United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended March 31, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From to
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Commission file number 000-21642
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AMTRAN, INC.
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(Exact name of registrant as specified in its charter)
Indiana 35-1617970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46231
(Address of principal executive offices) (Zip Code)
(317) 247-4000
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(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 ______
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 - 11,728,972 shares outstanding as of April 30,
2002
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2002 2001
-------------------- --------------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents........................................ $ 137,705 $ 184,439
Aircraft pre-delivery deposits................................... 142,764 166,574
Receivables, net of allowance for doubtful accounts
(2002 - $1,754; 2001 - $1,526)................................... 99,620 75,046
Inventories, net................................................. 49,380 47,648
Assets held for sale............................................. 15,600 18,600
Prepaid expenses and other current assets........................ 24,941 19,471
-------------------- --------------------
Total current assets.................................................. 470,010 511,778
Property and equipment:
Flight equipment................................................. 461,682 327,541
Facilities and ground equipment.................................. 124,009 119,975
-------------------- --------------------
585,691 447,516
Accumulated depreciation......................................... (146,702) (132,573)
-------------------- --------------------
438,989 314,943
Goodwill.............................................................. 21,780 21,780
Assets held for sale.................................................. 35,802 33,159
Prepaid aircraft rent................................................. 76,926 49,159
Investment in BATA.................................................... 30,106 30,284
Deposits and other assets............................................. 37,219 41,859
-------------------- --------------------
Total assets.......................................................... $ 1,110,832 $ 1,002,962
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.............................. $ 29,844 $ 5,820
Short-term debt................................................... 107,388 118,239
Accounts payable.................................................. 30,096 26,948
Air traffic liabilities........................................... 115,613 100,958
Accrued expenses.................................................. 179,463 177,102
-------------------- --------------------
Total current liabilities............................................. 462,404 429,067
Long-term debt, less current maturities............................... 440,553 373,533
Deferred income taxes................................................. 14,391 13,655
Other deferred items.................................................. 67,052 62,575
-------------------- --------------------
Total liabilities..................................................... 984,400 878,830
Redeemable preferred stock; authorized and issued 800 shares.......... 80,000 80,000
Shareholders' equity:
Preferred stock; authorized 9,999,200 shares; none issued......... - -
Common stock, without par value; authorized 30,000,000 shares;
issued 13,284,874 - 2002; 13,266,642 - 2001.................... 62,265 61,964
Treasury stock; 1,710,658 shares - 2002; 1,710,658 shares - 2001.. (24,768) (24,768)
Additional paid-in-capital........................................ 11,399 11,534
Other comprehensive loss.......................................... (58) (687)
Retained deficit.................................................. (2,406) (3,911)
-------------------- --------------------
Total shareholders' equity............................................ 46,432 44,132
-------------------- --------------------
Total liabilities and shareholders' equity $ 1,110,832 $ 1,002,962
==================== ====================
See accompanying notes.
2
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended March 31,
2002 2001
----------- -----------
(Unaudited) (Unaudited)
Operating revenues:
Scheduled service........................................................ $208,283 $212,031
Charter.................................................................. 96,846 102,385
Ground package........................................................... 15,246 21,631
Other.................................................................... 10,195 11,438
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Total operating revenues................................................... 330,570 347,485
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Operating expenses:
Salaries, wages and benefits............................................. 77,987 80,972
Fuel and oil............................................................. 47,243 69,981
Aircraft rentals......................................................... 39,454 19,989
Handling, landing and navigation fees.................................... 27,680 23,719
Depreciation and amortization............................................ 18,690 35,498
Crew and other employee travel........................................... 13,870 15,703
Ground package cost...................................................... 12,349 18,240
Aircraft maintenance, materials and repairs.............................. 11,420 19,386
Other selling expenses................................................... 10,983 10,754
Passenger service........................................................ 9,767 11,751
Advertising.............................................................. 9,332 6,532
Commissions.............................................................. 9,123 10,676
Facilities and other rentals............................................. 5,445 4,501
Other.................................................................... 27,169 22,017
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Total operating expenses................................................... 320,512 349,719
----------- -----------
Operating income (loss).................................................... 10,058 (2,234)
Other income (expense):
Interest income.......................................................... 689 1,731
Interest expense......................................................... (8,238) (7,358)
Other.................................................................... 133 168
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Other expense.............................................................. (7,416) (5,459)
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Income (loss) before income taxes.......................................... 2,642 (7,693)
Income taxes (credits)..................................................... 762 (3,309)
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Net income (loss).......................................................... 1,880 (4,384)
Preferred stock dividends.................................................. (375) (375)
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Income (loss) available to common shareholders............................. $ 1,505 $ (4,759)
=========== ===========
Basic earnings per common share:
Average shares outstanding................................................. 11,562,357 11,379,667
Net income (loss) per common share......................................... $ 0.13 $ (0.42)
=========== ===========
Diluted earnings per common share:
Average shares outstanding................................................. 12,043,058 11,379,667
Net income (loss) per common share......................................... $ 0.12 $ (0.42)
=========== ===========
See accompanying notes.
3
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
(Dollars in thousands)
Redeemable Additional Other
Preferred Common Treasury Paid-in Comprehensive Retained
Stock Stock Stock Capital Loss Deficit Total
----------- --------- ---------- ---------- ------------- --------- -----------
Balance, December 31, 2001.......... $ 80,000 $ 61,964 $ (24,768) $ 11,534 $ (687) $ (3,911) $ 124,132
----------- --------- ---------- ---------- ------------- --------- -----------
Net income.......................... - - - - - 1,880 1,880
Net gain on derivative
instruments...................... - - - - 629 - 629
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Total comprehensive income ....... - - - - 629 1,880 2,509
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Preferred dividends................. - - - - - (375) (375)
Restricted stock grants............. - 10 - 3 - - 13
Stock options exercised............. - 291 - (138) - - 153
----------- --------- ---------- ---------- ------------- --------- -----------
Balance, March 31, 2002............. $ 80,000 $ 62,265 $ (24,768) $ 11,399 $ (58) $ (2,406) $ 126,432
=========== ========= ========== ========== ============= ========= ===========
See accompanying notes.
4
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended March 31,
2002 2001
(Unaudited) (Unaudited)
----------- -----------
Operating activities:
Net income (loss)............................................. $ 1,880 $ (4,384)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization.............................. 18,690 35,498
Deferred income taxes (credits)............................ 736 (797)
Other non-cash items....................................... 7,172 (4,684)
Changes in operating assets and liabilities:
Receivables................................................ (24,574) 20,105
Inventories................................................ (2,519) (3,435)
Prepaid expenses........................................... (5,470) (4,276)
Accounts payable........................................... 3,148 17,227
Air traffic liabilities.................................... 14,655 15,883
Accrued expenses........................................... 4,489 15,422
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Net cash provided by operating activities 18,207 86,559
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Investing activities:
Aircraft pre-delivery deposits................................ 21,837 (44,197)
Capital expenditures.......................................... (145,413) (53,017)
Noncurrent prepaid aircraft rent.............................. (27,767) (21,162)
Reductions to other assets.................................... 6,373 1,513
Proceeds from sales of property and equipment................. 84 29
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Net cash used in investing activities (144,886) (116,834)
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Financing activities:
Preferred stock dividends..................................... (375) (375)
Proceeds from sale/leaseback transactions..................... - 369
Proceeds from short-term debt................................. - 33,128
Payments on short-term debt................................... (10,850) -
Proceeds from long-term debt.................................. 140,910 -
Payments on long-term debt.................................... (49,893) (2,191)
Proceeds from stock options exercises......................... 153 101
Purchase of treasury stock.................................... - (196)
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Net cash provided by financing activities 79,945 30,836
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Increase (decrease) in cash and cash equivalents.............. (46,734) 561
Cash and cash equivalents, beginning of period................ 184,439 129,137
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Cash and cash equivalents, end of period...................... $ 137,705 $ 129,698
=========== ===========
Supplemental disclosures:
Cash payments for:
Interest................................................... $ 11,831 $ 12,009
Income taxes............................................... $ 3,016 $ 2
Financing and investing activities not affecting cash:
Accrued capitalized interest................................ $ (3,813) $ 4,047
See accompanying notes.
5
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements of Amtran, Inc. and
subsidiaries (the "Company") have been prepared in accordance with
instructions for reporting interim financial information on Form 10-Q and,
therefore, do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations and cash
flows in conformity with accounting principles generally accepted in the
United States.
The consolidated financial statements for the quarters ended March 31, 2002
and 2001 reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows for such periods.
Results for the three months ended March 31, 2002 are not necessarily
indicative of results to be expected for the full fiscal year ending
December 31, 2002. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
2. Continuing Effects of September 11, 2001
On September 11, 2001, four commercial aircraft operated by two other U.S.
airlines were hijacked and destroyed in terrorist attacks on the United
States. These attacks resulted in significant loss of life and property
damage in New York City, Washington, D.C. and western Pennsylvania. In
response to these attacks, on September 11 the Federal Aviation
Administration ("FAA") temporarily suspended all commercial flights to,
from and within the United States until September 13. The Company resumed
limited flight operations on September 13, with the exception of flights to
and from Chicago-Midway Airport, which commenced partial operations on
September 14. From September 11 to September 14, the Company canceled over
800 scheduled flights. Upon resuming its pre-attack flight schedule the
week of September 17, the Company experienced significantly lower passenger
traffic and unit revenues than prior to the attacks. In response to this,
the Company reduced its flight schedule by approximately 20%, as compared
to the schedule operated immediately prior to September 11, and furloughed
approximately 1,100 employees by the middle of October. By March 31, 2002,
the Company had recalled over half of the furloughed employees and had
added capacity back to its flight schedule.
