UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
OR
☐ |
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: 001-16545
Atlas Air Worldwide Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
|
13-4146982 |
(State or other jurisdiction of incorporation) |
|
(IRS Employer Identification No.) |
|
|
|
2000 Westchester Avenue, Purchase, New York |
|
10577 |
(Address of principal executive offices) |
|
(Zip Code) |
(914) 701-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, $0.01 Par Value |
|
AAWW |
|
The NASDAQ Global Select Market |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 29, 2022, there were 28,190,379 shares of the registrant’s Common Stock outstanding.
TABLE OF CONTENTS
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3 |
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Item 1. |
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3 |
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Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (unaudited) |
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3 |
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Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (unaudited) |
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4 |
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5 |
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Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (unaudited) |
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6 |
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7 |
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8 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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18 |
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Item 3. |
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26 |
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Item 4. |
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26 |
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27 |
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Item 1. |
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27 |
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Item 1A. |
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27 |
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Item 6. |
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27 |
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28 |
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29 |
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Atlas Air Worldwide Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
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March 31, 2022 |
|
|
December 31, 2021 |
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Assets |
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Current Assets |
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|
||
Cash and cash equivalents |
|
$ |
730,349 |
|
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$ |
910,965 |
|
Restricted cash |
|
|
10,554 |
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|
10,052 |
|
Accounts receivable, net of allowance of $4,178 and $4,003, respectively |
|
|
297,264 |
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|
305,905 |
|
Prepaid expenses, assets held for sale and other current assets |
|
|
93,910 |
|
|
|
99,100 |
|
Total current assets |
|
|
1,132,077 |
|
|
|
1,326,022 |
|
Property and Equipment |
|
|
|
|
|
|
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Flight equipment |
|
|
5,507,628 |
|
|
|
5,449,100 |
|
Ground equipment |
|
|
103,498 |
|
|
|
101,824 |
|
Less: accumulated depreciation |
|
|
(1,360,736 |
) |
|
|
(1,319,636 |
) |
Flight equipment purchase deposits and modifications in progress |
|
|
438,308 |
|
|
|
352,422 |
|
Property and equipment, net |
|
|
4,688,698 |
|
|
|
4,583,710 |
|
Other Assets |
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|
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|
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Operating lease right-of-use assets |
|
|
130,748 |
|
|
|
138,744 |
|
Deferred costs and other assets |
|
|
317,993 |
|
|
|
329,971 |
|
Intangible assets, net and goodwill |
|
|
63,289 |
|
|
|
64,796 |
|
Total Assets |
|
$ |
6,332,805 |
|
|
$ |
6,443,243 |
|
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||
Liabilities and Equity |
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Current Liabilities |
|
|
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|
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Accounts payable |
|
$ |
122,751 |
|
|
$ |
82,885 |
|
Accrued liabilities |
|
|
615,134 |
|
|
|
641,978 |
|
Current portion of long-term debt and finance leases |
|
|
607,999 |
|
|
|
639,811 |
|
Current portion of long-term operating leases |
|
|
55,587 |
|
|
|
55,383 |
|
Total current liabilities |
|
|
1,401,471 |
|
|
|
1,420,057 |
|
Other Liabilities |
|
|
|
|
|
|
||
Long-term debt and finance leases |
|
|
1,615,305 |
|
|
|
1,655,075 |
|
Long-term operating leases |
|
|
152,150 |
|
|
|
166,022 |
|
Deferred taxes |
|
|
371,518 |
|
|
|
354,798 |
|
Financial instruments and other liabilities |
|
|
31,031 |
|
|
|
37,954 |
|
Total other liabilities |
|
|
2,170,004 |
|
|
|
2,213,849 |
|
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Equity |
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Stockholders’ Equity |
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Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued |
|
|
- |
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- |
|
Common stock, $0.01 par value; 100,000,000 shares authorized; |
|
|
351 |
|
|
|
347 |
|
Additional paid-in capital |
|
|
828,391 |
|
|
|
934,516 |
|
Treasury stock, at cost; 6,708,144 and 5,492,158 shares, respectively |
|
|
(317,480 |
) |
|
|
(225,461 |
) |
Accumulated other comprehensive loss |
|
|
(433 |
) |
|
|
(511 |
) |
Retained earnings |
|
|
2,250,501 |
|
|
|
2,100,446 |
|
Total stockholders’ equity |
|
|
2,761,330 |
|
|
|
2,809,337 |
|
Total Liabilities and Equity |
|
$ |
6,332,805 |
|
|
$ |
6,443,243 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
3
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
|
|
For the Three Months Ended |
|
|||||
|
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March 31, 2022 |
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|
March 31, 2021 |
|
||
Operating Revenue |
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$ |
1,037,156 |
|
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$ |
861,300 |
|
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Operating Expenses |
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Salaries, wages and benefits |
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|
298,019 |
|
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|
202,614 |
|
Aircraft fuel |
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|
244,337 |
|
|
|
163,551 |
|
Maintenance, materials and repairs |
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|
118,899 |
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|
|
121,133 |
|
Depreciation and amortization |
|
|
72,202 |
|
|
|
67,789 |
|
Travel |
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|
42,768 |
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|
37,672 |
|
Navigation fees, landing fees and other rent |
|
|
39,354 |
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|
44,887 |
|
Passenger and ground handling services |
|
|
34,936 |
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|
40,065 |
|
Aircraft rent |
|
|
12,995 |
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|
20,756 |
|
Loss (gain) on disposal of flight equipment |
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|
(6,240 |
) |
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|
16 |
|
Special charge |
|
|
2,633 |
|
|
|
- |
|
Transaction-related expenses |
|
|
- |
|
|
|
201 |
|
Other |
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|
55,857 |
|
|
|
58,412 |
|
Total Operating Expenses |
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|
915,760 |
|
|
|
757,096 |
|
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Operating Income |
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121,396 |
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104,204 |
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Non-operating Expenses (Income) |
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Interest income |
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(240 |
) |
|
|
(211 |
) |
Interest expense |
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|
20,423 |
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|
27,180 |
|
Capitalized interest |
|
|
(3,764 |
) |
|
|
(1,271 |
) |
Unrealized loss on financial instruments |
|
|
- |
|
|
|
113 |
|
Other (income) expense, net |
|
|
(618 |
) |
|
|
(39,456 |
) |
Total Non-operating Expenses (Income) |
|
|
15,801 |
|
|
|
(13,645 |
) |
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|
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Income before income taxes |
|
|
105,595 |
|
|
|
117,849 |
|
Income tax expense |
|
|
24,084 |
|
|
|
27,916 |
|
Net Income |
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$ |
81,511 |
|
|
$ |
89,933 |
|
Earnings per share: |
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Basic |
|
$ |
2.82 |
|
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$ |
3.16 |
|
Diluted |
|
$ |
2.38 |
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$ |
3.05 |
|
Weighted average shares: |
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|
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Basic |
|
|
28,854 |
|
|
|
28,491 |
|
Diluted |
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|
34,690 |
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|
29,478 |
|
|
|
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|
See accompanying Notes to Unaudited Consolidated Financial Statements
4
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
(Unaudited)
|
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For the Three Months Ended |
|
|||||
|
|
March 31, 2022 |
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|
March 31, 2021 |
|
||
Net Income |
|
$ |
81,511 |
|
|
$ |
89,933 |
|
Other comprehensive income: |
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|
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Reclassification to interest expense |
|
|
105 |
|
|
|
268 |
|
Income tax benefit |
|
|
(27 |
) |
|
|
(64 |
) |
Other comprehensive income |
|
|
78 |
|
|
|
204 |
|
Comprehensive Income |
|
$ |
81,589 |
|
|
$ |
90,137 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
5
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
For the Three Months Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Operating Activities: |
|
|
|
|
|
|
||
Net Income |
|
$ |
81,511 |
|
|
$ |
89,933 |
|
|
|
|
|
|
|
|
||
Adjustments to reconcile Net Income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
85,257 |
|
|
|
86,172 |
|
Provision for (reversal of) expected credit losses |
|
|
(15 |
) |
|
|
(397 |
) |
Special charge |
|
|
2,633 |
|
|
|
- |
|
Unrealized loss on financial instruments |
|
|
- |
|
|
|
113 |
|
Loss (gain) on disposal of flight equipment |
|
|
(6,240 |
) |
|
|
16 |
|
Deferred taxes |
|
|
23,682 |
|
|
|
27,839 |
|
Stock-based compensation |
|
|
2,195 |
|
|
|
4,060 |
|
Changes in: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
9,960 |
|
|
|
(22,745 |
) |
Prepaid expenses, current assets and other assets |
|
|
(3,619 |
) |
|
|
(7,500 |
) |
Accounts payable, accrued liabilities and other liabilities |
|
|
12,475 |
|
|
|
(89,366 |
) |
Net cash provided by operating activities |
|
|
207,839 |
|
|
|
88,125 |
|
Investing Activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
(29,895 |
) |
|
|
(26,662 |
) |
Purchase deposits and payments for flight equipment and modifications |
|
|
(154,420 |
) |
|
|
(126,807 |
) |
Investment in joint ventures |
|
|
(783 |
) |
|
|
(1,608 |
) |
Proceeds from disposal of flight equipment |
|
|
13,500 |
|
|
|
1,850 |
|
Net cash used for investing activities |
|
|
(171,598 |
) |
|
|
(153,227 |
) |
Financing Activities: |
|
|
|
|
|
|
||
Proceeds from debt issuance |
|
|
- |
|
|
|
16,161 |
|
Payment of debt issuance costs |
|
|
(81 |
) |
|
|
(900 |
) |
Payments of debt and finance lease obligations |
|
|
(108,466 |
) |
|
|
(77,953 |
) |
Prepayment of accelerated share repurchase |
|
|
(20,034 |
) |
|
|
- |
|
Purchase of treasury stock |
|
|
(79,966 |
) |
|
|
- |
|
Customer maintenance reserves and deposits received |
|
|
4,245 |
|
|
|
5,152 |
|
Customer maintenance reserves paid |
|
|
- |
|
|
|
(12,265 |
) |
Treasury shares withheld for payment of taxes |
|
|
(12,053 |
) |
|
|
(7,350 |
) |
Net cash used for financing activities |
|
|
(216,355 |
) |
|
|
(77,155 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
|
(180,114 |
) |
|
|
(142,257 |
) |
Cash, cash equivalents and restricted cash at the beginning of period |
|
|
921,017 |
|
|
|
856,281 |
|
Cash, cash equivalents and restricted cash at the end of period |
|
$ |
740,903 |
|
|
$ |
714,024 |
|
|
|
|
|
|
|
|
||
Noncash Investing and Financing Activities: |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Acquisition of property and equipment included in Accounts payable and accrued liabilities |
|
$ |
3,146 |
|
|
$ |
24,938 |
|
Acquisition of property and equipment acquired under operating leases |
|
$ |
104 |
|
|
$ |
4,015 |
|
Acquisition of flight equipment under finance leases |
|
$ |
3,108 |
|
|
$ |
20,171 |
|
Issuance of shares related to settlement of warrant liability |
|
$ |
- |
|
|
$ |
31,582 |
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Consolidated Financial Statements
6
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(Unaudited)
|
|
As of and for the Three Months Ended March 31, 2022 |
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Additional |
|
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Total |
|
||||||
|
|
Common |
|
|
Treasury |
|
|
Paid-In |
|
|
Accumulated Other |
|
|
Retained |
|
|
Stockholders' |
|
||||||
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Comprehensive Loss |
|
|
Earnings |
|
|
Equity |
|
||||||
Balance at December 31, 2021 |
|
$ |
347 |
|
|
$ |
(225,461 |
) |
|
$ |
934,516 |
|
|
$ |
(511 |
) |
|
$ |
2,100,446 |
|
|
$ |
2,809,337 |
|
Net Income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
81,511 |
|
|
|
81,511 |
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
78 |
|
|
|
- |
|
|
|
78 |
|
Cumulative effect of change in accounting principle |
|
|
- |
|
|
|
- |
|
|
|
(92,586 |
) |
|
|
- |
|
|
|
68,544 |
|
|
|
(24,042 |
) |
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
2,195 |
|
|
|
- |
|
|
|
- |
|
|
|
2,195 |
|
Issuance of warrants |
|
|
- |
|
|
|
- |
|
|
|
4,304 |
|
|
|
- |
|
|
|
- |
|
|
|
4,304 |
|
Prepayment of accelerated share repurchase |
|
|
- |
|
|
|
- |
|
|
|
(20,034 |
) |
|
|
- |
|
|
|
- |
|
|
|
(20,034 |
) |
Purchase of 1,061,257 shares of treasury stock |
|
|
- |
|
|
|
(79,966 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(79,966 |
) |
Treasury shares of 154,729 withheld for payment of taxes |
|
|
- |
|
|
|
(12,053 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(12,053 |
) |
Issuance of 363,550 shares of restricted stock |
|
|
4 |
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at March 31, 2022 |
|
$ |
351 |
|
|
$ |
(317,480 |
) |
|
$ |
828,391 |
|
|
$ |
(433 |
) |
|
$ |
2,250,501 |
|
|
$ |
2,761,330 |
|
|
|
As of and for the Three Months Ended March 31, 2021 |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
Total |
|
||||||
|
|
Common |
|
|
Treasury |
|
|
Paid-In |
|
|
Accumulated Other |
|
|
Retained |
|
|
Stockholders' |
|
||||||
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Comprehensive Loss |
|
|
Earnings |
|
|
Equity |
|
||||||
Balance at December 31, 2020 |
|
$ |
329 |
|
|
$ |
(217,889 |
) |
|
$ |
873,874 |
|
|
$ |
(1,904 |
) |
|
$ |
1,607,129 |
|
|
$ |
2,261,539 |
|
Net Income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
89,933 |
|
|
|
89,933 |
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
204 |
|
|
|
- |
|
|
|
204 |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
4,060 |
|
|
|
- |
|
|
|
- |
|
|
|
4,060 |
|
Issuance of warrants |
|
|
- |
|
|
|
- |
|
|
|
3,228 |
|
|
|
- |
|
|
|
- |
|
|
|
3,228 |
|
Treasury shares of 128,867 withheld for payment of taxes |
|
|
- |
|
|
|
(7,350 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,350 |
) |
Issuance of 1,280,450 shares related to settlement of warrants |
|
|
13 |
|
|
|
- |
|
|
|
31,569 |
|
|
|
- |
|
|
|
- |
|
|
|
31,582 |
|
Issuance of 337,755 shares of restricted stock |
|
|
3 |
|
|
|
- |
|
|
|
(3 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at March 31, 2021 |
|
$ |
345 |
|
|
$ |
(225,239 |
) |
|
$ |
912,728 |
|
|
$ |
(1,700 |
) |
|
$ |
1,697,062 |
|
|
$ |
2,383,196 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
7
Atlas Air Worldwide Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2022
1. Basis of Presentation
Our consolidated financial statements include the accounts of the holding company, Atlas Air Worldwide Holdings, Inc. (“AAWW”), and its consolidated subsidiaries. AAWW is the parent company of our principal operating subsidiary, Atlas Air, Inc. (“Atlas”), and several subsidiaries related to our dry leasing services (collectively referred to as “Titan”). AAWW also has a 51% equity interest and 75% voting interest in Polar Air Cargo Worldwide, Inc. (“Polar”). We record our share of Polar’s results under the equity method of accounting. Polar is a variable interest entity that we do not consolidate because we are not the primary beneficiary and we generally do not have any financial exposure to fund debt obligations or operating losses of Polar (see Note 3 for further discussion).
The terms “we,” “us,” “our,” and the “Company” mean AAWW and all entities included in its consolidated financial statements.
We provide outsourced aircraft and aviation operating services throughout the world, serving Africa, Asia, Australia, Europe, the Middle East, North America and South America through: (i) contractual service arrangements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), crew, maintenance and insurance, but not the aircraft (“CMI”) and cargo and passenger charter services (“Charter”); and (ii) dry leasing aircraft and engines (“Dry Leasing” or “Dry Lease”).
The accompanying unaudited consolidated financial statements and related notes (the “Financial Statements”) have been prepared in accordance with the U.S. Securities and Exchange Commission (the “SEC”) requirements for quarterly reports on Form 10-Q, and consequently exclude certain disclosures normally included in audited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated. The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes included in the AAWW Annual Report on Form 10-K for the year ended December 31, 2021, which includes additional disclosures and a summary of our significant accounting policies. The December 31, 2021 balance sheet data was derived from that Annual Report. In our opinion, these Financial Statements include all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows.
Our quarterly results are subject to seasonal and other fluctuations, including fluctuations resulting from the global COVID-19 pandemic and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.
Except for per share data, all dollar amounts are in thousands unless otherwise noted.
2. Summary of Significant Accounting Policies
Heavy Maintenance
Except as described in the paragraph below, we account for heavy maintenance costs for airframes and engines using the direct expense method. Under this method, heavy maintenance costs are charged to expense upon induction, based on our best estimate of the costs after considering multiple factors, including historical costs, experience and information provided by third-party maintenance providers. These estimates may be subsequently adjusted for changes and the final determination of actual costs incurred. As of March 31, 2022 and December 31, 2021, Accrued heavy maintenance was $90.1 million and $79.6 million, respectively.
We account for heavy maintenance costs for airframes and engines used in our Dry Leasing segment and engines used on our 747-8F and 777-200 aircraft using the deferral method. Under this method, we defer the expense recognition of scheduled heavy maintenance events, which are amortized over the shorter of the estimated period until the next scheduled heavy maintenance event is required or remaining lease term. Amortization of deferred maintenance expense included in Depreciation and amortization was $11.1 million and $12.0 million for the three months ended March 31, 2022 and March 31, 2021, respectively.
