cover
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-16545
Atlas Air Worldwide Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
| 13-4146982 |
(State or other jurisdiction of incorporation) |
| (IRS Employer Identification No.) |
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2000 Westchester Avenue, Purchase, New York |
| 10577 |
(Address of principal executive offices) |
| (Zip Code) |
(914) 701-8000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.01 Par Value | AAWW | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 1, 2017,October 25, 2019, there were 25,283,10025,870,876 shares of the registrant’s Common Stock outstanding.
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Item 1. |
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| Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018 (unaudited) | 3 | |
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Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 6. |
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PART I — FINANCIALFINANCIAL INFORMATION
Atlas Air Worldwide Holdings, Inc.
(in thousands, except share data)
(Unaudited)
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| September 30, 2017 |
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| December 31, 2016 |
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| September 30, 2019 |
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| December 31, 2018 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
| $ | 165,250 |
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| $ | 123,890 |
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| $ | 70,327 |
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| $ | 221,501 |
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Short-term investments |
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| 10,676 |
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| 4,313 |
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| 2,129 |
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| 15,624 |
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Restricted cash |
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| 11,030 |
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| 14,360 |
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| 10,376 |
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| 11,240 |
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Accounts receivable, net of allowance of $1,230 and $997, respectively |
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| 172,205 |
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| 166,486 |
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Prepaid maintenance |
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| 13,181 |
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| 4,418 |
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Accounts receivable, net of allowance of $1,521 and $1,563, respectively |
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| 264,752 |
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| 269,320 |
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Prepaid expenses and other current assets |
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| 77,434 |
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| 44,603 |
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| 82,505 |
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| 112,146 |
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Total current assets |
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| 449,776 |
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| 358,070 |
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| 430,089 |
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| 629,831 |
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Property and Equipment |
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Flight equipment |
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| 4,267,704 |
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| 3,886,714 |
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| 5,377,985 |
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| 5,213,734 |
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Ground equipment |
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| 73,653 |
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| 68,688 |
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| 87,282 |
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| 75,939 |
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Less: accumulated depreciation |
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| (670,443 | ) |
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| (568,946 | ) |
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| (1,020,278 | ) |
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| (860,354 | ) | |
Flight equipment modifications in progress |
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| 228,040 |
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| 154,226 |
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| 88,632 |
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| 32,916 |
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Property and equipment, net |
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| 3,898,954 |
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| 3,540,682 |
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| 4,533,621 |
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| 4,462,235 |
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Other Assets |
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Long-term investments and accrued interest |
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| 19,234 |
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| 27,951 |
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Operating lease right-of-use assets |
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| 520,063 |
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| - |
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Deferred costs and other assets |
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| 210,611 |
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| 204,647 |
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| 403,871 |
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| 345,037 |
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Intangible assets, net and goodwill |
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| 108,727 |
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| 116,029 |
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| 81,590 |
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| 97,689 |
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Total Assets |
| $ | 4,687,302 |
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| $ | 4,247,379 |
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| $ | 5,969,234 |
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| $ | 5,534,792 |
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Liabilities and Equity |
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Current Liabilities |
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Accounts payable |
| $ | 62,540 |
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| $ | 59,543 |
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| $ | 90,850 |
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| $ | 87,229 |
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Accrued liabilities |
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| 421,670 |
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| 320,887 |
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| 522,694 |
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| 465,669 |
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Current portion of long-term debt and capital lease |
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| 196,509 |
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| 184,748 |
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Current portion of long-term debt and finance lease |
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| 341,807 |
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| 264,835 |
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Current portion of long-term operating leases |
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| 141,362 |
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| - |
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Total current liabilities |
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| 680,719 |
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| 565,178 |
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| 1,096,713 |
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| 817,733 |
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Other Liabilities |
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Long-term debt and capital lease |
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| 1,908,835 |
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| 1,666,663 |
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Long-term debt and finance lease |
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| 2,031,642 |
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| 2,205,005 |
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Long-term operating leases |
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| 427,459 |
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| - |
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Deferred taxes |
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| 318,171 |
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| 298,165 |
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| 186,599 |
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| 256,970 |
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Financial instruments and other liabilities |
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| 204,408 |
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| 200,035 |
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| 33,529 |
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| 187,120 |
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Total other liabilities |
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| 2,431,414 |
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| 2,164,863 |
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| 2,679,229 |
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| 2,649,095 |
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Commitments and contingencies |
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Equity |
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Stockholders’ Equity |
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Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued |
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| - |
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| - |
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Common stock, $0.01 par value; 100,000,000 shares authorized; 30,090,510 and 29,633,605 shares issued, 25,283,100 and 25,017,242 shares outstanding (net of treasury stock), as of September 30, 2017 and December 31, 2016, respectively |
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| 301 |
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| 296 |
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Preferred stock, $1 par value; 10,000,000 shares authorized; 0 shares issued |
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| - |
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| - |
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Common stock, $0.01 par value; 100,000,000 shares authorized; 31,043,847 and 30,582,571 shares issued, 25,867,423 and 25,590,293 shares outstanding (net of treasury stock), as of September 30, 2019 and December 31, 2018, respectively |
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| 310 |
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| 306 |
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Additional paid-in-capital |
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| 710,446 |
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| 657,082 |
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| 752,790 |
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| 736,035 |
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Treasury stock, at cost; 4,807,410 and 4,616,363 shares, respectively |
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| (193,426 | ) |
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| (183,119 | ) | |||||||||
Treasury stock, at cost; 5,176,424 and 4,992,278 shares, respectively |
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| (213,837 | ) |
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| (204,501 | ) | |||||||||
Accumulated other comprehensive loss |
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| (4,249 | ) |
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| (4,993 | ) |
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| (3,059 | ) |
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| (3,832 | ) | |
Retained earnings |
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| 1,062,097 |
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| 1,048,072 |
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| 1,657,088 |
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| 1,539,956 |
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Total equity |
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| 1,575,169 |
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| 1,517,338 |
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Total stockholders’ equity |
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| 2,193,292 |
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| 2,067,964 |
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Total Liabilities and Equity |
| $ | 4,687,302 |
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| $ | 4,247,379 |
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| $ | 5,969,234 |
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| $ | 5,534,792 |
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See accompanying Notes to Unaudited Consolidated Financial Statements
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
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| For the Three Months Ended |
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| For the Nine Months Ended |
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| For the Three Months Ended |
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| For the Nine Months Ended |
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| September 30, 2017 |
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| September 30, 2016 |
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| September 30, 2017 |
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| September 30, 2016 |
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| September 30, 2019 |
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| September 30, 2018 |
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| September 30, 2019 |
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| September 30, 2018 |
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Operating Revenue |
| $ | 535,748 |
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| $ | 448,015 |
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| $ | 1,528,508 |
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| $ | 1,309,902 |
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| $ | 648,539 |
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| $ | 656,607 |
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| $ | 1,992,140 |
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| $ | 1,912,766 |
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Operating Expenses |
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Salaries, wages and benefits |
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| 114,505 |
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| 125,978 |
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| 330,080 |
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| 321,365 |
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| 145,987 |
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| 138,345 |
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| 432,911 |
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| 392,603 |
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Aircraft fuel |
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| 74,048 |
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| 65,409 |
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| 239,966 |
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| 189,982 |
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| 123,132 |
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| 119,604 |
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| 351,611 |
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| 345,613 |
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Maintenance, materials and repairs |
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| 74,457 |
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| 49,761 |
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| 212,042 |
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| 162,220 |
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| 88,240 |
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| 88,136 |
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| 305,331 |
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| 261,251 |
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Depreciation and amortization |
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| 42,033 |
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| 37,509 |
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| 120,913 |
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| 109,722 |
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| 62,499 |
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| 55,417 |
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| 190,669 |
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| 155,881 |
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Travel |
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| 38,260 |
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| 31,958 |
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| 105,510 |
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| 94,291 |
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| 49,110 |
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| 41,605 |
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| 140,513 |
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| 123,810 |
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Aircraft rent |
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| 33,873 |
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| 35,730 |
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| 103,738 |
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| 109,490 |
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| 40,048 |
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| 39,973 |
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| 122,271 |
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| 119,778 |
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Navigation fees, landing fees and other rent |
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| 33,468 |
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| 15,640 |
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| 77,258 |
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| 56,391 |
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| 32,270 |
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| 43,258 |
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| 110,468 |
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| 116,553 |
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Passenger and ground handling services |
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| 28,491 |
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| 21,673 |
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| 77,187 |
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| 64,571 |
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| 34,453 |
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| 28,716 |
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| 97,138 |
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| 86,980 |
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Loss (gain) on disposal of aircraft |
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| 211 |
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| (11 | ) |
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| 64 |
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| (11 | ) | ||||||||||||||||
Special charge |
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| - |
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| - |
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| - |
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| 6,631 |
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Special charge, net |
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| 18,861 |
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| - |
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| 22,130 |
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| 9,374 |
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Transaction-related expenses |
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| 1,092 |
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| 3,905 |
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| 3,403 |
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| 21,486 |
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| 324 |
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| 765 |
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| 3,585 |
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| 1,275 |
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Other |
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| 42,598 |
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| 34,465 |
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| 123,121 |
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| 106,885 |
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| 54,494 |
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| 46,318 |
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| 160,548 |
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| 143,663 |
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Total Operating Expenses |
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| 483,036 |
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| 422,017 |
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| 1,393,282 |
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| 1,243,023 |
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| 649,418 |
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| 602,137 |
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| 1,937,175 |
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| 1,756,781 |
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Operating Income |
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| 52,712 |
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| 25,998 |
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| 135,226 |
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| 66,879 |
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Operating (Loss) Income |
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| (879 | ) |
