<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-11097
Atlantic Southeast Airlines, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-1354495
- - ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia 30354
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (404) 766-1400
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter 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
--- ---
As of August 8, 1994 there were 34,248,707 shares of common stock outstanding.
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ATLANTIC SOUTHEAST AIRLINES, INC.
INDEX
<TABLE>
<CAPTION>
Part I-Financial Information Page No.
<S> <C> <C>
Item 1. Consolidated Financial Statements
Balance Sheets- June 30, 1994 and December 31, 1993
Assets 3
Liabilities and Shareholders' Equity 4
Statements of Income- Three months and six months
ended June 30, 1994 and June 30, 1993 5
Statements of Cash Flows- Six months ended
June 30, 1994 and June 30, 1993 6
Condensed Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II-Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibits
11 Statement Re: Computation of Per Share Earnings 13
</TABLE>
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<PAGE> 3
Part I- Financial Information
Item 1. Consolidated Financial Statements
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------- ------------
(unaudited) (audited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 70,206 $ 52,835
Marketable securities 105,663 113,094
Accounts receivable 10,202 6,945
Expendable parts 7,076 6,362
Other current assets 2,882 3,092
--------- ---------
196,029 182,328
Property and Equipment
Flight equipment 468,251 412,125
Other property and equipment 7,581 7,126
Advance payments on property and equipment 299 598
--------- ---------
476,131 419,849
Less accumulated depreciation and amortization 150,424 137,514
--------- ---------
325,707 282,335
Other Assets
Excess of cost over fair value of
tangible assets acquired 3,023 3,075
Other assets 6,478 6,861
--------- ---------
9,501 9,936
Total Assets $ 531,237 $ 474,599
========= =========
</TABLE>
See condensed notes to consolidated financial statements.
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ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- --------
(unaudited) (audited)
<S> <C> <C>
Liabilites and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 28,674 $ 25,981
Accounts payable 17,269 11,710
Air traffic liability 447 1,723
Accrued payroll and related expenses 5,425 9,465
Accrued interest payable 1,883 1,642
Other accrued expenses 2,742 591
Income taxes payable 2,552 4,241
-------- --------
58,992 55,353
Long-Term Debt 164,193 135,963
Noncurrent Liabilities 481 409
Deferred Income Taxes 61,320 57,787
Shareholders' Equity
Common Stock, $.10 par value; authorized
50,000,000 shares; issued 1994-34,348,991
shares; 1993- 34,339,772 shares 3,435 3,434
Capital in Excess of Par Value 44,808 44,458
Retained Earnings 200,632 177,195
Treasury Stock; 115,000 shares (2,624) -
-------- --------
246,251 225,087
Total Liabilities and Shareholders' Equity $531,237 $474,599
======== ========
</TABLE>
See condensed notes to consolidated financial statements.
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ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Operating revenues:
Passenger $ 80,406 $ 68,713 $ 153,936 $ 131,946
Other 1,627 1,140 3,115 2,376
---------- ---------- ---------- ----------
Total operating revenues 82,033 69,853 157,051 134,322
Operating expenses:
Flying operations 16,317 12,761 32,159 24,333
Maintenance 11,395 10,412 23,715 19,218
Passenger service 3,459 2,688 6,683 5,062
Aircraft and traffic servicing 8,947 7,002 17,899 13,903
Promotion, sales and advertising 8,438 7,140 15,233 13,049
General and administrative 122 2,950 1,828 14,423
Depreciation, amortization and obsolescence 6,671 5,880 12,928 11,684
Other 52 38 133 97
---------- ---------- ---------- ----------
Total operating expenses 55,401 48,871 110,578 101,769
Income from operations 26,632 20,982 46,473 32,553
Non-operating (income) expenses, net:
Interest income (1,688) (1,197) (3,103) (2,349)
Interest expense 1,344 1,286 2,471 2,694
Other (27) (1) (13) (5)
---------- ---------- ---------- ----------
(371) 88 (645) 340
Income before income taxes and cumulative effect
of change in accounting for income taxes 27,003 20,894 47,118 32,213
Income taxes: Note 3
Current 8,198 5,729 14,655 9,342
Deferred 2,225 2,106 3,533 2,738
---------- ---------- ---------- ----------
10,423 7,835 18,188 12,080
Income before cumulative effect of accounting change 16,580 13,059 28,930 20,133
Cumulative effect of change in method of
accounting for income taxes-Note 3 - - - 4,212
---------- ---------- ---------- ----------
Net income $ 16,580 $ 13,059 $ 28,930 $ 24,345
========== ========== ========== ==========
Earnings per share:
Income before cumulative effect of accounting change $ 0.48 $ 0.38 $ 0.84 $ 0.59
Cumulative effect of accounting change - - - $ 0.12
---------- ---------- ---------- ----------
Net income $ 0.48 $ 0.38 $ 0.84 $ 0.71
========== ========== ========== ==========
Cash dividends per common share 0.08 0.07 0.16 0.14
Weighted number of common shares outstanding 34,383,247 34,419,439 34,408,578 34,360,829
</TABLE>
See condensed notes to consolidated financial statements.
