SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 0-21976
ATLANTIC COAST AIRLINES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3621051
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
515-A Shaw Road, Dulles, Virginia 20166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 925-6000
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 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 April 30, 1997, there were 8,508,245 shares of common stock,
par value $.02 per share, outstanding.
Page 1 of 19 sequentially numbered pages
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Atlantic Coast Airlines, Inc.
and Subsidiary
Consolidated Balance Sheets
(In thousands except for share data and par March 31, December 31,
values) 1997 1996
(Unaudited)
Assets
Current:
Cash and cash equivalents $15,927 $21,470
Accounts receivable, net 17,181 15,961
Expendable parts and fuel inventory, 1,731 1,759
net
Prepaid expenses and other current 3,394 2,554
assets
Total current assets 38,233 41,744
Property and equipment, net of accumulated
depreciation and amortization 16,362 16,157
Preoperating costs, net of accumulated 268 225
amortization
Intangible assets, net of accumulated 2,804 2,882
amortization
Deferred tax asset 3,140 3,140
Aircraft deposits and other assets 4,370 610
Total assets $65,177 $64,758
Liabilities and Stockholders' Equity
Current:
Accounts payable $3,741 $3,770
Current portion of long-term debt 1,335 1,319
Current portion of capital lease 1,507 1,497
obligations
Accrued liabilities 16,988 17,376
Total current liabilities 23,571 23,962
Long-term debt, less current portion 2,072 2,407
Capital lease obligations, less current 2,941 3,266
portion
Other liabilities 1,151 486
Total liabilities 29,735 30,121
Stockholders' equity:
Preferred Stock, $.02 par value per share;
shares authorized 4,992,000; no shares
issued or outstanding in 1997 or 1996 - -
Common stock: $.02 par value per share;
shares authorized 15,000,000; shares issued
8,520,745 in 1997 and 8,498,910 in 1996 170 170
Class A common stock: nonvoting; par value;
$.02 stated value per share; shares
authorized 6,000,000; no shares issued or - -
outstanding
Additional paid-in capital 37,791 37,689
Less: Common stock in treasury, at cost, (125) (125)
12,500 shares
Accumulated deficit (2,394) (3,097)
Total stockholders' equity 35,442 34,637
Total liabilities and stockholders' $65,177 $64,758
equity
See accompanying notes to the consolidated financial statements.
Atlantic Coast Airlines, Inc.
and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three months ended March 31,
(In thousands except for earnings per share data) 1997 1996
Operating revenues:
Passenger $40,500 $37,131
Other 614 726
Total operating revenues 41,114 37,857
Operating expenses:
Salaries and related costs 11,596 10,652
Aircraft fuel 4,325 3,694
Aircraft maintenance and materials 3,745 3,661
Aircraft rentals and landing fees 8,319 7,959
Traffic commissions and related fees 6,347 6,052
Depreciation and amortization 720 641
Other 5,025 4,343
Restructuring reversals - (263)
Total operating expenses 40,077 36,739
Operating income 1,037 1,118
Other income (expense):
Interest expense (190) (244)
Interest income 145 23
Other income (expense) (4) 1
Total other expense (49) (220)
Income before income tax provision 988 898
Income tax provision 285 36
Net income $703 $862
Earnings per common and common equivalent shares:
-primary $0.08 $0.10
-fully diluted $0.08 $0.10
Weighted average common and common equivalent
shares:
-primary 9,042 8,910
-fully diluted 9,049 8,994
See accompanying notes to the consolidated financial statements.
Atlantic Coast Airlines, Inc.
