Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-5424

DELTA AIR LINES, INC.

State of Incorporation: Delaware

IRS Employer Identification No.: 58-0218548

Hartsfield Atlanta International Airport, Atlanta, Georgia 30320

Telephone: (404) 715-2600

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes    No

Number of shares outstanding by each class of common stock,
as of July 31, 2002:

Common Stock, $1.50 par value -123,257,398 shares outstanding

Table of Contents

FORWARD-LOOKING STATEMENTS

         Statements in this Form 10-Q (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 experience 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 terrorist attacks on the United States on September 11, 2001, 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, and customer reaction to, new airline and airport security directives, including the Aviation and Transportation Security Act;
	•		the availability and cost of war and terrorism risk and other insurance for Delta;
	•		the credit downgrades of Delta and other airlines by Moody’s Investors Service and Standard & Poor’s, and the possibility of additional downgrades, 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;
	3.		competitive factors in our industry, such as mergers and acquisitions, airline bankruptcies, the airline pricing environment, the growth of low cost carriers, 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;

1

Table of Contents

	7.		actions by the United States or foreign governments, including the Federal Aviation Administration and other regulatory agencies;
	8.		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
	9.		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 August 13, 2002, and which Delta has no current intention to update.

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DELTA AIR LINES, INC.
Consolidated Balance Sheets

*     Derived from the audited Consolidated Balance Sheet included in Delta’s 2001 Annual Report to Shareowners.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

Table of Contents

DELTA AIR LINES, INC.
Consolidated Balance Sheets
(In Millions, Except Share Data)

*     Derived from the audited Consolidated Balance Sheet included in Delta’s 2001 Annual Report to Shareowners.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4

Table of Contents

DELTA AIR LINES, INC.
Consolidated Statements of Operations
(Unaudited)
(In Millions, Except Share Data)

*

Derived from the Consolidated Statement of Operations previously included in Delta’s Form 10-Q for the quarterly period ended June 30, 2001.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5

Table of Contents

DELTA AIR LINES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Millions)

*

Derived from the Condensed Consolidated Statement of Cash Flows previously included in Delta’s Form 10-Q for the quarterly period ended June 30, 2001.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6

Table of Contents

DELTA AIRLINES, INC.
Statistical Summary
(Unaudited)

7

Table of Contents

DELTA AIR LINES, INC.
Notes to the Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)

1.   ACCOUNTING AND REPORTING POLICIES

         Delta’s accounting and reporting policies are summarized in Note 1 of the Notes to the Consolidated Financial Statements (pages 29-32) in our 2001 Annual Report to Shareowners (Annual Report) and in Note 2 of the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q. These interim financial statements should be read in conjunction with the Consolidated Financial Statements and the accompanying notes in the Annual Report. Management believes that the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting of normal recurring items, necessary for a fair statement of results for the interim periods presented. We have reclassified certain prior period amounts in our Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows to be consistent with the presentation of our current period financial statements.

         Due to seasonal variations in the demand for air travel and other factors, including the continued negative impact of the effects of the September 11 terrorist attacks on our business, operating results for the interim period are not necessarily indicative of operating results for the entire year.

Restricted Assets

         As of June 30, 2002, we had $94 million in restricted cash included in total current assets on our Consolidated Balance Sheets. This amount primarily relates to cash held either in trust or under a surety bond as collateral to support letters of credit for projected workers compensation claims. The letters of credit and surety bond expire in February 2003.

         As of June 30, 2002, we had $463 million in restricted investments included in other assets on our Consolidated Balance Sheets. This amount is restricted for the redevelopment and expansion of Terminal A at Boston’s Logan International Airport. For additional information about this project, see Note 8 of the Notes to the Consolidated Financial Statements (pages 38-41) in the Annual Report.

2.   ADOPTION OF NEW ACCOUNTING STANDARD

Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”

         We adopted SFAS 142 on January 1, 2002. This statement addresses financial accounting and reporting for goodwill and other intangible assets. Prior to January 1, 2002, accounting principles generally accepted in the United States of America (U.S. GAAP) required that goodwill be amortized over its estimated useful life, not to exceed 40 years. SFAS 142 requires that

8

Table of Contents

goodwill no longer be amortized. Instead, SFAS 142 requires us to apply a fair market value-based impairment test to the net book value of our goodwill at least annually. Goodwill is presented as cost in excess of net assets acquired in our Consolidated Balance Sheets.

         SFAS 142 also redefines intangible assets and addresses their related amortization. As a result, we are required to evaluate our existing intangible assets to determine their useful lives. For those intangible assets determined to have indefinite lives, amortization has been discontinued; we will review these assets at least annually for potential impairment using a fair market value-based impairment test. Intangible assets that have determinable useful lives will continue to be amortized on a straight-line basis over their remaining estimated useful lives.

         The adoption of SFAS 142 resulted in a positive impact of $15 million, net of tax, and $30 million, net of tax, for the three and six months ended June 30, 2002, respectively, related to the discontinuance of amortization of existing goodwill and certain intangible assets. For fiscal year 2002, we expect the adoption of SFAS 142 to increase income by approximately $60 million, net of tax. The following tables show reconciliations of our reported net loss and loss per share to adjusted net loss and loss per share as if the non-amortization provisions of SFAS 142 had been applied to the prior year periods:

9

Table of Contents

         We believe that certain of our intangible assets have indefinite useful lives and, upon adoption of SFAS 142, we discontinued amortization of these assets. Because our leasehold and operating rights have definite useful lives, we will continue to amortize those assets over their respective lease terms. During the March 2002 quarter, we completed our initial test of potential impairment of indefinite-lived intangible assets, other than goodwill; that test indicated no impairment at the date of adoption of SFAS 142. The following tables present information about our intangible assets, other than goodwill, at June 30, 2002: