<Page>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 2004
REGISTRATION NO. [333-112827]
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
ATA HOLDINGS CORP.
(EXACT NAMES OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
-------------------
<Table>
INDIANA 4522 35-1617970
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</Table>
7337 WEST WASHINGTON STREET
INDIANAPOLIS, INDIANA 46231
(317) 247-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------
MR. DAVID WING
CHIEF FINANCIAL OFFICER
ATA HOLDINGS CORP.
7337 WEST WASHINGTON STREET
INDIANAPOLIS, INDIANA 46231
(317) 247-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-------------------
COPY TO:
RONALD CAMI, ESQ.
CRAVATH, SWAINE & MOORE LLP
WORLDWIDE PLAZA
825 EIGHTH AVENUE
NEW YORK, NY 10019
(212) 474-1000
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
ADDITIONAL GUARANTOR REGISTRANTS
<Table>
STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
EXACT NAME OF GUARANTOR REGISTRANT INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER
ATA Airlines, Inc. Indiana 35 1305077
Ambassadair Travel Club, Inc. Indiana 35 1543699
ATA Leisure Corp. Indiana 35 1707490
Amber Travel, Inc. Indiana 35 1764784
American Trans Air Training Corporation Indiana 35 1751152
American Trans Air Execujet, Inc. Indiana 35 1768031
Chicago Express Airlines Inc. Georgia 58 2036179
ATA Cargo, Inc. California 33 0021178
</Table>
The address for each Guarantor is 7337 West Washington Street, Indianapolis,
Indiana 46231.
PROSPECTUS
$273,297,000
ATA HOLDINGS CORP.
-------------------
SENIOR NOTES DUE 2009 AND
SENIOR NOTES DUE 2010
APPLICABLE UNDERLYING PAYMENTS FULLY AND UNCONDITIONALLY GUARANTEED BY
EACH OF THE GUARANTORS NAMED HEREIN
OFFER TO EXCHANGE
$163,064,000 SENIOR NOTES DUE 2009
(144A CUSIP NO. 00209HAA9)
(REGULATION S CUSIP NO. U04643AA7)
FOR
A LIKE AMOUNT OF REGISTERED SENIOR NOTES DUE 2009
AND $110,233,000 SENIOR NOTES DUE 2010
(144A CUSIP NO. 00209HAB7)
(REGULATION S CUSIP NO. U04643AB5)
FOR
A LIKE AMOUNT OF REGISTERED SENIOR NOTES DUE 2010
-------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON JUNE 11, 2004, UNLESS EXTENDED.
-------------------
This is a registered offer to exchange each class of outstanding notes
issued by ATA Holdings Corp. ('Private Exchange Notes') for new notes issued by
ATA Holdings Corp. (the 'Exchange Notes' and, together with the Private Exchange
Notes, the 'Notes') having terms substantially identical in all material
respects to the Private Exchange Notes they are replacing (except that the
Exchange Notes will not contain terms with respect to transfer restrictions or
certain interest rate increases and the Exchange Notes will be available only in
book-entry form).
-------------------
PLEASE SEE 'RISK FACTORS' BEGINNING ON PAGE 14 FOR A DESCRIPTION OF
CERTAIN FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
<Table>
<Caption>
==========================================================================================================
PRINCIPAL
NOTES AMOUNT INTEREST RATE MATURITY DATE
- ----------------------------------------------------------------------------------------------------------
Senior Notes due 2009.................... $163,064,000 13.00% through July 31, 2006; February 1, 2009
14.00% thereafter
- ----------------------------------------------------------------------------------------------------------
Senior Notes due 2010.................... $110,233,000 12 1/8% through June 14, 2006; June 15, 2010
13 1/8% thereafter
==========================================================================================================
</Table>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
THE DATE OF THIS PROSPECTUS IS MAY 10, 2004
Address of Principal Executive Offices of ATA Holdings Corp.:
7337 West Washington Street
Indianapolis, Indiana 46231
(317) 247-4000
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Where You Can Find More Information......................... ii
Forward-Looking Statements.................................. iii
Summary..................................................... 1
Summary Consolidated Financial and Operating Data........... 10
Risk Factors................................................ 14
The Registered Exchange Offers.............................. 25
Capitalization.............................................. 33
Selected Consolidated Financial Data........................ 34
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 35
Quantitative and Qualitative Disclosures About Market Risk.. 61
Business.................................................... 62
Description of Principal Indebtedness, Operating Leases and
Preferred Stock........................................... 72
Description of the Exchange Notes........................... 74
Book-Entry; Delivery and Form............................... 106
U.S. Federal Income Tax Considerations...................... 108
Subsidiaries of ATA Holdings Corp........................... 110
Security Ownership of Certain Beneficial Owners and
Management................................................ 111
Directors and Executive Officers............................ 112
Executive Compensation...................................... 113
Certain Relationships and Related-Party Transactions........ 114
Legal Matters............................................... 115
Experts..................................................... 115
Index to Consolidated Financial Statements.................. F-1
</Table>
i
WHERE YOU CAN FIND MORE INFORMATION
ATA Holdings Corp. is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and,
therefore, must file periodic reports, proxy statements and other information
with the Commission. In addition, ATA Holdings Corp. has agreed to file with the
Commission the annual reports and the information, documents and other reports
otherwise required by Section 13 of the Exchange Act. All such information is
available to the public over the Internet at the Commission's web site at
http://www.sec.gov and may be inspected and copied at the Commission's public
reference facility:
Public Reference Room
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Copies of these documents can also be obtained at prescribed rates by
writing to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
ii
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements relate to
analyses and other information which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
our future prospects, developments and business strategies.
These forward-looking statements are identifiable by their use of terms and
phrases such as 'anticipate,' 'believe,' 'could,' 'estimate,' 'expect,'
'intend,' 'may,' 'plan,' 'predict,' 'project,' 'will' and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled 'Summary,' 'Risk Factors' and other sections of this
prospectus and in the documents incorporated by reference in this prospectus.
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:
economic conditions;
threat of future terrorist attacks;
labor costs;
aviation fuel costs;
competitive pressures on pricing;
weather conditions;
governmental legislation and regulation;
consumer perceptions of our products;
demand for air transportation overall, considering the
impact of September 11, 2001, and specifically in markets in
which we operate;
higher costs associated with new security directives;
higher costs for insurance and the continued availability of
such insurance;
our ability to obtain financing, and to refinance existing
borrowings upon maturity;
declines in the value of our aircraft and related parts, as
these may result in lower collateral value and additional
impairment charges; and
other risks and uncertainties listed from time to time in
reports we periodically file with the Commission.
Except to the extent required by the Federal securities laws, we do not
undertake to update our forward-looking statements to reflect future events or
circumstances.
iii
SUMMARY
This summary highlights selected information from this prospectus but does
not contain all the information that may be important to you. We encourage you
to read this entire prospectus, including the 'Risk Factors' section and our
consolidated financial statements and accompanying notes.
'ATA Holdings' refers to ATA Holdings Corp., formerly Amtran, Inc.; 'ATA'
refers to ATA Airlines, Inc. (formerly American Trans Air, Inc.), and 'we' or
'the Company' refers to ATA Holdings and its subsidiaries, including ATA.
ATA HOLDINGS
ATA Holdings owns ATA, the tenth largest passenger airline in the United
States (based on 2003 capacity and traffic) and a leading provider of low-cost
scheduled airline services in selected markets. We are also the largest provider
of commercial airline services based upon revenues for the twelve months ended
September 30, 2003, and one of the largest military charter airline services
based upon 2003 revenue. For the year ended December 31, 2003, based upon 2003
revenue, our revenues consisted of 71.5% scheduled service, 19.6% military
charter service and 4.6% commercial charter service with the balance derived
from related travel services.
Scheduled Service. We provide scheduled service primarily from our gateways
at Chicago-Midway and Indianapolis to vacation destinations such as Phoenix, Las
Vegas, Florida, California, Mexico and the Caribbean, as well as more
traditionally business destinations such as New York's LaGuardia Airport,
Philadelphia, Denver, Dallas-Ft. Worth, Washington, D.C., Boston, Seattle,
Minneapolis-St. Paul, Newark, Charlotte and Pittsburgh. We also provide
trans-Pacific service between the western United States and Hawaii. Our
Chicago-Midway operations include service to a number of Midwestern cities
through our commuter airline subsidiary, Chicago Express Airlines, Inc.
('Chicago Express').
Military/Government Charter Service. We have provided passenger airline
services to the U.S. military since 1983 and are currently one of the largest
commercial airline providers of these services. 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. Therefore, our
military/government charter service is less subject to seasonality than our
other services.
Commercial Charter Service. We provide commercial passenger charter airline
services, primarily through U.S. tour operators. Although in the past commercial
charter services have represented a significant business for us, our commercial
charter revenues declined significantly in 2003 and are likely to continue to
represent a declining percentage of our total revenues.
OUR LIQUIDITY DIFFICULTIES
The airline industry is characterized by high fixed costs and low profit
margins. Because many of our expenses do not vary with the number of passengers
boarded, our business is particularly recession-sensitive, and a decline in
passenger traffic has a disproportionately negative effect on our operating
results. The profitability and financial results of other airlines serving our
markets were materially and adversely affected by the reduced demand for
business and leisure travel, which has been caused by the economic downturn that
has only recently abated. These difficult economic conditions were exacerbated
significantly by the terrorist attacks of September 11, 2001, the continuing
effects of which have further reduced demand for airline services and have
increased costs for security measures and insurance for us and the airline
industry as a whole.
Our current liquidity difficulties have been caused by, among other factors:
significantly reduced traffic and yields as a result of
concerns of future terrorist attacks, fears of communicable
diseases and several years of recessionary economic
conditions;
higher operating costs as a result of increased insurance
premiums, increased passenger security requirements,
compliance with other new regulations and higher fuel
prices; and
1
decreased revenues as a result of increased fare discounting
and other pricing pressures from our competitors, some of
which are currently reducing their operating costs from
labor, supply and financing contracts renegotiated under the
protection of the bankruptcy code.
As of the date hereof, Moody's Investors Service ('Moody's') has assigned
our unsecured debt a rating of 'Ca' and indicated that it has a stable outlook
for future ratings. As of the date hereof, Standard & Poor's Ratings Services
('S&P') has assigned our corporate credit a rating of 'CCC' and our senior
unsecured debt a rating of 'CC.'
To address these liquidity difficulties, we have implemented and are further
implementing a number of measures that we believe have satisfied our immediate
liquidity concerns, for example:
we have restructured our cash obligations under both
aircraft operating leases and indebtedness as described
herein;
we are taking steps to further reduce our operating
expenses; and
we are implementing several initiatives aimed at enhancing
our revenue and improving brand identity.
AIRCRAFT OPERATING LEASE RESTRUCTURING
As part of our plan to address our current liquidity difficulties, on
January 30, 2004, we amended, respectively, certain of our aircraft operating
leases that were entered into in 2001, 2002 and 2003 with each of Boeing Capital
Services Corporation ('BCSC'), General Electric Capital Aviation Services
('GECAS') and International Lease Finance Corporation ('ILFC'). The effect of
the amendments is to delay the payment of portions of the amounts due under
those aircraft operating leases primarily between June 30, 2003 and March 31,
2005, which would ease our current liquidity difficulties. The payments delayed
during this time period would be subsequently paid at various times throughout
the remaining life of the leases.
RESTRUCTURING OF CERTAIN INDEBTEDNESS
In addition, on January 30, 2004, we completed the exchange offers (the
'Private Exchange Offers') of $163,064,000 in aggregate principal amount of
newly issued Senior Notes due 2009 (the 'Private Exchange 2009 Notes') and cash
consideration in exchange for $155,310,000 in aggregate principal amount of
10 1/2% Senior Notes due 2004 (the '2004 Notes') tendered and of $110,233,000 in
aggregate principal amount of Senior Notes due 2010 (the 'Private Exchange 2010
Notes' and, together with the Private Exchange 2009 Notes, the 'Private Exchange
Notes') and cash consideration in exchange for $104,995,000 in aggregate
principal amount of 9.625% Senior Notes due 2005 (the '2005 Notes' and, together
with the 2004 Notes, the 'Existing Notes') tendered.
The extension of the maturity dates of our debt repayment obligations as a
result of the Private Exchange Offers, and the amendments to the aircraft
operating leases will provide us with approximately $303.0 million (disregarding
any future revenue associated with the one Boeing 737-800 aircraft and the one
Boeing 757-200 aircraft that we expect to take delivery of in connection with
the aircraft operating lease restructuring) in additional liquidity in the
period through March 31, 2006.
As of December 31, 2003, and after giving effect to the Private Exchange
Offers and the aircraft operating lease restructuring, our principal payments on
indebtedness (excluding redeemable preferred stock) and our payment obligations
under aircraft and facility operating leases would be as set forth in the table
below.
2
<Table>
<Caption>
CASH PAYMENTS CURRENTLY SCHEDULED
-------------------------------------------------------------------------------------
2004 2005 2006 2007 2008 2009 2010 2011
---- ---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS)
Current and long-term debt(1)............ $ 66,355 $ 70,712 $ 30,456 $ 30,008 $ 51,172 $157,665 $107,350 $ 684
Lease obligations(2)..................... 207,303 266,017 316,285 318,157 309,836 290,918 283,891 272,287
Expected future lease obligations(3)..... 3,101 18,893 42,527 54,507 39,816 38,321 37,978 37,391
Redeemable preferred stock(4)............ -- -- -- -- -- -- 2,500 5,000
-------- -------- -------- -------- -------- -------- -------- --------
Total contractual obligations............ $276,759 $355,622 $389,268 $402,672 $400,824 $486,904 $431,719 $315,362
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
<Caption>
CASH PAYMENTS CURRENTLY SCHEDULED
----------------------------------
2012 THEREAFTER TOTAL
---- ---------- -----
(IN THOUSANDS)
Current and long-term debt............... -- $ 11,674 $ 526,076
Lease obligations(1)..................... 272,283 1,342,804 3,879,581
Expected future lease obligations(2)..... 37,045 332,645 642,224
Redeemable preferred stock(3)............ 5,000 37,500 50,000
-------- ---------- ----------
Total contractual obligations............ $314,328 $1,724,623 $5,097,881
-------- ---------- ----------
-------- ---------- ----------
</Table>
- ---------
(1) Debt obligations in 2004 reflect payment of approximately
$13 million in cash consideration to the noteholders on
January 30, 2004, as part of the Private Exchange Offers.
(2) 2004 lease obligations include a refund of approximately
$29.8 million related to lease payments made in 2003 due to
completion of the lease amendments on January 30, 2004. For
further discussion, see 'Financial Statements -- Notes to
Consolidated Financial Statements -- Note 2 -- State of the
Industry and Its Effects on the Company.'
(3) Represents estimated payments on nine new Boeing 737-800
aircraft the Company is committed to taking delivery of in
2004 and 2005, and four spare engines the Company is
committed to taking delivery of in 2005 through 2008. The
Company intends to finance these aircraft and engines with
operating leases. However, no such leases are in place as of
December 31, 2003, as the Company has not received the
aircraft and engines. Payments for expected future lease
obligations were estimated using leases for comparable
aircraft and engines currently in place. For further
discussion, see 'Financial Statements -- Notes to
Consolidated Financial Statements -- Note 13 -- Commitments
and Contingencies.'
(4) Represents the mandatory redemption of the 500 shares of
Series A Preferred in equal semiannual installments between
2010 and 2015. Amount excludes the mandatory redemption of
the 300 shares of Series B convertible preferred stock in
2015, as these shares can be converted into common stock at
any time up to the mandatory redemption date.
3
SUMMARY OF TERMS OF THE REGISTERED EXCHANGE OFFERS
<Table>
Securities for Which We Are Making the
Registered Exchange Offers.............. All of our outstanding Senior Notes due 2009 (the 'Private
Exchange 2009 Notes') and all of our outstanding Senior
Notes due 2010 (the 'Private Exchange 2010 Notes' and,
together with the Private Exchange 2009 Notes, the 'Private
Exchange Notes').
The Private Exchange 2009 Notes were issued under an
indenture, dated as of January 30, 2004, among the Company,
various subsidiary guarantors and Wells Fargo Bank
Northwest, National Association, as trustee (the '2009 Notes
Indenture'), and the Private Exchange 2010 Notes were issued
under an indenture, dated as of January 30, 2004, among the
Company, various subsidiary guarantors and Wells Fargo Bank
Northwest, National Association, as trustee (the '2010 Notes
Indenture' and, together with the 2009 Notes Indenture, the
'Indentures').
There are currently $163,064,000 aggregate principal amount
of Private Exchange 2009 Notes and $110,233,000 aggregate
principal amount of Private Exchange 2010 Notes. The 144A
CUSIP number of the Private Exchange 2009 Notes is
00209HAA9. The Regulation S CUSIP number of the Private
Exchange 2009 Notes is U04643AA7. The 144A CUSIP number of
the Private Exchange 2010 Notes is 00209HAB7. The Regulation
S CUSIP number of the Private Exchange 2010 Notes is
U04643AB5.
Securities Offered........................ Up to $163,064,000 Senior Notes due 2009 (the '2009 Exchange
Notes' and, together with the Private Exchange 2009 Notes,
the '2009 Notes') and up to $110,233,000 Senior Notes due
2010 (the '2010 Exchange Notes' and, together with the 2009
Exchange Notes, the 'Exchange Notes'; the Private Exchange
2010 Notes, together with the 2010 Exchange Notes, the '2010
Notes') in exchange for (the 'Registered Exchange Offers')
an equal aggregate principal amount of the Private Exchange
Notes. The Exchange Notes will be in substantially the same
form and will bear substantially the same terms as the
Private Exchange Notes except that the Exchange Notes have
been registered under the Securities Act.
Expiration Date........................... The expiration date of the Registered Exchange Offers is at
5:00 p.m., New York City time, on June 11, 2004, unless
extended by us in our sole discretion (the 'Expiration Date').
We will announce any extension no later than 9:00 a.m., New York
City time, on the business day following the date of the previously
scheduled Expiration Date.
Procedures for Tendering Private Exchange
Notes................................... You may withdraw your tender of Private Exchange Notes at
any time before the offer expires. If for any reason any
Private Exchange Notes are not accepted for exchange, they
will be returned as soon as practicable after the expiration
or termination of the Registered Exchange Offers.
</Table>
4
<Table>
The Registered Exchange Offers are subject to the condition
that they do not violate applicable law or any applicable
interpretation of the staff of the Commission. There is no
guarantee that any such condition will not occur. You will
have certain rights against us under the registration rights
agreement if we fail to consummate the Registered Exchange
Offers.
United States Federal Income Tax
Considerations.......................... Pursuant to the Registered Exchange Offers, the exchange of
a Private Exchange Note for an Exchange Note will not
constitute a taxable exchange. See 'U.S. Federal Income Tax
Consequences.'
Exchange Agent............................ Wells Fargo Bank Northwest, National Association is serving
as the exchange agent (the 'Exchange Agent') for the
Registered Exchange Offers. You can find the address and
telephone numbers for the Exchange Agent on the back cover
of this prospectus.
Use of Proceeds........................... We will not receive any cash proceeds from the issuance of
the Exchange Notes in connection with the Registered
Exchange Offers.
Further Information....................... Any questions or requests for assistance concerning the
Registered Exchange Offers may be directed to the
Information Agent at the telephone number and address set
forth on the back cover of this prospectus. Additional
copies of this prospectus and the consent and letter of
transmittal may be obtained by contacting the Information
Agent at the telephone number and address set forth on the
back cover of this prospectus.
</Table>
5
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
<Table>
Securities Offered........................ Senior Notes due 2009 (the '2009 Exchange Notes) and Senior
Notes due 2010 (the '2010 Exchange Notes'), the terms of
which are described below. The 2009 Exchange Notes and 2010
Exchange Notes are collectively referred to as the 'Exchange
Notes.'
2009 Exchange Notes....................... Up to $163,064,000 principal amount of Senior Notes due
2009, issued by ATA Holdings.
Interest.................................. Interest on the 2009 Exchange Notes will accrue at 13% per
annum through July 31, 2006, and at 14% from August 1, 2006,
to maturity. Interest on the 2009 Exchange Notes is payable
semiannually in cash on February 1 and August 1 of each
year.
Maturity Date............................. February 1, 2009
Mandatory Redemption by the Company....... We are required to redeem $7,765,500 in aggregate principal
amount of the 2009 Notes, pro rata from holders of the 2009
Notes on August 1, 2005, as described in 'Description of the
Exchange Notes -- Mandatory Redemption.' We may also be
required to commence an offer to purchase 2009 Notes under
certain circumstances described in 'Description of the
Exchange Notes -- Limitation on Future Issuances,'
'Description of the Exchange Notes -- Limitation on Asset
Sales' and 'Description of the Exchange Notes -- Repurchase
of Exchange Notes upon a Change of Control.'
Optional Redemption by the Company........ Commencing with the date of their issuance, we may redeem
some or all of the 2009 Exchange Notes at the redemption
prices listed in 'Description of the Exchange
Notes -- Optional Redemption.'
2010 Exchange Notes....................... Up to $110,233,000 principal amount of Senior Notes due
2010, issued by ATA Holdings.
Interest.................................. Interest on the 2010 Exchange Notes will accrue at 12 1/8%
per annum through June 14, 2006, and at 13 1/8% per annum
from June 15, 2006, to maturity. Interest on the 2010
Exchange Notes is payable semiannually in cash on June 15
and December 15 of each year.
Maturity Date............................. June 15, 2010.
Mandatory Redemption by the Company....... We are required to redeem $5,249,750 in aggregate principal
amount of 2010 Notes, pro rata from holders of the 2010
Notes on June 15, 2005, as described in 'Description of the
Exchange Notes -- Mandatory Redemption.' We may also be
required to commence an offer to purchase 2010 Notes under
certain circumstances described in 'Description of the
Exchange Notes -- Limitation on Future Issuances,'
'Description of the Exchange Notes -- Limitation on Asset
Sales' and 'Description of the Exchange Notes -- Repurchase
of Exchange Notes upon a Change of Control.'
</Table>
6
<Table>
Optional Redemption by the Company........ Commencing with the date of their issuance, we may redeem
some or all of the 2010 Exchange Notes at the redemption
prices listed in 'Description of the Exchange Notes --
Optional Redemption.'
Ranking................................... The Exchange Notes will be unsecured unsubordinated
obligations of the Company and:
will rank equally with all of our unsecured,
unsubordinated indebtedness existing or created in the
future; and
will be effectively subordinated to all of our
obligations under secured indebtedness to the extent
of such security and will be senior to all of our
subordinated indebtedness created in the future.
At December 31, 2003, and December 31, 2002, respectively,
after giving pro forma effect to the Private Exchange Offers
and the amendments to our aircraft operating leases
described under Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity
and Capital Resources -- Aircraft Operating Lease
Restructuring, we would have had outstanding approximately
$507.7 million and $522.4 million of indebtedness,
approximately $194.7 million and $209.1 million of which
would have been secured, and approximately $1.66 billion
and $1.88 billion of aircraft operating lease obligations
which become due between January 1, 2004, and February 1,
2009, and January 1, 2003 and February 1, 2009,
respectively. See 'Description of the Exchange Notes --
Ranking.'
Guarantees................................ All payments with respect to the Exchange Notes (including
principal and interest) are unconditionally guaranteed on an
unsecured unsubordinated basis, jointly and severally, by
each of the following subsidiaries of the Company (the
'Guarantors'):
ATA Airlines, Inc.;
Ambassadair Travel Club, Inc.;
ATA Leisure Corp. (formerly ATA Vacations, Inc.);
Amber Travel, Inc.;
American Trans Air Training Corporation;
American Trans Air ExecuJet, Inc.;
ATA Cargo, Inc.; and
Chicago Express Airlines, Inc.
Such Guarantees:
will rank equally with all existing and future
unsecured unsubordinated indebtedness of the
Guarantors;
will be effectively subordinated to secured
indebtedness of the Guarantors to the extent of such
security; and
will be senior in right of payment to all future
subordinated indebtedness of the Guarantors.
</Table>
7
<Table>
At December 31, 2003, and December 31, 2002, respectively,
on a pro forma basis after giving effect to the Private
Exchange Offers and the amendments to our aircraft operating
leases described under 'Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity
and Capital Resources -- Aircraft Operating Lease Restructuring,'
the Guarantors would have had approximately $507.7 million and
$522.4 million of indebtedness outstanding (other than the
Guarantees), $194.7 million and $209.1 million of which
would have been secured, and approximately $1.66 billion
and $1.88 billion of aircraft operating lease obligations
which come due between January 1, 2004, and February 1, 2009,
and January 1, 2003, and February 1, 2009, respectively.
For the year ended December 31, 2003, and the year ended
December 31, 2002, the Guarantors generated virtually all of
our consolidated revenues and EBITDA.
Certain Covenants......................... The indentures relating to the Exchange Notes contain
certain covenants for your benefit, including, among other
things, covenants limiting:
the incurrence of indebtedness;
financing the acquisition of aircraft;
restricted payments;
dividend and other payment restrictions affecting
restricted subsidiaries;
future issuances;
the issuance and sale of capital stock of restricted
subsidiaries;
the issuance of guarantees by restricted subsidiaries;
transactions with shareholders and affiliates;
liens;
sale-leaseback transactions;
asset sales; and
certain mergers and consolidations.
See 'Description of the Exchange Notes -- Covenants.'
Change of Control......................... Upon a change of control you will have the right, subject to
certain conditions, to require us to purchase your Exchange
Notes at a purchase price equal to 101% of the principal
amount plus accrued and unpaid interest, if any, to the date
of purchase. Nevertheless, we cannot assure you that we will
have the financial resources necessary to purchase the
Exchange Notes upon a change of control. See 'Description of
the Exchange Notes -- Repurchase of Notes upon a Change of
Control.'
Registration Rights....................... Pursuant to a registration rights agreement (the
'Registration Rights Agreement') among the Company, the
Guarantors and the Trustee, the Company and the Guarantors
agreed, among other things, to cause this registration
statement to be declared effective within 120 days after the
issuance of the Private
</Table>
8
<Table>
Exchange Notes, which occurred on January 30, 2004, and such
exchange to be completed within 180 days after such
issuance.
Trustee, Registrar and Principal Paying
Agent for the Exchange Notes............ Wells Fargo Bank Northwest, National Association
</Table>
USE OF PROCEEDS
There will be no proceeds to us from the Registered Exchange Offers.
RISK FACTORS
Before making an investment decision, you should consider the information
under the caption 'Risk Factors' beginning on page 14, as well as the other
information included in this prospectus.
9
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
In the table below, we provide you with summary historical consolidated
financial data and other operating information of ATA Holdings and its
subsidiaries. We have prepared the selected financial data for the five fiscal
years ended December 31, 2003 included in this table using the audited
consolidated financial statements of ATA Holdings for such fiscal years, which
have been audited by Ernst & Young LLP, independent auditors.
When you read this summary historical financial data, it is important that
you read it together with the historical financial statements and related notes
included in this prospectus, and for the fiscal years 1999 and 2000 in our
annual and quarterly reports filed with the Commission, as well as the section
entitled 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Scheduled service.......................................... $ 624,647 $ 753,301 $ 820,666 $ 886,579 $1,085,420
Charter.................................................... 389,979 435,262 359,770 309,242 366,207
Ground package............................................. 58,173 59,848 52,182 35,687 14,682
Other...................................................... 49,567 43,142 42,866 45,862 52,224
---------- ---------- ---------- ---------- ----------
Total operating revenues................................. $1,122,366 $1,291,553 $1,275,484 $1,277,370 $1,518,533
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Operating expenses:
Salaries, wages and benefits............................... $ 252,595 $ 297,012 $ 325,153 $ 355,201 $ 399,622
Fuel and oil............................................... 170,916 274,820 251,333 206,574 276,057
Aircraft rentals........................................... 58,653 72,145 98,988 190,148 226,559
Handling, landing and navigation fees...................... 89,302 97,414 88,653 110,528 113,781
Depreciation and amortization.............................. 96,038 125,041 121,327 76,727 56,729
Aircraft maintenance, materials and repairs................ 55,645 70,432 61,394 52,254 45,741
Passenger service.......................................... 39,231 45,571 43,856 38,345 41,000
Aircraft impairments and retirements....................... -- -- 118,868 66,787 5,288
Goodwill impairment........................................ -- -- -- 6,893 --
Special charges............................................ -- -- 21,525 -- --
U.S. government grant...................................... -- -- (66,318) 16,221 (37,156)
Other...................................................... 269,959 306,548 302,575 317,729 313,371
---------- ---------- ---------- ---------- ----------
Total operating expenses................................. 1,032,339 1,288,983 1,367,354 1,437,407 1,440,992
---------- ---------- ---------- ---------- ----------
Operating income (loss)..................................... 90,027 2,570 (91,870) (160,037) 77,541
---------- ---------- ---------- ---------- ----------
Other income (expense):
Interest income............................................ 5,375 8,389 5,331 2,829 2,878
Interest (expense)......................................... (20,966) (31,452) (30,082) (35,746) (56,324)
Other...................................................... 3,361 562 554 (1,260) (2,350)
---------- ---------- ---------- ---------- ----------
Other income (expense)................................... (12,230) (22,501) (24,197) (34,177) (55,796)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes........................... 77,797 (19,931) (116,067) (194,214) 21,745
Income taxes (credits)...................................... 30,455 (4,607) (39,750) (24,950) 1,311
---------- ---------- ---------- ---------- ----------
Net income (loss)........................................ $ 47,342 $ (15,324) $ (76,317) $ (169,264) $ 20,434
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Preferred stock dividends................................... -- (375) (5,568) (5,720) (4,642)
---------- ---------- ---------- ---------- ----------
Income (loss) available to common shareholders.............. $ 47,342 $ (15,699) $ (81,885) $ (174,984) $ 15,792
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per share-basic.......................... 3.86 (1.31) (7.14) (14.94) 1.34
Net income (loss) per share-diluted........................ 3.51 (1.31) (7.14) (14.94) 1.27
</Table>
(table continued on next page)
10
(table continued from previous page)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash....................................................... $ 120,164 $ 129,137 $ 184,439 $ 200,160 $ 160,644
Working capital (deficiency)............................... (10,106) 25,564 82,711 91,872 13,907
Property and equipment, net................................ 511,832 522,119 314,943 265,627 253,482
Total assets............................................... 815,281 1,032,430 1,002,962 848,136 869,987
Short-term debt (including current maturities)............. 2,079 96,740 124,059 22,575 51,645
Long-term debt............................................. 345,792 361,209 373,533 486,853 443,051
Total debt................................................. 347,871 457,949 497,592 509,428 494,696
Shareholders' equity (deficit)(1).......................... 151,376 124,654 44,132 (120,009) (104,007)
CASH FLOW DATA:
Net cash provided by (used in) operating activities........ $ 152,673 $ 111,692 $ 144,424 $ (59,014) $ 93,779
Net cash provided by (used in) investing activities........ (305,718) (290,837) (129,791) 88,931 (98,694)
Net cash provided by (used in) financing activities........ 100,273 188,118 40,669 (14,196) (34,601)
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(2)...................... 2.65 -- -- -- 1.14
Deficiency of earnings available to cover fixed
charges(2)............................................... -- 23,138 130,353 200,657 --
EBITDAR(3)................................................. 253,454 208,707 134,330 108,407 361,357
EBITDA(3).................................................. 194,801 136,562 35,342 (81,741) 134,798
Ratio of EBITDAR to fixed charges.......................... 5.67 3.52 1.73 1.09 2.46
Ratio of EBITDA to fixed charges........................... 4.36 2.30 0.45 (0.82) 0.92
Ratio of total debt to EBITDA.............................. 1.79 3.35 14.08 (6.23) 3.67
SELECTED OPERATING DATA FOR PASSENGER SERVICE:(4)
Available seat miles(millions)(5).......................... 15,082.6 16,390.1 16,187.7 17,600.0 21,125.9
Revenue passenger miles (millions)(6)...................... 10,949.0 11,816.8 11,675.7 12,384.2 14,358.7
Passenger load factor(7)................................... 72.6% 72.1% 72.1% 70.4% 68.0%
Revenue per available seat mile............................ 7.44[c] 7.88[c] 7.88[c] 7.26[c] 7.19[c]
Operating expense per ASM(8)............................... 6.84[c] 7.86[c] 8.45[c] 8.17[c] 6.82[c]
Block hours flown(9)....................................... 175,460 191,532 197,043 239,298 298,207
Average daily aircraft utilization (block hours per
day)(10).................................................
Lockheed L-1011-50/100.................................. 6.51 6.63 6.02 4.16 7.87
Lockheed L-1011-500..................................... 6.47 6.77 6.69 5.81 7.59
Boeing 727-200 ADV...................................... 8.95 8.78 7.48 5.04 N/A
Boeing 757-200.......................................... 11.86 11.90 11.30 10.73 11.55
Boeing 737-800.......................................... -- -- 9.14 9.84 10.60
Boeing 757-300.......................................... -- -- 9.78 9.82 10.98
Total jet aircraft......................................... 53 58 60 66 65
</Table>
- ---------
(1) No common stock dividends were paid in any of the periods
presented.
(2) The 'ratio of earnings to fixed charges' represents earnings
divided by fixed charges, as defined in the following
paragraph. The 'deficiency' represents the amount of fixed
charges in excess of earnings.
For purposes of these computations, earnings consist of
income (loss) before income taxes, plus fixed charges,
adjusted to exclude the amount of any interest capitalized
during the period. Fixed charges include the total of:
(i) interest, whether expensed or capitalized;
(ii) amortization of debt expense relating to any
indebtedness, whether expensed or capitalized; and
(iii) one-fourth of rental expense as can be demonstrated to
be representative of the interest factor from 1999-2002 and
one-third of rental expense as can be demonstrated to be
representative of the interest factor for 2003.
(3) EBITDA, a measure used by management to measure operating
performance, is defined as net income (loss), plus interest
expense (net of capitalized interest), income tax expense,
depreciation and amortization. We further adjust EBITDA by
adding aircraft rental expense to arrive at EBITDAR. We
believe that this adjustment from EBITDA to EBITDAR is
appropriate to provide
(footnotes continued on next page)
11
(footnotes continued from previous page)
additional information to investors about our financial
performance since aircraft rental expense is an important
component of our financial model and also allows comparison
between us and other companies in the industry based on an
industry-standard financial measure. Furthermore, many of
our debt instruments and other agreements contain covenants
that are based on financial measures comparable to EBITDAR.
This adjustment to EBITDA may not be in accordance with
current Commission practice or with regulations adopted by
the Commission that apply to registration statements filed
under the Securities Act and periodic reports filed under
the Exchange Act. Accordingly, the Commission may require us
to present EBITDAR differently in filings made with the
Commission than as presented in this prospectus, or it may
prohibit us from presenting EBITDAR entirely.
EBITDA and EBITDAR are not recognized terms under GAAP and
do not purport to be alternatives to operating income, net
income or cash flows from operating activities as determined
in accordance with GAAP as a measure of profitability or
liquidity. Because not all companies use identical
calculations, these presentations of EBITDA and EBITDAR may
not be comparable to other similarly titled measures of
other companies. Additionally, EBITDA and EBITDAR are not
intended to be measures of free cash flow for management's
discretionary use, as they do not consider certain cash
requirements such as interest payments, operating lease
payments, tax payments and debt service requirements.
EBITDA and EBITDAR are calculated as follows (unaudited):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Net income (loss)........................................... $ 47,342 $(15,324) $(76,317) $(169,264) $ 20,434
Income tax expense (credit)................................. 30,455 (4,607) (39,750) (24,950) 1,311
Interest expense (net of capitalized interest).............. 20,966 31,452 30,082 35,746 56,324
Depreciation and amortization............................... 96,038 125,041 121,327 76,727 56,729
-------- -------- -------- --------- --------
EBITDA................................................... 194,801 136,562 35,342 (81,741) 134,798
Aircraft rentals............................................ 58,653 72,145 98,988 190,148 226,559
-------- -------- -------- --------- --------
EBITDAR.................................................. $253,454 $208,707 $134,330 $ 108,407 $361,357
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</Table>
(4) The operating data (other than revenue per ASM and operating
expense per ASM) pertain to ATA and Chicago Express and do
not include information for other operating subsidiaries of
ATA Holdings.
(5) 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.
(6) 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.
(7) 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.
(8) 'Operating expense per ASM' for any period represents the
amount determined by dividing total operating expense for
such period by the total ASMs for such period. This measure
is also referred to as cost per available seat mile (CASM).
CASM is a commonly used measure of the cost required for an
airline to produce ASMs for sale to its customers.
(footnotes continued on next page)
12
(footnotes continued from previous page)
(9) 'Block hours flown' for any aircraft represents the elapsed
time computed from the moment the aircraft first moves under
its own power from the boarding ramp at one airport to the
time it comes to rest at the boarding ramp of the next point
of landing. Some variable airline costs, such as fuel, crew
and maintenance costs, vary with the number of block hours
flown.
(10) 'Average daily aircraft utilization' is determined with
respect to each aircraft type for any period by dividing the
block hours flown by all aircraft of such type during such
period by the 'weighted average' number of days during such
period that aircraft of such type were owned or leased by
ATA. Average daily utilization is a measurement commonly
used by airlines of the productive use of its aircraft to
generate ASMs for sale.
(11) The following summarized financial data (unaudited) in this
table has been derived from the financial statements of ATA
for each of the respective periods presented. ATA is the
principal operating subsidiary of ATA Holdings. The
following financial data excludes the other subsidiaries of
ATA Holdings (Ambassadair Travel Club, Inc., ATA Leisure
Corp., Amber Travel, Inc., American Trans Air ExecuJet,
Inc., ATA Cargo, Inc., American Trans Air Training Academy,
Inc. and Chicago Express). ATA Holdings allocates certain
expenses, such as income taxes, to the various subsidiaries
as if they were operating on a stand alone basis.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:(11)
Operating revenues....................................... $1,008,855 $1,180,962 $1,153,672 $1,153,845 $1,402,961
Depreciation and amortization............................ 93,820 120,262 117,813 74,546 54,200
Operating income (loss).................................. 97,558 18,680 (91,454) (160,838) 62,085
Interest expense, net.................................... (20,969) (31,474) (30,094) (35,728) (54,111)
Income (loss) before income taxes........................ 84,989 (4,359) (115,875) (195,238) 8,305
Net income (loss)........................................ 51,951 (5,579) (76,198) (169,436) 13,167
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficiency)............................. $ (32,049) $ (54,102) $ 11,703 $ 6,815 $ (76,241)
Property and equipment, net.............................. 508,210 650,185 299,255 253,992 241,889
Total assets............................................. 823,090 1,050,579 1,140,988 813,226 827,254
Short-term debt (including current maturities)........... 2,079 96,740 124,059 22,575 51,645
Long-term debt........................................... 345,792 361,209 373,533 486,853 443,050
Total debt............................................... 347,871 457,949 497,592 509,428 494,695
Shareholders' equity (deficit)(12)....................... 102,039 96,461 20,263 (145,903) (132,736)
CASH FLOW DATA:
Net cash provided by (used in) operating activities...... $ 135,972 $ 168,579 $ 131,339 $ (62,940) $ 86,620
Net cash provided by (used in) investing activities...... (299,739) (277,898) (122,648) 86,458 (95,150)
Net cash provided by (used in) financing activities...... 105,202 120,735 44,771 (8,131) (29,795)
</Table>
- ---------
(12) No dividends were paid in any of the periods presented.
13
RISK FACTORS
You should carefully consider the risks described below as well as the other
information included in this prospectus, including our financial statements and
the related notes, before investing in the Exchange Notes. The risks described
below are intended to highlight risks that are specific to us but are not the
only risks that we face. Additional risks and uncertainties, including those
generally affecting the industry in which we operate, risks that we currently
deem immaterial or risks generally applicable to companies that have recently
undertaken transactions similar to the Private Exchange Offers may also impair
our business, the value of your investment and our ability to pay interest on,
and repay or refinance, the Exchange Notes.
RISKS RELATING TO THE COMPANY AND THE EXCHANGE NOTES
WE HAVE A SUBSTANTIAL LEVEL OF INDEBTEDNESS AND MAY BE UNABLE TO MEET OUR
OBLIGATIONS ON THE EXCHANGE NOTES.
We will continue to have significant liabilities and future cash
requirements. At December 31, 2003, after giving pro forma effect to the
completion of the Private Exchange Offers and aircraft operating lease
restructuring, we would have had approximately $5.41 billion of payment
obligations, including debt, aircraft operating leases and trade payables, and
$50.0 million stated value of preferred stock outstanding. The accrual of
interest and dividends on some of this debt and outstanding preferred stock will
place significant additional payment obligations on us and could hamper our
ability to satisfy our obligations under the Exchange Notes.
Our financial performance could be adversely affected by our substantial
indebtedness and aircraft operating lease obligations. The degree to which we
are leveraged could have important consequences, including, but not limited to:
making it more difficult for us to pay interest and satisfy
our debt obligations;
increasing our vulnerability to general adverse economic and
industry conditions;
requiring the dedication of a substantial portion of our
cash flow from operations to the payment of our indebtedness
and aircraft operating lease obligations, thereby reducing
the availability of the cash flow to fund working capital,
capital expenditures or other general corporate
requirements;
limiting our ability to obtain additional financing to fund
future working capital, capital expenditures or other
general corporate requirements; and
placing us at a competitive disadvantage compared to less
leveraged competitors.
In addition, our indebtedness and aircraft operating lease obligations
subject us to financial and other restrictive covenants. Failure by us to comply
with these covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on us. Furthermore, substantially
all of our noncash assets secure our indebtedness under the ATSB Term Loan and
the aircraft operating leases.
If our cash flows and capital resources are insufficient to fund our debt
service and aircraft operating lease obligations, we may be forced to sell
assets, seek additional capital or seek to restructure or refinance our
indebtedness, including the Exchange Notes. These strategies may not be
successful and may not permit us to meet our scheduled debt service obligations.
In the absence of such operating results and resources, we could face still
substantial liquidity problems and might be required to sell material assets or
operations to attempt to meet our debt service and other obligations. The ATSB
Term Loan and the indentures under which the Exchange Notes will be issued will
restrict our ability to sell assets and use the proceeds from the sales.
We may not be able to consummate those sales or to obtain the proceeds which
we could realize from them, and these proceeds may not be adequate to meet any
debt service obligations then due. In such an event, we may be forced to seek
bankruptcy protection.
14
THE MATURITY DATES OF THE EXCHANGE NOTES OCCURS AFTER THE MATURITY DATES OF
SUBSTANTIALLY ALL OF OUR OTHER DEBT PAYMENT OBLIGATIONS.
The maturity date of the 2009 Exchange Notes occurs on February 1, 2009 and
the maturity date of the 2010 Exchange Notes occurs on June 15, 2010. These
dates will occur after the maturity of our debt of approximately $155.6 million,
net of $5.35 million unamortized discount, under our ATSB Term Loan, the
principal of which is payable in installments between 2004 and 2008, as well as
a portion of our other indebtedness and aircraft operating leases, after giving
effect to the lease restructuring, and that of our operating subsidiaries,
approximately $1.75 billion of which comes due between December 31, 2003 and
February 1, 2009, which have maturities and scheduled lease payments ranging
from January 2004 to December 2024. If we are not able to refinance this
indebtedness or to generate sufficient cash from our operations to pay these
obligations, we may lack sufficient liquidity to repay the Exchange Notes at the
time they become due.
THE EXCHANGE NOTES WILL BE UNSECURED AND THEREFORE EFFECTIVELY SUBORDINATED TO
THE RIGHTS OF THE HOLDERS OF OUR SECURED DEBT AND THE SECURED DEBT OF OUR
SUBSIDIARIES.
The Exchange Notes will be general unsecured obligations ranking effectively
junior to our and our subsidiaries' existing and future secured indebtedness.
Our obligations and those of our subsidiary guarantors under the ATSB Term Loan
are secured by substantially all of our and their noncash assets. At
December 31, 2003, we and the subsidiary guarantors had an aggregate of
approximately $194.7 million of secured debt outstanding. In addition, after
giving effect to the aircraft operating lease restructuring, we would have had
an aggregate of approximately $1.66 billion in aircraft operating lease
obligations, which come due between December 31, 2003, and February 1, 2009.
In the event that we or a subsidiary guarantor is declared
bankrupt, becomes insolvent or is liquidated or reorganized,
any secured debt will be entitled to be paid in full from
the pledged assets before any payment may be made with
respect to the Exchange Notes or the affected guarantees.
