United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period From to
Commission file number 000-21642
AMTRAN, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1617970
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46231
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(Address of principal executive offices) (Zip Code)
(317) 247-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods 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 ______
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]
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes ______ No ______
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, Without Par Value - 12,066,021 shares as of February 29, 2000.
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933.
Portions of the Amtran, Inc. and Subsidiaries' Proxy Statement dated April 5,
2000, are incorporated by reference into Part III.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - 1999
AMTRAN INC. AND SUBSIDIARIES
Page #
PART I
Item 1. Business........................................................................................... 4
Item 2. Properties.........................................................................................10
Item 3. Legal Proceedings..................................................................................10
Item 4. Submission of Matters to a Vote of Security Holders................................................10
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters.......................11
Item 6. Selected Consolidated Financial Data...............................................................11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..............12
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.........................................32
Item 8. Financial Statements and Supplementary Data........................................................34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...............49
PART III
Item 10. Directors and Officers of the Registrant...........................................................49
Item 11. Executive Compensation.............................................................................49
Item 12. Security Ownership of Certain Beneficial Owners and Management.....................................49
Item 13. Certain Relationships and Related Transactions.....................................................50
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.....................................50
Item 14d. Valuation and Qualifying Accounts..................................................................53
PART I - Continued
Item 1. Business
Amtran, Inc. (the "Company") owns American Trans Air, Inc. ("ATA"), the eleventh
largest passenger airline in the United States (based on 1999 revenues) and a
leading provider of airline services in selected markets. The Company is the
largest commercial charter airline in the United States and the largest provider
of passenger airline services to the U.S. military, in each case based on 1999
revenues. For the year ended December 31, 1999, the revenues of the Company
consisted of 55.7% scheduled service, 23.5% commercial charter service and 11.2%
military charter service, with the balance derived from related services.
Scheduled Service
The Company provides scheduled service through ATA to selected destinations
primarily from its gateways at Chicago-Midway and Indianapolis and also provides
transpacific services between the western United States and Hawaii. In the
second quarter of 1999, the Company added scheduled service between
Chicago-Midway and Philadelphia. The Company focuses on routes where it believes
it can be a leading provider of nonstop service and targets leisure and
value-oriented business travelers.
The Company believes that it has significant competitive advantages in each of
its primary markets.
Chicago-Midway, the Company's largest and fastest growing gateway,
represented approximately 56.7% of the Company's total scheduled service
capacity in 1999. The Company is the number one carrier in terms of market
share in 20 out of its 22 nonstop routes from Chicago-Midway. The Company
believes its service at this gateway would be difficult to replicate
because of limited available airport capacity. This competitive position is
enhanced by Chicago-Midway's proximity to downtown Chicago and the fact
that, for a substantial portion of the population within the metropolitan
region, Chicago-Midway is the most convenient airport. The Company began
service at Chicago-Midway in December 1992.
Hawaii represented approximately 18.5% of the Company's total scheduled
service capacity in 1999. The Company believes it is the lowest-cost
provider of scheduled service between the western United States and Hawaii,
which is critical in this price-sensitive, predominantly leisure market.
Furthermore, a majority of the Company's capacity in the Hawaiian market is
contracted to the nation's largest independent Hawaiian tour operator,
which assumes capacity, yield and fuel risk. The Company has served the
Hawaiian market since 1974 through its commercial charter operations and
since 1987 through its scheduled service operations.
Indianapolis represented approximately 14.0% of the Company's total
scheduled service capacity in 1999. The Company began scheduled service
from Indianapolis in 1986 and believes that it benefits from being
perceived as the hometown airline. The Company is the number one provider
in terms of market share in seven of its eight nonstop jet routes from
Indianapolis. In Indianapolis, the Company operates Ambassadair, the
nation's largest travel club with approximately 41,000 individual or family
memberships, providing the Company with a local marketing advantage similar
to a frequent flier program.
Commercial Charter Service
The Company is the largest commercial passenger charter airline in the United
States and provides services throughout the world, primarily to U.S. and
European tour operators. The Company seeks to maximize the profitability of
these operations by leveraging its leading market position, diverse aircraft
fleet and worldwide operating capability. The Company believes its commercial
charter services are a predictable source of revenues and operating profits in
part because its commercial charter contracts require tour operators to assume
capacity, yield and fuel price risk, and also because of the Company's ability
to re-deploy assets into favorable markets. The Company's commercial charter
services are marketed through a network of domestic sales offices along with a
London office.
Military/Government Charter Service
The Company has provided passenger airline services to the U.S. military since
1983 and is currently the largest commercial airline provider of these services.
The Company believes that because these operations are generally less seasonal
than leisure travel, they have tended to have a stabilizing impact on the
Company's operating margins. The U.S. government awards one-year contracts for
its military charter business and pre-negotiates contract prices for each type
of aircraft that a carrier makes available. The Company believes that its fleet
of aircraft is well suited to the needs of the military.
Strategy
The Company intends to enhance its position as a leading provider of passenger
airline services to selected markets where it can capitalize on its competitive
strengths. The key components of this strategy are:
Participate in Markets Where it Can Be a Leader
The Company focuses on markets where it can be a leading provider of airline
services. In scheduled service, the Company concentrates on routes where it can
be the number one or number two carrier. The Company achieves this result
principally through superior nonstop schedules, value-oriented service, focused
marketing efforts and certain airport and aircraft advantages. The Company is
the leading provider of commercial and military charter services in large part
because of its variety of aircraft types, superior operational performance and
its worldwide service capability.
Maintain Low-Cost Position
For 1997, 1998 and 1999, the Company's operating cost per available seat mile
("CASM") of 6.09(cent), 6.09(cent) and 6.84(cent), respectively, was the lowest
among large U.S. passenger airlines. The airline segment CASM was 5.97(cent),
6.00(cent) and 6.38(cent), respectively, for the years ended 1997, 1998 and
1999. See "--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations in Cents per ASM." The Company
believes that its low-cost structure provides a significant competitive
advantage, allowing it to operate profitably while pricing competitively in the
scheduled service and commercial and military charter markets. The Company
believes its low-cost position is primarily derived from its simplified product,
route structure, low aircraft ownership costs and low overhead costs.
Target Growth Opportunities
The Company intends to expand its operations selectively in areas where it
believes it can achieve attractive financial returns.
Charter Expansion. The Company has acquired five long-range Lockheed
L-1011-500 aircraft primarily for commercial and military charter service,
whose low-cost and high-seating capacity will enable the Company to compete
for business that it could not previously accommodate (e.g., nonstop
service to certain South American, European and Asian destinations).
Scheduled Service Expansion at Chicago-Midway. The Company plans to
increase frequencies and add up to four destinations from its
Chicago-Midway gateway over the next 12 months and to support this
expansion by adding four Boeing 757-200 aircraft to its fleet in 2000.
Included in these new destinations is new service between Chicago-Midway
and Ronald Reagan Washington National Airport, beginning April 3, 2000, as
well as new services to Boston and Seattle, beginning May 7, 2000. The
Company will also occupy additional gates upon completion of the new
terminal at Chicago-Midway to facilitate these expanding operations. In
addition, the Company will use the proceeds of a $17.0 million Special
Facility Revenue Bond issued in December 1999 to pay a portion of the cost
of construction of a Federal Inspection Service facility ("FIS") at the
Chicago-Midway Airport. This will allow international flights to operate
directly to and from Chicago-Midway.
Selected Acquisitions. The Company continually evaluates possible
acquisitions of related businesses or interests therein to enhance its
competitive position in its market segments. The Company also continues to
evaluate possible business combinations with air carriers and others that
could result in a change of control of Amtran.
Industry Overview
Scheduled Airline Service
In the United States, the scheduled airline business is dominated by large
scheduled airlines, most of which have developed hub-and-spoke route systems. As
a result of this structure, many smaller cities or airports are not served by
direct or nonstop flights to leisure destinations, and many secondary leisure
destinations do not receive direct or nonstop service from more than a few major
U.S. cities. In developing its business, the Company has focused on
low-frequency, nonstop or direct service from its principal gateways to leisure
or business destinations where there is little or no competing direct or nonstop
service.
Commercial and Military/Government Charter Airline Service
In the United States, the passenger charter airline business is served by major
scheduled airlines and a number of U.S. and non-U.S. charter airlines.
Historically, charter airlines have supplemented the service provided by
scheduled airlines by providing additional capacity at times of peak demand,
such as during the Persian Gulf War, and on a longer-term basis to supplement
the U.S. military's own passenger fleet. Based on the most recently available
Department of Transportation ("DOT") statistics, total charter flights by all
U.S. airlines represented approximately 2.7% of all available seat miles
("ASMs") flown within the United States during the twelve months ended September
30, 1999.
The Company's Airline Operations
Services Offered
The following table provides a summary of the Company's major revenue sources
for the periods indicated:
Year Ended December 31,
---------- --- --------- --- --------- --- --------- --- -----------
1999 1998 1997 1996 1995
---------- --- --------- --- --------- --- --------- --- -----------
(Dollars in millions)
Scheduled service $624.6 $511.3 $371.8 $386.5 $362.0
---------- --- --------- --- --------- --- --------- --- -----------
Commercial charter 263.8 222.6 228.1 226.4 229.5
Military charter 126.2 121.9 131.1 84.2 77.5
---------- --- --------- --- --------- --- --------- --- -----------
Total charter service 390.0 344.5 359.2 310.6 307.0
---------- --- --------- --- --------- --- --------- --- -----------
Other 107.8 63.6 52.2 53.8 46.0
---------- --- --------- --- --------- --- --------- --- -----------
Total $1,122.4 $919.4 $783.2 $750.9 $715.0
========== === ========= === ========= === ========= === ===========
Scheduled Service
The Company provides scheduled airline services on selected routes where it
believes that it can be one of the leading carriers in the market, focusing
primarily on low-cost, nonstop or direct flights. The Company currently provides
scheduled service primarily from its gateway cities of Chicago-Midway and
Indianapolis to popular vacation destinations such as Hawaii, Las Vegas,
Florida, California, Mexico and the Caribbean, as well as to New York's John F.
Kennedy and LaGuardia Airports, Philadelphia, Denver and Dallas-Ft. Worth.
Beginning in April 1997 the Company had entered into a code-share agreement with
Chicago Express to operate passenger airline services between Chicago-Midway and
the cities of Indianapolis, Milwaukee, Des Moines, Dayton and Grand Rapids using
Jetstream 31 propeller aircraft. The agreement was expanded in October 1997 to
include Lansing and Madison. On April 30, 1999, the Company acquired all of the
issued and outstanding stock of Chicago Express. Chicago Express' results of
operations, beginning May 1999, were consolidated into the Company, replacing
the fixed fee per flight previously recorded by the Company. This generated no
material change to operating expenses and the operating revenues associated with
these operations were already reflected in the Company's results of operations.
In January 2000, Chicago Express entered into an agreement to purchase nine SAAB
340B aircraft, engines and related parts. The aircraft will be placed into
service throughout 2000 in conjunction with the return of the current fleet of
Jetstream 31s to the lessor.
Included in the Company's jet scheduled service are bulk sales agreements with
tour operators. Under these arrangements, which are very similar to charter
sales, the tour operator may take up to 85% of an aircraft as a bulk-seat
purchase. The seats which the Company retains are sold through its own scheduled
service distribution network. Under bulk sales arrangements, the Company is
obligated to provide transportation to the tour operators' customers even in the
event of non-payment to the Company by tour operators. To minimize its credit
exposure under these arrangements, the Company requires bonding or a security
deposit for a portion of the contract price. Bulk seat sales amounted to $59.0
million, $68.6 million and $71.2 million in 1997, 1998 and 1999, respectively,
which represented 7.5%, 7.5% and 6.3%, respectively, of the Company's
consolidated revenues for such periods.
Commercial Charter
Commercial charter represented 29.1%, 24.2% and 23.5%, respectively of the
Company's consolidated revenues for 1997, 1998 and 1999. The Company's principal
customers for commercial charter are tour operators, sponsors of incentive
travel packages and specialty charter customers.
Tour Operator Programs. These leisure-market programs are generally contracted
for repetitive, round-trip patterns, operating over varying periods of time. In
such an arrangement, the tour operator pays a fixed price for use of the
aircraft, including the crew and all necessary passenger and aircraft handling
services, and assumes responsibility and risk for the actual sale of the
available aircraft seats. Under most of its contracts with tour operators, the
Company passes through increases in fuel costs from a contracted price. Under
these contracts, if the fuel increase causes the tour operator's fuel cost to
rise in excess of 10%, the tour operator has the option of canceling the
contract. The Company is exposed to increases in fuel costs that occur within 14
days of flight time.
Although the Company serves tour operators on a worldwide basis, its primary
customers are U.S.-based. The Company's five largest tour operator customers
represented approximately 16.2%, 14.4% and 12.5%, respectively, of the Company's
consolidated revenues for 1997, 1998 and 1999, and the ten largest tour operator
customers represented approximately 20.8%, 17.5% and 14.7%, respectively, of the
Company's consolidated revenues for the same periods.
Incentive Travel Programs. Many corporations offer travel to leisure
destinations or special events as incentive awards for their employees. The
Company has historically provided air travel for many corporate incentive
programs. Incentive travel customers range from national incentive marketing
companies who arrange such programs for corporate clients, to large corporations
that handle their incentive travel programs on an in-house basis.
Specialty Charters. The Company operates a significant number of specialty
charter flights. These programs are normally contracted on a single round-trip
basis and vary extensively in nature. These flights allow the Company to
increase aircraft utilization during off-peak periods.
Military/Government Charter
In 1997, 1998 and 1999, sales to the U.S. military and other governmental
agencies were approximately 16.8%, 13.3% and 11.2%, respectively, of the
Company's consolidated revenues. Traditionally, the Company's focus has been on
short-term military "contract expansion" business which is routinely awarded by
the U.S. government based on availability of appropriate aircraft. The U.S.
government awards one-year contracts for its military charter business, and
pre-negotiates contract prices for each type of aircraft a carrier makes
available. Such contracts are awarded based upon the participating airlines'
average costs. The short-term expansion business is awarded pro rata to those
carriers with aircraft availability who have been awarded the most fixed-award
business, and then to any additional carrier that has aircraft available. The
Company's current contractor teaming arrangement significantly increases the
likelihood that the team will receive both fixed-award and contract expansion
business. See "--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Military/Government Charter Revenues."
The Company is subject to biennial inspections by the Department of Defense as a
condition of retaining its eligibility to perform military charter flights. The
last such inspection was completed in the fourth quarter of 1999.
Other Business
In addition to its core charter and scheduled service businesses, the Company
operates several other smaller businesses that complement its core businesses.
The Company sells ground arrangements (hotels, car rentals and attractions)
through its Ambassadair and ATA Leisure Corp. subsidiary brands such as ATA
Vacations, Travel Charter and Key Tours; provides airframe and powerplant
mechanic training through American Trans Air Training Corporation; and provides
helicopter charter services through its ExecuJet subsidiary. Additionally, the
Company, through its subsidiary Amber Air Freight, markets cargo services in the
Company's scheduled and charter operations. In aggregate, these businesses,
together with incidental revenues associated with core charter and scheduled
service operations, accounted for 6.6%, 6.9% and 9.6%, respectively, of
consolidated revenues in 1997, 1998 and 1999.
Aircraft Fleet
As of December 31, 1999, the Company was certified to operate a fleet of 18
Lockheed L-1011s, 24 Boeing 727-200ADVs and 11 Boeing 757-200s. As of December
31, 1999 the Company had also taken delivery of one incremental Lockheed
L-1011-500 which was undergoing modifications and not yet flight certified. The
Company also acquired Chicago Express on April 30, 1999, which is separately
certified to operate nine Jetstream 31 propeller aircraft.
Lockheed L-1011 Aircraft
The Company's 19 Lockheed L-1011 aircraft are wide-body aircraft, 11 of which
have a range of 2,971 nautical miles, three of which have a range of 3,425
nautical miles, and five of which have a range of 5,577 nautical miles. (One
aircraft did not operate on the Company's certificate as of December 31, 1999,
but is scheduled to be placed into service in the first quarter of 2000.) These
aircraft conform to the FAA's Stage 3 noise requirements and have a low
ownership cost relative to other wide-body aircraft types. See "--Environmental
Matters." These aircraft have an average age of approximately 24 years. As of
December 31, 1999, 18 of these aircraft were owned by the Company and one was
under an operating lease that expires in March 2003. Certain of the Lockheed
L-1011 aircraft owned by the Company are subject to mortgages and other security
interests granted in favor of the Company's lenders under its revolving credit
facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Boeing 727-200ADV Aircraft
The Company's 24 Boeing 727-200ADV aircraft are narrow-body aircraft equipped
with high-thrust, JT8D-17/-17A engines and have a range of 2,050 nautical miles.
These aircraft conform to Stage 3 noise requirements as of December 31, 1999 and
have an average age of approximately 20 years. The Company leases 14 of these
aircraft, with initial lease terms that expire between October 2000 and August
2003, subject to the Company's right to extend each lease for varying terms or
purchase the aircraft.
Boeing 757-200 Aircraft
The Company's 11 Boeing 757-200 aircraft are relatively new, narrow-body
aircraft, all of which have a range of 3,679 nautical miles. These aircraft, all
of which are leased, have an average age of approximately three years and meet
Stage 3 noise requirements. The Company's Boeing 757-200s have higher ownership
costs than the Company's Lockheed L-1011 and Boeing 727-200ADV aircraft, but
lower operational costs. In addition, the Company's Boeing 757-200s have the
capacity to operate on extended flights over water. The leases for the Company's
Boeing 757-200 aircraft have initial terms that expire on various dates between
December 2001 and September 2019, subject to the Company's right to extend each
lease for varying terms.
In order to enhance the reliability of its service, the Company seeks to
maintain at least two spare Lockheed L-1011 and three spare Boeing 727-200
aircraft at all times. Spare aircraft can be dispatched on short notice to most
locations where a substitute aircraft is needed for mechanical or other reasons.
Although Lockheed L-1011 and Boeing 727-200ADV aircraft are subject to the FAA's
Aging Aircraft program, the Company does not currently expect that its cost of
compliance for these aircraft will be material. See "--Regulation."
Flight Operations
Worldwide flight operations are planned and controlled by the Company's Flight
Operations Group based in Indianapolis, Indiana, which is staffed on a 24-hour
basis, seven days a week. Logistical support necessary for extended operations
away from the Company's fixed bases is coordinated through its global
communications network. The Company has the ability to dispatch maintenance and
operational personnel and equipment as necessary to support temporary operations
around the world.
Maintenance and Support
The Company's Maintenance and Engineering Center is located at Indianapolis
International Airport. This 120,000 square-foot facility was designed to meet
the maintenance needs of the Company's fleet and to provide supervision and
control of purchased maintenance services. The Company has approximately 1,200
employees supporting its maintenance and technical efforts.
The Company currently maintains 14 permanent maintenance facilities, including
its Indianapolis facility. In addition, the Company utilizes "road teams," which
are dispatched primarily as charter flight operations require to arrange and
supervise maintenance services at temporary locations. The Company also uses
road teams to supervise all maintenance not performed in-house.
Fuel Price Risk Management
The Company has fuel reimbursement clauses and guarantees which applied to
approximately 53.4%, 45.0% and 34.8%, respectively, of consolidated revenues in
1997, 1998 and 1999. The Company did not engage in any material fuel hedging
activities in 1997, but engaged in a fuel hedging program from 1998 to mid-1999,
which hedged a significant portion of its scheduled service fuel exposure during
that time period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Operating Expenses - Fuel and Oil."
Competition
The Company's products and services face varying degrees of competition in
diverse markets.
