United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended March 31, 2000
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 000-21642
AMTRAN,INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1617970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46231
(Address of principal executive offices) (Zip Code)
(317)247-4000
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 periods 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 ______
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes ______ No ______
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, Without Par Value - 12,093,121 shares outstanding as of April 28,
2000
<PAGE>
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2000 1999
--------------- --------------
ASSETS (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents ............................. $ 125,205 $ 120,164
Receivables, net of allowance for doubtful accounts
(2000 - $1,401; 1999 - $1,511) ................... 49,891 52,099
Inventories, net ..................................... 36,805 36,686
Prepaid expenses and other current assets ............. 26,799 22,945
--------------- --------------
Total current assets ....................................... 238,700 231,894
Property and equipment:
Flight equipment ...................................... 810,389 781,171
Facilities and ground equipment ....................... 95,744 92,060
--------------- --------------
906,133 873,231
Accumulated depreciation .............................. (381,231) (361,399)
--------------- --------------
524,902 511,832
Goodwill ................................................... 22,678 23,453
Deposits and other assets .................................. 55,695 48,102
--------------- --------------
Total assets ............................................... $ 841,975 $ 815,281
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt .................. $ 3,791 $ 2,079
Accounts payable ...................................... 22,045 20,234
Air traffic liabilities ............................... 110,340 93,507
Accrued expenses ...................................... 127,997 126,180
--------------- --------------
Total current liabilities .................................. 264,173 242,000
Long-term debt, less current maturities .................... 355,163 345,792
Deferred income taxes ...................................... 58,235 58,493
Other deferred items ....................................... 18,523 17,620
Commitments and contingencies
Shareholders' equity:
Preferred stock; authorized 10,000,000 shares; none issued - -
Common stock, without par value; authorized 30,000,000
shares; issued 12,924,140 - 2000; 12,884,306 - 1999 .... 56,464 55,826
Additional paid-in-capital ............................... 12,614 12,910
Deferred compensation - ESOP ............................. (533) (533)
Treasury stock; 834,552 shares - 2000; 612,052 shares -
1999 ................................................... (14,383) (10,500)
Retained earnings ........................................ 91,719 93,673
--------------- --------------
145,881 151,376
--------------- --------------
Total liabilities and shareholders' equity ................ $ 841,975 $ 815,281
=============== ==============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended March 31,
2000 1999
---------------- -----------------
(Unaudited) (Unaudited)
Operating revenues:
<S> <C> <C>
Scheduled service ................................... $ 168,486 $ 144,269
Charter ............................................. 119,620 107,340
Ground package ...................................... 22,086 15,558
Other ............................................... 11,174 10,742
---------------- -----------------
Total operating revenues ............................... 321,366 277,909
---------------- -----------------
Operating expenses:
Salaries, wages and benefits ........................ 68,702 60,799
Fuel and oil ........................................ 63,436 35,578
Depreciation and amortization ....................... 31,572 21,658
Handling, landing and navigation fees ............... 25,385 22,399
Aircraft maintenance, materials and repairs ......... 19,679 13,741
Ground package cost ................................. 18,895 13,222
Aircraft rentals .................................... 16,086 15,244
Crew and other employee travel ...................... 15,091 12,131
Passenger service ................................... 11,170 9,572
Commissions ......................................... 11,155 9,670
Other selling expenses .............................. 8,290 6,195
Advertising ......................................... 6,565 5,607
Facilities and other rentals ........................ 3,699 3,155
Other ............................................... 19,077 19,979
---------------- -----------------
Total operating expenses ............................... 318,802 248,950
---------------- -----------------
Operating income ....................................... 2,564 28,959
Other income (expense):
Interest income ...................................... 1,913 1,763
Interest expense ..................................... (7,660) (5,074)
Other ................................................ 112 1,795
---------------- -----------------
Other expense .......................................... (5,635) (1,516)
---------------- -----------------
Income (loss) before income taxes ...................... (3,071) 27,443
Income tax expense (credit) ............................ (1,117) 10,903
---------------- -----------------
Net income (loss) ...................................... $ (1,954) $ 16,540
================ =================
Basic earnings per common share:
Average shares outstanding ............................. 12,089,652 12,183,785
Net income (loss) per share ............................ $ (0.16) $ 1.36
================ =================
Diluted earnings per common share:
Average shares outstanding ............................. 12,089,652 13,554,858
Net income (loss) per share ............................ $ (0.16) $ 1.22
================ =================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended March 31,
2000 1999
-------------- --------------
(Unaudited) (Unaudited)
Operating activities:
<S> <C> <C>
Net income (loss) ..................................... $ (1,954) $ 16,540
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization ..................... 31,572 21,658
Deferred income taxes ............................. (258) 5,919
Other non-cash items .............................. (1,458) (222)
Changes in operating assets and liabilities:
Receivables ...................................... 2,208 (5,816)
Inventories ...................................... (1,279) (4,740)
Prepaid expenses ................................. (3,854) (7,614)
Accounts payable ................................. 1,811 4,932
Air traffic liabilities .......................... 16,833 27,538
Accrued expenses ................................. 4,142 10,275
-------------- --------------
Net cash provided by operating activities .......... 47,763 68,470
-------------- --------------
Investing activities:
Proceeds from sales of property and equipment .......... 25 51
Capital expenditures ................................... (41,924) (100,564)
Acquisition of businesses .............................. - (10,472)
Additions to other assets .............................. (8,342) (5,959)
-------------- --------------
Net cash used in investing activities ............... (50,241) (116,944)
-------------- --------------
Financing activities:
Proceeds from long-term debt .......................... 11,500 -
Payments on long-term debt ............................ (442) (144)
Proceeds from exercise of stock options ............... 344 456
Purchase of treasury stock ............................ (3,883) (15)
-------------- --------------
Net cash provided by financing activities .......... 7,519 297
-------------- --------------
Increase (decrease) in cash and cash equivalents ..... 5,041 (48,177)
Cash and cash equivalents, beginning of period ....... 120,164 172,936
-------------- --------------
Cash and cash equivalents, end of period ............. $ 125,205 $ 124,759
============== ==============
Supplemental disclosures:
Cash payments for:
Interest .......................................... $ 7,167 $ 5,610
Income taxes (refunds) ............................ 118 (2,310)
See accompanying notes.
</TABLE>
<PAGE>
PART I - Financial Information
Item I - Financial Statements
AMTRAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements of Amtran, Inc. and
subsidiaries (the "Company") have been prepared in accordance with
instructions for reporting interim financial information on Form 10-Q and,
therefore, do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
The consolidated financial statements for the quarters ended March 31,
2000 and 1999 reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows for
such periods. Results for the three months ended March 31, 2000, are not
necessarily indicative of results to be expected for the full fiscal year
ending December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
2. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
<S> <C> <C>
2000 1999
----------------------------------------
Numerator:
Net income (loss) $(1,954,000) $16,540,000
Denominator:
Denominator for basic earnings per
share - weighted average shares 12,089,652 12,183,785
Effect of dilutive securities:
Employee stock options - 1,371,073
------------------- -------------------
Denominator for diluted earnings per
share - adjusted weighted average shares 12,089,652 13,554,858
------------------- -------------------
Basic earnings per share $ (0.16) $ 1.36
=================== ===================
Diluted earnings per share $ (0.16) $ 1.22
=================== ===================
</TABLE>
In accordance with Financial Accounting Standards Board Statement No.