Holders of the Exchange Notes will participate ratably with
all holders of our unsecured debt that is deemed to be of
the same class as the Exchange Notes, and potentially with
all of our other general creditors, based upon the
respective amounts owed to each holder or creditor, in our
remaining assets. In any of the foregoing events, we cannot
assure you that there will be sufficient assets to pay
amounts due on the Exchange Notes. As a result, holders of
the Exchange Notes are likely to receive less, ratably, than
holders of secured debt, if they receive any payment in
respect of the Exchange Notes.
WE EXPECT THAT WE WILL CONTINUE TO HAVE LIMITED ACCESS TO ADDITIONAL FINANCING.
We require significant levels of investment to maintain our position in the
competitive and capital-intensive airline business. For example, as of
December 31, 2003, on a pro forma basis, after giving effect to the Private
Exchange Offers and the aircraft operating lease restructuring, for 2004 we
would have expected that we would need to make:
approximately $194.7 million in rent payments under existing
aircraft operating leases;
approximately $44.2 million of capital expenditures for
scheduled maintenance and rotable parts; and
approximately $15.5 million of additional capital
expenditures.
Due to our current credit ratings and risks associated with the current
operating environment for airlines, we are currently unable to obtain additional
financing and do not expect to be able to do so in the near future. We cannot
assure you that any additional financing including bank loans, vendor financing
and sale-leaseback transactions will be available to us on satisfactory terms,
or on any terms at all in the foreseeable future. If we are unable to obtain
sufficient financing for capital expenditures, our ability to maintain our fleet
of aircraft and fund our other essential capital expenses will be impaired. If
we are forced to defer certain normal expenditures and investments
15
due to our lack of liquidity, the quality of our service may be adversely
affected which in turn could adversely affect our results of operations.
WE HAVE INCURRED OPERATING LOSSES IN TWO OF THE LAST THREE YEARS AND MAY INCUR
SUBSTANTIAL OPERATING LOSSES IN THE FUTURE.
As a result of the September 11, 2001 terrorist attacks, their effect on the
airline industry and recessionary conditions in the United States, we have
suffered significant losses in recent years. Though for the year ended
December 31, 2003, we had a net income available to common shareholders of
approximately $15.8 million, for the years ended December 31, 2001 and 2002, we
had net losses available to common shareholders of approximately $81.9 million
and $175.0 million, respectively. Due to substantial uncertainties relating to
the duration of the current recession, the risk of future terrorist attacks and
other factors beyond our control that affect our operating results, we cannot
predict whether or for how long we will be profitable. Our inability to generate
sustained profitability in the near future would exacerbate our current
difficulties in funding our operations and would adversely affect our ability to
pay our obligations as they come due.
BECAUSE OF OUR CURRENT CREDIT RATINGS, OUR ABILITY TO INCUR ADDITIONAL
INDEBTEDNESS HAS BEEN IMPAIRED.
As of the date hereof, Moody's has assigned our unsecured debt a rating of
'Ca' and indicated that it has a stable outlook for future ratings. A 'Ca'
rating indicates that, in Moody's view, the debt is highly speculative and is
likely in, or very near, default with some prospect of recovery of principal and
interest. As of the date hereof, S&P has assigned our corporate credit a rating
of 'CCC' and our senior unsecured debt a rating of 'CC.'
Due to our current credit ratings and risks associated with the current
operating environment for airlines, we are currently unable and do not expect to
be able to obtain additional financing in the near future. Furthermore, at our
current credit ratings we would expect any financing that may become available
to us to involve an increase in our borrowing costs, which would in turn
increase our interest expense and adversely affect our net income. If our
financial performance or industry conditions do not improve, we may face future
ratings downgrades which would likely further negatively impact our ability to
obtain the financing we need and, as a result, our ability to pay our debts as
they come due.
OUR INSURANCE COSTS HAVE INCREASED SUBSTANTIALLY AS A RESULT OF THE
SEPTEMBER 11, 2001 TERRORIST ATTACKS AND FURTHER INCREASES IN INSURANCE COSTS
WOULD HARM OUR BUSINESS.
Following the terrorist attacks of September 11, 2001, aviation insurers
dramatically increased airline insurance premiums and significantly reduced the
maximum amount of insurance coverage available to airlines for claims resulting
from acts of terrorism, war or similar events. Consequently, under the Air
Transportation Safety and System Stabilization Act (the 'Stabilization Act') and
through authority granted under the Homeland Security Act of 2002, the federal
government has provided us and other domestic airlines with excess war risk
coverage above $50 million up to $3.0 billion per event. However, the current
war risk coverage offered by the government is scheduled to expire in
December 2004, and we cannot assure you that it will be extended, or if it is,
how long any extension might last. If the federal government stops providing
excess war risk coverage to the airline industry, the premiums charged by
aviation insurers for this coverage will be substantially higher than the
premiums currently offered by the federal government, and such an increase would
likely have significant adverse effect on our cash flows and results of
operations.
As a result of heightened concerns regarding the safety of air travel, our
hull and liability insurance premiums have increased by approximately
$12.2 million since 2001. Aviation insurers would likely increase their
premiums even further in the event of additional terrorist attacks, hijackings,
airline crashes or other events adversely affecting the airline industry.
Significant increases in insurance premiums would harm our financial condition
and results of operations.
16
CHANGES IN OUR FINANCIAL CONDITION COULD REDUCE OUR LIQUIDITY FROM CREDIT CARD
SALES.
A significant portion of our sales are paid for by customers using credit
cards, such as MasterCard and Visa. Cash from these sales is normally paid to us
by our credit card processing bank several days after the sale, although we may
provide the purchased services days, weeks or months later. If we fail to
perform pre-paid services, the purchaser may be entitled to a refund which, if
not paid by us, is the obligation of the processing bank. To mitigate this risk,
our credit card processing bank is entitled to delay payment to us of a portion
of the balance of pre-paid sales until the first date of outbound travel.
Shortly after September 11, 2001, our credit card processing bank determined to
delay payment to us of a percentage of our pre-paid sales. In order to obtain an
extension of our agreement with our credit card processing bank for the
processing and collection of sales charged on MasterCard and Visa cards through
December 31, 2004, we agreed to increase the amount of pre-paid sales that the
bank holds on deposit from 60% to 100%. This increase took place on October 10,
2003. The effect of increasing this percentage was to reduce our cash balance by
approximately $30 million between September 30, 2003 and October 31, 2003 as
compared to what our cash balance would have been with a 60% holdback of
pre-paid sales.
On March 1, 2004, the Company amended its agreement with its credit card
processing bank to reflect a further extension for the processing of sales
charges on MasterCard and Visa cards until March 31, 2005. The credit card
processing bank agreed to reduce the holdback percentage for sales for future
travel to 75% effective with the execution of the amendment. The effect of
decreasing the holdback percentage from 100% to 75% increased the Company's cash
balance by approximately $21 million based on the holdback balance at March 1,
2004. The amended agreement provides quarterly financial covenants under which
the Company may maintain a holdback at 75% or 50% of sales for future travel,
but at no time during the life of the amendment will the holdback be lower than
50% of sales for future travel. However, the Company can provide no assurances
that it will be able to maintain the percentage of holdback below 100% in future
periods under this amendment. If we are unable to maintain a reduced holdback
percentage, our liquidity may be adversely affected.
COMPLIANCE WITH DEPARTMENT OF TRANSPORTATION REGULATIONS AND OTHER REGULATORY
REQUIREMENTS FOR BONDS OR LETTERS OF CREDIT COULD REDUCE OUR LIQUIDITY.
The Company has historically provided surety bonds to airport authorities
and selected other parties, to secure the Company's obligation to these parties.
The DOT requires the Company to provide a surety bond or an escrow to secure
portential refund claims of charter customers who have made prepayments to the
Company for future transportation.
The Company has also historically provided both escrow arrangements and a
surety bond to the DOT, but most recently has used a surety bond to meet its DOT
charter obligations. Prior to the terrorist attacks of September 11, 2001, the
Company had provided a letter of credit of $1.5 million as security to its
surety bond issuer for its total estimated surety bond obligations, including
the DOT charter obbligations. Effective January 16, 2002, the issuer implemented
a requirement for the Company's letter of credit to secure 100% of estimated
surety bond obligations, which totaled $19.8 million at that date. The Company's
letter of credit was adjusted accordingly, and the Company has been subject to
further adjustments of its letter of credit, based upon further revisions to the
estimated liability for total surety bonds outstanding. The cash pledged to
secure the Company's letter of credit is included in restricted cash on the
accompanying balance sheets. 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, 2003, the Company has $6.9 million in
advance charter receipts deposited in escrow, which was included in restricted
cash on the Company's balance sheet as of that date. As of December 31, 2003,
the Company also continued to maintain a letter of credit for $15.2 million
securing the DOT charter obligations surety bond, pending formal release
17
from those obligations of the issuer of the surety bond by the DOT. This release
was provided by the DOT in February 2004, and the letter of credit was
subsequently cancelled, and the restricted cash securing that letter of credit
was returned to the Company.
As of December 31, 2003, the Company's restricted cash pledged to secure its
letters of credit for all surety bonds, including its DOT charter obligations,
was $41.4 million, and cash deposited in escrow for DOT charter obligations
totaled $6.9 million.
WE MAY NOT BE ABLE TO SATISFY ALL OF OUR OBLIGATIONS UPON THE OCCURRENCE OF A
CHANGE OF CONTROL.
If we enter into a transaction that results in a Change of Control (as
defined in 'Description of the Exchange Notes'), it could result in an increase
in our indebtedness as a result of the provisions of our existing financing
agreements. In addition, upon a change of control of ATA Holdings, all
borrowings outstanding under the ATSB Term Loan, which is guaranteed by ATA
Holdings, will become due, and we will be required to offer to purchase all
amounts due under the Exchange Notes at 101% of par plus accrued interest. We
cannot assure you that we would be able to satisfy all of our obligations under
the ATSB Term Loan and the notes in these circumstances. The failure to satisfy
our obligations would materially adversely affect our business, operations and
financial results.
OUR EXISTING DEBT FINANCING AGREEMENTS AND OUR AIRCRAFT OPERATING LEASES CONTAIN
RESTRICTIVE COVENANTS THAT IMPOSE SIGNIFICANT OPERATING AND FINANCIAL
RESTRICTIONS ON US.
The ATSB Term Loan, the indentures that will govern the Exchange Notes and
the instruments governing our other indebtedness contain a number of significant
covenants including minimum collateral requirements and restrictions that limit
our ability and our subsidiaries' ability to:
incur additional indebtedness;
create material liens on our assets;
finance the acquisition of aircraft;
sell assets or engage in mergers or consolidations;
redeem or repurchase outstanding indebtedness;
make specified investments;
pay cash dividends (other than required payments of
dividends with respect to our preferred stock); and
engage in other significant transactions.
In addition, the agreements governing our indebtedness (including the ATSB
Term Loan) require us to maintain compliance with specified financial ratios and
other financial and operating tests. In particular, the ATSB Term Loan contains
a covenant requiring the Company to maintain a cash balance of $40 million.
Failure to comply with this covenant and others in the ATSB Term Loan would
constitute an event of default under the ATSB Term Loan. Complying with these
covenants may cause us to take actions that may make it more difficult to
execute successfully our business strategy and we may face competition from
companies not subject to such restrictions. Moreover, if we fail to comply with
these covenants, our obligations under our debt agreements and operating leases
could be accelerated by our creditors. If our obligations were accelerated, it
is unlikely that we would have sufficient cash to satisfy these obligations upon
acceleration, and we would have to seek additional debt or equity financing
which may not be available on commercially reasonable terms or at all. If such
financing were not available, we would have to sell assets in order to obtain
the funds required to make accelerated payments or risk our aircraft becoming
subject to repossession which would materially harm our business.
18
WE MAY INCUR SUBSTANTIAL LOSSES IN THE EVENT OF AN AIRCRAFT ACCIDENT.
We may incur substantial losses in the event of an aircraft accident. These
losses may include the repair or replacement of a damaged aircraft, and the
consequent temporary or permanent loss of the aircraft from service, as well as
claims of injured passengers and other persons.
Although we believe our insurance coverage is adequate, we cannot assure you
that the amount of our insurance coverage will not be changed or that we will
not be forced to bear substantial losses from accidents. Substantial claims
resulting from an accident could have a material adverse effect on our business,
operations and financial results. Moreover, any aircraft accident or incident,
even if fully insured, could cause a public perception that we are less safe or
reliable than other airlines, which would materially harm our business.
OUR CUSTOMERS MAY CANCEL OR DEFAULT ON THEIR CONTRACTS WITH US.
Customers who have contracted with us may cancel or default on their
contracts, and we may not be able to obtain other business to cover the
resulting loss in revenues. If customers with large contracts cancel or default
and we are not able to obtain other business, our financial position could be
materially adversely impacted.
Our largest customer during each of the last three years was the U.S.
military, which accounted for 19.6% of our total operating revenues in 2003,
13.9% of our total operating revenues in 2002 and 13.1% of our total operating
revenues in 2001.
In 2003, our five largest non-military customers accounted for approximately
10.5% of total operating revenues. No single non-military customer accounted for
more than 6.0% of total operating revenues during this period.
OUR SCHEDULED SERVICE FLIGHTS ARE HEAVILY DEPENDENT ON GEOGRAPHICALLY
CONCENTRATED MARKETS AND A REDUCTION IN DEMAND FOR AIR TRAVEL IN THESE MARKETS
WOULD MATERIALLY HARM OUR BUSINESS.
The growth of our scheduled service has focused on and, at least in the
near-term, will continue to focus on, adding flights to and from our primary
bases of operations in Chicago-Midway, Hawaii and Indianapolis. As of
December 31, 2003, out of a total of 336 daily flights, 327 of these flights had
Chicago-Midway, Hawaii or Indianapolis as either their origin or destination.
Our business would be harmed by any circumstances causing a reduction in air
transportation to or from these three locations, such as adverse changes in
local economic conditions, negative public perceptions of these destinations, a
change in customer preferences in these areas or significant price increases
linked to increases in airport access costs and fees imposed on passengers.
OUR QUARTERLY RESULTS ARE SIGNIFICANTLY AFFECTED BY MANY FACTORS, AND OUR
RESULTS OF OPERATIONS FOR ANY ONE QUARTER ARE NOT NECESSARILY INDICATIVE OF OUR
ANNUAL RESULTS OF OPERATIONS.
Our operations are subject to a variety of factors that frequently cause
considerable volatility in our earnings, including:
changes in fuel, security and insurance costs,
seasonal variations in demand, affecting revenues earned,
and
increases in personnel, marketing and other operating
expenses.
In addition, seasonal variations in air traffic and expenditures affect our
operating results from quarter to quarter. Historically, we have experienced
reduced demand during the fourth quarter, as demand for leisure airline services
during this period is lower relative to other times of the year. Given our high
proportion of fixed costs, seasonality can affect our profitability from quarter
to quarter. Several of our areas of operations experience bad weather conditions
in the winter, causing increased costs associated with deicing aircraft,
canceled flights and accommodating displaced passengers. Due to the factors
described above, our results of operations in any one quarter are not
necessarily indicative of our annual results of operations.
19
IF WE ENTER INTO A PROLONGED DISPUTE WITH ANY OF OUR EMPLOYEES, MANY OF WHOM ARE
REPRESENTED BY UNIONS, OR IF WE ARE REQUIRED TO INCREASE SUBSTANTIALLY THE
SALARIES OR BENEFITS OF OUR EMPLOYEES, IT MAY HAVE AN ADVERSE IMPACT ON OUR
OPERATIONS OR CASH FLOWS.
Our flight attendants are represented by the Association of Flight
Attendants ('AFA'). Our current collective bargaining agreement with the AFA
will become subject to amendment, but will not expire, in October 2004. Our
cockpit crews are represented by the Air Line Pilots Association ('ALPA'). Our
current collective bargaining agreement with ALPA will be subject to amendment,
but will not expire, in June 2006. Our dispatchers are represented by the
Transport Workers Union ('TWU'). Our current collective bargaining agreement
with the TWU will become subject to amendment, but will not expire, in
August 2004. Our ramp service agents elected to be represented by the
International Association of Machinists ('IAM') in February 2001. Negotiations
began with IAM in May 2001, but no collective bargaining agreement has been
finalized. Because our ramp workers are currently in the bottom third of the
industry pay scale, some risk exists that the terms of the new collective
bargaining agreement will include wage increases. In February 2002, our aircraft
mechanics elected to be represented by the Aircraft Mechanics Fraternal
Association ('AMFA'), and negotiations with them began in October 2002. No
collective bargaining agreement has been finalized. A prolonged dispute with our
employees who are represented by any of these unions, or any sizable number of
our employees, could have an adverse impact on our operations. Also, any
renegotiated collective bargaining agreement could feature significant wage
increases and a consequent increase in our operating expenses.
OUR REVENUES COULD BE ADVERSELY IMPACTED BY OUR RELATIONSHIP WITH TRAVEL AGENTS
AND TOUR OPERATORS.
Our revenues could be adversely impacted if travel agents and tour operators
elect to favor other airlines or to disfavor us. Our relationship with travel
agents and tour operators may be affected by:
the size of override commissions offered by other airlines;
changes in our arrangements with other distributors of
airline tickets; and
the introduction and growth of new methods of selling
tickets.
In 2003, approximately 52.5% of our revenues were derived from tickets sold
by travel agents or tour operators, and, in 2002, approximately 58.1% of our
revenues were derived from tickets sold by travel agents or tour operators.
Although we will continue to strive to offer competitive products to travel
agencies and tour operators, we cannot assure you that we will be able to
maintain favorable relationships with these ticket sellers.
IF WE WERE TO DETERMINE THAT OUR AIRCRAFT, ROTABLE PARTS OR INVENTORY WERE
IMPAIRED, IT WOULD HAVE A SIGNIFICANT ADVERSE EFFECT ON OUR OPERATING RESULTS.
We periodically perform impairment reviews in order to determine whether we
need to reduce the carrying value of our aircraft and related assets with a
related change to earnings. In addition to the fact that the value of our fleet
declines as it ages, the excess capacity that currently exists in the airline
industry, and other factors beyond our control, may further contribute to the
decline of the fair market value of our aircraft and related rotable parts and
inventory. If such an impairment does occur, Statement of Financial Accounting
Standards No. 121 ('FAS 121'), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of, and Statement of Financial
Accounting Standards No. 144 ('FAS 144'), Accounting for the Impairment or
Disposal of Long-Lived Assets, would require us to write down these assets to
their estimated fair market value through a charge to earnings. A significant
charge to earnings would adversely affect our financial condition and operating
results.
AN ACTIVE TRADING MARKET FOR THE EXCHANGE NOTES MAY NOT DEVELOP.
The Exchange Notes are new issues of securities with no established trading
markets or prior trading histories, and there can be no assurance regarding the
future development of markets for
20
the Exchange Notes, the ability of holders of the Exchange Notes to sell or the
prices for which holders may be able to sell their Exchange Notes. Furthermore,
the liquidity of, and trading markets for, the Exchange Notes may be adversely
affected by changes in the airline industry and in the overall economy, as well
as by any changes in our financial condition or results of operations.
RISKS RELATING TO THE AIRLINE INDUSTRY
THE TERRORIST ATTACKS OF SEPTEMBER 11, 2001 CONTINUE TO IMPACT THE AIRLINE
INDUSTRY IN GENERAL.
The terrorist attacks of September 11, 2001 were highly publicized. The
impacts that these events will continue to have on the airline industry in
general are not known at this time, but are expected to include a substantial
negative impact on our ability to return to profitable operations due in part
to:
A reduction in the demand for travel in the near and
mid-term until public confidence in the air transportation
system is restored;
An increase in costs due to enhanced security measures and
government directives in response to the terrorist attacks;
An increase in the cost of aviation insurance in general,
and the cost and availability of coverage for acts of war,
terrorism, hijacking, sabotage and similar acts of peril in
particular; and
The potential increase in fuel costs and decrease in
availability of fuel if oil-producing countries are affected
by terrorism concerns or related civil unrest.
THE NEGATIVE IMPACT ON THE AIRLINE INDUSTRY OF THE CURRENT GLOBAL STATE OF
AFFAIRS, INCLUDING THE IRAQ WAR AND ITS AFTERMATH, THE THREAT OF ANOTHER
OUTBREAK OF A COMMUNICABLE DISEASE, SUCH AS SEVERE ACUTE RESPIRATORY SYNDROME,
AND THE POSSIBILITY OF FUTURE TERRORIST ATTACKS, MAY CONTINUE OR EVEN WORSEN.
The combination of continued instability in the aftermath of the Iraq war,
the public's concerns about the possibility of another outbreak of a disease
that can be spread by fellow commercial air passengers, and the continuing
threat of future terrorist attacks in the United States and abroad has continued
to have a negative impact on the public's willingness to use air travel and,
consequently, on our ability to return to profitable operations. It is
impossible to determine if and when such adverse effects will abate. In
particular, it is likely that the threat of terrorist activity will continue for
an indefinite period of time, and that threat will continue to have a negative
impact on the airline industry.
THE AIRLINE INDUSTRY IS SENSITIVE TO ECONOMIC TRENDS, AND WEAKNESS IN THE
ECONOMY WILL ADVERSELY AFFECT US.
Airline traffic is particularly sensitive to changes in economic growth and
expectations. In 2001, 2002 and 2003, weak economic growth contributed to the
airline industry suffering significant losses. During 2002, both US Airways
Group, Inc., which conducts its airline business through its subsidiary US
Airways, Inc., and UAL Corporation, which conducts its airline business through
its subsidiary, United Airlines, Inc., filed for bankruptcy. (US Airways Group,
Inc. emerged from bankruptcy protection on March 31, 2003.) Because airlines
operating under bankruptcy protection receive increased flexibility to reduce
their costs by voiding contracts and renegotiating existing business and
financial obligations, current and future airline bankruptcies could have a
substantial impact on industry competition. A substantial portion of our
revenues are derived from leisure travel, which is discretionary and therefore
especially sensitive to economic downturns. A recurrence of the recent
recessionary economic conditions could be expected to result in a reduction of
airline passenger traffic, and leisure travel in particular, which in turn would
harm our financial condition and results of operations.
21
BECAUSE THE AIRLINE INDUSTRY IS CHARACTERIZED BY LOW GROSS PROFIT MARGINS AND
HIGH FIXED COSTS, A MINOR SHORTFALL FROM EXPECTED REVENUE COULD HAVE A
SIGNIFICANT IMPACT ON EARNINGS.
The airline industry as a whole and scheduled service in particular are
characterized by low gross profit margins and high fixed costs. The costs of
operating each flight do not vary significantly with the number of passengers
carried and, therefore, a relatively small change in the number of passengers or
in fare pricing or traffic mix could, in the aggregate, have a significant
effect on operating and financial results. This condition has been exacerbated
by the petition for bankruptcy protection by US Airways, Inc. and UAL
Corporation as well as aggressive pricing by low-fare carriers, both of which
have had the effect of driving down airline fares in general. Accordingly, a
minor shortfall from expected revenue levels could have a significant impact on
earnings.
THE AIRLINE INDUSTRY IS HIGHLY COMPETITIVE.
The airline industry is highly competitive, primarily due to the effects of
the Airline Deregulation Act of 1978, recodified into the Transportation Act.
The Transportation Act substantially eliminated government authority to regulate
domestic routes and fares and has increased the ability of airlines to compete
with respect to destination, flight frequencies and fares. After September 11,
2001, we reduced fares in certain markets to attract customers, as did most
airlines.
Many of our competitors are larger and/or have substantially greater
financial resources than we do. The commencement of or increase in service on
our routes by existing or new carriers could negatively impact our operating
results. Competing airlines have, from time to time, reduced fares and increased
capacity beyond market demand on routes served by us in order to maintain or
generate additional revenues. Further fare reductions and capacity increases by
competing airlines could cause us to reduce fares or adjust our capacity to
levels that may adversely affect our operations and profitability. Many of our
competitors have a combination of larger customer bases, greater brand
recognition in other airline markets and significantly greater financial and
marketing resources than we do. Either aggressive marketing tactics or a
prolonged fare war initiated by these competitors could impact our limited
financial resources and adversely affect our ability to compete in these
markets.
Vigorous price competition exists in the airline industry, with competitors
frequently offering reduced discount fares and other promotions to stimulate
traffic during weaker travel periods, generate cash flow or increase relative
market share in selected markets. The introduction of widely available, deeply
discounted fares by any significant airline could result in lower yields for the
entire industry and could have a material adverse effect on our financial
condition and operating results.
Competition for Scheduled Services. In scheduled service, we compete against
both the large U.S. scheduled service airlines and, from time to time, against
smaller regional or start-up airlines. Competition is generally based on price,
schedule, quality of service and convenience. All of the major U.S. scheduled
airlines are larger than we are, and many of them have greater financial
resources than we do. Where we seek to expand our service by adding routes or
frequency, competing airlines may respond with intense price and schedule
competition. In addition, when other airlines seek to establish a presence over
new routes, they may engage in significant price discounting. Because of our
size and financial resources relative to some of the major airlines, we are less
able to absorb losses from these activities than many of our competitors.
Competition for Military and Other Government Charter Services. We generally
compete for military and other government charters with primarily smaller U.S.
passenger airlines. The allocation of U.S. military air transportation contracts
is based upon the number and type of aircraft a carrier, alone or through a
teaming arrangement, makes available for use to the military. The formation of
competing teaming arrangements that have larger partners than those in which we
participate, an increase by other air carriers in their commitment of aircraft
to the military or the withdrawal of our current teaming arrangement partners
could adversely affect our U.S. military charter business.
22
Competition for Commercial Charter Services. In commercial charter service,
we compete against both the major U.S. scheduled airlines and smaller U.S.
charter airlines.
The scheduled carriers compete for leisure travel customers with our
commercial charter operations in a variety of ways, including by:
wholesaling discounted seats on scheduled flights to tour
operators;
promoting packaged tours to travel agents for sale to retail
customers; and
selling other products to the public.
As a result, all charter airlines, including ATA, generally compete for
customers against the lowest revenue-generating seats of the scheduled airlines.
During periods of dramatic fare cuts by other scheduled airlines, we are forced
to respond competitively to these deeply discounted prices.
We also compete directly against other charter airlines. In the United
States, these charter airlines are smaller in size than we are.
OVERCAPACITY IN THE AIRLINE INDUSTRY WILL NEGATIVELY AFFECT OUR OPERATING
RESULTS.
There is currently a significant excess of capacity in the airline industry.
Recently, US Airways Group, Inc., a major U.S. airline, has emerged from
bankruptcy in strengthened financial position, which exacerbates the existing
overcapacity and competitive pressures in the industry. To date, U.S. carriers
have addressed the problem of overcapacity primarily by decreasing unit revenues
and expenses rather than cutting excess capacity. Chicago-Midway, our primary
base of operations, has experienced capacity growth within the past 12 months.
We cannot assure you when or if the airline industry will decrease capacity.
Unless and until the airline industry effectively addresses the overcapacity
problem, we expect that continued price discounting and competitive pressures
will continue to adversely affect our operating results and our ability to pay
our obligations as they come due.
SIGNIFICANT INCREASES IN THE COST OF AIRCRAFT FUEL COULD ADVERSELY IMPACT OUR
OPERATING RESULTS.
Fuel costs are a significant portion of our operating costs, comprising
approximately 19.2% of our operating costs in 2003, 14.4% of our operating costs
in 2002 and approximately 18.4% of our operating costs in 2001. As a result,
increases in fuel costs would harm our financial condition and results of
operations. We estimate that based on 2004 projected usage, a 10% increase in
fuel cost over the December 31, 2003 price per gallon of fuel would result in an
increase in our fuel expenses by approximately $26.5 million for the 2004 fiscal
year.
Historically, fuel costs have been subject to wide price fluctuations based
on geopolitical issues and supply and demand. Fuel availability is also subject
to periods of market surplus and shortage and is affected by demand for both
home heating oil and gasoline. Because of the effect of these events on the
price and availability of fuel, we cannot predict the future cost and
availability of fuel with any degree of certainty. In the event of a fuel supply
shortage, higher fuel prices or the curtailment of operations could result. We
cannot assure you that we would be able to offset any increases in the price of
fuel by higher fares. Although we also entered into certain fuel hedging
arrangements to reduce our exposure to fluctuations in fuel prices in 2001 and
2002, all such arrangements have expired, and due to the requirement for
collateral, we have been unable to enter into any new fuel hedging arrangements.
As a result, we have significant exposure to the risk of increases in the price
of fuel due to inadequate fuel supplies or otherwise, and any such increase
could have a material adverse effect on our financial condition and results of
operations.
THE PROFITABILITY OF OUR OPERATIONS IS INFLUENCED BY ECONOMIC CONDITIONS AS
DEMAND FOR LEISURE TRAVEL DIMINISHES DURING ECONOMIC DOWNTURNS.
The profitability of our operations is influenced by the condition of the
U.S. and Mexican economies, including fluctuations in certain currency exchange
rates, that may impact the demand for leisure travel and our competitive pricing
position. A substantial portion of our charter and
23
scheduled airline business, other than military, is leisure travel. Because
leisure travel is discretionary, we have historically tended to experience
somewhat weaker financial results during economic downturns.
THE AIRLINE INDUSTRY IS HEAVILY REGULATED, AND CHANGES IN OUR GOVERNMENTAL
AUTHORIZATIONS OR CERTIFICATES, OR CHANGES IN GOVERNMENTAL REGULATIONS, COULD
ADVERSELY IMPACT OUR BUSINESS.
We are subject to a wide range of governmental regulation by U.S. Federal,
state and foreign governmental agencies. We are subject to regulation by, among
others, the following authorities:
U.S. Department of Transportation;
U.S. Federal Aviation Administration;
U.S. National Mediation Board, with respect to labor
matters;
U.S. Federal Communications Commission, with respect to use
of radio facilities;
U.S. Department of Defense, with respect to our
military/government charter business;
U.S. Environmental Protection Agency and similar state and
local authorities, primarily with respect to the use,
discharge and disposal of hazardous materials at or from our
maintenance and airport facilities; and
similar authorities in foreign countries with respect to our
international scheduled service and charter operations.
A modification, suspension or revocation of any of our authorizations or
certificates issued by the regulatory authorities having jurisdiction over us or
institution of proceedings for non-compliance with the regulations of such
authorities could adversely impact our business.
The Federal Aviation Administration requires each carrier to obtain an
operating certificate and operations specifications authorizing the carrier to
fly to specific airports using specified equipment. Several aspects of airline
operations are subject to regulation or oversight by federal agencies other than
the Department of Transportation and the Federal Aviation Administration. For
example, the United States Postal Service has jurisdiction over certain aspects
of the transportation of mail and related services that we provide through our
cargo affiliate. Labor relations in the air transportation industry are
generally regulated under the Railway Labor Act, which vests in the National
Mediation Board regulatory powers with respect to disputes between airlines and
labor unions arising under collective bargaining agreements.
AIRLINES ARE OFTEN AFFECTED BY FACTORS BEYOND THEIR CONTROL, INCLUDING TRAFFIC
CONGESTION AT AIRPORTS, WEATHER CONDITIONS AND INCREASED SECURITY MEASURES, ANY
OF WHICH COULD HARM OUR OPERATING RESULTS AND FINANCIAL CONDITION.
Like other airlines, we are subject to delays caused by factors beyond our
control, including air traffic congestion at airports, adverse weather
conditions and increased security measures. Delays disservice passengers, reduce
aircraft utilization and increase costs, all of which in turn affect
profitability. During periods of fog, snow, rain, storms or other adverse
weather conditions, traffic control problems could harm our operating results
and financial condition.
24
THE REGISTERED EXCHANGE OFFERS
TERMS OF THE REGISTERED EXCHANGE OFFERS
The following section includes a description of the procedure for tendering
Private Exchange Notes and receiving Exchange Notes in return. The Company,
together with all existing holders of the Private Exchange Notes, may decide to
use different exchange procedures.
TERMS OF THE REGISTERED EXCHANGE OFFER; PERIOD FOR TENDERING PRIVATE EXCHANGE
NOTES
Subject to the terms and conditions in this prospectus and in the
accompanying letter of transmittal, we will exchange unregistered Private
Exchange Notes properly tendered on before the Expiration Date (as defined
below) and not withdrawn for registered Exchange Notes. The expiration date (the
'Expiration Date') is 5:00 p.m., New York City time, on June 11, 2004, unless
we extend it.
As of the date of this prospectus, $163,064,000 aggregate principal amount
of Private Exchange 2009 Notes is outstanding and $110,233,000 aggregate
principal amount of Private Exchange 2010 Notes is outstanding. This prospectus,
together with the letter of transmittal, is first being sent on or about
May 13, 2004, to all holders of Private Exchange Notes known to us. Our
obligation to accept Private Exchange Notes for exchange is subject to certain
conditions as set forth below under ' -- Conditions.'
We may, at any time or from time to time, extend the Expiration Date, by
giving oral or written notice of such extension in the manner described below.
During any such extension, all Private Exchange Notes previously tendered will
remain subject to the Registered Exchange Offers and we may accept them for
exchange. Any Private Exchange Notes that we do not accept for exchange for any
reason will be returned to you without cost as promptly as practicable after the
expiration or termination of the Registered Exchange Offer.
Private Exchange Notes tendered in the Registered Exchange Offers must be in
denominations of principal amounts of $1,000 and any integral multiples thereof.
We expressly reserve the right to amend or terminate the Registered Exchange
Offers. We also reserve the right to refuse for exchange any Private Exchange
Notes not theretofore accepted for exchange, if any of the events specified
below under ' -- Conditions' occur. We will give oral or written notice of any
extension, amendment, non-acceptance or termination to you as promptly as
practicable. Any notice with respect to any extension will be issued by means of
press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
PROCEDURES FOR TENDERING PRIVATE EXCHANGE NOTES
In order to tender Private Exchange Notes validly, holders must provide:
(1) certificates for the holder's Private Exchange Notes to the Exchange
Agent along with the consent and letter of transmittal; or
(2) a timely confirmation of a book-entry transfer of the holder's
Private Exchange Notes, if such procedure is available, into the Exchange
Agent's account at The Depository Trust Company ('DTC' or the 'Book-Entry
Transfer Facility') pursuant to the procedure for book-entry transfer
described below with the consent and letter of transmittal or Agent's
Message in lieu of such consent and letter of transmittal, in each case,
prior to the Expiration Date.
The term 'Agent's Message' means a message, transmitted by the Book-Entry
Transfer Facility to and received by the Exchange Agent. It forms a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the tendering participant, which states
that the participant has received and agrees to be bound by the letter of
transmittal and that we may enforce the letter of transmittal against such
participant. THE METHOD OF DELIVERY OF THE PRIVATE EXCHANGE NOTES, THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS
25
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NO LETTER OF TRANSMITTAL OR
PRIVATE EXCHANGE NOTES SHOULD BE SENT TO US.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by:
a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc.;
a commercial bank; or
a trust company having an office or correspondent in the
United States (collectively, 'Eligible Institutions');
unless the Private Exchange Notes tendered are tendered:
(1) by a registered holder of the Private Exchange Notes who has not
completed the box entitled 'Special Issuance Instructions' or 'Special
Delivery Instructions' on the consent and letter of transmittal; or
(2) for the account of an Eligible Institution.
Delivery of all Private Exchange Notes, letters of transmittal and other
documents must be made to the Exchange Agent at its address set forth on the
back cover of this prospectus. Holders may also request their respective
brokers, dealers, commercial banks, trust companies or nominees to effect such
tender on behalf of such holders.
Holders of Private Exchange Notes registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wish to tender
are urged to contact such registered holder promptly and instruct such
registered holder to tender on his or her behalf.
If Private Exchange Notes are registered to a person who has not signed the
letter of transmittal, the Private Exchange Notes surrendered for exchange must
be endorsed by, or be accompanied by a written transfer or exchange, duly
executed by the registered holder with the signature guaranteed by an Eligible
Institution. All questions of satisfaction of the form of the writing will be
determined by us in our sole discretion.
If a letter of transmittal is signed by a person other than the registered
holder of any Private Exchange Notes listed therein, such Private Exchange Notes
must be endorsed or accompanied by appropriate powers of attorney, signed
exactly as the name of the registered holder appears on the Private Exchange
Notes.
If a letter of transmittal or any Private Exchange Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and,
unless waived by us, evidence satisfactory to us of their authority to so act
must be submitted with such consent and letter of transmittal.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance and withdrawal of the
tendered Private Exchange Notes. Our determination will be final and binding. We
reserve the absolute right to reject any and all tenders of any particular
Private Exchange Notes not properly tendered or to not accept any particular
Private Exchange Notes our acceptance of which would, in our opinion or in the
opinion of our counsel, be unlawful. We also reserve the absolute right to waive
any defects or irregularities or conditions of the Registered Exchange Offers as
to any particular Private Exchange Notes either before or after the Expiration
Date.
Our interpretation of the terms and conditions of the Registered Exchange
Offers (including the instructions in the letter of transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Exchange Notes must be cured within a time
period we determine. Neither we, the Exchange Agent nor any other person is
under any duty to give notification of defects or irregularities with respect to
tenders of Private
26
Exchange Notes nor shall any of them incur any liability for failure to give
such notification. Any Private Exchange Notes will not be considered to have
been properly tendered until such defects or irregularities have been cured or
waived. Any Private Exchange Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holders unless otherwise provided in the consent and letter of
transmittal as soon as practicable following the Expiration Date.
In addition, we reserve the right in our sole discretion to:
(1) purchase or make offers for any Private Exchange Notes that remain
outstanding subsequent to the Expiration Date;
(2) as set forth below under ' -- Conditions,' to terminate the
Registered Exchange Offers;
(3) subsequent to the Expiration Date, redeem any series of Private
Exchange Notes as a whole or in part at any time and from time to time, as
permitted by the applicable Indenture and our other contractual obligations;
and
(4) subsequent to the Expiration Date and to the extent permitted by
applicable law and our contractual obligations, purchase Private Exchange
Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers may differ from the terms of the
Registered Exchange Offers.
Upon our acceptance of Private Exchange Notes for exchange and the
completion of the Registered Exchange Offers, each holder of such Private
Exchange Notes, or the beneficial owner of such Private Exchange Notes on behalf
of which the holder has tendered, will be deemed, among other things, to:
(1) irrevocably sell, assign and transfer to or upon our order or the
order of the nominee, all right, title and interest in and to, and any and
all claims in respect of or arising or having arisen as a result of such
holder's status as a holder of, all Private Exchange Notes tendered thereby,
such that thereafter it shall have no contractual or other rights or claims
in law or equity against the Company or any fiduciary, trustee, fiscal agent
or other person connected with the Private Exchange Notes arising under,
from or in connection with such Private Exchange Notes;
(2) waive any and all rights with respect to the Private Exchange Notes
tendered thereby (including, without limitation, any existing, past or
continuing defaults and their consequences in respect of such Private
Exchange Notes); and
(3) release and discharge the Company, the Dealer Managers, the trustee
and their respective subsidiaries and affiliates from any and all claims
such holder may have, now or in the future, arising out of or related to the
Private Exchange Notes tendered thereby, including without limitation, any
claims that such holder is entitled to receive additional principal or
interest payments with respect to the Private Exchange Notes tendered
thereby (other than as expressly provided in this prospectus, the
Registration Rights Agreement and the letter of transmittal) or to
participate in any redemption or defeasance of the Private Exchange Notes
tendered thereby.
In addition, such holder of Private Exchange Notes, or the beneficial owner
of such Private Exchange Notes on behalf of which the holder has tendered, will
be deemed to acknowledge, represent, warrant and agree that:
(1) it has received and reviewed this prospectus;
(2) it is the beneficial owner (as defined below) of, or a duly
authorized representative of one or more such beneficial owners of, the
Private Exchange Notes tendered thereby and it has full power and authority
to execute the letter of transmittal and make the representations,
warranties and agreements made thereby, and has full power and authority to
tender, sell, assign and transfer the Private Exchange Notes tendered
thereby;
27
(3) the Private Exchange Notes being tendered thereby were owned as of
the date of tender, free and clear of any liens, charges, claims,
encumbrances, interests and restrictions of any kind, and acknowledges that
we will acquire good, indefeasible and unencumbered title to such Private
Exchange Notes, free and clear of all liens, charges, claims, encumbrances,
interests and restrictions of any kind, when we accept the same;
(4) it will not sell, pledge, hypothecate or otherwise encumber or
transfer any Private Exchange Notes tendered thereby from the date of the
letter of transmittal and agrees that any purported sale, pledge,
hypothecation or other encumbrance or transfer in violation of the foregoing
will be void and of no effect;
(5) it is, or in the event that such holder is acting on behalf of a
beneficial owner of the Private Exchange Notes tendered thereby, such holder
has received a written certification from such beneficial owner (dated as of
a specific date on or since the close of such beneficial owner's most recent
fiscal year) to the effect that such beneficial owner is:
(A) a 'qualified institutional buyer' (or 'QIB') as defined in
Rule 144A under the Securities Act; or
(B) an institutional 'accredited investor' as defined in
Rule 501(a)(1), (2), (3) or (7) under Regulation D under the Securities
Act; or
(C) not in the U.S. (as contemplated by Rule 903(a)(1) of Regulation
S under the Securities Act); or
(D) a dealer or other professional fiduciary organized, incorporated,
or (if an individual) resident in the U.S. holding a discretionary
account or similar account (other than an estate or trust) for the
benefit or account of a non-U.S. person (as contemplated by
Rule 903(a)(1) of Regulation S under the Securities Act).
(6) in evaluating the Registered Exchange Offers and in making its
decision whether to participate therein by submitting a letter of
transmittal and tendering its Private Exchange Notes, such holder has made
its own independent appraisal of the matters referred to herein and in any
related communications and is not relying on any statement, representation
or warranty, express or implied, made to such holder by us, the Exchange
Agent, the Information Agent or the Dealer Managers other than those
contained in this prospectus (as amended or supplemented to the Expiration
Date);
(7) the execution and delivery of the letter of transmittal shall
constitute an undertaking to execute any further documents and give any
further assurances that may be reasonably required in connection with any of
the foregoing, in each case on and subject to the terms and conditions set
out or referred to in this prospectus;
(8) the submission of the letter of transmittal to the Exchange Agent
shall, subject to the terms and conditions of the Registered Exchange Offers
generally, constitute the irrevocable appointment of the Exchange Agent as
its attorney and agent, and an irrevocable instruction to such attorney and
agent to complete and execute all or any form(s) of transfer and other
document(s) deemed necessary in the reasonable opinion of such attorney and
agent in relation to the Private Exchange Notes tendered thereby in favor of
us or such other person or persons as we may direct and to deliver such
form(s) of transfer and other document(s) in the attorney's and agent's
reasonable opinion and other document(s) of title relating to such Private
Exchange Notes' registration, and to execute all such attorney or agent
necessary or expedient for the purpose of, or in connection with, the
acceptance of the Registered Exchange Offers, and to vest in us or our
nominees such Private Exchange Notes;
(9) the terms and conditions of the Registered Exchange Offers shall be
deemed to be incorporated in, and form a part of, the letter of transmittal
which shall be read and construed accordingly;
(10) the Exchange Notes acquired pursuant to the Registered Exchange
Offers are being obtained in the ordinary course of business of the person
receiving the Exchange Notes, whether or not that person is the holder;
28
(11) we and others will rely upon the truth and accuracy of the
foregoing acknowledgments, representations, warranties and agreements, and
that if any of the acknowledgements, representations, warranties and
agreements deemed to have been made by it by its participation in the
Registered Exchange Offers or its acquisition of the Exchange Notes are no
longer accurate, it will promptly notify us.
The representations and warranties and agreements of a holder tendering
Private Exchange Notes shall be deemed to be repeated and reconfirmed on and as
of the Expiration Date and the date of the issuance of the Exchange Notes. For
purposes of this prospectus, the 'beneficial owner' of any Private Exchange
Notes shall mean any holder that exercises sole investment discretion with
respect to such Private Exchange Notes.
ACCEPTANCE OF PRIVATE EXCHANGE NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of the conditions to the Registered Exchange
Offers, we will accept, promptly, all Private Exchange Notes properly tendered
and will issue the Exchange Notes. See ' -- Conditions.'
Private Exchange Notes will be deemed to have been accepted as properly
tendered for exchange when, as or if we give oral or written notice of
acceptance to the Exchange Agent, with written confirmation of any oral notice
to follow promptly.
