United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2004.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From ____
to ____.
Commission file number 000-21642
ATA Holdings Corp.
(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) 282-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, Without Par Value
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]
The aggregate market value of shares of the registrant's Common Stock held by
non-affiliates of the registrant (based on closing price of shares of Common
Stock on the NASDAQ National Market on June 30, 2004) was approximately $19.0
million.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practical date.
Common Stock, Without Par Value - 11,824,287 shares outstanding as of February
28, 2005.
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) any annual report
to security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933.
None
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - 2004
ATA HOLDINGS CORP. AND SUBSIDIARIES
Page #
PART I
Item 1.
Business.................................................3
Item 2. Properties..............................................12
Item 3. Legal
Proceedings.............................................14
Item 4. Submission of Matters to a Vote of Security
Holders.................................................15
PART II
Item 5. Market for the Registrant's Common Stock and Related Stock
Matters and Issuer Purchase of Securities..............16
Item 6. Selected Consolidated Financial
Data....................................................17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................18
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk....................................................47
Item 8. Financial Statements and Supplementary Data.............49
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................78
Item 9A. Controls and
Procedures..............................................78
Item 9B. Other
Information.............................................79
PART III
Item 10. Directors and Officers of the Registrant................80
Item 11. Executive Compensation..................................83
Item 12. Security Ownership of Certain Beneficial Owners ........86
Item 13. Certain Relationships and Related Transactions..........87
Item 14. Principal Accountant Fees and Services..................89
PART IV
Item 15. Exhibits and Financial Statement Schedules................90
2
PART I
Item 1. Business
Company Overview
ATA Holdings Corp. (the "Company") owns ATA Airlines, Inc. ("ATA"), a major air
carrier in the United States. The Company provides low-cost scheduled airline
services and operates one of the largest (based on 2004 revenue)
military/commercial air transport charter businesses in the United States. The
Company was incorporated in Indiana in 1984. As discussed in more detail below,
on October 26, 2004 (the "Petition Date"), the Company and seven of its
subsidiaries, including ATA (collectively the "Debtors"), filed voluntary
petitions for relief (the "Filing") under Chapter 11 of the U.S. Bankruptcy Code
in the U.S. Bankruptcy Court for the Southern District of Indiana (the
"Bankruptcy Court").
Since the Filing, the Company has been revising its business plans to provide
the basis for a plan of reorganization to be proposed in the Chapter 11 cases of
the Debtors. Key objectives incorporated in the revised business plans, which
are continuing to be refined and changed in response to market conditions,
include:
o focusing on scheduled service from the Chicago-Midway Airport to maximize
the benefit of the recently established codesharing agreement with
Southwest Airlines Co. ("Southwest");
o maintaining and possibly expanding scheduled service to Hawaii, which also
benefits from the codesharing agreement;
o maintaining ATA's position as a leading provider of military passenger
charter services;
o "regauging" and reducing ATA's fleet of aircraft by at least one-third to
improve efficiencies;
o reducing operating costs, including management and other employee expenses;
and
o rejecting burdensome contracts to reduce associated costs.
The Company and ATA have taken a number of actions necessary to achieve these
objectives, develop a viable plan of reorganization and emerge from the Chapter
11 cases. These actions include:
o assigning ATA's leasehold interest in six gates and a hangar facility at
Chicago-Midway to Southwest for $40.0 million;
o establishing a codesharing agreement with Southwest for air transportation
service to and from Chicago-Midway and other airports;
o obtaining from Southwest $47.0 million in debtor-in-possession financing,
as well as a term financing commitment in the same amount to refinance this
debtor-in-possession financing upon confirmation of a plan of
reorganization acceptable to Southwest;
o significantly reducing scheduled service from Indianapolis, Indiana, a
market which has experienced severe and on-going price and route
competition;
3
o reaching agreements with ATA's aircraft and aircraft engine lessors for the
rejection of leases and return of non-economic aircraft and engines;
o changing executive management, including appointing a new Chief Executive
Officer for ATA;
o temporarily amending collective bargaining agreements with the unions
representing the flight attendants and cockpit crews to achieve significant
cost savings, and continuing negotiations to obtain extension and
enhancement of these savings; and
o obtaining an extension of the exclusive period in which the Debtors may
file a plan of reorganization until May 24, 2005.
As a result, the discussion of the business and financial activities of the
Company and its subsidiaries for 2004 and earlier periods in this report do not
reflect the current business and financial activities of the Company and its
subsidiaries or those that would be expected upon emergence of the Debtors from
the Chapter 11 cases.
The following table summarizes the Company's revenue sources for the periods
indicated:
Year Ended December 31,
2004 2003 2002 2001 2000
------------ ------------ ----------- ----------- ----------
(Dollars in Millions)
Scheduled Service $ 1,099.9 $ 1,085.4 $ 886.6 $ 820.7 $ 753.3
------------ ------------ ----------- ----------- ----------
Military Charter 326.9 296.9 177.9 167.5 188.6
Commercial Charter 32.0 69.3 131.3 192.2 246.7
------------ ------------ ----------- ----------- ----------
Total Charter 358.9 366.2 309.2 359.7 435.3
------------ ------------ ----------- ----------- ----------
Other 73.8 66.9 81.6 95.1 103.0
------------ ------------ ----------- ----------- ----------
Total $ 1,532.6 $ 1,518.5 $ 1,277.4 $ 1,275.5 $ 1,291.6
============ ============ =========== =========== ==========
Percentage of Consolidated Revenues:
Scheduled Service 71.8% 71.5% 69.4% 64.3% 58.3%
Military Charter 21.3% 19.6% 13.9% 13.1% 14.6%
Commercial Charter 2.1% 4.6% 10.3% 15.1% 19.1%
Scheduled Service
ATA provides scheduled airline services to major metropolitan
markets, primarily from the Chicago-Midway Airport and the Indianapolis
International Airport. ATA also provides scheduled service to Hawaii and other
exotic leisure destinations. In addition, beginning February 4, 2005, ATA offers
its customers additional destinations in the United States through a new
codeshare agreement with Southwest. ATA announced significant route reductions
from Indianapolis International Airport in early 2005, most of which reductions
of service are effective as of April 11, 2005, in response to the competitive
pricing environment at that airport.
Approximately 64.8% of the Company's scheduled service capacity was generated by
flights either originating or terminating at Chicago-Midway in 2004, as compared
to 67.1% in 2003. The Hawaiian market generated approximately 14.9% of total
scheduled service capacity in 2004, as compared to 12.9% in 2003. Another 14.7%
of total scheduled service capacity was generated in the Indianapolis market in
2004, as compared to 13.3% in 2003.
4
Included in ATA's jet scheduled service are bulk-seat sales agreements with tour
operators. Under these arrangements, a tour operator purchases a large portion
of the seats on an aircraft and assumes responsibility for distribution of those
seats. Under bulk-seat sales arrangements, ATA is obligated to provide
transportation to the tour operators' customers even in the event of non-payment
to ATA by tour operators. To reduce its credit exposure under these
arrangements, ATA requires a letter of credit or prepayment of a portion of the
contract price.
Military/Government Charter Service
ATA has provided passenger airline services to the U.S. military since 1983 and
is currently one of the largest commercial airline providers of these services.
The Company believes that, because these operations are generally less seasonal
than scheduled service and the military contract provides full reimbursement for
actual fuel expenses, they have a stabilizing impact on ATA's operating margins.
The U.S. Government awards one-year contracts for its military charter business
and pre-negotiates contract prices for each type of aircraft that a carrier
makes available. Each contract year extends from October 1 through September 30.
ATA primarily uses its fleet of four Lockheed L-1011-500 aircraft and one
Lockheed L-1011-100 aircraft to support this military business. These aircraft
have a range and seating configuration preferred by the military. ATA also uses
several Boeing 757 aircraft in its military charter services. In the event that
ATA retires the L1011-500 fleet, it will need to obtain suitable replacement
aircraft to fully satisfy the requirements of the military. The allocation of
U.S. military air transportation contracts is based upon the number and type of
aircraft a carrier makes available for use to the military, among other factors.
ATA is subject to biennial inspections by the U.S. Department of Defense as a
condition of retaining its eligibility to perform military charter flights. The
last such inspection was successfully completed in November 2003.
Commercial Charter Service
ATA provides commercial passenger charter airline services, primarily through
U.S. tour operators. Under these contracts for seat sales, fuel cost increases
over the agreed upon target price in the contract are passed on the to the tour
operator. Other scheduled carriers compete with ATA's commercial charter
operations by wholesaling discounted seats on scheduled flights to tour
operators, promoting packaged tours to travel agents for sale to retail
customers and selling discounted, airfare-only products to the public.
Commercial charter revenue has declined significantly since 2000, primarily due
to the retirement of certain Lockheed L-1011 and Boeing 727-200 aircraft that
ATA had traditionally used in commercial charter flying. ATA's Boeing 737-800
and 757-300 aircraft are economically disadvantaged when used in the
lower-utilization charter business due to their higher fixed-ownership cost. In
addition, decreases in general airline fare levels throughout the United States
since 2000 have reduced the opportunity to profitably operate commercial charter
flights.
The Chapter 11 Filing
Chapter 11 Reorganization. On the Petition Date, each of the Debtors filed a
voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in
the Bankruptcy Court.
The Debtors continue to operate their respective businesses as
"debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code, the Federal
Rules of the Bankruptcy Procedure and applicable court orders. As a
debtor-in-possession, each of the Debtors is authorized under the provisions of
Chapter 11 to continue to operate as an ongoing business, but may not engage in
transactions outside the ordinary course of business without prior approval from
the Bankruptcy Court. On October 29, 2004, the Bankruptcy Court granted the
Debtors certain first day motions for various reliefs designed to stabilize
operations and maintain relationships with customers, vendors, employees and
5
others. The first day motions granted authority to the Debtors, among other
things, to (a) pay pre-petition and post-petition employee wages, salaries and
benefits and other employee obligations; (b) honor customer programs, including
the frequent flyer program and ticketing program; and (c) honor pre-petition
obligations related to interline, clearinghouse, and other similar agreements.
On October 29, 2004 the Bankruptcy Court entered an interim order which permits
ATA to use the unrestricted cash, eligible accounts receivable and other
collateral pledged to secure ATA's secured term loan (the "ATSB Loan"), a
significant portion of which is guaranteed by the Air Transportation
Stabilization Board (the "ATSB"). The interim order has the effect of giving the
ATSB Loan lenders a replacement lien on unrestricted cash and all other assets
of the Debtors to secure diminution of pre-petition cash collateral. This
interim order has been extended for successive short periods, currently through
April 7, 2005, and requires compliance by the Debtors with certain terms, such
as the maintenance of minimum cash collateral balances and periodic reporting
requirements. Further extensions cannot be assured, and a failure to maintain
the right to use cash collateral would be material and adverse to the ability of
the Debtors to reorganize under Chapter 11 of the U. S. Bankruptcy Code.
As required by the Bankruptcy Code, the United States Trustee has appointed an
official committee of unsecured creditors (the "Official Committee"). The
Official Committee and its legal representatives have a right to be heard on all
matters that come before the Bankruptcy Court in each of the Debtor's cases.
There can be no assurance that the Official Committee will support the Debtors'
positions in the reorganization cases or any plan of reorganization, once
proposed, and disagreements between the Debtors and the Official Committee could
protract the reorganization cases, could negatively impact the Debtors' ability
to operate during the Chapter 11 cases, and could delay or prevent the Debtors'
emergence from Chapter 11.
The Filing triggered defaults on substantially all debt and lease obligations of
the Debtors. Subject to certain exceptions under the Bankruptcy Code, the Filing
automatically enjoined, or stayed, the continuation of any judicial or
administrative proceedings or other actions against the Debtors or their
property to recover on, collect or secure a claim arising prior to the Petition
Date. For example, creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on or otherwise exercise rights or remedies with respect
to a pre-petition claim, are enjoined unless and until the Bankruptcy Court
lifts the automatic stay or the Bankruptcy Code otherwise provides.
Notwithstanding the above general discussion of the automatic stay, the Debtors'
right to retain and operate certain aircraft, aircraft engines and other
equipment defined in section 1110 of the Bankruptcy Code that are leased or
subject to a security interest or conditional sale contract are specifically
governed by section 1110 of the Bankruptcy Code. That section provides, in
relevant part, that unless the Debtors, prior to 60 days after the Petition
Date, agree to perform all obligations under the lease, security agreement, or
conditional sale contract and cure all defaults thereunder (other than defaults
constituting a breach of provisions relating to the filing of the Chapter 11
cases, the Debtors' insolvency or other financial condition of the Debtors)
within the time specified in section 1110, the right of the lessor, secured
party or conditional vendor to take possession of such equipment in compliance
with the provisions of the lease, security agreement, or conditional sale
contract and to enforce any of its other rights or remedies under such lease,
security agreement, or conditional sale contract is not limited or otherwise
affected by the automatic stay, by any other provision of the Bankruptcy Code,
or by any power of the Bankruptcy Court.
The section 1110 deadline for the Debtors was December 26, 2004. As of December
31, 2004, the Company operated 82 aircraft, including 76 aircraft that were
financed with operating leases. As of March 25, 2005, with regards to the 76
leased aircraft, the Company has returned 22 of these aircraft and related
6
engines to the lessor. The Company expects to return 28 additional aircraft and
related engines to the lessor between March 31, 2005 and January 25, 2006. The
Company has renegotiated long-term rates on 10 aircraft and related engines.
Finally, the Company has elected to cure existing defaults and is paying the
contract rates required under the Bankruptcy Code with respect to 16 aircraft
and related engines. The Company expects these changes in fleet to result in
additional changes to amounts reported in the December 31, 2004 balance sheet
associated with the aircraft, including prepaid aircraft rent, and to result in
additional significant aircraft rejection charges in 2005.
Under section 365 of the Bankruptcy Code, the Debtors may assume, assume and
assign, or reject certain executory contracts and unexpired leases, including,
without limitation, leases of real property, aircraft and aircraft engines,
subject to the approval of the Bankruptcy Court and certain other conditions.
Generally, the rejection of an executory lease or unexpired lease is treated as
a pre-petition breach of the lease or contract in question and, subject to
certain exceptions, relieves the Debtors of performing future obligations under
such lease or contract but entitles the lessor or contract counterparty to
pre-petition general unsecured claims for damages caused by such deemed breach.
The lessor or contract counterparty may file a claim against the relevant
Debtor's estate for such damages. The assumption of an executory contract or
unexpired lease generally requires a cure of most existing defaults under such
executory contract or unexpired lease. The Company expects that liabilities
subject to compromise will arise in the future as a result of damage claims
resulting from the rejection of certain executory contracts and unexpired leases
by the Debtors. However, the Company expects that the assumption of certain
executory contracts and unexpired leases may convert liabilities subject to
compromise to liabilities not subject to compromise.
The Debtors have undertaken to notify all known or potential creditors of the
Chapter 11 cases for purposes of identifying and quantifying all pre-petition
claims. Subject to certain exceptions under the Bankruptcy Code, the Chapter 11
filings automatically stayed the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to October 26, 2004. The deadline
for filing by creditors of proofs of claim with the Bankruptcy Court was January
24, 2005, with a limited exception for governmental entities, which have until
April 24, 2005. A proof of claim arising from the rejection of an executory
contract or lease must be filed no later than thirty days from the effective
date of the authorized rejection.
The Bankruptcy Court extended the period during which the Debtors' have an
exclusive right to file a plan of reorganization until May 24, 2005. There is no
assurance that these exclusivity periods will be further extended by the
Bankruptcy Court. If a Debtor's exclusivity period lapses, any party in interest
may file a plan of reorganization for that Debtor. In addition to being voted on
by holders of impaired claims and equity interests, a plan of reorganization
must satisfy certain requirements of the Bankruptcy Code and must be approved,
or confirmed, by the Bankruptcy Court in order to become effective. A plan has
been accepted by holders of claims against and equity interests in a Debtor if
(1) at least one-half in number and two-thirds in dollar amount of claims
actually voting in each impaired class of claims have voted to accept the plan
and (2) at least two-thirds in amount of equity interests actually voting in
each impaired class of equity interests have voted to accept the plan. Under
certain circumstances set forth in the provisions of section 1129(b) of the
Bankruptcy Code, the Bankruptcy Court may confirm a plan even if such plan has
not been accepted by all impaired classes of claims and equity interests. A
class of claims or equity interests that does not receive or retain any property
under the plan on account of such claims or interests is deemed to have voted to
reject the plan. The precise requirements and evidentiary showing for confirming
a plan, notwithstanding its rejection by one or more impaired classes of claims
or equity interests, depends upon a number of factors, including the status and
seniority of the claims or equity interests in the rejecting class, i.e.,
secured claims or unsecured claims, subordinated or senior claims, preferred or
common stock.
Although the Debtors expect to develop reorganization plans for emergence from
Chapter 11 in 2005, there can be no assurance that a reorganization plan will be
proposed by the Debtors or confirmed by the Bankruptcy Court, or that any such
plan will be consummated. The Debtors have incurred and will continue to incur
7
significant costs associated with their respective reorganizations. The amount
of these costs, which are being expensed as incurred, are expected to
significantly affect their financial results.
The ultimate recovery, if any, to holders of common stock of the Company will
not be determined until confirmation of a plan of reorganization for the
Company. The plan of reorganization could result in holders of common stock
receiving no distribution on account of their interest in the Company and
cancellation of the outstanding shares. The Southwest commitments for
post-reorganization financing, equity investment in the Company and codesharing
require that all outstanding equity of the Company be cancelled without any
distributions to the holders of such equity.
DIP Financing Arrangements. On November 17, 2004, ATA obtained $15.5 million in
debtor-in-possession financing from the Indiana Transportation Finance Authority
("ITFA"). ATA sold to the ITFA property consisting primarily of aircraft parts,
free and clear of any liens. The ITFA leased the property to the Indianapolis
Airport Authority, which in turn subleased the property to ATA. ATA terminated
this financing, repurchased the assets, and paid interest to the ITFA on
December 30, 2004.
On December 23, 2004, ATA and Southwest entered into a Secured
Debtor-in-Possession Credit and Security Agreement (the "DIP Facility") that
provides up to $40.0 million in cash to the Company, plus a letter of credit in
the approximate amount of $7.0 million to secure two pre-petition loans obtained
by ATA from the City of Chicago for the construction of a jet bridge extension
(the "Chicago LOC"). The Company received $40.0 million under the DIP Facility
on December 23, 2004. A closing fee of 2.5%, or $1.0 million, was treated as a
principal advance under the DIP Facility.
The base interest rate, paid monthly, on amounts borrowed under the DIP Facility
is the greater of (a) 8.0% per annum, or (b) the three-month LIBOR rate, plus
5.0% per annum. Southwest will also receive an unused commitment fee of 1.0% per
annum, paid monthly, for any amounts not drawn pursuant to the DIP Facility and
a guaranty fee of 3.0% per annum, paid monthly, for any amounts guaranteed but
not drawn under the Chicago LOC. During the term of the agreement, the Company
is subject to certain financial covenants. ATA has obtained amendments to these
financial covenants for the months of January and February 2005. There is no
assurance ATA will be able to comply with these financial covenants in March,
2005, or thereafter, or that Southwest will agree to further amendments to these
covenants or to waive ATA's non-compliance. The DIP facility is guaranteed by
the Company and its other subsidiaries. The DIP Facility will terminate on the
earlier of (1) the effective date of a plan of reorganization or (2) September
30, 2005, unless otherwise extended.
Asset Sale. On December 23, 2004, the Company and Southwest executed and closed
a substantial portion of the transactions contemplated by an Asset Acquisition
Agreement (the "Asset Acquisition Agreement") by which ATA agreed to assign to
Southwest ATA's leasehold interest in six specified gates and a hangar facility
at Chicago-Midway airport and related assets for $40.0 million, subject to
certain adjustments. The Asset Acquisition Agreement was entered into after the
completion of an auction process supervised by the Bankruptcy Court. ATA
received $34.0 million of proceeds from the assignment of its leasehold interest
in six specified gates and related assets on December 23, 2004. Almost all of
the funds were recorded as deferred gain on the Company's balance sheet and will
be amortized over ATA's remaining lease term of eight years at Chicago-Midway.
As of December 31, 2004, the assignment of the leasehold interest in the hangar
facility and related assets had not been executed and closed, and the $6.0
million had not been received. It is expected to be received in the first half
of 2005 concurrently with a delayed closing of the hanger lease assignment to
Southwest.
The completion of the closing under the Asset Acquisition Agreement with
Southwest triggered a requirement for ATA to pay AirTran Airways, Inc. a
termination fee of $3.25 million related to an earlier agreement with respect to
assets at Chicago Midway Airport.
8
For further information on the Filing and Southwest transactions, see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Liquidity Outlook."
Flight Operations and Aircraft Maintenance
Worldwide flight operations are planned and controlled by the Company's Flight
Operations group based in Indianapolis, Indiana, which is staffed on a 24-hour
basis, seven days a week. Logistical support necessary for extended operations
away from ATA's fixed bases is coordinated through its global communications
network. ATA has the ability to dispatch maintenance and operational personnel
and equipment as necessary to support flight operations around the world.
ATA's Maintenance and Engineering Center is located at the Indianapolis
International Airport. This facility is an FAA-certificated repair station and
has the capability to perform routine and non-routine maintenance on ATA's
aircraft. ATA also has a maintenance facility at Chicago-Midway Airport, which
is used to provide line maintenance for the Boeing 757-200, Boeing 757-300 and
Boeing 737-800 fleets. On December 23, 2004, the ATA agreed to assign its
leasehold rights to this hangar facility and related assets to Southwest. The
transaction is expected to close in the first half of 2005, at which time it is
anticipated that ATA will sublease a bay of the hangar, or another hanger
controlled by Southwest, from Southwest. ATA has entered into hourly engine
maintenance agreements on these fleets, and the counterparties to these
agreements perform the major overhauls and maintenance on these engines. ATA has
approximately 750 employees supporting its aircraft maintenance operations and
currently maintains 14 permanent maintenance facilities, including its
Indianapolis and Chicago facilities.
Fuel Price Risk Management
Prices and availability of aviation fuel are subject to political, economic and
market factors that are generally outside of the Company's control. Prices may
be effected by many factors including: the impact of political instability and
crude oil production; unexpected changes in the availability of petroleum
products due to disruptions at distribution systems or refineries; unpredicted
increases in demand due to weather or the pace of economic growth; inventory
levels of crude oil and other petroleum products; and the relative fluctuation
between the U.S. dollar and other major currencies.
Although many air carriers enter into fixed price swaps, collar structures and
other derivative contracts to reduce the exposure to changes in fuel prices, the
Company's financial position has prevented ATA from hedging fuel prices in the
past two years.
ATA had fuel reimbursement clauses and guarantees that applied to approximately
27.4%, 29.0%, and 29.4%, respectively, of consolidated revenues in 2004, 2003
and 2002.
Insurance
The Company carries types and amounts of insurance customary in the airline
industry, including coverage for public liability, passenger liability, property
damage, aircraft loss or damage, baggage and cargo liability and workers'
compensation.
The U.S. Government has issued supplemental war-risk coverage to U.S. air
carriers, including ATA, as a result of the reduction in coverage offered by the
commercial market after the September 11 terrorist attacks, which will continue
through August 31, 2005. It is anticipated that after August 31, 2005, a
commercial product for war-risk coverage will become available, but ATA expects
that it may incur significant additional costs for this coverage.
9
Employees
As of December 31, 2004, the Company had approximately 6,900 full-time and
part-time employees, approximately 2,700 of whom were represented under
collective bargaining agreements. On January 26, 2005, ATA announced plans to
significantly reduce service out of Indianapolis. By April 11, 2005, ATA expects
to have reduced the number of non-stop destinations out of Indianapolis from 19
to four. On February 7, 2005, the Company announced plans to sell or discontinue
the Chicago Express Airlines ("Chicago Express") business unit, which employed
approximately 600 people as of the date of the announcement. In the absence of a
successful sale or a decision by the Company to extend operations beyond that
date, Chicago Express's operations will cease on March 28, 2005. These actions
will significantly reduce the number of people the Company employs.
ATA's flight attendants are represented by the Association of Flight Attendants
("AFA"). The current AFA collective bargaining agreement became subject to
amendment in October 2004. ATA concluded an amendment to the AFA agreement on
October 15, 2004. Under the amended AFA agreement, cabin crewmembers will reduce
their base hourly pay rate effective October 15, 2004 by 10% through October 15,
2006, resulting in savings of approximately $11.6 million over the same time
period. On October 15, 2006, ATA has agreed to return to non-amendable rates of
pay for flight attendants who were employed on April 11, 2004.
ATA's cockpit crews are represented by the Air Line Pilots Association ("ALPA").
The current ALPA collective bargaining agreement will become subject to
amendment in June 2006. During the third quarter of 2004, ATA reached an
agreement to amend its contract with its cockpit crewmembers. Under the
amendment, crewmembers agreed to forego contractual rate increases that
otherwise would have become effective July 1, 2004 and July 1, 2005, resulting
in savings of approximately $26.0 million. The amendments include new
contractual increases effective July 1, 2006 and July 1, 2007. Also, in February
2005, ATA signed a letter of agreement for the time period from January 31, 2005
through May 31, 2005. Under the period of the letter of agreement, the cockpit
crewmembers agreed to an approximate 20% pay reduction, certain work rule
changes and a 50% reduction in contributions to the Crewmember Money Purchase
Plan. ATA expects the letter of agreement to reduce costs approximately by $12.0
million over the duration of the agreement.
ATA's flight dispatchers are represented by the Transport Workers Union ("TWU").
The current TWU collective bargaining agreement became subject to amendment in
August 2004. ATA's ramp service agents elected to be represented by the
International Association of Machinists ("IAM") in February 2001. On September
10, 2004, the ramp workers ratified a first collective bargaining agreement with
ATA. In February 2002, ATA's aircraft mechanics elected to be represented by the
Aircraft Mechanics Fraternal Association ("AMFA"). ATA began negotiations with
the AMFA in October 2002, but no collective bargaining agreement has been
finalized.
While ATA believes that relations with its employees remain good, any prolonged
dispute with employees or work stoppages, whether or not represented by a union,
could have a material adverse impact on the Company's financial condition,
results of operations or cash flows.
Regulation
The Company is subject to a wide range of governmental regulation, including
that of the Department of Transportation ("DOT") and the Federal Aviation
Administration ("FAA").
The DOT principally regulates economic matters affecting air service, including
air carrier certification and fitness; insurance; leasing arrangements;
allocation of route rights and authorization of proposed scheduled and charter
operations; allocation of landing slots and departing slots; consumer
protection; and competitive practices. The FAA primarily regulates flight
10
operations, especially matters affecting air safety, including airworthiness
requirements for each type of aircraft and crew certification. The FAA requires
each carrier to obtain an operating certificate and operations specifications
authorizing the carrier to fly to specific airports using specified equipment.
The Aviation and Transportation Security Act ("Aviation Security Act") was
signed into law in 2001, creating the Transportation Security Administration
("TSA") within the DOT and requiring substantially all aspects of civil aviation
passenger security and screening to be placed under federal control in 2002. The
cost of the provisions set forth in the Aviation Security Act are partially
funded by a security fee of $2.50 per passenger enplanement, limited to $5 per
one-way trip and $10 per round-trip. The Aviation Security Act is also funded by
a separate security infrastructure fee assessed to each air carrier. The amount
of the air carrier assessment is payable monthly and is equal to the amount each
air carrier spent on aviation security in 2000.
Several aspects of airline operations are subject to regulation or oversight by
federal agencies other than the DOT and FAA. The United States Postal Service
has jurisdiction over certain aspects of the transportation of mail and related
services provided by the Company's subsidiary, ATA Cargo, Inc. ("ATA Cargo").
Employee relations in the air transportation industry are generally regulated
under the Railway Labor Act, which vests in the National Mediation Board certain
regulatory powers with respect to disputes between airlines and employee unions
arising under collective bargaining agreements. The Company is subject to the
jurisdiction of the Federal Communications Commission regarding the utilization
of its radio facilities. In addition, the Immigration and Naturalization
Service, the U.S. Customs Service, and the Animal and Plant Health Inspection
Service of the Department of Agriculture have jurisdiction over inspection of
the Company's aircraft, passengers and cargo to ensure the Company's compliance
with U.S. immigration, customs and import laws. Also, while ATA's aircraft are
in foreign countries, they must comply with the requirements of similar
authorities in those countries. The Commerce Department also regulates the
export and re-export of the Company's U.S.-manufactured aircraft and equipment.
In addition to various federal regulations, local governments and authorities in
certain markets have adopted regulations governing various aspects of aircraft
operations, including noise abatement, curfews and use of airport facilities.
Many U.S. airports have adopted a Passenger Facility Charge of up to $4.50 that
is collected from each passenger departing from the airport and remitted by the
Company to the applicable airport authority.
Based upon bilateral aviation agreements between the U.S. and other nations,
and, in the absence of such agreements, comity and reciprocity principles, ATA,
as a charter carrier, is generally not restricted as to the frequency of its
flights to and from most foreign destinations. However, these agreements
generally restrict the Company to the carriage of passengers and cargo on
flights which either originate in the U.S. and terminate in a single foreign
nation, or which originate in a single foreign nation and terminate in the U.S.
The civil aeronautics authorities in the relevant countries must generally
specifically approve proposals for any additional charter service. Approval of
such requests is typically based on considerations of comity and reciprocity and
cannot be guaranteed.
The Company believes it is in compliance with all requirements necessary to
maintain in good standing its operating authorities granted by the DOT and its
air carrier-operating certificates issued by the FAA. A modification, suspension
or revocation of any of the Company's DOT or FAA authorizations or certificates
could have a material adverse effect upon the Company's financial condition,
results of operations or cash flows.
Competition
The scheduled airline industry is highly competitive. Airlines compete to
varying degrees with other air carriers and with other forms of transportation.
11
ATA competes with major airlines and low-cost competitors. Northwest Airlines
has steadily increased operations at Indianapolis International Airport over the
past year. In the past two years, the Company's profitability has been
significantly eroded by competitive pricing and route pressures, unfavorable
economic trends, and rising fuel and salary costs. These factors, combined with
the front-loaded aircraft leases entered into by ATA prior to the terrorist
attacks of September 11, 2001, left the Company with limited cash resources to
weather the adverse conditions that have affected the industry in the recent
past.
Environmental Matters
The Company's operations are subject to comprehensive federal, state, and local
laws and regulations relating to pollution and the protection of the
environment, including those governing aircraft noise, the discharge of
pollutants into the air and water, the management and disposal of hazardous
substances and wastes, and the cleanup of contaminated sites. Some of the
Company's operations require environmental permits and controls, and these
permits are subject to modification, renewal and revocation by issuing
authorities. Although the Company believes it is in compliance in all material
respects with applicable environmental laws, the Company could incur substantial
costs, including cleanup costs, fines, civil or criminal penalties, or
third-party property damage or personal injury claims as a result of violations
of, or liabilities under, environmental laws or noncompliance with the
environmental permits required for the Company's operations. In addition, the
adoption of new or more stringent requirements could increase the cost of the
Company's operations, require significant capital expenditures, or result in
material restrictions on the Company's operations.
At the Company's aircraft maintenance facilities and the airports the Company
serves, materials are used such as aircraft deicing fluids, fuel, oils and other
materials that are regulated as hazardous under federal, state or local laws.
The Company is required to maintain programs to protect the safety of the
employees who use these materials and to manage and dispose of any wastes
generated by the use of these materials in compliance with applicable laws. The
Environmental Protection Agency regulates operations, including air carrier
operations, which affect the quality of air in the United States, such as the
regulation of the discharge of aircraft emissions exhaust into the environment.
The Company believes it has made all necessary modifications to its operating
fleet to meet fuel-venting requirements and smoke-emissions standards. In
addition, noise generated by aircraft is subject to regulation by the FAA under
the Airport Noise and Capacity Act of 1990 and its implementing regulations. As
a result, the Company has been and may continue to be required to reduce its
hours of operation at particular airports, to install noise abatement equipment
on its aircraft or to change operational procedures during takeoff and landing.
At the present time, the Company believes ATA's and Chicago Express's airline
equipment and scheduled flights are in material compliance with these and other
local noise abatement requirements, and the Company does not believe any such
restrictions will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
Available Information
A copy of this annual report on Form 10-K, as well as other annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports are accessible free of charge on the Company's
website (www.ata.com) in the "Investor Relations" section as soon as reasonably
practicable after such report has been filed with or furnished to the Securities
and Exchange Commission.
12
Item 2. Properties
Aircraft Fleet
At December 31, 2004, ATA and Chicago Express were certified to operate a fleet
of 82 aircraft. The following table summarizes the ownership characteristics of
each aircraft type as of the end of 2004.