128, "Earnings per Share,", the impact of potentially dilutive securities
has been excluded from first quarter 2000 diluted earnings per share,
because the effect is antidilutive.
3. Acquisition of Businesses
On January 26, 1999, the Company acquired all of the issued and
outstanding stock of T. G. Shown Associates, Inc., which owned 50% of the
partnership, Amber Air Freight. The Company had already owned the other
50% of this air cargo operation.
On January 31, 1999, the Company purchased the membership interests of
Travel Charter International, LLC ("TCI"), a Detroit-based independent
tour operator. ATA has been providing passenger airline services to TCI
for over 14 years. TCI's results of operations, beginning February 1999,
were consolidated into the Company.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Agency Access Training Center, Inc. ("AATC") and Key Tours Las
Vegas, Inc. ("KTLV"), and additionally purchased the majority of the
current assets and current liabilities of Keytours, Inc. ("KTI"), a
Canadian corporation. All three companies (AATC, KTLV and KTI) were
previously under common control and jointly operated an independent tour
business in the Detroit metropolitan area, using the brand name of Key
Tours. ATA has been providing passenger airline services to Key Tours for
over 15 years. The results of operations, beginning May 1999, of Key
Tours were consolidated into the Company. The Company combined the
operations of TCI, AATC, KTLV and KTI with its existing vacation package
brand, ATA Vacations, to form the ATA Leisure Corp. ("ATALC").
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Chicago Express Airlines, Inc. ("Chicago Express"). The Company
had a code-share agreement with Chicago Express since April 1997. Chicago
Express results of operations, beginning May 1999, were consolidated into
the Company.
4. Segment Disclosures
The Company identifies its segments on the basis of similar products and
services. The airline segment derives its revenues primarily from the
sale of scheduled service or charter air transportation. ATALC derives
its revenues from the sale of vacation packages, which, in addition to
air transportation, includes hotels and other ground arrangements. ATALC
purchases air transportation for its vacation packages from ATA and other
airlines.
Segment financial data as of and for the quarters ended March 31, 2000
and 1999 follows:
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000
-----------------------------------------------------------------------
Other/
Airline ATALC Eliminations Consolidated
------------- ------------- ----------------- ----------------
(In thousands)
<S> <C> <C> <C> <C>
Operating revenue (external) $267,426 $ 38,536 $ 15,404 $321,366
Inter-segment revenue 22,767 727 (23,494) -
Operating expenses (external) 280,406 23,900 14,496 318,802
Inter-segment expenses 3,729 17,161 (20,890) -
Operating income (loss) 6,058 (1,798) (1,696) 2,564
Segment assets (at quarter-end) 880,926 106,305 (145,256) 841,975
For the Three Months Ended March 31, 1999
-----------------------------------------------------------------------
Other/
Airline ATALC Eliminations Consolidated
------------- ------------- ----------------- ----------------
(In thousands)
Operating revenue (external) $241,075 $ 23,617 $ 13,217 $277,909
Inter-segment revenue 9,109 - (9,109) -
Operating expenses (external) 223,119 17,423 8,408 248,950
Inter-segment expenses 1,770 4,869 (6,639) -
Operating income 25,295 1,325 2,339 28,959
Segment assets (at quarter-end) 630,995 24,516 2,677 658,188
</TABLE>
5. Subsequent Events
On May 4, 2000, the Company entered into a preliminary agreement to
purchase 37 Boeing 737-800 aircraft and 10 Boeing 757-300 aircraft, also
receiving purchase rights for an additional 50 aircraft. As part of this
agreement, the Company has obtained financing commitments for all of the
aircraft. The financing commitments are comprised of various operating
leases, leveraged leases, single investor leases, and certain preferred
stock purchase commitments. Closing of this transaction is subject to the
completion of definitive documentation and customary closing conditions.
The Company plans to accept delivery of the new aircraft from 2001
through early 2003.
<PAGE>
PART I - Financial Information
Item II - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Amtran, Inc. (the "Company") is a leading provider of targeted scheduled airline
services and charter airline services to leisure and other value-oriented
travelers. Amtran, through its principal subsidiary, American Trans Air, Inc.
("ATA"), has been operating for 27 years and is the eleventh largest U.S.
airline in terms of 1999 revenues. ATA provides scheduled service through
nonstop and connecting flights from the gateways of Chicago-Midway and
Indianapolis to popular vacation destinations such as Hawaii, Las Vegas,
Florida, California, Mexico and the Caribbean, as well as to Philadelphia,
Boston, Seattle, Reagan Washington National, Denver, Dallas-Ft. Worth and New
York City's LaGuardia and John F. Kennedy airports. ATA also provides charter
service throughout the world to independent tour operators, specialty charter
customers and the U.S. military.
In the first quarter of 2000 the Company recorded operating income of $2.6
million, as compared to $29.0 million in the first quarter of 1999.
Approximately $20.7 million of the decrease in operating income resulted from
higher fuel prices in the first quarter of 2000, as compared to the first
quarter of 1999, net of fuel escalation revenue earned under certain tour
operator and military agreements.
Results of Operations
For the quarter ended March 31, 2000, the Company earned $2.6 million in
operating income, a decrease of 91.0% as compared to operating income of $29.0
million in the comparable period of 1999; and the Company recorded a $2.0
million net loss in the first quarter of 2000, as compared to a net income of
$16.5 million in the first quarter of 1999.
Operating revenues increased 15.7% to $321.4 million in the first quarter of
2000, as compared to $277.9 million in the same period of 1999. Consolidated
revenue per available seat mile ("RASM") increased 7.2% to 8.00 cents in the
2000 first quarter, as compared to 7.46 cents in the first quarter of 1999.
Operating expenses increased 28.0% to $318.8 million in the first quarter of
2000, as compared to $249.0 million in the comparable period of 1999.
Consolidated operating cost per available seat mile ("CASM") increased 18.5% to
7.93 cents in the first quarter of 2000, as compared to 6.69 cents in the first
quarter of 1999.
