UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2011
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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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)
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Delaware
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13-4146982
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(State or other jurisdiction of incorporation)
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(IRS Employer Identification No.)
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2000 Westchester Avenue, Purchase, New York
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10577
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(Address of principal executive offices)
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(Zip Code)
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(914) 701-8000
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of accelerated filer,
large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
þ
As of March 31, 2011, there were 26,241,342 shares of the registrants Common Stock outstanding.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Atlas Air Worldwide Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
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March 31, 2011
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December 31, 2010
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Assets
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Current Assets
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Cash and cash equivalents
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$
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576,774
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$
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588,852
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Short-term investments
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7,666
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6,211
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Accounts receivable, net of allowance of $1,679 and $1,900, respectively
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78,992
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78,334
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Prepaid maintenance
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27,639
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26,102
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Deferred taxes
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3,721
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3,721
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Prepaid expenses and other current assets
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28,905
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24,212
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Total current assets
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723,697
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727,432
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Property and Equipment
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Flight equipment
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766,933
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766,681
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Ground equipment
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30,514
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29,124
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Less: accumulated depreciation
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(143,573
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)
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(138,851
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)
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Purchase deposits for flight equipment
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344,176
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336,969
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Property and equipment, net
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998,050
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993,923
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Other Assets
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Long-term investments and accrued interest
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128,611
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127,094
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Deposits and other assets
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49,666
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45,026
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Intangible assets, net
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41,506
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42,627
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Total Assets
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$
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1,941,530
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$
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1,936,102
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Liabilities and Equity
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Current Liabilities
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Accounts payable
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$
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23,989
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$
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22,954
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Accrued liabilities
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156,605
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149,892
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Current portion of long-term debt
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97,409
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96,197
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Total current liabilities
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278,003
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269,043
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Other Liabilities
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Long-term debt
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378,010
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391,036
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Deferred taxes
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105,835
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103,150
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Other liabilities
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118,232
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122,783
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Total other liabilities
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602,077
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616,969
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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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Common stock, $0.01 par value; 50,000,000 shares authorized; 27,394,933 and
26,955,923 shares issued, 26,241,342 and 25,937,014, shares outstanding
(net of treasury stock), at March 31, 2011 and December 31, 2010, respectively
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274
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270
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Additional paid-in-capital
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515,097
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505,297
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Treasury stock, at cost; 1,153,591 and 1,018,909 shares, respectively
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(41,310
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)
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(32,248
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)
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Accumulated other comprehensive income
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534
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458
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Retained earnings
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583,182
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572,666
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Total stockholders equity
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1,057,777
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1,046,443
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Noncontrolling interest
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3,673
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3,647
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Total equity
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$
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1,061,450
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$
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1,050,090
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Total Liabilities and Equity
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$
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1,941,530
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$
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1,936,102
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See accompanying Notes to Unaudited Consolidated Financial Statements
1
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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March 31, 2011
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March 31, 2010
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Operating Revenue
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ACMI
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$
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146,035
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$
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112,403
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AMC charter
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81,176
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121,584
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Commercial charter
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65,536
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56,653
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Dry leasing
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1,543
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1,378
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Other
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3,316
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3,214
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Total Operating Revenue
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$
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297,606
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$
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295,232
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Operating Expenses
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Aircraft fuel
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74,167
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64,590
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Salaries, wages and benefits
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61,764
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61,362
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Maintenance, materials and repairs
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50,069
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31,617
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Aircraft rent
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38,354
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38,150
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Landing fees and other rent
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11,340
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11,709
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Depreciation and amortization
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8,330
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9,079
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Travel
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9,122
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7,615
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Ground handling and airport fees
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5,302
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4,923
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Gain on disposal of aircraft
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(120
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)
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(1,222
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)
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Other
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22,787
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19,278
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|
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Total Operating Expenses
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|
281,115
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247,101
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Operating Income
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16,491
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|
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|
48,131
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Non-operating Expenses / (Income)
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Interest income
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(5,115
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)
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(3,906
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)