Owned(Encumbered- Operating-Lease Operating-Lease
Pledged on Debt) (Fixed Buy-out) (No Buy-out) Total
Lockheed L-1011-100 - - 1 1
Lockheed L-1011-500 4 - - 4
Boeing 737-800 - 18 15 33
Boeing 757-200 - 14 1 15
Boeing 757-300 - 12 - 12
SAAB 340B 2 15 - 17
--------------------------------------------------------------
TOTAL 6 59 17 82
==============================================================
The Debtors' right to retain and operate certain aircraft, aircraft engines and
other equipment defined in section 1110 of the Bankruptcy Code that are leased
or subject to a security interest or conditional sale contract are specifically
governed by section 1110 of the Bankruptcy Code. That section provides, in
relevant part, that unless the Debtors, prior to 60 days after the Petition
Date, agree to perform all obligations under the lease, security agreement, or
conditional sale contract and cure all defaults thereunder (other than defaults
constituting a breach of provisions relating to the filing of the Chapter 11
cases, the Debtors' insolvency or other financial condition of the Debtors)
within the time specified in section 1110, the right of the lessor, secured
party or conditional vendor to take possession of such equipment in compliance
with the provisions of the lease, security agreement, or conditional sale
contract and to enforce any of its other rights or remedies under such lease,
security agreement, or conditional sale contract is not limited or otherwise
affected by the automatic stay, by any other provision of the Bankruptcy Code,
or by any power of the Bankruptcy Court.
The section 1110 deadline for the Debtors was December 26, 2004. As of December
31, 2004, the Company operated 82 aircraft, including 76 aircraft that were
financed with operating leases. As of March 25, 2005, with regards to the 76
leased aircraft, the Company has returned 22 of these aircraft and related
engines to the lessor. The Company expects to return 28 additional aircraft and
related engines to the lessor between March 31, 2005 and January 25, 2006. The
Company has renegotiated long-term rates on 10 aircraft and related engines.
Finally, the Company has elected to cure existing defaults and is paying the
contract rates required under the Bankruptcy Code with respect to 16 aircraft
and related engines. The Company expects these changes in fleet to result in
additional changes to amounts reported in the December 31, 2004 balance sheet
associated with the aircraft, including prepaid aircraft rent, and to result in
additional significant aircraft rejection charges in 2005.
ATA is in the process of "regauging" its fleet to meet with its evolving revised
business plan. Prior to the Filing, ATA's fleet consisted of 65 jet aircraft of
five types. ATA expects to reduce the overall size of the fleet by at least
one-third by rejecting non-economic leases and obtaining new leases of more
appropriately sized aircraft on more favorable economic terms.
13
Ground Properties
ATA leases three adjacent office buildings in Indianapolis consisting of
approximately 136,000 square feet, under leases that expire in 2010. These
buildings are located approximately one mile from the Indianapolis International
Airport terminal and are used as principal business offices and for the
Indianapolis reservations center.
ATA's Maintenance and Operations Center is located at the Indianapolis
International Airport. This 150,000-square-foot facility was designed to meet
the base maintenance needs of ATA's operations, as well as to provide support
services for other maintenance locations. In addition, ATA utilizes a
120,000-square-foot office building, immediately adjacent to ATA's Indianapolis
Maintenance and Engineering Center, which is occupied by its Maintenance and
Engineering office staff along with a flight operations center.
ATA leases Hangar No. 2 at Chicago-Midway Airport. On December 23, 2004, ATA
agreed to assign its leasehold rights in Hangar No. 2 to Southwest. The
transaction is expected to close in the first half of 2005, at which time it is
anticipated that ATA will sublease a bay of the hangar, or another hanger
controlled by Southwest, from Southwest. This property is used to perform line
maintenance on ATA's narrow-body fleets. ATA also leases an 18,700-square-foot
reservation facility located near Chicago's O'Hare Airport.
ATA routinely leases various properties at airports for use by passenger
service, flight operations and maintenance staffs.
Item 3. Legal Proceedings
On the Petition Date, the Company and seven of its subsidiaries filed voluntary
petitions for reorganization under Charter 11 of the Bankruptcy Code in
Bankruptcy Court. As debtors-in-possession, the Debtors are authorized under
Chapter 11 to continue to operate as an ongoing business, but may not engage in
transaction outside the ordinary course of business without the prior approval
of the Bankruptcy Court. As of the Petition Date, virtually all pending
litigation is stayed, and absent further order of the Bankruptcy Court, no
party, subject to certain exceptions, may take any action, again subject to
certain exceptions, to recover on pre-petition claims against the Debtors. In
addition, the Debtors may reject pre-petition executory contracts and unexpired
lease obligations and parties affected by these rejections may file claims with
the Bankruptcy Court. At this time, it is not possible to predict the outcome of
the Chapter 11 process or its effect on the Company's business.
David M. Wing, the Company's former Executive Vice President and Chief Financial
Officer, filed a complaint against ATA with the United States Department of
Labor (the "DOL"). The complaint resulted from a disagreement concerning the
circumstances under which Mr. Wing left his employment with the Company on or
about June 24, 2004. In order to settle the dispute, ATA entered into a
Settlement Agreement on October 18, 2004 with Mr. Wing, pursuant to which Mr.
Wing executed an employment contract with the Company and Mr. Wing resumed his
former duties at his previous level of compensation. The employment contract
required the Company to pay Mr. Wing a sign up bonus of $157,500. Mr. Wing
subsequently resigned on December 21, 2004. On November 15, 2004, the DOL
dismissed the complaint.
Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are routine and incidental to the
Company's business. The majority of these lawsuits are covered by insurance. The
Company's management does not expect that the outcome of its current legal
proceedings, individually or collectively, will have a material adverse effect
on the Company's financial condition, results of operations or cash flows. To
the knowledge of management, there are also no material proceedings under
federal or state environmental laws, nor are there any environmental proceedings
brought by a governmental authority involving potential monetary sanctions in
excess of $100,000.
14
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the quarter ended
December 31, 2004.
15
PART II
Item 5. Market for the Registrant's Common Stock, Related Stock Matters and
Issuer Purchase of Securities
Until November 5, 2004, the Company's common stock was quoted on the NASDAQ
National Market ("NASDAQ") under the symbol "ATAH." Following the Filing, on
November 8, 2004, the Company's common stock began trading on the over the
counter market under the symbol "ATAHQ.PK." As of December 31, 2004, there were
approximately 305 shareholders of record. The Company cannot assure that an
active trading market for the common stock will exist in the future.
Market Prices of Common Stock
Year Ended December 31, 2004
(Amounts in dollars)
First Quarter Second Quarter Third Quarter Fourth Quarter
High 13.31 8.89 6.00 3.33
Low 7.66 5.13 1.89 0.16
Close 8.35 5.25 2.44 1.40
Market Prices of Common Stock
Year Ended December 31, 2003
(Amounts in dollars)
First Quarter Second Quarter Third Quarter Fourth Quarter
High 5.98 7.79 10.95 10.45
Low 3.42 3.45 6.07 6.37
Close 3.75 7.36 7.00 9.65
No dividends have been paid on the Company's common stock since becoming
publicly held.
The value of the Company's common stock is highly speculative. Any plan of
reorganization for the Company could result in holders of common stock receiving
no distribution on account of their interests as shareholders and cancellation
of the outstanding common stock. The arrangements with Southwest for
post-reorganization financing, equity injection and codesharing require that all
outstanding pre-petition equity of the Company be cancelled without any
distributions under the plan to the holders of that equity. The Company
presently intends to seek confirmation of a plan of reorganization which
satisfies the requirements of Southwest respecting the cancellation of the
existing equity of the Company. Accordingly, the Company urges that caution be
exercised with respect to any existing or future investments in the Company
common stock.
The Company does not expect to hold an annual meeting of shareholders prior to
the confirmation of a plan of reorganization.
The Company has issued and sold 300 shares of Series B convertible redeemable
preferred stock, without par value ("Series B Preferred"), at a price and
liquidation amount of $100,000 per share and the Company issued and sold 500
shares of Series A redeemable preferred stock, without par value ("Series A
Preferred"), at a price and liquidation amount of $100,000 per share. The
issuance and sale of the Series A and Series B Preferred was exempt from
registration requirements under Section 4(2) of the Securities Act of 1933,
which applies to private offerings of securities. Any plan of reorganization for
the Company could result in the holders of the Series B Preferred and the Series
A Preferred receiving no distribution on account of their interests as holders
of this preferred stock, and cancellation of the Series B Preferred and Series A
16
Preferred which is outstanding. The arrangements with Southwest for
post-reorganization financing, equity injection and codesharing require that all
outstanding Series B Preferred and Series A Preferred be cancelled without any
distributions under the plan to the holders of such preferred stock. Subject to
certain exceptions under the Bankruptcy Code, the Filing provides an automatic
stay against the continuation of any judicial or administrative proceedings or
other actions against the Debtors or their property to recover on, collect or
secure a claim arising prior to the Petition Date until the Bankruptcy Court
lifts the stay.
See Item 12 for Equity Compensation Plan information.
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data in this table have been derived from
the consolidated financial statements of the Company for the respective periods
presented. The data should be read in conjunction with the consolidated
financial statements and related notes appearing elsewhere herein.
Five-Year Summary
Year Ended December 31,
(Dollars in thousands, except per share data) 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
Operating revenues $ 1,532,571 $ 1,518,533 $ 1,277,370 $ 1,275,484 $ 1,291,553
Operating expenses (1) 1,632,734 1,440,992 1,437,407 1,367,354 1,288,983
Operating income (loss) (1) (100,163) 77,541 (160,037) (91,870) 2,570
Reorganization expenses (2) (638,479) - - - -
Income (loss) before taxes (815,729) 21,745 (194,214) (116,067) (19,931)
Net income (loss) available to common shareholders (3) (816,854) 15,792 (174,984) (81,885) (15,699)
Net income (loss) per share - basic (69.09) 1.34 (14.94) (7.14) (1.31)
Net income (loss) per share - diluted (69.09) 1.27 (14.94) (7.14) (1.31)
Balance Sheet Data (at end of period):
Property and equipment, net $ 182,759 $ 253,482 $ 265,627 $ 314,943 $ 522,119
Total assets 651,065 869,987 848,136 1,002,962 1,032,430
Total debt 41,000 494,696 509,428 497,592 457,949
Liabilities Subject to Compromise (5) 1,249,676 - - - -
Mandatorily Redeemable preferred stock (4) - 56,330 52,110 50,000 50,000
Convertible redeemable preferred stock, subject to compromise 30,000 32,907 30,375 30,000 30,000
Shareholders' equity (deficit) (920,556) (104,007) (120,009) 44,132 124,654
Selected Consolidated Operating Statistics (Unaudited):
Revenue passengers carried (thousands) 11,653.4 11,226.9 10,046.7 8,635.2 8,006.1
Revenue passenger miles (millions) 14,678.5 14,358.7 12,384.2 11,675.7 11,816.8
Available seat miles (millions) 21,242.0 21,125.9 17,600.0 16,187.7 16,390.1
Passenger load factor 69.1% 68.0% 70.4% 72.1% 72.1%
(1) Operating results for the years ended December 31, 2004, 2003 and 2002
include the following items:
17
2004 2003 2002
-----------------------------------------
Aircraft impairments and retirements $ (7,887) $ (5,288) $ (66,787)
U.S. Government grants - 37,156 (16,221)
Goodwill impairments - - (6,893)
-----------------------------------------
Total - income (loss) $ (7,887) $ 31,868 $ (89,901)
==========================================
(2) The accompanying consolidated financial statements, for the period ended
December 31, 2004, of the Company have been prepared in accordance with
American Institute of Certified Public Accountants Statement of Position
90-7, Financial Reporting by Entities in Reorganization under the
Bankruptcy Code ("SOP 90-7) and on a going-concern basis, which
contemplates continuity of operations, realization of assets and
satisfaction of liabilities in the ordinary course of business.
Reorganization expenses identify those costs that are not in the ordinary
course of business and include aircraft lease rejection charges,
impairments and professional fees related to the Filing. See "Notes to
Consolidated Financial Statements - Note 1 - The Company and the Chapter 11
Filing" for more information.
(3) Preferred stock dividends of $1.1 million, $4.6 million, and $5.7 million
were recorded in 2004, 2003 and 2002, respectively. No common stock
dividends were paid in any period presented.
(4) Mandatorily redeemable preferred stock of $50.0 million was outstanding as
of December 31, 2004 and was classified on the balance sheet as a liability
subject to compromise.
(5) Liabilities subject to Compromise refers to liabilities that will be
accounted for under a plan of reorganization, including claims incurred
prior to the Petition Date. These amounts result from known or potential
claims to be resolved through the Chapter 11 process and such claims remain
subject to future adjustments. See "Notes to Consolidated Financial
Statements - Note 5 - Liabilities Subject to Compromise" for more
information.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
On October 26, 2004, the Company, and seven of its subsidiaries including ATA
and Chicago Express, filed voluntary petitions for relief under Chapter 11 of
the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District
of Indiana. In connection with the Filing, the Debtors are developing plans of
reorganization to address their respective debts and other obligations, lower
operating costs and restructure operations. See "Notes to Consolidated Financial
Statements - Note 1 - The Company and the Chapter 11 Filing."
The Company, through its principal subsidiary ATA, provides scheduled airline
services to leisure, business, and other value-oriented travelers, and is a
leading provider of charter services to the U.S. military. The Company, through
its principal subsidiary, ATA, has been operating for 33 years and is a major
U.S. airline.
For the year ended December 31, 2004, the Company recorded an operating loss of
$100.2 million, as compared to an operating income of $77.5 million in the same
period of 2003. For the year ended December 31, 2004, the Company had a net loss
available to common shareholders of $816.9 million, as compared to a net income
available to common shareholders of $15.8 million in 2003. The net income
recorded in 2003 includes $37.2 million received in U.S. Government funds, which
was recorded as a reduction in operating expenses. The net loss in 2004 includes
$638.5 million of expenses related to the Company's reorganization in Chapter 11
and a non-cash charge of $27.3 related to the Company's bond exchange in the
first quarter of 2004.
18
Consolidated revenue per available seat mile ("RASM") increased to 7.21 cents
for the year ended December 31, 2004, as compared to 7.19 cents in 2003.
However, the Company's scheduled service RASM decreased to 6.30 cents in 2004,
from 6.49 cents in 2003, due to increased industry capacity in the markets the
Company serves and competitive pricing by several airlines. Consolidated cost
per available seat mile ("CASM") increased to 7.68 cents for the year ended
December 31, 2004, as compared to 6.82 cents in 2003. The 2003 CASM reflects the
benefit from the receipt of $37.2 million, or 0.18 cents, in U.S. Government
funds received in the second quarter of 2003. The 2004 CASM was adversely
impacted by a 30.6% increase in the price of fuel, as compared to 2003. In
addition, the Company experienced higher maintenance costs in 2004 as a result
of contractual rate increases in the hourly engine maintenance agreements for
the Company's jets.
Critical Accounting Policies
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" discusses the Company's consolidated financial statements. 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 used 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 following areas as critical accounting policies.
Revenue Recognition. Revenue derived from ticket sales is recognized at the time
service is provided. Passenger ticket sales are initially recorded as air
traffic liability. Tickets that are sold but not flown on the scheduled travel
date can be exchanged and reused for another flight, up to a year from the date
of sale, or can be refunded if the ticket is sold under a refundable tariff. A
small percentage of tickets (or partially used tickets) expire unused. The
majority of the Company's tickets sold are nonrefundable in cash, which is the
primary source of forfeited tickets. The Company records estimates of earned
revenue in the period tickets are originally sold, for a percentage of those
sales which are expected to expire unused over the period of ticket validity.
These estimates are based upon historical experience over many years, with
particular emphasis given to expiration experience in more recent years. The
Company has consistently applied this accounting method to estimate revenue from
future unused and expired tickets.
Revenue accruals for expired and unused tickets are routinely compared to actual
expired and unused ticket experience to validate the accuracy of the Company's
estimates with respect to forfeited tickets. Accrual adjustments resulting from
these comparisons have not been material to the Company's consolidated revenue.
If, however, customer behavior changes from historical patterns in the manner in
which tickets are purchased and used, it is possible that the Company's revenue
accruals for unused and expired tickets may require material future adjustments
in order to account for those changes in customer behavior.
Impairments of Long-Lived Assets. Effective January 1, 2002, the Company adopted
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("FAS 144"), which superseded FAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of ("FAS 121"). The
Company continues to account for aircraft and related assets that were impaired
prior to January 1, 2002, and classified as held for sale, including the
investment in BATA Leasing, LLC ("BATA") under the provisions of FAS 121, which
is required by FAS 144. Both FAS 144 and FAS 121 require that, whenever events
and circumstances indicate that the Company may not be able to recover the net
book value of its productive assets, the undiscounted estimated future cash
flows from the expected use of those assets must be compared to their net book
value to determine if impairment is indicated. FAS 144 and FAS 121 require that
19
assets deemed impaired be written down to their estimated fair value through a
charge to earnings. FAS 144 and FAS 121 state that fair values may be estimated
using discounted cash flow analysis or quoted market prices, together with other
available information.
The Company had been performing impairment reviews in accordance with FAS 121 on
the Boeing 727-200 fleet since the end of 2000, and the fleet initially became
impaired under FAS 121 subsequent to the terrorist attacks of September 11,
2001. In accordance with FAS 121 and FAS 144, the Company continues to monitor
the current value of these previously impaired assets. The Company has used both
discounted cash flows and quoted market prices to estimate the fair value of the
Boeing 727-200 fleet.
Beginning in 2002, the Company has performed impairment analyses on the Lockheed
L-1011-500 fleet and related assets in accordance with FAS 144 based on a common
fleet retirement date of December 2010. In the fourth quarter of 2004, due to
the Company's financial position, cash constraints and related limitations
imposed by the Chapter 11 initiated in the fourth quarter of 2004, the Company
determined the likelihood of expending the funds to perform heavy checks on the
airframes when they become due in 2005 through 2007 is remote. Therefore, the
Company changed its retirement assumptions in its impairment analysis performed
in the fourth quarter of 2004 and determined that this fleet was impaired. The
Company used discounted cash flow analysis to estimate the fair value of this
fleet.
The application of FAS 144 and FAS 121 requires the exercise of significant
judgment and the preparation of numerous significant estimates. Although the
Company believes that its estimates with regard to future cash flows are
reasonable and based upon all available information, they require substantial
judgments and are based upon material assumptions about future events. Such
estimates are significant in determining the amount of the impairment charge to
be recorded, if any, which could have been materially different under different
sets of assumptions and estimates.
Goodwill Accounting. Effective January 1, 2002, the Company adopted FASB
Statement of Financial Accounting Standards No. 142 ("FAS 142"), Goodwill and
Other Intangible Assets, under which goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized, but will be subject to annual
impairment reviews. A FAS 142 impairment review involves a two-step process.
Step one compares the fair value of a reporting unit (determined through market
quotes or the present value of estimated future cash flows) with its carrying
amount (assets less liabilities, including goodwill). If the estimated fair
value exceeds the carrying amount, goodwill of the reporting unit is considered
not impaired, and step two of the impairment test is not necessary. If the
carrying amount of a reporting unit exceeds its estimated fair value, the second
step of the goodwill impairment test is then performed, which compares the
implied fair value of the reporting unit's goodwill (determined in accordance
with purchase accounting) with the carrying amount of the reporting unit's
goodwill. If the carrying amount of the reporting unit's goodwill exceeds the
implied fair value of the goodwill, an impairment loss is recognized in an
amount equal to that excess. If an impairment loss is recognized, the adjusted
carrying amount of the goodwill becomes the new accounting basis for future
impairment tests.
FAS 142 requires companies to perform annual goodwill impairment reviews. The
annual impairment tests are required to be completed in the same fiscal quarter
each year. The Company performed its annual tests in the fourth quarter of both
2003 and 2004. As of January 1, 2003, the Company's goodwill related to the ATA
Leisure Corp. ("ATALC") brands outsourced to Mark Travel Corporation ("MTC"),
Chicago Express and ATA Cargo. The Company determined that all of the goodwill
related to the MTC reporting unit was impaired in 2004, mainly due to changes in
its route structure and operations. The goodwill related to Chicago Express and
ATA Cargo remained unimpaired as of December 31, 2004 and 2003. See "Notes to
Consolidated Financial Statements - Note 19 - Subsequent Events" for further
information on Chicago Express.
All of the Company's fair value estimates involved highly subjective judgments
on the part of management, including the amounts of cash flows to be received,
their estimated duration and perceived risk as reflected in selected discount
rates. In some cases, cash flows were estimated without the benefit of
historical data, although historical data was used where available. Although the
Company believes its estimates and judgments to be reasonable, different
assumptions and judgments might have resulted in additional impairment charges.
20
Aircraft Lease Rejection Charges. During the period each of the Debtors operates
under Chapter 11 Bankruptcy protection, such Debtor has the right to assume,
assume and assign, or reject certain executory contracts and unexpired leases,
including, without limitation, leases of real property, aircraft and aircraft
engines, subject to the approval of the Bankruptcy Court and certain other
conditions. Generally, the rejection of an executory lease or unexpired lease is
treated as a pre-petition breach of the lease or contract in question and,
subject to certain exceptions, relieves the rejecting Debtor of performing its
future obligations under such lease or contract but entitles the lessor or
contract counterparty to a pre-petition general unsecured claim for damages
caused by such deemed breach. The lessor or contract counterparty may file a
claim against the Debtor's estate for such damages. The aircraft leases and
aircraft engine leases rejection charges are non-cash charges which are
comprised of the Company's estimate of claims resulting from the rejection or
return of the aircraft and engines as part of the bankruptcy process. They also
include the write-off of assets and liabilities related to aircraft that the
Company has rejected, committed to return dates with the lessor or intended to
reject as part of the Company's business plan as of December 31, 2004. The
amount includes the Company's estimate of claims, which are based upon
provisions contained in the original leases among other things, resulting from
the rejection or return of the aircraft as part of the bankruptcy process. The
estimate that the Company recorded is subject to material adjustments as the
Debtors proceed through the bankruptcy process.
21
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.
Cents per ASM
Year Ended December 31,
----------------------------------------------
2004 2003 2002
---------- ---------- ----------
Consolidated operating revenues 7.21 7.19 7.26
Consolidated operating expenses:
Salaries, wages and benefits 1.99 1.89 2.02
Fuel and oil 1.73 1.31 1.17
Aircraft rentals 1.14 1.07 1.08
Handling, landing and navigation fees 0.56 0.54 0.63
Aircraft maintenance, materials and repairs 0.35 0.22 0.30
Crew and other employee travel 0.27 0.30 0.31
Depreciation and amortization 0.24 0.27 0.44
Other selling expenses 0.24 0.24 0.25
Passenger service 0.20 0.19 0.22
Advertising 0.16 0.18 0.23
Facilities and other rentals 0.13 0.11 0.13
Commissions 0.12 0.11 0.13
Insurance 0.12 0.14 0.19
Ground package cost 0.06 0.06 0.16
Aircraft impairments and retirements 0.04 0.03 0.38
Goodwill impairment - - 0.04
U.S. Government grants - (0.18) 0.09
Other 0.33 0.34 0.40
---------- ---------- ----------
Total consolidated operating expenses 7.68 6.82 8.17
---------- ---------- ----------
Consolidated operating income (loss) (0.47) 0.37 (0.91)
========== ========== ==========
ASMs (in thousands) 21,242,000 21,125,905 17,599,968
22
Year Ended December 31, 2004, Versus Year Ended December 31, 2003
Consolidated Flight Operations 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 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 as the ATA
Connection.
Twelve Months Ended December 31,
-----------------------------------------------------------
2004 2003 Inc (Dec) % Inc (Dec)
-----------------------------------------------------------
Departures Jet 84,768 79,790 4,978 6.24
Departures SAAB 53,096 52,071 1,025 1.97
---------- ---------- ---------- -------
Total Departures 137,864 131,861 6,003 4.55
---------- ---------- ---------- -------
Block Hours Jet 257,959 246,951 11,008 4.46
Block Hours SAAB 51,310 51,256 54 0.11
---------- ---------- ---------- -------
Total Block Hours 309,269 298,207 11,062 3.71
---------- ---------- ---------- -------
RPMs Jet (000s) 14,489,926 14,166,987 322,939 2.28
RPMs SAAB (000s) 188,549 191,712 (3,163) (1.65)
---------- ---------- ---------- -------
Total RPMs (000s) (a) 14,678,475 14,358,699 319,776 2.23
---------- ---------- ---------- -------
ASMs Jet (000s) 20,939,030 20,815,681 123,349 0.59
ASMs SAAB (000s) 302,970 310,224 (7,254) (2.34)
---------- ---------- ---------- ------
Total ASMs (000s) (b) 21,242,000 21,125,905 116,095 0.55
---------- ---------- ---------- -------
Load Factor Jet 69.20 68.06 1.14 1.67
Load Factor SAAB 62.23 61.80 0.43 0.70
---------- ---------- ---------- ------
Total Load Factor (c) 69.10 67.97 1.13 1.66
---------- ---------- ---------- -------
Passengers Enplaned Jet 10,547,275 10,138,487 408,788 4.03
Passengers Enplaned SAAB 1,106,110 1,088,388 17,722 1.63
---------- ---------- ---------- ------
Total Passengers Enplaned (d) 11,653,385 11,226,875 426,510 3.80
---------- ---------- ---------- -------
Revenue $ (000s) 1,532,571 1,518,533 14,038 0.92
RASM in cents (e) 7.21 7.19 0.02 0.28
CASM in cents (f) 7.68 6.82 0.86 12.61
Yield in cents (g) 10.44 10.58 (0.14) (1.32)
Average Aircraft in Service
Lockheed L-1011 5.67 7.63 (1.96) (25.69)
Boeing 737-800 32.63 30.68 1.95 6.36
Boeing 757-200 15.21 15.17 0.04 0.26
Boeing 757-300 12.00 10.94 1.06 9.69
SAAB 340B 16.10 16.10 - -
Average Block Hours Flown per day
Lockheed L-1011 8.52 7.73 0.79 10.22
Boeing 737-800 10.85 10.60 0.25 2.36
Boeing 757-200 11.66 11.55 0.11 0.95
Boeing 757-300 10.60 10.98 (0.38) (3.46)
SAAB 340B 8.73 8.72 0.01 0.11
See footnotes (a) through (g) on page 24.
23
(a) 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.
(b) 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.
(c) 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.
(d) 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."
(e) 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 (g) for the definition of yield).
(f) 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.
(g) Revenue per RPM (expressed in cents) is total operating revenue divided by
total RPMs. This measure is also referred to as "yield." Yield is relevant
to the evaluation of scheduled service because yield is a measure of the
average price paid by customers purchasing individual seats. Yield is less
relevant to the commercial charter and military/government charter
businesses because the entire aircraft is sold at one time for one price.
Consolidated yields and scheduled service yields are shown in the
appropriate tables for industry comparability, but yields for individual
charter businesses are omitted from applicable tables.
Operating Revenues
Total operating revenues in 2004 increased 0.9% to $1.533 billion, as compared
to $1.519 billion in 2003. This increase was due to a $14.5 million increase in
scheduled service revenue, a $30.0 million increase in military/government
charter revenues and a $6.6 million increase in other revenues, partially offset
by a $37.3 million decrease in commercial charter revenues.
The following table sets forth, for the periods indicated, certain key operating
and financial data for the scheduled service, military/government charter and
commercial charter operations of the Company.
24
Twelve Months Ended December 31,
_____________________________________________________________
2004 2003 Inc (Dec) % Inc (Dec)
_____________________________________________________________
Scheduled Service
Departures 130,338 122,628 7,710 6.29
Block Hours 276,287 258,021 18,266 7.08
RPMs (000s) (a) 12,728,760 12,079,272 649,488 5.38
ASMs (000s) (b) 17,450,098 16,735,500 714,598 4.27
Load Factor (c) 72.94 72.18 0.76 1.05
Passengers Enplaned (d) 11,190,961 10,464,348 726,613 6.94
Revenue $ (000s) 1,099,944 1,085,420 14,524 1.34
RASM in cents (e) 6.30 6.49 (0.19) (2.93)
Yield in cents (g) 8.64 8.99 (0.35) (3.89)
Revenue per segment $ (h) 98.29 103.73 (5.44) (5.24)
Military/Government Charter
Departures 5,993 5,721 272 4.75
Block Hours 27,844 27,689 155 0.56
ASMs (000s) (b) 3,379,282 3,426,275 (46,993) (1.37)
Revenue $ (000s) 326,897 296,893 30,004 10.11
RASM in cents (e) 9.67 8.67 1.00 11.53
RASM excluding fuel escalation (j) 9.25 8.56 0.69 8.06
Commercial Charter
Departures 1,373 3,473 (2,100) (60.47)
Block Hours 4,676 12,368 (7,692) (62.19)
ASMs (000s) (b) 376,265 949,375 (573,110) (60.37)
Revenue $ (000s) 31,973 69,314 (37,341) (53.87)
RASM in cents (e) 8.50 7.30 1.20 16.44
RASM excluding fuel escalation (i) 8.36 6.97 1.39 19.94
Percentage of Consolidated Revenues:
Scheduled Service 71.8% 71.5% 0.3% 0.42
Military Charter 21.3% 19.6% 1.7% 8.67
Commercial Charter 2.1% 4.6% (2.5)% (54.35)
See footnotes (a) through (g) on page 24.
(h) 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.
(i) 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 RASM calculation, excluding the
impact of fuel reimbursements, is provided as a separate measure of unit
revenue changes.
(j) 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 to
the Company. A separate RASM calculation is provided, excluding the impact
of the fuel price adjustments.
Scheduled Service Revenues. Scheduled service revenues in 2004 increased 1.4% to
$1.100 billion from $1.085 billion in 2003. For the year ended December 31,
2004, unit revenues decreased 2.9% and yields decreased 3.9% on 4.3% more
capacity, as compared to the year ended December 31, 2003. During 2004, ATA
25
experienced significant pressure from a competitive pricing environment,
including extraordinary discounting by several airlines in many of the scheduled
service markets ATA serves. The primary reason for the competitive pricing
environment has been the industry's added capacity, which especially impacted
ATA's transcontinental and other east-west markets in early 2004. As a result,
ATA cancelled some of its east-west routes beginning in March and April 2004
while continuing to review its other scheduled service markets. ATA announced
additional route changes in late 2004 and early 2005 in response to the
competitive pricing environment, which include a significant reduction in the
number of flights serving the Indianapolis market.
Military/Government Charter Revenues. Military/government charter revenue
increased 10.1% to $326.9 million in 2004 from $296.9 million in 2003. The
increase in revenue in 2004, as compared to 2003, was mainly due to an increase
in fuel escalation revenues earned from contractual fuel price guarantees and a
change in the mix of aircraft flying, as narrow body aircraft replaced the
retired wide body aircraft.
Commercial Charter Revenues. Commercial charter revenues decreased 53.8% to
$32.0 million in 2004 from $69.3 million in 2003. The majority of the decline in
commercial charter revenues continues to reflect the retirement of certain
Lockheed L-1011 aircraft that ATA has traditionally used in commercial charter
flying. Since aircraft utilization is typically much lower for commercial
charter, as compared to scheduled service flying, ATA's replacement fleets of
new Boeing 737-800 and Boeing 757-300 aircraft are economically disadvantaged
when used in the charter business because of their higher fixed-ownership cost.
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. Currently, the Company markets these
ground packages through its subsidiary, Ambassadair Travel Club ("Ambassadair").
In 2004, ground package revenues increased 1.4% to $14.9 million, from $14.7
million in 2003.
Other Revenues. Other revenues are comprised of the consolidated revenues of
certain affiliated companies, together with miscellaneous categories of revenue
associated with operations of the Company, such as cancellation and
miscellaneous service fees and cargo revenue. Other revenues increased 12.6% to
$58.8 million in 2004 from $52.2 million in 2003.
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 increased 5.7% to $422.4 million in 2004
from $399.6 million in 2003.
The increase in salaries, wages and benefits in 2004, as compared to 2003, is
partially due to the Company incurring higher costs for employee medical and
workers' compensation benefits. In addition, the Company employed additional
crewmembers and other operational employees in 2004 to handle its increased
scheduled service capacity, as compared to 2003. Also, on July 1, 2003, ATA's
cockpit crewmembers received contractual rate increases.
During the third quarter of 2004, ATA reached an agreement to amend its contract
with its cockpit crewmembers represented by ALPA. Under the amendments,
crewmembers agreed to forego contractual rate increases that otherwise would
have become effective July 1, 2004 and July 1, 2005 resulting in savings of
approximately $26.0 million. The amendments include new contractual increases
effective July 1, 2006 and July 1, 2007. Also, in February 2005, ATA signed a
letter of agreement for the time period from January 31, 2005 through May 31,
2005. Under the agreement during this period, the cockpit crewmembers agreed to
an approximate 20% pay reduction, certain work rule changes and a 50% reduction
in contributions to the Cockpit Member Pension Plan. The Company expects the
agreement to reduce costs approximately $12.0 million over the duration of the
agreement.
