cover
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 September 30, 2019
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.) |
|
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2000 Westchester Avenue, Purchase, New York |
|
10577 |
(Address of principal executive offices) |
|
(Zip Code) |
(914) 701-8000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
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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 October 25, 2019, there were 25,870,876 shares of the registrant’s Common Stock outstanding.
TABLE OF CONTENTS
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Item 1. |
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3 |
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Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (unaudited) |
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3 |
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4 |
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5 |
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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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22 |
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Item 3. |
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36 |
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Item 4. |
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36 |
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Item 1. |
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37 |
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Item 1A. |
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37 |
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Item 6. |
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37 |
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38 |
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39 |
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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September 30, 2019 |
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December 31, 2018 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
70,327 |
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$ |
221,501 |
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Short-term investments |
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2,129 |
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15,624 |
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Restricted cash |
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10,376 |
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11,240 |
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Accounts receivable, net of allowance of $1,521 and $1,563, respectively |
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264,752 |
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269,320 |
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Prepaid expenses and other current assets |
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82,505 |
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112,146 |
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Total current assets |
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430,089 |
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629,831 |
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Property and Equipment |
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Flight equipment |
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5,377,985 |
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5,213,734 |
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Ground equipment |
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87,282 |
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75,939 |
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Less: accumulated depreciation |
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(1,020,278 |
) |
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(860,354 |
) |
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Flight equipment modifications in progress |
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88,632 |
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32,916 |
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Property and equipment, net |
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4,533,621 |
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4,462,235 |
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Other Assets |
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Operating lease right-of-use assets |
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520,063 |
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- |
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Deferred costs and other assets |
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403,871 |
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345,037 |
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Intangible assets, net and goodwill |
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81,590 |
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97,689 |
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Total Assets |
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$ |
5,969,234 |
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$ |
5,534,792 |
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Liabilities and Equity |
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Current Liabilities |
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Accounts payable |
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$ |
90,850 |
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$ |
87,229 |
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Accrued liabilities |
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522,694 |
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465,669 |
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Current portion of long-term debt and finance lease |
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341,807 |
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264,835 |
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Current portion of long-term operating leases |
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141,362 |
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- |
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Total current liabilities |
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1,096,713 |
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817,733 |
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Other Liabilities |
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Long-term debt and finance lease |
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2,031,642 |
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2,205,005 |
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Long-term operating leases |
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427,459 |
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- |
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Deferred taxes |
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186,599 |
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256,970 |
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Financial instruments and other liabilities |
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33,529 |
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187,120 |
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Total other liabilities |
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2,679,229 |
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2,649,095 |
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Commitments and contingencies |
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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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- |
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- |
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Common stock, $0.01 par value; 100,000,000 shares authorized; 31,043,847 and 30,582,571 shares issued, 25,867,423 and 25,590,293 shares outstanding (net of treasury stock), as of September 30, 2019 and December 31, 2018, respectively |
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310 |
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306 |
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Additional paid-in-capital |
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752,790 |
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736,035 |
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Treasury stock, at cost; 5,176,424 and 4,992,278 shares, respectively |
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(213,837 |
) |
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(204,501 |
) |
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Accumulated other comprehensive loss |
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(3,059 |
) |
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(3,832 |
) |
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Retained earnings |
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1,657,088 |
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1,539,956 |
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Total stockholders’ equity |
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2,193,292 |
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2,067,964 |
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Total Liabilities and Equity |
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$ |
5,969,234 |
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$ |
5,534,792 |
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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)
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For the Three Months Ended |
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For the Nine Months Ended |
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September 30, 2019 |
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September 30, 2018 |
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September 30, 2019 |
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September 30, 2018 |
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Operating Revenue |
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$ |
648,539 |
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$ |
656,607 |
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$ |
1,992,140 |
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$ |
1,912,766 |
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Operating Expenses |
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Salaries, wages and benefits |
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145,987 |
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138,345 |
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432,911 |
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392,603 |
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Aircraft fuel |
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123,132 |
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119,604 |
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351,611 |
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345,613 |
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Maintenance, materials and repairs |
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88,240 |
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88,136 |
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305,331 |
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261,251 |
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Depreciation and amortization |
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62,499 |
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55,417 |
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190,669 |
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155,881 |
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Travel |
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49,110 |
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41,605 |
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140,513 |
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123,810 |
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Aircraft rent |
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40,048 |
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39,973 |
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122,271 |
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119,778 |
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Navigation fees, landing fees and other rent |
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32,270 |
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43,258 |
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110,468 |
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116,553 |
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Passenger and ground handling services |
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34,453 |
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28,716 |
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97,138 |
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86,980 |
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Special charge, net |
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18,861 |
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- |
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22,130 |
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9,374 |
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Transaction-related expenses |
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324 |
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765 |
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3,585 |
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1,275 |
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Other |
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54,494 |
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46,318 |
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160,548 |
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143,663 |
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Total Operating Expenses |
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649,418 |
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602,137 |
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1,937,175 |
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1,756,781 |
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Operating (Loss) Income |
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(879 |
) |
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54,470 |
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54,965 |
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155,985 |
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Non-operating Expenses (Income) |
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Interest income |
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(653 |
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(1,592 |
) |
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(3,975 |
) |
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(4,704 |
) |
Interest expense |
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30,117 |
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31,115 |
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90,515 |
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87,639 |
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Capitalized interest |
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(853 |
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(1,120 |
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(1,943 |
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(4,335 |
) |
Loss on early extinguishment of debt |
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559 |
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- |
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804 |
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- |
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Unrealized (gain) loss on financial instruments |
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(83,175 |
) |
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(46,080 |
) |
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(78,900 |
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11,691 |
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Other (income) expense, net |
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1,434 |
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975 |
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(596 |
) |
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(10,777 |
) |
Total Non-operating Expenses (Income) |
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(52,571 |
) |
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(16,702 |
) |
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5,905 |
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79,514 |
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Income from continuing operations before income taxes |
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51,692 |
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71,172 |
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49,060 |
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76,471 |
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Income tax (benefit) expense |
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(8,282 |
) |
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34 |
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(68,072 |
) |
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16,828 |
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Income from continuing operations, net of taxes |
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59,974 |
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71,138 |
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117,132 |
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59,643 |
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Loss from discontinued operations, net of taxes |
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- |
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|
(7 |
) |
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- |
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(50 |
) |
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Net Income |
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$ |
59,974 |
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$ |
71,131 |
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$ |
117,132 |
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$ |
59,593 |
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Earnings per share from continuing operations: |
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Basic |
|
$ |
2.32 |
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$ |
2.78 |
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$ |
4.54 |
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$ |
2.34 |
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Diluted |
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$ |
2.32 |
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$ |
0.84 |
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$ |
1.34 |
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$ |
2.27 |
|
Loss per share from discontinued operations: |
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Basic |
|
$ |
- |
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$ |
(0.00 |
) |
|
$ |
- |
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|
$ |
(0.00 |
) |
Diluted |
|
$ |
- |
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$ |
(0.00 |
) |
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$ |
- |
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$ |
(0.00 |
) |
Earnings per share: |
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Basic |
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$ |
2.32 |
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$ |
2.78 |
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$ |
4.54 |
|
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$ |
2.33 |
|
Diluted |
|
$ |
2.32 |
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$ |
0.84 |
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$ |
1.34 |
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$ |
2.27 |
|
Weighted average shares: |
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Basic |
|
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25,854 |
|
|
|
25,575 |
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|
25,814 |
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|
25,526 |
|
Diluted |
|
|
25,854 |
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|
28,747 |
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|
26,909 |
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|
26,274 |
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|
See accompanying Notes to Unaudited Consolidated Financial Statements
4
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(Unaudited)
|
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For the Three Months Ended |
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For the Nine Months Ended |
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September 30, 2019 |
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September 30, 2018 |
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September 30, 2019 |
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|
September 30, 2018 |
|
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Net Income |
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$ |
59,974 |
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$ |
71,131 |
|
|
$ |
117,132 |
|
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$ |
59,593 |
|
Other comprehensive income: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to interest expense |
|
|
331 |
|
|
|
370 |
|
|
|
1,012 |
|
|
|
1,120 |
|
Income tax expense |
|
|
(78 |
) |
|
|
(88 |
) |
|
|
(239 |
) |
|
|
(265 |
) |
Other comprehensive income |
|
|
253 |
|
|
|
282 |
|
|
|
773 |
|
|
|
855 |
|
Comprehensive Income |
|
$ |
60,227 |
|
|
$ |
71,413 |
|
|
$ |
117,905 |
|
|
$ |
60,448 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
5
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
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For the Nine Months Ended |
|
|||||
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
||
|
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|
|
Operating Activities: |
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
$ |
117,132 |
|
|
$ |
59,643 |
|
Less: Loss from discontinued operations, net of taxes |
|
|
- |
|
|
|
(50 |
) |
Net Income |
|
|
117,132 |
|
|
|
59,593 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile Net Income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
241,284 |
|
|
|
189,682 |
|
Accretion of debt securities discount |
|
|
(237 |
) |
|
|
(719 |
) |
Provision for allowance for doubtful accounts |
|
|
(83 |
) |
|
|
40 |
|
Loss on early extinguishment of debt |
|
|
804 |
|
|
|
- |
|
Special charge, net of cash payments |
|
|
22,130 |
|
|
|
9,374 |
|
Unrealized loss (gain) on financial instruments |
|
|
(78,900 |
) |
|
|
11,691 |
|
Deferred taxes |
|
|
(68,552 |
) |
|
|
16,453 |
|
Stock-based compensation |
|
|
16,553 |
|
|
|
15,376 |
|
Changes in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
1,397 |
|
|
|
(59,058 |
) |
Prepaid expenses, current assets and other assets |
|
|
(69,254 |
) |
|
|
(34,483 |
) |
Accounts payable and accrued liabilities |
|
|
11,016 |
|
|
|
56,174 |
|
Net cash provided by operating activities |
|
|
193,290 |
|
|
|
264,123 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(107,594 |
) |
|
|
(84,819 |
) |
Payments for flight equipment and modifications |
|
|
(153,706 |
) |
|
|
(543,342 |
) |
Proceeds from insurance |
|
|
38,133 |
|
|
|
- |
|
Proceeds from investments |
|
|
14,367 |
|
|
|
9,461 |
|
Net cash used for investing activities |
|
|
(208,800 |
) |
|
|
(618,700 |
) |
Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from debt issuance |
|
|
93,723 |
|
|
|
400,471 |
|
Payment of debt issuance costs |
|
|
(1,316 |
) |
|
|
(6,632 |
) |
Payments of debt and finance lease obligations |
|
|
(273,142 |
) |
|
|
(180,722 |
) |
Proceeds from revolving credit facility |
|
|
50,000 |
|
|
|
135,000 |
|
Payment of revolving credit facility |
|
|
- |
|
|
|
(60,000 |
) |
Customer maintenance reserves and deposits received |
|
|
11,717 |
|
|
|
11,520 |
|
Customer maintenance reserves paid |
|
|
(8,174 |
) |
|
|
- |
|
Purchase of treasury stock |
|
|
(9,336 |
) |
|
|
(10,769 |
) |
Net cash provided by (used for) financing activities |
|
|
(136,528 |
) |
|
|
288,868 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
|
(152,038 |
) |
|
|
(65,709 |
) |
Cash, cash equivalents and restricted cash at the beginning of period |
|
|
232,741 |
|
|
|
291,864 |
|
Cash, cash equivalents and restricted cash at the end of period |
|
$ |
80,703 |
|
|
$ |
226,155 |
|
|
|
|
|
|
|
|
|
|
Noncash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of flight equipment included in Accounts payable and accrued liabilities |
|
$ |
55,610 |
|
|
$ |
42,826 |
|
Acquisition of property and equipment acquired under operating leases |
|
$ |
21,969 |
|
|
$ |
- |
|
Acquisition of flight equipment under capital lease |
|
$ |
10,825 |
|
|
$ |
- |
|
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 September 30, 2019 |
|
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Total |
|
|||
|
|
Common |
|
|
Treasury |
|
|
Paid-In |
|
|
Accumulated Other |
|
|
Retained |
|
|
Stockholders' |
|
|||||||
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Comprehensive Loss |
|
|
Earnings |
|
|
Equity |
|
|||||||
Balance at June 30, 2019 |
|
$ |
310 |
|
|
$ |
(213,728 |
) |
|
$ |
746,725 |
|
|
$ |
(3,312 |
) |
|
$ |
1,597,114 |
|
|
$ |
2,127,109 |
|
|
Net Income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
59,974 |
|
|
|
59,974 |
|
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
253 |
|
|
|
- |
|
|
|
253 |
|
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
6,527 |
|
|
|
- |
|
|
|
- |
|
|
|
6,527 |
|
|
Customer warrant |
|
|
- |
|
|
|
- |
|
|
|
(462 |
) |
|
|
- |
|
|
|
- |
|
|
|
(462 |
) |
|
Purchase of 4,064 shares of treasury stock |
|
|
- |
|
|
|
(109 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(109 |
) |
|
Issuance of 17,347 shares of restricted stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Balance at September 30, 2019 |
|
$ |
310 |
|
|
$ |
(213,837 |
) |
|
$ |
752,790 |
|
|
$ |
(3,059 |
) |
|
$ |
1,657,088 |
|
|
$ |
2,193,292 |
|
|
|
As of and for the Three Months Ended September 30, 2018 |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Total |
|
||
|
|
Common |
|
|
Treasury |
|
|
Paid-In |
|
|
Accumulated Other |
|
|
Retained |
|
|
Stockholders' |
|
||||||
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Comprehensive Loss |
|
|
Earnings |
|
|
Equity |
|
||||||
Balance at June 30, 2018 |
|
$ |
306 |
|
|
$ |
(204,051 |
) |
|
$ |
726,357 |
|
|
$ |
(4,390 |
) |
|
$ |
1,257,851 |
|
|
$ |
1,776,073 |
|
Net Income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
71,131 |
|
|
|
71,131 |
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
282 |
|
|
|
- |
|
|
|
282 |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
4,749 |
|
|
|
- |
|
|
|
- |
|
|
|
4,749 |
|
Purchase of 7,082 shares of treasury stock |
|
|
- |
|
|
|
(450 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(450 |
) |
Balance at September 30, 2018 |
|
$ |
306 |
|
|
$ |
(204,501 |
) |
|
$ |
731,106 |
|
|
$ |
(4,108 |
) |
|
$ |
1,328,982 |
|
|
$ |
1,851,785 |
|
|
|
As of and for the Nine Months Ended September 30, 2019 |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Total |
|
||
|
|
Common |
|
|
Treasury |
|
|
Paid-In |
|
|
Accumulated Other |
|
|
Retained |
|
|
Stockholders' |
|
||||||
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Comprehensive Loss |
|
|
Earnings |
|
|
Equity |
|
||||||
Balance at December 31, 2018 |
|
$ |
306 |
|
|
$ |
(204,501 |
) |
|
$ |
736,035 |
|
|
$ |
(3,832 |
) |
|
$ |
1,539,956 |
|
|
$ |
2,067,964 |
|
Net Income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
117,132 |
|
|
|
117,132 |
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
773 |
|
|
|
- |
|
|
|
773 |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
16,553 |
|
|
|
- |
|
|
|
- |
|
|
|
16,553 |
|
Customer warrant |
|
|
- |
|
|
|
- |
|
|
|
206 |
|
|
|
- |
|
|
|
- |
|
|
|
206 |
|
Purchase of 184,146 shares of treasury stock |
|
|
- |
|
|
|
(9,336 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9,336 |
) |
Issuance of 461,276 shares of restricted stock |
|
|
4 |
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance at September 30, 2019 |
|
$ |
310 |
|
|
$ |
(213,837 |
) |
|
$ |
752,790 |
|
|
$ |
(3,059 |
) |
|
$ |
1,657,088 |
|
|
$ |
2,193,292 |
|
|
|
As of and for the Nine Months Ended September 30, 2018 |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Total |
|
||
|
|
Common |
|
|
Treasury |
|
|
Paid-In |
|
|
Accumulated Other |
|
|
Retained |
|
|
Stockholders' |
|
||||||
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Comprehensive Loss |
|
|
Earnings |
|
|
Equity |
|
||||||
Balance at December 31, 2017 |
|
$ |
301 |
|
|
$ |
(193,732 |
) |
|
$ |
715,735 |
|
|
$ |
(3,993 |
) |
|
$ |
1,271,545 |
|
|
$ |
1,789,856 |
|
Net Income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
59,593 |
|
|
|
59,593 |
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
855 |
|
|
|
- |
|
|
|
855 |
|
Cumulative effect of change in accounting principle |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,126 |
) |
|
|
(3,126 |
) |
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
15,376 |
|
|
|
- |
|
|
|
- |
|
|
|
15,376 |
|
Purchase of 180,084 shares of treasury stock |
|
|
- |
|
|
|
(10,769 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10,769 |
) |
Issuance of 477,923 shares of restricted stock |
|
|
5 |
|
|
|
- |
|
|
|
(5 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Reclassification of tax effect on other comprehensive loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(970 |
) |
|
|
970 |
|
|
|
- |
|
Balance at September 30, 2018 |
|
$ |
306 |
|
|
$ |
(204,501 |
) |
|
$ |
731,106 |
|
|
$ |
(4,108 |
) |
|
$ |
1,328,982 |
|
|
$ |
1,851,785 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
7
Atlas Air Worldwide Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
September 30, 2019
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 Atlas Air, Inc. (“Atlas”) and Southern Air Holdings, Inc. (“Southern Air”). AAWW is also the parent company of several subsidiaries related to our dry leasing services (collectively referred to as “Titan”). AAWW 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.
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”), as well as those through which we provide crew, maintenance and insurance, but not the aircraft (“CMI”); (ii) cargo and passenger charter services (“Charter”); and (iii) 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, 2018, which includes additional disclosures and a summary of our significant accounting policies. The December 31, 2018 balance sheet data was derived from that Annual Report. In our opinion, the Financial Statements contain all adjustments, consisting of normal recurring items, necessary to fairly state the financial position of AAWW and its consolidated subsidiaries as of September 30, 2019, the results of operations for the three and nine months ended September 30, 2019 and 2018, comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018, cash flows for the nine months ended September 30, 2019 and 2018, and shareholders’ equity as of and for the three and nine months ended September 30, 2019 and 2018.
Our quarterly results are subject to seasonal and other fluctuations, 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
Warrant Liability
Common stock warrants classified as a liability are marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized (gain) loss on financial instruments. We utilize a Monte Carlo simulation approach to estimate the fair value of the warrant liability, which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility and risk-free interest rate, among others. Our earnings are affected by changes in our common stock price due to the impact those changes have on the fair value of our warrant liability (see Note 4 to our Financial Statements).
Heavy Maintenance
Except for engines used on our 747-8F aircraft, we account for heavy maintenance costs for airframes and engines used in our ACMI and Charter segments 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.
We account for heavy maintenance costs for airframes and engines used in our Dry Leasing segment and engines used on our 747-8F aircraft using the deferral method. Under this method, we defer the expense recognition of scheduled heavy maintenance events, which are amortized over the estimated period until the next scheduled heavy maintenance event is required. Amortization of deferred maintenance expense included in Depreciation and amortization was $5.5 million and $3.3 million for the three months ended September 30, 2019 and 2018, respectively and was $15.2 million and $8.6 million for the nine months ended September 30, 2019 and 2018, respectively.
8
Deferred maintenance included within Deferred costs and other assets is as follows:
|
|
Deferred |
|
|
|
|
Maintenance |
|
|
Balance as of December 31, 2018 |
|
$ |
103,647 |
|
Deferred maintenance costs |
|
|
106,299 |
|
Disposals |
|
|
(1,551 |
) |
Amortization of deferred maintenance |
|
|
(15,188 |
) |
Balance as of September 30, 2019 |
|
$ |
193,207 |
|
Recent Accounting Pronouncements Adopted in 2019
In February 2016, the Financial Accounting Standards Board (“FASB”) amended its accounting guidance for leases. Subsequently, the FASB issued several clarifications and updates. The guidance requires a lessee to recognize assets and liabilities on the balance sheet arising from leases with terms greater than 12 months. While lessor accounting guidance is relatively unchanged, certain amendments were made to conform with changes made to lessee accounting and the amended revenue recognition guidance. The new guidance continues to classify leases as either finance or operating, with classification affecting the presentation and pattern of expense and income recognition, in the statement of operations. It also requires additional quantitative and qualitative disclosures about leasing arrangements. We adopted the new guidance on January 1, 2019 using the modified retrospective approach, which was applied beginning on the adoption date. Comparative information has not been restated and continues to be reported under the accounting guidance in effect for those periods. The adoption did not have a material effect on our consolidated statements of operations or cash flows. We recognized operating lease right-of-use assets, net of pre-existing deferred rent and operating lease intangibles, and operating lease liabilities on our consolidated balance sheets of approximately $596.9 million and $650.0 million, respectively, on the adoption date (see Note 8 to our Financial Statements).
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.
The following table summarizes our transactions with Polar:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
Revenue and Expenses: |
|
September 30, 2019 |
|
|
September 30, 2018 |
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
||||
Revenue from Polar |
|
$ |
84,957 |
|
|
$ |
99,671 |
|
|
$ |
283,313 |
|
|
$ |
305,401 |
|
Ground handling and airport fees to Polar |
|
|
568 |
|
|
|
841 |
|
|
|
1,631 |
|
|
|
2,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable/payable as of: |
|
September 30, 2019 |
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
||
Receivables from Polar |
|
$ |
1,145 |
|
|
$ |
16,349 |
|
|
|
|
|
|
|
|
|
Payables to Polar |
|
|
7,277 |
|
|
|
2,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Carrying Value of Polar Investment as of: |
|
September 30, 2019 |
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
||
Aggregate Carrying Value of Polar Investment |
|
$ |
4,870 |
|
|
$ |
4,870 |
|
|
|
|
|
|
|
|
|
In addition to the amounts in the table above, Atlas recognized revenue of $23.8 million and $34.3 million for the three months ended September 30, 2019 and 2018, respectively, and $70.2 million and $70.9 million for the nine months ended September 30, 2019 and 2018, respectively, from flying on behalf of Polar.
GATS
We hold a 50% interest in GATS GP (BVI) Ltd. (“GATS”), a joint venture with an unrelated third party. As of September 30, 2019 and December 31, 2018, our investment in GATS was $20.7 million and $22.3 million, respectively. We had Accounts payable to GATS of $1.1 million as of September 30, 2019 and $0.5 million as of December 31, 2018.
9
4. Amazon
In May 2016, we entered into certain agreements with Amazon.com, Inc. and its subsidiary, Amazon Fulfillment Services, Inc., (collectively “Amazon”), which involves, 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). Between August 2016 and November 2018, we placed all 20 767-300 freighter aircraft into service for Amazon. In February 2019, the number of 767-300 freighters in CMI and Dry Lease service for Amazon was reduced to 19 with the loss of an aircraft. In September 2019, the number of 767-300 freighters in CMI service for Amazon was reduced to 17 with the early termination of CMI services for two aircraft.
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, after giving effect to the issuance of shares pursuant to the warrants, at an exercise price of $37.50 per share (“Warrant A”). As of December 31, 2018, this warrant to purchase 7.5 million shares had vested in full. Warrant A is exercisable in accordance with its terms through 2021. As of September 30, 2019, no portion of Warrant A has been exercised.
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, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $37.50 per share (“Warrant B”). This warrant to purchase 3.75 million shares will vest in increments of 37,500 shares 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 September 30, 2019, 37,500 shares of Warrant B have vested. Upon vesting, Warrant B becomes exercisable in accordance with its terms through May 2023. As of September 30, 2019, no portion of Warrant B has been exercised.
In March 2019, we amended the agreements entered into in 2016 with Amazon, pursuant to which we will provide CMI services using Boeing 737-800 freighter aircraft provided by Amazon. The 737-800 CMI operations will be 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 September 30, 2019, the first four of five 737-800 freighter aircraft entered CMI service and the fifth aircraft is expected to enter service during the fourth quarter of 2019. Amazon may, in its sole discretion, place up to 15 additional 737-800 freighter aircraft into service with us by May 31, 2021.
In connection with the amended agreements, we granted Amazon a warrant to acquire up to an additional 9.9% of our outstanding common shares, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $52.90 per share (“Warrant C”). When combined with Warrant A and Warrant B, this would allow Amazon to acquire up to a total of 39.9% (after the issuance) of our outstanding common shares and Amazon would be entitled to vote the shares it owns up to 14.9% of our outstanding common shares, in its discretion. Amazon 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. After Warrant B has vested in full, this warrant to purchase 6.6 million shares would vest in increments of 45,428 shares 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 September 30, 2019, no portion of Warrant C has vested. Upon vesting, Warrant C would become exercisable in accordance with its terms through March 2026.
At the time of vesting, the fair value of the vested portion of the warrants issued to Amazon is recorded as a warrant liability within Financial instruments and other liabilities (the “Amazon Warrant”). The initial fair value of the vested portion of Warrant A was recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of revenue recognized over the terms of the Dry Leases and CMI agreements. Determining the amount of amortization related to the CMI agreements requires significant judgment to estimate the total number of Block Hours expected over the terms of those agreements.
When it becomes probable that an increment of either Warrant B or C will vest and the related revenue begins to be recognized, the fair value of such portion is recorded as Additional paid-in-capital. The initial fair value of such increment is also recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of related revenue recognized. At the time of vesting, the amount recorded in Additional paid-in-capital would be reclassified to the Amazon Warrant liability.
We amortized $12.8 million and $4.1 million of the customer incentive asset for the three months ended September 30, 2019 and 2018, respectively. We amortized $26.0 million and $10.0 million of the customer incentive asset for the nine months ended September 30, 2019 and 2018, respectively. Amortization of the customer incentive asset for the three and nine months ended September 30, 2019 included $6.4 million of accelerated amortization related to a 767-300 aircraft that is no longer in CMI service.
