Delta Airlines 2005 Annual Report Download

Download and view the complete annual report

Please find the complete 2005 Delta Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 142

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142

DELTA AIR LINES INC /DE/ (DAL)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/27/2006
Filed Period 12/31/2005

Table of contents

  • Page 1
    DELTA AIR LINES INC /DE/ (DAL) 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/27/2006 Filed Period 12/31/2005

  • Page 2
    ... Stock, par value $0.01 per share Preferred Stock Purchase Rights 81/8 % Notes Due July 1, 2039 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No X Indicate by check mark if the registrant is not required to file reports...

  • Page 3
    as an amendment to this Form 10-K in accordance with General Instruction G(3).

  • Page 4
    ...BUSINESS General Description Airline Operations Regulatory Matters Fares and Rates Route Authority Competition Airport Access Possible Legislation or DOT Regulation Fuel Employee Matters Environmental Matters Frequent Flyer Program Civil Reserve Air Fleet Program Additional Information ITEM 1A. RISK...

  • Page 5
    ... in Internal Control Management's Annual Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm ITEM 9B. OTHER INFORMATION PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY...

  • Page 6
    ...securities. In addition, trading of our common stock on the New York Stock Exchange was suspended on October 13, 2005, and our common stock was delisted from the New York Stock Exchange on November 30, 2005. Additional information about our Chapter 11 filing is available on the Internet at www.delta...

  • Page 7
    ... executive offices are located at Hartsfield-Jackson Atlanta International Airport in Atlanta, Georgia (the "Atlanta Airport"). Our telephone number is (404) 715-2600, and our Internet address is www.delta.com. See "- Risk Factors Relating to Delta" and "- Risk Factors Relating to the Airline...

  • Page 8
    ... market rates for those services. Our arrangement with Eagle, which is limited to certain flights operated to and from the Los Angeles International Airport, as well as a portion of the flights operated using our code by SkyWest Airlines, are structured as revenue proration agreements. These...

  • Page 9
    ...employee data is regulated by domestic and foreign laws and regulations. Fares and Rates Airlines set ticket prices in most domestic and international city pairs without governmental regulation, and the industry is characterized by significant price competition. Certain international fares and rates...

  • Page 10
    ...to address airline competition issues. Some of these proposals would require large airlines with major operations at certain airports to divest or make available to other airlines slots, gates, facilities and other assets at those airports. Other measures would limit the service or pricing responses...

  • Page 11
    ... by the Railway Labor Act. Under the Railway Labor Act, a labor union seeking to represent an unrepresented craft or class of employees is required to file with the National Mediation Board ("NMB") an application alleging a representation dispute, along with authorization cards signed by at least...

  • Page 12
    ... Pilots Association, International ("ALPA"), the collective bargaining representative of Delta's pilots, to reduce our pilot labor costs as required under our business plan. Because we were not able to reach a consensual agreement with ALPA, on November 1, 2005, we filed a motion with the Bankruptcy...

  • Page 13
    ... labor cost reductions under its collective bargaining agreement with the International Brotherhood of Teamsters ("IBT"), representing Comair's flight attendants. Because Comair was not able to reach a consensual agreement with the IBT, on February 22, 2006, Comair filed a motion with the Bankruptcy...

  • Page 14
    ... a frequent flyer program, the SkyMiles® program, offering incentives to increase travel on Delta. This program allows participants to earn mileage for travel awards by flying on Delta, Delta Connection carriers and participating airlines. Mileage credit may also be earned by using certain services...

  • Page 15
    ... Not Applicable 7 44 Total Aircraft by Stage 7 21 79 The CRAF program has only been activated twice, both times at the Stage I level, since it was created in 1951. Additional Information We make available free of charge on our website our Annual Report on Form 10-K, our Quarterly Reports on...

  • Page 16
    ... the Bankruptcy Court and ratified by Delta's pilots. The interim agreement provides, among other things, for a reduction in (1) hourly pilot wage rates of 14% and (2) other pilot pay and cost items equivalent to approximately an additional 1% hourly wage reduction. These reductions became effective...

  • Page 17
    ... purchases SkyMiles from us (the "Amex Post-Petition Facility"). We have substantial liquidity needs in the operation of our business and face significant liquidity challenges due to historically high aircraft fuel prices, low passenger mile yields, credit card processor holdbacks and cash reserves...

  • Page 18
    ...of the airline industry. We generally have not been able to increase our fares to fully offset the effect of increased fuel costs in the past and we may not be able to do so in the future. In addition, our aircraft fuel purchase contracts do not provide material protection against price increases or...