On September 22, 2001, President Bush signed into law the Air
Transportation Safety and System Stabilization Act ("Act"). The Act
provides for, among other things: (1) $5.0 billion in compensation for
direct losses incurred by all U.S. airlines and air cargo carriers
(collectively, "air carriers") as a result of the closure by the FAA of
U.S. airspace following the September 11 terrorist attacks and for
incremental losses incurred by air carriers through December 31, 2001 as a
direct result of such attacks; (2) subject to certain conditions, the
availability of up to $10.0 billion in U.S. Government guarantees of
certain loans made to air carriers for which credit is not reasonably
available as determined by a newly established Air Transportation
Stabilization Board; (3) the authority of the Secretary of Transportation
to reimburse air carriers (which authority expired 180 days after the
enactment of the Act) for the increase in the cost of insurance, with
respect to a premium for coverage ending before October 1, 2002, against
loss or damage arising out of any risk from the operation of an aircraft
over the premium in effect for a comparable operation during the period
September 4, 2001 to September 10, 2001; (4) at the discretion of the
Secretary of Transportation, a $100 million limit on the liability of any
air carrier to third parties with respect to acts of terrorism committed on
or to such air carrier during the 180-day period following the enactment of
the Act; (5) the extension of the due date for the payment by eligible air
carriers of certain excise taxes; (6) compensation to individual claimants
who were physically injured or killed as a result of the terrorist attacks
of September 11; and (7) the Secretary of Transportation to ensure that all
communities that had scheduled air service before September 11, 2001
continue to receive adequate air service. In addition, the Act provides
that, notwithstanding any other provision of law, liability for all claims,
whether for compensatory or punitive damages, arising from the
terrorist-related events of September 11 against any air carrier shall not
be in an amount greater than the limits of the liability coverage
maintained by the air carrier. With respect to the cash grants of up to
$5.0 billion, each qualified air carrier is entitled to receive the lesser
of: (1) its actual direct and incremental losses incurred between September
11, 2001 and December 31, 2001; or (2) its proportion of the $5.0 billion
of total compensation available to all qualified air carriers under the Act
allocated by August 2001 available seat miles or ton miles.
6
The Company believes it is eligible to receive up to $74.0 million in
connection with the Act in compensation for direct and incremental losses
arising from the terrorist attacks of September 11 and the subsequent
decline in demand for air travel, based upon the Company's estimated
maximum allocation calculated from August 2001 available seat miles. In
2001, the Company recorded $66.3 million in U.S. Government grant
compensation, which was comprised of (1) $57.1 million in lost profit
contribution (direct revenues lost, less variable operating expenses
avoided) from planned flights not operated between September 11 and
December 31, and from flights operated during this time period with lower
load factors and unit revenues; (2) certain special charges of $17.8
million, that were deemed directly attributable to the attacks, such as
crew and passenger travel expenses incurred during and shortly after the
FAA mandated shut down, additional advertising expenses incurred as a
direct result of September 11, additional interest expense and letter of
credit fees associated with changes to the Company's debt position due to
September 11, and expenses incurred related to a proposed transaction in
which Amtran would have been taken private, which was substantially
complete just prior to September 11, but was subsequently cancelled; less
(3) $8.6 million in expense reductions realized as a direct result of lower
costs incurred by the Company after the September 11 attacks. Excluded from
the amount of grant compensation recorded by the Company were the Company's
non-cash write-down of the Boeing 727-200 aircraft fleet and exit costs
related to rent payments scheduled to continue on certain Boeing 727-200
aircraft after they are removed from service. As of March 31, 2002, the
Company had received $44.5 million in cash compensation under the Act and
has a receivable recorded in the amount of $21.8 million.
In April 2002, the Department of Transportation ("DOT") issued its final
rules and procedures for submitting an application to receive the remaining
funds available under the Act. These final rules and procedures provide
guidance on what items are reimbursable, but the process offers each
airline the opportunity to present its own interpretation of reimbursable
items. The Company is uncertain of the DOT's ultimate determination of what
qualifies as reimbursable, and therefore cannot predict the amount of
additional funds that will be received. The final rules also require
certain agreed upon procedures be performed on the application by an
independent certified public accountant prior to submission. The Company
plans to submit their final application, with the accountant's report on
agreed upon procedures, during the second quarter of 2002.
The Company has not yet submitted an application for loan guarantees
provided under the Act. The Company believes it meets the qualifications to
receive such loan guarantees; however, the Company is not able to provide
any estimate at this time as to the amount of loan guarantees, if any, that
it may request or receive, or for what period of time those guarantees
might remain in effect. The Company has until June 28, 2002 to file its
application.
As a result of the September 11 attacks, the Company's aviation insurers,
and other air carriers' aviation insurers, have significantly reduced the
maximum amount of insurance coverage they will underwrite for liability to
persons other than employees or passengers resulting from acts of
terrorism, war, hijacking or other similar perils (war-risk coverage). In
addition, the Company and other air carriers are being charged
significantly higher premiums for this reduced coverage, as well as other
aviation insurance. Pursuant to the Act and other enabling legislation, the
U.S. Government has issued supplemental war-risk coverage to U.S. air
carriers, including the Company, through May 20, 2002. It is anticipated
that after this date a commercial product for war-risk coverage will become
available, but the Company may incur significant additional costs for this
coverage.
On November 19, 2001, President Bush signed into law the Aviation and
Transportation Security Act ("Aviation Security Act"). This law provides
for placing substantially all aspects of civil aviation passenger security
and screening under federal control, to be phased in during 2002 and 2003,
and creates a new Transportation Security Administration under the DOT. The
cost of the provisions set forth in the Aviation Security Act will be
funded by a new security fee of $2.50 per passenger enplanement, limited to
$5 per one-way trip and $10 per round trip. Air carriers, including the
Company, began collecting the new fee on February 1, 2002. The Aviation
Security Act will also be funded by financial assessments to each air
carrier beginning in the second quarter of 2002. The amount of the air
carrier assessment is limited to the amount each air carrier spent on
aviation security in 2000.
7
3. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended March 31,
2002 2001
-------------------- --------------------
Numerator:
Net income (loss) $ 1,880,000 $ (4,384,000)
Preferred stock dividends (375,000) (375,000)
-------------------- --------------------
Income (loss) available to common shareholders $ 1,505,000 $ (4,759,000)
-------------------- --------------------
Denominator:
Denominator for basic earnings per share
- weighted average shares 11,562,357 11,379,667
Effect of dilutive securities:
Employee stock options 480,701 -
-------------------- --------------------
Dilutive potential securities 480,701 -
-------------------- --------------------
Denominator for diluted earnings per share
- adjusted weighted average shares 12,043,058 11,379,667
==================== ====================
Basic earnings (loss) per share $ 0.13 (0.42)
==================== ====================
Diluted earnings (loss) per share $ 0.12 (0.42)
==================== ====================
In accordance with Financial Accounting Standards Board Statement No. 128,
"Earnings per Share," the impact of 1,914,486 shares of redeemable
preferred stock in 2002, has been excluded from the computation of diluted
earnings per share because their effect would be antidilutive. In
comparison, in 2001 the impact of 1,914,486 shares of redeemable preferred
stock and 399,384 employee stock options has been excluded from the
computation of diluted earnings per share because their effect would be
antidilutive.
4. Segment Disclosures
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. ATA Leisure Corp.
("ATALC") derives its revenues from the sale of vacation packages, which,
in addition to air transportation, include hotels and other ground
arrangements. ATALC purchases air transportation for its vacation packages
from ATA and other airlines.
8
Segment financial data as of and for the quarters ended March 31, 2002 and
2001 follows:
For the Three Months Ended March 31, 2002
-----------------------------------------------------------------------
Airline ATALC Other/ Eliminations Consolidated
--------------- -------------- -------------- ------------
(In thousands)
Operating revenue (external) $ 287,183 $ 21,262 $ 22,125 $ 330,570
Inter-segment revenue 7,894 427 (8,321) -
Operating expenses (external) 284,474 18,212 17,826 320,512
Inter-segment expenses 1,535 3,741 (5,276) -
Operating income (loss) 9,068 (264) 1,254 10,058
Segment assets (at quarter-end) 1,255,435 180,187 (324,790) 1,110,832
For the Three Months Ended March 31, 2001
-----------------------------------------------------------------------
Airline ATALC Other/ Eliminations Consolidated
--------------- -------------- -------------- ------------
(In thousands)
Operating revenue (external) $ 293,223 $ 33,998 $ 20,264 $ 347,485
Inter-segment revenue 15,639 465 (16,104) -
Operating expenses (external) 308,384 24,088 17,247 349,719
Inter-segment expenses 2,582 10,255 (12,837) -
Operating income (loss) (2,104) 120 (250) (2,234)
Segment assets (at quarter-end) 1,224,340 144,420 (264,625) 1,104,135
5. Commitments and Contingencies
In 2000, the Company entered into a purchase agreement with the Boeing
Company to purchase directly from Boeing 10 new Boeing 757-300s and 20 new
Boeing 737-800s. The Boeing 737-800 aircraft are powered by General
Electric CFM56-7B27 engines, and the Boeing 757-300 aircraft are powered by
Rolls-Royce RB211-535 E4C engines. The Company also received purchase
rights for an additional 50 aircraft. The manufacturer's list price is
$73.6 million for each 757-300 and $52.4 million for each 737-800, subject
to escalation. The Company's purchase price for each aircraft is subject to
various discounts. To fulfill its purchase obligations, the Company has
arranged for each of these aircraft, including the engines, to be purchased
by third parties that will, in turn, enter into long-term operating leases
with the Company. As of March 31, 2002, the Company had taken delivery of
six Boeing 737-800s and seven Boeing 757-300s obtained directly from
Boeing. All remaining aircraft to be purchased directly from Boeing are
scheduled for delivery between April 2002 and August 2004. Aircraft
pre-delivery deposits are required for these purchases, and the Company has
funded these deposits using operating cash and deposit finance facilities.