26
ATA also concluded an amendment to its agreement with cabin crewmembers
represented by AFA on October 15, 2004. Under terms of the amended agreement,
cabin crewmembers will reduce their base hourly pay rate effective October 15,
2004 by 10% through October 15, 2006, resulting in savings of approximately
$11.5 million over the same time period. On October 15, 2006, non-amendable
rates of pay return to the rates in force on April 11, 2004.
Fuel and Oil. Fuel and oil expense increased 33.4% to $368.3 million in 2004, as
compared to $276.1 million in 2003. During 2004, the average cost per gallon of
jet fuel consumed increased by 30.6% compared to 2003, resulting in an increase
in fuel and oil expense of approximately $84.6 million between those periods.
The Company also benefits from fuel reimbursement clauses and guarantees in its
bulk scheduled service, commercial charter and military/government contracts,
but the benefit of these price guarantees is accounted for as revenue when
realized.
Aircraft Rentals. The Company's operating leases require periodic cash payments
that vary in amount and frequency. Many of the Company's aircraft operating
leases were originally structured to require very significant cash payments in
the early years of the lease in order to obtain more overall favorable lease
rates. The Company accounts for aircraft rentals expense in equal monthly
amounts over the life of each operating lease because straight-line expense
recognition is most representative of the time pattern from which benefit is
derived from use of the aircraft. Although the Company restructured many of its
operating leases in January 2004, the amount of the cash payments in excess of
the aircraft rent expense in these early years generated a significant prepaid
aircraft rent amount on the Company's balance sheet. Aircraft rentals expense in
2004 increased 7.1% to $242.6 million from $226.6 million in 2003. These
increases were mainly attributable to the delivery of two leased Boeing 737-800s
and three leased Boeing 757-300s between mid-2003 and December 2004.
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 its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly through certain foreign airspace.
Handling, landing and navigation fees increased by 5.4% to $120.0 million in
2004, as compared to $113.8 million in 2003. This increase was due to a 4.6%
increase in system-wide jet departures, as compared to 2003, which resulted in
an increase in handling and landing fees of $9.3 million. The Company also
incurred an increase in security costs of $3.3 million in 2004, as compared to
2003, partially due to the temporary suspension of the aviation security fee
during part of 2003. The Company experienced a decrease in the cost of handling
per departure due to negotiation of favorable terms in new contracts, resulting
in decreased expenditures of $7.3 million in 2004, as compared to 2003.
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, Boeing 757-200, Boeing 757-300 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 increased 64.1%
to $75.0 million in 2004, as compared to $45.7 million in 2003, primarily due to
contractual rate increases in the jet aircraft hourly maintenance agreements.
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 crewmembers incurred to position crews away from their bases to operate
Company flights throughout the world. The cost of crew and other employee travel
decreased 10.3% to $57.5 million in 2004, as compared to $64.1 million in 2003.
27
The Company was able to realize a reduction in crew and other employee travel
expense in 2004, as compared to 2003, due to efficiencies gained from flying a
significant amount of military flights on similar routings. Also, the number of
incremental new aircraft in 2003 resulted in training costs for crew, cabin and
other personnel, which was not repeated in 2004 due to fewer deliveries of new
aircraft. In addition, the Company realized a reduction in per diem costs in
2004, as compared to 2003, as a result of contract amendments entered into in
2004 with the cockpit and cabin crewmembers.
Depreciation and Amortization. Depreciation and amortization expense decreased
8.3% to $52.0 million in 2004, as compared to $56.7 million in 2003, primarily
due to the retirement of five L-1011-50 and 100 aircraft from revenue service in
2003 and 2004 collectively. These retirements resulted in $5.7 million less in
depreciation in 2004, as compared to 2003.
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 to customers using credit cards for payment and
toll-free telephone services provided to customers who contact the Company
directly to book reservations. Other selling expenses increased 2.4% to $51.4
million in 2004, as compared to $50.2 million in 2003, primarily due to
increased credit card and CRS fees associated with scheduled services
passengers.
Passenger Service. Passenger service expense includes the onboard costs of meal
and non-alcoholic beverage catering, the cost of alcoholic beverages 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 2004 and 2003, catering represented 84.0% and 82.4%,
respectively, of total passenger service expense.
The total cost of passenger service increased 4.6% to $42.9 million in 2004, as
compared to $41.0 million in 2003, primarily due to an increase in scheduled
service passengers enplaned, and the increase in military/government flying
between years, as that flying requires a more expensive catering product.
Advertising. Advertising expense decreased 11.6% to $33.5 million in 2004, as
compared to $37.9 million in 2003. The Company incurs advertising costs
primarily to support single-seat scheduled service sales. The decrease in costs
between years is primarily due to the Company reducing its marketing efforts
after its Chapter 11 filing.
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 12.0% to $27.1 million in 2004, as compared to $24.2 million
in 2003. The Company experienced cost increases at certain locations due to
increased frequency to those destinations and normal contractual rate increases.
Commissions. The Company incurs commission 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 increased 17.0% to $26.2 million in 2004, as
compared to $22.4 million in 2003.
The Company experienced an increase of $5.5 million in military/government
commissions in 2004, as compared to 2003, due to both increased revenues in 2004
and the deactivation of the Civil Reserve Air Fleet ("CRAF") in June 2003, as
certain of the CRAF flights flown in 2003 were exempt from commissions.
Substantially all military flights in 2004 were commissionable. The Company
experienced a decrease in scheduled service commissions of $1.7 million in 2004,
as compared to 2003, due to the increasing share of non-commissionable ticket
purchases made on the Company's own website, as compared to the share of
commissionable sales made through travel agents.
Insurance. Insurance expense represents the Company's cost of hull and liability
insurance and the costs of general insurance policies held by the Company,
including workers' compensation insurance premiums and claims handling fees. The
total cost of insurance decreased 18.5% to $24.6 million in 2004, as compared to
$30.2 million in 2003. The decrease is mainly attributable to the U.S.
Government providing increased war-risk coverage in 2004, which was provided at
28
higher rates by the commercial insurance markets in 2003. The U.S. Government
currently plans to provide this insurance through August 2005, at which time the
Company may experience a rate increase with a commercial provider.
Ground Package Cost. Ground package cost is incurred by the Company through
hotels, car rental companies, cruise lines and similar vendors who provide
ground and cruise accommodations to Ambassadair customers. Ground package cost
increased 3.3% to $12.5 million in 2004, as compared to $12.1 million in 2003
consistent with ground package revenue.
Aircraft Impairments and Retirements. The Company began performing impairment
reviews on its 727-200 fleet in 2000 and the fleet became impaired under FAS 121
in 2001, subsequent to the terrorist attacks of September 11. In accordance with
FAS 121, the Company continues to monitor current fair market values of
previously impaired assets. In 2004, the Company recorded an additional asset
impairment charge of $7.9 million against its remaining net book value of Boeing
727-200 aircraft (recorded as an investment in the BATA joint venture) and
related assets, as compared to $5.3 million recorded in 2003. The current
estimate of this fleet's fair market value is based on discounted cash flow
analysis. The carrying amount of approximately $685,000 related to assets of
this fleet is classified as long-term assets held for sale and appears in the
deposits and other assets line of the accompanying balance sheet. See
"Reorganization Expenses" for discussion of the L1011-500 impairments.
U.S Government Grants. In 2003, the U.S. Government enacted the Emergency
Wartime Supplemental Appropriations Act ("Supplemental Act"), which made
available $2.3 billion in reimbursement to U.S. air carriers for expenses
incurred and revenue foregone related to enhanced aviation security subsequent
to the September 11, 2001 terrorist attacks. Pursuant to this legislation, the
Company received $37.2 million in cash in May 2003, which was recorded as a
credit to operating expenses. The Company does not expect to receive any further
material compensatory funds from the U.S. Government, and did not receive such
reimbursements in 2004.
Other Operating Expenses. Other operating expenses decreased 4.6% to $69.0
million in 2004, as compared to $72.3 million in 2003, attributable to various
changes in other expenses comprising this line item, none of which were
individually significant.
Interest Income and Expense. Interest expense in 2004 decreased to $51.1
million, as compared to $56.3 million in 2003. In accordance with SOP 90-7,
following its Chapter 11 filing, the Company did not record interest expense
with respect to unsecured debt or secured debt in which the collateral value is
less than the principal amount of the debt.
Loss on Extinguishment of Debt. On January 30, 2004, the Company completed
exchange offers and issued Senior Notes due 2009 ("2009 Notes") and cash
consideration for certain of its $175 million 10 1/2% Senior Notes due August in
2004 ("2004 Notes") and issued Senior Notes due 2010 ("2010 Notes" and, together
with the 2009 Notes, "New Notes") and cash consideration for certain of its $125
million 9 5/8% Senior Notes due in December 2005 ("2005 Notes" and, together
with the 2004 Notes, "Existing Notes"). The Company accepted $260.3 million of
Existing Notes tendered for exchange, issuing $163.1 million in aggregate
principal amount of 2009 Notes and delivering $7.8 million in cash in exchange
for $155.3 million in aggregate principal amount of 2004 Notes tendered, and
issuing $110.2 million in aggregate principal amount of 2010 Notes and
delivering $5.2 million in cash in exchange for $105.0 million in aggregate
principal of 2005 Notes. As a result of this transaction, the Company recorded a
non-operating loss on extinguishment of debt of $27.3 million in accordance with
FASB Emerging Issues Task Force Issue No. 96-19, Debtor's Accounting for
Modification of Exchange of Debt Terms ("EITF 96-19"). The loss mainly relates
to the accounting for the $13 million cash consideration paid at closing of the
exchange offers and the $13 million of incremental notes issued during he
exchange offers.
Reorganization Expenses. In accordance with SOP 90-7, the Company's revenues,
expenses (including professional fees), realized gains and losses, and provision
29
for losses that can be directly associated with the reorganization and
restructuring of the business are reported separately as reorganization items in
the consolidated statement of operations.
For the year ended December 31, 2004, the Company had recognized the following
reorganization expenses in the consolidated statement of operations (in
thousands):
Aircraft lease rejection charges $ 568,317
Aircraft impairment 44,499
Professional fees 8,747
Goodwill impairment 6,399
Other 10,517
--------------
$ 638,479
==============
The aircraft leases and aircraft engine leases rejection charges are non-cash
charges which are comprised of the Company's estimate of claims resulting from
the rejection or return of the aircraft and engines as part of the bankruptcy
process. They also include the write-off of assets and liabilities related to
aircraft leases and aircraft engine leases that the Company has rejected,
committed to return dates with the lessor or intended to reject as part of the
Company's business plan as of December 31, 2004. The estimate that the Company
recorded is subject to material adjustments as the Debtors proceed through the
bankruptcy process.
The aircraft impairment charge relates to the Company's L1011-500 fleet. In
2003, the Company began evaluating this fleet and related parts and inventory
for impairment under FAS 144 assuming a common fleet retirement date of December
2010 and the fleet remained unimpaired through 2003. In 2004, given the
Company's financial position, cash constraints and related limitations imposed
by the Chapter 11 filing initiated in the fourth quarter of 2004, the Company
determined the likelihood of expending the funds to perform heavy checks on the
airframes when they become due in late 2005 through mid 2007 is remote.
Therefore, the Company evaluated the fleet and related parts and inventory for
impairment assuming the aircraft would be retired at the date of their next
required airframe heavy check. This evaluation indicated that the aircraft were
impaired and the Company recorded a related impairment charge of $44.5 million
in the fourth quarter of 2004. The Company estimates this fleet's fair market
value using discounted cash flow analysis. In accordance with SOP 90-7, because
the 2004 impairment charge was directly related to the Company's reorganization
under Chapter 11, the charge was recorded as a reorganization expense on the
Company's statement of operations. The carrying amount of these assets is
classified as assets held for use and appears in the property and equipment
section of the accompanying consolidated balance sheets, as the Company is still
flying these aircraft. The assets are being depreciated in accordance with the
planned fleet retirement schedule.
The goodwill impairment charge relates to the Company's MTC product. In the
fourth quarter of 2004, the Company determined that due to route structure and
operational changes related to the Company's reorganization under Chapter 11,
the fair market value of this reporting unit, based on discounted cash flow
analysis, had declined.
Income Tax Expense. No income tax benefit was recorded applicable to the $816.0
million pre tax loss in 2004 as a full valuation allowance was established by
the Company. In 2003, the Company recorded income tax expense of $1.3 million,
representing an estimate of the income taxes to be paid, applicable to $21.7
million in pre-tax income.
30
As of December 31, 2004, the Company has incurred a three-year cumulative loss.
Because of this cumulative loss and the presumption under GAAP that net deferred
tax assets should be fully reserved if it is more likely than not that they will
not be realized through carrybacks or other strategies, the Company recorded a
full valuation allowance against its net deferred tax asset.
Year Ended December 31, 2003, Versus Year Ended December 31, 2002
Consolidated Flight Operations 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 as the ATA Connection.
31
Twelve Months Ended December 31,
-----------------------------------------------------------
2003 2002 Inc (Dec) % Inc (Dec)
-----------------------------------------------------------
Departures Jet 79,790 66,903 12,887 19.26
Departures SAAB 52,071 42,105 9,966 23.67
---------- ---------- --------- -----
Total Departures 131,861 109,008 22,853 20.96
---------- ---------- --------- -----
Block Hours Jet 246,951 199,290 47,661 23.92
Block Hours SAAB 51,256 40,008 11,248 28.11
---------- ---------- --------- -----
Total Block Hours 298,207 239,298 58,909 24.62
---------- ---------- --------- -----
RPMs Jet (000s) 14,166,987 12,231,661 1,935,326 15.82
RPMs SAAB (000s) 191,712 152,576 39,136 25.65
---------- ---------- --------- -----
Total RPMs (000s) (a) 14,358,699 12,384,237 1,974,462 15.94
---------- ---------- --------- -----
ASMs Jet (000s) 20,815,681 17,362,835 3,452,846 19.89
ASMs SAAB (000s) 310,224 237,133 73,091 30.82
---------- ---------- --------- -----
Total ASMs (000s) (b) 21,125,905 17,599,968 3,525,937 20.03
---------- ---------- --------- -----
Load Factor Jet 68.06 70.45 (2.39) (3.39)
Load Factor SAAB 61.80 64.34 (2.54) (3.95)
---------- ---------- --------- -----
Total Load Factor (c) 67.97 70.37 (2.40) (3.41)
---------- ---------- --------- -----
Passengers Enplaned Jet 10,138,487 9,139,770 998,717 10.93
Passengers Enplaned SAAB 1,088,388 906,909 181,479 20.01
---------- ---------- --------- -----
Total Passengers Enplaned (d) 11,226,875 10,046,679 1,180,196 11.75
---------- ---------- --------- -----
Revenue $ (000s) 1,518,533 1,277,370 241,163 18.88
RASM in cents (e) 7.19 7.26 (0.07) (0.96)
CASM in cents (f) 6.82 8.17 (1.35) (16.52)
Yield in cents (g) 10.58 10.31 0.27 2.62
Average Aircraft in Service
Lockheed L-1011 7.63 10.54 (2.91) (27.61)
Boeing 737-800 30.68 22.37 8.31 37.15
Boeing 757-200 15.17 15.96 (0.79) (4.95)
Boeing 757-300 10.94 7.96 2.98 37.44
SAAB 340B 16.10 13.33 2.77 20.78
Average Block Hours Flown per day
Lockheed L-1011 7.73 5.86 1.87 31.91
Boeing 737-800 10.60 9.84 0.76 7.72
Boeing 757-200 11.55 10.73 0.82 7.64
Boeing 757-300 10.98 9.82 1.16 11.81
SAAB 340B 8.72 8.22 0.50 6.08
See footnotes (a) through (g) on page 24.
Operating Revenues
Total operating revenues in 2003 increased 19.0% to $1.519 billion, as compared
to $1.277 billion in 2002. This increase was due to a $198.8 million increase in
scheduled service revenue, a $119.0 million increase in military/government
charter revenues and a $6.4 million increase in other revenues, partially offset
by a $62.0 million decrease in commercial charter revenues and a $21.0 million
decrease in ground package revenues.
The following table sets forth, for the periods indicated, certain key operating
and financial data for the scheduled service, military/government charter and
32
commercial charter operations of the Company.
----------------------------------------------------------------------------------
Twelve Months Ended December 31,
----------------------------------------------------------------------------------
2003 2002 Inc (Dec) % Inc (Dec)
Scheduled Service
Departures 122,628 98,877 23,751 24.02
Block Hours 258,021 201,077 56,944 28.32
RPMs (000s) (a) 12,079,272 9,911,884 2,167,388 21.87
ASMs (000s) (b) 16,735,500 13,608,326 3,127,174 22.98
Load Factor (c) 72.18 72.84 (0.66) (0.91)
Passengers Enplaned (d) 10,464,348 8,859,044 1,605,304 18.12
Revenue $ (000s) 1,085,420 886,579 198,841 22.43
RASM in cents (e) 6.49 6.51 (0.02) (0.31)
Yield in cents (g) 8.99 8.94 0.05 0.56
Revenue per segment $ (h) 103.73 100.08 3.65 3.65
Military/Government Charter
Departures 5,721 3,650 2,071 56.74
Block Hours 27,689 15,975 11,714 73.33
ASMs (000s) (b) 3,426,275 2,103,874 1,322,401 62.86
Revenue $ (000s) 296,893 177,901 118,992 66.89
RASM in cents (e) 8.67 8.46 0.21 2.48
RASM excluding fuel escalation (i) 8.56 8.48 0.08 0.94
Commercial Charter
Departures 3,473 6,459 (2,986) (46.23)
Block Hours 12,368 22,159 (9,791) (44.19)
ASMs (000s) (b) 949,375 1,875,885 (926,510) (49.39)
Revenue $ (000s) 69,314 131,341 (62,027) (47.23)
RASM in cents (e) 7.30 7.00 0.30 4.29
RASM excluding fuel escalation (j) 6.97 6.89 0.08 1.16
Percentage of Consolidated Revenues:
Scheduled Service 71.5% 69.4% 2.1% 3.03
Military Charter 19.6% 13.9% 5.7% 41.01
Commercial Charter 4.6% 10.3% (5.7)% (55.34)
See footnotes (a) through (j) on pages 24 - 25.
Scheduled Service Revenues. Scheduled service revenues in 2003 increased 22.4%
to $1.085 billion from $886.6 million in 2002. This increase was due primarily
to increases in scheduled service capacity and a small increase in revenue per
segment flown.
Approximately 67.1% of the Company's scheduled service capacity was generated by
flights either originating or terminating at Chicago-Midway in 2003, as compared
to 71.2% in 2002. The Hawaiian market generated approximately 12.9% of total
scheduled service capacity in 2003, as compared to 13.7% in 2002. Another 13.3%
of total scheduled service capacity was generated in the Indianapolis market in
2003, as compared to 10.5% in 2002.
Although the scheduled service RASM for the entire year 2003 was down only
slightly as compared to 2002, the Company noted significant fluctuations in unit
revenue performance during the course of 2003. Unit revenues in the first
quarter of 2003 were down almost 8%, as compared to the first quarter of 2002.
The Company believes that first quarter 2003 traffic was significantly affected
33
by the elevated risk of terrorist attack noted before the beginning of Operation
Iraqi Freedom in February 2003, and by the war itself, which began in March
2003. Unit revenues in the second quarter of 2003 were down slightly more than
2%, as compared to the second quarter of 2002, which the Company believes was
affected by the speedy end of the Iraqi invasion and by seasonal spring travel
demand. In the third quarter of 2003, unit revenues were almost 7% higher than
in the third quarter of 2002, which the Company believes reflected a very strong
summer travel season rebound from the first half of 2003. However, in the fourth
quarter of 2003 unit revenues were only slightly higher than in the fourth
quarter of 2002, and the Company noted in particular a decline in year-over-year
RASM performance in November and December of 2003.
Military/Government Charter Revenues. Military/government charter revenue
increased 66.9% to $296.9 million in 2003 from $177.9 million in 2002. The
increase in military/government charter revenues in 2003 was mainly due to the
activation of CRAF in February 2003, which required ATA to pledge up to 13
aircraft to military/government charter use to support Operation Iraqi Freedom.
The CRAF program allowed the Company to increase its Lockheed L-1011 aircraft
utilization (number of productive hours of flying per aircraft per day) to an
average of 7.7 daily hours in 2003, as compared to 5.9 daily hours in 2002. The
increased utilization allowed the Company to operate its military/government
charter service more efficiently between periods. Although the CRAF program
ended on June 18, 2003, the Company still experienced a high volume of military
flying, recording only 19.2% less revenue for the second half of 2003, as
compared to the first half 2003.
Commercial Charter Revenues. Commercial charter revenues decreased 47.2% to
$69.3 million in 2003 from $131.3 million in 2002. The majority of the decline
in commercial charter revenues continues to reflect the retirement of certain
Lockheed L-1011 and Boeing 727-200 aircraft in prior years that the Company had
traditionally used in commercial charter flying. Since aircraft utilization is
typically much lower for commercial charter, as compared to scheduled service
flying, the Company's replacement fleets of new Boeing 737-800 and Boeing
757-300 aircraft are economically disadvantaged when used in the charter
business because of their higher fixed-ownership cost. In addition, decreases in
general airline fare levels throughout the United States since 2000 have reduced
the opportunity to operate commercial charter flights profitably. Consequently,
the Company expects its commercial charter revenues to continue to decline as
the fleet supporting this business continues to be retired.
Ground Package Revenues. In 2003, ground package revenues decreased 58.9% to
$14.7 million, from $35.7 million in 2002. This decline was due primarily to the
Company's July 1, 2002, outsourcing of the management and marketing of its ATA
Vacations and Travel Charter International brands to MTC. Under that outsourcing
agreement, MTC directly sells ground arrangements to customers who also purchase
charter or scheduled service air transportation from the Company. Therefore,
ground package sales (and related ground package costs) are no longer recorded
by the Company for ATA Vacations and Travel Charter International.
The net fee earned by the Company on these sales through the MTC outsourcing
agreement has been recorded in other revenues since the third quarter of 2002.
Other Revenues. Other revenues increased 13.7% to $52.2 million in 2003 from
$45.9 million in 2002 primarily due to increases in cargo revenue.
Operating Expenses
Salaries, Wages and Benefits. Salaries, wages and benefits expense increased
12.5% to $399.6 million in 2003 from $355.2 million in 2002.
The increase in salaries, wages and benefits between years primarily reflects
the impact of the Company's amended collective bargaining agreement (which was
ratified in July 2002) with the Company's cockpit crewmembers, who are
34
represented by ALPA. Initial cockpit crewmember contract salary rate increases
became effective July 1, 2002, and cockpit crewmembers received an additional
salary rate increase in July 2003 per this contract. Additionally, the amended
contract provides for expanded defined-contribution benefits for cockpit
crewmembers effective January 1, 2003, which resulted in additional salaries,
wages and benefits expense between periods. In addition, the Company incurred
higher salary costs as a result of employing additional crewmembers and other
operations employees to handle its increased capacity in 2003 as compared to
2002. The Company also incurred increasing costs in 2003 for employee medical
and workers' compensation benefits.
Fuel and Oil. Fuel and oil expense increased 33.6% to $276.1 million in 2003, as
compared to $206.6 million in 2002. During 2003, the average cost per gallon of
jet fuel consumed increased by 15.9% compared to 2002, resulting in an increase
in fuel and oil expense of approximately $37.7 million between those periods.
Although jet block hours increased 23.9% in 2003, as compared to 2002, the
Company only consumed 17.5% more gallons of fuel due to the continuing impact of
the Company replacing its aging, less-fuel-efficient Boeing 727-200 and Lockheed
L-1011 aircraft with new Boeing 737-800 and Boeing 757-300 aircraft. The
increase in gallons consumed resulted in an increase in fuel and oil expense of
approximately $34.9 million in 2003, as compared to 2002.
Aircraft Rentals. Aircraft rentals expense in 2003 increased 19.2% to $226.6
million from $190.1 million in 2002. These increases were mainly attributable to
the delivery of seven leased Boeing 737-800s, three leased Boeing 757-300s and
one leased 757-200 aircraft between late 2002 and December 2003.
Handling, Landing and Navigation Fees. Handling, landing and navigation fees
increased by 3.0% to $113.8 million in 2003, as compared to $110.5 million in
2002. This increase was due to a 21.0% increase in system-wide jet departures,
as compared to 2002, which resulted in an increase in handling and landing fees
of $17.4 million. The Company also incurred $5.0 million more in navigation fees
in 2003, as compared to 2002, due to the increase in international
military/government flying between periods. The increase was offset by a
decrease in the cost of handling per departure due to the negotiation of more
favorable terms in new contracts, resulting in $15.7 million less expense in
2003, as compared to 2002. The Company also operated relatively fewer flights to
higher-cost international destinations in 2003 than in the prior year. This
expense was also favorably affected by the temporary suspension of the payment
of the aviation security infrastructure fee by the Company from June 1, 2003, to
September 30, 2003, pursuant to the Supplemental Act, which resulted in savings
of $1.4 million in 2003.
Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials and
repairs expense decreased 12.6% to $45.7 million in 2003, as compared to $52.3
million in 2002. The decrease was mainly attributable to the retirement by
mid-2002 of the Company's entire Boeing 727-200 fleet and the retirement of
certain Lockheed L-1011 aircraft, all of which were replaced with new Boeing
737-800 and 757-300 aircraft.
Crew and Other Employee Travel. The cost of crew and other employee travel
increased 17.0% to $64.1 million in 2003, as compared to $54.8 million in 2002,
primarily due to the increase in military/government flying. Since military
flights often operate to and from points remote from the Company's crew bases,
the Company incurs significant travel expenses on other airlines for positioning
of those crews.
Depreciation and Amortization. Depreciation and amortization expense decreased
26.1% to $56.7 million in 2003, as compared to $76.7 million in 2002.The
decrease in depreciation and amortization expense is mainly attributable to the
L-1011-50 and 100 fleet. The Company retired four of these aircraft from revenue
service in 2002 and four more from revenue service in 2003. In addition, the
Company recorded a reduction in the carrying value of the L-1011-50 and 100
aircraft and related assets in the fourth quarter of 2002, in accordance with
FAS 144. Due to the reduced-cost basis of the remaining assets and the
retirements in 2002 and 2003, the Company recorded $13.8 million less in
depreciation and amortization in 2003, as compared to 2002. The decrease in
depreciation and amortization is also due to fluctuations associated with other
fleet owned airframes and owned engines, along with fluctuations in expenses
related to other property and equipment, none of which are individually
significant.
35
Other Selling Expenses. Other selling expenses increased 14.4% to $50.2 million
in 2003, as compared to $43.9 million in 2002. The Company experienced increases
in all areas of other selling expenses due to the increase in scheduled service
passengers enplaned in 2003 as compared to 2002.
Passenger Service. For 2003 and 2002, catering represented 82.4% and 82.1%,
respectively, of total passenger service expense. The total cost of passenger
service increased 7.0% to $41.0 million in 2003, as compared to $38.3 million in
2002. The increase was mainly attributable to an increase in military/government
flying which requires a significantly more expensive catering product than
scheduled service.
Advertising. Advertising expense decreased 5.3% to $37.9 million in 2003, as
compared to $40.0 million in 2002. The Company incurs advertising costs
primarily to support single-seat scheduled service sales. The relative decrease
in 2003 is primarily attributable to more sales promotions in 2002 to regain
customers after the September 11, 2001, terrorist attacks. In addition, the
Company placed its creative advertising contract with a new agency in 2003 on
more economical terms than the prior contract.
Facilities and Other Rentals. The cost of facilities and other rentals increased
7.1% to $24.2 million in 2003, as compared to $22.6 million in 2002. The growth
in facilities costs is due to added airport locations in 2003 to support new
scheduled service destinations and expanded services at existing locations.
Commissions. Commissions expense decreased 3.9% to $22.4 million in 2003, as
compared to $23.3 million in 2002. Scheduled service commissions decreased $5.8
million between years mainly due to the elimination of standard travel agency
commissions for sales made after March 21, 2002 and the continued increase of
ticket purchases made on the Company's own website at the expense of travel
agent sales. The Company continues to pay special travel agency commissions
targeted to specific markets and periods of the year. In addition, the Company
experienced a decrease in commission expense for ATALC of approximately $3.4
million in 2003, as compared to 2002, which is consistent with the decrease in
related revenue. These decreases were partially offset by an increase in
commission expense of $7.9 million in 2003, as compared to 2002, attributable to
growth in military revenue.
Insurance. The total cost of insurance decreased 11.2% to $30.2 million in 2003,
as compared to $34.0 million in 2002. The decrease is mainly attributable to the
U.S. Government providing increased war-risk coverage in 2003. This coverage was
provided at higher rates by the commercial insurance markets in 2002.
Ground Package Cost. Ground package cost decreased 56.6% to $12.1 million in
2003, as compared to $27.9 million in 2002, approximately proportional to the
decrease in ground package revenues. See "Ground Package Revenues" above for an
explanation of the decline in both ground package sales and related costs for
the period.
Aircraft Impairments and Retirements. Aircraft impairment and retirement costs
decreased 92.1% to $5.3 million in 2003, as compared to $66.8 million in 2002.
The following tables summarize the Company's aircraft impairments and
retirements expense in 2003 and 2002:
36
2003 2002
-------- ----------
(in thousands)
Boeing 727-200 impairment charge $ 5,288 $ 35,871
Lockheed L-1011-50 and 100 impairment charge - 7,638
Lockheed L-1011-50 retirement - 9,029
Lockheed L-1011-500 retirement - 14,249
-------- ----------
Aircraft impairments and retirements $ 5,288 $ 66,787
======== ==========
Goodwill Impairment. The Company began annual goodwill impairment reviews under
FAS 142 in 2002. In accordance with FAS 142, the Company determined that no
goodwill impairment had occurred in 2003.
U.S. Government Grants. The Supplemental Act made $2.3 billion in reimbursement
available to U.S. air carriers for expenses incurred and revenue foregone
related to enhanced aviation security subsequent to September 11, 2001. Pursuant
to this legislation, the Company received $37.2 million in cash in May 2003,
which was recorded as a credit to operating expenses.
After the terrorist attacks of September 11, 2001, the Air Transportation Safety
and System Stabilization Act ("Act") was passed, which provided for, among other
things, up to $5.0 billion in compensation to U.S. carriers for direct and
incremental losses resulting from the September 11, 2001, terrorist attacks. The
Company had recorded $66.3 million in U.S. Government grant compensation as of
December 31, 2001, based on guidance available from the DOT at the time of
identifying those expenses it deemed reimbursable. As of December 31, 2001, the
Company had received $44.5 million in cash under the Act and had a receivable of
$21.8 million for the remaining amount. Throughout 2002, the Company discussed
the reimbursement with the DOT, and, as a result of those discussions, the
Company recorded a reserve of approximately $15.2 million against its receivable
in the second quarter of 2002. The Company subsequently finalized its discussion
with the DOT in the first quarter of 2003 and received the final cash
compensation of $6.2 million under the Act.
Interest Income and Expense. Interest expense in 2003 increased to $56.3
million, as compared to $35.7 million in 2002. The Company recorded $12.1
million in interest expense in 2003 related to the secured term loan acquired in
November 2002. In accordance with FASB Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity ("FAS 150"), the Company
reclassified its Series A Preferred as a liability on the Company's balance
sheet beginning July 1, 2003, and the related dividends of $2.1 million
recognized thereafter were recorded as interest expense.
Income Tax Expense. The Company recorded $1.3 million in income tax expense in
2003 applicable to $21.7 million in pre-tax income, while in 2002, the Company
recorded income tax benefit of $25.0 million applicable to $194.2 million in
pre-tax loss. The effective tax rates applicable to 2003 and 2002 were 6.0% and
12.8%, respectively.
As of December 31, 2003, the Company had incurred a three-year cumulative loss.
Because of this cumulative loss and the presumption under GAAP that net deferred
tax assets should be fully reserved if it is more likely than not that they will
not be realized through carrybacks or other strategies, the Company recorded a
full valuation allowance against its net deferred tax asset of $33.5 million.
The Company utilized a portion of its net operating loss carryovers to offset
taxable income in 2003. As a result, in 2003 the Company paid $0.4 million
alternative minimum tax and recorded this as a current tax expense, together
with $0.9 million in state and local income taxes.
37
Liquidity and Capital Resources
The Company ended 2004 with unrestricted cash of $139.7 million and a restricted
cash balance of $38.6 million of which $6.2 million is classified as prepaid
expenses and other current assets, primarily securing letters of credit. In
addition, $60.1 million of cash on advance ticket sales had been withheld by the
Company's bank card processors and was recorded as a receivable on the Company's
balance sheet as of December 31, 2004. The Company had $4.9 million in aircraft
pre-delivery deposits at the end of 2004. The Company had no revolving credit
facility and had no funds available through other unused financing options. As
of February 28, 2005, the Company's unrestricted cash balance was $104.6
million.
