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UNITED STATES _____________
FORM 10-Q
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
0-25732
Atlas Air Worldwide Holdings, Inc.
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 [X] No [ ] Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, or a non-accelerated filer,
per Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: As of March 31, 2006, there were 19,897,952 shares of the registrants Common Stock
outstanding.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See accompanying notes to the unaudited Condensed Consolidated Financial Statements.
1
See accompanying notes to the unaudited Condensed Consolidated Financial Statements.
2
See accompanying notes to the unaudited Condensed Consolidated Financial Statements.
3
Atlas Air Worldwide Holdings, Inc.
1. Basis of Presentation
The accompanying interim Condensed Consolidated Financial Statements (the Financial Statements) are unaudited and have been prepared in accordance with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. As permitted by the rules and regulations of the Securities and Exchange Commission (the SEC), the Financial Statements exclude certain footnote disclosures normally included in audited consolidated
financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). In the opinion of management, the Financial Statements contain all adjustments, consisting of normal recurring items, necessary to
fairly present the financial position of Atlas Air Worldwide Holdings, Inc. (Holdings or AAWW) and its consolidated subsidiaries as of March 31, 2006, the results of operations for the three month periods ended March 31, 2006
and March 31, 2005 and cash flows for the three month periods ended March 31, 2006 and March 31, 2005. The Financial Statements include the accounts of Holdings and its consolidated subsidiaries. All significant inter-company accounts and
transactions have been eliminated. The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2005 included in the Annual Report on Form 10-K
of Holdings that was filed with the SEC on April 14, 2006 (2005 10-K).
Holdings is the parent company of two principal operating subsidiaries, Atlas Air, Inc. (Atlas) and Polar Air Cargo, Inc. (Polar). Holdings, Atlas, Polar and
Holdings other subsidiaries are referred to collectively as the Company. The Company provides air cargo and related services throughout the world, serving Asia, Australia, the Pacific Rim, Europe, South America and the United
States through: (i) airport-to-airport scheduled air cargo service (Scheduled Service); (ii) contractual lease arrangements in which the Company provides the aircraft, crew, maintenance and insurance (ACMI), and (iii)
seasonal, commercial, military and ad-hoc charter services (see Note 5). The Company operates only Boeing 747 freighter aircraft.
The Companys quarterly results have in the past been subject to seasonal and other fluctuations and the operating results for any quarter are therefore not necessarily indicative of
results that may be otherwise expected for the entire year.
Except for per share data, all dollar amounts are in thousands unless otherwise noted.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the Financial Statements and footnotes
thereto. Actual results may differ from those estimates. Important estimates include asset lives, valuation allowances (including, but not limited to, those related to receivables, inventory and deferred taxes), income tax accounting, self-insurance
employee benefit accruals, accounting for stock options and contingent liabilities.
Assets Held for Sale
In August 2005, aircraft tail number N921FT and two related spare engines were listed for sale by the Company and were accounted for as assets held for sale, and depreciation ceased. The
aggregate carrying value of the aircraft and spare engines at March 31, 2006 and December 31, 2005 was $5.7 million, which is included within Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. On April 7,
2006, the aircraft was sold for approximately $8.4 million and the Company will record a gain on the sale of approximately $2.8 million, net of related selling expenses, in the second quarter of 2006.
Investments
The Company holds a minority interest (49%) in a private company, which is accounted for under the equity method.
The March 31, 2006 and December 31, 2005 aggregate carrying value of the investment of $8.2 million and $8.2 million, respectively, is included within Deposits and other assets in the
Condensed Consolidated Balance Sheets.
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These assets principally relate to the private companys airline operating certificate and finite-lived intangible assets related to existing customer contracts and the Companys
proportionate share of the equity. Fair value of this investment was determined by an independent appraisal as of July 27, 2004 as part of fresh start accounting. The finite lived intangible asset is amortized on a straight-line basis over the three
year estimated life of the contracts.
United States Military Airlift Mobility Command (AMC) charters accounted for 22.0% and 25.6% of the Companys total revenues for the three month periods ended March 31, 2006
and 2005, respectively. No other customer accounted for 10% or more of the Companys total operating revenues during these periods. Accounts receivable from the AMC were $10.6 million and $24.4 million at March 31, 2006 and December 31,
2005, respectively.
At March 31, 2006, and December 31, 2005, the Company had $103.4 million and $106.8 million, respectively, of unamortized discount related to fair market value adjustments recorded
against debt upon application of fresh-start accounting.
Certain reclassifications have been made in the prior years condensed consolidated financial statement amounts and related note disclosures to conform to the current years
presentation.
At March 31, 2006, the Company has a 2004 Long Term Incentive and Share Award Plan (the 2004 LTIP) which provides for awards of up to 2.3 million shares of AAWWs common stock
to employees in various forms. These include non-qualified options, incentive stock options, share appreciation rights, restricted shares, restricted share units, performance shares and performance units, dividend equivalents and other share-based
awards. Prior to January 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related Interpretations, as permitted by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. Stock-option based employee compensation cost recognized in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2005 related only to restricted stock grants, as all options granted under
those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R, Share-Based Payment, using the modified-prospective-transition method. Therefore, compensation expense recognized in the first quarter of 2005 includes expense for its restricted stock plans which
were compensatory per APB 25. Compensation expense recognized in the first quarter of 2006 includes compensation expense for all newly granted and unvested stock options and restricted shares that are expected to vest subsequent to January 1, 2006,
in accordance with the provisions of SFAS No. 123R. Results for prior periods have not been restated.
In November 2005, the Financial Accounting Standards Board staff issued FSP No. FAS 123(R)-3, Transition Election Related to Accounting for the Tax
Effects of Share-Based Payment Awards. This FSP provides an elective alternative simplified method for calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent
to the adoption of SFAS No. 123R and reported in the Condensed Consolidated Statements of Cash Flows. Companies may take up to one year from the effective date of the FSP to evaluate the available transition alternatives and make a one-time election
as to which method to adopt. The Company is currently in the process of evaluating the alternative methods.
As a result of the adoption of SFAS No. 123R on January 1, 2006, the Companys loss before income taxes and net loss for the three months ended March 31, 2006, are $0.7 million and
$0.4 million higher, respectively, than if the Company had continued to account for share-based compensation under APB 25. Basic and diluted loss per share for the three months ended March 31, 2006 would have been $0.02 lower if the Company
had not adopted SFAS No.123R, than reported basic and diluted loss per share of $(0.18) .
Prior to the adoption of SFAS No. 123R, the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Condensed Consolidated
Statement of Cash Flows. SFAS No. 123R requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation expense recognized for those options (excess tax benefits) to be classified as financing cash
flows.
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The fair value of all option grants is estimated using the Black-Scholes-Merton option pricing model. The fair value is then amortized on a straight-line basis over the vesting period or
requisite service period, if shorter. The following table illustrates the effect on net income if the fair-value-based method per SFAS No. 123 had been applied to all outstanding awards for the quarter ended March 31, 2005.
Non-qualified Stock Options
The portion of the 2004 LTIP applicable to employees is administered by the compensation committee (the Compensation Committee) of the board of directors of the Company (the
Board), which also establishes the terms of the awards. Non-qualified stock options and restricted shares have been the only forms of awards under the 2004 LTIP granted by the Compensation Committee to date. A total of 725,926 shares of
common stock remained available for future award grants (including restricted stock and stock options) to management and the Board as of March 31, 2006.
Non-qualified stock options granted under the 2004 LTIP vest over a three or four year period, which generally is the requisite service period, and expire ten years from the date of grant. As
of March 31, 2006, options to acquire a total of 1,013,100 shares of common stock have been granted to management under the 2004 LTIP. Non-qualified stock options may be granted at any price but, in general, are not granted with an exercise price
less than the fair market value of the stock on the date of grant.
Included within the 2004 LTIP is a separate sub-plan (2004 Employee Plan) which provides for awards of up to
495,303 shares of common stock to employees in the form of non-qualified options or incentive stock options. The portion of the 2004 Employee Plan applicable to employees is administered by the Compensation Committee of the Board of the Company,
which also establishes the terms of the awards. As of March 31, 2006, non-qualified stock options have been the only form of award granted by the Compensation Committee since the adoption of the 2004 Employee Plan.
Non-qualified stock options granted under the 2004 Employee Plan vest over a three year period, which generally is the requisite service period, and expire seven years from the date of grant.
Options to acquire a total of 299,979 shares of common stock have been granted to employees under the 2004 Employee Plan. A total of 195,324 shares of common stock remained available for future award grants as of March 31, 2006.
While the fair-value-based method prescribed by SFAS No. 123R is similar to the fair-value-based method disclosed under the provisions of SFAS No. 123 in most respects, there are some
differences. SFAS No. 123R requires the Company to estimate pre-vesting option forfeitures at the time of grant and periodically revise those estimates in subsequent periods if actual forfeitures differ from those estimates. As a result, the Company
records stock-based compensation expense only for those awards expected to vest. Previously, the Company accounted for forfeitures as they occurred under the pro forma disclosure provisions of SFAS No. 123 for periods prior to January 1, 2006.
