<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------ --------------
Commission File No: 0-26914
AirTran Holdings, Inc.
(Exact name of registrant as specified in its charter)
Nevada 58-2189551
------ ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9955 AirTran Boulevard, Orlando, Florida 32827
-----------------------------------------------
(Address of principal executive offices) (Zip code)
(407) 251-5600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 1, 1998, there were 64,553,105 shares of Common Stock of the
Registrant outstanding.
<PAGE>
AIRTRAN HOLDINGS, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998 and December 31, 1997
Consolidated Statements of Operations - Three months ended March 31,
1998 and 1997
Consolidated Statements of Cash Flows - Three months ended March 31,
1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
AIRTRAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1998 1997
- ------ ---------- -----------
<S> <C> <C>
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 65,480 $ 86,025
Restricted cash 7,648 5,965
Accounts receivable, less allowance of $1,496 and $1,354 at
March 31, 1998 and December 31, 1997, respectively 14,245 5,660
Income tax receivable 9,373 8,862
Inventory, less allowance for obsolescence of $2,641 and $1,325 at
March 31, 1998 and December 31, 1997, respectively 11,321 11,650
Prepaid expenses 2,438 2,811
Other current assets 4,161 3,079
-------- --------
Total current assets 114,666 124,052
Property and equipment:
Flight equipment 273,322 264,082
Other property and equipment 22,435 22,805
Less: Accumulated depreciation (80,008) (74,643)
-------- --------
215,749 212,244
Purchase deposits for flight equipment 29,724 22,101
-------- --------
245,473 234,345
Cost in excess of net assets acquired 57,315 57,776
Debt issuance costs 9,144 9,863
Other assets 10,591 7,828
-------- --------
Total assets $437,189 $433,864
======== ========
See accompanying notes to consolidated financial statements. (Continued)
</TABLE>
3
<PAGE>
AIRTRAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
Liabilities and Stockholders' Equity 1998 1997
- ------------------------------------ ----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 13,266 $ 12,215
Accrued liabilities 59,393 61,574
Air traffic liability 28,910 14,916
Current portion of long-term debt 8,760 9,461
-------- --------
Total current liabilities 110,329 98,166
Long-term debt, less current portion 239,578 241,251
-------- --------
Total liabilities 349,907 339,417
Stockholders' equity:
Preferred stock, $.01 par value per share, 5,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.001 par value per share, 1,000,000,000 shares
authorized, and 64,524,307 and 64,312,207 shares issued and
outstanding at March 31, 1998 and December 31, 1997, respectively 64 64
Additional paid-in capital 145,645 144,937
Accumulated deficit (58,427) (50,554)
-------- --------
Total stockholders' equity 87,282 94,447
-------- --------
Total liabilities and stockholders' equity $437,189 $433,864
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AIRTRAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share and per share data)
<TABLE>
<CAPTION>
For the three months ended
March 31,
------------------------------
1998 1997
------------------------------
(Unaudited)
<S> <C> <C>
Operating revenues:
Passenger $89,086 $ 35,115
Cargo 798 449
Other 4,657 1,364
---------- ----------
Total operating revenues 94,541 36,928
Operating expenses and other, net
Flight operations 10,416 4,103
Aircraft fuel 16,652 9,136
Maintenance 18,867 14,105
Station operations 20,294 10,353
Passenger services 4,101 1,695
Marketing and advertising 6,434 2,352
Sales and reservations 10,820 3,078
General and administration 3,522 2,796
Depreciation 6,330 4,885
Gain on disposal of property (21) (49)
Shutdown and other non-recurring expenses - 9,338
---------- ----------
Total operating expenses and other, net 97,415 61,792
---------- ----------
Operating loss (2,874) (24,864)
Interest (income) expense:
Interest income (1,641) (1,566)
Interest expense 7,091 6,209
---------- ----------
Interest (income) expense, net 5,450 4,643
---------- ----------
Loss before income taxes (8,324) (29,507)
Income tax benefit (451) (11,000)
---------- ----------
Net loss $(7,873) $(18,507)
========== ==========
Basic loss per share $ (0.12) $ (0.34)
========== ==========
Diluted loss per share $ (0.12) $ (0.34)
========== ==========
Weighted average number of shares outstanding (basic and diluted) 64,417,145 54,877,153
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AIRTRAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1998 1997
