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0001035704-02-000410.txt : 20020802
0001035704-02-000410.hdr.sgml : 20020802
20020802163734
ACCESSION NUMBER: 0001035704-02-000410
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20020630
FILED AS OF DATE: 20020802
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ATLAS AIR WORLDWIDE HOLDINGS INC
CENTRAL INDEX KEY: 0001135185
STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770]
IRS NUMBER: 134146982
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-16545
FILM NUMBER: 02718548
BUSINESS ADDRESS:
STREET 1: 2000 WESTCHESTER AVENUE
CITY: PURCHASE
STATE: NY
ZIP: 10577-2543
BUSINESS PHONE: 9147018000
MAIL ADDRESS:
STREET 1: 2000 WESTCHESTER AVENUE
CITY: PURCHASE
STATE: NY
ZIP: 10577-2543
10-Q
1
d98561e10vq.htm
FORM 10-Q FOR QUARTER ENDED JUNE 30, 2002
Atlas Air Worldwide Holdings, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ü] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From to
Commission file number 0-25732
Atlas Air Worldwide Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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13-4146982 |
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(State or other jurisdiction
of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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2000 Westchester Ave.
Purchase, NY |
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10577 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code (914) 701-8000
Not Applicable
(Former name, former address and former fiscal year , if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü No .
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value: 38,264,341 shares outstanding as of July 18, 2002.
This report is available online at www.atlasair.com.
TABLE OF CONTENTS
ATLAS AIR WORLDWIDE HOLDINGS, INC. AND SUBSIDIARIES
INDEX
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Page |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
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Condensed Consolidated Financial Statements |
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Condensed Consolidated Statements of Operations-
Three Months and Six Months Ended June 30, 2002 and 2001
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2 |
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Condensed Consolidated Balance Sheets-
June 30, 2002 and December 31, 2001
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3 |
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Condensed Consolidated Statements of Cash Flows-
Six Months Ended June 30, 2002 and 2001
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4 |
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Notes to Condensed Consolidated Financial Statements
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5 |
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Item 2. |
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Managements Discussion and Analysis of Financial
Condition and Results of Operations
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8 |
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Item 3. |
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Quantitative and Qualitative Disclosures About
Market Risk
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15 |
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PART II. OTHER
INFORMATION |
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Item 1. |
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Legal Proceedings
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16 |
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Item 6. |
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Exhibits and Reports on Form 8-K
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16 |
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Signature
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18 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Atlas Air Worldwide Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except per share amounts)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2002 |
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2001 |
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2002 |
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2001 |
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Revenues |
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Contracted services |
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$ |
112,407 |
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$ |
144,507 |
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$ |
220,974 |
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$ |
305,155 |
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Charter services |
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54,655 |
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2,313 |
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135,519 |
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5,363 |
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Scheduled services |
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63,482 |
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113,371 |
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Other revenues |
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5,057 |
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2,215 |
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11,908 |
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18,829 |
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Total operating revenues |
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235,601 |
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149,035 |
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481,772 |
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329,347 |
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Expenses |
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Salaries, wages and benefits |
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41,933 |
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26,863 |
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82,335 |
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57,022 |
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Aircraft rents |
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43,509 |
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31,035 |
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90,428 |
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62,421 |
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Depreciation and amortization |
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27,196 |
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20,469 |
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48,891 |
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40,655 |
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Ground handling and airport fees |
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21,242 |
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4,386 |
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46,834 |
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8,340 |
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Maintenance, materials and repairs |
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43,715 |
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32,247 |
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81,907 |
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61,655 |
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Aircraft fuel |
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39,359 |
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2,234 |
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70,277 |
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5,070 |
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Pilot profit sharing settlement |
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22,815 |
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Restructuring and impairment |
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7,850 |
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71,214 |
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7,850 |
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71,214 |
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Other operating expenses |
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51,082 |
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32,499 |
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85,861 |
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56,702 |
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Total operating expenses |
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275,886 |
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220,947 |
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514,383 |
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385,894 |
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Operating loss |
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(40,285 |
) |
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(71,912 |
) |
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(32,611 |
) |
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(56,547 |
) |
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Other Income (Expense) |
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Interest income |
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2,771 |
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5,187 |
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6,082 |
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12,821 |
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Interest expense |
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(18,592 |
) |
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(24,271 |
) |
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(44,376 |
) |
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(49,648 |
) |
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Interest capitalized |
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2,266 |
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3,328 |
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4,723 |
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6,191 |
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Change in hedge fair value |
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(871 |
) |
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41 |
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497 |
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(2,020 |
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(14,426 |
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(15,715 |
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(33,074 |
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(32,656 |
) |
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Loss before income taxes and cumulative effect |
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of a change in accounting principle |
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(54,711 |
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(87,627 |
) |
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(65,685 |
) |
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(89,203 |
) |
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Income tax benefit |
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(20,507 |
) |
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(38,605 |
) |
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(24,831 |
) |
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(40,188 |
) |
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Loss before cumulative effect of a change in |
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accounting principle |
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(34,204 |
) |
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(49,022 |
) |
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(40,854 |
) |
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(49,015 |
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Cumulative effect of a change in accounting |
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principle, net of applicable tax benefit of $933 |
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(1,589 |
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Net Loss |
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($34,204 |
) |
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($49,022 |
) |
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($40,854 |
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($50,604 |
) |
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Loss per share (basic and diluted): |
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Loss before cumulative effect of a change in |
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accounting principle |
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($0.89 |
) |
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($1.28 |
) |
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($1.07 |
) |
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($1.29 |
) |
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Cumulative effect of a change in accounting |
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principle |
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($0.04 |
) |
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Net loss per share |
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($0.89 |
) |
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($1.28 |
) |
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($1.07 |
) |
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($1.33 |
) |
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The accompanying notes are an integral
part of these financial statements.
