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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2001.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period
From --------------------------- to -------------------------.
Commission file number 000-21642
AMTRAN, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1617970
---------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7337 West Washington Street
Indianapolis, Indiana 46231
- ---------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
(317) 247-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of shares of the registrant's Common Stock held by
non-affiliates of the registrant (based on closing price of shares of Common
Stock on the NASDAQ National Market on February 28, 2002) was approximately
$45.0 million.
Applicable Only to Registrants Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes ______ No ______
Applicable Only to Corporate Registrants
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date.
Common Stock, Without Par Value - 11,556,284 shares outstanding as of February
28, 2002.
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) any annual report
to security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933.
Portions of the Amtran, Inc. Proxy Statement to be filed within 120 days after
the close of the last fiscal year are incorporated by reference into Part III.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - 2001
AMTRAN, INC. AND SUBSIDIARIES
Page #
PARTI Item 1. Business.............................................................................................3
Item 2. Properties..........................................................................................15
Item 3. Legal Proceedings...................................................................................16
Item 4. Submission of Matters to a Vote of Security Holders.................................................16
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters........................17
Item 6. Selected Consolidated Financial Data................................................................18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............19
Item 7a. Quantitative and Qualitative Disclosures About Market Risk..........................................54
Item 8. Financial Statements and Supplementary Data.........................................................56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................83
PART III
Item 10. Directors and Officers of the Registrant............................................................84
Item 11. Executive Compensation..............................................................................84
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................84
Item 13. Certain Relationships and Related Transactions......................................................84
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K......................................85
Item 14d. Valuation and Qualifying Accounts...................................................................87
2
PART I
Item 1. Business
Amtran, Inc. (the "Company") owns American Trans Air, Inc. ("ATA"), the tenth
largest passenger airline in the United States (based upon 2001 capacity and
traffic) and a provider of airline-related services in selected markets. The
Company is the largest commercial charter airline in the United States based
upon revenues for the twelve months ended June 30, 2001, and is one of the
largest providers of passenger airline services to the U.S. military, based upon
2001 revenue. For the year ended December 31, 2001, the revenues of the Company
consisted of 64.3% scheduled service, 15.1% commercial charter service and 13.1%
military charter service, with the balance derived from related services. The
Company was incorporated in Indiana in 1984.
Segment Information
The Company identifies its business segments on the basis of similar products
and services. The airline segment derives its revenues principally from the sale
of scheduled service, commercial charter and military/government charter air
transportation. The tour operator segment, ATA Leisure Corp. ("ATALC"), derives
its revenues primarily from the sale of vacation packages that, in addition to
scheduled service or commercial charter air transportation, typically include
hotels, rental cars and other ground arrangements. For detailed segment
disclosures, see "Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note 14 - Segment Disclosures."
During 1999, the Company acquired several independent tour operator businesses
and combined their operations with the Company's existing vacation package
brand, ATA Vacations Inc. ("ATA Vacations"), to form ATALC. See "Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements -
Note 13 - Acquisition of Businesses."
Scheduled Service
The Company provides scheduled service through ATA to selected destinations
primarily from its gateways at Chicago-Midway and Indianapolis and also provides
transpacific services between the western United States and Hawaii. During the
third and fourth quarters of 2001, the Company began operating nonstop flights
from Chicago-Midway to Newark and Miami. The Company also began nonstop service
in the fourth quarter of 2001 to San Juan from Miami. The Company focuses on
routes where it believes it can be a leading provider of nonstop service and
targets leisure and value-oriented business travelers.
The Company believes that it has significant competitive advantages in each of
its primary markets.
o Chicago-Midway, the Company's largest and fastest growing gateway,
represented approximately 66.8% of the Company's total scheduled service
capacity in 2001. The Company is the number one carrier in terms of market
share, based upon second quarter 2001 origin and destination revenue
passengers, on 16 of the 20 nonstop jet routes it serves from
Chicago-Midway. The Company believes its service at this gateway would be
difficult to replicate because of limited airport capacity. This
competitive position is enhanced by Chicago-Midway's proximity to downtown
Chicago and the fact that, for a substantial portion of the population
within the metropolitan region, Chicago-Midway is the most convenient
airport. Based upon second quarter 2001 origin and destination revenue
passengers, the Company also enjoys a strong competitive position relative
to the entire Chicago metropolitan area. The Company is the number one
carrier in terms of market share on five of its 20 nonstop jet routes after
taking into consideration competitors' flights originating from both
Chicago-Midway and O'Hare International Airport, and is one of the top five
carriers in terms of market share on those routes on which it is not the
number one carrier. The Company's Chicago-Midway operations include service
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to a number of midwestern cities provided by its commuter airline
subsidiary, Chicago Express Airlines, Inc. ("Chicago Express"). This
service provides an increasingly important source of feeder traffic for
longer-haul jet flights from Chicago-Midway. The Company began jet service
at Chicago-Midway in December 1992, and initiated its commuter operation in
1997.
o Hawaii represented approximately 18.6% of the Company's total scheduled
service capacity in 2001. The Company believes it is the lowest-cost
provider of scheduled service between the western United States and Hawaii,
which is critical in this price-sensitive, predominantly leisure market.
Furthermore, a majority of the Company's capacity in the Hawaiian market is
contracted to the nation's largest independent Hawaiian tour operator,
which assumes capacity, yield and most fuel-price risk. The Company has
served the Hawaiian market since 1974 through its commercial charter
operations and since 1987 through its scheduled service operations.
o Indianapolis represented approximately 9.2% of the Company's total
scheduled service capacity in 2001. The Company began scheduled service
from Indianapolis in 1986 and believes that it benefits from being
perceived as the hometown airline. The Company is the number one provider
in terms of market share, based upon second quarter 2001 origin and
destination revenue passengers, in five of its seven jet routes from
Indianapolis. In Indianapolis, the Company operates Ambassadair Travel
Club, Inc. ("Ambassadair"), the nation's largest travel club, with
approximately 34,000 individual or family memberships, providing the
Company with a local marketing advantage similar to a frequent flier
program.
Commercial Charter Service
The Company provides commercial passenger charter airline services throughout
the world, primarily through U.S. tour operators. The Company seeks to maximize
the profitability of these operations by leveraging its leading market position,
diverse aircraft fleet and worldwide operating capability. The Company believes
its commercial charter services are a predictable source of revenues and
operating profits in part because its commercial charter contracts require tour
operators to assume capacity, yield and fuel price risk, and also because of the
Company's ability to re-deploy assets into alternate markets.
Military/Government Charter Service
The Company has provided passenger airline services to the U.S. military since
1983 and is currently one of the largest commercial airline providers of these
services. The Company believes that because these operations are generally less
seasonal than leisure travel, they have tended to have a stabilizing impact on
the Company's operating margins. The U.S. Government awards one year contracts
for its military charter business and pre-negotiates contract prices for each
type of aircraft that a carrier makes available. The Company believes that its
fleet of aircraft is well suited to the needs of the military.
ATA Leisure Corp. (ATALC)
The Company has provided vacation package sales to its scheduled service
customers under the wholly owned brand of ATA Vacations since 1987. In addition,
the Company has served primarily vacation travelers in the Detroit metropolitan
area for approximately 18 years in its commercial charter business. In order to
grow and consolidate its vacation package business, the Company acquired several
Detroit-area tour operators in 1999 (see "Financial Statements and Supplementary
Data - Notes to Consolidated Financial Statements - Note 13 - Acquisition of
Businesses"). The Company operates all of its vacation package brands as ATALC,
with administrative offices in Detroit.
4
Strategy
The Company intends to enhance its position as a leading provider of passenger
airline services to selected markets where it can capitalize on its competitive
strengths. The key components of this strategy are:
Participate in Markets Where it Can Be a Leader
The Company focuses on marketswhere it can be a leading provider of airline
services. In scheduled service, the Company concentrates on routes where it can
be the number one or number two carrier. The Company achieves this result
principally through nonstop schedules, value-oriented pricing, focused marketing
efforts and certain airport and aircraft advantages. The Company is a leading
provider of commercial and military charter services in large part because of
its variety of aircraft types, superior operational performance and its
worldwide service capability.
Maintain Low-Cost Position
For 2001, 2000 and 1999, the Company's consolidated operating cost per available
seat mile ("CASM") of 8.45(cent), 7.86(cent) and 6.84(cent), respectively, was
one of the lowest among large U.S. passenger airlines. The Company's airline
segment CASM was 7.98(cent), 7.19(cent) and 6.17(cent), respectively, for the
same annual periods. The Company believes that its lower costs provide a
significant competitive advantage, allowing it to operate profitably while
pricing competitively in the scheduled service and commercial and military
charter markets. The Company believes its low-cost position is primarily derived
from its simplified product, route structure and low overhead costs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations in Cents per ASM."
In May 2000, the Company entered into a series of agreements to acquire 39 new
Boeing 737-800 aircraft and 10 new Boeing 757-300 aircraft. These aircraft are
scheduled to replace the Company's older fleets of Lockheed L-1011-50 and 100,
and Boeing 727-200 aircraft. Fourteen of the Boeing 727-200 aircraft were
retired from service in 2001, and the remainder will be retired from service in
2002. Three Lockheed L-1011 aircraft were also retired in 2001. The Company
expects to achieve significant operating cost savings with the introduction of
new aircraft, including (1) reduced fuel consumption; (2) transition from
three-person to two-person cockpit crews; (3) lowered maintenance costs; and (4)
improved utilization and dispatch reliability. The Company accepted delivery of
14 Boeing 737-800 aircraft and five Boeing 757-300 aircraft in 2001, and the
remainder of new aircraft are expected to be in service by 2004.
Target Growth Opportunities
The Company intends to expand its operations selectively in areas where it
believes it can achieve attractive financial returns.
Scheduled Service Expansion at Chicago-Midway. The Company plans to increase
frequencies and potentially add new destinations from Chicago-Midway over the
next 12 months. The Company will also occupy additional gates upon completion of
the new terminal at Chicago-Midway to facilitate these expanding operations. In
the third and fourth quarters of 2001, the Company began operating nonstop
service from Chicago-Midway to Newark and Miami, and between Miami and San Juan.
The Company has also begun new nonstop service between Chicago-Midway and Aruba,
Cancun, Grand Cayman and Guadalajara in the first quarter of 2002.
Selected Strategic Transactions. The Company continually evaluates possible
acquisitions of related businesses or interests therein to enhance its
competitive position in its market segments. In addition, the Company has and
will continue to evaluate other possible business combinations or other
strategic transactions, some of which could result in an increase in
indebtedness, a change of control in the Company, or both.
5
Industry Overview
Scheduled Airline Service
The Company is a leading provider of targeted scheduled airline services and
charter airline services to leisure and other value-oriented travelers, and to
the U.S. military. The Company, through its principal subsidiary, ATA, has been
operating for 29 years and is the tenth largest U.S. airline in terms of 2001
capacity and traffic. ATA provides scheduled service through nonstop and
connecting flights from the gateways of Chicago-Midway and Indianapolis to
popular vacation destinations such as Hawaii, Phoenix, Las Vegas, Florida,
California, Mexico and the Caribbean, as well as to New York's LaGuardia
Airport, Philadelphia, Denver, Dallas-Ft. Worth, Washington, D.C., Boston,
Seattle, Minneapolis-St. Paul, Miami and Newark. Chicago Express also provides
commuter passenger service between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Madison, South Bend
and Springfield. ATA also provides charter service to independent tour
operators, specialty charter customers and the U.S. military.
On September 11, 2001, four commercial aircraft, operated by two other U.S.
airlines, were hijacked and destroyed in terrorist attacks on the United States.
In response to these attacks, on September 11, the Federal Aviation
Administration, ("FAA") temporarily suspended all commercial flights to, from
and within the United States until September 13. The Company resumed limited
flight operations on September 13, with the exception of flights to and from
Chicago-Midway Airport which commenced partial operations on September 14. From
September 11 to September 14, the Company canceled over 800 scheduled flights.
Upon resuming its pre-attack flight schedule the week of September 17, the
Company experienced significantly lower passenger traffic and unit revenues than
prior to the attacks. In response to this, the Company reduced its flight
schedule by approximately 20%, as compared to the schedule operated immediately
prior to September 11, and furloughed approximately 1,100 employees by the
middle of October 2001. By December 31, 2001, the Company had recalled
approximately half of the furloughed employees and had added some capacity back
to its flight schedule.
The Company's operations were significantly disrupted by the terrorist attacks
during and after the FAA-mandated shut down of the air traffic system. Load
factors were significantly lower immediately after the attacks, and fare levels
declined, and have remained lower due to reduced consumer demand. Consumer
demand improved in the fourth quarter of 2001; however, the Company cannot
predict when consumer demand will return to pre-attack levels. The attacks have
had a significant impact on the Company's results of operations for the year
ended December 31, 2001, producing $66.3 million in attack-related costs and
revenue losses between September 11 and December 31, which are expected to be
reimbursed through a U.S. Government grant, $44.5 million of which was received
in cash in the third and fourth quarters of 2001. The Company also recorded
asset impairment losses of $112.3 million relating to its Lockheed L-1011-50 and
100, and Boeing 727-200 fleets.
For additional details with respect to the impact of the terrorist attacks, see
"Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - Note 2 - Impact of Terrorist Attacks on September 11, 2001." For
the Company's discussion of possible future effects from these attacks, see
"Forward-Looking Information and Risk Factors."
Commercial and Military/Government Charter Airline Service
In the United States, the passenger charter airline business is served by major
scheduled airlines and a number of U.S. and non-U.S. charter airlines.
Historically, charter airlines have supplemented the service provided by
scheduled airlines by providing additional capacity at times of peak demand and
6
on a longer-term basis to supplement the U.S. military's own passenger fleet.
Based upon the most recently available U.S. Department of Transportation ("DOT")
statistics, total charter flights by all U.S. airlines represented approximately
2.2% of all available seat miles ("ASMs") flown within the United States during
the 12 months ended June 30, 2001.
The Company estimates that it lost approximately $1.4 million in commercial
charter revenues as a result of flight cancellations attributable to the
terrorist attacks on September 11, 2001, representing a relatively small portion
of the total decline in commercial charter revenues of $54.5 million in 2001, as
compared to 2000. The majority of this revenue decline is attributable to the
retirement of Lockheed L-1011-50 aircraft, and Boeing 727-200 aircraft, both of
which have been traditionally used by the Company in commercial charter
applications due to their low ownership costs relative to newer aircraft. Since
aircraft utilization (or the number of hours of revenue flying per aircraft per
month) is much lower for commercial charter flying than for scheduled service
flying, the Company's replacement fleets of Boeing 737-800 and Boeing 757-300
aircraft are economically disadvantaged when used in the charter business, as
high monthly utilization is needed to recover their much higher fixed-ownership
costs. For this reason, and also due to higher maintenance and fuel costs on the
Lockheed and Boeing aging aircraft remaining in service, the Company is becoming
less cost competitive in the charter business segment than in past years. For
this reason, the Company expects that commercial charter flying will continue to
decline as a percentage of consolidated revenues in 2002 and beyond.
The Company estimates that it lost approximately $1.0 million in
military/government charter revenues due to the events of September 11,
representing a relatively small portion of the decline in these revenues of
$21.1 million in 2001, as compared to 2000. The majority of this revenue decline
was attributable to changes in teaming arrangements used by both the Company and
some of the Company's competitors, which resulted in a decline in fixed-award
flying allocated to the Company for the contract year ended September 30, 2001.
Based upon possible changes in competitive teaming arrangements and other
factors, the Company currently expects its military/government charter revenues
to increase slightly in the contract year ending September 30, 2002, as compared
to the prior contract year. The Company will continue to use primarily its fleet
of five Lockheed L-1011-500 aircraft to support this military business, since
this aircraft has competitive operating costs relative to other suppliers of
military flying, and has a range and seating configuration preferred by the
military.
The Company's Airline Operations
Services Offered
The following table provides a summary of the Company's major revenue sources
for the periods indicated:
Year Ended December 31,
2001 2000 1999 1998 1997
(Dollars in millions)
Scheduled Service $ 820.7 $ 753.3 $ 624.6 $ 511.3 $ 371.8
--------- --------- -------- ------- -------
Commercial Charter 192.2 246.7 263.8 222.6 228.1
Military Charter 167.5 188.6 126.2 121.9 131.1
--------- --------- -------- ------- -------
Total Charter Service 359.7 435.3 390.0 344.5 359.2
--------- --------- -------- ------- -------
Other 95.1 103.0 107.8 63.6 52.2
--------- --------- -------- ------- -------
Total $ 1,275.5 $ 1,291.6 $1,122.4 $ 919.4 $ 783.2
--------- --------- -------- ------- -------
7
Scheduled Service
The Company provides scheduled airline services on selected routes where it
believes that it can be one of the leading carriers in those markets, focusing
primarily on low-cost, nonstop or direct flights. The Company currently provides
scheduled service primarily from its gateway cities of Chicago-Midway and
Indianapolis to popular vacation and business destinations. Virtually all of the
Company's scheduled service revenue growth has resulted from expanded flying to
and from Chicago-Midway.
Beginning in April 1997, the Company had entered into a code-share agreement
with Chicago Express to operate passenger airline services between
Chicago-Midway and other midwestern cities using Jetstream 31s. On April 30,
1999, the Company acquired all of the issued and outstanding stock of Chicago
Express. Chicago Express' results of operations, beginning in May 1999, were
consolidated into those of the Company, replacing the fixed fee per flight
previously recorded by the Company. This generated no material change to
operating revenues or expenses. Chicago Express began service to South Bend,
Indiana in October 2000 and Springfield, Illinois in August 2001. Chicago
Express ceased flying to Lansing, Michigan in November 2000. During 2000,
Chicago Express placed nine Saab 340B aircraft into service in conjunction with
the retirement from service of the Jetstream 31s. Chicago Express purchased two
additional Saab 340B aircraft in August 2001.
Included in the Company's jet scheduled service are bulk-seat sales agreements
with tour operators. Under these arrangements, which are very similar to charter
sales, the tour operator takes up to 87% of an aircraft as a bulk-seat purchase.
The seats that the Company retains are sold through its own scheduled service
distribution network. Under bulk-seat sales arrangements, the Company is
obligated to provide transportation to the tour operators' customers even in the
event of non-payment to the Company by tour operators. To reduce its credit
exposure under these arrangements, the Company requires bonding or a security
deposit for a portion of the contract price. Bulk-seat revenues amounted to
$107.9 million, $84.5 million and $71.2 million in 2001, 2000 and 1999,
respectively, which represented 8.5%, 6.5% and 6.3%, respectively, of the
Company's consolidated revenues for such periods.
Commercial Charter
Commercial charter represented 15.1%, 19.1% and 23.5%, respectively, of the
Company's consolidated revenues for 2001, 2000 and 1999. The Company's principal
customers for commercial charter are tour operators, sponsors of incentive
travel packages and specialty charter customers.
Tour Operator Programs. These leisure-market programs are generally contracted
for repetitive, round-trip patterns, operating over varying periods of time. In
such an arrangement, the tour operator pays a fixed price for use of the
aircraft, including the crew and all necessary passenger and aircraft handling
services, and assumes responsibility and risk for the actual sale of the
available aircraft seats. Under most of its contracts with tour operators, the
Company passes through increases in fuel costs from a contracted price. If the
fuel price increase causes the tour operator's fuel cost to rise in excess of
10%, the tour operator has the option of canceling the contract. The Company
experienced no significant contract cancellations in 2001, 2000 or 1999 as a
result of fuel price increases. The Company is required to absorb increases in
fuel costs that occur within 14 days of flight time.
Incentive Travel Programs. Many corporations offer travel to leisure
destinations or special events as incentive awards for their employees. The
Company has historically provided air travel for many corporate incentive
programs. Incentive travel customers range from national incentive marketing
companies who arrange such programs for corporate clients, to large corporations
that handle their incentive travel programs on an in-house basis.
8
Specialty Charters. The Company operates a significant number of specialty
charter flights. These programs are normally contracted on a single round-trip
basis and vary extensively in nature. These flights allow the Company to
increase aircraft utilization during off-peak periods.
Largest Tour Operator Customers
Although the Company serves tour operators on a worldwide basis, its primary
customers are U.S.-based. The Company's five largest tour operator customers
represented approximately 18.0%, 17.5% and 17.2%, respectively, of the Company's
consolidated revenues for 2001, 2000 and 1999. Such tour operator revenues are
derived from both scheduled service bulk-seat sales and commercial charter
contracts. None of these customers accounts for more than 10% of consolidated
revenues.
Military/Government Charter
In 2001, 2000 and 1999, sales to the U.S. military and other governmental
agencies were approximately 13.1%, 14.6% and 11.2%, respectively, of the
Company's consolidated revenues. Traditionally, the Company's focus has been on
short-term military "contract expansion" business which is routinely awarded by
the U.S. Government based on availability of appropriate aircraft. The U.S.
Government awards one-year contracts for its military charter business and
pre-negotiates contract prices for each type of aircraft a carrier makes
available. Such contracts are awarded based upon the participating airlines'
average costs. The short-term expansion business is awarded pro rata to those
carriers with aircraft availability who have been awarded the most fixed-award
business, and then to any additional carrier that has aircraft available.
The overall amount of military flying that the Company performs in any one year
is dependent upon several factors, including (1) the percentage of mobilization
value points represented by the Company's team as compared to total mobilization
value points of all providers of military service; (2) the percentage of
passenger capacity of the Company with respect to its own team; (3) the amount
of fixed-award and expansion flying required by the U.S. military in each
contract year; and (4) the availability of the Company's aircraft to accept and
fly expansion awards. Under its current teaming arrangement, the Company expects
its military/government charter revenues to increase slightly for the contract
year ending September 2002, as compared to the contract year ending September
2001.
The Company is subject to biennial inspections by the U.S. Department of Defense
as a condition of retaining its eligibility to perform military charter flights.
The last such inspection was successfully completed in November 2001.
Other Business
In addition to its charter and scheduled service businesses, the Company
operates several other smaller businesses that complement its airline
businesses. The Company sells ground arrangements (hotels, car rentals and
attractions) through its Ambassadair and ATALC subsidiaries; provides airframe
and power plant mechanic training through American Trans Air Training
Corporation; and provides helicopter charter services through its ExecuJet, Inc.
subsidiary. Additionally, the Company, through its subsidiary ATA Cargo, Inc.,
("ATA Cargo") markets cargo services primarily in the Company's scheduled
service operations. In aggregate, these businesses, together with incidental
revenues associated with core commercial charter and scheduled service
operations, accounted for 7.5%, 8.0% and 9.6%, respectively, of consolidated
revenues in 2001, 2000 and 1999.
9
Aircraft Fleet
As of December 31, 2001, ATA was certified to operate a fleet of 15 Lockheed
L-1011s, 10 Boeing 727-200ADVs, 14 Boeing 737-800s, 15 Boeing 757-200s and five
Boeing 757-300s. The Company's commuter affiliate, Chicago Express, was
separately certified to operate 11 Saab 340B propeller aircraft. All of these
aircraft conform to the FAA's Stage 3 noise regulations. See "Environmental
Matters."
Lockheed L-1011 Aircraft
The Company's 15 Lockheed L-1011 aircraft are wide-body aircraft, seven of which
have a range of 2,971 nautical miles, three of which have a range of 3,425
nautical miles, and five of which have a range of 5,577 nautical miles. These
aircraft have a low ownership cost relative to other wide-body aircraft types.
They have an average age of approximately 25 years. As of December 31, 2001, the
Company owned 14 of these aircraft and one was under an operating lease that
expires in December 2005, due to a lease extension signed in March 2001. All of
the Lockheed L-1011 aircraft owned by the Company are subject to mortgages and
other security interests granted in favor of the Company's lenders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Boeing 727-200ADV Aircraft
The Company's 10 Boeing 727-200ADV aircraft are narrow-body aircraft equipped
with high-thrust, JT8D-17/-17A engines and have a range of 2,050 nautical miles.
These aircraft have an average age of approximately 21 years. As of December 31,
2001, the Company owned six of these aircraft, while leasing the remaining four
aircraft with initial lease terms that expire between December 2001 and
September 2002, subject to the Company's right to extend each lease for varying
terms or purchase the aircraft. All of the Boeing 727-200 aircraft owned by the
Company are subject to mortgages and other security interests granted in favor
of the Company's lenders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources." In
addition to the four leased aircraft in revenue service at December 31, 2001,
the Company is also obligated on three additional leased aircraft which are no
longer in revenue service.
Boeing 737-800 Aircraft
The Company's 14 Boeing 737-800 aircraft are narrow-body aircraft and have a
range of 2,500 nautical miles. These aircraft, all of which are leased, are new
aircraft delivered in 2001. The Company's Boeing 737-800s have higher ownership
costs than the Company's Lockheed L-1011 and Boeing 727-200ADV aircraft, but
lower operational costs resulting from reduced fuel consumption, lower
maintenance and cockpit crew costs, and improved operating reliability. The
leases for the Company's Boeing 737-800 aircraft have initial terms that expire
on various dates between June 2016 and December 2021.
Boeing 757-200 Aircraft
The Company's 15 Boeing 757-200 aircraft are narrow-body aircraft, all of which
have a range of 3,679 nautical miles. These aircraft, all of which are leased,
have an average age of approximately four years. The Company's Boeing 757-200s
have higher ownership costs than the Company's Lockheed L-1011 and Boeing
727-200ADV aircraft, but lower operational costs. In addition, the Company's
Boeing 757-200s have the capacity to operate on extended flights over water. The
leases for the Company's Boeing 757-200 aircraft have initial terms that expire
on various dates between January 2002 and May 2022, subject to the Company's
right to extend each lease for varying terms.
10
Boeing 757-300 Aircraft
The Company's five Boeing 757-300 aircraft are narrow-body aircraft and have a
range of 2,700 nautical miles. These aircraft, all of which are leased, are new
aircraft delivered in 2001. The Company's Boeing 757-300s have higher ownership
costs than the Company's Lockheed L-1011 and Boeing 727-200ADV aircraft, but
lower operational costs. The leases for the Company's Boeing 757-300 aircraft
have initial terms that expire on various dates between August and December
2021.
Saab 340B Aircraft
The Company's 11 Saab 340B aircraft are commuter aircraft with twin turboprop
engines. These 34-seat aircraft have an average age of approximately 11.5 years.
As of December 31, 2001, the Company owned two of these aircraft, while leasing
the remaining nine aircraft with initial lease terms that expire between
September 2009 and June 2011.
Although Lockheed L-1011 and Boeing 727-200 aircraft are subject to the FAA's
Aging Aircraft program, the Company does not currently expect that its cost of
compliance for these aircraft will be material.
Flight Operations
Worldwide flight operations are planned and controlled by the Company's Flight
Operations Group based in Indianapolis, Indiana, which is staffed on a 24-hour
basis, seven days a week. Logistical support necessary for extended operations
away from the Company's fixed bases is coordinated through its global
communications network. The Company has the ability to dispatch maintenance and
operational personnel and equipment as necessary to support temporary operations
around the world.
Aircraft Maintenance and Support
The Company's Maintenance and Engineering Center is located at Indianapolis
International Airport. This 150,000 square-foot facility was designed to meet
the maintenance needs of the Company's fleet and to provide supervision and
control of purchased maintenance services. The Company has approximately 1,174
employees supporting its aircraft maintenance operations, and currently
maintains 14 permanent maintenance facilities, including its Indianapolis
facility.
Fuel Price Risk Management
The Company has fuel reimbursement clauses and guarantees which applied to
approximately 32.0%, 33.5% and 34.8%, respectively, of consolidated revenues in
2001, 2000 and 1999. The Company engaged in a fuel-hedging program from 1998 to
mid-1999, which hedged a portion of its scheduled service fuel price risk during
that time period. The Company reestablished its fuel-hedging program in the
third quarter of 2000 and continued this program in 2001. See "Quantitative and
Qualitative Disclosures About Market Risk," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Operating Expenses -
Fuel and Oil."
11
Competition
The Company's products and services encounter varying degrees of competition in
the markets it serves.
Competition for Scheduled Services
In scheduled service, the Company competes both against the large U.S. scheduled
service airlines and, from time to time, against smaller regional or start-up
airlines. Competition is generally on the basis of price, schedule and
frequency, quality of service and convenience.
Competition for Commercial Charter Services
In the commercial charter market, the Company competes both against the major
U.S. scheduled airlines and against small U.S. charter airlines. The scheduled
carriers compete for leisure travel customers with the Company's commercial
charter operations in a variety of ways, including wholesaling discounted seats
on scheduled flights to tour operators, promoting packaged tours to travel
agents for sale to retail customers and selling discounted, airfare-only
products to the public. As a result, all charter airlines, including the
Company, generally are required to compete for customers against the lowest
revenue-generating seats of the scheduled airlines.
The Company also competes against several U.S. and foreign charter airlines. In
the United States, these charter airlines are smaller in size than the Company.
In Europe, several charter airlines are as large or larger than the Company.
Certain European charter airlines are affiliates of large scheduled airlines or
tour operators.
Competition for Military/Government Charter Services
The Company competes for military and other government charters with primarily
smaller U.S. airlines. The allocation of U.S. military air transportation
contracts is based upon the number and type of aircraft a carrier, alone or
through a teaming arrangement, makes available for use to the military, among
other factors.
Insurance
The Company carries types and amounts of insurance customary in the airline
industry, including coverage for public liability, passenger liability, property
damage, aircraft loss or damage, baggage and cargo liability and workers'
compensation. Under the Company's current insurance policies, it will not be
covered by such insurance were it to fly, without the consent of its insurance
provider, to certain high-risk countries. The Company will support certain U.S.
Government operations in areas where its insurance policy does not provide
coverage when the U.S. Government provides replacement insurance coverage.