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Interest expense
|
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|
10,296
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|
|
|
10,070
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Capitalized interest
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(5,417
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)
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(3,089
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)
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Other (income) expense, net
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41
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|
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|
(8,835
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)
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Total Non-operating Income
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|
|
(195
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)
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|
|
(5,760
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)
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|
|
|
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|
|
|
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|
|
|
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Income before income taxes
|
|
|
16,686
|
|
|
|
53,891
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Income tax expense
|
|
|
6,224
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|
|
|
20,280
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Net Income
|
|
|
10,462
|
|
|
|
33,611
|
|
Less: Net
loss attributable to noncontrolling interests
|
|
|
(54
|
)
|
|
|
(174
|
)
|
|
|
|
|
|
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Net Income Attributable
to Common Stockholders
|
|
$
|
10,516
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|
|
$
|
33,785
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Earnings per share:
|
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Basic
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$
|
0.40
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$
|
1.32
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|
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Diluted
|
|
$
|
0.40
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|
|
$
|
1.30
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|
|
|
|
|
|
|
|
|
|
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|
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|
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Weighted average shares:
|
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Basic
|
|
|
26,041
|
|
|
|
25,583
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|
|
|
|
|
|
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Diluted
|
|
|
26,289
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|
|
|
25,892
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|
|
|
|
|
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See accompanying Notes to Unaudited Consolidated Financial Statements
2
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
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For the Three Months Ended
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net Income Attributable to Common Stockholders
|
|
$
|
10,516
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|
|
$
|
33,785
|
|
Net loss attributable to noncontrolling interests
|
|
|
(54
|
)
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
Net Income
|
|
|
10,462
|
|
|
|
33,611
|
|
Adjustments to reconcile Net Income
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,330
|
|
|
|
9,079
|
|
Amortization of debt discount
|
|
|
1,183
|
|
|
|
1,349
|
|
Amortization of operating lease discount
|
|
|
596
|
|
|
|
584
|
|
Amortization of debt issuance costs
|
|
|
73
|
|
|
|
73
|
|
Accretion of debt securities discount
|
|
|
(2,048
|
)
|
|
|
(1,677
|
)
|
Provision for allowance for doubtful accounts
|
|
|
25
|
|
|
|
73
|
|
Gain on disposal of aircraft
|
|
|
(120
|
)
|
|
|
(1,222
|
)
|
Deferred taxes
|
|
|
2,685
|
|
|
|
1,765
|
|
Stock-based compensation expense
|
|
|
3,748
|
|
|
|
5,170
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5
|
|
|
|
(7,593
|
)
|
Prepaid expenses and other current assets
|
|
|
(9,176
|
)
|
|
|
5,791
|
|
Deposits and other assets
|
|
|
(4,758
|
)
|
|
|
(3,953
|
)
|
Accounts payable and accrued liabilities
|
|
|
3,123
|
|
|
|
6,435
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
14,128
|
|
|
|
49,485
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(11,531
|
)
|
|
|
(21,910
|
)
|
Investment in debt securities
|
|
|
|
|
|
|
(100,090
|
)
|
Proceeds from short-term investments
|
|
|
1,163
|
|
|
|
875
|
|
Proceeds from sale of aircraft
|
|
|
165
|
|
|
|
1,810
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(10,203
|
)
|
|
|
(119,315
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
3,255
|
|
|
|
518
|
|
Purchase of treasury stock
|
|
|
(9,062
|
)
|
|
|
(2,321
|
)
|
Excess tax benefit from stock-based compensation expense
|
|
|
2,801
|
|
|
|
1,229
|
|
Payments of debt
|
|
|
(12,997
|
)
|
|
|
(10,760
|
)
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(16,003
|
)
|
|
|
(11,334
|
)
|
Net decrease in cash and cash equivalents
|
|
|
(12,078
|
)
|
|
|
(81,164
|
)
|
Cash and cash equivalents at the beginning of period
|
|
|
588,852
|
|
|
|
613,740
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period
|
|
$
|
576,774
|
|
|
$
|
532,576
|
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Consolidated Financial Statements
3
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Stockholders Equity
(in thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
Balance at December 31, 2009
|
|
$
|
266
|
|
|
$
|
(26,394
|
)
|
|
$
|
481,074
|
|
|
$
|
471
|
|
|
$
|
430,856
|
|
|
$
|
886,273
|
|
|
$
|
2,484
|
|
|
$
|
888,757
|
|
Net Income Attributable to Common Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,785
|
|
|
|
33,785
|
|
|
|
(174
|
)
|
|
|
33,611
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
(59
|
)
|
|
|
(56
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,726
|
|
|
|
|
|
|
|
33,496
|
|
Stock option and restricted stock compensation
|
|
|
|
|
|
|
|
|
|
|
5,170
|
|
|
|
|
|
|
|
|
|
|
|
5,170
|
|
|
|
|
|
|
|
5,170
|
|
Purchase of 57,471 shares of treasury stock
|
|
|
|
|
|
|
(2,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,321
|
)
|
|
|
|
|
|
|
(2,321
|
)
|
Exercise of 29,144 employee stock options
|
|
|
|
|
|
|
|
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
|
518
|
|
|
|
|
|
|
|
518
|
|
Issuance of 153,620 shares of restricted stock
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit on restricted stock and stock options
|
|
|
|
|
|
|
|
|
|
|
1,229
|
|
|
|
|
|
|
|
|
|
|
|
1,229
|
|
|
|
|
|
|
|
1,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
268
|
|
|
|
(28,715
|
)
|
|
|
487,989
|
|
|
|
412
|
|
|
|
464,641
|
|
|
|
924,595
|
|
|
|
2,254
|
|
|
|
926,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
Balance at December 31, 2010
|
|
$
|
270
|
|
|
$
|
(32,248
|
)
|
|
$
|
505,297
|
|
|
$
|
458
|
|
|
$
|
572,666
|
|
|
$
|
1,046,443
|
|
|
$
|
3,647
|
|
|
$
|
1,050,090
|
|
Net Income Attributable to Common Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,516
|
|
|
|
10,516
|
|
|
|
(54
|
)
|
|
|
10,462
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
76
|
|
|
|
80
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,592
|
|
|
|
|
|
|
|
10,618
|
|
Stock option and restricted stock compensation
|
|
|
|
|
|
|
|
|
|
|
3,748
|
|
|
|
|
|
|
|
|
|
|
|
3,748
|
|
|
|
|
|
|
|
3,748
|
|
Purchase of 134,682 shares of treasury stock
|
|
|
|
|
|
|
(9,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,062
|
)
|
|
|
|
|
|
|
(9,062
|
)
|
Exercise of 79,709 employee stock options
|
|
|
|
|
|
|
|
|
|
|
3,255
|
|
|
|
|
|
|
|
|
|
|
|
3,255
|
|
|
|
|
|
|
|
3,255
|
|
Issuance of 359,301 shares of restricted stock
|
|
|
4
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit on restricted stock and stock options
|
|
|
|
|
|
|
|
|
|
|
2,801
|
|
|
|
|
|
|
|
|
|
|
|
2,801
|
|
|
|
|
|
|
|
2,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
$
|
274
|
|
|
$
|
(41,310
|
)
|
|
$
|
515,097
|
|
|
$
|
534
|
|
|
$
|
583,182
|
|
|
$
|
1,057,777
|
|
|
$
|
3,673
|
|
|
$
|
1,061,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Consolidated Financial Statements
4
Atlas Air Worldwide Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
March 31, 2011
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
its principal operating subsidiary, Atlas Air, Inc. (Atlas), and of Polar Air Cargo LLC (Old
Polar). AAWW is also the parent company of several subsidiaries related to our dry leasing
services, (collectively referred to as Titan). In addition, we are the primary beneficiary of
Global Supply Systems Limited (GSS), a consolidated subsidiary. AAWW has a 51% equity interest
and 75% voting interest in Polar Air Cargo Worldwide, Inc. (Polar). We record our share of
Polars 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 contracts through which we provide aircraft to customers and
value-added services, including crew, maintenance and insurance (ACMI) as well as contracts
through which we provide crew, maintenance and insurance, with the customer providing the aircraft
(CMI); (ii) military charter services (AMC Charter); (iii) seasonal, commercial and ad-hoc
charter services (Commercial Charter); and (iv) dry leasing or sub-leasing of 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). All
significant 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, 2010, which
included additional disclosures and a summary of our significant accounting policies. 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
March 31, 2011, the results of operations for the three months ended March 31, 2011 and 2010, cash
flows for the three months ended March 31, 2011 and 2010 and shareholders equity as of and for the
three months ended March 31, 2011 and 2010.
For interim accounting purposes, we recognize income taxes using an estimated annual effective
tax rate.
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. DHL Investment and Polar
Polar provides air cargo capacity to its customers, including DHL Network Operations (USA),
Inc. (DHL), through a blocked-space agreement that began on October 27, 2008. The aggregate
carrying value of our Polar investment at March 31, 2011 was $5.3 million and at December 31, 2010
was $5.3 million, and was included within Deposits and other assets.
Polar currently operates six 747-400 freighter aircraft that are subleased from us. An
additional two aircraft are operated by Atlas to support the Polar network and DHL through an
alliance agreement wherein Atlas provides ACMI services to Polar. We also provide incremental
charter capacity to Polar on an as-needed basis. Atlas and Polar have entered into various
agreements under which we provide Polar with crew, maintenance and insurance for the subleased
aircraft. Collectively, these service agreements and the subleases are referred to as Express
Network ACMI. We provide Polar with certain management and administrative services under a shared
services agreement. In addition, Polar and Atlas provide each other with sales and ground support
services under a general sales and services agreement. The following table summarizes our
transactions with Polar:
5
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31, 2011
|
|
March 31, 2010
|
Revenue and Expenses:
|
|
|
|
|
|
|
|
|
ACMI revenue from Polar
|
|
$
|
46,377
|
|
|
$
|
44,659
|
|
Other revenue from Polar
|
|
$
|
2,837
|
|
|
$
|
2,837
|
|
Ground handling and airport fees to Polar
|
|
$
|
247
|
|
|
$
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
December 31, 2010
|
Accounts receivable/payable as of:
|
|
|
|
|
|
|
|
|
Receivables from Polar
|
|
$
|
3,848
|
|
|
$
|
8,009
|
|
Payables to Polar
|
|
$
|
3,183
|
|
|
$
|
2,945
|
|
3. Concentration of Credit Risk and Significant Customers
We are exposed to concentration of credit risk by our customers. The following table
summarizes our significant exposure to Polar and the U.S. Military Airlift Mobility Command
(AMC). We have not experienced credit issues with either of these customers. No other customer
accounted for 10.0% or more of our Total Operating Revenues.
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31, 2011
|
|
March 31, 2010
|
Revenue as a % of Total Operating Revenue:
|
|
|
|
|
|
|
|
|
AMC
|
|
|
27.3
|
%
|
|
|
41.2
|
%
|
Polar
|
|
|
16.5
|
%
|
|
|
16.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31, 2011
|
|
March 31, 2010
|
Revenue as a % of Total ACMI Revenue:
|
|
|
|
|
|
|
|
|
Polar
|
|
|
31.8
|
%
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
December 31, 2010
|
Accounts receivable as a % of Total
Accounts receivable, net of allowance as of:
|
|
|
|
|
|
|
|
|
AMC
|
|
|
14.7
|
%
|
|
|
10.5
|
%
|
Polar
|
|
|
4.9
|
%
|
|
|
10.2
|
%
|
4. Long-term Investments and 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 in measuring fair value.
We maintain Cash and cash equivalents and Short-term investments, which include cash on hand,
demand deposits, other cash investments that are highly liquid in nature and have original
maturities of three months or less at acquisition, certificates of deposit, current portion of debt
securities and money market funds. The carrying value for Cash and cash equivalents and Short-term
investments is based on cost, which approximates fair value.
6
Long-term investments consist of debt securities 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 was 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 equipment enchanced trust
certificates (EETCs) issued by Atlas in 1998, 1999 and 2000. Interest on debt securities and
accretion of discounts using the effective interest method are included in Interest income.
The fair value of our EETCs was estimated based on Level 3 inputs. We obtained Level 2 inputs
of quoted market prices of our equipment notes and used them as a basis for valuing the EETCs.
The fair value of our pre-delivery deposit (PDP) financing facility and term loans was based
on a discounted cash flow analysis using current borrowing rates for instruments with similar
terms.
