FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ 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
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number
0-25732
ATLAS AIR, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1207329
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
538 Commons Drive, Golden, Colorado 80401
(Address of principal executive offices) (Zip Code)
(303) 526-5050
(Registrant's telephone number, including area code)
Indicated 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.
[ x ] Yes [ ] No
As of August 12, 1996 the Registrant had 22,440,229 shares of
$.01 par value Common Stock outstanding.
ATLAS AIR, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
June 30, 1996 and December 31, 1995
Consolidated Statements of Operations-
Quarter and Six Months Ended June 30, 1996
and 1995
Consolidated Statements of Cash Flows-
Six Months Ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
Signatures
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $50,576 $96,990
Short term investments 98,803 --
Accounts receivable and other 31,140 18,594
Total current assets 180,519 115,584
Property and equipment:
Flight equipment 465,718 349,836
Other 3,447 3,055
469,165 352,891
Less accumulated depreciation (43,230) (33,140)
Net property and equipment 425,935 319,751
Other assets:
Debt issuance costs 13,525 8,607
Deposits 3,561 3,381
17,086 11,988
Total assets $623,540 $447,323
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $21,853 $15,359
Accounts payable and accrued 24,848 19,203
expenses
Total current liabilities 46,701 34,562
Notes payable 369,594 335,902
Deferred income tax payable 17,004 8,144
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $1 par value; -- --
10,000,000 shares authorized;
no shares issued
Common Stock, $0.01 par value;
50,000,000 shares authorized;
22,385,229 and 19,600,000 shares
issued at June 30, 1996 and
December 31, 1995, respectively 224 196
Additional paid-in capital 172,208 66,591
Retained earnings 18,068 1,928
Treasury Stock, at cost; 4,918
shares at June 30, 1996 (259) --
Total stockholders' equity 190,241 68,715
Total liabilities and
stockholders' equity $623,540 $447,323
See accompanying notes.
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Contract services $68,177 $37,818 $123,987 $65,367
Scheduled services 2,159 600 2,573 1,822
Charters and other 2,278 -- 4,703 167
Total operating
revenues 72,614 38,418 131,263 67,356
Operating expenses:
Flight crew
salaries and
benefits 5,879 3,349 10,866 6,294
Other flight-
related expenses 6,399 2,950 11,140 5,672
Maintenance 17,654 8,436 32,380 14,687
Aircraft and
engine rentals 5,777 5,215 11,673 11,625
Fuel and ground
handling 3,556 699 5,203 2,258
Depreciation and
amortization 5,210 3,581 10,093 5,896
Other 5,472 4,140 11,831 7,335
Total operating
expenses 49,947 28,370 93,186 53,767
Operating income 22,667 10,048 38,077 13,589
Other income
(expense):
Interest income 1,605 122 2,751 243
Interest expense (8,587) (4,408) (15,450) (7,859)
(6,982) (4,286) (12,699) (7,616)
Income before
income taxes 15,685 5,762 25,378 5,973
(Provision) benefit
for income taxes (5,648) (1,901) (9,138) (2,062)
Net income $10,037 $3,861 $16,240 $3,911
Net income per
common share $0.47 $0.26 $0.79 $0.26
Weighted average
common and common
equivalent shares
outstanding 21,425 15,000 20,556 15,000
</TABLE>
See accompanying notes.
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Operating activities:
Net income $16,240 $3,911
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 10,093 5,896
Amortization of debt issuance costs 894 189
Interest financed -- 1,229
Change in deferred income tax payable 8,860 1,995
Changes in operating assets and
liabilities:
Accounts receivable and other (12,546) (2,113)
Deposits (180) 1,225
Accounts payable and accrued
expenses 5,645 317
Net cash provided by operating
activities 29,006 12,649
Investment activities:
Purchase of property and equipment (116,277) (88,490)
Purchase of short term investments (108,803) --
Maturity of short term investments 10,000 --
Net cash (used) in investing
activities (215,080) (88,490)
Financing activities:
Issuance of Common Stock 105,645 --
Purchase of Treasury Stock (562) --
Issuance of Treasury Stock 203 --
Borrowings on notes payable 50,396 81,693
Principal payments on notes payable (10,210) (3,752)
Debt issuance costs (5,812) (500)
Advances from affiliate, net -- (1,700)
Net cash provided by financing
activities 139,660 75,741
Net (decrease) in cash (46,414) (100)
Cash and cash equivalents at beginning of
period 96,990 10,524
Cash and cash equivalents at end of
period $50,576 $10,424
</TABLE>
See accompanying notes.