--------------------------
(Unaudited)
<S> <C> <C>
Operating activities:
Net loss $ (7,873) $(18,507)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 6,964 7,120
Provisions for uncollectible accounts 961 559
Gain from disposal of assets (21) (49)
Changes in current operating assets and liabilities:
Restricted cash (1,683) -
Accounts receivable (10,057) (37)
Other current assets (753) 2,276
Prepaid expenses and deposits (2,390) -
Accounts payable and accrued liabilities (1,130) 7,585
Air traffic liability 13,994 5,780
Income tax payable - (9,809)
-------- --------
Net cash flows used for operating activities (1,988) (5,082)
Investing activities:
Purchases of property and equipment (16,951) (3,134)
Proceeds from disposal of equipment 60 705
-------- --------
Net cash flows used for investing activities (16,891) (2,429)
Financing activities:
Payments of long-term debt (2,374) (3,645)
Proceeds from sale of common stock 708 14
-------- --------
Net cash flows used for financing activities (1,666) (3,631)
-------- --------
Net decrease in cash and cash equivalents (20,545) (11,142)
Cash and cash equivalents at beginning of period 86,025 150,013
------- --------
Cash and cash equivalents at end of period $ 65,480 $138,871
======== ========
Supplemental disclosures of cash flow activities:
Cash paid for interest $ 448 $ 361
======== ========
Cash paid for income taxes $ - $ -
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AIRTRAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
A. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited, consolidated interim
financial statements contain all adjustments necessary to present fairly the
Company's financial position as of March 31, 1998 and December 31, 1997, the
results of operations for the three month periods ended March 31, 1998 and 1997,
and cash flows for the three month periods ended March 31, 1998 and 1997.
Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission for Form 10-Q. It is suggested that
these unaudited interim financial statements be read in conjunction with the
audited financial statements and the notes thereto included in the Annual Report
on Form 10-K for the year ended December 31, 1997. The results of operations
for the three month period ended March 31, 1998 are not necessarily indicative
of the results to be expected for the full fiscal year.
B. RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform to the current year presentation.
C. NET LOSS PER SHARE
In February 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("Statement 128").
Statement 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effect of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
D. FREQUENT FLYER PROGRAM
The Company established its A-Plus Rewards frequent flyer program in the first
quarter of 1998. The Company accrues the estimated incremental cost of
providing free travel awards earned under its A-Plus Rewards frequent flyer
program when free travel awards are redeemed.
E. DEPRECIATION
Depreciation is calculated on a straight-line basis to estimated residual values
over estimated depreciable lives. These estimates are periodically reviewed for
reasonableness and revised if necessary. Effective January 1, 1998, the Company
revised its estimated residual values and useful lives on certain of its DC-9
aircraft related equipment as follows:
<TABLE>
<CAPTION>
Prior years' Current Prior years' Current
Salvage Value Salvage Value Useful Life Useful Life
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Airframes 10% 40% 10-12 years 10-12 years
Engines 10% 10% 3 years 10-12 years
Aircraft parts 5-50% 5% 3 years fleet life
</TABLE>
7
<PAGE>
The revised salvage value of the Company's DC-9 fleet ranges from approximately
$434,000 to $2,614,000 per aircraft. The effect of this change for the quarter
ended March 31, 1998 was to decrease the net loss approximately $3.1 million or
$0.05 per share. These estimates more accurately reflect management's
expectations of estimated fair values at the anticipated dates of disposal.
F. COMMITMENTS AND CONTINGENCIES
On May 11, 1996, the Company suffered a tragic loss involving Flight 592. The
accident resulted in extensive media coverage calling into question the safety
of low-fare airlines in general and the Company in particular. In response to
the accident, the Federal Aviation Administration (FAA) conducted an
extraordinary review of the Company's operations. As a result the Company
entered into a consent order with the FAA under which the Company agreed to
several matters including the suspension of operations. The Company restarted
operations on September 30, 1996.