The following table summarizes the carrying amount, estimated fair value and classification of
our financial instruments as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
576,774
|
|
|
$
|
576,774
|
|
|
$
|
576,774
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
|
7,666
|
|
|
|
7,666
|
|
|
|
|
|
|
|
|
|
|
|
7,666
|
|
Long-term investments
and accrued interest
|
|
|
128,611
|
|
|
|
160,590
|
|
|
|
|
|
|
|
|
|
|
|
160,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
713,051
|
|
|
$
|
745,030
|
|
|
$
|
576,774
|
|
|
$
|
|
|
|
$
|
168,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 EETCs
|
|
$
|
141,116
|
|
|
$
|
160,993
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
160,993
|
|
1999 EETCs
|
|
|
155,926
|
|
|
|
169,555
|
|
|
|
|
|
|
|
|
|
|
|
169,555
|
|
2000 EETCs
|
|
|
57,686
|
|
|
|
65,187
|
|
|
|
|
|
|
|
|
|
|
|
65,187
|
|
PDP financing facility
|
|
|
46,871
|
|
|
|
46,871
|
|
|
|
|
|
|
|
|
|
|
|
46,871
|
|
Term loans
|
|
|
73,820
|
|
|
|
73,684
|
|
|
|
|
|
|
|
|
|
|
|
73,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
475,419
|
|
|
$
|
516,290
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
516,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
588,852
|
|
|
$
|
588,852
|
|
|
$
|
588,852
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
|
6,211
|
|
|
|
6,211
|
|
|
|
|
|
|
|
|
|
|
|
6,211
|
|
Long-term investments
and accrued interest
|
|
|
127,094
|
|
|
|
157,787
|
|
|
|
|
|
|
|
|
|
|
|
157,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
722,157
|
|
|
$
|
752,850
|
|
|
$
|
588,852
|
|
|
$
|
|
|
|
$
|
163,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 EETCs
|
|
$
|
145,012
|
|
|
$
|
164,379
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
164,379
|
|
1999 EETCs
|
|
|
159,043
|
|
|
|
171,478
|
|
|
|
|
|
|
|
|
|
|
|
171,478
|
|
2000 EETCs
|
|
|
58,485
|
|
|
|
65,230
|
|
|
|
|
|
|
|
|
|
|
|
65,230
|
|
PDP financing facility
|
|
|
46,871
|
|
|
|
46,861
|
|
|
|
|
|
|
|
|
|
|
|
46,861
|
|
Term loans
|
|
|
77,822
|
|
|
|
79,198
|
|
|
|
|
|
|
|
|
|
|
|
79,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
487,233
|
|
|
$
|
527,146
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
527,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
The following table presents the carrying value, gross unrealized gains and fair value of our
long-term investments by contractual maturity as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Unrealized
|
|
|
|
|
|
|
Carrying
|
|
|
Unrealized
|
|
|
|
|
|
|
Value
|
|
|
Gains
|
|
|
Fair Value
|
|
|
Value
|
|
|
Gains
|
|
|
Fair Value
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after five but within ten years
|
|
$
|
72,998
|
|
|
$
|
18,943
|
|
|
$
|
91,941
|
|
|
$
|
73,356
|
|
|
$
|
18,363
|
|
|
$
|
91,719
|
|
Due after ten years
|
|
|
55,613
|
|
|
|
13,036
|
|
|
|
68,649
|
|
|
|
53,738
|
|
|
|
12,330
|
|
|
|
66,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
128,611
|
|
|
$
|
31,979
|
|
|
$
|
160,590
|
|
|
$
|
127,094
|
|
|
$
|
30,693
|
|
|
$
|
157,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Accrued Liabilities
Accrued liabilities consisted of the following as of:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Maintenance
|
|
$
|
74,668
|
|
|
$
|
57,552
|
|
Salaries, wages and benefits
|
|
|
19,087
|
|
|
|
33,542
|
|
Aircraft fuel
|
|
|
16,521
|
|
|
|
17,710
|
|
Other
|
|
|
46,329
|
|
|
|
41,088
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
156,605
|
|
|
$
|
149,892
|
|
|
|
|
|
|
|
|
6. Segment Reporting
We have the following reportable segments: ACMI, AMC Charter, Commercial Charter and Dry
Leasing. We use an economic performance metric (Direct Contribution) that shows the
profitability of each segment after allocation of direct ownership costs. Direct Contribution
consists of Income before income taxes and excludes the following: special charges, nonrecurring
items, gains on the disposal of aircraft, unallocated revenue and unallocated fixed costs. Direct
ownership costs include crew costs, maintenance, fuel, ground operations, sales costs, aircraft
rent, interest expense related to aircraft debt, interest income on debt securities and aircraft
depreciation. Unallocated income and expenses include corporate overhead, non-aircraft
depreciation, interest income, foreign exchange gains and losses, other revenue and other
non-operating costs, including special items. Management uses Direct Contribution to measure
segment profitability as it shows each segments contribution to unallocated fixed costs. Each
segment has different operating and economic characteristics that are separately reviewed by our
senior management.
Management allocates the costs attributable to aircraft operation and ownership among the
various segments based on the aircraft type and activity levels in each segment. Depreciation
and amortization expense, aircraft rent, maintenance expense, and other aircraft related
expenses are allocated to segments based upon aircraft utilization because individual aircraft
are utilized across segments interchangeably. In addition, certain ownership costs are directly
apportioned to the ACMI segment. Other allocation methods are standard activity-based methods
that are commonly used in the industry.
The ACMI segment provides aircraft, crew, maintenance and insurance services to customers.
Also included in the ACMI segment are the results of operations for CMI, which we began providing
in the second quarter of 2010. CMI provides crew, maintenance and insurance services, with the
customer providing the aircraft. Under both services, the customers utilize an insured and
maintained aircraft with crew in exchange for a guaranteed monthly level of operation at a
predetermined rate for a defined period of time. The customer bears the commercial revenue risk
and the obligation for other direct operating costs, including fuel. The Direct Contribution from
Express Network ACMI flying is reflected as ACMI.
The AMC Charter segment provides full-planeload charter flights to the U.S. Military. In
addition, we also earn commissions on subcontracting certain flying of oversized cargo, or in
connection with flying cargo into areas of military conflict where we cannot perform these services
on our own. Revenue from the AMC Charter business is typically derived from one-year contracts on
a cost-plus basis with the AMC. Our current AMC contract runs from January 1, 2011 through
December 31, 2011. Although we are responsible for the direct operating costs of the aircraft, the
price paid for fuel consumed during AMC flights is fixed by the U.S. Military. We receive
reimbursement from the AMC each month if the
8
price of fuel paid by us to vendors for AMC missions
exceeds the fixed price. Alternatively, if the price of fuel paid by us is less than the fixed
price, we pay the difference to the AMC each month.
The Commercial Charter segment provides aircraft charters to freight forwarders, airlines and
other air cargo customers. Charters are often paid in advance and we typically bear the direct
operating costs.
The Dry Leasing segment provides for the leasing of aircraft and engines to customers.
Other represents revenue for services that are not allocated to any segment, including
administrative and management support services, and flight simulator training.
The following table sets forth Operating Revenue and Direct Contribution for our reportable
business segments reconciled to Operating Income and Income before Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
Operating Revenue:
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
146,035
|
|
|
$
|
112,403
|
|
AMC Charter
|
|
|
81,176
|
|
|
|
121,584
|
|
Commercial Charter
|
|
|
65,536
|
|
|
|
56,653
|
|
Dry Leasing
|
|
|
1,543
|
|
|
|
1,378
|
|
Other
|
|
|
3,316
|
|
|
|
3,214
|
|
|
|
|
|
|
|
|
Total Operating Revenue
|
|
$
|
297,606
|
|
|
$
|
295,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Contribution:
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
22,271
|
|
|
$
|
21,395
|
|
AMC Charter
|
|
|
14,199
|
|
|
|
40,610
|
|
Commercial Charter
|
|
|
9,040
|
|
|
|
13,680
|
|
Dry Leasing
|
|
|
828
|
|
|
|
872
|
|
|
|
|
|
|
|
|
Total Direct Contribution for Reportable Segments
|
|
|
46,338
|
|
|
|
76,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back (subtract):
|
|
|
|
|
|
|
|
|
Unallocated income and expenses
|
|
|
(29,772
|
)
|
|
|
(23,888
|
)
|
Gain on sale of aircraft
|
|
|
120
|
|
|
|
1,222
|
|
|
|
|
|
|
|
|
Income before Income Taxes
|
|
|
16,686
|
|
|
|
53,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back (subtract):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(5,115
|
)
|
|
|
(3,906
|
)
|
Interest expense
|
|
|
10,296
|
|
|
|
10,070
|
|
Capitalized interest
|
|
|
(5,417
|
)
|
|
|
(3,089
|
)
|
Other (Income) Expense, net
|
|
|
41
|
|
|
|
(8,835
|
)
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
16,491
|
|
|
$
|
48,131
|
|
|
|
|
|
|
|
|
7. Commitments and Contingencies
In 2006, we entered into an agreement with The Boeing Company (Boeing) providing for our
purchase of 12 747-8F aircraft (the Boeing 747-8F Agreement). The Boeing 747-8F Agreement
provided for deliveries of the aircraft to begin in 2010, with all 12 deliveries originally
contractually scheduled for delivery by the end of 2011. In addition, the Boeing 747-8F Agreement
provides us with rights to purchase up to an additional 14 747-8F aircraft, of which one is being
held under option with a designated delivery month. In 2009, Boeing announced a delay and proposed
a new delivery schedule for our deliveries.