  • Page 19
    ...retiring pilots, which, as described above, could cause disruption in our operations and have a material effect on our revenues. If our DB Plans continue after we emerge from Chapter 11, we may be required to fully fund required contributions at that date, including contributions related to benefits...

  • Page 20
    ... information about our pension plans, see Note 12 of the Notes to the Consolidated Financial Statements. Interruptions or disruptions in service at one of our hub airports could have a material adverse impact on our operations. Our business is heavily dependent on our operations at the Atlanta...

  • Page 21
    ... of the Internal Revenue Code of 1986, as amended, during or as a result of our Chapter 11 proceedings. Risk Factors Relating to the Airline Industry The airline industry is highly competitive and, if we cannot successfully compete in the marketplace, our business, financial condition and operating...

  • Page 22
    ... airport security procedures and imposes additional security requirements on airports and airlines, most of which are funded by a per ticket tax on passengers and a tax on airlines. The federal government has recently proposed a significant increase in the per ticket tax. Due to the weak revenue...

  • Page 23
    .... Our long-term agreement with Bombardier Inc. covers options for certain regional jet aircraft through calendar year 2010. See Note 1 to the Notes to the Consolidated Financial Statements for additional information about the treatment of executory contracts under the Bankruptcy Code. Delivery in...

  • Page 24
    ... Delta hub or other significant airports that will expire in the next several years include, among others: (1) Atlanta central passenger terminal lease and the airport use agreement; (2) Salt Lake City airport use and lease agreement; and (3) New York LaGuardia terminal lease. We also lease aircraft...

  • Page 25
    ... 2005, the Delta Pilots Pension Preservation Organization ("DP3"), an organization consisting of retired Delta pilots, filed a motion in the Bankruptcy Court to compel the continued payment of collectively-bargained pension benefits to retired pilots. Specifically, DP3 sought an order requiring...

  • Page 26
    ...been entered by the Bankruptcy Court and our exposure in these lawsuits is now limited to the deductible in our insurance policies. Delta Family-Care Savings Plan Litigation On September 3, 2004, a retired Delta employee filed a class action complaint (amended on March 16, 2005) in the U.S. District...

  • Page 27
    ... of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Until October 13, 2005, our common stock was traded on the New York Stock Exchange ("NYSE") under the symbol "DAL". As the result...

  • Page 28
    ... principle Income tax (provision) benefit Net income (loss) before cumulative effect of change in accounting principle Preferred stock dividends Net income (loss) attributable to common shareowners Earnings (loss) per share Basic and diluted Dividends declared per common share 2005(1) 2004(2) 2003...

  • Page 29
    ... income and expense items (see Item 7). Includes a $439 million charge ($277 million net of tax, or $2.25 diluted EPS) for restructuring, asset writedowns, and related items, net; a $34 million gain ($22 million net of tax, or $0.17 diluted EPS) for Stabilization Act compensation; and a $94 million...

  • Page 30
    ... continue customer service programs, including Delta's SkyMiles frequent flyer program; (3) pay for fuel under existing fuel supply contracts and honor existing fuel supply, distribution and storage agreements; (4) honor pre-petition obligations related to our interline, clearinghouse, code sharing...

  • Page 31
    ... Bankruptcy Code. See Note 1 of the Notes to the Consolidated Financial Statements. In order to successfully exit Chapter 11, the Debtors will need to propose, and obtain confirmation by the Bankruptcy Court of, a plan of reorganization that satisfies the requirements of the Bankruptcy Code. A plan...

  • Page 32
    ...the summer of 2006 in comparison to our schedule in the summer of 2005, with a focus on routes to Europe, Latin America and the Caribbean. For example, we and, with respect to certain routes, our contract carriers have added or announced plans to add more than 50 new international routes in the last...

  • Page 33
    ...25,000 annually. These changes were also effective as of November 1, 2005. Changes to employee benefit programs, including freezing future pension accruals, increased cost sharing for healthcare and reductions in paid time off programs. Defined benefit pension accruals were frozen effective December...

  • Page 34
    ... or the Bankruptcy Court. See Notes 5 and 6 of the Notes to the Consolidated Financial Statements for further information about fuel hedging. Pilot Labor Cost Reductions. We have been in and continue to be in negotiations with ALPA to reduce our pilot labor costs as required under our business plan...

  • Page 35
    ... filed one lease recharacterization action in Bankruptcy Court. The action relates to approximately $47 million principal amount of special facility bonds issued by the Regional Airports Improvement Corporation to finance improvements to certain Los Angeles International Airport terminal facilities...