10
Customer incentive asset included within Deferred costs and other assets is as follows:
Balance at December 31, 2018 |
|
$ |
184,720 |
|
Initial value for estimate of vested or expected to vest warrants |
|
|
413 |
|
Amortization of customer incentive asset |
|
|
(26,018 |
) |
Balance at September 30, 2019 |
|
$ |
159,115 |
|
The Amazon Warrant liability is marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized (gain) loss on financial instruments. We recognized net unrealized gains of $83.2 million and $78.9 million on the Amazon Warrant during the three and nine months ended September 30, 2019, respectively. We recognized a net unrealized gain of $46.1 million and a net unrealized loss of $11.7 million on the Amazon Warrant during the three and nine months ended September 30, 2018, respectively. The fair value of the Amazon Warrant liability was $20.3 million as of September 30, 2019 and $99.0 million as of December 31, 2018.
5. Supplemental Balance Sheet and Cash Flow Information
Accounts Receivable
Accounts receivable, net of allowance related to customer contracts, excluding Dry Leasing contracts, was $216.3 million as of September 30, 2019 and $227.1 million as of December 31, 2018.
Accrued Liabilities
Accrued liabilities consisted of the following as of:
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
Maintenance |
|
$ |
186,946 |
|
|
$ |
133,337 |
|
Customer maintenance reserves |
|
|
107,790 |
|
|
|
104,454 |
|
Salaries, wages and benefits |
|
|
52,517 |
|
|
|
82,809 |
|
Aircraft fuel |
|
|
35,636 |
|
|
|
32,641 |
|
Deferred revenue |
|
|
41,808 |
|
|
|
26,584 |
|
Other |
|
|
97,997 |
|
|
|
85,844 |
|
Accrued liabilities |
|
$ |
522,694 |
|
|
$ |
465,669 |
|
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 our Revenue contract liability balances during the nine months ended September 30, 2019 were as follows:
Balance as of December 31, 2018 |
|
$ |
13,007 |
|
Revenue recognized |
|
|
(105,359 |
) |
Amounts collected or invoiced |
|
|
122,474 |
|
Balance as of September 30, 2019 |
|
$ |
30,122 |
|
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:
|
|
September 30, 2019 |
|
|
December 31, 2018 |
|
||
Cash and cash equivalents |
|
$ |
70,327 |
|
|
$ |
221,501 |
|
Restricted cash |
|
|
10,376 |
|
|
|
11,240 |
|
Total Cash, cash equivalents and restricted cash shown in Consolidated Statements of Cash Flows |
|
$ |
80,703 |
|
|
$ |
232,741 |
|
11
6. Special Charge
During the three months ended September 30, 2019, we recognized a Special charge, net primarily related to $19.6 million of impairment losses for four CF6-80 engines being disposed of and the permanent parking of two 737-400 passenger aircraft used for training purposes. During the nine months ended September 30, 2018, we recognized $9.4 million of impairment losses for five CF6-80 engines traded in as part of our engine acquisition program.
7. Debt
Term Loans
In August 2019, we refinanced a higher-rate secured term loan with a new $74.0 million lower-rate secured five-year term loan with a final payment of $32.0 million due in August 2024 (the “Second 2019 Term Loan”) for spare GEnx engines. The Second 2019 Term Loan contains customary covenants, events of default and accrues interest at a fixed rate of 2.98%, with principal and interest payable quarterly. In connection with the refinancing, we recognized a $0.6 million loss on early extinguishment of debt.
In March 2019, we borrowed $19.7 million under an unsecured five-year term loan due in March 2024 (the “First 2019 Term Loan”) for GEnx engine performance upgrade kits and overhauls. The First 2019 Term Loan contains customary covenants, events of default and accrues interest at a fixed rate of 2.73%, with principal and interest payable quarterly.
In March 2019, we received $41.1 million in proceeds from insurance related to the loss of a 767-300 freighter aircraft and used $20.7 million of the proceeds to repay two term loans related to the aircraft. In connection with the repayment, we recognized a $0.2 million loss on early of extinguishment of debt. During the nine months ended September 30, 2019, we also recognized a net insurance recovery of $3.6 million resulting from the excess of insurance proceeds over the carrying amount of the aircraft and other related costs within Other income, net.
Convertible Notes
In May 2017, we issued $289.0 million aggregate principal amount of 1.875% convertible senior notes that mature on June 1, 2024 (the “2017 Convertible Notes”) in an underwritten public offering. In June 2015, we issued $224.5 million aggregate principal amount of 2.25% convertible senior notes that mature on June 1, 2022 (the “2015 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.
The Convertible Notes consisted of the following as of September 30, 2019:
|
|
2017 Convertible Notes |
|
|
2015 Convertible Notes |
|
||
Remaining life in months |
|
|
56 |
|
|
|
32 |
|
Liability component: |
|
|
|
|
|
|
|
|
Gross proceeds |
|
$ |
289,000 |
|
|
$ |
224,500 |
|
Less: debt discount, net of amortization |
|
|
(49,883 |
) |
|
|
(23,013 |
) |
Less: debt issuance cost, net of amortization |
|
|
(3,896 |
) |
|
|
(2,151 |
) |
Net carrying amount |
|
$ |
235,221 |
|
|
$ |
199,336 |
|
|
|
|
|
|
|
|
|
|
Equity component (1) |
|
$ |
70,140 |
|
|
$ |
52,903 |
|
|
(1) |
Included in Additional paid-in capital on the consolidated balance sheet as of September 30, 2019. |
The following table presents the amount of interest expense recognized related to the Convertible Notes:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
||||
Contractual interest coupon |
|
$ |
2,618 |
|
|
$ |
2,618 |
|
|
$ |
7,853 |
|
|
$ |
7,853 |
|
Amortization of debt discount |
|
|
4,253 |
|
|
|
3,994 |
|
|
|
12,560 |
|
|
|
11,798 |
|
Amortization of debt issuance costs |
|
|
379 |
|
|
|
397 |
|
|
|
1,126 |
|
|
|
1,119 |
|
Total interest expense recognized |
|
$ |
7,250 |
|
|
$ |
7,009 |
|
|
$ |
21,539 |
|
|
$ |
20,770 |
|
12
Revolving Credit Facility
In December 2018, we amended and extended our previous three-year $150.0 million secured revolving credit facility into a new four-year $200.0 million secured revolving credit facility (the “Revolver”). As of September 30, 2019, there was $50.0 million outstanding and we had $136.8 million of unused availability under the Revolver, based on the collateral borrowing base. In October 2019, we drew an additional $25.0 million under the Revolver.
8. Leases and Guarantees
Adoption
We adopted the new lease accounting guidance using the modified retrospective method and applied it to all leases based on the contract terms in effect as of January 1, 2019. For existing contracts, we carried forward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.
Although our performance obligations under ACMI contracts include the provision of aircraft to customers, we do not separate any potential aircraft lease components from the nonlease components of these contracts as the provision of the crew, maintenance and insurance components are, in the aggregate, the predominant components. Such contracts are accounted for in their entirety under the amended guidance for revenue recognition.
Lessee
As of September 30, 2019, we lease 21 aircraft, of which 19 are operating leases. Lease expirations for our leased aircraft range from March 2020 to June 2032. In addition, we lease a variety of office space, airport station locations, warehouse space, vehicles and equipment, with lease expirations ranging from November 2019 to May 2027. We also incur variable rental costs for aircraft, engines, ground equipment and storage space based on usage of the underlying equipment or property. For leases with terms greater than 12 months, including renewal options when appropriate, we record the related right-of-use asset and lease liability as the present value of fixed lease payments over the lease term. Since our leases do not typically provide a readily determinable discount rate, we use our incremental borrowing rate to discount lease payments to present value.
The following table presents the lease-related assets and liabilities recorded on the consolidated balance sheet:
|
Classification on the Consolidated Balance Sheets |
|
September 30, 2019 |
|
|
Assets |
|
|
|
|
|
Operating lease right-of-use assets |
Operating lease right-of-use assets |
|
$ |
520,063 |
|
Finance lease assets |
Property and equipment, net |
|
|
41,245 |
|
Less: Accumulated amortization on finance lease assets |
Property and equipment, net |
|
|
(5,144 |
) |
Total lease assets |
|
|
$ |
556,164 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Current |
|
|
|
|
|
Operating lease liabilities |
Current portion of long-term operating leases |
|
$ |
141,362 |
|
Finance lease liabilities |
Current portion of long-term debt and finance lease |
|
|
11,399 |
|
Noncurrent |
|
|
|
|
|
Operating lease liabilities |
Long-term operating leases |
|
|
427,459 |
|
Finance lease liabilities |
Long-term debt and finance lease |
|
|
29,816 |
|
Total lease liabilities |
|
|
$ |
610,036 |
|
|
|
|
|
|
Weighted Average Remaining Lease Term in years |
|
|
|
|
Operating Leases |
|
|
4.15 |
|
Finance Leases |
|
|
9.68 |
|
Weighted Average Discount Rate |
|
|
|
|
Operating Leases |
|
|
4.53 |
% |
Finance Leases |
|
|
15.73 |
% |
The following table presents information related to lease costs for finance and operating leases:
13
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||
|
|
September 30, 2019 |
|
|
September 30, 2019 |
|
||
Fixed operating lease costs (1) |
|
$ |
39,976 |
|
|
$ |
120,056 |
|
Variable operating lease costs (1) |
|
|
4,083 |
|
|
|
13,381 |
|
Finance lease costs: |
|
|
|
|
|
|
|
|
Amortization of leased assets |
|
|
636 |
|
|
|
1,633 |
|
Interest on lease liabilities |
|
|
1,380 |
|
|
|
4,052 |
|
Total lease cost |
|
$ |
46,075 |
|
|
$ |
139,122 |
|
|
(1) |
Expenses are classified within Aircraft rent and Navigation fees, landing fees and other rent on the consolidated statement of operations. Short-term lease contracts are not material. |
The table below presents supplemental cash flow information related to leases as follows:
|
|
|
|
For the Nine Months Ended |
|
|
|
|
|
|
September 30, 2019 |
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
Operating cash flows for operating leases |
|
|
|
$ |
124,319 |
|
Operating cash flows for finance lease |
|
|
|
|
4,052 |
|
Financing cash flows for finance lease |
|
|
|
|
617 |
|
As of September 30, 2019, maturities of lease liabilities for the periods indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Finance |
|
|
|
|
|
||
|
|
Leases |
|
|
Lease |
|
|
Total |
|
|||
2019 |
|
$ |
43,103 |
|
|
$ |
2,007 |
|
|
$ |
45,110 |
|
2020 |
|
|
160,068 |
|
|
|
16,522 |
|
|
|
176,590 |
|
2021 |
|
|
167,623 |
|
|
|
6,000 |
|
|
|
173,623 |
|
2022 |
|
|
118,998 |
|
|
|
6,000 |
|
|
|
124,998 |
|
2023 |
|
|
66,502 |
|
|
|
6,000 |
|
|
|
72,502 |
|
Thereafter |
|
|
67,155 |
|
|
|
50,500 |
|
|
|
117,655 |
|
Total minimum rental payments |
|
|
623,449 |
|
|
|
87,029 |
|
|
|
710,478 |
|
Less: imputed interest |
|
|
54,628 |
|
|
|
45,814 |
|
|
|
100,442 |
|
Total |
|
$ |
568,821 |
|
|
$ |
41,215 |
|
|
$ |
610,036 |
|
As of September 30, 2019, the Company’s obligations for operating leases that have not yet commenced are immaterial. In October 2019, we entered into a long-term lease for a building with an expected operating lease liability of approximately $19.7 million that is expected to commence during the second half of 2020.
As of December 31, 2018, our minimum annual rental commitments for the periods indicated under operating leases with initial or remaining terms of more than one year were as follows:
|
|
Operating |
|
|
|
|
Leases |
|
|
2019 |
|
$ |
166,516 |
|
2020 |
|
|
159,383 |
|
2021 |
|
|
166,056 |
|
2022 |
|
|
115,591 |
|
2023 |
|
|
61,755 |
|
Thereafter |
|
|
53,430 |
|
Total |
|
$ |
722,731 |
|
Lessor
Our performance obligations under Dry Lease contracts involve the provision of aircraft and engines to customers for compensation that is typically based on a fixed monthly amount and all are accounted for as operating leases. We record Dry Lease
14
rental income on a straight-line basis over the term of the operating lease. Dry Lease rental income subject to adjustment based on an index is recognized on a straight-line basis over each adjustment period. Our Dry Leases do not contain purchase options, renewal options or residual guarantees. In addition, our Dry Leases typically do not contain early termination options. If they do, there are typically substantial termination penalties. Rentals received but unearned under the lease agreements are recorded in deferred revenue and included in Accrued liabilities until earned.
To manage our residual value risk, we require lessees to perform maintenance on the Dry Leased asset and they may also be required to make maintenance payments to us during or at the end of the lease term. When an aircraft is returned at the end of lease, if we choose not to re-lease or sell the returned aircraft, we typically have the ability to operate the aircraft in our ACMI and Charter segments.
Customer maintenance reserves are amounts received during the lease term that are subject to reimbursement to the lessee upon the completion of qualifying maintenance work on the specific Dry Leased asset and are included in Accrued liabilities. We defer revenue recognition for customer maintenance reserves until the end of the lease, when we are able to finalize the amount, if any, to be reimbursed to the lessee.
End of lease maintenance payments are amounts received upon return of the Dry Leased asset based on the utilization of the asset during the lease term. Such payments made to us are recognized as revenue at the end of the lease.
As of September 30, 2019, our contractual amount of minimum receipts, excluding taxes, for the periods indicated under Dry Leases reflecting the terms that were in effect were as follows:
2019 |
|
$ |
41,752 |
|
2020 |
|
|
166,985 |
|
2021 |
|
|
145,288 |
|
2022 |
|
|
137,604 |
|
2023 |
|
|
104,139 |
|
Thereafter |
|
|
246,466 |
|
Total minimum lease receipts |
|
$ |
842,234 |
|
As of December 31, 2018, our contractual amount of minimum receipts, excluding taxes, for the periods indicated under Dry Leases reflecting the terms that were in effect were as follows:
|
|
Dry Lease |
|
|
|
|
Income |
|
|
2019 |
|
$ |
180,366 |
|
2020 |
|
|
169,202 |
|
2021 |
|
|
148,413 |
|
2022 |
|
|
140,876 |
|
2023 |
|
|
107,248 |
|
Thereafter |
|
|
257,248 |
|
Total minimum lease receipts |
|
$ |
1,003,353 |
|
The net book value of flight equipment on Dry Lease to customers was $1,636.6 million as of September 30, 2019 and $1,717.5 million as of December 31, 2018. The accumulated depreciation for flight equipment on Dry Lease to customers was $288.2 million as of September 30, 2019 and $232.4 million as of December 31, 2018. See Note 11 to our Financial Statements for disclosure of our Dry Leasing segment revenue.
Guarantees and Indemnifications
In the ordinary course of business, we enter into numerous leasing and financing arrangements for real estate, equipment, aircraft and engines that have various guarantees included in the contracts. These guarantees are primarily in the form of indemnities. In both leasing and financing transactions, we typically indemnify the lessors and any financing parties against tort liabilities that arise out of the use, occupancy, manufacture, design, operation or maintenance of the leased premises or financed aircraft, regardless of whether these liabilities relate to the negligence of the indemnified parties. Currently, we believe that any future payments required under many of these guarantees or indemnities would be immaterial, as most tort liabilities and related indemnities are covered by insurance (subject to deductibles). However, payments under certain tax indemnities related to certain of our financing arrangements, if applicable, could be material, and would not be covered by insurance, although we believe that these payments are not probable. Certain leased premises, such as maintenance and storage facilities, typically include indemnities of such parties for any
15
environmental liability that may arise out of or relate to the use of the leased premises. We also provide standard indemnification agreements to officers and directors in the ordinary course of business.
Financings and Guarantees
Our financing arrangements typically contain a withholding tax provision that requires us to pay additional amounts to the applicable lender or other financing party, if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law. These increased costs and withholding tax provisions continue for the entire term of the applicable transaction and there is no limitation on the maximum additional amount we could be required to pay under such provisions. Any failure to pay amounts due under such provisions generally would trigger an event of default and, in a secured financing transaction, would entitle the lender to foreclose upon the collateral to realize the amount due.
9. Income Taxes
The income tax benefit for the three months ended September 30, 2019 differed from tax at the U.S. statutory rate primarily due to $18.2 million of tax benefit from nontaxable changes in the fair value of the customer warrant liability (see Note 4 to our Financial Statements). The income tax benefit for the nine months ended September 30, 2019 differed from tax at the U.S. statutory rate primarily due to $59.8 million of tax benefit related to the favorable completion of the IRS’s examination of our 2015 income tax return, and to a lesser extent, $17.3 million of tax benefit from nontaxable changes in the fair value of the customer warrant liability.
The income tax expense for the three and nine months ended September 30, 2018 differed from tax at the U.S. statutory rate due to $8.7 million of tax benefit from the remeasurement of our deferred income tax liability for Singapore. In addition, the income tax expense for the three and nine months ended September 30, 2018 differed from tax at the U.S. statutory rate due to changes in the fair value of the customer warrant liability (see Note 4 to our Financial Statements). This change resulted in $6.1 million of tax benefit for the three months ended September 30, 2018, and $11.8 million of tax expense for the nine months ended September 30, 2018.
10. 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; |
|
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, Short-term investments and Restricted cash is based on cost, which approximates fair value.
Long-term investments consist of debt securities, maturing within five years, for which we have both the ability and the intent to hold until maturity. These investments are classified as held-to-maturity and reported at amortized cost. The fair value of our Long-term investments is based on a discounted cash flow analysis using the contractual cash flows of the investments and a discount rate derived from unadjusted quoted interest rates for debt securities of comparable risk. Such debt securities represent investments in Pass-Through Trust Certificates related to enhanced equipment trust certificates (“EETCs”) issued by Atlas in 1998 and 1999.
Term loans and notes consist of term loans, notes guaranteed by the Export-Import Bank of the United States (“Ex-Im Bank”), the Revolver and EETCs. The fair values of these debt instruments 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 fair value of a customer warrant liability and certain long-term performance-based restricted shares are based on a Monte Carlo simulation which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility, and risk-free interest rate, among others.
16
The following table summarizes the carrying value, estimated fair value and classification of our financial instruments as of:
|
|
September 30, 2019 |
|
|||||||||||||||||
|
|
Carrying Value |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
70,327 |
|
|
$ |
70,327 |
|
|
$ |
70,327 |
|
|
$ |
- |
|
|
$ |
- |
|
Short-term investments |
|
|
2,129 |
|
|
|
2,129 |
|
|
|
- |
|
|
|
- |
|
|
|
2,129 |
|
Restricted cash |
|
|
10,376 |
|
|
|
10,376 |
|
|
|
10,376 |
|
|
|
- |
|
|
|
- |
|
|
|
$ |
82,832 |
|
|
$ |
82,832 |
|
|
$ |
80,703 |
|
|
$ |
- |
|
|
$ |
2,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans and notes |
|
$ |
1,888,893 |
|
|
$ |
2,016,272 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,016,272 |
|
Revolver |
|
|
50,000 |
|
|
|
51,208 |
|
|
|
- |
|
|
|
- |
|
|
|
51,208 |
|
Convertible notes (1) |
|
|
434,555 |
|
|
|
444,235 |
|
|
|
444,235 |
|
|
|
- |
|
|
|
- |
|
Customer warrant |
|
|
20,306 |
|
|
|
20,306 |
|
|
|
- |
|
|
|
20,306 |
|
|
|
- |
|
|
|
$ |
2,393,754 |
|
|
$ |
2,532,021 |
|
|
$ |
444,235 |
|
|
$ |
20,306 |
|
|
$ |
2,067,480 |
|
|
|
December 31, 2018 |
|
|||||||||||||||||
|
|
Carrying Value |
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
221,501 |
|
|
$ |
221,501 |
|
|
$ |
221,501 |
|
|
$ |
- |
|
|
$ |
- |
|
Short-term investments |
|
|
15,624 |
|
|
|
15,624 |
|
|
|
- |
|
|
|
- |
|
|
|
15,624 |
|
Restricted cash |
|
|
11,240 |
|
|
|
11,240 |
|
|
|
11,240 |
|
|
|
- |
|
|
|
- |
|
Long-term investments and accrued interest |
|
|
635 |
|
|
|
1,138 |
|
|
|
- |
|
|
|
- |
|
|
|
1,138 |
|
|
|
$ |
249,000 |
|
|
$ |
249,503 |
|
|
$ |
232,741 |
|
|
$ |
- |
|
|
$ |
16,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans and notes |
|
$ |
2,048,972 |
|
|
$ |
1,976,373 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,976,373 |
|
Convertible notes (1) |
|
|
420,868 |
|
|
|
490,070 |
|
|
|
490,070 |
|
|
|
- |
|
|
|
- |
|
Customer warrant |
|
|
99,000 |
|
|
|
99,000 |
|
|
|
- |
|
|
|
99,000 |
|
|
|
- |
|
|
|
$ |
2,568,840 |
|
|
$ |
2,565,443 |
|
|
$ |
490,070 |
|
|
$ |
99,000 |
|
|
$ |
1,976,373 |
|
(1) Carrying value is net of debt discounts and debt issuance costs (see Note 7 to our Financial Statements).
Gross unrealized gains on our long-term investments and accrued interest were $0.5 million at December 31, 2018.
11. Segment Reporting
Our business is organized into three operating segments based on our service offerings: ACMI, Charter and Dry Leasing. All segments 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 (“Direct Contribution”) that shows the profitability of each segment after allocation of direct operating and ownership costs. Direct Contribution represents Income (loss) from continuing operations before income taxes excluding the following: Special charge, Transaction-related expenses, nonrecurring items, Losses (gains) on the disposal of aircraft, Losses on early extinguishment of debt, Unrealized (gain) loss on financial instruments, and Unallocated expenses and (income), 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 and other non-operating costs, including certain contract start-up costs.
17
The following table sets forth Operating Revenue and Direct Contribution for our reportable segments reconciled to Operating Income (Loss) and Income from continuing operations before income taxes:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
||||
Operating Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
|
$ |
289,024 |
|
|
$ |
288,602 |
|
|
$ |
902,869 |
|
|
$ |
832,777 |
|
Charter |
|
|
324,046 |
|
|
|
322,750 |
|
|
|
944,839 |
|
|
|
954,725 |
|
Dry Leasing |
|
|
43,847 |
|
|
|
44,487 |
|
|
|
157,328 |
|
|
|
120,837 |
|
Customer incentive asset amortization |
|
|
(12,796 |
) |
|
|
(4,124 |
) |
|
|
(26,018 |
) |
|
|
(10,010 |
) |
Other |
|
|
4,418 |
|
|
|
4,892 |
|
|
|
13,122 |
|
|
|
14,437 |
|
Total Operating Revenue |
|
$ |
648,539 |
|
|
$ |
656,607 |
|
|
$ |
1,992,140 |
|
|
$ |
1,912,766 |
|
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
|
$ |
33,401 |
|
|
$ |
51,672 |
|
|
$ |
114,048 |
|
|
$ |
145,251 |
|
Charter |
|
|
36,339 |
|
|
|
44,370 |
|
|
|
79,554 |
|
|
|
129,738 |
|
Dry Leasing |
|
|
12,028 |
|
|
|
12,645 |
|
|
|
58,646 |
|
|
|
36,195 |
|
Total Direct Contribution for Reportable Segments |
|
|
81,768 |
|
|
|
108,687 |
|
|
|
252,248 |
|
|
|
311,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses and (income), net |
|
|
(93,507 |
) |
|
|
(82,830 |
) |
|
|
(255,569 |
) |
|
|
(212,373 |
) |
Loss on early extinguishment of debt |
|
|
(559 |
) |
|
|
- |
|
|
|
(804 |
) |
|
|
- |
|
Unrealized gain (loss) on financial instruments |
|
|
83,175 |
|
|
|
46,080 |
|
|
|
78,900 |
|
|
|
(11,691 |
) |
Special charge, net |
|
|
(18,861 |
) |
|
|
- |
|
|
|
(22,130 |
) |
|
|
(9,374 |
) |
Transaction-related expenses |
|
|
(324 |
) |
|
|
(765 |
) |
|
|
(3,585 |
) |
|
|
(1,275 |
) |
Income from continuing operations before income taxes |
|
|
51,692 |
|
|
|
71,172 |
|
|
|
49,060 |
|
|
|
76,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(653 |
) |
|
|
(1,592 |
) |
|
|
(3,975 |
) |
|
|
(4,704 |
) |
Interest expense |
|
|
30,117 |
|
|
|
31,115 |
|
|
|
90,515 |
|
|
|
87,639 |
|
Capitalized interest |
|
|
(853 |
) |
|
|
(1,120 |
) |
|
|
(1,943 |
) |
|
|
(4,335 |
) |
Loss on early extinguishment of debt |
|
|
559 |
|
|
|
- |
|
|
|
804 |
|
|
|
- |
|
Unrealized (gain) loss on financial instruments |
|
|
(83,175 |
) |
|
|
(46,080 |
) |
|
|
(78,900 |
) |
|
|
11,691 |
|
Other (income) expense, net |
|
|
1,434 |
|
|
|
975 |
|
|
|
(596 |
) |
|
|
(10,777 |
) |
Operating (Loss) Income |
|
$ |
(879 |
) |
|
$ |
54,470 |
|
|
$ |
54,965 |
|
|
$ |
155,985 |
|
The following table disaggregates our Charter segment revenue by customer and service type:
|
For the Three Months Ended |
|
|||||||||||||||||||||||
|
September 30, 2019 |
|
|
September 30, 2018 |
|
||||||||||||||||||||
|
|
Cargo |
|
|
Passenger |
|
|
Total |
|
|
|
Cargo |
|
|
Passenger |
|
|
Total |
|
||||||
Commercial customers |
|
$ |
127,558 |
|
|
$ |
17,075 |
|
|
$ |
144,633 |
|
|
|
$ |
158,129 |
|
|
$ |
11,651 |
|
|
$ |
169,780 |
|
AMC |
|
|
85,382 |
|
|
|
94,031 |
|
|
|
179,413 |
|
|
|
|
85,267 |
|
|
|
67,703 |
|
|
|
152,970 |
|
Total Charter Revenue |
|
$ |
212,940 |
|
|
$ |
111,106 |
|
|
$ |
324,046 |
|
|
|
$ |
243,396 |
|
|
$ |
79,354 |
|
|
$ |
322,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|||||||||||||||||||||||
|
September 30, 2019 |
|
|
September 30, 2018 |
|
||||||||||||||||||||
|
|
Cargo |
|
|
Passenger |
|
|
Total |
|
|
|
Cargo |
|
|
Passenger |
|
|
Total |
|
||||||
Commercial customers |
|
$ |
409,640 |
|
|
$ |
27,736 |
|
|
$ |
437,376 |
|
|
|
$ |
440,881 |
|
|
$ |
14,241 |
|
|
$ |
455,122 |
|
AMC |
|
|
234,845 |
|
|
|
272,618 |
|
|
|
507,463 |
|
|
|
|
264,142 |
|
|
|
235,461 |
|
|
|
499,603 |
|
Total Charter Revenue |
|
$ |
644,485 |
|
|
$ |
300,354 |
|
|
$ |
944,839 |
|
|
|
$ |
705,023 |
|
|
$ |
249,702 |
|
|
$ |
954,725 |
|
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 and Note 3 to our Financial Statements for further discussion regarding Polar). No other customer accounted for more than 10.0% of our Total Operating Revenue. Revenue from DHL was $91.4 million for the three months ended September 30, 2019 and $90.9 million for the three months ended September 30, 2018. Revenue from DHL was $267.8 million for the nine months ended September 30, 2019 and $242.8 million for the nine months ended September 30, 2018. We have not experienced any credit issues with these customers.
