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914-701-8417 914-701-8200
Atlas Air Worldwide Holdings, Inc. 2Q07 Net Income Totals $43.2 Million, Up 304%
EPS Rises to $2.01 from $0.51 per Share
Improved Operating Performance, Enhanced Margins; Income Tax Benefit and Reduced Interest Expense Add to Earnings
AAWW to Host Conference Call, Webcast at 11 A.M. Eastern Time
Purchase, N.Y.,August 8, 2007 —Atlas Air Worldwide Holdings, Inc. (AAWW) (Nasdaq: AAWW), a leading provider of global air cargo services, today reported sharply higher earnings for the second quarter of 2007 compared with second quarter of 2006. This reflects a continuing improvement in aircraft utilization due to proactive asset management, sustained operational execution, the positive impact of Continuous Improvement initiatives, increased AMC charter demand, and reduced net interest expense.
Earnings for the quarter included a substantial tax benefit related to DHL Express’ investment in Polar Air Cargo Worldwide, Inc., in which DHL acquired a 49% equity interest (including a 25% voting stake) in exchange for $150 million in cash; $75 million was received at closing in late June, with the balance scheduled to be received in 2008.
For the June 30, 2007 quarter, AAWW earned $43.2 million, 304% more than in the second quarter of 2006. Earnings per diluted share equaled $2.01, nearly four times the year-ago level. Revenues for the quarter totaled $370.4 million, with operating income of $31.2 million and pretax income of $25.2 million. Net income reflected a tax benefit of $18.0 million, which was driven by a net tax benefit in connection with the DHL transaction that reduced income tax expense in the quarter by $27.7 million, or the equivalent of $1.29 per diluted share.
The Company recorded a deferred gain of $151.4 million in the quarter as a result of the DHL transaction. The gain will be recognized as income in the period in which the blocked-space agreement between Polar Air Cargo Worldwide and DHL commences, which is scheduled to occur no later than October 31, 2008.
“We substantially improved our operating performance in the second quarter of 2007,” said William J. Flynn, President and Chief Executive Officer of AAWW. “With a 16% smaller fleet, we generated better revenues, operating earnings and margins. Our active asset management, operational execution and Continuous Improvement initiatives are delivering measurable gains, with EBITDA up 19.7% and EBITDAR up 10.1%, and we are executing on our strategic plan to deliver even stronger earnings and growth.”
Operating income increased to 8.4% of revenues in the second quarter of 2007 from 8.3% in the second quarter of 2006, while EBITDA increased to 11.1% of revenues versus 9.4%, and EBITDAR improved to 21.6% of revenues from 19.8%. Operating income in the second quarter of 2006 benefited from a $2.8 million gain on sale of aircraft and approximately $3.5 million in lower depreciation expense. Adjusting for these items, operating income margin improved 180 basis points, from 6.6% in the second quarter of 2006 to 8.4 % in the latest quarter.
Average utilization of operating aircraft on a block-hours-per-day basis increased 15.3% during the quarter compared with the year-ago quarter. Including the Company’s dry leasing activities, operating income per aircraft on a total fleet basis increased 13.4% to $0.8 million, with EBITDA per aircraft rising 33.0% to $1.1 million and EBITDAR per aircraft rising 22.3% to $2.2 million. Adjusting for the second-quarter 2006 items noted above, operating income per aircraft increased 43%.
Continuous Improvement initiatives contributed approximately $14 million of cost savings to AAWW’s second-quarter results. In addition to savings and efficiency improvements in maintenance, fuel, procurement and inventory, AAWW is beginning to realize benefits from longer lead-time projects which reduce aircraft down-time, lower cargo and ramp handling costs, and improve productivity. By year-end 2007, the Company expects to realize in excess of $65 million in annualized savings, and the Company remains on track to achieve at least $100 million of annualized savings in 2008.
Mr. Flynn noted, “The most significant event of the second quarter was closing our strategic transaction with DHL Express. This transforms our Scheduled Service business and significantly increases its inherent value. The commencement of the blocked-space agreement will substantially increase AAWW’s profitability. It will significantly increase margins and earnings on the assets employed in the Polar network, while mitigating the traditional scheduled-service commercial risks. This partnership provides us the opportunity to be a strategic supplier of aircraft and related services to the global leader in the express market place. We will build this relationship for future growth in the world’s most important trade routes.”
Mr. Flynn concluded: “Our future is bright. We expect strong growth in demand for leading-edge, wide-bodied freighters, and we are positioned with the best fleet. We have a strong track record of execution, delivering compelling value to our customers, and generating strong financial performance.”