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| 54,470 |
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| 54,965 |
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| 155,985 |
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Non-operating Expenses (Income) |
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Interest income |
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| (1,688 | ) |
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| (1,316 | ) |
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| (4,286 | ) |
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| (4,325 | ) |
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| (653 | ) |
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| (1,592 | ) |
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| (3,975 | ) |
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| (4,704 | ) |
Interest expense |
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| 26,553 |
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| 21,355 |
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| 72,747 |
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| 63,595 |
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| 30,117 |
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| 31,115 |
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| 90,515 |
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| 87,639 |
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Capitalized interest |
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| (1,922 | ) |
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| (1,059 | ) |
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| (5,633 | ) |
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| (2,106 | ) |
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| (853 | ) |
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| (1,120 | ) |
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| (1,943 | ) |
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| (4,335 | ) |
Loss on early extinguishment of debt |
|
| 167 |
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|
| - |
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| 167 |
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| 132 |
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| 559 |
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| - |
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| 804 |
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| - |
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Unrealized loss (gain) on financial instruments |
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| 44,775 |
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| 1,462 |
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| 36,225 |
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| (25,013 | ) | ||||||||||||||||
Other income |
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| (1,165 | ) |
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| (180 | ) |
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| (357 | ) |
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| (372 | ) | ||||||||||||||||
Unrealized (gain) loss on financial instruments |
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| (83,175 | ) |
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| (46,080 | ) |
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| (78,900 | ) |
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| 11,691 |
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Other (income) expense, net |
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| 1,434 |
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|
| 975 |
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|
| (596 | ) |
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| (10,777 | ) | ||||||||||||||||
Total Non-operating Expenses (Income) |
|
| 66,720 |
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|
| 20,262 |
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|
| 98,863 |
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| 31,911 |
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|
| (52,571 | ) |
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| (16,702 | ) |
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| 5,905 |
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| 79,514 |
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Income (loss) from continuing operations before income taxes |
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| (14,008 | ) |
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| 5,736 |
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| 36,363 |
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| 34,968 |
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Income tax expense |
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| 10,187 |
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| 13,237 |
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| 21,479 |
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| 21,079 |
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Income from continuing operations before income taxes |
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| 51,692 |
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| 71,172 |
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| 49,060 |
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| 76,471 |
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Income tax (benefit) expense |
|
| (8,282 | ) |
|
| 34 |
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| (68,072 | ) |
|
| 16,828 |
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|
|
|
|
Income (loss) from continuing operations, net of taxes |
|
| (24,195 | ) |
|
| (7,501 | ) |
|
| 14,884 |
|
|
| 13,889 |
| ||||||||||||||||
Income from continuing operations, net of taxes |
|
| 59,974 |
|
|
| 71,138 |
|
|
| 117,132 |
|
|
| 59,643 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes |
|
| 33 |
|
|
| (445 | ) |
|
| (859 | ) |
|
| (790 | ) | ||||||||||||||||
Loss from discontinued operations, net of taxes |
|
| - |
|
|
| (7 | ) |
|
| - |
|
|
| (50 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
| $ | (24,162 | ) |
| $ | (7,946 | ) |
| $ | 14,025 |
|
| $ | 13,099 |
| ||||||||||||||||
Net Income |
| $ | 59,974 |
|
| $ | 71,131 |
|
| $ | 117,132 |
|
| $ | 59,593 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Earnings per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (0.96 | ) |
| $ | (0.30 | ) |
| $ | 0.59 |
|
| $ | 0.56 |
|
| $ | 2.32 |
|
| $ | 2.78 |
|
| $ | 4.54 |
|
| $ | 2.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted |
| $ | 2.32 |
|
| $ | 0.84 |
|
| $ | 1.34 |
|
| $ | 2.27 |
| ||||||||||||||||
Loss per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | - |
|
| $ | (0.00 | ) |
| $ | - |
|
| $ | (0.00 | ) | ||||||||||||||||
Diluted |
| $ | - |
|
| $ | (0.00 | ) |
| $ | - |
|
| $ | (0.00 | ) | ||||||||||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 2.32 |
|
| $ | 2.78 |
|
| $ | 4.54 |
|
| $ | 2.33 |
| ||||||||||||||||
Diluted |
| $ | 2.32 |
|
| $ | 0.84 |
|
| $ | 1.34 |
|
| $ | 2.27 |
| ||||||||||||||||
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
|
| 25,854 |
|
|
| 25,575 |
|
|
| 25,814 |
|
|
| 25,526 |
| ||||||||||||||||
Diluted |
| $ | (0.96 | ) |
| $ | (0.30 | ) |
| $ | 0.58 |
|
| $ | (0.49 | ) |
|
| 25,854 |
|
|
| 28,747 |
|
|
| 26,909 |
|
|
| 26,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.00 |
|
| $ | (0.02 | ) |
| $ | (0.03 | ) |
| $ | (0.03 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted |
| $ | 0.00 |
|
| $ | (0.02 | ) |
| $ | (0.03 | ) |
| $ | (0.03 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (0.96 | ) |
| $ | (0.32 | ) |
| $ | 0.56 |
|
| $ | 0.53 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted |
| $ | (0.96 | ) |
| $ | (0.32 | ) |
| $ | 0.54 |
|
| $ | (0.52 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
|
| 25,262 |
|
|
| 24,840 |
|
|
| 25,229 |
|
|
| 24,788 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted |
|
| 25,262 |
|
|
| 24,840 |
|
|
| 25,822 |
|
|
| 25,116 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(Unaudited)
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||
Net Income |
| $ | 59,974 |
|
| $ | 71,131 |
|
| $ | 117,132 |
|
| $ | 59,593 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to interest expense |
|
| 331 |
|
|
| 370 |
|
|
| 1,012 |
|
|
| 1,120 |
|
Income tax expense |
|
| (78 | ) |
|
| (88 | ) |
|
| (239 | ) |
|
| (265 | ) |
Other comprehensive income |
|
| 253 |
|
|
| 282 |
|
|
| 773 |
|
|
| 855 |
|
Comprehensive Income |
| $ | 60,227 |
|
| $ | 71,413 |
|
| $ | 117,905 |
|
| $ | 60,448 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(Unaudited)
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2017 |
|
| September 30, 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
| $ | (24,162 | ) |
| $ | (7,946 | ) |
| $ | 14,025 |
|
| $ | 13,099 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to interest expense |
|
| 396 |
|
|
| 439 |
|
|
| 1,216 |
|
|
| 1,334 |
|
Income tax expense |
|
| (154 | ) |
|
| (170 | ) |
|
| (472 | ) |
|
| (517 | ) |
Other comprehensive income |
|
| 242 |
|
|
| 269 |
|
|
| 744 |
|
|
| 817 |
|
Comprehensive Income (Loss) |
| $ | (23,920 | ) |
| $ | (7,677 | ) |
| $ | 14,769 |
|
| $ | 13,916 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
| For the Nine Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes |
| $ | 14,884 |
|
| $ | 13,889 |
| ||||||||
Income from continuing operations, net of taxes |
| $ | 117,132 |
|
| $ | 59,643 |
| ||||||||
Less: Loss from discontinued operations, net of taxes |
|
| (859 | ) |
|
| (790 | ) |
|
| - |
|
|
| (50 | ) |
Net Income |
|
| 14,025 |
|
|
| 13,099 |
|
|
| 117,132 |
|
|
| 59,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile Net Income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 142,042 |
|
|
| 124,198 |
|
|
| 241,284 |
|
|
| 189,682 |
|
Accretion of debt securities discount |
|
| (892 | ) |
|
| (968 | ) |
|
| (237 | ) |
|
| (719 | ) |
Provision for allowance for doubtful accounts |
|
| 304 |
|
|
| 267 |
|
|
| (83 | ) |
|
| 40 |
|
Loss on early extinguishment of debt |
|
| 804 |
|
|
| - |
| ||||||||
Special charge, net of cash payments |
|
| - |
|
|
| 6,631 |
|
|
| 22,130 |
|
|
| 9,374 |
|
Loss on early extinguishment of debt |
|
| 167 |
|
|
| 132 |
| ||||||||
Unrealized loss (gain) on financial instruments |
|
| 36,225 |
|
|
| (25,013 | ) |
|
| (78,900 | ) |
|
| 11,691 |
|
Loss (gain) on disposal of aircraft |
|
| 64 |
|
|
| (11 | ) | ||||||||
Deferred taxes |
|
| 21,106 |
|
|
| 20,794 |
|
|
| (68,552 | ) |
|
| 16,453 |
|
Stock-based compensation expense |
|
| 17,030 |
|
|
| 27,919 |
| ||||||||
Stock-based compensation |
|
| 16,553 |
|
|
| 15,376 |
| ||||||||
Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (12,004 | ) |
|
| 32,767 |
|
|
| 1,397 |
|
|
| (59,058 | ) |
Prepaid expenses, current assets and other assets |
|
| (53,343 | ) |
|
| (19,287 | ) |
|
| (69,254 | ) |
|
| (34,483 | ) |
Accounts payable and accrued liabilities |
|
| 30,382 |
|
|
| (79,684 | ) |
|
| 11,016 |
|
|
| 56,174 |
|
Net cash provided by operating activities |
|
| 195,106 |
|
|
| 100,844 |
|
|
| 193,290 |
|
|
| 264,123 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (66,395 | ) |
|
| (36,872 | ) |
|
| (107,594 | ) |
|
| (84,819 | ) |
Payments for flight equipment and modifications |
|
| (338,524 | ) |
|
| (237,093 | ) |
|
| (153,706 | ) |
|
| (543,342 | ) |
Acquisition of business, net of cash acquired |
|
| - |
|
|
| (107,498 | ) | ||||||||
Proceeds from insurance |
|
| 38,133 |
|
|
| - |
| ||||||||
Proceeds from investments |
|
| 3,247 |
|
|
| 8,843 |
|
|
| 14,367 |
|
|
| 9,461 |
|
Net cash used for investing activities |
|
| (401,672 | ) |
|
| (372,620 | ) |
|
| (208,800 | ) |
|
| (618,700 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt issuance |
|
| 447,865 |
|
|
| 84,790 |
|
|
| 93,723 |
|
|
| 400,471 |
|
Payment of debt issuance costs |
|
| (1,316 | ) |
|
| (6,632 | ) | ||||||||
Payments of debt and finance lease obligations |
|
| (273,142 | ) |
|
| (180,722 | ) | ||||||||
Proceeds from revolving credit facility |
|
| 150,000 |
|
|
| - |
|
|
| 50,000 |
|
|
| 135,000 |
|
Payment of revolving credit facility |
|
| (150,000 | ) |
|
| - |
|
|
| - |
|
|
| (60,000 | ) |
Customer maintenance reserves and deposits received |
|
| 22,006 |
|
|
| 11,172 |
|
|
| 11,717 |
|
|
| 11,520 |
|
Customer maintenance reserves paid |
|
| (18,538 | ) |
|
| - |
|
|
| (8,174 | ) |
|
| - |
|
Proceeds from sale of convertible note warrants |
|
| 38,148 |
|
|
| - |
| ||||||||
Payments for convertible note hedges |
|
| (70,140 | ) |
|
| - |
| ||||||||
Purchase of treasury stock |
|
| (10,307 | ) |
|
| (11,071 | ) |
|
| (9,336 | ) |
|
| (10,769 | ) |
Excess tax benefit from stock-based compensation expense |
|
| - |
|
|
| 443 |
| ||||||||
Payment of debt issuance costs |
|
| (11,146 | ) |
|
| (1,078 | ) | ||||||||
Payments of debt |
|
| (153,292 | ) |
|
| (135,843 | ) | ||||||||
Net cash provided by (used for) financing activities |
|
| 244,596 |
|
|
| (51,587 | ) |
|
| (136,528 | ) |
|
| 288,868 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| 38,030 |
|
|
| (323,363 | ) | ||||||||
Net decrease in cash, cash equivalents and restricted cash |
|
| (152,038 | ) |
|
| (65,709 | ) | ||||||||
Cash, cash equivalents and restricted cash at the beginning of period |
|
| 138,250 |
|
|
| 438,931 |
|
|
| 232,741 |
|
|
| 291,864 |
|
Cash, cash equivalents and restricted cash at the end of period |
| $ | 176,280 |
|
| $ | 115,568 |
|
| $ | 80,703 |
|
| $ | 226,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of flight equipment included in Accounts payable and accrued liabilities |
| $ | 61,734 |
|
| $ | 18,510 |
|
| $ | 55,610 |
|
| $ | 42,826 |
|
Acquisition of property and equipment acquired under operating leases |
| $ | 21,969 |
|
| $ | - |
| ||||||||
Acquisition of flight equipment under capital lease |
| $ | 32,380 |
|
| $ | 10,650 |
|
| $ | 10,825 |
|
| $ | - |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
| Total |
| |||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Comprehensive |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at December 31, 2016 |
| $ | 296 |
|
| $ | (183,119 | ) |
| $ | 657,082 |
|
| $ | (4,993 | ) |
| $ | 1,048,072 |
|
| $ | 1,517,338 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 14,025 |
|
|
| 14,025 |
|
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 744 |
|
|
| - |
|
|
| 744 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 17,030 |
|
|
| - |
|
|
| - |
|
|
| 17,030 |
|
Purchase of 191,047 shares of treasury stock |
|
| - |
|
|
| (10,307 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (10,307 | ) |
Issuance of 456,905 shares of restricted stock |
|
| 5 |
|
|
| - |
|
|
| (5 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Equity component of convertible note, net of tax |
|
| - |
|
|
| - |
|
|
| 43,256 |
|
|
| - |
|
|
| - |
|
|
| 43,256 |
|
Purchase of convertible note hedges, net of tax |
|
| - |
|
|
| - |
|
|
| (45,065 | ) |
|
| - |
|
|
| - |
|
|
| (45,065 | ) |
Issuance of convertible note warrants |
|
| - |
|
|
| - |
|
|
| 38,148 |
|
|
| - |
|
|
| - |
|
|
| 38,148 |
|
Balance at September 30, 2017 |
| $ | 301 |
|
| $ | (193,426 | ) |
| $ | 710,446 |
|
| $ | (4,249 | ) |
| $ | 1,062,097 |
|
| $ | 1,575,169 |
|
|
| As of and for the Three Months Ended September 30, 2019 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| |||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| |||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| |||||||
Balance at June 30, 2019 |
| $ | 310 |
|
| $ | (213,728 | ) |
| $ | 746,725 |
|
| $ | (3,312 | ) |
| $ | 1,597,114 |
|
| $ | 2,127,109 |
| |
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 59,974 |
|
|
| 59,974 |
| |
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 253 |
|
|
| - |
|
|
| 253 |
| |
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 6,527 |
|
|
| - |
|
|
| - |
|
|
| 6,527 |
| |
Customer warrant |
|
| - |
|
|
| - |
|
|
| (462 | ) |
|
| - |
|
|
| - |
|
|
| (462 | ) | |
Purchase of 4,064 shares of treasury stock |
|
| - |
|
|
| (109 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (109 | ) | |
Issuance of 17,347 shares of restricted stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| |
Balance at September 30, 2019 |
| $ | 310 |
|
| $ | (213,837 | ) |
| $ | 752,790 |
|
| $ | (3,059 | ) |
| $ | 1,657,088 |
|
| $ | 2,193,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
| Total |
| |||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Comprehensive |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at December 31, 2015 |
| $ | 290 |
|
| $ | (171,844 | ) |
| $ | 625,244 |
|
| $ | (6,063 | ) |
| $ | 1,006,556 |
|
| $ | 1,454,183 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,099 |
|
|
| 13,099 |
|
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 817 |
|
|
| - |
|
|
| 817 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 27,919 |
|
|
| - |
|
|
| - |
|
|
| 27,919 |
|
Purchase of 293,257 shares of treasury stock |
|
| - |
|
|
| (11,071 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (11,071 | ) |
Issuance of 665,747 shares of restricted stock |
|
| 6 |
|
|
| - |
|
|
| (6 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Tax expense on restricted stock and stock options |
|
| - |
|
|
| - |
|
|
| (994 | ) |
|
| - |
|
|
| - |
|
|
| (994 | ) |
Balance at September 30, 2016 |
| $ | 296 |
|
| $ | (182,915 | ) |
| $ | 652,163 |
|
| $ | (5,246 | ) |
| $ | 1,019,655 |
|
| $ | 1,483,953 |
|
|
| As of and for the Three Months Ended September 30, 2018 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at June 30, 2018 |
| $ | 306 |
|
| $ | (204,051 | ) |
| $ | 726,357 |
|
| $ | (4,390 | ) |
| $ | 1,257,851 |
|
| $ | 1,776,073 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 71,131 |
|
|
| 71,131 |
|
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 282 |
|
|
| - |
|
|
| 282 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 4,749 |
|
|
| - |
|
|
| - |
|
|
| 4,749 |
|
Purchase of 7,082 shares of treasury stock |
|
| - |
|
|
| (450 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (450 | ) |
Balance at September 30, 2018 |
| $ | 306 |
|
| $ | (204,501 | ) |
| $ | 731,106 |
|
| $ | (4,108 | ) |
| $ | 1,328,982 |
|
| $ | 1,851,785 |
|
|
| As of and for the Nine Months Ended September 30, 2019 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at December 31, 2018 |
| $ | 306 |
|
| $ | (204,501 | ) |
| $ | 736,035 |
|
| $ | (3,832 | ) |
| $ | 1,539,956 |
|
| $ | 2,067,964 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 117,132 |
|
|
| 117,132 |
|
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 773 |
|
|
| - |
|
|
| 773 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 16,553 |
|
|
| - |
|
|
| - |
|
|
| 16,553 |
|
Customer warrant |
|
| - |
|
|
| - |
|
|
| 206 |
|
|
| - |
|
|
| - |
|
|
| 206 |
|
Purchase of 184,146 shares of treasury stock |
|
| - |
|
|
| (9,336 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (9,336 | ) |
Issuance of 461,276 shares of restricted stock |
|
| 4 |
|
|
| - |
|
|
| (4 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance at September 30, 2019 |
| $ | 310 |
|
| $ | (213,837 | ) |
| $ | 752,790 |
|
| $ | (3,059 | ) |
| $ | 1,657,088 |
|
| $ | 2,193,292 |
|
|
| As of and for the Nine Months Ended September 30, 2018 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at December 31, 2017 |
| $ | 301 |
|
| $ | (193,732 | ) |
| $ | 715,735 |
|
| $ | (3,993 | ) |
| $ | 1,271,545 |
|
| $ | 1,789,856 |
|
Net Income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 59,593 |
|
|
| 59,593 |
|
Other comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 855 |
|
|
| - |
|
|
| 855 |
|
Cumulative effect of change in accounting principle |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,126 | ) |
|
| (3,126 | ) |
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| 15,376 |
|
|
| - |
|
|
| - |
|
|
| 15,376 |
|
Purchase of 180,084 shares of treasury stock |
|
| - |
|
|
| (10,769 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (10,769 | ) |
Issuance of 477,923 shares of restricted stock |
|
| 5 |
|
|
| - |
|
|
| (5 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Reclassification of tax effect on other comprehensive loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (970 | ) |
|
| 970 |
|
|
| - |
|
Balance at September 30, 2018 |
| $ | 306 |
|
| $ | (204,501 | ) |
| $ | 731,106 |
|
| $ | (4,108 | ) |
| $ | 1,328,982 |
|
| $ | 1,851,785 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
Atlas Air Worldwide Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
September 30, 20172019
1. Basis of Presentation
Our consolidated financial statements include the accounts of the holding company, Atlas Air Worldwide Holdings, Inc. (“AAWW”), and its consolidated subsidiaries. AAWW is the parent company of Atlas Air, Inc. (“Atlas”) and Southern Air Holdings, Inc. (“Southern Air”). AAWW is also the parent company of several subsidiaries related to our dry leasing services (collectively referred to as “Titan”). AAWW has a 51% equity interest and 75% voting interest in Polar Air Cargo Worldwide, Inc. (“Polar”). We record our share of Polar’s results under the equity method of accounting.
The terms “we,” “us,” “our,” and the “Company” mean AAWW and all entities included in its consolidated financial statements.
We provide outsourced aircraft and aviation operating services throughout the world, serving Africa, Asia, Australia, Europe, the Middle East, North America and South America through: (i) contractual service arrangements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), as well as those through which we provide crew, maintenance and insurance, but not the aircraft (“CMI”); (ii) cargo and passenger charter services (“Charter”); and (iii) dry leasing aircraft and engines (“Dry Leasing” or “Dry Lease”).
The accompanying unaudited consolidated financial statements and related notes (the “Financial Statements”) have been prepared in accordance with the U.S. Securities and Exchange Commission (the “SEC”) requirements for quarterly reports on Form 10-Q, and consequently exclude certain disclosures normally included in audited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated. The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes included in the AAWW Annual Report on Form 10-K for the year ended December 31, 2016,2018, which includes additional disclosures and a summary of our significant accounting policies. The December 31, 20162018 balance sheet data was derived from that Annual Report. In our opinion, the Financial Statements contain all adjustments, consisting of normal recurring items, necessary to fairly state the financial position of AAWW and its consolidated subsidiaries as of September 30, 2017,2019, the results of operations for the three and nine months ended September 30, 20172019 and 2016,2018, comprehensive income (loss) for the three and nine months ended September 30, 20172019 and 2016,2018, cash flows for the nine months ended September 30, 20172019 and 2016,2018, and shareholders’ equity as of and for the three and nine months ended September 30, 20172019 and 2016.2018.
Our quarterly results are subject to seasonal and other fluctuations, and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.
Except for per share data, all dollar amounts are in thousands unless otherwise noted.
2. Summary of Significant Accounting Policies
Warrant Liability
Common stock warrants classified as a liability are marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized (gain) loss on financial instruments. We utilize a Monte Carlo simulation approach to estimate the fair value of the warrant liability, which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility and risk-free interest rate, among others. Our earnings are affected by changes in our common stock price due to the impact those changes have on the fair value of our warrant liability (see Note 4 to our Financial Statements).