9
In March 2010, we entered into an agreement with Boeing to reschedule the delivery of our
747-8F aircraft and option aircraft under the Boeing 747-8F Agreement with the first delivery
occurring in early 2011. Estimated expenditures, as well as estimated amounts for contractual
price escalations and advance payments, are $905.6 million for the remainder of 2011, $546.0
million in 2012 and $196.9 million in 2013.
In September 2010, Boeing announced a further delay and proposed a new delivery schedule for
certain of our deliveries. Boeing has agreed with us to suspend payments for the delayed aircraft
under the above agreement until a revised delivery and payment schedule has been agreed upon.
8. Labor and Legal Proceedings
Labor
Crewmembers of Atlas and Polar are represented by the International Brotherhood of Teamsters
(the IBT). These employees represented approximately 52.0% of our workforce as of March 31,
2011. We are subject to risks of work interruption or stoppage as permitted by the Railway Labor
Act of 1926 (the Railway Labor Act), and may incur additional administrative expenses associated
with union representation of our employees.
The Atlas collective bargaining agreement became amendable in 2006. The Polar collective
bargaining agreement became amendable in 2007. While both units have filed Railway Labor Act
Section 6 notices to begin negotiations for amended agreements, those negotiations have been
placed on hold in favor of completing the merger of the two crew forces. In 2004, we initiated
steps to merge the represented crewmember bargaining units of Atlas and Polar. The respective
collective bargaining agreements provide for a seniority integration process and the negotiation of
a single collective bargaining agreement (SCBA). This seniority list integration process was
completed in 2006.
We received the integrated seniority lists and the parties have concluded negotiations for a
SCBA. In accordance with both the Atlas and Polar contracts, an arbitrator was assigned to resolve
the few open contract issues that remained after we concluded negotiations. Those issues were
submitted to the arbitrator in December 2010 for final and binding interest arbitration. We have
continued to coordinate with the IBT to implement the SCBA upon receipt of the arbitrators
decision, which is expected during 2011.
In 2009, the IBT was certified as the collective bargaining representative of the dispatchers
employed by Atlas and Polar. Formal negotiations began in 2009 between the IBT and us regarding the
first collective bargaining agreement for these dispatchers. Other than the crewmembers and
dispatchers, there are no other Atlas or Polar employees represented by a union.
Legal Proceedings
Department of Justice Investigation and Related Litigation
In 2010, Old Polar entered into a plea agreement with the United States Department of Justice
(the DOJ) relating to the previously disclosed DOJ investigation concerning alleged manipulation
by cargo carriers of fuel surcharges and other rate components for air cargo services (the DOJ
Investigation). Under the terms of the agreement, Old Polar will pay a fine of $17.4 million,
payable in five annual installments. The fine relates to an alleged agreement by Old Polar with
respect to fuel surcharges on cargo shipped from the United States to Australia during the time
period from January 2000 through April 2003. The United States District Court for the District of
Columbia held a hearing on the plea on November 15, 2010. The court accepted the plea and judgment
was entered the following day, finalizing the plea agreement, in the amount of $17.4 million as
agreed.
As a result of the DOJ Investigation, the Company and Old Polar have been named defendants,
along with a number of other cargo carriers, in several class actions in the United States arising
from allegations about the pricing practices of a number of air cargo carriers that have now been
consolidated for pre-trial purposes in the United States District Court for the Eastern District of
New York. The consolidated complaint alleges, among other things, that the defendants, including
the Company and Old Polar, manipulated the market price for air cargo services sold domestically
and abroad through the use of surcharges, in violation of United States, state, and European Union
antitrust laws. The suit seeks treble damages and injunctive relief. The defendants moved to
dismiss the consolidated complaint, and on September 26, 2008, the Magistrate Judge who heard the
motion to dismiss issued a decision recommending that the Federal District Court Judge grant the
defendants motion to dismiss. The Magistrate Judge recommended that plaintiffs claims based on
the United States
10
antitrust laws be dismissed without prejudice so that plaintiffs have an
opportunity to cure the defects in their complaint by pleading more specific facts, if they have
any, relevant to their federal claims. The Magistrate Judge recommended that the plaintiffs
claims based on state and European Union laws be dismissed with prejudice. Both plaintiffs and
defendants objected to portions of the Magistrate Judges Report and Recommendation. In 2009, the
Federal District Court Judge issued an opinion and order, accepting the Magistrate Judges Report
and Recommendation, except for the Magistrate Judges recommendation that the complaint be
dismissed in its entirety, instead maintaining the claims under the United States antitrust laws on
the grounds that the consolidated complaint was sufficiently detailed to withstand a motion to
dismiss. Old Polar and the other defendants moved for reconsideration of that portion of the
Federal District Court Judges decision which motion was denied on March 22, 2010. The plaintiffs
moved to join Polar Air Cargo Worldwide, Inc. as a defendant in this case on February 10, 2011.
The Federal District Court Judge granted the plaintiffs motion on April 13, 2011. Pre-trial
written and document discovery and depositions are ongoing. We are unable to predict the outcome
of this litigation.
In 2007, the Company and Old Polar commenced an adversary proceeding in bankruptcy court
against each of the plaintiffs in this class action litigation seeking to enjoin the plaintiffs
from prosecuting claims against the Company and Old Polar that arose prior to 2004, the date on
which the Company and Old Polar emerged from bankruptcy. In 2007, the plaintiffs consented to the
injunctive relief requested and the bankruptcy court entered an order enjoining plaintiffs from
prosecuting Company claims arising prior to 2004.
The Company, Old Polar and a number of other cargo carriers have also been named as defendants
in civil class action suits in the provinces of British Columbia, Ontario and Quebec, Canada that
are substantially similar to the class action suits in the United States. The plaintiffs in the
British Columbia case have indicated they do not intend to pursue their lawsuit against the Company
and Old Polar. We are unable to reasonably predict the outcome of the litigation in Ontario and
Quebec.
If the Company or Old Polar were to incur an unfavorable outcome in connection with one or
more of the matters described above, such outcome is not expected to materially affect our
business, financial condition, results of operations, and/or cash flows.
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 $11.9 million and $6.5 million, respectively, plus interest based on March 31, 2011
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. Furthermore, we may seek appropriate indemnity from the shipper in each claim as
necessary. In the pending claim for $11.9 million, we received an administrative decision
dismissing the claim in its entirety, which remains subject to a mandatory appeal by the Brazil
customs authorities.
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.
Trademark Matters
Since 2005, we have been involved in ongoing litigation in Europe against Atlas Transport, an
unrelated and unaffiliated entity, over the use of the name Atlas. Following application by us
to register the mark ATLAS AIR in the European Union (EU), opposition from Atlas Transport and
follow-up filings by us, the Office for Harmonization in the Internal Market (OHIM), which
handles trademark matters in the EU, declared Atlas Transports own trademark ATLAS partially
invalid because of the prior existence of our Benelux trademark registration. In 2008, OHIMs
First Board of Appeal upheld the lower panels decision, and Atlas Transport appealed that decision
to the EU General Court (formally the Court of First Instance), where it remains pending.
11
In 2007, Atlas Transport also filed a lawsuit in the Netherlands challenging the validity of
our Benelux trademark. In 2009, following completion of its proceedings, the court issued a
judgment in favor of us. Atlas Transport has appealed that decision to the Dutch Court of Appeal,
but the judgment took effect immediately upon entry.
In 2009, Atlas Transport instituted a trademark infringement lawsuit against us in the
regional court in Hamburg, Germany. The amended complaint alleges that Atlas Air has been
unlawfully using Atlas Transports trademark in Germany without permission and should be required
to render information on the scope of use and pay compensation. In a supplementary motion, Atlas
Transport asserts a cease and desist claim against Atlas Air, to be considered if the court denies
the claim for compensation. The court is expected to decide the matter in May 2011.
We believe that the ultimate disposition of these claims, either individually or in the
aggregate, will not materially affect our financial condition, results of operations or cash flows.
Other
We have certain other contingencies resulting from labor grievances and contract
administration, litigation, and claims incident to the ordinary course of business. Management
believes that the ultimate disposition of such other contingencies is not expected to materially
affect our financial condition, results of operations or cash flows.
9. Earnings Per Share
Basic earnings per share (EPS) represents net income attributable to common shareholders
divided by the weighted average number of common shares outstanding during the measurement period.
Diluted EPS represents net income attributable to common shareholders 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. Anti-dilutive
restricted shares and options that were out of the money and excluded for the three months ended
March 31, 2011, were zero and for the three months ended March 31, 2010, were 0.1 million.