The fair value of all option grants is estimated using the Black-Scholes-Merton option pricing model. The fair value is then amortized on a straight-line basis over the vesting period or
requisite service period, if shorter. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the average of the historical volatility of a peer group
of several similar entities, due to the limited trading history of the Companys stock. Historically, the average expected life is based on the vesting period of the option. Option grants on or after January 1, 2006 will have expected lives
adjusted for the expected exercise behavior of option recipients. The risk-free interest rate is based on U.S. Treasury constant maturities (nominal) with a term equal to the
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expected life assumed at the date of grant. Forfeitures are estimated based on historical termination behavior, as well as an analysis of actual option forfeitures. The assumptions used in the Black-Scholes-Merton option
pricing model for the three months ended March 31, are as follows:
A summary of option activity as of March 31, 2006 and changes during the quarter then ended is presented below:
The weighted average fair value of the options granted during the three months ended March 31, 2006 and 2005 was $16.28 and $8.42, respectively. The total intrinsic value for the
options that vested during the three months ended March 31, 2006 was $2.6 million.
The total intrinsic value of options exercised for the three months ended March 31, 2006 was $1.7 million and there was no excess cash tax benefit classified as a financing cash inflow for
the period due to losses incurred.
As of March 31, 2006, there was $3.7 million of total unrecognized compensation cost related to non-vested stock options granted. The cost is expected to be recognized over a
weighted-average period of 1.8 fiscal years.
Restricted shares granted under the 2004 LTIP vest and are being expensed over a three or four year period, as applicable. As of March 31, 2006, a total of 664,600 restricted shares have been
granted under the 2004 LTIP. All shares were valued at their fair market value on the date of issuance and the fair value for all shares granted is $12.3 million. This amount was originally recorded in equity as Deferred compensation and the
unamortized amount of $6.0 million at December 31, 2005 was reclassified to Additional paid-in capital upon adoption of SFAS No. 123R. For the three months ended March 31, 2006 and 2005, the Company recognized compensation expense of $0.9
million and $1.0 million, respectively. The compensation expense recognized for restricted share awards subsequent to adoption of SFAS No. 123R is net of estimated forfeitures. The effect of estimated forfeitures to unvested awards previously
expensed prior to January 1, 2006 was immaterial. Unrecognized compensation cost as of March 31, 2006 was $5.2 million and will be recognized over the remaining weighted average life of 1.3 years.
A summary of the Companys restricted shares as of March 31, 2006 and changes during the quarter then ended are presented below:
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The weighted-average grant-date fair value of restricted shares granted during the quarters ended March 31, 2006, and March 31, 2005, was $48.00 and $28.53, respectively.
James S. Gilmore III, a non-employee director of the Company, is a partner at the law firm of Kelley Drye & Warren LLP, outside counsel to the Company. The Company paid legal fees to the
firm of Kelley Drye & Warren LLP of $0.4 million and $1.3 million for the three months ended March 31, 2006 and 2005, respectively. At March 31, 2006 and December 31, 2005, the Company had a payable balance to Kelley, Drye & Warren
LLP of $0.1 million and $0.2 million, respectively, which is included in accrued liabilities on the Condensed Consolidated Balance Sheets. Mr. Gilmore has not served on the Audit Committee since joining the Board in July 2004.
Atlas dry leases three owned aircraft to a company in which the Company owns a minority investment as of March 31, 2006. The investment is accounted for under the equity method. The leases have
terms that mature at various dates through July 2007. The leases provide for payment of rent and a provision for maintenance costs associated with the aircraft. Total rental income for the three aircraft was $11.2 million and $11.1 million
for the three month periods ended March 31, 2006 and 2005, respectively.
The Company has four reportable segments: Scheduled Service, ACMI, AMC Charter and Commercial Charter. All reportable segments are engaged in the business of transporting air cargo but have
different operating and economic characteristics which are separately reviewed by the Companys management. The Company evaluates performance and allocates resources to its segments based upon income (loss) before taxes, excluding pre-petition
and post-emergence costs and related professional fees, unallocated corporate and other items (Fully Allocated Contribution or FAC). Management
views FAC as the best measure to analyze profitability and contribution to net
income or loss of the Companys individual segments. Management allocates
the cost of operating aircraft among the various segments on an average cost
per aircraft type. Under-utilized aircraft costs are allocated to segments based on Block Hours flown for Scheduled Service,
AMC and Commercial Charter. ACMI is only allocated costs of operating aircraft based on the number of
aircraft dedicated to ACMI customers.
The Scheduled Service segment provides airport-to-airport scheduled airfreight and available on-forwarding services provided primarily to freight forwarding customers. In transporting cargo in
this way, the Company carries all of the commercial revenue risk (yields and cargo loads) and bears all of the direct costs of operation, including fuel. Distribution costs include direct sales costs through the Companys own sales force and
through commissions paid to general sales agents. Commission rates typically range between 2.5% and 5% of commissionable revenue sold. Scheduled Service is highly seasonal, with peak demand coinciding with the retail holiday season, which
traditionally begins in September and lasts through mid December.
The ACMI segment provides aircraft, crew, maintenance and insurance services whereby customers receive the use of an aircraft and crew in exchange for, in most cases, a guaranteed monthly level
of operation at a predetermined rate for defined periods of time. The customer bears the commercial revenue risk and the obligation for other direct operating costs, including fuel.
The AMC Charter segment provides full-planeload charter flights to the U.S. Military through the AMC. The AMC Charter business is similar to the Commercial Charter business in that the Company
is responsible for the direct operating costs of the aircraft. However, in the case of AMC operations, the price of fuel used during AMC flights is fixed by the military. The contracted charter rates (per mile) and fuel prices (per gallon) are
established and fixed by the AMC for twelve-month periods running from October to September of the next year. The Company receives reimbursement from the AMC each month if the price of fuel paid by the Company to vendors for AMC missions exceeds the
fixed price; if the price of fuel paid by the Company is less than the fixed price, then the Company pays the difference to the AMC. The AMC buys capacity on a fixed basis annually and on an ad-hoc basis continuously. The Company competes for this
business through a teaming arrangement devised for the allocation of AMC flying among competing carriers. At March 31, 2006, there were three groups of carriers (or teams) and several independent carriers that are not part of either team that
compete for the business. The Company is a member of a team led by FedEx Corporation (FedEx) and pays a commission to the FedEx team based upon the revenues the Company receives under such contracts. The formation of additional competing
teaming arrangements, an increase by other air carriers in their commitment of aircraft to the Civil Reserve Air Fleet Program, or the withdrawal of any of the current team members, could adversely affect the amount of AMC business awarded to the
Company in the future.
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The Commercial Charter segment provides full-planeload airfreight capacity on one or multiple flights to freight forwarders, airlines and other air cargo customers. Charters typically are
contracted in advance of the flight, and as with Scheduled Service, the Company bears the direct operating costs (except as otherwise defined in the charter contracts).
All other revenue includes dry lease income and other incidental revenue not allocated to any of the four segments described above.
The following table sets forth revenues and FAC for the Companys four reportable business segments reconciled to operating income and income (loss) before income taxes as required by SFAS No. 131, Disclosure about Segments of an Enterprise and
Related Information, for the three months ended March 31:
6. Commitments and Contingencies
On May 12, 2005, the Company entered into a slot conversion agreement with Israel Aircraft Industries Ltd. and PSF Conversions LLP pursuant to which the Company has the option to convert four
Boeing 747-400 passenger aircraft to Boeing 747-400 special freighter (747-400SF) configuration during the period from late-2007 to mid-2009. The agreement also includes an option covering the modification of up to six additional Boeing
747-400 passenger aircraft to 747-400SF aircraft during the period from 2009 to 2011. The Company has not yet committed to acquire the related aircraft. At March 31, 2006 and December 31, 2005, the Company had a balance of $6.0 million and
$2.5 million of capitalized option costs including capitalized interest of $0.2 million and $0.1 million, respectively, which are included in Property and equipment, net in the Condensed Consolidated Balance Sheets.
9 Guarantees and Indemnifications Financings and Guarantees Information with respect to indemnities and guarantees appears in Note 13 of the 2005 10-K and is incorporated herein by reference.
The Company had $0.9 million of restricted deposits either pledged under standby letters of credit related to collateral or for certain deposits required in the normal course for items,
including, but not limited to, foreign exchange trades, airfield privileges and insurance at March 31, 2006 and December 31, 2005. These amounts are included in Deposits and other assets in the Condensed Consolidated Balance Sheets.
Except for the items below, information with respect to legal proceedings appears in Note 13 of the 2005 10-K and is incorporated herein by reference.
The Department of Justice (the DOJ) has initiated an investigation into the pricing practices of a number of cargo carriers, including Polar (the DOJ Investigation). In
connection with the DOJ Investigation, Polar was served with a search warrant at its Long Beach, California office on February 14, 2006, pursuant to which government agents obtained certain files and interviewed a number of office staff members.
Polar also received a subpoena for records dated February 14, 2006 requesting discovery of additional relevant documents. The Company is fully cooperating with the DOJ in its investigation. Other than the subpoena, there has been no complaint or
demand of the Company by the DOJ regarding the matters that are the subject of the DOJ Investigation.
As a result of the DOJ Investigation, AAWW, Polar and a number of other cargo carriers have been named co-defendants in approximately 25 class action suits filed in multiple jurisdictions of
the U.S. Federal District Court. The complaints universally allege, among other things, that the defendants, including AAWW and Polar, manipulated the market price for air cargo services sold domestically and abroad through the use of surcharges.
They seek treble damages and injunctive relief. The Company has notified its directors and officers insurance carrier of these lawsuits and has engaged outside counsel. Also, the Company has contacted counsel for the other named
defendants with respect to conducting a joint defense in an effort to limit defense costs where possible.
