<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 June 30, 1996
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
-----------------------------------------------------------------
(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 August 1, 1996 there were 30,903,570 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. Condensed Consolidated Financial Statements
Balance Sheets- June 30, 1996 and December 31, 1995
Assets 3
Liabilities and Shareholders' Equity 4
Statements of Income- Three months and six months
ended June 30, 1996 and June 30, 1995 5
Statements of Cash Flows- Six months ended
June 30, 1996 and June 30, 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 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibits
11 Statement Re: Computation of Per Share Earnings 17
27 Financial Data Schedule (for SEC use only) 18
</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>
June 30, December 31,
1996 1995
----------- -----------
(unaudited) (audited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 42,821 $ 66,403
Marketable securities 165,739 121,697
Accounts receivable 9,070 11,715
Expendable parts 7,919 6,440
Other current assets 2,866 4,488
-------- --------
228,415 210,743
Property and Equipment
Flight equipment 454,395 474,188
Other property and equipment 15,125 8,735
Advance payments on property and equipment 270 88
-------- --------
469,790 483,011
Less accumulated depreciation and amortization 189,465 190,613
-------- --------
280,325 292,398
Other Assets
Excess of cost over fair value of
tangible assets acquired 2,812 2,865
Other assets 6,248 6,693
-------- --------
9,060 9,558
Total Assets $517,800 $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 Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
(unaudited) (audited)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 27,879 $ 32,390
Accounts payable 22,938 20,946
Air traffic liability 508 1,934
Accrued compensation and related expenses 10,225 6,698
Accrued interest payable 2,504 2,941
Other accrued expenses 2,896 4,157
Income taxes payable 6,606 -
-------- --------
73,556 69,066
Long-Term Debt 109,008 120,210
Other Non-Current Liabilities 1,653 1,369
Deferred Income Taxes 68,815 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 282,635 258,858
Unrealized holding (loss) gain on investments (159) 72
-------- --------
331,802 308,256
Less treasury stock at cost - 3,213,100 and
2,683,100 shares, respectively 67,034 55,401
-------- --------
264,768 252,855
Total Liabilities and Shareholders' Equity $517,800 $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 Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30, June 30,
----------------------------- ---------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Revenues:
Passenger $ 102,091 $ 85,892 $ 189,307 $ 156,102
Other 2,147 4,157 4,336 5,838
----------- ----------- ----------- -----------
Total Operating Revenues 104,238 90,049 193,643 161,940
Operating Expenses:
Flying operations 20,976 16,708 41,345 32,378
Maintenance 15,219 13,314 30,507 26,077
Passenger service 4,835 4,018 9,709 7,682
Aircraft and traffic servicing 11,524 9,409 22,514 18,818
Promotion, sales and advertising 11,212 9,407 20,417 15,496
General and administrative 4,745 6,877 9,417 9,751
Depreciation, amortization and obsolescence 6,750 6,956 13,518 13,913
Other 154 66 330 156
----------- ----------- ----------- -----------
Total Operating Expenses 75,415 66,755 147,757 124,271
Income from Operations 28,823 23,294 45,886 37,669
Non-Operating (Income) Expenses, net:
Interest income (2,612) (2,961) (5,269) (5,615)
Interest expense 1,486 2,021 3,053 4,054
Other (11) (24) (79) (36)
----------- ----------- ----------- -----------
(1,137) (964) (2,295) (1,597)
Income before Income Taxes 29,960 24,258 48,181 39,266
Income Taxes
Current 11,788 8,805 18,694 13,443
Deferred (258) 486 (240) 1,296
----------- ----------- ----------- -----------
11,530 9,291 18,454 14,739
Net Income $ 18,430 $ 14,967 $ 29,727 $ 24,527
=========== =========== =========== ===========
Net Income per Share $0.59 $0.45 $0.95 $0.74
Cash Dividends per Share $0.095 $0.085 $0.19 $0.17
Weighted Number of Shares Outstanding 31,325,281 33,112,996 31,407,522 33,097,556
</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 Six Months Ended
June 30,
--------------------------------
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 29,727 $ 24,527
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 13,043 13,465
Amortization and provision for obsolescence 475 448
Provision for uncollectible accounts (85) (40)
Amortization of engine overhauls 3,231 3,951
Deferred income taxes (384) 1,557
Other (278) 410
Changes in Operating Assets and Liabilities:
Accounts Receivable 2,730 (4,310)
Expendable parts (1,322) 377
Other assets 1,862 (152)
Accounts payable 1,992 (2,729)
Other liabilities (2,687) 912
Accrued compensation and related liabilities 3,811 4,291
Accrued interest payable (437) (1,259)
Income taxes payable 6,606 3,821
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 58,284 45,269
INVESTING ACTIVITIES
Purchase of Marketable Securities (176,356) (96,806)