ATLAS AIR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Unaudited Consolidated Financial Statements
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting only of normal recurring items) necessary to present
fairly the financial position of Atlas Air, Inc. and its wholly-
owned subsidiaries (collectively, the "Company") as of June 30,
1996 and the results of operations and cash flows for the periods
presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to the Securities and Exchange Commission's
rules and regulations. The results of operations for the periods
presented are not necessarily indicative of the results to be
expected for the full year. Management believes the disclosures
made are adequate to ensure that the information is not
misleading, and suggests that these financial statements be read
in conjunction with the Company's December 31, 1995 audited
financial statements.
2. Short Term Investments
Proceeds from the Company's secondary public offering in May
1996 (see Note 4.), plus additional funds, were invested in
various held-to-maturity securities, as defined in the Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities", which requires
investments in debt securities to be classified as held-to-
maturity and measured at amortized cost in the statement of
financial position only if the reporting enterprise has the
positive intent and ability to hold those securities to maturity.
The following table sets forth the aggregate fair value, gross
unrealized holding gains, gross unrealized holding losses, and
amortized/accreted cost basis by major security type as of June
30, 1996.
Gross Gross (Amorti-
Unrealized Unrealized zation)
Aggregate Holding Holding
Security Type Fair Value Gains Losses Accretion
Certificates of
Deposit $4,974,500 $29,500 N/A
Commercial
Paper 17,873,900 5,464 $31,910
Medium Term
Notes 30,329,590 11,656 10,342 (32,976)
U.S. Government
Agencies 15,489,955 4,704 2,021 9,625
Corporate Notes 16,870,716 14,785 (21,651)
Market Auction
Preferreds 7,500,000 N/A N/A N/A
Corporate Bonds 4,981,250 18,750 N/A
Totals $98,019,911 $16,360 $80,862 $(13,092)
3. Commitments and Contingencies
In January 1996, the Company entered into a contract with
Langdon Asset Management, Inc. for the purpose of acquiring six
Boeing 747-200 passenger aircraft (the "Thai Aircraft") and
certain spare engines and spare parts from Thai Airways
International Public Company Limited ("Thai Airways"). The Thai
Aircraft will be converted into freighter configuration by The
Boeing Company ("Boeing") and delivered to the Company for
placement into service between the fourth quarter of 1996 and
year-end 1997. The average cost of the six aircraft, including
conversion costs, is expected to approximate $40 million. The
Company has placed a nonrefundable deposit of $3 million with
Thai Airways with respect to its acquisition of the Thai
Aircraft. The Company obtained financing from a single lender for
approximately 80% of the total acquisition and conversion cost of
the first Thai Aircraft, pursuant to which it initially borrowed
approximately $21.2 million in the first quarter of 1996.
In March 1996, the Company entered into an agreement with
Federal Express Corporation ("Federal Express") to lease five 747-
200 freighter aircraft (the "Federal Express Aircraft"), plus
spare engines. The first Federal Express Aircraft was delivered
to the Company in March 1996. The next two Federal Express
Aircraft were delivered to the Company in June and July 1996, to
be placed into service in July and August 1996, respectively.
The remaining two Federal Express Aircraft will be delivered to
the Company in the fourth quarter of 1996. The lease term ends
in January 1998 for all five of the aircraft. The lease rate is
$450,000 per month per aircraft. In addition, the Company has
agreed to purchase on or before October 1, 1996 a Boeing 747
simulator from Federal Express for a purchase price of $2.1
million. The Company is also negotiating the possible purchase of
certain Boeing 747-200 spare parts from Federal Express.