Heavy Maintenance
Except for engines used on our 747-8F aircraft, we account for heavy maintenance costs for airframes and engines used in our ACMI and Charter segments using the direct expense method. Under this method, heavy maintenance costs are charged to expense upon induction, based on our best estimate of the costs.
We account for heavy maintenance costs for airframes and engines used in our Dry Leasing segment and engines used on our 747-8F aircraft using the deferral method. Under this method, we defer the expense recognition of scheduled heavy maintenance events, which are amortized over the estimated period until the next scheduled heavy maintenance event is required. Amortization of deferred maintenance expense included in Depreciation and amortization was $1.8$5.5 million and zero$3.3 million for the three months ended September 30, 20172019 and September 30, 2016,2018, respectively and was $3.7$15.2 million and zero$8.6 million for the nine months ended September 30, 20172019 and September 30, 2016,2018, respectively.
Deferred maintenance included within Deferred costs and other assets is as follows:
|
| Deferred Maintenance |
| |
Balance as of December 31, 2016 |
| $ | 19,100 |
|
Deferred maintenance costs |
|
| 33,910 |
|
Amortization of deferred maintenance |
|
| (3,710 | ) |
Balance as of September 30, 2017 |
| $ | 49,300 |
|
Supplemental Cash Flow Information
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total shown in the consolidated statements of cash flows:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Cash and cash equivalents |
| $ | 165,250 |
|
| $ | 123,890 |
|
Restricted cash |
|
| 11,030 |
|
|
| 14,360 |
|
Total Cash, cash equivalents and restricted cash |
|
|
|
|
|
|
|
|
shown in consolidated statements of cash flows |
| $ | 176,280 |
|
| $ | 138,250 |
|
|
| Deferred |
| |
|
| Maintenance |
| |
Balance as of December 31, 2018 |
| $ | 103,647 |
|
Deferred maintenance costs |
|
| 106,299 |
|
Disposals |
|
| (1,551 | ) |
Amortization of deferred maintenance |
|
| (15,188 | ) |
Balance as of September 30, 2019 |
| $ | 193,207 |
|
Recent Accounting Pronouncements Adopted in 2019
In MarchFebruary 2016, the Financial Accounting Standards Board (“FASB”) amended its accounting guidance for share-based compensation. The amended guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. We adopted this amended guidance on January 1, 2017 on a prospective basis. As a result, we recognized $1.8 million of excess tax benefits during the nine months ended September 30, 2017 as a reduction of income tax expense in our consolidated statements of operations. Excess tax benefits were previously recognized within equity. Additionally, our consolidated statements of cash flows present such excess tax benefits, which were previously presented as a financing activity, as an operating activity.
In February 2016,leases. Subsequently, the FASB amended its accounting guidance for leases.issued several clarifications and updates. The guidance requires a lessee to recognize assets and liabilities on the balance sheet arising from leases with terms greater than twelve12 months. While lessor accounting guidance is relatively unchanged, certain amendments were made to conform with changes made to lessee accounting and the amended revenue recognition guidance. The new guidance will continuecontinues to classify leases as either finance or operating, with classification affecting the presentation and pattern of expense and income recognition, in the statement of operations. It also requires additional quantitative and qualitative disclosures about leasing arrangements. The amended guidance is effective as of the beginning of 2019, with early adoption permitted. While we are still assessing the impact the amended guidance will have on our financial statements, we expect that recognizing the right-of-use asset and related lease liability will impact our balance sheet materially. We have developed and are implementing a plan for adopting this amended guidance.
In May 2014, the FASB amended its accounting guidance for revenue recognition. Subsequently, the FASB has issued several clarifications and updates. The fundamental principles ofadopted the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and consideration that a company expects to receive for the services provided. It also requires additional disclosures necessary for the financial statement users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The two permitted transition methods under the guidance are the full retrospective approach, under which the guidance is applied to all periods presented, oron January 1, 2019 using the modified retrospective approach, which was applied beginning on the adoption date. Comparative information has not been restated and continues to be reported under which the accounting guidance is applied only to the most current period presented. While we believe the amended guidance willin effect for those periods. The adoption did not have a material effect on our financialconsolidated statements we expect that revenue currentlyof operations or cash flows. We recognized basedoperating lease right-of-use assets, net of pre-existing deferred rent and operating lease intangibles, and operating lease liabilities on flight departure will be recognized over time asour consolidated balance sheets of approximately $596.9 million and $650.0 million, respectively, on the services are performed. In addition, we expect that revenue under certain ACMI and CMI contracts, such as revenue relatedadoption date (see Note 8 to contracted minimum block hour guarantees, will be recognized in later periods and that some revenue adjustments related to meeting or exceeding on-time performance targets will be recognized in earlier periods. The implementation of our plan to adopt this amended guidance is progressing as expected and we plan to adopt the new guidance on its required effective date of January 1, 2018 using the modified retrospective approach.Financial Statements).
3. Related Parties
DHL Investment and Polar
AAWW has a 51% equity interest and 75% voting interest in Polar. DHL Network Operations (USA), Inc. (“DHL”), a subsidiary of Deutsche Post AG, (“DP”), holds a 49% equity interest and a 25% voting interest in Polar. Polar is a variable interest entity that we do not consolidate because we are not the primary beneficiary as the risks associated with the direct costs of operation are with DHL. Under a 20-year blocked space agreement, (the “BSA”),which began in 2008, Polar provides air cargo capacity to DHL. Atlas has several agreements with Polar to provide ACMI, CMI, Dry Leasing, administrative, sales and ground support services to one another. We do not have any financial exposure to fund debt obligations or operating losses of Polar, except for any liquidated damages that we could incur under these agreements.
The following table summarizes our transactions with Polar:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
Revenue and Expenses: |
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||
Revenue from Polar |
| $ | 84,957 |
|
| $ | 99,671 |
|
| $ | 283,313 |
|
| $ | 305,401 |
|
Ground handling and airport fees to Polar |
|
| 568 |
|
|
| 841 |
|
|
| 1,631 |
|
|
| 2,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable/payable as of: |
| September 30, 2019 |
|
| December 31, 2018 |
|
|
|
|
|
|
|
|
| ||
Receivables from Polar |
| $ | 1,145 |
|
| $ | 16,349 |
|
|
|
|
|
|
|
|
|
Payables to Polar |
|
| 7,277 |
|
|
| 2,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Carrying Value of Polar Investment as of: |
| September 30, 2019 |
|
| December 31, 2018 |
|
|
|
|
|
|
|
|
| ||
Aggregate Carrying Value of Polar Investment |
| $ | 4,870 |
|
| $ | 4,870 |
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
Revenue and Expenses: |
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2017 |
|
| September 30, 2016 |
| ||||
Revenue from Polar |
| $ | 105,985 |
|
| $ | 101,432 |
|
| $ | 317,144 |
|
| $ | 302,149 |
|
Ground handling and airport fees to Polar |
|
| 800 |
|
|
| 424 |
|
|
| 1,926 |
|
|
| 1,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable/payable as of: |
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
| ||
Receivables from Polar |
| $ | 12,426 |
|
| $ | 8,161 |
|
|
|
|
|
|
|
|
|
Payables to Polar |
|
| 2,270 |
|
|
| 2,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Carrying Value of Polar Investment as of: |
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
|
|
|
|
| ||
Aggregate Carrying Value of Polar Investment |
| $ | 4,870 |
|
| $ | 4,870 |
|
|
|
|
|
|
|
|
|
In addition to the amounts in the table above, Atlas recognized revenue of $23.8 million and $34.3 million for the three months ended September 30, 2019 and 2018, respectively, and $70.2 million and $70.9 million for the nine months ended September 30, 2019 and 2018, respectively, from flying on behalf of Polar.
GATS
We hold a 50% interest in GATS GP (BVI) Ltd. (“GATS”), a joint venture with an unrelated third party. As of September 30, 20172019 and December 31, 2016,2018, our investment in GATS was $22.1$20.7 million and $22.2$22.3 million, respectively. We had Accounts payable to GATS of $0.3$1.1 million as of September 30, 20172019 and $2.4$0.5 million as of December 31, 2016.
4. Southern Air Acquisition
On April 7, 2016, we completed the acquisition of Southern Air and its subsidiaries, including Southern Air Inc. and Florida West International Airways, Inc. (“Florida West”). The acquisition of Southern Air provided us with immediate entry into 777 and 737 aircraft operating platforms, with the potential for developing additional business with existing and new customers. We believe this augments our ability to offer the broadest array of aircraft and services for domestic, regional and international operations. For the three and nine months ended September 30, 2017, we incurred Transaction-related expenses of $1.1 million and $3.4 million, respectively. For the three and nine months ended September 30, 2016, we incurred Transaction-related expenses of $3.1 million and $17.2 million, respectively. Transaction-related expenses are primarily related to: compensation costs, including employee termination benefits; professional fees; and integration costs associated with the acquisition.
The unaudited estimated pro forma operating revenue for AAWW, including Southern Air, for the three and nine months ended September 30, 2016 was $448.0 million and $1,337.0 million, respectively, including adjustments to conform with our accounting policies. The earnings of Southern Air were not material for the three and nine months ended September 30, 2016 and, accordingly, pro forma and actual earnings information have not been presented.
As part of integrating Southern Air, management decided and committed to pursue a plan to sell Florida West. As a result, the financial results for Florida West were presented as a discontinued operation and the assets and liabilities of Florida West were classified as held for sale from the date of acquisition through December 31, 2016. In February 2017, management determined that a sale was no longer likely to occur and committed to a plan to wind-down the Florida West operations. The wind-down of operations was completed during the first quarter of 2017.
A summary of the employee termination benefit liabilities, which are expected to be paid by the first quarter of 2018, is as follows:
|
| Employee Termination Benefits |
| |
Liability as of December 31, 2016 |
| $ | 1,214 |
|
Wind-down expenses |
|
| 766 |
|
Cash payments |
|
| (1,718 | ) |
Liability as of September 30, 2017 |
| $ | 262 |
|
5. Special Charge
During the first quarter of 2016, we classified four CF6-80 engines as held for sale, recognized an impairment loss of $6.5 million and ceased depreciation on the engines. All four of those engines were traded in during 2016. During the fourth quarter of 2016, we classified two CF6-80 engines as held for sale, recognized an impairment loss of $3.5 million and ceased depreciation on the2018.
engines. One of those engines was traded in during the first quarter of 2017. The carrying value of the remaining CF6-80 engine held for sale at September 30, 2017 was $1.4 million, and of the two CF6-80 engines held for sale at December 31, 2016 was $2.8 million, which was included within Prepaid expenses and other current assets in the consolidated balance sheets. The remaining CF6-80 engine classified as held for sale is expected to be sold during the fourth quarter of 2017.
6.4. Amazon
In May 2016, we entered into certain agreements with Amazon.com, Inc. and its subsidiary, Amazon Fulfillment Services, Inc., (collectively “Amazon”), which involves, among other things, CMI operation of up to 20 Boeing 767-300 freighter aircraft for Amazon by Atlas, as well as Dry Leasing by Titan. The Dry Leases will have a term of ten years from the commencement of each lease,agreement, while the CMI operations will beare for seven years from the commencement of each agreement (with an option for Amazon to extend the term to a total of ten years). We placed the first seven aircraft in service betweenBetween August 2016 and August 2017. In October 2017,November 2018, we began flying three additional aircraft and we expect to be operatingplaced all 20 by767-300 freighter aircraft into service for Amazon. In February 2019, the endnumber of 2018.767-300 freighters in CMI and Dry Lease service for Amazon was reduced to 19 with the loss of an aircraft. In September 2019, the number of 767-300 freighters in CMI service for Amazon was reduced to 17 with the early termination of CMI services for two aircraft.
In conjunction with thesethe agreements entered into in May 2016, we granted Amazon a warrant providing the right to acquire up to 20% of our outstanding common shares, after giving effect to the issuance of shares pursuant to the warrants, at an exercise price of $37.50 per share. A portionshare (“Warrant A”). As of theDecember 31, 2018, this warrant representing the right to purchase 3.757.5 million shares had vested immediately upon issuance of the warrant and the remainder of the warrant, representing the right to purchase 3.75 million shares, will vest in increments of 375,000 as the lease and operation of each of the 11th through 20th aircraft commences. The warrant will befull. Warrant A is exercisable in accordance with its terms through 2021. As of September 30, 2017, no warrants have2019, 0 portion of Warrant A has been exercised.
The agreements entered into in May 2016 also provideprovided incentives for future growth of the relationship as Amazon may increase its business with us. In that regard, we granted Amazon a warrant to acquire up to an additional 10% of our outstanding common shares, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $37.50 per share.share (“Warrant B”). This warrant to purchase 3.75 million shares will vest in conjunction with payments byincrements of 37,500 shares each time Amazon has paid $4.2 million of revenue to us, up to a total of $420.0 million, for additionalincremental business with us. The warrant will bebeyond the original 20 767-300 freighters. As of September 30, 2019, 37,500 shares of Warrant B have vested. Upon vesting, Warrant B becomes exercisable in accordance with its terms through May 2023. As of September 30, 2019, 0 portion of Warrant B has been exercised.
At
In March 2019, we amended the agreements entered into in 2016 with Amazon, pursuant to which we will provide CMI services using Boeing 737-800 freighter aircraft provided by Amazon. The 737-800 CMI operations will be for a special meeting onterm of seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years). As of September 20, 2016,30, 2019, the Company’s shareholders,first four of five 737-800 freighter aircraft entered CMI service and the fifth aircraft is expected to enter service during the fourth quarter of 2019. Amazon may, in its sole discretion, place up to 15 additional 737-800 freighter aircraft into service with us by May 31, 2021.
In connection with the amended agreements, we granted Amazon a vote of approximately 99.9% of the votes cast, approved the issuance of warrantswarrant to acquire up to 30%an additional 9.9% of our outstanding common shares. This approval constitutedshares, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $52.90 per share (“Warrant C”). When combined with Warrant A and Warrant B, this would allow Amazon to acquire up to a changetotal of 39.9% (after the issuance) of our outstanding common shares and Amazon would be entitled to vote the shares it owns up to 14.9% of our outstanding common shares, in control, as defined under certainits discretion. Amazon would be required to vote any shares it owns in excess of 14.9% of our outstanding common shares in accordance with the Company’s benefit plans.recommendation of our board of directors. After Warrant B has vested in full, this warrant to purchase 6.6 million shares would vest in increments of 45,428 shares each time Amazon has paid $6.9 million of revenue to us, up to a total of $1.0 billion, for incremental business beyond Warrant A and Warrant B. As a result, we recognized $26.2 million in expense, including accelerated compensation expense for restricted and performance share and cash awards, during the three and nine month periods endedof September 30, 2016. The share-based2019, 0 portion of Warrant C has vested. Upon vesting, Warrant C would become exercisable in accordance with its terms through March 2026.
At the compensation expense was $11.6 million.
The $92.9 milliontime of vesting, the fair value of the vested portion of the warrantwarrants issued to Amazon as of May 4, 2016 wasis recorded as a warrant liability within Financial instruments and other liabilities (the “Amazon Warrant”). ThisThe initial fair value of the warrantvested portion of Warrant A was also recognized as a customer incentive asset within Deferred costs and other assets, net and is being amortized as a reduction of revenueOperating Revenue in proportion to the amount of revenue recognized over the terms of the Dry Leases and CMI agreements. Determining the amount of amortization related to the CMI agreements requires significant judgment to estimate the total number of Block Hours expected over the terms of those agreements.
When it becomes probable that an increment of either Warrant B or C will vest and the related revenue begins to be recognized, the fair value of such portion is recorded as Additional paid-in-capital. The initial fair value of such increment is also recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of related revenue recognized. At the time of vesting, the amount recorded in Additional paid-in-capital would be reclassified to the Amazon Warrant liability.