8
Deferred maintenance included within Deferred costs and other assets is as follows:
Balance as of December 31, 2021 |
|
$ |
180,675 |
|
Deferred maintenance costs |
|
|
5,933 |
|
Special charge (1) |
|
|
(1,628 |
) |
Amortization of deferred maintenance |
|
|
(11,122 |
) |
Balance as of March 31, 2022 |
|
$ |
173,858 |
|
(1) See Note 6 for further discussion.
Property and Equipment
Committed capital expenditures are expected to be $659.9 million in 2022 and $359.7 million in 2023. These expenditures include delivery payments for our January 2021 agreement to purchase four 747-8F aircraft from The Boeing Company (“Boeing”), the first of these aircraft is expected to be delivered during the second quarter of 2022 and the remaining three throughout 2022. These amounts also include pre-delivery payments for our December 2021 agreement to purchase four new 777-200LRF aircraft from Boeing, the first of these aircraft is expected to be delivered late in the fourth quarter of 2022 and the remaining three throughout 2023. In addition, the amounts include other agreements to acquire spare engines.
Payroll Support Program under the CARES Act
In May 2020, two subsidiaries of the Company, Atlas and Southern Air, Inc. (“Southern Air”, and together with Atlas, the “PSP Recipients”) entered into an agreement with the U.S. Treasury (the "PSP Agreement") with respect to payroll support funding available to cargo carriers under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). AAWW also entered into a Warrant Agreement (the “Warrant Agreement”) with the U.S. Treasury, and AAWW issued a senior unsecured promissory note to the U.S. Treasury (the “Promissory Note”), with the PSP Recipients as guarantor.
In connection with the payroll support funding received in 2020 under the PSP Agreement, we issued warrants to the U.S. Treasury to acquire up to 625,452 shares of our common stock. The warrants will expire in 2025 on the fifth anniversary of the issue date of each warrant. As of March 31, 2022, no portion of the warrants have been exercised.
We initially recognized deferred grant income within Accrued liabilities for the difference between the payroll support funding received in 2020 under the PSP Agreement and the amounts recorded for the Promissory Note and the Warrant Agreement. All grant income has been subsequently recognized within Other (income) expense, net in the consolidated statement of operations on a pro-rata basis over the periods that the qualifying employee wages, salaries and benefits were paid. During the three months ended March 31, 2021, we recognized the remaining $40.9 million of deferred grant income within Other (income) expense, net in the consolidated statement of operations.
Recent Accounting Pronouncement Adopted in 2022
In August 2020, the Financial Accounting Standards Board amended its accounting guidance for certain financial instruments with characteristics of liabilities and equity, including convertible debt instruments. For convertible debt with a cash conversion feature, the amended guidance removes the accounting model to separately account for the liability and equity components, which resulted in the amortization of a debt discount to interest expense. Under this amended guidance, such convertible debt is accounted for as a single debt instrument with no amortization of a debt discount, unless certain other conditions are met. The amended guidance also requires the use of the if-converted method when calculating the dilutive impact of convertible debt on earnings per share. Effective January 1, 2022, we adopted the amended guidance using the modified retrospective approach, under which the guidance was applied only to the most current period presented. On January 1, 2022, we recorded an increase of $31.0 million to the carrying value of our convertible notes, a reduction of $6.9 million to deferred tax liabilities, a reduction of $92.6 million to Additional paid-in capital and an increase of $68.5 million to Retained earnings for the cumulative effect of adoption.
3. Related Parties
Polar
AAWW has a 51% equity interest and 75% voting interest in Polar. DHL Network Operations (USA), Inc. (“DHL”), a subsidiary of Deutsche Post AG, holds a 49% equity interest and a 25% voting interest in Polar. Polar is a variable interest entity that we do not consolidate because we are not the primary beneficiary as the risks associated with the direct costs of operation are with DHL. Under a 20-year blocked space agreement, which began in 2008, Polar provides air cargo capacity to DHL. Atlas has several agreements with Polar to provide ACMI, CMI, Dry Leasing, administrative, sales and ground support services to one another. We do not have any financial exposure to fund debt obligations or operating losses of Polar, except for any liquidated damages that we could incur under these agreements.
9
The following table summarizes our transactions and balances with Polar:
|
|
For the Three Months Ended |
|
|||||
Revenue and Expenses: |
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Revenue from Polar |
|
$ |
81,519 |
|
|
$ |
77,256 |
|
Ground handling and airport fees to Polar |
|
|
1,087 |
|
|
|
882 |
|
|
|
|
|
|
|
|
||
Accounts receivable/payable as of: |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Receivables from Polar |
|
$ |
19,996 |
|
|
$ |
22,311 |
|
Payables to Polar |
|
|
610 |
|
|
|
3,082 |
|
|
|
|
|
|
|
|
||
Aggregate Carrying Value of Polar Investment as of: |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Aggregate Carrying Value of Polar Investment |
|
$ |
4,870 |
|
|
$ |
4,870 |
|
In addition to the amounts in the table above, Atlas recognized revenue from flying on behalf of Polar of $40.7 million and $54.1 million for the three months ended March 31, 2022 and 2021, respectively.
Dry Leasing Joint Venture
We hold a 10% interest in a joint venture with an unrelated third party, which we entered into in December 2019, to develop a diversified freighter aircraft dry leasing portfolio. Through Titan, we provide aircraft and lease management services to the joint venture for fees based upon aircraft assets under management, among other things. Our investment in the joint venture is accounted for under the equity method of accounting. Under the joint venture, we have a commitment to provide up to $40.0 million of capital contributions before December 2022, of which $10.0 million has been contributed as of March 31, 2022. Our maximum exposure to losses from the entity is limited to our investment.
The following table summarizes our transactions and balances with our dry leasing joint venture:
|
|
For the Three Months Ended |
|
|||||
Revenue and Expenses: |
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Revenue from dry leasing joint venture |
|
$ |
338 |
|
|
$ |
1,324 |
|
Aircraft rent to dry leasing joint venture |
|
|
2,250 |
|
|
|
2,250 |
|
|
|
|
|
|
|
|
||
Aggregate Carrying Value of Joint Venture as of: |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Aggregate Carrying Value of Dry Leasing Joint Venture |
|
$ |
8,814 |
|
|
$ |
8,448 |
|
Parts Joint Venture
We hold a 50% interest in a joint venture with an unrelated third party to purchase rotable parts and provide repair services for those parts, primarily for 747-8F aircraft. The joint venture is a variable interest entity and we have not consolidated the joint venture because we are not the primary beneficiary as we do not exercise financial control. Our investment in the joint venture is accounted for under the equity method of accounting and was $17.7 million as of March 31, 2022 and $19.2 million as of December 31, 2021. Our maximum exposure to losses from the entity is limited to our investment, which is composed primarily of rotable inventory parts. The joint venture does not have any third-party debt obligations. We had Accounts receivable from the joint venture of $0.2 million as of March 31, 2022 and $0.3 million as of December 31, 2021. We had Accounts payable to the joint venture of $1.1 million as of March 31, 2022 and $1.2 million as of December 31, 2021.
4. Amazon
In May 2016, we entered into certain agreements with Amazon.com, Inc. and its subsidiary, Amazon Fulfillment Services, Inc., (collectively “Amazon”), which involve, among other things, CMI operation of up to 20 Boeing 767-300 freighter aircraft for Amazon by Atlas, as well as Dry Leasing by Titan. The Dry Leases have a term of ten years from the commencement of each agreement, while the CMI operations are for seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years). As of March 31, 2022, 19 767-300 freighters were in Dry Lease service, of which 17 were operating in CMI service.
In conjunction with the agreements entered into in May 2016, we granted Amazon a warrant providing the right to acquire up to 20% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, at an exercise price of $37.34 per share, as adjusted (“Warrant A”). All 7.5 million shares, as adjusted, vested in full and have been exercised.
10
The agreements entered into in May 2016 also provided incentives for future growth of the relationship as Amazon may increase its business with us. In that regard, we granted Amazon a warrant to acquire up to an additional 10% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $37.34 per share, as adjusted (“Warrant B”). This warrant to purchase 3.77 million shares, as adjusted, will vest in increments of 37,660 shares, as adjusted, each time Amazon has paid $4.2 million of revenue to us, up to a total of $420.0 million, for incremental business beyond the original 20 767-300 freighters. As of March 31, 2022, 1,129,800 shares, as adjusted, of Warrant B have vested, of which 564,900 shares remain unexercised. Warrant B will expire if not exercised in accordance with its terms by May 4, 2023.
In March 2019, we amended the agreements entered into in 2016 with Amazon, pursuant to which we began providing CMI services using Boeing 737-800 freighter aircraft provided by Amazon. The 737-800 CMI operations are for a term of seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years). As of March 31, 2022, eight 737-800 freighter aircraft were operating in CMI service.
In connection with the amended agreements, we granted Amazon a warrant to acquire up to an additional 9.9% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrant, for an exercise price of $52.67 per share, as adjusted (“Warrant C”). Only if Warrant B vests in full, this warrant to purchase 6.66 million shares, as adjusted, would vest in increments of 45,623 shares, as adjusted, each time Amazon has paid $6.9 million of revenue to us, up to a total of $1.0 billion, for incremental business beyond Warrant A and Warrant B. As of March 31, 2022, no portion of Warrant C has vested. Warrant C will expire if not exercised in accordance with its terms by March 27, 2026. Further, in the event that Warrant B does not vest in full on or prior to its May 4, 2023 expiration, then Warrant C will no longer be exercisable by Amazon as of that date.
While Amazon would be entitled to vote the shares it owns up to 14.9% of our outstanding common shares, in its discretion, it would be required to vote any shares it owns in excess of 14.9% of our outstanding common shares in accordance with the recommendation of our board of directors.
We amortized $10.1 million and $10.5 million of the customer incentive asset as a reduction of Operating Revenue for the three months ended March 31, 2022 and 2021, respectively.
5. Supplemental Financial Information
Accounts Receivable
Accounts receivable, net of allowance for expected credit losses related to customer contracts, excluding Dry Leasing contracts, was $252.7 million as of March 31, 2022 and $248.4 million as of December 31, 2021.
Allowance for expected credit losses, included within Accounts receivable, is as follows:
Beginning balance at December 31, 2021 |
|
$ |
4,003 |
|
Bad debt recovery |
|
|
(15 |
) |
Amounts written off, net of recoveries |
|
|
190 |
|
Ending balance at March 31, 2022 |
|
$ |
4,178 |
|
Accrued Liabilities
Accrued liabilities consisted of the following as of:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Salaries, wages and benefits |
|
$ |
175,389 |
|
|
$ |
211,801 |
|
Maintenance |
|
|
140,947 |
|
|
|
135,133 |
|
Customer maintenance reserves |
|
|
91,826 |
|
|
|
87,565 |
|
Aircraft fuel |
|
|
59,689 |
|
|
|
40,855 |
|
Deferred revenue |
|
|
47,577 |
|
|
|
58,616 |
|
Other |
|
|
99,706 |
|
|
|
108,008 |
|
Accrued liabilities |
|
$ |
615,134 |
|
|
$ |
641,978 |
|
11
Revenue Contract Liability
Deferred revenue for customer contracts, excluding Dry Leasing contracts, represents amounts collected from, or invoiced to, customers in advance of revenue recognition. The balance of Deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue.
Significant changes in Deferred Revenue liability balances during the three months ended March 31, 2022 were as follows:
Balance as of December 31, 2021 |
|
$ |
52,647 |
|
Revenue recognized |
|
|
(106,640 |
) |
Amounts collected or invoiced |
|
|
90,582 |
|
Balance as of March 31, 2022 |
|
$ |
36,589 |
|
Supplemental Cash Flow Information
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total shown in the consolidated statements of cash flows:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Cash and cash equivalents |
|
$ |
730,349 |
|
|
$ |
910,965 |
|
Restricted cash |
|
|
10,554 |
|
|
|
10,052 |
|
Total Cash, cash equivalents and restricted cash shown in Consolidated Statements of Cash Flows |
|
$ |
740,903 |
|
|
$ |
921,017 |
|
6. Special Charge and Assets Held For Sale
Special Charge
In March 2022, we recorded a $2.6 million charge related to two CF60-80 engines Dry Leased to a customer.
Assets Held For Sale
As of December 31, 2021, we had six spare CF6-80 engines with a carrying value of $5.5 million classified as held for sale within Prepaid expense, assets held for sale and other current assets in the consolidated balance sheets. During the three months ended March 31, 2022, we received proceeds of $11.7 million and recognized a net gain of $6.2 million from the completion of the sale of the six spare CF6-80 engines within Loss (gain) on the disposal of flight equipment in the consolidated statement of operations.
7. Debt
Convertible Notes
In June 2015, we issued $224.5 million aggregate principal amount of convertible senior notes that mature on June 1, 2022 (the “2015 Convertible Notes”) in an underwritten public offering. In May 2017, we issued $289.0 million aggregate principal amount of convertible senior notes that mature on June 1, 2024 (the “2017 Convertible Notes”) in an underwritten public offering. The 2017 Convertible Notes and the 2015 Convertible Notes (collectively, the “Convertible Notes”) are senior unsecured obligations and accrue interest payable semiannually on June 1 and December 1 of each year. The Convertible Notes are due on their respective maturity dates, unless earlier converted or repurchased pursuant to their respective terms.
In connection with the offerings of the Convertible Notes, we entered into convertible note hedge transactions whereby we have the option to purchase a certain number of shares of our common stock at a fixed price per share. In addition, we sold warrants to the option counterparties whereby the holders of the warrants have the option to purchase a certain number of shares of our common stock at a fixed price per share.
Taken together, the purchases of the convertible note hedges and the sales of the warrants are intended to offset any economic dilution from the conversion of each of the Convertible Notes when the stock price is below the exercise price of the respective warrants and to effectively increase the overall conversion prices from $74.05 to $95.01 per share for the 2015 Convertible Notes and from $61.08 to $92.20 per share for the 2017 Convertible Notes.
On or after the earliest conversion date until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or a portion of its Convertible Notes. Upon conversion, each of the Convertible Notes will be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amounts of
12
the Convertible Notes paid in cash. Effective September 1, 2021, the 2015 Convertible Notes became convertible and all conversions are required to be settled in cash for the principal amount.
The price of our common stock was greater than or equal to 130% of the conversion price of the 2017 Convertible Notes for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the quarter ended March 31, 2022. Therefore, our 2017 Convertible Notes continue to be convertible at the holders’ option through June 30, 2022. The impact of the 2017 Convertible Notes on our liquidity will depend on the settlement method we elect. As discussed above, our intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amount of the Convertible Notes paid in cash.
Through December 31, 2021, we separately accounted for the liability and equity components of the Convertible Notes based on their relative values. Debt issuance costs related to the issuance of the Convertible Notes were also previously allocated to the liability and equity components based on their relative values. With the adoption of the amended accounting guidance for convertible notes on January 1, 2022 (see Note 2 for further discussion), amounts, including debt issuance costs, that were previously classified within equity were reclassified to the liability component, net of any remaining unamortized amounts. Debt issuance costs are amortized to interest expense using the effective interest method over the term of each of the Convertible Notes.
The Convertible Notes consisted of the following as of March 31, 2022:
|
|
2015 Convertible Notes |
|
|
2017 Convertible Notes |
|
||
Remaining life in months |
|
|
2 |
|
|
|
26 |
|
Earliest conversion date |
|
September 1, 2021 |
|
|
September 1, 2023 |
|
||
Gross proceeds |
|
$ |
224,500 |
|
|
$ |
289,000 |
|
Less: debt issuance cost, net of amortization |
|
|
(162 |
) |
|
|
(2,300 |
) |
Net carrying amount |
|
$ |
224,338 |
|
|
$ |
286,700 |
|
The following table presents the amount of interest expense recognized related to the Convertible Notes:
|
|
For the Three Months Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Contractual interest coupon |
|
$ |
2,618 |
|
|
$ |
2,618 |
|
Amortization of debt discount |
|
|
- |
|
|
|
4,671 |
|
Amortization of debt issuance costs |
|
|
509 |
|
|
|
402 |
|
Total interest expense recognized |
|
$ |
3,127 |
|
|
$ |
7,691 |
|
Revolving Credit Facility
In December 2021, we amended and extended our previous three-year $200.0 million secured revolving credit facility into a new four-year $250.0 million secured revolving credit facility (the “Revolver”) for general corporate purposes. As of March 31, 2022, there were no amounts outstanding and we had $250.0 million of unused availability, based on the collateral borrowing base.
Other Debt
In April 2022, we refinanced a term loan secured by a 747-8F aircraft and received proceeds of $90.0 million from a financing with an 84-month term for this aircraft at a blended fixed rate of 3.86%, with principal and interest payable quarterly. We used $45.7 million of the proceeds to repay a term loan in full. In connection with entry into this financing, we paid usual and customary commitment and other fees. While the financing involved a sale and leaseback of the aircraft, it did not qualify as a sale for accounting purposes.
8. Income Taxes
The effective income tax rates were 22.8% and 23.7% for the three months ended March 31, 2022 and 2021, respectively. These rates differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes. For interim accounting purposes, we recognize income taxes using an estimated annual effective tax rate.
9. Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified in the following hierarchy:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities;
13
Level 2 Other inputs that are observable directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, or inactive quoted prices for identical assets or liabilities in inactive markets;
Level 3 Unobservable inputs reflecting assumptions about the inputs used in pricing the asset or liability.
We endeavor to utilize the best available information to measure fair value.
The carrying value of Cash and cash equivalents, and Restricted cash is based on cost, which approximates fair value.
Term loans and notes consist of term loans, notes guaranteed by the Export-Import Bank of the United States, a promissory note issued to the U.S. Treasury and other financings. The fair values of these debt instruments and the Revolver are based on a discounted cash flow analysis using current borrowing rates for instruments with similar terms.
