<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-11097
Atlantic Southeast Airlines, Inc.
---------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1354495
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Hartsfield Centre Parkway, Suite 800, Atlanta, Georgia 30354
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (404) 766-1400
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes X No
- --- ---
As of May 2, 1995 there were 33,025,807 shares of common stock outstanding.
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<PAGE> 2
ATLANTIC SOUTHEAST AIRLINES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I-Financial Information
Item 1. Consolidated Financial Statements
Balance Sheets- March 31, 1995 and December 31, 1994
Assets 3
Liabilities and Shareholders' Equity 4
Statements of Income- Three months ended
March 31, 1995 and March 31, 1994 5
Statements of Cash Flows- Three months ended
March 31, 1995 and March 31, 1994 6
Condensed Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II-Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibits
11 Statement Re: Computation of Per Share Earnings 13
27 Financial Data Schedule (for SEC use only) 14
</TABLE>
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<PAGE> 3
Part I- Financial Information
Item 1. Consolidated Financial Statements
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- ------------
(unaudited) (audited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 26,295 $ 42,527
Marketable securities 151,325 133,882
Accounts receivable 8,787 6,721
Expendable parts 7,558 7,626
Other current assets 3,182 2,852
-------- --------
197,147 193,608
Property and Equipment
Flight equipment 476,607 472,354
Other property and equipment 8,080 7,986
Advance payments on property and
equipment 114 191
-------- --------
484,801 480,531
Less accumulated depreciation and
amortization 171,341 163,376
-------- --------
313,460 317,155
Other Assets
Excess of cost over fair value of
tangible assets acquired 2,944 2,970
Other assets 6,231 5,951
-------- --------
9,175 8,921
Total Assets $519,782 $519,684
======== ========
</TABLE>
See condensed notes to consolidated financial statements.
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<PAGE> 4
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- ------------
(unaudited) (audited)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 29,045 $ 28,254
Accounts payable 12,288 13,399
Air traffic liability 1,445 1,624
Accrued compensation and related
expenses 3,860 4,518
Accrued interest payable 3,278 3,136
Other accrued expenses 1,940 1,043
Income taxes payable 5,581 1,243
-------- --------
57,437 53,217
Long-Term Debt 143,879 152,610
Other Non-Current Liabilities 571 534
Deferred Income Taxes 66,816 65,853
Shareholders' Equity
Common stock, $.10 par value; authorized
50,000,000 shares; issued 34,363,707
shares 3,436 3,436
Capital in excess of par value 45,238 45,238
Retained earnings 225,673 218,924
Unrealized holding gain (loss) on
investments 94 (151)
-------- --------
274,441 267,447
Less treasury stock at cost - 1,337,900
and 1,140,000 shares respectively 23,362 19,977
-------- --------
251,079 247,470
Total Liabilities and Shareholders' Equity $519,782 $519,684
======== ========
</TABLE>
See condensed notes to consolidated financial statements.
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<PAGE> 5
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
1995 1994
----------------------------------------
<S> <C> <C>
Operating Revenues:
Passenger $ 70,210 $ 73,530
Other 1,681 1,488
----------- -----------
Total Operating Revenues 71,891 75,018
Operating Expenses:
Flying operations 15,670 15,842
Maintenance 12,763 12,320
Passenger service 3,664 3,224
Aircraft and traffic servicing 9,409 8,952
Promotion, sales and advertising 6,089 6,795
General and administrative 2,874 1,706
Depreciation, amortization and
obsolescence 6,957 6,257
Other 90 81
----------- -----------
Total Operating Expenses 57,516 55,177
Income from Operations 14,375 19,841
Non-Operating (Income) Expenses, net:
Interest income (2,654) (1,415)
Interest expense 2,033 1,127
Other (12) 14
----------- -----------
(633) (274)
Income before Income Taxes 15,008 20,115
Income Taxes: Note 3
Current 4,638 6,457
Deferred 810 1,308
----------- -----------
5,448 7,765
Net Income $ 9,560 $12,350
----------- -----------
Net Income per Share $ 0.29 $0.36
Cash Dividends per Common Share $ 0.085 $0.08
Weighted Number of Common Shares
Outstanding 33,069,306 34,434,190
</TABLE>
See condensed notes to consolidated financial statements.
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<PAGE> 6
ATLANTIC SOUTHEAST AIRLINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
------------------------------------
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 9,560 $ 12,350
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 6,733 5,985
Amortization and provision for obsolescence 224 272
Provision for uncollectible accounts 30 30
Amortization of engine overhauls 1,833 1,421
Deferred income taxes 963 1,308
Other 237 376
Changes in Operating Assets and Liabilities:
Accounts receivable (2,096) (2,351)
Expendable parts (77) 290
Other assets (723) 106
Accounts payable (1,111) (412)
Other liabilities 718 (633)
Accrued compensation and related liabilities (621) (1,172)
Accrued interest payable 142 301
Income taxes payable 4,338 3,342
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,150 21,213
INVESTING ACTIVITIES
Purchase of Marketable Securities (58,529) (26,760)
Proceeds from Sale of Marketable Securities 41,484 48,960
Proceeds from Disposal of Property and Equipment 15 11
Purchases of Property and Equipment including
Advance Payments (4,878) (9,691)
Other (338) (29)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (22,246) 12,491
FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (7,940) (5,547)
Dividends Paid (2,811) (2,748)
Purchase of Treasury Stock (3,385) -
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (14,136) (8,295)
INCREASE IN CASH AND CASH EQUIVALENTS (16,232) 25,409
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 42,527 52,835
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,295 $ 78,244
-------- --------
</TABLE>
See condensed notes to consolidated financial statements.