2
Atlas Air Worldwide Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands)
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June 30, |
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December 31, |
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2002 |
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2001 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
178,473 |
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$ |
238,693 |
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Short-term investments |
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99,816 |
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112,634 |
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Accounts
receivable, (net of allowance of $30,187 and
$22,521 respectively) |
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|
150,904 |
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168,502 |
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Income taxes receivable |
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|
20,544 |
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Prepaid expenses and other |
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87,696 |
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|
30,998 |
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Total current assets |
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|
516,889 |
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|
571,371 |
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Property and Equipment |
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Flight equipment |
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|
1,554,803 |
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1,575,135 |
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Other |
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|
60,122 |
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|
51,156 |
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Less: accumulated depreciation |
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|
(351,670 |
) |
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|
(317,647 |
) |
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1,263,255 |
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1,308,644 |
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Purchase deposits on flight equipment |
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52,067 |
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51,982 |
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Other Assets |
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Route acquisition cost |
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51,465 |
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|
58,499 |
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Debt issuance costs (net of accumulated amortization of $22,158 and $20,373) |
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|
18,831 |
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|
20,616 |
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Deposits and other |
|
|
75,357 |
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|
|
73,640 |
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|
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Total assets |
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$ |
1,977,864 |
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$ |
2,084,752 |
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Liabilities and Stockholders Equity |
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Current Liabilities |
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|
|
|
|
|
|
|
|
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Accounts payable and accrued liabilities |
|
$ |
175,487 |
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$ |
172,018 |
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Current maturities of long-term debt and capital lease obligations |
|
|
92,727 |
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|
|
65,934 |
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|
|
|
|
|
|
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Total current liabilities |
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|
268,214 |
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|
|
237,952 |
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Long-term debt and capital lease obligations, net of current maturities |
|
|
885,829 |
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|
959,052 |
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|
|
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|
Deferred income taxes |
|
|
28,761 |
|
|
|
53,078 |
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|
|
|
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Other liabilities, deferred gains and deferred credits |
|
|
345,338 |
|
|
|
344,762 |
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|
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Stockholders Equity |
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Preferred stock, $1 par value; 10,000 shares authorized; no shares issued |
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Common
stock, $0.01 par value; 50,000 shares authorized; 38,254 and 38,231 shares issued respectively |
|
|
383 |
|
|
|
382 |
|
|
|
|
|
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Additional paid-in capital |
|
|
306,227 |
|
|
|
305,930 |
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Treasury stock at cost; 24 and 80 shares, respectively |
|
|
(403 |
) |
|
|
(1,268 |
) |
|
|
|
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Deferred compensation restricted stock |
|
|
(301 |
) |
|
|
(738 |
) |
|
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|
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Accumulated other comprehensive loss |
|
|
(6 |
) |
|
|
488 |
|
|
|
|
|
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Retained earnings |
|
|
143,822 |
|
|
|
185,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
449,722 |
|
|
|
489,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,977,864 |
|
|
$ |
2,084,752 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these financial statements.
3
Atlas Air Worldwide Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
2001 |
|
|
|
|
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|
Cash Flow from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(40,854 |
) |
|
$ |
(50,604 |
) |
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
48,891 |
|
|
|
40,655 |
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
|
7,666 |
|
|
|
10,151 |
|
|
|
|
|
|
|
Gain on sale of flight equipment |
|
|
|
|
|
|
(15,241 |
) |
|
|
|
|
|
|
Amortization of debt issuance cost and lease financing (gains) and losses |
|
|
1,785 |
|
|
|
(4,979 |
) |
|
|
|
|
|
|
Change in hedge fair value |
|
|
(497 |
) |
|
|
4,542 |
|
|
|
|
|
|
|
|
Restructuring and impairment |
|
|
7,850 |
|
|
|
63,439 |
|
|
|
|
|
|
Deferred income taxes |
|
|
(24,317 |
) |
|
|
(52,084 |
) |
|
|
|
|
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other |
|
|
(10,663 |
) |
|
|
33,209 |
|
|
|
|
|
|
|
|
Deposits and other |
|
|
369 |
|
|
|
3,466 |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
6,780 |
|
|
|
(96,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used for operating activities |
|
|
(2,990 |
) |
|
|
(64,173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures, including purchase deposits for
flight equipment |
|
|
(24,088 |
) |
|
|
(127,759 |
) |
|
|
|
|
|
Proceeds from sale of equipment and property |
|
|
|
|
|
|
53,887 |
|
|
|
|
|
|
Purchase of investments |
|
|
(15,131 |
) |
|
|
(54,526 |
) |
|
|
|
|
|
Maturity of investments |
|
|
27,554 |
|
|
|
64,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
|
(11,665 |
) |
|
|
(64,333 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt and capital lease obligations |
|
|
(46,430 |
) |
|
|
(64,074 |
) |
|
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
43 |
|
|
|
|
|
|
Issuance of treasury stock |
|
|
1,269 |
|
|
|
912 |
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(404 |
) |
|
|
(126 |
) |
|
|
|
|
|
Net proceeds from debt issuance and lease financing |
|
|
|
|
|
|
681 |
|
|
|
|
|
|
Debt issuance costs and deferred lease costs |
|
|
|
|
|
|
(2,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(45,565 |
) |
|
|
(65,275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
|
(60,221 |
) |
|
|
(193,781 |
) |
|
|
|
|
Cash at the beginning of period |
|
|
238,693 |
|
|
|
493,723 |
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
178,473 |
|
|
$ |
299,942 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral
part of these financial statements.
4
Atlas Air Worldwide Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Unaudited Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements of Atlas
Air Worldwide Holdings, Inc. (AAWH or the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, these financial statements contain
all adjustments, consisting of normal recurring accruals, necessary to present
fairly the financial position, results of operations and cash flows for the
periods indicated. The Companys 2002 results continue to be adversely impacted
by the current global economic recession, exacerbated by the September 11, 2001
terrorist attacks. These results include the operating results of Atlas Air,
Inc. (Atlas), a wholly owned subsidiary of the Company, and also reflect the
purchase by AAWH of substantially all of the assets and the assumption of
certain liabilities of Polar Air Cargo, Inc. (Polar) on November 1, 2001.
Accordingly, the operating results of Polar are included in the accompanying
condensed consolidated financial statements for the three-month and six-month
periods ended June 30, 2002 but not for the three-month and six-month periods
ended June 30, 2001. When utilized in this report, all references to AAWH
include Atlas, Polar and all other subsidiaries of the Company (collectively,
the Company). Results of operations for the periods presented herein are not
necessarily indicative of results of operations for the entire year due to the
seasonality of our business. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Atlas
Air Worldwide Holdings, Inc. Annual Report on Form 10-K for the year ended
December 31, 2001 (2001 Form 10-K). Certain amounts from 2001 have been
reclassified to conform with the 2002 presentation. Certain amounts have been reclassified in the second quarter of 2002.
2. Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. These standards revise the rules related to the accounting for
business combinations, goodwill and other intangible assets. SFAS No. 141
requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase accounting method. SFAS No. 142 states that
goodwill and indefinite-lived assets are subject to impairment tests rather
than amortization. In addition, intangible assets should be separately
recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented or exchanged, regardless of the acquirers intent
to do so. We have completed our impairment analysis of the indefinite-lived
intangible assets in accordance with SFAS No. 142. The analysis was completed
by the receipt of an appraisal by a major airline consulting firm of the the
route rights acquired in the Polar acquisition. The appraisal considered,
amount other things, the amount that could be achieved by the Company in an
immediate sale as well as the present value of the future cash flows that could
be derived from the ownership of the routes. The analysis did not result in an
impairment charge. The identified indefinite life intangible assets resulting
from the acquisition of Polar Air Cargo were as follows:
Japan Route acquisition cost $51,465
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This standard addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The standard requires recognition of
the fair value of a liability for an asset retirement obligation in the period
in which it is incurred and is effective for financial statements issued for
fiscal years beginning after June 15, 2002. Management is currently assessing
the impact of this pronouncement and does not expect it to have a material
impact on the Companys financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets. This standard addresses financial accounting
and reporting for the impairment of long-lived assets and of long-lived assets
to be disposed of. This Statement supercedes SFAS No. 121 Accounting for the
Impairment of Long-Lived Assets and of Long-Lived Assets to be Disposed of,
and the accounting and reporting provisions of
5
APB Opinion No. 30 Reporting the Results of Operations Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment
of a business (as previously defined in that Opinion). This standard is
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. During the
second quarter of 2001, we made available for sale six B747-200 aircraft. The
Company has been unable to sell these aircraft as a result of poor economic
conditions, particularly following the September 11, 2001 terrorist attacks.
At the end of the second quarter of 2002, we completed a mark to market
analysis. As a result of further market value erosion caused by excess B747
freighter capacity, we recorded an additional $7.9 million impairment charge in
the second quarter to record the aircraft at lower of cost or market. We used
third party appraisals to assess the current values of each specific aircraft.
Due to the one year sale limitation provided under SFAS 144, these aircraft
will be placed back into Held for Use status and depreciated beginning in July
for the rest of their remaining life. We estimate the remaining life of the
aircraft to range from 18 months to 13 years.
3. Investments
The Company invests excess cash in various available-for-sale securities as
defined in SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. SFAS No. 115 requires investments in debt and equity
securities classified as available for sale be measured at fair market value
and unrealized gains and losses recorded as a component of other comprehensive
income. These securities were classified as held to maturity as of June 30,
2002. The net unrealized gain on these investments was approximately $186,000
and $782,000 as of June 30, 2002 and December 31, 2001, respectively.
Accrued interest on investments held at June 30, 2002 was approximately $1.8
million. Accrued interest on investments held at December 31, 2001 was
approximately $1.9 million. Interest earned on these investments and related
maturities is reinvested in similar securities.
4. Commitments and Contingencies
Boeing 747-400 Purchase Agreement
Atlas has exercised options to acquire six additional new aircraft from
The Boeing Company, two of which were delivered in 2000 and one in June 2002.
With respect to the remaining three aircraft, one was delivered in July 2002,
one is scheduled for delivery in November 2002, and one is scheduled for
delivery in October 2003. In addition, Polar took delivery in July 2002 of one
Boeing 747-400. The Company has no obligations or commitments with respect to
additional new aircraft deliveries beyond those noted above.
The Company has secured financing for the four 2002 deliveries. The Polar
delivery was financed by General Electric Capital Aviation Services (GECAS).
With respect to the Atlas 2002 deliveries, Boeing Capital will finance two
aircraft, one of which has been completed, and one has been financed by
GECAS. All four financings are 20 year operating leases.
Under the terms of the two Boeing Capital financings, $12 million in
previously paid aircraft deposits will be returned to Atlas in the second half
of the year.
Under the GECAS financing for Atlas, there are no cash rent payments until
April 2003. Payments are on an annual basis through 2018 and a periodic basis
thereafter.
With respect to the October 2003 aircraft, Atlas is required to make a further
$21.4 million in purchase deposits. Boeing has recently agreed to modify the
payment profile of these deposits. Atlas had previously been required to pay
$15.6 million in deposits in the second half of 2002 and a further $5.8
million in January of 2003. The entire $21.4 million is now payable in four
equal installments between February and May 2003.
6
5. Loss Per Share
Basic and diluted loss per share were computed by dividing net loss before
cumulative effect of a change in accounting principle and net loss by the
weighted average number of shares of common stock outstanding during the
period. Basic and diluted loss per share were calculated as follows(amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
|
|
June 30, |
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
2001 |
|
2002 |
|
2001 |
|
|
|
|
|
|
|
|
|
|
|
Loss Attributable to Common Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Basic and Diluted ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before cumulative effect of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
an accounting change |
|
|
($34,204 |
) |
|
|
($49,022 |
) |
|
|
($40,854 |
) |
|
|
($49,015 |
) |
|
|
|
|
|
Cumulative effect of an accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,589 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
($34,204 |
) |
|
|
($49,022 |
) |
|
|
($40,854 |
) |
|
|
($50,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
|
38,228 |
|
|
|
38,162 |
|
|
|
38,219 |
|
|
|
38,143 |
|
|
|
|
|
|
Employee options and shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
38,228 |
|
|
|
38,162 |
|
|
|
38,219 |
|
|
|
38,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss Per Share |
|
|
($0.89 |
) |
|
|
($1.28 |
) |
|
|
($1.07 |
) |
|
|
($1.33 |
) |
For the three and six months ended June 30, 2002 and 2001, approximately 4.0
million and 2.9 million employee stock options, respectively, were not
considered in calculating diluted earnings per share because inclusion of such
shares would have had an anti-dilutive effect.
6. Polar Purchase Price Allocation
During the second quarter of 2002, the Company finalized the purchase price
allocation related to the acquisition of Polar. In connection therewith, a
portion of the consideration was transferred to five B747-100 aircraft owned by
Polar from the intangible route rights.
As was anticipated, the increased demand for military charters necessitated the
Company to place such aircraft in service. The extent of such service was not
known at the date of acquisition and this contingency was resolved during the
first half of 2002. Accordingly, the valuation of such aircraft became fixed
and the aircraft will be depreciated through the third quarter of 2002, when it
is anticipated they will be fully retired from service and likely scrapped.
7. Subsequent Event
Ratification of ALPA Agreement. On June 28, 2002, Atlas and the Airline Pilots
Association (ALPA) reached a tentative agreement for a first labor contract
covering our crewmembers. The contract was ratified by the crewmembers on July
29, 2002.
