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, 1998
Commission file number 0-21976
ATLANTIC COAST AIRLINES HOLDINGS, INC.
Formerly known as 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 May 11, 1998, there were 9,504,759 shares of common stock, par
value $.02 per share, outstanding.
Part I. Financial Information
Item 1. Financial Statements
Atlantic Coast Airlines Holdings, Inc.
and Subsidiary
Condensed Consolidated Balance Sheets
December 31, March 31, 1998
(In thousands except for share data and par 1997 (Unaudited)
values)
Assets
Current:
Cash and cash equivalents $ 39,167 $ 41,802
Short term investments 10,737 930
Accounts receivable, net 21,621 26,466
Expendable parts and fuel inventory, 2,477 2,738
net
Prepaid expenses and other current 2,855 7,886
assets
Total current assets 76,857 79,822
Property and equipment at cost, net of
accumulated depreciation and 40,638 44,374
amortization
Preoperating costs, net of accumulated
amortization 2,004 1,876
Intangible assets, net of accumulated 2,613 2,545
amortization
Deferred tax asset 688 688
Debt issuance costs, net of accumulated 3,051 3,072
amortization
Aircraft deposits 19,040 19,420
Other assets 4,101 4,101
Total assets $ 148,992 $ 155,898
Liabilities and Stockholders' Equity
Current:
Accounts payable $ 4,768 $ 4,824
Current portion of long-term debt 1,851 2,195
Current portion of capital lease 1,730 1,195
obligations
Accrued liabilities 23,331 27,413
Total current liabilities 31,680 35,627
Long-term debt, less current portion 73,855 68,694
Capital lease obligations, less current 2,290 1,183
portion
Deferred credits 6,362 6,288
Total liabilities 114,187 111,792
Stockholders' equity:
Preferred Stock, $.02 par value per share;
shares authorized 5,000,000; no shares - -
issued or outstanding
Common stock: $.02 par value per share;
shares authorized 15,000,000; shares issued
8,739,507 and 9,185,535 respectively; 175 184
shares outstanding 7,267,007 and 7,713,035
respectively
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 40,296 46,606
Less: Common stock in treasury, at cost, (17,069) (17,069)
1,472,500 shares
Retained earnings 11,403 14,385
Total stockholders' equity 34,805 44,106
Total liabilities and stockholders' $ 148,992 $ 155,898
equity
See accompanying notes to the condensed consolidated financial
statements.
Atlantic Coast Airlines Holdings, Inc.
and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended March 31,
(In thousands, except for per share 1997 1998
data)
Operating revenues:
Passenger $ 40,500 $ 56,693
Other 614 1,362
Total operating revenues 41,114 58,055
Operating expenses:
Salaries and related costs 11,596 14,669
Aircraft fuel 4,325 5,065
Aircraft maintenance and materials 3,745 5,669
Aircraft rentals 7,302 8,267
Traffic commissions and related fees 6,347 9,118
Depreciation and amortization 720 1,387
Other 6,042 8,005
Total operating expenses 40,077 52,180
Operating income 1,037 5,875
Other income (expense):
Interest expense (190) (1,201)
Interest income 145 439
Other income (4) 30
Total other expense (49) (732)
Income before income tax provision 988 5,143
Income tax provision 285 2,160
Net income $ 703 $ 2,983
Income per share:
-basic $0.08 $0.39
-diluted $0.08 $0.32
Weighted average shares used in
computation:
-basic 8,501 7,581
-diluted 8,824 11,017
See accompanying notes to the condensed consolidated financial
statements.
Atlantic Coast Airlines Holdings, Inc.