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ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
For The Six Months Ended
June 30,
------------------------
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES
Net income $28,930 $24,345
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 12,377 11,290
Amortization and provision for obsolescence 551 394
Provision for uncollectible accounts 60 (240)
Increase in allowance for maintenance 3,024 2,476
Deferred income taxes 3,533 (1,634)
Other 375 5,212
Changes in operating assets and liabilities:
Accounts receivable (3,317) 1,036
Expendable parts (978) (1,095)
Other assets 166 (2,800)
Accounts payable 5,559 3,359
Other liabilities 875 301
Payroll and related liabilities (3,968) 1,783
Accrued interest payable 241 (322)
Income taxes payable (1,689) 109
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 45,739 44,214
INVESTING ACTIVITIES
Purchase of marketable securities (65,651) (67,217)
Proceeds from sale of marketable securities 73,082 70,598
Decrease in restricted cash 265 265
Proceeds from disposal of property and equipment 14 37
Purchases of property and equipment including
advance payments (58,812) (15,689)
Other (72) 9
------- -------
NET CASH USED IN INVESTING ACTIVITIES (51,174) (11,997)
FINANCING ACTIVITIES
Proceeds from long-term debt 43,782 5,490
Principal payments on long-term debt (12,859) (19,848)
Dividends paid (5,493) (4,798)
Purchase of treasury stock (2,624) -
------- -------
NET CASH USED IN FINANCING ACTIVITIES 22,806 (19,156)
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 17,371 13,061
Cash and cash equivalents at beginning of period 52,835 58,122
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $70,206 $71,183
</TABLE>
See condensed notes to consolidated financial statements.
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<PAGE> 7
ATLANTIC SOUTHEAST AIRLINES, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. In the opinion of management, the accompanying condensed (unaudited)
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of June 30, 1994 and results
of operations for the three and six-month periods ended June 30, 1994
and 1993 and cash flows for the six-month periods ended June 30, 1994
and 1993. The accounting adjustments contained in the financial
statements are of a normal recurring nature. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission for Form 10-Q. It is
suggested that these unaudited condensed consolidated financial
statements be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the 1993 Annual
Report on Form 10-K filed by the Company under the Securities Exchange
Act of 1934 on March 30, 1994.
2. Results of operations for the three and six-month periods ended June
30, 1994 and 1993 are not necessarily indicative of the results to be
expected for the year.
3. The provisions for income taxes were computed at the estimated
annualized effective tax rates. Effective January 1, 1993, the Company
adopted FASB Statement No. 109, "Accounting for Income Taxes." Under
Statement 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates. As permitted by Statement 109, the Company elected not to
restate the financial statements of any prior years. The cumulative
effect of the change increased net income by $4,212,300 or $.12 per
share for the six months ended June 30, 1993.
4. Earnings per share are based on the weighted average number of common
shares and common stock equivalents outstanding.
5. Marketable securities, which consist of investments with maturity
dates longer than three months, are stated at the lower of cost or
market value.
6. Certain amounts as previously reported have been reclassified to
conform to current year presentation.
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<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Working capital increased to $137.0 million with a current ratio of
3.3:1 at June 30, 1994, which compares with working capital of $127.0 million
and the same current ratio at December 31, 1993. During the six months ended
June 30, 1994, the Company generated $45.7 million in cash from operations and
had proceeds from long-term debt of $43.8 million. These cash inflows were
offset by a $58.8 million investment in property and equipment, $12.9 million
of debt retirement, $5.5 million of dividends paid and $2.6 million of treasury
stock purchases. The Company has available a $3 million unsecured line of
credit with one of its banks. As of June 30, 1994, a letter of credit for
$895,000 was outstanding against this line of credit.
Total assets increased by $56.6 million to $531.2 million at June 30,
1994 primarily due to a $43.3 million increase in net property and equipment.
During the second quarter of 1994, the Company accepted delivery of four ATR72
aircraft from the manufacturer. A majority of the purchase price of these four
aircraft was provided by bank financing. This debt will be repaid over twelve
years in semi-annual installments. These aircraft have been used to enter a new
market, replace two Dehavilland DHC-7 aircraft that were retired at May 31,
1994 and increase capacity in existing markets. Current maturities of long-term
debt and other capital expenditures for 1994 will be funded from the Company's
cash reserves and will not require the use of additional external funds.