As a result of the September 11, 2001 terrorist attacks, the Company's aviation
insurers, and other air carriers' aviation insurers, have significantly reduced
the maximum amount of insurance coverage they will underwrite for liability to
persons other than employees or passengers resulting from acts of terrorism,
war, hijacking or other similar perils (war-risk coverage). In addition, the
Company, and other air carriers, are being charged significantly higher premiums
for this reduced coverage as well as other aviation insurance. The Air
Transportation Safety and System Stabilization Act ("Act") provided for
reimbursement to air carriers of incremental costs of the war-risk coverage for
a 30-day period ended October 31, 2001. In addition, and pursuant to this
legislation, the U.S. Government has issued supplemental war-risk coverage to
U.S. air carriers, including the Company, through May 20, 2002. It is
anticipated that, after this date a commercial product for war-risk coverage
will become available, but the Company expects to incur significant additional
costs for this coverage.
12
Employees
As of December 31, 2001, the Company had approximately 7,000 full and part-time
employees, approximately 2,600 of whom were represented under collective
bargaining agreements. The Company's flight attendants are represented by the
Association of Flight Attendants ("AFA"), and the Company's cockpit crews are
represented by the Air Line Pilots Association ("ALPA"). The current collective
bargaining agreement with the AFA was ratified in April 2000 and will become
subject to amendment in October 2004. The current collective bargaining
agreement with ALPA became subject to amendment, but did not expire, in
September 2000. The Company began negotiations with ALPA in the second quarter
of 2000 to amend the collective bargaining agreement, and negotiations are
currently in progress. The Company's flight dispatchers are represented by the
Transport Workers Union ("TWU"). This collective agreement was ratified in
August 2000, and will become subject to amendment in August 2004.
On February 14, 2001, the Company's ramp service agents elected to be
represented by the International Association of Machinists ("IAM"). The Company
began negotiations with the IAM in May 2001. On February 15, 2002, the Company's
aircraft mechanics elected to be represented by the Aircraft Mechanics Fraternal
Association ("AMFA"). The Company has not begun negotiations with the AMFA.
While the Company believes that relations with its employees are good, any
prolonged dispute with employees, whether or not represented by a union, could
have an adverse impact on the Company's operations.
Regulation
The Company is subject to a wide range of governmental regulation, including
that of the DOT and the FAA.
The DOT principally regulates economic matters affecting air service, including:
air carrier certification and fitness; insurance; leasing arrangements;
allocation of route rights and authorization of proposed scheduled and charter
operations; allocation of landing slots and departing slots; consumer
protection; and competitive practices. The FAA primarily regulates flight
operations, especially matters affecting air safety, including airworthiness
requirements for each type of aircraft and crew certification. The FAA requires
each carrier to obtain an operating certificate and operations specifications
authorizing the carrier to fly to specific airports using specified equipment.
Several aspects of airline operations are subject to regulation or oversight by
federal agencies other than the DOT and FAA. The United States Postal Service
has jurisdiction over certain aspects of the transportation of mail and related
services provided by the Company through ATA Cargo. Labor relations in the air
transportation industry are generally regulated under the Railway Labor Act,
which vests in the National Mediation Board certain regulatory powers with
respect to disputes between airlines and labor unions arising under collective
bargaining agreements. The Company is subject to the jurisdiction of the Federal
Communications Commission regarding the utilization of its radio facilities. In
addition, the Immigration and Naturalization Service, the U.S. Customs Service,
and the Animal and Plant Health Inspection Service of the Department of
Agriculture have jurisdiction over inspection of the Company's aircraft,
passengers and cargo to ensure the Company's compliance with U.S. immigration,
customs and import laws. Also, while the Company's aircraft are in foreign
countries, they must comply with the requirements of similar authorities in
those countries. The Commerce Department also regulates the export and re-export
of the Company's U.S.-manufactured aircraft and equipment.
13
On November 19, 2001, President Bush signed into law the Aviation and
Transportation Security Act ("Aviation Security Act"). This law provides for
placing substantially all aspects of civil aviation passenger security and
screening under federal control, to be phased in during 2002 and 2003, and
creates a new Transportation Security Administration under the DOT. The cost of
the provisions set forth in the Aviation Security Act will be funded by a new
security fee of $2.50 per passenger enplanement, limited to $5 per one-way trip
and $10 per round trip. Air carriers, including the Company, began collecting
the new fee on ticket sales beginning February 1, 2002. The Aviation Security
Act will also be funded by financial assessments to each air carrier beginning
in the second quarter of 2002. The amount of the air carrier assessment is
limited to the amount each air carrier spent on aviation security in 2000.
In addition to various federal regulations, local governments and authorities in
certain markets have adopted regulations governing various aspects of aircraft
operations, including noise abatement, curfews and use of airport facilities.
Many U.S. airports have adopted or are considering adopting a Passenger Facility
Charge of up to $4.50 generally payable by each passenger departing from the
airport and remitted by the Company to the applicable airport authority.
Based upon bilateral aviation agreements between the U.S. and other nations,
and, in the absence of such agreements, comity and reciprocity principles, the
Company, as a charter carrier, is generally not restricted as to the frequency
of its flights to and from most foreign destinations. However, these agreements
generally restrict the Company to the carriage of passengers and cargo on
flights which either originate in the U.S. and terminate in a single foreign
nation, or which originate in a single foreign nation and terminate in the U.S.
The civil aeronautics authorities in the relevant countries must generally
specifically approve proposals for any additional charter service. Approval of
such requests is typically based on considerations of comity and reciprocity and
cannot be guaranteed.
The Company believes it is in compliance with all requirements necessary to
maintain in good standing its operating authority granted by the DOT and its air
carrier-operating certificate issued by the FAA. A modification, suspension or
revocation of any of the Company's DOT or FAA authorizations or certificates
could have a material adverse effect upon the Company.
Environmental Matters
Under the Airport Noise and Capacity Act of 1990 and related FAA regulations,
the Company's aircraft must comply with certain Stage 3 noise restrictions by
certain specified deadlines. In general, the Company is prohibited from
operating any Stage 2 aircraft after December 31, 1999. As of December 31, 2001,
the Company's entire fleet met Stage 3 requirements.
In addition to the aircraft noise regulations administered by the FAA, the
Environmental Protection Agency regulates operations, including air carrier
operations, which affect the quality of air in the United States. The Company
believes it has made all necessary modifications to its operating fleet to meet
fuel-venting requirements and smoke-emissions standards.
At the Company's aircraft maintenance facilities, materials are used that are
regulated as hazardous under federal, state or local laws. The Company is
required to maintain programs to protect the safety of the employees who use
these materials and to manage and dispose of any waste generated by the use of
these materials in compliance with these laws. More generally, the Company is
also subject at these facilities to federal, state and local regulations
relating to protection of the environment and to discharge of material into the
environment. The Company does not expect that the costs associated with ongoing
14
compliance with any of these regulations will have a material impact on the
Company's capital expenditures, earnings or competitive position.
Item 2. Properties
The Company leases three adjacent office buildings in Indianapolis consisting of
approximately 136,000 square feet. These buildings are located approximately one
mile from the Indianapolis International Airport terminal and are used as
principal business offices and for the Indianapolis reservations center.
The Company's Maintenance and Engineering Center is also located at Indianapolis
International Airport. This 150,000-square-foot facility was designed to meet
the base maintenance needs of the Company's operations, as well as to provide
support services for other maintenance locations. The Indianapolis Maintenance
and Engineering Center is an FAA-certificated repair station and has the
capability to perform routine and non-routine maintenance on the Company's
aircraft. In addition, the Company utilizes a 120,000 square-foot office
building immediately adjacent to the Company's Indianapolis Maintenance and
Engineering Center which is occupied by its Maintenance and Engineering office
staff along with the Company's operations center.
In 1995, the Company leased Hangar No. 2 at Chicago's Midway Airport for an
initial lease term of ten years, subject to two five-year renewal options. The
Company has completed significant improvements to this leased property, which is
used to provide line maintenance for the Boeing 757-200, Boeing 727-200, Boeing
757-300 and Boeing 737-800 narrow-body fleets. The Company also leases an
18,700-square-foot reservation facility located near Chicago's O'Hare Airport.
The Company routinely leases various properties at airports for use by passenger
service, flight operations and maintenance staffs.
At December 31, 2001, ATA and Chicago Express were certified to operate a fleet
of 70 aircraft. The following table summarizes the ownership characteristics of
each aircraft type operated by units of the Company as of the end of 2001.
Owned (Encumbered-
Owned Pledged on Bank Operating-Lease Operating-Lease
(Unencumbered) Facility or Other Debt) (Fixed Buy-out) (No Buy-out) Total
Lockheed L-1011-50/100 - 9 - 1 10
Lockheed L-1011-500 - 5 - - 5
Boeing 727-200ADV - 6 3 1 10
Boeing 737-800 - - 8 6 14
Boeing 757-200 - - 13 2 15
Boeing 757-300 - - 5 - 5
Saab 340B 2 - 9 - 11
- - - - --
TOTAL 2 20 38 10 70
= == == == ==
15
Item 3. Legal Proceedings
Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are routine and incidental to the
Company's business. The majority of these lawsuits are covered by insurance. To
the knowledge of management, none of these claims involve damages in excess of
10 percent of the assets of the Company, nor are any a material proceeding under
federal or state environmental laws, nor are any an environmental proceeding
brought by a governmental authority involving potential monetary sanctions in
excess of $100,000.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the quarter ended
December 31, 2001.
16
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's common stock is quoted on the Nasdaq National Market under the
symbol "AMTR." The Company had 262 and 255 registered shareholders,
respectively, at December 31, 2001 and 2000.
Market Prices of Common Stock
Year Ended December 31, 2001
(Amounts in dollars)
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
High 14.75 22.20 22.75 15.20
Low 9.44 9.00 7.60 5.50
Close 9.63 21.89 8.60 14.95
Market Prices of Common Stock
Year Ended December 31, 2000
(Amounts in dollars)
First Quarter Second Quarter Third Quarter Fourth Quarter
High 19.38 18.44 13.88 15.00
Low 13.63 8.63 10.00 9.00
Close 17.88 12.44 10.94 14.50
No dividends have been paid on the Company's common stock since becoming
publicly held.
In the last half of 2000, the Company issued and sold 300 shares of Series B
convertible redeemable preferred stock, without par value ("Series B
Preferred"), at a price and liquidation amount of $100,000 per share. The Series
B Preferred is convertible into shares of the Company's common stock at a
conversion rate of 6,381.62 shares of common stock per share of Series B
Preferred at a conversion price of $15.67 per share of common stock, subject to
antidilution adjustments. The Series B Preferred is optionally redeemable by the
Company under certain conditions, but the Company must redeem the Series B
Preferred no later than September 20, 2015. Optional redemption by the Company
may occur at 103.6% of the liquidation amount beginning September 20, 2003,
decreasing 0.3% of the liquidation amount per year to 100.0% of the liquidation
amount at the mandatory redemption date of September 20, 2015.
Also, in the last half of 2000, the Company issued and sold 500 shares of Series
A redeemable preferred stock, without par value ("Series A Preferred"), at a
price and liquidation amount of $100,000 per share. The Series A Preferred is
optionally redeemable by the Company under certain conditions, but the Company
must redeem the Series A Preferred in equal semiannual payments beginning
December 28, 2010, and ending December 28, 2015. Optional redemption by the
Company may occur at a redemption premium of 50.0% of the dividend rate
beginning December 28, 2003, decreasing 10.0% per year to 20.0% of the dividend
rate commencing December 28, 2006, and to 0.0% after the seventh year from
issuance. Prior to the third anniversary of issuance, the Company may redeem the
Series A Preferred with the net proceeds of a public offering of the Company's
common stock.
The issuance and sale of the Series A and Series B Preferred was exempt from
registration requirements under Section 4(2) of the Securities and Exchange Act
of 1933, which applies to private offerings of securities. The proceeds of the
issuances of the Series A and Series B Preferred were used to finance aircraft
pre-delivery deposits on Boeing 757-300 and Boeing 737-800 aircraft ordered by
the Company. See "Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note 10 - Redeemable Preferred Stock."
17
Item 6. Selected Consolidated Financial Data - (Unaudited)
The unaudited selected consolidated financial data in this table have been
derived from the consolidated financial statements of the Company for the
respective periods presented. The data should be read in conjunction with the
consolidated financial statements and related notes.
Amtran, Inc.
Five-Year Summary
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data and ratios) 2001 2000 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
Operating revenues $ 1,275,484 $ 1,291,553 $1,122,366 $ 919,369 $783,193
Operating expenses 1,367,354 1,288,983 1,032,339 843,996 769,709
Operating income (loss) (1) (91,870) 2,570 90,027 75,373 13,484
Income (loss) before taxes (116,067) (19,931) 77,797 67,210 6,027
Net income (loss) available to common shareholders (2) (81,885) (15,699) 47,342 40,081 1,572
Net income (loss) per share - basic (7.14) (1.31) 3.86 3.41 0.14
Net income (loss) per share - diluted (7.14) (1.31) 3.51 3.07 0.13
Balance Sheet Data (at end of period):
Property and equipment, net $ 314,943 $ 522,119 $ 511,832 $ 329,332 $267,681
Total assets 1,002,962 1,032,430 815,281 594,549 450,857
Total debt 497,592 457,949 347,871 246,671 191,804
Redeemable preferred stock 80,000 80,000 - - -
Shareholders' equity 44,132 124,654 151,376 102,751 56,990
Ratio of total debt to shareholders' equity 11.28 3.67 2.30 2.40 3.37
Ratio of total liabilities to shareholders' equity 19.91 6.64 4.39 4.79 6.91
Selected Consolidated Operating Statistics: (3)
Revenue passengers carried (thousands) 8,635.2 8,006.1 7,044.6 6,168.3 5,307.4
Revenue passenger miles (millions) 11,675.7 11,816.8 10,949.0 9,758.1 8,986.0
Available seat miles (millions) 16,187.7 16,390.1 15,082.6 13,851.7 12,647.7
Passenger load factor 72.1% 72.1% 72.6% 70.5% 71.0%
(1) During 2001, several nonrecurring events resulted in significant charges
and credits to operating loss. See "Financial Statements and Supplementary
Data - Notes to Consolidated Financial Statements - Note 2 - Impact of
Terrorist Attacks on September 11, 2001" and "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 16 -
Asset Impairment."
(2) Preferred stock dividends of $375,000 were paid in 2000 and preferred stock
dividends of $5.6 million were paid in 2001. No common stock dividends were
paid in any periods presented.
(3) Operating statistics pertain only to ATA and Chicago Express and do not
include information for other operating subsidiaries of the Company.
18
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company is a leading provider of targeted scheduled airline services and
charter airline services to leisure and other value-oriented travelers, and to
the U.S. military. The Company, through its principal subsidiary, ATA, has been
operating for 29 years and is the tenth largest U.S. airline in terms of 2001
capacity and traffic. ATA provides scheduled service through nonstop and
connecting flights from the gateways of Chicago-Midway and Indianapolis to
popular vacation destinations such as Hawaii, Phoenix, Las Vegas, Florida,
California, Mexico and the Caribbean, as well as to New York's LaGuardia
Airport, Philadelphia, Denver, Dallas-Ft. Worth, Washington, D.C., Boston,
Seattle, Minneapolis-St. Paul, Miami and Newark. Chicago Express also provides
commuter passenger service between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Madison, South Bend
and Springfield. ATA also provides charter service to independent tour
operators, specialty charter customers and the U.S. military.
On September 11, 2001, four commercial aircraft, operated by two other U.S.
airlines, were hijacked and destroyed in terrorist attacks on the United States.
In response to these attacks, on September 11, the FAA temporarily suspended all
commercial flights to, from and within the United States until September 13. The
Company resumed limited flight operations on September 13, with the exception of
flights to and from Chicago-Midway airport which commenced partial operations on
September 14. From September 11 to September 14, the Company canceled over 800
scheduled flights. Upon resuming its pre-attack flight schedule the week of
September 17, the Company experienced significantly lower passenger traffic and
unit revenues than prior to the attacks. In response to this, the Company
reduced its flight schedule by approximately 20%, as compared to the schedule
operated immediately prior to September 11, and furloughed approximately 1,100
employees by the middle of October 2001. By December 31, 2001, the Company had
recalled approximately half of the furloughed employees and had added some
capacity back to its flight schedule.
The Company's operations were significantly disrupted by the terrorist attacks
during and after the FAA-mandated shutdown of the air traffic system. Load
factors were significantly lower immediately after the attacks, and fare levels
declined, and have remained lower, due to reduced consumer demand. Consumer
demand improved in the fourth quarter of 2001; however, the Company cannot
predict when consumer demand will return to pre-attack levels. The attacks have
had a significant impact on the Company's results of operations for the year
ended December 31, 2001, producing $66.3 million in attack-related costs and
revenue losses between September 11 and December 31, which are expected to be
reimbursed through a U.S. Government grant, $44.5 million of which was received
in cash in the third and fourth quarters of 2001.
For additional details with respect to the impact of the terrorist attacks, see
"Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - Note 2 - Impact of Terrorist Attacks on September 11, 2001." For
the Company's discussion of possible future effects from these attacks, see
"Forward-Looking Information and Risk Factors."
The Company had an operating loss of $91.9 million, and a net loss after taxes
of $76.3 million, for the year ended December 31, 2001. Profitability in 2001
was severely impacted by the terrorist attacks on September 11, 2001, and by
non-cash impairment charges associated with the Boeing 727-200 and Lockheed
L-1011-50 and 100 fleets totaling $73.8 million, net of tax.
19
In May 2000, the Company placed an order for 39 new Boeing 737-800 aircraft and
ten new Boeing 757-300 aircraft. These aircraft are equipped with Boeing's
latest technology and equipment, and are significantly more fuel-efficient than
certain of the Company's three-engine aging aircraft. The Company accepted
delivery of 14 Boeing 737-800 aircraft and five Boeing 757-300 aircraft in 2001.
The Company expects to accept delivery of another 16 Boeing 737-800s and five
Boeing 757-300s in 2002, with the remainder of new aircraft on order expected to
be in service by 2004.
Critical Accounting Policies
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make judgments and estimates that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosures of contingent
assets and liabilities.
The Company discusses significant accounting policies in "Financial Statements
and Supplementary Data - Notes to Consolidated Financial Statements - Note 1 -
Significant Accounting Policies." Not all of these significant accounting
policies require management to make difficult, subjective or complex judgments.
Those that do require management to make difficult, subjective or complex
judgments are considered critical accounting policies.
The Company has identified the accounting policy for fleet impairments as
critical. In applying Financial Accounting Standards Board ("FASB") Financial
Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of ("FAS 121"), significant subjective
estimates are required to calculate expected future cash flows and the fair
market values to which assets are adjusted.
The Company has also identified the accounting policy for U. S. Government grant
reimbursements for direct and incremental losses associated with the terrorist
attacks of September 11, 2001 as critical. Due to limited guidance provided by
the legislation and interpretive rules of the DOT, the Company made subjective
and judgmental estimates in calculating the amount of reimbursement to
recognize.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year Ended December 31, 2001 Versus Year Ended December 31, 2000 -
Operating Expenses" for a further discussion of estimates and uncertainties
relating to asset impairments and U.S. Government grant reimbursements.
20
Results of Operations in Cents Per ASM
The following table sets forth, for the periods indicated, consolidated
operating revenues and expenses expressed as cents per ASM.
Cents per ASM
Year Ended December 31,
----------------------------------------------------
2001 2000 1999
---------- ---------- ----------
Consolidated operating revenues 7.88 7.88 7.44
Consolidated operating expenses:
Salaries, wages and benefits 2.01 1.81 1.67
Fuel and oil 1.55 1.68 1.13
Depreciation and amortization 0.75 0.76 0.64
Aircraft rentals 0.61 0.44 0.39
Handling, landing and navigation fees 0.55 0.59 0.59
Aircraft maintenance, materials and repairs 0.38 0.43 0.37
Crew and other employee travel 0.37 0.40 0.33
Passenger service 0.27 0.28 0.26
Ground package cost 0.26 0.31 0.33
Other selling expenses 0.26 0.22 0.19
Commissions 0.21 0.24 0.26
Advertising 0.16 0.13 0.12
Facilities and other rentals 0.13 0.10 0.09
Special charges 0.14 0.00 0.00
Impairment loss 0.69 0.00 0.00
U.S. Government grant (0.41) 0.00 0.00
Other 0.52 0.47 0.47
---------- ---------- ----------
Total consolidated operating expenses 8.45 7.86 6.84
---------- ---------- ----------
Consolidated operating income (loss) (0.57) 0.02 0.60
========== ========== ==========
ASMs (in thousands) 16,187,687 16,390,101 15,082,630
The following table sets forth, for the periods indicated, operating revenues
and expenses for each reportable segment, in thousands of dollars, and expressed
as cents per ASM.
Year Ended December 31,
--------------------------------------------------
2001 2000 1999
---- ---- ----
Airline and Other
Operating revenue (000s) $1,201,560 $1,192,984 $ 1,022,541
RASM (cents) 7.42 7.28 6.78
Operating expense (000s) $1,291,342 $1,178,737 $ 929,898
CASM (cents) 7.98 7.19 6.17
Adjusted CASM (cents) (Note 1) 7.56 7.19 6.17
ATALC
Operating revenue (000s) $ 73,924 $ 98,569 $ 99,825
RASM (cents) 0.46 0.60 0.66
Operating expense (000s) $ 76,012 $ 110,246 $ 102,441
CASM (cents) 0.47 0.67 0.67
Note 1 - Airline adjusted CASM excludes special charges, impairment loss and
U.S. Government grant compensation from operating expenses in 2001.
21
Year Ended December 31, 2001, Versus Year Ended December 31, 2000
Consolidated Flight Operations and Financial Data
The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200, Boeing 737-800, Boeing 757-200 and Boeing 757-300
aircraft in all of the Company's business units. Data shown for "J31/Saab"
operations include the operations of Jetstream 31 and Saab 340B propeller
aircraft by Chicago Express as the ATA Connection.
Twelve Months Ended December 31,
-----------------------------------------------------------
2001 2000 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures Jet 56,962 55,714 1,248 2.24
Departures J31/Saab (a) 26,836 18,985 7,851 41.35
-----------------------------------------------------------
Total Departures (b) 83,798 74,699 9,099 12.18
-----------------------------------------------------------
Block Hours Jet 172,207 172,824 (617) (0.36)
Block Hours J31/Saab 24,836 18,708 6,128 32.76
-----------------------------------------------------------
Total Block Hours (c) 197,043 191,532 5,511 2.88
-----------------------------------------------------------
RPMs Jet (000s) 11,581,733 11,760,135 (178,402) (1.52)
RPMs J31/Saab (000s) 94,009 56,669 37,340 65.89
-----------------------------------------------------------
Total RPMs (000s) (d) 11,675,742 11,816,804 (141,062) (1.19)
-----------------------------------------------------------
ASMs Jet (000s) 16,041,928 16,295,730 (253,802) (1.56)
ASMs J31/Saab (000s) 145,759 94,371 51,388 54.45
-----------------------------------------------------------
Total ASMs (000s) (e) 16,187,687 16,390,101 (202,414) (1.23)
-----------------------------------------------------------
Load Factor Jet 72.20 72.17 0.03 0.04
Load Factor J31/Saab 64.50 60.05 4.45 7.41
-----------------------------------------------------------
Total Load Factor (f) 72.13 72.10 0.03 0.04
-----------------------------------------------------------
Passengers Enplaned Jet 8,058,886 7,686,077 372,809 4.85
Passengers Enplaned J31/Saab 576,339 320,062 256,277 80.07
-----------------------------------------------------------
Total Passengers Enplaned (g) 8,635,225 8,006,139 629,086 7.86
-----------------------------------------------------------
Revenue $ (000s) 1,275,484 1,291,553 (16,069) (1.24)
RASM in cents (h) 7.88 7.88 - -
CASM in cents (i) 8.45 7.86 0.59 7.51
Yield in cents (j) 10.92 10.93 (0.01) (0.09)
See footnotes (c) through (j) on page 23.
(a) Chicago Express provides service between Chicago-Midway and the cities of
Indianapolis, Milwaukee, Des Moines, Dayton, Grand Rapids, Madison, South Bend
and Springfield as the ATA Connection, currently using 34-seat Saab 340B
propeller aircraft. During 1999 and the first three quarters of 2000, Chicago
Express operated up to nine 19-seat Jetstream 31 ("J31") aircraft as it phased
in the Saab fleet. As of September 30, 2000, all J31 aircraft had been removed
from revenue service.
(b) A departure is a single takeoff and landing operated by a single aircraft
between an origin city and a destination city.
22
(c) Block hours for any aircraft represent the elapsed time computed from the
moment the aircraft first moves under its own power from the origin city
boarding ramp to the moment it comes to rest at the destination city boarding
ramp.
(d) Revenue passenger miles (RPMs) represent the number of seats occupied by
revenue passengers multiplied by the number of miles those seats are flown. RPMs
are an industry measure of the total seat capacity actually sold by the Company.
(e) Available seat miles (ASMs) represent the number of seats available for sale
to revenue passengers multiplied by the number of miles those seats are flown.
ASMs are an industry measure of the total seat capacity offered for sale by the
Company, whether sold or not.
(f) Passenger load factor is the percentage derived by dividing RPMs by ASMs.
Passenger load factor is relevant to the evaluation of scheduled service because
incremental passengers normally provide incremental revenue and profitability
when seats are sold individually. In the case of commercial charter and
military/government charter, load factor is less relevant because the Company
sells an entire aircraft instead of individual seats. Since both costs and
revenues are largely fixed for these types of charter flights, changes in load
factor have less impact on business unit profitability. Consolidated load
factors and scheduled service load factors for the Company are shown in the
appropriate tables for industry comparability, but load factors for individual
charter businesses are omitted from applicable tables.
(g) Passengers enplaned are the number of revenue passengers who occupied seats
on the Company's flights. This measure is also referred to as "passengers
boarded."
(h) Revenue per ASM (expressed in cents) is total operating revenue divided by
total ASMs. This measure is also referred to as "RASM." RASM measures the
Company's unit revenue using total available seat capacity. In the case of
scheduled service, RASM is a measure of the combined impact of load factor and
yield (see (j) below for the definition of yield).
(i) Cost per ASM (expressed in cents) is total operating expense divided by
total ASMs. This measure is also referred to as "CASM." CASM measures the
Company's unit cost using total available seat capacity.
(j) Revenue per RPM (expressed in cents) is total operating revenue divided by
total RPMs. This measure is also referred to as "yield." Yield is relevant to
the evaluation of scheduled service because yield is a measure of the average
price paid by customers purchasing individual seats. Yield is less relevant to
the commercial charter and military/government charter businesses because the
entire aircraft is sold at one time for one price. Consolidated yields and
scheduled service yields are shown in the appropriate tables for industry
comparability, but yields for individual charter businesses are omitted from
applicable tables.
Operating Revenues
Total operating revenues in 2001 decreased 1.3% to $1.275 billion, as compared
to $1.292 billion in 2000. This decrease was due to a $54.5 million decrease in
commercial charter revenues, a $21.1 million decrease in military/government
charter revenues, a $7.6 million decrease in ground package revenues, and a $0.3
million decrease in other revenues, partially offset by a $67.4 million increase
in scheduled service revenues.
23
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200, Boeing 757-200, Boeing 757-300
and Boeing 737-800 aircraft in scheduled service. Data shown for "J31/Saab"
operations include the operations of Jetstream 31 and Saab 340B propeller
aircraft by Chicago Express as the ATA Connection.
Twelve Months Ended December 31,
-----------------------------------------------------------
2001 2000 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures Jet 45,951 40,892 5,059 12.37
Departures J31/Saab (a) 26,836 18,985 7,851 41.35
-----------------------------------------------------------
Total Departures (b) 72,787 59,877 12,910 21.56
-----------------------------------------------------------
Block Hours Jet 131,495 118,473 13,022 10.99
Block Hours J31/Saab 24,836 18,708 6,128 32.76
-----------------------------------------------------------
Total Block Hours (c) 156,331 137,181 19,150 13.96
-----------------------------------------------------------
RPMs Jet (000s) 8,600,314 7,700,639 899,675 11.68
RPMs J31/Saab (000s) 94,009 56,669 37,340 65.89
-----------------------------------------------------------
Total RPMs (000s) (d) 8,694,323 7,757,308 937,015 12.08
-----------------------------------------------------------
ASMs Jet (000s) 11,297,545 10,025,603 1,271,942 12.69
ASMs J31/Saab (000s) 145,759 94,371 51,388 54.45
-----------------------------------------------------------
Total ASMs (000s) (e) 11,443,304 10,119,974 1,323,330 13.08
-----------------------------------------------------------
Load Factor Jet 76.13 76.81 (0.68) (0.89)
Load Factor J31/Saab 64.50 60.05 4.45 7.41
-----------------------------------------------------------
Total Load Factor (f) 75.98 76.65 (0.67) (0.87)
-----------------------------------------------------------
Passengers Enplaned Jet 6,703,150 5,873,598 829,552 14.12
Passengers Enplaned J31/Saab 576,339 320,062 256,277 80.07
-----------------------------------------------------------
Total Passengers Enplaned (g) 7,279,489 6,193,660 1,085,829 17.53
-----------------------------------------------------------
Revenue $ (000s) 820,666 753,301 67,365 8.94
RASM in cents (h) 7.17 7.44 (0.27) (3.63)
Yield in cents (j) 9.44 9.71 (0.27) (2.78)
Revenue per segment $ (k) 112.74 121.62 (8.88) (7.30)
See footnotes (a) through (j) on pages 22 and 23.
(k) Revenue per segment flown is determined by dividing total scheduled service
revenues by the number of passengers boarded. Revenue per segment is a broad
measure of the average price obtained for all flight segments flown by
passengers in the Company's scheduled service route network.
Scheduled service revenues in 2001 increased 8.9% to $820.7 million from $753.3
million in 2000. Scheduled service revenues were 64.3% of consolidated revenues
in 2001, as compared to 58.3% of consolidated revenues in 2000.