<PAGE>
Results of Operations in Cents Per ASM
The following table sets forth, for the periods indicated, consolidated
operating revenues and expenses expressed as cents per available seat mile
("ASM"):
Cents per ASM
Three Months Ended March 31,
2000 1999
Consolidated operating revenues: 8.00 7.46
Consolidated operating expenses:
Salaries, wages and benefits 1.71 1.63
Fuel and oil 1.58 0.96
Depreciation and amortization 0.79 0.58
Handling, landing and navigation fees 0.63 0.60
Aircraft maintenance, materials and repairs 0.49 0.37
Ground package cost 0.47 0.35
Aircraft rentals 0.40 0.41
Crew and other employee travel 0.38 0.33
Passenger service 0.28 0.26
Commissions 0.28 0.26
Other selling expenses 0.21 0.17
Advertising 0.16 0.15
Facilities and other rentals 0.09 0.08
Other 0.46 0.54
Total consolidated operating expenses 7.93 6.69
Consolidated operating income 0.07 0.77
ASMs (in thousands) 4,018,536 3,723,035
The following table sets forth, for the periods indicated, operating revenues
and expenses for each reportable segment, in thousands of dollars, and expressed
as cents per ASM:
<TABLE>
<CAPTION>
Three Months Ended March 31,
<S> <C> <C> <C>
2000 1999 Inc (Dec)
----------------- -- ----------------- --- -----------------
Airline and Other
Operating revenues (000s) $282,103 $254,292 $27,811
RASM (cents) 7.02 6.83 0.19
Operating expenses (000s) $277,741 $226,658 $51,083
CASM (cents) 6.91 6.09 0.82
ATALC
Operating revenues (000s) $ 39,263 $ 23,617 $15,646
RASM (cents) 0.98 0.63 0.35
Operating expenses (000s) $ 41,061 $ 22,292 $18,769
CASM (cents) 1.02 0.60 0.42
</TABLE>
ATALC operating revenues and expenses presented above include those from
external sources, and those generated or incurred through another segment.
Airline and Other operating revenues and expenses presented above include
intercompany eliminations.
<PAGE>
Quarter Ended March 31, 2000, Versus Quarter Ended March 31, 1999
Consolidated Flight Operations and Financial Data
The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200 and Boeing 757-200 aircraft in all of the Company's
business units. Data shown for "J31/SAAB" operations include the consolidated
operations of Jetstream 31 and SAAB 340B propeller aircraft by Chicago Express
Airlines, Inc. ("Chicago Express") as the ATA Connection.
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999 Inc (Dec) % Inc (Dec)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Departures Jet 13,387 12,506 881 7.04
Departures J31/SAAB(a) 4,320 4,080 240 5.88
--------------- --------------- --------------- ---------------
Total Departures (b) 17,707 16,586 1,121 6.76
--------------- --------------- --------------- ---------------
Block Hours Jet 42,237 39,002 3,235 8.29
Block Hours J31/SAAB 4,387 4,166 221 5.30
--------------- --------------- --------------- ---------------
Total Block Hours (c) 46,624 43,168 3,456 8.01
--------------- --------------- --------------- ---------------
RPMs Jet (000s) 2,861,397 2,679,029 182,368 6.81
RPMs J31/SAAB (000s) 9,800 8,001 1,799 22.48
--------------- --------------- --------------- ---------------
Total RPMs (000s) (d) 2,871,197 2,687,030 184,167 6.85
--------------- --------------- --------------- ---------------
ASMs Jet (000s) 4,003,394 3,710,088 293,306 7.91
ASMs J31/SAAB (000s) 15,142 12,947 2,195 16.95
--------------- --------------- --------------- ---------------
Total ASMs (000s) (e) 4,018,536 3,723,035 295,501 7.94
--------------- --------------- --------------- ---------------
Load Factor Jet 71.47 72.21 (0.74) (1.02)
Load Factor J31/SAAB 64.72 61.80 2.92 4.72
--------------- --------------- --------------- ---------------
Total Load Factor (f) 71.45 72.17 (0.72) (1.00)
--------------- --------------- --------------- ---------------
Passengers Enplaned Jet 1,886,292 1,759,104 127,188 7.23
Passengers Enplaned J31/SAAB 56,352 46,333 10,019 21.62
--------------- --------------- --------------- ---------------
Total Passengers Enplaned (g) 1,942,644 1,805,437 137,207 7.60
--------------- --------------- --------------- ---------------
Revenue (000s) $321,366 $277,909 $ 43,457 15.64
Revenue, excluding fuel escalation (000s) (h) $315,231 $278,556 $ 36,675 13.17
RASM in cents (i) 8.00 7.46 0.54 7.24
RASM in cents (i), excluding fuel escalation (h) 7.84 7.48 0.36 4.81
CASM in cents (j) 7.93 6.69 1.24 18.54
CASM in cents (j), excluding fuel cost 6.35 5.73 0.62 10.82
Yield in cents (k) 11.19 10.34 0.85 8.22
</TABLE>
See footnotes (a) through (k) on page 11.
<PAGE>
(a) Chicago Express provides service between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Lansing and Madison
as the ATA Connection, using Jetstream 31 and SAAB 340B propeller aircraft.
(b) A departure is a single takeoff and landing operated by a single aircraft
between an origin city and a destination city.
(c) Block hours for any aircraft represent the elapsed time computed from the
moment the aircraft first moves under its own power from the origin city
boarding ramp to the moment it comes to rest at the destination city boarding
ramp.
(d) Revenue passenger miles (RPMs) represent the number of seats occupied by
revenue passengers multiplied by the number of miles those seats are flown. RPMs
are an industry measure of the total seat capacity actually sold by the Company.
(e) Available seat miles (ASMs) represent the number of seats available for sale
to revenue passengers multiplied by the number of miles those seats are flown.
ASMs are an industry measure of the total seat capacity offered for sale by the
Company, whether sold or not.
(f) Passenger load factor is the percentage derived by dividing RPMs by ASMs.
Passenger load factor is relevant to the evaluation of scheduled service because
incremental passengers normally provide incremental revenue and profitability
when seats are sold individually. In the case of commercial charter and
military/government charter, load factor is less relevant because an entire
aircraft is sold by the Company instead of individual seats. Since both costs
and revenues are largely fixed for these types of charter flights, changes in
load factor have less impact on business unit profitability. Consolidated load
factors and scheduled service load factors for the Company are shown in the
appropriate tables for industry comparability, but load factors for individual
charter businesses are omitted from applicable tables.
(g) Passengers enplaned are the number of revenue passengers who occupied seats
on the Company's flights. This measure is also referred to as "passengers
boarded."
(h) Certain commercial charter and military contracts include fuel reimbursement
clauses. When actual fuel costs are lower than the contracted price, the Company
must reimburse the customer. When actual fuel prices exceed the contracted
price, the customer reimburses the Company. These adjustments are recorded to
revenue.
(i) Revenue per ASM (expressed in cents) is total operating revenue divided by
total ASMs. This measure is also referred to as "RASM." RASM measures the
Company's unit revenue using total available seat capacity. In the case of
scheduled service, RASM is a measure of the combined impact of load factor and
yield (see (j) below for the definition of yield).
(j) Cost per ASM (expressed in cents) is total operating expense divided by
total ASMs. This measure is also referred to as "CASM." CASM measures the
Company's unit cost using total available seat capacity.
(k) Revenue per RPM (expressed in cents) is total operating revenue divided by
total RPMs. This measure is also referred to as "yield." Yield is relevant to
the evaluation of scheduled service because yield is a measure of the average
price paid by customers purchasing individual seats. Yield is less relevant to
the commercial charter and military/government charter businesses because the
entire aircraft is sold at one time for one price. Consolidated yields and
scheduled service yields are shown in the appropriate tables for industry
comparability, but yields for individual charter businesses are omitted from
applicable tables.
