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 September 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 November 8, 1996 the Registrant had 22,450,229 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-
September 30, 1996 and December 31, 1995
Consolidated Statements of Operations-
Quarter and Nine Months Ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows-
Nine Months Ended September 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 Schecule
Signatures
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September December
30, 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $20,179 $96,990
Short-term investments 112,641 --
Accounts receivable and other 35,510 18,594
Total current assets 168,330 115,584
Property and equipment:
Flight equipment 548,109 349,836
Other 3,675 3,055
551,784 352,891
Less accumulated depreciation (49,888) (33,140)
Net property and equipment 501,896 319,751
Other assets:
Debt issuance costs 13,005 8,607
Deposits 2,752 3,381
15,757 11,988
Total assets $685,983 $447,323
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $22,296 $15,359
Accounts payable and accrued exp. 35,608 19,203
Income tax payable 5,515 --
Total current liabilities 63,419 34,562
Notes payable 407,576 335,902
Deferred income tax payable 15,994 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;
22,450,229 and 19,600,000 shares
issued at September 30,1996 and
December 31, 1995, respectively 224 196
Additional paid-in capital 172,841 66,591
Retained earnings 26,185 1,928
Treasury Stock, at cost; 5,737
shares at September 30, 1996 (256) --
Total stockholders' equity 198,994 68,715
Total liabilities and
stockholders' equity $685,983 $447,323
See accompanying notes.
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Quarter ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues:
Contract services $75,101 $45,611 $199,087 $110,978
Scheduled services 2,145 897 4,719 1,064
Charters and other 2,435 1,261 7,138 3,083
Total operating
revenues 79,681 47,769 210,944 115,125
Operating expenses:
Flight crew salaries
and benefits 6,105 3,930 16,971 10,224
Other flight-related
expenses 7,553 3,533 19,522 9,205
Maintenance 21,758 11,851 54,138 26,538
Aircraft and engine
rentals 7,072 5,008 18,745 16,633
Fuel and ground
handling 3,389 1,444 7,637 3,702
Depreciation and
amortization 6,658 4,618 16,751 10,515
Other 7,100 4,460 19,057 11,794
Total operating
expenses 59,635 34,844 152,821 88,611
Operating income 20,046 12,925 58,123 26,514
Other income
(expense):
Interest income 2,228 603 4,979 846
Interest expense (9,435) (5,408) (24,885) (13,267)
(7,207) (4,805) (19,906) (12,421)
Income before income
taxes 12,839 8,120 38,217 14,093
Provision for income
taxes (4,638) (2,552) (13,775) (4,614)
Net income $8,201 $5,568 $24,442 $9,479
Net income per common
share $0.37 $0.32 $1.15 $0.60
Weighted average
common and common
equivalent shares
outstanding 22,430 17,530 21,185 15,843
See accompanying notes.
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
1996 1995
Operating activities:
Net income $24,442 $9,479
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 16,751 10,515
Amortization of debt issuance costs 1,581 332
Change in deferred income tax
payable 7,850 4,260
Changes in operating assets and
liabilities:
Accounts receivable and other (16,916) (8,224)
Deposits 629 1,180
Accounts payable and accrued
expenses 16,405 7,851
Income tax payable 5,515 --
Net cash provided by operating
activities 56,257 25,393
Investment activities:
Purchase of property and equipment (198,896) (100,559)
Purchase of short term investments (189,083) --
Maturity of short term investments 76,442 --
Advances of notes receivable -- (550)
Net cash used in investing activities (311,537) (101,109)
Financing activities:
Issuance of Common Stock 106,278 66,637
Purchase of Treasury Stock (776) --
Issuance of Treasury Stock 335 --
Borrowings on notes payable 94,165 82,605
Principal payments on notes payable (15,554) (5,126)
Debt issuance costs (5,979) --
Advances from affiliate, net -- (1,663)
Net cash provided by financing
activities 178,469 142,453
Net (decrease) increase in cash (76,811) 66,737
Cash and cash equivalents at beginning
of period 96,990 10,524
Cash and cash equivalents at end of
period $20,179 $77,261
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 September
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 a secondary public offering of the Company's
Common Stock in May 1996, 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
September 30, 1996:
Gross Gross (Amorti-
Aggregate Unrealized Unrealized zation)
Security Type Fair Value Holding Holding Accretion
Gains Losses
Commercial Paper $7,965,000 $2,341 $(102,658)
Medium Term
Notes 45,282,364 $33,075 944 114,042
U.S.Government
Agencies 17,493,609 8,017 12,704 (19,971)
Corporate Notes 19,348,678 4,349 3,680 83,818
Market Auction
Preferreds 10,500,000 N/A N/A N/A
Corporate Bonds 10,297,800 66,909 2,141
Totals $110,887,451 $45,441 $86,578 $77,372
In addition, there was $1.7 million of accrued interest on Short-
Term Investments at September 30, 1996. Interest earned on these
investments and maturities of these investments are reinvested in
similar securities.