As of March 31, 2002, the Company had $148.9 million in pre-delivery
deposits outstanding for these aircraft, of which $107.4 million was
provided by deposit finance facilities with various lenders. Upon delivery
of the aircraft, pre-delivery deposits funded with operating cash will be
returned to the Company, and those funded with deposit facilities will be
used to repay those facilities.
In December 2001, the Company entered into an agreement to exercise
purchase rights on two Boeing 757-300 aircraft to be delivered in May and
June 2003. The Company has purchase rights remaining for eight Boeing
757-300 aircraft and 40 Boeing 737-800 aircraft.
9
The Company has operating lease agreements in place to lease another 14 new
Boeing 737-800s from International Lease Finance Corporation ("ILFC"). As
of March 31, 2002, the Company has taken delivery of nine Boeing 737-800s
that are being leased from ILFC. The remaining aircraft under these
operating lease agreements are scheduled for delivery between April 2002
and May 2004.
The Company has an agreement to acquire five additional new Boeing 737-800s
to be financed by operating leases with GE Capital Aviation Services
("GECAS"). As of March 31, 2002, the Company has taken delivery of three
Boeing 737-800 aircraft that are being leased from GECAS. The two remaining
aircraft are scheduled for delivery later in 2002.
The Company has an agreement with General Electric to purchase four spare
engines, which are scheduled for delivery between 2003 and 2006. The
Company also has an agreement with Rolls Royce to purchase two spare
engines, one of which was delivered in 2001, with the second scheduled for
delivery in the second quarter of 2002.
In March 2001, the Company entered into a limited liability company
agreement with Boeing Capital Corporation ("BCC") to form BATA Leasing LLC
("BATA") a 50/50 joint venture. Because the Company does not control BATA,
the Company's investment is being accounted for under the equity method.
BATA will remarket the Company's fleet of Boeing 727-200 aircraft in either
passenger or cargo configurations. In exchange for supplying the aircraft
and certain operating services to BATA, the Company has and will continue
to receive both cash and equity in the income or loss of BATA. The Company
transferred 12 Boeing 727-200 aircraft to BATA in 2001. The Company expects
to transfer most of the remaining 12 Boeing 727-200 aircraft to BATA in the
first half of 2002. Also in 2001, the Company entered into short-term
operating leases with BATA on nine of the 12 transferred aircraft. As of
March 31, 2002, eight of the nine leases had terminated, and the Company
continued to operate one of these aircraft. The Company is subject to lease
return conditions on these nine operating leases upon delivery of any
related aircraft to a third party by BATA. As of March 31, 2002, a
third-party lessee or buyer has not been identified for any of these
aircraft. Management believes it is reasonably possible that a lessee or
buyer will be identified. The Company estimates that it could incur up to
$7.0 million of expense to meet the return conditions, if all nine of the
aircraft were leased by BATA to third parties. No liability has been
recorded for these return conditions.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets, ("FAS
142"), effective for fiscal years beginning after December 15, 2001. The
Company's goodwill represents the excess of cost over the fair value of net
assets acquired in several business acquisitions in 1999. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized, but will be subject to annual impairment reviews.
The Company adopted FAS 142 as of January 1, 2002, and therefore has not
recorded any goodwill amortization in the first quarter of 2002. Prior to
2002, the Company amortized goodwill on a straight-line basis over 20 years
in accordance with APB 17. The Company recorded goodwill amortization
expense of $0.3 million in the first quarter of 2001.
As required upon adoption of FAS 142, the Company is currently performing
transitional impairment reviews on its goodwill. Although the Company has
not completed these initial impairment tests, analysis completed to date
leads management to believe it is reasonably possible that an impairment
loss, associated with ATALC, may be recognized upon completion of the
tests. The Company cannot yet accurately estimate that potential loss. As
required by FAS 142, the Company plans to complete the transitional
goodwill impairment test by June 30, 2002.
10
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
PART I - Financial Information
Item II - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Quarter Ended March 31, 2002, Versus Quarter Ended March 31, 2001
Overview
The Company is a leading provider of targeted scheduled airline services and
charter airline services to leisure and other value-oriented travelers, and to
the U.S. military. The Company, through its principal subsidiary, ATA, has been
operating for 29 years and is the tenth largest U.S. airline in terms of 2001
capacity and traffic. ATA provides scheduled service through nonstop and
connecting flights from the gateways of Chicago-Midway and Indianapolis to
popular vacation destinations such as Hawaii, Phoenix, Las Vegas, Florida,
California, Mexico and the Caribbean, as well as to New York's LaGuardia
Airport, Philadelphia, Denver, Dallas-Ft. Worth, Washington, D.C., Boston,
Seattle, Minneapolis-St. Paul, Miami and Newark. Chicago Express also provides
commuter passenger service between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Madison, South Bend
and Springfield. ATA also provides charter service to independent tour
operators, specialty charter customers and the U.S. military.
In the quarter ended March 31, 2002, the Company recorded operating income of
$10.1 million, as compared to operating loss of $2.2 million in the first
quarter of 2001. Although operating income improved considerably, total
operating revenues for the quarter ended March 31, 2002 were $330.6 million, a
4.9% decline from the first quarter of 2001. This decline is primarily
attributable to the decline in demand that the Company, and industry, continue
to experience in the aftermath of the September 11 terrorist attacks. As the
Company continues its re-fleeting initiative, operating expenses such as
depreciation and amortization expense and maintenance, materials and repairs
expense declined, while aircraft rent expense increased. Fuel expense for the
quarter ended March 31, 2002 was $47.2 million as compared to $70.0 million in
the first quarter of 2001. This decrease was attributable to the fuel-efficiency
of the new fleet and a reduction in fuel price per gallon.
Critical Accounting Policies
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make judgments and estimates that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosures of contingent
assets and liabilities. Certain significant accounting policies applied in the
preparation of the financial statements require management to make difficult,
subjective or complex judgments, and are considered critical accounting policies
by the Company.
The Company has identified the accounting policy for fleet impairments as
critical. In applying FASB Financial Accounting Standard No. 121, Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
("FAS 121"), significant subjective estimates are required to calculate expected
future cash flows and the fair market values to which assets are adjusted.
Although the Company also adopted FASB Financial Accounting Standard No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS 144"),
which superceded FAS 121 effective January 1, 2002, the Company continues to
account for the fleet and related assets that were impaired prior to January 1,
2002, under FAS 121, as required by FAS 144. During the first quarter of 2002,
the Company made no impairment adjustments.
The Company has identified the accounting policy for U.S. Government grant
reimbursements for direct and incremental losses associated with the terrorist
attacks of September 11 as critical. Due to limited guidance provided by the
legislation and interpretive rules of the DOT, the Company made subjective and
judgmental estimates in calculating the amount of reimbursement to recognize in
2001. Due to continued uncertainties about the DOT rules, the Company made no
adjustments to U.S. Government grant reimbursement during the first quarter of
2002.
12
The Company has also identified the accounting policy for goodwill accounting as
critical. In applying FASB Financial Accounting Standard No. 142, Goodwill and
Other Intangible Assets, the Company anticipates using subjective judgments to
estimate the future cash flow of the entities and the implied fair market value
of the goodwill. See "Financial Statements - Notes to Consolidated Financial
Statements - Note 5 - Commitments and Contingencies."
Results of Operations
For the quarter ended March 31, 2002, the Company had operating income of $10.1
million, as compared to an operating loss of $2.2 million in the comparable
quarter of 2001; and the Company earned a $1.5 million net income available to
common shareholders in the first quarter of 2002, as compared to a net loss
available to common shareholders of $4.8 million in the first quarter of 2001.
Operating revenues decreased 4.9% to $330.6 million in the first quarter of
2002, as compared to $347.5 million in the same period of 2001. Consolidated
revenue per available seat mile ("RASM") decreased 9.1% to 7.68 cents in the
2002 first quarter, as compared to 8.45 cents in the first quarter of 2001.
Operating expenses decreased 8.4% to $320.5 million in the first quarter of
2002, as compared to $349.7 million in the comparable period of 2001.
Consolidated operating cost per available seat mile ("CASM") decreased 12.5% to
7.44 cents in the first quarter of 2002, as compared to 8.50 cents in the first
quarter of 2001.
13
Results of Operations in Cents Per ASM
The following table sets forth, for the periods indicated, operating revenues
and expenses expressed as cents per available seat mile ("ASM").
