ATLANTIC COAST AIRLINES HOLDINGS INC - 10-Q Quarterly Report

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

ATLANTIC COAST AIRLINES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

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 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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

As of August 01, 2003, there were 45,332,692 shares of common stock, par value $.02 per share, outstanding.


			Atlantic Coast Airlines Holdings, Inc.
			Condensed Consolidated Balance Sheets

						June 30, 2003
(In thousands except for share and per share data)			December 31, 2002			(Unaudited)

Assets
Current:
	Cash and cash equivalents		$	29,261		$	18,598
	Short term investments			213,360			202,128
	Accounts receivable, net			13,870			36,912
	Expendable parts and fuel inventory, net			14,317			17,444
	Prepaid expenses and other current assets			38,610			87,379
	Deferred tax asset			16,114			11,723

		Total current assets		325,532			374,184
Property and equipment at cost, net of accumulated depreciation and amortization				195,413			291,778
Intangible assets, net of accumulated amortization				1,873			1,834
Debt issuance costs, net of accumulated amortization				3,117			2,975
Aircraft deposits				44,810			44,210
Other assets				4,393			4,571

		Total assets	$	575,138		$	719,552

Liabilities and Stockholders’ Equity
Current:
	Accounts payable		$	22,475		$	27,344
	Current portion of long-term debt			4,900			7,418
	Current portion of capital lease obligations			1,449			1,424
	Accrued liabilities			84,377			94,992
	Accrued aircraft early retirement charge			14,700			1,844

		Total current liabilities		127,901			133,022
Long-term debt, less current portion				53,540			109,251
Capital lease obligations, less current portion				751			142
Deferred tax liability				22,384			36,988
Deferred credits, net				61,903			104,110
Accrued aircraft early retirement charge, less current portion				31,768			10,039
Other long-term liabilities				1,523			1,902

		Total liabilities		299,770			395,454

Stockholders’ equity:
Common stock: $.02 par value per share; shares authorized 130,000,000; shares issued 50,255,184 and 50,403,662 respectively; shares outstanding 45,195,115 and 45,332,692 respectively				1,005			1,008
Additional paid-in capital				151,103			152,228
Less: Common stock in treasury, at cost, 5,060,069 and 5,070,970 shares respectively				(35,586	)		(35,717	)
Retained earnings				158,846			206,576
Accumulated other comprehensive income				—			3

		Total stockholders’ equity		275,368			324,098

		Total liabilities and stockholders’ equity	$	575,138		$	719,552

Atlantic Coast Airlines Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

Three months ended June 30,

(In thousands, except for per share data)

2002

2003

Operating revenues:

Passenger

185,611

223,720

Other

2,582

3,410

Total operating revenues

188,193

227,130

Operating expenses:

Salaries and related costs

49,112

53,657

Aircraft fuel

27,818

32,458

Aircraft maintenance and materials

20,089

20,390

Aircraft rentals

27,391

32,356

Traffic commissions and related fees

5,209

5,831

Facility rents and landing fees

10,874

12,674

Depreciation and amortization

4,934

7,009

Other

18,896

20,135

Aircraft early retirement charge

(4,763

)

(34,586

)

Total operating expenses

159,560

149,924

Operating income

28,633

77,206

Other income (expense):

Interest income

1,264

250

Interest expense

(1,091

)

(1,324

)

Government compensation

944

1,520

Other, net

(445

)

(136

)

Total other income

672

310

Income before income tax provision

29,305

77,516

Income tax provision

11,869

31,781

Net income

17,436

45,735

Income per share:

Basic:

Net income

0.39

1.01

Diluted:

Net income

0.38

1.01

Weighted average shares outstanding:

-Basic

45,115

45,247

-Diluted

46,305

45,344

Atlantic Coast Airlines Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

Six months ended June 30,

(In thousands, except for per share data)

2002

2003

Operating revenues:

Passenger

356,302

422,322

Other

4,857

9,017

Total operating revenues

361,159

431,339

Operating expenses:

Salaries and related costs

94,864

109,178

Aircraft fuel

51,652

72,309

Aircraft maintenance and materials

33,961

42,650

Aircraft rentals

54,063

64,095

Traffic commissions and related fees

10,269

12,267

Facility rents and landing fees

21,499

24,701

Depreciation and amortization

9,533

13,119

Other

37,749

46,549

Aircraft early retirement charge

(4,763

)

(34,586

)

Total operating expenses

308,827

350,282

Operating income

52,332

81,057

Other income (expense):

Interest income

2,818

1,203

Interest expense

(2,223

)

(2,692

)

Government compensation

944

1,520

Other, net

(500

)

(189

)

Total other income (expense)

1,039

(158

)