In May 1996, the Company entered into a $175 million
revolving credit facility provided by two lenders for the
acquisition and conversion of flight equipment, including any or
all of the remaining five Thai Aircraft. The facility will have
a two-year revolving period with a subsequent two-year term loan
period in the event that permanent financing has not been
obtained for any flight equipment financed under the facility.
The Company closed upon and drew down its initial borrowing
pursuant to the facility in May 1996 in the amount of
approximately $21.4 million with respect to the purchase of the
second Thai Aircraft and a related spare engine.
In June, the Company entered into an ACMI contract with Thai
Airways for a three year term commencing in October 1996, with an
annual option to extend the contract for an additional year.
This contract also includes an option for Thai Airways to lease a
second and a third aircraft, each for a three year term,
commencing in February and July 1998, respectively.
In September 1993 and June 1994, the FAA issued
Airworthiness Directives requiring the inspection and replacement
of certain engine components with which the Company must comply
by December 1997 at an estimated aggregate cost of $1.1 million
for all of the aircraft in the Company's fleet. In November
1994, the FAA issued Nacelle Strut Modification Service Bulletins
which are expected to be converted into Airworthiness Directives.
The Company's aircraft would have to be brought into compliance
with such Airworthiness Directives within the next five years at
an estimated cost of approximately $500,000 for each aircraft in
its fleet. It is possible that additional Service Bulletins or
Airworthiness Directives applicable to the types of aircraft
included in the Company's fleet could be issued in the future.
The cost of compliance with such Airworthiness Directives cannot
currently be estimated, but could be substantial.
4. Secondary Stock Offering
In May 1996, the Company consummated the sale of 2,300,000
shares of its Common Stock and 1,643,999 shares of its Common
Stock held by a selling stockholder, Michael A. Chowdry, at an
offering price of $45.75 per share, for aggregate net proceeds to
the Company of $99.8 million, including exercise in full of the
underwriters' over-allotment option, and after deducting the
aggregate underwriting discounts and the estimated expenses of
the Offering. All net proceeds were retained for working capital
and other general corporate purposes including, but not limited
to, the acquisition and conversion of aircraft. The Company did
not receive any proceeds from the sale of shares of its Common
Stock by the Selling Stockholder.
5. Subsequent Events
In July 1996, the Company entered into an ACMI contract with
Fast Air Carrier S.A. ("Fast Air", a Chilean corporation) through
December 1997. The Company performed short term services for
Fast Air during the second quarter of 1996.
In July 1996, the Company entered into a three-year ACMI
contract with Cargolux Airlines International S.A. ("Cargolux", a
Luxembourg corporation), following its agreement to purchase from
Cargolux a 747-200 freighter aircraft previously leased from
Cargolux for a purchase price of approximately $30.3 million,
including a spare engine. In August 1996, an additional $26.6
million was drawn down from the $175 million revolving credit
facility for the purchase of this aircraft.
In August 1996, the second Thai Aircraft was delivered to
Boeing for conversion into freighter configuration, with an
expected re-delivery date to the Company in the fourth quarter of
1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company, through its predecessors, began its operations
in April 1992 with one Boeing 747-200 High Gross Weight Aircraft
in the service of China Airlines and expanded its operations to a
second Boeing 747-200 High Gross Weight Aircraft in November
1992. These operations were undertaken on behalf of the Company
by another carrier utilizing pilot crews, dispatch facilities,
maintenance operations and other services provided by such
carrier. As a result, the Company's operations prior to 1993
were primarily limited to aircraft leasing and start-up
activities with normal operations commencing in early 1993. As
such, the Company's revenues and expenses during that period are
not indicative of the revenues and expenses which were incurred
by the Company from 1993 through the second quarter of 1996 and
which may be incurred in the future. Furthermore, the Company
expensed its start-up costs in 1992. As a result, the Company
does not believe that any comparison of the period prior to 1993
with later periods would be meaningful.