Cents per ASM
Three Months Ended March 31,
2002 2001
------------------------------------------
Consolidated operating revenues: 7.68 8.45
Consolidated operating expenses:
Salaries, wages and benefits 1.81 1.97
Fuel and oil 1.10 1.70
Aircraft rentals 0.92 0.49
Handling, landing and navigation fees 0.64 0.58
Depreciation and amortization 0.43 0.86
Crew and other employee travel 0.32 0.38
Ground package cost 0.29 0.44
Aircraft maintenance, materials and repairs 0.26 0.47
Other selling expenses 0.26 0.26
Passenger service 0.23 0.29
Advertising 0.22 0.16
Commissions 0.21 0.26
Facilities and other rentals 0.13 0.11
Other 0.62 0.53
--------------------- --------------------
Total consolidated operating expenses 7.44 8.50
--------------------- --------------------
Consolidated operating income (loss) 0.24 (0.05)
===================== ====================
ASMs (in thousands) 4,306,430 4,114,255
14
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:
Three Months Ended March 31,
2002 2001 Inc (Dec)
------------------------------------------------
Airline and Other
Operating revenue (000s) $ 308,881 $ 313,022 $ (4,141)
RASM (cents) 7.17 7.61 (0.44)
Operating expenses (000s) $ 298,559 $ 315,376 $ (16,817)
CASM (cents) 6.93 7.67 (0.74)
ATALC
Operating revenue (000s) $ 21,689 $ 34,463 $ (12,774)
RASM (cents) 0.51 0.84 (0.33)
Operating expenses (000s) $ 21,953 $ 34,343 $ (12,390)
CASM (cents) 0.51 0.83 (0.32)
15
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, Boeing 737-800, Boeing 757-200, and Boeing 757-300
aircraft in all of the Company's business units. Data shown for "Saab"
operations include the operations of Saab 340B propeller aircraft by Chicago
Express Airlines, Inc. ("Chicago Express") as the ATA Connection.
Three Months Ended March 31,
------------------------------------------------------------------
2002 2001 Inc (Dec) % Inc (Dec)
------------------------------------------------------------------
Departures Jet 16,103 14,768 1,335 9.04
Departures Saab 8,317 5,584 2,733 48.94
------------------------------------------------------------------
Total Departures (a) 24,420 20,352 4,068 19.99
------------------------------------------------------------------
Block Hours Jet 47,575 45,009 2,566 5.70
Block Hours Saab 7,785 4,754 3,031 63.76
------------------------------------------------------------------
Total Block Hours (b) 55,360 49,763 5,597 11.25
------------------------------------------------------------------
RPMs Jet (000s) 3,003,062 2,899,592 103,470 3.57
RPMs Saab (000s) 28,612 21,988 6,624 30.13
------------------------------------------------------------------
Total RPMs (000s) (c) 3,031,674 2,921,580 110,094 3.77
------------------------------------------------------------------
ASMs Jet (000s) 4,261,827 4,083,193 178,634 4.37
ASMs Saab (000s) 44,603 31,062 13,541 43.59
------------------------------------------------------------------
Total ASMs (000s) (d) 4,306,430 4,114,255 192,175 4.67
------------------------------------------------------------------
Load Factor Jet 70.46% 71.01% (0.55) (0.77)
Load Factor Saab 64.15% 70.79% (6.64) (9.38)
------------------------------------------------------------------
Total Load Factor (e) 70.40% 71.01% (0.61) (0.86)
------------------------------------------------------------------
Passengers Enplaned Jet 2,241,026 2,102,256 138,770 6.60
Passengers Enplaned Saab 180,989 131,794 49,195 37.33
------------------------------------------------------------------
Total Passengers Enplaned (f) 2,422,015 2,234,050 187,965 8.41
------------------------------------------------------------------
Revenue $ (000s) 330,570 347,485 (16,915) (4.87)
RASM in cents (g) 7.68 8.45 (0.77) (9.11)
CASM in cents (h) 7.44 8.50 (1.06) (12.47)
Yield in cents (i) 10.90 11.89 (0.99) (8.33)
See footnotes (b) through (i) on page 17.
(a) A departure is a single takeoff and landing operated by a single aircraft
between an origin city and a destination city.
16
(b) 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.
(c) 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.
(d) 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.
(e) 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. Since both costs
and revenues are largely fixed for these types of charter flights, changes in
load factor have less impact on business unit profitability. 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.
(f) 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."
(g) 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).
(h) 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.
(i) 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.
17
Operating 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, Boeing 737-800, Boeing 757-200,
and Boeing 757-300 aircraft in scheduled service. Data shown for "Saab"
operations include the operations of Saab 340B propeller aircraft by Chicago
Express Airlines, Inc. ("Chicago Express") as the ATA Connection.
Three Months Ended March 31,
------------------------------------------------------------------
2002 2001 Inc (Dec) % Inc (Dec)
------------------------------------------------------------------
Departures Jet 12,769 11,581 1,188 10.26
Departures Saab 8,317 5,584 2,733 48.94
------------------------------------------------------------------
Total Departures (a) 21,086 17,165 3,921 22.84
------------------------------------------------------------------
Block Hours Jet 35,147 33,357 1,790 5.37
Block Hours Saab 7,785 4,754 3,031 63.76
------------------------------------------------------------------
Total Block Hours (b) 42,932 38,111 4,821 12.65
------------------------------------------------------------------
RPMs Jet (000s) 2,154,743 2,087,614 67,129 3.22
RPMs Saab (000s) 28,612 21,988 6,624 30.13
------------------------------------------------------------------
Total RPMs (000s) (c) 2,183,355 2,109,602 73,753 3.50
------------------------------------------------------------------
ASMs Jet (000s) 2,975,917 2,785,749 190,168 6.83
ASMs Saab (000s) 44,603 31,062 13,541 43.59
------------------------------------------------------------------
Total ASMs (000s) (d) 3,020,520 2,816,811 203,709 7.23
------------------------------------------------------------------
Load Factor Jet 72.41% 74.94% (2.53) (3.38)
Load Factor Saab 64.15% 70.79% (6.64) (9.38)
------------------------------------------------------------------
Total Load Factor (e) 72.28% 74.89% (2.61) (3.49)
------------------------------------------------------------------
Passengers Enplaned Jet 1,791,689 1,688,386 103,303 6.12
Passengers Enplaned Saab 180,989 131,794 49,195 37.33
------------------------------------------------------------------
Total Passengers Enplaned (f) 1,972,678 1,820,180 152,498 8.38
------------------------------------------------------------------
Revenue $ (000s) 208,283 212,031 (3,748) (1.77)
RASM in cents (g) 6.90 7.53 (0.63) (8.37)
Yield in cents (i) 9.54 10.05 (0.51) (5.07)
Rev per segment $ (j) 105.58 116.49 (10.91) (9.37)
See footnotes (a) through (i) on pages 16-17.
(j) 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.
18
Scheduled service revenues in the first quarter of 2002 decreased 1.7% to $208.3
million from $212.0 million in the first quarter of 2001. Scheduled service
revenues comprised 63.0% of consolidated revenues in the first quarter of 2002,
as compared to 61.0% of consolidated revenues in the same period of 2001. The
decline in scheduled service revenues between periods is primarily attributable
to the reduced demand and corresponding lower yields that the Company has
experienced since the September 11 terrorist attacks.
The Company's first quarter 2002 scheduled service at Chicago-Midway accounted
for approximately 70.7% of scheduled service ASMs and 86.5% of scheduled service
departures, as compared to 67.8% and 86.4%, respectively, in the first quarter
of 2001. In the first quarter of 2002, the Company began nonstop international
service to Aruba, Cancun, Grand Cayman and Guadalajara. In the third and fourth
quarters of 2001, the Company began operating nonstop flights between
Chicago-Midway and the cities of Newark and Miami. The Company has announced
nonstop service to Charlotte, North Carolina beginning in the third quarter of
2002.
Chicago Express Airlines, Inc. ("Chicago Express"), a wholly owned subsidiary of
Amtran, operates eleven 34-seat Saab 340B aircraft between Chicago-Midway and
the cities of Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids,
Madison, Springfield and South Bend. Chicago Express has announced service
beginning in the second and third quarters of 2002 between Chicago-Midway and
the cities of Toledo, Flint and Moline.
The Company anticipates that its Chicago-Midway operation will represent a
substantial proportion of its scheduled service business throughout 2002 and
beyond. The Company operated 112 peak daily jet and commuter departures from
Chicago-Midway and served 32 destinations on a nonstop basis in the first
quarter of 2002, as compared to 97 peak daily jet and commuter departures and 26
nonstop destinations in the first quarter of 2001.
The Company's anticipated growth at Chicago-Midway will be accomplished in
conjunction with the construction of new terminal and gate facilities at the
Chicago-Midway Airport. In March 2001, the Company occupied 24 newly constructed
ticketing and passenger check-in spaces in the new terminal, an increase from 16
ticketing and passenger check-in spaces previously occupied. Once all
construction is complete in 2004, the Company expects to occupy 12 jet gates and
one commuter aircraft gate at the new airport concourses. One of the gates,
which the Company will occupy, opened in October 2001. The Company moved to
seven additional new gates in the first quarter of 2002, and the five remaining
gates are expected to be available for use by the Company in 2004. In addition,
construction of a Federal Inspection Service ("FIS") facility at Chicago-Midway
was completed in the first quarter of 2002. The opening of this facility allowed
the Company to begin nonstop international service from Chicago-Midway in early
2002.
