FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-24126
FRONTIER AIRLINES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1256945_________
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(State or other jurisdiction of incorporated or organization) (I.R.S. Employer Identification No.)
7001 Tower Road, Denver, CO 80249
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (720) 374-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
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Title of Class
Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of common stock held by non-affiliates of the Company computed by reference to the last quoted price at which
such stock sold on such date as reported by the Nasdaq National Market as of June 1, 2001: $356,124,628.
The number of shares of the Company's common stock outstanding as of June 1, 2001 is 28,292,102.
Documents incorporated by reference - Information required by Part III is incorporated by reference to the Company's 2001 Proxy
Statement.
TABLE OF CONTENTS
Page
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PART I
Item 1: Business..............................................................................3
Item 2: Properties ..........................................................................13
Item 3: Legal Proceedings....................................................................14
Item 4: Submission of Matters to a Vote of Security Holders..................................14
PART II
Item 5: Market for Common Equity and Related Stockholder Matters.............................14
Item 6: Selected Financial Data..............................................................17
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................19
Item 7A: Quantitative and Qualitative Disclosures About Market Risk ..........................31
Item 8: Financial Statements.................................................................32
PART III
Item 10: Directors and Executive Officers of the Registrant...................................32
Item 11: Executive Compensation...............................................................32
Item 12: Security Ownership of Certain Beneficial Owners and Management.......................32
Item 13: Certain Relationships and Related Transactions.......................................32
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K......................32
PART I
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that
describe the business and prospects of Frontier Airlines, Inc. ("Frontier" or the "Company") and the expectations of our Company and
management. All statements, other than statements of historical facts, included in this report that address activities, events or
developments that we expect, believe, intend or anticipate will or may occur in the future, are forward-looking statements. When used
in this document, the words "estimate," "anticipate," "project" and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. These risks and uncertainties include, but are not limited to: the timing
of, and expense associated with, expansion and modification of our operations in accordance with our business strategy or in response
to competitive pressures or other factors; general economic factors and behavior of the fare-paying public; increased federal
scrutiny of low-fare carriers generally that may increase our operating costs or otherwise adversely affect us; actions of competing
airlines, such as increasing capacity and pricing actions of United Airlines and other competitors; the availability of suitable
aircraft, which may inhibit our ability to achieve operating economies and implement our business strategy; the unavailability of, or
inability to secure upon acceptable terms, financing necessary to purchase aircraft which we have ordered; issues relating to our
transition to an Airbus aircraft fleet; and uncertainties regarding aviation fuel prices. Because our business, like that of the
airline industry generally, is characterized by high fixed costs relative to revenues, small fluctuations in our yield per RPM or
expense per ASM can significantly affect operating results.
Share, per share and common stock information contained in this report has been adjusted to reflect a fifty percent common stock
dividend to shareholders of record on February 19, 2001, which we paid on March 5, 2001.
Item 1: Business
General
We are a scheduled airline based in Denver, Colorado. As of June 1, 2001, we operate routes linking our Denver hub to 22
cities in 18 states spanning the nation from coast to coast. We were organized in February 1994 and we began flight operations in
July 1994 with two leased Boeing 737-200 jets. We have since expanded our fleet to 25 leased jets and one purchased Airbus aircraft,
including seven Boeing 737-200s, 18 larger Boeing 737-300s, and one Airbus A319. Beginning in May 2001, we began a fleet replacement
plan by which we will replace our Boeing aircraft with new purchased and leased Airbus jet aircraft, a transition we expect to
complete by approximately the first quarter of calendar year 2005.
We currently use up to nine gates at our hub, Denver International Airport ("DIA"), where we operate approximately 124 daily
system flight departures and arrivals. We added Houston, Texas to our route system on May 16, 2001.
The following table lists the cities we serve as of June 1, 2001, as well as the dates we commenced service to those cities:
El Paso, Texas October 13, 1994
Albuquerque, New Mexico October 13, 1994
Omaha, Nebraska January 16, 1995
Chicago/Midway, Illinois September 25, 1995
Phoenix, Arizona September 25, 1995
Los Angeles, California November 3, 1995
Minneapolis/St. Paul, Minnesota November 13, 1995
Salt Lake City, Utah November 13. 1995
San Francisco, California November 17, 1995
Seattle, Washington May 1, 1996
Boston, Massachusetts September 16, 1997
Baltimore, Maryland November 16, 1997
New York/LaGuardia, New York December 3, 1997
San Diego, California July 23, 1998
Atlanta, Georgia December 17, 1998
Dallas/Fort Worth, Texas December 17, 1998
Las Vegas, Nevada December 17, 1998
Portland, Oregon June 14, 1999
Orlando, Florida September 9, 1999
Kansas City, Missouri June 15, 2000
Washington, D.C. September 7, 2000
Houston, Texas May 16, 2001
In 1998, we initiated complimentary shuttle service between Boulder, Colorado and DIA. In March 2001 we added an intermediate
stop in Broomfield, Colorado to this service. We currently operate six daily round trip bus service between Boulder/Broomfield and
DIA.
In addition to implementing service to three new cities between April 1, 2000 and June 1, 2001, we also added additional flight
frequencies in the following markets: Albuquerque, New Mexico; Boston, Massachusetts; Dallas/Fort Worth, Texas; Orlando, Florida; San
Diego, California; and San Francisco, California. During the fiscal year ended March 31, 2001, we decreased our flight frequencies
between DIA and New York's LaGuardia Airport from 3 to 2 round trip flights per day.
During the past 12 months we have added new executive officers to our management, including our Executive Vice President and
Chief Operating Officer (May 2001); our Vice President-Maintenance and Engineering (July 2000); our Vice President - Customer Service
and Station Operations (August 2000); and our Vice President - Flight Operations (April 2001). Each of these individuals has
significant prior airline and aviation industry experience.
Our corporate headquarters are located at 7001 Tower Road, Denver, Colorado 80249. Our administrative office telephone number
is 720-374-4200; our reservations telephone number is 800-432-1359; and our world wide Web site address is www.frontierairlines.com.
Business Strategy and Markets
Our business strategy is to provide air service at affordable fares to high volume markets from our Denver hub. Our strategy is
based on the following factors:
o Stimulate demand by offering a combination of low fares, quality service and frequent flyer credits in our frequent flyer
program, EarlyReturns.
o Expand our Denver hub operations and increase connecting traffic by adding additional high volume markets to our current
route system, as well as from a recent code sharing agreement with a commuter carrier.
o Continue filling gaps in flight frequencies to high volume markets from our Denver hub.
In April 1999, we were named "Best Domestic Low Fare Carrier" by Entrepreneur Magazine in the publication's sixth annual
Business Travel Awards. During our fiscal year 2000, we were also named Entrepreneur of the Year for the services sector at Ernst &
Young's 1999 Rocky Mountain Entrepreneur of the Year awards. In 2000, Zagat's Airline Survey ranked our airline as one of the top
ten domestic air carriers based on comfort, service and food. In 1999 and 2000, our maintenance and engineering department received
the FAA's highest award for maintenance training, the Diamond Certificate of Excellence, with 100 percent of our maintenance and
engineering employees completing advanced aircraft maintenance training programs.
Route System Strategy
Our route system strategy encompasses connecting our Denver hub to top business and leisure destinations. We currently
serve 18 of the top 25 destinations from Denver, as defined by the U.S. Department of Transportation's Origin and Destination Market
Survey. In addition, as we bring additional aircraft into our fleet and add new markets to our route system, connection
opportunities increase. During the year ended March 31, 2001, connection opportunities for our passengers connecting through DIA
increased from an average of 5.9 flights to 7.5 flights.
Marketing and Sales
Our sales efforts are targeted to price-sensitive passengers in both the leisure and corporate travel markets. In the
leisure market, we offer discounted fares marketed through the Internet, newspaper, radio and television advertising along with
special promotions. We market these activities in Denver and in cities throughout our route system.
In order to increase connecting traffic, we entered into a code share agreement in May 2001 with Great Lakes Aviation, Ltd.,
a commuter air carrier, with the first joint flights scheduled to commence in July 2001. We have also negotiated interline
agreements with approximately 130 domestic and international airlines serving cities on our route system. Generally, these
agreements include joint ticketing and baggage services and other conveniences designed to expedite the connecting process.
To balance the seasonal demand changes that occur in the leisure market, we have introduced programs over the past four
years that are designed to capture a larger share of the corporate market, which tends to be less seasonal than the leisure market.
These programs include negotiated fares for large companies that sign contracts committing to a specified volume of travel, future
travel credits for small and medium size businesses contracting with us, and special discounts for members of various trade and
nonprofit associations. As of June 1, 2001, we had signed contracts with over 6,000 companies.
We also pursue sales opportunities with meeting and convention arrangers and government travel offices. The primary tools we
use to attract this business include personal sales calls, direct mail and telemarketing. In addition, we offer air/ground vacation
packages to many destinations on our route system under contracts with various tour operators.
In January 2001, we announced EarlyReturns, our own frequent flyer program, which was effective February 1, 2001. We believe
that our frequent flyer program offers some of the most generous benefits in the industry, including a free round trip after
accumulating only 15,000 miles. Members earn one mile for every mile flown on Frontier plus additional mileage with program
partners, which presently include Continental Airlines, Midwest Express Airlines, Virgin Atlantic Airways, Alamo, Hertz, National and
Payless Car Rentals, Kimpton Group Hotels and Citicorp Diners Club Inc. Members who earn 25,000 or more annual credited EarlyReturns
flight miles attain Summit Level status, which includes a 25% mileage bonus on each paid Frontier flight, priority check-in and
boarding, complimentary on-board alcoholic beverages, extra allowance on checked baggage and priority baggage handling, guaranteed
reservations on any Frontier flight when purchasing an unrestricted coach class ticket at least 72 hours prior to departure, and
access to an exclusive Summit customer service toll-free phone number. To apply for the program customers may visit our Web site at
www.frontierairlines.com, obtain an EarlyReturns enrollment form at any of our airport counters or call our EarlyReturns Service
Center toll-free hotline at 866-26-EARLY, or our reservations at 800-4321-FLY.
Our relationship with travel agencies is important to us and other airlines. In November 1999, we matched an industry
initiative and lowered travel agent commissions from eight to five percent. However, unlike some other airlines, we do not limit the
earnings potential of travel agents through a commission cap. We have implemented marketing strategies designed to maintain and
encourage relationships with travel agencies throughout our route system. We communicate with travel agents through personal visits
by Company executives and sales managers, sales literature mailings, trade shows, telemarketing and advertising in various travel
agent trade publications.
We participate in the four major computer reservation systems used by travel agents to make airline reservations: Amadeus,
Galileo, Worldspan and Sabre. We maintain reservations centers in Denver, Colorado and Las Cruces, New Mexico, operated by our
employees. We opened the Las Cruces call center in August 2000, replacing a Miami, Florida contractor that had been providing
reservations services for us.
In January 1999, we renewed an agreement with Electronic Data Systems ("EDS") for continued and enhanced airline customer
information services, including computerized reservations, passenger processing and telecommunications services.
Our agreement with EDS enhances our ability to provide Internet bookings through the EDS SHARES web booking engine. In
April 1999, we began offering "Spirit of the Web" fares via our Web site, which permits customers to make "close in" bookings
beginning on Wednesdays for the following weekend. This is intended to fill seats that might otherwise remain unused. Our percentage
of Internet-related revenue, which includes our own Web site and other Internet travel distributors, increased from 12.7% for the
month of March 2000 to 30.9% for the month of March 2001.
Since early 1997, we have made greater use of electronic or "paperless" ticketing, a lower cost alternative to ticketing
passengers on relatively expensive ticket stock. During fiscal year 2000, we enabled all four computer reservation systems used by
travel agents to offer e-ticketing capabilities on our flights.
In May 2000, we unveiled a newly designed and enhanced Web site that incorporates booking capabilities on each page of the
site, an expanded "About Frontier" section, exclusive partner offers, a new "Frequently Answered Questions" section and new real time
flight information. During fiscal year 2001, we purchased EDS' VIBE, Versatile Internet Booking Engine, which permits us to perform
more advanced online booking capabilities, such as online discounts, and explore a business-to-business corporate strategy. We
implemented VIBE in November 2000.
Product Pricing
We generally offer our seats at discount fares on flights booked within 21 days of travel , and consider our service an
affordable alternative to the higher fare, larger carriers. Seat inventories on each flight are managed through a yield management
system. We generally provide discounts with five levels of advance purchase requirements. In contrast to most carriers, our fares
usually do not require travelers to include a Saturday overnight stay in order to take advantage of these discount rates. We also do
not charge a premium for one-way fares and, generally, our fares do not require a round-trip purchase.
Competition
The Airline Deregulation Act of 1978 (the "Deregulation Act") produced a highly competitive airline industry, freed of certain
government regulations that for 40 years prior to the Deregulation Act had dictated where domestic airlines could fly and how much
they could charge for their services. Since then, we and other smaller carriers have entered markets long dominated by large airlines
with substantially greater resources, such as United Airlines, American Airlines, Northwest Airlines and Delta Air Lines.
We compete principally with United Airlines, the dominant carrier at DIA. United and its commuter affiliates have a total
market share at DIA of approximately 69%. This gives United a significant competitive advantage compared to us and other carriers
serving DIA. We believe our current market share at DIA approximates 8.3%. We compete with United primarily on the basis of fares,
fare flexibility and the quality of our customer service.
At the present time, four airports, including New York's LaGuardia Airport ("LaGuardia") and Washington, D.C.'s Ronald Reagan
International Airport ("DCA"), are regulated by means of "slot" allocations, which represent government authorization to take off or
land at a particular airport within a specified time period. FAA regulations require the use of each slot at least 80% of the time
and provide for forfeiture of slots in certain circumstances. We were originally awarded six slots at LaGuardia. At the present
time, we utilize four of those slots to operate two daily round-trip flights between Denver and LaGuardia. In addition to slot
restrictions, DCA is limited by a perimeter rule, which limits flights to and from DCA to 1,250 miles. In April 2000, the Wendell H.
Ford Aviation Investment and Reform Act for the 21st Century ("AIR 21") was enacted. AIR 21 authorizes the Department of
Transportation ("DOT") to grant up to 12 slot exemptions beyond the 1,250 mile DCA perimeter, provided certain specifications are
met. These include that the new service will provide air transportation with domestic network benefits in areas beyond the perimeter;
increase competition by new entrant air carriers or in multiple markets; not reduce travel options for communities served by small
hub airports and medium hub airports within the perimeter; and not result in meaningfully increased travel delays. We are presently
authorized to and we operate one daily round-trip flight between Denver and DCA. We are seeking authority to operate a second
round-trip flight in this market but are unable to predict whether such authority will be granted.
Aircraft
As of June 1, 2001, we operate 25 leased Boeing 737 and one Airbus A319 in all-coach seating configurations. The age of these
aircraft, their passenger capacities and their lease expirations are shown in the following table:
Approximate
Number of
Aircraft No. of Year of Passenger Lease
Model Aircraft Manufacture Seats Expiration
B-737-200A 7 1978-1983 119 2001-2005
B-737-300 18 1985-1998 136 2002-2006
A319 1 2001 132 owned
In March 2000, we entered into an agreement, as subsequently amended, to purchase up to 29 new Airbus aircraft. We have agreed
to firm purchases of 12 of these aircraft, and have options to purchase up to an additional 17 aircraft. This order contemplates a
fleet replacement plan by which we will phase out of our Boeing 737 aircraft and replace them with a combination of Airbus A319 and
A318 aircraft. As a complement to this purchase, in April and May 2000 we signed two agreements to lease 16 new Airbus aircraft. Upon
completion of our fleet transition, we expect our owned and leased fleet to be comprised of approximately two-thirds A319 aircraft
and one-third A318 aircraft. We took delivery of our first purchased Airbus A319 aircraft in May 2001, expect to take delivery of
our first leased Airbus aircraft in June 2001, and plan to be operating up to 37 Airbus aircraft by the first quarter of calendar
year 2005. The A319 and A318 aircraft are configured with 132 and 114 passenger seats, respectively, with a 33-inch seat pitch. We
believe that operating new Airbus aircraft will result in significant operating cost savings and an improved product for our
customers.
Maintenance and Repairs
All of our aircraft maintenance and repairs are accomplished in accordance with our maintenance program approved by the United
States Federal Aviation Administration ("FAA"). Spare or replacement parts are maintained by us primarily in Denver. Spare parts
vendors supply us with certain of these parts, and we purchase or lease others from other airline or vendor sources.
Since mid-1996, we have trained, staffed and supervised our own maintenance work force at Denver. We sublease a portion of
Continental Airlines' hangar at DIA where we presently perform our own maintenance through the "D" check level. Other major
maintenance, such as major engine repairs, is performed by outside FAA approved contractors. We also maintain line maintenance
facilities at El Paso, Texas and Phoenix, Arizona.
Under our aircraft lease agreements, we pay all expenses relating to the maintenance and operation of our aircraft, and we are
required to pay monthly maintenance reserve deposits to the lessors based on usage. Maintenance reserve deposits are applied against
the cost of scheduled major maintenance. To the extent not used for major maintenance during the lease terms, maintenance reserve
deposits remain with the aircraft lessors upon redelivery of the aircraft.
Our monthly completion factors for the years ending March 31, 2001, 2000, and 1999 ranged from 98.6% to 99.8%, from 96.7% to
99.7%, and from 97.6% to 99.8%, respectively. The completion factor is the percentage of our scheduled flights that were operated by
us (i.e., not canceled). Canceled flights were principally as a result of mechanical problems, and, to a lesser extent, weather.
Maintenance management has recently implemented processes and procedures that will assist in ensuring that our aircraft will continue
to be sufficiently reliable over longer periods of time. These include the implementation of a multi-departmental product team
designed to provide the leadership and direction necessary to maintain and improve fleet costs and performance. The product team
consists of four core departments; engineering, quality control, reliability and production. In addition, base maintenance has
established flowcharts to more efficiently utilize "C" check manpower and part resources to ensure maintenance schedules are
maintained in a cost effective manner. We also expect that our new Airbus aircraft will improve aircraft reliability.
In 1999 and 2000, our maintenance and engineering department received the FAA's highest award for maintenance training, the
Diamond Certificate of Excellence, with 100 percent of our maintenance and engineering employees completing advanced aircraft
maintenance training programs. The Diamond Award, recognizes advanced training for aircraft maintenance professionals throughout the
airline industry. We are the first and only part 121 domestic air carrier to achieve 100 percent participation in this training
program by our maintenance employees.
Fuel
During the years ending March 31, 2001, 2000, and 1999, jet fuel accounted for 18.1%, 15.3% and 11.6%, respectively, of our
operating expenses. We have arrangements with major fuel suppliers for substantial portions of our fuel requirements, and we believe
that such arrangements assure an adequate supply of fuel for current and anticipated future operations. However, we have not entered
into any agreements that fix the price of fuel over any period of time. Jet fuel costs are subject to wide fluctuations as a result
of sudden disruptions in supply beyond our control. Therefore, we cannot predict the future availability and cost of jet fuel with
any degree of certainty. Fuel prices increased significantly in fiscal 2001. Our average fuel price per gallon including taxes and
into-plane fees was $1.07 for the year ended March 31, 2001, with the monthly average price per gallon during the same period ranging
from a low of 91.3(cent)to a high of $1.24. As of June 1, 2001, the price per gallon was $1.00. Our average fuel price per gallon
including taxes and into-plane fees was 79.9(cent)for the year ended March 31, 2000, with the monthly average price per gallon during the
same period ranging from a low of 57.9(cent)to a high of $1.02.
Increases in fuel prices or a shortage of supply could have a material adverse effect on our operations and financial results.
Our ability to pass on increased fuel costs to passengers through price increases or fuel surcharges may be limited, particularly
given our affordable fare strategy.
Insurance
We carry $800 million per aircraft per occurrence in property damage and passenger and third-party liability insurance, and
insurance for aircraft loss or damage with deductible amounts as required by our aircraft lease agreements, and customary coverage
for other business insurance. While we believe such insurance is adequate, there can be no assurance that such coverage will
adequately protect us against all losses that we might sustain. Our property damage and passenger and third-party liability
insurance coverage exceeds the minimum amounts required by the DOT regulations.
Employees
As of June 1, 2001, we had 2,479 employees, including 2,058 full-time and 421 part-time personnel. Our employees included 327
pilots, 408 flight attendants, 412 customer service agents, 336 ramp service agents, 243 reservations agents, 351 mechanics and
related personnel, and 402 general management and administrative personnel. We consider our relations with our employees to be good.
We have established a compensation philosophy that we will pay competitive wages compared to other airlines of similar size and
other employers with whom we compete for our labor supply. Employees have the opportunity to earn above our established market rates
through the payment of performance bonuses.