We amortized $1.5$12.8 million and $2.9$4.1 million of the customer incentive asset for the three months ended September 30, 2019 and 2018, respectively. We amortized $26.0 million and $10.0 million of the customer incentive asset for the nine months ended September 30, 2019 and 2018, respectively. Amortization of the customer incentive asset for the three and nine months ended September 30, 2017, respectively. We amortized $0.22019 included $6.4 million of the customeraccelerated amortization related to a 767-300 aircraft that is no longer in CMI service.
Customer incentive asset for the threeincluded within Deferred costs and nine month periods ended September 30, 2016. The balance of the customer incentive asset, net of amortization, was $89.5 millionother assets is as of September 30, 2017 and $92.4 million as of December 31, 2016.follows:
Balance at December 31, 2018 |
| $ | 184,720 |
|
Initial value for estimate of vested or expected to vest warrants |
|
| 413 |
|
Amortization of customer incentive asset |
|
| (26,018 | ) |
Balance at September 30, 2019 |
| $ | 159,115 |
|
The Amazon Warrant liability is marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized (gain) loss (gain) on financial instruments. We utilize a Monte Carlo simulation approach to estimate the fair value of the Amazon Warrant which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility and risk-free interest rate, among others. We recognized a net unrealized lossgains of $44.8$83.2 million and $36.2$78.9 million on the Amazon Warrant during the three and nine months ended September 30, 2017,2019, respectively. We recognized a net unrealized lossgain of $1.5$46.1 million and a net unrealized gainloss of $25.0$11.7 million on the Amazon Warrant during the three and nine months ended September 30, 2016,2018, respectively. The fair value of the Amazon Warrant liability was $132.0$20.3 million as of September 30, 20172019 and $95.8$99.0 million as of December 31, 2016.2018.
7. 5. Supplemental Balance Sheet and Cash Flow Information
Accounts Receivable
Accounts receivable, net of allowance related to customer contracts, excluding Dry Leasing contracts, was $216.3 million as of September 30, 2019 and $227.1 million as of December 31, 2018.
Accrued Liabilities
Accrued liabilities consisted of the following as of:
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||||
Maintenance |
| $ | 143,941 |
|
| $ | 54,495 |
|
| $ | 186,946 |
|
| $ | 133,337 |
|
Customer maintenance reserves |
|
| 85,256 |
|
|
| 81,830 |
|
|
| 107,790 |
|
|
| 104,454 |
|
Salaries, wages and benefits |
|
| 48,879 |
|
|
| 55,063 |
|
|
| 52,517 |
|
|
| 82,809 |
|
U.S. class action settlement |
|
| 30,000 |
|
|
| 35,000 |
| ||||||||
Aircraft fuel |
|
| 22,638 |
|
|
| 16,149 |
|
|
| 35,636 |
|
|
| 32,641 |
|
Deferred revenue |
|
| 22,565 |
|
|
| 10,298 |
|
|
| 41,808 |
|
|
| 26,584 |
|
Other |
|
| 68,391 |
|
|
| 68,052 |
|
|
| 97,997 |
|
|
| 85,844 |
|
Accrued liabilities |
| $ | 421,670 |
|
| $ | 320,887 |
|
| $ | 522,694 |
|
| $ | 465,669 |
|
Revenue Contract Liability
Deferred revenue for customer contracts, excluding Dry Leasing contracts, represents amounts collected from, or invoiced to, customers in advance of revenue recognition. The balance of Deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue.
Significant changes in our Revenue contract liability balances during the nine months ended September 30, 2019 were as follows:
Balance as of December 31, 2018 |
| $ | 13,007 |
|
Revenue recognized |
|
| (105,359 | ) |
Amounts collected or invoiced |
|
| 122,474 |
|
Balance as of September 30, 2019 |
| $ | 30,122 |
|
Supplemental Cash Flow Information
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total shown in the consolidated statements of cash flows:
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Cash and cash equivalents |
| $ | 70,327 |
|
| $ | 221,501 |
|
Restricted cash |
|
| 10,376 |
|
|
| 11,240 |
|
Total Cash, cash equivalents and restricted cash shown in Consolidated Statements of Cash Flows |
| $ | 80,703 |
|
| $ | 232,741 |
|
8.6. Special Charge
During the three months ended September 30, 2019, we recognized a Special charge, net primarily related to $19.6 million of impairment losses for 4 CF6-80 engines being disposed of and the permanent parking of 2 737-400 passenger aircraft used for training purposes. During the nine months ended September 30, 2018, we recognized $9.4 million of impairment losses for 5 CF6-80 engines traded in as part of our engine acquisition program.
7. Debt
Term Loans
In August 2019, we refinanced a higher-rate secured term loan with a new $74.0 million lower-rate secured five-year term loan with a final payment of $32.0 million due in August 2024 (the “Second 2019 Term Loan”) for spare GEnx engines. The Second 2019 Term Loan contains customary covenants, events of default and Capital Leaseaccrues interest at a fixed rate of 2.98%, with principal and interest payable quarterly. In connection with the refinancing, we recognized a $0.6 million loss on early extinguishment of debt.
We have entered into variousIn March 2019, we borrowed $19.7 million under an unsecured five-year term loans during 2017 to finance the purchase and passenger-to-freighter conversion of 767-300 aircraft, andloan due in March 2024 (the “First 2019 Term Loan”) for GEnx engine performance upgrade kits and overhauls. Each term loan requires paymentThe First 2019 Term Loan contains customary covenants, events of principaldefault and interest quarterly in arrears. Funds available under each term loan are subject to usual and customary fees, and funds drawn typically bearaccrues interest at a fixed rate based on LIBOR, plus a margin. Each facility is guaranteed by usof 2.73%, with principal and subject to customary covenants and events of default.
The following table summarizes the terms and principal balances for each term loan entered into during 2017 (in millions):
| Issue | Face |
| Collateral | Original | Interest Rate | Interest |
| ||
| Date | Value |
| Type | Term | Type | Rate |
| ||
First 2017 Term Loan | April 2017 | $ | 20.1 |
| 767-300 | 91 months | Fixed |
| 3.02% |
|
Second 2017 Term Loan | April 2017 |
| 21.3 |
| 767-300 | 91 months | Fixed |
| 3.16% |
|
Third 2017 Term Loan | May 2017 |
| 21.5 |
| 767-300 | 91 months | Fixed |
| 3.16% |
|
Fourth 2017 Term Loan | June 2017 |
| 21.3 |
| 767-300 | 91 months | Fixed |
| 3.09% |
|
Fifth 2017 Term Loan | June 2017 |
| 21.7 |
| 767-300 | 91 months | Fixed |
| 3.11% |
|
Sixth 2017 Term Loan | June 2017 |
| 21.7 |
| 767-300 | 91 months | Fixed |
| 3.11% |
|
Seventh 2017 Term Loan | June 2017 |
| 18.7 |
| None | 58 months | Fixed |
| 2.17% |
|
Eighth 2017 Term Loan | July 2017 |
| 12.5 |
| 767-300 | 60 months | Fixed |
| 3.62% |
|
Total |
| $ | 158.8 |
|
|
|
|
|
|
|
interest payable quarterly.
In March 2017,2019, we amended and extended a lease for a 747-400 freighter aircraftreceived $41.1 million in proceeds from insurance related to June 2032 at a lower monthly lease payment. As a resultthe loss of the extension, we determined that the lease qualifies as a capital lease. The present value of the future minimum lease payments was $32.4 million.
Private Placement Facility
In September 2017, we entered into a debt facility for up to $146.5 million through a private placement to finance the purchase and passenger-to-freighter conversion of up to six 767-300 freighter aircraft dry leased to Amazon (the “Private Placement Facility”). The Private Placement Facility consists of six separate loans (the “Private Placement Loans”). Each Private Placement Loan is comprised of an equipment note and an equipment term loan, both secured by the cash flows from a 767-300 freighter aircraft dry lease and used $20.7 million of the underlying aircraft. The equipment notes require payment of principal and interest at a fixed interest rate. The equipmentproceeds to repay 2 term loans accrue interest, at a fixed rate, which is addedrelated to the principal balance outstanding until each equipment note is paid in full. Subsequently, the equipment term loans require payment of principal and interest over the remaining term of the loans. The Private Placement Loans are cross-collateralized, but not cross-defaulted, with each other and, except for certain specified events, are not cross-defaulted with other debt facilities of the Company.
aircraft. In connection with entry into the Private Placement Facility,repayment, we have agreed to pay usual and customary commitmentrecognized a $0.2 million loss on early of extinguishment of debt. During the nine months ended September 30, 2019, we also recognized a net insurance recovery of $3.6 million resulting from the excess of insurance proceeds over the carrying amount of the aircraft and other fees associated with this type of financing. The Private Placement Facility is guaranteed by us and subject to customary covenants and events of default.related costs within Other income, net.
In October 2017, we completed the following financings for the first three aircraft under the Private Placement Facility:
| Issue | Face |
| Collateral | Original | Interest Rate | Interest |
| ||
| Date | Value |
| Type | Term | Type | Rate |
| ||
First 2017 Equipment Note | October 2017 | $ | 21.2 |
| Dry Lease and 767-300 | 87 months | Fixed |
| 2.93% |
|
First 2017 Equipment Term Loan | October 2017 |
| 2.6 |
| Dry Lease and 767-300 | 103 months | Fixed |
| 4.75% |
|
Second 2017 Equipment Note | October 2017 |
| 21.4 |
| Dry Lease and 767-300 | 88 months | Fixed |
| 2.93% |
|
Second 2017 Equipment Term Loan | October 2017 |
| 3.2 |
| Dry Lease and 767-300 | 107 months | Fixed |
| 4.75% |
|
Third 2017 Equipment Note | October 2017 |
| 21.2 |
| Dry Lease and 767-300 | 87 months | Fixed |
| 2.93% |
|
Third 2017 Equipment Term Loan | October 2017 |
| 3.0 |
| Dry Lease and 767-300 | 105 months | Fixed |
| 4.75% |
|
Total |
| $ | 72.6 |
|
|
|
|
|
|
|
Convertible Notes
In May 2017, we issued $289.0 million aggregate principal amount of 1.875% convertible senior notes that mature on June 1, 2024 (the “2017 Convertible Notes”) in an underwritten public offering. In June 2015, we issued $224.5 million aggregate principal amount of 2.25% convertible senior notes that mature on June 1, 2022 (the “2015 Convertible Notes”) in an underwritten public offering. The 2017 Convertible Notes and the 2015 Convertible Notes (collectively, the “Convertible Notes”) are senior unsecured obligations and accrue interest payable semiannually on June 1 and December 1 of each year at a fixed rate of 1.875%.year. The 2017 Convertible Notes will matureare due on June 1, 2024,their respective maturity dates, unless earlier converted or repurchased pursuant to their respective terms.
We used the majority of the net proceeds in May 2017 to repay $150.0 million then outstanding under our revolving credit facility and to fund the cost of the convertible note hedges described below.
Each $1,000 of principal of the 2017 Convertible Notes will initially be convertible into 16.3713 shares of our common stock, which is equal to an initial conversion price of $61.08 per share. The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest, except in certain limited circumstances. Upon the occurrence of a “make-whole fundamental change,” we will, in certain circumstances, increase the conversion rate by a number of additional shares of our common stock for the 2017 Convertible Notes converted in connection with such “make-whole fundamental change”. Additionally, if we undergo a “fundamental change,” a holder will have the option to require us to repurchase all or a portion of its 2017 Convertible Notes for cash at a price equal to 100% of the principal amount of the 2017 Convertible Notes being repurchased plus any accrued and unpaid interest through, but excluding, the fundamental change repurchase date.
In connection with the offering of the 2017 Convertible Notes, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to adjustment for certain specified events) a total of 4,731,306 shares of our common stock at a price of $61.08 per share. The total cost of the convertible note hedge transactions was $70.1 million. In addition, we sold warrants to the option counterparties whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of 4,731,306 shares of our common stock at a price of $92.20. We received $38.1 million in cash proceeds from the sale of these warrants.
Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset any economic dilution from the conversion of the 2017 Convertible Notes when the stock price is below $92.20 per share and to effectively increase the overall conversion price from $61.08 to $92.20 per share. However, for purposes of the computation of diluted earnings per share in accordance with GAAP, dilution typically occurs when the average share price of our common stock for a given period exceeds the conversion price of the 2017 Convertible Notes. The $32.0 million net cost incurred in connection with the convertible note hedges and warrants was recorded as a reduction to additional paid-in capital, net of tax, in the consolidated balance sheet.
On or after September 1, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or a portion of its 2017 Convertible Notes.
Upon conversion, the 2017 Convertible Notes will be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amount of the 2017 Convertible Notes paid in cash.
Holders may only convert their 2017 Convertible Notes at their option at any time prior to September 1, 2023, under the following circumstances:
|
during the five consecutive business day period immediately following any five consecutive trading day period (the “measurement period”) in which, for each trading day of the measurement period, the trading price per $1,000 principal amount of the convertible notes for such trading day was less than 98% of the product of the last reported sale price of our common stock for such trading day and the conversion rate on such trading day; or
upon the occurrence of specified corporate events.
We separately account for the liability and equity components of convertible notes. The carrying amount of the liability component was determined by measuring the fair value of a similar liability that does not have an associated conversion feature, assuming our nonconvertible unsecured debt borrowing rate. The carrying value of the equity component, the conversion option, which is recognized as additional paid-in-capital, net of tax, creates a debt discount on the convertible notes. The debt discount was determined by deducting the relative fair value of the liability component from the proceeds of the convertible notes and is amortized to interest expense using an effective interest rate of 6.14% over the term of the 2017 Convertible Notes. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.
The debt issuance costs related to the issuance of the 2017 Convertible Notes were allocated to the liability and equity components based on their relative values, as determined above. Total debt issuance costs were $7.5 million, of which $5.7 million was allocated to the liability component and $1.8 million was allocated to the equity component. The debt issuance costs allocated to the liability component are amortized to interest expense using the effective interest method over the term of the 2017 Convertible Notes.
In June 2015, we issued $224.5 million aggregate principal amount of convertible senior notes (the “2015 Convertible Notes”) in an underwritten public offering. The 2015 Convertible Notes are senior unsecured obligations and accrue interest payable semiannually on June 1 and December 1 of each year at a fixed rate of 2.25%. The 2015 Convertible Notes will mature on June 1, 2022, unless earlier converted or repurchased pursuant to their terms.
