these unprecedented operational and
security demands, Delta and the rest of the industry
also faced severe financial challenges. Passenger revenue
had been reduced to zero during the shutdown, and
travel demand declined dramatically following restart
as a stunned public tried to absorb the dimensions of
the tragedy. Delta played a key role in conveying to
Congress and the Administration the seriousness of
aviation's economic plight. The industry succeeded
in obtaining $5 billion in cash aid (including $654
million for Delta) as well as a $10 billion loan guaran
tee program.
The cash infusion provided welcome immediate
relief, but only partially covered the huge losses asso
ciated with September 11.
2001 Annual Report 1
Letter to Shareowners, Customers and Employees
With reduced revenues, weak demand, high fixed
costs, and increasing expenses for security and insur
ance, the situation for our airline and the industry
remained grim throughout 2001 and into 2002,
despite the governmental help. Delta recorded a loss
of $1 billion for the year and the industry as a whole
posted a staggering $6 billion loss -- the worst in
aviation history.
From left to right:
Skycap Stacey Turmpseed
Passenger Service Agent Lori Ann Wallace assists a Delta passenger.
Delta responded quickly, decisively, and aggres
sively to the challenges emanating from this financial
stress, including:
Rigorous assessments of the revenue picture, from
the first signs of economic weakening in January 2001
through the crisis of September 1 1 and beyond.
Fast reductions in mainline capacity without dis
continuing any domestic destinations - leaving Delta
poised for service recovery as demand returns.
Difficult but necessary reductions in staffing -
achieved almost entirely through voluntary programs
such as leaves of absence, early retirement, and volun
tary severance rather than layoffs.
Commitment to security improvements through
fast, thorough implementation of new procedures
designed to provide a safe, secure environment for our
passengers and our employees.
Focus on Alliances
While the immediate demands of 2001 required
significant attention, Delta kept a constant eye on
long-term strategic goals. As part of this focus, we
strengthened SkyTeam, our international alliance, by
adding Alitalia to a list of partners that already
included Aeromexico, Air France, CSA Czech Airlines,
and Korean Air. In addition, Delta won governmental
approval for antitrust immunity between our airline
and SkyTeam's European partners, permitting full
2 Delta Air Lines, Inc.
coordination of schedules and fares that will offer the
maximum in convenience and competitive prices to
SkyTeam customers.
Recovery Period Ahead
Now, as we move into 2002 and trends in passenger
demand and revenue slowly begin to climb, our indus
try is in transition between crisis aftermath and initial
recovery. From this point on, it is not the difficulties of
2001 that will determine Delta's success. It is instead
the strength of the foundation we have laid and the
steps we take going forward that provide the best indi
cator of Delta's future. As George Bernard Shaw once
said, "We are made wise not by the recollection of our
past, but by the responsibility for our future."
Our actions throughout 2001 reflected Delta's
unwavering focus on recovery, including disciplined
capacity control; continued development of a strong
network through increased regional jet service and the
expanding growth potential of SkyTeam; continued
attention to capital infrastructure; and dedication to a
strong partnership with Delta people.
From left to right:
Airport Customer Service Representative Kumok Zajac
Ramp Customer Service Agent William Kofler
As a result, we are now poised to move past the
storms and into that future, fully prepared, fully
responsible, and fully certain that Delta's best days are
still ahead.
Leo F. Mullin
Chairman and Chief Executive Officer
2001 An al Report 3
Delta's Network of Choices
This year, over 104 million passengers chose to fly Delta (including
its wholly owned subsidiaries Atlantic Southeast Airlines, Inc. and
Comair, Inc.) - more than any other airline.
Delta offers its customers a variety of choices to better serve their
travel needs - whether domestic, international, business or leisure.
The Delta Network consists of the following five distinctive, com
plementary and integrated products:
Delta Mainline - the core of our hub and spoke system. Our
strategically located hubs in Atlanta, Cincinnati, Dallas/Ft. Worth
and Salt Lake City provide us with a strong route network that
extends our reach around the world.
Delta International - Delta is the #1 carrier across the Atlantic,
offering 413 weekly departures and nonstop service in 32 mar
kets. Delta's global reach is extended with its SkyTeam partners,
Aeromexico, Air France, Alitalia, CSA Czech Airlines and Korean Air.
Delta Connection - our regional jet carrier service provides
passengers in small and medium-sized cities with greater
access to their destinations. Delta Connection carriers
include Atlantic Southeast Airlines, Comair, Atlantic
Coast Airlines and SkyWest. Delta is an industry leader in
the fast-growing regional jet market. As of December
31, 2001, 231 regional jets flew under Delta's code.
Delta Shuttle - provides high-frequency service to
our key business travelers, with 17 nonstop, hourly
weekday departures between New York-La Guardia
(Marine Air Terminal) and Boston-Logan International
and 16 nonstop hourly weekday departures between
New York-La Guardia (Marine Air Terminal) and
Washington, D.C.-Ronald Reagan National airports.
No reservations are required.
Delta Express - is Delta's low-fare product, offering our
leisure customers reliable service and a reserved seat
assignment at a low price between the Northeast and
Midwest to four Florida markets.
Delta domestic destinations
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4 Delta Air Lines, Inc. 2001 Annual Report 5
Europe, Africa and Asia, and with British European to five new desti
nations in Europe.
In January 2002, Delta and its European SkyTeam partners Air
France, Alitalia and CSA Czech Airlines received final approval from
the U.5. Department of Transportation for antitrust immunity that
will permit the carriers to implement a more integrated airline alliance.
In February 2002, we announced plans to reinstate codesharing on
Korean Air flights, beginning on May 1, 2002.
Network Challenges
Early in the year, the U.S. and global economies began experiencing
weakness, resulting in a decline in demand for air travel. In response,
Delta's network strategy focused on reducing capacity, eliminating
unprofitable routes and continuing to reallocate aircraft to core
strength markets.
The events of September 11 created new challenges that severely
impacted the airline industry. Following these tragic events, traffic
decreased dramatically. In response, Delta reduced its scheduled
capacity by 16 percent effective November 1. These reductions
were achieved by:
Reducing operations on high-frequency routes with high
potential for traffic recapture.
Suspending winter service in seasonal markets.
Reducing international flying.
Decreasing Delta Express capacity due to the decline in leisure
travel demand.
Continuing to use Delta's regional jets to provide additional serv
ice to Delta's mainline network from smaller, feeder markets.
In making these capacity reductions, our goals were to keep our
route network intact and to minimize the impact on our customers,
while achieving significant cost reductions.
Alliance Partnerships
Although focused on recovering from September 11, Delta continued
executing its strategic alliance goals. In December, Delta announced
the addition of a new SkyTeam partner, Alitalia, to provide additional
travel opportunities to Italy and within Europe. Delta also increased
its codesharing network by adding two new partners: Aerolitoral,
to strengthen Delta's service between the U.S. and Mexico; and an
innovative codeshare agreement with SNCF-French Rail to provide
rail service from Paris' Charles de Gaulle International Airport to eight
destinations in France. Delta also expanded its codesharing service
with SkyTeam partner Air France to include eight new destinations in
6 Delta Air Lines, Inc.
2001 Annual Report 7
Officers
Leo F. Mullin
Chairman and Chief Executive Officer
Frederick W. Reid
President and Chief Operating Officer
M. Michele Burns
Executive Vice President and Chief
Financial Officer
Robert L. Colman
Executive Vice President - Human
Resources
Vicki B. Escarra
Executive Vice President and Chief
Marketing Officer
Edward H. Bastian
Senior Vice President -- Finance and
Controller
Vincent F. Caminiti
Senior Vice President -- e-Business
Anthony N. Charaf
Senior Vice President - Delta Air
Logistics
W. Lamar Chesney
Senior Vice President -- Supply Chain
Management
Robert S. Harkey
Senior Vice President -- General
Counsel and Secretary
Subodh Karnik
Senior Vice President -- Network and
Revenue Management
Lee A. Macenczak
Senior Vice President - Sales and
Distribution
R. Michael Bell
Vice President - Schedule
Development
Gerald A. Bemis
Vice President - Line Maintenance
Operations
Harlan R. Bennett
Vice President - Revenue
Management
Harold L. Bevis
Vice President - Public Affairs
Doug Blissit
Vice President - Network Analysis
John W. Boatright
Vice President - Properties and
Strategic Sourcing
Walter A. Brill
Vice President - Associate General
Counsel
Robert T. Cirulnick
Vice President -- Finance, In-Flight &
Operations
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
Christopher A. Duncan
Vice President - Finance and Chief
Risk Officer
John C. Marshall
Vice President - Corporate Safety and
Compliance
James V. Maucere
Vice President - Base, Engine and
Component Maintenance
Patrice G. Miles
Vice President - Consumer Marketing
Leon A. Piper
Vice President - Worldwide Benefits
and Health Resources
Udo Rieder
Vice President - Engineering and
Planning
Gregory L. Riggs
Vice President - Deputy General
Counsel and Assistant Secretary
Debbie Siek
Vice President -- Reservation Sales and
Customer Care
David J. Smith
Vice President - Global Rewards and
Recognition
Belinda C. Stubblefield
Vice President -- Global Diversity
William F. Wangerien
Vice President - Operations Planning,
Control and Reliability
Patrick H. Wildenburg, Jr.
Vice President -- Supply Chain
Management - Airline Operations
Lemuel R. Wimbish, Jr.
Vice President -- Atlanta Worldport
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
James M. Whitehurst
Senior Vice President - Finance,
Treasury and Business Development
Sharon Wibben
Senior Vice President - In-Flight
Service
D. Scott Yohe
Senior Vice President - Government
Affairs
J. Mark Balloun
Vice President - Corporate Strategic
Planning
Terry M. Erskine Michael M. Young
Vice President - Labor Relations Vice President - Community Affairs
Carolyn A. Ezzell
Vice President - Atlantic Region
Michelle McKinney Frymire
Vice President -- Finance -- Sales,
Marketing and International
Hank Halter
Vice President - Finance and Assistant
Controller
Todd G. Helvie
Vice President -- Tax
Leslie P. Klemperer
Vice President -- Associate General
Counsel and Assistant Secretary
William D. Kline
Vice President - Organization
Staffing & Development and Chief
Learning Officer
Joseph C. Kolshak
Vice President -- Flight Operations
Joseph Licitra
Vice President - Airport Customer
Service -- East
Dean C. Arvidson
Assistant Secretary
Susan T. Hudson
Assistant Secretary
Delta Subsidiaries
Frederick W.P. Buttrell
President and Chief Executive Officer
- Delta Connection, Inc.
Jeffrey T. Fisher
Vice President and Chief Financial
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.
Curtis Robb
Acting President and Chief Executive
Officer - Delta Technology, Inc.
Chief Information Officer
- Delta Air Lines, Inc.
8 Delta Air Lines, Inc.
Board of Directors
Edwin L. Artzt
Non-Executive Chairman of the
Board, Spalding Holdings Corporation;
Retired Chairman of the Board and
Chief Executive Officer, The Procter &
Gamble Company
James L. Broadhead
Retired 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 Executive Officer, The Travelers
Corporation
R. Eugene Cartledge
Retired Chairman of the Board
and Chief Executive Officer, Union
Camp Corporation
Mary Johnston Evans
Director of Household International,
Inc., Moody's Corporation and
Sunoco, Inc.
Audit
James L. Broadhead, Chairman
Mary Johnston Evans
George M.C. Fisher
Joan E. Spero
Andrew J. Young
Benefit Funds Investment
Andrew J. Young, Chairman
James L. Broadhead
R. Eugene Cartledge
Mary Johnston Evans
John F. Smith, Jr.
Corporate Governance
Mary Johnston Evans, Chairman
James L. Broadhead
Gerald Grinstein
John F. Smith, Jr.
Andrew J. Young
Delta Boa
Nancy E. Bossert
Operational and Administrative
Support
Michele F. Chase
Field and Air Logistics Sales
Claudia S. Landau
Supervisory and Management
Representative of Ai
Captain Dave A. Miller
Associate non-voting member of the
Board of Directors
George M.C. Fisher
Retired Chairman of the Board and
Chief Executive Officer, 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 of the Board 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
oard Committees
Corporate Strategy
R. Eugene Cartledge, Chairman
Edwin L. Artzt
James L. Broadhead
Edward H. Budd
Gerald Grinstein
Executive
Gerald Grinstein, Chairman
Edwin L. Artzt
James L. Broadhead
Edward H. Budd
R. Eugene Cartledge
Mary Johnston Evans
Andrew J. Young
d Council Represe
William M. Morey
Reservation Sales and City Ticket
Offices
Kenneth R. Nowling
Technical Operations
r Line Pilots Associat
John F. Smith, Jr.
Chairman of the Board, General
Motors Corporation; Chairman
of Catalyst
Joan E. Spero
President of the Doris Duke
Charitable Foundation; Former U.S.
Undersecretary of State for Economic,
Business & Agricultural Affairs;
Former executive of American Express
Company
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
Finance
Edwin L. Artzt, Chairman
Edward H. Budd
R. Eugene Cartledge
David R. Goode
Gerald Grinstein
Personnel & Compensation
Edward H. Budd, Chairman
George M.C. Fisher
David R. Goode
Gerald Grinstein
n t a t i v e s
Larry J. Stites
Airport Customer Service and Air
Logistics
Dale C. Williams
In-Flight Service
ion, International
2001 Annual Report 9
Consolidated Financial Highlights
Years ended December 31, 2001 and 2000
Dollar amounts in millions, except per share data 2001 2000 Change
Operating revenues $ 13,879 $ 16,741 (17%)
Operating expenses $ 14,996 $ 15,003 -
Operating income (loss) $ (1,117) $ 1,738 (164%)
Operating margin (8.0%) 10.4% (18.4) pts
Net income (loss) $ (1,027) $ 897 (214%)
Diluted earnings (loss) per share $ (8.46) $ 6.81 (224%)
Passenger mile yield 12.742 13.862 (8%)
Operating revenue per available seat mile 9.392 10.802 (13%)
Operating cost per available seat mile 10.142 9.682 5%
Dividends declared on common stock $ 12 $ 12 -
Dividends per common share 10.002 10.002 -
Common shares issued and outstanding at year end (thousands) 123,246 123,013 -
C o n s o I i dated Operating Highlights
Years ended December 31, 2001 and 2000
2001 2000 Change
Revenue passengers enplaned (thousands) 104,943 119,930 (12%)
Revenue passenger miles (millions) 101,717 112,998 (10%)
Available seat miles (millions) 147,837 154,974 (5%)
Passenger load factor 68.8% 72.9% (4.1) pts
Breakeven passenger load factor* 74.7% 64.8% 9.9 pts
Cargo ton miles (millions) 1,583 1,855 (15%)
Cargo ton mile yield 31.952 31.462 2%
Fuel gallons consumed (millions) 2,649 2,922 (9%)
Average aircraft fuel price per gallon, net of hedging gains 68.602 67.382 2%
Number of aircraft in fleet at year end 814 831 (2%)
Average age of aircraft fleet at year end (years) 9.1 9.6 (5%)
Average aircraft utilization (hours per day) 7.3 8.0 (9%)
End of year full-time equivalent employees 76,273 83,952 (9%)
* Excludes unusual Items. For information regarding unusual items, see pages 13-14.
Index to
11 Glossary of Defined Terms
12 Management's Discussion and Analysis
of Financial Condition and Results of Operations
24 Consolidated Balance Sheets
26 Consolidated Statements of Operations
27 Consolidated Statements of Cash Flows
28 Consolidated Statements of Shareowners' Equity
Financials
29 Notes to the Consolidated Financial Statements
55 Report of Independent Public Accountants
55 Report of Management
56 Consolidated Summary of Operations
58 Business Description
58 Shareowner Information
59 Delta's Aircraft Fleet (Inside Back Cover)
10 Delta Air Lines, Inc.
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 Consolidated Balance
Sheets that represents the sale of passenger tickets for which
services have not yet been provided. As the transportation
service is provided by Delta, the amount is removed from air
traffic liability and is recognized as revenue.
ASM - Available Seat Mile. 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.
ERISA - The Employee Retirement Income Security Act
of 1974. This federal law governs employee benefit and
retirement plans.
Fuel Price Neutralized CASM - the amount of operating
cost incurred per available seat mile during a reporting period,
adjusting fuel price to equal the prior year.
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.
Operating Margin - operating income divided by operating
revenues.
Passenger Load Factor - a measure of available seating capaci
ty that is used which is calculated by dividing RPMs by ASMs
for a reporting 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 multiplying
the number of revenue passengers by the number of miles
they are flown for the reporting period.
Series B ESOP Convertible Preferred Stock - convertible
preferred stock, $1.00 par value, $72.00 stated and liquida
tion 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.
2001 Annual Report 11
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
BUSINESS ENVIRONMENT
Our financial results for the year ended December 31,
2001 were materially affected by the terrorist attacks on
the United States on September 11, 2001, the slowing
U.S. and world economies and pilot labor issues at both
Delta and Comair, Inc. (Comair).
September 11, 2001 Terrorist Attacks
On September 11, 2001, four commercial aircraft were
hijacked by terrorists and crashed into The World Trade
Center in New York City, the Pentagon in northern Virginia
and a field in Pennsylvania. These attacks resulted in an
overwhelming loss of life and extensive property damage.
In response to the terrorist attacks, the Federal Aviation
Administration (FAA) closed U.S. airspace, prohibiting all flights
to, from and within the U.S. Airports reopened on September
13, 2001, except for Ronald Reagan National Airport in
Washington, D.C., which partially reopened on October 4,
2001. During the period when airports were closed, we
earned no revenues but continued to incur many of our
normal operating costs. For several days after airports were
reopened, we were able to operate only a portion of our
scheduled flights.
When flights were permitted to resume, our passenger
traffic and yields were significantly lower than before the
attacks. In addition, new security directives increased our
costs and negatively impacted our ability to operate a pre-
September 11 schedule. We estimate that the September 11
terrorist attacks negatively impacted our revenues by approxi
mately $1.25 billion for the year. This is in addition to revenues
that were adversely affected by the slowing U.S. and world
economies and the pilot labor issues at Delta and Comair.
Due to the significant reduction in traffic, we reduced our
scheduled capacity by 16% effective November 1, 2001. In
making these capacity reductions, our goals were to keep our
route network intact and to minimize the impact on our cus
tomers, while achieving significant cost reductions. Accordingly,
we focused on reducing service on high-frequency routes with
high potential for recapturing traffic, suspending winter service
in seasonal markets, reducing international flying, decreasing
Delta Express capacity and using regional jets to maintain pres
ence and to provide mainline connecting traffic.
As a result of the capacity reductions, we have reduced
staffing levels by approximately 11,000 employees across all
major work groups at December 31, 2001. Approximately
10,000 Delta employees elected to participate in one of Delta's
voluntary programs, which include leaves of absence, sever
ance and an early retirement program. Involuntary reductions
are expected to affect approximately 1,700 employees, which
includes the furlough of approximately 1,400 pilots.
Approximately 400 pilot furloughs occurred in 2001 and
approximately 1,000 are expected to occur in 2002. We
recorded a $566 million charge relating to the staffing reduc
tions, $475 million of which relates to the early retirement and
voluntary leave of absence programs, while the remaining $91
million relates to severance and related costs. As of December
31, 2001, approximately $44 million had been paid for sever
ance and related costs. An additional $47 million is expected
to be paid in 2002.
On September 22, 2001, President Bush signed into law
the Air Transportation Safety and System Stabilization Act
(Stabilization Act), which is intended to preserve the viability
of the U.S. air transportation system. Among other things,
the Stabilization Act (1) provides for payments from the U.S.
Government totaling $5 billion to compensate U.S. air car
riers for losses incurred from September 1 1, 2001 through
December 31, 2001 as a result of the September 11 terrorist
attacks; and (2) authorizes, subject to certain conditions, the
issuance of federal loan guarantees totaling up to $10 billion
to U.S. air carriers. We have recognized $634 million in com
pensation under the Stabilization Act, $556 million of which
was received in 2001. For additional information about the
Stabilization Act and the compensation payable to us under
that statute, see Note 2 of the Notes to the Consolidated
Financial Statements.
U.S. and World Economies
Prior to September 11, the slowing economy reduced the
demand for air travel among both business and leisure pas
sengers. This decline in demand negatively impacted our
passenger traffic and yield for the year. As a result of the
September 11 terrorist attacks, the business environment
significantly worsened.
12 Delta Air Lines, Inc.
Delta Pilot Labor Issues
In December 2000, we canceled a substantial number of flights
due to a job action by some Delta pilots which significantly
reduced pilot availability for overtime (or additional) flying. To
provide more reliable service to our customers, we lowered the
need for overtime flying by reducing Delta's mainline flight
schedule from the previously planned levels by 2.7% for the
March 2001 guarter and 2.4% for the June 2001 quarter.
Public concern over a possible strike by Delta pilots relat
ing to the then ongoing collective bargaining negotiations
caused some customers to make reservations and travel with
airlines other than Delta during the six months ended June
30, 2001. On June 20, 2001, Delta pilots ratified a new col
lective bargaining agreement, avoiding a possible strike.
