<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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ----------
Commission File Number 0-11097
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
--------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (404) 766-1400
--------------
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 1, 1996 there were 31,283,570 shares of common stock outstanding.
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<PAGE> 2
ATLANTIC SOUTHEAST AIRLINES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
Part I-Financial Information
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Balance Sheets- March 31, 1996 and December 31, 1995
Assets 3
Liabilities and Shareholders' Equity 4
Statements of Income- Three months ended
March 31, 1996 and March 31, 1995 5
Statements of Cash Flows- Three months ended
March 31, 1996 and March 31, 1995 6
Notes to Condensed 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 12
Signatures 13
Exhibits
11 Statement Re: Computation of Per Share Earnings 14
27 Financial Data Schedule (for SEC use only) 15
</TABLE>
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<PAGE> 3
Part I- Financial Information
Item 1. Condensed Consolidated Financial Statements
ATLANTIC SOUTHEAST AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- -------------
(unaudited) (audited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $105,607 $ 66,403
Marketable securities 84,865 121,697
Accounts receivable 9,935 11,715
Expendable parts 6,900 6,440
Other current assets 4,128 4,488
-------- --------
211,435 210,743
Property and Equipment
Flight equipment 472,265 474,188
Other property and equipment 9,050 8,735
Advance payments on property and equipment 165 88
-------- --------
481,480 483,011
Less accumulated depreciation and amortization 195,606 190,613
-------- --------
285,874 292,398
Other Assets
Excess of cost over fair value of
tangible assets acquired 2,839 2,865
Other assets 6,583 6,693
-------- --------
9,422 9,558
Total Assets $506,731 $512,699
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 4
ATLANTIC SOUTHEAST AIRLINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- ---------------
(unaudited) (audited)
Liabilities and Shareholders' Equity
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $ 28,003 $ 32,390
Accounts payable 19,535 20,946
Air traffic liability 582 1,934
Accrued compensation and related expenses 8,885 6,698
Accrued interest payable 2,394 2,941
Other accrued expenses 3,563 4,157
Income taxes payable 6,199 0
-------- --------
69,161 69,066
Long-Term Debt 114,381 120,210
Other Non-Current Liabilities 1,474 1,369
Deferred Income Taxes 69,109 69,199
Shareholders' Equity
Common stock, $.10 par value; authorized
50,000,000 shares; issued 34,386,670 shares 3,439 3,439
Capital in excess of par value 45,887 45,887
Retained earnings 267,169 258,858
Unrealized holding (loss) gain on investments (105) 72
-------- --------
316,390 308,256
Less treasury stock at cost - 3,078,100 and
2,683,100 shares respectively 63,784 55,401
-------- --------
252,606 252,855
Total Liabilities and Shareholders' Equity $506,731 $512,699
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
ATLANTIC SOUTHEAST AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
------------------------------------------
1996 1995
<S> <C> <C>
Operating Revenues:
Passenger $ 87,216 $ 70,210
Other 2,189 1,681
---------- ----------
Total Operating Revenues 89,405 71,891
Operating Expenses:
Flying operations 20,369 15,670
Maintenance 15,288 12,763
Passenger service 4,874 3,664
Aircraft and traffic servicing 10,990 9,409
Promotion, sales and advertising 9,205 6,089
General and administrative 4,672 2,874
Depreciation, amortization and obsolescence 6,768 6,957
Other 176 90
---------- ----------
Total Operating Expenses 72,342 57,516
Income from Operations 17,063 14,375
Non-Operating (Income) Expenses, net:
Interest income (2,657) (2,654)
Interest expense 1,567 2,033
Other (68) (12)
---------- ----------
(1,158) (633)
Income before Income Taxes 18,221 15,008
Income Taxes
Current 6,906 4,638
Deferred 18 810
---------- ----------
6,924 5,448
Net Income $ 11,297 $ 9,560
========== ==========
Net Income per Share $ 0.36 $ 0.29
Cash Dividends per Share $ 0.095 $ 0.085
Weighted Number of Shares Outstanding 31,489,761 33,069,306
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
ATLANTIC SOUTHEAST AIRLINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
---------------------------------------
1996 1995
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 11,297 $ 9,560
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 6,538 6,733
Amortization and provision for obsolescence 230 224
Provision for uncollectible accounts (60) 30
Amortization of engine overhauls 1,584 1,833
Deferred income taxes (90) 963
Other (1,105) 237
Changes in Operating Assets and Liabilities:
Accounts receivable 1,840 (2,096)
Expendable parts (167) (77)
Other assets 643 (723)
Accounts payable (1,411) (1,111)
Other liabilities (1,946) 718