  • Page 36
    ... the provisions of American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), on a going concern basis. This contemplates the realization of assets and satisfaction of liabilities in the...

  • Page 37
    ...domestic markets, high industry capacity and price sensitivity by our customers, enhanced by the availability of airline fare information on the Internet. During the fourth quarter of 2005, passenger mile yield increased 8% compared to the fourth quarter of 2004, which reflects a general improvement...

  • Page 38
    ... with no additional Mainline aircraft. Operating Cost per Available Seat Mile ("CASM") decreased 5% to 11.60¢ in 2005 compared to 2004. Salaries and related costs. The decrease in salaries and related costs includes a 17% decrease from salary rate reductions for our pilot and nonpilot employees and...

  • Page 39
    ... impairment charge related to our agreement, entered into in the September 2004 quarter, to sell eight owned MD-11 aircraft. Other. The increase in other operating expenses primarily reflects a 13% rise due to the increase of incremental costs associated with our SkyMiles frequent flyer program (for...

  • Page 40
    ...valuing unsecured and undersecured debt. (4) Estimated allowed claims associated with facility leases and related bond obligations. Claims related to reorganization items are reflected in liabilities subject to compromise in our Consolidated Balance Sheet as of December 31, 2005. Income Tax Benefit...

  • Page 41
    ... pension and related expense; (2) a 1% increase due to a 4.5% salary rate increase in May 2004 for our pilots under their collective bargaining agreement which was partially offset by their rate decrease effective December 1, 2004; and (3) a 1% increase due to growth in operations. Aircraft fuel...

  • Page 42
    ... employees who retire after January 1, 2006; (2) settlement charges totaling $257 million primarily related to our Pilot Plan; (3) a $194 million charge related to voluntary and involuntary workforce reduction programs; and (4) a $41 million aircraft impairment charge related to our agreement...

  • Page 43
    ... purchase of a portion of the Delta Family-Care Savings Plan's Series C Guaranteed Serial ESOP Notes, offset by a $15 million gain related to a debt exchange. Income Tax Provision (Benefit) During 2004, we recorded an additional valuation allowance against our net deferred income tax assets, which...

  • Page 44
    ... under which Amex purchases SkyMiles from us, the Membership Rewards Agreement and the Co-Branded Credit Card Program Agreement (collectively, the "SkyMiles Agreements"). The Bankruptcy Court approved our entering into the Modification Agreement and our assuming the SkyMiles Agreements. Amex has the...

  • Page 45
    ...Consolidated Financial Statements. At the closing of our sale of ASA, we received $350 million, representing $330 million of purchase price and $20 million related to aircraft deposits. As the result of our assumption of our contract carrier agreements with ASA and SkyWest Airlines in our Chapter 11...

  • Page 46
    ... Financial Statements for a list of the major classes of assets sold and liabilities assumed by SkyWest. Letter of Credit Facility Related to Visa/MasterCard Credit Card Processing Agreement On January 26, 2006, with the authorization from the Bankruptcy Court, we entered into a letter of credit...

  • Page 47
    ...: • Our restricted cash balance increased $578 million. The increase primarily relates to cash holdbacks associated with our Visa/ MasterCard credit card processing agreements and certain interline clearinghouses as a result of our Chapter 11 proceedings. Cash used for flight equipment additions...

  • Page 48
    ...(6) Other purchase obligations(7) Other liabilities(8) Total(9) Notes to the Consolidated Financial Statements. 2006 $ 1,183 365 1,324 78 5 178 1,852 209 69 $ 5,263 (1) These amounts are included in our Consolidated Balance Sheets. For additional information about our debt and related matters...

  • Page 49
    ... example, we will pay wages required under collective bargaining agreements; fund pension plans (as discussed below); purchase capacity under contract carrier arrangements (as discussed below); and pay credit card processing fees and fees for other goods and services, including those related to fuel...

  • Page 50
    ..., and Freedom. Under these agreements, the carriers operate certain of their aircraft using our flight code, and we schedule those aircraft, sell the seats on those flights and retain the related revenues. We pay those airlines an amount, as defined in the applicable agreement, which is based on...

  • Page 51
    ... a frequent flyer program, the SkyMiles Program, offering incentives to increase travel on Delta. This program allows participants to earn mileage for travel awards by flying on Delta, Delta Connection carriers and participating airlines, as well as through participating partners such as credit card...

  • Page 52
    ... assets at the fleet type level (the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on assumptions involving projections of passenger yield, fuel costs, labor costs and other relevant factors. Aircraft fair values are estimated by management using...