As a result of the above mentioned events, numerous lawsuits were filed against
the Company seeking damages attributable to the deaths of those on Flight 592.
Thus far, a total of approximately 80 such lawsuits have been filed against
AirTran Airlines, Inc. Most of the cases were initially removed to the federal
court. That court, however, remanded the majority of the actions to the state
courts from which they originated and retained jurisdiction for only seven
cases. As a consequence, most of the cases will proceed in the state courts in
Florida, Georgia, Texas and Missouri. The Company's insurance carrier has
assumed defense of these suits under a reservation of rights against third
parties. The insurance carrier has settled and paid approximately 60 claims and
is pursuing settlements in the balance of the claims. In the remaining
lawsuits, a third party maintenance contractor has been named as a co-defendant
as a result of the role that it played in the accident. As all claims are
handled independently by the Company's insurance carrier, the Company cannot
reasonably estimate the amount of liability which might finally exist. As a
result, no accruals for losses and the related claim for recovery from the
Company's insurance carrier have been reflected in the Company's financial
statements. The Company maintains $750 million of liability insurance, per
occurrence, with a major group of independent insurers that provides facilities
for all forms of aviation insurance for many major airlines.
Although the Company believes, based on the information currently available to
it, that such coverage is sufficient to cover claims arising out of the loss of
Flight 592 and that the insurers have sufficient financial strength to pay
claims, there can be no assurance that the total amount of judgments and
settlements will not exceed the amount of insurance available therefor or that
all damages awarded will be covered by insurance.
In November 1997, the Company filed a suit in the Circuit Court of St. Louis
County, Missouri against a third party maintenance contractor, seeking to hold
it responsible for the accident involving Flight 592. The complaint seeks
indemnification against losses attributable to the lawsuits referred to above
and other damages that the Company suffered as a result of the accident.
In May 1997, the third party maintenance contractor filed a Complaint for
declaratory judgment and other relief against the Company. The action seeks a
determination that the third party maintenance contractor is not liable to the
Company for the accident involving Flight 592 as a result of language contained
in certain of the contracts between the parties and that the Company is liable
to the third party maintenance contractor for damages that it has suffered. The
Company intends to vigorously defend this lawsuit and to assert all claims it
has against the third party maintenance contractor.
Also in May 1997, the State of Florida filed suit against the Company and its
insurers in the United States District Court for the Southern District of
8
<PAGE>
Florida seeking recovery of costs incurred relating to the accident involving
Flight 592. The Company does not believe that it is obligated for such amounts
and has filed a motion to dismiss this lawsuit.
Several governmental inquiries and investigations have been launched in
connection with the loss of Flight 592, including investigations by the DOT, the
National Transportation Safety Board, the U.S. Attorney's office in Atlanta,
Georgia and Miami, Florida and certain state agencies in Florida. Although the
Company does not believe, based on information currently available to it, that
such investigations and inquiries will result in any finding of criminal
wrongdoing on its part, the investigations have not yet been concluded and the
possibility of such a finding cannot be ruled out. The Company may also be
assessed civil penalties in connection with the accident and/or the results of
ensuing investigations. Any such findings or penalties could be material.
Several stockholder class action suits have been filed against the Company and
certain of its present and former executive officers and Directors
("Defendants"). The consolidated lawsuits seek class certification for all
purchasers of stock in the Company during periods beginning on or after June
1995 and ending on or before June 18, 1996, and are based on allegedly
misleading public statements made by the Company or failure to disclose material
facts in violation of federal securities laws. The Company denies that it has
violated any of its obligations under the federal securities laws and believes
that meritorious defenses exist in the lawsuits.