Accrued compensation and related liabilities 2,292 (621)
Accrued interest payable (547) 142
Income taxes payable 6,199 4,338
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 25,297 20,150
INVESTING ACTIVITIES
Purchase of Marketable Securities (72,652) (58,529)
Proceeds from Sale of Marketable Securities 109,198 41,484
Proceeds from Disposal of Property and Equipment 1,138 15
Purchases of Property and Equipment including
Advance Payments (2,221) (4,878)
Other 29 (338)
-------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 35,492 (22,246)
FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (10,216) (7,940)
Dividends Paid (2,986) (2,811)
Acquisition of Treasury Stock (8,383) (3,385)
-------- -------
NET CASH USED IN FINANCING ACTIVITIES (21,585) (14,136)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 39,204 (16,232)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 66,403 42,527
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $105,607 $26,295
-------- -------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 7
ATLANTIC SOUTHEAST AIRLINES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of March 31, 1996 and results of
operations for the three-month periods ended March 31, 1996 and 1995 and
cash flows for the three-month periods ended March 31, 1996 and 1995. 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 (SEC) 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 1995 Annual Report on Form 10-K filed by the Company with
the SEC under the Securities Exchange Act of 1934 on April 1, 1996.
2. Results of operations for the three-month periods ended March 31,
1996 and 1995 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
and common equivalent shares 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
This Item 2 should be read in conjunction with the unaudited condensed
consolidated financial statements included in Item 1 hereto.
Liquidity and Capital Resources
Working capital increased slightly to $142.3 million at March 31, 1996
compared with working capital of $141.7 million at December 31, 1995, while the
current ratio of 3.1:1 remained constant at both dates. The change in working
capital was primarily due to $25.3 million in cash from operations offset by a
$2.2 million investment in property and equipment, $10.2 million of debt
retirement, $3.0 million of dividends paid and $8.4 million of common stock
repurchases.
The Company has an unsecured line of credit totaling $8 million with one
of its banks. At March 31, 1996, $.7 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. As of March 31, 1996, there were no
outstanding amounts against the line of credit.
At March 31, 1996, the Company operated a fleet of 63 owned aircraft and
17 leased aircraft; and provided service to 36 markets from the Atlanta hub and
to 23 markets from the Dallas/Fort Worth hub. Four of these markets are served
by the Company from both hubs.
The long-term debt to equity ratio was .45:1 at March 31, 1996 compared
with .48:1 at December 31, 1995. Long-term debt decreased to $114.4 million
from $120.2 million at the end of 1995. The current portion of long-term debt
decreased by $4.4 million from December 31, 1995. Total debt declined by $10.2
million due to $8.5 million of scheduled debt payments and $1.7 million of
accelerated debt retirement related to the loss of an aircraft. The debt
related to this aircraft loss was paid with insurance proceeds.
Shareholders' equity per share increased to $8.07 at March 31, 1996 from
$7.98 at December 31, 1995. Net worth remained constant primarily due to
earnings in the first quarter of 1996 of $11.3 million offset by $3.0 million
of dividends paid and $8.4 million of common stock repurchases. The net number
of shares of common stock outstanding decreased by .4 million from the end of
1995 due to the repurchase of common stock, which is held as treasury stock.
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 Company repurchased, at December 31, 1995,
approximately $49.3 million of its common stock in conjunction with this
authorization. The remaining $6.1 million of common stock purchased through
December 31, 1995 was authorized under the Company's loan agreements that limit
the amount of stock repurchased and payment of dividends in the aggregate
generally to 30% of average annual earnings. In November 1995, the Board of
Directors authorized the Company to repurchase up to an additional $50 million
of its common stock on the open market during
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<PAGE> 9
1996. As of March 31, 1996, the Company had repurchased approximately $.9
million of its common stock in conjunction with the limitations under the loan
agreements and approximately $7.5 million under the additional $50 million
authorization. The stock repurchased will be held as treasury stock and used
for compensation programs or other general corporate purposes. From mid-1994
through March 31, 1996, the Company has repurchased a total of 3,078,100 shares
of its common stock at a cost of approximately $63.8 million.