For each $1,000 principal amount of Private Exchange 2009 Notes tendered for
exchange, the holder will receive $1,000 principal amount of 2009 Exchange
Notes. For each $1,000 principal amount of Private Exchange 2010 Notes tendered
for exchange, the holder will receive $1,000 principal amount of 2010 Exchange
Notes. Interest on the Private Exchange Notes will accrue from the most recent
interest payment date or if no interest has been paid, from January 30, 2004.
Holders of Private Exchange Notes whose Private Exchange Notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of accrued and unpaid interest on the Private Exchange Notes accrued
from the most recent interest payment date or if no interest has been paid, from
January 30, 2004 to the date of the issuance of the Exchange Notes. The Exchange
Notes will entitle holders to receive any interest payment that would have
otherwise been payable with respect to the Private Exchange Notes. Consequently,
holders who exchange their Private Exchange Notes for Exchange Notes will
receive the same interest payment on August 1, 2004 in the case of the Private
Exchange 2009 Notes and June 15, 2004 in the case of the Private Exchange 2010
Notes (the first interest payment dates with respect to the Private Exchange
Notes and the Exchange Notes occurring after the closing of the Registered
Exchange Offers) that they would have received had they not accepted the
Registered Exchange Offer.
In all cases, issuance of Exchange Notes for Private Exchange Notes that are
accepted for exchange will be made only after timely receipt by the Exchange
Agent of:
(1) Certificates for such Private Exchange Notes or a timely Book-Entry
Confirmation of such Private Exchange Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility;
(2) a properly completed and duly executed letter of transmittal; and
(3) all other required documents.
If any tendered Private Exchange Notes are not accepted for any reason set forth
in the terms and conditions of the Registered Exchange Offers or if Private
Exchange Notes are submitted for a greater principal amount than the holder
desired to exchange, the unaccepted or non-exchanged Private Exchange Notes will
be returned without expense to the tendering holder (or, in the case of Private
Exchange Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry procedures
described below, the non-exchanged Private Exchange Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Registered Exchange
Offers.
29
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Exchange Notes at the Book-Entry Transfer Facility for purposes
of the Registered Exchange Offers within two business days after the date of
this prospectus. Any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Private
Exchange Notes by causing the Book-Entry Transfer Facility to transfer the
Private Exchange Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility in accordance with the Book-Entry Transfer Facility's
procedures for transfer. However, although delivery of Private Exchange Notes
may be effected through book-entry transfer at the Book-Entry Transfer Facility,
the letter of transmittal (or a facsimile thereof or an Agent's Message in lieu
thereof), with any required signature guarantees and any other required
documents, must still be transmitted to and received by the Exchange Agent at
one of the addresses set forth below, under ' -- Exchange Agent' on or prior to
the Expiration Date.
WITHDRAWAL RIGHTS
To withdraw a tender of Private Exchange Notes, a written notice of
withdrawal must be received by the Exchange Agent at its address set forth
herein. Any such notice of withdrawal must:
specify the name of the person having tendered the Private
Exchange Notes to be withdrawn;
include a statement that the withdrawing holder is
withdrawing its election to have Private Exchange Notes
exchanged, and identify the Private Exchange Notes to be
withdrawn (including the certificate number or numbers and
principal amount of such Private Exchange Notes); and
where certificates for Private Exchange Notes have been
transmitted, specify the name in which such Private Exchange
Notes are registered, if different from that of the
withdrawing holder.
If certificates for Private Exchange Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such Private
Exchange Notes the withdrawing holder must also submit:
the serial numbers of the particular Private Exchange Notes
to be withdrawn; and
signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible
Institution.
If Private Exchange Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Private Exchange Notes and otherwise comply with the
procedures of the facility.
We will reasonably determine all questions as to the validity, form and
eligibility (including time of receipt) for such withdrawal notices. Our
reasonable determination shall be final and binding on all parties.
Any Private Exchange Notes which have been tendered but which are not
accepted for exchange for any reason will be returned to the holder without cost
(or, in the case of Private Exchange Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Private Exchange Notes will
be credited to an account maintained with such Book-Entry Transfer Facility for
the Private Exchange Notes) as soon as practicable after withdrawal, rejection
of tender or termination of the Registered Exchange Offers. Properly withdrawn
Private Exchange Notes may be retendered by following one of the procedures
described above under ' -- Procedures for Tendering Private Exchange Notes' at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
30
CONDITIONS
The Registered Exchange Offers are not subject to any conditions, other than
that the Registered Exchange Offers do not violate applicable law or any
applicable interpretation of the staff of the Commission. We cannot assure you
that any such condition will not occur. If such condition does not occur, we may
terminate the Registered Exchange Offers. Holders of Private Exchange Notes will
have certain rights against us under the Registration Rights Agreement should we
fail to consummate the Registered Exchange Offer.
If we determine that we may terminate the Registered Exchange Offers, we
may:
refuse to accept any Private Exchange Notes and return any
Private Exchange Notes that have been tendered;
extend the Registered Exchange Offers and retain all Private
Exchange Notes tendered prior to the Expiration Date; or
waive a termination event with respect to the Registered
Exchange Offers and accept all properly tendered Private
Exchange Notes. If such waiver constitutes a material change
in the Registered Exchange Offers, we will disclose that
change through a supplement to this prospectus that will be
distributed to each registered holder of Private Exchange
Notes that is an eligible offeree. In addition, we will
extend the Registered Exchange Offers for a period of five
to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered
holders of the Private Exchange Notes, if the Registered
Exchange Offers would otherwise expire during such period,
and to the extent required by applicable law, we will permit
all holders who have tendered prior to such date to withdraw
their tenders.
EXCHANGE AGENT
Wells Fargo Bank Northwest, National Association has been appointed as
Exchange Agent for the Registered Exchange Offers. Letters of transmittal and
all correspondence in connection with the Registered Exchange Offers should be
sent or delivered by each holder of Private Exchange Notes or a beneficial
owner's broker, dealer, commercial bank, trust company or other nominee to the
Exchange Agent at the addresses set forth on the back cover of this prospectus
and in the letter of transmittal. We will pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith.
FEES AND EXPENSES
The expenses of soliciting tenders and waivers pursuant to the Registered
Exchange Offers, as well as the fees and expenses of the legal advisors for the
informal committee that represents certain holders of Private Exchange Notes,
will be paid by us.
Except as described above, we will not make any payments to brokers, dealers
or other persons soliciting acceptances of the Registered Exchange Offers. We
will pay, however, the reasonable and customary fees and out-of-pocket expenses
of the Exchange Agent, the trustees of the Private Exchange Notes and the
Exchange Notes, the Dealer Managers, the Information Agent, and legal,
accounting, and related fees and expenses.
Holders who tender their Private Exchange Notes for exchange will not be
obligated to pay any transfer taxes resulting from the exchange of Private
Exchange Notes pursuant to the Registered Exchange Offers. If, however, Exchange
Notes or Private Exchange Notes are to be issued in the name of any person other
than the registered holder of the Private Exchange Notes tendered for principal
amounts not tendered or accepted for exchange or if tendered Private Exchange
Notes are registered in the name of any person other than the person signing the
letter of transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Private Exchange Notes pursuant to the Registered Exchange
Offers, then the amount of any such transfer taxes imposed on the registered
holder or any other persons will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted
31
with the letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
CONSEQUENCES OF EXCHANGING PRIVATE EXCHANGE NOTES
Holders of Private Exchange Notes who do not exchange them for Exchange
Notes in the Registered Exchange Offers will continue to be subject to the
provisions in the Indenture regarding their transfer and exchange. Any Private
Exchange Notes not exchanged will continue to accrue interest, but will not
retain any rights under the Registration Rights Agreement and will bear the
legend which sets forth the restrictions on transfer to which they are subject
as a consequence of the issuance of the Private Exchange Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
In general, the Private Exchange Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. We do not currently anticipate that we will register Private Exchange
Notes under the Securities Act.
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, we believe that Exchange Notes issued
in the Registered Exchange Offers in exchange for Private Exchange Notes may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any such holder which is an 'affiliate' of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holders' business and
such holders have no arrangement with any person to participate in the
distribution of such Exchange Notes.
However, we do not intend to request the Commission to consider, and the
Commission has not considered, the Registered Exchange Offers in the context of
a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Registered
Exchange Offers as in such other circumstances. Each holder, other than a
broker-dealer, must acknowledge that:
(i) the Exchange Notes received by such holder will be acquired in the
ordinary course of its business;
(ii) at the time of the consummation of the Registered Exchange Offers
such holder will have not engaged in, and does not intend to engage in, a
distribution of Exchange Notes and has no arrangement or understanding to
participate in a distribution of Exchange Notes; and
(iii) such holder is not an affiliate of the Company within the meaning
of Rule 405 of the Securities Act or if it is such an affiliate, that it
will comply with the registration and prospectus delivery requirements of
the Securities Act, to the extent applicable.
If any holder is an affiliate of the Company, is engaged in or intends to
engage in or has any arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Registered
Exchange Offers, such holder:
(i) could not rely on the applicable interpretations of the staff of the
Commission; and
(ii) must comply with the registration and prospectus delivery
requirement of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Exchange Notes must acknowledge that such Private Exchange
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The letter of transmittal states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act.
32
CAPITALIZATION
The following table sets forth our actual consolidated capitalization
derived from our consolidated financial statements at December 31, 2003,
and as adjusted to reflect consummation of the Private Exchange Offers.
This table does not take into consideration any fees associated with the
aircraft operating lease restructuring.
<Table>
<Caption>
AT DECEMBER 31,
---------------------------------
2003 2003
---- ----
(AS ADJUSTED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Cash........................................................ $160,644 $134,069
-------- --------
-------- --------
Short-term Debt
10.5% Senior Notes due 2004............................. 19,690 19,690
Other short-term debt (current maturities of long-term
debt)................................................. 31,955 31,955
-------- --------
51,645 51,645
Long-term Debt
ATSB term loan due 2008, net of unamortized discount of
$5,350................................................ 129,345 129,345
9.625% Senior Notes due 2005............................ 125,000 20,005
10.5% Senior Notes due 2004(1).......................... 155,310 --
Senior Notes due 2009 offered hereby.................... -- 163,064
Senior Notes due 2010 offered hereby.................... -- 110,233
Special Facility Revenue Bonds -- Gate, due 2018........ 5,674 5,674
Special Facility Revenue Bonds -- Hangar, due 2020...... 6,000 6,000
Secured bank debt, due 2014............................. 13,043 13,043
Secured bank debt, due 2005............................. 7,558 7,558
Capital lease, due 2008................................. 1,092 1,092
Capital lease, due 2005................................. 5 5
Other................................................... 24 24
Total Redeemable Preferred Stock.................... 56,330 50,000
-------- --------
Total Debt.......................................... 551,026 557,688
Total Convertible Redeemable Preferred Stock........ 32,907 30,000
Total shareholders' equity (deficit)(2)............. (104,007) (131,321)
-------- --------
Total capitalization............................ $479,926 $456,367
-------- --------
-------- --------
</Table>
- ---------
(1) Amount was classified as non-current as of December 31, 2003 based on FASB
Statement of Financial Accounting Standards No. 6, 'Classification of
Short-Term Obligations Expected to Be Refinanced' ('FAS 6').
(2) The Company expects to record a charge of approximately $27.3 million as a
Loss on Extinguishment of Debt in the first quarter of 2004.
33
SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with selected historical consolidated
financial data of ATA Holdings and its subsidiaries. We have prepared the
selected financial data for the five fiscal years ended December 31, 2003
included in this table using the audited consolidated financial statements of
ATA Holdings for such fiscal years, which have been audited by Ernst & Young
LLP, independent auditors.
When you read this selected historical financial data, it is important that
you read it together with the historical financial statements and related notes
included in this prospectus, and for the fiscal years 1999 and 2000 in our
annual and quarterly reports filed with the Commission, as well as the section
entitled 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
ATA HOLDINGS CORP.
FIVE-YEAR SUMMARY
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues................. $1,518,533 $1,277,370 $1,275,484 $1,291,553 $1,122,366
Operating expenses(1).......... 1,440,992 1,437,407 1,367,354 1,288,983 1,032,339
Operating income (loss)(1)..... 77,541 (160,037) (91,870) 2,570 90,027
Income (loss) before taxes..... 21,745 (194,214) (116,067) (19,931) 77,797
Net income (loss) available to
common shareholders(2)....... 15,792 (174,984) (81,885) (15,699) 47,342
Net income (loss) per share --
basic........................ 1.34 (14.94) (7.14) (1.31) 3.86
Net income (loss) per share --
diluted...................... 1.27 (14.94) (7.14) (1.31) 3.51
Balance Sheet Data (at end of
period):
Property and equipment, net.... $ 253,482 $ 265,627 $ 314,943 $ 522,119 $ 511,832
Total assets................... 869,987 848,136 1,002,962 1,032,430 815,281
Total debt..................... 494,696 509,428 497,592 457,949 347,871
Redeemable preferred stock..... 56,330 52,110 50,000 50,000 --
Convertible redeemable
preferred stock.............. 32,907 30,375 30,000 30,000 --
Shareholders' equity
(deficit).................... (104,007) (120,009) 44,132 124,654 151,376
Selected Consolidated Operating
Statistics:
Revenue passengers carried
(thousands).................. 11,226.9 10,046.7 8,635.2 8,006.1 7,044.6
Revenue passenger miles
(millions)................... 14,358.7 12,384.2 11,675.7 11,816.8 10,949.0
Available seat miles
(millions)................... 21,125.9 17,600.0 16,187.7 16,390.1 15,082.6
Passenger load factor.......... 68.0% 70.4% 72.1% 72.1% 72.6%
</Table>
- ---------
(1) Operating results for the years ended December 31, 2003, 2002 and 2001
include the following items:
<Table>
<Caption>
2003 2002 2001
---- ---- ----
Aircraft impairments and retirements................... $(5,288) $(66,787) $(118,868)
U.S. Government grants................................. 37,156 (16,221) 66,318
Goodwill impairments................................... -- (6,893) --
Special charges........................................ -- -- (21,525)
------- -------- ---------
Total -- income (loss)............................. $31,868 $(89,901) $ (74,075)
------- -------- ---------
------- -------- ---------
</Table>
For more information on special charges, see 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year Ended
December 31, 2002, Versus Year Ended December 31, 2001 -- Special Charges.'
(2) Preferred stock dividends of $4.6 million, $5.7 million, and $5.6 million
were recorded in 2003, 2002 and 2001, respectively. No common stock
dividends were paid in any period presented.
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company is a leading provider of scheduled airline services to leisure
and other value-oriented travelers, and a leading provider of charter services
to the U.S. military. The Company, through its principal subsidiary, ATA, has
been operating for 31 years and is the tenth largest U.S. airline in terms of
2003 capacity and traffic.
In the year ended December 31, 2003, the Company recorded operating income
of $77.5 million, as compared to an operating loss of $160.0 million in the same
period of 2002. In the year ended December 31, 2003, the Company had a net
income available to common shareholders of $15.8 million, as compared to a net
loss available to common shareholders of $175.0 million in 2002. The net income
recorded in 2003 includes $37.2 million received under the Supplemental Act,
which was recorded as a reduction in operating expenses.
Consolidated revenue per available seat mile ('RASM') decreased to 7.19
cents in the year ended December 31, 2003, as compared to 7.26 cents in 2002.
The decrease in 2003 was mainly due to a weak scheduled service pricing
environment in the first six months of 2003, which was impacted by the war in
the Middle East. In addition, the Company's scheduled service unit revenues were
adversely affected by the Company's capacity growth of 20% between the year
ended December 31, 2002 and 2003, due to the addition of new Boeing 737-800 and
Boeing 757-300 aircraft to the Company's fleet. The Company was able to utilize
some of the increased capacity in its military charter service in order to meet
the increased flying requirements due to the Civil Reserve Air Fleet ('CRAF')
activation between February and June 2003, which supported Operation Iraqi
Freedom. In 2003, the Company's military charter revenue increased 66.9%, as
compared to 2002. The CRAF program ended on June 18, 2003, and the Company
recorded 19.2% less military revenue for the second half of 2003, as compared to
the first half of 2003.
The Company's unit costs remained among the lowest of major airlines in
2003. Consolidated cost per available seat mile ('CASM') decreased to 6.82 cents
in the year ended December 31, 2003, as compared to 8.17 cents in 2002. The 2003
CASM amount reflects the benefit from the receipt of $37.2 million, or 0.18
cents per available seat mile ('ASM'), in the year ended December 31, 2003, in
U.S. Government funds from the Supplemental Act; and a charge of $5.3 million,
or 0.03 cents per ASM, for aircraft impairments and retirements. The 2002 CASM
amount reflects a charge of $16.2 million, or 0.09 cents per ASM, in connection
with the expected reduction of U.S. Government compensation under the Act, and a
charge of $66.8 million, or 0.38 cents per ASM, for aircraft impairments and
retirements. The remaining CASM declines in 2003 were mainly due to the
Company's continuing efforts to further reduce operating expenses; the benefits
from increased aircraft, facility and employee utilization; and the cost savings
realized from the addition of its new fleets comprised of Boeing 737-800 and
Boeing 757-300 aircraft. These CASM improvements were achieved despite a 15.9%
increase in the average cost per gallon of jet fuel consumed in 2003, as
compared to 2002. These fuel price increases cost the Company an incremental
$37.7 million in 2003, net of a $7.4 million increase in fuel escalation
revenues. Fuel escalation revenue is recorded when tour operators or the U.S.
Government reimburse the Company for certain fuel cost increases as part of
commercial charter, bulk scheduled service or military/government contracts.
CRITICAL ACCOUNTING POLICIES
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States ('GAAP'). 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
35
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. Passenger ticket sales are initially recorded as a
component of air traffic liability. Revenue derived from ticket sales is
recognized at the time service is provided. 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 Statement of Financial Accounting Standards No. 144 ('FAS 144'),
'Accounting for the Impairment or Disposal of Long-Lived Assets', which
superseded FAS 121 ('FAS 121'), 'Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of'. 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 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 Lockheed L-1011-50 and 100 and the Boeing 727-200 fleets since
the end of 2000, and both fleets initially became impaired under FAS 121
subsequent to the terrorist attacks of September 11, 2001. The Company primarily
used discounted cash flow analysis to estimate the fair value of the Lockheed
L-1011-50 and 100 fleet and used 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, and has
determined that this fleet is not impaired. 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. In June 2001, the Financial Accounting Standards Board
('FASB') issued Statement of Financial Accounting Standards No. 142
('FAS 142'), 'Goodwill and Other
36
Intangible Assets', effective for fiscal years beginning after December 15,
2001, 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 2002 and 2003. The Company's goodwill relates to ATA Leisure Corp.
('ATALC'), Chicago Express and ATA Cargo, all of which are subsidiaries that
were acquired in 1999. The Company identified two FAS 142 reporting units for
ATALC. The ATALC brands whose management was outsourced to Mark Travel
Corporation ('MTC') in July 2003 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 MTC reporting unit was not 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, on the total goodwill balance for KTI, was recorded in the
fourth quarter of 2002. As of December 31, 2003, the Company no longer markets
any of the KTI brands. In the 2003 goodwill impairment review, the Company
determined that the goodwill related to Chicago Express, ATA Cargo and the MTC
reporting unit was not impaired.
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.
37
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.
<Table>
<Caption>
CENTS PER ASM
YEAR ENDED DECEMBER 31,
------------------------------------
2003 2002 2001
---- ---- ----
Consolidated operating revenues.......................... 7.19 7.26 7.88
Consolidated operating expenses:
Salaries, wages and benefits......................... 1.89 2.02 2.01
Fuel and oil......................................... 1.31 1.17 1.55
Aircraft rentals..................................... 1.07 1.08 0.61
Handling, landing and navigation fees................ 0.54 0.63 0.55
Crew and other employee travel....................... 0.30 0.31 0.37
Depreciation and amortization........................ 0.27 0.44 0.75
Other selling expenses............................... 0.24 0.25 0.26
Aircraft maintenance, materials and repairs.......... 0.22 0.30 0.38
Passenger service.................................... 0.19 0.22 0.27
Advertising.......................................... 0.18 0.23 0.16
Insurance............................................ 0.14 0.19 0.07
Facilities and other rentals......................... 0.11 0.13 0.13
Commissions.......................................... 0.11 0.13 0.21
Ground package cost.................................. 0.06 0.16 0.26
Special charges...................................... -- -- 0.13
Aircraft impairments and retirements................. 0.03 0.38 0.73
Goodwill impairment.................................. -- 0.04 --
U.S. Government grant................................ (0.18) 0.09 (0.41)
Other................................................ 0.34 0.40 0.42
---------- ---------- ----------
Total consolidated operating expenses.................... 6.82 8.17 8.45
---------- ---------- ----------
Consolidated operating income (loss)..................... 0.37 (0.91) (0.57)
---------- ---------- ----------
---------- ---------- ----------
ASMs (in thousands)...................................... 21,125,905 17,599,968 16,187,687
</Table>
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. Data for subservice operations is not included.
<Table>
<Caption>
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
--------- ---------- ---------- ------
(table continued on next page)
</Table>
38
(table continued from previous page)
<Table>
<Caption>
TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 INC. (DEC) % INC. (DEC)
---- ---- ---------- -----------
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 7.62
Boeing 757-300........................... 10.98 9.82 1.16 11.81
SAAB 340B................................ 8.72 8.22 0.50 6.08
</Table>
-------------
(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.'
(footnotes continued on next page)
39
(footnotes continued from previous page)
(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 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 commercial charter operations of the Company.
<Table>
<Caption>
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(j)........ 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)
</Table>
(table continued on next page)
40
(table continued from previous page)
<Table>
<Caption>
TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 INC (DEC) % INC (DEC)
---- ---- --------- -----------
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(i)........ 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)
</Table>
See footnotes (a) through (g) on pages 39-40.
- ---------
(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 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 the first quarter 2003 traffic was significantly
affected 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.
This late-2003 scheduled service RASM decline continued into the first
quarter of 2004, with a significant year-over-year decline in unit revenue in
January 2004. Although some improvement in RASM was experienced in February and
March as compared to January, the Company expects to
41
report a year-over-year decline in overall scheduled service unit revenue
performance in the first quarter of 2004, as compared to the first quarter of
2003. The scheduled service revenue environment is expected to continue to be
very volatile and uncertain for the remainder of 2004, and the Company expects
it will be challenged by competitive price and capacity actions in all of the
Company's scheduled service markets for the remainder of the year.
The Company anticipates that its Chicago-Midway operation will continue to
represent a substantial proportion of its scheduled service business in the
future. The Company also anticipates further growth at Chicago-Midway, which
will be accomplished in conjunction with the completion of new terminal and gate
facilities at the Chicago-Midway Airport. Once all construction is complete in
mid-2004, the Company expects to occupy at least 14 jet gates and one commuter
aircraft gate at the new airport concourses, as compared to ten jet gates and
one commuter gate as of December 31, 2003. Also contributing to the growth at
Chicago-Midway is Chicago Express, which has been performing well as a commuter
feeder of passengers to ATA's jet system.
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. The Company earns ground package revenues through
the sale of hotel, car rental and cruise accommodations in conjunction with the
Company's air transportation product. The Company markets these ground packages
through its Ambassadair and ATALC subsidiaries. Ambassadair offers
tour-guide-accompanied vacation packages to its approximately 32,000 individual
and family members.
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 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, Ambassadair Travel Club
42
membership dues and cargo revenue. 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 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 12.5% to $399.6 million in
2003 from $355.2 million in 2002.
The increases 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 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. The Company expects future
salaries, wages and benefits costs to be significantly increased by the amended
cockpit crewmember contract. The amended contract is expected to increase
cockpit crewmembers' average salaries by approximately 80% over the four-year
contract period, of which 40% was realized between July 2002 and the end of
2003. The next scheduled rate increase for cockpit crewmembers is July 1, 2004.
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.
The Company periodically has entered into fuel price hedge contracts to
reduce the risk of fuel price increases. Although the Company did not have any
hedge contracts in place in 2003, the Company did benefit from fuel
reimbursement clauses and guarantees in its bulk scheduled service, commercial
charter and military/government contracts. The benefit of these price guarantees
is accounted for as revenue when realized. The Company has continued to
experience increases in the cost per gallon of jet fuel in the first quarter of
2004, which will adversely affect reported earnings for that period, and any
future increases in the cost of fuel may continue to adversely affect the
Company's earnings. See 'Quantitative and Qualitative Disclosures
About Market Risk' for more information.
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 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. The amount of the cash payments in excess of
the aircraft rent expense in these early years has resulted in a significant
prepaid aircraft rent amount on the Company's balance sheet. Aircraft rentals
expense in 2003 increased 19.2% to $226.6 million from $190.1 million in 2002.
These
43
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 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 over certain foreign airspace.
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.
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 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 reflects the periodic expensing
of the recorded cost of owned airframes and engines, leasehold improvements and
rotable parts for all fleet types, together with other property and equipment
owned by the Company. 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.
Other Selling Expenses. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems, credit card discount expenses
incurred when selling to customers using credit cards for payment and toll-free
telephone services provided to single-seat and vacation package customers who
contact the Company directly to book reservations. Other selling expenses
increased 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.
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
44
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 757-200/300 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
decreased 12.6% to $45.7 million in 2003, as compared to $52.3 million in 2002.
In 2004, the Company expects to incur significantly higher costs under its
hourly engine maintenance agreements. These agreements generally provide for the
escalation of hourly rates as the related power plants age, which reflects
higher costs to maintain them. The Company currently expects to incur
approximately $30 million in such higher costs in 2004, as compared to 2003.
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.
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 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.
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 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. The
Company also completed the placement of its hull and liability insurance for the
new policy year beginning October 1, 2003, at rates which will be approximately
20% lower as compared to the policy year ended September 30, 2003.
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 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. The Company incurs commissions expense in association with the
sale by travel agents of single seats on scheduled service and to secure
military/government charter revenues using a teaming arrangement with other
cargo and passenger carriers. 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
45
an increase in commission expense of $7.9 million in 2003, as compared to 2002,
attributable to growth in military revenue.
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. 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. Following the events of September 11,
2001, the airline industry began experiencing excess capacity as consumer demand
for scheduled service declined. At the same time, the Company was taking
delivery of a significant number of new Boeing 737-800 and 757-300 aircraft,
which it planned to utilize in its scheduled service markets. To adjust its
capacity to new market demands, the Company decided to retire its Boeing 727-200
fleet earlier than originally planned. Before September 11, 2001, the Company
had a plan in place to gradually retire these aircraft between mid-2001 and
mid-2002. As the Company retired the Boeing 727-200 aircraft, it contributed
them to BATA to re-market these aircraft to third parties. The Company
accelerated this plan by retiring certain individual aircraft earlier than
planned and the Company retired all of these aircraft from service by May 31,
2002. In accordance with FAS 121, the Company recorded an impairment charge of
$44.5 million in 2001. In accordance with FAS 121, the Company continues to
monitor current fair market values of previously impaired assets. In 2003, the
Company recorded an additional asset impairment charge of $5.3 million against
its remaining net book value of Boeing 727-200 aircraft, recorded as an
investment in the BATA joint venture, as compared to $35.9 million recorded in
2002. The current estimate of this fleet's fair market value is based on quoted
market prices and estimated salvage values. The carrying amount of one Boeing
727-200 that was not contributed to BATA, with related assets, is classified as
long-term assets held for sale in the accompanying balance sheet in accordance
with FAS 121.
Also in 2001, for reasons similar to those described above, the Company
retired certain Lockheed L-1011-50 and 100 aircraft, and determined that
the remaining Lockheed L-1011-50 and 100 fleet and related rotable parts and
inventory were impaired under FAS 121. The Company recorded an impairment charge
of $67.8 million relating to this fleet in 2001. In 2002, the Company retired
three owned L-1011-50 aircraft by removing them from revenue service, which
resulted in a charge of $9.0 million, and recorded an additional asset
impairment charge of $7.6 million against its remaining net book value of
Lockheed L-1011-50 and 100 aircraft and related parts. No such charges were
recorded in 2003. In accordance with FAS 144, the Company continues to monitor
the fair market values of these assets.
The Company estimates this fleet's fair market value using discounted cash
flow analysis. 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, since the Company is still flying certain of these
aircraft. The assets are being depreciated in conjunction with the planned fleet
retirement schedule.
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 that fleet and related parts and inventory for impairment under
FAS 144. Through 2003, the Company's analysis continues to show the fleet
unimpaired.
46
The following tables summarize the Company's aircraft impairments and
retirements expense in 2003 and 2002:
<Table>
<Caption>
2003 2002
---- ----
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
------ -------
------ -------
</Table>
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. On April 16, 2003, President Bush signed into law the
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 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.
The Company does not expect to receive any further material compensatory
funds from the U.S. Government.
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 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.
47
YEAR ENDED DECEMBER 31, 2002, VERSUS YEAR ENDED DECEMBER 31, 2001
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.
<Table>
<Caption>
TWELVE MONTHS ENDED DECEMBER 31,
---------------------------------------------------
2002 2001 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Departures Jet................................ 66,903 56,962 9,941 17.45
Departures SAAB............................... 42,105 26,836 15,269 56.90
---------- ---------- --------- -------
Total Departures.......................... 109,008 83,798 25,210 30.08
---------- ---------- --------- -------
Block Hours Jet............................... 199,290 172,207 27,083 15.73
Block Hours SAAB.............................. 40,008 24,836 15,172 61.09
---------- ---------- --------- -------
Total Block Hours......................... 239,298 197,043 42,255 21.44
---------- ---------- --------- -------
RPMs Jet (000s)............................... 12,231,661 11,581,733 649,928 5.61
RPMs SAAB (000s).............................. 152,576 94,009 58,567 62.30
---------- ---------- --------- -------
Total RPMs (000s)(a)...................... 12,384,237 11,675,742 708,495 6.07
---------- ---------- --------- -------
ASMs Jet (000s)............................... 17,362,835 16,041,928 1,320,907 8.23
ASMs SAAB (000s).............................. 237,133 145,759 91,374 62.69
---------- ---------- --------- -------
Total ASMs (000s)(b)...................... 17,599,968 16,187,687 1,412,281 8.72
---------- ---------- --------- -------
Load Factor Jet............................... 70.45 72.20 (1.75) (2.42)
Load Factor SAAB.............................. 64.34 64.50 (0.16) (0.25)
---------- ---------- --------- -------
Total Load Factor(c)...................... 70.37 72.13 (1.76) (2.44)
---------- ---------- --------- -------
Passengers Enplaned Jet....................... 9,139,770 8,058,886 1,080,884 13.41
Passengers Enplaned SAAB...................... 906,909 576,339 330,570 57.36
---------- ---------- --------- -------
Total Passengers Enplaned(d).............. 10,046,679 8,635,225 1,411,454 16.35
---------- ---------- --------- -------
Revenue $(000s)............................... 1,277,370 1,275,484 1,886 0.15
RASM in cents(e).............................. 7.26 7.88 (0.62) (7.87)
CASM in cents(f).............................. 8.17 8.45 (0.28) (3.31)
Yield in cents(g)............................. 10.31 10.92 (0.61) (5.59)
Average Aircraft in Service
Lockheed L-1011........................... 10.54 15.67 (5.13) (32.74)
Boeing 737-800............................ 22.37 5.78 16.59 287.02
Boeing 757-200............................ 15.96 15.04 0.92 6.12
Boeing 757-300............................ 7.96 3.08 4.88 158.44
SAAB 340B................................. 13.33 8.33 5.00 60.02
Average Block Hours Flown per day
Lockheed L-1011........................... 5.86 6.65 (0.79) (11.88)
Boeing 737-800............................ 9.84 5.95 3.89 65.38
Boeing 757-200............................ 10.73 11.28 (0.55) (4.88)
Boeing 757-300............................ 9.82 5.06 4.76 94.07
SAAB 340B................................. 8.22 8.17 0.05 0.61
</Table>
- ---------
See footnotes (a) through (g) on pages 39-40.
48
OPERATING REVENUES
Total operating revenues in 2002 increased 0.2% to $1.277 billion, as
compared to $1.275 billion in 2001. This increase was due to a $65.9 million
increase in scheduled service revenue, a $10.4 million increase in
military/government charter revenues and a $3.0 million increase in other
revenues, partially offset by a $60.9 million decrease in commercial charter
revenues and a $16.5 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, commercial charter and
military/government charter operations of the Company. Data for subservice
operations is not included.
<Table>
<Caption>
TWELVE MONTHS ENDED DECEMBER 31,
---------------------------------------------------
2002 2001 INC (DEC) % INC (DEC)
---- ---- --------- -----------
Scheduled Service
Departures................................ 98,877 72,787 26,090 35.84
Block Hours............................... 201,077 156,331 44,746 28.62
RPMs (000s)(a)............................ 9,911,884 8,694,323 1,217,561 14.00
ASMs (000s)(b)............................ 13,608,326 11,443,304 2,165,022 18.92
Load Factor(c)............................ 72.84 75.98 (3.14) (4.13)
Passengers Enplaned(d).................... 8,859,044 7,279,489 1,579,555 21.70
Revenue $ (000s)....................... 886,579 820,666 65,913 8.03
RASM in cents(e).......................... 6.51 7.17 (0.66) (9.21)
Yield in cents(g)......................... 8.94 9.44 (0.50) (5.30)
Revenue per segment $ (h).............. 100.08 112.74 (12.66) (11.23)
Commercial Charter
Departures................................ 6,459 7,293 (834) (11.44)
Block Hours............................... 22,159 24,495 (2,336) (9.54)
ASMs (000s)(b)............................ 1,875,885 2,588,780 (712,895) (27.54)
Revenue $ (000s)....................... 131,341 192,246 (60,905) (31.68)
RASM in cents(e).......................... 7.00 7.43 (0.43) (5.79)
RASM excluding fuel escalation(i)......... 6.89 7.13 (0.24) (3.37)
Military/Government Charter
Departures................................ 3,650 3,702 (52) (1.40)
Block Hours............................... 15,975 16,159 (184) (1.14)
ASMs (000s)(b)............................ 2,103,874 2,147,248 (43,374) (2.02)
Revenue $ (000s)....................... 177,901 167,524 10,377 6.19
RASM in cents(e).......................... 8.46 7.80 0.66 8.46
RASM excluding fuel escalation(j)......... 8.48 7.58 0.90 11.87
Percentage of Consolidated Revenues:
Scheduled Service......................... 69.4% 64.3% 5.1% 7.93
Commercial Charter........................ 10.3% 15.1% (4.8%) (31.79)
Military Charter.......................... 13.9% 13.1% 0.8% 6.11
</Table>
- ---------
See footnotes (a) through (j) on pages 39-41.
-------------------
Scheduled Service Revenues. Scheduled service revenues increased 8.0% in
2002 to $886.6 million from $820.7 million in 2001. Scheduled service revenues
comprised 69.4% of consolidated revenues in 2002, as compared to 64.3% in 2001.
While total scheduled service revenues and ASMs increased, scheduled service
RASM declined 9.2% from 7.17 cents in 2001 to 6.51 cents in 2002. The declining
unit revenues experienced by the Company were a result of continuing
overcapacity in the airline industry. Customer demand declined abruptly
immediately after the terrorist attacks of September 11, 2001, and demand has
also been lowered by a slowing pace of economic activity in the United States.
Scheduled service departures grew 35.8% in 2002, compared to the ASM growth
of 18.9%. This reflects the growth of the Chicago Express SAAB 340B fleet from
11 aircraft as of
49
December 31, 2001, to 17 aircraft as of December 31, 2002. The additional SAAB
aircraft generated significantly more departures, but because the aircraft
accommodates only 34 passengers and operates on short stage length flights, the
increase in ASMs was not as great as departures.
Approximately 71.2% of the Company's scheduled service capacity was
generated by the Chicago-Midway market in 2002, as compared to 66.8% in 2001.
The Hawaiian market generated approximately 13.7% of total scheduled service
capacity in 2002, as compared to 18.6% in 2001. Another 10.5% of total scheduled
service capacity was generated in the Indianapolis market in 2002, as compared
to 9.2% in 2001. The Company operated 152 peak daily jet and commuter departures
from Chicago-Midway and served 41 destinations on a nonstop basis in 2002, as
compared to 109 peak daily jet and commuter departures and 28 nonstop
destinations in 2001.
The Company's declining capacity in the Hawaiian market was primarily
attributable to the transition to the smaller 247-seat Boeing 757-300 aircraft
from the wide-body Lockheed L-1011 aircraft for certain West Coast-Hawaii routes
beginning in mid-2002. The Company provided nonstop services in both years from
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui. From June to September 2002, the
Company operated seasonal service to Lihue from Los Angeles and San Francisco.
The Company's growth in the Indianapolis market was primarily attributable
to the addition of limited jet service between Indianapolis and Chicago-Midway
in the second quarter of 2002, and the addition of nonstop service to New York
LaGuardia and Phoenix beginning in the third quarter of 2002.
Commercial Charter Revenues. Commercial charter revenues decreased 31.7% to
$131.3 million in 2002 from $192.2 million in 2001. Commercial charter revenues
accounted for 10.3% of consolidated revenues in 2002, as compared to 15.1% in
2001. The majority of the decline in commercial charter revenues was due to the
retirement of certain Lockheed L-1011 and Boeing 727-200 aircraft that the
Company has traditionally used in commercial charter flying.
The decrease in commercial charter RASM in 2002, as compared to 2001, was
due to the same economic and geopolitical factors which have reduced scheduled
service unit revenues between years. The Company currently expects that
commercial charter will represent a less significant source of future revenues,
especially after the end of 2003 when a contract with a major customer expires.
Military/Government Charter Revenues. Military/government charter revenue
increased 6.2% to $177.9 million in 2002 from $167.5 million in 2001.
Military/government charter revenue accounted for 13.9% of consolidated revenues
in 2002, as compared to 13.1% in 2001.
The increase in revenue and RASM for military/government charter revenues in
2002 was due primarily to rate increases awarded for the contract year ended
September 30, 2002, based upon cost data submitted to the U.S. military by the
Company and other air carriers providing these services. The Company earned
$175.6 million in the contract year ended September 30, 2002, a 10.2% increase
as compared to $159.3 million earned in the preceding contract year ended
September 30, 2001.
Ground Package Revenues. In 2002, ground package revenues decreased 31.6% to
$35.7 million, as compared to $52.2 million in 2001. This decline in ground
package sales (and related ground package costs) is primarily due to the
Company's July 1, 2002, outsourcing of the management and marketing of its ATA
Vacations and Travel Charter International brands to MTC.
Other Revenues. Other revenues increased 7.0% to $45.9 million in 2002, as
compared to $42.9 million in 2001, primarily due to an increase in cancelation
and administrative fee revenues.
OPERATING EXPENSES
Salaries, Wages and Benefits. Salaries, wages and benefits expense in 2002
increased 9.2% to $355.2 million, as compared to $325.2 million in 2001.
The increase in salaries, wages and benefits primarily reflects the impact
of the Company's amended collective bargaining agreement with the Company's
cockpit crewmembers, who are
50
represented by ALPA. The Company recorded $9.9 million in 2002 for a signing
bonus as provided by the amended contract. Cockpit crewmember contract rate
increases became effective July 1, 2002. The Company also incurred increasing
costs in 2002 for employee medical and workers' compensation benefits.
Fuel and Oil. Fuel and oil expense decreased 17.8% to $206.6 million in
2002, as compared to $251.3 million in 2001. Although total jet block hours
increased 15.7% in 2002, as compared to 2001, the Company consumed 8.9% fewer
gallons of jet fuel for flying operations. This decrease was primarily due to
the addition of Boeing 737-800 and Boeing 757-300 aircraft to the Company's
fleet beginning in May 2001. These aircraft replaced certain less-fuel-efficient
Boeing 727-200 and Lockheed L-1011 aircraft, which were retired from revenue
service. The decrease in fuel burn, due to the new aircraft, resulted in a
decrease in fuel and oil expense of approximately $25.0 million. Also
contributing to the decline in fuel expense was the decrease in the Company's
average cost per gallon of jet fuel consumed of 7.9%, resulting in an additional
savings in fuel and oil expense of approximately $18.1 million.
Periodically, the Company has entered into fuel price hedge contracts to
reduce the risk of fuel price fluctuations. During 2002, the Company recorded
gains of $0.5 million on these hedge contacts, as compared to losses of $2.6
million in 2001. As of December 31, 2002, the Company had no outstanding fuel
hedge agreements.
Aircraft Rentals. Aircraft rentals expense in 2002 increased 92.0% to $190.1
million from $99.0 million in 2001. The increase was mainly attributable to the
delivery of 30 leased Boeing 737-800 and 10 leased Boeing 757-300 aircraft
between May 2001 and December 2002.
Handling, Landing and Navigation Fees. Handling, landing and navigation fees
increased by 24.6% to $110.5 million in 2002, as compared to $88.7 million in
2001. The increase in handling, landing and navigation fees between years was
primarily due to a 17.5% increase in system-wide jet departures. The Company
also incurred approximately $5.7 million in additional airport security costs
associated with increased security requirements implemented after the terrorist
attacks on September 11, 2001.
Crew and Other Employee Travel. The cost of crew and other employee travel
decreased 7.6% to $54.8 million in 2002, as compared to $59.3 million in 2001.
This decrease was mainly due to the decrease in military and charter flights
between years, which often operate to and from points remote from the Company's
crew bases including international destinations, thus requiring significant
positioning expenditures for crewmembers on other airlines and higher hotel
costs. The decrease also reflects a decline in non-crew employee travel in 2002,
as compared to 2001, due to the Company's cost-cutting initiatives.
Depreciation and Amortization. Depreciation and amortization expense
decreased 36.8% to $76.7 million in 2002, as compared to $121.3 million in the
2001.
In 2001 and 2002, the Company retired eight Lockheed L-1011-50 aircraft from
revenue service. During the fourth quarter of 2001, the Company also determined
that the remaining fleet of Lockheed L-1011-50 and 100 aircraft, rotable parts
and inventory was impaired. These assets were classified as held for use in
accordance with FAS 121, requiring them to be recorded on the balance sheet at
their estimated fair value at the time of impairment, which is the new asset
basis to be depreciated over their estimated remaining useful lives. The Company
recorded a further reduction in the carrying value of these assets in 2002. Due
to the reduced cost basis of these assets, the Company recorded $17.6 million
less depreciation and amortization expense for this fleet in 2002, as compared
to 2001.
In 2001, the Company decided to retire its Boeing 727-200 fleet earlier than
originally planned, and these aircraft were determined to be impaired under
FAS 121. Boeing 727-200 aircraft not already transferred to BATA, a 50/50 joint
venture with Boeing Capital Corporation -- Equipment Leasing Corporation
('BCC-ELC'), have been classified in the accompanying balance sheets as assets
held for sale. In accordance with FAS 121, depreciation expense was not recorded
after the fleet was deemed impaired and held for sale. As a result, depreciation
expense on the Boeing 727-200 fleet decreased by $28.9 million in 2002, as
compared to 2001.
51
Partially offsetting these decreases were increased amortization of
capitalized engine and airframe overhauls on the Lockheed L-1011-500 fleet and
increases in depreciation and amortization expense associated with other fleet
rotable parts, owned engines and the provision for inventory obsolescence, along
with fluctuations in expenses related to furniture and fixtures, computer
hardware and software, and debt issue costs between periods, none of which was
individually significant.
Other Selling Expenses. Other selling expenses increased 5.5% to $43.9
million in 2002, as compared to $41.6 million in 2001. This increase is
primarily the result of a greater portion of the Company's sales being made on
credit cards and higher CRS fees.
Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials
and repairs expense decreased 14.8% to $52.3 million in 2002, as compared to
$61.4 million in 2001.
The decline in maintenance, materials and repairs expense in 2002, as
compared to 2001, was primarily attributable to a decrease in materials consumed
and components repaired related to maintenance on the Company's aging fleets of
Lockheed L-1011-50 and 100 and Boeing 727-200 aircraft. During 2001 and 2002,
the Company placed 23 Boeing 727-200 aircraft into BATA and retired eight
Lockheed L-1011-50 aircraft prior to the due dates of heavy maintenance visits.
Maintenance, materials and repairs expense associated with these two fleets
decreased $20.1 million in 2002, as compared to 2001.
This decline in maintenance, materials and repairs was partially offset by
an increase in the cost of the hourly engine maintenance agreement for the
Company's growing fleet of SAAB 340B propeller aircraft operated by Chicago
Express. In addition, the Company entered into an hourly engine maintenance
agreement for the Boeing 757-200 fleet in 2002, which resulted in an increase in
maintenance, materials and repair expense between years.