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<PAGE> 7
ATLANTIC SOUTHEAST AIRLINES, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. In the opinion of management, the accompanying condensed (unaudited)
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of March 31, 1995 and results
of operations for the three-month periods ended March 31, 1995 and
1994 and cash flows for the three-month periods ended March 31, 1995
and 1994. The accounting adjustments contained in the financial
statements are of a normal recurring nature. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission for Form 10-Q. It is
suggested that these unaudited condensed consolidated financial
statements be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the 1994 Annual
Report on Form 10-K filed by the Company under the Securities Exchange
Act of 1934 on March 31, 1995.
2. Results of operations for the three-month periods ended March 31, 1995
and 1994 are not necessarily indicative of the results to be expected
for the year.
3. Earnings per share are based on the weighted average number of common
shares and common stock equivalents outstanding.
4. Marketable securities, which consist of investments with maturity
dates longer than three months, are reported at fair market value.
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<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Company increased cash, cash equivalents and investments in
marketable securities by $1.2 million during the first three months of 1995.
Cash generated from operating activities was $20.2 million. The Company
purchased $4.9 million of property and equipment, retired $7.9 million of debt,
paid $2.8 million in dividends and purchased $3.4 million of treasury stock.
Working capital was $139.7 million with a current ratio of 3.4:1 at March 31,
1995, which compares to working capital of $140.4 million and a current ratio
of 3.6:1 at December 31, 1994.
The Company has an unsecured line of credit totaling $8 million with
one of its banks. At March 31, 1995, $.7 million of this line was committed to
support a letter of credit. As of March 31, 1995, there were no outstanding
amounts against the line of credit.
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.
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
$1.5 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 March 31, 1995, 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.
The long-term debt to equity ratio was .57:1 at March 31, 1995
compared with .62:1 at December 31, 1994. Long-term debt was $143.9 million at
March 31, 1995 compared with $152.6 million at the end of 1994. This decrease
was the result of $7.9 million in scheduled debt payments and an increase of
$.8 million in current maturities.
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 March 31,
1995, the Company had repurchased 1,337,900 shares of its common stock at a
cost of approximately $23 million.
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<PAGE> 9
Shareholders' equity per share increased to $7.60 at March 31, 1995
from $7.45 at the end of 1994. Net worth increased $3.6 million primarily due
to earnings in the first quarter of 1995 of $9.6 million, net of $2.8 million
in dividends paid and $3.4 million of treasury stock purchases.
In the first quarter of 1995, the Company declared a quarterly cash
dividend of 8.5 cents per share compared to 8 cents per share for the similar
period of 1994.
The Company is having ongoing discussions with Delta Air Lines, Inc.
related to an increase in certain marketing related costs associated with the
Delta Connection program. These cost increases are expected to be implemented
during 1995. The Company is also discussing with Delta Air Lines, Inc. the
possibility of providing replacement or 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. On May
1, 1995, the Company replaced all of Deltas service between Dallas/Fort Worth
and Oklahoma City as well as Houstons Hobby Airport with an additional eight
round trips per day and discontinued service of one round trip per day to both
Raleigh/Durham and Savannah from its Atlanta hub.
On December 9, 1994, the FAA issued an Airworthiness Directive which
prohibited all ATR-42 and ATR-72 aircraft from being operated into icing
conditions. These restrictions resulted in significant flight cancellations
until the restrictions were modified by the FAA on January 11, 1995. On that
date, the restrictions were lifted except with respect to the most severe icing
conditions. On March 20, 1995, the FAA required the ATR aircraft to be
retro-fitted with larger de-icing boots. The Company plans to have the larger
de-icing boots installed by June 1, 1995. The cost of these larger de-icing
boots is being borne by the aircraft manufacturer. First quarter traffic was
below 1994 levels as a result of flight cancellations due to flight
restrictions, as discussed above, and the adverse publicity that the regional
airline industry received in the fourth quarter of 1994.
Results of Operations
The Company had lower first quarter revenue, net income and traffic
compared with the same period in the prior year. The primary reasons for this
decline are discussed in the paragraph above. In addition, quarterly results
were impacted by the loss of traffic in February and early March due to adverse
weather conditions. Net income for the three months ended March 31, 1995 was
$9.6 million or $.29 per share compared to $12.3 million or $.36 per share in
1994.