7
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
The table below sets forth selected operating data for the three and six months
ended June 30, 2002.
Atlas Air Worldwide Holdings, Inc. Operating Statistics
Quarter and Six Months Ended June 30, 2002 and 2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended |
|
For the six months ended |
|
|
|
June 30, |
|
June 30, |
|
|
|
|
|
|
|
|
|
2002(1) |
|
2001 |
|
2002(1) |
|
2001 |
|
|
|
|
|
|
|
|
|
|
Block Hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlas Air Worldwide Holdings, Inc. |
|
|
31,377 |
|
|
|
24,343 |
|
|
|
63,062 |
|
|
|
52,954 |
|
|
ACMI services |
|
|
54 |
% |
|
|
98 |
% |
|
|
53 |
% |
|
|
97 |
% |
|
Hub services |
|
|
8 |
% |
|
|
|
|
|
|
8 |
% |
|
|
|
|
|
Scheduled service |
|
|
22 |
% |
|
|
|
|
|
|
19 |
% |
|
|
|
|
|
Charter and other services |
|
|
16 |
% |
|
|
2 |
% |
|
|
20 |
% |
|
|
3 |
% |
|
Dry Lease hours |
|
|
1,651 |
|
|
|
1,089 |
|
|
|
3,439 |
|
|
|
2,254 |
|
|
Atlas Air, Inc. |
|
|
21,396 |
|
|
|
24,343 |
|
|
|
43,472 |
|
|
|
52,954 |
|
|
ACMI services(2) |
|
|
75 |
% |
|
|
98 |
% |
|
|
72 |
% |
|
|
97 |
% |
|
Hub services |
|
|
11 |
% |
|
|
|
|
|
|
12 |
% |
|
|
|
|
|
Scheduled services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter and other services |
|
|
14 |
% |
|
|
2 |
% |
|
|
16 |
% |
|
|
3 |
% |
|
Dry Lease hours(3) |
|
|
1,569 |
|
|
|
1,089 |
|
|
|
2,700 |
|
|
|
2,254 |
|
Scheduled Service(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Ton Miles (000s) |
|
|
248,927 |
|
|
|
|
|
|
|
451,683 |
|
|
|
|
|
|
Available Ton Miles (000s) |
|
|
400,419 |
|
|
|
|
|
|
|
729,288 |
|
|
|
|
|
|
Load Factor |
|
|
62.2 |
% |
|
|
|
|
|
|
61.9 |
% |
|
|
|
|
|
Yield per RTM (cents) |
|
|
27.33 |
|
|
|
|
|
|
|
26.28 |
|
|
|
|
|
|
Revenue per ATM (cents) |
|
|
16.99 |
|
|
|
|
|
|
|
16.28 |
|
|
|
|
|
Aircraft at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlas(4) |
|
|
38 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
Polar(5) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total aircraft |
|
|
50 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
(1) |
|
2002 Operating statistics include Polar whereas 2001 statistics do not. |
|
(2) |
|
Wet-leases to Polar are 3% of total Atlas Air, Inc. block hours in Q2, 2002 and 0% in Q2, 2001. |
|
(3) |
|
Dry-leases to Polar were 30% of total Atlas Air, Inc. dry lease block hours
in Q2, 2002 and 0% in Q2, 2001. |
|
(4) |
|
Total Atlas aircraft include 6 parked aircraft and 4 aircraft that are
dry-leased to other carriers (2 of which are dry-leased to Polar). |
|
(5) |
|
Total Polar aircraft include 1 aircraft that is dry-leased to another carrier. |
|
(6) |
|
Scheduled service statistics
are prior to revenue eliminations. |
8
Three Months Ended June 30, 2002 and 2001
Summary The Company recorded a net loss of $34.2 million, or $.89 cents per
share, during the second quarter of 2002, which included an impairment charge
of $7.9 million, a $3.1 million bad debt expense for aged receivables greater
than one year, and $4.2 million of depreciation for B747-100s as a result of a
purchase price reallocation. This compares to a net loss of $49.0 million, or
$1.28 per basic share, for the same period in 2001, which also included a $71.2
million restructuring and impairment charge. On November 1, 2001, AAWH
purchased Polar, whose operating results are included in the accompanying
condensed consolidated financial statements for the three-month period ended
June 30, 2002 but not for the three-month period ended June 30, 2001.
The Companys second quarter 2002 revenues continue to be impacted by a
difficult global economy and the residual effects of the September 11 terrorist
attacks. In total, the Companys operating revenues increased $86.6 million,
or 58.1 percent, in the second quarter of 2002 from the same period last year.
Polars operating revenues were $104.8 million. Atlas operating revenue
decreased $7.9 million during the second quarter, or 5.3 percent, prior to
eliminations, from the second quarter of 2001.
Contracted revenues decreased by 22.2 percent, or $32.1 million, in the second
quarter of 2002 from the same period in 2001, as hub and new ACMI flying did
not offset the 20.6 percent block hour decline in utilization and three
non-renewed contracts. Three other customers representing 23.1 percent of
contracted service revenue during the second quarter are due for renewal during
the remainder of the year. Failure to renew these contracts or to find
alternative uses for the dedicated aircraft could have a material adverse
effect on our business and financial performance.
Charter revenues increased from $2.3 million to $54.7 million primarily due to
increased US military charters, which are the highest unit revenues offered by
AAWH. Military charters are awarded within 45 days in advance of flight,
making forecasting difficult. There can be no assurance that the US Government
will continue military missions at the same level in the future.
Scheduled service revenues were $63.5 million during the second quarter or 26.9
percent of the total operating revenue for the quarter. There were no
scheduled service revenues last year. The scheduled service traffic (revenue
ton miles) were 248.9 million on total capacity of 400.4 million available ton
miles. Second quarter load factor was 62.2 percent with a 27.33 cent yield
(the average rate a customer pays to ship one ton one mile).
The Companys operating expenses, increased by $54.9 million or 24.9% to $275.9
million compared to $220.9 million in the second quarter of 2001. Included in
operating expenses for the second quarter of 2002 and 2001 were restructuring
and impairment charges of $7.9 million and $71.2 million, respectively. The
increase in operating expenses was driven by the inclusion this year of Polars
operating costs, which totaled $111.7 million in the quarter. Atlas operating
costs, (prior to eliminations), decreased $46.4 million or 21.0 percent, in the
second quarter compared to the same period last year, driven largely by higher
levels of all- inclusive flying for the US military, offset by lower
restructuring and impairment charges.