  • Page 53
    ... compensation levels is based primarily on labor contracts with our employees under collective bargaining agreements and expected future pay rate changes for other employees. Due to recent employee pay reductions and the freeze of benefit accruals effective December 31, 2005 in our Nonpilot Plan...

  • Page 54
    ... annual jet fuel price per gallon will be approximately $1.74. Based on these assumptions, a 10% rise in that jet fuel price would increase our aircraft fuel expense by approximately $370 million in 2006. In December 2005, the Bankruptcy Court authorized us to enter into fuel hedging contracts...

  • Page 55
    ... of cargo transported during a reporting period, multiplied by the total number of miles cargo is flown during that period. Cargo Ton Mile Yield - The amount of cargo revenue earned per cargo ton mile during a reporting period. CASM - (Operating) Cost per Available Seat Mile. The amount of operating...

  • Page 56
    ...over financial reporting as it relates to the new business process. In early 2005, we entered into an agreement with a third party to perform various business processes that were being performed internally by our personnel. These processes include processing payroll for all of our domestic employees...

  • Page 57
    ...Consolidated Financial Statements. Deloitte & Touche LLP's report on management's assessment of internal control over financial reporting is set forth below. Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareowners of Delta Air Lines, Inc. Atlanta, Georgia We...

  • Page 58
    ... ended December 31, 2005, and our report dated March 27, 2006 expressed an unqualified opinion on those consolidated financial statements and included explanatory paragraphs concerning matters related to (i) the Company's reorganization under Chapter 11 of the United States Bankruptcy Code and (ii...

  • Page 59
    ... ACCOUNTANT FEES AND SERVICES The information required by this Item will be filed with the Securities and Exchange Commission as an amendment to this Form 10-K in accordance with General Instruction G(3). PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) (1), (2). The financial...

  • Page 60
    ... its behalf by the undersigned, thereunto duly authorized, on the 27th day of March, 2006. DELTA AIR LINES, INC. By: /s/ Gerald Grinstein Gerald Grinstein Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 27th day of...

  • Page 61
    ... Boeing Model 767-432ER Aircraft (Filed as Exhibit 10.4 to Delta's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).*/** Letter Agreements related to Purchase Agreements No. 2022 and/or No. 2025 between Boeing and Delta (Filed as Exhibit 10.5 to Delta's Quarterly Report on Form 10...

  • Page 62
    ...-Employee Directors' Stock Option Plan, as amended (Filed as Exhibit 10.2 to Delta's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001).* Delta Air Lines, Inc. Director and Officer Severance Plan (Filed as Exhibit 10.1 to Delta's Current Report on Form 8-K filed on February 23, 2006...

  • Page 63
    ... INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets - December 31, 2005 and 2004 Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003 Consolidated Statements of Cash Flows for the years...

  • Page 64
    ... of Delta Air Lines, Inc. Atlanta, Georgia We have audited the accompanying consolidated balance sheets of Delta Air Lines, Inc. (Debtor and Debtor-in-Possession) and subsidiaries (the "Company") as of December 31, 2005 and 2004, and the related consolidated statements of operations, cash flows, and...

  • Page 65
    ... December 31, 2005 and 2004, respectively 74 79 Restricted investments for Boston airport terminal project 46 127 Other noncurrent assets 932 1,206 Total other assets 1,279 1,639 Total assets $20,039 $21,801 The accompanying notes are an integral part of these Consolidated Financial Statements. F-3

  • Page 66
    ... 336 390 Unearned compensation under employee stock ownership plan (89) (113) Total Employee Stock Ownership Plan Preferred Stock 247 277 SHAREOWNERS' DEFICIT: Common stock: $0.01 par value, 900,000,000 shares authorized, 202,081,648 shares issued at December 31, 2005; and $1.50 par value, 450,000...

  • Page 67
    ... other expense, net LOSS BEFORE REORGANIZATION ITEMS, NET REORGANIZATION ITEMS, NET (Note 1) LOSS BEFORE INCOME TAXES INCOME TAX BENEFIT (PROVISION) NET LOSS PREFERRED STOCK DIVIDENDS NET LOSS ATTRIBUTABLE TO COMMON SHAREOWNERS BASIC AND DILUTED LOSS PER SHARE 2005 2004 2003 $ 11,399 $ 10,880 $ 10...

  • Page 68
    ... debt and capital lease obligations Payments on DIP financing Make-whole payments on extinguishment of ESOP Notes Payment on termination of accounts receivable securitization Cash dividends Other, net Net cash provided by financing activities Net Increase (Decrease) In Cash and Cash Equivalents Cash...

