AIRTRAN HOLDINGS INC - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q
(Mark One) [Ö ]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ______________

AirTran Holdings, Inc.
(Exact name of registrant as specified in its charter)
State of Incorporation: Nevada

9955 AirTran Boulevard, Orlando, Florida  32827
(Address of principal executive offices)  (Zip Code)

(407) 251-5600
(Registrant's telephone number, including area code)

Commission file number: 1-15991     I.R.S. Employer Identification No: 58-2189551

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes Ö No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes Ö No

As of April 30, 2004 there were approximately 84,492,000 shares of the registrant's common stock outstanding.

AIRTRAN HOLDINGS, INC.

Form 10-Q

For the Quarter Ended March 31, 2004

INDEX

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income - Three months ended March 31, 2004 and 2003 (unaudited)	3

	Condensed Consolidated Balance Sheets - March 31, 2004 (unaudited) and December 31, 2003	4

	Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2004 and 2003 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Controls and Procedures	17

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	18

Item 6.	Exhibits and Reports on Form 8-K	18

AirTran Holdings, Inc. Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited)
				Three Months Ended March 31,
				2004			2003
Operating Revenues:
	Passenger		$	233,503		$	201,900
	Cargo			--			383
	Other			7,903			5,719
		Total operating revenues		241,406			208,002

Operating Expenses:
	Salaries, wages and benefits			62,842			54,591
	Aircraft fuel			51,540			47,144
	Aircraft rent			35,936			26,419
	Maintenance, materials and repairs			19,010			15,079
	Distribution			11,948			10,772
	Landing fees and other rents			13,873			11,484
	Aircraft insurance and security services			5,314			5,550
	Marketing and advertising			7,602			7,077
	Depreciation			2,884			3,322
	Other operating			20,181			18,186
		Total operating expenses		231,130			199,624
Operating Income				10,276			8,378

Other (Income) Expense:
	Interest income			(1,004	)		(527	)
	Interest expense			4,647			6,869
		Other expense, net		3,643			6,342

Income Before Income Taxes				6,633			2,036
Income tax expense				2,520			--
Net Income			$	4,113		$	2,036
				=======			=======
Earnings per Common Share
	Basic		$	0.05		$	0.03
	Diluted		$	0.05		$	0.03

Weighted-average Shares Outstanding
	Basic			84,285			71,522
	Diluted			88,532			74,476

See accompanying Notes to Condensed Consolidated Financial Statements.

AirTran Holdings, Inc.
Condensed Consolidated Balance Sheets
(In thousands)

					March 31, 2004			December 31, 2003
					(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents			$	385,666		$	338,707
	Restricted cash				8,956			9,798
	Accounts receivable, less allowance of $724 and $603 at
		March 31, 2004 and December 31, 2003, respectively			29,450			17,454
	Spare parts, materials and supplies, less allowance for
		obsolescence of $788 and $733 at March 31, 2004
		and December 31, 2003, respectively			17,448			19,345
	Deferred income taxes				52,054			52,054
	Prepaid expenses and other current assets				14,677			10,477
			Total current assets		508,251			447,835

Property and Equipment:
	Flight equipment				230,659			229,927
		Less: Accumulated depreciation			(28,411	)		(26,610	)
					202,248			203,317

	Purchase deposits for flight equipment				50,747			49,991

	Other property and equipment				52,518			45,425
		Less: Accumulated depreciation			(23,438	)		(22,272	)
					29,080			23,153
			Total property and equipment		282,075			276,461

Other Assets:
	Intangibles resulting from business acquisition				8,350			8,350
	Trade names				21,567			21,567
	Debt issuance costs				7,121			7,293
	Other assets				48,702			46,858
			Total other assets		85,740			84,068
Total assets				$	876,066		$	808,364
					=========			=========

(Continued on next page)

AirTran Holdings, Inc.
Condensed Consolidated Balance Sheets (Continued)
(In thousands)

				March 31, 2004			December 31, 2003
				(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
	Accounts payable		$	5,826		$	1,778
	Accrued liabilities			99,313			85,953
	Air traffic liability			125,175			78,746
	Current portion of long-term debt			5,174			5,015
		Total current liabilities		235,488			171,492

Long-term debt, less current portion				241,414			241,821

Deferred income taxes				26,100			26,100
Other liabilities				65,642			66,738


Commitments and Contingencies

Stockholders' Equity:
	Preferred stock			--			--
	Common stock			84			84
	Additional paid-in-capital			338,152			337,145
	Accumulated other comprehensive loss			(182	)		(271	)
	Accumulated deficit			(30,632	)		(34,745	)
		Total stockholders' equity		307,422			302,213
Total liabilities and stockholders' equity			$	876,066		$	808,364
				==========			==========

See accompanying Notes to Condensed Consolidated Financial Statements.