As described in "Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Note 2 - Impact of Terrorist Attacks on
September 11, 2001," the Company's scheduled service operations were adversely
affected by the terrorist attacks of September 11. The Company estimates that it
24
lost approximately $80.0 million in scheduled service revenues between September
11 and December 31, 2001, as a result of flights which were canceled, and as a
result of flights operated with lower load factors and yields. In the eight
months ended August 31, 2001, the Company's scheduled service RASM was virtually
unchanged at 7.72 cents, as compared to 7.71 cents in the comparable period of
2000. However, due to the decrease in scheduled service demand after the
terrorist attacks, resulting in lower load factors and yields, the Company's
scheduled service RASM in the last four months of 2001 was 5.92 cents, a
decrease of 14.3%, as compared to 6.91 cents in the last four months of 2000.
The Company's scheduled service at Chicago-Midway accounted for approximately
66.8% of scheduled service ASMs and 86.6% of scheduled service departures in
2001, as compared to 63.5% and 83.5%, respectively, during 2000. During the
third and fourth quarters of 2001, the Company began operating nonstop flights
to Newark and Miami. During the second and third quarters of 2000, the Company
began operating nonstop flights to Ronald Reagan Washington National Airport,
Boston, Seattle and Minneapolis-St. Paul. In addition to this new service, the
Company served the following existing jet markets in both years: Dallas-Ft.
Worth, Denver, Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles, New York's
LaGuardia Airport, Orlando, Philadelphia, Phoenix, St. Petersburg, San
Francisco, San Juan and Sarasota.
In April 1999, the Company acquired all of the issued and outstanding stock of
Chicago Express which then operated 19-seat Jetstream 31 propeller aircraft
between Chicago-Midway and the cities of Indianapolis, Milwaukee, Des Moines,
Dayton, Grand Rapids, Lansing and Madison. Chicago Express began service to
South Bend, Indiana and Springfield, Illinois, respectively, in October 2000 and
August 2001, and ceased flying to Lansing, Michigan, in November 2000. In the
first three quarters of 2000, Chicago Express completed the replacement of nine
19-seat Jetstream 31 aircraft with nine 34-seat Saab 340B aircraft. Chicago
Express purchased two additional Saab 340B aircraft in the third quarter of
2001.
The Company anticipates that its Chicago-Midway operation will represent an
increasing proportion of its scheduled service business in 2002 and beyond. The
Company operated 109 peak daily jet and commuter departures from Chicago-Midway
in 2001, as compared to 94 in 2000, and served 28 destinations on a nonstop
basis in 2001, as compared to 25 nonstop destinations served in 2000. In order
to accommodate the growth in jet departures in the existing terminal, in October
2000 Chicago Express established a remote boarding operation at Chicago-Midway
Airport with shuttle bus service between the remote location and the main
terminal. This change has allowed the Company to convert the former Chicago
Express gate to a jet departure gate.
The Company's anticipated growth at Chicago-Midway will be accomplished in
conjunction with the construction of new terminal and gate facilities at the
Chicago-Midway Airport. In March 2001, the Company occupied 24 newly constructed
ticketing and passenger check-in spaces in the new terminal, an increase from 16
ticketing and passenger check-in spaces previously occupied. Once all
construction is complete in 2004, the Company expects to occupy 12 jet gates and
one commuter aircraft gate at the new airport concourses. One of the gates which
the Company will occupy opened on October 30, 2001. The Company moved to seven
additional new gates in the first quarter of 2002, and five additional gates are
expected to be available for use by the Company in 2004. In addition,
construction of a Federal Inspection Service ("FIS") facility at Chicago-Midway
was completed in the first quarter of 2002. The Company began nonstop
international services from this facility in early 2002 to Aruba, Cancun, Grand
Cayman and Guadalajara.
The Company's Hawaii service accounted for 18.6% of scheduled service ASMs and
3.9% of scheduled service departures in 2001, as compared to 17.0% and 4.3%,
respectively, in 2000. The Company provided nonstop service in both years from
25
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui. The Company provides these
services through a marketing alliance with the largest independent tour operator
serving leisure travelers to Hawaii from the United States. The Company
distributes the remaining seats on these flights through normal scheduled
service distribution channels. The Company believes it has superior operating
efficiencies in west coast-Hawaii markets due to the high daily hours of
utilization obtained for both aircraft and crews.
The Company's Indianapolis service accounted for 9.2% of scheduled service ASMs
and 6.5% of scheduled service departures in 2001, as compared to 12.2% and 8.8%,
respectively, in 2000. In both years, the Company operated nonstop to Cancun,
Ft. Lauderdale, Ft. Myers, Las Vegas, Orlando, St. Petersburg and Sarasota. The
Company has served Indianapolis for 29 years through the Ambassadair Travel Club
and through scheduled service since 1986.
The Company continuously evaluates the profitability of its scheduled service
markets and expects to adjust its schedule and flight frequencies from time to
time, particularly with reference to the ongoing impacts of the terrorist
attacks. Although unit revenues did partially recover toward the end of 2001,
unit revenues in the first quarter of 2002 are expected to be below first
quarter 2001 levels. Weak revenues are related to both the ongoing impact of the
September 11, 2001 terrorist attacks on the demand for air travel, and continued
weakness in the U.S. domestic economy. The Company is adding a small amount of
capacity to its scheduled service network in the first quarter of 2002 as it
continues to accept new aircraft deliveries. The Company cannot predict when
year-over-year unit revenue growth will resume in its scheduled service
business.
Commercial Charter Revenues. The Company's commercial charter revenues are
derived principally from independent tour operators and specialty charter
customers. The Company's commercial charter product provides full-service air
transportation to customer-designated destinations throughout the world.
Commercial charter revenues accounted for 15.1% of consolidated revenues in 2001
as compared to 19.1% in 2000.
The impact of the September 11, 2001 terrorist attacks was less significant on
the commercial charter business than on scheduled service. The Company estimates
that it lost approximately $1.4 million in commercial charter revenues as a
result of flight cancellations during the FAA-mandated air system shutdown from
September 11 until September 13, and decreased demand for commercial charter
flights following September 11. The majority of the decline in commercial
charter revenues in 2001, as compared to 2000, was principally due to the
retirement of certain Lockheed L-1011 and Boeing 727-200 aircraft that the
Company has traditionally used in commercial charter flying. Since aircraft
utilization (number of productive hours of flying per aircraft each month) is
typically much lower for commercial charter, as compared to scheduled service
flying, the Company's replacement fleets of new Boeing 737-800 and Boeing
757-300 aircraft are economically disadvantaged when used in the charter
business, because of their higher fixed-ownership cost. Consequently, the
Company expects its commercial charter revenues to continue to decline in future
periods as the fleet supporting this business continues to shrink through
aircraft retirements.
Although total commercial charter revenues have declined in 2001, as compared to
2000, commercial charter RASM has increased over the same time periods. The
Company has eliminated lower-RASM flying as this business has been reduced in
size, thus increasing average RASM on the flying that it has retained.
26
The following table sets forth, for the periods indicated, certain key operating
and financial data for the commercial charter operations of the Company.
Twelve Months Ended December 31,
-------------------------------------------------------
2001 2000 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 7,293 9,722 (2,429) (24.98)
Block Hours (c) 24,495 34,356 (9,861) (28.70)
RPMs (000s) (d) 2,010,477 2,687,051 (676,574) (25.18)
ASMs (000s) (e) 2,588,780 3,610,413 (1,021,633) (28.30)
Passengers Enplaned (g) 1,128,660 1,472,340 (343,680) (23.34)
Revenue $ (000s) 192,246 246,705 (54,459) (22.07)
RASM in cents (h) 7.43 6.83 0.60 8.78
RASM less fuel escalation (l) 7.13 6.47 0.66 10.20
See footnotes (b) through (h) on pages 22 and 23.
(l) Commercial charter contracts generally provide that the tour operator will
reimburse the Company for certain fuel cost increases, which, when earned, are
accounted for as additional revenue. A separate RASM calculation, excluding the
impact of fuel reimbursements, is provided as a separate measure of unit revenue
changes.
The Company operates in two principal components of the commercial charter
business, known as "track charter" and "specialty charter." The larger track
charter business component is generally comprised of low-frequency but
repetitive domestic and international flights between city pairs, which support
high-passenger load factors and are marketed through tour operators, providing
value-priced and convenient nonstop service to vacation destinations for the
leisure traveler. Since track charter resembles scheduled service in terms of
its repetitive flying patterns between fixed-city pairs, it allows the Company
to achieve reasonable levels of crew and aircraft utilization (although less
than for scheduled service), and provides the Company with meaningful protection
from some fuel price increases through the use of fuel escalation reimbursement
clauses in tour operator contracts. Track charter accounted for approximately
$149.7 million in revenues in 2001, as compared to $192.8 million in 2000.
Specialty charter is a product that is designed to meet the unique requirements
of a customer and is a business characterized by lower frequency of operation
and by greater variation in city pairs served than the track charter business.
Specialty charter includes such diverse contracts as flying university alumni to
football games, transporting political candidates on campaign trips and moving
NASA space shuttle ground crews to alternate landing sites. The Company also has
operated trips in an all-first-class configuration for certain corporate and
high-end leisure clients. Although lower utilization of crews and aircraft and
infrequent service to specialty destinations often result in higher average
operating costs, the Company has determined that the revenue premium earned by
meeting special customer requirements more than compensates for these increased
costs. The diversity of the Company's fleet types also permits the Company to
meet a customer's particular needs by choosing the aircraft type that provides
the most economical solution for those requirements. Specialty charter accounted
for approximately $18.8 million in revenues in 2001, as compared to $31.5
million in 2000.
The remainder of commercial charter revenues are attributable primarily to the
air revenues of ATALC and Ambassadair, which did not change significantly
between years.
27
Military/Government Charter Revenues. The following table sets forth, for the
periods indicated, certain key operating and financial data for the
military/government charter operations of the Company.
Twelve Months Ended December 31,
-------------------------------------------------------
2001 2000 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 3,702 4,961 (1,259) (25.38)
Block Hours (c) 16,159 19,443 (3,284) (16.89)
RPMs (000s) (d) 965,740 1,339,545 (373,805) (27.91)
ASMs (000s) (e) 2,147,248 2,605,791 (458,543) (17.60)
Passengers Enplaned (g) 225,641 329,200 (103,559) (31.46)
Revenue $ (000s) 167,524 188,557 (21,033) (11.15)
RASM in cents (h) 7.80 7.24 0.56 7.73
RASM less fuel escalation (m) 7.58 6.88 0.70 10.17
See footnotes (b) through (h) on pages 22 and 23.
(m) Military/government reimbursements to the Company are calculated based upon
a "cost plus" formula, including an assumed average fuel price for each contract
year. If actual fuel prices differ from the contract rate, revenues are adjusted
up or down to neutralize the impact of the change on the Company. A separate
RASM calculation is provided, excluding the impact of the fuel price
adjustments.
The Company estimates that it lost approximately $1.0 million in military
revenues, net of cancellation fees, due to the FAA-mandated shut down of the air
traffic system from September 11 until September 13. After having resumed flight
operations late in the day on September 13, 2001, the Company's military flight
schedule quickly returned to normal. Although current military flight operations
of the Company have not been significantly affected by the terrorist attacks of
September 11, future operations may be significantly affected by changes in the
transportation needs of the U.S. military, possibly in association with military
operations in the United States and abroad. Heightened military activities
related to international conflict usually bring reduced demand to the Company's
scheduled service business. The Company cannot predict the magnitude and
possible future impact on its results of operations and financial condition, if
any, of these possible future events.
The decline in military revenues in 2001, as compared to 2000, was primarily due
to changes in teaming arrangements used both by the Company and some of the
Company's competitors in the military/government charter business. Such changes
reduced the fixed-award flying allocated to the Company for the contract year
ending September 30, 2001. The Company earned $159.3 million in
military/government charter revenues in the contract year ended September 30,
2001, a 6.0% reduction as compared to $169.5 million earned in the preceding
contract year ended September 30, 2000. Under its current teaming arrangement,
the Company expects its military/government charter revenues to increase
slightly in the contract year ending September 2002.
The increase in RASM for military/charter revenues in 2001, as compared to 2000,
was due to rate increases awarded for the current contract year, based upon cost
data submitted to the U.S. military by the Company and other air carriers
providing these services.
The Company participates in two related military/government charter programs
known as "fixed-award" and "short-term expansion." Pursuant to the U.S.
military's fixed-award system, each participating airline is awarded certain
"mobilization value points" based upon the number and type of aircraft made
available by that airline for military flying. In order to increase the number
of points awarded, the Company has traditionally participated in contractor
teaming arrangements with other airlines. Under these arrangements, the team has
28
a greater likelihood of receiving fixed-award business and, to the extent that
the award includes passenger transport, the opportunity for the Company to
operate this flying is enhanced since the Company typically represents a
majority of the passenger transport capacity of its team. As part of its
participation in this teaming arrangement, the Company pays a commission to the
team, which passes that revenue on to all team members based upon their
mobilization value points. All airlines participating in the fixed-award
business contract annually with the U.S. military from October 1 to the
following September 30. For each contract year, reimbursement rates are
determined for aircraft types and mission categories based upon operating cost
data submitted by the participating airlines. These contracts generally are not
subject to renegotiation once they become effective.
Short-term expansion business is awarded by the U.S. military first on a pro
rata basis to those carriers who have been provided fixed-award business and
then to any other carrier with aircraft availability. Short-term expansion
flying is generally offered to airlines on very short notice.
The overall amount of military flying that the Company performs in any one year
is dependent upon several factors, including (1) the percentage of mobilization
value points represented by the Company's team as compared to total mobilization
value points of all providers of military service; (2) the percentage of
passenger capacity of the Company with respect to its own team; (3) the amount
of fixed-award and expansion flying required by the U.S. military in each
contract year; and (4) the availability of the Company's aircraft to accept and
fly expansion awards.
Ground Package Revenues. The Company earns ground package revenues through the
sale of hotel, car rental, cruise and other accommodations in conjunction with
the Company's air transportation product. The Company markets these ground
packages through its ATALC subsidiary and to its Ambassadair Travel Club
members.
Ambassadair Travel Club offers tour-guide-accompanied vacation packages to its
approximately 34,000 individual and family members annually. ATALC offers
numerous ground accommodations to the general public in many areas of the United
States, Mexico and the Caribbean. These packages are marketed through travel
agents, as well as directly by the Company.
In 2001, ground package revenues decreased 12.7% to $52.2 million, as compared
to $59.8 million in 2000. The number of ground packages sold and the average
revenue earned by the Company for a ground package sale are a function of the
seasonal mix of vacation destinations served, the quality and types of ground
accommodations offered and general competitive conditions in the Company's
markets, all of which factors can change from period to period.
Other Revenues. Other revenues are comprised of the consolidated revenues of
certain affiliated companies, together with miscellaneous categories of revenue
associated with the scheduled, charter and ground package operations of the
Company, such as cancellation and service fees, Ambassadair Travel Club
membership dues and cargo revenue. Other revenues decreased 0.5% to $42.9
million in 2001, as compared to $43.1 million in 2000.
Operating Expenses
Salaries, Wages and Benefits. Salaries, wages and benefits include the cost of
salaries and wages paid to the Company's employees, together with the Company's
cost of employee benefits and payroll-related local, state and federal taxes.
Salaries, wages and benefits expense in 2001 increased 9.5% to $325.2 million
from $297.0 million in 2000.
29
The Company increased its average equivalent employees by approximately 4.7%
between 2001 and 2000. This annual growth rate combines employment growth in
conjunction with a growing flight schedule prior to the terrorist attacks on
September 11, offset by the employee furloughs under the Company's cost-cutting
initiatives implemented shortly after the attacks. Through the first nine months
of the year, the average equivalent headcount increased approximately 11.0%,
which primarily reflected growth in categories of employees that were required
for the increased flight activity the Company was experiencing prior to
September 11. In the fourth quarter of 2001, employment declined by
approximately 12.5%, as compared to the fourth quarter of 2000. By the middle of
October 2001, the Company had furloughed approximately 1,100 employees as a
result of a 20% flight capacity reduction implemented after the September 11
attacks. As of December 31, 2001, the Company had recalled approximately half of
those employees furloughed during the fourth quarter of 2001.
Additionally, in May 2000, the Company replaced its contracted ground handler at
its busiest airport, Chicago-Midway, with its own ramp employees. Although this
contributed to a year-over-year increase in salaries, wages and benefits, the
Company experienced a corresponding reduction in handling, landing and
navigation fees, where third-party handling expenses are classified. Chicago
Express salaries, wages and benefits also increased in 2001, as compared to
2000, due to the replacement of nine 19-seat Jetstream 31 aircraft with 11
34-seat Saab 340B aircraft, thus more than doubling total commuter seat capacity
between years.
Also contributing to the increase in salaries, wages and benefits, is an
increase of approximately $7.8 million in benefits expenses to $34.3 million in
2001 as compared to $26.5 million in 2000. This increase is primarily due to
increases in medical insurance claims and workers' compensation costs between
years.
Fuel and Oil. Fuel and oil expense decreased 8.6% to $251.3 million in 2001, as
compared to $274.8 million in 2000. The Company consumed 5.8% fewer gallons of
jet fuel for flying operations in 2001, as compared to 2000, which resulted in a
decrease in fuel expense of approximately $13.7 million between periods. Fuel
consumption varies with changes in jet block hours flown, and with changes in
the fleet mix. The Company flew 172,207 jet block hours in 2001, as compared to
172,824 jet block hours in 2000, a decrease of 0.4% between years. Fuel
consumption in 2001 was more significantly affected by the delivery of 14 Boeing
737-800 aircraft and five Boeing 757-300 aircraft, replacing certain
less-fuel-efficient Boeing 727-200 and Lockheed L-1011 aircraft subsequently
retired from service. The Company estimates that approximately $9.4 million of
the variance attributable to lower fuel consumption resulted from flying
approximately 18,000 of these block hours using the 19 new aircraft, as compared
to flying those block hours with the less-fuel-efficient fleets. During 2001,
the Company's average cost per gallon of jet fuel consumed decreased by 6.0% as
compared to 2000, resulting in a decrease in fuel and oil expense of
approximately $12.6 million between periods.
During 2001 and 2000, the Company entered into several fuel price hedge
contracts under which the Company sought to reduce the risk of fuel price
fluctuations. The Company recorded losses of $2.6 million on these hedge
contracts in 2001 as compared to gains of $0.1 million in 2000. As of December
31, 2001, the Company had entered into swap agreements for approximately 6.3
million gallons of heating oil for future delivery between January 2002 and June
2002, which represented approximately 2.6% of total expected fuel consumption in
2002. See "Quantitative and Qualitative Disclosures about Market Risk," and
"Financial Statements and Supplementary Data - Notes to Consolidated Financial
Statements - Note 15 - Fuel Price Risk Management" for more information on the
Company's fuel price risk management program.
30
Depreciation and Amortization. Depreciation reflects the periodic expensing of
the recorded cost of owned airframes and engines, leasehold improvements and
rotable parts for all fleet types, together with other property and equipment
owned by the Company. Amortization is primarily the periodic expensing of
capitalized airframe and engine overhauls for all fleet types on a
units-of-production basis using aircraft flight hours and cycles (landings) as
the units of measure. Depreciation and amortization expense decreased 3.0% to
$121.3 million in 2001, as compared to $125.0 million in 2000.
During the first nine months of 2001, the Company was depreciating the L-1011-50
and 100 fleet assuming a common retirement date of 2004. However, during 2001,
the Company decided to retire several of these aircraft as of their next
scheduled heavy maintenance check. During the first nine months of 2001, the
Company retired three L-1011-50 aircraft from revenue service in this manner,
recording a loss on disposal of $6.6 million for these aircraft in other
operating expense. During the fourth quarter of 2001, the Company determined
that the remaining 10 L-1011-50 and 100 aircraft, together with related rotable
parts and inventory, were impaired in accordance with FAS 121 (See "Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements -
Note 16 - Asset Impairment.") Because the Company continues to utilize these
assets, they are classified as held for use under FAS 121, and are recorded on
the balance sheet at their estimated fair market value at the time of
impairment, which is the new asset basis to be depreciated over the assets'
estimated remaining useful lives. The useful life of each aircraft is now
assumed to end immediately prior to its next scheduled heavy maintenance check.
Due primarily to the reduced cost basis of the remaining 10 aircraft, and the
retirement of three aircraft, the Company recorded $5.0 million less engine and
airframe overhaul amortization expense for the L-1011-50 and 100 fleet in 2001
than in 2000.
In March 2001, the Company entered into an agreement to transfer its entire
fleet of 24 Boeing 727-200 aircraft to BATA Leasing LLC ("BATA") by May 2002.
(See "Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements - Note 12 - Commitments and Contingencies.") As a result,
in the first quarter of 2001, the Company implemented a change in accounting
estimate to adjust the estimated useful lives and salvage value of these
aircraft to the terms of the BATA agreement. This change in accounting estimate
resulted in an increase of depreciation expense of $2.5 million in 2001, as
compared to 2000.
Immediately following the terrorist attacks of September 11, 2001, the Company
decided to retire its Boeing 727-200 fleet from revenue service, although some
aircraft will be used for charter service through the first half of 2002. These
aircraft were determined to be impaired under FAS 121. Boeing 727-200 aircraft
not already transferred to BATA have been classified in the accompanying balance
sheet as assets held for sale. In accordance with FAS 121, depreciation expense
was not recorded after the fleet was deemed impaired and will not be recorded in
future accounting periods. As a result, the Company did not record any
depreciation expense on the Boeing 727-200 fleet in the last four months of
2001, which resulted in a $13.3 million decrease in depreciation expense in
2001, as compared to 2000.
Amortization of capitalized engine and airframe overhauls on the Boeing 757-200
and Lockheed L-1011-500 fleets increased $9.0 million in 2001, as compared to
2000, after including amortization of related manufacturers' credits. This
increase is primarily due to amortization of engine overhauls on the Lockheed
L-1011-500 and Boeing 757-200 aircraft. Both fleets are relatively new to the
Company and neither required overhauls until late 2000.
The remaining $3.1 million increase in depreciation and amortization expense in
2001 as compared to 2000 represents primarily fluctuations associated with
rotable parts, owned engines and the provision for inventory obsolescence, along
with fluctuations in expenses related to furniture and fixtures, computer
hardware and software, and debt issue costs between periods, none of which are
individually significant.
31
Aircraft Rentals. Aircraft rentals expense for 2001 increased 37.3% to $99.0
million, as compared to $72.1 million in 2000. The Company took delivery of two
Boeing 757-200 aircraft in June 2000 and two Boeing 757-200 aircraft in November
2000, all of which were financed under operating leases. These four aircraft
added $10.3 million to aircraft rentals expense in 2001, as compared to 2000.
Aircraft rent also increased $17.6 million for 2001, as compared to 2000, as a
result of the delivery of 14 leased Boeing 737-800 and five leased Boeing
757-300 aircraft between May and December of 2001.
Also during 2001, the Company terminated leases on five Boeing 727-200s which
were transferred to BATA. The Company also transferred seven owned Boeing
727-200 aircraft to BATA. Subsequently, the Company leased certain of those
aircraft from BATA under short-term operating leases. These transactions
resulted in a net decrease in aircraft rent of approximately $2.9 million in
2001. Additional Chicago Express aircraft and spare engine leases generated an
increase in aircraft rent expense of approximately $1.9 million in 2001, as
compared to 2000.
Handling, Landing and Navigation Fees. Handling and landing fees include the
costs incurred by the Company at airports to land and service its aircraft and
to handle passenger check-in, security, cargo and baggage where the Company
elects to use third-party contract services in lieu of its own employees. Where
the Company uses its own employees to perform ground handling functions, the
resulting cost appears within salaries, wages and benefits. Air navigation fees
are incurred when the Company's aircraft fly over certain foreign airspace.
Handling, landing and navigation fees decreased by 8.9% to $88.7 million in 2001
as compared to $97.4 million in 2000, although the total number of system-wide
jet departures between 2001 and 2000 increased by 2.2% to 56,962 from 55,714.
The decrease in handling, landing and navigation fees is primarily due to the
reduction in commercial and military/government charter flying between years
(much of which is operated to and from international airports), since
international handling and landing fees are generally more expensive than at
domestic U.S. airports, and air navigation fees apply only to international
flying. In 2001, international departures were 6,469, a reduction of 16.7% as
compared to international departures of 7,763 in 2000.
The Company also recorded $2.9 million less in de-icing expense in 2001 due to
relatively milder weather than as compared to 2000.
Aircraft Maintenance, Materials and Repairs. This expense includes the cost of
expendable aircraft spare parts, repairs to repairable and rotable aircraft
components, contract labor for maintenance activities and other non-capitalized
direct costs related to fleet maintenance, including spare engine leases, parts
loan and exchange fees, and related shipping costs. It also includes the costs
incurred under hourly engine maintenance agreements the Company has entered into
on its Boeing 737-800 and Saab 340B power plants. These agreements provide for
the Company to pay monthly fees based on a specified rate per engine flight
hour, in exchange for major engine overhauls and maintenance. Aircraft
maintenance, materials & repair expense decreased 12.8% to $61.4 million in
2001, as compared to $70.4 million in 2000.
The 2001 decline in maintenance, materials and repairs expense was primarily
attributable to a decrease in materials consumed and components repaired related
to maintenance on the Company's aging fleets of Lockheed L-1011 and Boeing
727-200 aircraft. During 2001, the Company placed 12 Boeing 727-200 aircraft
into BATA and retired three Lockheed L-1011 aircraft from service before related
heavy airframe maintenance checks were due to be performed. The Company expects
maintenance, materials and repairs expense to continue to decline in future
quarters as its older fleets of aircraft continue to be replaced by newer and
more technologically advanced twin-engine aircraft with lower maintenance needs.
32
The Company also recorded a decrease of $3.0 million in maintenance, materials
and repairs in 2001, as compared to 2000, due to a negotiated elimination of
return condition requirements on one leased Lockheed L-1011 aircraft and the
recognition of a return condition receivable on one leased Boeing 757-200
aircraft. The Company accrues estimated costs and credits associated with
maintenance return conditions for aircraft on leases as a component of
maintenance, materials and repairs expense.
The Company recognized an increase in aircraft maintenance, materials and
repairs of $3.0 million in 2001, as compared to 2000, relating to the 11 Saab
340B aircraft operated by Chicago Express.
Crew and Other Employee Travel. Crew and other employee travel consists
primarily of the cost of air transportation, hotels and per diem reimbursements
to cockpit and cabin crewmembers incurred to position crews away from their
bases to operate Company flights throughout the world. The cost of crew and
other employee travel decreased 9.9% to $59.3 million in 2001 as compared to
$65.8 million in 2000.
The decrease in crew and employee travel in 2001, as compared in 2000, was
mainly due to a significant decrease in crew positioning expense. The average
cost of crew positioning per full-time-equivalent crew member deceased 20.9% in
2001, as compared to 2000. The decrease was primarily due to the decrease in
military and charter flights, which often operate to and from points remote from
the Company's crew bases, thus requiring significant positioning expenditures
for cockpit and cabin crews on other airlines. For those positioning events
which did occur, the Company was also able to obtain lower prices from other air
carriers through specifically negotiated agreements, as well as benefiting from
lower airfares which became generally available in the second half of 2001. Crew
and other employee travel also declined due to a decrease in hotel expenses,
also resulting primarily from the decline in international flying.
Passenger Service. Passenger service expense includes the costs of onboard meal
and non-alcoholic beverage catering, the cost of alcoholic beverages and
in-flight movie headsets sold, and the cost of onboard entertainment programs,
together with certain costs incurred for mishandled baggage and passengers
inconvenienced due to flight delays or cancellations. For 2001 and 2000,
catering represented 74.4% and 78.8%, respectively, of total passenger service
expense.
The total cost of passenger service decreased 3.7% to $43.9 million in 2001, as
compared to $45.6 million in 2000. The Company experienced a decrease of
approximately 14.2% in the average unit cost of catering each passenger between
2001 and 2000, primarily because in 2001 there were fewer military and
commercial charter passengers in the Company's business mix, which are provided
a more expensive catering product due to the longer stage length of these
flights. This resulted in a price-and-business-mix decrease of $5.4 million in
catering expense in 2001, as compared to 2000. Total jet passengers boarded
increased 4.9% between years, resulting in approximately $2.1 million in higher
volume-related catering expenses between the same sets of comparative periods.
In 2001, as compared to 2000, the Company incurred approximately $1.8 million in
higher expenses for mishandled baggage and passenger inconvenience due to flight
delays and cancellations.
Ground Package Cost. Ground package cost is incurred by the Company with hotels,
car rental companies, cruise lines and similar vendors who provide ground and
cruise accommodations to Ambassadair and ATALC customers. Ground package cost
decreased 17.1% to $42.2 million in 2001, as compared to $50.9 million in 2000.
33
Ground package costs vary based on the mix of vacation destinations served, the
quality and types of ground accommodations offered, and general competitive
conditions in the Company's markets, all of which factors can change from period
to period. This decline was more significant than the decline in ground package
revenue in 2001 as compared to 2000, because the Company received discounted
hotel pricing in the last half of the year due to the weakening economy and the
reduction in travel demand after the September 11 attacks.
Other Selling Expenses. Other selling expenses are comprised primarily of fees
paid to computer reservation systems ("CRS") for scheduled service bookings,
credit card discount expenses incurred when selling single seats and ground
packages to customers using credit cards for payment, and toll-free telephone
services provided to single-seat and vacation package customers who contact the
Company directly to book reservations. Other selling expenses increased 13.4% to
$41.6 million in 2001, as compared to $36.7 million in 2000.
Approximately $3.7 million of this increase in 2001 resulted from an increase in
CRS fees. This increase resulted partially from the growth in single-seat sales
volumes between periods and partially because of increases in rates charged by
CRS systems for improved booking functionality. Credit card discount expense
increased $1.5 million as compared to 2000, primarily due to higher volumes of
scheduled service tickets sold using credit cards as form of payment.
