UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
[ ] 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 or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2000 Westchester Ave., Purchase, NY 10577
(Address of principal executive offices) (Zip Code)
(914) 701 - 8000
(Registrant's telephone number, including area code)
538 Commons Dr., Golden, CO 80401
(Former address of principal executive offices)
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.
[ x ] Yes [ ] No
As of November 7, 2000 the Registrant had 38,223,326 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, 2000 and December 31, 1999
Consolidated Statements of Operations-
Quarter and Nine Months Ended
September 30, 2000 and 1999
Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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, except share data)
<TABLE>
September 30, December 31,
2000 1999
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 353,680 $ 331,605
Short-term investments 62,189 141,555
Accounts receivable and other, net 127,700 92,979
Total current assets 543,569 566,139
Property and equipment:
Flight equipment 1,722,578 1,732,543
Other 33,578 19,172
1,756,156 1,751,715
Less accumulated depreciation (256,276) (208,465)
Net property and equipment 1,499,880 1,543,250
Other assets:
Debt issuance costs,
net of accumulated amortization
of $15,401 and $14,281,
respectively 28,891 27,201
Deposits and other 91,727 5,780
Total assets $2,164,067 $2,142,370
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 74,258 $ 95,929
Accounts payable and accrued liabilities 117,630 139,929
Income tax payable 6,702 --
Total current liabilities 198,590 235,858
Long-term debt, net of current portion 1,199,950 1,253,084
Other liabilities 151,607 228,075
Deferred income taxes 93,885 67,653
Commitments and contingencies (Note 5)
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;
38,223,257 and 34,480,946 shares issued,
respectively 382 345
Additional paid-in capital 304,986 198,002
Retained earnings 216,439 162,194
Deferred Compensation - Restricted Stock (510) (404)
Treasury Stock, at cost;
57,294 and 115,906 shares, respectively (1,262) (2,437)
Total stockholders' equity 520,035 357,700
Total liabilities and
stockholders' equity $2,164,067 $2,142,370
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
Quarter Ended Nine Months Ended
September October
2000 1999 2000 1999
Operating revenues:
<S> <C> <C> <C> <C>
Contract services $ 200,876 $ 154,807 $ 552,533 $ 425,210
Charters,
scheduled services
and other 7,735 7,089 14,273 13,093
Total operating
revenues 208,611 161,896 566,806 438,303
Operating expenses:
Flight crew
salaries and
benefits 15,666 11,959 44,339 33,633
Other flight-
related expenses 16,479 15,071 44,504 36,691
Maintenance 37,838 30,525 106,149 90,867
Aircraft and engine
rentals 19,289 11,925 53,983 34,442
Fuel and ground
handling 9,768 7,132 20,577 14,584
Depreciation and
amortization 25,393 20,593 72,727 56,584
Other 22,208 16,522 60,981 45,519
Total operating
expenses 146,641 113,727 403,260 312,320
Operating income 61,970 48,169 163,546 125,983
Other income
(expense):
Interest income 7,278 4,926 20,165 13,621
Interest expense (32,035) (30,546) (96,435) (79,430)
Total other
expense (24,757) (25,620) (76,270) (65,809)
Income before income
taxes, extraordinary
item and cumulative
effect of a change
in accounting
principle 37,213 22,549 87,276 60,174
Provision for income
taxes (14,141) (8,456) (33,172) (22,565)
Income before
extraordinary item
and cumulative
effect of a change
in accounting
principle 23,072 14,093 54,104 37,609
Extraordinary item:
Loss from
extinguishment of
debt, net of
applicable tax
benefit of $3,872 -- -- -- (6,593)
Cumulative effect of
a change in
accounting
principle,
net of applicable
tax benefit of $850 -- -- -- (1,416)
Net income $ 23,072 $ 14,093 $ 54,104 $ 29,600
Basic earnings per share:
Income before
extraordinary item
and cumulative
effect of a change
in accounting
principle $ 0.61 $ 0.41 $ 1.50 $ 1.10
Extraordinary item -- -- -- (0.19)
Cumulative effect
of a change in
accounting
principle -- -- -- (0.04)
Net income $ 0.61 $ 0.41 $ 1.50 $ 0.87
Weighted average
common shares 38,072 34,322 36,041 34,212
Diluted earnings per
share:
Income before
extraordinary item
and cumulative
effect of a change
in accounting
principle $ 0.60 $ 0.41 $ 1.49 $ 1.09
Extraordinary item -- -- -- (0.19)
Cumulative effect
of a change in
accounting
principle -- -- -- (0.04)
Net income $ 0.60 $ 0.41 $ 1.49 $ 0.86
Weighted average
common shares 38,618 34,613 36,416 34,503
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ATLAS AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
Nine Months Ended
September 30,
2000 1999
Operating activities:
<S> <C> <C> <C> <C>
Net income $ 54,104 $ 29,600
Adjustments to reconcile net income to net
cash provided
by operating activities:
Depreciation and amortization 72,727 56,584
Amortization of debt issuance costs
and lease financing costs (461) 1,489
Net loss on disposition of property
and equipment 436 --
Extraordinary loss -- 2,491
Write-off of start-up costs -- 2,266
Deferred income taxes 26,232 9,077
Changes in operating assets and
liabilities:
Accounts receivable and other (30,621) 15,919
Deposits and other (18,027) 1,995
Accounts payable and accrued
liabilities (17,788) 3,140
Income tax payable 6,702 (2,079)
Net cash provided by operating
activities 93,304 120,482
Investing activities:
Purchase of property and equipment (311,343) (344,196)
Proceeds from sale of property and
equipment 13,808 --
Purchase of investments (76,535) (95,478)
Maturity of investments 88,015 15,000
Net cash used in investing
activities (286,055) (424,674)
Financing activities:
Issuance of Common Stock 107,021 17,481
Purchase of Treasury Stock (131) (775)
Issuance of Treasury Stock 948 725
Net proceeds from debt issuance and lease
financing 336,131 436,713
Principal payments on notes payable (216,802) (252,828)
Debt issuance costs and deferred lease
costs (12,341) (1,074)
Net cash provided by financing
activities 214,826 200,242
Net increase (decrease) in cash 22,075 (103,950)
Cash and cash equivalents at beginning of
period 331,605 449,627
Cash and cash equivalents at end of period $ 353,680 $ 345,677
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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" or "Atlas") as of
September 30, 2000 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, 1999
audited financial statements included in its Annual Report on
Form 10-K.
