<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 0-29558
ASA HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-2258221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 HARTSFIELD CENTRE PARKWAY SUITE 800, ATLANTA, GEORGIA 30354
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 766-1400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $0.10 PAR VALUE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 2, 1998, the aggregate market value of voting stock held by
non-affiliates of the Registrant, based on the $40.125 closing sales price of
such stock on The Nasdaq Stock Market's National Market on that date, was
approximately $834,825,061.
As of March 2, 1998, the Registrant had 29,953,977 shares of Common
Stock outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement to be used in connection
with the solicitation of proxies for the Registrant's 1998 annual meeting of
shareholders are incorporated by reference into Part III of this Report.
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1997 are incorporated by reference into Part II and Part IV
of this Report.
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PART I
ITEM 1. BUSINESS
Cautionary Notice Regarding Forward-Looking Statements
Certain of the statements made in this Report and in documents
incorporated by reference herein, including matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as oral statements made by the Company or its officers,
directors or employees, may constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"). The words "expect," "anticipate," "intend,"
"plan," "believe," "seek," "estimate" and similar expressions are intended to
identify such forward-looking statements; however, this Report also contains
other forward-looking statements in addition to historical information. Such
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to differ materially from
historical results or from any results expressed or implied by such
forward-looking statements. Such factors include, without limitation, those
discussed in "Business--Factors Affecting Future Performance" herein. Many of
such factors are beyond the Company's ability to control or predict, and readers
are cautioned not to put undue reliance on such forward-looking statements. The
Company disclaims any obligation to update or revise any forward-looking
statements contained in this Report, whether as a result of new information,
future events or otherwise.
General
ASA Holdings, Inc. ("ASA HOLDINGS") is a corporation existing under the
laws of the State of Georgia. Its principal offices are located at 100
Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia 30354 and its telephone
number is (404) 766-1400.
ASA Holdings is a holding company the principal assets of which are the
shares of its wholly owned subsidiaries Atlantic Southeast Airlines, Inc., a
Georgia corporation ("ASA"), and ASA Investments, Inc., a Delaware corporation
("ASA INVESTMENTS"). ASA Holdings considers the airline business of ASA to be
its only industry segment. All references herein to the "COMPANY" shall refer
collectively to ASA Holdings, ASA and ASA Investments.
ASA Holdings became the parent holding company for ASA and ASA
Investments pursuant to a corporate reorganization that was effective after the
close of business on December 31, 1996 (the "REORGANIZATION"). Pursuant to the
Reorganization, ASA merged with a wholly owned subsidiary of ASA Holdings (the
"MERGER"). Prior to the Merger, ASA Holdings was a wholly owned subsidiary of
ASA. Pursuant to the Merger, each issued and outstanding share of ASA's common
stock, $0.10 par value per share ("ASA COMMON STOCK"), was automatically
converted into one share of ASA Holdings' common stock, $0.10 par value per
share ("HOLDINGS COMMON STOCK"), except for shares of ASA Common Stock then held
by ASA as treasury shares, which were canceled as part of the Merger.
Immediately after the consummation of the Merger, on December 31, 1996, ASA
effected a dividend of all the capital stock of ASA's wholly owned subsidiary,
ASA Investments, to ASA Holdings.
<PAGE> 4
ASA is a certificated air carrier providing regularly scheduled, high
frequency airline service between (i) Hartsfield Atlanta International Airport
in Atlanta, Georgia (the "ATLANTA HUB") and 38 other airports in Alabama,
Florida, Georgia, Indiana, Kentucky, Louisiana, Michigan, Mississippi, New York,
North Carolina, Ohio, South Carolina, Tennessee, Virginia and West Virginia and
(ii) Dallas/Fort Worth International Airport in Dallas, Texas (the "DALLAS/FORT
WORTH HUB") and 21 other airports in Arkansas, Kansas, Louisiana, Mississippi,
Oklahoma and Texas. ASA is the largest regional carrier serving Hartsfield
Atlanta International Airport with more flights per week than any other regional
carrier. ASA currently operates approximately 3,900 flights per week. A majority
of ASA's flights are utilized primarily by business, government and military
passengers to make connections with flights operated by Delta Air Lines, Inc.
("DELTA") and other air carriers from the Atlanta and Dallas/Fort Worth hubs.
As of March 3, 1998, ASA's operating fleet consisted of 75 turboprop
airplanes, 12 of which seat 66 passengers and the remaining 63 of which seat 30
passengers, and 8 jets that seat 50 passengers each. On April 21, 1997, ASA
announced that it had executed an acquisition agreement for 30 jets that seat 50
passengers each. See "FLIGHT EQUIPMENT."
The sole business of ASA Investments is to manage certain cash assets
contributed to it by ASA Holdings and its other subsidiaries.
Delta Connection
Since 1984, ASA has operated from the Atlanta and Dallas/Fort Worth
hubs as a "Delta Connection" carrier pursuant to a marketing agreement (the
"DELTA CONNECTION AGREEMENT") with Delta. As a Delta Connection carrier, ASA's
flights are shown under Delta's two letter code designation (DL) in the
automated airline reservation systems used throughout the industry and in the
Official Airline Guide. ASA is assigned a series of distinctive Delta flight
numbers that travel agents and airline reservation personnel are able to
distinguish as those operated as a Delta Connection carrier. Passengers served
by Delta Connection carriers are able to take advantage of the cost savings
inherent in joint fares and are offered Delta frequent flyer mileage and a full
range of promotional fares provided by Delta and ASA. In addition, ASA is able
to offer its passengers coordinated schedules for timely connections with Delta
flights. See "FARES" and "MARKETING."
Approximately 84% of ASA's passengers during fiscal 1997 connected with
or from Delta flights at the Atlanta or the Dallas/Fort Worth hubs. See "ROUTE
SYSTEM."
ASA believes that its marketing agreement with Delta is similar to
those that exist between Delta and other Delta Connection Carriers and in
substance to those that exist between other major and regional air carriers. The
Delta Connection Agreement has been in effect since 1984 and may be terminated
by either party by giving no less than 30-days' advance written notice. ASA
believes that its relationship with Delta is good and does not anticipate any
termination of the Delta Connection Agreement. Given ASA's relationship with
Delta, ASA's results of operations and financial condition may be favorably or
adversely impacted by Delta's decisions regarding its flight routes and other
operational matters. ASA historically has
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benefited from its relationship with Delta, but there can be no assurance that
such benefits will occur in the future. Any material modification of this
relationship with Delta could have a material adverse effect on ASA and ASA
Holdings.
As of March 3, 1998, Delta Air Lines Holdings, Inc., a wholly owned
subsidiary of Delta ("DELTA Holdings"), owned approximately 27% of the
outstanding Holdings Common Stock. Pursuant to the terms of a Stock Agreement
among Delta, Delta Holdings, ASA Holdings and ASA dated as of March 17, 1997,
(the "STOCK AGREEMENT"), (a) at Delta's request, ASA Holdings will include at
least two designees of Delta or Delta Holdings who are reasonably acceptable to
ASA Holdings on the slate of nominees for election as members of ASA Holdings'
Board of Directors and (b) ASA Holdings will use its reasonable best efforts to
assure that the designated individuals are elected to ASA Holdings' Board of
Directors so long as Delta or Delta Holdings continue to own at least 10% of the
outstanding Holdings Common Stock. Prior to the Reorganization, Delta had rights
substantially similar to those which it has under the Stock Agreement pursuant
to a written agreement with ASA.
Route System
As of March 3, 1998, ASA's route system included service between the
Atlanta hub and 38 other airports in Alabama, Florida, Georgia, Indiana,
Kentucky, Louisiana, Michigan, Mississippi, New York, North Carolina, Ohio,
South Carolina, Tennessee, Virginia and West Virginia. ASA also operates a
similar hub and spoke operation in Dallas/Fort Worth. As of March 3, 1998, ASA
provided service from the Dallas/Fort Worth hub to 21 airports in Arkansas,
Kansas, Louisiana, Mississippi, Oklahoma and Texas. For information regarding
ASA's operating fleet, see "FLIGHT EQUIPMENT."
ASA's flight schedules are structured to facilitate the connection of
its passengers with Delta's flights at the Atlanta and Dallas/Fort Worth hubs.
Approximately 84% of ASA's passengers connected with or from Delta flights at
the Atlanta or Dallas/Fort Worth hubs. See "DELTA CONNECTION."
The following tables describe ASA's route system as of March 3, 1998:
ATLANTA HUB
<TABLE>
<CAPTION>
Air Mileage Date Service
Airport Served From Atlanta Hub Commenced
-----------------------------------------------------------------------
<S> <C> <C>
Albany, GA 146 8/1/82
Alexandria, LA 500 12/1/95
Asheville, NC 164 8/1/82
Augusta, GA 143 4/24/83
Brunswick, GA 238 6/1/81
Charleston, WV 363 2/1/86
</TABLE>
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ATLANTA HUB
<TABLE>
<CAPTION>
Air Mileage Date Service
Airport Served From Atlanta Hub Commenced
-----------------------------------------------------------------------
<S> <C> <C>
Charlotte, NC 227 4/1/91
Chattanooga, TN 106 6/1/91
Cleveland, OH 554 11/1/97
Columbus, GA 83 6/27/79
Columbus, MS 241 12/15/84
Detroit, MI 594 12/1/97
Dothan, AL 171 10/31/82
Evansville, IN 350 6/1/89
Fayetteville, NC 331 11/1/85
Florence, SC 273 9/11/92
Fort Walton Beach, FL 250 11/15/82
Gainesville, FL 300 10/1/85
Greensboro/High-Point/
Winston-Salem, NC 306 6/1/91
Greenville/Spartanburg, SC 153 4/25/82
Gulfport/Biloxi, MS 352 3/2/91
Jackson, MS 341 4/4/93
Jacksonville, NC 399 12/15/92
Lafayette, LA 503 12/1/95
Lexington, KY 303 12/15/90
Louisville, KY 321 4/4/93
Lynchburg, VA 389 7/1/94
Macon, GA 79 3/20/80
Meridian, MS 267 11/1/84
Montgomery, AL 147 6/1/82
Myrtle Beach, SC 317 9/1/86
New York, NY - JFK*
Cleveland, OH 425 11/1/97
Detroit, MI 508 12/1/97
Panama City, FL 247 3/1/84
Pensacola, FL 272 4/1/91
Roanoke, VA 357 12/15/85
Tallahassee, FL 223 12/15/85
Tri-Cities, TN 227 10/31/82
Valdosta, GA 208 9/9/81
Wilmington, NC 377 9/17/90
</TABLE>
- --------------------
* New York is served from the Cleveland and Detroit airports.
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DALLAS/FORT WORTH HUB
<TABLE>
<CAPTION>
Air Mileage Date Service
Airport Served From Atlanta Hub Commenced
-----------------------------------------------------------------------
<S> <C> <C>
Alexandria, LA 285 10/1/87
Amarillo, TX 313 7/1/93
Beaumont/Port Arthur, TX 270 2/1/87
Columbus, MS 491 12/1/95
Corpus Christi, TX 354 6/1/93
Fayetteville, AR 270 12/15/86
Fort Smith, AR 227 12/15/86
Houston, TX (Intercontinental) 224 10/1/93
Houston, TX (Hobby) 247 5/1/94
Killeen, TX 130 5/1/87
Lafayette, LA 351 12/15/87
Lawton, OK 140 2/1/87
Lubbock, TX 282 7/1/93
Meridian, MS 485 12/1/95
Oklahoma City, OK 175 7/1/93
San Antonio, TX 247 10/1/93
Shreveport, LA 190 12/1/95
Texarkana, AR 181 12/15/86
Tulsa, OK 237 6/1/93
Wichita, KS 328 7/1/93
Wichita Falls, TX 113 12/15/86
</TABLE>
ASA provides service on all of its routes every weekday with reduced
service on weekends.
Fares
ASA derives its revenues primarily from local fares and through fares.
Local fares are those fares for one way and round trips that are not combined
with the fare of another air carrier. Through fares are fares for transportation
provided jointly by ASA and another carrier.
Revenues derived from through fares are distributed among the
participating air carriers using various proration formulas. The most widely
used method of settlement involves a straight rate prorate division, unless the
carriers enter into agreements using variations to this proration formula. The
various pricing structures generally are presented in the Airline Tariff
Publishing Company's electronic tariff, Passenger Interline Pricing Prorate
System (PIPPS).
ASA operates as a Delta Connection carrier pursuant to a marketing
program with Delta. See "DELTA CONNECTION." In addition to the Delta Connection
Agreement, ASA is a party to
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interline passenger, reservation, ticketing and baggage agreements with each of
the other major air carriers with which ASA transacts any significant amount of
business. These agreements permit each carrier to reserve seats and sell tickets
for flights on the other contracting carrier, provide that each carrier will
honor ticket forms of the other carriers and provide for an interline baggage
exchange system at airport terminals.
Air carriers are permitted to set domestic ticket prices without
governmental regulation. SEE "REGULATION." As a result, the industry generally
is subject to substantial price competition. See "COMPETITION AND INDUSTRY
CONSIDERATIONS."
The aviation trust fund tax, a 10% federal excise tax on tickets sold,
expired effective January 1, 1996, was reinstated effective August 27, 1996,
expired again effective January 1, 1997, and was reinstated again effective
March 7, 1997 through September 30, 1997. Congress recently passed legislation
reimposing and significantly modifying the ticket tax. The legislation includes
the imposition of new excise tax and segment fee tax formulas to be phased in
over several years, an increase in the international departures tax, the
imposition of a new arrivals tax, and the extension of the ticket tax to cover
items such as frequent flyer miles. In addition, legislation that was effective
in 1992 allows public airports to impose passenger facility charges of up to
$3.00 per departing or connecting passenger. Price competition may have an
impact on ASA's ability to pass these charges on to its customers. See
"COMPETITION AND INDUSTRY CONSIDERATIONS."
Flight Equipment
As of March 3, 1998, ASA's operating fleet consisted of 75 turboprop
airplanes, 12 of which seat 66 passengers and the remaining 63 of which seat 30
passengers, and 8 jets which seat 50 passengers each. The age of this fleet
ranged from less than one year to 13 years. The following table describes ASA's
current operating fleet as of March 3, 1998:
<TABLE>
<CAPTION>
Number of Number of
Aircraft Type Aircraft Owned Aircraft Leased Average Age
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
ATR-72 Turboprop 4 8 4.4 years
(66 passenger capacity)
Embraer Brasilia Turboprop 59 4 8.9 years
(EMB-120)
(30 passenger capacity)
Canadair Regional Jet -- 8 .3 years
(50 passenger capacity)
</TABLE>
ASA's Embraer Brasilia EMB-120 turboprop aircraft ("BRASILIAS") operate
on mainly medium to long-haul routes from the Atlanta and Dallas/Fort Worth
hubs. ASA's Brasilias are very fuel efficient and, because of their operating
economy, can provide high frequency service
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in markets with relatively low volumes of passenger traffic. These aircraft are
powered by two Pratt & Whitney turboprop engines and accommodate 30 passengers.
ASA leases four of the Brasilias pursuant to operating leases. Two leases expire
in December 1998, one will expire in June 1999 and one will expire in December
1999.
As of March 3, 1998, ASA operated 12 ATR-72 turboprop aircraft ("ATRS")
from the Atlanta hub. ASA initially used the ATRs to replace smaller aircraft in
order to increase capacity in existing markets and more recently has used the
ATRs to replace its BAe Jets discussed below. The ATRs are 66-passenger
aircraft, powered by two Pratt & Whitney turboprop engines, and are built by
Avions de Transport Regional, a joint enterprise involving Alenia-Aeritalia &
Selenia S.P.A., an Italian aircraft manufacturer, and Aerospatiale Societe
Nationale Industrielle, a French aircraft manufacturer. ASA leases eight ATRs
pursuant to a lease with a seven-year term expiring in June 2002. ASA also owns
four ATRs, the majority of the purchase price of which was provided by bank
financing. ASA has an option to acquire 16 additional ATRs.
In 1997, ASA operated five British Aerospace BAe 146-200 jets ("BAE
JETS") and elected to exercise its option for the early return of all of the BAe
Jets to the lessor. By the end of the first quarter of 1998, all five BAe Jets
had been removed from operation and returned to the lessor.
On April 21, 1997, ASA announced that it had executed an acquisition
agreement with Bombardier, Inc. for 30 Canadair Regional Jet aircraft ("CRJs")
with options to acquire an additional 60 aircraft. ASA took delivery of its
first five 50-passenger CRJ aircraft in the second half of 1997 and an
additional three CRJs during the first quarter of 1998 through operating leases
with a 16.5 year term. Future deliveries of the remaining 22 CRJs are
anticipated to be one aircraft per month thereafter. ASA obtained a commitment
from the Export Development Corporation (EDC) of Canada to provide financing to
ASA for up to approximately 85% of the purchase price of the CRJs. ASA estimates
that the aggregate cost of the first 30 CRJs, including spare parts, will be
approximately $600 million. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES."
ASA plans to use the new CRJs for growth in new long-haul markets as well as to
replace some turboprop aircraft on existing routes from its Atlanta hub. The
CRJs are more effective than the BAe Jets over long-haul routes because the CRJs
are faster.
As of December 31, 1997, ASA had pledged 36 of the Brasilias it owns
and all four of the ATRs it owns, as well as a significant portion of its spare
parts, to secure long-term indebtedness of ASA.
Personnel and Operations
ASA's employees perform a substantial portion of ASA's operations,
including ticketing, maintenance, ground and in-flight service and training.
Substantially all the maintenance and repairs on ASA's aircraft (except for
major engine, propeller and component overhauls as well as major airframe
checks) are performed by ASA's maintenance personnel. As of March 3, 1998, ASA
had approximately 2,504 employees, of which 1,119 were flight personnel, 993
were
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ground service personnel, 271 were maintenance personnel and the remainder were
management, supervisory and clerical employees. As of March 3, 1998, ASA
Holdings had three employees, all of whom provide management services for ASA
Holdings' subsidiaries, and ASA Investments had two employees, both of whom were
management employees.
Approximately 27% of ASA's workforce are members of unions representing
pilots and flight attendants. In September 1988, ASA's flight attendants voted
to be represented by the Association of Flight Attendants ("AFA"). In June
1991, ASA and AFA entered into an initial collective bargaining agreement which
became amendable in 1994. In June 1994, ASA and AFA executed a letter of
agreement that extended the amendable date of the initial collective bargaining
agreement until June 1995. In September 1997, following direct negotiations and
federal mediation, ASA and AFA entered into a new collective bargaining
agreement that is amendable in 2002. In 1987, the Air Line Pilots Association
("ALPA") was certified to represent ASA's pilots. In 1989, ASA and ALPA entered
into an initial collective bargaining agreement which was amendable in 1992. In
October 1992, ASA and ALPA entered into a second collective bargaining agreement
that was amendable in October 1995. In September 1995, ASA and ALPA entered
into negotiations for a new collective bargaining agreement. In 1996, ASA and
ALPA entered federal mediation with respect to those negotiations which
continued throughout 1997. In January 1998, ASA and ALPA reached a tentative
agreement on a new 54-month collective bargaining agreement, pending
ratification of the agreement by the pilots. In March 1998, the members of the
pilots' union voted to reject the tentative accord, and management expects
negotiations with ALPA to continue under the auspices of the National Mediation
Board. The existing collective bargaining agreement between ASA and ALPA will
remain in effect until a new agreement is reached and ratified or until the
procedures of the Railway Labor Act are exhausted. See "REGULATION--LABOR
REGULATION" regarding such procedures. There are no union affiliations with any
other groups of ASA's, ASA Holdings' or ASA Investments' employees.
