Airtran 2006 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... : Investor Relations • 9955 AirTran Blvd. • Orlando, FL 32827. CORPORATE GOVERNANCE : On June 8, 2006, Joseph B. Leonard, Chairman of the Board and Chief Executive Officer of AirTran Holdings, Inc., submitted to the New York Stock Exchange the Annual CEO Certification required by the rules of...

  • Page 3
    ... The aggregate market value of common stock held by non-affiliates of the registrant as of February 16, 2007, was approximately $1,044,000,000 (based on the last reported sale price on the New York Stock Exchange on that date). The number of shares outstanding of the registrant's common stock as of...

  • Page 4
    ... BY REFERENCE Portions of the proxy statement, to be used in connection with the solicitation of proxies to be voted at the registrant's annual meeting of stockholders to be held on May 23, 2007 and to be filed with the Commission, are incorporated by reference into this Report on Form 10-K. ii

  • Page 5
    ... II : Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6 Item 7 Item 7A Item 8 Item 9 Item 9A Item 9B Selected Financial and Operating Data Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 6
    ... our actual results and the timing of certain events to differ materially from those expressed in the forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date of this report. It is routine for our internal projections and...

  • Page 7
    ...(AirTran Airways or Airways). AirTran Airways is one of the largest low cost scheduled airlines in the United States in terms of departures and seats offered. We operate scheduled airline service primarily in short-haul markets principally in the eastern United States, with a majority of our flights...

  • Page 8
    ... to add functionality to airtran.com that allows customers to easily book and manage their travel including a new fare and schedule display, the ability to retrieve and change future flight reservations and seat selection and on-line check-in. The airtran.com website is an important distribution...

  • Page 9
    ...through credit sales and partnerships. In November 2006, we announced that we teamed up with Frontier Airlines to create a landmark low cost carrier referral and marketing relationship that enables passengers to earn frequent flyer rewards in both airlines through AirTran Airways' A+ Rewards program...

  • Page 10
    ... of purchase. All other customers may reserve seats at the time they check-in, either at the airport or online at airtran.com. We also offer our automated frequent flier program known as "A+ Rewards." Our customers may earn either free roundtrip travel or business class upgrades on AirTran Airways...

  • Page 11
    ... schedules and pricing information and allow travel agents to electronically book a flight reservation without contacting our reservations facility. We pay booking fees for the completed transactions made in the GDS systems. For direct reservations, either through our call centers or airtran.com...

  • Page 12
    ... Using AirTran employees we conduct complete ground handling services at 33 airports, including Atlanta. At other airports, the operations not conducted by our employees are contracted to other air carriers, ground handling companies or fixed base operators. We have employees at each of these cities...

  • Page 13
    ... cost of compliance with all present and future rules and regulations and the effect of such compliance on our business, particularly our expansion plans and aircraft acquisition program. Federal Aviation Taxes and Passenger Facility Charges. In 1997, a law was enacted imposing new aviation ticket...

  • Page 14
    ... adverse economic and market industry conditions because any related decrease in revenues could cause AirTran to not have sufficient cash flows from operations to make its scheduled debt payments; • limit the flexibility of AirTran in planning for, or reacting to, changes in its business and the...

  • Page 15
    ... TO THE COMPANY FROM CREDIT CARD TRANSACTIONS. AirTran currently has agreements with organizations that process credit card transactions arising from purchases of air travel tickets by its customers utilizing American Express, Discover and MasterCard/VISA. Credit card processors have financial risk...

  • Page 16
    ...on the financial condition and results of operations of AirTran, not only in East Coast routes but across the network due to disruptions in supply of jet fuel, dramatic escalations in the costs of jet fuel, and/or the failure of fuel providers to perform under fixed-price fuel purchase agreements of...

  • Page 17
    ... business, financial condition and results of operations of AirTran. INTERRUPTION OR DISRUPTIONS IN SERVICE AT AIRTRAN'S EXISTING OR FUTURE HUB AIRPORTS COULD HAVE A MATERIAL ADVERSE IMPACT ON OPERATIONS. AirTran's business strategy has historically focused on adding flights to and from its Atlanta...

  • Page 18
    .... Also, the availability of international routes to United States carriers is regulated by treaties and related agreements between the United States and foreign governments that may be amended from time to time, or because appropriate slots or facilities may not be available. AirTran cannot assure...

  • Page 19
    ..., such as reducing capacity, reducing employee headcount, limiting service offerings, renegotiating labor contracts and reconfiguring flight schedules, as well as other efficiency and cost-cutting measures. Despite these actions, financial losses in the airline industry continued into 2006 and it is...