Conference Call
Management will host a conference call and slide presentation to discuss AAWW’s second-quarter 2007 financial and operating results at 11:00 A.M. Eastern Daylight Time on Wednesday, August 8, 2007.
Interested parties are invited to listen to the call live and view the presentation over the Internet atwww.atlasair.com.
For those unable to listen to the live presentation, a replay will be available on the above Web sites for 90 days following the call. An audio replay will also be available through August 15, 2007 by dialing (800) 405-2236 (domestic) and (303) 590-3000 (international) and using Pass Code 11094940#.
2Q07 Performance Factors Versus 2Q06
Average utilization of operating aircraft during the second quarter increased 15.3% versus the second quarter of 2006, rising to 11.3 block hours per aircraft per day from 9.8. In addition, fuel-burn improved by 2.3% (3,213 gallons per block hour versus 3,289), driven by the Company’sFuelWiseinitiatives.
Total block-hour volumes in the second quarter were 3.2% lower than in the second quarter of 2006 (32,894 block hours versus 33,984). Through improved asset efficiency, 2007 block hours were generated by an operating fleet 16.0% smaller than in the second quarter of 2006 (32.0 operating aircraft compared with 38.1). Better aircraft utilization in 2007 also reflects action by management during 2006 and 2007 to maximize returns on select 747-200 aircraft through sales or subleases.
Operating revenues in the second quarter of 2007 rose 1.1%, or $4.0 million, compared with the year-earlier period, supported by an increase in AMC charter activity.
In ACMI, demand for AAWW’s 747-400 aircraft remained strong during the quarter, with all available 747-400 ACMI capacity under contract through 2007. Improved average block-hour rates ($5,971 versus $5,920) reflected a higher proportion of 747-400 aircraft employed in the segment compared with 747-200 aircraft. In addition, the decline in ACMI block hours (15,283 versus 17,292) largely reflected prior management actions that resulted in the sale or dry lease of 747-200 ACMI aircraft.
Eleven aircraft (ten 747-400s and one 747-200) directly supported the Company’s long-term ACMI operations at June 30, 2007, compared with 12 aircraft (ten 747-400s and two 747-200s) at June 30, 2006.
In the Scheduled Service segment, traffic (as measured by revenue ton miles, or RTMs) was unchanged, while capacity (as measured by available ton miles, or ATMs) decreased 0.7%. As a result, load factor improved to 63.4% from 63.1% in the year-ago period.
Capacity in the Scheduled Service segment was reallocated from certain trans-Pacific routes to the South American and trans-Atlantic routes to take advantage of more favorable trade conditions. Overall, however, unit revenues (RATM) declined 4.8% ($0.243 versus $0.255), while yield decreased 5.4% ($0.383 versus $0.405), due to both increased competitor capacity in key Asian markets and lower average yields in the South American trades commensurate with the substantially shorter length of haul.
Activity in the AMC Charter business increased 19.6% (5,459 block hours versus 4,565) during the quarter, reflecting the Company’s ability to flexibly allocate available capacity to meet an overall increase in the U.S. military’s heavy-lift requirements, as well as an increase in the relative amount of expansion business awarded to AAWW. Block-hour rates improved 8.4% ($17,083 versus $15,761) due to an increase in the charter rate per ton mile flown paid by the U.S. military.
Commercial Charter has implemented a strategic focus on developing solutions for customers in the oil and gas, heavy industry, and high-tech sectors to further maximize utilization of available capacity. In the second quarter, Charter block-hour rates increased slightly ($15,587 versus $15,257) while accompanied by a modest increase in block-hour volumes (1,837 versus 1,822).
Operating Expenses
Operating expenses in the quarter were $3.3 million, or 1.0%, higher than the comparable 2006 period, in large part reflecting an increase in fuel expense due to greater AMC flying and higher AMC fuel rates, as well as an increase in depreciation and amortization.
Total aircraft fuel expense rose 5.9%, or $6.8 million, during the quarter. Spending on fuel was mitigated by a 2.3% improvement in fuel-burn efficiency, equivalent to a savings of $2.9 million driven by the Company’sFuelWiseinitiatives, and a $1.1 million benefit from fuel-hedging activities related to the Company’s Scheduled Service business fuel requirements.
In the AMC segment, where the U.S. military reimburses the Company for fuel-price increases that exceed an agreed upon fuel price, fuel expense rose approximately $7.2 million on a 19.4% increase in fuel gallons consumed, reflecting higher AMC activity and a 2.3% increase in the AMC fuel rate. Aggregate fuel costs for Scheduled Service, which is the only business segment where the Company is directly exposed to fuel-price volatility risk, and Commercial Charter were comparable to costs in the second quarter of 2006. Aggregate fuel costs in these businesses reflected a slightly higher level of flying activity and a 2.9% increase in the average price per gallon, offset by a 3.0% reduction in gallons consumed.