and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three months ended March 31,
(In thousands) 1997 1998
Cash flows from operating activities:
Net income $ 703 $ 2,983
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation 617 1,210
Amortization of intangibles and preoperating costs 103 177
Provision for uncollectible accounts 30 15
Amortization of deferred credits (21) (74)
Amortization of debt issuance costs - 96
Loss on disposal of fixed assets 38 28
Amortization of debt discount and finance 13 25
costs
Changes in operating assets and liabilities:
Accounts receivable (1,250) (4,846)
Expendable parts and fuel inventory 28 (261)
Prepaid expenses and other current assets (840) (5,735)
Preoperating costs (101) (5)
Accounts payable (29) 55
Accrued liabilities (388) 4,079
Net cash used in operating activities (1,097) (2,253)
Cash flows from investing activities:
Purchases of property and equipment (850) (2,851)
Purchases of short term investments - (1)
Maturities of short term investments - 9,809
Refund of aircraft and other deposits 240 120
Payments for aircraft and other deposits (4,000) (500)
Net cash provided by (used in) investing (4,610) 6,577
activities
Cash flows from financing activities:
Payments of long-term debt (319) (228)
Payments of capital lease obligations (325) (1,703)
Deferred financing costs 20 (356)
Proceeds from receipt of deferred credits 686 -
Proceeds from exercise of stock options 102 598
Net cash provided by (used in) financing 164 (1,689)
activities
Net (decrease) increase in cash and cash (5,543) 2,635
equivalents
Cash and cash equivalents, beginning of period 21,470 39,167
Cash and cash equivalents, end of period $ 15,927 $ 41,802
See accompanying notes to the condensed consolidated financial
statements.
ATLANTIC COAST AIRLINES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been
prepared by Atlantic Coast Airlines Holdings, Inc. ("ACAI") and its
subsidiary, Atlantic Coast Airlines ("ACA"), (ACAI and ACA, 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 reflects all 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, 1998. Certain amounts as previously
reported have been reclassified to conform to the current year
presentation. 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 condensed 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, 1997.
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income",
which requires that comprehensive income and the associated income tax
expense or benefit be reported in financial statements with the same
prominence as other financial statements with an aggregate amount of
comprehensive income reported in that statement. For the periods
presented in this Form 10Q, the Company did not have any separately
reported components of comprehensive income and therefore, no separate
Statement of Comprehensive Income is presented.
2. SHORT TERM INVESTMENTS
As of March 31, 1998, the Company held $0.9 million of certificates of
deposit after approximately $9.8 million of commercial paper matured
in January 1998. The Company has classified these investments as
"available for sale" pursuant to Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities (SFAS 115)". The amortized costs of such investments
as of March 31, 1998, approximates fair market value due to the short
term nature of the related maturities. Accordingly, no adjustment has
been made to the stockholders equity section for any unrealized gains
or losses.
3. OTHER - COMMITMENTS
During the fourth quarter of 1997, the Company entered into an
agreement with Aero International (Regional) for the purchase of one
additional new Jetstream 41 ("J-41") aircraft, and also took delivery
of the aircraft under an interim manufacturer financing arrangement.
The Company is obligated to arrange third party financing of this
aircraft, or to purchase it outright, upon completion of certain
technical modifications relating to the aircraft, and expects to
complete this financing no later than June 30, 1998.
With respect to one Canadair Regional Jet ("CRJ") leased aircraft, at
December 31, 1997 (the "Prefunded Aircraft"), the proceeds from the
sale of the pass through certificates were deposited into collateral
accounts, to be released at the closing of a leveraged lease related
to the Prefunded Aircraft. In January 1998, an equity investor
purchased this aircraft and entered into a leveraged operating lease
with the Company for a term of 16.5 years and the collateral accounts
were released.
The Company completed third party financings for two additional
aircraft during the first quarter of 1998 as follows: In February
1998, one used J-41 through a single investor lease for a term of 10.5
years and in March 1998, one new CRJ through a single investor lease
for a term of 16.5 years. These financing agreements have been
accounted for as operating leases.
At March 31, 1998, the Company had firm orders to acquire 16
additional 50-seat CRJ aircraft and options to acquire 25 additional
CRJ's. Of the 16 firm CRJ orders, seven will be delivered during the
balance of 1998 and nine will be delivered in 1999.
4. INCOME PER SHARE
The computation of basic income per share is computed by dividing net
income by the weighted average number of common shares outstanding.
Diluted income per share is computed by dividing net income by the
weighted average number of common shares outstanding and common stock
equivalents, which consist of shares subject to stock options computed
using the treasury stock method. In addition, dilutive convertible
securities are included in the denominator while interest expense, net
of tax, for convertible debt is added to the numerator.