Competition for Scheduled Services
In scheduled service, the Company competes both against the large U.S. scheduled
service airlines and, from time to time, against smaller regional or start-up
airlines. Competition is generally on the basis of price, schedule and
frequency, quality of service and convenience.
Competition for Commercial Charter Services
In the commercial charter market, the Company competes both against the major
U.S. scheduled airlines and against small U.S. charter airlines. The Company
also competes against several European and Mexican charter and scheduled
airlines. The scheduled carriers compete for leisure travel customers with the
Company's commercial charter operations in a variety of ways, including
wholesaling discounted seats on scheduled flights to tour operators, promoting
packaged tours to travel agents for sale to retail customers and selling
discounted, airfare-only products to the public. As a result, all charter
airlines, including the Company, generally are required to compete for customers
against the lowest revenue-generating seats of the scheduled airlines.
The Company also competes directly against other charter airlines. In the United
States, these charter airlines are smaller in size than the Company. In Europe,
several charter airlines are as large or larger than the Company. Certain
European charter airlines are affiliates of large scheduled airlines or tour
operators.
Competition for Military/Government Charter Services
The Company competes for military and other government charters with primarily
smaller U.S. airlines. The allocation of U.S. military air transportation
contracts is based upon the number and type of aircraft a carrier, alone or
through a teaming arrangement, makes available for use to the military.
Insurance
The Company carries types and amounts of insurance customary in the airline
industry, including coverage for public liability, passenger liability, property
damage, aircraft loss or damage, baggage and cargo liability and workers'
compensation. Under the Company's current insurance policies, it will not be
covered by such insurance were it to fly, without the consent of its insurance
provider, to certain high-risk countries. The Company will support certain U.S.
government operations in areas where its insurance policy does not provide
coverage when the U.S. government provides replacement insurance coverage.
Employees
As of December 31, 1999, the Company had approximately 7,000 full and part-time
employees, approximately 2,400 of whom were represented under collective
bargaining agreements. The Company's flight attendants are represented by the
Association of Flight Attendants ("AFA"), and the Company's cockpit crews are
represented by the Air Line Pilots Association ("ALPA"). The current collective
bargaining agreement with the AFA became subject to amendment, but did not
expire, in December 1998. The current collective bargaining agreement with ALPA
will be subject to amendment, but will not expire, in September 2000. The
Company began negotiations with the AFA in the third quarter of 1998 to amend
the collective bargaining agreement, and a tentative agreement was announced on
February 14, 2000. The flight dispatchers elected the Transport Workers Union to
represent them in October 1999. Due to the small number of dispatchers, this
election is expected to have a minimal impact on the Company's operations.
The Company believes that relations with its employees are good. A prolonged
dispute with employees who are represented by a union, or any sizable number of
employees, could have an adverse impact on the Company's operations.
Regulation
The Company is subject to a wide range of governmental regulation, including
that of the DOT and the Federal Aviation Administration ("FAA").
The DOT principally regulates economic matters affecting air service, including:
air carrier certification and fitness; insurance; leasing arrangements;
allocation of route rights and authorization of proposed scheduled and charter
operations; allocation of landing slots and departing slots; consumer
protection; and competitive practices. The FAA primarily regulates flight
operations, especially matters affecting air safety, including airworthiness
requirements for each type of aircraft and crew certification. The FAA requires
each carrier to obtain an operating certificate and operations specifications
authorizing the carrier to fly to specific airports using specified equipment.
Several aspects of airline operations are subject to regulation or oversight by
federal agencies other than the DOT and FAA. The United States Postal Service
has jurisdiction over certain aspects of the transportation of mail and related
services provided by the Company through its cargo affiliate. Labor relations in
the air transportation industry are generally regulated under the Railway Labor
Act, which vests in the National Mediation Board certain regulatory powers with
respect to disputes between airlines and labor unions arising under collective
bargaining agreements. The Company is subject to the jurisdiction of the Federal
Communications Commission regarding the utilization of its radio facilities. In
addition, the Immigration and Naturalization Service, the U.S. Customs Service,
and the Animal and Plant Health Inspection Service of the Department of
Agriculture have jurisdiction over inspection of the Company's aircraft,
passengers and cargo to ensure the Company's compliance with U.S. immigration,
customs and import laws. Also, while the Company's aircraft are in foreign
countries, they must comply with the requirements of similar authorities in
those countries. The Commerce Department also regulates the export and re-export
of the Company's U.S.-manufactured aircraft and equipment.
In addition to various federal regulations, local governments and authorities in
certain markets have adopted regulations governing various aspects of aircraft
operations, including noise abatement, curfews and use of airport facilities.
Many U.S. airports have adopted or are considering adopting a Passenger Facility
Charge of up to $3.00 generally payable by each passenger departing from the
airport and remitted by the Company to the applicable airport authority.
At the Company's aircraft maintenance facilities, materials are used that are
regulated as hazardous under federal, state and local laws. The Company is
required to maintain programs to protect the safety of the employees who use
these materials and to manage and dispose of any waste generated by the use of
these materials in compliance with these laws. More generally, the Company is
also subject at these facilities to federal, state and local regulations
relating to protection of the environment and to discharge of material into the
environment. The Company does not expect that the costs associated with ongoing
compliance with any of these regulations will have a material impact on the
Company's capital expenditures, earnings or competitive position. Additional
laws and regulations have been proposed from time to time that could
significantly increase the cost of airline operations by, for instance, imposing
additional requirements or restrictions on operations.
Based upon bilateral aviation agreements between the U.S. and other nations,
and, in the absence of such agreements, comity and reciprocity principles, the
Company, as a charter carrier, is generally not restricted as to the frequency
of its flights to and from most foreign destinations. However, these agreements
generally restrict the Company to the carriage of passengers and cargo on
flights which either originate in the U.S. and terminate in a single foreign
nation, or which originate in a single foreign nation and terminate in the U.S.
Proposals for any additional charter service must generally be specifically
approved by the civil aeronautics authorities in the relevant countries.
Approval of such requests is typically based on considerations of comity and
reciprocity and cannot be guaranteed.
The Company believes it is in compliance with all requirements necessary to
maintain in good standing its operating authority granted by the DOT and its air
carrier operating certificate issued by the FAA. A modification, suspension or
revocation of any of the Company's DOT or FAA authorizations or certificates
could have a material adverse effect upon the Company.
Environmental Matters
Under the Airport Noise and Capacity Act of 1990 and related FAA regulations,
the Company's aircraft must comply with certain Stage 3 noise restrictions by
certain specified deadlines. In general, the Company is prohibited from
operating any Stage 2 aircraft after December 31, 1999. As of December 31, 1999,
the Company's entire fleet met Stage 3 requirements.
In addition to the aircraft noise regulations administered by the FAA, the
Environmental Protection Agency regulates operations, including air carrier
operations, which affect the quality of air in the United States. The Company
believes it has made all necessary modifications to its operating fleet to meet
fuel-venting requirements and smoke-emissions standards.
Item 2. Properties
The Company leases three adjacent office buildings in Indianapolis consisting of
approximately 136,000 square feet. These buildings are located approximately one
mile from the Indianapolis International Airport terminal and are used as
principal business offices and for the Indianapolis reservations center.
The Company's Maintenance and Engineering Center is also located at Indianapolis
International Airport. This 120,000 square-foot facility was designed to meet
the base maintenance needs of the Company's operations, as well as to provide
support services for other maintenance locations. The Indianapolis Maintenance
and Engineering Center is an FAA-certificated repair station and has the
capability to perform routine, as well as non-routine, maintenance on the
Company's aircraft.
During the second quarter of 1999, the Company completed construction of a
120,000 square-foot building immediately adjacent to the Company's hangar at
Indianapolis International Airport. In 1995, the Company completed the lease of
Hangar No. 2 at Chicago's Midway Airport for an initial lease term of ten years,
subject to two five-year renewal options. The Company has completed significant
improvements to this leased property, which is used to provide line maintenance
for the Boeing 757-200 and Boeing 727-200 narrow-body fleets.
Since 1995, the Company has occupied an 18,700 square-foot reservation facility
located near Chicago's O'Hare Airport. This reservation facility serves
customers in the greater Chicago metropolitan area in support of the
Chicago-Midway scheduled service operation.
The Company also routinely leases various properties at airports around the
world for use by passenger service, flight operations and maintenance staffs.
Other properties are also leased for the use of sales office staff.
At December 31, 1999, the Company was certified to operate a fleet of 53
aircraft. The following table summarizes the ownership characteristics of each
aircraft type operated by the Company as of the end of 1999.
Ownership Boeing Boeing Lockheed Lockheed
Status 727-200ADV 757-200ER L-1011-50/100 L-1011-500
Owned 1 N/A 1 4
(Unencumbered)
Owned 9 N/A 12 N/A
(Encumbered-Pledged on
Bank Facility)
Leased 14 9 N/A N/A
(Fixed Buy-out)
Operating-Lease N/A 2 1 N/A
(No Buy-out)
TOTAL 24 11 14 4
Item 3. Legal Proceedings
Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are normal and reasonably foreseeable in
light of the nature of the Company's business. The majority of these suits are
covered by insurance. In the opinion of management, the resolution of these
claims will not have a material adverse effect on the business, operating
results or financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the quarter ended
December 31, 1999.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol "AMTR." The Company had 272 registered
shareholders at December 31, 1999, and 279 registered shareholders at December
31, 1998.
Year Ended December 31, 1999
Market Prices of Common Stock High Low Close
--------------- -------------------- -------------------
First quarter 28 1/8 18 1/2 19
Second quarter 25 18 7/8 24 5/8
Third quarter 27 1/2 18 1/2 18 3/4
Fourth quarter 22 16 1/2 19 3/8
Year Ended December 31, 1998
Market Prices of Common Stock High Low Close
--------------- -------------------- -------------------
First quarter 16 3/8 7 1/2 16 1/4
Second quarter 27 15 1/8 24 5/8
Third quarter 30 20 7/8 23 1/2
Fourth quarter 27 5/8 13 3/4 27 1/8
No dividends have been paid on the Company's common stock since becoming publicly held.
Item 6. Selected Consolidated Financial Data-(Unaudited)
The unaudited selected consolidated financial data in this table have been
derived from the consolidated financial statements of the Company for the
respective periods presented. The data should be read in conjunction with the
consolidated financial statements and related notes.
Amtran, Inc.
Five-Year Summary
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data and ratios) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
Operating revenues $ 1,122,366 $ 919,369 $ 783,193 $ 750,851 $ 715,009
Operating expenses 1,032,339 843,996 769,709 786,907 697,073
Operating income (loss) (1) 90,027 75,373 13,484 (36,056) 17,936
Income (loss) before taxes 77,797 67,210 6,027 (39,581) 14,653
Net income (loss) 47,342 40,081 1,572 (26,674) 8,524
Net income (loss) per share - basic (2) 3.86 3.41 0.14 (2.31) 0.74
Net income (loss) per share - diluted (2) 3.51 3.07 0.13 (2.31) 0.74
Balance Sheet Data (at end of period):
Property and equipment, net $ 511,832 $ 329,332 $ 267,681 $ 224,540 $ 240,768
Total assets 815,281 594,549 450,857 369,601 413,137
Total debt 347,871 246,671 191,804 149,371 138,247
Shareholders' equity (3) 151,376 102,751 56,990 54,744 81,185
Ratio of total debt to shareholders' equity 2.30 2.40 3.37 2.73 1.70
Ratio of total liabilities to shareholders' equity 4.39 4.79 6.91 5.75 4.09
Selected Operating Statistics for
Consolidated Passenger Services: (4)
Revenue passengers carried (thousands) 7,044.6 6,168.3 5,307.4 5,680.5 5,368.2
Revenue passenger miles (millions) 10,949.0 9,758.1 8,986.0 9,172.4 8,907.7
Available seat miles (millions) 15,082.6 13,851.7 12,647.7 13,295.5 12,521.4
Passenger load factor 72.6% 70.5% 71.0% 69.0% 71.1%
(1) The Company has reclassified gain (loss) on the sale of operating assets
for 1995 from non-operating gain (loss) to operating income (loss) to be
consistent with the 1996-1999 presentation. Also, in the third quarter of
1996, the Company recorded a $4.7 million loss on the disposal of leased
assets associated with the reconfiguration of its fleet.
(2) In 1997, the Company adopted Financial Accounting Standards Board
Statement 128, "Earnings per Share," which established new standards for
the calculation and disclosure of earnings per share. All prior period
earnings per share amounts disclosed in this five-year summary have been
restated to conform to the new standards under Statement 128.
(3) No dividends were paid in any periods presented.
(4) Operating statistics pertain only to ATA (including the operations of
Chicago Express) and do not include information for other operating
subsidiaries of the Company.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Amtran is a leading provider of targeted scheduled airline services and charter
airline services to leisure and other value-oriented travelers. Amtran, through
its principal subsidiary, ATA, has been operating for 27 years and is the
eleventh largest U.S. passenger airline in terms of 1999 revenues. ATA provides
scheduled service through nonstop and connecting flights from the gateways of
Chicago-Midway and Indianapolis to popular vacation destinations such as Hawaii,
Las Vegas, Florida, California, Mexico and the Caribbean, as well as to
Philadelphia, Denver, Dallas-Ft. Worth and New York City's LaGuardia and John F.
Kennedy Airports. ATA also provides charter service throughout the world to
independent tour operators, specialty charter customers and the U.S. military.
For the year ended December 31, 1999, the Company generated record operating
income and net income. Although all business units performed well during this
period, scheduled service continued to generate the strongest overall growth in
pricing and traffic of the major business units.
o Scheduled service revenue per available seat mile ("RASM") increased 7.5% in
1999, as compared to 1998.
o Scheduled service ASMs increased 13.6% between 1999 and 1998.
o Load factor increased to 77.4% in 1999 as compared to 74.4% in 1998.
In 1999, the Company's consolidated measures of RASM and CASM were impacted by
the acquisition of tour operators Travel Charter and Key Tours, because these
companies contributed significant operating revenue and expense to consolidated
results, without increasing ASMs. The operations of these tour operators, along
with the Company's existing vacation package brand, ATA Vacations, have been
combined and reported as a separate operating segment, ATA Leisure Corp.
("ATALC") (see Note 13 to Consolidated Financial Statements).
Results of Operations in Cents Per ASM
The following table sets forth, for the periods indicated, consolidated
operating revenues and expenses expressed as cents per ASM.
Cents per ASM
Year Ended December 31,
1999 1998 1997
---- ---- ----
Consolidated operating revenues: 7.44 6.64 6.19
Consolidated operating expenses:
Salaries, wages and benefits 1.67 1.52 1.36
Fuel and oil 1.13 0.99 1.22
Depreciation and amortization 0.64 0.57 0.49
Handling, landing and navigation fees 0.59 0.54 0.55
Aircraft rentals 0.39 0.38 0.43
Aircraft maintenance, materials and repairs 0.37 0.39 0.41
Crew and other employee travel 0.33 0.30 0.29
Ground package cost 0.33 0.14 0.15
Passenger service 0.26 0.24 0.26
Commissions 0.26 0.21 0.21
Other selling expenses 0.19 0.16 0.12
Advertising 0.12 0.13 0.10
Facilities and other rentals 0.09 0.07 0.07
Other 0.47 0.45 0.43
---- ---- ----
Total consolidated operating expenses 6.84 6.09 6.09
---- ---- ----
Consolidated operating income 0.60 0.55 0.10
==== ==== ====
ASMs (in thousands) 15,082,630 13,851,731 12,647,683
The following table sets forth, for the periods indicated, operating revenues
and expenses for each reportable segment, in thousands of dollars, and expressed
as cents per ASM.
Year Ended December 31,
- --------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
Airline and Other
Operating revenue (000s) $1,027,526 $897,884 $758,971
RASM (cents) 6.81 6.48 6.00
Operating expense (000s) $ 961,935 $830,977 $755,492
CASM (cents) 6.38 6.00 5.97
ATALC
Operating revenue (000s) $ 94,840 $ 21,485 $ 24,222
RASM (cents) 0.63 0.16 0.19
Operating expense (000s) $ 70,404 $ 13,019 $ 14,217
CASM (cents) 0.46 0.09 0.12
Year Ended December 31, 1999, Versus Year Ended December 31, 1998
Consolidated Flight Operating and Financial Data
The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200 and Boeing 757-200 aircraft in all of the Company's
business units. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft by Chicago Express as the ATA Connection.
Twelve Months Ended December 31,
- ------------------------------------- ----------------------------------------------------------------
1999 1998 Inc (Dec) % Inc (Dec)
- ------------------------------------- --------------- --------------- ---------------- ---------------
Departures Jet 50,207 45,881 4,326 9.43
Departures J31(a) 17,716 16,388 1,328 8.10
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Departures (b) 67,923 62,269 5,654 9.08
- ------------------------------------- --------------- --------------- ---------------- ---------------
Block Hours Jet 157,481 144,237 13,244 9.18
Block Hours J31 17,979 16,166 1,813 11.21
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Block Hours (c) 175,460 160,403 15,057 9.39
- ------------------------------------- --------------- --------------- ---------------- ---------------
RPMs Jet (000s) 10,913,081 9,727,097 1,185,984 12.19
RPMs J31 (000s) 35,922 30,991 4,931 15.91
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 10,949,003 9,758,088 1,190,915 12.20
- ------------------------------------- --------------- --------------- ---------------- ---------------
ASMs Jet (000s) 15,025,000 13,799,507 1,225,493 8.88
ASMs J31 (000s) 57,630 52,224 5,406 10.35
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 15,082,630 13,851,731 1,230,899 8.89
- ------------------------------------- --------------- --------------- ---------------- ---------------
Load Factor Jet 72.63 70.49 2.14 3.04
Load Factor J31 62.33 59.34 2.99 5.04
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Load Factor (f) 72.59 70.45 2.14 3.04
- ------------------------------------- --------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 6,838,339 5,991,662 846,677 14.13
Passengers Enplaned J31 206,304 176,604 29,700 16.82
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 7,044,643 6,168,266 876,377 14.21
- ------------------------------------- --------------- --------------- ---------------- ---------------
Revenue (000s) $1,122,366 $919,369 $202,997 22.08
RASM in cents (h) 7.44 6.64 0.80 12.05
CASM in cents (i) 6.84 6.09 0.75 12.32
Yield in cents (j) 10.25 9.42 0.83 8.81
- ------------------------------------- --------------- --------------- ---------------- ---------------
See footnotes (g) through (j) on page 15.
(a) Chicago Express Airlines, Inc. ("Chicago Express") provides service between
Chicago-Midway and the cities of Indianapolis, Milwaukee, Des Moines, Dayton,
Grand Rapids, Lansing and Madison as the ATA Connection, using Jetstream 31
("J31") propeller aircraft.
(b) A departure is a single takeoff and landing operated by a single aircraft
between an origin city and a destination city.
(c) Block hours for any aircraft represent the elapsed time computed from the
moment the aircraft first moves under its own power from the origin city
boarding ramp to the moment it comes to rest at the destination city boarding
ramp.
(d) Revenue passenger miles (RPMs) represent the number of seats occupied by
revenue passengers multiplied by the number of miles those seats are flown. RPMs
are an industry measure of the total seat capacity actually sold by the Company.
(e) Available seat miles (ASMs) represent the number of seats available for sale
to revenue passengers multiplied by the number of miles those seats are flown.
ASMs are an industry measure of the total seat capacity offered for sale by the
Company, whether sold or not.
(f) Passenger load factor is the percentage derived by dividing RPMs by ASMs.