Commissions. The Company incurs commissions expense in association with the sale
by travel agents of vacation packages and single seats on scheduled service. In
addition, the Company incurs commissions to secure some commercial and
military/government charter business. Commissions expense decreased 11.0% to
$34.8 million in 2001, as compared to $39.1 million in 2000.
Approximately $3.8 million of the decrease in commissions in 2001, as compared
2000, was attributable to lower military commissions, which is consistent with
the decrease in military revenue between the same time periods. The Company also
experienced a decrease of $2.5 million between 2001 and 2000 in commissions paid
to travel agents by ATALC, which is consistent with the decrease in related
revenues for that affiliate. These decreases were partially offset by increases
in scheduled service commissions of $2.2 million between 2001 and 2000 due to an
increase in scheduled service sales made by travel agents.
Advertising. Advertising expense increased 20.0% to $26.4 million in 2001, as
compared to $22.0 million in 2000. The Company routinely incurs advertising
costs primarily to support single-seat scheduled service sales and the sale of
air and ground packages. In 2001, the Company increased its advertising
(introducing a new marketing campaign) primarily in Chicago in connection with
the arrival of the new Boeing 737-800 and 757-300 aircraft, the opening of new
ticketing and baggage claim facilities at Chicago-Midway Airport, the
announcement of new scheduled service destinations, and the promotion of low
fares as compared to the competition. The Company expects to continue to
increase advertising expenditures as it seeks to increase consumer preference
for the Company's enhanced product, especially in its important Chicago-Midway
hub.
The Company also incurred $6.3 million of incremental advertising costs in 2001
associated with rebuilding customer demand after the September 11 terrorist
attacks, but due to their unusual nature, these expenses were included as
special charges on the income statement. See "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 2 -
Impact of Terrorist Attacks on September 11, 2001."
Facilities and Other Rentals. Facilities and other rentals include the cost of
all ground facilities that are leased by the Company such as at airports,
regional sales offices and general offices. The cost of facilities and other
rentals increased 27.8% to $20.2 million in 2001, as compared to $15.8 million
in 2000. Growth in facilities costs between periods was primarily attributable
34
to the need to provide maintenance, flight crew and passenger service facilities
at airport locations to support new scheduled service destinations and higher
frequencies to existing destinations. The Company also began occupancy of
significantly expanded and improved passenger check-in and baggage claim
facilities at Chicago-Midway Airport beginning in March 2001.
Special Charges. Special charges represent expenses arising from September 11,
2001 terrorist attacks which have been classified as unusual in nature under
Accounting Principles Board Opinion No. 30, Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("APB
30"). Special charges incurred in 2001 amounted to $21.5 million. For additional
details with respect to the special charges, see "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 2- Impact
of Terrorist Attacks on September 11, 2001."
Impairment Loss. Following the events of September 11, 2001, the Company decided
to retire its Boeing 727-200 fleet earlier than originally planned. Most of the
aircraft were retired from revenue service in the fourth quarter of 2001,
although some are being used for charter service through the first half of 2002.
In accordance with FAS 121, the Company determined that the estimated future
undiscounted cash flows expected to be generated by the Boeing 727-200s was less
than the net book value of these aircraft and the related rotable parts and
inventory. Therefore, these assets were impaired under FAS 121. In 2001, the
Company recorded an asset impairment charge on these assets of $44.5 million.
Also, in the fourth quarter of 2001, the Company determined that, in accordance
with FAS 121, the estimated future undiscounted cash flows expected to be
generated by the Lockheed L-1011-50 and 100 fleet was less than the current net
book value of these aircraft and the related rotable parts and inventory.
Therefore, the assets were impaired under FAS 121. The Company recorded an asset
impairment charge on these assets of $67.8 million in 2001.
FAS 121 requires that whenever events or circumstances indicate that the Company
may not be able to recover the net book value of its productive assets through
future cash flows, an assessment must be performed of expected future cash
flows, and undiscounted estimated future cash flows must be compared to the net
book value of these productive assets to determine if impairment is indicated.
The Company had been routinely performing FAS 121 impairment evaluations for its
Lockheed L-1011-50 and 100, and Boeing 727-200 fleets for several quarters, due
to their expected replacement by newer aircraft which were ordered in May 2000.
Prior to the events of September 11, 2001 no impairment was indicated under FAS
121 for either fleet. However, the terrorist attacks of September 11
significantly reduced demand for air travel in the United States, causing the
Company, and most major airlines, to reduce available seat capacity by 20%. This
reduction in future flying caused the Company to reduce its estimates of future
cash flows for these fleets over their remaining useful lives, causing both
fleets to meet the impairment criteria of FAS 121.
The application of FAS 121 requires the use of significant judgment and the
preparation of numerous significant estimates. The Company estimated future cash
flows from the productive use of these fleets by estimating the expected net
cash contribution from revenues less operating expenses, and adjusting for
estimated cash outflows for heavy maintenance and estimated cash inflows from
final disposal of the assets. Such estimates were required for up to seven years
into the future. Although the Company believes that its estimates of cash flows
in the application of FAS 121 were reasonable, and were based upon all available
information, including extensive historical cash flow data about the prior use
of these fleets, such estimates nevertheless required substantial judgments and
were based upon material assumptions about future events.
35
Further significant assumptions were required concerning the estimated fair
market value of both fleets, since FAS 121 specifies that impaired assets be
written down to their estimated fair market value by recording an impairment
charge to earnings. As provided under FAS 121, the Company primarily used
discounted cash flow analysis, together with other available information, to
estimate fair market values. Such estimates were significant in determining the
amount of the impairment charge to be recorded in 2001, which could have been
materially different under different sets of assumptions and estimates. As FAS
121 requires the Company to continuously evaluate fair market values of
previously impaired assets, it is possible that future estimates of fair market
value may result in additional material charges to earnings, if those estimates
indicate a material reduction in fair market value as compared to the estimates
made at the end of 2001.
For additional details with respect to these asset impairments, see "Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements -
Note 16 - Asset Impairment."
U.S. Government Grant. On September 22, 2001 President Bush signed into law the
Air Transportation Safety and System Stabilization Act ("Act"). Among other
things, this legislation was enacted to provide direct payments of cash to
domestic U.S. airlines to compensate them for certain economic losses
attributable to the terrorist attacks of September 11, 2001. Under the
provisions of the Act, U.S. domestic passenger and cargo airlines may receive up
to $5.0 billion in total cash grants, with $4.5 billion being specifically
reserved for passenger airlines such as the Company. Each passenger airline may
receive no more cash than its pro rata share of the $4.5 billion, based upon the
ratio of that airline's ASMs to total passenger airline ASMs for the month of
August 2001. However, cash compensation paid to any airline must be based upon
actual direct and incremental losses incurred by that airline, between September
11, 2001 and December 31, 2001, as a direct result of the terrorist attacks.
Therefore, the amount of cash received by any airline is limited by actual
direct and incremental losses incurred, which could result in payments to an
airline which are less that the maximum amount permitted under the upper limit
provided for by the August 2001 ASM calculations.
The DOT was directed by the Act to administer the distribution of grant money to
eligible air carriers. The DOT subsequently published regulations under which
eligible air carriers were required to submit applications for disbursements of
grant monies. Such applications required financial information, documenting to
the satisfaction of the DOT that the air carrier had incurred direct and
incremental losses attributable to the terrorist attacks. Two such applications
were filed by many passenger airlines, including the Company, during the third
and fourth quarters of 2001. As a result of the approval of its applications by
the DOT, the Company received payments of $32.6 million in the third quarter and
$11.9 million in the fourth quarter. The Company accrued total U.S. Government
grant revenues of $66.3 million in the second half of 2001 relating to its
estimates of direct and incremental losses it incurred during that time period,
recording a current receivable of $21.8 million for the balance of cash expected
to be paid in 2002.
Based upon the Company's current estimate of its ratio of ASMs to total
passenger airline ASMs in August 2001 (which calculations have not yet been
finalized or approved by the DOT), the Company estimates that the maximum amount
of cash compensation available to it under the Act for direct and incremental
losses incurred is approximately $74.0 million. The DOT is expected to publish
soon final rules concerning certain agreed upon procedures ("AUPs") to be
performed by certified public accountants on financial and other information to
be included in air carriers' third and final applications for grant assistance.
The DOT has not specified when final applications, including reports on AUPs,
will be accepted for processing, but the Company currently estimates that this
is likely to occur in the second quarter of 2002.
36
Generally accepted accounting principles in the United States ("GAAP")
pertaining to revenue recognition provide that revenue should be recognized
when: (1) substantially all requirements or conditions to earn that revenue are
completed or satisfied; (2) the dollar amount of such revenues can be reasonably
estimated; and (3) such revenues have been realized in cash, or future
realization in cash is reasonably assured.
The application of GAAP to the specific circumstances of the Act required
significant judgments and estimates to be made by the Company. The term "direct
and incremental losses attributable to the terrorist attacks of September 11,
2001" was not defined in detail by either the Act or the interpreting DOT
regulations, nor were specific measurement guidelines provided for any
particular loss item. Such terms as "direct," "incremental," and "loss" can have
different meanings in common usage and in economic, accounting or other business
literature. In its two grant applications to the DOT in 2001, the Company chose
to use GAAP in selecting and measuring direct and incremental losses to be
reimbursed under the Act.
The Company applied significant judgment in determining which GAAP loss items
met the conditions for reimbursement under the Act and associated regulations,
and applied further significant judgments in estimating the amounts of such
losses. For example, the Company estimated revenues lost as a direct result of
reduced air travel demand immediately after the attacks and claimed the loss of
these revenues as reimbursable under the Act. Estimates of such losses required
substantial judgment, as they needed to be made with reference to expectations
of what revenues would likely have been if the attacks had never taken place.
The Company used all objective evidence available to it in making such
estimates. In the case of estimating lost revenues, the Company analyzed and
made comparisons of post-attack revenues to actual revenues earned immediately
prior to the attacks, as well as to actual revenues earned by the Company in the
same months of prior years, and with reference to revenue forecasts prepared
prior to the attacks. The amounts of U.S. Government grant compensation recorded
in 2001 could have been materially different using different assumptions and
judgments.
The DOT, upon processing the Company's second application, disallowed
reimbursement to the Company under the Act of certain losses included in the
Company's results of operations under GAAP in 2001. These disallowed
reimbursements included impairment losses on the Company's Boeing 727-200
aircraft and future rent payments due under Boeing 727-200 leases for aircraft
idled immediately after the attacks. Although the DOT did not provide any
official reasons for this decision to the Company, nor has it published any
related guidance in its regulations concerning the treatment of these loss items
under the Act, the Company has not accrued any U.S. Government grant revenue
pertaining to these disallowed items. The Company is protesting the specific
disallowances made by the DOT on its applications. If the Company prevails in
this protest, it could record additional U.S. Government grant compensation of
up to $7.7 million.
Under the provisions of the Act, all airlines receiving cash compensation are
subject to audit by agencies of the U.S. Government for up to five years. It is
possible that upon audit by such agencies loss items for which the Company has
recorded U.S. Government grant revenues in 2001 may be disallowed under new
regulations, or according to audit interpretations by those agencies of the
Company's accounting estimates and judgments. It is therefore possible that
material adjustments to U.S. Government grant revenues recorded in 2001 may be
required in future years.
Other Operating Expenses. Other operating expenses increased 10.9% to $84.6
million in 2001, as compared to $76.3 million in 2000. The purchase by ATALC of
charter air services from airlines other than the Company was $4.0 million
higher in 2001 than in 2000. Flight simulator rentals increased $3.3 million
between years due to the crew training required to introduce the new aircraft.
37
The Company also recorded a loss on disposal of three Lockheed L-1011-50
aircraft in 2001, as compared to one Lockheed L-1011-50 aircraft in 2000,
resulting in an increase of loss on disposal of $4.4 million in 2001 as compared
to 2000. These increases were partially offset by net decreases in other
expenses included in this category, none of which were individually significant.
Interest Income and Expense. Interest expense in 2001 decreased 4.4% to $30.1
million, as compared to $31.5 million in 2000. The Company capitalized
additional interest totaling $10.8 million in 2001, as compared to 2000, on
aircraft pre-delivery deposits. Additional interest expense of $7.4 million, all
of which was capitalized, was incurred in 2001, as compared to 2000, for
incremental borrowings made to fund a portion of aircraft pre-delivery deposits.
The Company also incurred approximately $2.0 million in interest expense in
2001, relating to three Boeing 757-300 aircraft which were temporarily financed
with bridge debt immediately after the September 11, 2001 terrorist attacks.
These aircraft were refinanced with operating leases at the end of 2001.
The Company invested excess cash balances primarily in commercial paper and
money market funds and thereby earned $5.3 million in interest income in 2001,
as compared to $8.4 million in 2000. The decrease in interest income between
periods is mainly due to a decline in the average interest rate earned between
periods on these investments.
Income Tax Expense. In 2001, the Company recorded $39.8 million in income tax
credits applicable to $116.1 million of pre-tax loss for that period, while in
2000 the Company recorded $4.6 million in income tax credits applicable to $19.9
million of pre-tax loss. The effective tax rate applicable to credits in 2001
was 34.2%, as compared to an effective tax rate of 23.1% in 2000.
Income tax credits in both periods were affected by the permanent
non-deductibility for federal income tax purposes of 40% of certain amounts paid
for crew per diem. The value of these permanent differences was not
significantly different in 2001 as compared to 2000, so they impacted 2000
taxable loss more significantly.
38
Year Ended December 31, 2000, Versus Year Ended December 31, 1999
Consolidated Flight Operations and Financial Data
The following table sets forth, for the periods indicated, certain key operating
and financial data for the consolidated flight operations of the Company. Data
shown for "Jet" operations include the consolidated operations of Lockheed
L-1011, Boeing 727-200 and Boeing 757-200 aircraft in all of the Company's
business units. Data shown for "J31/Saab" operations include the operations of
Jetstream 31 and Saab 340B propeller aircraft by Chicago Express as the ATA
Connection.
Twelve Months Ended December 31,
-----------------------------------------------------------
2000 1999 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures Jet 55,714 50,207 5,507 10.97
Departures J31/Saab (a) 18,985 17,716 1,269 7.16
-----------------------------------------------------------
Total Departures (b) 74,699 67,923 6,776 9.98
-----------------------------------------------------------
Block Hours Jet 172,824 157,481 15,343 9.74
Block Hours J31/Saab 18,708 17,979 729 4.05
-----------------------------------------------------------
Total Block Hours (c) 191,532 175,460 16,072 9.16
-----------------------------------------------------------
RPMs Jet (000s) 11,760,135 10,913,081 847,054 7.76
RPMs J31/Saab (000s) 56,669 35,922 20,747 57.76
-----------------------------------------------------------
Total RPMs (000s) (d) 11,816,804 10,949,003 867,801 7.93
-----------------------------------------------------------
ASMs Jet (000s) 16,295,730 15,025,000 1,270,730 8.46
ASMs J31/Saab (000s) 94,371 57,630 36,741 63.75
-----------------------------------------------------------
Total ASMs (000s) (e) 16,390,101 15,082,630 1,307,471 8.67
-----------------------------------------------------------
Load Factor Jet 72.17 72.63 (0.46) (0.63)
Load Factor J31/Saab 60.05 62.33 (2.28) (3.66)
-----------------------------------------------------------
Total Load Factor (f) 72.10 72.59 (0.49) (0.68)
-----------------------------------------------------------
Passengers Enplaned Jet 7,686,077 6,838,339 847,738 12.40
Passengers Enplaned J31/Saab 320,062 206,304 113,758 55.14
-----------------------------------------------------------
Total Passengers Enplaned (g) 8,006,139 7,044,643 961,496 13.65
-----------------------------------------------------------
Revenue $ (000s) 1,291,553 1,122,366 169,187 15.07
RASM in cents (h) 7.88 7.44 0.44 5.91
CASM in cents (i) 7.86 6.84 1.02 14.91
Yield in cents (j) 10.93 10.25 0.68 6.63
See footnotes (a) through (j) on pages 22 and 23.
Operating Revenues
Total operating revenues in 2000 increased 15.2% to $1.292 billion from $1.122
billion in 1999. This increase was due to a $128.7 million increase in scheduled
service revenues, a $62.3 million increase in military/government charter
revenues and a $1.7 million increase in ground package revenues, offset by a
$6.4 million decrease in other revenues and a $17.1 million decrease in
commercial charter revenues.
39
Scheduled Service Revenues. The following table sets forth, for the periods
indicated, certain key operating and financial data for the scheduled service
operations of the Company. Data shown for "Jet" operations include the combined
operations of Lockheed L-1011, Boeing 727-200 and Boeing 757-200 aircraft in
scheduled service. Data shown for "J31/Saab" include the operations of Jetstream
31 and Saab 340B propeller aircraft by Chicago Express as the ATA Connection.
Twelve Months Ended December 31,
-----------------------------------------------------------
2000 1999 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures Jet 40,892 35,402 5,490 15.51
Departures J31/Saab (a) 18,985 17,716 1,269 7.16
-----------------------------------------------------------
Total Departures (b) 59,877 53,118 6,759 12.72
-----------------------------------------------------------
Block Hours Jet 118,473 104,555 13,918 13.31
Block Hours J31/Saab 18,708 17,979 729 4.05
-----------------------------------------------------------
Total Block Hours (c) 137,181 122,534 14,647 11.95
-----------------------------------------------------------
RPMs Jet (000s) 7,700,639 6,828,181 872,458 12.78
RPMs J31/Saab (000s) 56,669 35,922 20,747 57.76
-----------------------------------------------------------
Total RPMs (000s) (d) 7,757,308 6,864,103 893,205 13.01
-----------------------------------------------------------
ASMs Jet (000s) 10,025,603 8,809,564 1,216,039 13.80
ASMs J31/Saab (000s) 94,371 57,630 36,741 63.75
-----------------------------------------------------------
Total ASMs (000s) (e) 10,119,974 8,867,194 1,252,780 14.13
-----------------------------------------------------------
Load Factor Jet 76.81 77.51 (0.70) (0.90)
Load Factor J31/Saab 60.05 62.33 (2.28) (3.66)
-----------------------------------------------------------
Total Load Factor (f) 76.65 77.41 (0.76) (0.98)
-----------------------------------------------------------
Passengers Enplaned Jet 5,873,598 4,878,643 994,955 20.39
Passengers Enplaned J31/Saab 320,062 206,304 113,758 55.14
-----------------------------------------------------------
Total Passengers Enplaned (g) 6,193,660 5,084,947 1,108,713 21.80
-----------------------------------------------------------
Revenue $ (000s) 753,301 624,647 128,654 20.60
RASM in cents (h) 7.44 7.04 0.40 5.68
Yield in cents (j) 9.71 9.10 0.61 6.70
Revenue per segment $ (k) 121.62 122.84 (1.22) (0.99)
See footnotes (a) through (j) on pages 22 and 23.
See footnote (k) on page 24.
Scheduled service revenues in 2000 increased 20.6% to $753.3 million from $624.6
million in 1999. Scheduled service revenues were 58.3% of consolidated revenues
in 2000, as compared to 55.7% of consolidated revenues in 1999.
The Company's scheduled service at Chicago-Midway accounted for approximately
63.5% of scheduled service ASMs and 83.5% of scheduled service departures in
2000, as compared to 56.7% and 77.2%, respectively, during 1999. During the
second and third quarters of 2000, the Company began operating nonstop flights
to Ronald Reagan Washington National Airport, Boston, Seattle and
Minneapolis-St. Paul, none of which were served in the comparable periods of
1999. In addition to this new service, the Company served the following existing
jet markets in both years: Dallas-Ft. Worth, Denver, Ft. Lauderdale, Ft. Myers,
Las Vegas, Los Angeles, New York's John F. Kennedy Airport (seasonal), New
40
York's LaGuardia Airport, Orlando, Phoenix, St. Petersburg, San Francisco, San
Juan and Sarasota. The Company, in cooperation with a tour operator partner,
began nonstop service to Hawaii from Chicago-O'Hare International Airport and
New York's John F. Kennedy International Airport in December of 2000, but
discontinued this service during 2001.
The Company operated 94 peak daily jet and commuter departures from
Chicago-Midway in 2000, as compared to 67 in 1999, and served 25 destinations on
a nonstop basis in 2000, as compared to 22 nonstop destinations served in 1999.
The Company's Hawaii service accounted for 17.0% of scheduled service ASMs and
4.3% of scheduled service departures in 2000, as compared to 18.5% and 4.7%,
respectively, in 1999. The Company provided nonstop service in both years from
Los Angeles, Phoenix and San Francisco to both Honolulu and Maui, with
connecting service between Honolulu and Maui.
The Company's Indianapolis service accounted for 12.2% of scheduled service ASMs
and 8.8% of scheduled service departures in 2000, as compared to 14.0% and
10.8%, respectively, in 1999. In both years, the Company operated nonstop to
Cancun, Ft. Lauderdale, Ft. Myers, Las Vegas, Los Angeles (service was
discontinued as of August 2000), Orlando, St. Petersburg and Sarasota.
Commercial Charter Revenues. Commercial charter revenues accounted for 19.1% of
consolidated revenues in 2000 as compared to 23.5% in 1999. The following table
sets forth, for the periods indicated, certain key operating and financial data
for the commercial charter operations of the Company.
Twelve Months Ended December 31,
-------------------------------------------------------
2000 1999 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 9,722 10,212 (490) (4.80)
Block Hours (c) 34,356 37,119 (2,763) (7.44)
RPMs (000s) (d) 2,687,051 3,253,165 (566,114) (17.40)
ASMs (000s) (e) 3,610,413 4,129,966 (519,553) (12.58)
Passengers Enplaned (g) 1,472,340 1,753,237 (280,897) (16.02)
Revenue $ (000s) 246,705 263,766 (17,061) (6.47)
RASM in cents (h) 6.83 6.39 0.44 6.89
RASM less fuel escalation (l) 6.47 6.35 0.12 1.89
See footnotes (b) through (h) on pages 22 and 23.
See footnote (l) on page 27.
Track charter accounted for approximately $192.8 million in revenues in 2000, as
compared to $193.8 million in 1999. Specialty charter accounted for
approximately $31.5 million in revenues in 2000, as compared to $40.0 million in
1999.
41
Military/Government Charter Revenues. Military/government charter revenues
accounted for 14.6% of consolidated revenues in 2000, as compared to 11.2% in
1999. The following table sets forth, for the periods indicated, certain key
operating and financial data for the military/government charter operations of
the Company.
Twelve Months Ended December 31,
-------------------------------------------------------
2000 1999 Inc (Dec) % Inc (Dec)
---- ---- --------- -----------
Departures (b) 4,961 4,444 517 11.63
Block Hours (c) 19,443 15,354 4,089 26.63
RPMs (000s) (d) 1,339,545 818,627 520,918 63.63
ASMs (000s) (e) 2,605,791 2,027,471 578,320 28.52
Passengers Enplaned (g) 329,200 199,013 130,187 65.42
Revenue $ (000s) 188,556 126,213 62,343 49.40
RASM in cents (h) 7.24 6.23 1.01 16.21
RASM less fuel escalation (m) 6.88 6.21 0.67 10.79
See footnotes (b) through (h) on page 22 and 23.
See footnote (m) on page 28.
Ground Package Revenues. In 2000, ground package revenues increased 2.7% to
$59.8 million, as compared to $58.2 million in 1999. The number of ground
packages sold and the average revenue earned by the Company for a ground package
sale are a function of the seasonal mix of vacation destinations served, the
quality and types of ground accommodations offered and general competitive
conditions in the Company's markets, all of which factors can change from period
to period.
Other Revenues. Other revenues decreased 13.1% to $43.1 million in 2000, as
compared to $49.6 million in 1999.
Operating Expenses
Salaries, Wages and Benefits. Salaries, wages and benefits expense in 2000
increased 17.6% to $297.0 million from $252.6 million in 1999. The Company
increased its average equivalent employees by approximately 20.4% between 2000
and 1999. This growth was most significant in categories of employees that are
influenced directly by flight activity, such as flight crews and maintenance
staff. Beginning in May 2000, the Company replaced its contracted ground handler
at its busiest airport, Chicago-Midway, with its own ramp employees. Although
this contributed to the increase in salaries, wages and benefits, the Company
experienced a corresponding reduction in handling, landing and navigation fees.
Some further employment growth in 2000 was also provided to improve customer
service in targeted areas by increasing customer service staff, such as at
airport ticket counters, in reservations facilities and in other staff groups
primarily involved in delivering services to the Company's customers. Staff
increases also occurred for Chicago Express as a result of increased passengers
boarded due to the conversion from 19-seat to 34-seat aircraft in the first nine
months of 2000. The Company also experienced a significant increase in employee
benefit costs in 2000, as compared to 1999.
These increases in salaries, wages and benefits costs were partially offset by
the elimination of employee incentive awards in 2000. In 1999, the Company
recognized $6.4 million in incentive awards while no incentive awards were
earned in 2000.
42
Fuel and Oil. Fuel and oil expense increased 60.8% to $274.8 million in 2000, as
compared to $170.9 million in 1999. The Company consumed 8.1% more gallons of
jet fuel for flying operations between 2000 and 1999, which resulted in an
increase in fuel expense of approximately $14.1 million between periods. Jet
fuel consumption increased primarily due to the increased number of block hours
of jet flying operations between periods. The Company flew 172,824 jet block
hours in 2000, as compared to 157,481 jet block hours in 1999, an increase of
9.7% between years.
During 2000, the Company's average cost per gallon of jet fuel consumed
increased by 49.7% as compared to 1999, resulting in an increase in fuel and oil
expense of approximately $91.6 million between periods. The Company contracts
with most commercial charter customers, the U.S. military, and with certain
bulk-seat purchasers to provide for fuel escalation revenue, which partially
offset the impact of higher fuel prices. In 2000, the Company recognized $26.4
million in fuel escalation revenue, as compared to $1.8 million recognized in
1999.
The Company implemented a fuel hedge program beginning in the third quarter of
2000, consisting of swap agreements for heating oil. As of December 31, 2000,
the Company had entered into swap agreements for approximately 13.6 million
gallons of heating oil for future delivery between January 2001 and September
2001, which represented approximately 6.3% of total expected fuel consumption
for that period.
Depreciation and Amortization. Depreciation and amortization expense increased
30.2% to $125.0 million in 2000, as compared to $96.0 million in 1999.
Depreciation expense attributable to owned airframes, engines and leasehold
improvements increased $9.3 million in 2000, as compared to 1999. The Company
added four owned Lockheed L-1011-500s, to the Company's fleet from late 1999
through 2000. The Company also purchased seven hushkits for Boeing727-200
aircraft and two spare engines for the Lockheed L-1011-500s late in 1999 through
2000. The Company also increased its investment in rotable parts, furniture and
fixtures, and computer hardware and software, and increased its provision for
inventory obsolescence and amortization of debt issue costs between years. These
changes resulted in an increase in depreciation and amortization expense of $8.4
million in 2000, as compared to 1999.
Amortization of capitalized engine and airframe overhauls increased $8.5 million
in 2000, as compared to 1999, after including amortization of related
manufacturers' credits. Changes to the cost of overhaul amortization were partly
due to the increase in total block hours and cycles flown between comparable
periods for the Lockheed L-1011 fleet, since such expense varies with that
activity, and partly due to the completion of more engine and airframe overhauls
in 2000 for the Boeing 727-200 and Lockheed L-1011 fleets. Rolls-Royce-powered
Boeing 757-200 aircraft, 13 of which were delivered new from the manufacturer
since late 1995, are starting to generate engine and airframe overhaul expense.
This resulted in a $1.2 million increase in amortization costs between periods.
The cost of engine overhauls that become worthless due to early engine failures
and which cannot be economically repaired is charged to depreciation and
amortization expense in the period the engine fails. Depreciation and
amortization expense attributable to these early engine failures increased $2.5
million in 2000, as compared to 1999. When these early engine failures can be
economically repaired, the related repairs are charged to aircraft maintenance,
materials and repairs expense.
Aircraft Rentals. Aircraft rentals expense for 2000 increased 22.8% to $72.1
million from $58.7 million in 1999. The Company accepted delivery of six Boeing
757-200 aircraft from the manufacturer (two in the fourth quarter of 1999, two
in June 2000 and two in November 2000), adding $10.8 million to aircraft rentals
43
expense in 2000, as compared to 1999. Chicago Express aircraft rentals increased
by $2.4 million in 2000 as compared to 1999, due to the replacement of 19-seat
Jetstream aircraft with 34-seat Saab 340B aircraft. The Company also incurred
$2.8 million in higher rentals in 2000, as compared to 1999, due to the lease of
spare engines to support the Boeing 757-200 and Lockheed L-1011-500 fleets. The
Company purchased 12 Boeing 727-200 aircraft between the first quarter of 1999
and fourth quarter of 2000, which had previously been financed through operating
leases, resulting in a decrease in aircraft rentals of $1.5 million between
periods.
Handling, Landing and Navigation Fees. Handling, landing and navigation fees
increased by 9.1% to $97.4 million in 2000 as compared to $89.3 million in 1999.
The total number of system-wide jet departures between 2000 and 1999 increased
by 11.0% to 55,714 from 50,207. The lower rate of growth in handling costs in
2000, as compared to the growth in departures, was partly due to the
implementation of self-handling on the ramp at Chicago-Midway Airport beginning
in May 2000, which was done with third-party contractors during all of 1999. A
corresponding increase in salaries, wages and benefits attributable to
self-handling was experienced during the remainder of 2000.
Aircraft Maintenance, Materials and Repairs. Aircraft maintenance, materials and
repair expense increased 26.6% to $70.4 million in 2000, as compared to $55.6
million in 1999. The Company performed a total of 62 maintenance checks on its
fleet during 2000 as compared to 53 such checks in 1999. The cost of materials
consumed and components repaired in association with such checks and other
maintenance activity increased by $9.0 million between 2000 and 1999.
The Company recognized an increase in aircraft maintenance, materials and
repairs of $2.5 million in 2000, as compared to 1999, due to the consolidation
of the results of its wholly owned subsidiary, Chicago Express. The results of
operation for Chicago Express were consolidated with the Company beginning in
May 1999.
