U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR (15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
Commission File No. 0-23444
PAN AM CORPORATION
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0450311
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(State of other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
9300 N.W. 36TH STREET, MIAMI, FLORIDA 33178
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(Address of principal executive offices)
(305) 873-3000
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(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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 1, 1997, the Company had a total of 11,412,610 shares of Common
Stock, par value $.0001 per share outstanding.
As of August 1, 1997, the Company had 150,000 shares of Series A Convertible
Preferred Stock and 185,000 shares of Series B Convertible Preferred Stock, par
value $.0001 per share outstanding.
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PAN AM CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996................................................ 3
Consolidated Statements of Operations for the three months ended
June 30, 1997 and 1996........................................... 4
Consolidated Statements of Operations for the six months ended
June 30, 1997 and 1996........................................... 5
Consolidated Statement of Stockholders' Equity for the six months
ended June 30, 1997.............................................. 6
Consolidated Statements of Cash Flows for the six months ended
June 30, 1997 and 1996........................................... 7
Notes to the Consolidated Financial Statements................... 8-13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 14-20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 21
Item 2. Changes in Securities............................................ 21
Item 4. Submission of Matters to a Vote of Security Holders.............. 21
Item 6. Exhibits and Reports on Form 8-K................................. 22
Signature................................................................ 23
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PAN AM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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JUNE 30, DECEMBER 31,
1997 1996
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 19,111,339 $ 15,005,669
Trade accounts receivables, principally traffic 11,339,923 2,930,723
Notes and other receivables 1,603,995 302,345
Expendable aircraft parts 261,787 261,787
Prepaid expenses and other assets 3,834,393 1,623,317
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Total current assets 36,151,437 20,123,841
PROPERTY - Net 13,651,149 2,066,308
OTHER ASSETS:
Intangible assets (net of accumulated amortization
of $179,637 and $147,103) 1,786,615 1,609,149
Deposits 4,081,440 2,745,352
Leasehold interest (net of accumulated amortization of $58,500) 4,384,932
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TOTAL $ 60,055,573 $ 26,544,650
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,206,207 $ 7,084,751
Air traffic liability 14,596,096 4,164,313
Accrued compensation 491,580 243,900
Deferred income taxes 155,421 155,421
Other accrued expenses 2,619,050 612,602
Current portion of long-term debt 3,108 2,949
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Total current liabilities 31,071,462 12,263,936
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Long-term debt less current maturities 9,000 10,593
Deferred aircraft lease obligations 3,280,693 1,664,693
Dade County Bridge Loan (Note 9) 5,000,000
Stock subscriptions and warrants (Note 4) 10,977,881 945,381
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $100 stated value, $.0001 par
value, 500,000 authorized, 285,000 shares issued and
outstanding (Note 3) 28,500,000
Common stock, $.0001 par value, 100,000,000 shares
authorized,11,412,610 shares and 10,920,191 shares
issued and outstanding 1,141 1,092
Capital surplus 40,424,714 39,555,374
Accumulated deficit (59,167,840) (27,554,831)
Receivables from officers and stockholders (11,750 shares) (41,478) (341,588)
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Total stockholders' equity 9,716,537 11,660,047
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TOTAL $ 60,055,573 $ 26,544,650
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See accompanying notes to consolidated financial statements.
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PAN AM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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FOR THE THREE MONTHS ENDED
JUNE 30,
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1997 1996
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REVENUES:
Passenger $ 28,666,841
Cargo and mail 371,968
Other income 471,853 $ 19,859
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Total revenues 29,510,662 19,859
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EXPENSES:
Aircraft fuel and oil 7,409,110
Aircraft rentals 6,766,442
Aircraft maintenance reserves,
materials and repairs 5,772,351
Wages and related costs 5,106,384 1,270,716
Ground handling and landing fees 3,757,071
Facilities and other rents 2,987,586 192,860
Reservations and sales 2,569,565
Advertising 1,652,345 189,080
Passenger food expense 1,979,915
Traffic commissions 1,877,858
Professional and technical 1,451,096 848,988
Insurance 975,920
Materials and supplies - other 963,864 155,655
Personnel expenses 924,053 256,609
Communications 103,807
Depreciation and amortization 258,081 53,015
Other 2,322,150 357,961
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Total expenses 46,877,598 3,324,884
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OPERATING LOSS (17,366,936) (3,305,025)
NON-OPERATING
INCOME (EXPENSES):
Interest income 341,140 223,885
Other (30,625) (2,392)
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Total non-operating income 310,515 221,493
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NET LOSS $(17,056,421) $(3,083,532)
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NET LOSS PER SHARE $ (1.54) $ (0.41)
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WEIGHTED AVERAGE
NUMBER OF COMMON SHARES
OUTSTANDING 11,333,489 7,561,191
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See accompanying notes to consolidated financial statements.
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PAN AM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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FOR THE SIX MONTHS ENDED
JUNE 30,
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1997 1996
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REVENUES:
Passenger $ 50,145,895
Cargo and mail 501,675
Other income 635,859 $ 19,869
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Total revenues 51,283,429 19,869
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EXPENSES:
Aircraft fuel and oil 13,377,299
Aircraft rentals 12,741,673
Aircraft maintenance reserves,
materials and repairs 9,570,656
Wages and related costs 8,969,009 1,549,480
Ground handling and landing fees 6,370,454
Facilities and other rents 4,646,407 192,860
Reservations and sales 4,232,430
Advertising 4,032,917 339,437
Passenger food expense 3,589,189
Traffic commissions 3,234,423
Professional and technical 3,076,817 1,193,009
Insurance 1,732,912
Materials and supplies - other 1,692,916 155,655
Personnel expenses 1,498,199 294,952
Communications 245,850
Depreciation and amortization 392,091 78,313
Other 4,042,225 421,039
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Total expenses 83,445,467 4,224,745
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OPERATING LOSS (32,162,038) (4,204,876)
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NON-OPERATING
INCOME (EXPENSES):
Interest income 528,940 234,213
Write-down of investment (17,000)
Other 20,089 32,608
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Total non-operating income 549,029 249,821
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LOSS BEFORE DEFERRED
INCOME TAX PROVISION (31,613,009) (3,955,055)
DEFERRED INCOME
TAX PROVISION -- (155,421)
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NET LOSS $(31,613,009) $(4,110,476)
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NET LOSS PER SHARE $ (2.87) $ (0.86)
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WEIGHTED AVERAGE
NUMBER OF COMMON SHARES
OUTSTANDING 11,143,796 4,758,971
============ ===========
See accompanying notes to consolidated financial statements.