<PAGE>
Operating Revenues
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for "J31/SAAB" operations include the operations
of Jetstream 31 and SAAB 340B propeller aircraft by Chicago Express as the ATA
Connection.
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999 Inc (Dec) % Inc (Dec)
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Departures Jet 9,163 8,413 750 8.91
Departures J31/SAAB(a) 4,320 4,080 240 5.88
--------------- --------------- ---------------- ---------------
Total Departures (b) 13,483 12,493 990 7.92
--------------- --------------- ---------------- ---------------
Block Hours Jet 27,138 24,266 2,872 11.84
Block Hours J31/SAAB 4,387 4,166 221 5.30
--------------- --------------- ---------------- ---------------
Total Block Hours (c) 31,525 28,432 3,093 10.88
--------------- --------------- ---------------- ---------------
RPMs Jet (000s) 1,759,031 1,520,152 238,879 15.71
RPMs J31/SAAB (000s) 9,800 8,001 1,799 22.48
--------------- --------------- ---------------- ---------------
Total RPMs (000s) (d) 1,768,831 1,528,153 240,678 15.75
--------------- --------------- ---------------- ---------------
ASMs Jet (000s) 2,305,370 1,986,298 319,072 16.06
ASMs J31/SAAB (000s) 15,142 12,947 2,195 16.95
--------------- --------------- ---------------- ---------------
Total ASMs (000s) (e) 2,320,512 1,999,245 321,267 16.07
--------------- --------------- ---------------- ---------------
Load Factor Jet 76.30 76.53 (0.23) (0.30)
Load Factor J31/SAAB 64.72 61.80 2.92 4.72
--------------- --------------- ---------------- ---------------
Total Load Factor (f) 76.23 76.44 (0.21) (0.27)
--------------- --------------- ---------------- ---------------
Passengers Enplaned Jet 1,328,650 1,135,654 192,996 16.99
Passengers Enplaned J31/SAAB 56,352 46,333 10,019 21.62
--------------- --------------- ---------------- ---------------
Total Passengers Enplaned (g) 1,385,002 1,181,987 203,015 17.18
--------------- --------------- ---------------- ---------------
Revenues (000s) $168,486 $144,269 $24,217 16.79
RASM in cents (i) 7.26 7.22 0.04 0.55
Yield in cents (k) 9.53 9.44 0.09 0.95
Rev per segment (l) $121.65 $ 122.06 (0.41) (0.34)
- ------------------------------------- --------------- --------------- ---------------- ---------------
</TABLE>
See footnotes (a) through (k) on page 11.
(l) Revenue per segment flown is determined by dividing total scheduled service
revenues by the number of passengers boarded. Revenue per segment is a broad
measure of the average price obtained for all flight segments flown by
passengers in the Company's scheduled service route network.
Scheduled service revenues in the first quarter of 2000 increased 16.8% to
$168.5 million from $144.3 million in the first quarter of 1999. Scheduled
service revenues comprised 52.4% of consolidated revenues in the 2000 first
quarter, as compared to 51.9% of consolidated revenues in the same period of
1999.
The Company's first quarter 2000 scheduled service at Chicago-Midway accounted
for approximately 61.1% of scheduled service ASMs and 80.7% of scheduled service
departures, as compared to 58.0% and 76.4%, respectively, in the first quarter
of 1999. Beginning in May 1999, the Company operated nonstop flights to
Philadelphia, which were not provided during the first quarter of 1999. In
addition to this new service, the Company served the following existing jet
markets in both quarters: Dallas-Ft. Worth, Denver, New York's LaGuardia
Airport, San Juan, Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, New York's
John F. Kennedy Airport, Orlando, Phoenix, St. Petersburg, San Francisco and
Sarasota. The Company also had a code share agreement with Chicago Express under
which Chicago Express operated 19-seat Jetstream 31 propeller aircraft between
Chicago-Midway and the cities of Indianapolis, Milwaukee, Des Moines, Dayton,
Grand Rapids, Lansing and Madison. In April 1999, the Company acquired all of
the issued and outstanding stock of Chicago Express Airlines, Inc., which
continued to operate these services as a wholly owned subsidiary of the Company
The Company anticipates that its Chicago-Midway operation will represent a focus
of growing significance for its scheduled service business in 2000 and beyond.
The Company operated 72 daily jet and commuter departures from Chicago-Midway
and served 23 destinations on a nonstop basis in the first quarter of 2000, as
compared to 22 nonstop destinations served in the first quarter of 1999. The
Company also presently expects to occupy 12 jet gates and one commuter aircraft
gate at the new Chicago-Midway terminal, scheduled for completion in 2004, as
compared to the six jet gates currently occupied in the existing terminal.
The Company's growing commitment to Chicago-Midway is consistent with its
strategy for enhancing revenues and profitability in scheduled service by
focusing primarily on low cost, nonstop flights from airports where it has
market or aircraft advantages in addition to its low cost. The Company expects
its growing concentration of connecting flights at Chicago-Midway to provide
both revenue premiums and operating cost efficiencies, as compared to the
Company's other gateway cities. In addition, the Company plans to build a
Federal Inspection Service facility at Chicago-Midway to facilitate direct
international flights.
The Company's Indianapolis service accounted for 15.8% of scheduled service ASMs
and 10.8% of scheduled service departures in the first quarter of 2000, as
compared to 16.9% and 12.3%, respectively, in the first quarter of 1999. In both
quarters, the Company operated nonstop to Cancun, Ft. Lauderdale, Ft. Myers, Las
Vegas, Los Angeles, Orlando, St. Petersburg, San Francisco and Sarasota. The
Company has served Indianapolis for 27 years through the Ambassadair Travel Club
and in scheduled service since 1986.
The Company's Hawaii service accounted for 13.9% of scheduled service ASMs and
3.8% of scheduled service departures in the first quarter of 2000, as compared
to 15.9% and 4.0%, respectively, in the first quarter of 1999. The Company
provided nonstop services in both periods from Los Angeles, Phoenix and San
Francisco to both Honolulu and Maui, with connecting service between Honolulu
and Maui. The Company provides these services through a marketing alliance with
the largest independent tour operator serving leisure travelers to Hawaii from
the United States. The Company distributes the remaining seats on these flights
through normal scheduled service distribution channels. The Company believes it
has superior operating efficiencies in west coast-Hawaii markets due to the
relatively low ownership cost of the Lockheed L-1011 fleet and because of the
high daily hours of utilization obtained for both aircraft and crews.
The Company continuously evaluates the profitability of its scheduled service
markets and expects to adjust its service from time to time. The Company has
announced new service between Chicago-Midway and Ronald Reagan Washington
National Airport beginning April 3, 2000, and new service to Boston and Seattle
beginning May 7, 2000. Beginning July 10, 2000, the Company will also offer
service from Chicago-Midway to Minneapolis-St. Paul.
