<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or l5(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994
Commission file number 0-11097.
ATLANTIC SOUTHEAST AIRLINES, INC.
------------------------------------------------------
(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 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 None
---------------- --------------------------
(Title of class) (Name of each exchange on
which registered)
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
----- ----
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]
<PAGE> 2
FACING PAGE
Page 2 of 2
As of March 1, 1995, the aggregate market value of voting stock held
by non-affiliates of the Registrant, based on the $19.625 closing sales price
of such stock in the NASDAQ National Market System of the over-the-counter
market on March 1, 1995, was approximately $460,300,000.
As of March 1, 1995, the Registrant had 33,073,307 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 Company's annual meeting of
shareholders to be held May 24, 1995, are incorporated by reference into Part
III of this Report on Form 10-K.
<PAGE> 3
PART I
ITEM 1. BUSINESS
General
Atlantic Southeast Airlines, Inc. (the "COMPANY") is a certificated
regional air carrier providing regularly scheduled, high frequency airline
service between (i) Hartsfield Atlanta International Airport (the "ATLANTA
AIRPORT") and 39 other airports in Alabama, Florida, Georgia, Indiana,
Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and
West Virginia and (ii) Dallas/Fort Worth International Airport in Dallas, Texas
(the "DALLAS/FORT WORTH AIRPORT") and 26 other airports in Arkansas, Kansas,
Louisiana, Missouri, Oklahoma and Texas. The Company's flights are utilized
primarily by business and military passengers to make connections with flights
operated by Delta Air Lines, Inc. ("DELTA") and other carriers from Atlanta and
Dallas/Fort Worth.
As of March 1, 1995, the Company's operating fleet consisted of 83
turboprop airplanes, 12 of which seat 66 passengers, 60 of which seat 30
passengers and the remaining 11 of which seat 15 passengers each. See "Flight
Equipment" below.
On July 15, 1986, ASA Investments, Inc. was incorporated in the State of
Delaware as a wholly-owned subsidiary of the Company. The sole business of ASA
Investments, Inc. has been to invest certain cash assets of the Company.
As of December 31, 1994, ASA Investments, Inc. had total assets of
approximately $135,000,000. All subsequent references herein to the "Company"
shall refer collectively to Atlantic Southeast Airlines, Inc. and ASA
Investments, Inc.
Route System
The Company's route system presently includes service between the Atlanta
Airport and 39 other airports in Alabama, Florida, Georgia, Indiana, Kentucky,
Mississippi, North Carolina, South Carolina, Tennessee, Virginia and West
Virginia. On December 15, 1986, the Company started a similar hub and spoke
operation in
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Dallas/Fort Worth, with service currently to 26 airports in Arkansas, Kansas,
Louisiana, Missouri, Oklahoma and Texas.
The Company's flight schedules are structured to facilitate the connection
of its passengers with flights of Delta at the Atlanta Airport and the
Dallas/Fort Worth Airport. Approximately 80% of the Company's passengers made
connecting flights to other destinations, while the remaining 20% originated or
terminated their air travels in Atlanta or Dallas/Fort Worth or connected with
other airlines.
The following tables set forth as of March 1, 1995, certain information
with respect to the Company's route system:
ATLANTA
<TABLE>
<CAPTION>
Air Mileage Date Flights
From Atlanta Service Operated
Airport Served Airport Commenced Per Week
----------------------- ------------ --------- --------
<S> <C> <C> <C>
Albany, GA 146 8/1/82 108
Asheville, NC 164 8/1/82 70
Augusta, GA 143 4/24/83 40
Brunswick, GA 238 6/1/81 68
Charleston, WV 363 2/1/86 96
Charlotte, NC 227 4/1/91 14
Chattanooga, TN 106 6/1/91 28
Columbus, GA 83 6/27/79 96
Dothan, AL 171 10/31/82 120
Evansville, IN 350 6/1/89 82
Fayetteville, NC 331 11/1/85 124
Florence, SC 273 9/11/92 70
Fort Walton Beach, FL 250 11/15/82 122
Gainesville, FL 300 10/1/85 56
Golden Triangle, MS 241 12/15/84 82
Greensboro/High-Point/ 306 6/1/91 30
Winston-Salem, NC
Greenville/Spartanburg, SC 153 4/25/82 14
Gulfport/Biloxi, MS 352 3/2/91 108
Huntsville, AL 151 6/15/82 14
Jackson, MS 341 4/4/93 28
Jacksonville, NC 399 12/15/92 56
Lexington, KY 303 12/15/90 42
</TABLE>
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<PAGE> 5
ATLANTA
(continued)
<TABLE>
<CAPTION>
Air Mileage Date Flights
From Atlanta Service Operated
Airport Served Airport Commenced Per Week
----------------------- ------------ --------- --------
<S> <C> <C> <C>
Louisville, KY 321 4/4/93 28
Lynchburg, VA 389 7/1/94 42
Macon, GA 79 3/20/80 92
Meridian, MS 267 11/1/84 40
Mobile, AL 302 6/1/91 28
Montgomery, AL 147 6/1/82 42
Myrtle Beach, SC 317 9/1/86 124
Nashville, TN 214 4/1/91 14
Panama City, FL 247 3/1/84 68
Pensacola, FL 272 4/1/91 42
Raleigh/Durham, NC 356 6/1/91 14
Roanoke, VA 357 12/15/85 122
Savannah, GA 215 6/1/94 14
Tallahassee, FL 223 12/15/85 28
Tri-Cities, TN 227 10/31/82 68
Valdosta, GA 208 9/9/81 66
Wilmington, NC 377 9/17/90 94
</TABLE>
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<PAGE> 6
DALLAS/FORT WORTH
<TABLE>
<CAPTION>
Air
Mileage From Date Flights
Dallas/Fort Service Operated
Airport Served Worth Airport Commenced Per Week
----------------------- ------------- --------- ---------
<S> <C> <C> <C>
Abilene, TX 158 12/15/86 90
Alexandria, LA 297 10/1/87 66
Amarillo, TX 313 7/1/93 56
Beaumont/Port Arthur, TX 270 2/1/87 66
College Station, TX 164 8/1/87 88
Corpus Christi, TX 354 6/1/93 68
Fayetteville, AR 270 12/15/86 122
Fort Smith, AR 227 12/15/86 68
Houston, TX (Intercontinental) 224 10/1/93 28
Houston, TX (Hobby) 247 5/1/94 28
Killeen, TX 130 5/1/87 106
Lafayette, LA 351 12/15/87 54
Lawton, OK 140 2/1/87 94
Longview, TX 140 11/1/87 88
Lubbock, TX 282 7/1/93 84
Monroe, LA 293 9/12/94 14
Oklahoma City, OK 175 7/1/93 42
San Angelo, TX 228 2/1/87 80
San Antonio, TX 247 10/1/93 14
Springfield, MO 364 9/13/93 56
Texarkana, AR 181 12/15/86 92
Tulsa, OK 237 6/1/93 98
Tyler, TX 103 7/1/87 114
Waco, TX 89 8/1/87 90
Wichita, KS 328 7/1/93 82
Wichita Falls, TX 113 12/15/86 106
</TABLE>
Regular service is provided on all routes every weekday, with reduced
service on weekends.
In 1993, the Company announced a major expansion of its Dallas/Fort
Worth hub, with the addition of nine new cities. During the second, third and
fourth quarters of 1993, Delta canceled service between Amarillo, Corpus
Christi, Lubbock, Tulsa and Wichita, and Dallas/Fort Worth, and the Company
inaugurated service between Dallas/Fort Worth and these cities. In addition,
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the Company provided supplemental service with Delta from the three other
cities to Dallas/Fort Worth. In 1994, the Company added four new cities and
expanded flights in many of its existing markets. The new cities were Atlanta
to Lynchburg and Savannah, as well as Dallas/Fort Worth to Houston (Hobby) and
Monroe. In the second quarter of 1995, the Company is scheduled to replace
Delta service to Houston (Hobby) and Oklahoma City from its Dallas/Fort Worth
hub. On May 1, 1995, the Company plans to discontinue service to
Raleigh/Durham and Savannah. See "Flight Equipment" below.
Fares
The Company 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 carrier. Through fares apply for
transportation provided jointly by the Company and Delta and are normally less
than the sum of the fares that would otherwise be charged by each carrier for
that portion of the total trip provided by it.
Revenues derived from local fares and through fares are distributed
among the participating carriers using various proration formulas. The most
widely used method of settlement involves a straight rate prorate division,
unless the carriers enter into agreements providing otherwise. The various
pricing structures are presented in the Airline Tariff Publishing Company's
electronic tariff, Passenger Interline Pricing Prorate System (PIPPS).
Flight Equipment
As of March 1, 1995, the age of the Company's operating fleet ranged
from seven months to 14 years. The following table sets forth as of March 1,
1995, certain information with respect to the Company's current operating
fleet:
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<PAGE> 8
<TABLE>
<CAPTION>
Aircraft Aircraft Aircraft Average
Type Owned Leased Age
------------------ ---------- --------- -------
<S> <C> <C> <C>
ATR-72 4 8 1.4 yrs.
(66 passenger
capacity)
Embraer Brasilia 60 - 5.9 yrs.
(30 passenger
capacity)
Embraer Bandeirante 11 - 13.3 yrs.
(15 passenger
capacity)
</TABLE>
Over short-haul routes, the Company's turboprop aircraft are more fuel
efficient and can be operated more economically than jet aircraft. Because of
their operating economy, the Company's aircraft can be operated profitably over
short-haul routes with lower passenger load factors than larger jet aircraft.
These factors and the relatively small size of the Company's aircraft make it
economically feasible for the Company to provide high frequency service in
markets with relatively low volumes of passenger traffic.
The Bandeirantes are powered by two Pratt & Whitney turboprop engines
and accommodate 15 passengers.
The Brasilia aircraft are powered by two Pratt & Whitney turboprop
engines and accommodate 30 passengers. Although no in-flight food service is
provided on any of the Company's flights, flight attendants offer beverage
service on these aircraft. Presently, the Brasilia are being utilized on the
Company's longer haul routes. At its February 1995 meeting, the Board of
Directors authorized the acquisition of up to six additional Brasilias to serve
as replacement aircraft for the Company's Bandeirante fleet which will be
retired from service during 1995.
The Company currently operates 12 ATR-72 aircraft (the "ATRs") from
its hubs in Dallas/Fort Worth (8 aircraft) and Atlanta (4 aircraft). The ATRs
have been used to enter new markets, replace two Dehavilland DHC-7 aircraft
(which were retired in the
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<PAGE> 9
second quarter of 1994) and increase capacity in existing markets. 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.
Flight attendants offer beverage service on these aircraft.
The Company accepted delivery of four new ATRs during the second
quarter of 1994. A majority of the purchase price for these four ATRs was
provided by bank financing. The Company also has an option to acquire 16
additional ATRs.
Fifty-one Brasilia aircraft and four ATRs as well as a significant
portion of the Company's spare parts are pledged to secure long-term
indebtedness of the Company.
Operations
Substantially all phases of the Company's operations, including
ticketing, maintenance, ground and in-flight service, and training are
performed by the Company's employees. As of March 1, 1995, the Company had
approximately 2,191 employees, of which 973 were flight personnel, 793 were
ground service personnel, 296 were maintenance personnel and the remainder were
management, supervisory and clerical employees.
During 1987, the Airline Pilots Association ("ALPA") was certified to
represent the Company's pilots. The Company and ALPA negotiated a three year
contract which was effective in October 1992. In September 1988, the Company's
flight attendants voted to join the Association of Flight Attendants ("AFA").
The Company and AFA entered into a three year contract which was effective in
June 1991. In June 1994, a letter of agreement was executed which extended
this contract for another year. There are no union affiliations with any other
groups of the Company's employees. The Company considers its current relations
with employees to be good.
The Company is a party to interline passenger, reservation, ticketing
and baggage agreements with each of the major carriers with which the Company
transacts any significant amount of business. These agreements permit each
airline to reserve seats
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and sell tickets for flights on the other contracting airlines, provide that
each airline will honor ticket forms of the other airlines and provide for an
interline baggage exchange system at airport terminals.
In addition to carrying passengers, the Company carries mail, freight
and small packages on its flights.
Maintenance
The Company is subject to the jurisdiction of and regulation by the
Federal Aviation Administration ("FAA") with respect to its maintenance and
operations, including equipment, ground facilities, dispatch, communication,
training, weather observation, flight personnel and other matters affecting air
safety. To ensure compliance with its regulations, the FAA requires airlines
to obtain operating, airworthiness and other certificates that are subject to
suspension or revocation for cause. The Company's certificates have never been
suspended and to the best of the Company's belief, it is in compliance with all
FAA regulations.