Crew and Other Employee Travel. The cost of crew and other employee travel
increased 32.4% to $65.8 million in 2000 as compared to $49.7 million in 1999.
Positioning and hotel costs increased significantly in 2000 due primarily to the
substantial increase in military departures in 2000, as compared to 1999.
Military flights often operate to and from points remote from the Company's crew
bases, thus requiring significant positioning expenditures for cockpit and cabin
crews on other airlines. Also, due to heavy airline industry load factors in
2000, the Company paid higher average fares to position crews. Average hotel
costs are also higher for military operations since hotel rates at international
locations generally exceed domestic U.S. hotel rates.
Passenger Service. For 2000 and 1999, catering represented 78.8% and 82.0%,
respectively, of total passenger service expense. The total cost of passenger
service increased 16.3% to $45.6 million in 2000, as compared to $39.2 million
in 1999. The Company experienced an increase of approximately 2.1% in the
average unit cost of catering each passenger between 2000 and 1999, primarily
because in 2000 there were relatively more military passengers in the Company's
business mix, who are provided a more expensive catering product due to military
catering specifications and the longer average duration of these flights. This
resulted in a price-and-business-mix increase of $0.8 million in catering
expense in 2000, as compared to 1999.
Total jet passengers boarded, however, increased 12.4% between years, resulting
in approximately $3.7 million in higher volume-related catering expenses between
the same sets of comparative periods.
44
In 2000, as compared to 1999, the Company experienced increased departure delays
over 15 minutes of 34.3%. These irregular operations resulted in higher costs to
handle inconvenienced passengers and misconnected baggage. In 2000, as compared
to 1999, such costs were $2.6 million higher.
Ground Package Cost. Ground package cost increased 3.9% to $50.9 million in
2000, as compared to $49.0 million in 1999. Ground package costs increased in
proportion to the increase in ground package revenues.
Other Selling Expenses. Other selling expenses increased 30.6% to $36.7 million
in 2000, as compared to $28.1 million in 1999. Approximately $6.3 million of
this increase in 2000 resulted from an increase in CRS fees. This increase
resulted partially from the growth in single-seat sales volumes between periods
and partially from increases in rates charged by CRS systems. Credit card
discount expense increased $3.0 million in 2000, as compared to 1999, primarily
due to higher volumes of scheduled service tickets sold using credit cards as
form of payment. Toll-free telephone services decreased by $0.8 million in 2000,
as compared to 1999, due to billing rate reductions secured from related
vendors.
Commissions. Commissions expense remained unchanged at $39.1 million between
2000 and 1999. The Company incurred higher military commissions expense of $4.4
million in 2000, as compared to 1999, which is consistent with growth in
military revenues between years. These increases were largely offset by
decreases in scheduled service commissions of $4.9 million due to an industry
reduction in travel agency commission from 8.0% to 5.0% effective in the fourth
quarter of 1999.
Advertising. Advertising expense increased 18.3% to $22.0 million in 2000, as
compared to $18.6 million in 1999. Such expenses were higher in the spring and
summer months of 2000, as advertising support was provided for the introduction
of scheduled service to the new destinations of Boston, Seattle, Washington,
D.C. and Minneapolis-St. Paul. Advertising also increased due to increased
marketing emphasis on commuter and Florida markets in 2000.
Facilities and Other Rentals. The cost of facilities and other rentals increased
18.8% to $15.8 million in 2000, as compared to $13.3 million in 1999. Growth in
facilities costs between periods was primarily attributable to the need to
provide facilities at airport locations to support new scheduled service
destinations and expanded services at existing destinations.
Other Operating Expenses. Other operating expenses increased 5.7% to $76.3
million in 2000, as compared to $72.2 million in 1999. The purchase by ATALC of
charter air services from airlines other than the Company was $7.5 million less
in 2000 than in 1999, due to the increased utilization of the Company's own
aircraft for ATALC charter programs. In 1999, the Company incurred $3.1 million
in Chicago Express code-share expenses, which were not incurred during any
period in 2000. Other expenses included in this category increased in 2000 as
the Company's flight activity increased. Expenses increasing year over year
included flight simulator rentals, professional fees, insurance and supplies.
The Company also incurred higher costs associated with irregular flight
operations in 2000, as compared to 1999.
Interest Income and Expense. Interest expense in 2000 increased 50.0% to $31.5
million, as compared to $21.0 million in 1999. The increase in interest expense
between periods was primarily due to changes in the Company's capital structure
resulting from the sale in December 1999 of $75.0 million in principal amount of
10.5% unsecured senior notes. Additional interest expense of $7.7 million was
recorded in 2000 applicable to these notes, as compared to 1999.
45
The Company invested excess cash balances in short-term government securities
and commercial paper and thereby earned $8.4 million in interest income in 2000,
as compared to $5.4 million in 1999, when less cash was available for such
investment.
Other Non-operating Income. Other non-operating income decreased 82.4% to $0.6
million in 2000, as compared to $3.4 million in 1999. The Company holds a
membership interest in the SITA Foundation ("SITA"), an organization that
provides data communication services to the airline industry. SITA's primary
asset is its ownership in Equant N.V. ("Equant"). In February and December 1999,
SITA sold a portion of its interest in Equant in a secondary public offering and
distributed the pro rata proceeds to certain of its members (including the
Company) that elected to participate in the offering. The Company recorded a
gain of $1.7 million in the first quarter of 1999 and a similar gain of $1.3
million in the fourth quarter of 1999.
Income Tax Expense. In 2000, the Company recorded $4.6 million in income tax
credits applicable to $19.9 million of pre-tax loss for that period, while in
1999 income tax expense was $30.5 million on pre-tax income of $77.8 million.
The effective tax rate applicable to credits in 2000 was 23.1%, as compared to
an effective tax rate of 39.1% in 1999.
Income tax expense in both sets of comparative periods was affected by the
permanent non-deductibility for federal income tax purposes of a percentage of
certain amounts paid for crew per diem (40% in 2000 and 45% in 1999). The effect
of this and other permanent differences on the effective income tax rate for
financial accounting purposes is to increase the effective rate as amounts of
pre-tax income decrease and to decrease tax credits otherwise applicable to
pre-tax losses.
Liquidity and Capital Resources
Cash Flows. In 2001, 2000 and 1999, net cash provided by operating activities
was $144.4 million, $111.7 million and $152.7 million, respectively. The
increase in cash provided by operating activities between 2000 and 2001
primarily resulted from changes in operating assets and liabilities, the
non-cash impact of impairment losses recognized on the Boeing 727-200 and
Lockheed L-1011-50 and 100 fleets, partially offset by lower earnings.
Significant changes in operating assets and liabilities in 2001 included: (1) an
increase in receivables, primarily comprised of a receivable for $21.8 million
for U.S. Government grant compensation due under the Air Transportation Safety
and System Stabilization Act; (2) an increase in trade payables of $16.9
million, representing extended payment terms negotiated with trade vendors
subsequent to the events of September 11; and (3) an increase in accrued
expenses of $32.8 million, approximately $16.0 million of which represents
deferred payment of certain federal and state taxes authorized by several taxing
jurisdictions until the first quarter of 2002. The decrease in operating cash
flows between 1999 and 2000 was primarily attributable to lower earnings,
partially offset by higher depreciation and amortization charges.
Net cash used in investing activities was $129.8 million, $290.8 million and
$305.7 million, respectively, in the years ended December 31, 2001, 2000 and
1999. In 2001, $30.8 million of expenditures were made for pre-delivery deposits
on future deliveries of new aircraft, net of returned deposits on delivered
aircraft, as compared to $117.0 million and $7.4 million made for these deposits
in 2000 and 1999, respectively. Capital expenditures totaling $119.8 million,
$146.5 million and $266.9 million, respectively, were made in 2001, 2000 and
1999 primarily for aircraft purchases, engine and airframe overhauls, airframe
improvements, hushkit installations, and the purchase of rotable parts. In 1999,
the Company's capital expenditures also included $115.7 million for the purchase
and modification of five L-1011-500 aircraft and the purchase of nine Boeing
727-200 aircraft that were previously leased. In 2001, net cash used in
investing activities was reduced by $27.3 million in cash provided from BATA
46
upon transfer of 12 Boeing 727-200 aircraft to this joint venture. In 2001, 2000
and 1999, noncurrent prepaid aircraft rent increased $17.2 million, $16.8
million and $15.2 million, respectively, reflecting primarily the cash rent
pre-payments due at inception of many new Boeing 737-800, Boeing 757-200 and
Boeing 757-300 operating leases. The increase in other assets in 1999 included
$24.4 million in goodwill associated with the acquisitions of units of ATALC,
Chicago Express and 50% of ATA Cargo.
Net cash provided by financing activities for the years ended December 31, 2001,
2000 and 1999 was $40.7 million, $188.1 million and $100.3 million,
respectively. In all years, cash provided by financing activities was primarily
attributable to proceeds from short-term and long-term debt, net of repayments,
which in 2001 primarily consisted of $28.4 million in proceeds related to the
financing of pre-delivery deposits on aircraft, the borrowing of $35.0 million
under the Company's bank credit facility, and the repayment of $17.0 million in
special facility revenue bonds. Also in 2001, the Company borrowed and repaid
$153.4 million in temporary bridge debt related to the purchase of three Boeing
757-300 aircraft, which were subsequently financed with operating leases in late
2001. In 2000, net proceeds from short-term and long-term debt primarily
consisted of $89.9 million from the financing of pre-delivery deposits on
aircraft and proceeds of $23.0 million in notes collateralized by two L-1011-500
aircraft. In 1999, the Company received $75.0 million in proceeds from unsecured
senior notes. Net cash provided from financing activities in 2000 also included
$80.0 million in proceeds from the issuance of preferred stock.
The Company presently expects that cash generated by operations, together with
available borrowings under collateralized credit facilities, the return of
pre-delivery deposits held by the manufacturer on future aircraft deliveries and
the receipt of additional U.S. Government grant compensation, will be sufficient
to fund operations during the next twelve months. For additional details with
respect to the grant from the U.S. Government, see "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 2 -
Impact of Terrorist Attacks on September 11, 2001."
The impact of the terrorist attacks of September 11, 2001 and their aftermath on
the Company and the sufficiency of its financial resources to absorb that impact
will depend on a number of factors, including: (1) the magnitude and duration of
the adverse impact of the terrorist attacks on the economy in general, and the
airline industry in particular; (2) the Company's ability to reduce its
operating costs and conserve its financial resources, taking into account the
increased costs it will incur as a consequence of the attacks, including those
referred to below; (3) the higher costs associated with new airline security
directives and any other increased regulation of air carriers; (4) the
significantly higher costs of aircraft insurance coverage for future claims
caused by acts of war, terrorism, sabotage, hijacking and other similar perils,
and the extent to which such insurance will continue to be available; (5) the
Company's ability to raise additional financing; (6) the price and availability
of jet fuel and the availability to the Company of fuel hedges in light of
current industry conditions; (7) the number of crew members who may be called
for duty in the reserve forces of the armed services and the resulting impact on
the Company's ability to operate as planned; (8) any resulting declines in the
values of the aircraft in the Company's fleet and any aircraft or other asset
impairment charge; (9) the extent of the benefits received by the Company under
the Act, taking into account any challenges to and interpretations or amendments
of the Act or regulations issued pursuant thereto; and (10) the Company's
ability to retain its management and other employees in light of current
industry conditions.
Debt and Operating Lease Cash Payment Obligations. The Company is required to
make cash payments in the future on debt obligations and operating leases.
Although the Company is obligated on a number of long-term operating leases
which are not recorded on the balance sheet under GAAP, the Company has no
off-balance sheet debt and, with the exception of insignificant amounts not
requiring disclosure under GAAP, does not guarantee the debt of any other party.
47
The following table summarizes the Company's contractual debt and operating
lease obligations at December 31, 2001, and the effect such obligations are
expected to have on its liquidity and cash flows in future periods.
Cash Payments Currently Scheduled
Total 2003 2005 After
As of 12/31/01 2002 -2004 -2006 2006
-------------- --------- --------- --------- -----------
(in thousands)
Current and long-term debt (1) $ 497,592 $ 124,059 $ 219,627 $ 135,640 $ 18,266
Lease obligations (2) 2,456,543 162,646 316,694 309,311 1,667,892
----------- --------- --------- --------- -----------
Total contractual cash obligations $ 2,954,135 $ 286,705 $ 536,321 $ 444,951 $ 1,686,158
=========== ========= ========= ========= ===========
(1) See discussion of debt obligations in "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 5 -
Long-Term Debt."
(2) See discussion of operating leases in "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 6 - Lease
Commitments."
In addition, the Company is committed to taking delivery of 32 new Boeing
757-300 and Boeing 737-800 aircraft in 2002 and beyond, as well as five spare
engines. The amounts relating to these aircraft and engines are not included in
the table. The Company intends to finance these aircraft and engines with
operating leases.
Aircraft and Fleet Transactions. In 2000, the Company entered into a series of
agreements to purchase or lease 39 new Boeing 737-800 aircraft and ten new
Boeing 757-300 aircraft, as well as the engines to power the aircraft. The
Boeing 737-800 aircraft are powered by General Electric CFM56-7B27 engines, and
the Boeing 757-300 aircraft are powered by Rolls-Royce RB211-535 E4C engines.
The Company also received purchase rights for an additional 50 aircraft.
The Company has a purchase agreement with the Boeing Company to purchase
directly from Boeing the ten new Boeing 757-300s and 20 of the new Boeing
737-800s. The manufacturer's list price is $73.6 million for each 757-300 and
$52.4 million for each 737-800, subject to escalation. The Company's purchase
price for each aircraft is subject to various discounts. To fulfill its purchase
obligations, the Company has arranged for each of these aircraft, including the
engines, to be purchased by third parties that will, in turn, enter into
long-term operating leases with the Company. As of December 31, 2001, the
Company had taken delivery of five Boeing 737-800s and five Boeing 757-300s
purchased directly from Boeing. As a result of the decreased demand for air
travel due to the events of September 11, 2001 (see "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 2 -
Impact of Terrorist Attacks on September 11, 2001"), the Company delayed planned
delivery dates of certain Boeing 737-800 and Boeing 757-300 aircraft. The
delivery dates of seven aircraft were delayed by more than 12 months. All
remaining aircraft to be purchased directly from Boeing are now scheduled for
delivery between January 2002 and August 2004, rather than May 2004 as
previously agreed. Aircraft pre-delivery deposits are required for these
purchases, and the Company has funded these deposits using operating cash and
deposit finance facilities (see "Financial Statements and Supplementary Data -
Notes to Consolidated Financial Statements - Note 5 - Long-Term Debt"). As of
December 31, 2001, the Company had $170.7 million in pre-delivery deposits
outstanding for these aircraft, of which $118.2 million was funded by deposit
finance facilities with several lenders. Upon delivery of the aircraft,
48
pre-delivery deposits funded with operating cash will be returned to the
Company, and those funded with deposit facilities will be used to repay those
facilities.
The Company has entered into operating lease agreements with respect to 14 of
the new Boeing 737-800s from International Lease Finance Corporation ("ILFC").
In conjunction with these lease agreements, the Company also committed to
purchase two spare General Electric aircraft engines from ILFC. As of December
31, 2001, the Company has taken delivery of six Boeing 737-800s that are being
leased from ILFC. The remaining aircraft under these operating lease agreements
are scheduled for delivery between January 2002 and May 2004. Both spare engines
were received in 2001 and were financed with an operating lease.
The Company has an agreement to lease five of the new Boeing 737-800s from GE
Capital Aviation Services ("GECAS"). As of December 31, 2001, the Company has
taken delivery of three Boeing 737-800 aircraft that are being leased from
GECAS. The two remaining aircraft, to be financed through GECAS leases, are
scheduled for delivery in 2002.
The Company has available a bridge financing facility which provides for maximum
borrowings of $400.0 million to finance new Boeing 737-800 aircraft and new
Boeing 757-300 aircraft. Borrowings under the facility bear interest, at the
option of ATA, at LIBOR plus three optional margins, depending on the percentage
of the purchase price borrowed and whether the borrowing matures 18 or 24 months
after the aircraft delivery date. As of December 31, 2001, the Company had no
borrowings under this facility.
The Company has committed to purchase an additional four spare General Electric
aircraft engines from the engine manufacturer. The spare engines under this
agreement are scheduled for delivery between 2003 and 2006.
The Company has committed to purchase an additional two spare Rolls-Royce
engines from the engine manufacturer. The first spare engine was received in the
third quarter of 2001 and was financed with an operating lease. The second
engine is scheduled for delivery in 2002.
On December 27, 2001, the Company entered into an agreement with Boeing to
exercise purchase rights on two 757-300 aircraft to be delivered in May and June
2003. The Company has purchase rights for eight additional 757-300 aircraft and
40 737-800 aircraft.
In 2000, the Company signed an agreement with GE Engine Services, Inc. for
warranty and ongoing maintenance services applicable to the General Electric
engines, which will power all 39 Boeing 737-800 aircraft. Under this agreement,
overhauls and other engine maintenance will be provided in exchange for fixed
payments by the Company for each engine flight hour over the life of the
agreement. These payments are accounted for as a component of maintenance,
materials and repairs expense as the engine flight hours occur.
In March 2001, the Company formed a limited liability company with Boeing
Capital Corporation, Inc. ("BCC") to form BATA, a 50/50 joint venture. Because
the Company does not control BATA, the Company's investment is being accounted
for under the equity method. BATA will re-market the Company's fleet of 24
Boeing 727-200 aircraft in either passenger or cargo configurations. In exchange
for supplying the aircraft and certain operating services to BATA, the Company
has and will continue to receive both cash and equity in the income or loss of
BATA. The Company transferred 12 Boeing 727-200 aircraft to BATA in 2001. The
Company subsequently entered into short-term operating leases on nine of the 12
transferred aircraft. As of December 31, 2001, eight of the nine leases had
49
terminated, while the Company continued to operate one of these aircraft in
early 2002. The Company expects to transfer most of the remaining 12 Boeing
727-200 aircraft to BATA in the first half of 2002. As of December 31, 2001, six
of the 12 Boeing 727-200 aircraft not yet transferred to BATA were leased. The
Company intends to exercise the available purchase options at the end of these
six leases before transferring them to BATA. Therefore, the Company does not
expect to incur, and has not accrued, any return condition expenses under these
leases.
In June 2001, the Company committed to the purchase of two additional Saab 340B
aircraft. These aircraft went into service on August 17 and August 24, 2001, and
were paid for in cash.
Significant Financings. The Company has a revolving bank credit facility which
provides for maximum borrowings of $100.0 million, including up to $50.0 million
for stand-by letters of credit. The facility matures January 2, 2003, and
borrowings under the facility bear interest, at the option of ATA, at either
LIBOR plus a margin or the agent bank's prime rate. This facility is subject to
certain restrictive covenants and is collateralized by all six owned Boeing
727-200 aircraft, nine Lockheed L-1011-50 and L-1011-100 aircraft and engines
and three Lockheed L-1011-500 aircraft and engines. The facility agreement
provides that in the event of a material adverse occurrence, the lenders can
elect not to fund any additional borrowings, and can require repayment of any
outstanding balance immediately. No such determination was made relative to the
terrorist attacks on September 11, 2001. As of December 31, 2001, the Company
had borrowings of $35.0 million against the facility and had outstanding letters
of credit of $39.3 million secured by the facility.
As of December 31, 2001 the various aircraft securing the bank credit facility
had a collateralized value of $76.7 million. All aircraft currently pledged as
collateral for the facility are being reappraised to determine their current
collateral value. Since the terrorist attacks of September 11 resulted in a
significant increase in surplus used aircraft, the Company anticipates that the
appraised values of its pledged aircraft may be lower than before the attacks.
In that event, the Company expects to either reduce the maximum borrowings under
the facility or to pledge additional assets as collateral for an amended
facility. Negotiations are currently underway to amend the agreement, and to
implement changes to certain existing financial covenants. The Company expects
to have the revised facility in place by the end of the first quarter of 2002,
but can provide no assurance as to the outcome of the negotiations.
In February 2000, the Company borrowed $11.5 million, and in September 2000, the
Company borrowed an additional $11.5 million. Each five-year note is
collateralized by one Lockheed L-1011-500 aircraft.
In September 2000, the Company obtained a $10.0 million, 14-year loan, secured
by a mortgage on its maintenance facility at the Indianapolis International
Airport. The proceeds of the loan were used to repay an advance received from
the City of Indianapolis in December 1995 that had resulted from the
sale/leaseback of the facility.
In September 2000, the Company issued 300 shares of Series B Preferred. In
December 2000, the Company issued and sold 500 shares of Series A Preferred. The
proceeds from the issuance and sale of the Series B Preferred and the Series A
Preferred were used for aircraft pre-delivery deposits and general corporate
purposes. For additional details with respect to the issuance and sale of the
Series B Preferred and Series A Preferred, see "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 10 -
Redeemable Preferred Stock."
In December 2000, the Company entered into three finance facilities with Banca
Commerciale Italiana, GE Capital Aviation Services, Inc., and Rolls-Royce plc.,
to fund pre-delivery deposits on new Boeing 757-300 and Boeing 737-800 aircraft.
These facilities provide for up to $173.2 million in pre-delivery deposit
funding, and as of December 31, 2001, the Company had borrowed $118.2 million
50
against these three facilities. All of this debt has been classified as current
in the accompanying balance sheets because it will be repaid through the return
of related pre-delivery deposits through lease financing of aircraft scheduled
for delivery within the next 12 months. Interest on these facilities is payable
monthly. On June 28, 2001, the Company signed a $4.2 million promissory note
with ILFC for the purchase of a spare engine. The principal amount of this note
was paid on December 11, 2001, when the engine was financed through an operating
lease.
In September and October 2001, the Company signed three promissory notes with
Boeing Capital Loan Corporation, for a total of $153.4 million, for the purchase
of three Boeing 757-300 aircraft. The principal amount of these notes was paid
in late December 2001, when the aircraft were financed with operating leases.
On September 28, 2001, the Company signed a $4.7 million promissory note with
Rolls-Royce for the purchase of a spare engine. The principal amount of this
note was paid on December 18, 2001, when the engine was financed through an
operating lease.
Card Agreement. The Company accepts charges to most major credit and debit cards
("cards") as payment from its customers. Approximately 90% of scheduled service
and vacation package sales are purchased using these cards.
More than half of these card sales are made using MasterCard or Visa cards. The
Company maintains an agreement with a bank for the processing and collection of
charges to these cards. Under this agreement, a sale is normally charged to the
purchaser's card account and is paid to the Company in cash within a few days of
the date of purchase, although the Company may provide the purchased services
days, weeks or months later. In 2001, the Company processed approximately $535
million in MasterCard and Visa charges under its merchant processing agreement.
On September 21, 2001, the bank notified the Company that it had determined that
the terrorist attacks of September 11, 2001, the ensuing grounding of commercial
flights by the FAA, and the significant uncertainty about the level of future
air travel entitled the bank to retain cash collected by it on processed card
charges as a deposit, up to 100% of the full dollar amount of purchased services
to be provided at a future date. If the Company fails to perform pre-paid
services which are purchased by a charge to a card, the purchaser may be
entitled to obtain a refund which, if not paid by the Company, is the obligation
of the bank. The deposit secures this potential obligation of the bank to make
such refunds.
The bank exercised its right to withhold distributions beginning shortly after
its notice to the Company. As of September 30, 2001 the bank had withheld $3.6
million, and as of December 31, 2001 it had increased the deposit to $23.1
million, $20.0 million of which was funded, not with cash but by a letter of
credit provided on behalf of the Company by the Company's senior lenders under
its revolving bank facility. The Company has classified the remaining $3.1
million in cash withheld as a current receivable.
As of December 31, 2001 the $23.1 million deposit constituted approximately 60%
of the Company's total future obligations to provide services purchased by
charges to card accounts as of that date. The bank, subject to the execution of
a definitive amendment to its agreement with the Company, which is now in
negotiation, has agreed to a 60% deposit, with that percentage being subject to
increase up to 100% upon the occurrence of various specified adverse events,
including noncompliance by the Company with the financial covenants in its
senior credit facility. Pending execution of this amendment, the bank in the
first quarter of 2002 has continued to require a deposit equal to 60%. A deposit
of 100% of this obligation would have resulted in the additional retention of
$15.4 million by the bank at December 31, 2001. The bank's right to maintain a
deposit does not terminate unless, in its reasonable judgment and at its sole
discretion, it determines that a deposit is no longer required.
51
The Company has the right to terminate its agreement with the bank upon
providing appropriate notice. In the event of such termination, the bank may
retain a deposit equal to the amount of purchased services not yet performed,
for up to 16 months from the date of termination.
Surety Bonds. The Company has historically provided surety bonds to selected
vendors, such as airport authorities, to secure the Company's trade payables to
those vendors. The DOT also requires the Company to provide a surety bond, in
unlimited amount, to secure potential refund claims of charter customers who
have made prepayments to the Company for future transportation. One issuer
currently provides all surety bonds issued on behalf of the Company. Since the
charter bond is unlimited in amount, the Company periodically reports historical
monthly charter liabilities to the issuer, on the basis of which the current
liability is estimated.
Prior to the terrorist attacks of September 11, 2001 the Company had provided a
letter of credit of $1.5 million as security to the issuer for its total
estimated surety bond obligations, which were $20.9 million at August 31, 2001.
Effective October 5, 2001 the issuer required the Company to increase its letter
of credit to 50% of its estimated surety bond liability, or $10.2 million. The
letter of credit was adjusted to $8.3 million on November 19, 2001, based upon
50% of the estimated liability as of that date.
Effective January 16, 2002, the issuer implemented a requirement for the
Company's letter of credit to secure 100% of estimated surety bond obligations,
which totaled $19.8 million. The Company's letter of credit was adjusted
accordingly, and the Company is subject to future adjustments of its letter of
credit based upon further revisions to the estimated liability for total surety
bonds outstanding. The Company's letter of credit to the issuer is secured under
its revolving bank facility. The Company has the right to replace the issuer
with one or more alternative issuers of surety bonds, although the Company can
provide no assurance that it will be able to secure more favorable terms from
other issuers.
Future Accounting Changes
In June 2001, the FASB issued Statements of Financial Accounting Standards No.
141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets
("FAS 142") effective for fiscal years beginning after December 15, 2001. Under
the new pronouncements, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized, but will be subject to annual impairment
reviews.
The Company will apply the new rules on accounting for goodwill and other
intangible assets under FAS 142 beginning in the first quarter of 2002.
Application of the nonamortization provisions of FAS 142, related to the
Company's existing goodwill, is expected to result in a reduction in operating
expenses of approximately $1.3 million in 2002. During 2002, the Company will
also perform the impairment tests of goodwill which are required upon
implementation of the new standards. The Company has not yet determined what the
effect of these impairment tests will be, if any, on the results of operations
and financial position of the Company. See "Financial Statements and
Supplementary Data - Notes to Consolidated Financial Statements - Note 17 -
Goodwill and Other Intangible Assets."
In October 2001, the FASB issued Statements of Financial Accounting Standards
No. 144 ("FAS 144"), Accounting for the Impairment or Disposal of Long-Lived
Assets, effective for fiscal years beginning after December 15, 2001. FAS 144
addresses accounting and reporting for the impairment or disposal of long-lived
assets and supersedes FAS 121 and portions of APB 30. The Company will begin
applying the new rules on accounting for the impairment or disposal of
long-lived assets in the first quarter of 2002. The Company does not currently
52
expect adoption of the new standard to have a material impact on the results of
operations or financial position of the Company.
Forward-Looking Information and Risk Factors
Information contained within "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" includes
forward-looking information which can be identified by forward-looking
terminology such as "believes," "expects," "may," "will," "should,"
"anticipates," or the negative thereof, or other variations in comparable
terminology. Such forward-looking information is based upon management's current
knowledge of factors affecting the Company's business. The differences between
expected outcomes and actual results may be material, depending upon the
circumstances. Where the Company expresses an expectation or belief as to future
results in any forward-looking information, such expectation or belief is
expressed in good faith and is believed to have a reasonable basis. The Company
can provide no assurance that the statement of expectation or belief will result
or will be achieved or accomplished.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause actual results to be materially different from
those expected. Such factors include, but are not limited to, the following:
o economic conditions;
o labor costs;
o aviation fuel costs;
o competitive pressures on pricing;
o weather conditions;
o governmental legislation and regulation;
o consumer perceptions of the Company's products;
o demand for air transportation in markets in which the Company operates; and
o other risks and uncertainties listed from time to time in reports the
Company periodically files with the Securities and Exchange Commission.
In addition, there are risk factors that relate specifically to the September
11, 2001 terrorist attacks that may cause actual results to be materially
different from those expected. These factors include, but are not limited to,
the following:
o the adverse impact of the terrorist attacks on the economy in general;
o the likelihood of a further decline in air travel because of the attacks
and as a result of a reduction in the airline industry's operations;
o higher costs associated with new security directives and potential new
regulatory initiatives;
o higher costs for insurance and the continued availability of such insurance;
o the Company's ability to raise additionalfinancing, and to refinance
existing borrowings upon maturity;
o declines in the value of the Company's aircraft, as these may result in
lower collateral value and additional impairment charges;
o the extent of benefits paid to the Company under the Act, including
challenges to and interpretations or amendments of the Act or associated
regulations; and
o the impact on the Company's ability to operate as planned, including its
ability to retain key employees.
53
The Company does not undertake to update its forward-looking statements to
reflect future events or circumstances.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to certain market risks, including commodity price risk
resulting from aircraft fuel price fluctuations and interest rate risk. The
adverse effects of potential changes in these market risks are discussed below.
The sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity, nor do they consider additional
actions management might take to mitigate the adverse impact of such changes on
the Company. See the notes to consolidated financial statements for a
description of the Company's accounting policies and other information related
to these financial instruments.