The table below sets forth selected financial and operating
data for the first and second quarters of 1996 and the four
quarters of the years ended December 31, 1995 and 1994 (dollars
in thousands).
1996
Cumu- 2nd 1st
lative Quarter Quarter
Total operating revenues $131,263 $72,614 $58,649
Operating expenses 93,186 49,947 43,239
Operating income (loss) 38,077 22,667 15,410
Other income (expense) (12,699) (6,982) (5,717)
Net income 16,240 10,037 6,203
Block hours 25,198 14,073 11,125
Average aircraft operated 12.4 14.0 10.8
Operating margin 29.0% 31.2% 26.3%
1995
Cumu- 2nd 1st
lative Quarter Quarter
Total operating revenues $67,356 $38,418 $28,938
Operating expenses 53,767 28,370 25,397
Operating income (loss) 13,589 10,048 3,541
Other income (expense) (7,616) (4,286) (3,330)
Net income 3,911 3,861 50
Block hours 13,380 7,568 5,812
Average aircraft operated 6.5 6.9 6.1
Operating margin 20.2% 26.2% 12.2%
<TABLE>
<CAPTION>
1995
Cumu- 4th 3rd 2nd 1st
lative Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Total operating
revenues $171,267 $56,142 $47,769 $38,418 $28,938
Operating expenses 128,593 39,982 34,844 28,370 25,397
Operating income (loss) 42,674 16,160 12,925 10,048 3,541
Other income (expense) (16,435) (4,014) (4,805) (4,286) (3,330)
Net income (loss) 17,831 8,352 5,568 3,861 50
Block hours 33,265 10,809 9,076 7,568 5,812
Average aircraft
operated 7.7 9.4 8.2 6.9 6.1
Operating margin 24.9% 28.8% 27.1% 26.2% 12.2%
<CAPTION>
1994
Cumu- 4th 3rd 2nd 1st
lative Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
Total operating
revenues $102,979 $35,729 $34,271 $20,802 $12,177
Operating expenses 89,085 29,848 27,400 17,743 14,094
Operating income (loss) 13,894 5,881 6,871 3,059 (1,917)
Other income (expense) (10,294) (2,560) (2,635) (2,700) (2,399)
Net income (loss) 3,586 3,321 4,235 346 (4,316)
Block hours 19,049 6,619 6,226 3,789 2,415
Average aircraft
operated 5.2 6 5.8 5 3.8
Operating margin 13.5% 16.5% 20.0% 14.7% (15.7)%
</TABLE>
Operating Revenues and Results of Operations
Total operating revenues for the quarter ended June 30, 1996
increased to $72.6 million compared to $38.4 million for the same
period in 1995, an increase of approximately 89%. The average
number of aircraft in the Company's fleet during the second
quarter of 1996 was 14.0 compared to 6.9 during the same period
in 1995. Total block hours for the second quarter of 1996 were
14,073 compared to 7,568 for the same period in 1995, an increase
of approximately 86%, principally reflecting the increase in the
size of the Company's fleet. Revenue per block hour increased by
approximately 2% to $5,160 for the second quarter of 1996
compared to $5,076 for the year-earlier period, primarily as a
result of an increase in higher-yielding charter operations. The
Company's operating results improved from a $10.0 million
operating profit for the second quarter of 1995 to an operating
profit of $22.7 million for the second quarter of 1996. This
increase was a result of the doubling in size of the fleet, as
compared to the second quarter of 1995. Net income of $3.9
million for the second quarter of 1995 improved to a net income
of $10.0 million for the second quarter of 1996.
Total operating revenues for the six months ended June 30,
1996 increased to $131.3 million compared to $67.4 million for
the same period in 1995, an increase of approximately 95%. The
average number of aircraft in the Company's fleet during the six
months ended June 30, 1996 was 12.4 compared to 6.5 during the
same period in 1995. Total block hours for the first six months
of 1996 were 25,198 compared to 13,380 for the same period in
1995, an increase of approximately 88%, principally reflecting
the increase in the size of the Company's fleet. Revenue per
block hour increased by approximately 3% to $5,209 for the first
half of 1996 compared to $5,034 for the year-earlier period,
primarily as a result of an increase in higher-yielding charter
operations. The Company's operating results improved from a
$13.6 million operating profit for the first half of 1995 to an
operating profit of $38.1 million for the first half of 1996.