  • Page 69
    ... related to Delta's transformation plan ($3.40 per share) Amendment to Certificate of Incorporation to increase number of authorized shares of common stock from 450 million to 900 million and to decrease par value from $1.50 per share to $.01 per share Balance at December 31, 2005 (1) Average price...

  • Page 70
    ... continue customer service programs, including Delta's SkyMiles frequent flyer program; (3) pay for fuel under existing fuel supply contracts and honor existing fuel supply, distribution and storage agreements; (4) honor prepetition obligations related to our interline, clearinghouse, code sharing...

  • Page 71
    ... FINANCIAL STATEMENTS - (Continued) aircraft lease rejections and negotiations, restructuring of vendor contracts and changes to retiree medical benefits. Competitive Employment Costs. Our business plan targeted $930 million of benefits to be realized annually through reduced employment costs...

  • Page 72
    ... FINANCIAL STATEMENTS - (Continued) such claims is not reasonably estimable at this time. Such claims may be material (see "Liabilities Subject to Compromise" below). Special Protection Applicable to Leases and Secured Financing of Aircraft and Aircraft Equipment. Notwithstanding the general...

  • Page 73
    ...collective bargaining agreement with the IBT. See Note 10 for additional information about these and related subjects. Payment of Insurance Benefits to Retired Employees. Section 1114 of the Bankruptcy Code addresses a debtor's ability to modify certain retiree disability, medical and death benefits...

  • Page 74
    ... has Tax Ownership of claims against us equal to or exceeding $200 million (an amount that could be increased in the future). Under the NOL Order, Substantial Claimholders may be required to sell certain claims against us if the Bankruptcy Court so orders in connection with our filing of a plan of...

  • Page 75
    ... to compromise included on our Consolidated Balance Sheet as of December 31, 2005: (in millions) Pension, postretirement and other benefits Debt and accrued interest Aircraft lease related obligations Accounts payable and other accrued liabilities Total liabilities subject to compromise December 31...

  • Page 76
    ... costs and premiums in conjunction with valuing unsecured and undersecured debt. (4) Estimated allowed claims associated with facility leases and related bond obligations. Claims related to reorganization items are reflected in liabilities subject to compromise in our Consolidated Balance Sheet...

  • Page 77
    ... Financial Statements. Reclassifications We sell mileage credits in our SkyMiles frequent flyer program to participating partners, such as credit card companies, hotels and car rental agencies. The portion of the revenue from the sale of mileage credits that approximates the fair value of travel...

  • Page 78
    ...SFAS 123"), and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). We adopted SFAS 123R on January 1, 2006, as required. Based on stock based awards outstanding as of that date, we estimate that related compensation expense will be approximately $50 million and $20...

  • Page 79
    ... primarily relates to cash held as collateral by credit card processors and interline clearinghouses and to support certain projected insurance obligations. Restricted cash included in current assets on our Consolidated Balance Sheets totaled $870 million and $348 million at December 31, 2005 and...

  • Page 80
    ... are completed. We sell mileage credits in our SkyMiles frequent flyer program to participating partners such as credit card companies, hotels and car rental agencies. The portion of the revenue from the sale of mileage credits that approximates the fair value of travel to be provided is deferred...

  • Page 81
    ... sale. To determine impairments for aircraft used in operations, we group assets at the fleet type level (the lowest level for which there are identifiable cash flows) and then estimate future cash flows based on projections of passenger yield, fuel costs, labor costs and other relevant factors. If...

  • Page 82
    ... Consolidated Statements of Operations. Frequent Flyer Program We record a liability for the estimated incremental cost of flight awards which are earned under our SkyMiles frequent flyer program and expected to be redeemed for travel on Delta or other airline partners. Our incremental costs include...

  • Page 83
    ... and liabilities denominated in foreign currencies using exchange rates in effect on the balance sheet date. Fixed assets and the related depreciation or amortization charges are recorded at the exchange rates in effect on the date we acquired the assets. Revenues and expenses denominated in foreign...

  • Page 84
    ... tax effect in 2005 and 2004. For additional information about our stock option plans and the motion we filed with the Bankruptcy Court seeking authority to reject the outstanding stock options issued under these plans, see Note 13. For additional information about new accounting standards related...

  • Page 85
    ... FINANCIAL STATEMENTS - (Continued) At the closing of our sale of ASA, we received $350 million, representing $330 million of purchase price and $20 million related to aircraft deposits. As the result of our assumption of our contract carrier agreements with ASA and SkyWest Airlines in our Chapter...