The Company provides maintenance for its aircraft using its own
personnel, facilities and parts. The Company employs personnel with
appropriate FAA Airframe and Powerplant licenses to ensure adequate maintenance
of its aircraft. However, Company personnel do not perform engine overhauls.
Engine overhauls are performed at major outside repair agencies. The Company
uses FAA approved time intervals between overhauls on one type of engine in its
fleet. This time interval is based on review by the FAA of prior overhauls and
the FAA grants time extensions, if appropriate, based on the condition of the
engine at the time of overhaul. The Company uses an FAA approved alternative
for overhauls on two engine types. "On condition" overhaul intervals are set
by engine condition monitoring and continuous airworthiness maintenance
programs. Currently, the Company's time between overhauls ("TBO") by type of
engine is as follows:
-8-
<PAGE> 11
<TABLE>
<CAPTION>
Pratt & Whitney Aircraft
Engine Model Type TBO
-------------------- ---------- ----------
<S> <C> <C>
PT6A-34 Bandeirante 7,000 hours
PW118 Brasilia On condition
PW127 ATR-72 On condition
</TABLE>
Aviation Fuel
The Company currently obtains approximately 48% of its fuel
requirements from Chevron USA, Inc. at the Atlanta Airport and approximately
33% of its fuel requirements from fuel suppliers at the Dallas/Fort Worth
Airport.
Marketing
The Company markets its passenger, air freight and small package
services primarily through direct sales activity and 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.
The Company uses radio, newspapers, billboards, direct mail and
selected magazines and trade publications to advertise and promote its
services. Cooperative advertising programs with Delta are used to promote the
Company's flights to the Atlanta Airport and the Dallas/Fort Worth Airport, and
Delta's services from Atlanta and Dallas/Fort Worth to various long-haul
destinations.
In 1984, the Company and Delta implemented a joint marketing program
called the "Delta Connection." Under this marketing program, the Company's
flights are shown under a Delta code designation in the automated reservations
systems and in the Official Airline Guide. The Company is assigned a series of
distinctive Delta flight numbers which travel agents and airline reservation
personnel are able to distinguish as those operated under the "Delta
Connection." Passengers served by the "Delta Connection" are able to take
advantage of the cost savings inherent in through fares and are offered a full
range of promotional fares provided by Delta and ASA. In addition, passengers
of the Company accrue mileage in the Delta Frequent Flyer Program. The Company
does not make any payments to Delta and does not receive any
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payments therefor. The Company expenses, as incurred, all incremental cost of
providing earned free travel awards under the frequent flyer program. The
Company does not accrue liabilities in anticipation of future travel under the
frequent flyer program due to its immaterial nature. Management believes that
award redemptions have not significantly displaced revenue passengers.
Management believes that this marketing program has had a favorable
impact on the Company by increasing passenger loads.
Competition and Industry Considerations
The Company competes primarily with other air carriers and,
particularly with respect to its shorter flights, with ground transportation
such as automobiles and buses. Management of the Company believes that its
services are utilized primarily by business and military travelers. The
ability of the Company to compete with ground transportation and these other
carriers depends upon the public acceptability of its aircraft and the
provision of convenient, frequent and reliable service to its markets at
reasonable rates.
Delta Air Lines provides air service from Atlanta to approximately 50%
of the markets served by the Company. Other airlines provide limited
competition from Atlanta. However, other airlines provide service connecting
most of the Company's markets with cities other than Atlanta.
The Company competes primarily with American/American Eagle at the
Dallas/Fort Worth Airport. Each market currently served by the Company to
Dallas/Fort Worth, Texas is also served by American/American Eagle. Other
airlines provide service connecting approximately 85% of the Company's markets
with cities other than Dallas/Fort Worth.
The airline industry historically has been highly competitive. Some
of the major air carriers with which the Company competes possess far greater
financial and other resources than does the Company.
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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.
Regulation
Pursuant to the Federal Aviation Act of 1958, as amended (the "1958
ACT"), the FAA and the U. S. Department of Transportation (the "DOT") have
regulatory authority over the operations of all air carriers, including the
Company. The FAA's jurisdiction extends primarily to the safety and
operational provisions of the 1958 Act, while the DOT's responsibility involves
primarily regulation of the economic aspects of airline operation, and includes
determining the fitness of commercial air carriers, enforcement of minimum
standards of customer service and regulation of federal compensation payments
for essential air service and ownership and control of airlines.
FAA Regulation. The Company is subject to extensive regulation by the
FAA. As part of its safety and operational regulatory authority, the FAA has
jurisdiction over, among other things, equipment and ground facilities, air
safety and airport access, maintenance, communications and other matters
relating to airline operations, and the training and qualifications of flight,
maintenance and other operational and technical personnel. The Company holds a
valid air carrier operating certificate issued by the FAA.
On December 9, 1994, the FAA issued an Airworthiness Directive
prohibiting all ATR-42 and ATR-72 aircraft from flight into forecast or
reported "icing conditions" (the "December 9, 1994, Airworthiness Directive").
The Company complied with the December 9, 1994, Airworthiness Directive until
the FAA lifted the restrictions, except with respect to the most severe icing
conditions, on January 11, 1995, pursuant to a revision of the December 9,
1994, Airworthiness Directive. On March 20, 1995, the FAA approved larger
deicing boots for the ATR-72 aircraft, which
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the Company is required to install no later than June 1, 1995. The FAA has
indicated that a new Airworthiness Directive will be issued shortly that will
address the operational and flight crew procedures that are to be used in
conjunction with the newly modified deicing boots. The implementation of the
FAA's directives will have an adverse effect on the Company's operations during
the first quarter of 1995. The manufacturer of the Company's ATRs has agreed
to provide and install the larger deicing boots at the manufacturer's expense.
DOT Regulations. The Company was certificated by the DOT under Part
401 (Certificate of Public Convenience and Necessity) during the first quarter
of 1993. The certificate issued under Part 401 of the Federal Aviation Act of
1958 requires the Company to maintain DOT-prescribed minimum levels of
insurance and to comply with all applicable statutes, rules and regulations and
subjects the Company 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. The Company initiated the use of larger
aircraft having more than 60 seats during the second quarter of 1993.
The DOT has the authority to designate the Company 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." An air carrier that serves
an "essential air service community" is required to give advanced notice to the
DOT with regards to service termination. The Company is currently the only air
carrier that provides service between Atlanta and the following "essential air
service communities": Albany, Brunswick, Macon and Valdosta, Georgia; Golden
Triangle, Gulfport and Meridian, Mississippi; Dothan, Alabama; Ft. Walton,
Florida. The service provided by the Company to these "essential air service
communities" is on an unsubsidized basis.
Noise Regulations. The FAA requires airlines to comply with certain
noise restrictions concerning their aircraft. Existing aircraft are required
to be brought into compliance with these regulations by retrofit or engine
replacement. The Company's aircraft 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, the Company does not
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<PAGE> 15
provide service to any airport to which any such noise regulations apply.
Seasonality
The Company's operations at the Atlanta and Dallas/Fort Worth hubs are
primarily dependent upon business, government and military related travel and
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., January and February). The Company
estimates that pleasure travel accounted for approximately 20% of the Company's
passengers during 1994. Pleasure travel generally increases during the summer
months and at holiday periods.
The following chart indicates the number of passengers carried by the
Company by quarter during its last three fiscal years:
<TABLE>
<CAPTION>
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994 714,953 800,161 819,311 785,869
1993 562,665 638,459 700,332 759,930
1992 531,835 608,124 649,328 627,322
</TABLE>
ITEM 2. PROPERTY
The Company has entered into agreements with other airlines under
which ground handling services are provided to the Company in 28 of the cities
it serves. The Company maintains ticketing, gate and baggage claim facilities
at each of the other airports it serves under direct leases or use agreements
with local airport authorities or other carriers. Apron, gate, ticketing and
baggage claim facilities for the Company at the Dallas/Fort Worth Airport are
leased from Delta pursuant to a Ground Service Agreement. At 20 of the other
airports, the Company operates under month-to-month use agreements. The leases
or use agreements at the remaining airports have remaining terms generally
ranging from one month to 16 years.
Substantially all the maintenance and repairs on the Company's
aircraft operating from the Atlanta hub (except for major engine, propeller and
component overhauls) is performed at the Company's
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<PAGE> 16
79,000 square foot hangar and maintenance facility in Macon, Georgia. The
hangar facilities are subject to a 30 year lease with renewal options to the
year 2028.
The Company also maintains a limited inventory of spare parts and has
maintenance personnel at the Atlanta Airport in a facility leased from The City
of Atlanta located near the Company's ramp and gate space.
The Company leases a maintenance facility in Texarkana, Arkansas.
Substantially all the maintenance and repairs on the Company's aircraft
operating from the Dallas/Fort Worth hub is performed at this facility. In
addition, the Company maintains a limited inventory of spare parts and has
maintenance personnel at the Dallas/Fort Worth Airport.
In April 1992, the Company relocated its principal offices and
training center to approximately 38,000 square feet of office space at 100
Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia, under a lease expiring
in 1999.
The Company's operations control center, located at its principal
offices in Atlanta, provides weather information, fuel information, weight
limitations, routing instructions and other information to the Company's
pilots.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending in which the Company
is a party or of which any of the Company's property is the subject. In
addition, adequate insurance coverage is maintained by the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Company through the
solicitation of proxies or otherwise.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock, $.10 par value, is traded in the NASDAQ
National Market System of the over-the-counter market under the symbol "ASAI".
As of March 1, 1995, there were approximately 1,370 holders of record of the
Company's Common Stock. The following table sets forth the reported high and
low closing sales price for the Common Stock for the fiscal quarters indicated
as reported in the National Market System. The quotations reflect actual sales
prices without retail mark-up, mark-down or commissions.
<TABLE>
<CAPTION>
Fiscal year ended
December 31, 1994 High Low
----------------- ------ ------
<S> <C> <C>
Quarter Ending March 31, 1994 $38.75 $31.25
Quarter Ending June 30, 1994 33.00 21.25
Quarter Ending September 30, 1994 30.75 23.00
Quarter Ending December 31, 1994 24.50 12.75
</TABLE>
<TABLE>
<CAPTION>
Fiscal year ended
December 31, 1993 High Low
----------------- ------ ------
<S> <C> <C>
Quarter Ending March 31, 1993 $33.25 $20.88
Quarter Ending June 30, 1993 39.00 28.75
Quarter Ending September 30, 1993 33.75 25.75
Quarter Ending December 31, 1993 38.00 27.50
</TABLE>
As of March 1, 1995, the closing price of the Common Stock was $19.625.
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<PAGE> 18
Dividends
The Company paid cash dividends of approximately $.32 per share during
1994 and $.28 per share during 1993. The quarterly cash dividend was increased
to $.08 per share in the first quarter 1994 and to $.085 per share in the first
quarter of 1995. The Company expects to continue the payment of quarterly cash
dividends. However, the Board of Directors reconsiders the declaration of cash
dividends periodically, and there can be no assurance as to the declaration or
the amount of dividends to be paid. The payment of dividends is subject to the
discretion of the Board of Directors and will depend upon the results of
operations, the financial condition of the Company and other factors which the
Board of Directors deems relevant.
Loan agreements relating to certain indebtedness of the Company
incurred in the acquisition of aircraft (certain of which loans do not mature
until the year 1999) provide certain limitations on the payment of cash
dividends and stock repurchases by the Company. The Company's dividends paid
during 1993 and 1994 were within said limitations.
At its May 1994 meeting, the Board of Directors authorized the Company
to repurchase up to $50,000,000 of the Company's Common Stock on the open
market at any time on or before December 31, 1995, which was subsequently
consented to by the Company's lenders, as required by various loan agreements.
As of December 31, 1994, the Company had repurchased 1,140,000 shares of Common
Stock at an aggregate cost of approximately $20,000,000 and as of March 1,
1995, the Company has repurchased 1,337,900 shares of Common Stock at an
aggregate cost of approximately $23,000,000.