Two of our employee groups have voted for union representation: our pilots voted in November 1998 to be represented by an
independent union, the Frontier Airline Pilots Association ("FAPA"), and our dispatchers voted in September 1999 to be represented by
the Transport Workers Union. The first bargaining agreement for the pilots, which has a 5-year term, was ratified and became
effective in May 2000. The first bargaining agreement for the dispatchers, which has a 3-year term, was ratified and became
effective in September 2000. In addition since 1997 we have had union organizing attempts that were defeated by our flight
attendants, ramp service agents, mechanics, and stock clerks. We recently received a letter signed by certain of our flight
attendants indicating that they are pursuing union representation. We have not received an official notification from the National
Mediation Board ("NMB") of a representation application for flight attendants. In May 2001, the NMB advised us that it had received
an application from the International Brotherhood of Teamsters seeking to represent our mechanics and related employees. The NMB is
currently determining if and when a representation election should be held with respect to this application.
We have enhanced our 401(k) Retirement Savings Plan by announcing an increased matching contribution by the Company. Effective
May 2000, participants may receive a 50% Company match for contributions up to 10%. This match is discretionary and approved on an
annual basis by our Board of Directors. The Board of Directors has approved the continuation of the match which was effective May
2000 for the plan year ended December 31, 2001. We anticipate that the match and related vesting schedule of 20% per year may serve
to reduce our employee turnover rates.
All new employees are subject to pre-employment drug testing. Those employees who perform safety sensitive functions are also
subject to random drug and alcohol testing, and testing in the event of an accident.
Training, both initial and recurring, is required for many employees. We train our pilots, flight attendants, ground service
personnel, reservations personnel and mechanics. FAA regulations require pilots to be licensed as commercial pilots, with specific
ratings for aircraft to be flown, to be medically certified or physically fit, and have recent flying experience. Mechanics, quality
control inspectors and flight dispatchers must be licensed and qualified for specific aircraft. Flight attendants must have initial
and periodic competency, fitness training and certification. The FAA approves and monitors our training programs. Management
personnel directly involved in the supervision of flight operations, training, maintenance and aircraft inspection must meet
experience standards prescribed by FAA regulations.
Government Regulation
All interstate air carriers are subject to regulation by the DOT and the FAA under the Federal Aviation Act. The DOT's
jurisdiction extends primarily to the economic aspects of air transportation, while the FAA's regulatory authority relates primarily
to air safety, including aircraft certification and operations, crew licensing and training, maintenance standards, and aircraft
standards. In general, the amount of regulation over domestic air carriers in terms of market entry and exit, pricing and
inter-carrier agreements has been greatly reduced subsequent to enactment of the Deregulation Act.
U.S. Department of Transportation. We hold a Certificate of Public Convenience and Necessity issued by the DOT that allows us
to engage in air transportation. Pursuant to law and DOT regulation, each United States carrier must qualify as a United States
citizen, which requires that its President and at least two-thirds of its Board of Directors and other managing officers be comprised
of United States citizens; that not more than 25% of its voting stock may be owned by foreign nationals, and that the carrier not be
otherwise subject to foreign control.
U.S. Federal Aviation Administration. We also hold an operating certificate issued by the FAA pursuant to Part 121 of the
Federal Aviation Regulations. The FAA has jurisdiction over the regulation of flight operations including the licensing of pilots and
maintenance personnel, the establishment of minimum standards for training and maintenance, and technical standards for flight,
communications and ground equipment. We must have and we maintain FAA certificates of airworthiness for all of our aircraft. Our
flight personnel, flight and emergency procedures, aircraft and maintenance facilities and station operations are subject to periodic
inspections and tests by the FAA.
At the present time, four airports, including LaGuardia and DCA, are regulated by means of "slot" allocations, which represent
government authorization to take off or land at a particular airport within a specified time period. FAA regulations require the use
of each slot at least 80% of the time and provide for forfeiture of slots in certain circumstances. The Company currently holds
slots to serve the Denver-LaGuardia and Denver-DCA market and provides two and one daily round trip flights in those markets,
respectively.
The DOT and FAA also have authority under the Aviation Safety and Noise Abatement Act of 1979, the Airport Noise and Capacity
Act of 1990 ("ANCA") and Clean Air Act of 1963 to monitor and regulate aircraft engine noise and exhaust emissions. We are required
to comply with all applicable FAA noise control regulations and with current exhaust emissions standards. Our fleet is in compliance
with the FAA's Stage 3 noise level requirements.
Railway Labor Act/National Mediation Board. Our pilots organized in 1998 under an independent union, the Frontier Airlines
Pilots Association, and our dispatchers organized in 1999 and are represented by the Transport Workers Union. Our labor relations
with respect to the pilots and dispatchers are now covered under Title II of the Railway Labor Act and are subject to the
jurisdiction of the National Mediation Board.
Miscellaneous. All air carriers are subject to certain provisions of the Communications Act of 1934 because of their extensive
use of radio and other communication facilities, and are required to obtain an aeronautical radio license from the Federal
Communications Commission ("FCC"). To the extent that we are subject to FCC requirements, we believe that we take all necessary steps
to comply with those requirements.
Risk Factors
In addition to the other information contained in this Form 10-K, the following risk factors should be considered carefully in
evaluating us and our business.
We may not be able to obtain or secure new aircraft financing.
We have agreed to purchase various new Airbus A319 and A318 aircraft. We have secured a financing commitment for the first
three purchased aircraft, which are scheduled to have been delivered to us by the end of September 2001. To complete the purchase of
the remaining aircraft, we must secure acceptable aircraft financing, which we may not be able to obtain. The amount of financing
required will depend on the number of aircraft purchase options we exercise and the amount of cash generated by operations before
delivery of the aircraft. We are exploring various financing alternatives, including, but not limited to, domestic and foreign bank
financing, public debt financing such as enhanced equipment trust certificates, and leveraged lease arrangements. There can be no
guaranty that additional financing will be available when required or on acceptable terms. The inability to secure the financing
could have a material adverse effect on us and result in delays in or our inability to take delivery of Airbus aircraft that we have
agreed to purchase.
The airline industry is seasonal and cyclical, resulting in unpredictable liquidity and earnings.
Because the airline industry is seasonal and cyclical, our liquidity and earnings will fluctuate and be unpredictable. Our
operations primarily depend on passenger travel demand and seasonal variations. Our weakest travel periods are generally during the
quarters ending in June and December. The airline industry is also a highly cyclical business with substantial volatility. Airlines
frequently experience short-term cash requirements. These requirements are caused by seasonal fluctuations in traffic, which often
reduce cash during off-peak periods, and various other factors, including price competition from other airlines, national and
international events, fuel prices, and general economic conditions including inflation. A substantial portion of our customers use
our services on a discretionary basis. Accordingly, our operating and financial results are likely to be negatively impacted by any
downturn in national or regional economic conditions in the United States, and particularly in Colorado. Airlines require
substantial liquidity to continue operating under most conditions. The airline industry also has low operating profit margins and
revenues that vary to a substantially greater degree than do the related costs. Working capital deficits are not uncommon in the
airline industry since airlines typically have no product inventories and ticket sales to passengers who have not yet flown are
reflected as current liabilities. Therefore, a significant shortfall from expected revenue levels could have a material adverse
effect on our operations.
We, like many in the industry, are seeing a negative impact to passenger traffic caused by the slowing economy. The impact
has been more prevalent with our business traffic, which is higher yield traffic that books closer to the date of departure, than
with our leisure customers. Even though the slowing economy has impacted us, we believe that the larger, more established carriers
are being impacted to a greater extent as the discretionary business travelers who typically fly these carriers are looking for
affordable alternatives similar to the service we provide. The larger carriers may reduce their "close-in" fare structure to more
aggressively compete for this traffic. Our larger leisure component has remained relatively stable. We believe that unless there is
a major shift in consumer confidence and spending that the leisure component will remain relatively stable for the foreseeable
future. Aggressive pricing tactics by our major competitors could also have an impact on the leisure component.
The increasing number of consolidations and alliances has increased competition, and we may not be able to effectively compete.
Competition in the airline industry is constantly intensifying, which could decrease our market share. The U.S. airline
industry has consolidated in recent years, and there are additional consolidations presently proposed. Consolidations have enabled
various carriers to expand their international operations and increase their presence in the U.S. domestic market. In addition, many
major domestic carriers have formed alliances with domestic regional carriers and foreign carriers. As a result, many of the
carriers with which we compete in our markets are larger and have substantially greater resources than we have. Continuing
developments in the industry may affect our ability to effectively compete in the markets we serve.
We are in a high fixed cost business, and any unexpected decrease in revenues could harm us.
The airline industry is characterized by fixed costs that are high in relation to revenues. Accordingly, a shortfall from
expected revenue levels can have a material adverse effect on our profitability and liquidity.
Increases in fuel costs affect our operating costs and competitiveness.
We cannot predict our future cost and availability of fuel, which affects our ability to compete. Fuel is a major component
of our operating expenses. Both the cost and availability of fuel are influenced by many economic and political factors and events
occurring throughout the world, and fuel costs fluctuate widely. Fuel accounted for 18.1% of our total operating expenses for the
year ended March 31, 2001. Substantial sustained price increases have prevailed during the year ended March 31, 2001 and have
continued since that date. The unavailability of adequate fuel supplies could have a material adverse effect on our operations and
profitability. In addition, larger airlines may have a competitive advantage because they pay lower prices for fuel. We intend
generally to follow industry trends by raising fares in response to significant fuel price increases. However, our ability to pass on
increased fuel costs through fare increases may be limited by economic and competitive conditions.
We are governed under federal regulations, and compliance with federal regulations increases our costs and decreases our revenues.
Compliance with federal regulations increases our costs. Although we have obtained the necessary authority from the DOT and
the FAA to conduct flight operations and are currently obtaining such authority from the FAA with respect to our Airbus aircraft, we
must maintain this authority by our continued compliance with applicable statutes, rules, and regulations pertaining to the airline
industry, including any new rules and regulations that may be adopted in the future. We believe that the FAA strictly scrutinizes
small airlines like ours, thereby making us susceptible to regulatory demands that can negatively impact our operations. We may not
be able to continue to comply with all present and future rules and regulations. In addition, we cannot predict the costs of
compliance with these regulations and the effect of compliance on our profitability. We also expect substantial FAA scrutiny as we
transition from our Boeing fleet to an all Airbus fleet.
In 1996 a relatively new domestic airline sustained an accident in which one of its aircraft was destroyed and all persons
on board were fatally injured. Shortly thereafter, that airline agreed at the FAA's request to cease all of its flight operations.
Although the FAA, after an intensive and lengthy investigation, allowed that airline to resume its operations, should we experience a
similar accident, it is probable that there would be a material adverse effect on our business and results of operations.
We experience high costs at Denver International Airport, which may impact our results of operations.
We operate our flight hub from DIA where we experience high costs. DIA opened in March 1995, and Stapleton International
Airport was closed. Financed through revenue bonds, DIA depends on landing fees, gate rentals, income from airlines, the traveling
public, and other fees to generate income to service its debt and to support its operations. Our cost of operations at DIA will vary
as traffic increases or diminishes at that airport. We believe that our operating costs at DIA substantially exceed those that other
airlines incur at most hub airports in other cities, which decreases our competitiveness.
We have a limited number of routes, which limits our market share and ability to compete.
Because of our relatively small fleet size and limited number of routes, we are at a competitive disadvantage compared to
other airlines, such as United Airlines, that can spread their operating costs across more equipment and routes and retain connecting
traffic (and revenue) within their much more extensive route networks.
We face intense competition and market dominance by United Airlines.
The airline industry is highly competitive, primarily due to the effects of the Deregulation Act, which has substantially
eliminated government authority to regulate domestic routes and fares and has increased the ability of airlines to compete with
respect to flight frequencies and fares. We compete with United Airlines in our hub in Denver, and we anticipate that we will
compete principally with United Airlines in our future market entries. United Airlines and its commuter affiliates are the dominant
carriers out of DIA, accounting for approximately 69% of all passenger boardings for the month of March 2001. Fare wars, "capacity
dumping" in which a competitor places additional aircraft on selected routes, and other activities could adversely affect us. The
future activities of United Airlines and other carriers may have a material adverse effect on our revenues and results of
operations. Most of our current and potential competitors have significantly greater financial resources, larger route networks, and
superior market identity than we have.
We are dependent on Samuel D. Addoms, and we may not be able to adequately replace the loss of him, which would harm our business and
reputation.
We are dependent on the active participation of Samuel D. Addoms, our president and chief executive officer. The loss of
his services could materially and adversely affect our business and future prospects. The loss of Mr. Addoms could result in a loss
of investor confidence and a reduction in our ability to attract personnel and talent to the company. Mr. Addoms has been involved
in the airline industry for the past seven years and managed various companies for 39 years. While we employ a number of key
personnel, we are dependent on the managerial services of Mr. Addoms. Additionally, we do not maintain key person life insurance on
Mr. Addoms or on any of our officers.
We could lose airport and gate access thereby decreasing our competitiveness.
We could encounter barriers to airport or airport gate access that would deny or limit our access to the airports that we
intend to utilize in the future or that diminishes the desire or ability of potential customers to travel between any of those
cities. The number of gates also may be limited at some airports, which could adversely affect our operations. These barriers may
materially adversely affect our business and competitiveness.
Our maintenance expenses may be higher than we anticipate.
We may incur higher than anticipated maintenance expenses. Under our aircraft lease agreements, we are required to bear all
routine and major maintenance expenses. Maintenance expenses comprise a significant portion of our operating expenses. In addition,
we are required periodically to take aircraft out of service for heavy maintenance checks, which can adversely affect revenues. We
also may be required to comply with regulations and airworthiness directives the FAA issues, the cost of which our aircraft lessors
may only partially assume depending upon the magnitude of the expense. Although we believe that our leased aircraft are currently in
compliance with all FAA issued Airworthiness Directives ("ADs"), there is a high probability that additional ADs will be required in
the future necessitating additional expense.
Our landing fees may increase because of local noise abatement procedures.
Compliance with local noise abatement procedures may lead to increased landing fees. As a result of litigation and pressure
from airport area residents, airport operators have taken local actions over the years to reduce aircraft noise. These actions have
included regulations requiring aircraft to meet prescribed decibel limits by designated dates, curfews during night time hours,
restrictions on frequency of aircraft operations, and various operational procedures for noise abatement. The Airport Noise and
Capacity Act of 1990 ("ANCA") recognized the right of airport operators with special noise problems to implement local noise
abatement procedures as long as the procedures do not interfere unreasonably with the interstate and foreign commerce of the national
air transportation system.
An agreement between the City and County of Denver and another county adjacent to Denver specifies maximum aircraft noise
levels at designated monitoring points in the vicinity of DIA with significant payments payable by Denver to the other county for
each substantiated noise violation under the agreement. DIA has incurred such payment obligations and likely will incur such
obligations in the future, which it will pass on to us and other air carriers serving DIA by increasing landing fees. Additionally,
noise regulations could be enacted in the future that would increase our expenses and have a material adverse effect on our
operations.
We have a limited number of aircraft, and any unexpected loss of any aircraft could disrupt and harm our operations.
Because we have a limited number of aircraft, if any of our aircraft unexpectedly are taken out of service, our operations may
be disrupted. We schedule all of our aircraft for regular passenger service and only maintain limited spare aircraft capability
should one or more aircraft be removed from scheduled service for unplanned maintenance repairs or for other reasons. The unplanned
loss of use of one or more of our aircraft for a significant period of time could have a materially adverse effect on our operations
and operating results. A replacement aircraft may not be available or we may not be able to lease additional aircraft on
satisfactory terms or when needed. The market for leased aircraft fluctuates based on worldwide economic factors that we cannot
control.
Our labor costs may increase.
We believe we operate with lower personnel costs than many established airlines, principally due to lower base salaries and
greater flexibility in the utilization of personnel, but these costs may increase. We may not be able to continue to realize these
advantages over other air carriers for an extended period of time. Our pilots are represented by an independent labor union, the
Frontier Airline Pilots Association, and our dispatchers are represented by the Transport Workers Union. In addition since 1997, we
have had union organizing attempts that were defeated by our flight attendants, ramp service agents, mechanics, and stock clerks, but
future attempts may result in representation of one or more of our employee groups. We understand that unionization activities for
our flight attendants and mechanics are continuing. The collective bargaining agreement we have entered into with our pilots has
increased our labor and benefit costs effective in May 2000, and additional unionization of our employees could increase our overall
costs.
We have not paid cash dividends and do not expect to pay any in the foreseeable future.
We have never declared or paid cash dividends on our common stock. We currently intend to retain any future earnings to
fund operations and to continue development of our business and do not expect to pay any cash dividends on our common stock in the
foreseeable future.
Shares eligible for future sale could impact our stock price.
The market price of our common stock could be adversely impacted by the availability of shares for future sale. Substantially
all of our outstanding shares of common stock, other than shares held by officers, directors and other of our affiliates, are freely
tradable. Shares of common stock held by our affiliates are subject to limitations on the number of shares that may be sold unless
the sale of the shares is registered or is exempt from registration under the Securities Act of 1933.
In addition, as of March 31, 2001 there were 2,203,444 options outstanding or which may be exercised under our stock option
plan. Sales of these shares, depending on the volume, could adversely affect the trading prices of the common stock.
Our stock price has been volatile.
The price range of our common stock has varied widely. The price of our common stock may be subject to significant fluctuation
in the future. The possibility that selling shareholders may sell substantial amounts of shares in the public market may adversely
affect prevailing market prices for the common stock. It could also impair our ability to raise capital through the sale of our
stock.
Item 2: Properties
In January 2001, we moved our general and administrative offices to a new headquarters facility near DIA, where we lease
approximately 70,000 square feet of space for a lease term of 12 years at an average annual rental of approximately $965,000 plus
operating and maintenance expenses.
We lease approximately 11,000 square feet of office space in Denver with a term ending June 2001 at an annual rental of
approximately $200,000. This facility provides space for our reservations center and related administrative activities. The Denver
reservations facility will relocate in July 2001 to a 16,000 square foot facility, also in Denver, which we have leased for a ten
year lease term at an average annual rental of approximately $140,000 plus operating and maintenance expenses. In August 2000, we
established a second reservations center facility in Las Cruces, New Mexico. This facility is approximately 12,000 square feet and
is leased for a term of 122 months at an average annual rental of approximately $129,000 plus operating and maintenance expenses.
We have entered into an airport lease and facilities agreement expiring in 2010 with the City and County of Denver at DIA for
ticket counter space, nine gates and associated operations at a current annual rental rate of approximately $11,300,000 for these
facilities. We also sublease a portion of Continental Airlines' hangar at DIA until January 1, 2004.
Each of our airport locations requires leased space associated with gate operations, ticketing and baggage operations. We
either lease the ticket counters, gates and airport office facilities at each of the airports we serve from the appropriate airport
authority or sublease them from other airlines. Additionally, we lease maintenance facilities in El Paso, Texas and Phoenix, Arizona
at a current annual rental of approximately $201,000 for these facilities
Item 3: Legal Proceedings
From time to time, we are engaged in routine litigation incidental to our business. We believe there are no legal proceedings
pending in which we are a party or of which any of our property is the subject that are not adequately covered by insurance
maintained by us, or which, if adversely decided, would have a material adverse effect upon our business or financial condition.
Item 4: Submission of Matters to a Vote of Security Holders
During the fourth quarter of the year covered by this report, we did not submit any matters to a vote of our security holders
through the solicitation of proxies or otherwise.
PART II
Item 5: Market for Common Equity and Related Stockholder Matters
Price Range of Common Stock
Until May 26, 1999, our common stock was traded on the Nasdaq SmallCap Market under the symbol "FRNT." Effective May 26, 1999,
our common stock began trading on the Nasdaq National Market, also under the symbol "FRNT."
The following table shows the range of high and low bid prices per share for our common stock for the periods indicated and as
reported by Nasdaq through June 1, 2001. Market quotations listed here represent prices between dealers and do not reflect retail
mark-ups, mark-downs or commissions. As of June 1, 2001, there were 854 holders of record of our common stock.
Price Range of
Common Stock
------------
Quarter Ended High Low
------------- ---- ---
June 30, 1999 $ 11.46 $ 6.33
September 30, 1999 12.42 5.50
December 31, 1999 9.00 5.94
March 31, 2000 7.54 6.25
June 30, 2000 10.34 7.49
September 30, 2000 12.96 9.71
December 31, 2000 20.63 12.92
March 31, 2001 25.50 9.94
June 30, 2001 (through June 1, 2001) 16.48 10.31
Recent Sales of Securities
During the period April 1, 2000 through June 1, 2001, holders of warrants to purchase our common stock exercised their warrants
and we issued common stock as described below:
Warrant
Number of Exercise
Warrant Holder Shares Issued Price Dates of Exercise
-------------- ------------- ----- -----------------
Private placement warrant holder 550,393 $2.50 January 23, 2001
Secondary offering underwriters
(and affiliates) 32,637 $3.70 April 26, 2000 -
November 8, 2000
As of June 1, 2001, we have granted stock options to our employees and directors to purchase up to 5,012,625 shares of common
stock, 2,674,181 of which options have been previously exercised and 911,445 of which are currently exercisable at exercise prices
ranging from .67(cent)to $13.89 per share.