Additionally, Polar has also received notification from Swiss authorities that they have opened an investigation into the freight pricing practices of several carriers, including Polar, on
routes between Switzerland and the United States. While there has been no specific complaint or demand by the Swiss authorities of Polar in respect of the matters that are the subject of the Swiss investigation, Polar anticipates that it may be
called upon to provide information to the Swiss authorities at some future time.
Since the Companys emergence from bankruptcy in July of 2004, the Company has devoted significant effort to reconcile claims to determine the validity, extent, priority and amount of
asserted claims against the debtors bankruptcy estates. To further this process, the Company has filed several objections to general unsecured claims and to cure claims, including the objection to the November 12, 2004 claims made by the
Internal Revenue Service (the IRS), which is described below.
As of March 31, 2006, the Company had reviewed over 3,050 scheduled and filed claims aggregating approximately $7.6 billion, with a maximum of $740.2 million of claims that could
potentially be allowed. Approximately $662.7 million of claims have been allowed as of March 31, 2006, including $13.0 million of cure claims and $1.4 million of other secured and priority claims. Claims of $77.5 million remain
unresolved, including $41.1 million of unresolved administrative, priority and general unsecured IRS claims discussed below; however, the amount of unresolved claims continues to be reduced by virtue of the ongoing claims reconciliation process.
As of March 31, 2006, the Company has made pro rata distributions of 16,144,209 of the 17,202,666 shares of common stock allocated to holders of allowed general unsecured claims against
Holdings, Atlas, Airline Acquisition Corp. I and Atlas Worldwide Aviation Logistics, Inc., based on the allowed claims through January 10, 2006. General
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unsecured claims of approximately $2.6 billion were filed against these entities. As of March 31, 2006, claims of $607.0 million have been allowed, claims of $39.7 million, including general unsecured IRS claims
of $4.0 million, remain disputed and the balance of claims have been withdrawn or disallowed; however, the amount of unresolved claims continues to be reduced by virtue of the ongoing claims reconciliation process.
As of March 31, 2006, there are 1,058,457 shares of common stock to be distributed to claim holders. The remaining shares of common stock will be distributed to general unsecured claim holders
on a periodic basis.
The Company has paid cash equal to sixty cents on the dollar for allowed unsecured claims against Polar. General unsecured claims of approximately $408.4 million were filed against
Polar. As of March 31, 2006, claims of $41.2 million have been allowed, claims of $0.1 million remain disputed and the balance of claims have been withdrawn or disallowed; however, the amount of unresolved claims continues to be reduced by
virtue of the ongoing claims reconciliation process. The Company estimates the additional allowed general unsecured claims against Polar will ultimately be approximately $0.1 million. Administrative Claims IRS Claim
As part of an ongoing audit and in conjunction with the claims process from the Companys bankruptcy, the IRS has submitted amended proofs of claim with the bankruptcy court for alleged
income tax, employee withholding tax, Federal Unemployment Tax Act (FUTA) and excise tax obligations, including penalties and interest. The IRS currently asserts claims against Atlas and Polar for employee withholding tax, FUTA tax and
excise taxes of approximately $0.1 million as administrative claims, $37.0 million as priority unsecured claims and $4.0 million as general unsecured claims. On November 7, 2005, the Company filed its Second Supplement to First Objection
to Claims of the IRS. The Company believes that the IRS claims are significantly overstated and intends to defend against them vigorously. The Company is currently engaged in discussions with the IRS in an attempt to settle these matters.
The Company has certain other contingencies resulting from litigation and claims incident to the ordinary course of business. Management believes that the ultimate disposition of these
contingencies, with the exception of those noted above, is not expected to materially affect the Companys financial condition, results of operations and liquidity.
7. Income (Loss) Per Share and Number of Common Shares Outstanding
Basic income (loss) per share represents the income (loss) divided by the weighted average number of common shares outstanding during the measurement period. Diluted income (loss) per share
represents the 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. Potentially
dilutive common securities that would be added to basic shares to arrive at weighted-average diluted shares consist of 0.3 million stock options and 0.2 million shares of restricted stock for the quarter ended March 31, 2006. The impact of these
options and restricted shares would be anti-dilutive in 2006 due to losses incurred and are not included in the diluted loss per share calculation.
The calculation of basic and diluted income (loss) per share is as follows for the three months ended March 31:
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8. Taxes
The Companys effective tax rates of 39.9% and 40.3% for the first quarter of 2006 and 2005, respectively, differ from the statutory rate primarily due to the non-deductibility of certain
items for tax purposes and the relationship of these items to the Companys projected operating results for the year.
On April 25, 2006, the Company filed a Form 8-K with the SEC announcing, among other things, that Polar expects to cease flying its remaining five Boeing 747-200 and one Boeing 747-100 aircraft by mid-2006 and is
evaluating potential opportunities regarding the sale or lease of these aircraft. The anticipated reduction in the Polar fleet is consistent with the Company's strategy to phase out its older aircraft over time and is likely to result in the
furlough of approximately 140 Polar crewmembers.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited Financial Statements and notes thereto appearing in this report and our audited consolidated financial
statements and notes thereto for the fiscal year ended December 31, 2005 included in our 2005 10-K.
In this report, references to we, our and us are references to AAWW and its subsidiaries, as applicable. Background Certain Terms - Glossary
The following terms represent industry-related items and statistics specific to the airline and cargo industry sectors. They are used by management for statistical analysis purposes to better
evaluate and measure operating levels, results, productivity and efficiency.
Our principal business is aircraft operations outsourcing, with a focus on wide-body freighter operations. We pursue this through two primary lines of business: (i) outsourced freighter
services provided primarily to major passenger and cargo airlines through ACMI as well as to the AMC for the AMC Charter business, and (ii) airport-to-airport Scheduled Service. We also provide Commercial Charter services.
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Our primary focus is to maintain a safe and efficient operation, sustain profitability and grow stockholder value. We are undertaking a number of strategic measures designed to achieve these
objectives. These measures include the following:
While we still face a number of significant challenges, a number of which are beyond our control, we believe that implementing these and other strategic measures will enable us to become the
worlds most efficient, capable and diversified operator of long-haul freighter aircraft.
We announced late last year that, with the assistance of an external consulting firm, we had devised a cost savings and revenue enhancement program that, if successfully implemented, could
benefit our operating performance by more than $100 million over the next several years. These efforts are focused on creating the highest quality and lowest cost aircraft operating platform and include measures, such as; (i) developing
procurement capabilities to drive lower costs for purchased goods and services including crew travel and outsourced ground and maintenance services, (ii) developing improved processes for managing aircraft maintenance with the goal of reducing
turn-times and cost, (iii) improving efficiency to drive lower per-block hour crew costs, and (iv) reducing overhead costs through process improvement. In addition, we expect approximately one-quarter to one-third of our potential operating
performance improvement to be derived from revenue enhancements. Our focus will include developing a better Scheduled Service revenue and capacity management capability.
Our fleet renewal efforts are currently focused on phasing out the older aircraft in our fleet. We have sold one Boeing 747-200 aircraft in April 2006 and we expect to cease flying five additional
Boeing 747-200 aircraft by mid 2006 and are evaluating potential opportunities regarding the sale or lease of these aircraft. In addition, we will be retiring our only Boeing 747-100 by mid 2006 when it reaches the end of its service life, thereby reducing our total fleet by seven aircraft.
Replacement aircraft are not expected to be incorporated into our fleet until after 2006. Although not necessarily indicative of the balance of fiscal 2006, Block Hours operated in the ACMI segment declined during the first three months of 2006
compared with the same period in 2005, primarily due to reduced Boeing 747-200 aircraft Block Hours.
AMC flying is expected to continue to be a significant contributor to our 2006 business activity. Block Hours, however, are not expected to equal 2005 levels.
We expect improvement in the performance of our Scheduled Service segment in 2006 associated with three additional weekly frequencies awarded to Polar for services between the United States and
China (bringing the total frequencies to 12), despite continuing high fuel prices. Aviation fuel is a significant operating cost in our Scheduled Service business. During the first three months of 2006, the average price per gallon for non-AMC
aviation fuel was 205 cents, an increase of 37.6% over the average price of 149 cents per gallon during the same period in 2005. We expect to recover only as much as 60% of the fuel price increase through a fuel surcharge.
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Also, effective March 2006, Atlas received approval from Federal Aviation Administration to operate its fleet of Boeing 747-400s under a revised maintenance program which we expect will help control
future maintenance expense. We currently expect our maintenance expense for the remainder of 2006 to be somewhat lower than the
comparable period of 2005.
The table below sets forth selected operating data for the three months ended March 31:
* Includes tail number N921FT which did no commercial flying in the first quarter of 2006 and was sold in the second quarter of 2006.
** Note dry leased and out of service aircraft are not included in the operating fleet aircraft count average.
Results of Operations
The following discussion should be read in conjunction with our Financial Statements and notes thereto and other financial information appearing and referred to elsewhere in this
report.
The following table compares our operating revenues for the three months ended March 31:
15
Scheduled Service revenue increased primarily due to higher Yields offset by a reduction in capacity and Block Hours. The increase in Yield is in part
the result of the continuing optimization of the Scheduled Service network and the increase in flights from China to the United States in 2006. RTMs in the Scheduled Service segment were 317.0 million on a total capacity of 500.6 million ATMs in the
first quarter of 2006, compared with RTMs of 336.7 million on a total capacity of 529.7 million ATMs in the first quarter of 2005. Block Hours were 8,561 in the first quarter of 2006, compared with 9,083 for the first quarter of 2005, a decrease of
522, or 5.7% . Load Factor was 63.3% with a Yield of $0.406 in the first quarter of 2006, compared with a Load Factor of 63.6% and a Yield of $0.360 in the first quarter of 2005. RATM in our Scheduled Service segment was $0.257 in the
first quarter of 2006, compared with $0.229 in the first quarter of 2005, representing an increase of 12.2% .