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PAN AM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
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RECEIVABLES
PREFERRED COMMON CAPITAL ACCUMULATED FROM OFFICERS
STOCK STOCK SURPLUS DEFICIT AND STOCKHOLDERS TOTAL
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BALANCE, DECEMBER 31, 1996 $1,092 $ 39,555,374 $(27,554,831) $ (341,588) $11,660,047
Issuance of 45,000 shares for
stock subscription 4 324,496 324,500
Settlement of Stockholder Note
(Note 4) 300,110 300,110
Issuance of 297,419 shares in
settlement of stockholder
contribution (Note 4) 30 1,049,859 1,049,889
Issuance of 150,000 shares
(Note 3) $ 15,000,000 (580,000) 14,420,000
Issuance of 135,000 shares
(Note 3) 13,500,000 (675,000) 12,825,000
Issuance of 150,000 shares for
warrants (Note 4) 15 749,985 750,000
Net loss for the six months
ended June 30, 1997 (31,613,009) (31,613,009)
------------ ------ ------------ ------------ ------------ -----------
BALANCE, JUNE 30, 1997 $ 28,500,000 $1,141 $ 40,424,714 $(59,167,840) $ (41,478) $ 9,716,537
============ ====== ============ ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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PAN AM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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FOR THE SIX MONTHS ENDED
JUNE 30,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(31,613,009) $ (4,110,476)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 489,313 78,313
Deferred compensation amortization -- 667,008
Deferred income taxes -- 155,421
Amortization of prepaid rent -- 160,773
Write-off of investment in affiliate -- 17,000
Changes in certain assets and liabilities:
Increase in notes and accounts receivables (9,710,850) (85,515)
Increase in prepaid expenses and other assets (2,211,076) (255,513)
Increase in accounts payable and deferred credits 7,737,456 1,186,131
Increase in air traffic liability 10,431,782 --
Increase in accrued compensation 247,680 --
Increase in other accrued expenses 2,006,447 --
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Net cash used in operating activities (22,622,257) (2,186,858)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,394,051) (252,206)
Acquisition of airline designator code (210,000) --
Investment in affiliate -- (18,000)
Deposits (1,336,088) (356,350)
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Net cash used in investing activities (7,940,139) (626,556)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in receivable from stockholder 300,110 --
Proceeds from Dade County bridge loan 5,000,000 --
Principal payments on long-term debt (1,434) --
Issuance of preferred stock, net 27,245,000 --
Issuance of common stock 2,124,389 22,126,446
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Net cash provided by financing activities 34,668,065 22,126,446
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NET INCREASE IN CASH 4,105,669 19,313,032
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 15,005,669 --
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 19,111,338 $ 19,313,032
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</TABLE>
See accompanying notes to consolidated financial statements.
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PAN AM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Pan Am Corporation
and subsidiaries (the "Company" or "Pan Am") have been prepared in accordance
with instructions for reporting interim financial information on Form 10-Q and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. Accordingly, such
financial statements should be read in conjunction with the Company's
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
The consolidated financial statements for the six and three months ended
June 30, 1997 and 1996 are unaudited and, in the opinion of management, include
all adjustments (which include only normal recurring adjustments) necessary to
present fairly in all material respects the financial position, results of
operations and cash flows for such periods. Results for the six months ended
June 30, 1997 are not necessarily indicative of results to be expected for the
full fiscal year ending December 31, 1997.
2. AIRCRAFT LEASES
As of June 30, 1997, Pan Am operated a total of five Airbus A300-B4
("A300") aircraft under operating leases for terms of five years for four
aircraft and six years for one aircraft with minimum annual lease payments
totaling in the aggregate approximately $7.5 million. Under such leases, the
Company pays monthly maintenance reserves to the lessors to cover all major
engine and airframe overhauls on a flight hour usage basis, which amounted to
$5.3 million and $3.3 million for the six and three months ended June 30, 1997,
respectively.
The ages of such A300 aircraft range from fourteen to fifteen years old,
with the average age of such aircraft being 14.5 years. In addition, Pan Am
leased three B727 aircraft on a wet-lease (ACMI) basis from Nations Air Express,
Inc., an unrelated third party airline operator, under short term lease
commitments. On April 18, 1997, the Company exercised its right to cancel these
agreements by giving the required notice of 30 days, effectively terminating the
agreements on May 17, 1997. The Company negotiated agreements to wet lease
replacement aircraft from Carnival Air Lines, Inc. ("Carnival Air") under
similar terms.
3. PREFERRED STOCK
A. SERIES A
In March 1997, the Company authorized the issuance of 250,000 shares of a
Series A Convertible Preferred Stock. Each share of Series A Preferred Stock has
a stated value equal to $100 per share and a term of three years. Each share of
Series A Preferred Stock accumulates dividends at the rate
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per share (as a percentage of stated value per share) equal to 8% per annum,
payable in shares of Series A Preferred Stock in arrears on the date that the
Series A Preferred Stock becomes convertible into shares of Common Stock. The
Series A Preferred Stock is convertible at the option of the holders thereof
into shares of Common Stock (following the registration of such underlying
shares of Common Stock) at the lesser of a fixed price (the "Series A Fixed
Price") or a floating price (the "Series A Floating Price") (the Series A Fixed
Price or the Series A Floating Price is sometimes hereinafter referred to as the
"Series A Conversion Price"). The Series A Fixed Price is equal to $8.50 per
share (subject to a reset option as described in the Articles of Amendment). The
Series A Floating Price is a discount to market beginning at 97%, with such
discount increasing 1% per month until said discount reaches 80%. Each share of
Series A Preferred Stock is convertible into shares of Common Stock equal to the
stated value per share divided by the applicable Series A Conversion Price (the
"Series A Conversion Ratio"). Upon the expiration of the three year term, each
share of Series A Preferred Stock will be mandatorily converted into shares of
Common Stock at such Series A Conversion Ratio. Pan Am also has the option to
redeem the Series A Preferred Stock for a cash value equal to the value of the
shares of Common Stock issuable upon conversion at 80% discount, plus the
issuance of a warrant to purchase shares of Common Stock in an amount equal to
the value of the Series A Preferred Stock so redeemed, with an exercise price
equal to the Series A Fixed Price and a term expiring on March 18, 2000. The
Series A Preferred Stock is subject to a performance adjustment in favor of the
Company to the Series A Fixed Price if the Common Stock increases by greater
than 40%. In no event shall a holder of shares of Series A Preferred Stock (or
warrants) be entitled to receive shares of Common Stock to the extent that the
sum of (a) the number of shares of Common Stock beneficially owned by the holder
and (b) the number of shares of Common Stock issuable upon the conversion of the
shares of Series A Preferred Stock (or warrants) would result in beneficial
ownership by the holder of more than 4.9% of the outstanding shares of Common
Stock.