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<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
ATLANTIC SOUTHEAST AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING FINANCIAL DATA
Operating Revenues:
Passenger revenues $305,846 $283,410 $230,980 $216,605 $184,496 $177,348 $135,320
Other revenues 6,244 5,053 4,599 5,311 2,733 2,782 1,824
Total Operating Revenues 312,090 288,463 235,579 221,916 187,229 180,130 137,144
Operating Expenses:
Depreciation, amortization
and obsolescence 27,171 24,172 22,046 21,780 19,011 16,304 13,985
Other operating expenses 200,647 186,671 152,719 147,608 128,352 119,856 103,911
Total Operating Expenses 227,818 210,843 174,765 169,388 147,363 136,160 117,896
Income from Operations 84,272 77,620 60,814 52,528 39,866 43,970 19,248
Non-Operating (Income) Expense:
Interest income (7,500) (4,970) (4,829) (6,015) (7,601) (6,326) (3,484)
Interest expense, net 6,199 5,180 6,326 7,013 6,508 5,854 5,302
Other (47) (12) - (66) (31) (94) (1,152)
Total Non-Operating (Income) Expense (1,348) 198 1,497 932 (1,124) (566) 666
Income before Taxes and Accounting Change 85,620 77,422 59,317 51,596 40,990 44,536 18,582
Income Taxes 32,964 31,090 22,250 19,093 15,600 16,924 7,065
Cumulative Effect of Accounting Change - 4,212 - - - - -
Net Income $ 52,656 $ 50,544 $ 37,067 $ 32,503 $ 25,390 $ 27,612 $ 11,517
Net Income per Share * $ 1.54 $ 1.47 $ 1.09 $ 0.95 $ 0.73 $ 0.76 $ 0.31
Average Weighted Shares (000)* 34,188 34,395 34,165 34,050 34,938 36,299 37,743
Operating Margin 27% 27% 26% 24% 21% 24% 14%
Net Margin 17% 18% 16% 15% 14% 15% 8%
<CAPTION>
1987 1986 1985
---------------------------
<S> <C> <C> <C>
OPERATING FINANCIAL DATA
Operating Revenues:
Passenger revenues $116,094 $ 88,591 $72,982
Other revenues 3,051 3,704 2,336
Total Operating Revenues 119,145 92,295 75,318
Operating Expenses:
Depreciation, amortization
and obsolescence 9,303 5,025 2,501
Other operating expenses 91,198 68,748 57,599
Total Operating Expenses 100,501 73,773 60,100
Income from Operations 18,644 18,522 15,218
Non-Operating (Income) Expense:
Interest income (3,341) (2,073) (938)
Interest expense, net 3,959 2,561 1,093
Other 15 (302) (32)
Total Non-Operating (Income) Expense 633 186 123
Income before Taxes and Accounting Change 18,011 18,336 15,095
Income Taxes 6,750 7,800 4,770
Cumulative Effect of Accounting Change - - -
Net Income $ 11,261 $ 10,536 $10,325
Net Income per Share * $ 0.28 $ 0.29 $ 0.32
Average Weighted Shares (000)* 39,943 36,295 31,979
Operating Margin 16% 20% 20%
Net Margin 9% 11% 14%
</TABLE>
-17-
<PAGE> 20
ATLANTIC SOUTHEAST AIRLINES, INC.
SELECTED FINANCIAL AND STATISTICAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA
Working Capital $140,391 $126,975 $ 93,372 $ 78,721 $ 59,590 $ 55,525 $ 42,011
Total Assets $519,684 $474,599 $430,752 $377,603 $325,311 $287,971 $231,626
Long-Term Debt $152,610 $135,963 $145,804 $139,356 $127,724 $111,749 $ 90,109
Total Liabilities $272,214 $249,512 $252,013 $229,683 $204,956 $179,613 $139,958
Shareholders' Equity $247,470 $225,087 $178,738 $147,910 $120,355 $108,358 $ 91,668
Shareholders' Equity per Share * $ 7.45 $ 6.55 $ 5.23 $ 4.35 $ 3.57 $ 3.07 $ 2.47
Return on Average Shareholders' Equity 22% 25% 23% 24% 22% 28% 13%
Shareholders' Equity to Total Liabilities .9:1 .9:1 .7:1 .6:1 .6:1 .6:1 .7:1
Cash Dividends Declared per Share * $ 0.32 $ 0.28 $ 0.24 $ 0.20 $ 0.159 $ 0.08 -
Long-Term Debt to Shareholders' Equity .6:1 .6:1 .8:1 .9:1 1.1:1 1:1 1:1
Shares Outstanding at End of Year (000) * 33,224 34,340 34,180 34,034 33,750 35,314 37,075
STATISTICAL DATA
Revenue Passengers Carried (000) 3,120 2,661 2,417 2,251 2,002 2,001 1,586
Revenue Passenger Miles (000,000) 780 641 547 501 427 413 320
Available Seat Miles (000,000) 1,654 1,367 1,077 1,020 856 791 753
Yield per Revenue Passenger Mile $0.392 $0.442 $0.422 $0.432 $0.432 $0.429 $0.423
Operating Cost per Available Seat Mile $0.138 $0.154 $0.162 $0.166 $0.172 $0.172 $0.157
Passenger Load Factor 47.2% 46.9% 50.8% 49.2% 49.9% 52.3% 42.5%
Break-Even Load Factor 34.2% 34.3% 38.0% 37.7% 39.0% 39.3% 36.7%
Average Passenger Trip Length (miles) 250 241 226 223 213 207 202
Flights per Week (end of period) 4,163 4,087 3,507 3,360 3,124 3,033 2,827
<CAPTION>
1987 1986 1985
---------------------------
<S> <C> <C> <C>
OTHER FINANCIAL DATA
Working Capital $ 41,955 $ 49,933 $11,428
Total Assets $209,906 $144,979 $78,272
Long-Term Debt $ 82,061 $ 40,032 $28,490
Total Liabilities $124,702 $ 67,908 $49,736
Shareholders' Equity $ 85,204 $ 77,071 $28,536
Shareholders' Equity per Share * $ 2.20 $ 1.93 $ 0.89
Return on Average Shareholders' Equity 14% 20% 44%
Shareholders' Equity to Total Liabilities .7:1 1.1:1 .6:1
Cash Dividends Declared per Share * - - -
Long-Term Debt to Shareholders' Equity 1:1 .5:1 1:1
Shares Outstanding at End of Year (000) * 38,762 40,016 31,981
STATISTICAL DATA
Revenue Passengers Carried (000) 1,456 1,156 982
Revenue Passenger Miles (000,000) 290 222 170
Available Seat Miles (000,000) 678 514 402
Yield per Revenue Passenger Mile $0.400 $0.399 $0.428
Operating Cost per Available Seat Mile $0.148 $0.143 $0.150
Passenger Load Factor 42.8% 43.1% 42.4%
Break-Even Load Factor 36.3% 34.6% 33.9%
Average Passenger Trip Length (miles) 199 192 174
Flights per Week (end of period) 2,904 2,084 1,801
</TABLE>
* Adjusted for stock splits on April 16, 1985, August 23, 1985, November 26,
1991 and February 18, 1993.
-18-
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's working capital increased to $140.4 million at December
31, 1994 from $127 million at December 31, 1993 resulting in an improved
current ratio of 3.6:1 compared with 3.3:1. Cash, cash equivalents and
investments in marketable securities increased $10.5 million in 1994. Cash
provided by operations was $90.1 million and the Company received $43.8 million
of debt financing. These sources of cash were primarily offset by long-term
debt repayments in the amount of $24.9 million, the purchase of property and
equipment in the amount of $67.9 million, $10.9 million of dividends paid and
$20 million of treasury stock purchases.
The Company has an unsecured line of credit totaling $8 million with
one of its banks. At December 31, 1994, $.9 million of this line was committed
to support a letter of credit. The remainder is available for general working
capital purposes on an as needed basis. At December 31, 1994, there were no
outstanding amounts against the line of credit.
During 1994, the Company purchased approximately $68 million of
property and equipment, which included the acquisition of four ATR-72 aircraft
and additional spare parts to support the ATR-72 aircraft fleet. A majority
of the purchase price of these four ATR-72 aircraft was provided by bank
financing and this debt will be repaid over twelve years in semi-annual
installments. These aircraft have been used to introduce service to a new
market in Georgia, replace two Dehavilland DHC-7 aircraft that were retired at
May 31, 1994 and increase capacity in existing markets. All other property and
equipment purchases were funded from the Company's cash reserves and internally
generated funds.
In February 1995, the Company received authority from its Board of
Directors to acquire six additional Brasilia aircraft. The Company is in the
process of securing arrangements for the acquisition of these six aircraft.
During 1994, the Company initiated service to two new markets from its
Atlanta hub and one market from its Dallas/Fort Worth hub. All expenditures
required to initiate and expand service from
-19-
<PAGE> 22
these two hubs have been financed from internally generated funds and were
expensed as incurred.
Current Federal Aviation Administration (FAA) directives require that
the Company complete the process of equipping its aircraft with traffic alert
and collision avoidance systems by December 31, 1995. The remaining estimated
cost for these modifications on the Company's current fleet is approximately
$1.6 million. Current maturities of long-term debt, compliance with FAA
directives and other capital expenditures for 1995 will be funded from the
Company's cash reserves and internally generated funds.
At December 31, 1994, the Company operated a fleet of 75 owned
aircraft and eight leased aircraft; and provided service to 39 markets from the
Atlanta hub and to 25 markets from the Dallas/Fort Worth hub.
In May 1994, the Board of Directors authorized the Company to
repurchase up to $50 million of its common stock on the open market at any time
on or before December 31, 1995. The stock repurchased will be used for
compensation programs or other general corporate purposes. As of December 31,
1994, the Company had repurchased 1,140,000 shares of its common stock at a
cost of approximately $20 million.
The Company's long-term debt to equity ratio remained 0.6:1 at
December 31, 1994 and 1993. Long-term debt increased $16.6 million as a result
of the addition of $43.8 million of new aircraft financing reduced by $24.9
million of scheduled debt payments and an increase of $2.3 million in current
maturities. Fifty-one Brasilia aircraft and four ATR-72 aircraft, as well
as a significant portion of the Company's spare parts, are pledged to secure
long-term debt.
Shareholders' equity per share increased to $7.45 at December 31, 1994
from $6.55 at the end of 1993. Net worth increased $22.4 million in 1994 due
to earnings of $52.7 million, the issuance of $.8 million of common stock in
connection with stock appreciation rights exercised, less $10.9 million of
dividends paid and $20 million of treasury stock purchases.
The Company anticipates that Delta Air Lines, Inc. may increase
certain marketing related costs associated with the Delta Connection program.
These increased costs are expected to be
-20-
<PAGE> 23
implemented during 1995. The Company is also discussing with Delta Air Lines,
Inc. the possibility of providing replacement and supplemental service to
several markets from the Atlanta and Dallas/Fort Worth hubs. The Company cannot
assess the impact that these possible changes may have on future operating
results. In February 1995, the Company announced that it will replace Delta's
service between its Dallas/Fort Worth hub and Oklahoma City as well as
Houston/Hobby on May 1, 1995. The Company plans to discontinue service to
Raleigh/Durham and Savannah from its Atlanta hub on May 1, 1995.
Fourth quarter results were affected by the loss of traffic due to
flight cancellations and adverse publicity caused by the issuance of an
airworthiness directive on December 9, 1994, by the Federal Aviation
Administration prohibiting the operation of ATR-72 aircraft in known or
forecasted icing conditions. Although these restrictions for all but the most
severe icing conditions were lifted by the FAA on January 11, 1995, the
Company's first quarter 1995 traffic will be adversely affected.
Results of Operations
The Company set new records in passengers carried, operating revenues,
net income and earnings per share in 1994. Net income increased by 14% to
$52.7 million or $1.54 per share in 1994 compared to $46.3 million or $1.35
per share in 1993, before an accounting change. Including the $4.2 million
credit for the cumulative effect of a change in accounting for income taxes,
net income for 1993 was $50.5 million or $1.47 per share. In 1992, net income
was $37.1 million or $1.09 per share. Earnings per share has been restated to
reflect the 2-for-1 stock split effected in the form of a 100 per cent stock
dividend paid on February 18, 1993.
Operating revenues were $312.1 million in 1994 compared to $288.4
million in 1993 and $235.6 million in 1992. Operating revenues increased 8%
in 1994 primarily due to a 22% increase in revenue passenger miles flown (RPMs)
offset by an 11% decline in the average passenger mile yield to $.392 in 1994.
This lower yield resulted primarily from deep fare discounting in the latter
half of the year and the unfavorable publicity that the regional airline
industry received during the fourth quarter of 1994. Management cannot
determine whether these factors will materially affect future results of
operations. Operating revenues for 1993
-21-
<PAGE> 24
increased 22% primarily due to a 17% increase in RPMs and a 5% increase in the
average passenger mile yield.