Proceeds from Sale of Marketable Securities 131,939 78,579
Decrease in Restricted Cash 265 265
Proceeds from Disposal of Property and Equipment 4,845 17
Purchases of Property and Equipment including
Advance Payments (9,412) (8,693)
Other 149 75
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (48,570) (26,563)
FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (15,713) (16,552)
Dividends Paid (5,950) (5,618)
Acquisition of Treasury Stock (11,633) (3,385)
--------- --------
NET CASH USED IN FINANCING ACTIVITIES (33,296) (25,555)
DECREASE IN CASH AND CASH EQUIVALENTS (23,582) (6,849)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 66,403 42,527
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,821 $ 35,678
--------- --------
</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 June 30, 1996 and results
of operations for the six-month periods ended June 30, 1996 and 1995
and cash flows for the six-month periods ended June 30, 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 six-month periods ended June 30, 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 to $154.9 million at June 30, 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
of $13.2 million for the six months ended June 30, 1996 was primarily due to
$58.3 million in cash from operations offset by a $9.4 million investment in
property and equipment, $15.7 million of debt retirement, $6.0 million of
dividends paid and $11.6 million of common stock repurchases.
The Company has an unsecured line of credit totaling $8 million with
one of its banks. As of June 30, 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 June 30, 1996, there were no
outstanding amounts against the line of credit.
At June 30, 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.
Total assets were higher by $5.1 million to $517.8 million at June 30,
1996 primarily due to a $17.7 million increase in current assets offset by a
$12.1 million decrease in net property and equipment. An increase of $20.5
million in cash, cash equivalents and marketable securities offset by a $2.6
million decrease in accounts receivable contributed to the net upward movement
in current assets. Property and equipment had a net decrease due to the sale
of Dash-7 and Bandeirante aircraft and engines which had been previously
phased-out of operations.
The Company is in the process of repainting and refurbishing 37 of its
Brasilia aircraft at a cost of approximately $2 million which will be expensed
as incurred and funded from internal cash. This refurbishment began in March
1996 and should be completed during the first half of 1997.
The long-term debt to equity ratio was .41:1 at June 30, 1996 compared
with .48:1 at December 31, 1995. Long-term debt decreased to $109.0 million
from $120.2 million at the end of 1995. The current portion of long-term debt
decreased by $4.5 million from December 31, 1995. Total debt declined by $15.7
million due to $14.0 million of scheduled debt payments and $1.7 million of
accelerated debt retirement due to the loss of an aircraft. The debt related to
this aircraft loss was paid with insurance proceeds.
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<PAGE> 9
Shareholders' equity per share increased to $8.49 at June 30, 1996
from $7.98 at the end of 1995. Net worth increased $11.9 million due to net
income of $29.7 million in the first six months of 1996 offset primarily by
dividends paid of $6.0 million and common stock repurchases of $11.6 million.
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 and received special consent from its
lenders to consummate the purchases. The Company repurchased, at December 31,
1995, approximately $49.3 million of its common stock in conjunction with this
authorization. Another $6.1 million of common stock was purchased through
December 31, 1995 under existing provisions of 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 1996 and received special
consent from its lenders to consummate the purchases. As of June 30, 1996, the
Company had repurchased approximately $1.8 million of its common stock in
conjunction with the existing limitations under the loan agreements and
approximately $9.8 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 June 30,
1996, the Company has repurchased 3,213,100 shares of its common stock at a
cost of approximately $67.0 million.
For the second quarter of 1996, the Board of Directors declared a
quarterly cash dividend of 9.5 cents per share compared with 8.5 cents per
share for the similar period of 1995.
In May, 1996, the Board of Directors approved the Company's plans to
proceed with the actions necessary to establish a holding company structure. A
holding company structure is common in the airline industry today and provides
a more flexible corporate organization than the Company's current corporate
structure. The establishment of a holding company structure is subject to the
approval of certain creditors and the Company's shareholders.
Current maturities of long-term debt, future aircraft lease payments,
compliance with FAA directives and other capital expenditures for 1996 will be
funded from the Company's cash reserves and internally generated funds.
