Form 8-K
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


 
FORM 8-K
 


CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934


Date of Report (Date of earliest event reported): September 7, 2005


DELTA AIR LINES, INC.
(Exact name of registrant as specified in its charter)



Delaware
001-05424
58-0218548
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)


P.O. Box 20706, Atlanta, Georgia 30320-6001
(Address of principal executive offices)


Registrant’s telephone number, including area code: (404) 715-2600


Registrant’s Web site address: www.delta.com


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





Item 2.01 Completion of Acquisition or Disposition of Assets.

On September 7, 2005, we completed the sale of Atlantic Southeast Airlines, Inc. (“ASA”), our wholly owned subsidiary, to SkyWest, Inc. (“SkyWest”) for a purchase price of $425 million. In conjunction with the sale of ASA, we amended our contract carrier agreements with ASA and SkyWest Airlines, Inc. (“SkyWest Airlines”), a wholly owned subsidiary of SkyWest, under which they will continue to serve as Delta Connection carriers. The expiration date of these contract carrier agreements has been extended to 2020.

Under the terms of the Stock Purchase Agreement, SkyWest purchased 100% of the outstanding capital stock of ASA. We received $350 million at closing, representing $330 million of purchase price and $20 million related to aircraft deposits, without giving effect to the payment of closing costs. We will also receive $125 million, consisting of $95 million of deferred purchase price and $30 million in certain aircraft deposits, upon the earlier of the fourth anniversary of the closing of this transaction or, in the event we seek to restructure under Chapter 11 of the U.S. Bankruptcy Code, assumption by us of our contract carrier agreements with ASA and SkyWest Airlines. SkyWest shall be entitled to retain $125 million if we reject either of our contract carrier agreements with ASA or SkyWest Airlines in a Chapter 11 proceeding prior to the fourth anniversary of the closing of this transaction. The purchase price is also subject to a working capital adjustment, as defined in the Stock Purchase Agreement. Pursuant to our financing agreements with GE Commercial Finance and other lenders (“GE Commercial Finance Facility”), we were required to repay $100 million of the outstanding borrowings under that facility upon closing of this transaction.  The remaining proceeds will be used for general corporate purposes.

Item 9.01 Financial Statements and Exhibits.

(b) Pro Forma Financial Information.

The unaudited Pro Forma Consolidated Financial Statements set forth below give effect to the sale of ASA (described in Item 2.01 above) and include the following:

·  
An unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2005, giving effect to the sale of ASA as if it had occurred June 30, 2005;

·  
An unaudited Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2005, giving effect to the sale of ASA as if it had occurred January 1, 2005; and

·  
An unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2004, giving effect to the sale of ASA as if it had occurred January 1, 2004.

The unaudited Pro Forma Consolidated Financial Statements include adjustments that are based on presently available information and assumptions that management believes are reasonable and are described in the Notes to the unaudited Pro Forma Consolidated Financial Statements. The unaudited Pro Forma Consolidated Financial Statements have been included as required by the Securities and Exchange Commission and are not necessarily indicative of the results that would have been reported had the disposition actually occurred on the dates specified, nor are they indicative of results that may be obtained in the future.

The unaudited Pro Forma Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes in our Annual Report on Form 10-K for the year ended December 31, 2004 and the Condensed Consolidated Financial Statements and the accompanying Notes in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005.


2

DELTA AIR LINES, INC.
  