Aircraft Fuel Prices. The Company's results of operations are significantly
impacted by changes in the price of aircraft fuel. During 2001, aircraft fuel
accounted for approximately 18.4% of the Company's operating expenses, compared
to 21.3% in 2000. In addition to purchasing fuel-hedging contracts, the Company
obtains fuel price fluctuation protection from escalation clauses in certain
commercial charter, military charter, bulk scheduled service and mail contracts.
During 2001 and 2000, the Company entered into fuel hedge contracts to reduce
the volatility of fuel prices, using heating oil swaps. As of December 31, 2001,
the Company had outstanding fuel hedge agreements totaling 6.3 million gallons
of heating oil, corresponding to 2.6% of the Company's projected aircraft fuel
requirements for 2002, as compared to 4.8% of the Company's projected aircraft
fuel requirements for 2001 hedged at December 31, 2000.
The following table depicts the estimated fair values the Company would have
paid or received on December 31, 2001, had the contracts been terminated on that
date, based on a comparison of the average contract rate to the estimated
forward prices of heating oil as of December 31, 2001.
Estimated Fair
Notional Amount Average Contract Values
(in Gallons) Rate per Gallon (Pay)/Receive
----------------------------------------------------------------
Swap Contracts - Heating Oil 6,300,000 $0.7150 ($1,057,035)
Market risk is estimated as a hypothetical 10% increase in the December 31, 2001
cost per gallon of fuel. Based on projected 2002 fuel usage, excluding
anticipated protection from escalation clauses, such a change would result in an
increase in aircraft fuel expense of approximately $16.5 million, net of the
benefit of fuel hedge instruments outstanding at December 31, 2001.
Interest Rates. The Company's results of operations are affected by fluctuations
in market interest rates. As of December 31, 2001 and 2000, the majority of the
Company's variable-rate debt was comprised of approximately $35.0 million and
$0.0 of variable-rate debt through a revolving credit facility and approximately
$118.2 million and $89.9 million of variable-rate debt funding aircraft
pre-delivery deposits, respectively. If interest rates average 100 basis points
more on variable-rate debt in 2002, as compared to 2001 average rates, the
Company's interest expense on these debt instruments would increase by
approximately $1.5 million.
As of December 31, 2001 and 2000, the majority of the Company's fixed-rate debt
was comprised of unsecured debt with a carrying value of $300.0 million. Based
upon discounted future cash flows using current incremental borrowing rates as
of the end of the year for similar types of instruments, the fair value as of
December 31, 2001 of this fixed-rate debt is estimated to be approximately
$308.2 million. Market risk, estimated as the potential increase in fair value
resulting from a hypothetical 100 basis point decrease in market interest rates,
54
was approximately $17.2 million as of December 31, 2001. As of December 31,
2000, that risk was approximately $14.5 million.
If 2002 average short-term interest rates decreased by 100 basis points as
compared to 2001 average rates, the Company's projected interest income from
short-term investments would decrease by approximately $1.8 million. In
comparison, the Company estimated that if 2001 average short-term interest rates
decreased by 100 basis points as compared to 2000 average rates, the Company's
interest income from short-term investments would have decreased by
approximately $1.5 million as of December 31, 2000.
All estimated changes in interest income and expense are determined by
considering the impact of hypothetical changes in interest rates on the
Company's debt and cash balances at December 31, 2001 and 2000.
55
Item 8. Financial Statements and Supplementary Data
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Amtran, Inc.
We have audited the accompanying consolidated balance sheets of Amtran, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, changes in redeemable preferred stock, common stock
and other shareholders' equity and cash flows for each of the three years in the
period ended December 31, 2001. Our audits also included the financial statement
schedule listed in the index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amtran, Inc. and
subsidiaries at December 31, 2001 and 2000, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth herein.
/S/ERNST & YOUNG LLP
Indianapolis, Indiana
January 22, 2002
56
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, December 31,
2001 2000
--------------------------------
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 184,439 $ 129,137
Aircraft pre-delivery deposits ................................ 166,574 126,307
Receivables, net of allowance for doubtful accounts
(2001 - $1,526; 2000 - $1,191) ................................ 75,046 56,605
Inventories, net .............................................. 47,648 49,055
Assets held for sale .......................................... 18,600 -
Prepaid expenses and other current assets ..................... 19,471 25,411
------------ ------------
Total current assets ............................................... 511,778 386,515
Property and equipment:
Flight equipment .............................................. 327,541 822,979
Facilities and ground equipment ............................... 119,975 111,825
------------ ------------
447,516 934,804
Accumulated depreciation ...................................... (132,573) (412,685)
------------ ------------
314,943 522,119
Goodwill ........................................................... 21,780 22,858
Assets held for sale ............................................... 33,159 -
Prepaid aircraft rent .............................................. 49,159 31,979
Investment in BATA ................................................. 30,284 -
Deposits and other assets .......................................... 41,859 68,959
------------ ------------
Total assets ....................................................... $ 1,002,962 $ 1,032,430
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ........................... $ 5,820 $ 6,865
Short-term debt ................................................ 118,239 89,875
Accounts payable ............................................... 26,948 10,066
Air traffic liabilities ........................................ 100,958 107,050
Accrued expenses ............................................... 177,102 147,095
------------ ------------
Total current liabilities .......................................... 429,067 360,951
Long-term debt, less current maturities ............................ 373,533 361,209
Deferred income taxes .............................................. 13,655 54,503
Other deferred items ............................................... 62,575 51,113
------------ ------------
Total liabilities .................................................. 878,830 827,776
Redeemable preferred stock; authorized and issued 800 shares 80,000 80,000
Shareholders' equity:
Preferred stock; authorized 9,999,200 shares; none issued ...... - -
Common stock, without par value; authorized 30,000,000 shares;
issued 13,266,642 - 2001; 13,082,118 - 2000 ................. 61,964 59,012
Treasury stock; 1,710,658 shares - 2001; 1,696,355 shares - 2000 (24,768) (24,564)
Additional paid-in-capital ..................................... 11,534 12,232
Other comprehensive loss ....................................... (687) -
Retained earnings (deficit) .................................... (3,911) 77,974
------------ ------------
Total shareholders' equity ......................................... 44,132 124,654
------------ ------------
Total liabilities and shareholders' equity ......................... $ 1,002,962 $ 1,032,430
============ ============
See accompanying notes.
57
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Year Ended December 31,
2001 2000 1999
---------------------------------------------------
Operating revenues:
Scheduled service ............................................... $ 820,666 $ 753,301 $ 624,647
Charter ......................................................... 359,770 435,262 389,979
Ground package .................................................. 52,182 59,848 58,173
Other ........................................................... 42,866 43,142 49,567
------------- ------------- -------------
Total operating revenues ........................................... 1,275,484 1,291,553 1,122,366
------------- ------------- -------------
Operating expenses:
Salaries, wages and benefits ....................................... 325,153 297,012 252,595
Fuel and oil ....................................................... 251,333 274,820 170,916
Depreciation and amortization ...................................... 121,327 125,041 96,038
Aircraft rentals ................................................... 98,988 72,145 58,653
Handling, landing and navigation fees .............................. 88,653 97,414 89,302
Aircraft maintenance, materials and repairs ........................ 61,394 70,432 55,645
Crew and other employee travel ..................................... 59,278 65,758 49,707
Passenger service .................................................. 43,856 45,571 39,231
Ground package cost ................................................ 42,160 50,903 49,032
Other selling expenses ............................................. 41,601 36,650 28,099
Commissions ........................................................ 34,789 39,065 39,050
Advertising ........................................................ 26,421 22,016 18,597
Facilities and other rentals ....................................... 20,241 15,817 13,318
Special charges .................................................... 21,525 - -
Impairment loss .................................................... 112,304 - -
U.S. Government grant .............................................. (66,318) - -
Other .............................................................. 84,649 76,339 72,156
------------- ------------- -------------
Total operating expenses ........................................... 1,367,354 1,288,983 1,032,339
------------- ------------- -------------
Operating income (loss) ............................................ (91,870) 2,570 90,027
Other income (expense):
Interest income .................................................... 5,331 8,389 5,375
Interest expense ................................................... (30,082) (31,452) (20,966)
Other .............................................................. 554 562 3,361
------------- ------------- -------------
Other expenses ..................................................... (24,197) (22,501) (12,230)
------------- ------------- -------------
Income (loss) before income taxes .................................. (116,067) (19,931) 77,797
Income taxes (credit) .............................................. (39,750) (4,607) 30,455
------------- ------------- -------------
Net income (loss) .................................................. (76,317) (15,324) 47,342
Preferred stock dividends .......................................... (5,568) (375) -
------------- ------------- -------------
Income (loss) available to common shareholders ..................... $ (81,885) $ (15,699) $ 47,342
============= ============= =============
Basic earnings per common share:
Average shares outstanding ......................................... 11,464,125 11,956,532 12,269,474
Net income (loss) per common share ................................. $ (7.14) $ (1.31) $ 3.86
============= ============= =============
Diluted earnings per common share:
Average shares outstanding ......................................... 11,464,125 11,956,532 13,469,537
Net income (loss) per common share ................................. $ (7.14) $ (1.31) $ 3.51
============= ============= =============
See accompanying notes.
58
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
(Dollars in thousands)
Redeemable Additional Deferred Other Retained
Preferred Common Treasury Paid-in Comp Compr Earnings
Stock Stock Stock Capital ESOP Loss (Deficit) Total
------- ------- --------- --------- -------- -------- --------- ---------
Balance, December 31, 1998 ............. $ - $47,632 $(1,881) $11,735 $(1,066) $ - $46,331 $102,751
------- ------- --------- --------- -------- -------- --------- ---------
Net income ............................. - - - - - - 47,342 47,342
Issuance of common stock for ESOP ...... - - - 37 533 - - 570
Restricted stock grants ................ - 32 - (10) - - - 22
Stock options exercised ................ - 6,897 - (3,207) - - - 3,690
Purchase of treasury stock ............. - - (8,619) - - - - (8,619)
Disqualifying disposition of stock ..... - - - 3,887 - - - 3,887
Acquisition of businesses .............. - 1,265 - 468 - - - 1,733
------- ------- --------- --------- -------- -------- --------- ---------
Balance, December 31, 1999 ............. - 55,826 (10,500) 12,910 (533) - 93,673 151,376
------- ------- --------- --------- -------- -------- --------- ---------
Net loss ............................... - - - - - - (15,324) (15,324)
Issuance of redeemable preferred stock.. 80,000 - - - - - - 80,000
Issuance of common stock for ESOP ...... - - - 276 533 - - 809
Preferred dividends .................... - - - - - - (375) (375)
Restricted stock grants ................ - 67 (14) 17 - - - 70
Stock options exercised ................ - 2,937 - (1,356) - - - 1,581
Purchase of treasury stock ............. - - (14,050) - - - - (14,050)
Disqualifying disposition of stock ..... - - - 411 - - - 411
Acquisition of businesses .............. - 182 - (26) - - - 156
------- ------- --------- --------- -------- -------- --------- ---------
Balance, December 31, 2000 ............. 80,000 59,012 (24,564) 12,232 - - 77,974 204,654
======= ======= ========= ========= ======== ======== ========= =========
Net loss ............................... - - - - - - (76,317) (76,317)
Net loss on derivative instruments ..... - - - - - (687) - (687)
-------- --------- ---------
Total comprehensive loss ............... (687) (76,317) (77,004)
-------- --------- ---------
Preferred dividends .................... - - - - - - (5,568) (5,568)
Restricted stock grants ................ - 40 (8) 10 - - - 42
Stock options exercised ................ - 2,912 - (1,242) - - - 1,670
Purchase of treasury stock ............. - - (196) - - - - (196)
Disqualifying disposition of stock ..... - - - 534 - - - 534
------- ------- --------- --------- -------- -------- --------- ---------
Balance, December 31, 2001 ............. $80,000 $61,964 $(24,768) $11,534 $ - $(687) $(3,911) $124,132
======= ======= ========= ========= ======== ======== ========= =========
See accompanying notes.
59
AMTRAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
2001 2000 1999
----------------------------------------------
Operating activities:
Net income (loss) ................................... $ (76,317) $ (15,324) $ 47,342
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization .................. 121,327 125,041 96,038
Impairment loss ................................ 112,304 - -
Deferred income taxes (credit) ................. (40,848) (3,990) 5,873
Other non-cash items ........................... 8,407 4,324 7,573
Changes in operating assets and liabilities:
Receivables .................................... (18,441) (4,506) (21,197)
Inventories .................................... (11,586) (15,191) (18,746)
Prepaid expenses ............................... 5,940 (2,466) 7,484
Accounts payable ............................... 16,882 (10,168) 10,684
Air traffic liabilities ........................ (6,092) 13,543 (2,465)
Accrued expenses ............................... 32,848 20,429 20,087
----------- ---------- -----------
Net cash provided by operating activities 144,424 111,692 152,673
----------- ---------- -----------
Investing activities:
Aircraft pre-delivery deposits ...................... (30,781) (116,978) (7,363)
Capital expenditures ................................ (119,798) (146,523) (266,937)
Acquisition of businesses, net of cash acquired ..... - - 16,673
Investment in BATA .................................. 27,343 - -
Noncurrent prepaid aircraft rent .................... (17,180) (16,811) (15,212)
Additions to other assets ........................... 10,474 (10,593) (33,143)
Proceeds from sales of property and equipment ....... 151 68 264
----------- ---------- -----------
Net cash used in investing activities (129,791) (290,837) (305,718)
----------- ---------- -----------
Financing activities:
Preferred stock dividends ........................... (5,568) (375) -
Proceeds from sale/leaseback transactions ........... 5,229 10,791 6,890
Proceeds from short-term debt ....................... 71,537 90,825 -
Payments on short-term debt ......................... (44,123) - -
Proceeds from long-term debt ........................ 219,422 33,117 99,902
Payments on long-term debt .......................... (207,294) (13,998) (1,590)
Proceeds from stock option exercises ................ 1,670 1,822 3,690
Proceeds from redeemable preferred stock ............ - 80,000 -
Purchase of treasury stock .......................... (204) (14,064) (8,619)
----------- ---------- -----------
Net cash provided by financing activities 40,669 188,118 100,273
----------- ---------- -----------
Increase (decrease) in cash and cash equivalents .... 55,302 8,973 (52,772)
Cash and cash equivalents, beginning of period ...... 129,137 120,164 172,936
----------- ---------- -----------
Cash and cash equivalents, end of period ............ $ 184,439 $ 129,137 $ 120,164
=========== ========== ===========
Supplemental disclosures:
Cash payments for:
Interest ........................................ $ 44,839 $ 31,628 $ 24,411
Income taxes (refunds) .......................... $ (9,721) $ 579 $ 11,910
Financing and investing activities not affecting cash:
Capital lease ................................... $ - $ 117 $ 2,729
Accrued capital interest ........................ $ 7,465 $ 7,890 $ -
See accompanying notes.
60
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of Presentation and Business Description
The consolidated financial statements include the accounts of Amtran, Inc.
(the "Company") and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The Company operates principally in one business segment through American
Trans Air, Inc. ("ATA"), its principal subsidiary, which accounts for
approximately 90% of the Company's operating revenues. ATA is a
U.S.-certificated air carrier providing domestic and international charter
and scheduled passenger air services.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Cash Equivalents
Cash equivalents are carried at cost, which approximates market, and are
primarily comprised of money market funds, commercial paper and investments
in U.S. Treasury bills, which are purchased with original maturities of
three months or less (See "Note 3 - Cash and Cash Equivalents.")
Inventories
Inventories consist primarily of expendable aircraft spare parts, fuel and
other supplies. Aircraft parts inventories are stated at cost and are
reduced by an allowance for obsolescence. The obsolescence allowance is
provided by amortizing the cost of the aircraft parts inventory, net of an
estimated residual value, over the related fleet's estimated useful service
life. The obsolescence allowance at December 31, 2001 and 2000 was $10.9
million and $13.1 million, respectively. Inventories are charged to expense
when consumed.
Revenue Recognition
Revenues are recognized when air transportation or other services are
provided. Customer flight deposits and unused passenger tickets sold are
included in air traffic liability. As is customary within the industry, the
Company performs periodic evaluations of this estimated liability, and any
resulting adjustments, which can be significant, are included in the
results of operations for the periods in which the evaluations are
completed.
In 2001, the Company recognized reimbursement for estimated direct and
incremental losses incurred as a result of the September 11 terrorist
attacks according to guidelines established in the Air Transportation
Safety and System Stabilization Act. The Company used accounting principles
generally accepted in the United States to identify and measure such direct
and incremental losses. Certain of those direct and incremental losses
identified by the Company have been disallowed by the DOT, and are
therefore excluded from the reimbursement recognized by the Company.
61
Passenger Traffic Commissions
Passenger traffic commissions are recognized as expense when the
transportation is provided and the related revenue is recognized. The
amount of passenger traffic commissions paid but not yet recognized as
expense is included in prepaid expenses and other current assets in the
accompanying consolidated balance sheets.
Reclassifications
Certain 2000 balance sheet amounts have been reclassified to conform to the
2001 presentation.
Property and Equipment
Property and equipment is recorded at cost and is depreciated to residual
value over its estimated useful service life using the straight-line
method. The estimated useful service lives for the principal depreciable
asset classifications are as follows:
Asset Estimated Useful Service Life
- -----------------------------------------------------------------------------------------------------------
Aircraft and related equipment
Lockheed L-1011 (Series 50 and 100) Depreciating to individual aircraft retirement date
(2002-2004) (See "Note 16 - Asset Impairment.")
Lockheed L-1011 (Series 500) Depreciating to common retirement date of
December 2010
Boeing 737-800 All aircraft are subject to operating leases
Boeing 757-200 All aircraft are subject to operating leases
Boeing 757-300 All aircraft are subject to operating leases
Saab 340B 15 years
Major rotable parts, avionics and assemblies Life of equipment to which applicable (generally
ranging from 5-18 years)
Improvements to leased flight equipment Period of benefit or term of lease
Other property and equipment 3-7 years
Aircraft Lease Return Conditions
The Company finances a significant number of aircraft through operating
leases. Many of these leases require that the airframes and engines be in a
specified maintenance condition upon their return to the lessor at the end
of the lease. If these return conditions are not met by the Company, the
leases generally require financial compensation to the lessor. When an
operating lease is within five years of its initial termination date, the
Company accrues ratably over that five years the estimated return condition
obligations at the end of the leases.
62
Airframe and Engine Overhauls
The Company has entered into engine manufacturers' agreements for engines
which power the Boeing 737-800 and Saab 340B fleets, which provide for the
Company to pay a monthly fee per engine flight hour in exchange for major
overhaul and maintenance of those engines. The Company expenses the cost
per flight hour under these agreements as incurred. The cost of engine
overhauls for remaining fleets types, and the cost of airframe overhauls
for all fleet types other than the Saab 340B, are capitalized when
performed and amortized over estimated useful lives based upon usage, or to
earlier fleet or aircraft retirement dates, for both owned and leased
aircraft. Airframe overhauls for Saab 340B aircraft are expensed as
incurred.
Aircraft Pre-delivery Deposits
Advanced payments for future aircraft deliveries scheduled within the next
12 months are classified as current aircraft pre-delivery deposits in the
accompanying consolidated balance sheets, as the aircraft will be acquired
and paid for by third parties who will lease them to the Company. Advanced
payments for future aircraft deliveries not scheduled within the next 12
months are classified as deposits and other assets. As of December 31, 2001
and 2000, deposits and other assets included advanced payments for future
aircraft and engine deliveries totaling $4.1 million and $13.6 million,
respectively.
Intangible Assets
Goodwill, which represents the excess of cost over fair value of net assets
acquired, is amortized on a straight-line basis over 20 years. The Company
periodically reviews the amortization periods and the carrying amounts of
goodwill to assess its continued recoverability in accordance with
Accounting Principles Board Opinion No. 17, Intangible Assets ("APB 17").
The Company's policy is to record an impairment loss in the period when it
is determined that the carrying amount of the asset may not be recoverable.
Financial Instruments
The carrying amounts of cash equivalents, receivables and debt approximate
fair value. (See "Note 5 - Long-Term Debt.") The fair value of fixed-rate
debt, including current maturities, is estimated using discounted cash flow
analysis based on the Company's current incremental rates for similar types
of borrowing arrangements.
2. Impact of Terrorist Attacks on September 11, 2001
On September 11, 2001, four commercial aircraft operated by two other U.S.
airlines were hijacked and destroyed in terrorist attacks on the United
States. These attacks resulted in significant loss of life and property
damage in New York City, Washington, D.C. and western Pennsylvania. In
response to these attacks, on September 11 the FAA temporarily suspended
all commercial flights to, from and within the United States until
September 13. The Company resumed limited flight operations on September
13, with the exception of flights to and from Chicago-Midway Airport, which
commenced partial operations on September 14. From September 11 to
September 14, the Company canceled over 800 scheduled flights. Upon
resuming its pre-attack flight schedule the week of September 17, the
Company experienced significantly lower passenger traffic and unit revenues
than prior to the attacks. In response to this, the Company reduced its
flight schedule by approximately 20%, as compared to the schedule operated
immediately prior to September 11, and furloughed approximately 1,100
employees by the middle of October. By December 31, 2001, the Company had
recalled approximately half of the furloughed employees and had added some
capacity back to its flight schedule.
63
In order to adjust its fleet to its reduced flight schedule, the Company
accelerated the planned retirement of its fleet of 24 Boeing 727-200
aircraft. Most of these aircraft were retired from revenue service in the
fourth quarter of 2001, although the Company will continue to use as many
as five to ten aircraft in charter service through the middle of 2002. (See
"Note 16 - Asset Impairment.") The Company also negotiated delayed delivery
dates for certain Boeing 737-800 and Boeing 757-300 aircraft under its new
aircraft order from Boeing. Delivery dates of seven Boeing 737-800 aircraft
were delayed more than 12 months. The final Boeing 737-800 delivery is now
planned for August 2004 rather than May 2004, and the final 757-300
delivery is planned for August 2002 rather than June 2002. (See "Note 12 -
Commitments and Contingencies.")
On September 22, 2001, President Bush signed into law the Air
Transportation Safety and System Stabilization Act ("Act"). The Act
provides for, among other things: (1) $5.0 billion in compensation for
direct losses incurred by all U.S. airlines and air cargo carriers
(collectively, "air carriers") as a result of the closure by the FAA of
U.S. airspace following the September 11, 2001 terrorist attacks and for
incremental losses incurred by air carriers through December 31, 2001 as a
direct result of such attacks; (2) subject to certain conditions, the
availability of up to $10.0 billion in U.S. Government guarantees of
certain loans made to air carriers for which credit is not reasonably
available as determined by a newly established Air Transportation
Stabilization Board; (3) the authority of the Secretary of Transportation
to reimburse air carriers (which authority expires 180 days after the
enactment of the Act) for the increase in the cost of insurance, with
respect to a premium for coverage ending before October 1, 2002, against
loss or damage arising out of any risk from the operation of an aircraft
over the premium in effect for a comparable operation during the period
September 4, 2001 to September 10, 2001; (4) at the discretion of the
Secretary of Transportation, a $100 million limit on the liability of any
air carrier to third parties with respect to acts of terrorism committed on
or to such air carrier during the 180-day period following the enactment of
the Act; (5) the extension of the due date for the payment by eligible air
carriers of certain excise taxes; (6) compensation to individual claimants
who were physically injured or killed as a result of the terrorist attacks
of September 11, 2001; and (7) the Secretary of Transportation to ensure
that all communities that had scheduled air service before September 11,
2001 continue to receive adequate air service. In addition, the Act
provides that, notwithstanding any other provision of law, liability for
all claims, whether for compensatory or punitive damages, arising from the
terrorist-related events of September 11, 2001 against any air carrier
shall not be in an amount greater than the limits of the liability coverage
maintained by the air carrier. With respect to the cash grants of up to
$5.0 billion, each qualified air carrier is entitled to receive the lesser
of: (1) its actual direct and incremental losses incurred between September
11, 2001 and December 31, 2001; or (2) its proportion of the $5.0 billion
of total compensation available to all qualified air carriers under the Act
allocated by August 2001 available seat miles or ton miles.
The Company believes it is eligible to receive up to $74.0 million in
connection with the Act in compensation for direct and incremental losses
arising from the terrorist attacks of September 11 and the subsequent
decline in demand for air travel. However, the Company has recorded $66.3
million in 2001 in U.S. Government grant compensation, as the DOT has
disallowed certain losses recorded under generally accepted accounting
principles ("GAAP"). Included in these potentially nonreimbursable losses
are the Company's non-cash write-down of the Boeing 727-200 aircraft fleet
($35.2 million) and exit costs related to rent payments scheduled to
continue on certain Boeing 727-200 aircraft after they are removed from
service ($3.8 million.) The Company, along with the Air Transport
Association, has requested that the DOT use GAAP as the standard for
determining reimbursable losses under the Act. If the DOT reverses their
position to disallow these losses, the Company may record additional U.S.
Government grant revenue of up to $7.7 million in 2002, based upon the
Company's estimated maximum allocation calculated from August 2001
available seat miles. As of December 31, 2001, the Company had received
$44.5 million in cash compensation under the Act and expects to receive
$21.8 million in additional cash in the second quarter of 2002. The
64
Company's calculation of direct and incremental losses is subject to audit
by the United States Government at a future date, yet to be determined.
Components of direct and incremental losses incurred by the Company, for
which U.S. Government compensation of $66.3 million was recorded, include:
(1) $57.1 million in lost profit contribution (direct revenues lost, less
variable operating expenses avoided) from planned flights not operated
between September 11 and December 31, and from flights operated during this
time period with lower load factors and unit revenues; (2) certain special
charges of $17.8 million, that were deemed directly attributable to the
attacks, as described in the following paragraphs; less (3) $8.6 million in
expense reductions realized as a direct result of lower costs incurred by
the Company after the September 11 attacks.
Special charges are those direct expenses which, due to the events of
September 11, are unusual under the provisions of APB Opinion 30, Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions ("APB 30"). These costs include travel expenses to
reposition crew members and aircraft once flights resumed; expenses paid
for passengers whose travel was interrupted by flight diversions and
cancellations; and employee salaries for crew members and airport staff
affected by the temporary FAA-mandated grounding of the Company's fleet.
Also classified as special charges are increased hull and liability
insurance costs; additional advertising expense incurred as a direct result
of September 11; interest expense related to debt incurred under the
Company's credit facility to provide operating cash after September 11;
incremental security costs; toll-free telephone service costs related to
the implementation of a reduced flight schedule on and after September 23;
losses on abandoned capital projects; and additional letter of credit fees
incurred. The Company also recorded special charges of $3.8 million related
to exit costs for rent payments scheduled to continue on certain Boeing
727-200 aircraft after they are removed from service; however, Government
grant revenue was not recorded in relation to these charges based on the
Department of Transportation's current position that they are
nonreimbursable.
Special charges also include $3.3 million of expenses related to a proposed
transaction in which Amtran would have been taken private, which had been
substantially completed just prior to September 11. On June 18, 2001, the
Company entered into a merger agreement with INDUS Acquisition Company
("INDUS"), a newly formed company wholly owned by J. George Mikelsons, the
Company's Chairman, founder and majority shareholder, providing for
approximately 28% of the outstanding shares of the Company's common stock
not presently owned by Mr. Mikelsons to be converted into the right to
receive $23 in cash per share. Also on June 18, 2001, the Company received
from Citicorp USA, Inc. and Salomon Smith Barney, Inc. a commitment letter
with respect to a $175.0 million secured credit facility to be used to
finance that transaction. On September 21, 2001, following the events of
September 11, Citicorp USA, Inc. and Salomon Smith Barney, Inc. terminated
their obligations under the commitment letter on the basis that a material
adverse change had occurred in the business condition (financial or
otherwise), operations or properties of the Company, taken as a whole,
since December 31, 2000. Completion of the proposed transaction was
conditioned on, among other things, receipt of a financing commitment to be
used to fund the proposed transaction. The Company attempted to find
alternate financing to replace the lost commitment, but was unable to do
so. On October 4, 2001, as a result of the termination of the financing
commitment and the inability to find alternative financing, the Company
entered into a mutual termination agreement with INDUS that terminated the
merger agreement.
The Company has not yet submitted an application for loan guarantees
provided under the Act. The Company believes it meets the qualifications to
receive such loan guarantees; however, the Company is not able to provide
any estimate at this time as to the amount of loan guarantees, if any, that
it may request or receive, or for what period of time those guarantees
might remain in effect.
65
As a result of the September 11, 2001 attacks, the Company's aviation
insurers, and other air carriers' aviation insurers, have significantly
reduced the maximum amount of insurance coverage they will underwrite for
liability to persons other than employees or passengers resulting from acts
of terrorism, war, hijacking or other similar perils (war-risk coverage).
In addition, the Company and other air carriers, are being charged
significantly higher premiums for this reduced coverage, as well as other
aviation insurance. The Act provided for reimbursement to air carriers of
incremental costs of the war-risk coverage for a 30-day period ended
October 31, 2001. The Company received $0.9 million as a result of this
provision. In addition, and pursuant to the Act, the Government has issued
supplemental war-risk coverage to U.S. air carriers, including the Company,
through May 20, 2002. It is anticipated that after this date a commercial
product for war risk coverage will become available, but the Company may
incur significant additional costs for this coverage.
On November 19, 2001, President Bush signed into law the Aviation and
Transportation Security Act ("Aviation Security Act"). This law provides
for placing substantially all aspects of civil aviation passenger security
and screening under federal control, to be phased in during 2002 and 2003,
and creates a new Transportation Security Administration under the DOT. The
cost of the provisions set forth in the Aviation Security Act will be
funded by a new security fee of $2.50 per passenger enplanement, limited to
$5 per one-way trip and $10 per round trip. Air carriers, including the
Company, began collecting the new fee on February 1, 2002. The Aviation
Security Act will also be funded by financial assessments to each air
carrier beginning in the second quarter of 2002. The amount of the air
carrier assessment is limited to the amount each air carrier spent on
aviation security in 2000.