  • Page 86
    ... B Preferred Stock is classified as an available-for-sale security under SFAS 115 and is recorded at face value, which approximates fair value, in other noncurrent assets on our Consolidated Balance Sheets. The Series B Preferred Stock, among other things, (1) bears an annual dividend per share of...

  • Page 87
    ..., 2005 and 2004. Credit Risk To manage credit risk associated with our aircraft fuel price, interest rate and foreign currency exchange risk management programs, we select counterparties based on their credit ratings and limit our exposure to any one counterparty. We also monitor the market position...

  • Page 88
    ... the allowance for uncollectible accounts that we have provided is appropriate. Self-Insurance Risk We self-insure a portion of our losses from claims related to workers' compensation, environmental issues, property damage, medical insurance for employees and general liability. Losses are accrued...

  • Page 89
    ... - $ 227 Total 2,092 (1,865) $ 227 $ During 2004, we re-evaluated the estimated fair values of our reporting units (Mainline, ASA and Comair) in light of the implementation of initiatives intended to strengthen our competitive position and the completion of our new long-range cash flow plans. These...

  • Page 90
    ...our accounting policy for goodwill and other intangible assets, see Note 2. Note 8. Debt 2005 2004 The following table summarizes our debt at December 31, 2005 and 2004: (dollars in millions) Senior Secured(1) Secured Super-Priority Debtor-in-Possession Credit Agreement 9.01% GE DIP Credit Facility...

  • Page 91
    ..., as amended, General Electric Capital Corporation ("GECC") issued irrevocable, direct-pay letters of credit, which totaled $403 million at December 31, 2005, to back our obligations with respect to $397 million principal amount of tax exempt municipal bonds. We are required to reimburse F-29

  • Page 92
    ... of Credit Enhanced Special Facility Bonds" in this Note. (6) This debt, as amended ("Spare Engines Loan"), is secured by (1) the Engine Collateral; (2) so long as the letters of credit discussed in footnote 5 to this table are outstanding, the LOC Aircraft Collateral; and (3) certain other assets...

  • Page 93
    ... or secure other debt, make investments, sell assets and pay dividends or repurchase stock. The financial covenants require us to: • maintain unrestricted funds in an amount not less than $750 million through May 31, 2006; $1 billion at all times from June 1, 2006, through November 30, 2006; $750...

  • Page 94
    ..., including for tickets purchased using an American Express credit card but not yet used for travel. As required by the Modification Agreement, on September 16, 2005, we used a portion of the proceeds of our initial borrowing under the DIP Credit Facility to repay the outstanding principal amount of...

  • Page 95
    ... Airport, Salt Lake City International Airport and Tampa International Airport. We pay debt service on these bonds pursuant to long-term lease agreements. • The Bonds (1) have scheduled maturities between 2029 and 2035; (2) currently bear interest at a variable rate that is determined weekly...

  • Page 96
    ...TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Principal and interest on the Bonds are currently paid through drawings on irrevocable, direct-pay letters of credit totaling $403 million issued by GECC pursuant to the Reimbursement Agreement (defined below). In addition, the purchase price of...

  • Page 97
    ... FINANCIAL STATEMENTS - (Continued) $450 million and $850 million during the term of the Processing Agreement. The Processing Agreement allows us to substitute the Merrill Lynch Letter of Credit for a portion of the cash reserve equal to the lesser of $300 million and 45% of the unflown ticket...

  • Page 98
    ... 31, 2005, our minimum rental commitments under capital leases and noncancelable operating leases (including certain aircraft under contract carrier agreements) with initial terms in excess of one year: Capital Leases Years Ending December 31, (in millions) 2006 2007 2008 2009 2010 After 2010 Total...

  • Page 99
    ... the regional air carriers operate some or all of their aircraft using our flight code, and we schedule those aircraft, sell the seats on those flights and retain the related revenues. We pay those airlines an amount, as defined in the applicable agreement, which is based on a determination of their...

  • Page 100
    ... millions), unaudited ASMs RPMs Number of aircraft operated, end of period Contingencies Related to Termination of Contract Carrier Agreements We may terminate the Chautauqua and Shuttle America agreements without cause at any time after May 2010 and January 2013, respectively, by providing certain...

  • Page 101
    ... agreement with the RAIC to pay the bond trustee amounts sufficient to pay the debt service on $47 million in Facilities Sublease Refunding Revenue Bonds. These bonds were issued in 1996 to refinance the construction of certain airport and terminal facilities we use at Los Angeles International...

  • Page 102
    ...a specified level of labor cost reductions under its collective bargaining agreement with the IBT, representing Comair's flight attendants. Because Comair was not able to reach a consensual agreement with the IBT, on February 22, 2006, Comair filed a motion with the Bankruptcy Court to reject Comair...