Passenger load factor is relevant to the evaluation of scheduled service because
incremental passengers normally provide incremental revenue and profitability
when seats are sold individually. In the case of commercial charter and
military/government charter, load factor is less relevant because an entire
aircraft is sold by the Company instead of individual seats. Consolidated load
factors and scheduled service load factors for the Company are shown in the
appropriate tables for industry comparability, but load factors for individual
charter businesses are omitted from applicable tables.
(g) Passengers enplaned are the number of revenue passengers who occupied seats
on the Company's flights. This measure is also referred to as "passengers
boarded."
(h) Revenue per ASM (expressed in cents) is total operating revenue divided by
total ASMs. This measure is also referred to as "RASM." RASM measures the
Company's unit revenue using total available seat capacity. In the case of
scheduled service, RASM is a measure of the combined impact of load factor and
yield (see (j) below for the definition of yield).
(i) Cost per ASM (expressed in cents) is total operating expense divided by
total ASMs. This measure is also referred to as "CASM." CASM measures the
Company's unit cost using total available seat capacity.
(j) Revenue per RPM (expressed in cents) is total operating revenue divided by
total RPMs. This measure is also referred to as "yield." Yield is relevant to
the evaluation of scheduled service because yield is a measure of the average
price paid by customers purchasing individual seats. Yield is less relevant to
the commercial charter and military/government charter businesses because the
entire aircraft is sold at one time for one price. Consolidated yields and
scheduled service yields are shown in the appropriate tables for industry
comparability, but yields for individual charter businesses are omitted from
applicable tables.
Operating Revenues
Total operating revenues in 1999 increased 22.0% to $1.122 billion from $919.4
million in 1998. This increase was due to a $113.4 million increase in scheduled
service revenues, a $41.2 million increase in commercial charter revenues, a
$35.0 million increase in ground package revenues, a $9.1 million increase in
other revenues, and a $4.3 million increase in military/government charter
revenues.
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft operated by Chicago Express as the ATA
Connection.
Twelve Months Ended December 31,
- ------------------------------------- --------------- --------------- ---------------- ---------------
1999 1998 Inc (Dec) % Inc (Dec)
- ------------------------------------- --------------- --------------- ---------------- ---------------
Departures Jet 35,402 31,237 4,165 13.33
Departures J31(a) 17,716 16,388 1,328 8.10
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Departures (b) 53,118 47,625 5,493 11.53
- ------------------------------------- --------------- --------------- ---------------- ---------------
Block Hours Jet 104,555 92,263 12,292 13.32
Block Hours J31 17,979 16,166 1,813 11.21
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Block Hours (c) 122,534 108,429 14,105 13.01
- ------------------------------------- --------------- --------------- ---------------- ---------------
RPMs Jet (000s) 6,828,181 5,777,555 1,050,626 18.18
RPMs J31 (000s) 35,922 30,991 4,931 15.91
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 6,864,103 5,808,546 1,055,557 18.17
- ------------------------------------- --------------- --------------- ---------------- ---------------
ASMs Jet (000s) 8,809,564 7,756,330 1,053,234 13.58
ASMs J31 (000s) 57,630 52,224 5,406 10.35
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 8,867,194 7,808,554 1,058,640 13.56
- ------------------------------------- --------------- --------------- ---------------- ---------------
Load Factor Jet 77.51 74.49 3.02 4.05
Load Factor J31 62.33 59.34 2.99 5.04
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Load Factor (f) 77.41 74.39 3.02 4.06
- ------------------------------------- --------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 4,878,643 4,094,454 784,189 19.15
Passengers Enplaned J31 206,304 176,604 29,700 16.82
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 5,084,947 4,271,058 813,889 19.06
- ------------------------------------- --------------- --------------- ---------------- ---------------
Revenue (000s) $624,647 $511,254 $113,393 22.18
RASM in cents (h) 7.04 6.55 0.49 7.48
Yield in cents (j) 9.10 8.80 0.30 3.41
Revenue per segment $ (k) 122.84 119.70 3.14 2.62
- ------------------------------------- --------------- --------------- ---------------- ---------------
See footnotes (a) through (j) on pages 14 and 15.
(k) Revenue per segment flown is determined by dividing total scheduled service
revenues by the number of passengers boarded. Revenue per segment is a broad
measure of the average price obtained for all flight segments flown by
passengers in the Company's scheduled service route network.
Scheduled service revenues in 1999 increased 22.2% to $624.6 million from $511.3
million in 1998. Scheduled service revenues comprised 55.7% of consolidated
revenues in 1999, as compared to 55.6% of consolidated revenues in 1998.
The Company's scheduled service at Chicago-Midway accounted for approximately
56.7% of scheduled service ASMs and 77.2% of scheduled service departures in
1999, as compared to 53.4% and 73.5%, respectively, during 1998. During 1998,
the Company began nonstop service to New York's LaGuardia Airport, Dallas-Ft.
Worth and Denver, which continued throughout 1999. During 1999, the Company
began nonstop service to Philadelphia, which was not served during 1998. In
addition to these new services, the Company served the following existing jet
markets in both years: Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, New
York's John F. Kennedy International Airport, Orlando, Phoenix, St. Petersburg,
San Francisco and Sarasota. The Company has announced that effective April 3,
2000 it will begin nonstop service to Washington D.C., and effective May 7,
2000, it will begin nonstop service from Chicago-Midway to both Boston and
Seattle.
Beginning in 1997, the Company also had a code-share agreement with Chicago
Express under which, as later amended, Chicago Express operated 19-seat
Jetstream 31 propeller aircraft between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and Madison.
On April 30, 1999, the Company acquired all of the issued and outstanding stock
of Chicago Express Airlines, Inc., which continues to operate these services as
a wholly owned subsidiary of the Company.
The Company's operations at Chicago-Midway continued to be the fastest growing
portion of its scheduled service business in 1999. The Company operated a peak
schedule of 67 daily jet and commuter departures from Chicago-Midway and served
22 destinations on a nonstop basis in the summer of 1999, as compared to 57 peak
daily departures and 21 nonstop destinations served in the summer of 1998. In
1998, the Company completed a $1.7 million renovation of the existing terminal
facilities at Chicago-Midway to enhance their attractiveness and convenience for
its customers. The Company also presently expects to occupy 12 jet gates and one
commuter aircraft gate at the new Chicago-Midway terminal which is presently
scheduled for completion in 2004, as compared to the six jet gates currently
occupied in the existing terminal.
The Company's growing commitment to Chicago-Midway is consistent with its
strategy for enhancing revenues and profitability in scheduled service by
focusing primarily on low cost, nonstop flights from airports where it has
market or aircraft advantages in addition to its low cost. The Company expects
its growing concentration of connecting flights at Chicago-Midway to provide
both revenue premiums and operating cost efficiencies, as compared to the
Company's other gateway cities. In addition, the Company plans to build an FIS
facility at Chicago-Midway to facilitate direct international flights.
The Company's Hawaii service accounted for 18.5% of scheduled service ASMs and
4.7% of scheduled service departures in 1999, as compared to 21.3% and 5.4%,
respectively, in 1998. The Company provided nonstop services in both years from
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui. The Company provides these
services through a marketing alliance with the largest independent tour operator
serving leisure travelers to Hawaii from the United States. The Company
distributes the remaining seats on these flights through normal scheduled
service distribution channels. The Company believes it has superior operating
efficiencies in west coast-Hawaii markets due to the higher daily hours of
utilization obtained for both aircraft and crews in this market than for other
commercial charter and military applications.
The Company's Indianapolis service accounted for 14.0% of scheduled service ASMs
and 10.8% of scheduled service departures in 1999, as compared to 16.1% and
12.7%, respectively, in 1998. In 1999 and 1998, the Company operated nonstop to
Cancun, Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, Orlando, St.
Petersburg, San Francisco and Sarasota. The Company has served Indianapolis for
27 years through the Ambassadair Travel Club and in scheduled service since
1986.
On June 9, 1999, nonstop service commenced between Ft. Lauderdale and San Juan,
Puerto Rico, and on June 16, 1999, nonstop service was begun between New York's
John F. Kennedy International Airport and San Juan. Between June and September
1999, the Company operated seasonal service between New York's John F. Kennedy
International Airport and Dublin and Shannon, Ireland.
The Company continuously evaluates the profitability of its scheduled service
markets and expects to adjust its service from time to time. The Company
believes that scheduled service yields and load factors in 1999 and 1998 have
benefited from strong customer demand for air transportation in the United
States during a period of constrained industry growth in seat capacity relative
to this demand.
Commercial Charter Revenues. The Company's commercial charter revenues are
derived principally from independent tour operators and specialty charter
customers. The Company's commercial charter product provides full-service air
transportation to hundreds of customer-designated destinations throughout the
world. The Company believes that tour operator and specialty charter are
businesses where the Company's experience and size provide meaningful
competitive advantage and are businesses to which the Company remains committed.
Commercial charter revenues accounted for 23.5% of consolidated revenues in
1999, as compared to 24.2% in 1998.
The Company has expanded its seat capacity in the commercial and
military/government charter business units through the acquisition of long-range
Lockheed L-1011 series 500 aircraft. In July 1998, the Company committed to the
purchase of five such aircraft for delivery between the third quarter of 1998
and the end of 1999. Although Lockheed L-1011 series 500 maintenance procedures
and cockpit design are similar to the Company's existing fleet of Lockheed
L-1011 series 50 and series 100 aircraft, they differ operationally in that
their ten-to-eleven-hour range permits them to operate nonstop to parts of Asia,
South America and Central and Eastern Europe using an all-coach seating
configuration preferred by the U.S. military and most of the Company's
commercial charter customers. The Company placed four of these aircraft into
service in commercial and military/government charter operations during 1999,
which has increased the available seat capacity for these charter business
units, in addition to opening new long-range market opportunities to the Company
which it cannot serve with its existing fleet. The Company expects to place the
fifth L-1011 series 500 aircraft into service in the first quarter of 2000.
The following table sets forth, for the periods indicated, certain key operating
and financial data for the commercial charter operations of the Company.
- ----------------------------------- ----------------------------------------------------------------
Twelve Months Ended December 31,
- ----------------------------------- ----------------------------------------------------------------
1999 1998 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 10,212 9,602 610 6.35
Block Hours (c) 37,119 33,516 3,603 10.75
RPMs (000s) (d) 3,253,165 3,009,638 243,527 8.09
ASMs (000s) (e) 4,129,966 3,882,202 247,764 6.38
Passengers Enplaned (g) 1,753,237 1,617,901 135,336 8.36
Revenue (000s) $263,766 $222,571 $41,195 18.51
RASM in cents (h) 6.39 5.73 0.66 11.52
- ----------------------------------- --------------- ---------------- --------------- ---------------
See footnotes (b) through (h) on pages 14 and 15.
The Company operates in two principal components of the commercial charter
business, known as "track charter" and "specialty charter." The larger track
charter business component is generally comprised of low frequency but
repetitive domestic and international flights between city pairs, which support
high passenger load factors and are marketed through tour operators, providing
value-priced and convenient nonstop service to vacation destinations for the
leisure traveler. Since track charter resembles scheduled service in terms of
its repetitive flying patterns between fixed-city pairs, it allows the Company
to achieve reasonable levels of crew and aircraft utilization (although less
than for scheduled service), and provides the Company with meaningful protection
from some fuel price increases through the use of fuel escalation reimbursement
clauses in tour operator contracts. Track charter accounted for approximately
$193.8 million in revenues in 1999, as compared to $176.4 million in 1998.
Specialty charter (including incentive travel programs) is a product which is
designed to meet the unique requirements of the customer and is a business
characterized by lower frequency of operation and by greater variation in city
pairs served than the track charter business. Specialty charter includes such
diverse contracts as flying university alumni to football games, transporting
political candidates on campaign trips and moving NASA space shuttle ground
crews to alternate landing sites. The Company also operates an increasing number
of trips in all-first-class configuration for certain corporate and high-end
leisure clients. Although lower utilization of crews and aircraft and infrequent
service to specialty destinations often result in higher average operating
costs, the Company has determined that the revenue premium earned by meeting
special customer requirements more than compensates for these increased costs.
The diversity of the Company's three fleet types also permits the Company to
meet a customer's particular needs by choosing the aircraft type which provides
the most economical solution for those requirements. Specialty charter accounted
for approximately $40.0 million in revenues in 1999, as compared to $35.1
million in 1998.
Military/Government Charter Revenues. The following table sets forth, for the
periods indicated, certain key operating and financial data for the
military/government flight operations of the Company.
- -------------------------------- ---------------------------------------------------------------
Twelve Months Ended December 31,
- -------------------------------- ---------------------------------------------------------------
1999 1998 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 4,444 4,447 (3) (0.07)
Block Hours (c) 15,354 16,389 (1,035) (6.32)
RPMs (000s) (d) 818,627 821,813 (3,186) (0.39)
ASMs (000s) (e) 2,027,471 1,963,069 64,402 3.28
Passengers Enplaned (g) 199,013 205,641 (6,628) (3.22)
Revenue (000s) $126,213 $121,911 $4,302 3.53
RASM in cents (h) 6.23 6.21 0.02 0.32
- -------------------------------- --------------- --------------- --------------- ---------------
See footnotes (b) through (h) on pages 14 and 15.
The Company participates in two related military/government charter programs
known as "fixed-award" and "short-term expansion." Pursuant to the U.S.
military's fixed-award system, each participating airline is awarded certain
"mobilization value points" based upon the number and type of aircraft made
available by that airline for military flying. In order to increase the number
of points awarded, the Company has traditionally participated in contractor
teaming arrangements with other airlines. Under these arrangements, the team has
a greater likelihood of receiving fixed-award business and, to the extent that
the award includes passenger transport, the opportunity for the Company to
operate this flying is enhanced since the Company represents a majority of the
passenger transport capacity of the team. As part of its participation in
teaming arrangements, the Company pays a commission to the team, which passes
that revenue on to all team members based upon their mobilization points.
All airlines participating in the fixed-award business contract annually with
the U.S. military from October 1 to the following September 30. For each
contract year, reimbursement rates are determined for aircraft types and mission
categories based upon operating cost data submitted by the participating
airlines. These contracts are generally not subject to renegotiation once they
become effective.
Short-term expansion business is awarded by the U.S. military first on a pro
rata basis to those carriers who have been provided fixed-award business and
then to any other carrier with aircraft availability. Expansion flying is
generally offered to airlines on very short notice.
The overall amount of military flying that the Company performs in any one year
is dependent upon several factors, including: (i) the percentage of mobilization
value points represented by the Company's team as compared to total mobilization
value points of all providers of military service; (ii) the percentage of
passenger capacity of the Company with respect to its own team; (iii) the amount
of fixed-award and expansion flying required by the U.S. military in each
contract year; and (iv) the availability of the Company's aircraft to accept and
fly expansion awards.
In April 1999, the Company announced that it had joined a new teaming
arrangement with several major passenger and cargo airlines. Under this new
teaming arrangement, the Company expects its military/government charter
revenues to increase to approximately $180.0 million for the contract year
beginning October 1999. This represents more than a 40% increase over the
Company's fiscal year 1999 military/government charter revenues of $126.2
million.
Ground Package Revenues. The Company earns ground package revenues through the
sale of hotel, car rental and cruise accommodations in conjunction with the
Company's air transportation product. The Company markets these ground packages
to its Ambassadair club members and through its ATA Leisure Corp. subsidiary to
its scheduled service and tour operator customers. In 1999, ground package
revenues increased 150.9% to $58.2 million, as compared to $23.2 million in
1998.
Effective January 31, 1999, the Company completed the acquisition of Travel
Charter International ("TCI") in Detroit, Michigan (see Note 12 to Consolidated
Financial Statements). TCI provides tour packages, including ground
arrangements, primarily to Mexican, Caribbean and Central American destinations
during the winter season, and to Europe in the summer. Prior to the acquisition,
the Company had a relationship with TCI as a major provider of passenger airline
services for over 14 years. Approximately $15.6 million of the increase in
ground package revenues was attributable to the incremental ground package
revenues of TCI, none of which were included in the Company's results of
operations in 1998.
Effective April 30, 1999, the Company completed the purchase of Key Tours, Inc.
and affiliated companies, also a tour operator serving the Detroit metropolitan
area (see Note 12 to Consolidated Financial Statements). Key Tours provides tour
packages, including ground arrangements, to such leisure destinations as Las
Vegas and Florida. The Company has had a relationship with Key Tours as a major
provider of passenger airline services for over 15 years. Approximately $16.6
million of the increase in ground package revenues was attributable to the
incremental ground package revenues of Key Tours, none of which were included in
the Company's results of operations in 1998.
The number of ground packages sold and the average revenue earned by the Company
for a ground package sale are a function of the mix of vacation destinations
served, the quality and types of ground accommodations offered and general
competitive conditions with other air carriers offering similar products in the
Company's markets, all of which are factors that can change from period to
period.
Other Revenues. Other revenues are comprised of the consolidated revenues of
affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled and charter operations of the Company. Other
revenues increased 22.8% to $49.6 million during 1999, as compared to $40.4
million in 1998. The Company's other revenues increased primarily due to higher
revenues earned in non-passenger airline businesses, especially cargo revenues
which increased approximately $6.5 million, largely due to the acquisition of
the remaining 50% of the Amber Air Freight partnership at the beginning of 1999
(see Note 12 to Consolidated Financial Statements).
Operating Expenses
Salaries, Wages and Benefits. Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees, together with the Company's
cost of employee benefits and payroll-related local, state and federal taxes.
Salaries, wages and benefits expense in 1999 increased 19.5% to $252.6 million,
as compared to $211.3 million in 1998.
The Company increased its average equivalent employees by approximately 14.8% in
1999 as compared to 1998, in order to appropriately staff the Company's growth
between periods. This growth was most significant in categories of employees
which are influenced directly by flight activity. Some employment growth in 1999
was also provided to improve customer service in targeted areas, such as at
airport ticket counters, in reservations and in other departments primarily
involved in delivering services to the Company's customers. The Company also
recorded $6.7 million in additional salaries, wages and benefits in 1999
attributable to new companies acquired (see Note 12 to Consolidated Financial
Statements). The average rate of pay earned by the Company's employees
(including all categories of salaries, wages and benefits) increased by
approximately 4.1% in 1999 as compared to 1998.
In 1999, the Company recorded $6.4 million in variable compensation and related
payroll taxes as compared to 1998, when $8.9 million in such compensation was
recorded. The Company's variable compensation plans in both 1999 and 1998 paid
significant cash awards to employees as a result of the achievement of specific
profitability targets.
Salaries, wages and benefits cost per ASM increased 9.9% in 1999 to 1.67 cents,
as compared to 1.52 cents in 1998. This unit-cost increase was attributable both
to the faster rate of growth in average equivalent employees between years than
seat capacity, and to the increase in average salaries paid between years.
Fuel and Oil. Fuel and oil expense increased 24.4% to $170.9 million in 1999, as
compared to $137.4 million in 1998. The Company consumed 11.3% more gallons of
jet fuel for flying operations between years, which resulted in an increase in
fuel expense of approximately $15.0 million. Jet fuel consumption increased
primarily due to the increased number of block hours of jet flying operations
between periods. The Company flew 157,481 jet block hours in 1999, as compared
to 144,237 jet block hours in 1998, an increase of 9.2% between years.
Fuel consumption growth between 1999 and 1998 was more than total block hour
growth since the Lockheed L-1011 fleet flew proportionately more block hours and
consumes approximately twice the gallons per block hour of the Boeing 727-200
and Boeing 757-200.
During 1999, the Company's average cost per gallon of jet fuel consumed
increased by 12.0% as compared to 1998, resulting in an increase in fuel and oil
expense of approximately $18.0 million between years. This increase in fuel
price was experienced generally in the airline industry as a result of
significant increases in average crude oil and distillate market prices as
compared to 1998, particularly in the last two quarters of 1999.