Comair Pilot Labor Issues
On March 26, 2001, Comair pilots began a strike, which
continued until June 22, 2001 when they ratified a new col
lective bargaining agreement. As a result of this 89-day strike,
Comair suspended its operations between March 26, 2001
and July 1, 2001. Comair resumed partial service on July 2,
2001, and gradually began restoring service through the
year. Comair's service was fully restored to its pre-strike levels
during January 2002. We estimate that the Comair strike
negatively impacted our revenues by approximately $680
million in 2001. Additional negative impacts of the strike
include added costs to retrain Comair pilots and rebuild
the Comair workforce.
OUTLOOK
2002 will be a challenging year. The events of September 11
continue to materially affect our revenues due to a decline
in traffic and yield. While the business environment is slowly
recovering, traffic and yield remain well below last year's
level. In January 2002, our revenue decreased 23%, traffic
declined 10% and yield fell 15% compared to January 2001.
We expect significant cost pressures to continue in
2002. These include increased (1) security costs and premi
ums for war and terrorism risk insurance due to the events of
September 11; (2) interest expense resulting from higher lev
els of outstanding debt; and (3) pension expense due to the
decrease in the fair value of our pension plan assets resulting
from the stock market decline and to the new Delta pilot
contract. During 2002, we expect to incur unusual operating
costs of approximately $130 million. These nonrecurring
expenses are a direct cost of our capacity reductions and rep
resent the temporary carrying cost of surplus pilots, as well as
requalification training and relocation costs.
To help offset the impact of revenue declines and cost
pressures, we have implemented a cost reduction program.
The primary elements of this program are (1) the reduction
of our staffing levels by approximately 12,000 employees;
(2) capacity reductions, including the accelerated retirement
of certain aircraft types; and (3) a detailed line item review of
all other elements of our cost structure. Our capacity reduc
tions will remain in place through at least the March 2002
quarter, with the pace of passenger revenue recovery deter
mining our mainline capacity plans for the remainder of the
year. Due to the changing business environment, we continue
to refine many of our cost estimates for 2002.
Based on the above, we expect to report a significant
loss for the March 2002 quarter. The continuing impact of
September 11 on our future financial condition and results of
operations will depend on, among other things, the duration
and magnitude of the adverse impact of the terrorist attacks
on the demand for air travel and the business environment.
Assuming traffic and yields continue to improve during 2002,
we believe we may be profitable by the end of the year.
2001 Compared to 2000
NET INCOME (LOSS) AND EARNINGS (LOSS)
PER SHARE (EPS)
Excluding the unusual items described below, our net loss
was $1.0 billion ($8.46 diluted EPS) in 2001 compared to net
income of $897 million ($6.81 diluted EPS) in 2000. Including
the unusual items described below, we recorded a net loss of
$1.2 billion ($9.99 diluted EPS) in 2001, and net income of
$828 million ($6.28 diluted EPS) in 2000.
UNUSUAL ITEMS
Our results of operations for 2001 and 2000 include the fol
lowing items, which are collectively referred to as "unusual
items" in this discussion of 2001 compared to 2000:
2001 Annual Report 13
Management's Discussion and Analysis
of Financial Condition and Results of Operations
2001
Gains:
A $634 million gain ($392 million net of tax, or $3.18
diluted EPS) that reflects the compensation we recognized
under the Stabilization Act (see Note 2 of the Notes to the
Consolidated Financial $tatements).
A $111 million gain ($68 million net of tax, or $0.55
diluted EP5) on the sale of our equity interest in 5kyWest,
Inc., the parent company of SkyWest Airlines (see Note 3
of the Notes to the Consolidated Financial Statements).
A $68 million non-cash gain ($41 million net of tax, or
$0.33 diluted EP5) for fair market value adjustments of
financial instruments accounted for under $tatement of
Financial Accounting $tandards (5FA5) 133, "Accounting
for Derivative Instruments and Hedging Activities." These
gains relate to derivative instruments we use in our fuel
hedging program and to our equity warrants and other
similar rights in other companies, primarily priceline.com
Incorporated (priceline) (see Note 4 of the Notes to the
Consolidated Financial 5tatements).
An $11 million gain ($7 million net of tax, or $0.06
diluted EPS) from the sale of our equity interest in
Equant, N.V. (Equant), an international data network
services company (see Note 3 of the Notes to the
Consolidated Financial Statements).
Charges:
$1.1 billion ($695 million net of tax, or $5.63 diluted
EPS) in asset writedowns and other nonrecurring items.
This primarily relates to charges for early retirement
and severance costs relating to our staffing reductions,
charges for the impairment and early retirement of certain
aircraft and charges for discontinued contracts, facilities
and information technology projects (see Note 9 of the
Notes to the Consolidated Financial Statements).
2000
Gains:
A $301 million gain ($184 million net of tax, or $1.40
diluted EPS) from the sale of investments. This includes
a $73 million gain from the sale of 1.2 million shares of
priceline common stock and a $228 million non-cash gain
from the exchange of six million shares of priceline common
stock for priceline preferred stock (see Note 3 of the Notes
to the Consolidated Financial Statements)
A $16 million one-time, non-cash gain ($10 million
net of tax, or $0.07 diluted EPS), related to our equity
investment in WORLDSPAN, L.P (Worldspan), a computer
reservations system partnership. This gain represents our
share of Worldspan's favorable outcome in certain arbi
tration proceedings.
Charges:
A $164 million cumulative effect, non-cash charge ($100
million net of tax, or $0.77 diluted EPS), resulting from our
adoption of SFAS 133 on July 1, 2000 (see Note 4 of the
Notes to the Consolidated Financial Statements).
A $159 million non-cash charge ($97 million net of
tax, or $0.74 diluted EPS) for fair market value adjust
ments of financial instruments accounted for under
SFAS 133 (see Note 4 of the Notes to the Consolidated
Financial Statements).
A $108 million charge ($66 million net of tax, or $0.50
diluted EPS) for nonrecurring items. This includes charges
of $86 million for an early retirement medical option pro
gram for eligible employees and $22 million related to
our decision to close our Pacific gateway in Portland,
Oregon (see Note 9 of the Notes to the Consolidated
Financial Statements).
A $7 million charge ($4 million net of tax, or $0.03 diluted
EPS) for the early extinguishment of certain debt obligations.
OPERATING REVENUES
Operating revenues were $13.9 billion in 2001, decreasing
17% from $16.7 billion in 2000. Passenger revenues fell
17% to $13.0 billion, reflecting a 10% decrease in RPMs on
a capacity decline of 5%, and an 8% decrease in passenger
mile yield to 12.74tf. These decreases were primarily the result
of the effects of the terrorist attacks on September 11, the
slowing U.S. and world economies and pilot labor issues at
both Delta and Comair.
North American Passenger Revenues
North American passenger revenues fell 19% to $10.6 billion.
RPMs decreased 11 % on a capacity decrease of 6%, while
passenger mile yield decreased 9%. These decreases resulted
from the terrorist attacks, the slowing economy and pilot
labor issues.
14 Delta Air Lines, Inc.
International Passenger Revenues
International passenger revenues decreased 6% to $2.3
billion. RPMs fell 6% mainly due to the terrorist attacks
on September 11 and the slowing U.S. and world economies.
Passenger mile yield remained flat while capacity increased
2%, reflecting our international expansion, particularly in
Latin American markets.
Cargo and Other Revenues
Cargo revenues decreased 13% to $506 million primarily
due to the effects of the terrorist attacks on September 11,
including the implementation of new FAA restrictions on
cargo, and the slowing U.S. and world economies. The FAA
restrictions prohibit passenger airlines from transporting mail
weighing more than 16 ounces, which represented close
to 50% of our mail business. Cargo ton miles decreased
15% and cargo ton mile yield increased 2%. Other reven
ues decreased 18% to $409 million, primarily due to lower
codeshare revenues, resulting from the terrorist attacks on
September 11 and the slowing U.S. and world economies.
OPERATING EXPENSES
Excluding unusual items, operating expenses remained flat at
$15.0 billion, CASM rose 5% to 10.14c, and fuel price neu
tralized CASM grew 5% to 10.12c. Including unusual items,
operating expenses for 2001 totaled $15.5 billion, increasing
2% from $15.1 billion in 2000. CASM rose 7% to 10.47c,
and fuel price neutralized CASM grew 7% to 10.45c.
Operating capacity decreased 5% to 148 billion ASMs. The
increase in CASM is primarily related to a reduction in capacity
due to the terrorist attacks on September 11 and pilot labor
issues at Delta and Comair, as well as an increase in asset
writedowns and other nonrecurring items and higher salaries
and related costs.
Salaries and related costs increased 3% during 2001
to $6.1 billion. The increase in salaries and related costs
primarily relates to increased costs associated with the new
pilot contract.
Aircraft fuel expense decreased 8% in 2001. The average
fuel price per gallon rose 2% to 68.60c. Total gallons con
sumed decreased 9% due primarily to the decrease in flights
resulting from the September 11 terrorist attacks and the
Comair pilot strike, as well as fuel efficiencies realized from
our fleet renewal efforts. Our fuel cost is shown net of fuel
hedge gains of $299 million for 2001 and $684 million
for 2000. Approximately 58% and 67% of our aircraft fuel
reguirements were hedged during 2001 and 2000, respectively.
For additional information about our fuel hedge contracts, see
Note 4 of the Notes to the Consolidated Financial Statements.
Depreciation and amortization expense rose 8% in 2001
due to the acquisition of additional aircraft and ground equip
ment. Other selling expenses decreased 10% due to a lower
volume of credit card charges resulting from lower revenue.
Passenger commissions expense declined 18%, primarily
as a result of lower passenger revenues. Contracted services
expense increased 5% as a result of rate increases for build
ing and equipment maintenance and increased security costs.
Landing fees and other rents rose 1 % due to increased
rates at various locations, partially offset by the impact of
the Comair strike. Aircraft rent expense decreased 1 % due
to a decrease in the number of leased aircraft. Aircraft mainte
nance materials and outside repairs expense grew 11 % due to
the timing of certain maintenance work. Passenger service
expense decreased 1%. Other operating expenses decreased
4% as a result of lower fuel-related taxes, interrupted trip
expenses and professional fees, partially offset by new uniform
costs and higher insurance expenses.
OPERATING INCOME AND OPERATING MARGIN
Excluding unusual items, we incurred an operating loss of
$1.1 billion in 2001, compared to operating income of $1.7
billion in 2000. Operating margin excluding unusual items
was (8%) and 10% for 2001 and 2000, respectively. Including
unusual items, we incurred an operating loss of $1.6 billion in
2001, compared to operating income of $1.6 billion in 2000.
Operating margin including unusual items was (12%) and
10% for 2001 and 2000, respectively.
OTHER INCOME (EXPENSE)
Other expense totaled $262 million during 2001, compared
to other expense of $88 million in 2000. This change is attrib
utable to the following:
net gain from the sale of investments decreased $174 mil
lion in 2001 compared to 2000 (see Note 3 of the Notes
to the Consolidated Financial Statements);
net interest expense increased $153 million in 2001 due
to higher levels of outstanding debt;
2001 Annual Report 15
Management's Discussion and Analysis
of Financial Condition and Results of Operations
miscellaneous income decreased $74 million mainly due
to a decrease in our equity earnings from Worldspan; and
a $68 million gain in 2001 compared to a $159 million
loss in 2000 related to fair market value adjustments of
SFAS 133 derivatives mainly due to changes in the price of
the underlying common stock (see Note 4 of the Notes to
the Consolidated Financial Statements).
2000 Compared to 1999
NET INCOME AND EARNINGS PER SHARE (EPS)
Excluding the unusual items described below, net income was
$897 million ($6.81 diluted EPS) in 2000, compared to $1.0
billion ($6.79 diluted EPS) in 1999. Including unusual items, our
net income was $828 million ($6.28 diluted EPS) in 2000, com
pared to net income of $1.2 billion ($8.15 diluted EPS) in 1999.
Our 1999 results include the results of operations of
Comair Holdings, Inc. from November 22, 1999 and ASA
Holdings, Inc. from April 1, 1999. Comair Holdings and
ASA Holdings are the parent companies of regional jet car
riers Comair and Atlantic Southeast Airlines, Inc. (ASA),
respectively. See Note 19 of the Notes to the Consolidated
Financial Statements for additional information about our
acquisitions of these companies.
UNUSUAL ITEMS
Our results of operations for 2000 and 1999 include the fol
lowing items, which are collectively referred to as "unusual
items" in this discussion of 2000 compared to 1999:
2000
The unusual items for 2000 are listed under "Unusual Items -
2000" on page 14 of this Annual Report.
1999
Gains:
A $927 million gain ($565 million net of tax, or $3.83
diluted EPS) from the sale of investments, including: (1)
$711 million from the sale of 11.1 million shares of price
line common stock; (2) $137 million from the sale of our
equity interest in Singapore Airlines Limited; (3) $50 million
from the sale of a portion of our equity interest in Equant;
and (4) $29 million from the sale of our equity interest in
SAirGroup, the holding company of Swissair (see Note 3
of the Notes to the Consolidated Financial Statements).
Charges:
A $469 million charge ($286 million net of tax, or $1.94
diluted EPS) for asset writedowns and other nonrecurring
items. This includes charges of $320 million for an asset
writedown resulting from our decision to retire certain
aircraft earlier than previously planned and $149 million
for asset impairment losses (see Note 9 of the Notes to
the Consolidated Financial Statements).
An $89 million non-cash charge ($54 million net of tax,
or $0.37 diluted EPS) from the cumulative effect of a
change in accounting principle resulting from our January 1,
1999 adoption of SEC Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements." SAB 101
required us to change our method of accounting for the
sale of frequent flyer mileage credits to participating part
ners (see Note 6 of the Notes to the Consolidated Financial
Statements).
A $40 million charge ($24 million net of tax, or $0.16
diluted EPS) for the early extinguishment of certain long
term debt obligations.
OPERATING REVENUES
Operating revenues were $16.7 billion in 2000, increasing
12% from $14.9 billion in 1999. Passenger revenue growth
of 12% reflects a 6% increase in RPMs on capacity growth
of 5%, and a 5% increase in passenger mile yield to 13.86c.
Excluding Comair and ASA, RPMs grew 3% on capacity
growth of 2%.
North American Passenger Revenues
North American passenger revenues grew 11% to $13.2
billion, driven by a 6% increase in RPMs on capacity growth
of 6%, and a 4% rise in passenger mile yield. The increase
in RPMs was due to the inclusion of Comair and ASA, favor
able economic conditions and the expansion of our fleet.
The growth in traffic was partially offset by flight cancella
tions due to severe winter weather conditions and reduced
flying by some Delta pilots during December 2000. The
increase in passenger mile yield was largely a result of the
full-year impact of Comair and ASA and improved revenue
management systems, partially offset by increased low-fare
competition and capacity increases by competitors.
16 Delta Air Lines, Inc.
International Passenger Revenues
International passenger revenues increased 20% to $2.5
billion. RPMs rose 7% on capacity growth of 5%, and pas
senger mile yield increased 12%. The increase in RPMs reflects
our expansion into Latin America, which resulted in 24% traffic
growth in that region during 2000. The increased passenger
mile yield reflects strong demand and improved revenue
management systems.
Cargo and Other Revenues
Cargo revenues increased 4% to $583 million, reflecting a
6% increase in cargo ton miles partially offset by a 2% decline
in ton mile yield. The increase in cargo ton miles was primarily
caused by overall capacity increases and higher mail volume
from the growth in e-commerce activity. The decrease in ton
mile yield was due to pricing pressure from industry-wide
capacity growth in international markets. Other revenues
increased 34% to $501 million, mainly a result of higher rev
enues from joint marketing programs, codeshare activity and
administrative service charges.
OPERATING EXPENSES
Excluding unusual items, operating expenses in 2000 were
$15.0 billion, increasing 15% from $13.1 billion in 1999;
CASM rose 9% to 9.68<Z and fuel price neutralized CASM
increased 5% to 9.37c. Including unusual items, operating
expenses in 2000 totaled $15.1 billion, increasing 11% from
$13.6 billion in 1999; CASM increased 6% to 9.75c and fuel
price neutralized CASM grew 2% to 9.44c. Operating capac
ity rose 5% to 1 55 billion ASMs. The increase in CASM is
primarily related to an increase in salaries and related costs
as well as higher fuel expense.
Salaries and related costs increased 15% during 2000.
The average number of full-time equivalent employees
increased 13%, primarily due to the inclusion of Comair
and ASA. Excluding Comair and ASA, headcount increased
2%. The increase in salaries and related costs also reflects
salary increases of 3% for pilots on January 1, 2000, and 3%
for most domestic non-union employees on April 1, 2000.
Aircraft fuel expense increased 39% in 2000. The average
fuel price per gallon rose 32% to 67.38c. Total gallons con
sumed increased 5% due to increased operations. Our fuel
cost is shown net of fuel hedge gains of $684 million in 2000
and $79 million in 1999. Approximately 67% and 75% of
our aircraft fuel requirements were hedged during 2000 and
1999, respectively. On July 1, 2000, we adopted SFAS 133,
which changed the way we account for our fuel hedge con
tracts. See Note 4 for additional information on our fuel
hedge contracts.
Depreciation and amortization expense rose 12% due
to the acquisition of additional aircraft and ground equip
ment, as well as the full-year impact of Comair and ASA.
Other selling expenses increased 10%, primarily caused by
higher credit card charges and booking fees that resulted
from higher passenger volume.
Passenger commissions expense fell 16%, a result of
changes to our travel agent commission rates and our cus
tomers' increased use of lower-cost distribution channels
such as the Internet. Internet sales accounted for approxi
mately 9% of total revenue flown in 2000 compared to
4% in 1999. Contracted services expense increased 17%,
a result of the inclusion of an entire year of Comair and
ASA, as well as higher costs related to customer service
and technology initiatives.
Landing fees and other rents rose 7%, aircraft rent
expense increased 19% and aircraft maintenance materials
and outside repairs expense grew 22%, mainly a result of
the inclusion of Comair and ASA. Passenger service expense
decreased 6%, reflecting process improvements. Other oper
ating expenses increased 13% due to higher professional
fees, supply costs and interrupted operations expenses, as
well as the inclusion of Comair and ASA.
OPERATING INCOME AND OPERATING MARGIN
Excluding unusual items, operating income totaled $1.7 billion
in 2000, compared to $1.8 billion in 1999. Operating margin
excluding unusual items decreased to 10% during 2000 from
12% in 1999. Including unusual items, operating income
totaled $1.6 billion in 2000 and $1.3 billion in 1999. Operating
margin including unusual items was 10% in 2000, compared
to 9% in 1999.
2001 Annual Report 17
Management's Discussion and Analysis
of Financial Condition and Results of Operations
OTHER INCOME (EXPENSE)
Other expense totaled $88 million during 2000, compared to
other income of $775 million during 1999. This change is pri
marily attributable to the following:
net gain from the sale of investments decreased $626
million in 2000 compared to 1999 (see Note 3 of the
Notes to the Consolidated Financial Statements);
we had a $159 million charge in 2000 for fair market value
adjustments of financial instruments accounted for under
SFAS 133 (see Note 4 of the Notes to the Consolidated
Financial Statements); and
net interest expense increased $131 million in 2000 due to
higher levels of outstanding debt and higher interest rates.
Financial Condition and Liquidity
2001
Cash, cash equivalents and short-term investments totaled
$2.2 billion at December 31, 2001, compared to $1.6 billion
at December 31, 2000. Our principal sources and uses of cash
during 2001 are summarized below.
SOURCES
Issued $2.3 billion of secured long-term debt.
Received $701 million from short-term obligations and
notes payable, including borrowing a net $625 million
under our 1997 Bank Credit Agreement.
Received $498 million from the issuance of Special Facilities
Revenue Bonds by the Massachusetts Port Authority. These
proceeds will finance the redevelopment and expansion of
certain Delta facilities at Boston-Logan International Airport
(see Note 8 of the Notes to the Consolidated Financial
Statements).
Received $286 million from the sale of investments in price
line, SkyWest and Equant.
Generated $236 million of cash from operations (including
$556 million in Stabilization Act compensation and a $70
million Worldspan dividend).
Received $66 million from the sale of flight equipment.
USES
Invested $2.3 billion in flight equipment, including advance
payments.
Placed $485 million in a restricted trust to finance the
redevelopment and expansion of certain Delta facilities at
Boston-Logan International Airport (see Note 8 of the
Notes to the Consolidated Financial Statements).
Invested $472 million in ground property and equipment.
Used $173 million for payments on long-term debt and
capital lease obligations.
Paid $40 million in cash dividends on preferred and com
mon stock. A portion of the dividends paid on preferred
shares are used in our ESOP program (see Note 12 of the
Notes to the Consolidated Financial Statements) and are
not reflected in our Consolidated Statements of Operations.
Debt and capital lease obligations, including current
maturities and short-term obligations, totaled $9.4 billion
at December 31, 2001, compared to $6.0 billion at
December 31, 2000. Shareowners' equity was $3.8 billion
at December 31, 2001 and $5.3 billion at December 31,
2000. Our net debt-to-capital ratio, which includes implied
debt from operating leases, was 80% at December 31, 2001
and 71% at December 31, 2000.
WORKING CAPITAL POSITION
As of December 31, 2001, we had a negative working capi
tal position of $2.8 billion, compared to negative working
capital of $2.0 billion at December 31, 2000. A negative work
ing capital position is normal for us, typically due to our air
traffic liability. The change in our working capital position
since December 31, 2000 was primarily the result of the neg
ative impact on our revenues resulting from the September
11 terrorist attacks, the slowing U.S. and world economies,
and a decrease in the fair market value of our short-term fuel
hedge contracts.