This increase was a result of the doubling in size of the fleet,
as compared to the first half of 1995. Net income of $3.9
million for the first half of 1995 improved to a net income of
$16.2 million for the first half of 1996.
Operating expenses
The Company's principal operating expenses include flight
crew salaries and benefits; other flight-related expenses;
maintenance; aircraft and engine rentals; fuel costs and ground
handling; depreciation and amortization; and selling, general and
administrative expenses.
Flight crew salaries and benefits include all such expenses
for the Company's pilot work force. Flight crew salaries and
benefits increased to $5.9 million in the second quarter of 1996
compared to $3.3 million in the same period of 1995, and to $10.9
million in the six months ended June 30, 1996 compared to $6.3
million in the six months ended June 30, 1995. These increases
were relative to the increases in the Company's fleet size and
aircraft block hours. While actual expense increased by
approximately 76% during the second quarter of 1996, on a block
hour basis this expense declined to $418 per hour for the second
quarter of 1996 from $443 per hour for the same period in 1995.
For the six months ended June 30, 1996, actual expense increased
73%, but on a block hour basis declined to $431 per hour from
$470 per hour for the same period in 1995. These reductions of
6% and 8%, respectively, were due to increased efficiency in
staffing levels and scheduling resulting from the increased level
of operations.
Other flight-related expenses include hull and liability
insurance on the Company's fleet of Boeing 747 aircraft, crew
travel and meal expenses, initial and recurring crew training
costs and other expenses necessary to conduct its flight
operations.
Other flight-related expenses increased to $6.4 million in
the second quarter of 1996 compared to $3.0 million in 1995, and
to $11.1 million in the six months ended June 30, 1996 compared
to $5.7 million in the six months ended June 30, 1995, or
approximately 117% and 96%, respectively, due primarily to the
larger fleet size. On a block hour basis, this expense increased
by 17% to $455 per hour for the second quarter of 1996 compared
to $390 per hour for the same period in 1995, and by 4% to $442
per hour for the six months ended June 30, 1996 compared to $424
per hour for the same period in 1995. The second quarter 1996
increase was due primarily to increased training and travel costs
associated with additional staffing required for the Company's
scheduled third and fourth quarter aircraft deliveries, partially
offset by reduced per-aircraft insurance costs. The increase for
the six months ended June 30, 1996 is significantly lower than
the increase for the second quarter, as the Company's spending
with respect to training and travel costs associated with first
quarter aircraft deliveries was incurred in the fourth quarter of
1995.
Maintenance expenses include all expenses related to the
upkeep of the aircraft, including maintenance, labor, parts,
supplies and maintenance reserves. The costs of C Checks and
engine overhauls not otherwise covered by maintenance reserves,
are capitalized as they are incurred and amortized over the life
of the maintenance event. In addition, in January 1995 the
Company contracted with KLM for a significant part of its regular
maintenance operations and support on a fixed cost per flight
hour basis and in April 1995 with HAECO, another contract
maintenance operator, at fixed rates to undertake conversions
and/or D Checks on ten Boeing 747 aircraft through October 1997,
in order to reduce its maintenance expense on a per aircraft
basis in future periods.
Maintenance expense increased to $17.7 million in the second
quarter of 1996 from $8.4 million in the same period of 1995, and
to $32.4 million in the six months ended June 30, 1996 from $14.7
million in the six months ended June 30, 1995, or approximately
109% and 120%, respectively, as a direct result of the increase
in the Company's average fleet size. On a block hour basis,
maintenance expense increased by 12% and 17%, respectively,
primarily due to parts support requirements associated with
scheduled and unscheduled maintenance events, and to induction
costs related to the placement into service of the first of the
747-200 aircraft acquired by the Company from Federal Express.
