UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-16545
Atlas Air Worldwide Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
| 13-4146982 |
(State or other jurisdiction of incorporation) |
| (IRS Employer Identification No.) |
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2000 Westchester Avenue, Purchase, New York |
| 10577 |
(Address of principal executive offices) |
| (Zip Code) |
(914) 701-8000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.01 Par Value | AAWW | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 1, 2017,October 29, 2021, there were 25,283,10029,028,291 shares of the registrant’s Common Stock outstanding.
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Item 1. |
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| Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited) | 3 | |
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| 8 | |
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Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 6. |
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PART I — FINANCIALFINANCIAL INFORMATION
Atlas Air Worldwide Holdings, Inc.
(in thousands, except share data)
(Unaudited)
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| September 30, 2017 |
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| December 31, 2016 |
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| September 30, 2021 |
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| December 31, 2020 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
| $ | 165,250 |
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| $ | 123,890 |
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| $ | 773,911 |
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| $ | 845,589 |
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Short-term investments |
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| 10,676 |
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| 4,313 |
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Restricted cash |
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| 11,030 |
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| 14,360 |
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| 10,230 |
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| 10,692 |
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Accounts receivable, net of allowance of $1,230 and $997, respectively |
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| 172,205 |
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| 166,486 |
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Prepaid maintenance |
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| 13,181 |
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| 4,418 |
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Prepaid expenses and other current assets |
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| 77,434 |
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| 44,603 |
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Accounts receivable, net of allowance of $3,739 and $1,233, respectively |
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| 283,362 |
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| 265,521 |
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Prepaid expenses, assets held for sale and other current assets |
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| 88,330 |
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| 95,919 |
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Total current assets |
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| 449,776 |
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| 358,070 |
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| 1,155,833 |
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| 1,217,721 |
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Property and Equipment |
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Flight equipment |
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| 4,267,704 |
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| 3,886,714 |
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| 5,435,345 |
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| 5,061,387 |
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Ground equipment |
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| 73,653 |
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| 68,688 |
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| 99,769 |
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| 86,670 |
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Less: accumulated depreciation |
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| (670,443 | ) |
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| (568,946 | ) |
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| (1,290,928 | ) |
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| (1,147,613 | ) |
Flight equipment modifications in progress |
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| 228,040 |
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| 154,226 |
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Flight equipment purchase deposits and modifications in progress |
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| 289,475 |
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| 110,150 |
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Property and equipment, net |
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| 3,898,954 |
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| 3,540,682 |
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| 4,533,661 |
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| 4,110,594 |
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Other Assets |
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Long-term investments and accrued interest |
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| 19,234 |
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| 27,951 |
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Operating lease right-of-use assets |
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| 158,387 |
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| 255,805 |
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Deferred costs and other assets |
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| 210,611 |
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| 204,647 |
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| 350,759 |
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| 374,242 |
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Intangible assets, net and goodwill |
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| 108,727 |
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| 116,029 |
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| 66,303 |
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| 70,826 |
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Total Assets |
| $ | 4,687,302 |
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| $ | 4,247,379 |
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| $ | 6,264,943 |
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| $ | 6,029,188 |
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Liabilities and Equity |
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Current Liabilities |
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Accounts payable |
| $ | 62,540 |
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| $ | 59,543 |
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| $ | 92,708 |
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| $ | 107,604 |
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Accrued liabilities |
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| 421,670 |
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| 320,887 |
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| 591,208 |
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| 583,160 |
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Current portion of long-term debt and capital lease |
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| 196,509 |
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| 184,748 |
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Current portion of long-term debt and finance leases |
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| 703,650 |
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| 298,690 |
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Current portion of long-term operating leases |
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| 56,670 |
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| 157,732 |
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Total current liabilities |
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| 680,719 |
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| 565,178 |
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| 1,444,236 |
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| 1,147,186 |
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Other Liabilities |
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Long-term debt and capital lease |
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| 1,908,835 |
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| 1,666,663 |
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Long-term debt and finance leases |
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| 1,669,248 |
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| 2,020,451 |
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Long-term operating leases |
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| 191,604 |
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| 318,850 |
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Deferred taxes |
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| 318,171 |
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| 298,165 |
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| 297,472 |
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| 203,586 |
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Financial instruments and other liabilities |
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| 204,408 |
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| 200,035 |
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| 38,119 |
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| 77,576 |
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Total other liabilities |
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| 2,431,414 |
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| 2,164,863 |
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| 2,196,443 |
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| 2,620,463 |
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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; 100,000,000 shares authorized; 30,090,510 and 29,633,605 shares issued, 25,283,100 and 25,017,242 shares outstanding (net of treasury stock), as of September 30, 2017 and December 31, 2016, respectively |
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| 301 |
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| 296 |
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Additional paid-in-capital |
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| 710,446 |
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| 657,082 |
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Treasury stock, at cost; 4,807,410 and 4,616,363 shares, respectively |
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| (193,426 | ) |
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| (183,119 | ) | ||||||||
Preferred stock, $1 par value; 10,000,000 shares authorized; 0 shares issued |
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| 0 |
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| 0 |
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Common stock, $0.01 par value; 100,000,000 shares authorized; 34,515,565 and 32,877,533 shares issued, 29,025,102 and 27,517,297 shares outstanding (net of treasury stock), as of September 30, 2021 and December 31, 2020, respectively |
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| 345 |
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| 329 |
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Additional paid-in capital |
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| 926,853 |
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| 873,874 |
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Treasury stock, at cost; 5,490,463 and 5,360,236 shares, respectively |
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| (225,327 | ) |
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| (217,889 | ) | ||||||||
Accumulated other comprehensive loss |
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| (4,249 | ) |
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| (4,993 | ) |
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| (1,314 | ) |
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| (1,904 | ) |
Retained earnings |
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| 1,062,097 |
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| 1,048,072 |
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| 1,923,707 |
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| 1,607,129 |
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Total equity |
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| 1,575,169 |
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| 1,517,338 |
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Total stockholders’ equity |
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| 2,624,264 |
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| 2,261,539 |
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Total Liabilities and Equity |
| $ | 4,687,302 |
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| $ | 4,247,379 |
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| $ | 6,264,943 |
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| $ | 6,029,188 |
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See accompanying Notes to Unaudited Consolidated Financial Statements
3
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
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| For the Three Months Ended |
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| For the Nine Months Ended |
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| For the Three Months Ended |
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| For the Nine Months Ended |
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| September 30, 2017 |
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| September 30, 2016 |
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| September 30, 2017 |
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| September 30, 2016 |
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| September 30, 2021 |
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| September 30, 2020 |
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| September 30, 2021 |
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| September 30, 2020 |
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Operating Revenue |
| $ | 535,748 |
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| $ | 448,015 |
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| $ | 1,528,508 |
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| $ | 1,309,902 |
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| $ | 1,016,100 |
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| $ | 809,886 |
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| $ | 2,867,832 |
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| $ | 2,278,641 |
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Operating Expenses |
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Salaries, wages and benefits |
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| 114,505 |
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| 125,978 |
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| 330,080 |
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| 321,365 |
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| 231,437 |
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| 194,265 |
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| 642,417 |
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| 534,600 |
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Aircraft fuel |
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| 74,048 |
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| 65,409 |
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| 239,966 |
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| 189,982 |
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| 216,638 |
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| 118,113 |
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| 594,458 |
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| 309,673 |
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Maintenance, materials and repairs |
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| 74,457 |
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| 49,761 |
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| 212,042 |
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| 162,220 |
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| 102,819 |
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| 116,634 |
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| 356,499 |
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| 379,086 |
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Depreciation and amortization |
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| 42,033 |
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| 37,509 |
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| 120,913 |
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| 109,722 |
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| 73,468 |
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| 65,595 |
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| 207,918 |
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| 189,005 |
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Navigation fees, landing fees and other rent |
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| 46,622 |
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| 42,870 |
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| 138,918 |
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| 109,909 |
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Passenger and ground handling services |
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| 40,268 |
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| 36,266 |
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| 121,837 |
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| 98,355 |
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Travel |
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| 38,260 |
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| 31,958 |
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| 105,510 |
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| 94,291 |
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| 42,966 |
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| 37,731 |
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| 120,585 |
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| 114,749 |
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Aircraft rent |
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| 33,873 |
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| 35,730 |
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| 103,738 |
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| 109,490 |
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| 15,485 |
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| 24,239 |
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| 53,928 |
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| 72,522 |
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Navigation fees, landing fees and other rent |
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| 33,468 |
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| 15,640 |
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| 77,258 |
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| 56,391 |
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Passenger and ground handling services |
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| 28,491 |
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| 21,673 |
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| 77,187 |
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| 64,571 |
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Loss (gain) on disposal of aircraft |
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| 211 |
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| (11 | ) |
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| 64 |
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| (11 | ) | ||||||||||||||||
Gain on disposal of aircraft |
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| (810 | ) |
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| (163 | ) |
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| (794 | ) |
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| (6,878 | ) | ||||||||||||||||
Special charge |
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| - |
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| - |
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| - |
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| 6,631 |
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| 0 |
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| 547 |
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| 0 |
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| 16,481 |
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Transaction-related expenses |
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| 1,092 |
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| 3,905 |
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| 3,403 |
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| 21,486 |
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| 168 |
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| 490 |
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| 486 |
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| 2,286 |
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Other |
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| 42,598 |
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| 34,465 |
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| 123,121 |
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| 106,885 |
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| 63,106 |
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| 54,107 |
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| 183,366 |
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| 157,929 |
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Total Operating Expenses |
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| 483,036 |
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| 422,017 |
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| 1,393,282 |
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| 1,243,023 |
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| 832,167 |
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| 690,694 |
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| 2,419,618 |
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| 1,977,717 |
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Operating Income |
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| 52,712 |
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| 25,998 |
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| 135,226 |
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| 66,879 |
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| 183,933 |
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| 119,192 |
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| 448,214 |
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| 300,924 |
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Non-operating Expenses (Income) |
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Interest income |
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| (1,688 | ) |
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| (1,316 | ) |
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| (4,286 | ) |
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| (4,325 | ) |
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| (159 | ) |
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| (225 | ) |
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| (559 | ) |
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| (929 | ) |
Interest expense |
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| 26,553 |
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| 21,355 |
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| 72,747 |
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| 63,595 |
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| 27,173 |
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| 28,524 |
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| 81,345 |
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| 86,749 |
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Capitalized interest |
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| (1,922 | ) |
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| (1,059 | ) |
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| (5,633 | ) |
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| (2,106 | ) |
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| (2,335 | ) |
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| (203 | ) |
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| (5,456 | ) |
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| (528 | ) |
Loss on early extinguishment of debt |
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| 167 |
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| - |
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| 167 |
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| 132 |
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| 0 |
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| 7 |
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| 0 |
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| 81 |
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Unrealized loss (gain) on financial instruments |
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| 44,775 |
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| 1,462 |
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| 36,225 |
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| (25,013 | ) | ||||||||||||||||
Other income |
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| (1,165 | ) |
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| (180 | ) |
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| (357 | ) |
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| (372 | ) | ||||||||||||||||
Unrealized loss on financial instruments |
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| 0 |
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| 43,604 |
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|
| 113 |
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| 73,351 |
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Other (income) expense, net |
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| 3,136 |
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| (62,689 | ) |
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| (41,174 | ) |
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| (112,081 | ) | ||||||||||||||||
Total Non-operating Expenses (Income) |
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| 66,720 |
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| 20,262 |
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| 98,863 |
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| 31,911 |
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| 27,815 |
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| 9,018 |
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| 34,269 |
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| 46,643 |
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Income (loss) from continuing operations before income taxes |
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| (14,008 | ) |
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| 5,736 |
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| 36,363 |
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| 34,968 |
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Income before income taxes |
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| 156,118 |
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| 110,174 |
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| 413,945 |
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| 254,281 |
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Income tax expense |
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| 10,187 |
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| 13,237 |
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| 21,479 |
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| 21,079 |
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| 36,583 |
|
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| 36,120 |
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|
| 97,367 |
|
|
| 77,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income (loss) from continuing operations, net of taxes |
|
| (24,195 | ) |
|
| (7,501 | ) |
|
| 14,884 |
|
|
| 13,889 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income (loss) from discontinued operations, net of taxes |
|
| 33 |
|
|
| (445 | ) |
|
| (859 | ) |
|
| (790 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Income (Loss) |
| $ | (24,162 | ) |
| $ | (7,946 | ) |
| $ | 14,025 |
|
| $ | 13,099 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Earnings (loss) per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Income |
| $ | 119,535 |
|
| $ | 74,054 |
|
| $ | 316,578 |
|
| $ | 176,319 |
| ||||||||||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (0.96 | ) |
| $ | (0.30 | ) |
| $ | 0.59 |
|
| $ | 0.56 |
|
| $ | 4.12 |
|
| $ | 2.83 |
|
| $ | 10.98 |
|
| $ | 6.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted |
| $ | 3.91 |
|
| $ | 2.78 |
|
| $ | 10.52 |
|
| $ | 6.72 |
| ||||||||||||||||
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
|
| 29,023 |
|
|
| 26,135 |
|
|
| 28,844 |
|
|
| 26,077 |
| ||||||||||||||||
Diluted |
| $ | (0.96 | ) |
| $ | (0.30 | ) |
| $ | 0.58 |
|
| $ | (0.49 | ) |
|
| 30,547 |
|
|
| 26,619 |
|
|
| 30,117 |
|
|
| 26,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.00 |
|
| $ | (0.02 | ) |
| $ | (0.03 | ) |
| $ | (0.03 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted |
| $ | 0.00 |
|
| $ | (0.02 | ) |
| $ | (0.03 | ) |
| $ | (0.03 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (0.96 | ) |
| $ | (0.32 | ) |
| $ | 0.56 |
|
| $ | 0.53 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted |
| $ | (0.96 | ) |
| $ | (0.32 | ) |
| $ | 0.54 |
|
| $ | (0.52 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
|
| 25,262 |
|
|
| 24,840 |
|
|
| 25,229 |
|
|
| 24,788 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted |
|
| 25,262 |
|
|
| 24,840 |
|
|
| 25,822 |
|
|
| 25,116 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
4
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
(Unaudited)
| For the Three Months Ended |
|
| For the Nine Months Ended |
| |||||||||||
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||
Net Income |
| $ | 119,535 |
|
| $ | 74,054 |
|
| $ | 316,578 |
|
| $ | 176,319 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to interest expense |
|
| 250 |
|
|
| 290 |
|
|
| 774 |
|
|
| 894 |
|
Income tax benefit |
|
| (60 | ) |
|
| (69 | ) |
|
| (184 | ) |
|
| (202 | ) |
Other comprehensive income |
|
| 190 |
|
|
| 221 |
|
|
| 590 |
|
|
| 692 |
|
Comprehensive Income |
| $ | 119,725 |
|
| $ | 74,275 |
|
| $ | 317,168 |
|
| $ | 177,011 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(Unaudited)
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2017 |
|
| September 30, 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
| $ | (24,162 | ) |
| $ | (7,946 | ) |
| $ | 14,025 |
|
| $ | 13,099 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to interest expense |
|
| 396 |
|
|
| 439 |
|
|
| 1,216 |
|
|
| 1,334 |
|
Income tax expense |
|
| (154 | ) |
|
| (170 | ) |
|
| (472 | ) |
|
| (517 | ) |
Other comprehensive income |
|
| 242 |
|
|
| 269 |
|
|
| 744 |
|
|
| 817 |
|
Comprehensive Income (Loss) |
| $ | (23,920 | ) |
| $ | (7,677 | ) |
| $ | 14,769 |
|
| $ | 13,916 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
| For the Nine Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes |
| $ | 14,884 |
|
| $ | 13,889 |
| ||||||||
Less: Loss from discontinued operations, net of taxes |
|
| (859 | ) |
|
| (790 | ) | ||||||||
Net Income |
|
| 14,025 |
|
|
| 13,099 |
|
| $ | 316,578 |
|
| $ | 176,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile Net Income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 142,042 |
|
|
| 124,198 |
|
|
| 265,231 |
|
|
| 240,826 |
|
Accretion of debt securities discount |
|
| (892 | ) |
|
| (968 | ) |
|
| 0 |
|
|
| (2 | ) |
Provision for allowance for doubtful accounts |
|
| 304 |
|
|
| 267 |
| ||||||||
Provision for (reversal of) expected credit losses |
|
| (377 | ) |
|
| 76 |
| ||||||||
Loss on early extinguishment of debt |
|
| 0 |
|
|
| 81 |
| ||||||||
Special charge, net of cash payments |
|
| - |
|
|
| 6,631 |
|
|
| 0 |
|
|
| 16,481 |
|
Loss on early extinguishment of debt |
|
| 167 |
|
|
| 132 |
| ||||||||
Unrealized loss (gain) on financial instruments |
|
| 36,225 |
|
|
| (25,013 | ) | ||||||||
Loss (gain) on disposal of aircraft |
|
| 64 |
|
|
| (11 | ) | ||||||||
Unrealized loss on financial instruments |
|
| 113 |
|
|
| 73,351 |
| ||||||||
Gain on disposal of aircraft |
|
| (794 | ) |
|
| (6,878 | ) | ||||||||
Deferred taxes |
|
| 21,106 |
|
|
| 20,794 |
|
|
| 96,053 |
|
|
| 75,331 |
|
Stock-based compensation expense |
|
| 17,030 |
|
|
| 27,919 |
| ||||||||
Stock-based compensation |
|
| 10,653 |
|
|
| 15,816 |
| ||||||||
Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (12,004 | ) |
|
| 32,767 |
|
|
| (15,785 | ) |
|
| 23,072 |
|
Prepaid expenses, current assets and other assets |
|
| (53,343 | ) |
|
| (19,287 | ) |
|
| (43,297 | ) |
|
| (39,823 | ) |
Accounts payable and accrued liabilities |
|
| 30,382 |
|
|
| (79,684 | ) | ||||||||
Accounts payable, accrued liabilities and other liabilities |
|
| (19,442 | ) |
|
| 208,058 |
| ||||||||
Net cash provided by operating activities |
|
| 195,106 |
|
|
| 100,844 |
|
|
| 608,933 |
|
|
| 782,708 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
Capital expenditures |
|
| (66,395 | ) |
|
| (36,872 | ) |
|
| (64,132 | ) |
|
| (45,134 | ) |
Payments for flight equipment and modifications |
|
| (338,524 | ) |
|
| (237,093 | ) | ||||||||
Acquisition of business, net of cash acquired |
|
| - |
|
|
| (107,498 | ) | ||||||||
Purchase deposits and payments for flight equipment and modifications |
|
| (346,028 | ) |
|
| (102,777 | ) | ||||||||
Investment in joint ventures |
|
| (2,424 | ) |
|
| 0 |
| ||||||||
Proceeds from investments |
|
| 3,247 |
|
|
| 8,843 |
|
|
| 0 |
|
|
| 881 |
|
Proceeds from disposal of aircraft |
|
| 9,470 |
|
|
| 45,660 |
| ||||||||
Net cash used for investing activities |
|
| (401,672 | ) |
|
| (372,620 | ) |
|
| (403,114 | ) |
|
| (101,370 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt issuance |
|
| 447,865 |
|
|
| 84,790 |
|
|
| 23,948 |
|
|
| 401,419 |
|
Payment of debt issuance costs |
|
| (1,274 | ) |
|
| (5,172 | ) | ||||||||
Payments of debt and finance lease obligations |
|
| (271,078 | ) |
|
| (353,795 | ) | ||||||||
Proceeds from revolving credit facility |
|
| 150,000 |
|
|
| - |
|
|
| 0 |
|
|
| 75,000 |
|
Payment of revolving credit facility |
|
| (150,000 | ) |
|
| - |
|
|
| 0 |
|
|
| (175,000 | ) |
Customer maintenance reserves and deposits received |
|
| 22,006 |
|
|
| 11,172 |
|
|
| 13,491 |
|
|
| 10,465 |
|
Customer maintenance reserves paid |
|
| (18,538 | ) |
|
| - |
|
|
| (35,608 | ) |
|
| (14,437 | ) |
Proceeds from sale of convertible note warrants |
|
| 38,148 |
|
|
| - |
| ||||||||
Payments for convertible note hedges |
|
| (70,140 | ) |
|
| - |
| ||||||||
Purchase of treasury stock |
|
| (10,307 | ) |
|
| (11,071 | ) | ||||||||
Excess tax benefit from stock-based compensation expense |
|
| - |
|
|
| 443 |
| ||||||||
Payment of debt issuance costs |
|
| (11,146 | ) |
|
| (1,078 | ) | ||||||||
Payments of debt |
|
| (153,292 | ) |
|
| (135,843 | ) | ||||||||
Net cash provided by (used for) financing activities |
|
| 244,596 |
|
|
| (51,587 | ) | ||||||||
Treasury shares withheld for payment of taxes |
|
| (7,438 | ) |
|
| (3,915 | ) | ||||||||
Net cash used for financing activities |
|
| (277,959 | ) |
|
| (65,435 | ) | ||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| 38,030 |
|
|
| (323,363 | ) |
|
| (72,140 | ) |
|
| 615,903 |
|
Cash, cash equivalents and restricted cash at the beginning of period |
|
| 138,250 |
|
|
| 438,931 |
|
|
| 856,281 |
|
|
| 113,430 |
|
Cash, cash equivalents and restricted cash at the end of period |
| $ | 176,280 |
|
| $ | 115,568 |
|
| $ | 784,141 |
|
| $ | 729,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of flight equipment included in Accounts payable and accrued liabilities |
| $ | 61,734 |
|
| $ | 18,510 |
| ||||||||
Acquisition of flight equipment under capital lease |
| $ | 32,380 |
|
| $ | 10,650 |
| ||||||||
Acquisition of property and equipment included in Accounts payable and accrued liabilities |
| $ | 16,802 |
|
| $ | 11,357 |
| ||||||||
Acquisition of property and equipment acquired under operating leases |
| $ | 9,661 |
|
| $ | 2,486 |
| ||||||||
Acquisition of flight equipment under finance leases |
| $ | 191,913 |
|
| $ | 17,035 |
| ||||||||
Customer maintenance reserves settled with sale of aircraft |
| $ | 0 |
|
| $ | 6,497 |
| ||||||||
Issuance of shares related to settlement of warrant liability |
| $ | 31,582 |
|
| $ | 0 |
| ||||||||
|
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Consolidated Financial Statements
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
| Total |
| |||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Comprehensive |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at December 31, 2016 |
| $ | 296 |
|
| $ | (183,119 | ) |
| $ | 657,082 |
|
| $ | (4,993 | ) |
| $ | 1,048,072 |
|
| $ | 1,517,338 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 14,025 |
|
|
| 14,025 |
|
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 744 |
|
|
| - |
|
|
| 744 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 17,030 |
|
|
| - |
|
|
| - |
|
|
| 17,030 |
|
Purchase of 191,047 shares of treasury stock |
|
| - |
|
|
| (10,307 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (10,307 | ) |
Issuance of 456,905 shares of restricted stock |
|
| 5 |
|
|
| - |
|
|
| (5 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Equity component of convertible note, net of tax |
|
| - |
|
|
| - |
|
|
| 43,256 |
|
|
| - |
|
|
| - |
|
|
| 43,256 |
|
Purchase of convertible note hedges, net of tax |
|
| - |
|
|
| - |
|
|
| (45,065 | ) |
|
| - |
|
|
| - |
|
|
| (45,065 | ) |
Issuance of convertible note warrants |
|
| - |
|
|
| - |
|
|
| 38,148 |
|
|
| - |
|
|
| - |
|
|
| 38,148 |
|
Balance at September 30, 2017 |
| $ | 301 |
|
| $ | (193,426 | ) |
| $ | 710,446 |
|
| $ | (4,249 | ) |
| $ | 1,062,097 |
|
| $ | 1,575,169 |
|
|
| As of and for the Three Months Ended September 30, 2021 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at June 30, 2021 |
| $ | 345 |
|
| $ | (225,321 | ) |
| $ | 919,362 |
|
| $ | (1,504 | ) |
| $ | 1,804,172 |
|
| $ | 2,497,054 |
|
Net Income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 119,535 |
|
|
| 119,535 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 190 |
|
|
| 0 |
|
|
| 190 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 3,187 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,187 |
|
Issuance of warrants |
|
| 0 |
|
|
| 0 |
|
|
| 4,304 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,304 |
|
Treasury shares of 495 withheld for payment of taxes |
|
| 0 |
|
|
| (6 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (6 | ) |
Issuance of 93 shares of restricted stock |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance at September 30, 2021 |
| $ | 345 |
|
| $ | (225,327 | ) |
| $ | 926,853 |
|
| $ | (1,314 | ) |
| $ | 1,923,707 |
|
| $ | 2,624,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
| Total |
| |||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Comprehensive |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at December 31, 2015 |
| $ | 290 |
|
| $ | (171,844 | ) |
| $ | 625,244 |
|
| $ | (6,063 | ) |
| $ | 1,006,556 |
|
| $ | 1,454,183 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,099 |
|
|
| 13,099 |
|
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 817 |
|
|
| - |
|
|
| 817 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 27,919 |
|
|
| - |
|
|
| - |
|
|
| 27,919 |
|
Purchase of 293,257 shares of treasury stock |
|
| - |
|
|
| (11,071 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (11,071 | ) |
Issuance of 665,747 shares of restricted stock |
|
| 6 |
|
|
| - |
|
|
| (6 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Tax expense on restricted stock and stock options |
|
| - |
|
|
| - |
|
|
| (994 | ) |
|
| - |
|
|
| - |
|
|
| (994 | ) |
Balance at September 30, 2016 |
| $ | 296 |
|
| $ | (182,915 | ) |
| $ | 652,163 |
|
| $ | (5,246 | ) |
| $ | 1,019,655 |
|
| $ | 1,483,953 |
|
|
| As of and for the Three Months Ended September 30, 2020 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at June 30, 2020 |
| $ | 315 |
|
| $ | (217,711 | ) |
| $ | 801,002 |
|
| $ | (2,347 | ) |
| $ | 1,349,108 |
|
| $ | 1,930,367 |
|
Net Income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 74,054 |
|
|
| 74,054 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 221 |
|
|
| 0 |
|
|
| 221 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 5,310 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,310 |
|
Issuance of warrants |
|
| 0 |
|
|
| 0 |
|
|
| 7,546 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,546 |
|
Treasury shares of 1,306 withheld for payment of taxes |
|
| 0 |
|
|
| (75 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (75 | ) |
Balance at September 30, 2020 |
| $ | 315 |
|
| $ | (217,786 | ) |
| $ | 813,858 |
|
| $ | (2,126 | ) |
| $ | 1,423,162 |
|
| $ | 2,017,423 |
|
|
| As of and for the Nine Months Ended September 30, 2021 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at December 31, 2020 |
| $ | 329 |
|
| $ | (217,889 | ) |
| $ | 873,874 |
|
| $ | (1,904 | ) |
| $ | 1,607,129 |
|
| $ | 2,261,539 |
|
Net Income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 316,578 |
|
|
| 316,578 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 590 |
|
|
| 0 |
|
|
| 590 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 10,653 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,653 |
|
Issuance of warrants |
|
| 0 |
|
|
| 0 |
|
|
| 10,760 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,760 |
|
Treasury shares of 130,227 withheld for payment of taxes |
|
| 0 |
|
|
| (7,438 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (7,438 | ) |
Issuance of 1,280,450 shares related to settlement of warrants |
|
| 13 |
|
|
| 0 |
|
|
| 31,569 |
|
|
|
|
|
|
|
|
|
|
| 31,582 |
|
Issuance of 357,582 shares of restricted stock |
|
| 3 |
|
|
| 0 |
|
|
| (3 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance at September 30, 2021 |
| $ | 345 |
|
| $ | (225,327 | ) |
| $ | 926,853 |
|
| $ | (1,314 | ) |
| $ | 1,923,707 |
|
| $ | 2,624,264 |
|
|
| As of and for the Nine Months Ended September 30, 2020 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at December 31, 2019 |
| $ | 310 |
|
| $ | (213,871 | ) |
| $ | 761,715 |
|
| $ | (2,818 | ) |
| $ | 1,246,843 |
|
| $ | 1,792,179 |
|
Net Income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 176,319 |
|
|
| 176,319 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 692 |
|
|
| 0 |
|
|
| 692 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 15,816 |
|
|
| 0 |
|
|
| 0 |
|
|
| 15,816 |
|
Issuance of warrants |
|
| 0 |
|
|
| 0 |
|
|
| 36,332 |
|
|
| 0 |
|
|
| 0 |
|
|
| 36,332 |
|
Treasury shares of 180,723 withheld for payment of taxes |
|
| 0 |
|
|
| (3,915 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (3,915 | ) |
Issuance of 448,386 shares of restricted stock |
|
| 5 |
|
|
| 0 |
|
|
| (5 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance at September 30, 2020 |
| $ | 315 |
|
| $ | (217,786 | ) |
| $ | 813,858 |
|
| $ | (2,126 | ) |
| $ | 1,423,162 |
|
| $ | 2,017,423 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
Atlas Air Worldwide Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
September 30, 20172021
1. Basis of Presentation
Our consolidated financial statements include the accounts of the holding company, Atlas Air Worldwide Holdings, Inc. (“AAWW”), and its consolidated subsidiaries. AAWW is the parent company of Atlas Air, Inc. (“Atlas”) and Southern Air Holdings, Inc. (“Southern Air”). AAWW is also the parent company of several subsidiaries related to our dry leasing services (collectively referred to as “Titan”). AAWW has a 51% equity interest and 75% voting interest in Polar Air Cargo Worldwide, Inc. (“Polar”). We record our share of Polar’s results under the equity method of accounting. Polar is a variable interest entity that we do not consolidate because we are not the primary beneficiary and we generally do not have any financial exposure to fund debt obligations or operating losses of Polar (see Note 4 for further discussion).