In the first quarter of 1996, the Company declared a quarterly cash
dividend of 9.5 cents per share compared with 8.5 cents per share for the
similar period of 1995.
On August 21, 1995, the Company suffered a tragic loss when one of its
flights crashed. A number of claims and lawsuits have been filed in connection
with this matter. The cause of the accident is still under investigation by
the National Transportation Safety Board. However, management believes and
preliminary findings indicate that the accident may have been caused by a
fatigue failure in one of the propellers. The propeller manufacturer (through
its insurer) has agreed to address all claims arising from this accident
without acknowledging fault. Management does not believe that the Company has
any liability in this matter, based on information currently available to it.
In addition, the Company maintains insurance coverage which it believes, based
on information currently available to it, is sufficient to cover claims
associated with this incident if the Company were found to be at fault.
The Company's pilot and flight attendant work force are represented by
unions. In 1995, collective bargaining agreements with both of these unions
became amendable and are currently being renegotiated. The Railway Labor Act,
which governs labor relations for these unions, contains detailed procedures
that must be exhausted before work stoppages can occur once a collective
bargaining agreement becomes amendable. Negotiations with both unions are
proceeding under mediation by the National Mediation Board.
The Company is in the process of repainting and refurbishing 37 of its
Brasilia aircraft at a cost of approximately $2 million which will expensed as
incurred and funded from internal cash. This refurbishment began in March and
should be completed by November 1996.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses long-lived
assets that are expected to be disposed of in the future. The adoption of
Statement 121 in the first quarter of 1996 created no financial impact.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation", which encourages companies
to recognize expense for stock-based awards based on
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<PAGE> 10
their fair value on the date of grant. The Company has elected to continue to
use APB No. 25, "Accounting for Stock Issued to Employees" for expense
recognition purposes, but will be required by Statement 123 to show pro forma
disclosures in the Company's 1996 financial statements.
Results of Operations
For the three months ended March 31, 1996
The Company reported net income for the first quarter of $11.3 million or
$.36 per share. In comparison, net income for the similar period of 1995 was
$9.6 million or $.29 per share. The Company's first quarter total revenues
increased 24% to $89.4 million compared with $71.9 million for the similar
period of 1995. Passenger revenue increased 24% to $87.2 million primarily due
to a 5% increase in the average passenger yield to 43.3 cents per revenue
passenger mile and an 18% increase in revenue passenger miles ("RPMs") flown.
The number of passengers were up 23% while the average trip length decreased
4%. Higher passenger traffic for the first quarter of 1996 was largely
attributable to new service provided by the BAe-146 jet aircraft. Traffic for
the first quarter of 1995 was negatively impacted by the Federal Aviation
Administration's flight restrictions on the operation of the ATR-72 aircraft
into icing conditions which resulted in flight cancellations. In addition,
first quarter 1995 traffic was negatively impacted by the adverse publicity
that the regional airline industry received primarily due to two accidents in
the fourth quarter of 1994 involving another regional carrier.
Operating expenses increased 26% to $72.3 million for the quarter ended
March 31, 1996. The Company increased capacity (available seat miles "ASMs")
by 6% and experienced an 18% increase in the cost per ASM flown to 16.8 cents
in the first quarter of 1996 compared with 14.2 cents in the first quarter of
1995. The Company generated approximately 95% of the ASMs that were
anticipated primarily due to higher than expected weather related flight
disruptions. The first quarter of 1996 included a $2.1 million charge to
expense associated with the Company's stock appreciation rights ("SARs") plan
due to a 19% increase in the Company's stock price. Excluding the effect of
lower than projected ASMs and SARs expense, operating cost per ASM would have
been approximately 15.4 cents rather than 16.8 cents. In addition, the first
quarter of 1996 included some final "start-up" expenses associated with adding
the BAe-146 jet aircraft to the fleet.