A reconciliation of the numerator and denominator used in computing
basic and diluted income per share is as follows:
Three months ended March 31, 1997 1998
Net income (basic) 703 2,983
Interest expense on 7% Convertible Notes net of tax
effect - 490
Net income (diluted) 703 3,473
Weighted average shares outstanding (basic) 8,501 7,581
Stock options 323 521
7% Convertible Notes - 2,915
Weighted average shares outstanding 8,824 11,017
5. SUBSEQUENT EVENTS
The Company temporarily reduced the conversion price of its 7%
Convertible Subordinated Notes ("Notes") during the period March 25 -
April 8, 1998. During the period, holders of $31.7 million of the
Notes submitted their Notes for conversion to common stock. These
notes were converted into 1.8 million shares of common stock which
includes an additional 28,087 shares issued as the inducement related
to the reduced conversion price. The Company will record in the
second quarter of 1998 a one-time non-cash, non-operating expense of
approximately $1.4 million as the fair market value of the inducement.
On April 14, 1998, the Company declared a 2-for-1 stock split payable
as a stock dividend on May 15, 1998. The stock dividend was
contingent on shareholder approval to increase the number of
authorized common shares from 15,000,000 to 65,000,000 shares.
Shareholder approval was obtained on May 5, 1998. Because the stock
dividend has not yet occurred, the effect of this stock split is not
reflected in the calculation of income per share or shareholders
equity as presented herein for the quarter ended March 31, 1998.
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 1998 % Change
Revenue passengers carried 299,01 464,99 55.5%
9 3
Revenue passenger miles ("RPMs") 73,241 139,59 90.6%
(000's) 6
Available seat miles ("ASMs") (000's) 186,89 284,98 52.5%
3 1
Passenger load factor 39.2% 49.0% 9.8 pts
Break-even passenger load factor 1 38.2% 43.9% 5.7 pts
Revenue per ASM (cents) 21.7 19.9 (8.2%)
Yield (cents) 55.3 40.6 (26.6%)
Cost per ASM (cents) 21.4 18.3 (14.6%)
Average passenger fare $135.4 $121.9 (10.0%)
4 2
Average passenger segment (miles) 245 300 22.6%
Revenue departures 33,136 38,986 17.7%
Revenue block hours 41,551 51,237 23.3%
Aircraft utilization (block hours) 9.4 9.1 (3.2%)
Average cost per gallon of fuel (cents) 85.0 69.1 (18.6%)
Aircraft in service (end of period) 58 68 17.2%
Comparison of three months ended March 31, 1997, to three months ended
March 31, 1998.
Results of Operations
The following Management's Discussion and Analysis contains
forward-looking statements and information that are based on
management's current expectations as of the date of this document.
When used herein, the words "anticipate", "believe", "estimate" and
"expect" and similar expressions, as they relate to the Company's
management, are intended to identify such forward-looking statements.
Such forward-looking statements are subject to risks, uncertainties,
assumptions and other factors that may cause the actual results of the
Company to be materially different from those reflected in such
forward-looking statements. Such factors include, among others, the
costs of implementing regional jet service, 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 regional jet service, routes and
schedules offered by the Company, the cost of fuel, the weather, the
outcome of labor negotiations, general economic conditions,
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, 1997. The Company does not intend to update these
forward-looking statements prior to its next required filing with the
Securities and Exchange Commission.
General
In the first quarter of 1998 the Company posted net income
of $3.0 million compared to net income of $703,000 for the first
quarter of 1997. In the three months ended March 31, 1998, the
Company earned pretax income of $5.1 million compared to $1.0 million
in the three months ended March 31, 1997.
Operating Revenues
The Company's operating revenues increased 41.2% to $58.1
million in the first quarter of 1998 compared to $41.1 million in the
first quarter of 1997. The increase resulted from a 52.5% increase in
ASMs and an increase in load factor of 9.8 percentage points,
partially offset by a 26.6% decrease in yield.
The increase in ASM's is largely the result of the
introduction into service of the 50 seat Canadair Regional Jet ("CRJ")
during the fourth quarter of 1997. The Company operated seven CRJ's
as of March 31, 1998. In addition, the average aircraft stage length
for the first quarter 1998 increased 10.7% over the first quarter 1997
to 258 miles.
The quarter over quarter percentage reduction in yield is
related in part to the temporary expiration of the ticket tax from
January 1, 1997 to March 6, 1997 and to the 22.6% increase in the
average passenger trip length. Total passengers increased 55.5% in
the first quarter of 1998 compared to the first quarter of 1997.
Operating Expenses
The Company's operating expenses increased 30.2% in the
first quarter of 1998 compared to the first quarter of 1997 due
primarily to a 52.5% increase in ASMs and a 55.5% increase in
passengers carried. The increase in ASMs reflects the net addition of
seven CRJ's and three British Aerospace Jetstream - 41 ("J-41")
aircraft since the first quarter of 1997.