As a result of the September 11 terrorist attacks,
we have taken, and are continuing to take, certain actions
to strengthen our liquidity. These include:
Increasing our cash position by issuing $2.1 billion of long
term debt for general corporate purposes. These financings
are secured by a total of 55 mainline aircraft owned by Delta.
For additional information about these financings, see Note 8
of the Notes to the Consolidated Financial Statements.
Selling our equity interest in SkyWest, Inc. for $125 million.
Entering into amendments under three existing credit
facilities: the 1997 Bank Credit Agreement and two bank
agreements for letters of credit that back certain of our
obligations. Under the amendments, the banks in each
facility relaxed financial covenants that limit the amount
18 Delta Air Lines, Inc.
of secured debt, current debt and other debt that we may
have outstanding. We repaid $625 million of the $1.25 bil
lion of borrowings then outstanding under the 1997 Bank
Credit Agreement, reduced to $625 million the banks' total
lending commitment under that agreement and paid cer
tain fees to the banks in each facility.
Reducing our capacity by 16% from scheduled levels effective
November 1, 2001 to better match capacity to depressed
demand, and reducing staffing by approximately 12,000
employees to match staffing to our reduced capacity.
Entering into a short-term secured loan agreement to
borrow up to $625 million for general corporate purposes.
No amounts were outstanding under this facility at
December 31, 2001.
In addition, on January 17, 2002, we announced a
revised mainline fleet strategy for 2002 and 2003. Under this
revised strategy, we will take delivery of eight new mainline
aircraft during 2002 and five in 2003, and will defer delivery
of 39 (20 firm orders and 19 options) of the 52 mainline air
craft originally planned for delivery during that period. These
deliveries, along with 11 mainline aircraft for which we took
title in late December 2001, will enable us to accelerate the
planned retirement of our B-727 fleet from 2005 to 2003. We
also entered into an agreement to obtain up to $935 million of
secured debt financing relating to the mainline aircraft for which
we took title in late December 2001 and the mainline aircraft
to be delivered in 2002. There were no borrowings outstand
ing under this facility at December 31, 2001.
During 2002, we will take delivery of 60 regional jets. We
have obtained long-term, secured financing commitments for
a substantial portion of the purchase price of these aircraft.
On January 25, 2002, we sold in a private placement
$176 million principal amount of a new, subordinated tranche
of the 2000-1 enhanced equipment trust certificates. The
new Series D Certificates bear interest at 9.11 % per year
and are due on November 18, 2005.
For additional information about our long-term debt
and financing arrangements, see Note 8 of the Notes to the
Consolidated Financial Statements.
We expect to meet our obligations as they become due
through available cash, short-term investments, internally gen
erated funds, borrowings and Stabilization Act compensation.
Additionally, we have unencumbered assets available for use
in potential financing transactions. We have not determined
whether to apply for federal loan guarantees under the
Stabilization Act. While we expect there to be financing available
to us on commercially reasonable terms, this cannot be assured.
Credit Ratings
At December 31, 2000, our senior unsecured long-term debt
was rated Baa3 by Moody's and BBB- by Standard & Poor's.
After September 11, both rating agencies downgraded the
credit ratings of airlines, including us. At December 31, 2001,
our senior unsecured long-term debt was rated Ba3 by
Moody's and BB by Standard & Poor's. Moody's announced
that its ratings outlook for us is negative. Standard & Poor's
stated that our debt securities remain on credit watch for pos
sible further downgrade.
The lowering of our credit ratings could negatively
impact our ability to issue debt, to renew outstanding letters
of credit which back certain of our obligations and to obtain
certain financial instruments that we use in our fuel hedging
program. It could also increase the cost of these transactions.
As discussed in Note 18 of the Notes to the Consolidated
Financial Statements, we may be required to repurchase out
standing receivables that we sold to a third party ($212
million at December 31, 2001) if our senior unsecured long
term debt is rated below Ba2 by Moody's and below BB by
Standard & Poor's.
We have obtained from third parties a $424 million letter
of credit relating to the Delta Family-Care Savings Plan's Series
C Guaranteed Serial ESOP Notes and letters of credit totaling
$409 million relating to bonds issued by various municipalities
to finance certain airport facilities leased to us. Certain of the
obligations that these letters of credit enhance are included in
our Consolidated Balance Sheets. As discussed under "Series
C ESOP Notes" and "Letter of Credit Enhanced Municipal
Bonds" in Note 8 of the Notes to the Consolidated Financial
Statements, we may be required to accelerate the repayment
of these obligations if we do not extend those letters of credit
prior to their expiration dates, which occur between May 19,
2003 and December 4, 2003.
2001 Annual Report 19
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Prior Years
2000
During 2000, our principal sources of funds were $2.9 billion
of cash from operations, $1.9 billion from the issuance of long
term debt (including $1.5 billion of secured debt), $384 million
from the sale and leaseback of regional jets and the sale of
other flight equipment and $73 million from the sale of price
line common stock. In addition, we received $33 million from
the issuance of common stock. We invested $3.4 billion in
flight equipment and $634 million in technology and ground
property and equipment. We also made payments of $972 mil
lion on debt and capital lease obligations and paid $232 million
to complete our acquisition of Comair Holdings. In addition,
we repurchased $502 million of common stock and paid $40
million in cash dividends on preferred and common stock.
1999
During 1999, our principal sources of funds were $5.0 billion
from the issuance of long-term and short-term debt, $2.6
billion of cash from operations and $1.4 billion from the sale
of investments and flight equipment. In addition, we received
$104 million from the issuance of common stock. We invested
$2.5 billion in flight equipment and $558 million in ground
property and equipment. We also invested $1.6 billion to
acquire a majority interest in Comair Holdings and $700 mil
lion to acquire ASA Holdings, and made payments of $2.2
billion on debt and capital lease obligations. In addition, we
repurchased $625 million of common stock and paid $43 mil
lion in cash dividends on preferred and common stock.
Financial Position
December 31, 2001 Compared to
December 31, 2000
This section discusses certain changes in our Consolidated
Balance Sheets which are not otherwise discussed in
Management's Discussion and Analysis.
Prepaid expenses and other decreased by 36%, or $128
million, primarily due to a decrease in prepaid travel agency
commissions due to lower sales and a decrease in fuel inven
tory. Investments in associated companies decreased 19%,
or $42 million, primarily due to a Worldspan dividend, par
tially offset by our share of Worldspan net income. Other
noncurrent assets decreased 7%, or $70 million, mainly a
result of a decrease in the fair market value of our long-term
fuel hedge contracts.
Income and excise taxes payable increased 71 %, or
$435 million, due to an increase in ticket, transportation and
airport taxes payable for which payment was deferred under
the Stabilization Act until January 2002. Current accrued rent
increased by 19%, or $53 million, due primarily to the timing
of payments on aircraft and bond leases.
Other noncurrent liabilities increased 20% to $464
million due primarily to the accrual for early retirement
benefits related to our decision to reduce staffing levels
following the September 11 terrorist attacks.
COMMITMENTS
In accordance with U.S. GAAP, certain contractual commit
ments are included in our Consolidated Balance Sheets
and discussed in the Notes to the Consolidated Financial
Statements, while other contractual commitments are
discussed in the Notes to the Consolidated Financial
Statements. The following items are included in our
Consolidated Balance Sheets:
debt, totaling $9.3 billion, discussed in Note 8. A portion of
this debt is backed by letters of credit totaling $729 million
which expire during 2003, also discussed in Note 8; and;
capital lease obligations, totaling $99 million, discussed in
Note 10.
The following contractual commitments are discussed only in
the Notes to the Consolidated Financial Statements:
operating lease payments, totaling $14 billion, discussed in
Note 10; a portion of these obligations are backed by letters
of credit totaling $104 million, discussed in Note 8.
estimated future expenditures for aircraft and engines on
firm order as of January 31, 2002, totaling $6 billion, dis
cussed in Note 11;
obligations under our contract carrier agreements with
SkyWest Airlines and Atlantic Coast Airlines, discussed in
Note 11, totaling $520 million in 2002. Our future costs
under these agreements will be impacted by certain variable
operating costs that cannot be reasonably determined at
this time; and
repurchase obligations related to accounts receivable sold to
a third party, discussed in Note 18.
20 Delta Air Lines, Inc.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assump
tions. We periodically evaluate these estimates and assumptions,
which are based on historical experience, changes in the busi
ness environment and other factors that management believes
to be reasonable under the circumstances. Actual results may
differ materially from these estimates.
Critical accounting policies are defined as those that are
both important to the portrayal of the company's financial
condition and results, and require management to exercise
significant judgments. Our most critical accounting policies
are briefly described below. For additional information about
these and our other significant accounting policies, see Notes
1, 4, 6 and 12 of the Notes to the Consolidated Financial
Statements.
Revenue Recognition
We record sales of passenger tickets as air traffic liability on
our Consolidated Balance Sheets. Passenger revenues are rec
ognized, and the related air traffic liability is reduced, when
we provide the transportation. We make estimates about air
traffic liability for tickets sold but not yet reported to us, the
timing and amount of tickets used for travel on other airlines
and the amount of tickets sold that will not be used. We peri
odically evaluate the liability and record any resulting
adjustments, which may be significant, in the Consolidated
Statements of Operations in the period in which the evalua
tions are completed.
Long-Lived Assets
We depreciate our property and equipment on a straight-line
basis to their estimated residual values over their respective
estimated useful life. In addition, we evaluate long-lived assets
used in operations, goodwill and other intangible assets for
impairment. When events and circumstances indicate the
assets may be impaired, we estimate the future cash flows to
be generated by those assets and we estimate their current
fair value in determining the amount of the loss. Changes to
these estimates may have a material effect on our
Consolidated Financial Statements.
Freguent Flyer Program
We account for our frequent flyer program obligations by
recording a liability for the estimated incremental cost of
flight awards we expect to be redeemed. The estimated
incremental cost is based on our system average cost per
passenger for fuel, food and other direct passenger costs.
Changes in the cost estimates or the estimated number of
tickets to be redeemed may have a significant impact on our
Consolidated Financial Statements.
We defer a portion of the revenue from the sale of
mileage credits to participating partners such as credit card
companies, hotels and car rental agencies. The revenue is
recognized over the period in which the credits are expected
to be redeemed for travel. Changes to the time period over
which the credits are expected to be redeemed as well as the
estimated number of tickets to be claimed may have a signifi
cant impact on our Consolidated Financial Statements.
The Emerging Issues Task Force is currently reviewing the
accounting for programs such as our frequent flyer program.
The outcome of this review cannot be predicted at this time.
The issuance of a new accounting standard may have a signif
icant impact on the accounting for our frequent flyer program.
Pension and Other Postretirement Benefits
We account for our pension and other postretirement benefit
programs based on a number of assumptions that are reviewed
periodically. These assumptions include the weighted average dis
count rate, the health care cost trend rate, the long-term rate of
return on benefit plan assets and the rate of increase in future
compensation levels. Changes in these assumptions may have a
material impact on our Consolidated Financial Statements.
MARKET RISKS ASSOCIATED WITH FINANCIAL
INSTRUMENTS
We have market risk exposure related to aircraft fuel prices,
stock prices, interest rates and foreign 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 transactions
pursuant to stated policies (see Notes 4 and 5 of the Notes
to the Consolidated Financial Statements). Management
expects adjustments to the fair value of financial instruments
2001 Annual Report 21
Management's Discussion and Analysis
of Financial Condition and Results of Operations
accounted for under SFAS 133 to result in ongoing volatility
in earnings and shareowners' eguity.
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 reasons, the actual results of changes in
these prices or rates may differ materially from the following
hypothetical results.
Aircraft Fuel Price Risk
Our results of operations can be significantly impacted by
changes in the price of aircraft fuel. To manage this risk, we
periodically enter into heating oil derivative contracts, such
as forwards and options, to hedge a portion of our projected
annual fuel requirements. Heating oil prices have a high cor
relation to aircraft fuel prices, making heating oil derivatives
effective in offsetting changes in aircraft fuel prices. These
contracts are intended to reduce our exposure to changes in
aircraft fuel prices. Based on instruments held at December
31, 2001, we have hedged 46% of our projected annual air
craft fuel requirements for 2002 at an average hedge price of
60.50c per gallon and a minimal portion of our projected fuel
requirements for 2003.
The fair values of our heating oil derivative instruments
were $64 million at December 31, 2001 and $449 million at
December 31, 2000. A 10% decrease in the average annual
price of heating oil would have decreased the fair values
of these instruments by $36 million at December 31, 2001.
During 2001, aircraft fuel accounted for 12% of our
total operating expenses. Based on our projected aircraft fuel
consumption of 2.5 billion gallons for 2002, a 10% rise in
our jet fuel prices would increase our aircraft fuel expense
by approximately $86 million in 2002. This analysis includes
the effects of fuel hedging instruments in place at December
31, 2001.
For additional information regarding our aircraft fuel price
risk management program, see Note 5 of the Notes to the
Consolidated Financial Statements.
Equity Securities Risk
We have equity-based interests in priceline and other com
panies. The estimated fair market values and aggregate
unrealized and unrecognized losses from these investments
were $81 million and $3 million, respectively, at December
31, 2001. At December 31, 2000, the estimated fair market
values of our equity-based interests totaled $205 million, with
aggregate unrealized and unrecognized gains of $92 million.
The risk associated with these investments is the potential loss
in fair market value resulting from a decrease in the price
of the issuer's common stock. Based on the fair market value
of these equity-based interests at December 31, 2001, a 10%
decline in the price of their common stock would decrease the
fair market value of these instruments by approximately $8
million. For additional information regarding our equity-based
interests in other companies, see Note 3 of the Notes to the
Consolidated Financial Statements.
Interest Rate Risk
Our exposure to market risk due to changes in interest rates
primarily relates to our long-term debt obligations and cash
investment portfolio.
Market risk associated with our long-term debt is the
potential change in fair market value resulting from a change
in interest rates. A 10% decrease in average annual interest
rates would have increased the estimated fair market value
of our long-term debt by approximately $373 million and
$338 million at December 31, 2001 and December 31, 2000,
respectively. A 10% increase in average annual interest rates
would have had a $6 million impact on our interest expense
in 2001.
Market risk associated with our cash portfolio is the
potential change in earnings resulting from a change in
interest rates. Based on our average balance of cash, cash
equivalents and short-term investments during 2001, a
10% decrease in average annual interest rates would have
decreased our interest income by approximately $9 million.
We may use financial instruments to manage our interest
rate risk, provided that the notional amount of these transac
tions does not exceed 50% of our long-term debt. We had no
such instruments outstanding at December 31, 2001 and 2000.
Foreign Currency Exchange Rate Risk
We have limited revenues and expenses denominated in for
eign currencies. As a result, we are exposed to limited foreign
currency exchange rate risk. The majority of our exposure
results from transactions denominated in the euro, British
pound, Canadian dollar and Japanese yen. To manage
22 Delta Air Lines, Inc.
exchange rate risk, we net foreign currency revenues and
expenses, to the extent practicable, to take advantage of
natural offsets. We may use foreign currency option and
forward contracts with maturities of up to 12 months to
manage the remaining net exposure. We had an immaterial
amount of these instruments outstanding at December 31,
2001. Based on our average annual net foreign currency
positions during 2001, a 10% adverse change in average
annual foreign currency exchange rates would not have had
a material impact on our Consolidated Financial Statements.
Other Matters
Employee Matters
On February 1, 2002, Delta's approximately 19,000 flight
attendants rejected union representation by a 71% to 29%
margin. The National Mediation Board (NMB) is investigating
charges of interference filed against us by the union. We
believe these charges are without merit.
Delta is in collective bargaining negotiations with the
Transport Workers Union of America (TWU), which represents
Delta's approximately 150 pilot ground training instructors.
Comair is in negotiations with the International Brotherhood
of Teamsters (IBT), which represents Comair's approximately
700 flight attendants. The NMB appointed a mediator to
participate in the DeltaTTWU negotiations in January 2001
and the Comair/IBT negotiations in April 2000. The outcome
of these collective bargaining negotiations cannot presently
be determined.
Environmental and Legal Contingencies
Delta is a defendant in legal actions relating to antitrust
matters, employment practices, environmental 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.
Forward-Looking Information
Statements in this Annual Report (or otherwise made by Delta or on
Delta's behalf) which are not historical facts, including statements
about Delta's estimates, expectations, beliefs, intentions, projections
or strategies for the future, may be "forward-looking statements"
as defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from historical experi
ence or Delta's present expectations. Factors that could cause these
differences include, but are not limited to:
1. the many effects on Delta and the airline industry from the ter
rorist attacks on the United States on September 11, including the
following:
the adverse impact of the terrorist attacks on the demand for
air travel;
the change in Delta's operations and higher costs resulting from
new airline security directives, including the Aviation and
Transportation Security Act;
the availability and cost of war risk and other insurance for Delta;
the extent to which Delta receives additional financial assistance
under the Air Transportation Safety and System Stabilization Act;
the credit downgrades of Delta and other airlines by Moody's
and Standard & Poor's, and the possibility of additional down
grades, to the extent it makes it more difficult and/or more costly
for us to obtain financing;
potential declines in the values of the aircraft in Delta's fleet or
facilities and related asset impairment charges;
additional terrorist activity and/or war;
2. general economic conditions, both in the United States and in
our markets outside the United States, including the extent of the
weakening in the U.S. economy and the related decline in business
and leisure travel;
3. competitive factors in our industry, such as mergers and acquisi
tions, the airline pricing environment, international alliances,
codesharing programs, and capacity decisions by competitors;
4. outcomes of negotiations on collective bargaining agreements
and other labor issues;
5. changes in the availability or cost of aircraft fuel or fuel hedges;
6. disruptions to operations due to adverse weather conditions and
air traffic control-related constraints;
7. fluctuations in foreign currency exchange rates;
8. actions by the United States or foreign governments, including
the FAA and other regulatory agencies;
9. the willingness of customers to travel generally, and with Delta
specifically, which could be affected by factors such as Delta's and
the industry's safety record; and
10. the outcome of Delta's litigation.
Caution should be taken not to place undue reliance on
Delta's forward-looking statements, which represent Delta's views
only as of the date of this Annual Report, and which Delta has no
current intention to update.
2001 Annual Report 23
Consolidated Balance Sheets
December 31, 2001 and 2000
Assets
in millions 2001 2000
Current Assets:
Cash and cash equivalents $ 2,210 $ 1,364
Short-term investments 5 243
Accounts receivable, net of an allowance for uncollectible accounts of
$43 at December 31, 2001 and $31 at December 31, 2000 368 406
Expendable parts and supplies inventories, net of an allowance for
obsolescence of $139 at December 31, 2001 and $124 at December 31, 2000 181 170
Deferred income taxes 518 345
Fuel hedge contracts, at fair market value 55 319
Prepaid expenses and other 230 358
Total current assets 3,567 3,205
Property and Equipment:
Flight equipment 19,427 17,371
Less: Accumulated depreciation 5,730 5,139
Flight equipment, net 13,697 12,232
Flight equipment under capital leases 382 484
Less: Accumulated amortization 262 324
Flight equipment under capital leases, net 120 160
Ground property and equipment 4,412 4,371
Less: Accumulated depreciation 2,355 2,313
Ground property and equipment, net 2,057 2,058
Advance payments for equipment 223 390
Total property and equipment, net 16,097 14,840
Other Assets:
Investments in debt and equity securities 96 339
Investments in associated companies 180 222
Cost in excess of net assets acquired, net of accumulated amortization
of $253 at December 31, 2001 and $196 at December 31, 2000 2,092 2,149
Operating rights and other intangibles, net of accumulated amortization
of $246 at December 31, 2001 and $236 at December 31, 2000 94 102
Restricted investments for Boston airport terminal project 475 --
Other noncurrent assets 1,004 1,074
Total other assets 3,941 3,886
Total assets $ 23,605 $ 21,931
24 Delta Air Lines, Inc.
Liabilities and Shareowners' Equity
in millions, except share data 2001 2000
Current Liabilities:
Current maturities of long-term debt $ 260 $ 62
Short-term obligations 765 --
Current obligations under capital leases 31 40
Accounts payable and miscellaneous accrued liabilities 1,617 1,634
Air traffic liability 1,224 1,442
Income and excise taxes payable 1,049 614
Accrued salaries and related benefits 1,121 1,170
Accrued rent 336 283
Total current liabilities 6,403 5,245
Noncurrent Liabilities:
Long-term debt 7,781 5,797
Long-term debt issued by Massachusetts Port Authority 498 --
Capital leases 68 99
Postretirement benefits 2,292 2,026
Accrued rent 781 721
Deferred income taxes 465 1,220
Other 464 388
Total noncurrent liabilities 12,349 10,251
Deferred Credits:
Deferred gams on sale and leaseback transactions 519 568
Manufacturers' and other credits 310 290
Total deferred credits 829 858
Commitments and Contingencies (Notes 3, 4, 5, 8, 10 and 11)
Employee Stock Ownership Plan Preferred Stock:
Series B ESOP Convertible Preferred Stock, $1.00 par value, $72.00 stated and
liquidation value; 6,278,210 shares issued and outstanding at December 31,
2001, and 6,405,563 shares issued and outstanding at December 31, 2000 452 460
Unearned compensation under employee stock ownership plan (197) (226)
Total Employee Stock Ownership Plan Preferred Stock 255 234
Shareowners' Equity:
Common stock, $1.50 par value; 450,000,000 shares authorized;
180,890,356 shares issued at December 31, 2001 and 180,764,057
shares issued at December 31, 2000 271 271
Additional paid-in capital 3,267 3,264
Retained earnings 2,930 4,176
Accumulated other comprehensive income 25 360
Treasury stock at cost, 57,644,690 shares at December 31, 2001
and 57,750,685 shares at December 31, 2000 (2,724) (2,728)
Total shareowners' equity 3,769 5,343
Total liabilities and shareowners' equity $ 23,605 $ 21,931
The accompanying notes are an integral part of these consolidated financial statements.
