<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, 1999.
[_] 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 April 7, 1999, there were 64,928,864 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, 1999 and December 31, 1998
Consolidated Statements of Operations - Three months ended March 31,
1999 and 1998
Consolidated Statements of Cash Flows - Three months ended March 31,
1999 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------ --------------------
AirTran Holdings, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
- ------ ---------- ------------
<S> <C> <C>
CURRENT ASSETS: (Unaudited) (Audited)
Cash and cash equivalents $ 34,556 $ 10,882
Restricted cash 23,360 13,459
Accounts receivable, less allowance of $1,650 and $1,325 at
March 31, 1999 and December 31, 1998, respectively 20,120 12,084
Inventory, less allowance for obsolescence of $5,833 and $4,259
at March 31, 1999 and December 31, 1998, respectively 9,685 11,486
Prepaid expenses 4,763 5,046
---------- ------------
Total current assets 92,484 52,957
PROPERTY AND EQUIPMENT:
Flight equipment 313,416 306,026
Less: Accumulated depreciation (91,247) (87,084)
---------- ------------
222,169 218,942
Purchase deposits for flight equipment 32,291 36,518
Other property and equipment 23,645 23,491
Less: Accumulated depreciation (11,372) (10,542)
---------- ------------
12,273 12,949
---------- ------------
266,733 268,409
OTHER ASSETS:
Intangibles resulting from business acquisition 42,026 42,727
Debt issuance costs 6,216 6,956
Other assets 4,730 5,357
---------- ------------
TOTAL ASSETS $ 412,189 $ 376,406
========== ============
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
3
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AirTran Holdings, Inc.
Consolidated Balance Sheets
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- ------------------------------------ ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES: (Unaudited) (Audited)
Accounts payable $ 19,911 $ 13,252
Accrued liabilities 58,242 44,508
Air traffic liability 31,494 17,022
Current portion of long-term debt 8,371 8,929
------------ ------------
Total current liabilities 118,018 83,711
Long-term debt, less current portion 235,434 237,065
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 64,920,520 and 64,897,810 shares issued and outstanding at March
31, 1999 and
December 31, 1998, respectively 65 65
Additional paid-in capital 146,908 146,857
Accumulated deficit (88,236) (91,292)
------------ ------------
Total stockholders' equity 58,737 55,630
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 412,189 $ 376,406
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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AirTran Holdings, Inc.
Consolidated Statements of Operations
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 115,013 $ 90,280
Cargo 1,147 798
Other 3,713 3,463
----------- -----------
Total operating revenues 119,873 94,541
OPERATING EXPENSES:
Salaries, wages and benefits 28,142 21,781
Aircraft fuel 13,761 16,652
Maintenance, materials and repairs 24,757 15,080
Commissions 8,800 7,677
Landing fees and other rents 6,187 6,379
Marketing and advertising 5,617 5,950
Aircraft rent 1,341 1,908
Depreciation 7,344 6,262
Other operating 14,923 15,726
----------- -----------
Total operating expenses 110,872 97,415
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OPERATING INCOME (LOSS) 9,001 (2,874)
Interest (income) expense:
Interest income (1,472) (998)
Interest expense 7,014 6,448
----------- -----------
Interest (income) expense, net 5,542 5,450
----------- -----------
Income (loss) before income taxes 3,459 (8,324)
Income tax expense (benefit) 405 (451)
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NET INCOME (LOSS) $ 3,054 $ (7,873)
=========== ===========
BASIC EARNINGS PER SHARE $ 0.05 $ (0.12)
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.05 $ (0.12)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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AirTran Holdings, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------------
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,054 $ (7,873)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 8,415 6,964
Provisions for uncollectible accounts 1,785 961
Gain from disposal of assets (21)
-
Changes in current operating assets and liabilities:
Restricted cash (9,901) (1,683)
Accounts receivable (9,821) (10,057)
Prepaid expenses and deposits 2,137 (3,143)
Accounts payable and accrued liabilities 20,394 (1,130)
Air traffic liability 14,472 13,994
----------- -----------
NET CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES 30,535 (1,988)
INVESTING ACTIVITIES:
Purchases of property and equipment (9,616) (16,951)
Refund of aircraft purchase deposits 4,227 -
Proceeds from disposal of equipment 666 60
----------- -----------
NET CASH FLOWS USED FOR INVESTING ACTIVITIES (4,723) (16,891)
FINANCING ACTIVITIES:
Payments of long-term debt (2,189) (2,374)
Proceeds from sale of common stock 51 708
----------- -----------
NET CASH FLOWS USED FOR FINANCING ACTIVITIES (2,138) (1,666)
----------- -----------
Net increase (decrease) in cash and cash equivalents 23,674 (20,545)
Cash and cash equivalents at beginning of period 10,882 86,025
----------- -----------
Cash and cash equivalents at end of period $ 34,556 $ 65,480
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES:
Cash paid for interest $ 390 $ 448
=========== ===========
Cash paid for income taxes $ - $ -
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
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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, which are of a normal recurring
nature necessary to present fairly the Company's financial position as of March
31, 1999 and December 31, 1998, the results of operations for the three month
periods ended March 31, 1999 and 1998, and cash flows for the three month
periods ended March 31, 1999 and 1998. 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, 1998. The results of operations for the three month period ended
March 31, 1999 are not necessarily indicative of the results to be expected for
the full fiscal year.
B. RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been reclassified to
conform to the current presentation.
C. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Numerator:
Net income (loss) $ 3,054 $ (7,873)
======= ========
Denominator:
Denominator for basic income (loss) per share - weighted average
shares 64,915 64,417
Effect of dilutive stock options 2,814 --
------- --------
Denominator for diluted income (loss) per share - weighted average
shares and assumed conversions 67,729 64,417
======= ========
Basic income (loss) per share $ 0.05 $ (0.12)
======= ========
Diluted income (loss) per share $ 0.05 $ (0.12)
======= ========
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATIONS
-------------
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
The following is a table of selected operational statistics and financial data
for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase
1999 1998 (Decrease)
------------- ------------- ------------
<S> <C> <C> <C>
Revenue passengers 1,499,586 1,124,655 33.3%
Revenue passenger miles (1) 811,090,110 706,584,016 14.8%
Available seat miles (2) 1,335,911,049 1,225,947,813 9.0%
Passenger load factor (%) (3) 60.7 57.6 3.1 pts.
Break-even load factor (%) (4) 58.8 63.8 (5.0) pts
Average yield per revenue passenger mile (cents) (5) 14.2 12.6 12.7%
Passenger revenue per available seat mile (cents) (6) 8.6 7.4 16.2%
Operating cost per available seat mile (cents) (7) 8.3 7.9 5.1%
Average stage length (miles) 527 559 (5.7)%
Average cost of aircraft fuel per gallon (cents) 42.0 59.0 (28.8)%
Average daily utilization of each aircraft (hours) (8) 8:4 8:3 0.2%
Number of aircraft in fleet at end of period 49 46 6.5%
</TABLE>
(1) The number of scheduled revenue miles flown by passengers.
(2) The number of seats available for passengers multiplied by the number of
scheduled miles each seat is flown.
(3) The percentage of aircraft seating capacity that is utilized is calculated
by dividing revenue passenger miles by available seat miles.
(4) The percentage of seats that must be occupied by revenue passengers in
order for the Company to break even on a pre-tax income basis.
(5) The average amount one passenger pays to fly one mile.
(6) Passenger revenue divided by available seat miles.
(7) Operating expenses divided by available seat miles.
(8) The average number of hours per day that an aircraft flown in revenue
service is operated.
SUMMARY
AirTran recorded net income of $3.1 million for the three months ended March 31,
1999 compared to a net loss of $7.9 million for the three months ended March 31,
1998. AirTran's operating income increased $11.9 million to operating income of
$9.0 million for the three months ended March 31, 1999, from an operating loss
of $2.9 million in 1998.
OPERATING REVENUES
8
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Passenger revenues increased by 27.4% or $24.7 million primarily due to
continued strong economic conditions and management's initiatives to enhance
passenger revenue. Some of these initiatives include assigned seating, a
frequent flier program and business class seating.
AirTran increased its yield (the average amount a passenger pays to fly one
mile) by 12.7% to 14.2 cents, which increased revenue by $11.3 million over the
first quarter 1998. Yield increased over last year due in part to a 5.7%
shorter average stage length. AirTran's traffic, or revenue passenger miles
(RPMs), increased 104.5 million or 14.8% on a capacity growth, or available seat
mile (ASM), of 9% or 110.0 million. The increase in load factor of 3.1 points
increased passenger revenue by $5.9 million from the same period in 1998.
However, the Company is currently experiencing aggressive competition that could
negatively impact future loads and yields.
Cargo and other revenue increased 14% or $0.6 million due to additional U.S.
Mail capacity and employee travel service charges.