Dividend Policy
We have not declared or paid cash dividends on our common stock. We currently intend to retain any future earnings to fund
operations and the continued development of our business, and, thus, do not expect to pay any cash dividends on our common stock in
the foreseeable future. Future cash dividends, if any, will be determined by our Board of Directors and will be based upon our
earnings, capital requirements, financial condition and other factors deemed relevant by the Board of Directors. On March 5, 2001,
we paid a fifty percent stock dividend to shareholders of record of common stock on February 19, 2001.
Rights Dividend Distribution
In February 1997, our Board of Directors declared a dividend distribution of one right (a "Right") for each outstanding share
of our common stock to shareholders of record at the close of business on March 15, 1997. Except as described below, each Right,
when exercisable, entitles the registered holder to purchase from us one share of common stock at a purchase price of $65.00 per
share (the "Purchase Price"), subject to adjustment. The Rights expire at the close of business on February 20, 2007, unless we
redeem or exchange them earlier as described below. The description and terms of the Rights are set forth in a Rights Agreement, as
amended (as so amended, the "Rights Agreement"). As a result of the fifty percent stock dividend we paid on March 5, 2001, there are
currently 0.67 Rights associated with each outstanding share of common stock.
The Rights are exercisable upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated
or associated persons other than us, our subsidiaries or any person receiving newly-issued shares of common stock directly from us or
indirectly via an underwriter in connection with a public offering by us (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of common stock (the "Stock Acquisition Date"), or (ii) 10
business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially
owning 20% or more of such outstanding shares of common stock.
If any person becomes an Acquiring Person other than pursuant to a Qualifying Offer (as defined below), each holder of a Right
has the right to receive, upon exercise, common stock (or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, all Rights that are
beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable in any event until such time
as the Rights are no longer redeemable by us as set forth below.
A "Qualifying Offer" means a tender offer or exchange offer for, or merger proposal involving, all outstanding shares of common
stock at a price and on terms determined by at least a majority of the Board of Directors who are not our officers or employees and
who are not related to the Person making such offer, to be fair to and in the best interests of the Company and our shareholders.
If after the Stock Acquisition Date we are acquired in a merger or other business combination transaction in which the common
stock is changed or exchanged or in which we are not the surviving corporation (other than a merger that follows a Qualifying Offer)
or 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right shall have the right to
receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right.
The Purchase Price payable, and the number of shares of common stock or other securities or property issuable, upon exercise of
the Right, and the number of Rights associated with each share of common stock, are all subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the common stock,
(ii) if holders of the common stock are granted certain rights or warrants to subscribe for common stock or convertible securities at
less than the current market price of the common stock, or (iii) upon the distribution to holders of the common stock of evidences of
indebtedness or assets or of subscription rights or warrants.
At any time until ten days following the Stock Acquisition Date, we may redeem the Rights in whole at a price of $.01 per
Right. Upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of
the holders of Rights will be to receive the $.01 redemption price.
While the distribution, if any, of the Rights will not be taxable to shareholders or to us, shareholders may, depending upon
the circumstances, recognize taxable income if the Rights become exercisable for common stock (or other consideration) of the Company
or for common stock of the acquiring company.
Item 6: Selected Financial Data
The following selected financial and operating data as of and for each of the years ended March 31, 2001, 2000, 1999, 1998, and
1997 are derived from our audited financial statements. This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the financial statements and the related notes thereto included
elsewhere in this report.
Year Ended March 31,
2001 2000 1999 1998 1997
-----------------------------------------------------------------
(Amounts in thousands except per share amounts)
Statement of Operations Data:
Total operating revenues $ 472,876 $ 329,820 $ 220,608 $ 147,142 $ 116,501
Total operating expenses 392,155 290,511 195,928 165,697 129,662
Operating income (loss) 80,721 39,309 24,680 (18,554) (13,161)
Income (loss) before income tax expense
(benefit) and cumulative effect of change
in accounting principle 88,332 43,415 25,086 (17,746) (12,186)
Income tax expense (benefit) 33,465 16,954 (5,480) - -
Income (loss) before cumulative effect of
change in accounting principle 54,868 26,460 30,566 (17,746) (12,186)
Cumulative effect of change of method of
change in accounting for maintenance checks - 549 - - -
Net income (loss) 54,868 27,010 30,566 (17,746) (12,186)
Income (loss) per share befor
cumulative effect of a change in accounting
principle:
Basic 2.02 1.02 1.43 (1.30) (1.00)
Diluted 1.90 0.94 1.32 (1.30) (1.00)
Net income (loss) per share:
Basic 2.02 1.04 1.43 (1.30) (1.00)
Diluted 1.90 0.95 1.32 (1.30) (1.00)
Balance Sheet Data:
Cash and cash equivalents 109,251 67,851 47,289 3,641 10,286
Current assets 199,794 140,361 94,209 33,999 31,470
Total assets 295,317 187,546 119,620 50,598 44,093
Current liabilities 136,159 98,475 68,721 50,324 32,745
Long-term debt 204 329 435 3,566 56
Total liabilities 150,538 106,501 75,230 56,272 34,210
Stockholders' equity (deficit) 144,779 81,045 44,391 (5,673) 9,883
Working capital (deficit) 63,635 41,886 25,488 (16,325) (1,275)
Year Ended March 31,
2001 2000 1999 1998 1997
-----------------------------------------------------------------
Selected Operating Data:
Passenger revenue (000s) (2) $ 462,609 $ 320,850 $ 214,311 $ 142,018 $ 113,758
Revenue passengers carried (000s) 3,017 2,284 1,664 1,356 1,180
Revenue passenger miles (RPMs) (000s) (3) 2,773,833 2,104,460 1,506,597 1,119,378 839,939
Available seat miles (ASMs) (000s) (4) 4,260,461 3,559,595 2,537,503 1,996,185 1,419,720
Passenger load factor (5) 65.1% 59.1% 59.4% 56.1% 59.2%
Break-even load factor (6) 52.7% 51.1% 52.4% 63.1% 65.5%
Block hours (7) 83,742 71,276 52,789 42,767 32,459
Departures 38,556 33,284 25,778 22,257 18,910
Average seats per departure 132 129 125 124 118
Average stage length 837 829 787 723 636
Average length of haul 919 921 905 826 712
Aircraft miles (000s) 32,276 27,594 20,300 16,098 12,032
Average daily block hour utilization (8) 9.4 9.9 9.6 9.5 10.3
Yield per RPM (cents) (9) 16.68 15.25 14.22 12.69 13.54
Total yield per RPM (cents) (10) 17.05 15.67 14.64 13.14 13.87
Total yield per ASM (cents) (11) 11.10 9.27 8.69 7.37 8.21
Expense per ASM (cents) 9.20 8.16 7.72 8.30 9.13
Expense per ASM excluding fuel (cents) 7.54 6.91 6.82 7.13 7.61
Passenger revenue per block hour $5,524 $4,502 $4,060 $3,321 $3,505
Average fare (12) 146 134 123 100 92
Average aircraft in service 24.5 19.7 15.0 12.3 9.6
Aircraft in service at end of year 25.0 23.0 17.0 14.0 10.0
Average age of aircraft at end of year 11.4 10.5 14.7 16.2 22.0
EBITDAR (000s) (13) $147,179 $90,583 $58,848 $7,437 $4,576
EBITDAR as a % of revenue 31.1% 27.5% 26.7% 5.1% 3.9%
(1) Fiscal 2000 includes income of $549,000 ($.02 per share) from the cumulative effect of the change in method of accounting for
maintenance checks.
(2) "Passenger revenue" includes revenues for non-revenue passengers, administrative fees, and revenue recognized for unused tickets
that are greater than one year from issuance date.
(3) "Revenue passenger miles," or RPMs, are determined by multiplying the number of fare-paying passengers carried by the distance
flown.
(4) "Available seat miles," or ASMs, are determined by multiplying the number of seats available for passengers by the number of
miles flown.
(5) "Passenger load factor" is determined by dividing revenue passenger miles by available seat miles.
(6) "Break-even load factor" is the passenger load factor that will result in operating revenues being equal to operating expenses,
assuming constant revenue per passenger mile and expenses.
(7) "Block hours" represent the time between aircraft gate departure and aircraft gate arrival.
(8) "Average daily block hour utilization" represents the total block hours divided by the weighted average number of aircraft days
in service.
(9) "Yield per RPM" is determined by dividing passenger revenues by revenue passenger miles.
(10) "Total Yield per RPM" is determined by dividing total revenues by revenue passenger miles.
(11) "Total Yield per ASM" is determined by dividing passenger revenues by available seat miles.
(12) "Average fare" excludes revenue included in passenger revenue for non-revenue passengers, administrative fees, and revenue recognized for
unused tickets that are greater than one year from issuance date.
(13) "EBITDAR", or "earnings before interest, income taxes, depreciation, amortization and aircraft rentals," is a supplemental
financial measurement we and many airline industry analysts use in the evaluation of our business. However, EBITDAR should only
be read in conjunction with all of our financial statements appearing elsewhere herein, and should not be construed as an
alternative either to operating income (as determined in accordance with generally accepted accounting principles) as an
indicator of our operating performance or to cash flows from operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity. Our calculation of EBITDAR may not be comparable to similarly titled
measures reported by other companies.
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
Selected Operating Statistics
The following table provides our operating revenues and expenses expressed as cents per total available seat miles ("ASM") and
as a percentage of total operating revenues, as rounded, for the years ended March 31, 2001, 2000, and 1999. Pro forma amounts have
been provided for the year ended March 31, 1999 assuming the new method of accounting for maintenance checks we adopted in fiscal
2000 is applied retroactively.
2001 2000 1999
------------------------------------------------------ --------------------------
Per % Per % Per %
total of total of total of
ASM Revenue ASM Revenue ASM Revenue
--- ------- --- ------- --- -------
Revenues:
Passenger 10.86 97.8% 9.02 97.3% 8.44 97.1%
Cargo 0.18 1.6% 0.19 2.1% 0.19 2.2%
Other 0.06 0.6% 0.06 0.6% 0.06 0.7%
--------------- -------------------------------------- -------------- -----------
Total revenues 11.10 100.0% 9.27 100.0% 8.69 100.0%
Operating expenses:
Flight operations 4.21 37.9% 3.53 38.1% 3.12 35.9%
Aircraft and traffic servicing 1.42 12.8% 1.38 14.8% 1.36 15.6%
Maintenance 1.54 13.9% 1.41 15.2% 1.42 16.4%
Promotion and sales 1.31 11.8% 1.29 14.0% 1.39 16.0%
General and administrative 0.59 5.4% 0.46 5.0% 0.37 4.2%
Depreciation and amortization 0.13 1.2% 0.10 1.0% 0.07 0.8%
--------------- -------------------------------------- -------------- -----------
Total operating expenses 9.20 82.9% 8.16 88.1% 7.72 88.8%
=============== ====================================== ============== ===========
Total ASMs (000s) 4,260,461 3,559,595 2,537,503
Pro forma amounts:
Maintenance 1.49 17.1%
Total operating expenses 7.79 89.6%
The following selected financial and operating data for the year ended March 31, 1999 has been adjusted on a pro forma basis
assuming the new method of accounting for maintenance checks is applied retroactively.
Statement of Operations Data:
Maintenance expenses (000s) $ 37,821
Total operating expenses (000s) $ 197,659
Net income (000s) $ 29,510
Net income per share:
basic $ 1.38
diluted $ 1.28
Selected Operating Data:
Break-even load factor 52.9%
Expense per ASM (cents) 7.79
Expense per ASM excluding fuel (cents) 6.89
Results of Operations - Year Ended March 31, 2001 Compared to Year Ended March 31, 2000
General
We are a scheduled airline based in Denver, Colorado. As of June 1, 2001, we operate routes linking our Denver hub to 22
cities in 18 states spanning the nation from coast to coast. We were organized in February 1994 and we began flight operations in
July 1994 with two leased Boeing 737-200 jets. We have since expanded our fleet to 25 leased jets comprised of seven Boeing 737-200s
and 18 larger Boeing 737-300s and one purchased Airbus A319 aircraft.
Beginning in May 2001, we began a fleet replacement plan by which we expect to be operating up to 37 Airbus aircraft by
approximately the first quarter of the calendar year 2005. We currently use up to nine gates at our hub, Denver International
Airport ("DIA"), where we operate approximately 124 daily system flight departures and arrivals. We added Houston, Texas to our
route system on May 16, 2001.
Small fluctuations in our yield per revenue passenger mile ("RPM") or expense per available seat mile ("ASM") can significantly
affect operating results because we, like other airlines, have high fixed costs in relation to revenues. Airline operations are
highly sensitive to various factors, including the actions of competing airlines and general economic factors, which can adversely
affect our liquidity, cash flows and results of operations.
As a result of the expansion of our operations during the year ended March 31, 2001, our results of operations are not
necessarily indicative of future operating results or comparable to the prior year ended March 31, 2000.
Results of Operations
We had net income of $54,868,000 or $1.90 per diluted share for the year ended March 31, 2001 as compared to net income of
$27,009,000 or 95(cent)per diluted share for the year ended March 31, 2000. During the year ended March 31, 2001, as compared to the
prior comparable period, we experienced higher average fares and load factors as a result of increases in the number of business
travelers, a general increase in fare levels including increases intended to offset increased fuel costs, and an increase in the
number of passengers that a major competitor directed to us because of an increase in the number of delays and cancellations that
airline experienced. We believe that our passenger traffic and related revenues during the year ended March 31, 2000 were adversely
affected by late deliveries of aircraft and consumer concerns over the Year 2000 issue.
Our costs per ASM for the years ended March 31, 2001 and 2000 were 9.20(cent)and 8.16(cent), respectively, or an increase of 1.04(cent)or
12.7%. Costs per ASM excluding fuel for the years ended March 31, 2001 and 2000 were 7.54(cent)and 6.91(cent), respectively, or an increase
of .63(cent)or 9.1%. Our cost per ASM increased during the year ended March 31, 2001 principally because of increases in the cost of
fuel which accounted for .42(cent)per ASM, aircraft rentals for newer and larger aircraft of .09(cent)per ASM, maintenance expense of .13(cent),
and general and administrative expenses primarily due to accrued bonuses for all employees resulting from increased profitability and
a higher level of employee benefits of .13(cent)per ASM. A general wage rate increase effective in January 2000 and an increase in
pilots' salaries effective in May 2000 also contributed to the increase in cost per ASM during the year ended March 31, 2001. During
the year ended March 31, 2001, two of our aircraft underwent unusually extensive maintenance checks. This was the first time we were
required to perform an annual maintenance check on these aircraft since they entered our fleet. During the year ended March 31,
2001, we also performed "D" checks on two of our aircraft for which reserves paid to the lessor were not adequate to fully recover
the expenses.
An airline's break-even load factor is the passenger load factor that will result in operating revenues being equal to
operating expenses, assuming constant revenue per passenger mile and expenses. For the year ended March 31, 2001, our break-even
load factor was 52.7% compared to our achieved passenger load factor of 65.1%. For the year ended March 31, 2000, our break-even
load factor was 51.1% compared to the passenger load factor achieved of 59.1%. Our break-even load factor increased over the prior
comparable period largely as a result of an increase in our cost per ASM to 9.20(cent)for the year ended March 31, 2001 from 8.16(cent)for
the year ended March 31, 2000, offset by an increase in our average fare to $146 during the year ended March 31, 2001 from $134
during the year ended March 31, 2000, and an increase in our total yield per RPM from 15.67(cent)for the year ended March 31, 2000 to
17.05(cent)for the year ended March 31, 2001.
Revenues
Our revenues are highly sensitive to changes in fare levels. Fare pricing policies have a significant impact on our revenues.
Because of the elasticity of passenger demand, we believe that increases in fares may at certain levels result in a decrease in
passenger demand in many markets. We cannot predict future fare levels, which depend to a substantial degree on actions of
competitors. When sale prices or other price changes are initiated by competitors in our markets, we believe that we must, in most
cases, match those competitive fares in order to maintain our market share. Passenger revenues are seasonal in leisure travel markets
depending on the markets' locations and when they are most frequently patronized.
Our average fares for the years ended March 31, 2001 and 2000 were $146 and $134, respectively. We believe that the increase in
the average fare during the year ended March 31, 2001 over the prior comparable period was a result of increases in the number of
business travelers, a general increase in fare levels including increases intended to offset increased fuel costs, and an increase in
the number of passengers that a major competitor directed to us because of an increase in the number of delays and cancellations that
airline experienced. We estimate that the additional passenger traffic received from that airline had the effect of increasing each
of our average fare and load factor by approximately .9% and .6%, respectively, for the year ended March 31, 2001.
Passenger Revenues. Passenger revenues totaled $462,609,000 for the year ended March 31, 2001 compared to $320,850,000 for the
year ended March 31, 2000, or an increase of 44.2%, which exceeded the 19.7% increase in ASMs of 700,866,000. The number of revenue
passengers carried was 3,017,000 for the year ended March 31, 2001 compared to 2,284,000 for the year ended March 31, 2000 or an
increase of 32.1%. We had an average of 24.5 aircraft in our fleet during the year ended March 31, 2001 compared to an average of
19.7 aircraft during the year ended March 31, 2000, an increase 24.4%. RPMs for the year ended March 31, 2001 were 2,773,833,000
compared to 2,104,460,000 for the year ended March 31, 2000, an increase of 31.8%. We believe that our passenger traffic and related
revenues during the year ended March 31, 2000 were adversely affected by late deliveries of aircraft and consumer concerns over the
Year 2000 issue.
Cargo revenues, consisting of revenues from freight and mail service, totaled $7,517,000 and $6,856,000 for the years ended
March 31, 2001 and 2000, respectively, representing 1.6% and 2.1% of total operating revenues, respectively, an increase of 9.6%.
During July 2000 we performed an audit of our contract cargo sales and services provider. The audit disclosed that for a 15 month
period between January 1, 1999 and March 31, 2000 both cash and credit card sales were remitted to us by our services provider, even
though we had collected for the cash sales directly from our customer. We therefore adjusted cargo revenue downward $423,000 during
the year ended March 31, 2001. Had the adjustment been recorded during the year ended March 31, 2000 instead of the year ended March
31, 2001, cargo revenue would have been $7,940,000 and $6,433,000 for the years ended March 31, 2001 and 2000, respectively, an
increase of 23.4%. This adjunct to the passenger business is highly competitive and is significantly related to aircraft scheduling,
alternate competitive means of same day delivery service and schedule reliability.
Other revenues, comprised principally of interline handling fees, liquor sales and excess baggage fees, totaled $2,751,000 and
$2,114,000 or .6% of total operating revenues for each of the years ended March 31, 2001 and 2000, respectively.
Operating Expenses
Operating expenses include those related to flight operations, aircraft and traffic servicing, maintenance, promotion and
sales, general and administrative and depreciation and amortization. Total operating expenses were $392,155,000 and $290,511,000,
respectively, for the years ended March 31, 2001 and 2000, and represented 82.9% and 88.1% of total revenue, respectively. Operating
expenses decreased as a percentage of revenue during the year ended March 31, 2001 as a result of the 44.2% increase in passenger
revenues attributable to a 32.1% increase in passengers and a 9.0% increase in the average fare offset by a 33.9% increase in the
average cost per gallon of fuel, a general wage rate increase which became effective in January 2000, an increase in pilots' salaries
effective in May 2000, and an increase in accrued bonuses based on increased profitability.
Flight Operations. Flight operations expenses of $179,453,000 and $125,536,000 were 38% and 38.1% of total revenue for the
years ended March 31, 2001 and 2000, respectively. Flight operations expenses include all expenses related directly to the operation
of the aircraft including fuel, lease and insurance expenses, pilot and flight attendant compensation, in-flight catering, crew
overnight expenses, flight dispatch and flight operations administrative expenses.
Aircraft fuel expenses include both the direct cost of fuel including taxes as well as the cost of delivering fuel into the
aircraft. Aircraft fuel costs of $71,083,000 for 66,724,000 gallons used and $44,402,000 for 55,568,000 gallons used resulted in an
average fuel cost of $1.07 and 79.9(cent)per gallon and represented 39.6% and 35.4% of total flight operations expenses for the years
ended March 31, 2001 and 2000, respectively. The average fuel cost per gallon increased for the year ended March 31, 2001 from the
comparable prior period due to an overall increase in the market price of fuel. Fuel prices are subject to change weekly as we do
not purchase supplies in advance for inventory. Fuel consumption for the years ended March 31, 2001 and 2000 averaged 797 and 780
gallons per block hour, respectively. Fuel consumption increased over the prior comparable period because of an increase in our load
factor from 59.1% to 65.1%. Additionally, we returned five aircraft to the lessor during the year ended March 31, 2000 and replaced
them with four aircraft that are larger and have a greater fuel burn rate.
Aircraft lease expenses totaled $61,194,000 (13% of total revenue) and $47,945,000 (14.5% of total revenue) for the years ended
March 31, 2001 and 2000, respectively, or an increase of 27.6%. The increase is principally due to an increase in the average number
of aircraft to 24.5 from 19.7, or 24.4%, during the year ended March 31, 2001 compared to the same period in 2000.