Passenger Service. For 2002 and 2001, catering represented 82.1% and 74.4%,
respectively, of total passenger service expense.
The total cost of passenger service decreased 12.8% to $38.3 million in
2002, as compared to $43.9 million in 2001. Approximately $7.4 million of the
decrease is attributable to catering expense, primarily because in 2002 the
Company boarded a higher ratio of scheduled service passengers to charter
passengers than in 2001. Scheduled service passengers are provided a
significantly less expensive catering service than is provided to commercial
charter and military passengers. In addition, in 2002 the Company introduced
round-trip catering for flights originating in Chicago-Midway to reduce catering
service charges. In 2002, as compared to 2001, the Company also incurred
approximately $4.8 million less expense for mishandled baggage and passenger
inconvenience due to significantly fewer flight delays and cancellations in
2002.
Advertising. Advertising expense increased 51.5% to $40.0 million in 2002,
as compared to $26.4 million in 2001. The increase in advertising was primarily
attributable to the promotion of the new scheduled service destinations added in
2002 and the promotion of low fares in a market that had less demand for air
service. The Company also increased advertising in an effort to increase
consumer preference for the Company's enhanced product, especially in its
important Chicago-Midway hub, which included a new advertising campaign
identifying the Company as 'An Honestly Different Airline.'
Insurance. The total cost of insurance increased 217.8% to $34.0 million in
2002, as compared to $10.7 million in 2001. Hull and liability insurance
premiums have increased $12.2 million since 2001. Immediately following the
September 11, 2001, terrorist attacks, the Company's insurer reduced the maximum
amount of insurance coverage they would underwrite for liability to persons
other than employees or passengers resulting from acts of terrorism, war,
hijacking, or other similar perils (war-risk coverage) and significantly
increased their premiums for this reduced coverage. Pursuant to the Air
Transportation Safety and System Stabilization Act and other enabling
legislation, the U.S. Government has issued supplemental war-risk coverage
to U.S. air carriers, including the Company.
Hull insurance increased $5.1 million in 2002, as compared to 2001. The
increase is mainly attributable to the increase in the Company's hull value
between periods due to the addition of
52
the new Boeing 737-800 and Boeing 757-300 aircraft. The increase is also
attributable to an increase in premium rates following the September 11, 2001
terrorist attacks. Expenses related to the Company's general insurance policies
increased $3.4 million in 2002, as compared to 2001, due primarily to an
increase in workers' compensation premiums and claims handling fees between
periods, and general increases in other miscellaneous policies between years.
Facilities and Other Rentals. The cost of facilities and other rentals
increased 11.9% to $22.6 million in 2002, as compared to $20.2 million in 2001.
Growth in facilities costs between periods was primarily attributable to
facilities at airport locations required to support new scheduled service
destinations added in late 2001 and 2002, and expanded services at existing
destinations.
Commissions. Commissions expense decreased 33.0% to $23.3 million in 2002,
as compared to $34.8 million in 2001.
The Company experienced a decrease in commissions of $3.8 million in 2002,
as compared to 2001, attributable to commissions paid to travel agents by ATALC,
which is consistent with the decrease in related revenue. In addition, scheduled
service commissions decreased $9.0 million in 2002 due to the elimination of
standard travel agency commissions for sales made after March 21, 2002. The
Company continues to pay special travel agency commissions targeted to specific
markets and periods of the year.
Ground Package Cost. Ground package cost decreased 33.9% to $27.9 million in
2002, as compared to $42.2 million in 2001, approximately proportional to the
decrease in ground package revenues. See the 'Ground Package Revenues' section
above for an explanation of the decline in both ground package sales and related
costs.
Special Charges. Special charges represent direct expenses which, due to the
events of September 11, 2001, were considered unusual in nature under the
provisions of APB Opinion 30, 'Reporting the Results of Operations -- Reporting
I the Effects of Disposal of a Segment of a Business, and the Extraordinary,
Unusual and Infrequently Occurring Events and Transactions' ('APB 30'). Special
charges in 2001 were $21.5 million, while no expenses were classified as special
charges in 2002. The 2001 special charges were comprised primarily of costs
associated with the decision shortly after September 11, 2001 to remove early
from service the Company's Boeing 727-200 fleet, some of which were leased;
costs associated with the Company's proposed transaction in which ATA Holdings
Corp. would have been taken private, which was substantially complete just prior
to September 11, 2001 attacks, as a result of which the Company lost financing;
and expenses directly associated with the FAA's temporarily-mandated suspension
of commercial flights on September 11, 2001, and for several days thereafter.
Also classified as special charges were increased hull and liability insurance
costs; additional advertising expense incurred as a direct result of September
11, 2001; interest expense related to debt incurred under the Company's credit
facility to provide operating cash after September 11, 2001; and other expenses
not individually significant. The special charges for 2001 are summarized in the
following table:
<Table>
<Caption>
AMOUNT
(IN THOUSANDS)
--------------
Boeing 727-200 exit costs................................... $ 3,764
Privatization costs......................................... 3,313
Costs due to FAA mandated suspension of flights............. 929
Increased hull and liability insurance costs................ 2,964
Increased advertising costs................................. 6,316
Increased interest expense.................................. 762
Other expenses.............................................. 3,477
-------
Total Special Charges for 2001.......................... $21,525
-------
-------
</Table>
By December 31, 2002, all but an immaterial amount of these special charges
had been paid.
Aircraft Impairments and Retirements. Aircraft impairment and retirement
costs decreased 43.8% to $66.8 million in 2002, as compared to $118.9 million in
2001. The following table summarizes the Company's aircraft impairments and
retirements in 2002 and 2001:
53
<Table>
<Caption>
2002 2003
---- ----
Boeing 727-200 impairment charge............................ $35,871 $ 44,484
Lockheed L-1011-50 and 100 impairment charge................ 7,638 67,820
Lockheed L-1011-50 retirements.............................. 9,029 6,564
Lockheed L-1011-500 retirement.............................. 14,249 --
------- --------
Aircraft impairments and retirements.................... $66,787 $118,868
------- --------
------- --------
</Table>
Goodwill Impairment. In accordance with FAS 142, the Company determined that
the fair value of the KTI brands was lower than the carrying amount and a
goodwill impairment loss of $6.9 million was recorded in the fourth quarter of
2002.
U.S Government Grants. The Company had recorded $66.3 million in U. S.
Government grant compensation as of December 31, 2001. This estimate was based
on guidance available from the DOT at the time for identifying those expenses it
deemed reimbursable. Throughout 2002, the Company discussed the calculation with
the DOT, and, as of December 31, 2002, had reversed approximately $16.2 million
of the accrued government reimbursement to revise its estimate of total U.S.
Government grant compensation to $50.1 million. In early 2003, the Company
received the last cash installment of grant reimbursement from the U.S.
Government, consistent with that estimate.
Interest Income and Expense. Interest expense in 2002 increased to $35.7
million, as compared to $30.1 million in 2001. The Company incurred $1.7 million
in 2002 in interest expense relating to the $168.0 million guaranteed loan
funded in November 2002. No such financing was in place in 2001. The Company
also capitalized $3.4 million less interest in 2002, as compared to 2001,
associated with new aircraft pre-delivery deposit requirements.
The Company invested excess cash balances in short-term government
securities and commercial paper and thereby earned $2.8 million in 2002, as
compared to $5.3 million in 2001. The decrease in interest income between years
is primarily due to a decline in the average interest rate earned.
Income Tax Expense. In 2002, the Company recorded an income tax credit of
$25.0 million applicable to $194.2 million in pre-tax loss, while in 2001 the
Company recorded an income tax credit of $39.8 million applicable to $116.1
million in pre-tax loss. The effective tax rate applicable to 2002 was 12.8%, as
compared to 34.2% in 2001.
As of December 31, 2002, the Company had incurred a three-year cumulative
loss. Because of this cumulative loss and the presumption under accounting
principles generally accepted in the United States 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 tax strategies, the Company has recorded a
full valuation allowance against its net deferred asset of $43.3 million. This
allowance adjustment, included in income tax expense, resulted in an effective
tax rate of 12.8% for a tax credit applicable to the loss incurred in 2002. As
of December 31, 2002, the Company had recorded an income tax refund receivable
of $15.8 million using a five-year carryback of alternative minimum tax
operating losses from 1997 to 2001. Payment for this refund was received in
March 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended 2003 with unrestricted cash of $160.6 million and a
restricted cash balance of $48.3 million, primarily securing letters of credit.
In addition, $57.5 million of cash on advanced ticket sales had been withheld by
the Company's bank card processor and was recorded as a receivable on the
Company's balance sheet as of December 31, 2003. The Company had $4.6 million in
aircraft pre-delivery deposits at the end of 2003. The Company had no revolving
credit facility and had no funds available through other unused financing
options.
Due to lower scheduled service revenues and higher fuel prices incurred in
the first quarter of 2004 than expected, and due to the significance of cash
required in the first quarter of 2004 to meet scheduled aircraft lease payments,
the Company expects to report less unrestricted cash on hand at March 31, 2004
than it reported at December 31, 2003.
54
Cash Flows. In 2003, net cash provided by operating activities was $93.8
million, as compared to net cash used in operating activities in 2002 of $59.0
million and net cash provided by operating activities of $144.4 million in 2001.
The change in cash provided by or used in operating activities between 2003 and
2002 primarily resulted from an increase in earnings, the receipt of $37.2
million under the Supplemental Act in May 2003, and favorable changes in
operating assets and liabilities, including the receipt of a $15.8 million
federal income tax refund in March 2003.
Net cash used in investing activities was $98.7 million in 2003, while net
cash provided by investing activities was $88.9 million and net cash used in
investing activities was $129.8 million, respectively, in the years ended
December 31, 2002 and 2001. Such amounts included an increase in non-current
prepaid aircraft rent of $75.3 million in 2003, as compared to $12.3 million and
$17.2 million in 2002 and 2001, respectively, reflecting significant cash rents
paid in 2003 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. In contrast, in 2001,
the Company paid $30.8 million in net aircraft pre-delivery deposits. In
addition, the Company had capital expenditures totaling $42.5 million, $59.3
million and $119.8 million in 2003, 2002 and 2001, 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.
Net cash used in financing activities was $34.6 million in 2003, while net
cash used in financing activities was $14.2 million, and net cash provided by
financing activities was $40.7 million, for the years ended December 31, 2002
and 2001, respectively. In all years, borrowings and repayments on short-term
and long-term debt impacted cash used in or provided by financing activities. 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 2001, the Company had net
borrowings of $28.4 million under these facilities. In 2002, the Company
obtained $168.0 million under a federally guaranteed loan. In 2002 and 2001, the
Company borrowed and repaid $192.5 million and $153.4 million in temporary debt,
respectively, related to the purchase of certain Boeing 737-800 and Boeing
757-300 aircraft. The Company provided $17.9 million to collateralize additional
letters of credit which was recorded as an increase in restricted cash in 2003.
BOND EXCHANGE AND LEASE AMENDMENTS
The terrorist attacks of September 11, 2001, and the generally weak economy
have had a negative impact on the Company's liquidity. The Company's new Boeing
aircraft are all leased and have higher fixed ownership costs than the older
fleets that they replaced. The terms of many of these aircraft operating leases
were determined before September 11, 2001, and 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 related lease terms. Consequently, the
Company made large cash lease payments on many of its aircraft in the year ended
December 31, 2003, which resulted in a substantial use of the Company's cash. As
of December 31, 2003, the Company was also scheduled to repay its 2004 Notes in
August 2004 and its 2005 Notes in December 2005.
On January 30, 2004, the Company successfully completed exchange offers and
issued Private Exchange 2009 Notes and cash consideration for certain of its
2004 Notes and issued Private Exchange 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 Private Exchange 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 Private Exchange 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 Private Exchange 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 remain outstanding after the completion of the exchange
offers. In connection with the exchange offers, the Company also obtained the
consent of the holders of the Existing Notes to amend or
55
eliminate all of the restrictive operating covenants and certain default
provisions of the indentures governing the Existing Notes. See 'Notes to
Consolidated Financial Statements -- Note 6 -- Debt' for additional information
about the exchange offers.
On January 30, 2004, the Company also completed the amendments of certain
aircraft operating leases with its three major lessors, BCSC, GECAS and ILFC.
The effect of the lease amendments was to delay the payment of portions of the
amounts due under those operating leases primarily between June 30, 2003 and
March 31, 2005 and to extend the leases generally for two years. Most of the
payments delayed during this time period will be subsequently paid at various
times throughout the remaining life of the leases. The Company 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 will also
result in approximately $69.6 million in lower cash payments during 2004 under
these operating leases, as compared to payments which would have been due under
the original lease terms. See 'Notes to Consolidated Financial Statements --
Note 7 -- Lease Commitments' for additional information about the Company's
operating leases.
The table below summarizes the significant items that will affect liquidity
in the year ending December 31, 2004, as a result of the exchange offers and
operating lease amendments in addition to deferring $155.3 million dollars of
the senior indebtedness previously due in August 2004:
<Table>
<Caption>
CASH SAVINGS
(OUTFLOWS)
----------
(IN THOUSANDS)
Refund of certain 2003 aircraft operating lease payments.... $29,806
Reduction in aircraft operating lease payments in 2004...... 69,546
Payment of cash consideration for 2004 Notes................ (7,765)
Payment of cash consideration for 2005 Notes................ (5,250)
Payment of preferred dividends accrued at December 31,
2003...................................................... (9,237)
Payment of fees related to exchange offers and lease
amendments in 2004........................................ (7,777)
Additional interest costs related to Exchange Offers........ (12,910)
-------
Total Net Cash Savings.................................. $56,413
-------
-------
</Table>
While the Company expects that adverse industry conditions are likely to
continue throughout 2004, the Company's management believes, that with the
completion of the exchange offers and operating lease amendments, the Company
has a viable plan to provide sufficient cash to fund operations for the next 12
months. The Company's plan continues to require focused marketing efforts on
those businesses and markets where the Company believes it can be a leading
provider, and the implementation of additional cost-saving initiatives the
Company believes will maintain its low-cost advantage. Although the Company
believes the assumptions underlying its 2004 financial projections are
reasonable, there are significant risks that could cause the Company's 2004
financial performance to be different than projected. These risks relate
primarily to further declines in demand for air travel, further increases in
fuel prices, the uncertain consequences of the major airline bankruptcies, the
possibility of other airline bankruptcy filings and the ongoing geopolitical
impacts of the conflicts in the Middle East.
Debt and Operating Lease Cash Payment Obligations. The Company is required
to make cash payments in the future on debt obligations and operating leases.
Although the Company is obligated on a number of long-term operating leases,
which are not recorded on the balance sheet under GAAP, the Company has no
off-balance sheet debt and does not guarantee the debt of any other party. The
following table summarizes the Company's contractual debt principal payments and
operating lease obligations after giving effect to the exchange offers and
operating lease amendments and the effect such obligations are expected to have
on its liquidity and cash flows in future periods.
56
<Table>
<Caption>
CASH PAYMENTS CURRENTLY SCHEDULED
--------------------------------------------------------------------
TOTAL 2004 2005 2006 2007-2008 AFTER 2008
----- ---- ---- ---- --------- ----------
(IN THOUSANDS)
Current and long-term debt... $ 526,076 $ 66,355 $ 70,712 $ 30,456 $ 81,180 $ 277,373
Lease obligations(1)......... 3,879,581 207,303 266,017 316,285 627,993 2,461,983
Expected future lease
obligations(2)............. 642,224 3,101 18,893 42,527 94,323 483,380
Redeemable preferred
stock(3)................... 50,000 -- -- -- -- 50,000
---------- -------- -------- -------- -------- ----------
Total contractual cash
obligations............ $5,097,881 $276,759 $355,622 $389,268 $803,496 $3,272,736
---------- -------- -------- -------- -------- ----------
---------- -------- -------- -------- -------- ----------
</Table>
- ---------
(1) 2004 lease obligations include a refund of approximately
$29.8 million related to lease payments made in 2003 due to
completion of the lease amendments on January 30, 2004. For
further discussion, see 'Financial Statements -- Notes to
Consolidated Financial Statements -- Note 2 -- State of the
Industry and Its Effects on the Company.'
(2) Represents estimated payments on nine new Boeing 737-800
aircraft the Company is committed to taking delivery of in
2004 and 2005, and four spare engines the Company is
committed to taking delivery of in 2005 through 2008. The
Company intends to finance these aircraft and engines with
operating leases. However, no such leases are in place as of
December 31, 2003, as the Company has not received the
aircraft and engines. Payments for expected future lease
obligations were estimated using leases for comparable
aircraft and engines currently in place. For further
discussion, see 'Financial Statements -- Notes to
Consolidated Financial Statements -- Note 13 -- Commitments
and Contingencies.'
(3) Represents the mandatory redemption of the 500 shares of
Series A Preferred in equal semiannual installments between
2010 and 2015. Amount excludes the mandatory redemption of
the 300 shares of Series B convertible preferred stock in
2015, as these shares can be converted into common stock at
any time up to the mandatory redemption date.
-------------------
Aircraft and Fleet Transactions. The Company has a purchase agreement with
Boeing to purchase directly from Boeing seven new Boeing 737-800s, which are
currently scheduled for delivery between July 2005 and December 2005. 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. The
Company'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 the
Company, and does not have suitable pre-delivery deposit financing, and if
Boeing does not elect to provide such financing suitable to the Company, these
deliveries can be delayed for one year periods annually for up to five years.
Aircraft pre-delivery deposits are required for these aircraft, and the Company
has historically funded these deposits for past aircraft deliveries using
operating cash and pre-delivery deposit finance facilities. The Company 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, 2003, the Company had $4.6 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 are expected to be returned to the Company. As of December 31,
2003, the Company also has purchase rights with Boeing for 40 Boeing 737-800
aircraft.
The Company has an agreement to lease one additional Boeing 737-800 under an
operating lease from ILFC, which is currently scheduled for delivery in May
2004.
The Company also has an agreement with GECAS to lease one additional Boeing
737-800 currently scheduled for delivery in November 2004.
The Company has an agreement with General Electric to purchase four spare
engines CFM56-7B27 engines, which are currently scheduled for delivery between
2005 and 2008.
57
In May 2002, the Company entered into an agreement with AMR Leasing
Corporation to lease six SAAB 340B aircraft, with options to lease up to 10
additional aircraft. The Company took delivery of all six SAAB 340B aircraft
under this agreement in 2002.
The Company has a limited liability agreement with BCC-ELC forming BATA, a
50/50 joint venture. BATA is remarketing the Company's fleet of Boeing 727-200
aircraft in cargo configurations. In exchange for supplying the aircraft and
certain operating services to BATA, the Company has and expects to continue to
receive both cash and equity in the income or loss of BATA. As of December 31,
2003, the Company had transferred 23 of its fleet of Boeing 727-200 aircraft to
BATA.
Significant Financings. In November 2002, the Company obtained a $168.0
million secured term loan, of which $148.5 million is guaranteed by the ATSB.
Interest is payable monthly at LIBOR plus a margin. Guarantee fees payable
quarterly were 5.5% of the outstanding guaranteed principal balance in 2003,
escalating to 9.5% on the outstanding guaranteed principal balance in 2004
through 2008. The net proceeds of the term loan were approximately $164.8
million, after deducting issuance costs. The Company used a portion of the net
proceeds to repay borrowings on its existing revolving bank credit facility and
to collateralize new letters of credit, previously secured by the bank facility.
The additional secured term loan proceeds of approximately $104.7 million were
used for general corporate purposes.
The secured term 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 $39.3
million as of December 31, 2003. The aircraft, spare engines and parts consist
of two Lockheed L-1011-500 aircraft, one Lockheed L-1011-50 aircraft, two Saab
340B aircraft, 24 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 $67.5 million as of December 31, 2003.
In conjunction with obtaining the secured term loan, the Company issued a
warrant to the Federal Government 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 giving rise to a discount on the loan. (See
'Financial Statements -- Notes to Consolidated Financial Statements -- Note
10 -- Shareholders' Deficit.') The amortization of the discount resulted in an
increase in the effective rate of interest on the secured term loan, which was
3.4% as of December 31, 2003 and 3.2% as of December 31, 2002.
Card Agreement. The Company accepts charges to most major credit and debit
cards ('cards') as payment from its customers. Approximately 90% of scheduled
service and vacation package sales are purchased using these cards. More than
half of these card sales are made using MasterCard or Visa cards. The Company
maintains an agreement with a bank for the processing and collection of charges
to these cards. Under this agreement, a sale is normally charged to the
purchaser's card account and is paid to the Company in cash within a few days of
the date of purchase, although the Company may provide the purchased services
days, weeks or months later. In 2003, the Company processed approximately $753.8
million in MasterCard and Visa charges under its merchant processing agreement.
On September 21, 2001, the bank notified the Company that it had determined
that the terrorist attacks of September 11, 2001, the ensuing grounding of
commercial flights by the FAA, and the significant uncertainty about the level
of future air travel entitled the bank to retain cash collected by it on
processed card charges as a deposit, up to 100% of the full dollar amount of
purchased services to be provided at a future date. 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 bank. The deposit secures this potential obligation of
the bank to make such refunds.
The bank exercised its right to withhold distributions beginning shortly
after its notice to the Company. As of December 31, 2003, the bank had withheld
$57.5 million in cash. As of December 31, 2002, the bank had withheld $30.0
million in cash. The deposits as of December 31,
58
2003, and December 31, 2002 constituted approximately 100% and 60%,
respectively, of the Company's total future obligations to provide services
purchased by charges to MasterCard or Visa card accounts as of those dates. The
bank's right to maintain a deposit does not terminate unless, in its reasonable
judgment and at its sole discretion, it determines that a deposit is no longer
required.
The Company has the right to terminate its agreement with the bank upon
providing 90 days' notice, as does the bank. In the event of such termination,
the bank may retain a deposit equal to the amount of purchased services not yet
performed, for up to 24 months from the date of termination.
On October 10, 2003, the Company amended its agreement with its credit card
processing bank to reflect an extension for the processing and collection of
sales charged on MasterCard and Visa cards until December 31, 2004. In order to
secure this extension, the Company agreed to increase the amount of pre-paid
sales that the bank holds on deposit from 60% to 100%. The effect of increasing
this percentage was to reduce the Company's cash balance by approximately $23.0
million between September 30, 2003, and December 31, 2003, as compared to what
the Company estimates its cash balance would have been with a 60% holdback of
prepaid sales.
On March 1, 2004, the Company amended its agreement with its credit card
processing bank to reflect a further extension for the processing of sales
charges on MasterCard and Visa cards until March 31, 2005. The credit card
processing bank agreed to reduce the holdback percentage for sales for future
travel to 75% effective with the execution of the amendment. The effect of
decreasing the holdback percentage from 100% to 75% increased the Company's cash
balance by approximately $21 million based on the holdback balance at March 1,
2004. The amended agreement provides quarterly financial covenants under which
the Company may maintain a holdback at 75% or 50% of sales for future travel,
but at no time during the life of the amendment will the holdback be lower than
50% of sales for future travel. However, the Company can provide no assurances
that it will be able to maintain the percentage of holdback below 100% in future
periods under this amendment.
Although the Company continues to process significant dollar amounts of
ticket sales using credit cards other than MasterCard and Visa, as of December
31, 2003, no cash deposit requirements had been implemented by the issuers or
processors of those cards.
Surety Bonds. The Company has historically provided surety bonds to airport
authorities and selected other parties, to secure the Company's obligation to
these parties. The DOT requires the Company to provide a surety bond or an
escrow to secure potential refund claims of charter customers who have made
prepayments to the Company for future transportation.
The Company has also historically provided both escrow arrangements and a
surety bond to the DOT, but most recently has used a surety bond to meet its DOT
charter obligations. Prior to the terrorist attacks of September 11, 2001, the
Company had provided a letter of credit of $1.5 million as security to its
surety bond issuer for its total estimated surety bond obligations, including
the DOT charter obligations. Effective January 16, 2002, the issuer implemented
a requirement for the Company's letter of credit to secure 100% of estimated
surety bond obligations, which totaled $19.8 million at that date. The Company's
letter of credit was adjusted accordingly, and the Company has been subject to
further adjustments of its letter of credit, based upon further revisions to the
estimated liability for total surety bonds outstanding. The cash pledged to
secure the Company's letter of credit is included in restricted cash on the
accompanying balance sheets. 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, 2003, the Company has $6.9 million in
advance charter receipts deposited in escrow, which was included in restricted
cash on the Company's balance sheet as of that date. As of December 31, 2003,
the Company also continued to maintain a letter of credit for $15.2 million
securing the DOT charter obligations surety bond, pending formal release from
those obligations of the issuer of the surety bond by the DOT. This release was
provided by
59
the DOT in February 2004, and the letter of credit was subsequently cancelled,
and the restricted cash securing that letter of credit was returned to the
Company.
As of December 31, 2003, the Company's restricted cash pledged to secure its
letters of credit for all surety bonds, including its DOT charter obligations,
was $41.4 million, and cash deposited in escrow for DOT charter obligations
totaled $6.9 million.
FUTURE ACCOUNTING CHANGES
In January 2003, the FASB issued Interpretation No. 46, 'Consolidation of
Variable Interest Entities' ('FIN 46'). The FASB amended FIN 46 in December
2003. FIN 46, as amended, requires that companies ('primary beneficiaries') that
absorb a majority of a variable interest entity's ('VIE') losses, or receive a
majority of a VIEs residual returns, consolidate the entity. The accounting
provisions of FIN 46 are required to be applied to VIEs within the first quarter
ending after March 15, 2004. The related disclosure requirements were effective
upon issuance of FIN 46. The Company does not expect FIN 46 to have a material
impact on the Company.
The Company has identified BATA as a VIE under FIN 46 in which the Company
has a significant variable interest. The Company has determined that it is not
the primary beneficiary of BATA under FIN 46 and is not required to consolidate
BATA. As of December 31, 2003, the investment in BATA on the Company's
consolidated balance sheet was $14.7 million.
See 'Notes to Consolidated Financial Statements -- Note 19 -- Recently
Issued Accounting Pronouncements' for a discussion of recently issued accounting
pronouncements impacting the Company.
FORWARD-LOOKING INFORMATION AND RISK FACTORS
Information contained within 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' includes forward-looking
information which can be identified by forward-looking terminology such as
'believes,' 'expects,' 'may,' 'will,' 'should,' 'anticipates,' or the negative
thereof, or other variations in comparable terminology. Such forward-looking
information is based upon management's current knowledge of factors affecting
the Company's business. The differences between expected outcomes and actual
results can be material, depending upon the circumstances. Where the Company
expresses an expectation or belief as to future results in any forward-looking
information, such expectation or belief is expressed in good faith and is
believed to have a reasonable basis. The Company can provide no assurance that
the statement of expectation or belief will result or will be achieved or
accomplished.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Such factors include, but are not limited to, the following:
economic conditions;
threat of future terrorist attacks;
labor costs;
aviation fuel costs;
competitive pressures on schedules and pricing;
weather conditions;
governmental legislation and regulation;
consumer perceptions of the Company's products;
demand for air transportation overall and specifically in
markets in which the Company operates;
higher costs associated with new security directives;
higher costs for insurance and the continued availability of
such insurance;
60
the Company's ability to raise additional financing and to
refinance existing borrowings upon maturity;
declines in the value of the Company's aircraft, as these
may result in lower collateral value and additional
impairment charges; and
other risks and uncertainties listed from time to time in
reports the Company periodically files with the Securities
and Exchange Commission ('SEC').
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.
RELATED PARTY TRANSACTIONS
For information on the Company's related party transactions see 'Notes to
Consolidated Financial Statements -- Note 18 -- Related Party Transactions.'
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 statements.
AIRCRAFT FUEL PRICES. The Company's results of operations are significantly
impacted by changes in the price of aircraft fuel. During 2003, aircraft fuel
accounted for approximately 19.2% of the Company's operating expenses, as
compared to 14.4% in 2002. The Company obtains fuel price fluctuation protection
from escalation clauses in certain commercial charter, military charter and bulk
scheduled service. During 2002 and 2001, 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% and 30%
of its total gallons consumed in 2002 and 2001, respectively. As of
December 31, 2003, the Company had no outstanding fuel hedge agreements.
Market risk is estimated as a hypothetical 10% increase in the December 31,
2003, cost per gallon of fuel. Based on projected 2004 fuel usage, excluding
anticipated protection from escalation clauses, such a change would result in an
increase in aircraft fuel expense of approximately $26.5 million. As of
December 31, 2002, that risk was $19.4 million.
INTEREST RATES. The Company's results of operations are affected by
fluctuations in market rates. 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. As of December 31, 2002, the
majority of the Company's variable-rate debt was comprised of approximately
$168.0 million and $8.4 million, respectively, of variable-rate debt through
the secured term loan and debt funding aircraft pre-delivery deposits. If
interest rates average 100 basis points more on variable-rate debt in 2004,
as compared to 2003 average rates, the Company's interest expense would
increase by approximately $1.6 million. In comparison, if interest rates
averaged 100 basis points more on variable-rate debt in 2003, as compared to
2002 average rates, the Company's interest expense would have increased by
approximately $1.8 million.
As of December 31, 2003 and 2002, the majority of the Company's fixed-rate
debt was comprised of unsecured debt with a carrying value of $300.0 million.
Based upon a calculation of discounted future cash flows using current
incremental borrowing rates as of the end of the year for similar types of
instruments, the fair value as of December 31, 2003, of this fixed-rate debt is
estimated to be approximately $306.0 million. After giving effect to the
exchange offers that were completed on January 30, 2004, the fair value of this
fixed-rated debt including the additional notes is estimated to be approximately
$406.0 million. See 'Notes to Consolidated Financial Statements -- Note 2 --
State of the Industry and Its Effect on the Company' for additional information
on the exchange offers. Market risk, estimated as the potential increase in fair
value resulting from a hypothetical 100 basis point decrease in market interest
rates, was approximately $10.0 million as of December 31, 2003. As of
December 31, 2002, that risk was approximately $32.5 million.
In 2003, the averaged rate for the Company's short-term investments was less
than one percent. If average short-term interest rates decreased to zero
percent, the Company's interest income from short-term investments would have
decreased by approximately $1.4 million as of December 31, 2003. In comparison,
the Company estimated that if average short-term interest rates decreased by
100 basis points as compared to 2002 average rates, the Company's interest
income from short-term investments would have decreased by approximately $2.0
million as of December 31, 2002.
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, 2003 and 2002.
61
BUSINESS
COMPANY OVERVIEW
ATA Holdings Corp. (the 'Company') owns ATA Airlines, Inc. ('ATA'), the
tenth largest passenger airline in the United States, based upon 2003 capacity
and traffic. The Company is a leading provider of low-cost scheduled airline
services, is the largest commercial charter airline in the United States based
upon revenues for the twelve months ended September 30, 2003, and is one of the
largest providers of passenger airline services to the U.S. military, based upon
2003 revenue. The Company was incorporated in Indiana in 1984.
The following table summarizes the Company's revenue sources for the periods
indicated:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
Scheduled Service......................... $1,085.4 $ 886.6 $ 820.7 $ 753.3 $ 624.6
-------- -------- -------- -------- --------
Military Charter.......................... 296.9 177.9 167.5 188.6 126.2
Commercial Charter........................ 69.3 131.3 192.2 246.7 263.8
-------- -------- -------- -------- --------
Total Charter Service................. 366.2 309.2 359.7 435.3 390.0
-------- -------- -------- -------- --------
Other..................................... 66.9 81.6 95.1 103.0 107.8
-------- -------- -------- -------- --------
Total................................. $1,518.5 $1,277.4 $1,275.5 $1,291.6 $1,122.4
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Percentage of Consolidated Revenues:
Scheduled Service..................... 71.5% 69.4% 64.3% 58.3% 55.7%
Military Charter...................... 19.6% 13.9% 13.1% 14.6% 11.2%
Commercial Charter.................... 4.6% 10.3% 15.1% 19.1% 23.5%
</Table>
SCHEDULED SERVICE
The Company provides scheduled airline services on selected routes where it
believes that it can be a leading carrier in those markets. The Company
currently provides scheduled service primarily from its gateway cities of
Chicago-Midway and Indianapolis to popular vacation and business destinations
such as Phoenix, Las Vegas, Florida, California, Mexico and the Caribbean, as
well as to New York's LaGuardia Airport, Philadelphia, Denver, Dallas-Ft. Worth,
Washington, D.C., Boston, Seattle, Minneapolis-St. Paul, Newark, Charlotte and
Pittsburgh. The Company also provides transpacific service between the Western
United States and Hawaii. The Company had provided transcontinental service
between San Francisco and New Jersey beginning in October 2003, but that service
ended in March 2004.
The Company owns all of the issued and outstanding stock of Chicago Express
Airlines, Inc. ('Chicago Express'), which currently operates a fleet of 17 SAAB
340B 34-seat propeller aircraft and provides commuter passenger scheduled
service between Chicago-Midway and the cities of Indianapolis, Cedar Rapids,
Dayton, Des Moines, Flint, Grand Rapids, Lexington, Madison, Milwaukee, Moline,
Toledo, South Bend and Springfield. The Company has subsequently announced that
effective May 31, 2004 it will end service to Cedar Rapids and Lexington, and it
will begin service to Ft. Wayne on June 1.
Included in the Company'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. The Company sells the remaining seats through
its own scheduled service distribution network. Under bulk-seat sales
arrangements, the Company is obligated to provide transportation to the tour
operators' customers even in the event of non-payment to the Company by tour
operators. To reduce its credit exposure under these arrangements, the Company
requires a letter of credit or prepayment of a portion of the contract price.
62
MILITARY/GOVERNMENT CHARTER SERVICE
The Company 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 because the military contract provides
full reimbursement for actual fuel expenses, they have a stabilizing impact on
the Company's operating margins. The U.S. Government awards one-year contracts
for its military charter business and pre-negotiates contract prices for each
type of aircraft that a carrier makes available. Each contract year extends from
October 1 through September 30. The Company primarily uses its fleet of four
Lockheed L-1011-500 aircraft and two Lockheed L-1011-50 and 100 aircraft to
support this military business since these aircraft have a range and seating
configuration preferred by the military. It is expected that one L-1011 aircraft
will be retired from service in the second half of 2004. The Company also uses
several Boeing 757 aircraft in its military charter services, and expects to add
several more Boeing 757 aircraft to its military business in 2004.
The Company 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
The Company provides commercial passenger charter airline services,
primarily through U.S. tour operators. The most significant portion of
commercial charter revenue in recent years has been derived from contracts with
tour operators for repetitive, leisure-oriented round-trip patterns, operating
over varying periods of time. Under such contracts, the tour operator pays a
fixed price for use of the aircraft and assumes responsibility and risk for the
actual sale of the available aircraft seats. Under most of its contracts with
tour operators, the Company passes through some increases in fuel costs from a
contracted price. The Company is required to absorb increases in fuel costs that
occur within 14 days of flight time.
Beginning in 2001, commercial charter revenue has declined significantly,
primarily due to the retirement of certain Lockheed L-1011 and Boeing 727-200
aircraft that the Company had traditionally used in commercial charter flying.
The Company's replacement fleets of new 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 operate commercial charter flights profitably. Consequently, the
Company expects future commercial charter revenue to continue to represent a
declining percentage of total revenue.
INDUSTRY OVERVIEW AND RECENT DEVELOPMENTS
The terrorist attacks of September 11, 2001, and generally weak economic
conditions of the past several years have adversely affected the Company and the
airline industry. The industry as a whole, and the Company, suffered very
significant financial losses in the years ended December 31, 2002, and 2001.
While the Company realized net income for the year ended December 31, 2003, that
net income was favorably impacted by the Company's receipt in the second quarter
of 2003 of $37.2 million in U.S. Government funds in conjunction with the
Emergency Wartime Supplemental Appropriations Act ('Supplemental Act'). The
Supplemental Act was signed into law in April 2003, and made available $2.3
billion in reimbursements to U.S. air carriers for expenses incurred and revenue
foregone related to federally mandated enhanced aviation security subsequent to
September 11, 2001.
During 2002, two major air carriers, US Airways Group and UAL Corporation,
filed for reorganization under Chapter 11 of the United States Bankruptcy Code.
US Airways Group emerged from bankruptcy protection in March 2003. Historically,
air carriers involved in reorganizations have substantially reduced their fares,
which could reduce airline yields further from current levels. Certain air
carriers have sought to reduce financial losses, at least partially, by
63
reducing their seat capacity. As this has been accomplished by eliminating
aircraft from operating fleets, the fair value of aircraft, including aircraft
owned by the Company, has been adversely affected. The Company has recorded
substantial charges to earnings resulting from fleet retirements and impairments
over the past three years. However, during this period, the Company has
substantially replaced its fleet of aging aircraft with new fuel-efficient
Boeing aircraft.
In addition to the funds received in the second quarter of 2003, the Company
has benefited from some of the U.S. Government's other initiatives for assisting
the airline industry. Most significant to the Company was the Air Transportation
Safety and System Stabilization Act ('Act') passed in 2001, which provided for,
among other things, up to $5.0 billion in compensation to U.S. airlines and air
cargo carriers for direct and incremental losses resulting from the September
11, 2001 terrorist attacks and the availability of up to $10.0 billion in U.S.
Government guarantees of certain loans made to air carriers, which are
administered by the newly established Air Transportation Stabilization Board
('ATSB'). The Company received $50.1 million of U.S. Government grant
compensation under the Act, of which the final payment of $6.2 million was
received in the first quarter of 2003. The Company also obtained a $168.0
million secured term loan in November 2002, of which $148.5 million is
guaranteed by the ATSB. See 'Notes to Consolidated Financial Statements --
Note 6 -- Debt' and 'Notes to Consolidated Financial Statements -- Note 10 --
Shareholders' Deficit' for additional information about the ATSB loan.
The terrorist attacks of September 11, 2001 and the generally weak economy
have also had a negative impact on the Company's liquidity. The Company's new
Boeing aircraft are all leased and have higher fixed-ownership costs than the
older fleets that they replaced. The terms of many of these aircraft operating
leases were determined before September 11, 2001, and 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 related lease terms. Consequently, the
Company made large cash lease payments on many of its aircraft in the year ended
December 31, 2003, which resulted in a substantial use of the Company's cash. As
of December 31, 2003, the Company was also scheduled to repay the $175 million
outstanding principal of its 2004 Notes in August 2004 and the $125 million
outstanding principal of its 2005 Notes in December 2005.
On January 30, 2004, the Company successfully completed exchange offers and
issued the Private Exchange 2009 Notes and cash consideration for certain of its
2004 Notes and issued the Private Exchange 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 Private Exchange 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 Private Exchange 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 Private Exchange 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 remain outstanding after the completion of the exchange
offers. In connection with the exchange offers, the Company also obtained the
consent of the holders of the Existing Notes to amend or eliminate all of the
restrictive operating covenants and certain default provisions of the indentures
governing the Existing Notes. See 'Notes to Consolidated Financial Statements --
Note 6 -- Debt' for additional information about the exchange offers.
On January 30, 2004, the Company 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 effect of the lease
amendments was to delay the payment of portions of the amounts due under those
operating leases primarily between June 30, 2003, and March 31, 2005 and to
extend the leases generally for two years. Most of the payments delayed during
this time period will be subsequently paid at various times throughout the
remaining life of the leases.
64
The Company 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 will also result in approximately $69.6 million
in lower cash payments during 2004 under these operating leases, as compared to
payments which would have been due under the original terms. See 'Notes to
Consolidated Financial Statements -- Note 7 -- Lease Commitments' for additional
information about the Company's operating leases.
While the Company expects that adverse industry conditions are likely to
continue throughout 2004, the Company's management believes that with the
completion of the exchange offers and operating lease amendments the Company has
a viable plan to provide sufficient cash to fund operations for the next 12
months. The Company's plan continues to require focused marketing efforts on
those businesses and markets where the Company believes it can be a leading
provider and the implementation of additional cost-saving initiatives the
Company believes will maintain its low-cost advantage. Although the Company
believes the assumptions underlying its 2004 financial projections are
reasonable, there are significant risks that could cause the Company's 2004
financial performance to be different than projected. These risks relate
primarily to further declines in demand for air travel, further increases in
fuel prices, the uncertain consequences of the major airline bankruptcies, the
possibility of other airline bankruptcy filings and the ongoing geopolitical
impact of the conflicts in the Middle East.
COMPANY STRATEGY
The Company intends to combat the adverse industry conditions by enhancing
its position as a leading provider of passenger airline services in selected
markets where it can capitalize on its competitive strengths. The key components
of this strategy are:
PARTICIPATE IN MARKETS WHERE IT CAN BE A LEADER
The Company generally focuses on markets where it can be a leading provider
of airline services. In scheduled service, the Company concentrates on routes
where it can be the number one or number two carrier. The Company achieves this
result principally through nonstop schedules, value-oriented pricing, focused
marketing efforts and certain airport and aircraft advantages. The Company is a
leading provider of commercial and military charter services in large part
because of its variety of aircraft types, superior operational performance and
its worldwide service capability. The Company intends to expand its operations
selectively in areas where it believes it can achieve satisfactory financial
returns.
MAINTAIN LOW-COST POSITION AND MAXIMIZE AIRCRAFT UTILIZATION
For 2003, 2002 and 2001, the Company's consolidated operating cost per
available seat mile ('CASM') of 6.82(cent), 8.17(cent) and 8.45(cent),
respectively, was one of the lowest among large U.S. passenger airlines. The
Company believes that its lower costs provide a significant competitive
advantage. Supplementing the Company's cost-control initiatives is the
enhancement of aircraft utilization, or the average number of hours flown per
aircraft per day. This strategy has become increasingly important with the
delivery of many new aircraft in the last several years.
COMPETITION
The Company's products and services encounter varying degrees of competition
in the markets it serves.
COMPETITION FOR SCHEDULED SERVICES
In scheduled service, the Company competes both against the large U.S.
scheduled service airlines and against smaller regional or start-up airlines.
Competition is generally on the basis of price, schedule and frequency, quality
of service and convenience.
65
The Company believes that it has significant competitive advantages in each
of its primary markets.
Chicago-Midway, the Company's largest and fastest growing
gateway, represented approximately 67.1% of the Company's
total scheduled service capacity in 2003. The Company is the
number one carrier in terms of market share, based upon
third quarter 2003 origin and destination revenue
passengers, on 18 of the 24 nonstop jet routes it serves
from Chicago-Midway. The Company believes its service at
this gateway would be difficult to replicate because of
limited airport capacity. This competitive position is
enhanced by the customer convenience of Chicago-Midway's
proximity to downtown Chicago. The Company also enjoys a
strong competitive position relative to the entire Chicago
metropolitan area.
Indianapolis represented approximately 13.3% of the
Company's total scheduled service capacity in 2003. The
Company believes that it benefits from being perceived as
the hometown airline. The Company is the number one provider
in terms of market share, based upon third quarter 2003
origin and destination revenue passengers, in seven of its
nine jet routes from Indianapolis. In Indianapolis, the
Company operates Ambassadair Travel Club, Inc.
('Ambassadair'), the nation's largest travel club, with
approximately 32,000 individual or family memberships,
providing the Company with another local marketing
advantage.
Hawaii represented approximately 12.9% of the Company's
total scheduled service capacity in 2003. A majority of the
Company's capacity in the Hawaiian market is contracted to
the nation's largest independent Hawaiian tour operator,
which assumes capacity, yield and most fuel-price risk. The
Company believes it is the lowest-cost provider of scheduled
service between the western United States and Hawaii, which
is critical in this price-sensitive, predominantly leisure
market.
COMPETITION FOR MILITARY/GOVERNMENT CHARTER SERVICES
The Company competes for military and other government charters primarily
with smaller U.S. airlines. 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.
COMPETITION FOR COMMERCIAL CHARTER SERVICES
In the commercial charter market, the Company competes both against the
major U.S. scheduled airlines and against small U.S. charter airlines. The
scheduled carriers compete with the Company'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.
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 the Company's fixed bases is coordinated through its global
communications network. The Company has the ability to dispatch maintenance and
operational personnel and equipment as necessary to support temporary operations
around the world.
The Company's Maintenance and Engineering Center is located at Indianapolis
International Airport. This facility is an FAA-certificated repair station and
has the capability to perform routine and non-routine maintenance on the
Company's aircraft. The Company 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. The Company has approximately
1,000 employees supporting its aircraft maintenance operations and currently
maintains 17 permanent maintenance facilities, including its Indianapolis and
Chicago facilities.