2. Reclassifications
Certain prior year amounts have been reclassified to conform
to current year presentation.
3. Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133 "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133, as amended by SFAS
No. 137 and SFAS No. 138, is effective for fiscal quarters of
fiscal years beginning after June 15, 2000. The Company is
evaluating the impact of SFAS 133, as amended, on the Company's
future earnings and financial position, but does not expect it to
be material.
In December 1999, the Securities and Exchange Commission
(the "SEC") issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101
summarizes the SEC's views on the application of GAAP to revenue
recognition. In June 2000, the SEC released SAB No. 101B that
delays the implementation date of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December
15, 1999. The Company has reviewed SAB No. 101 and believes that
it is in compliance with the SEC's interpretation of revenue
recognition.
In March 2000, the FASB issued Interpretation No. 44,
"Accounting for Certain Transactions involving Stock
Compensation." This Interpretation clarifies (a) the definition
of an employee for purposes of applying APB Opinion No. 25, (b)
the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The adoption of
this Interpretation has not had a material impact on the
Company's financial position or operating results.
4. Investments
The Company invests excess cash in part in various held-to-
maturity securities, as defined in SFAS 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 only if the reporting
enterprise has the positive intent and ability to hold those
securities to maturity. The following tables set 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, 2000 and December 31,
1999 (in thousands):
<TABLE>
Gross Gross
Unrealized Unrealized (Amorti-
Aggregate Holding Holding zation)
Security Type Fair Value Gains Losses Accretion
Sept 30, 2000:
Included in
cash and cash
equivalents:
Corporate
<S> <C> <C> <C> <C> <C> <S> <C> <S>
Bonds $ 14,607 $ 12 $ -- $ --
Commercial
Paper 95,272 -- 16 161
Market
Auction
Preferreds 168,400 -- -- --
Totals $ 278,279 $ 12 $ 16 $ 161
Included in
short-term
investments:
U.S.
Government
Agencies $ 5,998 $ -- $ 2 $ --
Commercial
Paper 12,227 -- 12 34
Corporate
Notes 19,137 16 -- (13)
Corporate
Bonds 4,485 -- 14 1
Market
Auction
Preferreds 16,500 -- -- --
Euro Bonds 3,017 -- 13 (1)
Totals $ 61,364 $ 16 $ 41 $ 21
Included in
long-term
investments:
U.S.
Government
Agencies $ 15,991 $ -- $ 5 $ 1
Corporate
Notes 14,016 -- 28 1
Corporate
Bonds 17,775 -- 54 (5)
Euro Bonds 19,114 -- 37 9
Other 1,684 -- 6 8
Totals $ 68,580 $ -- $ 130 $ 14
Dec 31, 1999:
Included in
cash and cash
equivalents:
CDs and
equivalents $ 20,002 $ 1 $ -- $ --
Commercial 57,296 2 -- 62
Paper
Corporate
Bonds 42,998 -- 11 51
Market
Auction
Preferreds 98,900 -- 3 --
Other 1,751 -- 3 --
Totals $ 220,947 $ 3 $ 17 $ 113
Included in
short-term
investments:
Corporate $ 29,041 $ $ $
Bonds -- 199 (15)
Corporate 40,306 -- 255 (20)
Notes
Euro Dollar 15,034 -- 92 (8)
Bonds
Market
Auction
Preferreds 17,000 -- -- --
U.S.
Government
Agencies 31,953 -- 36 1
Other 5,362 -- 21 22
Totals $ 138,696 $ -- $ 603 $ (20)
</TABLE>
In addition, accrued interest on cash and cash equivalents, short-
term and long-term investments at September 30, 2000 was
approximately $1.4 million, $0.8 million and $1.2 million,
respectively. Accrued interest on cash and cash equivalents and
short-term investments at December 31, 1999 was approximately
$1.4 million and $2.3 million, respectively. Interest earned on
these investments and related maturities are reinvested in
similar securities. Securities included in short-term
investments have maturity dates of less than one year.
5. Commitments and Contingencies
In June 1997, the Company entered into a purchase agreement
with the Boeing Company (the "Boeing Purchase Agreement") to
purchase 10 new 747-400 freighter aircraft to be powered by
engines acquired from the General Electric Company ("GE"), with
options to purchase up to 10 additional 747-400 aircraft. In
February 1999, the Company exercised options for two additional
747-400 freighter aircraft, which were delivered in the second
quarter of 2000. The Company arranged leveraged lease financing
for seven 747-400 freighter aircraft and secured debt financing
for five 747-400 freighter aircraft which were delivered in 1998,
1999 and 2000. The Boeing Purchase Agreement requires the
Company to pay pre-delivery deposits in order to secure delivery
of the 747-400 freighter aircraft and to defray a portion of the
manufacturing costs. In addition, the Boeing Purchase Agreement
provides for a deferral of a portion of the pre-delivery deposits
(Deferred Aircraft Obligations) for which the Company accrues and
pays interest quarterly at a 6-month LIBOR, plus 2.0%.
In February 1998, the Company completed an offering of
$538.9 million of Enhanced Equipment Trust Certificates (the
"1998 EETCs"). The 1998 EETCs are not direct obligations of, or
guaranteed by, the Company and therefore are not included in its
consolidated financial statements until such time that it draws
upon the proceeds to take delivery and ownership of an aircraft.
The Company entered into leveraged lease transactions with
respect to four of the five 747-400 aircraft delivered in 1998.
The Company took ownership of one such aircraft and issued the
corresponding equipment notes, which are direct obligations of
the Company.
In April 1999, the Company completed an offering of $543.6
million of Enhanced Equipment Trust Certificates (the "1999
EETCs"). The 1999 EETCs are not direct obligations of, or
guaranteed by, the Company and therefore are not included in its
consolidated financial statements until such time that it draws
upon the proceeds to take delivery and ownership of an aircraft.