The Company entered into fuel price hedge contracts during 1998 and the first
six months of 1999 under which the Company sought to reduce the risk of fuel
price increases. These hedges impacted fuel and oil expense by 1.8% and 1.2% in
1999 and 1998, respectively.
Fuel and oil expense increased 14.1% to 1.13 cents per ASM in 1999, as compared
to 0.99 cents per ASM in 1998, primarily due to the period-to-period increase in
the average price of fuel consumed.
Depreciation and Amortization. Depreciation and amortization expense increased
22.0% to $96.0 million in 1999, as compared to $78.7 million in 1998. The
Company recorded goodwill amortization expense of $0.9 million in 1999 due to
the acquisition of new businesses (see Note 12 to Consolidated Financial
Statements), which was not incurred in 1998.
Depreciation expense attributable to owned engines, airframes and leasehold
improvements increased $9.0 million in 1999, as compared to 1998. The Company
purchased nine Boeing 727-200 aircraft in 1999, which had been previously
financed through operating leases, thereby increasing depreciation expense on
engines and airframes between years. The Company recorded a reduction in
aircraft rental expense between periods for the termination of operating leases
for these aircraft, which is further described below under "Aircraft Rentals."
The Company also placed four Lockheed L-1011-500 owned aircraft into service in
1999, none of which were owned in 1998. The Company also increased its
investment in rotable parts and computer hardware and software, among other
items of property and equipment, resulting in an increase in depreciation
expense of $6.6 million in 1999, as compared to 1998.
Amortization of capitalized engine and airframe overhauls increased $9.7 million
in 1999, as compared to 1998, after including the offsetting amortization
associated with manufacturers' credits. Changes to the cost of overhaul
amortization were partly due to the increase in total block hours and cycles
flown between comparable periods for the Boeing 727-200 and Lockheed L-1011
fleets since such expense varies with that activity, and partly due to the
completion of more engine and airframe overhauls between periods for these fleet
types. Rolls-Royce-powered Boeing 757-200 aircraft, nine of which were delivered
new from the manufacturer between late 1995 and late 1999, are not presently
generating any engine or airframe overhaul expense since the initial
post-delivery overhauls for these aircraft are not yet due under the Company's
maintenance programs.
The cost of engine overhauls that become worthless due to early engine failures
and which cannot be economically repaired is charged to depreciation and
amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these write-offs decreased $2.3 million in
1999, as compared to 1998. When these early engine failures can be economically
repaired, the related repairs are charged to aircraft maintenance, materials and
repairs expense.
As is more fully explained in Note 11 to Consolidated Financial Statements,
certain changes in accounting estimates for depreciation have been made by the
Company. Effective July 1, 1998, the Company extended the estimated useful life
of the 13 owned Lockheed L-1011 series 50 and series 100 aircraft to a common
retirement date of December 2004, and also reduced the estimated salvage value
of the related airframes, engines and rotables. This change in estimate reduced
depreciation expense in 1999 by $2.0 million, as compared to 1998. In addition,
effective January 1, 1999, the Company extended the estimated useful lives of
capitalized Boeing 727-200 airframes, engines and improvements, all leasehold
improvements, and all rotable parts associated with this fleet, and reduced the
associated estimated salvage values. The effect of this change in estimate was
to reduce depreciation expense in 1999 by $4.6 million, as compared to 1998.
Depreciation and amortization expense per ASM increased 12.3% to 0.64 cents in
1999, as compared to 0.57 cents in 1998.
Handling, Landing and Navigation Fees. Handling and landing fees include the
costs incurred by the Company at airports to land and service its aircraft and
to handle passenger check-in, security and baggage where the Company elects to
use third-party contract services in lieu of its own employees. Where the
Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees increased by 19.7% to $89.3 million in
1999, as compared to $74.6 million in 1998. The total number of system-wide jet
departures between 1999 and 1998 increased by 9.4% to 50,207 from 45,881,
resulting in approximately $6.8 million in volume-related handling and landing
expense increases between periods. Many of these departures were to destinations
with significantly higher handling costs and landing fees, and proportionately
more such departures were made by wide-body L-1011 aircraft which incur higher
handling and landing costs per departure. These price and departure mix
variances resulted in $4.7 million more handling and landing costs in 1999 than
in 1998. The Company incurred approximately $1.1 million in higher deicing costs
in 1999, as compared with 1998, attributable to the impact of more winter
weather on flight operations in 1999 than in 1998. Additionally, the Company
recorded approximately $1.4 million in higher cargo handling expenses in 1999,
as compared to 1998, due to the acquisition of T.G. Shown Associates, Inc. in
January 1999 (see Note 12 to Consolidated Financial Statements).
The cost per ASM for handling, landing and navigation fees increased 9.3%
to 0.59 cents in 1999, from 0.54 cents in 1998.
Aircraft Rentals. Aircraft rentals expense for 1999 increased 10.5% to $58.7
million from $53.1 million in 1998. The Company financed four and refinanced one
additional Boeing 757-200 aircraft in 1999 with operating leases, including two
aircraft delivered new from the manufacturer at the end of 1998, and two others
delivered in October and November 1999, increasing aircraft rentals expense by
$12.5 million in 1999, as compared to 1998.
The Company also owned nine Boeing 727-200 aircraft during most of 1999 which
had been financed through operating leases during most of 1998, thereby reducing
aircraft rentals expense by $6.9 million between years.
Aircraft rentals cost per ASM for 1999 was 0.39 cents, an increase of 2.6% from
0.38 cents per ASM in 1998.
Aircraft Maintenance, Materials and Repairs. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for airframe check and line maintenance activities,
and other non-capitalized direct costs related to fleet maintenance, including
spare engine leases, parts loan and exchange fees, and related shipping costs.
Aircraft maintenance, materials and repairs expense increased 3.5% to $55.6
million in 1999, as compared to $53.7 million in 1998.
The Company expensed a total of 53 maintenance checks on its fleet during 1999,
as compared to 51 in 1998. The cost of materials consumed and components
repaired in association with such checks and other maintenance activity
increased by $2.3 million between 1999 and 1998.
The cost per ASM of aircraft maintenance materials decreased 5.1% to 0.37 cents
in 1999, as compared to 0.39 cents in 1998.
Crew and Other Employee Travel. Crew and other employee travel is primarily the
cost of air transportation, hotels and per diem reimbursements to cockpit and
cabin crew members incurred to position crews away from their bases to operate
Company flights throughout the world. The cost of air transportation is
generally more significant for the commercial and military/government charter
business units since these flights often operate between cities in which Company
crews are not normally based and may involve extensive international positioning
of crews. Hotel and per diem expenses are incurred for scheduled, commercial and
military/government charter services, although higher per diem and hotel rates
generally apply to international assignments.
The cost of crew and other employee travel increased 19.5% to $49.7 million in
1999, as compared to $41.6 million in 1998. During 1999, the Company's average
full-time-equivalent cockpit and cabin crew employment was 9.7% higher than in
1998, while jet block hours flown increased by 9.2% between the same periods.
The Company also experienced lower utilization of crew members due to the
increase in military business.
The average cost of hotel rooms per full-time-equivalent crew member increased
17.6% in 1999, as compared to 1998. Such hotel costs increased primarily due to
higher room rates paid in 1999.
The cost per ASM for crew and other employee travel increased 10.0% to 0.33
cents in 1999, from 0.30 cents in 1998.
Ground Package Cost. Ground package cost is incurred by the Company with hotels,
car rental companies, cruise lines and similar vendors who provide ground and
cruise accommodations to Ambassadair and ATA Vacations customers as well as to
customers of Travel Charter and Key Tours, which were acquired by the Company in
1999 (see Note 12 to Consolidated Financial Statements). Ground package cost
increased 151.3% to $49.0 million in 1999, as compared to $19.5 million in 1998.
Approximately $27.3 million of this increase was attributable to the operations
of Travel Charter and Key Tours in 1999, none of which costs were incurred in
1998.
The cost per ASM of ground packages increased 135.7% to 0.33 cents in 1999, as
compared to 0.14 cents in 1998. This increase is a result of the acquisition of
the tour operators, Travel Charter and Key Tours.
Passenger Service. Passenger service expense includes the onboard costs of meal
and non-alcoholic beverage catering, the cost of alcoholic beverages and
in-flight movie headsets sold, and the cost of onboard entertainment programs,
together with certain costs incurred for mishandled baggage and passengers
inconvenienced due to flight delays or cancellations. For 1999 and 1998,
catering represented 82.0% and 84.1%, respectively, of total passenger service
expense.
The total cost of passenger service increased 15.3% to $39.2 million in 1999, as
compared to $34.0 million in 1998. The Company experienced a decrease of
approximately 2.7% in the average unit cost of catering each passenger between
years, primarily because in 1999 there were relatively more scheduled service
passengers in the Company's business mix, who are provided a less expensive
catering product than the Company's longer-stage-length commercial and
military/government charter passengers. This resulted in a
price-and-business-mix reduction of $1.0 million in catering expense in 1999, as
compared to 1998. Total jet passengers boarded, however, increased 14.1% between
years, resulting in approximately $3.9 million in higher- volume-related
catering expenses between the same sets of comparative periods.
The cost per ASM of passenger service increased 8.3% to 0.26 cents in 1999, as
compared to 0.24 cents in 1998.
Commissions. The Company incurs commissions expense in association with the sale
by travel agents of single seats on scheduled service and ground packages for
its tour operator customers. In addition, the Company incurs commissions to
secure some commercial and military/government charter business. Commissions
expense increased 37.2% to $39.1 million in 1999, as compared to $28.5 million
in 1998.
Approximately $7.5 million of the increase in commissions in 1999, as compared
to 1998, was attributable to commissions paid to travel agents by Travel Charter
and Key Tours, which were acquired during the first half of 1999 (see Note 12 to
Consolidated Financial Statements). Such commissions were not included in the
Company's results of operations in 1998.
Scheduled service commissions expense increased by $2.8 million between 1999 and
1998, due to the corresponding increase in commissionable revenues earned
between periods. The Company experienced a decrease in fourth quarter 1999
commission expenses due to an industry decrease in travel agency commissions
paid from 8.0% to 5.0%. Commission expense cost per ASM increased 23.8% to 0.26
cents in 1999, as compared to 0.21 cents in 1998.
Other Selling Expenses. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems ("CRS"), credit card fees
incurred when selling single seats and ground packages to customers using credit
cards for payment, and toll-free telephone service for customers who contact the
Company directly to book reservations. Other selling expenses increased 27.1% to
$28.1 million in 1999, as compared to $22.1 million in 1998. Scheduled service
passengers boarded increased 19.1% between the same periods. All such selling
expenses increased due to growth in the scheduled service and tour operator
business units between periods. Other selling cost per ASM increased 18.8% to
0.19 cents in 1999, as compared to 0.16 cents in 1998.
Advertising. Advertising expense increased 4.5% to $18.6 million in 1999, as
compared to $17.8 million in 1998. The Company incurs advertising costs
primarily to support single-seat scheduled service sales and the sale of
air-and-ground packages. Advertising support for these lines of businesses was
increased in 1999, consistent with the Company's overall strategy to enhance
scheduled service RASM through increases in load factor and yield. The cost per
ASM of advertising decreased 7.7% to 0.12 cents in 1999, as compared to 0.13
cents in 1998.
Facilities and Other Rentals. Facilities and other rentals include the cost of
all ground facilities that are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facilities and other
rentals increased 40.0% to $13.3 million in 1999, as compared to $9.5 million in
1998. Approximately $1.7 million of the growth in facilities costs between
periods was attributable to the need to provide facilities at airport locations
to support new scheduled service destinations and expanded services at existing
destinations. Facility costs also increased $0.8 million as a result of the
acquisition of new business (see Note 12 to Consolidated Financial Statements).
The cost per ASM for facilities and other rentals increased 28.6% to 0.09 cents
in 1999, as compared to 0.07 cents in 1998.
Other Operating Expenses. Other operating expenses increased 16.1% to $72.2
million in 1999, as compared to $62.2 million in 1998. Other operating expenses
increased primarily due to the cost of passenger air transportation purchased by
Travel Charter and Key Tours from air carriers other than the Company during
1999, none of which was included in the Company's 1998 results of operation.
Other operating cost per ASM increased 4.4% to 0.47 cents in 1999, as compared
to 0.45 cents in 1998.
Interest Income and Expense. Interest expense in 1999 increased to $21.0
million, as compared to $12.8 million in 1998. The increase in interest expense
between periods was primarily due to changes in the Company's capital structure
resulting from the sale in December 1998 of $125.0 million in principal amount
of 9.625% unsecured senior notes. In December 1999, the Company completed an
additional sale of $75.0 million principal amount of 10.5% unsecured senior
notes. Interest expense of $11.5 million was recorded in 1999 for these notes,
which was not incurred in 1998.
The interest expense increase in 1999 was partially offset by $1.7 million due
to more interest being capitalized primarily on Boeing 757-200 and Lockheed
L-1011-500 fleet acquisitions, and $2.3 million due to the repayment of a note
payable secured by a Boeing 757-200 aircraft, which had been outstanding during
1998.
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $5.4 million in interest income in 1999,
as compared to $4.4 million in 1998.
Other Non-Operating Income. The Company holds a membership interest in the SITA
Foundation ("SITA"), an organization which provides data communication services
to the airline industry. SITA's primary asset is its ownership in Equant N.V.
("Equant"). In February and December 1999, SITA sold a portion of its interest
in Equant in a secondary public offering and distributed the pro rata proceeds
to certain of its members (including Amtran, Inc.) that elected to participate
in the offering. The Company recorded a gain on the sale of Equant shares of
$1.7 million in the first quarter of 1999 and a similar gain of $1.3 million in
the fourth quarter of 1999.
Income Tax Expense. In 1999 the Company recorded $30.5 million in income tax
expense applicable to $77.8 million of pre-tax income for that period, while in
1998, income tax expense was $27.1 million on pre-tax income of $67.2 million.
The effective tax rate applicable to 1999 was 39.2%, as compared to 40.4% in
1998.
Year Ended December 31, 1998, Versus Year Ended December 31, 1997
Consolidated Flight Operating and Financial Data
The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200 and Boeing 757-200 aircraft in all of the Company's
business units. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft operated by Chicago Express as the ATA
Connection.
Twelve Months Ended December 31,
- ------------------------------------- ----------------------------------------------------------------
1998 1997 Inc (Dec) % Inc (Dec)
- ------------------------------------- --------------- --------------- ---------------- ---------------
Departures Jet 45,881 39,517 6,364 16.10
Departures J31(a) 16,388 10,091 6,297 62.40
- ------------------------------------- --------------- --------------- --------------- ----------------
Total Departures (b) 62,269 49,608 12,661 25.52
- ------------------------------------- --------------- --------------- ---------------- ---------------
Block Hours Jet 144,237 129,216 15,021 11.62
Block Hours J31 16,166 10,210 5,956 58.33
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Block Hours (c) 160,403 139,426 20,977 15.05
- ------------------------------------- --------------- --------------- ---------------- ---------------
RPMs Jet (000s) 9,727,097 8,967,900 759,197 8.47
RPMs J31 (000s) 30,991 18,055 12,936 71.65
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 9,758,088 8,985,955 772,133 8.59
- ------------------------------------- --------------- --------------- ---------------- ---------------
ASMs Jet (000s) 13,799,507 12,615,230 1,184,277 9.39
ASMs J31 (000s) 52,224 32,453 19,771 60.92
- ------------------------------------- --------------- --------------- --------------- ----------------
Total ASMs (000s) (e) 13,851,731 12,647,683 1,204,048 9.52
- ------------------------------------- --------------- --------------- ---------------- ---------------
Load Factor Jet 70.49 71.09 (0.60) (0.84)
Load Factor J31 59.34 55.63 3.71 6.67
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Load Factor (f) 70.45 71.05 (0.60) (0.84)
- ------------------------------------- --------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 5,991,662 5,210,578 781,084 14.99
Passengers Enplaned J31 176,604 96,812 79,792 82.42
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 6,168,266 5,307,390 860,876 16.22
- ------------------------------------- --------------- --------------- ---------------- ---------------
Revenue (000s) $919,369 $783,193 $136,176 17.39
RASM in cents (h) 6.64 6.19 0.45 7.27
CASM in cents (i) 6.09 6.09 - -
Yield in cents (j) 9.42 8.72 0.70 8.03
- ------------------------------------- --------------- --------------- ---------------- ---------------
See footnotes (a) through (j) on pages 14 and 15.
Operating Revenues
Total operating revenues in 1998 increased 17.4% to $919.4 million from $783.2
million in 1997. This increase was due to a $139.5 million increase in scheduled
service revenues, a $10.5 million increase in other revenues and a $0.9 million
increase in ground package revenues, partially offset by a $5.5 million decrease
in commercial charter revenues, and a $9.2 million decrease in
military/government charter revenues.
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for "J31" operations include the operations of
Jetstream 31 propeller aircraft operated by Chicago Express as the ATA
Connection.
Twelve Months Ended December 31,
- ------------------------------------- ----------------------------------------------------------------
1998 1997 Inc (Dec) % Inc (Dec)
- ------------------------------------- --------------- --------------- ---------------- ---------------
Departures Jet 31,237 23,800 7,437 31.25
Departures J31(a) 16,388 10,091 6,297 62.40
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Departures (b) 47,625 33,891 13,734 40.52
- ------------------------------------- --------------- --------------- ---------------- ---------------
Block Hours Jet 92,263 72,883 19,380 26.59
Block Hours J31 16,166 10,210 5,956 58.33
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Block Hours (c) 108,429 83,093 25,336 30.49
- ------------------------------------- --------------- --------------- ---------------- ---------------
RPMs Jet (000s) 5,777,555 4,523,245 1,254,310 27.73
RPMs J31 (000s) 30,991 18,055 12,936 71.65
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 5,808,546 4,541,300 1,267,246 27.90
- ------------------------------------- --------------- --------------- ---------------- ---------------
ASMs Jet (000s) 7,756,330 6,209,825 1,546,505 24.90
ASMs J31 (000s) 52,224 32,453 19,771 60.92
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 7,808,554 6,242,278 1,566,276 25.09
- ------------------------------------- --------------- --------------- ---------------- ---------------
Load Factor Jet 74.49 72.84 1.65 2.27
Load Factor J31 59.34 55.63 3.71 6.67
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Load Factor (f) 74.39 72.75 1.64 2.25
- ------------------------------------- --------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 4,094,454 3,087,706 1,006,748 32.61
Passengers Enplaned J31 176,604 96,812 79,792 82.42
- ------------------------------------- --------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 4,271,058 3,184,518 1,086,540 34.12
- ------------------------------------- --------------- --------------- ---------------- ---------------
Revenue (000s) $511,254 $371,762 $139,492 37.52
RASM in cents (h) 6.55 5.96 0.59 9.90
Yield in cents (j) 8.80 8.19 0.61 7.45
Revenue per segment $ (k) 119.70 116.74 2.96 2.54
- ------------------------------------- --------------- --------------- ---------------- ---------------
See footnotes (a) through (j) on pages 14 and 15. See footnote (k) on page 16.
Scheduled service revenues in 1998 increased 37.5% to $511.3 million from $371.8
million in 1997. Scheduled service revenues comprised 55.6% of consolidated
revenues in 1998, as compared to 47.5% of consolidated revenues in 1997.