The number of passengers during the first quarter decreased five per
cent while the average trip length increased one per cent for a four percent
decline in
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<PAGE> 10
revenue passenger miles flown (RPMs). This decrease in RPMs as well as a one
percent decline in the average passenger mile yield to $.412 from $.416,
resulted in a five percent decline in passenger revenue to $70.2 million for
the quarter ended March 31, 1995.
Operating expenses increased four per cent to $57.5 million for the
quarter ended March 31, 1995. The Company increased capacity (available seat
miles "ASM's") by four per cent but only experienced a one per cent increase in
the cost per ASM flown to 14.2 cents in the first quarter of 1995 compared to
14.1 cents in the first quarter of 1994. This minimal unit cost increase is
attributable to the operating efficiency of the new ATR aircraft and its lower
operating cost per ASM.
The following table compares components of operating cost per ASM and
operating expense as a percentage of total operating expense for the three
month periods ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
Cost per ASM
Quarter Ended % Operating Cost
March 31, Quarter Ended
(in cents) March 31,
--------------------------------------
1995 1994 1995 1994
--------------------------------------
<S> <C> <C> <C> <C>
Labor and related 4.2c. 3.7c. 29% 27%
Fuel 1.3 1.5 9 10
Direct maintenance 2.3 2.3 16 16
Passenger related 1.4 1.7 10 12
Depreciation and aircraft rent 2.2 2.2 16 15
Other 2.8 2.7 20 20
-------------------------------------
Total operating expense 14.2c. 14.1c. 100% 100%
</TABLE>
Labor and related costs increased to $16.9 million for the first
quarter of 1995 compared with $14.7 million for the same period in 1994. The
average number of employees grew four per cent from 2,111 to 2,188 as of March
31, 1995. Employee benefit expense increased $.5 million due to higher medical
costs. Included in the first quarter of 1994 is a $1 million credit to expense
associated with the Company's stock appreciation rights ("SARs") plan. This
reversal of previously accrued expense resulted from a decrease in the
Company's stock price. The Company experienced an increase in the stock price
during the first quarter of 1995, but the impact to expense for stock
appreciation rights was minimal.
Fuel expense decreased to 1.3 cents per ASM for the first three months
of 1995 compared to 1.5 cents per ASM for the quarter ended March 31, 1994.
Fuel expense declined $.4 million spread over a four per cent increase in
ASM's. The average price per gallon decreased seven per cent to 57.8 cents
from 62.2 cents while total fuel consumption remained constant.
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<PAGE> 11
Passenger related expenses decreased $.8 million for the quarter ended
March 31, 1995 compared to the same quarter last year. This decrease was due
primarily to lower passenger revenue. These expenses, which include travel
agency commissions and reservation system fees, were eight per cent of
passenger revenue for the quarter ended March 31, 1995 compared with nine per
cent for the quarter ended March 31, 1994.
Depreciation and aircraft rent increased six per cent to $8.9 million
for the quarter ended March 31, 1995. This increase was due primarily to
depreciation expense associated with the four ATR aircraft which were acquired
in the second quarter of 1994.
The Company's break-even load factor remained constant at 33% for the
first quarter of 1995 compared with the same period in 1994.
Part II-Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report. The
exhibit number refers to Item 601 of Regulation S-K.
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. There were no reports on Form 8-K
filed for the quarter ended March 31, 1995.
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atlantic Southeast Airlines, Inc.
/s/ Ronald V. Sapp
-------------------------------
Ronald V. Sapp
V.P. Finance, Treasurer and
Chief Financial Officer
Date: May 12, 1995
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<PAGE> 1
EXHIBIT 11-STATEMENT RE: COMPUTATION OF
PER SHARE EARNINGS
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
---------------------------------------
1995 1994
<S> <C> <C>
Net Income $ 9,559,762 $ 12,350,331
Net Income per Share $0.29 $0.36
Weighted Number of Common Shares Outstanding 33,069,306 34,434,190
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ATLANTIC SOUTHEAST AIRLINES FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 26,295
<SECURITIES> 151,325
<RECEIVABLES> 9,082
<ALLOWANCES> (295)
<INVENTORY> 7,558
<CURRENT-ASSETS> 197,147
<PP&E> 484,801
<DEPRECIATION> 171,341
<TOTAL-ASSETS> 519,782
<CURRENT-LIABILITIES> 57,437
<BONDS> 143,879
<COMMON> 3,302<F1>
0
0
<OTHER-SE> 247,777<F2>
<TOTAL-LIABILITY-AND-EQUITY> 519,782
<SALES> 0
<TOTAL-REVENUES> 71,891
<CGS> 0
<TOTAL-COSTS> 57,516
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 2,033
<INCOME-PRETAX> 15,008
<INCOME-TAX> 5,448
<INCOME-CONTINUING> 9,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,560
<EPS-PRIMARY> $0.29
<EPS-DILUTED> $0.29
<FN>
<F1>(A) REDUCED BY APPROXIMATELY $133,790 ALLOCABLE TO 1,337,900 SHARES OF TREASURY
STOCK.
<F2>(B) REDUCED BY APPROXIMATELY $23,228,000 ALLOCABLE TO 1,337,900 SHARES OF
TREASURY STOCK.
</FN>
</TABLE>
