Edgar Filing: ATLAS AIR WORLDWIDE HOLDINGS INC

aaww-10q_20180630.htm

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 June 30, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-16545

Atlas Air Worldwide Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		13-4146982
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

2000 Westchester Avenue, Purchase, New York		10577
(Address of principal executive offices)		(Zip Code)

(914) 701-8000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☐

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 July 27, 2018, there were 25,575,041 shares of the registrant’s Common Stock outstanding.

TABLE OF CONTENTS

		Page

Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 (unaudited)	3

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)	4

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)	5

	Consolidated Statements of Cash Flows for the Six Months ended June 30, 2018 and 2017 (unaudited)	6

	Consolidated Statements of Stockholders’ Equity as of and for the Six Months ended June 30, 2018 and 2017 (unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 6.	Exhibits	36

	Exhibit Index	37

	Signatures	38

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Atlas Air Worldwide Holdings, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

(Unaudited)

	June 30, 2018			December 31, 2017
Assets
Current Assets
Cash and cash equivalents	$	216,762		$	280,809
Short-term investments		17,518			13,604
Restricted cash		11,167			11,055
Accounts receivable, net of allowance of $2,609 and $1,494, respectively		221,392			194,478
Prepaid maintenance		28,016			13,346
Prepaid expenses and other current assets		70,336			74,294
Total current assets		565,191			587,586
Property and Equipment
Flight equipment		4,812,047			4,447,097
Ground equipment		75,362			70,951
Less: accumulated depreciation		(775,605	)		(701,249	)
Flight equipment modifications in progress		289,751			186,302
Property and equipment, net		4,401,555			4,003,101
Other Assets
Long-term investments and accrued interest		6,570			15,371
Deferred costs and other assets		272,977			242,919
Intangible assets, net and goodwill		102,050			106,485
Total Assets	$	5,348,343		$	4,955,462

Liabilities and Equity
Current Liabilities
Accounts payable	$	84,353		$	65,740
Accrued liabilities		457,395			454,843
Current portion of long-term debt and capital lease		245,322			218,013
Total current liabilities		787,070			738,596
Other Liabilities
Long-term debt and capital lease		2,256,166			2,008,986
Deferred taxes		229,263			214,694
Financial instruments and other liabilities		299,771			203,330
Total other liabilities		2,785,200			2,427,010
Commitments and contingencies
Equity
Stockholders’ Equity
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued		-			-
Common stock, $0.01 par value; 100,000,000 shares authorized; 30,560,237 and 30,104,648 shares issued, 25,575,041 and 25,292,454 shares outstanding (net of treasury stock), as of June 30, 2018 and December 31, 2017, respectively		306			301
Additional paid-in-capital		726,357			715,735
Treasury stock, at cost; 4,985,196 and 4,812,194 shares, respectively		(204,051	)		(193,732	)
Accumulated other comprehensive loss		(4,390	)		(3,993	)
Retained earnings		1,257,851			1,271,545
Total equity		1,776,073			1,789,856
Total Liabilities and Equity	$	5,348,343		$	4,955,462

See accompanying Notes to Unaudited Consolidated Financial Statements

Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017

Operating Revenue	$	666,145		$	517,366		$	1,256,159		$	992,761

Operating Expenses
Salaries, wages and benefits		129,176			111,488			254,258			215,575
Aircraft fuel		129,706			83,486			226,009			165,918
Maintenance, materials and repairs		88,236			64,769			173,115			137,585
Depreciation and amortization		50,834			40,986			100,464			78,880
Travel		42,358			34,891			82,205			67,249
Aircraft rent		40,281			33,792			79,805			69,865
Navigation fees, landing fees and other rent		37,698			25,255			73,295			43,790
Passenger and ground handling services		30,202			23,573			58,264			48,696
Gain on disposal of aircraft		-			(93	)		-			(147	)
Special charge		9,374			-			9,374			-
Transaction-related expenses		240			1,396			510			2,312
Other		47,094			39,345			97,345			80,523
Total Operating Expenses		605,199			458,888			1,154,644			910,246

Operating Income		60,946			58,478			101,515			82,515

Non-operating Expenses (Income)
Interest income		(1,388	)		(1,342	)		(3,112	)		(2,598	)
Interest expense		29,182			24,670			56,524			46,194
Capitalized interest		(1,465	)		(1,931	)		(3,215	)		(3,711	)
Unrealized loss (gain) on financial instruments		50,031			(13,763	)		57,771			(8,550	)
Other expense (income)		(7,277	)		1,061			(11,752	)		809
Total Non-operating Expenses (Income)		69,083			8,695			96,216			32,144

Income (loss) from continuing operations before income taxes		(8,137	)		49,783			5,299			50,371
Income tax expense		12,986			10,739			16,794			11,292

Income (loss) from continuing operations, net of taxes		(21,123	)		39,044			(11,495	)		39,079

Loss from discontinued operations, net of taxes		(27	)		(105	)		(43	)		(891	)