Aircraft and engine rentals include the cost of leasing
aircraft and spare engines, as well as the cost of short-term
engine leases required to replace engines removed from the
Company's aircraft for either scheduled or unscheduled
maintenance and any related short-term replacement aircraft lease
costs.
Aircraft and engine rentals were $5.8 million in the second
quarter of 1996 compared to $5.2 million in the same period of
1995, and $11.7 million in the six months ended June 30, 1996
compared to $11.6 million in the six months ended June 30, 1995,
or an increase of approximately 11% and .4%, respectively.
Aircraft rentals were lower for the second quarter of 1995 due to
the interim return of one rental aircraft for most of the
quarter, prior to its purchase from the lessor. Engine rentals
were comparable for both quarters. The six month increase was
negligible, as higher second quarter 1996 aircraft rentals were
offset by lower first quarter 1996 engine rentals.
Because of the nature of the Company's ACMI contracts with
its airline customers, under which the Company is responsible
only for the ownership cost and maintenance of the aircraft and
for supplying aircraft crews and insurance, the Company's airline
customers bear all other operating expenses, including fuel and
fuel servicing; marketing costs associated with obtaining cargo;
airport cargo handling; landing fees; ground handling; aircraft
push-back and de-icing services; and specific cargo and mail
insurance. As a result, the Company incurs fuel and ground
handling expenses only when it operates on its own behalf, either
in scheduled services it occasionally provides between Hong Kong
and the United States, for ad hoc charters or for ferry flights.
Fuel expenses for the Company's non-ACMI contract services
include both the direct cost of aircraft fuel as well as the cost
of delivering fuel into the aircraft. Ground handling expenses
for non-ACMI contract service include the costs associated with
servicing the Company's aircraft at the various airports to which
it operates as well as other direct flight related costs.
Fuel and ground handling costs were $3.6 million in the
second quarter of 1996 compared to $.7 million in the same period
of 1995, and $5.2 million in the six months ended June 30, 1996
compared to $2.3 million in the same period of 1995. During the
second quarter of 1996, the Company experienced a significant
increase in scheduled service and charter hours flown in response
to customer needs. Fuel and ground handling costs increased
proportionately. The increase for the first half of 1996 was
less as a result of lower scheduled service and charter hours in
the first quarter of 1996 compared to the same period in 1995.
Depreciation and amortization expense includes depreciation
on aircraft, spare parts and ground equipment, and the
amortization of capitalized major aircraft maintenance and engine
overhauls.
Depreciation and amortization expense increased to $5.2
million in the second quarter of 1996 from $3.6 million in the
same period of 1995, and $10.1 million in the six months ended
June 30, 1996 from $5.9 million in the same period of 1995, or
approximately 45% and 71%, respectively. This second quarter
increase reflects the increase in owned aircraft and engines for
the second quarter of 1996 over the same period in 1995,
partially offset by a correction to the depreciable life of one
of the Company's owned engines. The comparison for the first
half of 1996 reflects the increase in fleet size, only slightly
offset by the second quarter 1996 depreciation correction.
Other operating expenses include salaries, wages and
benefits for all employees other than pilots; accounting and
legal expenses; supplies; travel and meal expenses, excluding
those of the aircraft crews; commissions; and other miscellaneous
operating costs. Other operating costs increased to $5.5 million
in the second quarter of 1996 from $4.1 million in the same
period of 1995, and to $11.8 million in the six months ended June
30, 1996 from $7.3 million in the same period of 1995, or
approximately 32% and 61%, respectively, reflecting the increase
in the Company's operations. On a block hour basis, these
expenses decreased to $389 per hour in the second quarter of 1996
from $547 per hour in the same period of 1995, and to $470 per
hour in the six months ended June 30, 1996 from $548 per hour in
the same period of 1995, or 29% and 14%, respectively. These
decreases in costs on a block hour basis were due to establishing
in 1995 the core management necessary to oversee the Company's
future increase in business activity.