ASA operates as a Delta Connection carrier pursuant to a marketing
program with Delta. See "DELTA CONNECTION." ASA is also a party to interline
passenger, reservation, ticketing and baggage agreements with each of the other
major air carriers with which ASA transacts any significant amount of business.
See "FARES."
In addition to carrying passengers, ASA carries mail, freight and small
packages on its flights.
Maintenance
ASA is subject to the jurisdiction of and regulation by the FAA with
respect to ASA's maintenance and operations. See "REGULATION." ASA's aircraft
and engines are maintained in accordance with the standards and procedures
recommended and approved by the manufacturers and the FAA.
ASA provides maintenance for its aircraft using its own personnel,
facilities and parts. ASA employs personnel with appropriate FAA Airframe and
Powerplant licenses to ensure adequate maintenance of its aircraft. ASA employs
major outside repair agencies to perform its engine overhauls, most individual
component repairs or overhauls, and major checks on aircraft.
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ASA's FAA-approved maintenance program specifies the number of days,
hours or operating cycles between inspections and overhauls of the airframes and
their component parts. The nature and extent of each inspection and overhaul is
specifically prescribed by the approved maintenance program. ASA uses an FAA
approved alternative for overhauls on each of its three engine types: Pratt &
Whitney PW118 engines on the Brasilias, Pratt & Whitney PW127 engines on the
ATRs, and General Electric CF34-3B1 engines on the CRJs. "On condition" engine
overhaul intervals are set by engine condition monitoring and continuous
airworthiness maintenance programs. In addition, all engines contain
time-limited components, each of which has a maximum amount of time (measured by
operating hours) or a maximum number of operating cycles (measured by takeoffs
and landings) after which the component must be removed from the engine assembly
and overhauled or scrapped.
From time to time, the FAA issues airworthiness directives ("ADS") and
other regulations relating to, among other things, retirement of older aircraft,
collision avoidance systems, airborne windshear avoidance systems, noise
abatement, aircraft safety and increased inspections and maintenance procedures.
Some of these ADs require air carriers to undertake inspections and to make
unscheduled modifications and improvements on aircraft, engines and related
components and parts. The ADs sometimes cause ASA to incur substantial,
unplanned expense and, occasionally, aircraft or engines must be removed from
service prematurely in order to undergo mandated inspections or modifications on
an accelerated basis.
Since 1988 various air carriers, in cooperation with the FAA, have been
engaged in an in-depth review of the adequacy of existing maintenance procedures
applicable to older versions of most of the aircraft types in general use in the
industry. To date, this review has not included aircraft used by ASA. While
certain of these potential aging aircraft ADs may, at some time in the future,
necessitate unscheduled removals from service and increased maintenance costs,
ASA does not anticipate that compliance with such potential ADs will have a
material adverse impact on costs or operations.
Aviation Fuel
ASA's operations are significantly affected by the availability and
price of aviation fuel. Fuel costs, including taxes and "into plane" fees,
constituted 10.79% of the Company's operating costs in 1997. Based on ASA's
fiscal 1997 fuel consumption, every $0.01 change in the average annual price per
gallon of aviation fuel caused an approximate $449,000 change in ASA's annual
fuel expense. The following table shows ASA's fuel consumption and costs for
fiscal years 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Average Price Percent of
Fiscal Year Gallons Consumed Cost Per Gallon Operating Expense
----------- ---------------- ---- ------------- -----------------
<S> <C> <C> <C> <C>
1997 44,872,864 $32,988,262 $0.74 10.79%
1996 43,356,461 $33,479,356 $0.77 11.54%
1995 38,872,025 $24,075,274 $0.62 9.52%
</TABLE>
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Aircraft fuel expense decreased 1.5% in 1997 compared with 1996,
primarily because the average fuel price per gallon decreased 3.9% to $0.74
cents per gallon and aircraft fuel consumption increased 3.5%. See "FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Changes in aviation fuel prices have an industry-wide impact and will
tend to affect ASA's competitors in the same manner as ASA. There can be no
assurance that ASA will be able to increase its fares in response to any future
increases in fuel prices. See "COMPETITION AND INDUSTRY CONSIDERATIONS."
ASA currently obtains approximately 56% of its fuel requirements from
Chevron USA, Inc. at the Atlanta hub and approximately 25% of its fuel
requirements from various fuel suppliers at the Dallas/Fort Worth hub. ASA
obtains the rest of its fuel requirements from various suppliers at other
airports.
ASA's fuel contracts do not provide protection against price increases
or for assured availability of supplies. Although ASA is currently able to
obtain adequate supplies of fuel, it is impossible to predict the future
availability or price of fuel. Political disruptions involving oil producing
countries; changes in government policy concerning aircraft fuel production,
transportation or marketing; changes in the fuel tax; changes in aircraft fuel
production capacity; environmental concerns and other unpredictable events may
result in fuel supply shortages and fuel price increases in the future. ASA's
business could be significantly adversely affected by such shortages and price
increases.
The Omnibus Budget Reconciliation Act of 1993 imposed a 4.3 cent per
gallon tax on commercial aviation fuel purchased for use in domestic operations.
Air carriers were exempt from this tax until October 1995. While additional
exemptions have been proposed, there can be no assurance that ASA will not
continue to be required to pay this tax.
Marketing
ASA markets its passenger, air freight and small package services
primarily through direct sales activity and cooperative advertising programs.
The direct sales activity focuses on high-volume sources of business, such as
travel agencies and ticketing outlets located on major military installations.
Since 1984, ASA has operated from the Atlanta and Dallas/Fort Worth
hubs as a Delta Connection carrier pursuant to a marketing agreement with Delta.
See "DELTA CONNECTION." Cooperative advertising programs with Delta, such as
Delta's frequent flyer program and Delta Dream Vacations, are used to promote
ASA's flights to the Atlanta and Dallas/Fort Worth hubs, and Delta's services
from Atlanta and Dallas/Fort Worth to various long-haul destinations.
ASA's passengers accrue mileage in Delta's frequent flyer program,
which offers incentives to maximize travel on flights offered by Delta and Delta
Connection carriers. This
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program allows participants to accrue mileage for award travel while flying on
Delta, Delta Connection carriers and other participating air carriers. Mileage
credits may also be accrued for the use of certain services offered by program
partners such as hotels, car rental agencies and credit card companies. Mileage
vouchers can be redeemed for free or upgraded travel on Delta, Delta Connection
carriers and other participating air carriers and for other program partner
awards. Delta has reserved the right to terminate the frequent flyer program
with six months advance notice and to change the program's terms and conditions
at any time without notice.
ASA does not accrue for incremental costs associated with the Delta
frequent flyer program's mileage accumulation because the impact is immaterial
both on a quarterly and annual basis. ASA's management believes that the low
percentage of free passenger miles, its load factor and the restrictions applied
to free travel awards minimize the displacement of revenue passengers and that
the displacement that occurs is not significant. ASA expenses, as incurred, all
incremental costs of providing earned free travel awards under Delta's frequent
flyer program. ASA makes payments to Delta for Delta frequent flyer mileage
earned by passengers flying on ASA's routes where those passengers do not
connect to Delta flights. ASA does not receive any payments related to providing
carriage to passengers utilizing frequent flyer mileage earned on Delta flights.
Competition and Industry Considerations
Management of ASA believes that its services are utilized primarily by
business, government and military travelers. ASA competes primarily with other
air carriers and, particularly with respect to its shorter flights, with ground
transportation such as automobiles and buses.
Delta provides air service from the Atlanta hub to approximately 33% of
the airports served by ASA out of Atlanta. Under the Delta Connection program,
ASA's flights are coordinated for timely connections with Delta. The flights
provided by Delta and ASA to the same markets are scheduled at different times.
ASA generally provides service to these markets at times when ASA can more
efficiently serve the market. Other air carriers provide service to
approximately 11% of the airports served by ASA from the Atlanta hub.
ASA competes primarily with American/American Eagle at the Dallas/Fort
Worth hub. Other air carriers provide service to approximately 90% of the
airports served by ASA from the Dallas/Fort Worth hub.
The airline industry historically has been highly competitive. ASA's
management believes that its ability to compete with ground transportation and
other air carriers depends upon the public acceptability of its aircraft and
ASA's provision of convenient, frequent and reliable service to its markets at
reasonable rates.
Air carriers' profit levels are highly sensitive to, and during recent
years have been severely impacted by, changes in fuel costs, fare levels and
passenger demand. Passenger demand and fares can be affected by, among other
things, the general state of the economy,
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<PAGE> 14
international events and actions taken by other air carriers with respect to
fares. See "ECONOMY" and "SEASONALITY."
Air carriers are permitted to set domestic ticket prices without
governmental regulation. As a result, the industry generally is subject to
substantial price competition. ASA has in the past both responded to discounting
actions taken by other carriers and initiated discounting actions itself. ASA's
management expects that low-fare competition is likely to continue from time to
time in its markets. If price reductions are not offset by increases in revenue
passenger miles, ASA's operating results could be adversely affected.
Economy
The airline industry is a highly volatile industry. The state of the
economy is the primary determinant of the level of passenger travel. Leisure
travel is highly discretionary and can easily be postponed during economic
down-turns or no growth economic periods. While business travel is not as
discretionary, business travel generally diminishes in uncertain times as
business tends to tighten cost controls.
Seasonality
ASA's operations at the Atlanta and Dallas/Fort Worth hubs are
primarily dependent upon business, government and military related travel and
generally are not subject to wide seasonal variations. However, some seasonal
decline in business travel does occur at these hubs during holiday periods and
during portions of the winter months (i.e., December, January and February). ASA
estimates that leisure travel accounted for approximately 20% of ASA's
passengers during 1997. Leisure travel generally increases during the summer
months and at holiday periods. Demand for air travel, especially by leisure and
other discretionary customers, is also affected by factors such as favorable
economic conditions and fare levels. See "FARES" and "ECONOMY." ASA's operations
are also unfavorably affected by inclement weather which results in canceled
flights, particularly during winter months.
The following chart indicates the number of passengers carried by ASA
by quarter during its last three fiscal years:
<TABLE>
<CAPTION>
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997 836,455 992,521 989,255 956,386
1996 836,902 985,747 931,812 877,660
1995 680,871 808,338 789,681 788,007
</TABLE>
Regulation
Historically, the U.S. Department of Transportation ("DOT") and the FAA
have exercised regulatory authority over the operations of all air carriers
pursuant to the Federal Aviation Act of 1958, as amended (the "1958 ACT"). Most
domestic economic regulation of
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<PAGE> 15
passenger and freight services was eliminated pursuant to the Airline Regulation
Act of 1978 and other legislation amending the 1958 Act (collectively, the
"ACT"). The FAA's jurisdiction extends primarily to the safety and operational
provisions of the Act. The DOT's responsibility primarily involves regulation of
the economic and consumer protection aspects of airline operation.
Both the DOT and the FAA have authority to institute administrative and
judicial proceedings to enforce federal aviation laws and their own regulations,
rules and orders. Civil and criminal sanctions may be assessed for violations.
ASA is also subject to various other federal, state and local laws and
regulations affecting its operations. The United States Postal Service has
authority over certain aspects of the transportation of mail. The Communications
Act of 1934, as amended, governs ASA's use and operation of radio facilities.
Labor relations are generally governed by the Railway Labor Act. Environmental
matters (including noise pollution) are governed by various federal, state and
local governmental entities. The United States Department of Justice has
jurisdiction over mergers and acquisitions involving air carriers. Because it
carries military passengers, ASA is also subject to review by the Department of
Defense.
DOT REGULATION. Because of the economic deregulation of the airline
industry, unrestricted authority to operate domestic air transportation
(including the carrying of passengers and cargo) is available to any air carrier
the DOT determines is "fit" to operate. The DOT also has jurisdiction over
economic and consumer protection matters such as advertising, denied boarding
compensation, baggage handling, smoking aboard aircraft, handicapped access,
computer reservation systems, enforcement of minimum standards of customer
service, regulation of federal compensation payments for essential air service,
and ownership and control of air carriers. The DOT is also authorized to
prohibit unjust discrimination and to require periodic reports from air
carriers. The DOT has authorized ASA's flight operations pursuant to a
Certificate of Public Convenience and Necessity (a "401 CERTIFICATE") issued
under Part 401 of the Act during the first quarter of 1993. The 401 Certificate
requires ASA to maintain DOT-prescribed minimum levels of insurance and to
comply with all applicable statutes, rules and regulations, and subjects ASA to
expanded reporting requirements. The DOT must issue a 401 Certificate to an air
carrier before it will be permitted to operate aircraft with more than 60 seats.
ASA initiated the use of larger aircraft having more than 60 seats during the
second quarter of 1993. Prior to receiving the 401 Certificate, ASA qualified as
a commuter air carrier that was exempt from certain provisions of the Act and
certain regulatory functions of the DOT.
On December 20, 1995, a new federal regulation was issued by the FAA
which required all air carriers to accomplish the following by March 20, 1997
(earlier in certain instances): (a) establish a director of safety, and (b) for
those air carriers operating aircraft under Part 135 of the Act (30 seats or
less), re-certify their operation of those aircraft in accordance with Part 121
of the Act. Prior to March 20, 1997, Part 135 carriers did not have to dispatch
all their aircraft or train their pilots to the higher Part 121 standards.
Beginning in 1982, ASA operated as both a Part 135 and a Part 121 carrier
because it operated aircraft in both categories. ASA began
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<PAGE> 16
training all of its pilots under Part 121 in 1993, although it was not required
to do so. ASA was certified to operate the Brasilias under Part 121 on March 18,
1997.
Under the Act, the DOT has the authority to designate ASA as an
"essential air carrier" in any community in which it is the only carrier
providing service and that is an "essential air service community." Except for
such "essential air carrier" service, the economic deregulation of the airline
industry permits unrestricted competition with respect to ASA's routes,
services, fares and rates. An air carrier that serves an "essential air service
community" is required to give advance notice to the DOT if it plans to
terminate service to that community. Otherwise, air carriers may terminate
service to a community without restriction. ASA is currently the only air
carrier that provides service between the Atlanta hub and the following
"essential air service communities": Albany, Brunswick, Columbus, Macon and
Valdosta, Georgia; Columbus, Gainesville and Meridian, Mississippi; Asheville,
North Carolina; Dothan, Alabama; Fort Walton Beach and Panama City, Florida. The
service provided by ASA to these "essential air service communities" is on an
unsubsidized basis.
FAA REGULATION. As part of its safety and operational regulatory
authority, the FAA regulates flying operations generally, including, among other
things, control of navigable air space; airport access; aircraft certification
and maintenance; equipment and ground facilities; flight operations dispatch and
other communications; weather observation; the training and qualifications of
flight, maintenance and other operational and technical personnel; record
keeping and other matters affecting air safety generally.
To ensure compliance with its regulations, the FAA requires air
carriers to obtain operating, airworthiness and other certificates that are
subject to suspension or revocation for cause. ASA holds a valid air carrier
operating certificate issued by the FAA. ASA's certificates have never been
suspended and, to the knowledge of ASA's management, it is in compliance with
all applicable FAA regulations.
LABOR REGULATION. The Railway Labor Act ("RLA") governs the labor
relations of air carriers and employees in the airline industry. Comprehensive
provisions are set forth in the RLA establishing the right of airline employees
to organize and bargain collectively along craft or class lines and imposing a
duty upon air carriers and their union represented employees to make reasonable
efforts to make and maintain collective bargaining agreements. ASA has
collective bargaining agreements with two unions which represent its pilots and
flight attendants. See "PERSONNEL AND OPERATIONS." Under the RLA, collective
bargaining agreements do not terminate, but instead become amendable on a
particular date agreed upon by the air carrier and the union. The existing
collective bargaining agreement remains in force while a new collective
bargaining agreement is being negotiated. Should the parties be unsuccessful in
achieving a new amended collective bargaining agreement through direct
negotiations, either party may petition the National Mediation Board ("NMB"),
for the appointment of a federal mediator to assist the parties with their
negotiations. Following appointment by the NMB of a mediator to assist the
parties, the parties are required to remain in mediation under the auspices of
the NMB until the parties reach a new agreement or the NMB determines, in its
sole discretion, that the parties will be unable to reach a new agreement
through mediation. Upon making such a determination, the NMB will proffer
arbitration to the parties for the purpose of resolving their negotiating
differences. If either party rejects the proffer of arbitration, the parties
will enter a thirty day "cooling off period" during which the status quo must be
maintained. At the end of the thirty day cooling off period, unless a
Presidential Emergency Board has been convened, the parties are free to engage
in economic self help. For the union, this includes the right to strike. For
the carrier, this may include the right, depending upon the circumstances, to
impose new terms and conditions of employment on the employees.
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<PAGE> 17
ENVIRONMENTAL REGULATION. The United States Environmental Protection
Agency ("EPA") is authorized to regulate aircraft emissions. ASA's management
believes that the engines on ASA's current aircraft and on all aircraft ASA has
ordered comply with applicable EPA standards.
Federal and state environmental laws require that underground storage
tanks be upgraded to new construction standards and equipped with leak
detection. These requirements were phased into effect based on the age,
construction and use of existing tanks. Federal and state environmental laws
also govern the use and operation of above ground storage tanks. ASA operates no
underground or above ground storage tanks for the storage of fuels. ASA pays
fixed base operators at various airports to store fuels. ASA's management
believes it is otherwise in compliance with these laws.
NOISE REGULATIONS. The FAA requires air carriers to comply with certain
noise restrictions concerning their aircraft. Air carriers must bring existing
aircraft into compliance with these regulations by retrofit or engine
replacement. ASA's current aircraft and all aircraft ASA has ordered are in
compliance with these regulations. In addition, several state legislatures and
other governmental administrative bodies have, from time to time, considered
noise reduction measures of various sorts. At the present time, ASA's aircraft
meet all applicable noise regulations.
Insurance
For the fiscal year ended December 31, 1997 ASA maintained insurance
coverage with major insurance carriers with coverage up to $25 million for
damage per aircraft and $400 million of third party liability per occurrence
(for personal injury and property damage). The per aircraft deductibles range
from $50,000 to $500,000 depending on the type of aircraft. In addition, ASA
carries Hull War Risk coverage on certain aircraft where ASA believes, based on
information currently available to it, such insurance is necessary to protect it
and its property against material loss. ASA's also maintains workers
compensation insurance in compliance with state law in each state in which ASA
operates. ASA does not maintain business interruption insurance.
In the opinion of management, the Company maintains insurance policies
of types customary in the airline industry and in amounts and with insurance
carriers it believes, based on information currently available to it, are
adequate to protect it and its property against material
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<PAGE> 18
loss. There can be no assurance, however, that the amount of insurance carried
by the Company will be sufficient to protect it from material loss.
FACTORS AFFECTING FUTURE PERFORMANCE
Relationship with Delta
A substantial portion of the Company's business is dependent on the
Company's relationship with Delta. The Delta Connection Agreement is subject to
termination by either party for any reason or no reason upon 30 days' written
notice to the other party. The termination of the Delta Connection Agreement or
any material modification of its terms may have a material adverse effect on the
Company. As a result of the Delta Connection Agreement, the Company's business
is sensitive to events and risks affecting Delta. Delta's decisions regarding
flight routes, marketing programs and other operational matters, or the
occurrence of any event adversely affecting Delta, could have a material adverse
effect on the Company.