18
12. Labor and Legal Proceedings
Labor
Pilots of Atlas and Southern Air, and flight dispatchers of Atlas and Polar are represented by the International Brotherhood of Teamsters (the “IBT”). We have 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. 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.
After we completed the acquisition of Southern Air in April 2016, we informed the IBT of our intention to pursue (and we have been pursuing) a complete operational merger of Atlas and Southern Air. The Atlas and Southern Air CBAs both have a defined and streamlined process for negotiating a joint CBA (“JCBA”) when a merger occurs, as in the case with the Atlas and Southern Air merger. Pursuant to the merger provisions in both CBAs, joint negotiations for a single CBA for Atlas and Southern Air should commence promptly. Further, once an integrated seniority list (“ISL”) of Atlas and Southern Air pilots is presented to the Company by the union, it triggers a nine month agreed-upon timeframe to negotiate a new JCBA with any unresolved issues promptly submitted to binding arbitration.
The IBT has refused to follow the merger provisions in the Atlas and Southern Air CBAs. This has resulted in significant litigation, arbitrations and delay. As more fully stated below, the Company has prevailed in all of the merger related proceedings.
After the merger process began, the IBT also filed an application for mediation with the National Mediation Board (“NMB”) on behalf of the Atlas pilots, and subsequently the IBT filed a similar application on behalf of Southern Air pilots. We have opposed both mediation applications as they are not in accordance with the merger provisions in the parties’ existing CBAs. The NMB conducted a premediation investigation on the IBT’s Atlas application in June 2016, which has remained pending (along with the IBT’s Southern Air application) since 2016.
Due to the IBT’s refusal to adhere to the merger provisions of the respective CBAs, in February 2017, the Company filed a lawsuit against the IBT to compel arbitration on the issue of whether the merger provisions in Atlas and Southern Air's CBAs apply to the bargaining process. On March 13, 2018, the Southern District Court of New York (“NY District Court”) ruled in the Company’s favor and ordered arbitration of this issue. The IBT appealed the NY District Court’s decision, which is currently pending.
The Company and the IBT conducted the Atlas and Southern Air arbitrations for this issue in October 2018. The Company prevailed in both the Atlas and Southern Air management grievance arbitrations against the IBT, with decisions rendered on June 12, 2019 and August 26, 2019, respectively. Both arbitrators ruled that the IBT violated the CBAs by refusing to follow merger provisions in the parties’ respective CBAs, which require formulation of a JCBA covering the combined pilot group. The arbitrators each ordered the IBT to promptly comply with the CBAs by submitting an ISL to the Company within 45 days of each arbitration decision, respectively. The IBT failed to comply with both deadlines for submitting the ISL, which passed on July 27, 2019 for Southern Air, and on October 10, 2019 for Atlas. As a result, on October 25, 2019, the Company filed an action in the U.S. District Court for the District of Columbia (“DC District Court”) to enforce the Atlas and Southern Air arbitration decisions.
In connection with its opposition to the merger provisions, the IBT commenced lawsuits in the DC District Court seeking to vacate both arbitration awards. The Company has filed motions to dismiss both lawsuits and these actions are currently pending.
Notwithstanding these pending proceedings, the Company and the IBT continue to meet to move the process forward and bargain in good faith for a new JCBA. Substantive progress has been made with tentative agreements for a number of the articles in a new JCBA. Despite repeated requests from the Company, the IBT has yet to provide the Company with a comprehensive economic proposal.
In late September 2019, the IBT notified the Company that Atlas pilots represented by the IBT were departing from IBT Local 1224 and forming a new local union, IBT Local 2750 to represent them. The Company has been informed the Southern Air pilots will continue to be represented by IBT Local 1224. The Company continues to work with both Local 2750 and Local 1224 leadership groups.
In August 2018, the Southern Air pilots ratified an agreement between Southern Air and the IBT for interim enhancements to the Southern Air pilots’ CBA. The agreement enhances the wages and work rules of the Southern Air pilots and provides similar terms and conditions of employment to those provided to Atlas pilots in the Atlas CBA. The Southern Air pilot agreement became effective in September 2018.
19
In late November 2017, the DC District Court granted the Company’s request to issue a preliminary injunction to stop an illegal work slowdown and require the IBT to meet its obligations under the Railway Labor Act. Specifically, the DC District Court ordered the IBT to stop “authorizing, encouraging, permitting, calling, engaging in, or continuing” any illegal pilot slowdown activities, which were intended to gain leverage in pilot contract negotiations with the Company. In addition, the Court ordered the IBT to take affirmative action to prevent and to refrain from continuing any form of interference with the Company’s operations or any other concerted refusal to perform normal pilot operations consistent with its status quo obligations under the Railway Labor Act. In December 2017, the IBT appealed the District Court’s decision to the U.S. Court of Appeals for the District of Columbia Circuit (“Court of Appeals”). On July 5, 2019, the Court of Appeals, in a unanimous three judge panel, affirmed the DC District Court’s ruling and denied the IBT’s appeal. Therefore, the preliminary injunction remains in full force and effect.
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 (“Defendants”) seeking recovery for damages purportedly arising from allegedly unlawful pricing practices of such Defendants. In response, Defendants 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, some of which are awaiting court determination. The Netherlands proceedings are likely to be affected by a decision readopted by the European Commission in March 2017, finding EU competition law violations by Defendants, among others, but not Old Polar or Polar. We are unable to reasonably predict the outcome of the litigation. 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 two alleged customs violations in Sao Paulo, Brazil, relating to shipments of goods dating back to 1999 and 2000. Each claim asserts that goods listed on the flight manifest of two separate Old Polar scheduled service flights were not on board the aircraft upon arrival and therefore were improperly brought into Brazil. The two claims, which also seek unpaid customs duties, taxes and penalties from the date of the alleged infraction, are approximately $4.9 million in aggregate based on September 30, 2019 exchange rates.
In both cases, 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. In the pending claim for one of the cases, we have received an administrative decision dismissing the claim in its entirety, which remains subject to a mandatory appeal by the Brazil customs authorities. In the other case, we received an administrative decision in favor of the Brazil customs authorities and we are in the process of appealing this decision to the Brazil courts. As required to defend such claims, we have made deposits pending resolution of these matters. The balance was $4.0 million as of September 30, 2019 and $4.1 million as of December 31, 2018, and is included in Deferred costs and other assets.
We are currently defending these 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.
13. Earnings Per Share
Basic earnings per share (“EPS”) represents income (loss) divided by the weighted average number of common shares outstanding during the measurement period. Diluted EPS represents income (loss) 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 using the treasury stock method. The calculations of basic and diluted EPS were as follows:
20
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
||||||||||
Numerator: |
|
September 30, 2019 |
|
|
September 30, 2018 |
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
||||
Income from continuing operations, net of taxes |
|
$ |
59,974 |
|
|
$ |
71,138 |
|
|
$ |
117,132 |
|
|
$ |
59,643 |
|
Less: Unrealized gain on financial instruments, net of tax |
|
|
- |
|
|
|
(46,897 |
) |
|
|
(81,139 |
) |
|
|
- |
|
Diluted income from continuing operations, net of tax |
|
$ |
59,974 |
|
|
$ |
24,241 |
|
|
$ |
35,993 |
|
|
$ |
59,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS weighted average shares outstanding |
|
|
25,854 |
|
|
|
25,575 |
|
|
|
25,814 |
|
|
|
25,526 |
|
Effect of dilutive warrant |
|
|
- |
|
|
|
2,471 |
|
|
|
1,010 |
|
|
|
- |
|
Effect of dilutive convertible notes |
|
|
- |
|
|
|
269 |
|
|
|
- |
|
|
|
240 |
|
Effect of dilutive restricted stock |
|
|
- |
|
|
|
432 |
|
|
|
85 |
|
|
|
508 |
|
Diluted EPS weighted average shares outstanding |
|
|
25,854 |
|
|
|
28,747 |
|
|
|
26,909 |
|
|
|
26,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.32 |
|
|
$ |
2.78 |
|
|
$ |
4.54 |
|
|
$ |
2.34 |
|
Diluted |
|
$ |
2.32 |
|
|
$ |
0.84 |
|
|
$ |
1.34 |
|
|
$ |
2.27 |
|
Loss per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
- |
|
|
$ |
(0.00 |
) |
|
$ |
- |
|
|
$ |
(0.00 |
) |
Diluted |
|
$ |
- |
|
|
$ |
(0.00 |
) |
|
$ |
- |
|
|
$ |
(0.00 |
) |
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.32 |
|
|
$ |
2.78 |
|
|
$ |
4.54 |
|
|
$ |
2.33 |
|
Diluted |
|
$ |
2.32 |
|
|
$ |
0.84 |
|
|
$ |
1.34 |
|
|
$ |
2.27 |
|
Antidilutive shares related to warrants issued in connection with our Convertible Notes and warrants issued to a customer that were out of the money and excluded from the calculation of diluted EPS were 15.3 million and 7.8 million for the three and nine months ended September 30, 2019, respectively and 3.0 million for the three and nine months ended September 30, 2018. 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 10.6 million for the three and nine months ended September 30, 2019 and 4.7 million for the three and nine months ended September 30, 2018.
14. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the components of Accumulated other comprehensive income (loss):
|
|
Interest Rate |
|
|
Foreign Currency |
|
|
|
|
|
||
|
|
Derivatives |
|
|
Translation |
|
|
Total |
|
|||
Balance as of December 31, 2017 |
|
$ |
(4,002 |
) |
|
$ |
9 |
|
|
$ |
(3,993 |
) |
Reclassification to interest expense |
|
|
1,120 |
|
|
|
- |
|
|
|
1,120 |
|
Tax effect |
|
|
(265 |
) |
|
|
- |
|
|
|
(265 |
) |
Reclassification of taxes |
|
|
(970 |
) |
|
|
- |
|
|
|
(970 |
) |
Balance as of September 30, 2018 |
|
$ |
(4,117 |
) |
|
$ |
9 |
|
|
$ |
(4,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018 |
|
$ |
(3,841 |
) |
|
$ |
9 |
|
|
$ |
(3,832 |
) |
Reclassification to interest expense |
|
|
1,012 |
|
|
|
- |
|
|
|
1,012 |
|
Tax effect |
|
|
(239 |
) |
|
|
- |
|
|
|
(239 |
) |
Balance as of September 30, 2019 |
|
$ |
(3,068 |
) |
|
$ |
9 |
|
|
$ |
(3,059 |
) |
Interest Rate Derivatives
As of September 30, 2019, there was $4.0 million of unamortized net realized loss before taxes remaining in Accumulated other comprehensive income (loss) related to terminated forward-starting interest rate swaps, which had been designated as cash flow hedges to effectively fix the interest rates on two 747-8F financings in 2011 and three 777-200LRF financings in 2014. The net loss is amortized and reclassified into Interest expense over the remaining life of the related debt. Net realized losses reclassified into earnings were $0.3 million and $0.4 million for the three months ended September 30, 2019 and 2018, respectively. Net realized losses reclassified into earnings were $1.0 million and $1.1 million for the nine months ended September 30, 2019 and 2018, respectively. Net realized losses expected to be reclassified into earnings within the next 12 months are $1.2 million as of September 30, 2019.
21
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 2018 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.
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. |
|
|
|
D Check |
|
“Heavy” airframe maintenance checks, which are the most extensive in scope and are generally performed every six and eight years depending on aircraft type. |
|
|
|
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. |
|
|
|
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, 757 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, airlines, freight forwarders, the U.S. military and charter brokers. We provide global services with operations in Africa, Asia, Australia, Europe, the Middle East, North America and South America.
Our primary service offerings include the following:
|
• |
ACMI, 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; |
|
• |
CMI, which is part of our ACMI business segment, 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; |
|
• |
Charter, whereby we provide cargo and passenger aircraft charter services to customers, including the AMC, brokers, freight forwarders, direct shippers, airlines, sports teams and fans, and private charter customers. The customer generally pays a fixed charter fee that includes fuel, insurance, landing fees, navigation fees and most other operational fees and costs; and |
|
• |
Dry Leasing, whereby we provide cargo and passenger aircraft and engine leasing solutions. The customer operates, and is responsible for insuring and maintaining, the flight equipment. |
22
We look to achieve our growth plans and enhance shareholder value by:
|
• |
Delivering superior service quality to our valued customers; |
|
• |
Focusing on securing attractive long-term customer contracts; |
|
• |
Managing our fleet with a focus on modern, efficient aircraft; |
|
• |
Driving significant ongoing productivity improvements; |
|
• |
Selectively pursuing and evaluating future acquisitions and alliances; while |
|
• |
Appropriately managing capital allocation and delivering value to shareholders. |
See “Business Overview” and “Business Strategy” in our 2018 Annual Report on Form 10-K for additional information.
Business Developments
ACMI and Charter results for the first three quarters of 2019, compared with 2018, were negatively impacted by tariffs and global trade tensions, and labor-related service disruptions (see Note 12 to our Financial Statements).
As a result of the impact of tariffs and global trade tensions on the global airfreight environment, 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.
Our ACMI results for the first three quarters of 2019, compared with 2018, were positively impacted by increased flying from the following:
|
• |
Between August 2016 and November 2018, we began CMI flying Boeing 767-300 freighter aircraft for Amazon that are Dry Leased from Titan. During the first three quarters of 2019, there were an average of 19.1 aircraft equivalents operating for Amazon compared to an average of 13.8 aircraft equivalents operating in 2018. |
|
• |
In September 2018, we began flying a second 747-400 freighter for Asiana Cargo on transpacific routes. |
|
• |
In May 2018, we began flying a second 747-400 freighter for DHL Global Forwarding on routes between the United States, Europe, and Asia. |
|
• |
In February 2018, we signed long-term CMI and Dry Lease contracts with DHL for two 777-200 freighter aircraft. The first of the two aircraft was previously in CMI service with us and the second aircraft began CMI and Dry Lease service in July of 2018. |
|
• |
In July 2018, we began ACMI flying a 747-400 freighter for Industria de Diseño Textil, S.A. (“Inditex”) on routes between the United States, Europe, and Asia. |
|
• |
In October 2018, we began flying a 747-400 freighter for SF Express on transpacific routes. |
|
• |
In January 2019, we entered into an agreement to operate three incremental 747-400 freighters for Nippon Cargo Airlines on transpacific routes. The first two aircraft entered service in April and August 2019, and the third is expected to enter service in 2020. |
|
• |
In March 2019, we entered into agreements with Amazon, which include CMI operation of five 737-800 freighter aircraft in 2019 and up to 15 additional aircraft by May 2021. Between May and September 2019, the first four aircraft entered service and the fifth aircraft is expected to enter service during the fourth quarter of 2019. |
|
• |
In June 2019, we entered into a CMI agreement with DHL to operate two 777-200 freighter aircraft on key global routes, both of which entered service near the end of the second quarter of 2019. |
|
• |
In June 2019, we began flying a third 747-400 freighter for Asiana Cargo on transpacific routes following its return from DHL. |
In February 2018, we acquired a 777-200 freighter aircraft and Dry Leased it to DHL on a long-term basis, as described above. We completed the acquisition of a second 777-200 freighter aircraft and placed it into service with DHL in July 2018. As described above, during the first three quarters of 2019, there were an average of 19.3 aircraft equivalents Dry Leased to Amazon compared to an average of 13.8 aircraft equivalents in 2018.
23
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 September 30, 2019 and 2018
Operating Statistics
The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the three months ended September 30:
Segment Operating Fleet* |
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|||
ACMI |
|
|
|
|
|
|
|
|
|
|
|
|
747-8F Cargo |
|
|
7.7 |
|
|
|
8.9 |
|
|
|
(1.2 |
) |
747-400 Cargo |
|
|
18.3 |
|
|
|
16.8 |
|
|
|
1.5 |
|
747-400 Dreamlifter |
|
|
3.5 |
|
|
|
3.0 |
|
|
|
0.5 |
|
777-200 Cargo |
|
|
8.0 |
|
|
|
5.9 |
|
|
|
2.1 |
|
767-300 Cargo |
|
|
25.0 |
|
|
|
23.3 |
|
|
|
1.7 |
|
767-200 Cargo |
|
|
9.0 |
|
|
|
9.0 |
|
|
|
- |
|
767-200 Passenger |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
- |
|
737-800 Cargo |
|
|
3.7 |
|
|
|
- |
|
|
|
3.7 |
|
737-400 Cargo |
|
|
5.0 |
|
|
|
5.0 |
|
|
|
- |
|
Total |
|
|
81.2 |
|
|
|
72.9 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter |
|
|
|
|
|
|
|
|
|
|
|
|
747-8F Cargo |
|
|
2.2 |
|
|
|
1.1 |
|
|
|
1.1 |
|
747-400 Cargo |
|
|
15.7 |
|
|
|
13.0 |
|
|
|
2.7 |
|
747-400 Passenger |
|
|
4.1 |
|
|
|
3.5 |
|
|
|
0.6 |
|
767-300 Passenger |
|
|
4.8 |
|
|
|
4.0 |
|
|
|
0.8 |
|
Total |
|
|
26.8 |
|
|
|
21.6 |
|
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dry Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
777-200 Cargo |
|
|
7.0 |
|
|
|
7.9 |
|
|
|
(0.9 |
) |
767-300 Cargo |
|
|
21.0 |
|
|
|
17.7 |
|
|
|
3.3 |
|
757-200 Cargo |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
- |
|
737-300 Cargo |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
- |
|
737-800 Passenger |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
- |
|
Total |
|
|
31.0 |
|
|
|
28.6 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Aircraft Dry Leased to CMI customers |
|
|
(22.7 |
) |
|
|
(19.6 |
) |
|
|
(3.1 |
) |
Total Operating Average Aircraft Equivalents |
|
|
116.3 |
|
|
|
103.5 |
|
|
|
12.8 |
|
|
* |
ACMI average fleet excludes spare aircraft provided by CMI customers and Dry Leasing average fleet excludes aircraft awaiting placement. |
Block Hours |
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Total Block Hours** |
|
|
79,310 |
|
|
|
73,672 |
|
|
|
5,638 |
|
|
|
7.7 |
% |
|
** |
Includes ACMI, Charter and other Block Hours. |
24
Operating Revenue
The following table compares our Operating Revenue for the three months ended September 30 (in thousands):
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
|
$ |
289,024 |
|
|
$ |
288,602 |
|
|
$ |
422 |
|
|
|
0.1 |
% |
Charter |
|
|
324,046 |
|
|
|
322,750 |
|
|
|
1,296 |
|
|
|
0.4 |
% |
Dry Leasing |
|
|
43,847 |
|
|
|
44,487 |
|
|
|
(640 |
) |
|
|
(1.4 |
)% |
Customer incentive asset amortization |
|
|
(12,796 |
) |
|
|
(4,124 |
) |
|
|
8,672 |
|
|
NM |
|
|
Other |
|
|
4,418 |
|
|
|
4,892 |
|
|
|
(474 |
) |
|
|
(9.7 |
)% |
Total Operating Revenue |
|
$ |
648,539 |
|
|
$ |
656,607 |
|
|
|
|
|
|
|
|
|
NM represents year-over-year changes that are not meaningful.
ACMI
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
ACMI Block Hours |
|
|
60,337 |
|
|
|
56,571 |
|
|
|
3,766 |
|
|
|
6.7 |
% |
ACMI Revenue Per Block Hour |
|
$ |
4,790 |
|
|
$ |
5,102 |
|
|
$ |
(312 |
) |
|
|
(6.1 |
)% |
ACMI revenue increased slightly, primarily due to increased flying, partially offset by a decrease in Revenue per Block Hour. The increase in Block Hours was primarily driven by incremental CMI flying for our customers. Partially offsetting this increase were decreases in ACMI flying by our customers related to the impact of tariffs and global trade tensions, and the two-month redeployment of two 747-8F aircraft to the Charter segment until we received regulatory approval and subsequently placed the aircraft with an ACMI customer. Revenue per Block Hour decreased primarily due to increased smaller-gauge 767 and 737 CMI flying. In addition, ACMI revenue was negatively impacted by labor-related service disruptions.
Charter
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Charter Block Hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
|
12,717 |
|
|
|
12,690 |
|
|
|
27 |
|
|
|
0.2 |
% |
Passenger |
|
|
5,425 |
|
|
|
3,952 |
|
|
|
1,473 |
|
|
|
37.3 |
% |
Total |
|
|
18,142 |
|
|
|
16,642 |
|
|
|
1,500 |
|
|
|
9.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Revenue Per Block Hour: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
$ |
16,745 |
|
|
$ |
19,180 |
|
|
$ |
(2,435 |
) |
|
|
(12.7 |
)% |
Passenger |
|
$ |
20,480 |
|
|
$ |
20,079 |
|
|
$ |
401 |
|
|
|
2.0 |
% |
Charter |
|
$ |
17,862 |
|
|
$ |
19,394 |
|
|
$ |
(1,532 |
) |
|
|
(7.9 |
)% |
Charter revenue increased $1.3 million, or 0.4%, primarily due to increased flying, partially offset by a decrease in Revenue per Block Hour. The increase in Charter Block Hours was primarily driven by increased passenger demand from the AMC and the two-month redeployment of two 747-8F aircraft from the ACMI segment, partially offset by lower cargo demand from commercial customers. Revenue per Block Hour decreased primarily due to lower commercial cargo Yields (excluding fuel), partially offset by an increase in rates for the AMC. The lower commercial cargo Yields and demand reflected the impact of tariffs and global trade tensions. In addition, Charter revenue was negatively impacted by labor-related service disruptions.
Dry Leasing
Dry Leasing revenue decreased slightly, primarily due to the scheduled return of a 777-200 freighter aircraft that is awaiting placement with a customer, partially offset by the placement of 767-300 converted freighter aircraft during the second half of 2018.
25
Operating Expenses
The following table compares our Operating Expenses for the three months ended September 30 (in thousands):
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
$ |
145,987 |
|
|
$ |
138,345 |
|
|
$ |
7,642 |
|
|
|
5.5 |
% |
Aircraft fuel |
|
|
123,132 |
|
|
|
119,604 |
|
|
|
3,528 |
|
|
|
2.9 |
% |
Maintenance, materials and repairs |
|
|
88,240 |
|
|
|
88,136 |
|
|
|
104 |
|
|
|
0.1 |
% |
Depreciation and amortization |
|
|
62,499 |
|
|
|
55,417 |
|
|
|
7,082 |
|
|
|
12.8 |
% |
Travel |
|
|
49,110 |
|
|
|
41,605 |
|
|
|
7,505 |
|
|
|
18.0 |
% |
Aircraft rent |
|
|
40,048 |
|
|
|
39,973 |
|
|
|
75 |
|
|
|
0.2 |
% |
Navigation fees, landing fees and other rent |
|
|
32,270 |
|
|
|
43,258 |
|
|
|
(10,988 |
) |
|
|
(25.4 |
)% |
Passenger and ground handling services |
|
|
34,453 |
|
|
|
28,716 |
|
|
|
5,737 |
|
|
|
20.0 |
% |
Special charge, net |
|
|
18,861 |
|
|
|
- |
|
|
|
18,861 |
|
|
NM |
|
|
Transaction-related expenses |
|
|
324 |
|
|
|
765 |
|
|
|
(441 |
) |
|
NM |
|
|
Other |
|
|
54,494 |
|
|
|
46,318 |
|
|
|
8,176 |
|
|
|
17.7 |
% |
Total Operating Expenses |
|
$ |
649,418 |
|
|
$ |
602,137 |
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits increased $7.6 million, or 5.5%, primarily due to increased flying and higher crew costs, including enhanced wages and work rules resulting from our interim agreement with the Southern Air pilots (see Note 12 to our Financial Statements) and fleet growth initiatives. These increases were partially offset by a ratification bonus in 2018 related to the interim agreement with the Southern Air pilots. In addition, crew costs were negatively impacted by labor-related service disruptions.