On October 26, 2004, the Company filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code. Based on current projections and with
the cash resources currently available to the Company, including the DIP
Facility, the Company believes that it has sufficient liquidity to continue
operations and develop a plan of reorganization into the fourth quarter of 2005.
However, no assurance can be given as to the Company's ability to continue as a
going concern, both during and after the Chapter 11 cases, which will depend
upon, among other things: the development of a plan of reorganization for a
restructured company which generates sufficient cash from operations on a
sustained basis and secures additional equity; the confirmation of a plan or
plans of reorganization under the Bankruptcy Code; the obtaining of sufficient
aircraft and aircraft engine financing (by leases or loans) to fund acquisition
or leasing of aircraft and aircraft engines needed to support planned air
transportation services; and the availability of adequate and appropriate
emergence financing. The accompanying audited consolidated financial statements
do not include any adjustments that might result should the Company be unable to
continue as a going concern. A plan of reorganization could materially change
the amounts currently disclosed in the audited consolidated financial
statements.
The potential for continuing adverse publicity associated with the Filing and
the resulting uncertainty regarding the Company's future prospects may hinder
the Company's ongoing business operations and its ability to operate, fund and
execute its business plan by impairing relations with existing and potential
customers; negatively impacting the ability of the Company to attract and
maintain key employees; limiting the Company's ability to obtain trade credit;
and impairing present and future relationships with vendors and service
providers. See "Liquidity Outlook" section below for further details regarding
the Filing.
Statement of Cash Flow Overview
In 2004, net cash used in operating activities was $26.2 million, as compared to
net cash provided by operating activities in 2003 of $93.8 million and net cash
used in operating activities of $59.0 million in 2002. The change in cash
provided by or used in operating activities between 2004 and 2003 primarily
resulted from a decrease in 2004 earnings and unfavorable changes in operating
assets and liabilities. In addition, in 2003, the Company received $37.2 from
the U.S. Government pertaining to the Supplemental Act.
In 2004, due to the Filing, net cash provided by reorganization activities was
$66.2 million. On December 22, 2004 the Company received $40.0 million from
Southwest under the DIP Facility. On November 17, 2004, the Company received
$15.0 million, net of legal costs, of debtor-in-possession financing from the
IFTA. This amount was repaid in full upon the completion of the Southwest DIP
Facility. The Company also received $34.0 million related to the assignment of
its leasehold interest in six specified gates and related assets at Chicago
Midway Airport on December 22, 2004. Other items include the payment of a $3.25
million breakup fee to AirTran and payments of $5.5 million to various
professionals and advisors related to the Filing.
Net cash provided by investing activities was $0.5 million in 2004, while net
cash used in investing activities was $98.7 million and net cash provided by
investing activities was $88.9 million, respectively, in the years ended
38
December 31, 2003 and 2002. Such amounts included a decrease in non-current
prepaid aircraft rent of $34.0 million in 2004, as compared to an increase of
$75.3 million and $12.3 million in 2003 and 2002, respectively, reflecting the
effects of the lease restructuring in January 2004 as compared to significant
cash rents paid in 2003 and 2002 for prior aircraft deliveries. In 2003 and
2002, respectively, the Company had $16.6 million, and $149.5 million of net
aircraft pre-delivery deposits returned upon delivery of the related aircraft.
There were no deposits returned in 2004. In addition, the Company had capital
expenditures totaling $26.7 million, $42.5 million and $59.3 million in 2004,
2003, and 2002, respectively. The declining trend in capital expenditures is due
primarily to the replacement of older aircraft with new aircraft, which require
less maintenance-related capital spending than the aging fleets they replaced
and the phase-in of hourly engine maintenance agreements.
Net cash used in financing activities was $62.0 million in 2004, while net cash
used in financing activities was $34.6 million, and $14.2 million, for the years
ended December 31, 2003 and 2002, respectively. In all years, borrowings and
repayments on short-term and long-term debt impacted cash used in or provided by
financing activities. In 2004, the Company made net repayments of $63.3 million.
In 2003, and 2002, respectively, the Company made net repayments of $8.4 million
and $109.9 million on pre-delivery deposit facilities related to deposits
returned on aircraft deliveries net of borrowings. In 2002, the Company obtained
a $168.0 million loan, a portion of which was guaranteed by the ATSB. In 2002,
the Company borrowed and repaid $192.5 million in temporary debt, respectively,
related to the purchase of certain Boeing 737-800 and Boeing 757-300 aircraft.
Upon completion of the exchange offers on January 30, 2004, the Company paid all
accrued preferred dividends in arrears totaling $9.2 million in the first
quarter of 2004. In 2004, the Company reduced restricted cash $11.0 million
primarily due to the cancellation of a surety bond relating to the DOT charter
obligations. In contrast, the Company provided $17.9 and $30.4 million to
collateralize additional letters of credit which was recorded as an increase in
restricted cash in 2003 and 2002, respectively.
Liquidity Outlook
Chapter 11 Reorganization. On the Petition Date, each of the Debtors filed a
voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in
the Bankruptcy Court.
The Debtors continue to operate their respective businesses as
"debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code, the Federal
Rules of the Bankruptcy Procedure and applicable court orders. As a
debtor-in-possession, each of the Debtors is authorized under the provisions of
Chapter 11 to continue to operate as an ongoing business, but may not engage in
transactions outside the ordinary course of business without prior approval from
the Bankruptcy Court. On October 29, 2004, the Bankruptcy Court granted the
Debtors certain first day motions for various reliefs designed to stabilize
operations and maintain relationships with customers, vendors, employees and
others. The first day motions granted authority to the Debtors, among other
things, to (a) pay pre-petition and post-petition employee wages, salaries and
benefits and other employee obligations; (b) honor customer programs, including
the frequent flyer program and ticketing program; and (c) honor pre-petition
obligations related to interline, clearinghouse, and other similar agreements.
On October 29, 2004 the Bankruptcy Court entered an interim order which permits
ATA to use the unrestricted cash, eligible accounts receivable and other
collateral pledged to secure ATA's ATSB Loan, a significant portion of which is
guaranteed by the ATSB. The interim order has the effect of giving the ATSB Loan
lenders a replacement lien on unrestricted cash and all other assets of the
Debtors to secure diminution of pre-petition cash collateral. This interim order
has been extended for successive short periods, currently through April 7, 2005,
and requires compliance by the Debtors with certain terms, such as the
maintenance of minimum cash collateral balances and periodic reporting
requirements. Further extensions cannot be assured, and a failure to maintain
the right to use cash collateral would be material and adverse to the ability of
the Debtors to reorganize under Chapter 11 of the U. S. Bankruptcy Code.
As required by the Bankruptcy Code, the United States Trustee has appointed an
official committee of unsecured creditors. The Official Committee and its legal
representatives have a right to be heard on all matters that come before the
Bankruptcy Court in each of the Debtor's cases. There can be no assurance that
39
the Official Committee will support the Debtors' positions in the reorganization
cases or any plan of reorganization, once proposed, and disagreements between
the Debtors and the Official Committee could protract the reorganization cases,
could negatively impact the Debtors' ability to operate during the Chapter 11
cases, and could delay or prevent the Debtors' emergence from Chapter 11.
The Filing triggered defaults on substantially all debt and lease obligations of
the Debtors. Subject to certain exceptions under the Bankruptcy Code, the Filing
automatically enjoined, or stayed, the continuation of any judicial or
administrative proceedings or other actions against the Debtors or their
property to recover on, collect or secure a claim arising prior to the Petition
Date. For example, creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on or otherwise exercise rights or remedies with respect
to a pre-petition claim, are enjoined unless and until the Bankruptcy Court
lifts the automatic stay or the Bankruptcy Code otherwise provides.
Notwithstanding the above general discussion of the automatic stay, the Debtors'
right to retain and operate certain aircraft, aircraft engines and other
equipment defined in section 1110 of the Bankruptcy Code that are leased or
subject to a security interest or conditional sale contract are specifically
governed by section 1110 of the Bankruptcy Code. That section provides, in
relevant part, that unless the Debtors, prior to 60 days after the Petition
Date, agree to perform all obligations under the lease, security agreement, or
conditional sale contract and cure all defaults thereunder (other than defaults
constituting a breach of provisions relating to the filing of the Chapter 11
cases, the Debtors' insolvency or other financial condition of the Debtors)
within the time specified in section 1110, the right of the lessor, secured
party or conditional vendor to take possession of such equipment in compliance
with the provisions of the lease, security agreement, or conditional sale
contract and to enforce any of its other rights or remedies under such lease,
security agreement, or conditional sale contract is not limited or otherwise
affected by the automatic stay, by any other provision of the Bankruptcy Code,
or by any power of the Bankruptcy Court.
The section 1110 deadline for the Debtors was December 26, 2004. As of December
31, 2004, the Company operated 82 aircraft, including 76 aircraft that were
financed with operating leases. As of March 25, 2005, with regards to the 76
leased aircraft, the Company has returned 22 of these aircraft and related
engines to the lessor. The Company expects to return 28 additional aircraft and
related engines to the lessor between March 31, 2005 and January 25, 2006. The
Company has renegotiated long-term rates on 10 aircraft and related engines.
Finally, the Company has elected to cure existing defaults and is paying the
contract rates required under the Bankruptcy Code with respect to 16 aircraft
and related engines. The Company expects these changes in fleet to result in
additional changes to amounts reported in the December 31, 2004 balance sheet
associated with the aircraft, including prepaid aircraft rent, and to result in
additional significant aircraft rejection charges in 2005.
Under section 365 of the Bankruptcy Code, the Debtors may assume, assume and
assign, or reject certain executory contracts and unexpired leases, including,
without limitation, leases of real property, aircraft and aircraft engines,
subject to the approval of the Bankruptcy Court and certain other conditions.
Generally, the rejection of an executory lease or unexpired lease is treated as
a pre-petition breach of the lease or contract in question and, subject to
certain exceptions, relieves the Debtors of performing future obligations under
such lease or contract but entitles the lessor or contract counterparty to
pre-petition general unsecured claims for damages caused by such deemed breach.
The lessor or contract counterparty may file a claim against the relevant
Debtor's estate for such damages. The assumption of an executory contract or
unexpired lease generally requires a cure of most existing defaults under such
executory contract or unexpired lease. The Company expects that liabilities
subject to compromise will arise in the future as a result of damage claims
resulting from the rejection of certain executory contracts and unexpired leases
by the Debtors. However, the Company expects that the assumption of certain
executory contracts and unexpired leases may convert liabilities subject to
compromise to liabilities not subject to compromise.
The Debtors have undertaken to notify all known or potential creditors of the
Chapter 11 cases for purposes of identifying and quantifying all pre-petition
claims. Subject to certain exceptions under the Bankruptcy Code, the Chapter 11
40
filings automatically stayed the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to October 26, 2004. The deadline
for filing by creditors of proofs of claim with the Bankruptcy Court was January
24, 2005, with a limited exception for governmental entities, which have until
April 24, 2005. A proof of claim arising from the rejection of an executory
contract or lease must be filed no later than thirty days from the effective
date of the authorized rejection.
The Bankruptcy Court extended the period during which the Debtors' have an
exclusive right to file a plan of reorganization until May 24, 2005. There is no
assurance that these exclusivity periods will be further extended by the
Bankruptcy Court. If a Debtor's exclusivity period lapses, any party in interest
may file a plan of reorganization for that Debtor. In addition to being voted on
by holders of impaired claims and equity interests, a plan of reorganization
must satisfy certain requirements of the Bankruptcy Code and must be approved,
or confirmed, by the Bankruptcy Court in order to become effective. A plan has
been accepted by holders of claims against and equity interests in a Debtor if
(1) at least one-half in number and two-thirds in dollar amount of claims
actually voting in each impaired class of claims have voted to accept the plan
and (2) at least two-thirds in amount of equity interests actually voting in
each impaired class of equity interests have voted to accept the plan. Under
certain circumstances set forth in the provisions of section 1129(b) of the
Bankruptcy Code, the Bankruptcy Court may confirm a plan even if such plan has
not been accepted by all impaired classes of claims and equity interests. A
class of claims or equity interests that does not receive or retain any property
under the plan on account of such claims or interests is deemed to have voted to
reject the plan. The precise requirements and evidentiary showing for confirming
a plan, notwithstanding its rejection by one or more impaired classes of claims
or equity interests, depends upon a number of factors, including the status and
seniority of the claims or equity interests in the rejecting class, i.e.,
secured claims or unsecured claims, subordinated or senior claims, preferred or
common stock.
Although the Debtors expect to develop reorganization plans for emergence from
Chapter 11 in 2005, there can be no assurance that a reorganization plan will be
proposed by the Debtors or confirmed by the Bankruptcy Court, or that any such
plan will be consummated. The Debtors have incurred and will continue to incur
significant costs associated with their respective reorganizations. The amount
of these costs, which are being expensed as incurred, are expected to
significantly affect their financial results.
The ultimate recovery, if any, to holders of common stock of the Company will
not be determined until confirmation of a plan of reorganization for the
Company. The plan of reorganization could result in holders of common stock
receiving no distribution on account of their interest in the Company and
cancellation of the outstanding shares. The Southwest commitments for
post-reorganization financing, equity investment in the Company and codesharing
require that all outstanding equity of the Company be cancelled without any
distributions to the holders of such equity.
DIP Financing Arrangements. On November 17, 2004, ATA obtained $15.5 million in
debtor-in-possession financing from the ITFA. ATA sold to the ITFA property
consisting primarily of aircraft parts, free and clear of any liens. The ITFA
leased the property to the Indianapolis Airport Authority, which in turn
subleased the property to ATA. ATA terminated this financing, repurchased the
assets, and paid interest to the ITFA on December 30, 2004.
On December 23, 2004, ATA and Southwest entered into a DIP Facility that
provides up to $40.0 million in cash to the Company, plus a letter of credit in
the approximate amount of $7.0 million to secure two pre-petition loans obtained
by ATA from the City of Chicago for the construction of a jet bridge extension.
The Company received $40.0 million under the DIP Facility on December 23, 2004.
A closing fee of 2.5%, or $1.0 million, was treated as a principal advance under
the DIP Facility.
The base interest rate, paid monthly, on amounts borrowed under the DIP Facility
is the greater of (a) 8.0% per annum, or (b) the three-month LIBOR rate, plus
5.0% per annum. Southwest will also receive an unused commitment fee of 1.0% per
41
annum, paid monthly, for any amounts not drawn pursuant to the DIP Facility and
a guaranty fee of 3.0% per annum paid monthly, for any amounts guaranteed but
not drawn under the Chicago LOC. During the term of the agreement, the Company
is subject to certain financial covenants. ATA has obtained amendments to these
financial covenants for the months of January and February 2005. There is no
assurance ATA will be able to comply with these financial covenants in March,
2005, or thereafter, or that Southwest will agree to further amendments to these
covenants or to waive ATA's non-compliance. The DIP facility is guaranteed by
the Company and its other subsidiaries. The DIP Facility will terminate on the
earlier of (1) the effective date of a plan of reorganization or (2) September
30, 2005, unless otherwise extended.
Asset Sale. On December 23, 2004, the Company and Southwest executed and closed
a substantial portion of the transactions contemplated by an Asset Acquisition
Agreement by which ATA agreed to assign to Southwest ATA's leasehold interest in
six specified gates and a hangar facility at Chicago-Midway airport and related
assets for $40.0 million, subject to certain adjustments. The Asset Acquisition
Agreement was entered into after the completion of an auction process supervised
by the Bankruptcy Court. ATA received $34.0 million of proceeds from the
assignment of its leasehold interest in six specified gates and related assets
on December 23, 2004. Almost all of the funds were recorded as deferred gain on
the Company's balance sheet and will be amortized over ATA's remaining lease
term of eight years at Chicago-Midway. As of December 31, 2004, the assignment
of the leasehold interest in the hangar facility and related assets had not been
executed and closed, and the $6.0 million had not been received. It is expected
to be received in the first half of 2005 concurrently with a delayed closing of
the hanger lease assignment to Southwest.
The completion of the closing under the Asset Acquisition Agreement with
Southwest triggered a requirement for ATA to pay AirTran Airways, Inc. a
termination fee of $3.25 million related to an earlier agreement with respect to
assets at Chicago Midway Airport.
Exit Facility and Equity Purchase. On December 23, 2004, Southwest committed to
provide an exit facility (the "Exit Facility") to the reorganized Company ("New
ATA") of $47 million upon the effective date of a plan of reorganization
approved by Southwest. The Exit Facility, under which a reorganized ATA would be
the borrower, will provide for (a) long-term financing, at a base interest rate
of 9.5% per annum, paid semi-annually, consisting of one or more five-year notes
to refinance up to $40.0 million under the DIP Facility, and (b) a replacement
letter of credit (the "Replacement Chicago LOC") for up to $7.0 million to
secure loan obligations to the City of Chicago now secured by the Chicago LOC.
The Exit Facility is to be guaranteed by the Debtors and all other subsidiaries
of the New ATA.
A closing fee of 2.5% of the Exit Facility is payable by the Company to
Southwest. Southwest will also receive an unused commitment fee of 1.0% per
annum, paid monthly, for any amounts not drawn pursuant to the Exit Facility and
a guaranty fee of 3.0%, per annum, paid monthly, for any amounts secured but not
drawn under the Replacement Chicago LOC.
In addition, upon the effective date of a plan of reorganization, Southwest has
committed to purchase, through an additional cash investment of $30 million,
non-voting senior convertible preferred equity of the New ATA (the "Preferred
Equity"). The Preferred Equity will be convertible into 27.5% of the fully
diluted economic ownership interest of the New ATA, subject to pro rata dilution
for management interests. The Preferred Equity will (a) have voting rights only
upon certain events of default, (b) be senior to the common equity of New ATA,
and (c) be convertible into common equity of New ATA, at Southwest's option,
upon Southwest's sale or transfer of the Preferred Equity to a third party or
certain other specified major liquidity events. In addition, the Preferred
Equity will earn dividends at the rate of 4.0% per annum and have certain rights
to require registration for resale under the securities laws. If not converted
within 10 years after the effective date of the plan of reorganization, the
Preferred Equity shall, at Southwest's option, either convert into common equity
of New ATA or be redeemed.
Codeshare Agreement. On December 23, 2004, Southwest and ATA entered into the
Southwest-ATA Codeshare Agreement, related to air transportation service to and
42
from Chicago-Midway and additional airports. Under a codeshare arrangement
between two air carriers, the codesharing air carriers have permission to book
and sell tickets on each other's flights. ATA is the only domestic air carrier
with which Southwest, perhaps the strongest U.S. airline presently, has a
codesharing agreement. Under this arrangement both carriers have expanded their
flight offerings to customers without the significant investment required for
new flights. Each airline receives a share of the ticket price for affected
flights. The initial term of the Codeshare Agreement is one year, which will be
automatically extended seven additional years once a plan of reorganization in
the Company's Chapter 11 case, which is acceptable to Southwest, is confirmed
and becomes effective. ATA and Southwest began servicing the codeshare flights
on February 4, 2005.
Restructuring of Fixed Obligations. On January 30, 2004, the Company completed
exchange offers and issued 2009 Notes and cash consideration for certain of its
2004 Notes and issued 2010 Notes and cash consideration for certain of its 2005
Notes. In completing the exchange offers, the Company accepted $260.3 million of
Existing Notes tendered for exchange, issuing $163.1 million in aggregate
principal amount of 2009 Notes and delivering $7.8 million in cash in exchange
for $155.3 million in aggregate principal amount of 2004 Notes tendered, and
issuing $110.2 million in aggregate principal amount of 2010 Notes and
delivering $5.2 million in cash in exchange for $105.0 million in aggregate
principal amount of 2005 Notes. In addition to the New Notes issued, $19.7
million in aggregate principal amount of the 2004 Notes and $20.0 million in
aggregate principal amount of the 2005 Notes remained outstanding after the
completion of the exchange offers. The remaining 2004 Notes were subsequently
paid on August 1, 2004. In connection with the exchange offers, the Company also
obtained the consent of the holders of the Existing Notes to amend or eliminate
certain of the restrictive operating covenants and certain default provisions of
the indentures governing the Existing Notes. In accordance with EITF 96-19, the
Company recorded a non-operating loss on extinguishment of debt of $27.3 million
in the first quarter of 2004. The loss is primarily related to the accounting
for the $13 million cash consideration paid at closing of the exchange offers
and the $13 million of incremental notes issued during the exchange offers. In
accordance with EITF 96-19, the New Notes are recorded in the Company's balance
sheet at fair value at the date of the exchange offers, which closely
approximated their face value. As a result of the Filing, the Company is in
default under the terms of the agreements of its unsecured senior notes. Subject
to certain exceptions under the Bankruptcy Code, the Filing provides an
automatic stay against the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to the Petition Date until the
Bankruptcy Court lifts the stay.
On January 30, 2004, ATA also completed the amendments of certain aircraft
operating leases with its three major lessors, Boeing Capital Services
Corporation ("BCSC"), General Electric Capital Aviation Services ("GECAS") and
International Lease Finance Corporation ("ILFC"). The original terms of many of
these aircraft operating leases were determined before September 11, 2001, and
many were structured to require significant cash payments in the first few years
of each lease in order to reduce the total rental cost over the entire lease
terms. The effect of the lease amendments was to delay the payment of portions
of the amounts due under those operating leases, primarily between September 30,
2003 and March 31, 2005, and to extend the leases generally for two years. Most
of the payments delayed during this time period are to be subsequently paid at
various times throughout the remaining life of the leases. ATA received a refund
of $29.8 million on January 30, 2004 related to payments made in 2003 under the
original terms of certain retroactively amended leases. The amendments resulted
in approximately $69.6 million in lower cash payments during 2004, under these
operating leases, as compared to payments that would have been due under the
original lease terms.
Debt and Operating Lease Cash Payment Obligations. The Company is required to
make cash payments in the future on debt obligations and operating leases. The
Company is obligated on a number of long-term operating leases, which are
considered financing and not recorded on the balance sheet under GAAP. The
Company does not guarantee the debt of any other party which is not a
subsidiary. The following table summarizes the Company's contractual debt
principal payments and operating lease obligations and their currently scheduled
impact on liquidity and cash flows. This information does not include cash
payments for amounts classified as liabilities subject to compromise.
43
Cash Payments Currently Scheduled (2)
-------------------------------------
2008- After
Total 2005 2006 2007 2009 2009
------------ ------------ ------------ ------------ ------------ -------------
(in thousands)
Current and long-term debt (1) $ 41,000 $ 41,000 $ - $ - $ - $ -
Lease obligations (2) 2,132,556 158,121 167,962 185,656 354,886 1,265,931
Total contractual cash obligations ------------ ------------ ------------ ------------ ------------ ------------
$ 2,173,556 $ 199,121 $ 167,962 $ 185,656 $ 354,886 $ 1,265,931
============ ============ ============ ============ ============ ============
(1) Represents repayment of DIP Facility to Southwest.
(2) The Company leases aircraft and aircraft engines, ground facilities,
including terminal space and maintenance facilities, and ground equipment. As
allowed under Section 365 of the Bankruptcy Code, the Company may assume, assume
and assign, or reject certain executory contracts and unexpired leases,
including leases of real property, aircraft and aircraft engines, subject to the
approval of the Bankruptcy Court and certain other conditions. Consequently, the
Company anticipates that its liabilities pertaining to these leases, and the
amounts related thereto as discussed below, will change significantly as the
Company progresses through reorganization.
Aircraft and Fleet Transactions. ATA has a purchase agreement with the Boeing
Company ("Boeing") to purchase seven new Boeing 737-800s, which are currently
scheduled for delivery between July 2007 and December 2007. These aircraft are
powered by General Electric CFM56-7B27 engines. The manufacturer's list price is
$52.4 million for each 737-800, subject to escalation. ATA's purchase price for
each aircraft is subject to various discounts. According to a 2004 amendment to
the purchase agreement with Boeing, if the Company does not have permanent
financing for these aircraft suitable to ATA, and does not have suitable
pre-delivery deposit financing, and if Boeing does not elect to provide such
financing suitable to ATA, these deliveries can be delayed for one year periods
annually through December 31, 2010. Aircraft pre-delivery deposits are required
for these aircraft, and ATA has historically funded these deposits for past
aircraft deliveries using operating cash and pre-delivery deposit finance
facilities. ATA can provide no assurance that it will be able to secure
pre-delivery deposit finance facilities or permanent financing for any future
aircraft purchases. As of December 31, 2004, ATA had $4.9 million in long-term
pre-delivery deposits outstanding for future aircraft deliveries which were
funded with operating cash. Upon delivery of the aircraft, pre-delivery deposits
funded with operating cash would be returned to ATA.
ATA also has an agreement to purchase four spare engines CFM56-7B27 engines,
which are currently scheduled for delivery between 2005 and 2008.
ATSB Financing. In November 2002, ATA obtained the $168.0 million ATSB Loan.
Interest is payable monthly at LIBOR plus a margin. Guarantee fees of 5.6% of
the outstanding guaranteed principal balance in 2004, escalating to 9.5% of the
outstanding guaranteed principal balance in 2005 through 2008, are payable
quarterly.
The ATSB Loan is subject to certain restrictive covenants and is collateralized
primarily by a substantial portion of ATA's unrestricted cash, certain
receivables, certain aircraft, spare engines, and rotable parts. The aircraft,
spare engines and parts consist of two Lockheed L-1011-500 aircraft, two SAAB
340B aircraft, 21 Rolls Royce RB211 spare engines and Boeing 757-200, Boeing
757-300 and Boeing 737-800 rotables, which had a combined carrying amount of
approximately $33.0 million as of December 31, 2004.
As a result of the Filing, ATA is in default and subject to immediate
44
acceleration of all balances under the ATSB Loan, as well as its unsecured
senior notes and certain other debt instruments. Subject to certain exceptions
under the Bankruptcy Code, the Filing provides an automatic stay against the
continuation of any judicial or administrative proceedings or other actions
against the Debtors or their property to recover on, collect or secure a claim
arising prior to the Petition Date until the Bankruptcy Court lifts the stay.
Notwithstanding the above general discussion of the automatic stay, the Debtors'
right to retain and operate certain aircraft, aircraft engines and other
equipment and spare parts defined in section 1110 of the Bankruptcy Code that
are leased or subject to a security interest or conditional sale contract are
specifically governed by section 1110 of the Bankruptcy Code. Further, creditors
holding security interests or liens in property of the Debtors may be entitled
to adequate protection for the continued use or consumption of their collateral.
The Debtors have entered into stipulations which have been approved by the
Bankruptcy Court providing such adequate protection to the ATSB Lenders. These
stipulations are for a stated period of time, and include performance
requirements which the Company is to achieve as a condition of the continued use
of the ATSB Loan collateral. Expiration of the stipulations by the passage of
time or a termination thereof by reason of a breach of these performance
requirements, without the Debtors obtaining an extension or a new authorization
from the Bankruptcy Court for use of the collateral, could very materially
impair the ability of the Company to continue operations. Please refer to the
discussion of the Chapter 11 filing and the requirements of section 1110 of the
Bankruptcy Code in "Liquidity Outlook - Chapter 11 Reorganization" for a more
detailed discussion of the rights of creditors.
Card Agreements. 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. The Company
maintains an agreement with a bank for the processing and collection of charges
for Visa and Mastercard as well as agreements with American Express Travel
Related Services Company, Inc for the American Express Card and Discover Card
Services, Inc. for the Discover Card (collectively referred to as the "Credit
Card Providers"). Under these agreements, a sale is normally charged to the
purchaser's card account and is paid to the Company in cash within a few days or
weeks of the date of purchase, although the Company may provide the purchased
transportation days, weeks or months later.
According to the agreements, the Credit Card Providers can retain cash collected
by them on processed card charges as a deposit. 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, is the
obligation of the Credit Card Providers. The deposit secures this potential
obligation of the Credit Card Providers to make such refunds. The Credit Card
Providers have exercised their rights to withhold distributions and as of
December 31, 2004 had retained $60.1 million of the Company's unflown sales as
compared to $57.5 million at December 31, 2003.
ATA Credit Card. On March 31, 2004, ATA entered into agreements with a credit
card issuer and Visa to introduce a consumer credit card ("the Card") bearing
redemption benefits on ATA. Holders of the Card accumulate points through
purchases on the Card, which will allow them to earn free travel on the airline
once certain point thresholds are attained. ATA launched the Card in the third
quarter of 2004. ATA earns revenue from the credit card issuer as consideration
for issuing the Card with ATA's logo, providing free transportation, and certain
cooperative advertising activities. Upon signing the agreement, ATA received a
prepayment for future revenue to be earned from the issuer, almost all of which
remained unearned by ATA, as of December 31, 2004. Restructuring of the
Company's operations may entitle the credit card issuers to a repayment of the
unearned portion of the prepayment amount.
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. As of December 31, 2004, the Company's restricted cash pledged to
secure its letter of credit for all surety bonds totaled $31.4 million and is
classified as non-current restricted cash on the Company's balance sheet.
The DOT 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
45
Company for future transportation. On December 15, 2003, upon cancellation of
the DOT charter obligation surety bond by the issuer, the Company entered into
an escrow arrangement which requires the Company to place advance receipts for
certain charter flights into escrow until the flight operates. Once the flight
occurs the Company is paid from the escrow account those advance deposits
specific to that completed flight. As of December 31, 2004, the Company has $6.3
million in advance charter receipts deposited in escrow, which was included in
prepaid expenses and other current assets on the Company's balance sheet as of
that date. The surety bond of $12.9 million relating to the DOT charter
obligations was released in the first quarter of 2004, and the restricted cash
securing the letter of credit was returned to the Company.
46
Forward-Looking Information and Risk Factors
Information contained within "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this report 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 the ability to develop and execute a revised business plan for profitable
operations, including restructuring flight schedules, maintaining the
support of employees and regauging the fleet of aircraft;
o the ability to develop, prosecute, confirm and consummate a plan of
reorganization with respect to the Chapter 11 cases;
o risks associated with third parties seeking and obtaining Bankruptcy Court
approval to terminate or shorten the exclusivity period, to propose and
confirm one or more plans of reorganization, for the appointment of a
Chapter 11 trustee or to convert one or more of the cases to a Chapter 7
case;
o the ability to obtain and maintain normal terms with vendors and service
providers;
o the ability to maintain contracts that are critical to its operations;
o the potential adverse effects of the Chapter 11 reorganization on liquidity
or results of operations;
o the ability to attract and retain customers;
o demand for transportation in markets in which the Company operates;
o economic conditions;
o the effects of any hostilities or act of war;
o salary costs;
o aviation fuel costs;
o competitive pressures on pricing (particularly from low-cost competitors);
o weather conditions;
o government legislation and regulation; and
o other risks and uncertainties listed from time to time in reports the
Company periodically files with the Securities and Exchange Commission.
The Company is under no obligation to update, and will not undertake to update,
its forward-looking statements to reflect future events or changes in
circumstances.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to certain market risks, including commodity price risk
resulting from aircraft fuel price fluctuations and interest rate risk. The
adverse effects of potential changes in these market risks are discussed below.
The sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity, nor do they consider additional
actions management might take to mitigate the adverse impact of such changes on
the Company. See the notes to consolidated financial statements for a
description of the Company's accounting policies and other information related
to these financial instruments.
Aircraft Fuel Prices. The Company's results of operations are significantly
impacted by changes in the price of aircraft fuel. During 2004, aircraft fuel
47
accounted for approximately 22.5% of the Company's operating expenses, as
compared to 19.2% in 2003. The Company obtains fuel price fluctuation protection
from escalation clauses in certain commercial charter, military charter and bulk
scheduled service. During 2002, the Company entered into fuel hedge contracts to
reduce the volatility of fuel prices, using heating oil swap agreements. Using
these contracts, the Company hedged approximately 12% of its total gallons
consumed in 2002. During 2003 and 2004, the Company had no fuel hedge
agreements.
Market risk is estimated as a hypothetical 10% increase in the December 31,
2004, cost per gallon of fuel. Based on projected 2005 fuel usage, excluding
anticipated protection from escalation clauses, such a change would result in an
increase in aircraft fuel expense of approximately $24.0 million. As of December
31, 2003, that risk was $26.5 million.
Interest Rates. The Company's results of operations are affected by fluctuations
in market interest rates. As of December 31, 2004, the majority of the Company's
variable-rate debt was comprised of approximately $41 million of variable-rate
debt through the DIP financing. As of December 31, 2003, the majority of the
Company's variable-rate debt was comprised of approximately $161.0 million of
variable-rate debt through the secured term loan. This debt is reported in
liabilities subject to compromise at December 31, 2004. If interest rates
average 100 basis points more on variable-rate debt in 2005, as compared to 2004
average rates, the Company's interest expense would increase by approximately
$0.4 million. In comparison, if interest rates averaged 100 basis points more on
variable-rate debt in 2004, as compared to 2003 average rates, the Company's
interest expense would have increased by approximately $1.6 million.