OPERATING EXPENSES
Operating expenses increased $13.5 million or 13.8% compared to the first
quarter of 1998. AirTran's operating cost per ASM increased 5.0% to 8.3 cents
from 7.9 cents a year ago. Salaries, wages and benefits increased $6.4 million
or 29.2% due primarily to contractual labor rate and seniority increases
negotiated in 1998 between the Company and its three major union represented
labor groups. Aircraft fuel decreased year over year by $2.9 million or 17.4%
primarily due to a 28.8% decrease in the average fuel cost per gallon (including
taxes and into-plane fees) partially offset by a 16.6% increase in fuel
consumption. The increase in operating expenses is primarily due to maintenance,
materials and repairs. The 64.2% or $9.7 million increase stems from nine
additional check lines, and increased costs related to engine overhauls.
Commissions paid to travel agents increased $1.1 million or 14.6% due to the
increase in commissionable sales partially offset by a rate reduction from 10%
to 8%. Depreciation expense increased 17.3% or $1.1 million primarily due to the
acquisition of Stage 3 hush kits during the last half of 1998.
NON-OPERATING EXPENSES
Interest expense, net was relatively unchanged compared to the three months
ended March 31, 1998. The Company's effective tax rate was 12% and 3% for the
first quarter of 1999 and 1998, respectively. The 1999 rate results from the
expected utilization of a portion of the Company's $141 million net operating
loss ("NOL") carryforwards offset in part by the application of the tax benefit
related to the realization of a portion of the Airways NOL carryforward to
goodwill. The Company has not recognized any benefit from the use beyond 1999 of
NOL carryforwards because management's evaluation of all the available evidence
in assessing the realizability of tax benefits of such loss carryforwards
indicates that the underlying assumptions of future profitable operations
contain risks that do not provide sufficient assurance to recognize such tax
benefits currently.
9
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YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in normal business activities.
The Company's internal computer software and computerized operating systems were
developed in conjunction with the commencement of the Company's business in 1993
and were designed to take into consideration the Year 2000 issue. Additionally,
the Company has implemented a Year 2000 compliance program to ensure that the
Company's computer systems and applications will perform properly beyond 1999.
In addition to the internal review, the Company has received assurances from its
significant computer system vendors that their applications are Year 2000
compliant.
The Company's business relies on government agencies and other third parties
(e.g., Department of Transportation, Federal Aviation Administration, airport
authorities and data suppliers). The ability of third parties upon which the
Company relies to adequately address their Year 2000 issues is outside the
Company's control. However, the Company has begun a program to assess the Year
2000 readiness of these parties. Based upon the results of this assessment, the
Company will develop contingency plans as deemed necessary. The Company cannot
reasonably estimate the magnitude of the impact on the Company of the Year 2000
problems that may be experienced by any of these parties. However, the impact of
any such problems could have a material adverse effect on the Company's results
of operations, financial condition and cash flow.
The Company currently has a team dedicated to identifying, evaluating and
resolving the Company's potential Year 2000 issues. The Company's Year 2000
program includes five phases: inventory, assessment, remediation, testing and
implementation. The inventory phase will allow the Company to evaluate current
equipment conditions and readiness for the Year 2000 transition. In the next
phase, assessment, the Company will determine, based on the information gathered
during inventory, what, if any, upgrades/enhancements are necessary to meet the
compliance requirements. Remediation will provide a forum to develop solutions
to non-Year 2000-compatible equipment, systems or software. The testing phase
will provide a "laboratory-type" environment for troubleshooting potential
problems and situations once the Year 2000 transition begins. The testing phase
will be the most critical in that all possible worst-case scenarios must be
addressed and procedures for handling these scenarios as they arise must be
developed and tested. Once inventory, assessment, remediation and testing
phases are complete, the Company will implement the Year 2000 program.
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The Company has not yet completed all necessary phases of the Year 2000 program.
In the event that the Company does not complete any additional phases of the
Year 2000 program or outside vendors and third parties are not Year 2000
compliant by December 31, 1999, the most reasonable worst case scenario would be
a reduction or suspension of operations, which could have a material impact on
the Company's business and consolidated financial statements. In addition,
disruptions in the economy generally resulting from Year 2000 issues could also
materially adversely affect the Company. The Company could be subject to
litigation for computer systems failure, for example, equipment shutdown or
failure to properly date business records. The amount of potential liability and
lost revenue cannot be reasonably estimated at this time.
The Company expects to have substantially completed all phases of its Year 2000
program by June 30, 1999, which will leave six months for additional internal
testing and troubleshooting prior to 2000. The Company is approximately 80%
complete with the assessment relating to Information Technology ("IT"). With
respect to IT systems that are known to have required remediation, approximately
20% of such systems have been remediated, tested and implemented and are
currently Year 2000 compliant. Based on the results of the Company's Year 2000
program, the Company will develop contingency plans as necessary.