The terms “we,” “us,” “our,” and the “Company” mean AAWW and all entities included in its consolidated financial statements.
We provide outsourced aircraft and aviation operating services throughout the world, serving Africa, Asia, Australia, Europe, the Middle East, North America and South America through: (i) contractualaircraft operating service arrangements,agreements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), as well as those through which we provide crew, maintenance and insurance, but not the aircraft (“CMI”); (ii) and cargo and passenger charter services (“Charter”); and (iii)(ii) dry leasing aircraft and engines (“Dry Leasing” or “Dry Lease”).
The accompanying unaudited consolidated financial statements and related notes (the “Financial Statements”) have been prepared in accordance with the U.S. Securities and Exchange Commission (the “SEC”) requirements for quarterly reports on Form 10-Q, and consequently exclude certain disclosures normally included in audited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated. The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes included in the AAWW Annual Report on Form 10-K for the year ended December 31, 2016,2020, which includes additional disclosures and a summary of our significant accounting policies. The December 31, 20162020 balance sheet data was derived from that Annual Report. In our opinion, thethese Financial Statements containinclude all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the financial position of AAWW and its consolidated subsidiaries as of September 30, 2017, theCompany’s results of operations, for the threefinancial position, and nine months ended September 30, 2017 and 2016, comprehensive income for the three and nine months ended September 30, 2017 and 2016, cash flows for the nine months ended September 30, 2017 and 2016, and shareholders’ equity as of and for the nine months ended September 30, 2017 and 2016.flows.
Our quarterly results are subject to seasonal and other fluctuations, including fluctuations resulting from the global COVID-19 pandemic (see Note 3 for further discussion), and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.
Certain reclassifications have been made to prior periods’ notes to the Financial Statements to conform to the current year’s presentation of segments (see Note 11 for further discussion). Except for per share data, all dollar amounts are in thousands unless otherwise noted.
2. Summary of Significant Accounting Policies
Heavy Maintenance
Except for engines used on our 747-8F aircraft,as described in the paragraph below, we account for heavy maintenance costs for airframes and engines used in our ACMI and Charter segments using the direct expense method. Under this method, heavy maintenance costs are charged to expense upon induction, based on our best estimate of the costs.
We account for heavy maintenance costs for airframes and engines used in our Dry Leasing segment and engines used on our 747-8F and 777-200 aircraft using the deferral method. Under this method, we defer the expense recognition of scheduled heavy maintenance events, which are amortized over the shorter of the estimated period until the next scheduled heavy maintenance event is required.required or remaining lease term. Amortization of deferred maintenance expense included in Depreciation and amortization was $1.8$12.8 million and zero$37.1 million for the three months ended September 30, 2017 and September 30, 2016, respectively, and was $3.7 million and zero for the nine months ended September 30, 20172021, respectively. Amortization of deferred maintenance expense was $12.5 million and $30.8 million for the three and nine months ended September 30, 2016,2020, respectively.
Deferred maintenance included within Deferred costs and other assets is as follows:
|
| Deferred Maintenance |
| |||||
Balance as of December 31, 2016 |
| $ | 19,100 |
| ||||
Balance as of December 31, 2020 |
| $ | 191,303 |
| ||||
Deferred maintenance costs |
|
| 33,910 |
|
|
| 38,493 |
|
Amortization of deferred maintenance |
|
| (3,710 | ) |
|
| (37,070 | ) |
Balance as of September 30, 2017 |
| $ | 49,300 |
| ||||
Balance as of September 30, 2021 |
| $ | 192,726 |
|
8
Supplemental Cash Flow InformationProperty and Equipment
Committed expenditures to acquire aircraft and spare engines are expected to be $48.2 million for the remainder of 2021 and $458.3 million in 2022. These expenditures include our January 2021 agreement to purchase 4 747-8F aircraft from The following table provides a reconciliation of cash, cash equivalentsBoeing Company (“Boeing”) that are expected to be delivered from May through October 2022 and restricted cash reported within the consolidated balance sheets that sum to the total shown in the consolidated statements of cash flows:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Cash and cash equivalents |
| $ | 165,250 |
|
| $ | 123,890 |
|
Restricted cash |
|
| 11,030 |
|
|
| 14,360 |
|
Total Cash, cash equivalents and restricted cash |
|
|
|
|
|
|
|
|
shown in consolidated statements of cash flows |
| $ | 176,280 |
|
| $ | 138,250 |
|
other agreements for spare engines.
Recent Accounting Pronouncements Not Yet Adopted
In March 2016,August 2020, the Financial Accounting Standards Board (“FASB”) amended its accounting guidance for share-based compensation.certain financial instruments with characteristics of liabilities and equity, including convertible debt instruments. For convertible debt with a cash conversion feature, the amended guidance removes the current accounting model to separately account for the liability and equity components, which currently results in the amortization of a debt discount to interest expense. Under this amended guidance, such convertible debt will be accounted for as a single debt instrument with no amortization of a debt discount to interest expense, unless certain other conditions are met. The amended guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. We adopted this amended guidance on January 1, 2017 on a prospective basis. As a result, we recognized $1.8 million of excess tax benefits during the nine months ended September 30, 2017 as a reduction of income tax expense in our consolidated statements of operations. Excess tax benefits were previously recognized within equity. Additionally, our consolidated statements of cash flows present such excess tax benefits, which were previously presented as a financing activity, as an operating activity.
In February 2016, the FASB amended its accounting guidance for leases. The guidance requires a lessee to recognize assets and liabilities on the balance sheet arising from leases with terms greater than twelve months. While lessor accounting guidance is relatively unchanged, certain amendments were made to conform with changes made to lessee accounting and amended revenue recognition guidance. The new guidance will continue to classify leases as either finance or operating, with classification affecting the presentation and pattern of expense and income recognition, in the statement of operations. It also requires additional quantitative and qualitative disclosures about leasing arrangements.the use of the if-converted method when calculating the dilutive impact of convertible debt on earnings per share. The amended guidance is effective as of the beginning of 2019, with early adoption permitted. While we are still assessing the impact the amended guidance will have on our financial statements, we expect that recognizing the right-of-use asset and related lease liability will impact our balance sheet materially. We have developed and are implementing a plan for adopting this amended guidance.
In May 2014, the FASB amended its accounting guidance for revenue recognition. Subsequently, the FASB has issued several clarifications and updates. The fundamental principles of the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and consideration that a company expects to receive for the services provided. It also requires additional disclosures necessary for the financial statement users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.2022. The two permitted transition methods under the guidance are the full retrospective approach, under which the guidance is applied to all periods presented, or the modified retrospective approach, under which the guidance is applied only to the most current period presented. While we believe the amended guidanceWe will not have a material effect on our financial statements, we expect that revenue currently recognized based on flight departure will be recognized over time as the services are performed. In addition, we expect that revenue under certain ACMI and CMI contracts, such as revenue related to contracted minimum block hour guarantees, will be recognized in later periods and that some revenue adjustments related to meeting or exceeding on-time performance targets will be recognized in earlier periods. The implementation of our plan to adopt this amended guidance is progressing as expected and we plan to adopt the new guidance on its required effective date of January 1, 2018 using2022. While we are still assessing the modified retrospective approach.impact the amended guidance will have on our financial statements, we expect the amount previously allocated to the equity component will be reclassified to debt. In addition, the amended guidance is expected to result in a material increase in net income and reduction in interest expense, as well as a material reduction in diluted earnings per share resulting from an increase in the number of shares included in the denominator.
3. COVID-19 Pandemic
COVID-19
In December 2019, COVID-19 was first reported in China and has since spread to most other regions of the world. In March 2020, COVID-19 was determined to be a global pandemic by the World Health Organization. Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in a reduction in flights by some of our customers and lower U.S. Military Air Mobility Command (“AMC”) passenger flying as the military had taken precautionary measures to limit the movement of personnel through June 2021. Commercial charter cargo demand and yields, net of fuel, have increased as a result of the ongoing reduction of available cargo capacity provided by passenger airlines in the market and increased demand for transporting goods due to the COVID-19 pandemic. We have incurred and expect to continue to incur significant additional costs, including premium pay for pilots operating in certain areas significantly impacted by COVID-19; other operational costs, including costs for continuing to provide a safe working environment for our employees; and higher crew costs related to increased pay rates we provided to our pilots beginning in May 2020 in advance of a new joint collective bargaining agreement (“JCBA”) with our pilots beginning in September 2021 (see Note 12 for additional discussion). In addition, the availability of hotels and restaurants, evolving travel restrictions and vaccine mandates, health screenings, ground handling delays and a reduction in passenger flights by other airlines globally, or airport closures, have impacted and could further impact our ability to position employees to operate and fully utilize all of our aircraft.
To mitigate the impact of any COVID-19 pandemic disruptions, we have:
• | made COVID-19 vaccinations available to employees; |
• | provided paid time-off for employees to get COVID-19 vaccinations; |
• | implemented frequent deep cleaning of all aircraft and facilities; |
• | provided safety kits for each crewmember and all aircraft; |
• | adjusted routes to limit exposure to regions significantly impacted by the COVID-19 pandemic; |
• | implemented significant workforce testing, social distancing and protection measures at all of our facilities; |
• | arranged for employees who can work remotely to do so and developed plans for a partial return to the workplace based on local conditions; |
• | reduced nonessential employee travel; |
• | reduced the use of contractors; |
• | implemented a number of other cost reduction initiatives; |
• | entered into a Payroll Support Program Agreement (the “PSP Agreement”) with the U.S. Department of the Treasury (the “U.S. Treasury”), with respect to payroll support funding available to cargo air carriers under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (the “Payroll Support Program”) (see discussion below); and |
• | deferred payment of the employer portion of social security taxes as provided for under the CARES Act through the end of 2020, half of which will be paid by the end of 2021 and the other half will be paid by the end of 2022. |
9
Payroll Support Program under the CARES Act
As of May 29, 2020 (the “PSP Closing Date”), Atlas and Southern Air (the “PSP Recipients”) entered into a PSP Agreement with the U.S. Treasury. As of the PSP Closing Date, AAWW also entered into a Warrant Agreement (the “Warrant Agreement”) with the U.S. Treasury, and AAWW issued a $199.8 million senior unsecured promissory note to the U.S. Treasury (the “Promissory Note”), with Atlas and Southern Air as guarantors.
In connection with the payroll support funding received in 2020 under the PSP Agreement, we issued warrants to the U.S. Treasury to acquire up to 625,452 shares of our common stock. As of September 30, 2021, 0 portion of the warrants have been exercised.
We initially recognized deferred grant income within Accrued liabilities for the difference between the payroll support funding received in 2020 under the PSP Agreement and the amounts recorded for the Promissory Note and the Warrant Agreement. Grant income has been subsequently recognized within Other (income) expense, net in the consolidated statement of operations on a pro-rata basis over the periods that the qualifying employee wages, salaries and benefits are paid. The remaining $40.9 million of deferred grant income as of December 31, 2020 was recognized as grant income within Other (income) expense, net in the consolidated statement of operations during the three months ended March 31, 2021. We recognized grant income of $64.2 million and $84.4 million during the three and nine months ended September 30, 2020, respectively.
4. Related Parties
DHL Investment and Polar
AAWW has a 51% equity interest and 75% voting interest in Polar. DHL Network Operations (USA), Inc. (“DHL”), a subsidiary of Deutsche Post AG, (“DP”), holds a 49% equity interest and a 25% voting interest in Polar. Polar is a variable interest entity that we do not consolidate because we are not the primary beneficiary as the risks associated with the direct costs of operation are with DHL. Under a 20-year blocked space agreement, (the “BSA”),which began in 2008, Polar provides air cargo capacity to DHL. Atlas has several agreements with Polar to provide ACMI, CMI, Dry Leasing, administrative, sales and ground support services to one another. We do not have any financial exposure to fund debt obligations or operating losses of Polar, except for any liquidated damages that we could incur under these agreements.
The following table summarizes our transactions with Polar:
| For the Three Months Ended |
|
| For the Nine Months Ended |
| |||||||||||
Revenue and Expenses: |
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||
Revenue from Polar |
| $ | 81,119 |
|
| $ | 80,876 |
|
| $ | 234,036 |
|
| $ | 239,968 |
|
Ground handling and airport fees to Polar |
|
| 1,096 |
|
|
| 796 |
|
|
| 2,917 |
|
|
| 2,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable/payable as of: |
| September 30, 2021 |
|
| December 31, 2020 |
|
|
|
|
|
|
|
|
| ||
Receivables from Polar |
| $ | 9,115 |
|
| $ | 31,079 |
|
|
|
|
|
|
|
|
|
Payables to Polar |
|
| 8,169 |
|
|
| 3,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Carrying Value of Polar Investment as of: |
| September 30, 2021 |
|
| December 31, 2020 |
|
|
|
|
|
|
|
|
| ||
Aggregate Carrying Value of Polar Investment |
| $ | 4,870 |
|
| $ | 4,870 |
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
Revenue and Expenses: |
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2017 |
|
| September 30, 2016 |
| ||||
Revenue from Polar |
| $ | 105,985 |
|
| $ | 101,432 |
|
| $ | 317,144 |
|
| $ | 302,149 |
|
Ground handling and airport fees to Polar |
|
| 800 |
|
|
| 424 |
|
|
| 1,926 |
|
|
| 1,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable/payable as of: |
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
| ||
Receivables from Polar |
| $ | 12,426 |
|
| $ | 8,161 |
|
|
|
|
|
|
|
|
|
Payables to Polar |
|
| 2,270 |
|
|
| 2,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Carrying Value of Polar Investment as of: |
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
| ||
Aggregate Carrying Value of Polar Investment |
| $ | 4,870 |
|
| $ | 4,870 |
|
|
|
|
|
|
|
|
|
GATS
We hold a 50% interestIn addition to the amounts in GATS GP (BVI) Ltd. (“GATS”), a joint venture with an unrelated third party. Asthe table above, Atlas recognized revenue from flying on behalf of September 30, 2017 and December 31, 2016, our investment in GATS was $22.1Polar of $28.3 million and $22.2$151.4 million respectively. We had Accounts payable to GATS of $0.3 million as of September 30, 2017 and $2.4 million as of December 31, 2016.
4. Southern Air Acquisition
On April 7, 2016, we completed the acquisition of Southern Air and its subsidiaries, including Southern Air Inc. and Florida West International Airways, Inc. (“Florida West”). The acquisition of Southern Air provided us with immediate entry into 777 and 737 aircraft operating platforms, with the potential for developing additional business with existing and new customers. We believe this augments our ability to offer the broadest array of aircraft and services for domestic, regional and international operations. For the three and nine months ended September 30, 2017, we incurred Transaction-related expenses of $1.1 million and $3.4 million, respectively. For the three and nine months ended September 30, 2016, we incurred Transaction-related expenses of $3.1 million and $17.2 million, respectively. Transaction-related expenses are primarily related to: compensation costs, including employee termination benefits; professional fees; and integration costs associated with the acquisition.
The unaudited estimated pro forma operating revenue for AAWW, including Southern Air, for the three and nine months ended September 30, 2016 was $448.02021, respectively. Atlas recognized revenue from flying on behalf of Polar of $48.0 million and $1,337.0$158.5 million respectively, including adjustments to conform with our accounting policies. The earnings of Southern Air were not material for the three and nine months ended September 30, 20162020, respectively.
Dry Leasing Joint Venture
We hold a 10% interest in a joint venture with an unrelated third party, which we entered into in December 2019, to develop a diversified freighter aircraft dry leasing portfolio. Through Titan, we provide aircraft and accordingly, pro formalease management services to the joint venture for fees based upon aircraft assets under management, among other things. Our investment in the joint venture is accounted for under the equity method of accounting. Under the joint venture, we have a commitment to provide up to $40.0 million of capital contributions before December 2022, of which $6.8 million has been contributed as of September 30, 2021. Our maximum exposure to losses from the entity is limited to our investment. The joint venture has third-party debt obligations of $56.8 million that are not guaranteed by us.
10
The following table summarizes our transactions with our dry leasing joint venture:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
Revenue and Expenses: |
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||
Revenue from dry leasing joint venture |
| $ | 288 |
|
| $ | 0 |
|
| $ | 423 |
|
| $ | 0 |
|
Aircraft rent to dry leasing joint venture |
|
| 2,250 |
|
|
| 0 |
|
|
| 6,750 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Carrying Value of Joint Venture as of: |
| September 30, 2021 |
|
| December 31, 2020 |
|
|
|
|
|
|
|
|
| ||
Aggregate Carrying Value of Dry Leasing Joint Venture |
| $ | 6,293 |
|
| $ | 4,438 |
|
|
|
|
|
|
|
|
|
Parts Joint Venture
We hold a 50% interest in a joint venture with an unrelated third party to purchase rotable parts and actual earnings informationprovide repair services for those parts, primarily for 747-8F aircraft. The joint venture is a variable interest entity and we have not been presented.
As partconsolidated the joint venture because we are not the primary beneficiary as we do not exercise financial control. Our investment in the joint venture is accounted for under the equity method of integrating Southern Air, management decidedaccounting and committedwas $18.9 million as of September 30, 2021 and $21.0 million as of December 31, 2020. Our maximum exposure to pursue a plan to sell Florida West. As a result, the financial results for Florida West were presented as a discontinued operation and the assets and liabilities of Florida West were classified as held for salelosses from the dateentity is limited to our investment, which is composed primarily of acquisition throughrotable inventory parts. The joint venture does not have any third-party debt obligations. We had Accounts receivable from the joint venture of $0.1 million as of September 30, 2021 and $0.2 million as of December 31, 2016. In February 2017, management determined that a sale was no longer likely2020. We had Accounts payable to occur and committed to a plan to wind-down the Florida West operations. The wind-downjoint venture of operations was completed during the first quarter$1.3 million as of 2017.
A summary of the employee termination benefit liabilities, which are expected to be paid by the first quarter of 2018, is as follows:
|
| Employee Termination Benefits |
| |
Liability as of December 31, 2016 |
| $ | 1,214 |
|
Wind-down expenses |
|
| 766 |
|
Cash payments |
|
| (1,718 | ) |
Liability as of September 30, 2017 |
| $ | 262 |
|
5. Special Charge
During the first quarter of 2016, we classified four CF6-80 engines as held for sale, recognized an impairment loss of $6.5 million and ceased depreciation on the engines. All four of those engines were traded in during 2016. During the fourth quarter of 2016, we classified two CF6-80 engines as held for sale, recognized an impairment loss of $3.5 million and ceased depreciation on the
engines. One of those engines was traded in during the first quarter of 2017. The carrying value of the remaining CF6-80 engine held for sale at September 30, 2017 was $1.42021 and $0.9 million andas of the two CF6-80 engines held for sale at December 31, 2016 was $2.8 million, which was included within Prepaid expenses and other current assets in the consolidated balance sheets. The remaining CF6-80 engine classified as held for sale is expected to be sold during the fourth quarter of 2017.2020.
6.5. Amazon
In May 2016, we entered into certain agreements with Amazon.com, Inc. and its subsidiary, Amazon Fulfillment Services, Inc., (collectively “Amazon”), which involves,involve, among other things, CMI operation of up to 20 Boeing 767-300 freighter aircraft for Amazon by Atlas, as well as Dry Leasing by Titan. The Dry Leases will have a term of ten years from the commencement of each lease,agreement, while the CMI operations will beare for seven years from the commencement of each agreement (with an option for Amazon to extend the term to a total of ten years). We placed the first seven aircraftAs of September 30, 2021, 19 767-300 freighters were in Dry Lease service, between August 2016 and August 2017. In October 2017, we began flying three additional aircraft and we expect to beof which 17 were operating all 20 by the end of 2018.in CMI service.