  • Page 20
    ... AirTran's business. AirTran will need to attract and retain additional qualified personnel and develop, train and manage an increasing number of management-level employees. AirTran cannot assure you that it will be able to attract and retain personnel as needed in the future. AIRTRAN'S STOCK PRICE...

  • Page 21
    ... with AirTran's Exchange Offer, which is incorporated herein by reference. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES OPERATING AIRCRAFT FLEET : We operated the following owned and leased aircraft as of December 31, 2006: Aircraft Type B717 B737-700 Total Number of Passenger Seats...

  • Page 22
    ... terms, operating rent expense and firm orders for additional aircraft, see Notes 1, 2, 5 and 6 to the consolidated financial statements. GROUND FACILITIES : We have signatory status on the lease of facilities at Hartsfield-Jackson Atlanta International Airport. This lease covers use of 22 gates...

  • Page 23
    ... COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION : Our common stock, $.001 par value per share, is traded on the New York Stock Exchange under the symbol "AAI." The following table sets forth the reported high and low sale prices for our common...

  • Page 24
    ... with the consolidated financial statements and related notes thereto included elsewhere herein. 2006 Financial Data : (In thousands, except per share data) 2005 2004 2003 2002 Operating revenues Net income Earnings per common share: Basic Diluted Total assets at year-end Long-term debt and...

  • Page 25
    ..., Inc. (AirTran Airways or Airways). Airways is one of the largest low cost scheduled airlines in the United States in terms of departures and seats offered. We operate scheduled airline service primarily in short-haul markets principally in the eastern United States, with a majority of our flights...

  • Page 26
    ... term. Additionally, if our fuel costs rise, we cannot guarantee that we will be able to raise revenues to match the increased fuel costs. Our financial and operating results for any prior interim or annual period are not necessarily indicative of those for the entire year. Air travel in our markets...

  • Page 27
    ... to this barter transaction. Aircraft insurance and security services decreased 6.7 percent on a cost per ASM basis. While the addition of 22 new Boeing aircraft to our fleet during the year ended December 31, 2006 increased our total insured hull value and related insurance premiums, the decrease...

  • Page 28
    ... agreements with FAA-approved contractors. Aircraft insurance and security services decreased 21.1 percent on a cost per ASM basis. While the addition of 18 new Boeing aircraft to our fleet during the year ended December 31, 2005 increased our total insured hull value and related insurance...

  • Page 29
    ... all of the outstanding shares of Midwest Air Group (Midwest), for $13.25 per Midwest share, based on the closing price of our common stock on January 8, 2007. The offer consists of $6.625 in cash and 0.5884 share of AirTran common stock for each Midwest share. Accordingly, total equity value of the...

  • Page 30
    ... and nine B737 aircraft were held under operating leases. The additional three B737 aircraft deliveries in 2005 were financed with debt. As of December 31, 2006, we had 60 Boeing 737 aircraft on order scheduled to be delivered in the year indicated below: Firm Aircraft Deliveries B737 2007 2008 2009...

  • Page 31
    ... under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax exempt rate. Any unused NOLs in excess of the annual limitation may be carried over to later years. As of December 31, 2006, we were not subject to the limitations...

  • Page 32
    ... earned and redeemed as well as for changes in the estimated incremental costs. We also sell points in our A+ Rewards Program to third parties, such as credit card companies, internet service providers and car rental agencies. A portion of these point sales is deferred and recognized as passenger...

  • Page 33
    ... of our 2007 projected fuel usage. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements and Supplementary Data AirTran Holdings, Inc. Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations-Years ended December 31, 2006, 2005, and...

  • Page 34
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF DIRECTORS AND STOCKHOLDERS OF AIRTRAN HOLDINGS, INC. : We have audited the accompanying consolidated balance sheets of AirTran Holdings, Inc. (the "Company") as of December 31, 2006 and 2005, and the related consolidated statements...

  • Page 35
    ... per share data) Operating Revenues : Passenger Other Cargo Total operating revenues Operating Expenses : Aircraft fuel Salaries, wages and benefits Aircraft rent Maintenance, materials and repairs Landing fees and other rents Distribution Marketing and advertising Aircraft insurance and security...

  • Page 36
    ... Less: Accumulated depreciation Total property and equipment Other Assets : Goodwill Trademarks and trade names Debt issuance costs Deferred income taxes Prepaid aircraft rent Other assets Total assets See accompanying notes to consolidated financial statements. 2006 2005 $ 159,100 24,815 151...

