<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
( ) 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 0-22526
TOWER AIR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2621046
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
HANGAR NO. 17 11430
J.F.K. INTERNATIONAL AIRPORT (Zip Code)
JAMAICA, N.Y.
(Address of principal executive offices)
(718) 553-4300
(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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
---
As of July 31, 1996, there were 15,290,006 shares of Common Stock, par
value $.01 per share, outstanding.
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Page 1 of 14 pages
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TOWER AIR, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
INDEX
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1996
and December 31, 1995........................ 3
Statements of Operations for the three
months and six months
ended June 30, 1996 and 1995................. 4
Statements of Cash Flows for the six months
ended June 30, 1996 and 1995................. 5
Notes to Financial Statements................ 6
Selected Operating Data...................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations........................ 9
PART II. OTHER INFORMATION............................ 13
SIGNATURES................................................................ 14
</TABLE>
2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOWER AIR, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
----------- ------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 1,985 $ 3,521
Certificates of deposit, at cost,
which approximates market 625 700
Trade receivables, net 37,485 27,931
Insurance proceeds receivable - 25,000
Prepaid expenses and other current assets 8,753 4,861
--------- ---------
Total current assets 48,848 62,013
========= =========
Property and Equipment, at cost:
Flight equipment 299,483 216,756
Ground property and equipment 31,078 29,504
--------- ---------
330,561 246,260
Less accumulated depreciation and 117,075 99,058
amortization
--------- ---------
213,486 147,202
Other Assets 2,163 1,332
--------- ---------
$ 264,497 $ 210,547
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------
Current Liabilities:
Accounts payable $ 22,077 $ 23,006
Accrued liabilities 18,932 33,503
Air traffic liability 32,472 19,878
Current maturities of long-term debt (Note 2) 34,775 14,370
--------- ---------
Total current liabilities 108,256 90,757
Long-Term Debt (Note 2) 66,821 23,594
Deferred Income Taxes 18,184 18,654
Deferred Rent 1,636 1,508
Stockholders' Equity (Note 3):
Preferred stock, $.01 par value;
5,000,000 shares authorized; none issued - -
Common stock, $.01 par value;
35,000,000 shares authorized;
15,500,006 issued 155 155
Additional paid-in capital 43,885 43,885
Retained earnings 27,071 33,505
Less treasury stock, at cost (210,000 shares) 1,511 1,511
--------- ---------
Total stockholders' equity 69,600 76,034
--------- ---------
$ 264,497 $ 210,547
========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
TOWER AIR, INC.
STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ---------------------
1996 1995 1996 1995
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Scheduled Passenger Service $ 56,036 $ 60,183 $ 111,576 $ 107,864
Commercial Charter Service 37,769 42,396 46,101 53,417
Military Charter Service 15,518 18,780 31,312 34,416
Cargo Service 2,785 4,304 7,141 10,126
Other 1,802 1,892 3,604 3,825
------------ ---------- --------- ---------
Total operating revenues 113,910 127,555 199,734 209,648
OPERATING EXPENSES:
Fuel 17,818 21,685 35,821 38,297
Flight equipment rentals and insurance 5,164 7,547 10,274 12,020
Maintenance 11,144 16,464 21,539 26,415
Crew costs and other 7,649 7,776 14,507 13,660
Aircraft and traffic servicing 19,154 18,437 39,402 34,480
Passenger servicing 14,443 11,368 26,055 20,657
Promotion, sales and commissions 18,272 22,177 31,366 37,242
General and administrative 5,378 5,312 10,566 9,696
Depreciation and amortization 9,742 7,951 18,197 14,992
------------ ---------- --------- ---------
Total operating expenses 108,764 118,717 207,727 207,459
------------ ---------- --------- ---------
OPERATING INCOME (LOSS) 5,146 8,838 (7,993) 2,189
OTHER EXPENSES (INCOME):
Interest and other income (257) (160) 15 (743)
Interest expense 2,250 1,125 3,573 2,094
------------ ---------- --------- ---------
Total other expenses 1,993 965 3,588 1,351
------------ ---------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 3,153 7,873 (11,581) 838
Income Tax Provision (Benefit) 230 3,863 (6,370) 409
------------ ---------- --------- ---------
NET INCOME (LOSS) $ 2,923 $ 4,010 $ (5,211) $ 429
============ ========== ========= =========
NET INCOME (LOSS) PER SHARE $ 0.19 $ 0.26 $ (0.34) $ 0.03
============ ========== ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 15,290 15,311 15,290 15,311
============ ========== ========= =========
</TABLE>
See accompanying notes to financial statements
4
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TOWER AIR, INC.