2001 Annual Report 25
Consolidated Statements of Operations
For the years ended December 31, 2001, 2000 and 1999
in millions, except per share data 2001 2000 1999
Operating Revenues:
Passenger $ 12,964 $ 15,657 $ 13,949
Cargo 506 583 561
Other, net 409 501 373
Total operating revenues 13,879 16,741 14,883
Operating Expenses:
Salaries and related costs 6,124 5,971 5,194
Aircraft fuel 1,817 1,969 1,421
Depreciation and amortization 1,283 1,187 1,057
Other selling expenses 616 688 626
Passenger commissions 540 661 784
Contracted services 1,016 966 824
Landing fees and other rents 780 771 723
Aircraft rent 737 741 622
Aircraft maintenance materials and outside repairs 801 723 594
Passenger service 466 470 498
Asset writedowns and other nonrecurring items 1,119 108 469
Stabilization Act compensation (634) -- --
Other 816 849 753
Total operating expenses 15,481 15,104 13,565
Operating Income (Loss) (1,602) 1,637 1,318
Other Income (Expense):
Interest expense, net (410) (257) (126)
Net gain from sale of investments 127 301 927
Miscellaneous income (expense), net (47) 27 (26)
Fair value adjustments of SFAS 133 derivatives 68 (159) --
Total other income (expense) (262) (88) 775
Income (Loss) Before Income Taxes and Cumulative Effect of
Change in Accounting Principle (1,864) 1,549 2,093
Income tax benefit (provision) 648 (621) (831)
Net Income (Loss) Before Cumulative Effect of Change in
Accounting Principle, Net of Tax (1,216) 928 1,262
Cumulative Effect of Change in Accounting Principle, Net
of Tax of $64 Million in 2000 and $35 Million in 1999 -- (100) (54)
Net Income (Loss) (1,216) 828 1,208
Preferred Stock Dividends (14) (13) (12)
Net Income (Loss) Available to Common Shareowners $ (1,230) $ 815 $ 1,196
Basic Earnings (Loss) per Share Before Cumulative Effect of
Changes in Accounting Principles $ (9.99) $ 7.39 $ 9.05
Basic Earnings (Loss) per Share $ (9.99) $ 6.58 $ 8.66
Diluted Earnings (Loss) per Share Before Cumulative
Effect of Changes in Accounting Principles $ (9.99) $ 7.05 $ 8.52
Diluted Earnings (Loss) per Share $ (9.99) $ 6.28 $ 8.15
The accompanying notes are an integral part of these consolidated financial statements.
26 Delta Air Lines, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2001, 2000 and 1999
in millions
2001 2000 1999
Cash Flows From Operating Activities:
Net income (loss) $ (1,216) $ 828 $ 1,208
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Cumulative effect of change in accounting principle -- 100 54
Asset writedowns 339 0 453
Depreciation and amortization 1,283 1,187 1,057
Deferred income taxes (648) 396 321
Fair value adjustments of SFAS 133 derivatives (68) 159 --
Pension, postretirement and postemployment expense
in excess of (less than) payments 419 (17) 33
Dividends in excess of (less than) equity income 51 (28) 48
Net gain from sale of investments (127) (301) (927)
Income tax benefit from exercise of stock options -- 5 21
Changes in certain current assets and liabilities:
Decrease in accounts receivable 47 86 310
Decrease (increase) in prepaid expenses and other
current assets 60 92 (186)
(Decrease) increase in air traffic liability (215) (49) 73
Increase in other payables and accrued expenses 274 395 169
Other, net 37 45 13
Net cash provided by operating activities 236 2,898 2,647
Cash Flows From Investing Activities:
Property and equipment additions:
Flight equipment, including advance payments (2,321) (3,426) (2,497)
Ground property and equipment (472) (634) (558)
Increase in restricted investments related to the
Boston airport terminal project (485) -- --
Decrease (increase) in short-term investments, net 238 456 (367)
Proceeds from sale of flight equipment 66 384 215
Proceeds from sale of investments 286 73 1,167
Acquisitions of companies, net of cash acquired -- (232) (1,922)
Other, net (8) (17) --
Net cash used in investing activities (2,696) (3,396) (3,962)
Cash Flows From Financing Activities:
Payments on long-term debt and capital lease obligations (173) (853) (1,927)
Prepayment of long-term lease obligations -- (215) --
Cash dividends (40) (40) (43)
Issuance of long-term obligations 2,335 1,867 4,496
Issuance of long-term debt by Massachusetts Port Authority 498 -- --
Proceeds from (payments on) short-term obligations and
notes payable, net 701 (51) 265
Issuance of common stock 2 33 104
Repurchase of common stock --- (502) (625)
Other, net (17) -- --
Net cash provided by financing activities 3,306 239 2,270
Net Increase (Decrease) In Cash and Cash Equivalents 846 (259) 955
Cash and cash equivalents at beginning of year 1,364 1,623 668
Cash and cash equivalents at end of year $ 2,210 $ 1,364 $ 1,623
Supplemental disclosure of cash paid (refunded) for:
Interest, net of amounts capitalized $ 490 $ 410 $ 185
Income taxes (103) 131 315
Non-cash transactions:
Aircraft delivered under seller-financing $ 77 $ $
The accompanying notes are an integral part of these consolidated financial statements.
2001 Annual Report 27
Consolidated Statements of Shareowners' Equity
in millions, except share data
Common
Stock
Additional
Paid-In
Capital
Retained
Earninqs
Accumulated
Other
Comprehensive
Income
Treasury
Stock Total
Balance at December 31, 1998 $ 266 $ 3,090 $ 2,196 $ 125 $ (1,600) $ 4,077
Comprehensive income:
Net income 1,208 1,208
Other comprehensive income -- -- -- 141 -- 141
Total comprehensive income (See Note 17)
Dividends on common stock
($0.10 per share) (14)
1,349
(14)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares (12) (12)
Issuance of 2,381,204 shares of common
stock under dividend reinvestment
and stock purchase plan and stock
options ($43.94 per share*) 4 100 104
Repurchase of 10,971,166 common
shares ($56.96 per share*) (625) (625)
Income tax benefit from exercise of
stock options 21 21
Transfer of 30,830 shares of common
stock from treasury under stock
incentive plan ($59.37 per share*) (2) (2)
Other -- 11 (D -- -- 10
Balance at December 31, 1999 270 3,222 3,377 266 (2,227) 4,908
Comprehensive income:
Net income 828 828
Other comprehensive income -- -- -- 94 -- 94
Total comprehensive income (See Note 17)
Dividends on common stock
($0.10 per share) (12)
922
(12)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares (13) (13)
Issuance of 729,426 shares of common
stock under dividend reinvestment
and stock purchase plan and stock
options ($44.86 per share*) 1 32 33
Repurchase of 10,626,104 common
shares ($47.26 per share*) (502) (502)
Income tax benefit from exercise of
stock options 5 5
Transfers and forfeitures of 16,580
shares of common stock under
stock incentive plan ($52.61 per share*) 1 1
Other -- 5 (4) -- -- 1
Balance at December 31, 2000 271 3,264 4,176 360 (2,728) 5,343
Comprehensive loss:
Net loss 0,216) 0,216)
Other comprehensive loss -- -- -- (335) -- (335)
Total comprehensive loss (See Note 17) -- -- -- -- -- (1,551)
Dividends on common stock
($0.10 per share) (12)
_
02)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares
_
(14)
_
(14)
Issuance of 126,299 shares of common
stock under dividend reinvestment
and stock purchase plan and stock
options ($38.10 per share*) 5 5
Transfers and forfeitures of 105,995 shares
of common from Treasury under stock
incentive plan ($37.10 per share*) (4) 4 0
Other -- 2 (4) -- -- (2)
Balance at December 31, 2001 $ 271 $ 3,267 $2,930 $ 25 $(2,724) $3,769
*
Average price per share
The accompanying notes are an integral part of these consolidated financial statements.
28 Delta Air Lines, Inc.
Notes to the Consolidated Financial Statements
Note 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 wholly owned subsidiaries,
including Comair Holdings, Inc. (Comair Holdings) and ASA
Holdings, Inc. (ASA Holdings), collectively referred to as Delta.
Comair Holdings is the parent of Comair, Inc. (Comair) and
ASA Holdings is the parent of Atlantic Southeast Airlines, Inc.
(ASA). We have eliminated all intercompany transactions in
our Consolidated Financial Statements. The results of opera
tions of companies purchased are included from the date
of acguisition (see Note 19). These Consolidated Financial
Statements have been prepared in accordance with Generally
Accepted Accounting Principles in the United States (U.S.
GAAP). We have reclassified certain prior period amounts
to be consistent with the presentation of our current period
financial statements.
Change in Year End
Effective December 31, 2000, we changed our year end from
June 30 to December 31. Accordingly, this Annual Report
includes audited Consolidated Balance Sheets as of December
31, 2001 and 2000, and audited Consolidated Statements of
Operations, Cash Flows and Shareowners' Equity for the years
ended December 31, 2001, 2000 and 1999.
Use of Estimates
We are required to make estimates and assumptions when pre
paring our financial statements in conformity with U.S. GAAP.
These estimates and assumptions affect the amounts reported
in our financial statements and the accompanying notes.
Actual results could differ materially from those estimates.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) 142,
"Goodwill and Other Intangible Assets," which is effective for
fiscal years beginning after December 15, 2001. We will adopt
SFAS 142 on January 1, 2002. SFAS 142 requires that goodwill
no longer be amortized. Instead, upon adoption of SFAS 142
and at least annually thereafter, we will apply a fair market
value-based impairment test to our goodwill. SFAS 142 also
redefines intangible assets and addresses their related amorti
zation. We currently estimate that the adoption of SFAS 142
will have a positive impact of approximately $37 million, net
of tax, on our 2002 Consolidated Statements of Operations
resulting from the discontinuance of amortization of existing
goodwill. We are evaluating whether there will be additional
impacts from the adoption of SFAS 142 on our Consolidated
Financial Statements, such as an impairment of existing good
will and other intangible assets.
In June 2001, the FASB issued SFAS 143, "Accounting
for Asset Retirement Obligations," which is effective for fiscal
years beginning after June 15, 2002. We will adopt this state
ment on January 1, 2003. We believe the adoption of SFAS
143 will not have a material impact on our Consolidated
Financial Statements.
In August 2001, the FASB issued SFAS 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144
is effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years; accordingly, we
will adopt this statement on January 1, 2002. SFAS 144 super
sedes SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." We are
evaluating the impact of SFAS 144 on our Consolidated
Financial Statements.
During 2000, we adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended
(see Note 4 for the impact) and SFAS 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." The adoption of SFAS 140 has not had an
impact on our Consolidated Financial Statements. During
1999, we adopted Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements" (see Note 6
2001 Annual Report 29
Notes to the Consolidated Financial Statements
for the impact) and 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 Financial
Statements.
Cash and Cash Equivalents
We classify short-term, highly liquid investments with orig
inal maturities of three months or less as cash and cash
equivalents. These investments are stated at cost, which
approximates fair value.
Derivative Financial Instruments
We account for derivative financial instruments at their fair
market value. Where we have designated these derivatives
as hedges of certain anticipated cash flows, we record their
change in fair market value as a component of other compre
hensive income within the equity section of our Consolidated
Balance Sheets. To the extent the change in fair market value
of the hedge instrument is not perfectly offset by the change
in value of the underlying exposure, the difference is recog
nized in our Consolidated Statements of Operations as fair
market value adjustments of SFAS 133 derivatives. Changes
in value of all other derivative instruments are recorded in our
Consolidated Statements of Operations as fair market value
adjustments of SFAS 133 derivatives.
Passenger Revenues
We record sales of passenger tickets as air traffic liability on
our Consolidated Balance Sheets. Passenger revenues are rec
ognized, and the related air traffic liability is reduced, when
we provide the transportation. We periodically evaluate the
estimated air traffic liability and record any resulting adjust
ments, which can be significant, in the Consolidated
Statements of Operations in the period that the evaluations
are completed.
Long-Lived Assets
We record our property and equipment at cost and depreciate
these assets on a straight-line basis to their estimated resid
ual values over their respective estimated useful life. Residual
values for flight equipment range from 5%-40% of cost.
The estimated useful lives for major asset classifications are
as follows:
Estimated
Asset Classification Useful Life
Owned flight equipment 15-25 years
Flight equipment under capital lease Lease Term
Ground property and equipment 3-30 years
Leasehold rights and landing slots Lease Term
Purchased international route authorities are amortized
over the lives of the authorities as determined by their expi
ration dates. Permanent route authorities with no stated
expiration dates are amortized over 40 years. Our cost in
excess of net assets acquired (goodwill) is amortized over
40 years and is primarily related to our acquisition of Comair
Holdings and ASA Holdings in 1999 and Western Air Lines,
Inc. in 1986.
Interest Capitalized
We capitalize interest on advance payments for the acquisition
of new aircraft and on construction of ground facilities as an
additional cost of the related assets. Interest is capitalized at
our weighted average interest rate on long-term debt or,
if applicable, the interest rate related to specific borrowings.
Interest capitalization ends when the equipment or facility
is ready for service or its intended use. Capitalized interest
totaled $32 million, $45 million and $48 million for the years
ended December 31, 2001, 2000 and 1999, respectively.
Measurement of Impairment
In accordance with SFAS 121 and Accounting Principles Board
Opinion (APB) 17, "Intangible Assets," we record impairment
losses on long-lived assets used in operations, goodwill and
other intangible assets when events and circumstances indi
cate the assets may be impaired and the undiscounted cash
flows estimated to be generated by those assets are less than
their carrying amounts. To determine aircraft impairments, we
30 Delta Air Lines, Inc.
group assets at the lowest level for which there are identifiable
cashflows and then estimate future cash flows based on pro
jections of passenger yield, fuel costs, labor costs and other
relevant factors in the markets in which these aircraft operate.
If an impairment occurs, the amount of the impairment loss
recognized is the amount by which the carrying value exceeds
the estimated fair value. Aircraft fair values are estimated by
management using published sources, appraisals and bids
received from third parties, as available.
Investments in Associated Companies
We use the equity method to account for our 40% owner
ship interest in WORLDSPAN, L.P. (Worldspan), a computer
reservations system partnership. Our equity earnings from
this investment totaled $19 million in 2001, $59 million in
2000 and $30 million in 1999. We also received cash dividends
of $70 million in 2001, $32 million in 2000 and $100 million
in 1999 related to our investment in Worldspan. We account
for our 18% ownership interest in Orbitz, LLC, an on-line
travel agency, under the equity method. We accounted for
our investments in Comair Holdings and A5A Holdings under
the equity method until November 22, 1999 and April 1,
1999, respectively.
Frequent Flyer Program
We record an estimated liability for the incremental cost asso
ciated with providing free transportation under our SkyMiles
frequent flyer program when a free travel award is earned.
The liability is included in accounts payable and miscellaneous
accrued liabilities. It is adjusted periodically based on awards
earned, awards redeemed, changes in the SkyMiles program
and changes in estimated incremental costs.
We also sell mileage credits in the SkyMiles program to
participating partners such as credit card companies, hotels
and car rental agencies. For additional information regarding
our accounting for these mileage credits, see Note 6.
Deferred Gains on Sale and Leaseback Transactions
We amortize deferred gains on the sale and leaseback of
property and equipment under operating leases over the lives
of these leases. The amortization of these gains is recorded 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 acquisi
tion 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.
Maintenance Costs
We record maintenance costs in operating expense as they
are incurred.
Inventories
Inventories of expendable parts related to flight equipment are
carried at cost and charged to operations as consumed. An
allowance for obsolescence for the cost of these parts is pro
vided over the remaining useful life of the related fleet.
Advertising Costs
We expense advertising costs as other selling expenses in the
year incurred. Advertising expense in 2001, 2000 and 1999
was $153 million, $151 million and $143 million, respectively.
2001 An al Report 31
Notes to the Consolidated Financial Statements
Foreign Currency Remeasurement
We remeasure assets and liabilities denominated in foreign
currencies using exchange rates in effect on the balance
sheet date. Revenues and expenses denominated in foreign
currencies are 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). These gains and losses are immaterial for
the periods presented. Fixed assets and the related deprecia
tion or amortization charges are recorded at the exchange
rates in effect on the date we acguired the assets.
Stock-Based Compensation
We account for stock-based compensation in accordance with
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 is egual to or greater
than the fair market value of our common stock on the grant
date (see Note 16).
Fair Value of Financial Instruments
The fair values of our cash equivalents and short-term invest
ments approximate their cost. The estimated fair values of
other financial instruments, including debt and derivative
instruments, have been determined using available market
information and valuation methodologies, primarily discounted
cash flow analysis and the Black-Scholes model.
Note 2. September 1 1, 2001
Terrorist Attacks
On September 11, 2001, four commercial aircraft were
hijacked by terrorists and crashed into The World Trade
Center in New York City, the Pentagon in northern Virginia
and a field in Pennsylvania. These attacks resulted in an
overwhelming loss of life and extensive property damage.
Immediately after the terrorist attacks, the Federal Aviation
Administration (FAA) closed U.S. airspace, prohibiting all
flights to, from and within the United States. Airports
reopened on September 13, 2001, except for Ronald Reagan
National Airport in Washington, D.C., which partially reopened
on October 4, 2001.
When flights were permitted to resume, our passenger
traffic and yields were significantly lower than before the
attacks. Additionally, new security directives required by the
FAA increased our costs and reduced our ability to continue
our pre-September 11, 2001 schedule. Due to the significant
reduction in traffic, we reduced our scheduled network
capacity by 16%, effective November 1, 2001.
On September 22, 2001, President Bush signed into law
the Air Transportation Safety and System Stabilization Act
(Stabilization Act) which is intended to preserve the viability
of the U.S. air transportation system. Among other things,
the Stabilization Act:
provides for payments from the U.S. Government totaling
$5 billion to compensate U.S. air carriers for losses incurred
from September 11, 2001 through December 31, 2001 as
a result of the September 11 terrorist attacks;
authorizes, subject to certain conditions, the issuance
of federal loan guarantees totaling up to $10 billion to
U.S. air carriers;
instructs the Secretary of Transportation to ensure that
communities that had scheduled air service before
September 1 1, 2001 continue to receive adequate
air transportation service;
permits the Secretary of Transportation (1) to provide insur
ance to U.S. air carriers, and to reimburse U.S. air carriers
for certain increases in the cost of insurance relating to the
operation of an aircraft; and (2) to limit to $100 million the
total liability of a U.S. air carrier to third parties for terrorist
acts committed during the 180 days following the enact
ment of the Stabilization Act;
extends the due date for the payment by U.S. air carriers of
certain excise taxes; and
limits the liability of U.S. air carriers, and establishes a federal
compensation program, for individuals physically injured or
killed as a result of the September 11 terrorist attacks.
Under the Stabilization Act, each U.S. air carrier is entitled
to receive the lesser of (1) its losses for the period of September
11, 2001 through December 31, 2001 that resulted from the
September 11 terrorist attacks; or (2) its proportionate share
of the $5 billion in total compensation available to all U.S. air
carriers, of which $4.5 billion is available to passenger airlines
32 Delta Air Lines, Inc.
based on their available seat mile share, and $0.5 billion is
available to cargo carriers. Based on our available seat mile
share, our allocated portion of compensation under the
Stabilization Act is approximately $654 million; however, due
to uncertainties regarding the government's calculation of
compensation, we recognized $634 million of this amount
in our 2001 Consolidated Statements of Operations. We
received $556 million during 2001. We expect to receive the
remaining amount during the June 2002 quarter.
Subsequent to September 11, 2001, our insurance pro
viders reduced our coverage and increased our premium rates
for war and terrorism risk insurance effective September 25,
2001. Under the new terms, liability coverage limits remain
unchanged for passengers and employees but have been
significantly reduced for other parties such as persons and
property on the ground. Provisions under the Stabilization
Act provide for excess war risk coverage above $50 million,
provided by the FAA, for liabilities in excess of limits instituted
by commercial insurance providers. The initial coverage was
in force until January 1 1, 2002 and was renewed by the FAA
for a period of 60 days. The FAA has the authority to continue
extending such excess war risk coverage until other viable
alternatives are available.
The Stabilization Act also provides for reimbursement
of certain insurance premium increases, at the option of the
Secretary of Transportation. The FAA agreed to reimburse air
lines for increased costs of war risk insurance for a period
of 30 days. As a result, in December 2001, we received $6
million for the additional insurance premiums we paid for
October 2001. Additional reimbursement is dependent upon
the release of funds to the FAA by the Office of Management
and Budget.