The Company's average load factor was 47.2% in 1994, up from 46.9% in
1993 but lower than 1992's load factor of 50.8%.
Operating expenses increased 8% in 1994 and 21% in 1993. The higher
operating expenses were primarily due to 21% and 27% increases, respectively,
in available seat miles flown (ASMs). The Company's cost per ASM declined 10%
to $.138 in 1994 and declined 5% to $.154 in 1993. The following table
compares components of operating cost per ASM for the years ended December 31,
1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Labor and related $.037 $.050 $.048
Fuel .014 .017 .020
Direct maintenance .022 .022 .026
Passenger related .018 .019 .020
Depreciation and
aircraft rent .021 .020 .020
Other .026 .026 .028
---- ---- ----
Total operating expense $.138 $.154 $.162
</TABLE>
The following table presents various components of operating expense
as a percentage of total operating expense for the years ended December 31,
1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Labor and related 27% 32% 30%
Fuel 10 11 12
Direct maintenance 15 14 16
Passenger related 13 13 12
Depreciation and
aircraft rent 16 13 13
Other 19 17 17
--- --- ---
Total operating expense 100% 100% 100%
</TABLE>
The Company's break-even load factor was 34.2% in 1994 compared to
34.3% in 1993 and 38.0% in 1992. The slightly lower break-even load factor in
1994 was primarily attributable to a 10% decrease in cost per available seat
mile offset by an 11% decrease in average passenger yield. The lower
break-even load factor in
-22-
<PAGE> 25
1993 as compared to 1992 was due to higher yields per passenger mile flown and
decreased cost per available seat mile due to a 27% increase in capacity.
Labor and related costs were $61 million in 1994, $68 million in 1993
and $52 million in 1992. The average number of employees in 1994 was 2,150, an
increase of 11% over 1993. This contributed to higher labor and related costs
which were offset by a $4 million credit to expense related to the Company's
Stock Appreciation Rights Plan. This credit resulted from a decline in the
Company's stock price and the related reversion of previously accrued expenses
associated with stock appreciation rights. The 31% increase in labor and
related costs for 1993 was primarily attributable to an 11% increase in the
average number of employees and also expenses related to stock appreciation
rights of $12 million. Expenses in 1992 included $4 million associated with
the Company's 1990 Stock Appreciation Rights Plan.
Fuel expense was $24 million in 1994 compared to $23 million in 1993
and $21 million in 1992. Fuel consumption increased 13% in 1994 and 20% in
1993 while the average fuel price per gallon decreased 8% and 9% in 1994 and
1993, respectively. The average price per gallon, including taxes and into
plane fees, was $.62 in 1994, $.67 in 1993 and $.74 in 1992. In August 1993,
the United States increased taxes on fuel, including aircraft fuel, by $.043
per gallon. Airlines are exempt from this tax increase until October, 1995.
When implemented, this new tax will increase the Company's annual operating
expenses by approximately $1.6 million, based on the gallons of fuel consumed
in 1994.
Direct maintenance expense, excluding labor and related costs,
increased 17% to $35 million in 1994 from $30 million and $28 million in 1993
and 1992, respectively. The increase in 1994 was primarily due to a 9%
increase in total block hours flown and an increase in the frequency of
scheduled maintenance inspections and overhauls of time controlled components.
In 1993, maintenance expenses were higher compared to 1992 due primarily to a
16% increase in block hours flown while achieving some cost savings associated
with the timing for scheduled maintenance inspections and overhauls on new
equipment.
Passenger related expenses were $29 million, $26 million and $21
million in 1994, 1993 and 1992, respectively. These increases are primarily
due to increased passenger traffic. Passenger
-23-
<PAGE> 26
related expenses were approximately 9% of passenger revenue in each of the
three years.
Aircraft rental costs were approximately $9 million in 1994 compared
to $5 million in 1993 and $1 million in 1992. The increased expense in 1994
was attributable to a full year of rent on the eight ATR-72 aircraft leased in
1993. Depreciation expense increased to approximately $26 million in 1994,
compared to $23 million and $21 million for 1993 and 1992, respectively. A
full year of depreciation for the three Brasilia aircraft purchased in 1993 as
well as a partial year of depreciation for the four ATR-72 aircraft purchased
in 1994 contributed to this increase.
Interest expense increased to $6 million in 1994 compared to $5
million in 1993 and $6 million in 1992 as a result of new aircraft financing
and the upward trend in interest rates during 1994. Interest expense for 1993
declined in comparison to 1992 due to the retirement of the Company's older,
more expensive debt, offset by the effect of aircraft financing at lower rates.
Interest income was $7 million in 1994 compared to $5 million in 1993 and 1992.
Higher average cash available for investment and the rise in interest rates
contributed to this increase in interest income for 1994.
Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability method
required by FASB Statement No. 109, "Accounting for Income Taxes". The
cumulative effect of adopting Statement No. 109 was to increase net income by
$4.2 million.
-24-
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 42,526,882 $ 52,834,786
Marketable securities 133,882,146 113,094,516
Accounts receivable, less allowance for
uncollectible accounts of $ 280,569 in 1994
and $195,970 in 1993-Note J 6,721,146 6,945,378
Expendable parts, less allowance for obsolescence
of $3,504,113 in 1994 and $2,938,200 in 1993 7,626,159 6,361,612
Other current assets 2,851,599 3,091,663
----------- -----------
193,607,932 182,327,955
Property and Equipment - Note B
Flight equipment 472,354,273 412,125,167
Other property and equipment 7,986,401 7,126,094
Advance payments on property and equipment 190,444 597,285
----------- -----------
480,531,118 419,848,546
Less accumulated depreciation and amortization 163,376,196 137,514,074
----------- -----------
317,154,922 282,334,472
Other Assets 8,921,108 9,936,253
TOTAL ASSETS $519,683,962 $474,598,680
============ ============
</TABLE>
See notes to consolidated financial statements.
-25-
<PAGE> 28
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1994 1993
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 28,254,410 $ 25,980,900
Accounts payable-Note J 13,398,934 11,710,387
Air traffic liability 1,623,523 1,723,135
Accrued compensation and related expenses 4,517,906 9,464,798
Accrued interest payable 3,136,212 1,641,892
Other accrued expenses 1,043,041 590,698
Income taxes payable 1,243,399 4,241,492
----------- -----------
53,217,425 55,353,302
Long-Term Debt - Note B 152,609,818 135,963,329
Other Non-Current Liabilities 533,746 408,400
Deferred Income Taxes - Note E 65,852,722 57,786,546
Commitments - Notes B, C and F
Shareholders' Equity - Notes G and H
Common stock, $.10 par ; authorized -
50,000,000 shares; issued -34,363,707
and 34,339,772 shares, respectively 3,436,371 3,433,977
Capital in excess of par 45,238,051 44,458,248
Retained earnings 218,924,394 177,194,878
Unrealized holding loss on investments (151,377) -
----------- -----------
267,447,439 225,087,103
Less treasury stock at cost -1,140,000 shares 19,977,188 -
----------- -----------
Total Shareholders' Equity 247,470,251 225,087,103
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $519,683,962 $474,598,680
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-26-
<PAGE> 29
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31, 1994 1993 1992
------------- ------------- ------------
<S> <C> <C> <C>
REVENUES
Operating Revenues:
Passenger $305,846,064 $283,409,987 $230,979,366
Other 6,243,518 5,053,027 4,599,189
------------ ------------ ------------
Total Operating Revenues 312,089,582 288,463,014 235,578,555
EXPENSES
Operating Expenses:
Flying operations 65,063,156 55,459,500 44,296,102
Maintenance 49,036,093 42,097,046 39,421,563
Passenger service 14,199,904 11,326,358 8,570,157
Aircraft and traffic servicing 36,333,282 30,105,342 25,494,000
Promotion, sales and advertising 30,480,757 28,001,781 23,092,746
General and administrative 5,284,986 19,487,821 11,663,473
Depreciation, amortization and obsolescence 27,170,678 24,172,006 22,045,782
Other 249,185 192,542 180,739
------------ ------------ ------------
Total Operating Expenses 227,818,041 210,842,396 174,764,562
Income from Operations 84,271,541 77,620,618 60,813,993
Non-Operating (Income) Expenses:
Interest:
Income (7,499,615) (4,969,841) (4,828,883)
Expense 6,199,299 5,179,839 6,326,428
Other, net (47,891) (11,841) (236)
------------ ------------ ------------
(1,348,207) 198,157 1,497,309
Income before Income Taxes and Cumulative
Effect of Change in Accounting for Income
Taxes 85,619,748 77,422,461 59,316,684
Income Taxes - Note E:
Current 24,897,824 22,354,500 13,869,000
Deferred 8,066,176 8,735,500 8,381,000
------------ ------------ ------------
32,964,000 31,090,000 22,250,000
Income before Cumulative Effect
of Accounting Change 52,655,748 46,332,461 37,066,684
Cumulative Effect as of January 1, 1993 of
Change in Method of Accounting for Income Taxes - 4,212,300 -
------------ ------------ ------------
NET INCOME $ 52,655,748 $ 50,544,761 $ 37,066,684
============ ============ ============
EARNINGS PER SHARE:
Income before cumulative effect
of accounting change $ 1.54 $ 1.35 $ 1.09
Cumulative effect of accounting change - 0.12 -
------------ ------------ ------------
Net income $ 1.54 $ 1.47 $ 1.09
============ ============ ============
Weighted Average Number of Shares Outstanding 34,187,833 34,395,401 34,164,656
</TABLE>
See notes to consolidated financial statements.
-27-
<PAGE> 30
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 52,655,748 $ 50,544,761 $ 37,066,684
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 26,027,910 23,248,594 21,292,432
Amortization and provision for obsolescence 1,142,768 923,412 753,350
Provision for uncollectible accounts 120,000 (280,000) 120,000
Amortization of engine overhauls 6,570,952 5,476,004 4,644,506
Deferred income taxes 8,066,176 4,523,200 8,381,000
Other 1,133,601 5,392,417 1,766,765
Changes in Operating Assets and Liabilities:
Accounts receivable 104,232 (1,165,112) 115,322
Expendable parts (1,830,457) (1,412,371) (105,752)
Other assets 409,523 (2,585,440) (474,187)
Accrued compensation and related expenses (4,821,546) 3,364,860 1,225,618
Accrued interest payable 1,494,320 (296,360) (569,875)
Other liabilities 2,041,278 3,117,194 (2,285,967)
Income taxes payable (2,998,093) 2,248,110 1,231,993
------------ ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 90,116,412 93,099,269 73,161,889
INVESTING ACTIVITIES:
Purchase of Marketable Securities (186,608,304) (190,199,124) (78,406,245)
Proceeds from Sale of Marketable Securities 165,574,532 152,130,056 12,430,889
Purchases of Property and Equipment
including Advance Payments (67,944,372) (35,837,773) (57,881,550)
Other 537,249 584,999 684,552
------------ ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (88,440,895) (73,321,842) (123,172,354)
FINANCING ACTIVITIES:
Proceeds from Long-Term Debt 43,782,329 16,688,814 43,065,294
Principal Payments on Long-Term Debt (24,862,330) (32,147,358) (28,727,767)
Proceeds from Sale of Common Stock - - 178,324
Dividends Paid (10,926,232) (9,605,629) (8,186,405)
Acquisition of Treasury Stock (19,977,188) - -
------------ ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (11,983,421) (25,064,173) 6,329,446
DECREASE IN CASH AND CASH EQUIVALENTS (10,307,904) (5,286,746) (43,681,019)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 52,834,786 58,121,532 101,802,551
------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,526,882 $ 52,834,786 $ 58,121,532
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-28-
<PAGE> 31
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Treasury Stock
----------------------- -------------------------
Capital in
Excess Retained
Shares Amount of Par Earnings Other Shares Amount
---------- ---------- ------------ ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 17,016,996 $1,701,700 $38,833,063 $107,375,467 $ - - $ -
Net Income 37,066,684
Dividends Paid ($.24 per share) (8,186,405)
Exercise of Stock Options 19,999 1,999 176,325
Exercise of Stock Appreciation
Rights 52,884 5,289 1,764,301
Stock Split effected in the form
of a 100% Stock Dividend 17,089,879 1,708,988 (1,708,988)
---------- --------- ----------- ------------ ---------- ---------- -------------
Balance, December 31, 1992 34,179,758 3,417,976 39,064,701 136,255,746 - - -
Net Income 50,544,761
Dividends Paid ($.28 per share) (9,605,629)
Exercise of Stock Appreciation
Rights 160,014 16,001 5,393,547
---------- --------- ----------- ------------ ---------- ---------- -------------
Balance, December 31, 1993 34,339,772 3,433,977 44,458,248 177,194,878 - - -
NET INCOME 52,655,748
DIVIDENDS PAID ($.32 PER SHARE) (10,926,232)
EXERCISE OF STOCK APPRECIATION
RIGHTS 23,935 2,394 779,803
UNREALIZED HOLDING LOSS ON
INVESTMENTS, NET (151,377)
PURCHASE OF TREASURY STOCK (1,140,000) (19,977,188)
---------- --------- ----------- ------------ ---------- ----------- -------------
BALANCE, DECEMBER 31, 1994 34,363,707 $3,436,371 $45,238,051 $218,924,394 ($151,377) (1,140,000) ($19,977,188)
========== ========== =========== ============ ========== =========== =============
</TABLE>
See notes to consolidated financial statements.