In conjunction with thesethe agreements entered into in May 2016, we granted Amazon a warrant providing the right to acquire up to 20% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, at an exercise price of $37.50$37.34 per share. A portion of the warrant, representing the right to purchase 3.75share, as adjusted (“Warrant A”). All 7.5 million shares, as adjusted, have vested immediately uponin full and been exercised in 2 transactions. In October 2020, Amazon exercised shares of Warrant A through a cashless exercise resulting in the issuance of 1,375,421 shares of our common stock. In January 2021, Amazon exercised the warrant andremaining shares of Warrant A through a cashless exercise resulting in the remainderissuance of the warrant, representing the right to purchase 3.75 million1,210,741 shares will vest in increments of 375,000 as the lease and operation of each of the 11th through 20th aircraft commences. The warrant will be exercisable in accordance with its terms through 2021. As of September 30, 2017, no warrants have been exercised.our common stock.
The agreements entered into in May 2016 also provideprovided incentives for future growth of the relationship as Amazon may increase its business with us. In that regard, we granted Amazon a warrant to acquire up to an additional 10% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $37.50$37.34 per share.share, as adjusted (“Warrant B”). This warrant to purchase 3.753.77 million shares, will vestas adjusted, vests in conjunction with payments byincrements of 37,660 shares, as adjusted, each time Amazon has paid $4.2 million of revenue to us, up to a total of $420.0 million, for additionalincremental business with us. The warrant will bebeyond the original 20 767-300 freighters. As of September 30, 2021, 828,520 shares, as adjusted, of Warrant B have vested. Upon vesting, Warrant B becomes exercisable in accordance with its terms through May 2023.
At In January 2021, Amazon exercised shares of Warrant B through a special meeting on September 20, 2016, the Company’s shareholders, by a vote of approximately 99.9% of the votes cast, approvedcashless exercise resulting in the issuance of warrants69,709 shares of our common stock.
In March 2019, we amended the agreements entered into in 2016 with Amazon, pursuant to which we began providing CMI services using Boeing 737-800 freighter aircraft provided by Amazon. The 737-800 CMI operations are for a term of seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years). As of September 30, 2021, eight 737-800 freighter aircraft were operating in CMI service for Amazon.
In connection with the amended agreements, we granted Amazon a warrant to acquire up to 30%an additional 9.9% of our outstanding common shares. This approval constituted a change in control,shares, as defined under certain of the Company’s benefit plans.date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $52.67 per share, as adjusted (“Warrant C”). After Warrant B has vested in full, this warrant to purchase 6.66 million shares, as adjusted, would vest in increments of 45,623 shares, as adjusted, each time Amazon has paid $6.9 million of revenue to us, up to a total of $1.0 billion, for incremental business beyond Warrant A and Warrant B. As a result, we recognized $26.2 million in expense, including accelerated compensation expense for restricted and performance share and cash awards, during the three and nine month periods endedof September 30, 2016. The share-based2021, 0 portion of Warrant C has vested. Upon vesting, Warrant C would become exercisable in accordance with its terms through March 2026. While Amazon would be entitled to vote the compensation expense was $11.6 million.shares it owns up to 14.9% of our outstanding common shares, in its discretion, it would be required to vote any shares it owns in excess of 14.9% of our outstanding common shares in accordance with the recommendation of our board of directors.
The $92.9 million fair value11
Upon the vesting of Warrant A in previous years, the vested portion of the warrant issued to Amazon as of May 4, 2016 was recorded as a warrant liability within Financial instruments and other liabilities (the “Amazon Warrant”). This initial fair value of the warrant was also recognized as a customer incentive asset within Deferred costs and other assets, net and is being amortized as a reduction of revenueOperating Revenue in proportion to the amount of revenue recognized over the terms of the Dry Leases and CMI agreements. When it becomes probable that an increment of either Warrant B or C will vest and the related revenue begins to be recognized, the grant date fair value of such portion is recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of related revenue recognized. The grant date fair value of such increment is also recorded as Additional paid-in capital. At the time of vesting, any amounts recorded in Additional paid-in capital related to Dry Lease contracts would be reclassified as a warrant liability within Financial instruments and other liabilities with changes in fair value recorded in Unrealized loss (gain) on financial instruments.
We amortized $1.5$11.3 million and $2.9$33.3 million of the customer incentive asset as a reduction of Operating Revenue for the three and nine months ended September 30, 2021, respectively. We amortized $9.9 million and $28.4 million of the customer incentive asset for the three and nine months ended September 30, 2017,2020, respectively. We amortized $0.2 million of the customer
Customer incentive asset for the threeincluded within Deferred costs and nine month periods ended September 30, 2016. The balance of the customer incentive asset, net of amortization, was $89.5 millionother assets is as of September 30, 2017 and $92.4 million as of December 31, 2016.follows:
The Amazon Warrant liability is marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized loss (gain) on financial instruments. We utilize a Monte Carlo simulation approach to estimate the fair value of the Amazon Warrant which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility and risk-free interest rate, among others.
Balance at December 31, 2020 |
| $ | 125,276 |
|
Initial value for estimate of vested or expected to vest warrants |
|
| 10,759 |
|
Amortization of customer incentive asset |
|
| (33,256 | ) |
Balance as of September 30, 2021 |
| $ | 102,779 |
|
We recognized a netan unrealized loss of $44.8 million and $36.2$0.1 million on the Amazon warrant liability related to Warrant A during the nine months ended September 30, 2021. We recognized unrealized losses of $43.6 million and $73.4 million on the Amazon Warrant liability during the three and nine months ended September 30, 2017, respectively. We recognized a net unrealized loss of $1.5 million and a net unrealized gain of $25.0 million on the Amazon Warrant during the three and nine months ended September 30, 2016,2020, respectively. The fair value of the Amazon Warrantwarrant liability was $132.00 as of September 30, 2021 and $31.5 million as of December 31, 2020. Due to the exercise of Warrant A discussed above, our earnings are no longer affected by changes in the fair value of our Amazon warrant liability.
6. Supplemental Financial Information
Accounts Receivable
Accounts receivable, net of allowance for expected credit losses related to customer contracts, excluding Dry Leasing contracts, was $253.2 million as of September 30, 20172021 and $95.8$195.6 million as of December 31, 2016.2020.
Allowance for expected credit losses, included within Accounts receivable, is as follows:
Balance as of December 31, 2020 |
| $ | 1,233 |
|
Bad debt recovery |
|
| (377 | ) |
Amounts written off, net of other items |
|
| 2,883 |
|
Balance as of September 30, 2021 |
| $ | 3,739 |
|
Accrued Liabilities
Accrued liabilities consisted of the following as of:
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Salaries, wages and benefits |
| $ | 167,820 |
|
| $ | 136,753 |
| ||||||||
Maintenance |
| $ | 143,941 |
|
| $ | 54,495 |
|
|
| 119,967 |
|
|
| 142,374 |
|
Customer maintenance reserves |
|
| 85,256 |
|
|
| 81,830 |
|
|
| 83,266 |
|
|
| 93,092 |
|
Salaries, wages and benefits |
|
| 48,879 |
|
|
| 55,063 |
| ||||||||
U.S. class action settlement |
|
| 30,000 |
|
|
| 35,000 |
| ||||||||
Deferred revenue |
|
| 63,799 |
|
|
| 41,665 |
| ||||||||
Aircraft fuel |
|
| 22,638 |
|
|
| 16,149 |
|
|
| 30,066 |
|
|
| 24,578 |
|
Deferred revenue |
|
| 22,565 |
|
|
| 10,298 |
| ||||||||
Deferred grant income |
|
| 0 |
|
|
| 40,944 |
| ||||||||
Other |
|
| 68,391 |
|
|
| 68,052 |
|
|
| 126,290 |
|
|
| 103,754 |
|
Accrued liabilities |
| $ | 421,670 |
|
| $ | 320,887 |
|
| $ | 591,208 |
|
| $ | 583,160 |
|
12
Revenue Contract Liability
Deferred revenue for customer contracts, excluding Dry Leasing contracts, represents amounts collected from, or invoiced to, customers in advance of revenue recognition. The balance of Deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue. Changes in Deferred revenue during the nine months ended September 30, 2021 were as follows:
Balance as of December 31, 2020 |
| $ | 30,291 |
|
Revenue recognized |
|
| (229,325 | ) |
Amounts collected or invoiced |
|
| 252,076 |
|
Balance as of September 30, 2021 |
| $ | 53,042 |
|
Supplemental Cash Flow Information
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total shown in the consolidated statements of cash flows:
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Cash and cash equivalents |
| $ | 773,911 |
|
| $ | 845,589 |
|
Restricted cash |
|
| 10,230 |
|
|
| 10,692 |
|
Total Cash, cash equivalents and restricted cash shown in Consolidated Statements of Cash Flows |
| $ | 784,141 |
|
| $ | 856,281 |
|
7. Assets Held For Sale and Other Income
As of December 31, 2020, we had 2 737-400 passenger aircraft previously used for training purposes and certain spare CF6-80 engines classified as held for sale. We received net proceeds of $9.5 million during the nine months ended September 30, 2021 from the completion of the sales of the two 737-400 passenger aircraft and some of the spare CF6-80 engines. The carrying value of the assets held for sale was $5.5 million and $14.1 million as of September 30, 2021 and December 31, 2020, respectively, which was included within Prepaid expense, assets held for sale and other current assets in the consolidated balance sheets. We estimated the fair value of these assets, less costs to sell, based on bids received from independent third parties or recently completed sales. Sales of the remaining engines are expected to be completed during 2021.
We recognized a refund of $4.6 million during the nine months ended September 30, 2021 related to aircraft rent paid in previous years within Other (income) expense, net. We recognized refunds of $32.9 million during the nine months ended September 30, 2020, related to aircraft rent paid in previous years within Other (income) expense, net.
8. Debt and Finance Leases
Term Loans and Capital Lease
We have entered into variousIn March 2021, we borrowed $16.2 million at a fixed interest rate of 0.93% under an unsecured five-year term loans during 2017 to finance the purchase and passenger-to-freighter conversion of 767-300 aircraft, andloan due in January 2026 for GEnx engine performance upgrade kits and overhauls. EachThe term loan requires payment of principal and interest quarterly in arrears. Funds available under each term loan areis subject to usual and customary fees, and funds drawn typically bear interest at a fixed rate based on LIBOR, plus a margin. Each facility is guaranteed by us and subject to customary covenants and events of default.default, with principal and interest payable quarterly.
The following table summarizes the terms and principal balances for eachIn June 2021, we borrowed $7.8 million at a fixed interest rate of 0.91% under an unsecured five-year term loan entered into during 2017 (in millions):due in May 2026 for GEnx engine performance upgrade kits and overhauls. The term loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly.
| Issue | Face |
| Collateral | Original | Interest Rate | Interest |
| ||
| Date | Value |
| Type | Term | Type | Rate |
| ||
First 2017 Term Loan | April 2017 | $ | 20.1 |
| 767-300 | 91 months | Fixed |
| 3.02% |
|
Second 2017 Term Loan | April 2017 |
| 21.3 |
| 767-300 | 91 months | Fixed |
| 3.16% |
|
Third 2017 Term Loan | May 2017 |
| 21.5 |
| 767-300 | 91 months | Fixed |
| 3.16% |
|
Fourth 2017 Term Loan | June 2017 |
| 21.3 |
| 767-300 | 91 months | Fixed |
| 3.09% |
|
Fifth 2017 Term Loan | June 2017 |
| 21.7 |
| 767-300 | 91 months | Fixed |
| 3.11% |
|
Sixth 2017 Term Loan | June 2017 |
| 21.7 |
| 767-300 | 91 months | Fixed |
| 3.11% |
|
Seventh 2017 Term Loan | June 2017 |
| 18.7 |
| None | 58 months | Fixed |
| 2.17% |
|
Eighth 2017 Term Loan | July 2017 |
| 12.5 |
| 767-300 | 60 months | Fixed |
| 3.62% |
|
Total |
| $ | 158.8 |
|
|
|
|
|
|
|
Finance Leases
In March 2017,May, June and August 2021, we amended and extended a lease8 operating leases for a 747-400 freighter aircraft to June 2032acquire the aircraft at a lower monthly lease payment. As a resultor prior to the end of the extension, we determined that the lease qualifies asterms, resulting in additional commitments of $123.1 million and a capital lease. The present valuechange in classification to finance leases. NaN of the future minimum lease payments was $32.4 million.
Private Placement Facility
In September 2017, we entered into a debt facility for upaircraft were acquired in October 2021 with the remainder to $146.5 million through a private placementbe acquired from March to finance the purchase and passenger-to-freighter conversion of up to six 767-300 freighter aircraft dry leased to Amazon (the “Private Placement Facility”). The Private Placement Facility consists of six separate loans (the “Private Placement Loans”). Each Private Placement Loan is comprised of an equipment note and an equipment term loan, both secured by the cash flows from a 767-300 freighter aircraft dry lease and the underlying aircraft. The equipment notes require payment of principal and interest at a fixed interest rate. The equipment term loans accrue interest, at a fixed rate, which is added to the principal balance outstanding until each equipment note is paid in full. Subsequently, the equipment term loans require payment of principal and interest over the remaining term of the loans. The Private Placement Loans are cross-collateralized, but not cross-defaulted, with each other and, except for certain specified events, are not cross-defaulted with other debt facilities of the Company.December 2022.
In connection with entry into the Private Placement Facility, we have agreed to pay usual and customary commitment and other fees associated with this type of financing. The Private Placement Facility is guaranteed by us and subject to customary covenants and events of default.
In October 2017, we completed the following financings for the first three aircraft under the Private Placement Facility:
| Issue | Face |
| Collateral | Original | Interest Rate | Interest |
| ||
| Date | Value |
| Type | Term | Type | Rate |
| ||
First 2017 Equipment Note | October 2017 | $ | 21.2 |
| Dry Lease and 767-300 | 87 months | Fixed |
| 2.93% |
|
First 2017 Equipment Term Loan | October 2017 |
| 2.6 |
| Dry Lease and 767-300 | 103 months | Fixed |
| 4.75% |
|
Second 2017 Equipment Note | October 2017 |
| 21.4 |
| Dry Lease and 767-300 | 88 months | Fixed |
| 2.93% |
|
Second 2017 Equipment Term Loan | October 2017 |
| 3.2 |
| Dry Lease and 767-300 | 107 months | Fixed |
| 4.75% |
|
Third 2017 Equipment Note | October 2017 |
| 21.2 |
| Dry Lease and 767-300 | 87 months | Fixed |
| 2.93% |
|
Third 2017 Equipment Term Loan | October 2017 |
| 3.0 |
| Dry Lease and 767-300 | 105 months | Fixed |
| 4.75% |
|
Total |
| $ | 72.6 |
|
|
|
|
|
|
|
Convertible Notes
In May 2017, we issued $289.0 million aggregate principal amount of 1.88% convertible senior notes that mature on June 1, 2024 (the “2017 Convertible Notes”) in an underwritten public offering. In June 2015, we issued $224.5 million aggregate principal amount of 2.25% convertible senior notes that mature on June 1, 2022 (the “2015 Convertible Notes”) in an underwritten public offering. The 2017 Convertible Notes and the 2015 Convertible Notes (collectively, the “Convertible Notes”) are senior unsecured obligations and accrue interest payable semiannually on June 1 and December 1 of each year at a fixed rate of 1.875%.year. The 2017 Convertible Notes will matureare due on June 1, 2024,their respective maturity dates, unless earlier converted or repurchased pursuant to their respective terms.
We used the majority of the net proceeds in May 2017 to repay $150.0 million then outstanding under our revolving credit facility and to fund the cost of the convertible note hedges described below.13
Each $1,000 of principal of the 2017 Convertible Notes will initially be convertible into 16.3713 shares of our common stock, which is equal to an initial conversion price of $61.08 per share. The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest, except in certain limited circumstances. Upon the occurrence of a “make-whole fundamental change,” we will, in certain circumstances, increase the conversion rate by a number of additional shares of our common stock for the 2017 Convertible Notes converted in connection with such “make-whole fundamental change”. Additionally, if we undergo a “fundamental change,” a holder will have the option to require us to repurchase all or a portion of its 2017 Convertible Notes for cash at a price equal to 100% of the principal amount of the 2017 Convertible Notes being repurchased plus any accrued and unpaid interest through, but excluding, the fundamental change repurchase date.
In connection with the offering of the 2017 Convertible Notes, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to adjustment for certain specified events) a total of 4,731,306 shares of our common stock at a price of $61.08 per share. The total cost of the convertible note hedge transactions was $70.1 million. In addition, we sold warrants to the option counterparties whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of 4,731,306 shares of our common stock at a price of $92.20. We received $38.1 million in cash proceeds from the sale of these warrants.
Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset any economic dilution from the conversion of the 2017 Convertible Notes when the stock price is below $92.20 per share and to effectively increase the overall conversion price from $61.08 to $92.20 per share. However, for purposes of the computation of diluted earnings per share in accordance with GAAP, dilution typically occurs when the average share price of our common stock for a given period exceeds the conversion price of the 2017 Convertible Notes. The $32.0 million net cost incurred in connection with the convertible note hedges and warrants was recorded as a reduction to additional paid-in capital, net of tax, in the consolidated balance sheet.
On or after September 1, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or a portion of its 2017 Convertible Notes.
Upon conversion, each of the 2017 Convertible Notes will be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amountamounts of the 2017 Convertible Notes paid in cash.
Holders may only convert their 2017 Convertible Notes at their option at any time prior to Effective September 1, 2023, under the following circumstances:
|
during the five consecutive business day period immediately following any five consecutive trading day period (the “measurement period”) in which, for each trading day of the measurement period, the trading price per $1,000 principal amount of the convertible notes for such trading day was less than 98% of the product of the last reported sale price of our common stock for such trading day and the conversion rate on such trading day; or
upon the occurrence of specified corporate events.
We separately account for the liability and equity components of convertible notes. The carrying amount of the liability component was determined by measuring the fair value of a similar liability that does not have an associated conversion feature, assuming our nonconvertible unsecured debt borrowing rate. The carrying value of the equity component, the conversion option, which is recognized as additional paid-in-capital, net of tax, creates a debt discount on the convertible notes. The debt discount was determined by deducting the relative fair value of the liability component from the proceeds of the convertible notes and is amortized to interest expense using an effective interest rate of 6.14% over the term of the 2017 Convertible Notes. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.
The debt issuance costs related to the issuance of the 2017 Convertible Notes were allocated to the liability and equity components based on their relative values, as determined above. Total debt issuance costs were $7.5 million, of which $5.7 million was allocated to the liability component and $1.8 million was allocated to the equity component. The debt issuance costs allocated to the liability component are amortized to interest expense using the effective interest method over the term of the 2017 Convertible Notes.
In June 2015, we issued $224.5 million aggregate principal amount of convertible senior notes (the “2015 Convertible Notes”) in an underwritten public offering. The 2015 Convertible Notes are senior unsecured obligations and accrue interest payable semiannually on June 1 and December 1 of each year at a fixed rate of 2.25%. The 2015 Convertible Notes will mature on June 1, 2022, unless earlier converted or repurchased pursuantrequired to their terms.be settled in cash for the principal amount.
As of September 30, 2017, the 2017 Convertible Notes and the 2015The Convertible Notes consisted of the following: as of September 30, 2021:
|
| 2017 Convertible Note |
|
| 2015 Convertible Note |
|
| 2015 Convertible Notes |
|
| 2017 Convertible Notes |
| ||||
Remaining life in months |
|
| 80 |
|
|
| 56 |
|
|
| 8 |
|
|
| 32 |
|
Liability component: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds |
| $ | 289,000 |
|
| $ | 224,500 |
|
| $ | 224,500 |
|
| $ | 289,000 |
|
Less: debt discount, net of amortization |
|
| (67,245 | ) |
|
| (37,862 | ) |
|
| (6,128 | ) |
|
| (30,235 | ) |
Less: debt issuance cost, net of amortization |
|
| (5,394 | ) |
|
| (3,623 | ) |
|
| (560 | ) |
|
| (2,316 | ) |
Net carrying amount |
| $ | 216,361 |
|
| $ | 183,015 |
|
| $ | 217,812 |
|
| $ | 256,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity component (1) |
| $ | 70,140 |
|
| $ | 52,903 |
|
| $ | 52,903 |
|
| $ | 70,140 |
|
| (1) | Included in Additional paid-in capital on the consolidated balance sheet as of September 30, |
The following table presents the amount of interest expense recognized related to the 2017 Convertible Notes and the 2015 Convertible Notes:
|
| For the Three Months Ended |
|
|
| For the Nine Months Ended |
|
| For the Three Months Ended |
|
|
| For the Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2021 |
|
| September 30, 2020 |
|
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||||||
Contractual interest coupon |
| $ | 2,618 |
|
| $ | 1,263 |
|
|
| $ | 5,730 |
|
| $ | 3,788 |
|
| $ | 2,618 |
|
| $ | 2,618 |
|
|
| $ | 7,853 |
|
| $ | 7,853 |
|
Amortization of debt discount |
|
| 3,752 |
|
|
| 1,618 |
|
|
|
| 7,990 |
|
|
| 4,777 |
|
|
| 4,820 |
|
|
| 4,527 |
|
|
|
| 14,236 |
|
|
| 13,372 |
|
Amortization of debt issuance costs |
|
| 352 |
|
|
| 170 |
|
|
|
| 776 |
|
|
| 505 |
|
|
| 410 |
|
|
| 394 |
|
|
|
| 1,219 |
|
|
| 1,171 |
|
Total interest expense recognized |
| $ | 6,722 |
|
| $ | 3,051 |
|
|
| $ | 14,496 |
|
| $ | 9,070 |
|
| $ | 7,848 |
|
| $ | 7,539 |
|
|
| $ | 23,308 |
|
| $ | 22,396 |
|
Revolving Credit Facility
In December 2016, we entered intoWe have a three-year $150.0 $200.0 million secured revolving credit facility that matures in December 2022 (the “Revolver”) for general corporate purposes, including financing the acquisition and conversion. As of 767 aircraft prior to obtaining permanent financing for the
converted aircraft. ThereSeptember 30, 2021, there were no0 amounts outstanding and we had $142.3$200.0 million of unused availability, under the Revolver, based on the collateral borrowing base, asbase.
Other Debt
In October 2021, we refinanced a 747-8F term loan and received proceeds of September 30, 2017.
9. Commitments
Equipment Purchase Commitments
As of September 30, 2017, our estimated payments remaining$90.0 million from a financing with a seven-year term for flight equipment purchase commitments are $143.8this aircraft at a lower rate. We used $50.4 million of which $63.5 million are expectedthe proceeds to be made duringrepay the remainder of 2017.previous term loan in full.
10.9. Income Taxes
Our effective income tax expense rates were 72.7% and 230.8% for the three months ended September 30, 2017 and 2016, respectively. Our effective income tax expense rates were 59.1% and 60.3% for the nine months ended September 30, 2017 and 2016, respectively. The effective income tax expense rates were 23.4% and 23.5% for the three and nine months ended September 30, 20172021, respectively. These rates differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes.
The effective income tax rates were 32.8% and 30.7% for the three and nine months ended September 30, 2020, respectively. These rates differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of the Amazon Warranta customer warrant liability (see Note 65 to our Financial Statements). In addition, the effective income tax expense rate for the nine months ended September 30, 2017 differed from the U.S. statutory rate due to the impact of the 2017 adoption of the amended accounting guidance for share-based compensation which requires that excess tax benefits associated with share-based compensation be recognized within income tax expense in our consolidated statement of operations. The effective income tax expense rates for the three and nine months ended September 30, 2016 differed from the U.S. federal statutory rate primarily due to nondeductible expenses resulting from a change in control, as defined under certain of the Company’s benefit plans, related to the Amazon transaction (see Note 6 to our Financial Statements). The effective rates for all periods were impacted by our assertion to indefinitely reinvest the net earnings of foreign subsidiaries outside the U.S. For interim accounting purposes, we recognize income taxes using an estimated annual effective tax rate.
11.10. Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified in the following hierarchy:
| Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities; |
| Level 2 | Other inputs that are observable directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, or inactive quoted prices for identical assets or liabilities in inactive markets; |
| Level 3 | Unobservable inputs reflecting assumptions about the inputs used in pricing the asset or liability. |
14
We endeavor to utilize the best available information to measure fair value.
The carrying value of Cash and cash equivalents, Short-term investments and Restricted cash is based on cost, which approximates fair value.
Long-term investments consist of debt securities, maturing within five years, for which we have both the ability and the intent to hold until maturity. These investments are classified as held-to-maturity and reported at amortized cost. The fair value of our Long-term investments is based on a discounted cash flow analysis using the contractual cash flows of the investments and a discount rate derived from unadjusted quoted interest rates for debt securities of comparable risk. Such debt securities represent investments in Pass-Through Trust Certificates (“PTCs”) related to enhanced equipment trust certificates (“EETCs”) issued by Atlas in 1998, 1999 and 2000.
Term loans and notes consist of term loans, notes guaranteed by the Export-Import Bank of the United States, (“Ex-Im Bank”),a promissory note issued to the RevolverU.S. Treasury and EETCs.equipment enhanced trust certificates. The fair values of these debt instruments and the Revolver are based on a discounted cash flow analysis using current borrowing rates for instruments with similar terms.
The fair value of our convertible notesConvertible Notes is based on unadjusted quoted market prices for these securities.