As a result of the September 11, 2001 terrorist attacks,
we recorded $1.1 billion of asset write-downs and other nonre
curring items in our 2001 Consolidated Statements
of Operations. For additional information about these charges,
see Note 9.
Note 3. Marketable and Other
Equity Securities
priceline.com, Incorporated
In 1998, we entered into an agreement with priceline.com
Incorporated (priceline) under which ticket inventory pro
vided by us may be sold through priceline's Internet-based
e-commerce system. 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 (1998 Warrant). We
did not recognize the value of the 1998 Warrant in our
Consolidated Financial Statements when received because
its estimated fair value was not material.
We exercised the 1998 Warrant during 1999, acquiring
18.3 million shares of priceline common stock. We sold 11.1
million of these shares in 1999 for a pretax gain of $711 mil
lion and 1.2 million of these shares in 2000 for a pretax gain
of $73 million.
On November 17, 1999, Delta and priceline amended
their original agreement. As a result of this amendment, we
received (1) the right to exchange six million shares of price
line common stock for six million shares of priceline convertible
preferred stock (Exchange Right); and (2) a new warrant to
acquire up to 5.5 million shares of priceline common stock
for $56.63 per share (1999 Warrant).
Based on an independent third-party appraisal, the fair
value of the 1999 Warrant on the date received was deter
mined to be $61 million. This amount is being recognized in
income ratably over a three-year period beginning November
17, 1999. Under our amended agreement with priceline, we
are required to provide priceline access to unpublished fares.
On June 30, 2000, we exercised our Exchange Right
in full, receiving six million shares of priceline Series A
Convertible Preferred Stock (Series A Preferred Stock). As a
result of the exchange, we recognized a pretax non-cash gain
of $228 million. On October 1, 2000, we received 549,764
shares of priceline common stock as a dividend on the Series
A Preferred Stock. We recorded other income of $14 million
in our 2000 Consolidated Statements of Operations related
to this dividend.
2001 Annual Report 33
Notes to the Consolidated Financial Statements
On November 2, 2000, Delta and priceline amended the
1999 Warrant (1) to reduce the number of shares underlying
the 1999 Warrant from 5.5 million to 4.7 million; and (2) to
reduce our per share purchase price for those shares from
$56.63 to $4.72 (Amended 1999 Warrant). The Amended
1999 Warrant became exercisable in full on January 1, 2001,
and expires on November 17, 2004. The amendment of
the 1999 Warrant did not have a material impact on our
Consolidated Financial Statements.
On February 6, 2001, Delta and priceline agreed to
restructure Delta's investment in priceline. In accordance with
this agreement, we exchanged our six million shares of Series
A Preferred Stock for (1) 80,000 shares of priceline Series B
Redeemable Preferred Stock (Series B Preferred Stock); and (2)
a warrant to purchase up to 26.9 million shares of priceline
common stock for $2.97 per share (2001 Warrant).
The Series B Preferred Stock (1) bears an annual per
share dividend of approximately 36 shares of priceline com
mon stock; (2) has a liquidation preference of $1,000 per
share plus any dividends accrued or accumulated but not
yet paid (Liquidation Preference); (3) is subject to mandatory
redemption on February 6, 2007 at a price per share equal
to the Liquidation Preference; (4) is subject to redemption
in whole, at the option of Delta or priceline, if priceline
completes any of certain business combination transactions
(Optional Redemption); and (5) entitles Delta to a premium
payment of $625 per share if any of these business combina
tion transactions occurs on or before November 16, 2002.
Based on an independent third-party appraisal, we esti
mated the fair value of the Series B Preferred Stock to be $80
million and the 2001 Warrant to be $46 million at February 6,
2001. The total fair value of these securities equaled the car
rying amount of the Series A Preferred Stock, including its
conversion feature and accumulated dividends on the date
the Series A Preferred Stock was exchanged for the Series B
Preferred Stock and the 2001 Warrant. Accordingly, we did
not recognize a gain or loss on this transaction.
As discussed above, the 2001 Warrant provides Delta the
right to purchase up to an additional 26.9 million shares of
priceline common stock for $2.97 per share. Delta may exer
cise the 2001 Warrant, in whole or in part, at any time prior
to the close of business on February 6, 2007, unless all of
the shares of Series B Preferred Stock owned by Delta are
redeemed in an Optional Redemption, in which case Delta
may not exercise the 2001 Warrant after the date of the
Optional Redemption. The exercise price may be paid by Delta
only by the surrender of shares of Series B Preferred Stock,
valued at $1,000 per share.
The 2001 Warrant also provides that it will automatically
be deemed exercised if the closing sales price of priceline
common stock exceeds $8.91 for 20 consecutive trading
days. In that event, Delta's rights in the shares of Series B
Preferred Stock necessary to pay the exercise price of the
2001 Warrant would automatically be converted into the
right to receive shares of priceline common stock pursuant
to the 2001 Warrant.
On August 6, 2001, we received a dividend of 986,491
shares of priceline common stock related to our equity inter
est in the Series B Preferred Stock. We recorded other income
of $9 million in our 2001 Consolidated Statements of
Operations related to this dividend.
During 2001, we (1) exercised the 2001 Warrant in
part to purchase 18.4 million shares of priceline common
stock, paying the exercise price by surrendering to priceline
54,656 shares of Series B Preferred Stock; and (2) sold
18.7 million shares of priceline common stock on the open
market for $143 million. We recognized a pretax gain of
$4 million related to these transactions in our 2001
Consolidated Statements of Operations.
At December 31, 2001, Delta's equity interest in priceline
consisted of (1) 25,344 shares of Series B Preferred Stock; (2)
the 2001 Warrant to purchase up to 8.5 million shares of
priceline common stock; (3) the Amended 1999 Warrant to
purchase up to 4.7 million shares of priceline common stock;
and (4) 1.3 million shares of priceline common stock. We
have certain registration rights relating to shares of priceline
common stock we acquire from the exercise of the Amended
1999 Warrant or the 2001 Warrant or receive as dividends on
the Series B Preferred Stock.
At December 31, 2001, the carrying values of our hold
ings in Series B Preferred Stock and priceline common stock
were $25 million and $7 million, respectively. The Series B
34 Delta Air Lines, Inc.
Preferred Stock is accounted for as an available-for-sale debt
security. In accordance with SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities," the Series
B Preferred Stock and the priceline common stock are recorded
at fair market value in investments in debt and equity securi
ties on our Consolidated Balance Sheets. At December 31,
2001, the carrying value of the 2001 Warrant and the
Amended 1999 Warrant totaled $44 million. The warrants
are recorded at fair market value in investments in debt and
equity securities on our Consolidated Balance Sheets in accor
dance with SFAS 133.
EQUANT, N.V.
During 1999, we sold a portion of our equity interest in
Equant, N.V. (Equant), an international data services company,
realizing a pretax gain of $50 million. During 2001, we sold
our remaining equity interest which resulted in a pretax gain
of $11 million. Both the 1999 and 2001 sales are recorded
in net gain from sale of investments in our Consolidated
Statements of Operations.
OTHER
Delta's equity investment in SkyWest, Inc., the parent company
of SkyWest Airlines, was classified as an available-for-sale
equity security under SFAS 115. The fair value of this invest
ment was $179 million at December 31, 2000. During 2001,
we sold our equity interest in SkyWest, Inc. for $125 million
and recorded a pretax gain of $111 million in our 2001
Consolidated Statements of Operations.
During 1999, we sold our equity interests in Singapore
Airlines and SAirGroup, the parent company of Swissair, recog
nizing pretax gains of $137 million and $29 million, respectively,
in our 1999 Consolidated Statements of Operations.
Note 4. Derivative Instruments
On July 1, 2000, we adopted SFAS 133, as amended. SFAS 133
requires us to record all derivative instruments on the balance
sheet at fair market value, and to recognize certain non-cash
changes in these fair market values in the statement of opera
tions. SFAS 133 impacts the accounting for our fuel hedging
program and our holdings of equity warrants and other simi
lar rights in other companies.
The impact of SFAS 133 on our Consolidated Statements
of Operations is summarized as follows:
Income (Expense)
in millions
For the 12
Months Ended
12/31/2001
For the Six
Months Ended
12/31/2000
Cumulative
Effect
7/1/2000
Write-off of
fuel hedge
contract
premiums $ $ - $ (143)
Ineffective
portion
of fuel hedge
contracts (4) 5 16
Fair value
adjustments of
equity rights 72 (164) (37)
Total pretax 68 (159) (164)
Total after tax $ 41 $ (97) $ (100)
FUEL HEDGE CONTRACTS
Because there is not a readily available market for derivatives
in aircraft fuel, we use heating oil contracts to manage our
exposure to changes in aircraft fuel prices. Changes in the
market value of our heating oil contracts (also referred to as
"fuel hedge contracts") have a high correlation to changes in
aircraft fuel prices and therefore qualify as cash flow hedges
under SFAS 133.
We record the fair market value of our fuel hedge con
tracts on our Consolidated Balance Sheets. On an ongoing
basis, we adjust our balance sheet to reflect the current fair
market value of our fuel hedge contracts. The related gains
or losses on these contracts are deferred in shareowners'
equity (as a component of other comprehensive income).
These deferred gains and losses are recognized in income in
the period in which the related aircraft fuel purchases being
hedged are consumed and recognized in expense. However,
2001 Annual Report 35
Notes to the Consolidated Financial Statements
to the extent that the change in fair market value of a fuel
hedge contract does not perfectly offset the change in the
value of the aircraft fuel purchase being hedged, the ineffec
tive portion of the hedge is immediately recognized in income.
In calculating the ineffective portion of our hedge perform
ance under SFAS 133, we include all changes in the time
value component related to any option premiums paid and
recognize the amount in income during the life of the con
tract. Additionally, the ineffective portion of the hedge returns
is included in our Consolidated Statements of Operations as
fair market value adjustments of SFAS 133 derivatives. Prior
to the adoption of SFAS 133, the fuel hedge gains that were
netted against fuel expense included the total fuel-related
hedge premiums.
At December 31, 2001, our fuel hedge contracts had
an estimated short-term fair market value of $55 million
and an estimated long-term fair market value of $9 million,
with unrealized gains of $25 million, net of tax, recorded in
accumulated other comprehensive income. At December 31,
2000, our fuel hedge contracts had an estimated short-term
fair market value of $319 million and an estimated long
term fair market value of $ 130 million, with unrealized gains
of $268 million, net of tax, recorded in accumulated other
comprehensive income.
EQUITY WARRANTS AND OTHER SIMILAR RIGHTS
We own equity warrants and other similar rights in certain
companies, primarily priceline. The total fair market value of
these rights at December 31, 2001 and 2000 was $48 million
and $11 million, respectively. Changes in the fair market value
of these rights are recorded in our Consolidated Statements
of Operations as fair market value adjustments of SFAS 133
derivatives. For additional information regarding these rights,
see Note 3.
Note
5. Risk Management
AIRCRAFT FUEL PRICE RISK
Our results of operations can be significantly impacted by
changes in the price of aircraft fuel. To manage this risk, we
periodically purchase forwards, options and other similar
non-leveraged derivative instruments which may have matu
rities of up to 36 months. We do not enter into fuel hedge
contracts for speculative purposes. See Note 4 for additional
information about our fuel hedge contracts.
INTEREST RATE RISK
Our exposure to market risk due to changes in interest rates
primarily relates to our long-term debt obligations and cash
portfolio. Market risk associated with our long-term debt
relates to the potential change in fair market value result
ing from a change in interest rates as well as the potential
increase in interest we would pay on variable rate debt.
Market risk associated with our cash portfolio relates to the
potential change in our earnings resulting from a change in
interest rates.
From time to time, we may enter into interest rate hedge
transactions, provided that the notional amount of these trans
actions does not exceed 50% of our long-term debt. We do
not enter into interest rate hedge contracts for speculative
purposes. We did not have any interest rate hedge contracts
at December 31, 2001 or 2000.
CREDIT RISK
To manage credit risk associated with our aircraft fuel price
and foreign currency exchange risk management programs,
we select counterparties based on their credit ratings and limit
our exposure to any one counterparty under defined guide
lines. 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 significant
at December 31, 2001 and 2000.
Our accounts receivable are generated largely from the
sale of passenger airline tickets and cargo transportation serv
ices to customers. The majority of these sales are processed
through major credit card companies, resulting in accounts
receivable which are generally short-term in duration. We also
have receivables from the sale of mileage credits to partners,
such as credit card companies, hotels and car rental agencies,
that participate in our SkyMiles program. We believe that the
credit risk associated with these receivables is minimal and that
the allowance for bad debts that we have provided is sufficient.
SELF-INSURANCE RISK
We self-insure a portion of our losses from claims related to
workers' compensation, environmental issues, property dam
age, medical insurance for employees and general liability.
Losses are accrued based on an estimate of the ultimate
aggregate liability for claims incurred, using independent
36 Delta Air Lines, Inc.
2001 2000
actuarial reviews based on standard industry practices and
our actual experience.
FOREIGN CURRENCY EXCHANGE RISK
We are subject to foreign currency exchange risk because we
have revenues and expenses denominated in foreign currencies,
primarily the euro, the British pound, the Canadian dollar and
the Japanese yen. To manage exchange rate risk, we net for
eign currency revenues and expenses, to the extent practicable.
From time to time, we may also enter into foreign currency
options and forward contracts with maturities of up to 12
months. The fair market value of our foreign currency hedge
contracts at December 31, 2001 was immaterial. We did not
have any foreign currency hedge contracts at December 31,
2000. We do not enter into foreign currency hedge contracts
for speculative purposes.
Note 6. Adoption of SAB 101
On January 1, 1999, we adopted SAB 101, which changed
the method of accounting for the sale of mileage credits
under our SkyMiles frequent flyer program to participating
partners such as credit card companies, hotels and car rental
agencies. Under SAB 101, a portion of the revenue from
the sale of mileage credits is deferred until the credits are
redeemed for travel. For accounting purposes, we amortize
travel credits on a straight-line basis over a 30-month period.
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 other selling expense. Previously,
the revenue from the sale of mileage credits was recorded in
other revenue in the period in which the credits were sold.
Our adoption of SAB 101 resulted in a cumulative effect
charge of $54 million, net of tax ($89 million, pretax).
Note 7. 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 income tax
purposes. At December 31, 2001, we had pretax net operat
ing losses of approximately $2.4 billion related to U.S. federal
and state jurisdictions. These net operating losses expire at
various times beginning in 2005 and ending in 2021. The fol
lowing table shows significant components of our deferred
tax assets and liabilities at December 31, 2001 and 2000:
in millions
Deferred Tax Assets:
Postretirement benefits $ 1,025 $ 821
Net Operating Loss Carryforwards 911 --
Other employee benefits 254 304
Gams on sale and leaseback
transactions, net 239 206
Rent expense 220 221
Spare parts repair expense 56 164
Other 422 361
Valuation Allowance (16) --
Total deferred tax assets $ 3,111 $ 2,077
Deferred Tax Liabilities:
Depreciation and amortization $ 2,696 $ 2,337
Unrealized gains on
marketable securities and
fuel hedge contracts 11 230
Other 351 385
Total deferred tax liabilities $ 3,058 $ 2,952
Our Income tax benefit (provision) in 2001, 2000 and
1999 consisted of:
in millions 2001 2000 1999
Current tax provision $ -- $ (230) $ (515)
Deferred tax benefit
(provision) 644 (396) (321)
Tax benefit of dividends
on allocated Series B
ESOP Convertible
Preferred Stock 4 5 5
Income tax
benefit (provision) $ 648 $ (621) $ (831)
The following table presents the principal reasons for
the difference between the effective tax rate and the U.S.
federal statutory income tax rate for 2001, 2000 and 1999:
2001 2000 1999
U.S. federal statutory
income tax rate -35.0% 35.0% 35.0%
State taxes, net of
federal income
tax effect -2.6 3.4 3.7
Meals and
entertainment 1.0 1.1 0.8
Amortization 1.0 1.0 0.3
Municipal Bond Interest -0.1 -0.2 --
Increase in Valuation
Allowance 0.8
Other, net 0.1 -0.2 -0.1
Effective income
tax rate -34.8% 40.1% 39.7%
2001 Annual Report 37
Notes to the Consolidated Financial Statements
Note 8. Debt
The following table summarizes our debt at December 31, 2001 and 2000:
in millions 2001 2000
Secured1
2000-1 Enhanced Equipment Trust Certificates
7.379% Series A-1 due in installments through May 18, 2010 $ 308 $ 341
7.57% Series A-2 due November 18, 2010 738 738
7.92% Series B due November 18, 2010 182 182
7.779% Series C due November 18, 2005 239 239
1,467 1,500
2001-1 Enhanced Equipment Trust Certificates
6.619% Series A-1 due in installments through March 18, 2011 300 --
7.111 % Series A-2 due September 18, 2011 571 --
7.711 % Series B due September 18, 2011 207 --
7.299% Series C due September 18, 2006 170 --
6.95% Series D due September 18, 2006 150 --
1,398
2001-2 Enhanced Equipment Trust Certificates
3.6% Series A due in installments through December 18, 20112 449 --
4.8% Series B due in installments through December 18, 20112 282 --
731 --
Other secured debt due 2002 to 2017; interest rates of 2.6% to 6.2%2 506 199
Total secured debt 4,102 1,699
Unsecured
1997 Bank Credit Agreement, 2.91%, due May 1, 2002 2 625 --
Massachusetts Port Authority Special Facilities Revenue Bonds
5.0%-5.5% Series 2001A due in installments between 2012 and 2027 338
2.2% Series 2001B due January 1, 20312 80 --
2.3% Series 2001C due January 1, 20312 80 --
498
8.10% Series C Guaranteed Serial ESOP Notes, due in installments between 2002 and 2009 290 290
6.65% Medium-Term Notes, Series C, due March 15, 2004 300 300
7.7% Notes due December 15, 2005 500 500
7.9% Notes due December 15, 2009 499 499
9.75% Debentures due May 15, 2021 106 106
Development Authority of Clayton County, loan agreement,
1.7% Series 2000A due June 1, 20292 65 65
1.8% Series 2000B due May 1, 20352 116 116
1.7% Series 2000C due May 1, 20352 120 120
301 301
8.3% Notes due December 15, 2029 925 1,000
8.125% Notes due July 1, 20393 538 538
Other debt due 2002 to 2022; interest rates of 5.30% to 10.375% 620 626
Total unsecured debt 5,202 4,160
Total debt 9,304 5,859
Less: Current maturities and short-term obligations 1,025 62
Total long-term debt $ 8,279 $ 5,797
1 Our secured debt is secured by first mortgage liens on a total of 151 aircraft (47 B-737-800, 31 B-757-200, 17 B-767-300ER, 4 B-777-200, 37 CRJ
100/200, 11 EMB-120 and 4 ATR-72 aircraft) delivered to Delta from March 1992 through December 2001. These aircraft had an aggregate net
book value of approximately $4.7 billion at December 31, 2001.
2 Our variable interest rate debt is shown using interest rates in effect at December 31, 2001.
3 The 8.125% Notes due 2039 are redeemable by Delta, in whole or In part, at par on or after July 1, 2004.
38 Delta Air Lines, Inc.
The fair value of our total debt was $8.9 billion and $5.8
billion at December 31, 2001 and 2000, respectively.
FUTURE MATURITIES
At December 31, 2001, the scheduled maturities of our debt
for the next five years are as follows:
Years Ending December 31, Principal
in millions Amount
2002 $ 1,025
2003 202
2004 517
2005 937
2006 520
After 2006 6,103
Total $ 9,304
We expect to meet our obligations as they become due
through available cash, short-term investments, internally
generated funds, borrowings and Stabilization Act compensa
tion. Additionally, we have unencumbered assets available for
use in potential financing transactions. We have not deter
mined whether to apply for federal loan guarantees under
the Stabilization Act.
ENHANCED EQUIPMENT TRUST CERTIFICATES (EETC)
FINANCING TRANSACTIONS
During 2001, we issued $2.1 billion aggregate principal
amount of Pass Through Certificates (Certificates), commonly
referred to as an EETC financing, for general corporate pur
poses. For additional information about these financings, see
"2001-1 Enhanced Equipment Trust Certificates" and "2001-2
Enhanced Equipment Trust Certificates" on the Table on
page 38 of this Annual Report.
1997 BANK CREDIT AGREEMENT
Under our 1997 Bank Credit Agreement, as amended in
November 2001, we may borrow up to $625 million on an
unsecured and revolving basis until May 1, 2002, subject to
our compliance with certain conditions. Borrowings under this
facility are available for general corporate purposes, may be
prepaid by us at any time and currently bear interest at LIBOR
plus a margin which is dependent on our long-term senior
unsecured debt ratings.
The 1997 Bank Credit Agreement contains negative
covenants that place certain limits on the amount of secured
debt, current debt and other debt that we may have outstand
ing, and on our annual flight equipment rental expense. 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 December 31, 2001, there were $625 million of bor
rowings outstanding under the 1997 Bank Credit Agreement.
BOSTON AIRPORT TERMINAL PROJECT
During 2001, we entered into lease and financing agreements
with the Massachusetts Port Authority (Massport) for the
redevelopment and expansion of Terminal A at Boston's Logan
International Airport. The completion of this project will enable
us to consolidate all of our domestic operations at that airport
into one location. Construction is currently expected to begin
in the March 2002 quarter and to be completed during 2005.