-29-
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The Company operates as a regional air
carrier in the Southeastern and Southwestern United States. The Company and
Delta Air Lines, Inc. have entered into a marketing agreement. Under this
agreement, the Company's flights are listed on reservation systems as
connecting Delta flights. Delta Air Lines Holdings, Inc., a subsidiary of
Delta Air Lines, Inc., owns approximately 24 per cent of the Company's common
stock (See Note J).
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its subsidiary, ASA Investments, Inc.
Significant intercompany accounts and transactions have been eliminated.
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 U.S. Government agency securities, corporate
commercial paper and bank notes. The Company believes that the credit risk is
minimal.
Marketable Securities: The Company's investment in marketable
securities consists of debt instruments of the U.S. Treasury, U.S. Government
agencies and municipal authorities. All such marketable securities have a
maturity of less than one year. These investments are classified as available
for sale and reported at fair market value as of December 31, 1994 and at cost
as of December 31, 1993.
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.
Depreciation of costs less estimated residual values is computed on
the straight-line basis over the estimated useful lives of the related assets.
For income tax purposes, accelerated depreciation methods are used.
Maintenance: The cost of major engine overhauls for owned aircraft is
capitalized and amortized to maintenance expense over the estimated overhaul
life. Overhaul expense is accrued or amortized for leased aircraft in
accordance with lease provisions.
Intangibles: Excess of cost over fair value of tangible assets
acquired is being amortized by the straight-line method over a 40-year period.
Included in other assets are deferred financing fees and deferred gate
assignment costs. These costs are being amortized over periods from fifteen
months to twenty years. Accumulated amortization at December 31, 1994 and 1993
was $2,506,279 and $2,095,424, respectively.
Also included in other assets is restricted cash which serves as
collateral for a portion of the Company's financing (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.
-30-
<PAGE> 33
Passenger Revenue Recognition: The Company issues Delta Air Lines, Inc. ticket
stock for passenger sales. Passenger revenues are recognized at the time
transportation is provided. As a Delta Connection carrier, the Company
participates in Delta Air Lines' frequent flyer incentive program. The Company
does not accrue for incremental costs associated with the program's mileage
accumulation since the impact is immaterial. Included in air traffic liability
are air cargo liabilities and amounts resulting from timing differences in
billings with Delta Air Lines, Inc.
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: Earnings per share are based on the weighted
average number of shares outstanding and dilutive common stock equivalents (See
Note G).
Reclassification: Certain amounts as previously reported have been
reclassified to conform to current year presentation.
Note B - Long-Term Debt
The Company's long-term debt was as follows:
<TABLE>
<CAPTION>
December 31, 1994 1993
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to banks. Aircraft and support equipment which
cost $104,835,615 are pledged as collateral. Payments are due in
semi-annual installments of $4,455,526 plus interest at 6.5% to
1999. $28,915,222 $37,826,274
Notes payable to banks. Aircraft and support equipment which
cost $40,440,254 are pledged as collateral. Payments are due in
semi-annual installments of $1,718,712 plus interest at 6.125%
to 6.5% to 1999. 13,712,469 17,411,220
Notes payable to banks. Aircraft and support equipment which
cost $12,219,405 are pledged as collateral. Payments are due in
quarterly installments of $259,662 plus interest at 7% to 1999. 4,933,584 5,972,234
Notes payable to bank. Aircraft and support equipment which
cost $18,562,365 are pledged as collateral. Payments are due in
semi-annual installments of $788,900 plus interest at 5.35% to
5.7875% to 2000. 9,203,816 10,781,617
Floating rate note payable to bank. Aircraft and support
equipment which cost $6,226,275 are pledged 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, 1994 was 6.9375%. 3,175,380 3,704,610
</TABLE>
-31-
<PAGE> 34
<TABLE>
<CAPTION>
December 31, 1994 1993
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Floating rate note payable to bank. Euro-time deposit of
$3,179,116 is pledged as collateral. Payments are due in
semi-annual installments of $264,926 plus interest based on
floating six month LIBOR to 2000. Rate at December 31, 1994 was
7.1875%. 3,179,116 3,708,969
Floating rate notes payable to bank. Aircraft and support
equipment which cost $25,160,639 are pledged as collateral.
Payments are due in semi-annual installments of $1,069,327 plus
interest based on floating six month LIBOR to 2001. Rates at
December 31, 1994 were 5.975% - 6.1625%. 13,901,254 16,039,908
Floating rate notes payable to bank. Aircraft and support
equipment which cost $24,755,647 are pledged 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, 1994 were 6.1875% - 6.7344% 14,186,711 16,289,139
Floating rate notes payable to bank. Aircraft and support
equipment which cost 64,170,364 are pledged as collateral.
Payments are due in semi-annual installments of $2,727,241 plus
interest based on floating six month LIBOR to 2003. Rates at
December 31, 1994 were 5.734% - 5.9688%. 47,203,108 50,210,258
Floating rate notes payable to bank. Aircraft and support
equipment which cost $51,508,622 are pledged as collateral.
Payments are due in mortgage style semi-annual installments
estimated at $1,246,229 (subject to change) plus interest based
on floating six month LIBOR to 2006. Rates at December 31, 1994
were 6.3125% to 7.375%. 42,453,568 --
------------- ------------
180,864,228 161,944,229
------------- ------------
Less current portion 28,254,410 25,980,900
------------- ------------
$152,609,818 $135,963,329
============= ============
</TABLE>
As of December 31, 1994, maturities on long-term debt were:
<TABLE>
<S> <C>
1995 $ 28,254,410
1996 31,084,400
1997 25,983,950
1998 22,299,450
1999 18,865,340
After 1999 54,376,678
------------
$180,864,228
============
</TABLE>
The Company's loan agreements contain limitations on, among other
things, sale or lease of assets; the acquisition of stock of other entities;
ratio of long-term debt to tangible net worth; ratio of total liabilities to
tangible net worth; maintenance of minimum tangible net worth and funds flow
coverage; and limitations on the payment of dividends and repurchases of common
stock (See Note G).
The Company has negotiated to receive interest rate subsidies on
certain indebtedness through the export support program of the Federative
-32-
<PAGE> 35
Republic of Brazil. Outstanding debt aggregating $138,410,660 at December 31,
1994 is subject to subsidy payments which reduce the stated interest rates on
such debt to an average of approximately 3.33%. During 1994, 1993 and 1992 the
Company reduced its interest expense by $3,800,430, $3,819,418 and $3,514,156,
respectively, as a result of these interest rate subsidies. The amount of net
interest paid during 1994, 1993 and 1992 was $4,702,987, $5,824,753 and
$5,194,022, respectively.
NOTE C - AIRCRAFT COMMITMENTS
As of December 31, 1994, the Company had no purchase commitments. In
February 1995, the Company's Board of Directors authorized the acquisition of
six additional Brasilia aircraft.
NOTE D - LINES OF CREDIT
The Company has available an $8,000,000 bank line of credit at LIBOR
plus .4%. At December 31, 1994, there were no outstanding amounts against the
line of credit.
NOTE E - INCOME TAXES
Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability method as
required by FASB Statement No. 109, "Accounting for Income Taxes". As
permitted under the new rules, prior years' financial statements have not been
restated. The cumulative effect of adopting Statement No. 109 as of January
1, 1993 was to increase net income by $4,212,300.
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 tax liabilities and assets as
of December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $68,213,625 $61,636,400
Other 114,419 1,204,700
----------- -----------
Total deferred tax liabilities 68,328,044 62,841,100
Deferred tax assets:
Stock appreciation rights obligation -- 2,107,500
Asset valuation reserves 1,231,267 1,467,700
Other 1,244,055 1,479,354
----------- -----------
Total deferred tax assets 2,475,322 5,054,554
----------- -----------
Net deferred tax liabilities $65,852,722 $57,786,546
=========== ===========
</TABLE>
-33-
<PAGE> 36
For financial reporting purposes, the provision for income taxes includes the
following components:
<TABLE>
<CAPTION>
Liability Method Deferred Method
December 31, 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Federal:
Current $22,124,324 $19,590,000 $11,844,000
Deferred 7,178,897 7,600,000 7,526,000
----------- ----------- -----------
29,303,221 27,190,000 19,370,000
----------- ----------- -----------
State:
Current 2,773,500 2,764,500 2,025,000
Deferred 887,279 1,135,500 855,000
----------- ----------- -----------
3,660,779 3,900,000 2,880,000
----------- ----------- -----------
$32,964,000 $31,090,000 $22,250,000
=========== =========== ===========
</TABLE>
The components of the provision for deferred income taxes for the year ended
December 31, 1992 are as follows:
<TABLE>
<S> <C>
Excess tax depreciation $ 6,637,000
Effect of alternative minimum tax 2,277,500
Accrued expenses deductible in future period (403,800)
Other (129,700)
------------
$ 8,381,000
============
</TABLE>
A reconciliation of the provisions for taxes on income at the applicable
federal statutory income tax rate to the tax provisions as reported is as
follows:
<TABLE>
<CAPTION>
December 31, 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense at statutory rate $29,966,912 $27,097,900 $ 20,167,700
Increase in tax expense:
State income taxes, net of
federal tax benefit 2,489,421 2,355,200 1,857,600
Adjust deferred tax liability for
1993 income tax rate increase -- 1,398,000 --
Other 507,667 238,900 224,700
----------- ----------- ------------
Income tax expense $32,964,000 $31,090,000 $ 22,250,000
=========== =========== ============
</TABLE>
The Company paid income taxes in the amount of $27,801,152 in 1994, $20,087,657
in 1993 and $12,646,042 in 1992.
NOTE F - RENTAL EXPENSE AND LEASE COMMITMENTS
The Company's current fleet includes eight ATR-72 aircraft under
operating leases. These eight aircraft are currently under an interim lease
which will expire in 1995. The Company intends to renew the lease for an
additional term of seven years.
The Company also 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 remaining
from one month to twenty-four years.
Total rental expenses on operating leases for the years ended December
31, 1994, 1993 and 1992 were $14,597,677, $9,174,944 and $4,757,636,
respectively.
-34-
<PAGE> 37
Minimum future lease payments under all non-cancellable operating leases are as
follows:
<TABLE>
<S> <C>
1995 $ 13,846,220
1996 12,948,395
1997 12,730,828
1998 12,753,292
1999 12,371,186
After 1999 38,639,508
------------
$103,289,429
============
</TABLE>
NOTE G - DIVIDENDS AND COMMON STOCK TRANSACTIONS
Certain restrictions in the Company's debt agreements limit the amount
of stock repurchases and the payment of dividends generally to 30% of average
annual earnings as defined (See Note B). The credit agreements allowed for
approximately $14,240,000 to be used for stock repurchases and dividend
payments in 1994. In May 1994, the Board of Directors authorized the Company,
after receiving lenders' consent, to repurchase up to $50,000,000 of its common
stock on the open market at any time on or before December 31, 1995. As of
December 31, 1994, the Company had repurchased 1,140,000 shares of its common
stock at a cost of $19,977,188. The Company paid dividends on its common stock
for the years ended December 31, 1994, 1993 and 1992 in the amount of
$10,926,232, $9,605,629 and $8,186,405, respectively. In February 1995, the
Board of Directors increased the regular quarterly cash dividend from 8 cents to
8.5 cents per share.
In January 1993, the Board of Directors declared a two-for-one stock
split effected in the form of a 100% stock dividend on the Company's common
stock which was paid on February 18, 1993. The par value of additional shares
issued was transferred from capital in excess of par to common stock. Weighted
average common shares, earnings per share and dividends per share have been
restated to reflect this transaction.