The fair value of the Amazon Warranta customer warrant liability is based on a Monte Carlo simulation which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility, and risk-free interest rate, among others.
The following table summarizes the carrying value, estimated fair value and classification of our financial instruments as of:
|
| September 30, 2017 |
|
| September 30, 2021 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 165,250 |
|
| $ | 165,250 |
|
| $ | 165,250 |
|
| $ | - |
|
| $ | - |
|
| $ | 773,911 |
|
| $ | 773,911 |
|
| $ | 773,911 |
|
| $ | 0 |
|
| $ | 0 |
|
Short-term investments |
|
| 10,676 |
|
|
| 10,676 |
|
|
| - |
|
|
| - |
|
|
| 10,676 |
| ||||||||||||||||||||
Restricted cash |
|
| 11,030 |
|
|
| 11,030 |
|
|
| 11,030 |
|
|
| - |
|
|
| - |
|
|
| 10,230 |
|
|
| 10,230 |
|
|
| 10,230 |
|
|
| 0 |
|
|
| 0 |
|
Long-term investments and accrued interest |
|
| 19,234 |
|
|
| 22,442 |
|
|
| - |
|
|
| - |
|
|
| 22,442 |
| ||||||||||||||||||||
|
| $ | 206,190 |
|
| $ | 209,398 |
|
| $ | 176,280 |
|
| $ | - |
|
| $ | 33,118 |
|
| $ | 784,141 |
|
| $ | 784,141 |
|
| $ | 784,141 |
|
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans and notes |
| $ | 1,674,311 |
|
| $ | 1,747,582 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,747,582 |
|
| $ | 1,622,536 |
|
| $ | 1,692,316 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 1,692,316 |
|
Convertible notes |
|
| 399,377 |
|
|
| 632,740 |
|
|
| 632,740 |
|
|
| - |
|
|
| - |
| ||||||||||||||||||||
Amazon Warrant |
|
| 132,000 |
|
|
| 132,000 |
|
|
| - |
|
|
| 132,000 |
|
|
| - |
| ||||||||||||||||||||
Convertible notes (1) |
|
| 474,261 |
|
|
| 679,138 |
|
|
| 679,138 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||
|
| $ | 2,205,688 |
|
| $ | 2,512,322 |
|
| $ | 632,740 |
|
| $ | 132,000 |
|
| $ | 1,747,582 |
|
| $ | 2,096,797 |
|
| $ | 2,371,454 |
|
| $ | 679,138 |
|
| $ | 0 |
|
| $ | 1,692,316 |
|
|
| December 31, 2016 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 123,890 |
|
| $ | 123,890 |
|
| $ | 123,890 |
|
| $ | - |
|
| $ | - |
|
| $ | 845,589 |
|
| $ | 845,589 |
|
| $ | 845,589 |
|
| $ | 0 |
|
| $ | 0 |
|
Short-term investments |
|
| 4,313 |
|
|
| 4,313 |
|
|
| - |
|
|
| - |
|
|
| 4,313 |
| ||||||||||||||||||||
Restricted cash |
|
| 14,360 |
|
|
| 14,360 |
|
|
| 14,360 |
|
|
| - |
|
|
| - |
|
|
| 10,692 |
|
|
| 10,692 |
|
|
| 10,692 |
|
|
| 0 |
|
|
| 0 |
|
Long-term investments and accrued interest |
|
| 27,951 |
|
|
| 33,161 |
|
|
| - |
|
|
| - |
|
|
| 33,161 |
| ||||||||||||||||||||
|
| $ | 170,514 |
|
| $ | 175,724 |
|
| $ | 138,250 |
|
| $ | - |
|
| $ | 37,474 |
|
| $ | 856,281 |
|
| $ | 856,281 |
|
| $ | 856,281 |
|
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans and notes |
| $ | 1,674,013 |
|
| $ | 1,739,744 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,739,744 |
|
| $ | 1,809,656 |
|
| $ | 1,909,942 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 1,909,942 |
|
Convertible notes |
|
| 177,398 |
|
|
| 228,429 |
|
|
| 228,429 |
|
|
| - |
|
|
| - |
| ||||||||||||||||||||
Amazon Warrant |
|
| 95,775 |
|
|
| 95,775 |
|
|
| - |
|
|
| 95,775 |
|
|
| - |
| ||||||||||||||||||||
Convertible notes (1) |
|
| 458,803 |
|
|
| 560,975 |
|
|
| 560,975 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||
Customer warrant |
|
| 31,470 |
|
|
| 31,470 |
|
|
| 0 |
|
|
| 31,470 |
|
|
| 0 |
| ||||||||||||||||||||
|
| $ | 1,947,186 |
|
| $ | 2,063,948 |
|
| $ | 228,429 |
|
| $ | 95,775 |
|
| $ | 1,739,744 |
|
| $ | 2,299,929 |
|
| $ | 2,502,387 |
|
| $ | 560,975 |
|
| $ | 31,470 |
|
| $ | 1,909,942 |
|
(1) Carrying value is net of debt discounts and debt issuance costs (see Note 8).
Gross unrealized gains on our long-term investments and accrued interest were $3.2 million at September 30, 2017 and $5.2 million at December 31, 2016.
12.11. Segment Reporting
Our business is organized into threeDuring the first quarter of 2021, we changed our operating and reportable segments, based onreflecting changes in our service offerings:business. We currently have the following 2 operating and reportable segments: Airline Operations and Dry Leasing. Previously, our operating and reportable segments were ACMI, Charter and Dry Leasing. All segmentsAs ACMI and Charter services have become more similar, our chief operating decision maker began assessing operating results and making resource allocation decisions for Airline Operations.
Our Airline Operations segment provides outsourced aircraft operating services to customers including, express delivery providers, e-commerce retailers, the U.S. military, charter brokers, freight forwarders, airlines, manufacturers, sports teams and fans, and private charter customers. We generally provide these services on an ACMI, CMI and Charter basis. Most agreements provide us with guaranteed minimum revenues at predetermined rates, levels of operation and defined periods of time. We also provide certain services on a short-term basis.
Our Dry Leasing segment provides for the leasing of cargo and passenger aircraft and engines to customers, and aircraft- and lease-management services. In our Dry Leasing segment, the customer operates, and is responsible for insuring and maintaining, the flight equipment.
Other represents revenue for services that are directly or indirectly engaged in the business of air transportationnot allocated to any segment, including administrative and management support services but have different commercial and economic characteristics. flight simulator training.
15
Each operating segment is separately reviewed by our chief operating decision maker to assess operating results and make resource allocation decisions. We do not aggregate our operating segments and, therefore, our operating segments are our reportable segments.
We use an economic performance metric (“called Direct Contribution”) thatContribution, which shows the profitability of each segment after allocation of direct operating and ownership costs.segment. Direct Contribution representsincludes Income (loss) from continuing operations before income taxes excludingand excludes the following: Special charges, Transaction-related expenses, nonrecurring items, Losses (gains)Gain (losses) on the disposal of aircraft, Losses on early extinguishment of debt, Unrealized losses (gains) on financial instruments Gains on investments and Unallocated income and expenses, net. Direct operating and ownership costs include crew costs, maintenance, fuel, ground operations, sales costs, aircraft rent, interest expense on the portion of debt used for financing aircraft, interest income on debt securities and aircraft depreciation. Unallocated income and expenses, net include corporate overhead, nonaircraft depreciation, noncash expenses and income, interest expense on the portion of debt used for general corporate purposes, interest income on nondebt securities, capitalized interest, foreign exchange gains and losses, other revenue, and other non-operating costs.costs and CARES Act grant income.
The following table sets forth Operating Revenue and Direct Contribution for our reportable segments reconciled to Operating Income and Income from continuing operations before income taxes:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||
Operating Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
| $ | 980,714 |
|
| $ | 773,591 |
|
| $ | 2,762,815 |
|
| $ | 2,169,462 |
|
Dry Leasing |
|
| 40,926 |
|
|
| 40,740 |
|
|
| 121,694 |
|
|
| 123,572 |
|
Customer incentive asset amortization |
|
| (11,332 | ) |
|
| (9,858 | ) |
|
| (33,256 | ) |
|
| (28,414 | ) |
Other |
|
| 5,792 |
|
|
| 5,413 |
|
|
| 16,579 |
|
|
| 14,021 |
|
Total Operating Revenue |
| $ | 1,016,100 |
|
| $ | 809,886 |
|
| $ | 2,867,832 |
|
| $ | 2,278,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
| $ | 265,260 |
|
| $ | 179,441 |
|
| $ | 666,203 |
|
| $ | 482,995 |
|
Dry Leasing |
|
| 10,435 |
|
|
| 9,627 |
|
|
| 31,765 |
|
|
| 30,046 |
|
Total Direct Contribution for Reportable Segments |
|
| 275,695 |
|
|
| 189,068 |
|
|
| 697,968 |
|
|
| 513,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income and (expenses), net |
|
| (120,219 | ) |
|
| (34,409 | ) |
|
| (284,218 | ) |
|
| (173,439 | ) |
Loss on early extinguishment of debt |
|
| 0 |
|
|
| (7 | ) |
|
| 0 |
|
|
| (81 | ) |
Unrealized loss on financial instruments |
|
| 0 |
|
|
| (43,604 | ) |
|
| (113 | ) |
|
| (73,351 | ) |
Special charge |
|
| 0 |
|
|
| (547 | ) |
|
| 0 |
|
|
| (16,481 | ) |
Transaction-related expenses |
|
| (168 | ) |
|
| (490 | ) |
|
| (486 | ) |
|
| (2,286 | ) |
Gain on disposal of aircraft |
|
| 810 |
|
|
| 163 |
|
|
| 794 |
|
|
| 6,878 |
|
Income before income taxes |
|
| 156,118 |
|
|
| 110,174 |
|
|
| 413,945 |
|
|
| 254,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| (159 | ) |
|
| (225 | ) |
|
| (559 | ) |
|
| (929 | ) |
Interest expense |
|
| 27,173 |
|
|
| 28,524 |
|
|
| 81,345 |
|
|
| 86,749 |
|
Capitalized interest |
|
| (2,335 | ) |
|
| (203 | ) |
|
| (5,456 | ) |
|
| (528 | ) |
Loss on early extinguishment of debt |
|
| 0 |
|
|
| 7 |
|
|
| 0 |
|
|
| 81 |
|
Unrealized loss on financial instruments |
|
| 0 |
|
|
| 43,604 |
|
|
| 113 |
|
|
| 73,351 |
|
Other (income) expense, net |
|
| 3,136 |
|
|
| (62,689 | ) |
|
| (41,174 | ) |
|
| (112,081 | ) |
Operating Income |
| $ | 183,933 |
|
| $ | 119,192 |
|
| $ | 448,214 |
|
| $ | 300,924 |
|
16
The following table disaggregates our Airline Operations segment revenue by customer and service type:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2017 |
|
| September 30, 2016 |
| ||||
Operating Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 258,109 |
|
| $ | 206,310 |
|
| $ | 687,982 |
|
| $ | 600,772 |
|
Charter |
|
| 243,583 |
|
|
| 212,040 |
|
|
| 743,302 |
|
|
| 616,794 |
|
Dry Leasing |
|
| 30,804 |
|
|
| 25,907 |
|
|
| 86,120 |
|
|
| 79,165 |
|
Customer incentive asset amortization |
|
| (1,531 | ) |
|
| (174 | ) |
|
| (2,873 | ) |
|
| (174 | ) |
Other |
|
| 4,783 |
|
|
| 3,932 |
|
|
| 13,977 |
|
|
| 13,345 |
|
Total Operating Revenue |
| $ | 535,748 |
|
| $ | 448,015 |
|
| $ | 1,528,508 |
|
| $ | 1,309,902 |
|
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 51,647 |
|
| $ | 51,607 |
|
| $ | 141,134 |
|
| $ | 121,837 |
|
Charter |
|
| 34,808 |
|
|
| 32,948 |
|
|
| 88,877 |
|
|
| 78,580 |
|
Dry Leasing |
|
| 10,245 |
|
|
| 7,413 |
|
|
| 29,629 |
|
|
| 24,699 |
|
Total Direct Contribution for Reportable Segments |
|
| 96,700 |
|
|
| 91,968 |
|
|
| 259,640 |
|
|
| 225,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income and expenses, net |
|
| (64,463 | ) |
|
| (80,876 | ) |
|
| (183,418 | ) |
|
| (186,923 | ) |
Loss on early extinguishment of debt |
|
| (167 | ) |
|
| - |
|
|
| (167 | ) |
|
| (132 | ) |
Unrealized loss (gain) on financial instruments |
|
| (44,775 | ) |
|
| (1,462 | ) |
|
| (36,225 | ) |
|
| 25,013 |
|
Special charge |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (6,631 | ) |
Transaction-related expenses |
|
| (1,092 | ) |
|
| (3,905 | ) |
|
| (3,403 | ) |
|
| (21,486 | ) |
Loss (gain) on disposal of aircraft |
|
| (211 | ) |
|
| 11 |
|
|
| (64 | ) |
|
| 11 |
|
Income (loss) from continuing operations before income taxes |
|
| (14,008 | ) |
|
| 5,736 |
|
|
| 36,363 |
|
|
| 34,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| (1,688 | ) |
|
| (1,316 | ) |
|
| (4,286 | ) |
|
| (4,325 | ) |
Interest expense |
|
| 26,553 |
|
|
| 21,355 |
|
|
| 72,747 |
|
|
| 63,595 |
|
Capitalized interest |
|
| (1,922 | ) |
|
| (1,059 | ) |
|
| (5,633 | ) |
|
| (2,106 | ) |
Loss on early extinguishment of debt |
|
| 167 |
|
|
| - |
|
|
| 167 |
|
|
| 132 |
|
Unrealized loss (gain) on financial instruments |
|
| 44,775 |
|
|
| 1,462 |
|
|
| 36,225 |
|
|
| (25,013 | ) |
Other income |
|
| (1,165 | ) |
|
| (180 | ) |
|
| (357 | ) |
|
| (372 | ) |
Operating Income |
| $ | 52,712 |
|
| $ | 25,998 |
|
| $ | 135,226 |
|
| $ | 66,879 |
|
| For the Three Months Ended |
|
| ||||||||||||||||||||||
| September 30, 2021 |
|
| September 30, 2020 |
|
| |||||||||||||||||||
|
| Cargo |
|
| Passenger |
|
| Total |
|
| Cargo |
|
| Passenger |
|
| Total |
|
| ||||||
Commercial customers |
| $ | 847,643 |
|
| $ | 8,835 |
|
| $ | 856,478 |
|
| $ | 635,375 |
|
| $ | 2,640 |
|
| $ | 638,015 |
|
|
AMC |
|
| 29,874 |
|
|
| 94,362 |
|
|
| 124,236 |
|
|
| 57,952 |
|
|
| 77,624 |
|
|
| 135,576 |
|
|
Total Airline Operations Revenue |
| $ | 877,517 |
|
| $ | 103,197 |
|
| $ | 980,714 |
|
| $ | 693,327 |
|
| $ | 80,264 |
|
| $ | 773,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended |
|
| ||||||||||||||||||||||
| September 30, 2021 |
|
| September 30, 2020 |
|
| |||||||||||||||||||
|
| Cargo |
|
| Passenger |
|
| Total |
|
| Cargo |
|
| Passenger |
|
| Total |
|
| ||||||
Commercial customers |
| $ | 2,380,029 |
|
| $ | 11,714 |
|
| $ | 2,391,743 |
|
| $ | 1,773,803 |
|
| $ | 6,580 |
|
| $ | 1,780,383 |
|
|
AMC |
|
| 124,258 |
|
|
| 246,814 |
|
|
| 371,072 |
|
|
| 170,188 |
|
|
| 218,891 |
|
|
| 389,079 |
|
|
Total Airline Operations Revenue |
| $ | 2,504,287 |
|
| $ | 258,528 |
|
| $ | 2,762,815 |
|
| $ | 1,943,991 |
|
| $ | 225,471 |
|
| $ | 2,169,462 |
|
|
Given the nature of our business and international flying, geographic information for revenue, long-lived assets and total assets is not presented because it is impracticable to do so.
We are exposed to a concentration of revenue from the U.S. Military Air Mobility Command (the “AMC”),AMC, Polar and DHL (see above for the AMC and Note 34 for further discussion regarding Polar). No other customer accounted for more than 10.0% of our Total Operating Revenue. Revenue from the AMCDHL was $124.9$159.1 million and $487.2 million for the three months ended September 30, 2017 and $116.2 million for the three months ended September 30, 2016. Revenue from the AMC was $397.5 million for the nine months ended September 30, 20172021, respectively. Revenue from DHL was $150.8 million and $346.8$401.0 million for the three and nine months ended September 30, 2016. Revenue from DHL was $62.1 million for the three months ended September 30, 2017 and $57.4 million for the three months ended September 30, 2016. Revenue from DHL was $177.6 million for the nine months ended September 30, 2017 and $128.0 million for the nine months ended September 30, 2016.2020, respectively. We have not experienced any credit issues with either of these customers.
13.12. Labor and Legal Proceedings
LaborCollective Bargaining Agreements
Pilots of Atlas and Southern Air, and flight dispatchers of Atlas and Polar, are represented by the International Brotherhood of Teamsters (the “IBT”). We have a five-year collective bargaining agreement (“CBA”) with our Atlas pilots, which became amendable in September 2016 and a four-year CBA with the Southern Air pilots, which became amendable in November 2016. We also have a five-year CBA with our Atlas and Polar dispatchers, which was extended in April 2017 for an additional four years, making the CBA amendable in November 2021.
After we completed the acquisition of Southern Air in April 2016, we informed On September 15, 2021, the IBT, of our intention to pursue (and we have been pursuing) a complete operational mergerrepresenting the flight dispatchers of Atlas and Polar, served the Company with notice of its intent to commence negotiations for a new CBA pursuant to Section 6 of the Railway Labor Act. The Company and IBT are in the process of scheduling dates to start bargaining.
We also had a five-year CBA with our Atlas pilots, which became amendable in September 2016, and a four-year CBA with the Southern Air. PursuantAir pilots, which became amendable in November 2016.
The Company and the IBT commenced bargaining in early 2016. After approximately six years of bargaining for a new JCBA for the Atlas and Southern Air pilots, which included two arbitrators and two federal district courts ordering the IBT to comply with the merger provisions in bothof the Atlas and Southern Air CBAs, jointthe parties had reached tentative agreements on more than half of the JCBA.
On February 15, 2021, the Company and IBT completed the contractually-mandated nine-month period for negotiations for a single CBAJCBA. All remaining open issues not resolved in negotiations were subject to binding interest arbitration between the Company and the IBT, which occurred in the latter half of March 2021 and concluded on April 1, 2021. On March 30, 2021, the IBT provided the Company with the integrated seniority list.
On September 10, 2021, the Company and the IBT received the arbitration decision, which was the final step towards reaching a new JCBA for our Atlas and Southern Air should commence promptly. Furtherpilots. The new competitive pay rates became effective as of September 1, 2021. The Company and the IBT are working together to this process, onceimplement the new work rules for the JCBA over the next several months.
There are a seniority list is presentedfew open items from the arbitrator’s decision on which the parties have differing interpretations. These items will be reviewed with the arbitrator, the Company and the IBT, and we expect them to usbe resolved over the next several months. Once these remaining items are resolved, the Company and the IBT will sign the new JCBA, which will be deemed effective pursuant to a date that will be agreed by the unions,parties. While the ultimate outcome of these few open items could be material to our financial condition, results of operations or cash flows, it triggers an agreed-upon time frameis not expected to negotiate abe material.
In October 2021, IBT Local 2750 elected new joint CBA with any unresolved issues submitted to binding arbitration. After the merger process began, the IBT filed an application for mediation with the National Mediation Board (“NMB”) on behalf of the Atlas pilots, and subsequently the IBT filed a similar application on behalf of Southern Air pilots. We have opposed both mediation applications as they are not in accordance with the merger provisions in the parties’ existing CBAs. The Atlas and Southern Air CBAs have a defined and streamlined process for negotiating a joint CBA when a merger occurs, as in the case withunion leadership. While the Atlas and Southern Air merger. The NMB conducted a pre-mediation investigationpilots are represented by the same IBT Local 2750, they have remained two distinct pilot groups under separate CBAs. Now that the JCBA process is completed, the Southern Air pilots are expected to all transfer to Atlas on the IBT’s Atlas application in June 2016, which is currently pending (alongor about November 17, 2021 with the IBT’s Southern Air application). Due toissuance of a lack of meaningful progress in such merger discussions, in February 2017, we filed a lawsuit against the IBT to compel arbitration on the issue of whether the merger provisions in Atlas and Southern Air's CBAs apply to the bargaining process. While this lawsuit is pending in the Southern District Court of New York,single operating certificate for Atlas.
17
Since April 2020, the Company and the IBT have reached an interim agreement on a processentered into several Coronavirus Memorandum of Understandings (“COVID MOUs”) providing for various enhanced benefits and compensation (including pay for becoming fully vaccinated) for our pilots due to proceedthe challenges of flying and operating globally due to COVID-19. On September 30, 2021, in connection with negotiations for aimplementing the new joint CBA. These negotiations commenced on July 6, 2017 and the parties have continued to meet regularly since then and bargain for a new joint CBA.
In September 2017,JCBA, the Company requestedterminated all COVID MOUs in place with the U.S. District Court for the District of Columbia (the “Court”) to issue a preliminary injunction to require the IBT to meet its obligations under the Railway Labor Act and stop the illegal intentional work slowdowns and service interruptions. In its filing,IBT; however, the Company states that the IBT is engaging in unlawful, concerted work slowdownscontinues to gain leverage in pilot contract negotiations with the Company. The Company seeksoffer additional compensation to have the Court compel the IBT to stop the illegal work actions and return to normal operations. The hearing was completed in early November and a ruling on the preliminary injunction is expected during the fourth quarter of 2017.its pilots for becoming fully vaccinated.
We are subject to risks of work interruption or stoppage as permitted by the Railway Labor Act and may incur additional administrative expenses associated with union representation of our employees.
Preliminary Injunction
In late November 2017, the DC District Court issued a preliminary injunction preventing the IBT from “authorizing, encouraging, permitting, calling, engaging in, or continuing” any illegal pilot slowdown activities that were intended to gain leverage in pilot contract negotiations with the Company and requiring the IBT to meet its obligations under the Railway Labor Act. The IBT appealed to the DC Court of Appeals, which, in a unanimous three-judge panel, affirmed the DC District Court’s ruling. On May 22, 2020, the IBT filed a motion to dismiss the Company’s action for a preliminary injunction, which has been fully briefed. Now that the parties are in the process of completing the last phase of implementing the JCBA in accordance with the terms of the new arbitration award, the DC District Court stayed the preliminary injunction action and directed the parties to submit a joint status report in late November 2021. It is anticipated the action will be dismissed at such time.
Matters Related to Alleged Pricing Practices
The Company and Polar Air Cargo, LLC (“Old Polar”), a consolidated subsidiary, were named defendants, along with a number of other cargo carriers, in several class actions in the U.S. arising from allegations about the pricing practices of Old Polar and a number of air cargo carriers. These actions were all centralized in the U.S. District Court for the Eastern District of New York. Polar was later joined as an additional defendant. The consolidated complaint alleged, 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 U.S., state, and European Union antitrust laws. The suit sought treble damages and attorneys’ fees.
On January 7, 2016, the Company, Old Polar, and Polar entered into a settlement agreement to settle all claims by participating class members against the Company, Old Polar and Polar. The Company, Polar, and Old Polar deny any wrongdoing, and there is no admission of any wrongdoing in the settlement agreement. Pursuant to the settlement agreement, the Company, Old Polar and Polar have agreed to make installment payments over three years to settle the plaintiffs’ claims, with payments of $35.0 million paid in January 2016 and 2017, and $30.0 million due on or before January 15, 2018. The U.S. District Court for the Eastern District of New York issued an order granting preliminary approval of the settlement on January 12, 2016. On October 6, 2016, the final judgment was issued and the settlement was approved.
In the United Kingdom, several groups of named claimants have brought suit against British Airways in connection with the same alleged pricing practices at issue in the proceedings described above and are seeking damages allegedly arising from that conduct. British Airways has filed claims in the lawsuit against Old Polar and a number of air cargo carriers for contribution should British Airways be found liable to claimants. Old Polar’s formal statement of defense was filed on March 2, 2015. On October 14, 2015, the U.K. Court of Appeal released decisions favorable to the defendant and contributory defendants on two matters under appeal. Permission was sought to appeal the U.K. Court of Appeal's decisions to the U.K. Supreme Court. Permission was denied. In December 2015, certain claimants settled with British Airways removing a significant portion of the claim against British Airways and therefore reducing the potential contribution required by the other airlines, including Old Polar. On December 16, 2015, the European General Court released decisions annulling decisions that the European Commission made against the majority of the air cargo carriers. The European Commission did not appeal the General Court decision but has, in early 2017, reissued a revised decision to which Old Polar is, again, not an addressee. On April 13, 2017, Old Polar and claimants represented by Hausfeld & Co. LLP (the “Hausfeld Claimants”) entered into a bilateral settlement agreement in relation to the English proceedings (the “Settlement Agreement”). The Settlement Agreement contains a mechanism by which the Hausfeld Claimants will release Old Polar and remove from the English proceedings all claims for damages alleged by the Hausfeld Claimants to be attributable to air cargo purchases from Old Polar (and each of Old Polar’s parents, subsidiaries, affiliates, predecessors, successors, agents and assignees). The amount of the settlement, which is tax deductible and was previously accrued for, was paid during the second quarter of 2017 and did not have a material adverse impact on the Company’s financial condition,
results of operations or cash flows.Old Polar remains a contributory defendant in the proceedings and, as such, is subject to certain continuing evidentiary obligations.