Fuel Costs and Supply
Fuel costs represented 10.79% of the Company's total operating expenses
in 1997. Fuel prices, which can be volatile and are largely outside of ASA's
control, can have a significant impact on the Company's operating results. At
ASA's current rate of consumption, every $0.01 increase in the price paid for
fuel represents an approximate $449,000 increase in ASA's annual operating
expenses. ASA's fuel supply contracts do not assure the price or availability of
fuel, and ASA has not entered into hedging transactions with respect to fuel
prices. Increases in the price of fuel or reductions in the availability of fuel
supplies, as well as ASA's inability to pass on increased fuel costs to
consumers due to economic or competitive conditions, could have a material
adverse effect on the Company's financial condition and results of operations.
Aircraft Fleet
As of March 3, 1998, ASA's aircraft fleet consisted of 12 ATRs, 63
Brasilias and eight CRJ aircraft. ASA's operations could be materially adversely
affected by the failure of the respective suppliers of these aircraft to provide
additional aircraft, parts or related support services on a timely basis. In
addition, the issuance of FAA airworthiness directives affecting ASA's aircraft
or the need for unanticipated fleet maintenance could interrupt ASA's fleet
service, which could have a material adverse effect on the Company. In 1997, ASA
exercised its option to return all five of its BAe jets in connection with its
proposed acquisition of the new CRJ aircraft. While ASA expects to take delivery
of remaining CRJ aircraft under the terms of its agreement with Bombardier,
ASA's operations could be materially adversely affected by Bombardier's failure
to deliver such future shipments of the CRJs on a timely basis.
Financial and Operating Leverage
As is characteristic of the airline industry, ASA operates with a high
degree of financial and operating leverage. As of December 31, 1997, ASA had
$94.6 million in outstanding long-
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<PAGE> 19
term debt, with annual payments of approximately $21.9 million committed to such
obligations in 1998. Payments committed to aircraft operating leases in 1998
amount to approximately $17.7 million. In addition, the Company's acquisition of
additional aircraft, including the CRJs, will result in increased leverage in
the form of additional operating lease obligations. ASA's leverage will require
significant periodic cash payments and may make ASA more vulnerable to the
cyclical and seasonal nature of the airline industry. Unlike the revenues
generated by any particular flight, the expenses incurred by ASA do not always
vary proportionately with the number of passengers carried and the fares charged
for each flight. Accordingly, decreases in the number of passengers carried
could cause a significant decrease in profits if not offset by higher fares.
Brazilian Default Risk
In connection with its acquisition of the Brasilia aircraft, ASA
negotiated to obtain the right to receive interest rate subsidies from the
Federative Republic of Brazil under the country's export support program. From
1995 to 1997, these subsidies represented an average of approximately $2.9
million in annual credits against ASA's interest and lease payment obligations
related to the Brasilia aircraft, and such subsidies would be jeopardized if the
government of Brazil fails to meet its obligations under the export support
program. From time to time, the Brazilian government has experienced economic
conditions that have impaired the creditworthiness of such governmental
obligations. There can be no assurance that a default on the subsidies will not
occur under the export support program.
Competition
The airline industry is highly competitive and industry earnings are
volatile. Since the deregulation of the airline industry in 1978, the industry
has consolidated and has integrated major and regional carriers, which in turn
has enhanced the competitive environment. Airlines compete on the basis of
pricing, scheduling, public perception, on-time performance, frequent flyer
programs and other services. While ASA has positioned itself to benefit from
these and other factors, there can be no assurance that the Company will not be
adversely affected by the introduction of new carriers in ASA's existing
markets, the institution of deeply discounted fares by competitors, changes in
ASA's ability to react to competitive pressures or other events.
Government Regulation
ASA is subject to regulation by several governmental authorities,
including the DOT and the FAA. These authorities regulate flight operations,
safety and economic aspects of air transportation providers. ASA is also subject
to laws relating to environmental protection, radio communications, labor
relations, employment practices and other matters. ASA incurs substantial costs
in maintaining its certifications with federal regulators and otherwise
complying with the laws and regulations to which it is subject. Although ASA has
all certifications it believes to be necessary for continued operations and
believes it is in compliance with all applicable requirements necessary to
maintain its operating authority in good standing, any modification, suspension
or revocation of ASA's DOT or FAA certifications or authorizations, as
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<PAGE> 20
well as the failure or inability of ASA to maintain such compliance, could have
a material adverse effect on the Company and its operations.
Economic Conditions and Seasonal Nature of Airline Business
Although ASA's operations at its main hubs are dependent primarily on
business, governmental and military related travel, ASA generally experiences
lower demand during holiday periods and portions of the winter months. ASA's
operations are also unfavorably affected by inclement weather, particularly in
the winter months, which may result in canceled flights. In addition, downturns
in the economy generally may lower demand for travel by leisure and other
discretionary customers and may have a material adverse effect on the Company's
financial results.
Labor Relations
Approximately 27% of ASA's workforce are members of the unions
representing pilots and flight attendants. In 1995, collective bargaining
agreements with both of these unions became amendable. In September 1997,
following direct negotiations and federal mediation, ASA and the flight
attendants' union entered into a new collective bargaining agreement that is
amendable in 2002. In September 1995, ASA and the union representing its pilots
entered into negotiations for a new collective bargaining agreement. In 1996,
ASA and the pilots' union entered federal mediation with respect to those
negotiations, which continued through 1997. In January 1998, ASA and the
pilots' union reached a tentative agreement on a new 54-month collective
bargaining agreement, pending ratification of the agreement by the pilots. In
March 1998, the members of the pilots' union voted to reject the tentative
accord, and management expects negotiations with the pilots' union to continue
under the auspices of the National Mediation Board. The existing collective
bargaining agreement between ASA and the pilots' union will remain in effect
until a new agreement is reached and ratified or until the procedures of the
Railway Labor Act, which governs labor relations of air carriers and employees
in the airline industry, are exhausted. See "REGULATION--LABOR REGULATION."
There can be no assurance that ASA will be able to settle contract
negotiations, if at all, without wage increases, work rule changes or other
provisions that could have a material adverse effect on the Company's
operations or financial performance. In addition, any cessation or disruption
of operations due to any strike or work action could have a material adverse
effect on the Company and its financial performance.
EXECUTIVE OFFICERS; OTHER SIGNIFICANT EMPLOYEES
EXECUTIVE OFFICERS
The following information is furnished with respect to the executive
officers of ASA Holdings as of March 3, 1998:
George F. Pickett, age 56, is ASA Holdings' and ASA's Chairman of the
Board and Chief Executive Officer and is a member of the Board of Directors of
both companies. He has served as Chairman of the Board and Chief Executive
Officer of ASA since February 1994 and of ASA Holdings since its inception in
September 1996. Since ASA's inception in 1979 and until February 1994, he served
as ASA's President and Chief Executive Officer. Mr. Pickett has been a member of
the Board of Directors of both ASA and ASA Holdings since their respective
inception.
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<PAGE> 21
John W. Beiser, age 57, is ASA Holdings' and ASA's President and is a
member of the Board of Directors of both companies. He has served as President
of ASA since February 1994 and of ASA Holdings since its inception. He has
served as Secretary of both companies since their respective inception. In
addition, Mr. Beiser was ASA's Vice President from its inception until 1985 when
he was designated as ASA's Senior Vice President-Sales and Services. Mr. Beiser
has been a member of the Board of Directors of ASA since 1982 and of ASA
Holdings since its inception.
Ronald V. Sapp, age 53, is ASA Holdings' and ASA's Senior Vice
President-Finance and Chief Financial Officer. Mr. Sapp was named Senior Vice
President-Finance and Chief Financial Officer in May 1997. Mr. Sapp served as
Vice President-Finance and Chief Financial Officer for ASA from 1985 until May
1997 and for ASA Holdings from the time of the Reorganization until May 1997. He
served as ASA's Treasurer from 1985 until February 1997 and as ASA Holdings'
Treasurer between September 1996 and February 1997. From 1983 to 1985, Mr. Sapp
served as Vice President-Finance and Treasurer of Air Atlanta, Inc., a scheduled
passenger airline. From 1979 to 1983, Mr. Sapp served as Vice President and
Controller of Air California, Inc., a scheduled passenger airline.
R. Mark Bole, age 39, was named ASA Holdings' and ASA's Assistant Vice
President-Treasurer in February 1997. He was ASA's Assistant Vice
President-Assistant Treasurer from February 1996 until February 1997 and held
the same positions with ASA Holdings from the effective date of the
Reorganization until February 1997. Mr. Bole served as a Vice President of
Wachovia Bank of Georgia, N.A. from May 1991 until February 1996.
Edward J. Paquette, age 47, was named ASA's Senior Vice
President-Operations in April 1997. From May 1996 until April 1997, he served as
Vice President-Operations of In-Flight Phone Corporation. From November 1994 to
May 1996, he served as Vice President-Ground Operations at Ogden Aviation
Services. Mr. Paquette served in various capacities at Trans World Airlines from
1969 through 1994, including Senior Vice President-Maintenance and Engineering
and Senior Vice President-Operations.
OTHER SIGNIFICANT EMPLOYEES
The following information is furnished with respect to other
significant employees of ASA Holdings and ASA as of March 3, 1998:
James J. Cerniglia, age 55, has served as ASA's Assistant Vice
President-Flight Systems Controller since March 1998. Mr. Cerniglia has held
positions with or served as a consultant to a number of airlines since 1986. He
served as the Director-Flight Control of Trump Shuttle, Inc. ("Trump") from
February 1989 until September 1991 and as Senior Director-Sales and Marketing of
Trump from September 1991 until March 1992. Mr. Cerniglia served as Vice
President-Operations of Jet Express/USAir Express from March 1992 until July
1993, as an independent airline consultant from July 1993 until May 1996, as
Director-Operations Control of Pan American World Airways, Inc. from May 1996
until September 1997, and as an independent airline consultant from that time
until he joined the Company.
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<PAGE> 22
Mark W. Fischer, age 39, has served as the Vice President-Customer
Services of ASA since November 1997. From 1992 until joining ASA, Mr. Fischer
served as the Vice President-Customer Service for Piedmont Airlines, Inc., and
from 1987 until 1992, he served as Vice President-Customer Services for Midway
Airlines, Inc. Mr. Fischer previously held a number of positions with Fischer
Bros. Aviation, Inc. from 1987 until 1992.
John P. McBryan, age 49, who has served as Vice President-Technical
Services of ASA since December 1997, has 27 years of experience in the aviation
industry. He was Vice President-Maintenance for Air Wisconsin, Inc. from 1988
until 1992, and served as Director of Maintenance for Allegheny Airlines, Inc.
from 1992 until 1993. Mr. McBryan served as Vice President-Operations of Dyn-Air
Tech, an aircraft repair station, from 1993 until 1994, and as Manager of
Industrial Engineering of The Dee Howard Company, another repair station, from
1994 through 1996. Prior to joining ASA, he was the Director-Programs and
Planning for Miami Air International.
Tilden M. Shanahan, age 65, has been ASA's Vice President-Flight
Operations since 1985. From 1984 to 1985, Mr. Shanahan served as Vice President
of Flight Operations for Jet Express, Inc., a charter airline. From 1960 to
1984, Mr. Shanahan served as a pilot, check pilot and Vice President of Flying
for Republic Airlines, Inc., a major airline.
Renee H. Skinner, age 41, is ASA Holdings' and ASA's Assistant Vice
President-Controller. She has held these positions with ASA since 1994 and with
ASA Holdings since the Reorganization was effective. Ms. Skinner served as ASA's
Manager of Accounting from 1986 through 1994.
Samuel J. Watts, age 50, who has served as Vice President-Sales and
Corporate Communications of ASA since July 1997, has been employed by ASA in
customer service positions since 1983. From 1985 to 1994, he was ASA's Vice
President-Customer Services. In 1994, he was elected as ASA's Vice
President-Sales and Customer Services. Mr. Watts was employed by Southeastern
Airlines, a regional airline, from 1982 to 1983 as its Vice President-Marketing.
From 1972 to 1982, Mr. Watts worked for Eastern Airlines, Inc., a major airline,
in various line and staff positions.
ITEM 2. PROPERTIES
ASA has entered into agreements with other air carriers to provide
ground handling services (either directly or through outside vendors) to ASA in
27 of the cities it serves. In addition, ASA performs ground handling services
for other air carriers at eight airports. ASA maintains ticketing, gate and
baggage claim facilities at each of the other airports it serves pursuant to
direct leases or use agreements with local airport authorities or other
carriers. ASA leases its apron, gate, ticketing and baggage claim facilities at
the Dallas/Fort Worth hub from Delta pursuant to a Ground Service Agreement. At
18 airports, ASA operates under month-to-month use agreements. ASA is currently
negotiating eight other leases that have
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<PAGE> 23
expired. ASA is operating month to month at these airports. The leases or use
agreements at the remaining airports have remaining terms generally ranging from
one month to 13 years.
Substantially all the maintenance and repairs on ASA's aircraft
operating from the Atlanta hub (except for major engine, propeller and component
overhauls as well as major airframe checks) are performed at ASA's 79,000
square foot hangar and maintenance facility in Macon, Georgia. ASA leases the
hangar facilities pursuant to a 30-year lease with renewal options until the
year 2028.
ASA also maintains a limited inventory of spare parts and has
maintenance personnel at the Atlanta hub in a facility located near ASA's ramp
and gate space that is leased from the City of Atlanta.
ASA leases a maintenance facility in Texarkana, Arkansas. Substantially
all the maintenance and repairs on ASA's aircraft operating from the Dallas/Fort
Worth hub are performed at this facility (except for major engine, propeller and
component overhauls as well as major airframe checks). In addition, ASA
maintains a limited inventory of spare parts and has maintenance personnel at
the Dallas/Fort Worth hub.
During 1996, ASA relocated all of its operations to 15 gates on
Concourse C North at the Atlanta hub. The relocation has significantly enhanced
the convenience of connections between flights operated by ASA and Delta in
Atlanta.
ASA Holdings and ASA maintain their principal offices and ASA's
training center in approximately 45,000 square feet of office space at 100
Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia, under a lease expiring
in 1999.
ASA's operations control center, located at its principal offices in
Atlanta, provides weather information, fuel information, weight limitations,
routing instructions and other information to ASA's pilots.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending in which the Company is
a party or to which any of the Company's property is subject. In addition, in
the opinion of its management, ASA maintains insurance policies of types
customary in the airline industry and in amounts and with insurance carriers it
believes, based on information currently available to it, are adequate to
protect it and its property against material loss. There can be no assurance,
however, that the amount of insurance carried by the Company will be sufficient
to protect it from material loss.
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<PAGE> 24
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of ASA Holdings
during the fourth quarter of the fiscal year covered by this Report.
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<PAGE> 25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this item is set forth under the heading
"COMMON STOCK PRICE RANGES AND DIVIDENDS" in the Company's 1997 Annual Report to
Shareholders (the "1997 ANNUAL REPORT") and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is set forth under the heading
"SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA" in the Company's 1997
Annual Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Information required by this item is set forth under the heading
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" in the Company's 1997 Annual Report and is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is set forth under the headings
"CONSOLIDATED BALANCE SHEETS," "CONSOLIDATED STATEMENTS OF INCOME,"
"CONSOLIDATED STATEMENTS OF CASH FLOWS," "CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY," "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS," "REPORT OF
INDEPENDENT AUDITORS" and "QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)" in
the Company's 1997 Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No change in or disagreements with the Company's accountants took place
during the Company's fiscal years ended December 31, 1997 and 1996, or during
the subsequent interim period through March 3, 1998.
-23-
<PAGE> 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the data under the heading "ELECTION OF DIRECTORS" and "SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in the Proxy Statement to be
used in connection with the solicitation of proxies for ASA Holdings' 1998
annual meeting of shareholders (hereinafter, the "1998 Proxy Statement") to be
filed with the Securities and Exchange Commission (the "Commission").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the data under the heading "EXECUTIVE COMPENSATION" in the 1998
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the data under the heading "VOTING SECURITIES AND PRINCIPAL HOLDERS
THEREOF--SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" in the
1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the data under the heading "ELECTION OF DIRECTORS--COMPENSATION
COMMITTEE INTERLOCKS AND ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION
DECISIONS" in the 1998 Proxy Statement.
-24-
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) Documents filed as part of this Report:
l. The following financial statements of the Registrant required
by this Item are included in the Registrant's 1997 Annual Report and are
incorporated by reference in Item 8 hereof:
Consolidated Balance Sheets as of December 31, 1997 and 1996;
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995;
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995;
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995; and
Notes to Consolidated Financial Statements.
2. The following financial statement schedules of the Registrant
required by this Item are included as pages 26 through 29 of this Report on Form
10-K:
Schedule I - Condensed Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. The exhibits required by this Item are listed on the Exhibit
Index on pages (i) through (ix) of this Report and are filed herewith or
incorporated by reference as indicated. The management contracts or compensatory
plans or arrangements required to be filed as exhibits to this Report pursuant
to Item 14(c) are identified in the Exhibit Index.
(b) ASA filed no current reports on Form 8-K during the fourth quarter of
1997.
-25-
<PAGE> 28
SCHEDULE I
ASA HOLDINGS, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,093 $ --
Receivables from affiliates 5,542 2,807
Accounts receivable 8 --
-------- --------
6,643 2,807
Investment in Subsidiaries 295,851 260,217
Other Assets 1,274 1,214
-------- --------
TOTAL ASSETS $303,768 264,238
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,172 $ --
Accrued compensation and related expenses 3,433 2,364
Other accrued expenses 242 100
-------- --------
5,847 2,464
Non-Current Liabilities 1,996 1,558
Shareholders' Equity
Common stock 2,973 2,999
Retained earnings 292,952 257,217
-------- --------
295,925 260,216
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $303,768 $264,238
======== ========
</TABLE>
See accompanying note.
-26-
<PAGE> 29
ASA HOLDINGS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996
---- ----
<S> <C> <C>
Cost Sharing Revenues $ 1,404 $ 0
-------- --------
Total Revenues 1,404 0
Operating Expenses
General and administrative 1,319 0
Depreciation and amortization 122 0
-------- --------
Total Operating Expenses 1,441 0
Net Operating Income (37) 0
-------- --------
Non Operating Income (37) 0
Income before Income Taxes 0 0
-------- --------
Income Taxes 0 0
-------- --------
Net Income before Equity in Earnings of Subsidiaries 0 0
Net Income of Subsidiaries 54,512 56,613
-------- --------
Net Income $ 54,512 $ 56,613
======== ========
</TABLE>
-27-
<PAGE> 30
ASA HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income of Subsidiaries $ 54,512 $ 56,613
Adjustment to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Undistributed earnings of subsidiaries (35,616) (56,613)
Other 30
Changes in Operating Assets and Liabilities:
Receivables (2,743)
Other assets (60)
Accounts payable 2,172
Accrued compensation and related expenses 2,880
Other liabilities 648
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,823 0
FINANCING ACTIVITIES
Dividends Paid (11,970)
Proceeds from Exercise of Stock Options 5,480
Purchase of Common Stock (14,240)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (20,730) 0
INCREASE IN CASH AND CASH EQUIVALENTS 1,093 0
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 0 0
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,093 $ 0
======== ========
</TABLE>
Note to Condensed Financial Statements
Note A -- Basis of Presentation
ASA Holdings, Inc., the parent company, was formed pursuant to a corporate
reorganization which was effective December 31, 1996. ASA Holdings, Inc. holds
all of the outstanding shares of Atlantic Southeast Airlines, Inc. and ASA
Investments, Inc. The Company's investment in these subsidiaries is stated using
the equity method of accounting. ASA Holdings, Inc. received dividends from ASA
Investments, Inc. in the amount of $18.9 million during 1997.