The Company's Hawaii service accounted for 11.5% of scheduled service ASMs and
2.5% of scheduled service departures in the first quarter of 2002, as compared
to 17.1% and 3.6%, respectively, in the first quarter of 2001. The Company
provided nonstop services in both periods 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's Indianapolis service accounted for 10.2% of scheduled service ASMs
and 6.8% of scheduled service departures in the first quarter of 2002, as
compared to 10.9% and 7.7%, respectively, in the first quarter of 2001. In both
quarters, the Company operated nonstop to Cancun, Ft. Lauderdale, Ft. Myers, Las
Vegas, Los Angeles, Orlando, St. Petersburg, San Francisco and Sarasota. The
Company has announced jet service, beginning in the second quarter of 2002,
between Indianapolis and Chicago-Midway, with continuing service to Seattle. The
Company has served Indianapolis for 29 years through the Ambassadair Travel Club
and in scheduled service since 1986.
19
The Company continuously evaluates the profitability of its scheduled service
markets and expects to adjust its schedule and flight frequencies from time to
time. The Company saw scheduled service demand increase in the first quarter of
2002, and is adding some capacity back to its scheduled service network in 2002
as it continues to accept new aircraft deliveries. However, the Company cannot
predict when year-over-year unit revenue growth will resume in its scheduled
service business.
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. Commercial charter revenues accounted for 17.4% of consolidated revenues
in the first quarter of 2002, as compared to 18.1% in the first quarter of 2001.
The following table sets forth, for the periods indicated, certain key operating
and financial data for the commercial charter operations of the Company.
Three Months Ended March 31,
------------------------------------------------------------------
2002 2001 Inc (Dec) % Inc (Dec)
------------------------------------------------------------------
Departures (a) 2,510 2,309 201 8.71
Block Hours (b) 8,695 7,850 845 10.76
RPMs (000s) (c) 632,878 576,464 56,414 9.79
ASMs (000s) (d) 789,801 778,772 11,029 1.42
Passengers Enplaned (f) 401,373 355,642 45,731 12.86
Revenue $ (000s) 57,369 62,980 (5,611) (8.91)
RASM in cents (g) 7.26 8.09 (0.83) (10.26)
RASM excluding fuel escalation in cents (k) 7.26 7.60 (0.34) (4.47)
See footnotes (a) through (g) on pages 16-17.
(k) Commercial charter contracts generally provide that the tour operator will
reimburse the Company for certain fuel cost increases, which, when earned, are
accounted for as additional revenue. A separate RASM calculation, excluding the
impact of fuel reimbursements, is provided as a separate measure of unit revenue
changes.
The increase in total commercial charter revenues in the first quarter of 2002,
as compared to the first quarter of 2001, was due to the addition of a new
contract with a large commercial charter customer. Although total commercial
charter revenues increased, commercial charter RASM decreased as the Company
flew less specialty commercial charter trips which generally produce a higher
RASM.
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
$44.6 million in revenues in the first quarter of 2002, as compared to $45.6
million in the first quarter of 2001.
20
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. Specialty charter accounted for approximately
$4.1 million in revenues in the first quarter of 2002, as compared to $7.2
million in the first quarter of 2001.
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.
Three Months Ended March 31,
------------------------------------------------------------------
2002 2001 Inc (Dec) % Inc (Dec)
------------------------------------------------------------------
Departures (a) 822 863 (41) (4.75)
Block Hours (b) 3,715 3,749 (34) (0.91)
RPMs (000s) (c) 214,608 230,763 (16,155) (7.00)
ASMs (000s) (d) 493,666 511,026 (17,360) (3.40)
Passengers Enplaned (f) 47,783 57,023 (9,240) (16.20)
Revenue $ (000s) 39,477 39,405 72 0.18
RASM in cents (g) 8.00 7.71 0.29 3.76
RASM excluding fuel escalation in cents (l) 8.13 7.39 0.74 10.01
See footnotes (a) through (g) on pages 16-17.
(l) Military/government reimbursements to the Company are calculated based upon
a "cost plus" formula, including an assumed average fuel price for each contract
year. If actual fuel prices differ from the contract rate, revenues are adjusted
up or down to neutralize the impact of the change on the Company. A separate
RASM calculation is provided, excluding the impact of the fuel price
adjustments.
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 this
teaming arrangement, 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 all aircraft types and mission
categories based upon operating cost data submitted by the participating
airlines. These contracts generally are 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.
21
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. The Company earned $159.3 million in military/government
charter revenues in the contract year ended September 30, 2001.
The increase in RASM for military/government charter revenues in the first
quarter of 2002, as compared to the same period of 2001, was due to rate
increases awarded for the current contract year, based upon cost data submitted
to the U.S. military by the Company and other air carriers providing these
services.
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
through its ATALC subsidiary and to its Ambassadair club members.
Ambassadair Travel Club offers tour-guide-accompanied vacation packages to its
approximately 33,000 individual and family members annually. ATALC offers
numerous ground accommodations to the general public in many areas of the United
States, Mexico and the Caribbean. These packages are marketed through travel
agents, as well as directly by the Company.
In the first quarter of 2002, ground package revenues decreased 29.6% to $15.2
million, as compared to $21.6 million in the first quarter of 2001, most of
which was attributable to the ATALC subsidiary. The number of ground packages
sold and the average revenue earned by the Company for a ground package sale are
a function of the seasonal mix of vacation destinations served, the quality and
types of ground accommodations offered and general competitive conditions in the
Company's markets, all of which factors can change from period to period.
Other Revenues. Other revenues are comprised of the consolidated revenues of
certain affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled, charter and ground package operations of the
Company, such as cancellation and service fees, Ambassadair Travel Club
membership dues and cargo revenue. Other revenues decreased 10.5% to $10.2
million in the first quarter of 2002, as compared to $11.4 million in the first
quarter of 2001.
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 the first quarter of 2002 decreased 3.7%
to $78.0 million from $81.0 million in the first quarter of 2001.
The Company's average equivalent employees declined by approximately 10.6%
between the first quarters of 2002 and 2001. This decline reflects the continued
effect of the furloughs performed shortly after the September 11 terrorist
attacks. The decrease in salary expense due to the reduction in employees was
partially offset by an increase in medical insurance claims and worker's
compensation costs between years, as well as an increase in Chicago Express
salary costs, resulting from the growth in the Saab 340B fleet.
22
Fuel and Oil. Fuel and oil expense decreased 32.6% to $47.2 million in the first
quarter of 2002, as compared to $70.0 million in the same period of 2001.
Although total block hours increased 11.3% between quarters, the Company
consumed 11.4% less gallons of jet fuel for flying operations between years,
which resulted in a decrease in fuel expense of approximately $8.1 million. This
decrease was primarily due to the addition of the Boeing 737-800 and Boeing
757-300 aircraft to the Company's fleet beginning in May 2001. These aircraft
replaced certain less-fuel-efficient Boeing 727-200 and Lockheed L-1011 aircraft
subsequently retired from service.
During the first quarter of 2002, the Company's average cost per gallon of jet
fuel consumed decreased by 24.3% as compared to the first quarter of 2001,
resulting in a decrease in fuel and oil expense of approximately $14.3 million
between periods.
The Company has entered into several fuel price hedge contracts to reduce the
risk of fuel price fluctuations. The Company recorded losses of $0.4 million and
$0.8 million on these hedge contracts in the first quarter of 2002 and 2001,
respectively. As of March 31, 2002, the Company had entered into swap agreements
for approximately 3.2 million gallons of heating oil for future delivery between
April 2002 and June 2002, which represented approximately 5.5% of total expected
fuel consumption in the second quarter of 2002.
Aircraft Rentals. Aircraft rentals expense for the first quarter of 2002
increased 97.5% to $39.5 million from $20.0 million in the first quarter of
2001. The increase was mainly attributable to the delivery of 18 leased Boeing
737-800 and five leased Boeing 757-300 aircraft between May 2001 and March 2002,
which resulted in an increase in rental expense of $19.7 million in the first
quarter of 2002, as compared to the same period of 2001. The Company took
delivery of one additional Boeing 757-200 aircraft financed under an operating
lease in December 2001 resulting in a $1.1 million increase in expense in the
first quarter of 2002, as compared to the first quarter of 2001. The Company
also renegotiated an existing lease on one Boeing 757-200 aircraft, which
resulted in a decrease of $0.7 million in rental expense in the first quarter of
2002, as compared to the same period of 2001.
The Company retired certain leased Boeing 727-200 aircraft in late 2001 due to
anticipated decreased demand in the aftermath of the September 11 terrorist
attacks. The Company recognized rent expense for the remainder of the lease
terms in the period in which the aircraft were retired. In addition, during
2001, the Company terminated the leases on five Boeing 727-200s which were
transferred to BATA Leasing LLC ("BATA").
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, cargo and baggage where the Company
elects to use third-party contract services in lieu of its own employees. Where
the Company uses it's 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 16.9% to $27.7 million in the
first quarter of 2002, as compared to $23.7 million in the first quarter of
2001. The increase in handling, landing and navigation fees is mainly due to a
9.0% increase in the total number of system-wide jet departures to 16,103 in the
first quarter of 2002, as compared to 14,768 in the first quarter of 2001. The
increase is also attributable to the increase in commercial charter flying
between years, most of which is operated to and from international airports.