  • Page 37
    ...' Equity : Preferred stock, $.01 par value per share, 5,000 shares authorized, no shares issued or outstanding Common stock, $.001 par value per share, 1,000,000 shares authorized, and 91,160 and 88,791 shares issued and outstanding at December 31, 2006 and 2005, respectively Additional paid-in...

  • Page 38
    ... Deposit on aircraft sale Purchases of available-for-sale securities Sales of available-for-sale-securities Net cash used by investing activities Financing activities : Issuance of long-term debt Debt issuance costs Payments on long-term debt Proceeds from exercise of employee stock options and...

  • Page 39
    ...SFAS 123(R) Issuance of common stock for detachable stock warrants Issuance of common stock under employee stock purchase plan Balance at December 31, 2006 See accompanying notes to consolidated financial statements. Common Stock Shares Amount 84,209 - - $84 - - Additional Paid-in Capital $337,145...

  • Page 40
    ... in consolidation. BUSINESS : Airways offers scheduled airline services, using Boeing B717-200 (B717) and Boeing B737-700 (B737) aircraft, to 53 locations across the United States, primarily in short-haul markets principally in the eastern United States. The financial and operating results for any...

  • Page 41
    ... costs. We also sell points in our A+ Rewards Program to third parties, such as credit card companies, internet service providers and car rental agencies. A portion of these point sales is deferred and recognized as passenger revenue when transportation is provided, based on estimates of fair value...

  • Page 42
    ... term of the agreements. See Note 3 to the Consolidated Financial Statements for additional information on SFAS 133 and financial derivative instruments. NEW ACCOUNTING STANDARDS : Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123(R), Share-Based Payment, using...

  • Page 43
    ... 2010. During 2006, we entered into a sale/leaseback agreement related to one of these spare engines. CREDIT CARD ARRANGEMENTS : We have agreements with organizations that process credit card transactions arising from purchases of air travel by customers of AirTran Airways. Our agreement with the...

  • Page 44
    ... fair value of other financial instruments, excluding debt, approximates their carrying amount. The fair values of long-term debt are based on quoted market prices, if available, or are estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types...

  • Page 45
    ... December 31, 2006, the aggregate net book value of assets (primarily flight equipment) which serves as collateral for outstanding debt was $730 million. Additionally, we have pledged our pre-delivery deposits as collateral for outstanding debt. B737 AIRCRAFT PURCHASE FINANCING FACILITIES : Through...

  • Page 46
    ...under the notes are payable quarterly. At December 31, 2006, $291 million was outstanding thereunder. Each note is secured by a first mortgage on the aircraft to which it relates. As of December 31, 2006, we had $59 million available under the facility. On February 14, 2006, we entered into a fourth...

  • Page 47
    ...cash on the accompanying consolidated balance sheet relates to outstanding letters of credit, primarily for airport facilities. 6. LEASES : Total rental expense charged to operations for aircraft, facilities and office space for the years ended December 31, 2006, 2005 and 2004 was approximately $287...

  • Page 48
    ...value of the aircraft. This is the case in the majority of our aircraft leases; however, we have two aircraft leases that contain fixed-price purchase options that allow us to purchase the aircraft at predetermined prices on specified dates during the lease term. We have not consolidated the related...

  • Page 49
    ... the cost of employee services received in exchange for awards of equity instruments based on the grant date fair value of those awards in the financial statements. Prior to January 1, 2006, we accounted for our stock-based compensation plans in accordance with APB 25 and related interpretations...

  • Page 50
    ...stock option awards granted prior to January 1, 2006, but for which the vesting period is not complete, must be accounted for on a prospective basis with the related cost being recognized in the financial statements beginning with the first quarter of 2006 using the grant date fair values previously...

  • Page 51
    ... certain of our officers, directors and key employees pursuant to our 2002 Long-term Incentive Plan. Stock awards are grants of shares of our common stock which typically vest over time and are valued for financial accounting purposes at the fair market value of our publicly traded stock on the date...

  • Page 52
    ...2006 Tax computed at federal statutory rate State income taxes, net of federal tax benefit Change in state effective tax rate Reduction state net operating loss carryforwards Stock grants, nondeductible compensation expense Expiration of nonqualified stock options Other Change in valuation allowance...

  • Page 53
    ... market value on the offering date. The Board of Directors determines the discount rate, which was increased to 10 percent from 5 percent effective November 1, 2001. We are authorized to issue up to 4 million shares of common stock under this plan. During 2006, 2005 and 2004, the employees purchased...