The Series A Preferred Stock ranks prior to all classes or series of
equity securities of Pan Am, including Common Stock and, except as otherwise
provided by law, the Series A Preferred Stock has no voting rights. Upon any
liquidation, dissolution or winding-up of the Company, the Series A Holders
shall be entitled to receive out of the assets of the Company, for each share of
Series A Preferred Stock, an amount equal to the stated value, plus an amount
equal to the accrued but unpaid dividends per share, before any distribution or
payment is made to the holders of any junior securities. The Series A Preferred
Stock has full priority over the Series B Preferred Stock in the event of
liquidation of the Company.
As of June 30, 1997, the Company has issued 150,000 shares of the Series A
Preferred Stock, resulting in net proceeds of $14.4 million. In connection with
the offering, 401,070 warrants were granted which are exercisable at $9.35 per
common share.
Concurrent with the completion of the Merger with Carnival Air, it is
anticipated that the remaining $10 million of Series A Preferred Stock will be
issued.
B. SERIES B
In May 1997, the Company authorized the issuance of 250,000 shares of a
Series B Convertible Preferred Stock. Each share of Series B Preferred Stock has
a stated value equal to $100 per share and a term of three years. Holders of
Series B Preferred Stock are entitled to cumulative dividends at a rate per
share (as a percentage of stated value per share) equal to 7.25% per annum
payable in shares of Common Stock in arrears, the number of shares of which are
determined by dividing the aggregate cash value of such dividends payable by the
closing bid price per share of Common Stock on the day prior to the date
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on which the Series B Holder specifies that a Series B conversion into shares of
Common Stock is to be effected. For nine months following the date that the
Series B Preferred Stock is first issued (the "Series B Issuance Date"), the
Series B Preferred Stock is convertible at the option of the holders thereof
into shares of Common Stock (following the registration of such underlying
shares of Common Stock) at a fixed price (the "Series B Fixed Price");
thereafter, the Series B Preferred Stock is convertible at the lesser of the
Series B Fixed Price or a floating price (the "Series B Floating Price") (the
Series B Fixed Price or the Series B Floating Price, whichever applicable, is
sometimes hereinafter referred to as the "Series B Conversion Price"). The
Series B Fixed Price is equal to $8.39. The Series B Floating Price is a
discount to market beginning at 97%, with such discount increasing 1.5% per
month until said discount reaches 80%. Each share of Series B Preferred Stock is
convertible into shares of Common Stock equal to the stated value per share
divided by the applicable Series B Conversion Price (the "Series B Conversion
Ratio"). Upon the expiration of the three year term, each share of Series B
Preferred Stock will be mandatorily converted into shares of Common Stock at
such Series B Conversion Ratio. Pan Am also has the option to redeem the Series
B Preferred Stock for (i) a cash value equal to the value of the shares of
Common Stock issuable upon conversion at such 80% discount, (ii) a cash value
equal to all accrued dividends payable and (iii) the issuance of a warrant to
purchase shares of Common Stock in an amount equal to the value of the Series B
Preferred Stock so redeemed, with an exercise price equal to the Series B Fixed
Price and a term expiring on May 15, 2000. The Company has the option to convert
the Series B Preferred Stock into shares of Common Stock at any time at the
lesser of the Series B Fixed Price, or the Series B Floating Price with the 80%
discount. The Company will not require such conversion if such conversion will
cause a Series B Holder to either own more than 4.9% of the shares of Common
Stock or file a Schedule 13D or Schedule 13G under the Exchange Act.
The Series B Preferred Stock ranks prior to all classes or series of
equity securities of Pan Am, including Common Stock, except for the Series A
Preferred Stock, and, except as otherwise provided by law, the Series B
Preferred Stock has no voting rights. Upon any liquidation, dissolution or
winding-up of the Company, the Series B Holders shall be entitled to receive out
of the assets of the Company, for each share of Series B Preferred Stock, an
amount equal to the stated value, plus an amount equal to the accrued but unpaid
dividends per share, before any distribution or payment is made to the holders
of any junior securities.
As of June 30, 1997, the Company had issued 135,000 shares of the Series B
Preferred Stock, resulting in net proceeds of $12.8 million. In connection with
the offering, 278,924 warrants were granted which are exercisable at $9.23 per
common share.
In July 1997, the Company completed the sale of an additional 50,000
shares of Series B Preferred Stock, resulting in gross proceeds of $5.0 million
and net proceeds of approximately $4.75 million, to the Company. In connection
with this sale, 103,305 warrants were granted which are exercisable at $9.23 per
common share.
4. RELATED PARTY TRANSACTIONS
In 1996, the Company issued shares of common stock to a certain
stockholder pursuant to the terms of a Contribution Agreement, whereby the
stockholder contributed its interest in a promissory note with a face value of
$1.35 million (the "Lifeco Note") to the Company. At the time of the
contribution of the Lifeco Note, the stockholder could not state with certainty
that the Company actually would recover the full $1.35 million. Consequently,
the stockholder initially accepted a reduced value of $300,000 (the "Estimated
Value") reflected by receipt of 85,017 shares of common stock in exchange for
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the Lifeco Note (representing a value of $3.53 per share). It was further
agreed, that if the Company received value which exceeded the Estimated Value,
the stockholder would be entitled to additional shares of common stock at the
$3.53 per share valuation. In early 1997, the full collection of the Lifeco Note
by the stockholder became reasonably certain. Accordingly, the Company received
full value for the Lifeco Note from the stockholder, and in turn, issued shares
of common stock at the agreed upon price of $3.53 per share. The Company
received $800,000 in cash and spare parts with an estimated value in excess of
$550,000 from the stockholder in exchange for the issuance of an additional
297,419 shares of the Company's common stock.
On March 31, 1997, the Company completed the purchase of an office complex
and related office equipment pursuant to a closing agreement dated February 11,
1997, which will temporarily act as its corporate headquarters, from a certain
stockholder. The property consists of the leasehold interest in certain
buildings and real property and approximately 18.0 acres of land, valued at
$4.44 million and $5.85 million, respectively. The total transaction, valued at
$10.4 million (which also includes tangible personal property valued at
$110,000), was completed through the issuance of 1,294,625 warrants which are
convertible into an equal number of shares of common stock of the Company upon
the occurrence of certain events. This transaction was a non-cash financing and
investing activity.
In April 1997, the Company purchased from Carnival Air one Boeing 727-200
aircraft and selected A300 aircraft parts for $5.0 million in cash. Carnival Air
has subsequently leased back the aircraft on a short-term basis for monthly
lease rent of $30,625 plus overhaul reserves at $347 per flight hour.