International handling and landing fees are generally more expensive than at
domestic U.S. airports, and air navigation fees apply only to the international
flying. In the first quarter of 2002, the Company had 2,024 international
departures, an increase of 22.2%, as compared to 1,656 international departures
in the first quarter of 2001.
Depreciation and Amortization. Depreciation reflects the periodic expensing of
the recorded cost of owned airframes and engines, leasehold improvements and
rotable parts for all fleet types, together with other property and equipment
owned by the Company. Amortization is primarily the periodic expensing of
capitalized airframe and engine overhauls for all fleet types on a
units-of-production basis using aircraft flight hours and cycles (landings) as
the units of measure. Depreciation and amortization expense decreased 47.3% to
$18.7 million in the first quarter of 2002, as compared to $35.5 million in the
first quarter of 2001.
23
During the first nine months of 2001, the Company depreciated the L-1011-50 and
100 fleet assuming a common retirement date of 2004. However in 2001, the
Company retired three L-1011-50 aircraft from revenue service early, immediately
preceding their next heavy maintenance check. During the fourth quarter of 2001,
the Company determined that the remaining ten L-1011-50 and 100 aircraft,
together with related rotable parts and inventory, were impaired and classified
as held for use in accordance with FAS 121. Under FAS 121, these assets are
recorded on the balance sheet at their estimated fair market value at the time
of impairment, which is the new asset basis to be depreciated over the assets'
estimated remaining useful lives. Due primarily to the reduced cost basis of the
remaining ten aircraft, and the retirement of three aircraft in 2001, the
Company recorded $5.4 million less depreciation and amortization expense for the
L-1011-50 and 100 fleet in the first quarter of 2002 than in the first quarter
of 2001.
Immediately following the terrorist attacks of September 11, the Company
accelerated the planned retirement of its Boeing 727-200 fleet, with most
aircraft being retired from revenue service by the end of 2001, although some
aircraft are being used for charter service through May 2002. As a result, these
aircraft were determined to be impaired under FAS 121. Boeing 727-200 aircraft
not already transferred to BATA have been classified in the accompanying balance
sheet as assets held for sale. In accordance with FAS 121, depreciation expense
was not recorded after the fleet was deemed impaired and will not be recorded in
future accounting periods. As a result, the Company did not record any
depreciation expense on the Boeing 727-200 fleet in the first quarter of 2002,
which resulted in a $10.6 million decrease in depreciation and amortization
expense in the first quarter of 2002, as compared to the first quarter of 2001.
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 early engine failures decreased $2.6
million in the first quarter of 2002 as compared to the first quarter of 2001.
When these early engine failures can be economically repaired, the related
repairs are charged to aircraft maintenance, materials and repairs expense.
Amortization of capitalized engine and airframe overhauls on the
Lockheed-L-1011-500 fleet increased $0.7 million in the first quarter of 2002 as
compared to the first quarter of 2001, after including amortization of related
manufacturer's credits. The fleet is relatively new to the Company and only
began requiring overhauls in late 2000.
The depreciation and amortization expense also increased $1.1 in the first
quarter of 2002 as compared to the first quarter of 2001 primarily due to
fluctuations associated with other fleet rotable parts, owned engines, goodwill
amortization and the provision for inventory obsolescence, along with
fluctuations in expenses related to furniture and fixtures, computer hardware
and software, and debt issue costs between periods, none of which are
individually significant.
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 crew and other employee travel
decreased 11.5% to $13.9 million in the first quarter of 2002, as compared to
$15.7 million in the first quarter of 2001. This decrease was mainly due to the
Company benefiting from lower hotel rates which became available after the
September 11 terrorist attacks. The average hotel cost per full-time-equivalent
crew member decreased 22.1% in the first quarter of 2002, as compared to the
same period of 2001. The decrease also reflects a decline in non-crew member
employee travel in the first quarter of 2002, as compared to the first quarter
of 2001, due to the Company's cost-cutting initiatives implemented after the
September 11 terrorist attacks.
24
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 ATALC customers. Ground package cost
decreased 32.4% to $12.3 million in the first quarter of 2002, as compared to
$18.2 million in the first quarter of 2001. Ground package costs vary based on
the mix of vacation destinations serviced, the quality and types of ground
accommodations offered, and general competitive conditions in the Company's
markets, all of which factors can change from period to period. Ground package
costs between years decreased in approximate proportion to the decrease in
ground package revenues.
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 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. It also includes the costs
incurred under hourly engine maintenance agreements the Company has entered into
on its Boeing 737-800 and Saab 340B power plants. These agreements provide for
the Company to pay monthly fees based on a specified rate per engine flight
hour, in exchange for major engine overhauls and maintenance. Aircraft
maintenance, materials and repairs expense decreased 41.2% to $11.4 million in
the first quarter of 2002, as compared to $19.4 million in the same period of
2001.
The decline in maintenance, material and repairs expense in the first quarter of
2002, as compared to the same period of 2001, was primarily attributable to a
decrease in materials consumed and components repaired related to maintenance on
the Company's aging fleets of Lockheed L-1011-50 and 100 and Boeing 727-200
aircraft. During 2001, the Company placed 12 Boeing 727-200 aircraft into BATA
and retired three Lockheed L-1011-50 aircraft. The Company expects maintenance,
materials and repairs expense to continue to decline in future quarters as its
older fleets of aircraft continue to be replaced by newer and more
technologically advanced twin-engine aircraft with lower maintenance needs.
This decline in maintenance, materials and repairs was partially offset by an
increase in return conditions expense. In the first quarter of 2001, the Company
recorded a $2.0 million decrease in maintenance, materials and repairs expense
due to a negotiated elimination of return condition requirements on one Lockheed
L-1011 aircraft. A similar adjustment was not made in the first quarter of 2002.
Other Selling Expenses. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems ("CRS"), credit card discount
expenses incurred when selling single seats and ground packages to customers
using credit cards for payment, and toll-free telephone services provided to
single-seat and vacation package customers who contact the Company directly to
book reservations. Other selling expenses increased 1.9% to $11.0 million in the
first quarter of 2002, as compared to $10.8 million in the same period of 2001.
Approximately $0.5 million of this increase in the first quarter of 2002
resulted from an increase in CRS fees. This increase resulted partially from the
growth in single-seat sales volumes between periods and because of an annual
increase in segment fee rates charged by CRS systems. This increase was
partially offset by a $0.3 million decrease in 800 service related to both a
rate decrease and fewer calls received due to less flight interruptions in the
first quarter of 2002, as compared to the same period of 2001.
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 the first quarter of
2002 and 2001, catering represented 77.3% and 71.4%, respectively, of total
passenger service expense.
25
The total cost of passenger service decreased 16.9% to $9.8 million in the first
quarter of 2002, as compared to $11.8 million in the first quarter of 2001. The
Company experienced a decrease of approximately 17.8% in the average unit cost
of catering each passenger between periods primarily because in the first
quarter of 2002 the Company provided a less expensive catering product,
discontinued meal service on certain flights and implemented measures to reduce
catering service charges for round-trip flights. This resulted in a
price-and-business-mix decrease of $1.5 million in the first quarter of 2002, as
compared to the same period of 2001. Total jet passengers boarded increased 6.6%
between quarters, resulting in approximately $0.5 million in higher
volume-related catering expenses between the same sets of comparative periods.
In the first quarter of 2002, the Company also incurred approximately $1.0
million less expense for mishandled baggage and passenger inconvenience due to
flight delays and cancellations, than in the first quarter of 2001.
Advertising. Advertising expense increased 43.1% to $9.3 million in the first
quarter of 2002, as compared to $6.5 million in the first quarter of 2001. The
Company incurs advertising costs primarily to support single-seat scheduled
service sales and the sale of air-and-ground packages. The increase in
advertising was primarily attributable to increased advertising for the
promotion of the new scheduled service destinations added in the first quarter
of 2002 and the promotion of low fares as compared to the competition. The
Company also increased advertising in an effort to increase consumer preference
for the Company's enhanced product, especially in its important Chicago-Midway
hub.
Commissions. The Company incurs commissions expense in association with the sale
by travel agents of single seats on scheduled service. In addition, the Company
incurs commissions to secure some commercial and military/government charter
business. Commissions expense decreased 15.0% to $9.1 million in the first
quarter of 2002, as compared to $10.7 million in the first quarter of 2001.
The Company experienced a decrease in commissions of $1.5 million in the first
quarter of 2002 attributable to commissions paid to travel agents by ATALC,
which is consistent with the decrease in related revenue. In addition, scheduled
service commission decreased $0.1 million in the first quarter of 2002, as
compared to the first quarter of 2001, mainly due to an decrease in scheduled
service revenue.
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 20.0% to $5.4 million in the first quarter of 2002, as
compared to $4.5 million in the first quarter of 2001. Growth in facilities
costs between periods was primarily attributable to the need to provide
facilities at airport locations to support new scheduled service destinations
added after the first quarter of 2001 and expanded services at existing
destinations, including the new Chicago-Midway terminal which opened in March
2001.