Aircraft fuel increased $3.5 million, or 2.9%, primarily due to an increase in consumption related to increased Charter flying, partially offset by a decrease in the average fuel cost per gallon. We do not incur fuel expense in our ACMI or Dry Leasing businesses as the cost of fuel is borne by the customer. Average fuel cost per gallon and fuel consumption for the three months ended September 30 were:
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Average fuel cost per gallon |
|
$ |
2.27 |
|
|
$ |
2.43 |
|
|
$ |
(0.16 |
) |
|
|
(6.6 |
)% |
Fuel gallons consumed (000s) |
|
|
54,296 |
|
|
|
49,206 |
|
|
|
5,090 |
|
|
|
10.3 |
% |
Maintenance, materials and repairs was relatively unchanged. Heavy Maintenance expense on 747-8F aircraft increased $5.9 million primarily due to an increase in the number of D Checks. Heavy Maintenance expense on 747-400 aircraft decreased $5.1 million primarily due to a decrease in the number of engine overhauls, 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 September 30 were:
Heavy Maintenance Events |
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|||
747-8F C Checks |
|
|
1 |
|
|
|
1 |
|
|
|
- |
|
747-400 C Checks |
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
767 C Checks |
|
|
1 |
|
|
|
1 |
|
|
|
- |
|
747-8F D Checks |
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
CF6-80 engine overhauls |
|
|
1 |
|
|
|
4 |
|
|
|
(3 |
) |
Depreciation and amortization increased $7.1 million, or 12.8%, primarily due to an increase in the amortization of deferred maintenance costs related to 747-8F engine overhauls (see Note 2 to our Financial Statements) and additional aircraft that began operating in 2018.
Travel increased $7.5 million, or 18.0%, primarily due to higher costs incurred as a result of labor-related service disruptions and increased flying.
Navigation fees, landing fees and other rent decreased $11.0 million, or 25.4%, primarily due to a decrease in purchased capacity, which is a component of other rent, partially offset by increased flying.
26
Passenger and ground handling services increased $5.7 million, or 20.0%, primarily due to increased passenger flying and higher costs incurred as a result of labor-related service disruptions.
Special charge, net in 2019 primarily represents a $19.6 million impairment loss for four CF6-80 engines to be disposed of and the permanent parking of two 737-400 passenger aircraft used for training purposes (see Note 6 to our Financial Statements).
Other increased $8.2 million, or 17.7%, primarily due to start-up and other costs to meet fleet growth initiatives, as well as higher passenger taxes and commission expense on increased revenue from the AMC.
Non-operating Expenses (Income)
The following table compares our Non-operating Expenses (Income) for the three months ended September 30 (in thousands):
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Non-operating Expenses (Income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
(653 |
) |
|
$ |
(1,592 |
) |
|
$ |
(939 |
) |
|
|
(59.0 |
)% |
Interest expense |
|
|
30,117 |
|
|
|
31,115 |
|
|
|
(998 |
) |
|
|
(3.2 |
)% |
Capitalized interest |
|
|
(853 |
) |
|
|
(1,120 |
) |
|
|
(267 |
) |
|
|
(23.8 |
)% |
Loss on early extinguishment of debt |
|
|
559 |
|
|
|
- |
|
|
|
559 |
|
|
NM |
|
|
Unrealized (gain) loss on financial instruments |
|
|
(83,175 |
) |
|
|
(46,080 |
) |
|
|
37,095 |
|
|
|
80.5 |
% |
Other (income) expense, net |
|
|
1,434 |
|
|
|
975 |
|
|
|
(459 |
) |
|
|
47.1 |
% |
Unrealized (gain) loss on financial instruments represents the change in fair value of a customer warrant liability (see Note 4 to our Financial Statements) primarily due to changes in our common stock price.
Income taxes. The income tax benefit for the three months ended September 30, 2019 differed from tax at the U.S. statutory rate primarily due to $18.2 million of tax benefit from nontaxable changes in the fair value of the customer warrant liability (see Note 4 to our Financial Statements). The income tax expense for the three months ended September 30, 2018 differed from tax at the U.S. statutory rate primarily due to $6.1 million of tax benefit from nontaxable changes in the fair value of the customer warrant liability and $8.7 million of tax benefit from the remeasurement of our deferred income tax liability for Singapore.
Segments
The following table compares the Direct Contribution for our reportable segments for the three months ended September 30 (see Note 11 to our Financial Statements for the reconciliation to Operating income) (in thousands):
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
|
$ |
33,401 |
|
|
$ |
51,672 |
|
|
$ |
(18,271 |
) |
|
|
(35.4 |
)% |
Charter |
|
|
36,339 |
|
|
|
44,370 |
|
|
|
(8,031 |
) |
|
|
(18.1 |
)% |
Dry Leasing |
|
|
12,028 |
|
|
|
12,645 |
|
|
|
(617 |
) |
|
|
(4.9 |
)% |
Total Direct Contribution |
|
$ |
81,768 |
|
|
$ |
108,687 |
|
|
$ |
(26,919 |
) |
|
|
(24.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses and (income), net |
|
$ |
93,507 |
|
|
$ |
82,830 |
|
|
$ |
10,677 |
|
|
|
12.9 |
% |
ACMI Segment
ACMI Direct Contribution decreased $18.3 million, or 35.4%, primarily due to the impact of tariffs and global trade tensions on demand by our customers, labor-related service disruptions, additional Heavy Maintenance expense, increased amortization of deferred maintenance costs and the two-month redeployment of two 747-8F aircraft to the Charter segment. In addition, ACMI Direct Contribution was impacted by start-up costs for customer growth initiatives and higher crew costs, including enhanced wages and work rules resulting from our interim agreement with the Southern Air pilots (see Note 12 to our Financial Statements). Partially offsetting these items was an increase in contribution from additional flying.
Charter Segment
Charter Direct Contribution decreased $8.0 million, or 18.1%, primarily due to a decrease in commercial cargo Yields and volumes related to the impact of tariffs and global trade tensions, and labor-related service disruptions. Partially offsetting these
27
decreases were earnings from two 747-8F aircraft during a two-month redeployment from the ACMI segment, an increase in AMC passenger flying and a decrease in Heavy Maintenance.
Dry Leasing Segment
Dry Leasing Direct Contribution decreased slightly, primarily due to the scheduled return of a 777-200 freighter aircraft that is awaiting placement with a customer, partially offset by the placement of additional aircraft.
Unallocated expenses and (income), net
Unallocated expenses and (income), net increased $10.7 million, or 12.9%, primarily due to fleet growth initiatives and increased amortization of a customer incentive asset, partially offset by a ratification bonus in 2018 related to the interim agreement with the Southern Air pilots.
Nine Months Ended September 30, 2019 and 2018
Operating Statistics
The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the nine months ended September 30:
Segment Operating Fleet* |
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|||
ACMI |
|
|
|
|
|
|
|
|
|
|
|
|
747-8F Cargo |
|
|
8.3 |
|
|
|
9.0 |
|
|
|
(0.7 |
) |
747-400 Cargo |
|
|
18.1 |
|
|
|
16.2 |
|
|
|
1.9 |
|
747-400 Dreamlifter |
|
|
3.6 |
|
|
|
3.1 |
|
|
|
0.5 |
|
777-200 Cargo |
|
|
6.8 |
|
|
|
5.3 |
|
|
|
1.5 |
|
767-300 Cargo |
|
|
25.2 |
|
|
|
20.0 |
|
|
|
5.2 |
|
767-200 Cargo |
|
|
9.0 |
|
|
|
9.0 |
|
|
|
- |
|
767-200 Passenger |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
- |
|
737-800 Cargo |
|
|
1.8 |
|
|
|
- |
|
|
|
1.8 |
|
737-400 Cargo |
|
|
5.0 |
|
|
|
5.0 |
|
|
|
- |
|
747-400 Passenger |
|
|
- |
|
|
|
0.3 |
|
|
|
(0.3 |
) |
Total |
|
|
78.8 |
|
|
|
68.9 |
|
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter |
|
|
|
|
|
|
|
|
|
|
|
|
747-8F Cargo |
|
|
1.6 |
|
|
|
1.0 |
|
|
|
0.6 |
|
747-400 Cargo |
|
|
15.3 |
|
|
|
12.4 |
|
|
|
2.9 |
|
747-400 Passenger |
|
|
4.0 |
|
|
|
2.5 |
|
|
|
1.5 |
|
767-300 Cargo |
|
|
- |
|
|
|
0.3 |
|
|
|
(0.3 |
) |
767-300 Passenger |
|
|
4.9 |
|
|
|
4.0 |
|
|
|
0.9 |
|
Total |
|
|
25.8 |
|
|
|
20.2 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dry Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
777-200 Cargo |
|
|
7.3 |
|
|
|
7.1 |
|
|
|
0.2 |
|
767-300 Cargo |
|
|
21.2 |
|
|
|
15.8 |
|
|
|
5.4 |
|
757-200 Cargo |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
- |
|
737-300 Cargo |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
- |
|
737-800 Passenger |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
- |
|
Total |
|
|
31.5 |
|
|
|
25.9 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Aircraft Dry Leased to CMI customers |
|
|
(23.1 |
) |
|
|
(16.9 |
) |
|
|
(6.2 |
) |
Total Operating Average Aircraft Equivalents |
|
|
113.0 |
|
|
|
98.1 |
|
|
|
14.9 |
|
|
* |
ACMI average fleet excludes spare aircraft provided by CMI customers and Dry Leasing average fleet excludes aircraft awaiting placement. |
Block Hours |
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Total Block Hours** |
|
|
236,651 |
|
|
|
212,827 |
|
|
|
23,824 |
|
|
|
11.2 |
% |
|
** |
Includes ACMI, Charter and other Block Hours. |
28
Operating Revenue
The following table compares our Operating Revenue for the nine months ended September 30 (in thousands):
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
|
$ |
902,869 |
|
|
$ |
832,777 |
|
|
$ |
70,092 |
|
|
|
8.4 |
% |
Charter |
|
|
944,839 |
|
|
|
954,725 |
|
|
|
(9,886 |
) |
|
|
(1.0 |
)% |
Dry Leasing |
|
|
157,328 |
|
|
|
120,837 |
|
|
|
36,491 |
|
|
|
30.2 |
% |
Customer incentive asset amortization |
|
|
(26,018 |
) |
|
|
(10,010 |
) |
|
|
16,008 |
|
|
NM |
|
|
Other |
|
|
13,122 |
|
|
|
14,437 |
|
|
|
(1,315 |
) |
|
|
(9.1 |
)% |
Total Operating Revenue |
|
$ |
1,992,140 |
|
|
$ |
1,912,766 |
|
|
|
|
|
|
|
|
|
ACMI
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
ACMI Block Hours |
|
|
182,060 |
|
|
|
159,662 |
|
|
|
22,398 |
|
|
|
14.0 |
% |
ACMI Revenue Per Block Hour |
|
$ |
4,959 |
|
|
$ |
5,216 |
|
|
$ |
(257 |
) |
|
|
(4.9 |
)% |
ACMI revenue increased $70.1 million, or 8.4%, primarily due to increased flying, partially offset by a decrease in Revenue per Block Hour. The increase in Block Hours was primarily driven by incremental CMI flying for our customers. Partially offsetting this increase were decreases in ACMI flying by our customers related to the impact of tariffs and global trade tensions, and the two-month redeployment of two 747-8F aircraft to the Charter segment until we received regulatory approval and subsequently placed the aircraft with an ACMI customer. Revenue per Block Hour decreased primarily due to increased smaller-gauge 767 and 737 CMI flying. In addition, ACMI revenue was negatively impacted by labor-related service disruptions.
Charter
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Charter Block Hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
|
37,084 |
|
|
|
37,968 |
|
|
|
(884 |
) |
|
|
(2.3 |
)% |
Passenger |
|
|
15,379 |
|
|
|
13,717 |
|
|
|
1,662 |
|
|
|
12.1 |
% |
Total |
|
|
52,463 |
|
|
|
51,685 |
|
|
|
778 |
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Revenue Per Block Hour: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
$ |
17,379 |
|
|
$ |
18,569 |
|
|
$ |
(1,190 |
) |
|
|
(6.4 |
)% |
Passenger |
|
$ |
19,530 |
|
|
$ |
18,204 |
|
|
$ |
1,326 |
|
|
|
7.3 |
% |
Charter |
|
$ |
18,010 |
|
|
$ |
18,472 |
|
|
$ |
(462 |
) |
|
|
(2.5 |
)% |
Charter revenue decreased $9.9 million, or 1.0%, primarily due to a decrease in Revenue per Block Hour, partially offset by an increase in flying. Revenue per Block Hour decreased primarily due to a decrease in Yields for commercial customers reflecting the impact of tariffs and global trade tensions. Partially offsetting this decrease were higher Yields (excluding fuel) on passenger flying, primarily driven by an increase in rates for the AMC and the expansion of our flying for sports teams and other VIP charter customers. The increase in Charter Block Hours was primarily driven by increased passenger demand from the AMC and the two-month redeployment of two 747-8F aircraft from the ACMI segment, partially offset by lower cargo demand from commercial customers. Charter Block Hours were also negatively impacted by decreased cargo demand from the AMC. In addition, Charter revenue was negatively impacted by labor-related service disruptions.
Dry Leasing
Dry Leasing revenue increased $36.5 million, or 30.2%, primarily due to $22.3 million of revenue from maintenance payments related to the scheduled return of a 777-200 freighter aircraft and the placement of incremental aircraft. The additional aircraft included the placement of 767-300 converted freighter aircraft throughout 2018, as well as one 777-200 freighter aircraft in February 2018 and a second 777-200 freighter aircraft in July 2018.
29
Operating Expenses
The following table compares our Operating Expenses for the nine months ended September 30 (in thousands):
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
$ |
432,911 |
|
|
$ |
392,603 |
|
|
$ |
40,308 |
|
|
|
10.3 |
% |
Aircraft fuel |
|
|
351,611 |
|
|
|
345,613 |
|
|
|
5,998 |
|
|
|
1.7 |
% |
Maintenance, materials and repairs |
|
|
305,331 |
|
|
|
261,251 |
|
|
|
44,080 |
|
|
|
16.9 |
% |
Depreciation and amortization |
|
|
190,669 |
|
|
|
155,881 |
|
|
|
34,788 |
|
|
|
22.3 |
% |
Travel |
|
|
140,513 |
|
|
|
123,810 |
|
|
|
16,703 |
|
|
|
13.5 |
% |
Aircraft rent |
|
|
122,271 |
|
|
|
119,778 |
|
|
|
2,493 |
|
|
|
2.1 |
% |
Navigation fees, landing fees and other rent |
|
|
110,468 |
|
|
|
116,553 |
|
|
|
(6,085 |
) |
|
|
(5.2 |
)% |
Passenger and ground handling services |
|
|
97,138 |
|
|
|
86,980 |
|
|
|
10,158 |
|
|
|
11.7 |
% |
Special charge, net |
|
|
22,130 |
|
|
|
9,374 |
|
|
|
12,756 |
|
|
NM |
|
|
Transaction-related expenses |
|
|
3,585 |
|
|
|
1,275 |
|
|
|
2,310 |
|
|
NM |
|
|
Other |
|
|
160,548 |
|
|
|
143,663 |
|
|
|
16,885 |
|
|
|
11.8 |
% |
Total Operating Expenses |
|
$ |
1,937,175 |
|
|
$ |
1,756,781 |
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits increased $40.3 million, or 10.3%, primarily due to increased flying, higher crew costs, including enhanced wages and work rules resulting from our interim agreement with the Southern Air pilots (see Note 12 to our Financial Statements) and fleet growth initiatives. These increases were partially offset by a ratification bonus in 2018 related to the interim agreement with the Southern Air pilots. In addition, crew costs were negatively impacted by labor-related service disruptions.
Aircraft fuel increased $6.0 million, or 1.7%, due to an increase in consumption related to increased flying, partially offset by a decrease in average fuel cost per gallon. We do not incur fuel expense in our ACMI or Dry Leasing businesses as the cost of fuel is borne by the customer. Average fuel cost per gallon and fuel consumption for the nine months ended September 30 were:
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Average fuel cost per gallon |
|
$ |
2.29 |
|
|
$ |
2.34 |
|
|
$ |
(0.05 |
) |
|
|
(2.1 |
)% |
Fuel gallons consumed (000s) |
|
|
153,764 |
|
|
|
147,664 |
|
|
|
6,100 |
|
|
|
4.1 |
% |
Maintenance, materials and repairs increased by $44.1 million, or 16.9%, primarily reflecting $22.5 million of increased Line Maintenance expense due to increased flying and additional repairs performed, $14.0 million of increased Heavy Maintenance expense and $7.6 million of increased Non-heavy Maintenance expense. The higher Line Maintenance primarily reflected increases of $14.9 million for 767 aircraft and $8.9 million for 747-400 aircraft. Heavy Maintenance expense on 747-8F aircraft increased $5.8 million primarily due to an increase in the number of D Checks, partially offset by a decrease in the number of C Checks. Heavy Maintenance expense on 747-400 aircraft increased $4.9 million primarily due to an increase in the number of C Checks and additional repairs performed, partially offset by a decrease in the number of engine overhauls and D Checks. Heavy Maintenance expense on 767 aircraft increased $2.8 million primarily due to an increase in the number of C Checks and additional repairs performed. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the nine months ended September 30 were:
Heavy Maintenance Events |
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|||
747-8F C Checks |
|
|
3 |
|
|
|
4 |
|
|
|
(1 |
) |
747-400 C Checks |
|
|
15 |
|
|
|
9 |
|
|
|
6 |
|
767 C Checks |
|
|
3 |
|
|
|
2 |
|
|
|
1 |
|
747-8F D Checks |
|
|
3 |
|
|
|
- |
|
|
|
3 |
|
747-400 D Checks |
|
|
1 |
|
|
|
2 |
|
|
|
(1 |
) |
CF6-80 engine overhauls |
|
|
10 |
|
|
|
13 |
|
|
|
(3 |
) |
Depreciation and amortization increased $34.8 million, or 22.3%, primarily due to additional aircraft that began operating in 2018, an increase in the amortization of deferred maintenance costs related to 747-8F engine overhauls (see Note 2 to our Financial Statements) and an increase in the scrapping of rotable parts.
30
Travel increased $16.7 million, or 13.5%, primarily due to increased flying and higher costs incurred as a result of labor-related service disruptions.
Aircraft rent increased $2.5 million, or 2.1%, primarily due to additional operating leases for 747-400 freighter aircraft that began during the second half of 2018 to meet increased customer demand.
Navigation fees, landing fees and other rent decreased $6.1 million, or 5.2%, primarily due to a decrease in purchased capacity, which is a component of other rent, partially offset by increased flying.
Passenger and ground handling services increased $10.2 million, or 11.7%, primarily due to increased passenger flying and higher costs incurred as a result of labor-related service disruptions.
Special charge, net in 2019 primarily represents a $19.6 million impairment loss for four CF6-80 engines to be disposed of and the permanent parking of two 737-400 passenger aircraft used for training purposes. Special charge, net in 2018 represents a $9.4 million impairment loss on engines held for sale (see Note 6 to our Financial Statements). We may sell additional flight equipment, which could result in additional charges in future periods.
Transaction-related expenses in 2019 primarily relate to professional fees for a customer transaction with warrants (see Note 4 to our Financial Statements). Transaction-related expenses in 2018 were for the integration of Southern Air, which primarily included professional fees and integration costs.
Other increased $16.9 million, or 11.8%, primarily due to start-up and other costs to meet fleet growth initiatives, as well as higher passenger taxes and commission expense on increased revenue from the AMC.
Non-operating Expenses (Income)
The following table compares our Non-operating Expenses (Income) for the nine months ended September 30 (in thousands):
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Non-operating (Income) Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
(3,975 |
) |
|
$ |
(4,704 |
) |
|
$ |
(729 |
) |
|
|
(15.5 |
)% |
Interest expense |
|
|
90,515 |
|
|
|
87,639 |
|
|
|
2,876 |
|
|
|
3.3 |
% |
Capitalized interest |
|
|
(1,943 |
) |
|
|
(4,335 |
) |
|
|
(2,392 |
) |
|
|
(55.2 |
)% |
Loss on early extinguishment of debt |
|
|
804 |
|
|
|
- |
|
|
|
804 |
|
|
NM |
|
|
Unrealized (gain) loss on financial instruments |
|
|
(78,900 |
) |
|
|
11,691 |
|
|
|
(90,591 |
) |
|
NM |
|
|
Other (income) expense, net |
|
|
(596 |
) |
|
|
(10,777 |
) |
|
|
(10,181 |
) |
|
|
(94.5 |
)% |
Interest expense increased $2.9 million, or 3.3%, primarily due to the 2018 financing of 767-300 aircraft purchases and conversions and purchases of two 777-200 aircraft in 2018.
Unrealized (gain) loss on financial instruments represents the change in fair value of a customer warrant liability (see Note 4 to our Financial Statements) primarily due to changes in our common stock price.
Other (income) expense, net decreased primarily due to a refund of $12.4 million in 2018 for aircraft rent paid in previous years, partially offset by a net insurance recovery.
Income taxes. The income tax benefit for the nine months ended September 30, 2019 differed from tax at the U.S. statutory rate primarily due to $59.8 million of tax benefit related to the favorable completion of the IRS’s examination of our 2015 income tax return, and to a lesser extent, $17.3 million of tax benefit from nontaxable changes in the fair value of the customer warrant liability (see Note 4 to our Financial Statements). The income tax expense for the nine months ended September 30, 2018 differed from tax at the U.S. statutory rate primarily due to $11.8 million of tax expense from nondeductible changes in the fair value of the customer warrant liability and $8.7 million of tax benefit from the remeasurement of our deferred income tax liability for Singapore.
31
Segments
The following table compares the Direct Contribution for our reportable segments for the nine months ended September 30 (see Note 11 to our Financial Statements for the reconciliation to Operating income) (in thousands):
|
|
2019 |
|
|
2018 |
|
|
Inc/(Dec) |
|
|
% Change |
|
||||
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
|
$ |
114,048 |
|
|
$ |
145,251 |
|
|
$ |
(31,203 |
) |
|
|
(21.5 |
)% |
Charter |
|
|
79,554 |
|
|
|
129,738 |
|
|
|
(50,184 |
) |
|
|
(38.7 |
)% |
Dry Leasing |
|
|
58,646 |
|
|
|
36,195 |
|
|
|
22,451 |
|
|
|
62.0 |
% |
Total Direct Contribution |
|
$ |
252,248 |
|
|
$ |
311,184 |
|
|
$ |
(58,936 |
) |
|
|
(18.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses and (income), net |
|
$ |
255,569 |
|
|
$ |
212,373 |
|
|
$ |
43,196 |
|
|
|
20.3 |
% |
ACMI Segment
ACMI Direct Contribution decreased $31.2 million, or 21.5%, primarily due to higher crew costs, including enhanced wages and work rules resulting from our interim agreement with the Southern Air pilots (see Note 12 to our Financial Statements), the impact of tariffs and global trade tensions on demand by our customers, additional Heavy Maintenance expense, increased amortization of deferred maintenance costs and the two-month redeployment of two 747-8F aircraft to the Charter segment. In addition, ACMI Direct Contribution was impacted by start-up costs to meet customer growth initiatives and by labor-related service disruptions. Partially offsetting these items was an increase in contribution from additional flying.
Charter Segment
Charter Direct Contribution decreased $50.2 million, or 38.7%, primarily due to a decrease in commercial cargo Yields related to the impact of tariffs and global trade tensions, a decrease in AMC cargo flying and additional Heavy Maintenance expense. In addition, Charter Direct Contribution was negatively impacted by labor-related service disruptions. Partially offsetting these decreases were an increase in AMC passenger flying and earnings from two 747-8F aircraft during a two-month redeployment from the ACMI segment.
Dry Leasing Segment
Dry Leasing Direct Contribution increased $22.5 million, or 62.0%, primarily due to revenue from maintenance payments related to the scheduled return of a 777-200 freighter aircraft and the placement of additional aircraft.
Unallocated expenses and (income), net
Unallocated expenses and (income), net increased $43.2 million, or 20.3%, primarily due to a refund of aircraft rent paid in previous years recognized during the second quarter of 2018, fleet growth initiatives and increased amortization of a customer incentive asset, partially offset by a ratification bonus in 2018 related to the interim agreement with the Southern Air pilots.
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 income from continuing operations, net of taxes, Adjusted Diluted EPS from continuing operations, net of taxes 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 Income from continuing operations, net of taxes and Diluted EPS from continuing operations, net of taxes which are the most directly comparable measures of performance prepared in accordance with GAAP. Effective during the three months ended September 30, 2019, we changed our method of calculating Adjusted EBITDA to include Other non-operating expenses (income) to enhance the usefulness for investors and analysts, and the comparability of the calculation to that of other companies. Prior period amounts have been adjusted for comparability.
32
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 income from continuing operations, net of taxes 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.