3. Cash and Cash Equivalents
Cash and cash equivalents consist of the following:
December 31,
2001 2000
------------------------------
(in thousands)
Cash and money market funds $ 180,388 $ 19,264
Commercial paper - 108,938
U.S. Treasury repurchase agreements 4,051 935
----------- -----------
$ 184,439 $ 129,137
----------- -----------
4. Property and Equipment
The Company's property and equipment consist of the following:
December 31,
2001 2000
---------------------------
(in thousands)
Flight equipment, including airframes, engines and other $ 327,541 $ 822,979
Less accumulated depreciation 58,396 351,329
---------- ----------
269,145 471,650
---------- ----------
Facilities and ground equipment 119,975 111,825
Less accumulated depreciation 74,177 61,356
---------- ----------
45,798 50,469
---------- ----------
$ 314,943 $ 522,119
---------- ----------
66
5. Long-Term Debt
Long-term debt consists of the following:
December 31,
2001 2000
---------------------------------
(in thousands)
Unsecured Senior Notes, fixed rate of 10.50%, payable in August 2004 $ 175,000 $ 175,000
Unsecured Senior Notes, fixed rate of 9.625%, payable in December 2005 125,000 125,000
Aircraft pre-delivery deposit finance facilities, variable rates, 118,239 89,875
payable upon delivery of aircraft
Borrowings against secured revolving bank credit facility, variable 35,000 -
rate, payable in January 2003
Secured note payable to institutional lender, variable rate, 9,375 11,075
payable in varying installments through October 2005
Secured note payable to institutional lender, variable rate, payable 8,383 10,083
in varying installments through March 2005
Mortgage note payable to institutional lender, fixed rate of 8.75%, 9,538 9,937
payable in varying installments through June 2014
Mortgage note payable to institutional lender, fixed rate of 8.30%, 7,280 7,595
payable in varying installments through June 2014
City of Chicago variable-rate special facility revenue bonds, 6,000 6,000
payable in December 2020
City of Chicago variable-rate special facility revenue bonds, repaid - 16,960
in November 2001
Other 3,777 6,424
---------- ----------
497,592 457,949
Less current maturities and short-term debt 124,059 96,740
---------- ----------
$ 373,533 $ 361,209
========== ==========
67
In July 1997, the Company sold $100.0 million principal amount of 10.50%
unsecured senior notes. The Company sold an additional $75.0 million
principal amount of these notes in December 1999. Interest on these notes
is payable on February 1 and August 1 of each year. The Company may redeem
the notes, in whole or in part, at any time on or after August 1, 2002,
initially at 105.25% of their principal amount plus accrued interest,
declining ratably to 100.0% of their principal amount plus accrued interest
at maturity. The net proceeds of the $100.0 million unsecured notes issued
in 1997 were approximately $96.9 million, after deducting costs and fees of
issuance. The Company used a portion of the net proceeds to repay in full
the Company's prior bank facility and used the balance of the proceeds for
general corporate purposes. The net proceeds of the $75.0 million unsecured
notes issued in 1999 were approximately $73.0 million after deducting costs
and fees of issuance, and were used for general corporate purposes.
In December 1998, the Company sold $125.0 million principal amount of
9.625% unsecured senior notes. Interest on these notes is payable on June
15 and December 15 of each year. The Company may redeem the notes, in whole
or in part, at any time on or after June 15, 2003, initially at 104.81% of
their principal amount plus accrued interest, declining to 102.41% of their
principal amount plus accrued interest on June 15, 2004, then to 100.0% of
their principal amount plus accrued interest at maturity. The net proceeds
of the $125.0 million unsecured notes were approximately $121.0 million
after deducting costs and fees of issuance. The Company used the net
proceeds for the purchase of Lockheed L-1011-500 aircraft, engines and
spare parts, and, together with operating cash and bank facility
borrowings, for the purchase of Boeing 727-200 aircraft, engines, engine
hushkits and spare parts.
In June 1999, the Company obtained an $8.0 million loan at 8.30% secured by
a 15-year mortgage on the new Maintenance and Operations Center. This
building had a carrying amount of $8.0 million as of December 31, 2001.
In December 1999, the Company issued $17.0 million in variable-rate special
facility revenue bonds through the City of Chicago to finance the
construction of a Federal Inspection Service facility at Chicago-Midway
Airport. In November 2001, these bonds were paid in full by the City of
Chicago, in exchange for ownership of the facility.
In March and October 2000, the Company issued two $11.5 million variable
rate five-year notes, each collateralized by one Lockheed L-1011-500
aircraft. The related aircraft have a combined carrying amount of $25.4
million as of December 31, 2001.
In September 2000, the Company obtained a $10.0 million, 14-year loan at
8.75%, secured by a mortgage on its maintenance facility at the
Indianapolis International Airport. The proceeds of the loan were used to
repay an advance received from the City of Indianapolis in December 1995
that resulted from the sale/leaseback of the facility.
In December 2000, the Company entered into three finance facilities to fund
pre-delivery deposits on the new Boeing 757-300 and Boeing 737-800
aircraft. The Company obtained the first facility from Banca Commerciale
Italiana. It provides up to $75.0 million in deposit funding, against which
the Company had borrowed $75.0 million at December 31, 2001 and $55.7
million at December 31, 2000. The Company obtained a second facility from
GE Capital Aviation Services, Inc. This facility provides for up to
approximately $58.2 million in pre-delivery deposit funding, against which
the Company had borrowed $23.2 million at December 31, 2001 and $14.3
million at December 31, 2000. The third facility, obtained from Rolls-Royce
plc., will fund up to $40.0 million in deposits, against which the Company
had borrowed $20.0 million at December 31, 2001 and $19.9 million at
December 31, 2000. All of this debt has been classified as current in the
accompanying balance sheets, because it will be repaid through the return
of related pre-delivery deposits on aircraft scheduled for delivery within
12 months of each balance sheet date, as the aircraft will be acquired and
68
paid for by third parties who will lease them to the Company. Interest on
these facilities is payable monthly.
The Company has a secured revolving bank credit facility which provides for
maximum borrowings of $100.0 million, including up to $50.0 million for
stand-by letters of credit. The facility matures January 2, 2003, and
borrowings under the facility bear interest, at the option of ATA, at
either LIBOR plus a margin or the agent bank's prime rate. The facility is
subject to certain restrictive covenants and is collateralized by all six
owned Boeing 727-200 aircraft, nine Lockheed L-1011-50 and 100 aircraft and
engines and three Lockheed L-1011-500 aircraft and engines, which have a
combined carrying amount of approximately $133.5 million as of December 31,
2001. As of December 31, 2001, the Company had borrowings of $35.0 million
against the facility, and had outstanding letters of credit of $39.3
million secured by the facility.
The unsecured senior notes, bank credit facility and other loans secured by
certain collateral are subject to restrictive covenants, including, among
other things, limitations on the incurrence of additional indebtedness; the
payment of dividends; certain transactions with shareholders and
affiliates; and the creation of liens on or other transactions involving
certain assets. In addition, certain covenants require specified financial
ratios to be maintained.
Future maturities of long-term debt are as follows:
December 31, 2001
-----------------
(in thousands)
2002 $ 124,059
2003 39,878
2004 179,749
2005 134,038
2006 1,602
Thereafter 18,266
-----------------
$ 497,592
=================
Interest capitalized in connection with long-term asset purchase agreements
and construction projects was $29.0 million, $15.3 million and $6.1 million
in 2001, 2000, and 1999, respectively. The capitalized interest includes
$14.7 million, $7.9 million and $0.0 million in 2001, 2000 and 1999,
respectively, of interest to be paid to Boeing upon delivery of certain
Boeing 737-800 and Boeing 757-300 aircraft in lieu of the Company making
additional pre-delivery deposits, as allowed by the purchase agreement.
69
6. Lease Commitments
At December 31, 2001, the Company had the following operating aircraft
leases:
Total Leased Initial Lease Expirations Initial Lease Terms
------------ ------------------------- -------------------
Lockheed L-1011-100 1 2003 60 months
Boeing 727-200 (1) 7 Between 2001 and 2003 6 to 84 months
Boeing 757-200 16 Between 2002 and 2022 1 to 22 years
Boeing 757-300 5 2021 20 years
Boeing 737-800 14 Between 2016 and 2021 15 to 20 years
Saab 340B 9 2009 and 2010 9.5 years
Engines - Lockheed L-1011-500 6 2006 and 2007 7 years
Engines - Boeing 757-200 5 Between 2008 and 2011 9 to 15 years
Engines - Boeing 757-300 1 2024 22.5 years
Engines - Boeing 737-800 2 2021 20 years
(1) As of December 31, 2001, three of the aircraft had been retired from
revenue service, but the Company remained obligated on the leases.
The Company is responsible for all maintenance costs on these aircraft and
engines, and it must meet specified airframe and engine return conditions
upon lease expiration.
As of December 31, 2001, the Company had other long-term leases related to
certain ground facilities, including terminal space and maintenance
facilities, with lease terms that vary from two to 45 years and expire at
various dates through 2040. The lease agreements relating to the ground
facilities, which are primarily owned by governmental units or authorities,
generally do not provide for transfer of ownership, nor do they contain
options to purchase. The Company also had two long-term leases related to
certain ground equipment, which both expire in 2008.
The Company leases its headquarters facility from the Indianapolis Airport
Authority under an operating lease agreement, which expires in December
2002. The agreement has an option to extend for five years. The Company is
responsible for maintenance, taxes, insurance and other expenses incidental
to the operation of the facilities.
70
Future minimum lease payments at December 31, 2001, for noncancelable
operating leases with initial terms of more than one year are as follows:
Facilities
Flight and Ground
Equipment Equipment Total
------------------------------------------------------
(in thousands)
2002 $ 150,825 $ 11,821 $ 162,646
2003 147,110 11,889 158,999
2004 146,357 11,338 157,695
2005 145,191 9,946 155,137
2006 145,191 8,983 154,174
Thereafter 1,631,398 36,494 1,667,892
------------ ------------ ---------------
$ 2,366,072 $ 90,471 $ 2,456,543
Rental expense for all operating leases in 2001, 2000 and 1999 was $119.2
million, $88.0 million and $72.0 million, respectively.
71
7. Income Taxes
The provision for income tax expense (credit) consisted of the following:
December 31,
2001 2000 1999
-----------------------------------------------
(In thousands)
Federal:
Current $ 4,070 $ - $ 15,339
Deferred (40,546) (4,278) 10,889
----------- ------------ -----------
(36,476) (4,278) 26,228
State:
Current 510 328 1,284
Deferred (3,784) (657) 2,943
----------- ------------ -----------
(3,274) (329) 4,227
----------- ------------ -----------
Income tax expense (credit) $ (39,750) $ (4,607) $ 30,455
----------- ------------ -----------
The provision for income tax expense (credit) differed from the amount
obtained by applying the statutory federal income tax rate to income (loss)
before income taxes as follows:
December 31,
2001 2000 1999
-----------------------------------------------
(In thousands)
Federal income tax (credit) at statutory rate $ (40,626) $ (6,841) $ 27,175
State income tax (credit) net of federal benefit (2,328) (143) 1,997
Non-deductible expenses 2,041 1,872 1,578
Other, net 1,163 505 (295)
------------ ------------ ----------
Income tax expense (credit) $ (39,750) $ (4,607) $ 30,455
------------ ------------ ----------
72
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. The principal temporary differences relate to the use of
accelerated methods of depreciation and amortization for tax purposes.
Deferred tax liability and asset components are as follows:
December 31,
2001 2000
-------------------------------
(In thousands)
Deferred tax liabilities:
Property and equipment $ 35,031 $ 85,398
Other taxable temporary differences 342 714
--------- ---------
Deferred tax liabilities 35,373 86,112
--------- ---------
Deferred tax assets:
Tax benefit of net operating loss carryforwards 383 12,739
Alternative minimum tax and other tax credit carryforwards 19,528 15,813
Vacation pay accrual 4,723 4,552
Other deductible temporary differences 2,042 2,978
--------- ---------
Deferred tax assets 26,676 36,082
--------- ---------
Net deferred tax liability $ 8,697 $ 50,030
========= =========
Deferred taxes classified as:
Current asset $ 4,958 $ 4,473
Non-current liability $ 13,655 $ 54,503
At December 31, 2001, for federal tax reporting purposes, the Company had
approximately $0.4 million of net operating loss carryforward available to
offset future federal taxable income and $19.5 million of alternative
minimum tax and other tax credit carryforwards available to offset future
federal tax liabilities. The net operating loss carryforward expires in
2015. The alternative minimum tax and other tax credit carryforwards have
no expiration dates.
8. Retirement Plan
The Company has a defined contribution 401(k) savings plan which provides
for participation by substantially all the Company's employees who have
completed one year of service. The Company has elected to contribute an
amount equal to 55.0% in 2001, 50.0% in 2000 and 45.0% in 1999, of the
amount contributed by each participant up to the first six percent of
eligible compensation. Company matching contributions expensed in 2001,
2000 and 1999 were $4.7 million, $3.9 million and $3.1 million,
respectively.
In 1993, the Company added an Employee Stock Ownership Plan ("ESOP")
feature to its existing 401(k) savings plan. The ESOP used the proceeds of
a $3.2 million loan from the Company to purchase 200,000 shares of the
Company's common stock. The selling shareholder was the Company's principal
shareholder. Shares of common stock held by the ESOP were allocated to
participating employees annually for seven years, ending in 1999, as part
73
of the Company's 401(k) savings plan contribution. The fair value of the
shares allocated during the year was recognized as compensation expense. As
the program ended in 1999, the Company recognized no related compensation
expense in 2001 and 2000, but recognized $0.7 million in 1999.
9. Shareholders' Equity
Since 1994, the Company's Board of Directors has approved the repurchase of
up to 1,900,000 shares of the Company's common stock. As of December 31,
2001, the Company had repurchased 1,710,658 common shares at a cost of
$24.8 million.
The Company's 1993 Incentive Stock Plan for Key Employees (1993 Plan)
authorizes the grant of options for up to 900,000 shares of the Company's
common stock. The Company's 1996 Incentive Stock Plan for Key Employees
(1996 Plan) authorizes the grant of options for up to 3,000,000 shares of
the Company's common stock. The Company's 2000 Incentive Stock Plan for Key
Employees (2000 Plan) authorizes the grant of options for up to 3,000,000
shares of the Company's common stock. Options granted have five to 10-year
terms and generally vest and become fully exercisable over specified
periods of up to three years of continued employment.
A summary of common stock option changes follows:
Number Weighted-Average
of Shares Exercise Price
----------- -------------------
Outstanding at December 31, 1998 2,370,253 $ 9.38
----------- -------------------
Granted 582,510 26.33
Exercised (431,075) 8.56
Canceled (28,528) 15.02
----------- -------------------
Outstanding at December 31, 1999 2,493,160 13.41
----------- -------------------
Granted 638,550 15.69
Exercised (183,906) 8.61
Canceled (37,331) 17.88
----------- -------------------
Outstanding at December 31, 2000 2,910,473 14.19
----------- -------------------
Granted 106,600 12.21
Exercised (181,949) 9.18
Canceled (121,075) 21.60
----------- -------------------
Outstanding at December 31, 2001 2,714,049 $ 14.14
=========== ===================
Options exercisable at December 31, 1999 1,077,554 $ 10.04
=========== ===================
Options exercisable at December 31, 2000 1,741,092 $ 11.51
=========== ===================
Options exercisable at December 31, 2001 2,528,633 $ 13.80
=========== ===================
During 1996, the Company adopted the disclosure provisions of FASB
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("FAS 123") with respect to its stock options. As
permitted by FAS 123, the Company has elected to continue to account for
employee stock options following Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations. Under APB 25, because the exercise price of the Company's
74
employee stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
The weighted-average fair value of options granted during 2001, 2000 and
1999 is estimated at $5.44, $6.02 and $9.67 per share, respectively, on the
grant date. These estimates were made using the Black-Scholes option
pricing model with the following weighted-average assumptions for 2001,
2000 and 1999: risk-free interest rate of 3.59%, 5.06% and 6.29%; expected
market price volatility of 0.62, 0.51 and 0.46; weighted-average expected
option life of 1.04 years, 0.94 years and 0.92 years; estimated forfeitures
of 10.8%, 6.0% and 5.6%; and no dividends.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models use highly subjective assumptions, including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employees' stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period (1 to 3
years). The Company's pro forma information follows:
2001 2000 1999
------------------------------------------------
(In thousands, except per share data)
Net income (loss) available to common
shareholders as reported $ (81,885) $ (15,699) $ 47,342
Net income (loss) available to common shareholders
pro forma (83,696) (19,837) 42,340
Diluted income (loss) per share as reported (7.14) (1.31) 3.51
Diluted income (loss) per share pro forma (7.30) (1.66) 3.14
Options outstanding at December 31, 2001, expire from July
2003 to November 2011. A total of 2,840,658 shares are reserved for future
grants as of December 31, 2001, under the 1993, 1996 and 2000 Plans. The
following table summarizes information concerning outstanding and
exercisable options at December 31, 2001:
Range of Exercise Prices $6 - 8 $9 - 14 $15 - 19 $20 - 27
- ------------------------ ------ ------- -------- --------
Options outstanding:
Weighted-Average Remaining Contractual Life 5.6 years 5.7 years 6.8 years 7.0 years
Weighted-Average Exercise Price $ 8.17 $ 10.70 $ 15.87 $ 26.20
Number 840,327 681,872 679,750 512,100
Options exercisable:
Weighted-Average Exercise Price $ 8.18 $ 10.61 $ 15.87 $ 26.20
Number 836,827 645,872 600,534 445,400
75
10. Redeemable Preferred Stock
In the last half of 2000, the Company issued and sold 300 shares of Series
B convertible redeemable preferred stock, without par value ("Series B
Preferred"), at a price of $100,000 per share. The purchaser of the Series
B Preferred is entitled to cumulative quarterly dividends at an annual rate
of 5.0% on the liquidation amount ($100,000 per share) of the Series B
Preferred. The Series B Preferred is convertible into shares of the
Company's common stock at a conversion rate of 6,381.62 shares of common
stock per share of Series B Preferred, at a conversion price of $15.67 per
share of common stock, subject to antidilution adjustments. The Series B
Preferred is optionally redeemable by the Company under certain conditions,
but the Company must redeem the Series B Preferred no later than September
20, 2015. Optional redemption by the Company may occur at 103.6% of the
liquidation amount beginning September 20, 2003, decreasing 0.3% of the
liquidation amount per year to 100.0% of the liquidation amount at the
mandatory redemption date of September 20, 2015. Shares of Series B
Preferred have the right to vote on or consent to only the following
matters (in addition to any voting rights otherwise required by law): (1)
amendments to the Company's Articles of Incorporation which are adverse to
the holders of Series B Preferred; (2) if six quarterly dividends go
unpaid, the owner of Series B Preferred, together with the owner of Series
A Preferred (as defined below) and the owners of any other preferred stock
ranking equal to Series B Preferred, will be entitled to elect at the next
annual shareholders meeting 25% of the Company's Board of Directors, but no
less than two directors; and (3) increases in the number of authorized
shares of Series B Preferred and authorizations of preferred stock ranking
senior to Series B Preferred. Votes will be allocated among holders of
preferred stock based on the percentage owned by each holder of the total
liquidation amount of all series of preferred stock.
Also, in the last half of 2000, the Company issued and sold 500 shares of
Series A redeemable preferred stock, without par value ("Series A
Preferred"), at a price of $100,000 per share. The purchaser of the Series
A Preferred is entitled to cumulative semiannual dividends at an annual
rate of 8.44% on the liquidation amount ($100,000 per share) of the Series
A Preferred. The Series A Preferred is optionally redeemable by the Company
under certain conditions, but the Company must redeem the Series A
Preferred in equal semiannual payments beginning December 28, 2010, and
ending December 28, 2015. Optional redemption by the Company may occur at a
redemption premium of 50.0% of the dividend rate beginning December 28,
2003, decreasing 10.0% per year to 20.0% of the dividend rate commencing
December 28, 2006, and to 0.0% after the seventh year after issuance. Prior
to the third anniversary of issuance, the Company may redeem the Series A
Preferred with net proceeds of a public offering of the Company's common
stock. Shares of Series A Preferred have the right to vote on or consent to
only the following matters (in addition to any voting rights otherwise
required by law): (1) amendments to the Company's Articles of Incorporation
which are adverse to the holders of Series A Preferred; (2) if three
semiannual dividends go unpaid, the owner of Series A Preferred, together
with the owner of Series B Preferred and the owners of any other preferred
stock ranking equal to Series A Preferred, will be entitled to elect at the
next annual shareholders' meeting, 25% of the Company's Board of Directors,
but no less than three directors; (3) approval of (a) an acquisition by the
Company or one of its subsidiaries of assets and liabilities from a third
party the net asset value of which equals 10% of the Company's net
consolidated assets in its most recent publicly available balance sheet, or
(b) a merger by the Company or one of its subsidiaries with a third party
involving an acquisition or disposition of more than 10% of the Company's
consolidated net assets in its most recent publicly available balance sheet
(other than a disposition of all the Company's L-1011 or Boeing 727
aircraft) that, in either case, results in a downgrade of the Company's
credit rating by Moody's to "C1" or by Standard & Poor's to "C+," unless
the Company offers to redeem the Series A Preferred prior to that
transaction at a price equal to the liquidation amount plus accrued and
unpaid dividends to the redemption date; and (4) increases in the number of
authorized shares of Series A Preferred and authorizations of preferred
stock ranking senior to Series A Preferred. Votes will be allocated among
holders of preferred stock based on the percentage owned by each holder of
the total liquidation amount of all series of preferred stock. The Company
76
has the right on any date on which dividends are payable to exchange in
whole but not in part subordinated notes for shares of Series A Preferred;
the principal amount of any exchanged subordinated notes will equal the
liquidation amount of the shares of Series A Preferred, plus any accrued
and unpaid dividends.
11. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
2001 2000 1999
----------------------------------------------------------
Numerator:
Net income (loss) $ (76,317,000) $ (15,324,000) $ 47,342,000
Preferred stock dividends (5,568,000) (375,000) -
-------------- -------------- -------------
Income (loss) available to common shareholders $ (81,885,000) $ (15,699,000) $ 47,342,000
============== ============== =============
Denominator:
Denominator for basic earnings per share -
weighted average shares 11,464,125 11,956,532 12,269,474
Effect of dilutive securities:
Employee stock options - - 1,200,063
-------------- -------------- -------------
Dilutive potential securities - - 1,200,063
-------------- -------------- -------------
Denominator for diluted earnings per share
- adjusted weighted average shares 11,464,125 11,956,532 13,469,537
============== ============== =============
Basic earnings (loss) per share $ (7.14) $ (1.31) $ 3.86
============== ============== =============
Diluted earnings (loss) per share $ (7.14) $ (1.31) $ 3.51
============== ============== =============
Potentially dilutive securities of 2,467,511 and 1,160,066 in 2001 and
2000, respectively, were not included in the computation of diluted
earnings per share because these years resulted in a net loss, and
therefore, their effect would be antidilutive.
12. Commitments and Contingencies
In 2000, the Company entered into a series of agreements to purchase or
lease 39 new Boeing 737-800 aircraft and ten new Boeing 757-300 aircraft,
as well as the engines to power these new aircraft. The Boeing 737-800
aircraft are powered by General Electric CFM56-7B27 engines, and the Boeing
757-300 aircraft are powered by Rolls-Royce RB211-535 E4C engines. The
Company also received purchase rights for an additional 50 aircraft.
On December 27, 2001, the Company entered into an agreement to exercise
purchase rights on two Boeing 757-300 aircraft to be delivered in May and
June 2003. The Company has purchase rights remaining for eight Boeing
757-300 aircraft and 40 Boeing 737-800 aircraft.
The Company has a purchase agreement with the Boeing Company to purchase
directly from Boeing the 10 new Boeing 757-300s and 20 of the new Boeing
737-800s. The manufacturer's list price is $73.6 million for each 757-300
77
and $52.4 million for each 737-800, subject to escalation. The Company's
purchase price for each aircraft is subject to various discounts. To
fulfill its purchase obligations, the Company has arranged for each of
these aircraft, including the engines, to be purchased by third parties
that will, in turn, enter into long-term operating leases with the Company.
As of December 31, 2001, the Company had taken delivery of five Boeing
737-800s and five Boeing 757-300s obtained directly from Boeing. As a
result of the decreased demand for air travel due to the events of
September 11, 2001 (See "Note 2 - Impact of Terrorist Attacks on September
11, 2001"), the Company delayed planned delivery dates of certain Boeing
737-800 and Boeing 757-300 aircraft. The delivery dates of seven aircraft
were delayed by more than 12 months. All remaining aircraft to be purchased
directly from Boeing are now scheduled for delivery between January 2002
and August 2004, rather than May 2004 as previously agreed. Aircraft
pre-delivery deposits are required for these purchases, and the Company has
funded these deposits using operating cash and deposit finance facilities
(See "Note 5 - Long-Term Debt."). As of December 31, 2001, the Company had
$170.7 million in pre-delivery deposits outstanding for these aircraft, of
which $118.2 million was provided by deposit finance facilities with
various lenders. Upon delivery of the aircraft, pre-delivery deposits
funded with operating cash will be returned to the Company, and those
funded with deposit facilities will be used to repay those facilities.
The Company has entered into operating lease agreements with respect to 14
of the new Boeing 737-800s from International Lease Finance Corporation
("ILFC"). In conjunction with these lease agreements, the Company also
committed to purchase two spare General Electric aircraft engines from
ILFC. As of December 31, 2001, the Company has taken delivery of six Boeing
737-800s that are being leased from ILFC. The remaining aircraft under
these operating lease agreements are scheduled for delivery between January
2002 and May 2004. Both spare engines were received in 2001 and were
financed with an operating lease.
The Company has an agreement to lease five of the new Boeing 737-800s from
GE Capital Aviation Services ("GECAS"). As of December 31, 2001, the
Company has taken delivery of three Boeing 737-800 aircraft that are being
leased from GECAS. The two remaining aircraft, to be financed through GECAS
operating leases, are scheduled for delivery in 2002.
The Company has committed to purchase an additional four spare General
Electric aircraft engines from the engine manufacturer. The spare engines
under this agreement are scheduled for delivery between 2003 and 2006. The
Company has committed to purchase an additional two spare Rolls Royce
engines from the engine manufacturer. The first spare engine was received
in the third quarter of 2001 and was financed with an operating lease. The
second engine is scheduled for delivery in 2002.
In March 2001, the Company entered into a limited liability company
agreement with Boeing Capital Corporation ("BCC") to form BATA Leasing LLC
("BATA") a 50/50 joint venture. Because the Company does not control BATA,
the Company's investment is being accounted for under the equity method.
BATA will remarket the Company's fleet of 24 Boeing 727-200 aircraft in
either passenger or cargo configurations. In exchange for supplying the
aircraft and certain operating services to BATA, the Company has and will
continue to receive both cash and equity in the income or loss of BATA. The
Company transferred 12 Boeing 727-200 aircraft to BATA in 2001. The Company
expects to transfer most of the remaining 12 Boeing 727-200 aircraft to
BATA in the first half of 2002. Also in 2001, the Company entered into
short-term operating leases with BATA on nine of the 12 transferred
aircraft. As of December 31, 2001, eight of the nine leases had terminated,
and the Company continued to operate one of these aircraft. The Company is
subject to lease return conditions on these nine operating leases upon
delivery of any related aircraft to a third party by BATA. As of December
31, 2001, a third-party lessee or buyer has not been identified for any of
these aircraft. Management believes it is reasonably possible that a lessee
or buyer will be identified. The Company estimates that it could incur
approximately $7.0 million of expense to meet the return conditions, if all
78
nine of the aircraft were leased by BATA to third parties. No liability has
been recorded for these return conditions.
Various claims, contractual disputes and lawsuits against the Company arise
periodically involving complaints which are normal and reasonably
foreseeable in light of the nature of the Company's business. The majority
of these suits are covered by insurance. In the opinion of management, the
resolution of these claims will not have a material adverse effect on the
business, operating results or financial condition of the Company.
13. Acquisition of Businesses
On January 26, 1999, the Company acquired all of the issued and outstanding
stock of T. G. Shown Associates, Inc., which then owned 50% of the Amber
Air Freight partnership. The Company already owned the other 50% of the
partnership.
On January 31, 1999, the Company purchased the membership interests of
Travel Charter International, LLC ("TCI"), a Detroit-based independent tour
operator. ATA had been providing passenger airline services to TCI for over
14 years. TCI's results of operations, beginning February 1999, were
consolidated into the Company.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Agency Access Training Center, Inc. ("AATC") and Key Tours Las
Vegas, Inc. ("KTLV"), and additionally purchased the majority of the
current assets and current liabilities of Keytours, Inc. ("KTI"), a
Canadian corporation. All three companies (AATC, KTLV and KTI) were
previously under common control and jointly operated an independent tour
business in the Detroit metropolitan area using the brand name of Key
Tours. ATA had been providing passenger airline services to Key Tours for
over 15 years. Beginning May 1999, the results of operations of Key Tours'
brand were consolidated into the Company.
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Chicago Express Airlines, Inc. ("Chicago Express"). The Company
had maintained a code-share agreement with Chicago Express since April
1997. Chicago Express' results of operations, beginning May 1999, were
consolidated into the Company.
The Company paid approximately $16.1 million in cash and issued $1.9
million in stock for the purchase of all acquisitions discussed above,
which were accounted for using the purchase method of accounting.
14. Segment Disclosures
During 1999, the Company acquired several independent tour operator
businesses and combined their operations with the Company's existing
vacation package brand, ATA Vacations. (See "Note 13 - Acquisition of
Businesses.") These companies comprise the ATA Leisure Corp. ("ATALC").
The Company identifies its segments on the basis of similar products and
services. The airline segment derives its revenues primarily from the sale
of scheduled service or charter air transportation. ATALC derives its
revenues from the sale of vacation packages, which, in addition to air
transportation, include hotels and other ground arrangements. ATALC
purchases air transportation for its vacation packages from ATA and other
airlines.