Between April 1997 and April 1999, the Company operated under a code share
agreement with Chicago Express under which Chicago Express flew 19-seat
Jetstream 31 propeller aircraft as the ATA Connection between Chicago-Midway and
the cities of Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing
and Madison. The period-to-period percentage changes in departures, block hours
and passengers boarded were significantly impacted by the operation of ATA
Connection Jetstream 31 commuter flights in the twelve months ended December 31,
1998, which operated only during the nine months ended December 31, 1997. Such
operations in all periods generate comparatively less impact to ASMs and RPMs
due to the small seat capacity and short stage length of ATA Connection
propeller aircraft as compared to the Company's jet aircraft. In April 1999, the
Company acquired all of the issued and outstanding stock of Chicago Express
Airlines, Inc., which continues to operate these services as a wholly owned
subsidiary of the Company.
The Company's 1998 scheduled service at Chicago-Midway accounted for
approximately 53.4% of scheduled service ASMs and 73.5% of scheduled service
departures, as compared to 42.9% and 63.2%, respectively, in 1997. On May 1,
1998, the Company began three daily nonstop flights to Dallas-Ft. Worth and two
daily nonstop flights to Denver, none of which services were provided during
1997. In addition to these new services, the Company added frequencies in 1998
to most existing jet markets, including Ft. Lauderdale, Ft. Myers, Las Vegas,
Los Angeles, Orlando, Phoenix, St. Petersburg and San Francisco. Flight
frequencies to Sarasota declined between periods. ATA Connection Jetstream 31
flights in 1998 and the nine months ended December 31, 1997, served
Chicago-Midway from the cities of Dayton, Des Moines, Grand Rapids, Indianapolis
and Milwaukee. In addition, the Company operated ATA Connection Jetstream 31
service between Chicago-Midway and the cities of Lansing and Madison throughout
1998, while such service was operated only during the fourth quarter of 1997.
The Company operated 57 peak daily jet and commuter departures from
Chicago-Midway and served 21 destinations on a nonstop basis in the summer of
1998, as compared to 15 nonstop destinations served in the summer of 1997.
The Company's Hawaii service accounted for 21.3% of scheduled service ASMs and
5.4% of scheduled service departures in 1998, as compared to 24.6% and 6.8%,
respectively, in 1997. The Company provided nonstop services in both years from
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui. In addition, in 1998, seasonal
nonstop service was operated from San Diego to Honolulu, which was not operated
in 1997.
The Company's Indianapolis service accounted for 16.1% of scheduled service
ASMs and 12.7% of scheduled service departures in 1998, as compared to 20.5% and
18.1%, respectively, in 1997. In 1998, the Company operated nonstop to Cancun,
Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, Orlando, St. Petersburg, San
Francisco and Sarasota.
Commercial Charter Revenues. Commercial charter revenues accounted for 24.2% of
consolidated revenues in 1998, as compared to 29.1% in 1997. Track charter
accounted for approximately $176.4 million in revenues in 1998, as compared to
$184.3 million in 1997. Specialty charter accounted for approximately $35.1
million in revenues in 1998, as compared to $34.6 million in 1997.
The following table sets forth, for the periods indicated, certain key operating
and financial data for the commercial charter operations of the Company.
- --------------------------------------------------------------------------------
Twelve Months Ended December 31,
- ---------------------------------------------------------------- ---------------
1998 1997 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 9,602 10,589 (987) (9.32)
Block Hours (c) 33,516 36,836 (3,320) (9.01)
RPMs (000s) (d) 3,009,638 3,373,840 (364,202) (10.79)
ASMs (000s) (e) 3,882,202 4,169,102 (286,900) (6.88)
Passengers Enplaned (g) 1,617,901 1,840,056 (222,155) (12.07)
Revenue (000s) $222,571 $228,062 $(5,491) (2.41)
RASM in cents (h) 5.73 5.47 0.26 4.75
- --------------------------------------------------------------------------------
See footnotes (b) through (h) on pages 14 and 15.
Military/Government Charter Revenues. The following table sets forth, for the
periods indicated, certain key operating and financial data for the
military/government flight operations of the Company.
- --------------------------------------------------------------------------------
Twelve Months Ended December 31,
- --------------------------------------------------------------------------------
1998 1997 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 4,447 4,860 (413) (8.50)
Block Hours (c) 16,389 18,704 (2,315) (12.38)
RPMs (000s) (d) 821,813 1,044,317 (222,504) (21.31)
ASMs (000s) (e) 1,963,069 2,165,169 (202,100) (9.33)
Passengers Enplaned (g) 205,641 265,862 (60,221) (22.65)
Revenue (000s) $121,911 $131,115 $(9,204) (7.02)
RASM in cents (h) 6.21 6.06 0.15 2.48
- --------------------------------------------------------------------------------
See footnotes (b) through (h) on pages 14 and 15.
Ground Package Revenues. In 1998, ground package revenues increased 4.0% to
$23.2 million, as compared to $22.3 million in 1997.
The Company's Ambassadair Travel Club offers hundreds of tour-guide-accompanied
vacation packages to its approximately 38,000 individual and family members
annually. In 1998, total packages sold decreased 5.0% as compared to 1997, but
the average revenue earned for each ground package sold increased 20.4% between
periods.
Other Revenues. Other revenues are comprised of the consolidated revenues of
affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled and charter operations of the Company. Other
revenues increased 35.1% to $40.4 million in 1998, as compared to $29.9 million
in 1997.
In 1998, as compared to 1997, the Company earned $4.3 million more in substitute
service revenues, $3.2 million more in cancellation and administrative fees, and
$2.4 million more in cargo and other affiliate company revenues, partially
offset by $0.6 million less revenue earned from the sale of surplus and obsolete
aircraft parts.
A substitute service agreement typically provides for the Company to operate
aircraft with its crews on routes designated by the customer airline to carry
the passengers of that airline for a limited period of time. The Company
experienced increased demand for this type of service in 1998 due to delays in
new aircraft deliveries being encountered by various airlines. The Company also
increased its administrative fee for change-of-reservation on non-refundable
scheduled service tickets from $50 to $60 per change effective August 1998, and
the volume of such fees earned also increased between years in proportion to the
increase in scheduled service passengers boarded.
Operating Expenses
Salaries, Wages and Benefits. Salaries, wages and benefits expense in 1998 in-
creased 22.5% to $211.3 million from $172.5 million in 1997.
The Company increased its average equivalent employees by 18.4% between 1998 and
1997 in order to appropriately staff the growth in available seats offered
between periods. Categories of employees where this growth was most significant
included cockpit and cabin crews, reservations agents, airport passenger and
ramp service agents, and aircraft maintenance personnel, all of which are
influenced directly by flight activity. Some employment growth in 1998 was also
needed to correct for certain employee shortages in 1997, particularly in the
areas of cockpit crews, reservations agents, and airframe and power plant
mechanics.
The average rate of pay earned by the Company's employees (including all
categories of salaries, wages and benefits, except for variable compensation)
was unchanged between 1998 and 1997. While most employees received wage rate
increases between years, new employees are generally hired at lower average
starting rates of pay than those rates in effect for more senior employees. The
wage-rate reductions attributable to new employees between 1998 and 1997
approximately offset the wage rate increases paid to more senior employees.
In 1998, the Company recorded $8.9 million in variable compensation and related
payroll taxes as a result of the significant improvement in earnings as compared
to 1997, when no such compensation was incurred. In the second quarter of 1997,
a one-time charge of $2.0 million was recorded for variable compensation expense
associated with the resignation of the Company's former President and Chief
Executive Officer.
Salaries, wages and benefits cost per ASM increased 11.8% in 1998 to 1.52 cents,
as compared to 1.36 cents in 1997. This unit-cost increase was attributable to
the faster rate of growth in average equivalent employees between years than
seat capacity, and to the variable compensation earned in 1998, which was not
earned in 1997.
Fuel and Oil. Fuel and oil expense decreased 10.6% to $137.4 million in 1998, as
compared to $153.7 million in 1997. This decrease occurred despite the Company
consuming 9.8% more gallons of jet fuel for flying operations between years,
which resulted in an increase in fuel expense of approximately $15.0 million.
Jet fuel consumption increased primarily due to the increased number of block
hours of jet flying operations between periods. The Company flew 144,237 jet
block hours in 1998, as compared to 129,216 jet block hours in 1997, an increase
of 11.6% between years.
Fuel consumption growth between 1998 and 1997 was less than total block hour
growth, however, since most of the block hour growth in 1998 was in the
narrow-body Boeing 727-200 and Boeing 757-200 fleets, which consume
approximately 50% of the gallons per block hour consumed by the Lockheed L-1011
fleet.
During 1998, the Company's average cost per gallon of jet fuel consumed
decreased by 20.0% as compared to 1997, resulting in a decrease in fuel and oil
expense of approximately $34.4 million between years. This reduction in fuel
price was experienced generally in the airline industry throughout 1998 as a
result of significant reductions in average crude oil and distillate market
prices as compared to 1997.
During the first, second and fourth quarters of 1998, the Company entered into
several fuel price hedge contracts under which the Company sought to reduce the
risk of fuel price increases during the year. The Company hedged some 1998 fuel
consumption under swap agreements which established specific swap prices for
designated periods and hedged other 1998 fuel consumption under fuel cap
agreements which guaranteed a maximum price per gallon for designated periods.
Since the price of fuel declined during most of 1998, the Company recorded
approximately $2.5 million in additional fuel and oil expense under its hedge
contracts, which added approximately one cent to its average cost per gallon in
1998.
Fuel and oil expense decreased 18.9% to 0.99 cents per ASM in 1998, as compared
to 1.22 cents per ASM in 1997, primarily due to the period-to-period decrease in
the average price of fuel consumed.
Depreciation and Amortization. Depreciation and amortization expense in-
creased 25.9% to $78.7 million in 1998, as compared to $62.5 million in 1997.
Depreciation expense attributable to owned airframes and leasehold improvements
increased $3.0 million in 1998, as compared to 1997. The Company purchased one
Boeing 757-200 and one Boeing 727-200 aircraft in late 1997 which had been
previously financed through operating leases, thereby increasing depreciation
expense on airframes between years. (The Company recorded a reduction in
aircraft rental expense between periods for the termination of operating leases
for these aircraft. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Operating Expenses--Aircraft Rentals.")
The Company also recorded additional inventory obsolescence expense for certain
aircraft parts held for sale which were sold during the first quarter of 1998,
and increased its investment in rotable parts and computer hardware and
software, among other items of property and equipment. These changes resulted in
an increase in depreciation expense of $2.4 million in 1998, as compared to
1997.
Amortization of capitalized engine and airframe overhauls increased $11.1
million in 1998, as compared to 1997, after including the offsetting
amortization associated with manufacturers' credits. Changes to the cost of
overhaul amortization were partly due to the increase in total block hours and
cycles flown between comparable periods for the Boeing 727-200 and Lockheed
L-1011 fleets, since such expense varies with that activity, and partly due to
the completion of more engine and airframe overhauls between periods for these
fleet types. Rolls-Royce-powered Boeing 757-200 aircraft, seven of which were
delivered new from the manufacturer between late 1995 and late 1998, are not
presently generating any engine or airframe overhaul expense since the initial
post-delivery overhauls for these aircraft are not yet due under the Company's
maintenance programs.
The cost of engine overhauls that become worthless due to early engine failures
and which cannot be economically repaired is charged to depreciation and
amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these write-offs increased $1.3 million in
1998 as compared to 1997. When these early engine failures can be economically
repaired, the related repairs are charged to aircraft maintenance, materials and
repairs expense.
Effective July 1, 1998, the Company extended the estimated useful life of the 13
owned Lockheed L-1011 series 50 and series 100 aircraft to a common retirement
date of December 2004, and also reduced the estimated salvage value of the
related airframes, engines and rotables. The effect of this change in estimate
was to reduce depreciation expense in 1998 by $2.1 million, as compared to 1997.
Depreciation and amortization expense per ASM increased 16.3% to 0.57 cents in
1998, as compared to 0.49 cents in 1997.
Handling, Landing and Navigation Fees. Handling, landing and navigation fees
increased by 7.5% to $74.6 million in 1998, as compared to $69.4 million in
1997. The total number of system-wide jet departures between 1998 and 1997
increased by 16.1% to 45,881 from 39,517, resulting in approximately $8.8
million in volume-related handling and landing expense increases between
periods.
This volume-related increase was partially offset, however, by a decrease of
approximately $3.3 million in price-and-mix-related handling and landing
expenses for 1998, as compared to 1997, attributable primarily to a change in
jet departure mix.
The cost per ASM for handling, landing and navigation fees decreased 1.8% to
0.54 cents in 1998, from 0.55 cents in 1997.
Aircraft Rentals. Aircraft rentals expense for 1998 decreased 2.4% to $53.1
million from $54.4 million in 1997. The Company purchased one leased Boeing
757-200 in September 1997; returned one leased Boeing 757-200 to the lessor in
November of 1997; and added one new leased Boeing 757-200 each in December 1997
and August 1998. These fleet changes resulted in a reduction in Boeing 757-200
rentals expense of $0.9 million in 1998, as compared to 1997. Aircraft rentals
expense for the Boeing 727-200 and Lockheed L-1011 fleets did not change
significantly between years.
Aircraft rentals cost per ASM for 1998 was 0.38 cents, a decrease of 11.6% from
0.43 cents per ASM in 1997.
Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials and
repairs expense increased 4.3% to $53.7 million in 1998, as compared to $51.5
million in 1997. The Company performed a total of 51 light airframe checks on
its fleet during 1998, as compared to 44 such checks performed in 1997, an
increase of 15.9% between years. The cost of materials consumed and components
repaired in association with such light checks and other maintenance activity
increased by $1.6 million between 1998 and 1997.
The cost per ASM of aircraft maintenance, materials and repairs decreased 4.9%
to 0.39 cents in 1998, as compared to 0.41 cents in 1997.
Crew and Other Employee Travel. The cost of crew and other employee travel
increased 13.7% to $41.6 million in 1998, as compared to $36.6 million in 1997.
During 1998, the Company's average full-time-equivalent cockpit and cabin crew
employment was 13.5% higher than in 1997, while jet block hours flown increased
by 11.6% between the same periods.
The average cost of hotel rooms per full-time-equivalent crew member increased
4.4% in 1998, as compared to 1997. Such hotel costs increased due to both higher
room rates paid in 1998, and due to aircraft flow changes associated with the
Company's 1998 summer schedule which resulted in more crews terminating their
daily flying away from their home bases than in the prior year.
The average cost of crew positioning per full-time-equivalent crew member
decreased 5.4% in 1998, as compared to 1997. Crew positioning costs declined
primarily due to the shift of revenue production from commercial charter and
military/government charter to scheduled service. Crews positioning out of base
for scheduled service can often position at no cost on Company flights, whereas
positioning to remote international locations for charter service is usually
done on other carriers at an incremental cost.
The cost per ASM for crew and other employee travel increased 3.4% to 0.30 cents
in 1998, as compared to 0.29 cents in 1997.
Ground Package Cost. Ground package cost increased 1.0% to $19.4 million in
1998, as compared to $19.2 million in 1997. The number of Ambassadair ground
packages sold in 1998 decreased 5.0%, as compared to 1997, while the average
cost of Ambassadair ground packages sold increased by 29.8% between years. The
number of ATA Vacations ground packages sold in 1998 decreased 10.2% as compared
to 1997, while the average cost of ATA Vacations ground packages sold decreased
by 7.6% between the same periods. The cost per ASM of ground packages decreased
6.7% to 0.14 cents in 1998, as compared to 0.15 cents in 1997.
Passenger Service. For 1998 and 1997, catering represented 84.1% and 83.0%,
respectively, of total passenger service expense.
The total cost of passenger service increased 3.7% to $34.0 million in 1998, as
compared to $32.8 million in 1997. The Company experienced a decrease of
approximately 10.2% in the average unit cost of catering each passenger between
years, primarily because in 1998 there were relatively more scheduled service
passengers in the Company's business mix who are provided a less-expensive
catering product than the Company's longer-stage-length commercial and
military/government charter passengers. This resulted in a
price-and-business-mix reduction of $3.3 million in catering expense in 1998, as
compared to 1997. Total jet passengers boarded, however, increased 15.0% between
years, resulting in approximately $4.0 million in higher volume-related catering
expenses between the same sets of comparative periods.
The cost per ASM of passenger service declined 7.7% to 0.24 cents in 1998 from
0.26 cents in 1997.
Commissions. Commissions expense increased 9.2% to $28.5 million in 1998, as
compared to $26.1 million in 1997.
Scheduled service commissions expense increased by $2.3 million between 1998 and
1997. This increase was lower than the related increase of 37.5% in scheduled
service revenues between the same periods, partially because of an industry-wide
reduction in the standard travel agency commission rate from 10% to 8% which
became effective in October 1997, and partially due to relatively more
non-commissionable bulk seat scheduled service sales being made in 1998, as
compared to 1997. Neither commercial charter nor military/government charter
commissions expense changed significantly between 1998 and 1997.
The cost per ASM of commissions expense was unchanged at 0.21 cents for both
1998 and 1997.
Other Selling Expenses. Other selling expenses increased 42.6% to $22.1 million
in 1998, as compared to $15.5 million in 1997. Scheduled service passengers
boarded increased 34.1% between the same periods.
CRS fees increased $3.1 million in 1998, as compared to 1997, due to a 40.2%
increase in total CRS bookings made for the expanded scheduled service business
unit between periods and due to a 7.5% increase in the average cost of each CRS
booking. Toll-free telephone costs increased $0.5 million between 1998 and 1997,
primarily due to higher toll-free usage related to higher scheduled service
reservations activity. Credit card fees increased $3.0 million in 1998, as
compared to 1997, due to higher 1998 earned revenues in scheduled service which
were sold using credit cards as payment. Other selling cost per ASM increased
33.3% to 0.16 cents in 1998, as compared to 0.12 cents in 1997.
Advertising. Advertising expense increased 40.2% to $17.8 million in 1998, as
compared to $12.7 million in 1997. The 40.2% increase in total advertising
expense between years was slightly greater than the 37.5% increase in scheduled
service revenues between the same periods. The majority of the Company's growth
in 1998 was from increased frequencies at existing gateway cities such as
Chicago-Midway, which provided some advertising efficiencies in 1998 as compared
to the prior year. Such market-related efficiency was partially offset, however,
due to temporarily higher advertising support required in the second and third
quarters of 1998 for the introduction of the Company's new services to
Dallas-Ft. Worth, Denver, San Juan and New York's LaGuardia Airport, as well as
to launch the Company's fall promotions in the third and fourth quarters of
1998. The cost per ASM of advertising increased 30.0% to 0.13 cents in 1998, as
compared to 0.10 cents in 1997.
Facilities and Other Rentals. Facilities and other rentals include the cost of
all ground facilities that are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facilities and other
rentals increased 10.5% to $9.5 million in 1998, as compared to $8.6 million in
1997. The rate of growth in facilities costs between periods was comparable to
the 9.5% rate of ASM growth between 1998 and 1997 due to the addition of new
facilities for services to Denver, Dallas-Ft. Worth and New York's LaGuardia
Airport between periods. The cost per ASM for facility and other rentals was
unchanged at 0.07 cents in both 1998 and 1997.
Other Operating Expenses. Other operating expenses increased 14.5% to $62.2
million in 1998, as compared to $54.3 million in 1997. Other operating expenses
which experienced significant changes between periods included: (i) $3.1 million
of additional costs for the Chicago Express Jetstream 31 code share agreement,
which agreement was not in effect in the 1997 first quarter, and because such
code share was expanded to include Lansing and Madison in 1998, which were
served in only the fourth quarter of 1997; (ii) $2.3 million in higher expenses
associated with the operation of the Company's affiliate businesses; and (iii)
$1.7 million in higher costs associated with the short-term leasing of
substitute aircraft and the reprotection of some of the Company's passengers on
other airlines due to higher-than-normal delayed and irregular flight
operations, primarily in the second quarter of 1998. Other operating cost per
ASM increased 4.7% to 0.45 cents in 1998, as compared to 0.43 cents in 1997.