The following is a reconciliation of Income from continuing operations, net of taxes and Diluted EPS from continuing operations, net of taxes to the corresponding non-GAAP financial measures (in thousands, except per share data):
|
|
|
For the Three Months Ended |
|
||||||||||
|
|
|
September 30, 2019 |
|
|
|
September 30, 2018 |
|
|
Percent Change |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
|
$ |
59,974 |
|
|
|
$ |
71,138 |
|
|
|
(15.7 |
)% |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer incentive asset amortization |
|
|
|
12,796 |
|
|
|
|
4,124 |
|
|
|
|
|
Special charge, net |
|
|
|
18,861 |
|
|
|
|
- |
|
|
|
|
|
Costs associated with transactions (a) |
|
|
|
324 |
|
|
|
|
9,979 |
|
|
|
|
|
Leadership transition costs |
|
|
|
2,852 |
|
|
|
|
- |
|
|
|
|
|
Certain contract start-up costs (b) |
|
|
|
1,400 |
|
|
|
|
- |
|
|
|
|
|
Noncash expenses and income, net (c) |
|
|
|
4,696 |
|
|
|
|
4,245 |
|
|
|
|
|
Unrealized (gain) loss on financial instruments |
|
|
|
(83,175 |
) |
|
|
|
(46,080 |
) |
|
|
|
|
Other, net (d) |
|
|
|
647 |
|
|
|
|
373 |
|
|
|
|
|
Income tax effect of reconciling items |
|
|
|
(8,859 |
) |
|
|
|
47 |
|
|
|
|
|
Adjusted income from continuing operations, net of taxes |
|
|
$ |
9,516 |
|
|
|
$ |
43,826 |
|
|
|
(78.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
|
25,854 |
|
|
|
|
28,747 |
|
|
|
|
|
Add: effect of convertible notes hedges (f) |
|
|
|
- |
|
|
|
|
(269 |
) |
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
|
25,854 |
|
|
|
|
28,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted EPS from continuing operations, net of taxes |
|
|
$ |
0.37 |
|
|
|
$ |
1.54 |
|
|
|
(76.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
||||||||||
|
|
|
September 30, 2019 |
|
|
|
September 30, 2018 |
|
|
Percent Change |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
|
$ |
117,132 |
|
|
|
$ |
59,643 |
|
|
|
96.4 |
% |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer incentive asset amortization |
|
|
|
26,018 |
|
|
|
|
10,010 |
|
|
|
|
|
Special charge, net |
|
|
|
22,130 |
|
|
|
|
9,374 |
|
|
|
|
|
Costs associated with transactions (a) |
|
|
|
3,585 |
|
|
|
|
10,489 |
|
|
|
|
|
Leadership transition costs |
|
|
|
3,393 |
|
|
|
|
- |
|
|
|
|
|
Certain contract start-up costs (b) |
|
|
|
3,463 |
|
|
|
|
- |
|
|
|
|
|
Noncash expenses and income, net (c) |
|
|
|
13,743 |
|
|
|
|
12,489 |
|
|
|
|
|
Unrealized (gain) loss on financial instruments |
|
|
|
(78,900 |
) |
|
|
|
11,691 |
|
|
|
|
|
Other, net (d) |
|
|
|
(2,395 |
) |
|
|
|
936 |
|
|
|
|
|
Income tax effect of reconciling items |
|
|
|
(12,540 |
) |
|
|
|
2,699 |
|
|
|
|
|
Special tax item (e) |
|
|
|
(54,272 |
) |
|
|
|
- |
|
|
|
|
|
Adjusted income from continuing operations, net of taxes |
|
|
$ |
41,357 |
|
|
|
$ |
117,331 |
|
|
|
(64.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
|
26,909 |
|
|
|
|
26,274 |
|
|
|
|
|
Add: dilutive warrant (g) |
|
|
|
- |
|
|
|
|
2,129 |
|
|
|
|
|
Add: effect of convertible notes hedges (f) |
|
|
|
- |
|
|
|
|
(240 |
) |
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
|
26,909 |
|
|
|
|
28,163 |
|
|
|
|
|
Adjusted Diluted EPS from continuing operations, net of taxes |
|
|
$ |
1.54 |
|
|
|
$ |
4.17 |
|
|
|
(63.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
For the Three Months Ended |
|
||||||||||
|
|
|
September 30, 2019 |
|
|
|
September 30, 2018 |
|
|
Percent Change |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
|
$ |
59,974 |
|
|
|
$ |
71,138 |
|
|
|
(15.7 |
)% |
Interest (income) expense, net |
|
|
|
28,611 |
|
|
|
|
28,403 |
|
|
|
|
|
Depreciation and amortization |
|
|
|
62,499 |
|
|
|
|
55,417 |
|
|
|
|
|
Income tax (benefit) expense |
|
|
|
(8,282 |
) |
|
|
|
34 |
|
|
|
|
|
EBITDA |
|
|
|
142,802 |
|
|
|
|
154,992 |
|
|
|
|
|
Customer incentive asset amortization |
|
|
|
12,796 |
|
|
|
|
4,124 |
|
|
|
|
|
Special charge, net |
|
|
|
18,861 |
|
|
|
|
- |
|
|
|
|
|
Costs associated with transactions (a) |
|
|
|
324 |
|
|
|
|
9,979 |
|
|
|
|
|
Leadership transition costs |
|
|
|
2,852 |
|
|
|
|
- |
|
|
|
|
|
Unrealized (gain) loss on financial instruments |
|
|
|
(83,175 |
) |
|
|
|
(46,080 |
) |
|
|
|
|
Other, net (d) |
|
|
|
1,150 |
|
|
|
|
846 |
|
|
|
|
|
Adjusted EBITDA |
|
|
$ |
95,610 |
|
|
|
$ |
123,861 |
|
|
|
(22.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
||||||||||
|
|
|
September 30, 2019 |
|
|
|
September 30, 2018 |
|
|
Percent Change |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
|
$ |
117,132 |
|
|
|
$ |
59,643 |
|
|
|
96.4 |
% |
Interest (income) expense, net |
|
|
|
84,597 |
|
|
|
|
78,600 |
|
|
|
|
|
Depreciation and amortization |
|
|
|
190,669 |
|
|
|
|
155,881 |
|
|
|
|
|
Income tax (benefit) expense |
|
|
|
(68,072 |
) |
|
|
|
16,828 |
|
|
|
|
|
EBITDA |
|
|
|
324,326 |
|
|
|
|
310,952 |
|
|
|
|
|
Customer incentive asset amortization |
|
|
|
26,018 |
|
|
|
|
10,010 |
|
|
|
|
|
Special charge, net |
|
|
|
22,130 |
|
|
|
|
9,374 |
|
|
|
|
|
Costs associated with transactions (a) |
|
|
|
3,585 |
|
|
|
|
10,489 |
|
|
|
|
|
Leadership transition costs |
|
|
|
3,393 |
|
|
|
|
- |
|
|
|
|
|
Unrealized (gain) loss on financial instruments |
|
|
|
(78,900 |
) |
|
|
|
11,691 |
|
|
|
|
|
Other, net (d) |
|
|
|
(429 |
) |
|
|
|
2,355 |
|
|
|
|
|
Adjusted EBITDA |
|
|
$ |
300,123 |
|
|
|
$ |
354,871 |
|
|
|
(15.4 |
)% |
|
(a) |
Costs associated with transactions in 2019 primarily relate to a customer transaction with warrants (see Note 4 to our Financial Statements) and other costs associated with our acquisition of Southern Air. Costs associated with transactions in 2018 primarily related to costs associated with our acquisition of Southern Air. |
|
(b) |
Certain contract start-up costs represent unique training aircraft costs required for a new customer contract (see Note 4 to our Financial Statements). |
|
(c) |
Noncash expenses and income, net in 2019 and 2018 primarily related to amortization of debt discount on the convertible notes (see Note 7 to our Financial Statements). |
|
(d) |
Other, net in 2019 primarily relate to a net insurance recovery, loss on early extinguishment of debt and accrual for legal matters and professional fees. Other, net in 2018 primarily relate to loss on early extinguishment of debt and accrual for legal matters and professional fees. |
|
(e) |
Special tax item represents income tax benefit from the completion of the 2015 IRS examination that are not related to ongoing operations (see Note 9 to our Financial Statements). |
|
(f) |
Economic benefit from the convertible notes hedges in offsetting dilution from the convertible notes. |
|
(g) |
Dilutive warrants represent potentially dilutive common shares related to warrants issued to a customer (see Note 4 to our Financial Statements). These warrants are excluded from Diluted EPS from continuing operations, net of taxes prepared in accordance with GAAP when they would have been antidilutive. |
34
Liquidity and Capital Resources
The most significant liquidity events during the first three quarters of 2019 were as follows:
Debt Transactions
In August 2019, we refinanced a higher-rate secured term loan with a new $74.0 million lower-rate secured five-year term loan with a final payment of $32.0 million due in August 2024 related to spare GEnx engines at a fixed rate of 2.98%.
In March 2019, we borrowed $19.7 million related to GEnx engine performance upgrade kits and overhauls under an unsecured five-year term loan at a fixed interest rate of 2.73%.
Operating Activities. Net cash provided by operating activities was $193.3 million for the first three quarters of 2019, which primarily reflected Net Income of $117.1 million, noncash adjustments of $241.3 million for Depreciation and amortization, $78.9 million for Unrealized gain on financial instruments, $68.6 million for Deferred taxes and a $11.0 million decrease in Accounts payable and accrued liabilities, and a $69.3 million increase in Prepaid expenses, current assets and other assets. Net cash provided by operating activities was $264.1 million for the first three quarters of 2018, which primarily reflected $59.6 million of Net Income (Loss), noncash adjustments of $189.7 million for Depreciation and amortization and $11.7 million for Unrealized loss on financial instruments, and a $56.2 million increase in Accounts payable and accrued liabilities. Partially offsetting these items was a $59.1 million increase in Accounts receivable and a $34.5 million increase in Prepaid expenses, current assets and other assets.
Investing Activities. Net cash used for investing activities was $208.8 million for the first three quarters of 2019, consisting primarily of $153.7 million of payments for flight equipment and modifications and $107.6 million of core capital expenditures, excluding flight equipment, partially offset by $38.1 million of proceeds from insurance. Payments for flight equipment and modifications during the first three quarters of 2019 were primarily related to 767-300 passenger aircraft and related freighter conversion costs, spare engines and GEnx engine performance upgrade kits. All capital expenditures for 2019 were funded through working capital and the financing discussed above. Net cash used for investing activities was $618.7 million for the first three quarters of 2018, consisting primarily of $543.3 million of payments for flight equipment and modifications and $84.8 million of core capital expenditures, excluding flight equipment. Payments for flight equipment and modifications during the first three quarters of 2018 were primarily related to the purchase of 777-200 aircraft, 767-300 passenger aircraft and related freighter conversion costs, spare engines and GEnx engine performance upgrade kits.
Financing Activities. Net cash used for financing activities was $136.5 million for the first three quarters of 2019, which primarily reflected $273.1 million of payments on debt, including a $66.2 million repayment of three term loans, and $9.3 million related to the purchase of treasury stock, partially offset by $93.7 million from debt issuance and $50.0 million of proceeds from our revolving credit facility. Net cash provided by financing activities was $288.9 million for the first three quarters of 2018, which primarily reflected $400.5 million of proceeds from debt issuance and $135.0 million of proceeds from revolving credit facility, partially offset by $180.7 million of payments on debt, $60.0 million of payment of revolving credit facility and $10.8 million related to the purchase of treasury stock.
We consider Cash and cash equivalents, Short-term investments, Restricted cash and Net cash provided by operating activities to be sufficient to meet our debt and lease obligations and to fund core capital expenditures for 2019. Core capital expenditures for the remainder of 2019 are expected to range between $25.0 to $35.0 million, which excludes flight equipment and capitalized interest.
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 May 2017 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 in this or the next decade. Our business operations are subject to income tax in several foreign jurisdictions. We do not expect to pay any significant cash income taxes in foreign jurisdictions for at least several years. We may repatriate the unremitted earnings of our foreign subsidiaries to the extent taxes are insignificant.
Contractual Obligations and Debt Agreements
See Notes 7 and 8 to our Financial Statements for a description of our new debt and lease obligations. See our 2018 Annual Report on Form 10-K for a tabular disclosure of our contractual obligations as of December 31, 2018 and a description of our other debt obligations and amendments thereto.
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Off-Balance Sheet Arrangements
See Note 8 to our Financial Statements for a discussion of our adoption of the new leasing guidance.
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, 2018. 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
There have been no material changes to our market risk during the nine months ended September 30, 2019. 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 2018 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 September 30, 2019. 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 September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the fiscal quarter ended September 30, 2019, the information required in response to this Item is set forth in Note 12 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 2018 Annual Report on Form 10-K.
ITEM 6. EXHIBITS
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Exhibits |
See accompanying Exhibit Index included before the signature page of this report for a list of exhibits filed or furnished with this report.
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EXHIBIT INDEX
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Description |
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10.1 |
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10.2 |
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Employment Agreement, dated as of July 1, 2019, by and between Atlas Air, Inc. and John W. Dietrich. |
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10.3 |
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10.4 |
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10.5 |
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10.6 |
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10.7 |
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10.8 |
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31.1 |
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Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. |
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31.2 |
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Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. |
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32.1 |
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101.INS |
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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. * |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. * |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. * |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. * |
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101.LAB |
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Inline XBRL Taxonomy Extension Labels Linkbase Document. * |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. * |
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104 |
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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). |
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Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018, (v) Consolidated Statements of Stockholders’ Equity as of and for the three and nine months ended September 30, 2019 and 2018 and (vi) Notes to the Unaudited Consolidated Financial Statements. |
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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.
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Atlas Air Worldwide Holdings, Inc. |
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Dated: October 30, 2019 |
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/s/ William J. Flynn |
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William J. Flynn |
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Chairman of the Board and Chief Executive Officer |
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Dated: October 30, 2019 |
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/s/ Spencer Schwartz |
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Spencer Schwartz |
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Executive Vice President and Chief Financial Officer |
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Exhibit 10.1
EXECUTION VERSION
William J. Flynn
President and Chief Executive Officer
c/o Atlas Air Worldwide Holdings, Inc.
2000 Westchester Avenue
Purchase, New York 10577
Dear Bill:
This letter (this “Letter Agreement”) serves to memorialize our mutual understanding regarding the terms and conditions of your transition from the role of President and Chief Executive Officer of Atlas Air Worldwide Holdings, Inc. (“AAWW”) and Chief Executive Officer of Atlas Air, Inc. (together with AAWW, the “Company”).
1.Transition. You have notified the Board of Directors of the Company (the “Board”) of your desire to transition from the role of President and Chief Executive Officer. The Board hereby accepts such notice and confirms that your transition will be considered a “Retirement” for purposes of the employment agreement between you and the Company, dated April 21, 2006 and as amended on December 31, 2008 and July 1, 2011 (the “Employment Agreement”), and the other benefit plans and programs in which you participate.
As we have discussed, effective as of July 1, 2019 you will cease to serve as President of AAWW, and as of the end of the day on December 31, 2019 (the “Transition Date”) you will cease to serve as Chief Executive Officer of the Company and in any other capacity as an executive, officer or employee of the Company or any of its subsidiaries or affiliates. As of January 1, 2020, you will become Chairman of the Board of AAWW. The Company agrees not to terminate your employment without “Cause”, and you agree not to terminate your employment without “Good Reason”, in each case as defined in your Employment Agreement, through the Transition Date. For the avoidance of doubt, your Employment Agreement will stay in full force and effect through the Transition Date and you acknowledge and agree that the changes in your role and responsibilities set forth in this Section 1 shall not constitute Good Reason for purposes of your Employment Agreement and the other benefit plans and programs in which you participate.
2.Entitlements upon Transition. In accordance with your Employment Agreement and the other benefit plans and programs in which you participate, your transition will entitle you to certain payments and other benefits. These payments and other benefits are set forth below:
a.Payment of 2019 Annual Incentive Award. Subject to your continued service through the Transition Date, you will be paid a non-prorated annual bonus under the Company’s Annual Incentive Program for 2019 based upon actual Company and individual performance as reasonably determined by the Compensation Committee of the Board in good faith and in accordance with past practice, payable at the same time as annual bonuses are paid to other plan participants and otherwise subject to the terms and conditions of the plan.
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b.Vesting and Settlement of Long-Term Incentive Awards. Subject to your continued service through the Transition Date, your outstanding long-term incentive awards will become vested and will be settled as follows:
(i)Time-Based Restricted Stock Units. The outstanding time-based restricted stock units that you hold as set forth on Schedule A will become vested as of the Transition Date and will be settled in Company stock as soon as practicable following the Transition Date and in no event later than 30 days following the Transition Date.
(ii)Performance-Based Restricted Stock Units. The outstanding performance-based restricted stock units that you hold as set forth on Schedule A will remain outstanding and you will be eligible to vest in such awards at the end of the applicable performance periods based upon actual Company performance as determined by the Compensation Committee of the Board (for the avoidance of doubt, determined in the same manner as in respect of the actively employed senior management team), with settlement of such awards in Company stock at the time specified in the applicable award agreements and otherwise in accordance with the Company’s long-term incentive plan and the award agreements thereunder.
(iii)Long-Term Cash Incentive Awards. The outstanding long-term cash incentive awards that you hold as set forth on Schedule A will remain outstanding and you will be eligible to vest in such awards at the end of the applicable performance periods based upon actual Company performance as determined by the Compensation Committee of the Board (for the avoidance of doubt, determined in the same manner as in respect of the actively employed senior management team), with settlement of such awards in cash at the time specified in the applicable plan document and otherwise in accordance with the Company long-term incentive plan and the award agreements thereunder.
c.401(k) Restoration and Voluntary Deferral Plan. You will be paid your full account balance under the Company’s 401(k) Restoration and Voluntary Deferral Plan on or about July 1, 2020.
d.Vacation Pay. You will be paid for all accrued but unused vacation time as of the Transition Date in a single lump sum on the Company’s next regularly scheduled payroll date after the Transition Date.
3.Other Benefits. Your active participation in all benefits and incidents of employment, including, but not limited to, the accrual of bonuses, vacation, and paid time off, and any additional 401(k) plan contributions, will cease as of the Transition Date, other than such benefits to which you are entitled in connection with this Letter Agreement or your service on the Board following the Transition Date. Vested amounts payable to you under the Company’s 401(k) and other retirement plans or agreements will be paid in accordance with the terms of such plans and agreements and applicable law. All payments hereunder will be subject to applicable deductions and withholdings as required by applicable law.
4.Release of Claims. On the Transition Date, you will execute a general release of claims in the form set forth on Schedule B of this Letter Agreement.
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5.Survival of Restrictive Covenants. You reaffirm and agree to observe and abide by the surviving Section 4.3 of the Employment Agreement.
6.Trade Secrets and Confidential Information/Company Property/Inquiries. Your signature below constitutes your representation that as of the Transition Date, you will (a) remove from any and all devices, records, files, folders, cameras, media, internet sites, electronic or digital devices, and any and all other sources, all documents, tapes, photographs, recordings, images, reproductions, electronic files, and other items provided to you by the Company and/or any of the Company’s current and former officers, directors, employees, agents, investors, attorneys, shareholders, administrators, affiliates, direct and indirect parents and subsidiaries, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries, predecessor and successor corporations and assigns, and all persons acting with or on behalf of them (collectively, the “Company Affiliates”), developed or obtained by you in connection with your employment with the Company, or otherwise belonging to the Company and/or any of the Company Affiliates, which would not be appropriate for the Chairman of the Board of AAWW to retain and (b) return all documents, tapes, photographs, recordings, images, reproductions, electronic files, and other items provided to you by the Company, developed or obtained by you in connection with your employment with the Company, or otherwise belonging to the Company, including but not limited to any personal computer(s), BlackBerry, iPhone, iPad, tapes, photographs, recordings, images, reproductions, electronic files, and other items, unless such items are necessary or appropriate for you to retain as the Chairman of the Board of AAWW. You further represent that you will not misuse or disclose any of the Company’s and/or any of the Company Affiliates’ confidential, proprietary, or trade secret information to any third party other than a law enforcement or authorized regulatory agency of the United States Government or any state or local government. In addition, you will abide by the Company’s communication policy, such that in the event you receive any media, financial community or other third-party inquiries regarding the Company, except as provided in Section 8 of this Letter Agreement, you will not respond (nor will you initiate any such contact) and will promptly notify Adam Kokas, EVP, General Counsel & Secretary at Adam.Kokas@atlasair.com.
7.Mutual Non-Disparagement. You agree to refrain from any disparaging statements, including but not limited to statements that amount to libel or slander, about the Company, its direct and indirect parents, subsidiaries or affiliated companies, and/or any of its or their current or former employees, officers, or directors, and/or any of the other Company Affiliates, including, without limitation, the business, products, intellectual property, financial standing, future, or other employment, compensation, benefit, or personnel practices of the Company and/or any of the Company Affiliates. You further agree to refrain from any disparaging statements, including but not limited to libel or slander, about any of the Company Affiliates that pertain to any personal or confidential matters that may cause embarrassment to any of the Company Affiliates or may result in any adverse effect on the professional or personal reputation of any of the Company Affiliates. The foregoing restrictions will not apply to any testimony that you are compelled by law to give (whether written or verbal). The Company agrees to refrain from any disparaging statements, including but not limited to libel or slander, about you or your immediate family that pertain to any personal or confidential matters that may cause embarrassment to you or them or may result in any adverse effect on your professional or personal reputation. For the avoidance of doubt, the Company agrees to instruct its senior officers and the Board of AAWW of its covenant under this Section 7. The foregoing
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restrictions will not apply to any testimony that any Company Affiliate is compelled to give by law (whether written or verbal).
8.Protected Communications.
a.Nothing in or about this Letter Agreement prohibits you from: (i) filing and, as provided for under Section 21F of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), maintaining the confidentiality of a claim with the Securities and Exchange Commission (the “SEC”); (ii) providing confidential information about this Letter Agreement or the Company or any of its affiliates or similar to the SEC, or providing the SEC with information that would otherwise violate any section of this Letter Agreement (including, without limitation, Section 7 (Non-Disparagement) of this Letter Agreement), to the extent permitted by Section 21F of the Exchange Act; (iii) cooperating, participating or assisting in an SEC investigation or proceeding without notifying the Company; or (iv) receiving a monetary award as set forth in Section 21F of the Exchange Act.
b.You are advised that you will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of any confidential information about this Letter Agreement or the Company or any of its affiliates that constitutes a trade secret to which the Defend Trade Secrets Act (18 U.S.C. § 1833(b)) applies that is made (i) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, in each case, solely for the purpose of reporting or investigating a suspected violation of law or (ii) in a complaint or other document filed in a lawsuit or proceeding, if such filings are made under seal.
9.Incorporated Provisions. Section 5 (Dispute Resolution), Section 6 (Severability and Enforceability) and Section 7 (Miscellaneous) from your Employment Agreement are incorporated herein by reference, mutatis mutandis.
[SIGNATURE PAGE FOLLOWS AS A SEPARATE PAGE]
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IN WITNESS WHEREOF, the parties have executed this Letter Agreement as of the date written above.
ATLAS AIR WORLDWIDE HOLDINGS, INC.
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By: |
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Name: Duncan J. McNabb Title: Chairman of the Nominating & Governance Committee
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ATLAS AIR, INC.
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By: |
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Name: Adam R. Kokas Title: Executive Vice President
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______________________________
William J. Flynn
Signature Page to Letter Agreement
EXECUTION VERSION
This Employment Agreement (the “Agreement”) is made and entered into as of the 1st day of July, 2019 (the “Effective Date”) by and between John W. Dietrich (the “Executive”) and Atlas Air, Inc., a Delaware corporation (the “Company”).
WHEREAS, the Company believes that it is in the best interests of the Company to retain the services of Executive and Executive desires to continue his employment with the Company on the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the Company and Executive warrant that the parties are entering into this Agreement voluntarily, that no promises or inducements for this Agreement have been made outside of the terms and conditions referred to herein and the parties are entering into this Agreement without reliance upon any statement or representation by the other party or any other person concerning any fact material hereto.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
1.Employment of Executive
(a)Position and Duties. During the period from the Effective Date through December 31, 2019 (the “Transition Period”), Executive shall serve as President and Chief Operating Officer of the Company and Atlas Air Worldwide Holdings, Inc. (“AAWW”), and from January 1, 2020 (the “Transition Date”) and thereafter as President and Chief Executive Officer of the Company and AAWW. The Company intends to nominate Executive to become President and Chief Executive Officer of Polar Air Cargo Worldwide, Inc. (“PAWW”) as of the Transition Date as soon as practicable following the Effective Date. The entire period of Executive’s employment under this Agreement commencing from and after the Effective Date shall be referred to as the “Employment Period”. Executive shall report to, and the scope of the Executive’s duties and responsibilities shall be determined by, the Chief Executive Officer of the Company during the Transition Period, and, as of the Transition Date and for the remainder of the Employment Period, the Board of Directors of AAWW (the “Board”) as more specifically described below. As President and Chief Executive Officer of the Company and AAWW, Executive shall have such authority, duties and responsibilities as are customarily afforded to, and within the scope of, a chief executive officer of a public company of the size and market capitalization of the Company and AAWW. Effective as of the Transition Date, Executive shall be appointed as a member of the Board. Executive shall not be entitled to any additional compensation for serving on the Board or in any other office for AAWW, the Company, PAWW or any of their subsidiaries or affiliates.
(b)Obligations of Executive. During the Transition Period and the Employment Period, Executive agrees, except when prevented by illness or Permanent Disability, or during a period of vacation, to devote substantially all of Executive’s business time and attention to the good faith performance of the duties contemplated hereby; provided, however, that Executive (i) may serve on the boards of such entities as the Board may approve in
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writing, and (ii) may perform civic and charitable work and attend to his personal finances provided that, in the case of each of clauses (i) and (ii), such activities do not materially interfere with Executive’s duties hereunder and are in compliance with Section 4 of this Agreement. During the Transition Period and the Employment Period, Executive acknowledges and agrees that his principal work location shall be Purchase, New York or such other Company headquarters as may be determined by the Board.
2.Compensation
(a)Base Salary. The Company shall pay Executive a base salary (the “Base Salary”) at a rate of $775,000 per annum during the Transition Period, and on the Transition Date the Base Salary shall be increased to $850,000 per annum, in each case less any applicable withholding and other applicable taxes and deductions and payable in accordance with the Company’s customary payroll practices. The Compensation Committee of the Board shall review the Base Salary not less frequently than annually and may increase (but not decrease) the Base Salary upon such review, taking into account, among other considerations, Executive’s performance, it being understood that any increases shall be at the sole discretion of the Compensation Committee of the Board.