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
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<PAGE> 10
currently available to the Company. In addition, the Company maintains
insurance coverage which it believes, based on information currently available
to the Company, 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.
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 1996 had no financial impact on the Company.
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 their fair
market 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 annual financial statements.
Results of Operations
For the three months ended June 30, 1996 and 1995
The Company reported record traffic, revenues and net income for the
second quarter of 1996.
Total revenues increased 16% to $104.2 million compared with $90.0
million for the second quarter of 1995. Passenger revenue was up 19% to $102.1
million primarily due to an 18% increase in revenue passenger miles ("RPMs")
flown while the average passenger yield remained relatively constant. The
number of passengers increased 22% while the average trip length went down 3%.
Higher passenger traffic for the second quarter of 1996 was largely
attributable to new service provided by the BAe-146 jet aircraft.
Net income of $18.4 million for the second quarter of 1996 was up 23%
compared with $15.0 million for the similar period of 1995, while net income
per share increased 31% to $.59 per share compared with $.45. Net income for
the second quarters of 1996 and 1995 included after-tax accruals of $.9
million
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<PAGE> 11
or $.03 per share and $2.6 million or $.08 per share, respectively, associated
with the Company's Stock Appreciation Rights Plan ("SARs"). These accruals are
due to increases in the Company's stock price during the quarters. In addition,
second quarter of 1995 revenues included a one-time, after-tax settlement of
$1.2 million, or $.04 per share, with an equipment supplier. Excluding these
items, second quarter 1996 net income would have been $19.3 million, or $.62
per share while 1995 net income would have been $16.4 million or $.49 per
share.
Operating expenses increased 13% to $75.4 million for the quarter
ended June 30, 1996. The Company increased capacity (available seat miles
"ASM's") by 6%, and experienced a 6% increase in the cost per ASM flown to 16.6
cents in the second quarter of 1996 compared with 15.6 cents in the second
quarter of 1995. Excluding pre-tax SARs expense of $1.5 million and $4.2
million for the second quarters of 1996 and 1995, operating cost per ASM would
have been approximately 16.3 cents and 14.6 cents, respectively.
The following table compares components of operating cost per ASM and
operating expense as a percentage of total operating expense for the three
month periods ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Cost per ASM % Operating Cost
Quarter Ended Quarter Ended
June 30, June 30,
------------------------------------------------------
1996 1995 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C>
Labor and related 4.4c. 5.0c. 26% 32%
Fuel 1.8 1.4 11 9
Direct maintenance 2.5 2.3 15 15
Passenger related 2.3 2.1 14 13
Depreciation and aircraft rent 2.3 2.1 14 13
Other 3.3 2.7 20 18
-----------------------------------------------------
Total operating expense 16.6c. 15.6c. 100% 100%
</TABLE>
Labor and related costs decreased to $19.9 million for the second
quarter of 1996 compared with $21.4 million for the same period in 1995. The
average number of employees grew 9% from 2,205 to 2,394 as of June 30, 1996.
Included in the second quarter of 1996 is a $1.5 million charge to expense
associated with the Company's SARs due to a 10% increase in the Company's stock
price, while the second quarter of 1995 includes a $4.3 million charge to
expense for SARs due to a 63% increase in the Company's stock price. Labor and
related costs per ASM without the SARs adjustments would have been 4 cents for
both quarters.
Fuel expense increased to 1.8 cents per ASM for the second quarter of
1996 compared with 1.4 cents per ASM for the quarter ended June 30, 1996. Fuel
expense increased $2.2 million spread over a 6% increase in ASMs. The average
price per gallon, including taxes and into plane fees, increased 21% to 73.7
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<PAGE> 12
cents from 61.0 cents primarily due to higher raw fuel prices and the
additional transportation fuel tax of 4.3 cents per gallon which began October
1, 1995.
Direct maintenance cost, excluding labor and related expenses,
increased 17% to $11.5 million for the quarter ended June 30, 1996. This
increase was due primarily to a 6% increase in capacity and the timing for
scheduled maintenance inspections and overhauls of time controlled components.
Passenger related expenses increased $1.5 million for the quarter
ended June 30, 1996 compared with the same quarter last year. This increase was
primarily attributable to 22% higher passenger counts in 1996 versus 1995.
These expenses, which include travel agency commissions and reservation fees,
were 10% of passenger revenue for both 1996 and 1995.