Aircraft insurance expenses totaled $3,241,000 (.7% of total revenue) for the year ended March 31, 2001. Aircraft insurance expenses for
the year ended March 31, 2000 were $2,689,000 (.8% of total revenue). Aircraft insurance expenses were .12(cent)and .13(cent)per RPM for the
years ended March 31, 2001 and 2000, respectively. Aircraft insurance expenses decreased per RPM as a result of competitive pricing
in the aircraft insurance industry and our favorable experience rating since we began flight operations in July 1994.
Pilot and flight attendant salaries before payroll taxes and benefits totaled $22,475,000 and $15,392,000 or 4.9% and 4.8% of
passenger revenue for each of the years ended March 31, 2001 and 2000, or an increase of 46%. Pilot and flight attendant
compensation increased principally as a result of a 24.4% increase in the average number of aircraft in service, general wage rate
increases, and a 17.5% increase in block hours. In November 1998, our pilots voted to be represented by an independent union, the
Frontier Airline Pilots Association. The first bargaining agreement for the pilots, which has a 5-year term, was ratified and made
effective in May 2000. We pay pilot and flight attendant salaries for training, consisting of approximately six and three weeks,
respectively, prior to scheduled increases in service which can cause the compensation expense during such periods to appear high in
relationship to the average number of aircraft in service. With a scheduled passenger operation, and with salaried rather than
hourly crew compensation, our expenses for flight operations are largely fixed, with fuel expenses and flight catering the principal
exception. We expect pilot and flight attendant salary expense to increase over approximately the next two years as a result of the
Airbus transition and related training required for that transition.
Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were $60,408,000 and $48,955,000 (an increase of
23.4%) for the years ended March 31, 2001 and 2000, respectively, and represented 12.8% and 14.8% of total revenue. Aircraft and
traffic servicing expenses include all expenses incurred at airports, including landing fees, facilities rental, station labor,
ground handling expenses, and interrupted trip expenses associated with delayed or cancelled flights. Interrupted trip expenses are
amounts paid to other airlines to reaccommodate passengers as well as hotel, meal and other incidental expenses. Aircraft and
traffic servicing expenses increase with the addition of new cities and departures to our route system. During the year ended March
31, 2001, we served 23 cities compared to 21 during the year ended March 31, 2000, or an increase of 9.5%. During the year ended
March 31, 2001, our departures increased to 38,556 from 33,284 or 15.8%. Aircraft and traffic servicing expenses were $1,567 per
departure for the year ended March 31, 2001 as compared to $1,471 per departure for the year ended March 31, 2000, or an increase of
$96 per departure. Aircraft and traffic servicing expenses increased as a result of a general wage rate increase effective in
January 2000, contract ground handling services in certain of the cities we serve as a result of increased frequencies in existing
markets and introduction of service to new cities, and increased per passenger charges as a result of the greater number of
passengers we carried. These increases were offset by a decrease in interrupted trip expenses as a result of an improvement in our
completion factor from 98.6% for the year ended March 31, 2000 to 99.2% for the year ended March 31, 2001.
Maintenance. Maintenance expenses for the years ended March 31, 2001 and 2000 of $65,529,000 and $50,239,000, respectively,
were 13.9% and 15.2% of total revenue. These include all labor, parts and supplies expenses related to the maintenance of the
aircraft. Routine maintenance is charged to maintenance expense as incurred while major engine overhauls and heavy maintenance check
expense are accrued monthly. Maintenance costs per block hour for the years ended March 31, 2001 and 2000 were $783 and $705 per
block hour, respectively. Maintenance cost per block hour increased as a result of increased facilities rentals to satisfy
additional space requirements for the increase in aircraft coupled with an increase in the number of aircraft simultaneously out of
service for heavy maintenance, and a general wage rate increase effective January 2000. Because of the increase in the number of
aircraft out of service for heavy maintenance, our average daily block hour utilization decreased from 9.9 for the year ended March
31, 2000 to 9.4 for the year ended March 31, 2001. During the year ended March 31, 2001, two of our aircraft experienced unusually
extensive maintenance checks. During the year ended March 31, 2001, we also performed "D" checks on two of our aircraft for which
maintenance reserves paid to the lessor for reimbursement of these events did not cover the associated expense. These were the first
occasions we were required to perform annual maintenance checks on these aircraft since they entered our fleet. Additionally, during
the year ended March 31, 2001, we accrued an additional $1,276,000 ($15 per block hour) for engine reserves based on revised cost
estimates and a revised schedule of engine overhauls. We also incurred increased costs in personnel, training and information
technology expenses for implementation of new maintenance and engineering software and in preparation for the Airbus aircraft
transition. In January 2001, a lease for spare aircraft parts expired, and we purchased these parts for $2,500,000. During the year
ended March 31, 2001, we incurred $1,241,000 of lease expenses associated with this lease, included in maintenance expenses, or $15
per block hour.
Promotion and Sales. Promotion and sales expenses totaled $55,881,000 and $46,014,000 and were 11.8% and 14.0% of total
revenue for the years ended March 31, 2001 and 2000, respectively. These include advertising expenses, telecommunications expenses,
wages and benefits for reservationists and reservations supervision, marketing management and sales personnel, credit card fees,
travel agency commissions and computer reservations costs. Promotion and sales expenses decreased as a percentage of revenue for the
nine months ended December 31, 2000 over the prior comparable period largely as a result of the increase in revenue and a decrease in
travel agency commissions.
During the year ended March 31, 2001, promotion and sales expenses per passenger decreased to $18.52 from $20.15 for the year
ended March 31, 2000. Promotion and sales expenses decreased largely as a result of a decrease in travel agency commissions from 8%
to 5% effective in November 1999, matching the decrease instituted by our competitors. Travel agency commissions and interline
service charges and handling fees, as a percentage of passenger revenue, before non-revenue passengers, administrative fees and
breakage (revenue from expired tickets), decreased to 3.5% for the year ended March 31, 2001, compared to 4.4% for the year ended
March 31, 2000. The decrease in travel agency commissions was offset by increased commission expense associated with the increase in
our average fares as we do not cap commissions. With increased activity on our web site, our calls per passenger have decreased.
Because of the increase in web site activity, as well as a decrease in long distance rates, we experienced a decrease in
communications expense. In July 2000, we opened an additional reservations facility in Las Cruces, New Mexico and simultaneously
terminated an outsourcing agreement, which reduced our cost of reservations. These cost savings were offset by an increase in credit
card fees associated with the increase in our average fare from $134 for the year ended March 31, 2000 to $146 for year ended March
31, 2001.
General and Administrative. General and administrative expenses for the years ended March 31, 2001 and ,2000 totaled
$25,429,000 and $16,327,000, and were 5.4% and 5.0% of total revenue, respectively. During the years, ended March 31, 2001 and 2000,
we accrued for employee performance bonuses totaling $7,009,000 and $2,605,000, respectively, which were 1.5% and .8% of total
revenue, an increase of 169.1%. Employee performance bonuses increased over the prior comparable period as a result of our increased
profitability and an enhancement to the bonus program. General and administrative expenses include the wages and benefits for
several of our executive officers and various other administrative personnel including legal, accounting, information technology,
aircraft procurement, corporate communications, training and human resources and other expenses associated with these departments.
Employee health benefits, accrued vacation and bonus expenses, general insurance expense, including worker's compensation, and
write-offs associated with credit card chargebacks are also included in general and administrative expenses. We experienced increases
in our human resources, training and information technology expenses as a result of an increase in employees from approximately 2,067
in March 2000 to 2,362 in March 2001, an increase of 14.3%. We also experienced personnel increases for aircraft procurement as a
result of the purchase and lease agreements for Airbus aircraft. Because of the increase in personnel, our health insurance benefit
expenses and accrued vacation expense increased accordingly. During the year ended March 31, 2001, our accrued vacation expense
increased as a result of the increase in pilot salaries and vacation benefits due to a collective bargaining agreement concluded with
the pilots' union effective in May 2000.
Depreciation and Amortization. Depreciation and amortization expenses of $5,455,000 and $3,440,000, an increase of 58.6%, were
approximately 1.2% and 1.0% of total revenue for the years ended March 31, 2001 and 2000, respectively. These expenses include
depreciation of office equipment, station ground equipment, and other fixed assets. Amortization of start-up and route development
costs are not included as these expenses have been expensed as incurred. Depreciation and amortization expenses increased over the
prior year as a result of an increase in our spare parts inventory including a spare engine, leasehold improvements associated with
14 aircraft (eight additional and six replacement) added to our fleet during the past 21 months, ground handling equipment, and
computers to support new employees as well as replacement computers for those with dated technology.
Nonoperating Income (Expense). Net nonoperating income totaled $7,611,000 for the year ended March 31, 2001 compared to
$4,105,000 for the year ended March 31, 2000. Interest income increased from $4,335,000 to $7,897,000 during the year ended March
31, 2001 from the prior period due to an increase in cash balances as a result of an increase in cash provided by operating
activities and proceeds from stock option and warrant exercises.
Income Tax Expense (Benefit). We accrued income taxes of $33,465,000 and $16,954,000 at 39% of taxable income during the
years ended March 31, 2001 and 2000, respectively
Cumulative Effect of Change in Method of Accounting for Overhaul Costs. During the year ended March 31, 2000, we changed our
method of accounting for routine maintenance checks from the accrual to the direct expense method which resulted in a credit of
$549,000 net of income taxes of $351,000.
Results of Operations - Year Ended March 31, 2000 Compared to Year Ended March 31, 1999
General
During the year ended March 31, 2000, we operated routes linking our Denver hub to 21 cities in 17 states spanning the
nation from coast to coast and added Portland, Oregon and Orlando, Florida to our route system. During the year ended March 31, 2000
we added seven additional leased Boeing 737-300 aircraft and four Boeing 737-200s to our fleet and returned five Boeing 737-200
aircraft to the lessor. At March 31, 2000, our fleet consisted of 23 leased aircraft including seven Boeing 737-200s and 16 larger
Boeing 737-300s.
During the fourth quarter ended March 31, 2000, we changed our method of accounting for maintenance checks from the accrue in
advance method to the direct expensing method. We believe that the newly adopted accounting principle is preferable in the
circumstances because there has not been an obligating event prior to the maintenance checks actually being performed and the new
method is the predominant method used in the airline industry. Fluctuations in these maintenance costs from period to period are not
expected to be significant given the maturity and current size of our fleet. For purposes of comparability, the amounts for the year
ended March 31, 1999 used in our discussion and analysis of financial condition and results of operations use the pro forma data
included in the Selected Operating Statistics tables.
As a result of the expansion of our operations during the year ended March 31, 2000, our results of operations are not
necessarily indicative of future operating results or comparable to the prior year ended March 31, 1999.
Results of Operations
We had net income of $27,009,000 or $.95 per diluted share for the year ended March 31, 2000 as compared to pro forma net
income of $29,510,000 or $1.28 per diluted share for the year ended March 31, 1999. During the year ended March 31, 2000, we
reported a provision for income taxes, which totaled $16,954,000, or 60(cent)per diluted share. During the year ended March 31, 1999, we
eliminated the valuation allowance that offset tax loss carryforwards and recognized an income tax benefit. The income tax benefit
totaled $5,480,000 or 24(cent)per share. During the year ended March 31, 2000, as compared to the prior comparable periods, we
experienced higher fares as a result of increases in the number of business travelers, and a general increase in fare levels. We
also increased fares to partially offset increased fuel costs.
Our cost per ASM for the year ended March 31, 2000 and pro forma cost per ASM for the year ended March 31, 1999 were 8.16(cent)and
7.79(cent), respectively, or an increase of .37(cent)or 4.8%. Costs per ASM excluding fuel for the years ended March 31, 2000 and pro forma
costs per ASM for the year ended March 31, 1999 were 6.91(cent)and 6.89(cent), respectively, or an increase of .3%. Our cost per ASM
increased during the year ended March 31, 2000 from 7.79(cent)principally because of overall increases in the cost of fuel which
accounted for .35(cent)per ASM, aircraft rentals because for newer and larger aircraft of .05(cent)per ASM, general and administrative
expenses to support increased levels of operations and the number of personnel of .09(cent)per ASM, offset by a .08(cent)reduction in cost
per ASM in maintenance as a result of conducting certain heavy maintenance checks in-house and a .10(cent)decrease in cost per ASM in
promotion and sales expense as a result of a decrease in the travel agency commission rate from 8% to 5% in November 1999, decreased
advertising and communication expenses offset by an increase in credit card fees associated with the increase in our average fare.
For the year ended March 31, 2000, our break-even load factor was 51.1% compared to the passenger load factor achieved of
59.1%. For the year ended March 31, 1999, our pro forma break-even load factor was 52.9% compared to the achieved passenger load
factor of 59.4%. Our break-even load factor decreased from the prior comparable period largely as a result of an increase in our
average fare to $134 during the year ended March 31, 2000 from $123 during the year ended March 31, 1999, an increase in our total
yield per RPM from 14.64(cent)for the year ended March 31, 1999 to 15.67(cent)for the year ended March 31, 2000 offset by an increase in our
expense per ASM to 8.16(cent)for the year ended March 31, 2000 from 7.79(cent)for the year ended March 31, 1999.
Revenues
Our average fares for the years ended March 31, 2000 and 1999 were $134 and $123, respectively. We believe that the increase
in the average fare during the year ended March 31, 2000 over the prior comparable periods was largely a result of our focus on
increasing the number of business travelers, an increase in fares to offset increased fuel costs, and a general increase in fare
levels.
Passenger Revenues. Passenger revenues totaled $320,850,000 for the year ended March 31, 2000 compared to $214,311,000 for the
year ended March 31, 1999, or an increase of 49.7%. We carried 2,284,000 revenue passengers for the year ended March 31, 2000
compared to 1,664,000 for the year ended March 31, 1999 or an increase of 37.3%. We had an average of 19.7 aircraft in our fleet
during the year ended March 31, 2000 compared to an average of 15 aircraft during the year ended March 31, 1999, an increase of
31.3%, and ASMs increased by 1,022,092,000 or 40.3%. We believe that our passenger traffic and related revenues during the year
ended March 31, 2000 were adversely affected by late deliveries of aircraft and consumer concerns over the Year 2000 issue.
Cargo revenues, consisting of revenues from freight and mail service, totaled $6,856,000 and $4,881,000 for the years ended
March 31, 2000 and 1999, respectively, representing 2.1% and 2.2% of total operating revenues, respectively, an increase of 40.5%.
This adjunct to the passenger business is highly competitive and depends heavily on aircraft scheduling, alternate competitive means
of same day delivery service and schedule reliability.
Other revenues, comprised principally of interline handling fees, liquor sales and excess baggage fees, totaled $2,114,000 and
$1,415,000 or .6% of total operating revenues for each of the years ended March 31, 2000 and 1999, respectively.
Operating Expenses
Operating expenses include those related to flight operations, aircraft and traffic servicing, maintenance, promotion and
sales, general and administrative and depreciation and amortization. Total operating expenses and pro forma total operating expenses
were $290,511,000 and $197,659,000, respectively, for the years ended March 31, 2000 and 1999, and represented 88.1% and 89.6% of
total revenue, respectively. Operating expenses decreased as a percentage of revenue during the year ended March 31, 2000 as a
result of the 49.7% increase in passenger revenues attributable to a 37.3% increase in passengers and a 8.9% increase in the average
fare offset by a 44.2% increase in the average cost per gallon of fuel and a general wage rate increase which went into effect in
January 2000.
Flight Operations. Flight operations expenses of $125,536,000 and $79,247,000 were 38.1% and 35.9% of total revenue for the
years ended March 31, 2000 and 1999, respectively. Flight operations expenses include all expenses related directly to the operation
of the aircraft, including fuel, lease and insurance expenses, pilot and flight attendant compensation, in-flight catering, crew
overnight expenses, flight dispatch and flight operations administrative expenses.
Aircraft fuel expenses include both the direct cost of fuel including taxes as well as the cost of delivering fuel into the
aircraft. Aircraft fuel costs of $44,402,000 for 55,568,000 gallons used and $22,758,000 for 41,082,000 gallons used resulted in an
average fuel cost of 79.9(cent)and 55.4(cent)per gallon and represented 35.4% and 28.7% of total flight operations expenses for the years
ended March 31, 2000 and 1999, respectively. The average fuel cost per gallon increased for the year ended March 31, 2000 from the
comparable prior period due to an overall increase in the market price of fuel. Fuel prices are subject to change weekly as we do
not purchase supplies in advance for inventory. Fuel consumption for each of the years ended March 31, 2000 and 1999 averaged 780
and 778 gallons per block hour, respectively. Fuel consumption increased over the prior comparable period because of increased flap
speed settings mandated by the FAA, which required more fuel to maintain air speed at normal operating levels. The requirement for
increased flap speed settings will be lifted when a fleet modification is completed, which was required to be accomplished by August
1, 2001. Approximately 65% of our fleet incorporated this modification as of March 31, 2000. Additionally, five aircraft were
returned to their lessor during the year ended March 31, 2000 and replaced with four aircraft with higher thrust engines that have a
greater fuel burn rate.
Aircraft lease expenses totaled $47,945,000 (14.5% of total revenue) and $32,958,000 (14.9% of total revenue) for the years
ended March 31, 2000 and 1999, respectively, or an increase of 45.5%. The increase is largely due to higher lease expenses for
larger and newer Boeing 737-300 aircraft added to the fleet which resulted in the increase in the average number of aircraft to 19.7
from 15, or 31.3%, for the year ended March 31, 2000. The average age of our fleet decreased from 14.7 years as of March 31, 1999 to
10.5 years as of March 31, 2000.
Aircraft insurance expenses totaled $2,689,000 (.8% of total revenue) for the year ended March 31, 2000. Aircraft insurance expenses for
the year ended March 31, 1999 were $2,425,000 (1.1% of total revenue). Aircraft insurance expenses were .13(cent)and .16(cent)per RPM for
the years ended March 31, 2000 and 1999, respectively. Aircraft insurance expenses decreased per RPM as a result of competitive
pricing in the aircraft insurance industry and our favorable experience rating since we began flight operations in July 1994.
Pilot and flight attendant salaries before payroll taxes and benefits totaled $15,392,000 and $10,653,00 or 4.8% and 5% of
passenger revenue for each of the years ended March 31, 2000 and 1999, or an increase of 44.5%. Pilot and flight attendant
compensation increased principally as a result of a 31.3% increase in the average number of aircraft in service, general wage rate
increases, and a 35% increase in block hours. We pay pilot and flight attendant salaries for training consisting of approximately
six and three weeks, respectively, prior to scheduled increases in service which can cause the compensation expense during such
periods to appear high in relationship to the average number of aircraft in service. When we are not in the process of adding
aircraft to our system, pilot and flight attendant expense per aircraft normalizes. With a scheduled passenger operation, and with
salaried rather than hourly crew compensation, our expenses for flight operations are largely fixed, with flight catering and fuel
expenses the principal exception.
Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were $48,955,000 and $34,451,000 (an increase of 42.1%)
for the years ended March 31, 2000 and 1999, respectively, and represented 14.8% and 15.6% of total revenue. Aircraft and traffic
servicing expenses include all expenses incurred at airports including landing fees, facilities rental, station labor, ground
handling expenses, and interrupted trip expenses associated with delayed or cancelled flights. Interrupted trip expenses are amounts
paid to other airlines to protect passengers as well as hotel, meal and other incidental expenses. Aircraft and traffic servicing
expenses increase with the addition of new cities to our route system. During the year ended March 31, 2000 we served 21 cities
compared to 19 cities during the year ended March 31, 1999, or an increase of 10.5%. Three of the four cities added during the year
ended March 31, 1999 were not added until mid-December 1998. Aircraft and traffic servicing expenses were $1,471 per departure for
the year ended March 31, 2000 as compared to $1,336 per departure for the year ended March 31, 1999, or an increase of $135. An
additional DIA revenue credit, above amounts previously estimated and accrued, for its fiscal year ended December 31, 1997 totaled
$371,000 (or $11 per departure) and was included as an offset to aircraft and traffic servicing expenses during the year ended March
31, 1999. After adjusting the cost per departure for these credits for the year ended March 31, 1999, the cost per departure would
have been $1,347 and the cost per departure for the year ended March 31, 2000 would have been a $124 increase over the prior
comparable period. Aircraft and traffic servicing expenses increased as a result of a decline in the completion factor for the year
ended March 31, 2000 to 98.6% from 99% for the year ended March 31, 1999, and late deliveries of aircraft which increased interrupted
trip expenses. We also incurred expenses associated with the Boulder, Colorado-DIA shuttle bus service, which is complimentary to our
passengers, and a general wage rate increase which was effective in January 2000.
Maintenance. Maintenance expenses for the year ended March 31, 2000 and pro forma maintenance expenses for the year ended
March 31, 1999 of $50,239,000 and $37,821,000, respectively, were 15.2% and 17.1% of total revenue. These include all labor, parts
and supplies expenses related to the maintenance of the aircraft. Routine maintenance is charged to maintenance expense as incurred
while major engine overhauls and heavy maintenance check expense are accrued monthly. Maintenance cost per block hour for the year
ended March 31, 2000 and pro forma maintenance cost per block hour for the year ended March 31, 1999 was $704 and $717 per block
hour, respectively. Maintenance cost per block hour decreased during the year ended March 31, 2000 as a result of a decrease in the
average age of our aircraft and conducting certain heavy maintenance checks in-house, which, prior to March 1999, had been
outsourced. Additionally, maintenance costs per block hour have decreased as certain fixed costs are spread over a larger fleet.