Net Income (Loss)	$	(21,150	)	$	38,939		$	(11,538	)	$	38,188

Earnings (loss) per share from continuing operations:
Basic	$	(0.83	)	$	1.55		$	(0.45	)	$	1.55
Diluted	$	(0.83	)	$	0.92		$	(0.45	)	$	1.13
Loss per share from discontinued operations:
Basic	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.04	)
Diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.03	)
Earnings (loss) per share:
Basic	$	(0.83	)	$	1.54		$	(0.45	)	$	1.51
Diluted	$	(0.83	)	$	0.92		$	(0.45	)	$	1.09
Weighted average shares:
Basic		25,565			25,257			25,501			25,210
Diluted		25,565			26,791			25,501			26,823

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 Six Months Ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017

Net Income (Loss)	$	(21,150	)	$	38,939		$	(11,538	)	$	38,188
Other comprehensive income:
Net change in fair value
Reclassification to interest expense		365			402			750			820
Income tax expense		(120	)		(156	)		(177	)		(318	)
Other comprehensive income		245			246			573			502
Comprehensive Income (Loss)	$	(20,905	)	$	39,185		$	(10,965	)	$	38,690

See accompanying Notes to Unaudited Consolidated Financial Statements

Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	For the Six Months Ended
	June 30, 2018			June 30, 2017

Operating Activities:
Income (loss) from continuing operations, net of taxes	$	(11,495	)	$	39,079
Less: Loss from discontinued operations, net of taxes		(43	)		(891	)
Net Income (Loss)		(11,538	)		38,188

Adjustments to reconcile Net Income (Loss) to net cash provided by operating activities:
Depreciation and amortization		121,606			90,842
Accretion of debt securities discount		(512	)		(604	)
Provision for allowance for doubtful accounts		1,179			134
Special charge, net of cash payments		9,374			-
Unrealized loss (gain) on financial instruments		57,771			(8,550	)
Gain on disposal of aircraft		-			(147	)
Deferred taxes		16,561			11,000
Stock-based compensation		10,627			10,579
Changes in:
Accounts receivable		(27,699	)		(5,204	)
Prepaid expenses, current assets and other assets		(10,815	)		(36,067	)
Accounts payable and accrued liabilities		9,357			12,636
Net cash provided by operating activities		175,911			112,807
Investing Activities:
Capital expenditures		(54,791	)		(45,237	)
Payments for flight equipment and modifications		(448,388	)		(226,812	)
Proceeds from investments		5,399			1,941
Proceeds from disposal of aircraft		-			147
Net cash used for investing activities		(497,780	)		(269,961	)
Financing Activities:
Proceeds from debt issuance		305,059			435,325
Payment of debt issuance costs		(4,781	)		(10,323	)
Payments of debt		(115,194	)		(93,401	)
Proceeds from revolving credit facility		135,000			150,000
Payment of revolving credit facility		(60,000	)		(150,000	)
Customer maintenance reserves and deposits received		8,169			18,062
Customer maintenance reserves paid		-			(6,384	)
Proceeds from sale of convertible note warrants		-			38,148
Payments for convertible note hedges		-			(70,140	)
Purchase of treasury stock		(10,319	)		(9,636	)
Net cash provided by financing activities		257,934			301,651
Net increase (decrease) in cash, cash equivalents and restricted cash		(63,935	)		144,497
Cash, cash equivalents and restricted cash at the beginning of period		291,864			138,250
Cash, cash equivalents and restricted cash at the end of period	$	227,929		$	282,747

Noncash Investing and Financing Activities:

Acquisition of flight equipment included in Accounts payable and accrued liabilities	$	66,944		$	75,668
Acquisition of flight equipment under capital lease	$	-		$	32,380

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, 2017	$	301	$	(193,732	)	$	715,735		$	(3,993	)	$	1,271,545		$	1,789,856
Net Income (Loss)		-		-			-			-			(11,538	)		(11,538	)
Other comprehensive income		-		-			-			573			-			573
Cumulative effect of change in accounting principle		-		-			-			-			(3,126	)		(3,126	)
Stock-based compensation		-		-			10,627			-			-			10,627
Purchase of 173,002 shares of treasury stock		-		(10,319	)		-			-			-			(10,319	)
Issuance of 455,589 shares of restricted stock		5		-			(5	)		-			-			-
Reclassification of tax effect on other comprehensive loss		-		-			-			(970	)		970			-
Balance at June 30, 2018	$	306	$	(204,051	)	$	726,357		$	(4,390	)	$	1,257,851		$	1,776,073

									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		-		-			-			-			38,188		38,188
Other comprehensive income		-		-			-			502			-		502
Stock-based compensation		-		-			10,579			-			-		10,579
Purchase of 181,217 shares of treasury stock		-		(9,636	)		-			-			-		(9,636	)
Issuance of 429,723 shares of restricted stock		5		-			(5	)		-			-		-
Equity component of convertible notes, net of tax		-		-			43,248			-			-		43,248
Purchase of convertible note hedges, net of tax		-		-			(45,065	)		-			-		(45,065	)
Issuance of convertible note warrants				-			38,148			-			-