(b)Incentive Bonus Payments. Executive shall continue to be eligible to participate in the Annual Incentive Plan for Senior Executives (or any successor plan), as such plan may be amended from time to time (the “Annual Incentive Plan”), during the Employment Period in accordance with the terms and conditions contained therein. Effective as of the Effective Date, Executive’s target bonus under the Annual Incentive Plan shall be increased to 100% of the Base Salary. Subject to the terms and conditions of the Annual Incentive Plan, for the 2019 Annual Incentive Plan program year, one-half of Executive’s payout shall be calculated using his base salary, target bonus percentage and maximum bonus percentage, in each case as such terms are defined in the Annual Incentive Plan, earned in respect of the portion of the 2019 program year prior to the Transition Period and one-half shall be calculated using the increased base salary, target bonus percentage and maximum bonus percentage earned in respect of the Transition Period. Any such bonus shall be paid no later than March 15th of the year following the fiscal year to which the bonus relates.
(c)Long-Term Incentive Awards. Executive shall continue to be eligible to participate in the Company’s long-term incentive program during the Employment Period. In calendar year 2020, Executive shall be eligible for a long-term incentive award with a target value equal to 375% of the then current Base Salary. All long-term incentive awards are subject to the approval of the Compensation Committee of the Board and the terms and conditions set forth in the Atlas Air Worldwide Holdings, Inc. 2018 Incentive Plan (or any successor plan), as such plan may be amended from time to time (the “Long-Term Incentive Plan”), and any related award agreements or programs.
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(i)Executive and Executive’s eligible dependents shall be entitled to participate in the Company health plans (medical, dental and vision). Executive and the Company shall each contribute to Executive’s monthly premium as provided by such plans and the policies of the Company applicable to senior executives.
(ii)The Company reserves the right to discontinue participation in any health plan at any time; provided, however, that the Company shall reimburse Executive for his cost of obtaining comparable health care benefits for him and his eligible dependents during the Employment Period, which reimbursement shall be made by the Company no later than March 15th of the year following the year in which the expense being reimbursed is incurred; and provided further that Executive shall timely submit any such reimbursement request to the Company in accordance with procedures established by the Company from time to time.
(iii)Executive shall be entitled, to the same extent and at a level commensurate with the senior executives of the Company but without duplication of any benefits provided herein, to participate in the Benefits Program for Senior Executives, as may be amended (or any successor program), and any other benefit plans or arrangements of the Company. In addition, Executive shall be entitled to six (6) weeks of paid vacation per year.
(iv)During the Employment Period, the Company shall (A) reimburse the Executive for reasonable personal financial planning services or (B) engage financial planning services for the benefit of the Executive.
(a)At-Will Arrangement. The Company and Executive expressly understand and agree that the employment relationship is at-will. Either party may terminate the Employment Period and the employment relationship upon written notice to the other at any time and for any reason. Except as otherwise provided herein, Executive shall make every reasonable effort to give the Company at least three (3) months prior written notice of Executive’s voluntary termination of employment for any reason other than for Good Reason.
(b)Rights Following Termination
(i)If the Employment Period is terminated (A) by the Company for reasons other than Cause, (B) by Executive for Good Reason or (C) due to death or Permanent Disability and, in each case, subject to Executive’s (or Executive’s legal guardian’s or estate’s, as applicable) execution of a customary general release of claims upon terms and conditions consistent with this Agreement and the Company’s standard form of release, which shall be delivered by the Company to Executive within five (5) days, and executed and become irrevocable within sixty (60) days, of the date on which the Employment Period terminates, then Executive (or, in the event of Executive’s death, Executive’s spouse, estate or covered dependents, as applicable) shall be entitled to receive:
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(1)(x) earned but unpaid Base Salary, (y) a lump-sum payment with respect to accrued but unused vacation days, and (z) any unpaid expense reimbursement due to the Executive pursuant to the Company’s applicable policies, in each case calculated through the date on which the Employment Period terminates (collectively, the “Accrued Entitlements”);
(2)subject to Section 8(e) below, an amount equal to twenty-four (24) months of the Executive’s then-current Base Salary, payable in a lump sum on the first day of the seventh month following the date on which the Employment Period terminates (the “Lump-Sum Payment Date”); and
(3)a payment with respect to the Annual Incentive Plan for the program year in which such termination occurs in an amount equal to, (x) in the event such termination occurs after June 30 of the program year, the lesser of (I) the amount Executive would have received if Executive was employed by the Company on the last day of the program year based upon actual company performance measured pursuant to the Annual Incentive Plan (and assuming for such purpose that Executive’s individual management business objections have been achieved at target), or (II) Executive’s target bonus amount (such lesser amount, the “Full Termination Bonus Amount”) or (y) in the event such termination occurs prior to July 1 of the program year, the Full Termination Bonus Amount multiplied by a fraction, the numerator of which is the number of days from the commencement of the program year in which the termination occurs until such termination and the denominator of which is 365, such payment to be subject to all the terms and conditions of the Annual Incentive Plan under which the annual bonus was granted, including, without limitation, any provisions related to whether all required performance measures for the payment of an annual bonus have been satisfied and the provisions of the Annual Incentive Plan regarding time of payment of such award.
(ii)If the Employment Period is terminated by the Company for Cause or by Executive other than for Good Reason, Executive shall be entitled to receive the Accrued Entitlements.
(iii)If, within the twelve-month period immediately following a Change in Control, the Employment Period is terminated (A) by the Company for reasons other than Cause or (B) by Executive for Good Reason, and subject to Executive’s execution of a customary general release of claims upon terms and conditions consistent with this Agreement and the Company’s standard form of release, which shall be delivered by the Company to Executive within five (5) days, and executed and become irrevocable within sixty (60) days, of the date on which the Employment Period terminates, then Executive shall be entitled to (and not in addition to) the compensation set forth in Section 3(b)(i) above and the benefits coverage set forth in Section 3(b)(iv) below, except that the amount of the payment under Section 3(b)(i)(2) above shall be equal to thirty-six (36) months of Executive’s then-current monthly Base Salary. If, within the six-month period immediately following a termination of the Employment Period by the Company for reasons other than Cause or by Executive for Good Reason, a Change in Control occurs,
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then, in addition to the compensation set forth in Section 3(b)(i) above and the benefits coverage set forth in Section 3(b)(iv) below, Executive shall receive a lump-sum payment equal to twelve (12) months of Executive’s monthly Base Salary in effect as of the date of termination, payable on the Lump-Sum Payment Date.
(iv)If the Employment Period is terminated (A) by the Company for reasons other than Cause, (B) by Executive for Good Reason, (C) due to Permanent Disability or (D) due to a Retirement, the Executive and his eligible dependents (if any) shall be entitled to, in the case of Retirement in addition to the Accrued Entitlements, continued coverage under the Company’s health plans (medical, dental and vision) in effect as of the date of his termination from employment (and as the same may thereafter be amended from time to time generally for employees of the Company); provided, however, that Executive and the Company shall each contribute on an after-tax basis to Executive’s monthly premium in an amount equal to the percent of premium each was contributing at the time of Executive’s termination from employment, as adjusted from time to time to reflect any changes in the Company’s contribution toward active employee health plan premiums; and provided further that any such continued coverage shall cease upon the earlier of (x) the Executive’s attainment of age sixty-five (65), (y) Executive becoming eligible to obtain comparable coverage in connection with subsequent employment or (z) Executive becoming eligible for Medicare coverage.
(v)If the Employment Period is terminated due to a Retirement, the Executive shall be entitled to a payment with respect to the Annual Incentive Plan for the program year in which such Retirement occurs equal to the Full Termination Bonus for such program year, such payment to be subject to all the terms and conditions of the Annual Incentive Plan under which the annual bonus was granted, including, without limitation, any provisions related to whether all required performance measures for the payment of an annual bonus have been satisfied and the provisions of the Annual Incentive Plan regarding time of payment of such award.
4.Restrictive Covenants
(a)Confidentiality. Subject to Section 4(d), or as otherwise required by applicable law, Executive recognizes and acknowledges that the business interests of the Company and its subsidiaries, parents and affiliates (including PAWW) (collectively, the “Atlas Companies” and each, an “Atlas Company”) require a confidential relationship between the Atlas Companies and Executive and the fullest protection and confidential treatment of the records, data, trade secrets, pricing policies, strategy, rate structure, personnel policy, employee lists, management methods, financial reports, computer records, know-how, plans and programs, methods, sources of supply, or practice of obtaining or doing business, or any other confidential or proprietary information of the business of the Atlas Companies (all of which are hereinafter collectively termed “Confidential Information”) which have, or may in whole or in part be conceived, learned or obtained by Executive in the course of Executive’s employment with the Company. Confidential Information shall not include (A) information that is or becomes a matter of public knowledge through no fault of Executive, (B) information rightfully received by Executive from a third party without a duty of confidentiality, or (C) information disclosed to Executive with the Company’s prior written approval for public dissemination. Accordingly,
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Executive agrees to keep secret and treat as confidential all Confidential Information whether or not copyrightable or patentable, and agrees not to use or aid others in learning of or using any Confidential Information except in the ordinary course of business and in furtherance of the Atlas Companies’ interests. During the term of this Agreement and at all times thereafter, except insofar as disclosure is necessary consistent with the Atlas Companies’ business interests:
(i)Executive shall not, directly or indirectly, disclose any Confidential Information to anyone outside the Atlas Companies;
(ii)Executive shall not make copies of or otherwise disclose the contents of documents containing or constituting Confidential Information;
(iii)As to documents which are delivered to Executive or which are made available to him as a necessary part of the working relationships and duties of Executive within the business of the Atlas Companies, Executive shall treat such documents confidentially and shall treat such documents as proprietary and confidential, not to be reproduced, disclosed or used without appropriate authority of the Atlas Companies;
(iv)Executive shall not advise others that the information or know-how included in Confidential Information is known to or used by the Atlas Companies; and
(v)Executive shall not in any manner disclose or use Confidential Information for Executive’s own account and shall not aid, assist or abet others in the use of Confidential Information for their account or benefit, or for the account or benefit of any person or entity other than the Atlas Companies.
The obligations set forth in this Section 4(a) are in addition to any other agreements Executive may have with the Company and any and all rights the Atlas Companies may have under state or federal statutes or common law.
(b)Non-Solicitation and Non-Competition
(i)Executive covenants and agrees that at no time before the second anniversary of the termination of his employment for any reason shall Executive engage in any of the following activities directly or indirectly, for any reason, whether for Executive’s own account or for the account of any other person, firm, corporation or other organization:
(1)solicit, divert, or take away any of the customers or suppliers of the Atlas Companies;
(2)solicit, entice or otherwise induce any employee of the Atlas Companies to leave the employ of the Atlas Companies for any reason whatsoever, or directly or indirectly aid, assist or abet any other person or entity in soliciting or hiring any employee of the Atlas Companies, or otherwise interfere with any contractual or other business relationships between the Atlas Companies and its employees, other than pursuant to a general advertisement for employment not specifically targeted to employees of the Atlas Companies; or
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(3)solicit, employ, or hire any employee of the Atlas Companies who has terminated his or her employment coincident with, or within the twelve-month period following, the termination of his employment.
(ii)Executive covenants and agrees that, without the consent of the Board, at no time before the first anniversary of the termination of his employment for any reason shall Executive directly or indirectly, for any reason, whether for Executive’s own account or for the account of any other person, firm, corporation or other organization or entity (including, but not limited to, the associations set forth in clauses (A)-(G) of this subsection), be or become associated with or provide advice (except in the capacity as an attorney-at-law) to (1) any air cargo carrier, (2) any air cargo division or affiliate of any other company, (3) any company that leases cargo aircraft on an ACMI, wet lease, charter or dry-lease basis, or (4) any business or organization that competes or to Executive’s knowledge intends to compete in any line of business with any Atlas Company. Notwithstanding the foregoing, Executive may during the period in which this paragraph is in effect own stock or other interests in corporations or other entities that engage in businesses the same or substantially similar to those engaged in by the Atlas Companies; provided that Executive does not, directly or indirectly (including, without limitation, as the result of ownership or control of another corporation or other entity), individually or as part of a group (as that term is defined in Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder) (A) own 1% or more of any class of security of such entity; (B) provide to the corporation or entity, whether as an executive, consultant or otherwise, advice or consultation; (C) provide to the corporation or entity any Confidential Information regarding the Atlas Companies or its businesses or regarding the conduct of businesses similar to those of the Atlas Companies; (D) hold or have the right by contract or arrangement or understanding with other parties to hold a position on the board of directors or other governing body of the corporation or entity or have the right by contract or arrangement or understanding with other parties to elect one or more persons to any such position; (E) hold a position as an officer of the corporation or entity; (F) have the purpose to change or influence the control of the corporation or entity (other than solely by the voting of his shares or ownership interest); or (G) have a business or other relationship, by contract or otherwise, with the corporation or entity other than as a passive investor in it; provided, however, that Executive may vote his shares or ownership interest in such manner as he chooses provided that such action does not otherwise violate the prohibitions set forth in this sentence.
(c)Injunctive Relief. The parties agree that in the event of Executive’s violation of this Section 4 or any subsection hereunder, that the damage to the Company shall be irreparable and that monetary damages shall be difficult or impossible to ascertain. Accordingly, in addition to whatever other remedies the Company may have at law or in equity, Executive recognizes and agrees that the Company shall be entitled to a temporary restraining order and a temporary and permanent injunction enjoining and prohibiting any acts not permissible pursuant to this Agreement. Executive agrees that should either party seek to enforce or determine its rights because of an act of Executive which the Company believes to be in contravention of this Section 4 or any subsection hereunder, the duration of the restrictions imposed thereby shall be
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extended for a time period equal to the period necessary to obtain judicial enforcement of the Company’s rights.
(d)Protected Communications
(i)Nothing in or about this Agreement prohibits Executive from: (A) filing and, as provided for under Section 21F of the Exchange Act, maintaining the confidentiality of a claim with the Securities and Exchange Commission (the “SEC”); (B) providing Confidential Information or information about this Agreement or any Atlas Company to the SEC, or providing the SEC with information that would otherwise violate any section of this Agreement, to the extent permitted by Section 21F of the Exchange Act; (C) cooperating, participating or assisting in an SEC investigation or proceeding without notifying the Company; or (D) receiving a monetary award as set forth in Section 21F of the Exchange Act.
(ii)Executive is advised that Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of any Confidential Information or information about this Agreement or any Atlas Company that constitutes a trade secret to which the Defend Trade Secrets Act (18 U.S.C. § 1833(b)) applies that is made (A) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, in each case, solely for the purpose of reporting or investigating a suspected violation of law or (B) in a complaint or other document filed in a lawsuit or proceeding, if such filings are made under seal.
5.Dispute Resolution and Choice of Law
(a)Negotiation. If a dispute between the parties arises under this Agreement, the parties shall negotiate in good faith in an attempt to resolve their differences. The obligation of the parties to negotiate in good faith shall commence immediately, and shall continue for a period of at least thirty (30) days (“Negotiation”). If Negotiation fails to resolve a dispute between the parties within the first thirty (30) days, the parties may proceed to mediation (a “Mediation”).
(b)Mediation
(i)If a dispute between the parties arises under this Agreement and has not been resolved under the Negotiation procedures described herein, either party may request, by written notice to the other party, that Negotiation be facilitated by a single mediator, to be selected by the parties (the “Mediator”). The other party may, but is not required to, agree to such a process.
(ii)If the parties agree to pursue Mediation, the parties shall select the Mediator within ten (10) days after receipt of notice. If the parties are unable to agree on the Mediator, the Mediator shall be selected by the Company, but the selected Mediator shall be independent of the Company and its affiliates. The fees of the Mediator shall be divided equally between the parties.
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(iii)With the assistance of the Mediator, the parties shall continue Negotiation in good faith for a period not to exceed thirty (30) days. If the parties are unable to reach agreement during this period, the Mediator shall be discharged.
(c)Disputes
(i)All disputes, claims, or causes of action arising out of or relating to this Agreement or the validity, interpretation, breach, violation, or termination thereof not resolved by Mediation, shall be determined and settled by arbitration, to be conducted in the State of New York, USA, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) in effect at the date of arbitration (“Arbitration”).
(ii)This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to principles of conflict of laws.
(iii)Any Arbitration commenced pursuant to this Agreement shall be conducted by a single neutral arbitrator, who shall have a minimum of three (3) years of commercial experience (the “Arbitrator”). The parties shall meet within ten (10) days of failure to resolve by Mediation to attempt to agree on an Arbitrator. Absent agreement at this meeting, the Arbitrator shall be selected by AAA. Such Arbitrator shall be free of any conflicts with the Company and shall hold a hearing within thirty (30) days of the notice to Executive.
(iv)If the terms and conditions of this Agreement are inconsistent with the Commercial Arbitration Rules of the AAA, the terms and conditions of this Agreement shall control.
(v)The parties hereby consent to any process, notice, application or document in connection with Arbitration being served by (A) certified mail, return receipt requested; (B) by personal service; or (C) in such other manner as may be permissible under the rules of the Arbitration tribunal; provided, however, that a reasonable time for appearance is allowed. The parties further agree that Arbitration proceedings must be instituted within one (1) year after the occurrence of any dispute, and failure to institute Arbitration proceedings within such time period shall constitute an absolute bar to the institution of any proceedings and a waiver of all claims. In any legal proceedings relating to this Agreement, the parties shall equally divide all costs and expenses incurred in such proceeding and related legal proceedings; provided, however, that the Executive shall, if substantially successful in the final decision as to such dispute, be entitled to recover all of his costs and expenses (including attorneys’ fees). Any amount payable by the Company pursuant to the immediately preceding sentence shall be paid in compliance with Section 8(e) below.
(vi)The judgment of the Arbitrator shall be final and either party may submit such decision to courts for enforcement thereof.
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6.Severability and Enforceability
It is expressly acknowledged and agreed that the covenants and provisions hereof are separable and that the enforceability of one covenant or provision shall in no event affect the full enforceability of any other covenant or provision herein. Further, it is agreed that, in the event any covenant or provision of this Agreement is found by any court of competent jurisdiction or Arbitrator to be unenforceable, illegal or invalid, such invalidity, illegality or unenforceability shall not affect the validity or enforceability of any other covenant or provision of this Agreement. In the event a court of competent jurisdiction or an Arbitrator would otherwise hold any part hereof unenforceable by reason of its geographic or business scope or duration, said part shall be construed as if its geographic or business scope or duration had been more narrowly drafted so as not to be invalid or unenforceable.
7.Definitions
For purposes of this Agreement:
(a)“Cause” means (i) Executive’s refusal or failure (other than during periods of illness or disability) to perform Executive’s material obligations, duties and responsibilities to any Atlas Company, (ii) the conviction or plea of guilty or nolo contendere of Executive 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 any Atlas Company including, without limitation, any breach of written policies of the Company with respect to trading in securities, (iv) any other act of fraud, including, without limitation, misappropriation, theft or embezzlement, or (v) a violation of any applicable material written corporate policy of any Atlas Company, including, without limitation, a violation of the laws against workplace discrimination. The Executive shall have a period of at least fifteen (15) business days after written notice from the Company (which notice must contain sufficient specificity detailing any alleged deficiency hereunder) to cure the deficiency leading to a Cause allegation under clause (i) of the preceding sentence before a Cause determination can be finally made by the Board, which determination must be made by the Board in writing after the conclusion of such cure period by at least a majority of the members of the Board excluding Executive.
(b)“Change in Control” shall mean the occurrence of either (A) a “Change in Control” as defined under the terms of the Long-Term Incentive Plan (or any subsequent incentive equity plan adopted by the Company or AAWW that supersedes the Long-Term Incentive Plan at any relevant time), or (B) a “change in control event” (as that term is defined at Section 1.409A-3(i)(5) of the Treasury Regulations) with respect to AAWW, which generally shall include the following events, subject to such additional rules and requirements as may be set forth in the Treasury Regulations and related guidance:
(i)a transfer or issuance of stock of AAWW, where stock in AAWW remains outstanding after the transaction, and one person, or more than one person acting as a group (as determined under the Treasury Regulations), acquires ownership of stock in AAWW that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of AAWW (however, if a person or group is considered to own more than 50% of the total fair
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market value or 30% of the total voting power of the stock of AAWW, the acquisition of additional stock by the same person or group shall not be considered a change in control for purposes of this Section 7(b));
(ii)the acquisition by a person or group, during the twelve-month period ending on the date of the most recent acquisition by such person or group, of ownership of stock possessing 30% or more of the total voting power of AAWW (however, if a person or group is considered to control AAWW within the meaning of this sentence (i.e., owns stock of AAWW possessing 30% or more of the total voting power of AAWW), then the acquisition of additional control shall not be considered a change in control for purposes of this Section 7(b));
(iii)the replacement of a majority of members of the Board during any twelve-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; or
(iv)the acquisition by a person or group, during the twelve-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, as determined under the Treasury Regulations (however, a transfer of assets to certain related persons, as provided under the Treasury Regulations, or to an entity that is controlled by the shareholders of AAWW immediately after the transfer, shall not be considered a change in control for purposes of this Section 7(b)).
(c)“Good Reason” means (i) a reduction in the Base Salary or percentage target bonus opportunity or a material reduction in the target long-term incentive award opportunity, in each case as then in effect, (ii) a material reduction in the benefits provided Executive, except where such reduction is part of a general reduction in benefits effectuated by the Compensation Committee of the Board which is equally applicable to all senior executives of the Company, (iii) a reduction in Executive’s title, a material reduction in job responsibilities, or a material change in Executive’s reporting relationship, or (iv) following a Change in Control, an attempted relocation of Executive to a position that is located greater than forty (40) miles from the location of such Executive’s most recent principal location of employment with the Company; provided, however, that Executive shall be treated as having resigned due to Good Reason only if he provides the Company with a notice of termination within ninety (90) days of the initial existence of one of the conditions described above, following which the Company shall have thirty (30) days from the receipt of the notice of termination to cure the event specified in the notice of termination and, if the Company fails to so cure the event, Executive must terminate his employment no later than thirty (30) days following the end of such cure period.
(d)“Permanent Disability” shall be deemed to have been sustained by Executive if Executive shall have been continuously disabled from performing the duties assigned to Executive during the Employment Period for a period of six (6) consecutive calendar months, and such Permanent Disability shall be deemed to have commenced on the day following the end of such six (6) consecutive calendar months. Notwithstanding the foregoing,
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in the event that, as a result of an absence because of mental or physical incapacity or other impairment, Executive incurs an earlier “separation from service” within the meaning of Section 409A, Executive shall on such date automatically be terminated from employment with the Company, and the Employment Period shall terminate, as a result of Permanent Disability.
(e)“Retirement” shall mean (i) for purposes of Section 3(b)(iv) of this Agreement, a termination of the Employment Period by the Executive on or after the Executive (A) attains age fifty-five (55) and has completed ten (10) years of service with the Company, and (B) has given not less than three (3) months’ advanced written notice of such proposed Retirement to the Board and (ii) for purposes of Section 3(b)(v) of this Agreement, a termination of the Employment Period by the Executive on or after the Executive (A) attains age sixty (60) and has completed ten (10) years of service with the Company, and (B) has given not less than six (6) months’ advanced written notice of such proposed Retirement to the Board.
8.Miscellaneous
(a)No Mitigation. The amounts to be paid to Executive are net to Executive, without any reduction or duty to mitigate, except for taxes, other governmental charges or amounts owed to the Company by Executive, and all payments to be made hereunder shall be net of all applicable income and employment taxes required to be withheld therefrom.
(b)No Waiver Except in Writing; Counterparts. No waiver, or modification of this Agreement or any of the terms and conditions set forth herein shall be effective unless submitted to a writing duly executed by the parties. This Agreement may be executed in counterparts (including by electronic or PDF signatures), each of which shall be considered an original and together all of which shall constitute one and the same instrument.
(c)Successors and Assigns. This Agreement shall be binding on the Company and any successor thereto, whether by reason of merger, consolidation or otherwise. The duties and obligations of Executive may not be assigned by Executive.
(d)Section 280G of the Code. Notwithstanding any other provision in this Agreement or any other agreement, contract, or understanding entered into by Executive with any Atlas Company, in the event that it is determined by the reasonable computation by a nationally recognized certified public accounting firm that shall be selected by the Company (the “Accountant”) that the aggregate amount of the payments, distributions, benefits and entitlements of any type payable by any Atlas Company to or for Executive’s benefit under this Agreement or any other formal or informal plan or other arrangement, contract or understanding (including any payment, distribution, benefit or entitlement made by any person or entity effecting a change of control), in each case, that could be considered “parachute payments” within the meaning of Section 280G of the Code (such payments, the “Parachute Payments”) that, but for this Section 8(d), would be payable to Executive, exceeds the greatest amount of Parachute Payments that could be paid to Executive without giving rise to any liability for any excise tax imposed by Section 4999 of the Code (or any successor provision thereto) or any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest or penalties, being hereafter collectively referred to as the “Excise Tax”), then the aggregate amount of Parachute Payments payable to
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Executive shall not exceed the amount which produces the greatest after-tax benefit to Executive after taking into account any Excise Tax to be payable by Executive. For the avoidance of doubt, this provision shall reduce the amount of Parachute Payments otherwise payable to Executive only if doing so would place Executive in a better net after-tax economic position as compared with not doing so (taking into account the Excise Tax payable in respect of such Parachute Payments and after taking into account amounts determined by the Accountant that could mitigate the Parachute Payments, including, but not limited to, determining the value of non-compete and other restrictive provisions and other payments for services to be made after the change in control). If required, the Company shall reduce or eliminate the Parachute Payments by first reducing or eliminating the portion of the Parachute Payments that are payable in cash and then by reducing or eliminating the non-cash portion of the Parachute Payments, in each case in reverse order beginning with payments or benefits which are to be paid the furthest in time from the date of the Accountant’s determination.
(i)It is intended that the provisions of this Agreement comply with or are exempt from Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”), and all provisions of this Agreement shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.