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1995
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (5,211) $ 429
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization 18,197 14,992
Provision for doubtful 358 400
accounts
Deferred income taxes (470) (53)
Deferred liabilities 128 131
Gain on disposal of property (139) (356)
and equipment
Changes in operating assets
and liabilities:
Trade receivables (9,912) (6,514)
Insurance proceeds receivable 25,000 -
Prepaid expenses and other assets (3,967) (1,753)
Accounts payable and accrued liabilities (11,491) 7,245
Air traffic liability 12,594 6,931
----------- ---------
Net cash provided by operating activities 25,087 21,452
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of flight equipment (29,169) (22,368)
Purchase of ground property and equipment (1,583) (7,408)
Proceeds from sale of property and equipment 178 525
Decrease in certificates of deposit 75 200
----------- ---------
Net cash used in investing activities (30,499) (29,051)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 22,625 12,000
Principal payments on borrowings (16,593) (5,522)
Payment of cash dividends (1,223) (1,223)
Other (933) (144)
----------- ---------
Net cash provided by financing activities 3,876 5,111
----------- ---------
Net decrease in cash and cash equivalents (1,536) (2,488)
Cash and cash equivalents at beginning of period $ 3,521 $ 14,824
----------- ---------
Cash and cash equivalents at end of period $ 1,985 $ 12,336
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 3,330 $ 2,098
Cash (refunded) paid during the period for income taxes, net $ (1,210) $ 170
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Purchase of flight equipment accrued but not paid $ 1,595 $ -
Purchase of flight equipment financed through debt $ 57,600 $ -
Purchase of ground property and equipment accrued
but not paid $ - $ 1,000
</TABLE>
See accompanying notes to financial statements.
5
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NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Tower Air,
Inc. (the Company) in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, these
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial position, results of
operations and cash flows for the periods indicated. These interim financial
statements and related notes should be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. The results of operations for the six months
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the full year.
2. LONG-TERM DEBT
In January 1996, the Company prepaid the entire $7.1 million outstanding balance
of one of its 10.4% Notes and converted $7.1 million aggregate principal amount
of the other 10.4% Note to a floating interest rate of LIBOR plus 1.75% with
the option to fix the interest rate for one, three or six-month periods.
In February 1996, the Company purchased three Boeing 747 aircraft for an
aggregate purchase price of $10.0 million. In connection with this purchase,
the Company paid $2.0 million and issued an $8.0 million promissory note to the
seller, a financial institution. This loan bears interest at prime plus 1% and
requires monthly principal installments of approximately $0.3 million through
July 1996 and a balloon payment of $6.3 million in August 1996. The Company is
currently in the process of refinancing this loan. The lender has extended the
note maturity to September 1996 to allow the Company time to finalize the
refinancing.
In February 1996, the Company also purchased four engines for an aggregate
purchase price of $9.1 million (including $0.3 million of imputed interest). In
connection with this purchase, the Company paid $0.5 million and issued an $8.6
million promissory note to the seller. The $6.0 million remaining outstanding
balance at June 30, 1996 will be paid in monthly installments of $0.5 million
plus interest through June 1997.
In January 1996, the Company purchased two Boeing 747 aircraft for an aggregate
purchase price of $24.5 million. In connection with this purchase, the Company
issued a $20.0 million promissory note to a commercial finance company. This
loan bears interest at 9.39% and requires monthly installments of principal and
interest of approximately $0.4 million through January 2001.