These cost savings were offset by higher than usual borrowed parts fees during the year ended March 31, 2000. During the year ended
March 31, 2000 these fees were approximately $1,439,000 compared to $349,000 during the year ended March 31, 1999 or $20 and $7 per
block hour, respectively. During the year ended March 31, 2000, we increased our spare parts inventory in an effort to mitigate this
expense in the future.
Promotion and Sales. Promotion and sales expenses totaled $46,014,000 and $35,217,000 and were 14% and 16% of total revenue
for the years ended March 31, 2000 and 1999, respectively. These include advertising expenses, telecommunications expenses, wages
and benefits for reservationists and reservations supervision, marketing management and sales personnel, credit card fees, travel
agency commissions and computer reservations costs. Promotion and sales expenses decreased as a percentage of revenue for the year
ended March 31, 2000 over the prior comparable period largely as a result of the increase in revenue and a decrease in travel agency
commissions.
During the year ended March 31, 2000, promotion and sales expenses per passenger decreased to $20.15 from $21.16 for the year
ended March 31, 1999. Promotion and sales expenses decreased largely as a result of a decrease in our travel agency commissions from
8% to 5% effective in November 1999, matching the decrease instituted by our competitors. Travel agency commissions and interline
service charges and handling fees, as a percentage of passenger revenue, before non-revenue passengers, administrative fees and
breakage (revenue from expired tickets), decreased to 4.4% for the year ended March 31, 2000 from 5.6% for the year ended March 31,
1999. The decrease in travel agency commissions was offset by increased commission expense associated with the increase in our
average fare. During the years ended March 31, 1999 and 2000, we added four and two new markets, respectively, thereby experiencing
a decrease in advertising expenses per passenger, which are generally higher when opening new markets. During the year ended March
31, 2000 we had an increase in computer reservations costs associated with the expansion of our travel agency electronic ticketing
capabilities. With increased activity on our web site, our calls per passenger have decreased. Because of this web site activity as
well as a decrease in long distance rates, we experienced a decrease in communications expense. These cost savings were offset by an
increase in credit card fees associated with the increase in our average fare from $123 for the year ended March 31, 1999 to $134 for
the year ended March 31, 2000.
General and Administrative. General and administrative expenses for the years ended March 31, 2000 and 1999 totaled
$16,327,000 and $9,264,000, respectively, and were 5.0% and 4.2% of total revenue, respectively. General and administrative
expenses include the wages and benefits for several of our executive officers and various other administrative personnel including
legal, accounting, information technology (including costs associated with Y2K), aircraft procurement, corporate communications,
training and human resources and other expenses associated with these departments. Employee health benefits, accrued vacation and
bonus expenses, general insurance expenses including worker's compensation, and write-offs associated with credit card and check
fraud are also included in general and administrative expenses. We experienced increases in our human resources, training and
information technology expenses as a result of an increase in employees from approximately 1,502 in March 1999 to approximately 2,067
in March 2000, or an increase of 37.6%. In addition to the usual increases in crew and station personnel associated with additional
aircraft and cities, we experienced significant increases in maintenance personnel as a result of bringing major heavy maintenance
checks in-house which began in March 1999. We increased general and administrative personnel as we considered certain of these areas
to be under staffed in prior years as we strived for profitability. We also experienced personnel increases for aircraft procurement
as a result of the purchase and lease agreements for Airbus aircraft and the number of aircraft we added to our fleet during the year
ended March 31, 2000. Because of the increase in personnel, our health insurance benefit expenses and accrued vacation expense
increased accordingly. During the years ended March 31, 2000 and 1999, we accrued for employee performance bonuses totaling
$2,605,000 and $1,829,000, respectively, or .8% of total revenue for each of these years.
Depreciation and Amortization. Depreciation and amortization expenses of $3,440,000 and $1,659,000, an increase of 107.4%, were
approximately 1.0% and .9% of total revenue for the years ended March 31, 2000 and 1999, respectively. These expenses include
depreciation of office equipment, station ground equipment, and other fixed assets. Amortization of start-up and route development
costs are not included as these expenses have been expensed as incurred. Depreciation expense increased over the prior year as a
result of an increase in our spare parts inventory including a spare engine, leasehold improvements associated with 11 (six
additional and five replacement) aircraft brought into our fleet during the year, ground handling equipment, and computers to support
new employees as well as replacement computers for those with outdated technology.
Nonoperating Income (Expense). Net nonoperating income totaled $4,105,000 for the year ended March 31, 2000 compared to
$406,000 for the year ended March 31, 1999. Interest income increased from $1,556,000 to $4,335,000 during the year ended March 31,
2000 from the prior period due to an increase in cash balances as a result of an increase in cash provided by operating activities
and proceeds from stock option and warrant exercises. Interest expense decreased to $119,000 during the year ended March 31, 2000
from $701,000 in the prior period. In December 1997, we sold $5,000,000 of 10% senior notes. In connection with this transaction, we
issued warrants to purchase 1,750,000 shares of common stock to the lender. Interest expense paid in cash and the accretion of the
warrants and deferred loan expenses associated with these notes totaled $568,000 during the year ended March 31, 1999. In January
1999, we paid these notes in full. Other, net nonoperating expense was $110,000 for the year ended March 31, 2000 compared to other,
net nonoperating income of $449,000 for the year ended March 31, 1999. Other, net nonoperating expense for the year ended March 31,
1999 includes $486,000 of unamortized deferred loan costs associated with the senior secured notes that remained at the time we
prepaid the debt.
Income Tax Expense (benefit). During the year ended March 31, 2000, we had income tax expense totaling $16,954,000, or 39% of
income before income tax expense and cumulative effect of change in method of accounting for maintenance checks. During the year
ended March 31, 1999 we recognized an income tax benefit of $5,480,000 primarily attributable to the probable realization of our
remaining income tax loss carryforwards for which a valuation allowance had been previously recorded. As a result of our
profitability for the year ended March 31, 1999, we no longer considered a valuation allowance to be necessary.
Cumulative Effect of Change in Method of Accounting for Overhaul Costs. During the year ended March 31, 2000, we changed our
method of accounting for routine maintenance checks from the accrual to the direct expense method which resulted in a credit of
$549,000 net of income taxes of $351,000. Assuming this method was used during the year ended March 31, 1999, we would have had
$1,731,000 of additional maintenance expense, and net income would have decreased by $1,056,000, or $.04 per diluted share.
Liquidity and Capital Resources
Our balance sheet reflected cash and cash equivalents and short-term investments of $111,251,000 and $83,611,000 at March 31,
2001 and 2000, respectively. At March 31, 2001, total current assets were $199,794,000 as compared to $136,159,000 of total current
liabilities, resulting in working capital of $63,635,000. At March 31, 2000, total current assets were $140,361,000 as compared to
$98,475,000 of total current liabilities, resulting in working capital of $41,886,000. The increase in our working capital is
largely a result of cash flows provided by operating activities and proceeds from exercises of common stock options and warrants
during the year ended March 31, 2001.
Cash provided by operating activities for the year ended March 31, 2001 was $72,526,000. This is attributable to our net
income for the period, decreases in receivables and increases in accrued expenses, income taxes payable and accrued maintenance
expense, offset by increases in restricted investments, security, maintenance and other deposits, and inventories and decreases in
accounts payable and air traffic liability. Cash provided by operating activities for the year ended March 31, 2000 was
$55,207,000. This was primarily attributable to our net income for the period adjusted for non-cash charges, the utilization of
deferred tax assets, increases in air traffic liability, other accrued expenses and accrued maintenance expenses, offset by increases
in trade receivables, security, maintenance and other deposits, prepaid expenses and inventories.
Cash used by investing activities for the year ended March 31, 2001 was $34,339,000. We had maturities of $13,760,000 in
short-term investments, net of purchases, comprised of certificates of deposit and government-backed agencies with maturities of one
year or less. During the year ended March 31, 2001, we made cash security deposits and aircraft pre-delivery payments totaling
$22,811,000 and increased restricted investments by $3,331,000 associated with two leased Boeing 737-300 aircraft delivered during
the year ended March 31, 2001, the 16 Airbus aircraft we have agreed to lease with delivery dates beginning in June 2001, and the 12
Airbus aircraft we have agreed to purchase with delivery dates which began in May 2001. During the year ended March 31, 2001, we
used $21,957,000 for capital expenditures for rotable aircraft components including initial provisioning for aircraft components and
certain buyer furnished equipment for the Airbus aircraft deliveries in 2001, maintenance equipment and tools, aircraft leasehold
costs and improvements, computer equipment and software for enhancements to our internet booking site, our reservation system, a
replacement maintenance system, and leasehold improvements to our new reservations center in Las Cruces, New Mexico, and our new
headquarters in Denver, Colorado. Cash used by investing activities for year ended March 31, 2000 was $39,870,000. We invested
$15,760,000 in short-term investments, net of maturities, comprised of government-backed agencies and commercial paper with
maturities of one year or less. During the year ended March 31, 2000, cash security deposits for aircraft totaling $2,491,000 were
returned to us or replaced with letters of credit. During the year ended March 31, 2000, we made cash security deposits totaling
$200,000 in connection with an Airbus aircraft lease and $6,400,000 in down payments associated with a purchase agreement to purchase
Airbus aircraft. We had issued to certain of our aircraft lessors warrants to purchase 395,000 shares of our common stock at an
aggregate purchase price of $2,391,600. During May 1999 and June 1999, aircraft lessors exercised all of these warrants and we
received $2,391,600. To the extent that the aircraft lessors were able to realize certain profit margins on their subsequent sale of
our common stock, they were required to refund a portion of the cash security deposits they were holding. As a result of their sales
of our common stock, $1,206,000 in cash security deposits were returned to us during the year ended March 31, 2000. Other cash
security deposits were replaced with letters of credit and these deposits were returned to us. We also received $625,000 in cash
security deposits for aircraft returned to the lessor during the year ended March 31, 2000. Additionally, we secured 10 aircraft
delivered during the year ended March 31, 2000 with letters of credit totaling $3,640,000 and restricted investments increased by
this amount to collateralize the letters of credit. We used $16,361,000 for capital expenditures for rotable aircraft components
including a spare CFM engine, maintenance equipment and tools, aircraft leasehold improvements, and computer equipment during the
year ended March 31, 2000.
Cash provided by financing activities for the year ended March 31, 2001 was $3,213,000 from the exercise of common stock
options and warrants, offset by principal payments on obligations under capital leases. In April 1998, we issued a warrant to
purchase 1,075,393 shares of our common stock at a purchase price of $2.50 per share. In January 2001, the warrant holder purchased
550,393 shares of our common stock under this warrant resulting in net proceeds to us of $1,376,000. Cash provided by financing
activities for the year ended March 31, 2000 was $5,224,000. During the year ended March 31, 2000, we received $5,324,000 from the
exercise of common stock options and warrants.
As of March 31, 2001, we lease 25 Boeing 737 type aircraft under operating leases with expiration dates ranging from 2002 to
2006. Under these leases, we were required to make cash security deposits or issue letters of credit to secure our lease
obligations. At March 31, 2001, we had made cash security deposits and had arranged for issuance of letters of credit for these
aircraft totaling $3,658,000 and $7,526,000, respectively. Accordingly, our restricted cash balance includes $7,526,000 that
collateralize the outstanding letters of credit. Additionally, we make deposits for maintenance of these aircraft. At March 31, 2001
and 2000, we had made maintenance deposits of $42,255,000 and $26,912,000, respectively.
We have adopted a fleet replacement plan to phase out our Boeing 737 aircraft and replace them with a combination of Airbus
A319 and A318 aircraft. In March 2000, we entered into an agreement, as subsequently amended, to purchase up to 29 new Airbus
aircraft. We have agreed to firm purchases of 12 of these aircraft, and have options to purchase up to an additional 17 aircraft.
Under the terms of the purchase agreement, we are required to make scheduled pre-delivery payments. These payments are non-refundable
with certain exceptions. As of March 31, 2001, we have made pre-delivery payments totaling $28,511,000 to secure these aircraft and
option aircraft. As a complement to this purchase, in April and May 2000 we signed two agreements to lease 16 new Airbus aircraft. As
of March 31, 2001, we have made cash security deposits and had arranged for issuance of letters of credit totaling $300,000 and
$3,089,000, respectively, to secure these aircraft. The aggregate additional amounts due under this purchase commitment and
estimated amounts for buyer-furnished equipment and spare parts for both the purchased and leased aircraft was approximately
$373,500,000 as of March 31, 2001. We took delivery of our first purchased Airbus aircraft in May 2001, are scheduled to take
delivery of our first leased Airbus aircraft in June 2001, and plan to be operating up to 37 purchased and leased Airbus aircraft by
the first quarter of calendar 2005. We have secured a financing commitment for the first three purchased aircraft as discussed in the
following paragraph. To complete the purchase of the remaining aircraft we must secure acceptable aircraft financing. We are
exploring various financing alternatives, including, but not limited to, domestic and foreign bank financing, public debt financing
such as enhanced equipment trust certificates, and leveraged lease arrangements. The additional amount of financing required will
depend on the number of aircraft purchase options we exercise and the amount of cash generated by operations prior to delivery of the
aircraft. While we believe that such financing will be available to us, there can be no assurance that financing will be available
when required, or on acceptable terms. The inability to secure such financing could result in delays in or our inability to take
delivery of Airbus aircraft we have agreed to purchase, which would have a material adverse effect on us.
Additionally, in order to maximize the efficiency of our fleet replacement plan, we will endeavor to return certain leased B737
aircraft to their owners on dates other than the currently scheduled lease expiration dates for these aircraft. If we are unable to
negotiate such different return dates with the aircraft owners, or sublease these aircraft to third parties, we will incur additional
expense which may have a material adverse effect on us.
In May 2001, we entered into a credit agreement to borrow up to $72,000,000 for the purchase of three Airbus aircraft with a
maximum borrowing of $24,000,000 per aircraft. Each aircraft loan will have a term of 120 months and will be payable in equal
monthly installments, including interest, payable in arrears. At the end of the term, there is a balloon payment for each aircraft
loan that is not to exceed $10,200,000. As of May 9, 2001, we have borrowed $24,000,000 for the purchase of the first Airbus
aircraft. The note for this borrowing has monthly payments of $209,110, bears interest at 6.714%, and matures in May 2011 with a
balloon payment of $10,200,000.
In May 2001, we agreed to reconsider the current rates of pay under our collective bargaining agreement with our pilots, which
has a five year term commencing in May 2000. During the past year, several pilot unions at other air carriers received wage
increases which caused our pilot salaries to be substantially below those paid by certain of our competitiors. We have submitted a
revised pilot pay proposal to FAPA, and its members are scheduled to vote on this proposal on or about June 21, 2001. The estimated
additional annual expense to us as a result of this proposal, scheduled to become effective on May 1, 2001, is approximately
$3,800,000.
We also expect to incur significant costs, as well as realize certain cost savings, in connection with our transition from a
Boeing to an Airbus fleet. Incident to our transition in fleet type, we will incur costs in excess of our normal operations
including additional crew and mechanics to replace these employees while attending Airbus training. Simulator training for pilot
training will be provided by Airbus, at its expense, and accounting rules require that we treat this as a non-cash expense and reduce
the capitalized value of the aircraft. We will incur travel and other training expenses as we train our employees, as well as for
aircraft deliveries. As the Airbus enter scheduled service, we expect to realize savings associated with improved fuel efficiency of
these aircraft compared to our current Boeing fleet, as well as reduced maintenance expenses associated with newer aircraft compared
to our present more mature fleet. We will pay maintenance reserves to lessors to cover long-term maintenance events on the airframe,
engines, and landing gear under our Airbus leases at lower rates than under our current Boeing fleet. These cost savings are reduced
by increased costs for landing fees as the Airbus aircraft weigh more than the Boeing aircraft. Reference is made to Exhibit 99.1
filed with our Report on Form 10-Q for the quarter ended December 31, 2000.
We believe that our existing cash balances coupled with improved operating results are and will be adequate to fund our
operations for the foreseeable future. However, as discussed above, we will require financing in order to fund future purchases of
Airbus A319 and A318 aircraft. Cash necessary to finance aircraft acquisitions are expected to be obtained from internally generated
funds from operations and external financing arrangements.
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
The risk inherent in our market risk sensitive position is the potential loss arising from an adverse change in the price of
fuel as described below. The sensitivity analysis presented does not consider either the effect that such an adverse change may have
an overall economic activity or additional action management may take to mitigate our exposure to such a change. Actual results may
differ from the amounts disclosed. At the present time, we do not utilize fuel price hedging instruments to reduce our exposure to
fluctuations in fuel prices.
Our earnings are affected by changes in the price and availability of aircraft fuel. Market risk is estimated as a
hypothetical 10 percent increase in the average cost per gallon of fuel for the year ended March 31, 2001. Based on fiscal year 2001
actual fuel usage, such an increase would have resulted in an increase to aircraft fuel expense of approximately $7,104,000 in fiscal
year 2001. Comparatively, based on projected fiscal year 2002 fuel usage, such an increase would result in an increase to aircraft
fuel expense of approximately $8,608,000 in fiscal year 2002. The increase in exposure to fuel price fluctuations in fiscal year
2002 is due to the increase of our average aircraft fleet size during the year ended March 31, 2001, projected increases to our fleet
during the year ended March 31, 2002 and related gallons purchased.
The price of our aircraft fuel has recently increased at a substantially greater rate than the foregoing hypothetical example.
Our average cost per gallon of fuel for the period ended March 31, 2001 increased 33.9% over the average cost for the year ended
March 31, 2000.
We will be susceptible to market risk associated with changes in interest rates on expected future long-term debt obligations
to fund the purchases of our Airbus aircraft.
Item 8: Financial Statements
Our financial statements are filed as a part of this report immediately following the signature page.
PART III
Item 10: Directors and Executive Officers of the Registrant.
The information required by this Item is incorporated herein by reference to the data under the heading "Election of
Directors" in the Proxy Statement to be used in connection with the solicitation of proxies for our annual meeting of shareholders to
be held on September 6, 2001. We will file the definitive Proxy Statement with the Commission on or before July 31, 2001.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the data under the heading "Executive
Compensation" in the Proxy Statement to be used in connection with the solicitation of proxies for our annual meeting of shareholders
to be held on September 6, 2001. We will file the definitive Proxy Statement with the Commission on or before July 31, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated herein by reference to the data under the heading "Voting Securities and
Principal Holders Thereof" in the Proxy Statement to be used in connection with the solicitation of proxies for our annual meeting of
shareholders to be held on September 6, 2001. We will file the definitive Proxy Statement with the Commission on or before July 31,
2001.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated herein by reference to the data under the heading "Related Transactions"
in the Proxy Statement to be used in connection with the solicitation of proxies for our annual meeting of shareholders to be held on
September 6, 2001. We will file the definitive Proxy Statement with the Commission on or before July 31, 2001.
PART IV
Item 14(a): Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Exhibit
Numbers Description of Exhibits
- ------- -----------------------
3.1 Restated Articles of Incorporation of the Company. (12)
3.2 Amended and restated Bylaws of the Company (September 9, 1999). (14)
4.1 Specimen common stock certificate of the Company. (1)
4.2 The Amended and Restated Articles of Incorporation and Amended Bylaws of the Company are included as Exhibits 3.1
and 3.2.