Commercial Charter Revenues. The Company's commercial charter revenues are
derived principally from independent tour operators and specialty charter
customers. The Company's commercial charter product provides full-service air
transportation to hundreds of customer-designated destinations throughout the
world. Commercial charter revenues accounted for 23.0% of consolidated revenues
in the first quarter of 2000, as compared to 26.4% in the first quarter of 1999.
During the last several years, the Company has deployed some Boeing 727-200 and
Boeing 757-200 aircraft into its rapidly-growing scheduled service markets,
reducing the availability of aircraft capacity for commercial and
military/government charter flying. The Company has addressed this capacity
limitation in the commercial and military/government charter business units
through the acquisition of long-range Lockheed L-1011 series 500 aircraft.
Although Lockheed L-1011 series 500 maintenance procedures and cockpit design
are similar to the Company's existing fleet of Lockheed L-1011 series 50 and
series 100 aircraft, they differ operationally in that their ten-to-eleven-hour
range permits them to operate nonstop to parts of Asia, South America and
Central and Eastern Europe using an all-coach seating configuration preferred by
the U.S. military and most of the Company's commercial charter customers. The
deployment of these aircraft into the Company's fleet has increased the
available seat capacity for these charter business units, in addition to opening
new long-range market opportunities. These new aircraft also supply much of the
additional seat capacity which the Company needs to operate its expanded
military/government business for the contract year ending September 30, 2000.
The following table sets forth, for the periods indicated, certain key operating
and financial data for the commercial charter operations of the Company.
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999 Inc (Dec) % Inc (Dec)
<S> <C> <C> <C> <C>
Departures (b) 2,822 2,888 (66) (2.29)
Block Hours (c) 9,916 10,133 (217) (2.14)
RPMs (000s) (d) 789,941 918,286 (128,345) (13.98)
ASMs (000s) (e) 1,041,798 1,117,331 (75,533) (6.76)
Passengers Enplaned (g) 478,689 562,588 (83,899) (14.91)
Revenue (000s) $74,028 $73,334 $694 0.95
Revenue, excluding fuel escalation (000s) (h) $69,760 $73,334 $(3,574) (4.87)
RASM in cents (i) 7.11 6.56 0.55 8.38
RASM in cents (i), excluding fuel escalation (h) 6.70 6.56 0.14 2.13
</TABLE>
See footnotes (a) through (k) on page 11.
The Company operates in two principal components of the commercial charter
business, known as "track charter" and "specialty charter." The larger track
charter business component is generally comprised of low frequency but
repetitive domestic and international flights between city pairs, which support
high passenger load factors and are marketed through tour operators, providing
value-priced and convenient nonstop service to vacation destinations for the
leisure traveler. Since track charter resembles scheduled service in terms of
its repetitive flying patterns between fixed city pairs, it allows the Company
to achieve reasonable levels of crew and aircraft utilization (although less
than for scheduled service), and provides the Company with meaningful protection
from some fuel price increases through the use of fuel escalation reimbursement
clauses in tour operator contracts. Track charter accounted for approximately
$57.2 million in revenues in the first quarter of 2000, as compared to $54.9
million in the first quarter of 1999.
Specialty charter (including incentive travel programs) is a product which is
designed to meet the unique requirements of the customer and is a business
characterized by lower frequency of operation and by greater variation in city
pairs served than the track charter business. Specialty charter includes such
diverse contracts as flying university alumni to football games, transporting
political candidates on campaign trips and moving NASA space shuttle ground
crews to alternate landing sites. The Company also operates an increasing number
of trips in all-first-class configuration for certain corporate and high-end
leisure clients. Although lower utilization of crews and aircraft and infrequent
service to specialty destinations often result in higher average operating
costs, the Company has determined that the revenue premium earned by meeting
special customer requirements more than compensates for these increased costs.
The diversity of the Company's three fleet types also permits the Company to
meet a customer's particular needs by choosing the aircraft type which provides
the most economical solution for those requirements. Specialty charter accounted
for approximately $8.9 million in revenues in the first quarter of 2000, as
compared to $8.5 million in the first quarter of 1999.
MilitarylGovernment Charter Revenues. The following table sets forth, for the
periods indicated, certain key operating and financial data for the
military/government flight operations of the Company.
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999 Inc (Dec) % Inc (Dec)
Departures (b) 1,402 1,181 221 18.71
<S> <C> <C> <C> <C>
Block Hours (c) 5,183 4,530 653 14.42
RPMs (000s) (d) 312,425 235,404 77,021 32.72
ASMs (000s) (e) 656,226 598,754 57,472 9.60
Passengers Enplaned (g) 78,953 58,324 20,629 35.37
Revenue (000s) $45,592 $34,006 $11,586 34.07
Revenue, excluding fuel escalation (000s) (h) $43,725 $34,653 $ 9,072 26.18
RASM in cents (i) 6.95 5.68 1.27 22.36
RASM in cents (i), excluding fuel escalation (h) 6.66 5.79 0.87 15.03
</TABLE>
See footnotes (a) through (k) on page 11.
The Company participates in two related military/government charter programs
known as "fixed award" and "short-term expansion." Pursuant to the U.S.
military's fixed-award system, each participating airline is awarded certain
"mobilization value points" based upon the number and type of aircraft made
available by that airline for military flying. In order to increase the number
of points awarded, the Company has traditionally participated in contractor
teaming arrangements with other airlines. Under these arrangements, the team has
a greater likelihood of receiving fixed-award business and, to the extent that
the award includes passenger transport, the opportunity for the Company to
operate this flying is enhanced since the Company represents a majority of the
passenger transport capacity of the team. As part of its participation in this
teaming arrangement, the Company pays a commission to the team, which passes
that revenue on to all team members based upon their mobilization points.
Short-term expansion business is awarded by the U.S. military first on a pro
rata basis to those carriers who have been provided fixed-award business and
then to any other carrier with aircraft availability. Expansion flying is
generally offered to airlines on very short notice.
The overall amount of military flying that the Company performs in any one year
is dependent upon several factors, including (i) the percentage of mobilization
value points represented by the Company's team as compared to total mobilization
value points of all providers of military service; (ii) the percentage of
passenger capacity of the Company with respect to its own team; (iii) the amount
of fixed-award and expansion flying required by the U.S. military in each
contract year; and (iv) the availability of the Company's aircraft to accept and
fly expansion awards.
Under its current teaming arrangement, the Company expects its
military/government charter revenues to increase to approximately $180.0 million
for the contract year beginning October 1999. This represents more than a 40%
increase over the Company's fiscal year 1999 military/government charter
revenues of $126.2 million.
Ground Package Revenues. The Company earns ground package revenues through the
sale of hotel, car rental and cruise accommodations in conjunction with the
Company's air transportation product. The Company has traditionally marketed
these ground packages to its Ambassadair club members and through its ATA
Leisure Corp. subsidiaries to its charter and scheduled service passengers. In
the first quarter of 2000, ground package revenues increased 41.7% to $22.1
million, as compared to $15.6 million in the first quarter of 1999.