A summary of operating expenses as a percentage of operating
revenues and cost per ASM for the three months ended March 31, 1997,
and 1998 is as follows:
1997 1998
Percent Cost Percent Cost
of of
Operati Per ASM Operatin per ASM
ng g
Revenue (cents) Revenue (cents)
s s
Salaries and related costs 28.3% 6.1 25.3% 5.1
Aircraft fuel 10.5% 2.3 8.7% 1.8
Aircraft maintenance and 9.1% 2.0 9.8% 2.0
materials
Aircraft rentals 17.8% 3.9 14.2% 2.9
Traffic commissions and related 15.4% 3.4 15.7% 3.2
fees
Depreciation and amortization 1.8% 0.4 2.4% 0.5
Other 14.6% 3.3 13.8% 2.8
Total 97.5% 21.4 89.9% 18.3
Cost per ASM decreased 14.5% to 18.3 cents during the first
quarter of 1998 compared to 21.4 cents during the first quarter of
1997 primarily due to a 52.5% increase in ASMs and a 10.7% increase in
average aircraft stage length in the first quarter of 1998 compared to
the first quarter of 1997. The increase in ASMs resulted from the net
addition of seven CRJ's and three J-41 aircraft offset by a 3.2%
decrease in aircraft utilization.
Salaries and related costs per ASM decreased 16.4% to 5.1
cents in the first quarter of 1998 compared to the first quarter of
1997. In absolute dollars, salaries and related costs increased 26.7%
from $11.6 million in the first quarter of 1997 to $14.7 million in
the first quarter of 1998. The increase resulted primarily from
additional flight crews, customer service personnel and maintenance
personnel to support the seven regional jets and three additional J-41
aircraft.
The cost per ASM of aircraft fuel decreased to 1.8 cents in
the first quarter of 1998 compared to 2.3 cents in the first quarter
of 1997. In absolute dollars, aircraft fuel expense increased 17.1%
from $4.3 million in the first quarter of 1997 to $5.1 million in the
first quarter of 1998. The increased fuel cost resulted from the 23.3%
increase in block hours, partially offset by a 18.6% decrease in the
average cost per gallon of fuel from 85 cents to 69.1 cents. Aircraft
fuel prices fluctuate with a variety of factors, including the price
of crude oil, and future increases or decreases cannot be predicted
with a high degree of certainty. There is no assurance that future
increases will not adversely affect the Company's operating expenses.
In January and March 1998, the Company entered into contracts to
purchase fuel at fixed prices from United Aviation Fuels Corporation,
a wholly owned subsidiary of United Airlines for the period February
through December 1998. The Company is committed to purchase 33,000
barrels per month at a delivered price excluding taxes and into plane
fees of 52.2 cents per gallon February through September 1998, and
50.35 cents per gallon October through December 1998.
The cost per ASM of aircraft maintenance and materials
remained unchanged at 2.0 cents in the first quarter of 1998 compared
to the first quarter of 1997. In absolute dollars, aircraft
maintenance and materials expense increased 51.4% from $3.7 million in
the first quarter of 1997 to $5.7 million in the first quarter of
1998. The increased expense resulted from the increase in the size of
the fleet by ten aircraft, an increase in the average age of the turbo
prop fleet and expiration of warranty coverage on certain aircraft. In
addition, the first quarter 1997 amounts reflect a $400,000 expense
reduction received from a vendor for aircraft maintenance performance
guarantees.
The cost per ASM of aircraft rentals decreased to 2.9 cents
for the first quarter of 1998 compared to 3.9 cents for the first
quarter of 1997. In absolute dollars, aircraft rentals increased 13.2%
from $7.3 million in the first quarter of 1997 to $8.3 million in the
first quarter of 1998 reflecting the addition of seven CRJ aircraft,
offset by savings resulting from the refinancing of 18 J-41 leases
after the first quarter of 1997.
The cost per ASM of traffic commissions and related fees
decreased to 3.2 cents in the first quarter of 1998 compared to 3.4
cents in the first quarter of 1997. In absolute dollars, traffic
commissions and related fees increased 43.6% from $6.3 million in the
first quarter of 1997 to $9.1 million in the first quarter of 1998.