Costs associated with the Year 2000 program (excluding costs relating to capital
improvements to IT systems that are not directly related to remediating Year
2000 problems in such systems) are being expensed as incurred. Funding for the
program is being provided through the Company's operating cash flows. To date,
the Company has spent approximately $100,000 ($70,000 in 1999) in connection
with the Year 2000 program and expects to spend an additional $500,000 to
complete the program. The cost of the Company's Year 2000 project and the date
on which the Company believes it will be completed are based on management's
best estimates and include assumptions regarding third-party modification plans.
However, due primarily to the potential impact of third-party modification
plans, there can be no assurance that these estimates will be achieved and
actual results could differ materially from those anticipated.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies primarily on its operating cash flow to provide working
capital. The Company has no lines of credit or other facilities. As of March
31, 1999, the Company had cash and cash equivalents of $34.6 million compared to
$10.9 million at December 31, 1998 and a working capital deficit of $25.5
million compared to working capital deficit of $30.8 million at December 31,
1998. The Company generally must satisfy all of its working capital expenditure
requirements from cash provided by operating activities, from external capital
sources or from the sale of assets. Substantial portions of the Company's
assets have been pledged to secure various issues of outstanding indebtedness of
the Company. To the extent that the pledged assets are sold, the applicable
financing agreements generally require the sales proceeds to be applied to repay
the corresponding indebtedness. To the extent that the Company's access to
capital is constrained, the Company may not be able to make certain capital
expenditures or to continue to implement certain other aspects of its strategic
plan, and the Company may therefore be unable to achieve the full benefits
expected therefrom. Based on the favorable economic conditions of the US
airline industry, the Company expects to be able to generate positive working
capital through its operations; however, management cannot
11
<PAGE>
predict whether the current favorable economic trends and conditions will
continue, the effects of competition or other factors beyond the company's
control.
For the quarter ended March 31, 1999, cash increased from December 31, 1998 by
$23.7 million or 217.4%. Operating activities generated $30.5 million in cash.
Investing activities used cash of $4.7 million primarily related to the
acquisition of hush kits partially offset by the return of $4.2 million of
Boeing 717-200 advance purchase deposits for four deferred delivery slots.
Financing activities used cash of $2.1 million for scheduled long-term debt
payments.
As of March 31, 1999, the Company's operating fleet consisted of 40 McDonnell
Douglas DC9-30 aircraft and nine Boeing 737-200 aircraft. The Company currently
leases one DC9-30 aircraft to another carrier.
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 from 1999 to 2002. During
the third quarter of 1998, the Company reached an agreement with Boeing to defer
the remaining progress payments until the first delivery which is expected in
September 1999. There can be no assurance that cash provided by operations will
be sufficient to meet the progress payments for the Boeing 717-200s beginning
again after September 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 2002. The Company expects to finance at least 80% of the
cost of each of these aircraft. Although Boeing has agreed to provide support
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 support to be provided by Boeing, aircraft related debt financing
should be available when needed. However, there is no assurance that the Company
will be able to obtain sufficient financing on attractive terms, if at all. If
it is unable to secure acceptable financing, 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 additional
capital expenditures over the next year. As of December 31, 1998, 75% of the
Company's aircraft were Stage 3 compliant. By December 31, 1999, full
compliance is 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 acquiring or leasing Stage 3 aircraft. The Company
expects that FAA certified hush kits will cost approximately $7.5 million in
total for all aircraft to be hushed in 1999. The Company may seek to finance a
portion of the cost of these hush kits 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 such loans out of cash flow generated from operations during the
term of the financing.
As of March 31, 1999, the Company's debt related to asset financing totaled
$93.8 million, with respect to which the Company's aircraft and certain other
equipment are pledged as security. Included in such amount is $80.0 million of
the Company's 10.5% Senior Secured Notes due 2001 under which interest is
payable semi-annually. In addition, the Company has $150.0 million of 10.25%
Senior Unsecured Notes outstanding. The principal balance of the Senior Notes is
due in 2001 and interest is payable semi-annually. All of the Company's debt has
final maturities ranging
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from 1999 to 2003 with scheduled debt payments as follows: 1999--$6.8 million,
2000--$5.6 million, 2001--$230.7 million, 2002--$0.5 million and 2003--$0.2
million.