6
<PAGE>
In March 1996, the Company refinanced the outstanding balance of certain notes
bearing interest at prime plus 2% due in monthly installments through October
1996, notes bearing interest at prime plus 2.25% due in monthly installments
through August 1996, and notes bearing interest at prime plus 2.0% due in
February 1997, in addition to the $20.0 million note issued in January 1996,
with the same financial institution. In addition, the Company borrowed an
additional $17.0 million which is secured by the two Boeing 747 aircraft
purchased in January 1996. The new loan balance, which aggregates $50.2
million, bears interest at 10.12% and requires monthly installments of principal
and interest of approximately $1.1 million through March 2001.
In March 1996, the Company also received from the Port Authority of New York and
New Jersey the remaining $0.6 million balance of the $5.5 million five-year
financing for the terminal facility expansion project at John F. Kennedy
International Airport, which had been completed in 1995 at a total cost of
approximately $10.0 million. This loan bears interest at a fixed rate of 8.5%.
In May 1996, the Company purchased one Boeing 747 aircraft for an aggregate
purchase price of $21.0 million. In connection with this purchase, the Company
issued a $21.0 million note to a commercial finance company. This loan bears
interest at a rate of 10.27% and requires monthly installments of principal and
interest of approximately $0.4 million through May 2001.
The Company has an unsecured $15.0 million line of credit, subject to the
execution and delivery of certain documentation and the negotiation of certain
terms, with a domestic commercial bank. The bank, at its discretion, may issue
standby letters of credit on behalf of the Company and advance working capital
loans on terms to be negotiated. In February 1996, the Company borrowed $5.0
million under this line of credit agreement which bears interest at prime rate
and was repaid in July 1996. The line is available through December 31, 1996.
No borrowings were outstanding under this line at June 30, 1995. At June 30,
1996, the Company was contingently liable for approximately $4.1 million of
letters of credit, of which $0.3 million were collateralized by certificates of
deposit.
3. STOCKHOLDERS' EQUITY
The Company paid a cash dividend of four cents per share of Common Stock for the
second quarter of 1996 on June 17, 1996.
4. INCOME TAXES
Income taxes are calculated at the estimated annual effective tax rate, which
differs from the federal statutory rate of 35%, primarily due to the effect of
state income taxes and certain nondeductible items.
7
<PAGE>
TOWER AIR, INC.
SELECTED OPERATING DATA
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -------------------------
1996 1995 1996 1995
--------------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Scheduled Passenger Service:
Revenue passengers carried
(in thousands) 293 251 579 469
Revenue passenger miles
(in thousands) (RPMs) (1) 790,322 782,042 1,566,084 1,439,096
Available seat miles
(in thousands) (ASMs) (2) 1,098,858 1,059,724 2,179,323 1,988,991
Passenger load factor (3) 71.92% 73.80% 71.86% 72.35%
Yield per RPM (4) $ .0709 $ .0770 $ .0712 $ .0750
Block hours flown (5) 5,160 4,836 10,375 9,105
Operating expense per ASM (6) $ .0492 $ .0459 $ .0512 $ .0468
Revenue per block hour (8) $ 10,860 $ 12,445 $ 10,754 $ 11,847
Variable expense per block hour (7) $ 9,471 $ 10,119 $ 9,773 $ 10,088
Commercial Charter Service:
Block hours flown (5) 5,470 5,671 6,774 6,888
Revenue per block hour (8) $ 6,905 $ 7,476 $ 6,806 $ 7,755
Variable expense per block hour (7) $ 3,838 $ 5,425 $ 4,078 $ 5,801
Military Charter Service:
Block hours flown (5) 1,399 1,744 2,869 3,319
Revenue per block hour (8) $ 11,092 $ 10,768 $ 10,914 $ 10,369
Variable expense per block hour (7) $ 8,067 $ 7,373 $ 8,212 $ 7,294
Cargo Service:
Block hours flown (5) 620 972 1,647 2,204
Revenue per block hour (8) $ 4,492 $ 4,428 $ 4,336 $ 4,594
Variable expense per block hour (7) $ 2,004 $ 2,151 $ 2,043 $ 2,610
Total:
Block hours flown (5) 12,649 13,223 21,665 21,516
Revenue per block hour (8) $ 8,863 $ 9,503 $ 9,053 $ 9,566
Variable expense per block hour (7) $ 6,514 $ 7,158 $ 7,198 $ 7,519
Average hours of daily utilization (9) 9.4 10.3 8.5 9.1
Employees (at period-end) 1,665 1,703 1,665 1,703
Number of aircraft in service
(at period-end) 17 17 17 17
</TABLE>
- ----------------------------------------------------------------------
(1) "Revenue passenger miles" or "RPMs" represent the number of miles flown by
revenue passengers.