Pro Forma Consolidated Balance Sheet
  
(Unaudited)
  
(In Millions, Except Share Data)
  
                   
   
As of June 30, 2005
  
                   
       
Pro Forma Adjustments
      
               
(1)
  
       
Sale of
  
Other
 
Pro Forma
  
   
Actual
  
ASA
  
Adjustments
  
As Adjusted
  
ASSETS
                          
                           
CURRENT ASSETS:
                          
Cash and cash equivalents
  
$
1,341
  
$
287
    (2)
$
(100
)  (3)
$
1,528
  
Short-term investments
    
330
   
-
   
-
   
330
 
Restricted cash
    
368
   
-
   
-
   
368
 
Accounts receivable, net of an allowance for uncollectible accounts of $39 at June 30, 2005
    
923
   
42
   
-
   
965
 
Expendable parts and supplies inventories, net of an allowance for obsolescence of $192 at June 30, 2005
   
219
   
-
   
-
   
219
 
Prepaid expenses and other
    
605
   
(90
)
  
-
   
515
 
Total current assets
    
3,786
   
239
   
(100
)
  
3,925
 
                           
                           
                           
PROPERTY AND EQUIPMENT:
                          
Flight equipment
   
20,935
   
(1,740
)
  
-
   
19,195
 
Accumulated depreciation
    
(7,002
)
  
175
   
-
   
(6,827
)
Flight equipment, net
    
13,933
   
(1,565
)
  
-
   
12,368
 
                           
Flight and ground equipment under capital leases
    
516
   
-
   
-
   
516
 
Accumulated amortization
    
(197
)
  
-
   
-
   
(197
)
Flight and ground equipment under capital leases, net
    
319
   
-
   
-
   
319
 
                           
Ground property and equipment
    
4,897
   
(63
)
  
-
   
4,834
 
Accumulated depreciation
    
(2,838
)
  
24
   
-
   
(2,814
)
Ground property and equipment, net
    
2,059
   
(39
)
  
-
   
2,020
 
                           
Advance payments for equipment
    
65
   
(22
)
  
-
   
43
 
                           
Total property and equipment, net
    
16,376
   
(1,626
)
  
-
   
14,750
 
                           
                           
                           
OTHER ASSETS:
                          
Goodwill
    
227
   
-
   
-
   
227
 
 
                          
Operating rights and other intangibles, net of accumulated amortization of $187 at June 30, 2005
   
76
   
-
   
-
   
76
 
Restricted investments for Boston airport terminal project
    
76
   
-
   
-
   
76
 
Other noncurrent assets
    
1,020
   
(34
)
  
-
   
986
 
Total other assets
    
1,399
   
(34
)
  
-
   
1,365
 
                           
Total assets
  
$
21,561
  
$
(1,421
)
$
(100
)
$
20,040
  
                           
The accompanying notes are an integral part of these unaudited Pro Forma Consolidated Financial Statements.
 
3
 
DELTA AIR LINES, INC.
  
Pro Forma Consolidated Balance Sheet
  
(Unaudited)
  
(In Millions, Except Share Data)
  
                   
   
As of June 30, 2005
  
                   
       
Pro Forma Adjustments
      
               
(1)
  
       
Sale of
  
Other
 
Pro Forma
  
   
Actual
  
ASA
  
Adjustments
  
As Adjusted
  
LIABILITIES AND SHAREOWNERS' DEFICIT
                          
                           
CURRENT LIABILITIES:
                          
Current maturities of long-term debt and capital leases
  
$
1,125
  
$
(191
)
$
-
  
$
934
  
Accounts payable, deferred credits and other accrued liabilities
    
1,678
   
(40
)
  
-
   
1,638
 
Air traffic liability
    
2,221
   
-
   
-
   
2,221
 
Taxes payable
    
591
   
-
   
-
   
591
 
Accrued salaries and related benefits
    
1,151
   
(32
)
  
-
   
1,119
 
Accrued rent
    
155
   
-
   
-
   
155
 
Total current liabilities
    
6,921
   
(263
)
  
-
   
6,658
 
                           
NONCURRENT LIABILITIES:
                        
Long-term debt and capital leases
    
12,459
   
(1,023
)
  
(100
)  (3)
  
11,336
 
Long-term debt issued by Massachusetts Port Authority
    
498
   
-
   
-
    
498
 
Postretirement benefits
    
1,742
   
(2
)
  
-
   
1,740
 
Accrued rent
    
648
   
-
   
-
   
648
 
Pension and related benefits
    
5,209
   
-
   
-
   
5,209
 
Other
    
296
   
(137
)
  