The cash proceeds from the 1999 EETCs transaction were deposited
with an escrow agent and a portion of the proceeds was used in
the second and third quarters of 1999 to finance, through secured
debt financings, the debt portion of the acquisition cost of
three new 747-400 freighter aircraft from Boeing. In the third
quarter of 1999, a portion of the proceeds was used to finance,
through a leveraged lease, an additional new 747-400 freighter
aircraft which was delivered to the Company by Boeing. The
remaining proceeds from the 1999 EETCs, except for $90,000, were
used in the first quarter of 2000 to finance, through secured
debt financing, the debt portion of the acquisition cost of one
new 747-400 freighter aircraft from Boeing. The $90,000 was
subsequently returned to the holders of the 1999 EETCs. In
connection with this secured debt financing, the Company executed
equipment notes in the aggregate amount of $109.9 million, with a
weighted average interest rate of 7.6% at inception.
In January 2000, the Company completed an offering of $217.3
million Enhanced Equipment Trust Certificates (the "2000 EETCs").
The 2000 EETCs are not direct obligations of, or guaranteed by,
the Company and therefore are not included in its consolidated
financial statements until such time that it draws upon the
proceeds to take delivery and ownership of an aircraft. In the
second quarter of 2000, the cash proceeds from the 2000 EETCs
transaction were used to finance, through secured debt financing,
the debt portion of the acquisition cost of two new 747-400
freighter aircraft, pursuant to the Boeing Purchase Agreement.
In connection with these secured debt financings, the Company
executed equipment notes in the aggregate amount of $217.3
million, with a weighted average interest rate of 9.0% as of
September 30, 2000.
The Company subsequently entered into a sale-leaseback for
two of the 747-400's in May 2000 and September 2000. The net
book value and related debt of each aircraft were removed from
the balance sheet.
In April 2000, the Company formed a wholly-owned subsidiary,
Atlas Freighter Leasing III, Inc. for the purpose of entering
into a $300 million term loan facility (the "AFL III Term Loan
Facility") to refinance all of the aircraft and spare engines
previously financed under the AFL Term Loan Facility and the AFL
II Term Loan Facility, plus one aircraft previously financed
under the Aircraft Credit Facility and three 747-400 spare
engines owned by the Company. As a result of this refinancing,
the Company has and will continue to experience lower interest
rates and extended terms as compared to the previous financings.
The AFL III Term Loan Facility consists of Term Loan A in the
amount of $165 million and Term Loan B in the amount of $135
million, for which interest is based on the Eurodollar rate, plus
1.62% and plus 2.00%, respectively. The interest rates on
borrowings outstanding under the AFL III Term Loan Facility were
8.36% and 8.74%, respectively, at September 30, 2000. Quarterly
scheduled principal payments of $5.0 million and $1.7 million,
respectively, commenced in July 2000 and increase over time to
$9.1 million and $6.2 million, respectively, such that Term Loan
A is to be fully paid in April 2005 and Term Loan B is to be
fully paid in April 2006, with a final payment of $37.3 million.
In April 2000, the Company amended its Aircraft Credit
Facility to provide for a $175 million revolving credit facility
with a three-year revolving period and a subsequent two-year term
loan period. With respect to the aircraft currently financed
under the Aircraft Credit Facility, the term loan period will be
from March 31, 2003 to March 30, 2005 in the event that permanent
financing has not been obtained for such flight equipment
financed under the facility. At the time of each borrowing, the
Company must select either a Base Rate Loan (prime rate, plus
0.75%) or a Eurodollar Rate Loan (Eurodollar rate, plus 1.62%).
As of September 30, 2000, the Company had approximately $51.3
million outstanding under the Aircraft Credit Facility. The
Company selected the Eurodollar Rate Loan commencing in May 2000,
for which the resulting interest rate is 8.31% as of September
30, 2000.
In May 2000, the Company refinanced one of its 747-200
freighter aircraft with a group of European banks for a term of
five years, at a LIBOR rate, plus 1.50%, with a resulting rate of
8.19% as of September 30, 2000. This aircraft was previously
financed under the Aircraft Credit Facility.
In May 2000, the Company completed the sale of one of its
business jets, previously used by executives of the Company for
business travel throughout the world. Proceeds from the sale
were used to retire the remaining debt on the aircraft.
In May 2000, the Company entered into a purchase contract to
acquire two used Boeing 747-300 combi aircraft from VARIG, S.A.
(the "VARIG Aircraft") and a long-term lease agreement for a
third Boeing 747-300 from another third party. Each Aircraft
will be converted from combi to full freighter configuration by
Boeing prior to their placement into service. The leased
aircraft was placed into service in October, and the remaining
two are expected to be placed into service during the fourth
quarter of 2000. After their conversion, these aircraft will be
operationally equivalent to the Boeing 747-200 aircraft in the
Company's fleet.
In June 2000 the Company completed an offering of 3,465,000
shares of common stock for net cash proceeds of $104 million.
Approximately $86 million and $10 million of the proceeds were
used for the retirement of debt during the second and third
quarters, respectively.
In September 2000, the Company entered into a sale-leaseback
transaction for one of its 747-200 freighter aircraft. The net
book value of this aircraft and the related debt were removed
from the balance sheet.
In September 2000, the Company terminated its agreement with
Mr. Chowdry which had provided for a sharing of the acquisition
and financing costs of the Boeing Business Jet ("BBJ") used to
transport the Company's executives on business trips throughout
the world. The effect of the termination agreement was to
release Mr. Chowdry from his obligations to share in the
acquisition and financing costs of the BBJ in return for Mr.
Chowdry's releasing the Company of its obligation to share the
net proceeds of any disposition of the BBJ with Mr. Chowdry.
Under the Federal Aviation Administration's (the "FAA")
Directives issued under its "Aging Aircraft" program, the Company
is subject to extensive aircraft examinations and will be
required to undertake structural modifications to its fleet to
address the problem of corrosion and structural fatigue. In
November 1994, Boeing issued Nacelle Strut Modification Service
Bulletins which have been converted into Directives by the FAA.