As is more fully described in footnote 3, the Company acquired several
Detroit-based tour operators in January and April 1999, which were included in
the Company's consolidated results of operations for the entire first quarter of
2000. The majority of the change in ground package revenues between quarters was
attributable to these acquisitions.
The number of ground packages sold and the average revenue earned by the Company
for a ground package sale are a function of the seasonal mix of vacation
destinations served, the quality and types of ground accommodations offered and
general competitive conditions in the Company's markets, all of which factors
can change from period to period.
Other Revenues. Other revenues are comprised of the consolidated revenues of
affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled and charter operations of the Company. Other
revenues increased to $11.2 million in the first quarter of 2000 as compared to
$10.7 million in 1999, which represents a 4.7% increase between years. In the
first quarter of 2000, other revenues comprised 3.5% of consolidated revenues as
compared to 3.9% of consolidated revenues in the same period of 1999.
Operating Expenses
Salaries, Wages and Benefits. Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees, together with the Company's
cost of employee benefits and payroll-related local, state and federal taxes.
Salaries, wages and benefits expense in the first quarter of 2000 increased
13.0% to $68.7 million from $60.8 million in the first quarter of 1999.
The Company increased its average equivalent employees by approximately 19.2%
between the first quarters of 2000 and 1999, partially to appropriately staff
the 7.9% growth in ASMs flown between periods. The increase is also partially
attributable to the acquisitions of Chicago Express, Amber Air Freight and
ATALC. (See footnote 3). In the first quarter of 1999, the Company recorded a
charge of approximately $2.8 million in variable compensation expected to be
paid at the end of the year. This estimate of variable compensation is based on
Company profitability, so no corresponding charge was recorded in the first
quarter of 2000.
Fuel and Oil. Fuel and oil expense increased 78.1% to $63.4 million in the first
quarter of 2000, as compared to $35.6 million in the same period of 1999. The
Company consumed 9.1% more gallons of jet fuel for flying operations between
years, which resulted in an increase in fuel expense of approximately $2.9
million. Jet fuel consumption increased primarily due to the increased number of
block hours of jet flying operations between periods. The Company flew 42,237
jet block hours in the first quarter of 2000, as compared to 39,002 jet block
hours in the first quarter of 1999, an increase of 8.3% between periods.
Fuel consumption growth between the first quarters of 2000 and 1999 was greater
than total block hour growth, since block hour growth in the first quarter of
2000 was in the wide-body Lockheed L-1011 fleet, which consumes approximately
twice the gallons of jet fuel per block hour as compared to the narrow-body
Boeing 727-200 and Boeing 757-200 aircraft.
During the first quarter of 2000, the Company's average cost per gallon of jet
fuel consumed increased by 76.9% as compared to the first quarter of 1999,
resulting in an increase in fuel and oil expense of approximately $27.5 million
between periods.
During the first quarter of 1999, the Company entered into several fuel price
hedge contracts under which the Company sought to reduce the risk of fuel price
increases. The Company recorded approximately $2.1 million more in fuel and oil
expense under its first quarter 1999 hedge contracts than in the first quarter
2000, when there were no such fuel hedges in place.
Depreciation and Amortization. Depreciation and amortization expense increased
45.6% to $31.6 million in the first quarter of 2000, as compared to $21.7
million in the first quarter of 1999.
Depreciation expense attributable to owned airframes, engines and leasehold
improvements increased $4.0 million in the first quarter of 2000, as compared to
the same period of 1999. The Company also increased its investment in rotable
parts and computer hardware and software, among other items of property and
equipment. These changes resulted in an increase in depreciation expense of $2.1
million in the first quarter of 2000, as compared to the first quarter of 1999.
Amortization of capitalized engine and airframe overhauls increased $2.0 million
in the first quarter of 2000, as compared to the same period of 1999, after
including amortization of related manufacturers' credits. Changes to the cost of
overhaul amortization were partly due to the increase in total block hours and
cycles flown between comparable quarters for the Boeing 727-200 and Lockheed
L-1011 fleets, since such expense varies with that activity, and partly due to
the completion of more engine and airframe overhauls between periods for these
fleet types. Rolls-Royce-powered Boeing 757-200 aircraft, nine of which were
delivered new from the manufacturer between late 1995 and late 1999, are not
presently generating any material engine or airframe overhaul expense, since the
initial post-delivery overhauls for these aircraft are not yet due under the
Company's maintenance programs.
The cost of engine overhauls that become worthless due to early engine failures
and which cannot be economically repaired is charged to depreciation and
amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these write-offs increased $1.6 million in
the first quarter of 2000, as compared to the first quarter of 1999. When these
early engine failures can be economically repaired, the related repairs are
charged to aircraft maintenance, materials and repairs expense.
The Company recorded $0.2 million more in amortization expense due to the
goodwill associated with the acquisition of businesses discussed in footnote 3.
Handling, Landing and Navigation Fees. Handling and landing fees include the
costs incurred by the Company at airports to land and service its aircraft and
to handle passenger check-in, security, cargo and baggage where the Company
elects to use third-party contract services in lieu of its own employees. Where
the Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees increased by 13.4% to $25.4 million in the
first quarter of 2000, as compared to $22.4 million in the first quarter of
1999. The total number of system-wide jet departures between the first quarters
of 2000 and 1999 increased by 7.0% to 13,387 from 12,506, resulting in
approximately $1.3 million in volume-related handling and landing expense
increases between periods. The increase in handling and landing expenses related
to price and aircraft mix changes were $1.6 million in the first quarter 2000,
as compared to the first quarter 1999. In conjunction with the Company's
strategy to expand to more business travel destinations, such as LaGuardia and
Dallas, it is experiencing higher handling and landing fees associated with
these destinations.
The Company also incurred approximately $0.5 million in higher deicing costs in
the first quarter of 2000 as compared to the same period of 1999.
Aircraft Maintenance, Materials and Repairs. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for maintenance activities, and other non-capitalized
direct costs related to fleet maintenance, including spare engine leases, parts
loan and exchange fees, and related shipping costs. Aircraft maintenance,
materials and repairs expense increased 43.8% to $19.7 million in the first
quarter of 2000, as compared to $13.7 million in the same period of 1999.
The Company performed a total of 14 maintenance checks on its fleet during the
first quarter of 2000 as compared to 12 in 1999. The cost of materials consumed
and components repaired in association with such checks and other maintenance
activity increased by $3.6 million between quarters. In addition, six of these
maintenance checks were performed by third party vendors in 2000, as compared to
the use of internal labor in 1999. This resulted in an increase of $1.5 million
in related labor costs in 2000, as compared to 1999.
Ground Package Cost. Ground package cost is incurred by the Company with hotels,
car rental companies, cruise lines and similar vendors who provide ground and
cruise accommodations to Ambassadair and ATALC customers. Ground package cost
increased 43.2% to $18.9 million in the first quarter of 2000, as compared to
$13.2 million in the first quarter of 1999, in conjunction with the growth in
ground package revenues and due to the acquisition of ATALC (see footnote 3).