-
   
159
 
Total noncurrent liabilities
    
20,852
   
(1,162
)
  
(100
)
  
19,590
 
                           
                           
DEFERRED CREDITS:
                          
Deferred gains on sale and leaseback transactions
    
350
   
 -
    
-
   
350
 
Deferred revenue and other credits
    
147
   
4
   
-
   
151
 
Total deferred credits
    
497
   
4
   
-
   
501
 
                           
EMPLOYEE STOCK OWNERSHIP PLAN PREFERRED STOCK:
                          
Series B ESOP Convertible Preferred Stock:
                          
$1.00 par value, $72.00 stated and liquidation value, 5,105,264 shares issued and outstanding at June 30, 2005
    
368
   
-
   
-
   
368
 
Unearned compensation under employee stock ownership plan
    
(92
)
  
-
   
-
   
(92
)
Total Employee Stock Ownership Plan Preferred Stock
    
276
   
-
   
-
   
276
 
                           
SHAREOWNERS' DEFICIT:
                          
Common stock:
                         
$0.01 par value, 900,000,000 shares authorized, 202,081,648 shares issued at June 30, 2005
    
2
   
-
   
-
   
2
 
Additional paid-in capital
    
3,119
   
-
   
-
   
3,119
 
Accumulated deficit
    
(5,837
)
  
-
   
-
   
(5,837
)
Accumulated other comprehensive loss
    
(2,148
)
  
-
   
-
   
(2,148
)
Treasury stock at cost, 44,929,082 shares at June 30, 2005
   
(2,121
)
  
-
   
-
   
(2,121
)
Total shareowners' deficit
    
(6,985
)
  
-
   
-
   
(6,985
)
                           
Total liabilities and shareowners' deficit
  
$
21,561
  
$
(1,421
)
$
(100
)
$
20,040
  
                           
The accompanying notes are an integral part of these unaudited Pro Forma Consolidated Financial Statements.
 
4
 
DELTA AIR LINES, INC.
  
Pro Forma Consolidated Statement of Operations
  
(Unaudited)
  
(In Millions, Except Share and Per Share Data)
  
               
   
Six Months Ended June 30, 2005
  
       
(4)
  
(1)
  
       
Pro Forma
 
Pro Forma
 
   
Actual
  
Adjustments
  
As Adjusted
  
               
OPERATING REVENUES:
                    
Passenger:
                    
Mainline
  
$
5,694
  
$
-
  
$
5,694
  
Regional affiliates
    
1,520
   
-
   
1,520
 
Cargo
    
259
   
-
   
259
 
Other, net
    
359
   
-
   
359
 
Total operating revenues
    
7,832
   
-
   
7,832
 
                     
OPERATING EXPENSES:
                    
Salaries and related costs
    
2,709
   
(150
)
  
2,559
 
Aircraft fuel
    
1,938
   
(144
)
  
1,794
 
Depreciation and amortization
    
639
   
(36
)
  
603
 
Contracted services
    
542
   
(24
)
  
518
 
Contract carrier arrangements
    
415
   
538
   
953
 
Landing fees and other rents
    
442
   
(23
)
  
419
 
Aircraft maintenance materials and outside repairs
    
383
   
(52
)
  
331
 
Aircraft rent
    
294
   
(32
)
  
262
 
Passenger commissions and other selling expenses
    
378
   
-
   
378
 
Passenger service
    
179
   
(2
)
  
177
 
Pension settlements, asset writedowns, restructuring and related items, net
    
627
   
-
   
627
 
Other
   
372
   
(34
)
  
338
 
Total operating expenses
    
8,918
   
41
   
8,959
 
                     
OPERATING LOSS
    
(1,086
)
  
(41
)
  
(1,127
)
                     
OTHER INCOME (EXPENSE):
                    
Interest expense
    
(556
)
  
28
   
(528
)
Interest income
    
28
   
(1
)
  