All of the Company's Boeing 747-200 aircraft have been brought
into compliance with such Directives. As part of the FAA's
overall Aging Aircraft program, it has issued Directives
requiring certain additional aircraft modifications to be
accomplished. The Company estimates that the modification costs
per 747-200 aircraft will range between $2 million and $3
million. Fourteen aircraft in the Company's 747-200 fleet have
already undergone the major portion of such modifications. The
remaining eight 747-200 aircraft will require modification prior
to the year 2009. Other Directives have been issued that require
inspections and minor modifications to Boeing 747-200 aircraft.
The 747-300 aircraft acquired by the Company are also undergoing
these modifications in conjunction with their conversion from
combi to full freighter configuration. The newly manufactured
747-400 freighter aircraft were delivered to the Company in
compliance with all existing FAA Directives at their respective
delivery dates. It is possible that additional Directives
applicable to the types of aircraft or engines included in the
Company's fleet could be issued in the future, the cost of which
could be substantial.
The Company is subject to various international bilateral
air services agreements between the United States and the
countries to which it provides service. The Company also
operates on behalf of foreign flag carriers between various
foreign points without serving the United States. These services
are subject to the bilateral agreements of the respective
governments. Furthermore, these services require FAA approval
but not Department of Transportation ("DOT") approval. The
Company must generally obtain permission from the applicable
foreign governments to provide service to foreign points.
Moreover, in some instances, ACMI Contracts (Aircraft, Crew,
Maintenance and Insurance) are subject to prior and/or periodic
approvals of foreign governments, whose decisions may be affected
by ongoing negotiations and relations with the United States.
For example, a recent ruling by an aviation agency of the British
government concluded that one of the Company's two long-term wet-
leases of 747-400 freighter aircraft to British Airways no longer
meets the "exceptional circumstances" exception necessary for
their operating approval, due to changed market conditions in the
United Kingdom. Should other countries adopt similar rules
and/or begin enforcement of similar rules for political purposes,
the Company's business could be adversely affected.
In April 1999, the Company received notification from the
National Mediation Board ("NMB") that Atlas' crew members voted
for representation by the Air Line Pilots Association ("ALPA").
The Company expects its labor costs to decline initially since
its profit sharing plan ("Profit Sharing Plan") excludes from the
category of eligible employees, those employees who have been
certified by the NMB for representation. In response to ALPA's
claims that such an exclusion violates the Railway Labor Act, on
May 6, 1999, the Company filed an action in the United States
District Court for the District of Columbia (the "District
Court") seeking a declaratory judgment confirming, inter alia,
the enforceability of the Profit Sharing Plan's exclusion. On
May 10, 1999, ALPA filed a counterclaim in that action, alleging
that the exclusion of its members from the Profit Sharing Plan
violates the Railway Labor Act, and seeking restoration of profit
sharing pay. In October 1999, the District Court entered a
summary judgment in the Company's favor ruling that the Company
did not violate the Railway Labor Act when it eliminated crew
members' participation in the Profit Sharing Plan following
ALPA's certification as the crew members' collective bargaining
agent. In addition, the District Court dismissed all other
claims in the case. ALPA has subsequently filed an appeal of the
District Court's decision.
In March 2000, the Company received an order from the
Government of India ("India") seeking approximately $1.1 million
in taxes (plus interest of approximately $1.1 million and
possible penalties) for the tax years 1996 and 1997. India has
also requested additional information for subsequent tax years.
The Company believes that it is exempt from Indian taxes under a
United States/India treaty and intends to contest the assessment
vigorously.
6. Subsequent Events
In October 2000, the Company entered into a sale-leaseback
transaction for one of its 747-200 freighter aircraft. The net
book value of this aircraft and the related debt were removed
from the balance sheet.
In October 2000, the Company exercised options under the Boeing
Purchase Agreement for four additional 747-400's to be delivered
in 2002.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
We provide airport-to-airport cargo transportation services
throughout the world to major international air carriers
generally under three- to five-year fixed-rate contracts which
typically require that we supply aircraft, crew, maintenance and
insurance (the "ACMI Contracts"). The cargo operations of our
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 occurrence of Christmas and the
Chinese New Year. Certain 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%
per year) of guaranteed hours with us, and are expected to
continue to do so in the future. As a result, our revenues
typically decline in the first quarter of the year as our
contractual aircraft utilization level temporarily decreases. We
seek to schedule, to the extent possible, our major aircraft
maintenance activities during this period to take advantage of
any underutilized aircraft time.
The aircraft acquisitions and lease arrangements are
described in Note 6 of our December 31, 1999 Consolidated
Financial Statements. The timing of when an aircraft enters our
fleet can affect not only annual performance, but also can make
quarterly results vary, thereby affecting the comparability of
operations from period to period. In addition, the number of
aircraft utilized from period to period as spare or maintenance
back-up aircraft may also cause quarterly results to vary.
The table below sets forth selected financial and operating
data for the first, second and third quarters of 2000 and 1999
(dollars in thousands).
<TABLE>
2000
Cumu- 3rd 2nd 1st
lative Quarter Quarter Quarter
Total operating
<S> <C> <C> <C> <C>
revenues $566,806 $208,611 $191,783 $166,412
Operating expenses 403,260 146,641 133,383 123,236
Operating income 163,546 61,970 58,400 43,176
Other income (expense) (76,270) (24,757) (27,734) (23,779)
Net income (1) 54,104 23,072 19,013 12,019
Block hours 97,340 35,007 33,140 29,193
Average aircraft
operated 32.0 33.0 32.6 30.5
Operating margin 28.9% 29.7% 30.5% 25.9%
Pre-tax operating
margin 15.4% 17.8% 16.0% 11.7%
1999
Cumu- 3rd 2nd 1st
lative Quarter Quarter Quarter
Total operating
revenues $438,303 $161,896 $138,568 $137,839
Operating expenses 312,320 113,727 97,461 101,132
Operating income 125,983 48,169 41,107 36,707
Other income (expense) (65,809) (25,620) (19,875) (20,314)
Net income (1) 29,600 14,093 13,270 2,237
Block hours 75,442 27,650 23,861 23,931
Average aircraft 28.5 30.0 28.4 27.0
operated
Operating margin 28.7% 29.8% 29.7% 26.6%
Pre-tax operating
margin 13.7% 13.9% 15.3% 11.9%
</TABLE>
(1) Net income is after extraordinary item and cumulative effect
of a change in accounting principle for the 1999 Cumulative and
1st Quarter 1999 columns.