Salaries, wages and benefits increased 56.1 percent, or $15.1 million, to $41.9
million, primarily due to the inclusion of Polars employees. On June 28, 2002,
Atlas and the Airline Pilots Association (ALPA) reached a tentative agreement
for a first labor contract. The contract was ratified by Atlas pilots on July
29, 2002, and had no financial impact on the Companys second quarter results.
Atlas pilot labor cost is estimated to increase by approximately 17 percent
during the first year of the contract. Atlas pilot labor cost represents
approximately
34.8 percent of the Companys total labor cost.
Aircraft rents increased $12.5 million primarily due to the addition of Polars
ten operating leased aircraft. The Company also has lease financing in place
from Boeing Capital Aviation Services on a B747-400 that was delivered on June
30, 2002.
Depreciation expense increased $6.7 million primarily due to the inclusion of
Polars B747-100 fleet, resulting from a purchase price reallocation under SFAS
141. These aircraft will be fully depreciated during the third quarter, as they
are scheduled to be taken out of service by September 1, 2002.
Ground handling and airport fees increased $16.9 million, primarily due to the
inclusion of Polars scheduled service and all- inclusive products such as the
Partnership Program, Partial ACMI and Fractional ACMI. These all -inclusive
products now account for approximately 46.0 percent of our consolidated block
hours.
9
Maintenance expense increased 35.6 percent principally due to the addition of
Polars 12 B747 aircraft fleet. Expenses also increased on the GE-powered
B747-400 engine overhaul maintenance program. The B747-400 engine overhaul
program is structured as a power by the hour program that has built-in
escalation provisions that increase over a ten year period. The Company also
recorded within the second quarter an additional $2.0 million for a contractual
periodic reconciliation within our B747-200 fleet power by the hour contract
with our overhaul service provider.
Since the majority of our scheduled services, military charter services and
other all- inclusive products bear the risk of increased fuel cost, aircraft
fuel expense increased $37.1 million, due primarily to volume increases.
The Company recorded a $7.9 million impairment charge on six B747 aircraft that
were being held for sale. These aircraft now have book values equal to the
lower of cost or market values and will be placed back into held for use
status and depreciated to their estimated salvage value over their estimated
remaining lives beginning in the third quarter.
Other operating expenses increased 57.2 percent, or $18.6 million, due
primarily to increases in crew travel and incidental costs, driven by the
acquisition of Polar, and higher insurance and bad debt expense. We recorded
$3.1 million in bad debt expenses related to aged receivables greater than one
year old. As a result of the September 11, 2001 terrorist attacks, aviation
insurers have significantly reduced the maximum amount of insurance coverage
available to commercial air carriers for liability to persons other than
employees or passengers for claims resulting from acts of terrorism, war or
similar events (war-risk coverage). At the same time, they significantly
increased the premiums for such coverage as well as for aviation insurance in
general. The US Government has supplemented the commercial war-risk insurance
until August 17, 2002 with a third party liability policy to cover losses to
persons other than employees or passengers for renewable 60-day periods. In
the event the insurance carriers reduce further the amount of insurance
coverage available or the Government fails to renew war-risk insurance, the
Companys results of operations, financial position, or cash flows could be
adversely impacted.
Interest income decreased $2.4 million, due primarily to decreases in interest
rates and a decline in available cash balance. Interest expense decreased $5.7
million or 23.4 percent, resulting primarily from the decrease in the Companys
long-term debt and lower interest rates. Approximately one third of our
long-term debt is LIBOR based. Capitalized interest decreased $1.1 million,
due primarily to a decrease in interest rates, as the interest on the deferred
portion of the purchase deposits are LIBOR-based and purchase deposits for
flight equipment have been minimal since the same period in 2001.
The effective tax rate for the three months ended June 30, 2002 was 37.5
percent and reflects the provision in Congress economic stimulus package that
changes the period for carrybacks of net operating losses (NOLs). This change
permits the Company to carry back 2001 and 2002 NOLs for five years, rather
than two years, allowing the Company to recover its NOLs more quickly. The
extended NOL carryback resulted in a $24 million refund during the second
quarter.
Six Months Ended June 30, 2002 and 2001
Summary The Company recorded a net loss of $40.9 million, or $1.07 per basic
share, during the six months ended June 30, 2002, which included a $7.9 million
impairment charge, a $6.3 million bad debt expense for aged receivables greater
than one year, and $4.2 million of depreciation for B747-100s as a result of a
purchase price reallocation. This compares to a net loss of $50.6 million, or
$1.33, per basic share for the same period in 2001, which also included a $71.4
million restructuring and impairment charge, and a pilot profit sharing
settlement expense of $22.8 million. On November 1, 2001, AAWH purchased
Polar, whose operating results are included in the accompanying condensed
consolidated financial statements for the six-month period ended June 30, 2002
but not for the six-month period ended June 30, 2001.
The Companys operating revenues increased $152.4 million, or 46.3 percent, in
the first six months of 2002 from the same period last year. Polars operating
revenues were $203.8 million. Atlas operating revenue decreased $37.2 million
during the first six months of 2002, or 11.3 percent, prior to eliminations,
from the first six months of 2001.
10
Contracted revenues decreased by 27.6 percent, or $84.2 million, in the first
six months of 2002 from the same period in 2001 due to lower utilization and
ACMI contracts that were not renewed.
Charter revenues increased by $130.2 million primarily due to increased US
military charters, which are the highest yielding service offered by AAWH.
Military charters are awarded within 45 days in advance of flight, making
forecasting difficult. There can be no assurance that the US Government will
continue military missions at the same level in the future.
Scheduled service revenues were $113.4 million during the first half of 2002 or
23.5 percent of the total operating revenue for the six months ended June 30.
There were no scheduled service revenues last year.
The scheduled service traffic (revenue ton miles) were 451.7 million on total
capacity of 729.3 million available ton miles. The load factor for the first
six months was 61.9 percent with a 26.28 cent yield (the average rate a customer
pays to ship one ton one mile).
The Companys operating expenses, increased by $128.5 million or 33.3% to
$514.4 million compared to $385.9 million in the first six months of 2001.
Included in operating expenses for the first six months of 2002 and 2001 were
restructuring and impairment charges of $7.9 million and $71.2 million,
respectively, and a pilot profit sharing settlement of $22.8 million in 2001.