Certain debt bears interest at fixed rates ranging from 5.85% to 13.00% per
annum and is repayable in consecutive monthly or quarterly installments over a
four- to seven-year period. Certain other notes with an aggregate unpaid
principal balance of approximately $4.1 million as of December 31, 1998 have a
variable rate of interest based on the London Interbank Offered Rate ("LIBOR")
plus 1.75% to 3.75%.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 is effective for periods
beginning after June 15, 1999. The Company is currently evaluating SFAS No. 133;
however, based on the current market conditions, SFAS No. 133 is not expected to
have a material impact on the Company's financial condition.
FORWARD-LOOKING STATEMENTS
The statements that are contained in this Report that are not historical facts
are "forward-looking statements" which can be identified by the use of forward-
looking terminology such as "expects", "intends", "believes" or the negative
thereof or other variations thereon or comparable terminology. Management wishes
to caution the reader that the forward-looking statements contained in this
Report are only estimates or predictions and are not historical facts. Such
statements include, but are not limited to: the Company's ability to maintain
profitability and to generate working capital from operations; the impact of
propsed legislation, the Company's ability to become Year 2000 compliant and the
timing and cost thereof; the Company's ability to finance the acquisition of
aircraft and hush kits; the adequacy of the Company's insurance coverage; and
the results of pending litigation or investigations. No assurance can be given
that future results will be achieved and actual events or results may differ
materially as a result of risks facing the Company or actual events differing
from the assumptions underlying such statements. Such risks and assumptions
include, but are not limited to, consumer demand and acceptance of services
offered by the Company, the Company's ability to achieve and maintain acceptable
cost levels, fare levels and actions by competitors, ability of other parties
on which the Company relies to become Year 2000 compliant, regulatory matters,
general economic conditions, commodity prices, changing business strategy and
results of litigation. Additional information concerning factors that could
cause actual results to vary materially from the future results indicated,
expressed or implied in such forward-looking statements is contained in the Form
10-K for the year ended December 31, 1998. All forward-looking statements made
in connection with this Report are expressly qualified in their entirety by
these cautionary statements. The Company disclaims any obligation to update or
correct any of its forward-looking statements.
13
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ITEM 3. QUANTITATIVE AND QUALITATIVE MARKET RISK
- ------ ----------------------------------------
For discussion of certain market risks related to the Company, See Part I Item,
7A "Quantitative and Qualitative Disclosures about Market Risks", in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998. There have been no significant developments with respect to derivatives or
exposure to market risk.
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"). These suits have been consolidated into a single action (In re
-----
ValuJet, Inc.). The consolidated lawsuit is based on allegedly misleading
- --------------
public statements made by the Company or omission to disclose material facts in
violation of federal securities laws. Class certification has been granted for
all purchasers of stock in the Company during the period beginning in June 1995
and ending on June 18, 1996. The Company entered into a Memorandum of
Understanding to settle the consolidated lawsuit with attorneys representing the
certified class on December 31, 1998. Although the Company denies that it has
violated any of its obligations under the federal securities laws, it has agreed
to pay $2.5 million in cash and $2.5 million in common stock in the settlement,
which is subject to certain conditions. In the event the settlement
14
<PAGE>
is not approved, discovery under the lawsuit would likely be revived. There can
be no assurance that the Company will not sustain material liability under such
or related lawsuits in the event the settlement is not approved.
Numerous lawsuits have been filed against the Company seeking damages
attributable to the deaths of those on Flight 592. Approximately 100 such
lawsuits have been filed against the Company. 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 are proceeding in
state courts in Florida, 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 90
claims and is pursuing settlements in the balance of the claims. As all claims
are handled independently by the Company's insurance carrier, the Company cannot
reasonably estimate the amount of liability that may 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. 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. However, 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 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 that resulted in the accident. The complaint seeks 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 in the United States District Court Southern District
of Florida, Miami Division. The action seeks a determination that SabreTech 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 SabreTech for damages that it has suffered. On February
23, 1999, the court stayed this action pending the resolution of the Missouri
State Court action.
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. In March 1999, the court granted the Company's motion to dismiss
this lawsuit.
The Department Of Transportation, the National Transportation Safety Board, the
U.S. Attorney's Office in Atlanta, Georgia and Miami, Florida and certain state
agencies in Florida have launched several governmental inquiries and
investigations in connection with the loss of Flight 592. Although
15
<PAGE>
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, some of 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.
From time to time, the Company is engaged in other 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.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits:
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
None.
17
<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 7, 1999 /s/ Joseph B. Leonard
-------------------------------------
Joseph B. Leonard
Chairman and Chief Executive Officer
Date: May 7, 1999 /s/ David W. Lancelot
-------------------------------------
David W. Lancelot
Vice President and Controller
(Principal Accounting Officer)
18
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<PERIOD-START> JAN-01-1999
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