The fair value of our Convertible Notes is based on unadjusted quoted market prices for these securities.
The following table summarizes the carrying value, estimated fair value and classification of our financial instruments as of:
|
|
March 31, 2022 |
|
|||||||||||||||||
|
|
Carrying Value |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
730,349 |
|
|
$ |
730,349 |
|
|
$ |
730,349 |
|
|
$ |
- |
|
|
$ |
- |
|
Restricted cash |
|
|
10,554 |
|
|
|
10,554 |
|
|
|
10,554 |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
740,903 |
|
|
$ |
740,903 |
|
|
$ |
740,903 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Term loans and notes |
|
$ |
1,567,188 |
|
|
$ |
1,563,797 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,563,797 |
|
Convertible notes (1) |
|
|
511,038 |
|
|
|
694,569 |
|
|
|
694,569 |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
2,078,226 |
|
|
$ |
2,258,366 |
|
|
$ |
694,569 |
|
|
$ |
- |
|
|
$ |
1,563,797 |
|
|
|
December 31, 2021 |
|
|||||||||||||||||
|
|
Carrying Value |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
910,965 |
|
|
$ |
910,965 |
|
|
$ |
910,965 |
|
|
$ |
- |
|
|
$ |
- |
|
Restricted cash |
|
|
10,052 |
|
|
|
10,052 |
|
|
|
10,052 |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
921,017 |
|
|
$ |
921,017 |
|
|
$ |
921,017 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Term loans and notes |
|
$ |
1,638,311 |
|
|
$ |
1,690,675 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,690,675 |
|
Convertible notes (2) |
|
|
479,573 |
|
|
|
758,424 |
|
|
|
758,424 |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
2,117,884 |
|
|
$ |
2,449,099 |
|
|
$ |
758,424 |
|
|
$ |
- |
|
|
$ |
1,690,675 |
|
(1) Carrying value is net of debt issuance costs (see Note 7).
(2) Carrying value is net of debt discounts and debt issuance costs (see Note 7).
10. Segment Reporting
We currently have the following two operating and reportable segments: Airline Operations and Dry Leasing, both of which are directly or indirectly engaged in the business of air transportation services but have different commercial and economic characteristics. Each operating segment is separately reviewed by our chief operating decision maker to assess operating results and make resource allocation decisions. We do not aggregate our operating segments and, therefore, our operating segments are our reportable segments.
We use an economic performance metric called Direct Contribution, which shows the profitability of each segment. Direct Contribution includes Income before income taxes and excludes the following: Special charges, Transaction-related expenses, nonrecurring items, Loss (gain) on the disposal of flight equipment, Losses on early extinguishment of debt, Unrealized loss on financial instruments and Unallocated income and expenses, net. Direct operating and ownership costs include crew costs, maintenance, fuel, ground operations, sales costs, aircraft rent, interest expense on the portion of debt used for financing aircraft, interest income on debt securities and aircraft depreciation. Unallocated income and expenses, net include corporate overhead, nonaircraft depreciation, noncash expenses and income, interest expense on the portion of debt used for general corporate purposes, interest income on nondebt securities, capitalized interest, foreign exchange gains and losses, other revenue, other non-operating costs and CARES Act grant income.
14
The following table sets forth Operating Revenue and Direct Contribution for our reportable segments reconciled to Operating Income and Income before income taxes:
|
|
For the Three Months Ended |
|
|||||
|
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Operating Revenue: |
|
|
|
|
|
|
||
Airline Operations |
|
$ |
995,355 |
|
|
$ |
826,240 |
|
Dry Leasing |
|
|
46,170 |
|
|
|
40,364 |
|
Customer incentive asset amortization |
|
|
(10,051 |
) |
|
|
(10,481 |
) |
Other |
|
|
5,682 |
|
|
|
5,177 |
|
Total Operating Revenue |
|
$ |
1,037,156 |
|
|
$ |
861,300 |
|
|
|
|
|
|
|
|
||
Direct Contribution: |
|
|
|
|
|
|
||
Airline Operations |
|
$ |
185,818 |
|
|
$ |
169,150 |
|
Dry Leasing |
|
|
16,909 |
|
|
|
10,564 |
|
Total Direct Contribution for Reportable Segments |
|
|
202,727 |
|
|
|
179,714 |
|
|
|
|
|
|
|
|
||
Unallocated income and (expenses), net |
|
|
(100,739 |
) |
|
|
(61,535 |
) |
Unrealized (loss) on financial instruments |
|
|
- |
|
|
|
(113 |
) |
Special charge |
|
|
(2,633 |
) |
|
|
- |
|
Transaction-related expenses |
|
|
- |
|
|
|
(201 |
) |
Gain (loss) on disposal of flight equipment |
|
|
6,240 |
|
|
|
(16 |
) |
Income before income taxes |
|
|
105,595 |
|
|
|
117,849 |
|
|
|
|
|
|
|
|
||
Add back (subtract): |
|
|
|
|
|
|
||
Interest income |
|
|
(240 |
) |
|
|
(211 |
) |
Interest expense |
|
|
20,423 |
|
|
|
27,180 |
|
Capitalized interest |
|
|
(3,764 |
) |
|
|
(1,271 |
) |
Unrealized loss on financial instruments |
|
|
- |
|
|
|
113 |
|
Other (income) expense, net |
|
|
(618 |
) |
|
|
(39,456 |
) |
Operating Income |
|
$ |
121,396 |
|
|
$ |
104,204 |
|
The following table disaggregates our Airline Operations segment revenue by customer and service type:
|
For the Three Months Ended |
|
||||||||||||||||||||||
|
March 31, 2022 |
|
|
March 31, 2021 |
|
|||||||||||||||||||
|
|
Cargo |
|
|
Passenger |
|
|
Total |
|
|
Cargo |
|
|
Passenger |
|
|
Total |
|
||||||
Commercial customers |
|
$ |
903,282 |
|
|
$ |
1,625 |
|
|
$ |
904,907 |
|
|
$ |
713,211 |
|
|
$ |
2,879 |
|
|
$ |
716,090 |
|
AMC |
|
|
29,289 |
|
|
|
61,159 |
|
|
|
90,448 |
|
|
|
45,312 |
|
|
|
64,838 |
|
|
|
110,150 |
|
Total Airline Operations Revenue |
|
$ |
932,571 |
|
|
$ |
62,784 |
|
|
$ |
995,355 |
|
|
$ |
758,523 |
|
|
$ |
67,717 |
|
|
$ |
826,240 |
|
Given the nature of our business and international flying, geographic information for revenue, long-lived assets and total assets is not presented because it is impracticable to do so.
We are exposed to a concentration of revenue from the U.S. Military Air Mobility Command (“AMC”), Polar and DHL (see above for the AMC and Note 3 for further discussion regarding Polar). No other customer accounted for more than 10.0% of our Total Operating Revenue. Revenue from DHL was $135.6 million and $158.7 million for the three months ended March 31, 2022 and 2021, respectively. We have not experienced any credit issues with these customers.
11. Labor and Legal Proceedings
Collective Bargaining Agreements
Pilots of Atlas and flight dispatchers of Atlas and Polar are represented by the International Brotherhood of Teamsters (the “IBT”). We had a five-year collective bargaining agreement (“CBA”) with our Atlas pilots, which became amendable in September 2016, and a four-year CBA with the Southern Air pilots, which became amendable in November 2016. On November 17, 2021, the Southern Air pilots all transferred to Atlas with the issuance of a single operating certificate for Atlas by the U.S. Federal Aviation Administration.
In March 2022, we signed a new five-year CBA with our pilots, effective as of September 2021. This long-term CBA was reached through a binding arbitration process, with the arbitrator’s decision being issued on September 10, 2021. The new pay rates became effective as of September 1, 2021, and we are continuing to work closely together with the union’s new leadership on the final implementation of certain remaining provisions of the CBA. Under this industry competitive agreement, all of our pilots are receiving significantly higher pay, quality of life improvements and enhanced benefits.
15
We also have a five-year CBA with our Atlas and Polar dispatchers, which was extended in April 2017 for an additional four years, making the CBA amendable in November 2021. On September 15, 2021, the IBT, representing the flight dispatchers of Atlas and Polar, provided the Company with the requisite notice of its intent to commence negotiations for a new CBA pursuant to Section 6 of the Railway Labor Act. The Company and the IBT commenced bargaining with good faith discussions and are making progress towards an amended CBA.
We are subject to risks of work interruption or stoppage as permitted by the Railway Labor Act and may incur additional administrative expenses associated with union representation of our employees.
Matters Related to Alleged Pricing Practices
In the Netherlands, Stichting Cartel Compensation, successor in interest to claims of various shippers, has filed suit in the district court in Amsterdam against British Airways, KLM, Martinair, Air France, Lufthansa and Singapore Airlines seeking recovery for damages purportedly arising from allegedly unlawful pricing practices of such defendants. In response, British Airways, KLM, Martinair, Air France and Lufthansa filed third-party indemnification lawsuits against Polar Air Cargo, LLC (“Old Polar”), a consolidated subsidiary of the Company, and Polar, seeking indemnification in the event the defendants are found to be liable in the main proceedings. Another defendant, Thai Airways, filed a similar indemnification claim. Activities in the case have focused on various procedural issues and rulings, some of which are awaiting court decisions on appeal. The ultimate outcome of the lawsuit is likely to be affected by a decision readopted by the European Commission in March 2017, finding EU competition law violations by British Airways, KLM, Martinair, Air France and Lufthansa, among others, but not Old Polar or Polar. If the Company, Old Polar or Polar were to incur an unfavorable outcome, such outcome may have a material adverse impact on our business, financial condition, results of operations or cash flows. We are unable to reasonably estimate a range of possible loss for this matter at this time.
Brazilian Customs Claim
Old Polar was cited for an alleged customs violation in Sao Paulo, Brazil, relating to shipments of goods dating back to asserting that goods listed on the flight manifest of an Old Polar scheduled service flight were not properly presented to customs upon arrival and therefore were improperly brought into Brazil. The claim, which also seeks unpaid customs duties, taxes and penalties from the date of the alleged infraction, is approximately $2.1 million in aggregate based on March 31, 2022 exchange rates.
Old Polar has presented evidence that certain of the alleged missing goods were in fact never onboard the aircraft (due to a change in plans by the relevant shipper) and thus no customs duties should be due. Further, we believe that the amounts claimed are substantially overstated due to a calculation error when considering the type and amount of goods allegedly missing, among other things. As required to defend this claim, we have made deposits pending resolution of the matter. The balance was $3.8 million as of March 31, 2022 and $3.2 million as of December 31, 2021, and is included in Deferred costs and other assets.
We are currently defending this and other Brazilian customs claims and the ultimate disposition of these claims, either individually or in the aggregate, is not expected to materially affect our financial condition, results of operations or cash flows.
Other
In addition to the matters described in this note, we have certain other contingencies incident to the ordinary course of business. Unless disclosed otherwise, management does not expect that the ultimate disposition of such other contingencies or matters will materially affect our financial condition, results of operations or cash flows.
12. Stock Repurchases
We record the repurchase of our shares of common stock at cost based on the settlement date of the transaction. These shares are classified as treasury stock, which is a reduction to stockholders’ equity. Treasury shares are included in authorized and issued shares but excluded from outstanding shares.
In February 2022, our board of directors approved the establishment of a new stock repurchase program authorizing the repurchase of up to a total of $200.0 million of our common stock. Purchases may be made at management's discretion in the form of accelerated share repurchase programs, open market repurchase programs, privately negotiated transactions or a combination of these methods.
16
In February 2022, we paid $100.0 million and received an initial delivery of 1,061,257 shares pursuant to an accelerated share repurchase program agreement with a financial institution for the repurchase of our common stock (the “ASR”). We accounted for this ASR as a repurchase of common stock and as a forward contract indexed to our own common stock. We determined that the forward contract met all of the applicable criteria for equity classification and, therefore, this ASR was not accounted for as a derivative instrument.
In April 2022, the ASR was settled and we received an additional 172,887 shares of common stock. In the aggregate, we repurchased 1,234,144 shares for $100.0 million at an average cost of $81.03 per share under this ASR. The total number of shares of common stock repurchased by us was based on the volume-weighted average price of the common stock during the term of the ASR Agreement, less a pre-determined discount.
13. Earnings Per Share
Basic earnings per share (“EPS”) represents income divided by the weighted average number of common shares outstanding during the measurement period. Diluted EPS represents income divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period.
The calculations of basic and diluted EPS were as follows:
|
|
For the Three Months Ended |
|
|||||
Numerator: |
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
Net Income |
|
$ |
81,511 |
|
|
$ |
89,933 |
|
Plus: Interest expense on convertible notes, net of tax |
|
|
1,046 |
|
|
|
- |
|
Unrealized loss on financial instruments, net of tax |
|
|
- |
|
|
|
112 |
|
Diluted net income |
|
$ |
82,557 |
|
|
$ |
90,045 |
|
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
|
||
Basic EPS weighted average shares outstanding |
|
|
28,854 |
|
|
|
28,491 |
|
Effect of dilutive: |
|
|
|
|
|
|
||
Convertible notes |
|
|
5,031 |
|
|
|
- |
|
Warrants |
|
|
609 |
|
|
|
751 |
|
Restricted stock |
|
|
196 |
|
|
|
236 |
|
Diluted EPS weighted average shares outstanding |
|
|
34,690 |
|
|
|
29,478 |
|
|
|
|
|
|
|
|
||
Earnings per share: |
|
|
|
|
|
|
||
Basic |
|
$ |
2.82 |
|
|
$ |
3.16 |
|
Diluted |
|
$ |
2.38 |
|
|
$ |
3.05 |
|
Antidilutive shares related to warrants issued in connection with our Convertible Notes or to customers that were out of the money and excluded from the calculation of diluted EPS were zero for the three months ended March 31, 2022, and 7.8 million for the three months ended March 31, 2021. Diluted shares reflect the potential dilution that could occur from restricted shares using the treasury stock method. The calculation of EPS does not include restricted share units and customer warrants in which performance or market conditions were not satisfied of 9.4 million for the three months ended March 31, 2022 and 10.1 million for the three months ended March 31, 2021.
14. Accumulated Other Comprehensive Income
The following table summarizes the components of Accumulated other comprehensive income:
|
|
Interest Rate |
|
|
Foreign Currency |
|
|
|
|
|||
|
|
Derivatives |
|
|
Translation |
|
|
Total |
|
|||
Balance as of December 31, 2020 |
|
$ |
(1,913 |
) |
|
$ |
9 |
|
|
$ |
(1,904 |
) |
Reclassification to interest expense |
|
|
268 |
|
|
|
- |
|
|
|
268 |
|
Tax effect |
|
|
(64 |
) |
|
|
- |
|
|
|
(64 |
) |
Balance as of March 31, 2021 |
|
$ |
(1,709 |
) |
|
$ |
9 |
|
|
$ |
(1,700 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Balance as of December 31, 2021 |
|
$ |
(520 |
) |
|
$ |
9 |
|
|
$ |
(511 |
) |
Reclassification to interest expense |
|
|
105 |
|
|
|
- |
|
|
|
105 |
|
Tax effect |
|
|
(27 |
) |
|
|
- |
|
|
|
(27 |
) |
Balance as of March 31, 2022 |
|
$ |
(442 |
) |
|
$ |
9 |
|
|
$ |
(433 |
) |
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our Financial Statements appearing in this report and our audited consolidated financial statements and related notes included in our 2021 Annual Report on Form 10-K.
Background
Certain Terms - Glossary
The following represents terms and statistics specific to our business and industry. They are used by management to evaluate and measure operations, results, productivity and efficiency.
ACMI |
|
Service offering, whereby we provide outsourced cargo and passenger aircraft operating solutions, including the provision of an aircraft, crew, maintenance and insurance, while customers assume fuel, demand and price risk. In addition, customers are generally responsible for landing, navigation and most other operational fees and costs. |
|
|
|
Block Hour |
|
The time interval between when an aircraft departs the terminal until it arrives at the destination terminal. |
|
|
|
C Check |
|
“Heavy” airframe maintenance checks, which are more intensive in scope than Line Maintenance and are generally performed between 18 and 24 months depending on aircraft type. |
|
|
|
Charter |
|
Service offering, whereby we provide cargo and passenger aircraft charter services to customers. The customer generally pays a fixed charter fee that includes fuel, insurance, landing fees, navigation fees and most other operational fees and costs. |
|
|
|
CMI |
|
Service offering, whereby we provide outsourced cargo and passenger aircraft operating solutions, generally including the provision of crew, Line Maintenance and insurance, but not the aircraft. Customers assume fuel, demand and price risk, and are responsible for providing the aircraft (which they may lease from us) and generally responsible for Heavy and Non-Heavy Maintenance, landing, navigation and most other operational fees and costs. |
|
|
|
D Check |
|
“Heavy” airframe maintenance checks, which are the most extensive in scope and are generally performed every six or eight years depending on aircraft type. |
|
|
|
Dry Leasing |
|
Service offering, whereby we provide cargo and passenger aircraft and engine leasing solutions for compensation that is typically based on a fixed monthly amount. The customer operates, and is generally responsible for insuring and maintaining, the flight equipment. |
|
|
|
Heavy Maintenance |
|
Scheduled maintenance activities that are extensive in scope and are primarily based on time or usage intervals, which include, but are not limited to, C Checks, D Checks and engine overhauls. In addition, unscheduled engine repairs involving the removal of the engine from the aircraft are considered to be Heavy Maintenance. |
|
|
|
Line Maintenance |
|
Maintenance events occurring during normal day-to-day operations. |
|
|
|
Non-heavy Maintenance |
|
Discrete maintenance activities for the overhaul and repair of specific aircraft components, including landing gear, auxiliary power units and engine thrust reversers. |
|
|
|
Utilization |
|
The average number of Block Hours operated per day per aircraft. |
|
|
|
Yield |
|
The average amount a customer pays to fly one tonne of cargo one mile. |
Business Overview
We are a leading global provider of outsourced aircraft and aviation operating services. We operate the world’s largest fleet of 747 freighters and provide customers a broad array of 747, 777, 767 and 737 aircraft for domestic, regional and international cargo and passenger operations. We provide unique value to our customers by giving them access to highly reliable modern production freighters that deliver the lowest unit cost in the marketplace combined with outsourced aircraft operating services that we believe lead the industry in terms of quality and global scale. Our customers include express delivery providers, e-commerce retailers, the U.S.