As of September 30, 2017, the 2017 Convertible Notes and the 2015 Convertible Notes consisted of the following: as of September 30, 2019:
|
| 2017 Convertible Note |
|
| 2015 Convertible Note |
|
| 2017 Convertible Notes |
|
| 2015 Convertible Notes |
| ||||
Remaining life in months |
|
| 80 |
|
|
| 56 |
|
|
| 56 |
|
|
| 32 |
|
Liability component: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds |
| $ | 289,000 |
|
| $ | 224,500 |
|
| $ | 289,000 |
|
| $ | 224,500 |
|
Less: debt discount, net of amortization |
|
| (67,245 | ) |
|
| (37,862 | ) |
|
| (49,883 | ) |
|
| (23,013 | ) |
Less: debt issuance cost, net of amortization |
|
| (5,394 | ) |
|
| (3,623 | ) |
|
| (3,896 | ) |
|
| (2,151 | ) |
Net carrying amount |
| $ | 216,361 |
|
| $ | 183,015 |
|
| $ | 235,221 |
|
| $ | 199,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity component (1) |
| $ | 70,140 |
|
| $ | 52,903 |
|
| $ | 70,140 |
|
| $ | 52,903 |
|
| (1) | Included in Additional paid-in capital on the consolidated balance sheet as of September 30, |
The following table presents the amount of interest expense recognized related to the 2017 Convertible Notes and the 2015 Convertible Notes:
|
| For the Three Months Ended |
|
|
| For the Nine Months Ended |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||||||
Contractual interest coupon |
| $ | 2,618 |
|
| $ | 1,263 |
|
|
| $ | 5,730 |
|
| $ | 3,788 |
|
| $ | 2,618 |
|
| $ | 2,618 |
|
| $ | 7,853 |
|
| $ | 7,853 |
|
Amortization of debt discount |
|
| 3,752 |
|
|
| 1,618 |
|
|
|
| 7,990 |
|
|
| 4,777 |
|
|
| 4,253 |
|
|
| 3,994 |
|
|
| 12,560 |
|
|
| 11,798 |
|
Amortization of debt issuance costs |
|
| 352 |
|
|
| 170 |
|
|
|
| 776 |
|
|
| 505 |
|
|
| 379 |
|
|
| 397 |
|
|
| 1,126 |
|
|
| 1,119 |
|
Total interest expense recognized |
| $ | 6,722 |
|
| $ | 3,051 |
|
|
| $ | 14,496 |
|
| $ | 9,070 |
|
| $ | 7,250 |
|
| $ | 7,009 |
|
| $ | 21,539 |
|
| $ | 20,770 |
|
Revolving Credit Facility
In December 2016, 2018, we entered into aamended and extended our previous three-year $150.0 million secured revolving credit facility into a new four-year $200.0 million secured revolving credit facility (the “Revolver”) for general corporate purposes, including financing the acquisition and conversion. As of 767 aircraft prior to obtaining permanent financing for the
converted aircraft. There were no amountsSeptember 30, 2019, there was $50.0 million outstanding and we had $142.3$136.8 million of unused availability under the Revolver, based on the collateral borrowing base,base. In October 2019, we drew an additional $25.0 million under the Revolver.
8. Leases and Guarantees
Adoption
We adopted the new lease accounting guidance using the modified retrospective method and applied it to all leases based on the contract terms in effect as of September 30, 2017.January 1, 2019. For existing contracts, we carried forward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.
9. Commitments
Equipment Purchase CommitmentsAlthough our performance obligations under ACMI contracts include the provision of aircraft to customers, we do not separate any potential aircraft lease components from the nonlease components of these contracts as the provision of the crew, maintenance and insurance components are, in the aggregate, the predominant components. Such contracts are accounted for in their entirety under the amended guidance for revenue recognition.
Lessee
As of September 30, 2017,2019, we lease 21 aircraft, of which 19 are operating leases. Lease expirations for our estimatedleased aircraft range from March 2020 to June 2032. In addition, we lease a variety of office space, airport station locations, warehouse space, vehicles and equipment, with lease expirations ranging from November 2019 to May 2027. We also incur variable rental costs for aircraft, engines, ground equipment and storage space based on usage of the underlying equipment or property. For leases with terms greater than 12 months, including renewal options when appropriate, we record the related right-of-use asset and lease liability as the present value of fixed lease payments over the lease term. Since our leases do not typically provide a readily determinable discount rate, we use our incremental borrowing rate to discount lease payments to present value.
The following table presents the lease-related assets and liabilities recorded on the consolidated balance sheet:
| Classification on the Consolidated Balance Sheets |
| September 30, 2019 |
| |
Assets |
|
|
|
|
|
Operating lease right-of-use assets | Operating lease right-of-use assets |
| $ | 520,063 |
|
Finance lease assets | Property and equipment, net |
|
| 41,245 |
|
Less: Accumulated amortization on finance lease assets | Property and equipment, net |
|
| (5,144 | ) |
Total lease assets |
|
| $ | 556,164 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Current |
|
|
|
|
|
Operating lease liabilities | Current portion of long-term operating leases |
| $ | 141,362 |
|
Finance lease liabilities | Current portion of long-term debt and finance lease |
|
| 11,399 |
|
Noncurrent |
|
|
|
|
|
Operating lease liabilities | Long-term operating leases |
|
| 427,459 |
|
Finance lease liabilities | Long-term debt and finance lease |
|
| 29,816 |
|
Total lease liabilities |
|
| $ | 610,036 |
|
Weighted Average Remaining Lease Term in years | ||||
Operating Leases | 4.15 | |||
Finance Leases | 9.68 | |||
Weighted Average Discount Rate | ||||
Operating Leases | 4.53 | % | ||
Finance Leases | 15.73 | % |
The following table presents information related to lease costs for finance and operating leases:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||
|
| September 30, 2019 |
|
| September 30, 2019 |
| ||
Fixed operating lease costs (1) |
| $ | 39,976 |
|
| $ | 120,056 |
|
Variable operating lease costs (1) |
|
| 4,083 |
|
|
| 13,381 |
|
Finance lease costs: |
|
|
|
|
|
|
|
|
Amortization of leased assets |
|
| 636 |
|
|
| 1,633 |
|
Interest on lease liabilities |
|
| 1,380 |
|
|
| 4,052 |
|
Total lease cost |
| $ | 46,075 |
|
| $ | 139,122 |
|
(1) | Expenses are classified within Aircraft rent and Navigation fees, landing fees and other rent on the consolidated statement of operations. Short-term lease contracts are not material. |
The table below presents supplemental cash flow information related to leases as follows:
|
|
|
| For the Nine Months Ended |
| |
|
|
|
| September 30, 2019 |
| |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
Operating cash flows for operating leases |
|
|
| $ | 124,319 |
|
Operating cash flows for finance lease |
|
|
|
| 4,052 |
|
Financing cash flows for finance lease |
|
|
|
| 617 |
|
As of September 30, 2019, maturities of lease liabilities for the periods indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating |
|
| Finance |
|
|
|
|
| ||
|
| Leases |
|
| Lease |
|
| Total |
| |||
2019 |
| $ | 43,103 |
|
| $ | 2,007 |
|
| $ | 45,110 |
|
2020 |
|
| 160,068 |
|
|
| 16,522 |
|
|
| 176,590 |
|
2021 |
|
| 167,623 |
|
|
| 6,000 |
|
|
| 173,623 |
|
2022 |
|
| 118,998 |
|
|
| 6,000 |
|
|
| 124,998 |
|
2023 |
|
| 66,502 |
|
|
| 6,000 |
|
|
| 72,502 |
|
Thereafter |
|
| 67,155 |
|
|
| 50,500 |
|
|
| 117,655 |
|
Total minimum rental payments |
|
| 623,449 |
|
|
| 87,029 |
|
|
| 710,478 |
|
Less: imputed interest |
|
| 54,628 |
|
|
| 45,814 |
|
|
| 100,442 |
|
Total |
| $ | 568,821 |
|
| $ | 41,215 |
|
| $ | 610,036 |
|
As of September 30, 2019, the Company’s obligations for operating leases that have not yet commenced are immaterial. In October 2019, we entered into a long-term lease for a building with an expected operating lease liability of approximately $19.7 million that is expected to commence during the second half of 2020.
As of December 31, 2018, our minimum annual rental commitments for the periods indicated under operating leases with initial or remaining terms of more than one year were as follows:
|
| Operating |
| |
|
| Leases |
| |
2019 |
| $ | 166,516 |
|
2020 |
|
| 159,383 |
|
2021 |
|
| 166,056 |
|
2022 |
|
| 115,591 |
|
2023 |
|
| 61,755 |
|
Thereafter |
|
| 53,430 |
|
Total |
| $ | 722,731 |
|
Lessor
Our performance obligations under Dry Lease contracts involve the provision of aircraft and engines to customers for compensation that is typically based on a fixed monthly amount and all are accounted for as operating leases. We record Dry Lease
rental income on a straight-line basis over the term of the operating lease.Dry Lease rental income subject to adjustment based on an index is recognized on a straight-line basis over each adjustment period. Our Dry Leases do not contain purchase options, renewal options or residual guarantees. In addition, our Dry Leases typically do not contain early termination options. If they do, there are typically substantial termination penalties. Rentals received but unearned under the lease agreements are recorded in deferred revenue and included in Accrued liabilities until earned.
To manage our residual value risk, we require lessees to perform maintenance on the Dry Leased asset and they may also be required to make maintenance payments to us during or at the end of the lease term. When an aircraft is returned at the end of lease, if we choose not to re-lease or sell the returned aircraft, we typically have the ability to operate the aircraft in our ACMI and Charter segments.
Customer maintenance reserves are amounts received during the lease term that are subject to reimbursement to the lessee upon the completion of qualifying maintenance work on the specific Dry Leased asset and are included in Accrued liabilities. We defer revenue recognition for customer maintenance reserves until the end of the lease, when we are able to finalize the amount, if any, to be reimbursed to the lessee.
End of lease maintenance payments are amounts received upon return of the Dry Leased asset based on the utilization of the asset during the lease term. Such payments made to us are recognized as revenue at the end of the lease.
As of September 30, 2019, our contractual amount of minimum receipts, excluding taxes, for the periods indicated under Dry Leases reflecting the terms that were in effect were as follows:
2019 |
| $ | 41,752 |
|
2020 |
|
| 166,985 |
|
2021 |
|
| 145,288 |
|
2022 |
|
| 137,604 |
|
2023 |
|
| 104,139 |
|
Thereafter |
|
| 246,466 |
|
Total minimum lease receipts |
| $ | 842,234 |
|
As of December 31, 2018, our contractual amount of minimum receipts, excluding taxes, for the periods indicated under Dry Leases reflecting the terms that were in effect were as follows:
|
| Dry Lease |
| |
|
| Income |
| |
2019 |
| $ | 180,366 |
|
2020 |
|
| 169,202 |
|
2021 |
|
| 148,413 |
|
2022 |
|
| 140,876 |
|
2023 |
|
| 107,248 |
|
Thereafter |
|
| 257,248 |
|
Total minimum lease receipts |
| $ | 1,003,353 |
|
The net book value of flight equipment on Dry Lease to customers was $1,636.6 million as of September 30, 2019 and $1,717.5 million as of December 31, 2018. The accumulated depreciation for flight equipment purchase commitmentson Dry Lease to customers was $288.2 million as of September 30, 2019 and $232.4 million as of December 31, 2018. See Note 11 to our Financial Statements for disclosure of our Dry Leasing segment revenue.
Guarantees and Indemnifications
In the ordinary course of business, we enter into numerous leasing and financing arrangements for real estate, equipment, aircraft and engines that have various guarantees included in the contracts. These guarantees are $143.8 million,primarily in the form of which $63.5 millionindemnities. In both leasing and financing transactions, we typically indemnify the lessors and any financing parties against tort liabilities that arise out of the use, occupancy, manufacture, design, operation or maintenance of the leased premises or financed aircraft, regardless of whether these liabilities relate to the negligence of the indemnified parties. Currently, we believe that any future payments required under many of these guarantees or indemnities would be immaterial, as most tort liabilities and related indemnities are expectedcovered by insurance (subject to deductibles). However, payments under certain tax indemnities related to certain of our financing arrangements, if applicable, could be made duringmaterial, and would not be covered by insurance, although we believe that these payments are not probable. Certain leased premises, such as maintenance and storage facilities, typically include indemnities of such parties for any
environmental liability that may arise out of or relate to the remainderuse of 2017.the leased premises. We also provide standard indemnification agreements to officers and directors in the ordinary course of business.
10.Financings and Guarantees
Our financing arrangements typically contain a withholding tax provision that requires us to pay additional amounts to the applicable lender or other financing party, if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law. These increased costs and withholding tax provisions continue for the entire term of the applicable transaction and there is no limitation on the maximum additional amount we could be required to pay under such provisions. Any failure to pay amounts due under such provisions generally would trigger an event of default and, in a secured financing transaction, would entitle the lender to foreclose upon the collateral to realize the amount due.
9. Income Taxes
Our effectiveThe income tax expense rates were 72.7% and 230.8%benefit for the three months ended September 30, 2017 and 2016, respectively. Our effective2019 differed from tax at the U.S. statutory rate primarily due to $18.2 million of tax benefit from nontaxable changes in the fair value of the customer warrant liability (see Note 4 to our Financial Statements). The income tax expense rates were 59.1% and 60.3%benefit for the nine months ended September 30, 2017 and 2016, respectively. The effective2019 differed from tax at the U.S. statutory rate primarily due to $59.8 million of tax benefit related to the favorable completion of the IRS’s examination of our 2015 income tax return, and to a lesser extent, $17.3 million of tax benefit from nontaxable changes in the fair value of the customer warrant liability.
The income tax expense rates for the three and nine months ended September 30, 20172018 differed from the U.S. statutory rate primarily due to nondeductible changes in the value of the Amazon Warrant liability (see Note 6 to our Financial Statements). In addition, the effective income tax expense rate for the nine months ended September 30, 2017 differed fromat the U.S. statutory rate due to $8.7 million of tax benefit from the impactremeasurement of the 2017 adoption of the amended accounting guidance for share-based compensation which requires that excess tax benefits associated with share-based compensation be recognized withinour deferred income tax expense in our consolidated statement of operations. The effectiveliability for Singapore. In addition, the income tax expense rates for the three and nine months ended September 30, 20162018 differed from tax at the U.S. federal statutory rate primarily due to nondeductible expenses resulting from a changechanges in control, as defined under certainthe fair value of the Company’s benefit plans, related to the Amazon transactioncustomer warrant liability (see Note 64 to our Financial Statements). The effective ratesThis change resulted in $6.1 million of tax benefit for all periods were impacted by our assertion to indefinitely reinvest the net earningsthree months ended September 30, 2018, and $11.8 million of foreign subsidiaries outsidetax expense for the U.S. For interim accounting purposes, we recognize income taxes using an estimated annual effective tax rate.nine months ended September 30, 2018.
11.10. Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified in the following hierarchy:
| Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities; |
| Level 2 | Other inputs that are observable directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, or inactive quoted prices for identical assets or liabilities in inactive markets; |
| Level 3 | Unobservable inputs reflecting assumptions about the inputs used in pricing the asset or liability. |
We endeavor to utilize the best available information to measure fair value.
The carrying value of Cash and cash equivalents, Short-term investments and Restricted cash is based on cost, which approximates fair value.
Long-term investments consist of debt securities, maturing within five years, for which we have both the ability and the intent to hold until maturity. These investments are classified as held-to-maturity and reported at amortized cost. The fair value of our Long-term investments is based on a discounted cash flow analysis using the contractual cash flows of the investments and a discount rate derived from unadjusted quoted interest rates for debt securities of comparable risk. Such debt securities represent investments in Pass-Through Trust Certificates (“PTCs”) related to enhanced equipment trust certificates (“EETCs”) issued by Atlas in 1998 1999 and 2000.1999.
Term loans and notes consist of term loans, notes guaranteed by the Export-Import Bank of the United States (“Ex-Im Bank”), the Revolver and EETCs. The fair values of these debt instruments are based on a discounted cash flow analysis using current borrowing rates for instruments with similar terms.
The fair value of our convertible notesConvertible Notes is based on unadjusted quoted market prices for these securities.
The fair value of the Amazon Warrant isa customer warrant liability and certain long-term performance-based restricted shares are based on a Monte Carlo simulation which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility, and risk-free interest rate, among others.