The calculations of basic and diluted EPS for the periods described below were as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net Income Attributable to Common
Stockholders
|
|
$
|
10,516
|
|
|
$
|
33,785
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic EPS weighted average shares outstanding
|
|
|
26,041
|
|
|
|
25,583
|
|
Effect of dilutive stock options and
restricted stock
|
|
|
248
|
|
|
|
309
|
|
|
|
|
|
|
|
|
Diluted EPS weighted average shares
outstanding
|
|
|
26,289
|
|
|
|
25,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.40
|
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.40
|
|
|
$
|
1.30
|
|
|
|
|
|
|
|
|
Diluted shares reflect the potential dilution that could occur from stock options and
restricted shares using the treasury stock method. The calculation does not include restricted
shares and units in which performance or market conditions were not satisfied of 0.3 million for
the three months ended March 31, 2011 and 0.4 million for the three months March 31, 2010.
12
10. Income Taxes
Our effective income tax rates were 37.3% for the three months ended March 31, 2011 and 37.6%
for the three months ended March 31, 2010. The effective rates differ from the U.S. federal
statutory rate due to the income tax impact of global operations, U.S. state income taxes, the
non-deductibility of certain expenses for tax purposes, and the relationship of these items to our
projected operating results for the year.
11. Subsequent Events
On April 1, 2011, we repaid $46.9 million of loans outstanding under our PDP financing
facilities.
13
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited
Financial Statements appearing in this report and our audited consolidated financial statements and
related notes included in our 2010 Annual Report on Form 10-K.
Background
Certain Terms Glossary
The following represents terms and statistics specific to the airline and cargo industries.
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
|
|
High-level or heavy airframe maintenance checks, which are more intensive in scope than line maintenance, are
generally performed between 18 and 24 months depending on aircraft type.
|
|
|
|
D Check
|
|
High-level or heavy airframe maintenance checks, which are the most extensive in scope and are generally
performed every six to nine years depending on aircraft type.
|
|
|
|
Revenue Per
Block Hour
|
|
An amount calculated by dividing operating revenues by Block Hours.
|
|
|
|
Yield
|
|
The average amount a customer pays to fly one ton of cargo one mile.
|
Business Overview
We
are a leading global provider of outsourced aircraft and aviation operating
services. As such, we manage and operate the worlds largest fleet of Boeing 747
freighters. We provide unique value to our customers by giving them access to highly reliable new
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 airlines, express delivery providers, 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 encompass the following:
|
|
|
ACMI, whereby we provide outsourced aircraft operating solutions, including
the provision of an aircraft, crew, maintenance and insurance, while customers
assume fuel, demand and yield risk. ACMI contracts typically range from three to
five years. Included within ACMI is the provision of Express Network ACMI,
whereby we provide 747-400 aircraft to Polar that service the requirements of
DHLs global express operations and meet the needs of other Polar customers;
|
|
|
|
|
CMI, which is also part of our ACMI business segment, whereby we provide
outsourced aircraft operating solutions including the provision of crew,
maintenance and insurance, while customers provide the aircraft and assume fuel,
demand and yield risk. We began performing CMI services during 2010;
|
|
|
|
|
Dry Leasing, whereby we provide aircraft and/or engine leasing solutions to
third parties;
|
|
|
|
|
AMC Charter services, whereby we provide air cargo services for the AMC. The
AMC pays a fixed charter fee that includes fuel, insurance, landing fees,
overfly and all other operational fees and costs; and
|
|
|
|
|
Commercial Charter, whereby we provide aircraft charters to customers,
including brokers, freight forwarders, direct shippers and airlines. The
customer pays a fixed charter fee that includes fuel, insurance, landing fees,
overfly and all other operational fees and costs.
|
14
We look to achieve our growth plans to enhance stakeholder value through:
|
|
|
Delivering superior service quality to our valued customers;
|
|
|
|
|
Actively managing our fleet with a focus on leading-edge aircraft;
|
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|
|
Diversifying our service offerings;
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|
|
|
|
Focusing on securing long-term contracts with attractive terms;
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|
|
Driving significant ongoing efficiencies and productivity improvements;
|
|
|
|
|
Selectively pursuing and evaluating future acquisitions and alliances; and
|
|
|
|
|
Building our brand and increasing our market share.
|
See Business Overview and Business Strategy in our 2010 Annual Report on Form 10-K for
additional information.
Business Developments
Our ACMI results for the first quarter of 2011, compared to the same period in 2010, were
positively impacted by the following events that occurred during 2010:
|
|
|
In May 2010, we began to fly on a CMI basis for SonAir Serviço Aéreo, S.A.
(SonAir), an agent of the United States-Africa Energy Association. SonAir is a
wholly owned subsidiary of the Sonangol Group, the multinational energy company of
Angola. This passenger service, known as the Houston Express, operates three weekly
nonstop roundtrip flights between Houston, Texas and Luanda, Angola on two
newly customized 747-400 passenger aircraft provided by SonAir.
|
|
|
|
|
In July 2010, we began to fly CMI service for Boeing to operate their Dreamlifter
fleet of four modified 747-400 aircraft. These aircraft transport major
sub-assemblies for the Boeing 787 Dreamliner aircraft from suppliers around the world
to Boeing production facilities in the United States.
|
|
|
|
|
In September 2010, we began ACMI flying for TNT Airways (TNT). Under the ACMI
agreement, we provide service for TNTs international express air network, which is
based at TNTs European hub in Liege, Belgium.
|
|
|
|
|
In October 2010, we began ACMI flying for a second 747-400 aircraft for Panalpina
Air & Ocean Ltd (Panalpina). This aircraft is based at Panalpinas European hub in
Luxembourg.
|
During the first quarter of 2011, we signed an ACMI agreement with DHL for two additional
747-400 aircraft to operate in their Express Network ACMI business. This increases the size of our
Express Network ACMI flying for DHL from six to eight aircraft. These two additional aircraft were
placed in service at the end of March 2011.
AMC demand was exceptionally strong during the first quarter of 2010 primarily due to the
surge in U.S. Military activity in Afghanistan. During that period, we flew a significant number
of missions in support of the U.S. Militarys deployment of mine resistant, ambush-protected,
all-terrain vehicles (M-ATV) from the U.S. to Afghanistan and averaged approximately 1,800 Block
Hours a month. We also earned a premium rate for utilizing additional 747-400 aircraft to meet
most of this demand. In the first quarter of 2011, we averaged approximately 1,400 Block Hours per
month.
In April 2011, we received approval to commence flying passenger charters for the U.S.
Military. These charters are similar to our existing AMC Charters in that the AMC will pay a fixed
charter fee that includes fuel, insurance, landing fees, overfly and all other operational fees and
costs. We expect to begin offering this service in May 2011 utilizing the 747-400 passenger
aircraft we took delivery of in January 2011.
Commercial Charter Yields and volumes were robust during the first quarter of 2010 due to the
utilization of the return flights from one-way AMC missions. Commercial Charter Yields and volumes
have been negatively impacted by the return of aircraft capacity in the Asian markets
during the first quarter of 2011. As a result, the Commercial Charter Yields
15
were not able to
fully absorb the sharp rise in aviation fuel prices that occurred during the quarter. While we
were able to recover most of this increase in the South American markets through Yields and fuel
surcharges, we were not able to fully recover these increases in the Asian markets.
In January and February 2011, we leased two 747-400 Boeing converted freighters for an average
of approximately three and a half years, one of which was placed in service during April 2011. The
second will be placed in service during the second quarter of 2011. These two aircraft will
provide us with increased capacity.
Also in April 2011, Titan purchased a Boeing 737-800 passenger aircraft, its first such
acquisition, that is being dry leased to a customer on a long-term basis.
Results of Operations
Three Months Ended March 31, 2011 and 2010
Operating Statistics
The following discussion should be read in conjunction with our Financial Statements and
other financial information appearing and referred to elsewhere in this report.