66
FUEL PRICE RISK MANAGEMENT
The Company has fuel reimbursement clauses and guarantees which applied to
approximately 29.0%, 29.4%, and 32.0%, respectively, of consolidated revenues in
2003, 2002 and 2001. The Company occasionally enters into fuel-hedging contracts
to reduce volatility of fuel prices for a portion of its scheduled service fuel
needs. However, the Company did not enter into any fuel-hedging contracts in
2003 and as of December 31, 2003, the Company had no outstanding fuel hedge
contracts.
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.
Immediately following the September 11, 2001 terrorist attacks, the
Company's aviation insurers, and other air carriers' aviation insurers, reduced
the maximum amount of liability insurance coverage for losses related to persons
other than passengers and employees, resulting from acts of terrorism, war,
hijacking or other similar perils (war-risk coverage) and significantly
increased their premiums for this reduced coverage. Pursuant to the Air
Transportation Safety and System Stabilization Act ('Act') and other enabling
legislation, the U.S. Government has issued supplemental war-risk coverage to
U.S. air carriers, including the Company, which will continue through 2004. It
is anticipated that after this date, a commercial product for war-risk coverage
will become available, but the Company expects that it may incur significant
additional costs for this coverage.
EMPLOYEES
As of December 31, 2003, the Company had approximately 7,900 full-time and
part-time employees, approximately 2,900 of whom were represented under
collective bargaining agreements. The Company's flight attendants are
represented by the Association of Flight Attendants ('AFA'). The current
collective bargaining agreement with the AFA will become subject to amendment,
but will not expire, in October 2004. The Company's cockpit crews are
represented by the Air Line Pilots Association ('ALPA'). The current collective
bargaining agreement with the ALPA will become subject to amendment, but will
not expire, in June 2006. The Company's flight dispatchers are represented by
the Transport Workers Union ('TWU'). The current collective agreement with the
TWU will become subject to amendment, but will not expire, in August 2004. The
Company's ramp service agents elected to be represented by the International
Association of Machinists ('IAM') in February 2001. The Company began
negotiations with the IAM in May 2001, but no collective bargaining agreement
has been finalized. In February 2002, the Company's aircraft mechanics elected
to be represented by the Aircraft Mechanics Fraternal Association ('AMFA'). The
Company began negotiations with the AMFA in October 2002, but no collective
bargaining agreement has been finalized. While the Company believes that
relations with its employees are good, any prolonged dispute with employees,
whether or not represented by a union, could have an adverse impact on the
Company's operations.
REGULATION
The Company is subject to a wide range of governmental regulation, including
that of the 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 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.
67
In 2001, the Aviation and Transportation Security Act ('Aviation Security
Act') was signed into law, 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. Air carriers, including the Company, began
collecting the fee on ticket sales in February 2002. The Aviation Security Act
is also funded by a separate security infrastructure fee assessed to each air
carrier beginning in the second quarter of 2002. 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. In May 2003, the Company received a refund of
$37.2 million in security fees and infrastructure fees paid prior to that date,
and collection of the security fees was temporarily suspended from June through
September 2003.
Several aspects of airline operations are subject to regulation or oversight
by federal agencies other than the DOT and FAA. The United States Postal Service
has jurisdiction over certain aspects of the transportation of mail and related
services provided by the Company through ATA Cargo, Inc. ('ATA Cargo'). Labor
relations in the air transportation industry are generally regulated under the
Railway Labor Act, which vests in the National Mediation Board certain
regulatory powers with respect to disputes between airlines and labor unions
arising under collective bargaining agreements. The Company is subject to the
jurisdiction of the Federal Communications Commission regarding the utilization
of its radio facilities. In addition, the Immigration and Naturalization
Service, the U.S. Customs Service, and the Animal and Plant Health Inspection
Service of the Department of Agriculture have jurisdiction over inspection of
the Company's aircraft, passengers and cargo to ensure the Company's compliance
with U.S. immigration, customs and import laws. Also, while the Company's
aircraft are in foreign countries, they must comply with the requirements of
similar authorities in those countries. The Commerce Department also regulates
the export and re-export of the Company's U.S.-manufactured aircraft and
equipment.
In addition to various federal regulations, local governments and
authorities in certain markets have adopted regulations governing various
aspects of aircraft operations, including noise abatement, curfews and use of
airport facilities. Many U.S. airports have adopted 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, the
Company, as a charter carrier, is generally not restricted as to the frequency
of its flights to and from most foreign destinations. However, these agreements
generally restrict the Company to the carriage of passengers and cargo on
flights which either originate in the U.S. and terminate in a single foreign
nation, or which originate in a single foreign nation and terminate in the U.S.
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 authority granted by the DOT and its air
carrier-operating certificate issued by the FAA. A modification, suspension or
revocation of any of the Company's DOT or FAA authorizations or certificates
could have a material adverse effect upon the Company.
ENVIRONMENTAL MATTERS
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
68
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 its 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 business, financial condition or
results of operations.
PROPERTIES
AIRCRAFT FLEET
At December 31, 2003, 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 2003.
<Table>
<Caption>
OWNED (ENCUMBERED- OPERATING LEASE OPERATING LEASE
PLEDGED ON DEBT) (FIXED BUY-OUT) (NO BUY-OUT) TOTAL
---------------- --------------- ------------ -----
Lockheed L-1011-50 and 100..... 1 -- 1 2
Lockheed L-1011-500............ 4 -- -- 4
Boeing 737-800................. -- 18 14 32
Boeing 757-200................. -- 14 1 15
Boeing 757-300................. -- 12 -- 12
SAAB 340B...................... 2 15 -- 17
-- -- -- --
TOTAL...................... 7 59 16 82
-- -- -- --
-- -- -- --
</Table>
Lockheed L-1011-50 and 100 Aircraft
The Company's two Lockheed L-1011-50 and 100 aircraft are wide-body
aircraft. The L-1011-50 has a range of 2,971 nautical miles and the L-1011-100
has a range of 3,425 nautical miles. These aircraft have a low ownership cost
relative to other wide-body aircraft types. The fleet has an average age of
approximately 26 years.
69
Lockheed L-1011-500 Aircraft
The Company's four Lockheed L-1011-500 aircraft are wide-body aircraft and
have a range of 5,577 nautical miles. These aircraft have a low ownership cost
relative to other wide-body aircraft types. The fleet has an average age of
approximately 22 years.
Boeing 737-800 Aircraft
The Company's 32 Boeing 737-800 aircraft are narrow-body aircraft and have a
range of 2,500 nautical miles. These aircraft have higher ownership costs than
the Company's Lockheed L-1011 fleet but lower operational costs resulting from
reduced fuel consumption and lower maintenance and cockpit crew costs, and
improved operating reliability. The fleet has an average age of approximately 2
years, and the leases on these aircraft have terms that expire between May 2017
and December 2024.
Boeing 757-200 Aircraft
The Company's 15 Boeing 757-200 aircraft are narrow-body aircraft, all of
which have a range of 3,679 nautical miles. These aircraft also have higher
ownership costs than the Company's Lockheed L-1011 aircraft, but lower
operational costs. In addition, the Company's Boeing 757-200s have the capacity
to operate on extended flights over water. The fleet has an average age of
approximately 5 years, and the leases on these aircraft have terms that expire
between April 2008 and May 2022.
Boeing 757-300 Aircraft
The Company's 12 Boeing 757-300 aircraft are narrow-body aircraft and have a
range of 2,700 nautical miles. These aircraft also have higher ownership costs
than the Company's Lockheed L-1011 aircraft but lower operational costs. The
Company's Boeing 757-300s have the capability to operate on extended flights
over water. The fleet has an average age of approximately 2 years, and the
leases on these aircraft have terms that expire on various dates between August
2023 and September 2024.
SAAB 340B Aircraft
The Company's 17 SAAB 340B aircraft are commuter aircraft with twin
turboprop engines. These 34-seat aircraft have an average age of approximately
12.5 years and the leases on 15 of these aircraft have lease terms that expire
between September 2009 and March 2012.
GROUND PROPERTIES
The Company leases three adjacent office buildings in Indianapolis
consisting of approximately 136,000 square feet, under leases that expire in
2007. These buildings are located approximately one mile from the Indianapolis
International Airport terminal and are used as principal business offices and
for the Indianapolis reservations center.
The Company's Maintenance and Operations Center is also located at
Indianapolis International Airport. This 150,000-square-foot facility was
designed to meet the base maintenance needs of the Company's operations, as well
as to provide support services for other maintenance locations. In addition, the
Company utilizes a 120,000-square-foot office building immediately adjacent to
the Company's Indianapolis Maintenance and Engineering Center which is occupied
by its Maintenance and Engineering office staff along with the Company's flight
operations center.
The Company leases Hangar No. 2 at Chicago's Midway Airport for an initial
lease term expiring in 2005, subject to two five-year renewal options. This
property is used to perform line maintenance on the Company's narrow-body
fleets. The Company also leases an 18,700-square-foot reservation facility
located near Chicago's O'Hare Airport.
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The Company routinely leases various properties at airports for use by
passenger service, flight operations and maintenance staffs.
LEGAL PROCEEDINGS
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.
71
DESCRIPTION OF PRINCIPAL INDEBTEDNESS, OPERATING LEASES
AND PREFERRED STOCK
FEDERALLY GUARANTEED TERM LOAN ('ATSB TERM LOAN')
On November 20, 2002, ATA borrowed $168.0 million pursuant to a loan
agreement among ATA, ATA Holdings, various lenders and the ATSB. $148.5 million
of the ATSB Term Loan is guaranteed by the federal government. The entire ATSB
Term Loan is also guaranteed by ATA Holdings and certain of its subsidiaries
other than ATA. The loan proceeds were used to pay off all outstanding
borrowings under an existing credit facility, which was terminated following
this repayment, and to provide cash to collateralize the $48.4 million in
letters of credit ATA had outstanding as of September 30, 2002. Net of fees, the
remaining proceeds were $104.7 million and are being used for working capital
and general corporate purposes. In connection with the ATSB Term Loan, ATA
issued warrants representing about 12 percent of its common shares to various
lenders and to the ATSB. The exercise price for the warrants is $3.53 per share.
In the absence of an event of default, the portion of the loan guaranteed by
the federal government bears interest equal to:
the lender's average cost of issuing commercial paper plus
0.35%, or,
in the event that this portion of the loan is funded by or
assigned to another entity, LIBOR plus 0.40%.
The remainder of the loan bears interest at the greater of:
LIBOR plus 5.75% or
the interest rate for the federally guaranteed portion plus
an applicable percentage, ranging from 5.50% to 9.50%.
The loan agreement contains covenants that limit the ability of ATA, ATA
Holdings and certain of their subsidiaries to, among other things:
grant liens on their property;
make significant investments;
pay dividends (other than certain dividends on preferred
stock) or redeem capital stock;
liquidate, wind up or dissolve themselves;
engage in certain sale-leaseback transactions;
engage in mergers and similar business combinations;
dispose of assets by merger or otherwise;
enter new joint ventures or speculative transactions; and
prepay debt.
In addition, for a specified period, ATA Holdings must maintain a number of
specified ratios between (1) earnings and indebtedness and (2) earnings and
fixed charges. Also, the Company must maintain a cash balance of $40 million.
2004 NOTES
In 1997, the Company issued $100.0 million principal amount of its 10 1/2%
Senior Notes due 2004, which we refer to as the '2004 Notes.' All of the
Company's obligations under the 2004 Notes are guaranteed by all of the
Company's operating subsidiaries, including ATA. In December 1999, the Company
issued an additional $75.0 million principal amount of the 2004 Notes. The terms
of the additional 2004 Notes are identical to those of the original 2004 Notes.
In January 1998 and January 2000, we exchanged the 2004 Notes for Notes with
substantially identical terms, except that the new 2004 Notes were registered
under the Securities Act. The 2004 Notes are limited in aggregate principal
amount to $175.0 million and will mature on August 1, 2004. Interest on the 2004
Notes accrues at 10 1/2% per annum and is payable semiannually in cash on
February 1
72
and August 1 of each year. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months.
Following the Private Exchange Offers, $19.69 million aggregate principal
amount of 2004 Notes remain outstanding. Those 2004 Notes will continue to bear
interest at 10 1/2% per annum and mature on August 1, 2004, but many of the
covenants in the applicable Existing Indenture governing their issuance have
been removed.
2005 NOTES
In 1998, the Company issued $125.0 million principal amount of its 9 5/8%
Senior Notes due 2005, which we refer to as the '2005 Notes.' All of the
Company's obligations under the 2005 Notes are guaranteed by all of its
operating subsidiaries, including ATA. The 2005 Notes are limited in aggregate
principal amount to $125.0 million and will mature on December 15, 2005.
Interest on the 2005 Notes accrues at 9 5/8% per annum and is payable
semiannually in cash on June 15 and December 15 of each year. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day months.
Following the Private Exchange Offers, approximately $20.01 million
aggregate principal amount of 2005 Notes remain outstanding. Those 2005 Notes
will continue to bear interest at 9 5/8% per annum and mature on December 15,
2005, but many of the covenants in the applicable Existing Indenture governing
their issuance have been removed.
AIRCRAFT PRE-DELIVERY DEPOSIT FINANCE FACILITIES
In 2000, we entered into three finance facilities to fund pre-delivery
deposits on new Boeing 757-300 and Boeing 737-800 aircraft. These facilities
provided for up to $173.2 million in pre-delivery deposit funding. As of
December 31, 2002, two of these facilities had terminated. As of December 31,
2003, we had no borrowings under these facilities.
SECURED NOTES PAYABLE
In 2000, we issued two $11.5 million variable rate five-year notes, each
collateralized by one Lockheed L-1011-500 aircraft. As of December 31, 2003,
these notes have a combined remaining balance of $10.96 million.
OPERATING LEASES
We have entered into aircraft operating leases with several lessors in
connection with the aircraft in our fleet. In general our aircraft operating
leases are structured as long-term finance leases, with lease terms of 18 to 22
years and in some cases include an early buyout option typically exercisable
after seventeen years. Pursuant to agreements entered into between 1999 and
2001, we agreed to take delivery of approximately 50 aircraft subject to these
aircraft operating leases in 2001 through 2004. In addition to payment of the
rent under the lease, during the term of the lease we are obligated to perform
maintenance on the aircraft and maintain insurance coverage. The leases do not
provide for termination prior to the end of the lease term other than by the
lessor following an event of default or by us through an obsolescence
termination right that normally is expected to be costly to us, and do not allow
us to assign our rights under the lease or enter into a sublease without the
lessor's consent. The principal events that give rise to an event of default
under the aircraft operating leases are: our failure to make rent or other
payments as they come due, our failure to obtain and maintain insurance for the
aircraft, our default under any other aircraft operating lease with the same
lessor, and our bankruptcy or insolvency. If we experience an event of default
under an aircraft operating lease, at the expiration of the cure period the
lessor will generally have the right to terminate the lease by written notice
and repossess the aircraft or accelerate the remaining lease payments over the
term of the lease. The lessor may apply all or any portion of any security
deposit we have made against the amounts due under the lease.
73
At the time that we entered into the majority of our aircraft operating
leases, we structured the stream of rent payments to feature higher monthly
payments at the beginning of the lease term and lower monthly payments at the
end of the term, so as to minimize the effective financing cost to us of the
structured lease. For accounting purposes, we record rent under the aircraft
operating leases based on the straight-line method of equal monthly payments
over the term of the lease. As a result, in the early portion of the lease terms
we record the difference between the cash rent we pay and the book rent we
record as prepaid rent on our balance sheet. In the operating lease
restructuring we repriced selected leases so as to defer payments of some rent
that would have been due between March 2003 and March 2005 until later in the
lease terms. See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources -- Aircraft
Operating Lease Restructuring.'
MORTGAGES
In 1999, we obtained an $8.0 million loan secured by a 15-year mortgage on
our Maintenance and Operations Center. In 2000, we obtained a $10.0 million loan
secured by a 14-year mortgage on our Indianapolis Maintenance Hangar. As of
December 31, 2003, these two mortgages have a combined remaining balance of
$14.6 million.
PREFERRED STOCK
Series A Preferred. In the last half of 2000, 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 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. Optional redemption by
the Company may occur at a redemption premium of 50.0% of the dividend rate
beginning December 28, 2003, decreasing 10.0% per year to 20.0% of the dividend
rate commencing December 28, 2006 and to 0.0% after the seventh year from
issuance. Prior to the third anniversary of issuance, the Company may redeem the
Series A Preferred with the net proceeds of a public offering of the Company's
common stock.
Series B Preferred. Also, in the last half of 2000, the Company 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. The Series B Preferred is convertible into shares of the Company's common
stock at a conversion rate of 6,381.62 shares of common stock per share of
Series B Preferred at a conversion price of $15.67 per share of common stock,
subject to antidilution adjustments. The Series B Preferred is optionally
redeemable by the Company under certain conditions, but the Company must redeem
the Series B Preferred no later than September 20, 2015. Optional redemption by
the Company may occur at 103.6% of the liquidation amount beginning September
20, 2003, decreasing by 0.3% of the liquidation amount per year to 100.0% of the
liquidation amount at the mandatory redemption date of September 20, 2015.
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, which
applies to private offerings of securities. The proceeds of the issuances of the
Series A and Series B Preferred were used to finance aircraft pre-delivery
deposits on Boeing 757-300 and Boeing 737-800 aircraft ordered by the Company
and for other corporate purposes.
DESCRIPTION OF THE EXCHANGE NOTES
For purposes of this summary only, the term 'Company' or 'ATAH' refers to
ATA Holdings Corp., and not to any of its subsidiaries. The definitions of
certain capitalized terms used in the following summary are set forth under
' -- Certain Definitions.' Whenever particular defined terms of the Indentures
not otherwise defined herein are referred to, such defined terms are
incorporated herein by reference.
74
The Private Exchange 2009 Notes were issued under an Indenture (the '2009
Notes Indenture') and the Private Exchange 2010 Notes were issued under an
Indenture (the '2010 Notes Indenture' and, together with the 2009 Notes
Indentures, the 'Indentures'), each dated as of January 30, 2004, among the
Company, as issuer, ATA Airlines, Inc., Ambassadair Travel Club, Inc., ATA
Leisure Corp. (formerly ATA Vacations, Inc.), Amber Travel, Inc., American Trans
Air Training Corporation, American Trans Air ExecuJet, Inc., ATA Cargo, Inc.
(formerly Amber Air Freight Corporation) and Chicago Express Airlines, Inc., as
guarantors (each individually referred to as a 'Guarantor' and collectively
referred to as the 'Guarantors'), and Wells Fargo Bank Northwest, National
Association, as trustee (the 'Trustee').
The 2009 Exchange Notes will be issued under the 2009 Notes Indenture and
the 2010 Exchange Notes will be issued under the 2010 Notes Indenture. The 2009
Exchange Notes will be identical in all material respects to the Private
Exchange 2009 Notes and the 2010 Exchange Notes will be identical in all
material respects to the Private Exchange 2010 Notes except that the Exchange
Notes will be registered under the Securities Act and will be free of any
obligation regarding registration, including the payment of additional interest
upon failure to file or have declared effective an exchange offer registration
statement or to consummate an exchange offer or otherwise register the Private
Exchange Notes for resale by certain dates. We have filed a copy of the
Indentures as an exhibit to the registration statement which includes this
prospectus. Unless stated specifically herein to the contrary, the following
description applies equally to the Private Exchange Notes and to the Exchange
Notes.
The following summary of certain provisions of the Indentures and the
Exchange Notes does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indentures,
including the definitions of certain terms therein and those terms made a part
thereof by the Trust Indenture Act of 1939, as amended (the 'Trust Indenture
Act'). A copy of the Indentures and the Exchange Notes is available upon request
from the Company.
GENERAL ASPECTS OF THE EXCHANGE NOTES
The Exchange Notes will be unsecured senior obligations of the Company. The
2009 Exchange Notes will mature on February 1, 2009. The 2010 Exchange Notes
will mature on June 15, 2010. Each 2009 Exchange Note will initially bear
interest at 13% per annum beginning on the Closing Date. Beginning on August 1,
2006, each 2009 Exchange Note will bear interest at 14% per annum. Each 2010
Exchange Note will initially bear interest at 12 1/8% per annum beginning on the
Closing Date. Beginning on June 15, 2006, each 2010 Exchange Note will bear
interest at 13 1/8% per annum. We will pay interest on the 2009 Exchange Notes
semiannually (to holders of record at the close of business on the January 15 or
July 15 immediately preceding the Interest Payment Date) on February 1 and
August 1 of each year, commencing August 1, 2004. We will pay interest on the
2010 Exchange Notes semiannually (to holders of record at the close of business
on the June 1 or December 1 immediately preceding the Interest Payment Date) on
June 15 and December 15 of each year, commencing June 15, 2004.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company in the Borough of Manhattan, the City of New York; provided that,
at our option, payment of interest may be made by check mailed to the holders of
Exchange Notes ('Holders') at their addresses as they appear in the Security
Register.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. See 'Book-Entry; Delivery and Form.' No service charge will be
made for any registration of transfer or exchange of Notes, but we may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
75
MANDATORY REDEMPTION
The Company is required to redeem (i) 2009 Notes, in a principal amount
equal to the applicable Mandatory Redemption Amount on August 1, 2005 and (ii)
2010 Notes, in a principal amount equal to the applicable Mandatory Redemption
Amount, on June 15, 2005, in each case on a pro rata basis with respect to
holders of the 2009 Notes or the 2010 Notes, as the case may be, without premium
or penalty, plus accrued and unpaid interest to the redemption date. The
'Mandatory Redemption Amount' is (i) with respect to the 2009 Notes, $7,765,500
and (ii) with respect to the 2010 Notes, $5,249,750. Such redemptions will equal
approximately 4.76% of the principal amount of each of the 2009 Notes and the
2010 Notes issued.
In addition, under certain circumstances, the Company may be required to
offer to purchase the Notes as described below under 'Covenants -- Limitation on
Future Issuances,' 'Covenants -- Limitation on Asset Sales' and
'Covenants -- Repurchase of Notes upon a Change of Control.'
OPTIONAL REDEMPTION
If more than 98% of the outstanding principal amount of either series of
Notes are tendered pursuant to an Offer to Purchase, as required by the
'Limitation on Asset Sales' or 'Repurchase of Notes upon a Change of Control'
covenant, the Company has the option to redeem the balance of that series of
Notes, in whole or in part, at any time or from time to time thereafter up to
maturity. Holders must be given between 30 to 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, and the Redemption Price will be equal to the price specified in the
Offer to Purchase plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date).
Each series of Exchange Notes will also be redeemable, at the Company's
option, in whole or in part, at any time or from time to time, up to maturity.
Holders must be given between 30 to 60 days' prior notice mailed by first class
mail to each Holders' last address as it appears in the Security Register, and
the redemption will be made at the following Redemption Prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any, to
the Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing on the applicable date set forth below:
<Table>
<Caption>
2009 EXCHANGE NOTES 2010 EXCHANGE NOTES
- ---------------------------------------------- ----------------------------------------------
REDEMPTION REDEMPTION
RELEVANT DATE PRICE RELEVANT DATE PRICE
------------- ----- ------------- -----
Closing Date...................... 103.5% Closing Date...................... 103.5%
1st Anniversary of Closing Date... 102.5% 1st Anniversary of Closing Date... 102.5%
2nd Anniversary of Closing Date... 101.5% 2nd Anniversary of Closing Date... 101.5%
3rd Anniversary of Closing Date... 101.0% 3rd Anniversary of Closing Date... 101.0%
Thereafter........................ 100.0% Thereafter........................ 100.0%
</Table>
In the case of any partial redemption, selection of the Exchange Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Exchange Notes
are listed. If the Exchange Notes are not listed on a national securities
exchange, the redemption will be made by lot or by such other method as the
Trustee in its sole discretion shall deem to be fair and appropriate, so long as
no Exchange Note of $1,000 in principal amount or less shall be redeemed in
part. If any Exchange Note is to be redeemed in part only, the notice of
redemption relating to such Exchange Note must state the portion of the
principal amount of the Exchange Note to be redeemed. A new Exchange Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Exchange Holder upon cancelation of the original Exchange Note.
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GUARANTEES
The Company's obligations under the Exchange Notes will be fully and
unconditionally guaranteed on an unsecured, unsubordinated basis, jointly and
severally, by the Guarantors; so long as no Exchange Note Guarantee is
enforceable against any Guarantor in an amount in excess of the net worth of
such Guarantor at the time that determination of that net worth is, under
applicable law, relevant to the enforceability of such Exchange Note Guarantee.
The net worth will include any claim of the Guarantor against the Company for
reimbursement and any claim against any other Guarantor for contribution.
Each Exchange Note Guarantee, other than the Exchange Note Guarantee
provided by ATA, will provide by its terms that it will be automatically and
unconditionally released and discharged upon any sale, exchange or transfer to
any Person that is not an Affiliate of the Company, of all of the Company's and
each Restricted Subsidiary's Capital Stock issued by, or all or substantially
all the assets of, the Guarantor (which sale, exchange or transfer is not
prohibited by the Indentures).
RANKING
The indebtedness evidenced by the Exchange Notes and the Exchange Note
Guarantees will rank equally in right of payment with all existing and future
unsubordinated indebtedness of the Company and the Guarantors, respectively, and
senior in right of payment to all existing and future subordinated indebtedness
of the Company and the Guarantors, respectively. The Exchange Notes and Exchange
Note Guarantees will also be effectively subordinated to all existing and future
secured indebtedness of the Company and the Guarantors, to the extent of such
security.
At December 31, 2003, and December 31, 2002, after giving pro forma effect
to the Private Exchange Offers, the Company and its Subsidiaries (on a
consolidated basis) would have had outstanding approximately $507.7 million and
$522.4 million, respectively, of indebtedness (including the Notes),
approximately 194.7 million and 209.1 million, respectively, of which would have
been secured. At December 31, 2003, and December 31, 2002, after giving pro
forma effect to the Private Exchange Offers, the Guarantors (on a consolidated
basis excluding indebtedness owed to the Company) would have had approximately
$507.7 million and $522.4 million, respectively, of indebtedness outstanding
(other than the Note Guarantees), approximately 194.7 million and 209.1 million,
respectively, of which would have been secured. In addition as of December 31,
2003, after giving effect to the aircraft operating lease restructuring the
Company and its subsidiaries (on a consolidated basis) would have had
approximately 1.66 billion of aircraft operating lease obligations which come
due between January, 2004, and February 1, 2009.
As of December 31, 2003, the ATSB Term Loan was secured by a portion of the
Company's receivables, having a value of $39.3 million, as well as two Lockheed
L-1011-500 aircraft, one Lockheed L-1011-50 and 100 aircraft, two Saab 340B
aircraft, 30 Rolls Royce RB211 spare engines and Boeing 757-200, Boeing 757-300
and 737-800 rotable parts, and may be secured by other assets as provided
thereunder. The Exchange Notes will be effectively subordinated to such
indebtedness to the extent of such security interests.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indentures. Reference is made to the
Indentures for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
'Acquired Indebtedness' means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
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'Adjusted Consolidated Net Income' means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(1) the net income of any Person that is not a Restricted Subsidiary,
except to the extent of the amount of dividends or other distributions
actually paid to the Company or any of its Restricted Subsidiaries by such
Person during such period;
(2) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
the 'Limitation on Restricted Payments' covenant described below (and in
such case, except to the extent includable pursuant to clause (1) above),
the net income (or loss) of any Person accrued prior to the date it becomes
a Restricted Subsidiary or is merged into or consolidated with the Company
or any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by the Company or any of its
Restricted Subsidiaries;
(3) the net income of any Restricted Subsidiary which is not a Guarantor
to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, Rule or
governmental regulation applicable to such Restricted Subsidiary;
(4) any gains or losses (on an after-tax basis) attributable to Asset
Sales;
(5) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
'Limitation on Restricted Payments' covenant described below, any amount
paid or accrued as dividends on Preferred Stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and
(6) all extraordinary gains and extraordinary losses.
'Adjusted Consolidated Net Tangible Assets' means the total amount of assets
of the Company and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding writeups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (1) all
current liabilities of the Company and its Restricted Subsidiaries (excluding
intercompany items) and (2) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the most recent quarterly or annual consolidated balance sheet of the
Company and its Restricted Subsidiaries, prepared in conformity with GAAP and
filed with the Commission or provided to the Trustee pursuant to the 'Commission
Reports and Reports to Holders' covenant.
'Adjusted Consolidated Rental Expense' means, on any Aircraft Transaction
Date, (A) Consolidated Rental Expense for the then most recent four fiscal
quarters prior to such Aircraft Transaction Date for which reports have been
filed with the Commission (the 'Rental Expense Four Quarter Period') plus,
without duplication, (B) any rental expense, as determined in conformity with
GAAP and as would have been shown on the financial statements of the Company
filed with the Commission as part of its periodic reports, in respect of:
(1) any and all Lease Aircraft Financings related to such Aircraft
Transaction Date; and
(2) any and all Lease Aircraft Financings entered into by the Company
prior to such Aircraft Transaction Date in compliance with the 'Limitation
on Aircraft Financing' covenant below, including the Lease Aircraft
Financings related to the three aircraft identified in clause (1) of that
covenant, for which none of the rental expense has been included in
Consolidated Rental Expense for any fiscal quarter prior to such Aircraft
Transaction Date for which reports have been filed with the Commission,
in each case of (1) or (2) above, as if such Lease Aircraft Financing had been
in place on the first day of such Rental Expense Four Quarter Period.
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'Affiliate' means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, 'control'
(including, with correlative meanings, the terms 'controlling,' 'controlled by'
and 'under common control with'), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
'Aircraft Financing' means, with respect to any acquisition of any aircraft,
whether by purchase, lease or otherwise, the financing for such acquisition.
'Aircraft Transaction Date' means, with respect to any Aircraft Financing,
the date the agreement, including any amendment to such an agreement, governing
such Aircraft Financing becomes a binding obligation of the parties thereto.
'Asset Acquisition' means (1) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (2) an
acquisition by the Company or any of its Restricted Subsidiaries of the property
and assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person; provided that the property and assets acquired are related,
ancillary or complementary to the businesses of the Company and its Restricted
Subsidiaries on the date of such acquisition.
'Asset Disposition' means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (1) all or substantially all of the Capital Stock of
any Restricted Subsidiary of the Company or (2) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Restricted Subsidiaries.
'Asset Sale' means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or a
series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of
(1) all or any of the Capital Stock of any Restricted Subsidiary (other
than directors' qualifying shares),
(2) all or substantially all of the property and assets of an operating
unit or business of the Company or any of its Restricted Subsidiaries or
(3) any other property and assets of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the
Company or such Restricted Subsidiary and, in each case, that is not
governed by the provisions of the Indentures applicable to mergers,
consolidations and sales of assets of the Company; provided that 'Asset
Sale' shall not include sales or other dispositions of inventory,
receivables and other current assets.
'Average Life' means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (1) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (2) the sum of all such principal payments.
'Capital Stock' means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
'Capitalized Lease' means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person
79
as lessee, in conformity with GAAP, is required to be capitalized on the balance
sheet of such Person.
'Capitalized Lease Obligations' means the discounted present value of the
rental obligations under a Capitalized Lease.
'Change of Control' means such time as:
(1) a 'person' or 'group' (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becomes the ultimate 'beneficial owner' (as
defined in Rule 13d-3 under the Exchange Act) of more than 35% of the total
voting power of the Voting Stock of the Company on a fully diluted basis and
such ownership represents a greater percentage of the total voting power of
the Voting Stock of the Company, on a fully diluted basis, than is held by
the Existing Stockholders and their Affiliates on such date; or
(2) individuals who on the Closing Date constitute the Board of
Directors (together with any new directors whose election by the Board of
Directors or whose nomination by the Board of Directors for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then in office who either were members of
the Board of Directors on the Closing Date or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the members of the Board of Directors then in office.
This definition has been changed from the analogous definition in the
Existing Indentures to remove from subsection (1) above the additional
requirement of the occurrence of any downgrading in the rating accorded any of
the Company's securities.
'Closing Date' means January 30, 2004.
'Consolidated EBITDA' means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income,
(1) Consolidated Interest Expense,
(2) income taxes (other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses arising out
of sales of assets),
(3) depreciation expense,
(4) amortization expense and
(5) all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an accrual
or reserve is, or is required by GAAP to be, made), less all non-cash items
increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in
conformity with GAAP; provided that, if any Restricted Subsidiary is not a
Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced (to
the extent not otherwise reduced in the calculation of Adjusted Consolidated
Net Income in accordance with GAAP) by an amount equal to (A) the amount of
the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the last
day of such period by the Company or any of its Restricted Subsidiaries
divided by (2) the total number of shares of outstanding Common Stock of
such Restricted Subsidiary on the last day of such period.
'Consolidated EBITDAR' means, for any period, Consolidated EBITDA for such
period plus Consolidated Rental Expense.
'Consolidated Interest Expense' means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation but
without duplication, amortization of original issue discount on any indebtedness
and the interest portion of any deferred purchase price payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and
80
bankers' acceptance financing; the net costs associated with Interest Rate
Agreements; and Indebtedness that is Guaranteed or secured by the Company or any
of its Restricted Subsidiaries) and the interest component of rentals in respect
of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by the Company and its Restricted Subsidiaries during such period;
excluding, however,
(1) any amount of such interest of any Restricted Subsidiary if the net
income of such Restricted Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income pursuant to clause (3) of the definition
thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted
Consolidated Net Income pursuant to clause (3) of the definition thereof),
(2) any premiums, fees and expenses (and any amortization thereof)
payable in connection with the offering of the Notes or the Credit
Agreement, all as determined on a consolidated basis (without taking into
account Unrestricted Subsidiaries) in conformity with GAAP, and
(3) any interest or other financing costs associated with loans to
students of the Company's training academy, unless such costs are paid by
the Company or any Restricted Subsidiary.
'Consolidated Net Worth' means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
'Consolidated Rental Expense' means, for any period, the aggregate amount of
rental expense in respect of Lease Aircraft Financings, as determined in
conformity with GAAP and as shown on the financial statements of the Company
filed with the Commission as part of its periodic reports.
'Credit Agreement' means the Loan Agreement dated as of November 20, 2002,
among ATA, ATAH, 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, Bearing Point,
Inc., as Loan Administrator, Citibank, N.A., as Collateral Agent, Citibank,
N.A., as Agent, and Air Transportation Stabilization Board and together with all
other instruments and documents executed or delivered pursuant thereto, in each
case as such agreement, instruments or documents may be amended (including any
amendment and restatement thereof), supplemented, replaced or otherwise modified
from time to time in one or more successive transactions (including any such
transaction that changes the amount available, replaces the relevant agreement
or changes one or more lenders).
'Currency Agreement' means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
'Default' means any event that is, or after notice or passage of time or
both would be, an Event of Default.
'Disqualified Stock' means any class or series of Capital Stock of any
Person that by its terms or otherwise is:
(1) required to be redeemed prior to the Stated Maturity of the Notes;
(2) redeemable at the option of the Holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of Notes; or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (1) or (2) above or Indebtedness having a scheduled maturity prior to
the Stated Maturity of the Notes; provided that any Capital Stock that would
not constitute Disqualified Stock but for provisions
81
thereof giving Holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an 'asset
sale' or 'change of control' occurring prior to the Stated maturity of the
Notes shall not constitute Disqualified Stock if the 'asset sale' or 'change
of control' provisions applicable to such Capital Stock are no more
favorable to the Holders of such Capital Stock than the provisions contained
in 'Limitation on Asset Sales' and 'Repurchase of Notes upon a Change of
Control' covenants described below and such Capital Stock specifically
provides that such Person will not repurchase or redeem any such stock
pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to the 'Limitation on Asset
Sales' and 'Repurchase of Notes upon a Change of Control' covenants
described below.
'Exchange Note Guarantee' means any Guarantee of the Exchange Notes by a
Guarantor.
'Existing Preferred Stock' means (1) the Series A Preferred Stock of ATAH
and (2) the Series B Preferred Stock of ATAH outstanding on the Closing Date.
'Existing Stockholders' means J. George Mikelsons, his spouse, his issue,
any trust for any of the foregoing and any Affiliate of any of the foregoing.
'Fair Market Value' means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
'Fiscal Year' means the fiscal year of the Company referenced in the reports
that the Company files with the Commission.
'Future Issuance' means each (i) borrowing by the Company or any of its
Restricted Subsidiaries from any source (other than Trade Payables and accrued
expenses arising in the ordinary course of business or borrowings from the
Company or any of its Restricted Subsidiaries), including in the debt capital
markets or from commercial bank lenders, after the Closing Date and (ii)
issuance of any Capital Stock (other than Disqualified Stock) or any warrants,
rights, options or other rights that are convertible into or exercisable for
Capital Stock (other than Disqualified Stock) of the Company or any of its
Restricted Subsidiaries after the Closing Date, except for issuances of Capital
Stock of the Company in connection with the exercise of stock options or similar
rights issued as compensation by existing or former officers, directors or
employees of the Company or any of its Restricted Subsidiaries.
'GAAP' means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indentures
(1) shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance
with the terms of the covenants and with other provisions of the Indentures
shall be made without giving effect to (A) the amortization of any expenses
incurred in connection with the offering of the Notes and (B) except as
otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17 and
(2) shall, insofar as they involve the treatment for financial reporting
purposes of amounts incurred with engine overhauls, reflect the accounting
policy of the Company as in effect as of the Closing Date.
'Guarantee' means, without duplication, any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person
82
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services (unless such purchase
arrangements are on arm's-length terms and are entered into in the ordinary
course of business), to take-or-pay, or to maintain financial statement
conditions or otherwise) or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided that
the term 'Guarantee' shall not include endorsements for collection or
deposit in the ordinary course of business. The term 'Guarantee' used as a
verb has a corresponding meaning.
'Incur' means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an 'Incurrence' of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
'Indebtedness' means, with respect to any Person at any date of
determination (without duplication):
(1) all indebtedness of such Person for borrowed money;
(2) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto, but excluding obligations with respect to letters of credit
(including trade letters of credit) securing obligations (other than
obligations described in (1) or (2) above or (5), (6) or (7) below) entered
into in the ordinary course of business of such Person to the extent such
letters of credit are not drawn upon or, if drawn upon, to the extent such
drawing is reimbursed no later than the third business day following receipt
by such Person of a demand for reimbursement);
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except Trade
Payables;
(5) all Capitalized Lease Obligations;
(6) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the
amount of such Indebtedness;
(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person; and
(8) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the
obligation, provided (A) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at the time of its issuance as determined in
conformity with GAAP, (B) that money borrowed and set aside at the time of
the Incurrence of any Indebtedness in order to refund the payment of the
interest on such Indebtedness shall not be deemed to be 'Indebtedness' and
(C) that Indebtedness shall not include any liability for federal, state,
local or other taxes.
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'Interest Coverage Ratio' means, on any Transaction Date, the ratio of (1)
the aggregate amount of Consolidated EBITDA for the then most recent four fiscal
quarters prior to such Transaction Date for which reports have been filed with
the Commission (the 'Four Quarter Period') to (2) the aggregate Consolidated
Interest Expense during such Four Quarter Period.
In making the foregoing calculation:
(1) pro forma effect shall be given to any Indebtedness Incurred or
repaid during the period (the 'Reference Period') commencing on the first
day of the Four Quarter Period and ending on the Transaction Date (other
than Indebtedness Incurred or repaid under a revolving credit or similar
arrangement to the extent of the commitment thereunder (or under any
predecessor revolving credit or similar arrangement) in effect on the last
day of such Four Quarter Period unless any portion of such Indebtedness is
projected, in the reasonable judgment of the senior management of the
Company, to remain outstanding for a period in excess of 12 months from the
date of the Incurrence thereof), in each case as if such Indebtedness had
been Incurred or repaid on the first day of such Reference Period;
(2) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma
basis and bearing a floating interest rate shall be computed as if the rate
in effect on the Transaction Date (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months or, if shorter, at least equal
to the remaining term of such Indebtedness) had been the applicable rate for
the entire period;
(3) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the application of
proceeds of any Asset Disposition) that occur during such Reference Period
as if they had occurred and such proceeds had been applied on the first day
of such Reference Period; and
(4) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of
proceeds of any asset disposition) that have been made by any Person that
has become a Restricted Subsidiary or has been merged with or into the
Company or any Restricted Subsidiary during such Reference Period and that
would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if
such asset dispositions or asset acquisitions were Asset Dispositions or
Asset Acquisitions that occurred on the first day of such Reference Period;
provided that to the extent that clause (C) or (D) of this sentence requires
that pro forma effect be given to an Asset Acquisition or Asset Disposition,
such pro forma calculation shall be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or division or
line of business of the Person, that is acquired or disposed for which
financial information is available.
'Interest Rate Agreement' means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
'Investment' in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include:
(1) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary; and
(2) the fair market value of the Capital Stock (or any other
Investment), held by the Company or any of its Restricted Subsidiaries, of
(or in) any Person that has ceased to be a Restricted Subsidiary, including
without limitation, by reason of any transaction permitted by
84
clause (3) of the 'Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries' covenant; provided that the fair market value of
the Investment remaining in any Person that has ceased to be a Restricted
Subsidiary shall not exceed the aggregate amount of Investments previously
made in such Person valued at the time such Investments were made less the
net reduction of such Investments.
For purposes of the definition of 'Unrestricted Subsidiary' and the
'Limitation on Restricted Payments' covenant described below:
(1) 'Investment' shall include the fair market value of the assets (net
of liabilities (other than liabilities to the Company or any of its
Restricted Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary;
(2) the fair market value of the assets (net of liabilities (other than
liabilities to the Company or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments; and
(3) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer.
'Lease Aircraft Financing' means any Aircraft Financing that is in the form
of a lease that does not constitute Indebtedness.
'Lien' means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
'Moody's' means Moody's Investors Service, Inc. and its successors.
'Net Cash Proceeds' means,
(a) with respect to any Asset Sale, the proceeds of such Asset Sale in the
form of cash or cash equivalents, including payments in respect of deferred
payment obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of
(1) brokerage commissions and other fees and expenses (including fees
and expenses of counsel and investment bankers) related to such Asset Sale,
(2) provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole,
(3) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured by a
Lien on the property or assets sold or (B) is required to be paid as a
result of such sale; and
(4) appropriate amounts to be provided by the Company or any Restricted
Subsidiary as a reserve against any liabilities associated with such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as determined in conformity with GAAP and
(b) with respect to any Future Issuance (including any issuance or sale of
Capital Stock), the proceeds of such issuance or sale in the form of cash or
cash equivalents, including payments in respect of deferred payment obligations
(to the extent corresponding to the principal, but not interest, component
thereof) when received in the form of cash or cash equivalents (except to the
extent such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorney's fees,
accountants' fees, underwriters' or placement agents'
85
fees, discounts or commissions and brokerage, consultant and other fees incurred
in connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
'Note Guarantee' means any Guarantee of the Notes by a Guarantor.
'Offer to Purchase' means an offer to purchase Notes by the Company from the
Holders commenced by mailing a notice to the Trustee and each Holder stating:
(1) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis;
(2) the purchase price and the date of purchase (which shall be a
Business day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the 'Payment Date');
(3) that any Note not tendered will continue to accrue interest pursuant
to its terms;
(4) that, unless the Company defaults in the payment of the purchase
price, any Note accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest on and after the Payment Date;
(5) that Holders electing to have a Note purchased pursuant to the Offer
to Purchase will be required to surrender the Note, together with the form
entitled 'Option of the Holder to Elect Purchase' on the reverse side of the
Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased;
(7) that Holders whose Notes are being purchased only in part will be
issued Notes equal in principal amount to the unpurchased portion of the
Notes surrendered; provided that each Note purchased and each Note issued
shall be in a principal amount of $1,000 or integral multiples thereof; and
(8) if more than 98% of the outstanding principal amount of either
series of Notes is tendered pursuant to an Offer to Purchase, the Company
shall have the right to redeem the balance of that series of Notes at the
purchase price specified in such Offer to Purchase, plus (without
duplication) accrued and unpaid interest, if any, to the Redemption Date on
the principal amount of such series of Notes to be redeemed.
On the Payment Date, the Company shall:
(1) accept for payment on a pro rata basis Notes or portions thereof
tendered pursuant to an Offer to Purchase;
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted; and
(3) deliver, or cause to be delivered, to the Trustee all Notes or
portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the
Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered; provided that
each Note purchased and each Note issued shall be in a principal amount of
$1,000 or integral multiples thereof. The Company will publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment
Date. The Trustee shall act as the Paying Agent for an Offer to Purchase.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the
86
extent such laws and regulations are applicable, in the event that the
Company is required to repurchase Notes pursuant to an Offer to Purchase.