In the Netherlands, Stichting Cartel Compensation, successor in interest to claims of various shippers, has filed suit in the district court in Amsterdam against British Airways, KLM, Martinair, Air France, Lufthansa and Singapore Airlines seeking recovery for damages purportedly arising from the sameallegedly unlawful pricing practices at issue in the proceedings described above.of such defendants. In response, British Airways, KLM, Martinair, Air France and Lufthansa filed third-party indemnification lawsuits against Polar Air Cargo, LLC (“Old PolarPolar”), a consolidated subsidiary of the Company, and Polar, seeking indemnification in the event the defendants are found to be liable in the main proceedings. Old Polar and Polar entered their initial court appearancesAnother defendant, Thai Airways, filed a similar indemnification claim. Activities in the case have focused on September 30, 2015. Variousvarious procedural issues and rulings, some of which are undergoingawaiting court review. Likedecisions on appeal. The ultimate outcome of the U.K. proceedings, the Netherlands proceedings arelawsuit is likely to be affected by a decision readopted by the European Commission’s revised decision. We are unable to reasonably predict the outcome of the litigation.Commission in March 2017, finding EU competition law violations by British Airways, KLM, Martinair, Air France and Lufthansa, among others, but not Old Polar or Polar. If the Company, Old Polar or Polar were to incur an unfavorable outcome, in connection with this proceeding, such outcome may have a material adverse impact on our business, financial condition, results of operations or cash flows. We are unable to reasonably estimate a range of possible loss for this matter at this time.
Brazilian Customs Claim
Old Polar was cited for two alleged customs violations in Sao Paulo, Brazil, relating to shipments of goods dating back to 1999 and 2000. Each claim asserts that goods listed on the flight manifest of two separate Old Polar scheduled service flights were not on board the aircraft upon arrival and therefore were improperly brought into Brazil. The two claims, which also seek unpaid customs duties, taxes and penalties from the date of the alleged infraction, are approximately $9.6$3.8 million in aggregate based on September 30, 20172021 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 may be feasible. In the pending claim for one of the cases, we have received an administrative decision dismissing the claim in its entirety, which remains subject to a mandatory appeal by the Brazil customs authorities. In the other case, we received an administrative decision in favor of the Brazil customs authorities, and we are in the process of appealing this decision to the Brazil courts. As required to defend such claims, we have made deposits pending resolution of these matters. The balance was $5.3$3.2 million as of September 30, 20172021 and $3.3 million as of December 31, 2016,2020, and is included in Deferred costs and other assets.
We are currently defending these and other Brazilian customs claims and the ultimate disposition of these claims, either individually or in the aggregate, is not expected to materially affect our financial condition, results of operations or cash flows.
AccrualsOther
As of September 30, 2017, the Company had an accrual of $30.0 million relatedIn addition to the U.S. class action settlement that was recognizedmatters described in 2015.
Other
Wethis note, we have certain other contingencies incident to the ordinary course of business. Management believesUnless disclosed otherwise, management does not expect that the ultimate disposition of such other contingencies is not expected toor matters will materially affect our financial condition, results of operations or cash flows.
14.18
13. Earnings Per Share
Basic earnings per share (“EPS”) represents income (loss) divided by the weighted average number of common shares outstanding during the measurement period. Diluted EPS represents income (loss) divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period using the treasury stock method. Anti-dilutive
The calculations of basic and diluted EPS were as follows:
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
Numerator: | September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||
Net Income | $ | 119,535 |
|
| $ | 74,054 |
|
| $ | 316,578 |
|
| $ | 176,319 |
|
Plus: Unrealized loss on financial instruments, net of tax |
| 0 |
|
|
| 0 |
|
|
| 112 |
|
|
| 0 |
|
Diluted net income | $ | 119,535 |
|
| $ | 74,054 |
|
| $ | 316,690 |
|
| $ | 176,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS weighted average shares outstanding |
| 29,023 |
|
|
| 26,135 |
|
|
| 28,844 |
|
|
| 26,077 |
|
Effect of dilutive warrants |
| 584 |
|
|
| 237 |
|
|
| 611 |
|
|
| 82 |
|
Effect of dilutive convertible notes |
| 717 |
|
|
| 0 |
|
|
| 442 |
|
|
| 0 |
|
Effect of dilutive restricted stock |
| 223 |
|
|
| 247 |
|
|
| 220 |
|
|
| 97 |
|
Diluted EPS weighted average shares outstanding |
| 30,547 |
|
|
| 26,619 |
|
|
| 30,117 |
|
|
| 26,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 4.12 |
|
| $ | 2.83 |
|
| $ | 10.98 |
|
| $ | 6.76 |
|
Diluted | $ | 3.91 |
|
| $ | 2.78 |
|
| $ | 10.52 |
|
| $ | 6.72 |
|
Antidilutive shares related to warrants issued in connection with our Convertible Notes and stock optionswarrants issued to a customer that were out of the money and excluded from the calculation of diluted EPS were 3.0 million for the three and nine months ended September 30, 20172021, and 2016. Anti-dilutive shares related to restricted share units and warrants that were excluded from the calculation of diluted EPS due to losses incurred were 2.215.6 million for the three and nine months ended September 30, 2017 and were 0.4 million for2020. Diluted shares reflect the three months ended September 30, 2016.
The calculations of basic and diluted EPS were as follows:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
Numerator: |
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2017 |
|
| September 30, 2016 |
| ||||
Income (loss) from continuing operations, net of taxes |
| $ | (24,195 | ) |
| $ | (7,501 | ) |
| $ | 14,884 |
|
| $ | 13,889 |
|
Less: Unrealized loss (gain) on financial instruments, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (26,109 | ) |
Diluted income (loss) from continuing operations, net of tax |
| $ | (24,195 | ) |
| $ | (7,501 | ) |
| $ | 14,884 |
|
| $ | (12,220 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS weighted average shares outstanding |
|
| 25,262 |
|
|
| 24,840 |
|
|
| 25,229 |
|
|
| 24,788 |
|
Effect of dilutive warrant |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 141 |
|
Effect of dilutive convertible notes |
|
| - |
|
|
| - |
|
|
| 36 |
|
|
| - |
|
Effect of dilutive stock options and restricted stock |
|
| - |
|
|
| - |
|
|
| 557 |
|
|
| 187 |
|
Diluted EPS weighted average shares outstanding |
|
| 25,262 |
|
|
| 24,840 |
|
|
| 25,822 |
|
|
| 25,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.96 | ) |
| $ | (0.30 | ) |
| $ | 0.59 |
|
| $ | 0.56 |
|
Diluted |
| $ | (0.96 | ) |
| $ | (0.30 | ) |
| $ | 0.58 |
|
| $ | (0.49 | ) |
Earnings (loss) per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.00 |
|
| $ | (0.02 | ) |
| $ | (0.03 | ) |
| $ | (0.03 | ) |
Diluted |
| $ | 0.00 |
|
| $ | (0.02 | ) |
| $ | (0.03 | ) |
| $ | (0.03 | ) |
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.96 | ) |
| $ | (0.32 | ) |
| $ | 0.56 |
|
| $ | 0.53 |
|
Diluted |
| $ | (0.96 | ) |
| $ | (0.32 | ) |
| $ | 0.54 |
|
| $ | (0.52 | ) |
potential dilution that could occur from restricted shares using the treasury stock method. The calculation of EPS does not include restricted share units and customer warrants in which performance or market conditions were not satisfied of 7.69.8 million for the three and nine months ended September 30, 20172021 and 7.510.4 million for the three and nine months ended September 30, 2016.2020.
15.14. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the components of Accumulated other comprehensive income (loss):
|
| Interest Rate |
|
| Foreign Currency |
|
|
|
|
|
| Interest Rate |
|
| Foreign Currency |
|
|
|
|
| ||||
|
| Derivatives |
|
| Translation |
|
| Total |
|
| Derivatives |
|
| Translation |
|
| Total |
| ||||||
Balance as of December 31, 2015 |
| $ | (6,072 | ) |
| $ | 9 |
|
| $ | (6,063 | ) | ||||||||||||
Balance as of December 31, 2019 |
| $ | (2,827 | ) |
| $ | 9 |
|
| $ | (2,818 | ) | ||||||||||||
Reclassification to interest expense |
|
| 1,334 |
|
|
| - |
|
|
| 1,334 |
|
|
| 894 |
|
|
| 0 |
|
|
| 894 |
|
Tax effect |
|
| (517 | ) |
|
| - |
|
|
| (517 | ) |
|
| (202 | ) |
|
| 0 |
|
|
| (202 | ) |
Balance as of September 30, 2016 |
| $ | (5,255 | ) |
| $ | 9 |
|
| $ | (5,246 | ) | ||||||||||||
Balance as of September 30, 2020 |
| $ | (2,135 | ) |
| $ | 9 |
|
| $ | (2,126 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016 |
| $ | (5,002 | ) |
| $ | 9 |
|
| $ | (4,993 | ) | ||||||||||||
Balance as of December 31, 2020 |
| $ | (1,913 | ) |
| $ | 9 |
|
| $ | (1,904 | ) | ||||||||||||
Reclassification to interest expense |
|
| 1,216 |
|
|
| - |
|
|
| 1,216 |
|
|
| 774 |
|
|
| 0 |
|
|
| 774 |
|
Tax effect |
|
| (472 | ) |
|
| - |
|
|
| (472 | ) |
|
| (184 | ) |
|
| 0 |
|
|
| (184 | ) |
Balance as of September 30, 2017 |
| $ | (4,258 | ) |
| $ | 9 |
|
| $ | (4,249 | ) | ||||||||||||
Balance as of September 30, 2021 |
| $ | (1,323 | ) |
| $ | 9 |
|
| $ | (1,314 | ) |
Interest Rate Derivatives19
As of September 30, 2017, there was $6.9 million of unamortized net realized loss before taxes remaining in Accumulated other comprehensive income (loss) related to terminated forward-starting interest rate swaps, which had been designated as cash flow hedges to effectively fix the interest rates on two 747-8F financings in 2011 and three 777-200LRF financings in 2014. The net loss is amortized and reclassified into Interest expense over the remaining life of the related debt. Net realized losses reclassified into earnings were $0.4 million for the three months ended September 30, 2017 and 2016, respectively. Net realized losses reclassified
into earnings were $1.2 million and $1.3 million for the nine months ended September 30, 2017 and 2016, respectively. Net realized losses expected to be reclassified into earnings within the next 12 months are $1.5 million as of September 30, 2017.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our Financial Statements appearing in this report and our audited consolidated financial statements and related notes included in our 20162020 Annual Report on Form 10-K.
Background
Certain Terms - Glossary
The following represents terms and statistics specific to our business and industry. They are used by management to evaluate and measure operations, results, productivity and efficiency.
Block Hour |
| The time interval between when an aircraft departs the terminal until it arrives at the destination terminal. |
|
|
|
C Check |
|
|
|
|
|
D Check |
|
|
|
|
|
Heavy Maintenance |
| Scheduled maintenance activities |
|
|
|
Line Maintenance |
| Maintenance events occurring during normal day-to-day operations. |
|
|
|
Non-heavy Maintenance |
| Discrete maintenance activities for the overhaul and repair of specific aircraft components, including landing gear, auxiliary power units and engine thrust reversers. |
|
|
|
Utilization | The average number of Block Hours operated per day per aircraft. | |
Yield |
| The average amount a customer pays to fly one tonne of cargo one mile. |
Business Overview
We are a leading global provider of outsourced aircraft and aviation operating services. We operate the world’s largest fleet of 747 freighters and provide customers a broad array of 747, 777, 767 757 and 737 aircraft for domestic, regional and international cargo and passenger applications.operations. 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 express delivery providers, e-commerce retailers, airlines, freight forwarders, the U.S. military and charter brokers. We provide global services with operations in Africa, Asia, Australia, Europe, the Middle East, North America and South America.
During the first quarter of 2021, we changed our operating and reportable segments, reflecting changes in our business (see Note 11 to our Financial Statements). Our primary service offerings include the following:are provided through two operating segments:
ACMI, whereby we provide
Airline Operations. Our Airline Operations segment provides outsourced cargo and passenger aircraft operating solutions, including the provision of an aircraft, crew, maintenance and insurance, while customers assume fuel, demand and price risk. In addition, customers are responsible for landing, navigation and most other operational fees and costs;
CMI, which is part of our ACMI business segment, whereby we provide outsourced cargo and passenger aircraft operating solutions, generally including the provision of crew, Line Maintenance and insurance, but not the aircraft. Customers assume fuel, demand and price risk, and are responsible for providing the aircraft (which they may lease from us) and for Heavy and Non-Heavy Maintenance, landing, navigation and most other operational fees and costs;
Charter, whereby we provide cargo and passenger aircraft charter services to customers including express delivery providers, e-commerce retailers, the AMC,U.S. military, charter brokers, freight forwarders, direct shippers, airlines, manufacturers, sports teams and fans, and private charter customers. The customer pays a fixedWe generally provide these services through aircraft operating service agreements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), crew, maintenance and insurance, but not the aircraft (“CMI”) and cargo and passenger charter fee that includes fuel, insurance, landing fees, navigation fees and most other operational fees and costs; andservices (“Charter”).
Dry Leasing whereby we provide. Our Dry Leasing business provides cargo and passenger aircraft and engine leasing solutions. The customer operates, and is responsible for insuring and maintaining, the flight equipment.
We look to achieve our growth plans and enhance shareholder value by:
Delivering superior service quality to our valued customers;
• | Delivering superior service quality to our valued customers; |
Focusing on securing attractive long-term customer contracts;
• | Focusing on securing long-term customer contracts; |
Aggressively managing our fleet with a focus on leading-edge aircraft;
• | Managing our fleet with a focus on leading-edge aircraft; |
Driving significant and ongoing productivity improvements;
• | Leveraging our flexible business model to maximize utilization; |
• | Driving significant and ongoing productivity improvements; |
20
Selectively pursuing and evaluating future acquisitions and alliances; while
• | Selectively pursuing and evaluating future acquisitions and alliances; while |
Appropriately managing capital allocation.
• | Appropriately managing capital allocation and delivering value to shareholders. |
See “Business Overview” and “Business Strategy” in our 20162020 Annual Report on Form 10-K for additional information.
Business Developments
In December 2019, COVID-19 was first reported in China and has since spread to many other regions of the world. In March 2020, it was determined to be a global pandemic by the World Health Organization. Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in a reduction in flights by some of our ACMI customers and lower AMC passenger flying as the military had taken precautionary measures to limit the movement of personnel through June 2021.
Our ACMIAirline Operations results for the first three quarters of 2017,2021, compared with 2016,2020, were impactedsignificantly higher primarily due to our ability to increase aircraft utilization as demand for our commercial cargo Charter and CMI services increased, reflecting growth in airfreight volumes from pre-pandemic levels driven by the following events:
In February 2016,ongoing reduction of available cargo capacity provided by passenger airlines in the market and the continued disruption of global supply chains due to the COVID-19 pandemic. Due to this strong demand in 2020, we reactivated four 747-400BCF aircraft that had been temporarily parked and began CMI flying for DHLCharter operations using a 767-300777-200 freighter aircraft that was previously in our Dry Leased from Titan, in DHL’s North American network,increasing the number of 767 freighter aircraft in CMI service for DHL to thirteen.
In April 2016, we acquired Southern Air, which currently operates five 777-200LRFLeasing business. During 2020 and five 737-400F aircraft under CMI agreements for DHL.
Between August 2016 and August 2017, we began CMI flying for Amazon the first seventhree quarters of 20 Boeing 767-300 freighter aircraft Dry Leased from Titan. In October 2017, we began flying three additional aircraft and we expect to be operating all 20 before the end of 2018.
During the first quarter of 2017, we began flying a 747-400 freighter for Nippon Cargo Airlines on transpacific routes. In September 2017, we began flying a second 747-400 freighter for them on transpacific routes.
During the first quarter of 2017, we began flying a 747-400 freighter for Asiana Cargo on transpacific routes.
During the second quarter of 2017, we began ACMI flying two 747-8F aircraft for Cathay Pacific Cargo to supplement capacity on its existing route network.
During the second quarter of 2017, we began ACMI flying a 747-400 freighter for Suparna Airlines, formerly known as Yangtze River Airlines, on transpacific routes.
During the third quarter of 2017,2021, we entered into an ACMI agreementnumerous long-term Charter programs and extensions with Hong Kong Air Cargocustomers seeking to operate three 747-400 freighter aircraft.secure committed cargo capacity. These long-term Charter programs provide us with guaranteed revenue and include indexed fuel price adjustments to mitigate our exposure to fuel price volatility.
Given the dynamic nature of this pandemic, the duration of business disruption, the extent of customer cancellations and the related financial impact cannot be reasonably estimated at this time. We began flying the first aircrafthave incurred and expect to continue to incur significant additional costs, including premium pay for pilots operating in certain areas significantly impacted by COVID-19; other operational costs, including costs for continuing to provide a safe working environment for our employees; and higher crew costs related to increased pay rates we provided to our pilots beginning in May 2020 in advance of a JCBA with our pilots beginning in September 2017 on transpacific routes. The other two aircraft are expected to be placed in service during 2018.
In September 2017, we began ACMI flying a 747-400 freighter for DHL Global Forwarding on routes between the United States, Europe, and Asia.
During the third quarter of 2017, both ACMI and Charter segment results were negatively impacted by Hurricanes Irma and Harvey and work slowdowns and service interruptions for which the Company is seeking a preliminary injunction (See2021 (see Note 1312 to our Financial Statements)Statements for further discussion). In addition, the availability of hotels and restaurants, evolving travel restrictions and vaccine mandates, health screenings, ground handling delays and a reduction in passenger flights by other airlines globally, or airport closures, have impacted and could further impact our ability to position employees to operate and fully utilize all of our aircraft.
Charter
In response to these challenging times, we have:
• | made COVID-19 vaccinations available to employees; |
• | provided paid time-off for employees to get COVID-19 vaccinations; |
• | implemented frequent deep cleaning of all aircraft and facilities; |
• | provided safety kits for each crewmember and all aircraft; |
• | adjusted routes to limit exposure to regions significantly impacted by the COVID-19 pandemic; |
• | implemented significant workforce testing, social distancing and protection measures at all of our facilities; |
• | arranged for employees who can work remotely to do so and developed plans for a partial return to the workplace based on local conditions; |
• | reduced nonessential employee travel; |
• | reduced the use of contractors; |
• | implemented a number of other cost reduction initiatives; |
• | entered into a PSP Agreement with the U.S. Treasury with respect to payroll support funding available to cargo air carriers; and |
• | deferred payment of the employer portion of social security taxes as provided for under the CARES Act through the end of 2020, half of which will be paid by the end of 2021 and the other half will be paid by the end of 2022. |
The continuation or worsening of the aforementioned and other factors could materially affect our results for the duration of the COVID-19 pandemic.
In August 2021, the Department of Defense activated the U.S. Civil Reserve Air Fleet (“CRAF”) for the first time since 2002 to augment support to the U.S. Department of State in the evacuation of U.S. citizens and personnel, special immigrant visa applicants, and other at-risk individuals from Afghanistan. We provided three 747-400 passenger aircraft to support the CRAF activation, which ended in mid-September, and also provided additional 767 passenger aircraft in support of these evacuations for the AMC.
On February 15, 2021, the Company and IBT completed the contractually mandated nine-month period for negotiations for a
21
JCBA. All remaining open issues not resolved in negotiations were subject to binding interest arbitration, which concluded in April 2021. On September 10, 2021, the arbitrator issued the decision for a new five-year JCBA effective September 1, 2021. Labor costs arising from the new JCBA are materially greater than the costs under our previous CBAs with our Atlas and Southern Air pilots (see Note 12 to our Financial Statements for further discussion).
We continually assess our aircraft requirements and will make adjustments to our capacity as necessary. Some of these actions may involve grounding or disposing of aircraft or engines, which could result in asset impairments or other charges in future periods.
Airline Operations results for the first three quarters of 20172021, compared with 2020, were also reflected increased commercial cargo demand, increased cargoimpacted by the following:
• | In March 2019, we entered into agreements with Amazon, which include CMI operation of 737-800 freighter aircraft. A sixth and seventh 737-800 freighter aircraft entered service in September 2020, and an eighth aircraft entered service in October 2020. |
• | In October 2020, a third 747-400 freighter entered service for Nippon Cargo Airlines on transpacific routes. |
• | In July 2021, we entered into an ACMI agreement with FedEx for two 747-400 freighter aircraft. The two aircraft entered service in July and August 2021. |
• | In September 2021, we entered into various ACMI and CMI contract extensions with DHL for six 747-8F aircraft, two 747-400 freighter aircraft, eight 777-200 freighter aircraft and four 767-300 freighter aircraft. |
We manage our fleet to profitably serve our customers with modern, efficient aircraft. In January 2021, we signed an agreement with Boeing for the purchase of four new 747-8F aircraft. The aircraft are expected to be delivered from May through October 2022. Between May and passenger demand from the AMC, higher commercial cargo Yields and the temporary redeploymentOctober 2021, we acquired six of 747-8F aircraft from the ACMI segment, partially offset by lower cargo and passenger rates from the AMC.
During the third quarter of 2017, we entered into two operating leases forour existing 747-400 freighter aircraft that were previously on lease to meet increased customer demandus. In May and June of 2021, we reached agreement with several of our lessors to purchase five of our other 747-400 freighters at the end of their existing lease terms, which range from March to December 2022. Acquiring these eleven 747-400 freighter aircraft keeps them in our ACMIfleet and Charter businesses. One aircraft entered service in late September and the other is expectedensures committed capacity to enter service during the fourth quarter of 2017.our customers.
In February 2016, we began Dry Leasing one 767-300 converted freighter aircraft to DHL on a long-term basis. As described above, between August 2016 and August 2017, we began Dry Leasing seven 767-300 converted freighter aircraft to Amazon on a long-term basis.22
The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.
