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 September 30, 2004

[ ]

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: 1-15991

AirTran Holdings, Inc. (Exact name of registrant as specified in its charter)
Nevada (State or other jurisdiction of incorporation or organization) 9955 AirTran Boulevard, Orlando, Florida (Address of principal executive offices)	58-2189551 (I.R.S. Employer Identification No) 32827 (Zip Code)
(407) 251-5600 (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes 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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock, $0.001 par value - approximately 85,728,000 shares as of October 31, 2004.

AIRTRAN HOLDINGS, INC.

Form 10-Q

For the Quarter Ended September 30, 2004

INDEX

		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations - Three months and nine months ended September 30, 2004 and 2003 (unaudited)	3

	Condensed Consolidated Balance Sheets - September 30, 2004 (unaudited) and December 31, 2003	4

	Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 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	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	25

	PART II - OTHER INFORMATION

Item 6.	Exhibits	26

	Signatures	27

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

AirTran Holdings, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

				Three months ended						Nine months ended
				September 30,						September 30,
				2004			2003			2004			2003
Operating Revenues:
	Passenger		$	236,108		$	229,818		$	735,555		$	658,590
	Cargo			--			--			--			715
	Other			9,532			7,493			26,495			19,909
		Total operating revenues		245,640			237,311			762,050			679,214

Operating Expenses:
	Salaries, wages and benefits			70,037			59,332			199,191			171,507
	Aircraft fuel			64,562			45,364			171,016			133,542
	Aircraft rent			38,560			32,692			110,595			88,968
	Maintenance, materials and repairs			17,049			14,400			54,274			45,035
	Distribution			11,922			11,651			37,271			34,419
	Landing fees and other rents			16,183			13,644			46,257			38,402
	Aircraft insurance and security services			5,515			5,121			16,647			14,363
	Marketing and advertising			7,186			5,902			21,421			18,890
	Depreciation			3,662			3,322			9,849			9,945
	Other operating			22,956			19,490			66,227			58,669
		Total operating expenses		257,632			210,918			732,748			613,740
Operating Income (Loss)				(11,992	)		26,393			29,302			65,474

Other (Income) Expense:
	Interest income			(1,176	)		(768	)		(3,314	)		(2,043		)
	Interest expense			4,646			7,287			14,370			23,078
	Payment received under the Emergency Wartime Supplemental Appropriations Act, 2003			- --			- --			- --			(38,061		)
	Convertible debt discount amortization			--			--			--			1,812
		Other (income) expense, net		3,470			6,519			11,056			(15,214		)

Income (Loss) Before Income Taxes				(15,462	)		19,874			18,246			80,688
	Income tax expense (benefit)			(5,693	)		261			7,116			1,848
Net Income (Loss)			$	(9,769	)	$	19,613		$	11,130		$	78,840
				=======			======			======			=======
Earnings (Loss) per Common Share
Basic			$	(0.11	)	$	0.27		$	0.13		$		1.09
Diluted			$	(0.11	)	$	0.24		$	0.12		$		0.99

Weighted-average Shares Outstanding
Basic				85,597			73,732			84,940				72,493
Diluted				85,597			92,132			89,380				81,776

See accompanying Notes to Condensed Consolidated Financial Statements.

AirTran Holdings, Inc. Condensed Consolidated Balance Sheets (In thousands)
					September 30,			December 31,
					2004			2003
					(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents			$	338,555		$	338,707
	Restricted cash				8,399			9,798
	Accounts receivable, less allowance of $676 and $603 at
		September 30, 2004 and December 31, 2003, respectively			20,163			17,454
	Spare parts, materials and supplies, less allowance for
		obsolescence of $926 and $733 at September 30, 2004
		and December 31, 2003, respectively			32,816			19,345
	Deferred income taxes				52,054			52,054
	Prepaid expenses and other current assets				14,513			15,209
			Total current assets		466,500			452,567

Property and Equipment:
	Flight equipment				316,162			229,927
		Less: Accumulated depreciation			(32,376	)		(26,610	)
					283,786			203,317

	Purchase deposits for flight equipment				69,236			49,991

	Other property and equipment				58,092			45,425
		Less: Accumulated depreciation			(26,592	)		(22,272	)
					31,500			23,153
			Total property and equipment		384,522			276,461

Other Assets:
	Intangibles resulting from business acquisition				8,350			8,350
	Trade names				21,567			21,567
	Debt issuance costs				7,652			7,293
	Other assets				49,418			42,126
			Total other assets		86,987			79,336
Total assets				$	938,009		$	808,364
					=========			=========

(Continued on next page)

AirTran Holdings, Inc. Condensed Consolidated Balance Sheets (Continued) (In thousands)
				September 30,			December 31,
				2004			2003
				(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
	Accounts payable		$	21,181		$	18,498
	Accrued liabilities			86,129			69,233
	Air traffic liability			102,738			78,746
	Current portion of long-term debt			8,753			5,015
		Total current liabilities		218,801			171,492

Long-term debt, less current portion				307,226			241,821

Deferred income taxes				26,100			26,100
Other liabilities				64,451			66,738

Commitments and Contingencies

Stockholders' Equity:
	Preferred stock			--			--
	Common stock			86			84
	Additional paid-in-capital			344,960			337,145
	Accumulated other comprehensive loss			--			(271	)
	Accumulated deficit			(23,615	)		(34,745	)
		Total stockholders' equity		321,431			302,213
Total liabilities and stockholders' equity			$	938,009		$	808,364
				==========			==========

See accompanying Notes to Condensed Consolidated Financial Statements.