  • Page 103
    ... FINANCIAL STATEMENTS - (Continued) Note 11. Income Taxes Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes (see Note 2 for information about our accounting policy...

  • Page 104
    ...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, the Employee Retirement Income Security Act ("ERISA") and our collective bargaining agreements...

  • Page 105
    ..., the Pilot Plan was amended to freeze service accruals. Future employee earnings continue to be used in the calculation of pilots' pension benefits under the Pilot Plan. Under the Pilot Plan, Delta pilots who retire can elect to receive 50% of the present value of their accrued pension benefit in...

  • Page 106
    ... (1) changes in our discount rate and participant life expectancy assumptions used to measure the obligation and (2) the large number of early pilot retirements and related lump sum distributions from plan assets. The $320 million increase in 2005 in the pension benefit obligation due to curtailment...

  • Page 107
    ... the Pilot Plan and are discussed in more detail below as a component of net periodic pension cost. The 2004 curtailment gain and special termination benefits relate to changes to our retiree medical coverage for nonpilot employees who retire after January 1, 2006 as discussed above; pension credit...

  • Page 108
    ... accruals under the Pilot Plan effective December 31, 2004. Additionally, in the December 2004 quarter, we recorded a $527 million curtailment gain related to the elimination of company subsidized retiree medical benefits for eligible employees who retire after January 1, 2006. These losses and...

  • Page 109
    ... cost trend rate(1) Net Periodic Benefit Cost Weighted average discount rate - pension benefits Weighted average discount rate - other postretirement benefits Rate of increase in future compensation levels Expected long-term rate of return on plan assets Assumed healthcare cost trend rate(1) 2005...

  • Page 110
    ... challenged this position in Bankruptcy Court, and the issue is currently on appeal. If the Nonpilot and Pilot Plans continue after we emerge from Chapter 11 we may be required to fully fund required contributions at that date, including contributions related to benefits earned prior to...

  • Page 111
    ... Money Purchase Pension Plan ("MPPP") We contributed 5% of covered pay to the MPPP for each eligible Delta pilot through December 31, 2004. The MPPP is related to the Pilot Plan. The defined benefit pension payable to a pilot is reduced by the actuarial equivalent of the accumulated account balance...

  • Page 112
    ... equivalent of the accumulated account balance at retirement will continue to offset the participants defined benefit pension benefit. Delta Family-Care Savings Plan ("Savings Plan") Eligible employees may contribute a portion of their covered pay to the Savings Plan. Generally, we match 50% of...

  • Page 113
    ...jeopardize our financial viability. The New York Stock Exchange accepted our reliance on this exception to its shareowner approval policy. The plans provide that shares reserved for awards that are forfeited are available for future stock option grants. At December 31, 2005, a total of approximately...

  • Page 114
    ... DIP Credit Facility and Amex Post-Petition Facility. In July 2003, our Board of Directors discontinued the payment of quarterly cash dividends on our common stock due to the financial challenges facing Delta. We had previously paid a quarterly dividend of $0.025 per common share. Effective December...

  • Page 115
    ... 31, 2005, 8,007,213 shares of common stock were reserved for the conversion of the ESOP Preferred Stock. Prior to our Chapter 11 filing, we were generally required to redeem shares of ESOP Preferred Stock (1) to provide for distributions of the accounts of Savings Plan participants who terminate...

  • Page 116
    ... NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 14. Comprehensive Loss Comprehensive loss includes (1) reported net loss; (2) the additional minimum pension liability; (3) effective unrealized gains and losses on fuel derivative instruments that qualify for hedge accounting; and...

  • Page 117
    ...are managed as a single business unit that provides air transportation for passengers and cargo. This allows us to benefit from an integrated revenue pricing and route network that includes Mainline, Comair and our contract carriers. The flight equipment of the carriers is combined to form one fleet...

  • Page 118
    ... approximately 6,000 to 7,000 jobs by December 2005. This charge included charges of $152 million related to special termination benefits (see Note 12) and $42 million related to employee severance. Asset Charges. A $41 million aircraft impairment charge related to our agreement to sell eight owned...

  • Page 119
    ... and (2) contract termination fees. We recorded charges of $5 million for future lease payments associated with the early retirement of leased aircraft, during the period from January 1, 2005 through the Petition Date. The severance and related costs reserve represents future payments associated...

  • Page 120
    ... Statements of Operations. Note 19. Loss per Share We calculate basic loss per share by dividing the net loss available to common shareowners by the weighted average number of common shares outstanding. Diluted loss per share includes the dilutive effects of stock options and convertible securities...