Interest Income and Expense. Interest expense in 1998 increased to $12.8 million
as compared to $9.5 million in 1997. The increase in interest expense between
periods was primarily due to changes in the Company's capital structure
resulting from the two financings completed on July 24, 1997, at which time the
Company (i) sold $100.0 million principal amount of 10.5% unsecured seven-year
notes, and (ii) entered into a new $50.0 million secured revolving credit
facility, thereby replacing the former secured revolving credit facility of
$122.0 million as of June 30, 1997. Additionally, in December 1998, the Company
sold $125.0 million principal amount of 9.625% unsecured senior notes.
Prior to completing these new financings, the Company utilized secured bank
credit facilities to finance cash flow requirements of the Company as they
arose, thereby minimizing the level of borrowings on which interest would be
paid. During 1998, the Company's weighted average debt outstanding was
approximately $159.1 million, as compared to $117.2 million in 1997.
The weighted average effective interest rate applicable to the Company's
outstanding debt in 1998 was 8.56%, as compared to 8.06% in 1997. The increase
in the weighted average effective interest rates between years was primarily due
to the 10.5% interest rate applicable to the $100.0 million in unsecured notes
issued on July 24, 1997, which was higher than the average interest rate which
was applicable to borrowings under the former credit facility.
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $4.4 million in interest income in 1998,
as compared to $1.6 million in 1997.
Income Tax Expense. In 1998 the Company recorded $27.1 million in income tax
expense applicable to $67.2 million of pre-tax income for that period, while
in 1997, income tax expense was $4.5 million on pre-tax income of $6.0 million.
The effective tax rate applicable to 1998 was 40.4%, as compared to 73.9% in
1997.
Income tax expense in both sets of comparative periods was affected by the
permanent non-deductibility for federal income tax purposes of a percentage of
amounts paid for crew per diem (45% in 1998 and 50% in 1997). The effect of this
and other permanent differences on the effective income tax rate for financial
accounting purposes becomes more pronounced in cases where before-tax income
approaches zero, which was a significant reason for the higher effective tax
rate in 1997.
Income tax expense for 1997 was also significantly affected by the one-time $2.0
million charge to salaries, wages and benefits for the executive compensation
package provided to the Company's former President and Chief Executive Officer.
Of the total compensation paid to this former executive of the Company in 1997,
approximately $1.7 million was non-deductible against the Company's federal
taxable income.
Liquidity and Capital Resources
Cash Flows. In 1999, 1998 and 1997, net cash provided by operating activities
was $159.6 million, $151.8 million and $99.9 million, respectively. The increase
in cash provided by operating activities between periods was attributable to
such factors as increased earnings, higher depreciation and amortization, higher
accrued expenses and other factors. These increases were offset by higher
investments in inventories and receivables, and a lower amount of income tax
deferred in 1999, as the Company utilized all remaining net operating loss
carryforwards from earlier tax years.
Net cash used in investing activities was $305.7 million, $142.4 million and
$76.1 million, respectively, in the years ended December 31, 1999, 1998 and
1997. Such amounts primarily included capital expenditures totaling $274.3
million, $175.4 million and $84.2 million, respectively, for engine and airframe
overhauls, airframe improvements, hushkit installations, the purchase of rotable
parts, and for purchase deposits made on Boeing 757-200 and Lockheed L-1011-500
aircraft scheduled for future delivery. Included in capital expenditures for
1999 were approximately $41.5 million for the purchase of nine Boeing 727-200
aircraft that were previously leased and approximately $74.2 million for the
purchase and modification of five Lockheed L-1011-500 aircraft.
Net cash provided by financing activities for the year ended December 31, 1999,
1998 and 1997 was $93.4 million, $59.3 million and $6.9 million, respectively.
This cash provided by financing activities was primarily attributable to
proceeds from long-term debt of $99.9 million in 1999 consisting of a $75.0
million principal amount of unsecured senior notes, a $17.0 million special
facility revenue bond and a $7.9 million note payable, as compared to $131.0
million for 1998 consisting of a $125.0 million principal amount of unsecured
senior notes and a $6.0 million special facility revenue bond. (See Note 4 to
Consolidated Financial Statements.) These proceeds were offset by payments on
long-term debt of $1.6 million in 1999 for certain monthly installment payments,
as compared to $71.5 million in 1998, for items such as $34.0 million repayment
on the revolving bank credit facility, $30.0 million repayment of a note payable
and $7.5 million for other repayments. These cash inflows were also offset by
cash outflows for the purchase of treasury stock of $8.6 million and $0.1
million, respectively, in 1999 and 1998. Cash provided by financing activities
in 1997 of $134.0 million were primarily from the $100.0 million principal
amount of unsecured notes, which were offset by the full repayment of the former
credit facility.
Aircraft and Fleet Transactions. In November 1994, the Company signed a purchase
agreement for six new Boeing 757-200s which, as subsequently amended, now
provides for 13 total aircraft to be delivered between 1995 and 2000. In
conjunction with the Boeing purchase agreement, the Company entered into a
separate agreement with Rolls-Royce Commercial Aero Engines Limited to provide
RB211-535E4 engines to power the new Boeing 757-200 aircraft. With the
thirteenth delivery, the Company will have purchased 26 installed engines and
four spare engines to support this fleet. The Company accepted delivery of the
first nine aircraft under these agreements between September 1995 and December
1999, all of which were financed under leases accounted for as operating leases.
The aggregate purchase price under these agreements for the remaining four
aircraft is approximately $50.0 million per aircraft, subject to escalation. Two
deliveries under this agreement are scheduled for June 2000, while the remaining
two aircraft deliveries are scheduled for the fourth quarter of 2000. Advanced
payments totaling approximately $27.2 million (approximately $6.8 million per
aircraft) are required prior to delivery of the remaining aircraft, with the
remaining purchase price payable at delivery. As of December 1999, the Company
had recorded fixed asset additions of $20.4 million in advanced payments
applicable to aircraft scheduled for future delivery. The Company intends to
finance the remaining deliveries under this agreement through sale/leaseback
transactions accounted for as operating leases.
In July 1998, the Company committed to the purchase of five Lockheed L-1011
series 500 aircraft, three spare engines and certain associated spare parts.
These aircraft are powered by Rolls-Royce RB211-524B4 engines. The Company
accepted delivery of these aircraft under this purchase agreement between August
1998 and November 1999. Subsequent to delivery of each aircraft, the Company has
completed certain modifications and improvements to the airframes and interiors
in order to qualify them to operate in a coach seating configuration of 307
seats. Four aircraft were placed into revenue service in 1999, operating
primarily in the commercial and military/government charter businesses. The
fifth aircraft is expected to enter revenue service in the first quarter of
2000. The Company used the proceeds from the issuance of unsecured notes in
December 1998 to acquire and modify these aircraft.
The Company purchased an additional Rolls-Royce-powered Boeing 757-200 aircraft
from an aircraft lessor in September 1997, financing this purchase through a
payment of cash and the issuance of a $30.7 million note. The note required
monthly payments of $400,000 in principal and interest from October 15, 1997,
through September 1999, with the balance due at maturity. The Company
re-financed this aircraft through a sale/leaseback transaction in December 1998,
at which time the note was repaid in full. The new lease initially expired in
December 1999, but was amended and extended for an additional two-year term. The
lessor may also cancel the lease with six months notice to the Company.
In the second quarter of 1999, the Company completed the construction of a
120,000 square foot Maintenance and Operations Center immediately adjacent to
the Company's maintenance hangar at Indianapolis International Airport. In June
1999, the Company completed an $8.0 million 15-year mortgage loan on the
Maintenance and Operations Center. The mortgage loan requires monthly principal
and interest payments. During the fourth quarter of 1999, the Company completed
a sale/leaseback transaction for all furniture and fixtures in the Maintenance
and Operations Center. This lease qualifies as a capital lease, with principal
and interest payments to be recognized over a seven year term.
Financings in 1997. On July 24, 1997, the Company sold $100.0 million principal
amount of 10.5% unsecured senior notes in a private offering under Rule 144A.
The Company subsequently completed an exchange offer to holders of the unsecured
notes in January 1998, under which offer those notes issued in the original
private offering could be tendered in exchange for fully registered notes having
the same terms. (See Note 4 to Consolidated Financial Statements.)
Financings in 1998. In December 1998, the Company sold $125.0 million principal
amount of 9.625% unsecured senior notes in a public offering. (See Note 4 to
Consolidated Financial Statements.)
Financings in 1999. On December 9, 1999, ATA issued $17.0 million principal
amount of special facility revenue bonds to finance the construction of certain
facilities at Chicago-Midway Airport. The bonds are payable from and secured by
a pledge and assignment of special facility revenues, including certain of the
City of Chicago's rights under a special facility financing agreement between
the City of Chicago and the Company. Payment of the bonds is guaranteed by the
Company. (See Note 4 to Consolidated Financial Statements.)
On December 21, 1999, the Company completed a private placement under Rule 144A
of $75.0 million principal amount of 10.5% unsecured senior notes. These notes
were issued as additional securities covered under the indenture with respect to
the 10.5% unsecured senior notes issued in 1997. The Company is obligated to
complete an exchange offer in which the new notes will be exchanged for
registered notes having the same terms. On January 25, 2000, the Company filed a
registration statement with the Securities and Exchange Commission in connection
with this pending exchange offer. (See Note 4 to Consolidated Financial
Statements.)
In December 1999, the Company revised its revolving credit facility to provide a
maximum of $100.0 million, including up to $50.0 million for stand-by letters of
credit. The facility matures January 2, 2003, and borrowings under the facility
bear interest, at the option of ATA, at either LIBOR plus 1.25% to 2.50% or the
agent bank's prime rate. The 1999 facility is subject to certain restrictive
covenants and is collateralized by certain Lockheed L-1011 and Boeing 727-200
ADV aircraft. As of December 31, 1999, the Company had no borrowings against
this credit facility but did have outstanding letters of credit secured by this
facility aggregating $33.0 million. No amounts had been drawn against any
letters of credit as of December 31, 1999. (See Note 4 to Consolidated Financial
Statements.)
Aircraft Purchase Commitments. The Company has signed a purchase agreement to
acquire six of the Boeing 727-200 ADV aircraft that are currently leased. These
aircraft are expected to be purchased in the fourth quarter of 2000.
In January 2000, Chicago Express Airlines, Inc., a wholly owned subsidiary of
Amtran, entered into an agreement to purchase nine SAAB 340B aircraft, including
spare engines, spare parts and crew training, for an aggregate purchase price of
approximately $30.0 million. These aircraft will be placed into service
throughout 2000 in conjunction with the retirement of the current fleet of
Jetstream J31s, all of which are currently leased.
Future Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This accounting standard, which is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000,
requires that all derivatives be recognized as either assets or liabilities at
fair value. The Company is evaluating the new statement's provisions and
currently expects to adopt SFAS No. 133 in the first quarter of 2001. Although
the Company currently does not have any significant derivatives subject to the
accounting provisions of SFAS No. 133, the Company has engaged in certain fuel
price hedging contracts in recent years to which accounting or disclosure
provisions of this statement might have applied. The Company cannot predict what
impact, if any, adoption of the statement will have.
Year 2000
The Company completed all year 2000 readiness work and experienced no
significant problems.
Forward-Looking Information
Information contained within "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" includes
forward-looking information which can be identified by forward-looking
terminology such as "believes," "expects," "may," "will," "should,"
"anticipates," or the negative thereof, or other variations in comparable
terminology. Such forward-looking information is based upon management's current
knowledge of factors affecting the Company's business. The differences between
expected outcomes and actual results can be material, depending upon the
circumstances. Where the Company expresses an expectation or belief as to future
results in any forward-looking information, such expectation or belief is
expressed in good faith and is believed to have a reasonable basis. The Company
can provide no assurance that the statement of expectation or belief will result
or will be achieved or accomplished.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause actual results to be materially different. Such
factors include, but are not limited to, the following:
o economic conditions;
o labor costs;
o aviation fuel costs;
o competitive pressures on pricing;
o weather conditions;
o governmental legislation;
o consumer perceptions of our products;
o demand for air transportation in markets in which we operate; and
o other risks and uncertainties listed from time to time in reports
we periodically file with the SEC.
The Company does not undertake to update our forward-looking statements to
reflect future events or circumstances.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to certain market risks, including commodity price risk
resulting from aircraft fuel price fluctuations and interest rate risk. The
adverse effects of potential changes in these market risks are discussed below.
The sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity, nor do they consider additional
actions management may take to mitigate the Company's exposure to such changes.
See the notes to consolidated financial statements for a description of the
Company's accounting policies and other information related to these financial
instruments.
Aircraft Fuel. The Company's results of operations are significantly impacted by
changes in the price of aircraft fuel. During 1999, aircraft fuel accounted for
approximately 16.6% of the Company's operating expenses. Based on the Company's
2000 projected fuel consumption, a one cent change in the average annual price
per gallon of aircraft fuel would impact the Company's annual aircraft fuel
expense by approximately $2.8 million.
The Company's short-term risk is mitigated by contractual fuel price escalators
contained in military charter and commercial charter contracts, which enable the
Company to pass through some increases in fuel cost. The Company has previously
entered into certain fuel swap contracts and fuel cap agreements. No such
agreements are in place as of December 31, 1999.
Interest Rates. The Company's results of operations are affected by fluctuations
in market interest rates. As of December 31, 1999, the Company has approximately
$100.0 million of variable-rate debt available through a revolving credit
facility. In 2000, the Company does not project to incur significant borrowings
under the facility, so the risk of exposure to market interest rate fluctuations
is not significant.
As of December 31, 1999, the Company had fixed-rate debt with a carrying value
of $300.0 million. Based upon discounted future cash flows using current
incremental borrowing rates for similar types of instruments, the fair value of
the fixed-rate debt is estimated at approximately $295.2 million. Market risk,
estimated as the potential increase in fair value resulting from a hypothetical
1.0% decrease in interest rates, was approximately $7.5 million as of December
31, 1999.
If 2000 average short-term interest rates decreased by 1.0% over 1999 average
rates, the Company's projected interest income from short-term investments would
decrease by approximately $1.5 million during 2000.
PART II - Continued
Item 8. Financial Statements and Supplementary Data
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Amtran, Inc.
We have audited the accompanying consolidated balance sheets of Amtran, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of 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 consolidated financial position of Amtran, Inc. and
subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth herein.
/S/ERNST & YOUNG LLP
Indianapolis, Indiana
January 27, 2000
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, December 31,
1999 1998
--------------- --------------
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 120,164 $ 172,936
Receivables, net of allowance for doubtful accounts
(1999 - $1,511; 1998 - $1,163) ............................. 52,099 24,921
Inventories, net ........................................... 36,686 19,567
Prepaid expenses and other current assets .................. 22,945 25,604
-------------- --------------
Total current assets ............................................ 231,894 243,028
Property and equipment:
Flight equipment ........................................... 781,171 557,302
Facilities and ground equipment ............................ 92,060 68,848
-------------- --------------
873,231 626,150
Accumulated depreciation ................................... (361,399) (296,818)
-------------- --------------
511,832 329,332
Assets held for sale - 7,176
Goodwill ........................................................ 23,453 -
Deposits and other assets ....................................... 48,102 15,013
-------------- --------------
Total assets .................................................... $ 815,281 $ 594,549
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ........................ $ 2,079 $ 1,476
Accounts payable ............................................ 20,234 7,158
Air traffic liabilities ..................................... 93,507 76,662
Accrued expenses ............................................ 126,180 98,548
-------------- --------------
Total current liabilities ....................................... 242,000 183,844
Long-term debt, less current maturities ......................... 345,792 245,195
Deferred income taxes ........................................... 58,493 52,620
Other deferred items ............................................ 17,620 10,139
Commitments and contingencies
Shareholders' equity:
Preferred stock; authorized 10,000,000 shares; none issued .. - -
Common stock, without par value; authorized 30,000,000 shares;
issued 12,884,306 - 1999; 12,374,577 - 1998 .............. 55,826 47,632
Treasury stock; 612,052 shares - 1999; 193,506 shares - 1998 (10,500) (1,881)
Additional paid-in-capital .................................. 12,910 11,735
Retained earnings ........................................... 93,673 46,331
Deferred compensation - ESOP ................................ (533) (1,066)
-------------- --------------
151,376 102,751
-------------- --------------
Total liabilities and shareholders' equity ...................... $ 815,281 $ 594,549
============== ==============
See accompanying notes.
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Year Ended December 31,
1999 1998 1997
-------------------------------------
Operating revenues:
Scheduled service ............................. $ 624,647 $ 511,254 $ 371,762
Charter ....................................... 389,979 344,482 359,177
Ground package ................................ 58,173 23,186 22,317
Other ......................................... 49,567 40,447 29,937
---------- ---------- -----------
Total operating revenues ......................... 1,122,366 919,369 783,193
---------- ---------- -----------
Operating expenses:
Salaries, wages and benefits .................. 252,595 211,304 172,499
Fuel and oil .................................. 170,916 137,401 153,701
Depreciation and amortization ................. 96,038 78,665 62,468
Handling, landing and navigation fees ......... 89,302 74,640 69,383
Aircraft rentals .............................. 58,653 53,128 54,441
Aircraft maintenance, materials and repairs ... 55,645 53,655 51,465
Crew and other employee travel ................ 49,707 41,565 36,596
Ground package cost ........................... 49,032 19,466 19,230
Passenger service ............................. 39,231 34,031 32,812
Commissions ................................... 39,050 28,483 26,102
Other selling expenses ........................ 28,099 22,147 15,462
Advertising ................................... 18,597 17,772 12,658
Facilities and other rentals .................. 13,318 9,536 8,557
Other ......................................... 72,156 62,203 54,335
---------- ---------- -----------
Total operating expenses 1,032,339 843,996 769,709
---------- ---------- -----------
Operating income 90,027 75,373 13,484
Other income (expense):
Interest income ................................ 5,375 4,433 1,584
Interest expense ............................... (20,966) (12,808) (9,454)
Other .......................................... 3,361 212 413
---------- ---------- -----------
Other expenses ................................... (12,230) (8,163) (7,457)
---------- ---------- -----------
Income before income taxes ....................... 77,797 67,210 6,027
Income taxes ..................................... 30,455 27,129 4,455
---------- ---------- -----------
Net income ....................................... $ 47,342 $ 40,081 $ 1,572
========== ========== ===========
Basic earnings per common share:
Average shares outstanding ....................... 12,269,474 11,739,106 11,577,727
Net income per share ............................. $ 3.86 $ 3.41 $ 0.14
========== ========== ===========
Diluted earnings per common share:
Average shares outstanding ....................... 13,469,537 13,066,222 11,673,330
Net income per share ............................. $ 3.51 $ 3.07 $ 0.13
========== ========== ===========
See accompanying notes.