The table below sets forth selected Operating Statistics for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
Percent
|
|
|
|
2011
|
|
|
2010
|
|
|
(Decrease)
|
|
|
Change
|
|
Block Hours
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
|
23,699
|
|
|
|
19,421
|
|
|
|
4,278
|
|
|
|
22.0
|
%
|
AMC Charter
|
|
|
4,130
|
|
|
|
5,498
|
|
|
|
(1,368
|
)
|
|
|
(24.9
|
)%
|
Commercial Charter
|
|
|
3,165
|
|
|
|
2,816
|
|
|
|
349
|
|
|
|
12.4
|
%
|
Other
|
|
|
216
|
|
|
|
108
|
|
|
|
108
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Block Hours
|
|
|
31,210
|
|
|
|
27,843
|
|
|
|
3,367
|
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Per Block Hour
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
6,162
|
|
|
$
|
5,788
|
|
|
$
|
374
|
|
|
|
6.5
|
%
|
AMC Charter
|
|
|
19,655
|
|
|
|
22,114
|
|
|
|
(2,459
|
)
|
|
|
(11.1
|
)%
|
Commercial Charter
|
|
|
20,706
|
|
|
|
20,118
|
|
|
|
588
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fuel cost per gallon
|
|
$
|
2.95
|
|
|
$
|
2.68
|
|
|
$
|
0.27
|
|
|
|
10.1
|
%
|
Fuel gallons consumed (000s)
|
|
|
13,365
|
|
|
|
16,079
|
|
|
|
(2,714
|
)
|
|
|
(16.9
|
)%
|
Commercial Charter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fuel cost per gallon
|
|
$
|
3.06
|
|
|
$
|
2.23
|
|
|
$
|
0.83
|
|
|
|
37.2
|
%
|
Fuel gallons consumed (000s)
|
|
|
11,336
|
|
|
|
9,620
|
|
|
|
1,716
|
|
|
|
17.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet (average during the period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI*
|
|
|
21.0
|
|
|
|
16.8
|
|
|
|
4.2
|
|
|
|
25.0
|
%
|
AMC Charter
|
|
|
4.9
|
|
|
|
7.6
|
|
|
|
(2.7
|
)
|
|
|
(35.5
|
)%
|
Commercial Charter
|
|
|
3.6
|
|
|
|
3.4
|
|
|
|
0.2
|
|
|
|
5.9
|
%
|
Dry Leasing
|
|
|
1.0
|
|
|
|
0.2
|
|
|
|
0.8
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Aircraft
|
|
|
30.5
|
|
|
|
28.0
|
|
|
|
2.5
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Out-of-service**
|
|
|
0.9
|
|
|
|
0.2
|
|
|
|
0.7
|
|
|
NM
|
|
|
|
*
|
|
ACMI average fleet excludes spare aircraft provided by CMI customers.
|
|
**
|
|
All of our out-of-service aircraft are completely unencumbered. Permanently parked aircraft, all of which are also completely
unencumbered, are not included in the operating statistics above.
|
16
Operating Revenue
The following table compares our Operating Revenue for the three months ended March 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
Percent
|
|
|
|
2011
|
|
|
2010
|
|
|
(Decrease)
|
|
|
Change
|
|
Operating Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
146,035
|
|
|
$
|
112,403
|
|
|
$
|
33,632
|
|
|
|
29.9
|
%
|
AMC Charter
|
|
|
81,176
|
|
|
|
121,584
|
|
|
|
(40,408
|
)
|
|
|
(33.2
|
)%
|
Commercial Charter
|
|
|
65,536
|
|
|
|
56,653
|
|
|
|
8,883
|
|
|
|
15.7
|
%
|
Dry Leasing
|
|
|
1,543
|
|
|
|
1,378
|
|
|
|
165
|
|
|
|
12.0
|
%
|
Other
|
|
|
3,316
|
|
|
|
3,214
|
|
|
|
102
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Revenue
|
|
$
|
297,606
|
|
|
$
|
295,232
|
|
|
$
|
2,374
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI revenue
increased by $33.6 million, or 29.9%, in the first quarter of 2011 compared to
2010 due to an increase in Block Hours and Revenue per Block Hour. ACMI Block Hours were 23,699 in
the first quarter of 2011, compared to 19,421 in 2010, representing an increase of 4,278 Block
Hours, or 22.0%. The increase in Block Hours was driven by the startup of ACMI flying for TNT in
September 2010, the second aircraft for Panalpina in October 2010, CMI passenger flights for SonAir
in May 2010 and CMI Dreamlifter flights for Boeing in July 2010. In the first quarter of 2011,
there was an average of 20.7 747-400 aircraft and 0.3 747-200 aircraft supporting ACMI compared to
an average of 16.7 747-400 aircraft and 0.1 747-200 aircraft for the first quarter of 2010.
Revenue per Block Hour was $6,162 for the first quarter of 2011, compared to $5,788 for the first
quarter of 2010, an increase of $374 per Block Hour, or 6.5%. The increase in Revenue per Block
Hour primarily reflects contractual rate increases in existing contracts and higher rates on new
customer contracts.
AMC Charter revenue
decreased $40.4 million, or 33.2%, due to a decrease in Block Hours and
lower Revenue per Block Hour. AMC Charter Block Hours were 4,130 in the first quarter of 2011
compared to 5,498 in 2010, a decrease of 1,368 Block Hours, or 24.9%. The decrease in AMC Block
Hours was primarily due to the reduction in AMC demand to support U.S. Military activity in
Afghanistan. During the first quarter of 2010, we flew a significant number of missions in support
of the U.S. Militarys deployment of M-ATVs from the U.S. to Afghanistan and averaged approximately
1,800 Block Hours a month. During the first quarter of 2011, we averaged approximately 1,400 Block
Hours a month. AMC Charter Revenue per Block Hour decreased from $22,114 for the first quarter of
2010 to $19,655 for 2011, a decrease of $2,459 per Block Hour, or 11.1%, primarily due to the
premium earned on M-ATV missions flown on our 747-400 aircraft during 2010. Partially offsetting
this decrease was an increase in the average pegged fuel price. For the first quarter of 2011,
the AMC average pegged fuel price was $2.95 per gallon compared to an average pegged fuel price
of $2.68 for the first quarter of 2010. In the first quarter of 2011, there was an average of 0.9
747-400 aircraft and 4.0 747-200 aircraft supporting AMC Charter compared to an average of 3.1
747-400 aircraft and 4.5 747-200 aircraft for the first quarter in 2010.
Commercial Charter revenue
increased $8.9 million, or 15.7%, due to an increase in flying and
an increase in Revenue per Block Hour. Commercial Charter Block Hours were 3,165 in the first
quarter of 2011, compared to 2,816 in the same period of 2010, representing an increase of 349
Block Hours, or 12.4%, as a result of the increased demand in flying charters to and from South
America. Revenue per Block Hour was $20,706 in the first quarter of 2011, compared to $20,118 in
2010, an increase of $588 per Block Hour, or 2.9%. This increase in Revenue per Block Hour is the
result of higher Yields in South America driven primarily by an increase in demand and the recovery
of aircraft fuel costs during the first quarter of 2011. However, Commercial Charter Yields and
volumes in the Asian markets have been negatively impacted by the return of aircraft capacity in
these markets during the first quarter of 2011. In the first quarter of 2011, there was an average
of 2.0 747-400 aircraft and 1.6 747-200 aircraft supporting Commercial Charter, compared to an
average of 2.2 747-400 aircraft and 1.2 747-200 aircraft for the first quarter in 2010.
17
Operating Expenses
The following table compares our Operating Expenses for the three months ended March 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
Percent
|
|
|
|
2011
|
|
|
2010
|
|
|
(Decrease)
|
|
|
Change
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel
|
|
$
|
74,167
|
|
|
$
|
64,590
|
|
|
$
|
9,577
|
|
|
|
14.8
|
%
|
Salaries, wages and benefits
|
|
|
61,764
|
|
|
|
61,362
|
|
|
|
402
|
|
|
|
0.7
|
%
|
Maintenance, materials and
repairs
|
|
|
50,069
|
|
|
|
31,617
|
|
|
|
18,452
|
|
|
|
58.4
|
%
|
Aircraft rent
|
|
|
38,354
|
|
|
|
38,150
|
|
|
|
204
|
|
|
|
0.5
|
%
|
Landing fees and other rent
|
|
|
11,340
|
|
|
|
11,709
|
|
|
|
(369
|
)
|
|
|
(3.2
|
)%
|
Depreciation and amortization
|
|
|
8,330
|
|
|
|
9,079
|
|
|
|
(749
|
)
|
|
|
(8.2
|
)%
|
Travel
|
|
|
9,122
|
|
|
|
7,615
|
|
|
|
1,507
|
|
|
|
19.8
|
%
|
Ground handling and airport fees
|
|
|
5,302
|
|
|
|
4,923
|
|
|
|
379
|
|
|
|
7.7
|
%
|
Gain on disposal of aircraft
|
|
|
(120
|
)
|
|
|
(1,222
|
)
|
|
|
(1,102
|
)
|
|
|
90.2
|
%
|
Other
|
|
|
22,787
|
|
|
|
19,278
|
|
|
|
3,509
|
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
$
|
281,115
|
|
|
$
|
247,101
|
|
|
$
|
34,014
|
|
|
|
13.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel
increased $9.6 million, or 14.8%, as a result of approximately $12.1 million in
fuel price increases partially offset by $2.5 million in decreased consumption. The average fuel
price per gallon for the Commercial Charter business was approximately $3.06 for the first quarter
of 2011, compared to approximately $2.23 in the first quarter of 2010, an increase of 37.2%. Fuel
consumption for this business increased by 1.7 million gallons, or 17.8%, commensurate with the
increase in Block Hours operated. The average fuel price per gallon for the AMC Charter business
was approximately $2.95 in the first quarter of 2011, compared to approximately $2.68 in the first
quarter of 2010, an increase of 10.1%. AMC fuel consumption decreased by 2.7 million gallons, or
16.9%, commensurate with the decrease in Block Hours operated. We do not incur fuel expense in our
ACMI business as the cost of fuel is borne by the customer.