Operating Revenues and Results of Operations
Total operating revenues for the quarter ended September 30,
2000 increased to $208.6 million from $161.9 million for the same
period in 1999, or approximately 29%. The average number of
aircraft in our fleet during the third quarter of 2000 was 33.0
compared to 30.0 during the same period in 1999, an increase of
10%. Total block hours for the third quarter of 2000 were 35,007
compared to 27,650 for the same period in 1999, an increase of
approximately 27%, reflecting the increase in the size of our
fleet, and a substantial 15% increase in block hour production
per average aircraft. Revenue per block hour increased 2% to
$5,959 for the third quarter of 2000 compared to $5,855 for the
third quarter of 1999.
Our operating results improved by approximately 29% from a
$48.2 million operating profit for the third quarter of 1999 to
an operating profit of $62.0 million for the third quarter of
2000. Results of operations were favorably impacted by the
increase in the size of our fleet and substantially higher block
hour production across the fleet. Net income of $14.1 million
for the third quarter of 1999 increased by approximately 64% to a
net income of $23.1 million for the second quarter of 2000.
Total operating revenues for the nine months ended September
30, 2000 increased to $566.8 million from $438.3 million for the
same period in 1999, or approximately 29%. This reflected the
increase in the size of our fleet during the first nine months of
2000. Total block hours for the first nine months of 2000 were
97,340 compared to 75,442 for the same period in 1999, an
increase of approximately 29%, reflecting an increase in the size
of our fleet and 15% higher block hour production per aircraft.
Revenue per block hour increased slightly to $5,823 for the first
nine months of 2000 compared to $5,810 for the same period in
1999.
Our operating results improved by approximately 30% from a
$126.0 million operating profit for the first nine months of 1999
to an operating profit of $163.5 million for the first nine
months of 2000. Results of operations were favorably impacted by
the increase in the size of our fleet and substantially higher
block hour production across the fleet. Net income of $29.6
million for the first nine months of 1999 increased by 83% to a
net income of $54.1 million for the first nine months of 2000.
In the first quarter of 1999, we recorded an extraordinary charge
from the extinguishment of the $100 million 12 1/4% Senior Notes
and a one-time charge associated with the write-off of start-up
costs related to the introduction of new Boeing 747-400 freighter
aircraft into our fleet, as required by SOP 98-5 (as defined).
Net income before extraordinary item and cumulative effect of a
change in accounting principle for the first nine months of 1999
of $37.6 million, increased by approximately 44% to $54.1 million
for the first nine months of 2000.
Operating Expenses
Our principal operating expenses include flight crew
salaries and benefits; other flight-related expenses;
maintenance; aircraft and engine rentals; fuel costs for non ACMI
contract services; ground handling; depreciation and
amortization; and other expenses.
Flight crew salaries and benefits include all such expenses
for our pilot work force. Flight crew salaries and benefits
increased to $15.7 million in the third quarter of 2000 compared
to $12.0 million in the same period of 1999, or approximately
31%, principally reflecting the increase in the size of our fleet
and fleet production quarter over quarter. On a block hour
basis, this expense increased by approximately 3% to $448 per
hour for the third quarter of 2000 from $433 per hour for the
same period in 1999. For the first nine months of 2000, actual
expense increased by approximately 32%, from $33.6 million to
$44.3 million. On a rate per block hour basis, this expense
increased to $456 per hour from $446 per hour for the same period
in 1999, or approximately 2%, reflecting wage escalations related
to increased seniority.
Other flight-related expenses include aircraft hull and
liability insurance, crew travel and meal expenses, initial,
upgrade and recurrent crew training costs, and other expenses
necessary to conduct our flight operations, such as communication
and navigation fees.
Other flight-related expenses increased to $16.5 million in
the third quarter of 2000 compared to $15.1 million for the same
period of 1999, and to $44.5 million in the nine months ended
September 30, 2000 compared to $36.7 million in the nine months
ended September 30, 1999, or approximately 9% and 21%
respectively. On a block hour basis, other flight-related
expenses decreased by approximately 14% to $471 per hour for the
third quarter of 2000 compared to $545 per hour for the same
period in 1999, and by approximately 6% to $457 per hour for the
nine months ended September 30, 2000 compared to $486 per hour
for the same period in 1999, both due to continued realization of
crew scheduling and other efficiencies.
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, D
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
we contracted with KLM for a significant part of our regular
maintenance operations and support on a fixed cost per flight
hour basis. In December 1999, we entered into a ten-year
maintenance agreement with MTU Maintenance Hanover, a subsidiary
of Daimler Chrysler Aerospace, to provide regular maintenance at
a fixed rate per flight hour for engines which were previously
serviced under the KLM agreement, plus additional engines.
Effective October 1996, certain additional aircraft engines were
accepted into the GE engine maintenance program, also on a fixed
cost per flight hour basis, pursuant to a ten-year maintenance
agreement. During 1998, we entered into separate long-term
contracts with Lufthansa Technik for the airframe maintenance and
with GE for the engine maintenance of the 747-400 freighter
aircraft, effective with the introduction of the 747-400
freighter aircraft into our fleet in the second half of 1998.
Maintenance expense increased to $37.8 million in the third
quarter of 2000 from $30.5 million in the same period of 1999,
and to $106.1 million in the nine months ended September 30, 2000
from $90.9 million in the nine months ended September 30, 1999,
or approximately 24% and 17%, respectively, primarily due to the
increase in aircraft block hours. On a block hour basis,
maintenance expense decreased by approximately 2% quarter over
quarter and decreased by approximately 9% for the first nine
months of 2000 compared to the year-earlier period, primarily
reflecting improvements in maintenance rates, and a shift in
fleet mix toward new 747-400 aircraft that have lower associated
maintenance costs.
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 our
aircraft for either scheduled or unscheduled maintenance and any
related short-term replacement aircraft lease costs.