Income before income tax provision

53,371

80,899

Income tax provision

21,615

33,169

Net income

31,756

47,730

Income per share:

Basic:

Net income

0.71

1.06

Diluted:

Net income

0.69

1.05

Weighted average shares outstanding:

-Basic

44,897

45,236

-Diluted

46,341

45,334


				Atlantic Coast Airlines Holdings, Inc.
				Condensed Consolidated Statements of Cash Flows
							(Unaudited)

*Six months ended June 30,*
(In thousands)				2002			2003

Cash flows from operating activities:
	Net income			$	31,756		$	47,730
	Adjustments to reconcile net income to net cash used in operating activities:
		Depreciation and amortization			9,916			13,512
		Loss on disposal of assets			276			1,282
		Amortization of deferred credits			(2,331	)		(3,314	)
		Capitalized interest (net)			104			914
		Other			1,812			628
		Changes in operating assets and liabilities:
			Accounts receivable		(2,477	)		(23,533	)
			Expendable parts and fuel inventory		(797	)		(3,475	)
			Prepaid expenses and other current assets		(25,006	)		(48,808	)
			Accounts payable		3,194			8,899
			Accrued liabilities		20,931			(4,596	)

Net cash provided by (used in) operating activities					37,378			(10,761	)

Cash flows from investing activities:
	Purchases of property and equipment				(20,281	)		(70,149	)
	Proceeds from sales of assets				28			-
	Purchases of short term investments				(328,610	)		(199,700	)
	Sales of short term investments				155,720			210,935
	Refunds of aircraft deposits				2,600			2,400
	Payments of aircraft deposits and other				(5,070	)		(1,802	)

Net cash used in investing activities					(195,613	)		(58,316	)

Cash flows from financing activities:
	Proceeds from issuance of long-term debt				—			60,078
	Payments of long-term debt				(1,589	)		(1,850	)
	Payments of capital lease obligations				(668	)		(711	)
	Deferred financing costs and other				(610	)		(77	)
	Purchase of treasury stock				(283	)		(131	)
	Proceeds from exercise of stock options				7,041			1,105

Net cash provided by financing activities					3,891			58,414

Net decrease in cash and cash equivalents					(154,344	)		(10,663	)
Cash and cash equivalents, beginning of period					173,669			29,261

Cash and cash equivalents, end of period				$	19,325		$	18,598

ATLANTIC COAST AIRLINES HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The accompanying consolidated financial statements include the accounts of Atlantic Coast Airlines Holdings, Inc. (“ACAI”) and its wholly owned subsidiaries, Atlantic Coast Airlines (“ACA”) and Atlantic Coast Jet, LLC (“ACJet”), (collectively, the “Company”), pursuant to the rules and regulations of the Securities and Exchange Commission. ACJet and its predecessor have not had any operating activity since June 30, 2001. All significant intercompany accounts and transactions have been eliminated in consolidation. The information furnished in these unaudited condensed consolidated financial statements reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such consolidated financial statements. Results of operations for the three and six months presented are not necessarily indicative of the results to be expected for the full year ending December 31, 2003. Certain amounts as previously reported have been reclassified to conform to the current period presentation. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

The Company applies the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, to account for its stock options. SFAS No. 123 allows companies to continue to apply the provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations and provide pro forma net income and pro forma earnings per share disclosures for employee stock options granted as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures of SFAS No. 123. The Company accounts for non-employee stock option awards in accordance with SFAS No. 123.

As a result of applying APB Opinion No. 25, and related interpretations, no stock-based employee compensation cost is reflected in net income, as all options granted to employees had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.


*Three months ended June 30,*
*(in thousands except for per share data)*		2002			2003

Net income, as reported		$	17,436		$	45,735
Less total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(1,609	)		(1,129	)

Pro forma net income		$	15,827		$	44,606

Earnings per share:
	Basic — as reported	$	.39		$	1.01

	Basic — pro forma	$	.35		$	.99

	Diluted — as reported	$	.38		$	1.01

	Diluted — pro forma	$	.34		$	.98


*Six months ended June 30,*
*(in thousands except for per share data)*		2002			2003

Net income, as reported		$	31,756		$	47,730
Less total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(3,238	)		(2,119	)

Pro forma net income		$	28,518		$	45,611

Earnings per share:
	Basic — as reported	$	.71		$	1.06

	Basic — pro forma	$	.64		$	1.01

	Diluted — as reported	$	.69		$	1.05

	Diluted — pro forma	$	.62		$	1.01


Delaware		13-3621051
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

45200 Business Court, Dulles, Virginia		20166
(Address of principal executive offices)		(Zip Code)


Yes X		No


Yes X		No