4.3 Form of Warrant. (1)
4.4 Rights Agreement, dated as of February 20, 1997, between Frontier Airlines, Inc. and American Securities Transfer &
Trust, Inc, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B,
respectively, incorporated by reference to Frontier Airlines, Inc. Registration Statement on Form 8-A dated March
11, 1997. (6)
4.4(a) Amendment to Rights Agreement dated June 30, 1997. (5)
4.4(b) Amendment to Rights Agreement dated December 5, 1997. (13)
4.4(c) Third Amendment to Rights Agreement dated September 9, 1999. (7)
4.4(d) Fourth Amendment to Rights Agreement dated May 30, 2001. (19)
10.1 Office Lease. (1)
10.2 Office Lease Supplements and Amendments. (5)
10.2(a) Addendum to Office Lease (10)
10.2(b) Office Lease Supplements and Amendments (13)
10.2(c) Lease Amendment dated as of January 12, 2000 between Highline Group, LLC, landlord, and Frontier, Airlines, Inc.,
tenant. Portions of this exhibit have been excluded from the publicly available document and an order granting
confidential treatment of the excluded material has been received. (16)
10.2(d) Lease Amendment dated as of April 1, 2000 between Highline Group, LLC, landlord, and Frontier Airlines, Inc.,
tenant. Portions of this exhibit have been excluded from the publicly available document and an order granting
confidential treatment of the excluded material has been received. (16)
10.3 1994 Stock Option Plan. (1)
10.4 Amendment No. 1 to 1994 Stock Option Plan. (2)
10.4(a) Amendment No. 2 to 1994 Stock Option Plan (5)
10.5 Registration Rights Agreement. (1)
10.6 Sales Agreement. (1)
10.7 Airport Use and Facilities Agreement, Denver International Airport (2)
10.8 Aircraft Lease Agreement dated as of July 26, 1994. (2)
10.8(a) Assignment and Assumption Agreements dated as of March 28, 1997 and March 20, 1997 between USAirways, Inc. and First
Security Bank, National Association ("Trustee") and Frontier Airlines, Inc. (5)
10.8(b) Amendment No. 1, dated June 5, 1997, to Lease Agreement dated as of July 26, 1994 between Frontier Airlines, Inc.
and First Security Bank, National Association. (5)
10.9 Code Sharing Agreement. (5)
10.10 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23177). (3)
10.10(a) Aircraft Lease Extension and Amendment Agreement dated as of October 1, 1999. Portions of this Exhibit have been
excluded from the publicly available document and an order granting confidential treatment of the excluded
material has been received. (15)
10.11 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23257). (3)
10.11(a) Aircraft Lease Extension and Amendment Agreement dated as of October 1, 1999. (15)
10.11(b) Aircraft Lease Extension and Amendment Agreement (MSN 23257) dated as of September 29, 2000, between General
Electric Capital Corporation and Frontier Airlines, Inc. (17)
10.12 Aircraft Lease Agreement dated as of May 1, 1996. (3)
10.12(a) Aircraft Lease Extension and Amendment Agreement (MSN 22733) dated as of September 29, 2000, between Polaris Holding
Company and Frontier Airlines, Inc. (17)
10.13 Aircraft Lease Agreement dated as of June 3, 1996. (3)
10.13(a) Amendment No. 1 to Aircraft Lease Agreement dated as of June 3, 1996.(10)
10.13(b) Aircraft Lease Extension and Amendment Agreement (MSN 22734) dated as of September 29, 2000, between Polaris Holding
Company and Frontier Airlines, Inc. (17)
10.14 Aircraft Lease Agreement dated as of June 12, 1996. Portions of this Exhibit have been excluded from the publicly
available document and an order granting confidential treatment of the excluded material has been received. (3)
10.15 Operating Lease Agreement dated November 1, 1996 between the Company and First Security Bank, National Association.
Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential
treatment of the excluded material has been received. (4)
10.16 Aircraft Lease Agreement (MSN 28760) dated as of December 12, 1996 between the Company and Boullion Aircraft Holding
Company, Inc. Portions of this Exhibit have been excluded from the publicly available document and an order granting
confidential treatment of the excluded material has been received. (4)
10.16(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28760) dated May 20, 1997. Portions of this Exhibit have been
excluded from the publicly available document and an order granting confidential treatment of the excluded material
has been received. (5)
10.17 Aircraft Lease Agreement (MSN 28662) dated as of December 12, 1996 between the Company and Boullion Aircraft Holding
Company, Inc. Portions of this Exhibit have been excluded from the publicly available document and an order
granting confidential treatment of the excluded material has been received. (4)
10.17(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28662) dated May 20, 1997. Portions of this Exhibit have been
excluded from the publicly available document and an order granting confidential treatment of the excluded material
has been received. (5)
10.18 Aircraft Lease Agreement (MSN 28563) dated as of March 25, 1997 between the Company and General Electric Capital
Corporation. Portions of this Exhibit have been excluded from the publicly available document and an order granting
confidential treatment of the excluded material has been received. (5)
10.19 Space and Use Agreement with Continental Airlines, as amended. Portions of this Exhibit have been excluded from the
publicly available document and an order granting confidential treatment of the excluded material has been
received. (5)
10.19(a) Space and Use Agreement with Continental Airlines. Portions of this exhibit have been excluded from the publicly
available document and an application for an order granting confidential treatment of the excluded material has been
made. (16)
10.20 Letter of Understanding with Continental Airlines dated August 16, 1996. Portions of this Exhibit have been
excluded from the publicly available document and an order granting confidential treatment of the excluded material
has been received. (5)
10.21 Service Agreement between Frontier Airlines, Inc. and Greenwich Air Services, Inc. dated May 19, 1997. Portions of
this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of
the excluded material has been received. (5)
10.22 Agreement between Frontier Airlines, Inc. and Dallas Aerospace, Inc. dated April 17, 1997. Portions of this Exhibit
have been excluded from the publicly available document and an order granting confidential treatment of the excluded
material has been received. (5)
10.23 General Services Agreement between Frontier Airlines, Inc. and Tramco, Inc. dated as of August 6, 1996. (5)
10.24 General Terms Engine Lease Agreement between Frontier Airlines, Inc. and Terandon Leasing Corporation dated as of
August 15, 1996, as assigned to U.S. Bancorp Leasing and Financial on February 19, 1997. Portions of this Exhibit
have been excluded from the publicly available document and an order granting confidential treatment of the excluded
material has been received. (5)
10.25 Lease Agreement between Frontier Airlines, Inc. and Aircraft Instrument and Radio Company, Inc. dated December 11,
1995. Portions of this Exhibit have been excluded from the publicly available document and an order granting
confidential treatment of the excluded material has been received. (5)
10.26 Agreement and Plan of Merger between Western Pacific Airlines, Inc. and Frontier Airlines, Inc. dated June 30,
1997. (5)
10.26(a) Agreement dated as of September 29, 1997 between Western Pacific Airlines, Inc. and Frontier Airlines, Inc. (7)
10.27 Security Agreement with Wexford Management LLC dated December 2, 1997. (8)
10.28 Amended and Restated Warrant Agreement with Wexford Management LLC dated as of February 27, 1998. (12)
10.29 Amended and Restated Registration Rights Agreement with Wexford Management LLC dated as
of February 27, 1998. (12)
10.30 Securities Purchase Agreement with B III Capital Partners, L.P. dated as of April 24, 1998. (9)
10.31 Registration Rights Agreement with B III Capital Partners, L.P. dated as of April 24, 1998. (12)
10.32 Warrant Agreement with The Seabury Group, LLC dated as of May 26, 1998. (12)
10.33 Registration Rights Agreement with The Seabury Group, LLC dated as of May 26, 1998. (12)
10.34 Aircraft Lease Agreement (MSN 21613) dated as of August 10, 1998 between the Company and Interlease Aviation
Investors, L.L.C. (10)
10.35 Aircraft Lease Agreement (MSN 28738) dated as of November 23, 1998 among first Security Bank, National Association,
Lessor, Heller Financial Leasing, Inc., Owner participant, and the Company, Lessee. (11).
10.36 Aircraft Sublease Agreement (MSN 28734) dated as of December 14, 1998 between Indigo pacific AB, Sublessor, and the
Company, Sublessee. (11)
10.37 Aircraft Lease Agreement (MSN 23004) dated as of February 26, 1999 between First Security Bank, N.A., Lessor, and
Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document
and an order granting confidential treatment of the excluded material has been received. (13)
10.38 Aircraft Lease Agreement (MSN 23007) dated as of February 26, 1999 between First Security Bank, N.A. Lessor and
Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document
and an order granting confidential treatment of the excluded material has been received. (13)
10.39 Aircraft Lease Agreement (MSN 26440) dated as of March 15, 1999 between Indigo Aviation AB (publ), Lessor, and
Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document
and an order granting confidential treatment of the excluded material has been received. (13)
10.40 Aircraft Lease Agreement (MSN 24569) dated as of April 16, 1999 between C.I.T. Leasing Corporation, Lessor, and
Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document
and an order granting confidential treatment of the excluded material has been received. (13)
10.41 Aircraft Lease Agreement (MSN 24856) dated as of June 2, 1999 between Indigo Aviation AB (publ), Lessor and Frontier
Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document and an
order granting confidential treatment of the excluded material has been received. (13)
10.42 Severance Agreement dated March 10, 1999 between the Company and Samuel D. Addoms. (13)
10.43 Space and Use Agreement between Continental Airlines, Inc. and the Company. (13)
10.44 Aircraft Sublease Agreement (MSN 23039) dated as of July 21, 1999 between Kommanditbolaget Flygplanet XIV,
Sublessor, and Frontier Airlines, Inc., Sublessee. Portions of this exhibit have been excluded from the publicly
available document and an order granting confidential treatment of the excluded material has been received. (14)
10.45 Aircraft Sublease Agreement (MSN 23040) dated as of July 21, 1999 between Kommanditbolaget Flygplanet XII,
Sublessor, and Frontier Airlines, Inc., Sublessee. Portions of this exhibit have been excluded from the publicly
available document and an order granting confidential treatment of the excluded material has been received. (14)
10.46 Aircraft Sublease Agreement (MSN 26442) dated as of October 11, 1999 between Indigo Aviation AB (publ), Lessor, and
Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available document
and an order granting confidential treatment of the excluded material has been received. (15)
10.47 Aircraft Lease Agreement (MSN 25256) dated as of January 7, 2000 between Aviation Financial Services, Inc. Lessor,
and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available
document and an order granting confidential treatment of the excluded material has been received. (16)
10.48 Aircraft Lease Agreement (MSN 25159) dated as of January 7, 2000 between Aviation Financial Services, Inc. Lessor,
and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available
document and an order granting confidential treatment of the excluded material has been received. (16)
10.49 Aircraft Lease Agreement (MSN 25264) dated as of January 7, 2000 between Aviation Financial Services, Inc. Lessor,
and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available
document and an order granting confidential treatment of the excluded material has been received. (16)
10.50 Aircraft Lease Agreement (MSN 25263) dated as of January 7, 2000 between Aviation Financial Services, Inc. Lessor,
and Frontier Airlines, Inc., Lessee. Portions of this exhibit have been excluded from the publicly available
document and an order granting confidential treatment of the excluded material has been received. (16)
10.51 Airbus A318/A319 Purchase Agreement dated as of March 10, 2000 between AVSA, S.A.R.L., Seller, and Frontier Airlines, Inc.,
Buyer. Portions of this exhibit have been excluded from the publicly available document and an order granting
confidential treatment of the excluded material has been received. (16)
10.51(a) Amendment No. 1 to Airbus A318/319 Purchase Agreement dated as of March 10, 2000 between AVSA, S.A.R.L., Seller, and
Frontier Airlines, Inc., Buyer. Portions of this exhibit have been excluded from the publicly available document
and an order granting confidential treatment of the excluded material has been received. (17)
10.51(b) Amendment No. 1 to Airbus A318/319 Purchase Agreement dated as of March 10, 2000 between AVSA, S.A.R.L., Seller, and
Frontier Airlines, Inc., Buyer. Portions of this exhibit have been excluded from the publicly available document
and an order granting confidential treatment of the excluded material has been received. (18)
10.52 Aircraft Lease Common Terms Agreement dated as of April 20, 2000 between General Electric Capital Corporation and
Frontier Airlines, Inc. Portions of this exhibit have been excluded from the publicly available document and an
order granting confidential treatment of the excluded material has been received. (16)
10.53 Aircraft Lease Agreement dated as of April 20, 2000 between Aviation Financial Services, Inc., Lessor, and Frontier
Airlines, Inc., Lessee, in respect of 15 Airbus A319 Aircraft. Portions of this exhibit have been excluded from the
publicly available document and an order granting confidential treatment of the excluded material has been received.
(16)
10.54 Aircraft Lease Agreement dated as of May 25, 2000 between Frontier Airlines, Inc., Lessee, and International Lease
Finance Corporation, Lessor, in respect to one Airbus A318 aircraft. Portions of this exhibit have been excluded
from the publicly available document and an order granting confidential treatment of the excluded material has been
received. (16)
10.55 Lease dated as of May 5, 2000 for Frontier Center One, LLC, as landlord, and Frontier Airlines, Inc., as tenant.
Portions of this exhibit have been excluded from the publicly available document and an order granting confidential
treatment of the excluded material has been received. (16)
10.56 Operating Agreement of Frontier Center One, LLC, dated as of May 10, 2000 between Shea Frontier Center, LLC, and
7001 Tower, LLC, and Frontier Airlines, Inc. Portions of this exhibit have been excluded from the publicly
available document and an order granting confidential treatment of the excluded material has been received. (16)
10.57 Standard Industrial Lease dated April 27, 2000, between Mesilla Valley Business Park, LLC, landlord, and Frontier
Airlines, Inc., tenant. Portions of this exhibit have been excluded from the publicly available document and an
order granting confidential treatment of the excluded material has been received. (16)
10.58 Aircraft Lease Agreement dated as of May 25, 2000 between Frontier Airlines, Inc., Lessee, and International Lease Finance
Corporation, Lessor, in respect to one Boeing 737 aircraft. Portions of this exhibit have been excluded from the
publicly available document and an order granting confidential treatment of the excluded material has been received.
(16)
10.59 Aircraft Lease Agreement dated as of August 14, 2000 between Frontier Airlines, Inc., Lessee, and International Lease
Finance Corporation, Lessor, in respect to one Boeing 737-300 aircraft (MSN 26301). Portions of this exhibit have
been excluded from the publicly available document and an order granting confidential treatment of the excluded
material has been received. (17)
10.60 General Terms Agreement No. 6-13616 between CFM International and Frontier Airlines, Inc. Portions of this exhibit have
been excluded from the publicly available document and an order granting confidential treatment of the excluded
material has been received. (17)
10.61 Lease Agreement dated as of December 15, 2000 between Gateway Office Four, LLC, Lessor, and Frontier Airlines, Inc., Lessee.
(18)
10.62 Code Share Agreement dated as of May 3, 2001 between Frontier Airlines, Inc. and Great Lakes Aviation, Ltd. Portions of
this exhibit have been excluded from the publicly available document and an application for an order granting
confidential treatment of the excluded material has been made. (19)
10.63 Credit Agreement Dated as of May 9, 2001 between PK Finance and Frontier Airlines, Inc. Portions of this exhibit have been
excluded form the publicly available document and an application for an order granting confidential treatment of the
excluded material has been made. (19)
10.64 Mortgage and Security Agreement dated as of May 9, 2001 between PK Finance and Frontier Airlines, Inc. (19)
18.1 Letter re: change in accounting principle. (16)
23.1 Consent of KPMG LLP (19)
(1) Incorporated by reference from the Company's Registration Statement on Form SB-2, Commission File No. 33-77790-D, declared
effective May 20, 1994.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-4877, filed on June 29,
1995.
(3) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-4877, filed on June 24,
1996.
(4) Incorporated by reference from the Company's Quarterly Report on Form 10-QSB, Commission File No. 0-4877, filed on February
13, 1997.
(5) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-24126, filed July 14, 1997.
(6) Incorporated by reference from the Company's Report on Form 8-K filed on March 12, 1997.
(7) Incorporated by reference from the Company's Report on Form 8-K filed on October 1, 1997.
(8) Incorporated by reference from the Company's Report on Form 8-K filed on December 12, 1997.
(9) Incorporated by reference from the Company's Report on Form 8-K filed on May 4, 1998.
(10) Incorporated by reference from the Company's Report on Form 10-Q, Commission File No. 0-24126, filed on November 13, 1998.
(11) Incorporated by reference from the Company's Report on Form 10-Q, Commission File No. 0-24126, filed on February 12, 1999.
(12) Incorporated by reference from the Company's Report on Form 10-K/A, Commission file No. 0-24126, filed on July 9, 1998.
(13) Incorporated by reference from the Company's Annual Report on Form 10-K, Commission File No., 0-24126, filed on June 22,
1999.
(14) Incorporated by reference from the Company's Quarterly Report on Form 10-Q, Commission File No. 0-24126, filed on August 10,
1999.
(15) Incorporated by reference from the Company's Quarterly Report on Form 10-Q, Commission File No. 0-24126, filed on November
10, 1999.
(16) Incorporated by reference from the Company's Report on Form 10-K, Commission File No. 0-24126, filed on June 26, 2000.
(17) Incorporated by reference from the Company's Quarterly Report on Form 10-Q, Commission File No. 0-24126 filed on November 2,
2000.
(18) Incorporated by reference from the Company's Quarterly Report on Form 10-Q, Commission File No. 0-24126, filed on February
7, 2001.
(19) Filed herewith.
Item 14(b): Reports on Form 8-K.
During the quarter ended March 31, 2001, a report on Form 8-K was filed on January 22, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
FRONTIER AIRLINES, INC.
Date: June 1 , 2001 By: /s/ Steve B. Warnecke
---------------------------------------
Steve B. Warnecke, Vice President and
Chief Financial Officer
Date: June 1 , 2001 By: /s/ Elissa A. Potucek
---------------------------------------
Elissa A. Potucek, Vice President, Controller,
Treasurer and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Date: June 1, 2001 /s/ Samuel D. Addoms, Director
---------------------------------------
Samuel D. Addoms, Director
Date: June 1 , 2001 /s/ William B. McNamara, Director
---------------------------------------
William B. McNamara, Director
Date: June 1, 2001 /s/ Paul Stephen Dempsey, Director
---------------------------------------
Paul Stephen Dempsey, Director
Date: June 1 , 2001 /s/ B. LaRae Orullian, Director
---------------------------------------
B. LaRae Orullian, Director
Date: June 1, 2001 /s/ D. Dale Browning, Director
---------------------------------------
D. Dale Browning, Director
Date: June 1, 2001 /s/ James B. Upchurch, Director
---------------------------------------
James B. Upchurch, Director
Independent Auditors' Report
The Board of Directors and
Stockholders
Frontier Airlines, Inc.:
We have audited the accompanying balance sheets of Frontier Airlines, Inc. as of March 31, 2001 and 2000, and the related statements
of income, stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2001. These financial
statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, 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 financial position of
Frontier Airlines, Inc., as of March 31, 2001 and 2000, and the results of its operations and its cash flows for each of the years in
the three-year period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 1 to the financial statements, the Company changed its method of accounting for maintenance checks in 2000.
KPMG LLP
Denver, Colorado
May 30, 2001
FRONTIER AIRLINES, INC.
Balance Sheets
March 31, 2001 and 2000
March 31, March 31,
2001 2000
------------- -----------
Assets
Current assets:
Cash and cash equivalents $ 109,251,426 $ 67,850,933
Short-term investments 2,000,000 15,760,000
Restricted investments 9,100,000 4,000,000
Receivables, net of allowance for doubtful accounts of
$368,000 and $171,000 at March 31, 2001 and 2000, respectively 32,380,943 22,190,835
Maintenance deposits (note 5) 30,588,195 19,637,128
Prepaid expenses (note 2) 10,849,080 7,386,851
Inventories 4,072,335 2,235,183
Deferred tax asset (note 7) 1,506,218 1,136,194
Other current assets 45,621 163,527
---------------- ----------------
Total current assets 199,793,818 140,360,651
Security, maintenance and other deposits (note 5) 45,680,373 17,613,122
Property and equipment, net (note 3) 38,100,126 21,654,262
Restricted investments 11,683,660 7,813,760
Other assets 58,621 104,243
---------------- ----------------
$ 295,316,598 $ 187,546,038
================ ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 21,623,067 $ 14,407,913
Air traffic liability 62,663,237 44,518,837
Other accrued expenses (note 4) 18,236,479 17,542,019
Accrued maintenance expense (note 5) 33,510,531 21,893,316
Current portion of obligations under capital leases (note 5) 125,552 113,029
---------------- ----------------
Total current liabilities 136,158,866 98,475,114
Accrued maintenance expense (note 5) 12,175,225 7,214,167
Deferred tax liability (note 7) 1,999,553 483,514
Obligations under capital leases, excluding current portion (note 5) 203,863 328,702
---------------- ----------------
Total liabilities 150,537,507 106,501,497
---------------- ----------------
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000 shares;
none issued - -
Common stock, no par value, stated value of $.001 per share,
authorized 40,000,000 shares; 28,194,602 and 26,598,410
shares issued and outstanding at March 31, 2001 and 2000,
respectively 28,195 26,599
Additional paid-in capital 77,606,918 67,937,363
Unearned ESOP shares (note 10) (1,662,087) (857,713)
Retained earnings 68,806,065 13,938,292
---------------- ----------------
Total stockholders' equity 144,779,091 81,044,541
---------------- ----------------
Commitments and contingencies (notes 5, 8, 13 and 14)
$ 295,316,598 $ 187,546,038
================ ================
See accompanying notes to financial statements.
FRONTIER AIRLINES, INC.
Statements of Income
Years Ended March 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Revenues:
Passenger $ 462,608,847 $ 320,850,271 $ 214,311,312
Cargo 7,516,867 6,855,882 4,881,066
Other 2,750,713 2,113,802 1,415,332
---------------- ---------------- ----------------
Total revenues 472,876,427 329,819,955 220,607,710
---------------- ---------------- ----------------
Operating expenses:
Flight operations 179,453,300 125,536,174 79,247,347
Aircraft and traffic servicing 60,408,236 48,954,728 34,450,562
Maintenance 65,529,428 50,238,538 36,090,052
Promotion and sales 55,880,717 46,013,812 35,216,787
General and administrative 25,428,753 16,327,410 9,263,538
Depreciation and amortization 5,454,673 3,440,069 1,659,429
---------------- ---------------- ----------------
Total operating expenses 392,155,107 290,510,731 195,927,715
---------------- ---------------- ----------------
Operating income 80,721,320 39,309,224 24,679,995
---------------- ---------------- ----------------
Nonoperating income (expense):
Interest income 7,897,282 4,334,688 1,556,047
Interest expense (94,393) (119,496) (700,635)
Other, net (191,771) (109,798) (448,917)
---------------- ---------------- ----------------
Total nonoperating income, net 7,611,118 4,105,394 406,495
---------------- ---------------- ----------------
Income before income tax expense (benefit) and
cumulative effect of change in accounting principle 88,332,438 43,414,618 25,086,490
Income tax expense (benefit) 33,464,665 16,954,374 (5,479,570)
---------------- ---------------- ----------------
Income before cumulative effect of
change in accounting principle 54,867,773 26,460,244 30,566,060
Cumulative effect of change in method of
accounting for maintenance checks - 549,009 -
---------------- ---------------- ----------------
Net income $ 54,867,773 $ 27,009,253 $ 30,566,060
================ ================ ================
(continued)
FRONTIER AIRLINES, INC.