18
military, charter brokers, freight forwarders, direct shippers, airlines, manufacturers, sports teams and fans, and private charter customers. We provide global services with operations in Africa, Asia, Australia, Europe, the Middle East, North America and South America.
We look to achieve our growth plans and enhance shareholder value by:
See “Business Overview” and “Business Strategy” in our 2021 Annual Report on Form 10-K for additional information.
Business Developments
Our Airline Operations results for the first quarter of 2022, compared with 2021, were positively impacted by higher commercial charter cargo Yields, net of fuel, including the impact of expanding and enhancing our relationships with strategic customers through new and extended long-term contracts. These higher Yields were driven by strong customer demand that was further enhanced by the continued reduction of available cargo capacity in the market provided by passenger airlines and the disruption of global supply chains due to the COVID-19 pandemic. Block Hours flown during the quarter decreased as we reduced less profitable smaller gauge CMI service flying and experienced operational disruptions due to the COVID-19 pandemic. We are closely monitoring the COVID-19 pandemic and taking numerous precautions to ensure the safety of our operations around the world and mitigate the impact of any disruptions, including continuously adjusting routes to limit exposure to regions significantly impacted.
We manage our fleet to profitably serve our customers with modern, efficient aircraft and have entered into the following transactions to secure capacity to meet strong customer demand.
We continually assess our aircraft requirements and will make adjustments to our capacity as necessary. Some of these actions may involve grounding or disposing of aircraft or engines, which could result in asset impairments or other charges in future periods.
In March 2022, we signed a new five-year CBA with our pilots, effective as of September 2021. Under this industry competitive agreement, all of our pilots are receiving significantly higher pay, quality of life improvements and enhanced benefits. Labor costs arising from the new CBA are materially greater than the costs under our previous CBAs with our pilots (see Note 11 to our Financial Statements for further discussion).
Given the dynamic nature of the COVID-19 pandemic, the financial impact cannot be reasonably estimated at this time. We have incurred and expect to incur significant additional costs, including higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 pandemic and other operational costs, including costs for continuing to provide a safe working environment for our employees. In addition, COVID-19-related airport closures, employees who are unable to work, vaccine mandates, disruption of operations by our third-party service providers, availability of hotels and restaurants, ground handling delays or reductions in passenger flights by other airlines globally, have impacted and could further impact our ability to position employees to operate and fully utilize all of our aircraft. The continuation or worsening of the aforementioned and other factors could materially affect our results for the duration of the COVID-19 pandemic.
19
Results of Operations
The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.
Three Months Ended March 31, 2022 and 2021
Operating Statistics
The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) for the three months ended March 31:
Segment Operating Fleet |
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|||
Airline Operations* |
|
|
|
|
|
|
|
|
|
|||
747-8F Cargo |
|
|
10.0 |
|
|
|
10.0 |
|
|
|
- |
|
747-400 Cargo |
|
|
34.5 |
|
|
|
33.6 |
|
|
|
0.9 |
|
747-400 Dreamlifter |
|
|
0.3 |
|
|
|
1.2 |
|
|
|
(0.9 |
) |
747-400 Passenger |
|
|
4.9 |
|
|
|
4.9 |
|
|
|
- |
|
777-200 Cargo |
|
|
9.0 |
|
|
|
9.0 |
|
|
|
- |
|
767-300 Cargo |
|
|
24.0 |
|
|
|
24.0 |
|
|
|
- |
|
767-300 Passenger |
|
|
5.3 |
|
|
|
5.0 |
|
|
|
0.3 |
|
767-200 Cargo |
|
|
- |
|
|
|
5.6 |
|
|
|
(5.6 |
) |
767-200 Passenger |
|
|
- |
|
|
|
0.6 |
|
|
|
(0.6 |
) |
737-800 Cargo |
|
|
8.0 |
|
|
|
8.0 |
|
|
|
- |
|
Total |
|
|
96.0 |
|
|
|
101.9 |
|
|
|
(5.9 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Dry Leasing |
|
|
|
|
|
|
|
|
|
|||
777-200 Cargo |
|
|
7.0 |
|
|
|
7.0 |
|
|
|
- |
|
767-300 Cargo |
|
|
21.0 |
|
|
|
21.0 |
|
|
|
- |
|
737-300 Cargo |
|
|
- |
|
|
|
1.0 |
|
|
|
(1.0 |
) |
Total |
|
|
28.0 |
|
|
|
29.0 |
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Less: Aircraft Dry Leased to CMI customers |
|
|
(21.0 |
) |
|
|
(21.0 |
) |
|
|
- |
|
Total Operating Average Aircraft Equivalents |
|
|
103.0 |
|
|
|
109.9 |
|
|
|
(6.9 |
) |
* Airline Operations average fleet excludes spare aircraft provided by CMI customers.
Block Hours |
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Total Block Hours** |
|
|
82,626 |
|
|
|
88,523 |
|
|
|
(5,897 |
) |
|
|
(6.7 |
)% |
** Includes Airline Operations and other Block Hours.
Operating Revenue
The following table compares our Operating Revenue for the three months ended March 31 (in thousands):
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Airline Operations |
|
$ |
995,355 |
|
|
$ |
826,240 |
|
|
$ |
169,115 |
|
|
|
20.5 |
% |
Dry Leasing |
|
|
46,170 |
|
|
|
40,364 |
|
|
|
5,806 |
|
|
|
14.4 |
% |
Customer incentive asset amortization |
|
|
(10,051 |
) |
|
|
(10,481 |
) |
|
|
(430 |
) |
|
|
(4.1 |
)% |
Other |
|
|
5,682 |
|
|
|
5,177 |
|
|
|
505 |
|
|
|
9.8 |
% |
Total Operating Revenue |
|
$ |
1,037,156 |
|
|
$ |
861,300 |
|
|
|
|
|
|
|
20
Airline Operations
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Block Hours |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cargo |
|
|
78,425 |
|
|
|
83,110 |
|
|
|
(4,685 |
) |
|
|
(5.6 |
)% |
Passenger |
|
|
3,306 |
|
|
|
3,648 |
|
|
|
(342 |
) |
|
|
(9.4 |
)% |
Total Airline Operations |
|
|
81,731 |
|
|
|
86,758 |
|
|
|
(5,027 |
) |
|
|
(5.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue Per Block Hour |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Airline Operations |
|
$ |
12,178 |
|
|
$ |
9,524 |
|
|
$ |
2,654 |
|
|
|
27.9 |
% |
Cargo |
|
$ |
11,891 |
|
|
$ |
9,127 |
|
|
$ |
2,764 |
|
|
|
30.3 |
% |
Passenger |
|
$ |
18,991 |
|
|
$ |
18,563 |
|
|
$ |
428 |
|
|
|
2.3 |
% |
Airline Operations revenue increased $169.1 million, or 20.5%, primarily due to an increase in Revenue per Block Hour, partially offset by a reduction in Block Hours. Revenue per Block Hour rose primarily due to higher Yields, net of fuel, including the impact of new and extended long-term contracts, as well as higher fuel prices. Block Hours flown decreased as we reduced less profitable smaller gauge CMI service flying and experienced operational disruptions due to the COVID-19 pandemic.
Dry Leasing
Dry Leasing revenue increased $5.8 million, or 14.4%, primarily due to $5.0 million of revenue from maintenance payments related to the scheduled return of an aircraft, which was subsequently sold during the quarter.
Operating Expenses
The following table compares our Operating Expenses for the three months ended March 31 (in thousands):
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Salaries, wages and benefits |
|
$ |
298,019 |
|
|
$ |
202,614 |
|
|
$ |
95,405 |
|
|
|
47.1 |
% |
Aircraft fuel |
|
|
244,337 |
|
|
|
163,551 |
|
|
|
80,786 |
|
|
|
49.4 |
% |
Maintenance, materials and repairs |
|
|
118,899 |
|
|
|
121,133 |
|
|
|
(2,234 |
) |
|
|
(1.8 |
)% |
Depreciation and amortization |
|
|
72,202 |
|
|
|
67,789 |
|
|
|
4,413 |
|
|
|
6.5 |
% |
Travel |
|
|
42,768 |
|
|
|
37,672 |
|
|
|
5,096 |
|
|
|
13.5 |
% |
Navigation fees, landing fees and other rent |
|
|
39,354 |
|
|
|
44,887 |
|
|
|
(5,533 |
) |
|
|
(12.3 |
)% |
Passenger and ground handling services |
|
|
34,936 |
|
|
|
40,065 |
|
|
|
(5,129 |
) |
|
|
(12.8 |
)% |
Aircraft rent |
|
|
12,995 |
|
|
|
20,756 |
|
|
|
(7,761 |
) |
|
|
(37.4 |
)% |
Loss (gain) on disposal of flight equipment |
|
|
(6,240 |
) |
|
|
16 |
|
|
|
6,256 |
|
|
NM |
|
|
Special charge |
|
|
2,633 |
|
|
|
- |
|
|
|
2,633 |
|
|
NM |
|
|
Transaction-related expenses |
|
|
- |
|
|
|
201 |
|
|
|
(201 |
) |
|
NM |
|
|
Other |
|
|
55,857 |
|
|
|
58,412 |
|
|
|
(2,555 |
) |
|
|
(4.4 |
)% |
Total Operating Expenses |
|
$ |
915,760 |
|
|
$ |
757,096 |
|
|
|
|
|
|
|
NM represents year-over-year changes that are not meaningful.
Salaries, wages and benefits increased $95.4 million, or 47.1%, primarily due to increased pilot costs related to our new CBA and higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 pandemic.
Aircraft fuel increased $80.8 million, or 49.4%, primarily due to an increase in the average fuel cost per gallon and lower consumption related to decreased Charter flying. Our exposure to fluctuations in fuel price is generally limited to the shorter-term commercial portion of our Charter services, as fuel risk is largely mitigated by price adjustments, including those based on indexed fuel prices for longer-term commercial charter contracts. We do not incur fuel expense in providing ACMI and CMI services or in our Dry Leasing business as the cost of fuel is borne by the customer. Similarly, we generally have no fuel price risk for AMC charters because the price is set under our contract with the AMC, and we receive or make payments to adjust for price increases and decreases from the contractual rate. Average fuel cost per gallon and fuel consumption for the three months ended March 31 were:
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Average fuel cost per gallon |
|
$ |
2.74 |
|
|
$ |
1.71 |
|
|
$ |
1.03 |
|
|
|
60.2 |
% |
Fuel gallons consumed (000s) |
|
|
89,199 |
|
|
|
95,586 |
|
|
|
(6,387 |
) |
|
|
(6.7 |
)% |
21
Maintenance, materials and repairs decreased $2.2 million, or 1.8%, primarily reflecting $10.9 million of reduced Line Maintenance, partially offset by $8.8 million of increased Heavy Maintenance expense. Line Maintenance decreased primarily due to the reduction in flying. Heavy Maintenance expense on 747-400 aircraft increased $10.7 million primarily due to increases in the number of engine overhauls and D Checks, partially offset by a decrease in the number of C Checks. Heavy Maintenance expense on 747-8F aircraft decreased $3.1 million primarily due to a decrease in the number of D Checks, partially offset by an increase in the number of C Checks. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the three months ended March 31 were:
Depreciation and amortization increased $4.4 million, or 6.5%, primarily due to an increase in depreciation related to the acquisition of 747-400 freighter aircraft throughout 2021 that were previously on lease to us and changes in 747-400 freighter aircraft leases in 2021.
Travel increased $5.1 million, or 13.5%, primarily due to increased rates.
Navigation fees, landing fees and other rent decreased $5.5 million, or 12.3%, primarily due to decreased flying.
Passenger and ground handling services decreased $5.1 million, or 12.8%, primarily due to decreased flying and lower rates.
Aircraft rent decreased $7.8 million, or 37.4%, primarily due the acquisition of 747-400 freighter aircraft throughout 2021 that were previously on lease to us and changes in 747-400 freighter aircraft leases in 2021.
Gain on disposal of flight equipment in 2022 represented a gain from the sale of six spare CF6-80 engines previously classified as assets held for sale (see Note 6 to our Financial Statements).
Special charge in 2022 represented a charge related to two CF6-80 engines Dry Leased to a customer.
Other decreased $2.6 million, or 4.4%, primarily due to a decrease in professional fees incurred in 2021 related to costs associated with negotiations and arbitration for a new CBA (see Note 11 to our Financial Statements).
Non-operating Expenses (Income)
The following table compares our Non-operating Expenses (Income) for the three months ended March 31 (in thousands):
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Non-operating Expenses (Income) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest income |
|
$ |
(240 |
) |
|
$ |
(211 |
) |
|
$ |
29 |
|
|
|
13.7 |
% |
Interest expense |
|
|
20,423 |
|
|
|
27,180 |
|
|
|
(6,757 |
) |
|
|
(24.9 |
)% |
Capitalized interest |
|
|
(3,764 |
) |
|
|
(1,271 |
) |
|
|
2,493 |
|
|
NM |
|
|
Unrealized loss on financial instruments |
|
|
- |
|
|
|
113 |
|
|
|
(113 |
) |
|
NM |
|
|
Other (income) expense, net |
|
|
(618 |
) |
|
|
(39,456 |
) |
|
|
(38,838 |
) |
|
|
(98.4 |
)% |
Interest expense decreased $6.8 million, or 24.9%, primarily due to the adoption of the amended accounting guidance for convertible notes on January 1, 2022 (see Note 2 to our Financial Statements) and the scheduled repayment of debt.
Capitalized interest increased $2.5 million primarily due to pre-delivery deposits related to our January 2021 agreement to purchase four 747-8F aircraft and our December 2021 agreement to purchase four 777-200LRF aircraft from Boeing (see Note 2 to our Financial Statements).
Other (income) expense, net decreased primarily due to $40.9 million in CARES Act grant income in 2021 (see Note 2 to our Financial Statements).
22
Income taxes. The effective income tax rates were 22.8% and 23.7% for the three months ended March 31, 2022 and 2021, respectively. The rate for the three months ended March 31, 2022 and 2021 differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes.
Segments
The following table compares the Direct Contribution for our reportable segments for the three months ended March 31 (see Note 10 to our Financial Statements for the reconciliation to Operating income) (in thousands):
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Direct Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Airline Operations |
|
$ |
185,818 |
|
|
$ |
169,150 |
|
|
$ |
16,668 |
|
|
|
9.9 |
% |
Dry Leasing |
|
|
16,909 |
|
|
|
10,564 |
|
|
|
6,345 |
|
|
|
60.1 |
% |
Total Direct Contribution |
|
$ |
202,727 |
|
|
$ |
179,714 |
|
|
$ |
23,013 |
|
|
|
12.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unallocated expenses and (income), net |
|
$ |
100,739 |
|
|
$ |
61,535 |
|
|
$ |
39,204 |
|
|
|
63.7 |
% |
Airline Operations Segment
Airline Operations Direct Contribution increased $16.7 million, or 9.9%, primarily due to increased Yields, net of fuel, including the impact of new and extended long-term contracts. Partially offsetting these improvements were increased pilot costs related to our new CBA and higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 pandemic.
Dry Leasing Segment
Dry Leasing Direct Contribution increased $6.3 million, or 60.1%, primarily due to $5.0 million of revenue from maintenance payments related to the scheduled return of an aircraft and lower interest expense related to the scheduled repayment of debt.
Unallocated expenses and (income), net
Unallocated expenses and (income), net increased $39.2 million, or 63.7%, primarily due to $40.9 million in CARES Act grant income recognized in 2021 (see Note 2 to our Financial Statements).
Reconciliation of GAAP to non-GAAP Financial Measures
To supplement our Financial Statements presented in accordance with GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP financial measures include Adjusted Net Income, Adjusted Diluted EPS and Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for Net Income and Diluted EPS from continuing operations, net of taxes which are the most directly comparable measures of performance prepared in accordance with GAAP.
We use these non-GAAP financial measures in assessing the performance of our ongoing operations and in planning and forecasting future periods. These adjusted measures provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance. In addition, management’s incentive compensation is determined, in part, by using Adjusted Net Income and Adjusted EBITDA. We believe that these adjusted measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our business results and assessing our prospects for future performance.