-28-
<PAGE> 31
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
December 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
Additions
---------
Balance at Charged to Charged to Balance at
beginning of cost and other accounts Deductions end of
Description period expenses (describe) (describe) period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 280,569 $ 20,000 $ (34,226)(A) $ 266,343
Allowance for obsolescence of
expendable parts 3,504,113 546,339 (1,680)(B) 4,048,772
----------- ----------- ------- ----------- -----------
$ 3,784,682 $ 566,339 $ 0 $ (35,906) $ 4,315,115
Year ended December 31, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 266,343 $ (25,000) $ (36,996)(A) 204,347
Allowance for obsolescence of
expendable parts 4,048,772 567,788 (413,818)(B) 4,202,742
----------- ----------- ------- ----------- -----------
$ 4,315,115 $ 542,788 $ 0 $ (450,814) $ 4,407,089
Year ended December 31, 1997
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 204,347 $ 120,000 $ (29,358) $ 294,989
Allowance for obsolescence of
expendable parts 4,202,742 737,208 4,939,950
----------- ----------- ------- ----------- -----------
$ 4,407,089 $ 857,208 $ 0 $ (29,358) $ 5,234,939
=========== =========== ======= =========== ===========
</TABLE>
(A) Uncollectible Accounts charged off during the period.
(B) Obsolete parts charged off during the period.
-29-
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ASA HOLDINGS, INC.
By: /s/ George F. Pickett
--------------------------------------------
George F. Pickett
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
Date: March 27, 1998
-30-
<PAGE> 33
We, the undersigned officers and directors of ASA Holdings, Inc.,
hereby severally constitute George F. Pickett and John W. Beiser and each of
them singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated below,
any and all amendments to this report, and generally do all such things in our
name and behalf in such capacities to enable ASA Holdings, Inc. to comply with
the applicable provisions of the Securities Exchange Act of 1934, as amended,
and all requirements of the Securities and Exchange Commission, and we hereby
ratify and confirm our signatures as they may be signed by our said attorneys,
or either of them, to any and all such amendments.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ George F. Pickett March 27, 1998
- --------------------------------------------
George F. Pickett, Chairman of the Board and
Chief Executive Officer (Principal Executive
Officer) and Director
/s/ John W. Beiser March 27, 1998
- --------------------------------------------
John W. Beiser, President, Secretary and
Director
/s/ Ronald V. Sapp March 27, 1998
- --------------------------------------------
Ronald V. Sapp, Senior Vice President-
Finance (Principal Financial and Accounting
Officer)
/s/ Jean A. Mori March 27, 1998
- --------------------------------------------
Jean A. Mori, Director
/s/ Parker H. Petit March 27, 1998
- --------------------------------------------
Parker H. Petit, Director
/s/ Ralph W. Voorhees March 27, 1998
- --------------------------------------------
Ralph W. Voorhess, Director
/s/ Alan M. Voorhees March 27, 1998
- --------------------------------------------
Alan M. Voorhees, Director
-31-
<PAGE> 34
EXHIBIT INDEX
Exhibit Number and Description
3(a) Articles of Incorporation of the Registrant. (Incorporated by reference
to Exhibit 3(a) to the Registration Statement on Form S-4 [Registration
No. 333-13071], as amended [the "REORGANIZATION REGISTRATION
STATEMENT"].)
3(b) Bylaws of the Registrant. (Incorporated by reference to Exhibit 3(b) to
the Reorganization Registration Statement.)
10(a) Stock Agreement dated as of March 17, 1997, between ASA Holdings, ASA,
Delta and Delta Holdings. (Incorporated by reference to Exhibit 10(a)
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, file number 0-29558, filed with the Commission on
March 31, 1997.)
10(b) Delta Connection Agreement dated July 1, 1986, between ASA and Delta.
(Incorporated by reference to Exhibit 10(a) to Amendment No. 1 to ASA's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996,
file number 0-29558, filed with the Commission on November 26, 1997.)
Letter Agreement dated February 19, 1987 from Delta and agreed to and
accepted by ASA. (Incorporated by reference to Exhibit 10(b) to
Amendment No. 1 to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-29558, filed with the
Commission on November 26, 1997.) Amendment to the Delta Connection
Agreement dated December 17, 1987, between Delta and ASA. (Incorporated
by reference to Exhibit 10(c) to Amendment No. 1 to ASA's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, file
number 0-29558, filed with the Commission on November 26, 1997.)
Amendment to the Delta Connection Agreement effective July 1, 1988,
between Delta and ASA. (Incorporated by reference to Exhibit 10(d) to
Amendment No. 1 to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-29558, filed with the
Commission on November 26, 1997.) Amendment to the Delta Connection
Agreement dated March 4, 1992, between Delta and ASA. (Incorporated by
reference to Exhibit 10(e) to Amendment No. 1 to ASA's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, file number
0-29558, filed with the Commission on November 26, 1997.) Amendment to
the Connection Carrier Agreement dated as of August 1, 1994, between
Delta and ASA. (Incorporated by reference to Exhibit 10(f) to Amendment
No. 1 to ASA's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, file number 0-29558, filed with the Commission on
November 26, 1997.) Confidential treatment has been applied for with
respect to certain provisions in these exhibits.
-i-
<PAGE> 35
10(c) Office Lease Agreement dated December 18, 1991, by and between ASA and
Trident Partners. (Incorporated by reference to Exhibit 10(q) to ASA's
Annual Report on Form 10-K for the year ended December 31, 1991, file
number 0-11097, filed with the Commission on March 27, 1992.)
10(d) Lease Agreement dated April 1, 1988, between ASA and Macon - Bibb
County Industrial Authority. (Incorporated by reference to Exhibit
10(k) to ASA's Annual Report on Form 10-K for the year ended December
31, 1992, file number 0-11097, filed with the Commission on March 31,
1993.)
10(e) Credit Agreement dated as of December 24, 1986, among ASA, ASA
Investments, and Manufacturers Hanover Leasing International Corp.,
American Security Bank, N.A., Barclays Bank PLC, B.S.F.E. - Banque de
la Societe Financiere Europeene, Canadian Imperial Bank of Commerce,
Citizens and Southern National Bank, Continental Illinois National Bank
and Trust Company of Chicago, Kawasaki Lease Financing Inc., National
Bank of Canada, National Bank of Georgia and The Royal Bank of Canada.
(Incorporated by reference to Exhibit 10(f) to ASA's Annual Report on
Form 10-K for the year ended December 31, 1991, file number 0-11097,
filed with the Commission on March 27, 1992.) Amendment No. 1 dated as
of February 20, 1987. (Incorporated by reference to Exhibit 10(f) to
ASA's Annual Report on Form 10-K for the year ended December 31, 1992,
file number 0-11097, filed with the Commission on March 31, 1993.)
Amendment No. 2 dated as of May 23, 1989. (Incorporated by reference to
Exhibit 19(a) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1989, file number 0-11097, filed with the
commission on November 11, 1989.) Amendment No. 3 dated as of August
17, 1989. (Incorporated by reference to Exhibit 19(b) to ASA's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1989,
file number 0-11097, filed with the Commission on November 11, 1989.)
Fourth Amendment dated September 17, 1996. (Incorporated by reference
to Exhibit 10(f) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-11097, filed with the
Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the Fourth Amendment.
10(f) Single Payment Note, dated January 26, 1987, payable to SunTrust Bank.
(Incorporated by reference to Exhibit 10(g) to ASA's Annual Report on
Form 10-K for the year ended December 31, 1991, file number 0-11097,
filed with the Commission on March 27, 1992.)
10(g) Credit Agreement dated as of April 23, 1987, among ASA, ASA
Investments, Inc., Manufacturers Hanover Leasing International Corp.,
Kawasaki Lease Financing, Inc. and Credit Lyonnais, Cayman Islands
Branch. (Incorporated by reference to Exhibit 10(i) to ASA's Annual
Report on Form 10-K for the year ended December 31, 1991, file number
0-11097, filed with the Commission on
-ii-
<PAGE> 36
March 27, 1992.) Amendment No. 1 dated as of May 23, 1989.
(Incorporated by reference to Exhibit 19(c) to ASA's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1989, file number
0-11097, filed with the Commission on November 11, 1989.) Second
Amendment dated as of October 31, 1989. (Incorporated by reference to
Exhibit 10(s) to ASA's Annual Report on Form 10-K for the year ended
December 31, 1989, file number 0-11097, filed with the Commission on
March 30, 1990.) Third Amendment dated September 17, 1996.
(Incorporated by reference to Exhibit 10(h) to ASA's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, file number
0-11097, filed with the Commission on November 14, 1996.) Confidential
treatment has been applied for with respect to certain provisions in
the Third Amendment.
10(h) Credit Agreement dated June 15, 1990 between ASA and Bank of America
National Trust and Savings Association ("BANK OF AMERICA").
(Incorporated by reference to Exhibit 10(h) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, file
number 0-29558, filed with the Commission on March 31, 1997.) First
Amendment dated September 13, 1996 (Incorporated by reference to
Exhibit 10(j) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-11097, filed with the
Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the First Amendment.
10(i) Credit Agreement dated December 1, 1990 between ASA and Wachovia Bank
of Georgia, N.A. ("WACHOVIA"). (Incorporated by reference to Exhibit
10(i) to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, file number 0-29558, filed with the Commission
on March 31, 1997.) Amendatory Agreement dated July 6, 1993. Second
Amendment dated September 13, 1996. (Incorporated by reference to
Exhibit 10(l) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-11097, filed with the
Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the Second Amendment.
10(j) Credit Agreement dated February 25, 1991 between ASA and Bank of
America. (Incorporated by reference to Exhibit 10(j) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
file number 0-29558, filed with the Commission on March 31, 1997.)
First Amendment dated September 13, 1996. (Incorporated by reference to
Exhibit 10(n) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-11097, filed with the
Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the First Amendment.
10(k) Credit Agreement dated April 19, 1991 between ASA and Wachovia.
(Incorporated by reference to Exhibit 10(k) to the Company's Annual
Report on Form 10-K for the
-iii-
<PAGE> 37
fiscal year ended December 31, 1996, file number 0-29558, filed with
the Commission on March 31, 1997.) First Amendment dated September 13,
1996. (Incorporated by reference to Exhibit 10(p) to ASA's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996, file
number 0-11097, filed with the Commission on November 14, 1996.)
Confidential treatment has been applied for with respect to certain
provisions in the First Amendment.
10(l) Credit Agreement dated June 1, 1992, among ASA, Wachovia, in both its
capacities as Lender and Agent, and the Bank of Tokyo - Mitsubishi,
LTD., Atlanta Agency f/k/a The Bank of Tokyo, Ltd., Atlanta Agency.
(Incorporated by reference to Exhibit 10(l) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, file
number 0-29558, filed with the Commission on March 31, 1997.) First
Amendment dated September 13, 1996. (Incorporated by reference to
Exhibit 10(r) to ASA's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, file number 0-11097, filed with the
Commission on November 14, 1996.) Confidential treatment has been
applied for with respect to certain provisions in the First Amendment.
10(m) Credit Agreement with Trust Company Bank dated as of April 20, 1994.
(Incorporated by reference to Exhibit 10(a) to ASA's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994, file number 0-11097,
filed with the Commission on May 13, 1994.) Confidential treatment has
been granted by the Commission with respect to certain provisions in
this Credit Agreement. First Amendment dated September 11, 1996.
(Incorporated by reference to Exhibit 10(t) to ASA's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1996, file
number 0-11097, filed with the Commission on November 14, 1996.)
Confidential treatment has been applied for with respect to certain
provisions in the First Amendment.
10(n) Aircraft Purchase Agreement dated August 27, 1990, between ASA and
Embraer - Empresa Brasileira de Aeronautica S.A. (Incorporated by
reference to Exhibit 10(t) to ASA's Annual Report on Form 10-K for the
year ended December 31, 1990, file number 0-11097, filed with the
Commission on March 29, 1991.) Confidential treatment has been granted
for with respect to certain provisions in this exhibit.
10(o) Purchase Agreement Assignment [N630AS] dated June 22, 1995; Purchase
Agreement Assignment [N631AS] dated June 22, 1995; Purchase Agreement
Assignment [N632AS] dated June 22, 1995; Purchase Agreement Assignment
[N633AS] dated June 22, 1995; Purchase Agreement Assignment [N634AS]
dated June 22, 1995; Purchase Agreement Assignment [N635AS] dated June
22, 1995; Purchase Agreement Assignment [N636AS] dated June 22, 1995;
and Purchase Agreement Assignment [N637AS] dated June 22, 1995, all
between the Company and First Security Bank of Utah, N.A. (Incorporated
by reference to Exhibit 10(c) to ASA's Quarterly Report on
-iv-
<PAGE> 38
Form 10-Q for the quarter ended June 30, 1995, file number 0-11097,
filed with the Commission on August 14, 1995.)
10(p) Aircraft Purchase Agreement dated as of April 15, 1993, between ASA and
Embraer-Empresa Brasileira de Aeronautica S.A., related Letter
Agreements (I), (II), and (III) dated as of April 15, 1993, and a
Second Amendment dated as of April 15, 1993, to a Letter Supplement
dated as of November 21, 1988. (Incorporated by reference to Exhibit
10(a) to ASA's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993, file number 0-11097, filed with the Commission on August 16,
1993.) Confidential treatment has been granted by the Commission with
respect to certain provisions in this exhibit.
10(q) Participation Agreement dated as of May 1, 1993 between the Company and
Antoine Finance Corporation. (Incorporated by reference to Exhibit
10(b) to ASA's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993, file number 0-11097, filed with the Commission on August 16,
1993.) Confidential treatment has been granted by the Commission with
respect to certain provisions in this exhibit.
10(r) Unconditional Guaranty of Performance between the Company and Avions de
Agreement between the Company and Avions de Transport Regional dated
February 10, 1993 and related letter agreements. (Incorporated by
reference to Exhibit 10(d) to ASA's quarterly report on Form 10-Q for
the quarter ended June 30, 1993, file number 0-11097, filed with the
Commission on August 16, 1993.)
10(s) Purchase Agreement Assignment No. 1 dated May 10, 1993, Purchase
Agreement Assignment No. 2 dated May 12, 1993, Purchase Agreement
Assignment No. 3 dated May 26, 1993, Purchase Agreement Assignment No.
4 dated June 16, 1993, Purchase Agreement Assignment No. 5 dated June
23, 1993, and Purchase Agreement Assignment No. 6 dated July 21, 1993,
all with respect to ATR 72 Purchase Agreement between the Company and
Avions de Transport Regional dated February 10, 1993 and related letter
agreements. (Incorporated by reference to Exhibit 10(e) to ASA's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, file
number 0-11097, filed with the Commission on August 16, 1993.) Purchase
Agreement Assignment No. 7 dated August 25, 1993, Purchase Agreement
Assignment No. 8 dated September 9, 1993, and Purchase Agreement
Assignment No. 9 dated September 23, 1993. (Incorporated by reference
to Exhibit 10(b) to ASA's quarterly report on Form 10-Q for the quarter
ended September 30, 1993, file number 0-11097, filed with the
Commission on November 15, 1993.)
10(t) Collateral Assignment of Purchase Agreement with Trust Company Bank
dated as of April 20, 1994 with respect to ATR 72 Purchase Agreement
between the Company and Avions de Transport Regional dated February 10,
1993. Incorporated by reference
-v-
<PAGE> 39
to Exhibit 10(b) to ASA's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994, file number 0-11097, filed with the Commission on
May 13, 1994.)
10(u) Sublease Agreement [N630AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N630AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N630AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N630AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(d) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(v) Sublease Agreement [N631AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N631AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N631AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N631AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(e) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(w) Sublease Agreement [N632AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N632AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N632AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N632AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(f) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(x) Sublease Agreement [N633AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N633AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N633AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N633AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(g) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(y) Sublease Agreement [N634AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N634AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N634AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N634AS] dated June 22, 1995.
-vi-
<PAGE> 40
(Incorporated by reference to Exhibit 10(h) to ASA's Quarterly Report
on Form 10-Q/A for the quarter ended June 30, 1995, file number
0-11097, filed with the Commission on February 23, 1996.) Confidential
treatment has been granted by the Commission with respect to certain
provisions in this exhibit.
10(z) Sublease Agreement [N635AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N635AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N635AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N635AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(i) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(aa) Sublease Agreement [N636AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N636AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N636AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N636AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(j) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(ab) Sublease Agreement [N637AS] dated as of June 22, 1995, between the
Company and Antoine Finance Corporation and related Sublease Supplement
[N637AS] dated June 22, 1995; Sublease Tax Indemnity Agreement [N637AS]
dated June 22, 1995; and Nondisturbance and Recognition Agreement
[N637AS] dated June 22, 1995. (Incorporated by reference to Exhibit
10(k) to ASA's Quarterly Report on Form 10-Q/A for the quarter ended
June 30, 1995, file number 0-11097, filed with the Commission on
February 23, 1996.) Confidential treatment has been granted by the
Commission with respect to certain provisions in this exhibit.
10(ac) Agreement to Lease Used British Aerospace 146 Series 200 Aircraft
between British Aerospace Holdings, Inc. Asset Management Organization
and the Company dated as of October 2, 1995. (Incorporated by reference
to Exhibit 10(ac) to ASA's Annual Report on Form 10-K for the year
ended December 31, 1995, file number 0-11097, filed with the Commission
on April 1, 1996.)
10(ad) JetSpares Agreement, dated as of October 2, 1995, between British
Aerospace Holdings, Inc., Avro International Aerospace Division, and
ASA. (Incorporated by reference to Exhibit 10(ad) to ASA's Annual
Report on Form 10-K for the year ended December 31, 1995, file number
0-11097, filed with the Commission on April 1, 1996.)
-vii-
<PAGE> 41
10(ae) Engine Maintenance Cost Protection Program Agreement between
AlliedSignal, Inc., AlliedSignal Engines and the Company dated as of
October 2, 1995. (Incorporated by reference to Exhibit 10(ae) to ASA's
Annual Report on Form 10-K for the year ended December 31, 1995, file
number 0-11097, filed with the Commission on April 1, 1996.)
10(af) Customer Support Agreement (ALF 502 Series TurboFan Engines) between
AlliedSignal Aerospace-Engine Division and the Company dated as of
October 2, 1995. (Incorporated by reference to Exhibit 10(af) to ASA's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
file number 0-11097, filed with the Commission on April 1, 1996.)
10(ag) 1990 Stock Appreciation Rights Plan of Atlantic Southeast Airlines,
Inc. (Incorporated by reference to Exhibit 19(a) to ASA's Quarterly
Report for the quarter ended June 30, 1990, file number 0-11097, filed
with the Commission on August 13, 1990.)*
10(ah) Atlantic Southeast Airlines, Inc. Executive Deferred Compensation
(Retirement) Plan dated May 15, 1990. (Incorporated by reference to
Exhibit 19(b) to ASA's Quarterly Report for the quarter ended June 30,
1990, file number 0-11097, filed with the Commission on August 13,
1990.) First Amendment to Executive Deferred Compensation (Retirement)
Plan dated December 31, 1992. (Incorporated by reference to Exhibit
10(s) to ASA's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, file number 0-11097, filed with the Commission on
March 31, 1993.)*
10(ai) Founding Officer Agreement dated June 27, 1990, between ASA and George
F. Pickett. (Incorporated by reference to Exhibit 19(c) to ASA's
Quarterly Report for the quarter ended June 30, 1990, file number
0-11097, filed with the Commission on August 13, 1990.)*
10(aj) Founding Officer Agreement dated June 27, 1990, between ASA and John W.