Aircraft and engine rentals were $19.3 million in the third
quarter of 2000 compared to $11.9 million in the same period of
1999, and were $54.0 million in the first nine months of 2000
compared to $34.4 million in the first nine months of 1999, or an
increase of approximately 62% and 57%, respectively. The quarter
and nine-month increases were due to the sale-leasebacks of
additional 747-400 and 747-200 freighter aircraft, and full
period expenses in 2000 for aircraft initially leased during
1999.
Because of the nature of our ACMI Contracts, our airline
customers typically bear all other operating expenses. As a
result, we do not incur fuel and ground handling expenses except
when we operate on our own behalf either in scheduled services,
for ad hoc charters or for ferry flights. Fuel expenses for our
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
services include the costs associated with servicing our aircraft
at the various airports to which we operate.
Fuel and ground handling costs increased by approximately
38% to $9.8 million for the third quarter of 2000 from $7.1
million for the third quarter of 1999, and increased by
approximately 41% to $20.6 million for the first nine months of
2000 from $14.6 million for the first nine months of 1999. The
quarter over quarter and nine-month year over year increases were
primarily due to increased charter activity. On a rate per block
hour, these costs increased by 8% for the third quarter, and 9%
for the first nine months, largely reflecting increases in the
price of fuel.
Depreciation and amortization expense includes depreciation
on aircraft, spare parts and ground equipment, and the
amortization of capitalized major aircraft maintenance and engine
overhauls. Owned aircraft are depreciated over their estimated
useful lives of 20 to 30 years, using the straight-line method
and estimated salvage values of 10% of cost.
Depreciation and amortization expense increased to $25.4
million in the third quarter of 2000 from $20.6 million in the
same period of 1999, and to $72.7 million in the first nine
months of 2000 from $56.6 million in the year-earlier period, or
approximately 23% and 29%, respectively. These increases reflect
the increase in owned aircraft, engines and spare parts for the
third quarter of 2000 and the first nine months of 2000 over the
same periods in 1999.
Other operating expenses include salaries, wages, benefits,
travel and meal expenses for non-crew members and other
miscellaneous operating costs.
Other operating expenses increased to $22.2 million in the
third quarter of 2000 from $16.5 million in the same period of
1999, and to $61.0 million for the first nine months of 2000 from
$45.5 million for the same period of 1999, or approximately 34%
and 34%, respectively. On a block hour basis, these expenses
increased to $634 per hour in the third quarter of 2000 from $598
per hour in the same period of 1999, and to $626 per hour for the
first nine months of 2000 from $603 per hour in the same period
of 1999, or approximately 6% and 4%, respectively. These
increases in cost from the prior year periods were due primarily
to additional personnel and other resources required for the
expansion of our fleet and operations.
Other Income (Expense)
Other income (expense) consists of interest income and
interest expense. Interest income increased to $7.3 million in
the third quarter of 2000 from $4.9 million in the same period of
1999, and to $20.2 million for the first nine months of 2000 from
$13.6 million for the first nine months of 1999, primarily due to
increases in the amount of funds available for investing as well
as an overall increase in the rates of return on investments.
Interest expense increased to $32.0 million in the third quarter
of 2000 from $30.5 million in the same period of 1999, and to
$96.4 million in the first nine months of 2000 from $79.4 million
in the year-earlier period, or approximately 5% and 22%,
respectively. This increase reflects the financing costs
associated with the purchase of additional aircraft during the
first three quarters of 2000 and higher weighted average interest
rates associated with the related debt, partially offset by the
reduction of debt associated with the June equity offering.
Income Taxes
Pursuant to the provisions of SFAS No. 109 "Accounting for
Income Taxes," we have recorded a tax provision based on tax
rates in effect during the period. Accordingly, we accrued for
taxes at the rate of 38% during the third quarter and first nine
months of 2000 and 37.5% during the third quarter and first nine
months of 1999. Due to significant capital costs, which are
depreciated at an accelerated rate for tax purposes, a
significant portion of our tax provision in these periods is
deferred.
Liquidity and Capital Resources
At September 30, 2000, we had cash and cash equivalents of
approximately $353.7 million, short-term investments of
approximately $62.2 million and working capital of approximately
$345.0 million. During the first nine months of 2000, cash and
cash equivalents increased approximately $22.1 million, primarily
reflecting cash provided by operations of $93.3 million, proceeds
from the sale of property and equipment of $13.8 million,
proceeds from equipment financings of $336.1 million, net
proceeds from the maturity and purchase of investments of $11.5
million, net proceeds from the issuance of common stock of
$107.0 million and net proceeds from the issuance of treasury
stock of $0.9 million; partially offset by the purchase of flight
and other equipment of $311.3 million, principal reductions of
indebtedness of $216.8 million and debt issuance costs of $12.3
million. Our overall borrowing level decreased to $1.2 billion
at September 30, 2000 from $1.3 billion at December 31, 1999.
In June 1997, we entered into a purchase agreement with the
Boeing Company (the "Boeing Purchase Agreement") to purchase 10
new 747-400 freighter aircraft to be powered by engines acquired
from the General Electric Company ("GE"), with options to
purchase up to 10 additional 747-400 aircraft. In February 1999,
we exercised options for two additional 747-400 freighter
aircraft which were delivered in the second quarter of 2000. We
arranged leveraged lease financing for five 747-400 freighter
aircraft and secured debt financing for seven 747-400 freighter
aircraft which were delivered in 1998, 1999 and 2000. The Boeing
Purchase Agreement requires us to pay pre-delivery deposits in
order to secure delivery of the 747-400 freighter aircraft and to
defray a portion of the manufacturing costs. In addition, the
Boeing Purchase Agreement provides for a deferral of a portion of
the pre-delivery deposits (Deferred Aircraft Obligations) for
which we accrue and pay interest quarterly at a 6-month LIBOR,
plus 2.0%.
In February 1998, we completed an offering of $538.9 million
of Enhanced Equipment Trust Certificates (the "1998 EETCs"). The
1998 EETCs are not direct obligations of, or guaranteed by, us
and therefore are not included in our consolidated financial
statements until such time that we draw upon the proceeds to take
delivery and ownership of an aircraft. We entered into leveraged
lease transactions with respect to four of the five 747-400
aircraft delivered in 1998. We took ownership of one such
aircraft and issued the corresponding equipment notes, which are
direct obligations of the Company.