The Company earns interest income from investing excess cash in short-term
investments. If average short-term interest rates decreased by one percent in
2005, as compared to 2004 rates, the Company's interest income from short-term
investments would decrease by approximately $0.7. In comparison, the Company
estimated that if average short-term interest rates decreased to zero percent as
compared to 2003 average rates, the Company's interest income from short-term
investments would have decreased by approximately $1.4 million as of December
31, 2004.
All estimated changes in interest income and expense are determined by
considering the impact of hypothetical changes in interest rates on the
Company's debt and cash balances at December 31, 2004 and 2003.
48
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
We have audited the accompanying consolidated balance sheets of ATA Holdings
Corp. and Subsidiaries (Debtor and Debtors-In-Possession as of October 26, 2004)
as of December 31, 2004 and 2003, and the related consolidated statements of
operations, preferred stock (subject to compromise), and shareholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 2004. Our audits also included the financial statement schedule
listed in the Index at Item 15(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ATA Holdings Corp.
and Subsidiaries (Debtor and Debtors-In-Possession as of October 26, 2004) at
December 31, 2004 and 2003, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
2004, in conformity with U.S. generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Note 1, the Company filed for reorganization under Chapter 11 of
the United States Bankruptcy Code. The accompanying financial statements do not
purport to reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such financial statements do not purport to show (a)
as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to prepetition liabilities, all
amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that
may be made in the capitalization of the Company; or (d) as to operations, the
effect of any changes that may be made in its business.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, as a result of
the bankruptcy filing, realization of assets and satisfaction of liabilities,
without substantial adjustments and/or changes in ownership, are subject to
uncertainty and raise substantial doubt about the Company's ability to continue
as a going concern. Management's plan concerning these matters is also discussed
in Note 1. The 2004 financial statements do not include adjustments that might
result from the outcome of this uncertainty.
Ernst & Young LLP
Indianapolis, Indiana
February 11, 2005, except for the seventh paragraph in Note 1
and last paragraph in Note 19, as to which the date is
March 25, 2005
49
ATA HOLDINGS CORP. AND SUBSIDIARIES
(Debtor and Debtors-in-Possession as of October 26, 2004)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, December 31,
2004 2003
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 139,652 $ 160,644
Receivables, net of allowance for doubtful accounts
(2004 - $2,608; 2003 - $1,388). 118,807 118,745
Inventories, net 43,802 47,604
Prepaid expenses and other current assets 39,160 21,406
---------- ----------
Total current assets 341,421 348,399
Property and equipment:
Flight equipment 198,888 324,697
Facilities and ground equipment 147,420 142,032
---------- ----------
346,308 466,729
Accumulated depreciation (163,549) (213,247)
---------- ----------
182,759 253,482
Restricted cash 32,355 48,301
Goodwill 8,488 14,887
Prepaid aircraft rent 52,031 144,088
Investment in BATA 6,930 14,672
Deposits and other assets 27,081 46,158
---------- ----------
Total assets $ 651,065 $ 869,987
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ - $ 51,645
Short-term debt 41,000 -
Accounts payable 7,563 25,327
Air traffic liabilities 89,887 102,831
Accrued expenses 122,031 154,689
---------- ----------
Total current liabilities 260,481 334,492
Long-term debt, less current maturities - 443,051
Deferred gains from sale and leaseback of aircraft - 55,392
Other deferred items 31,464 51,822
Redeemable preferred stock; authorized and issued 500 shares - 56,330
---------- ----------
Total long-term liabilities 31,464 606,595
Liabilities subject to compromise 1,249,676 -
Commitments and contingencies
Convertible redeemable preferred stock; authorized and issued 300 shares,
subject to compromise 30,000 32,907
Shareholders' deficit:
Preferred stock; authorized 9,999,200 shares; none issued - -
Common stock, without par value; authorized 30,000,000 shares;
issued 13,535,304- 2004; 13,502,593 - 2003 66,013 65,711
Treasury stock; 1,711,440 shares - 2004; 1,711,440 shares - 2003 (24,778) (24,778)
Additional paid-in capital 18,166 18,163
Accumulated deficit (979,957) (163,103)
---------- ----------
Total shareholders' deficit (920,556) (104,007)
---------- ----------
Total liabilities and shareholders' deficit $ 651,065 $ 869,987
========== ==========
See accompanying notes.
50
ATA HOLDINGS CORP. AND SUBSIDIARIES
(Debtor and Debtors-in-Possession as of October 26, 2004)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Year Ended December 31,
2004 2003 2002
----------- ------------ -----------
Operating revenues:
Scheduled service $ 1,099,944 $ 1,085,420 $ 886,579
Charter 358,870 366,207 309,242
Ground package 14,921 14,682 35,687
Other 58,836 52,224 45,862
----------- ------------ -----------
Total operating revenues 1,532,571 1,518,533 1,277,370
----------- ------------ -----------
Operating expenses:
Salaries, wages and benefits 422,430 399,622 355,201
Fuel and oil 368,273 276,057 206,574
Aircraft rentals 242,602 226,559 190,148
Handling, landing and navigation fees 119,963 113,781 110,528
Aircraft maintenance, materials and repairs 74,992 45,741 52,254
Crew and other employee travel 57,466 64,055 54,774
Depreciation and amortization 52,013 56,729 76,727
Other selling expenses 51,352 50,150 43,934
Passenger service 42,861 41,000 38,345
Advertising 33,533 37,932 40,028
Facilities and other rentals 27,072 24,162 22,624
Commissions 26,156 22,445 23,326
Insurance 24,617 30,214 33,981
Ground package cost 12,496 12,089 27,882
Aircraft impairments and retirements 7,887 5,288 66,787
Goodwill impairment - - 6,893
U.S. Government grants - (37,156) 16,221
Other 69,021 72,324 71,180
----------- ------------ -----------
Total operating expenses 1,632,734 1,440,992 1,437,407
----------- ------------ -----------
Operating income (loss) (100,163) 77,541 (160,037)
Other income (expense):
Reorganization expenses (638,479) - -
Interest income 2,283 2,878 2,829
Loss on extinguishment of debt (27,314) - -
Interest expense (51,145) (56,324) (35,746)
Other (911) (2,350) (1,260)
----------- ------------ -----------
Other expense (715,566) (55,796) (34,177)
----------- ------------ -----------
Income (loss) before income taxes (815,729) 21,745 (194,214)
Income taxes (credits) - 1,311 (24,950)
----------- ------------ -----------
Net income (loss) (815,729) 20,434 (169,264)
Preferred stock dividends (1,125) (4,642) (5,720)
----------- ------------ -----------
Income (loss) available to common shareholders $ (816,854) $ 15,792 $ (174,984)
=========== ============ ===========
Basic earnings per common share:
Average shares outstanding 11,823,769 11,773,713 11,711,906
Net income (loss) per common share $ (69.09) $ 1.34 $ (14.94)
=========== ============ ===========
Diluted earnings per common share:
Average shares outstanding 11,823,769 14,468,836 11,711,906
Net income (loss) per common share $ (69.09) $ 1.27 $ (14.94)
=========== ============ ===========
See accompanying notes.
51
ATA HOLDINGS CORP. AND SUBSIDIARIES
(Debtor and Debtors-in-Possession as of October 26, 2004)
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK, SUBJECT TO COMPROMISE ,
AND SHAREHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands)
Redeemable
Preferred Additional Other Retained Total
Stock, subject Common Treasury Paid-in Comprehensive Earnings Shareholders'
to compromise Stock Stock Capital Income (Deficit) Equity (Deficit)
_____________ ________ __________ ___________ __________ _____________ _______________
Balance as of December 31, 2001 $ 80,000 $ 61,964 $ (24,768) $ 11,534 $ (687) $ (3,911) $ 44,132
============= ======== ========== =========== ========== ============= ===============
Net loss - - - - - (169,264) (169,264)
Net gain on derivative
instruments, net of tax - - - - 687 - 687
__________ _____________ ________________
Total comprehensive loss - - - - 687 (169,264) (168,577)
__________ _____________ ________________
Preferred dividends paid - - - - - (3,235) (3,235)
Restricted stock grants - 13 (10) 4 - - 7
Payment of liability with stock - 2,445 - (295) - - 2,150
Stock options exercised - 868 - (419) - - 449
Warrants issued with ATSB loan - - - 7,424 - - 7,424
Disqualifying disposition of stock - - - 126 - - 126
Accrued preferred stock dividends 2,485 - - - - (2,485) (2,485)
_____________ ________ __________ ___________ __________ _____________ ________________
Balance as of December 31, 2002 $ 82,485 $ 65,290 $ (24,778) $ 18,374 $ - $ (178,895) $ (120,009)
============= ======== ========== =========== ========== ============= ================
Net income - - - - - 20,434 20,434
Stock options exercised - 421 - (211) - - 210
Reclassification to long-term
debt (54,220)
Accrued preferred stock
dividends 4,642 - - - - (4,642) (4,642)
_____________ ________ __________ ___________ __________ _____________ ________________
Balance as of December 31, 2003 $ 32,907 $ 65,711 $ (24,778) $ 18,163 $ - $ (163,103) $ (104,007)
============= ======== ========== =========== ========== ============= ================
Net loss - - - - - (815,729) (815,729)
Stock options exercised - 302 - 3 - - 305
Preferred stock dividends (2,907) - - - - (1,125) (1,125)
_____________ ________ __________ ___________ __________ _____________ ________________
Balance as of December 31, 2004 $ 30,000 $ 66,013 $ (24,778) $ 18,166 $ - $ (979,957) $ (920,556)
============= ======== ========== ============ ========== ============= ================
See accompanying notes.
52
ATA HOLDINGS CORP. AND SUBSIDIARIES
(Debtor and Debtors-in-Possession as of October 26, 2004)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
2004 2003 2002
---------------------------------------------------
Operating activities:
Net income (loss) before reorganization expenses $ (177,250) $ 20,434 $ (169,264)
Adjustments to reconcile net income (loss before
reorganization expenses to net cash provided by
(used in) operating activities:
Depreciation and amortization 52,013 56,729 76,727
Loss on extinguishment of debt 27,314 - -
Aircraft impairments and retirements 7,887 5,288 66,787
Goodwill impairments - - 6,893
Deferred income tax credit - - (8,697)
Other non-cash items 23,697 31,686 39,817
Changes in operating assets and liabilities:
U.S. Government grant receivable - 6,158 16,221
Other receivables (62) (38,526) (27,552)
Inventories (5,322) 38 (7,411)
Prepaid expenses and other current assets (8,348) 17,808 (24,701)
Accounts payable 5,811 1,639 (3,260)
Air traffic liabilities (12,944) 8,138 (6,265)
Liabilities subject to compromise (14,126) - -
Accrued expenses 55,130 (15,613) (18,309)
Other deferred items 20,000 - -
--------------- -------------- -------------
Net cash provided by (used in) operating activities (26,200) 93,779 (59,014)
--------------- -------------- -------------
Reorganization activities:
Reorganization expenses, net (638,479) - -
Impairment losses, reported as reorganization items 55,301 - -
Prepaid expenses and other current assets (4,395) - -
Liabilities subject to compromise 507,311 - -
Accrued expenses 6,710 - -
Other non-cash items 6,657 - -
Proceeds from Debtor-in-Possession financing 56,500 - -
Payments on Debtor-in-Possession financing (15,500) - -
Proceeds from sales of property and equipment 34,000 - -
Noncurrent prepaid aircraft rent 58,089 - -
--------------- -------------- -------------
Net cash provided by reorganization activities 66,194 - -
--------------- -------------- -------------
Investing activities:
Aircraft pre-delivery deposits - 16,582 149,510
Capital expenditures (26,660) (42,534) (59,346)
Noncurrent prepaid aircraft rent 33,968 (75,260) (12,304)
Investment in BATA - - 18,632
(Additions) reductions to other assets (7,339) 2,206 (7,985)
Proceeds from sales of property and equipment 562 312 424
--------------- -------------- -------------
Net cash provided by (used in) investing activities 531 (98,694) 88,931
--------------- -------------- -------------
Financing activities:
Preferred stock dividends (9,987) - (3,235)
Proceeds from sale/leaseback transactions - - 2,253
Proceeds from short-term debt - - 56,858
Payments on short-term debt - (8,384) (167,839)
Proceeds from long-term debt 1,500 5,729 363,040
Payments on long-term debt and exchange offers (64,813) (14,215) (235,352)
(Increase) decrease in other restricted cash 10,978 (17,941) (30,360)
Proceeds from stock option exercises 305 210 449
Purchase of treasury stock - - (10)
--------------- -------------- -------------
Net cash (used in) financing activities (62,017) (34,601) (14,196)
--------------- -------------- -------------
Increase (decrease) in cash and cash equivalents (21,492) (39,516) 15,721
Cash and cash equivalents, beginning of year 160,644 200,160 184,439
--------------- -------------- -------------
Cash and cash equivalents, end of year $ 139,152 $ 160,644 $ 200,160
=============== ============== =============
See accompanying notes.
53
ATA HOLDINGS CORP. AND SUBSIDIARIES
(Debtor and Debtors-in-Possession as of October 26, 2004)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
2004 2003 2002
__________________________________________________
Supplemental disclosures:
Cash payments for:
Interest $ 42,575 $ 47,088 $ 42,102
Income taxes (refunds), net $ (6,502) $ (10,992) $ 1,572
Financing and investing activities not affecting cash:
Accrued capitalized interest $ 491 $ 343 $ (10,487)
Notes payable $ - $ - $ 2,427
Issuance of warrants $ - $ - $ 7,424
Accrued preferred stock dividends $ 375 $ 4,642 $ 2,485
See accompanying notes.
54
Notes to Consolidated Financial Statements
1. The Company and the Chapter 11 Filing
Chapter 11 Reorganization. On October 26, 2004 (the "Petition Date"), ATA
Holdings Corp. (the "Company"), and seven of its subsidiaries including ATA
Airlines, Inc. ("ATA") and Chicago Express Airlines, Inc. ("Chicago Express")
(collectively, the "Debtors"), filed a voluntary petition for relief (the
"Filing") under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court for the Southern District of Indiana (the "Bankruptcy Court").
The Debtors continue to operate their respective business as
"debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code, the Federal
Rules of Bankruptcy Procedure and applicable court orders. As a
debtor-in-possession, each of the Debtors is authorized under the provisions of
Chapter 11 to continue to operate as an ongoing business, but may not engage in
transactions outside the ordinary course of business without prior approval from
the Bankruptcy Court. On October 29, 2004, the Bankruptcy Court granted the
Debtors certain first day motions for various reliefs designed to stabilize
operations and maintain relationships with customers, vendors, employees and
others. The first day motions granted authority to the Debtors, among other
things, to (a) pay pre-petition and post-petition employee wages, salaries and
benefits and other employee obligations; (b) honor customer programs, including
the frequent flyer program and ticketing program; and (c) honor pre-petition
obligations related to interline, clearinghouse, and other similar agreements.
On October 29, 2004 the Bankruptcy Court entered an interim order which permits
ATA to use the unrestricted cash, eligible accounts receivable and other
collateral pledged to secure ATA's secured term loan (the "ATSB Loan"), a
significant portion of which is guaranteed by the Air Transportation
Stabilization Board (the "ATSB"). The interim order has the effect of giving the
ATSB Loan lenders a replacement lien on unrestricted cash and all other assets
of the Debtors to secure diminution of pre-petition cash collateral. This
interim order has been extended for successive short periods, currently through
April 7, 2005, and requires compliance by the Debtors with certain terms, such
as the maintenance of minimum cash collateral balances and periodic reporting
requirements. Further extensions cannot be assured, and a failure to maintain
the right to use cash collateral would be material and adverse to the ability of
the Debtors to reorganize under Chapter 11 of the U. S. Bankruptcy Code.
As required by the Bankruptcy Code, the United States Trustee has appointed an
official committee of unsecured creditors (the "Official Committee"). The
Official Committee and its legal representatives have a right to be heard on all
matters that come before the Bankruptcy Court in each of the Debtor's cases.
There can be no assurance that the Official Committee will support the Debtors'
positions in the reorganization cases or any plan of reorganization, once
proposed, and disagreements between the Debtors and the Official Committee could
protract the reorganization cases, could negatively impact the Debtors' ability
to operate during the Chapter 11 cases, and could delay or prevent the Debtors'
emergence from Chapter 11.
The Filing triggered defaults on substantially all debt and lease obligations of
the Debtors. Subject to certain exceptions under the Bankruptcy Code, the Filing
automatically enjoined, or stayed, the continuation of any judicial or
administrative proceedings or other actions against the Debtors or their
property to recover on, collect or secure a claim arising prior to the Petition
Date. For example, creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on or otherwise exercise rights or remedies with respect
to a pre-petition claim, are enjoined unless and until the Bankruptcy Court
lifts the automatic stay or the Bankruptcy Code otherwise provides.
Notwithstanding the above general discussion of the automatic stay, the Debtors'
right to retain and operate certain aircraft, aircraft engines and other
equipment defined in section 1110 of the Bankruptcy Code that are leased or
subject to a security interest or conditional sale contract are specifically
55
governed by section 1110 of the Bankruptcy Code. That section provides, in
relevant part, that unless the Debtors, prior to 60 days after the Petition
Date, agree to perform all obligations under the lease, security agreement, or
conditional sale contract and cure all defaults thereunder (other than defaults
constituting a breach of provisions relating to the filing of the Chapter 11
cases, the Debtors' insolvency or other financial condition of the Debtors)
within the time specified in section 1110, the right of the lessor, secured
party or conditional vendor to take possession of such equipment in compliance
with the provisions of the lease, security agreement, or conditional sale
contract and to enforce any of its other rights or remedies under such lease,
security agreement, or conditional sale contract is not limited or otherwise
affected by the automatic stay, by any other provision of the Bankruptcy Code,
or by any power of the Bankruptcy Court.
The section 1110 deadline for the Debtors was December 26, 2004. As of December
31, 2004, the Company operated 82 aircraft, including 76 aircraft that were
financed with operating leases. As of March 25, 2005, with regards to the 76
leased aircraft, the Company has returned 22 of these aircraft and related
engines to the lessor. The Company expects to return 28 additional aircraft and
related engines to the lessor between March 31, 2005 and January 25, 2006. The
Company has renegotiated long-term rates on 10 aircraft and related engines.
Finally, the Company has elected to cure existing defaults and is paying the
contract rates required under the Bankruptcy Code with respect to 16 aircraft
and related engines. The Company expects these changes in fleet to result in
additional changes to amounts reported in the December 31, 2004 balance sheet
associated with the aircraft, including prepaid aircraft rent, and to result in
additional significant aircraft rejection charges in 2005.
Under section 365 of the Bankruptcy Code, the Debtors may assume, assume and
assign, or reject certain executory contracts and unexpired leases, including,
without limitation, leases of real property, aircraft and aircraft engines,
subject to the approval of the Bankruptcy Court and certain other conditions.
Generally, the rejection of an executory lease or unexpired lease is treated as
a pre-petition breach of the lease or contract in question and, subject to
certain exceptions, relieves the Debtors of performing future obligations under
such lease or contract but entitles the lessor or contract counterparty to
pre-petition general unsecured claim for damages caused by such deemed breach.
The lessor or contract counterparty may file a claim against the relevant
Debtor's estate for such damages. The assumption of an executory contract or
unexpired lease generally requires a cure of most existing defaults under such
executory contract or unexpired lease. The Company expects that liabilities
subject to compromise will arise in the future as a result of damage claims
resulting from the rejection of certain executory contracts and unexpired leases
by the Debtors. However, the Company expects that the assumption of certain
executory contracts and unexpired leases may convert liabilities subject to
compromise to liabilities not subject to compromise.
The Debtors have undertaken to notify all known or potential creditors of the
Chapter 11 cases for purposes of identifying and quantifying all pre-petition
claims. Subject to certain exceptions under the Bankruptcy Code, the Chapter 11
filings automatically stayed the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to October 26, 2004. The deadline
for filing by creditors of proofs of claim with the Bankruptcy Court was January
24, 2005, with a limited exception for governmental entities, which have until
April 24, 2005. A proof of claim arising from the rejection of executory
contracts and expired leases must be filed no later than thirty days from the
effective date of the authorized rejection.
The Bankruptcy court extended the period during which the Debtors' have an
exclusive right to file a plan of reorganization until May 24, 2005. There is no
assurance that these exclusivity periods will be further extended by the
Bankruptcy Court. If a Debtor's exclusivity period lapses, any party in interest
may file a plan of reorganization for that Debtor. In addition to being voted on
by holders of impaired claims and equity interests, a plan of reorganization
must satisfy certain requirements of the Bankruptcy Code and must be approved,
or confirmed, by the Bankruptcy Court in order to become effective. A plan has
been accepted by holders of claims against and equity interests in a Debtor if
(1) at least one-half in number and two-thirds in dollar amount of claims
actually voting in each impaired class of claims have voted to accept the plan
and (2) at least two-thirds in amount of equity interests actually voting in
each impaired class of equity interests have voted to accept the plan. Under
certain circumstances set forth in the provisions of section 1129(b) of the
56
Bankruptcy Code, the Bankruptcy Court may confirm a plan even if such plan has
not been accepted by all impaired classes of claims and equity interests. A
class of claims or equity interests that does not receive or retain any property
under the plan on account of such claims or interests is deemed to have voted to
reject the plan. The precise requirements and evidentiary showing for confirming
a plan, notwithstanding its rejection by one or more impaired classes of claims
or equity interests, depends upon a number of factors, including the status and
seniority of the claims or equity interests in the rejecting class, i.e.,
secured claims or unsecured claims, subordinated or senior claims, preferred or
common stock.
Although the Debtors expect to develop reorganization plans for emergence from
Chapter 11 in 2005, there can be no assurance that any reorganization plan will
be proposed by the Debtors or confirmed by the Bankruptcy Court, or that any
such plan will be consummated. The Debtors have incurred and will continue to
incur significant costs associated with their respective reorganizations. The
amount of these costs, which are being expensed as incurred, are expected to
significantly affect their financial results.
The ultimate recovery, if any, to holders of common stock of the Company will
not be determined until confirmation of a plan of reorganization for the
Company. The plan of reorganization could result in holders of common stock
receiving no distribution on account of their interest in the Company and
cancellation of the outstanding shares. The Southwest Airlines Co. ("Southwest")
commitments for post-reorganization financing, equity investment in the Company
and codesharing require that all outstanding equity of the Company be cancelled
without any distributions to the holders of such equity.
Financial Statement Presentation. The accompanying consolidated financial
statements, for the year ended December 31, 2004, of the Company have been
prepared in accordance with American Institute of Certified Public Accountants
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
under the Bankruptcy Code ("SOP 90-7") and on a going-concern basis, which
contemplates continuity of operations, realization of assets and satisfaction of
liabilities in the ordinary course of business.
SOP 90-7, which is applicable to companies in Chapter 11, generally does not
require filers to change the manner in which their financial statements are
prepared. However, it does require that the financial statements for periods
subsequent to the filing of Chapter 11 petition distinguish transactions and
events that are directly associated with the reorganization from the ongoing
operations of the business. Generally, the Company's revenues, expenses
(including professional fees), realized gains and losses, and provision for
losses that can be directly associated with the reorganization and restructuring
of the business must be reported separately as reorganization items in the
consolidated statement of operations. The consolidated balance sheet must
distinguish pre-petition liabilities subject to compromise from those
pre-petition liabilities that are not subject to compromise and from
post-petition liabilities. Liabilities that may be affected by the
reorganization plan must be reported at the amounts expected to be allowed, even
if they may be settled for different amounts.
For the year ended December 31, 2004, the Company had recognized the following
reorganization expenses in the consolidated statement of operations (in
thousands):
57
Aircraft lease rejection charges $ 568,317
Aircraft impairment 44,499
Professional fees 8,747
Goodwill impairment 6,399
Other 10,517
--------------
$ 638,479
==============
The aircraft leases and aircraft engine leases rejection charges are non-cash
charges which are comprised of the Company's estimate of claims resulting from
the rejection or return of the aircraft and engines as part of the bankruptcy
process. They also include the write-off of assets and liabilities related to
aircraft leases and aircraft engine leases that the Company has rejected,
committed to return dates with the lessor or intended to reject as part of the
Company's business plan as of December 31, 2004. The estimate that the Company
recorded is subject to material adjustments as the Debtors proceed through the
bankruptcy process.
For information on the aircraft and goodwill impairment, see "Note 15- Fleet
Impairment" and "Note 16 - Goodwill."
The disposition of assets and liquidation or settlement of liabilities in the
Chapter 11 cases are subject to significant uncertainty. While operating as
debtors-in-possession under the protection of Chapter 11 of the Bankruptcy Code,
and subject to the Bankruptcy Court approval or otherwise as permitted in the
normal course of business, the Debtors may sell or otherwise dispose of assets
and liquidate or settle liabilities for amounts other than those reflected in
the consolidated financial statements. Further, a plan of reorganization could
materially change the amounts and classifications reported in these consolidated
financial statements, which do not give effect to any adjustments to the
carrying value or amounts of liabilities that might result as a consequence of
confirmation of a plan of reorganization.
Pursuant to the Bankruptcy code, the Debtors have filed schedules with the
Bankruptcy Court setting forth the assets and liabilities of the Debtors as of
the Petition Date. Differences between amounts recorded by the Debtors and
claims filed by creditors will be investigated and resolved as part of the
Chapter 11 cases. The deadline for filing proofs of claim with the Bankruptcy
Court was January 24, 2005, with a limited exception for governmental entities,
which have until April 24, 2005 to file proofs of claim. The ultimate numbers
and allowed amounts of such claims are not presently known.
DIP Financing Arrangements. On November 17, 2004, ATA obtained $15 million in
debtor-in-possession financing from the Indiana Transportation Finance Authority
("ITFA"). ATA sold to the ITFA property consisting primarily of aircraft parts,
free and clear of any liens. The ITFA leased the property to the Indianapolis
Airport Authority, which in turn subleased the property to ATA. ATA terminated
this financing, repurchased the assets, and paid interest to the ITFA on
December 30, 2004.
On December 23, 2004, ATA and Southwest entered into a Secured
Debtor-in-Possession Credit and Security Agreement (the "DIP Facility") that
provides up to $40.0 million in cash to the Company, plus a letter of credit in
the approximate amount of $7 million to secure two pre-petition loans obtained
by ATA from the City of Chicago for the construction of a jet bridge extension
(the "Chicago LOC"). The Company received $40.0 million under the DIP Facility
on December 23, 2004. A closing fee of 2.5%, or $1.0 million, was treated as a
principal advance under the DIP Facility.
58
The base interest rate, paid monthly, on amounts borrowed under the DIP Facility
is the greater of (a) 8.0% per annum, or (b) the three-month LIBOR rate, plus
5.0% per annum, paid monthly. Southwest will also receive an unused commitment
fee of 1.0% per annum, paid monthly, for any amounts not drawn pursuant to the
DIP Facility and a guaranty fee of 3.0%, per annum, paid monthly, for any
amounts guaranteed but not drawn under the Chicago LOC. During the term of the
agreement, the Company is subject to certain financial covenants. ATA has
obtained amendments to these financial covenants for the months of January and
February 2005. There is no assurance ATA will be able to comply with these
financial covenants in March, 2005, or thereafter, or that Southwest will agree
to further amendments to these covenants or to waive ATA's non-compliance. The
DIP facility is guaranteed by the Company and its other subsidiaries. The DIP
Facility will terminate on the earlier of (1) the effective date of a plan of
reorganization or (2) September 30, 2005, unless otherwise extended.
Asset Sale. On December 23, 2004, the Company and Southwest executed and closed
a substantial portion of the transactions contemplated by an Asset Acquisition
Agreement (the "Asset Acquisition Agreement") by which ATA agreed to assign to
Southwest ATA's leasehold interest in six specified gates and a hangar facility
at Chicago-Midway airport and related assets for $40.0 million, subject to
certain adjustments. The Asset Acquisition Agreement was entered into after the
completion of an auction process supervised by the Bankruptcy Court. ATA
received $34.0 million of proceeds from the assignment of its leasehold interest
in six specified gates and related assets on December 23, 2004. Almost all of
the funds were recorded as deferred gain on the Company's balance sheet and will
be amortized over ATA's remaining lease term of eight years at Chicago-Midway.
As of December 31, 2004, the assignment of the leasehold interest in the hangar
facility and related assets had not been executed and closed, and the $6.0
million had not been received. It is expected to be received in the first half
of 2005 concurrently with a delayed closing of the hanger lease assignment to
Southwest.
The completion of the closing under the Asset Acquisition Agreement with
Southwest triggered a requirement for ATA to pay AirTran Airways, Inc. a
termination fee of $3.25 million, which is recorded in reorganization expense in
the consolidated statement of operations, related to an earlier agreement with
respect to assets at Chicago-Midway Airport.
Exit Facility and Equity Purchase. On December 23, 2004, Southwest committed to
provide an exit loan facility (the "Exit Facility") to the reorganized Company
("New ATA") of $47 million upon the effective date of a plan of reorganization
approved by Southwest. The Exit Facility, under which a reorganized ATA would be
the borrower, will provide for (a) a long-term financing, at a based interest
rate of 9.5% per annum, paid semi-annually, consisting of one or more five-year
notes to refinance up to $40.0 million under the DIP Facility, and (b) a
replacement letter of credit (the "Replacement Chicago LOC") for up to $7.0
million to secure loan obligations to the City of Chicago now secured by the
Chicago LOC. The Exit Facility is to be guaranteed by the Debtors and all other
subsidiaries of the New ATA. As of December 31, 2004, no amounts had been
received under the Exit Facility.
A closing fee of 2.5% of the Exit Facility is payable by the Company to
Southwest. Southwest will also receive an unused commitment fee of 1.0% per
annum, paid monthly, for any amounts not drawn pursuant to the Exit Facility and
a guaranty fee of 3.0%, per annum, paid monthly, for any amounts secured but not
drawn under the Replacement Chicago LOC.
In addition, upon the effective date of a plan of reorganization, Southwest has
committed to purchase, through an additional cash investment of $30 million,
non-voting senior convertible preferred equity of the New ATA (the "Preferred
Equity"). The Preferred Equity will be convertible into 27.5% of the fully
diluted economic ownership interest of the New ATA, subject to pro rata dilution
for management interests. The Preferred Equity will (a) have voting rights only
upon certain events of default, (b) be senior to the common equity of New ATA,
and (c) be convertible into common equity of New ATA, at Southwest's option,
upon Southwest's sale or transfer of the Preferred Equity to a third party or
certain other specified major liquidity events. In addition, the Preferred
Equity will earn dividends at the rate of 4.0% per annum and have certain rights
59
to require registration for resale under the securities laws. If not converted
within 10 years after the effective date of the plan of reorganization, the
Preferred Equity shall, at Southwest's option, either convert into common equity
of New ATA or be redeemed.
Codeshare Agreement. On December 23, 2004, Southwest and ATA entered into the
Southwest-ATA Codeshare Agreement (the "Codeshare Agreement"), related to air
transportation service to and from Chicago-Midway and additional airports. Under
a codeshare arrangement between two air carriers, the codesharing air carriers
have permission to book and sell tickets on each other's flights. ATA is the
only domestic air carrier with which Southwest, perhaps the strongest U.S.
airline presently, has a codesharing agreement. Under this arrangement both
carriers have expanded their flight offerings to customers without the
significant investment required for new flights. Each airline receives a share
of the ticket price for affected flights. The initial term of the Codeshare
Agreement is one year, which will be automatically extended seven additional
years once a plan of reorganization in the Company's Chapter 11 case, which is
acceptable to Southwest, is confirmed and becomes effective. ATA and Southwest
began servicing the codeshare flights on February 4, 2005.
2. Significant Accounting Policies
Basis of Presentation and Business Description
The consolidated financial statements include the accounts of the Company, and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company operates principally in one
business segment through ATA, its principal subsidiary, which accounts for
approximately 90% of the Company's operating revenues. ATA is a
U.S.-certificated air carrier providing domestic and international charter and
scheduled passenger air services. Refer to "Note 1 - the Company and the Chapter
11 Filing" for financial statement presentation related to the Filing.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents are carried at cost, which approximates market, and are
primarily comprised of money market funds and investments in U.S. Treasury
repurchase agreements. For additional information, see "Note 3 - Cash and Cash
Equivalents."
Inventories
Inventories consist primarily of expendable aircraft spare parts, fuel and other
supplies. Aircraft parts inventories are stated at cost and are reduced by an
allowance for obsolescence. The obsolescence allowance is provided by amortizing
the cost of the aircraft parts inventory, net of an estimated residual value,
over the related fleet's estimated useful service life. The obsolescence
allowance at December 31, 2004 and 2003 was $17.3 million and $21.2 million,
respectively. Inventories are charged to expense when consumed.