AirTran Holdings, Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
				Nine months ended September 30,
				2004			2003
Operating activities:
Net income			$	11,130		$	78,840
Adjustments to reconcile net income to net cash provided by
operating activities:
	Depreciation and amortization			10,948			12,377
	Amortization of deferred gains from sale/leaseback of aircraft			(3,289	)		(3,721	)
	Loss on asset disposal			--			94
	Provisions for uncollectible accounts			460			352
	Amortization of debt discount upon conversion of debt to equity			--			1,812
	Deferred income taxes			--			1,848
	Other			951			--
	Changes in current operating assets and liabilities:
	Restricted cash			1,399			(8,383	)
	Accounts receivable			(3,169	)		(3,976	)
	Fuel			(12,187	)		(3,618	)
	Spare parts, materials and supplies			(1,524	)		43
	Other assets			(10,805	)		(15,335	)
	Accounts payable, accrued and other liabilities			23,040			11,747
	Air traffic liability			23,992			37,492
		Net cash provided by operating activities		40,946			109,572

Investing activities:
	Purchases of property and equipment			(81,913	)		(16,528	)
	Aircraft purchase deposit payments			(19,245	)		(39,819	)
		Net cash used for investing activities		(101,158	)		(56,347	)

Financing activities:
	Issuance of long-term debt			57,500			125,000
	Debt issuance costs			(978	)		(3,869	)
	Payments of long-term debt			(3,869	)		(18,909	)
	Proceeds from sale of common stock			7,407			6,587
		Net cash provided by financing activities		60,060			108,809

Net (decrease) increase in cash and cash equivalents				(152	)		162,034
Cash and cash equivalents at beginning of period				338,707			104,151
Cash and cash equivalents at end of period			$	338,555		$	266,185
				=======			=======

Supplemental Disclosure of Cash Flow Activities:
Non-cash investing and financing activities
	Purchase and sale-leaseback of equipment		$	--		$	22,359
	Gain on sale-leaseback of aircraft and payment of debt		$	--		$	3,000
	Acquisition of equipment under capital lease		$	15,513		$	--
	Conversion of debt to equity		$	--		$	5,500

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

Business
All of the operations of AirTran Holdings, Inc. are conducted by our wholly owned subsidiary, AirTran Airways, Inc. AirTran Airways, Inc. is one of the largest low-fare, scheduled airlines in the United States in terms of departures and seats offered. We operate scheduled air transportation of passengers principally in the eastern United States, primarily from our hub at Hartsfield-Jackson Atlanta International Airport in Atlanta, Georgia.

Basis of Presentation
Our accompanying 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 finan cial statements 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 unaudited Condensed Consolidated Financial Statements and accompanying Notes. Actual results may differ from those estimates and such differences may be material to the unaudited Condensed Consolidated Financial Statements.

Reclassification
Certain 2003 amounts have been reclassified to conform to 2004 classifications.

Stock-Based Employee Compensation
We grant stock options and restricted stock awards from time to time to certain of our officers, directors and key employees. We account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations and accordingly recognize compensation expense when the exercise price of an award is less than the fair value of our common stock on the grant date. We issued approximately 1,400,355 shares of common stock pursuant to stock option exercises during 2004.

The following table illustrates the effect on net income (loss) and earnings (loss) 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, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure:

		Three months ended						Nine months ended
		September 30,						September 30,
(in thousands, except per share amounts)		2004			2003			2004			2003

Net income (loss), as reported	$	(9,769	)	$	19,613		$	11,130		$	78,840

Add: Stock-based employee compensation
expense included in reported income,
net of related tax effects		108			--			250			--

Deduct: Stock-based employee compensation
expense determined under the fair value
based method, net of related tax effects		(862	)		(1,300	)		(2,749	)		(4,070	)

Pro forma net income (loss)	$	(10,523	)	$	18,313		$	8,631		$	74,770
		======			=======			=======			=======
EARNINGS (LOSS) PER SHARE:

Basic, as reported	$	(0.11	)	$	0.27		$	0.13		$	1.09
Basic, pro forma	$	(0.12	)	$	0.25		$	0.10		$	1.03

Diluted, as reported	$	(0.11	)	$	0.24		$	0.12		$	0.99
Diluted, pro forma	$	(0.12	)	$	0.20		$	0.10		$	0.91

As requir