On May 19, 1997, certain holders exercised warrants to purchase 150,000
shares of common stock at $5.00 per share, totaling $750,000.
On June 1, 1997, Carnival Air began operating the Chicago Midway to Miami
to San Juan flights with its own aircraft on a code-share arrangement with Pan
Am whereby Pan Am agreed to a guaranteed seat purchase commitment. By June 30,
1997, the Company had arranged a marketing code-share on the remaining Carnival
Air flights.
5. MERGER AGREEMENT
On March 20, 1997, the Company entered into a definitive agreement, as
amended July 8, 1997 and July 9, 1997, to merge with Carnival Air, a passenger
airline headquartered in Fort Lauderdale, Florida. Carnival Air presently
operates a fleet of 21 aircraft. The Company will exchange 9,523,810 shares of
common stock for all outstanding common shares of Carnival Air. There is no
assurance that the merger with Carnival Air will be consummated.
The Company has filed with the Securities and Exchange Commission, on a
confidential basis, preliminary annual meeting proxy materials and has scheduled
a shareholder vote on the Merger at that meeting. The shareholders meeting is
expected to be held in early September 1997.
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6. INVESTMENT IN AFFILIATE
The Company's investment in affiliate, which is carried at its net
realizable value, consists of a 30% interest in Chalk's Air Bridge, Inc., which
owns 100% of Flying Boat, Inc., a Delaware corporation. Flying Boat, Inc. is the
owner and operator of Pan Am Air Bridge (f/k/a Chalks International Airlines), a
historic seaplane airline operation. The Company has granted, without royalties
or fees, a license to Flying Boat, Inc. to use the Pan Am trade name, subject to
termination only upon the occurrence of specific events.
Through June 30, 1997, the Company loaned $329,583 to Flying Boat, Inc.
7. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share." The statement is effective for financial statements for periods ending
after December 15, 1997, and changes the method in which earnings per share will
be determined. Adoption of this statement by the Company will not have a
material impact on earnings per share.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 129, "Disclosure of
Information about Capital Structure". The statement applies to all entities that
have issued securities addressed by this statement and is effective for
financial statements for periods ending after December 15, 1997. The statement
establishes standards for disclosing information about an entity's capital
structure requiring that an entity describe the pertinent rights and privileges
of the various securities outstanding.
8. SUBSEQUENT EVENTS
A. On July 28, 1997, Carnival Air, as borrower, Pan Am and Mr. Micky
Arison, as guarantors, and NationsBank, N.A., as Lender (the "Lender"), executed
a Credit Agreement (the "NationsBank Credit Agreement") pursuant to which the
Lender provides two revolving credit bridge facilities (each a "Facility" and
collectively, the "NationsBank Facility") of up to an aggregate of $25 million
for use by Carnival Air for working capital and general corporate purposes and
for the repayment by Carnival Air of up to $5 million in existing bank debt.
Each of the Facilities permits Carnival Air to borrow up to $12.5 million, with
borrowings under such Facilities maturing one year after the date of closing,
subject to certain repayment requirements. Further, there is no assurance that
Carnival Air with or without the NationsBank Facility will generate sufficient
cash to fund its operations and significant cash requirements or that, upon
consummation of the Merger, Pan Am's management will be able to improve the
results of operations of Carnival Air or effectuate a combination of the
airlines which will operate on a profitable basis.
Prior to the consummation of the Merger, Mr. Micky Arison, an affiliate of
the principal shareholder of Carnival Air, will provide a guaranty of payment
with respect to one of the Facilities ("Facility B"), and after the consummation
of the Merger, this guaranty will be converted from a guaranty of payment to a
guaranty of collection. Prior to the consummation of the Merger, Pan Am will
provide a guaranty of collection of the other Facility ("Facility A" which will
be binding on Pan Am whether or not the Merger is consummated). In the event
that the Merger is consummated, Pan Am's
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guaranty of Facility A will be converted into a guaranty of payment of the
entire NationsBank Facility. Carnival Air's obligations will be secured by all
or substantially all of its assets. Pan Am's guaranty will be secured by a first
priority lien on all or substantially all of its assets. Mr. Arison's guaranty
will be secured by a pledge of certain securities beneficially owned by Mr.
Arison.
Pan Am will be required to issue to the Lender, as further consideration,
warrants to purchase up to 550,000 shares of Pan Am Common Stock at an exercise
price of $7.917 per share, exercisable over ten years with a staggered vesting
schedule based on the funding of the NationsBank Facility. Further, Pan Am,
Carnival Air and Mr. Arison entered into an agreement pursuant to which Carnival
Air, prior to the Merger, and Pan Am after consummation of the Merger, will pay
Mr. Arison a guaranty fee in an amount equal to the difference between the cost
to the borrower of Facility A and Facility B, and certain additional amounts if
the Merger is not consummated prior to August 31, 1997.
On August 1, 1997, Carnival Air utilized $4.5 million of the availability
under this Facility to repay the outstanding bank debt as previously discussed.
B. Pan Am is currently engaged in discussions with one or more investment
banking firms with respect to conducting an offering of up to $100,000,000 of
its securities pursuant to Rule 144A promulgated under the Securities Act.
Accordingly, such securities will not be registered under the Securities Act and
may not be offered or sold in the United States absent registration or the
existence of an applicable exemption from such registration requirements. It is
anticipated that such securities will be either a new series of convertible
preferred stock or subordinated convertible debentures. It is further
contemplated that all subscriptions for such securities would be received prior
to the Merger and release of such funds and closing of such transaction would
also be conditioned upon the consummation of the Merger. It is currently
anticipated that the proceeds from such offering will be used to repay certain
existing debt, the redemption of certain preferred stock and for general working
capital purposes. There can be no assurances that any such offering will ever be
consummated.
9. BRIDGE LOAN
In March 1997, the Company agreed with Dade County, Florida and various
state and federal entities on a $7.3 million incentive package as an inducement
to locate its corporate headquarters within the County. The Company received
$5.0 million in cash in the form of a "bridge loan" from Dade County in April
1997.
10. COMMITMENTS AND CONTINGENCIES
Various claims, contractual disputes and lawsuits against the Company
arise periodically involving complaints which are normal and reasonably
foreseeable in light of the nature of the Company's business. The majority of
these suits are covered by insurance. In the opinion of management, the
resolutions of these claims will not have a material adverse effect on the
business, operating results or financial condition of the Company.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company began flight operations on September 26, 1996 with two leased
A300 wide-body aircraft providing daily round trip flights between New York, New
York and Miami, Florida and New York, New York and Los Angeles, California. The
Company has continued to expand its operations and as of August 1, 1997,
provides services to six destinations (including San Juan, Puerto Rico, Santo
Domingo, Dominican Republic, and Chicago, Illinois) with 20 daily flights
utilizing five leased A300 aircraft operated by Pan Am and other aircraft
wet-leased from Carnival Air.