Investment in BATA Leasing, LLC
The Company has a limited liability agreement with Boeing Capital Corporation -
Equipment Leasing Corporation forming BATA Leasing LLC ("BATA"), a 50/50 joint
venture. Because the Company does not control BATA, the Company's investment is
accounted for under the equity method of accounting. BATA is remarketing the
60
Company's fleet of Boeing 727-200 aircraft in cargo configurations. In exchange
for supplying the aircraft, the Company has and expects to continue to receive
both cash and its share of the income or loss, after satisfaction of certain
loan obligations by BATA, of BATA. As of December 31, 2004, the Company had
transferred 23 of its fleet of Boeing 727-200 aircraft to BATA, and expects to
transfer no more aircraft in the future.
Prepaid Aircraft Rent
The Company's operating leases require periodic cash payments that vary in
amount and frequency. Many of the Company's aircraft operating leases were
originally structured to require very significant cash in the early years of the
lease in order to obtain more overall favorable lease rates. The Company
accounts for aircraft rentals expense in equal monthly amounts over the term of
each operating lease because straight-line expense recognition is most
representative of the time pattern from which benefit from use of the aircraft
is derived. The amount of the cash payments in excess of the aircraft rent
expense in these early years generated a significant prepaid aircraft rent
amount on the Company's balance sheet.
Revenue Recognition
Revenues are recognized when air transportation or other services are provided.
Customer flight deposits and unused passenger tickets sold are included in air
traffic liability. As is customary within the industry, the Company performs
periodic evaluations of this estimated liability, and any resulting adjustments,
which can be significant, are included in the results of operations for the
periods in which the evaluations are completed.
In addition, the Company has a travel awards program that allows customers to
earn points for travel on ATA. As points accumulate to certain levels, the
passenger can redeem them for free travel. The Company had a liability of $1.4
million and $0.7 million at December 31, 2004 and 2003, respectively, related to
free travel earned by the travel award customers, but not yet redeemed.
Passenger Traffic Commissions
Passenger traffic commissions are recognized as expense when the transportation
is provided and the related revenue is recognized. The amount of passenger
traffic commissions paid in advance and not yet recognized as expense is
included in prepaid expenses and other current assets in the accompanying
consolidated balance sheets.
Property and Equipment
Property and equipment, including owned aircraft, are recorded at cost and are
depreciated to residual values over their estimated useful service lives using
the straight-line method. Leasehold improvements and rotable parts related to
the Company's aircraft are depreciated over the period of benefit or the terms
of the related leases, whichever is less. The Company's other property and
equipment is generally depreciated over lives of three to seven years. The
estimated useful service lives of the Company's property and equipment are
subject to changes as the Company progresses through its Chapter 11
reorganization.
Aircraft Lease Return Conditions
The Company finances substantially all of its of aircraft through leases
accounted for as operating leases. Many of these leases require that the
airframes and engines be in a specified maintenance condition upon their return
to the lessor at the end of the lease. If these return conditions are not met by
the Company, the leases generally require financial compensation to the lessor.
When an operating lease is within five years of its initial termination date,
the Company accrues ratably over that five years, if estimable, the total costs
that will be incurred by the Company to render the aircraft in a suitable return
condition per the contract.
61
Airframe and Engine Overhauls
The Company has entered into engine manufacturers' maintenance agreements for
engines that power the Boeing 737-800, Boeing 757-200, Boeing 757-300 and SAAB
340B fleets, which provide for the Company to pay a monthly fee per engine
flight hour in exchange for major overhaul and maintenance of those engines. The
Company expenses the cost per flight hour under these agreements as incurred.
The cost of engine overhauls for remaining fleet types, and the cost of airframe
overhauls for all fleet types other than the SAAB 340B, are capitalized when
performed and amortized over estimated useful lives based upon usage, or to
earlier fleet or aircraft retirement dates, for both owned and leased aircraft.
This accounting treatment was also applied to Boeing 757-200 engine overhauls
completed prior to October 2001, the effective date of the engine manufacturers'
maintenance agreement for this fleet. Airframe overhauls for SAAB 340B aircraft
are expensed as incurred.
Restricted Cash
Restricted cash primarily consists of deposits held to secure outstanding
stand-by letters of credit currently provided by the Company. While the existing
letters of credit mature within the next 12 months, management believes it is
likely that the letters of credit will be renewed and has classified the
restricted cash as a long-term asset on the consolidated balance sheets.
Goodwill
The Company annually tests for impairment of goodwill in accordance with
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("FAS 142). See "Note
16 - Goodwill."
Advertising
The Company expenses advertising costs in the period incurred.
Stock Based Compensation
The Company adopted the disclosure provisions of FASB Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("FAS
123"), with respect to its stock options. As permitted by FAS 123, the Company
has elected to continue to account for employee stock options following the
intrinsic value method of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), and related interpretations. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
There were no options granted by the Company in the years ended December 31,
2004, 2003 and 2002. Pro forma net income (loss) and per share amounts do not
differ significantly from historical amounts presented.
3. Cash and Cash Equivalents
Cash and cash equivalents consist of the following:
December 31,
2004 2003
---------------------------
(in thousands)
Cash and money market funds $ 131,478 $ 158,100
Treasury repurchase agreements 8,174 2,544
---------------------------
$ 139,652 $ 160,644
===========================
62
4. Accrued Expenses
Accrued expenses consist of the following:
December 31,
2004 2003
_________________________
(in thousands)
Accrued salaries $ 12,630 $ 12,990
Accrued vacation pay 19,697 19,899
Other accrued expenses (individually less than 5% of total current liabilities) 89,704 21,800
----------- ----------
$ 122,031 $ 154,689
=========== ==========
5. Liabilities Subject to Compromise
Liabilities subject to compromise refers to liabilities that will be accounted
for under a plan of reorganization, including claims incurred prior to the
Petition Date. These amounts result from known or potential claims to be
resolved through the Chapter 11 process and such claims remain subject to future
adjustments. Adjustments may result from negotiations, actions of the Bankruptcy
Court, rejection of executory contracts and unexpired leases, the determination
as to the value of any collateral securing claims, proofs of claims or other
events. To date, such adjustments, as reflected in reorganization expense, have
been material and the Company anticipates that future adjustments will be
material as well. Settlement of these amounts will be established through the
plan of reorganization.
At December 31, 2004, the Company has liabilities subject to compromise
consisting of the following:
December 31,
2004
(in thousands)
---------------
Aicraft-related accruals and deferred gains $ 640,788
Long-term debt, including accrued interest, net of unamoritized issuance costs 456,334
Mandatorily redeemable preferred stock 50,000
Accounts payable 32,136
Other accrued expenses and liabilities 70,418
--------------
$ 1,249,676
==============
6. Debt
As of December 31, 2004, the Company's long-term debt consisted only of the DIP
Facility, which is described more fully in "Note 1 - The Company and the Chapter
11 Filing." All of the DIP Facility is classified as current as of December 31,
2004.
All of the Company's pre-petition debt is in default due to the Chapter 11
filing. In general, the Company is not permitted to make payments on
pre-petition debt including interest while in Chapter 11 and the stated
contractual terms are all pre-petition. The Company's pre-petition debt, which
is included in liabilities subject to compromise as of December 31, 2004,
consisted of the following:
63
December 31,
2004 2003
---------- ----------
(in thousands)
Partially guaranteed term loan from ATSB, variable rate of LIBOR plus a $ 139,900 $ 161,000
margin, averaging 2.5% in 2004 and 2.2% in 2003, payable in varying
installments through November 2008
Unamortized discount on partially guaranteed term loan (3,655) (5,350)
Unsecured Senior Notes, fixed rate of 10.5%, partially refinanced in
2004, repaid in August, 2004. - 175,000
Unsecured Senior Notes, fixed rate of 9.625%, partially refinanced in
2004, payable in December, 2005. 20,005 125,000
Unsecured Senior Notes, fixed rate of 13.0% through July 31, 2006 and
14.0% thereafter, payable in February 2009 163,064 -
Unsecured Senior Notes, fixed rate of 12.125% through June 14, 2006 and
13.125% thereafter, payable in June 2010 110,233 -
Secured note payable to institutional lender, variable rate of LIBOR
plus 2.0%, averaging 3.7% in 2004 and 3.5% in 2003, payable in varying
installments through October 2005 4,700 5,975
Secured note payable to institutional lender, variable rate of LIBOR
plus 2.0%, averaging 3.7% in 2003 and 3.5% in 2003, payable in varying
installments through March 2005 3,708 4,983
Mortgage note payable to institutional lender, fixed rate of 8.75%,
payable in varying installments through June 2014 7,637 8,322
Mortgage note payable to institutional lender, fixed rate of 8.30%,
payable in varying installments through June 2014 5,671 6,260
City of Chicago variable rate (averaging 1.3% in 2004 and 1.7% in 2003)
special facility revenue bonds, paid in November 2004 - 6,000
City of Chicago construction financing agreement, rate averaging 5.75%,
payable monthly 6,978 5,673
Other 1,266 1,833
---------- ----------
459,507 494,696
Less current maturities and short-term debt - 51,645
---------- ----------
$ 459,507 $ 443,051
========== ==========
The Company has a partially guaranteed secured term loan, a significant portion
of which is guaranteed by the ATSB (the "ATSB Loan"). The original terms of the
ATSB loan provided interest payable monthly at LIBOR plus a margin. It also
provided for guarantee fees payable quarterly at 5.75% of the outstanding
guaranteed principal balance in 2004, escalating to 9.5% of the outstanding
guaranteed principal balance in 2005 through 2008. The ATSB Loan is subject to
certain restrictive covenants and is collateralized primarily by certain
receivables, aircraft, spare engines, and rotable parts. The receivables had a
carrying amount of approximately $37.6 million as of December 31, 2004. The
aircraft, spare engines and parts consist of two Lockheed L-1011-500 aircraft,
two Saab 340B aircraft, 21 Rolls-Royce RB211 spare engines and Boeing 757-200,
Boeing 757-300 and Boeing 737-800 rotable parts, which had a combined carrying
amount of approximately $33.0 million as of December 31, 2004. In conjunction
64
with obtaining the ATSB Loan, the Company issued a warrant to the ATSB to
purchase up to 1,478,059 shares of its common stock, and additional warrants to
other loan participants to purchase up to 194,089 shares of its common stock, in
each case at an exercise price of $3.53 per share over a term of ten years. The
Company allocated $7.4 million to the total value of warrants issued, accounted
for as a discount on the loan. The amortization of the discount resulted in an
increase in the effective rate of interest on the secured term loan, which was
3.6% as of December 31, 2004 and 3.4% as of December 31, 2003.
The Company had outstanding $175.0 million principal amount of 10.5% unsecured
senior notes, $100.0 million of which were sold in 1997 and $75.0 million of
which were sold in 1999. Under the original terms, interest on these notes is
payable on February 1 and August 1 of each year. In completing the exchange
offers on January 30, 2004, the Company issued $163.1 million in aggregate
principal amount of 2009 Notes and delivered $7.8 million in cash in exchange
for $155.3 million in aggregate principal amount of 2004 Notes tendered. The
2009 Notes mature February 1, 2009, with a payment of $7.8 million due on August
1, 2005, bearing interest at 13% through July 31, 2006 and 14% thereafter
through maturity. The $19.7 million principal amount of the original notes
remained outstanding after the exchange and was paid according to the original
terms in August 2004.
The Company also had outstanding $125.0 million principal amount of 9.625%
unsecured senior notes. Under the original terms, interest on these notes is
payable on June 15 and December 15 of each year. In completing the exchange
offers on January 30, 2004, the Company issued $110.2 million in aggregate
principal amount of 2010 Notes and delivered $5.2 million in cash in exchange
for $105.0 million in aggregate principal amount of the 2005 Notes tendered. The
2010 Notes mature June 15, 2010, with a payment of $5.3 million due on June 15,
2005, bearing interest at 12 1/8% through June 14, 2006 and 13 1/8% thereafter
through maturity. The $20.0 million principal amount of the original notes
remained outstanding after the exchange and is due according to the original
terms in December 2005.
In accordance with FASB emerging Issues Task Force No. 96-19, Debtor's
Accounting for Modification or Exchange of Debt Terms ("EITF 96-19"), the
Company recorded a non-operating loss on extinguishment of debt of $27.3 million
in the first quarter of 2004, related to the exchange of notes described above.
The loss is primarily related to the accounting for the $13 million cash
consideration paid at closing on the exchange and the $13 million of incremental
notes issued.
The Company has outstanding two variable rate five-year notes, each
collateralized by one Lockheed L-1011-500 aircraft. The loans have a combined
balance of $8.4 million and the related aircraft have a combined carrying amount
of $6.8 million as of December 31, 2004.
The Company has outstanding a 14-year loan at 8.75%, secured by a mortgage on
its Maintenance and Operations Center at the Indianapolis International Airport.
The loan has a balance of $7.6 million and the maintenance facility building has
a carrying amount of $7.4 million as of December 31, 2004.
The Company has outstanding a 15-year loan at 8.30% secured by a mortgage on the
Maintenance and Operations Center. The loan has a balance of $5.7 million and
the operations center building has a carrying amount of $7.7 million as of
December 31, 2004.
The Company has outstanding a note payable to the City of Chicago for funds
borrowed to finance construction costs for a gate extension at Midway Airport.
As of December 31, 2004, the loan has a balance of approximately $7.0 million
and is secured by a letter of credit issued for the account of Southwest.
Interest capitalized in connection with long-term asset purchase agreements and
construction projects was $0.5 million, $2.8 million and $7.8 million in 2004,
2003 and 2002, respectively. The capitalized interest includes $0.6 million,
65
$1.9 million and $1.4 million in 2004, 2003 and 2002, respectively, of interest
paid to Boeing upon delivery of certain Boeing 737-800 and Boeing 757-300
aircraft in lieu of the Company making additional pre-delivery deposits, as
allowed by the purchase agreement. In conjunction with the Filing, the Company
no longer capitalizes interest on these pre-delivery deposits in accordance with
SOP 90-7.
7. Lease Commitments
The Company leases aircraft and aircraft engines, ground facilities, including
terminal space and maintenance facilities, and ground equipment. As allowed
under Section 365 of the Bankruptcy Code, the Company may assume, assume and
assign, or reject certain executory contracts and unexpired leases, including
leases of real property, aircraft and aircraft engines, subject to the approval
of the Bankruptcy Court and certain other conditions. Consequently, the Company
anticipates that its liabilities pertaining to these leases, and the amounts
related thereto as discussed below, will change significantly as the Company
progresses through its reorganization.
At December 31, 2004, scheduled future minimum lease payments under operating
leases having initial non-cancelable lease terms of more than one year were as
follows:
Facilities
Flight and Ground
Equipment Equipment Total
------------------------------------------------------------
(in thousands)
2005 $ 144,554 $ 13,567 $ 158,121
2006 155,476 12,486 167,962
2007 173,222 12,434 185,656
2008 171,425 10,193 181,618
2009 165,113 8,155 173,268
Thereafter 1,243,935 21,996 1,265,931
--------------- ----------- -------------
$ 2,053,725 $ 78,831 $ 2,132,556
=============== =========== =============
The Company's aircraft operating leases require periodic cash payments that vary
in amount and frequency. The Company accounts for aircraft rentals expense in
equal monthly amounts over the life of each operating lease because
straight-line expense recognition is most representative of the time pattern
from which benefit from use of the aircraft is derived. Certain of the Company's
aircraft operating leases were originally structured to require very significant
cash in the early years of the lease in order to obtain more overall favorable
lease rates. The amount of the cash payments in excess of the aircraft rent
expense in these early years has created a prepaid aircraft rent amount on the
Company's balance sheet. The portion of the prepaid aircraft rent schedule to be
realized in the next twelve months is recorded as short-term prepaid expense
while the remainder is recorded as long-term prepaid aircraft rent. Certain of
the Company's aircraft operating leases require more significant cash payments
later in the lease term resulting in an accrued liability for aircraft rents on
the Company's balance sheet. The portion of the accrued liability scheduled to
be paid in the next twelve months is recorded as short- term accrued expenses
while the remainder is recorded as long-term deferred items as of December 31,
2003. However, as of December 31, 2004, the entire liability has been recorded
as a liability subject to compromise.
The table below summarizes the prepaid and accrued aircraft rents for 2004 and
2003 that result from straight-line expense recognition as reported under the
following captions on the Company's balance sheet. The amounts are as of
December 31, 2004, and relate to aircraft for which the Company had not yet
committed to accept the lease or reject the lease and return the aircraft. The
66
amounts do not give any effect to the potential future impact of the Filing and
the plan of reorganization, including the possible rejection or restructuring of
the related leases. These events could have a material impact on the amounts and
classifications listed below.
2004 2003
------------- -------------
(In thousands)
Assets:
Prepaid expenses and other current assets (short-term) $ 7,350 $ 3,879
Prepaid aircraft rent (long-term) 52,031 144,088
------------- -------------
Total prepaid aircraft rent $ 59,381 $ 147,967
============= =============
Liabilities:
Accrued expenses (short-term) $ - $ 11,529
Other deferred items (long-term) - 27,976
Liabilities subject to compromise 21,931 -
------------- -------------
Total accrued aircraft rent $ 21,931 $ 39,505
============= =============
67
8. Income Taxes
The provision for income tax expense (credit) consisted of the following:
December 31,
2004 2003 2002
__________________________________________________
(In thousands)
Federal:
Current $ - $ 418 $ (15,743)
Deferred - - (6,888)
---------- -------------- -----------
- 418 (22,631)
State:
Current - 893 306
Deferred - - (2,625)
---------- ------------ -----------
- 893 (2,319)
---------- ------------ -----------
Income tax expense (credit) $ - $ 1,311 $ (24,950)
========== ============= ===========
The income tax expense (credit) differed from the amount obtained by applying
the statutory federal income tax rate to income (loss) before income taxes as
follows:
December 31,
2004 2003 2002
_____________________________________________________
(In thousands)
Federal income tax (credit) at statutory rate $ (285,590) $ 7,611 $ (67,975)
State income tax (credit) net of federal benefit (18,197) 580 (4,108)
Non-deductible expenses 5,881 3,031 2,393
Valuation allowance 297,857 (9,871) 43,324
Other, net 49 (40) 1,416
-------------- ------------ ------------
Income tax expense (credit) $ - $ 1,311 $ (24,950)
============== ============ ============
Deferred income taxes arise from temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements.
Deferred tax liability and asset components are as follows:
68
December 31,
2004 2003
--------------------------------------
(In thousands)
Deferred tax liabilities:
Property and equipment $ 11,975 $ 22,325
----------- -----------
Deferred tax 11,975 22,325
----------- -----------
Deferred tax assets:
Aircraft rejection charges 215,256 -
Tax benefit of net operating loss carryforwards 81,397 29,554
Deferred gain on sale of Chicago-Midway gates 12,607 -
Vacation pay accrual 7,343 7,418
Deferred rent expense 7,327 7,549
Alternative minimum tax and other tax credit carryforwards 1,628 1,689
Other deductible temporary differences 16,849 9,568
----------- -----------
Deferred tax assets 342,407 55,778
----------- -----------
Valuation allowance (330,432) (33,453)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
Because of the cumulative losses incurred by the Company, the deferred tax
assets have been fully reserved. The Company recorded a full valuation allowance
against its net deferred asset of $330.4 million at December 31, 2004 and $33.5
million at December 31, 2003.
As of December 31, 2004, the Company had a $218.1 million federal net operating
loss carryforward expiring starting in 2022. As discussed in Note 1 - "The
Company and the Chapter 11 Filing", the Company filed for bankruptcy protection
on October 26, 2004. As a result, the long-term utilization of the net operating
loss carryforwards are expected to be substantially reduced or even eliminated
by liabilities and obligations affected by the reorganization plan.
Additionally, the Company may have a change in ownership upon emergence from
bankruptcy, in which case the U.S. Tax Code would substantially limit the annual
usage of any remaining net operating loss carryforwards.
9. Retirement Plan
The Company has a defined contribution 401(k) savings plan which provides for
participation by substantially all the Company's employees immediately upon
hire. The Company has elected to contribute an amount equal to 60.0% in 2004,
2003, and 2002, of the amount contributed by each participant up to the first
six percent of eligible compensation. Company matching contributions expensed in
2004, 2003 and 2002 were $7.3 million, $6.8 million and $5.2 million,
respectively. The Company deferred its scheduled contributions between April and
December 2004 to employees not covered under a collective bargaining agreement
and expects to make the contribution in early 2005.
Effective January 1, 2003, the Company implemented a defined contribution plan
for cockpit crewmember employees that will be fully funded by the Company. In
the 2004 and 2003 plan years, the Company contributed between 4.5% and 7.5%, and
4.0% and 6.5%, respectively, of each cockpit crewmember's eligible earnings,
depending on years of service with the Company. The contribution percentages
increase in future plan years, escalating to between 5.5% and 12.0% of each
cockpit crewmember's eligible earnings in 2006. New cockpit crewmembers are
69
eligible for the plan immediately upon hire. Contributions vest after five years
of service. The contribution expense for this plan in 2004 and 2003 were $7.3
million and $6.1 million, respectively. In February 2005, the Company entered
into a letter agreement with its cockpit crewmember's in which, among other
things, the cockpit crewmember's agreed to a 50% reduction in the Company's
contributions to the plan between January 31, 2005 and May 31, 2005.
10. Stock Option Plans
The Company's 1993 Incentive Stock Plan for Key Employees ("1993 Plan")
authorizes the grant of options for up to 900,000 shares of the Company's common
stock. The Company's 1996 Incentive Stock Plan for Key Employees ("1996 Plan")
authorizes the grant of options for up to 3,000,000 shares of the Company's
common stock. The Company's 2000 Incentive Stock Plan for Key Employees ("2000
Plan") authorizes the grant of options for up to 3,000,000 shares of the
Company's common stock. Options granted have five- to 10-year terms and
generally vest and become fully exercisable over specified periods of up to
three years of continued employment.
A summary of common stock option changes follows:
Number Weighted-Average
of Shares Exercise Price
------------- -----------------
Outstanding at December 31, 2001 2,714,049 14.14
------------- -----------------
Granted - -
Exercised (54,261) 8.27
Canceled (272,013) 19.13
------------- -----------------
Outstanding at December 31, 2002 2,387,775 $ 13.71
============= =================
Granted - -
Exercised (26,400) 8.01
Canceled (592,676) 14.88
------------- -----------------
Outstanding at December 31, 2003 1,768,699 $ 13.40
============= =================
Granted - -
Exercised (32,711) 9.12
Canceled (521,545) 10.53
------------- -----------------
Outstanding at December 31, 2004 1,214,443 $ 14.75
============= =================
Options exercisable at December 31, 2002 2,329,076 $ 13.69
============= =================
Options exercisable at December 31, 2003 1,761,033 $ 13.40
============= =================
Options exercisable at December 31, 2004 1,214,443 $ 14.75
============= =================
Options outstanding at December 31, 2004, expire from January 2005 to November
2011. A total of 3,567,009 shares are reserved for future grants as of December
31, 2004, under the 1993, 1996 and 2000 Plans. The following table summarizes
information concerning outstanding and exercisable options at December 31, 2004:
70
Range of Exercise Prices $6 - $8 $9 - $14 $15 - $19 $20 - $27
_______________________________________________________________________
Options outstanding:
Weighted-Average Remaining Contractual Life 3.17 2.69 4.97 3.99
Weighted-Average Exercise Price $ 7.92 $ 9.68 $ 15.63 $ 26.20
Number 83,000 585,543 257,350 288,550
Options exercisable:
Weighted-Average Exercise Price $ 7.92 $ 9.68 $ 15.63 $ 26.20
Number 83,000 585,543 257,350 288,550
Any plan of reorganization for the Company could result in holders of common
stock receiving no distribution on account of their interests as shareholders
and cancellation of the outstanding common stock and options. The arrangements
with Southwest for post-reorganization financing, equity injection and
codesharing require that all outstanding pre-petition equity of the Company be
cancelled without any distributions under the plan to holders of that equity.
As of December 31, 2004, the Company had 6,671,631 common stock shares reserved
for issuance in relation to its outstanding stock options, warrants, and
convertible redeemable preferred stock. See "Note 11 - Redeemable Preferred
Stock" for additional information.
11. Redeemable Preferred Stock
The Company has outstanding 300 shares of Series B convertible redeemable
preferred stock, without par value ("Series B Preferred"), at a price of
$100,000 per share. The Series B Preferred is to be redeemed no later than
September 20, 2015. The purchaser of the Series B Preferred is entitled to
cumulative quarterly dividends at an annual rate of 5.0% on the liquidation
amount ($100,000 per share) of the Series B Preferred. The annual rate is
subject to an increase to 8.44% on the liquidation amount ($100,000 per share)
if the Company fails to pay any quarterly dividend within ten days of the due
date. Once dividends in arrears have been paid in full, the rate returns to the
original annual rate of 5.0%. The Series B Preferred is classified between
liabilities and equity on the Company's accompanying balance sheets because it
is convertible into the Company's common stock. The dividends related to the
Series B Preferred are recorded below net income or loss on the Company's
statements of operations.
The Company also has outstanding 500 shares of Series A redeemable preferred
stock, without par value ("Series A Preferred"), at a price of $100,000 per
share. The purchaser of the Series A Preferred is entitled to cumulative
semiannual dividends at an annual rate of 8.44% on the liquidation amount
($100,000 per share) of the Series A Preferred. The Series A Preferred is
optionally redeemable by the Company under certain conditions, but the Company
must redeem the Series A Preferred in equal semiannual payments beginning
December 28, 2010, and ending December 28, 2015. As of July 1, 2003, per the
provisions of FASB Statement of Financial Accounting Standards No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity ("FAS 150"), the Series A Preferred was classified as a
liability on the Company's balance sheet as of December 31, 2003, because it is
mandatorily redeemable and not convertible. However, as of December 31, 2004,
the Series A Preferred has been recorded as a liability subject to compromise on
the Company's balance sheet. The dividends related to the Series A Preferred are
recorded as interest expense on the Company's statements of operations.
On January 30, 2004, the Company paid accrued preferred dividends in arrears,
including interest, totaling $9.7 million on the Series A Preferred and Series B
Preferred due to elimination of a covenant restriction. The Company did not pay,
but accrued as a liability subject to compromise, the Series B Preferred
dividends due September 15, 2004. Subject to certain exceptions under the
71
Bankruptcy Code, the Filing provides an automatic stay against the continuation
of any judicial or administrative proceedings or other actions against the
Debtors or their property to recover on, collect or secure a claim arising prior
to the Petition Date until the Bankruptcy Court lifts the stay. In addition, as
a result of the Filing, the Company did not accrue or pay the Series A Preferred
or Series B Preferred dividends due December 15, 2004.
12. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
2004 2003 2002
__________________________________________________________________
Numerator:
Net income (loss) $ (815,729,000) $ 20,434,000 $ (169,264,000)
Preferred stock dividends (1,125,000) (4,642,000) (5,720,000)
------------------ ------------------ --------------------
Numerator:
Income (loss) available to common shareholders -
numerator for basic earnings per share
(816,854,000) 15,792,000 (174,984,000)
------------------ ------------------ --------------------
Effect of dilutive securities:
Convertible redeemable preferred stock dividend - 2,532,000 -
------------------ ------------------ --------------------
Numerator for diluted earnings per share $ (816,854,000) $ 18,324,000 $ (174,984,000)
================== ================== ====================
Denominator:
Denominator for basic earnings per share - adjusted
weighted average shares 11,823,769 11,773,713 11,711,906
================== ================== ====================
Effect of dilutive securities:
Employee stock options - 119 -
Warrants - 780,518 -
Convertible redeemable preferred stock - 1,914,486 -
------------------ ------------------ --------------------
Dilutive potential securities - 2,695,123 -
Denominator for diluted earnings per share - adjusted
weighted average shares 11,823,769 14,468,836 11,711,906
================== ================== ====================
Basic income (loss) per share $ (69.09) $ 1.34 $ (14.94)
================== ================== ====================
Diluted income (loss) per share $ (69.09) $ 1.27 $ (14.94)
================== ================== ====================
In accordance with FASB Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," 1,914,486 common stock equivalent shares, upon conversion
of convertible redeemable preferred stock in 2004 and 2002, have been excluded
from the computation of diluted earnings per share because their effect would be
antidilutive. In addition, the impact of 11 and 553,025 employee stock options
in 2004 and 2002, respectively, was not included in the computation of diluted
earnings per share because their effect would be antidilutive. In 2004 and 2002,
the impact of 556,097 and 1,002,112 incremental shares from the assumed exercise
of warrants issued in conjunction with the guaranteed term loan were not
included in the computation of diluted earnings per share because their effect
would be antidilutive.
72
13. Commitments and Contingencies
The following commitments and contingencies are as of December 31, 2004. The
full effect of the Chapter 11 filing and subsequent reorganization plan on these
commitments and contingencies is not yet known.
ATA has a purchase agreement with the Boeing Company ("Boeing") to purchase
seven new Boeing 737-800s, which are currently scheduled for delivery between
July 2007 and December 2007. These aircraft are powered by General Electric
CFM56-7B27 engines. The manufacturer's list price is $52.4 million for each
737-800, subject to escalation. ATA's purchase price for each aircraft is
subject to various discounts. According to a 2004 amendment to the purchase
agreement with Boeing, if ATA does not have permanent financing for these
aircraft suitable to ATA and does not have suitable pre-delivery deposit
financing, and if Boeing does not elect to provide such financing suitable to
the ATA, these deliveries can be delayed for one year periods annually through
December 31, 2010. Aircraft pre-delivery deposits are required for these
aircraft, and ATA has historically funded these deposits for past aircraft
deliveries using operating cash and pre-delivery deposit financing facilities.
ATA can provide no assurance that it will be able to secure pre-delivery deposit
financing facilities or permanent financing for any future aircraft purchases.
As of December 31, 2004, ATA had $4.9 million in long-term pre-delivery deposits
outstanding for future aircraft deliveries which were funded with operating
cash. Upon delivery of the aircraft, pre-delivery deposits funded with operating
cash would be returned to ATA.
ATA also has an agreement to purchase four spare engines CFM56-7B27 engines,
which are currently scheduled for delivery between 2005 and 2008.
As allowed under section 365 on the Bankruptcy Code, the Company may assume,
assume and assign, or reject certain executory contracts subject to the approval
of the Bankruptcy Court and certain other conditions. The Company's ability to
obtain financing at rates and terms similar to historical agreements, if at all,
is not known. Therefore, the future obligations for these deliveries cannot be
reasonably estimated.
In the Company's aircraft financing agreements, the Company typically
indemnifies the financing parties, trustees acting on their behalf and other
related parties against liabilities that arise from the manufacture, design,
ownership, financing, use, operation and maintenance of the aircraft and for
tort liability, whether or not these liabilities arise out of or relate to the
negligence of these indemnified parties, except for their gross negligence or
willful misconduct. The Company expects that it would be covered by insurance
(subject to deductibles) for most tort liabilities and related indemnities under
these aircraft leases.
In January 2002, the Company entered into an agreement (the "Lease") to lease
land from the City of Chicago (the "City"), which had been purchased by the City
with Chicago Midway Airport Revenue Bonds ("MARB's"). The Company also entered
into a redevelopment agreement (the "Agreement") with the City in January 2002
to develop real estate on the property. As part of the Agreement, the City
agreed to pay for the debt service on the MARB's from the incremental tax
revenue expected to be generated from the real estate developments. Under the
Agreement, if the incremental tax revenue is insufficient to fund the MARB's
debt service, the City has the right to require the Company to provide those
funds as additional rent under the lease. The total amount of the debt service,
including interest, from 2006 through 2021 is approximately $27.2 million. The
Company is continuing to work with the City to find alternate uses for the
property.
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.
14. Segment Reporting
The Company's revenues are derived principally from the sale of scheduled
service or charter air transportation to customers domiciled in the United
73
States. The most significant component of the Company's property and equipment
is aircraft and related improvements and parts. All aircraft are registered in
the United States. The Company therefore considers all property and equipment to
be domestic.
The U.S. Government is the only customer that accounted for more than 10.0% of
consolidated revenues. U.S. Government revenues accounted for 21.3%, 19.6% and
13.9% of consolidated revenues for 2004, 2003 and 2002, respectively.
15. Fleet Impairment
Effective January 1, 2002, the Company adopted FASB Statement of Financial
Accounting Standard No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets ("FAS 144"), which superseded FASB Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of ("FAS 121"). However, the Company
continues to account for the fleet and related assets that were impaired prior
to January 1, 2002, and classified as held for sale, under FAS 121, as required
by FAS 144.
The Company began performing impairment reviews on its 727-200 fleet in 2000 and
the fleet became impaired under FAS 121 in 2001, subsequent to the terrorist
attacks of September 11. In accordance with FAS 121, the Company continues to
monitor the current fair market value of these previously impaired assets. In
2004, the Company recorded an additional asset impairment charge of $7.9 million
against its remaining net book value of Boeing 727-200 aircraft (recorded as an
investment in the BATA joint venture) and related assets, as compared to
recording a $5.3 million and a $35.9 million impairment charge in 2003 and 2002,
respectively. The Company's current estimate of this fleet's fair market value
was based on future cash flow analysis. The carrying amount of related assets to
this fleet is classified as long-term assets held for sale and appears in the
deposits and other assets line of the accompanying balance sheet.