NOTE H - STOCK PLANS
The Company has a Stock Appreciation Rights (SARs) program which
allows for up to 900,000 shares of the Company's common stock to be issued to
certain employees. The plan provides for the appreciation in market value, at
the date of exercise, over the grant price to be issued in shares of common
stock, cash or a combination thereof. SARs outstanding at December 31, 1994 are
exercisable over a period of five years at certain intervals, as provided in
the form of each grant. Grants are made by a committee of the Board of
Directors. The following data has been adjusted for the stock split described
in Note G above.
-35-
<PAGE> 38
Transactions of Stock Appreciation Rights are as follows:
<TABLE>
<CAPTION>
Number of SARs Grant Price
-------------- ----------------
<S> <C> <C>
Outstanding at January 1, 1992 588,600 $11.25
Exercised (564,600) 11.25
Granted 504,400 13.00 - 17.13
-------- ---------------
Outstanding at December 31, 1992 528,400 11.25 - 17.13
Exercised (549,400) 11.25 - 21.13
Granted 437,200 21.13
-------- ---------------
Outstanding at December 31,1993 416,200 17.13 - 21.13
Exercised (122,200) 21.13
Granted 235,700 36.75
-------- ---------------
Outstanding at December 31,1994 529,700 $17.13 - $36.75
-------- ---------------
</TABLE>
In February 1995, an additional 411,000 SARs were granted at an
exercise price of $17.13. In 1994, the Company reversed previously accrued
expenses associated with SARs resulting in a net credit to income of
approximately $4,198,000 due to the decline in the Company's stock price. In
1993 and 1992, stock appreciation rights increased expense by $11,662,000 and
$4,041,000 respectively. In connection with the exercise of SARs, the Company
made cash payments of $521,529 and issued 23,935 shares of common stock in
1994, made cash payments of $3,606,677 and issued 160,014 shares of common
stock in 1993, and made cash payments of $1,179,886 and issued 105,768 shares
of common stock in 1992.
The Company had an incentive stock option plan which expired in
April 1992 and provided for the issuance of options to purchase common stock of
the Company to key employees. In 1992, 39,998 options were exercised at $4.46
per share. No options were outstanding in fiscal 1994 and 1993.
NOTE I - EMPLOYEE BENEFIT PLANS
All employees who have completed one year of employment are
generally eligible to participate in the Company's Thrift Plan. For each dollar
of salary reduction elected by an employee (up to six percent 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 1994, 1993 and 1992 were approximately
$820,000, $691,000 and $498,000, 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 ten to fifteen percent of each participant's base
salary to the plan. Approximately $100,000, $113,000 and $104,000 were
contributed in 1994, 1993 and 1992, respectively.
The Company has no material liability for post-retirement or
post-employment benefits under Statements of Financial Accounting Standards
Nos. 106 and 112.
NOTE J - RELATED PARTY TRANSACTIONS
Delta Air Lines Holdings, Inc. (an affiliate of Delta Air Lines, Inc.)
owns 7,995,000 shares or approximately 24 per cent of the Company's
-36-
<PAGE> 39
common stock. The Company leases reservation equipment and certain terminal
facilities from Delta Air Lines, Inc. and Delta provides certain services to
the Company, including reservation and ground handling services. Expenses paid
to the shareholder under these agreements were approximately $5,762,000 in
1994, $4,174,000 in 1993 and $3,454,000 in 1992. Other information related to
this shareholder is as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Accounts Receivable from Shareholder at December 31: $ 246,000 $ 128,000
Accounts Payable to Shareholder at December 31: $1,096,000 $1,105,000
</TABLE>
NOTE K - 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, cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.
Marketable securities: In 1994, the Company changed its method of
accounting for its portfolio of marketable securities by adopting Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Accordingly, such investments are classified as
available for sale and reported at fair value (estimated based on quoted market
prices) as of December 31, 1994 and at cost as of December 31, 1993. The gross
unrealized holding loss as of December 31, 1994 of $246,142 is reflected as a
reduction in shareholders' equity, net of related income taxes. Proceeds from
the sale of all marketable securities aggregated $165,575,000. Realized gains
and losses other than interest income were not material.
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 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 carrying amounts and estimated fair values of the Company's
financial instruments at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Carrying Value Estimated Fair Value
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash
equivalents $ 42,526,882 $ 52,834,786 $ 42,526,882 $ 52,834,786
Marketable securities 133,882,146 113,094,516 133,882,146 113,094,516
Total long-term debt
(including current
maturities) (180,864,228) (161,944,229) (177,799,736) (161,953,678)
Off-balance sheet
financial instruments -- -- 10,470,054 11,740,722
</TABLE>
-37-
<PAGE> 40
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
Shareholders and Board of Directors
Atlantic Southeast Airlines, Inc.
We have audited the accompanying consolidated balance sheets of
Atlantic Southeast Airlines, Inc. and subsidiary as of December 31, 1994 and
1993, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1994. Our audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with 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 Atlantic Southeast Airlines, Inc. and subsidiary at December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994 in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note K to the consolidated financial statements,
in 1994 the Company changed its method of accounting for marketable securities.
Also, as discussed in Note E to the consolidated financial statements, in 1993
the Company changed its method of accounting for income taxes.
/S/ Ernst & Young LLP
---------------------
Atlanta, Georgia
February 3, 1995
-38-
<PAGE> 41
REPORT OF MANAGEMENT
The management of Atlantic Southeast Airlines, 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
Treasurer, Chief Financial Officer and
Vice President - Finance
-39-
<PAGE> 42
QUARTERLY FINANCIAL DATA
(Dollars in thousands except share and per share data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
1994
Operating Revenue $ 75,019 $ 82,033 $ 80,082 $ 74,956 $ 312,090
Operating Income 19,841 26,632 20,174 17,625 84,272
Income before Taxes 20,115 27,003 20,376 18,126 85,620
Net Income $ 12,350 $ 16,580 $ 12,511 $ 11,215 $ 52,656
Net Income per Share $ 0.36 $ 0.48 $ 0.37 $ 0.33 $ 1.54
Average Weighted Shares Outstanding 34,434 34,383 34,277 33,665 34,188
Stock Price Data
High $ 38.75 $ 33.00 $ 30.75 $ 24.50 $ 38.75
Low $ 31.25 $ 21.25 $ 23.00 $ 12.75 $ 12.75
1993
Operating Revenues $ 64,469 $ 69,853 $ 74,603 $ 79,538 $ 288,463
Operating Income 11,571 20,980 22,964 22,105 77,620
Income before Taxes and Accounting
Change 11,319 20,894 22,959 22,250 77,422
Cumulative Effect of Accounting
Change 4,212 -- -- -- 4,212
Net Income $ 11,286 $ 13,059 $ 12,400 $ 13,799 $ 50,544
Income per Share before Accounting
Change $ 0.21 $ 0.38 $ 0.36 $ 0.40 $ 1.35
Net Income per Share $ 0.33 $ 0.38 $ 0.36 $ 0.40 $ 1.47
Average Weighted Shares Outstanding 34,302 34,419 34,419 34,432 34,395
Stock Price Data
High $ 33.25 $ 39.00 $ 33.75 $ 38.00 $ 39.00
Low $ 20.88 $ 28.75 $ 25.75 $ 27.50 $ 20.88
</TABLE>
-40-
<PAGE> 43
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, 1993 and 1994, or
during the subsequent interim period.
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" in the Proxy
Statement to be used in connection with the solicitation of proxies for the
Company's annual meeting of shareholders to be held May 24, 1995, to be filed
with the Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the date under the heading "EXECUTIVE COMPENSATION" in the Proxy
Statement to be used in connection with the solicitation of proxies for the
Company's annual meeting of shareholders to be held May 24, 1995, to be filed
with the Commission.
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" in the Proxy Statement to be used in connection with the
solicitation of proxies for the Company's annual meeting of shareholders to be
held May 24, 1995, to be filed with the Commission.
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 -- ADDITIONAL
INFORMATION WITH RESPECT TO THE COMPENSATION COMMITTEE" in the Proxy Statement
to be used in connection with the
-41-
<PAGE> 44
solicitation of proxies for the Company's annual meeting of shareholders to be
held May 24, 1995, to be filed with the Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. The following financial statements of the Registrant required by Item 8
of Form 10-K are included as pages 25 through 39 of this Report on Form 10-K:
Consolidated Balance Sheets as of December 31, 1994 and 1993;
Consolidated Statements of Income for the years ended December 31, 1994, 1993
and 1992;
Consolidated Statements of Shareholders' Equity for the years ended December
31, 1994, 1993 and 1992;
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1993 and 1992; and
Notes to Consolidated Financial Statements.
2. The following financial statement schedule of the Registrant required
by Item 8 and Item 14(d)of Form 10-K is included as page 51 of this Report on
Form 10-K:
Schedule II - Valuation and Qualifying Accounts and Reserves
Schedules other than those listed above have been omitted because they are not
applicable or required under the accounting regulations and related
instructions of the Securities and Exchange Commission.
3. The following exhibits required by Item 601 of Regulation S-K and
by Item 14(c) of Form 10-K are filed herewith or incorporated by reference as
indicated. Exhibit numbers refer to Item 601 of Regulation S-K:
-42-
<PAGE> 45
Exhibit Number and Description
3(a) Amended and Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3(a) to the Registrant's registration statement on
Form S-1, file number 2-277713, filed with the Commission on July 21,
1982).
3(b) Articles of Amendment dated May 10, 1985. (Incorporated by reference to
Exhibit 3(b) to the Registrant'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, 1992.
3(c) Articles of Amendment dated May 24, 1988. (Incorporated by reference to
Exhibit 19(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1988, file number 0-11097, filed with the
Commission on August 11, 1988).
3(d) Articles of Amendment dated May 25, 1989. (Incorporated by reference to
Exhibit 3(d) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, file number 0-11097, filed with the
Commission on March 30, 1990).
3(e) By-Laws as amended on October 25, 1985. (Incorporated by reference to
Exhibit 3(e) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, file number 0-11097, filed with the
Commission on March 29, 1991).
3(f) Amendment to By-Laws adopted on January 29, 1992. (Incorporated by
reference to Exhibit 3(f) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991, file number 0-11097, filed
with the Commission on March 27, 1992).
3(g) Restated By-Laws adopted on January 22, 1993. (Incorporated by
reference to Exhibit 3(g) to the Registrant'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).
-43-
<PAGE> 46
3(h) Amendment to Bylaws adopted on February 2, 1994. (Incorporated by
reference to Exhibit 3(h) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, file number 0-11097, filed
with the Commission on March 31, 1994).
4 Instruments defining the rights of security holders, including
indentures. See Exhibits 3(a), 3(b), 3(c), 3(d), 3(e), 3(f), 3(g) and
3(h).
10(a) 1982 Incentive Stock Option Plan adopted May 20, 1982. (Incorporated by
reference to Exhibit 10(b) to the Registrant's registration statement on
Form S-1 filed with the Commission on July 21, 1982). Amendment to 1982
Incentive Stock Option Plan dated August 27, 1990. (Incorporated by
reference to Exhibit 10(s) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990, file number 0-11097,
filed with the Commission on March 29, 1991). (MANAGEMENT CONTRACT OR
COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO
THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM 10-K).
10(b) Form of Incentive Stock Option Agreement under 1982 Incentive Stock
Option Plan. (Incorporated by reference to Exhibit 10(c) to the
Registrant's registration statement on Form S-1, file number 2-277713,
filed with the Commission on July 21, 1982). (MANAGEMENT CONTRACT OR
COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO
THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM 10-K).
10(c) Stock Purchase Agreement dated May 28, 1986, between the Registrant and
Delta Air Lines, Inc. (Incorporated by reference to Exhibit 10(e) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, file number 0-11097, filed with the Commission on
March 29, 1991).
-44-
<PAGE> 47
10(d) Delta Connection Agreement dated July 1, 1986, between the Registrant
and Delta Air Lines, Inc. (Incorporated by reference to Exhibit 10(e)
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, file number 0-11097, filed with the Commission on
March 27, 1992).
10(e) Credit Agreement dated as of December 24, 1986, among the Registrant,
ASA Investments, Inc., 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 the
Registrant's Annual Report on Form 10-K for the fiscal 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 the Registrant'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). Amendment
No. 2 dated as of May 23, 1989. (Incorporated by reference to Exhibit
19(a) to the Registrant'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 the Registrant'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).