  • Page 121
    ... (15) 80 57 (53) $ 84 Uncollectible Accounts Receivable(2) $ 33 34 (29) 38 32 (32) 38 18 (15) $ 41 Deferred Tax Assets $ 16 9 - 25 2,508 (133) 2,400(3) 1,746 (192) $ 3,954(4) (1) See Notes 16 and 17 for additional information related to leased aircraft and restructuring and other charges. (2) The...

  • Page 122
    ...) As discussed in Note 2, "Summary of Significant Accounting Policies - Reclassifications", for the year ended December 31, 2005, certain revenues related to the sale of mileage credits under our SkyMiles frequent flyer program are recorded as other revenues rather than as selling expenses. We have...

  • Page 123
    ... of Contents NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) • • • During 2004, primarily in the June 2004 quarter, we recorded a valuation allowance against substantially all of our net deferred tax assets. See Note 11 for additional information about this charge. In December...

  • Page 124

  • Page 125
    ... TO: FROM: SUBJECT: Delta Officers and Directors Rob Kight, Vice President -- Compensation and Benefits NEW DELTA SEVERANCE PLAN FOR OFFICERS AND DIRECTORS On February 22nd, the bankruptcy court approved the Delta Air Lines, Inc. Director and Officer Severance Plan (the "SEVERANCE PLAN") which had...

  • Page 126
    New Delta Severance Plan for Officers and Directors Page 2 March 15, 2006 PLEASE INDICATE YOUR ELECTION TO BECOME ELIGIBLE TO PARTICIPATE IN THE SEVERANCE PLAN AND YOUR AGREEMENT TO THE ACKNOWLEDGEMENT, RELINQUISHMENT AND RELEASE SET FORTH ABOVE BY PRINTING, SIGNING, DATING AND RETURNING ONE COPY OF...

  • Page 127

  • Page 128
    ... program of a Delta Employer (as defined in the Severance Plan) in effect as of the date hereof, including, without limitation, any benefits under an Executive Retention Protection Agreement, if applicable. You also acknowledge that to the extent you are eligible for any furlough pay under the pilot...

  • Page 129
    New Delta Severance Plan for Officers and Directors Page 2 March 15, 2006 PLEASE INDICATE YOUR ELECTION TO BECOME ELIGIBLE TO PARTICIPATE IN THE SEVERANCE PLAN AND YOUR AGREEMENT TO THE ACKNOWLEDGEMENT, RELINQUISHMENT AND RELEASE SET FORTH ABOVE BY PRINTING, SIGNING, DATING AND RETURNING ONE COPY OF...

  • Page 130

  • Page 131
    ...that I am not a participant in any Delta Air Lines, Inc. severance plan or program, and that I am not currently eligible for any severance benefit under any plan or program at Delta, including any benefits under any Executive Retention Protection Agreement. ACKNOWLEDGMENT, RELINQUISHMENT AND RELEASE...

  • Page 132

  • Page 133
    ... Delta Air Lines Dublin Limited Delta Air Lines Private Limited Delta Benefits Management, Inc. Delta Connection Academy, Inc. Delta Corporate Identity, Inc. Delta Loyalty Management Services, LLC Delta Technology, LLC Delta Ventures III, LLC Epsilon Trading, Inc. Kappa Capital Management, Inc. New...

  • Page 134
    Delta Technology, LLC conducts business as Delta Air Lines Technology, Inc. in the following states: Alaska, Arizona, Arkansas, California, Indiana, New Jersey, New Mexico, Oklahoma, and Virginia. Comair Holdings, LLC conducts business as Comair Holdings, Inc. in the state of Kentucky.

  • Page 135

  • Page 136
    ... Chapter 11 of the United States Bankruptcy Code and the Company's ability to continue as a going concern) and (2) our report dated March 27, 2006 relating to management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Delta...

  • Page 137

  • Page 138
    ... adversely affect Delta's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in Delta's internal control over financial reporting. Date: March 27, 2006 /s/ GERALD...

  • Page 139

  • Page 140
    ... information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in Delta's internal control over financial reporting. Date: March 27, 2006 /s/ EDWARD H. BASTIAN Edward H. Bastian Executive Vice President and Chief Financial Officer

  • Page 141

  • Page 142
    ...with the Securities and Exchange Commission of the Annual Report on Form 10-K of Delta Air Lines, Inc. ("Delta") for the fiscal year ended December 31, 2005 (the "Report"). Each of the undersigned, the Chief Executive Officer and the Executive Vice President and Chief Financial Officer, respectively...