Aircraft Rentals. Aircraft rentals expense for the first quarter of 2000
increased 5.9% to $16.1 million from $15.2 million in the first quarter of 1999.
The Company financed two additional Boeing 757-200 aircraft in the first quarter
of 2000 as compared to the same quarter of 1999, adding $1.8 million in aircraft
rentals expense as compared to the prior year. This increase was partially
offset by $1.1 million in canceled leases for eight Boeing 727-200 aircraft,
which were purchased late in the first quarter of 1999.
Crew and Other Employee Travel. Crew and other employee travel is primarily the
cost of air transportation, hotels and per diem reimbursements to cockpit and
cabin crew members incurred to position crews away from their bases to operate
Company flights throughout the world. The cost of crew and other employee travel
increased 24.8% to $15.1 million in the first quarter of 2000, as compared to
$12.1 million in the first quarter of 1999.
The average cost of crew positioning per full-time-equivalent crew member
increased 21.7% in the first quarter of 2000, as compared to the first quarter
of 1999. The average hotel cost per full-time-equivalent crew member increased
16.0% in the first quarter of 2000, as compared to the same period of 1999. Both
costs were affected by the increase in military business, which is typically
less cost-efficient due to more international destinations and less notification
prior to departures for expansion flying. Hotel costs also increased due to
higher room rates paid in the 2000 period.
Passenger Service. Passenger service expense includes the onboard costs of meal
and non-alcoholic beverage catering, the cost of alcoholic beverages and
in-flight movie headsets sold, and the cost of onboard entertainment programs,
together with certain costs incurred for mishandled baggage and passengers
inconvenienced due to flight delays or cancellations. For the first quarters of
2000 and 1999, catering represented 80.1% and 81.3%, respectively, of total
passenger service expense.
The total cost of passenger service increased 16.7% to $11.2 million in the
first quarter of 2000, as compared to $9.6 million in the first quarter of 1999.
The Company experienced an increase of approximately 7.7% in the average unit
cost of catering each passenger between periods primarily because in the first
quarter of 2000 there were relatively more military passengers boarded in the
Company's business mix, who are provided a more expensive catering product due
to the longer-stage-length of these flights. This resulted in additional
catering expense due to price-and-business-mix of $0.6 million in the first
quarter of 2000, as compared to the same period of 1999. Total jet passengers
boarded increased 7.2% between quarters, resulting in approximately $0.5 million
in higher volume-related catering expenses between the same sets of comparative
periods.
Commissions. The Company incurs commissions expense in association with the sale
by travel agents of single seats on scheduled service. In addition, the Company
incurs commissions to secure some commercial and military/government charter
business. Commissions expense increased 15.5% to $11.2 million in the first
quarter of 2000, as compared to $9.7 million in the first quarter of 1999.
Approximately $1.7 million of the increase in commissions in the first quarter
of 2000 was attributable to commissions paid to travel agents by ATA Leisure
Corp. The Company also had an increase in the first quarter 2000 in military
commissions of $1.4 million, which is consistent with the growth in military
revenue. These increases were offset by a $1.6 million decrease in scheduled
service commission during the first quarter of 2000 due to an industry decrease
in travel agency commissions from 8.0% to 5.0%, effective in the fourth quarter
of 1999.
Other Selling Expenses. Other selling expenses are comprised primarily of
booking fees paid to computer reservation systems ("CRS"), credit card discount
expenses incurred when selling single seats and ground packages to customers
using credit cards for payment, and toll-free telephone services provided to
single-seat and vacation package customers who contact the Company directly to
book reservations. Other selling expenses increased 33.9% to $8.3 million in the
first quarter of 2000, as compared to $6.2 million in the same period of 1999.
Selling expenses increased primarily due to growth in the scheduled service
business unit between periods, as well as due to the acquisition of tour
operator businesses in the first half of 1999 (see footnote 3).
Advertising. Advertising expense increased 17.9% to $6.6 million in the first
quarter of 2000, as compared to $5.6 million in the first quarter of 1999. The
Company incurs advertising costs primarily to support single-seat scheduled
service sales and the sale of air-and-ground packages. Advertising support for
these lines of business was increased in the first quarter of 2000, consistent
with the Company's overall strategy to continue to enhance scheduled service
RASM through increases in load factor and yield, and also increased due to the
acquisition of tour operator businesses in the first half of 1999 (see footnote
3).
Facilities and Other Rentals. Facilities and other rentals include the cost of
all ground facilities that are leased by the Company such as airport space,
regional sales offices and general offices. The cost of facilities and other
rentals increased 15.6% to $3.7 million in the first quarter of 2000, as
compared to $3.2 million in the first quarter of 1999. Growth in facilities
costs between periods was primarily attributable to facilities rent at
Chicago-Midway to support Chicago Express, a subsidiary acquired April 30, 1999,
which was not included in the 1999 first quarter results of operations.
Other Operating Expenses. Other operating expenses decreased 4.5% to $19.1
million in the first quarter of 2000, as compared to $20.0 million in the first
quarter of 1999. Approximately $3.6 million of this decrease between quarters
was attributable to the higher cost of passenger air transportation purchased by
ATALC from air carriers other than the Company in the first quarter of 1999,
whereas ATALC primarily used the Company's own air transportation in the first
quarter of 2000. Additionally, in the first quarter of 1999, prior to the
acquisition of Chicago Express, other operating expenses included the Company's
costs for the code-share agreement with Chicago Express, which were
approximately $2.3 million in the first quarter of 1999, with no corresponding
expense incurred in the first quarter of 2000. These decreases in other
operating expense were partially offset by many individually insignificant
increases in other operating expense categories.
Interest Income and Expense. Interest expense in the first quarter of 2000
increased to $7.7 million as compared to $5.1 million in the same period of
1999. The increase in interest expense between periods was primarily due to
changes in the Company's capital structure resulting from the sale in December
1999 of $75.0 million in principal amount of 10.5% unsecured senior notes.
Interest expense of $2.0 million was recorded in the first quarter of 2000 for
these notes, which was not incurred in the first quarter of 1999.
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $1.9 million in interest income in the
first quarter of 2000, as compared to $1.8 million in the same period of 1999.
Other Income. Other income decreased 94.4% to $0.1 million in the first quarter
2000 from $1.8 million in the same period of 1999. The Company recorded a gain
of $1.7 million on the sale of a portion of its interest in Equant, N.V. in the
first quarter of 1999, while no such gain was recognized in the first quarter of
2000.
Income Tax Expense. In the first quarter of 2000 the Company recorded a tax
credit of $1.1 million applicable to a $3.1 million pre-tax loss for that
period, while in the first quarter of 1999, income tax expense was $10.9 million
applicable to $27.4 million pre-tax income. The effective tax rate applicable to
the first quarter 2000 tax credit was 36.4%, as compared to a rate of 39.7%
applicable to the tax expense recorded in the first quarter of 1999.