(2) "Available seat miles" or "ASMs" represent the number of seats available for
passengers multiplied by the number of miles those seats are flown.
(3) "Passenger load factor" represents revenue passenger miles divided by
available seat miles.
(4) "Yield per RPM" represents total revenue from scheduled passenger service
divided by revenue passenger miles.
(5) "Block hours" represent the period of time between the aircraft's departure
from the place where it is parked to its arrival at its destination.
(6) "Operating expense per ASM" represents certain direct variable costs for
scheduled passenger service, which include passenger liability insurance,
catering, crew costs, fuel, landing and handling fees, maintenance,
navigation fees, "power by the hour" rent, plus marketing and reservations,
and an allocation of other fixed costs based on block hours, divided by
total scheduled passenger service ASMs.
(7) "Variable expense per block hour" represents total direct variable costs,
which include passenger liability insurance, catering, crew costs,
commissions, fuel, landing and handling fees, maintenance, navigation fees
and insurance and "power by the hour" rent, divided by block hours.
(8) "Revenue per block hour" represents total revenue from scheduled passenger
service, commercial charter service, military charter service and cargo
service divided by total block hours flown.
(9) "Average hours of daily utilization" represents the actual number of block
hours per aircraft per operating day.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
For the three-month period ended June 30, 1996 (the 1996 Second Quarter), the
Company recorded net income of $2.9 million compared with net income of $4.0
million for the three-month period ended June 30, 1995 (the 1995 Second
Quarter). The $1.1 million decrease in net income was principally due to the
decrease in ad hoc military business, the grounding of a cargo aircraft to
comply with newly restrictive Airworthiness Directive requirements, generally
lower yields from the Tel Aviv market due to increased competition and terrorist
activity, and reduced traffic to Miami and South America. Net loss for the six-
month period ended June 30, 1996 (the 1996 First Half) was $5.2 million compared
with net income of $0.4 million for the six-month period ended June 30, 1995
(the 1995 First Half). The 1996 First Half results were affected by the
increase in fuel prices, costs associated with the cessation of scheduled
service to India on March 10, 1996, extreme weather conditions in the Northeast
which resulted in significant de-icing costs and re-scheduling related expenses,
and the factors affecting 1996 Second Quarter results noted above.
OPERATING REVENUES. The Company's operating revenues for the 1996 Second
Quarter decreased $13.6 million, or 10.7%, to $113.9 million from $127.6 million
for the 1995 Second Quarter. Operating revenues for the 1996 First Half
decreased $9.9 million, or 4.7%, to $199.7 million from $209.6 million for the
1995 First Half. Lower operating revenues for the 1996 Second Quarter and the
1996 First Half were attributable primarily to decreases in the military charter
and cargo business segments and the decrease in the yield and traffic component
of certain scheduled passenger services.
Scheduled passenger service revenues for the 1996 Second Quarter decreased $4.1
million, or 0.7%, to $56.0 million from $60.2 million for the 1995 Second
Quarter. Scheduled passenger service revenue for the 1996 First Half increased
$3.7 milllion, or 3.4%, to $111.6 million from $107.9 million for the 1995 First
Half. The decrease in scheduled passenger service revenues for the 1996 Second
Quarter was attributable to the cessation of service to India in the First
Quarter of 1996, the lower yields from the Tel Aviv market and lower than
anticipated passenger traffic in Miami and South America, offset in part by the
1.1% increase in passenger traffic (as measured in revenue passenger miles) on
increased capacity of 3.7% (as measured in available seat miles). The increase
in scheduled passenger service revenues for the 1996 First Half was attributable
to the factors affecting 1996 Second Quarter noted above and an 8.8% increase in
passenger traffic on increased capacity of 9.7%.