The following table summarizes the carrying value, estimated fair value and classification of our financial instruments as of:
|
| September 30, 2017 |
|
| September 30, 2019 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 165,250 |
|
| $ | 165,250 |
|
| $ | 165,250 |
|
| $ | - |
|
| $ | - |
|
| $ | 70,327 |
|
| $ | 70,327 |
|
| $ | 70,327 |
|
| $ | - |
|
| $ | - |
|
Short-term investments |
|
| 10,676 |
|
|
| 10,676 |
|
|
| - |
|
|
| - |
|
|
| 10,676 |
|
|
| 2,129 |
|
|
| 2,129 |
|
|
| - |
|
|
| - |
|
|
| 2,129 |
|
Restricted cash |
|
| 11,030 |
|
|
| 11,030 |
|
|
| 11,030 |
|
|
| - |
|
|
| - |
|
|
| 10,376 |
|
|
| 10,376 |
|
|
| 10,376 |
|
|
| - |
|
|
| - |
|
Long-term investments and accrued interest |
|
| 19,234 |
|
|
| 22,442 |
|
|
| - |
|
|
| - |
|
|
| 22,442 |
| ||||||||||||||||||||
|
| $ | 206,190 |
|
| $ | 209,398 |
|
| $ | 176,280 |
|
| $ | - |
|
| $ | 33,118 |
|
| $ | 82,832 |
|
| $ | 82,832 |
|
| $ | 80,703 |
|
| $ | - |
|
| $ | 2,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans and notes |
| $ | 1,674,311 |
|
| $ | 1,747,582 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,747,582 |
|
| $ | 1,888,893 |
|
| $ | 2,016,272 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,016,272 |
|
Revolver |
|
| 50,000 |
|
|
| 51,208 |
|
|
| - |
|
|
| - |
|
|
| 51,208 |
| ||||||||||||||||||||
Convertible notes |
|
| 399,377 |
|
|
| 632,740 |
|
|
| 632,740 |
|
|
| - |
|
|
| - |
|
|
| 434,555 |
|
|
| 444,235 |
|
|
| 444,235 |
|
|
| - |
|
|
| - |
|
Amazon Warrant |
|
| 132,000 |
|
|
| 132,000 |
|
|
| - |
|
|
| 132,000 |
|
|
| - |
| ||||||||||||||||||||
Customer warrant |
|
| 20,306 |
|
|
| 20,306 |
|
|
| - |
|
|
| 20,306 |
|
|
| - |
| ||||||||||||||||||||
|
| $ | 2,205,688 |
|
| $ | 2,512,322 |
|
| $ | 632,740 |
|
| $ | 132,000 |
|
| $ | 1,747,582 |
|
| $ | 2,393,754 |
|
| $ | 2,532,021 |
|
| $ | 444,235 |
|
| $ | 20,306 |
|
| $ | 2,067,480 |
|
|
| December 31, 2016 |
|
| December 31, 2018 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 123,890 |
|
| $ | 123,890 |
|
| $ | 123,890 |
|
| $ | - |
|
| $ | - |
|
| $ | 221,501 |
|
| $ | 221,501 |
|
| $ | 221,501 |
|
| $ | - |
|
| $ | - |
|
Short-term investments |
|
| 4,313 |
|
|
| 4,313 |
|
|
| - |
|
|
| - |
|
|
| 4,313 |
|
|
| 15,624 |
|
|
| 15,624 |
|
|
| - |
|
|
| - |
|
|
| 15,624 |
|
Restricted cash |
|
| 14,360 |
|
|
| 14,360 |
|
|
| 14,360 |
|
|
| - |
|
|
| - |
|
|
| 11,240 |
|
|
| 11,240 |
|
|
| 11,240 |
|
|
| - |
|
|
| - |
|
Long-term investments and accrued interest |
|
| 27,951 |
|
|
| 33,161 |
|
|
| - |
|
|
| - |
|
|
| 33,161 |
|
|
| 635 |
|
|
| 1,138 |
|
|
| - |
|
|
| - |
|
|
| 1,138 |
|
|
| $ | 170,514 |
|
| $ | 175,724 |
|
| $ | 138,250 |
|
| $ | - |
|
| $ | 37,474 |
|
| $ | 249,000 |
|
| $ | 249,503 |
|
| $ | 232,741 |
|
| $ | - |
|
| $ | 16,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans and notes |
| $ | 1,674,013 |
|
| $ | 1,739,744 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,739,744 |
|
| $ | 2,048,972 |
|
| $ | 1,976,373 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,976,373 |
|
Convertible notes |
|
| 177,398 |
|
|
| 228,429 |
|
|
| 228,429 |
|
|
| - |
|
|
| - |
|
|
| 420,868 |
|
|
| 490,070 |
|
|
| 490,070 |
|
|
| - |
|
|
| - |
|
Amazon Warrant |
|
| 95,775 |
|
|
| 95,775 |
|
|
| - |
|
|
| 95,775 |
|
|
| - |
| ||||||||||||||||||||
Customer warrant |
|
| 99,000 |
|
|
| 99,000 |
|
|
| - |
|
|
| 99,000 |
|
|
| - |
| ||||||||||||||||||||
|
| $ | 1,947,186 |
|
| $ | 2,063,948 |
|
| $ | 228,429 |
|
| $ | 95,775 |
|
| $ | 1,739,744 |
|
| $ | 2,568,840 |
|
| $ | 2,565,443 |
|
| $ | 490,070 |
|
| $ | 99,000 |
|
| $ | 1,976,373 |
|
(1) Carrying value is net of debt discounts and debt issuance costs (see Note 7 to our Financial Statements).
Gross unrealized gains on our long-term investments and accrued interest were $3.2 million at September 30, 2017 and $5.2$0.5 million at December 31, 2016.2018.
12.11. Segment Reporting
Our business is organized into three3 operating segments based on our service offerings: ACMI, Charter and Dry Leasing. All segments are directly or indirectly engaged in the business of air transportation services but have different commercial and economic characteristics. Each operating segment is separately reviewed by our chief operating decision maker to assess operating results and make resource allocation decisions. We do not aggregate our operating segments and, therefore, our operating segments are our reportable segments.
We use an economic performance metric (“Direct Contribution”) that shows the profitability of each segment after allocation of direct operating and ownership costs. Direct Contribution represents Income (loss) from continuing operations before income taxes excluding the following: Special charges,charge, Transaction-related expenses, nonrecurring items, Losses (gains) on the disposal of aircraft, Losses on early extinguishment of debt, Unrealized losses (gains)(gain) loss on financial instruments, Gains on investments and Unallocated incomeexpenses and expenses,(income), net. Direct operating and ownership costs include crew costs, maintenance, fuel, ground operations, sales costs, aircraft rent, interest expense on the portion of debt used for financing aircraft, interest income on debt securities and aircraft depreciation. Unallocated income and expenses, net include corporate overhead, nonaircraft depreciation, noncash expenses and income, interest expense on the portion of debt used for general corporate purposes, interest income on nondebt securities, capitalized interest, foreign exchange gains and losses, other revenue and other non-operating costs, including certain contract start-up costs.
The following table sets forth Operating Revenue and Direct Contribution for our reportable segments reconciled to Operating Income (Loss) and Income from continuing operations before income taxes:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||||||
Operating Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 258,109 |
|
| $ | 206,310 |
|
| $ | 687,982 |
|
| $ | 600,772 |
|
| $ | 289,024 |
|
| $ | 288,602 |
|
| $ | 902,869 |
|
| $ | 832,777 |
|
Charter |
|
| 243,583 |
|
|
| 212,040 |
|
|
| 743,302 |
|
|
| 616,794 |
|
|
| 324,046 |
|
|
| 322,750 |
|
|
| 944,839 |
|
|
| 954,725 |
|
Dry Leasing |
|
| 30,804 |
|
|
| 25,907 |
|
|
| 86,120 |
|
|
| 79,165 |
|
|
| 43,847 |
|
|
| 44,487 |
|
|
| 157,328 |
|
|
| 120,837 |
|
Customer incentive asset amortization |
|
| (1,531 | ) |
|
| (174 | ) |
|
| (2,873 | ) |
|
| (174 | ) |
|
| (12,796 | ) |
|
| (4,124 | ) |
|
| (26,018 | ) |
|
| (10,010 | ) |
Other |
|
| 4,783 |
|
|
| 3,932 |
|
|
| 13,977 |
|
|
| 13,345 |
|
|
| 4,418 |
|
|
| 4,892 |
|
|
| 13,122 |
|
|
| 14,437 |
|
Total Operating Revenue |
| $ | 535,748 |
|
| $ | 448,015 |
|
| $ | 1,528,508 |
|
| $ | 1,309,902 |
|
| $ | 648,539 |
|
| $ | 656,607 |
|
| $ | 1,992,140 |
|
| $ | 1,912,766 |
|
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 51,647 |
|
| $ | 51,607 |
|
| $ | 141,134 |
|
| $ | 121,837 |
|
| $ | 33,401 |
|
| $ | 51,672 |
|
| $ | 114,048 |
|
| $ | 145,251 |
|
Charter |
|
| 34,808 |
|
|
| 32,948 |
|
|
| 88,877 |
|
|
| 78,580 |
|
|
| 36,339 |
|
|
| 44,370 |
|
|
| 79,554 |
|
|
| 129,738 |
|
Dry Leasing |
|
| 10,245 |
|
|
| 7,413 |
|
|
| 29,629 |
|
|
| 24,699 |
|
|
| 12,028 |
|
|
| 12,645 |
|
|
| 58,646 |
|
|
| 36,195 |
|
Total Direct Contribution for Reportable Segments |
|
| 96,700 |
|
|
| 91,968 |
|
|
| 259,640 |
|
|
| 225,116 |
|
|
| 81,768 |
|
|
| 108,687 |
|
|
| 252,248 |
|
|
| 311,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income and expenses, net |
|
| (64,463 | ) |
|
| (80,876 | ) |
|
| (183,418 | ) |
|
| (186,923 | ) | ||||||||||||||||
Unallocated expenses and (income), net |
|
| (93,507 | ) |
|
| (82,830 | ) |
|
| (255,569 | ) |
|
| (212,373 | ) | ||||||||||||||||
Loss on early extinguishment of debt |
|
| (167 | ) |
|
| - |
|
|
| (167 | ) |
|
| (132 | ) |
|
| (559 | ) |
|
| - |
|
|
| (804 | ) |
|
| - |
|
Unrealized loss (gain) on financial instruments |
|
| (44,775 | ) |
|
| (1,462 | ) |
|
| (36,225 | ) |
|
| 25,013 |
| ||||||||||||||||
Special charge |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (6,631 | ) | ||||||||||||||||
Unrealized gain (loss) on financial instruments |
|
| 83,175 |
|
|
| 46,080 |
|
|
| 78,900 |
|
|
| (11,691 | ) | ||||||||||||||||
Special charge, net |
|
| (18,861 | ) |
|
| - |
|
|
| (22,130 | ) |
|
| (9,374 | ) | ||||||||||||||||
Transaction-related expenses |
|
| (1,092 | ) |
|
| (3,905 | ) |
|
| (3,403 | ) |
|
| (21,486 | ) |
|
| (324 | ) |
|
| (765 | ) |
|
| (3,585 | ) |
|
| (1,275 | ) |
Loss (gain) on disposal of aircraft |
|
| (211 | ) |
|
| 11 |
|
|
| (64 | ) |
|
| 11 |
| ||||||||||||||||
Income (loss) from continuing operations before income taxes |
|
| (14,008 | ) |
|
| 5,736 |
|
|
| 36,363 |
|
|
| 34,968 |
| ||||||||||||||||
Income from continuing operations before income taxes |
|
| 51,692 |
|
|
| 71,172 |
|
|
| 49,060 |
|
|
| 76,471 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| (1,688 | ) |
|
| (1,316 | ) |
|
| (4,286 | ) |
|
| (4,325 | ) |
|
| (653 | ) |
|
| (1,592 | ) |
|
| (3,975 | ) |
|
| (4,704 | ) |
Interest expense |
|
| 26,553 |
|
|
| 21,355 |
|
|
| 72,747 |
|
|
| 63,595 |
|
|
| 30,117 |
|
|
| 31,115 |
|
|
| 90,515 |
|
|
| 87,639 |
|
Capitalized interest |
|
| (1,922 | ) |
|
| (1,059 | ) |
|
| (5,633 | ) |
|
| (2,106 | ) |
|
| (853 | ) |
|
| (1,120 | ) |
|
| (1,943 | ) |
|
| (4,335 | ) |
Loss on early extinguishment of debt |
|
| 167 |
|
|
| - |
|
|
| 167 |
|
|
| 132 |
|
|
| 559 |
|
|
| - |
|
|
| 804 |
|
|
| - |
|
Unrealized loss (gain) on financial instruments |
|
| 44,775 |
|
|
| 1,462 |
|
|
| 36,225 |
|
|
| (25,013 | ) | ||||||||||||||||
Other income |
|
| (1,165 | ) |
|
| (180 | ) |
|
| (357 | ) |
|
| (372 | ) | ||||||||||||||||
Operating Income |
| $ | 52,712 |
|
| $ | 25,998 |
|
| $ | 135,226 |
|
| $ | 66,879 |
| ||||||||||||||||
Unrealized (gain) loss on financial instruments |
|
| (83,175 | ) |
|
| (46,080 | ) |
|
| (78,900 | ) |
|
| 11,691 |
| ||||||||||||||||
Other (income) expense, net |
|
| 1,434 |
|
|
| 975 |
|
|
| (596 | ) |
|
| (10,777 | ) | ||||||||||||||||
Operating (Loss) Income |
| $ | (879 | ) |
| $ | 54,470 |
|
| $ | 54,965 |
|
| $ | 155,985 |
|
The following table disaggregates our Charter segment revenue by customer and service type:
| For the Three Months Ended |
| |||||||||||||||||||||||
| September 30, 2019 |
|
| September 30, 2018 |
| ||||||||||||||||||||
|
| Cargo |
|
| Passenger |
|
| Total |
|
|
| Cargo |
|
| Passenger |
|
| Total |
| ||||||
Commercial customers |
| $ | 127,558 |
|
| $ | 17,075 |
|
| $ | 144,633 |
|
|
| $ | 158,129 |
|
| $ | 11,651 |
|
| $ | 169,780 |
|
AMC |
|
| 85,382 |
|
|
| 94,031 |
|
|
| 179,413 |
|
|
|
| 85,267 |
|
|
| 67,703 |
|
|
| 152,970 |
|
Total Charter Revenue |
| $ | 212,940 |
|
| $ | 111,106 |
|
| $ | 324,046 |
|
|
| $ | 243,396 |
|
| $ | 79,354 |
|
| $ | 322,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended |
| |||||||||||||||||||||||
| September 30, 2019 |
|
| September 30, 2018 |
| ||||||||||||||||||||
|
| Cargo |
|
| Passenger |
|
| Total |
|
|
| Cargo |
|
| Passenger |
|
| Total |
| ||||||
Commercial customers |
| $ | 409,640 |
|
| $ | 27,736 |
|
| $ | 437,376 |
|
|
| $ | 440,881 |
|
| $ | 14,241 |
|
| $ | 455,122 |
|
AMC |
|
| 234,845 |
|
|
| 272,618 |
|
|
| 507,463 |
|
|
|
| 264,142 |
|
|
| 235,461 |
|
|
| 499,603 |
|
Total Charter Revenue |
| $ | 644,485 |
|
| $ | 300,354 |
|
| $ | 944,839 |
|
|
| $ | 705,023 |
|
| $ | 249,702 |
|
| $ | 954,725 |
|
Given the nature of our business and international flying, geographic information for revenue, long-lived assets and total assets is not presented because it is impracticable to do so.
We are exposed to a concentration of revenue from the U.S. Military Air Mobility Command (the “AMC”(“AMC”), Polar and DHL (see above and Note 3 to our Financial Statements for further discussion regarding Polar). No other customer accounted for more than 10.0% of our Total Operating Revenue. Revenue from the AMCDHL was $124.9$91.4 million for the three months ended September 30, 20172019 and $116.2$90.9 million for the three months ended September 30, 2016.2018. Revenue from the AMCDHL was $397.5$267.8 million for the nine months ended September 30, 20172019 and $346.8$242.8 million for the nine months ended September 30, 2016. Revenue from DHL was $62.1 million for the three months ended September 30, 2017 and $57.4 million for the three months ended September 30, 2016. Revenue from DHL was $177.6 million for the nine months ended September 30, 2017 and $128.0 million for the nine months ended September 30, 2016.2018. We have not experienced any credit issues with either of these customers.