Project costs will be funded with $498 million in proceeds
from Special Facilities Revenue Bonds issued by Massport on
August 16, 2001. Delta agreed to pay the debt service on the
bonds under a long-term lease agreement with Massport and
issued a guarantee to the bond trustee covering the payment
of the debt service on the bonds. For additional information
about these bonds, see "Massachusetts Port Authority Special
Facilities Revenue Bonds" on the Table on page 38 of this
Annual Report. Because we have issued a guarantee of the
debt service on the bonds, we have included the bonds, as
well as the related bond proceeds, on our Consolidated
Balance Sheets. The bonds are reflected in noncurrent liabili
ties and the related proceeds, which are held in trust, are
reflected as restricted investments in other assets on our
Consolidated Balance Sheets.
SERIES C ESOP NOTES
At December 31, 2001, there were outstanding $290 million
principal amount of the Delta Family-Care Savings Plan's Series
C Guaranteed Serial ESOP Notes (Series C ESOP Notes). The
Series C ESOP Notes, which are payable in installments
2001 Annual Report 39
Notes to the Consolidated Financial Statements
between 2002 and 2009, are guaranteed by Delta. We are
generally required to purchase the Series C ESOP Notes at the
option of the noteholders 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 amounts on the Series C ESOP
Notes are paid under the letter of credit. At December 31,
2001, the letter of credit totaled $424 million, covering the
$290 million outstanding principal amount of the Series C
ESOP Notes, approximately one year of interest on the notes
and $101 million of potential make whole premium amounts.
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 loan due on the earlier of one year
after the drawing or May 19, 2003.
Due to the existence of the letter of credit, the Series C
ESOP Notes currently have the Required Ratings. However,
these ratings are subject to change at any time. Circum
stances that might cause Moody's or Standard & Poor's to
lower its ratings on the Series C ESOP Notes include, among
other things, the termination of the letter of credit or the
lowering of the credit ratings of the issuer of the letter of
credit. The Series C ESOP Notes are not likely to receive the
Required Ratings without an appropriate credit enhancement.
LETTER OF CREDIT ENHANCED MUNICIPAL BONDS
In June 2000, the Development Authority of Clayton County
(Development Authority) issued $301 million principal amount
of bonds in three series with scheduled maturities between
2029 and 2035. The proceeds of this sale were used to refund
bonds that had been issued to finance certain Delta facilities
at Hartsfield Atlanta International Airport. The new bonds are
secured by the Development Authority's pledge of revenues
derived by the Development Authority under related loan
agreements between Delta and the Development Authority.
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 conditions, tendered bonds will be remar
keted 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 irrevocable, direct-pay letters
of credit totaling $305 million issued by Commerzbank AG
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 a letter of credit to purchase bonds that
have been tendered, Delta may convert its repayment obliga
tion to a loan that becomes due and payable on the earlier
of (1) the date the related bonds are remarketed; or (2) the
June 8, 2003 expiration date of the related letter of credit.
Unless an existing letter of credit is extended, a mandatory
tender for purchase of the related bonds will occur on the
fifth day prior to the expiration of such letter of credit. In
these circumstances, Delta could seek to replace the expiring
letter of credit with a new letter of credit from an alternate
credit provider and remarket the related bonds.
There are also outstanding under the Reimbursement
Agreement irrevocable direct-pay letters of credit totaling
$104 million relating to $102 million principal amount of
bonds issued by other municipalities to build certain airport
facilities leased to Delta. These bonds currently bear interest
at a variable rate, which is determined weekly, and may be
tendered for purchase by their holders on seven days' notice.
We pay the debt service on these bonds under long-term
lease agreements (See Note 10). The related letters of credit
expire between November 7, 2003, and December 4, 2003,
and are otherwise similar to the letters of credit relating to
the Development Authority bonds.
COVENANTS AND CHANGE IN CONTROL PROVISIONS
The Letter of Credit Facility and the Reimbursement Agreement
contain negative covenants and a change in control provision
that are similar to the corresponding provisions in our 1997
Bank Credit Agreement.
Our debt agreements do not limit the payment of
40 Delta Air Lines, Inc.
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 shareowners in certain
circumstances (see Note 14).
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 dividends, loans or advances. At December 31,
2001, approximately $271 million of ASA's net assets were
subject to these restrictions and there were no net assets
available for distribution by ASA to Delta under the most
restrictive of these provisions.
As is standard practice in the airline industry, our aircraft
lease and financing agreements require that we maintain cer
tain levels of insurance coverage.
OTHER FINANCING ARRANGEMENTS
On December 12, 2001, we entered into an agreement under
which we may borrow prior to July 1, 2002, up to $935 mil
lion on a secured basis, subject to certain conditions. Available
borrowings under this facility become due or are reduced, as
applicable, on the earlier of (1) 366 days after the date of the
borrowing; or (2) our completion in 2002 of certain financ
ings. The interest rate is LIBOR plus a margin that varies
depending on the duration of the borrowing and our credit
rating. At December 31, 2001, no borrowings were outstand
ing under this facility (see Note 21).
On December 28, 2001, we entered into a credit facility
with a group of banks under which we may borrow up to
$625 million on a secured basis until December 27, 2002,
subject to certain conditions. The banks' lending commitment
under this facility is reduced, however, to the extent we
receive net cash proceeds from the issuance of certain financ
ings. The interest rate under this facility is, at our option,
LIBOR or a specified base rate plus a margin that varies
depending on the period during which borrowings are out
standing. Any borrowings under this facility will be secured by
certain aircraft owned by us. At December 31, 2001, no bor
rowings were outstanding under this facility.
We have available to us long-term, secured financing
commitments from a third party that we may elect to use for
a substantial portion of the commitments for regional jet air
craft to be delivered to ASA and Comair through 2004. Any
borrowings under these commitments would be at a fixed
interest rate determined by reference to ten year U.S. Treasury
Notes and would have various repayment dates.
Note 9. Asset-Writedowns and
Other Nonrecurring Items
2001
In 2001, we recorded asset writedowns and other non
recurring items totaling $1.1 billion ($695 million net of
tax, or $5.63 diluted EPS) in our Consolidated Statements
of Operations, as follows:
A $566 million charge relating to our decision to reduce
staffing across all workgroups due to the capacity reductions
we implemented as a result of the September 11 terrorist
attacks. We offered eligible employees several options,
including voluntary severance, leaves of absence and early
retirement. Approximately 10,000 employees elected to
participate in one of the voluntary programs. Involuntary
reductions will affect approximately 1,700 employees - up to
1,400 pilots and 300 employees from other workgroups. All
employee reductions have been completed, with the excep
tion of approximately 1,000 pilots. We expect the remaining
pilots to be furloughed by December 2002 as training and
operational requirements are met.
The total charge includes $475 million for costs asso
ciated with the early retirement and certain voluntary leave
of absence programs which are recorded as adjustments to
our pension and post-retirement medical benefit obligations
(see Note 12). The remaining $91 million relates to sever
ance and related costs .
As of December 31, 2001, approximately $44 million
had been paid for severance and related costs. The remain
ing $47 million, which is recorded as a current liability in
our Consolidated Balance Sheets, consists of severance for
non-pilot employees, which was paid during January 2002;
severance for pilots, which will be paid as pilots are fur
loughed during 2002; and medical benefits for
employees who received severance or are participating in
certain leave of absence programs, which will be paid
monthly during 2002.
2001 Annual Report 41
Notes to the Consolidated Financial Statements
A $363 million charge resulting from a decrease in value
of certain aircraft. This charge includes (1) impairment
charges, in accordance with our policy discussed in Note 1,
of $191 million related to our 16 MD-90 and eight owned
MD-11 aircraft, which reflects further reduction in the esti
mated future cash flows and fair values of these aircraft
since our impairment review in 1999 (discussed below) as
well as a revised schedule for retiring these aircraft over the
next five to nine years, and $83 million related to the accel
erated retirement of 40 B-727 aircraft by 2003; and (2) a
$77 million writedown related to our decision to accelerate
the retirement of nine B-737 aircraft in 2002 and a
$12 million writedown to fair market value of 18 L-1011
aircraft which are held for disposal. We recorded $303
million of these charges as a result of the effects of the
September 11 terrorist attacks. The remaining $60 million
was recorded in the June 2001 quarter when we initially
decided to accelerate the retirement of the nine B-737 air
craft to more closely align capacity and demand, and to
improve scheduling and operating efficiency.
A $160 million charge which relates primarily to discontin
ued contracts, facilities and information technology projects.
It also includes $9 million related to the write-off of certain
receivables that we believe we will not be able to realize as
a result of the September 11 terrorist attacks.
We incurred $30 million in expenses which are direct costs
of our capacity reductions and represent the temporary
cost of surplus pilots and grounded aircraft.
2000
In 2000, we recorded charges totaling $108 million ($66 mil
lion net of tax, or $0.53 basic and $0.50 diluted EPS) in our
Consolidated Statements of Operations, as follows:
An $86 million charge relating to our decision to offer
an early retirement medical option program to enable eli
gible employees to retire with continued medical coverage
without paying certain early retirement medical premiums.
Approximately 2,500 employees elected to participate in
this program.
A $22 million restructuring charge relating to our decision
to close our Pacific gateway in Portland, Oregon.
7 999
In 1999, we recorded charges totaling $469 million ($286
million net of tax, or $2.07 basic and $1.94 diluted EPS)
in our Consolidated Statements of Operations, as follows:
A $320 million charge related to our decision to accelerate
the planned retirement of our 16 MD-90 aircraft and eight
owned MD-11 aircraft as part of our fleet simplification
strategy. We determined the amount of this charge based
on our impairment policy discussed in Note 1.
A $107 million charge because we (1) changed our business
practice regarding the disposal of surplus aircraft parts; and
(2) entered into an agreement with a third party to sell all
of our existing surplus aircraft parts inventory. As a result
of these actions, 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.
A $42 million charge due to our implementation of certain
technology initiatives which resulted in an abandonment of
certain legacy hardware and software assets.
Note 10. Lease Obligations
Delta leases aircraft, airport terminal and maintenance facili
ties, 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 $1.3
billion, $1.3 billion and $1.1 billion in 2001, 2000 and 1999,
respectively. Amounts due under capital leases are recorded
as liabilities. Our interest in assets acquired under capital
leases is shown as an asset on our Consolidated Balance
Sheets. Amortization of assets recorded under capital leases
is included in depreciation expense in our Consolidated
Statements of Operations.
42 Delta Air Lines, Inc.
The following table summarizes, as of December 31,
2001, our minimum rental commitments under capital leases
and operating leases with initial or remaining terms in excess
of one year:
Years Ending December 31, Capital Operating
in millions Leases Leases
2002 $ 39 $ 1,271
2003 30 1,238
2004 21 1,197
2005 14 1,177
2006 6 1,144
After 2006 10 8,068
Total minimum lease payments 120 $ 14,095
Less: Amounts of lease payments
which represent interest 21
Present value of future minimum
capital lease payments 99
Less: Current obligations
under capital leases 31
Long-term capital lease obligations $ 68
As of December 31, 2001, we operated 313 aircraft
under operating leases and 42 aircraft under capital leases.
These leases have remaining terms ranging from six months
to 16 years.
Certain municipalities have issued special facilities revenue
bonds to build or improve airport and maintenance facilities
leased to Delta. The facility lease agreements require Delta to
make rental payments sufficient to pay principal and interest
on the bonds. The above table includes $1.9 billion of operat
ing lease rental commitments for such payments.
Note 1 1 . Purchase Commitments
We have contract carrier agreements with two regional
air carriers, Atlantic Coast Airlines and SkyWest Airlines which
expire in 2010. Under these agreements, we schedule certain
aircraft that are operated by those airlines using Delta's flight
code, sell the seats on those flights and retain the related rev
enues. We pay those airlines an amount that is based on
their cost of operating those flights plus a specified margin. In
2001, we paid these two carriers approximately $239 million
under these agreements. In 2002, we expect to pay approxi
mately $520 million on an anticipated capacity increase of
129% over 2001.
We may terminate these agreements at any time by giv
ing the airline certain advance notice. If we terminate the
agreements in these circumstances, the airline has the right
(1) to assign to us leased aircraft which it operates for us
under its agreement, provided we are able to continue the
leases on the same terms as the airline; and (2) to require us
to purchase at fair market value aircraft owned by the airline
which it operates for us under its agreement. We estimate
that the total fair market value of the aircraft that the airlines
could assign to us or require that we purchase is approxi
mately $1.3 billion.
Delta is a defendant in legal actions relating to antitrust
matters, employment practices, environmental 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.
and Contingencies
Future expenditures for aircraft and engines on firm order as
of January 31, 2002 are estimated to be $6.0 billion. The
following table shows the timing of these commitments:
Years Ending December 31,
in billions Amount
2002 $ 1.4
2003 1.1
2004 1.7
2005 1.3
2006 0.5
After 2006 --
Total $ 6.0
Approximately 18% of our employees, including all of
our pilots, are represented by labor unions. See "Employee
Matters" on page 23 of Management's Discussion and
Analysis of Financial Condition and Results of Operations for
additional unaudited information on this subject.
2001 Annual Report 43
Notes to the Consolidated Financial Statements
Note 12. Employee Benefit Plans
Delta sponsors defined benefit and defined contribution
pension plans, healthcare plans, and disability and survivorship
plans for eligible employees and retirees, and their eligible
family members. We reserve the right to modify or terminate
these plans as to all participants and beneficiaries at any time,
except as restricted by the Internal Revenue Code or ERISA.
As discussed in Note 1, effective December 31, 2000,
we changed our year end from June 30 to December 31. As
a result of this change, we elected to restate our financial
statements to provide comparability between periods. This
change does not require a remeasurement of prior pension
or postretirement obligations. Therefore, with the exception
of net periodic costs, the financial data presented in this
note has not been restated for the change in year end.
DEFINED BENEFIT PENSION PLANS
Our qualified defined benefit pension plans meet or exceed
ERISA's minimum funding requirements as of December 31,
2001.
The following table shows the change in projected
benefit obligation for our defined benefit pension plans for
the 12 months ended December 31, 2001, the six months
ended December 31, 2000 and the 12 months ended June
30, 2000:
in millions
12 Months Ended
December 31, 2001
Six Months Ended
December 31, 2000
12 Months Ended
June 30, 2000
Projected benefit obligation at beginning of period $ 9,263 $ 8,901 $ 8,872
Service cost 246 121 251
Interest cost 763 354 644
Actuarial (gain) loss 531 156 (402)
Benefits paid (623) (269) (491)
Special termination benefits 185 -- --
Curtailment loss 30 -- --
Plan amendments 262 -- 27
Projected benefit obligation at end of period $ 10,657 $ 9,263 $ 8,901
The special termination benefits reflected in the above table relate to the staffing reduction options offered to certain Delta
employees in 2001 (see Note 9).
We used the following actuarial assumptions to determine the actuarial present value of our projected benefit obligation:
_ September 30, 2001 September 30, 2000 March 31, 2000
Weighted average discount rate 7.75% 8.25% 8.25%
Rate of increase in future compensation levels 4.67% 5.35% 4.93%
Expected long-term rate of return on plan assets 10.00% 10.00% 10.00%
The following table shows the change in the fair value of our defined benefit pension plan assets for the 12 months ended
December 31, 2001, the six months ended December 31, 2000 and the 12 months ended June 30, 2000:
in millions
12 Months Ended
December 31, 2001
Six Months Ended
December 31, 2000
12 Months Ended
June 30, 2000
Fair value of plan assets at beginning of period $ 10,398 $ 10,721 $ 9,020
Actual return (loss) on plan assets (1,521) (80) 2,144
Employer contributions 50 26 48
Benefits paid (623) (269) (491)
Fair value of plan assets at end of period $ 8,304 $ 10,398 $ 10,721
44 Delta Air Lines, Inc.
The accrued pension cost recognized for these plans on our Consolidated Balance Sheets at December 31, 2001 and 2000
is computed as follows:
in millions December 31, 2001 December 31, 2000
Funded status $ (2,353) $ 1,135
Unrecognized net actuarial (gain) loss 1,584 (1,558)
Unrecognized transition obligation 49 58
Unrecognized prior service cost 308 55
Contributions made between measurement date and year end 12 12
Intangible asset (7) (8)
Other comprehensive income (12) (2)
Accrued pension cost recognized on the Consolidated Balance Sheets $ (419) $ (308)
Net periodic pension cost for the years ended December 31, 2001, 2000 and 1999 included the following components:
in millions 2001 2000 1999
Service cost $ 246 $ 250 $ 239
Interest cost 763 686 599
Expected return on plan assets (1,040) (924) (794)
Amortization of prior service cost 5 4 4
Recognized net actuarial (gain) loss (51) (22) 1
Amortization of net transition obligation 4 2 2
Net periodic pension cost $ (73) $ (4) $ 51
Delta also sponsors non-qualified pension plans which Delta Family-Care Savings Plan
are funded from current assets. The accumulated benefit obli- Our Savings Plan includes an employee stock ownership plan
gation of these plans totaled $303 million at September 30, (ESOP) feature. Eligible employees may contribute a portion
2001 and $413 million at September 30, 2000. of their covered pay to the Savings Plan.
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 equivalent of the accumu
lated account balance in the MPPP. During the years ended
December 31, 2001, 2000 and 1999, we recognized expense
of $69 million, $63 million and $56 million, respectively, for
this plan.
Prior to July 1, 2001, Delta matched 50% of employee
contributions with a maximum employer contribution of 2%
of a participant's covered pay for all participants. Effective
July 1, 2001, the Savings Plan was amended to provide all
eligible Delta pilots with an employer contribution of 3% of
their covered pay to replace their former matching contribu
tion. We make our contributions for non-pilots and pilots
by allocating Series B ESOP Convertible Preferred Stock,
common stock or cash to the Savings Plan. Our contribu
tions, which are recorded as salaries and related costs in
the accompanying Consolidated Statements of Operations,
totaled $83 million, $69 million and $61 million in 2001,
2000 and 1999, respectively.
2001 Annual Report 45
Notes to the Consolidated Financial Statements
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 allo
cated shares of preferred stock are credited to participants'
accounts and are considered dividends for financial reporting
purposes. Only allocated shares of preferred stock are consid
ered outstanding when we compute diluted earnings per
share. At December 31, 2001, 3,509,922 shares of Series B
ESOP Convertible Preferred Stock were allocated to partici
pants' accounts and 2,768,288 shares were held by the ESOP
for future allocations.
Other Plans
ASA, Comair and DAL Global Services, Inc., one of our wholly
owned subsidiaries, sponsor defined contribution retirement
plans for eligible employees. These plans did not have a mate
rial impact on our Consolidated Financial Statements in 2001,
2000 and 1999.
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.
The following table shows the change in our
accumulated postretirement benefit obligation (APBO)
for the 12 months ended December 31, 2001, the six
months ended December 31, 2000 and the 12 months
ended June 30, 2000:
in millions
12 Months Ended
December 31, 2001
Six Months Ended
December 31, 2000
12 Months Ended
June 30, 2000
APBO at beginning of period $ 1,780 $ 1,749 $ 1,612
Service cost 37 18 38
Interest cost 146 70 117
Benefits paid (102) (46) (80)
Actuarial (gain) loss 163 (11) (52)
Plan amendment (176) -- 28
Curtailment loss 49 -- --
Special termination benefits 203 -- 86
APBO at end of period $ 2,100 $ 1,780 $ 1,749
46 Delta Air Lines nc.
The special termination benefits reflected in the above table relate to the staffing reduction programs and the early
retirement medical option offered to certain Delta employees during 2001 and 2000 (see Note 9).
We used the following actuarial assumptions to determine the actuarial present value of our APBO:
September 30, 2001 September 30, 2000 March 31, 2000
Weighted average discount rate 7.75% 8.25% 8.25%
Assumed health care cost trend rate* 6.25% 7.00% 7.00%
*The assumed healthcare cost trend rate is assumed to decline gradually to 5.50% in 2003 and remain level thereafter.
A 1 % change in the health care cost rate used in measuring the APBO at September 30, 2001 would have the following
effects:
in millions 1 % Increase 1 % Decrease
Increase (decrease) in total service and interest cost $ 17 $ (15)
Increase (decrease) in the APBO $ 112 $ (111)
The following table shows the calculation of the accrued postretirement benefit cost recognized on our Consolidated
Balance Sheets at December 31, 2001 and 2000:
in millions December 31, 2001 December 31, 2000
Funded status
Unrecognized net actuarial (gain) loss
Unrecognized prior service cost
Contributions made between measurement date and year end
$ (2,100)
100
(421)
29
$ (1,780)
(64)
(283)
22
Accrued postretirement benefit cost recognized on
the Consolidated Balance Sheets $ (2,392) $ (2,105)
Our net periodic postretirement benefit cost for the years ended December 31, 2001, 2000 and 1999 included the following
components:
in millions 2001 2000 1999
Service cost $
Interest cost
Amortization of prior service cost
Other
37
146
(39)
$ 37
129
(40)
$ 35
106
(38)
(4)
Net periodic postretirement benefit cost $ 144 $ 126 $ 99
2001 A al Report 47
Notes to the Consolidated Financial Statements
Postemployment Benefits
Delta provides certain other welfare benefits to eligible former
or inactive employees after employment but before retire
ment, primarily as part of the disability and survivorship plans.