On August 30, 1996, Metropolitan Nashville Airport Authority filed suit against
the Company in State Court in Tennessee for breach of contract and a declaratory
judgment for an anticipatory breach. The Nashville Airport Authority seeks
damages of approximately $2.6 million. The dispute involves whether the
Company was entitled to exercise a termination right contained in its lease
agreement. Management believes the ultimate resolution will not have a
materially adverse effect on the Company's financial position or results of
operations.
From time to time, the Company is engaged in litigation arising in the ordinary
course of business. The Company does not believe that any such pending
litigation will have a material adverse effect on its results of operations or
financial condition.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS
The following chart indicates the service offered by the Company as of various
dates between January 1, 1997 and March 31, 1998:
<TABLE>
<CAPTION>
Total Number of Number of Number of
As of Aircraft in Service(1) Flights Per Day(1) Cities Served(1)
- --------------- ---------------------- ------------------ ----------------
<S> <C> <C> <C>
January 1, 1997 15 124 18
March 31, 1997 24 148 21
June 30, 1997 30 184 24
September 30, 1997 31 200 22
December 31, 1997 44 237 43
March 31, 1998 46 249 38
</TABLE>
(1) Includes aircraft operated by and service offered by AirTran Airlines
and AirTran Airways after November 17, 1997.
Results of operations for the three months ended March 31, 1998 as compared to
March 31, 1997:
<TABLE>
<CAPTION>
Three months ended March 31, 1998 Three months ended March 31, 1997
--------------------------------- ---------------------------------
% of % of
Amount Revenues Per ASM Amount Revenues Per ASM
------ -------- ------- ------ -------- -------
(000) (000)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $94,541 100.0 % $ 0.077 $ 36,928 100.0 % $ 0.072
EXPENSES
Flight Operations $10,416 11.0 % $ 0.008 $ 4,103 11.1 % $ 0.008
Aircraft Fuel 16,652 17.6 % 0.014 9,136 24.7 % 0.018
Maintenance 18,867 20.0 % 0.015 14,105 38.2 % 0.028
Station Operations 20,294 21.5 % 0.017 10,353 28.0 % 0.020
Passenger Services 4,101 4.3 % 0.003 1,695 4.6 % 0.003
Marketing and Advertising 6,434 6.8 % 0.005 2,352 6.4 % 0.005
Sales and Reservations 10,820 11.4 % 0.009 3,078 8.3 % 0.006
General and Administrative 3,522 3.7 % 0.003 2,796 7.6 % 0.005
Depreciation 6,330 6.7 % 0.005 4,885 13.2 % 0.010
Gain on disposal of property (21) 0.0 % - (49) (0.1)% -
Shutdown and other
Nonrecurring expenses - - - 9,338 25.3 % 0.018
----------------------------- --------------------------------
Total operating
expenses and other, net 97,415 103.0 % 0.079 61,792 167.3 % 0.121
Interest (income) expense, net 5,450 5.8 % 0.004 4,643 12.6 % 0.009
------- ------- -------- -------
Loss before income taxes $(8,324) (8.8)% $(0.007) $(29,507) (79.9)% $(0.058)
======= ======= ======== =======
</TABLE>
Total operating revenues for the quarter ended March 31, 1998 increased 156.0%
to $94,541,000 as compared to $36,928,000 for the quarter ended March 31, 1997
due to increases in ASMs, load factors and average fares. The Company's ASMs,
load factors and average fares for the first quarter 1998 were 1.2 billion,
57.6% and $79.21, respectively, as compared to 512 million, 53.9% and $60.47,
respectively, for the same period of 1997.
10
<PAGE>
Flight operations expenses include direct aircraft operating costs, hull
insurance and pilot compensation, but exclude aircraft fuel, maintenance and
passenger services expenses. Flight operations expenses were relatively
unchanged on a per ASM basis for the quarters ended March 31, 1998 and 1997.
Overall, however, flight operations expenses increased for the first quarter of
1998 reflecting the 139.3% increase in ASMs.