ACMI revenue decreased primarily due to lower Block Hours partially offset by an increase in Revenue per Block Hour. ACMI Block Hours were 16,774 for the
first quarter of 2006, compared with 20,487 for the first quarter of 2005, a decrease of 3,713 Block Hours, or 18.1% . Revenue per Block Hour was $5,853 for the first quarter of 2006, compared with $5,347 for the first quarter of 2005, an
increase of $506 per Block Hour, or 9.5% . The reduction in Block Hours is the result of the weakness in the Boeing 747-200 ACMI market. Total aircraft supporting ACMI, excluding dry leased aircraft, as of March 31, 2006, were four Boeing 747-200
aircraft and 10 Boeing 747-400 aircraft, compared with 10 Boeing 747-200 aircraft and nine Boeing 747-400 aircraft supporting ACMI at March 31, 2005.
AMC Charter revenue decreased primarily due to lower volume of AMC Charter flights offset by an increase in our AMC Charter rates. AMC Charter Block
Hours were 4,510 for the first quarter of 2006, compared with 6,231 for the first quarter of 2005, a decrease of 1,721 Block Hours, or 27.6% . Revenue per Block hour was $16,214 for the first quarter of 2006, compared with $14,270 for the
first quarter of 2005, an increase of $1,944 per Block Hour, or 13.6 %. The decrease in AMC Charter activity was the result of an overall reduction in U.S. Militarys heavy lift requirements and a reduction in our share of the AMC total
requirements. The increase in rate was primarily a function of an increase in the pegged rate for AMC fuel, which increased from 140 cents per gallon for the first quarter of 2005 to 220 cents per gallon for the first quarter of 2006.
Commercial Charter revenue increased primarily as a result of both a higher volume of Commercial Charter flights and higher revenue per Block Hour.
Commercial Charter Block Hours were 1,442 for the first quarter of 2006, compared with 1,233 for the first quarter of 2005, an increase of 209, or 17.0% . Revenue per Block Hour was $14,205 for the first quarter of 2006, compared with
$12,601 for the first quarter of 2005, an increase of $1,604 per Block Hour, or 12.7% . The increase in Commercial Charter revenue was primarily due to the increase in charter activity and an increase in rates reflecting higher fuel
prices.
Total Operating Revenue decreased 4.3% in the first quarter of 2006 compared with the first quarter of 2005, primarily as a result of a reduction in
Block Hours partially offset by an increase in Revenue per Block Hour.
The following table compares our operating expenses for the three months ended March 31:
16
Aircraft fuel expense increased as a result of the increase in fuel prices offset in part by a decrease in fuel consumption. The average fuel price per gallon
for the Scheduled Service and Commercial Charter businesses was approximately 205 cents for the first quarter of 2006, compared with approximately 149 cents for the first quarter of 2005, an increase of 56 cents, or 37.6%, partially offset by a 0.4
million gallon, or 1.1%, decrease in fuel consumption to 33.4 million gallons for the first quarter of 2006 from 33.8 million gallons during the first quarter of 2005. The average pegged fuel price per gallon for the AMC business was approximately
220 cents for the first quarter of 2006, compared with approximately 140 cents for the first quarter of 2005, an increase of 80 cents, or 57.1%, partially offset by a 6.0 million gallon, or 28.7%, decrease in fuel consumption to 14.9 million gallons
for the first quarter of 2006 from 20.9 million gallons during the first quarter of 2005. The decrease in our AMC fuel consumption corresponds to the decrease of 1,721 Block Hours. We do not incur fuel expense in our ACMI service as the cost of fuel is borne by
the customer.
Salaries, wages and benefits increased primarily as a result of a $1.7 million or 5.1% increase in crew salary attributable to minimum hour
guarantees and contractual pay increases and a $1.2 million or 5.4% increase in ground salaries. Included in the increase is the expensing of stock options for management, crew and other employees under SFAS No. 123R of $0.7 million for the first quarter of
2006.
Maintenance materials and repair decreased primarily as a result of fewer C Checks and engine overhauls. There were two C Checks on Boeing 747-200
aircraft in the first quarter of 2006, as compared with three C Checks on Boeing 747-200 aircraft during the first quarter of 2005. There were two D Checks on Boeing 747-200 aircraft in the first quarter of 2006 compared with three D
Checks on Boeing 747-400 aircraft during the first quarter of 2005. There were 10 engine overhauls in the first quarter of 2006 compared with 19 during the first quarter of 2005.
Aircraft rent was essentially unchanged for the comparable periods.
Ground handling and airport fees decreased primarily due to a reduction in Scheduled Service Block Hours and improvement in efficiency of ground handling
services in the Scheduled Service business which is the primary user of such services.
Landing fees and other rent decreased primarily due to a reduction in Scheduled Service and AMC Block Hours.
Depreciation and amortization increased primarily due to an increase of $2.6 million in rotable expense, partially offset by a $2.1 million
decrease in amortization of customer contracts as a result of the substantial reduction in the related intangibles due to the effects of tax accounting in 2005 (see Note 10 to the audited consolidated financial statements included in our 2005 10-K).
Travel decreased primarily due to a reduction in crew travel related to the decrease in total Block Hours.
Pre-petition and post-emergence costs and related professional fees decreased due the winding down of the claims reconciliation process related to the
bankruptcy proceedings.
Other operating expenses increased primarily due to an increase in legal fees of $1.4 million offset by a decrease in professional fees of $1.2
million associated with the redesign of internal controls. The first quarter of 2005 benefited by a $2.3 million reversal of an allowance for doubtful accounts.
Total Operating Expense increased in the first quarter of 2006 compared with the first quarter of 2005, primarily as a result of increased fuel costs
partially offset by a decrease in maintenance expense.
The following table compares our non-operating expenses for the three months ended March 31:
17
Interest income increased primarily to an increase in our available cash balances, augmented by a general
increase in interest rates.
Interest expense decreased primarily as a result of repayment of debt, partially offset by an increase in short term rates on floating rate
debt.
Other, net improved primarily due to unrealized gains on the revaluation of foreign denominated receivables into U.S. dollars. The U.S. dollar had
weakened against most foreign currencies during the period compared with the prior year when the U.S. dollar had strengthened against most foreign currencies.
Income taxes. The effective tax rate for the first quarter of 2006 was 39.9% compared with an effective tax rate of 40.3% for the first quarter of 2005.
Our rates for the first quarter 2006 and 2005 differ from the statutory rate primarily due to the non-deductibility of certain items for tax purposes and the relationship of these items to our projected operating results for the year.
Management allocates the cost of operating aircraft among the various segments
on an average cost per aircraft type. Under-utilized aircraft costs are allocated to segments
based on Block Hours flown for Scheduled Service, AMC and Commercial Charter. ACMI is only allocated
costs of operating aircraft based on the number of aircraft dedicated
to ACMI customers. The following table compares our FAC for segments (see Note 5 to our Financial Statements for the definition of FAC and the reconciliation to operating income (loss) and our reasons for using
FAC) for the three months ended March 31:
Scheduled Service Segment
FAC relating to the Scheduled Service segment decreased despite the improvement in revenue driven by an increase in Yield. The reduction in FAC is driven primarily by higher fuel costs and the
burden of excess, under-utilized Boeing 747-200 capacity.
FAC relating to the ACMI segment increased as a result of the reduction of Block Hours of the less profitable Boeing 747-200 ACMI leases and an increase in Block Hours in the more profitable Boeing 747-400
ACMI leases.
FAC relating to the AMC Charter segment decreased significantly. The most significant factor was the reduction in Block Hours and the increased fixed cost allocation related to the excess, under-utilized Boeing 747-200 capacity that
we were burdened with in the first quarter of 2006.
FAC relating to the Commercial Charter segment decreased primarily due to higher fuel costs and the burden of excess, under-utilized Boeing 747-200 capacity
At March 31, 2006, we
had cash and cash equivalents of $ 309.2 million, compared with $305.9
million at December 31, 2005, an increase of $3.3 million, or 1.0 %. Cash
on hand, cash generated from operations and cash available under our revolving
credit facility, is expected to be more than sufficient to meet our debt and
lease obligations and to finance expected capital expenditures of approximately $45.6
million for 2006.
18
Operating Activities. Net cash provided by operating activities for the first quarter of 2006 was $27.0 million, compared with net cash provided by
operating activities of $45.4 million for the first quarter of 2005. The decrease in cash provided by operating activities is primarily related to a decrease in operating results and a larger reduction in accrued liabilities in the first quarter
of 2006 compared with 2005.
Investing Activities. Net cash used by investing activities was $9.4 million for the first quarter of 2006 consisting primarily of capital
expenditures of $10.3 million. Net cash used by investing activities was $4.1 million for the first quarter of 2005, which reflects capital expenditures of $7.7 million offset by a decrease in restricted funds held in trust of $3.6
million.
Financing Activities. Net cash used by financing activities was $14.3 million for the first quarter of 2006, which consisted primarily of $15.8
million of payments on long-term debt and capital lease obligations offset by $1.5 million in proceeds from the exercise of stock options. Net cash used by financing activities was $11.5 million for the first quarter of 2005, which consisted
primarily of $21.5 million of payments on long-term debt and capital lease obligations, offset by $10.0 million in loan proceeds from our revolving credit facility that were subsequently repaid.