13.12. Labor and Legal Proceedings
Labor
Pilots of Atlas and Southern Air, and flight dispatchers of Atlas and Polar are represented by the International Brotherhood of Teamsters (the “IBT”). We have a five-year collective bargaining agreement (“CBA”) with our Atlas pilots, which became amendable in September 2016 and a four-year CBA with the Southern Air pilots, which became amendable in November 2016. We also have a five-year CBA with our Atlas and Polar dispatchers, which was extended in April 2017 for an additional four years, making the CBA amendable in November 2021.
After we completed the acquisition of Southern Air in April 2016, we informed the IBT of our intention to pursue (and we have been pursuing) a complete operational merger of Atlas and Southern Air. The Atlas and Southern Air CBAs both have a defined and streamlined process for negotiating a joint CBA (“JCBA”) when a merger occurs, as in the case with the Atlas and Southern Air merger. Pursuant to the merger provisions in both the Atlas and Southern Air CBAs, joint negotiations for a single CBA for Atlas and Southern Air should commence promptly. Further, to this process, once aan integrated seniority list (“ISL”) of Atlas and Southern Air pilots is presented to usthe Company by the unions,union, it triggers ana nine month agreed-upon time frametimeframe to negotiate a new joint CBAJCBA with any unresolved issues promptly submitted to binding arbitration.
The IBT has refused to follow the merger provisions in the Atlas and Southern Air CBAs. This has resulted in significant litigation, arbitrations and delay. As more fully stated below, the Company has prevailed in all of the merger related proceedings.
After the merger process began, the IBT also filed an application for mediation with the National Mediation Board (“NMB”) on behalf of the Atlas pilots, and subsequently the IBT filed a similar application on behalf of Southern Air pilots. We have opposed both mediation applications as they are not in accordance with the merger provisions in the parties’ existing CBAs. The Atlas and Southern Air CBAs have a defined and streamlined process for negotiating a joint CBA when a merger occurs, as in the case with the Atlas and Southern Air merger. The NMB conducted a pre-mediationpremediation investigation on the IBT’s Atlas application in June 2016, which is currentlyhas remained pending (along with the IBT’s Southern Air application). since 2016.
Due to a lackthe IBT’s refusal to adhere to the merger provisions of meaningful progress in such merger discussions,the respective CBAs, in February 2017, wethe Company filed a lawsuit against the IBT to compel arbitration on the issue of whether the merger provisions in Atlas and Southern Air's CBAs apply to the bargaining process. While this lawsuit is pending inOn March 13, 2018, the Southern District Court of New York (“NY District Court”) ruled in the Company’s favor and ordered arbitration of this issue. The IBT appealed the NY District Court’s decision, which is currently pending.
The Company and the IBT have reachedconducted the Atlas and Southern Air arbitrations for this issue in October 2018. The Company prevailed in both the Atlas and Southern Air management grievance arbitrations against the IBT, with decisions rendered on June 12, 2019 and August 26, 2019, respectively. Both arbitrators ruled that the IBT violated the CBAs by refusing to follow merger provisions in the parties’ respective CBAs, which require formulation of a JCBA covering the combined pilot group. The arbitrators each ordered the IBT to promptly comply with the CBAs by submitting an interim agreement on a processISL to proceedthe Company within 45 days of each arbitration decision, respectively. The IBT failed to comply with negotiationsboth deadlines for a new joint CBA. These negotiations commencedsubmitting the ISL, which passed on July 6, 201727, 2019 for Southern Air, and the parties have continued to meet regularly since then and bargainon October 10, 2019 for Atlas. As a new joint CBA.
In September 2017,result, on October 25, 2019, the Company requestedfiled an action in the U.S. District Court for the District of Columbia (the “Court”(“DC District Court”) to enforce the Atlas and Southern Air arbitration decisions.
In connection with its opposition to the merger provisions, the IBT commenced lawsuits in the DC District Court seeking to vacate both arbitration awards. The Company has filed motions to dismiss both lawsuits and these actions are currently pending.
Notwithstanding these pending proceedings, the Company and the IBT continue to meet to move the process forward and bargain in good faith for a new JCBA. Substantive progress has been made with tentative agreements for a number of the articles in a new JCBA. Despite repeated requests from the Company, the IBT has yet to provide the Company with a comprehensive economic proposal.
In late September 2019, the IBT notified the Company that Atlas pilots represented by the IBT were departing from IBT Local 1224 and forming a new local union, IBT Local 2750 to represent them. The Company has been informed the Southern Air pilots will continue to be represented by IBT Local 1224. The Company continues to work with both Local 2750 and Local 1224 leadership groups.
In August 2018, the Southern Air pilots ratified an agreement between Southern Air and the IBT for interim enhancements to the Southern Air pilots’ CBA. The agreement enhances the wages and work rules of the Southern Air pilots and provides similar terms and conditions of employment to those provided to Atlas pilots in the Atlas CBA. The Southern Air pilot agreement became effective in September 2018.
In late November 2017, the DC District Court granted the Company’s request to issue a preliminary injunction to stop an illegal work slowdown and require the IBT to meet its obligations under the Railway Labor Act and stopAct. Specifically, the illegal intentional work slowdowns and service interruptions. In its filing, the Company states thatDC District Court ordered the IBT isto stop “authorizing, encouraging, permitting, calling, engaging in, unlawful, concerted work slowdownsor continuing” any illegal pilot slowdown activities, which were intended to gain leverage in pilot contract negotiations with the Company. The Company seeks to haveIn addition, the Court compelordered the IBT to stoptake affirmative action to prevent and to refrain from continuing any form of interference with the illegal work actionsCompany’s operations or any other concerted refusal to perform normal pilot operations consistent with its status quo obligations under the Railway Labor Act. In December 2017, the IBT appealed the District Court’s decision to the U.S. Court of Appeals for the District of Columbia Circuit (“Court of Appeals”). On July 5, 2019, the Court of Appeals, in a unanimous three judge panel, affirmed the DC District Court’s ruling and return to normal operations. The hearing was completed in early November and a ruling ondenied the IBT’s appeal. Therefore, the preliminary injunction is expected during the fourth quarter of 2017.remains in full force and effect.
We are subject to risks of work interruption or stoppage as permitted by the Railway Labor Act and may incur additional administrative expenses associated with union representation of our employees.
Matters Related to Alleged Pricing Practices
The Company and Polar Air Cargo, LLC (“Old Polar”), a consolidated subsidiary, were named defendants, along with a number of other cargo carriers, in several class actions in the U.S. arising from allegations about the pricing practices of Old Polar and a number of air cargo carriers. These actions were all centralized in the U.S. District Court for the Eastern District of New York. Polar was later joined as an additional defendant. The consolidated complaint alleged, among other things, that the defendants, including the Company and Old Polar, manipulated the market price for air cargo services sold domestically and abroad through the use of surcharges, in violation of U.S., state, and European Union antitrust laws. The suit sought treble damages and attorneys’ fees.
On January 7, 2016, the Company, Old Polar, and Polar entered into a settlement agreement to settle all claims by participating class members against the Company, Old Polar and Polar. The Company, Polar, and Old Polar deny any wrongdoing, and there is no admission of any wrongdoing in the settlement agreement. Pursuant to the settlement agreement, the Company, Old Polar and Polar have agreed to make installment payments over three years to settle the plaintiffs’ claims, with payments of $35.0 million paid in January 2016 and 2017, and $30.0 million due on or before January 15, 2018. The U.S. District Court for the Eastern District of New York issued an order granting preliminary approval of the settlement on January 12, 2016. On October 6, 2016, the final judgment was issued and the settlement was approved.
In the United Kingdom, several groups of named claimants have brought suit against British Airways in connection with the same alleged pricing practices at issue in the proceedings described above and are seeking damages allegedly arising from that conduct. British Airways has filed claims in the lawsuit against Old Polar and a number of air cargo carriers for contribution should British Airways be found liable to claimants. Old Polar’s formal statement of defense was filed on March 2, 2015. On October 14, 2015, the U.K. Court of Appeal released decisions favorable to the defendant and contributory defendants on two matters under appeal. Permission was sought to appeal the U.K. Court of Appeal's decisions to the U.K. Supreme Court. Permission was denied. In December 2015, certain claimants settled with British Airways removing a significant portion of the claim against British Airways and therefore reducing the potential contribution required by the other airlines, including Old Polar. On December 16, 2015, the European General Court released decisions annulling decisions that the European Commission made against the majority of the air cargo carriers. The European Commission did not appeal the General Court decision but has, in early 2017, reissued a revised decision to which Old Polar is, again, not an addressee. On April 13, 2017, Old Polar and claimants represented by Hausfeld & Co. LLP (the “Hausfeld Claimants”) entered into a bilateral settlement agreement in relation to the English proceedings (the “Settlement Agreement”). The Settlement Agreement contains a mechanism by which the Hausfeld Claimants will release Old Polar and remove from the English proceedings all claims for damages alleged by the Hausfeld Claimants to be attributable to air cargo purchases from Old Polar (and each of Old Polar’s parents, subsidiaries, affiliates, predecessors, successors, agents and assignees). The amount of the settlement, which is tax deductible and was previously accrued for, was paid during the second quarter of 2017 and did not have a material adverse impact on the Company’s financial condition,
results of operations or cash flows.Old Polar remains a contributory defendant in the proceedings and, as such, is subject to certain continuing evidentiary obligations.
In the Netherlands, Stichting Cartel Compensation, successor in interest to claims of various shippers, has filed suit in the district court in Amsterdam against British Airways, KLM, Martinair, Air France, Lufthansa and Singapore Airlines (“Defendants”) seeking recovery for damages purportedly arising from the sameallegedly unlawful pricing practices at issue in the proceedings described above.of such Defendants. In response, British Airways, KLM, Martinair, Air France and LufthansaDefendants filed third-party indemnification lawsuits against Polar Air Cargo, LLC (“Old PolarPolar”), a consolidated subsidiary of the Company, and Polar, seeking indemnification in the event the defendantsDefendants are found to be liable in the main proceedings. Old Polar and Polar entered their initial court appearancesAnother defendant, Thai Airways, filed a similar indemnification claim. Activities in the case have focused on September 30, 2015. Variousvarious procedural issues, some of which are undergoingawaiting court review. Like the U.K. proceedings, thedetermination. The Netherlands proceedings are likely to be affected by a decision readopted by the European Commission’s revised decision.Commission in March 2017, finding EU competition law violations by Defendants, among others, but not Old Polar or Polar. We are unable to reasonably predict the outcome of the litigation. If the Company, Old Polar or Polar were to incur an unfavorable outcome, in connection with this proceeding, such outcome may have a material adverse impact on our business, financial condition, results of operations or cash flows. We are unable to reasonably estimate a range of possible loss for this matter at this time.
Brazilian Customs Claim
Old Polar was cited for two alleged customs violations in Sao Paulo, Brazil, relating to shipments of goods dating back to 1999 and 2000. Each claim asserts that goods listed on the flight manifest of two separate Old Polar scheduled service flights were not on board the aircraft upon arrival and therefore were improperly brought into Brazil. The two claims, which also seek unpaid customs duties, taxes and penalties from the date of the alleged infraction, are approximately $9.6$4.9 million in aggregate based on September 30, 20172019 exchange rates.
In both cases, we believe that the amounts claimed are substantially overstated due to a calculation error when considering the type and amount of goods allegedly missing, among other things. Furthermore, we may seek appropriate indemnity from the shipper in each claim as may be feasible. In the pending claim for one of the cases, we have received an administrative decision dismissing the claim in its entirety, which remains subject to a mandatory appeal by the Brazil customs authorities. In the other case, we received an administrative decision in favor of the Brazil customs authorities and we are in the process of appealing this decision to the Brazil courts. As required to defend such claims, we have made deposits pending resolution of these matters. The balance was $5.3$4.0 million as of September 30, 20172019 and $4.1 million as of December 31, 2016,2018, and is included in Deferred costs and other assets.
We are currently defending these and other Brazilian customs claims and the ultimate disposition of these claims, either individually or in the aggregate, is not expected to materially affect our financial condition, results of operations or cash flows.
AccrualsOther
As of September 30, 2017, the Company had an accrual of $30.0 million relatedIn addition to the U.S. class action settlement that was recognizedmatters described in 2015.
Other
Wethis note, we have certain other contingencies incident to the ordinary course of business. Management believesUnless disclosed otherwise, management does not expect that the ultimate disposition of such other contingencies is not expected toor matters will materially affect our financial condition, results of operations or cash flows.
14.13. Earnings Per Share
Basic earnings per share (“EPS”) represents income (loss) divided by the weighted average number of common shares outstanding during the measurement period. Diluted EPS represents income (loss) divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period using the treasury stock method. Anti-dilutiveThe calculations of basic and diluted EPS were as follows:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
Numerator: |
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||
Income from continuing operations, net of taxes |
| $ | 59,974 |
|
| $ | 71,138 |
|
| $ | 117,132 |
|
| $ | 59,643 |
|
Less: Unrealized gain on financial instruments, net of tax |
|
| - |
|
|
| (46,897 | ) |
|
| (81,139 | ) |
|
| - |
|
Diluted income from continuing operations, net of tax |
| $ | 59,974 |
|
| $ | 24,241 |
|
| $ | 35,993 |
|
| $ | 59,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS weighted average shares outstanding |
|
| 25,854 |
|
|
| 25,575 |
|
|
| 25,814 |
|
|
| 25,526 |
|
Effect of dilutive warrant |
|
| - |
|
|
| 2,471 |
|
|
| 1,010 |
|
|
| - |
|
Effect of dilutive convertible notes |
|
| - |
|
|
| 269 |
|
|
| - |
|
|
| 240 |
|
Effect of dilutive restricted stock |
|
| - |
|
|
| 432 |
|
|
| 85 |
|
|
| 508 |
|
Diluted EPS weighted average shares outstanding |
|
| 25,854 |
|
|
| 28,747 |
|
|
| 26,909 |
|
|
| 26,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 2.32 |
|
| $ | 2.78 |
|
| $ | 4.54 |
|
| $ | 2.34 |
|
Diluted |
| $ | 2.32 |
|
| $ | 0.84 |
|
| $ | 1.34 |
|
| $ | 2.27 |
|
Loss per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | - |
|
| $ | (0.00 | ) |
| $ | - |
|
| $ | (0.00 | ) |
Diluted |
| $ | - |
|
| $ | (0.00 | ) |
| $ | - |
|
| $ | (0.00 | ) |
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 2.32 |
|
| $ | 2.78 |
|
| $ | 4.54 |
|
| $ | 2.33 |
|
Diluted |
| $ | 2.32 |
|
| $ | 0.84 |
|
| $ | 1.34 |
|
| $ | 2.27 |
|
Antidilutive shares related to warrants issued in connection with our Convertible Notes and stock optionswarrants issued to a customer that were out of the money and excluded from the calculation of diluted EPS were 15.3 million and 7.8 million for the three and nine months ended September 30, 2019, respectively and 3.0 million for the three and nine months ended September 30, 2017 and 2016. Anti-dilutive2018. Diluted shares related toreflect the potential dilution that could occur from restricted share units and warrants that were excluded fromshares using the calculation of diluted EPS due to losses incurred were 2.2 million for the three months ended September 30, 2017 and were 0.4 million for the three months ended September 30, 2016.