The increase in operating expenses was driven by the inclusion this year of
Polars operating costs, which totaled $202.5 million for the first six months
of 2002. Atlas operating costs, (prior to eliminations), decreased $59.9
million or 15.5 percent, in the first six months compared to the same period
last year, driven largely by higher levels of all-inclusive flying for the US
military, offset by lower restructuring and impairment charges, as well as a
pilot profit sharing settlement recorded in 2001.
Salaries, wages and benefits increased 44.4 percent, or $25.3 million, to $82.3
million, primarily due to the inclusion of Polars employees. On June 28,
2002, Atlas and ALPA reached a tentative agreement for a first labor contract.
The contract has been ratified by Atlas crewmembers and has had no financial
impact to date. In May 2001, the Company restored its profit sharing to pilots
retroactive to April 1999, resulting in a 2001 settlement of $22.8 million.
Atlas pilot labor cost represents approximately 35.5% of the Companys total
labor cost.
Aircraft rents increased $28.0 million primarily due to the addition of Polars
ten leased aircraft. The Company also has lease financing in place from
Boeing Capital on a B747-400 that was delivered on June 30, 2002.
Depreciation expense increased $8.2 million primarily due to the inclusion of
Polars B747-100 fleet resulting from a purchase price reallocation under SFAS
141. These aircraft will be fully depreciated during the third quarter, as
these aircraft are scheduled to be taken out of service by September 1, 2002.
Ground handling and airport fees increased $38.5 million, primarily due to the
inclusion of Polars scheduled service and all-inclusive products such as the
Partnership Program, Partial ACMI and Fractional ACMI. These all -inclusive
products now account for approximately 47 percent of our consolidated block
hours.
Maintenance expense increased $20.3 million, or 32.8 percent, primarily due to
the volume increase of Polars 12 B747 aircraft fleet. Expenses also increased
on the GE-powered B747-400 engine overhaul maintenance program. The B747-400
engine overhaul program is structured as a power by the hour program that has
built in escalation provisions that increase over a ten year period. The
Company also recorded an additional $2.0 million for a contractual periodic
reconciliation within our B747-200 fleet power by the hour contract with an
overhaul service provider.
Since the majority of our scheduled services, military services and other
all-inclusive products bear the risk of fuel cost, aircraft fuel expense
increased $65.2 million, due primarily to volume increases.
During the second quarter of 2001, in response to global economic conditions
and the corresponding decline in air cargo demand, we decided to make six
aircraft, a combination of Boeing 747-200 and 300s, available for sale. As a
result, and in accordance with then SFAS 121, Accounting for the Impairment of
Long- Lived Assets and Long-Lived Assets to be Disposed of, we recorded a
$54.1 million charge within the caption Restructuring and Impairments. We also
made the decision to terminate our construction of the Miami hangar facility,
which resulted in an impairment charge of $13.2 million, during the second
quarter of 2001. Subsequently, in accordance with SFAS 144, we recorded an
additional $7.9 million impairment charge during the second quarter of 2002 on
the six B747 aircraft that were held for sale due to continuing erosion of
aircraft values. These aircraft will be placed back into held for use status
and depreciated down to their estimated salvage value over their estimated
remaining lives beginning in the third quarter. Estimated
depreciation expense for these six aircraft is expected to be $1.2 million per quarter.
Based on the events above, we also announced a pilot furlough of 105 crew
members and reduced work staff of 200 other employees. Under the restructuring
plan, the affected employees received severance and termination benefits
resulting in a 2001 second quarter charge of $3.9 million. No expenses related
to the restructuring have been incurred in 2002.
11
Other operating expenses increased 51.4 percent, or $29.2 million, due
primarily to increases in travel and incidental costs, driven by the
acquisition of Polar, and higher insurance and bad debt expense. We recorded
$6.3 million in bad debt expenses related to aged receivables greater than one
year old during the current period. As a result of the September 11, 2001
events, aviation insurers have significantly reduced the maximum amount of
insurance coverage available to commercial air carriers for liability to
persons other than employees or passengers for claims resulting from acts of
terrorism, war or similar events (war-risk coverage). At the same time, they
have significantly increased the premiums for such coverage as well as for
aviation insurance in general. The US Government has supplemented the
commercial war-risk insurance until August 17, 2002 with a third party
liability policy to cover losses to persons other than employees or passengers
for renewable 60-day periods. In the event the insurance carriers reduce
further the amount of insurance coverage available or the Government fails to
renew war-risk insurance, the Companys results of operations, financial
position, or cash flows could be adversely impacted.
Interest income decreased $6.7 million, due primarily to decreases in interest
rates and lower available cash balances. Interest expense
decreased $5.3
million, or 10.6 percent, resulting primarily from the decrease in the
Companys long-term debt and lower interest rates. Approximately one third of
our long-term debt is LIBOR-based. Capitalized interest decreased $1.5
million, due primarily to a decrease in interest rates, as the interest on the
deferred portion of the purchase deposits are LIBOR-based and purchase deposits
for flight equipment have been minimal since the same period in 2001.
The effective tax rate for the six months ended June 30, 2002 was 37.8 percent
and reflects the provision in Congress economic stimulus package that changes
the period for carrybacks of net operating losses (NOLs). This change permits
the Company to carry back 2001 and 2002 NOLs for five years, rather than two
years, allowing the Company to recover its NOLs more quickly. The extended NOL
carryback resulted in a $24 million refund during the second quarter.
Cash Flows
Operating Activities: Net cash used by operating activities for the six months
ended June 30, 2002 was $3.0 million, including a $24 million refund from the
IRS, compared to net cash used by operating activities of $64.2 million for the
six months ended 2001. The cash flows from operating activities for the six
months ended June 30, 2002 do not reflect non-cash reclassifications between
property, plant and equipment and prepaid expenses of $30 million, and accrued
liabilities and prepaid expenses of $32 million, both representing prepaid
aircraft rent paid in previous periods.
Investing Activities: Net cash expenditures for investing activities of $11.7
million for the six-month period ended June 30, 2002 reflect capital
expenditures of $24.1 million, partially offset by the net maturity of
investments of $12.4 million. Net cash expenditures for investing activities
of $64.3 million for the six month period ended June 30, 2001 reflect capital
expenditures of $127.8 million, partially offset by proceeds from the sale of
property and equipment of $53.9 million and net maturing investments of $9.5
million.
Financing Activities: Net cash used for financing activities of $45.6 million
for the six month period ended June 30, 2002
consisted primarily of $46.4 million of payments on long term debt and capital
lease obligations, partially offset by net proceeds from issuances of treasury
stock of $.9 million. Net cash used for financing activities of $65.3 million
for the six months ended June 30, 2001 consisted primarily of $64.1 million of
payments on long term debt and capital lease obligations,
partially offset by net proceeds from issuance of common and treasury stock.