Commercial charter service revenues for the 1996 Second Quarter decreased $4.6
million, or 10.9%, to $37.8 million from $42.4 million for the 1995 Second
Quarter. Commercial charter service revenues for the 1996 First Half decreased
$7.3 million, or 13.7%, to $46.1 million from $53.4 million for the 1995 First
Half. Lower revenues for the 1996 Second Quarter and 1996 First Half were
attributable primarily to certain Hadj contracts wherein fuel costs were the
responsibility of the Hadj operators rather than Tower Air, resulting in both
lower revenues and costs per block hour than for the 1995 Hadj.
9
<PAGE>
Military charter service revenues for the 1996 Second Quarter decreased $3.3
million, or 17.4%, to $15.5 million from $18.8 million for the 1995 Second
Quarter. Military charter service revenues for the 1996 First Half decreased
$3.1 million, or 9.0%, to $31.3 million from $34.4 million for the 1995 First
Half. The decline in revenues for the 1996 Second Quarter and 1996 First Half
reflected 19.8% and 13.6% decreases in block hours flown, respectively. Because
the military charter business depends in large part upon the deployment or
repatriation of troops, revenues from this market segment are subject to
significant fluctuation.
Cargo service revenues for the 1996 Second Quarter decreased $1.5 million, or
35.3%, to $2.8 million from $4.3 million for the 1995 Second Quarter. Cargo
service revenues for the 1996 First Half decreased $3.0 million, or 29.5%, to
$7.1 million from $10.1 million for the 1995 First Half. The decrease in cargo
service revenues was primarily due to the grounding of a cargo aircraft begining
in February 1996 to comply with newly restrictive Airworthiness Directive
requirements. The Company expects the aircraft to undergo modifications
necessary for its return to service by October 1996.
OPERATING EXPENSES. The Company's operating expenses for the 1996 Second Quarter
decreased $10.0 million, or 8.4%, to $108.8 million from $118.7 million for the
1995 Second Quarter. Operating expenses for the 1996 First Half increased $0.3
million, or 0.2%, to $207.1 million from $207.5 million for the 1995 First Half.
Operating expenses reflect a 4.3% decrease and a 0.1% increase in block hours
flown during the 1996 Second Quarter and 1996 First Half, respectively. The 1996
Second Quarter benefitted from increased wet lease activity whereby the lessee
bears certain operating costs substantially offsetting significant increases in
fuel prices and de-icing costs and re-scheduling related expenses during the
first quarter of 1996.
Aircraft fuel expenses for the 1996 Second Quarter decreased $3.9 million, or
17.8%, to $17.8 million from $21.7 million for the 1995 Second Quarter.
Aircraft fuel expenses for the 1996 First Half decreased $2.5 million, or 6.5%,
to $35.8 million from $38.3 million for the 1995 First Half. The decreases
resulted primarily from 21.3% and 12.7% decreases in volume of gallons consumed,
offset by the 4.4% and 7.1% increases in the average cost per gallon in the 1996
Second Quarter and 1996 First Half, respectively. The fuel consumption
decreases for the 1996 periods were relatively lower than the change in block
hours flown since 1996 block hours included more wet leases in which the lessee
pays all fuel costs.
Flight equipment rentals and insurance expenses for the 1996 Second Quarter
decreased $2.4 million, or 31.6%, to $5.2 million from $7.5 million for the 1995
Second Quarter. Flight equipment rentals and insurance expenses for the 1996
First Half decreased $1.8 million, or 15.0%, to $10.2 million from $12.0 million
for the 1995 First Half. The decreases were attributable to a substantial
decrease in aircraft rental due to the purchase of six Boeing 747 aircraft in
the 1996 First Half partially offset by charges associated with the rental of
additional engines to support the Company's expanded fleet.