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<PAGE> 11
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, 1996 and 1995:
<TABLE>
<CAPTION>
Cost per ASM % Operating Cost
Quarter Ended Quarter Ended
March 31, March 31,
---------------------------------
1996 1995 1996 1995
---------------------------------
<S> <C> <C> <C>
Labor and related 4.7c. 4.2c. 28% 29%
Fuel 1.7 1.3 10 9
Direct maintenance 2.7 2.3 16 16
Passenger related 2.0 1.4 12 10
Depreciation and aircraft rent 2.5 2.2 15 16
Other 3.2 2.8 19 20
---- ---- --- ---
Total operating expense 16.8c. 14.2c. 100% 100%
</TABLE>
Labor and related costs increased to $20.4 million for the first quarter
of 1996 compared with $16.9 million for the same period in 1995. The average
number of employees grew 8% from 2,185 to 2,359 as of March 31, 1996. As
mentioned above, the first quarter of 1996 included a $2.1 million charge to
expense associated with the Company's SARs plan while the first quarter of 1995
had a minimal adjustment. Labor and related costs without the SARs adjustment
would have been 4.2 cents per ASM, the same as the prior year.
Fuel expense increased to 1.7 cents per ASM for the first three months of
1996 compared with 1.3 cents per ASM for the quarter ended March 31, 1995.
Fuel expense increased $2.1 million spread over a 6% increase in ASMs. The
average price per gallon, including taxes and into plane fees, increased 24% to
71.6 cents from 57.8 cents primarily due to the recent surge in fuel prices in
the United States. Total fuel consumption increased by 1.1 million gallons or
12%.
Direct maintenance expense, excluding labor and related costs, increased
23% to $11.4 million for the quarter ended March 31, 1996. The increase was
primarily due to the frequency of scheduled maintenance inspections and
overhauls of time controlled components.
Passenger related expenses increased $2.8 million for the quarter ended
March 31, 1996 compared with the same quarter last year. This increase was
primarily attributable to 23% higher passenger counts in 1996 versus 1995.
These expenses, which include travel agency commissions and reservation fees,
were 10% of passenger revenue for the quarter ended March 31, 1996 compared
with 8% for the quarter ended March 31, 1995. Delta Air Lines, Inc. began
charging higher fees for reservation service/systems and credit card expense in
April 1995, and therefore the first quarter of 1995 was not impacted by these
increased costs.
Depreciation and aircraft rent increased 20% to $10.7 million for the
quarter ended March 31, 1996. This increase was due primarily to aircraft rent
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<PAGE> 12
associated with the four Brasilia aircraft and four BAe 146 aircraft leased
during the second half of 1995 as well as the fifth BAe 146 aircraft leased in
January 1996.
Other expenses increased $2.6 million for the quarter ended March 31, 1996
compared with the same quarter last year. The increase was due primarily to
higher hull and liability insurance; interrupted trip, denied boarding, and
baggage claim expenses; and pilot technical training fees.
The Company's break-even load factor increased to 37.1% for the first
quarter of 1996 compared with 33.2% for the same period in 1995. This increase
was primarily the result of higher operating expenses, lower ASMs than
anticipated, and the expense for SARs as discussed above offset by higher
revenue and lower interest expense.
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, 1996.
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<PAGE> 13
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 14, 1996
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<PAGE> 1
EXHIBIT 11-STATEMENT RE: COMPUTATION OF
PER SHARE EARNINGS
<TABLE>
<CAPTION>
For The Three Months Ended
March 31,
------------------------------------------------
1996 1995
<S> <C> <C>
Net Income $11,297,135 $ 9,559,762
Net Income per Share $ 0.36 $ 0.29
Weighted Number of Shares Outstanding 31,489,761 33,069,306
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 105,607
<SECURITIES> 84,865
<RECEIVABLES> 10,139
<ALLOWANCES> (204)
<INVENTORY> 6,900
<CURRENT-ASSETS> 211,435
<PP&E> 481,480
<DEPRECIATION> 195,606
<TOTAL-ASSETS> 506,731
<CURRENT-LIABILITIES> 69,161
<BONDS> 114,381
0
0
<COMMON> 3,131<F1>
<OTHER-SE> 249,475<F2>
<TOTAL-LIABILITY-AND-EQUITY> 506,731
<SALES> 0
<TOTAL-REVENUES> 89,405
<CGS> 0
<TOTAL-COSTS> 72,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (60)
<INTEREST-EXPENSE> 1,567
<INCOME-PRETAX> 18,221
<INCOME-TAX> 6,924
<INCOME-CONTINUING> 11,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,297
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<FN>
<F1>REDUCED BY APPROXIMATELY $307,810 ALLOCABLE TO 3,078,100 SHARES OF TREASURY
STOCK.
<F2>REDUCED BY APPROXIMATELY $63,476,000 ALLOCABLE TO 3,078,100 SHARES OF TREASURY
STOCK.
</FN>
</TABLE>