Depreciation and amortization increased $3.5 million, or 54.3%, primarily due to a $4.7 million increase in the scrapping of spare rotable parts compared with the second quarter of 2006.
Labor expenses were $2.3 million, or 4.0%, higher than in the year-ago second quarter, primarily due to an increase in profit sharing and incentive compensation accruals related to comparative higher profitably.
Maintenance expense decreased $5.6 million, or 12.8%, principally reflecting a decrease in engine overhauls and the absence of D checks in the quarter. Maintenance expense in the quarter also benefited from the positive impact of Continuous Improvement savings initiatives.
Other operating expenses decreased $7.0 million, or 26.4%, versus the second quarter of 2006, primarily due to a $4.9 million decrease in legal and professional fees, a $2.2 million decrease in other miscellaneous expenses, and a $1.6 million decrease in consulting fees related to the redesign of internal controls that occurred in 2006, offset in part by a $0.6 million increase in bad-debt expense.
Net Interest Expense
Net interest expense decreased $7.1 million, or 52.9%, compared with the second quarter of 2006, primarily reflecting a lower level of outstanding debt, including the prepayment of $140.8 million of debt during the third quarter of 2006.
Income Taxes
Results for the second quarter included an income tax benefit of $18.0 million compared with an income tax expense of $6.8 million in the second quarter of 2006, resulting in a benefit of 71.4% versus an effective tax expense rate of 38.9%.
Rates for the second quarter of 2007 reflect a net tax benefit related to the transaction between Polar Air Cargo Worldwide and DHL Express. As a result, income tax expense was reduced by $27.7 million during the quarter.
AAWW may begin to pay U.S. cash income taxes in 2008 and anticipates that it will pay U.S. cash income taxes starting in 2009. The Company is evaluating certain opportunities to reduce its potential U.S. cash income tax liability, such as accelerated tax depreciation on future aircraft acquisitions, as well as other tax planning strategies that may allow for the reduction and recovery of cash taxes likely to be paid in future years. In addition, such strategies will also seek to reduce the Company’s effective tax rate.
Cash and Cash Equivalents
At June 30, 2007, AAWW’s cash and cash equivalents totaled $312.5 million compared with $231.8 million at year-end 2006.
The June 30 total includes proceeds of $75 million from DHL Express’ investment in Polar Air Cargo Worldwide in late June. An additional $75 million due from DHL Express is to be paid in two equal installments (with interest) on January 15, 2008 and November 17, 2008, subject to certain acceleration provisions.
As part of this transaction, DHL will be funding a post-closing working capital adjustment of approximately $23 million later this year.
Deferred Gain
As a result of the transaction with DHL, AAWW recorded a deferred gain of $151.4 million in the second quarter. The gain will be recognized as income in the period in which a blocked-space agreement between Polar Air Cargo Worldwide and DHL commences, which is scheduled to occur no later than October 31, 2008.
Outstanding Debt
At June 30, 2007, AAWW’s balance sheet debt and capital lease obligations totaled $403.3 million, including the impact of $79.4 million of unamortized discount related to fair market value adjustments recorded against its debt as a result of the application of fresh-start accounting.
Before the discount, the face value of AAWW’s on-balance sheet debt and capital lease obligations at June 30, 2007 totaled $482.7 million, compared with $501.5 million on December 31, 2006.
Non-GAAP Financial Measures: EBITDAR and EBITDA
EBITDAR increased to $80.0 million, $2.16 million per aircraft on a total fleet basis, in the second quarter of 2007 compared with $72.7 million, $1.77 million per aircraft, in the second quarter of 2006.
EBITDA rose to $41.3 million, $1.12 million per aircraft, in the latest reporting period compared with $34.5 million, $0.84 million per aircraft on a total fleet basis, in the second quarter of 2006.
About Non-GAAP Financial Measures
To supplement AAWW’s financial statements presented in accordance with GAAP, AAWW presents certain non-GAAP financial measures to assist in the evaluation of the performance of its business. These non-GAAP measures include EBITDAR and EBITDA. “EBITDAR” is defined as earnings before interest, taxes, depreciation, amortization, aircraft rent expense, gains on the disposals of assets, and post-emergence costs and related professional fees, as applicable. “EBITDA” is defined as earnings before interest, taxes, depreciation, amortization, gains on the disposals of assets, and post-emergence costs and related professional fees, as applicable.