and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended March 31,
(In thousands) 1997 1996
Cash flows from operating activities:
Net income $703 $862
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 720 641
Provision for uncollectible accounts 30 15
Amortization of finance costs 13 -
Amortization of deferred credits (21) -
Loss on disposal of fixed assets 38 -
Changes in operating assets and
liabilities:
Accounts receivable (1,250) (2,737)
Expendable parts and fuel inventory 28 (19)
Prepaid expenses and other current (840) (545)
assets
Preoperating costs (101) -
Accounts payable (29) (560)
Accrued liabilities (388) 653
Net cash used in operating activities (1,097) (1,690)
Cash flows from investing activities:
Purchase of property and equipment (850) (246)
Increase in deposits (3,760) -
Net cash used in investing activities (4,610) (246)
Cash flows from financing activities:
Payments of long-term debt (319) (323)
Payments of capital lease obligations (325) (200)
Net increase in lines of credit - 16
Decrease (increase)in intangible assets 20 (41)
Increase in deferred credits 686 -
Proceeds from exercise of stock options 102 110
1995 cumulative preferred dividends paid in - (335)
1996
Redemption of Series A cumulative
convertible preferred stock
- (3,825)
Net cash provided by (used in) financing 164 (4,598)
activities
Net decrease in cash and cash equivalents (5,543) (6,534)
Cash and cash equivalents, beginning of period 21,470 8,396
Cash and cash equivalents, end of period $15,927 $1,862
See accompanying notes to the consolidated financial statements.
ATLANTIC COAST AIRLINES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1997, and for the three months ended
March 31, 1997, is unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been
prepared by Atlantic Coast Airlines, Inc. ("ACAI") and its subsidiary,
Atlantic Coast Airlines, (together, the "Company") without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished in the consolidated financial
statements includes normal recurring adjustments and all other
adjustments which are, in the opinion of management, necessary for a
fair presentation of such consolidated financial statements. Results
of operations for the three month period presented are not necessarily
indicative of the results to be expected for the year ending December
31, 1997. Certain information and footnote disclosures normally
included in the consolidated financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements, and the notes thereto, included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
March 31, December 31,
(In thousands) 1997 1996
Improvements to aircraft $2,366 $2,350
Flight equipment, primarily rotable parts 14,113 14,014
Maintenance and ground equipment 3,399 3,380
Computer hardware and software 1,592 1,464
Furniture and fixtures 359 296
Leasehold improvements 1,113 619
22,942 22,123
Less: Accumulated depreciation and
amortization 6,580 5,966
$16,362 $16,157
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
March 31, December 31,
(In thousands) 1997 1996
Accrued payroll and benefits $5,909 $4,929
Air traffic liability 1,990 2,703
Reservations and handling 1,828 2,454
Engine overhaul costs 2,997 3,311
Fuel 797 1,196
Other 3,467 2,783
$16,988 $17,376
4. INCOME TAXES
The Company's effective tax rate for the first quarter of 1997 was
approximately 29%. This estimated effective tax rate is lower than the
statutory rate due to revisions of income estimates and permanent
differences. The Company expects that in future periods the estimated
effective tax rate will more closely approximate the statutory rate
for state and federal taxes.
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
First Quarter Operating Results
Increase
(Decrease)
Three months ended March 31, 1997 1996 % Change
Revenue passengers 299,019 299,574 (0.2%)
Revenue passenger miles ("RPMs") 73,241 72,752 0.7%
(000's)
Available seat miles ("ASMs") 186,893 173,755 7.6%
(000's)
Passenger load factor 39.2% 41.9% (2.7 pts)
Break-even passenger load factor 1 38.2% 40.9% (2.7 pts)
Average yield per RPM (cents) 55.3 51.0 8.4%
Average passenger fare $135.44 $123.94 9.3%
Operating revenue per ASM (cents) 22.0 21.8 1.0%
Operating cost per ASM (cents) 2 21.4 21.3 0.5%
Revenue departures 33,136 31,534 5.1%
Revenue block hours 41,551 38,857 6.9%
Average passenger trip length 245 243 0.8%
(miles)
Aircraft utilization (block hours) 9.4 9.7 (3.1%)
Aircraft in service at May 15: 1997 1996
British Aerospace Jetstream-32 ("J- 29 29
32")
British Aerospace Jetstream-41 ("J- 31 27
41")
Total aircraft 60 56
Comparison of three months ended March 31, 1997, to three months ended
March 31, 1996.
General
In the first quarter of 1997 the Company posted a profit of
$0.7 million compared to a profit of $0.9 million for the first
quarter 1996. The Company's first quarter 1997 results reflect a
provision for income taxes which more closely approximates statutory
rates as compared to the first quarter 1996 which contained an
immaterial provision for income taxes due to the existence of a net
operating loss carryforward.