See Note 7 to the audited consolidated financial statements included in the 2005 10-K for a description of the Companys debt obligations and amendments thereto during the bankruptcy
proceedings.
At March 31, 2006, we had no borrowings outstanding under our revolving credit facility, $19.1 million was available for borrowing thereunder, and letters of credit totaling $0.4
million had been issued. Also as of March 31, 2006, we believe that we were in compliance with all of our debt covenants.
There were no material changes in our off balance sheet arrangements during the three months ended March 31, 2006.
There were no material changes in our non-cancelable contractual cash obligations during the three months ended March 31, 2006.
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Managements Discussion and Analysis of Financial Condition
and Results of Operations," included in our 2005 10-K except for the adoption of SFAS No. 123R on January 1, 2006.
Stock-based compensation. The adoption of SFAS No. 123R, in 2006 requires the recording of stock-based compensation expense for issuances under our stock
option plan over their requisite service period using a fair value approach similar to the pro forma disclosure requirements of SFAS No. 123. SFAS No. 123R does not mandate an option-pricing model to be used in determining fair value, but does
require that the model selected consider certain variables. Different models would result in different valuations. Regardless of the method selected, significant judgment is required for some of the valuation assumptions. The most significant of
these is the volatility of our common stock, estimated forfeiture rate and the estimated term over which our stock options will be outstanding. The valuation calculation is sensitive to even slight changes in these estimates (see Note 3 to our
Financial Statements for a further discussion).
There were no new accounting pronouncements issued that impacted us.
Effective April 25, 2006, Herbert J. Lanese resigned from the Board of AAWW, as well as from the Boards of Atlas and Polar. Mr. Lanese also resigned as a member of AAWW's Audit Committee at
such time.
19
On May 3, 2006, AAWW announced that it has appointed William J. Flynn President and Chief Executive Officer, effective June 22, 2006. Mr. Flynn will succeed Jeffrey
H. Erickson, who announced in January that he would retire this year.
Our disclosure and analysis in this report, including but not limited to the information discussed in the Outlook section above, contain forward-looking information about our
financial results and estimates and business prospects that involve substantial risks and uncertainties. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking
statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "anticipate," "estimate," "expect,"
"project," "intend," "plan," "believe," "will," "target" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions,
future performance, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies such as legal proceedings and financial results.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to
risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated
or projected. Investors should bear this in mind as they consider forward-looking statements.
We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further
disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the SEC. Our 2005 10-K listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors
for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Item 1 of that filing under the heading "Risk Factors." We incorporate that section of our 2005 10-K in this filing and investors should
refer to it. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risks from the information provided in Item 7A Quantitative and Qualitative Disclosures About Market Risk included in our 2005 10-K,
except as follows:
Aviation fuel. Our results of operations are affected by changes in the price and availability of aviation fuel. Market risk is estimated at a
hypothetical 10% increase in the average cost per gallon of fuel for the first quarter of 2006. Based on actual first quarter of 2006 fuel consumption for the Scheduled Service and Commercial Charter business segments, such an increase would result
in an increase to aviation fuel expense of approximately $6.8 million for the first quarter of 2006. Fuel prices for AMC are set each September by the military and are fixed for the year and adjusted to actual costs incurred. ACMI does not
present an aviation fuel market risk, as the cost of fuel is borne by the customer.
21
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules 13a- 15(e) and 15d-15(e) of the Exchange Act. This term refers to the controls and procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC. An evaluation was performed under the
supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures as of March 31, 2006. Based on that evaluation,
our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of March 31, 2006.
Remediation of Material Weaknesses and Significant Deficiencies
At the conclusion of the audit of our consolidated financial statements for the year ended December 31, 2005, our independent registered public accounting firm, Ernst & Young LLP
(E&Y), noted in a letter to management and the Audit Committee of our Board, a copy of which was presented to our Board, certain matters involving internal controls including seven significant deficiencies and one
material weakness in our internal controls. E&Y was not engaged to perform an audit of our internal controls over financial reporting. Accordingly, the firm has not expressed an opinion on the effectiveness of our internal controls over
financial reporting.
Management has continued to make significant progress to remediate identified internal control deficiencies and to establish adequate disclosure controls and internal controls over financial
reporting during the quarter ended March 31, 2006. As we continue to evaluate the operating effectiveness of internal controls during 2006, it is possible that management will identify additional deficiencies that meet the definition of a material
weakness or significant deficiency and there can be no assurance that all material weaknesses or significant deficiencies will be remediated by December 31, 2006.
Changes in Internal Controls
Other than as expressly noted above in this Item 4, there were no changes in our internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f), identified in
connection with the evaluation of our controls performed during the quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
22 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS
With respect to the fiscal quarter ended March 31, 2006, the information required in response to this Item is set forth in Note 6 to our Financial Statements contained in this report, and such
information is hereby incorporated herein by reference. Such description contains all of the information required with respect hereto.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We made the following repurchases of shares of our common stock during the fiscal quarter ended March 31, 2006:
(a) This column reflects the repurchase of 409 shares of common stock to satisfy individual tax liabilities relating to the vesting of restricted shares. (b) There are no approved share repurchase programs. ITEM 6. EXHIBITS a. Exhibits
See accompanying Exhibit Index included after the signature page of this report for a list of exhibits filed or furnished with this report.
23
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.
24
EXHIBIT INDEX
25
RETIREMENT AND GENERAL RELEASE AGREEMENT
THIS RETIREMENT AND GENERAL RELEASE AGREEMENT is entered into this 29th day of January, 2006, by and between Atlas Air Worldwide Holdings, Inc. (Holdings) and Jeffrey Erickson
(Employee).
WHEREAS, Employee is employed by the Company as President and Chief Executive Officer of Holdings and of Atlas Air, Inc. (collectively the Company), pursuant
to that certain Amended and Restated Employment Agreement dated April 1, 2005 (the Employment Agreement);
WHEREAS, Employee and the Company are entering into this Agreement to resolve all issues relating to Employees employment, retirement, and termination of the
Employment Agreement.
NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Employee hereby agree as follows:
1. Retirement: Employee shall retire from his employment with the
Company on a date determined by the Company, which date shall be no later than six months from the date of this Agreement (the Retirement Date). Employee shall receive reasonable notice from the Company of the Retirement Date.
2. Payments and Other Benefits:
(a) (i) In lieu of any and all benefits Employee would otherwise be entitled to under the Employment Agreement, Employee will receive
supplemental retirement payments based on Employees base annual salary of $524,400 for a period of eighteen months (the Payout Period), commencing six months after the Retirement Date; and (ii) As a special inducement to enter
into this Agreement, a lump sum payment of $524,400 payable on his Retirement Date.
(b) The Company will provide Employee with continued medical, dental, and vision coverage (as previously elected by Employee) for a period of
twenty-four (24) months after the Retirement Date, subject to Employee paying the same portion of the premiums for such coverage as is paid by actively employed executives of the Company during the period of his employment with the Company;
provided, however, that any such continued coverage shall cease in the event Employee obtains comparable coverage in connection with subsequent employment. The provision of such benefits during the Payout Period shall not count toward the
Employees entitlement period for continuation benefits under the Consolidated Omnibus Budget Reconciliation Act (COBRA).
(c) Employee shall fully vest as of the Retirement Date in the following:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
(Commission File Number)
(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)
(Registrants telephone number, including area
code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
_____________
Yes [ ] No [X]
Page
PART I. FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2006 (unaudited)
1
and December 31, 2005
Condensed Consolidated Statements of Operations for the Three Months Ended
2
March 31, 2006, and 2005 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
3
March 31, 2006, and 2005 (unaudited)
Notes to the Unaudited Condensed Consolidated Financial Statements
4
Item 2.
Managements Discussion and Analysis of Financial Condition
and Results of Operations
13
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
21
Item 4.
Controls and Procedures
22
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
23
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
23
Item 6.