The Company began scheduled flight operations as a development stage
enterprise organized to operate a low-fare, full-service airline. In early 1997,
the Company had transitioned from a development stage company to that of a full
service scheduled airline.
On June 1, 1997, Carnival Air began operating the Chicago Midway to Miami
to San Juan flights with its own aircraft on a code-share arrangement with Pan
Am whereby Pan Am agreed to a guaranteed seat purchase commitment. By June 30,
1997, the Company had arranged a marketing code-share on the remaining Carnival
Air flights.
RESULTS OF OPERATIONS
Since the Company commenced airline operations on September 26, 1996,
management does not believe that a discussion of the results for comparative
prior year periods would be meaningful as it relates to the new operating
entity. Consequently, the following summary and discussion of selected financial
and operating data for the quarters ended June 30, 1997, and March 31, 1997,
respectively, and the six months ended June 30, 1997, which management believes
reflects the airline's performance for those periods of operations.
Since the commencement of its airline operations, the Company has incurred
substantial losses amounting to $46.2 million through June 30, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED QUARTER ENDED QUARTER ENDED
JUNE 30, 1997 JUNE 30, 1997 MARCH 31, 1997
---------------- ------------- --------------
<S> <C> <C> <C>
Operating Revenues $51,283,400 $29,510,700 $21,772,800
Total Expenses $82,896,400 $46,567,100 $36,329,400
Net Loss $31,613,000 $17,056,400 $14,556,600
Revenue Passengers Carried 412,863 221,896 190,967
Revenue Passenger Miles (RPMs) 600,773,000 336,770,000 264,003,000
Available Seat Miles (ASMs) 963,703,000 570,401,000 393,302,000
Yield Per RPM 8.3/cent/ 8.5/cent/ 8.1/cent/
Load Factor 62.3% 59.0% 67.1%
Revenue Per ASM 5.32/cent/ 5.17/cent/ 5.54/cent/
Cost Per ASM 8.64/cent/ 8.19/cent/ 9.28/cent/
</TABLE>
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<PAGE>
REVENUES
GENERAL. Airline revenue is primarily a function of passenger load factors
and fares charged by the airline. The passenger load factor represents the
percentage of available seats occupied by revenue paying passengers and is
calculated by dividing revenue passenger miles flown by total available seat
miles. Revenue passenger miles are the total miles flown by revenue passengers
during the period. Available seat miles are the product of total seats available
for sale during the period multiplied by the total flight miles operated during
the period.
The Company anticipates that its business will follow the traditional
seasonal trends of the domestic United States airline industry for the markets
it serves, with traffic and revenues typically higher during the winter, summer
and late fall periods when business travel is supplemented by discretionary
leisure travel.
In addition to passenger revenue, the Company generates revenue from the
shipment of general freight and mail. The Company also generates revenue from
the sale of in-flight services such as liquor and movie headsets.
PASSENGER REVENUE. Passenger revenues totaled $28,666,841 for the three
months ended June 30, 1997 compared to $21,479,054 for the three months ended
March 31, 1997, or an increase of 33.5%. The number of revenue passengers
carried was 221,896 for the three months ended June 30, 1997 compared to 190,967
for the three months ended March 31, 1997, or an increase of 16.2%. The Company
had an average of 7.2 aircraft in service during the three months ended June 30,
1997 compared to an average of six (6) aircraft during the three months ended
March 31, 1997 for an increase in ASMs of 171,099,000 or 45.0%.
Other revenues, consisting primarily of sales from freight and mail
service and liquor sales and headset rentals, totaled $843,821 and $293,714 for
the three months ended June 30, 1997 and March 31, 1997, respectively,
representing 2.9% and 1.3% of total operating revenues, respectively.
OPERATING EXPENSES
Operating expenses include those related to flying operations, such as
aircraft fuel and rent, aircraft maintenance, ground handling and landing fees,
advertising, wages and related costs, administrative costs, and depreciation and
amortization. Total operating expenses for the three months ended June 30, 1997
were $46,877,598 as compared to $36,567,869 for the three months ended March 31,
1997 for an increase of 28%.
Aircraft fuel expense includes the direct product cost of fuel and
associated taxes. Aircraft fuel costs of $7,409,110 for 10,604,383 gallons
consumed resulting in an average fuel cost of 69.9/cent/ per gallon and
represented 15.8% of total operating expenses for the three months ended June
30, 1997, as compared to $5,968,189 for 7,777,563 gallons consumed resulting in
an average fuel cost of 76.7/cent/ per gallon and represented 15.3% of total
operating expenses for the three months ended March 31, 1997. Fuel prices are
subject to change weekly as the Company does not maintain inventories of its
own. In addition, fuel prices may be volatile subject to demand based upon a
number of factors outside the control of the Company. Any increase in the price
of fuel which could not be offset through increased fares could have a material
adverse impact upon the financial results of the Company.
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<PAGE>
Aircraft rentals totaling $6,766,442, or 14.4% of total operating expenses
for the three months ended June 30, 1997, as compared to $5,975,231 or 16.3% of
total operating expenses for the three months ended March 31, 1997, include
lease payments relating to A300 aircraft operated by the Company and the
wet-leasing of aircraft operated by third parties and Carnival Air. The
wet-leasing arrangement was necessary as a result of the delayed delivery of the
Company's planned additional A300 aircraft. The wet-leasing of aircraft results
in higher expenses to the Company than operations of its own aircraft;
accordingly, the financial results for the quarter have been negatively impacted
by these increased operating costs. Due to the late delivery of leased aircraft
to the Company, the Company anticipates the continued wet-leasing of aircraft in
the near term or until completion of the Merger.
Wages, salaries and related costs totaling $5,106,384 represented 10.9% of
total operating expenses for the three months ended June 30, 1997, as compared
to $3,862,625 representing 10.6% of total operating expenses for the three
months ended March 31, 1997. The majority of employees are salaried, including
pilots and flight attendants. As crew utilization increases with the addition of
A300 aircraft, the direct operating cost per block hour should decrease as a
result of this salary structure. There were 652 employees as of June 30, 1997,
an increase of 26.8% over the March 31, 1997 base.
Maintenance reserves, material and repairs totaling $5,772,351,
representing 12.3% of total operating expenses for the three months ended June
30, 1997, as compared to $3,798,305, representing 10.4% of total operating
expenses for the three months ended March 31, 1997, are comprised substantially
of airframe and engine overhaul reserves which are paid to the lessors of the
A300 aircraft.