(ii)Notwithstanding anything to the contrary in this Agreement, if at the time of Executive’s termination of employment, Executive is a “specified employee,” as defined in Section 1.409A-1(i) of the Treasury Regulations, any and all amounts payable under this Agreement on account of such separation from service that constitute deferred compensation and would (but for this provision) be payable within six (6) months following the date of termination, shall instead be paid on the next business day following the expiration of such six-month period or, if earlier, upon Executive’s death; except (A) to the extent of amounts that do not constitute a deferral of compensation within the meaning of Section 1.409A-1(b) of the Treasury Regulations, as determined by the Company in its reasonable good-faith discretion or (B) other amounts or benefits that are not subject to the requirements of Section 409A.
(iii)Except as permitted under Section 409A, any deferred compensation (within the meaning of Section 409A) payable to or for Executive’s benefit under this Agreement may not be reduced by, or offset against, any amount owing by Executive to the Company. Except as specifically permitted by Section 409A, the benefits and reimbursements provided to Executive under this Agreement during any calendar year shall not affect the benefits and reimbursements to be provided to Executive under the relevant section of this Agreement in any other calendar year, and the right to such benefits and reimbursements cannot be liquidated or exchanged for any other benefit and shall be provided in accordance with Section 1.409A-3(i)(1)(iv) of the Treasury Regulations or any successor thereto. Further, in the case of reimbursement payments, such payments shall be made to Executive on or before the last day of the calendar year following the calendar year in which the underlying fee, cost or expense is incurred.
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(iv)Each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement is to be treated as a right to a series of separate payments.
(v)Notwithstanding anything to the contrary in this Agreement, none of any Atlas Company, the Board, or any person acting on behalf of any Atlas Company or the Board, shall be liable to Executive or to the estate or beneficiary of Executive by reason of any acceleration of income, or any additional tax, asserted by reason of the failure of this Agreement or any payment hereunder to satisfy the requirements of Section 409A or by reason of Section 4999 of the Code.
(f)Full Understanding. Executive declares and represents that Executive has carefully read and fully understands the terms of this Agreement, has had the opportunity to obtain advice and assistance of counsel with respect thereto, and knowingly and of Executive’s own free will, without any duress, being fully informed and after due deliberation, voluntarily accepts the terms of this Agreement and represents that the execution, delivery and performance of this Agreement does not violate any agreement to which Executive is subject.
(g)Expenses. The Company shall reimburse Executive on an after-tax basis for reasonable legal expenses incurred in connection with the negotiation of this Agreement in an amount not to exceed $25,000.
(h)Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and shall be deemed to have been duly given (i) if sent by registered or certified mail in the United States, return receipt requested, upon receipt, (ii) if sent by nationally recognized overnight air courier, one business day after mailing, (iii) if sent by email or facsimile transmission, with a copy mailed on the same day in the manner provided in clauses (i) or (ii) of this Section 8(h) when transmitted and receipt is confirmed, or (iv) if otherwise actually personally delivered, when delivered. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice.
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If to the Company: |
Atlas Air, Inc.
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Attn: Adam Kokas, EVP, General Counsel & Secretary
If to Executive:At the most recent address on record at the Company.
(i)Entire Agreement. This Agreement sets forth the entire agreement and understanding between the parties with respect to the subject matter hereof and (except for any prior indemnity agreements or long-term incentive award agreements) supersedes all prior
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agreements, arrangements, and understandings between the parties with respect to the subject matter hereof.
[SIGNATURE PAGE FOLLOWS AS A SEPARATE PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement to be effective on the date and year first above written.
ATLAS AIR, inc.
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By: |
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Name: /s/ Duncan J. McNabb |
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Title: Director |
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EXECUTIVE
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/s/ John W. Dietrich |
Signature Page to Employment Agreement
Exhibit 10.3
EXECUTION VERSION
July 1, 2019
[Name]
[Address]
Re: Retention Bonus
Dear [Name],
We are pleased to offer you a cash incentive bonus opportunity to remain in the employ of Atlas Air, Inc. (the “Company”) and to promote the long-term success of the Company’s business operations. We are offering you the retention bonus opportunity described in this letter agreement because we recognize your importance to the success of our business, and to reinforce our belief that you, together with the other members of our senior management team, have the potential to make a significant impact on our future growth.
Retention Bonus
You will be eligible to receive a cash retention bonus equal to $1,500,000 (the “Retention Bonus”), $500,000 of which will vest on December 31, 2020 and $1,000,000 of which will vest on December 31, 2021 (each, a “Vesting Date”). The applicable portion of your Retention Bonus will be paid on the next payroll date following the applicable Vesting Date, less applicable withholding taxes, subject to you remaining continuously employed with the Company or one of its subsidiaries, parents and affiliates (collectively, the “Atlas Companies” and each, an “Atlas Company”) through the applicable Vesting Date.
Notwithstanding the foregoing, your full unpaid Retention Bonus will become immediately vested and payable upon: (i) termination of your employment by the Company without Cause, (ii) your resignation for Good Reason, (iii) your untimely death, or (iv) your Permanent Disability, provided that, in the case of termination of your employment without Cause or your resignation for Good Reason, you timely execute a customary general release of claims. Any unpaid portion of your Retention Bonus will be forfeited if you are terminated for Cause or you resign without Good Reason prior to a Vesting Date.
For the avoidance of doubt, your Retention Bonus is in addition to any other benefits you may already be entitled to receive pursuant to other agreements and arrangements that you may have previously entered into with the Company.
Definitions
For the purposes of this letter agreement, the following terms shall have the meanings set forth below:
1. |
“Cause” shall mean (i) your refusal or failure (other than during periods of illness or disability) to perform your material duties and responsibilities to an Atlas Company, (ii) your conviction or plea of guilty or nolo contendere in respect of any felony, other than a motor vehicle offense, (iii) your commission of any act which causes material injury to the reputation, business or business relationships of any Atlas Company, including, without limitation, any breach of written policies of the Company with respect to trading in securities, (iv) your commission of any other act of fraud, including, without limitation, misappropriation, theft or embezzlement, or (v) your violation of any applicable material policy of any Atlas Company, including, without limitation, a violation of the laws against workplace discrimination. |
2. |
“Change in Control” shall mean the occurrence of a “Change in Control” as defined under the terms of the Atlas Air Worldwide Holdings, Inc. 2018 Incentive Plan (or any subsequent incentive equity plan adopted by Atlas Air Worldwide Holdings, Inc. that supersedes the 2018 Incentive Plan at any relevant time). |
3. |
“Good Reason” shall mean (i) a material reduction in your annual base salary, percentage target bonus opportunity, or target long-term incentive award opportunity, in each case as then in effect, or other material benefits provided to officers of the Company, except where such reduction is part of a general reduction in salary or benefits by the Company, (ii) a material reduction in your title or job responsibilities or (iii) following a Change in Control, an attempted relocation of your position to a position that is located greater than forty (40) miles from the location your most recent principal location of employment with the Company; provided, however, that you shall be treated as having resigned due to Good Reason only if you provide the Company with a notice of termination within ninety (90) days of the initial existence of one of the conditions described above, following which the Company shall have thirty (30) days from the receipt of the notice of termination to cure the event specified in the notice of termination and, if the Company fails to so cure the event, you must terminate your employment not later than thirty (30) days following the end of such cure period. |
4. |
“Permanent Disability” shall mean you have been continuously disabled from performing the duties assigned to you during your employment for a period of six (6) consecutive calendar months, and such Permanent Disability shall be deemed to have commenced on the day following the end of such six (6) consecutive calendar months. Notwithstanding the foregoing, in the event that, as a result of an absence because of mental or physical incapacity or other impairment, you incur an earlier “separation from service” within the meaning of Section 409A of the Internal Revenue Code, you shall on such date automatically be terminated from employment with the Company, and your employment shall terminate, as a result of Permanent Disability. |
Miscellaneous
You acknowledge and agree that nothing in this letter agreement shall confer upon you any right to continue in the employ of any Atlas Company, or interfere in any way with any right of any Atlas Company to terminate such employment at any time for any reason whatsoever (whether for Cause or without Cause) without liability to an Atlas Company, except as may be specifically provided in this letter agreement.
Your Retention Bonus granted hereunder will not be deemed to create a trust or other funded arrangement. Your rights with respect to the Retention Bonus will be those of a general unsecured creditor of the Company, and under no circumstances will you have any other interest in any asset of the Company by virtue of the Retention Bonus.
No agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this letter agreement have been made or entered into by either party with respect to the subject matter hereof. This letter agreement is governed by the laws of the State of New York without regard to its conflict-of-law rules.
We remain excited about the continued growth and success that awaits Atlas Air Worldwide Holdings, Inc. and the Company, and each of our roles in executing on our long-term strategic plan. Thank you for your efforts on behalf of the Company.
ATLAS AIR, INC.
By:
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Name: |
John W. Dietrich |
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Title: |
President and Chief Operating Officer |
Acknowledged and agreed:
[Name]
Exhibit 10.4
EXECUTION DRAFT
ATLAS AIR WORLDWIDE HOLDINGS, INC.
BENEFITS PROGRAM FOR SENIOR EXECUTIVES
Amended and Restated as of July 1, 2019
This document describes the Atlas Air Worldwide Holdings, Inc. (“Holdings”) Benefits Program for Senior Executives (the “Benefits Program”), under which individuals employed and elected as Executive Vice Presidents (or more senior offices) of Holdings and certain of its operating subsidiaries, including Atlas Air, Inc. (“Atlas”), Polar Air Cargo Worldwide, Inc. (“Polar”) and Titan Aviation Leasing, Ltd. (“Titan”) (such individuals are hereinafter referred to as “Executives”) are eligible to participate. This Benefits Program is effective as of July 1, 2019, and amends and restates the Atlas Air Worldwide Holdings, Inc. Benefits Program for Senior Executives dated January 1, 2015, as amended and restated as of January 1, 2018. For purposes of the Benefits Program, “Company” shall be defined as Holdings together with Atlas, and subject to confirmation of the Compensation Committee of the Board of Directors of Holdings, Polar, Titan, or any other operating subsidiary of Holdings.
Individuals employed and elected as Executive Vice Presidents (or more senior offices) of Holdings or Atlas are eligible to participate in the Benefits Program. Individuals employed and elected as Executive Vice Presidents (or more senior offices) of Polar, Titan, or any other operating subsidiary of Holdings may participate in the Benefits Program only if expressly approved for such participation by the Compensation Committee of the Board of Directors of Holdings.
All references in this document to the Compensation Committee or the Board of Directors refer to those bodies of Holdings. All references to the “Employer” are to the Company entity employing the Executive.
.I. Annual Salary.
Each Executive will receive a base annual salary (“Base Annual Salary”) reviewed at least every other year for possible increases by the Compensation Committee. Included among other considerations in the annual review will be the Executive’s individual job performance. Increases, if any, shall be at the discretion of the Compensation Committee.
II. Annual Bonus Plan.
Each Executive shall be eligible to participate in Holdings’ Annual Incentive Plan for Senior Executives or successor plan (the “Annual Incentive Plan”) at the Executive Vice President or higher level, as applicable. The Executive’s applicable annual bonus participation level will be set forth in the Annual Incentive Plan and will be awarded in consideration of individual and company performance based on performance goals and objectives determined by the Compensation Committee. A complete description of the effect of company and individual performance attainment on bonuses payable is described in the Annual Incentive Plan and any exhibits incorporated thereto (the “AIP Plan Document”). The AIP Plan Document is developed by the Compensation Committee and is subject to amendment from time to time with changes as adopted by the Compensation Committee or Board of Directors of Holdings, as applicable. Subject to the full language of the AIP Plan Document, attainment of company and individual performance in combination generally permits the Executive to earn a target bonus equal to at least 85% of Base Annual Salary for Executive Vice Presidents, 90% for Executive Vice Presidents of Holdings who also hold the title of President of Atlas or Chief Executive Officer of Titan and 100% for the
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Chief Executive Officer of Holdings and Atlas as may be adjusted upward by the Compensation Committee. Company or individual performance attainment at levels below the applicable goals set forth in the AIP Plan Document may cause bonus payments to be in lesser percentage amounts, as applicable, of Base Annual Salary or result in no bonus being payable. Company and individual performance attainment at levels above the applicable goals may result in the bonus being greater percentage amounts as applicable, of Base Annual Salary. When the bonus payment reaches more than 85%, 90%, or 100%, as applicable, of Base Annual Salary, the Employer reserves the right to pay some or all of the portion of the bonus that is above 50% of Base Annual Salary in Holdings unrestricted common stock payable under the Atlas Air Worldwide Holdings, Inc. 2018 Incentive Plan, as may be amended or superseded, or any successor plan, subject to the terms and conditions of such plan and any applicable award agreement issued in connection with such award of unrestricted Holdings stock. Any bonus paid to Executive under the Annual Incentive Plan will be paid no later than two weeks following the completion of the year-end audit for the applicable performance year, but in no event later than March 15 of the year following the applicable performance year unless otherwise provided in the Annual Incentive Plan.
III.Health Benefits.
Each Executive and each such Executive’s eligible dependents shall be entitled to participate in the medical, dental and vision care plans (the “Health Insurance Plans”) offered by the Employer, provided that the Executive and the Employer will each contribute to the Executive’s monthly premium as provided by such Health Insurance Plan, except following an Executive’s termination such Executive’s monthly premium charged under such plan shall be paid in the manner described in Section IV or Section V below, as applicable, subject to the terms and conditions of the applicable Health Insurance Plan. The Employer reserves the right to modify or discontinue any Health Insurance Plan at any time with the understanding that the Employer will comply in full measure with all applicable state and federal laws relating to employer-provided health care coverage, including without limitation the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the Patient Protection and Affordable Care Act of 2010, each as may be amended or superseded.
If an Executive enrolls in Medicare while actively employed and covered by the Health Insurance Plans, then the Health Insurance Plans will be primary and Medicare will be considered the secondary payer.
IV.Severance.
A. If an Executive’s employment is terminated (i) by the Employer for reasons other than Cause (as defined below), (ii) due to Executive’s Permanent Disability (as defined below), or (iii) by the Executive for Good Reason (as defined below), and subject, in each case, to the Executive’s execution of a release upon terms and conditions reasonably acceptable to the Employer and Executive (such acceptance not to be unreasonably withheld), which release must be presented to Executive, executed, no longer be subject to revocation, and become effective no later than the sixtieth (60th) day following the date of termination, then the Executive shall be entitled to:
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(i) receive a severance payment equal to twenty-four (24) months of the Executive’s monthly Base Annual Salary, at the rate in effect on the date of termination, and except as otherwise required by Section XII below, all severance pay to which the Executive is entitled shall be in the form of salary continuation, payable in accordance with the normal payroll practices of the Employer for its executives (each such payment to be treated as a separate payment under Section 409A of the Internal Revenue Code), with the first payment, which shall be retroactive to the day immediately following the date the Executive’s employment terminated, being due and payable on the later of the sixty-first (61st) day following the date of termination or the date specified in Section XII below (if applicable) (the “Lump-Sum Payment Date”);
(ii)provided Executive timely elects COBRA coverage for himself or herself and any eligible dependents and submits the applicable COBRA premium payments on a timely basis, reimbursement on an after-tax basis of the employer portion of COBRA premiums for a period of twelve (12) months from the date of termination; provided, however, that any such reimbursement shall cease in the event the Executive obtains comparable coverage in connection with subsequent employment or otherwise or becomes eligible for Medicare coverage; and
(iii) receive a payment with respect to an annual bonus award under the Annual Incentive Plan for the year in which such termination occurred, as may be provided under the AIP Plan Document and such payment shall be subject to all other terms and conditions of the AIP Plan Document under which the award was granted, including without limitation any provisions related to whether all required performance measures for the payment of an award have been satisfied and the provisions of the Annual Incentive Plan regarding the timing of payment of such award.
The above benefits are in addition to an Executive’s right to receive accrued but unused vacation pay through the date the employment period terminates, and all other benefits in which the Executive is vested pursuant to other plans and programs of the Company at the time of the Executive’s date of termination.
Upon the death of an Executive while severance payments are due to the Executive, the Executive’s personal representative shall be entitled to the unpaid severance payments described in this Section IV.A and the Executive’s spouse and eligible dependents, if any, shall be entitled to the health coverage described under this Section IV.A, except that the remaining severance payments under this Section IV.A shall be made in a lump sum within (10) days immediately following the Company’s receipt of notice of Executive’s death.
In the event that any of the above benefits as described could reasonably result in adverse tax or legal consequences to the Company, the Company will provide in good faith a reasonable equivalent to the affected benefit(s).
B.If an Executive’s employment is terminated by the Employer for Cause or if the Executive resigns for other than Good Reason, the Executive shall be entitled to receive only the Executive’s accrued but unpaid Base Annual Salary and accrued but unused vacation as of the date of termination.
C.“Good Reason” as used herein shall mean (i) a material reduction in the
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Executive’s Base Annual Salary, percentage target bonus opportunity under the Annual Incentive Plan, or target long-term incentive award opportunity, in each case as then in effect, or other material benefits provided to officers of the Company, except where such reduction is part of a general reduction in salary or benefits by the Company, (ii) a material reduction in the Executive’s title or job responsibilities, or (iii) following a Change in Control of Holdings, an attempted relocation of the Executive to a position that is located greater than forty (40) miles from the location of such Executive’s most recent principal location of employment with the Company; provided, however, that the Executive will be treated as having resigned due to Good Reason only if he or she provides the Company with a notice of termination within ninety (90) days of the initial existence of one of the conditions described above, following which the Company shall have thirty (30) days from the receipt of the notice of termination to cure the event specified in the notice of termination and, if the Company fails to so cure the event, the Executive must terminate his or her employment not later than thirty (30) days following the end of such cure period.
D.“Cause” as used herein shall mean (i) the Executive’s refusal or failure (other than during periods of illness or disability) to perform the Executive’s material duties and responsibilities to the Employer or Company, as applicable, (ii) the conviction or plea of guilty or nolo contendere of the Executive 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 the Company or any of its subsidiaries including, without limitation, any breach of written policies of the Company with respect to trading in securities, (iv) any other act of fraud, including, without limitation, misappropriation, theft or embezzlement, or (v) a violation of any applicable material policy of the Company or any of its subsidiaries, including, without limitation, a violation of the laws against workplace discrimination.
E.“Permanent Disability” as used herein shall mean, in the Company’s sole determination, an Executive having been continuously disabled from performing the duties assigned to the Executive for a period of six (6) consecutive calendar months. Notwithstanding the foregoing, in the event that, as a result of an absence because of a medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, the Executive incurs an earlier “separation from service” within the meaning of Section 409A of the Internal Revenue Code, as may be amended (“Section 409A”), the Executive shall on such date automatically be terminated from employment as a result of Permanent Disability.
V.Continued Health Coverage.
A.Notwithstanding Section IV.A(ii) above, if an Executive has attained age fifty-five (55) and completed ten (10) years of service with an Employer and such Executive’s employment is terminated (i) by the Employer for reasons other than Cause, (ii) due to Executive’s Permanent Disability, (iii) by the Executive for Good Reason, or (iv) by reason of Executive’s Retirement (as defined below), the Executive and his or her eligible dependents, if any, will continue to be eligible to participate in the Health Insurance Plans until such Executive is Medicare eligible, subject to the terms and conditions of such Health Insurance Plans and this Section V (the “Continued Health Insurance Coverage”).
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B.The Continued Health Insurance Coverage is available to the Executive so long as health coverage is not otherwise available to the Executive through another future employer or other company receiving services from the Executive.
C.The Continued Health Insurance Coverage will be available to the Executive’s dependents if, and only if, they meet the definition of an “eligible dependent” as that term, or other similar term, is defined under the applicable Health Insurance Plans.
D.The Executive (and his or her eligible dependents, if any) will be eligible to participate in the Health Insurance Plans on an after-tax “COBRA” basis, until the Executive becomes eligible for Medicare.
E.Except as otherwise provided in Section IV.A(ii) above or in an Executive’s individual employment agreement, the Company reserves the right to amend or terminate the Health Insurance Plans or the Continued Health Insurance Coverage described in this Section V, in any way and at any time, to the maximum extent permitted by law. No Executive or retiree (or any of his or her dependents) will have any vested rights to medical, dental, or vision coverage or benefits, except as may be required under applicable laws.
F.For purposes of this Benefits Program, “Retirement” shall mean a termination of an Executive’s employment by the Executive on or after such Executive (i) attains age fifty-five (55) and has completed ten (10) years of service with an Employer, 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 Holdings or, in the event of a proposed Retirement of the then current Chief Executive Officer of Holdings such notice must be given to the Chairman of the Board of Directors of Holdings; provided, however, that if such Executive is terminated by his or her Employer for Cause after providing such advanced written notice, such termination shall not be considered a Retirement, as defined herein.
VI.Change in Control.
A.If, within the twelve-month period immediately following a Change in Control of Holdings (defined below), the Executive’s employment is terminated by the Employer for reasons other than Cause or if the Executive resigns for Good Reason, and subject to the Executive’s execution of a general release upon terms and conditions consistent with this Benefits Program and acceptable to the Employer and the Executive (such acceptance not to be unreasonably withheld), which release must be presented to Executive upon or promptly after termination of the Executive’s employment, fully executed, no longer subject to revocation, and become effective no later than the sixtieth (60th) day following the date on which the Executive’s employment terminates, then the Executive shall be entitled to the compensation and benefit coverage set forth in Section IV.A above, except that the severance payments in Section IV.A shall be in the form of a single lump-sum payment payable on the Lump-Sum Payment Date in an amount equal to thirty six (36) months of the Executive Vice President’s Base Annual Salary, as applicable.
B.If, within the six-month period immediately following a termination of the Executive’s employment by the Employer for reasons other than Cause or by the Executive for
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Good Reason, a Change in Control of Holdings occurs, then, in addition to the payment set forth in Section IV.A above (which shall be paid in the manner specified in Section IV.A above), and subject to satisfaction by the Executive of the release requirements of Section IV.A above, the Executive shall receive a lump-sum payment on the Lump-Sum Payment Date equal to twelve (12) months (in the case of an Executive Vice President) of the Executive’s Base Annual Salary, as applicable.
C.For purposes of this Benefits Program, “Change in Control of Holdings” 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 ownership or beneficial ownership of Holdings 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 Holdings;
(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 Holdings securities that constitute 30% or more of the total fair market value of the issued and outstanding shares or the total voting power of Holdings;
(iii)the replacement of a majority of members of Holdings’ Board of Directors during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of Holdings’ Board of Directors 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 Holdings 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 Holdings; or
(v)the consummation of a complete liquidation or dissolution of Holdings.
For purposes of determining whether a Change in Control of Holdings has occurred (i) shares of Holdings received upon conversion of an option or warrant is considered to be an acquisition of shares of Holdings and (ii) in the event the persons who were beneficial owners of Holdings 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 Holdings (including a corporation or entity that, as a result of such transaction, owns Holdings or all or substantially all of Holdings’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 of Holdings.
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 of Holdings for purposes
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of this Benefits Program only if such Change in Control of Holdings 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 of Holdings, even if payment of such amounts may not accelerate pursuant to this sentence).
D.To the extent that any capitalized term defined in this Section VI conflicts or is otherwise inconsistent with any defined term set forth in any employment agreement, incentive program or other compensation or incentive arrangement which an Executive may be a party to with Holdings, Atlas, Polar or Titan, the meaning of the capitalized term as defined in this Section VI will govern.
VII. Vacation.
Each Executive shall be entitled to at least four weeks of paid vacation per year, prorated for partial years of employment.
VIII.401(k) Plan, Annual Executive Physical and Other Benefits.
Each Executive shall be eligible to participate in the Employer’s 401(k) plan and any other pension or welfare plan generally available from time to time to Executives or other employees of the Employer, the latter as determined by the Compensation Committee, as well as an annual executive physical as administered by the Benefits Department.
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IX. |
Non-Competition |
As a condition of employment and participation in this Benefits Program, each Executive shall execute a Non-Competition Agreement in a form approved by Holdings. The release referred to in Sections IV and V as a condition to the payments and benefits set forth respectively therein also shall contain non-competition and other Company deemed appropriate restrictive covenants.
X.Principal Residence
Each Executive shall be required to maintain his or her principal residence within reasonable commutable distance to the Purchase, New York area, except as may be otherwise expressly agreed in Section XI, below, based upon Employer’s specific business need.
XI. Variations from Benefits Program
Any variation from the provisions of this Benefits Program (whether by separate employment agreement otherwise) shall be effective only if such variation is contained in a writing provided to the affected Executive and signed by the Chief Executive Officer, President, General Counsel or Chief Human Resources Officer of Holdings; any variation in writing so signed shall be binding on the affected Executive, provided, however, that no such modification or amendment after the date on which the Executive’s employment has been terminated for reasons other than Cause, due to Permanent Disability, death or for Good Reason, after the occurrence of a Change in Control of Holdings or by reason of Retirement
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shall adversely affect an Executive’s entitlement to severance benefits under Sections IV, V or VI above. Amendments to or restatements of this Benefits Program shall apply prospectively from the date of effectiveness; such amendments or restatements shall be binding on each Executive, provided, however, that no such modification or amendment after the date on which the Executive’s employment has been terminated for reasons other than Cause, due to Permanent Disability, death or for Good Reason, after the occurrence of a Change in Control of Holdings or by reason of Retirement shall adversely affect an Executive’s entitlement to severance benefits under Sections IV, V or VI above. Notwithstanding the foregoing, any amendments, restatements, or variations to this Benefits Program must be approved by the Compensation Committee.
XII. Section 409A
It is intended that the provisions of this Benefits Program comply with or are exempt from Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended (the “Code”), and all provisions of this Benefit Program shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.