Depreciation and aircraft rent increased 19% to $10.7 million for the
quarter ended June 30, 1996. This increase was due primarily to aircraft rent
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 $3.1 million for the quarter ended June 30,
1996 compared with the same quarter last year. The increase was due primarily
to higher airport rent expense, security fees, pilot simulator training cost,
and interrupted trip, denied boarding and baggage claim expenses.
Interest income decreased by 12% to $2.6 million for the first quarter
of 1996 primarily due to lower interest rates. Interest expense decreased by
26% to $1.5 million for the quarter ended June 30, 1996 compared with the same
quarter last year. This decrease was due to lower floating interest rates and
less debt outstanding.
The break-even load factor increased to 37.4% for the three months
ended June 30, 1996 compared with 34.4% for the same period last year. This
increase was primarily the result of higher operating expenses and the
adjustments for SARs as discussed above, offset by higher revenue and lower
interest expense.
For the six months ended June 30, 1996 and 1995
Total revenues for the six months ended June 30, 1996 increased 20% to
$193.6 million compared with $161.9 million for the same period of 1995.
Passenger revenue increased 21% to $189.3 million in the first six months of
1996 primarily due to an 18% increase in RPMs flown and a 2% increase in
average yield per passenger mile to 43.0 cents from 42.0 cents. The number of
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<PAGE> 13
passengers carried was up 22% while the average passenger trip length
decreased 3%. Higher passenger traffic in 1996 was largely attributable to new
service provided by the BAe-146 jet aircraft. The first quarter of 1995
results were impacted by flight cancellations due to FAA flight restrictions,
the adverse publicity that the regional airline industry received in the fourth
quarter of 1994, and adverse weather conditions in February as well as early
March.
The Company's net income for the first six months of 1996 increased
21% to $29.7 million or $.95 per share compared with $24.5 million or $.74 per
share for the same period in 1995. Net income for 1996 and 1995 included
after-tax accruals of $2.2 million or $.07 per share and $2.7 million or $.08
per share, respectively, associated with the Company's SARs. These accruals are
due to increases in the Company's stock price during the first six months of
each year.
Operating expenses increased 19% during the six month period ended
June 30, 1996. The Company increased capacity ("ASM's") by 6% and experienced a
12% increase in the cost per ASM to 16.7 cents from 14.9 cents. The six months
ending June 30, 1996 included a $3.6 million charge to expense associated with
SARs due to a 31% increase in the Company's stock price. The first six months
of 1995 had a $4.4 million charge for SARs due to a 94% increase in the stock
price. Excluding the effect of SARs for both periods, operating costs per ASM
flown would have been 16.3 cents for 1996 compared with 14.4 cents for 1995.
The following table compares components of operating cost per ASM and
operating expense as a percentage of total operating expense for the six month
periods ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Cost per ASM % Operating Cost
Year to Date Year to Date
June 30, June 30,
------------------------------------------------------
1996 1995 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C>
Labor and related 4.6c. 4.6c. 27% 31%
Fuel 1.8 1.4 11 9
Direct maintenance 2.6 2.3 15 15
Passenger related 2.1 1.7 13 12
Depreciation and aircraft rent 2.4 2.1 15 14
Other 3.2 2.8 19 19
-----------------------------------------------------
Total operating expense 16.7c. 14.9c. 100% 100%
</TABLE>
Labor and related costs increased 5% to $40.3 million for the six
months ended June 30, 1996 from $38.3 million for the six months ended June 30,
1995. The average number of employees grew 7% from 2,211 to 2,371 as of June
30, 1996. As previously mentioned, the first six months of 1996 included a
$3.6 million charge for SARs expense while the same period of 1995 included a
$4.4 million charge to expense. Excluding these adjustments, the cost per ASM
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<PAGE> 14
would have been 4.1 cents in 1996 and 1995. Labor and related expenses as a
per cent of total operating costs would have been 25% and 28% for 1996 and
1995, respectively.
Fuel expense increased to 1.8 cents per ASM for the first six months
of 1996 compared with 1.4 cents per ASM for the quarter ended June 30, 1995.
Fuel expense increased $4.3 million spread over a 6% increase in ASMs. The
average price per gallon, including taxes and into plane fees, increased 22% to
72.7 cents from 59.5 cents primarily due to the surge in fuel prices in the
United States during 1996 and the additional 4.3 cent per gallon transportation
fuel tax imposed by the U.S. government beginning October 1, 1995.