Beiser. (Incorporated by reference to Exhibit 19(d) to ASA's Quarterly
Report for the quarter ended June 30, 1990, file number 0-11097, filed
with the Commission on August 13, 1990.)*
10(ak) Atlantic Southeast Airlines, Inc. Supplemental Executive Retirement
Plan effective May 24, 1995. (Incorporated by reference to Exhibit
10(a) to ASA's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, file number 0-11097, filed with the Commission on August 14,
1995.)*
-viii-
<PAGE> 42
10(al) Bombardier Purchase Agreement No. P.A.-0372 and related Letter
Agreements. (Incorporated by reference to Exhibit 10(a) of the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
1997, file number 0-29558, filed with the Commission on August 14,
1997.) Confidential treatment has been applied for with respect to
certain provisions in these exhibits.
10(am) ASA Holdings, Inc. 1997 Nonqualified Stock Option Plan (Incorporated by
reference to Appendix A to the Company's Definitive Proxy Statement on
Schedule 14A, file number 0-29558, filed with the Commission on May 17,
1997.)*
13 Those sections of the 1997 Annual Report to Shareholders of ASA
Holdings, Inc. which are incorporated by reference in Items 5, 6, 7 and
8 of the Annual Report on Form 10-K.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Power of Attorney (Included on the signature page of this Form 10-K.)
27(a) Financial Data Schedule for the year ended December 31,1997.
27(b) Financial Data Schedule for the years ended December 31, 1996 and 1995.
99 Information required by Form 11-K with respect to the Atlantic
Southeast Airlines, Inc. Investment Savings Plan will be filed as an
amendment to this Form 10-K within 180 days after the end of the fiscal
year of the plan as permitted by Rule 15d-21 under the Securities
Exchange Act of 1934.
* The referenced exhibit is a compensatory contract, plan or
arrangement.
-ix-
<PAGE> 1
EXHIBIT 13
SELECTED SECTIONS OF THE 1997
ANNUAL REPORT TO SHAREHOLDERS
OF ASA HOLDINGS, INC.
<PAGE> 2
ASA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $112,393,109 $137,468,791
Marketable securities 71,486,542 52,653,227
Receivables, less allowance for uncollectible
accounts of $294,989 in 1997 and $204,347
in 1996 - Note K 6,662,587 6,552,616
Expendable parts, less allowance for obsolescence
of $4,939,950 in 1997 and $4,202,742 in 1996 6,544,564 8,145,369
Other current assets 3,683,059 2,904,208
------------ ------------
200,769,861 207,724,211
Property and Equipment - Note B
Flight equipment 468,666,479 456,809,305
Other property and equipment 16,766,413 15,515,205
Advance payments on property and equipment 26,167,400 136,342
------------ ------------
511,600,292 472,460,852
Less accumulated depreciation and amortization 231,045,066 203,180,823
------------ ------------
280,555,226 269,280,029
Other Assets
Investments 11,777,109 --
Other 12,857,537 9,232,637
------------ ------------
24,634,646 9,232,637
------------ ------------
TOTAL ASSETS $505,959,733 $486,236,877
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
ASA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1997 1996
------------ -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 21,851,783 $ 25,576,213
Accounts payable - Note K 25,410,523 18,402,087
Air traffic liability 2,407,711 4,345,769
Accrued compensation and related expenses 11,148,483 7,286,476
Accrued interest payable 1,057,520 1,318,550
Other accrued expenses 2,520,476 3,075,765
Income taxes payable 6,395,077 --
------------ -------------
70,791,573 60,004,860
Long-Term Debt - Note B 72,791,614 94,617,877
Other Non-Current Liabilities 2,231,668 1,763,471
Deferred Income Taxes - Note F 64,219,476 69,634,773
Commitments and Contingencies - Notes B, C and G
Shareholders' Equity - Notes A, H and I
Common stock, $.10 par; authorized -
150,000,000 shares; issued - 29,730,877
and 29,993,570 shares, respectively 2,973,088 2,999,357
Retained earnings 292,936,988 257,218,657
Unrealized holding gain (loss) on investments 15,326 (2,118)
------------ -------------
Total Shareholders' Equity 295,925,402 260,215,896
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $505,959,733 $ 486,236,877
============ =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
ASA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES
Operating Revenues:
Passenger $ 378,167,801 $ 367,250,428 $ 318,360,153
Other 7,121,652 8,049,998 10,365,287
------------- ------------- -------------
Total Operating Revenues 385,289,453 375,300,426 328,725,440
EXPENSES
Operating Expenses:
Flying operations 87,454,721 85,074,131 68,956,898
Maintenance 68,614,905 61,376,727 54,309,317
Passenger service 18,547,370 18,664,839 16,049,620
Aircraft and traffic servicing 45,551,823 45,390,058 40,229,297
Reservation, commission and other 38,529,361 39,344,575 32,148,818
General and administrative 17,590,431 12,078,785 13,159,314
Depreciation, amortization and obsolescence 28,686,264 27,534,057 27,695,335
Other 729,840 684,815 301,734
------------- ------------- -------------
Total Operating Expenses (Including payments to
Delta Air Lines, Inc. of $11.7, $11.9 and $9.6 million) 305,704,715 290,147,987 252,850,333
Income from Operations 79,584,738 85,152,439 75,875,107
Non-Operating (Income) Expenses:
Interest:
Income (10,920,403) (10,672,964) (11,997,712)
Expense 3,834,454 5,862,866 7,609,317
Other, net (170,628) (1,143,983) (510,315)
------------- ------------- -------------
(7,256,577) (5,954,081) (4,898,710)
Income before Income Taxes 86,841,315 91,106,520 80,773,817
Income Taxes - Note F:
Current 37,744,997 34,058,554 26,289,595
Deferred (5,415,297) 435,246 3,346,805
------------- ------------- -------------
32,329,700 34,493,800 29,636,400
------------- ------------- -------------
NET INCOME $ 54,511,615 $ 56,612,720 $ 51,137,417
============= ============= =============
EARNINGS PER COMMON SHARE $ 1.82 $ 1.83 $ 1.55
============= ============= =============
Weighted Average Number of Common Shares Outstanding 29,909,654 30,914,246 32,888,772
EARNINGS PER COMMON SHARE - DILUTED $ 1.81 $ 1.83 $ 1.55
============= ============= =============
Weighted Average Number of Common Shares and Common
Share Equivalents Outstanding 30,091,877 30,990,599 32,964,138
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
ASA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 54,511,615 $ 56,612,720 $ 51,137,417
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 27,351,713 26,518,027 26,794,942
Amortization and provision for obsolescence 1,334,551 1,016,030 900,393
Amortization of engine overhauls 7,381,705 6,656,680 7,710,438
Deferred income taxes (5,415,297) 435,246 3,346,805
Other 2,051,505 (107,722) (174,173)
Changes in Operating Assets and Liabilities:
Receivables (229,971) 5,187,991 (5,014,461)
Expendable parts 863,596 (1,859,712) 640,194
Other assets (5,517,143) 742,274 (3,147,901)
Accrued compensation and related expenses 4,330,204 983,488 3,014,807
Accrued interest payable (261,030) (1,622,461) (195,201)
Other liabilities 4,515,089 (1,213,312) 10,971,435
Income taxes payable 6,395,077 -- (1,243,399)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 97,311,614 93,349,249 94,741,296
INVESTING ACTIVITIES:
Purchase of Marketable Securities (167,840,499) (189,882,992) (198,048,934)
Proceeds from Sale of Marketable Securities 149,001,159 258,806,167 210,597,389
Purchases of Property and Equipment
including Advance Payments (46,188,478) (15,321,851) (13,851,990)
Purchase of Investments (11,777,109) -- --
Other 698,075 5,699,260 5,329,796
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (76,106,852) 59,300,584 4,026,261
FINANCING ACTIVITIES:
Principal Payments on Long-Term Debt (25,550,693) (32,405,997) (28,264,141)
Dividends Paid (11,969,851) (11,731,958) (11,203,992)
Purchase of Common Stock (14,240,313) (37,445,781) (35,423,612)
Proceeds from Exercise of Stock Options 5,480,413 -- --
------------- ------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (46,280,444) (81,583,736) (74,891,745)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (25,075,682) 71,066,097 23,875,812
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 137,468,791 66,402,694 42,526,882
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 112,393,109 $ 137,468,791 $ 66,402,694
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
ASA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital in
Common Stock Excess Retained Treasury Stock
Shares Amount of Par Earnings Other Shares Amount
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 34,363,707 $3,436,371 $ 45,238,051 $218,924,394 ($151,377) (1,140,000) ($19,977,188)
Net Income 51,137,417
Dividends Paid
(34c per share) (11,203,992)
Exercise of Stock
Appreciation Rights 22,963 2,296 649,296
Unrealized Holding Gain on
Investments, Net 223,821
Purchase of Common Stock (1,543,100) (35,423,612)
------------------------------------------------------------------------------------------------
Balance, December 31, 1995 34,386,670 3,438,667 45,887,347 258,857,819 72,444 (2,683,100) (55,400,800)
Net Income 56,612,720
Dividends Paid
(38c per share) (11,731,958)
Unrealized Holding Loss on
Investments, Net (74,562)
Purchase of Common Stock (1,710,000) (37,445,781)
Cancellation of Treasury Stock (4,393,100) (439,310) (45,887,347) (46,519,924) 4,393,100 92,846,581
------------------------------------------------------------------------------------------------
Balance, December 31, 1996 29,993,570 2,999,357 -- 257,218,657 (2,118) -- --
Net Income 54,511,615
Dividends Paid (40c per share) (11,969,851)
Unrealized Holding Gain
on Investments, Net 17,444
Purchase of Common Stock (541,000) (54,100) (7,362,780) (6,823,433)
Exercise of Stock Options and
Stock Appreciation Rights 278,307 27,831 7,362,780
------------------------------------------------------------------------------------------------
Balance, December 31, 1997 29,730,877 $2,973,088 $ -- $292,936,988 $ 15,326 -- $ --
================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Business: ASA Holdings, Inc. (ASA Holdings) is a
holding company the principal assets of which are the shares of its wholly owned
subsidiaries, Atlantic Southeast Airlines, Inc. (ASA) and ASA Investments, Inc.
(ASA Investments). ASA Holdings became the parent holding company for ASA and
ASA Investments pursuant to a corporate reorganization (the Reorganization)
which was effective after the close of business on December 31, 1996.
Pursuant to the Reorganization, ASA merged with a wholly owned subsidiary of ASA
Holdings. As part of the merger, each issued and outstanding share of ASA's
common stock (other than treasury stock, which was canceled) was converted into
one share of ASA Holdings' common stock. Immediately after the merger on
December 31, 1996, ASA effected a dividend to ASA Holdings of all of the capital
stock of ASA Investments. As a result of the Reorganization, ASA and ASA
Investments became wholly owned subsidiaries of ASA Holdings. There was no
significant impact on the consolidated financial statements as a result of these
transactions.
All references to the Company contained herein refer collectively to ASA and its
subsidiaries, ASA Holdings and ASA Investments, prior to December 31, 1996, and
to ASA Holdings and its subsidiaries, ASA and ASA Investments, beginning
December 31, 1996. All significant intercompany transactions have been
eliminated.
ASA, ASA Holdings' principal operating subsidiary, is a large regional airline
serving airports in the Southeastern and Southwestern United States. ASA derives
its revenues primarily through the air transportation of passengers and cargo in
scheduled airline service under a marketing agreement with Delta Air Lines, Inc.
(Delta). Under this agreement, ASA's flights are listed on reservation systems
as connecting Delta flights. Delta Air Lines Holdings, Inc., a subsidiary of
Delta, owns approximately 27% of ASA Holdings' common stock (See Note K).
ASA Investments operates as an investment entity which manages cash assets
contributed to it by ASA Holdings or its other subsidiaries.
Use of Estimates: The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
<PAGE> 8
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results inevitably will differ from
those estimates, and such differences may be material to the financial
statements.
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents. Such
investments include municipal obligations, corporate commercial paper and
overnight repurchase agreements. The Company believes that the credit risk is
minimal.
Marketable Securities and Investments: The Company's investment in marketable
securities consists of debt instruments of U.S. Government agencies and
municipal authorities, bank certificates of deposit, medium term notes and
corporate commercial paper. All such marketable securities have a maturity of
less than one year. Long-term investments consists of municipal bonds with a
maturity of more than one year. All of these investments are classified as
available for sale and reported at fair market value.
Expendable Parts: Flight equipment expendable parts are valued at average cost
less an allowance for obsolescence. Expendable parts are charged to maintenance
expense as used.
Property, Equipment and Depreciation: Flight equipment and other property and
equipment are stated at cost. Major additions, betterments and renewals are
capitalized. The Company capitalizes interest in connection with deposits made
under aircraft acquisition agreements. During the year ended December 31, 1997,
$1,137,000 of interest was capitalized. Depreciation of costs less estimated
residual values is computed on the straight-line basis over the estimated useful
lives of the related assets as follows:
<TABLE>
<S> <C>
Flight equipment 3 - 20 years
Other property and equipment 2 - 28 years
</TABLE>
For income tax purposes, accelerated depreciation methods are used.
Maintenance: Routine costs for aircraft and engine maintenance generally are
expensed as incurred. The cost of major engine overhauls for aircraft is
generally capitalized and amortized to maintenance expense over the estimated
overhaul life.
Intangibles: Excess of cost over fair value of tangible assets acquired is
amortized by the straight-line method over a 40-year period. Also included
<PAGE> 9
in other assets are deferred financing fees and deferred gate assignment costs.
These deferred assets are amortized over periods from one to 20 years.
Accumulated amortization for these intangible assets and deferred costs at
December 31, 1997 and 1996 was $3,492,975 and $2,910,829, respectively. Also
included in other assets is restricted cash which serves as collateral for a
portion of ASA's financings (See Note B). The cost of routine development of new
or extended routes and the pre-operating costs incurred in connection with
aircraft acquisitions are charged to expense as incurred.
Passenger Revenue Recognition: ASA issues Delta ticket stock for passenger
sales. Passenger revenues are recognized at the time transportation is provided.
ASA derives its revenues primarily from local fares and through fares. Local
fares are those fares for one way and round trips that are not combined with the
fare of another air carrier. Through fares are fares for transportation provided
jointly by ASA and another carrier. Revenues derived from through fares are
distributed among the participating air carriers using the straight rate prorate
division method or agreed variations to this proration formula. Included in air
traffic liability are cargo liabilities and amounts resulting from timing
differences in billings with Delta. As a "Delta Connection" carrier, ASA
participates in Delta's frequent flyer incentive program. ASA does not accrue
for incremental costs associated with the program's mileage accumulation since
the impact is immaterial both on a quarterly and annual basis.
Income Taxes: The Company uses the liability method of accounting for income
taxes. Deferred income taxes are provided for temporary differences in the
recognition of income and expenses for financial reporting and income tax
reporting.
Earnings per Share: Statement of Financial Accounting Standards No. 128,
"Earnings per Share," requires presentation of "Basic" and "Diluted" earnings
per share amounts, as defined. "Basic" earnings per share replaces primary
earnings per share under APB Opinion No. 15, and excludes the dilutive effects
of options, warrants and convertible securities, if any, from the calculation.
Fully diluted earnings per share has not changed significantly but has been
renamed "Diluted" earnings per share. Statement No. 128 became effective for
fiscal years ending after December 15, 1997. All earnings per share amounts
prior to 1997 have been restated as required to comply with this Statement (See
Note M).
Recent Pronouncements: In June 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information."
<PAGE> 10
Statement No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements for periods beginning after December 15, 1997. The Statement requires
that business segment financial information be reported in the financial
statements utilizing the management approach. The management approach is defined
as the manner in which managment organizes the segments within the enterprise
for making operating decisions and assessing performance. Management believes
that the adoption of Statement No. 131 will not have a material impact on the
financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and displaying comprehensive income, as defined, and its components in financial
statements issued for fiscal years beginning after December 15, 1997. Management
believes that the adoption of Statement No. 130 will not have a material impact
on the financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," encourages companies to recognize expense for stock-based awards
based on their fair value on the date of grant. At a minimum, Statement No. 123
requires pro forma disclosures beginning with the Company's 1996 financial
statements. The Company elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related interpretations
and provide the necessary disclosures required by Statement No. 123, rather than
adopt the expense recognition provisions of this Statement (See Note I).
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement No.
121 in the first quarter of 1996 and the effect of adoption was not significant.
<PAGE> 11
NOTE B - LONG-TERM DEBT
ASA's long-term debt was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Notes payable to banks. ASA pledged aircraft and support equipment with a net
book value of $20,286,435 as collateral. Payments are due in semi-annual
installments of $1,651,462 plus interest at 6.5% to 1999. $3,409,280 $9,648,266
Notes payable to banks. ASA pledged aircraft and support equipment with a net
book value of $16,119,138 as collateral. Payments are due in semi-annual
installments of $1,262,363 plus interest at 6.125% to 6.5% to 1999. 3,856,556 6,837,627
Notes payable to banks. ASA pledged aircraft and support equipment with a net
book value of $6,310,578 as collateral. Payments are due in quarterly
installments of $259,663 plus interest at 7% to 1999. 1,817,634 2,856,285
Notes payable to bank. ASA pledged aircraft and support equipment with a net
book value of $10,744,021 as collateral. Payments are due in semi-annual
installments of $788,902 plus interest at 5.35% to 5.7875% to 2000. 4,470,410 6,048,214
Floating rate note payable to bank. ASA pledged aircraft and support equipment
with a net book value of $3,805,423 as collateral. Payments are due in
semi-annual installments of $264,615 plus interest based on floating six month
LIBOR to 2000. Rate at December 31, 1997 was 6.4688%. 1,587,690 2,116,920
Floating rate note payable to bank. ASA pledged a Euro-time deposit of an equal
amount as collateral. Payments are due in semi-annual installments of $264,927
plus interest based on floating six month LIBOR to 2000. Rate at December 31,
1997 was 6.7438%. 1,589,556 2,119,411
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C>
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $15,847,223 as collateral. Payments are due in
semi-annual installments of $1,069,328 plus interest based on floating six month
LIBOR to 2001. Rates at December 31, 1997 were 6.69375% or 6.725%. 7,485,289 9,623,945
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $16,200,748 as collateral. Payments are due in
semi-annual installments of $1,051,214 plus interest based on floating six month
LIBOR to 2002. Rates at December 31, 1997 were 6.45%. 7,879,428 9,981,855
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $45,567,411 as collateral. Payments are due in
semi-annual installments of $2,727,239 plus interest based on floating six month
LIBOR to 2003. Rates at December 31, 1997 were 6.4688% or 6.5313%. 28,392,338 33,846,816
Floating rate notes payable to bank. ASA pledged aircraft and support equipment
with a net book value of $40,543,683 as collateral. Payments are due in mortgage
style semi-annual installments estimated at $1,548,395 (subject to change) plus
interest based on floating six month LIBOR to 2006. Rates at December 31, 1997
were 6.125% to 6.40625%. 34,155,216 37,114,751
----------- ------------
94,643,397 120,194,090
Less current portion 21,851,783 25,576,213
----------- ------------
$72,791,614 $ 94,617,877
----------- ------------
</TABLE>
As of December 31, 1997, maturities on long-term debt were:
<TABLE>
<S> <C>
1998 $21,851,783
1999 18,652,589
2000 15,369,419
2001 11,626,789
2002 9,749,654
After 2002 17,393,163
-----------
$94,643,397
-----------
</TABLE>
Certain of ASA's credit agreements contain restrictive covenants that, among
other things, limit the sale or lease of assets and the acquisition of stock of
other entities; establish a minimum ratio of total liabilities to tangible net
worth; and require maintenance of minimum tangible net worth
<PAGE> 13
and funds flow coverage. In addition, the transfer of funds by ASA in the form
of cash dividends, loans or advances is limited solely to the extent that the
payment of such transfers would cause ASA to breach other financial covenants.