'Permitted Investment' means:
(1) an Investment in the Company or a Restricted Subsidiary or a Person
which will, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or convey
all or substantially all its assets to, the Company or a Restricted
Subsidiary; provided that such Person's primary business is related,
ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment;
(2) Temporary Cash Investments;
(3) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP;
(4) stock, obligations or securities received in settlement or
satisfaction of judgments or claims;
(5) loans or advances to employees in the ordinary course of business;
and
(6) the non-cash portion of the consideration received for any Asset
Sale.
'Permitted Liens' means:
(1) Liens for taxes, assessments, governmental charges or claims that
are being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made;
(2) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(4) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money);
(5) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company
or any of its Restricted Subsidiaries;
(6) Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Closing Date; provided that (a) each
such Lien is created solely for the purpose of securing Indebtedness
Incurred to finance the costs (including transaction costs and the costs of
improvement or construction) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of or within twelve
months after, the later of the acquisition, the completion of construction
or the commencement of full operation of such property or assets (b) the
principal amount of the Indebtedness secured by such Lien does not exceed
100% of such costs and (c) any such Lien shall not extend to or cover any
property or assets other than such item of property or assets and any
improvements on such item;
(7) Liens upon aircraft, engines and buyer-furnished equipment attached
thereto or incorporated therein other than as permitted by the foregoing
clause (6); provided that, after giving effect thereto and the Indebtedness
secured thereby, the book value of assets of the
87
Company not subject to any Lien (other than Liens described in clauses (1)
through (5), (8) and (16) of the definition of 'Permitted Liens') shall be
not less than $125 million;
(8) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole;
(9) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of the Company or its Restricted
Subsidiaries relating to such property or assets;
(10) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(11) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(12) Liens on property of, or on shares of Capital Stock or Indebtedness
of, any Person existing at the time such Person becomes, or becomes a part
of, any Restricted Subsidiary; provided that such Liens do not extend to or
cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets acquired;
(13) Liens with respect to the assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to the Company or a Wholly Owned Restricted
Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary;
(14) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary that does not give rise to
an Event of Default;
(15) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such letters
of credit and the products and proceeds thereof;
(16) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(17) Liens encumbering customary initial deposits and margin deposits,
and other Liens that are within the general parameters customary in the
industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Interest Rate Agreements and Currency Agreements
and forward contracts, options, future contracts, futures options or similar
agreements or arrangements designed solely to protect the Company or any of
its Restricted Subsidiaries from fluctuations in interest rates, currencies
or the price of commodities;
(18) Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of the Company and its Restricted
Subsidiaries prior to the Closing Date; and
(19) Liens on or sales of receivables.
'Reference Date' means September 30, 1997.
'Rental Coverage Ratio' means, on any Aircraft Transaction Date, the ratio
of (1) the aggregate amount of Consolidated EBITDAR for the then most recent
four fiscal quarters prior to such Aircraft Transaction Date for which reports
have been filed with the Commission to (2) the Adjusted Consolidated Rental
Expense.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
'S&P' means Standard & Poor's Ratings Services and its successors.
'Significant Subsidiary' means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries, (a) for the most recent fiscal
year of the Company, accounted for more than 10% of the consolidated revenues of
the Company and its Restricted Subsidiaries or (b) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets
88
of the Company and its Restricted Subsidiaries, all as set forth on the most
recently available consolidated financial statements of the Company for such
fiscal year.
'Stated Maturity' means, (a) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (b) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
'Subsidiary' means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the voting power of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
'Temporary Cash Investment' means any of the following:
(1) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the United
States of America or any agency thereof;
(2) time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof issued
by a bank or trust company which is organized under the laws of the United
States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated
'N' (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) commercial paper, maturing not more than 90 days after the date of
acquisition issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America,
any state thereof or any foreign country recognized by the United States of
America with a rating at the time as of which any investment therein is made
of 'P-1' (or higher) according to Moody's or 'A-l' (or higher) according to
S&P; and
(5) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least 'A' by
S&P or Moody's.
'Trade Payables' means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
'Transaction Date' means, with respect to the Incurrence of any Indebtedness
by the Company or any of its Restricted Subsidiaries, the date such Indebtedness
is to be Incurred and with respect to any Restricted Payment, the date such
Restricted Payment is to be made.
'2004 Notes' means the Company's 101/2% Senior Notes due 2004 issued under
the indenture dated July 24, 1997 among the Company, the subsidiaries of the
Company party thereto and First Security Bank, N.A.
'2005 Notes' means the Company's 95/8% Senior Notes due 2005 issued under
the indenture dated December 11, 1998 among the Company, the subsidiaries of the
Company party thereto and First Security Bank, N.A.
'Unrestricted Subsidiary' means:
89
(1) any Subsidiary of the Company that at the time of determination
shall be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors
may designate any Restricted Subsidiary (including any newly acquired or
newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien
on any property of, the Company or any Restricted Subsidiary; provided that:
(A) any Guarantee by the Company or any Restricted Subsidiary of any
Indebtedness of the Subsidiary being so designated shall be deemed an
'Incurrence' of such Indebtedness and an 'Investment' by the Company or
such Restricted Subsidiary (or both, if applicable) at the time of such
designation;
(B) either (I) the Subsidiary to be so designated has total assets of
$1,000 or less or (II) if such Subsidiary has assets greater than $1,000,
such designation would be permitted under the 'Limitation on Restricted
Payments' covenant described below; and
(C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under the
'Limitation on Indebtedness' and 'Limitation on Restricted Payments'
covenants described below.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such designation; and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred at such
time, have been permitted to be Incurred (and shall be deemed to have been
Incurred) for all purposes of the Indentures. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation
and an Officers' Certificate certifying that such designation complied with
the foregoing provisions.
'Voting Stock' means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
'Wholly Owned' means, with respect to any Subsidiary of any Person the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes, the Note
Guarantees, the Existing Notes, the guarantees of the Existing Notes and
Indebtedness existing on the Closing Date that was Incurred in compliance with
Section 4.03(a) of the 2004 Notes Indenture and Section 10.05(a) of the 2005
Notes Indenture); provided that the Company may Incur Indebtedness if, after
giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Interest Coverage Ratio would be
greater than 3:1.
(b) Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following:
(1) Indebtedness of the Company or any Restricted Subsidiary that is a
Guarantor outstanding under the Credit Agreement; provided, that after
giving effect to the Incurrence of any such Indebtedness on or after the
Closing Date, the book value of assets of the Company
90
not subject to any Lien (other than Liens described in clauses (1) through
(5), (8) and (16) of the definition of 'Permitted Liens') shall not be less
than $125 million;
(2) Indebtedness of the Company or any Restricted Subsidiary (other than
Indebtedness under clause (1)) outstanding on the Reference Date;
(3) Indebtedness owed (A) to the Company evidenced by an unsubordinated
promissory note or (B) to any of its Restricted Subsidiaries; provided that
any event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or another Restricted Subsidiary) shall be deemed, in
each case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (3);
(4) Indebtedness issued in exchange for, or the net proceeds of which
are used to refinance or refund, then outstanding Indebtedness Incurred
under clause (6) of this paragraph and any refinancings thereof in an amount
not to exceed the amount so refinanced or refunded (plus premiums, accrued
interest, fees and expenses); provided that Indebtedness the proceeds of
which are used to refinance or refund the Notes or Indebtedness that is pari
passu with, or subordinated in right of payment to, the Notes or Note
Guarantees shall only be permitted under this clause (4) if:
(A) in case the Notes are refinanced in part or the Indebtedness to
be refinanced is pari passu with the Notes or Note Guarantees, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made
pari passu with, or subordinate in right of payment to, the remaining
Notes or Note Guarantees, as the case may be;
(B) in case the Indebtedness to be refinanced is subordinated in
right of payment to the Notes or Note Guarantees, as the case may be,
such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the
Notes or the Note Guarantees, as the case may be, at least to the extent
that the Indebtedness to be refinanced is subordinated to the Notes or
the Note Guarantees, as the case may be; and
(C) such new Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature prior to the Stated Maturity of
the Indebtedness to be refinanced or refunded, and the Average Life of
such new Indebtedness is at least equal to the remaining Average Life of
the Indebtedness to be refinanced or refunded;
and provided further that in no event may Indebtedness of the Company be
refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to
this clause (4) (other than pursuant to an Offer to Purchase);
(5) Indebtedness:
(A) in respect of performance, surety or appeal bonds provided in
ordinary course of business;
(B) under Currency Agreements and Interest Rate Agreements provided
that such agreements (a) are designed solely to protect the Company or
its Restricted Subsidiaries against fluctuations in foreign currency
exchange rates or interest rates and (b) do not increase the Indebtedness
of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder; and
(C) arising from agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from Guarantees or letters
of credit, surety bonds or performance bonds securing any obligations of
the Company or any of its Restricted Subsidiaries pursuant to such
agreements, in any case incurred in connection with the disposition of
any business, assets or Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets
91
or Restricted Subsidiary for the purpose of financing such acquisition),
in a principal amount not to exceed the gross proceeds actually received
by the Company or any Restricted Subsidiary in connection with such
disposition;
(6) Indebtedness of the Company, to the extent the net proceeds thereof
are promptly
(A) used to purchase Notes tendered in an Offer to Purchase made as a
result of a Change in Control or (B) deposited to defease the Notes as
described below under 'Defeasance';
(7) Guarantees of the Notes, Guarantees by the Company or Restricted
Subsidiaries of Indebtedness of ATA under the Credit Agreement, and
Guarantees of Indebtedness of the Company by any Restricted Subsidiary
provided the Guarantee of such Indebtedness is permitted by and made in
accordance with the 'Limitation on Issuance of Guarantees by Restricted
Subsidiaries' covenant described below; and
(8) Indebtedness of the Company incurred after the Reference Date (in
addition to Indebtedness permitted under clauses (1) through (7) above) in
an aggregate principal amount outstanding at any time not to exceed $10
million.
(c) Notwithstanding any other provision of this 'Limitation on Indebtedness'
covenant, the maximum amount of Indebtedness that the Company or a Restricted
Subsidiary may Incur pursuant to this 'Limitation on Indebtedness' covenant
shall not be deemed to be exceeded, with respect to any outstanding Indebtedness
due solely to the result of fluctuations in the exchange rates of currencies.
(d) For purposes of determining any particular amount of Indebtedness under
this 'Limitation on Indebtedness' covenant, (1) Indebtedness Incurred under the
Credit Agreement on or prior to the Closing Date shall be treated as Incurred
pursuant to clause (1) of part (a) of this covenant; (2) Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness otherwise
included in the determination of such particular amount shall not be included;
and (3) any Liens granted pursuant to the equal and ratable provisions referred
to in the 'Limitation on Liens' covenant described below shall not be treated as
Indebtedness.
For purposes of determining compliance with this 'Limitation on
Indebtedness' covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses (other than Indebtedness referred to in clause (1) of the preceding
sentence), the Company, in its sole discretion shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
LIMITATION ON AIRCRAFT FINANCING
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Aircraft Financing (other than any Aircraft Financing existing on
the Closing Date); provided that the Company or any Restricted Subsidiary may
consummate an Aircraft Financing if on the Aircraft Transaction Date related to
such Aircraft Financing, after giving effect to the consummation of such
Aircraft Financing, the Rental Coverage Ratio would be greater than the ratio
shown for the relevant time period on the table below:
<Table>
<Caption>
PERIOD RATIO
------ -----
Closing Date through December 31, 2004...................... 1.0 : 1.0
January 1, 2005 through December 31, 2005................... 1.1 : 1.0
January 1, 2006 through December 31, 2006................... 1.2 : 1.0
January 1, 2007 through December 31, 2007................... 1.3 : 1.0
January 1, 2008 through maturity of the Notes............... 1.4 : 1.0
</Table>
Notwithstanding the foregoing, the Company or any Restricted Subsidiary may:
(1) finance the acquisition of (i) one Boeing 757-200 aircraft scheduled
to be delivered to the Company in February 2004, pursuant to an agreement
with GECAS; (ii) one Boeing 737-800 aircraft scheduled to be delivered to
the Company in May 2004, pursuant to an
92
agreement with ILFC; and (iii) one Boeing 737-800 aircraft scheduled to be
delivered to the Company in November 2004, pursuant to an agreement with
GECAS;
(2) consummate any Aircraft Financing using the proceeds of Indebtedness
Incurred in compliance with the provisions of the covenant described under
' -- Limitation on Indebtedness'; and
(3) consummate any Aircraft Financing using the proceeds of any Capital
Stock (other than Disqualified Stock).
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly:
(1) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock (other than (x) dividends or distributions
payable solely in shares of its Capital Stock (other than Disqualified
Stock) or in options, warrants or other rights to acquire shares of such
Capital Stock and (y) pro rata dividends or distributions on Common Stock of
Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries;
(2) purchase, redeem, retire or otherwise acquire for value any shares
of Capital Stock of (A) the Company or an Unrestricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock)
held by any Person or (B) a Restricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock) held by
any Affiliate of the Company (other than a Wholly Owned Restricted
Subsidiary) or any Holder (or any Affiliate of such Holder) of 5% or more of
the Capital Stock of the Company;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of the Company or any Guarantor that
is subordinated in right of payment to the Notes or to a Guarantor's Note
Guarantee, as the case may be; or
(4) make any Investment, other than a Permitted Investment, in any
Person (such other actions described in clauses (1) through (4) above being
collectively 'Restricted Payments') if, at the time of, and after giving
effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing;
(B) the Company could not Incur at least $1.00 of Indebtedness under
the first paragraph of the 'Limitation on Indebtedness' covenant; or
(C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) made after the Reference Date shall exceed the sum of:
(I) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus
100% of the amount of such loss) (determined by excluding income
resulting from transfers of assets by the Company or a Restricted
Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative
basis during the period (taken as one accounting period) beginning on
the Reference Date and ending on the last day of the last fiscal
quarter preceding the Transaction Date for which reports have been
filed with the Commission or provided to the Trustee pursuant to the
'Commission Reports and Reports to Holders' covenant; plus
(II) the aggregate Net Cash Proceeds received by the Company
after the Reference Date from the issuance and sale permitted by the
Indentures of its Capital Stock (other than Disqualified Stock) to a
Person who is not a Subsidiary of the Company, including an issuance
or sale permitted by the Indentures of Indebtedness
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of the Company for cash subsequent to the Reference Date upon the
conversion of such Indebtedness into Capital Stock (other than
Disqualified Stock) of the Company, or from the issuance to a Person
who is not a Subsidiary of the Company of any options, warrants or
other rights to acquire Capital Stock of the Company (in each case,
exclusive of any Disqualified Stock or any options, warrants or other
rights that are redeemable at the option of the Holder, or are
required to be redeemed, prior to the Stated Maturity of the Notes);
plus
(III) an amount equal to the net reduction in Investments (other
than reductions in Permitted Investments) in any Person resulting
from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the
Company or any Restricted Subsidiary or from the Net Cash Proceeds
from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds are included in the calculation
of Adjusted Consolidated Net Income), or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each
case as provided in the definition of 'Investments'); not to exceed,
in each case, the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Person or Unrestricted
Subsidiary; minus
(IV) the sum of the amounts by which the Pro Forma Consolidated
Net Worth after giving effect to each consolidation, merger and sale
of assets effectuated pursuant to clause (3) under the
'Consolidation, Merger and Sale of Assets' covenant was less than the
Base Consolidated Net Worth immediately prior to such consolidation,
merger and sale of assets; plus
(V) $5 million.
The foregoing provision shall not be violated by reason of:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (4) of the second paragraph of part (a) of the 'Limitation on
Indebtedness' covenant;
(3) the repurchase, redemption or other acquisition of Capital Stock of
the Company or an Unrestricted Subsidiary (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital Stock
(other than Disqualified Stock) of the Company (or options, warrants or
other rights to acquire such Capital Stock);
(4) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of the
Company or any Guarantor which is subordinated in right of payment to the
Notes or the Note Guarantees, as the case may be, in exchange for, or out of
the proceeds of, a substantially concurrent offering of, shares of the
Capital Stock (other than Disqualified Stock) of the Company or any
Guarantor (or options, warrants or other rights to acquire such Capital
Stock);
(5) payments or distributions, to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indentures
applicable to mergers, consolidations and transfers of all or substantially
all of the property and assets of the Company;
(6) Investments acquired in exchange for Capital Stock (other than
Disqualified Stock) of the Company; provided that, except in the case of
clauses (1) and (3), no Default or Event of Default shall have occurred and
be continuing or occur as a consequence of the actions or payments set forth
therein;
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(7) the purchase or redemption of subordinated Indebtedness pursuant to
asset sale or change of control provisions contained in the Indentures or
other governing instrument relating thereto; provided, however, that (a) no
offer or purchase obligation may be triggered in respect of such
Indebtedness unless a corresponding obligation also arises for the Notes and
(b) in all events, no repurchase or redemption of such Indebtedness may be
consummated unless and until the Company shall have satisfied all repurchase
obligations with respect to any required purchase offer made with respect to
the Notes; or
(8) at any time that no Default or Event of Default shall have occurred
and be continuing, the declaration and payment of scheduled cash dividends
pursuant to the terms of the Existing Preferred Stock.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (2) thereof, an exchange of
Capital Stock for Capital Stock or Indebtedness referred to in clause (3) or (4)
thereof and an Investment referred to in clause (6) thereof), and the Net Cash
Proceeds from any issuance of Capital Stock referred to in clauses (3) and (4),
shall be included in calculating whether the conditions of clause (C) of the
first paragraph of this 'Limitation on Restricted Payments' covenant have been
met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, or Indebtedness that
is pari passu with the Notes, then the Net Cash Proceeds of such issuance shall
be included in clause (C) of the first paragraph of this 'Limitation on
Restricted Payments' covenant only to the extent such proceeds are not used for
such redemption, repurchase or other acquisition of Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary that is not a Guarantor to:
(1) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
the Company or any other Restricted Subsidiary;
(2) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary;
(3) make loans or advances to the Company or any other Restricted
Subsidiary; or
(4) transfer any of its property or assets to the Company or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(1) existing on the Closing Date in the Credit Agreement, the Indentures
or any other agreements in effect on the Closing Date, and any extensions,
refinancings, renewals or replacements of such agreements; provided that the
encumbrances and restrictions in any such extensions, refinancings, renewals
or replacements are no less favorable in any material respect to the Holders
than those encumbrances or restrictions that are then in effect and that are
being extended, refinanced, renewed or replaced;
(2) existing under or by reason of applicable law;
(3) existing with respect to any Person or the property or assets of
such Person acquired by the Company or any Restricted Subsidiary, existing
at the time of such acquisition and not incurred in contemplation thereof,
which encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired;
(4) in the case of clause (4) of the first paragraph of this 'Limitation
on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries' covenant,
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that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property
or asset,
existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the Indentures or
arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually
or in the aggregate, detract from the value of property or
assets of the Company or any Restricted Subsidiary in any
manner material to the Company or any Restricted Subsidiary;
(5) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary; or
(6) contained in the terms of any Indebtedness or any agreement pursuant
to which such Indebtedness was issued if:
(A) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant
contained in such Indebtedness or agreement;
(B) the encumbrance or restriction is not materially more
disadvantageous to the Holders of the Notes than is customary in
comparable financings (as determined by the Company); and
(C) the Company determines that any such encumbrance or restriction
will not materially affect the Company's ability to make principal or
interest payments on the Notes. Nothing contained in this 'Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries' covenant shall prevent the Company or any Restricted
Subsidiary from:
(I) creating, incurring, assuming or suffering to exist any Liens
otherwise permitted in the 'Limitation on Liens' covenant; or
(II) restricting the sale or other disposition of property or
assets of the Company or any of its Restricted Subsidiaries that
secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
LIMITATION ON FUTURE ISSUANCES
In the event and to the extent that the Net Cash Proceeds received by the
Company or any of its Restricted Subsidiaries from one or more Future Issuances
in any Fiscal Year exceeds (A) $25,000,000 plus (B) any amount required by the
terms of the Credit Agreement to be applied during such fiscal year to repay
amounts outstanding under the Credit Agreement plus (C) any amount used in
respect of any Aircraft Financing permitted by the 'Limitation on Aircraft
Financing' covenant described above during such Fiscal Year, then the Company
shall or shall cause the relevant Restricted Subsidiary to apply such excess Net
Cash Proceeds as provided in the following paragraph of this 'Limitation on
Future Issuances' covenant. The amount of such excess Net Cash Proceeds required
to be applied as provided in the following paragraph shall constitute 'Excess
Issuance Proceeds.'
If, as of the first day of any Fiscal Year, there exist Excess Issuance
Proceeds in excess of $2,500,000, the Company must commence, not later than the
fifteenth Business Day of such Fiscal Year, and consummate an Offer to Purchase
from the Holders on a pro rata basis an aggregate principal amount of Notes
equal to the Excess Issuance Proceeds on such date, at a purchase price equal to
100% of the principal amount of the Notes, plus, in each case, accrued interest
(if any) to the Payment Date.
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In the event that more than 98% of the outstanding principal amount of the
Notes are tendered pursuant to such Offer to Purchase, the balance of the Notes
will be redeemable, at the Company's option, in whole or in part, at any time or
from time to time thereafter, at a redemption price equal to the price specified
in such Offer to Purchase plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date).
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except:
(1) to the Company or a Wholly Owned Restricted Subsidiary;
(2) issuances of director's qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to
the extent required by applicable law; or
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and
any Investment in such Person remaining after giving effect to such issuance
or sale would have been permitted to be made under the 'Limitation on
Restricted Payments' covenant if made on the date of such issuance or sale.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
The Company will not permit any Restricted Subsidiary that is not a
Guarantor, directly or indirectly, to Guarantee any Indebtedness of the Company
which is pari passu with or subordinate in right of payment to the Notes
('Guaranteed Indebtedness'), unless:
(1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indentures providing for a Guarantee (a
'Subsidiary Guarantee') of payment of the Notes by such Restricted
Subsidiary; and
(2) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Subsidiary Guarantee; provided that
this paragraph shall not be applicable to any Guarantee of any Restricted
Subsidiary that existed at the time such Person became a Restricted
Subsidiary and was not Incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness
is:
(A) pari passu with the Notes or the Note Guarantees, then the
Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee; or
(B) subordinated to the Notes or the Note Guarantees, then the
Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated to the Notes or the Note Guarantees, as the
case may be.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon:
(1) any sale, exchange or transfer, to any Person not an Affiliate of
the Company, of all of the Company's and each Restricted Subsidiary's
Capital Stock in, or all or substantially all the assets of, such Restricted
Subsidiary (which sale, exchange or transfer is not prohibited by the
Indentures); or
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(2) the release or discharge of the Guarantee which resulted in the
creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any Holder (or any Affiliate of such
Holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a Holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(1) transactions (A) approved by a majority of the disinterested members
of the Board of Directors, or (B) for which the Company or a Restricted
Subsidiary delivers to the Trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair to
the Company or such Restricted Subsidiary from a financial point of view;
(2) any transaction solely between the Company and any of its Wholly
Owned Restricted Subsidiaries or solely between Wholly Owned Restricted
Subsidiaries;
(3) the payment of reasonable and customary regular compensation
(whether in cash or securities) and expense reimbursements to directors of
the Company who are not employees of the Company;
(4) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company
files a consolidated tax return or with which the Company is part of a
consolidated group for tax purposes; or
(5) any Restricted Payments not prohibited by the 'Limitation on
Restricted Payments' covenant.
Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this 'Limitation on Transactions
with Shareholders and Affiliates' covenant and not covered by clauses (2)
through (5) of this paragraph;
(A) the aggregate amount of which exceeds $1 million in value, must
be approved or determined to be fair in the manner provided for in clause
(1)(A) or (B) above; and
(B) the aggregate amount of which exceeds $3 million in value, must
be determined to be fair in the manner provided for in clause (1)(B)
above.
LIMITATION ON LIENS
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes (or in the case of a Lien on assets or properties of a Guarantor, the Note
Guarantee of such Guarantor) and all other amounts due under the Indentures to
be directly secured equally and ratably with (or, if the obligation or liability
to be secured by such Lien is subordinated in right of payment to the Notes or
the Note Guarantee, prior to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to:
(1) Liens existing on the Closing Date, including Liens securing
obligations under the Credit Agreement;
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(2) Liens granted after the Closing Date on any assets or Capital Stock
of the Company or its Restricted Subsidiaries created in favor of the
Holders;
(3) Liens with respect to the assets of a Restricted Subsidiary granted
by such Restricted Subsidiary to the Company or a Wholly Owned Restricted
Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary;
(4) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under clause (4) of paragraph
(b) of the 'Limitation on Indebtedness' covenant; provided that such Liens
do not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced;
(5) Liens on any property or assets of a Restricted Subsidiary securing
Indebtedness of such Restricted Subsidiary permitted under the 'Limitation
on Indebtedness' covenant; or
(6) Permitted Liens.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if:
(1) the lease is for a period, including renewal rights, of not in
excess of three years;
(2) the lease secures or relates to industrial revenue or pollution
control bonds;
(3) the transaction is solely between the Company and any Wholly Owned
Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries;
(4) the Company or such Restricted Subsidiary, within 12 months after
the sale or transfer of any assets or properties is completed, applies an
amount not less than the net proceeds received from such sale in accordance
with the third paragraph of the 'Limitation on Asset Sales' covenant
described below; or
(5) the lease is an Aircraft Financing permitted by the 'Limitation on
Aircraft Financing' covenant above.
LIMITATION ON ASSET SALES
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless:
(1) the consideration received by the Company or such Restricted
Subsidiary is at least equal to the fair market value of the assets sold or
disposed of; and
(2) at least 75% of the consideration received (including the fair
market value, as determined in good faith by the Board of Directors, of any
non-cash consideration) consists of
(v) cash,
(w) Temporary Cash Investments,
(x) marketable securities which are liquidated for cash within 90
days following the consummation of such Asset Sale,
(y) Membership interests in BATA Leasing LLC or any similar entity or
venture received in consideration for the contribution of aircraft to be
retired from active service in the Company's fleet, and
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(z) the assumption of Indebtedness of the Company or any Restricted
Subsidiary (other than the Notes and the Note Guarantees); provided,
that:
(I) such Indebtedness is not subordinate in right of payment to
the Notes and the Note Guarantees; and
(II) the Company or such Restricted Subsidiary is irrevocably
released and discharged from such Indebtedness.
In the event and to the extent that the Net Cash Proceeds received by the
Company or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after the Closing Date exceeds (A) the amount of Net Cash
Proceeds required by the terms of the Credit Agreement to be applied to repay
amounts outstanding under the Credit Agreement plus (B) $2,500,000, then the
Company shall or shall cause the relevant Restricted Subsidiary to apply such
excess Net Cash Proceeds as provided in the following paragraph of this
'Limitation on Asset Sales' covenant. The amount of such excess Net Cash
Proceeds required to be applied as provided in the following paragraph shall
constitute 'Excess Proceeds.'
If, as of the first day of any Fiscal Year, there exist Excess Proceeds in
excess of $2,500,000 not theretofore subject to an Offer to Purchase pursuant to
this 'Limitation on Asset Sales' covenant, the Company must commence, not later
than the fifteenth Business day of such Fiscal Year, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds on such date, at a purchase price equal to
100% of the principal amount of the Notes, plus, in each case, accrued interest
(if any) to the Payment Date.
In the event that more than 98% of the outstanding principal amount of the
Notes are tendered pursuant to such Offer to Purchase, the balance of the Notes
will be redeemable, at the Company's option, in whole or in part, at any time or
from time to time thereafter, at a Redemption Price equal to the price specified
in such Offer to Purchase plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date).
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date. In the event that more than 98% of the
outstanding principal amount of a series of Notes are tendered pursuant to such
Offer to Purchase, the balance of that series of Notes will be redeemable, at
the Company's option, in whole or in part, at any time or from time to time
thereafter, at a Redemption Price equal to the price specified in such Offer to
Purchase plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date).
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Company or any Guarantor is then required to file reports
with the Commission, the Company and each Guarantor shall file with the
Commission all such reports and other information as they would be required to
file with the Commission by Sections 13(a) or
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15(d) under the Exchange Act if they were subject thereto. The Company shall
supply the Trustee and each Holder or shall supply to the Trustee for forwarding
to each such Holder, without cost to such Holder, copies of such reports and
other information.
EVENTS OF DEFAULT
The following events will be defined as 'Events of Default' in the
Indentures:
(a) default in the payment of principal of (or premium, if any, on) any
Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise;
(b) default in the payment of interest on any Note when the same becomes
due and payable, and such default continues for a period of 30 days;
(c) default in the performance or breach of the provisions of the
Indentures applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or a Guarantor or the failure
to make or consummate an Offer to Purchase in accordance with the
'Limitation on Asset Sales,' 'Repurchase of Notes upon a Change of Control'
or 'Limitation on Future Issuances' covenants;
(d) the Company or a Guarantor defaults in the performance of or
breaches any other covenant or agreement of the Company or a Guarantor in
the Indentures or under the Notes (other than a default specified in clause
(a), (b) or (c) above) and such default or breach continues for a period of
30 consecutive days after written notice by the Trustee or the Holders of
25% or more in aggregate principal amount of the Notes;
(e) there occurs an event of default under the 2004 Notes Indenture or
the 2005 Notes Indenture;
(f) there occurs with respect to any issue or issues of Indebtedness
(other than the 2004 Notes and the 2005 Notes) of the Company, any Guarantor
or any Significant Subsidiary having an outstanding principal amount of $10
million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (1) an
event of default that has caused the Holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not
been rescinded or annulled within 30 days of such acceleration and/or
(2) the failure to make a principal payment at the final (but not any
interim) fixed maturity and such defaulted payment shall not have been made,
waived or extended within 30 days of such payment default;
(g) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company, any Guarantor or any Significant Subsidiary
and shall not be paid or discharged, and there shall be any period of 30
consecutive days during which a stay of enforcement of such final judgment
or order, by reason of a pending appeal or otherwise, shall not be in
effect;
(h) a court having jurisdiction in the premises enters a decree or order
for (A) relief in respect of the Company or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of the Company or any Significant Subsidiary or for all or substantially all
of the property and assets of the Company or any Significant Subsidiary or
(C) the winding up or liquidation of the affairs of the Company or any
Significant Subsidiary and, in each case, such decree or order shall remain
unstayed and in effect for a period of 30 consecutive days;
(i) the Company or any Significant Subsidiary (A) commences a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
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sequestrator or similar official of the Company or any Significant
Subsidiary or for all or substantially all of the property and assets of the
Company or any Significant Subsidiary or (C) effects any general assignment
for the benefit of creditors; or
(j) any Note Guarantee ceases to be in full force and effect (except
pursuant to its terms) or is declared null and void or any Guarantor denies
that it has any further liability under any Note Guarantee, or gives notice
to such effect.
If an Event of Default (other than an Event of Default specified in clause
(h) or (i) above that occurs with respect to the Company or any Guarantor)
occurs and is continuing under the Indentures, the Trustee or the Holders of at
least 25% in aggregate principal amount of the Notes, then outstanding, by
written notice to the Company (and to the Trustee if such notice is given by the
Holders), may, and the Trustee at the request of such Holders shall, declare the
principal of, premium, if any, and accrued interest on the Notes to be
immediately due and payable.
Upon a declaration of acceleration, such principal of, premium, if any, and
accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (f)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured by the
Company, any Guarantor or the relevant Significant Subsidiary or waived by the
Holders of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(h) or (i) above occurs with respect to the Company or any Significant
Subsidiary, the principal of, premium, if any, and accrued interest on the Notes
then outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of at least a majority in principal amount of the outstanding Notes
by written notice to the Company and to the Trustee, may waive all past defaults
and rescind and annul a declaration of acceleration and its consequences if:
(1) all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the Notes that have become
due solely by such declaration of acceleration, have been cured or waived;
and
(2) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction. For information as to the waiver of
defaults, see ' -- Modification and Waiver.'
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indentures, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith may
be unduly prejudicial to the rights of Holders of Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders of Notes. A
Holder may not pursue any remedy with respect to the Indentures or the Notes
unless:
(1) the Holder gives the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to
the Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations
do not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit
for the
102
enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of
the Holder.
The Indentures require certain officers of the Company and each Guarantor to
deliver to the Trustee on or before a date not more than 90 days after the end
of each fiscal year, an Officers' Certificate stating whether or not such
officers know of any Default or Event of Default that occurred during such
fiscal year. The Company and each Guarantor will also be obligated to notify the
Trustee of any default or defaults in the performance of any covenants or
agreements under the Indentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Neither the Company nor any Guarantor will consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially an
entirety in one transaction or a series of related transactions) to, any Person
or permit any Person to merge with or into the Company or any Guarantor unless:
(1) the Company or the Guarantor shall be the continuing Person, or the
Person (if other than the Company or the Guarantor) formed by such
consolidation or into which the Company or the Guarantor is merged or that
acquired or leased such property and assets of the Company or the Guarantor
shall be a corporation organized and validly existing under the laws of the
United States of America or any state thereof and shall expressly assume, by
a supplemental indenture, executed and delivered to the Trustee, all of the
obligations of the Company or the Guarantor, as the case may be, on all of
the Notes or the Note Guarantees, as the case may be, and under the
Indentures;
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, the Company or any Guarantor, as the case may be, or any Person
becoming the successor obligor of the Notes or the Note Guarantees, as the
case may be, shall have a Consolidated Net Worth (a 'Pro Forma Consolidated
Net Worth') which is equal to or greater than the Consolidated Net Worth of
the Company or the Guarantor, as the case may be, immediately prior to such
transaction (the 'Base Consolidated Net Worth'), or if the Pro Forma
Consolidated Net Worth is less than the Base Consolidated Net Worth, the
amount by which the Pro Forma Consolidated Net Worth is less than the Base
Consolidated Net Worth shall, if considered as a Restricted Payment, be
permitted to be paid at the time under the 'Limitation on Restricted
Payments' covenant;
(4) immediately after giving effect to such transaction on a pro forma
basis the Company or any Guarantor, as the case may be, or any Person
becoming the successor obligor of the Notes or the Note Guarantees, as the
case may be, could Incur at least $1.00 of Indebtedness under the first
paragraph of the 'Limitation on Indebtedness' covenant; provided that this
clause (4) shall not apply to a consolidation or merger with or into a
Wholly Owned Restricted Subsidiary with a positive net worth; and provided
further that, in connection with any such merger or consolidation, no
consideration (other than Capital Stock (other than Disqualified Stock) in
the surviving Person, the Company or any Guarantor) shall be issued or
distributed to the stockholders of the Company or the Guarantor; and
(5) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (3) and (4)) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with; provided, however,
that clauses (3) and (4) above do not apply if, in the good faith
determination of the Board of Directors of the Company, whose determination
shall be evidenced by a Board Resolution, the principal purpose of such
transaction is to change the state of incorporation of the Company or any
Guarantor; and
103
provided further that any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indentures provide that the Company and each
Guarantor will be deemed to have paid and will be discharged from any and all
obligations in respect of the Notes and the Note Guarantees on the 123rd day
after the deposit referred to below, and the provisions of the Indentures will
no longer be in effect with respect to the Notes and the Note Guarantees (except
for, among other matters, certain obligations to register the transfer or
exchange of the Notes, to replace stolen, lost or mutilated Notes, to maintain
paying agencies and to hold monies for payment in trust) if, among other things:
(A) the Company or the Guarantors have deposited with the Trustee, in
trust, money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms
will provide money in an amount sufficient to pay the principal of, premium,
if any, and accrued interest on the Notes on the Stated Maturity of such
payments in accordance with the terms of the Indentures and the Notes;
(B) the Company has delivered to the Trustee (1) either (x) an Opinion
of Counsel to the effect that Holders will not recognize income, gain or
loss for federal income tax purposes as a result of the Company's exercise
of its option under this 'Defeasance' provision and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit, defeasance and discharge
had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the
same effect unless there has been a change in applicable federal income tax
law after the Closing Date such that a ruling is no longer required or
(y) a ruling directed to the Trustee received from the Internal Revenue
Service to the same effect as the aforementioned Opinion of Counsel and
(2) an Opinion of Counsel to the effect that the creation of the defeasance
trust does not violate the Investment Company Act of 1940;
(C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending on
the 123rd day after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; and
(D) if at such time the Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel to
the effect that the Notes will not be delisted as a result of such deposit,
defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indentures further will provide that the provisions of the Indentures will no
longer be in effect with respect to clauses (3) and (4) under 'Consolidation,
Merger and Sale of Assets' and all the covenants described herein under
'Covenants,' clause (c) under 'Events of Default' with respect to such clauses
(3) and (4) under 'Consolidation, Merger and Sale of Assets,' clause (d) with
respect to such other covenants and clauses (e), (f) and (g) under 'Events of
Default' shall be deemed not to be Events of Default upon, among other things,
the deposit with the Trustee, in trust, of money and/or U.S. Government
Obligations that through the payment of interest and principal in respect
thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indentures and the Notes, the satisfaction of the provisions described in
clauses (B)(2), (C) and (D) of the preceding paragraph and the delivery by the
Company to the Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such
104
deposit and defeasance of certain covenants and Events of Default and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit and defeasance had
not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indentures with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but 144 may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments and the Guarantors' Note Guarantees with respect
to such payments will remain in effect.
MODIFICATION AND WAIVER
Modifications and amendments of the Indentures may be made by the Company,
the Guarantors and the Trustee with the consent of the Holders of not less than
a majority in aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of each
Holder affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Note;
(2) reduce the principal amount of, or premium, if any, or interest on,
any Note;
(3) change the place or currency of payment of principal of, or premium,
if any, or interest on, any Note;
(4) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption, on
or after the Redemption Date) of any Note;
(5) reduce the above-stated percentage of outstanding Notes the consent
of whose Holders is necessary to modify or amend the Indentures;
(6) waive a default in the payment of principal of, premium, if any, or
interest on the Notes;
(7) reduce the percentage or aggregate principal amount of outstanding
Notes the consent of whose Holders is necessary for waiver of compliance
with certain provisions of the Indentures or for waiver of certain defaults;
or
(8) release any Guarantor from its Note Guarantee or otherwise modify
the term of the Note Guarantees in a material respect adverse to the
Holders.
Modifications and amendments of the Indentures may be made by the Company,
the Guarantors and the Trustee without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with the 'Consolidation, Merger and Sale of Assets'
covenant;
(3) to comply with any requirements of the Commission in connection with
the qualification of the Indentures under the Trust Indenture Act;
(4) to evidence and provide for the acceptance of appointment by a
successor Trustee;
(5) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(6) to add one or more Subsidiary Guarantees on the terms required by
the Indentures; or
(7) to make any change that does not adversely affect the rights of any
Holder in any material respect.
105
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indentures provide that no recourse for the payment of the principal of,
premium, if any or interest on any of the Exchange Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company or the Guarantors in the
Indentures, or in any of the Exchange Notes or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer, director, employee or controlling person of the Company or
the Guarantors or of any successor Person thereof. Each Holder, by accepting the
Exchange Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indentures provide that, except during the continuance of a Default, the
Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indentures. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indentures and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company or a Guarantor, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that if it acquires any conflicting
interest, it must eliminate such conflict or resign.
BOOK-ENTRY; DELIVERY AND FORM
GENERAL
Except as provided below, the Exchange Notes will be represented by one or
more fully registered global securities, in denominations of $1,000 and any
integral multiple thereof which will be deposited with, or on behalf of, DTC and
registered in the name of Cede & Co., or 'Cede,' the nominee of DTC. Beneficial
interests in the global securities will be represented through book-entry
accounts of financial institutions acting on behalf of beneficial owners as
direct or indirect participants in DTC. Unless and until physical Exchange Notes
in definitive, fully registered form, or the 'Definitive Exchange Notes' are
issued under the limited circumstances described below, all references in this
prospectus to actions by Noteholders will refer to actions taken by DTC upon
instructions from DTC participants, and all references to distributions,
notices, reports and statements to Noteholders will refer, as the case may be,
to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Exchange Notes, or to DTC participants for distribution
to Noteholders in accordance with DTC procedures.
Except in the limited circumstances described below, owners of beneficial
interests in global securities will not be entitled to receive physical delivery
of Definitive Exchange Notes. The Exchange Notes will not be issuable in bearer
form.
DTC has advised us that DTC is a limited purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a 'clearing corporation' within the meaning of the New York Uniform Commercial
Code and 'clearing agency' registered pursuant to Section 17A of the Exchange
Act.
Under the New York Uniform Commercial Code, a 'clearing corporation' is
defined as:
a person that is registered as a 'clearing agency' under the
federal securities laws;
a federal reserve bank; or
any other person that provides clearance or settlement
services with respect to financial assets that would require
it to register as a clearing agency under the federal
securities laws
106
but for an exclusion or exemption from the registration
requirement, if its activities as a clearing corporation,
including promulgation of rules, are subject to regulation
by a federal or state governmental authority.
A 'clearing agency' is an organization established for the execution of
trades by transferring funds, assigning deliveries and guaranteeing the
performance of the obligations of parties to trades.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between DTC participants
through electronic book-entry changes in the accounts of DTC participants. The
ability to execute transactions through book-entry changes in accounts
eliminates the need for transfer of physical certificates. DTC participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of DTC
participants and by the New York Stock Exchange, the American Stock Exchange,
and the National Association of Securities Dealers, Inc. Banks, brokers,
dealers, trust companies and other entities that clear through or maintain a
custodial relationship with a DTC participant either directly or indirectly have
indirect access to the DTC system.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of the Exchange
Notes among DTC participants on whose behalf it acts with respect to the
Exchange Notes and to receive and transmit distributions of principal, premium,
if any, and interest with respect to the Exchange Notes. DTC participants and
indirect DTC participants with which Noteholders have accounts similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective customers. Noteholders that are not DTC participants
or indirect DTC participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the Exchange Notes may do so only through
DTC participants and indirect DTC participants. In addition, Noteholders will
receive all distributions of principal, premium, if any, and interest from the
Company through DTC participants or indirect DTC participants, as the case may
be. Under a book-entry format, Noteholders may experience some delay in their
receipt of payments because payments with respect to the Exchange Notes will be
forwarded by the Company to Cede, as nominee for DTC. We expect DTC to forward
payments in same-day funds to each DTC participant who is credited with
ownership of the Exchange Notes in an amount proportionate to the principal
amount of that DTC participant's holdings of beneficial interests in the
Exchange Notes, as shown on the records of DTC or Cede. We also expect that DTC
participants will forward payments to indirect DTC participants or Noteholders,
as the case may be, in accordance with standing instructions and customary
industry practices. DTC participants will be responsible for forwarding
distributions to Noteholders. Accordingly, although Noteholders will not possess
physical certificates representing the Exchange Notes, DTC's rules provide a
mechanism by which Noteholders will receive payments on the Exchange Notes and
will be able to transfer their interests.
Unless and until Definitive Exchange Notes are issued under the limited
circumstances described below, the only physical Noteholder will be Cede, as
nominee of DTC. Noteholders will not be recognized by us as registered owners of
Exchange Notes under the Indentures. Noteholders will be permitted to exercise
the rights under the Indentures only indirectly through DTC and DTC
participants. DTC has advised us that it will take any action permitted to be
taken by a Noteholder under the Indentures only at the direction of one or more
DTC participants to whose accounts with DTC the Exchange Notes are credited.
Additionally, DTC has advised us that in the event any action requires approval
by Noteholders of a certain percentage of ownership of the Exchange Notes, DTC
will take such action only at the direction of and on behalf of DTC participants
whose holdings include undivided interests that satisfy any such percentage. DTC
may take conflicting actions with respect to other undivided interests to the
extent that such actions are taken on behalf of DTC participants whose holdings
include those undivided interests. DTC will convey notices and other
communications to DTC participants, and DTC participants will convey notices and
other communications to indirect DTC participants and to Noteholders in
accordance with arrangements among them. Arrangements among DTC and its direct
and indirect participants
107
are subject to any statutory or regulatory requirements as may be in effect from
time to time. DTC's rules applicable to itself and DTC participants are on file
with the Commission.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities. Such limits and such laws may limit the
market for beneficial interests in the global securities. Qualified
institutional buyers may hold their interests in the global securities directly
through DTC if they are participants in such system, or indirectly through
organizations which are participants in such system.