Ground handling and landing fees amounting to $3,757,071, or 8.0% of total
operating expenses for the three months ended June 30, 1997, as compared to
$2,613,383 or 7.1% of total operating expenses for the three months ended March
31, 1997, primarily relate to passenger handling costs, including ticket
counter, boarding gate and baggage loading. Landing fees are principally based
upon the number of aircraft operations.
Advertising amounted to $1,652,345, or 3.5% of total operating expenses
for the three months ended June 30, 1997, as compared to $2,380,572 or 6.5% of
total operating expenses for the three months ended March 31, 1997. These costs
relate to promoting the commencement of service and expansion into two new
markets, Chicago Midway Airport on March 1, 1997 and Santo Domingo, Dominican
Republic on April 6, 1997.
All other operating costs totaling $16,413,895, or 35.0% of total
operating expenses for the three months ended June 30, 1997, as compared to
$11,969,564, or 32.7% of total operating expenses for the three months ended
March 31, 1997, are of a nature normally incurred by an airline and are typical
within the industry, such as reservations and sales expenses, passenger meals,
traffic commissions, insurance, professional and technical fees, and facilities
rent.
LIQUIDITY AND CAPITAL RESOURCES
Since the commencement of its airline operations, the Company has incurred
substantial losses amounting to $46.2 million through June 30, 1997. During the
three and six months ended June 30, 1997, the Company experienced operating
losses amounting to $17.1 million and $31.6 million, respectively. Management
believes the principal demand on the Company's resources from these losses
resulted initially from the following factors: (1) the expected losses
associated with the commencement of scheduled passenger service during the
initial start-up period for its airline operations with a limited
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<PAGE>
fleet of aircraft, combined with the need to establish the Company's presence in
the markets served; (2) a low level of advance bookings at the beginning of the
first quarter of 1997 which caused the Company to offer lower yielding
promotional fares to build traffic; and (3) the delinquent delivery of A300
aircraft which caused the Company to cover its pre-committed schedule with
wet-leased aircraft from third party airline operators at operating costs
greater than had the Company been able to operate such service on its own
behalf.
Further, management has determined that traffic flow on a majority of its
routes has been insufficient to achieve profitable operations utilizing widebody
aircraft. As a result, Pan Am has generated passenger traffic at lower yields
which has resulted in lower than expected revenues and which is insufficient to
cover the costs of the Company's current operations. Accordingly, the Company
has focused on acquiring narrowbody aircraft which management believes can be
deployed profitably on existing routes given existing traffic flow. The Company
believes that use of narrowbody aircraft could also permit Pan Am to achieve a
presence in cities where the passenger traffic base is not large enough to
support widebody operations. In line with this strategy, it is anticipated that
through the Merger with Carnival Air, the consolidated entity will achieve
synergies from reduced operating costs generated from a complement of a
narrowbody fleet, which when combined with increased market presence and revenue
generated from the branding of the Pan Am name, should result in improved
financial performance. This widening of the scope of Pan Am's operations,
through offering more frequent service and penetration of new markets,
management believes should result in additional "flow" traffic, which in turn
would make the utilization of widebody aircraft more feasible.
During the six months ended June 30, 1997, net cash utilized by operating
activities was approximately $22.6 million as compared to approximately $11.1
million for the three months ended March 31, 1997. Cash has remained stable, due
to financing activities totaling $34.7 million, resulting in $19.1 million in
cash and cash equivalents at June 30, 1997, compared to $15.0 million at
December 31, 1996. The Company had working capital of $5.1 million at June 30,
1997, as compared to $8.5 million at March 31, 1997. Working capital at December
31, 1996, totaled $7.9 million.
To fund the Company's continuing operating losses and demand on liquidity,
the Company's principal financing activities during the first six months of 1997
were: (i) in March 1997, the Company completed an offering of a Series A
Convertible Preferred Stock for $25 million, of which the Company has initially
sold $15 million face value for net cash proceeds of $14.4 million with the
other $10 million due upon the closing of the Carnival Air acquisition; (ii) in
March 1997, the Company agreed with Dade County, Florida and various state and
federal entities on a $7.3 million incentive package as an inducement to locate
its corporate headquarters within the County, which included $5.0 million in
cash in the form of a "bridge loan"; (iii) in May 1997, the Company completed a
new offering of a Series B Convertible Preferred Stock for $25 million, of which
the Company sold $13.0 million face value for net proceeds of $12.8 million in
May 1997 and $5.0 million face value for net proceeds of $4.75 million in July
1997; and (iv) the exercise in May 1997 of warrants for its issuance of Common
Stock for cash proceeds of $750,000.
Since the inception of the Company's flight operations on September 26,
1996, it has not generated sufficient liquidity from operations to sustain its
working capital needs. The continuance of the Company's operations is dependent,
among other things, upon obtaining sufficient additional financing to fulfill
its cash flow requirements, growth in the Company's revenue base and,
ultimately, the attainment of sustained profitable operations. Management has
been and continues to take action that it believes will reduce its operating
losses, with specific emphasis on obtaining narrowbody aircraft and the
continued service expansion to provide added economies of scale including
through the Merger with
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<PAGE>
Carnival Air as previously discussed. Although management has undertaken action
designed to meet these requirements, no assurance can be made that such
objectives will be met or achieved by the Company.
The continuance of the Company's operations is dependent, among other
things, upon obtaining sufficient additional financing to fulfill its cash flow
requirements, growth in the Company's revenue base and, ultimately, the
attainment of sustained profitable operations. Although management has
undertaken action designed to meet these requirements as discussed above, no
assurance can be made that such objectives will be met or achieved by the
Company. The Company's prospects, therefore, must be evaluated in light of the
risks and expenses normally encountered by a new entrant carrier with limited
resources in the highly competitive airline industry.
In the event that the Merger with Carnival Air is consummated, Pan Am will
require additional capital to fund both its operating losses and the significant
operating losses of Carnival Air. Carnival Air has experienced significant
losses in its last fiscal year and expects such losses to continue for the
foreseeable future. Carnival Air's losses have created an immediate liquidity
problem for the airline and it has been forced to defer payments on aircraft
leases, aircraft and engine overhauls and other operating expenditures. Carnival
Air's trade payables at June 30, 1997 are estimated at $55.0 million, of which,
approximately $10.0 million could be considered past due. Carnival Air does not
believe that it can effectively manage its debts beyond their existing levels
without external financing to fund its current and future operating losses.