Exhibits
23
Signatures
24
Exhibit Index
25
Condensed Consolidated Balance Sheets
(in thousands, except share data)
Assets
Current Assets
Cash and cash equivalents
$
309,162
305,890
Restricted funds held in trust
167
1,077
Accounts receivable, net of allowance of $4,842
and $4,898, respectively
109,920
131,244
Prepaid maintenance
46,298
49,619
Deferred taxes
12,886
10,094
Prepaid expenses and other current assets
Total current assets
514,998
529,222
Other Assets
Property and equipment, net
570,305
573,870
Deposits and other assets
22,021
22,147
Lease contracts and intangible assets, net
Total Assets
Liabilities and Stockholders Equity
Current Liabilities
Accounts payable
$
31,330
27,588
Accrued liabilities
164,284
178,741
Current portion of long-term debt and capital leases
Total current liabilities
Other Liabilities
Long-term debt and capital leases
515,520
529,742
Deferred tax liability
18,540
18,540
Other liabilities
Total other liabilities
Commitments and contingencies (Note 6)
Stockholders Equity
Preferred stock, $1 par value; 10,000,000 shares authorized;
no shares issued
Common stock, $0.01 par value; 50,000,000 shares authorized;
19,964,930 and 19,881,907 shares issued,
respectively
200
199
Additional paid-in-capital
253,107
256,046
Common stock to be issued to creditors
13,294
13,389
Treasury stock, at cost; 66,978 and 66,569 shares, respectively
(2,275
)
(2,257
)
Deferred compensation
-
(6,043
)
Retained earnings
Total stockholders equity
Total Liabilities and Stockholders Equity
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
Operating Revenues
Operating Expenses
Aircraft fuel
101,176
79,607
Salaries, wages and benefits
60,071
56,352
Maintenance, materials and repairs
40,384
64,019
Aircraft rent
37,789
36,859
Ground handling and airport fees
15,885
18,158
Landing fees and other rent
16,316
18,387
Depreciation and amortization
13,526
13,004
Travel
13,249
14,799
Pre-petition and post-emergence costs and
related professional fees
98
1,641
Other
Total operating expenses
Operating income
Non-operating Expenses
Interest income
(3,615
)
(818
)
Interest expense
17,300
17,822
Other (income) expense, net
)
Total non-operating expenses
Income (loss) before income taxes
(6,151
)
1,520
Income tax expense (benefit)
)
Net income (loss)
)
Income (loss) per share:
Basic
)
Diluted
)
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Cash Flows from Operating Activities:
Net income (loss)
(3,699
)
675
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation and amortization
13,526
13,004
Accretion of debt discount
3,429
3,682
Amortization of operating lease discount
461
459
Provision (release of allowance) for doubtful accounts
314
(2,247
)
Amortization of debt issuance cost
84
79
Stock-based compensation expense
1,537
989
Other, net
564
-
Changes in certain operating assets and liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities:
Capital expenditures
(10,325
)
(7,679
)
Decrease in restricted funds held in trust
Net cash used by investing activities
)
)
Cash Flows from Financing Activities:
Proceeds from loan
-
10,000
Proceeds from stock option exercises
1,472
-
Purchase of treasury stock
(18
)
-
Payments on debt
)
)
Net cash used by financing activities
)
)
Net increase in cash and cash equivalents
3,272
29,709
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2006
Net income, as reported
$ 675
Add: Restricted stock expense, net of tax
597
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards
)
Pro forma net income
Basic and diluted income per share:
As reported
Pro forma
Expected stock price volatility
Risk free interest rate
Expected life of options (years)
Expected annual dividend per share
Estimated annual forfeiture rate
Outstanding at December 31, 2005
1,102,122
$21.29
Granted
15,000
48.00
Exercised
(70,196
)
20.97
Forfeited
)
Outstanding at March 31, 2006
Exercisable at March 31, 2006
Restricted Share Awards
Unvested at December 31, 2005
413,665
$ 18.74
Granted
6,000
48.00
Vested
(1,000
)
(27.50
)
Forfeited
)
)
Unvested at March 31,
2006
Revenues:
Scheduled Service
128,680
121,144
ACMI
98,184
109,537
AMC Charter
73,126
88,916
Commercial Charter
20,484
15,537
All Other
Total operating revenues
FAC:
Scheduled Service
(8,012
)
(6,928
)
ACMI
3,480
(4,778
)
AMC Charter
(1,646
)
12,886
Commercial Charter
)
)
Total FAC
(9,271
)
341
Add back (subtract):
Unallocated other
3,218
2,820
Pre-petition and post-emergence costs and
related professional fees
(98
)
(1,641
)
Interest income
(3,615
)
(818
)
Interest expense
17,300
17,822
Other, net
)
Operating income
(Add back) subtract:
Interest income
(3,615
)
(818
)
Interest expense
17,300
17,822
Other, net
)
Income (loss) before income taxes
)
(a) Antidilutive
Numerator:
Net income (loss)
)
Denominator for basic earnings per share
20,517
20,212
Effect of dilutive securities:
Stock options
-
210
Restricted stock
Denominator for diluted earnings per share
Basic income (loss) per share
)
Diluted income (loss) per share
)
ATM
Available Ton Miles, which represent the maximum available tons (capacity) per actual miles
flown. It is calculated by multiplying the available capacity (tonnage) of the aircraft against the
miles flown by the aircraft.
Block Hours
The time interval between when an aircraft departs the terminal until it arrives at the destination
terminal.
RATM
Revenue per Available Ton Mile, which represents the average revenue received per available ton
mile flown. It is calculated by dividing operating revenues by ATMs.
Revenue Per
Calculated by dividing operating revenues by Block Hours.
Block Hour
RTM
Revenue Ton Mile, which is calculated by multiplying actual revenue tons carried against miles
flown.
Load Factor
The average amount of weight flown per the maximum available capacity. It is calculated by
dividing RTMs by ATMs.
Yield
The average amount a customer pays to fly one ton of cargo one mile. It is calculated by dividing
operating revenues by RTMs.
A/B Checks
Low level maintenance checks performed on aircraft at an interval of approximately 400 to 1,100
flight hours.
C Checks
High level or heavy airframe maintenance checks which are more intensive in scope than an A/B
Check and are generally performed on an 18 to 24 month interval.
D Checks
High level or heavy airframe maintenance checks, which are the most extensive in scope and are
generally performed on an interval of 6 to 10 years or 25,000 to 28,000 flight hours, whichever
comes first.
FAC
Income (loss) before taxes, excluding pre-petition and post-emergence costs and related
professional fees, unallocated corporate and other items. We evaluate performance and allocate
resources to our segments based upon this measure.
Business Strategy and Outlook
Block Hours
Scheduled Service
8,561
9,083
(522
)
(5.7
%)
ACMI
16,774
20,487
(3,713
)
(18.1
%)
AMC Charter
4,510
6,231
(1,721
)
(27.6
%)
Commercial Charter
1,442
1,233
209
17.0
%
All Other
)
Total Block Hours
)
Revenue Per Block Hour
ACMI
5,853
5,347
506
9.5
%
AMC Charter
16,214
14,270
1,944
13.6
%
Commercial Charter
14,205
12,601
1,604
12.7
%
Scheduled Service Traffic
RTMs (000s)
317,032
336,666
(19,634
)
(5.8
%)
ATMs (000s)
500,607
529,698
(29,091
)
(5.5
%)
Load Factor
63.33
%
63.56
%
(0.23
)
(0.4
%)
RATM
0.257
0.229
0.028
12.2
%
Yield
0.406
0.360
0.046
12.8
%
Fuel
Scheduled Service and Commercial Charter:
Average fuel cost per gallon
2.05
1.49
0.56
37.6
%
Fuel gallons consumed (000s)
33,410
33,780
(370
)
(1.1
%)
AMC:
Average pegged fuel cost per gallon
2.20
1.40
0.80
57.1
%
Fuel gallons consumed (000s)
14,919
20,917
(5,998
)
(28.7
%)
Fleet (average during the period)
Operating Aircraft count *
39.0
39.1
(0.1
)
(0.3
%)
Dry Leased **
3.0
3.1
(0.1
)
(3.2
%)
Out of service **
-
0.8
(0.8
)
(100.0
%)
Operating Revenues
Scheduled Service
128,680
121,144
7,536
6.2
%
ACMI
98,184
109,537
(11,353
)
(10.4
%)
AMC Charter
73,126
88,916
(15,790
)
(17.8
%)
Commercial Charter
20,484
15,537
4,947
31.8
%
Other revenue
)
Total operating revenues
)
Operating Expenses
Aircraft fuel
101,176
21,569
27.1
%
Salaries, wages and benefits
60,071
3,719
6.6
%
Maintenance, materials and repairs
40,384
(23,635
)
(36.9
%)
Aircraft rent
37,789
930
2.5
%
Ground handling and airport fees
15,885
(2,273
)
(12.5
%)
Landing fees and other
rent
16,316
18,387
(2,071
)
(11.3
%)
Depreciation and amortization
13,526
13,004
522
4.0
%
Travel
13,249
14,799
(1,550
)
(10.5
%)
Pre-petition and post-emergence
costs
and related
professional fees
98
1,641
(1,543
)
(94.0
%)
Other
Total
operating expense
)
Increase /
Percent
(Decrease)
Change
Non-operating Expenses
Interest income
$ (3,615
)
$ (818
)
$ 2,797
341.9
%
Interest expense
17,300
17,822
(522
)
(2.9
%)
Other (income) expense, net
(430
)
1,958
(2,388
)
(122.0
%)
FAC:
Scheduled Service
(8,012
)
(6,928
)
(1,084
)
(15.6
%)
ACMI
3,480
(4,778
)
8,258
172.8
%
AMC Charter
(1,646
)
12,886
(14,532
)
(112.8
%)
Commercial Charter
)
)
)
Total FAC
)
)
Maximum Number (or
Total Number of
Approximate Dollar
Shares Purchased as
Value) of Shares that
Part of Publicly
May Yet Be Purchased
Total Number of
Average Price
Announced Plans or
Under the Plans or
Period
Shares Purchased (a)
Paid per Share
Programs (b)
Programs
January 1, 2006 through
409
$44.20
January 31, 2006
February 1, 2006 through
February 18, 2006
March 1, 2006 through
March 31, 2006
Total
409
$44.20
Atlas Air Worldwide Holdings, Inc.
/s/ Jeffrey H. Erickson
Jeffrey H. Erickson
President and Chief Executive Officer
/s/ Michael L. Barna
Michael L. Barna
Senior Vice President and Chief Financial Officer
Retirement and General Release Agreement between the Company and Jeffery H. Erickson,
President and Chief Executive Officer, dated as of January 29, 2006.
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer, furnished herewith.
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer, furnished herewith.