ASA Holdings and ASA Investments are not subject to the restrictive covenants of
ASA's credit agreements, except to the extent that ASA is restricted in its
ability to transfer funds to ASA Holdings or ASA Investments in the form of cash
dividends, loans or advances. At December 31, 1997, approximately $27 million of
net assets was available for distribution by ASA to ASA Holdings under the most
restrictive of these provisions.
ASA has negotiated to receive interest rate subsidies on certain indebtedness
through the export support program of the Federative Republic of Brazil.
Outstanding debt aggregating $60,488,179 at December 31, 1997 is subject to
subsidy payments which reduce the stated interest rates on such debt to an
average of approximately 3.36%. However, subsidies on an aggregate of
$56,017,766 of such outstanding debt are at risk to ASA if the Federative
Republic of Brazil does not meet its obligations under the export support
program. For the remaining debt that is subject to such subsidies, the lenders
have assumed such risk by building such subsidy payments into ASA's payment
obligations. During 1997, 1996 and 1995, ASA reduced its interest expense by
$2,175,601, $2,826,564 and $3,726,620, respectively, as a result of these
interest rate subsidies. The amount of net interest paid during 1997, 1996 and
1995 was $5,075,122, $7,314,112 and $7,446,255, respectively. As indicated
above, ASA is at risk with respect to certain of these subsidy payments. While
the Company has no reason to believe, based on information currently available
to it, that ASA will not continue to receive such subsidy payments from the
Federative Republic of Brazil in the future, there can be no assurance that a
default will not occur under the export support program.
NOTE C - AIRCRAFT COMMITMENTS
On April 21, 1997, ASA announced that it had executed an acquisition agreement
with Bombardier, Inc. for 30 Canadair Regional Jet aircraft (CRJ) aggregating
approximately $600 million with options to acquire an additional 60 aircraft.
ASA took delivery of its first five 50-passenger CRJ aircraft in the second half
of 1997 through operating leases with 16.5 year terms. ASA obtained a commitment
from the Export Development Corporation (EDC) of Canada to provide financing to
ASA for up to approximately 85% of the purchase price of each of the CRJs. This
facility,
<PAGE> 14
which ASA is not obligated to use for its acquisition of all or any of the CRJs,
is available on an aircraft by aircraft basis in the form of either direct loans
or leases, with interest payable at various interest rate options determined by
reference to either U.S. treasury rates or LIBOR, and on various repayment
terms. ASA has arranged to acquire its next five CRJs under operating lease
arrangements. Thereafter, future deliveries of the remaining 20 CRJs are
anticipated to be at an approximate rate of one aircraft per month and the
financing arrangements have not yet been determined.
NOTE D - LINES OF CREDIT
ASA has an $8,000,000 bank line of credit available at LIBOR plus .4%. This line
of credit expires in February 1999 and is renewed annually. At December 31, 1997
and 1996, there was $.7 million of this line committed to support a letter of
credit. The remainder is available for general working capital purposes on an as
needed basis. At December 31, 1997 and 1996, there were no outstanding amounts
under this line of credit.
NOTE E - INTEREST RATE RISK MANAGEMENT
ASA, upon its determination of the nature of financing for aircraft
acquisitions, may enter into interest rate lock agreements in order to fix the
underlying interest rate index upon which the financing rate is determined. At
December 31, 1997, such agreements with a notional amount of $85 million
effectively had fixed rates between 7.06% and 7.10%. Under these arrangements,
the Company makes or receives payments based upon the differential between a
specified rate and a market interest rate on a notional principal amount on a
certain date. The fair value to ASA of the interest rate lock agreements at
December 31, 1997 was $(2.3 million), based on interest rates in effect at
December 31, 1997. At December 31, 1997, the Company had approximately $4
million related to settled interest rate lock agreements which are being
amortized over the term of the related financing.
NOTE F - INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income tax liabilities and assets as of
<PAGE> 15
December 31, 1997 and 1996 are as follows:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation $69,569,768 $72,736,336
Other 737,973 110,225
----------- -----------
Total deferred income tax liabilities 70,307,741 72,846,561
Deferred income tax assets:
Accounts receivable and inventory reserves 1,156,869 749,755
Other 4,931,396 2,462,033
----------- -----------
Total deferred income tax assets 6,088,265 3,211,788
----------- -----------
Net deferred income tax liabilities $64,219,476 $69,634,773
----------- -----------
</TABLE>
For financial reporting purposes, the provision for income taxes includes the
following components for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Federal:
Current $ 34,347,947 $30,993,254 $23,397,695
Deferred (4,927,897) 396,046 2,978,705
------------ ----------- -----------
29,420,050 31,389,300 26,376,400
------------ ----------- -----------
State:
Current 3,397,050 3,065,300 2,891,900
Deferred (487,400) 39,200 368,100
------------ ----------- -----------
2,909,650 3,104,500 3,260,000
------------ ----------- -----------
$ 32,329,700 $34,493,800 $29,636,400
------------ ----------- -----------
</TABLE>
<PAGE> 16
A reconciliation of the provision for income taxes at the applicable federal
statutory income tax rate to the income tax expense as reported is as follows
for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Income tax expense, at statutory rate $ 30,394,460 $31,887,282 $ 28,270,836
State income taxes, net of federal
tax benefit 1,978,194 2,004,211 2,160,835
Other (42,954) 602,307 (795,271)
------------ ----------- ------------
Income tax expense $ 32,329,700 $34,493,800 $ 29,636,400
------------ ----------- ------------
</TABLE>
In 1997, ASA received a tax refund related to certain amended prior years' state
tax returns and, accordingly, reduced income tax expense by approximately
$500,000. In 1995, certain prior years' income tax audits were resolved and the
Company reduced its tax liabilities and deferred tax expense by approximately
$1.3 million.
The Company paid income taxes in the amount of $32,384,060 in 1997, $33,389,841
in 1996 and $27,259,730 in 1995.
NOTE G - COMMITMENTS AND CONTINGENCIES
ASA's current fleet includes the following aircraft under operating leases:
<TABLE>
<CAPTION>
INITIAL
NON-CANCELLABLE
# OF AIRCRAFT TYPE OF AIRCRAFT LEASE TERM
- ------------- ---------------- ---------------
<S> <C> <C>
8 ATR-72 7 years
4 EMB-120 3.1 - 4.4 years
8 CRJ 16.5 years
</TABLE>
ASA leases facilities from local airport authorities or other carriers as well
as office space for its corporate headquarters and hangar facilities. These
leases are operating leases and have terms ranging from one month to 21 years.
Total rental expense on operating leases for the years ended December 31, 1997,
1996 and 1995 was $25,695,796, $24,041,093 and $17,591,292, respectively.
<PAGE> 17
Minimum future lease payments under all non-cancellable operating leases are as
follows:
<TABLE>
<S> <C>
1998 $21,622,080
1999 20,245,026
2000 19,264,045
2001 18,936,876
2002 13,988,644
After 2002 118,771,781
------------
$212,828,452
------------
</TABLE>
Approximately 27% of ASA's workforce are members of the unions
representing pilots and flight attendants. In 1995, collective bargaining
agreements with unions representing both the flight attendants and pilots became
amendable. In September 1997, following direct negotiations and federal
mediation, ASA and the flight attendants' union entered into a new collective
bargaining agreement that is amendable in 2002. In September 1995, ASA and the
union representing its pilots entered into negotiations for a new collective
bargaining agreement. In 1996, ASA and the pilots' union entered federal
mediation with respect to those negotiations which continued throughout 1997. In
January 1998, ASA and the pilots' union reached a tentative agreement on a new
54-month collective bargaining agreement, pending ratification of the agreement
by the pilots. In March 1998, the members of the pilots' union voted to reject
the tentative accord, and management expects negotiations with the pilots' union
to continue under the auspices of the National Mediation Board. The existing
collective bargaining agreement between ASA and the pilots' union will remain in
effect until a new agreement is reached and ratified or until the procedures of
the Railway Labor Act, which governs labor relations of air carriers and
employees in the airline industry, are exhausted. There can be no assurance
that ASA will be able to settle contract negotiations, if at all, without wage
increases, work rule changes or other provisions that could have a material
adverse effect on the Company's operations or financial performance. In
addition, any cessation or disruption of operations due to any strike or work
action could have a material adverse effect on the Company and its financial
performance.
NOTE H - DIVIDENDS AND COMMON STOCK TRANSACTIONS
Pursuant to its stock repurchase programs, the Company purchased $14,240,000,
$37,446,000 and $35,424,000 of its common stock in 1997, 1996 and 1995,
respectively. In February 1998, ASA Holdings announced that its Board of
Directors authorized the repurchase of up to an additional $50,000,000 of its
common stock on the open market during 1998.
<PAGE> 18
During 1997, the Company paid a total of $11,969,851 in dividends at 10 cents
per share per quarter. In February 1998, the Company's Board of Directors
increased the regular quarterly cash dividend to 11 cents per share.
NOTE I - STOCK PLANS
In May 1997, the shareholders of ASA Holdings approved the adoption of a
Nonqualified Stock Option Plan (Option Plan). In connection with the adoption of
the Option Plan, the Stock Appreciation Rights (SARs) Plan was terminated and
all SARs outstanding on May 21, 1997 were canceled, in exchange for options
covering the same number of shares with the same exercise prices and expiration
dates. Grants of options are made by a committee of the Board of Directors of
ASA Holdings and the exercise price is set at the time of each option grant.
SARs transactions are as follows:
<TABLE>
<CAPTION>
NUMBER OF SARS GRANT PRICE
-------------- ---------------
<S> <C> <C>
Outstanding at January 1, 1995 529,700 $17.13 - $36.75
Exercised (150,300) 21.13
Granted 411,000 17.13
---------- --------------
Outstanding at December 31, 1995 790,400 17.13 - 36.75
Exercised -- --
Granted -- --
---------- --------------
Outstanding at December 31, 1996 790,400 17.13 - 36.75
Exercised (10,000) 17.13
Granted 414,100 22.38
Granted 53,600 21.25
---------- ---------------
Canceled at May 21, 1997 1,248,100 $17.13 - $36.75
---------- ---------------
</TABLE>
<PAGE> 19
Option transactions are as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Granted at May 21, 1997 1,248,100 $23.18
Exercised (276,900) 19.79
--------- ------
Outstanding at December 31, 1997 971,200 $24.14
--------- ------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
DATE OF GRANT NUMBER OF OPTIONS EXERCISE PRICE
- ------------- ----------------- ---------------
<S> <C> <C>
May 21, 1997 235,700 $36.75
May 21, 1997 375,300 $22.38
May 21, 1997 53,600 $21.25
May 21, 1997 306,600 $17.13
------- ---------------
Total 971,200 $17.13 - $36.75
------- ---------------
</TABLE>
The weighted average remaining contractual life of the options outstanding at
December 31, 1997 was 2.7 years. Of the 971,200 options outstanding at December
31, 1997, 946,075 were fully vested and exercisable at prices from $17.13
through $36.75. At May 21, 1997, the Company reserved 2,500,000 shares of common
stock for issuance under the Option Plan. At December 31, 1997, 1,251,900 shares
remained available for future grants. In February 1998, an additional 391,800
options were granted under the Option Plan at an exercise price of $40.63.
During 1997, SARs increased expense by approximately $2,600,000. The SARs
expense of $2,600,000 was reversed upon cancellation of the SARs, but an
equivalent amount of compensation expense related to the new options issued
under the Option Plan was recorded due to the one-time issuance of options with
exercise prices less than the market price of the Company's stock on May 21,
1997. In 1996 and 1995, SARs increased expense by approximately $729,000 and
$2,416,000, respectively. In connection with the exercise of SARs, the Company
made cash payments of $21,018 and issued 1,407 shares of common stock in 1997,
and made cash payments of $434,445 and issued 22,963 shares of common stock in
1995.
<PAGE> 20
As indicated in Note A, the Company elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its SARs. However, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," requires pro forma information regarding net income and earnings
per share as if the Company had accounted for its SARs/options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value of these SARs/options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for grants
made in 1995 and 1997: a risk-free interest rate of 6%; a dividend yield of 2%;
a volatility factor of the expected common stock market price of .472 and .41,
respectively; and a weighted-average expected life of the SARs/options of five
years. The fair values of the SARs/options granted in 1997 were $8.41 and $7.99.
The fair value of the SARs granted in 1995 was computed to be $7.11. No SARs or
stock options were granted in 1996. 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 require the input of highly subjective assumptions including expected
stock price volatility. Because the Company's employee stock options and
previous SARs have characteristics significantly different from those of traded
options and 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 stock
options or previous SARs. For purposes of pro forma disclosures, the estimated
fair value of the SARs/options is amortized over the relevant vesting period.
The Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below (in thousands except per share information):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Net Income - as reported $54,512 $56,613
Net Income - pro forma $52,883 $56,524
Earnings per Common Share - Diluted
as reported $ 1.81 $ 1.83
Earnings per Common Share - Diluted
pro forma $ 1.76 $ 1.82
</TABLE>
<PAGE> 21
NOTE J - EMPLOYEE BENEFIT PLANS
All employees of the Company who have completed one year of employment are
generally eligible to participate in ASA's Investment Savings Plan. For each
dollar of salary reduction elected by an employee (up to 6% of an employee's
earnings), the Company has made a matching contribution of 20 cents to 50 cents
(depending on the number of years of participation for each participant). The
amounts contributed by the Company for 1997, 1996 and 1995 were approximately
$882,000, $920,000 and $915,000, respectively.
The Company has an Executive Deferred Compensation Plan for certain employees,
as designated by a committee of the Board of Directors. The Company contributes
from 10% to 15% of each participant's base salary to the plan. Approximately
$120,000, $126,000 and $122,000 were contributed in 1997, 1996 and 1995,
respectively.
The Company has a Supplemental Executive Retirement Plan (SERP). The SERP
provides supplemental retirement income to certain key executive employees at
the time of their retirement or termination of employment from the Company, on
or after the attainment of age 55. During 1997, 1996 and 1995, respectively, the
Company recorded expense of approximately $160,000, $142,000 and $131,000
related to the SERP. At December 31, 1997 and 1996, respectively, other
non-current liabilities included approximately $1,219,000 and $913,000 related
to the SERP.
The Company has no material liability for post-retirement or post-employment
benefits under Statements of Financial Accounting Standards No. 106 and 112.
NOTE K - RELATED PARTY TRANSACTIONS
Delta Air Lines Holdings, Inc. (a subsidiary of Delta) owns 7,995,000 shares or
approximately 27% of ASA Holdings' outstanding common stock. ASA leases
reservation equipment and certain terminal facilities from Delta and Delta
provides certain services to ASA including reservation and ground handling
services. Expenses under these agreements were approximately $11,686,000 in
1997, $11,883,000 in 1996, and $9,642,000 in 1995. Other information related to
Delta is as follows:
<PAGE> 22
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accounts Receivable from Delta
at December 31: $ 205,000 $ 121,000
Accounts Payable to Delta
at December 31: $1,725,000 $1,747,000
</TABLE>
Given ASA's relationship with Delta, ASA's results of operations and financial
condition may be favorably or adversely impacted by Delta's decisions regarding
its flight routes and other operational matters. ASA's flight schedules are
structured to facilitate the connection of its passengers with Delta flights at
ASA's Atlanta and Dallas/Fort Worth hubs. ASA has historically benefited from
its relationship with Delta, but there can be no assurance that such benefits
will continue in the future.
NOTE L - MARKETABLE SECURITIES AND FAIR VALUE INFORMATION
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheets
for cash and cash equivalents approximates its fair value.
Marketable securities and long-term investments: Short-term investments in
marketable securities are classified as available for sale and reported at fair
value (estimated based on quoted market prices). Gross unrealized holding losses
of $9,457 as of December 31, 1997 and $3,432 as of December 31, 1996 are
reflected as adjustments to shareholders' equity, net of related income taxes.
Realized gains and losses other than interest income were not material.
Long-term investments are classified as available for sale and reported at fair
value (estimated based on quoted market prices). The gross unrealized holding
gain of $33,034 as of December 31, 1997 is reflected as an adjustment to
shareholders' equity, net of related income taxes. The maturity of these
investments range from July 1998 to February 1999.
Long-term debt: The fair values of the Company's long-term debt are estimated
using discounted cash flow analyses, based on the Company's estimate of current
borrowing rates for credit facilities with maturities
<PAGE> 23
which approximate the weighted average maturities for its existing long-term
debt.
Off-balance sheet financial instruments: The Company receives interest rate
subsidies on certain long-term debt instruments (See Note B). The fair values of
these off-balance sheet instruments are estimated using discounted cash flow
analyses based on the Company's estimate of current borrowing rates. The Company
also has outstanding interest rate lock agreements (See Note E).
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNTS ESTIMATED FAIR VALUE
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 112,393,109 $ 137,468,791 $ 112,393,109 $ 137,468,791
Marketable securities 71,486,542 52,653,227 71,486,542 52,653,227
Long-term investments 11,777,109 -- 11,777,109 --
Total long-term debt (including
current maturities) (94,643,397) (120,194,090) (94,608,577) (119,894,051)
Off-balance sheet financial instruments -- -- 1,478,273 5,700,053
</TABLE>
<PAGE> 24
NOTE M - EARNINGS PER COMMON SHARE
The following table sets forth the computation of earnings per common share:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net Income $54,511,615 $56,612,720 $51,137,417
----------- ----------- -----------
Denominator:
For Earnings per Common Share:
Weighted Average Common
Shares Outstanding 29,909,654 30,914,246 32,888,772
Effect of Dilutive Securities:
Stock Options/SARs 182,223 76,353 75,366
----------- ----------- -----------
For Earnings per Common Share - Diluted:
Weighted Average Common Shares
and Share Equivalents Outstanding 30,091,877 30,990,599 32,964,138
----------- ----------- -----------
Earnings per Common Share $ 1.82 $ 1.83 $ 1.55
----------- ----------- -----------
Earnings per Common Share - Diluted $ 1.81 $ 1.83 $ 1.55
----------- ----------- -----------
</TABLE>
SARs/options to purchase 235,700 shares of common stock at $36.75 per share were
outstanding during 1997, 1996 and 1995, but were not included in the computation
of diluted earnings per share because the exercise price of the SARs/options was
greater than the average market price of the common shares and, therefore, the
effect would be antidilutive.
In February 1998, the Company issued an additional 391,800 options at an
exercise price of $40.63.
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
ASA Holdings, Inc.