LIQUIDITY AND CAPITAL RESOURCES
We expect to fund our anticipated cash requirements (including payments of
principal and interest on outstanding indebtedness, lease payments and capital
expenditures, exclusive of aircraft acquisitions from operating cash flow and
our cash and short-term investments. At June 30, 2002, our cash and short term
investments totaled $278.3 million. We generally fund the purchases of aircraft
from external sources.
The contractual nature of our debt and lease obligations is such that first and
third quarter payments are significantly larger than those in the second and
fourth quarters. In addition, our business is highly seasonal, with peak
revenue activity typically occurring in the second half of the year,
particularly in the fourth quarter.
12
During the quarter, we amended the terms of Atlas Aircraft Loan Facility and
its AFL III term loan (see Capital Structure). The amendments primarily
focused on easing the minimum liquidity covenant through the end of the year. At quarter-end, Atlas cash and
short-term investments equaled $256.7 million.
The amendments also revised the leverage and interest coverage ratios through
December 31, 2002. These ratios, along with the net worth
covenant, are considerably more
restrictive than the amended liquidity covenant and as such, will be monitored
closely. Should they prove too restrictive, we will work with the lead
bank to obtain further amendments or waivers. In any event, Atlas will be
required to consult with the lead bank and its bank group during the second
half of 2002 in order to amend covenants for 2003 and beyond. There
can be no assurance that the banks will agree to any such waivers or amendments
should the 2002 covenants be revisited, or of a successful re-negotiation with
respect to the 2003 covenants. A breach of any covenant under these
facilities would permit the lender to declare the balance to be due
and payable.
We are highly leveraged and have significant amounts of long-term financial
obligations coming due over the next several years. At June 30, 2002 our
outstanding long-term debt, including the current portion, measured $978.6
million and long-term lease obligations amounted to $3.0 billion. We believe
that the current cash and short-term investment balances, together with cash
flow from operations, are sufficient to meet our anticipated liquidity needs
for the next twelve months. Based on the current conditions in the aviation
industry and the global economy, however, positive cash flow from operations
over a similar time frame cannot be assured. To the extent that operating cash
flow and cash and investments on hand prove insufficient to fund planned
operating activities, to service our debt and to meet our lease obligations, we
would be required to sell assets and/or engage in refinancings to meet any such
deficiency. There can be no assurance that any such refinancing or sale of
assets could be realized, or on terms favorable to the Company.
Capital Structure
The following table sets forth our long term debt (including current
maturities) (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2002 |
|
At December 31, 2001 |
|
|
|
|
|
AFL III Term Loan Facility
Aircraft Credit Facility
Senior Notes
EETCs
Other |
|
|
$213,149
50,607
437,335
178,210
99,255
|
|
|
$ |
213,149
68,107
437,328
190,091
116,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$978,556
|
|
|
$ |
1,024,986 |
|
During the quarter, we amended the terms of Atlas Aircraft Credit Facility and
its AFL III term loan. The amendments primarily focused on easing the minimum
liquidity covenant through the end of the year. In addition, the leverage and
interest coverage ratios were likewise amended through December 31, 2002.
(see Liquidity and Capital Resources)
The amendments also reduced the available amount under the Aircraft Credit
Facility from $140 million to the existing drawn amount of
$50.6 million, and converted the drawn amount to a term loan; it
additionally requires Atlas to pledge three previously unencumbered aircraft
to the AFL III lenders. As part of these amendments, Atlas agreed to an
increase in the interest rate on related borrowings by 50 basis points.
At June 30, 2002 Atlas was in compliance with the financial covenants contained
in its credit agreements.
Critical Accounting Policies and Estimates
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties and potentially result in materially
different results under different assumptions and conditions. The Company has
prepared the accompanying financial statements in conformity with generally
accepted accounting principles, which require management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates under
different assumptions
13
or conditions. The Company has identified the following critical accounting
policies utilized in the preparation of these financial statements.
Revenue Recognition
Under our ACMI contracts and charter services, revenue is recognized in the
financial statements for the actual block hours operated on behalf of a
customer during a calendar month, unless the actual block hours are less than
the minimum guaranteed hours under the contract, in which case revenue is
recognized for minimum guaranteed hours. Some contracts contain a provision
that allows customers to make up the shortfall in the minimum guaranteed hours
over specified future months (measurement period). Under those contracts,
revenue is recognized for the actual block hours flown and recognition of the
shortfall in minimum guaranteed hours is deferred until either the shortfall
has not been made up at the end of the measurement period or there is a fair
degree of certainty during the measurement period that the cumulative shortfall
will not be made up. Under scheduled service, revenue is recognized upon
completion of the particular flight segment.
Planned Major Maintenance Activities
A significant portion of scheduled and unscheduled maintenance is contracted
with three maintenance providers under long-term agreements pursuant to which
monthly reserve payments are made to the providers based on flight-hours and
such amounts are charged to expense. Other maintenance and repairs are charged
to expense as incurred, except for significant airframe overhauls which are
capitalized and charged to expense on a flight-hour basis and certain other
major maintenance events which are capitalized and amortized over the
corresponding life.
Accounts Receivable
We are required to estimate the collectibility of our trade receivables. A
considerable amount of judgment is required in assessing the ultimate
realization of these receivables, including the current credit-worthiness of
each customer. Significant changes in required reserves have been recorded in
recent periods and may occur in the future due to the current market
environment.
OUTLOOK
The September December period is traditionally a period of peak activity in
the global cargo market. All indications are that this years September
December period will be very active. The Company currently expects
consolidated block hours for the third and fourth quarters to be significantly
greater than those experienced during the first half of the year. All of the
Companys lines of business should show improved results, particularly its
charter and scheduled service activities. As a result, the Company currently
expects to reactivate three of the six aircraft currently parked by Atlas.
Block hour production, which does not include dry lease hours, should be in the
36 to 38 thousand range in the third quarter, and the 39 to 41 thousand range in
the fourth quarter. All of the Companys lines of business should show increased activity,
with its charter and scheduled service activities the most improved.
Operating expenses will also increase due to incremental activity, the recently
ratified pilot contract at Atlas, and in maintenance on aircraft reactivated.
While the Companys return to annual profitability is dependent on a more
sustained global recovery, the increased activity in the September December
period is expected to result in profitable operations during the second half of
the year. As previously disclosed, however, the Company continues to believe
that its full years results will produce a loss.