The increase in costs resulted from a 40% increase in passenger
revenues, a 55.5% increase in passengers, and contractual rate
increases in fees paid to United Airlines, Inc. ("United") and
Computer Reservation System vendors. These increases were partially
offset by the reduction in the travel agency commission rate from 10%
to 8% enacted in late 1997. Since substantially all passenger
revenues are derived from interline sales, the Company did not begin
realizing the savings from this reduction until February 1998.
The cost per ASM of depreciation and amortization increased
to 0.5 cents in the first quarter of 1998 compared to 0.4 cents for
the first quarter of 1997. In absolute dollars, depreciation and
amortization increased 92.6% from $0.7 million in the first quarter of
1997 to $1.4 million in the first quarter of 1998 primarily as a
result of additional rotable spare parts associated with the CRJs and
the J-41 aircraft.
The cost per ASM of other operating expenses decreased to
2.8 cents in the first quarter of 1998 from 3.3 cents in the first
quarter of 1997. In absolute dollars, other operating expenses
increased 32.5% from $6 million in the first quarter of 1997 to $8
million in the first quarter of 1998. The increased costs result
primarily from the 17.7% increase in the number of departures and the
55.5% increase in passengers.
As a result of the foregoing changes in operating expenses,
and a 52.5% increase in ASMs, total cost per ASM decreased to 18.3
cents in the first quarter of 1998 compared to 21.4 cents in the first
quarter of 1997. In absolute dollars, total operating expenses
increased 30.2% from $40.1 million in the first quarter of 1997 to
$52.2 million in the first quarter of 1998.
The Company's combined effective tax rate for state and
federal taxes during the first quarter of 1998 was approximately 42%
as compared to 29.0% for the first quarter 1997. The Company estimates
that the effective tax rate will remain 42% for the remainder of 1998.
Outlook
This Outlook section contains forward-looking statements
which are subject to the risks and uncertainties set forth above on
pages 8 and 9.
A central element of the Company's business strategy is
expansion of its aircraft fleet. At March 31, 1998, the Company was
operating seven CRJ's, had firm orders to acquire an additional 16
CRJ's and options to acquire an additional 25 CRJ's. Of the 16 firm
orders remaining at March 31, 1998, one was delivered in April, six
are expected to be delivered during the balance of 1998, and nine will
be delivered in 1999. The introduction of these additional aircraft
will expand the Company's business into new markets. In general,
service to new markets may result in increased operating expense that
may not be immediately offset by increases in operating revenues.
In April 1998, the Company was awarded 16 limited use slots
at Chicago's O'Hare International Airport to operate non-stop regional
jet service to Springfield/Branson, MO., Wilkes-Barre/Scranton, PA.
and Charleston, W. VA. The Company anticipates starting United
Express service on these routes in the second half of 1998.
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 May 1, 1998, AMFA represented
106 employees, including all of the Company's maintenance personnel.
The Company and AMFA have been attempting to negotiate an initial
contract under federal mediation since December 1994 but so far have
failed to reach an agreement. In May 1998, the NMB declared an
impasse and the parties entered into a thirty-day cooling-off period.
Negotiations will continue during this cooling-off period, which will
expire on June 8, 1998. The Company has also entered into a letter of
understanding with AMFA by which both parties have agreed that if a
contract is not reached by the end of the cooling-off period, the
employees will be given the opportunity to accept or reject the
Company's final contract offer, with a vote to take place by June 23,
1998. If an agreement is not reached by then, the parties will have
the right to use self-help. For AMFA, this would include the right to
strike, and for the Company it would include the right to implement a
contract. The Company believes that this process is the best means to
bring closure to the negotiations.
The Company's contract with the Association of Flight
Attendants ("AFA") became amendable on April 30, 1997. In March 1998,
a tentative agreement between the Company and AFA was rejected by a
vote of the members. The Company expects to resume negotiations
during the second calendar quarter and will continue to operate under
the terms of the existing agreement until negotiations are completed.