In 2002, the Company recorded a charge of $14.2 million related to the
retirement of one owned L-1011-500 aircraft. As a result, the Company began
evaluating this fleet and related parts and inventory for impairment under FAS
144 assuming a common fleet retirement date of December 2010 and the fleet
remained unimpaired through 2003. In 2004, given the Company's financial
position, cash constraints and related limitations imposed by the Chapter 11
filing initiated in the fourth quarter of 2004, the Company determined the
likelihood of expending the funds to perform heavy checks on the airframes when
they become due in late 2005 through mid 2007 is remote. Therefore, the Company
evaluated the fleet and related parts and inventory for impairment assuming the
aircraft would be retired at the date of their next required airframe heavy
check. This evaluation indicated that the aircraft were impaired and the Company
recorded a related impairment charge of $44.5 million in the fourth quarter of
2004. The Company estimates this fleet's fair market value using discounted cash
flow analysis. In accordance with SOP 90-7, because the 2004 impairment charge
was directly related to the Company's reorganization under Chapter 11, the
charge was recorded as a reorganization expense on the Company's statement of
operations. The carrying amount of these assets is classified as assets held for
use and appears in the property and equipment section of the accompanying
consolidated balance sheets, as the Company is still flying these aircraft. The
assets are being depreciated in accordance with the planned fleet retirement
schedule.
16. Goodwill
The Company's goodwill is related to its ATA Leisure Corp. ("ATALC"), ATA Cargo
and Chicago Express subsidiaries, which were acquired in 1999.
As required by FAS 142, the Company performed its first goodwill impairment test
in the fourth quarter of 2002. The Company identified two FAS 142 reporting
units for ATALC. The ATALC brands outsourced to MTC were one reporting unit. The
other reporting unit related to the Key Tours brands ("KTI") that sold Canadian
rail packages and ground packages in Las Vegas. In the 2002 goodwill impairment
review, the Company determined that the goodwill related to Chicago Express, ATA
Cargo and the Mark Travel Corporation (the "MTC") reporting unit was not
74
impaired. However, the estimated fair value of the KTI reporting unit was lower
than the carrying amount, and an impairment loss of $6.9 million, reflecting the
total goodwill balance for KTI, was recorded in the fourth quarter of 2002. As
of July 1, 2003, the Company ceased marketing the KTI brands.
The Company's 2003 annual goodwill impairment test resulted in no additional
goodwill impairment expense. In its 2004 annual goodwill impairment test, the
Company determined that goodwill related to Chicago Express and ATA Cargo
remained unimpaired, but that the estimated fair value of the MTC product was
lower than the carrying amount resulting in an impairment loss of $6.4 million.
The Company determined that the impairment was directly related to its
reorganization efforts, including route and operating changes, and recorded the
charge as a reorganization expense on its statement of operations.
In all three years, the fair values of all of the Company's reporting units were
estimated using discounted future cash flows since market quotes were not
readily available.
17. Related Party Transactions
J. George Mikelsons, the Company's Chairman and Chief Executive Officer, is the
sole owner of Betaco, Inc., a Delaware corporation ("Betaco"). Betaco currently
owns two airplanes, a Cessna Citation II and a Lear Jet, and two helicopters, a
Bell 206B Jet Ranger III and a Bell 206L-3 LongRanger. The two airplanes are
leased or subleased to ATA. The LongRanger helicopter is leased to American
Trans Air ExecuJet, Inc. ("ExecuJet"), a subsidiary of ATA Holdings Corp.
ExecuJet subleases the LongRanger to an Indianapolis television station. During
a portion of 2004, Betaco leased a Jet Ranger III helicopter to ExecuJet for
specialty charter flying during 2004, but rejected this lease in January 2005 as
part of the Chapter 11 proceedings.
The lease for the Cessna Citation currently requires a monthly payment of
$27,600 for a term beginning April 1, 2004, and ending on March 31, 2007. The
lease for the Lear Jet requires a monthly payment of $27,600 for a term
beginning April 1, 2004, and ending March 31, 2007. The lease for the LongRanger
requires a monthly payment of $15,000 for a term beginning April 1, 2004, and
ending March 31, 2007. Pursuant to various stipulations, the Company has made
payments in respect of the Cessna Citation, the Lear Jet and the LongRanger at
the pre-bankruptcy lease rates in exchange for extensions of the 60-day election
period under section 1110 of the Bankruptcy Code. As a result, the Company has
preserved its right to assume or reject the leases. The Company believes that
the current terms of the leases and subleases with Betaco for this equipment are
no less favorable to the Company than those that could be obtained from third
parties.
Since 1996, the Company and Mr. Mikelsons had an arrangement pursuant to which
the Company provided certain domestic employees of Mr. Mikelsons with salary,
health insurance and other non-cash benefits. The Company invoiced Mr. Mikelsons
quarterly for the full amount of such benefits. Prior to 2003, the timing of
payments from Mr. Mikelsons to the Company had been inconsistent, but beginning
in 2003, Mr. Mikelsons reimbursed the Company prior to the date of each salary
payment for these employees. This arrangement ended in October 2004.
In 2004, the Company paid approximately $236,000 in associated compensation,
plus associated benefits, to five employees who served as the crew for a boat
owned by another company owned by Mr. Mikelsons. Under an agreement dated as of
July 1, 2002, the Company agreed to pay for these employees in exchange for its
use of the boat for business purposes (e.g., the entertainment of clients,
customers and vendors of the Company). To the extent that for any fiscal year
the crew's compensation, plus associated non-cash benefits, exceeds 75% of the
amount that would have been charged by an outside third party under a fair
market rental contract for the Company's actual business use of the boat, Mr.
Mikelsons is responsible for paying the difference. In 2004, the Company's use
of the boat resulted in no payments by Mr. Mikelsons to the Company. In October
2004, the agreement was discontinued.
As of December 31, 2004, Mr. Mikelsons owes $653,225 to the Company pursuant to
the arrangements relating to the domestic employees and the crew. On October 26,
2004, the Company and Mr. Mikelsons signed an agreement for the repayment of the
75
debt which requires quarterly installments of $19,403 beginning January 26, 2005
through October 26, 2009 and bears interest at 3.6% per annum. The remaining
balance becomes due and payable on October 26, 2009.
18. Subsidiary Guarantees
ATA Holdings Corp. has issued unsecured senior note indentures which are fully
and unconditionally and jointly and severally guaranteed on an unsecured basis
by the following subsidiaries: ATA, Ambassadair Travel Club Inc., ATALC, Amber
Travel Inc., ExecuJet, Chicago Express and ATA Cargo. The subsidiary guarantors
are 100%-owned subsidiaries of the Company. ATA Holdings Corp. has no
independent assets or operations and the guarantor subsidiaries generated 99.9%
and 100.0% of the consolidated revenues and net profits of the Company,
respectively, for the years ended December 31, 2003 and 2004. Therefore,
condensed consolidating financial information is not presented.
19. Subsequent Events
On February 7, 2005, the Company announced it intends to sell or discontinue
Chicago Express' business, including its DOT and FAA certificates, as part of
the Company's continuing reorganization effort. The sale decision resulted from
a recent determination to change the Company's route network, including reducing
its flight schedules in the Indianapolis market. The Company presently intends
to discontinue all flights serviced by Chicago Express by March 28, 2005.
Chicago Express is a regional feeder carrier operating as ATA Connection and
connecting small and medium-sized cities with either Chicago-Midway or
Indianapolis. Chicago Express has a non-unionized workforce employing 400 people
in Chicago and another 200 people in various other cities Chicago Express
serves. The Company can make no guarantees that it will find a suitable buyer
for Chicago Express. As of December 31, 2004, the Company had made no change in
the presentation of assets and liabilities related to Chicago Express on the
accompanying balance sheets and depending on the outcome of the sale process,
may incur a charge against future earnings related to a write-down of certain
Chicago Express assets, including goodwill.
As of December 31, 2004, the Company operated 82 aircraft, including 76 aircraft
that were financed with operating leases. For the period from January 1, 2005 to
March 25, 2005, with regards to the 76 leased aircraft, the Company has returned
22 of these aircraft and related engines to the lessor. The Company expects to
return 28 additional aircraft and related engines to the lessor between March
31, 2005 and January 25, 2006. The Company has renegotiated long-term rates on
10 aircraft and related engines. Finally, the Company has elected to cure
existing defaults and is paying the contract rates required under the Bankruptcy
Code with respect to 16 aircraft and related engines. The Company expects these
changes in fleet to result in additional changes to amounts reported in the
December 31, 2004 balance sheet associated with the aircraft, including prepaid
aircraft rent, and to result in additional significant aircraft rejection
charges in 2005.
76
20. Selected Supplemental Quarterly Data (Unaudited)
Financial Statements and Supplementary Data
ATA Holdings Corp. and Subsidiaries
2004 Quarterly Financial Summary
(Unaudited)
__________________________________________________________________________________________________________________
(In thousands, except per share data) 3/31 6/30 9/30 12/31
__________________________________________________________________________________________________________________
Operating revenues $ 387,333 $ 390,774 $ 401,219 $ 353,245
Operating expenses (1) 409,684 401,297 417,397 404,356
Operating loss (22,351) (10,523) (16,178) (51,111)
Reorganization expenses (2) - - - (638,479)
Other expenses (41,993) (15,139) (14,726) (5,530)
Loss before income taxes (64,344) (25,662) (30,904) (695,120)
Income taxes (credits) - - - (301)
Preferred stock dividends 375 375 375 -
Loss available to common shareholders $ (64,719) $ (26,037) $ (31,279) $ (694,819)
Net loss per common share - basic $ (5.47) $ (2.20) $ (2.65) $ (58.76)
Net loss per common share - diluted $ (5.40) $ (2.20) $ (2.65) $ (58.76)
Financial Statements and Supplementary Data
ATA Holdings Corp. and Subsidiaries
2003 Quarterly Financial Summary
(Unaudited)
____________________________________________________________________________________________________________________
(In thousands, except per share data) 3/31 6/30 9/30 12/31
____________________________________________________________________________________________________________________
Operating revenues $ 373,629 $ 388,122 $ 387,703 $ 369,079
Operating expenses (1) 372,109 332,177 358,237 378,469
Operating income (loss) 1,520 55,945 29,466 (9,390)
Other expenses (12,512) (12,630) (14,432) (16,222)
Income (loss) before income taxes (10,992) 43,315 15,034 (25,612)
Income taxes (credits) - - 7,311 (6,000)
Preferred stock dividends 375 2,485 1,149 633
Income (loss) available to common shareholders $ (11,367) $ 40,830 $ 6,574 $ (20,245)
Net income (loss) per common share - basic $ (0.97) $ 3.47 $ 0.56 $ (1.72)
Net income (loss) per common share - diluted $ (0.97) $ 2.93 $ 0.53 $ (1.72)
(1) Operating income (loss) for the years ended December 31, 2004 and 2003
include the following items:
77
2004
Quarter Ended 3/31 6/30 9/30 12/31 Total
_____________________________________________________
Aircraft impairments and retirements $ - $ - $ - $ (7,887) $ (7,887)
---- ------- ---- --------- ---------
Total - income (loss) $ - $ - $ - $ (7,887) $ (7,887)
==== ======= ==== ========= =========
2003
Quarter Ended 3/31 6/30 9/30 12/31 Total
_____________________________________________________
Aircraft impairments and retirements $ - $ - $ - $ (5,288) $ (5,288)
U.S. Government grants - 37,156 - - 37,156
---- ------- ---- --------- ---------
Total - income (loss) $ - $37,156 $ - $ (5,288) $ 31,868
==== ======= ==== ========= =========
(2) The accompanying consolidated financial statements, for the period ended
December 31, 2004, of the Company have been prepared in accordance with
American Institute of Certified Public Accountants Statement of Position
90-7, Financial Reporting by Entities in Reorganization under the
Bankruptcy Code ("SOP 90-7) and on a going-concern basis, which
contemplates continuity of operations, realization of assets and
satisfaction of liabilities in the ordinary course of business.
Reorganization expenses identify those costs not in the ordinary business
and include aircraft lease rejection charges, impairments and professional
fees related to the Filing. See "Notes to Consolidated Financial Statements
- Note 1 - The Company and the Chapter 11 Filing" for more information.
Item 9. Changes in and Disagreements with Accountants on Accounting and +
Financial Disclosure
No change of auditors or disagreements on accounting methods has occurred which
would require disclosure hereunder.
Item 9A. Controls and Procedures
The Company conducted an evaluation (under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
and Chief Financial Officer), pursuant to Rule 13a-15 promulgated under the
Securities Exchange Act of 1934 ("Exchange Act"), as amended, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of December 31, 2004. Based on this evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that, as of
December 31, 2004, the controls and procedures were effective to provide
reasonable assurance that information required to be disclosed by the Company in
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission.
During the quarter ended December 31, 2004, there were no significant changes in
the Company's internal control over financial reporting or in other factors that
have materially affected, or are reasonably likely to affect, the Company's
internal control over financial reporting.
78
Item 9B. Other Information
Not applicable.
79
PART III
Item 10. Directors and Officers of the Registrant
Directors:
J. GEORGE MIKELSONS Director since 1993
J. George Mikelsons, age 68, is the founder, Chairman of the Board, Chief
Executive Officer and, prior to the Company's initial public offering in May
1993, was the sole shareholder of the Company. Mr. Mikelsons founded ATA and
Ambassadair Travel Club, Inc. in 1973. Mr. Mikelsons serves on the Board of
Directors and is a member of the Executive Committee of the Air Transport
Association. Mr. Mikelsons also serves on the Board of Directors of The
Indianapolis Zoo, the Indianapolis Convention and Visitors Association (where he
is a member of the Executive Committee) and the Central Indiana Corporate
Partnership. Mr. Mikelsons has been an airline captain since 1966 and remains
current on several jet aircraft. Mr. Mikelsons is a citizen of the United
States.
JAMES W. HLAVACEK Director since 1993
James W. Hlavacek, age 68, joined ATA in 1983 and served as Executive Vice
President from 1989 to 2005. In 1995, he was appointed Chief Operating Officer
for the carrier, and in May 2003, he was appointed Vice Chairman. In addition,
he oversees the Company's regional commuter airline, Chicago Express Airlines,
Inc. (doing business as ATA Connection), which is based at Chicago-Midway
International Airport. From 1983 through 1989, he served ATA in various
capacities, including Fleet Chief Pilot, System Chief Pilot and Vice President
of Operations. He has served as a member of the National Air Carrier Association
(NACA) Board of Directors since 1997. He is also a member of the Chicagoland
Chamber of Commerce Board of Directions, the Chicago Convention and Tourism
Bureau Board of Directors, and the Military Airlift and Security Practices
Committee for the National Defense Transportation Association. Mr. Hlavacek
began his aviation career as a pilot in the U.S. Air Force. He is a native of
Chicago and a graduate of the University of Illinois. Mr. Hlavacek is a citizen
of the United States.
GILBERT F. VIETS Director since 2003
Gilbert F. Viets, age 61, is the Executive Vice President and Chief Financial
Officer of the Company. Prior to joining the Company, Mr. Viets was a clinical
professor in the Systems and Accounting Graduate Program of the Kelley School of
Business at Indiana University, Bloomington, Indiana. Mr. Viets, a Certified
Public Accountant, was with Arthur Andersen LLP for 35 years before retiring in
2000. He graduated from Washburn University of Topeka, Kansas. He has been
active in numerous civic organizations and presently serves on the finance
committees of St. Vincent Hospital and Healthcare Center, Inc. and St. Vincent
Health, both located in Indianapolis, Indiana. Mr. Viets is a citizen of the
United States.
ROBERT A. ABEL Director since 1993
Robert A. Abel, age 52, is a director in the public accounting firm of Blue &
Co., LLC. Mr. Abel is a magna cum laude graduate of Indiana State University
with a B.S. Degree in Accounting. He is a Certified Public Accountant with over
25 years of public accounting experience in the areas of auditing and corporate
tax. He has been involved with aviation accounting and finance since 1976. Blue
& Co., LLC provides tax and accounting services to the Company in connection
with selected matters. Mr. Abel's principal business address is 12800 N.
Meridian Street, Carmel, Indiana 46032. Mr. Abel is a citizen of the United
States.
ANDREJS P. STIPNIEKS Director since 1993
Andrejs P. Stipnieks, age 64, is an international aviation consultant. He
graduated from the University of Adelaide, South Australia, and is a Barrister
and Solicitor of the Supreme Courts of South Australia, the Australian Capital
Territory and of the High Court of Australia. Until 1998, Mr. Stipnieks was a
Senior Government Solicitor in the Australian Attorney General's Department,
specializing in aviation and surface transport law and practice. He has
represented Australia on the Legal Committee of the International Civil Aviation
Organization at Montreal. Mr. Stipnieks' principal business address is
Gleznotaju Iela 5-6, Riga 1050, Latvia. Mr. Stipnieks is a citizen of Australia.
80
CLAUDE E. WILLIS, D.D.S. Director since 2001
Claude E. Willis, age 59, has been in private dental practice in Indianapolis
for 29 years. He is a member of the American Dental Association, the
Indianapolis District Dental Society and was named on a list of "Top Dentists in
America" by the Consumers Research Council of America. A 1968 graduate of Purdue
University's School of Science, Dr. Willis completed his graduate studies
earning a Doctor of Dental Surgery Degree from Indiana University School of
Dentistry in 1972. Dr. Willis' principal business address is 5938 W. State Road
135, Trafalgar, Indiana 46181. Dr. Willis is a citizen of the United States.
BYRON F. JOHNSON Director since 2004
Byron F. Johnson, age 64, is Chairman of the Audit Committee of the Company's
Board of Directors. Johnson, a Certified Public Accountant, worked for Arthur
Andersen L.L.P. for 38 years. He served as Director of the firm's Utility
Industry Program for the Central Region of the U.S. for many years and the
Director of the firm's Airline Industry Program. He had overall responsibility
for several well-known public companies in the regulated utility and airline
industries and participated on the American Institute of Certified Public
Accountants (AICPA) committees supporting the development of appropriate
accounting and financial reporting initiatives in the utility and airline
industries. He became a retired partner in April 2000. Johnson graduated from
Iowa Wesleyan College in Mount Pleasant, Iowa in 1962 where he continues on the
Board of Trustees after serving 18 years as Chairman of the Board. He served in
U.S. Marine Corps Reserve from 1963 to 1969. Johnson currently performs
consulting services on a limited basis and assists in various local community
projects. Mr. Johnson's principal business address is 36 Ridge Road, Barrington
Hills, Illinois. 60010. Mr. Johnson is a citizen of the United States.
Executive Officers:
J. GEORGE MIKELSONS Chairman and Chief Executive Officer of ATA Holdings Corp.
JOHN G. DENISON Co-Chief Restructuring Officer of ATA Holdings Corp. and
Chief Executive Officer of ATA Airlines, Inc.
Mr. Denison retired from Southwest Airlines as Executive Vice President of
Corporate Services in 2001, after 15 years with the low-cost carrier. Denison
also previously held the position of Vice President Finance and Chief Financial
Officer. Prior to joining Southwest Airlines, Mr. Denison held various finance
positions with The LTV Corporation (May 1980-March 1986) and Chrysler
Corporation (August 1969-May 1980). Mr. Denison graduated from Oakland
University in Rochester, Michigan, with a B.A. in economics and received an
M.B.A. in finance from Wayne State University in Detroit, Michigan.
GILBERT F. VIETS Chief Financial Officer of ATA Holdings Corp.
JAMES W. HLAVACEK Vice Chairman of ATA Holdings Corp.
JOHN GRABER Senior Vice President of Flight Operations and Maintenance
John W. Graber, age 48, joined ATA in 1993 as a pilot. From 1996 to 2005, he
served ATA in various capacities, including Director of Flight Standards &
Training, System Chief Pilot & Director of Line Operations, Captain, and Check
Airman. In January 2005, he was appointed Senior Vice President, Flight
Operations and Maintenance. Captain Graber is qualified to fly Boeing 737
aircraft. An officer and pilot in the Army Reserve, he has held numerous command
and flight operations posts as a reservist and on active duty. He has served as
a member of the Air Transport Association's Training Committee, and Chairman of
the Air Transport Association's National Crew Resource Management Conference. He
is a member of the Advisory Board of the American Red Cross of Greater
Indianapolis. He graduated from Edison State University of Trenton, New Jersey,
and is a cum laude Master of Business Administration graduate of the University
of Notre Dame. He is a citizen of the United States.
81
Audit Committee Composition
The Company has a separately designated standing Audit Committee comprised of
Byron Johnson, Andrejs Stipnieks and Claude E. Willis. The Chairman of the Audit
Committee, Byron Johnson, meets the "independence test" of the SEC and NASDAQ
Listing Standards and is a "financial expert" as defined in Item 401 of
Regulation S-K. The other members of the Audit Committee also meet the
"independence test."
Code of Ethics
The Company has a Corporate Code of Business Conduct and Ethics which is posted
on the Company's web site (www.ata.com) in the "Investor Relations" section. The
Code is applicable to all members of the Company's Board of Directors, as well
as the Company's executive officers. The Company intends to disclose any
amendments to, or waivers from, any of the provisions of the Code by posting
such information on its website.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of
the Company's shares to file with the Securities and Exchange Commission reports
on their ownership of shares of the Company. Based solely on its review of
copies of such reports, the Company believes that all filing requirements were
satisfied by each such person during 2004.
82
Item 11. Executive Compensation
S U M M A R Y C O M P E N S A T I O N T A B L E
- ---------------------------------------------------------------------------------------------------------------------------
This table shows the compensation paid or accrued to the Chief Executive Officer and Chairman of the Board, the Executive Vice
President and Chief Financial Officer, the next four (4) most highly compensated executive officers of the Company in 2004 and the
former Senior Vice President, Strategic Sourcing and Process Improvement (the "named executive officers") for services rendered
during the last three fiscal years.
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Name and Underlying All Other
Principal Position Year Salary($) Bonus($) Options (#) Compensation($)
------------------ ---- --------- -------- ----------- ---------------
<c>
J. George Mikelsons 2004 629,708 None None 5,715(1)
Chief Executive Officer and 2003 687,916 None None 7,200(2)
Chairman of the Board 2002 681,443 None None 6,600(3)
James W. Hlavacek 2004 269,231 None None 1,745(1)
Vice Chairman 2003 280,000 None None 7,200(2)
2002 346,635 None None 6,600(3)
Gilbert Viets4 2004 152,115 None None None
Executive Vice President and 2003 None None None None
Chief Financial Officer 2002 None None None None
David M. Wing5 2004 399,672 None None 2,908(1)
Former Executive Vice President 2003 319,846 None None 7,200(2)
And Chief Financial Officer 2002 207,981 None None 6,600(3)
William D. Beal6 2004 262,308 None None 1,904(1)
Former Sr. Vice President, 2003 248,500 None None 7,200(2)
Operations 2002 207,981 None None 7,229(3)
John Happ7 2004 252,769 None None None
Former Sr. Vice President, 2003 122,308 None None None
Marketing And Sales 2002 None None None None
Randy E. Marlar8 2004 199,298 None None 2,160(1)
Former Sr. Vice President, 2003 230,923 None None 7,200(2)
Strategic Sourcing and Process 2002 188,173 None None 7,494(3)
Improvement
1 Represents the amount of the Company's matching contribution to its 401(k)
Plan for the first quarter of 2004. The Company has not made a matching
contribution for the second, third and fourth quarters of 2004, but plans
to do so in early 2005.
2 Represents the amount of the Company's matching contribution to its 401(k)
Plan in 2003.
3 Represents the amount of the Company's matching contribution to its 401(k)
Plan in 2002.
4 Mr. Viets became an employee of the Company in June 2004.
5 Mr. Wing resigned December 21, 2004.
6 Mr. Beal retired on January 24, 2005.
7 Mr. Happ resigned on February 3, 2005.
8 Mr. Marlar resigned on May 21, 2004.
83
O P T I O N E X E R C I S E S AND
Y E A R-E N D O P T I O N V A L U E S T A B L E
- ---------------------------------------------------------------------------------------------------------------------------
This table shows the number and value of stock options (exercised and unexercised) for the named executive officers during 2004.
Value of
Unexercised
Number of Securities In-The-Money
Shares Underlying Unexercised Options At Fiscal
Acquired Value Options At Fiscal Year-End Year-End
On Exercise Realized Exercisable (E)/
Name (#) ($) Exercisable Unexercisable Unexercisable(U)($)
- -------------------------------------------------------------------------------------------------------------------
J. George Mikelsons -0- -0- -0- -0- -0- (E)
-0- (U)
James W. Hlavacek -0- -0- 270,098 -0- -0- (E)
-0- (U)
David M. Wing -0- -0- 59,558 -0- -0- (E)
-0- (U)
William D. Beal -0- -0- 39,333 -0- -0- (E)
-0- (U)
Gilbert Viets -0- -0- -0- -0- -0- (E)
-0- (U)
John Happ -0- -0- -0- -0- -0- (E)
-0- (U)
Randy E. Marlar -0- -0- -0- -0- -0- (E)
-0- (U)
Compensation Committee Composition
The objectives of ATAH's executive compensation programs are to: (i) attract and
retain talented and experienced executives with compensation that is competitive
with other U.S. airlines within a range of sizes, both smaller and larger than
ATA; (ii) reward outstanding performance and provide incentives based on
individual and corporate performance; and (iii) use equity-based compensation
(in the form of either restricted stock or stock options) to align the interests
of management with those of the shareholders.
The Compensation Committee is responsible for administering the Company's
compensation policies and programs. The Compensation Committee currently
consists of three (3) independent non-employee directors: Claude E. Willis
(Chairman), Andrejs P. Stipnieks, and Robert A. Abel. Mr. Abel is a director in
the accounting firm of Blue & Co., LLC. Mr. Abel's firm provided tax and
accounting services to the Company in 2004.
84
Compensation Committee Interlocks and Insider Participation
None of the Company's executive officers or directors serves as a member of the
board of directors or compensation committee of any entity that has one or more
of its executive officers serving as a member of the Company's Board of
Directors.
Employment Agreements
In connection with the appointment of John G. Denison as the Chief Executive
Officer of ATA, ATA entered into an employment agreement with Mr. Denison on
March 7, 2005. The agreement is for an indefinite period of time until the
earlier of such time as Mr. Denison resigns or voluntarily terminates his
employment or ATA's Board of Directors terminates his employment, removes him
form office or appoints him to another position. The agreement provides for the
payment of the sum of $25,000 for the period from January 20, 2005 (the date Mr.
Denison's employment with ATA commenced) to February 20, 2005 and a beginning
salary, commencing February 21, 2005, of $315,000 per year. Mr. Denison is also
eligible to be considered for a discretionary bonus upon the earlier to occur
of: (a) termination of his employment; (b) a transaction involving the Company
and/or ATA such as a merger, recapitalization, acquisition of the Company's
stock or assets by a purchaser or confirmation of a Chapter 11 reorganization
plan for ATA or the Company or both of them; or (c) December 31, 2005.
85
Item 12. Security Ownership of Certain Beneficial Owners and Management
B E N E F I C I A L O W N E R S H I P T A B L E
- ---------------------------------------------------------------------------------------------------------------------------
This table indicates the number of shares of common stock owned by (i) the named executive officers (ii) the directors; (iii)
any person known by management to beneficially own more than 5% of the outstanding shares of common stock; and (iv) all directors
and executive officers of the Company as a group as of March 4, 2005.
Percent of
Number of Shares Right to Outstanding
Name and Address of Individual/Group Owned 1 Acquire 2 Shares 3
- ------------------------------------ ------- --------- --------
J. George Mikelsons 8,210,214 -- 70
7337 West Washington Street
Indianapolis, IN 46231
James W. Hlavacek -- 264,098 --
Robert A. Abel 4,000 4,000 --
Gilbert F. Viets 4,000 -- --
Andrejs P. Stipnieks 15,320 4,000 --
Claude E. Willis 300 2,500 --
Byron F. Johnson -- -- --
David M. Wing4 1,074 -- --
William D. Beal5 57 39,333 --
John Happ6 -- -- --
Randy E. Marlar7 272 -- --
Dimensional Fund Advisors, Inc.8 683,379 -- 5.8
Air Transportation Stabilization Board9 1,478,059 -- 12.5
All directors and executive officers
as a group 10 (excluding J. George Mikelsons) 25,023 313,931 --
1 Includes shares for which the named person has shared voting and investment
power with a spouse.
2 Shares that can be acquired through presently exercisable stock options or
stock options which will become exercisable by their terms within 60 days.
3 If more than 1%.
4 Mr. Wing resigned on December 21, 2004.
5 Mr. Beal retired on January 24, 2005.
6 Mr. Happ resigned on February 3, 2005.
7 Mr. Marlar resigned on May 21, 2004.
8 Dimensional Fund Advisors Inc. ("Dimensional"), an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. (These
investment companies, trusts and accounts are referred to as the "Funds.")
In its role as investment adviser and investment manager, Dimensional
possesses voting and/or investment power over the shares of common stock
described in this table that are owned by the Funds. Such shares of common
stock are owned by the Funds, and Dimensional disclaims beneficial
ownership of such securities. The information in the table and this
footnote is based on information supplied by Dimensional on Schedule 13G
filed with the SEC on February 9, 2005.
9 The ATSB beneficially owns 1,478,059 shares of common stock through its
ownership of a warrant. The warrant has an exercise price of $3.53 per
share and is immediately exercisable.
10 Group consists of 10 persons (Messers. Hlavacek, Abel, Stipnieks, Viets,
Willis, Johnson, Wing, Beal, Happ and Marlar).
86
Equity Compensation Plan Information
The following table gives information about the Company's common stock that may
be issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2004:
Number of securities
to be issued upon Number of securities
exercise of remaining available for
outstanding options, Weighted-average future issuance under
warrants and rights exercise price of equity compensation plans
(a)(#) outstanding (excluding securities
-------- options, warrants reflected in column (a))
Plan Category and rights(b)($) (c) (#)
- ------------ ---------------- -------
Equity compensation
plans approved by
security holders(1) 1,214,443 $14.75 3,000,000
Equity compensation
plans not approved by
security holders
Total 1,214,443 $14.75 3,000,000
1 Includes the 1993 Incentive Stock Plan for Key Employees, the 1996
Incentive Stock Plan for Key Employees and the 2000 Incentive Stock Plan
for Key Employees.
Item 13. Certain Relationships and Related Transactions
J. George Mikelsons, the Company's Chairman and Chief Executive Officer, is the
sole owner of Betaco, Inc., a Delaware corporation ("Betaco"). Betaco currently
owns two airplanes, a Cessna Citation II and a Lear Jet, and two helicopters, a
Bell 206B Jet Ranger III and a Bell 206L-3 LongRanger. The two airplanes are
leased or subleased to ATA. The LongRanger helicopter is leased to American
Trans Air ExecuJet, Inc. ("ExecuJet"), a subsidiary of ATA Holdings Corp.
ExecuJet subleases the LongRanger to an Indianapolis television station. During
a portion of 2004, Betaco leased a Jet Ranger III helicopter to ExecuJet for
specialty charter flying during 2004, but rejected this lease in January 2005 as
part of the Chapter 11 proceedings.
The lease for the Cessna Citation currently requires a monthly payment of
$27,600 for a term beginning April 1, 2004, and ending on March 31, 2007. The
lease for the Lear Jet requires a monthly payment of $27,600 for a term
beginning April 1, 2004, and ending March 31, 2007. The lease for the LongRanger
requires a monthly payment of $15,000 for a term beginning April 1, 2004, and
ending March 31, 2007. Pursuant to various stipulations, the Company has made
payments in respect of the Cessna Citation, the Lear Jet and the LongRanger at
the pre-bankruptcy lease rates in exchange for extensions of the 60-day election
period under section 1110 of the Bankruptcy Code. As a result, the Company has
preserved its right to assume or reject the leases. The Company believes that
the current terms of the leases and subleases with Betaco for this equipment are
no less favorable to the Company than those that could be obtained from third
parties.
87
Since 1996, the Company and Mr. Mikelsons had an arrangement pursuant to which
the Company provided certain domestic employees of Mr. Mikelsons with salary,
health insurance and other non-cash benefits. The Company invoiced Mr. Mikelsons
quarterly for the full amount of such benefits. Prior to 2003, the timing of
payments from Mr. Mikelsons to the Company had been inconsistent, but beginning
in 2003, Mr. Mikelsons has reimbursed the Company prior to the date of each
salary payment for these employees. This arrangement ended in October 2004.