AirTran Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

				Three Months Ended March 31,
				2004			2003
Operating activities:
	Net income		$	4,113		$	2,036
	Adjustments to reconcile net income to cash provided by
	operating activities:
		Depreciation and amortization		3,233			4,149
		Amortization of deferred gains from sale/leaseback of aircraft		(1,096	)		(1,240	)
		Provisions for uncollectible accounts		(128	)		(215	)
		Other		1,231			1,009
		Changes in current operating assets and liabilities:
		Restricted cash		842			(18,952	)
		Accounts receivable		(11,869	)		(2,459	)
		Spare parts, materials and supplies		(121	)		(383	)
		Fuel		1,956			(2,179	)
		Other assets		(7,375	)		(6,272	)
		Accounts payable, accrued and other liabilities		17,407			12,865
		Air traffic liability		46,429			28,598
		Net cash provided by operating activities		54,622			16,957

Investing activities:
	Purchases of property, plant and equipment			(7,502	)		(7,742	)
	Refund (payment) of aircraft purchase deposits, net			(756	)		2,244
		Net cash used for investing activities		(8,258	)		(5,498	)

Financing activities:
	Payments of long-term debt			(248	)		(2,077	)
	Proceeds from sale of common stock			843			1,428
		Net cash provided by (used for) financing activities		595			(649	)

Net increase in cash and cash equivalents				46,959			10,810
Cash and cash equivalents at beginning of period				338,707			104,151
Cash and cash equivalents at end of period			$	385,666		$	114,961
				==========			=========

Supplemental Disclosure of Cash Flow Activities:
Non-cash investing and financing activities
	Purchase and sale-leaseback of equipment		$	--		$	22,359
	Repayment of debt and sale-leaseback of equipment		$	--		$	3,000

See accompanying Notes to Condensed Consolidated Financial Statements.

AIRTRAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation:
Our unaudited Condensed Consolidated Financial Statements include the accounts of AirTran Holdings, Inc. (Holdings) and our wholly-owned subsidiaries, including our principal subsidiary, AirTran Airways, Inc (Airways). All significant intercompany accounts and transactions have been eliminated in consolidation for all periods presented. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for reports on Form 10-Q. It is suggested that these unaudited interim financial statemen ts be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003.

The preparation of the accompanying unaudited Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying Notes. Actual results may differ from those estimates and such differences may be material to the Condensed Consolidated Financial Statements.

Business:
AirTran Airways, Inc. offers scheduled air transportation of passengers, serving short-haul markets primarily in the eastern United States.

Stock-Based Employee Compensation:
We have stock-based compensation plans covering officers, directors and key employees. We account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation expense is not recognized for employee stock option grants unless the exercise price is less than the fair value of our common stock on the grant date. Approximately 128,000 shares of common stock were issued pursuant to stock option exercises during the first quarter of 2004.

The following table illustrates the effect on net income and earnings per common share if we had applied the fair value based method to measure stock-based employee compensation, as required under the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation:

		Three months ended March 31,
(in thousands, except per share amounts)		2004			2003

Net income, as reported	$	4,113		$	2,036

Add: Stock-based employee compensation expense included in reported income, net of related tax effects		102			- --

Deduct: Stock-based employee compensation expense determined under the fair value based method, net of related tax effects		(903	)		(1,405	)

Pro forma net income	$	3,312		$	631
		============			============
EARNINGS PER SHARE:

Basic, as reported	$	0.05		$	0.03
Basic, pro forma	$	0.04		$	0.01

Diluted, as reported	$	0.05		$	0.03
Diluted, pro forma	$	0.04		$	0.01

As required, the pro forma disclosures in the previous table include options granted since January 1, 1995. Consequently, the effects of applying SFAS 123 for providing pro forma disclosures may not be representative of the effects on reported net income for future years until all options outstanding are included in the pro forma disclosures. For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period.

Stock awards have been granted to our officers and key employees pursuant to our 2002 Long-Term Incentive Plan. Stock awards are grants that entitle the holder to shares of our common stock as the award vests. During the first quarter of 2004, we granted approximately 106,000 stock awards and recorded deferred compensation related to such awards of approximately $1.4 million. Approximately $0.2 million of deferred compensation was amortized as compensation expense during the first quarter of 2004.

Note 2 - Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per common share:

		Three months ended March 31,
(in thousands, except per share amounts)		2004		2003

NUMERATOR:
Net income available to common stockholders	$	4,113	$	2,036
		==========		==========
DENOMINATOR:
Weighted-average shares outstanding, basic		84,285		71,522

Dilutive effect of stock options		3,621		2,303

Dilutive effect of detachable stock purchase warrants		626		651

Adjusted weighted-average shares outstanding, diluted		88,532		74,476
		==========		==========
EARNINGS PER SHARE:
Basic	$	0.05	$	0.03

Diluted	$	0.05	$	0.03

Shares issuable upon conversion of our 7% convertible notes are excluded from the diluted earnings per share calculation for the three month period ended March 31, 2004, because they are antidilutive.

Note 3 - Comprehensive Income

Comprehensive income encompasses net income and "other comprehensive income (loss)," which includes all other non-owner transactions and events that change stockholders' equity. Other comprehensive income (loss) is composed of reclassifications to earnings of deferred gains and losses related to derivative financial instruments that qualified for hedge accounting. These derivative instruments were terminated in March 2002. Amounts are reclassified to earnings as the related fuel is used. Comprehensive income was $4.2 million and $2.2 million for the three months ended March 31, 2004 and 2003, respectively. The differences between net income and comprehensive income for each of these periods are as follows:

		Three months ended March 31,
(in thousands)		2004		2003

Net income	$	4,113	$	2,036

Unrealized loss on derivative instruments, net of taxes of $34 and $0		55		172

Comprehensive income	$	4,168	$	2,208
		============		============

Because our net deferred tax assets were offset in full by a valuation allowance during 2003, there was no tax effect on the unrealized loss for 2003.

An analysis of the amounts included in Accumulated other comprehensive loss is shown below