In April 1999, we completed an offering of $543.6 million of
Enhanced Equipment Trust Certificates (the "1999 EETCs"). The
1999 EETCs are not direct obligations of, or guaranteed by, us
and therefore are not included in our consolidated financial
statements until such time that we draw upon the proceeds to take
delivery and ownership of an aircraft. The cash proceeds from
the 1999 EETCs transaction were deposited with an escrow agent
and a portion of the proceeds was used in the second and third
quarters of 1999 to finance, through secured debt financings, the
debt portion of the acquisition cost of three new 747-400
freighter aircraft from Boeing. In the third quarter of 1999, a
portion of the proceeds was used to finance, through a leveraged
lease, an additional new 747-400 freighter aircraft which was
delivered to us by Boeing. The remaining proceeds from the 1999
EETCs, except for $90,000, were used in the first quarter of 2000
to finance, through secured debt financing, the debt portion of
the acquisition cost of one new 747-400 freighter aircraft from
Boeing. The $90,000 was subsequently returned to the holders of
the 1999 EETCs. In connection with this secured debt financing,
we executed equipment notes in the aggregate amount of $109.9
million, with a weighted average interest rate of 7.6% at
inception.
In January 2000, we completed an offering of $217.3 million
Enhanced Equipment Trust Certificates (the "2000 EETCs"). The
2000 EETCs are not direct obligations of, or guaranteed by, us
and therefore are not included in our consolidated financial
statements until such time that we draw upon the proceeds to take
delivery and ownership of an aircraft. In the second quarter of
2000, the cash proceeds from the 2000 EETCs transaction were used
to finance, through secured debt financing, the debt portion of
the acquisition cost of two new 747-400 freighter aircraft,
pursuant to the Boeing Purchase Agreement. In connection with
these secured debt financings, we executed equipment notes in the
aggregate amount of $217.3 million, with a weighted average
interest rate of 9.0% as of September 30, 2000.
We subsequently entered into a sale-leaseback for two of the
747-400's in May 2000 and September 2000. The net book value and
related debt of each aircraft were removed from the balance
sheet.
In April 2000, we formed a wholly-owned subsidiary, Atlas
Freighter Leasing III, Inc. for the purpose of entering into a
$300 million term loan facility (the "AFL III Term Loan
Facility") to refinance all of the aircraft and spare engines
previously financed under the AFL Term Loan Facility and the AFL
II Term Loan Facility, plus one aircraft previously financed
under the Aircraft Credit Facility and three 747-400 spare
engines owned by us. As a result of this refinancing, we will
experience lower interest rates and extended terms as compared to
the previous financings. The AFL III Term Loan Facility consists
of Term Loan A in the amount of $165 million and Term Loan B in
the amount of $135 million, for which interest is based on the
Eurodollar rate, plus 1.62% and plus 2.00%, respectively. The
interest rates on borrowings outstanding under the AFL III Term
Loan Facility were 8.36% and 8.74%, respectively, at September
30, 2000. Quarterly scheduled principal payments of $5.0 million
and $1.7 million, respectively, commenced in July 2000 and
increase over time to $9.1 million and $6.2 million,
respectively, such that Term Loan A is to be fully paid in April
2005 and Term Loan B is to be fully paid in April 2006, with a
final payment of $37.3 million.
In April 2000, we amended our Aircraft Credit Facility to
provide for a $175 million revolving credit facility with a three-
year revolving period and a subsequent two-year term loan period,
commencing at the time an aircraft has been financed by revolving
proceeds for three years. With respect to the aircraft currently
financed under the Aircraft Credit Facility, the term loan period
will be from March 31, 2003 to March 30, 2005 in the event that
permanent financing has not been obtained for such flight
equipment financed under the facility. At the time of each
borrowing, we must select either a Base Rate Loan (prime rate,
plus 0.75%) or a Eurodollar Rate Loan (Eurodollar rate, plus
1.75%). As of September 30, 2000, we had approximately $51.3
million outstanding under the Aircraft Credit Facility. We
selected the Eurodollar Rate Loan commencing in May 2000, for
which the resulting interest rate is 8.31% as of September 30,
2000.
In May 2000, we refinanced one of our 747-200 freighter
aircraft with a group of European banks for a term of five years,
at a LIBOR rate, plus 1.50%, with a resulting interest rate of
8.19% as of September 30, 2000. This aircraft was previously
financed under the Aircraft Credit Facility.
In May 2000 we completed the sale of one of our business
jets, previously used by executives of the Company for business
travel throughout the world. Proceeds from the sale were used to
retire the remaining debt on the aircraft.
In May 2000, we entered into a purchase contract to acquire
two Boeing 747-300 combi aircraft from VARIG, S.A. (the "VARIG
Aircraft"), and a long-term lease agreement for a third Boeing
747-300. Each Aircraft will be converted from combi to full
freighter configuration by Boeing prior to their placement into
service. The leased aircraft was placed into service in October,
and the remaining two are expected to be placed into service
during the fourth quarter of 2000. After their conversion, these
aircraft will be operationally equivalent to the Boeing 747-200
aircraft in our fleet. A combi conversion requires fewer
modifications than a normal passenger-to-cargo aircraft
conversion as a result of the existence of a rear cargo door and
partial cargo handling system, thus reducing both the cost and
time associated with the modification.
In June 2000 we completed an offering of 3,465,000 shares of
common stock for net proceeds of $104 million. Approximately $86
million and $10 million of the proceeds were used for the
retirement of debt during the second and third quarters,
respectively.
In September 2000, we entered into a sale-leaseback
transaction for one of our 747-200 freighter aircraft. The net
book value of this aircraft and the related debt were removed
from the balance sheet.
In September 2000, we terminated our agreement with Mr.
Chowdry which had provided for a sharing of the acquisition and
financing costs of the Boeing Business Jet ("BBJ") used to
transport our executives on business trips throughout the world.
The effect of the termination agreement was to release Mr.