Statements of Income, continued
Years Ended March 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Earnings per share:
Basic:
Income before cumulative effect of a
change in accounting principle $2.02 $1.02 $1.43
Cumulative effect of change in method of
accounting for maintenance checks - 0.02 -
---------------- ---------------- ----------------
Net income $2.02 $1.04 $1.43
================ ================ ================
Diluted:
Income before cumulative effect of a
change in accounting principle $1.90 $0.93 $1.32
Cumulative effect of change in method of
accounting for maintenance checks - 0.02 -
---------------- ---------------- ----------------
Net income $1.90 $0.95 $1.32
================ ================ ================
Pro forma amounts assuming the new
method of accounting for maintenance
checks is applied retroactively:
Net income $ 29,510,374
Earnings per share:
Basic $1.38
================
Diluted $1.28
================
Weighted average shares of
common stock outstanding:
Basic 27,152,099 25,994,100 21,386,492
================ ================ ================
Diluted 28,842,783 28,285,032 23,102,153
================ ================ ================
See accompanying notes to financial statements.
FRONTIER AIRLINES, INC.
Statements of Stockholders' Equity
Years Ended March 31, 2001, 2000 and 1999
Retained
Common Stock Additional Unearned earnings Total
Stated paid-in ESOP (accumulated stockholders'
Shares value capital shares deficit) equity
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Balances, March 31, 1998 13,880,344 $ 13,880 $37,949,957 - $(43,637,021) $ (5,673,184)
Sale of common stock, net of
offering costs of $525,059 6,544,502 6,545 13,648,149 13,654,694
Contribution of common stock to
to employees stock ownership plan 412,500 412 1,457,838 (1,458,250)
Amortization of employee stock
compensation 848,875 848,875
Exercise of common stock
warrants 694,600 2,695 4,359,124 4,361,819
Exercise of common stock
options 679,812 680 631,705 632,385
Net income 30,566,060 30,566,060
----------------------------------------------------------------------------------
Balances, March 31, 1999 24,211,758 $ 24,212 $58,046,773 $ (609,375) $(13,070,961) $ 44,390,649
Exercise of common stock
warrants 1,721,589 1,722 4,758,395 4,760,117
Exercise of common stock
options 515,063 515 563,540 564,055
Tax benefit from exercises of
common stock options and
warrants 3,425,055 3,425,055
Contribution of common stock to
employees stock ownership plan 150,000 150 1,143,600 (1,143,750)
Amortization of employee stock
compensation 895,412 895,412
Net income 27,009,253 27,009,253
----------------------------------------------------------------------------------
Balances, March 31, 2000 26,598,410 $ 26,599 $67,937,363 $ (857,713) $ 13,938,292 $ 81,044,541
Exercise of common stock
warrants 583,030 583 1,450,570 1,451,153
Exercise of common stock
options 879,025 879 1,884,366 1,885,245
Tax benefit from exercises of
common stock options and
warrants 4,129,336 4,129,336
Contribution of common stock to
employees stock ownership plan 135,000 135 2,216,115 (2,216,250)
Amortization of employee stock
compensation - - 1,411,876 1,411,876
Adjustment for fractional shares
from stock dividend (863) (1) (10,832) (10,833)
Net income 54,867,773 54,867,773
----------------------------------------------------------------------------------
Balances, March 31, 2001 28,194,602 $ 28,195 $77,606,918 $(1,662,087) $ 68,806,065 $ 144,779,091
==================================================================================
See accompanying notes to financial statements.
FRONTIER AIRLINES, INC.
Statements of Cash Flows
Years ended March 31, 2001, 2000, and 1999
2001 2000 1999
Cash flows from operating activities:
Net income $ 54,867,773 $ 27,009,253 $ 30,566,060
Adjustments to reconcile net income to net cash
provided by operating activities:
Employee stock ownership plan compensation
expense 1,411,876 895,412 848,875
Depreciation and amortization 5,618,200 3,725,697 2,705,255
Loss on sale of equipment 56,800 - 3,867
Deferred tax expense (benefit) 1,146,015 5,459,468 (6,010,648)
Changes in operating assets and liabilities:
Restricted investments (5,639,400) 402,000 (425,301)
Trade receivables (6,060,773) (5,260,797) (5,268,715)
Security, maintenance and other deposits (16,207,351) (8,288,288) (6,968,057)
Prepaid expenses (3,462,229) (1,947,017) (1,596,140)
Inventories (1,837,152) (1,031,267) (39,606)
Accounts payable 7,215,154 396,675 346,488
Air traffic liability 18,144,400 15,631,145 9,977,251
Other accrued expenses 694,460 10,084,065 5,758,840
Accrued maintenance expense 16,578,273 8,130,957 6,057,944
---------------- ---------------- ----------------
Net cash provided by operating activities 72,526,046 55,207,303 35,956,113
---------------- ---------------- ----------------
Cash flows from investing activities:
Decrease (increase) in short-term investments, net 13,760,000 (15,760,000) -
Increase in aircraft lease and purchase deposits (22,810,967) (5,940,000) (944,000)
Decrease in aircraft lease deposits - 1,830,961 -
Increase in restricted investments (3,330,500) (3,640,000) (1,544,000)
Capital expenditures (21,957,336) (16,360,553) (4,313,065)
---------------- ---------------- ----------------
Net cash used in investing activities (34,338,803) (39,869,592) (6,801,065)
---------------- ---------------- ----------------
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants 3,325,566 5,324,172 15,549,810
Principal payments on sale of senior secured notes - - (941,841)
Proceeds from short-term borrowings - - 179,664
Principal payments on short-term borrowings - - (179,664)
Principal payments on obligations under capital leases (112,316) (100,022) (115,340)
---------------- ---------------- ----------------
Net cash provided by financing activites 3,213,250 5,224,150 14,492,629
---------------- ---------------- ----------------
Net increase in cash and cash equivalents 41,400,493 20,561,861 43,647,677
Cash and cash equivalents, beginning of period 67,850,933 47,289,072 3,641,395
---------------- ---------------- ----------------
$ 109,251,426 $ 67,850,933 $ 47,289,072
================ ================ ================
See accompanying notes to financial statements.
FRONTIER AIRLINES, INC.
Notes to Financial Statements
March 31, 2001
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Frontier Airlines, Inc. ("Frontier" or the "Company") provides air transportation for passengers and
freight. Frontier was incorporated in the State of Colorado on February 8, 1994 and commenced operations
on July 5, 1994. Denver-based Frontier serves 23 cities coast to coast with a fleet of 25 Boeing 737 jets
and employs approximately 2,400 aviation professionals.
Airline operations have high fixed costs relative to revenues and are highly sensitive to various factors
including the actions of competing airlines and general economic factors. Small fluctuations in yield
per revenue passenger mile or expense per available seat mile can significantly affect operating results.
Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For financial statement purposes, the Company considers cash and short-term investments with an original
maturity of three months or less to be cash equivalents. These investments are stated at cost, which
approximates fair value.
Short-term investments
Short-term investments consist of government-backed agencies with maturities of one year or less. These
investments are classified as held-to-maturity and are carried at amortized cost which approximates fair
value. Held-to-maturity securities are those securities in which the Company has the ability and intent
to hold the security until maturity. Interest income is recognized when earned.
Supplemental Disclosure of Cash Flow Information
Noncash Financing and Investing Activities - During the year ended March 31, 1999, the Company
entered into capital lease agreements totaling $504,900.
FRONTIER AIRLINES, INC.
Notes to Financial Statements, continued
Cash Paid During the Year for:
2001 2000 1999
---- ---- ----
Interest $ 94,393 $ 119,496 $ 302,503
Taxes $ 21,926,000 $ 3,005,000 -
Restricted Investments
Restricted investments include certificates of deposit which secure certain letters of credit issued
primarily to companies which process credit card sale transactions, certain airport authorities and
aircraft lessors. Restricted investments are carried at cost, which management believes approximates
market value. Maturities are for one year or less and the Company intends to hold restricted investments
until maturity.
Valulation and Qualifying Accounts
The allowance for doubtful accounts was approximately $368,000 and $171,000 at March 31, 2001 and 2000,
respectively. Provisions for bad debts net of recoveries totaled $1,179,000, $873,000, and $386,000 for
the years ended March 31, 2001, 2000 and 1999, respectively. Deductions from the reserve totaled
$982,000, $902,000, and $330,000 for the years ended March 31, 2001, 2000, and 1999, respectively.
Maintenance reserves were approximately $45,686,000 and $29,107,000 at March 31, 2001 and 2000,
respectively. Provisions for maintenance reserves totaled $24,970,000, $22,811,000, and $25,220,000 for
the years ended March 31, 2001, 2000 and 1999, respectively. Deductions from the reserves totaled
$8,391,000, $14,681,000, and $19,162,000 for the years ended March 31, 2001, 2000 and 1999, respectively.
Inventories
Inventories consist of expendable parts, supplies and aircraft fuel and are stated at the lower of cost
or market. Inventories are accounted for on a first-in, first-out basis and are charged to expense as
they are used.
At March 31, 2000, the Company had an aircraft parts agreement for its Boeing 737 aircraft with an
aircraft parts supplier. The Company is required to pay a monthly consignment fee to the lessor, based
on the value of the consigned parts, and to replenish any such parts when used with a like part. At March
31, 2000, the Company held consigned parts and supplies in the amount of approximately $5,788,000 which
are not included in the Company's balance sheet. This agreement terminated in January 2001 and the
Company no longer has an aircraft parts agreement.
Property and Equipment
Property and equipment are carried at cost. Major additions, betterments and renewals are capitalized.
Depreciation and amortization is provided for on a straight-line basis to estimated residual values over
estimated depreciable lives as follows:
Capitalized software 3 years
Flight equipment 5-10 years
Improvements to leased aircraft Life of improvements or term of lease,
whichever is less
Ground property, equipment, and
leasehold improvements 3-5 years or term of lease
Residual values for engines range in amount up to 48% of the engine's cost and residual values for major
rotable parts are generally 10% of the asset's cost, except when a guaranteed residual value or other
agreements exist to better estimate the residual value. Assets utilized under capital leases are
amortized over the lesser of the lease term or the estimated useful life of the asset using the
straight-line method. Amortization of capital leases is included in depreciation expense.
Manufacturers' Credits
The Company receives credits in connection with its purchase of aircraft, engines and other rotable
parts. These credits are deferred until the aircraft, engines and other rotable parts are delivered and
then applied on a pro-rata basis as a reduction to the cost of the related equipment.
Maintenance
Routine maintenance and repairs are charged to operations as incurred.
Under the terms of its aircraft lease agreements, the Company is required to make monthly maintenance
deposits and a liability for accrued maintenance is established based on usage. The deposits are applied
against the cost of major airframe maintenance checks, landing gear and engine overhauls. Deposit
balances remaining at lease termination remain with the lessor and any remaining liability for
maintenance checks is reversed against the deposit balance. Additionally, a provision is made for the
estimated costs of scheduled major overhauls required to be performed on leased aircraft and components
under the provisions of the aircraft lease agreements if the required monthly deposit amounts are not
adequate to cover the entire cost of the scheduled maintenance. Accrued maintenance expense expected to
be incurred beyond one year is classified as long-term.
Effective April 1, 1999, the Company changed its method of accounting for required periodic maintenance
checks from the accrue-in-advance method to the direct expensing method. The Company believes that the
newly adopted accounting principle is preferable in the circumstances because there has not been an
obligating event prior to the maintenance checks actually being performed, and the new method is the
predominant method used in the airline industry. Fluctuations in these maintenance costs from period to
period are not expected to be significant given the maturity and current size of the Company's fleet.
Previously, the Company accrued-in-advance for maintenance checks and major overhauls, including the
costs for scheduled major airframe, landing gear, and engine overhauls. The Company continues to
utilize the accrue-in-advance method for scheduled major airframe, landing gear and engine overhauls
because the Company's aircraft lease agreements require the Company to make non-refundable monthly
deposits with the lessors for such costs.
The cumulative effect of the change, calculated as of April 1, 1999, was to increase net income by
$549,009 or $.02 per diluted share. The effect of the change was to decrease net income for the year
ended March 31, 2000 by $247,713 or $.01 per diluted share. Had the new method of accounting been used,
net income for the year ended March 31, 1999 would have been $29,510,374 or $1.28 per diluted share.
Advertising Costs
The Company expenses the costs of advertising as promotion and sales in the year incurred. Advertising
expense was $6,076,501, $4,437,149, and $3,900,275 for the years ended March 31, 2001, 2000, and 1999,
respectively.
Development Costs
Development costs related to the preparation of operations for new routes are expensed as incurred.
Revenue Recognition
Passenger, cargo, and other revenues are recognized when the transportation is provided or after the
tickets expire, and are net of excise taxes. Revenues which have been deferred are included in the
accompanying balance sheet as air traffic liability.
Passenger Traffic Commissions and Related Expenses
Passenger traffic commissions and related expenses are expensed when the transportation is provided and
the related revenue is recognized. Passenger traffic commissions and related expenses not yet recognized
are included as a prepaid expense.
Frequent Flyer Awards
In February 2001, the Company established EarlyReturns, a frequent flyer program to encourage travel on
its airline and customer loyalty. Members earn one mile for every mile flown on Frontier plus additional
mileage with program partners, which presently include Continental Airlines, Midwest Express Airlines,
Virgin Atlantic Airways, Alamo, Hertz, National and Payless Car Rentals, Kimpton Group Hotels and
Citicorp Diners Club Inc. Through the EarlyReturns program, mileage credits can be redeemed for free
travel on Frontier Airlines and partner airlines. Use of mileage credits is subject to industry standard
restrictions including blackout dates. Miles earned in the EarlyReturns program do not expire. The
Company must purchase space on other airlines to accommodate EarlyReturns redemption travel on those
airlines.
The Company accounts for the EarlyReturns program under the incremental cost method whereby travel awards
are valued at the incremental cost of carrying one passenger based on expected redemptions. Those
incremental costs are based on expectations of expenses to be incurred on a per passenger basis and
include food and beverages, fuel, liability insurance, and ticketing costs. The incremental costs do not
include a contribution to overhead, aircraft cost or profit. Non-revenue EarlyReturns travel did not
account for any revenue passenger miles for the years ended March 31, 2001, 2000 and 1999.
As of March 31, 2001, the Company estimated that less than 20 round-trip flight awards were eligible for
redemption by EarlyReturns members who have mileage credits exceeding the 15,000-mile free round-trip
domestic ticket award threshold.
Common Stock
On March 5, 2001, the Company paid a fifty percent stock dividend to shareholders of record on February
19, 2001. All share and per share data presented in the financial statements and notes thereto have been
restated to give effect to this stock dividend.
Income Per Common Share
Basic earnings per share excludes the effect of potentially dilutive securities and is computed by
dividing income by the weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could share in earnings.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under that method, deferred
income taxes are recognized for the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between the financial statement carrying
amounts and tax bases of existing assets and liabilities. A valuation allowance for net deferred tax
assets is provided unless realizability is judged by management to be more likely than not. The effect
on deferred taxes from a change in tax rates is recognized in income in the period that includes the
enactment date.
Fair Value of Financial Instruments
The Company estimates the fair value of its monetary assets and liabilities based upon existing interest
rates related to such assets and liabilities compared to current rates of interest for instruments with a
similar nature and degree of risk. The Company estimates that the carrying value of all of its monetary
assets and liabilities approximates fair value as of March 31, 2001.
Stock Based Compensation
The Company follows Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees
("APB 25") and related Interpretations in accounting for its employee stock options and follows the
disclosure provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123). Under APB
25, because the exercise price of the Company's employee stock options equals the market price of the
underlying Common Stock on the date of grant, no compensation expense is recognized. The Company has
included the pro forma disclosures required by SFAS No. 123 in Note 9.
Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amount.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
(2) Prepaid Expenses
The March 31, 2001 and 2000 prepaid expenses is comprised of the following:
2001 2000
---- ----
Prepaid aircraft rentals $2,664,570 $ 2,652,672
Prepaid passenger traffic commissions 1,986,443 1,529,129
Prepaid fuel 371,982 929,940
Other prepaid expenses and other assets 5,826,085 2,275,110
----------------- -----------------
$10,849,080 $ 7,386,851
================= =================
(3) Property and Equipment, Net
As of March 31, 2001 and 2000 property and equipment consisted of the following:
2001 2000
---- ----
Flight equipment and improvements to leased aircraft $ 32,770,377 $ 20,891,239
Ground property, equipment and leasehold improvements 12,704,749 6,571,776
Construction in progress 3,665,614 -
--------------- --------------
49,140,740 27,463,015
Less accumulated depreciation and amortization 11,040,614 5,808,753
--------------- --------------
Property and equipment, net $ 38,100,126 $ 21,654,262
=============== ==============
Property and equipment includes certain office equipment and software under capital leases. At March 31,
2001 and 2000, office equipment and software recorded under capital leases were $602,149 and accumulated
amortization was $302,204 and $163,428, respectively. Construction in progress includes capitalized
software totaling approximately $900,000 and Airbus flight equipment not yet placed in service totaling
approximately $2,800,000.
(4) Other Accrued Expenses
The March 31, 2001 and 2000 other accrued expenses is comprised of the following:
2001 2000
---- ----
Accrued salaries and benefits $11,769,806 $ 5,505,449
Income taxes payable - 5,483,264
Federal excise taxes payable 2,720,977 3,664,429
Other 3,745,696 2,888,877
----------------- ------------------
$18,236,479 $ 17,542,019
================= ==================
(5) Lease Commitments
Aircraft Leases
At March 31, 2001, the Company operated 25 aircraft which are accounted for under operating lease agreements with initial
terms ranging from 2.7 years to 8 years. Certain leases allow for renewal options. Security deposits related to leased
aircraft at March 31, 2001 and 2000 totaled $3,957,789 and $3,257,789 and are included in security, maintenance and other
deposits on the balance sheet. Letters of credit issued to certain aircraft lessors in lieu of cash deposits and related
restricted investments to secure these letters of credit at March 31, 2001 and 2000 totaled $7,526,000 and $7,284,000,
respectively.
During the year ended March 31, 2001, the Company entered into aircraft leases for 16 Airbus aircraft with lease terms of
approximately 12 years. Delivery dates begin in June 2001 and end in October 2004. At March 31, 2001, security deposits and
letters of credit issued to an aircraft lessor in lieu of cash deposits totaled $250,000 and $3,088,500, respectively.
Restricted investments to secure these letters of credit at March 31, 2001 totaled $3,088,500.
In addition to scheduled future minimum lease payments, the Company is required to make monthly maintenance deposits and a
liability for accrued maintenance is established based on usage. The lease agreements require the Company to pay taxes,
maintenance, insurance, and other operating expenses applicable to the leased property. At March 31, 2001 and 2000, aircraft
maintenance deposits totaled $42,255,002 and $26,911,635, respectively, and are reported as a component of security,
maintenance and other deposits on the balance sheet.
Any cash deposits paid to aircraft lessors for future scheduled maintenance costs to the extent not used during the lease
term remain with the lessors, and any remaining liability for maintenance checks is reversed against the deposit balance.
Maintenance deposits are unsecured and may be subject to the risk of loss in the event the lessors are not able to satisfy
their obligations under the lease agreements.
Other Leases
The Company leases an office, hangar space, spare engines and office equipment for its headquarters,
airport facilities, and certain other equipment. The Company also leases certain airport gate facilities
on a month-to-month basis.
At March 31, 2001, commitments under capital and noncancelable operating leases (excluding maintenance deposit requirements)
with terms in excess of one year were as follows:
Capital Operating
Leases Leases
------- ------
Year ended March 31:
2002 $153,320 $73,686,103
2003 153,320 76,398,616
2004 44,322 77,206,098
2005 - 69,403,130
2006 - 53,539,139
Thereafter 413,585,032
--------------- ------------------
Total minimum lease payments 350,962 $ 763,818,118
==================
Less amount representing interest 21,547
---------------
Present value of obligations
under capital leases 329,415
Less current portion of obligations
under capital leases 125,552
---------------
Obligations under capital leases,
excluding current portion $203,863
===============
The obligations under capital leases have been discounted at imputed interest rates ranging from 10% to 13%.