A Noteholder's ability to pledge the Exchange Notes to persons or entities
that do not participate in the DTC system, or otherwise to act with respect to
such Exchange Notes may be limited due to the lack of a physical certificate to
evidence ownership of the Exchange Notes and because DTC can only act on behalf
of DTC participants, who in turn act on behalf of indirect DTC participants.
We will not have any liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Exchange Notes
held by Cede, as nominee for DTC, for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for the performance
by DTC, any DTC participant or any indirect DTC participant of their respective
obligations under the rules and procedures governing their obligations.
DEFINITIVE EXCHANGE NOTES
Definitive Exchange Notes will be issued in paper form to Noteholders or
their nominees, rather than to DTC or its nominee, only if we determine that DTC
is no longer willing or able to discharge properly its responsibilities as
depository with respect to the Exchange Notes and we or the trustee are unable
to locate a qualified successor within 90 days of receipt of such notice.
If Definitive Exchange Notes are to be issued by us under the paragraph
immediately above, we will notify all Noteholders through DTC of the
availability of Definitive Exchange Notes. Upon surrender by DTC of the global
securities and receipt of instructions for re-registration, we will reissue the
Exchange Notes as Definitive Exchange Notes to Noteholders.
After Definitive Exchange Notes are issued, we or a paying agent will make
distributions of principal, premium, if any, and interest with respect to
Exchange Notes directly to holders in whose names the Exchange Notes were
registered at the close of business on the applicable record date. Except for
the final payment to be made with respect to an Exchange Note, we or a paying
agent will make distributions by check mailed to the addresses of the registered
holders as they appear on the register maintained by us. We or a paying agent
will make the final payment with respect to any Exchange Note only upon
presentation and surrender of the applicable Exchange Note at the office or
agency specified in the notice of final distribution to Noteholders.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
This section summarizes the material U.S. Federal income tax consequences to
holders associated with an exchange of Private Exchange Notes for Exchange
Notes. However, the discussion is limited in the following ways:
This discussion only covers you if you received Private
Exchange Notes in the Private Exchange Offers and you
exchange such Private Exchange Notes for Exchange Notes
pursuant to the Registered Exchange Offers.
This discussion only covers you if you have always held your
Private Exchange Notes, and will only hold Exchange Notes
received pursuant to the Registered Exchange Offers as a
capital asset (that is, for investment purposes) and if you
do not have a special tax status.
The discussion does not cover tax consequences that depend
upon your particular tax situation in addition to your
ownership of Private Exchange Notes or Exchange Notes. We
108
suggest that you consult your tax advisor about the
consequences of holding Private Exchange Notes or Exchange
Notes in your particular situation.
The discussion is based on current U.S. Federal tax law.
Changes in the law may change the tax treatment of the
Private Exchange Notes or Exchange Notes.
The discussion does not cover state, local or foreign law.
The discussion does not apply to you if you are a 'Non-U.S.
Holder', as defined below, of notes and you (a) own 10% or
more of our voting stock, (b) are a 'controlled foreign
corporation' with respect to us, or (c) are a bank making a
loan in the ordinary course of its business.
We have not requested a ruling from the Internal Revenue
Service (IRS) on the tax consequences of the Registered
Exchange Offers or owning the Exchange Notes. As a result,
the IRS could disagree with any portion of this discussion.
IF YOU ARE CONSIDERING EXCHANGING PRIVATE EXCHANGE NOTES FOR EXCHANGE NOTES
PURSUANT TO THE REGISTERED EXCHANGE OFFERS, WE SUGGEST THAT YOU CONSULT YOUR TAX
ADVISOR ABOUT THE TAX CONSEQUENCES OF SUCH AN EXCHANGE AND HOLDING THE EXCHANGE
NOTES IN YOUR PARTICULAR SITUATION.
For purposes of this summary, a 'U.S. Holder' is:
an individual U.S. citizen or resident alien;
a corporation or other entity taxable as a corporation for
U.S. Federal income tax purposes that was created under U.S.
law (Federal or state); or
an estate or trust whose world-wide income is subject to
U.S. Federal income tax.
If a partnership holds Private Exchange Notes or Exchange Notes, the tax
treatment of a partner will generally depend upon the status of the partner and
upon the activities of the partnership. If you are a partner of a partnership
holding Private Exchange Notes or Exchange Notes, we suggest that you consult
your tax advisor.
For purposes of this summary, a 'Non-U.S. Holder' is:
an individual that is a nonresident alien;
a corporation or other entity taxable as a corporation for
U.S. Federal income tax purposes that was created under
non-U.S. law (Federal or state); or
an estate or trust that is not taxable in the U.S. on its
worldwide income.
REGISTERED EXCHANGE OFFERS
The consummation of the Registered Exchange Offers will not be a taxable
event for U.S. Federal income tax purposes. Accordingly, holders will not
recognize any income, gain or loss in connection with an exchange of Private
Exchange Notes for Exchange Notes pursuant to the Registered Exchange Offers,
and any such holder will have the same adjusted tax basis and holding period in
the Exchange Notes as it had in the Private Exchange Notes, as measured
immediately before the exchange.
109
SUBSIDIARIES OF ATA HOLDINGS CORP.
ATA Holdings owns all of the outstanding equity of the following entities:
ATA Airlines, Inc.
Ambassadair Travel Club, Inc.
ATA Leisure Corp. (formerly ATA Vacations, Inc.; formerly
Amber Tours, Inc.)
Amber Travel, Inc.
American Trans Air Training Corporation
American Trans Air ExecuJet, Inc.
ATA Cargo, Inc.
Chicago Express Airlines, Inc.
Amber Holdings, Inc.*
Kodiak Call Centre, Ltd.*
AATC Holding, Inc.*
KeyTours, Inc.*
Travel Charter International, L.L.C.*
Consultrav, Inc.*
West 63rd Street Land Holding, LLC*
Washington Assurance Ltd.*
Washington Street Aviation, LLC*
- ---------
* The subsidiaries denoted with an asterisk, considered in the aggregate as a
single subsidiary, would not constitute a 'significant subsidiary' as defined
in Rule 1-02(w) of Regulation S-X of the Exchange Act.
110
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This table indicates the number of shares of ATAH common stock owned by
(i) the executive officers and, in the cases of John P. Tague, Kenneth K. Wolff
and Willie G. McKnight, Jr., former executive officers; (ii) the directors;
(iii) any person known by management to beneficially own more than 5% of the
outstanding shares of ATAH common stock; and (iv) all directors and executive
officers of the Company as a group as of December 31, 2003.
<Table>
<Caption>
NUMBER OF PERCENT OF
SHARES RIGHT TO OUTSTANDING
NAME AND ADDRESS OF INDIVIDUAL/GROUP OWNED(1) ACQUIRE(2) SHARES(3)
------------------------------------ -------- ---------- ---------
J. George Mikelsons .................................. 8,210,214 -0- 70
7337 West Washington Street
Indianapolis, IN 46231
John P. Tague(4)...................................... -0- -0- --
James W. Hlavacek..................................... 14,263 270,098 --
Kenneth K. Wolff(5)................................... 14,831 332,268 --
Robert A. Abel........................................ 4,000 4,000 --
Andrejs P. Stipnieks.................................. 15,320 4,000 --
Claude E. Willis...................................... 300 2,500 --
David M. Wing(6)...................................... 1,074 59,558 --
Willie G. McKnight(7)................................. -0- -0- --
Gilbert F. Viets...................................... 4,000 -0- --
William D. Beal....................................... 57 39,333 --
Randy E. Marlar....................................... 272 123,000 --
Dimensional Fund Advisors Inc. ...................... 995,700(8) -0- 9
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
All directors and executive officers as a group(9)
(excluding J. George Mikelsons)..................... 54,117 834,757 --
</Table>
- ---------
<Table>
(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. Tague resigned on August 5, 2002. Options to acquire
150,000 shares were cancelled on August 20, 2002, and
options to acquire 266,137 shares expired on February 6,
2004.
(5) Mr. Wolff retired on April 1, 2003.
(6) Mr. Wing was appointed Executive Vice President and Chief
Financial Officer on March 3, 2003.
(7) Mr. McKnight left the Company on March 17, 2003.
(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.
(9) Group consists of eight persons (Messrs. Hlavacek, Abel,
Stipnieks, Viets, Willis, Wing, Beal and Marlar).
</Table>
111
DIRECTORS AND EXECUTIVE OFFICERS
J. GEORGE MIKELSONS Director since 1993
J. George Mikelsons, age 67, 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 American
Trans Air, Inc. ('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 the
Indianapolis Visitors Association (where he is a member of the Executive
Committee), the Central Indiana Corporate Partnership and the Indianapolis
Symphony Orchestra. 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 67, joined ATA in 1983 and has served as Executive Vice
President since 1989. 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's 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.
ROBERT A. ABEL Director since 1993
Robert A. Abel, age 51, 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 63, 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. He has represented Australia
on the Legal Committee of the International Civil Aviation Organization at
Montreal. Mr. Stipnieks' principal business address is 6933 Andre Drive,
Indianapolis, Indiana 46278. Mr. Stipnieks is a citizen of Australia.
CLAUDE E. WILLIS, D.D.S. Director since 2001
Claude E. Willis, age 58, 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.
112
DAVID M. WING Director since 2003
David M. Wing, age 52, was appointed Chief Financial Officer of the Company in
2003. From 1994 to 2003, he was the Company's Vice President and Controller.
Before joining ATA, Mr. Wing held several leadership positions with American
Airlines over a period of 15 years, including Managing Director of Canadian
Accounting Services, Managing Director of Corporate Receivables and Senior
Manager of Accounting and Control. Mr. Wing, a certified public accountant, is a
graduate of the University of Tulsa where he also holds a Masters in Business
Administration. Mr. Wing is a citizen of the United States.
GILBERT F. VIETS Director since 2003
Gilbert F. Viets, age 60, is 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' principal business address is 760 Wood Court, Zionsville,
Indiana 46077-2025. Mr. Viets is a citizen of the United States.
EXECUTIVE COMPENSATION
This table shows the compensation paid or accrued to the Chairman of the
Board, former President and Chief Executive Officer, former Chief Financial
Officer, former Executive Vice President, Marketing and Sales, and two executive
officers for services rendered during the last three fiscal years.
<Table>
<Caption>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
--------------------------- ---- --------- -------- ---------- ---------------
J. George Mikelsons .................. 2003 687,916 None None 7,200(1)
Chief Executive Officer and Chairman 2002 681,443(2) None None 6,600(3)
of the Board 2001 680,403(4) None None 5,775(5)
James W. Hlavacek .................... 2003 280,000 None None 7,200(1)
Vice Chairman 2002 346,635(2) None None 6,600(3)
2001 341,923(4) 16,000(6) None 5,775(5)
David M. Wing(7) ..................... 2003 319,846 None None 7,200(1)
Executive Vice President and Chief 2002 207,981(2) None None 6,600(3)
Financial Officer 2001 205,154(4) 10,000(6) None 5,775(5)
William D. Beal(8) ................... 2003 248,500 None None 7,200(1)
Sr. Vice President, Operations 2002 207,981(2) None None 7,229(3)
2001 205,154(4) 10,000(6) None 4,233(5)
Randy E. Marlar(9) ................... 2003 230,923 None None 7,200(1)
Sr. Vice President, Strategic 2002 188,173(2) None None 7,494(3)
Sourcing and Process Improvement 2001 185,616(4) 10,000(6) None 4,219(5)
John P. Tague(10) .................... 2003 573,077(11) None None None
Former President and Chief Executive 2002 777,958(11) None None None
Officer 2001 512,885(4) None None 5,775(5)
Willie G. McKnight(12) ............... 2003 162,885 None None None
Former Executive Vice President, 2002 461,635(2) None None None
Marketing and Sales 2001 456,923(4) 8,000(6) None None
</Table>
(footnotes on next page)
113
(footnotes from previous page)
<Table>
(1) Represents the amount of the Company's matching contribution
to its 401(k) Plan in 2003.
(2) Reflects a salary reduction program initiated in November
2002. Mr. McKnight's 2002 salary includes debt forgiveness
of $115,000.
(3) Represents the amount of the Company's matching contribution
to its 401(k) Plan in 2002.
(4) Reflects a salary reduction program due to September 11,
2001, terrorist attacks. Mr. McKnight's 2001 salary includes
debt forgiveness of $115,000.
(5) Represents the amount of the Company's matching contribution
to its 401(k) Plan in 2001.
(6) Bonus amounts relate to a first quarter 2001 performance
plan and were paid in the first half of 2001. Such amounts
do not relate to year-end 2001 performance.
(7) Mr. Wing was appointed Executive Vice President and Chief
Financial Officer on March 3, 2003.
(8) Mr. Beal was appointed Senior Vice President, Operations on
May 20, 2003.
(9) Mr. Marlar was appointed Senior Vice President, Strategic
Sourcing and Process Improvement, on May 20, 2003.
(10) Mr. Tague resigned on August 5, 2002.
(11) Mr. Tague's compensation includes amounts paid to him
pursuant to a severance agreement.
(12) Mr. McKnight left the Company on March 17, 2003. His 2003
compensation includes amounts paid to him pursuant to a
severance agreement.
</Table>
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Mr. Mikelsons 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 Lear Jet has
been used to fly corporate charters since September 2002. The Jet Ranger III and
LongRanger helicopters are leased to American Trans Air ExecuJet, Inc.
('ExecuJet'). ExecuJet uses the Jet Ranger III for third-party charter flying
and subleases the LongRanger to an Indianapolis television station.
The lease for the Cessna Citation currently requires a monthly payment of
$37,500 for a term beginning July 25, 2001, and ending on July 24, 2004. The
lease for the Lear Jet requires a monthly payment of $33,600 for a term
beginning December 24, 2001, and ending December 23, 2003. The lease for the
Lear Jet is currently a month-to-month lease and is being renegotiated. The
lease for the JetRanger III currently requires a monthly payment of $3,500 for a
term beginning November 1, 2002, and ending November 1, 2005. The lease for the
LongRanger requires a monthly payment of $7,350 for a term beginning
December 11, 2001, and ending October 31, 2005. Betaco lowered the lease
payments for the JetRanger III and LongRanger an aggregate of $7,025 per month
because of the decline in values for these aircraft. 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 have had an arrangement pursuant
to which the Company provides certain domestic employees of Mr. Mikelsons with
salary, health insurance and other non-cash benefits. Every quarter, the Company
invoices Mr. Mikelsons for the full amount of such benefits. Historically, the
timing of payments from Mr. Mikelsons to the Company had been inconsistent.
Beginning in 2003, Mr. Mikelsons has reimbursed the Company prior to the pay
date for these employees.
In 2004, the Company will pay approximately $269,000 in annual compensation,
plus associated non-cash benefits, to six employees who serve as the crew for
one boat owned by Betaco and another company owned by Mr. Mikelsons. In 2003,
the Company paid approximate $258,000 for five employees. 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
114
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 use of the boat, Mr.
Mikelsons is responsible for paying the difference.
As of December 31, 2003, Mr. Mikelsons owes $668,029 to the Company pursuant
to the arrangements relating to the domestic employees and the crew for the
boat. In 2002, the Company has paid Mr. Mikelsons a total of $120,000 in
connection with the use of the boat by ATA prior to the July 1, 2002, agreement.
While there have been other business uses by the Company, Mr. Mikelsons has
determined not to seek reimbursement for them.
In 2003, 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 $64,567 and $60,123,
respectively, in compensation from ATA in 2003.
William P. Rogers Jr., a former Chairman of the Audit Committee, is a
partner at the law firm of Cravath, Swaine & Moore LLP, which has provided legal
services to the Company over the past three years.
Mr. Abel is a partner in the accounting firm of Blue & Co., LLC, which
provided tax and accounting services to the Company in 2002.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby, and certain Federal
income tax matters with respect to the Exchange Notes, will be passed upon for
ATA and ATA Holdings by Cravath, Swaine & Moore LLP, New York, New York. William
P. Rogers, Jr., a partner at Cravath, Swaine & Moore LLP, beneficially owns
5,000 shares of common stock of ATA Holdings.
EXPERTS
The consolidated financial statements of ATA Holdings Corp. and its
subsidiaries at December 31, 2003 and 2002, and for each of the three years in
the period ended December 31, 2003, appearing in this prospectus have been
audited by Ernst & Young LLP, independent auditors, as stated in their report
thereon appearing elsewhere herein and are included in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
115
ATA HOLDINGS CORP. (FORMERLY AMTRAN, INC.) AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Annual Consolidated Financial Statements:
Report of Independent Auditors.......................... F-2
Consolidated Balance Sheets at December 31, 2003 and
2002................................................... F-3
Consolidated Statements of Operations for the Years
Ended December 31, 2003, 2002 and 2001................. F-4
Consolidated Statements of Changes in Preferred Stock,
and Shareholders' Equity (Deficit) for the Years Ended
December 31, 2003, 2002 and 2001....................... F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2003, 2002 and 2001................. F-6
Notes to Consolidated Financial Statements.............. F-7
</Table>
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
ATA HOLDINGS CORP. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of ATA Holdings
Corp. and Subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of operations, changes in preferred stock and
shareholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ATA Holdings
Corp. and Subsidiaries at December 31, 2003 and 2002, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 17 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, 'Goodwill and Other Intangible Assets.'
[Ernst & Young LLP]
Indianapolis, Indiana
January 30, 2004,
except for Note 21,
as to which the date is March 1, 2004
F-2
ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
------------ ------------
2003 2002
---- ----
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................... $ 160,644 $ 200,160
Aircraft pre-delivery deposits.......................... -- 16,768
Receivables, net of allowance for doubtful accounts
(2003 -- $1,388; 2002 -- $2,375)...................... 118,745 86,377
Inventories, net........................................ 47,604 51,233
Prepaid expenses and other current assets............... 21,406 39,214
--------- ---------
Total current assets........................................ 348,399 393,752
Property and equipment:
Flight equipment........................................ 324,697 312,652
Facilities and ground equipment......................... 142,032 134,355
--------- ---------
466,729 447,007
Accumulated depreciation.................................... (213,247) (181,380)
--------- ---------
253,482 265,627
Restricted cash............................................. 48,301 30,360
Goodwill.................................................... 14,887 14,887
Prepaid aircraft rent....................................... 144,088 68,828
Investment in BATA.......................................... 14,672 22,968
Deposits and other assets................................... 46,158 51,714
--------- ---------
Total assets................................................ $ 869,987 $ 848,136
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt.................... $ 51,645 $ 14,191
Short-term debt......................................... -- 8,384
Accounts payable........................................ 25,327 23,688
Air traffic liabilities................................. 102,831 94,693
Accrued expenses........................................ 154,689 160,924
--------- ---------
Total current liabilities........................... 334,492 301,880
Long-term debt, less current maturities..................... 443,051 486,853
Deferred gains from sale and leaseback of aircraft.......... 55,392 54,889
Other deferred items........................................ 51,822 42,038
Redeemable preferred stock; authorized and issued 500
shares.................................................... 56,330 --
--------- ---------
Total liabilities................................... 941,087 885,660
Commitments and contingencies
Convertible redeemable preferred stock; authorized and
issued 300 shares......................................... 32,907 30,375
Redeemable preferred stock; authorized and issued 500
shares.................................................... -- 52,110
Shareholders' deficit:
Preferred stock; authorized 9,999,200 shares; none
issued................................................ -- --
Common stock, without par value; authorized 30,000,000
shares; issued 13,502,593 -- 2003;
13,476,193 -- 2002.................................... 65,711 65,290
Treasury stock; 1,711,440 shares -- 2003; 1,711,440
shares -- 2002........................................ (24,778) (24,778)
Additional paid-in capital.............................. 18,163 18,374
Accumulated deficit..................................... (163,103) (178,895)
--------- ---------
Total shareholders' deficit......................... (104,007) (120,009)
--------- ---------
Total liabilities and shareholders' deficit..... $ 869,987 $ 848,136
--------- ---------
--------- ---------
</Table>
See accompanying notes.
F-3
ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------------------
2003 2002 2001
---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues:
Scheduled service................................. $ 1,085,420 $ 886,579 $ 820,666
Charter........................................... 366,207 309,242 359,770
Ground package.................................... 14,682 35,687 52,182
Other............................................. 52,224 45,862 42,866
----------- ----------- -----------
Total operating revenues.................. 1,518,533 1,277,370 1,275,484
----------- ----------- -----------
Operating expenses:
Salaries, wages and benefits...................... 399,622 355,201 325,153
Fuel and oil...................................... 276,057 206,574 251,333
Aircraft rentals.................................. 226,559 190,148 98,988
Handling, landing and navigation fees............. 113,781 110,528 88,653
Crew and other employee travel.................... 64,055 54,774 59,278
Depreciation and amortization..................... 56,729 76,727 121,327
Other selling expenses............................ 50,150 43,934 41,601
Aircraft maintenance, materials and repairs....... 45,741 52,254 61,394
Passenger service................................. 41,000 38,345 43,856
Advertising....................................... 37,932 40,028 26,421
Insurance......................................... 30,214 33,981 10,675
Facilities and other rentals...................... 24,162 22,624 20,241
Commissions....................................... 22,445 23,326 34,789
Ground package cost............................... 12,089 27,882 42,160
Special charges................................... -- -- 21,525
Aircraft impairments and retirements.............. 5,288 66,787 118,868
Goodwill impairment............................... -- 6,893 --
U.S. Government grants............................ (37,156) 16,221 (66,318)
Other............................................. 72,324 71,180 67,410
----------- ----------- -----------
Total operating expenses.................. 1,440,992 1,437,407 1,367,354
----------- ----------- -----------
Operating income (loss)........................... 77,541 (160,037) (91,870)
Other income (expense):
Interest income............................... 2,878 2,829 5,331
Interest expense.............................. (56,324) (35,746) (30,082)
Other......................................... (2,350) (1,260) 554
----------- ----------- -----------
Other expense..................................... (55,796) (34,177) (24,197)
----------- ----------- -----------
Income (loss) before income taxes................. 21,745 (194,214) (116,067)
Income taxes (credits)............................ 1,311 (24,950) (39,750)
----------- ----------- -----------
Net income (loss)................................. 20,434 (169,264) (76,317)
Preferred stock dividends......................... (4,642) (5,720) (5,568)
----------- ----------- -----------
Income (loss) available to common shareholders.... $ 15,792 $ (174,984) $ (81,885)
----------- ----------- -----------
----------- ----------- -----------
Basic earnings per common share:
Average shares outstanding........................ 11,773,713 11,711,906 11,464,125
Net income (loss) per common share................ $1.34 $(14.94) $(7.14)
----------- ----------- -----------
----------- ----------- -----------
Diluted earnings per common share:
Average shares outstanding........................ 14,468,836 11,711,906 11,464,125
Net income (loss) per common share................ $1.27 $(14.94) $(7.14)
----------- ----------- -----------
----------- ----------- -----------
</Table>
See accompanying notes.
F-4
ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
<Table>
<Caption>
TOTAL
REDEEMABLE ADDITIONAL OTHER RETAINED SHAREHOLDERS'
PREFERRED COMMON TREASURY PAID-IN COMPREHENSIVE EARNINGS EQUITY
STOCK STOCK STOCK CAPITAL INCOME (DEFICIT) (DEFICIT)
----- ----- ----- ------- ------ --------- ---------
(DOLLARS IN THOUSANDS)
Balance as of December 31, 2000........ $ 80,000 $59,012 $(24,564) $12,232 $ -- $ 77,974 $ 124,654
-------- ------- -------- ------- ----- --------- ---------
-------- ------- -------- ------- ----- --------- ---------
Net loss............................... -- -- -- -- (76,317) (76,317)
Net loss on derivative instruments, net
of tax................................ -- -- -- -- (687) -- (687)
----- --------- ---------
Total comprehensive loss............ -- -- -- -- (687) (76,317) (77,004)
----- --------- ---------
Preferred dividends.................... -- -- -- -- -- (5,568) (5,568)
Restricted stock grants................ -- 40 (8) 10 -- -- 42
Stock options exercised................ -- 2,912 -- (1,242) -- -- 1,670
Purchase of treasury stock............. -- -- (196) -- -- -- (196)
Disqualifying disposition of stock..... -- -- -- 534 -- -- 534
-------- ------- -------- ------- ----- --------- ---------
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)
-------- ------- -------- ------- ----- --------- ---------
-------- ------- -------- ------- ----- --------- ---------
</Table>
See accompanying notes.
F-5
ATA HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------
2003 2002 2001
---- ---- ----
(DOLLARS IN THOUSANDS)
Operating activities:
Net income (loss)....................................... $ 20,434 $(169,264) $(76,317)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 56,729 76,727 121,327
Aircraft impairments and retirements................ 5,288 66,787 118,868
Goodwill impairments................................ -- 6,893 --
Deferred income tax credit.......................... -- (8,697) (40,848)
Other non-cash items................................ 31,686 39,817 1,843
Changes in operating assets and liabilities:
U.S. Government grant receivable.................... 6,158 16,221 (21,861)
Other receivables................................... (38,526) (27,552) 3,420
Inventories......................................... 38 (7,411) (11,586)
Prepaid expenses and other current assets........... 17,808 (24,701) 5,940
Accounts payable.................................... 1,639 (3,260) 16,882
Air traffic liabilities............................. 8,138 (6,265) (6,092)
Accrued expenses.................................... (15,613) (18,309) 32,848
-------- --------- --------
Net cash provided by (used in) operating
activities.................................... 93,779 (59,014) 144,424
-------- --------- --------
Investing activities:
Aircraft pre-delivery deposits.......................... 16,582 149,510 (30,781)
Capital expenditures.................................... (42,534) (59,346) (119,798)
Noncurrent prepaid aircraft rent........................ (75,260) (12,304) (17,180)
Investment in BATA...................................... -- 18,632 27,343
(Additions) reductions to other assets.................. 2,206 (7,985) 10,474
Proceeds from sales of property and equipment........... 312 424 151
-------- --------- --------
Net cash provided by (used in) investing
activities.................................... (98,694) 88,931 (129,791)
-------- --------- --------
Financing activities:
Preferred stock dividends............................... -- (3,235) (5,568)
Proceeds from sale/leaseback transactions............... -- 2,253 5,229
Proceeds from short-term debt........................... -- 56,858 71,537
Payments on short-term debt............................. (8,384) (167,839) (44,123)
Proceeds from long-term debt............................ 5,729 363,040 219,422
Payments on long-term debt.............................. (14,215) (235,352) (207,294)
Increase in restricted cash............................. (17,941) (30,360) --
Proceeds from stock option exercises.................... 210 449 1,670
Purchase of treasury stock.............................. -- (10) (204)
-------- --------- --------
Net cash provided by (used in) financing
activities.................................... (34,601) (14,196) 40,669
-------- --------- --------
Increase (decrease) in cash and cash equivalents........ (39,516) 15,721 55,302
Cash and cash equivalents, beginning of period.......... 200,160 184,439 129,137
-------- --------- --------
Cash and cash equivalents, end of period................ $160,644 $ 200,160 $184,439
-------- --------- --------
-------- --------- --------
Supplemental disclosures:
Cash payments for:
Interest............................................ $ 47,088 $ 42,102 $ 44,839
Income taxes (refunds), net......................... $(10,992) $ 1,572 $ (9,721)
Financing and investing activities not affecting cash:
Accrued capitalized interest........................ $ 343 $ (10,487) $ 7,465
Notes payable....................................... $ -- $ 2,427 $ --
Issuance of warrants................................ $ -- $ 7,424 $ --
Accrued preferred stock dividends................... $ 4,642 $ 2,485 $ --
</Table>
See accompanying notes.
F-6
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND BUSINESS DESCRIPTION
The consolidated financial statements include the accounts of ATA Holdings
Corp., formerly Amtran Inc. (the 'Company'), and its wholly owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
The Company operates principally in one business segment through ATA
Airlines, Inc., formerly American Trans Air, Inc. ('ATA'), its principal
subsidiary, which accounts for approximately 90% of the Company's operating
revenues. ATA is a U.S.-certificated air carrier providing domestic and
international charter and scheduled passenger air services.
USE OF ESTIMATES
The preparation of financial statements in conformity with 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, 2003 and 2002 was $21.2 million and $14.7
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 Company's fleet of Boeing 727-200 aircraft in cargo
configurations. In exchange for supplying the aircraft and certain operating
services to BATA, the Company has and expects to continue to receive both cash
and its share of the income or loss of BATA. As of December 31, 2003, the
Company transferred 23 of its fleet of Boeing 727-200 aircraft to BATA.
TRAVEL AWARDS PROGRAM
The Company instituted a travel award program in October 2002, which allows
customers to earn points for travel purchased on ATA. Once they accumulate to
certain values, the points can be redeemed for free future travel on ATA. The
Company records a liability based on the estimated incremental cost of providing
travel when the customer has earned points which can be redeemed for the lowest
award level. The liability is relieved as customers complete travel for free
F-7
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
trips or when unused points or awards expire. The liability was $0.7 million and
$0.1 million at December 31, 2003 and 2002, respectively.
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 has created a significant prepaid aircraft rent
amount on the Company's balance sheet. See 'Note 2 -- State of the Industry and
Its Effect on the Company' with respect to renegotiation of aircraft lease terms
as of January 30, 2004.
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.
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 are recorded at cost and are depreciated to residual
values over their estimated useful service lives using the straight-line method.
The estimated useful service lives for the principal depreciable asset
classifications are as follows:
<Table>
<Caption>
ASSET ESTIMATED USEFUL SERVICE LIFE
----- -----------------------------
Aircraft and related equipment
Lockheed L-1011 (Series 50 and 100)...... Depreciating to individual aircraft
retirement date (2004) (See
'Note 16 -- Fleet Impairment.')
Lockheed L-1011 (Series 500)............. Depreciating to common retirement date of
December 2010
Boeing 737-800........................... All aircraft are subject to operating leases
Boeing 757-200........................... All aircraft are subject to operating leases
Boeing 757-300........................... All aircraft are subject to operating leases
SAAB 340B................................ 15 years
Major rotable parts, avionics and
assemblies................................. Life of equipment or lease to which
applicable (generally ranging from 5-18
years)
Improvements to leased flight equipment...... Period of benefit or term of lease
Other property and equipment................. 3-7 years
</Table>
F-8
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
AIRFRAME AND ENGINE OVERHAULS
The Company has entered into engine manufacturers' maintenance agreements
for engines which 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.
AIRCRAFT PRE-DELIVERY DEPOSITS
Advance payments for future aircraft deliveries scheduled within the next 12
months are classified as current aircraft pre-delivery deposits in the
accompanying consolidated balance sheets, as the aircraft will be acquired and
paid for by third parties who will lease them to the Company. Advance payments
for future aircraft deliveries not scheduled within the next 12 months are
classified as deposits and other assets. As of December 31, 2003 and 2002,
deposits and other assets included advanced payments for future aircraft and
engine deliveries totaling $4.6 million and $4.4 million, respectively.
RESTRICTED CASH
Restricted cash consists of deposits held to secure outstanding stand-by
letters of credit currently provided by the Company. Also included is cash
received as prepayment for certain charter flights paid into an escrow account
until the future flight occurs. 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.
INTANGIBLE ASSETS
Goodwill, which represents the excess of cost over fair value of net assets
acquired, was amortized on a straight-line basis over 20 years, until January 1,
2002, when the Company adopted FASB Statement of Financial Accounting Standards
No. 142, 'Goodwill and Other Intangible Assets' ('FAS 142'). The Company now
annually tests for impairment goodwill and other intangible assets deemed to
have indefinite lives. The Company's policy is to record an impairment charge
when it is determined that an asset's carrying value may not be recoverable.
F-9
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents, receivables and variable-rate debt
approximate fair value. For additional information, see 'Note 6 -- Debt.' The
fair value of fixed-rate debt, including current maturities, is estimated using
discounted cash flow analysis based on the Company's current incremental rates
for similar types of borrowing arrangements. The carrying value of the Company's
unsecured senior notes of $300 million had an aggregate estimated fair value of
$261.0 million and $124.5 million based upon dealer-quoted prices at
December 31, 2003, and December 31, 2002, respectively. After giving effect to
the exchange offers on January 30, 2004, the carrying value of the Company's
unsecured senior notes had an aggregate estimated fair value of $304.6 million
based upon dealer quoted prices. See 'Note 2 -- State of the Industry and Its
Effect on the Company' for additional information on the exchange offers.
ADVERTISING
The Company expenses advertising costs in the period incurred.
SPECIAL CHARGES
Special charges represent direct expenses which, due to the events of
September 11, 2001, were considered unusual in nature under the provisions of
APB Opinion 30, 'Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and the Extraordinary, Unusual and
Infrequently Occurring Events and Transactions' ('APB 30'). Special charges in
2001 were $21.5 million, while no expenses were classified as special charges in
2002 or 2003. The 2001 special charges were comprised primarily of costs
associated with the decision shortly after September 11, 2001 to remove early
from service the Company's Boeing 727-200 fleet, some of which were leased;
costs associated with the Company's proposed transaction in which ATA Holdings
Corp. would have been taken private, which was substantially complete just prior
to the September 11, 2001 terrorist attacks, as a result of which the Company
lost financing; and expenses directly associated with the FAA's
temporarily-mandated suspension of commercial flights on September 11, 2001, and
for several days thereafter. Also classified as special charges were increased
hull and liability insurance costs; additional advertising expense incurred as a
direct result of September 11, 2001; interest expense related to debt incurred
under the Company's credit facility to provide operating cash after
September 11, 2001; and other expenses not individually significant. The special
charges for 2001 are summarized in the following table:
<Table>
<Caption>
AMOUNT
(IN THOUSANDS)
--------------
Boeing 727-200 exit costs................................... $ 3,764
Privatization costs......................................... 3,313
Costs due to FAA-mandated suspension of flights............. 929
Increased hull and liability insurance costs................ 2,964
Increased advertising costs................................. 6,316
Increased interest expense.................................. 762
Other expenses.............................................. 3,477
-------
Total Special Charges for 2001.......................... $21,525
-------
-------
</Table>
STOCK BASED COMPENSATION
During 1996, 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
F-10
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 2003 and 2002. The weighted-average fair value of options granted
during 2001 is estimated at $5.44 on the grant date. These estimates were made
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 2001: risk-free interest rate of 3.59%; expected market price
volatility of 0.62; weighted-average expected option life of 1.04 years;
estimated forfeitures of 10.8%; and no dividends.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models use highly subjective
assumptions, including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employees' stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period (1 to 3 years).
The Company's pro forma information follows:
<Table>
<Caption>
2003 2002 2001
---- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net income (loss) available to common shareholders as
reported............................................ $15,792 $(174,984) $(81,885)
Deduct: Total stock-based employee compensation
expense determined under fair value based method,
net of related tax effects.......................... (17) (140) (1,188)
------- --------- --------
Net income (loss) available to common shareholders pro
forma............................................... $15,775 $(175,124) $(83,073)
Basic income (loss) per share as reported............. $ 1.34 $ (14.94) $ (7.14)
Basic income (loss) per share pro forma............... $ 1.34 $ (14.95) $ (7.25)
Diluted income (loss) per share as reported........... $ 1.27 $ (14.94) $ (7.14)
Diluted income (loss) per share pro forma............. $ 1.27 $ (14.95) $ (7.25)
</Table>
2. STATE OF THE INDUSTRY AND ITS EFFECT ON THE COMPANY
The terrorist attacks of September 11, 2001, and generally weak economic
conditions of the past several years have adversely affected the Company and the
airline industry. The industry as a whole, and the Company, suffered very
significant financial losses in the years ended December 31, 2002, and 2001.
While the Company realized net income for the year ended December 31, 2003, that
net income was favorably impacted by the Company's receipt in the second quarter
of 2003 of $37.2 million in U.S. Government funds in conjunction with the
Emergency Wartime Supplemental Appropriations Act ('Supplemental Act'). The
Supplemental Act was signed into law in April 2003, and made available $2.3
billion in reimbursements to U.S. air carriers for expenses incurred and revenue
foregone related to federally mandated enhanced aviation security subsequent to
September 11, 2001.
During 2002, two major air carriers, US Airways Group and UAL Corporation,
filed for reorganization under Chapter 11 of the United States Bankruptcy Code.
US Airways Group
F-11
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
emerged from bankruptcy protection in March 2003. Historically, air carriers
involved in reorganizations have substantially reduced their fares, which could
reduce airline yields further from current levels. Certain air carriers have
sought to reduce financial losses, at least partially, by reducing their seat
capacity. As this has been accomplished by eliminating aircraft from operating
fleets, the fair value of aircraft, including aircraft owned by the Company, has
been adversely affected. The Company has recorded substantial charges to
earnings resulting from fleet retirements and impairments over the past three
years. However, during this period the Company has substantially replaced its
fleet of aging aircraft with new fuel-efficient Boeing aircraft.
In addition to the funds received in the second quarter of 2003, the Company
has benefited from some of the U.S. Government's other initiatives for assisting
the airline industry. Most significant to the Company was the Air Transportation
Safety and System Stabilization Act ('Act') passed in 2001, which provided for,
among other things, up to $5.0 billion in compensation to U.S. airlines and air
cargo carriers for direct and incremental losses resulting from the September
11, 2001 terrorist attacks and the availability of up to $10.0 billion in U.S.
Government guarantees of certain loans made to air carriers, which are
administered by the newly established Air Transportation Stabilization Board
('ATSB'). The Company received $50.1 million of U.S. Government grant
compensation under the Act, of which the final payment of $6.2 million was
received in the first quarter of 2003. The Company also obtained a $168.0
million secured term loan in November 2002, of which $148.5 million is
guaranteed by the ATSB. See 'Note 6 -- Debt' and 'Note 10 -- Shareholder's
Deficit' for additional information about the ATSB loan.
The terrorist attacks of September 11, 2001 and the generally weak economy
have also had a negative impact on the Company's liquidity. The Company's new
Boeing aircraft are all leased and have higher fixed-ownership costs than the
older fleets that they replaced. The terms of many of these aircraft operating
leases were determined before September 11, 2001, and 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 related lease terms. Consequently, the
Company made large cash lease payments on many of its aircraft in the year ended
December 31, 2003, which resulted in a substantial use of the Company's cash. As
of December 31, 2003, the Company was also scheduled to repay the $175 million
outstanding principal of its 10 1/2% Senior Notes ('2004 Notes') in August 2004
and the $125 million outstanding principal of its 9 5/8% Senior Notes ( '2005
Notes' and, together with the 2004 Notes, 'Existing Notes') in December 2005.
On January 30, 2004, the Company successfully completed exchange offers and
issued Senior Notes due 2009 ('Private Exchange 2009 Notes') and cash
consideration for certain of its 2004 Notes and issued Senior Notes due 2010
('Private Exchange 2010 Notes' and, together with the 2009 Notes, 'Private
Exchange 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 Private Exchange 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 Private
Exchange 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 Private
Exchange 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 remain
outstanding after the completion of the exchange offers. In connection with the
exchange offers, the Company also obtained the consent of the holders of the
Existing Notes to amend or eliminate all of the restrictive operating covenants
and certain default provisions of the indentures governing the Existing Notes.
See 'Note 6 -- Debt' for additional information about the exchange offers.
On January 30, 2004, the Company 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
F-12
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Corporation ('ILFC'). The effect of the lease amendments was to delay the
payment of portions of the amounts due under those operating leases primarily
between June 30, 2003 and March 31, 2005 and to extend the leases generally for
two years. Most of the payments delayed during this time period will be
subsequently paid at various times throughout the remaining life of the leases.
The Company 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 will also result in approximately $69.6 million in lower
cash payments during 2004 under these operating leases, as compared to payments
which would have been due under the original lease terms. See 'Note 7 -- Lease
Commitments' for additional information about the Company's operating leases.
While the Company expects that adverse industry conditions are likely to
continue throughout 2004, the Company's management believes that, with the
completion of the exchange offers and operating lease amendments, the Company
has a viable plan to provide sufficient cash to fund operations for the next 12
months. The Company's plan continues to require focused marketing efforts on
those businesses and markets where the Company believes it can be a leading
provider, and the implementation of additional cost-saving initiatives the
Company believes will maintain its low-cost advantage. Although the Company
believes the assumptions underlying its 2004 financial projections are
reasonable, there are significant risks that could cause the Company's 2004
financial performance to be different than projected. These risks relate
primarily to further declines in demand for air travel, further increases in
fuel prices, the uncertain consequences of the major airline bankruptcies, the
possibility of other airline bankruptcy filings and the ongoing geopolitical
impacts of the conflicts in the Middle East.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<Table>
<Caption>
DECEMBER 31,
-------------------
2003 2002
---- ----
(IN THOUSANDS)
Cash and money market funds............................. $158,100 $176,404
U.S. Treasury repurchase agreements..................... 2,544 23,756
-------- --------
$160,644 $200,160
-------- --------
-------- --------
</Table>
4. PROPERTY AND EQUIPMENT
The Company's property and equipment consist of the following:
<Table>
<Caption>
DECEMBER 31,
-------------------
2003 2002
---- ----
(IN THOUSANDS)
Flight equipment, including airframes, engines and $324,697 $312,652
other.................................................
Less accumulated depreciation........................... (112,912) (94,173)
-------- --------
211,785 218,479
-------- --------
Facilities and ground equipment......................... 142,032 134,355
Less accumulated depreciation........................... (100,335) (87,207)
-------- --------
41,697 47,148
-------- --------
$253,482 $265,627
-------- --------
-------- --------
</Table>
Depreciation and amortization expense was $56.7 million, $76.7 million and
$121.3 million for 2003, 2002 and 2001, respectively.
F-13
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<Table>
<Caption>
DECEMBER 31,
------------
2003 2002
---- ----
(IN THOUSANDS)
Accrued salaries........................................ $ 12,990 $ 18,543
Accrued vacation pay.................................... 19,899 17,543
Other accrued expenses (individually less than 5% of
total current liabilities)............................ 121,800 124,838
-------- --------
$154,689 $160,924
-------- --------
-------- --------
</Table>
6. DEBT
Debt consists of the following:
<Table>
<Caption>
DECEMBER 31,
------------
2003 2002
---- ----
(IN THOUSANDS)
Partially guaranteed term loan, variable rate of LIBOR
plus a margin, averaging 2.2% in 2003 and 2.8% in
2002, payable in varying installments from November
2003 through November 2008............................
$161,000 $168,000
Unamortized discount on partially guaranteed term
loan.................................................. (5,350) (7,400)
Unsecured Senior Notes, fixed rate of 10.5%, partially
refinanced in 2004.................................... 175,000 175,000
Unsecured Senior Notes, fixed rate of 9.625%, partially
refinanced in 2004.................................... 125,000 125,000
Secured note payable to institutional lender, variable
rate of LIBOR plus 2.0%, averaging 3.5% in 2003 and
5.0% in 2002, payable in varying installments through
October 2005.......................................... 5,975 7,675
Secured note payable to institutional lender, variable
rate of LIBOR plus 2.0%, averaging 3.5% in 2003 and
5.0% in 2002, payable in varying installments through
March 2005............................................ 4,983 6,683
Mortgage note payable to institutional lender, fixed
rate of 8.75%, payable in varying installments through
June 2014............................................. 8,322 9,080
Mortgage note payable to institutional lender, fixed
rate of 8.30%, payable in varying installments through
June 2014............................................. 6,260 6,915
City of Chicago variable rate (averaging 1.7% in 2003
and 1.5% in 2002) special facility revenue bonds,
payable in December 2020.............................. 6,000 6,000
City of Chicago construction financing agreement, rate
averaging 5.75%, payable monthly...................... 5,673 --
Aircraft pre-delivery deposit finance facilities........ -- 8,384
Other................................................... 1,833 4,091
-------- --------
494,696 509,428
Less current maturities and short-term debt............. 51,645 22,575
-------- --------
$443,051 $486,853
-------- --------
-------- --------
</Table>
In November 2002, the Company obtained a $168.0 million secured term loan,
of which $148.5 million is guaranteed by the ATSB. Interest is payable monthly
at LIBOR plus a margin. Guarantee fees payable quarterly were 5.5% of the
outstanding guaranteed principal balance in 2003, escalating to 9.5% on the
outstanding guaranteed principal balance in 2004 through 2008.
F-14
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net proceeds of the term loan were approximately $164.8 million, after
deducting issuance costs. The Company used a portion of the net proceeds to
repay borrowings on its existing revolving bank credit facility and to
collateralize new letters of credit, previously secured by the bank facility.