Notwithstanding anything to the contrary in this Benefits Program, if at the time of an Executive’s termination of employment, the Executive is a “specified employee,” as defined below, any and all amounts payable under this Benefits Program on account of such separation from service that constitute deferred compensation and would (but for this provision) be payable within six (6) months following the date of termination, shall instead be paid on the next business day following the expiration of such six (6) month period or, if earlier, upon the Executive’s death; except (A) to the extent of amounts that do not constitute a deferral of compensation within the meaning of Treasury regulation Section 1.409A-1(b) (including without limitation by reason of the safe harbor set forth in Section 1.409A-1(b)(9)(iii), as determined by Holdings in its reasonable good faith discretion); (B) benefits that qualify as excepted welfare benefits pursuant to Treasury regulation Section 1.409A-1(a)(5); or (C) other amounts or benefits that are not subject to the requirements of Section 409A.
For purposes of this Benefits Program, all references to “termination of employment” and correlative phrases shall be construed to require a “separation from service” (as defined in Section 1.409A-1(h) of the Treasury regulations after giving effect to the presumptions contained therein), and the term “specified employee” means an individual determined by Holdings to be a specified employee under Treasury regulation Section 1.409A-1(i).
Except as permitted under Section 409A, any deferred compensation (within the meaning of Section 409A) payable to or for the Executive’s benefit under this Benefits Program may not be reduced by, or offset against, any amount owing by the Executive to the Company. Except as specifically permitted by Section 409A, the benefits and reimbursements provided to the Executive under this Benefits Program during any calendar year shall not affect the benefits and reimbursements to be provided to the Executive under the relevant section of this Benefits Program in any other calendar year, and the right to such benefits and reimbursements cannot be liquidated or exchanged for any other benefit and
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shall be provided in accordance with Treasury regulation Section 1.409A-3(i)(1)(iv) or any successor thereto. Further, in the case of reimbursement payments, such payments shall be made to the Executive on or before the last day of the calendar year following the calendar year in which the underlying fee, cost or expense is incurred.
Each payment made under this Benefits Program shall be treated as a separate payment and the right to a series of installment payments under this Benefits Program is to be treated as a right to a series of separate payments.
In no event shall the Company have any liability relating to the failure or alleged failure of any payment or benefit under this Benefits Program to comply with, or be exempt from, the requirements of Section 409A.
XIII.Section 280G of the Code.
Notwithstanding any other provision in this Benefit Program or any other agreement, contract, or understanding entered into by the Executive with Holdings, the Company, the Employer or any of their subsidiaries, in the event that it is determined by the reasonable computation by a nationally recognized certified public accounting firm that shall be selected by Holdings (the “Accountant”) that the aggregate amount of the payments, distributions, benefits and entitlements of any type payable by Holdings, the Company, the Employer or any of their subsidiaries to or for the Executive’s benefit under this Benefits Program or any other formal or informal plan or other arrangement, contract or understanding (including any payment, distribution, benefit or entitlement made by any person or entity effecting a change of control), in each case, that could be considered “parachute payments” within the meaning of Section 280G of the Code (such payments, the “Parachute Payments”) that, but for this Section XIII would be payable to the Executive, exceeds the greatest amount of Parachute Payments that could be paid to the Executive without giving rise to any liability for any excise tax imposed by Section 4999 of the Code (or any successor provision thereto) or any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest or penalties, being hereafter collectively referred to as the “Excise Tax”), then the aggregate amount of Parachute Payments payable to the Executive shall not exceed the amount which produces the greatest after-tax benefit to the Executive after taking into account any Excise Tax to be payable by the Executive. For the avoidance of doubt, this provision will reduce the amount of Parachute Payments otherwise payable to the Executive, if doing so would place the Executive in a better net after-tax economic position as compared with not doing so (taking into account the Excise Tax payable in respect of such Parachute Payments). The Company shall reduce or eliminate the Parachute Payments by first reducing or eliminating the portion of the Parachute Payments that are payable in cash and then by reducing or eliminating the non-cash portion of the Parachute Payments, in each case in reverse order beginning with payments or benefits which are to be paid the furthest in time from the date of the Accountant’s determination.
XIV.Conflict with Benefits Program
In the event there is any conflict or inconsistency between the terms and conditions of this Benefits Program and those set forth in any employment agreement, incentive program or other arrangement which an Executive may be a party to with Holdings, Atlas,
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Polar or Titan, the terms and conditions of such other employment agreement, incentive program or other arrangement shall govern and control.
XV.Administration
This Benefits Program may be amended, suspended or terminated by the Compensation Committee of the Board of Directors of Holdings at any time or from time to time; provided, however, that no such amendment, suspension or termination of this Benefits Program shall affect the terms and conditions of the Annual Incentive Plan, as may be amended, the Holdings 2018 Incentive Plan, as may be amended, any employment agreement, or any incentive program, each of which shall be governed by its terms and conditions.
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Exhibit 10.5
EXECUTION VERSION
ATLAS AIR WORLDWIDE HOLDINGS, INC.
ANNUAL INCENTIVE PROGRAM
FOR SENIOR EXECUTIVES
Adopted by Compensation Committee: As of July 1, 2019
ATLAS AIR WORLDWIDE HOLDINGS, INC.
ANNUAL INCENTIVE PROGRAM
FOR SENIOR EXECUTIVES
The purpose of the Program is to set forth certain terms and conditions governing cash awards made under the Atlas Air Worldwide Holdings, Inc. (“AAWW”) 2018 Incentive Plan, as may be amended from time to time (the “Plan”). The Program shall be treated for all purposes as a sub-plan or arrangement for the grant of Cash Awards under the Plan. The Program shall be effective as of January 1, 2019, and shall be applicable for the 2019 Program Year and subsequent Program Years during the continuance of the Plan unless amended or terminated by the Committee pursuant to Section 10. Capitalized terms not defined herein shall have the meanings given in the Plan.
shall mean an opportunity to earn benefits under the Program.
shall mean AAWW or its subsidiaries, as applicable.
shall mean an Eligible Employee’s actual base salary for the applicable period.
shall mean the Board of Directors of AAWW.
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 (as defined in the Plan)) 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 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
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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, 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.
shall mean the Internal Revenue Code of 1986, as amended from time to time.
shall mean the Compensation Committee of the Board.
shall mean any of the Chief Executive Officer, President and Executive Vice Presidents of AAWW and such other Atlas senior executive officers as shall be designated by the Committee.
2.11.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.
Participant
shall mean any Eligible Employee during such Eligible Employee’s period of participation in the Program.
shall mean this Atlas Air Worldwide Holdings, Inc. Annual Incentive Program for Senior Executives, as it may be amended from time to time.
shall mean the calendar year.
2.15.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 (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.
2.16.Termination of Service shall mean the date a Participant’s Employment terminates.
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The Program shall be administered by the Committee. The Committee shall have full power and authority in its sole discretion to construe and interpret the Program, establish and amend administrative regulations to further the purpose of the Program, determine the extent to which Award payments have been earned by virtue of satisfying the Financial Goal described in Section 5.3, determine whether to reduce under Sections 5.3(b) through 5.3(e), to the extent that cost control, the Service Reliability Goal (described in Section 5.3), Management Business Objectives (“MBOs”) and any other Performance Criteria have not been satisfied, the amount otherwise payable under Section 5.3, determine whether to settle a portion of the Award in AAWW stock, and 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.
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 but prior to September 30 of the applicable year will 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. |
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 President of Atlas Air, Inc. or Chief Executive Officer of Titan Aviation Holdings, Inc., and (iii) eighty-five percent (85%) of Base Salary for other Executive Vice Presidents.
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5.2.Maximum Bonus Award. The maximum bonus payable under an Award for each Program Year 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%) of Base Salary for Executive Vice Presidents who also hold the title of President of Atlas Air, Inc. or Chief Executive Officer of Titan Aviation Holdings, Inc., and (C) one-hundred and seventy percent (170%) of Base Salary for other Executive Vice Presidents (each, a “Maximum Bonus Percentage”).
5.3.Performance Measures. Payment under an Award is conditioned upon achievement of the threshold Financial Goal (as defined below), as described below. If the threshold Financial Goal is achieved, the Award payment will be the Maximum Bonus Percentage minus such adjustments, if any, as the Committee determines to be appropriate to reflect levels of achievement with respect to the Financial Goal (if such Financial Goal is achieved at a level below the maximum level) and/or one or more of the other factors described below and/or such other factors as shall be designated by the Committee.
(a)Financial Goal. The financial goal is based on Atlas’s adjusted income from continuing operations, net of taxes (“Adjusted Income”) as reported in Atlas’s press release, as may be further provided in any exhibit to the Program (the “Financial Goal”). For each 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 Committee may also reduce maximum Award payments, if any, to reflect the level of achievement of such service reliability goals as the Committee may determine for the Program Year (the “Service Reliability Goal”).
(c)Management Business Objectives Adjustment. The Committee may also reduce maximum Award payments, if any, to reflect the level of achievement of such individual MBOs as the Committee may determine 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 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
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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 a Retirement. A Participant will receive an Award in the manner and at the times set forth in this Sections 6.
6.2.Time of Payment. Any amount payable for an Award for a Program Year shall be paid by Atlas within two weeks 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, only for the portion of the Award that exceeds fifty percent (50%) of Base Salary.
6.4.Termination of Employment.
(a)In General. Except as provided otherwise 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, “Termination Bonus Amount” shall mean a payment with respect to an Award for the Program Year in an amount equal to, (A) in the event the Termination of Service occurs after June 30 of the Program Year, the lesser 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 Plan (and assuming for such purpose that his or her MBOs have been achieved at target), or (2) his or her Target Bonus Percentage (such lesser amount, the “Full Termination Bonus Amount”) or (B) in the event the Termination of Service occurs prior to July 1 of the Program Year, the Full Termination Bonus Amount multiplied by a fraction, the numerator of which is the number of days from the commencement of the Program Year 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)Involuntary Termination; Good Reason; Retirement. 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, 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
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agreement.
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 Plan (such greater amount, the “CIC Bonus Amount”). In the event a Participant’s Employment is terminated during a 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).
For purposes of this Program, “Change in Control” shall mean the occurrence of any of the following:
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(1) |
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 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; |
|
(2) |
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; |
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(3) |
the replacement of a majority of members of AAWW’s Board of Directors during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of AAWW’s Board of Directors before the appointment or election; or |
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(4) |
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 |
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(5) |
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
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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).
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.Plan to be Unfunded. The Program is intended to constitute an unfunded 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
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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(d) for any Program Year in effect, the Committee reserves the right to amend, suspend, or terminate the Program at any time.
Section 11. Awards Subject to Clawback
Pursuant to 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 (the “Clawback Policy”), by his or her acceptance of an Award under the Program, the Participant agrees that the Committee 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 10.6
ATLAS AIR WORLDWIDE HOLDINGS, INC.
AMENDMENT TO RESTRICTED STOCK UNIT AGREEMENTS
This amendment (this “Amendment”) is entered into as of July 1, 2019, by and between Atlas Air Worldwide Holdings, Inc., a Delaware corporation (the “Company”) and _________ (the “Employee”).
WHEREAS, the Employee was previously granted restricted stock units pursuant to the Restricted Stock Unit Agreements dated as of March 9, 2017, March 8, 2018, and February 27, 2019 (each, a “Specified RSU Agreement”); and
WHEREAS, the parties hereto wish to amend each Specified RSU Agreement as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend each Specified RSU Agreement as follows:
1. |
Section 2(b) shall be replaced in its entirety with the following: |
|
“(b) |
Death, Disability, Termination by Employee due to Good Reason or Involuntary Termination not for Cause. |
(1) In the event of the termination of the Employee’s Employment (i) due to death, (ii) by the Company by reason of the Employee’s Disability (as defined below), (iii) by the Employee for Good Reason (as defined below), or (iv) by reason of an involuntary termination by the Company not for Cause (as defined below), in each case occurring after the date hereof and before the occurrence of a Change in Control of the Company (as defined below), the Award shall become immediately and fully vested and shares of Stock will be delivered, subject to Section 2(d), as soon as practicable following such termination of Employment, but no later than March 15 of the subsequent year.”
(2) Definitions. For purposes of this Agreement:
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(a) |
A termination of Employment shall be deemed to be by reason of “Disability” if immediately prior to such termination of Employment, the Employee shall have been continuously disabled from performing the duties assigned to the Employee 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 month period. |
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having resigned due to Good Reason only if he or she provides the Company with a notice of termination within 90 days of the initial existence of one of the conditions described above, following which the Company shall have 30 days from the receipt of the notice of termination to cure the event specified in the notice of termination and, if the Company fails to so cure the event, the Employee must terminate his or her Employment not later than 30 days following the end of such cure period.” |
2.Section 2(c)(2)(c) shall be replaced in its entirety with the following:
“Change in Control of the Company” 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 ownership or beneficial ownership of Company 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 the Company;
(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 Company securities that constitute 30% or more of the total fair market value of the issued and outstanding shares or the total voting power of the Company;
(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 the Company 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 the Company; or
(v)the consummation of a complete liquidation or dissolution of the Company.
For purposes of determining whether a Change in Control of the Company has occurred (i) shares of the Company received upon conversion of an option or warrant is considered to be an acquisition of shares of the Company and (ii) in the event the persons who were beneficial owners of Company 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 the Company (including a corporation or entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’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 of the Company.
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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 of the Company for purposes of this Amendment and the Plan only if such Change in Control of the Company 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 of the Company, even if payment of such amounts may not accelerate pursuant to this sentence).
3.The term “Good Reason” defined in Section 2(c)(2)(d) shall be changed to “Change in Control Good Reason” and the reference to “Good Reason” in the definition of “Change in Control Termination” in each Specified RSU Agreement shall be deemed to refer to “Change in Control Good Reason.”
4.Defined Terms. Any capitalized term that is not defined herein shall have the meaning set forth in the applicable Specified RSU Agreement. For the avoidance of doubt, to the extent that any capitalized term herein conflicts or is inconsistent with any defined term in a Specified RSU Agreement or the Plan, the meaning of the capitalized term as defined in this Amendment will govern.
5.Continued Validity of Each Specified RSU Agreement. Except as amended and superseded by this Amendment, each Specified RSU Agreement will remain in full force and effect, and will continue to bind the parties hereto and will remain unaffected by this Amendment. To the extent that the terms of this Amendment conflict or are inconsistent with the terms of a Specified RSU Agreement, the terms of this Amendment will govern.
6.Counterparts. This Amendment may be executed in several counterparts, each of which will be deemed to be an original, and all such counterparts when taken together will constitute one and the same original.
[SIGNATURE PAGES FOLLOW AS SEPARATE PAGES]
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IN WITNESS WHEREOF, the undersigned have executed this Amendment to Restricted Stock Unit Agreements as of the date first above written.
ATLAS AIR WORLDWIDE HOLDINGS, INC.
By:
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Name: |
William J. Flynn |
Title: Chairman and Chief Executive Officer
IN WITNESS WHEREOF, the undersigned have executed this Amendment to Restricted Stock Unit Agreements as of the date first above written.
[Name]
Exhibit 10.7
ATLAS AIR WORLDWIDE HOLDINGS, INC.
AMENDMENT TO PERFORMANCE SHARE UNIT AGREEMENTS
This amendment (this “Amendment”) is entered into as of July 1, 2019, by and between Atlas Air Worldwide Holdings, Inc., a Delaware corporation (the “Company”) and ________ (the “Employee”).
WHEREAS, the Employee was previously granted performance share units pursuant to the Performance Share Unit Agreements, dated as of March 9, 2017, March 8, 2018 and February 27, 2019 (each, a “Specified PSU Agreement”); and
WHEREAS, the parties hereto wish to amend each Specified PSU Agreement as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend each Specified PSU Agreement as follows:
1. |
Clauses (1) and (2) of Section 2(d) shall be replaced in their entirety with the following: |
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“(d) |
Death, Disability, Termination due to Good Reason, or Involuntary Termination not for Cause. |
(1)In the event of the termination of the Employee’s Employment (i) due to death, (ii) by the Company by reason of the Employee’s Disability (as defined below), (iii) by the Employee for Good Reason (as defined below), or (iv) by reason of an involuntary termination by the Company not for Cause (as defined below), in each case occurring after the date hereof, but before the end of the Performance Period and before the occurrence of a Change in Control of the Company (as defined below), the portion of the Performance Share Award that will vest shall be calculated by dividing the number of days from the commencement of the Performance Period until the date of such termination of Employment, by the total number of days in the Performance Period, multiplied by the number of Unit Delivered Shares and Deferred Dividend Shares in respect of each Performance Share Unit, if any, earned on the basis of actual achievement level of the Performance Criteria in the Performance Unit Plan Schedule.
(2)Any former Employee, upon Disability, termination by the Employee for Good Reason, or involuntary termination by the Company not for Cause, or the estate of an Employee, upon his or her death, will continue to hold the portion of the Performance Share Award that is eligible for vesting, subject to the restrictions and all terms and conditions of this Agreement, until delivery of Shares pursuant to Section 2(c). Subject to Section 2(e), the appropriate number of Unit Delivered Shares and Deferred Dividend Shares, if any (calculated as provided in Section 2(b)) shall not be delivered until the completion of the Performance Period and the Determination Date.”
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“(c) |
“Good Reason” means (i) a material reduction in the Employee’s annual base salary, percentage target bonus opportunity, or target long-term incentive award opportunity, in each case as then in effect, or other material benefits provided to officers of the Company, except where such reduction is part of a general reduction in salary or benefits by the Company or (ii) a material reduction in the Employee’s title or job responsibilities; provided, however, that the Employee will be treated as having resigned for Good Reason only if he or she provides the Company with a notice of termination within 90 days of the initial existence of one of the conditions described above, following which the Company shall have 30 days from the receipt of the notice of termination to cure the event specified in the notice of termination and, if the Company fails to so cure the event, the Employee must terminate his or her Employment not later than 30 days following the end of such cure period.” |
3. |
Section 2(e)(2)(b) shall be replaced in its entirety with the following: |
“Change in Control of the Company” 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 ownership or beneficial ownership of Company 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 the Company;
(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 Company securities that constitute 30% or more of the total fair market value of the issued and outstanding shares or the total voting power of the Company;
(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 the Company 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 the Company; or
(v)the consummation of a complete liquidation or dissolution of the Company.
For purposes of determining whether a Change in Control of the Company has occurred (i) shares of the Company received upon conversion of an option or warrant is considered to be an acquisition of shares of the Company and (ii) in the event the persons who were beneficial owners of Company 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
2
issued and outstanding shares or the total voting power of the Company (including a corporation or entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’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 of the Company.
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 of the Company for purposes of this Amendment and the Plan only if such Change in Control of the Company 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 of the Company, even if payment of such amounts may not accelerate pursuant to this sentence).
4. |
The term “Good Reason” defined in Section 2(e)(2)(c) shall be changed to “Change in Control Good Reason” and each reference to “Good Reason” in the definition of “Change in Control Termination” in each Specified PSU Agreement shall be deemed to refer to “Change in Control Good Reason.” |
5. |
Defined Terms. Any capitalized term that is not defined herein shall have the meaning set forth in the applicable Specified PSU Agreement. For the avoidance of doubt, to the extent that any capitalized term herein conflicts or is inconsistent with any defined term in a Specified PSU Agreement or the Plan, the meaning of the capitalized term as defined in this Amendment will govern. |
6. |
Continued Validity of Each Specified PSU Agreement. Except as amended and superseded by this Amendment, each Specified PSU Agreement will remain in full force and effect, and will continue to bind the parties hereto and will remain unaffected by this Amendment. To the extent that the terms of this Amendment conflict or are inconsistent with the terms of a Specified PSU Agreement, the terms of this Amendment will govern. |
7. |
Counterparts. This Amendment may be executed in several counterparts, each of which will be deemed to be an original, and all such counterparts when taken together will constitute one and the same original. |
[SIGNATURE PAGES FOLLOW AS SEPARATE PAGES]
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IN WITNESS WHEREOF, the undersigned have executed this Amendment to Performance Share Unit Agreements as of the date first above written.
ATLAS AIR WORLDWIDE HOLDINGS, INC.
By:
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Name: |
William J. Flynn |
Title: Chairman and Chief Executive Officer
IN WITNESS WHEREOF, the undersigned have executed this Amendment to Performance Share Unit Agreements as of the date first above written.
[Name]
Exhibit 10.8
2000 Westchester Avenue Purchase, NY 10577-2543 |
As of July 1, 2019
[Name]
Atlas Air Worldwide Holdings, Inc.
2000 Westchester Avenue
Purchase, NY 10577
Re: Amendment to LTI Performance Cash Plan Awards – 2017, 2018, 2019
Dear ______:
The purpose of this letter (the “Amendment”) is to amend, effective as of the date hereof, certain terms and conditions of the Atlas Air Worldwide Holdings, Inc. Long Term Cash Incentive Program for each of the 2017, 2018 and 2019 program years (each such program, a “Specified Program”), pursuant to Section 10 of each of the 2017 and 2018 Specified Programs and Section 9.7 of the 2019 Specified Program, with respect to the Awards you have been granted under each Specified Program.
Accordingly, notwithstanding anything to the contrary in any Specified Program, each of your Awards thereunder shall be amended as follows:
1. |
Clause (b) of Section 6.4 with respect to your awards under each Specified Program shall be replaced in its entirety with the following: |
“(b)Termination by Reason of Death or Disability; Termination by the Company Not For Cause; Termination by Certain Employees due to Good Reason. In the event of the termination of the Participant’s Employment (i) due to death, (ii) by the Company by reason of the Participant’s Disability (as defined below), (iii) by reason of an involuntary termination by the Company not for Cause (as defined below), or (iv) by the Participant for Good Reason, in each case occurring after the commencement of the Performance Period, but before the end of the Performance Period and before the occurrence of a Change in Control of the Company (as defined below), the portion of the Award that will be payable is calculated by dividing the number of days from the commencement of the Performance Period until the date of such termination of Employment, by the total number of days in the Performance Period, and multiplying that fraction by the Payable Amount. Subject to Section 7, the reduced (prorated) Payable Amount, if any (calculated as provided in Section 5.2) shall not be payable until after the Determination Date in accordance with Section 6.2 above.”
2. |
A new Section 6.4(c)(3) shall be added with respect to your awards under each Specified Program immediately following Section 6.4(c)(2): |
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“(3) |
“Good Reason” means (i) a material reduction in the Participant’s annual base salary, percentage target bonus opportunity, or target long-term incentive award |
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opportunity, in each case as then in effect, or other material benefits provided to officers of the Company, except where such reduction is part of a general reduction in salary or benefits by the Company or (ii) a material reduction in the Participant’s title or job responsibilities; provided, however, that a Participant will be treated as having resigned due to Good Reason only if he or she provides the Company with a notice of termination within 90 days of the initial existence of one of the conditions described above, following which the Company shall have 30 days from the receipt of the notice of termination to cure the event specified in the notice of termination and, if the Company 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.” |
3. |
Section 7.2(b) shall be replaced in its entirety with the following: |
“Change in Control of the Company” shall mean the occurrence of any of the following:
(1)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 ownership or beneficial ownership of Company 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 the Company;
(2)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 Company securities that constitute 30% or more of the total fair market value of the issued and outstanding shares or the total voting power of the Company;
(3)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;
(4)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 the Company 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 the Company; or
(5)the consummation of a complete liquidation or dissolution of the Company.
For purposes of determining whether a Change in Control of the Company has occurred (i) shares of the Company received upon conversion of an option or warrant is considered to be an acquisition of shares of the Company and (ii) in the event the persons who were beneficial owners of Company 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 the Company (including a corporation or entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’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 of the Company.
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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 of the Company for purposes of this Amendment, a Specified Program, and the Plan only if such Change in Control of the Company 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 of the Company, even if payment of such amounts may not accelerate pursuant to this sentence).
4. |
The term “Good Reason” defined in Section 7.2(c) with respect to your Awards under each Specified Program shall be changed to “Change in Control Good Reason” and each reference to “Good Reason” in Section 7 of each Specified Program shall be deemed to refer to “Change in Control Good Reason.” |
5. |
Defined Terms. Any capitalized term that is not defined herein shall have the meaning set forth in the applicable Specified Program. For the avoidance of doubt, to the extent that any capitalized term herein conflicts or is inconsistent with any defined term in a Specified Program or the Plan, the meaning of the capitalized term as defined in this Amendment will govern. |
6. |
Continued Validity of Each Specified Program. Except as amended and superseded by this Amendment, each of your Awards under a Specified Program will remain in full force and effect and will remain unaffected by this Amendment. |
7. |
Counterparts. This Amendment may be executed in several counterparts, each of which will be deemed to be an original, and all such counterparts when taken together will constitute one and the same original. |
[SIGNATURE PAGES FOLLOW AS SEPARATE PAGES]
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IN WITNESS WHEREOF, the undersigned have executed this Amendment to LTI Performance Cash Plan Awards as of the date first above written.
ATLAS AIR WORLDWIDE HOLDINGS, INC.
By:
|
Name: |
William J. Flynn |
Title: Chairman and Chief Executive Officer
IN WITNESS WHEREOF, the undersigned have executed this Amendment to LTI Performance Cash Plan Awards as of the date first above written.
|
[Name] |
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
I, William J. Flynn, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Atlas Air Worldwide Holdings, Inc.; |
2. |
Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; |
3. |
Based on my knowledge, the Financial Statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
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
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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: October 30, 2019 |
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/s/ William J. Flynn |
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William J. Flynn |
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Chairman of the Board 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:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Atlas Air Worldwide Holdings, Inc.; |
2. |
Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; |
3. |
Based on my knowledge, the Financial Statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting ( as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
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
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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: October 30, 2019 |
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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 September 30, 2019 as filed with the Securities and Exchange Commission (the “Report”), we, William J. Flynn 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: October 30, 2019
/s/ William J. Flynn |
William J. Flynn |
Chairman of the Board and Chief Executive Officer |
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/s/ Spencer Schwartz |
Spencer Schwartz |
Executive Vice President and Chief Financial Officer |