PART II - Continued
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
Additional Deferred
Common Treasury Paid-in Retained Compensation
Stock Stock Capital Earnings ESOP
--------- ---------- ------------ ----------- --------------
Balance, December 31, 1996 $ 38,341 $ (1,760) $ 15,618 $ 4,678 $ (2,133)
Net income .............................. - - - 1,572 -
Issuance of common stock for ESOP ....... - - (214) - 533
Restricted stock grants ................. 419 - (185) - -
Executive stock options expired ......... - - 121 - -
--------- ---------- ------------ ----------- --------------
Balance, December 31, 1997 .................. 38,760 (1,760) 15,340 6,250 (1,600)
Net income ............................. - - - 40,081 -
Issuance of common stock for ESOP ...... - - (257) - 534
Restricted stock grants ................ 147 - (66) - -
Stock options exercised ................ 8,725 - (4,089) - -
Purchase of 8,506 shares of
treasury stock ......................... - (121) - - -
Disqualifying disposition of stock ..... - - 807 - -
--------- ---------- ------------ ----------- --------------
Balance, December 31, 1998 .................. 47,632 (1,881) 11,735 46,331 (1,066)
Net income ............................. - - - 47,342 -
Issuance of common stock for ESOP ...... - - 37 - 533
Restricted stock grants ................ 32 - (10) - -
Stock options exercised ................ 6,897 - (3,207) - -
Purchase of 418,546 shares of
treasury stock ......................... - (8,619) - - -
Disqualifying disposition of stock ..... - - 3,887 - -
Acquisition of businesses .............. 1,265 - 468 - -
--------- ---------- ------------ ----------- --------------
Balance, December 31, 1999 .................. $ 55,826 $ (10,500) $ 12,910 $ 93,673 $ (533)
========= ========== ============ =========== ==============
See accompanying notes.
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
1999 1998 1997
---------------------------------------------
Operating activities:
Net income ............................................... $ 47,342 $ 40,081 $ 1,572
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ....................... 96,038 78,665 62,468
Deferred income taxes ............................... 5,873 21,160 11,244
Other non-cash items ................................ 14,463 1,708 (666)
Changes in operating assets and liabilities:
Receivables ......................................... (21,197) (1,655) (3,027)
Inventories ......................................... (18,746) (4,356) (1,637)
Assets held for sale ................................ - - 5,356
Prepaid expenses .................................... 7,484 (4,712) (6,321)
Accounts payable .................................... 10,684 (3,353) (3,160)
Air traffic liabilities ............................. (2,465) 8,108 18,655
Accrued expenses .................................... 20,087 16,166 15,452
------------ ------------ -----------
Net cash provided by operating activities 159,563 151,812 99,936
------------ ------------ -----------
Investing activities:
Proceeds from sales of property and equipment 264 37,061 8,005
Capital expenditures ..................................... (274,300) (175,417) (84,233)
Acquisition of businesses, net of cash acquired .......... 16,673 - -
Reductions of (additions to) other assets ................ (48,355) (3,996) 173
------------ ------------ -----------
Net cash used in investing activities (305,718) (142,352) (76,055)
------------ ------------ -----------
Financing activities:
Payments on short-term debt .............................. - (4,750) -
Proceeds from long-term debt ............................. 99,902 131,000 134,000
Payments on long-term debt ............................... (1,590) (71,485) (127,067)
Proceeds from stock option exercises ..................... 3,690 4,636 -
Purchase of treasury stock ............................... (8,619) (121) -
------------ ------------ -----------
Net cash provided by financing activities 93,383 59,280 6,933
------------ ------------ -----------
Increase (decrease) in cash and cash equivalents ......... (52,772) 68,740 30,814
Cash and cash equivalents, beginning of period ........... 172,936 104,196 73,382
------------ ------------ -----------
Cash and cash equivalents, end of period ................. $ 120,164 $ 172,936 $ 104,196
============ ============ ===========
Supplemental disclosures:
Cash payments for:
Interest ............................................. $ 24,411 $ 14,685 $ 6,197
Income taxes (refunds) ............................... 11,910 7,897 (311)
Financing and investing activities not affecting cash:
Issuance of long-term debt directly for capital
expenditures ......................................... $ 2,416 $ - $ 30,650
Issuance of short-term debt directly for capital
expenditures ......................................... 313 - 4,750
See accompanying notes.
PART II - Continued
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of Presentation and Business Description
The consolidated financial statements include the accounts of Amtran, Inc.
(the "Company") and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The Company operates principally in one business segment through American
Trans Air, Inc. ("ATA"), its principal subsidiary, which accounts for
approximately 90% of the Company's operating revenues. ATA is a
U.S.-certificated air carrier providing domestic and international charter
and scheduled passenger air services.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents are carried at cost and are primarily comprised of
investments in U.S. Treasury bills, commercial paper and time deposits
which are purchased with original maturities of three months or less (see
Note 2).
Assets Held For Sale
Assets held for sale are carried at the lower of net book value or
estimated net realizable value.
Inventories
Inventories consist primarily of expendable aircraft spare parts, fuel and
other supplies. Aircraft parts inventories are stated at cost and are
reduced by an allowance for obsolescence. The obsolescence allowance is
provided by amortizing the cost of the aircraft parts inventory, net of an
estimated residual value, over its estimated useful service life. The
obsolescence allowance at December 31, 1999 and 1998, was $10.3 million
and $8.4 million, respectively. Inventories are charged to expense when
consumed.
Revenue Recognition
Revenues are recognized when the transportation is provided. Customer
flight deposits and unused passenger tickets sold are included in air
traffic liability. As is customary within the industry, the Company
performs periodic evaluations of this estimated liability, and any
adjustments resulting therefrom, which can be significant, are included in
the results of operations for the periods in which the evaluations are
completed.
Passenger Traffic Commissions
Passenger traffic commissions are recognized as expense when the
transportation is provided and the related revenue is recognized. The
amount of passenger traffic commissions paid but not yet recognized as
expense is included in prepaid expenses and other current assets in the
accompanying consolidated balance sheets.
Property and Equipment
Property and equipment is recorded at cost and is depreciated to residual
value over its estimated useful service life using the straight-line
method. Advanced payments for future aircraft purchases are recorded at
cost. As of December 31, 1999 and 1998, the Company had made advanced
payments for future aircraft deliveries totaling $20.4 million and $13.0
million, respectively. The estimated useful service lives for the
principal depreciable asset classifications are as follows:
Asset Estimated Useful Service Life
Aircraft and related equipment:
Lockheed L-1011 (Series 50 and 100) Depreciating to common retirement date of
December 2004 (see Note 11)
Lockheed L-1011 (Series 500) Depreciating to common retirement date of
December 2010
Boeing 727-200 Depreciating to common retirement date of
December 2008 (see Note 11)
Boeing 757-200 20 years
Major rotable parts, avionics and assemblies Life of equipment to which applicable
(Generally ranging from 6-16 years)
Improvements to leased flight equipment Period of benefit or term of lease
Other property and equipment 3 - 7 years
The costs of major airframe and engine overhauls are capitalized and
amortized over their estimated useful lives based upon usage (or to
earlier fleet common retirement dates) for both owned and leased aircraft.
Intangible Assets
Goodwill, which represents the excess of cost over fair value of net
assets acquired, is amortized on a straight-line basis over 20 years. The
Company periodically reviews the carrying amounts of intangible assets to
assess their continued recoverability in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of. The Company's policy is to record an impairment loss in the period
when it is determined that the carrying amount of the asset may not be
recoverable.
Financial Instruments
The carrying amounts of cash equivalents, receivables and both
variable-rate and fixed-rate debt (see Note 4) approximate fair value. The
fair value of fixed-rate debt, including current maturities, is estimated
using discounted cash flow analysis based on the Company's current
incremental rates for similar types of borrowing arrangements.
During 1998, the Company began entering into fuel hedge contracts to
reduce the risk of fuel price increases. The Company hedged fuel
consumption under both swap agreements, which establish specific swap
prices for designated periods, and fuel cap agreements, which guarantee a
maximum price per gallon for designated periods. When the market fuel
price remains below that established in hedge contracts, the Company
records the cost of the fuel hedge contract as a component of fuel expense
in the period the fuel is consumed. There were no significant fuel hedges
during 1999.
2. Cash and Cash Equivalents
Cash and cash equivalents consist of the following:
December 31,
1999 1998
---------------------------
(In thousands)
Cash $ 19,831 $ 7,389
Commercial paper 99,948 161,285
U.S. Treasury repurchase agreements 385 4,262
------------- ------------
$120,164 $ 172,936
============= ============
3. Property and Equipment
The Company's property and equipment consist of the following:
December 31,
1999 1998
---------------------------
(In thousands)
Flight equipment, including airframes, engines
and other $ 781,171 $ 557,302
Less accumulated depreciation 313,090 258,025
---------- ---------
468,081 299,277
---------- ---------
Facilities and ground equipment 92,060 68,848
Less accumulated depreciation 48,309 38,793
---------- ---------
43,751 30,055
---------- ---------
$ 511,832 $ 329,332
========= =========
4. Long-Term Debt
Long-term debt consists of the following:
December 31,
1999 1998
-------------------------
(In thousands)
Unsecured Senior Notes, fixed rate of 10.5%, payable in August 2004 $175,000 $100,000
Unsecured Senior Notes, fixed rate of 9.625%, payable in December 2005 125,000 125,000
City of Chicago variable-rate special facility revenue bonds, payable
in January 2029 16,960 -
City of Indianapolis advance, payable in June 2001 10,000 10,000
Note payable to institutional lender; fixed rate of 8.30% payable in
varying installments through June 2014 7,886 -
City of Chicago variable-rate special facility revenue bonds, payable
in December 2020 6,000 6,000
Other 7,025 5,671
-------- --------
347,871 246,671
Less current maturities 2,079 1,476
-------- --------
$345,792 $245,195
======== ========
In December 1999, the Company issued $17.0 million in variable-rate
special facility revenue bonds through the City of Chicago. Interest on
the bonds is payable on the first of every month, and the principal is due
on January 1, 2029. Net proceeds from the bonds will be used to finance
costs related to designing, constructing, equipping and installing a
Federal Inspection Service facility at Chicago-Midway Airport.
In June 1999, the Company obtained an $8.0 million, 15-year mortgage loan
on the new Maintenance and Operations Center. The construction of the
120,000 square foot facility was completed in the second quarter of 1999.
In December 1998, the Company sold $125.0 million principal amount of
unsecured senior notes. Interest is payable on June 15 and December 15 of
each year. The Company may redeem the notes, in whole or in part, at any
time on or after June 15, 2003, initially at 104.81% of their principal
amount plus accrued interest, declining to 102.41% of their principal
amount plus accrued interest on June 15, 2004, then to 100.0% of their
principal amount plus accrued interest at maturity. At any time prior to
June 15, 2001, the Company may redeem up to 35.0% of the principal amount
of the notes with the proceeds of one or more sales of its common stock,
at a redemption price of 109.625% of their principal amount plus accrued
interest, provided that at least $81.25 million aggregate principal amount
of the notes remains outstanding after such redemption.
The net proceeds of the $125.0 million unsecured notes were approximately
$121.0 million after deducting costs and fees of issuance. The Company has
used the net proceeds for the purchase of Lockheed L-1011-500 aircraft,
engines and spare parts, and, together with available cash and bank
facility borrowings, for the purchase of Boeing 727-200ADV aircraft,
engines, engine hushkits and spare parts.
In July 1997, the Company sold $100.0 million principal amount of
unsecured senior notes. The Company sold an additional $75.0 million
principal amount of these notes in December 1999. Interest is payable on
February 1 and August 1 of each year. The Company may redeem the notes, in
whole or in part, at any time on or after August 1, 2002, initially at
105.25% of their principal amount plus accrued interest, declining ratably
to 100.0% of their principal amount plus accrued interest at maturity. At
any time prior to August 1, 2000, the Company may redeem up to 35.0% of
the original aggregate principal amount of the notes with the proceeds of
sales of common stock, at a redemption price of 110.5% of their principal
amount plus accrued interest, provided that at least $113.8 million in
aggregate principal amount of the notes remains outstanding after such
redemption. The net proceeds of the $100.0 million unsecured notes issued
in 1997 were approximately $96.9 million, after deducting costs and fees
of issuance. The Company used a portion of the net proceeds to repay in
full the Company's prior bank facility and used the balance of the
proceeds for general corporate purposes. The net proceeds of the $75.0
million unsecured notes issued in 1999 were approximately $73.0 million
after deducting costs and fees of issuance. The Company plans to use the
net proceeds for general business purposes.
In 1998, the Company maintained a $5.0 million revolving credit facility
available for its short-term borrowing needs and for issuance of letters
of credit. The credit facility was available until January 1999 and was
collateralized by certain aircraft engines. At December 31, 1998, the
Company had outstanding letters of credit aggregating $3.8 million under
such facility. This facility was terminated in January 1999.
In January 1999, the Company revised its 1998 revolving bank credit
facility to provide a maximum of $75.0 million, including up to $25.0
million for stand-by letters of credit, as compared to a maximum of $50.0
million, including up to $25.0 million for stand-by letters of credit in
1998. ATA is the borrower under the credit facility, which is guaranteed
by the Company and each of the Company's other active subsidiaries. The
principal amount of the facility matures on January 2, 2003, and
borrowings are secured by certain Boeing 727-200 aircraft and certain
Lockheed L-1011-50 and L-1011-100 aircraft and engines. As of December 31,
1999, the borrowing base was 75% of the total Boeing 727-200 aircraft
value and 63% of the total Lockheed L-1011-50 and L-1011-100 aircraft and
engine values. Borrowings under the facility bear interest, at the option
of ATA, at either LIBOR plus 1.25% to 2.5% or the agent bank's prime rate.
In December 1999, the Company revised the revolving bank credit facility
to provide a maximum of $100.0 million, including up to $50.0 million for
stand-by letters of credit. The terms and conditions remained
substantially the same, and the new facility is subject to similar
restrictive covenants as were effective under the prior facility.
The unsecured notes and credit facilities are subject to restrictive
covenants, including, among other things, limitations on: the incurrence
of additional indebtedness; the payment of dividends; certain transactions
with shareholders and affiliates; and the creation of liens on or other
transactions involving certain assets. In addition, certain covenants
require certain financial ratios to be maintained.
Future maturities of long-term debt are as follows:
December 31, 1999
-----------------
(In thousands)
2000 $ 2,079
2001 12,025
2002 1,894
2003 1,371
2004 176,191
Thereafter 154,311
---------------
$ 347,871
===============
Interest capitalized in connection with long-term asset purchase
agreements and construction projects was $3.9 million and $2.0 million,
respectively, in 1999 and 1998.
5. Lease Commitments
At December 31, 1999, the Company had aircraft leases on one Lockheed
L-1011-100, 14 Boeing 727-200s and 11 Boeing 757-200s. The Lockheed
L-1011-100 has an initial term of 60 months which expires in 2003. The
Boeing 757-200s have initial lease terms which expire from 2001 through
2019. The Boeing 727-200s have initial lease terms of three to seven years
and expire between 2000 and 2003. The Company also leases three engines
for use on the Lockheed L-1011-500s and four engines for use on the Boeing
757-200s. The L-1011-500 engine leases expire in 2006 and the 757-200
leases expire from 2008 through 2011. All aircraft leases are accounted
for as operating leases.
The Company is responsible for all maintenance costs on these aircraft and
engines and must meet specified airframe and engine return conditions.
As of December 31, 1999, the Company had other long-term leases related to
certain ground facilities, including terminal space and maintenance
facilities, with lease terms that vary from 1.5 to 32 years and expire at
various dates through 2028. The lease agreements relating to the ground
facilities, which are primarily owned by governmental units or
authorities, generally do not provide for transfer of ownership nor do
they contain options to purchase.
The Company leases its headquarters facility from the City of Indianapolis
under a capital lease agreement which expires in December 2002. The
agreement has an option to extend for two years. The Company is
responsible for maintenance, taxes, insurance and other expenses
incidental to the operation of the facilities.
Future minimum lease payments at December 31, 1999, for noncancelable
operating leases with initial terms of more than one year are as follows:
Facilities
Flight and Ground
Equipment Equipment Total
----------------------------------------------------------
(In thousands)
2000 $ 63,621 $ 7,915 $ 71,536
2001 59,423 5,966 65,389
2002 51,187 6,056 57,243
2003 45,457 4,848 50,305
2004 44,594 6,629 51,223
Thereafter 429,847 32,610 462,457
---------- --------- --------
$694,129 $64,024 $758,153
========== ========= ========
Rental expense for all operating leases in 1999, 1998 and 1997 was $72.0
million, $62.7 million and $63.0 million, respectively.
6. Income Taxes
The provision for income tax expense consisted of the following:
December 31,
1999 1998 1997
-----------------------------------------
(In thousands)
Federal:
Current $15,339 $ 6,403 $ 173
Deferred 10,889 18,102 3,706
------- -------- --------
26,228 24,505 3,879
State:
Current 1,284 686 163
Deferred 2,943 1,938 413
------- -------- --------
4,227 2,624 576
------- -------- --------
Income tax expense $30,455 $27,129 $ 4,455
======= ======== ========
The provision for income taxes differed from the amount obtained by
applying the statutory federal income tax rate to income before income
taxes as follows:
December 31,
1999 1998 1997
-------------------------------------
(In thousands)
Federal income taxes at statutory rate $27,175 $23,523 $2,049
State income taxes, net of federal benefit 1,997 1,711 367
Non-deductible expenses 1,578 1,234 1,947
Other, net (295) 661 92
-------- -------- --------
Income tax expense $30,455 $27,129 $4,455
======== ======== ========
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the
financial statements. The principal temporary differences relate to the
use of accelerated methods of depreciation and amortization for tax
purposes. Deferred tax liability and asset components are as follows:
December 31,
1999 1998
-------------------
(In thousands)
Deferred tax liabilities:
Tax depreciation in excess of book depreciation $84,505 $76,560
Other taxable temporary differences 474 502
------- -------
Deferred tax liabilities 84,979 77,062
------- -------
Deferred tax assets:
Tax benefit of net operating loss carryforwards 270 18,102
Alternative minimum tax and other tax credit
carryforwards 18,611 8,726
Vacation pay accrual 3,839 3,225
Amortization of lease credits 1,897 1,964
Deferred gain on sale of fixed assets 3,411 966
Other deductible temporary differences 2,565 2,336
------- -------
Deferred tax assets 30,593 35,319
------- -------
Deferred taxes classified as:
Current asset $ 4,107 $10,877
======= =======
Non-current liability $58,493 $52,620
======= =======
At December 31, 1999, for federal tax reporting purposes, the Company had
approximately $0.7 million of net operating loss carryforward available to
offset future federal taxable income and $18.6 million of alternative minimum
tax and other tax credit carryforwards available to offset future federal tax
liabilities. The net operating loss carryforward of $0.7 million expires in
2009. The alternative minimum tax and other tax credit carryforwards of $18.6
million have no expiration dates.
7. Retirement Plan
The Company has a defined contribution 401(k) savings plan which provides
for participation by substantially all the Company's employees who have
completed one year of service. The Company has elected to contribute an
amount equal to 45.0% in 1999, 40.0% in 1998, and 35.0% in 1997, of the
amount contributed by each participant up to the first six percent of
eligible compensation. Company matching contributions expensed in 1999,
1998 and 1997 were $3.1 million, $2.3 million and $1.8 million,
respectively.
In 1993, the Company added an Employee Stock Ownership Plan ("ESOP")
feature to its existing 401(k) savings plan. The ESOP used the proceeds of
a $3.2 million loan from the Company to purchase 200,000 shares of the
Company's common stock. The selling shareholder was the Company's
principal shareholder. The Company recognized $0.7 million, $0.7 million
and $0.3 million in 1999, 1998 and 1997, respectively, as compensation
expense related to the ESOP. Shares of common stock held by the ESOP are
allocated to participating employees annually as part of the Company's
401(k) savings plan contribution. The fair value of the shares allocated
during the year is recognized as compensation expense.
8. Shareholders' Equity
In the first quarter of 1994, the Board of Directors approved the
repurchase of up to 250,000 shares of the Company's common stock. In the
second quarter of 1999, the Board of Directors approved the repurchase of
up to 600,000 additional shares of the Company's common stock. A total of
612,052 shares had been repurchased at a cost of $10.5 million as of
December 31, 1999.