Section 1350 Certifications, furnished herewith.
i. 58,733 shares of Holdings restricted stock granted 8/11/04, which shares would otherwise not vest until July 27, 2006.
ii. 42,233 stock options granted 8/11/04, with an exercise price of $16.70 per share, which options would otherwise not vest until July 27, 2006. These options may be exercised up to the later of (A) ninety (90) days after the Retirement Date and (B) December 31, 2006. | |
iii. 17,333 options granted 3/22/05 with an exercise price of $27.50, which options would otherwise not vest until January 23, 2007. These options may be exercised up to the later of (A) ninety (90) days after the Retirement Date and (B) December 31, 2006. |
(d) Notwithstanding the provisions of the 2005 Senior Executive Annual Incentive Plan which require continued employment through the payment date for payment eligibility, Employee will be entitled to payment under such Plan in accordance with its other terms regardless of the timing of the Retirement Date.
(e) Employee will be entitled to receive a bonus for 2006 equal to fifty percent (50%) of his base salary. He shall receive that bonus without regard to whether he remains employed through the payment date, which shall be the same date that bonuses for other executives are paid under the 2006 Senior Executive Annual Incentive Plan, but in any event not later than March 14, 2007.
(f) The Company will pay Employees attorneys fees, to a maximum of $30,000.00, incurred in connection with his retirement pursuant to, and negotiation of, this Agreement, upon presentation of a detailed invoice for such fees.
(g) Employee shall be entitled to retain his Company-provided Blackberry and laptop, subject to the Companys right to remove any proprietary information. Company will not provide or pay for service in connection with any such retained item.
(h) Company will reimburse Employee for the cost of moving his personal belongings to his home in Arizona, to a maximum of $5,000.00, upon presentation of an invoice.
(i) Employee will receive a success fee upon the completion of any Transaction as that term is defined in any engagement letter between the Company and any selected investment banker entered into during his remaining tenure as CEO, in an amount equal to 10% of the fee paid to such investment banker upon such successful completion. No more than two transactions will qualify for such payment, and those transactions shall be as agreed upon between Employee and the Board of Directors. No payment under this provision will be made unless such agreed-upon transaction closes within one year of the Retirement Date.
(j) Employee will receive all accrued and unpaid amounts owing him as of the Retirement Date, such as vacation pay and unpaid salary.
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With the exception of the foregoing, Employee acknowledges and agrees that he shall not be entitled to receive or accrue any other compensation or benefits from the Company of any kind or nature whatsoever during the Payout Period or otherwise, including, but not limited to, any benefits under the Companys Long Term Incentive Plan, Annual Incentive Plan, vacation, profit sharing, 401(k) contributions, stock option awards of any kind, bonuses, severance pay, or any other benefits that may be provided to employees or officers of the Company as a matter of Company policy or practice. Employee further agrees that during the Payout Period, he will not be eligible to make any contributions to the Companys 401(k) Plan. The payments and benefits described in this Paragraph 2 include consideration provided to Employee over and above anything of value to which he would otherwise be entitled.
3. Comprehensive Release and Waiver: In consideration of the benefits provided to him under Paragraph 3, and except as expressly set forth in this Retirement and General Release Agreement, Employee hereby releases, waives, and forever discharges the Company, its officers, directors, employees, partners, owners, affiliates, and agents, and its and their respective officers, directors, employees, partners, owners, affiliates, agents, successors, assigns, benefit plans, and programs (the COMPANY RELEASEES) from any claim, demand, action, or cause of action, whether known or unknown, which arose at any time from the beginning of time to the date on which Employee executes this Agreement. Accordingly, Employee waives and releases all rights relating to, arising out of, or in any way connected with his employment with or retirement from the Company, including, but not limited to, any claim, demand, cause of action, or right, including claims for attorneys fess based on, but not limited to:
(a) The Age Discrimination in Employment Act of 1967, as amended (codified beginning at 29 U.S.C. Section 621); the Older Workers Benefit Protection Act (Pub. Law 101-433, 104 Stat. 978 (1990)); Title VII of the Civil Rights Act of 1964, as amended; the Americans with Disabilities Act of 1990; the Civil Rights Acts of 1866, 1871, and 1991; the Family and Medical Leave Act of 1993; the Equal Pay Act of 1963; the Employee Retirement and Income Security Act of 1974, as amended (ERISA); the New York State Civil Rights Act, as amended; the New York State Human Rights Law, as amended; the New York State Labor Law, as amended; the New York State Workers Compensation Laws Retaliation provisions, as amended; the New York State Disability Benefits laws Retaliation provisions, as amended; the New York City Administrative Code and Charter, as amended; the New York City Human Rights Law, as amended; any federal, state, or local law concerning equal pay; and any other federal, state, or local employment statute, law, or ordinance; provided, however, that this Agreement shall not affect Employees rights under the Older Workers Benefit Protection Act to have a judicial determination of the validity of this release and waiver;
(b) Any and all rights or claims under any express or implied contract or covenant, covenant of good faith and fair dealing, promissory estoppel, or other promises;
(c) Any and all common law claims such as wrongful discharge, violation of public policy, defamation, negligence, infliction of emotional distress, any intentional torts, outrageous conduct, interference with contract, fraud, misrepresentation, and invasion of privacy; and
3
(d) Any and all claims for any of the following: money damages including actual, compensatory, or punitive damages, equitable relief such as reinstatement or injunctive relief, front or back pay, wages, sick pay, stock options, vacation pay, bonuses, stock awards, liquidated damages, costs, expenses, or any other remedies.
Employee acknowledges that he is releasing all claims and potential claims pursuant to this Paragraph 3 to the fullest extent permitted at law. The waiver and release contained in this Paragraph 3, however, does not include: (a) any rights or claims arising after the Retirement Date; (b) any vested rights to receive benefits under the Companys ERISA benefit plans and any indemnification agreements or arrangements; (c) any rights under this Agreement; and (d) any rights to elect continuation coverage under the Companys group health plan in accordance with the terms of COBRA.
4. Covenant Not To Sue: (a) Employee agrees not to file any claims, complaints, charges, or lawsuits against any COMPANY RELEASEE for any of the claims or other matters that are released, waived, or discharged in Paragraph 3 of this Retirement and General Release Agreement. Accordingly, Employee covenants and agrees not to sue any of the COMPANY RELEASEES concerning any claim relating to, arising out of, or occurring during the course of his employment with or Retirement from the Company.
(b) Company covenants and agrees not to sue, and agrees to cause the COMPANY RELEASEES to covenant and agree not to sue, Employee concerning any claim relating to, arising out of, or occurring as a result of Employees employment or service as a director of the Company or any of its affiliates and while Employee acted within the scope of his employment or duties, or as a result of his Retirement, except to the extent such claim resulted from the willful misconduct of Employee.
5. Non-Disclosure and Return Of Company Property: Employee covenants and agrees that at any time in the future he will not reveal, divulge, or make known to any third party any Confidential or Proprietary Information of the Company or any of its affiliates which is not in the public domain, except as required by law. Confidential or Proprietary Information includes, but is not limited to, records, data, trade secrets, pricing policies, strategy, rate structure, personnel policy, management methods, financial reports, methods or practice of obtaining or doing business and any oral or written information disclosed to Employee or known by Employee as a consequence of or through Employees employment by the Company which relates to the Companys business, products, processes, contracts, or services, including, but not limited to, information relating to research, development, inventions, products under development, manufacturing, processes, formulas, purchasing, finance, accounting, revenues, expenses, marketing, selling, suppliers, customer lists, customer requirements, and the documentation thereof. Except as specifically set forth herein, Employee has returned or agrees to return to the Company on or before the Effective Date (as defined below) of this Agreement, any and all Company property (including his company car or other electronic equipment) and records in Employees possession or control, whether prepared by Employee or by others, including, but not limited to, notes, memoranda, correspondence, documents, records, notebooks, tapes, disks, and other repositories of Confidential Information. Employee also agrees to return all Company identification and credit cards on or before the Retirement Date.
4
6. Non-Disparagement: The parties agree not to make any oral or written statement or take any other action which disparages or criticizes the other, and agrees not to make statements about the other to public media. Employee agrees not to send bulk-mails or faxes or other communications to Company employees generally or to large groups of Company employees; provided, however, that Employee shall not be restricted from communicating with individual Company employees concerning legitimate personal interests of Employee, or from contacting Company officers or directors concerning issues relating to Employees past employment by the Company or the rights and obligations of Employee and the Company under this Agreement. Employee agrees to cooperate with the Company to promptly resolve all expense account statements to the Companys reasonable satisfaction.
7. Non-Competition:
(a) Employee covenants and agrees that, at no time before the first anniversary of the later of (x) the Retirement Date and (y) the date Employee ceases to be a member of the Board, will Employee engage in any of the following activities directly or indirectly, for any reason, whether for Employees own account or for the account of any other person, firm, corporation or other organization:
(i) interfere with any of the Companys contracts or relationships with any client, employee, officer, director or any independent contractor whether the person is employed by or associated with the Company on the date of this Agreement or at any time thereafter; or | |
(ii) interfere with any of the Companys contracts or relationships with any independent contractor, customer, client or supplier, or any person who is a bona fide prospective independent contractor, customer, client or supplier of the Company. |
(b) In addition, Employee covenants and agrees that, at no time before the first anniversary of the later of (x) the Retirement Date and (y) the date Employee ceases to be a member of the Board, will Employee directly or indirectly, for any reason, whether for Employees own account or for the account of any other person, firm, corporation or other organization, accept employment with, or give advice to, (i) any air cargo carrier, (ii) any air cargo division or affiliate of any other airline or (iii) any company that leases cargo aircraft on an ACMI, wet lease, charter or dry lease basis. The parties agree and intend that breach of this non-competition clause shall subject Employee to the full measure of contract and equitable damages.