Maintenance costs for the 1996 Second Quarter decreased $5.3 million, or 32.3%,
to $11.1 million from $16.5 million for the 1995 Second Quarter. Maintenance
costs for the 1996 First Half decreased $4.9 million, or 18.5%, to $21.5 million
from $26.4 million for the 1995 First Half. The decreases were primarily due to
lower maintenance reserves associated with leased aircraft due to the purchase
of six Boeing 747 aircraft in the 1996 First Half, partially offset by increases
in maintenance reserves associated with engine rentals required to support the
Company's expanded fleet.
Crew costs and other expenses for the 1996 Second Quarter decreased $0.1
million, or 1.6%, to $7.6 million from $7.8 million for the 1995 Second Quarter.
Crew costs and other expenses
10
<PAGE>
for the 1996 First Half increased $0.8 million, or
6.2%, to $14.5 million from $13.7 million for the 1995 First Half. For the 1996
Second Quarter, the decrease was primarily due to the 4.3% decrease in block
hours flown. For the 1996 First Half, the increase was primarily due to the
0.1% increase in block hours flown coupled with an increase in cockpit crew
headcount and related training expenses in the 1996 First Quarter.
Aircraft and traffic servicing expenses for the 1996 Second Quarter increased
$0.7 million, or 3.9%, to $19.2 million from $18.4 million for the 1995 Second
Quarter. Aircraft and traffic servicing expenses for the 1996 First Half
increased $4.9 million, or 14.3%, to $39.4 million from $34.5 million for the
1995 First Half. The increases were attributable to the increase in the number
of departures of 7.3% and 8.1% for the 1996 Second Quarter and 1996 First Half,
respectively, and the expenses resulting from severe weather conditions,
partially offset by the lower handling costs incurred in connection with
domestic scheduled passenger services.
Passenger servicing expenses for the 1996 Second Quarter increased $3.1 million,
or 27.0%, to $14.4 million from $11.4 million for the 1995 Second Quarter.
Passenger servicing expenses for the 1996 First Half increased $5.4 million, or
26.1%, to $26.1 million from $20.7 million for the 1995 First Half. Passenger
servicing expenses increased in both periods as a result of 18.2% and 17.8%
increases in the number of passengers flown in the 1996 Second Quarter and 1996
First Half, respectively, compared with the comparable 1995 periods and with
increased catering costs due to upgraded meal service on domestic routes.
Promotion, sales and commission expenses for the 1996 Second Quarter decreased
$3.9 million, or 17.6%, to $18.3 million from $22.2 million for the 1995 Second
Quarter. Promotion, sales and commission expenses for the 1996 First Half
decreased $5.9 million, or 15.8%, to $31.4 million from $37.2 million for the
1995 First Half. The decreases in promotion, sales and commission expense were
primarily due to higher commission expenses in the 1995 Second Quarter relating
to the New Delhi and Bombay routes which were discontinued in September 1995 and
March 1996, respectively.
General and administrative expenses for the 1996 Second Quarter increased $0.1
million, or 1.2%, to $5.4 million from $5.3 million for the 1995 Second Quarter.
General and administrative expenses for the 1996 First Half increased $0.9
million, or 9.0%, to $10.6 million from $9.7 million for the 1995 First Half.
The increase in general and administrative expenses for the 1996 First Half was
a result of the growth in the Company's operating revenues during the first
quarter of 1996.
Depreciation and amortization expenses for the 1996 Second Quarter increased
$1.8 million, or 22.5%, to $9.7 million from $8.0 million for the 1995 Second
Quarter. Depreciation and amortization expenses for the 1996 First Half
increased $3.2 million, or 21.4%, to $18.2 million from $15.0 million for the
1995 First Half. The increases for both periods were principally due to the
purchase of six Boeing 747 aircraft in the 1996 First Half in addition to
additional rotable parts to support the expanded fleet.
OTHER EXPENSES AND INCOME. Interest expense for the 1996 Second Quarter
increased $1.1 million, or 100.0%, to $2.3 million from $1.1 million for the
1995 Second Quarter. Interest expense for the 1996 First Half increased $1.5
million, or 70.6%, to $3.6 million from $2.1 million for the 1995 First Half.
The increase in interest expense reflects a higher average outstanding debt
balance in 1996, resulting from the financing of aircraft acquisitions.