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 end of the third quarter of
1996 and year-end 1997. The first of these aircraft was placed
into service by the Company at the end of September 1996. The
average cost of the six aircraft, including conversion costs, is
expected to be in the range of $40 million to $45 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 borrowed
approximately $21.2 million in the first quarter of 1996 and
$11.6 million at the end of the third quarter of 1996, upon re-
delivery of the aircraft from Boeing. In August and September
1996, the second and third Thai Aircraft were delivered to Boeing
for conversion into freighter configuration, with expected re-
delivery dates to the Company in the fourth quarter of 1996 and
the first quarter of 1997, respectively.
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 four Federal Express Aircraft were
delivered to the Company between March and September 1996. The
remaining Federal Express Aircraft is scheduled to be delivered
to the Company in the first quarter of 1997, as a result of the
deferral of its originally scheduled delivery from 1996 at the
request of Federal Express due to the destruction of one of its
other aircraft. 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 had agreed to purchase on or
before October 1, 1996 a Boeing 747 simulator from Federal
Express for a purchase price of $2.1 million. At the request of
Federal Express, this agreement was amended to extend the
purchase date to January 2, 1997. 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 has 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, the Company drew down an
additional $4.9 million as a downpayment of modification costs
related to this aircraft.
In June 1996, the Company entered into a ten year engine
maintenance agreement with General Electric Company ("GE") for
the maintenance of up to 15 aircraft powered by CF6-50E2 engines.
The agreement commenced in the third quarter with the testing of
several engines for acceptance into the GE program. Effective in
the year 2000, the Company has an option to add not less than 40
engines to the program.
In June 1996, 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 July 1996, the Company entered into a long-term ACMI
contract with Fast Air Carrier S.A. ("Fast Air", a Chilean
corporation), subsequent to the performance of short-term
services for Fast Air during the second quarter of 1996.
In July 1996, the Company entered into a long-term 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 $31.7 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 and engine.
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. Subsequent Events
In October and mid-November 1996, the Company drew down an
additional $23.5 million and $20.6 million, respectively, from
the $175 million revolving credit facility to finance the
acquisition of the third and fourth Thai Aircraft and a spare
engine. Working capital funds were used to make the down payment
to Boeing in October for the modification costs related to the
third Thai Aircraft. The downpayment to Boeing for the
modification costs related to the fourth Thai Aircraft is not
payable until the first quarter of 1997.
In October 1996, the Company entered into two five-year ACMI
contracts with China Airlines Ltd. commencing in 1997, one of
which is a replacement contract for a contract expiring in
January 1997.
In November 1996, the Company renewed its ACMI contract with
Varig Brazilian Airlines for an additional one-year term, subject
to periodic review.
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 third 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, second and third quarters of 1996 and the
four quarters of the years ended December 31, 1995 and 1994
(dollars in thousands).
1996
Cumu- 3rd 2nd 1st
lative Quarter Quarter Quarter
Total operating revenues $210,944 $79,681 $72,614 $58,649
Operating expenses 152,821 59,635 49,947 43,239
Operating income (loss) 58,123 20,046 22,667 15,410
Other income (expense) (19,906) (7,207) (6,982) (5,717)
Net income 24,442 8,201 10,037 6,203
Block hours 40,642 15,444 14,073 11,125
Average aircraft operated 13.4 15.4 14.0 10.8
Operating margin 27.6% 25.2% 31.2% 26.3%
1995
Cumu- 3rd 2nd 1st
lative Quarter Quarter Quarter
Total operating revenues $115,125 $47,769 $38,418 $28,938
Operating expenses 88,611 34,844 28,370 25,397
Operating income (loss) 26,514 12,925 10,048 3,541
Other income (expense) (12,421) (4,805) (4,286) (3,330)
Net income 9,479 5,568 3,861 50
Block hours 22,456 9,076 7,568 5,812
Average aircraft operated 7.1 8.2 6.9 6.1
Operating margin 23.0% 27.1% 26.2% 12.2%
1995
Cumu- 4th 3rd 2nd 1st
lative Quarter Quarter Quarter Quarter
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%
1994
Cumu- 4th 3rd 2nd 1st
lative Quarter Quarter Quarter Quarter
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)%
Operating Revenues and Results of Operations
Total operating revenues for the quarter ended September 30,
1996 increased to $79.7 million compared to $47.8 million for the
same period in 1995, an increase of approximately 67%. The
average number of aircraft in the Company's fleet during the
third quarter of 1996 was 15.4 compared to 8.2 during the same
period in 1995. Total block hours for the third quarter of 1996
were 15,444 compared to 9,076 for the same period in 1995, an
increase of approximately 70%, principally reflecting the
increase in the size of the Company's fleet. Revenue per block
hour decreased by approximately 2% to $5,159 for the third
quarter of 1996 compared to $5,263 for the year-earlier period,
primarily as a result of a decrease in higher-yielding charter
operations. The Company's operating results improved from a
$12.9 million operating profit for the third quarter of 1995 to
an operating profit of $20.0 million for the third quarter of
1996. This increase was a result of the near doubling in the
size of the Company's fleet, as compared to the third quarter of
1995, somewhat offset by higher maintenance costs in the third
quarter of 1996. Net income of $5.6 million for the third
quarter of 1995 improved to a net income of $8.2 million for the
third quarter of 1996.