Operating results in the first quarter of 1997 reflected the
Company's ability to manage operations while expanding service. During
the quarter, the Company experienced increases in yield as well as a
reduction in break-even load factor. These results were further
strengthened by improvements in yield management, marketing, and a
generally improved economic environment for airlines.
Results of Operations
In the first quarter of 1997 the Company earned net income
of $0.7 million or $0.08 per fully diluted share compared to net
income of $0.9 million or $0.10 per fully diluted share in the first
quarter 1996. During the first quarter of 1997 the Company generated
operating income of $1.0 million compared to $1.1 million for the
first quarter of 1996. However, results for the first quarter of 1996
included a reversal of excess restructuring reserves of $0.3 million.
Unit revenue (operating revenue per ASM) increased by 1.0%
to 22.0 cents offset by an increase in unit costs (operating cost per
ASM) of 0.5% to 21.4 cents. A 7.6% increase in available seat miles
over the year earlier level, which resulted primarily from the
increased number of aircraft in service, contributed to a 2.7 point
decrease in passenger load factor. However, this was matched by a 2.7
point decrease in break-even load factor which was 38.2% in the first
quarter of 1997 compared to 40.9% in the first quarter of 1996 as a
result of improvements in the Company's yield.
Operating Revenues
The Company's operating revenue increased 8.6% to $41.1
million in the first quarter 1997 compared to $37.9 million in the
first quarter of 1996. The increase resulted from a 7.6% increase in
ASMs and an 8.4% increase in yield per revenue passenger mile to 55.3
cents compared to 51.0 cents in the first quarter 1996. Completion
factor improved 7.4 points to 95.7% in the first quarter 1997 compared
to 88.3% in the first quarter of 1996. Offsetting this increase was a
2.7 point decrease in load factor quarter over quarter. Total
passengers were comparable to 1996 levels showing a slight decline of
0.2% on a quarter over quarter basis.
Average passenger fare increased as a result of the
Company's improved yield management and the effect of fare increases.
Management believes that recent industry fare increases resulted in
part from the temporary expiration of the U.S. transportation tax on
two separate occasions. During the periods January 1, 1996 through
August 26, 1996, and January 1, 1997 through March 6, 1997, the
federal statute authorizing the ticket tax had expired. The Company
discontinued the collection of the ticket tax during these periods
consistent with industry practice. The amount of increase in revenue
due to the expirations of the ticket tax cannot be determined, nor can
the impact on revenue which resulted from the subsequent
reinstatements. The ticket tax is scheduled to expire again on
September 20, 1997. Recent indications are that the ticket tax will
continue in some form, although it is possible that the ticket tax
could be modified or replaced with a user fee. Such a change, if
adopted, could affect the Company's overall exposure to these fees.
Operating Expenses
The Company's operating expenses increased 9.1% in the first
quarter of 1997 compared to the first quarter of 1996 due primarily to
a 7.6% ASM increase; passenger related costs (traffic commissions and
related fees, which decreased as a percent of revenue) associated with
an 8.4% increase in yield; increased pilot wages due to a 6.9%
increase in block hours; additional aircraft rent expense resulting
from the addition of two J-41 aircraft; and a 17.1% increase in the
total cost of fuel. In the first quarter of 1996 operating expenses
included a reversal of excess restructuring reserves of $0.3 million.
An unaudited summary of operating expenses as a percentage
of operating revenues and operating cost per ASM for the three months
ended March 31, 1997, and 1996 is as follows:
1997 1996
Percent Cost Percent Cost
of per of per
Operating ASM Operating ASM
Revenues (cents) Revenues (cents)
Salaries and related costs 28.3% 6.1 28.0% 6.1
Aircraft fuel 10.5% 2.3 9.8% 2.1
Aircraft maintenance and 9.1% 2.0 9.7% 2.1
materials
Aircraft rentals and landing fees 20.2% 4.5 21.0% 4.6
Traffic commissions and related 15.4% 3.4 16.0% 3.5
fees
Depreciation and amortization 1.8% .4 1.7% .4
Other 12.2% 2.7 11.5% 2.5
Restructuring charge reversals - - (.7%) (.2)
Total 97.5% 21.4 97.0% 21.1
Salaries and related costs were $11.6 million in the first
quarter of 1997, an increase of 8.9% compared to $10.7 million for the
same period in 1996. The increased expenses are largely a result of
additional flight crew hours and ground personnel to support a 6.9%
increase in block hours, and contractual wage increases for pilots and
flight attendants effective March 1, 1997, and May 1, 1996.