In May 1994, the Board of Directors authorized the repurchase of up to
$50 million of the Company's common stock on the open market. The Company will
use part of its available cash balances to repurchase such shares. The stock
repurchased will be used for compensation programs or other general corporate
purposes. As of June 30, 1994, the Company had repurchased 115,000 shares of its
common stock on the open market.
The long-term debt to equity ratio was .67:1 at June 30, 1994
compared with .6:1 at December 31, 1993. Long-term debt increased to $164.2
million from $136.0 million at the end of 1993. The Company added $41.1
million of long-term debt associated with new aircraft financing and paid $12.9
million of scheduled debt payments.
Shareholders' equity per share increased to $7.19 at June 30, 1994
from $6.55 at the end of 1993. Net worth increased $21.2 million primarily due
to net income of $28.9 million in the first six months of 1994 offset by
dividends paid of $5.5 million and treasury stock purchases of $2.6 million.
Results of Operations
For the three months ended June 30, 1994 and 1993
The second quarter of 1994 exceeded all previous levels for net
income, revenues earned and traffic carried. Net income for the three months
ended June 30, 1994 increased 27 percent to $16.6 million or $.48 per share
from $13.1 million or $.38 per share in the same quarter last year.
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<PAGE> 9
The number of passengers carried increased 25 percent and the average
trip length increased five percent for a 32 percent increase in revenue
passenger miles ("RPMs") flown. This increase in RPMs, offset by an 11 percent
decrease in the average passenger mile yield to $.402 from $.453, resulted in
a 17 percent increase in passenger revenue to $80.4 million for the quarter
ended June 30,1994.
During the second quarter of 1994, the Company began service to
Houston/Hobby Airport, Texas from its Dallas/Fort Worth hub and to Savannah,
Georgia from its Atlanta hub. The Company plans to add service to Lynchburg,
Virginia and Monroe, Louisiana from its Atlanta and Dallas/Fort Worth
hubs,respectively, during the third quarter.
Operating expenses increased approximately 13 percent in the second
quarter of 1994 compared to the same period last year. The Company increased
capacity (available seat miles "ASM's") by 31 percent and experienced a 13
percent decrease in cost per ASM flown to $.135 in the second quarter of 1994
compared to $.156 in the second quarter of 1993. The following table compares
components of operating cost per ASM and operating expense as a percentage of
total operating expense for the three month periods ended June 30, 1994 and
1993:
Cost per ASM % Operating Cost
Quarter Ended Quarter Ended
June 30, June 30,
------------------------------------------
1994 1993 1994 1993
------------------------------------------
Labor and related $.032 $.045 24% 29%
Fuel .014 .018 10 11
Direct maintenance .020 .023 15 15
Passenger related .019 .021 14 14
Depreciation and aircraft rent .021 .020 16 13
Other .029 .029 21 18
-----------------------------------------
Total operating expense $.135 $.156 100% 100%
Labor and related costs decreased to $13.0 million for the second
quarter of 1994 compared to $14.2 million for the same period in 1993. The
number of employees grew 15 percent from 1,866 to 2,147 as of June 30, 1994.
Salary and related expenses increased $2.3 million or 17 percent in the second
quarter of 1994. Included in the second quarter of 1994 is a $2.8 million
credit to expense associated with the Company's stock appreciation rights
("SARs") plan versus a $.7 million charge for the same period last year. This
reversal of previously accrued expense in the second quarter of 1994 resulted
from a decrease in the Company's stock price.
Fuel expense decreased to $.014 per ASM for the second quarter of 1994
compared to $.018 per ASM for the same period in 1993. Fuel expense went up
$.2 million spread over a 31 percent increase in ASM's. The average price per
gallon decreased 13 percent to $.609 from $.699 while total fuel consumption
increased 19 percent.
Direct maintenance cost, excluding labor and related expenses,
increased 13 percent to $8.0 million for the quarter ended June 30, 1994. This
increase was due primarily to a 31 percent increase in capacity and the timing
for scheduled maintenance inspections and overhauls of time controlled
components.
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<PAGE> 10
Depreciation and aircraft rent increased 42 percent to $8.8 million
for the quarter ended June 30, 1994. This increase was due primarily to rent
and depreciation expense associated with the ten aircraft which were acquired
in the twelve months ended June 30, 1994.
The break-even load factor declined to 32.7% for the three months
ended June 30, 1994 compared to 34.0% for the same period last year. This
decrease was primarily the result of lower ASM cost as discussed above.
For the six months ended June 30,1994 and 1993
Passenger revenue increased 17 percent to $153.9 million in the first
six months of 1994 primarily due to a 34 percent increase in RPMs offset by a
13 percent decrease in the average yield per passenger mile to $.409 from
$.468. The number of passengers carried increased 26 percent to 1.5 million
passengers in the first six months of 1994. The average passenger trip length
increased six percent to 249 miles in 1994 from 235 miles in 1993.