Total operating revenues for the nine months ended September
30, 1996 increased to $210.9 million compared to $115.1 million
for the same period in 1995, an increase of approximately 83%.
The average number of aircraft in the Company's fleet during the
nine months ended September 30, 1996 was 13.4 compared to 7.1
during the same period in 1995. Total block hours for the first
nine months of 1996 were 40,642 compared to 22,456 for the same
period in 1995, an increase of approximately 81%, principally
reflecting the increase in the size of the Company's fleet.
Revenue per block hour increased by approximately 1% to $5,190
for the first nine months of 1996 compared to $5,127 for the year-
earlier period, principally reflecting the mix of charter versus
contract operations. The Company's operating results improved
from a $26.5 million operating profit for the first nine months
of 1995 to an operating profit of $58.1 million for the first
nine months of 1996. This increase was a result of the near
doubling in size of the fleet, as compared to the first nine
months of 1995. Net income of $9.5 million for the first nine
months of 1995 improved to a net income of $24.4 million for the
first nine months 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 $6.1 million in the third quarter of 1996
compared to $3.9 million in the same period of 1995, and to $17.0
million in the nine months ended September 30, 1996 compared to
$10.2 million in the nine months ended September 30, 1995. These
increases were proportional to the increases in the Company's
fleet size and aircraft block hours, partially offset by
operating efficiencies. While actual expense increased by
approximately 55% during the third quarter of 1996, on a block
hour basis this expense declined to $395 per hour for the third
quarter of 1996 from $433 per hour for the same period in 1995.
For the nine months ended September 30, 1996, actual expense
increased 66%, but on a block hour basis declined to $418 per
hour from $455 per hour for the same period in 1995. These
reductions of 9% 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 $7.6 million in
the third quarter of 1996 compared to $3.5 million in 1995, and
to $19.5 million in the nine months ended September 30, 1996
compared to $9.2 million in the nine months ended September 30,
1995, or approximately 114% and 112%, respectively, due primarily
to the larger fleet size. On a block hour basis, this expense
increased by 26% to $489 per hour for the third quarter of 1996
compared to $389 per hour for the same period in 1995, and by 17%
to $480 per hour for the nine months ended September 30, 1996
compared to $410 per hour for the same period in 1995. The third
quarter 1996 increase was due primarily to increased training and
travel costs associated with additional staffing required for the
Company's aircraft deliveries, and to extraordinary crew
positioning expenses related to both the introduction of certain
aircraft into the Company's fleet and to maintenance events
associated with those aircraft, partially offset by reduced per-
aircraft insurance costs. The increase for the nine months ended
September 30, 1996 is significantly lower than the increase for
the third quarter of 1996, as the Company's spending with respect
to training and travel costs associated with the first quarter of
1996 aircraft deliveries was incurred in the fourth quarter of
1995. In addition, the extraordinary crew positioning expenses
experienced in the 1996 third quarter were absent from the first
six months of 1996.
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. In June 1996, the Company contracted
with General Electric Company on a fixed cost per flight hour
basis for maintenance of CF6-50E2 engines for up to 15 aircraft
over ten years.