Postemployment benefit income was $23 million in
2001, $51 million in 2000, and $12 million in 1999. We
include the amount funded in excess of the liability in other
noncurrent assets on our Consolidated Balance Sheets. 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 affecting the bene
fits of retired and inactive employees.
We regularly evaluate ways to better manage employee
benefits and control costs. Any changes to the plans or assump
tions used to estimate future benefits could have a significant
effect on the amount of the reported obligation and future
annual expense.
Note 1 3. Earnings (Loss) per Share
We calculate basic earnings (loss) per share by dividing the
income (loss) available to common shareowners by the weight
ed average number of common shares outstanding. Diluted
earnings (loss) per share includes the dilutive effects of stock
options and convertible securities. To the extent stock options
and convertible securities are anti-dilutive, they are excluded
from the calculation of diluted earnings (loss) per share. The
following table shows our computation of basic and diluted
earnings (loss) per share:
Years Ended December 31,
in millions, except per share data 2001 2000 1999
Basic:
Net income (loss) excluding cumulative effect of change
in accounting principle (1,216) 928 1,262
Dividends on allocated Series B ESOP Convertible
Preferred Stock (14) (13) (12)
Net income (loss) available to common shareowners,
excluding cumulative effect of change in accounting
principle (1,230) 915 1,250
Weighted average shares outstanding 123.1 123.8 138.0
Basic earnings (loss) per share excluding cumulative
effect of change in accounting principle $ (9.99) $ 7.39 $ 9.05
Diluted:
Net income (loss) available to common shareowners,
excluding cumulative effect of change in accounting
principle (1,230) 915 1,250
Income tax effect assuming conversion of allocated
Series B ESOP Convertible Preferred stock 8 8
Income (loss) available to common shareowners
including assumed conversions (1,230) 923 1,258
Weighted average shares outstanding 123.1 123.8 138.0
Additional shares assuming:
Exercise of stock options 1.6 4.7
Conversion of allocated Series B ESOP Convertible
Preferred Stock
_
5.4 4.7
Conversion of performance-based stock units --
0.2 0.2
Weighted average shares outstanding, as adjusted 123.1 131.0 147.6
Diluted earnings (loss) per share excluding cumulative
effect of change in accounting principle $ (9.99) $ 7.05 $ 8.52
48 Delta Air Lines, Inc.
Note
14. Common and Preferred Stock
As discussed below, we have reserved shares of stock for the exercise of stock options and for other stock-based awards, for the
conversion of our Series B ESOP Convertible Preferred Stock and in connection with our Shareowner Rights Plan.
SHARES OF COMMON STOCK RESERVED FOR STOCK OPTIONS AND OTHER STOCK-BASED AWARDS
To more closely align the interests of directors, officers and other employees with the interests of our shareowners, Delta main
tains certain plans which provide for the issuance of common stock in connection with the exercise of stock options and for
other stock-based awards. The following table includes information about these plans, including the number of shares of com
mon stock reserved for issuance under each such plan at December 31, 2001.
Shares
Plan
Total Shares
Authorized for
Issuance
Non-Qualified
Stock Options
Granted Shares Issued
Reserved
for Future
Issuance
Broad-based employee stock option plans'
Delta 2000 Performance Compensation Plan2
Non-Employee Directors' Stock Plan3
Non-Employee Directors' Stock Option Plan4
49,400,000
16,000,000
500,000
250,000
49,400,000
2,355,000
89,050
1 1,420,669
1,155
33,025
37,674,004
15,998,845
466,975
250,000
7 In 7 996, shareowners approved broad-based pilot and non-pilot stock option plans. Under these two plans, we granted eligible employees non
qualified stock options to purchase a total of 49.4 million shares of common stock in three approximately equal installments on October 30,
1996, 1997 and 1998. These stock options (1) have an exercise price equal to the fair market value of the common stock on the grant date; (2)
are generally exercisable beginning one year and ending 10 years after the grant date; (3) are forfeited upon termination of employment in cer
tain circumstances; and (4) are not transferrable other than due to the employee's death. No additional stock options may be granted under
these plans.
2 On October 25, 2000, shareowners approved this plan, which authorizes the grant of stock options and a limited number of other stock
awards, up to a total of 16 million shares of common stock. The plan amends and restates a prior plan which was also approved by shareown
ers. No awards have been, or will be, granted under the prior plan on or after October 25, 2000. At December 31, 2001, there were 11.9 million
shares of common stock reserved for awards (primarily non-qualified stock options) that were outstanding under the prior plan. The current plan
provides that shares reserved for awards under the plans which are forfeited, settled in cash rather than stock, or withheld, plus shares tendered
to Delta in connection with such awards, may be added back to the shares available for future grants. At December 31, 2001, 788,639 shares
had been added back pursuant to that provision.
3 In 1995, shareowners approved this plan, which provides that a portion of each non-employee director's annual retainer will be paid in shares of
common stock. It also permits non-employee directors to elect to receive all or a portion of their cash compensation for service as a director in
shares of common stock at current market prices.
4 On October 22, 1998, the Board of Directors approved this plan. Each non-employee director receives an annual grant of a non-qualified stock
option which, at the time of grant, has a present value equal to approximately $40,000.
SERIES B ESOP CONVERTIBLE PREFERRED STOCK
Each outstanding share of Series B ESOP Convertible Preferred
Stock pays a cumulative cash dividend of 6% per year, is
convertible into 1.7155 shares of common stock at a conver
sion price of $41.97 per share and has a liquidation price of
$72, plus accrued and unpaid dividends. The Series B ESOP
Convertible 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
plus accrued and unpaid dividends, payable in cash or
common stock. We cannot pay cash dividends on common
stock until all cumulative dividends on the Series B ESOP
Convertible Preferred Stock have been paid. The conversion
rate, conversion price and voting rights of the Series B ESOP
Convertible Preferred Stock are subject to adjustment in
certain circumstances.
2001 Annual Report 49
Notes to the Consolidated Financial Statements
All shares of Series B ESOP Convertible Preferred Stock are
held of record by the trustee of the Delta Family-Care Savings
Plan (See Note 12). At December 31, 2001, 10,770,269 shares
of common stock were reserved for issuance for the conver
sion of the Series B ESOP Convertible Preferred Stock.
SHAREOWNER RIGHTS PLAN
The Shareowner Rights Plan is designed to protect shareowners
against attempts to acquire Delta that do not offer an ade
quate 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 accompa
nied 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 ownership 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 exer
cise 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. At December 31, 2001, 2,250,000 shares of
preferred stock were reserved for issuance under the
Shareowner Rights Plan.
Note 1 5. Common Stock Repurchases
We repurchased 10.6 million shares of common stock for
$502 million in 2000. In 1999, we repurchased 11.0 million
shares of common stock for $625 million, which included five
million shares held by Singapore Airlines. These repurchases
were made under certain now-completed stock buyback
programs, and the ongoing common stock repurchase
authorization described below.
In 1996, our Board of Directors authorized us to repur
chase up to 49.4 million shares of common stock issued
under our broad-based employee stock option plans (See
Note 14). As of December 31, 2001, we had repurchased
21.6 million shares of common stock under this authoriza
tion. We are authorized to repurchase the remaining shares
as employees exercise their stock options under those plans.
Repurchases are subject to market conditions and may be made
in the open market or in privately negotiated transactions.
Note 1 6. Stock Options and Awards
The following table summarizes all stock option and stock appreciation rights (SAR) activity during 2001, 2000 and 1999:
2001 2000 1999
Stock Options
Shares
(000)
Weighted
Average
Exercise
Price
Shares
(000)
Weighted
Average
Exercise
Price
Shares
(000)
Weighted
Average
Exercise
Price
Outstanding at beginning of year 50,365 $ 48 47,859 $ 48 47,663 $ 47
Granted 2,358 46 3,914 52 3,395 58
Exercised (76) 34 (725) 41 (2,410) 44
Forfeited (1,110) 53 (683) 53 (789) 49
Outstanding at end of year 51,537 48 50,365 48 47,859 48
Stock options exercisable at year end 44,751 $ 48 46,309 $ 48 44,615 $ 47
50 Delta Air Lines, Inc.
The following table summarizes information about stock options outstanding and exercisable at December 31, 2001:
Stock Options Outstanding Stock Options Exercisable
Stock Options
Number
Outstanding
(000)
Weighted
Average
Remaining
Life (years)
Weighted
Average
Exercise
Price
Number
Exercisable
(000)
Weighted
Average
Exercise
Price
$24-$34 219 2 $ 26 185 $ 26
$34--$41 6,886 4 $ 36 6,884 $ 35
$41-$69 44,432 6 $ 50 37,682 $ 50
The estimated fair values of stock options granted in 2001, 2000 and 1999 were derived using the Black-Scholes stock
option pricing model. The exercise price for stock options, and the base measuring price of tandem SAR (which were granted
prior to 1993), is the fair market value of the common stock on the grant date.
The following table shows our assumptions and the weighted average fair values of stock options:
Stock Options Granted
Assumption 2001 2000 1999
Risk-free interest rate 5.8% 6.2% 6.0%
Average expected life of stock options (in years) 7.5 7.5 7.5
Expected volatility of common stock 26.9% 26.9% 26.7%
Expected annual dividends on common stock $ 0.10 $ 0.10 $ 0.10
Weighted average fair value of stock options $ 20 $ 23 $ 26
The following table shows what our net income (loss) and earnings (loss) per share would have been for 2001, 2000 and
1999 had we accounted for our stock option plans under the fair value method of SFAS 123, "Accounting for Stock-Based
Compensation":
in millions 2001 2000 1999
Net income (loss):
As reported
As adjusted for the fair value method under SFAS 123
$ (1,216)
(1,246)
$ 828
801
$ 1,208
1,147
Basic earnings (loss) per share:
As reported
As adjusted for the fair value method under SFAS 123
$ (9.99)
(10.23)
$ 6.58
6.36
$ 8.66
8.23
Diluted earnings (loss) per share:
As reported
As adjusted for the fair value method under SFAS 123
$ (9.99)
(10.23)
$ 6.28
6.07
$ 8.15
7.75
Under SFAS 123, we are not required to include stock options granted before 1996 as compensation in determining pro
forma net income. Therefore, the pro forma effects of SFAS 123 on net income (loss) and earnings (loss) per share for the periods
presented may not be representative of the pro forma effects of SFAS 123 in future years.
In January 2002, we granted stock options covering a total of 3.8 million shares of common stock under the Delta 2000
Performance Compensation Plan, with a weighted average exercise price of $32.02 (see Note 14).
2001 Annual Report 51
Notes to the Consolidated Financial Statements
Note 17, Comprehensive
Income (Loss)
Comprehensive income (loss) includes unrealized gains and
losses on marketable equity securities and changes in the
fair value of certain derivative instruments which qualify for
hedge accounting. Comprehensive income (loss) totaled ($1.6)
billion, $0.9 billion and $1.3 billion for 2001, 2000 and 1999,
respectively. The difference between net income (loss) and
comprehensive income (loss) for 2001, 2000 and 1999 is
detailed in the following table:
in millions 2001 2000 1999
Net income (loss) $ (1,216) $ 828 $ 1,208
Realization of gains
from the sale
of investments (73) (301) (877)
Unrealized gain (loss)
on marketable
equity securities (84) 16 1,108
Realization of gains
on derivative
instruments (299) (375)
Unrealized gain (loss)
on derivative
instruments (100) 814
Other 2 -- --
Total other
comprehensive
income (loss) (554) 154 231
Income tax effect
on other
comprehensive
income (loss) 219 (60) (90)
Total other
comprehensive
income (loss), net
of income taxes (335) 94 141
Comprehensive
income (loss), net
of income taxes $ (1,551) $ 922 $ 1,349
As of December 31, 2001 and 2000, we had recorded
$25 million and $268 million, net of tax, respectively, as
unrealized gains on open fuel hedge contracts in accordance
with SFAS 133. These amounts are included in unrealized gain
(loss) on derivative instruments in the table above. We antici
pate that $22 million, net of tax, will be realized during 2002
as the contracts settle and the related aircraft fuel purchases
being hedged are consumed and recognized in expense. For
additional information regarding our fuel hedge contracts,
see Note 4.
Note 1 8. Sale of Receivables
During 1999, we entered into an agreement under which
we sold a defined pool of our accounts receivable, on a
revolving basis, through a special-purpose, wholly owned
subsidiary to a third party. We initially sold receivables with
a fair value of $547 million to the subsidiary. In exchange
for the receivables sold, we received (1) $325 million in cash
from the subsidiary's sale of an undivided interest in the pool
of receivables to a third party and (2) a $222 million subor
dinated promissory note from the subsidiary. The amount of
the promissory note fluctuates because it represents the por
tion of the purchase price payable for the volume of receivables
sold. We retained servicing and record-keeping responsibilities
for the receivables sold.
As part of the agreement, the subsidiary is required
to pay fees to a third party based on the amounts invested
by the third party. For 2001, 2000 and 1999, these fees were
$14 million, $22 million and $10 million, respectively. The
fees are included in other income (expense) under miscella
neous (expense) income, net in our Consolidated Statements
of Operations. As part of this transaction, Delta funded $83
million to the subsidiary to purchase additional receivables
in June 2000. The principal amount of the promissory note
was $144 million and $92 million at December 31, 2001 and
2000, respectively, and is included as accounts receivable on
our Consolidated Balance Sheets.
This agreement, as amended, expires on June 15, 2002.
The third party may terminate the agreement, however, if
Delta's senior unsecured long-term debt is rated below Ba2
by Moody's and below BB by Standard & Poor's. If the agree
ment were terminated in these circumstances, we would
be required to repurchase the outstanding receivables from
the third party. If the agreement had been terminated at
December 31, 2001, Delta would have been required to
repurchase outstanding receivables for $212 million.
Subsequent to September 1 1, 2001, Moody's and
Standard & Poor's downgraded Delta's senior unsecured
long-term debt to Ba3 and BB, respectively. Moody's ratings
outlook for Delta is negative. Our senior unsecured long-term
debt remains on credit watch for possible further downgrade
by Standard & Poor's.
52 Delta Air Lines, Inc.
Note 19. Business Acquisitions
We acquired a majority interest in Comair Holdings in
November 1999, and completed our acquisition of that
company in January 2000 for a total purchase price of $1.8
billion. Prior to this acquisition, we owned 22% of the out
standing common stock of Comair Holdings. Our Consolidated
Financial Statements in this Annual Report include Comair
Holdings' balance sheet as of December 31, 2001 and 2000,
and its results of operations from November 22, 1999.
We acquired a majority interest in ASA Holdings in
March 1999, and completed our acquisition of that company
in April 1999 for a total purchase price of $700 million. Prior
to this acquisition, we owned 28% of the outstanding com
mon stock of ASA Holdings. Our Consolidated Financial
Statements in this Annual Report include ASA Holdings' bal
ance sheets as of December 31, 2001 and 2000, and its results
of operations from April 1, 1999.
We used the purchase method of accounting to record
the acquisition of Comair Holdings and ASA Holdings. The
purchase price of the shares acquired was allocated to the
assets acquired and the liabilities assumed based on estimated
fair values at the respective acquisition date for both Comair
Holdings and ASA Holdings. Based on the allocation, the
total costs of the acquisitions exceeded the estimated fair
values of the underlying net assets by $1.45 billion and $534
million for Comair Holdings and ASA Holdings, respectively.
These amounts are included in other assets in our Consolidated
Balance Sheets and are being amortized on a straight-line
basis over 40 years.
Note 20. Geographic Information
SFAS 131,"Disclosures about Segments of an Enterprise and
Related Information," requires us to disclose certain informa
tion about our operating segments. Operating segments are
defined as components of an enterprise with separate finan
cial information which is evaluated regularly by the chief
operating decision-maker and is used in resource allocation
and performance assessments. We are managed as a single
business unit that provides air transportation of passengers
and cargo. Our operating revenues by geographic region for
2001, 2000 and 1999 are summarized in the following table:
in millions 2001 2000 1999
North America $ 11,288 $ 14,004 $ 12,259
Atlantic 1,823 1,988 1,930
Pacific 222 297 319
Latin America 546 452 375
Total $ 13,879 $ 16,741 $ 14,883
Operating revenues are assigned to a specific geographic
region based on the origin and destination of each flight seg
ment. Our tangible assets consist primarily of flight equipment,
which is mobile across geographic markets. Accordingly, assets
are not allocated to specific geographic regions.
Note 2 1 . Subsequent Events (Unaudited)
NEW SECURED DEBT
On January 25, 2002, we sold in a private placement $176
million principal amount of a new, subordinated tranche
of the 2000-1 enhanced equipment trust certificates. The
new Series D Certificates bear interest at 9.11 % per year
and are due on November 18, 2005. This financing reduces
the borrowings available to us under the $935 million credit
facility discussed under Other Financing Arrangements in Note 8.
On January 31, 2002, we entered into financing arrange
ments with a third party which provide us with up to $471
million of secured financing for a total of 29 regional jet air
craft delivered or scheduled to be delivered from October 2001
through April 2002. The terms of these financings are from
366 days to 18 months from the date of borrowing (subject
to earlier repayment if permanent financing is obtained for
these aircraft) at an interest rate based on LIBOR plus a mar
gin. At February 25, 2002, $15 million was outstanding under
these arrangements.
2001 Annual Report 53
Notes to the Consolidated Financial Statements
Note 22. Quarterly Financial Data (Unaudited)
The following table summarizes our unaudited quarterly results of operations for 2001 and 2000 (in millions, except per share data):
2001 Mar. 31
Three Months Ended
June 30 Sept. 30 Dec. 31
Operating revenues $ 3,842 $ 3,776 $ 3,398 $ 2,863
Operating loss $ (115) $ (114) $ (251) $ (1,122)
Net loss $ (133) $ (90) $ (259) $ (734)
Basic loss per share* $ (1.11) $ (0.76) $ (2.13) $ (5.98)
Diluted loss per share* $ (1.11) $ (0.76) $ (2.13) $ (5.98)
Three Months Ended
2000 Mar. 31 June 30 Sept. 30 Dec. 31
Operating revenues $ 3,911 $ 4,469 $ 4,345 $ 4,016
Operating income $ 343 $ 606 $ 510 $ 178
Net income before cumulative effect of
change in accounting principle $ 217 $ 460 $ 233 $ 18
Net income $ 217 $ 460 $ 133 $ 18
Earnings per share before cumulative effect
of change in accounting principle:
Basic $ 1.68 $ 3.73 $ 1.86 $ 0.12
Diluted $ 1.61 $ 3.51 $ 1.77 $ 0.12
Earnings per share:
Basic $ 1.68 $ 3.73 $ 1.05 $ 0.12
Diluted $ 1.61 $ 3.51 $ 1.01 $ 0.12
*The sum of the quarterly earnings per share does not equal the annual earnings per share due to changes in average shares outstanding.
The change in our financial results for 2001 versus 2000
is due to the following:
In December 2000, we canceled a substantial number of
flights due to a job action by some Delta pilots which signif
icantly reduced pilot availability for overtime (or additional)
flying. To provide more reliable service to our customers,
we lowered the need for overtime flying by reducing Delta's
mainline flight schedule from the previously planned levels
by 2.7% for the March 2001 quarter and 2.4 % for the
June 2001 quarter.
During the six months ended June 30, 2001, public con
cern over a possible strike by Delta pilots relating to the
then ongoing collective bargaining negotiations caused
some customers to make reservations and travel with
airlines other than Delta. On June 20, 2001, Delta pilots
ratified a new collective bargaining agreement, avoiding
a possible strike.
On March 26, 2001, Comair pilots began a strike, which
continued until June 22, 2001 when Comair pilots ratified
a new collective bargaining agreement. As a result of this
89-day strike, Comair suspended its operations between
March 26, 2001 and July 1, 2001. Comair resumed partial
service on July 2, 2001. Service was fully restored to pre
strike levels during January 2002.
Prior to September 11, 2001, the slowing U.S. and world
economies reduced the demand for air travel among both
business and leisure passengers. This decline in demand neg
atively impacted our passenger traffic and yield for the year.
The business environment significantly worsened as a result
of the September 11 terrorist attacks. See Note 2 for a dis
cussion of the impact of the September 1 1, 2001 terrorist
attacks, in general, and Note 9 for a discussion of certain
related charges and costs.
54 Delta Air Lines, Inc.
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 December 31, 2001 and 2000, and the related consolidated statements of operations, cash flows and shareowners' equity
for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the com
pany'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 mate
rial 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, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable 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 December 31, 2001 and 2000, and the consolidated results of their opera
tions and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 4 to the consolidated financial statements, effective July 1, 2000, Delta Air Lines, Inc. changed its
method of accounting for derivative instruments and hedging activities.
Atlanta, Georgia
January 23, 2002
Report of Management
The integrity and objectivity of the information presented in this Annual Report are the responsibility of Delta management. The
financial statements contained in this report have been audited by Arthur Andersen LLP, independent public accountants, whose
report appears above.
Delta maintains a system of internal financial controls which are assessed periodically 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 this system provides reasonable
assurance that transactions are executed in accordance with management's authorization; that transactions are appropriately
recorded to permit preparation of financial statements which, in all material respects, are presented in conformity with account
ing 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 responsibilities 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 independ
ent public accountants, the internal auditors and management to discuss internal accounting control, auditing and financial
reporting matters.