Three Months Ended September 30, 20172021 and 20162020
Operating Statistics
The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the three months ended September 30:
Segment Operating Fleet |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
| ||||||
ACMI* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Airline Operations* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
747-8F Cargo |
|
| 9.5 |
|
|
| 7.9 |
|
|
| 1.6 |
|
|
| 10.0 |
|
|
| 10.0 |
|
|
| - |
|
747-400 Cargo |
|
| 15.1 |
|
|
| 12.9 |
|
|
| 2.2 |
|
|
| 34.6 |
|
|
| 32.9 |
|
|
| 1.7 |
|
747-400 Dreamlifter |
|
| 3.1 |
|
|
| 2.8 |
|
|
| 0.3 |
|
|
| 0.6 |
|
|
| 2.7 |
|
|
| (2.1 | ) |
747-400 Passenger |
|
| 5.1 |
|
|
| 5.0 |
|
|
| 0.1 |
| ||||||||||||
777-200 Cargo |
|
| 5.0 |
|
|
| 5.0 |
|
|
| - |
|
|
| 9.0 |
|
|
| 9.0 |
|
|
| - |
|
767-300 Cargo |
|
| 12.2 |
|
|
| 4.6 |
|
|
| 7.6 |
|
|
| 24.0 |
|
|
| 24.0 |
|
|
| - |
|
767-300 Passenger |
|
| 4.9 |
|
|
| 4.8 |
|
|
| 0.1 |
| ||||||||||||
767-200 Cargo |
|
| 9.0 |
|
|
| 9.0 |
|
|
| - |
|
|
| - |
|
|
| 9.0 |
|
|
| (9.0 | ) |
767-200 Passenger |
|
| - |
|
|
| 1.0 |
|
|
| (1.0 | ) | ||||||||||||
737-800 Cargo |
|
| 8.0 |
|
|
| 5.5 |
|
|
| 2.5 |
| ||||||||||||
737-400 Cargo |
|
| 5.0 |
|
|
| 5.0 |
|
|
| - |
|
|
| - |
|
|
| 0.8 |
|
|
| (0.8 | ) |
747-400 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
767-200 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
Total |
|
| 60.9 |
|
|
| 49.2 |
|
|
| 11.7 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Charter |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
747-8F Cargo |
|
| 0.5 |
|
|
| 2.1 |
|
|
| (1.6 | ) | ||||||||||||
747-400 Cargo |
|
| 9.0 |
|
|
| 9.8 |
|
|
| (0.8 | ) | ||||||||||||
747-400 Passenger |
|
| 1.9 |
|
|
| 2.0 |
|
|
| (0.1 | ) | ||||||||||||
767-300 Passenger |
|
| 4.8 |
|
|
| 4.0 |
|
|
| 0.8 |
| ||||||||||||
Total |
|
| 16.2 |
|
|
| 17.9 |
|
|
| (1.7 | ) |
|
| 96.2 |
|
|
| 104.7 |
|
|
| (8.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dry Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777-200 Cargo |
|
| 6.0 |
|
|
| 6.0 |
|
|
| - |
|
|
| 7.0 |
|
|
| 7.0 |
|
|
| - |
|
767-300 Cargo |
|
| 8.6 |
|
|
| 2.6 |
|
|
| 6.0 |
|
|
| 21.0 |
|
|
| 21.0 |
|
|
| - |
|
757-200 Cargo |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
737-300 Cargo |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
737-800 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
Total |
|
| 17.6 |
|
|
| 11.6 |
|
|
| 6.0 |
|
|
| 29.0 |
|
|
| 29.0 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Aircraft Dry Leased to CMI customers |
|
| (8.6 | ) |
|
| (2.6 | ) |
|
| (6.0 | ) |
|
| (21.0 | ) |
|
| (21.0 | ) |
|
| - |
|
Total Operating Average Aircraft Equivalents |
|
| 86.1 |
|
|
| 76.1 |
|
|
| 10.0 |
|
|
| 104.2 |
|
|
| 112.7 |
|
|
| (8.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Out-of-service** |
|
| - |
|
|
| 1.0 |
|
|
| (1.0 | ) |
| * |
|
Block Hours |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Total Block Hours** |
|
| 64,837 |
|
|
| 54,175 |
|
|
| 10,662 |
|
|
| 19.7 | % |
| ** | Out-of-service includes aircraft that are temporarily parked. |
Block Hours |
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Total Block Hours*** |
|
| 90,363 |
|
|
| 90,528 |
|
|
| (165 | ) |
|
| (0.2 | )% |
*** | Includes |
Operating Revenue
The following table compares our Operating Revenue for the three months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 258,109 |
|
| $ | 206,310 |
|
| $ | 51,799 |
|
|
| 25.1 | % | ||||||||||||||||
Charter |
|
| 243,583 |
|
|
| 212,040 |
|
|
| 31,543 |
|
|
| 14.9 | % | ||||||||||||||||
Airline Operations |
| $ | 980,714 |
|
| $ | 773,591 |
|
| $ | 207,123 |
|
|
| 26.8 | % | ||||||||||||||||
Dry Leasing |
|
| 30,804 |
|
|
| 25,907 |
|
|
| 4,897 |
|
|
| 18.9 | % |
|
| 40,926 |
|
|
| 40,740 |
|
|
| 186 |
|
|
| 0.5 | % |
Customer incentive asset amortization |
|
| (1,531 | ) |
|
| (174 | ) |
|
| (1,357 | ) |
| NM |
|
|
| (11,332 | ) |
|
| (9,858 | ) |
|
| 1,474 |
|
|
| 15.0 | % | |
Other |
|
| 4,783 |
|
|
| 3,932 |
|
|
| 851 |
|
|
| 21.6 | % |
|
| 5,792 |
|
|
| 5,413 |
|
|
| 379 |
|
|
| 7.0 | % |
Total Operating Revenue |
| $ | 535,748 |
|
| $ | 448,015 |
|
| $ | 87,733 |
|
|
| 19.6 | % |
| $ | 1,016,100 |
|
| $ | 809,886 |
|
|
|
|
|
|
|
|
|
NM represents year-over-year changes that are not meaningful.23
ACMIAirline Operations
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
ACMI Block Hours |
|
| 50,243 |
|
|
| 39,448 |
|
|
| 10,795 |
|
|
| 27.4 | % |
ACMI Revenue Per Block Hour |
| $ | 5,137 |
|
| $ | 5,230 |
|
| $ | (93 | ) |
|
| (1.8 | )% |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Block Hours |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
| 84,512 |
|
|
| 84,435 |
|
|
| 77 |
|
|
| 0.1 | % |
Passenger |
|
| 5,112 |
|
|
| 4,538 |
|
|
| 574 |
|
|
| 12.6 | % |
Total Airline Operations |
|
| 89,624 |
|
|
| 88,973 |
|
|
| 651 |
|
|
| 0.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Per Block Hour |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
| $ | 10,943 |
|
| $ | 8,695 |
|
| $ | 2,248 |
|
|
| 25.9 | % |
Cargo |
| $ | 10,383 |
|
| $ | 8,211 |
|
| $ | 2,172 |
|
|
| 26.5 | % |
Passenger |
| $ | 20,187 |
|
| $ | 17,687 |
|
| $ | 2,500 |
|
|
| 14.1 | % |
ACMIAirline Operations revenue increased $51.8$207.1 million, or 25.1%, primarily due to increased flying. The increase in Block Hours was primarily driven by the startup of 767 flying for Amazon, 747-8F flying for Cathay Pacific Cargo and 747-400 flying for Nippon Cargo Airlines, Asiana Cargo and Suparna Airlines, as well as higher aircraft utilization. Revenue per Block Hour decreased slightly primarily due to the impact of increased 767 and 747-400 CMI flying. In addition, ACMI revenue in the third quarter of 2017 was negatively impacted by the aforementioned labor-related operational disruptions.
Charter
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Charter Block Hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
| 8,680 |
|
|
| 9,797 |
|
|
| (1,117 | ) |
|
| (11.4 | )% |
Passenger |
|
| 5,447 |
|
|
| 4,474 |
|
|
| 973 |
|
|
| 21.7 | % |
Total |
|
| 14,127 |
|
|
| 14,271 |
|
|
| (144 | ) |
|
| (1.0 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Revenue Per Block Hour: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
| $ | 17,660 |
|
| $ | 13,926 |
|
| $ | 3,734 |
|
|
| 26.8 | % |
Passenger |
| $ | 16,577 |
|
| $ | 16,899 |
|
| $ | (322 | ) |
|
| (1.9 | )% |
Charter |
| $ | 17,242 |
|
| $ | 14,858 |
|
| $ | 2,384 |
|
|
| 16.0 | % |
Charter revenue increased $31.5 million, or 14.9%26.8%, primarily due to an increase in Revenue per Block Hour. The increase in Revenue per Block Hour rose primarily reflectsdue to an increased proportion of higher-yielding flying, including the impact of Charternew and extended long-term contracts, the ongoing reduction of available cargo capacity purchased from our ACMI customers that had no associated Charterprovided by passenger airlines in the market, the continued disruption of global supply chains due to the COVID-19 pandemic and higher fuel costs. Block Hours higher fuel prices and higher commercial cargo Yields. In addition, Charter revenue inflown were relatively unchanged as we reduced less profitable smaller gauge CMI service flying, while increasing utilization of our current fleet to meet strong customer demand. Block Hour volumes benefited from the thirdoperation of one 747-400 freighter we reactivated during the fourth quarter of 20172020, as well as increased AMC passenger Charter flying related to the CRAF activation in August 2021.
Dry Leasing
Dry Leasing revenue was negatively impacted by Hurricanes Irma and Harvey. relatively unchanged.
The following table compares our Operating Expenses for the three months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
| $ | 114,505 |
|
| $ | 125,978 |
|
| $ | (11,473 | ) |
|
| (9.1 | )% |
| $ | 231,437 |
|
| $ | 194,265 |
|
| $ | 37,172 |
|
|
| 19.1 | % |
Aircraft fuel |
|
| 74,048 |
|
|
| 65,409 |
|
|
| 8,639 |
|
|
| 13.2 | % |
|
| 216,638 |
|
|
| 118,113 |
|
|
| 98,525 |
|
|
| 83.4 | % |
Maintenance, materials and repairs |
|
| 74,457 |
|
|
| 49,761 |
|
|
| 24,696 |
|
|
| 49.6 | % |
|
| 102,819 |
|
|
| 116,634 |
|
|
| (13,815 | ) |
|
| (11.8 | )% |
Depreciation and amortization |
|
| 42,033 |
|
|
| 37,509 |
|
|
| 4,524 |
|
|
| 12.1 | % |
|
| 73,468 |
|
|
| 65,595 |
|
|
| 7,873 |
|
|
| 12.0 | % |
Navigation fees, landing fees and other rent |
|
| 46,622 |
|
|
| 42,870 |
|
|
| 3,752 |
|
|
| 8.8 | % | ||||||||||||||||
Passenger and ground handling services |
|
| 40,268 |
|
|
| 36,266 |
|
|
| 4,002 |
|
|
| 11.0 | % | ||||||||||||||||
Travel |
|
| 38,260 |
|
|
| 31,958 |
|
|
| 6,302 |
|
|
| 19.7 | % |
|
| 42,966 |
|
|
| 37,731 |
|
|
| 5,235 |
|
|
| 13.9 | % |
Aircraft rent |
|
| 33,873 |
|
|
| 35,730 |
|
|
| (1,857 | ) |
|
| (5.2 | )% |
|
| 15,485 |
|
|
| 24,239 |
|
|
| (8,754 | ) |
|
| (36.1 | )% |
Navigation fees, landing fees and other rent |
|
| 33,468 |
|
|
| 15,640 |
|
|
| 17,828 |
|
|
| 114.0 | % | ||||||||||||||||
Passenger and ground handling services |
|
| 28,491 |
|
|
| 21,673 |
|
|
| 6,818 |
|
|
| 31.5 | % | ||||||||||||||||
Loss (gain) on disposal of aircraft |
|
| 211 |
|
|
| (11 | ) |
|
| (200 | ) |
| NM |
| |||||||||||||||||
Gain on disposal of aircraft |
|
| (810 | ) |
|
| (163 | ) |
|
| 647 |
|
| NM |
| |||||||||||||||||
Special charge |
|
| - |
|
|
| 547 |
|
|
| (547 | ) |
| NM |
| |||||||||||||||||
Transaction-related expenses |
|
| 1,092 |
|
|
| 3,905 |
|
|
| (2,813 | ) |
|
| (72.0 | )% |
|
| 168 |
|
|
| 490 |
|
|
| (322 | ) |
|
| (65.7 | )% |
Other |
|
| 42,598 |
|
|
| 34,465 |
|
|
| 8,133 |
|
|
| 23.6 | % |
|
| 63,106 |
|
|
| 54,107 |
|
|
| 8,999 |
|
|
| 16.6 | % |
Total Operating Expenses |
| $ | 483,036 |
|
| $ | 422,017 |
|
|
|
|
|
|
|
|
|
| $ | 832,167 |
|
| $ | 690,694 |
|
|
|
|
|
|
|
|
|
NM represents year-over-year changes that are not meaningful.
Salaries, wages and benefits decreased $11.5 increased $37.2 million, or 9.1%19.1%, primarily driven by a 2016 change in control, as defined under certain benefit plans,due to higher pilot costs related to our new JCBA since the Amazon transactionbeginning of September 2021, including $15.2 million related to adjustments to paid time-off benefits in our new JCBA (see Note 612 to our Financial Statements), partially offset byand increased flying. In addition, crewmember costs were negatively impacted by the aforementioned labor-related operational disruptions.profit sharing.
Aircraft fuel increased $8.6$98.5 million, or 13.2%83.4%, primarily due to an increase in the average fuel cost per gallon.gallon and higher consumption related to increased Charter flying. Our exposure to fluctuations in fuel price is limited to the shorter-term commercial portion of our Charter services only, as fuel risk is largely mitigated by price adjustments, including those based on indexed fuel prices for longer-term commercial charter contracts. We do not incur fuel expense in ourproviding ACMI and CMI services or in our Dry Leasing businessesbusiness as the cost of fuel is borne by the customer. Similarly, we generally have no fuel price risk for AMC charters
24
because the price is set under our contract with the AMC, and we receive or make payments to adjust for price increases and decreases from the contractual rate. Average fuel cost per gallon and fuel consumption for the three months ended September 30 were:
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Average fuel cost per gallon |
| $ | 1.84 |
|
| $ | 1.61 |
|
| $ | 0.23 |
|
|
| 14.3 | % |
| $ | 2.06 |
|
| $ | 1.35 |
|
| $ | 0.71 |
|
|
| 52.6 | % |
Fuel gallons consumed (000s) |
|
| 40,275 |
|
|
| 40,718 |
|
|
| (443 | ) |
|
| (1.1 | )% |
|
| 105,258 |
|
|
| 87,460 |
|
|
| 17,798 |
|
|
| 20.3 | % |
Maintenance, materials and repairs increased by $24.7 decreased $13.8 million, or 49.6%11.8%, primarily reflecting $13.3$21.7 million of decreased Heavy Maintenance expense, partially offset by $5.2 million of increased Line Maintenance expense due to increased flying and additional repairs performed, and $10.1 million of Heavy Maintenance expense. The higher Line Maintenance primarily reflected increases of $5.8 million for 767 aircraft, $4.9 million for 747-400 aircraft and $2.7 million for 747-8F aircraft.Non-heavy Maintenance. Heavy Maintenance expense on 747-400 aircraft increased $4.0decreased $24.6 million primarily due to an increasea decrease in the number of engine overhauls and additional repairs performed. Heavy Maintenance expense on 747-8F aircraft increased $3.1 million primarily due toa decrease in the number of D Checks, partially offset by an increase in the number of C Checks. Heavy Maintenance expense on 767 aircraft increased $2.9$1.9 million primarily due to an increase in the number of C Checks. Non-heavy Maintenance expense increased on 747-400 and 747-8F aircraft primarily due to the timing of landing gear overhauls. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the three months ended September 30 were:
Heavy Maintenance Events |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
| ||||||
747-8F C Checks |
|
| 4 |
|
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
|
| - |
|
|
| 2 |
|
747-400 C Checks |
|
| 2 |
|
|
| 2 |
|
|
| - |
|
|
| 3 |
|
|
| 2 |
|
|
| 1 |
|
767 C Checks |
|
| 2 |
|
|
| - |
|
|
| 2 |
|
|
| 2 |
|
|
| - |
|
|
| 2 |
|
747-8F D Checks |
|
| - |
|
|
| 1 |
|
|
| (1 | ) | ||||||||||||
747-400 D Checks |
|
| 1 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 2 |
|
|
| (2 | ) |
CF6-80 engine overhauls |
|
| 1 |
|
|
| - |
|
|
| 1 |
|
|
| 1 |
|
|
| 5 |
|
|
| (4 | ) |
PW4000 engine overhauls |
|
| - |
|
|
| 1 |
|
|
| (1 | ) |
Depreciation and amortization increased $4.5$7.9 million, or 12.1%12.0%, primarily due to additional aircraft operating in 2017 and an increase in the amortization of deferred maintenance costsdeprecation related to 747-8F engine overhaulsthe acquisition of flight equipment and changes in 747-400 freighter aircraft leases (see Note 28 to our Financial Statements).
TravelNavigation fees, landing fees and other rent increased $6.3$3.8 million, or 19.7%8.8%, primarily due to increased passenger Charter flying.
Aircraft rent decreased $1.9Passenger and ground handling services increased $4.0 million, or 5.2%11.0%, primarily due to the amendmentincreased passenger Charter flying.
Travel increased $5.2 million, or 13.9%, primarily due to increased passenger Charter flying and extension of a lease for aincreased rates.
Aircraft rent decreased $8.8 million, or 36.1%, primarily due to changes in 747-400 freighter aircraft to a lower monthly lease rateleases (see Note 8 to our Financial Statements) and a reduction in the numberacquisition of spare engines leased.747-400 freighter aircraft that were previously on lease to us.
Navigation fees, landing fees and other rentOther increased $17.8$9.0 million, or 114.0%16.6%, primarily due to an increase in purchased capacity.
Passenger and ground handling services increased $6.8 million, or 31.5%, primarily due to increased Charter flying.
Transaction-related expenses in 2017 related to the Southern Air acquisition, which primarily included professional fees, which include costs associated with negotiations and integration costs. Transaction-related expenses in 2016 related to the Southern Air acquisition and our transaction with Amazon and primarily included: compensation costs, including employee termination benefits; professional fees; and integration costsarbitration for a new JCBA (see Notes 4 and 6Note 12 to our Financial Statements).
Other increased $8.1 million, or 23.6%, primarily dueas well as costs for continuing to provide a safe working environment for our employees and higher passenger taxes related to increased commission expense on higher revenue from the AMC, the impact of growth initiatives, and higher legal and professional fees related to our request for a preliminary injunction to stop the aforementioned labor-related operational disruptions.passenger flying.
Non-operating Expenses (Income)
The following table compares our Non-operating Expenses (Income) for the three months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Non-operating Expenses (Income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | (1,688 | ) |
| $ | (1,316 | ) |
| $ | 372 |
|
|
| 28.3 | % |
| $ | (159 | ) |
| $ | (225 | ) |
| $ | (66 | ) |
|
| (29.3 | )% |
Interest expense |
|
| 26,553 |
|
|
| 21,355 |
|
|
| 5,198 |
|
|
| 24.3 | % |
|
| 27,173 |
|
|
| 28,524 |
|
|
| (1,351 | ) |
|
| (4.7 | )% |
Capitalized interest |
|
| (1,922 | ) |
|
| (1,059 | ) |
|
| 863 |
|
|
| 81.5 | % |
|
| (2,335 | ) |
|
| (203 | ) |
|
| 2,132 |
|
| NM |
| |
Loss on early extinguishment of debt |
|
| 167 |
|
|
| - |
|
|
| (167 | ) |
| NM |
|
|
| - |
|
|
| 7 |
|
|
| (7 | ) |
| NM |
| ||
Unrealized loss (gain) on financial instruments |
|
| 44,775 |
|
|
| 1,462 |
|
|
| 43,313 |
|
| NM |
| |||||||||||||||||
Other income |
|
| (1,165 | ) |
|
| (180 | ) |
|
| 985 |
|
| NM |
| |||||||||||||||||
Unrealized loss on financial instruments |
|
| - |
|
|
| 43,604 |
|
|
| (43,604 | ) |
| NM |
| |||||||||||||||||
Other (income) expense, net |
|
| 3,136 |
|
|
| (62,689 | ) |
|
| (65,825 | ) |
|
| (105.0 | )% |
Interest expense increased $5.2decreased $1.4 million, or 24.3%4.7%, primarily due to the issuancescheduled repayment of the 2017 Convertible Notes and the financing of 767-300 aircraft purchases and conversions.debt.
Capitalized interestincreased $0.9$2.1 million or 81.5%, primarily due to an increase in the number of 767-300pre-delivery deposits related to our January 2021 agreement to purchase four 747-8F aircraft undergoing passenger-to-freighter conversion.from Boeing (see Note 2 to our Financial Statements).
Unrealized loss (gain) on financial instruments represents in 2020 represented the change in fair value of the Amazon Warranta customer warrant liability (see Note 65 to our Financial Statements) primarily due to changes in our common stock price. Due to the exercise of a warrant in early 2021, our
25
earnings are no longer affected by changes in the fair value of our customer warrant liability.
Other (income) expense, net decreased primarily due to $64.2 million in CARES Act grant income in 2020 (see Note 3 to our Financial Statements).
Income taxes. OurThe effective income tax expense rates were 72.7%23.4% and 230.8%32.8% for the three months ended September 30, 20172021 and 2016,2020, respectively. The effective income tax expense rate for the three months ended September 30, 20172021 differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes. The rate for the three months ended September 30, 2020 differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of the Amazon Warranta customer warrant liability (see Note 65 to our Financial Statements). The effective income tax expense rate for the three months ended September 30, 2016 differed from the U.S. federal statutory rate primarily due to nondeductible expenses resulting from a change in control, as defined under certain of the Company’s benefit plans, related to the Amazon transaction. The effective rates for both periods were impacted by our assertion to indefinitely reinvest the net earnings of foreign subsidiaries outside the U.S.
Segments
The following table compares the Direct Contribution for our reportable segments for the three months ended September 30 (see Note 1211 to our Financial Statements for the reconciliation to Operating income) (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 51,647 |
|
| $ | 51,607 |
|
| $ | 40 |
|
|
| 0.1 | % |
Charter |
|
| 34,808 |
|
|
| 32,948 |
|
|
| 1,860 |
|
|
| 5.6 | % |
Dry Leasing |
|
| 10,245 |
|
|
| 7,413 |
|
|
| 2,832 |
|
|
| 38.2 | % |
Total Direct Contribution |
| $ | 96,700 |
|
| $ | 91,968 |
|
| $ | 4,732 |
|
|
| 5.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income and expenses, net |
| $ | 64,463 |
|
| $ | 80,876 |
|
| $ | (16,413 | ) |
|
| (20.3 | )% |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Direct Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
| $ | 265,260 |
|
| $ | 179,441 |
|
| $ | 85,819 |
|
|
| 47.8 | % |
Dry Leasing |
|
| 10,435 |
|
|
| 9,627 |
|
|
| 808 |
|
|
| 8.4 | % |
Total Direct Contribution |
| $ | 275,695 |
|
| $ | 189,068 |
|
| $ | 86,627 |
|
|
| 45.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses and (income), net |
| $ | 120,219 |
|
| $ | 34,409 |
|
| $ | 85,810 |
|
|
| 249.4 | % |
ACMIAirline Operations Segment
ACMI Direct Contribution was relatively unchanged, as the impact of increased flying was largely offset by higher Heavy and Line Maintenance costs and amortization of deferred maintenance costs. In addition, ACMI Direct Contribution was negatively impacted by the aforementioned labor-related operational disruptions.
Charter Segment
CharterAirline Operations Direct Contribution increased $1.9$85.8 million, or 5.6%47.8%, primarily due to higher commercial cargoincreased Yields, partially offset by highernet of fuel, including the impact of new and extended long-term contracts, lower Heavy Maintenance costs and our ability to increase aircraft utilization as demand for our services increased. Direct Contribution also benefited from the redeploymentoperation of 747-8Fone 747-400BCF aircraft reactivated in the fourth quarter of 2020 and an increase in passenger flying related to the ACMI segment. In addition, Charter Direct Contribution was negatively impacted by Hurricanes Irma and Harvey and the aforementioned labor-related operational disruptions.CRAF activation in August 2021. Partially offsetting these improvements were higher pilot costs related to our new JCBA (see Note 12 to our Financial Statements).
Dry Leasing Segment
Dry Leasing Direct Contribution increased $2.8$0.8 million, or 38.2%8.4%, primarily relateddue to lower interest expense duerelated to the scheduled repayment of debt for Dry Leased 777-200LRF aircraft and the placement of 767-300 converted freighter aircraft.debt.
Unallocated incomeexpenses and expenses,(income), net
Unallocated incomeexpenses and expenses,(income), net decreased $16.4increased $85.8 million, or 20.3%249.4%, primarily due to $64.2 million in CARES Act grant income recognized in 2020 and a 2016 change in control, as defined under certain benefit plans,$15.2 million increase related to the Amazon transactionadjustments to paid time-off benefits in our new JCBA in 2021 (see Note 612 to our Financial Statements). Partially offsetting this item were higher costs in 2017 due to unallocated interest expense, growth initiatives, amortization of the Amazon customer incentive asset, and legal and professional fees related to our request for a preliminary injunction to stop the aforementioned labor-related operational disruptions.