Maintenance expense increased to $21.8 million in the third
quarter of 1996 from $11.9 million in the same period of 1995,
and to $54.1 million in the nine months ended September 30, 1996
from $26.5 million in the nine months ended September 30, 1995,
or approximately 84% and 104%, respectively, primarily as a
result of the increase in the Company's average fleet size,
including certain extraordinary costs associated with upgrading
the maintenance condition of certain aircraft acquired by the
Company from Federal Express. On a block hour basis, maintenance
expense increased by 8% and 13%, respectively, primarily due to
parts support requirements associated with scheduled and
unscheduled maintenance events, and due to the induction costs
incurred in the third quarter of 1996 related to the placement
into service of the aircraft acquired 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 $7.1 million in the third
quarter of 1996 compared to $5.0 million in the same period of
1995, and $18.7 million in the nine months ended September 30,
1996 compared to $16.6 million in the nine months ended September
30, 1995, or increases of approximately 41% and 13%,
respectively. Aircraft rentals were higher for the third quarter
of 1996 due to the phase-in of the leases with respect to three
aircraft from Federal Express, in addition to the one placed in
service in the second quarter of 1996. Engine rentals were
comparable for both quarters. The nine-month increase was
smaller, as higher second and third quarter 1996 aircraft rentals
were somewhat 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 $3.4 million in the
third quarter of 1996 compared to $1.4 million in the same period
of 1995, and $7.6 million in the nine months ended September 30,
1996 compared to $3.7 million in the same period of 1995. During
the third 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 nine months 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 $6.7
million in the third quarter of 1996 from $4.6 million in the
same period of 1995, and $16.8 million in the nine months ended
September 30, 1996 from $10.5 million in the same period of 1995,
or approximately 44% and 59%, respectively. This third quarter
increase reflects the increase in owned aircraft and engines for
the third quarter of 1996 over the same period in 1995. The
comparison for the first nine months of 1996 reflects the timing
of the increase in fleet size within each year, only slightly
offset by a 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 $7.1 million
in the third quarter of 1996 from $4.5 million in the same period
of 1995, and to $19.1 million in the nine months ended September
30, 1996 from $11.8 million in the same period of 1995, or
approximately 59% and 62%, respectively, reflecting the increase
in the Company's operations. On a block hour basis, these
expenses decreased to $460 per hour in the third quarter of 1996
from $491 per hour in the same period of 1995, and to $469 per
hour in the nine months ended September 30, 1996 from $525 per
hour in the same period of 1995, or 6% and 11%, 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 $2.2 million for
the third quarter of 1996 from $0.6 million in the same period of
1995, and to $5.0 million for the nine months ended September 30,
1996 from $.8 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 $9.4
million in the third quarter of 1996 from $5.4 million in the
same period of 1995, and to $24.9 million in the nine months
ended September 30, 1996 from $13.3 million in the same period of
1995, or approximately 74% and 88%, respectively, resulting from
the increase in financed flight equipment between these periods.
Income Taxes
The provision for income taxes for the third quarter of 1996
of $4.6 million and for the nine months ended September 30, 1996
of $13.8 million reflects a 36% effective tax rate. The Company
has net operating loss carryforwards which will defer
approximately $8.3 million 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 September 30, 1996, the Company had cash and cash
equivalents of approximately $20.2 million, short-term
investments of approximately $112.6 million and working capital
of approximately $104.9 million. During the first nine months of
1996, cash and cash equivalents decreased $76.8 million,
principally reflecting investments in flight and other equipment
of $198.9 million, the net purchase of $112.6 million of short-
term investments, debt issuance costs of $6.0 million and
principal reductions of indebtedness of $15.6 million, partially
offset by cash provided from operations of $56.3 million,
proceeds from equipment financings of $94.2 million and net
Common Stock issuances of $105.8 million, including the $99.8
million received from a secondary public offering of the
Company's Common Stock in the second quarter of 1996.
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 end of the third quarter of 1996 and year-end 1997. The
first of these aircraft was placed into service in the Company's
operations at the end of September 1996. The average cost of the
six aircraft, including conversion costs, is expected to
approximate $40 million to $45 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 four Federal Express Aircraft were
delivered to the Company between March and September 1996. The
remaining Federal Express Aircraft is scheduled to be delivered
to the Company in the first quarter of 1997, as a result of the
deferral of its originally scheduled delivery from 1996 at the
request of Federal Express due to the destruction of one of its
other aircraft. 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 had agreed to purchase on or
before October 1, 1996 a Boeing 747 simulator from Federal
Express for a purchase price of $2.1 million. At the request of
Federal Express, this agreement was amended to extend the
purchase date to January 2, 1997. 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 $31.7 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 has,
however, in light of the continued growth of its operations,
reached preliminary agreement with a lender for the provision of
a $25 million working capital facility, subject to final
documentation, although there can be no assurance that such a
facility will ultimately be extended.
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 has 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 $31.5
million was drawn down under the facility with respect to the
purchase of the Cargolux Aircraft, an associated spare engine,
and the downpayment of modification costs related to the second
Thai Aircraft. The Company has made subsequent drawings upon the
Facility in the aggregate amount of $44.1 million through mid-
November 1996 with respect to the Thai Aircraft and associated
spare engines.
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: November 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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