Rental expense under operating leases, including month-to-month leases, for the years ended March 31, 2001, 2000 and 1999 was
$80,781,897, $65,201,876 and $46,099,140, respectively.
(6) Senior Secured Notes
In December 1997, the Company sold $5,000,000 of 10% senior secured notes to Wexford Management LLC ("Wexford"). The notes
were due and payable in full on December 15, 2001 with interest payable quarterly in arrears. The notes were secured by
substantially all of the assets of the Company. The Wexford agreement contained restrictions primarily related to liens on
assets and required prior written consent for expenditures outside the ordinary course of business. In connection with this
transaction, the Company issued Wexford warrants to purchase 2,625,000 shares of Common Stock at $2.00 per share. The
Company determined the value of the warrants to be $1,645,434 and recorded the value as a discount on notes payable and as
equity in additional paid-in capital. The balance of the notes were to be accreted to its face value over the term of the
notes and included as interest expense. The effective interest rate on the notes was approximately 18.2% considering the
value of the warrants
During the year ended March 31, 1999, Wexford exercised all of the warrants described above. As permitted under the terms of
the agreement, Wexford elected to tender debt for the warrant exercise price first by application of accrued unpaid interest
and the remainder by reducing the principal balance of the notes. The total amount of $5,250,000 from the exercise was
comprised of the following: payment of accrued interest totaling $134,971, then to the outstanding principal balance
totaling $4,058,159, and the remaining balance in cash to the Company totaling $1,056,870. In January 1999, the Company paid
the remaining balance of the note in full which totaled $941,841, thereby terminating all of Wexford's security interests in
the Company's assets.
The discount amortized to interest expense prior to the pay-off of the notes totaled $199,975 year ended March 31, 1999. Upon the
exercise of the warrants by Wexford, $1,094,042 of unamortized discount was charged to additional paid-in capital. The
remaining unamortized discount and other deferred loan costs totaled $485,846 at the repayment date and were charged to other
nonoperationg expense.
(7) Income Taxes
Income tax expense (benefit) for the years ended March 31, 2001, 2000 and 1999 consists of:
Current Deferred Total
-------- --------- ------
Year ended March 31, 2001:
U.S. Federal $28,441,039 $ 1,008,515 $29,449,554
State and local 3,877,611 137,500 4,015,111
----------------- ------------------ ------------------
$32,318,650 $ 1,146,015 $ 33,464,665
================= ================== ==================
Year ended March 31, 2000:
U.S. Federal $ 9,785,064 $ 4,726,153 $14,511,217
State and local 1,811,343 631,814 2,443,157
----------------- ------------------ ------------------
$11,596,407 $ 5,357,967 $16,954,374
================= ================== ==================
Year ended March 31, 1999:
U.S. Federal $ 531,077 $ (5,244,134) $ (4,713,057)
State and local - (766,513) (766,513)
----------------- ------------------ ------------------
$ 531,077 $ (6,010,647) $ (5,479,570)
================= ================== ==================
The differences between the Company's effective rate for income taxes and the federal statutory rate are shown in the
following table:
2001 2000 1999
---- ---- ----
Income tax expense
at the statutory rate (35%) (35%) (35%)
Decrease in valuation
allowance - - 60%
State and local income tax, net of
federal income tax benefit (3%) (3%) (3%)
Nondeductible expenses - (1%) -
----------------- ----------------- ------------------
(38%) (39%) 22%
================= ================= ==================
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at
March 31, 2001 and 2000 are presented below:
2001 2000
---- ----
Deferred tax assets:
Accrued vacation and
insurance liabilities not
deductible for tax purposes $ 1,355,226 $ 1,041,000
Inventory reserves 856 134,000
Other 150,136 136,000
------------------ ------------------
Total gross deferred tax assets 1,506,218 1,311,000
Deferred tax liabilities:
Equipment depreciation and
amortization (1,999,553) (556,000)
Book/tax difference on warrant
treatment (102,000)
------------------ ------------------
Total gross deferred tax liabilities (1,999,553) (658,000)
------------------ ------------------
Net deferred tax asset (liability) $ (493,335) $ 653,000
================== ==================
The net deferred tax asset (liability) are reflected in accompanying balance sheet as follows:
2001 2000
---- ----
Current deferred tax assets $1,506,218 $1,136,194
Non-current deferred tax liability (1,999,553) (483,514)
------------------- ------------------
Net deferred tax asset (liability) $ (493,335) $ 652,680
=================== ==================
The Company recognized an income tax benefit of $5,479,570 in 1999 attributable to the probable
realization of its remaining income tax loss carryforwards for which a valuation allowance had previously
been recorded. The Company's net operating loss carryforwards of approximately $11,891,000 and
alternative minimum tax credits of approximately $525,000 at March 31, 1999 were fully utilized to reduce
federal regular income taxes during the year ended March 31, 2000.
(8) Warrants and Stock Purchase Rights
In October 1995, the Company issued to each of two Boeing 737-300 aircraft lessors a warrant to purchase 150,000 shares of
Common Stock for an aggregate purchase price of $500,000. In June 1996, the Company issued two warrants to a Boeing 737-200
lessor, each warrant entitling the lessor to purchase 105,000 shares of Common Stock at an aggregate exercise price of
$503,300 per warrant. In connection with a Boeing 737-300 aircraft delivered in August 1997, the Company issued to the lessor
a warrant to purchase 82,500 shares of Common Stock at an aggregate purchase price of $385,000. During May and June 1999,
aircraft lessors exercised all 592,500 warrants with net proceeds to the Company totaling $2,391,600. To the extent that the
aircraft lessors were able to realize certain profit margins on their subsequent sale of the stock, they were required to
refund a portion of the cash security deposits they were holding. As a result of their sale of the Company's Common Stock,
$1,024,000 in cash security deposits were returned to the Company during the year ended March 31, 2000.
In February 1998, in connection with the $5,000,000 senior notes as discussed in Note 6, the Company issued a warrant to the
lender to purchase 2,625,000 shares of the Company's Common Stock at a purchase price of $2.00 per share. During the year
ended March 31, 1999, this warrant was exercised in its entirety.
In May 1998, the Company issued to its financial advisor, in connection with debt and equity financings, a warrant to purchase
822,000 shares of the Company's Common Stock at a purchase price of $2.00 per share, which warrant expires in May 2003. Of
the 822,000 warrants issued, 174,675 were attributable to the issuance of the senior secured notes discussed in Note 6. The
Company recorded a value of $109,492 for these warrants and recorded the value as equity in additional paid in capital and
deferred loan costs. During the year ended March 31, 2000, the financial advisor exercised the warrant with net proceeds to
the Company totaling $1,644,000.
In April 1998, in connection with a private placement of 6,544,501 shares of its Common Stock, the Company issued a warrant to
an institutional investor to purchase 1,075,393 shares of its Common Stock at a purchase price of $2.50 per share, which
warrant expires in April 2002. During the year ended March 31, 2001, the institutional investor exercised 550,394 warrants
with net proceeds to the Company totaling $1,375,984.
In February 1997, the Board of Directors declared a dividend distribution of one Common Stock purchase
right for each share of the Company's Common Stock outstanding on March 15, 1997. Each right entitles a
shareholder to purchase one share of the Company's Common Stock at a purchase price of $65.00 per full
common share, subject to adjustment. There are currently 0.67 rights associated with each outstanding
share of Common Stock. The rights are not currently exercisable, but would become exercisable if certain
events occurred relating to a person or group acquiring or attempting to acquire 20 percent or more of
the outstanding shares of the Company's Common Stock. The rights expire on February 20, 2007, unless
redeemed by the Company earlier. Once the rights become exercisable, each holder of a right will have
the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of the Company) having a value equal to two times the exercise price of the right.
(9) Stock Option Plan
The Company has a stock option plan whereby the Board of Directors or its Compensation Committee may grant options to purchase
shares of the Company's Common Stock to employees, officers, and directors of the Company.
Under the plan, the Company has reserved an aggregate of 6,375,000 shares of Common Stock for issuance pursuant to the
exercise of options. With certain exceptions, options issued through March 31, 2001 generally vest over a five-year period
from the date of grant and expire from March 9, 2004 to March 4, 2011. At March 31, 2001, 1,497,375 options are available for
grant under the plan.
A summary of the Plan's stock option activity and related information for the years ended March 31, 2001, 2000 and 1999 is as
follows:
2001 2000 1999
------------------------------------------------------------------------
Weight- Weight- Weight-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------
Outstanding-beginning of year 2,629,469 $3.61 2,694,531 $2.23 2,298,093 $1.04
Granted 517,500 $11.56 450,000 $8.94 1,076,250 $3.96
Exercised (865,525) $2.18 (515,065) $1.09 (679,812) $0.89
Surrendered (78,000) $5.95 - - - -
------------------------------------------------------------------------
2,203,444 $6.07 2,629,469 $3.61 2,694,531 $2.23
========================================================================
Exercisable at end of year 911,945 $3.16 1,459,469 $1.85 1,654,530 $1.13
Exercise prices for options outstanding under the plan as of March 31, 2001 ranged from $.667 to $24.168 per option share.
The weighted-average remaining contractual life of those options is 7 years. A summary of the outstanding and exercisable
options at March 31, 2001, segregated by exercise price ranges, is as follows:
------------------------------------------------------------------------------------------------------
Weighted-
Average
Weighted- Remaining Weighted-
Exercise Price Options Average Contractual Exercisable Average
Range Outstanding Exercise Price Life (in years) Options Exercise Price
------------------------------------------------------------------------------------------------------
$ 0.667 - $ 1.667 371,468 $0.80 3.0 371,468 $0.80
$ 2.000 - $ 3.374 513,476 2.37 7.1 247,977 2.23
$ 5.417 - $ 8.834 855,000 6.71 8.4 244,500 6.07
$10.000 - $24.168 463,500 13.23 9.1 48,000 11.51
-----------------------------------------------------------------------------------
2,203,444 $6.07 7.3 911,945 $3.16
===================================================================================
The Company applies APB Opinion 25 and related Interpretations in accounting for its plans. Accordingly,
no compensation cost is recognized for options granted at a price equal to the fair market value of the
Common Stock. Pro forma information regarding net income and earnings per share is required by SFAS No.
123, which also requires that the information be determined as if the Company has accounted for its
employee stock options under the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2001, 2000 and 1999, respectively: risk-free interest rates of 6.02%,
5.98% and 5.36%, dividend yields of 0%, 0% and 0%; volatility factors of the expected market price of the
Company's common stock of 56.78%, 61.38% and 69.25%, and a weighted-average expected life of the options
of 2.7 years, 3.5 years, and 3.7 years. Had compensation cost for the Company's stock-based compensation
plan been determined using the fair value of the options at the grant date, the Company's pro forma net
income and earnings per share would be as follows:
2001 2000 1999
---- ---- ----
Net Income:
As reported $ 54,867,773 $ 27,009,253 $ 30,566,060
Pro forma $ 55,530,524 $ 26,230,907 $ 30,263,570
Earnings per share, basic:
As reported $ 2.02 $ 1.04 $ 1.43
Proforma $ 1.97 $ 1.01 $ 1.42
Earnings per share, diluted:
As reported $ 1.90 $ 0.95 $ 1.32
Proforma $ 1.86 $ 0.93 $ 1.31
(10) Retirement Plans
Employee Stock Ownership Plan
The Company has established an Employee Stock Ownership Plan (ESOP) which inures to the benefit of each
employee of the Company, except those employees covered by a collective bargaining agreement that does
not provide for participation in the ESOP. Company contributions to the ESOP are discretionary and may
vary from year to year. In order for an employee to receive an allocation of Company Common Stock from
the ESOP, the employee must be employed on the last day of the ESOP's plan year, with certain
exceptions. The Company's annual contribution to the ESOP, if any, will be allocated among the eligible
employees of the Company as of the end of each plan year in proportion to the relative compensation (as
defined in the ESOP) earned that plan year by each of the eligible employees. The ESOP does not provide
for contributions by participating employees. Employees will vest in contributions made to the ESOP
based upon their years of service with the Company. A year of service is an ESOP plan year during which
an employee has at least 1,000 hours of service. Vesting generally occurs at the rate of 20% per year,
beginning after the first year of service, so that a participating employee will be fully vested after
five years of service. Distributions from the ESOP will not be made to employees during employment.
However, upon termination of employment with the Company, each employee will be entitled to receive the
vested portion of his or her account balance.
During the years ended March 31, 2001 and 2000, the Company contributed 135,000 and 150,000 shares,
respectively to the plan. Total Company contributions to the ESOP from inception through March 31, 1999
totaled 736,813 shares. The Company recognized compensation expense during the years ended March 31,
2001, 2000 and 1999 of $1,411,876, $895,412 and $848,875, respectively, related to its contribution to
the ESOP.
Retirement Savings Plan
The Company has established a Retirement Savings Plan (401(k)). Participants may contribute from 1% to
15% of pre-tax annual compensation. Annual individual pre-tax participant contributions are limited to
$10,500 for calendar year 2001 and 2000, and $10,000 for calendar year 1999 under the Internal Revenue
Code. Participants are immediately vested in their voluntary contributions.
Effective May 2000, for the plan year ending December 31, 2000, the Company's Board of Directors elected
to match 50% of participant contributions up to 10% of salaries from May 2000 through December 2000.
Effective November 2000, the Company's Board of Directors elected to continue to match 50% of participant
contributions up to 10% of salaries for the plan year ended December 31, 2001. Effective April 1999, for
the plan year ending December 31, 1999, the Company's Board of Directors elected to match 25% of
participant contributions from April 1999 through April 2000. During the years ended March 31, 2001 and
2000, the Company recognized compensation expense associated with the matching contributions totaling
$1,286,611 and $513,758, respectively. The Company had not matched any contributions made prior to April
1999. Future matching contributions, if any, will be determined annually by the Board of Directors. In
order to receive the matching contribution, Participants must be employed on the last day of the plan
year. Participants will vest in contributions made to the 401(k) upon their years of service with the
Company. A year of service is a 401(k) plan year during which a participant has at least 1,000 hours of
service. Vesting generally occurs at the rate of 20% per year, beginning after the first year of
service, so that a Participant will be fully vested after five years of service. Upon termination of
employment with the Company, each participant will be entitled to receive the vested portion of his or
her account balance.
Retirement Health Benefits
Effective May 2000 in conjunction with the Company's first collective bargaining agreement with its pilots, a retired Pilot and
their dependents may retain medical benefits under the terms and conditions of the Plan until age 65. The cost of retiree
medical benefits are continued under the same contribution schedule as active employees. The following table provides
a reconciliation of the changes in the plans' benefit obligations and fair value of assets for the year ended March 31, 2001,
and a statement of funded status as of March 31, 2001:
Reconciliation of benefit obligation:
Obligation at March 31, 2000 $ -
Service cost 327,073
Interest cost 24,273
Net actuarial gain (6,998)
---------------
Obligation at March 31, 2001 $ 344,348
===============
Funded status at March 31, 2001 $ (344,348)
Unrecognized net actuarial gain (6,998)
---------------
Accrued benefit liability $ (351,346)
===============
(11) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
2001 2000 1999
---------------- ------------------ -----------------
Numerator:
Income before cumulative effect
of accounting changes $54,867,773 $26,460,244 $30,566,060
Cumulative effect of accounting
change, net - 549,009 -
---------------- ------------------ -----------------
Net income $54,867,773 $27,009,253 $30,566,060
================ ================== =================
Denominator:
Weighted average shares outstanding,
basic 27,152,099 25,994,100 21,386,492
Dilutive effect of employee stock options 1,260,094 1,521,439 1,164,174
Dilutive effect of warrants 430,590 769,493 551,487
---------------- ------------------ -----------------
Weighted-average shares
outstanding, diluted 28,842,783 28,285,032 23,102,153
================ ================== =================
Basic earnings per share:
Before cumulative effect of
change in accounting principle $ 2.02 $ 1.02 $ 1.43
Cumulative effect of change in
accounting principle - 0.02 -
-----------------------------------------------------
Basic earnings per share $ 2.02 $ 1.04 $ 1.43
================ ================== =================
Diluted earnings per share:
Before cumulative effect of
change in accounting principle $ 1.90 $ 0.93 $ 1.32
Cumulative effect of change in
accounting principle - 0.02 -
-----------------------------------------------------
Diluted earnings per share $ 1.90 $ 0.95 $ 1.32
================ ================== =================
For the years ending March 31, 2001, 2000 and 1999, the Company has excluded from its calculations of
diluted earnings per share, 97,500, 247,500 and 1,548,150 options and warrants, with exercise prices
ranging from $15.19 to $24.17, $8.55 to $11.05, and $3.34 to $6.00, respectively, because the option and
warrant's exercise price was less than the average market price of the common shares for the respective
year.
(12) Concentration of Credit Risk
The Company does not believe it is subject to any significant concentration of credit risk relating to receivables. At March
31, 2001 and 2000, 79.5% and 69.7% of the Company's receivables relate to tickets sold to individual passengers through the
use of major credit cards, travel agencies approved by the Airlines Reporting Corporation, tickets sold by other airlines and
used by passengers on Company flights, the United States Postal Service, or the Internal Revenue Service. Receivables related
to tickets sold are short-term, generally being settled shortly after sale or in the month following ticket usage.
(13) Commitments and Contingencies
The Company is party to legal proceedings and claims which arise during the ordinary course of business.
In the opinion of management, the ultimate outcome of these matters will not have a material adverse
effect upon the Company's financial position or results of operations.
In March 2000, the Company entered into an agreement with AVSA, S.A.R.L., as subsequently amended, to
purchase up to 29 new Airbus aircraft. We have agreed to firm purchases of 12 of these aircraft, and
have options to purchase up to an additional 17 aircraft. The 12 firm aircraft are scheduled to be
delivered in calendar years 2001 through 2005. The aggregate additional amounts due under this purchase
commitment and estimated amounts for buyer-furnished equipment and spare parts for both the purchased and
leased aircraft was approximately $373,500,000 at March 31, 2001. Under the terms of the purchase
agreement, the Company is required to make scheduled pre-delivery payments. These payments are
non-refundable with certain exceptions. As of March 31, 2001, the Company has made pre-delivery payments
totaling $28,511,000 to secure these aircraft and option aircraft. Pre-delivery payments due in fiscal
year 2002 approximate $15,985,000. After pre-delivery payments, the balance of the total purchase price
must be paid upon delivery of each aircraft. In order to complete the purchase of these aircraft, it
will be necessary for the Company to secure financing. The amount of financing required will depend on
the number of aircraft purchase options exercised and the amount of cash generated by operations prior to
delivery of the aircraft. At this time, the type of financing has not been determined except for the
three initial Airbus aircraft (see Note 14).
(14) Subsequent Events
In May 2001, we entered into a credit agreement to borrow up to $72,000,000 for the purchase of three
Airbus aircraft together with a maximum borrowing of $24,000,000 per aircraft. Each aircraft loan will
have a term of 120 months and will be payable in equal monthly installments, including interest, payable
in arrears. As of May 30, 2001, we have borrowed $24,000,000 for the purchase of the first Airbus
aircraft. The note for this borrowing has monthly payments of $209,110, bears interest at 6.714%, and
matures in May 2011 with a balloon payment of $10,200,000.
(15) Selected Quarterly Financial Data (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
2001
- ----
Revenues $ 112,808,744 $ 131,082,878 $ 114,212,036 $ 114,772,769
==================================== ================= =================
Operating Expenses $ 87,435,488 $ 100,489,658 $ 99,549,616 $ 104,680,345
==================================== ================= =================
Net Income $ 16,448,242 $ 20,193,576 $ 10,284,653 $ 7,941,302
==================================== ================= =================
Earnings per share:
Basic $ 0.62 $ 0.75 $ 0.38 $ 0.28
==================================== ================= =================
Diluted $ 0.57 $ 0.69 $ 0.35 $ 0.27
==================================== ================= =================
2000
- ----
Revenues $ 77,886,197 $ 85,453,265 $ 73,973,909 $ 92,506,584
==================================== ================= =================
Operating Expenses $ 66,120,957 $ 72,350,177 $ 69,964,227 $ 82,075,370
==================================== ================= =================
Income before cumulative effect of
change in accounting principle $ 7,728,564 $ 8,752,522 $ 3,095,381 $ 6,883,777
Cumulative effect of change in method of
accounting for maintenance checks 549,009 - - -
------------------------------------ ----------------- -----------------
Net income $ 8,277,573 $ 8,752,522 $ 3,095,381 $ 6,883,777
==================================== ================= =================
Basic earning per share:
Before cumulative effect
of change in accounting principle $ 0.31 $ 0.33 $ 0.12 $ 0.26
Cumulative effect of change in method
of accounting for maintenace checks 0.02 - - -
------------------------------------ ----------------- -----------------
Net income $ 0.33 $ 0.33 $ 0.12 $ 0.26
==================================== ================= =================
Diluted earnings per share:
Before cumulative effect
of change in accounting principle $ 0.27 $ 0.31 $ 0.11 $ 0.24
Cumulative effect of change in method
of accounting for maintenance checks 0.02 - - -
------------------------------------ ----------------- -----------------
Net income $ 0.29 $ 0.31 $ 0.11 $ 0.24
==================================== ================= =================