Aircraft fuel expenses include both the direct cost of the fuel as well as the
costs of delivering fuel into the aircraft. Fuel expense, on a per ASM basis,
declined primarily due to a drop in the Company's average fuel cost per gallon
to $0.59 for the first quarter of 1998 from $0.76 for the same period of 1997.
Maintenance expenses include all administrative costs of the maintenance
department as well as normal recurring maintenance. Expenses for engine
overhaul and certain scheduled heavy maintenance procedures are expensed as
incurred and are included in this cost. Overall, maintenance expenses for the
quarter ended March 31, 1998 increased due to significant capacity expansion of
service from the same period of last year. On a per ASM basis, however,
maintenance costs decreased due to the timing of heavy maintenance procedures.
Station operations expense includes all expenses incurred at the airports, as
well as station operations administration and liability insurance. Station
operations expenses were lower, on a per ASM basis, for the first quarter of
1998 than the first quarter of 1997 due to inefficiencies incurred during 1997
generated from restarting operations on a limited basis.
Passenger services expenses include flight attendant wages and benefits and
catering expenses. Also included are the costs for flight attendant training
and flight attendant overnight expenses. Passenger services expenses remained
flat as a percentage of revenue and on a per ASM basis from the first quarter of
1998 as compared to the first quarter of 1997.
Marketing and advertising expenses include all advertising expenses and wages
and benefits for the marketing department. Marketing and advertising expenses
remained flat as a percentage of revenue and on a per ASM basis from the first
quarter of 1998 as compared to the first quarter of 1997.
Sales and reservations expenses include all of the costs related to recording a
sale or reservation. These expenses include wages and benefits for
reservationists, rent, telecommunication charges, credit card fees, ARC
processing fees and travel agency commissions. Sales and reservations expenses,
as a percentage of revenue, increased in the first quarter of 1998 as compared
to the first quarter of 1997 due to the fact that the Company joined the Airline
Reporting Corporation (ARC) in September 1997 to process all of its ARC member
travel agency bookings.
General and administrative expenses include the wages and benefits for the
Company's executive officers and various other administrative personnel. Also
included are costs for office supplies, legal expenses, accounting and other
miscellaneous expenses. General and administrative costs for the first quarter
of 1998 were lower, on a per ASM basis, as compared to the first quarter of 1997
due to the increased service levels during the first quarter of 1998 over which
to spread these costs.
Depreciation expense includes depreciation on aircraft and ground equipment, but
does not include any amortization of start-up and route development costs as all
of these costs are expensed as incurred. Depreciation expense for the quarter
11
<PAGE>
ended March 31, 1998 was higher than the quarter ended March 31, 1997 due to the
return of aircraft to operating specifications (previously classified as assets
held for sale) and to depreciation expense on non-performing assets being
included in shutdown and other non-recurring expenses in the first quarter of
1997 as well as to additional purchases of property and equipment during the
first quarter of 1998. The increase was partially offset by the decrease caused
by the change in estimated residual values as discussed in Note E above.
Other expenses (income), net includes interest income and interest expense as
well as certain property transactions. Net interest expense for the quarter
ended March 31, 1998 increased over the quarter ended March 31, 1997 due to
increasing debt levels attributable to the completion in August 1997 of the
issuance of $80 million 10 1/2 % senior secured notes due 2001.
Shutdown and other nonrecurring expenses for the first quarter of 1997 include
depreciation on non-performing assets which are not held for sale and certain
heavy maintenance procedures performed to ready aircraft for service. There
were no such items in the quarter ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the quarter ended March 31, 1998, operating activities used $2.0 million in
cash flow. Investing activities used $16.9 million as a result of the
acquisition of spare engines and Boeing 717 advanced purchase deposits.
Financing activities used $1.7 million as a result of $2.4 million in debt
payments, less cash provided by the exercise of stock options.
As of March 31, 1998, the Company had cash and cash equivalents of $65.5 million
compared to $86.0 at December 31, 1997 and working capital of $4.3 million
compared to $25.9 million at December 31, 1997. The Company also had
approximately $9.4 million of income tax receivable which it received during the
second quarter of 1998.