We have audited the accompanying consolidated balance sheets of ASA
Holdings, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. 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 generally accepted auditing
standards. 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 ASA
Holdings, Inc. at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
January 30, 1998, except for the
last paragraph of Note G, as to
which the date is March 12, 1998
<PAGE> 26
ASA HOLDINGS, INC.
REPORT OF MANAGEMENT
The management of ASA Holdings, Inc. is responsible for the
preparation, content, integrity and objectivity of the financial statements and
other information presented in this report. The financial statements, which were
prepared in conformity with generally accepted accounting principles applied on
a consistent basis, have been audited by Ernst & Young LLP, independent
auditors.
The Company maintains a system of internal controls that provides
reasonable assurance as to the integrity and reliability of the financial
statements, that its assets are safeguarded against loss or unauthorized use and
that fraudulent financial reporting is prevented and detected.
The Board of Directors pursues its responsibilities through its Audit
Committee composed entirely of directors who are not employees of the Company.
The Audit Committee meets periodically and privately with the Company's
independent auditors and Company management to review accounting, auditing,
internal control and financial reporting matters.
/s/ George F. Pickett
- -------------------------------
GEORGE F. PICKETT
Chairman of the Board and
Chief Executive Officer
/s/ Ronald V. Sapp
- -------------------------------
RONALD V. SAPP
Chief Financial Officer and
Senior Vice President - Finance
<PAGE> 27
ASA HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report, including the Management's Discussion and Analysis which
follows, contains forward-looking statements in addition to historical
information, including but not limited to statements regarding the Company's
current views with respect to future events, trends, market conditions and
financial performance. Such forward-looking statements are subject to certain
factors that could cause actual results to differ materially from historical
results or anticipated events, trends or results. These factors include, but are
not limited to, material changes in the Company's relationship with Delta Air
Lines, Inc. (Delta); the cost and supply of aviation fuel; the acquisition and
phase-in of new aircraft; competitive pressures on pricing; changes in
regulations affecting the Company; and seasonal factors and general economic
conditions affecting demand for air transportation. These and other factors
affecting the Company's future performance are further detailed in publicly
available reports filed from time to time by the Company with the Securities and
Exchange Commission, such as the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
Reorganization
ASA Holdings, Inc. (ASA Holdings) is a holding company the principal assets of
which are the shares of its wholly owned subsidiaries Atlantic Southeast
Airlines, Inc. (ASA) and ASA Investments, Inc. (ASA Investments). ASA Holdings
became the parent holding company for ASA and ASA Investments pursuant to a
corporate reorganization (the Reorganization), which was effective after the
close of business on December 31, 1996.
<PAGE> 28
Pursuant to the Reorganization, ASA merged with a wholly owned subsidiary of ASA
Holdings. As part of the merger, each issued and outstanding share of ASA's
common stock (other than treasury stock, which was canceled) was converted into
one share of ASA Holdings' common stock. Immediately after the merger on
December 31, 1996, ASA effected a dividend to ASA Holdings of all of the capital
stock of ASA Investments. As a result of the Reorganization, ASA and ASA
Investments became wholly owned subsidiaries of ASA Holdings. ASA Holdings
considers the airline business of ASA to be its only industry segment. There was
no significant impact on the consolidated financial statements as a result of
these transactions.
All references to the Company contained in this section refer collectively to
ASA and its subsidiaries, ASA Holdings and ASA Investments, prior to December
31, 1996, and to ASA Holdings and its subsidiaries, ASA and ASA Investments,
beginning December 31, 1996. All significant intercompany transactions have been
eliminated.
ASA's material lenders consented to the Reorganization where ASA's credit
agreements made such consent necessary. In addition, during 1996 ASA
renegotiated the restrictive covenants in its credit agreements. The
renegotiated credit agreements currently contain restrictive covenants that,
among other things, limit the sale or lease of assets and the acquisition of
stock of other entities; establish a minimum ratio of total liabilities to
tangible net worth; and require maintenance of minimum tangible net worth and
funds flow coverage. In addition, the transfer of funds by ASA in the
<PAGE> 29
form of cash dividends, loans or advances is limited solely to the extent that
such transfers would cause ASA to breach other financial covenants. ASA Holdings
and ASA Investments are not subject to the restrictive covenants of ASA's credit
agreements except to the extent that ASA is restricted in its ability to
transfer funds to ASA Holdings or ASA Investments in the form of cash dividends,
loans or advances.
Liquidity and Capital Resources
The Company's working capital decreased to $130.0 million with a current ratio
of 2.8 at December 31, 1997 compared with working capital of $147.7 million and
a current ratio of 3.5 at December 31, 1996. At December 31, 1997, the Company
had $11.8 million of long-term investments which were previously invested in
instruments with short-term maturities. During 1997, ASA paid $25 million in
pre-delivery deposits on 30 Canadair Regional Jet aircraft (CRJ) which it is
acquiring from Bombardier, Inc. (Bombardier), as more fully described below.
Without these two factors, working capital would have been $166.8 million with a
current ratio of 3.4. Cash, cash equivalents and investments in marketable
securities decreased $6.2 million in 1997 primarily due to a $46.2 million
investment in property and equipment ($25 million of which was CRJ pre-delivery
deposits), $11.8 million of long-term investments, $25.6 million in principal
payments on long-term debt, $12.0 million of dividends paid and $14.2 million of
treasury stock purchases, offset by $97.3 million in cash provided by operating
activities and $5.5 million from the exercise of stock options.
ASA has an unsecured line of credit totaling $8 million with one of its banks.
At December 31, 1997, $.7 million of this line was committed to
<PAGE> 30
support a letter of credit. The remainder is available for general working
capital purposes on an as needed basis. At December 31, 1997, there were no
outstanding amounts against the line of credit.
Management believes that, as a result of the Reorganization, borrowings from
banks, other financial institutions or the securities markets are available to
ASA Holdings on substantially the same terms as were available to ASA prior to
the Reorganization. ASA Holdings also can borrow money directly and use it
internally or contribute it to ASA or any other subsidiary. In addition, any of
the subsidiaries can borrow money independently.
Total assets were up by $19.7 million at December 31, 1997 primarily due to an
$11.3 million increase in net property and equipment. Flight equipment was
higher by $11.9 million primarily due to purchases related to the Company's
acquisition of a new aircraft type, the CRJ. As mentioned above, advance
payments were higher by $26.0 at December 31, 1997 primarily due to the $25
million pre-delivery deposits on 30 CRJ aircraft. This $39.1 million increase in
property and equipment was offset by an increase of $27.9 million in accumulated
depreciation.
Current liabilities increased by $10.8 million to $70.8 million at December 31,
1997 compared with $60.0 million at December 31, 1996. This increase was
primarily due to $2.2 million of additional accounts payable related to common
stock repurchases and a $6.4 million increase in income taxes payable due to the
reversal of temporary differences and the timing of estimated tax payments.
These increases were offset by a decrease in the current portion of long-term
debt of $3.7 million, which consisted of debt payments of $4.3 million offset by
a $.6 million reclassification from current maturities to long-term debt.
<PAGE> 31
The Company's percentage of long-term debt to equity decreased to 25% at
December 31, 1997 compared with 36% at the end of 1996. Long-term debt decreased
by $21.8 million due to $21.2 million of long-term debt payments and the
reclassification of $.6 million from current maturities to long-term debt.
Thirty-six EMB-120 Brasilia aircraft and four ATR-72 aircraft, as well as a
significant portion of ASA's spare parts, are pledged to secure long-term debt.
Current maturities of long-term debt, aircraft lease payments, costs of
compliance with FAA directives and other capital expenditures were funded from
the Company's cash reserves and internally generated funds during fiscal 1997.
Shareholders' equity per share increased to $9.95 at December 31, 1997 from
$8.68 at the end of 1996. Net worth increased $35.7 million in 1997 primarily
due to earnings of $54.5 million and $7.4 million from the exercise of stock
options, offset by $12.0 million of dividends paid and $14.2 million of common
stock repurchases.
During 1996, ASA renegotiated the restrictive covenants in its credit
agreements. See "Reorganization" above. ASA Holdings and ASA Investments are not
subject to the restrictive covenants in ASA's credit agreements except to the
extent that ASA is restricted in its ability to transfer funds to ASA Holdings
or ASA Investments in the form of cash dividends, loans or advances. ASA's
dividend to ASA Holdings of all of the shares of ASA Investments' capital stock
in connection with the
<PAGE> 32
Reorganization provided ASA Holdings with net assets that are free of the
restrictive covenants in ASA's credit agreements. Approximately $27 million of
net assets was available at December 31, 1997, for distribution by ASA to ASA
Holdings under the most restrictive of these agreements.
The net number of shares of common stock outstanding decreased by .3 million to
29.7 million at December 31, 1997 compared with the number outstanding at
December 31, 1996. The number of shares decreased by 541,000 due to the
repurchase of common stock, offset by 278,307 shares issued in connection with
the exercise of stock options. ASA's Board of Directors authorized ASA to
repurchase up to $50.0 million of its common stock on the open market at any
time on or before December 31, 1995 and up to an additional $50.0 million of ASA
common stock during 1996. During 1995 and 1996, respectively, ASA repurchased
approximately $35.4 million and $37.4 million of its common stock. All of the
repurchased shares of common stock were held as treasury stock. In connection
with the Reorganization on December 31, 1996, all of the shares of ASA treasury
stock were canceled. In January 1997, ASA Holdings' Board of Directors
authorized the Company to repurchase up to $50.0 million of its common stock on
the open market at any time on or before December 31, 1997. Pursuant to this
repurchase program, ASA Holdings repurchased approximately $14.2 million of its
common stock during 1997. In February 1998, ASA Holdings announced that its
Board of Directors authorized the repurchase of up to an additional $50.0
million of its common stock on the open market during 1998. The repurchased
shares will be held as treasury stock and used for general corporate purposes or
will be canceled. Repurchases are subject to market conditions. The Company paid
dividends
<PAGE> 33
in the amount of $12.0 million, $11.7 million and $11.2 million on its
outstanding stock in 1997, 1996 and 1995, respectively.
On April 21, 1997, ASA announced that it had executed an acquisition agreement
with Bombardier for 30 CRJ aircraft with options for an additional 60 CRJ
aircraft. The CRJ is a 50-passenger jet with four-abreast seating that ASA will
use to promote growth in new markets as well as replace some turboprop equipment
on existing routes. The value of the 30 aircraft, including spare parts and
spare engines, will be approximatley $600 million. ASA took delivery of its
first five CRJ aircraft in the second half of 1997 through operating leases with
16.5 year terms. ASA obtained a commitment from the Export Development
Corporation (EDC) of Canada to provide financing to ASA for up to approximately
85% of the purchase price of each of the CRJs. This facility, which ASA is not
obligated to use for its acquisition of all or any of the CRJs, is available on
an aircraft by aircraft basis in the form of either direct loans or leases, with
interest payable at various interest rate options determined by reference to
either U.S. treasury rates or LIBOR, and on various repayment terms. The EDC
facility was used to provide financing for the first five CRJs acquired from
Bombardier. ASA has arranged to acquire its next five CRJs under similar
operating lease arrangements with EDC, but is not committed to future financing
through the EDC facility and will determine the method or source for financing
the additional CRJs at the time of each acquisition based upon a consideration
of various factors, such as prevailing conditions in the aircraft financing
markets and ASA's operations and other capital needs. ASA may finance the CRJs
as well as other anticipated expenditures through a combination of existing cash
reserves, internally generated funds and lease and debt financing. Given the
nature of the considerations relevant to the
<PAGE> 34
determination of the most advantageous form of financing at a given time, the
Company cannot predict with any certainty the anticipated amount of funds which
may be provided from such possible financing sources.
Approximately 27% of ASA's workforce are members of the unions
representing pilots and flight attendants. In 1995, collective bargaining
agreements with both of these unions became amendable. In September 1997,
following direct negotiations and federal mediation, ASA and the flight
attendants' union entered into a new collective bargaining agreement that is
amendable in 2002. In September 1995, ASA and the union representing its pilots
entered into negotiations for a new collective bargaining agreement. In 1996,
ASA and the pilots' union entered federal mediation with respect to those
negotiations, which continued through 1997. In January 1998, ASA and the
pilots' union reached a tentative agreement on a new 54-month collective
bargaining agreement, pending ratification of the agreement by the pilots. In
March 1998, the members of the pilots' union voted to reject the tentative
accord, and management expects negotiations with the pilots' union to continue
under the auspices of the National Mediation Board. The existing collective
bargaining agreement between ASA and the pilots' union will remain in effect
until a new agreement is reached and ratified or until the procedures of the
Railway Labor Act, which governs labor relations of air carriers and employees
in the airline industry, are exhausted. There can be no assurance that ASA
will be able to settle contract negotiations, if at all, without wage
increases, work rule changes or other provisions that could have a material
adverse effect on the Company's operations or financial performance. In
addition, any cessation or disruption of operations due to any strike or work
action could have a material adverse effect on the Company and its financial
performance.
The Company has implemented a Year 2000 compliance program designed to ensure
that the Company's computer systems and applications will function properly
beyond 1999. The Company believes that it has allocated adequate resources for
this purpose and expects its Year 2000 conversions to be completed on a timely
basis. The Company is not aware of any Year 2000 issues that would materially
adversely affect operations or results thereof and does not expect
implementation to have a material impact on the financial statements. However,
there can be no assurance that the systems of third
<PAGE> 35
parties upon which the Company's business relies will be Year 2000 compliant on
a timely basis. The failure of the Company's computer systems or applications or
those operated by such third parties could have a material adverse effect on the
Company's business, results of operations and financial condition.
ASA has negotiated to receive interest rate subsidies on certain indebtedness
through the export support program of the Federative Republic of Brazil.
Outstanding debt aggregating approximately $60.5 million at December 31, 1997 is
subject to subsidy payments which reduce the stated interest rates on such debt
to an average of approximately 3.36%. Of this amount, subsidies on outstanding
debt aggregating approximately $56.0 million are at risk to ASA if the
Federative Republic of Brazil does not meet its obligations under the export
support program. For the remaining debt that is subject to such subsidies, the
lenders have assumed such risk by building such subsidy payments into ASA's
payment obligations. During 1997, 1996 and 1995, ASA reduced its interest
expense by approximately $2.2 million, $2.8 million and $3.7 million,
respectively, as a result of these interest rate subsidies. As indicated above,
there can be no assurance that ASA will continue to receive such subsidy
payments.
In 1984, ASA and Delta implemented a marketing program called the "Delta
Connection." At December 31, 1997, Delta Air Lines Holdings, Inc. (an affiliate
of Delta) owned approximately 27% of ASA Holdings' outstanding common stock.
Delta leases reservation equipment and terminal facilities to ASA, and provides
certain services to ASA, including reservation and ground handling services.
Given ASA's relationship with Delta, ASA's results of operations and financial
condition may be favorably or adversely impacted
<PAGE> 36
by Delta's decisions regarding flight routes and other operational matters. ASA
has historically benefited from its relationship with Delta, but there can be no
assurance that such benefits will continue in the future.
Based on information currently available to it, the Company believes that
available resources will be sufficient to meet its existing expenditure
commitments (including current maturities of long-term debt and aircraft lease
payments) as well as its anticipated capital expenditures and other working
capital requirements for the foreseeable future. As previously indicated,
financial resources anticipated to be available to the Company for such purposes
include existing cash reserves, internally generated funds, amounts available
under the existing line of credit, and short and long-term financing
arrangements that the Company believes are available to it.
ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," was issued by the Financial
Accounting Standards Board (FASB) in June 1997. Statement No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements for periods beginning after
December 15, 1997. The Statement requires that business segment financial
information be reported in the financial statements utilizing the management
approach. The management approach is defined as the manner in which management
organizes the segments within the enterprise for making operating decisions and
assessing performance. Management believes that the adoption of Statement No.
131 will not have a material impact on the Company's financial statements.
<PAGE> 37
The FASB issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," in June 1997. Statement No. 130 establishes standards for
reporting and displaying comprehensive income, as defined, and its components in
financial statements issued for fiscal years beginning after December 15, 1997.
Management believes that the adoption of Statement No. 130 will not have a
material impact on the financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," encourages companies to recognize expense for stock-based awards
based on their fair value on the date of grant. At a minimum, Statement No. 123
requires pro forma disclosures in the Company's 1996 financial statements. The
Company elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations and
provide the necessary disclosures required by Statement No. 123, rather than
adopt the expense recognition provisions of this Statement.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement No.
121 in the first quarter of 1996 and the adoption did not have a material impact
on the financial statements.
<PAGE> 38
RESULTS OF OPERATIONS
The Company set new records in passenger traffic and operating revenues in 1997.
Total operating revenues were $385.3 million in 1997 compared with $375.3
million in 1996 and $328.7 million in 1995. Operating revenues were up 3% in
1997 primarily due to a 6% increase in revenue passenger miles (RPMs) flown to
924 million. RPMs were higher in 1997 due to the number of passengers carried
increasing by 4% to 3.8 million while the average trip length increased by 2% to
245 miles. ASA's load factor for 1997 was 51.0% compared with 49.1% for 1996.
The average passenger yield (passenger revenue divided by RPMs) decreased by
2.6% to 40.9 cents in 1997 compared with 42.0 cents in 1996, while the average
passenger fare was down 1% to $100.19 in 1997 compared with $101.11 in 1996.
Passenger fares vary based on a number of factors including competition, fare
discounting and economic conditions. Operating revenues in 1996 increased 14%
over 1995 primarily due to a .7% increase in the average passenger yield and a
15% increase in RPMs. ASA's average load factor in 1996 was 49.1%, up from 45.2%
in 1995.
For the year ended December 31, 1997, net income decreased by 4% to $54.5
million compared with $56.6 million for 1996. Diluted earnings per common share
for 1997 decreased to $1.81 on 30.1 million weighted average shares outstanding
compared with $1.83 on 31.0 million weighted average shares outstanding for
1996. The decrease in the average number of shares outstanding was due to the
stock repurchase program noted above in "Liquidity and Capital Resources" offset
by shares issued in connection with the exercise of stock options. The financial
results included a one-time after-
<PAGE> 39
tax charge of $1.7 million or $.06 per share primarily related to ASA's decision
during 1997 to exercise its option for the early return of all BAe 146 aircraft
to their lessor, as well as after-tax expense of $.7 million or $.02 per share
incurred related to training and start-up expenses associated with the
introduction of the new CRJ aircraft. Included in 1997 and 1996 are after-tax
accruals of $1.6 million or $.05 per share and $.5 million or $.01 per share
associated with the Company's former Stock Appreciation Rights (SARs) Plan and
were due to increases in the price of the Company's stock during the existence
of that plan. On May 21, 1997, the Company's shareholders approved the
cancellation of all outstanding SARs and the adoption of a Nonqualified Stock
Option Plan (Option Plan). The Company does not intend to incur any additional
SARs expense in the future. Excluding these non-recurring expenses, 1997 diluted
earnings per common share would have been $1.94 compared to $1.84 for fiscal
1996. In 1995, net income was $51.1 million or $1.55 per share on 32.9 million
weighted average shares outstanding.