23
The following is a reconciliation of Net Income and Diluted EPS to the corresponding non-GAAP financial measures (see Note 13 to our Financial Statements for the calculation of Diluted EPS) (in thousands, except per share data):
|
|
|
For the Three Months Ended |
|
||||||||||
|
|
|
March 31, 2022 |
|
|
|
March 31, 2021 |
|
|
Percent Change |
|
|||
Net Income |
|
|
$ |
81,511 |
|
|
|
$ |
89,933 |
|
|
|
(9.4 |
)% |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|||
CARES Act grant income (a) |
|
|
|
- |
|
|
|
|
(40,944 |
) |
|
|
|
|
Customer incentive asset amortization |
|
|
|
10,051 |
|
|
|
|
10,481 |
|
|
|
|
|
Adjustments to CBA paid time-off benefits (b) |
|
|
|
2,154 |
|
|
|
|
- |
|
|
|
|
|
Special charge (c) |
|
|
|
2,633 |
|
|
|
|
- |
|
|
|
|
|
Noncash expenses and income, net (d) |
|
|
|
- |
|
|
|
|
4,672 |
|
|
|
|
|
Unrealized loss on financial instruments |
|
|
|
- |
|
|
|
|
113 |
|
|
|
|
|
Other, net (e) |
|
|
|
(6,240 |
) |
|
|
|
329 |
|
|
|
|
|
Income tax effect of reconciling items |
|
|
|
(1,329 |
) |
|
|
|
7,631 |
|
|
|
|
|
Adjusted Net Income |
|
|
$ |
88,780 |
|
|
|
$ |
72,215 |
|
|
|
22.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|||
Weighted average diluted shares outstanding |
|
|
|
34,690 |
|
|
|
|
29,478 |
|
|
|
|
|
Less: effect of convertible notes hedges (f) |
|
|
|
(5,031 |
) |
|
|
|
- |
|
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
|
29,659 |
|
|
|
|
29,478 |
|
|
|
|
|
Adjusted Diluted EPS |
|
|
$ |
2.99 |
|
|
|
$ |
2.45 |
|
|
|
22.0 |
% |
|
|
|
For the Three Months Ended |
|
||||||||||
|
|
|
March 31, 2022 |
|
|
|
March 31, 2021 |
|
|
Percent Change |
|
|||
Net Income |
|
|
$ |
81,511 |
|
|
|
$ |
89,933 |
|
|
|
(9.4 |
)% |
Interest expense, net |
|
|
|
16,419 |
|
|
|
|
25,698 |
|
|
|
|
|
Depreciation and amortization |
|
|
|
72,202 |
|
|
|
|
67,789 |
|
|
|
|
|
Income tax expense |
|
|
|
24,084 |
|
|
|
|
27,916 |
|
|
|
|
|
EBITDA |
|
|
|
194,216 |
|
|
|
|
211,336 |
|
|
|
|
|
CARES Act grant income (a) |
|
|
|
- |
|
|
|
|
(40,944 |
) |
|
|
|
|
Customer incentive asset amortization |
|
|
|
10,051 |
|
|
|
|
10,481 |
|
|
|
|
|
Adjustments to CBA paid time-off benefits (b) |
|
|
|
2,154 |
|
|
|
|
- |
|
|
|
|
|
Special charge (c) |
|
|
|
2,633 |
|
|
|
|
- |
|
|
|
|
|
Unrealized loss on financial instruments |
|
|
|
- |
|
|
|
|
113 |
|
|
|
|
|
Other, net (e) |
|
|
|
(6,240 |
) |
|
|
|
329 |
|
|
|
|
|
Adjusted EBITDA |
|
|
$ |
202,814 |
|
|
|
$ |
181,315 |
|
|
|
11.9 |
% |
Liquidity and Capital Resources
The most significant liquidity events during the first quarter of 2022 were as follows:
In February 2022, we paid $100.0 million and received an initial delivery of 1,061,257 shares pursuant to an ASR under our new stock repurchase program approved by our board of directors, which authorized the repurchase of up to $200.0 million of our common stock. We subsequently settled the ASR in April 2022 and received an additional 172,887 shares of common stock. See Note 12 to our Financial Statements for a discussion of our ASR.
Operating Activities. Net cash provided by operating activities was $207.8 million for the first quarter of 2022, which primarily reflected Net Income of $81.5 million; noncash adjustments of $85.3 million for Depreciation and amortization and $23.7 million for Deferred taxes; a $12.5 million increase in Accounts payable, accrued liabilities and other liabilities and a $10.0 million decrease in Accounts receivable, partially offset by a $3.6 million increase in Prepaid expenses, current assets and other assets. Net cash provided
24
by operating activities was $88.1 million for the first quarter of 2021, which primarily reflected Net Income of $89.9 million; noncash adjustments of $86.2 million for Depreciation and amortization and $27.8 million for Deferred taxes, partially offset by a $89.4 million decrease in Accounts payable, accrued liabilities and other liabilities; a $22.7 million increase in Accounts receivable and a $7.5 million increase in Prepaid expenses, current assets and other assets.
Investing Activities. Net cash used for investing activities was $171.6 million for the first quarter of 2022, consisting primarily of $154.4 million of purchase deposits and payments for flight equipment and modifications and $29.9 million of payments for core capital expenditures, excluding flight equipment, partially offset by $13.5 million of proceeds from the disposal of flight equipment. Purchase deposits and payments for flight equipment and modifications during the first quarter of 2022 were primarily related to pre-delivery payments and spare engines. All capital expenditures for 2022 were funded through working capital. Net cash used for investing activities was $153.2 million for the first quarter of 2021, consisting primarily of $126.8 million of purchase deposits and payments for flight equipment and modifications and $26.7 million of payments for core capital expenditures, excluding flight equipment. Purchase deposits and payments for flight equipment and modifications during the first quarter of 2021 were primarily related to pre-delivery payments, spare engines and GEnx engine performance upgrade kits.
Financing Activities. Net cash used for financing activities was $216.4 million for the first quarter of 2022, which primarily reflected $108.5 million of payments on debt, $80.0 million related to the purchase of treasury stock, $20.0 million related to the prepayment of accelerated share repurchase and $12.1 million related to treasury shares withheld for payment of taxes, partially offset by $4.2 million of customer maintenance reserves and deposits received. Net cash used for financing activities was $77.2 million for the first quarter of 2021, which primarily reflected $78.0 million of payments on debt, $12.3 million in payments of maintenance reserves and $7.4 million related to treasury shares withheld for payment of taxes, partially offset by $16.2 million of proceeds from debt issuance and $5.2 million of customer maintenance reserves and deposits received.
We consider Cash and cash equivalents, Net cash provided by operating activities and availability under our revolving credit facility to be sufficient to meet our debt and lease obligations, to fund capital expenditures for 2022 and to purchase shares of our stock under our stock repurchase program (see Note 12 to our Financial Statements). Core capital expenditures for the remainder of 2022 are expected to range from $105.0 to $115.0 million, which excludes flight equipment and capitalized interest. Committed capital expenditures for flight equipment for the remainder of 2022 are expected to be approximately $659.9 million.
Committed capital expenditures include pre-delivery and delivery payments for the purchase of four new 747-8F and four new 777-200LRF aircraft from Boeing, and other agreements to acquire spare engines. We expect to finance the aircraft delivery payments through secured debt financing. The first of the 747-8F aircraft is expected to be delivered during the second quarter of 2022 and the remaining three throughout 2022. The first 777-200LRF aircraft is expected to be delivered late in the fourth quarter of 2022 and the remaining three throughout 2023.
We may access external sources of capital from time to time depending on our cash requirements, assessments of current and anticipated market conditions, and the after-tax cost of capital. To that end, we filed a shelf registration statement with the SEC in April 2020 that enables us to sell debt and/or equity securities on a registered basis over the subsequent three years, depending on market conditions, our capital needs and other factors. Our access to capital markets can be adversely impacted by prevailing economic conditions and by financial, business and other factors, some of which are beyond our control. Additionally, our borrowing costs are affected by market conditions and may be adversely impacted by a tightening in credit markets.
We do not expect to pay any significant U.S. federal income tax for at least several years. Our business operations are subject to income tax in several foreign jurisdictions and in many states. We do not expect to pay any significant cash income taxes for at least several years in these foreign jurisdictions and states. We may repatriate the unremitted earnings of our foreign subsidiaries to the extent taxes are insignificant. The U.S. and numerous other countries are currently considering tax reform, which could result in significant changes to U.S. and international tax laws. The potential enactment of these laws could have a material impact on our business, results of operations and financial condition. We continue to monitor developments and assess the impact to us.
Description of Debt Agreements
See our 2021 Annual Report on Form 10-K for a description of our debt obligations and amendments thereto as of December 31, 2021.
Off-Balance Sheet Arrangements
There were no material changes to our off-balance sheet arrangements during the three months ended March 31, 2022.
25
Recent Accounting Pronouncements
See Note 2 to our Financial Statements for a discussion of recent accounting pronouncements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”), as well as other reports, releases and written and oral communications issued or made from time to time by or on behalf of AAWW, contain statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management. Generally, the words “will,” “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “project,” “estimate” and similar expressions used in this Report that do not relate to historical facts are intended to identify forward-looking statements.
The forward-looking statements in this Report are not representations or guarantees of future performance and involve certain risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, 2021. Many of such factors are beyond AAWW’s control and are difficult to predict. As a result, AAWW’s future actions, financial position, results of operations and the market price for shares of AAWW’s common stock could differ materially from those expressed in any forward-looking statements. Readers are therefore cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements speak only as of the date of this report. AAWW does not intend to publicly update any forward-looking statements that may be made from time to time by, or on behalf of, AAWW, whether as a result of new information, future events or otherwise, except as required by law and expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Except for the change to our market risk in Part I, Item 3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, which is hereby incorporated by reference into this Part I, Item 3 of this Form 10-Q, there have been no other material changes to our market risk during the three months ended March 31, 2022. For additional discussion of our exposure to market risk, refer to Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” included in our 2021 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d - 15(e) under the Exchange Act) as of March 31, 2022. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
26
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the fiscal quarter ended March 31, 2022, the information required in response to this Item is set forth in Note 11 to our Financial Statements and such information is incorporated herein by reference. Such description contains all of the information required with respect hereto.
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in our 2021 Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchase of Equity Securities
We made the following repurchases of shares of our common stock during the quarter ended March 31, 2022:
Period |
Total Number of |
|
|
Average Price Paid per Share |
|
|
Total Number of |
|
|
Maximum Number (or |
|
||||
January 1, 2022 through |
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
February 1, 2022 through February 28, 2022 |
|
1,061,257 |
|
(b) |
|
- |
|
(b) |
|
1,061,257 |
|
(b) |
$ |
100,000,000 |
|
March 1, 2022 through March 31, 2022 |
|
- |
|
|
|
- |
|
|
|
|
|
$ |
- |
|
|
Total |
|
1,061,257 |
|
|
|
- |
|
|
|
1,061,257 |
|
|
$ |
100,000,000 |
|
(a) In February 2022, our board of directors approved the establishment of a new stock repurchase program authorizing the repurchase of up to a total of $200.0 million of our common stock. Purchases may be made at our discretion in the form of accelerated share repurchase programs, open market repurchase programs, privately negotiated transactions or a combination of these methods. This program replaced a previous stock repurchase program that had been established in 2008 and amended in 2013.
(b) Reflects the repurchase of shares of common stock pursuant to our ASR. See Note 12 to our Financial Statements for a discussion of our ASR.
ITEM 6. EXHIBITS
See accompanying Exhibit Index included before the signature page of this report for a list of exhibits filed or furnished with this report.
27
EXHIBIT INDEX
Exhibit Number |
|
Description |
|
|
|
10.1 |
|
Atlas Air Worldwide Holdings, Inc. Annual Incentive Program for Senior Executives (EVP and above). |
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. |
|
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. |
|
|
|
32.1 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. * |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. * |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. * |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. * |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Labels Linkbase Document. * |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. * |
|
|
|
104 |
|
Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101). |
* Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, (ii) Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021, (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021, (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021, (v) Consolidated Statements of Stockholders’ Equity as of and for the three months ended March 31, 2022 and 2021 and (vi) Notes to Unaudited Consolidated Financial Statements.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Atlas Air Worldwide Holdings, Inc. |
|
|
|
Dated: May 5, 2022 |
|
/s/ John W. Dietrich |
|
|
John W. Dietrich |
|
|
President and Chief Executive Officer |
|
|
|
Dated: May 5, 2022 |
|
/s/ Spencer Schwartz |
|
|
Spencer Schwartz |
|
|
Executive Vice President and Chief Financial Officer |
29
Exhibit 10.1
ATLAS AIR WORLDWIDE HOLDINGS, INC.
ANNUAL INCENTIVE PROGRAM
FOR
SENIOR EXECUTIVES
(EVP and above)
Adopted by Compensation Committee: As of February 18, 2022
ATLAS AIR WORLDWIDE HOLDINGS, INC.
ANNUAL INCENTIVE PROGRAM
FOR
SENIOR EXECUTIVES (EVP and above)
Section 1. Purpose.
The purpose of the Program is to set forth certain terms and conditions governing short term incentive awards to senior executives of Atlas Air, Inc. (“Atlas Air”). The Program shall be effective as of January 1, 2022 and shall be applicable for the Program Year unless amended or terminated by the Committee pursuant to Section 10. Capitalized terms not defined herein shall have the meanings given in the Atlas Air Worldwide Holdings, Inc. (“AAWW”) 2018 Incentive Plan, as amended (the “Plan”).
Section 2. Definitions.
2.1. Award shall mean an opportunity to earn benefits under the Program.
2.2. Atlas shall mean AAWW, Atlas Air, or its other operating subsidiaries, as applicable.
2.3. Base Salary shall mean an Eligible Employee's actual base salary for the applicable period.
2.4. Board shall mean the Board of Directors of AAWW.
2.5. Beneficiary shall mean a Participant's beneficiary designated pursuant to Section 8.
2.6. Cause shall mean (i) the Participant's refusal or failure (other than during periods of illness or Disability) to perform his or her material duties and responsibilities to Atlas, (ii) the conviction or plea of guilty or nolo contendere of the Participant in respect of any felony, other than a motor vehicle offense, (iii) the commission of any act which causes material injury to the reputation, business or business relationships of Atlas including, without limitation, any material breach of written policies of Atlas with respect to trading in securities, (iv) other acts of fraud in connection with the Participant's duties and responsibilities to Atlas, including, without limitation, misappropriation, theft or embezzlement in the performance of the Participant's duties and responsibilities as an employee of Atlas, or (v) a violation of any material Atlas policy, including, without limitation, a violation of the laws against workplace discrimination.
2.7. Change in Control shall mean the occurrence of any of the following:
(i) any “person” (as used herein, as defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “Exchange Act”) and as used in Sections 13(d) and 14(d) thereof) or “group” (as used herein, as defined in Section 13(d) of the Exchange Act), acquires
1
ownership or beneficial ownership of AAWW securities that, together with securities held by such person or group, constitutes more than 50% of the total fair market value of the issued and outstanding shares or the total voting power of AAWW;
(ii) any “person” or “group,” during the 12-month period ending on the date of the most recent acquisition by such “person” or “group” acquires ownership of AAWW securities that constitute 30% or more of the total fair market value of the issued and outstanding shares or the total voting power of AAWW;
(iii) the replacement of a majority of members of the Board during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the appointment or election;
(iv) the acquisition by a person or group, during the 12-month period ending on the date of the most recent acquisition by such person or group, of assets from AAWW that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all the assets of AAWW; or
(v) the consummation of a complete liquidation or dissolution of AAWW.
For purposes of determining whether a Change in Control has occurred (i) shares of AAWW received upon conversion of an option or warrant is considered to be an acquisition of shares of AAWW and (ii) in the event the persons who were beneficial owners of AAWW shares immediately prior to the consummation of a merger, share exchange, business combination or other similar corporate transaction continue to beneficially own, directly or indirectly, more than 50% of total fair market value of the issued and outstanding shares or the total voting power of AAWW (including a corporation or entity that, as a result of such transaction, owns AAWW or all or substantially all of AAWW’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such consummation of such transaction, such transaction shall not constitute a Change in Control.
Notwithstanding anything to the contrary herein, with respect to any amounts payable hereunder that constitute deferred compensation for purposes of Section 409A, such payment or settlement may accelerate upon a Change in Control for purposes of this Program only if such Change in Control also constitutes a “change in control event” (as that term is defined at Section 1.409A-3(i)(5) of the Treasury Regulations) (it being understood that vesting of amounts payable hereunder may accelerate upon a Change in Control, even if payment of such amounts may not accelerate pursuant to this sentence).
2.8. Change in Control Good Reason shall mean (i) a material reduction in the Participant’s duties and responsibilities from those of the Participant’s most recent position with Atlas, (ii) a reduction of the Participant’s aggregate salary, benefits and other compensation (including any incentive opportunity) from that which the Participant was most recently entitled during Employment other than in connection with a reduction as part of a general reduction applicable to all similarly-situated employees of Atlas, or (iii) a relocation of the Participant to a position that is located greater than 40 miles from the location of such Participant’s most recent principal location of Employment with Atlas; provided, however,
2
that the Employee will be treated as having resigned for Change in Control Good Reason only if he or she provides Atlas with a notice of termination within 90 days of the initial existence of one of the conditions described above, following which Atlas shall have 30 days from the receipt of the notice of termination to cure the event specified in the notice of termination and, if Atlas fails to so cure the event, the Participant must terminate his or her Employment not later than 30 days following the end of such cure period.
2.9. Code shall mean the Internal Revenue Code of 1986, as amended from time to time.
2.10. Committee shall mean the Compensation Committee of the Board.
2.11. Disability shall mean, with respect to any Participant who is party to an employment, severance-benefit, change in control or similar agreement with Atlas that contains a definition of “Disability,” the definition set forth in such agreement. In the case of any other Participant, except as expressly provided otherwise in an Award agreement, “Disability” shall mean such Participant’s having been continuously disabled from performing duties assigned to the Participant for a period of not less than six consecutive calendar months, in which case such Disability shall be deemed to have commenced on the date following the end of such six consecutive calendar months.
2.12. Eligible Employee shall mean any of the Chief Executive Officer, President and Executive Vice Presidents of Atlas Air, Inc. and such other Atlas senior executive officers as shall be designated by the Committee.