Chowdry from his obligations to share in the acquisition and
financing costs of the BBJ in return for Mr. Chowdry's releasing
us of our obligation to share the net proceeds of the disposition
of any BBJ with Mr. Chowdry.
In October 2000, we entered into a sale-leaseback
transaction for one of our 747-200 freighter aircraft. The net
book value of this aircraft and the related debt was removed from
the balance sheet.
In October 2000, we exercised options under the Boeing
Purchase Agreement for four additional 747-400's to be delivered
in 2002.
Due to the contractual nature of our business, management
does not consider our 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
our customers, we do not incur significant costs in advance of
the receipt of corresponding revenues. Moreover, ACMI costs,
which are our responsibility, are generally incurred on a
regular, periodic basis on either a flight hour or calendar month
basis. These costs are largely matched by revenue receipts, as
our contracts require regular payments from our customers based
upon current flight activity, generally every two to four weeks.
As a result, we have not had a requirement for a working capital
facility.
Under the Federal Aviation Administration's (the "FAA")
Directives issued under its "Aging Aircraft" program, we are
subject to extensive aircraft examinations and will be required
to undertake structural modifications to our fleet to address the
problem of corrosion and structural fatigue. In November 1994,
Boeing issued Nacelle Strut Modification Service Bulletins which
have been converted into Directives by the FAA. All of our
Boeing 747-200 aircraft have been brought into compliance with
such Directives. As part of the FAA's overall Aging Aircraft
program, it has issued Directives requiring certain additional
aircraft modifications to be accomplished. We estimate that the
modification costs per 747-200 aircraft will range between $2
million and $3 million. Fourteen aircraft in our 747-200 fleet
have already undergone the major portion of such modifications.
The remaining eight 747-200 aircraft will require modification
prior to the year 2009. Other Directives have been issued that
require inspections and minor modifications to Boeing 747-200
aircraft. The 747-300 aircraft acquired by the Company are also
undergoing these modifications in conjunction with their
conversion from combi to full freighter configuration. The newly
manufactured 747-400 freighter aircraft were delivered to us in
compliance with all existing FAA Directives at their respective
delivery dates. It is possible that additional Directives
applicable to the types of aircraft or engines included in our
fleet could be issued in the future, the cost of which could be
substantial.
We are subject to various international bilateral air
services agreements between the United States and the countries
to which we provide service. We also operate on behalf of
foreign flag carriers between various foreign points without
serving the United States. These services are subject to the
bilateral agreements of the respective governments. Furthermore,
these services require FAA approval but not Department of
Transportation ("DOT") approval. We must generally obtain
permission from the applicable foreign governments to provide
service to foreign points. Moreover, in some instances, ACMI
Contracts are subject to prior and/or periodic approvals of
foreign governments, whose decisions may be affected by ongoing
negotiations and relations with the United States. For example,
a recent ruling by an aviation agency of the British government
concluded that one of our long-term wet-leases of 747-400 to
British Airways no longer meets the "exceptional circumstances"
exception necessary for their operating approval, due to changed
market conditions in the United Kingdom. Should other countries
adopt similar rules and/or begin enforcement of similar rules for
political purposes, our business could be adversely affected.
From time to time we engage in discussions with third
parties regarding possible acquisition or sale of aircraft in our
fleet. We are currently in discussions with third parties for
the possible acquisition and sale of additional aircraft for the
remainder of 2000 and beyond.
We believe that cash on hand and the cash flow generated
from our operations will be sufficient to meet our normal ongoing
liquidity needs for the next twelve months.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes
in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133, as amended by SFAS
No. 137 and SFAS No. 138, is effective for fiscal quarters of
fiscal years beginning after June 15, 2000. The Company is
evaluating the impact of SFAS 133, as amended, on the Company's
future earnings and financial position, but does not expect it to
be material.
In December 1999, the Securities and Exchange Commission
(the "SEC") issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101
summarizes the SEC's views on the application of GAAP to revenue
recognition. In June 2000, the SEC released SAB No. 101B that
delays the implementation date of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December
15, 1999. The Company has reviewed SAB No. 101 and believes that
it is in compliance with the SEC's interpretation of revenue
recognition.
In March 2000, the FASB issued Interpretation No. 44,
"Accounting for Certain Transactions involving Stock
Compensation." This Interpretation clarifies (a) the definition
of employee for purposes of applying APB Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The adoption of
this Interpretation has not had a material impact on the
Company's financial position or operating results.
Forward-looking Information
Certain statements included or incorporated by reference in
this Form 10-Q constitute "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 2lE of the Exchange Act. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual
results, levels of activity, performance or achievements or
industry results, to be materially different from any future
results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. In
addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "believe" or
"continue" or the negative thereof or variations thereon or
similar terminology. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we
can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results
to differ materially from our expectations are disclosed under
"Risk Factors" and elsewhere in our Annual Report on Form 10-K
for December 31, 1999.
To the extent that any of the statements contained herein
relating to our expectations, assumptions and other Company
matters are forward-looking, they are made in reliance upon the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are based on current
expectations that involve a number of uncertainties and risks
that could cause actual results to differ materially from those
projected in the forward-looking statements, including, but not
limited to, risks associated with:
- worldwide business and economic conditions;
- product demand and the rate of growth in the air cargo
industry;
- the impact of competitors and competitive aircraft and aircraft
financing availability;
- the ability to attract and retain new and existing customers;
- normalized aircraft operating costs and reliability;
- management of growth and complying with FAA policies;
- the continued productivity of our workforce;
- dependence on key personnel; and
- other regulatory requirements.
As a result of the foregoing and other factors, no assurance
can be given as to our future results and achievements. Neither
we nor any other person assumes responsibility for the accuracy
and completeness of these statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk
sensitive instruments and positions since its disclosure in its
Annual Report on Form 10-K for the year ended December 31, 1999.
ATLAS AIR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no reportable events and no material changes in
any pending legal proceedings as reported in the Company's filing
of form 10-Q for the quarter ended June 30, 2000.
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 9, 2000 By: /s/ Stuart G. Weinroth
Stuart G. Weinroth
Vice President - Controller &
Financial Planning
Principal Accounting Officer