There is no assurance that Pan Am's funds will be sufficient to fund the
combined operating losses of Pan Am and Carnival Air and Pan Am will likely be
required to seek additional sources of capital to fund these losses. As
contemplated in the Merger, the primary shareholder of Carnival Air is required
to contribute $30.0 million in cash to Carnival Air, which, absent additional
financing, will be used to retire an existing line of credit which is guaranteed
by such shareholder. Pan Am will seek to renegotiate or replace the credit
facility with a view to making available additional proceeds for general
operating purposes. Further, Pan Am is currently in negotiations with certain
institutions to provide substantial financing for the combined companies to fund
operations in the near term and to assist towards achieving profitable
operations. However, at this juncture, no assurances can be given that any
additional financing, if available, will be sufficient to cover the liquidity
needs of the combined operations. To the extent such capital is not available,
Pan Am will be forced to reduce or discontinue some or all of its combined
operations with Carnival Air. Although the Carnival Air Merger will put
significant financial pressure on the Company, Pan Am's management believes that
certain cost benefits, synergies and enhanced revenues, particularly branding
the operations with the Pan Am name, will result from this Merger and the
combined companies' operating performance will improve. No assurance can be made
that such benefits, synergies or enhanced revenues will result following the
Merger.
SUBSEQUENT EVENTS
A. On July 28, 1997, Carnival Air, as borrower, Pan Am and Mr. Micky
Arison, as guarantors, and NationsBank, N.A., as Lender (the "Lender"), executed
a Credit Agreement (the "NationsBank Credit Agreement") pursuant to which the
Lender provides two revolving credit bridge facilities (each a "Facility" and
collectively, the "NationsBank Facility") of up to an aggregate of $25 million
for use by Carnival Air for working capital and general corporate purposes and
for the repayment by Carnival Air of up to $5 million in existing bank debt.
Each of the Facilities permits Carnival Air to borrow up to $12.5 million, with
borrowings under such Facilities maturing one year after the date of closing,
subject to certain repayment requirements. Further, there is no assurance that
Carnival Air with
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<PAGE>
or without the NationsBank Facility will generate sufficient cash to fund its
operations and significant cash requirements or that, upon consummation of the
Merger, Pan Am's management will be able to improve the results of operations of
Carnival Air or effectuate a combination of the airlines which will operate on a
profitable basis.
Prior to the consummation of the Merger, Mr. Micky Arison, an affiliate of
the principal shareholder of Carnival Air, will provide a guaranty of payment
with respect to one of the Facilities ("Facility B"), and after the consummation
of the Merger, this guaranty will be converted from a guaranty of payment to a
guaranty of collection. Prior to the consummation of the Merger, Pan Am will
provide a guaranty of collection of the other Facility ("Facility A" which will
be binding on Pan Am whether or not the Merger is consummated). In the event
that the Merger is consummated, Pan Am's guaranty of Facility A will be
converted into a guaranty of payment of the entire NationsBank Facility.
Carnival Air's obligations will be secured by all or substantially all of its
assets. Pan Am's guaranty will be secured by a first priority lien on all or
substantially all of its assets. Mr. Arison's guaranty will be secured by a
pledge of certain securities beneficially owned by Mr. Arison.
Pan Am will be required to issue to the Lender, as further consideration,
warrants to purchase up to 550,000 shares of Pan Am Common Stock at an exercise
price of $7.917 per share, exercisable over ten years with a staggered vesting
schedule based on the funding of the NationsBank Facility. Further, Pan Am,
Carnival Air and Mr. Arison entered into an agreement pursuant to which Carnival
Air, prior to the Merger, and Pan Am after consummation of the Merger, will pay
Mr. Arison a guaranty fee in an amount equal to the difference between the cost
to the borrower of Facility A and Facility B, and certain additional amounts if
the Merger is not consummated prior to August 31, 1997.
On August 1, 1997, Carnival Air utilized $4.5 million of the availability
under this Facility to repay the outstanding bank debt as previously discussed.
B. Pan Am is currently engaged in discussions with one or more investment
banking firms with respect to conducting an offering of up to $100,000,000 of
its securities pursuant to Rule 144A promulgated under the Securities Act.
Accordingly, such securities will not be registered under the Securities Act and
may not be offered or sold in the United States absent registration or the
existence of an applicable exemption from such registration requirements. It is
anticipated that such securities will be either a new series of convertible
preferred stock or subordinated convertible debentures. It is further
contemplated that all subscriptions for such securities would be received prior
to the Merger and release of such funds and closing of such transaction would
also be conditioned upon the consummation of the Merger. It is currently
anticipated that the proceeds from such offering will be used to repay certain
existing debt, the redemption of certain preferred stock and for general working
capital purposes. There can be no assurances that any such offering will ever be
consummated.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Except for historical information contained herein, the matters discussed
in this report are forward-looking statements made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements may at times be preceded, followed by or include the
words, "may," "believes," "expects," "intends," "estimates," or "anticipates,"
or the negation thereof or similar expressions. The achievement of the outcomes
described in such forward-looking statements is subject to both known and
unknown risks, uncertainties and other factors that may cause actual results,
performance or achievements of the airline industry generally, and of Pan Am and
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<PAGE>
Carnival Air in particular, to be materially different from any outcomes
expressed or implied by such forward-looking statements and other risks and
factors discussed elsewhere in this report and the documents filed by the
Company with the Securities and Exchange Commission. These risks and factors
include, among other things, economic, competitive and regulatory conditions,
demographic trends, financial market conditions, availability of financings and
future business decisions (of both Pan Am or Carnival Air and its competitors),
all of which are difficult or impossible to predict accurately and many of which
are beyond the control of Pan Am. In light of these risks and uncertainties,
there can be no assurance that the forward-looking information contained in this
report will, in fact, occur.
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PART II
ITEM 1. LEGAL PROCEEDINGS
Pan Am is presently involved in litigation in the United States District
Court, Southern District of New York, with Eclipse Holdings, Inc.
("Eclipse"). Such litigation commenced on April 20, 1995 and is
captioned: PAN AMERICAN WORLD AIRWAYS, INC. V. ECLIPSE HOLDINGS, INC.,
DAVID LOCKWOOD, DAVID SCOTT AND RICHARD BARTEL, 95 Civ. 2763 (LMM).
Eclipse had initially submitted the winning bid in bankruptcy court to
purchase the Pan Am Intellectual Property, but was unable to secure
financing for its bid and subsequently assigned its rights to purchase
the Pan Am Intellectual Property to Pan Am. Pan Am has an action against
Eclipse seeking to compel Eclipse to execute and deliver the assignment
documentation in order to register the Pan Am Intellectual Property in
certain foreign countries. Pursuant to such action, Eclipse was
compelled to execute such assignment documentation. Eclipse has appealed
such order. Additionally, Eclipse has filed an action against Pan Am
challenging Pan Am's ownership of the Pan Am Intellectual Property.