Nine Months Ended September 30, 20172021 and 20162020
Operating Statistics
The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the nine months ended September 30:
Segment Operating Fleet |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
| ||||||
ACMI* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Airline Operations* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
747-8F Cargo |
|
| 8.1 |
|
|
| 8.2 |
|
|
| (0.1 | ) |
|
| 10.0 |
|
|
| 9.9 |
|
|
| 0.1 |
|
747-400 Cargo |
|
| 14.0 |
|
|
| 13.0 |
|
|
| 1.0 |
|
|
| 34.3 |
|
|
| 32.2 |
|
|
| 2.1 |
|
747-400 Dreamlifter |
|
| 3.1 |
|
|
| 2.9 |
|
|
| 0.2 |
|
|
| 1.0 |
|
|
| 2.7 |
|
|
| (1.7 | ) |
747-400 Passenger |
|
| 5.0 |
|
|
| 5.0 |
|
|
| - |
| ||||||||||||
777-200 Cargo |
|
| 5.0 |
|
|
| 3.2 |
|
|
| 1.8 |
|
|
| 9.0 |
|
|
| 8.5 |
|
|
| 0.5 |
|
767-300 Cargo |
|
| 8.7 |
|
|
| 4.0 |
|
|
| 4.7 |
|
|
| 24.0 |
|
|
| 24.0 |
|
|
| - |
|
767-300 Passenger |
|
| 4.9 |
|
|
| 4.8 |
|
|
| 0.1 |
| ||||||||||||
767-200 Cargo |
|
| 9.0 |
|
|
| 9.0 |
|
|
| - |
|
|
| 2.7 |
|
|
| 9.0 |
|
|
| (6.3 | ) |
767-200 Passenger |
|
| 0.2 |
|
|
| 1.0 |
|
|
| (0.8 | ) | ||||||||||||
737-800 Cargo |
|
| 8.0 |
|
|
| 5.2 |
|
|
| 2.8 |
| ||||||||||||
737-400 Cargo |
|
| 5.0 |
|
|
| 3.2 |
|
|
| 1.8 |
|
|
| - |
|
|
| 3.5 |
|
|
| (3.5 | ) |
747-400 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
767-200 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
Total |
|
| 54.9 |
|
|
| 45.5 |
|
|
| 9.4 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Charter |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
747-8F Cargo |
|
| 1.9 |
|
|
| 1.8 |
|
|
| 0.1 |
| ||||||||||||
747-400 Cargo |
|
| 9.9 |
|
|
| 9.7 |
|
|
| 0.2 |
| ||||||||||||
747-400 Passenger |
|
| 2.0 |
|
|
| 2.0 |
|
|
| - |
| ||||||||||||
767-300 Passenger |
|
| 4.8 |
|
|
| 3.4 |
|
|
| 1.4 |
| ||||||||||||
Total |
|
| 18.6 |
|
|
| 16.9 |
|
|
| 1.7 |
|
|
| 99.1 |
|
|
| 105.8 |
|
|
| (6.7 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dry Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777-200 Cargo |
|
| 6.0 |
|
|
| 6.0 |
|
|
| - |
|
|
| 7.0 |
|
|
| 7.0 |
|
|
| - |
|
767-300 Cargo |
|
| 6.0 |
|
|
| 2.0 |
|
|
| 4.0 |
|
|
| 21.0 |
|
|
| 21.0 |
|
|
| - |
|
757-200 Cargo |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| - |
|
|
| 0.2 |
|
|
| (0.2 | ) |
737-300 Cargo |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
737-800 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| - |
|
|
| 0.2 |
|
|
| (0.2 | ) |
Total |
|
| 15.0 |
|
|
| 11.0 |
|
|
| 4.0 |
|
|
| 29.0 |
|
|
| 29.4 |
|
|
| (0.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Aircraft Dry Leased to CMI customers |
|
| (6.0 | ) |
|
| (2.0 | ) |
|
| (4.0 | ) |
|
| (21.0 | ) |
|
| (21.0 | ) |
|
| - |
|
Total Operating Average Aircraft Equivalents |
|
| 82.5 |
|
|
| 71.4 |
|
|
| 11.1 |
|
|
| 107.1 |
|
|
| 114.2 |
|
|
| (7.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Out-of-service** |
|
| - |
|
|
| 2.7 |
|
|
| (2.7 | ) |
| * |
|
Block Hours |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Total Block Hours** |
|
| 181,241 |
|
|
| 149,639 |
|
|
| 31,602 |
|
|
| 21.1 | % |
** | Out-of-service includes aircraft that are either temporarily parked. |
Block Hours |
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Total Block Hours*** |
|
| 272,076 |
|
|
| 248,742 |
|
|
| 23,334 |
|
|
| 9.4 | % |
| *** | Includes |
Operating Revenue
The following table compares our Operating Revenue for the nine months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
|
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
ACMI |
| $ | 687,982 |
|
| $ | 600,772 |
|
| $ | 87,210 |
|
|
| 14.5 | % | ||||||||||||||||||
Charter |
|
| 743,302 |
|
|
| 616,794 |
|
|
| 126,508 |
|
|
| 20.5 | % | ||||||||||||||||||
Airline Operations |
| $ | 2,762,815 |
|
|
|
| $ | 2,169,462 |
|
| $ | 593,353 |
|
|
| 27.4 | % | ||||||||||||||||
Dry Leasing |
|
| 86,120 |
|
|
| 79,165 |
|
|
| 6,955 |
|
|
| 8.8 | % |
|
| 121,694 |
|
|
|
|
| 123,572 |
|
|
| (1,878 | ) |
|
| (1.5 | )% |
Customer incentive asset amortization |
|
| (2,873 | ) |
|
| (174 | ) |
|
| (2,699 | ) |
| NM |
|
|
| (33,256 | ) |
|
|
|
| (28,414 | ) |
|
| 4,842 |
|
|
| 17.0 | % | |
Other |
|
| 13,977 |
|
|
| 13,345 |
|
|
| 632 |
|
|
| 4.7 | % |
|
| 16,579 |
|
|
|
|
| 14,021 |
|
|
| 2,558 |
|
|
| 18.2 | % |
Total Operating Revenue |
| $ | 1,528,508 |
|
| $ | 1,309,902 |
|
| $ | 218,606 |
|
|
| 16.7 | % |
| $ | 2,867,832 |
|
|
|
| $ | 2,278,641 |
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
ACMI Block Hours |
|
| 133,978 |
|
|
| 108,839 |
|
|
| 25,139 |
|
|
| 23.1 | % |
ACMI Revenue Per Block Hour |
| $ | 5,135 |
|
| $ | 5,520 |
|
| $ | (385 | ) |
|
| (7.0 | )% |
ACMIAirline Operations
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Block Hours |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
| 255,296 |
|
|
| 232,681 |
|
|
| 22,615 |
|
|
| 9.7 | % |
Passenger |
|
| 13,474 |
|
|
| 12,452 |
|
|
| 1,022 |
|
|
| 8.2 | % |
Total Airline Operations |
|
| 268,770 |
|
|
| 245,133 |
|
|
| 23,637 |
|
|
| 9.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Per Block Hour |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
| $ | 10,279 |
|
| $ | 8,850 |
|
| $ | 1,429 |
|
|
| 16.1 | % |
Cargo |
| $ | 9,809 |
|
| $ | 8,355 |
|
| $ | 1,454 |
|
|
| 17.4 | % |
Passenger |
| $ | 19,187 |
|
| $ | 18,107 |
|
| $ | 1,080 |
|
|
| 6.0 | % |
Airline Operations revenue increased $87.2$593.4 million, or 14.5%27.4%, primarily due to an increase in Revenue per Block Hour and increased flying. Revenue per Block Hour rose primarily due to an increased proportion of higher-yielding flying, including the impact of new and extended long-term contracts, the impact of the ongoing reduction of available cargo capacity provided by passenger airlines in the market, the continued disruption of global supply chains due to the COVID-19 pandemic and higher fuel costs. Partially offsetting these increases were lower commercial cargo Yields, net of fuel, compared with the higher commercial cargo market Yields during the early months of the COVID-19 pandemic, specifically April and May of 2020. The increase in Block Hours reflects the impact from the Southern Air acquisition, the startup of 767 flying for Amazon, 747-400 flying for Nippon Cargo Airlines, Asiana Cargo and Suparna Airlines, and 747-8F flying for Cathy Pacific Cargo, as well as higher aircraft utilization. Partially offsetting these itemsflown was the temporary redeployment of 747-8F aircraft to the Charter segment during the first quarter of 2017. Revenue per Block Hour decreased primarily due to our ability to increase aircraft utilization as demand for our commercial cargo services increased, reflecting growth in airfreight volumes from pre-pandemic levels driven by the impactfactors impacting commercial cargo Charter noted above. Due to this strong demand, we reactivated four 747-400BCF aircraft throughout 2020 that had been temporarily parked and began using a 777-200 freighter aircraft that was previously in our Dry Leasing business. In addition, Block Hours increased as passenger Charter reflected an increase in demand related to the CRAF activation in August 2021 and an increase in flying by the AMC as the military had taken precautionary measures to limit the movement of 777-200 and 737-400 CMI flying frompersonnel since the Southern Air acquisition, increased 767 and 747-400 CMI flying andearly days of the temporary redeployment of 747-8F aircraft to Charter during the first quarter of 2017.COVID-19 pandemic in 2020 through June 2021.
Charter
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Charter Block Hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
| 30,908 |
|
|
| 26,698 |
|
|
| 4,210 |
|
|
| 15.8 | % |
Passenger |
|
| 14,903 |
|
|
| 12,753 |
|
|
| 2,150 |
|
|
| 16.9 | % |
Total |
|
| 45,811 |
|
|
| 39,451 |
|
|
| 6,360 |
|
|
| 16.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Revenue Per Block Hour: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
| $ | 16,258 |
|
| $ | 14,878 |
|
| $ | 1,380 |
|
|
| 9.3 | % |
Passenger |
| $ | 16,159 |
|
| $ | 17,218 |
|
| $ | (1,060 | ) |
|
| (6.2 | )% |
Charter |
| $ | 16,225 |
|
| $ | 15,634 |
|
| $ | 591 |
|
|
| 3.8 | % |
CharterDry Leasing
Dry Leasing revenue increased $126.5 million, or 20.5%, primarily due to increased flying. The increase in Charter Block Hours was primarily driven by increased commercial cargo demand, increased cargo and passenger demand from the AMC and the temporary redeployment of 747-8F aircraft from the ACMI segment during the first quarter of 2017. Revenue per Block Hour increased primarily due to higher Yields for commercial cargo, higher fuel prices and the impact of Charter capacity purchased from our ACMI customers that had no associated Charter Block Hours, partially offset by lower cargo and passenger rates from the AMC. relatively unchanged.
Operating Expenses
The following table compares our Operating Expenses for the nine months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
| $ | 330,080 |
|
| $ | 321,365 |
|
| $ | 8,715 |
|
|
| 2.7 | % |
| $ | 642,417 |
|
| $ | 534,600 |
|
| $ | 107,817 |
|
|
| 20.2 | % |
Aircraft fuel |
|
| 239,966 |
|
|
| 189,982 |
|
|
| 49,984 |
|
|
| 26.3 | % |
|
| 594,458 |
|
|
| 309,673 |
|
|
| 284,785 |
|
|
| 92.0 | % |
Maintenance, materials and repairs |
|
| 212,042 |
|
|
| 162,220 |
|
|
| 49,822 |
|
|
| 30.7 | % |
|
| 356,499 |
|
|
| 379,086 |
|
|
| (22,587 | ) |
|
| (6.0 | )% |
Depreciation and amortization |
|
| 120,913 |
|
|
| 109,722 |
|
|
| 11,191 |
|
|
| 10.2 | % |
|
| 207,918 |
|
|
| 189,005 |
|
|
| 18,913 |
|
|
| 10.0 | % |
Navigation fees, landing fees and other rent |
|
| 138,918 |
|
|
| 109,909 |
|
|
| 29,009 |
|
|
| 26.4 | % | ||||||||||||||||
Passenger and ground handling services |
|
| 121,837 |
|
|
| 98,355 |
|
|
| 23,482 |
|
|
| 23.9 | % | ||||||||||||||||
Travel |
|
| 105,510 |
|
|
| 94,291 |
|
|
| 11,219 |
|
|
| 11.9 | % |
|
| 120,585 |
|
|
| 114,749 |
|
|
| 5,836 |
|
|
| 5.1 | % |
Aircraft rent |
|
| 103,738 |
|
|
| 109,490 |
|
|
| (5,752 | ) |
|
| (5.3 | )% |
|
| 53,928 |
|
|
| 72,522 |
|
|
| (18,594 | ) |
|
| (25.6 | )% |
Navigation fees, landing fees and other rent |
|
| 77,258 |
|
|
| 56,391 |
|
|
| 20,867 |
|
|
| 37.0 | % | ||||||||||||||||
Passenger and ground handling services |
|
| 77,187 |
|
|
| 64,571 |
|
|
| 12,616 |
|
|
| 19.5 | % | ||||||||||||||||
Loss (gain) on disposal of aircraft |
|
| 64 |
|
|
| (11 | ) |
|
| (53 | ) |
| NM |
| |||||||||||||||||
Gain on disposal of aircraft |
|
| (794 | ) |
|
| (6,878 | ) |
|
| (6,084 | ) |
| NM |
| |||||||||||||||||
Special charge |
|
| - |
|
|
| 6,631 |
|
|
| (6,631 | ) |
| NM |
|
|
| - |
|
|
| 16,481 |
|
|
| (16,481 | ) |
| NM |
| ||
Transaction-related expenses |
|
| 3,403 |
|
|
| 21,486 |
|
|
| (18,083 | ) |
|
| (84.2 | )% |
|
| 486 |
|
|
| 2,286 |
|
|
| (1,800 | ) |
|
| (78.7 | )% |
Other |
|
| 123,121 |
|
|
| 106,885 |
|
|
| 16,236 |
|
|
| 15.2 | % |
|
| 183,366 |
|
|
| 157,929 |
|
|
| 25,437 |
|
|
| 16.1 | % |
Total Operating Expenses |
| $ | 1,393,282 |
|
| $ | 1,243,023 |
|
|
|
|
|
|
|
|
|
| $ | 2,419,618 |
|
| $ | 1,977,717 |
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits increased $8.7$107.8 million, or 2.7%20.2%, primarily driven by the impact of the Southern Air acquisition, growth initiatives and increased flying. Partially offsetting these items were a 2016 change in control, as defined under certain benefit plans,due to higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19, increased pay rates we provided to our pilots beginning in May 2020 and higher pilot costs related to our new JCBA since the Amazon transactionbeginning of September 2021, including $15.2 million related to adjustments to paid time-off benefits in our new JCBA (see Note 612 to our Financial Statements) and lower costs related to crew training.. In addition, crewmemberpilot costs were negatively impacted by the aforementioned labor-related operational disruptions.reflected increased flying and increased profit sharing.
28
Aircraft fuel increased $50.0$284.8 million, or 26.3%92.0%, primarily due to increased fuel consumption reflecting thean increase in consumption related to increased Charter Block Hours operatedflying and an increase in the average fuel cost per gallon. Our exposure to fluctuations in fuel price is limited to the shorter-term commercial portion of our Charter services only, as fuel risk is largely mitigated by price adjustments, including those based on indexed fuel prices for longer-term commercial charter contracts. We do not incur fuel expense in ourproviding ACMI and CMI services or in our Dry Leasing businessesbusiness as the cost of fuel is borne by the customer. Similarly, we generally have no fuel price risk for AMC charters because the price is set under our contract with the AMC, and we receive or make payments to adjust for price increases and decreases from the contractual rate. Average fuel cost per gallon and fuel consumption for the nine months ended September 30 were:
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Average fuel cost per gallon |
| $ | 1.85 |
|
| $ | 1.69 |
|
| $ | 0.16 |
|
|
| 9.5 | % |
| $ | 1.90 |
|
| $ | 1.42 |
|
| $ | 0.48 |
|
|
| 33.8 | % |
Fuel gallons consumed (000s) |
|
| 129,420 |
|
|
| 112,248 |
|
|
| 17,172 |
|
|
| 15.3 | % |
|
| 312,662 |
|
|
| 217,507 |
|
|
| 95,155 |
|
|
| 43.7 | % |
Maintenance, materials and repairs increased decreased by $49.8$22.6 million, or 30.7%6.0%, primarily reflecting $31.0$54.6 million of higher Line Maintenance expense due to increased flying and additional repairs performed, the Southern Air acquisition, and $21.1 million ofdecreased Heavy Maintenance expense, partially offset by a $3.0$22.1 million decrease inof increased Line Maintenance expense and $9.9 million of increased Non-heavy Maintenance expense on 747-400 aircraft. The higher Line Maintenance primarily reflected increases of $11.9 million for 767 aircraft, $9.9 million for 747-400 aircraft and $6.1 million for 747-8F aircraft.expense. Heavy Maintenance expense on 747-400 aircraft increased $19.1decreased $59.2 million primarily due to an increase in the number of D Checks, engine overhauls and additional repairs performed, partially offset by a decrease in the number of engine overhauls and a decrease in the number of D and C Checks.Checks, partially offset by an increase in Heavy Maintenance expense on 767747-8F aircraft increasedof $4.2 million primarily due to an increase in the number of C Checks. HeavyLine Maintenance expense increased primarily due to increased flying. Non-heavy Maintenance expense on 747-8F aircraft decreased $3.4increased $7.8 million primarily due to a decrease in unscheduled engine repairs, partially offset by an increase in the numbertiming of C Checks. Non-heavy Maintenance on 747-400 aircraft decreased $3.0 million as a result of fewer events.landing gear overhauls. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the nine months ended September 30 were:
Heavy Maintenance Events |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
| ||||||
747-8F C Checks |
|
| 6 |
|
|
| 4 |
|
|
| 2 |
|
|
| 4 |
|
|
| - |
|
|
| 4 |
|
747-400 C Checks |
|
| 8 |
|
|
| 9 |
|
|
| (1 | ) |
|
| 11 |
|
|
| 13 |
|
|
| (2 | ) |
767 C Checks |
|
| 4 |
|
|
| 1 |
|
|
| 3 |
|
|
| 5 |
|
|
| 6 |
|
|
| (1 | ) |
747-8F D Checks |
|
| 2 |
|
|
| 4 |
|
|
| (2 | ) | ||||||||||||
747-400 D Checks |
|
| 6 |
|
|
| 4 |
|
|
| 2 |
|
|
| 4 |
|
|
| 6 |
|
|
| (2 | ) |
CF6-80 engine overhauls |
|
| 5 |
|
|
| 3 |
|
|
| 2 |
|
|
| 5 |
|
|
| 18 |
|
|
| (13 | ) |
PW4000 engine overhauls |
|
| 2 |
|
|
| 2 |
|
|
| - |
|
Depreciation and amortization increased $11.2$18.9 million, or 10.2%10.0%, primarily due to additional aircraft operating in 2017 andthe acquisition of flight equipment, an increase in the amortization of deferred maintenance costs related to 747-8F engine overhauls (see Note 2 to our Financial Statements) and changes in 747-400 freighter aircraft leases (see Note 8 to our Financial Statements).
TravelNavigation fees, landing fees and other rent increased $11.2$29.0 million, or 11.9%26.4%, primarily due to the impact of the Southern Air acquisitionincreased Charter flying.
Passenger and ground handling servicesincreased flying, partially offset by lower rates for crewmember travel.
Aircraft rent decreased $5.8$23.5 million, or 5.3%23.9%, primarily due to the amendment and extension of a lease for aincreased Charter flying.
Travel increased $5.8 million, or 5.1%, primarily due to increased flying.
Aircraft rent decreased $18.6 million, or 25.6%, primarily due to changes in 747-400 freighter aircraft to a lower monthly lease rateleases (see Note 8 to our Financial Statements) and a reduction the acquisition of 747-400 freighter aircraft that were previously on lease to us.
Gain on disposal of aircraft in 2021 and 2020 represented net gains from the numbersale of spare engines leased.
Navigation fees, landing fees and other rent increased $20.9 million, or 37.0%, primarily due to an increase in purchased capacity and increased flying.
Passenger and ground handling services increased $12.6 million, or 19.5%, primarily due to increased Charter flying.
Special charge in 2016 primarily represented a $6.5 million loss on engines held for salecertain nonessential assets (see Note 5 to our Financial Statements). We may sell additional flight equipment, which could result
Special charge in additional charges in future periods. 2020 represented a $16.5 million impairment charge related to fair value adjustments for assets held for sale, including spare engines and 737-400 passenger aircraft for training purposes.
Transaction-related expenses in 20172020 primarily related to the Southern Air acquisition, which primarily included professional fees and integration costs. Transaction-related expenses in 2016 related tosupport of the Southern Air acquisition and our transaction with Amazon and primarily included: compensation costs, including employee termination benefits; professional fees; and integration costsPayroll Support Program under the CARES Act (see Notes 4 and 6Note 3 to our Financial Statements).
Other increased $16.2$25.4 million, or 15.2%16.1%, primarily due to increased commission expense on higher revenue from the AMC, the impact of the Southern Air acquisition and other growth initiatives, and higher legal andan increase in professional fees, related to our requestwhich included costs associated with negotiations and arbitration for a preliminary injunction to stop the aforementioned labor-related operational disruptions. Partially offsetting these items was an accrual for legal matters in 2016new JCBA (see Note 1312 to our Financial Statements)., as well as costs for continuing to provide a safe working environment for our employees and costs associated with the movement of spare engines.
Non-operating (Income) Expenses (Income)
The following table compares our Non-operating (Income) Expenses (Income) for the nine months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Non-operating Expenses (Income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Non-operating (Income) Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest income |
| $ | (4,286 | ) |
| $ | (4,325 | ) |
| $ | (39 | ) |
|
| (0.9 | )% |
| $ | (559 | ) |
| $ | (929 | ) |
| $ | (370 | ) |
|
| (39.8 | )% |
Interest expense |
|
| 72,747 |
|
|
| 63,595 |
|
|
| 9,152 |
|
|
| 14.4 | % |
|
| 81,345 |
|
|
| 86,749 |
|
|
| (5,404 | ) |
|
| (6.2 | )% |
Capitalized interest |
|
| (5,633 | ) |
|
| (2,106 | ) |
|
| 3,527 |
|
|
| 167.5 | % |
|
| (5,456 | ) |
|
| (528 | ) |
|
| 4,928 |
|
| NM |
| |
Loss on early extinguishment of debt |
|
| 167 |
|
|
| 132 |
|
|
| 35 |
|
| NM |
|
|
| - |
|
|
| 81 |
|
|
| (81 | ) |
| NM |
| ||
Unrealized loss (gain) on financial instruments |
|
| 36,225 |
|
|
| (25,013 | ) |
|
| (61,238 | ) |
|
| (244.8 | )% | ||||||||||||||||
Other income |
|
| (357 | ) |
|
| (372 | ) |
|
| (15 | ) |
|
| (4.0 | )% | ||||||||||||||||
Unrealized loss on financial instruments |
|
| 113 |
|
|
| 73,351 |
|
|
| (73,238 | ) |
|
| (99.8 | )% | ||||||||||||||||
Other (income) expense, net |
|
| (41,174 | ) |
|
| (112,081 | ) |
|
| (70,907 | ) |
|
| (63.3 | )% |
Interest expense increased $9.2decreased $5.4 million, or 14.4%6.2%, primarily due to the issuancescheduled repayment of the 2017 Convertible Notesdebt and the financingrepayment of 767-300 aircraft purchases and conversions.
our revolving credit facility during the third quarter of 2020.
Capitalized interestincreased $3.5$4.9 million primarily due to an increase in the number of 767-300pre-delivery deposits related to our January 2021 agreement to purchase four 747-8F aircraft undergoing passenger-to-freighter conversion.from Boeing (see Note 2 to our Financial Statements).
Unrealized loss (gain) on financial instruments represents the change in fair value of the Amazon Warranta customer warrant liability (see Note 65 to our Financial Statements) primarily due to changes in our common stock price.price until the exercise of certain warrants in October 2020 and January 2021.
Other (income) expense, net decreased $70.9 million, or 63.3%, primarily due to a $43.4 million decrease in CARES Act grant income (see Note 3 to our Financial Statements) and a $28.3 million reduction in refunds of aircraft rent paid in previous years (see Note 7 to our Financial Statements).
Income taxes. OurThe effective income tax expense rates were 59.1%23.5% and 60.3%30.7% for the nine months ended September 30, 20172021 and 2016,2020, respectively. The effective income tax expense rate for the nine months ended September 30, 20172021 differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes. The rate for the nine months ended September 30, 2020 differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of the Amazon Warranta customer warrant liability (see Note 65 to our Financial Statements) and by the impact of the 2017 adoption of the amended accounting guidance for share-based compensation which requires that excess tax benefits associated with share-based compensation be recognized within income tax expense in our consolidated statement of operations. The effective income tax expense rate for the nine months ended September 30, 2016 differed from the U.S. federal statutory rate primarily due to nondeductible expenses resulting from a change in control, as defined under certain of the Company’s benefit plans, related to the Amazon transaction. The effective rates for both periods were impacted by our assertion to indefinitely reinvest the net earnings of foreign subsidiaries outside the U.S..
Segments
The following table compares the Direct Contribution for our reportable segments for the nine months ended September 30 (see Note 1211 to our Financial Statements for the reconciliation to Operating income) (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 141,134 |
|
| $ | 121,837 |
|
| $ | 19,297 |
|
|
| 15.8 | % |
Charter |
|
| 88,877 |
|
|
| 78,580 |
|
|
| 10,297 |
|
|
| 13.1 | % |
Dry Leasing |
|
| 29,629 |
|
|
| 24,699 |
|
|
| 4,930 |
|
|
| 20.0 | % |
Total Direct Contribution |
| $ | 259,640 |
|
| $ | 225,116 |
|
| $ | 34,524 |
|
|
| 15.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income and expenses, net |
| $ | 183,418 |
|
| $ | 186,923 |
|
| $ | (3,505 | ) |
|
| (1.9 | )% |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Direct Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
| $ | 666,203 |
|
| $ | 482,995 |
|
| $ | 183,208 |
|
|
| 37.9 | % |
Dry Leasing |
|
| 31,765 |
|
|
| 30,046 |
|
|
| 1,719 |
|
|
| 5.7 | % |
Total Direct Contribution |
| $ | 697,968 |
|
| $ | 513,041 |
|
| $ | 184,927 |
|
|
| 36.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses and (income), net |
| $ | 284,218 |
|
| $ | 173,439 |
|
| $ | 110,779 |
|
|
| 63.9 | % |
ACMIAirline Operations Segment
ACMIAirline Operations Direct Contribution increased $19.3$183.2 million, or 15.8%37.9%, primarily due to our ability to increase aircraft utilization as demand for our services increased, reflecting growth in airfreight volumes from pre-pandemic levels, as well as lower Heavy Maintenance expense. Direct Contribution also benefited from the Southern Air acquisition, increased flyingoperation and higher utilization of 747-400 freighters reactivated throughout 2020 and a 777-200 freighter aircraft that was previously in our Dry Leasing business. Partially offsetting these improvements were lower commercial cargo Yields, net of fuel, compared with the higher commercial cargo market Yields during the early months of the COVID-19 pandemic, higher pilot costs related to crew training. Partially offsetting these items werepremium pay for pilots operating in certain areas significantly impacted by COVID-19, increased pay rates we provided to our pilots beginning in May 2020 and higher Heavy and Line Maintenance costs, the amortization of deferred maintenance costs and the temporary redeployment of 747-8F aircraft to the Charter segment during the first quarter of 2017.
