Frontier Airlines 2008 Annual Report Download - page 53

Depreciation and amortization increased 15.6%, or $14.4 million, to $106.6 million in 2007 compared to $92.2 million in
2006 due mainly to $15.2 million of additional depreciation on regional jet aircraft due to the purchase of 11 aircraft in 2007 and the
full year effect of 16 regional jet aircraft purchased in 2006. Additionally, amortization for takeoff and landing slots decreased $3.3
million from 2006 due to slots at LaGuardia airport expiring at the end of 2006. The unit cost decreased to 0.93¢ in 2007 compared to
1.01¢ in 2006.
Other expenses increased 34.9%, or $27.1 million, to $104.8 million in 2007 from $77.7 million in 2006, due primarily to
$15.8 million of increases in flight crew training and travel expenses and $7.6 million of increases in passenger catering costs and
other operational expenses to support the increased regional jet operations and increased pilot attrition. The unit cost increased to
0.91¢ in 2007 compared to 0.85¢ in 2006.
Interest expense increased 17.8% or $16.2 million, to $107.3 million in 2007 from $91.1 million in 2006 primarily due to
interest on debt related to the financing of 11 aircraft during 2007 and the full year effect of 16 regional jet aircraft financed in 2006.
The weighted average interest rate remained constant at 6.2%. The unit cost decreased to 0.93¢ in 2007 compared to 1.00¢ in 2006.
We incurred income tax expense of $51.2 million during 2007, compared to $51.9 million in 2006. The effective tax rates for
2007 and 2006 were 38.2% and 39.5%, respectively, which were higher than the statutory rate due to state income taxes and
non-deductible meals and entertainment expense, primarily for our flight crews. In addition, during the fourth quarter of 2007 the
Company reduced its estimated blended state tax rate based on its current operations.
Liquidity and Capital Resources
As of December 31, 2008, we had $129.7 million in cash and cash equivalents and $2.7 million available under our revolving
credit facility, which can only be used to secure letters of credit. At December 31, 2008, we had a working capital surplus of $14.7
million.
The Company’s $15.0 million revolving credit facility with Bank of America Business Capital expires March 31, 2009. The
Company utilizes the facility to cover outstanding letters of credit, which total $12.4 million as of December 31, 2008. The revolving
credit facility is collateralized by all of the Company’s assets, excluding the owned aircraft and engines. The facility contains a
liquidity covenant, a specified fixed charge coverage ratio and a debt to earnings leverage ratio. The Company pays an annual
commitment fee on the unused portion of the revolving credit facility in an amount equal to 0.375%. The credit facility limits the
Company’s ability to incur indebtedness or create or incur liens on its assets. The Company was in compliance with the covenants at
December 31, 2008. The Company is currently negotiating with the bank on replacing the existing facility. If the Company is unable
to renew the existing facility or secure a new facility with a bank, it may require the Company to cash collateralize its outstanding
letters of credit.
Net cash provided by operating activities was $242.3 million in 2008 compared to $280.5 million in 2007. The decrease of
$38.2 million is primarily attributable to the receipt of cash from the sale of the Company’s $44.6 million Delta pre-petition claim in
2007 offset by an increase in cash used for working capital needs of $11.3 million.
Net cash used in investing activities was $81.9 million in 2008 compared to $76.5 million in 2007. During 2008, the
Company acquired and debt financed 26 E175 aircraft. The total debt related to these aircraft of $526.2 million was obtained from
banks at terms of 5 to 15 years and interest rates ranging from 2.73% to 6.91%. Cash used in the acquisition of aircraft, net of aircraft
deposits totaled $59.2 million in 2008 and $66.1 million in 2007. Other capital expenditures related to flight equipment, furniture and
fixtures, and leasehold improvements utilized $19.2 million in 2008 and $26.2 million in 2007. The Company received proceeds of
$52.9 million in 2008 and $15.8 million in 2007 from the sale of aircraft and other equipment. The increase of $19.0 million of the
$37.1 million increase in proceeds from 2007 to 2008 is related to the sale of two E135 aircraft in 2008. In addition, the Company
originated loans to Frontier Airlines, Midwest, Mokulele and US Airways totaling $55.0 million in 2008.
Net cash used in financing activities was $194.7 million in 2008. During 2008, the Company received proceeds of $6.7
million from the refinancing of six E175 aircraft. The Company received proceeds of $5.8 million related to the settlement of interest
rate swaps and incurred $4.6 million of debt issue costs. The Company received proceeds of $0.3 million related to the exercise of
stock options by employees and non-employee directors. The Company made payments on debt of $113.6 million and additional
payments of $50.0 million related to the early extinguishment of debt on the E135 sold in 2008. The early extinguishment of debt
resulted in a $6.0 million gain for 2008. The Company repurchased 2,265,539 shares of its common stock on the open market or
through privately negotiated transactions at a weighted average purchase price of $17.39 for total consideration of $39.4 million in
2008 under the December 2007 Board of Director’s authorization, which closed in December 2008.
We currently anticipate that our available cash resources, cash generated from operations and anticipated third party funding
arrangements for the planned addition of 3 new aircraft will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next 12 months.
Aircraft Leases and Other Off-Balance Sheet Arrangements
We have significant obligations for aircraft and engines that are classified as operating leases and, therefore, are not reflected
as liabilities on our balance sheet. Aircraft leases expire between 2009 and 2023. As of December 31, 2008, our total mandatory
payments under operating leases for aircraft aggregated approximately $976.6 million and total minimum annual aircraft rental
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, March 16, 2009 Powered by Morningstar® Document Research℠