Direct maintenance cost, excluding labor and related expenses,
increased 21% to $22.9 million for the six months ended June 30, 1996. This
increase was due primarily to a 6% increase in capacity and the timing for
scheduled maintenance inspections and overhauls of time controlled components.
Passenger related expenses increased $4.3 million for the six months
ended June 30, 1996 compared with the same period of 1995. This increase was
primarily attributable to 22% higher passenger counts in 1996 versus 1995.
These expenses, which include travel agency commissions and reservation fees,
were 10% of passenger revenue for the first six months of 1996 compared with 9%
for the same six months in 1995. Delta Air Lines, Inc. began charging higher
fees for reservation service/systems and credit card expense beginning in April
1995.
Depreciation and aircraft rent increased 20% to $21.4 million for the
six months ended June 30, 1996. This increase was due primarily to aircraft
rent 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 $5.4 million for the six months ended June
30, 1996 compared with the same months in 1995. The increase was due primarily
to higher passenger liability insurance premiums, pilot simulator training
cost, airport rent expense, security fees, and interrupted trip, denied
boarding and baggage claim expenses.
Interest income decreased by 6% to $5.3 million due to lower interest
rates. Interest expense decreased by 25% to $3.1 million for the six months
ending June 30, 1996 compared with the same period of 1995. This decrease was
due to lower floating interest rates and less debt outstanding.
-14-
<PAGE> 15
Part II- Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Atlantic Southeast
Airlines, Inc. was held on Wednesday, May 22, 1996.
The only matter submitted to a vote of the shareholders at
this meeting was the election of directors. John W. Beiser;
Julius P. Gwin; Jean A. Mori; Parker H. Petit; George F.
Pickett; Alan M. Voorhees; and Ralph W. Voorhees were elected
at the Annual Meeting by the holders of Common Stock by the
following vote: (a) Mr. Beiser: 26,435,946 votes for and
55,775 votes withheld, (b) Mr. Gwin: 26,426,168 votes for and
65,553 votes withheld, (c) Mr. Mori: 26,437,119 votes for and
54,602 votes withheld, (d) Mr. Petit: 26,427,481 votes for and
64,240 votes withheld, (e) Mr. Pickett: 26,436,836 votes for
and 54,885 votes withheld, (f) Mr. Alan Voorhees: 26,425,278
votes for and 66,443 votes withheld, and (g) Mr. Ralph
Voorhees: 26,430,984 votes for and 60,737 votes withheld.
There are no abstentions or broker non-votes for purposes of
any such votes.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report. The
exhibit number refers to Item 601 of Regulation S-K.
11 Statement Re: Computation of Per Share Earnings
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 June 30, 1996.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atlantic Southeast Airlines, Inc.
/s/ Ronald V. Sapp
---------------------------------
Ronald V. Sapp
V.P. Finance, Treasurer and
Chief Financial Officer
Date: August 13, 1996
-16-
<PAGE> 1
EXHIBIT 11- STATEMENT RE: COMPUTATION OF
PER SHARE EARNINGS
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Income $18,430,242 $14,966,949 $29,727,377 $24,526,711
Net Income per Share $ 0.59 $ 0.45 $ 0.95 $ 0.74
Weighted Number of Shares Outstanding 31,325,281 33,112,996 31,407,522 33,097,556
</TABLE>
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 42,821
<SECURITIES> 165,739
<RECEIVABLES> 9,264
<ALLOWANCES> (194)
<INVENTORY> 7,919
<CURRENT-ASSETS> 228,415
<PP&E> 469,790
<DEPRECIATION> 189,465
<TOTAL-ASSETS> 517,800
<CURRENT-LIABILITIES> 73,556
<BONDS> 109,008
0
0
<COMMON> 3,118<F1>
<OTHER-SE> 261,650<F2>
<TOTAL-LIABILITY-AND-EQUITY> 517,800
<SALES> 0
<TOTAL-REVENUES> 193,643
<CGS> 0
<TOTAL-COSTS> 147,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (85)
<INTEREST-EXPENSE> 3,053
<INCOME-PRETAX> 48,181
<INCOME-TAX> 18,454
<INCOME-CONTINUING> 29,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,727
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
<FN>
<F1> REDUCED BY APPROXIMATELY $321,310 ALLOCABLE TO 3,213,100 SHARES OF TREASURY
STOCK.
<F2> REDUCED BY APPROXIMATELY $66,713,000 ALLOCABLE TO 3,213,100 SHARES OF
TREASURY STOCK.
-18-
</FN>
</TABLE>