14
FORWARD-LOOKING INFORMATION
Statements in this report contain various forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which represent the
Companys expectations or beliefs concerning future events. When used in this
document and in documents incorporated herein by reference, the words
expects, plans, anticipates, believes, and similar expressions are
intended to identify forward-looking statements. Other forward-looking
statements include statements which do not relate solely to historical facts,
such as, without limitation, block hour estimates for the remainder of the
year, statements which discuss the possible future effects of current known
trends or uncertainties, or which indicate that the future effects of known
trends or uncertainties cannot be predicted, guaranteed or assured. All
forward-looking statements in this report are based upon information available
to the Company on the date of this report. The Company undertakes no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise. Forward-looking
statements are subject to a number of factors that could cause actual results
to differ materially from our expectations. Additional information concerning
these and other factors is contained in the Companys Securities and Exchange
Commission filings, including but not limited to the Form 10-K for the year
ended December 31, 2001.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As our traditional ACMI business model changes to a more risk- inherent product
with the acquisition of Polar and its scheduled service, hub services,
including the Partnership Program, and expanded charter services, our results
of operations are impacted more significantly by changes in the price of
aircraft fuel. Aircraft fuel comprised 13.7% of our operating expenses during
the first six months of 2002, compared to 6.5% for the full year 2001. We
expect this expense to grow as our charter, scheduled and other service
operations become a larger portion of our business.
Based on our estimated fuel consumption for 2002, a 10% increase in the average
price per gallon of aircraft fuel would increase our fuel cost by $16 million.
We are currently reviewing hedging strategies and may engage in future fuel
hedging activities or fuel purchase commitments in order to manage the price
and utilization of our fuel expense.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The grievance filed by the Air Line Pilots Association against the Companys
wholly owned subsidiary, Polar Air Cargo, Inc. (Polar), for a pay raise
allegedly due Polars crewmembers in December 2001 was settled in May 2002. The
settlement provides for a 1.5 percent wage increase for the crewmembers
retroactive to December 1, 2001. For additional information concerning this
matter, see Item 3. Legal Proceedings in the Companys Annual Report on Form
10-K for the year ended December 31, 2001.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of stockholders was held on June 4, 2002.
(b) All director nominees were elected.
(c) Certain matters voted upon at the meeting and the votes cast with respect
to such matters are as follows:
Election of Directors
|
|
|
|
|
|
|
|
|
Director |
|
Votes Received |
|
Votes Withheld |
|
|
|
|
|
Linda Chowdry |
|
|
33,710,282 |
|
|
|
1,708,528 |
|
Lawrence W. Clarkson |
|
|
33,702,964 |
|
|
|
1,715,846 |
|
Richard A. Galbraith |
|
|
33,704,538 |
|
|
|
1,714,272 |
|
Stephen A. Greene |
|
|
33,711,253 |
|
|
|
1,707,557 |
|
David K. P. Li |
|
|
33,724,611 |
|
|
|
1,694,199 |
|
James T. Matheny |
|
|
31,876,767 |
|
|
|
3,542,043 |
|
Brian H. Rowe |
|
|
33,724,648 |
|
|
|
1,694,162 |
|
Richard H. Shuyler |
|
|
31,869,796 |
|
|
|
3,549,014 |
|
Ronald B. Woodard |
|
|
33,702,538 |
|
|
|
1,716,272 |
|
Proposals and Vote Tabulations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes Cast |
|
|
|
|
|
Broker |
|
|
For |
|
Against |
|
Abstain |
|
Non-votes |
|
|
|
|
|
|
|
|
|
Approval of the
Appointment of
Independent
Accountants for
2002 |
|
|
35,058,804 |
|
|
|
341,939 |
|
|
|
18,067 |
|
|
|
-0- |
|
Approval of
Amendment to
Long Term
Incentive and
Share Award Plan |
|
|
26,478,126 |
|
|
|
5,317,621 |
|
|
|
802,226 |
|
|
|
2,820,837 |
|
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
16
On April 3, 2002, Atlas Air filed a Current Report on Form 8-K reporting,
under Item 5 Other Events, guidance regarding expected financial results for
the first quarter and full-year 2002, expected cash balances at the end of the
first quarter and at year-end 2002 and anticipated block hour distribution for
the first quarter and full-year 2002.
On April 26, 2002, Atlas Air filed a Current Report on Form 8-K reporting,
under Item 4 Changes in Registrants Certifying Accountant, the dismissal of
Arthur Andersen LLP as the Companys independent public accountants and the
appointment of Ernst & Young LLP to so act.
On May 30, 2002, Atlas Air filed a Current Report on Form 8-K reporting,
under Item 5 Other Events, that the National Mediation Board had released
Atlas Air and its crewmembers from mediated negotiations with respect to a
first labor contract covering the Companys pilots and flight engineers.
On June 14, 2002, Atlas Air filed a Current Report on Form 8-K reporting,
under Item 5 Other Events, guidance regarding expected financial results for
the second quarter and full-year 2002 and an anticipated reduction in the
Companys second quarter block hours.
On June 21, 2002, Atlas Air filed a Current Report on Form 8-K reporting,
under Item 5 Other Events, that an agreement had been reached with Atlas
bank lenders to amend certain loan agreements for 2002.
On June 28, 2002, Atlas Air filed a Current Report on Form 8-K reporting,
under Item 5 Other Events, that a tentative agreement had been reached with
the Airline Pilots Association for a first labor contract covering the
Companys pilots and flight engineers.
17
Signature
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.
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Atlas Air Worldwide Holdings, Inc. |
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Date: August 2, 2002 |
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By:
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/s/ Douglas A. Carty
Douglas A. Carty
Senior Vice President and Chief Financial Officer |
18
CERTIFICATION
Each of the undersigned hereby certifies in his capacity as an officer of
Atlas Air Worldwide Holdings, Inc. (the Company) that the Quarterly Report
of the Company on Form 10-Q for the periods ended June 30, 2002 fully complies
with the requirements of Section 13(a) of the Securities Exchange Act of 1934
and that the information contained in such report fairly presents, in all
material respects, the financial condition of the Company at the end of such
periods and the results of operations of the Company for such periods.
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Dated: |
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August 2, 2002
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/s/ Richard H. Shuyler
Richard H. Shuyler
Chief Executive Officer |
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/s/ Douglas A. Carty
Douglas A. Carty
Chief Financial Officer |
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end
-----END PRIVACY-ENHANCED MESSAGE-----