2.13. Good Reason shall mean (i) a material reduction in the Participant’s annual Base Salary, Target Bonus Percentage, or target long-term incentive award opportunity, in each case as then in effect, or other material benefits provided to officers of Atlas, except where such reduction is part of a general reduction in salary or benefits by Atlas or (ii) a material reduction in the Participant’s title or job responsibilities; provided, however, that a Participant shall be treated as having resigned due to Good Reason only if he or she provides Atlas with a notice of termination within 90 days of the initial existence of one of the conditions described above, following which Atlas shall have 30 days from the receipt of the notice of termination to cure the event specified in the notice of termination and, if Atlas fails to so cure the event, the Participant must terminate his or her Employment not later than 30 days following the end of such cure period.
2.14. Participant shall mean any Eligible Employee during such Eligible Employee's period of participation in the Program.
2.15. Program shall mean this Atlas Air Worldwide Holdings, Inc. Annual Incentive Program for Senior Executives, as it may be amended from time to time.
2.16. Performance Criteria shall mean specified criteria, other than solely the continuation of employment or solely the passage of time, the satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award.
2.17. Program Year shall mean the calendar year.
2.18. Retirement shall mean a termination of a Participant’s Employment with Atlas by the Participant on or after the Participant (i) attains age fifty-five (55) and has completed ten
3
(10) years of service with Atlas, and (ii) has given not less than three (3) months’ advanced written notice of such proposed Retirement to the then current Chief Executive Officer of AAWW; provided, however, that if such Participant is terminated by Atlas for Cause after providing such advanced written notice, such termination shall not be considered a Retirement, as defined herein. Notwithstanding clause (ii) above, in the event of a proposed Retirement of the then current Chief Executive Officer of AAWW, he or she must give not less than six (6) months’ advance written notice to the Board and a majority of the members of the Board (disregarding the Board membership of the Chief Executive Officer of AAWW for these purposes) must approve such retirement.
2.19. Termination of Service shall mean the date a Participant ceases to be an Eligible Employee.
Section 3. Administration.
The Program shall be administered by the Committee. The Committee shall have full power and authority in its sole discretion to (i) construe and interpret the Program, (ii) establish and amend administrative regulations to further the purpose of the Program, (iii) determine the extent to which Award payments have been earned by virtue of satisfying the goals described in Section 5 and whether any other Performance Criteria have been satisfied, (iv) determine the amount otherwise payable under Section 5, (v) determine whether to settle a portion of the Award in AAWW stock, and (vi) take any other action necessary to administer the Program. All decisions, actions, or interpretations of the Committee shall be final, conclusive, and binding upon all Participants.
Section 4. Participation.
4.1. General. Each Eligible Employee shall participate in the Program if he or she is employed as an Eligible Employee on the first day of the Program Year. An individual who becomes an Eligible Employee during a Program Year following the first day of the Program Year, but prior to September 30 of the applicable Program Year may participate only with respect to Base Salary earned on and after the date he or she first becomes an Eligible Employee.
4.2. Change of Title/Position. If an Eligible Employee is promoted during a Program Year such that his or her Base Salary, Target Bonus Percentage (as defined below), and/or Maximum Bonus Percentage (as defined below) increases, (i) for the portion of the Program Year prior to such promotion, the Award will be calculated as set forth herein using (A) the Base Salary earned prior to the effective date of such promotion, and (B) the Target Bonus Percentage and Maximum Bonus Percentage applicable to the Eligible Employee’s title/position prior to the effective date of such promotion, and (ii) for the portion of the Program Year following such promotion, the Award will be calculated as set forth herein using (A) the Base Salary earned on and after the effective date of such promotion, and (B) the Target Bonus Percentage and Maximum Bonus Percentage applicable to the Eligible Employee’s new title/position on and after the effective date of such promotion.
4.3. Other Compensation. Any determination by the Committee to provide incentive compensation to an Eligible Employee other than as described in this Section 4 shall be treated as a separate award made outside the Program.
4
Section 5. Determination of Awards.
5.1 Target Bonus Percentage. The “Target Bonus Percentage” shall mean the following percentage of Base Salary for each Participant, as such percentages may be increased by the Committee from time to time: (i) one hundred percent (100%) of Base Salary for the Chief Executive Officer of AAWW, (ii) ninety percent (90%) of Base Salary for Executive Vice Presidents who also hold the title of Chief Executive Officer of Titan Aviation Holdings, Inc., (iii) eighty-five percent (85%) of Base Salary for Executive Vice Presidents who also hold the title of General Counsel, Chief Financial Officer, or Chief Operating Officer of AAWW or such other Executive Vice President approved by the Committee.
5.2 Maximum Bonus Award. The maximum bonus payable under an Award for the Program Period will be the lesser of (i) the dollar limit set forth in Section 4(c) of the Plan, and (ii) the following percentage of Base Salary for each Participant, as such percentages may be increased by the Committee from time to time: (A) two hundred percent (200%) of Base Salary for the Chief Executive Officer of AAWW, (B) one hundred eighty percent (180%) for the Executive Vice President of AAWW who also holds the title of Chief Executive Officer of Titan Aviation Holdings, Inc., and (C) one hundred seventy percent (170%) of Base Salary for Executive Vice Presidents who also hold the title of General Counsel, Chief Financial Officer or Chief Operating Officer of AAWW (each, a “Maximum Bonus Percentage”).
5.3 Performance Measures. Payment under an Award is conditioned upon achievement of the Adjusted Income Goal, Service Reliability Goal and Management Business Objectives Goal, each as described below.
(a) Adjusted Income Goal. The Adjusted Income Goal is based on Atlas’s aggregate adjusted income from continuing operations, net of taxes (“Adjusted Income”) as reported in Atlas’s press release reporting financial results for the 2021 fiscal year, as may be further provided in any exhibit to the Program (the “Adjusted Income Goal”). For the Program Year, the threshold Adjusted Income level (which must be met before any amounts will be payable under Awards), the maximum Adjusted Income level, intermediate Adjusted Income levels, and the percentage of each Participant’s target bonus award that will be deemed achieved at each such profit level, will be determined by the Committee.
(b) Service Reliability Goal. The Service Reliability Goal is based on the level of achievement of such goals as the Committee may determine for the Program Year (the “Service Reliability Goal”), as may be further provided in any exhibit to the Program.
(c) Management Business Objectives Goal. The Management Business Objectives Goal (“MBO Goals”) reflects the level of achievement of such individual MBOs as may be determined in the case of any Participant for the Program Year.
(d) Effect of Corporate Transactions and other Exigencies. Without limiting the generality of the foregoing, the Committee shall have the authority to identify objectively determinable events (for example, but without limitation, acquisitions or dispositions) which, if they occur, would have a material effect on objective Performance
5
Criteria applicable to Awards under the Program, and to adjust such Performance Criteria in an objectively determinable manner to reflect such events.
Section 6. Payment of Awards under this Program.
6.1. General. Subject to Section 6.4 and Section 7, a Participant will be entitled to receive payment, if any, under an Award if the Participant is still employed by Atlas on the last day of the Program Year for which the Award is paid, unless in the period between the last day of the Program Year and any payout under the Program, the Participant is terminated by Atlas for Cause or the Participant terminates his or her Employment with Atlas for any reason other than for Good Reason or by reason of Retirement. A Participant will receive an Award in the manner and at the times set forth in Section 6.
6.2. Time of Payment. Any amount payable for an Award for a Program Year shall be paid by Atlas as soon as reasonably practicable following certification by the Committee as to achievement of the performance goals following the completion of the year-end audit for the applicable Program Year, but in no event later than March 15 of the year following the applicable Program Year.
6.3. Form of Payment. All amounts payable for an Award shall be paid in cash or AAWW stock, but AAWW stock may be used, if at all, at the Committee’s discretion in consultation with such Participant, and only for the portion of the Award that exceeds fifty percent (50%) of Base Salary.
6.4. Termination of Employment.
(a) General. Except as otherwise provided in this Section 6.4 or Section 7, a Participant whose Employment terminates for any reason prior to the last day of the Program Year for which an Award is payable shall forfeit such Award.
(b) Termination Bonus Amount. For purposes of this Section 6.4 or Section 7, “Termination Bonus Amount” shall mean a payment with respect to an Award for the Program Period in an amount equal to, (A) in the event the Termination of Service occurs after June 30 of the Program Year, the greater of (1) the amount he or she would have received if he or she was employed by Atlas on the last day of the Program Year based upon actual company performance measured pursuant to the Program (and assuming for such purpose that his or her MBO Goals have been achieved at least at target), or (2) his or her Target Bonus Percentage (such amount, the “Full Termination Bonus Amount”) or (B) in the event the Termination of Service occurs prior to July 1 of the Program Period, the Full Termination Bonus Amount multiplied by a fraction, the numerator of which is the number of days from the commencement of the Program Period until such Termination of Service and the denominator of which is 365.
(c) Death or Disability. In the event of a Participant’s Termination of Service during a Program Year due to his or her death or Disability, the Participant shall be entitled to receive the Termination Bonus Amount.
(d) Retirement; Involuntary Termination; Good Reason. If a Participant's Employment terminates during a Program Year by reason of (i) an involuntary termination by Atlas not for Cause, (ii) termination by the Participant for Good Reason, or (iii) Retirement,
6
the Participant shall be entitled to receive the Termination Bonus Amount. Such payment shall be subject to all terms and conditions of the Program, including without limitation the provisions of Section 5 (relating to determination of the Award) and Section 6.2 (relating to the time of payment of the Award).
(e) Relationship with Other Agreements. This Section 6.4 shall not apply to the extent the rights of a Participant in such circumstances are governed by another agreement.
Section 7. Change in Control.
In the event of a Change in Control, payment with respect to an Award for the Program Year in which such Change in Control occurred shall be an amount equal to the greater of (a) the applicable Target Bonus Percentage and (b) actual company performance measured pursuant to the Program (such greater amount, the “CIC Bonus Amount”). In the event a Participant’s Employment is terminated during the Program Year in which a Change in Control occurs (i) following such Change in Control by reason of (A) an involuntary termination by Atlas not for Cause, (B) termination by the Participant for Change in Control Good Reason, (C) Retirement, (D) death, or Disability; or, (ii) within six months prior to such Change in Control, by Atlas not for Cause or by the Participant for Change in Control Good Reason, in each case, instead of the treatment described in Section 6.4, such Participant shall be entitled to the CIC Bonus Amount (for the avoidance of doubt, without proration). Such payment shall be subject to all terms and conditions of the Program, including without limitation the provisions of Section 5 (relating to determination of the Award) and Section 6.2 (relating to the time of payment of the Award).
Section 8. Beneficiary Designation.
8.1. Designation and Change of Designation. Each Participant shall file with Atlas a written designation of one or more persons as the Beneficiary who shall be entitled to receive the Award, if any, payable under the Program upon the Participant's death. A Participant may, from time to time, revoke or change his or her Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with Atlas. The last such designation received by Atlas shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by Atlas prior to the Participant's death, and in no event shall it be effective as of any date prior to such receipt.
8.2. Absence of Valid Designation. If no such Beneficiary designation is in effect at the time of a Participant’s death, or if no designated Beneficiary survives the Participant, or if such designation conflicts with law, the Participant's estate shall be deemed to have been designated as the Participant's Beneficiary and shall receive the payment of the amount, if any, payable under the Program upon his death. If Atlas is in doubt as to the right of any person to receive such amount, Atlas may retain such amount, without liability for any interest thereon, until the rights thereto are determined, or Atlas may pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Program and Atlas therefor.
Section 9. General Provisions.
9.1. Program to be Unfunded. The Program is intended to constitute an unfunded
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incentive compensation arrangement. Nothing contained in the Program, and no action taken pursuant to the Program, shall create or be construed to create a trust of any kind. A Participant’s right to receive an Award shall be no greater than the right of an unsecured general creditor of Atlas. All Awards shall be paid from the general funds of Atlas, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such Awards. There shall not vest in any Participant or Beneficiary any right, title, or interest in and to any specific assets of Atlas.
9.2. Section 409A of the Code. Awards under the Program are intended to be exempt from the requirements of Section 409A of the Code and shall be construed and administered accordingly. Notwithstanding anything to the contrary in the Program, neither Atlas, nor any affiliate, nor the Committee, nor any person acting on behalf of Atlas, any affiliate, or the Committee, shall be liable to any Participant or to the estate or beneficiary of any Participant or to any other holder of an Award by reason of any acceleration of income, or any additional tax, asserted by reason of the failure of an Award to satisfy the requirements of Section 409A or by reason of Section 4999 of the Code; provided, that nothing in this Section 9.2 shall limit the ability of the Committee or Atlas to provide by separate express written agreement with a Participant for a gross-up payment or other payment in connection with any such tax or additional tax.
9.3. Rights Limited; Conflicts. Nothing contained in the Program shall give any Eligible Employee the right to continue in the employment of Atlas, or limit the right of Atlas to discharge an Eligible Employee. If there is a conflict between this Program and another senior executive employment program or arrangement, such other program or arrangement shall control.
9.4. Governing Law. The Program shall be construed and governed in accordance with the laws of the State of New York.
9.5. Taxes. There shall be deducted from all amounts paid under the Program all federal, state, local and other taxes required by law to be withheld with respect to such payments.
Section 10. Amendment, Suspension, or Termination.
Except with respect to 6.4(c) for any Program Year in effect, the Committee reserves the right to amend, suspend, or terminate the Program at any time.
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Section 11. Awards Subject to Clawback.
11.1 Pursuant to the AAWW’s Executive Compensation Clawback Policy, as the same is in effect following its adoption by the Board and as may be subsequently amended from time to time to ensure compliance with applicable laws and regulations (the “Clawback Policy”), by his or her acceptance of an Award under the Program, the Participant agrees that the Company may withhold, and Participant will forfeit, compensation otherwise payable under an Award or seek recovery from, and the Participant agrees to repay, compensation previously paid under an Award, as the case may be, as provided by the Clawback Policy, or to the extent required to comply with applicable law.
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Exhibit 10.2
AMENDED & RESTATED
ATLAS AIR, INC. PROFIT SHARING PLAN
Approved by the Compensation Committee as of March 14, 2022
ATLAS AIR, INC.
AMENDED & RESTATED PROFIT SHARING PLAN
THIS PROFIT SHARING PLAN, is hereby amended and restated effective as of September 10, 2021 by Atlas Air, Inc., in accordance with the terms and conditions set forth herein.
Article l
Purpose
The purpose of the Plan is to share the profits of the Company with Eligible Employees whose efforts are instrumental in the Company's financial success by providing, in addition to other compensation, payments to such Eligible Employees based upon Pre-Tax Profits of the Company on a calendar year basis for each year ended December 31 for so long as the Plan is in effect.
Article 2
Definitions
Capitalized terms used herein shall have the following meanings:
2.1 Annual Profit Sharing Allocation means the amount paid to an Eligible Employee in accordance with the terms of Article 5 hereof.
2.2 Annual Profit Sharing Calculation has the meaning set forth in Section 5. l(b).
2.3 Atlas Employee means any Employee employed by the Company on the date an Annual Profit Sharing Allocation is paid.
2.4 Code means the Internal Revenue Code of 1986, as amended.
2.5 Committee means the Compensation Committee of the Board of Directors of Atlas Air Worldwide Holdings, Inc.
2.6 Company means Atlas Air, Inc., a Delaware corporation, and any of its subsidiaries whose participation in this Plan is approved by the Committee.
2.7 Compensation means gross wages reported by the Company for U.S. federal income tax purposes on a W-2 federal tax form or similar payments for foreign based employees (including crew members) as includable in income, excluding from such amounts any of the following: profit sharing, completion bonus, per diem, compensation paid prior to becoming an Eligible Employee under this Plan, expense reimbursements, any imputed income associated with life insurance, amounts (whether death benefits or othe1wise) paid directly by the Company upon the death of an employee to such employee's estate, heirs, executor or administrator, travel benefits, equity-based compensation, and other outside the ordinary course payments that might occur in the future.
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2.8 Disability means an Employee’s qualification for long term disability benefits under the Company's long-term disability plan.
2.9 Eligible Employee means any Employee (including Retired Employees, but solely in the Plan year in which they retire) employed by the Company subject to a collective bargaining agreement that specifically provides for such employees’ participation in this Plan or an individual employment agreement signed by a senior executive of the Company that specifically provides for his or her participation in the Plan, subject to the provisions of Article 3 hereof.
2.10 Employee means any individual who is employed by the Company on either a salaried or hourly basis, and from whom the Company is required to withhold taxes from remuneration paid by the Company to such individuals for personal services rendered to the Company. This term does not include any individual who is a “leased employee,” as defined in Section 414(n) of the Code, nor any person retained as an independent contractor.
2.11 FAA means the United States Federal Aviation Administration.
2.12 Plan means this Amended & Restated Atlas Air, Inc. Profit Sharing Plan.
2.13 Pre-Tax Profits has the meaning set forth in Section 4.1.
2.14 Retired Employee means a former Eligible Employee who has reached the FAA mandated retirement age or greater and has completed at least five complete years of continuous service as an Eligible Employee with the Company on or before the date such person elects to retire. An Eligible Employee who, through no fault of his or her own, is no longer able to work due to the loss of FAA-required licenses or medical certificates, or due to Disability, will also be deemed a Retired Employee.
Article 3
Requirements for Participation
3.1 Eligibility. An Eligible Employee will participate in the Plan starting on the first day of the first month following his or her one-year anniversary as a full-time Employee.
3.2 Death / Beneficiaries. If an Eligible Employee’s employment terminates prior to the last day of a Plan (calendar) year by reason of death, such Eligible Employee’s Annual Profit Sharing Allocation for such Plan year shall be paid to his or her beneficiary, as designated by such Eligible Employee in his or her Company-provided life insurance policy.