Operating expenses increased 5% in 1997 and 15% in 1996. The Company experienced
a 4% increase in the cost per available seat mile (ASM) flown to 16.9 cents
compared with 16.3 cents in 1996. Capacity (the number of ASMs) was up 2% in
1997 due to changes in aircraft as described in "Liquidity and Capital
Resources" above. Operating expenses in 1997 included $2.6 million of expense
related to the Company's SARs plan due to a 13% increase in the Company's stock
price and additional vesting, while 1996 included $.7 million of expense
associated with SARs due to a 2% increase in the stock price and additional
vesting. Included in operating expenses for 1997 was $2.7 million primarily
related to ASA's decision to exercise its option for the early return of all BAe
146 aircraft to their lessor
<PAGE> 40
and approximately $1.1 million of start-up expenses associated with adding the
CRJ aircraft to the fleet. Excluding the effect of the SARs expense, BAe 146
return costs and CRJ start-up costs, operating expenses would have increased 3%
in 1997 compared with 1996 and are higher primarily due to increased maintenance
costs for the EMB-120 Brasilia turboprop fleet as well as rent on the CRJ jet
aircraft. Operating expenses in 1996 were up 15% compared with 1995. Included in
1996 was $.7 million of SARs expense due to a 2% increase in the Company's stock
price and additional vesting compared with $2.4 million in 1995 due to a 39%
increase in the stock price. Included in operating expenses for 1995 was
approximately $2.3 million of start-up costs associated with adding the BAe 146
aircraft to the fleet. Excluding the effect of the BAe 146 start-up costs in
1995 and SARs expense in both years, operating expenses would have increased 17%
in 1996 compared with 1995 primarily due to more expensive jet fuel, higher
marketing related expenses, increased maintenance costs for the EMB-120 Brasilia
turboprop fleet, and rent on the BAe 146 aircraft. The following table compares
components of operating cost per ASM for the years ended December 31, 1997, 1996
and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Labor and related 4.4c 4.2c 4.3c
Fuel 1.8 1.9 1.4
Direct maintenance 2.9 2.6 2.4
Passenger related 2.0 2.1 1.8
Depreciation and aircraft rent 2.5 2.4 2.2
Other 3.3 3.1 2.9
----- ----- -----
Total operating expense per ASM 16.9c 16.3c 15.0c
</TABLE>
<PAGE> 41
The following table presents various components of operating expense as a
percentage of total operating expense for the years ended December 31, 1997,
1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Labor and related 26% 25% 29%
Fuel 11 12 9
Direct maintenance 17 16 16
Passenger related 12 13 12
Depreciation and aircraft rent 15 15 15
Other 19 19 19
--- --- ---
Total operating expense 100% 100% 100%
</TABLE>
The Company's break-even load factor was 39.5% in 1997 compared with 37.2% in
1996 and 34.1% in 1995. The higher break-even load factor in 1997 was primarily
the result of higher operating expenses and the adjustments for SARs, the BAe
146 return and the CRJ start-up costs. The slightly higher break-even load
factor in 1996 compared with 1995 was primarily the result of higher operating
expenses.
Labor and related costs were $78.9 million in 1997, $74.2 million in 1996 and
$72.3 million in 1995. The average number of employees in 1997 was 2,497, an
increase of 4% over 1996 which contributed to higher labor and related costs. As
mentioned above, 1997 included $2.6 million of expense related to the SARs plan
in comparison with $.7 million of such expense in 1996 and $2.4 million in 1995.
Excluding SARs expense, labor and related
<PAGE> 42
costs per ASM would have been 4.2 cents for 1997 and 4.1 cents for both 1996 and
1995, compared with 4.4 cents, 4.2 cents and 4.3 cents, respectively.
Fuel expense was $33.0 million, $33.5 million and $24.1 million in 1997, 1996
and 1995, respectively. Fuel consumption increased 3% in 1997 while the average
fuel price per gallon, including taxes and into plane fees, decreased 5% in 1997
to 73.5 cents from 77.2 cents in 1996 due primarily to the decrease in crude oil
prices during 1997. The average price per gallon, including taxes and into plane
fees, increased in 1996 compared with 1995 by 25% to 77.2 cents from 61.9 cents,
due primarily to the increase in crude oil prices during 1996 and the additional
4.3 cent per gallon transportation fuel tax beginning in October 1995. In August
1993, the United States government increased taxes on fuel, including aircraft
fuel, by 4.3 cents per gallon. ASA was exempt from this tax increase until
October 1995. This new tax increased the Company's operating expenses by
approximately $1.9 million in both 1996 and 1997. Changes in the cost and supply
of aviation fuel have an industry wide impact and will tend to affect ASA's
competitors in the same manner as ASA.
Direct maintenance expense, excluding labor and related costs, increased to
$52.8 million in 1997 from $46.2 million and $40.3 million in 1996 and 1995,
respectively. This 14% increase in 1997 was primarily due to charges for the
return of the BAe 146 aircraft, start-up costs related to the CRJ aircraft, a 2%
increase in capacity and increased maintenance inspections and overhauls of time
controlled components. As with any air carrier, as ASA's fleet of aircraft ages,
it requires more frequent maintenance. The addition of the new 50-passenger CRJ
aircraft, which are expected to be
<PAGE> 43
used over longer routes, should create a higher capacity over which maintenance
costs can be distributed. Maintenance expenses in 1996 were higher compared with
1995 primarily due to a 6% increase in capacity, more frequent maintenance on
aging aircraft, BAe 146 maintenance plan expenses, and the timing for scheduled
maintenance inspections and overhauls.
Passenger related expenses, which include a majority of the expenses under the
caption "Reservation, commission and other" on the Company's Consolidated
Statements of Income, were $35.9 million, $36.8 million and $30.2 million in
1997, 1996 and 1995, respectively. The increase of $6.6 million in 1996 compared
with 1995 was primarily due to an increase in travel agency commissions, credit
card discounts and reservation fees. These expenses are directly related to the
18% increase in passengers carried in 1996 versus 1995. Passenger related
expenses were approximately 10% of passenger revenue in 1997 and 1996 compared
with 9% of passenger revenue in 1995. Delta began charging ASA higher fees for
reservation service/systems in April 1995 and higher credit card fees in October
1995.
Aircraft rental costs were approximately $18.3 million in 1997, compared with
$16.9 million in 1996 and $10.3 million in 1995. The increased expense in 1997
was primarily attributable to the acquisition of five new CRJs during the last
half of 1997. Aircraft rental expense was higher in 1996 compared with 1995
primarily due to the three EMB-120 Brasilia aircraft and four BAe 146 aircraft
leased during the fourth quarter of 1995, as well as a fifth BAe 146 aircraft
leased in January 1996. Depreciation expense increased to $27.4 million in 1997
compared with $26.5 million and $26.8 million for 1996 and 1995, respectively.
<PAGE> 44
Other expenses increased to $59.4 million in 1997 compared with $56.1 million in
1996 and $48.9 million in 1995. The increase in 1997 was partially attributable
to costs associated with the negotiations related to the pilot and flight
attendant contracts. The increase in 1996 compared with 1995 was due primarily
to higher station security fees, liability insurance and interrupted trip and
baggage claim expenses.
Interest expense decreased to $3.8 million in 1997 compared with $5.9 million in
1996 and $7.6 million in 1995. The decrease in 1997 was attributable to less
total debt outstanding and the recording of $1.1 million in capitalized interest
related to the deposits on the CRJ aircraft. The decrease in 1996 compared with
1995 was attributable to lower interest rates on ASA's outstanding floating rate
debt and less total debt outstanding. Interest income was $10.9 million in 1997
compared with $10.7 million in 1996 and $12.0 million in 1995. A decline in
interest rates contributed to lower interest income in 1996 compared with 1995.
The Company's effective income tax rate differs from the statutory rate of 35%
due primarily to the impact of state income taxes, net of federal tax benefit.
In 1997, ASA received a tax refund related to certain amended prior years' state
tax returns and, accordingly, reduced income tax expense by approximately
$500,000. In 1995, deferred tax liabilities and deferred tax expense were
reduced by $1.3 million due to the resolution of prior years' income tax audits.
<PAGE> 45
ASA HOLDINGS, INC.
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
<S> <C> <C> <C> <C> <C>
1997
Operating Revenues $89,615 $ 99,638 $99,023 $97,014 $385,290
Operating Income 15,750 21,234 22,784 19,817 79,585
Income before Income Taxes 17,028 23,027 24,742 22,045 86,842
Net Income $10,732 $ 14,772 $15,340 $13,668 $ 54,512
Earnings per Common Share $ 0.36 $ 0.50 $ 0.51 $ 0.46 $ 1.82
Weighted Average Common Shares Outstanding 29,971 29,813 29,870 29,985 29,910
Earnings per Common Share - Diluted $ 0.36 $ 0.49 $ 0.51 $ 0.45 $ 1.81
Weighted Average Common Shares
and Share Equivalents Outstanding 30,031 30,003 30,102 30,201 30,092
1996
Operating Revenues $89,405 $104,238 $94,670 $86,987 $375,300
Operating Income 17,063 28,823 25,462 13,804 85,152
Income before Income Taxes 18,221 29,960 26,821 16,105 91,107
Net Income $11,297 $ 18,430 $16,549 $10,337 $ 56,613
Earnings per Common Share $ 0.36 $ 0.59 $ 0.54 $ 0.34 $ 1.83
Weighted Average Common Shares Outstanding 31,425 31,223 30,895 30,124 30,914
Earnings per Common Share - Diluted $ 0.36 $ 0.59 $ 0.53 $ 0.34 $ 1.83
Weighted Average Common Shares
and Share Equivalents Outstanding 31,490 31,325 30,975 30,181 30,991
</TABLE>
COMMON STOCK PRICE RANGES AND DIVIDENDS
The common stock of ASA Holdings is regularly quoted on the Nasdaq National
Market under the symbol ASAI. ASA common stock was traded on the Nasdaq National
Market under the same symbol prior to the December 31, 1996 Reorganization (see
Note A of the Notes to Consolidated Financial Statements). The following table
sets forth, for the periods indicated, the high and low sales prices of the
common stock and the quarterly cash dividends per share:
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
<C> <C> <C> <C>
1997
1st Quarter $25.63 $19.63 $ 0.10
2nd Quarter 28.63 20.13 0.10
3rd Quarter 31.13 26.75 0.10
4th Quarter 31.75 26.50 0.10
1996
1st Quarter $28.50 $17.88 $0.095
2nd Quarter 29.38 22.00 0.095
3rd Quarter 28.38 20.25 0.095
4th Quarter 25.00 19.88 0.095
</TABLE>
As of March 2, 1998, there were approximately 931 shareholders of record.
Certain of ASA's credit agreements contain restrictive covenants which limit
ASA's ability to transfer funds to ASA Holdings in the form of cash dividends,
loans or advances. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes B and H of the Notes to
Consolidated Financial Statements herein regarding such restrictions.
<PAGE> 46
ASA HOLDINGS, INC.
SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
OPERATING FINANCIAL DATA
Total Operating Revenues $385,290 $375,300 $328,725 $312,090 $288,463
Total Operating Expenses 305,705 290,148 252,850 227,818 210,843
Income from Operations 79,585 85,152 75,875 84,272 77,620
Total Non-Operating (Income) Expense (7,257) (5,955) (4,899) (1,348) 198
Income before Taxes and Accounting Change 86,842 91,107 80,774 85,620 77,422
Income Taxes 32,330 34,494 29,637 32,964 31,090
Cumulative Effect of Accounting Change -- -- -- -- 4,212
Net Income $ 54,512 $ 56,613 $ 51,137 $ 52,656 $ 50,544
Earnings per Common Share * $ 1.82 $ 1.83 $ 1.55 $ 1.54 $ 1.47
Weighted Average Common Shares Outstanding (000) * 29,910 30,914 32,889 34,140 34,290
Earnings per Common Share - Diluted * $ 1.81 $ 1.83 $ 1.55 $ 1.54 $ 1.47
Weighted Average Common Shares and
Share Equivalents Outstanding (000) * 30,092 30,991 32,964 34,188 34,395
OTHER FINANCIAL DATA
Working Capital $129,978 $147,719 $141,677 $140,391 $126,975
Total Assets $505,960 $486,237 $512,699 $519,684 $474,599
Long-Term Debt, excluding Current Portion $ 72,792 $ 94,618 $120,210 $152,610 $135,963
Total Liabilities $210,035 $226,021 $259,844 $272,214 $249,512
Shareholders' Equity $295,925 $260,216 $252,855 $247,470 $225,087
Shareholders' Equity per Share * $ 9.95 $ 8.68 $ 7.98 $ 7.45 $ 6.55
Return on Average Shareholders' Equity 20% 22% 20% 22% 25%
Shareholders' Equity to Total Liabilities 141% 115% 97% 91% 90%
Cash Dividends Declared per Share * 40c 38c 34c 32c 28c
Long-Term Debt to Shareholders' Equity 25% 36% 48% 62% 60%
Shares Outstanding at End of Year (000) * 29,731 29,994 31,704 33,224 34,340
STATISTICAL DATA
Revenue Passengers Carried (000) 3,775 3,632 3,067 3,120 2,661
Revenue Passenger Miles (000,000) 924 874 763 780 641
Available Seat Miles (000,000) 1,813 1,781 1,688 1,654 1,367
Yield per Revenue Passenger Mile 40.9c 42.0c 41.7c 39.2c 44.2c
Operating Cost per Available Seat Mile 16.9c 16.3c 15.0c 13.8c 15.4c
Passenger Load Factor 51.0% 49.1% 45.2% 47.2% 46.9%
Break-Even Load Factor 39.5% 37.2% 34.1% 34.2% 34.3%
Average Passenger Trip Length (miles) 245 241 249 250 241
Flights per Week (end of period) 3,942 3,814 3,886 4,163 4,087
<CAPTION>
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
OPERATING FINANCIAL DATA
Total Operating Revenues $235,579 $221,916 $187,229 $180,130 $137,144
Total Operating Expenses 174,765 169,388 147,363 136,160 117,896
Income from Operations 60,814 52,528 39,866 43,970 19,248
Total Non-Operating (Income) Expense 1,497 932 (1,124) (566) 666
Income before Taxes and Accounting Change 59,317 51,596 40,990 44,536 18,582
Income Taxes 22,250 19,093 15,600 16,924 7,065
Cumulative Effect of Accounting Change -- -- -- -- --
Net Income $ 37,067 $ 32,503 $ 25,390 $ 27,612 $ 11,517
Earnings per Common Share * $ 1.09 $ 0.96 $ 0.73 $ 0.76 $ 0.31
Weighted Average Common Shares Outstanding (000) * 34,097 33,942 34,748 36,105 37,743
Earnings per Common Share - Diluted * $ 1.09 $ 0.95 $ 0.73 $ 0.76 $ 0.31
Weighted Average Common Shares and
Share Equivalents Outstanding (000) * 34,165 34,050 34,938 36,299 37,743
OTHER FINANCIAL DATA
Working Capital $ 93,372 $ 78,721 $ 59,590 $ 55,525 $ 42,011
Total Assets $430,752 $377,603 $325,311 $287,971 $231,626
Long-Term Debt, excluding Current Portion $145,804 $139,356 $127,724 $111,749 $ 90,109
Total Liabilities $252,013 $229,683 $204,956 $179,613 $139,958
Shareholders' Equity $178,738 $147,910 $120,355 $108,358 $ 91,668
Shareholders' Equity per Share * $ 5.23 $ 4.35 $ 3.57 $ 3.07 $ 2.47
Return on Average Shareholders' Equity 23% 24% 22% 28% 13%
Shareholders' Equity to Total Liabilities 71% 64% 59% 60% 65%
Cash Dividends Declared per Share * 24c 20c 15.9c 8c --
Long-Term Debt to Shareholders' Equity 82% 94% 106% 103% 98%
Shares Outstanding at End of Year (000) * 34,180 34,034 33,750 35,314 37,075
STATISTICAL DATA
Revenue Passengers Carried (000) 2,417 2,251 2,002 2,001 1,586
Revenue Passenger Miles (000,000) 547 501 427 413 320
Available Seat Miles (000,000) 1,077 1,020 856 791 753
Yield per Revenue Passenger Mile 42.2c 43.2c 43.2c 42.9c 42.3c
Operating Cost per Available Seat Mile 16.2c 16.6c 17.2c 17.2c 15.7c
Passenger Load Factor 50.8% 49.2% 49.9% 52.3% 42.5%
Break-Even Load Factor 38.0% 37.7% 39.0% 39.3% 36.7%
Average Passenger Trip Length (miles) 226 223 213 207 202
Flights per Week (end of period) 3,507 3,360 3,124 3,033 2,827
</TABLE>
* Adjusted for stock splits on November 26, 1991 and February 18, 1993
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Atlantic Southeast Airlines, Inc., a Georgia corporation, is 100% owned by ASA
Holdings, Inc.
ASA Investments, Inc., a Delaware corporation, is 100% owned by ASA Holdings,
Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of ASA Holdings, Inc. of our report dated January 30, 1998, except
for the last paragraph of Note G, as to which the date is March 12, 1998,
included in the 1997 Annual Report to Shareholders of ASA Holdings, Inc.
Our audit also included the financial statement schedules of ASA
Holdings, Inc. listed in Item 14(a). These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 2-94852-99) pertaining to the Atlantic Southeast
Airlines, Inc. Investment Savings Plan and in the Registration Statement (Form
S-8 No. 333-29503), pertaining to the ASA Holdings, Inc. 1997 Nonqualified Stock
Option Plan of our report dated January 30, 1998, except for the last paragraph
of Note G, as to which the date is March 12, 1998, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedules included in this Annual Report (Form 10-K) of ASA Holdings,
Inc.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Atlanta, Georgia
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ASA HOLDINGS, INC. FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 112,393
<SECURITIES> 71,487
<RECEIVABLES> 6,958
<ALLOWANCES> (295)
<INVENTORY> 6,545
<CURRENT-ASSETS> 200,770
<PP&E> 511,600
<DEPRECIATION> 231,045
<TOTAL-ASSETS> 505,960
<CURRENT-LIABILITIES> 70,792
<BONDS> 72,792
0
0
<COMMON> 2,973
<OTHER-SE> 292,952
<TOTAL-LIABILITY-AND-EQUITY> 505,960
<SALES> 0
<TOTAL-REVENUES> 385,290
<CGS> 0
<TOTAL-COSTS> 305,705
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 3,834
<INCOME-PRETAX> 86,842
<INCOME-TAX> 32,330
<INCOME-CONTINUING> 54,512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,512
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RESTATED
FINANCIAL STATEMENTS OF ASA HOLDINGS, INC. FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1996 AND 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 137,469 66,403
<SECURITIES> 52,653 121,697
<RECEIVABLES> 6,757 11,982
<ALLOWANCES> (204) (266)
<INVENTORY> 8,145 6,440
<CURRENT-ASSETS> 207,724 210,743
<PP&E> 472,461 483,011
<DEPRECIATION> 203,181 190,613
<TOTAL-ASSETS> 486,237 512,699
<CURRENT-LIABILITIES> 60,005 69,066
<BONDS> 94,618 120,210
0 0
0 0
<COMMON> 2,999 3,171
<OTHER-SE> 257,217 249,684
<TOTAL-LIABILITY-AND-EQUITY> 486,237 512,699
<SALES> 0 0
<TOTAL-REVENUES> 375,300 328,725
<CGS> 0 0
<TOTAL-COSTS> 290,148 252,850
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (25) 20
<INTEREST-EXPENSE> 5,863 7,609
<INCOME-PRETAX> 91,107 80,774
<INCOME-TAX> 34,494 29,636
<INCOME-CONTINUING> 56,613 51,137
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 56,613 51,137
<EPS-PRIMARY> 1.83 1.55
<EPS-DILUTED> 1.83 1.55
</TABLE>