27
 
Miscellaneous expense, net
    
(1
)
  
-
   
(1
)
Total other expense, net
    
(529
)
  
27
   
(502
)
                     
LOSS BEFORE INCOME TAXES
    
(1,615
)
  
(14
)
  
(1,629
)
                     
INCOME TAX BENEFIT
   
162
   
-
   
162
 
                     
NET LOSS
    
(1,453
)
  
(14
)
  
(1,467
)
                     
PREFERRED STOCK DIVIDENDS
    
(11
)
  
-
   
(11
)
                     
NET LOSS ATTRIBUTABLE TO COMMON
                    
SHAREOWNERS
  
$
(1,464
)
$
(14
)
$
(1,478
)
                     
BASIC AND DILUTED LOSS PER SHARE
  
$
(10.17
)
$
-
  
$
(10.27
)
                     
WEIGHTED AVERAGE SHARES USED IN BASIC
                    
AND DILUTED PER SHARE COMPUTATION
    
143,888,479
         
143,888,479
 

The accompanying notes are an integral part of these unaudited Pro Forma Consolidated Financial Statements.
          
 
5
 
DELTA AIR LINES, INC.
  
Pro Forma Consolidated Statement of Operations
  
(Unaudited)
  
(In Millions, Except Share and Per Share Data)
  
               
   
Year Ended December 31, 2004
  
       
(4)
  
(1)
  
       
Pro Forma
 
Pro Forma
 
   
Actual
  
Adjustments
  
As Adjusted
  
               
OPERATING REVENUES:
                    
Passenger:
                    
Mainline
  
$
10,880
  
$
-
  
$
10,880
  
Regional affiliates
    
2,910
   
-
   
2,910
 
Cargo
    
500
   
-
   
500
 
Other, net
    
712
   
-
   
712
 
Total operating revenues
    
15,002
   
-
   
15,002
 
                     
OPERATING EXPENSES:
                    
Salaries and related costs
    
6,338
   
(292
)
  
6,046
 
Aircraft fuel
    
2,924
   
(198
)
  
2,726
 
Depreciation and amortization
    
1,244
   
(67
)
  
1,177
 
Contracted services
    
999
   
(33
)
  
966
 
Contract carrier arrangements
    
932
   
923
   
1,855
 
Landing fees and other rents
    
875
   
(40
)
  
835
 
Aircraft maintenance materials and outside repairs
    
681
   
(87
)
  
594
 
Aircraft rent
    
716
   
(69
)
  
647
 
Passenger commissions and other selling expenses
    
706
   
(1
)
  
705
 
Passenger service
    
349
   
(4
)
  
345
 
Impairment of intangible assets
    
1,875
   
(499
)
  
1,376
 
Pension settlements, asset writedowns, restructuring and related items, net
    
(41
)
  
-
   
(41
)
Other
   
712
   
(43
)
  
669
 
Total operating expenses
    
18,310
   
(410
)
  
17,900
 
                     
OPERATING LOSS
    
(3,308
)
  
410
   
(2,898
)
                     
OTHER INCOME (EXPENSE):
                    
Interest expense
    
(824
)
  
40
   
(784
)
Interest income
    
37
   
(2
)
  
35
 
Gain from sale of investments, net
    
123
   
-
   
123
 
Gain on extinguishment of debt, net
    
9
   
-
   
9
 
Fair value adjusments of SFAS 133 derivatives
    
(31
)
  
-
   
(31
)
Miscellaneous income, net
    
2
   
-
   
2
 
Total other expense, net
    
(684
)
  
38
   
(646
)
                     
LOSS BEFORE INCOME TAXES
    
(3,992
)
  
448
   
(3,544
)
                     
INCOME TAX PROVISION
    
(1,206
)
  
-
   
(1,206
)
                     
NET LOSS
    
(5,198
)
  
448
   
(4,750
)
                     
PREFERRED STOCK DIVIDENDS
    
(19
)
  
-
   
(19
)
                     
NET LOSS ATTRIBUTABLE TO COMMON
                    
SHAREOWNERS
  
$
(5,217
)
$
448
  
$
(4,769
)
                     
BASIC AND DILUTED LOSS PER SHARE
  
$
(41.07
)
$
-
  
$
(37.54
)
                     
WEIGHTED AVERAGE SHARES USED IN BASIC
                    
AND DILUTED PER SHARE COMPUTATION
    
127,033,234
         
127,033,234
 

The accompanying notes are an integral part of these unaudited Pro Forma Consolidated Financial Statements.
      