Income tax expense in both sets of comparative periods was affected by the
permanent non-deductibility for federal income tax purposes of a percentage of
certain amounts paid for crew per diem (40% in 2000 and 45% in 1999). The effect
of this and other permanent differences on the effective income tax rate for
financial accounting purposes is to decrease the effective rate as amounts of
pre-tax income increase.
Liquidity and Capital Resources
Cash Flows. In the first quarters of 2000 and 1999, net cash provided by
operating activities was $47.8 million and $68.5 million, respectively. The
decrease in cash provided by operating activities between periods was
attributable to such factors as lower earnings, lower deferred taxes, lower
accrued expenses and other factors, offset by higher depreciation and
amortization.
Net cash used in investing activities was $50.2 million and $116.9 million,
respectively, in the first quarters of 2000 and 1999. Such amounts primarily
included capital expenditures totaling $41.9 million and $100.6 million,
respectively, for engine and airframe overhauls, airframe improvements and the
purchase of rotable parts. Capital expenditures in the first quarter of 1999
were higher primarily due to acquisition of certain L-1011-500 aircraft and
parts; due to the purchase of eight Boeing 727-200 aircraft; and due to advanced
deposits paid on future deliveries of Boeing 757-200 aircraft from the
manufacturer.
Net cash provided by financing activities was $7.5 million in the first quarter
of 2000 as compared to $0.3 million in the first quarter of 1999. The increase
was primarily due to the first quarter 2000 financing of $11.5 million,
collateralized by one L-1011-500, offset by the first quarter 2000 purchase of
$3.9 million in treasury stock.
Aircraft and Fleet Transactions. In November 1994, the Company signed a purchase
agreement for six new Boeing 757-200s which, as subsequently amended, now
provides for 13 total aircraft to be delivered between 1995 and 2000. As of
March 31, 2000, the Company had accepted delivery of nine aircraft under this
agreement, which were financed under leases accounted for as operating leases.
The aggregate purchase price for the remaining aircraft is approximately $50.0
million per aircraft, subject to escalation. The final deliveries are scheduled
for June and November 2000. Advanced payments totaling approximately $27.2
million ($6.8 million per aircraft) are required prior to delivery of the
remaining aircraft, with the remaining purchase price payable at delivery. As of
March 31, 2000 and 1999, the Company had recorded fixed asset additions for
$19.9 million and $16.3 million, respectively, in advanced payments applicable
to aircraft scheduled for future delivery.
In January 2000, Chicago Express Airlines, Inc., a wholly owned subsidiary of
Amtran, entered into an agreement to purchase nine SAAB 340B aircraft, including
spare engines, spare parts and crew training, for an aggregate purchase price of
approximately $30.0 million. These aircraft will be placed into service
throughout 2000 in conjunction with the retirement of the current fleet of
Jetstream J31s, all of which are currently leased. Chicago Express has taken
delivery of three of these aircraft, two of which were placed in revenue service
in the first quarter of 2000. The Company expects to place five aircraft into
revenue service during the second quarter of 2000, with the remaining two being
placed into revenue service in the third quarter of 2000.
Also in the first quarter of 2000, the Company placed the final of five total
Lockheed L-1011-500 aircraft into revenue service.
Significant Financings. In July 1997, the Company sold $100.0 million principal
amount of 10.5% unsecured senior notes. In December 1999, the Company sold an
additional $75.0 million principal amount of 10.5% senior notes. The $75.0
million notes were issued as a private placement under Rule 144A. The Company is
obligated to complete an exchange offer in which the new notes will be exchanged
for registered notes having the same terms. On January 25, 2000, the Company
filed a registration statement with the SEC in connection with this pending
exchange offer.
In December 1998, the Company sold $125.0 million principal amount of 9.625%
unsecured senior notes in a public offering.
In December 1999, ATA issued $17.0 million principal amount of special facility
revenue bonds to finance the construction of certain facilities at
Chicago-Midway Airport. The bonds are payable from and secured by a pledge and
assignment of special facility revenues, including certain of the City of
Chicago's rights under a special facility financing agreement between the City
of Chicago and the Company. Payment of the bonds is guaranteed by the Company.
In the second quarter of 1999, the Company completed the construction of a
120,000 square foot Maintenance and Operations Center immediately adjacent to
the Company's maintenance hangar at Indianapolis International Airport. In June
1999, the Company financed this facility with an $8.0 million 15-year mortgage
loan.
In December 1999, the Company revised its revolving credit facility to provide a
maximum of $100.0 million, including up to $50.0 million for stand-by letters of
credit. The facility matures January 2, 2003, and borrowings under the facility
bear interest, at the option of ATA, at either LIBOR plus 1.25% to 2.50% or the
agent bank's prime rate. This facility is subject to certain restrictive
covenants, and is collateralized by certain L-1011-50 and Boeing 727-200
aircraft. As of March 31, 2000, the Company had no borrowings against this
credit facility, but did have outstanding letters of credit secured by this
facility aggregating $33.7 million.
In February 2000, the Company borrowed $11.5 million for operating cash
purposes. This debt is collateralized by one Lockheed L1011 series 500 aircraft
and is secured by a five-year note.
Future Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This accounting standard, which is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000,
requires that all derivatives be recognized as either assets or liabilities at
fair value. The Company is evaluating the new statement's provisions and
currently expects to adopt SFAS No. 133 in the first quarter of 2001. Although
the Company currently does not have any significant derivatives subject to the
accounting provisions of SFAS No. 133, the Company has engaged in certain fuel
price hedging contracts in recent years to which accounting or disclosure
provisions of this statement might have applied. The Company cannot predict what
impact, if any, adoption of the statement will have.
Forward-Looking Information
Information contained within "Management's Discussion and Analysis of Financial
Condition and Results of Operations" includes forward-looking information which
can be identified by forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "anticipates," or the negative thereof, or other
variations in comparable terminology. Such forward-looking information is based
upon management's current knowledge of factors affecting the Company's business.
The differences between expected outcomes and actual results can be material,
depending upon the circumstances. Where the Company expresses an expectation or
belief as to future results in any forward-looking information, such expectation
or belief is expressed in good faith and is believed to have a reasonable basis.
The Company can provide no assurance that the statement of expectation or belief
will result or will be achieved or accomplished.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause actual results to be materially different. Such
factors include, but are not limited to, the following:
economic conditions;
labor costs;
aviation fuel costs;
competitive pressures on pricing;
weather conditions;
governmental legislation;
consumer perceptions of the Company's products;
demand for air transportation in markets in which the Company operates; and
other risks and uncertainties listed from time to time in reports the
Company periodically files with the SEC.
The Company does not undertake to update its forward-looking statements to
reflect future events or circumstances.
<PAGE>
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.
Amtran, Inc.
(Registrant)
Date May 15, 2000 Kenneth K. Wolff
Kenneth K. Wolff
Executive Vice President and Chief Financial
Officer
Director
Date May 15, 2000 David M. Wing
David M. Wing
Vice President and Controller
Chief Accounting Officer
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