Aircraft fuel expense was approximately $4.3 million in the
first quarter of 1997, an increase of 17.1% compared to $3.7 million
for the same period in 1996. The increase in fuel expense resulted
from a 9.5% increase in fuel price per gallon as well as a 6.9%
increase in block hours. Aircraft fuel prices fluctuate with a variety
of factors, including the price of oil, and future increases or
decreases cannot be predicted with a high degree of certainty. There
can be no assurance that further increases will not adversely affect
the Company's operating costs. However, during the latter half of the
first quarter of 1997 the price of fuel moderated to levels more
closely reflecting 1996 prices.
Aircraft maintenance and materials expense was unchanged at
$3.7 million in the first quarter of 1997, compared to $3.7 million
for the same period in 1996. During the first quarter of 1997 the
Company recognized credits of approximately $0.4 million for
manufacturer penalties related to engine overhauls and dispatch
reliability. Offsetting this was increased maintenance related to the
addition of two J-41 aircraft and the expiration of warranty coverage
for certain aircraft.
Aircraft rentals and landing fees were $8.3 million in the
first quarter of 1997, an increase of 4.5% compared to $8.0 million
for the same period in 1996. The increase resulted from rent and
landing fees associated with two additional J-41 aircraft delivered
during the first quarter of 1997, as well as increased landing fee
rates at certain of the airports the Company serves.
Traffic commissions and related fees were $6.3 million in
the first quarter of 1997, an increase of 4.9% compared to $6.1
million for the same period in 1996. The increase was primarily due to
a 9.1% increase in passenger revenue and contractual rate increases in
program fees paid to United Airlines, Inc. ("United").
Depreciation and amortization was $0.7 million in the first
quarter of 1997, an increase of 12.3% compared to $0.6 million for the
same period in 1996. The increase resulted primarily from the
acquisition of rotable spare parts associated with additional
aircraft, ground equipment, improvements to aircraft, facility
leasehold improvements, and other capital expenditures since the first
quarter of 1996.
Other operating expenses were $5.0 million in the first
quarter of 1997, an increase of 15.7% compared to $4.3 million for the
same period in 1996. The lower figure for the first quarter of 1996
reflected reversals of prior period accruals for denied boarding
compensation and passenger claims expense of $0.4 million and a
manufacturer credit of $0.2 million. In the first quarter of 1997
facility rentals and ground handling expenses increased $0.3 million
partially offset by reduced glycol expense of $0.2 million resulting
from the relatively mild winter weather in 1997.
As a result of the foregoing components, total operating
expenses were approximately $40.1 million in the first quarter of
1997, an increase of 9.1% compared to $36.8 million for the same
period in 1996. Total ASMs increased 7.6% quarter over quarter and the
cost per available seat mile increased slightly from 21.3 cents in the
first quarter of 1996 to 21.4 cents in the first quarter of 1997.
The Company's effective tax rate for the first quarter of
1997 was approximately 29%. This estimated effective tax rate is lower
than the statutory rate due to revisions of income estimates and
permanent differences. The Company expects that in future periods the
estimated effective tax rate will more closely approximate the
statutory rate for state and federal taxes.
Outlook
This Outlook section and the Liquidity and Capital Resources
section below contain forward-looking statements. The Company's actual
results may differ from the results discussed in forward-looking
statements. Factors that could cause the Company's future results to
differ materially from the expectations described here include the
extent to which the Company's operation of Canadair Regional Jet
Series 200 ER ("CRJ") is coordinated with the Company's code sharing
relationship, the response of the Company's competitors to the
Company's business strategy, the ability of the Company to obtain
favorable financing terms for its aircraft, market acceptance of the
new service (including jet service), routes and schedules offered by
the Company, the cost of fuel, the weather, satisfaction of regulatory
requirements, and the factors discussed below and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
A central element of the Company's business strategy is
expansion of its aircraft fleet. The Company has commitments to
acquire twelve 50-seat CRJs from July 1997 through 1998, and twelve 29-
seat J-41 aircraft during the period March 1997 through mid-1999. The
introduction of these aircraft, particularly the CRJs, will expand the
Company's business into new markets. In general, introduction of new
markets into the Company's route system results, at least in the short-
term, in operating expenses that may not be matched by increases in
operating revenues.