The Company's 1993 Incentive Stock Plan for Key Employees (1993 Plan)
authorizes the grant of options for up to 900,000 shares of the Company's
common stock. The Company's 1996 Incentive Stock Plan for Key Employees
(1996 Plan) authorizes the grant of options for up to 3,000,000 shares of
the Company's common stock. Options granted have 5 to 10-year terms and
generally vest and become fully exercisable over specified periods of up
to three years of continued employment.
A summary of common stock option changes follows:
Number of Weighted-Average
Shares Exercise Price
---------- ----------------
Outstanding at December 31, 1996 1,629,900 $ 8.74
---------- ----------------
Granted 1,588,500 8.49
Canceled (706,000) 7.14
---------- ----------------
Outstanding at December 31, 1997 2,512,400 9.39
---------- ----------------
Granted 560,900 9.67
Exercised (545,347) 8.50
Canceled (157,700) 9.08
--------- ---------------
Outstanding at December 31, 1998 2,370,253 9.38
--------- ---------------
Granted 582,510 26.33
Exercised (431,075) 8.56
Canceled (28,528) 15.02
--------- --------------
Outstanding at December 31, 1999 2,493,160 $13.41
========= ==============
Options exercisable at December 31, 1998 755,075 $10.13
========= ==============
Options exercisable at December 31, 1999 1,077,554 $10.04
========= ==============
During 1996, the Company adopted the disclosure provisions of FASB
Statement No. 123 "Accounting for Stock-Based Compensation" (SFAS No. 123)
with respect to its stock options. As permitted by SFAS No. 123, the
Company has elected to continue to account for employee stock options
following Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations. Under APB
25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
The weighted-average fair value of options granted during 1999 and 1998 is
estimated at $9.67 and $5.12 per share, respectively, on the grant date.
These estimates were made using the Black-Scholes option pricing model
with the following weighted-average assumptions for 1999 and 1998:
risk-free interest rate of 6.29% and 5.0%; expected market price
volatility of .46 and .44; weighted-average expected option life equal to
the contractual term; estimated forfeitures of 5.6% and 5.0%; and no
dividends.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models use highly subjective assumptions, including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employees' stock options. For purposes of pro forma disclosure, the
estimated fair value of the options is amortized to expense over the
options' vesting period (1 to 3 years). The Company's pro forma
information follows:
1999 1998 1997
-------------------------------------
(In thousands, except per share data)
Net income as reported $ 47,342 $ 40,081 $ 1,572
Net income pro forma 41,740 37,209 89
Diluted income per share as reported 3.51 3.07 .13
Diluted income per share pro forma 3.10 2.85 .01
Options outstanding at December 31, 1999, expire from August 2003 to
August 2009. A total of 407,453 shares are reserved for future grants as
of December 31, 1999, under the 1993 and 1996 Plans. The following table
summarizes information concerning outstanding and exercisable options at
December 31, 1999:
Range of Exercise Prices $7 - 14 $15 - 27
------------------------ ---------- --------
Options outstanding:
Weighted-Average Remaining
Contractual Life 7.3 years 8.0 years
Weighted-Average Exercise Price $8.96 $24.25
Number 1,766,650 726,510
Options exercisahble:
Weighted-Average Exercise Price $9.10 $16.26
Number 936,954 140,600
9. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
1999 1998 1997
------------------------------------------
Numerator:
Net income $47,342,000 $40,081,000 $ 1,572,000
Denominator:
Denominator for basic earnings per
share - weighted average shares 12,269,474 11,739,106 11,577,727
Effect of dilutive securities:
Employee stock options 1,200,063 1,327,116 64,725
Restricted shares - - 30,878
---------- ----------- ----------
Dilutive potential common shares 1,200,063 1,327,116 95,603
---------- ----------- ----------
Denominator for diluted earnings per
share - adjusted weighted average shares 13,469,537 13,066,222 11,673,330
========== =========== ==========
Basic earnings per share $ 3.86 $ 3.41 $ 0.14
========== =========== ==========
Diluted earnings per share $ 3.51 $ 3.07 $ 0.13
========== =========== ==========
10. Commitments and Contingencies
In November 1994, the Company signed a purchase agreement for six new
Boeing 757-200s, which, as subsequently amended, now provides for the
delivery of 13 total aircraft. The amended agreement provides for
deliveries of aircraft between 1995 and 2000. As of December 31, 1999,
the Company had taken delivery of nine Boeing 757-200s under this
purchase agreement and financed those aircraft using leases accounted for
as operating leases. Two deliveries under this agreement are scheduled
for June 2000, and two deliveries are scheduled for November 2000. The
remaining aircraft have an aggregate purchase price of approximately
$50.0 million per aircraft, subject to escalation. Advanced payments
totaling approximately $27.2 million ($6.8 million per aircraft) are
required to be made for the remaining undelivered aircraft, with the
balance of the purchase price due upon delivery. As of December 31, 1999
and 1998, the Company had made $20.4 million and $13.0 million in
advanced payments, respectively, pertaining to future aircraft
deliveries.
The Company has signed a purchase agreement to acquire six of the Boeing
727-200 ADV aircraft that are currently leased. These aircraft will be
purchased in 2000.
Various claims, contractual disputes and lawsuits against the Company
arise periodically involving complaints which are normal and reasonably
foreseeable in light of the nature of the Company's business. The
majority of these suits are covered by insurance. In the opinion of
management, the resolution of these claims will not have a material
adverse effect on the business, operating results or financial condition
of the Company.
11. Change in Accounting Estimate
In July 1998, the Company committed to the purchase of five Lockheed
L-1011 series 500 aircraft for delivery between August 1998 and November
1999. The Company already operates 14 Lockheed L-1011 series 50 and
series 100 aircraft, 13 of which are owned and one of which is leased.
The purchase agreement has expanded the size of the Lockheed L-1011 fleet
from 14 to 19 aircraft.
As a result of this fleet expansion, the Company expects to operate its
existing fleet of Lockheed L-1011 series 50 and series 100 aircraft
through December 2004, as opposed to previous retirement dates which had
ranged from 2000 to 2002. The Company implemented this change in
accounting estimate effective July 1, 1998, which, in addition to
extending the estimated useful lives of the 13 owned aircraft and related
engines, overhauls and spare parts, also reduced the estimated salvage
value for these aircraft as of the common retirement date of December
2004.
This change in accounting estimate resulted in a reduction of $4.1
million and $2.1 million, respectively, in depreciation and amortization
expense for the years ended December 31, 1999 and 1998, and resulted in
an increase in net income of $2.5 and $1.2 million in the same periods.
Basic and diluted earnings per share for the year ended December 31,
1999, were increased by $0.20 and $0.19, respectively, while basic and
diluted earnings per share for the year ended December 31, 1998, were
increased by $0.10 and $0.09, respectively.
In the first quarter of 1999, the Company purchased eight Boeing 727-200
aircraft which had previously been financed through leases accounted for
as operating leases. As of the first quarter of 1999, the Company had
also completed the re-negotiation of certain contract terms on its
remaining 15 leased Boeing 727-200 aircraft which generally provided for
the purchase of these aircraft at the end of their initial lease terms,
extending from 1999 to 2003. The Company complied with federal Stage 3
noise regulations by installing hushkits on its entire fleet of 24 Boeing
727-200 aircraft, which permits the Company to operate these aircraft
after that date.
In the first quarter of 1999, the Company implemented a change in
accounting estimate to extend the estimated useful lives of capitalized
Boeing 727-200 airframes, engines, leasehold improvements and rotable
parts from the end of the initial lease terms of the related aircraft to
approximately 2008. This change in accounting estimate resulted in a
reduction of depreciation expense of $4.6 million for the year ended
December 31, 1999, which resulted in an increase in net income of $2.8
million in 1999. Basic and diluted earnings per share for the year ended
December 31, 1999 were increased by $0.23 and $0.21, respectively.
12. Acquisition of Businesses
On January 26, 1999, the Company acquired all of the issued and
outstanding stock of T. G. Shown Associates, Inc., which owns 50% of the
Amber Air Freight partnership. The other 50% of the partnership was
already owned by the Company.
On January 31, 1999, the Company purchased the membership interests of
Travel Charter International, LLC ("TCI"), a Detroit-based independent
tour operator. ATA has been providing passenger airline services to TCI
for over 14 years. TCI's results of operations, beginning February 1999,
were consolidated into the Company.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Agency Access Training Center, Inc. ("AATC") and Key Tours Las
Vegas, Inc. ("KTLV"), and additionally purchased the majority of the
current assets and current liabilities of Keytours, Inc. ("KTI"), a
Canadian corporation. All three companies (AATC, KTLV and KTI) were
previously under common control and jointly operated an independent tour
business in the Detroit metropolitan area, using the brand name of Key
Tours. ATA has been providing passenger airline services to Key Tours for
over 15 years. The results of operations, beginning May 1999, of Key
Tours brand were consolidated into the Company.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Chicago Express Airlines, Inc. ("Chicago Express"). The Company
had a code-share agreement with Chicago Express since April 1997. Chicago
Express' results of operations, beginning May 1999, were consolidated
into the Company.
The Company paid approximately $16.1 million in cash and issued $1.3
million in stock for the purchase of all acquisitions discussed above
which were accounted for using the purchase method of accounting. The
Company evaluated the effect of the acquisitions on the financial
statements as if the acquisitions were effective January 1998, noting the
results of operations would not be materially different than reported.
13. Segment Disclosures
During 1999, the Company acquired several independent tour operator
businesses and combined their operations with the Company's existing
vacation package brand, ATA Vacations. (See Note 12). These companies
comprise the newly formed ATA Leisure Corp. ("ATALC").
The Company identifies its segments on the basis of similar products and
services. The airline segment derives its revenues primarily from the
sale of scheduled service or charter air transportation. ATALC derives
its revenues from the sale of vacation packages, which, in addition to
air transportation, includes hotels and other ground arrangements. ATALC
purchases air transportation for its vacation packages from ATA and other
airlines.
The Company's revenues are derived principally from customers domiciled
in the United States.
The most significant component of the Company's property and equipment is
aircraft and related improvements and parts. All aircraft are registered
in the United States. The Company therefore considers all property and
equipment to be domestic.
The United States government is the Company's only external customer that
accounted for more than 10.0% of consolidated revenues. U.S. government
revenues accounted for 11.2%, 13.3% and 16.8% of consolidated revenues
for 1999, 1998 and 1997, respectively.
Segment financial data as of and for the years ended December 31, 1999,
1998 and 1997 follows:
For the Year Ended December 31, 1999
---------------------------------------------------------------
Airline ATALC Other/Eliminations Consolidated
------- ----- ------------------ ------------
(In thousands)
Operating revenue from
external customers $ 972,081 $ 94,840 $ 55,445 $1,122,366
Inter-segment revenue 42,970 4,985 2,455 50,410
Operating expenses 918,725 70,404 43,210 1,032,339
Operating income (loss) 88,173 (2,616) 4,470 90,027
Segment assets (at year-end) 821,373 69,800 (75,892) 815,281
For the Year Ended December 31, 1998
--------------------------------------------------------------
Airline ATALC Other/Eliminations Consolidated
------- ----- ------------------ ------------
(In thousands)
Operating revenue from
external customers $ 858,702 $ 21,485 $ 39,182 $ 919,369
Inter-segment revenue 24,620 0 2,152 26,772
Operating expenses 806,411 13,019 24,566 843,996
Operating income (loss) 68,894 (43) 6,522 75,373
Segment assets (at year-end) 637,101 274 (42,826) 594,549
For the Year Ended December 31, 1997
--------------------------------------------------------------
Airline ATALC Other/Eliminations Consolidated
------- ----- ------------------ ------------
(In thousands)
Operating revenue from
external customer $ 726,708 $ 24,222 $ 32,263 $ 783,193
Inter-segment revenue 25,953 367 2,028 28,348
Operating expenses 735,169 14,217 20,323 769,709
Operating income 6,657 760 6,067 13,484
Segment assets (at year-end) 517,264 4,651 (71,058) 450,857
14. Subsequent Events
In January 2000, Chicago Express entered into an agreement to purchase
nine SAAB 340B aircraft, engines and spare parts for approximately $30.0
million. These aircraft are nine years old. The SAAB 340B aircraft will
be placed into service throughout 2000 in conjunction with the return of
the current fleet of Jetstream J31s to the lessor. The Company intends to
finance these aircraft through sale/leaseback transactions.
The Company completed a $238.6 million Enhanced Equipment Trust
Certificate ("EETC") financing in February 2000. These funds will be used
as leveraged lease financing for seven of the Company's Boeing 757-200
aircraft, three of which had been financed with interim leveraged leases
in the third and fourth quarters of 1999. The remaining EETC financing is
expected to be applied to four 757-200 deliveries from the manufacturer,
two in June 2000 and two in November 2000. The Company expects its EETC
leveraged leases to be accounted for as operating leases.
Financial Statements and Supplementary Data
Amtran, Inc. and Subsidiaries
1999 Quarterly Financial Summary
(Unaudited)
- -------------------------------------------------------------------------------------------------------
(In thousands, except per share data) March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------
Operating revenues $277,909 $284,714 $303,921 $256,822
Operating expenses 248,950 254,284 275,851 253,254
Operating income 28,959 30,430 27,070 3,568
Other expenses (1,516) (3,603) (3,886) (3,225)
Income before income taxes 27,443 26,827 23,184 343
Income taxes (credits) 10,903 10,122 9,484 (54)
Net income $ 16,540 $ 16,705 $ 13,700 $ 397
Net income per share - basic $ 1.36 $ 1.37 $ 1.10 $ .03
Net income per share - diluted $ 1.22 $ 1.24 $ 1.01 $ .03
Financial Statements and Supplementary Data
Amtran, Inc. and Subsidiaries
1998 Quarterly Financial Summary
(Unaudited)
- -------------------------------------------------------------------------------------------------------
(In thousands, except per share data) March 31 June 30 September 30 December 31
- -------------------------------------------------------------------------------------------------------
Operating revenues $229,305 $238,464 $242,414 $209,186
Operating expenses 205,896 213,820 219,517 204,763
Operating income 23,409 24,644 22,897 4,423
Other expenses (2,138) (1,995) (2,049) (1,981)
Income before income taxes 21,271 22,649 20,848 2,442
Income taxes 8,872 8,854 8,415 988
Net income $ 12,399 $ 13,795 $ 12,433 $ 1,454
Net income per share - basic $ 1.07 $ 1.19 $ 1.06 $ .12
Net income per share - diluted $ 1.02 $ 1.05 $ .92 $ .11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
No change of auditors or disagreements on accounting methods have occurred which
would require disclosure hereunder.
Part III
Item 10. Directors and Officers of the Registrant
The information contained on pages 6 and 7 of Amtran, Inc. and Subsidiaries'
Proxy Statement dated April 5, 2000, with respect to directors and executive
officers of the Company, is incorporated herein by reference in response to this
item.
Item 11. Executive Compensation
The information contained on pages 12 through 15 of Amtran, Inc. and
Subsidiaries' Proxy Statement dated April 5, 2000, with respect to executive
compensation and transactions, is incorporated herein by reference in response
to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained on page 11 of Amtran, Inc. and Subsidiaries' Proxy
Statement dated April 5, 2000, with respect to security ownership of certain
beneficial owners and management, is incorporated herein by reference in
response to this item.
Item 13. Certain Relationships and Related Transactions
The information contained on page 8 of Amtran, Inc. and Subsidiaries' Proxy
Statement dated April 5, 2000, with respect to certain relationships and related
transactions, is incorporated herein by reference in response to this item.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) (1) Financial Statements
The following consolidated financial statements of the
Company and its subsidiaries are included in Item 8:
o Consolidated Balance Sheets for years ended
December 31, 1999 and 1998
o Consolidated Statements of Operations for years
ended December 31, 1999, 1998 and 1997
o Consolidated Statements of Changes in Shareholders'
Equity for years ended December 31, 1999, 1998 and 1997
o Consolidated Statements of Cash Flows for years ended
December 31, 1999, 1998 and 1997
o Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
The following consolidated financial information for the
years 1999, 1998 and 1997 is included in Item 14(d):
Page
o Schedule II - Valuation and Qualifying Accounts 53
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
(3) Exhibits
The following exhibits are submitted as a separate
section of this report:
Page
23. Consent of Independent Auditor 52
(b) Reports on Form 8-K
There were no Form 8-Ks filed during the quarter ended
December 31, 1999
(c) Exhibits
This section is not applicable.
(d) Financial Statement Schedule
This section is not applicable.
Signatures
Pursuant to the requirement 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.
Amtran, Inc.
(Registrant)
Date: March 30, 2000 J. George Mikelsons
--------------------------
J. George Mikelsons
Chairman
Director
Date: March 30, 2000 John P. Tague
--------------------------
John P. Tague
President and Chief Executive Officer
Director
Date: March 30, 2000 James W. Hlavacek
---------------------------
James W. Hlavacek
Executive Vice President and
Chief Operating Officer
Director
Date: March 30, 2000 Kenneth K. Wolff
---------------------------
Kenneth K. Wolff
Executive Vice President and
Chief Financial Officer
Director
Date: March 30, 2000 Robert A. Abel
---------------------------
Robert A. Abel
Director
Date: March 30, 2000 William P. Rogers, Jr.
---------------------------
William P. Rogers, Jr.
Director
Date: March 30, 2000 Andrejs P. Stipnieks
---------------------------
Andrejs P. Stipnieks
Director
Date: March 30, 2000 David M. Wing
---------------------------
David M. Wing
Vice President and Controller
Chief Accounting Officer
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 333-52655) of Amtran, Inc. and its
subsidiaries and in the related Prospectus and in the Registration
Statement (Form S-8 No. 33-65708) pertaining to the 1993 Incentive
Stock Plan for Key Employees of Amtran, Inc. and its subsidiaries
and in the Registration Statement (Form S-3 No. 333-86791) of
Amtran, Inc. and its subsidiaries and in the related Prospectus of
our report dated January 27, 2000, with respect to the
consolidated financial statements and schedule of Amtran, Inc.,
included in the Annual Report (Form 10-K) for the year ended
December 31, 1999.
/S/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 27, 2000
PART IV SCHEDULE II
Item 14(d)
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
---------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts - Deductions - End of
Description of Period Expenses Describe Describe Period
--------- --------- --------- ------------ -------
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,274 $ 1,261 $ - $ 853(1) $ 1,682
Allowance for obsolescence - Inventory 6,594 1,474 - 437(2) 7,631
Valuation allowance - Assets
held for sale - 200 - - 200
--------- --------- ---------- ------------ -------
Totals 7,868 2,935 - 1,290 9,513
========= ========= ========== ============ =======
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts 1,682 1,492 - 2,011(1) 1,163
Allowance for obsolescence - Inventory 7,631 1,905 - 1,095(2) 8,441
Valuation allowance - Assets
held for sale 200 - - 200(3) -
--------- --------- ---------- ------------ -------
Totals 9,513 3,397 - 3,306 9,604
========= ========= ========== ============ =======
Year ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts 1,163 2,318 - 1,970(1) 1,511
Allowance for obsolescence - Inventory 8,441 1,872 - 22(2) 10,291
--------- --------- ---------- ------------ -------
Totals $ 9,604 $ 4,190 $ - $ 1,992 $ 11,802
========= ========= ========== ============ =======
(1) Uncollectible accounts written off, net of recoveries
(2) Obsolescence allowance related to inventory items transferred to flight
equipment or sold
(3) Valuation allowance related to parts sold