6

Delta Air Lines, Inc.
Notes to the Pro Forma Consolidated Financial Statements
(Unaudited)


Transaction Summary

On September 7, 2005, we completed the sale of ASA, our wholly owned subsidiary, to SkyWest for a purchase price of $425 million. In conjunction with the sale of ASA, we amended our contract carrier agreements with ASA and SkyWest Airlines, under which they will continue to serve as Delta Connection carriers. The expiration date of these contract carrier agreements has been extended to 2020.

Under the terms of the Stock Purchase Agreement, SkyWest purchased 100% of the outstanding capital stock of ASA. We received $350 million at closing, representing $330 million of purchase price and $20 million related to aircraft deposits, without giving effect to the payment of closing costs. We will also receive $125 million, consisting of $95 million of deferred purchase price and $30 million in certain aircraft deposits, upon the earlier of the fourth anniversary of the closing of this transaction or, in the event we seek to restructure under Chapter 11 of the U.S. Bankruptcy Code, assumption by us of our contract carrier agreements with ASA and SkyWest Airlines. SkyWest shall be entitled to retain $125 million if we reject either of our contract carrier agreements with ASA or SkyWest Airlines in a Chapter 11 proceeding prior to the fourth anniversary of the closing of this transaction. The $125 million has not been reflected in the unaudited Pro Forma Consolidated Financial Statements as the contingencies have not been satisfied. The purchase price is also subject to a working capital adjustment, as defined in the Stock Purchase Agreement. Pursuant to our GE Commercial Finance Facility, we were required to repay $100 million of the outstanding borrowings under that facility upon closing of this transaction. The remaining proceeds from the sale of ASA will be used for general corporate purposes.


Adjustments to Unaudited Pro Forma Consolidated Financial Statements:

(1)
Represents Delta Air Lines, Inc. Unaudited Pro Forma Consolidated Balance Sheet and Unaudited Pro Forma Consolidated Statements of Operations as of the date indicated and for the periods then ended, as adjusted to reflect the sale of ASA and the use of the proceeds of the sale to repay $100 million of outstanding borrowings pursuant to the GE Commercial Finance Facility.


Unaudited Pro Forma Consolidated Balance Sheet:

(2)
Includes cash we received upon the closing of the transaction, net of closing costs and cash that remained with ASA pursuant to the Stock Purchase Agreement.

(3)
Represents amount of outstanding borrowings we were required to repay pursuant to our GE Commercial Finance Facility upon the closing of the transaction.


Unaudited Pro Forma Consolidated Statements of Operations:

(4)
Adjustments to reflect ASA as a third party contract carrier, rather than our wholly owned subsidiary, for the periods presented.
 
 
 
7

(c) Exhibits.

 
99.1
Stock Purchase Agreement, dated as of August 15, 2005, among SkyWest, Inc., Delta Air Lines, Inc. and ASA Holdings, Inc.



8

SIGNATURES



          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



 
DELTA AIR LINES, INC.
   
 
By: /s/ Edward H. Bastian            
Date: September 13, 2005
       Edward H. Bastian,
       Executive Vice President and Chief Financial Officer


9

EXHIBIT INDEX

Exhibit Number
Description

Exhibit 99.1
Stock Purchase Agreement, dated as of August 15, 2005, among SkyWest, Inc., Delta Air Lines, Inc. and ASA Holdings, Inc.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10