Other Income (Expense)
Other income (expense) consists of interest income and
interest expense. Interest income increased to $1.6 million for
the second quarter of 1996 from $0.1 million in the same period
of 1995, and to $2.8 million for the six months ended June 30,
1996 from $.2 million in the same period of 1995, due primarily
to funds received from the secondary public offering in May 1996,
as well as from funds retained from the Initial Public Offering
("IPO") in August 1995. Interest expense increased to $8.6
million in the second quarter of 1996 from $4.4 million in the
same period of 1995, and to $15.5 million in the six months ended
June 30, 1996 from $7.9 million in the same period of 1995, or
approximately 95% and 97%, respectively, resulting from the
increase in financed flight equipment between these periods.
Income Taxes
The provision for income taxes for the second quarter of
1996 of $5.6 million and for the six months ended June 30, 1996
of $9.1 million reflects a 36% effective tax rate. The Company
has net operating loss carryforwards which will defer
substantially all of this provision to future periods. Due to
the nature of the Company's international operations, state and
local income taxes are negligible.
Seasonality
The cargo operations of the Company's airline customers are
seasonal in nature, with peak activity occurring traditionally in
the second half of the year, and with a significant decline
occurring in the first quarter. This decline in cargo activity
is largely due to the decrease in shipping that occurs following
the December and January holiday seasons associated with the
celebration of Christmas and the Chinese New Year. Certain of
the Company's customers have, in the past, elected to use that
period of the year to exercise their contractual options to
cancel a limited number (generally not more than 5%) of cargo
flights with the Company, and are expected to continue to do so
in the future. As a result, the Company's revenues typically
decline in the first quarter of the year as its minimum
contractual aircraft utilization level temporarily decreases.
The company seeks to schedule, to the extent possible, its major
aircraft maintenance activities during this period to take
advantage of any unutilized aircraft time.
Liquidity and Capital Resources
At June 30, 1996, the Company had cash and cash equivalents
of approximately $50.6 million, short-term investments of
approximately $98.8 million and working capital of approximately
$133.8 million. During the second quarter of 1996, the Company
completed a secondary public offering of its Common Stock, with
net proceeds to the Company of approximately $99.8 million.
During the first six months of 1996, cash and cash equivalents
decreased $46.4 million, principally reflecting investments in
flight and other equipment of $116.3 million, the net purchase
of $98.8 million of short-term investments, debt issuance costs
of $5.8 million and principal reductions of indebtedness of $10.2
million, partially offset by cash provided from operations of
$29.0 million, proceeds from equipment financings of $50.4
million and net Common Stock issuances of $105.3 million,
including the $99.8 million received from the secondary public
offering.
The Company had previously contracted to purchase three
Boeing 747-200 aircraft at an average cost of approximately $36
million each (including the cost of modifying the aircraft for
long-haul cargo service), one of which was delivered to the
Company in January 1996 and the other two of which were delivered
to the Company during March 1996. The Company utilized the
proceeds from an Equipment Notes offering consummated in November
1995, together with funds from the Company, to pay the purchase
price, including modification cost, of these three aircraft.
In January 1996, the Company entered into a contract with
Langdon Asset Management, Inc. for the purpose of acquiring six
Boeing 747-200 passenger aircraft (the "Thai Aircraft") and
certain spare engines and spare parts from Thai Airways
International Public Company Limited ("Thai Airways"). The Thai
Aircraft will be converted into freighter configuration by Boeing
and delivered to the Company for placement into service between
the fourth quarter of 1996 and year-end 1997. The average cost
of the six aircraft, including conversion costs, is expected to
approximate $40 million. The Company has placed a nonrefundable
deposit of $3 million with Thai Airways with respect to its
acquisition of the Thai Aircraft. As discussed below, the
Company has obtained commitments for financing with respect to
some or all of the Thai Aircraft.
In March 1996, the Company entered into an agreement with
Federal Express Corporation ("Federal Express") to lease five 747-
200 freighter aircraft (the "Federal Express Aircraft"), plus
spare engines. The first Federal Express Aircraft was delivered
to the Company in March 1996. The next two Federal Express
Aircraft were delivered to the Company in June and July 1996, to
be placed into service in July and August 1996, respectively.