Salaries, wages and benefits
increased $0.4 million, or 0.7%, primarily driven by higher Block
Hours partially offset by lower profit sharing and incentive compensation.
Maintenance, materials and repairs
increased $18.5 million, or 58.4%, due to increased engine
overhauls of $9.8 million, increased line and other non-heavy maintenance expense of approximately
$5.5 million and increased heavy airframe check expense of approximately $3.1 million. Heavy
maintenance events and engine overhauls for the three months ended March 31, 2011 and 2010 are
listed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
Events
|
|
2011
|
|
2010
|
|
(Decrease)
|
747-200 C Checks
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
747-400 C Checks
|
|
|
1
|
|
|
|
5
|
|
|
|
(4
|
)
|
747-400 D Checks
|
|
|
3
|
|
|
|
1
|
|
|
|
2
|
|
CF6-50 engine overhauls
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
CF6-80 engine overhauls
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
Depreciation and amortization
decreased $0.7 million, or 8.2%, primarily due to decreased
depreciation on 747-200 aircraft.
Travel
increased $1.5 million, or 19.8%, primarily due to an increase in crew travel related
to the higher volume of Block Hours in 2011 and ground staff travel related to on-boarding new
aircraft and maintenance activities.
Gain on disposal of aircraft
resulted from the sale of four retired engines during the first
quarter of 2011 compared with the sale of one spare engine and five retired engines during the
first quarter of 2010.
Other operating expenses
increased $3.5 million, or 18.2%, primarily due to an increase in
freight related to the movement of 747-200 spare parts and engines to be utilized on aircraft in
lieu of incurring more costly repairs and contract services for flight attendants.
18
Non-operating Expenses / (Income)
The following table compares our
Non-operating Expenses / (Income) for the three months ended March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
Percent
|
|
|
2011
|
|
2010
|
|
(Decrease)
|
|
Change
|
Non-operating Expenses /
(Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(5,115
|
)
|
|
$
|
(3,906
|
)
|
|
$
|
1,209
|
|
|
|
31.0
|
%
|
Interest expense
|
|
|
10,296
|
|
|
|
10,070
|
|
|
|
226
|
|
|
|
2.2
|
%
|
Capitalized interest
|
|
|
(5,417
|
)
|
|
|
(3,089
|
)
|
|
|
2,328
|
|
|
|
75.4
|
%
|
Other expense (income), net
|
|
|
41
|
|
|
|
(8,835
|
)
|
|
|
(8,876
|
)
|
|
|
(100.5
|
)%
|
Interest income
increased $1.2 million, or 31%, primarily due to the income generated from an
increase in Long-term investments in debt securities (see Note 4 to our Financial Statements).
Interest expense
was relatively unchanged. Higher interest rates on variable debt instruments
were partially offset by lower average debt balances. Aggregate long- and short-term debt averaged
approximately $481.3 million in 2011 compared to approximately $560.8 million in 2010.
Capitalized interest
increased $2.3 million, or 75.4%, primarily due to higher PDP balances
outstanding during the period.
Other expense (income), net
decreased $8.9 million, or 100.5%, primarily due to an $8.8
million litigation settlement received during the first quarter of 2010.
Income taxes
. Our effective income tax rates were 37.3% for the three months ended March 31,
2011 and 37.6% for the three months ended March 31, 2010. Our effective rates differ from the U.S.
federal statutory rate primarily due to the income tax impact of global operations, U.S. state
income taxes, the non-deductibility of certain expenses for tax purposes, and the relationship of
these items to our projected operating results for the year.
Segments
The following table compares the Direct Contribution for our reportable segments (see Note 6
to our Financial Statements for the reconciliation to Operating income) for the three months ended
March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
Percent
|
|
|
|
2011
|
|
|
2010
|
|
|
(Decrease)
|
|
|
Change
|
|
Direct Contribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
22,271
|
|
|
$
|
21,395
|
|
|
$
|
876
|
|
|
|
4.1
|
%
|
AMC Charter
|
|
|
14,199
|
|
|
|
40,610
|
|
|
|
(26,411
|
)
|
|
|
(65.0
|
)%
|
Commercial Charter
|
|
|
9,040
|
|
|
|
13,680
|
|
|
|
(4,640
|
)
|
|
|
(33.9
|
)%
|
Dry Leasing
|
|
|
828
|
|
|
|
872
|
|
|
|
(44
|
)
|
|
|
(5.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Direct Contribution
|
|
$
|
46,338
|
|
|
$
|
76,557
|
|
|
$
|
(30,219
|
)
|
|
|
(39.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income and
expenses
|
|
$
|
29,772
|
|
|
$
|
23,888
|
|
|
$
|
5,884
|
|
|
|
24.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI Segment
Direct Contribution related to the ACMI segment increased $0.9 million, or 4.1%, primarily due
to increased Block Hours offset by increased operating expense. During the first quarter of 2011,
there was an average of 20.7 747-400 aircraft and 0.3 747-200 aircraft supporting ACMI compared to
an average of 16.7 747-400 aircraft and 0.1 747-200 aircraft supporting ACMI in the first quarter
of 2010. The increase in Block Hours was driven by the startup of ACMI flying for TNT in September
2010, the second aircraft for Panalpina in October 2010, CMI passenger flights for SonAir in May
2010 and CMI Dreamlifter flights for Boeing in July 2010. ACMI Direct Contribution was also
impacted by the timing of heavy maintenance and increased crew and line maintenance expenses driven
by the increased flying. Partially offsetting these
19
decreases was an increase in contribution from
our investment in debt securities related to Atlas EETCs, which had the effect of reducing our
ownership costs of 747-400s on a per Block Hour basis.
AMC Charter Segment
Direct Contribution related to the AMC Charter segment decreased $26.4 million, or 65.0%,
primarily due to decreased Block Hours and Revenue per Block Hour. The decrease in AMC Block Hours
was primarily due to the reduction in AMC demand to support U.S. Military activity in Afghanistan.
AMC Charter Revenue per Block Hour decreased as a result of the reduction in the premium earned on
M-ATV missions flown on our 747-400 aircraft in 2010. Also contributing to the decrease in AMC
Direct Contribution were increases in heavy maintenance expense and line maintenance costs on
747-200s. Partially offsetting these increases was an improvement in ownership costs from the
redeployment of 747-400 aircraft when M-ATV missions were completed in 2010. The 747-400 aircraft
have higher ownership costs than 747-200 aircraft, and a greater portion of the flying in the first
quarter of 2010 was done by 747-400 aircraft than in the first quarter of 2011. During the first
quarter of 2011, there was an average of 0.9 747-400 aircraft and 4.0 747-200 aircraft supporting
AMC Charter compared to an average of 3.1 747-400 aircraft and 4.5 747-200 aircraft supporting AMC
Charter in the first quarter of 2010.
Commercial Charter Segment
Direct Contribution related to the Commercial Charter segment decreased $4.6 million, or
33.9%, primarily due to Commercial Charter Yields and volumes that were negatively impacted by the
return of aircraft capacity in the Asian markets coupled with the sharp rise in aviation fuel
prices that occurred during the first quarter of 2011. In addition, increased heavy maintenance
expense more than offset the improvements in Commercial Charter Revenue per Block Hour and our
increased flying in the South American markets. During the first quarter of 2011, there was an
average of 2.0 747-400 aircraft and 1.6 747-200 aircraft supporting Commercial Charter compared to
an average of 2.2 747-400 aircraft and 1.2 747-200 aircraft supporting Commercial Charter in the
first quarter of 2010.
Dry Leasing Segment
Direct Contribution related to the Dry Leasing segment was relatively unchanged. During the
first quarter of 2011, we had 1.0 757-200SF aircraft on Dry Lease compared to an average of 0.2
757-200SF aircraft on Dry Lease during the first quarter of 2010.
Unallocated income and expenses
Unallocated income and expenses increased $5.9 million, or 24.6%, primarily related to a
favorable litigation settlement of $8.8 million received in 2010.
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 the performance of our business. These
non-GAAP measures include Adjusted Net Income Attributable to Common Stockholders and Adjusted
Diluted EPS, which exclude certain items. These non-GAAP 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 measures of performance prepared in accordance with GAAP.