AAWW’s management uses these non-GAAP financial measures in assessing the performance of the Company’s ongoing operations and liquidity and in planning and forecasting future periods.
About Atlas Air Worldwide Holdings, Inc.:
AAWW is the parent company of Atlas Air, Inc. (Atlas) and Polar Air Cargo Worldwide, Inc. (Polar), which together operate the world’s largest fleet of Boeing 747 freighter aircraft.
AAWW, through its principal subsidiaries Atlas and Polar, offers ACMI aircraft leasing in which customers receive a dedicated aircraft, crew, maintenance and insurance on a long-term lease basis, cargo charters, military charters and scheduled air cargo service.
AAWW’s press releases, SEC filings and other information can be accessed through the Company’s home page,www.atlasair.com.
This release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect AAWW’s current views with respect to certain current and future events and financial performance. Such forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the operations and business environments of AAWW and its subsidiaries (collectively, the “companies”) that may cause the actual results of the companies to be materially different from any future results, express or implied, in such forward-looking statements.
Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: the ability of the companies to operate pursuant to the terms of their financing facilities; the ability of the companies to obtain and maintain normal terms with vendors and service providers; the companies’ ability to maintain contracts that are critical to their operations; the ability of the companies to fund and execute their business plan; the ability of the companies to attract, motivate and/or retain key executives and associates; the ability of the companies to attract and retain customers; the continued availability of our wide-body aircraft; demand for cargo services in the markets in which the companies operate; economic conditions; the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack; labor costs and relations; financing costs; the cost and availability of war risk insurance; our ability to maintain adequate internal controls over financial reporting; aviation fuel costs; security-related costs; competitive pressures on pricing (especially from lower-cost competitors); volatility in the international currency markets; weather conditions; government legislation and regulation; consumer perceptions of the companies’ products and services; pending and future litigation; and other risks and uncertainties set forth from time to time in AAWW’s reports to the United States Securities and Exchange Commission.
For additional information, we refer you to the risk factors set forth under the heading “Risk Factors” in the Annual Report on Form 10-K filed by AAWW with the Securities and Exchange Commission on March 15, 2007. Other factors and assumptions not identified above are also involved in the preparation of forward-looking statements, and the failure of such other factors and assumptions to be realized may also cause actual results to differ materially from those discussed.
AAWW assumes no obligation to update such statements contained in this release to reflect actual results, changes in assumptions or changes in other factors affecting such estimates other than as required by law.
* * *
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Operations (in thousands, except per share data) (Unaudited)
For the Three Months Ended
For the Six Months Ended
June 30, 2007
June 30, 2006
June 30, 2007
June 30, 2006
Operating Revenues
ACMI
$
91,252
$
102,368
$
175,539
$
200,552
Scheduled service
144,245
152,579
270,118
281,259
AMC charter
93,258
71,951
207,994
145,077
Commercial charter
28,634
27,799
44,329
48,283
Other revenue
13,025
11,723
26,013
23,399
$
370,414
$
366,420
$
723,993
$
698,570
Operating Expenses
Aircraft fuel
122,123
115,311
234,434
216,487
Salaries, wages and benefits
61,438
59,099
123,188
119,170
Maintenance, materials and repairs
37,937
43,495
83,219
83,879
Aircraft rent
38,702
38,166
77,123
75,955
Ground handling and airport fees
18,385
19,025
35,706
34,910
Landing fees and other rent
18,288
17,561
36,018
33,877
Depreciation and amortization
10,062
6,520
19,637
20,045
Gain on sale of aircraft
(37
)
(2,779
)
(1,005
)
(2,779
)
Travel
12,610
12,589
24,604
25,838
Post-emergence costs
and related professional fees
18
179
62
277
Other
19,652
26,684
42,281
53,236
Total operating expenses
339,178
335,850
675,267
660,895
Operating income
31,236
30,570
48,726
37,675
Non-operating Expenses
Interest income
(3,838
)
(3,627
)
(7,259
)
(7,242
)
Interest expense
11,274
17,188
22,522
34,488
Capitalized interest
(1,121
)
(158
)
(1,963
)
(278
)
Other (income) expense, net
(271
)
(323
)
92
(633
)
Total non-operating expenses
6,044
13,080
13,392
26,335
Income before income taxes
25,192
17,490
35,334
11,340
Income tax expense (benefit)
(17,993
)
6,795
(14,048
)
4,343
Net income
$
43,185
$
10,695
$
49,382
$
6,997
Income per share:
Basic
$
2.04
$
0.52
$
2.34
$
0.34
Diluted
$
2.01
$
0.51
$
2.30
$
0.33
Weighted average shares:
Basic
21,175
20,591
21,110
20,554
Diluted
21,520
21,094
21,442
21,063
Atlas Air Worldwide Holdings, Inc.