  • Page 54
    ... tax, related to claim settlements. 15. SUBSEQUENT EVENT - PROPOSED ACQUISITION OF MIDWEST AIR GROUP : On January 11, 2007, we commenced an exchange offer for all of the outstanding shares of Midwest Air Group (Midwest), for $13.25 per Midwest share, based on the closing price of our common stock on...

  • Page 55
    ...as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance to management and the board of directors regarding the preparation and fair presentation of published financial statements. Because of its...

  • Page 56
    ...ACCOUNTING FIRM THE BOARD OF DIRECTORS AND STOCKHOLDERS OF AIRTRAN HOLDINGS, INC. : We have audited management's assessment, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting, that AirTran Holdings, Inc. (the "Company") maintained effective internal...

  • Page 57
    ... Long-Term Incentive Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item is incorporated herein by reference to our 2007 Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item...

  • Page 58
    ... Hartsfield Atlanta International Airport(5) 1996 Stock Option Plan(3) (6) Airways Corporation 1995 Stock Option Plan(3) (8) Airways Corporation 1995 Directors Stock Option Plan(3) (8) Lease of headquarters in Orlando, Florida, dated November 14, 1995(9) Orlando International Lease and Use Agreement...

  • Page 59
    ... Term Incentive Plan(17) Loan Agreement, dated as of August 31, 2005, by and among AirTran Airways, Inc. ("AirTran"), as Borrower, The Parties Identified in Schedule 1 thereto as Lenders, as Lenders, and The Royal Bank of Scotland Plc, New York Brach ("RBS"), as Security Agent(20) Credit Agreement...

  • Page 60
    ... [N344AT], dated as of August 1, 2006, by and among AirTran, as Borrower, Each Lender Identified in Schedule 1 thereto, as Lender, and The Royal Bank of Scotland Plc New York Branch, as Security Agent(24) Subsidiaries of AirTran Holdings, Inc.(19) Subsidiaries of AirTran Airways, Inc.(19) Consent of...

  • Page 61
    ... by the undersigned, thereunto duly authorized. AIRTRAN HOLDINGS, INC. (Registrant) By: /s/ Joseph B. Leonard Joseph B. Leonard Chairman and Chief Executive Officer Date: February 28, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the...

  • Page 62
    ... Hartsfield Atlanta International Airport(5) 1996 Stock Option Plan(3) (6) Airways Corporation 1995 Stock Option Plan(3) (8) Airways Corporation 1995 Directors Stock Option Plan(3) (8) Lease of headquarters in Orlando, Florida, dated November 14, 1995(9) Orlando International Lease and Use Agreement...

  • Page 63
    ... Term Incentive Plan(17) Loan Agreement, dated as of August 31, 2005, by and among AirTran Airways, Inc. ("AirTran"), as Borrower, The Parties Identified in Schedule 1 thereto as Lenders, as Lenders, and The Royal Bank of Scotland Plc, New York Brach ("RBS"), as Security Agent(20) Credit Agreement...

  • Page 64
    ... Branch), as Security Agent(24) Credit Agreement, dated as of August 1, 2006, by and among AirTran, as Borrower, Each Lender Identified in Schedule 1 thereto, as Lender, and The Royal Bank of Scotland Plc New York Branch, as Security Agent(24) Security Agreement, dated as of August 1, 2006, by and...

  • Page 65
    ... 2002 Long-Term Incentive Plan; and (v) Registration Statement (Form S-4 No. 333-139917) of AirTran Holdings, Inc. of our reports dated February 27, 2007, with respect to the consolidated financial statements and schedule of AirTran Holdings, Inc., AirTran Holdings, Inc. management's assessment of...

  • Page 66
    ...'s ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 28, 2007 By: /s/ Stanley...

  • Page 67
    ...78m or 78o(d)) and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of AirTran Holdings, Inc. Date: February 28, 2007 By: /s/ Joseph B. Leonard Joseph B. Leonard Chairman and Chief Executive Officer Date: February 28...

  • Page 68
    ... $0 12.31.01 AirTran Holdings, Inc. 12.31.02 12.31.03 NYSE Composite Index 12.31.04 12.31.05 S&P Airlines Index 12.31.06 ROUTE MAP : For schedules, go to airtran.com. Effective June 29, 2007 Routes and cities subject to change without notice. Some nonstop routes indicated operate seasonally and/or...

  • Page 69