As of March 31, 1998, the Company's operating fleet consisted of 35 McDonnell
Douglas DC-9-30 aircraft and 11 Boeing 737-200 aircraft. The Company currently
leases two DC-9-30 aircraft to other carriers and has five aircraft being
reactivated from non-operating status.
The Company has contracted with Boeing (successor to McDonnell Douglas) for the
purchase of 50 Boeing 717-200 aircraft, at a cost of approximately $1.0 billion
(subject to adjustments for inflation), for delivery in 1999 to 2002.
Approximately $59.6 million of this amount will be paid in progress payments
during the remainder of 1998 and 1999. If the Company exercises its option to
acquire up to an additional 50 Boeing 717-200 aircraft, additional payments
could be required beginning in July 1998. The Company expects to finance at
least 80% of the cost of each of these aircraft. Although Boeing has agreed to
provide assistance with respect to the financing of aircraft to be acquired, the
Company will be required to obtain the financing from other sources. The
Company believes that with the assistance to be provided by Boeing, aircraft
related debt financing should be available when needed. There is no assurance
that the Company will be able to obtain sufficient financing on attractive
terms. If it is unable to do so, the Company could be required to modify its
aircraft acquisition plans or to incur higher than anticipated financing costs,
which could have a material adverse effect on the Company's results of
operations and cash flows.
The Company's compliance with Stage 3 noise requirements will require
substantial additional capital expenditures over the next two years. By
December 31, 1998, 75% of the Company's aircraft must be brought into compliance
with Stage 3 requirements and by December 31, 1999, full compliance is
12
<PAGE>
required. The Company intends to meet its Stage 3 noise requirement obligations
by installing hush kits on Stage 2 aircraft or disposing of Stage 2 aircraft and
by acquiring or leasing Stage 3 aircraft. The Company expects that FAA
certified hush kits will cost approximately $53.6 million for its remaining non-
hushed DC-9-30 and B737-200 aircraft. Any disposition of Stage 2 aircraft would
reduce this obligation. The Company may be able to finance a portion of the cost
of the remaining hush kits to be acquired and plans to make the balance of
payments on these hush kits out of its working capital. The Company expects to
pay the debt service on any such loans out of cash flow generated from
operations during the term of the financing. The phase-in period for full
compliance with Stage 3 and the expected terms of financing, if available,
should allow the Company to spread the payments for Stage 3 compliance over a
number of years.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- --------------------------
Several stockholder class action suits have been filed against the Company and
certain of its present and former executive officers and Directors
("Defendants"). The consolidated lawsuits discussed below seek class
certification for all purchasers of stock in the Company during periods
beginning on or after June 1995 and ending on or before June 18, 1996, and are
based on allegedly misleading public statements made by the Company or omission
to disclose material facts in violation of federal securities laws. These suits
have been consolidated into a single action (In re ValuJet, Inc.). A
-------------------
Consolidated Amended Complaint was filed on October 18, 1996. All of the
Defendants filed a joint Motion to Dismiss which was deneied in part and
granted in part (dismissing the negligent misrepresentations claims). The
Defendants have filed an answer to the Consolidated Amended Complaint. On
November 25, 1996, Plaintiffs filed their Motion for Class Certification.
Defendants are conducting discovery including the taking of the depositions of
the lead Plaintiffs and are to file their response memorandum of law by May 27,
1998. Plaintiffs have until June 30, 1998, to file their reply memorandum of
law. The discovery period will end on February 28, 1999. Two suits (Cohen et al.
------------
v. ValuJet, Inc., et al. and Hepler et al. v. ValuJet, Inc. et al.) have been
- ------------------------ -------------------------------------
filed in the State Court of Fulton County, Georgia. On December 23, 1997, a
Consent Order of Dismissal in favor of all Defendants without prejudice was
entered. Although the Company denies that it has violated any of its obligations
under the federal securities laws, there can be no assurance that the Company
will not sustain material liability under such or related lawsuits.