Other Operating Expenses. Other operating expenses increased 23.6% to $27.2
million in the first quarter of 2002, as compared to $22.0 million in the first
quarter of 2001. The Company recorded $5.2 million more in hull and liability
insurance in the first quarter of 2002, as compared to the first quarter of
2001, due to the increase in base rates and the addition of surcharges to cover
third party damages after the September 11 terrorist attacks. In addition, the
purchase by ATALC of charter air services from airlines other than the Company
was $2.0 million more in the first quarter of 2002, as compared with the first
quarter of 2001, due to a decreased utilization of the Company's own aircraft
for ATALC charter programs. These increases were partially offset by a decrease
in the loss on disposal of assets. The Company recorded a loss on disposal of
assets of $2.0 million related to the retirement of one Lockheed L-1011-50
aircraft in the first quarter of 2001, with no such loss on disposal of assets
in the first quarter of 2002.
26
Interest Income and Expense. Interest expense in the first quarter of 2002
increased to $8.2 million as compared to $7.4 million in the same period of
2001. The Company capitalized $1.3 million less in interest expense between
periods associated with aircraft pre-delivery deposits. A reduction in interest
expense, all of which was capitalized, of $1.1 million in the first quarter of
2002, as compared to the same period of 2001, was related to a decrease in the
borrowings on the debt used to fund a portion of the aircraft pre-delivery
deposits.
The Company also incurred $0.6 million in interest expense in the first
quarter of 2002 relating to two Boeing 757-300 aircraft and one Boeing 737-800
aircraft which were temporarily financed with bridge debt. The Boeing 737-800
was refinanced with an operating lease at the end of the first quarter of 2002.
The Company intends to refinance the two Boeing 757-300s with operating leases
during the second quarter of 2002.
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $0.7 million in interest income in the
first quarter of 2002, as compared to $1.7 million in the same period of 2001.
The decrease in interest income between periods is due to a decline in the
interest rate earned.
Income Tax Expense. In the first quarter of 2002 the Company recorded income tax
expense of $0.8 million applicable to $2.6 million in pre-tax income for the
period, while in the first quarter of 2001, the Company recorded an income tax
credit of $3.3 million applicable to $7.7 million pre-tax loss. The effective
tax rate applicable to the first quarter 2002 was 28.8%, as compared to 43.0% in
the same period of 2001.
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 (40% in 2001 and 35% in 2002).
Liquidity and Capital Resources
Cash Flows. In the first quarters of 2002 and 2001, net cash provided by
operating activities was $18.2 million and $86.6 million, respectively. The
decrease in cash provided by operating activities between periods was primarily
due to a decrease in depreciation and amortization expense due to the retirement
and non-cash impairment write-down of certain Boeing 727-200 and Lockheed
L-1011-50 and 100 aircraft in 2001. In addition, the decrease resulted from
changes in operating assets and liabilities, most significantly in accounts
receivable, which was driven primarily by an increase in credit card holdback.
For additional details with respect to credit card holdback see "- Card
Agreement".
Net cash used in investing activities was $144.9 million and $116.8 million,
respectively, in the first quarters of 2002 and 2001. Such amounts primarily
included capital expenditures totaling $145.4 million and $53.0 million,
respectively, for aircraft purchases, engine and airframe overhauls, airframe
improvements and the purchase of rotable parts. In the first quarter of 2002,
$114.7 million of the Company's capital expenditures was for the purchase of two
Boeing 757-300 aircraft financed through bridge debt, which the Company expects
to finance using operating leases before the end of the second quarter of 2002.
In addition, the Company had $21.8 million of net aircraft pre-delivery deposits
returned in the first quarter of 2002 as aircraft were delivered. In contrast,
the Company made $44.2 million of pre-delivery deposit payments in the first
quarter of 2001.
Net cash provided by financing activities was $79.9 million in the first quarter
of 2002 as compared to $30.8 million in the first quarter of 2001. In the first
quarter of 2002, the Company borrowed $140.9 million in temporary bridge debt
related to the purchase of one Boeing 737-800 aircraft and two Boeing 757-300
aircraft, of which the Company repaid $37.6 million related to the Boeing
737-800, which was subsequently financed through an operating lease. In the
first quarter of 2002, the Company made payments of $10.9 million related to the
financing of pre-delivery deposits on aircraft received in the first quarter of
2002. In the first quarter of 2001, the Company received proceeds of $33.1
million related to the financing of pre-delivery deposits on aircraft.
27
The Company presently expects that cash generated by operations, together with
available borrowings under collateralized credit facilities, the return of
pre-delivery deposits held by the manufacturer on future aircraft deliveries and
the receipt of additional U.S. Government grant compensation, will be sufficient
to fund operations during the next twelve months. For additional details with
respect to the grant from the U.S. Government, see "Financial Statements - Notes
to Consolidated Financial Statements - Note 2 - Continuing Effects of September
11, 2001."
Debt and Operating Lease Cash Payment Obligations. The Company is required to
make cash payments in the future on debt obligations and operating leases.
Although the Company is obligated on a number of long-term operating leases
which are not recorded on the balance sheet under accounting principles
generally accepted in the United States ("GAAP"), the Company has no off-balance
sheet debt and, with the exception of insignificant amounts not requiring
disclosure under GAAP, does not guarantee the debt of any other party. The
following table summarizes the Company's contractual debt and operating lease
obligations at March 31, 2002, and the effect such obligations are expected to
have on its liquidity and cash flows in future periods.
Cash Payments Currently Scheduled
-------------------------------------------------------------------------
Total 2Qtr-4Qtr 2003 2005 After
As of 3/31/02 2002 -2004 -2006 2006
------------- --------- --------- ---------- -----------
(in thousands)
Current and long-term debt $ 577,785 $ 111,941 $ 311,938 $ 135,640 $ 18,266
Lease obligations 2,586,149 110,202 396,231 358,072 1,721,644
------------- --------- --------- ---------- -----------
Total contractual cash obligations $ 3,163,934 $ 222,143 $ 708,169 $ 493,712 $ 1,739,910
============= ========= ========= ========== ===========
In addition, the Company is committed to taking future delivery of 26 new Boeing
757-300 and Boeing 737-800 aircraft, as well as five spare engines. The amounts
relating to these aircraft and engines are not included in the table. The
Company intends to finance these aircraft and engines with operating leases.
Aircraft and Fleet Transactions. In 2000, the Company entered into a purchase
agreement with the Boeing Company to purchase directly from Boeing 10 new Boeing
757-300s and 20 new Boeing 737-800s. The Boeing 737-800 aircraft are powered by
General Electric CFM56-7B27 engines, and the Boeing 757-300 aircraft are powered
by Rolls-Royce RB211-535 E4C engines. The Company also received purchase rights
for an additional 50 aircraft. The manufacturer's list price is $73.6 million
for each 757-300 and $52.4 million for each 737-800, subject to escalation. The
Company's purchase price for each aircraft is subject to various discounts. To
fulfill its purchase obligations, the Company has arranged for each of these
aircraft, including the engines, to be purchased by third parties that will, in
turn, enter into long-term operating leases with the Company. As of March 31,
2002, the Company had taken delivery of six Boeing 737-800s and seven Boeing
757-300s obtained directly from Boeing. All remaining aircraft to be purchased
directly from Boeing are scheduled for delivery between April 2002 and August
2004. Aircraft pre-delivery deposits are required for these purchases, and the
Company has funded these deposits using operating cash and deposit finance
facilities. As of March 31, 2002, the Company had $148.9 million in pre-delivery
deposits outstanding for these aircraft, of which $107.4 million was provided by
deposit finance facilities with various lenders. Upon delivery of the aircraft,
pre-delivery deposits funded with operating cash will be returned to the
Company, and those funded with deposit facilities will be used to repay those
facilities.
In December 2001, the Company entered into an agreement to exercise purchase
rights on two Boeing 757-300 aircraft to be delivered in May and June 2003. The
Company has purchase rights remaining for eight Boeing 757-300 aircraft and 40
Boeing 737-800 aircraft.
28
The Company has operating lease agreements in place to lease another 14 new
Boeing 737-800s from International Lease Finance Corporation ("ILFC"). As of
March 31, 2002, the Company has taken delivery of nine Boeing 737-800s that are
being leased from ILFC. The remaining aircraft under these operating lease
agreements are scheduled for delivery between April 2002 and May 2004.
The Company has an agreement to acquire five additional new Boeing 737-800s to
be financed by operating leases with GE Capital Aviation Services ("GECAS"). As
of March 31, 2002, the Company has taken delivery of three Boeing 737-800
aircraft that are being leased from GECAS. The two remaining aircraft are
scheduled for delivery later in 2002.
Although the Company typically finances aircraft with long-term operating
leases, it has an available bridge financing facility which provides for maximum
borrowings of $400.0 million to finance new Boeing 737-800 aircraft and new
Boeing 757-300 aircraft. Borrowings under the facility bear interest, at the
option of ATA, at LIBOR plus a margin, which depends on the percentage of the
purchase price borrowed and whether the borrowing matures 18 or 24 months after
the aircraft delivery date. As of March 31, 2002, the Company had financed two
new Boeing 757-300s with this facility, resulting in total borrowings of $103.3
million. The Company expects to permanently finance these aircraft with
operating leases during the second quarter of 2002.
The Company has an agreement with General Electric to purchase four spare
engines, which are scheduled for delivery between 2003 and 2006. The Company
also has an agreement with Rolls Royce to purchase two spare engines, one of
which was delivered in 2001, with the second scheduled for delivery in the
second quarter of 2002.
In March 2001, the Company entered into a limited liability company agreement
with Boeing Capital Corporation ("BCC") to form BATA, a 50/50 joint venture.