The Company's revenues are derived principally from customers domiciled in
the United States.
79
The most significant component of the Company's property and equipment is
aircraft and related improvements and parts. All aircraft are registered in
the United States. The Company therefore considers all property and
equipment to be domestic.
The United States Government is the only customer that accounted for more
than 10.0% of consolidated revenues. U.S. Government revenues accounted for
13.1%, 14.6% and 11.2% of consolidated revenues for 2001, 2000 and 1999,
respectively.
Segment financial data as of and for the years ended December 31, 2001,
2000 and 1999 follows:
For the Year Ended December 31, 2001
Other/
Airline ATALC Eliminations Consolidated
------------ ------------ ------------- -------------
(in thousands)
Operating revenue (external) $ 1,127,400 $ 71,893 $ 76,191 $ 1,275,484
Inter-segment revenue 34,626 2,031 (36,657) -
Operating expenses (external) 1,245,802 56,941 64,611 1,367,354
Inter-segment expenses 7,514 19,071 (26,585) -
Operating income (loss) (91,290) (2,088) 1,508 (91,870)
Segment assets (at year-end) 1,156,428 162,349 (315,815) 1,002,962
For the Year Ended December 31, 2000
Other/
Airline ATALC Eliminations Consolidated
------------ ------------ ------------- -------------
(in thousands)
Operating revenue (external) $ 1,132,031 $ 95,357 $ 64,165 $ 1,291,553
Inter-segment revenue 58,140 3,212 (61,352) -
Operating expenses (external) 1,162,084 66,995 59,904 1,288,983
Inter-segment expenses 7,260 43,251 (50,511) -
Operating income (loss) 20,827 (11,677) (6,580) 2,570
Segment assets (at year-end) 1,109,042 120,496 (197,108) 1,032,430
80
For the Year Ended December 31, 1999
Other/
Airline ATALC Eliminations Consolidated
------------ ------------ ------------- -------------
(in thousands)
Operating revenue (external) $ 972,081 $ 94,840 $ 55,445 $ 1,122,366
Inter-segment revenue 42,970 4,985 (47,955) -
Operating expenses (external) 919,833 69,925 42,581 1,032,339
Inter-segment expenses 7,045 32,516 (39,561) -
Operating income (loss) 88,173 (2,616) 4,470 90,027
Segment assets (at year-end) 821,373 47,945 (54,037) 815,281
15. Fuel Price Risk Management
During 2001, 2000 and 1999, the Company entered into fuel hedge contracts
to minimize the risk of fuel price fluctuation. The extent to which fuel
has been hedged and the type of hedge instruments used has varied. In early
1999, the Company hedged fuel using swap agreements, which establish
specific swap prices for designated periods, and fuel cap agreements, which
guarantee a maximum price per gallon for designated periods. Beginning in
the fourth quarter of 2000, the Company again entered into fuel hedge
contracts, this time exclusively hedging fuel price using heating oil
swaps.
During 2000 and 1999, the Company accounted for fuel hedge contracts in
accordance with FASB Statement of Financial Accounting Standards No. 80,
Accounting for Futures Contracts ("FAS 80"). According to FAS 80, changes
in the market value of the hedge contracts are recognized in income when
the effects of related changes in the price of the hedged item are
recognized. Therefore, the Company recorded gains or losses on fuel hedge
contracts as a component of fuel expense in the month of settlement.
Effective January 1, 2001, the Company adopted FASB Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended ("FAS 133"). FAS 133 requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitments through
earnings or recognized in other comprehensive income until the hedged item
is recognized in earnings. The ineffective portion of a derivative's change
in fair value must be immediately recognized in earnings.
The Company's heating oil swap agreements have initial maturities of up to
12 months. As of December 31, 2001, the Company's existing instruments had
remaining maturities of up to six months. In accordance with FAS 133, the
Company accounts for its heating oil swap agreements as cash flow hedges.
Upon the adoption of FAS 133, the fair value of the Company's fuel hedging
contracts representing the amount the Company would pay if the agreements
were terminated was $0.6 million. The Company recorded this amount, net of
income taxes of $0.2 million, in other assets and other current
liabilities, with a corresponding entry of the net fair value in
accumulated other comprehensive income on the consolidated balance sheet.
All changes in fair value of the heating oil swap agreements during 2001
were effective for purposes of FAS 133, so these valuation changes were
recognized throughout the year in other comprehensive loss and were
included in earnings as a component of fuel expense only upon settlement of
each agreement.
81
During 2001, the Company recognized hedging losses on settled contracts in
fuel expense of approximately $2.6 million. The fair value of the Company's
fuel hedging agreements at December 31, 2001, representing the amount the
Company would pay if the agreements were terminated, totaled $1.1 million,
which, net of income taxes of approximately $0.4 million, represents the
balance of other comprehensive loss of $0.7 million in the consolidated
balance sheet at December 31, 2001.
16. Asset Impairment
Following the events of September 11, 2001, the Company decided to retire
the Boeing 727-200 fleet earlier than originally planned, in order to
adjust its fleet size to a reduced flight schedule. Most of these aircraft
were retired from revenue service in the fourth quarter of 2001, although
some are being used for charter service through the first half of 2002. In
accordance with FASB Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of ("FAS 121"), the Company determined that the
estimated future undiscounted cash flows expected to be generated by the
Boeing 727-200s were less than the current net book value of these aircraft
and the related rotable parts and inventory. Therefore, these assets were
impaired under FAS 121. During the third quarter of 2001, the Company
recorded an asset impairment charge of $35.2 million to reduce the carrying
amount of the Boeing 727-200 aircraft and related assets to their estimated
fair market value, including those aircraft which had been previously
transferred to the joint venture BATA. During the fourth quarter of 2001,
the Company recorded an additional asset impairment charge of $9.3 million
to reflect a further decline in estimated fair market value of the assets.
The carrying amount of those assets not yet transferred to BATA has been
classified as assets held for sale in the accompanying balance sheet in
accordance with FAS 121.
Also in the fourth quarter of 2001, the Company determined that the
estimated future undiscounted cash flows expected to be generated by the
Lockheed L-1011-50 and 100 fleet was less than the current net book value
of these aircraft and the related rotable parts and inventory. Therefore,
these assets were impaired under FAS 121. During the fourth quarter of
2001, the Company recorded an asset impairment charge of $67.8 million to
reduce the carrying amount of the Lockheed L-1011-50 and 100 aircraft and
related assets to their estimated fair market value. The carrying amount of
those assets has been classified as assets held for use and appears in the
property and equipment section of the accompanying consolidated balance
sheet in accordance with FAS 121. These assets will be depreciated in
conjunction with the planned fleet retirement schedule.
17. Goodwill and Other Intangible Assets
Goodwill represents the excess of cost over the fair value of net assets
acquired (See Note 13, "Acquisition of Businesses.") The Company amortizes
goodwill on a straight-line basis over 20 years in accordance with APB 17.
The Company recorded goodwill amortization expense of $1.3 million in both
2001 and 2000, and $0.9 million in 1999.
The Company periodically reviews the carrying value of goodwill and other
intangible assets to assess their recoverability in accordance with APB 17
and FAS 121. The Company has no material intangible assets other than
goodwill on its accompanying balance sheets. The Company's policy is to
record an impairment loss when it is determined that the carrying amount of
the asset may not be recoverable. No impairment losses related to goodwill
or intangible assets were recognized in 2001, 2000 or 1999.
In June 2001, the FASB issued Statements of Financial Accounting Standards
No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible
Assets, ("FAS 142"), effective for fiscal years beginning after December
15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized, but will be subject to
annual impairment reviews.
82
The Company will adopt FAS 142 in the first quarter of 2002. The Company
has not yet determined what the effect of these impairment tests will be,
if any, on the results of operations and financial position of the Company.
Financial Statements and Supplementary Data
Amtran, Inc. and Subsidiaries
2001 Quarterly Financial Summary
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 3/31 6/30 9/30 (1) 12/31(1)
- --------------------------------------------------------------------------------------------------------------------
Operating revenues $ 347,485 $ 358,895 $ 321,469 $ 247,635
Operating expenses 349,719 342,336 317,017 358,282
Operating income (loss) (2,234) 16,559 4,452 (110,647)
Other expenses (5,459) (5,828) (4,048) (8,862)
Income (loss) before income taxes (7,693) 10,731 404 (119,509)
Income taxes (credits) (3,309) 4,200 16 (40,657)
Preferred stock dividends 375 2,333 375 2,485
Income (loss) available to common shareholders $ (4,759) $ 4,198 $ 13 $ (81,337)
Net income (loss) per common share - basic $ (0.42) $ 0.37 $ 0.00 $ (7.05)
Net income (loss) per common share - diluted $ (0.42) $ 0.33 $ 0.00 $ (7.05)
(1) During 2001, several nonrecurring events resulted in significant charges and
credits to operating loss. See "Financial Statements and Supplementary Data -
Notes to Consolidated Financial Statements - Note 2 - Impact of Terrorist
Attacks on September 11, 2001" and "Financial Statements - Notes to Consolidated
Financial Statements and Supplementary Data- Note 16 - Asset Impairment."
Financial Statements and Supplementary Data
Amtran, Inc. and Subsidiaries
2000 Quarterly Financial Summary
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 3/31 6/30 9/30 12/31
- --------------------------------------------------------------------------------------------------------------------
Operating revenues $ 321,366 $ 333,534 $ 347,301 $ 289,352
Operating expenses 318,802 314,912 332,610 322,659
Operating income (loss) 2,564 18,622 14,691 (33,307)
Other expenses (5,635) (6,073) (5,597) (5,196)
Income (loss) before income taxes (3,071) 12,549 9,094 (38,503)
Income taxes (credits) (1,117) 6,680 6,112 (16,282)
Preferred stock dividends - - - 375
Income (loss) available to common shareholders $ (1,954) $ 5,869 $ 2,982 $ (22,596)
Net income (loss) per common share - basic $ (0.16) $ 0.48 $ 0.25 $ (1.96)
Net income (loss) per common share - diluted $ (0.16) $ 0.46 $ 0.23 $ (1.96)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
No change of auditors or disagreements on accounting methods have occurred which
would require disclosure hereunder.
83
PART III
Item 10.Directors and Officers of the Registrant
Incorporated herein by reference from the Company's proxy statement for the
annual meeting of stockholders to be held on May 13, 2002.
Item 11. Executive Compensation
Incorporated herein by reference from the Company's proxy statement for the
annual meeting of stockholders to be held on May 13, 2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the Company's proxy statement for the
annual meeting of stockholders to be held on May 13, 2002.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from the Company's proxy statement for the
annual meeting of stockholders to be held on May 13, 2002.
84
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) (1) Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries are included in Item 8:
o Consolidated Balance Sheets for the years ended December 31, 2001
and 2000
o Consolidated Statements of Operations for the years ended December
31, 2001, 2000 and 1999
o Consolidated Statements of Changes in Redeemable Preferred Stock,
Common Stock and Other Shareholders' Equity for the years
ended December 31, 2001, 2000 and 1999
o Consolidated Statements of Cash Flows for the years ended December
31, 2001, 2000 and 1999
o Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
The following consolidated financial information for the years 2001,
2000 and 1999 is included in Item 14d:
Page
o Schedule II - Valuation and Qualifying Accounts 87
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
(3) Exhibits
Exhibits are filed as a separate section of this report as set forth
in the Index to Exhibits attached to this report.
(b) Reports on Form 8-K filed during the quarter ending December 31, 2001:
Report filed on October 2, 2001, furnishing items under Item 5. Other
Events and Item 7. Financial Statements and Exhibits.
Report filed on October 5, 2001, furnishing items under Item 5. Other
Events and Item 7. Financial Statements and Exhibits.
Report filed on October 5, 2001, furnishing items under Item 7.
Financial Statements and Exhibits and Item 9. Regulation FD
Disclosure.
Report filed on December 20, 2001, furnishing items under Item 9.
Regulation FD Disclosure.
85
(c) Exhibits
See the Index to Exhibits attached to this report.
(d) Financial Statement Schedule
See Schedule II - Valuation and Qualifying Accounts.
86
Item 14d. Valuation and Qualifying Accounts. Schedule II
(Dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------ -------------- -------------------------- -------------- ---------------
Additions
--------------------------
Charged to
Balance at Charged to Other
Beginning of Costs and Accounts - Deductions - Balance at
Description Period Expenses Describe Describe End of Period
- ------------------------------------------------ -------------- ------------ ------------ -------------- ---------------
Year ended December 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts . . . . 1,163 2,318 - 1,970 (1) 1,511
Allowance for obsolescence - Inventory . 8,441 1,872 - 22 (2) 10,291
-------------- ------------ ------------ -------------- ---------------
Totals . . . . . . . . . . . . . . . . . . $ 9,604 $ 4,190 $ - $ 1,992 $ 11,802
============== ============ ============ ============== ===============
Year ended December 31, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts . . . . 1,511 2,431 - 2,751 (1) 1,191
Allowance for obsolescence - Inventory . 10,291 3,466 - 645 (2) 13,112
-------------- ------------ ------------ -------------- ---------------
Totals . . . . . . . . . . . . . . . . . . $ 11,802 $ 5,897 $ - $ 3,396 $ 14,303
============== ============ ============ ============== ===============
Year ended December 31, 2001:
Deducted from asset accounts:
Allowance for doubtful accounts . . . . 1,191 2,213 - 1,878 (1) 1,526
Allowance for obsolescence - Inventory . 13,112 3,481 - 5,688 (2) 10,905
-------------- ------------ ------------ -------------- ---------------
Totals . . . . . . . . . . . . . . . . . . $ 14,303 $ 5,694 $ - $ 7,566 $ 12,431
============== ============ ============ ============== ===============
(1) Uncollectible accounts written off, net of recoveries.
(2) Reduction of obsolescence allowance in 2001 of $5.4 million resulted from the FAS 121 impairment write down of Lockheed
L-1011-50 and 100 inventory and Boeing 727-200 inventory. The remainder of the 2001 reduction in obsolescence allowance, and the
reduction in 2000 and 1999, related to inventory items transferred to flight equipment or sold.
87
Signatures
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTRAN, INC.
------------------------------------------------------
(Registrant)
Date March 29, 2002 by /s/ J. George Mikelsons
----------------- ------------------------------------------------------
J. George Mikelsons
Chairman
On behalf of the Registrant and as Director
Date March 29, 2002 /s/ John P. Tague
----------------- ------------------------------------------------------
John P. Tague
President and Chief Executive Officer
Director
Date March 29, 2002 /s/ James W. Hlavacek
----------------- ------------------------------------------------------
James W. Hlavacek
Executive Vice President and
Chief Operating Officer
Director
Date March 29, 2002 /s/ Kenneth K. Wolff
----------------- ------------------------------------------------------
Kenneth K. Wolff
Executive Vice President and
Chief Financial Officer
Director
Date March 29, 2002 /s/ Robert A. Abel
----------------- ------------------------------------------------------
Robert A. Abel
Director
Date March 29, 2002 /s/ Claude E. Willis
----------------- ------------------------------------------------------
Claude E.Willis
Director
Date March 29, 2002 /s/ Andrejs P. Stipnieks
----------------- ------------------------------------------------------
Andrejs P. Stipnieks
Director
Date March 29, 2002 /s/ David M. Wing
----------------- ------------------------------------------------------
David M. Wing
Vice President and Controller
Chief Accounting Officer
Index to Exhibits
Exhibit No.
2.1 Agreement and Plan of Merger between INDUS Acquisition Company and
Amtran, Inc. (incorporated by reference to Annex A to the Preliminary
Proxy Statement on Schedule 14A filed by Amtran, Inc. on June 29,
2001).
3.(i)(a) Restated Articles of Incorporation of Amtran, Inc. (incorporated by
reference to Exhibit 3(a) to Amtran, Inc.'s Registration Statement on
S-1 dated March 16, 1993, File No. 33-59630).
3.(i)(b) Articles of Amendment to the Restated Articles of Incorporation
adopted as of September 19, 2000.(incorporated by reference to Exhibit
3.(i)(b) to Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001,
File No. 000-21642).
3.(i)(c) Articles of Amendment to the Restated Articles of Incorporation
adopted as of December 28, 2000. (incorporated by reference to Exhibit
3.(i)(c) to Amtran, Inc.'s Annual Report on 10-K dated April 2, 2001,
File No. 000-21642).
3(ii) Bylaws of Amtran, Inc., as amended, (incorporated by reference to
Exhibit 3(b) to Amtran, Inc.'s Registration Statement on S-1 dated
March 16, 1993, File No. 33-59630).
4.1 Indenture dated as of July 24, 1997, by and among Amtran, Inc., as
issuer, American Trans Air, Inc., Ambassadair Travel Club, Inc., ATA
Vacations, Inc., Amber Travel, Inc., American Trans Air Training
Corporation, American Trans Air ExecuJet, Inc. and Amber Air Freight
Corporation, as guarantors, and First Security Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.1 to Amtran, Inc.'s
Registration Statement on S-4 dated October 6, 1997, File No.
333-37283).
4.2 Indenture dated as of December 11, 1998, by and among Amtran, Inc., as
issuer, American Trans Air, Inc., Ambassadair Travel Club, Inc., ATA
Vacations, Inc., Amber Travel, Inc., American Trans Air Training
Corporation, American Trans Air ExecuJet, Inc. and Amber Air Freight
Corporation, as guarantors, and First Security Bank, N.A., as trustee
(incorporated by reference to Exhibit 4.4 to Amtran, Inc.'s
Registration Statement on S-3 dated August 26, 1998, File No.
333-52655).
4.3 First Supplemental Indenture dated as of December 11, 1998, by and
among Amtran, Inc., as issuer, American Trans Air, Inc., Ambassadair
Travel Club, Inc., ATA Vacations, Inc., Amber Travel, Inc., American
Trans Air Training Corporation, American Trans Air ExecuJet, Inc. and
Amber Air Freight Corporation, as guarantors, and First Security Bank,
N.A., as trustee, to the Indenture dated as of December 11, 1998
(incorporated by reference to Exhibit 4.4 to Amtran, Inc.'s
Registration Statement on S-3 dated August 26, 1998, File No.
333-52655).
4.4 First Supplemental Indenture dated as of December 21, 1999, by and
among Amtran, Inc., as issuer, American Trans Air, Inc., Ambassadair
Travel Club, Inc., ATA Vacations, Inc., Amber Travel, Inc., American
Trans Air Training Corporation, American Trans Air ExecuJet, Inc. and
Amber Air Freight Corporation, Chicago Express Airlines, Inc., as
guarantors, and First Security Bank, N.A., as trustee, to the
Indenture dated as of July 24, 1997 (incorporated by reference to
Exhibit 4.1 to Amtran, Inc.'s Registration Statement on S-4 dated
January 25, 2000, File No. 333-95371).
4.5 Pass Through Trust Agreement, dated as of February 15, 2000, between
American Trans Air, Inc. and Wilmington Trust Company, as Trustee,
made with respect to the formation of American Trans Air 2000-1G-O
Pass Through Trust and the issuance of 8.039% Initial American Trans
Air 2000-1G-O Pass Through Trust Certificates and 8.039% Exchange
American Trans Air 2000-1G-O Pass Through Certificates (incorporated
by reference to Exhibit 4.5 to Amtran, Inc.'s Registration Statement
on S-4 dated August 11, 2000, File No. 333-43606).
4.6 Pass Through Trust Agreement, dated as of February 15, 2000, between
American Trans Air, Inc. and Wilmington Trust Company, as Trustee,
made with respect to the formation of American Trans Air 2000-1G-S
Pass Through Trust and the issuance of 8.039% Initial American Trans
Air 2000-1G-S Pass Through Certificates and 8.039% Exchange American
Trans Air 2000-1G-S Pass Through Certificates (incorporated by
reference to Exhibit 4.6 to Amtran, Inc.'s Registration Statement on
S-4 dated August 11, 2000, File No. 333-43606).
4.7 Pass Through Trust Agreement, dated as of February 15, 2000, between
American Trans Air, Inc. and Wilmington Trust Company, as Trustee,
made with respect to the formation of American Trans Air 2000-1C-O
Pass Through Trust and the issuance of 9.644% Initial American Trans
Air 2000-1C-O Pass Through Certificates and 9.644% Exchange American
Trans Air 2000-1C-O Pass Through Certificates (incorporated by
reference to Exhibit 4.7 to Amtran, Inc.'s Registration Statement on
S-4 dated August 11, 2000, File No. 333-43606).
4.8 Pass Through Trust Agreement, dated as of February 15, 2000, between
American Trans Air, Inc. and Wilmington Trust Company, as Trustee,
made with respect to the formation of American Trans Air 2000-1C-S
Pass Through Trust and the issuance of 9.644% Initial American Trans
Air 2000-1C-S Pass Through Certificates and 9.644% Exchange American
Trans Air 2000-1C-S Pass Through Certificates (incorporated by
reference to Exhibit 4.8 to Amtran, Inc.'s Registration Statement on
S-4 dated August 11, 2000, File No. 333-43606).
4.9 Purchase and Investor Rights Agreement dated as of December 13, 2000,
between Amtran, Inc. and Boeing Capital Corporation. (incorporated by
reference to Exhibit 4.9 to Amtran, Inc.'s Annual Report on 10-K dated
April 2, 2001, File No. 000-21642).
4.10 Purchase and Investor Rights Agreement dated as of September 19, 2000,
between Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 4.10 to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642).
4.11 Pass Through Trust Agreement, dated as of December 16, 1996, among
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company,
as Trustee, made with respect to the formation of American Trans Air
1996-1A Pass Through Trust and the issuance of 7.37% American Trans
Air 1996-1A Pass Through Trust Certificates. (incorporated by
reference to Exhibit 4.11 to Amtran, Inc.'s Annual Report on 10-K
dated April 2, 2001, File No. 000-21642).
4.12 Pass Through Trust Agreement, dated as of December 16, 1996, among
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company,
as Trustee, made with respect to the formation of American Trans Air
1996-1B Pass Through Trust and the issuance of 7.64% American Trans
Air 1996-1B Pass Through Trust Certificates. (incorporated by
reference to Exhibit 4.12 to Amtran, Inc.'s Annual Report on 10-K
dated April 2, 2001, File No. 000-21642).
4.13 Pass Through Trust Agreement, dated as of December 16, 1996, among
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company,
as Trustee, made with respect to the formation of American Trans Air
1996-1C Pass Through Trust and the issuance of 7.82% American Trans
Air 1996-1C Pass Through Trust Certificates. (incorporated by
reference to Exhibit 4.13 to Amtran, Inc.'s Annual Report on 10-K
dated April 2, 2001, File No. 000-21642).
4.14 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company,
as Trustee, made with respect to the formation of American Trans Air
1997-1A-O Pass Through Trust and the issuance of 6.99% American Trans
Air 1997-1A-O Pass Through Trust Certificates. (incorporated by
reference to Exhibit 4.14 to Amtran, Inc.'s Annual Report on 10-K
dated April 2, 2001, File No. 000-21642).
4.15 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company,
as Trustee, made with respect to the formation of American Trans Air
1997-1A-S Pass Through Trust and the issuance of 6.99% American Trans
Air 1997-1A-S Pass Through Trust Certificates. (incorporated by
reference to Exhibit 4.15 to Amtran, Inc.'s Annual Report on 10-K
dated April 2, 2001, File No. 000-21642).
4.16 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company,
as Trustee, made with respect to the formation of American Trans Air
1997-1B-O Pass Through Trust and the issuance of 7.19% American Trans
Air 1997-1B-O Pass Through Trust Certificates. (incorporated by
reference to Exhibit 4.16 to Amtran, Inc.'s Annual Report on 10-K
dated April 2, 2001, File No. 000-21642).
4.17 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company,
as Trustee, made with respect to the formation of American Trans Air
1997-1B-S Pass Through Trust and the issuance of 7.19% American Trans
Air 1997-1B-S Pass Through Trust Certificates. (incorporated by
reference to Exhibit 4.17 to Amtran, Inc.'s Annual Report on 10-K
dated April 2, 2001, File No. 000-21642).
4.18 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company,
as Trustee, made with respect to the formation of American Trans Air
1997-1C-O Pass Through Trust and the issuance of 7.46% American Trans
Air 1997-1C-O Pass Through Trust Certificates. (incorporated by
reference to Exhibit 4.18 to Amtran, Inc.'s Annual Report on 10-K
dated April 2, 2001, File No. 000-21642).
4.19 Pass Through Trust Agreement, dated as of December 23, 1997, between
Amtran, Inc., American Trans Air, Inc. and Wilmington Trust Company,
as Trustee, made with respect to the formation of American Trans Air
1997-1C-S Pass Through Trust and the issuance of 7.46% American Trans
Air 1997-1C-S Pass Through Trust Certificates. (incorporated by
reference to Exhibit 4.19 to Amtran, Inc.'s Annual Report on 10-K
dated April 2, 2001, File No. 000-21642).
4.20 Form of Common Stock Certificate of Amtran, Inc. (incorporated by
reference to Exhibit 4 to Amtran, Inc.'s Registration Statement on S-1
dated March 16, 1993, File No. 33-59630).
4.21 Form of Series A1 Preferred Stock Certificate of Amtran, Inc.
(incorporated by reference to Exhibit 4.21 to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642).
4.22 Form of Series B Preferred Stock Certificate of Amtran, Inc.
(incorporated by reference to Exhibit 4.22 to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642).
4.23 Form of 1996 Class A American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.11).
4.24 Form of 1996 Class B American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.12).
4.25 Form of 1996 Class C American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.13).
4.26 Form of 1997 Class A American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.14).
4.27 Form of 1997 Class B American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.16).
4.28 Form of 1997 Class C American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.18).
4.29 Form of 2000 Class G American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.5).
4.30 Form of 2000 Class C American Trans Air, Inc. Pass Through
Certificates (included in Exhibit 4.7)
4.31 Amtran, Inc. hereby agrees to furnish to the Commission, upon request,
copies of certain additional instruments relating to long-term debt of
the kind described in Item 601(b)(4)(iii)(A) of Regulation S-K.
10.1 1993 Incentive Stock Plan for Key Employees of Amtran, Inc. and its
Subsidiaries (incorporated by reference to Exhibit 10(r)(r) to Amtran,
Inc.'s Registration Statement on S-1 dated March 16, 1993, File No.
33-59630).
10.2 1996 Incentive Stock Plan for Key Employees of Amtran, Inc. and its
Subsidiaries (incorporated by reference to Amtran, Inc.'s Registration
Statement on S-8 dated June 20, 1997, File No. 333-29715).
10.3 2000 Incentive Stock Plan for Key Employees of Amtran, Inc. and its
Subsidiaries (incorporated by reference to Exhibit A to Amtran, Inc.'s
Proxy Statement dated April 5, 2000).
10.4 Stock Option Plan for Non-Employee Directors (incorporated by
reference to Appendix A to Amtran, Inc.'s Proxy Statement dated April
15, 1994).
10.5 Aircraft General Terms Agreement dated as of June 30, 2000, between
The Boeing Company ("Boeing") and American Trans Air, Inc.; Purchase
Agreement Number 2285 dated as of June 30, 2000, between Boeing and
American Trans Air, Inc.; Purchase Agreement Number 2262 dated as of
June 30, 2000, between Boeing and American Trans Air, Inc.
(incorporated by reference to Exhibit 10.5 to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(a) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(a) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(b) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(b) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(c) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(c) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(d) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(d) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(e) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(e) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(f) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(f) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(g) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(g) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(h) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(h) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(i) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International LeaseFinance Corporation. (incorporated
by reference to Exhibit 10.6(i) to Amtran, Inc.'s Annual Report on
10-K dated April 2, 2001, File No. 000-21642). *
10.6(j) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(j) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(k) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(k) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(l) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(l) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(m) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(m) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.6(n) Aircraft Lease Agreement dated as of September 20, 2000, between
Amtran, Inc. and International Lease Finance Corporation.
(incorporated by reference to Exhibit 10.6(n) to Amtran, Inc.'s Annual
Report on 10-K dated April 2, 2001, File No. 000-21642). *
10.7 Aircraft Financing Agreement dated as of December 6, 2000, between
Amtran, Inc. and General Electric Capital Corporation. (incorporated
by reference to Exhibit 10.7 to Amtran, Inc.'s Annual Report on 10-K
dated April 2, 2001, File No. 000-21642). *
10.8 Limited Liability Company Agreement dated as of March 13, 2001,
between Amtran, Inc. and Boeing Capital Corporation to form BATA
Leasing LLC. (incorporated by reference to Exhibit 10.1.1 to Amtran,
Inc.'s Quarterly Annual Report on 10-Q dated May 15, 2001, File No.
000-21642). *
10.9 Purchase and Voting Agreement dated as of May 16, 2001 between Amtran,
Inc., and ILFC (incorporated by reference to Exhibit 99.2 to the 8-K
dated May 16, 2001).
10.10 Commitment Letter dated June 18, 2001, from Salomon Smith Barney Inc.,
and Citicorp USA, Inc. to Amtran, Inc. (incorporated by reference to
Exhibit 2 to the Schedule 13D filed by Amtran, Inc., J. George
Mikelsons and INDUS Acquisition Company on June 21, 2001).
21 Subsidiaries of Amtran, Inc.
23 Consent of Independent Auditors.
*Portions of these exhibits have been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-52655) of Amtran, Inc. and its subsidiaries and in the related
Prospectus, in the Registration Statement (Form S-8 No. 33-65708) pertaining to
the 1993 Incentive Stock Plan for Key Employees of Amtran, Inc. and its
subsidiaries and in the Registration Statement (Form S-3 No. 333-86791) of
Amtran, Inc. and its subsidiaries and in the related Prospectus of our report
dated January 22, 2002, with respect to the consolidated financial statements
and schedule of Amtran, Inc., included in the Annual Report (Form 10-K) for the
year ended December 31, 2001.
/S/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 27, 2002