Management believes the suit will be resolved in Pan Am's favor.
However, the loss by Pan Am of the Pan Am Intellectual Property would
have a material adverse effect on Pan Am.
ITEM 2. CHANGES IN SECURITIES
On May 15, 1997, the Registrant sold 135,000 shares of Series B
Convertible Preferred Stock, par value $.0001 per share and stated value
of $100 per share (the "Series B Preferred Stock"). The Registrant has
authorized 250,000 shares of Series B Preferred Stock. Holders of Series
B Preferred Stock are entitled to cumulative dividends at a rate per
share (as a percentage of stated value per share) equal to 7.25% per
annum payable in shares of Common Stock in arrears. For the first nine
months following the date that the Series B Preferred Stock is issued,
the Series B Preferred Stock is convertible a the option of the holders
thereof into shares of Common Stock at a fixed price of $8.39 (the
"Series B Fixed Price"); thereafter, the Series B Preferred Stock is
convertible at the lesser of the Series B Fixed Price; or a floating
price which is set at a discount to market beginning at 97% and
increasing at the rate of 1% per month until it reaches 80%. As
additional consideration, the purchasers of the Series B Preferred Stock
received in the aggregate, warrants to purchase 278,924 shares of Common
Stock at an exercise price equal to $9.23 with a term of three years.
On May 19, 1997, 150,000 warrants were exercised to purchase 150,000
shares of Common Stock at $5.00 per share.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Documents filed with this report:
1. Financial Statements. The financial statements filed as a part of
this report are listed in Item 1, "Financial Statements and
Supplementary Data," herein.
2. Financial Statement Schedules. There are no financial statement
schedules filed as part of this report, since the required
information is included in the financial statements, including
notes thereto, or the circumstances requiring inclusion of such
schedules are not present.
3. Exhibits. The following exhibits are filed herewith or
incorporated by reference as indicated. Exhibit numbers refer to
Item 601 of Regulation S-K. As used in the list of Exhibits
below, "Registrant" refers to the Company.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
11A Computation of Earnings per Share for the three
months ended June 30, 1997
11B Computation of Earnings per Share for the six
months ended June 30, 1997
27 Financial Data Schedule
(b) Current reports on Form 8-K:
On June 5, 1997, the Company filed a Current Report on Form 8-K,
dated May 15, 1997, reporting the sale of 150,000 shares of Series A
Convertible Preferred Stock, par value of $.0001 per share and
stated value of $100 per share on March 31, 1997, and the sale of
135,000 shares of Series B Convertible Preferred Stock, par value
$.0001 per share and stated value of $100 per share on May 15, 1997.
The Form 8-K included the Registrant's Articles of Incorporation.
On July 17, 1997, the Company filed a Current Report on Form 8-K,
dated July 8, 1997, reporting the execution on July 8, 1997, of a
commitment letter between Carnival Air Lines, Inc., as borrower
("Carnival Air"), Pan Am Corporation and Mr. Micky Arison, as
guarantors, and NationsBank, N.A., as lender (the "Lender"), which
sets forth the basis on which the Lender will provide two revolving
credit bridge facilities of up to an aggregate of $25 million for
use by Carnival Air for working capital and general corporate
purposes and for the repayment by Carnival Air of up to $5 million
in existing bank debt. The agreement was executed on July 28, 1997.
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In accordance with the requirements of Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PAN AM CORPORATION
Date: August 14, 1997 By: /s/ JOHN J. OGILBY, JR.
------------------------------------
John J. Ogilby, Jr., Chief Financial
Officer and General Counsel
(Principal Financial Officer)
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EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
11A Computation of Earnings per Share for the three months
ended June 30, 1997
11B Computation of Earnings per Share for the six months
ended June 30, 1997
27 Financial Data Schedule (For SEC Use Only)
EXHIBIT 11A
<TABLE>
<CAPTION>
PAN AM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED JUNE 30,
1997 1996
--------------------------- --------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 11,333,489 11,333,489 7,561,191 7,561,191
Additional shares due to:
Series A preferred stock 0 0 0 0
Series B preferred stock 0 0 0 0
------------ ------------ ----------- -----------
Total equivalent shares 11,333,489 11,333,489 7,561,191 7,561,191
============ ============ =========== ===========
Earnings per share:
Net loss $(17,056,421) $(17,056,421) $(3,083,532) $(3,083,532)
Less: Preferred stock
dividends (419,240) (419,240) 0 0
------------ ------------ ----------- -----------
Adjusted net loss $(17,475,661) $(17,475,661) $(3,083,532) $(3,083,532)
============ ============ =========== ===========
Earnings per common share $ (1.54) $ (1.54) $ (0.41) $ (0.41)
</TABLE>
EXHIBIT 11B
<TABLE>
<CAPTION>
PAN AM CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE SIX MONTHS ENDED JUNE 30,
1997 1996
--------------------------- --------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 11,143,796 11,143,796 4,758,971 4,758,971
Additional shares due to:
Series A preferred stock 0 0 0 0
Series B preferred stock 0 0 0 0
------------ ------------ ----------- -----------
Total equivalent shares 11,143,796 11,143,796 4,758,971 4,758,971
============ ============ =========== ===========
Earnings per share:
Net loss $(31,613,009) $(31,613,009) $(4,110,476) $(4,110,476)
Less: Preferred stock
dividends (419,240) (419,240) 0 0
------------ ------------ ----------- -----------
Adjusted net loss $(32,032,249) $(32,032,249) $(4,110,476) $(4,110,476)
============ ============ =========== ===========
Earnings per common share $ (2.78) $ (2.87) $ (0.86) $ (0.86)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 19,111,339
<SECURITIES> 0
<RECEIVABLES> 11,339,923
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,151,437
<PP&E> 14,329,495
<DEPRECIATION> (678,346)
<TOTAL-ASSETS> 60,055,573
<CURRENT-LIABILITIES> 31,071,462
<BONDS> 0
0
28,500,000
<COMMON> 1,141
<OTHER-SE> (18,784,604)
<TOTAL-LIABILITY-AND-EQUITY> 60,055,573
<SALES> 51,283,429
<TOTAL-REVENUES> 51,283,429
<CGS> 83,445,467
<TOTAL-COSTS> 83,445,467
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (19,063)
<INCOME-PRETAX> (31,613,009)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31,613,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,613,009)
<EPS-PRIMARY> (2.87)
<EPS-DILUTED> (2.87)
</TABLE>