The remaining two Federal Express Aircraft will be delivered to
the Company in the fourth quarter of 1996. The lease term ends
in January 1998 for all five of the aircraft. The lease rate is
$450,000 per month per aircraft. In addition, the Company has
agreed to purchase on or before October 1, 1996 a Boeing 747
simulator from Federal Express for a purchase price of $2.1
million. The Company is also negotiating the possible purchase of
certain Boeing 747-200 spare parts from Federal Express.
In May 1996, the Company entered into an agreement with
Cargolux Airlines International S.A. ("Cargolux") for the
purchase of one 747-200 freighter aircraft (the "Cargolux
Aircraft") previously leased by the Company from Cargolux, for a
purchase price of approximately $30.3 million, including a spare
engine. The Cargolux Aircraft was delivered to the Company in
August 1996 following the performance by Cargolux of maintenance
required to induct the aircraft into the Company's fleet. The
Company is also in preliminary discussions for the acquisition of
additional aircraft.
In May 1996, the Company consummated the sale of 2,300,000
shares of its Common Stock and 1,643,999 shares of its Common
Stock held by a selling stockholder, Michael A. Chowdry, at an
offering price of $45.75 per share, for aggregate net proceeds to
the Company of $99.8 million, including exercise in full of the
underwriters' over-allotment option, and after deducting the
aggregate underwriting discounts and the estimated expenses of
the Offering. All net proceeds were retained for working capital
and other general corporate purposes including, but not limited
to, the acquisition and conversion of aircraft. The Company did
not receive any proceeds from the sale of shares of its Common
Stock by the Selling Stockholder.
Due to the contractual nature of the Company's business, the
Company's management does not consider its operations to be
highly working capital-intensive in nature. Because most of the
non-ACMI costs normally associated with operations are borne by
and directly paid for by the Company's customers, the Company
does not incur significant costs in advance of the receipt of
corresponding revenues. Moreover, ACMI costs, which are the
responsibility of the Company, are generally incurred on a
regular, periodic basis ranging from flight hours to months.
These costs are largely matched by revenue receipts, as the
Company's contracts require regular payments from its customers,
based upon current flight activity, generally every two to four
weeks. As a result, the Company has not in the past had a
requirement for a working capital facility. The Company is,
however, in discussions with a lender for the possible provision
of such a facility due to the continued growth of the Company's
operations, although there can be no assurance that such a
facility will be extended or in what amount, if any.
The Company obtained financing from a single lender for
approximately 80% of the total acquisition and conversion cost of
the first Thai Aircraft, pursuant to which it initially borrowed
approximately $21.2 million in the first quarter of 1996. In
addition, in May 1996, the Company entered into a $175 million
revolving credit facility provided by two lenders for the
acquisition and conversion of flight equipment, including any or
all of the remaining five Thai Aircraft. The facility will have
a two-year revolving period with a subsequent two-year term loan
period in the event that permanent financing has not been
obtained for any flight equipment financed under the facility.
The Company closed upon and drew down its initial borrowing
pursuant to the facility in May 1996 in the amount of
approximately $21.4 million with respect to the purchase of the
second Thai Aircraft and a related spare engine. In August 1996,
an additional $26.6 million was drawn down under the facility
with respect to the purchase of the Cargolux Aircraft and an
associated spare engine.
The Company believes that the cash flow generated from its
operations and the proceeds from the May 1996 public offering of
its Common Stock, coupled with the availability of the above
referenced revolving credit facility, will be sufficient to meet
its normal ongoing liquidity needs for 1996, including the
acquisition of the remaining Thai Aircraft.
ATLAS AIR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 - Financial Data Schedule
b. Reports filed on Form 8-K
None.
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.
ATLAS AIR, INC.
(Registrant)
Date: August 13, 1996 By: /s/ Richard H. Shuyler
Richard H. Shuyler
Senior Vice President - Finance
Chief Financial Officer and
Treasurer (Principal Accounting
Officer)
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