In 2004, the Company paid approximately $236,000 in associated compensation,
plus associated benefits, to five employees who served as the crew for a boat
owned by Betaco and another company owned by Mr. Mikelsons. Under an agreement
dated as of July 1, 2002, the Company agreed to pay for these employees in
exchange for its use of the boat for business purposes (e.g., the entertainment
of clients, customers and vendors of the Company). To the extent that for any
fiscal year the crew's compensation, plus associated non-cash benefits, exceeds
75% of the amount that would have been charged by an outside third party under a
fair market rental contract for the Company's actual business use of the boat,
Mr. Mikelsons is responsible for paying the difference. In 2004, the Company's
use of the boat resulted in no payments by Mr. Mikelsons to the Company. In
October 2004, the agreement was discontinued.
ATA received a $168.0 million ATSB Loan in November 2002, $148.5 million of
which is guaranteed by the ATSB. As of December 31, 2004, $139.9 million was
outstanding under the ATSB Loan. In connection with the ATSB Loan, ATA Holdings
Corp. issued 1,478,059 warrants to the ATSB to purchase the Company's stock.
During 2004, the Company made principal payments of $21.0 million against the
$168.0 million ATSB loan and also made interest payments of $8.2 million. On
January 30, 2004, the ATSB granted a waiver to the loan agreement that allowed
the Company to exchange its 2004 Notes for 2009 Notes and its 2005 Notes for
2010 Notes. See "Notes to Consolidated Financial Statements - Note 6 - Debt" for
more information.
On October 29, 2004 the Bankruptcy Court entered an interim order which permits
ATA to use the unrestricted cash, eligible accounts receivable and other
collateral pledged to secure ATA's ATSB Loan, a significant portion of which is
guaranteed by the ATSB. The interim order has the effect of giving the ATSB Loan
lenders a replacement lien on unrestricted cash and all other assets of the
Debtors to secure diminution of pre-petition cash collateral. This interim order
has been extended for successive short periods, currently through April 7, 2005,
and requires compliance by the Debtors with certain terms, such as the
maintenance of minimum cash collateral balances and periodic reporting
requirements. Further extensions cannot be assured, and a failure to maintain
the right to use cash collateral would be material and adverse to the ability of
the Debtors to reorganize under Chapter 11 of the U. S. Bankruptcy Code.
As of December 31, 2004, Mr. Mikelsons owes $653,225 to the Company pursuant to
the arrangements relating to the domestic employees and the crew. On October 26,
2004, the Company and Mr. Mikelsons signed an agreement for the repayment of the
debt which requires quarterly installments of $19,403 beginning January 26, 2005
through October 26, 2009 and bears interest at 3.6% per annum. The remaining
balance becomes due and payable on October 26, 2009.
In 2004, Gordon Moebius, Director of ExecuJet and brother-in-law to Mr.
Mikelsons, received annual compensation of approximately $87,000. In addition,
Eugene Moebius and Alan Moebius, ATA airframe & powerplant aircraft mechanics
and brothers-in-law to Mr. Mikelsons, received approximately $63,500 and
$58,500, respectively, in compensation from ATA in 2004.
David M. Wing, the Company's former Executive Vice President and Chief Financial
Officer, filed a complaint against ATA with the United States Department of
Labor ("DOL"). The complaint resulted from a disagreement concerning the
circumstances under which Mr. Wing left his employment with the Company on or
88
about June 24, 2004. In order to settle the dispute, ATA entered into a
Settlement Agreement on October 18, 2004 with Mr. Wing, pursuant to which Mr.
Wing executed an employment contract with the Company and Mr. Wing resumed to
his former duties. The employment contract required the Company to pay Mr. Wing
a sign up bonus of $157,500. Mr. Wing subsequently resigned on December 21,
2004. On November 15, 2004, the DOL dismissed the claim.
Item 14. Principal Accountant Fee and Services
Audit Fees
The aggregate fees billed by Ernst & Young for professional services rendered
for the years ended December 31, 2004 and 2003 were $610,619 and $770,541,
respectively. Audit fees include the audit of the Company's annual financial
statements, the reviews of the financial statements included in the Company's
quarterly reports on Form 10-Q during the year 2004, attestation services
required by statute or regulation, comfort letters, consents, assistance with
and review of documents filed with the SEC, and accounting and financial
reporting consultations and research work necessary to comply with generally
accepted auditing standards.
Audit-Related Fees
The aggregate fees billed by Ernst & Young for professional services rendered
for audit-related services for the years ended December 31, 2004 and 2003 were
$79,597 and $204,641, respectively. The fees consisted primarily of
consultations on accounting matters, consultation related to preparation for
Sarbanes-Oxley 404 requirements and services for other filings.
Tax Fees
The aggregate fees billed by Ernst & Young for professional services rendered
for tax fees for the years ended December 31, 2004 and 2003 were $39,460 and
$202,285, respectively. The fees consisted primarily of preparation and review
of federal and state tax returns and tax advice.
In 2004, the Audit Committee: (1) reviewed all services provided by Ernst &
Young to ensure that they were within the scope previously pre-approved by the
Audit Committee; and (2) concluded that the non-audit services performed by
Ernst & Young for the Company and its subsidiaries did not impair its
independence as the Company's accountants.
89
PART IV
Item 15. Exhibit and Financial Statement Schedules
(a) (1) Financial Statements
The following consolidated financial statements of the Company
and its subsidiaries are included in Item 8:
o Consolidated Balance Sheets for the years ended December 31, 2004
and 2003
o Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002
o Consolidated Statements of Redeemable Preferred Stock, subject to
compromise, Shareholders' Equity (Deficit) for the years ended
December 31, 2004, 2003 and 2002
o Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002
o Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
The following consolidated financial information for the years
2004, 2003 and 2002 is included on page 91 of this report:
o Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
(3) Exhibits
Exhibits are filed as a separate section of this report as set
forth in the Index to Exhibits attached to this report.
90
Schedule II Valuation and Qualifying Accounts
(Dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------- ---------------- --------------------- ------------ -------------
Additions
----------
Charged to
Balance at Charged to Other
Beginning of Costs and Accounts - Deductions - Balance at
Description Period Expenses Describe Describe End of Period
- ------------------------------------------------------- ------------ ---------- ----------- ------------ -------------
Year ended December 31, 2002:
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . 1,526 2,605 - 1,756 (1) 2,375
Allowance for obsolescence - Inventory . . . . . . 10,905 4,258 - 433 (2) 14,730
Valuation allowance for net deferred tax asset. . - 43,324 - - 43,324
-------------- ---------- ----------- ------------ -----------
Totals . . . . . . . . . . . . . . . . . . . . . . . $ 12,431 $ 50,187 $ - $ 2,189 $ 60,429
============== ========== =========== ============ ===========
Year ended December 31, 2003:
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . 2,375 1,383 - 2,370 (1) 1,388
Allowance for obsolescence - Inventory . . . . . . 14,730 6,493 - - 21,223
Valuation allowance for net deferred tax asset. . 43,324 - - 9,871 (3) 33,453
-------------- --------- ----------- ------------ -----------
Totals . . . . . . . . . . . . . . . . . . . . . . . $ 60,429 $ 7,876 $ - $ 12,241 $ 56,064
============== ========== =========== ============ ===========
Year ended December 31, 2004:
Deducted from asset accounts:
Allowance for doubtful accounts . . . . . . . . . 1,388 3,083 - 1,863 (1) 2,608
Allowance for obsolescence - Inventory . . . . . . 21,223 3,240 - 7,207 (2) 17,256
Valuation allowance for net deferred tax asset. . 33,453 - (878) (297,857) (3) 330,432
-------------- --------- ----------- ------------ -----------
Totals . . . . . . . . . . . . . . . . . . . . . . . $ 56,064 $ 6,323 $ (878) $ (288,787) $ (288,787)
============== ========== =========== ============ ===========
(1) Uncollectible accounts net of recoveries
(2) Reduction of obsolesence allowance in 2004 of $7.2 million resulted from the FAS 144 impairment
writedown of Lockheed L-1011-500 inventory. The reduction in 2002 related to inventory items
transferred to flight equipment or sold.
(3) The Company recorded a full valuation allowance against its net deferred tax assets as it had incurred
a three-year cumulative loss. The net increase in the valuation allowance in 2004 resulted from the
net increase in deferred tax assets.
91
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.
ATA Holdings Corp.
(Registrant)
Date: March 30, 2005 by /s/ J. George Mikelsons
--------------------------------------------
J. George Mikelsons Chairman and Chief
Executive Officer On behalf of the
Registrant and as Director
Date: March 30, 2005 /s/ James W. Hlavacek
--------------------------------------------
James W. Hlavacek
Vice Chairman
Director
Date: March 30, 2005 /s/ Gilbert F. Viets
--------------------------------------------
Gilbert F. Viets
Executive Vice President and
Chief Financial Officer
Director
Date: March 30, 2005 /s/ Robert A. Abel
--------------------------------------------
Robert A. Abel
Director
Date: March 30, 2005 /s/ Claude E. Willis
--------------------------------------------
Claude E.Willis
Director
Date: March 30, 2005 /s/ Andrejs P. Stipnieks
--------------------------------------------
Andrejs P. Stipnieks
Director
Date: March 30, 2005 /s/ Byron F. Johnson
--------------------------------------------
Byron F. Johnson
Director
Date: March 30, 2005 /s/ Wisty B. Malone
--------------------------------------------
Wisty B. Malone
Vice President and Controller/Treasurer
Index to Exhibits
Exhibit No.
3 (i)(a) Restated Articles of Incorporation of Amtran, Inc. (incorporated by
reference to Exhibit 3(a) to Amtran, Inc.'s Registration Statement on S-1
dated March 16, 1993, File No. 33-59630).
3(i)(b) Articles of Amendment to the Restated Articles of Incorporation adopted
as of September 19, 2000 (incorporated by reference to Exhibit 3(i)(b) to
Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
3(i)(c) Articles of Amendment to the Restated Articles of Incorporation adopted
as of December 28, 2000 (incorporated by reference to Exhibit 3(i)(c) to
Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
3(ii)Bylaws of Amtran, Inc., as amended (incorporated by reference to Exhibit
3(b) to Amtran, Inc.'s Registration Statement on S-1 dated March 16, 1993,
File No. 33-59630).
4.1 Indenture dated as of July 24, 1997, by and among Amtran, Inc., as issuer,
American Trans Air, Inc., Ambassadair Travel Club, Inc., ATA Vacations,
Inc., Amber Travel, Inc., American Trans Air Training Corporation, American
Trans Air ExecuJet, Inc. and Amber Air Freight Corporation, as guarantors,
and First Security Bank, N.A., as trustee (incorporated by reference to
Exhibit 4.1 to Amtran, Inc.'s Registration Statement on S-4 dated October
6, 1997, File No. 333-37283).
4.2 Indenture dated as of December 11, 1998, by and among Amtran, Inc., as
issuer, American Trans Air, Inc., Ambassadair Travel Club, Inc., ATA
Vacations, Inc., Amber Travel, Inc., American Trans Air Training
Corporation, American Trans Air ExecuJet, Inc. and Amber Air Freight
Corporation, as guarantors, and First Security Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.4 to Amtran, Inc.'s Registration
Statement on S-3 dated August 26, 1998, File No. 333-52655).
4.3 First Supplemental Indenture dated as of December 11, 1998, by and among
Amtran, Inc., as issuer, American Trans Air, Inc., Ambassadair Travel Club,
Inc., ATA Vacations, Inc., Amber Travel, Inc., American Trans Air Training
Corporation, American Trans Air ExecuJet, Inc. and Amber Air Freight
Corporation, as guarantors, and First Security Bank, N.A., as trustee, to
the Indenture dated as of December 11, 1998 (incorporated by reference to
Exhibit 4.4 to Amtran, Inc.'s Registration Statement on S-3 dated August
26, 1998, File No. 333-52655).
4.4 First Supplemental Indenture dated as of December 21, 1999, by and among
Amtran, Inc., as issuer, American Trans Air, Inc., Ambassadair Travel Club,
Inc., ATA Vacations, Inc., Amber Travel, Inc., American Trans Air Training
Corporation, American Trans Air ExecuJet, Inc. and Amber Air Freight
Corporation, Chicago Express Airlines, Inc., as guarantors, and First
Security Bank, N.A., as trustee, to the Indenture dated as of July 24, 1997
(incorporated by reference to Exhibit 4.1 to Amtran, Inc.'s Registration
Statement on S-4 dated January 25, 2000, File No. 333-95371).
4.5 Indenture relating to Senior Notes due 2009 dated as of January 30, 2004,
among ATA Holdings Corp., as issuer, ATA Airlines, Inc., Ambassadair Travel
Club, Inc., ATA Leisure Corp., Amber Travel, Inc., American Trans Air
Training Corporation, American Trans Air ExecuJet, Inc., ATA Cargo, Inc.
and Chicago Express Airlines, Inc., as guarantors, and Wells Fargo Bank
Northwest, National Association, as trustee (Incorporated by reference to
Exhibit 4.1 to ATA Holding Corp.'s Registration Statement on Form S-4 dated
February 13, 2004, File No. 333-112827).
4.6 Indenture relating to Senior Notes due 2010 dated as of January 30, 2004,
among ATA Holdings Corp., as issuer, ATA Airlines, Inc., Ambassadair Travel
Club, Inc., ATA Leisure Corp., Amber Travel, Inc., American Trans Air
Training Corporation, American Trans Air ExecuJet, Inc., ATA Cargo, Inc.
and Chicago Express Airlines, Inc., as guarantors, and Wells Fargo Bank
Northwest, National Association, as trustee (Incorporated by reference to
Exhibit 4.2 to ATA Holding Corp.'s Registration Statement on Form S-4 dated
February 13, 2004, File No. 333-112827).
4.7 Second Supplemental Indenture relating to 10 1/2% Senior Notes due 2004
dated as of January 30, 2004, among ATA Holdings Corp., as issuer, ATA
Airlines, Inc., Ambassadair Travel Club, Inc., ATA Leisure Corp., Amber
Travel, Inc., American Trans Air Training Corporation, American Trans Air
ExecuJet, Inc., ATA Cargo, Inc. and Chicago Express Airlines, Inc., as
guarantors, and Wells Fargo Bank Northwest, National Association, as
trustee (Incorporated by reference to Exhibit 4.3 to ATA Holding Corp.'s
Registration Statement on Form S-4 dated February 13, 2004, File No.
333-112827).
4.8 Second Supplemental Indenture relating to 9 5/8% 2005 notes due 2004 dated
as of January 21, 2004, among ATA Holdings Corp., as issuer, ATA Airlines,
Inc., Ambassadair Travel Club, Inc., ATA Leisure Corp., Amber Travel, Inc.,
American Trans Air Training Corporation, American Trans Air ExecuJet, Inc.,
ATA Cargo, Inc. and Chicago Express Airlines, Inc., as guarantors, and
Wells Fargo Bank Northwest, National Association, as trustee (Incorporated
by reference to Exhibit 4.4 to ATA Holding Corp.'s Registration Statement
on Form S-4 dated February 13, 2004, File No. 333-112827).
4.9 Third Supplemental Indenture relating to 9 5/8% Senior Notes due 2005 dated
as of January 30, 2004, among ATA Holdings Corp., as issuer, ATA Airlines,
Inc., Ambassadair Travel Club, Inc., ATA Leisure Corp., Amber Travel, Inc.,
American Trans Air Training Corporation, American Trans Air ExecuJet, Inc.,
ATA Cargo, Inc. and Chicago Express Airlines, Inc., as guarantors, and
Wells Fargo Bank Northwest, National Association, as trustee (Incorporated
by reference to Exhibit 4.5 to ATA Holding Corp.'s Registration Statement
on Form S-4 dated February 13, 2004, File No. 333-112827).
4.10 Registration Rights Agreement dated as of January 30, 2004, among ATA
Holdings Corp., as issuer, ATA Airlines, Inc., Ambassadair Travel Club,
Inc., ATA Leisure Corp., Amber Travel, Inc., American Trans Air Training
Corporation, American Trans Air ExecuJet, Inc., ATA Cargo, Inc. and Chicago
Express Airlines, Inc., as guarantors, and Wells Fargo Bank Northwest,
National Association, as trustee (Incorporated by reference to Exhibit 4.6
to ATA Holding Corp.'s Registration Statement on Form S-4 dated February
13, 2004, File No. 333-112827).
4.11 Pass Through Trust Agreement, dated as of March 28, 2002, among Amtran,
Inc., American Trans Air, Inc. and Wilmington Trust Company, as Trustee,
made with respect to the formation of American Trans Air 2002-1A Pass
Through Trust and the issuance of 8.328% Initial American Trans Air 2002-1A
Pass Through Certificates and 8.328% Exchange American Trans Air 2002-1A
Pass Through Certificates (incorporated by reference to Exhibit 4.5 to ATA
Holdings Corp.'s Registration Statement on Form S-4 dated November 22,
2002, File No. 333-101423).
4.12 Pass Through Trust Agreement, dated as of March 28, 2002, among Amtran,
Inc., American Trans Air, Inc. and Wilmington Trust Company, as Trustee,
made with respect to the formation of American Trans Air 2002-1B Pass
Through Trust and the issuance 10.699% Initial American Trans Air 2002-1 B
Pass Through Certificates and 10.699% Exchange American Trans Air 2002-1B
Pass Through Certificates (incorporated by reference to Exhibit 4.6 to ATA
Holdings Corp.'s Registration Statement on Form S-4 dated November 22,
2002, File No. 333-101423).
4.13 Pass Through Trust Agreement, dated as of February 15, 2000, between
American Trans Air, Inc. and Wilmington Trust Company, as Trustee, made
with respect to the formation of American Trans Air 2000-1G-O Pass Through
Trust and the issuance of 8.039% Initial American Trans Air 2000-1G-O Pass
Through Trust Certificates and 8.039% Exchange American Trans Air 2000-1G-O
Pass Through Certificates (incorporated by reference to Exhibit 4.5 to
Amtran, Inc.'s Registration Statement on S-4 dated August 11, 2000, File
No. 333-43606).
4.14 Pass Through Trust Agreement, dated as of February 15, 2000, between
American Trans Air, Inc. and Wilmington Trust Company, as Trustee, made
with respect to the formation of American Trans Air 2000-1G-S Pass Through
Trust and the issuance of 8.039% Initial American Trans Air 2000-1G-S Pass
Through Certificates and 8.039% Exchange American Trans Air 2000-1G-S Pass
Through Certificates (incorporated by reference to Exhibit 4.6 to Amtran,
Inc.'s Registration Statement on S-4 dated August 11, 2000, File No.
333-43606).
4.15 Pass Through Trust Agreement, dated as of February 15, 2000, between
American Trans Air, Inc. and Wilmington Trust Company, as Trustee, made
with respect to the formation of American Trans Air 2000-1C-O Pass Through
Trust and the issuance of 9.644% Initial American Trans Air 2000-1C-O Pass
Through Certificates and 9.644% Exchange American Trans Air 2000-1C-O Pass
Through Certificates (incorporated by reference to Exhibit 4.7 to Amtran,
Inc.'s Registration Statement on S-4 dated August 11, 2000, File No.
333-43606).
4.16 Pass Through Trust Agreement, dated as of February 15, 2000, between
American Trans Air, Inc. and Wilmington Trust Company, as Trustee, made
with respect to the formation of American Trans Air 2000-1C-S Pass Through
Trust and the issuance of 9.644% Initial American Trans Air 2000-1C-S Pass
Through Certificates and 9.644% Exchange American Trans Air 2000-1C-S Pass
Through Certificates (incorporated by reference to Exhibit 4.8 to Amtran,
Inc.'s Registration Statement on S-4 dated August 11, 2000, File No.
333-43606).
4.17 Purchase and Investor Rights Agreement dated as of December 13, 2000,
between Amtran, Inc. and Boeing Capital Corporation. (incorporated by
reference to Exhibit 4.9 to Amtran, Inc.'s Annual Report on 10-K dated
April 2, 2001, File No. 000-21642).
4.18 Purchase and Investor Rights Agreement dated as of September 19, 2000,
between Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 4.10 to Amtran, Inc.'s Annual Report
on 10-K dated April 2, 2001, File No. 000-21642).
4.19 Pass Through Trust Agreement, dated as of December 16, 1996, among Amtran,
Inc., American Trans Air, Inc. and Wilmington Trust Company, as Trustee,
made with respect to the formation of American Trans Air 1996-1A Pass
Through Trust and the issuance of 7.37% American Trans Air 1996-1A Pass
Through Trust Certificates (incorporated by reference to Exhibit 4.11 to
Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
4.20 Pass Through Trust Agreement, dated as of December 16, 1996, among Amtran,
Inc., American Trans Air, Inc. and Wilmington Trust Company, as Trustee,
made with respect to the formation of American Trans Air 1996-1B Pass
Through Trust and the issuance of 7.64% American Trans Air 1996-1B Pass
Through Trust Certificates (incorporated by reference to Exhibit 4.12 to
Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
4.21 Pass Through Trust Agreement, dated as of December 16, 1996, among Amtran,
Inc., American Trans Air, Inc. and Wilmington Trust Company, as Trustee,
made with respect to the formation of American Trans Air 1996-1C Pass
Through Trust and the issuance of 7.82% American Trans Air 1996-1C Pass
Through Trust Certificates (incorporated by reference to Exhibit 4.13 to
Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
4.22 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company, as
Trustee, made with respect to the formation of American Trans Air 1997-1A-O
Pass Through Trust and the issuance of 6.99% American Trans Air 1997-1A-O
Pass Through Trust Certificates (incorporated by reference to Exhibit 4.14
to Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
4.23 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company, as
Trustee, made with respect to the formation of American Trans Air 1997-1A-S
Pass Through Trust and the issuance of 6.99% American Trans Air 1997-1A-S
Pass Through Trust Certificates (incorporated by reference to Exhibit 4.15
to Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
4.24 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company, as
Trustee, made with respect to the formation of American Trans Air 1997-1B-O
Pass Through Trust and the issuance of 7.19% American Trans Air 1997-1B-O
Pass Through Trust Certificates (incorporated by reference to Exhibit 4.16
to Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
4.25 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company, as
Trustee, made with respect to the formation of American Trans Air 1997-1B-S
Pass Through Trust and the issuance of 7.19% American Trans Air 1997-1B-S
Pass Through Trust Certificates (incorporated by reference to Exhibit 4.17
to Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
4.26 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company, as
Trustee, made with respect to the formation of American Trans Air 1997-1C-O
Pass Through Trust and the issuance of 7.46% American Trans Air 1997-1C-O
Pass Through Trust Certificates (incorporated by reference to Exhibit 4.18
to Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
4.27 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company, as
Trustee, made with respect to the formation of American Trans Air 1997-1C-S
Pass Through Trust and the issuance of 7.46% American Trans Air 1997-1C-S
Pass Through Trust Certificates (incorporated by reference to Exhibit 4.19
to Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001, File No.
000-21642).
4.28 Form of Common Stock Certificate of Amtran, Inc. (incorporated by reference
to Exhibit 4 to Amtran, Inc.'s Registration Statement on S-1 dated March
16, 1993, File No. 33-59630).
4.29 Form of Series A1 Preferred Stock Certificate of Amtran, Inc. (incorporated
by reference to Exhibit 4.21 to Amtran, Inc.'s Annual Report on 10-K dated
April 2, 2001, File No. 000-21642).
4.30 Form of Series B Preferred Stock Certificate of Amtran, Inc. (incorporated
by reference to Exhibit 4.22 to Amtran, Inc.'s Annual Report on 10-K dated
April 2, 2001, File No. 000-21642).
4.31 Form of 1996 Class A American Trans Air, Inc. Pass Through Certificates
(included in Exhibit 4.11).
4.32 Form of 1996 Class B American Trans Air, Inc. Pass Through Certificates
(included in Exhibit 4.12).
4.33 Form of 1996 Class C American Trans Air, Inc. Pass Through Certificates
(included in Exhibit 4.13).
4.34 Form of 1997 Class A American Trans Air, Inc. Pass Through Certificates
(included in Exhibit 4.14).
4.35 Form of 1997 Class B American Trans Air, Inc. Pass Through Certificates
(included in Exhibit 4.16).
4.36 Form of 1997 Class C American Trans Air, Inc. Pass Through Certificates
(included in Exhibit 4.18).
4.37 Form of 2000 Class G American Trans Air, Inc. Pass Through Certificates
(included in Exhibit 4.5).
4.38 Form of 2000 Class C American Trans Air, Inc. Pass Through Certificates
(included in Exhibit 4.7).
4.39 Amtran, Inc. hereby agrees to furnish to the Commission, upon request,
copies of certain additional instruments relating to long-term debt of the
kind described in Item 601(b)(4)(iii)(A) of Regulation S-K.
10.1 1993 Incentive Stock Plan for Key Employees of Amtran, Inc. and its
Subsidiaries (incorporated by reference to Exhibit 10(r)(r) to Amtran,
Inc.'s Registration Statement on S-1 dated March 16, 1993, File No.
33-59630).**
10.2 1996 Incentive Stock Plan for Key Employees of Amtran, Inc. and its
Subsidiaries (incorporated by reference to Amtran, Inc.'s Registration
Statement on S-8 dated June 20, 1997, File No. 333-29715).**
10.3 2000 Incentive Stock Plan for Key Employees of Amtran, Inc. and its
Subsidiaries (incorporated by reference to Exhibit A to Amtran, Inc.'s
Proxy Statement dated April 5, 2000).**
10.4 Stock Option Plan for Non-Employee Directors (incorporated by reference to
Appendix A to Amtran, Inc.'s Proxy Statement dated April 15, 1994).**
10.5 Aircraft General Terms Agreement dated as of June 30, 2000, between The
Boeing Company ("Boeing") and American Trans Air, Inc.; Purchase Agreement
Number 2285 dated as of June 30, 2000, between Boeing and American Trans
Air, Inc.; Purchase Agreement Number 2262 dated as of June 30, 2000,
between Boeing and American Trans Air, Inc. (incorporated by reference to
Exhibit 10.5 to Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001,
File No. 000-21642).*
10.6(a) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(a) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(b) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(b) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(c) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(c) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(d) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(d) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(e) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(e) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(f) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(f) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(g) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(g) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(h) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(h) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(i) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(i) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(j) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation (incorporated by
reference to Exhibit 10.6(j) to Amtran, Inc.'s Annual Report on 10-K dated
April 2, 2001, File No. 000-21642).*
10.6(k) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(k) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(l) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(l) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(m) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(m) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.6(n) Aircraft Lease Agreement dated as of September 20, 2000, between Amtran,
Inc. and International Lease Finance Corporation (incorporated by reference
to Exhibit 10.6(n) to Amtran, Inc.'s Annual Report on 10-K dated April 2,
2001, File No. 000-21642).*
10.7 Aircraft Financing Agreement dated as of December 6, 2000, between Amtran,
Inc. and General Electric Capital Corporation (incorporated by reference to
Exhibit 10.7 to Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001,
File No. 000-21642).*
10.8 Limited Liability Company Agreement dated as of March 13, 2001, between
Amtran, Inc. and Boeing Capital Corporation to form BATA Leasing LLC.
(incorporated by reference to Exhibit 10.1.1 to Amtran, Inc.'s Quarterly
Annual Report on 10-Q dated May 15, 2001, File No. 000-21642).*
10.9 Purchase and Voting Agreement dated as of May 16, 2001, between Amtran,
Inc., and ILFC (incorporated by reference to Exhibit 99.2 to the 8-K dated
May 16, 2001).
10.11$168,000,000 Loan Agreement dated as of November 30, 2002, among American
Trans Air, Inc., as Borrower, ATA Holdings Corp., as Parent, GOVCO
Incorporated, as Primary Tranche A Lender, Citibank, N.A., as Alternate
Tranche A Lender, Citicorp North America, Inc., as GOVCO Administrative
Agent, Citibank, N.A., as Tranche B Lender, BearingPoint, Inc., as Loan
Administrator, Citibank, N.A., as Collateral Agent, Citibank, N.A., as
Agent, and the Air Transportation Stabilization Board. (incorporated by
reference to Exhibit 10.11 to ATA Holdings Corp. Annual Report on 10-K
dated March 31, 2003, File No. 000-21642).*
10.11(a) Consent, Waiver and Amendment dated as of January 29, 2004, to the
$168,000,000 Loan Agreement dated as of November 30, 2002, among American
Trans Air, Inc., as Borrower, ATA Holdings Corp., as Parent, GOVCO
Incorporated, as Primary Tranche A Lender, Citibank, N.A., as Alternate
Tranche A Lender, Citicorp North America, Inc., as GOVCO Administrative
Agent, Citibank, N.A., as Tranche B Lender, BearingPoint, Inc., as Loan
Administrator, Citibank, N.A., as Collateral Agent, Citibank, N.A., as
Agent, and the Air Transportation Stabilization Board. (incorporated by
reference to Exhibit 10.11 to ATA Holdings Corp. Registration of Securities
on Form S-4 dated February 13, 2004, File No. 333-112827).
10.12 Mortgage and Security Agreement dated as of November 20, 2002, made by
American Trans Air, Inc. in favor of Citibank, N.A., as the Collateral
Agent. (incorporated by reference to Exhibit 10.12 to ATA Holdings Corp.
Annual Report on 10-K dated March 31, 2003, File No. 000-21642).
10.13 Employment Agreement dated as of October 18, 2004 by and among David M.
Wing and ATA Holdings. Corp.**
10.14 Settlement Agreement dated as of October 18, 2004 by and among David M.
Wing, ATA Holdings Corp., J. George Mikelsons, and Gilbert F. Viets.**
10.15 Employment Agreement dated March 7, 2005 between ATA Airlines, Inc.and
John G. Denison (incorporated by reference to Exhibit 10.1 to ATA Holdings
Corp. Current Report on Form 8-K dated March 7, 2005).**
10.16 Summary Sheet of 2005 Compensation.**
10.17 Bid Proposal to Purchase Assets from, Provide a DIP Facility and Exit
Facility to, and Codeshare with ATA Holdings Corp. dated December 15, 2004
by Southwest Airlines Co in connection with ATA Holdings Corp. and its
debtor affiliates and subsidiaries.
10.18 Asset Acquisition Agreement dated December 22, 2004 among Southwest
Airlines Co. as Purchaser and Assignee and ATA Holdings Corp. and ATA
Airlines Inc. as Sellers.
10.19 First Amendment to Asset Acquisition Agreement dated January 31,2005
among Southwest Airlines Co. as Purchaser and Assignee and ATA Holdings
Corp. and ATA Airlines Inc. as Sellers.
10.20 Second Amendment to Asset Acquisition Agreement dated February 15,2005
among Southwest Airlines Co. as Purchaser and Assignee and ATA Holdings
Corp. and ATA Airlines Inc. as Sellers.
10.21 Third Amendment to Asset Acquisition Agreement dated February 28, 2005
among Southwest Airlines Co. as Purchaser and Assignee and ATA Holdings
Corp. and ATA Airlines Inc. as Sellers.
10.22 Secured Debtor-In-Possession Credit and Security Agreement ("Credit
Agreement") dated as of December 22, 2004 between ATA Airlines Inc., a
Debtor and Debtor-in-Possession under Chapter 11 of the Bankruptcy Code, as
the Borrower, ATA Holdings Corp., as guarantor, Ambassadair Travel Club
Inc., as guarantor, ATA Leisure Corp., as guarantor, Amber Travel Inc., as
guarantor, American Trans Air ExecuJet, Inc., as guarantor, ATA Cargo Inc.,
as guarantor, Chicago Express Airlines, Inc, as guarantor, any other
subsidiary of ATA Holdings Corp., as guarantor and Southwest Airlines Co.
as Lender.
10.23 First Amendment to Credit Agreement dated as of January 30, 2005 between
ATA Airlines Inc., a Debtor and Debtor-in-Possession under Chapter 11 of
the Bankruptcy Code, as the Borrower, ATA Holdings Corp., as guarantor,
Ambassadair Travel Club Inc., as guarantor, ATA Leisure Corp., as
guarantor, Amber Travel Inc., as guarantor, American Trans Air ExecuJet,
Inc., as guarantor, ATA Cargo Inc., as guarantor, Chicago Express Airlines,
Inc, as guarantor, any other subsidiary of ATA Holdings Corp., as guarantor
and Southwest Airlines Co. as Lender.
10.24 Second Amendment to Credit Agreement dated as of February 25, 2005 between
ATA Airlines Inc., a Debtor and Debtor-in-Possession under Chapter 11 of
the Bankruptcy Code, as the Borrower, ATA Holdings Corp., as guarantor,
Ambassadair Travel Club Inc., as guarantor, ATA Leisure Corp., as
guarantor, Amber Travel Inc., as guarantor, American Trans Air ExecuJet,
Inc., as guarantor, ATA Cargo Inc., as guarantor, Chicago Express Airlines,
Inc, as guarantor, any other subsidiary of ATA Holdings Corp., as guarantor
and Southwest Airlines Co. as Lender.
21 Subsidiaries of ATA Holdings Corp.
23 Consent of Independent Auditors.
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*Portions of these exhibits have been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission.
**Represents a management contract or compensatory plan, contract or
arrangement.