Employee acknowledges that irreparable damage would result to the Company if the provisions of this Paragraph 7 are not specifically enforced, and agrees that the Company shall be entitled to any appropriate legal, equitable, or other remedy, including injunctive relief, in respect of any failure to comply with the provisions of this Paragraph 7.
For purposes of this Paragraph 7, Company shall include Holdings and each of its subsidiaries.
8. Confidentiality: Employee agrees to keep the terms of this Agreement confidential and not to disclose those terms to anyone except immediate family members, legal counsel, and tax or financial advisors; provided, however, that Employee advises such persons of
5
the confidential nature of this Agreement and they agree not to disclose such information further, and except as may otherwise be necessary to enforce its terms or as required by law.
9. Cooperation: Employee agrees to cooperate fully with the Company in connection with any actions, proceedings, or potential actions or proceedings the subject matter of which arose, occurred, or transpired while Employee was an employee or otherwise represented the Company. Such cooperation will include, but is not limited to, testimony at deposition, trial, or arbitration; submission of affidavits, certifications, or other court documents; and preparation for the foregoing via personal meetings and telephone conferences with the Company and/or its counsel. The Company agrees to pay Employees reasonable out-of-pocket expenses in connection with such testimony and preparation for such testimony. The Company will provide reasonable compensation to the extent that Employees obligations under this Paragraph 9 involve more than, in the aggregate, three days in any calendar year.
10. Breach By Either Party: If either party breaches any provision of this Agreement, the breaching party agrees to pay all reasonable attorneys fees and costs incurred by the non-breaching party or by any COMPANY RELEASEE as a result of such breach. In the event of a material breach of this Agreement by Employee, the Company shall have the right to recover all consideration paid or provided hereunder in excess of amounts which would have been payable to Employee under the Employment Agreement had Employee been terminated by the Company without Cause (as defined in the Employment Agreement) as of the date this Agreement is executed, and Employee shall have the right to recover damages for any amounts due hereunder.
11. Successors: This Agreement shall apply to Employee, as well as his heirs, agents, executors, and administrators. The Agreement also shall apply to, and inure to the benefit of, the predecessors, successors, and assigns of the Company and each past, present, or future employee, agent, representative, officer, partner, owner, or director of the Company and any division, subsidiary, parent, or affiliated entity.
12. Prior Agreements: Except as provided herein, this Agreement shall supersede and effectively terminate any prior employment agreement(s) between the Company and the Employee, including but not limited to the Employment Agreement. Employee hereby releases the Company and the Company Releasees (as defined in Paragraph 3, above) from any and all obligations under those respective Agreements. Nothing herein shall supersede any indemnification agreements or arrangements for the benefit of Employee.
13. Severability: If any provision of this Agreement is found to be invalid or unenforceable by a court of competent jurisdiction, the remaining terms of this Agreement will remain in full force and effect.
14. Complete Agreement: The parties agree that this Retirement and General Release Agreement sets forth all of the terms of the agreement between the parties with respect to the subject matter of this Agreement. This Agreement constitutes the entire agreement between Employee and the Company concerning his employment with the Company and his Retirement from employment with the Company, and there are no other promises, understandings, or agreements relating thereto except as may be provided herein.
6
15. No admission: Nothing in this Agreement shall be construed as an admission of liability by either party. The purpose of this Agreement is solely to amicably resolve all issues relating to Employees employment and Retirement from employment with the Company.
16. Drafting: Both parties have participated in the preparation of this Agreement, and no rules of construction or interpretation based upon which party drafted any portion of the Agreement shall be applicable or invoked.
17. Choice of Law and Jurisdiction: This Agreement shall be construed and enforced in accordance with the law of the State of New York. Any action brought by or on behalf of Employee, his agents, heirs, administrators, or executors against the Company (or any of its officers, directors, employees, partners, owners, affiliates, or agents) to enforce this Agreement shall be maintained in a federal or state court located in the jurisdiction in which Employee was employed by the Company.
18. No Representations: The parties agree and acknowledge that they have not relied upon any representation, whether written or oral, of the other party in connection with entering into this Agreement, other than as set forth herein.
19. Public Announcements: The parties will cooperate in the issuance of any press releases or otherwise in the making of any public statements with respect to Employees retirement and related matters contemplated hereby. Employee acknowledges that the Company intends to issue a press release promptly following the parties execution and delivery of this Agreement.
20. Registration Rights: Employee will be expressly included in any registration of shares made by the Company, to the same extent as then current executives, with respect to shares and options previously issued to him.
21. D&O Coverage: The Company will continue to provide Employee coverage under the Company directors and officers (D&O) insurance policy for so long as he reasonably retains potential liability as a result of his status as an officer, director or employee of the Company or any of its affiliates, including service as a fiduciary of a Company or affiliate employee benefit plan. The terms and conditions of such coverage shall be at least as favorable to the Employee as the most favorable terms and conditions provided to any other officer, director or senior executive of the Company or its affiliates. Without limitation on the foregoing, the Company will indemnify the Employee, to the fullest extent permitted by law, for any liability, loss, cost, expense or damage, as incurred, by reason of his service as an officer, director or employee of the Company or its affiliates, including service as a fiduciary of a Company or affiliate employee benefit plan.
22. Directorship: Employee will resign from the Board of Directors as of the Retirement Date, unless at such time there is a vacancy on the Board created by the resignation or other termination of another Board member. Notwithstanding the foregoing, Employee will be included in the slate of directors presented to the Companys shareholders at the Companys next annual meeting.
7
THIS AGREEMENT IS AN IMPORTANT LEGAL DOCUMENT. EMPLOYEE IS ADVISED TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS AGREEMENT. EMPLOYEE IS ADVISED THAT HE HAS 21 DAYS AFTER RECEIVING THIS DOCUMENT TO CONSIDER IT, AND IF HE ELECTS TO SIGN IT BEFORE THAT TIME, ACKNOWLEDGES THAT HE HAS DONE SO VOLUNTARILY. IF EMPLOYEE CHOOSES TO AGREE TO THE TERMS OF THIS AGREEMENT, HE MUST SIGN AND RETURN THIS AGREEMENT TO THE COMPANY WITHIN 21 DAYS. IF EMPLOYEE SIGNS THIS AGREEMENT, HE WILL THEN HAVE THE RIGHT TO REVOKE THIS AGREEMENT BY DELIVERING WRITTEN NOTICE OF REVOCATION TO THE COMPANY, BUT SUCH NOTICE MUST BE RECEIVED BY THE COMPANY WITHIN SEVEN DAYS AFTER THE DATE THAT EMPLOYEE SIGNED THIS AGREEMENT. THIS AGREEMENT SHALL NOT BECOME EFFECTIVE AND NONE OF THE PAYMENTS AND BENEFITS SET FORTH IN THIS AGREEMENT SHALL BECOME DUE AND PAYABLE UNTIL THE EFFECTIVE DATE, WHICH IS DEFINED AS THE EARLIEST DATE AFTER (a) BOTH PARTIES HAVE EXECUTED THIS AGREEMENT, AND (b) EMPLOYEES SEVEN-DAY REVOCATION PERIOD HAS PASSED WITHOUT REVOCATION. IF THIS AGREEMENT IS NOT SIGNED AND DELIVERED TO THE COMPANY WITHIN THE 21-DAY PERIOD, NEITHER EMPLOYEE NOR THE COMPANY WILL HAVE ANY RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT.
COMPANY: ATLAS AIR WORLDWIDE HOLDINGS, INC. a Delaware corporation |
JEFFREY ERICKSON: | |
By: /s/ Eugene I. Davis | /s/ J.H. Erickson
| |
Printed: EUGENE I. DAVIS | Printed: J.H. Erickson | |
Title: CHAIRMAN OF THE BOARD | Date: 1/29/06 | |
Date: 1/29/06 | ||
8
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
I, Jeffrey H. Erickson, President and Chief Executive Officer of Atlas Air Worldwide Holdings, Inc., certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Atlas Air Worldwide Holdings, Inc.; | |
2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; | |
3. | Based on my knowledge, the Financial Statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: | |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; | ||
b) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; | ||
c) Disclosed in this Report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; | ||
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. | ||
Dated: May 15, 2006
|
/s/ Jeffrey H. Erickson | ||
Jeffrey H. Erickson | |||
President and Chief Executive Officer |
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
I, Michael L. Barna, Senior Vice President and Chief Financial Officer of Atlas Air Worldwide Holdings, Inc., certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Atlas Air Worldwide Holdings, Inc.; | |
2. | Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; | |
3. | Based on my knowledge, the Financial Statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report; | |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: | |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; | ||
b) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; | ||
c) Disclosed in this Report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; | ||
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. | ||
Dated: May 15, 2006
|
/s/ Michael L. Barna | ||
Michael L. Barna | |||
Senior Vice President and Chief Financial Officer |
EXHIBIT 32.1
In connection with the Quarterly Report of Atlas Air Worldwide Holdings, Inc. (the Company) on Form 10-Q for the period ending March 31, 2006 as filed with the Securities and Exchange Commission (the Report), we, Jeffrey H. Erickson and Michael L. Barna, Chief Executive Officer and Chief Financial Officer, respectively, of the Company certify that to our knowledge:
1. the Report complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 15, 2006
/s/ Jeffrey H. Erickson
/s/ Michael L. Barna |