The additional secured term loan proceeds of approximately $104.7 million were
used for general corporate purposes. The secured term 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 $39.3 million as of December 31, 2003. The aircraft,
spare engines and parts consist of two Lockheed L-1011-500 aircraft, one
Lockheed L-1011-50 aircraft, two Saab 340B aircraft, 24 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 $67.5 million as of
December 31, 2003. In conjunction with obtaining the secured term loan, the
Company issued a warrant to the Federal Government 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. (See 'Note 10 -- Shareholders' Deficit.') The amortization
of the discount resulted in an increase in the effective rate of interest on the
secured term loan, which was 3.4% as of December 31, 2003 and 3.2% as of
December 31, 2002.
In July 1997, the Company sold $100.0 million principal amount of 10.5%
unsecured senior notes. The Company sold an additional $75.0 million principal
amount of these notes in December 1999. 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 Private Exchange 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 is due according to the
original terms in August 2004. In accordance with FASB Statement of Financial
Accounting Standards No. 6 ('FAS 6'), 'Classification of Short Term Obligations
Expected to be Refinanced', since the agreement was entered into prior to the
balance sheet being issued, the $155.3 million of tendered notes has been
reclassified as non-current as of December 31, 2003. See 'Note 2 -- State of the
Industry and Its Effect on the Company' for additional information on the
exchange of the notes.
In December 1998, the Company sold $125.0 million principal amount of 9.625%
unsecured senior notes. 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 Private
Exchange 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. See 'Note 2 -- State of the Industry and Its Effect on the
Company' for additional information on the exchange of the notes.
In June 1999, the Company obtained an $8.0 million loan at 8.30% secured by
a 15-year mortgage on the new Maintenance and Operations Center. This building
has a carrying amount of $7.6 million as of December 31, 2003.
In March and October 2000, the Company issued two $11.5 million variable
rate five-year notes, each collateralized by one Lockheed L-1011-500 aircraft.
The related aircraft have a combined carrying amount of $19.9 million as of
December 31, 2003.
F-15
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 2000, the Company obtained a $10.0 million, 14-year loan at
8.75%, secured by a mortgage on its maintenance facility at the Indianapolis
International Airport. The building has a carrying amount of $8.0 million as of
December 31, 2003.
In March 2003, the Company entered into an agreement with the City of
Chicago who agreed to lend the Company up to $8.9 million for construction costs
for a gate extension at Midway Airport. As of December 31, 2003, the Company had
borrowed $5.7 million under this agreement. The interest rate for this loan
averaged 5.75% in 2003.
The unsecured senior notes, guaranteed term loan and other loans secured by
certain collateral are subject to restrictive covenants, including, among other
things, limitations on: the incurrence of additional indebtedness; new aircraft
acquisitions; the payment of dividends; certain transactions with shareholders
and affiliates; and the creation of liens on or other transactions involving
certain assets. In addition, certain covenants require minimum cash balances and
specified financial ratios to be maintained. The guaranteed term loan and
certain other loans contain cross-default provisions.
The guaranteed term loan has three financial covenants that the Company is
required or soon will be required to meet. The first covenant currently requires
the Company to maintain a minimum unrestricted cash balance of $40 million at
all times. The second covenant, which is measured quarterly, becomes effective
September 30, 2004, and will require the Company to maintain a ratio of at least
1.00 of consolidated earnings before interest, taxes, depreciation,
amortization, and aircraft rent ('EBITDAR') to consolidated fixed charges, as
defined in the agreement. The third covenant, which is also measured quarterly
and becomes effective March 31, 2005, will require the Company to maintain a
ratio less than 7.00 of consolidated indebtedness, as defined in the agreement,
to EBITDAR.
Future maturities of long-term debt are as follows as of December 31, 2003
and as adjusted to reflect the issuance of the Private Exchange Notes:
<Table>
<Caption>
CASH UNAMORTIZED TOTAL DEBT
OBLIGATIONS AT DISCOUNT AT PER BALANCE SHEET
DECEMBER 31, DECEMBER 31, DECEMBER 31, TOTAL DEBT,
2003 2003 2003 AS ADJUSTED
---- ---- ---- -----------
(IN THOUSANDS)
2004....................... $ 53,340 $(1,695) $ 51,645 $ 64,660
2005....................... 57,697 (1,399) 56,298 69,313
2006....................... 30,456 (1,094) 29,362 29,362
2007....................... 30,008 (776) 29,232 29,232
2008....................... 51,172 (386) 50,786 50,786
Thereafter................. 277,373 -- 277,373 277,373
-------- ------- -------- --------
$500,046 $(5,350) $494,696 $520,726
-------- ------- -------- --------
-------- ------- -------- --------
</Table>
Interest capitalized in connection with long-term asset purchase agreements
and construction projects was $2.8 million, $7.8 million and $29.0 million in
2003, 2002 and 2001, respectively. The capitalized interest includes $1.9
million, $1.4 million and $14.7 million in 2003, 2002 and 2001, 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.
F-16
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASE COMMITMENTS
At December 31, 2003, the Company had the following operating aircraft
leases:
<Table>
<Caption>
TOTAL LEASED LEASE EXPIRATIONS LEASE
------------ ----------------- -----
Lockheed L-1011-100.............. 1 2005 60 months
Boeing 727-200(1)................ 1 2004 72 months
Boeing 757-200(2)................ 16 Between 2008 and 2022 1 to 22 years
Boeing 757-300................... 12 2023 and 2024 22 years
Boeing 737-800................... 32 Between 2017 and 2024 15 to 22 years
SAAB 340B........................ 15 2009 and 2012 9.5 years
Engines -- Lockheed L-1011-500... 6 2006 and 2007 7 years
Engines -- Boeing 757-200........ 5 Between 2008 and 2011 9 to 15 years
Engines -- Boeing 757-300........ 2 2024 22.5 years
Engines -- Boeing 737-800........ 2 2021 20 years
</Table>
- ---------
(1) As of December 31, 2003, this aircraft has been retired from revenue
service, but the Company remains obligated on the lease. Accordingly, the
Company has accrued the remaining rent payments due to the lessor.
(2) As of December 31, 2003, one newly delivered 757-200 aircraft was not yet on
the Company's operating certificate.
-------------------
The Company is responsible for all maintenance costs on these aircraft and
engines, and it must meet specified airframe and engine return conditions upon
lease expiration.
As of December 31, 2003, the Company had other long-term leases related to
certain ground facilities, including terminal space and maintenance facilities
and certain ground equipment, with lease terms that vary from 2 to 45 years and
expire at various dates through 2040. The lease agreements relating to the
ground facilities, which are primarily owned by governmental units or
authorities, generally do not provide for transfer of ownership, nor do they
contain options to purchase.
The Company leases its headquarters facility from the Indianapolis Airport
Authority under an operating lease agreement, which expired in December 2002.
The Company exercised an option to extend the lease another five years. The
Company is responsible for maintenance, taxes, insurance and other expenses
incidental to the operation of the facilities.
On January 30, 2004, the Company completed amendments of certain aircraft
operating leases that were entered into in 2001, 2002 and 2003 with BCSC, GECAS
and ILFC. The effect of the lease amendments was to delay the payment of
portions of the amounts due under those operating leases primarily between June
30, 2003, and March 31, 2005. The payments delayed during this time period will
be subsequently paid at various times throughout the remaining life of the
leases. See 'Note 2 -- State of the Industry and Its Effects on the Company' for
further information on the lease amendments. After giving effect to these
amendments, the Company's future minimum lease payments at December 31, 2003,
for noncancelable operating leases with initial terms of more than one year are
as follows:
F-17
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
FACILITIES
FLIGHT AND GROUND
EQUIPMENT EQUIPMENT TOTAL
--------- --------- -----
(IN THOUSANDS)
2004(1)......................................... $ 194,730 $12,573 $ 207,303
2005............................................ 255,832 10,185 266,017
2006............................................ 307,166 9,119 316,285
2007............................................ 308,887 9,270 318,157
2008............................................ 302,942 6,894 309,836
Thereafter...................................... 2,440,899 21,084 2,461,983
---------- ------- ----------
$3,810,456 $69,125 $3,879,581
---------- ------- ----------
---------- ------- ----------
</Table>
- ---------
(1) 2004 lease obligations include a refund of approximately $29.8 million
related to lease payments made in 2003 due to completion of certain
retroactive lease amendments on January 30, 2004. For further discussion,
see 'Note 2 -- State of the Industry and Its Effects on the Company.'
Rental expense for all operating leases in 2003, 2002 and 2001 was $250.7
million, $212.8 million and $119.2 million, respectively.
The Company's 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. Forty-nine 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 significant prepaid aircraft rent
amount on the Company's balance sheet. The portion of the prepaid aircraft rent
that will be utilized in the next twelve months is recorded as short-term
prepaid expense while the remainder is recorded as long-term prepaid aircraft
rent. Twenty-four 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 that will be paid in the next twelve months is recorded as
short-term accrued expenses while the remainder is recorded as long-term
deferred items. Two of the Company's aircraft operating leases were structured
whereby monthly cash rents and monthly book rents are equal. The table below
summarizes the prepaid and accrued aircraft rents for 2003 and 2002 that result
from this straight-line expense recognition as reported under the following
captions on the Company's balance sheet:
<Table>
<Caption>
DECEMBER 31,
------------------
2003 2002
---- ----
(IN THOUSANDS)
Assets:
Prepaid expenses and other current assets
(short-term)............................................ $ 3,879 $ 2,280
Prepaid aircraft rent (long-term)....................... 144,088 68,828
-------- -------
Total prepaid aircraft rent......................... $147,967 $71,108
-------- -------
-------- -------
Liabilities:
Accrued expenses (short-term)........................... $ 11,529 $ 2,151
Other deferred items (long-term)........................ 27,976 20,105
-------- -------
Total accrued aircraft rent......................... $ 39,505 $22,256
-------- -------
-------- -------
</Table>
On January 30, 2004, the Company received a refund of $29.8 million related
to payments made in 2003 under the original terms of certain retroactively
amended leases. For further discussion, see 'Note 2 -- State of the Industry and
Its Effects on the Company.'
F-18
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The provision for income tax expense (credit) consisted of the following:
<Table>
<Caption>
DECEMBER 31,
----------------------------
2003 2002 2001
---- ---- ----
(IN THOUSANDS)
Federal:
Current............................................. $ 418 $(15,743) $ 4,070
Deferred............................................ -- (6,888) (40,546)
------ -------- --------
418 (22,631) (36,476)
State:
Current............................................. 893 306 510
Deferred............................................ -- (2,625) (3,784)
------ -------- --------
893 (2,319) (3,274)
------ -------- --------
Income tax expense (credit)............................. $1,311 $(24,950) $(39,750)
------ -------- --------
------ -------- --------
</Table>
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:
<Table>
<Caption>
DECEMBER 31,
----------------------------
2003 2002 2001
---- ---- ----
(IN THOUSANDS)
Federal income tax (credit) at statutory rate........... $7,611 $(67,975) $(40,626)
State income tax (credit) net of federal benefit........ 580 (4,108) (2,328)
Non-deductible expenses................................. 3,031 2,393 2,041
Valuation allowance..................................... (9,871) 43,324 --
Other, net.............................................. (40) 1,416 1,163
------ -------- --------
Income tax expense (credit)............................. $1,311 $(24,950) $(39,750)
------ -------- --------
------ -------- --------
</Table>
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:
<Table>
<Caption>
DECEMBER 31,
-------------------
2003 2002
---- ----
(IN THOUSANDS)
Deferred tax liabilities:
Property and equipment.................................. $ 22,325 $ 15,353
-------- --------
Deferred tax liabilities............................ 22,325 15,353
-------- --------
Deferred tax assets:
Tax benefit of net operating loss carryforwards......... 29,554 40,766
Alternative minimum tax and other tax credit
carryforwards........................................... 1,689 1,261
Vacation pay accrual.................................... 7,418 6,526
Deferred rent expense................................... 7,549 3,985
Other deductible temporary differences.................. 9,568 6,139
-------- --------
Deferred tax assets................................. 55,778 58,677
-------- --------
Valuation allowance......................................... (33,453) (43,324)
-------- --------
Net deferred tax asset.............................. $ -- $ --
-------- --------
-------- --------
</Table>
As of December 31, 2003 and 2002, the Company had incurred a three-year
cumulative loss. Because of this cumulative loss and the presumption under
accounting principles generally accepted in the United States that net deferred
tax assets should be fully reserved if it is more likely than
F-19
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
not that they will not be realized through carrybacks or other tax strategies,
the Company recorded a full valuation allowance against its net deferred asset
of $33.5 million at December 31, 2003 and $43.3 million at December 31, 2002.
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 in alternative minimum tax and recorded this as a current tax expense,
together with $0.9 million in state and local income taxes.
Approximately $76.3 million of net operating loss carryover remains as of
December 31, 2003. Its use is limited to future taxable income of the Company.
The carryover will expire starting in 2020.
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 2003 and
2002, and 55.0% in 2001, of the amount contributed by each participant up to the
first six percent of eligible compensation. Company matching contributions
expensed in 2003, 2002 and 2001 were $6.8 million, $5.2 million and $4.7
million, respectively.
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 2003 plan year, the Company contributed between 4.0% and 6.5% 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 eligible for the plan immediately upon hire.
Contributions vest after five years of service. The contribution expense for
this plan in 2003 was $6.1 million.
10. SHAREHOLDERS' DEFICIT
Since 1994, the Company's Board of Directors has approved the repurchase of
up to 1,900,000 shares of the Company's common stock. As of December 31, 2003,
the Company had repurchased 1,711,440 common shares at a cost of $24.8 million.
Currently, the Company is unable to repurchase common stock due to certain debt
covenants under its Senior Note indentures.
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.
F-20
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of common stock option changes follows:
<Table>
<Caption>
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
Outstanding at December 31, 2000.......................... 2,910,473 $14.19
--------- ------
Granted............................................... 106,600 12.21
Exercised............................................. (181,949) 9.18
Canceled.............................................. (121,075) 21.60
--------- ------
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
--------- ------
--------- ------
Options exercisable at December 31, 2001.................. 2,528,633 $13.80
--------- ------
--------- ------
Options exercisable at December 31, 2002.................. 2,329,076 $13.69
--------- ------
--------- ------
Options exercisable at December 31, 2003.................. 1,761,033 $13.40
--------- ------
--------- ------
</Table>
Options outstanding at December 31, 2003, expire from January 2004 to
November 2011. A total of 3,084,997 shares are reserved for future grants as of
December 31, 2003, under the 1993, 1996 and 2000 Plans. The following table
summarizes information concerning outstanding and exercisable options at
December 31, 2003:
<Table>
<Caption>
RANGE OF EXERCISE PRICES
----------------------------------------------------------
$6 - $8 $9 - $14 $15 - $19 $20 - $27
------- -------- --------- ---------
Options outstanding:
Weighted-Average Remaining Contractual Life... 4.1 years 3.5 years 6.0 years 5.0 years
Weighted-Average Exercise Price............... $7.96 $9.28 $15.64 $26.04
Number........................................ 150,500 994,924 284,925 338,350
Options exercisable:
Weighted-Average Exercise Price............... $7.96 $9.27 $15.64 $26.06
Number........................................ 150,500 988,258 284,925 337,350
</Table>
In November 2002, in connection with the guaranteed term loan agreement (See
'Note 6 -- Debt'), the Company issued 1,478,059 warrants to the Federal
Government and 194,089 warrants to other loan participants.
The warrants provide for the purchase of shares of the Company's common
stock at an exercise price of $3.53 per share for a term of ten years.
For accounting purposes, the warrants were valued at $7.4 million, or $4.44
per share. This estimate was made using the Black-Scholes warrant pricing model
with the following weighted-average assumptions for 2002: risk-free interest
rate of 3.32%; expected market price volatility of 0.68; weighted-average
expected warrant life of ten years; and no dividends.
The Black-Scholes warrant valuation model was developed for use in
estimating the fair value of traded warrants, which have no vesting restrictions
and are fully transferable. In addition, warrant valuation models use highly
subjective assumptions, including the expected stock price volatility. Because
the Company's warrants have characteristics significantly different from those
of traded warrants, and because changes in the subjective input assumptions can
materially affect the
F-21
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its warrants.
As of December 31, 2003, 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
In the last half of 2000, the Company issued and sold 300 shares of Series B
convertible redeemable preferred stock, without par value ('Series B
Preferred'), at a price of $100,000 per share. 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
convertible into shares of the Company's common stock at a conversion rate of
6,381.62 shares of common stock per share of Series B Preferred, at a conversion
price of $15.67 per share of common stock, subject to antidilution adjustments.
Shares may be converted into shares of the Company's common stock at any time up
to the mandatory redemption date. The Series B Preferred is optionally
redeemable by the Company under certain conditions, but the Company must redeem
the Series B Preferred no later than September 20, 2015. Optional redemption by
the Company may occur at 103.6% of the liquidation amount beginning
September 20, 2003, decreasing 0.3% of the liquidation amount per year to 100.0%
of the liquidation amount, plus cumulative unpaid dividends, if any, at the
mandatory redemption date of September 20, 2015. Shares of Series B Preferred
have the right to vote on or consent to only the following matters (in addition
to any voting rights otherwise required by law): (1) amendments to the Company's
Articles of Incorporation which are adverse to the holders of Series B
Preferred; (2) if six quarterly dividends go unpaid, the owner of Series B
Preferred, together with the owner of Series A Preferred (as defined below) and
the owners of any other preferred stock ranking equal to Series B Preferred,
will be entitled to elect at the next annual shareholders meeting 25% of the
Company's Board of Directors, but no less than two directors; and (3) increases
in the number of authorized shares of Series B Preferred and authorizations of
preferred stock ranking senior to Series B Preferred. Votes will be allocated
among holders of preferred stock based on the percentage owned by each holder of
the total liquidation amount of all series of preferred stock.
Also, in the last half of 2000, the Company issued and sold 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. Optional redemption
by the Company may occur at a redemption premium of 50.0% of the dividend rate
beginning December 28, 2003, decreasing 10.0% per year to 20.0% of the dividend
rate commencing December 28, 2006, and to 0.0% after the seventh year after
issuance, plus cumulative unpaid dividends, if any. Shares of Series A Preferred
have the right to vote on or consent to only the following matters (in addition
to any voting rights otherwise required by law): (1) amendments to the Company's
Articles of Incorporation which are adverse to the holders of Series A
Preferred; (2) if three semiannual dividends go unpaid, the owner of Series A
Preferred, together with the owner of Series B Preferred and the owners of any
other preferred stock ranking equal to Series A Preferred, will be entitled to
elect at the next annual shareholders' meeting 25% of the Company's Board of
F-22
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Directors, but no less than three directors; (3) approval of (a) an acquisition
by the Company or one of its subsidiaries of assets and liabilities from a third
party the net asset value of which equals 10% of the Company's net consolidated
assets in its most recent publicly available balance sheet, or (b) a merger by
the Company or one of its subsidiaries with a third party involving an
acquisition or disposition of more than 10% of the Company's consolidated net
assets in its most recent publicly available balance sheet (other than a
disposition of all the Company's L-1011 or Boeing 727 aircraft) that, in either
case, results in a downgrade of the Company's credit rating by Moody's to 'C1'
or by Standard & Poor's to 'C+,' unless the Company offers to redeem the Series
A Preferred prior to that transaction at a price equal to the liquidation amount
plus accrued and unpaid dividends to the redemption date; and (4) increases in
the number of authorized shares of Series A Preferred and authorizations of
preferred stock ranking senior to Series A Preferred. Votes will be allocated
among holders of preferred stock based on the percentage owned by each holder of
the total liquidation amount of all series of preferred stock. The Company has
the right on any date on which dividends are payable to exchange in whole but
not in part subordinated notes for shares of Series A Preferred; the principal
amount of any exchanged subordinated notes will equal the liquidation amount of
the shares of Series A Preferred, plus any accrued and unpaid dividends.
Prior to and as of December 31, 2003, the Company's unsecured senior notes
indentures relating to the 2004 Notes and 2005 Notes contained certain
restricted payment covenants which limited the Company's ability to pay
preferred stock dividends. At the end of the third quarter of 2002, that
covenant no longer permitted payment of preferred dividends. The Company accrued
preferred dividends at the appropriate rates plus interest for the payments due
between December 15, 2002 and December 31, 2003. In January 2004, as a result of
completion of the exchange offers, the restricted payment covenants for the 2004
Notes and 2005 Notes were removed. In addition, the restricted payment covenants
in the Senior Note indentures for the 2009 Notes and 2010 Notes permits the
Company to pay preferred stock dividends. Concurrently with the completion of
the exchange offers on January 30, 2004, the Company paid all accrued preferred
dividends in arrears, including interest, totaling $9.7 million. See
'Note 2 -- State of the Industry and Its Effects on the Company' for more
information about the exchange offer.
F-23
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<Table>
<Caption>
2003 2002 2001
---- ---- ----
Numerator:
Net income (loss)............................... $20,434,000 $(169,264,000) $(76,317,000)
Preferred stock dividends....................... (4,642,000) (5,720,000) (5,568,000)
----------- ------------- ------------
Income (loss) available to common shareholders--
numerator for basic earnings per share........ 15,792,000 (174,984,000) (81,885,000)
----------- ------------- ------------
Effect of dilutive securities:
Convertible redeemable preferred stock
dividend.................................. 2,532,000 -- --
----------- ------------- ------------
Numerator for diluted earnings per share.... $18,324,000 $(174,984,000) $(81,885,000)
----------- ------------- ------------
----------- ------------- ------------
Denominator:
Denominator for basic earnings per share --
adjusted weighted average shares.............. 11,773,713 11,711,906 11,464,125
----------- ------------- ------------
----------- ------------- ------------
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.............. 14,468,836 11,711,906 11,464,125
----------- ------------- ------------
----------- ------------- ------------
Basic income (loss) per share....................... $ 1.34 $ (14.94) $ (7.14)
----------- ------------- ------------
----------- ------------- ------------
Diluted income (loss) per share..................... $ 1.27 $ (14.94) $ (7.14)
----------- ------------- ------------
----------- ------------- ------------
</Table>
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 2002 and 2001, have been
excluded from the computation of diluted earnings per share because their effect
would be antidilutive. In addition, the impact of 59,400 and 553,025 employee
stock options in 2002 and 2001 was not included in the computation of diluted
earnings per share because their effect would be antidilutive. In 2002, the
impact of the 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.
13. COMMITMENTS AND CONTINGENCIES
The Company has a purchase agreement with the Boeing Company ('Boeing') to
purchase seven new Boeing 737-800s, which are currently scheduled for delivery
between July 2005 and December 2005. 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. The Company'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 the Company and does not have suitable
pre-delivery deposit financing, and if Boeing does not elect to provide such
financing acceptable to the Company, these deliveries can be delayed for one
year periods annually for up to five years. Aircraft pre-delivery deposits are
required for these aircraft, and the Company has historically funded these
deposits for past aircraft deliveries using operating cash and pre-delivery
deposit financing facilities. The Company can provide no assurance that it will
be able to secure pre-delivery deposit financing facilities or
F-24
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
permanent financing for any future aircraft purchases. As of December 31, 2003,
the Company had $4.6 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 are expected
to be returned to the Company. As of December 31, 2003, the Company also has
purchase rights with Boeing for 40 Boeing 737-800 aircraft.
The Company has an agreement to lease one additional Boeing 737-800 under an
operating lease from ILFC, which is currently scheduled for delivery in May
2004.
The Company has an agreement with GECAS to lease one additional Boeing
737-800 currently scheduled for delivery in November 2004.
The Company has an agreement with General Electric to purchase four
CFM56-7827 spare engines, which are currently scheduled for delivery between
2005 and 2008.
The Company intends to finance all future aircraft and engine deliveries
under purchase agreements with leases accounted for as operating leases. The
Company has estimated the amount of payments for these expected future lease
obligations, using the terms of leases for comparable aircraft currently in
place. The estimated future payments for these nine future aircraft deliveries
and four spare engines, which do not include obligations for leases currently in
place, are shown in the following table:
<Table>
<Caption>
EXPECTED FUTURE
LEASE OBLIGATIONS
-----------------
(IN THOUSANDS)
2004................................................ $ 3,101
2005................................................ 18,893
2006................................................ 42,527
2007................................................ 54,507
2008................................................ 39,816
Thereafter.......................................... 483,380
--------
$642,224
--------
--------
</Table>
The Company paid cash consideration of $7.8 million related to the exchange
of the 2004 Notes and $5.2 million related to the exchange of the 2005 Notes
upon the completion of the exchange offers on January 30, 2004. Also, with the
completion of the exchange offers, the Company has additional 2009 Notes of $7.8
million outstanding and additional 2010 Notes of $5.3 million outstanding upon
completion of the exchange offers, which mature in 2005. The cash consideration
paid on January 30, 2004 and the additional notes were not recorded as a
liability on the Company's balance sheet as of December 31, 2003. See
'Note 2 -- State of the Industry and Its Effect on the Company' for additional
information on the exchange offers.
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.
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.
F-25
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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 19.6%, 13.9%
and 13.1% of consolidated revenues for 2003, 2002 and 2001, respectively.
15. FUEL PRICE RISK MANAGEMENT
During 2002 and 2001, the Company entered into fuel hedge contracts to
minimize the risk of fuel price fluctuations. The Company hedged fuel using
heating oil swap agreements, which establish swap prices for designated periods.
The Company did not enter into any fuel hedge contracts in 2003. The Company
accounted for its fuel hedge contracts in accordance with FASB Statement of
Financial Accounting Standards No. 133, 'Accounting for Derivative Instruments
and Hedging Activities', as amended ('FAS 133'). FAS 133 requires the Company to
recognize all derivatives on the balance sheet at fair value. For derivatives
that are hedges, depending on the nature of the hedge, changes in the fair value
of the derivatives will either be offset against the change in fair value of the
hedged assets, liabilities or firm commitments through earnings or recognized in
other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value is immediately
recognized in earnings.
In accordance with FAS 133, the Company accounted for its heating oil swap
agreements as cash flow hedges. All changes in fair value of the heating oil
swap agreements during 2002 and 2001 were effective for purposes of FAS 133, so
valuation changes were recognized throughout these years in other comprehensive
income and were included in earnings as a component of fuel expense only upon
settlement of each agreement. In 2002, the Company recognized hedging gains of
$0.5 million on settled contracts in fuel expense, and, in 2001, the Company
recognized losses on settled contracts of $2.6 million in fuel expense.
16. 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.
Following the events of September 11, 2001, the airline industry began
experiencing excess capacity as consumer demand for scheduled service declined.
At the same time, the Company was taking delivery of a significant number of new
Boeing 737-800 and 757-300 aircraft, which it planned to utilize in its
scheduled service markets. To adjust its capacity to new market demands, the
Company decided to retire its Boeing 727-200 fleet earlier than originally
planned. Before September 11, 2001, the Company had a plan in place to gradually
retire these aircraft between mid-2001 and mid-2002. The Company accelerated
this plan by retiring certain individual aircraft earlier than planned and the
Company retired all of these aircraft from service by May 31, 2002. As the
Company retired the Boeing 727-200 aircraft, it contributed them to BATA to
re-market these aircraft to third parties. See 'Note 1 -- Significant Accounting
Policies -- Investment in BATA, LLC.' In accordance with FAS 121, the Company
recorded an impairment charge of $44.5 million in 2001. In accordance with
FAS 121, the Company continues to monitor current fair market values of
previously impaired assets. In 2003, the Company recorded an additional asset
F-26
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
impairment charge of $5.3 million against its remaining net book value of Boeing
727-200 aircraft (recorded as an investment in the BATA joint venture), as
compared to $35.9 million in impairment charges recorded in 2002. The current
estimate of this fleet's fair market value is based on quoted market prices and
estimated salvage values. The carrying amount of one Boeing 727-200 that was not
contributed to BATA, with related assets, is classified as long-term assets held
for sale in the accompanying balance sheet in accordance with FAS 121.
Also in 2001, for reasons similar to those described above, the Company
retired certain Lockheed L-1011-50 and 100 aircraft, and determined that the
remaining Lockheed L-1011-50 and 100 fleet and related rotable parts and
inventory were impaired under FAS 121. The Company recorded an impairment charge
of $67.8 million relating to this fleet in 2001. In 2002, the Company retired
three owned L-1011-50 aircraft by removing them from revenue service, which
resulted in a charge of $9.0 million, and recorded an additional asset
impairment charge of $7.6 million against its remaining net book value of
Lockheed L-1011-50 and 100 aircraft and related parts. No such charges were
recorded in 2003. In accordance with FAS 144, the Company continues to monitor
the fair market values of these assets. The Company estimates this fleet's fair
market value using discounted cash flow analysis. 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, since the
Company is still flying two of these aircraft. The assets are being depreciated
in conjunction with the planned fleet retirement schedule.
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. Through the end of 2003, the Company concluded from its analysis that
this fleet was unimpaired.
17. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company has no material intangible assets other than goodwill. The
Company's goodwill is related to its ATALC, ATA Cargo and Chicago Express
subsidiaries, which were acquired in 1999. Prior to the adoption of FAS 142 by
the Company in the first quarter of 2002, the Company amortized goodwill on a
straight-line basis over 20 years in accordance with APB 17. The Company
recorded no goodwill amortization expense in 2003 and 2002, as provided by
FAS 142. The Company recorded $1.3 million of goodwill amortization in 2001.
As required by FAS 142, the Company performed its 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 MTC reporting unit was not 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 December 31, 2003, the Company
has ceased marketing the KTI brands.
In accordance with FAS 142, the Company performed its second annual goodwill
impairment test in the fourth quarter of 2003 and determined that the goodwill
related to Chicago Express, ATA Cargo and the MTC reporting unit was not
impaired. In both 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.
18. 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
F-27
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LongRanger. The two airplanes are leased or subleased to ATA. The Jet Ranger III
and LongRanger helicopters are leased to ATA ExecuJet, Inc. ('ExecuJet'), a
subsidiary of ATA Holdings Corp. ExecuJet used the Jet Ranger III for
third-party charter flying and subleases the LongRanger to an Indianapolis
television station.
The lease for the Cessna Citation currently requires a monthly payment of
$37,500 for a term beginning July 25, 2001, and ending on July 24, 2004. The
lease for the Lear Jet required a monthly payment of $33,600 for a term
beginning December 24, 2001, and ending December 23, 2003. The lease for the
Lear Jet is currently operating on a month-to-month basis and is being
renegotiated. The lease for the JetRanger III currently requires a monthly
payment of $3,500 for a term beginning November 1, 2002, and ending November 1,
2005. The lease for the LongRanger requires a monthly payment of $7,350 for a
term beginning December 11, 2001, and ending October 31, 2005. 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 have had an arrangement pursuant
to which the Company provides 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.
Beginning in 2003, Mr. Mikelsons has reimbursed the Company prior to the date of
each salary payment for these employees.
In 2004, the Company will pay approximately $296,000 in annual compensation,
plus associated non-cash benefits, to six employees who serve as the crew for
one boat owned by Betaco and another company owned by Mr. Mikelsons. In 2003,
the Company paid approximately $258,000 for five employees. 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 2003, the Company's
use of the boat resulted in no payments by Mr. Mikelsons to the Company.
As of December 31, 2003, Mr. Mikelsons owes $668,029 to the Company pursuant
to the arrangements relating to the domestic employees and the crew. In 2002,
the Company has also paid Mr. Mikelsons a total of $120,000 in connection with
use of the boat by ATA prior to the July 1, 2002, agreement. While there have
been other business uses of the boat by the Company, Mr. Mikelsons has
determined not to seek reimbursement for them.
19. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, 'Consolidation of
Variable Interest Entities' ('FIN 46'). The FASB amended FIN 46 in December
2003. FIN 46, as amended, requires that companies ('primary beneficiaries') that
absorb a majority of a variable interest entity's ('VIE') losses, or receive a
majority of a VIE residual returns, consolidate the entity. The accounting
provisions of FIN 46 are required to be applied to VIE within the first quarter
ending after March 15, 2004. The related disclosure requirements were effective
upon issuance of FIN 46. The Company does not expect FIN 46 to have a material
impact on the Company.
The Company has identified BATA as a VIE under FIN 46 in which the Company
has a significant variable interest. The Company has determined that it is not
the primary beneficiary of BATA under FIN 46 and is not required to consolidate
BATA. As of December 31, 2003, the Investment in BATA on the consolidated
balance sheet was $14.7 million.
On May 15, 2003, the FASB issued Statement of Financial Accounting Standards
No. 150, 'Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity'
F-28
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
('FAS 150'). FAS 150 establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the issuer
and have characteristics of both liabilities and equity. FAS 150 is required to
be applied immediately to instruments entered into or modified after May 31,
2003 and applied to previously existing instruments as of the beginning of the
first interim financial reporting period beginning after June 15, 2003.
According to the provisions of FAS 150, the Company reclassified its 500
shares of Series A Preferred as a liability on the Company's balance sheet
effective July 1, 2003. Per FAS 150, the Series A Preferred has not been
reclassified on the balance sheet as of December 31, 2002. Also effective July
1, 2003, dividends accrued or paid to the owners of Series A redeemable
preferred stock are classified as interest expense on the Company's consolidated
statement of operations. FAS 150 does not modify accounting standards applicable
to the Company's 300 shares of Series B Preferred.
20. 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., American Trans Air Training Corporation, ExecuJet, Chicago
Express and ATA Cargo. The subsidiary guarantors are 100%-owned subsidiaries.
ATA Holdings Corp. has no independent assets or operations and the guarantor
subsidiaries generated 99.8% and 100.0% of the consolidated revenues and net
profits of the Company, respectively, for the years ended December 31, 2002 and
2003. Therefore, condensed consolidating financial information is not presented.
21. SUBSEQUENT EVENT
On March 1, 2004, the Company amended its agreement with its credit card
processing bank to reflect a further extension for the processing of sales
charges on MasterCard and Visa cards until March 31, 2005. The credit card
processing bank agreed to reduce the holdback percentage for sales for future
travel to 75% effective with the execution of the amendment. The effect of
decreasing the holdback percentage from 100% to 75% increased the Company's cash
balance by approximately $21 million based on the holdback balance at March 1,
2004. The amended agreement provides quarterly financial covenants under which
the Company may maintain a holdback at 75% or 50% of sales for future travel,
but at no time during the life of the amendment will the holdback be lower than
50% of sales for future travel. However, the Company can provide no assurances
that it will be able to maintain the percentage of holdback below 100% in future
periods under this amendment.
F-29
ATA HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. SELECTED SUPPLEMENTAL QUARTERLY DATA (UNAUDITED)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ATA HOLDINGS CORP. AND SUBSIDIARIES
2003 QUARTERLY FINANCIAL SUMMARY
(UNAUDITED)
<Table>
<Caption>
3/31(1) 6/30(1) 9/30(1) 12/31(1)
------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues.................................. $373,629 $388,122 $387,703 $369,079
Operating expenses.................................. 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)
</Table>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ATA HOLDINGS CORP. AND SUBSIDIARIES
2002 QUARTERLY FINANCIAL SUMMARY
(UNAUDITED)
<Table>
<Caption>
3/31(1) 6/30(1) 9/30(1) 12/31(1)
------- ------- ------- --------
Operating revenues.................................. $330,570 $318,541 $317,289 $310,970
Operating expenses.................................. 320,512 377,834 376,933 362,128
Operating income (loss)............................. 10,058 (59,293) (59,644) (51,158)
Other expenses...................................... (7,416) (9,690) (7,723) (9,348)
Income (loss) before income taxes................... 2,642 (68,983) (67,367) (60,506)
Income taxes (credits).............................. 762 (13,585) (6,746) (5,381)
Preferred stock dividends........................... 375 2,485 375 2,485
Income (loss) available to common shareholders...... $ 1,505 $(57,883) $(60,996) $(57,610)
Net income (loss) per common share -- basic......... $ 0.13 $ (4.92) $ (5.18) $ (4.90)
Net income (loss) per common share -- diluted....... $ 0.12 $ (4.92) $ (5.18) $ (4.90)
</Table>
- ---------
(1) Operating results for the years ended December 31, 2003 and 2002 include the
following items:
<Table>
<Caption>
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
------ -------- -------- -------- --------
------ -------- -------- -------- --------
</Table>
<Table>
<Caption>
2002
--------------------------------------------------
QUARTER ENDED 3/31 6/30 9/30 12/31 TOTAL
- ------------- ---- ---- ---- ----- -----
Aircraft impairments and retirements......... $ -- $(17,241) $(34,381) $(15,165) $(66,787)
U.S. Government grants....................... -- (15,210) -- (1,011) (16,221)
Goodwill impairments......................... -- -- -- (6,893) (6,893)
------ -------- -------- -------- --------
Total -- income (loss)....................... $ -- $(32,451) $(34,381) $(23,069) $(89,901)
------ -------- -------- -------- --------
------ -------- -------- -------- --------
</Table>
F-30
______________________________________________________________________________
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THE NOTES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE NOTES IN ANY JURISDICTION WHERE THAT WOULD
NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES
MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF THE COMPANY HAVE NOT
CHANGED SINCE THE DATE OF THIS PROSPECTUS.
______________________________________________________________________________
ATA HOLDINGS CORP.
OFFER TO EXCHANGE
$163,064,000 SENIOR NOTES DUE 2009
FOR
A LIKE AMOUNT OF REGISTERED
SENIOR NOTES DUE 2009
AND
$110,233,000 SENIOR NOTES DUE 2010
FOR
A LIKE AMOUNT OF REGISTERED
SENIOR NOTES DUE 2010
--------------------
PROSPECTUS
--------------------
MAY 10, 2004
______________________________________________________________________________
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Information relating to indemnification of directors and officers is
incorporated by reference herein from Item 14 of the Company's Registration
Statement on Form S-1 (No. 33-59630).
ITEM 21. EXHIBITS.
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
2.1 -- Agreement and Plan of Merger between INDUS Acquisition
Company and Amtran, Inc. (incorporated by reference to Annex
A to the Preliminary Proxy Statement on Schedule 14A filed
by Amtran, Inc. on June 29, 2001).
*3.1 -- Restated Articles of Incorporation of the Company
*3.2 -- By-laws of the Company
**3.3 -- Articles of Incorporation of ATA Airlines, Inc.
**3.4 -- By-laws of ATA Airlines, Inc.
**3.5 -- Articles of Incorporation of Ambassadair Travel Club, Inc.
**3.6 -- By-laws of Ambassadair Travel Club, Inc.
**3.7 -- Articles of Incorporation of ATA Leisure Corp.
**3.8 -- By-laws of ATA Leisure Corp.
**3.9 -- Articles of Incorporation of Amber Travel, Inc.
**3.10 -- By-laws of Amber Travel, Inc.
**3.11 -- Articles of Incorporation of American Trans Air Training
Corporation
**3.12 -- By-laws of American Trans Air Training Corporation
**3.13 -- Articles of Incorporation of American Trans Air Execujet,
Inc.
**3.14 -- By-laws of American Trans Air Execujet, Inc.
**3.15 -- Articles of Incorporation of Chicago Express Airlines Inc.
**3.16 -- By-laws of Chicago Express Airlines Inc.
**3.17 -- Articles of Incorporation of ATA Cargo, Inc.
**3.18 -- By-laws of ATA Cargo, Inc.
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).
</Table>
II-1
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
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).
</Table>
II-2
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
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).
</Table>
II-3
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
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).
</Table>
II-4
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
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.
5.1 -- Opinion of Cravath, Swaine & Moore LLP as to the legality of
the Exchange Notes and the Guarantee being registered hereby.
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).
</Table>
II-5
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
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).
</Table>
II-6
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
***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).
10.10 -- Commitment Letter dated June 18, 2001, from Salomon Smith
Barney Inc., and Citicorp USA, Inc. to Amtran, Inc.
(incorporated by reference to Exhibit 2 to the Schedule 13D
filed by Amtran, Inc., J. George Mikelsons and INDUS
Acquisition Company on June 21, 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.
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).
11.1 -- Computation of per share earnings (included in prospectus).
12.1 -- Computation of ratio of earnings to fixed charges (included
in prospectus).
21 -- Subsidiaries of ATA Holdings Corp. (included in prospectus).
23.1 -- Consent of Cravath, Swaine & Moore LLP (included in Exhibit
5.1).
23.2 -- Consent of Ernst & Young LLP.
25.1 -- Form T-1.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.3 -- Form of Letter to Clients.
99.4 -- W-9 Tax Guidelines.
</Table>
- ---------
* Previously filed as exhibit to ATA Holdings Corp.'s Registration Statement
on Form S-1 (File No. 33-59630), and incorporated herein by reference.
** Previously filed as exhibit to ATA Holdings Corp.'s Registration Statement
on Form S-4 (File No. 33-112827).
*** Portions of these exhibits have been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and
Exchange Commission.
II-7
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(b) The undersigned Registrants hereby undertake: (1) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or
events arising after the effective date of this registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424(b) under the Securities Act, if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the 'Calculation of Registration Fee' table in the effective
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
registration statement or any material change to such information in this
Registration Statement; provided, however, that the undertakings set forth in
paragraphs (1)(i) and (ii) above do not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, as amended (the 'Exchange Act') that are
incorporated by reference in this registration statement. (2) that, for the
purpose of determining any liability under the Securities Act each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time be deemed to be the initial bona fide offering thereof. (3) to
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated document by first-class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) and section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Indianapolis, State of Indiana, on the tenth day of May, 2004.
ATA HOLDINGS CORP.
By /s/ DAVID WING
..................................
DAVID WING
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER AND
DIRECTOR
II-9
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
2.1 -- Agreement and Plan of Merger between INDUS Acquisition
Company and Amtran, Inc. (incorporated by reference to Annex
A to the Preliminary Proxy Statement on Schedule 14A filed
by Amtran, Inc. on June 29, 2001).
*3.1 -- Restated Articles of Incorporation of the Company
*3.2 -- By-laws of the Company
**3.3 -- Articles of Incorporation of ATA Airlines, Inc.
**3.4 -- By-laws of ATA Airlines, Inc.
**3.5 -- Articles of Incorporation of Ambassadair Travel Club, Inc.
**3.6 -- By-laws of Ambassadair Travel Club, Inc.
**3.7 -- Articles of Incorporation of ATA Leisure Corp.
**3.8 -- By-laws of ATA Leisure Corp.
**3.9 -- Articles of Incorporation of Amber Travel, Inc.
**3.10 -- By-laws of Amber Travel, Inc.
**3.11 -- Articles of Incorporation of American Trans Air Training
Corporation
**3.12 -- By-laws of American Trans Air Training Corporation
**3.13 -- Articles of Incorporation of American Trans Air Execujet,
Inc.
**3.14 -- By-laws of American Trans Air Execujet, Inc.
**3.15 -- Articles of Incorporation of Chicago Express Airlines Inc.
**3.16 -- By-laws of Chicago Express Airlines Inc.
**3.17 -- Articles of Incorporation of ATA Cargo, Inc.
**3.18 -- By-laws of ATA Cargo, Inc.
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).
</Table>
II-10
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
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).
</Table>
II-11
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
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).
</Table>
II-12
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
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).
</Table>
II-13
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
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.
5.1 -- Opinion of Cravath, Swaine & Moore LLP as to the legality of
the Exchange Notes and the Guarantee being registered hereby.
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).
</Table>
II-14
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
***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).
10.10 -- Commitment Letter dated June 18, 2001, from Salomon Smith
Barney Inc., and Citicorp USA, Inc. to Amtran, Inc.
(incorporated by reference to Exhibit 2 to the Schedule 13D
filed by Amtran, Inc., J. George Mikelsons and INDUS
Acquisition Company on June 21, 2001).
</Table>
II-15
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
***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.
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).
11.1 -- Computation of per share earnings (included in prospectus).
12.1 -- Computation of ratio of earnings to fixed charges (included
in prospectus).
21 -- Subsidiaries of ATA Holdings Corp. (included in prospectus).
23.1 -- Consent of Cravath, Swaine & Moore LLP (included in Exhibit
5.1).
23.2 -- Consent of Ernst & Young LLP.
25.1 -- Form T-1.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.3 -- Form of Letter to Clients.
99.4 -- W-9 Tax Guidelines.
</Table>
- ---------
* Previously filed as exhibit to ATA Holdings Corp.'s Registration Statement
on Form S-1 (File No. 33-59630), and incorporated herein by reference.
** Previously filed as exhibit to ATA Holdings Corp.'s Registration Statement
on Form S-4 (File No. 33-112827).
*** Portions of these exhibits have been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and
Exchange Commission.
II-16
STATEMENT OF DIFFERENCES
------------------------
The cent sign shall be expressed as......................................... [c]