Operating expenses increased nine percent during the six month period
ended June 30, 1994. The Company increased capacity ("ASM's") by 34 percent and
experienced a 19 percent decrease in the cost per ASM to $.138 from $.170.
The following table compares components of operating cost per ASM and operating
expense as a percentage of total operating expense for the six month periods
ended June 30, 1994 and 1993:
Cost per ASM % Operating Cost
Year to Date Year to Date
June 30, June 30,
-----------------------------------------
1994 1993 1994 1993
-----------------------------------------
Labor and related $.035 $.062 25% 36%
Fuel .014 .018 11 11
Direct maintenance .021 .023 15 14
Passenger related .018 .021 13 12
Depreciation and aircraft rent .022 .020 16 12
Other .028 .026 20 15
----------------------------------------
Total operating expense $.138 $.170 100% 100%
Labor and related costs decreased to $27.7 million for the six months
ended June 30, 1994 from $37.0 million for the six months ended June 30, 1993.
The number of employees grew 15 percent from 1,866 to 2,147 as of June 30, 1994
and, in turn, salary and related expense increased $4.9 million or 19 percent.
Included in the first six months of 1993 was $10.6 million of expense
associated with the Company's stock appreciation rights plan, for which
expenses are accrued based on increases in the Company's stock price. The first
six months of 1994 included a $3.6 million credit which resulted from a
decrease in the Company's stock price and reversed previously accrued expenses
associated with stock appreciation rights.
Fuel expense decreased to $.014 per ASM for the six months ending June
30, 1994 compared to $.018 for the same period in 1993. Fuel expense went up
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<PAGE> 11
$.7 million spread over a 34 percent increase in ASM's. The average price per
gallon decreased 12 percent to $.616 from $.700 while total fuel consumption
increased 21 percent.
Direct maintenance cost, excluding labor and related expenses,
increased 21 percent to $17.0 million for the six months ended June 30, 1994.
This increase was due primarily to a 34 percent increase in capacity and the
timing for scheduled maintenance inspections and overhauls of time controlled
components.
Depreciation and aircraft rent increased 45 percent to $17.3 million
for the six months ended June 30, 1994. This increase was due primarily to rent
and depreciation associated with the ten aircraft which were acquired in the
twelve months ended June 30, 1994.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Atlantic Southeast
Airlines, Inc. was held Wednesday, May 25, 1994. The only
matter submitted to a vote of the shareholders at this meeting
was the election of directors. John W. Beiser; Julius P. Gwin;
Russell H. Heil; Jean A. Mori; Parker H. Petit; George F.
Pickett, Jr.; Alan M. Voorhees; and Ralph W. Voorhees were
elected at the Annual Meeting by the holders of Common Stock
by the following vote: (a) Mr. Beiser: 28,615,306 votes for
and 121,973 votes withheld, (b) Mr. Gwin: 28,591,302 votes for
and 145,977 votes withheld, (c) Mr. Heil: 28,628,213 votes for
and 109,066 votes withheld, (d) Mr. Mori: 28,625,785 votes for
and 111,494 votes withheld, (e) Mr. Petit: 28,573,801 votes
for and 163,478 votes withheld, (f) Mr. Pickett: 28,611,511
votes for and 125,768 votes withheld, (g) Mr. Alan Voorhees:
28,613,526 votes for and 123,753 votes withheld and (h) Mr.
Ralph Voorhees: 28,614,276 votes for and 123,003 votes
withheld. There are no abstentions or broker non-votes for
purposes of any such votes.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report. The
exhibit number refers to Item 601 of Regulation S-K.
11 Statement Re: Computation of Per Share Earnings
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the quarter ended June 30, 1994.
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atlantic Southeast Airlines, Inc.
/s/ Ronald V. Sapp
------------------
Ronald V. Sapp
V.P. Finance, Treasurer and
Chief Financial Officer
Date: August 11,1994
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<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF
PER SHARE EARNINGS
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30, June 30,
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1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income before cumulative effect of accounting change $16,580,382 $13,059,537 $28,930,713 $20,133,292
Cumulative effect of change in method of
accounting for income taxes-Note 3 - - - 4,212,300
----------- ----------- ----------- -----------
Net income $16,580,382 $13,059,537 $28,930,713 $24,345,592
=========== =========== =========== ===========
Earnings per share:
Income before cumulative effect of accounting change $ 0.48 $ 0.38 $ 0.84 $ 0.59
Cumulative effect of accounting change - - - $ 0.12
----------- ----------- ----------- -----------
Net income $ 0.48 $ 0.38 $ 0.84 $ 0.71
=========== =========== =========== ===========
Weighted number of common shares outstanding 34,383,247 34,419,439 34,408,578 34,360,829
</TABLE>
See condensed notes to consolidated financial statements.
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