Article 4
Determination of Pre-Tax Profits
4.1 Pre-Tax Profits. For the purposes of calculating the Annual Profit Sharing Allocation, “Pre-Tax Profits” means the pre-tax profits of the Company earned in the ordinary course of business, determined in accordance with U.S. GAAP (“GAAP”). However, the following items defined under GAAP or which are in common use in United States public financial statement reporting will be excluded from Pre-Tax Profits for purposes of calculating the Annual Profit Sharing Allocation (defined below):
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(a) Any Company income or loss related to charges or credits (whether or not identified as special credits or charges) for unusual or infrequently-occurring items (including, but not limited to business dispositions or sale of property, plant or equipment not in the ordinary course of business), or related to intangible assets, and
(b) Extraordinary items reported on separate line items in the Company's income statement.
Article 5
Annual Profit Sharing Allocation
5.1 Methodology of Payment. The “Annual Profit Sharing Allocation” shall be calculated and be payable as follows:
(a) Step 1 - the Company will deduct $50 million from Pre-Tax Profits for the Plan Year.
(b) Step 2 – the Company will calculate an amount equal to 10% of the amount determined per Article 5.1(a), above (the “Annual Profit Sharing Contribution”).
(c) Step 3 - Each Eligible Employee will receive a payment which is equal to the Annual Profit Sharing Contribution multiplied by a fraction, the numerator of which is the Eligible Employee's Compensation and the denominator of which is the total Compensation of all Atlas Employees, reduced by the Compensation of those Atlas Employees who, if in the Plan, would not have been Eligible Employees. Payments hereunder may be made in cash, Company stock, or some combination thereof, at the discretion of the Committee.
5.2 Timing of Payment.
(a) To the extent there are profits to be distributed, Annual Profit Sharing Allocations shall be paid at the discretion of the Committee but within the 90-day period ended on April 30 following the Plan year for which the payment is made (the “Payment Date”). The difference, if any, between the amount of the Annual Profit Sharing Allocations received by Eligible Employees for any fiscal year and the aggregate of the individual profit sharing amounts actually paid to Eligible Employees for such Plan year as computed in accordance with this Article 5.2 shall revert to the Company no later than May 15th following such Plan year.
(b) Eligible Employees who are not actively employed by the Company on the Payment Date, other than Eligible Employees who resigned, were on furlough status, or were discharged for just cause by the Company on or before the Payment Date, shall receive payment of his or her Profit Sharing Allocation pursuant to this Article 5.
5.3 Retirement Plan Contributions. All cash payments hereunder will be subject to 401(k) elections on file at the Company at the time of payment, to the extent consistent with the applicable 401(k) plans.
Article 6
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Miscellaneous
6.1 Effect upon Employment. Nothing contained herein shall be construed to be a contract of employment of any kind or for any period, and this Plan shall not confer any rights to any employee of the Company to continue in the employ of the Company.
6.2 Transferability and Vesting. The right to receive payments hereunder may not be transferred or assigned except by will or by the laws of descent and distribution, and no rights shall vest until payment is made.
6.3 Governing Law. This Plan shall be construed in accordance with, and shall be governed by the laws of the State of Delaware.
6.4 Entire Plan. This Plan together with the Company’s collective bargaining agreement that covers each Eligible Employee’s participation in this Plan (as may be amended) contains the entire understanding and undertaking of the Company relating to the subject matter hereof, except as otherwise referred to herein, and supersedes any and all prior and contemporaneous undertakings, agreements, understandings, inducements or conditions, whether express or implied, written or oral, except as herein contained.
6.5 Number and Gender. Whenever appropriate, as the context may require, words used herein shall be construed in the singular or the plural, and words used in one gender shall be construed in the other gender.
6.6 Plan Binding Upon All Parties. This Plan shall be binding upon the parties hereto, their successors and assigns, and upon all employees of the Company and their spouses, heirs, executors and administrators.
6.7 Decision of Committee Final and Binding; Amendments and Termination. The Committee shall resolve any disputes or questions arising under the Plan, and its decision shall be final and binding upon all parties. The Committee may also amend this Plan from time to time and may terminate the Plan at any time.
Article 7
Effective Date
The Plan, as restated, has been approved by the Committee and shall become effective upon its execution by the President of the Company and as of the date written above.
IN WITNESS WHEREOF, this Amended & Restated Profit Sharing Plan is executed for
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and on behalf of the Company effective as of the day and year first above written.
ATLAS AIR, INC.
By: ______________________
John Dietrich
Title: President & Chief Executive Officer
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Exhibit 10.3
MORGAN STANLEY & CO. LLC
1585 BROADWAY
NEW YORK, NY 10036-8293
(212) 761-4000
February 18, 2022
Fixed Dollar Accelerated Share Repurchase Transaction
Atlas Air Worldwide Holdings, Inc.
2000 Westchester Avenue Purchase, New York 10577
Attention: Spencer Schwartz, Executive Vice President and Chief Financial Officer
___________________________________________________________________________________
Dear Sir/Madam:
The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Transaction entered into between Morgan Stanley & Co. LLC (“MSCO”) and Atlas Air Worldwide Holdings, Inc. (“Issuer”) on the Trade Date specified below (the “Transaction”). This confirmation constitutes a “Confirmation” as referred to in the Agreement specified below.
The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (as published by the International Swaps and Derivatives Association, Inc. (“ISDA”)) (the “Equity Definitions”) are incorporated into this Confirmation. The Transaction is a Share Forward Transaction for purposes of the Equity Definitions. Any reference to a currency shall have the meaning contained in Section 1.7 of the 2006 ISDA Definitions, as published by ISDA.
The Transaction shall be the only transaction under the Agreement. If there exists any ISDA Master Agreement between MSCO and Issuer or any confirmation or other agreement between MSCO and Issuer pursuant to which an ISDA Master Agreement is deemed to exist between MSCO and Issuer, then, notwithstanding anything to the contrary in such ISDA Master Agreement, such confirmation or agreement or any other agreement to which MSCO and Issuer are parties, the Transaction shall not be considered a transaction under, or otherwise governed by, such existing or deemed to be existing ISDA Master Agreement.
If there is any inconsistency between the Agreement, this Confirmation and the Equity Definitions, the following will prevail for purposes of the Transaction in the order of precedence indicated: (i) this Confirmation; (ii) the Equity Definitions; and (iii) the Agreement.
GENERAL TERMS:
Trade Date: As specified in Schedule I
Buyer: Issuer
Seller: MSCO
Shares: Common Stock, par value USD 0.01 per share, of Issuer (Ticker: AAWW)
Forward Price: A price equal to (A) the greater of (i) the arithmetic mean (not a weighted average, subject to “Market Disruption Event” below) of the 10b-18 VWAP on each Calculation Date during the Calculation Period minus (ii) the Discount and (B) the Floor Price.
Discount: As specified in Schedule I
Floor Price: As specified in Schedule I
10b-18 VWAP: On any Calculation Date, a price per Share equal to the volume-weighted average price of the Rule 10b-18 eligible trades in the Shares for the entirety of such Calculation Date as determined by the Calculation Agent at 4:15 EST on such Calculation Date by reference to the screen entitled “AAWW.Q <Equity> AQR SEC” or any successor page as reported by Bloomberg L.P. or any successor (without regard to pre-open or after-hours trading outside of any regular trading session for such Calculation Date) on such Calculation Date), or, if the price displayed on such screen is clearly erroneous, as determined on a volume weighted average basis by the Calculation Agent in good faith and in a commercially reasonable manner.
Calculation Period: The period from, and including, the Calculation Period Start Date to, and including, the relevant Valuation Date.
Calculation Period Start Date: As specified in Schedule I
Calculation Dates: As specified in Schedule I
Initial Shares: As specified in Schedule I
Initial Share Delivery Date: As specified in Schedule I. On the Initial Share Delivery Date, Seller shall deliver to Buyer a number of Shares equal to the Initial Shares in accordance with Section 9.4 of the Equity
2
Definitions, with the Initial Share Delivery Date being deemed to be a “Settlement Date” for purposes of such Section 9.4.
Prepayment: Applicable
Prepayment Amount: As specified in Schedule I
Prepayment Date: As specified in Schedule I
Exchange: The NASDAQ Global Select Market
Related Exchange: All Exchanges
Market Disruption Event: The definition of “Market Disruption Event” in Section 6.3(a) of the Equity Definitions is hereby amended by deleting the words “at any time during the one hour period that ends at the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as the case may be,” starting in the third line thereof.
Section 6.3(d) of the Equity Definitions is hereby amended by deleting the remainder of the provision following the term “Scheduled Closing Time” in the fourth line thereof.
Notwithstanding anything to the contrary in the Equity Definitions, if any Scheduled Trading Day in the Calculation Period or the Buyer Settlement Valuation Period (each such Scheduled Trading Day, an “Observation Day”) is a Disrupted Day, the Calculation Agent may, in its good faith and commercially reasonable discretion, elect to take one or more of the following actions: (i) determine that such Observation Day is a Disrupted Day in whole, in which case the Calculation Agent shall exclude the 10b-18 VWAP on such Observation Day in determining the Forward Price or Buyer Settlement Price, as applicable, (ii) determine that such Observation Day is a Disrupted Day in part, in which case the Calculation Agent shall (x) determine the 10b-18 VWAP on such Observation Day based on Rule 10b-18 eligible trades in the Shares on such day taking into account the nature and duration of the relevant Market Disruption Event in a commercially reasonable manner and (y) determine the Forward Price or Buyer Settlement Price, as applicable, in a commercially reasonable manner, using an appropriately weighted average of 10b-18 VWAPs instead of an arithmetic mean, and/or (iii) elect to (x) postpone the Scheduled Valuation Date (in the case of a disrupted Calculation Date) or (y) extend the Buyer Settlement Valuation Period (in the case of a Disrupted Day during the Buyer Settlement Valuation Period) by up to one Scheduled Trading Day for every Observation Day that is a Disrupted Day during the Calculation Period or Buyer Settlement Valuation Period, as applicable. For the avoidance of doubt, if the Calculation
3
Agent takes the action described in clause (ii) above, then such Disrupted Day shall be an Observation Day for purposes of calculating the Forward Price or Buyer Settlement Price, as applicable.
Any Scheduled Trading Day on which, as of the date hereof, the Exchange is scheduled to close prior to its normal close of trading shall be deemed not to be a Scheduled Trading Day. If a closure of the Exchange prior to its normal close of trading is scheduled (x) on any Scheduled Trading Day during the Calculation Period following the date hereof or (y) on any Scheduled Trading Day during the Buyer Settlement Valuation Period after the relevant Buyer Election Date, then such Scheduled Trading Day shall be deemed to be a Disrupted Day in full.
If a Disrupted Day occurs (or is deemed to occur) during the Calculation Period or the Buyer Settlement Valuation Period, as the case may be, and each of the five immediately following Scheduled Trading Days is a Disrupted Day (a “Disruption Event”), then the Calculation Agent, in its good faith and commercially reasonable discretion, may (x) deem the day such Disruption Event occurs and each consecutive Disrupted Day thereafter to be an Observation Day that is not a Disrupted Day and determine the 10b-18 VWAP for each such Observation Day on a volume-weighted basis if practicable using its good faith and commercially reasonable estimate of the value of the Shares on such day based on the volume, historical volatility and trading patterns and price of the Shares and such other factors as it deems appropriate and commercially reasonable to take into account or (y) treat such Disruption Event as an Additional Termination Event in respect of the Transaction, with Issuer as the sole Affected Party and the Transaction as the sole Affected Transaction.
VALUATION:
Valuation Date(s): The earlier of (i) the Scheduled Valuation Date and (ii) any earlier accelerated Valuation Date as a result of MSCO’s election in accordance with the immediately succeeding paragraph.
MSCO shall have the right to accelerate the Valuation Date, for the whole Transaction or only a part thereof equivalent to at least 50% of the Prepayment Amount, or such lesser amount in respect of an acceleration of the entire outstanding portion of the Transaction, to any Scheduled Trading Day that is on or after the Lock-Out Date and prior to the Scheduled Valuation Date by notice (each such notice, an “Acceleration Notice”) to Issuer by 7:00 p.m., New York City time, on the Exchange
4
Business Day immediately following the accelerated Valuation Date (the “Acceleration Date”). MSCO shall specify in each Acceleration Notice the portion of the Prepayment Amount that is subject to acceleration in accordance with the previous sentence. If the portion of the Prepayment Amount that is subject to acceleration is less than the full remaining Prepayment Amount, then the Calculation Agent shall in a good faith and commercially reasonable manner make such mechanical or administrative adjustments to the terms of the Transaction as appropriate in order to take into account the occurrence of such Acceleration Date (including cumulative adjustments to take into account all prior Acceleration Dates).
Scheduled Valuation Date: As specified in Schedule I, subject to postponement in accordance with “Market Disruption Event” above.
Lock-Out Date: As specified in Schedule I
SETTLEMENT TERMS:
Physical Settlement: Applicable. On any Valuation Date (including any Acceleration Date, if applicable), the Calculation Agent shall calculate the Settlement Amount for the relevant portion of the Transaction. The “Settlement Amount” for the Transaction is a number of Shares equal to (a) (i) the Prepayment Amount divided by (ii) the Forward Price minus (b) the Initial Shares, rounded to the nearest whole number of Shares.
If the Settlement Amount is positive, Seller shall deliver to Buyer a number of Shares equal to the Settlement Amount on the Settlement Date. If the Settlement Amount is negative, the provisions of Buyer Settlement shall apply.
Settlement Currency: USD
Settlement Date: The date that falls one Settlement Cycle after the relevant Valuation Date or Acceleration Date if prior to the Scheduled Valuation Date for the relevant portion of the Transaction (the final Settlement Date, the “Final Settlement Date”).
Buyer Settlement: If the Settlement Amount is negative, Buyer may elect that the Buyer Share Settlement provisions apply in lieu of the Buyer Cash Settlement Method provisions by written notice to Seller, which notice shall be effective if received by Seller by the earlier of (i) the Scheduled Valuation Date and (ii) the Scheduled Trading Day immediately following the final Acceleration Date (such date, the “Buyer Election Date”).
Buyer Cash Settlement: If Cash Settlement is applicable and the Settlement Amount is negative, then Buyer shall pay to Seller the absolute value of
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the Buyer Cash Settlement Amount on the Buyer Cash Settlement Payment Date.
Buyer Cash Settlement Amount: An amount equal to (a) the aggregate of each negative Settlement Amount, multiplied by (b) the Buyer Settlement Price.
Buyer Settlement Price: Subject to “Market Disruption Event” above, an amount equal to the arithmetic mean of the 10b-18 VWAP for each Scheduled Trading Day in the Buyer Settlement Valuation Period.
Buyer Settlement Valuation Period: A number of Scheduled Trading Days determined in good faith by the Calculation Agent in its commercially reasonable discretion to be necessary for MSCO to unwind its commercially reasonable Hedge Position in a commercially reasonable manner using commercially reasonable efforts, beginning on the Scheduled Trading Day immediately following the Buyer Election Date, subject to “Market Disruption Event” above.
Buyer Cash Settlement Payment Date: The Currency Business Day immediately following the last day of the Buyer Settlement Valuation Period.
Buyer Share Settlement: On the Final Settlement Date, Buyer shall deliver to Seller a number of Shares equal to the Buyer Share Settlement Percentage multiplied by the absolute value of the aggregate of each negative Settlement Amount. Buyer’s obligation under this provision shall be netted against any obligations of Seller under “Physical Settlement” above on the Final Settlement Date.
Buyer Share Settlement Percentage: As specified in Schedule I
Other Applicable Provisions: The last sentence of Section 9.2, Sections 9.8, 9.9, 9.10 and 9.11 (except that the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws arising as a result of the fact that Buyer is the issuer of the Shares) and Section 9.12 of the Equity Definitions will be applicable to the Transaction.
SHARE ADJUSTMENTS:
Potential Adjustment Event: In addition to the events described in Section 11.2(e) of the Equity Definitions, the occurrence of a Disrupted Day (including due to the occurrence of a Regulatory Disruption) shall constitute a Potential Adjustment Event. In the case of any event described in the preceding sentence, the Calculation Agent may, in its commercially reasonable judgment, adjust any relevant terms of the Transaction as the Calculation Agent
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determines appropriate to account for the economic effect on the Transaction of such event.
Different Dividend: For any calendar quarter, any dividend or distribution on the Shares with an ex-dividend date occurring during such calendar quarter (other than any dividend or distribution of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) of the Equity Definitions) (a “Dividend”) the amount or value of which (as determined by the Calculation Agent), when aggregated with the amount or value (as determined by the Calculation Agent) of any and all previous Dividends with ex-dividend dates occurring in the same calendar quarter, differs from the Ordinary Dividend Amount.
Ordinary Dividend Amount: As specified in Schedule I
Extraordinary Dividend: The per Share cash dividend or distribution, or a portion thereof, declared by Issuer on the Shares that is classified by the board of directors of Issuer as an “extraordinary” dividend.
Consequences of Different Dividend: The declaration by the Issuer of any Different Dividend, the ex-dividend date for which occurs or is scheduled to occur during the Relevant Dividend Period (as defined below) for the Transaction, shall, at the Calculation Agent’s election, either (x) constitute an Additional Termination Event in respect of such Transaction, with Buyer as the sole Affected Party and such Transaction as the sole Affected Transaction or (y) result in an adjustment, by the Calculation Agent, to the Floor Price as the Calculation Agent determines appropriate to account for the economic effect on the Transaction of such Different Dividend.