M. Michele Burns
Executive Vice President
and Chief Financial Officer
Leo F. Mullin
Chairman and
Chief Executive Officer
2001 Annual Report 55
Consolidated Summary of Operations
For the years ended December 31, 2001-1991
in millions, except per share data
2001' 20002 19993 1998 19974 1996s
1995 19946 19937 1992 1991
Operating revenues $ 13,879 $ 16,741 $ 14,883 $ 14,312 $ 13,868 $ 12,898 $ 12,218 $ 12,044 $ 1 1,808 $ 1 1,580 $ 10,020
Operating expenses 15,481 15,104 13,565 12,509 12,240 12,324 11,174 12,259 11,954 12,432 10,277
Operating income (loss) (1,602) 1,637 1,318 1,803 1,628 574 1,044 (215) (146) (852) (257)
Interest income (expense), net8 (410) (257) (126) (66) (98) (125) (263) (192) (289) (121) (140)
Miscellaneous income, net9 80 328 901 39 13 (30) 74 (8) 60 36 31
Fair value adjustments of SFAS 133 derivatives 68 (159) -- -- -- -- -- -- -- -- --
Income (loss) before income taxes and cumulative
1,776 1,543
effect of change in accounting principle (1,864) 1,549 2,093 419 855 (415) (375) (937) (366)
Income tax benefit (provision) 648 (621) (831) (698) (609) (171) (344) 140 149 332 115
Amortization of investment tax credits -- -- -- -- -- -- -- -- -- 5 11
Net income (loss) before cumulative effect of
change in accounting principle (1,216) 928 1,262 1,078 934 248 511 (275) (226) (600) (240)
Net income (loss) after cumulative effect of
change in accounting principle (1,216) 828 1,208 1,078 934 248 511 (161) (226) (1,187) (240)
Preferred stock dividends (14) (13) (12) (11) (10) (42) (88) (98) (110) (65) (20)
Net Income (loss) attributable to
common shareowners $ (1,230) $ 815 $ 1,196 $ 1,067 $ 924 $ 206 $ 423 $ (259) $ (336) $ (1,252) $ (260)
Earnings (loss) per share before cumulative
effect of change in accounting principle'0
Basic $ (9.99) $ 7.39 $ 9.05 $ 7.22 $ 6.28 $ 1.62 $ 4.15 $ (3.70) $ (3.36) $ (6.70) $ (2.74)
Diluted "1 (9.99) $ 7.05 $ 8.52 $ 6.87 $ 6.02 $ 1.62 $ 3.35 $ (3.70) $ (3.36) $ (6.70) $ (2.74)
Earnings (loss) per share'0
Basic $ (9.99) $ 6.58 $ 8.66 $ 7.22 $ 6.28 $ 1.62 $ 4.15 $ (2.57) $ (3.36) $ (12.61) $ (2.74)
Diluted $ (9.99) $ 6.28 $ 8.15 $ 6.87 $ 6.02 $ 1.62 $ 3.35 $ (2.57) $ (3.36) $ (12.61) $ (2.74)
Dividends declared per common share $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 s 0.10 $ 0.10 $ 0.10 $ 0.60 $ 0.60
Other Financial and Statistica I Data
For the years ended December 31, 2001-1991
2001' 20002 19993 1998 19974 19965 1995 19946 19937 1992 1991
Total assets (millions) $ 23,605 $ 21,931 $ 19,942 $ 14,727 S 13,137 $ 12,026 $ 11,998 $ 11,384 $ 11,600 $ 10,156 $ 9,083
Long-term debt and capital leases
(excluding current maturities) (millions) $ 8,347 $ 5,896 $ 4,303 $ 1,720 $ 1,692 $ 2,045 $ 2,981 $ 3,051 S 3,433 $ 2,491 $ 2,494
Shareowners' eguity (millions) $ 3,769 $ 5,343 $ 4,908 $ 4,077 $ 3,407 $ 2,470 $ 2,079 $ 1,611 S 1,785 $ 2,699 $ 2,258
Shares of Common Stock outstanding at year end10 123,245,666 123,013,372 132,893,470 141,514,262 149,037,632 146,281,410 102,343,078 101,215,994 100,415,724 99,471,880 98,838,570
Revenue passengers enplaned (thousands) 104,943 119,930 110,083 105,304 103,233 97,281 86,992 89,054 85,032 83,117 74,281
Available seat miles (millions) 147,837 154,974 147,073 142,154 138,831 133,714 130,176 130,367 132,921 131,389 111,420
Revenue passenger miles (millions) 101,717 112,998 106,165 103,342 99,689 93,929 85,168 86,357 82,860 80,496 67,269
Operating revenue per available seat mile 9.39? 10.80? 10.12? 10.07? 9.99? 9.65? 9.39? 9.24? 8.88? 8.81? 8.99?
Passenger mile yield 12.74?! 13.86? 13.14? 12.99? 13.04? 12.91? 13.37? 12.98? 13.67? 13.33? 13.91?
Operating cost per available seat mile 10.47? 9.75? 9.22? 8.80? 8.82? 9.22? 8.58? 9.40? 8.99? 9.46? 9.22?
Passenger load factor 68.80% 72.91% 72.18% 72.70% 71.81% 70.25% 65.43% 66.24% 62.34% 61.27% 60.37%
Breakeven passenger load factor 77.31% 65.29% 65.37% 62.94% 62.78% 66.91% 59.43% 67.51% 63.14% 66.13% 62.03%
Available ton miles (millions) 22,282 22,925 21,245 20,312 19,462 18,489 18,047 18,109 18,375 17,956 14,885
Revenue ton miles (millions) 11,752 13,058 12,227 12,052 11,644 10,806 9,927 10,117 9,601 9,263 7,704
Operating cost per available ton miles 69.48? 65.88? 63.85? 61.58? 62.89? 66.65? 61.92? 67.70? 65.06? 69.24? 69.04?
7 Includes $299 million in pretax unusual charges, net ($1.53 diluted loss per share). See Management's Discussion and Analysis, page 14.
2 Includes $51 million in pretax unusual gains, net ($0.25 basic and $0.24 diluted earnings per share), excluding the cumulative
effect of a change in accounting principle. See Management's Discussion and Analysis, page 14.
3 Includes $418 million in pretax unusual gams, net ($1.85 basic and $1.73 diluted earnings per share), excluding the cumulative
effect of a change in accounting principle. See Management's Discussion and Analysis, page 16.
4 Includes $52 million in pretax restructuring and other unusual charges ($0.35 basic and $0.34 diluted earnings per share).
5 Includes $829 million in pretax restructuring and other unusual charges ($6.49 basic and $5.25 diluted earnings per share).
6 Includes $414 million in pretax restructuring charges ($4.10 earnings per share), excluding the cumulative effect of change in accounting principle.
7 Includes $ 194 million in pretax restructuring charges ($1.94 earnings per share).
8 Includes interest income.
9 Includes gains from the sale of investments.
10 All share and earnings per share amounts for years prior to 1999 have been restated to reflect the two-for-one common stock split that became effective
on November 2, 1998.
56 Delta Air Lines, Inc.
2001 Annual Report 57
Consolidated Summary of Operations
For the years ended December 31, 2001-1991
in millions, except per share data 20011 20002 19993
1998 19974 19965
1995 1994
6 19937 1992 1991
Operating revenues $ 13,879 $ 16,741 $ 14,883 $ 14,312 ' $ 13,868 $ 12,898 $ 12,218 $ 12,044 $ 11,808 $ 1 1,580 $ 10,020
Operating expenses 15,481 15,104 13,565 12,509 ~~~ 12,240 12,324 11,174 12,259 11,954 12,432 10,277
Operating income (loss) (1,602) 1,637 1,318 1,803 ~~~ 1,628 574 1,044 (215) (146) (852) (257)
Interest income (expense), net8 (410) (257) (126) (66) (98) (125) (263) (192) (289) (121) (140)
Miscellaneous income, net9 80 328 901 39 13 (30) 74 (8) 60 36 31
Fair value adiustments of SFAS 133 derivatives 68 (159) -- -- -- -- -- -- --
-- --
Income (loss) before income taxes and cumulative
effect of change in accounting principle (1,864) 1,549 2,093 1,776 1,543 419 855 (415) (375) (937) (366)
Income tax benefit (provision) 648 (621) (831) (698) (609) (171) (344) 140 149 332 115
Amortization of investment tax credits -- -- -- -- -- -- -- -- -- 5 11
Net income (loss) before cumulative effect of
change in accounting principle (1,216) 928 1,262 1,078 934 248 511 (275) (226) (600) (240)
Net income (loss) after cumulative effect of
change in accounting principle (1,216) 828 1,208 1,078 934 248 511 (161) (226) (1,187) (240)
Preferred stock dividends (14) (13) (12) (11) (10) (42) (88) (98) (110) (65) (20)
Net Income (loss) attributable to
common shareowners $ (1,230) $ 815 $ 1,196 $ 1,067 $ 924 $ 206 $ 423 $ (259) $ (336) $ (1,252) $ (260)
Earnings (loss) per share before cumulative
effect of change in accounting principle10
Basic $ (9.99) $ 7.39 $ 9.05 $ 7.22 $ 6.28 $ 1.62 $ 4.15 $ (3.70) $ (3.36) $ (6.70) $ (2.74)
Diluted "1 (9.99) $ 7.05 $ 8.52 $ 6.87 $ 6.02 $ 1.62 $ 3.35 $ (3.70) $ (3.36) $ (6.70) $ (2.74)
Earnings (loss) per share10
Basic $ (9.99) $ 6.58 $ 8.66 $ 7.22 $ 6.28 $ 1.62 $ 4.15 $ (2.57) $ (3.36) $ (12.61) $ (2.74)
Diluted ~1 (9.99) $ 6.28 $ 8.15 $ 6.87 $ 6.02 $ 1.62 $ 3.35 $ (2.57) $ (3.36) $ (12.61) $ (2.74)
Dividends declared per common share $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.60 $ 0.60
Other Financial and Statistical Data
For the years ended December 31, 2001-1991
20011 20002 19993 1998 19974 19965 1995 19946 19937 1992 1991
Total assets (millions) $ 23,605 $ 21,931 $ 19,942 $ 14,727 $ 13,137 s 12,026 s 11,998 S 11,384 $ 11,600 $ 10,156 $ 9,083
Long-term debt and capital leases
(excluding current maturities) (millions) $ 8,347 $ 5,896 $ 4,303 $ 1,720 $ 1,692 $ 2,045 $ 2,981 s 3,051 $ 3,433 $ 2,491 $ 2,494
Shareowners' eguity (millions) $ 3,769 $ 5,343 $ 4,908 $ 4,077 $ 3,407 $ 2,470 $ 2,079 $ 1,611 $ 1,785 $ 2,699 $ 2,258
Shares of Common Stock outstanding at year end10
123,245,666 123,013,372 132,893,470 141,514,262 149,037,632 146,281,410 102,343,078 101,215,994 100,415,724 99,471,880 98,838,570
Revenue passengers enplaned (thousands) 104,943 119,930 110,083 105,304 103,233 97,281 86,992 89,054 85,032 83,117 74,281
Available seat miles (millions) 147,837 154,974 147,073 142,154 138,831 133,714 130,176 130,367 132,921 131,389 111,420
Revenue passenger miles (millions) 101,717 112,998 106,165 103,342 99,689 93,929 85,168 86,357 82,860 80,496 67,269
Operating revenue per available seat mile 9.39 # 10.80# 10.12# 10.07# 9.99# 9.65# 9.39# 9.24# 8.88# 8.81# 8.99#
Passenger mile yield 12.74# 13.86# 13.14# 12.99# 13.04# 12.91# 13.37# 12.98# 13.67# 13.33# 13.91#
Operating cost per available seat mile 10.47# 9.75# 9.22# 8.80# 8.82# 9.22# 8.58# 9.40# 8.99# 9.46# 9.22#
Passenger load factor 68.80% 72.91% 72.18% 72.70% 71.81% 70.25% 65.43% 66.24% 62.34% 61.27% 60.37%
Breakeven passenger load factor 77.31% 65.29% 65.37% 62.94% 62.78% 66.91% 59.43% 67.51% 63.14% 66.13% 62.03%
Available ton miles (millions) 22,282 22,925 21,245 20,312 19,462 18,489 18,047 18,109 18,375 17,956 14,885
Revenue ton miles (millions) 11,752 13,058 12,227 12,052 11,644 10,806 9,927 10,117 9,601 9,263 7,704
Operating cost per available ton miles 69.48# 65.88# 63.85# 61.58# 62.89# 66.65# 61.92# 67.70# 65.06# 69.24# 69.04#
1 Includes $299 million In pretax unusual charges, net ($1.53 diluted loss per share). See Management's Discussion and Analysis, page 14.
2 Includes $51 million In pretax unusual gains, net ($0.25 basic and $0.24 diluted earnings per share), excluding the cumulative
effect of a change in accounting principle. See Management's Discussion and Analysis, page 14.
3 Includes $418 million in pretax unusual gains, net ($1.85 basic and $1.73 diluted earnings per share), excluding the cumulative
effect of a change in accounting principle. See Management's Discussion and Analysis, page 16.
4 Includes $52 million in pretax restructuring and other unusual charges ($0.35 basic and $0.34 diluted earnings per share).
5 Includes $829 million in pretax restructuring and other unusual charges ($6.49 basic and $5.25 diluted earnings per share).
6 Includes $414 million in pretax restructuring charges ($4.10 earnings per share), excluding the cumulative effect of change in accounting principle.
7 Includes $194 million in pretax restructuring charges ($1.94 earnings per share).
8 Includes interest income.
9 Includes gains from the sale of investments.
10 All share and earnings per share amounts for years prior to 1999 have been restated to reflect the two-for-one common stock split that became effective
on November 2, 1998.
56 Delta Air Lines, Inc.
2001 Annual Report 57
Business Description
Delta Air Lines, Inc. provides air transportation for passengers and freight throughout the United States and around the world.
As of February 1, 2002, Delta (including its wholly owned subsidiaries, Atlantic Southeast Airlines, Inc. and Comair, Inc.) served
208 domestic cities in 45 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands, as well as 46 cities in 31 coun
tries. With its domestic and international codeshare partners, Delta's route network covers 230 domestic cities in 48 states and
182 cities in 71 countries.
Based on calendar 2001 data, Delta is the second-largest carrier in terms of passengers carried, and third-largest as measured
by operating revenues and revenue passenger miles flown. Delta is the leading U.S. transatlantic airline, offering the most daily
flight departures, serving the largest number 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.
Shareowner Information
TRANSFER AGENT, REGISTRAR, AND DIVIDEND PAYING
AGENT FOR COMMON STOCK
Registered shareowner inquiries related to stock transfers,
address changes, lost stock certificates, dividend payments or
account consolidations should be directed to:
EquiServe Trust Company, N.A.
P.O. Box 2500
Jersey City, New Jersey 07303-2500
Telephone (201) 324-1225
www.equiserve.com
DirectSERVICETM INVESTMENT PROGRAM
Investors may purchase Delta Common Stock under this pro
gram, which is sponsored and administered by EquiServe. All
correspondence and inquiries concerning the program should
be directed to:
The DirectSERVICE Investment Program for Delta Air Lines, Inc.
do EquiServe Trust Company, N.A.
P.O. Box 2598
Jersey City, New Jersey 07303-2598
Telephone (201) 324-1225
www.equiserve.com
FORM 10-K AND OTHER FINANCIAL INFORMATION
A copy of the Form 10-K for the year ended December 31,
2001 and other financial reports filed by Delta with the SEC
are available on Delta's web site at www.delta.com or the
SEC's web site at www.sec.gov. Copies may also be obtained
without charge by calling (866) 240-0597 or by writing to:
Delta Air Lines, Inc.
Investor Relations, Department 829
P.O. Box 20706
Atlanta, Georgia 30320-6001
A copy of this Annual Report can be found on Delta's Web
site, www.delta.com.
ELECTRONIC PROXY MATERIALS
Registered shareowners and participants in the Delta
Family-Care Savings Plan may elect to receive future
annual meeting materials electronically by signing up
at www.delta.com/inside/investors/index.jsp
INVESTOR RELATIONS
Telephone inquiries related to financial information, other
than requests for financial documents, may be directed to
Delta Investor Relations at (866) 715-2170.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
133 Peachtree Street, N.E.
Atlanta, Georgia 30303
COMMON STOCK
Delta Common Stock is traded on the New York Stock
Exchange under the ticker symbol DAL. As of December 31,
2001, there were 21,953 registered owners of Common Stock.
MARKET PRICES AND DIVIDENDS
Price of Cash Dividends
Year 2001 Common Stock per Common Share
Quarter Ended: High Low
March 31 $ 52.94 $37.51 $ 0.025
June 30 48.05 37.80 0.025
September 30 46.56 20.00 0.025
December 31 31.15 22.20 0.025
Price of Cash Dividends
Year 2000 Common Stock per Common Share
Quarter Ended: High Low
March 31 $ 55.38 $43.56 $ 0.025
June 30 58.31 48.75 0.025
September 30 57.81 43.25 0.025
December 31 51.56 39.63 0.025
AVAILABILITY OF EQUAL EMPLOYMENT OPPORTUNITY
REPORT
A copy of the report is available without charge upon written
request to:
Delta Air Lines, Inc.
Equal Opportunity, Department 955
P.O. Box 20706
Atlanta, Georgia 30320-6001
AVAILABILITY OF ANNUAL REPORT ON SAFETY,
HEALTH, ENVIRONMENTAL; COMMUNITY AFFAIRS
AND GLOBAL DIVERSITY
A copy of the report is available online at www.delta.com
or upon written request to:
Delta Air Lines, Inc.
Corporate Communications, Department 978
P.O. Box 20706
Atlanta, Georgia 30320-6001
58 Delta Air Lines, Inc.
w printed on recycled paper designed and produced by see see eye / Atlanta photo on inside front cover / Reuters - Tami Chappell photo on page 1 / 2001, The Washington Post, photo by Ray Lustig. Reprinted with permission.
Delta's Aircraft Fleet
Mainline Aircraft Fleet Aircraft Fleet at December 31, 2001
Delta's mainline fleet strategy is designed to
achieve operational and cost efficiencies through
fleet modernization. Delta has a long-term aircraft
purchase agreement with The Boeing Company
(Boeing) which covers firm orders, options and
rolling options for certain aircraft through calen
dar year 2017. This agreement supports Delta's
plan for disciplined growth, aircraft rationaliza
tion and fleet replacement. It also gives Delta
certain flexibility to adjust scheduled aircraft deliv
eries and to 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 its main
line aircraft fleet to three family types. Fleet
standardization will improve reliability and pro
duce long-term cost savings. We retired our last
L-1011 aircraft in August 2001, accelerated the
planned retirement of our B-727 fleet from 2005
to 2003, and plan to retire our MD-90 fleet and
owned MD-11 aircraft over the next five to nine
years. Due to the significant decline in travel
demand following the events of September 11,
we grounded 50 aircraft. We intend to return
approximately 33 of these aircraft to service as
the business environment improves; the remain
der of these aircraft are being permanently retired
as part of our long-term fleet plan.
Regional Jet Aircraft Fleet
Delta's regional jet program offers service to small
and medium-sized cities and enables us to sup
plement frequencies and service to key cities. In
2000, ASA and Comair entered into 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.
Current Fleet
Capital Operating Average
Aircraft Type Owned Lease Lease Total Age
B-727-200 40 - 7 47 22.5
B-737-200 4 42 6 52 16.8
B-737-300 3 -
20 23 15.3
B-737-800 67 - -
67 1.3
B-757-200 80 -
41 121 10.3
B-767-200 15 - -
15 18.6
B-767-300 4 -
24 28 11.9
B-767-300ER 51 -
8 59 5.9
B-767-400 18 - -
18 1.0
B-777-200 7 - -
7 2.3
MD-11 8 -
7 15 7.9
MD-88 63 -
57 120 11.5
MD-90 16 - -
16 6.1
EMB-120 41 -
7 48 11.3
ATR-72 4 -
15 19 7.5
CRJ-100/200 38 -
121 159 3.3
CRJ-700 - - - - -
Total 459 42 313 814 9.1
Aircraft on
Aircraft Type
Firm Order at December 31,
Delivery in Calendar Year
2002 2003 2004 2005
2001
After
2005 Total
B-737-600/700/800 4 5 23 19 14 65
B-757-200 0 0 0 0 0 0
B-767-300/300ER 0 0 0 0 0 0
B-767-400 3 0 0 0 0 3
B-777-200 1 0 1 4 0 6
CRJ-100/200 40 20 0 0 0 60
CRJ-700 20 14 23 0 0 57
Total 68 39 47 23 14 191
Ai rcraft on
Aircraft Type
Option* at December
Delivery in Calendar Year
2002 2003 2004 2005
31, 2001
After
2005 Total
Rolling
Options
B-737-600/700/800 0 0 10 8 42 60 263
B-757-200 0 8 12 0 0 20 60
B-767-300/300ER 0 0 2 2 7 11 10
B-767-400 0 2 5 2 15 24 8
B-777-200 0 2 5 5 8 20 19
CRJ-100/200 0 24 38 33 129 224 0
CRJ-700 0 0 5 30 130 165 0
Total 0 36 77 80 331 524 360
*
Aircraft options have scheduled delivery slots. 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