In order to operate the CRJs under the "United Express"
name, the Company must obtain United's consent under the marketing and
related agreements between the Company and United (the "United Express
Agreements"). The Company has sought United's consent, and is awaiting
United's response regarding incorporating the CRJs into its existing
United Express product. While the Company's fleet currently operates
only under the "United Express" name, the Company believes that it
will be able to operate CRJs successfully regardless of whether such
operation is under the United Express Agreements. Nonetheless, the
Company believes that its results of operations could be substantially
less favorable unless the CRJs are operated under the United Express
Agreements.
The Company must complete several training, operational, and
administrative requirements before commencing CRJ service. The Company
expects that it will be able to satisfy such requirements prior to the
anticipated in-service date of the first aircraft. The Company has not
previously operated jet aircraft but will operate these aircraft under
the same FAA regulatory requirements as its current fleet of aircraft.
The Company believes that the market will support the new routes and
schedules which the Company's expanded fleet will enable it to
implement. In addition, the Company expects that its customers will
find the new CRJs acceptable for relatively longer flights, enhancing
the Company's ability to compete in a broader geographic market.
The Company will incur significant expenses in its fleet
expansion program. Under the Company's contracts to acquire CRJs, the
Company is required to make deposits with the manufacturer totaling
$15.0 million. The Company deposited $4.0 million on January 9, 1997,
and on April 1, 1997 executed a short term promissory note with the
manufacturer for the remaining $11.0 million at 8% annual interest due
July 15, 1997. The Company believes that it will be able to pay or
refinance this obligation on or before the maturity date.
In addition, the CRJs and the additional J-41s will
significantly increase the Company's lease obligations. The Company is
exploring various third party lease financing arrangements for the
aircraft. However, the Company has backup lease financing arrangements
or sufficient financing support with the manufacturer of both the CRJs
and J-41s such that the Company believes it will be able to acquire
the aircraft at competitive rates.
The Airline Pilots Association ("ALPA") collective
bargaining agreement was amended on February 26, 1997 and is effective
for three years. The new contract modifies work rules to allow more
flexibility, includes regional jet pay rates, and transfers pilots
into the Company's employee benefit plans. The Company believes that
the incremental cost as a result of the amendments to the contract
will not have any material effect over the life of the agreement.
On March 11, 1994, the Aircraft Mechanics Fraternal
Association ("AMFA") was certified by the National Mediation Board
(the "NMB") as the collective bargaining representative elected by
mechanics and related employees of the Company. As of March 1, 1997,
AMFA represented 120 of the Company's employees. The Company and AMFA
have been attempting to negotiate an initial contract under federal
mediation since December 1994. As of May 12, 1997, the Company and
AMFA are continuing to negotiate the terms of an initial contract. If
at some point, the NMB should decide that the parties are deadlocked,
the NMB could declare an impasse along with a thirty day cooling off
period. At the conclusion of that period if an agreement has not been
reached, AMFA would have the authority to use self help, up to and
including the right to strike. The Company and AMFA are also engaged
in litigation, which is more fully described in Item 3, "Legal
Proceedings," below. If that litigation were resolved in AMFA's favor,
AMFA would be in a position to use self help, even if the NMB does not
declare an impasse.
The Company's contract with the Association of Flight
Attendants ("AFA") became amendable on April 30, 1997. As of May 15,
1997, negotiations regarding the amendment of this contract have not
been scheduled. The Company expects to continue operating under the
terms of the existing agreement until new terms are negotiated.
Liquidity and Capital Resources
During the first quarter of 1997, net cash used in operating
activities was $1.1 million compared to $1.7 million for the same
period in 1996. Net cash used in operating activities resulted
primarily from changes in operating assets and liabilities discussed
below.