Because the Company does not control BATA, the Company's investment is being
accounted for under the equity method. BATA will remarket the Company's fleet of
Boeing 727-200 aircraft in either passenger or cargo configurations. In exchange
for supplying the aircraft and certain operating services to BATA, the Company
has and will continue to receive both cash and equity in the income or loss of
BATA. The Company transferred 12 Boeing 727-200 aircraft to BATA in 2001. The
Company expects to transfer most of the remaining 12 Boeing 727-200 aircraft to
BATA in the first half of 2002. Also in 2001, the Company entered into
short-term operating leases with BATA on nine of the 12 transferred aircraft. As
of March 31, 2002, eight of the nine leases had terminated, and the Company
continued to operate one of these aircraft.
Significant Financings. As of December 31, 2001, the Company's revolving bank
credit facility provided for maximum borrowings of $100.0 million, including up
to $50.0 million for stand-by letters of credit. In March 2002, the Company
amended the credit facility to reduce the maximum borrowings to $75.0 million
and modify certain financial covenants. The amended facility matures January 2,
2003, and borrowings under the facility bear interest, at the option of ATA, at
either LIBOR plus a margin or the agent bank's prime rate. This facility is
currently collateralized by six owned Boeing 727-200 aircraft, nine Lockheed
L-1011-50 and L-1011-100 aircraft and engines, three Lockheed L-1011-500
aircraft and engines, two Saab 340B aircraft, certain rotable parts and eligible
receivables. The facility agreement provides that in the event of a material
adverse occurrence, the lenders can elect not to fund any additional borrowings,
and can require repayment of any outstanding balance immediately. No such
determination was made relative to the terrorist attacks on September 11. As of
March 31, 2002, the Company had borrowings of $24.0 million against the facility
and had outstanding letters of credit of $49.8 million secured by the facility.
As of March 31, 2002, the various aircraft and parts securing the bank credit
facility had a collateralized value of $72.7 million.
29
In September 2000, the Company issued and sold 300 shares of Series B
convertible redeemable preferred stock, without par value. In December 2000, the
Company issued and sold 500 shares of Series A redeemable preferred stock,
without par value. The proceeds from the issuance and sale of the Series B and
the Series A preferred stock were used for aircraft pre-delivery deposits and
general corporate purposes.
In December 2000, the Company entered into three finance facilities with Banca
Commerciale Italiana, GE Capital Aviation Services, Inc., and Rolls-Royce plc.,
to fund pre-delivery deposits on new Boeing 757-300 and Boeing 737-800 aircraft.
These facilities provide for up to $173.2 million in pre-delivery deposit
funding, and as of March 31, 2002, the Company had borrowed $107.4 million
against these three facilities. All of this debt has been classified as current
in the accompanying balance sheets because it will be repaid through the return
of related pre-delivery deposits through lease financing of aircraft scheduled
for delivery within the next 12 months. Interest on these facilities is payable
monthly.
On January 31, February 28, and March 26, 2002, the Company signed a $37.6
million, $51.6 million and $51.7 million, respectively, promissory note with
Boeing Capital Loan Corporation for the purchase of one Boeing 737-800 aircraft
and two Boeing 757-300 aircraft. As of the March 31, 2002, the $37.6 million was
paid in full, and the aircraft was financed under an operating lease. The
principal amount of the two outstanding promissory notes is due March 2003.
Card Agreement. The Company accepts charges to most major credit and debit cards
("cards") as payment from its customers. Approximately 90% of scheduled service
and vacation package sales are purchased using these cards.
More than half of these card sales are made using MasterCard or Visa cards. The
Company maintains an agreement with a bank for the processing and collection of
charges to these cards. Under this agreement, a sale is normally charged to the
purchaser's card account and is paid to the Company in cash within a few days of
the date of purchase, although the Company may provide the purchased services
days, weeks or months later. In 2001, the Company processed approximately $535
million in MasterCard and Visa charges under its merchant processing agreement.
On September 21, 2001, the bank notified the Company that it had determined that
the terrorist attacks of September 11, the ensuing grounding of commercial
flights by the FAA, and the significant uncertainty about the level of future
air travel entitled the bank to retain cash collected by it on credit card
charges until the time of service. If the Company fails to perform pre-paid
services which are purchased by a charge to a card, the purchaser may be
entitled to obtain a refund which, if not paid by the Company, may be the
obligation of the bank.
The bank exercised its right to withhold distributions beginning shortly after
its notice to the Company. As of December 31, 2001, the bank had withheld $3.1
million, and the Company provided a letter of credit for $20.0 million. The
Company had classified the $3.1 million as a current receivable. As of March 31,
2002, the bank had withheld $13.2 million and $20.0 million was secured by a
letter of credit. A deposit of 100% would have resulted in the additional
retention of $22.1 million by the bank at March 31, 2002. The bank's right to
maintain a deposit does not terminate unless, in its reasonable judgment and at
its sole discretion, it determines that a deposit is no longer required.
The Company has the right to terminate its agreement with the bank upon
providing appropriate notice. In the event of such termination, the bank may
retain a deposit equal to the amount of purchased services not yet performed.
30
Surety Bonds. The Company has historically provided surety bonds to airport
authorities and selected other parties, to secure the Company's obligation to
these parties. The DOT also requires the Company to provide a surety bond or an
escrow, to secure potential refund claims of charter customers who have made
prepayments to the Company for future transportation. One issuer currently
provides all surety bonds issued on behalf of the Company.
Prior to the terrorist attacks of September 11, the Company had provided a
letter of credit of $1.5 million as security to the issuer for its total
estimated surety bond obligations, which were $20.9 million at August 31, 2001.
Effective October 5, 2001, the issuer required the Company to increase its
letter of credit to 50% of its estimated surety bond liability. Effective
January 16, 2002, the issuer implemented a requirement for the Company's letter
of credit to secure 100% of estimated surety bond obligations, which totaled
$19.8 million. The Company's letter of credit was adjusted accordingly, and the
Company is subject to future adjustments of its letter of credit based upon
further revisions to the estimated liability for total surety bonds outstanding.
As of March 31, 2002, the letter of credit requirement remained at $19.8
million. The Company has the right to replace the issuer with one or more
alternative issuers of surety bonds, although the Company can provide no
assurance that it will be able to secure more favorable terms from other
issuers.
Forward-Looking Information
Information contained within "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 and regulation;
o consumer perceptions of the Company's products;
o demand for air transportation in markets in which the Company
operates; and
o other risks and uncertainties listed from time to time in reports
the Company periodically file with the SEC.
31
In addition, there are risk factors that relate specifically to the September 11
terrorist attacks that may cause actual results to be materially different from
those expected. These factors include, but are not limited to, the following:
o the adverse impact of the terrorist attacks on the economy in general;
o the likelihood of a further decline in air travel because of the
attacks and as a result of a reduction in the airline industry's
operations;
o higher costs associated with new security directives and potential new
regulatory initiatives;
o higher costs for insurance and the continued availability of such
insurance;
o the Company's ability to raise additional financing, and to refinance
existing borrowings upon maturity;
o declines in the value of the Company's aircraft, as these may result in
lower collateral value and additional impairment charges;
o the extent of benefits paid to the Company under the Act,
including challenges to and interpretations oramendments of the Act
or associated regulations; and
o the impact on the Company's ability to operate as planned, including
its ability to retain key employees.
The Company does not undertake to update the forward-looking statements to
reflect future events or circumstances.
32
PART I - Financial Information
Item III - Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in market risk from the information provided
in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of
Amtran's Annual Report on Form 10-K for the year 2001, except as discussed
below.
During the first quarter of 2002, the Company entered into additional heating
oil swap agreements to further minimize the risk of jet fuel price fluctuations.
As of March 31, 2002, the Company had outstanding fuel hedge agreements totaling
3.2 million gallons, or 5.5% of the Company's projected aircraft fuel
requirements for the second quarter of 2002.
The following table depicts the estimated fair values the Company would pay on
March 31, 2002 had the contracts been terminated on that date, based on a
comparison of the average contract rate to the estimated forward prices of
heating oil as of March 31, 2002.
Estimated Fair
Notional Amount Average Contract Rate Values
(in Gallons) per Gallon (Pay)/Receive
------------------------------------------------------------
Swap Contracts - Heating Oil 3,150,000 $0.7150 ($539,805)
In April 2002, the Company entered into new fuel hedge agreements for 15.8
million gallons. These agreements have maturities between one and three months,
and represent 13.1% of the Company's projected aircraft fuel requirements for
the second and third quarters of 2002.
33
PART II - Other Information
Item I - Legal Proceedings
None
Item II - Changes in Securities
None
Item III - Defaults Upon Senior Securities
None
Item IV - Submission of Matters to a Vote of Security Holders
None
Item V - Other information
None
Item VI - Exhibits and Reports on Form 8-K
Report filed on February 1, 2002, furnishing items under Item 7. Financial
Statements and Exhibits and Item 9. Regulation FD Disclosure.
Report filed on February 22, 2002, furnishing items under Item 9. Regulation FD
Disclosure.
Report filed on March 4, 2002, furnishing items under Item 9. Regulation FD
Disclosure.
34
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Amtran, Inc.
---------------------------
(Registrant)
Date May 14, 2002 by /s/ Kenneth K. Wolff
--------------------------- ---------------------------
Kenneth K. Wolff
Executive Vice President and
Chief Financial Officer
On behalf of the Registrant