INCOME TAX PROVISION. The income tax provision for the 1996 Second Quarter
decreased $3.6 million, or 94%, to $0.2 million from $3.9 million for the 1995
Second Quarter. The
11
<PAGE>
income tax benefit for the 1996 First Half was $6.4 million compared to the
income tax provision of $0.4 million for the 1995 First Half. The 1996 Second
Quarter income tax provision was computed based upon the revised estimated tax
rate for the full year 1996. The Company's effective tax rate is significantly
impacted by the nondeductible component of the flight crew per diem allowance
relative to pretax income.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its working capital and capital
expenditure requirements with cash flow generated from operations and through
lease, debt and equity financing.
The Company's cash, cash equivalents and short-term investments at June 30, 1996
and December 31, 1995 were $2.6 million and $4.2 million, respectively. The
Company generated cash from operations for the 1996 First Half and 1995 First
Half of $25.1 million and $21.5 million, respectively.
Net cash used in investing activities was $30.5 million for the 1996 First Half
compared with $29.1 million for the 1995 First Half. The Company's expenditures
for flight equipment were $29.2 million for the 1996 First Half compared with
$22.4 million for the 1995 First Half. Expenditures for flight equipment in the
1996 First Half included the purchase of six Boeing 747 aircraft, six spare
engines, capitalized engine overhauls and the purchase of rotable spare parts
(See Note 2 of Financial Statements for additional information regarding the
financing of certain flight equipment expenditures).
As of June 30, 1996, the Company had negative working capital of $59.4 million
compared to negative working capital of $28.7 million as of December 31, 1995.
Historically, the Company has operated with a working capital deficit and, as in
the past, the Company expects to meet all of its obligations as they become due.
The Company believes that cash generated from operations, in conjunction with
debt financing as required, will be sufficient to finance the Company's working
capital needs for its existing business, as well as for planned capital
expenditures and expected debt repayments in the foreseeable future.
The Company has an unsecured $15.0 million line of credit, subject to the
execution and delivery of certain documentation and the negotiation of certain
terms, with a domestic commercial bank. The bank, at its discretion, may issue
standby letters of credit on behalf of the Company and advance working capital
loans on terms to be negotiated. In February 1996, the Company borrowed $5.0
million under this line of credit agreement which bears interest at prime rate
and was repaid in July 1996. The line is available through December 31, 1996.
No borrowings were outstanding under this line at June 30, 1995. At June 30,
1996, the Company was contingently liable for approximately $4.1 million of
letters of credit, of which $0.3 million were collateralized by certificates of
deposit.
The Company paid a cash dividend of four cents per share of Common Stock for the
first and second quarters of 1996 on March 15, 1996 and June 17, 1996,
respectively.
12
<PAGE>
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS.
There have been no changes in legal proceedings as disclosed in the
Company's Form 10-K for the year ended December 31, 1995.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Stockholders on May 14, 1996,
Morris K. Nachtomi, Stephen L. Gelband, Stephen A. Osborn, Henry P. Baer and
Stanley S. Shuman were re-elected to the Company's Board of Directors. The
proposal to ratify the appointment of Ernst & Young LLP as auditors for the
fiscal year ending December 31, 1996 was approved by a vote of 14,933,264
affirmative votes, 2,725 negative votes and 500 votes withheld.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) None.
(b) None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tower Air, Inc.
(Registrant)
Date: October 11, 1996 /s/ Morris K. Nachtomi
-------------------------------------------------
Morris K. Nachtomi
President, Chief Executive Officer
and Chairman of the Board of Directors
(Principal Executive Officer)
Date: October 11, 1996 /s/ Josefina M. Essex
-------------------------------------------------
Josefina M. Essex
Chief Financial Officer and
Vice President-Finance (Principal
Financial and Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000778718
<NAME> TOWER AIR, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,985,000
<SECURITIES> 625,000
<RECEIVABLES> 37,485,000
<ALLOWANCES> 0
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<CURRENT-ASSETS> 48,848,000
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<DEPRECIATION> 117,075,000
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<COMMON> 155,000
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