10(f) Single Payment Note, dated January 26, 1987, still in effect evidencing
Registrant's line of credit with Trust Company Bank. (Incorporated by
reference to Exhibit 10(g) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991, file number 0-11097,
filed with the Commission on March 27, 1992).
-45-
<PAGE> 48
10(g) Credit Agreement dated as of April 23, 1987, among the Registrant, 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 the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1991,
file number 0-11097, filed with the Commission on March 27,1992).
Amendment No. 1 dated as of May 23, 1989. (Incorporated by reference to
Exhibit 19(c) to the Registrant'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 the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, file number 0-11097, filed with the Commission on
March 30, 1990).
10(h) Lease Agreement dated April 1, 1988, between the Registrant and Macon -
Bibb County Industrial Authority. (Incorporated by reference to Exhibit
10(k) to the Registrant'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(i) 1990 Stock Appreciation Rights Plan approved by Shareholders on May 15,
1990. (Incorporated by reference to Exhibit 19(a) to the Registrant's
Quarterly Report for the quarter ended June 30, 1990, file number
0-11097, filed with the Commission on August 13, 1990). (MANAGEMENT
CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN
EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM
10-K).
10(j) Executive Deferred Compensation (Retirement) Plan dated May 15, 1990.
(Incorporated by reference to Exhibit 19(b) to the Registrant's
Quarterly Report for the quarter ended June 30, 1990, file number
0-11097, filed with the Commission on August 13, 1990). (MANAGEMENT
CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN
EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM
10-K).
-46-
<PAGE> 49
10(k) Founding Officer Agreement dated June 27, 1990, between the Registrant
and George F. Pickett (Incorporated by reference to Exhibit 19(c) to the
Registrant's Quarterly Report for the quarter ended June 30, 1990, file
number 0-11097, filed with the Commission on August 13, 1990).
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE
FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C)
OF FORM 10-K).
10(l) Founding Officer Agreement dated June 27, 1990, between the Registrant
and John W. Beiser. (Incorporated by reference to Exhibit 19(d) to the
Registrant's Quarterly Report for the quarter ended June 30, 1990, file
number 0-11097, filed with the Commission on August 13, 1990).
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE
FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C)
OF FORM 10-K).
10(m) Aircraft Purchase Agreement dated August 27, 1990, between the
Registrant and Embraer - Empresa Brasileira de Aeronautica S.A.
(Incorporated by reference to Exhibit 10(t) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990, file
number 0-11097, filed with the Commission on March 29, 1991).
10(n) Office Lease Agreement dated December 18, 1991, by and between the
Registrant and Trident Partners. (Incorporated by reference to Exhibit
10(q) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, file number 0-11097, filed with the Commission
on March 27, 1992).
10(o) First Amendment to Executive Deferred Compensation (Retirement) Plan
dated December 31, 1992. (Incorporated by reference to Exhibit 10(s) to
the Registrant'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). (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR
ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM
10-K PURSUANT TO ITEM 14(C) OF FORM 10-K.)
-47-
<PAGE> 50
10(p) 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(t) to the Registrant'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). Amendment
No. 1 dated February 21, 1994. (Incorporated by reference to Exhibit
10(p) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, file number 0-11097, filed with the Commission
on March 31, 1994).
10(q) Aircraft Purchase Agreement dated as of April 15, 1993, between the
Registrant 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 the Registrant'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(r) Participation Agreement dated as of May 1, 1993 between the Company and
Antoine Finance Corporation. (Incorporated by reference to Exhibit
10(b) to the Registrant'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) Lease Agreement dated as of May 1, 1993 between the Company and Antoine
Finance Corporation and related Lease Supplement No. 1 dated May 10,
1993, Lease Supplement No. 2 dated May 12, 1993, Lease Supplement No. 3
dated May 26, 1993, Lease Supplement No. 4 dated June 16, 1993, Lease
Supplement No. 5 dated June 23, 1993, and Lease Supplement No. 6 dated
July 21, 1993. (Incorporated by reference to Exhibit 10(c) to the
Registrant'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). Lease Supplement No. 7 dated August 25, 1993; Lease Supplement
No. 8 dated September 9, 1993; and Lease Supplement No. 9 dated
September 23, 1993. (Incorporated
-48-
<PAGE> 51
by reference to Exhibit 10(a) to the Registrant'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). Extension Agreement
dated December 23, 1994 between the Company, Avions de Transport
Regional and Antoine Finance Corporation. (Attached as Exhibit 10(s)
hereto).
10(t) Unconditional Guaranty of Performance between the Company and Avions de
Transport Regional dated as of May 1, 1993 with respect to the 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(d) to the Registrant'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(u) 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 the
Registrant'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 the Registrant'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(v) Credit Agreement with Trust Company Bank dated as of April 20, 1994
(Incorporated by reference to Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the
-49-
<PAGE> 52
Quarter ended March 31, 1994, file number 0-11097, filed with the
Commission on May 13, 1994).
10(w) 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 to Exhibit 10(b) to the Registrant'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).
11 Statement re Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Power of Attorney (Included on the signature page of this Form 10-K).
99 Information required by Form 11-K with respect to the Atlantic Southeast
Airlines, Inc. Thrift 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 1933.
(b) The Registrant filed one (1) current report on Form 8-K during the
fourth quarter of 1994, on December 14, 1994, pursuant to which certain
information regarding the Company's ATRs was disclosed under "Item 5. Other
Events" of Form 8-K. The information set forth in the Form 8-K related to the
December 9, 1994 Airworthiness Directive discussed in this Form 10-K under the
caption "BUSINESS-Regulation-DOT Regulation."
-50-
<PAGE> 53
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
December 31, 1994
<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> <C>
Year ended December 31, 1992:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 461,951 $120,000 ($69,037) (A) $ 512,914
Allowance for obsolescence of
expendable parts 2,031,102 445,224 (4,782) (B) 2,471,544
---------- -------- ---- -------- ----------
$2,493,053 $565,224 $0 ($73,819) $2,984,458
Year ended December 31, 1993:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 512,914 ($280,000) ($36,944) (A) $ 195,970
Allowance for obsolescence of
expendable parts 2,471,544 487,285 (20,629) (B) 2,938,200
---------- -------- ---- --------- ----------
$2,984,458 $207,285 $0 ($57,573) $3,134,170
Year ended December 31, 1994:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 195,970 $120,000 ($35,401) (A) $ 280,569
Allowance for obsolescence of
expendable parts 2,938,200 565,913 3,504,113
---------- -------- ---- ---------- ----------
$3,134,170 $685,913 $0 ($35,401) $3,784,682
</TABLE>
(A) Uncollectible accounts charged off during the period.
(B) Obsolete parts charged off during the period.
-51-
<PAGE> 54
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.
ATLANTIC SOUTHEAST AIRLINES, INC.
By:/s/ George F. Pickett
----------------------------
George F. Pickett, Chairman
of the Board and Chief
Executive Officer (Principal
Executive Officer)
Date: March 29, 1995
-52-
<PAGE> 55
We, the undersigned officers and directors of Atlantic Southeast
Airlines, 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 Atlantic Southeast Airlines, Inc. to comply with the applicable
provisions of the Securities Act of 1933, 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 29, 1995
--------------------------------
George F. Pickett, Chairman
of the Board and Chief Executive
Officer (Principal Executive
Officer) and Director
/s/ John W. Beiser March 29, 1995
---------------------------------
John W. Beiser, President,
Secretary and Director
/s/ Ronald V. Sapp March 29, 1995
---------------------------------
Ronald V. Sapp, Vice President-
Finance and Treasurer (Principal
Financial and Accounting Officer)
/s/ Julius P. Gwin March 29, 1995
---------------------------------
Julius P. Gwin, Director
/s/ Russell H. Heil March 29, 1995
---------------------------------
Russell H. Heil, Director
/s/ Jean A. Mori March 29, 1995
---------------------------------
Jean A. Mori, Director
/s/ Parker H. Petit March 29, 1995
---------------------------------
Parker H. Petit, Director
/s/ Ralph W. Voorhees March 29, 1995
---------------------------------
Ralph W. Voorhees, Director
/s/ Alan M. Voorhees March 29, 1995
---------------------------------
Alan M. Voorhees, Director
<PAGE> 56
EXHIBIT INDEX
Exhibit Number and Description
3(a) Amended and Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3(a) to the Registrant's registration statement on
Form S-1, file number 2-277713, filed with the Commission on July 21,
1982).
3(b) Articles of Amendment dated May 10, 1985. (Incorporated by reference to
Exhibit 3(b) to the Registrant'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, 1992.
3(c) Articles of Amendment dated May 24, 1988. (Incorporated by reference to
Exhibit 19(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1988, file number 0-11097, filed with the
Commission on August 11, 1988).
3(d) Articles of Amendment dated May 25, 1989. (Incorporated by reference to
Exhibit 3(d) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, file number 0-11097, filed with the
Commission on March 30, 1990).
3(e) By-Laws as amended on October 25, 1985. (Incorporated by reference to
Exhibit 3(e) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, file number 0-11097, filed with the
Commission on March 29, 1991).
3(f) Amendment to By-Laws adopted on January 29, 1992. (Incorporated by
reference to Exhibit 3(f) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991, file number 0-11097, filed
with the Commission on March 27, 1992).
3(g) Restated By-Laws adopted on January 22, 1993. (Incorporated by
reference to Exhibit 3(g) to the Registrant'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).
3(h) Amendment to By-Laws adopted on February 2, 1994. (Incorporated by
reference to Exhibit 3(h) to the Registrant's Annual Report on Form 10-K
for the fiscal year
<PAGE> 57
ended December 31, 1993, file number 0-11097, filed with the Commission
on March 31, 1994).
4 Instruments defining the rights of security holders, including
indentures. See Exhibits 3(a), 3(b), 3(c), 3(d), 3(e), 3(f), 3(g) and
3(h).
10(a) 1982 Incentive Stock Option Plan adopted May 20, 1982. (Incorporated by
reference to Exhibit 10(b) to the Registrant's registration statement on
Form S-1 filed with the Commission on July 21, 1982). Amendment to 1982
Incentive Stock Option Plan dated August 27, 1990. (Incorporated by
reference to Exhibit 10(s) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990, file number 0-11097,
filed with the Commission on March 29, 1991). (MANAGEMENT CONTRACT OR
COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO
THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM 10-K).
10(b) Form of Incentive Stock Option Agreement under 1982 Incentive Stock
Option Plan. (Incorporated by reference to Exhibit 10(c) to the
Registrant's registration statement on Form S-1, file number 2-277713,
filed with the Commission on July 21, 1982). (MANAGEMENT CONTRACT OR
COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO
THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM 10-K).
10(c) Stock Purchase Agreement dated May 28, 1986, between the Registrant and
Delta Air Lines, Inc. (Incorporated by reference to Exhibit 10(e) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, file number 0-11097, filed with the Commission on
March 29, 1991).
10(d) Delta Connection Agreement dated July 1, 1986, between the Registrant
and Delta Air Lines, Inc. (Incorporated by reference to Exhibit 10(e)
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, file number 0-11097, filed with the Commission on
March 27, 1992).
10(e) Credit Agreement dated as of December 24, 1986, among the Registrant,
ASA Investments, Inc., Manufacturers Hanover
<PAGE> 58
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 the Registrant's Annual Report on Form 10-K for the
fiscal 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 the Registrant'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).
Amendment No. 2 dated as of May 23, 1989. (Incorporated by reference to
Exhibit 19(a) to the Registrant'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 the
Registrant'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).
10(f) Single Payment Note, dated January 26, 1987, still in effect evidencing
Registrant's line of credit with Trust Company Bank. (Incorporated by
reference to Exhibit 10(g) to the Registrant's Annual Report on Form
10-K for the fiscal 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 the Registrant, 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 the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1991,
file number 0-11097, filed with the Commission on March 27,1992).
Amendment No. 1 dated as of May 23, 1989. (Incorporated by reference to
Exhibit 19(c) to the Registrant'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
<PAGE> 59
to Exhibit 10(s) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, file number 0-11097, filed with the
Commission on March 30, 1990).
10(h) Lease Agreement dated April 1, 1988, between the Registrant and Macon -
Bibb County Industrial Authority. (Incorporated by reference to Exhibit
10(k) to the Registrant'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(i) 1990 Stock Appreciation Rights Plan approved by Shareholders on May 15,
1990. (Incorporated by reference to Exhibit 19(a) to the Registrant's
Quarterly Report for the quarter ended June 30, 1990, file number
0-11097, filed with the Commission on August 13, 1990). (MANAGEMENT
CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN
EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM
10-K).