Accounts receivable increased $1.2 million to $17.2 million
at March 31, 1997 compared to $16.0 million at December 31, 1996. The
increase was primarily attributable to the increased passenger ticket
receivables resulting from $14.8 million in passenger revenues in
March 1997 compared to $13.1 million in December 1996.
Prepaid expenses and other current assets increased $0.8
million to $3.4 million at March 31, 1997 compared to $2.6 million at
December 31, 1996. The increase resulted from the timing of payments
for aircraft rent, wages, and aircraft insurance.
Accrued liabilities decreased $0.4 million at March 31, 1997
compared to $17.4 million at December 31, 1996. The decrease resulted
from a reduction in reserves related to passenger ticket billings and
reduced fuel accruals offset by accruals for increased wages and
station expenses.
Net cash used in investing activities was $4.6 million
during the first quarter of 1997 compared to $0.2 million for the same
period in 1996. The net use of cash during the first quarter of 1997
was primarily attributed to a $4.0 million deposit made in January
1997 for the acquisition of CRJs.
Net cash provided by financing activities was $0.2 million
during the first quarter of 1997 compared to net cash used in
financing activities of $4.6 million for the same period in 1996. In
the first quarter of 1996 the Company redeemed $3.8 million in Series
A cumulative convertible preferred stock and paid the 1995 cumulative
preferred dividend of $0.3 million. During the first quarter of 1997
the Company received $0.7 million in rent concessions related to new
office space and made payments of $0.6 million on long term debt and
capital lease obligations.
Other Financing
The Company has an asset-based lending agreement with a
financial institution that provides the Company with a line of credit
of up to $20.0 million. Borrowings under the line of credit can
provide the Company a source of working capital until proceeds from
ticket coupons are received. The line is collateralized by all of the
Company's receivables and general intangibles and as of March 31,
1997, there was no outstanding balance.
In April 1997, the Industrial Development Authority of
Loudoun County, Virginia approved an $8.9 million tax exempt bond
issuance in connection with the Company's proposed construction of a
maintenance facility at the Washington-Dulles International Airport.
The anticipated term of the debt is twenty-five years. The Company
plans to issue bonds by the end of the second quarter, subject to
satisfactory negotiations with its current or alternative principal
financial institutional lender.
Aircraft
The Company is actively evaluating competitive aircraft
leasing arrangements for new and old aircraft as described below. On
January 8, 1997, the Company entered into an agreement with
Bombardier, Inc. to purchase twelve CRJs with options for thirty-six
additional aircraft. The delivery schedule provides for the Company
to take delivery of four aircraft in 1997 commencing in July, with the
remaining eight aircraft to be delivered during 1998. Under the terms
of the agreement, the Company is required to make deposits with the
manufacturer totaling $15.0 million. The Company deposited $4.0
million on January 9, 1997, and on April 1, 1997, executed a short
term promissory note with the manufacturer for the remaining $11.0
million at 8% annual interest due July 15, 1997. The Company believes
that it will be able to refinance this obligation on or before the
maturity date.
As of February 27, 1997, the Company entered into an
agreement with Aero International (Regional) to acquire twelve new J-
41 aircraft. Of the five deliveries scheduled for 1997, two such
aircraft were delivered during the first quarter, and two others have
been delivered and one additional aircraft is scheduled to be
delivered during the second quarter. The remaining aircraft are
scheduled for delivery in 1998 and 1999. These deliveries have or will
be delivered on financing provided by the manufacturer. Management
considers these terms to be acceptable although the Company has the
option to refinance the aircraft through third party leases, as well
as to refinance certain existing J-41s which are also presently
financed through the manufacturer. The Company is actively seeking
such third party financing although there is no certainty that such
financing will be obtained.
Capital Equipment and Debt Service
Capital expenditures for the first three months of 1997 were
$0.9 million compared to $0.2 million in the same period of 1996.
Capital expenditures consisted primarily of rotable spare parts,
facility leasehold improvements, furniture and fixtures, ground
service equipment, computers, and other office equipment. For the
remainder of 1997 the Company anticipates spending $10.9 million for
rotable spare parts related to the CRJs and J-41 aircraft, ground
service equipment, facilities, computers, and software.