Liquidity and Capital Resources
The Company's working capital improved significantly during
the first three months of 1998 compared to the first three months of
1997. As of March 31, 1998, the Company had cash, cash equivalents,
and short term investments of $42.7 million and working capital of
$44.2 million compared to $15.9 million and $14.7 million respectively
as of March 31, 1997. During the first three months of 1998, cash and
cash equivalents increased by $2.6 million, reflecting net cash used
in operating activities of $2.3 million, net cash provided by
investing activities of $6.6 million and net cash used in financing
activities of $1.7 million. The net cash used in operating activities
is primarily the result of the prepayment of six months rent for six
CRJ aircraft partially offset by the net income from operations. The
net cash provided by investing activities consisted primarily of the
sale of $9.8 million in short term investments offset by capital
expenditures of $2.9 million. The net cash used in financing
activities consisted primarily of the payments of 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, depending on the amount of assigned ticket
receivables. 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 there were no borrowings under the line during the
first three months of 1998. The Company has pledged $7.7 million of
this line of credit as collateral to secure letters of credit issued
on behalf of the Company by a financial institution. At March 31,
1998, the available amount of credit was $8.8 million.
In 1997, the Company issued $57.5 million aggregate
principal amount of 7% Convertible Subordinated Notes due July 1,
2004("the Notes"). The Company received net proceeds of approximately
$55.6 million related to the sale of the Notes. The Notes are
convertible into shares of Common Stock, unless previously redeemed or
repurchased, at a conversion price of $18.00 per share, subject to
certain adjustments. Interest on the Notes is payable on April 1 and
October 1 of each year, commencing October 1, 1997. The Notes are not
redeemable by the Company until July 1, 2000.
In January 1998, approximately $5.9 million of the Notes
were converted at the option of the holders into 330,413 shares of
Common Stock. In March 1998, for a limited period of time, the
Company reduced the conversion price from $18.00 to $17.72 for holders
of the Notes. During the inducement period, which ended on April 8,
1998, $31.7 million of the Notes had been converted into approximately
1.8 million shares of Common Stock. In the second quarter of 1998,
the Company will record a one-time, non-cash, non-operating expense of
approximately $1.4 million representing the fair value of the
additional shares given as the inducement. As a result of these early
conversions, the Company's annual interest payments will be $2.6
million less than if none of the Notes had been converted. After the
conversion of these notes, $19.9 million of the Notes remain
outstanding.
Other Commitments
In July 1997, the Company entered into a series of interest
rate swap contracts in the amount of $39.8 million. The swaps were
executed by purchasing six contracts maturing between March and
September 1998 with a third party as the counterparty. The interest
rate hedge was designed to limit approximately 50% of the Company's
exposure to interest rate changes until permanent financing for the
six CRJ aircraft, scheduled for delivery between March and September
1998, was secured. In March 1998, the Company settled the first
contract in conjunction with delivery of the first of these six CRJ
aircraft. The Company paid the counterparty $305,000 to settle the
contact and is amortizing this cost over the life of the related
aircraft lease. At March 31, 1998, had the remaining five contracts
settled on that date, the Company would have been obligated to pay the
counterparty approximately $1.3 million.
In January 1998, the Company entered into a contract to purchase
fuel at a fixed price from United Aviation Fuels Corporation ("UAFC"),
a wholly-owned subsidiary of United Airlines during the period
February through September 1998. The Company has committed to
purchase 33,000 barrels of fuel per month during the term of this
contract at a delivered price, excluding taxes and into plane fees, of
52.2 cents per gallon. In March 1998, the Company extended the
contract through December 1998 committing to purchase 33,000 barrels
per month, October through December, at a delivered price excluding
taxes and into plane fees of 50.35 cents per gallon. Fuel purchased
under this arrangement represents approximately 46% of the Company's
anticipated 1998 fuel requirements.
Aircraft
On March 4, 1998, the Company amended its order with Bombardier,
Inc. to increase its total number of CRJs, delivered and to be
delivered, to 23, with options to purchase an additional 25.
During the fourth quarter of 1997, the Company entered into an
agreement with Aero International (Regional) for the purchase of one
additional new Jetstream 41 aircraft, and took delivery of the
aircraft under an interim manufacturer financing arrangement. The
Company is obligated to arrange third party financing of this
aircraft, or to purchase it outright, upon completion of certain
technical modifications relating to the aircraft, and presently
expects to complete this financing during the second quarter of 1998.
Capital Equipment and Debt Service
Capital expenditures for the first three months of 1998 were
$4.2 million compared to $0.9 million for the same period in 1997.
Capital expenditures in the first three months of 1998 consisted
primarily of the purchase of rotable spare parts for the J-41 and CRJ
aircraft, facility leasehold improvements, ground equipment, computer
and office equipment, and other capital expenditures. For the
remainder of 1998 the Company anticipates spending approximately $17
million for rotable spare parts related to J-41 and CRJ aircraft,
ground service equipment, facilities, computers, and software with
some of these acquisitions being financed under anticipated
commercially acceptable terms.