Numerous lawsuits have been filed against the Company seeking damages
attributable to the deaths of those on Flight 592, and additional lawsuits are
expected. Thus far, approximately 80 such lawsuits have been filed against the
Company prior to September 22, 1997. Most of the cases were initially removed to
the federal court. That court, however, remanded the majority of the actions to
the state courts from which they originated and retained jurisdiction over only
seven cases. As a consequence, most of the cases will proceed in state courts in
Florida and Georgia, Texas and Missouri. The Company's insurance carrier has
assumed defense of all of these suits under a reservation of rights against
third parties and the Company and has settled and paid approximately 60 claims
as of May1, 1998, and is pursuing settlements in the balance of the claims. In
the remaining lawsuits, SabreTech has been named as a co-defendant as a result
of the role that it played in the accident. The Company maintains a $750 million
policy of liability insurance per occurrence. The Company believes that the
coverage will be sufficient to cover all claims arising from the accident.
In November 1997, the Company filed a suit in the Circuit Court of St. Louis
County, Missouri against SabreTech and its parent corporation (Sabreliner
Corporation), seeking to hold SabreTech responsible for the accident involving
Flight 592. SabreTech is the maintenance contractor who delivered oxygen
generators without safety caps and in a mislabeled box for shipment aboard
Flight 592. The oxygen generators are believed to have caused or contributed to
the fire which resulted in the accident. The complaint seeks indemnification
against losses attributable to the lawsuits referred to above and other damages
that the Company suffered as a result of the accident.
In May 1997, SabreTech filed a Complaint for declaratory judgment and other
relief against the Company. The action seeks a determination that SabreTech is
not liable to the Company for
14
<PAGE>
the accident involving Flight 592 as a result of language contained in certain
of the contracts between the parties and that the Company is liable to SabreTech
for damages that it has suffered. The Company intends to vigorously defend this
lawsuit and to assert all claims it has against SabreTech.
On August 30, 1996, Metropolitan Nashville Airport Authority filed suit against
the Company in State Court in Tennessee for breach of contract and a declaratory
judgment for an anticipatory breach. The Nashville Airport Authority seeks
damages of approximately $2.6 million. The dispute involves whether the
Company was entitled to exercise a termination right contained in its lease
agreement.
In May 1997, the State of Florida filed suit against the Company and its
insurers in the United States District Court for the Southern District of
Florida seeking recovery of costs incurred relating to the accident involving
Flight 592. The Company does not believe that it is obligated for such amounts
and has filed a motion to dismiss this lawsuit.
In November 1997, the Association of Flight Attendants ("AFA") and a former
fight attendant filed suit in federal court in the Eastern District of Virginia
alleging that the Company had violated the Railway Labor Act. The Company does
not believe that it has violated such act. This case has been removed to the
United States District Court in the Northern District of Georgia.
From time to time, the Company is engaged in litigation arising in the ordinary
course of its business. The Company does not believe that any such pending
litigation will have a material adverse effect on its results of operations or
financial condition.
Governmental Investigations
Several governmental inquiries and investigations have been launched in
connection with the loss of Flight 592, including investigations by the DOT, the
NTSB, the U.S. Attorney's Office in Atlanta, Georgia and Miami, Florida and
certain state agencies in Florida. Although the Company does not believe, based
on information currently available to it, that such investigations and inquiries
will result in any finding of criminal wrongdoing on its part, the
investigations have not yet been concluded and the possibility of such a finding
cannot be ruled out. The Company may also be assessed civil penalties in
connection with the accident and/or the results of ensuing investigations. Any
such findings or penalties could be material. In addition, it is possible that
the Company could be indirectly affected by negative publicity related to
charges of wrongdoing, if any, against others acting on behalf of the Company at
the time of the accident.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
None.
16
<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.
AIRTRAN HOLDINGS, INC.
Date: May 11, 1998 /s/ D. Joseph Corr
------------------
D. Joseph Corr
President and Chief Executive Officer
Date: May 11, 1998 /s/ David W. Lancelot
---------------------
David W. Lancelot
Vice President and Controller
17
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