Debt service including capital leases as of March 31, 1997,
was $3.5 million compared to $3.1 million in the same period of 1996.
The increase is primarily due to the addition of short term financing
for the acquisition of a J-41 aircraft engine and additional ground
service equipment.
The Company believes that, in the absence of unusual
circumstances, its cash flow from operations, the accounts receivable
credit facility, and other available equipment financing will be
sufficient to meet its working capital needs, capital expenditures,
and debt service requirements for the next twelve months.
ATLANTIC COAST AIRLINES, INC.
FISCAL QUARTER ENDED March 31, 1997
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is a party to routine litigation and FAA
proceedings incidental to its business, none of which is likely to
have a material effect on the Company's financial position.
The Company is a party to an action pending in the United
States District Court for the Southern District of Ohio, Peter J.
Ryerson, administrator of the estate of David Ryerson, v. Atlantic
Coast Airlines, Case No. C2-95-611. This action is more fully
described in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995. The Company believes that all claims
resulting from this litigation remain fully covered under the
Company's insurance policy. On March 10, 1997, the Court granted
Plaintiff's motion to the effect that liability would not be limited
to those damages available under the Warsaw Convention. As of March
21, 1997, the matter has not been set for trial.
The Company is in litigation with AMFA over the issue of
whether AMFA has a right to strike prior to the exhaustion of
mediation pursuant to the Railway Labor Act. See "Labor Groups" in
Item 1, above. The legal issue arose over the Company's imposition of
certain unilateral work rule changes during the period between union
certification and an initial collective bargaining agreement. AMFA
objected to this action, but the U.S. District Court for the Southern
District of New York, on December 14, 1995, ruled in favor of the
Company, declining to render AMFA's requested declaratory judgment and
expressly stating that AMFA was prohibited from striking at that time.
In Aircraft Mechanics Fraternal Association v. Atlantic Coast
Airlines, 5 F.3d 90, the U.S. Court of Appeals for the Second Circuit
affirmed the District Court's ruling. AMFA subsequently petitioned
again to the U.S. Court of Appeals for the Second Circuit to consider
the issue, not previously addressed by the Court, that the company's
actions, while legal, should allow AMFA to engage in self-help,
including the right to strike. The Second Circuit heard oral
arguments on this matter in January 1997 and the parties are awaiting
its decision.
ITEM 2. Changes in Securities.
None to report.
ITEM 3. Defaults Upon Senior Securities.
None to report.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None to report.
ITEM 5. Other Information.
None to report.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form-8K was filed on February 5, 1997, reporting
the naming of Paul H. Tate as the Company's Chief Financial
Officer on January 23, 1997 and the Company's order of
twelve CRJs on January 28, 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ATLANTIC COAST AIRLINES, INC.
May 15, 1997 By: /S/ Paul H. Tate
Paul H. Tate
Senior Vice President and Chief
Financial Officer
May 15, 1997 By: /S/ Kerry B. Skeen
Kerry B. Skeen
President and Chief Executive
Officer
_______________________________
1 "Break-even passenger load factor" represents the percentage of
available seat miles which must be flown by revenue passengers for the
airline to break-even after operating expenses excluding amounts
related to restructuring.
2 "Cost per available seat mile" represents total operating expenses
excluding amounts related to restructuring divided by available seat
miles.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,927
<SECURITIES> 0
<RECEIVABLES> 17,181
<ALLOWANCES> 0
<INVENTORY> 1,731
<CURRENT-ASSETS> 38,233
<PP&E> 16,362
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,177
<CURRENT-LIABILITIES> 23,571
<BONDS> 0
0
0
<COMMON> 170
<OTHER-SE> 37,666
<TOTAL-LIABILITY-AND-EQUITY> 65,177
<SALES> 41,114
<TOTAL-REVENUES> 41,114
<CGS> 0
<TOTAL-COSTS> 40,077
<OTHER-EXPENSES> 49
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 190
<INCOME-PRETAX> 988
<INCOME-TAX> 285
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<EXTRAORDINARY> 0
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<EPS-PRIMARY> 0.08
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