Debt service including capital leases for the three months
ended March 31, 1998, was $1.9 million compared to $0.6 million in the
same period of 1997. The increase is primarily the result of payments
made for the early retirement of aircraft-related debts.
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, 1998
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
The Company is a party to routine litigation 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 10K for the fiscal
year ended December 31, 1995. 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. The Company
is currently unable to estimate the monetary award, if any, resulting
from this litigation, but believes it remains fully covered under the
Company's insurance policy.
The Company is also a party to an action pending in the
United States Court of Appeals for the Fourth Circuit known as Afzal
v. Atlantic Coast Airlines, Inc. (No. 98-1011). This action is an
appeal of the December 1997 decision granted in favor of the Company
in a case claiming wrongful termination of employment brought in the
United States District Court for the Eastern District of Virginia
known as Afzal v. Atlantic Coast Airlines, Inc. (Civil Action No. 96-
1537-A). The Company does not expect the outcome of this case to have
any material adverse effect on its financial condition or results of
its operations.
ITEM 2. Changes in Securities.
In January 1998, $5.9 million of the Company's 7%
Convertible Subordinated Notes ("Notes") were converted into 330,413
shares of common stock. In April 1998, $31.7 million of Notes were
converted into 1,788,391 shares of common stock. The Notes were
originally issued under Rule 144A of the Securities Act of 1933.
ITEM 3. Defaults Upon Senior Securities.
None to report.
ITEM 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of shareholders of the Company was held
in Herndon, Virginia on May 5, 1998. Of the 7,640,286 shares of
common stock outstanding on the record date, 6,729,471 were present by
proxy. Those shares were voted on the matters before the meeting as
follows:
1. Election of Directors For Withheld
C. Edward Acker 6,719,536 9,935
Kerry B. Skeen 6,715,581 13,890
Thomas J. Moore 6,716,709 12,762
Robert E. Buchanan 6,720,640 8,831
Susan MacGregor Coughlin 6,720,438 9,033
Joseph W. Elsbury 6,720,940 8,531
James J. Kerley 5,630,454 1,099,017
James C. Miller 6,720,838 8,633
John M. Sullivan 6,721,040 8,401
2. To approve amendment to the Company's Certificate of
Incorporation to change the Company's name to "Atlantic Coast Airlines
Holdings, Inc."
For Against Abstain
6,710,761 10,979 7,731
3. To approve amendment to the Company's Certificate of
Incorporation to increase the Company's authorized shares to
76,000,000.
For Against Abstain Not Voted
5,331,160 1,372,016 10,499 15,976
4. To ratify amendment to the Company's 1995 Stock Incentive Plan to
increase the shares available under the Plan to 1,250,000.
For Against Abstain Not Voted
3,975,241 1,947,446 10,709 796,075
5. To ratify appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the current year.
For Against Abstain
6,706,485 10,701 12,285
ITEM 5. Other Information.
None to report.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11.1 Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None to report.
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 HOLDINGS, INC.
May 14, 1998 By: /S/ Paul H. Tate
Paul H. Tate
Senior Vice President and Chief
Financial Officer
May 14, 1998 By: /S/ Kerry B. Skeen
Kerry B. Skeen
President and Chief Executive
Officer
_______________________________
1 "Break-even passenger load factor" represents the percentage of ASMs
which must be flown by revenue passengers for the airline to break-
even after operating expenses.
EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF INCOME PER SHARE:
Three months ended March 31, 1997 1998
(in thousands, except for income Basic Basic
per share data) Diluted Diluted
Share calculation:
Weighted average shares outstanding 8,501 8,501 7,581 7,581
Common stock equivalents due to assumed - 323 - 521
exercise of options
Common stock equivalents due to assumed
exercise of 7% Convertible Notes - - - 2,915
Total common shares and common stock 8,501 8,824 7,581 11,017
equivalents
Adjustments to net income:
Net income $ 703 $ 703 $2,983 $2,983
Interest expense on 7% Convertible - - - 490
Notes
Net income available to common
shareholders $ 703 $ 703 $2,983 $3,473
Income per share $ 0.08 $ 0.08 $ 0.39 $ 0.32
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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