10(j) Executive Deferred Compensation (Retirement) Plan dated May 15, 1990.
(Incorporated by reference to Exhibit 19(b) to the Registrant's
Quarterly Report for the quarter ended June 30, 1990, file number
0-11097, filed with the Commission on August 13, 1990). (MANAGEMENT
CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE FILED AS AN
EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C) OF FORM
10-K).
10(k) Founding Officer Agreement dated June 27, 1990, between the Registrant
and George F. Pickett (Incorporated by reference to Exhibit 19(c) to the
Registrant's Quarterly Report for the quarter ended June 30, 1990, file
number 0-11097, filed with the Commission on August 13, 1990).
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE
FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C)
OF FORM 10-K).
10(l) Founding Officer Agreement dated June 27, 1990, between the Registrant
and John W. Beiser. (Incorporated by reference to Exhibit 19(d) to the
Registrant's Quarterly Report for the quarter ended June 30, 1990, file
number 0-11097, filed with the Commission on August 13, 1990).
(MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE
<PAGE> 60
FILED AS AN EXHIBIT TO THIS REPORT ON FORM 10-K PURSUANT TO ITEM 14(C)
OF FORM 10-K).
10(m) Aircraft Purchase Agreement dated August 27, 1990, between the
Registrant and Embraer - Empresa Brasileira de Aeronautica S.A.
(Incorporated by reference to Exhibit 10(t) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990, file
number 0-11097, filed with the Commission on March 29, 1991).
10(n) Office Lease Agreement dated December 18, 1991, by and between the
Registrant and Trident Partners. (Incorporated by reference to Exhibit
10(q) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, file number 0-11097, filed with the Commission
on March 27, 1992).
10(o) First Amendment to Executive Deferred Compensation (Retirement) Plan
dated December 31, 1992. (Incorporated by reference to Exhibit 10(s) to
the Registrant'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). (MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR
ARRANGEMENT REQUIRED TO BE FILED AS AN EXHIBIT TO THIS REPORT ON FORM
10-K PURSUANT TO ITEM 14(C) OF FORM 10-K.)
10(p) 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(t) to the Registrant'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). Amendment
No. 1 dated February 21, 1994. (Incorporated by reference to Exhibit
10(p) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, file number 0-11097, filed with the Commission
on March 31, 1994).
<PAGE> 61
10(q) Aircraft Purchase Agreement dated as of April 15, 1993, between the
Registrant 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 the Registrant'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(r) Participation Agreement dated as of May 1, 1993 between the Company and
Antoine Finance Corporation. (Incorporated by reference to Exhibit
10(b) to the Registrant'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) Lease Agreement dated as of May 1, 1993 between the Company and Antoine
Finance Corporation and related Lease Supplement No. 1 dated May 10,
1993, Lease Supplement No. 2 dated May 12, 1993, Lease Supplement No. 3
dated May 26, 1993, Lease Supplement No. 4 dated June 16, 1993, Lease
Supplement No. 5 dated June 23, 1993, and Lease Supplement No. 6 dated
July 21, 1993. (Incorporated by reference to Exhibit 10(c) to the
Registrant'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). Lease Supplement No. 7 dated August 25, 1993; Lease Supplement
No. 8 dated September 9, 1993; and Lease Supplement No. 9 dated
September 23, 1993. (Incorporated by reference to Exhibit 10(a) to the
Registrant'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). Extension Agreement dated December 23, 1994 between
the Company, Avions de Transport Regional and Antoine Finance
Corporation. (Attached as Exhibit 10(s) hereto)
<PAGE> 62
10(t) Unconditional Guaranty of Performance between the Company and Avions de
Transport Regional dated as of May 1, 1993 with respect to the 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(d) to the Registrant'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(u) 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 the
Registrant'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 the Registrant'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(v) Credit Agreement with Trust Company Bank dated as of April 20, 1994
(Incorporated by reference to Exhibit 10(a) to the Registrant'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(w) 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 to Exhibit 10(b) to the Registrant'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).
<PAGE> 63
11 Statement re Computation of Per Share Earnings.
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 Financial Data Schedule (for SEC use only)
99 Information required by Form 11-K with respect to the Atlantic Southeast
Airlines, Inc. Thrift 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 1933.
<PAGE> 1
EXHIBIT 10(s)
EXTENSION AGREEMENT
<PAGE> 2
EXTENSION AGREEMENT
This Extension Agreement is made the 23rd day of December, 1994, by and
between Avions de Transport Regional ("ATR"), Antoine Finance Corporation
("Antoine") and Atlantic Southeast Airlines, Inc. ("ASA").
Recitals: On February 10, 1993, ATR and ASA entered into a Purchase
Agreement (including related Letter Agreements Nos. 1 - 8), which Purchase
Agreement was modified by an Amendment No. 1 on February 21, 1994 (collectively
the Purchase Agreement, including the Letter Agreements, as amended by the
Amendment No. 1, are referred to as the "Purchase Agreement"). ASA has taken
delivery of twelve ATR 72-210 Aircraft (the "Aircraft") and one spare engine
(the "Spare Engine") under the Purchase Agreement. In connection with the
delivery of the first eight Aircraft and the Spare Engine, Antoine entered
into a Lease Agreement dated effective May 1, 1993, and related Lease
Supplements Nos. 1 - 9 (the Lease Agreement and Lease Supplements Nos. 1 - 9
thereto are collectively referred to as the "Lease") which have been recorded
with the Federal Aviation Administration under the Federal Aviation Act on the
dates and with the conveyance numbers shown on the attached "Schedule of FAA
Recording Information." The Purchase Agreement and the Lease contemplate the
parties entering into a permanent long term lease arrangement (the "Long Term
Lease") on or before December 31, 1994 for the initial eight Aircraft and the
Spare Engine. Due to the issuance by the Federal Aviation Administration of
Airworthiness Directive T94-24-51 on November 16, 1994, as superseded on
December 9, 1994, by Airworthiness Directive T94-25-51 (collectively the
"Current ADs"), following the accident that occurred near Roselawn, Indiana, on
October 31, 1994, to the ATR 72 aircraft operated by American Eagle bearing
manufacturer serial number 401, the parties desire, without prejudice to their
respective rights, to postpone beyond December 31, 1994, the date on which to
consummate the Long Term Lease.
The parties hereto do hereby agree as follows:
1. The Interim Lease arrangement between the parties under Section
2.1 of Letter Agreement No. 1 of the Purchase Agreement (the "LA No. 1") shall
continue until the "Expiration Date," of the Lease, as amended by this
Extension Agreement, and the Long
<PAGE> 3
Term Lease arrangement between the parties under Section 2.2 of the LA No. 1
shall commence on the said Expiration Date.
2. Section 2.2.2 of the LA No. 1 is hereby amended to add the
following sentence to the end of the second paragraph thereof:
"In the event the Permanent Lease commences on or after January
1, 1995, the Monthly Rental Factor shall be adjusted as mutually
agreed to by Seller and ASA to account for the changed timing of
the commencement of the Permanent Lease."
3. The "Expiration Date," as defined in the Lease is hereby amended
in its entirety to hereinafter read as follows:
"Expiration Date" for the Aircraft or the Spare Engine: the
earliest to occur of the following dates: (a) the date on which
its (sub)lease begins in accordance with Section 2.2 of Letter
Agreement No. 1 to the Purchase Agreement (as amended by the
December 23, 1994, Extension Agreement among ATR, Lessor and
Lessee) or (b) the date thirty (30) days after the FAA's complete
withdrawal or other complete termination of the Current ADs, as
defined in the Extension Agreement dated December 23, 1994,
between Lessor, Lessee, and ATR and any other Airworthiness
Directive or operating requirement issued by the FAA against or
mandatory service bulletin issued by ATR affecting the ATR 72
aircraft subsequent to December 9, 1994, imposing any restriction
or condition upon the operation or maintenance of the ATR 72
aircraft which restriction or condition both (i) relates to the
problems addressed in the Current ADS and (ii) adversely affects
ASA's ordinary and customary (as determined prior to the issuance
of the Current ADS) operation or maintenance of or increases
ASA's ordinary and customary (as determined prior to the issuance
of the Current ADS) cost of operating or maintaining the ATR 72
aircraft."
4. Except as modified by this Extension Agreement the terms of the
Purchase Agreement, including specifically Letter Agreement No. 1, and the
Lease shall continue in full force and effect, including specifically the
rental arrangement on all Aircraft and the Spare Engine; provided, that in the
event the
<PAGE> 4
Long Term Lease is not consummated on or before March 31, 1995, the parties
agree to thereafter consider in good faith adjusting the rental arrangement on
all Aircraft and the Spare Engine to a level mutually and reasonably acceptable
to all parties.
5. This Extension Agreement may be executed in counterparts. This
Agreement is being delivered in Georgia, and shall be governed by the laws of
the State of Georgia (excluding any conflict-of-laws rule that would apply the
laws of any other jurisdiction).
6. Upon issuance of any additional Airworthiness Directives or other
operating requirements of the FAA affecting the operation of the ATR 72
aircraft and relating to the problems addressed by the Current Ads, the parties
agree to consider the definition of the "Expiration Date" as contained in
Section 3 of this Extension Agreement in good faith.
<PAGE> 5
IN WITNESS WHEREOF, ASA, Antoine, and ATR have executed this Extension
Agreement.
ATLANTIC SOUTHEAST AIRLINES, INC.
By: /s/ Ronald V. Sapp
-------------------------------
Name: Ronald V. Sapp
Title: Vice President-Finance and
Treasurer
ANTOINE FINANCE CORPORATION
By: /s/ M. A. Ferrucci
-------------------------------
Name: M. A. Ferrucci
Title: President
AVIONS DE TRANSPORT REGIONAL
By: /s/ Joel LE BRETON
-------------------------------
Name: Joel LE BRETON
Title: Senior Vice President
Contracts and Sales Finance
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Income before cumulative effect
of accounting change $52,655,748 $46,332,461 $37,066,684
Cumulative effect as of January 1, 1993 of
change in method of accounting for income taxes - 4,212,300 -
----------- ----------- -----------
Net income $52,655,748 $50,544,761 $37,066,684
=========== =========== ===========
Earnings per share:
Income before cumulative effect
of accounting change $ 1.54 $ 1.35 $ 1.09
Cumulative effect of accounting
change - $ 0.12 $ -
----------- ----------- -----------
Net income $ 1.54 $ 1.47 $ 1.09
=========== =========== ===========
Weighted average number of
shares outstanding 34,187,833 34,395,401 34,164,656
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
ASA Investments, Inc., a Delaware corporation, is 100% owned by Atlantic
Southeast Airlines, Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
<PAGE> 2
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-94852) pertaining to the Atlantic Southeast Airlines, Inc.
Thrift Plan; the Registration Statement (Form S-8 No. 33-37303) pertaining to
the Atlantic Southeast Airlines, Inc. 1982 Incentive Stock Option Plan; and the
Registration Statement (Form S-8 No. 33-37304) pertaining to the Atlantic
Southeast Airlines, Inc. 1990 Stock Appreciation Rights Plan; of our report
dated February 3, 1995, with respect to the consolidated financial statements
and schedule of Atlantic Southeast Airlines, Inc. included in the Annual Report
(Form 10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
Atlanta, Georgia
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 42,527
<SECURITIES> 133,882
<RECEIVABLES> 7,002
<ALLOWANCES> (281)
<INVENTORY> 7,626
<CURRENT-ASSETS> 193,608
<PP&E> 480,531
<DEPRECIATION> 163,376
<TOTAL-ASSETS> 519,684
<CURRENT-LIABILITIES> 53,217
<BONDS> 152,610
<COMMON> 3,322<F1>
0
0
<OTHER-SE> 244,148<F2>
<TOTAL-LIABILITY-AND-EQUITY> 519,684
<SALES> 0
<TOTAL-REVENUES> 312,090
<CGS> 0
<TOTAL-COSTS> 227,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 6,199
<INCOME-PRETAX> 85,620
<INCOME-TAX> 32,964
<INCOME-CONTINUING> 52,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,656
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
<FN>
<F1>REDUCED BY APPROXIMATELY $114,000 ALLOCABLE TO 1,140,000 SHARES OF TREASURY
STOCK.
<F2>REDUCED BY APPROXIMATELY $19,863,000 ALLOCABLE TO 1,140,000 SHARES OF TREASURY
STOCK.
</FN>
</TABLE>