Reconciliation to Non-GAAP Measures (in thousands) (Unaudited)
For the
For the
For the
For the
Three Months Ended
Three Months
Six Months Ended
Six Months
June 30, 2007
Ended June 30, 2006
June 30, 2007
Ended June 30, 2006
Income before income taxes
$
25,192
$
17,490
$
35,334
$
11,340
Post-emergence costs and related professional fees
18
179
62
277
Gain on disposal of aircraft
(37
)
(2,779
)
(1,005
)
(2,779
)
Pretax income before gain on disposal of aircraft and post-emergence costs and related professional fees
25,173
14,890
34,391
8,838
Interest expense, net
6,315
13,403
13,300
26,968
Other non-operating (income) expense
(271
)
(323
)
92
(633
)
Operating income before non-operating items, gain on disposal of aircraft, and post-emergence costs and related professional fees
31,217
27,970
47,783
35,173
Depreciation and amortization
10,062
6,520
19,637
20,045
EBITDA, as adjusted*
41,279
34,490
67,420
55,218
Aircraft rent
38,702
38,166
77,123
75,955
EBITDAR, as adjusted*
$
79,981
$
72,656
$
144,543
$
131,173
• EBITDA, as adjusted: Earnings before interest, taxes, depreciation, amortization, gains on the disposals of assets, and post-emergence costs and related professional fees, as applicable.
* EBITDAR, as adjusted: Earnings before interest, taxes, depreciation, amortization, aircraft rent expense, gains on the disposals of assets, and post-emergence costs and related professional fees, as applicable.
1
Atlas Air Worldwide Holdings, Inc.
Operating Statistics and Traffic Results (Unaudited)
For the Three Months Ended
For the Six Months Ended
June 30,
Percent
June 30,
Percent
2007
2006
Change
2007
2006
Change
Fleet:(average during the period)
Operating aircraft count (1) 32.0
38.1
(16.0
%)
32.3
38.5
(16.1
%)
Block Hours
ACMI
15,283
17,292
(11.6
%)
29,440
34,066
(13.6
%)
Scheduled service 10,164
10,090
0.7
%
19,165
18,651
2.8
%
AMC charter
5,459
4,565
19.6
%
12,310
9,076
35.6
%
Commercial charter 1,837
1,822
0.8
%
3,037
3,264
(7.0
%)
All other
151
215
(29.8
%)
354
377
(6.1
%)
Total Block Hours 32,894
33,984
(3.2
%)
64,306
65,434
(1.7
%)
Revenue Per Block Hour
ACMI
$
5,971
$
5,920
0.9
%
$
5,963
$
5,887
1.3
%
AMC charter
$
17,083
$
15,761
8.4
%
$
16,896
$
15,985
5.7
%
Commercial charter $15,587
$
15,257
2.2
%
$
14,596
$
14,793
(1.3
%)
Scheduled Service Traffic
RTM’s (000’s)
376,275
376,986
(0.2
%)
711,359
694,017
2.5
%
ATM’s (000’s)
593,816
597,889
(0.7
%)
1,116,934
1,098,496
1.7
%
Load Factor
63.4
%
63.1
%
0.3 pts
63.7
%
63.2
%
0.5 pts
RATM (2) $0.243
$
0.255
(4.8
%)
$
0.242
$
0.256
(5.5
%)
RTM Yield (3) $0.383
$
0.405
(5.4
%)
$
0.380
$
0.405
(6.2
%)
Fuel
Scheduled Service and Commercial
Charter:
Average fuel cost per gallon $2.12
$
2.06
2.9
%
$
2.03
$
2.06
(1.5
%)
Fuel gallons consumed (000’s) 38,880
40,063
(3.0
%)
71,695
73,473
(2.4
%)
AMC Charter:
Average fuel cost per gallon $2.25
$
2.20
2.3
%
$
2.25
$
2.20
2.3
%
Fuel gallons consumed (000’s) 17,710
14,831
19.4
%
39,588
29,750
33.1
%
(1) Fleet excludes the following aircraft count that were dry leased:
Dry leased
5.0
3.0
66.7
%
5.0
3.0
66.7
%
For the Six Months Ended June 30, 2006, Fleet includes one aircraft held for sale that did no commercial flying during the period through
its disposition in April 2006.
(2) RATM represents scheduled service revenue dollars per available ton mile.
(3) RTM Yield represents scheduled service revenue dollars per revenue ton mile.
2
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