We use these non-GAAP financial measures in assessing the performance of our ongoing
operations and in planning and forecasting future periods. We believe that these adjusted measures
provide meaningful information to assist investors and analysts in understanding our financial
results and assessing our prospects for future performance.
20
The following is a reconciliation of Net Income Attributable to Common Stockholders and
Diluted EPS to the corresponding non-GAAP measures (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
March 31, 2011
|
|
|
March 31, 2010
|
|
|
Change
|
|
Net Income Attributable to
Common Stockholders
|
|
$
|
10,516
|
|
|
$
|
33,785
|
|
|
|
(68.9
|
%)
|
After-tax impact from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation settlement received
|
|
|
|
|
|
|
(5,513
|
)
|
|
|
|
|
Gain on disposal of aircraft
|
|
|
(76
|
)
|
|
|
(770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income
Attributable to Common
Stockholders
|
|
$
|
10,440
|
|
|
$
|
27,502
|
|
|
|
(62.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
0.40
|
|
|
$
|
1.30
|
|
|
|
(69.2
|
%)
|
After-tax impact from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation settlement received
|
|
|
|
|
|
|
(0.21
|
)
|
|
|
|
|
Gain on disposal of aircraft
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted EPS
|
|
$
|
0.40
|
|
|
$
|
1.06
|
|
|
|
(62.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
At March 31, 2011, we had cash and cash equivalents of $576.8 million, compared to $588.9
million at December 31, 2010, a decrease of $12.1 million, or 2.1%. The decrease was driven by net
cash used for investing activities of $10.2 million and net cash used for financing activities of
$16.0 million, partially offset by cash provided by operating activities of $14.1 million.
In February 2011, we entered into a term loan commitment in the amount of $240 million for
a period of twelve years with a syndicate of four banks (the 2011 Term Loan). The 2011 Term
Loan, when drawn, will be secured by a mortgage on two future 747-8F aircraft deliveries.
In April 2011, we repaid $46.9 million of our PDP financing facility.
Operating Activities.
Net cash provided by operating activities for the first three months
of 2011 was $14.1 million, compared to $49.5 million for 2010. The decrease was primarily due
to a reduction in net income, excluding non-cash items and an increase in other current assets.
Investing Activities.
Net cash used for investing activities was $10.2 million for the
first three months of 2011, consisting primarily of capital expenditures of $11.5 million, which
included capitalized interest on our 747-8F aircraft order of $5.4 million, partially offset by
proceeds from short-term investments of $1.2 million. Capital expenditures for the first three
months of 2011 were funded through working capital. Net cash used for investing activities was
$119.3 million for the first three months of 2010, consisting primarily of capital expenditures
of $21.9 million, which included capitalized interest on our Boeing 747-8F aircraft order of
$3.1 million, and $100.1 million of investments in debt securities, partially offset by proceeds
from the sale of aircraft of $1.8 million. Capital expenditures for the first three months of
2010 were funded through working capital, although we subsequently funded $8.1 million for the
757-200SF that we purchased.
Financing Activities.
Net cash used for financing activities was $16.0 million for the
first three months of 2011, which primarily reflects $13.0 million of payments on long-term debt
obligations and $9.1 million in purchases of treasury stock to settle employment taxes on the
vesting of restricted stock for management, partially offset by proceeds from stock option
exercises of $3.3 million. Net cash used for financing activities was $11.3 million for the
first three months of 2010, which primarily reflected $10.8 million of payments on long-term
debt obligations.
We consider cash on hand and short-term investments, our PDP financing facility and net
cash generated from operations to be sufficient to meet our debt and lease obligations and to
fund expected capital expenditures during 2011. Capital expenditures for the remainder of 2011
are expected to be approximately $85.7 million, which excludes PDPs, aircraft and
21
capitalized interest.
Our 747-8F aircraft PDP requirements have currently been suspended until we agree on a new
delivery and payment schedule with Boeing.
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 2009 that will
enable us to sell up to $500 million of debt and/or equity securities over the subsequent three
years, depending on market conditions, our capital needs and other factors. Approximately
$112.6 million of net proceeds from our stock offering in the fourth quarter of 2009 has been
drawn down from this shelf registration statement. 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.
Our U.S. cash income tax payments in 2011 will be commensurate with our earnings and
limitations on the utilization of net operating losses. As a result of recently enacted tax
legislation, we can deduct 100% of the cost of qualified assets placed in service during 2011 or
2012 and 50% of the cost of qualified assets placed in service during 2013. Based upon a
delivery schedule proposed by Boeing, we expect a substantial portion of our order for new
747-8F aircraft will qualify for this bonus tax depreciation, which would reduce or eliminate
our U.S. federal income tax payments starting in the year we take delivery of qualified
aircraft. As a result, we expect to receive a refund of almost all U.S. federal cash income tax
paid in 2011. Furthermore, two of our foreign branch operations and one subsidiary are subject
to income tax in Hong Kong, but we believe that these entities will have sufficient tax loss
carryforwards to offset projected taxable income in 2011. We expect to pay no significant
foreign income taxes in any other jurisdictions.
Debt Agreements
See the 2010 Annual Report on Form 10-K for a description of our debt obligations and
amendments thereto.
On February 11, 2011, we entered into the 2011 Term Loan commitment in the amount of $240
million for a period of twelve years with a syndicate of four banks. The 2011 Term Loan, when
drawn, will be secured by a mortgage on two future 747-8F aircraft deliveries. In connection
with entering into the 2011 Term Loan, we have agreed to pay usual and customary commitment and
other fees. Borrowings under the 2011 Term Loan will accrue interest at a variable rate,
payable quarterly, at LIBOR plus a margin. The 2011 Term Loan contains customary covenants and
events of default. Upon the occurrence and during the continuance of an event of default, the
2011 Term Loan is cross-defaulted to our PDP financing facilities.
Off-Balance Sheet Arrangements
Seventeen of our thirty-one operating aircraft are under operating leases (this excludes
aircraft provided by CMI customers). Six are leased through trusts established specifically to
purchase, finance and lease aircraft to us. These leasing entities meet the criteria for variable
interest entities. All fixed price options were restructured to reflect a fair market value
purchase option, and as such, we are not the primary beneficiary of the leasing entities. We are
generally not the primary beneficiary of the leasing entities if the lease terms are consistent
with market terms at the inception of the lease and the leases do not include a residual value
guarantee, fixed-price purchase option or similar feature that would obligate us to absorb
decreases in value or entitle us to participate in increases in the value of the aircraft. We have
not consolidated any additional aircraft in the related trusts upon application of accounting for
consolidations, because we are not the primary beneficiary based on the fact that all fixed price
options were restructured to reflect a fair market value purchase option. In addition, we reviewed
the other eleven Atlas aircraft that are under operating leases but not financed through a trust
and determined that none of them would be consolidated upon the application of accounting for
consolidations. Our maximum exposure under all operating leases is the remaining lease payments,
which amounts are reflected in future lease commitments described in Note 10 to the audited
consolidated financial statements in the AAWW Annual Report on Form 10-K.
There were no material changes in our off-balance sheet arrangements during the three months
ended March 31, 2011.
Recent Accounting Pronouncements
None.
Forward Looking Statements
22
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 managements beliefs,
plans, expectations and assumptions, and on information currently available to management.
Generally, the words 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, 2010. Many of such factors are beyond AAWWs control and are difficult
to predict. As a result, AAWWs future actions, financial position, results of operations and the
market price for shares of AAWWs 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. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of our exposure to market risk, refer to Part II, Item 7A Quantitative and
Qualitative Disclosures About Market Risk included in our 2010 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) under the
Exchange Act) as of March 31, 2011. 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 SECs 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) under the Exchange Act) during the three months ended March 31, 2011 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
23
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the fiscal quarter ended March 31, 2011, the information required in response
to this Item is set forth in Note 8 to our Financial Statements and such information is
incorporated herein by reference. Such description contains all of the information required with
respect hereto.
ITEM 6. EXHIBITS
a. Exhibits
See accompanying Exhibit Index included after the signature page of this report for a list
of exhibits filed or furnished with this report.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Atlas Air Worldwide Holdings, Inc.
|
|
Dated: May 3, 2011
|
/s/ William J. Flynn
|
|
|
William J. Flynn
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Dated: May 3, 2011
|
/s/ Spencer Schwartz
|
|
|
Spencer Schwartz
|
|
|
Senior Vice President and Chief Financial
Officer
|
|
|
25
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer, furnished herewith.
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer, furnished herewith.
|
|
|
|
32.1
|
|
Section 1350 Certifications, furnished herewith.
|
26
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