Early/Late Ordinary Dividend Payment: If an ex-dividend date for any Dividend that is neither (x) a dividend or distribution of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) of the Equity Definitions nor (y) an Extraordinary Dividend, occurs during any calendar quarter occurring (in whole or in part) during the Relevant Dividend Period and such ex-dividend date is not on the Scheduled Ex-Dividend Date for such calendar quarter, the Calculation Agent shall in good faith and in a commercially reasonable manner make such adjustment to the exercise, settlement, payment or any other terms of the Transaction as the Calculation Agent determines appropriate to account solely for the economic effect of the timing of such Dividend on the Transaction.
Scheduled Ex-Dividend Dates: As specified in Schedule I
Relevant Dividend Period: The period from, and including, the Trade Date for the Transaction to, and including, the later of the second Scheduled Trading Day following (i) the Acceleration Date, if an
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Acceleration Date occurs as to the Transaction, or (ii) the Scheduled Valuation Date for the Transaction and (iii) the last day of any Buyer Settlement Valuation Period for the Transaction.
Method of Adjustment: Calculation Agent Adjustment
EXTRAORDINARY EVENTS:
Consequences of Merger Events:
Share-for-Share: Modified Calculation Agent Adjustment
Share-for-Other: Cancellation and Payment
Share-for-Combined: Component Adjustment
Tender Offer: Applicable
Consequences of Tender Offers:
Share-for-Share: Modified Calculation Agent Adjustment
Share-for-Other: Modified Calculation Agent Adjustment
Share-for-Combined: Modified Calculation Agent Adjustment
New Shares: In the definition of New Shares in Section 12.1(i) of the Equity Definitions, the text in clause (i) thereof shall be deleted in its entirety and replaced with “publicly quoted, traded or listed on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors)”.
Composition of Combined Consideration: Not Applicable
Nationalization, Insolvency or Delisting: Cancellation and Payment; provided that, in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall thereafter be deemed to be the Exchange.
Additional Disruption Events:
Change in Law: Applicable; provided that (a) Section 12.9(a)(ii) of the Equity Definitions is hereby amended by (i) replacing the phrase “the interpretation” in the third line thereof with the phrase “, or announcement or statement of, the formal or informal
8
interpretation”, (ii) replacing the word “Shares” where it appears in clause (X) thereof with the words “Hedge Position” and (iii) adding the words “, or holding, acquiring or disposing of Shares or any Hedge Position relating to,” after the word “under” in clause (Y) thereof and (b) MSCO shall not terminate any “Transaction” for a Change in Law referred to in clause (Y) of section 12.9(a)(ii) of the Equity Definitions except to the extent it is exercising its right to terminate as a result of such “Change in Law” with respect to other similarly situated counterparties in respect of similar transactions; provided further that (i) any determination as to whether (A) the adoption of or any change in any applicable law or regulation (including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute) or (B) the promulgation of or any change in the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law or regulation (including any action taken by a taxing authority), in each case, constitutes a “Change in Law” shall be made without regard to Section 739 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or any similar legal certainty provision in any legislation enacted, or rule or regulation promulgated, on or after the Trade Date, and (ii) Section 12.9(a)(ii) of the Equity Definitions is hereby amended by replacing the parenthetical beginning after the word “regulation” in the second line thereof the words “(including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute)”.
Failure to Deliver: Applicable
Insolvency Filing: Applicable
Hedging Disruption: Applicable
Increased Cost of Hedging: Not Applicable
Loss of Stock Borrow: Applicable
Maximum Stock Loan Rate: As specified in Schedule I
Increased Cost of Stock Borrow: Applicable
Initial Stock Loan Rate: As specified in Schedule I
Determining Party: For all applicable events, MSCO
Hedging Party: For all applicable events, MSCO
Non-Reliance: Applicable
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Agreements and Acknowledgments
Regarding Hedging Activities: Applicable
Additional Acknowledgments: Applicable
Hedging Adjustments: Whenever the Calculation Agent, the Determining Party, MSCO or the Hedging Party is called upon to make a judgment, determination, calculation or adjustment or exercises its discretion pursuant to the terms of this Confirmation or the Equity Definitions to take into account the effect of an event, such party shall make such judgment, determination, calculation or adjustment by reference to the effect of such event on MSCO with the Calculation Agent assuming that MSCO maintains a commercially reasonable Hedge Position in respect of the Transaction at the time of such event.
To be provided separately.
To be provided separately.
To be provided separately.
To: Atlas Air Worldwide Holdings, Inc.
2000 Westchester Avenue
Purchase, New York 10577
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Attention: Adam R. Kokas, Executive Vice President and General Counsel
Telephone: (914) 701-8576
Email: Adam.Kokas@AtlasAir.com
With a copy to:
Cravath, Swaine & Moore LLP
Attention: Andrew J. Pitts
Telephone No: (212) 474-1620
Facsimile No: (212) 474-3700
Email: apitts@cravath.com
Morgan Stanley & Co. LLC
1585 Broadway
New York, NY 10036-8293
Attention: Giulia Caterini
Email: Giulia.Caterini@morganstanley.com
With a copy to:
Morgan Stanley & Co. LLC
1585 Broadway
New York, NY 10036-8293
Attention: Steven Seltzer
Email: Steven.Seltzer1@morganstanley.com
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In the event that (a) an Early Termination Date (whether as a result of an Event of Default or a Termination Event) occurs or is designated with respect to the Transaction or (b) the Transaction is cancelled or terminated upon the occurrence of an Extraordinary Event (except as a result of (i) a Nationalization, Insolvency or Merger Event in which the consideration to be paid to holders of Shares consists solely of cash, (ii) a Merger Event or Tender Offer that is within Issuer’s control, or (iii) an Event of Default in which Issuer is the Defaulting Party or a Termination Event in which Issuer is the Affected Party other than an Event of Default of the type described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of the Agreement or a Termination Event of the type described in Section 5(b) of the Agreement, in each case that resulted from an event or events outside Issuer’s control), if either party
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would owe any amount to the other party pursuant to Section 6(d)(ii) of the Agreement or any Cancellation Amount pursuant to Article 12 of the Equity Definitions (any such amount, a “Payment Amount”), then such payment shall be paid as set forth under the Agreement or the Equity Definitions, as the case may be, unless Issuer makes an election to the contrary (which election shall be effective only if Issuer represents in writing to MSCO that, as of the date of such election, Issuer is not in possession or otherwise aware of any material nonpublic information regarding Issuer or the Shares) no later than the later of (x) the Early Termination Date or the date on which such Transaction is terminated or cancelled or (y) the business day immediately following the date on which Issuer receives written notice from MSCO as to such Early Termination Date, termination or cancellation date. Issuer or MSCO, as the case may be, shall deliver to the other party a number of Shares (or a number of units, each comprising the number or amount of the securities or property that a hypothetical holder of one Share would receive in the case of a Nationalization, Insolvency or Merger Event, as the case may be (each such unit, an “Alternative Delivery Unit”)), with a value equal to the Payment Amount, as determined by the Calculation Agent over a commercially reasonable period of time. In determining the number of Shares (or Alternative Delivery Units) required to be delivered under this provision, the Calculation Agent shall take into account the market price of the Shares or Alternative Delivery Units on the Early Termination Date or the date of early cancellation or termination, as the case may be. Additionally, (x) if such delivery is made by MSCO, the Calculation Agent shall take into account the prices at which MSCO purchases Shares (or Alternative Delivery Units) in a commercially reasonable manner and within a commercially reasonable period of time in order to fulfill its delivery obligations under this Section 6, so long as such purchase prices reflect the prevailing market prices of Shares, or, to the extent a prevailing market price is reasonably determinable based on actual transactions, Alternative Delivery Units and (y) if such delivery is made by the Issuer, the Calculation Agent shall apply a commercially reasonable illiquidity discount and take into account any commercially reasonable carrying charges and reasonable and documented out of pocket expenses in connection with the restricted status of such Shares under applicable securities laws and, in determining the composition of any Alternative Delivery Unit for purposes of such determination, if the relevant Nationalization, Insolvency or Merger Event involves a choice of consideration to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash.
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In the event that MSCO reasonably determines based on advice of counsel that it is appropriate with regard to any legal, regulatory or self-regulatory requirements or related policies and procedures (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by MSCO, and including, without limitation, Rule 10b-18, Rule 10b-5, Regulations 13D-G and Regulations 14D-E, each under the Exchange Act; provided that such requirements or related policies or procedures are applicable to transactions in similar situations and applied to any Transaction hereunder in a non-discriminatory manner), for MSCO to refrain from purchasing Shares or engaging in other market activity or to purchase fewer than the number of Shares or to engage in fewer or smaller other market transactions than MSCO would otherwise purchase or engage in to maintain a commercially reasonable hedge position (such determination, a “Regulatory Disruption”) on any Scheduled Trading Day(s) on or prior to the conclusion of the Potential Purchase Period (as defined below), then MSCO may, in its good faith discretion, by written notice to Issuer (which may be in the form of email), elect that a Market Disruption Event shall be deemed to have occurred and will be continuing on any such Scheduled Trading Day(s) and each such Scheduled Trading Day shall be a Disrupted Day (subject to “Market Disruption Event” above). Any such Scheduled Trading Day on which a Market Disruption Event is deemed to have occurred pursuant to this Section 8 shall be a Disrupted Day in full, and not a Disrupted Day only in part
Issuer covenants and agrees that:
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Issuer agrees, understands and acknowledges that:
In addition to the representations, warranties and covenants in the Agreement, MSCO represents, warrants and covenants to Issuer that:
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Notwithstanding any other provision of this Confirmation or the Agreement to the contrary, in no event shall Issuer be required to deliver to MSCO in the aggregate a number of Shares that exceeds the Share Cap as of the date of delivery (as specified in Schedule I). Notwithstanding anything to the contrary in this Confirmation, in no event shall MSCO be required to deliver any Shares in excess of the Maximum Number of Shares (as specified in Schedule I).
With the consent of Issuer, such consent not to be unreasonably withheld following satisfaction of the requirements of this Section 16, MSCO may transfer and assign its rights and obligations under this Confirmation, in whole but not in part, to any of its U.S. incorporated and domiciled Affiliates of equivalent credit quality (or whose obligations are guaranteed, pursuant to a customary guaranty in form and substance reasonably acceptable to Issuer, by an entity of equivalent credit quality). MSCO agrees to reimburse Issuer for its reasonable expenses (including reasonable fees and expenses of outside counsel) incurred in connection with any transfer or assignment proposed by MSCO.
For the avoidance of doubt, nothing in this Confirmation shall be interpreted as requiring Issuer to deliver cash in respect of the settlement of the Transactions contemplated by this Confirmation following payment by Issuer of the relevant Prepayment Amount and any relevant, except in circumstances where the required cash settlement thereof is permitted for classification of the contract as equity by ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, as in effect on the relevant Trade Date (including, without limitation, where Issuer so elects to deliver cash or fails timely to elect to deliver Shares or Alternative Delivery Units in respect of the settlement of such Transactions).
The parties agree that (i) to the extent that prior to the date hereof both parties have adhered to the 2018 ISDA U.S. Resolution Stay Protocol (the “Protocol”), the terms of the Protocol are incorporated into and form a part of this Agreement, and for such purposes this Agreement shall be deemed a Protocol Covered Agreement and each party shall be deemed to have the same status as Regulated Entity and/or Adhering Party as applicable to it under the Protocol; (ii) to the extent that prior to the date hereof the parties have executed a separate agreement the
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effect of which is to amend the qualified financial contracts between them to conform with the requirements of the QFC Stay Rules (the “Bilateral Agreement”), the terms of the Bilateral Agreement are incorporated into and form a part of this Agreement and each party shall be deemed to have the status of “Covered Entity” or “Counterparty Entity” (or other similar term) as applicable to it under the Bilateral Agreement; or (iii) if clause (i) and clause (ii) do not apply, the terms of Section 1 and Section 2 and the related defined terms (together, the “Bilateral Terms”) of the form of bilateral template entitled “Full-Length Omnibus (for use between U.S. G-SIBs and Corporate Groups)” published by ISDA on November 2, 2018 (currently available on the 2018 ISDA U.S. Resolution Stay Protocol page at www.isda.org and, a copy of which is available upon request), the effect of which is to amend the qualified financial contracts between the parties thereto to conform with the requirements of the QFC Stay Rules, are hereby incorporated into and form a part of this Agreement, and for such purposes this Agreement shall be deemed a “Covered Agreement,” MSCO shall be deemed a “Covered Entity” and Issuer shall be deemed a “Counterparty Entity.” In the event that, after the date of this Agreement, both parties hereto become adhering parties to the Protocol, the terms of the Protocol will replace the terms of this paragraph . In the event of any inconsistencies between this Agreement and the terms of the Protocol, the Bilateral Agreement or the Bilateral Terms (each, the “QFC Stay Terms”), as applicable, the QFC Stay Terms will govern. Terms used in this paragraph without definition shall have the meanings assigned to them under the QFC Stay Rules. For purposes of this paragraph, references to “this Agreement” include any related credit enhancements entered into between the parties or provided by one to the other. In addition, the parties agree that the terms of this paragraph shall be incorporated into any related covered affiliate credit enhancements, with all references to Morgan Stanley replaced by references to the covered affiliate support provider.
“QFC Stay Rules” means the regulations codified at 12 C.F.R. 252.2, 252.81–8, 12 C.F.R. 382.1-7 and 12 C.F.R. 47.1-8, which, subject to limited exceptions, require an express recognition of the stay-and-transfer powers of the FDIC under the Federal Deposit Insurance Act and the Orderly Liquidation Authority under Title II of the Dodd Frank Wall Street Reform and Consumer Protection Act and the override of default rights related directly or indirectly to the entry of an affiliate into certain insolvency proceedings and any restrictions on the transfer of any covered affiliate credit enhancements.
THIS CONFIRMATION AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS CONFIRMATION SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ALL MATTERS RELATING HERETO AND WAIVE ANY OBJECTION TO THE LAYING OF VENUE IN, AND ANY CLAIM OF INCONVENIENT FORUM WITH RESPECT TO, THESE COURTS. NOTHING IN THIS PROVISION SHALL PROHIBIT A PARTY FROM BRINGING AN ACTION TO ENFORCE A MONEY JUDGMENT IN ANY OTHER JURISDICTION.
EACH PARTY HEREBY IRREVOCABLY WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE TRANSACTION OR THE ACTIONS OF THE OTHER PARTY OR THE OTHER PARTY’S AFFILIATES IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF.
Remainder of Page Intentionally Blank
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Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Confirmation and returning it to us.
Confirmed as of the date first written above:
ATLAS AIR WORLDWIDE HOLDINGS, INC. |
MORGAN STANLEY & CO. LLC |
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By:_/s/ Spencer Schwartz___________________ |
By:_/s/ Darren McCarley______________________ |
Name: Spencer Schwartz |
Name: Darren McCarley |
Title: Executive Vice President and Chief Financial Officer |
Title: Managing Director |
SCHEDULE I
For the purposes of the Transaction, the following terms shall have the following values or meanings:
Trade Date: February 18, 2022
Prepayment Date: [ ]
Initial Share Delivery Date: The Prepayment Date
Calculation Period Start Date: [ ]
Calculation Dates: Each Scheduled Trading Day during the Calculation Period.
Scheduled Valuation Date: [ ]
Lock-Out Date: [ ]
Prepayment Amount: USD [_______]
Discount: [ ]
Initial Shares: [ ]; provided that if, in connection with the Transaction, MSCO is unable, after using commercially reasonable efforts, to borrow or otherwise acquire a number of Shares equal to the Initial Shares for delivery to Issuer on the Initial Share Delivery Date, the Initial Shares delivered on the Initial Share Delivery Date shall be reduced to such number of Shares that MSCO is able to so borrow or otherwise acquire, and thereafter MSCO shall continue to use commercially reasonable efforts to borrow or otherwise acquire a number of Shares, at a stock borrow cost no greater than the Initial Stock Loan Rate, equal to the shortfall in the Initial Share Delivery and to deliver such additional Shares as soon as reasonably practicable. All Shares delivered to Issuer in respect of the Transaction pursuant to this paragraph shall be the “Initial Shares” for purposes of “Settlement Amount.”
Buyer Share Settlement Percentage: [ ]
Ordinary Dividend Amount: USD 0.00
For any Dividend with an ex-dividend date occurring on or after the Scheduled Valuation Date: USD 0.00
Scheduled Ex-Dividend Dates: There shall be no Scheduled Ex-Dividend Dates during the term of the Transaction
Threshold Price: USD [__]
Floor Price: USD 0.01
Initial Stock Loan Rate: [ ]
Maximum Stock Loan Rate: [ ]
Share Cap: As of any date, [ ] Shares
Maximum Number of Shares: [Half the outstanding Shares]
SCHEDULE I–Page 1
Specified ADTV Percentage: [ ]% of the ADTV (as defined in Rule 10b-18(a)(1))
SCHEDULE I–Page 2
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
I, John W. Dietrich, certify that:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
d) Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: May 5, 2022 |
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/s/ John W. Dietrich |
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John W. Dietrich |
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President and Chief Executive Officer |
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
I, Spencer Schwartz, certify that:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
d) Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: May 5, 2022 |
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/s/ Spencer Schwartz |
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Spencer Schwartz |
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Executive Vice President and Chief Financial Officer |
Exhibit 32.1
Section 1350 Certifications
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Atlas Air Worldwide Holdings, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022 as filed with the Securities and Exchange Commission (the “Report”), we, John W. Dietrich and Spencer Schwartz, Chief Executive Officer and Chief Financial Officer, respectively, of the Company certify that to our knowledge:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 5, 2022
/s/ John W. Dietrich |
John W. Dietrich |
President and Chief Executive Officer |
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/s/ Spencer Schwartz |
Spencer Schwartz |
Executive Vice President and Chief Financial Officer |