Charter Direct Contribution increased $10.3 million, or 13.1%, primarily due to increased commercial cargo demand, increased cargo and passenger demand from the AMC, lowerpilot costs related to crew training and higher commercial cargo Yields. Partially offsetting these items were higher Heavy Maintenance costs and lower cargo and passenger rates from the AMC.our new JCBA (see Note 12 to our Financial Statements).
Dry Leasing Segment
Dry Leasing Direct Contribution increased $4.9$1.7 million, or 20.0%5.7%, primarily due to lower interest expense duerelated to the scheduled repayment of debt related to Dry Leased 777-200LRF aircraftdebt.
30
Unallocated expenses and the placement of 767-300 converted freighter aircraft. Partially offsetting these items were maintenance payments received related to the scheduled return of an aircraft during the first three quarters of 2016. There were no aircraft returned during the first three quarters of 2017.(income), net
Unallocated incomeexpenses and expenses,(income), net
Unallocated income and expenses, net decreased $3.5 increased $110.8 million, or 1.9%63.9%, primarily due to a 2016 change$43.4 million decrease in control, as defined under certain benefit plans, related to the Amazon transactionCARES Act grant income (see Note 63 to our Financial Statements), a $28.3 million reduction in refunds of aircraft rent paid in previous years and a 2016 accrual for legal matters. Partially offsetting these items were higher costs in 2017 due to the Southern Air acquisition, unallocated interest expense, growth initiatives, amortization of the Amazon customer incentive asset, and legal and professional fees$15.2 million increase related to adjustments to paid time-off benefits in our request for a preliminary injunctionnew JCBA (see Note 12 to stop the aforementioned labor-related operational disruptions.our Financial Statements).
Reconciliation of GAAP to non-GAAP Financial Measures
To supplement our Financial Statements presented in accordance with GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP financial measures include Adjusted Net Income, from continuing operations, net of taxes and Adjusted Diluted EPS from continuing operations, net ofand Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for Net Income and Diluted EPS from continuing operations, net of taxes and Diluted EPS from continuing operations, which are the most directly comparable measures of performance prepared in accordance with GAAP.
We use these non-GAAP financial measures in assessing the performance of our ongoing operations and in planning and forecasting future periods. These adjusted measures provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance. In addition, management’s incentive compensation will beis determined, in part, by using Adjusted Net Income from continuing operations, net of taxes.and Adjusted EBITDA. We believe that these adjusted measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our business results and assessing our prospects for future performance.
The following is a reconciliation of Net Income from continuing operations, net of taxes and Diluted EPS from continuing operations, net of taxes to the corresponding non-GAAP financial measures (see Note 13 to our Financial Statements for the calculation of Diluted EPS) (in thousands, except per share data):
|
|
| For the Three Months Ended |
| ||||||||||
|
|
| September 30, 2017 |
|
|
| September 30, 2016 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes |
|
| $ | (24,195 | ) |
|
| $ | (7,501 | ) |
|
| 222.6 | % |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal of aircraft |
|
|
| 211 |
|
|
|
| (11 | ) |
|
|
|
|
Costs associated with transactions (a) |
|
|
| 1,355 |
|
|
|
| 30,074 |
|
|
|
|
|
Accrual for legal matters and professional fees |
|
|
| 1,264 |
|
|
|
| (210 | ) |
|
|
|
|
Noncash expenses and income, net (b) |
|
|
| 5,474 |
|
|
|
| 2,081 |
|
|
|
|
|
Charges associated with refinancing debt |
|
|
| 167 |
|
|
|
| - |
|
|
|
|
|
Unrealized loss (gain) on financial instruments |
|
|
| 44,775 |
|
|
|
| 1,462 |
|
|
|
|
|
Income tax effect of reconciling items (c) |
|
|
| 643 |
|
|
|
| 1,531 |
|
|
|
|
|
Adjusted income from continuing operations, net of taxes |
|
| $ | 29,694 |
|
|
| $ | 27,426 |
|
|
| 8.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
| 25,262 |
|
|
|
| 24,840 |
|
|
|
|
|
Add: dilutive warrant |
|
|
| 1,501 |
|
|
|
| 150 |
|
|
|
|
|
dilutive convertible notes |
|
|
| 109 |
|
|
|
| - |
|
|
|
|
|
effect of convertible notes hedges (d) |
|
|
| (109 | ) |
|
|
| - |
|
|
|
|
|
dilutive restricted stock |
|
|
| 636 |
|
|
|
| 285 |
|
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
| 27,399 |
|
|
|
| 25,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted EPS from continuing operations, net of taxes |
|
| $ | 1.08 |
|
|
| $ | 1.09 |
|
|
| (0.9 | )% |
|
|
| For the Three Months Ended |
| ||||||||||
|
|
| September 30, 2021 |
|
|
| September 30, 2020 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| $ | 119,535 |
|
|
| $ | 74,054 |
|
|
| 61.4 | % |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARES Act grant income (a) |
|
|
| - |
|
|
|
| (64,211 | ) |
|
|
|
|
Customer incentive asset amortization |
|
|
| 11,332 |
|
|
|
| 9,858 |
|
|
|
|
|
Adjustments to JCBA paid time-off benefits (b) |
|
|
| 15,150 |
|
|
|
| - |
|
|
|
|
|
Special charge |
|
|
| - |
|
|
|
| 547 |
|
|
|
|
|
Noncash expenses and income, net (c) |
|
|
| 4,821 |
|
|
|
| 4,527 |
|
|
|
|
|
Unrealized loss on financial instruments |
|
|
| - |
|
|
|
| 43,604 |
|
|
|
|
|
Other, net (d) |
|
|
| (204 | ) |
|
|
| 2,638 |
|
|
|
|
|
Income tax effect of reconciling items |
|
|
| (5,189 | ) |
|
|
| 11,731 |
|
|
|
|
|
Adjusted Net Income |
|
| $ | 145,445 |
|
|
| $ | 82,748 |
|
|
| 75.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
| 30,547 |
|
|
|
| 26,619 |
|
|
|
|
|
Add: dilutive warrant |
|
|
| - |
|
|
|
| 2,478 |
|
|
|
|
|
effect of convertible notes hedges (e) |
|
|
| (717 | ) |
|
|
| - |
|
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
| 29,830 |
|
|
|
| 29,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted EPS |
|
| $ | 4.88 |
|
|
| $ | 2.84 |
|
|
| 71.8 | % |
31
|
|
| For the Nine Months Ended |
| ||||||||||
|
|
| September 30, 2021 |
|
|
| September 30, 2020 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| $ | 316,578 |
|
|
| $ | 176,319 |
|
|
| 79.5 | % |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARES Act grant income (a) |
|
|
| (40,944 | ) |
|
|
| (84,378 | ) |
|
|
|
|
Customer incentive asset amortization |
|
|
| 33,256 |
|
|
|
| 28,414 |
|
|
|
|
|
Adjustments to JCBA paid time-off benefits (b) |
|
|
| 15,150 |
|
|
|
| - |
|
|
|
|
|
Special charge |
|
|
| - |
|
|
|
| 16,481 |
|
|
|
|
|
Noncash expenses and income, net (c) |
|
|
| 14,239 |
|
|
|
| 13,372 |
|
|
|
|
|
Unrealized loss on financial instruments |
|
|
| 113 |
|
|
|
| 73,351 |
|
|
|
|
|
Other, net (f) |
|
|
| 821 |
|
|
|
| 2,088 |
|
|
|
|
|
Income tax effect of reconciling items |
|
|
| 222 |
|
|
|
| 10,170 |
|
|
|
|
|
Adjusted Net Income |
|
| $ | 339,435 |
|
|
| $ | 235,817 |
|
|
| 43.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
| 30,117 |
|
|
|
| 26,256 |
|
|
|
|
|
Add: dilutive warrant |
|
|
| - |
|
|
|
| 826 |
|
|
|
|
|
effect of convertible notes hedges (e) |
|
|
| (442 | ) |
|
|
| - |
|
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
| 29,675 |
|
|
|
| 27,082 |
|
|
|
|
|
Adjusted Diluted EPS |
|
| $ | 11.44 |
|
|
| $ | 8.71 |
|
|
| 31.3 | % |
|
|
| For the Nine Months Ended |
| ||||||||||
|
|
| September 30, 2017 |
|
|
| September 30, 2016 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
| $ | 14,884 |
|
|
| $ | 13,889 |
|
|
| 7.2 | % |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal of aircraft |
|
|
| 64 |
|
|
|
| (11 | ) |
|
|
|
|
Special charge |
|
|
| - |
|
|
|
| 6,631 |
|
|
|
|
|
Costs associated with transactions (a) |
|
|
| 3,666 |
|
|
|
| 47,655 |
|
|
|
|
|
Accrual for legal matters and professional fees |
|
|
| 1,600 |
|
|
|
| 6,777 |
|
|
|
|
|
Noncash expenses and income, net (b) |
|
|
| 11,537 |
|
|
|
| 5,807 |
|
|
|
|
|
Charges associated with refinancing debt |
|
|
| 167 |
|
|
|
| 132 |
|
|
|
|
|
Unrealized loss (gain) on financial instruments |
|
|
| 36,225 |
|
|
|
| (25,013 | ) |
|
|
|
|
Income tax effect of reconciling items (c) |
|
|
| (1,061 | ) |
|
|
| (535 | ) |
|
|
|
|
Adjusted income from continuing operations, net of taxes |
|
| $ | 67,082 |
|
|
| $ | 55,332 |
|
|
| 21.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
| 25,822 |
|
|
|
| 25,116 |
|
|
|
|
|
Add: dilutive warrant |
|
|
| 1,230 |
|
|
|
| - |
|
|
|
|
|
effect of convertible note hedges (d) |
|
|
| (36 | ) |
|
|
| - |
|
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
| 27,016 |
|
|
|
| 25,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted EPS from continuing operations, net of taxes |
|
| $ | 2.48 |
|
|
| $ | 2.20 |
|
|
| 12.7 | % |
|
|
| For the Three Months Ended |
| ||||||||||
|
|
| September 30, 2021 |
|
|
| September 30, 2020 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| $ | 119,535 |
|
|
| $ | 74,054 |
|
|
| 61.4 | % |
Interest expense, net |
|
|
| 24,679 |
|
|
|
| 28,096 |
|
|
|
|
|
Depreciation and amortization |
|
|
| 73,468 |
|
|
|
| 65,595 |
|
|
|
|
|
Income tax expense |
|
|
| 36,583 |
|
|
|
| 36,120 |
|
|
|
|
|
EBITDA |
|
|
| 254,265 |
|
|
|
| 203,865 |
|
|
|
|
|
CARES Act grant income (a) |
|
|
| - |
|
|
|
| (64,211 | ) |
|
|
|
|
Customer incentive asset amortization |
|
|
| 11,332 |
|
|
|
| 9,858 |
|
|
|
|
|
Adjustments to JCBA paid time-off benefits (b) |
|
|
| 15,150 |
|
|
|
| - |
|
|
|
|
|
Special charge |
|
|
| - |
|
|
|
| 547 |
|
|
|
|
|
Unrealized loss on financial instruments |
|
|
| - |
|
|
|
| 43,604 |
|
|
|
|
|
Other, net (d) |
|
|
| (204 | ) |
|
|
| 2,638 |
|
|
|
|
|
Adjusted EBITDA |
|
| $ | 280,543 |
|
|
| $ | 196,301 |
|
|
| 42.9 | % |
|
|
| For the Nine Months Ended |
| ||||||||||
|
|
| September 30, 2021 |
|
|
| September 30, 2020 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| $ | 316,578 |
|
|
| $ | 176,319 |
|
|
| 79.5 | % |
Interest expense, net |
|
|
| 75,330 |
|
|
|
| 85,292 |
|
|
|
|
|
Depreciation and amortization |
|
|
| 207,918 |
|
|
|
| 189,005 |
|
|
|
|
|
Income tax expense |
|
|
| 97,367 |
|
|
|
| 77,962 |
|
|
|
|
|
EBITDA |
|
|
| 697,193 |
|
|
|
| 528,578 |
|
|
|
|
|
CARES Act grant income (a) |
|
|
| (40,944 | ) |
|
|
| (84,378 | ) |
|
|
|
|
Customer incentive asset amortization |
|
|
| 33,256 |
|
|
|
| 28,414 |
|
|
|
|
|
Adjustments to JCBA paid time-off benefits (b) |
|
|
| 15,150 |
|
|
|
| - |
|
|
|
|
|
Special charge |
|
|
| - |
|
|
|
| 16,481 |
|
|
|
|
|
Unrealized loss on financial instruments |
|
|
| 113 |
|
|
|
| 73,351 |
|
|
|
|
|
Other, net (f) |
|
|
| 821 |
|
|
|
| 2,088 |
|
|
|
|
|
Adjusted EBITDA |
|
| $ | 705,589 |
|
|
| $ | 564,534 |
|
|
| 25.0 | % |
| (a) |
|
(b) | Adjustments to JCBA time-off benefits in |
|
| Noncash expenses and income, net in |
(d) | Other, net in |
32
(e) | Represents the economic benefit from our convertible notes hedges in offsetting dilution from our convertible notes as we concluded in no event would economic dilution result from conversion of each of the convertible notes when our stock price is below the exercise price of the respective convertible note warrants (see Note 8 to our Financial Statements). |
|
|
|
Liquidity and Capital Resources
The most significant liquidity events during the first three quarters of 20172021 were as follows:
Debt Transactions
In May 2017, we issued $289.0 million of 2017 Convertible Notes with a cash coupon of 1.875%. In May 2017, we used the majority of the proceeds to repay $150.0 million then outstanding under the Revolver.
In June 2017,March 2021, we borrowed $18.7$16.2 million related toat a fixed interest rate of 0.93% under an unsecured five-year term loan due in January 2026 for GEnx engine performance upgrade kits and overhauls under an unsecuredoverhauls. The term loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly (see Note 8 to our Financial Statements).
In June 2021, we borrowed $7.8 million at a fixed interest rate of 2.17%.
During the second0.91% under an unsecured five-year term loan due in May 2026 for GEnx engine performance upgrade kits and third quarteroverhauls. The term loan is subject to customary fees, covenants and events of 2017, we borrowed an aggregate of $140.1 million through seven separate term loans relateddefault, with principal and interest payable quarterly (see Note 8 to the purchase and passenger-to-freighter conversion of 767-300 aircraft at fixed rates ranging from 3.02% to 3.62%our Financial Statements).
In September 2017, we entered into the Private Placement Facility to finance up to $146.5 million for the purchase and passenger-to-freighter conversion of up to six 767-300 aircraft dry leased to Amazon. In October 2017, we borrowed $72.6 million for the first three aircraft under the facility.
Operating Activities. Net cash provided by operating activities was $195.1$608.9 million for the first three quarters of 2017,2021, which primarily reflected $14.0Net Income of $316.6 million of Net Income,and noncash adjustments of $142.0$265.2 million for Depreciation and amortization and $36.2$96.1 million for Unrealized loss on financial instruments, andDeferred taxes, partially offset by a $30.4 million increase in Accounts payable and accrued liabilities. Partially offsetting these items was a $53.3$43.3 million increase in Prepaid expenses, current assets and other assets.assets, a $19.4 million decrease in Accounts payable, accrued liabilities and other liabilities and a $15.8 million increase in Accounts receivable. Net cash provided by operating activities was $100.8$782.7 million for the first three quarters of 2016,2020, which primarily reflected $13.1 million of Net Income of $176.3 million, noncash adjustments of $124.2$240.8 million for Depreciation and amortization, and $27.9$75.3 million for Stock-based compensation expense,Deferred taxes and $73.4 million for Unrealized loss on financial instruments, a $208.1 million increase in Accounts payable, accrued liabilities and other liabilities, and a $32.8$23.1 million decrease in Accounts receivable. Partially offsetting these items werereceivable, partially offset by a $79.7$39.8 million decreaseincrease in Accounts payablePrepaid expenses, current assets and accrued liabilities and a noncash adjustment of $25.0 million for Unrealized gain on financial instruments.other assets.
Investing Activities. Net cash used for investing activities was $401.7$403.1 million for the first three quarters of 2017,2021, consisting primarily of $338.5$346.0 million of purchase deposits and payments for flight equipment and modifications and $64.1 million of payments for core capital expenditures, excluding flight equipment, partially offset by $9.5 million of proceeds from the disposal of aircraft. Purchase deposits and payments for flight equipment and modifications during the first three quarters of 2021 were primarily related to pre-delivery payments, spare engines and GEnx engine performance upgrade kits. All capital expenditures for 2021 were funded through working capital and the financings discussed above. Net cash used for investing activities was $101.4 million for the first three quarters of 2020, consisting primarily of $102.8 million of payments for flight equipment and modifications and $66.4$45.1 million of payments for core capital expenditures, excluding flight equipment.equipment, partially offset by $45.7 million of proceeds from the disposal of aircraft. Payments for flight equipment and modifications during the first three quarters of 20172020 were primarily related to the purchase of 767-300 passenger aircraft and related freighter conversion costs, spare engines and GEnx engine performance upgrade kits. All capital expenditures for 2017 were funded through working capital and the term loans discussed above.
Financing Activities. Net cash used for investingfinancing activities was $372.6$278.0 million for the first three quarters of 2016, consisting2021, which primarily of $237.1reflected $271.1 million of purchase depositspayments on debt, $35.6 million in payments of maintenance reserves and payments for flight equipment, $107.5$7.4 million related to the Southern Air acquisition, and $36.9 milliontreasury shares withheld for payment of core capital expenditures, excluding flight equipment. Partially offsetting these investing activities were $8.8taxes, partially offset by $23.9 million of proceeds from investments.
Financing Activities.debt issuance and $13.5 million of customer maintenance reserves and deposits received. Net cash provided byused for financing activities was $244.6$65.4 million for the first three quarters of 2017,2020, which primarily reflected proceeds from debt issuance of $447.9 million, $38.1 million from the sale of convertible note warrants and $22.0 million of customer maintenance reserves and deposits received, partially offset by $153.3$353.8 million of payments on debt, obligations and $70.1 million for the purchase of convertible note hedges. Net cash used for financing activities was $51.6 million for the first three quarters of 2016, which primarily reflected $135.8$175.0 million of payments on debt,our revolving credit facility and $14.4 million in payments of maintenance reserves, partially offset by $84.8$401.4 million from debt issuance and $75.0 million of proceeds from debt issuance.our revolving credit facility.
In response to the COVID-19 pandemic, we have significantly reduced nonessential employee travel, reduced the use of contractors, implemented a number of other cost reduction initiatives and taken actions to increase liquidity and strengthen our financial position, including participation in the Payroll Support Program and deferral of the payment of the employer portion of social security taxes as provided for under the CARES Act. We consider Cash and cash equivalents, Short-term investments, Restricted cash and Net cash provided by operating activities and availability under our revolving credit facility to be sufficient to meet our debt and lease obligations, and to fund committed capital expenditures for the next twelve months and core capital expenditures for 2017, and to pay amounts due related to the settlementremainder of the U.S. class action litigation.2021. Core capital expenditures for the remainder of 20172021 are expected to range between $10.0from $25.0 to $15.0$35.0 million, which excludes flight equipment and capitalized interest. Our payments remainingCommitted capital expenditures for flight equipment purchase and passenger-to-freighter conversion commitmentsfor the remainder of 2021 are expected to be approximately $143.8 million, of which approximately $63.5 million is$48.2 million. These expenditures include pre-delivery payments for our January 2021 agreement to purchase four 747-8F aircraft from Boeing that are expected to be made during 2017. We expectdelivered from May through October 2022, and agreements to finance the acquisition and conversion of this flight equipment with working capital prior to obtaining permanent financing for the converted aircraft.acquire spare engines).
We may access external sources of capital from time to time depending on our cash requirements, assessments of current and anticipated market conditions, and the after-tax cost of capital. To that end, we filed a shelf registration statement with the SEC in May 2017April 2020 that enables us to sell a yet to be determined amount of debt and/or equity securities on a registered basis over the subsequent three years, depending on market conditions, our capital needs and other factors. Our access to capital markets can be adversely impacted by prevailing
33
economic conditions and by financial, business and other factors, some of which are beyond our control. Additionally, our borrowing costs are affected by market conditions and may be adversely impacted by a tightening in credit markets.
We do not expect to pay any significant U.S. federal income tax until 2025 or later.for at least several years. Our business operations are subject to income tax in several foreign jurisdictions.jurisdictions and in many states. We do not expect to pay any significant cash income taxes in foreign jurisdictions for at least several years.years in these foreign jurisdictions and states. We currently do not intend tomay repatriate cash from certainthe unremitted earnings of our foreign subsidiaries that is indefinitely reinvested outsideto the extent taxes are insignificant. The U.S. Any repatriation of cash from these subsidiaries or certain changes in U.S.and numerous other countries are currently considering tax lawsreform, which could result in additionalsignificant changes to U.S. and international tax expense.laws. The potential enactment of these laws could have a material impact on our business, results of operations and financial condition. We continue to monitor developments and assess the impact to us.
Contractual Obligations and Debt Agreements
See Note 8 to our Financial Statements for a description of our new debt obligations.debt. See our 20162020 Annual Report on Form 10-K for a tabular disclosure of our contractual obligations as of December 31, 20162020 and a description of our other debt obligations and amendments thereto.
Off-Balance Sheet Arrangements
There were no material changes in our off-balance sheet arrangements during the nine months ended September 30, 2017.2021.
Recent Accounting Pronouncements
See Note 2 to our Financial Statements for a discussion of recent accounting pronouncements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”), as well as other reports, releases and written and oral communications issued or made from time to time by or on behalf of AAWW, contain statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management. Generally, the words “will,” “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “project,” “estimate” and similar expressions used in this Report that do not relate to historical facts are intended to identify forward-looking statements.
The forward-looking statements in this Report are not representations or guarantees of future performance and involve certain risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, 2016.2020. Many of such factors are beyond AAWW’s control and are difficult to predict. As a result, AAWW’s future actions, financial position, results of operations and the market price for shares of AAWW’s common stock could differ materially from those expressed in any forward-looking statements. Readers are therefore cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements speak only as of the date of this report. AAWW does not intend to publicly update any forward-looking statements that may be made from time to time by, or on behalf of, AAWW, whether as a result of new information, future events or otherwise, except as required by law.law and expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ThereExcept for the change to our market risk in Part I, Item 3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, which is hereby incorporated by reference into this Part I, Item 3 of this Form 10-Q, there have been no other material changes to our market risk during the nine months ended September 30, 2017.2021. For additional discussion of our exposure to market risk, refer to Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” included in our 20162020 Annual Report on Form 10-K.
34
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d - 15(e) under the Exchange Act) as of September 30, 2017.2021. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 20172021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHEROTHER INFORMATION
With respect to the fiscal quarter ended September 30, 2017,2021, the information required in response to this Item is set forth in Note 1312 to our Financial Statements and such information is incorporated herein by reference. Such description contains all of the information required with respect hereto.
For
There have been no material changes in our risk factors that may cause actual results to differ materially from those anticipated, please refer todisclosed in our 20162020 Annual Report on Form 10-K.
| a. | Exhibits |
See accompanying Exhibit Index included afterbefore the signature page of this report for a list of exhibits filed or furnished with this report.
EXHIBIT INDEX
Exhibit Number |
| Description |
|
|
|
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. |
|
|
|
31.2 |
| Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. |
|
|
|
32.1 |
| |
|
|
|
101.INS |
| Inline XBRL Instance |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. * |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. * |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. * |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document. * |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. * |
104 | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101). |
* | Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, |
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: November |
| /s/ |
|
|
|
|
| President and Chief Executive Officer |
|
|
|
Dated: November |
| /s/ Spencer Schwartz |
|
| Spencer Schwartz |
|
| Executive Vice President and Chief Financial Officer |
40
37