The calculations of basic and diluted EPS were as follows:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
Numerator: |
| September 30, 2017 |
|
| September 30, 2016 |
|
| September 30, 2017 |
|
| September 30, 2016 |
| ||||
Income (loss) from continuing operations, net of taxes |
| $ | (24,195 | ) |
| $ | (7,501 | ) |
| $ | 14,884 |
|
| $ | 13,889 |
|
Less: Unrealized loss (gain) on financial instruments, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (26,109 | ) |
Diluted income (loss) from continuing operations, net of tax |
| $ | (24,195 | ) |
| $ | (7,501 | ) |
| $ | 14,884 |
|
| $ | (12,220 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS weighted average shares outstanding |
|
| 25,262 |
|
|
| 24,840 |
|
|
| 25,229 |
|
|
| 24,788 |
|
Effect of dilutive warrant |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 141 |
|
Effect of dilutive convertible notes |
|
| - |
|
|
| - |
|
|
| 36 |
|
|
| - |
|
Effect of dilutive stock options and restricted stock |
|
| - |
|
|
| - |
|
|
| 557 |
|
|
| 187 |
|
Diluted EPS weighted average shares outstanding |
|
| 25,262 |
|
|
| 24,840 |
|
|
| 25,822 |
|
|
| 25,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.96 | ) |
| $ | (0.30 | ) |
| $ | 0.59 |
|
| $ | 0.56 |
|
Diluted |
| $ | (0.96 | ) |
| $ | (0.30 | ) |
| $ | 0.58 |
|
| $ | (0.49 | ) |
Earnings (loss) per share from discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.00 |
|
| $ | (0.02 | ) |
| $ | (0.03 | ) |
| $ | (0.03 | ) |
Diluted |
| $ | 0.00 |
|
| $ | (0.02 | ) |
| $ | (0.03 | ) |
| $ | (0.03 | ) |
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.96 | ) |
| $ | (0.32 | ) |
| $ | 0.56 |
|
| $ | 0.53 |
|
Diluted |
| $ | (0.96 | ) |
| $ | (0.32 | ) |
| $ | 0.54 |
|
| $ | (0.52 | ) |
treasury stock method. The calculation of EPS does not include restricted share units and customer warrants in which performance or market conditions were not satisfied of 7.610.6 million for the three and nine months ended September 30, 20172019 and 7.54.7 million for the three and nine months ended September 30, 2016.2018.
15.14. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the components of Accumulated other comprehensive income (loss):
|
| Interest Rate |
|
| Foreign Currency |
|
|
|
|
|
| Interest Rate |
|
| Foreign Currency |
|
|
|
|
| ||||
|
| Derivatives |
|
| Translation |
|
| Total |
|
| Derivatives |
|
| Translation |
|
| Total |
| ||||||
Balance as of December 31, 2015 |
| $ | (6,072 | ) |
| $ | 9 |
|
| $ | (6,063 | ) | ||||||||||||
Balance as of December 31, 2017 |
| $ | (4,002 | ) |
| $ | 9 |
|
| $ | (3,993 | ) | ||||||||||||
Reclassification to interest expense |
|
| 1,334 |
|
|
| - |
|
|
| 1,334 |
|
|
| 1,120 |
|
|
| - |
|
|
| 1,120 |
|
Tax effect |
|
| (517 | ) |
|
| - |
|
|
| (517 | ) |
|
| (265 | ) |
|
| - |
|
|
| (265 | ) |
Balance as of September 30, 2016 |
| $ | (5,255 | ) |
| $ | 9 |
|
| $ | (5,246 | ) | ||||||||||||
Reclassification of taxes |
|
| (970 | ) |
|
| - |
|
|
| (970 | ) | ||||||||||||
Balance as of September 30, 2018 |
| $ | (4,117 | ) |
| $ | 9 |
|
| $ | (4,108 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016 |
| $ | (5,002 | ) |
| $ | 9 |
|
| $ | (4,993 | ) | ||||||||||||
Balance as of December 31, 2018 |
| $ | (3,841 | ) |
| $ | 9 |
|
| $ | (3,832 | ) | ||||||||||||
Reclassification to interest expense |
|
| 1,216 |
|
|
| - |
|
|
| 1,216 |
|
|
| 1,012 |
|
|
| - |
|
|
| 1,012 |
|
Tax effect |
|
| (472 | ) |
|
| - |
|
|
| (472 | ) |
|
| (239 | ) |
|
| - |
|
|
| (239 | ) |
Balance as of September 30, 2017 |
| $ | (4,258 | ) |
| $ | 9 |
|
| $ | (4,249 | ) | ||||||||||||
Balance as of September 30, 2019 |
| $ | (3,068 | ) |
| $ | 9 |
|
| $ | (3,059 | ) |
Interest Rate Derivatives
As of September 30, 2017,2019, there was $6.9$4.0 million of unamortized net realized loss before taxes remaining in Accumulated other comprehensive income (loss) related to terminated forward-starting interest rate swaps, which had been designated as cash flow hedges to effectively fix the interest rates on two 747-8F financings in 2011 and three 777-200LRF financings in 2014. The net loss is amortized and reclassified into Interest expense over the remaining life of the related debt. Net realized losses reclassified into earnings were $0.3 million and $0.4 million for the three months ended September 30, 20172019 and 2016,2018, respectively. Net realized losses reclassified
into earnings were $1.2$1.0 million and $1.3$1.1 million for the nine months ended September 30, 20172019 and 2016,2018, respectively. Net realized losses expected to be reclassified into earnings within the next 12 months are $1.5$1.2 million as of September 30, 2017.
2019.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our Financial Statements appearing in this report and our audited consolidated financial statements and related notes included in our 20162018 Annual Report on Form 10-K.
Background
Certain Terms - Glossary
The following represents terms and statistics specific to our business and industry. They are used by management to evaluate and measure operations, results, productivity and efficiency.
Block Hour |
| The time interval between when an aircraft departs the terminal until it arrives at the destination terminal. |
|
|
|
C Check |
|
|
|
|
|
D Check |
|
|
|
|
|
Heavy Maintenance |
| Scheduled maintenance activities |
|
|
|
Line Maintenance |
| Maintenance events occurring during normal day-to-day operations. |
|
|
|
Non-heavy Maintenance |
| Discrete maintenance activities for the overhaul and repair of specific aircraft components, including landing gear, auxiliary power units and engine thrust reversers. |
|
|
|
Yield |
| The average amount a customer pays to fly one tonne of cargo one mile. |
Business Overview
We are a leading global provider of outsourced aircraft and aviation operating services. We operate the world’s largest fleet of 747 freighters and provide customers a broad array of 747, 777, 767, 757 and 737 aircraft for domestic, regional and international cargo and passenger applications.operations. We provide unique value to our customers by giving them access to highly reliable newmodern production freighters that deliver the lowest unit cost in the marketplace combined with outsourced aircraft operating services that we believe lead the industry in terms of quality and global scale. Our customers include express delivery providers, e-commerce retailers, airlines, freight forwarders, the U.S. military and charter brokers. We provide global services with operations in Africa, Asia, Australia, Europe, the Middle East, North America and South America.
Our primary service offerings include the following:
ACMI, whereby we provide outsourced cargo and passenger aircraft operating solutions, including the provision of an aircraft, crew, maintenance and insurance, while customers assume fuel, demand and price risk. In addition, customers are responsible for landing, navigation and most other operational fees and costs;
• | ACMI, whereby we provide outsourced cargo and passenger aircraft operating solutions, including the provision of an aircraft, crew, maintenance and insurance, while customers assume fuel, demand and price risk. In addition, customers are generally responsible for landing, navigation and most other operational fees and costs; |
CMI, which is part of our ACMI business segment, whereby we provide outsourced cargo and passenger aircraft operating solutions, generally including the provision of crew, Line Maintenance and insurance, but not the aircraft. Customers assume fuel, demand and price risk, and are responsible for providing the aircraft (which they may lease from us) and for Heavy and Non-Heavy Maintenance, landing, navigation and most other operational fees and costs;
• | CMI, which is part of our ACMI business segment, whereby we provide outsourced cargo and passenger aircraft operating solutions, generally including the provision of crew, Line Maintenance and insurance, but not the aircraft. Customers assume fuel, demand and price risk, and are responsible for providing the aircraft (which they may lease from us) and generally responsible for Heavy and Non-Heavy Maintenance, landing, navigation and most other operational fees and costs; |
Charter, whereby we provide cargo and passenger aircraft charter services to customers, including the AMC, brokers, freight forwarders, direct shippers, airlines, sports teams and fans, and private charter customers. The customer pays a fixed charter fee that includes fuel, insurance, landing fees, navigation fees and most other operational fees and costs; and
• | Charter, whereby we provide cargo and passenger aircraft charter services to customers, including the AMC, brokers, freight forwarders, direct shippers, airlines, sports teams and fans, and private charter customers. The customer generally pays a fixed charter fee that includes fuel, insurance, landing fees, navigation fees and most other operational fees and costs; and |
Dry Leasing, whereby we provide cargo and passenger aircraft and engine leasing solutions. The customer operates, and is responsible for insuring and maintaining, the flight equipment.
• | Dry Leasing, whereby we provide cargo and passenger aircraft and engine leasing solutions. The customer operates, and is responsible for insuring and maintaining, the flight equipment. |
We look to achieve our growth plans and enhance shareholder value by:
Delivering superior service quality to our valued customers;
• | Delivering superior service quality to our valued customers; |
Focusing on securing attractive long-term customer contracts;
• | Focusing on securing attractive long-term customer contracts; |
Aggressively managing our fleet with a focus on leading-edge aircraft;
• | Managing our fleet with a focus on modern, efficient aircraft; |
Driving significant and ongoing productivity improvements;
• | Driving significant ongoing productivity improvements; |
Selectively pursuing and evaluating future acquisitions and alliances; while
• | Selectively pursuing and evaluating future acquisitions and alliances; while |
Appropriately managing capital allocation.
• | Appropriately managing capital allocation and delivering value to shareholders. |
See “Business Overview” and “Business Strategy” in our 20162018 Annual Report on Form 10-K for additional information.
Business Developments
ACMI and Charter results for the first three quarters of 2019, compared with 2018, were negatively impacted by tariffs and global trade tensions, and labor-related service disruptions (see Note 12 to our Financial Statements).
As a result of the impact of tariffs and global trade tensions on the global airfreight environment, we continually assess our aircraft requirements and will make adjustments to our capacity as necessary. Some of these actions may involve grounding or disposing of aircraft or engines, which could result in asset impairments or other charges in future periods.
Our ACMI results for the first three quarters of 2017,2019, compared with 2016,2018, were positively impacted by increased flying from the following events:following:
• | Between August 2016 and November 2018, we began CMI flying Boeing 767-300 freighter aircraft for Amazon that are Dry Leased from Titan. During the first three quarters of 2019, there were an average of 19.1 aircraft equivalents operating for Amazon compared to an average of 13.8 aircraft equivalents operating in 2018. |
• | In September 2018, we began flying a second 747-400 freighter for Asiana Cargo on transpacific routes. |
• | In May 2018, we began flying a second 747-400 freighter for DHL Global Forwarding on routes between the United States, Europe, and Asia. |
• | In February 2018, we signed long-term CMI and Dry Lease contracts with DHL for two 777-200 freighter aircraft. The first of the two aircraft was previously in CMI service with us and the second aircraft began CMI and Dry Lease service in July of 2018. |
• | In July 2018, we began ACMI flying a 747-400 freighter for Industria de Diseño Textil, S.A. (“Inditex”) on routes between the United States, Europe, and Asia. |
• | In October 2018, we began flying a 747-400 freighter for SF Express on transpacific routes. |
• | In January 2019, we entered into an agreement to operate three incremental 747-400 freighters for Nippon Cargo Airlines on transpacific routes. The first two aircraft entered service in April and August 2019, and the third is expected to enter service in 2020. |
• | In March 2019, we entered into agreements with Amazon, which include CMI operation of five 737-800 freighter aircraft in 2019 and up to 15 additional aircraft by May 2021. Between May and September 2019, the first four aircraft entered service and the fifth aircraft is expected to enter service during the fourth quarter of 2019. |
• | In June 2019, we entered into a CMI agreement with DHL to operate two 777-200 freighter aircraft on key global routes, both of which entered service near the end of the second quarter of 2019. |
• | In June 2019, we began flying a third 747-400 freighter for Asiana Cargo on transpacific routes following its return from DHL. |
In February 2016,2018, we began CMI flying for DHLacquired a 767-300777-200 freighter aircraft and Dry Leased from Titan, in DHL’s North American network,increasingit to DHL on a long-term basis, as described above. We completed the numberacquisition of 767a second 777-200 freighter aircraft and placed it into service with DHL in CMI service for DHL to thirteen.
In April 2016, we acquired Southern Air, which currently operates five 777-200LRF and five 737-400F aircraft under CMI agreements for DHL.
Between August 2016 and August 2017, we began CMI flying for Amazon the first seven of 20 Boeing 767-300 freighter aircraft Dry Leased from Titan. In October 2017, we began flying three additional aircraft and we expect to be operating all 20 before the end ofJuly 2018.
During the first quarter of 2017, we began flying a 747-400 freighter for Nippon Cargo Airlines on transpacific routes. In September 2017, we began flying a second 747-400 freighter for them on transpacific routes.
During the first quarter of 2017, we began flying a 747-400 freighter for Asiana Cargo on transpacific routes.
During the second quarter of 2017, we began ACMI flying two 747-8F aircraft for Cathay Pacific Cargo to supplement capacity on its existing route network.
During the second quarter of 2017, we began ACMI flying a 747-400 freighter for Suparna Airlines, formerly known as Yangtze River Airlines, on transpacific routes.
During the third quarter of 2017, we entered into an ACMI agreement with Hong Kong Air Cargo to operate three 747-400 freighter aircraft. We began flying the first aircraft in September 2017 on transpacific routes. The other two aircraft are expected to be placed in service As described above, during 2018.
In September 2017, we began ACMI flying a 747-400 freighter for DHL Global Forwarding on routes between the United States, Europe, and Asia.
During the third quarter of 2017, both ACMI and Charter segment results were negatively impacted by Hurricanes Irma and Harvey and work slowdowns and service interruptions for which the Company is seeking a preliminary injunction (See Note 13 to our Financial Statements).
Charter results for the first three quarters of 2017 also reflected increased commercial cargo demand, increased cargo and passenger demand from the AMC, higher commercial cargo Yields and the temporary redeployment2019, there were an average of 747-8F19.3 aircraft from the ACMI segment, partially offset by lower cargo and passenger rates from the AMC.
During the third quarter of 2017, we entered into two operating leases for 747-400 freighter aircraft to meet increased customer demand in our ACMI and Charter businesses. One aircraft entered service in late September and the other is expected to enter service during the fourth quarter of 2017.
In February 2016, we beganequivalents Dry Leasing one 767-300 converted freighter aircraft to DHL on a long-term basis. As described above, between August 2016 and August 2017, we began Dry Leasing seven 767-300 converted freighter aircraftLeased to Amazon on a long-term basis.compared to an average of 13.8 aircraft equivalents in 2018.
The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.
Three Months Ended September 30, 20172019 and 20162018
Operating Statistics
The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the three months ended September 30:
Segment Operating Fleet |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
| |||||||||||||||
ACMI* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Segment Operating Fleet* |
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
| |||||||||||||||
ACMI |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
747-8F Cargo |
|
| 9.5 |
|
|
| 7.9 |
|
|
| 1.6 |
|
|
| 7.7 |
|
|
| 8.9 |
|
|
| (1.2 | ) |
747-400 Cargo |
|
| 15.1 |
|
|
| 12.9 |
|
|
| 2.2 |
|
|
| 18.3 |
|
|
| 16.8 |
|
|
| 1.5 |
|
747-400 Dreamlifter |
|
| 3.1 |
|
|
| 2.8 |
|
|
| 0.3 |
|
|
| 3.5 |
|
|
| 3.0 |
|
|
| 0.5 |
|
777-200 Cargo |
|
| 5.0 |
|
|
| 5.0 |
|
|
| - |
|
|
| 8.0 |
|
|
| 5.9 |
|
|
| 2.1 |
|
767-300 Cargo |
|
| 12.2 |
|
|
| 4.6 |
|
|
| 7.6 |
|
|
| 25.0 |
|
|
| 23.3 |
|
|
| 1.7 |
|
767-200 Cargo |
|
| 9.0 |
|
|
| 9.0 |
|
|
| - |
|
|
| 9.0 |
|
|
| 9.0 |
|
|
| - |
|
767-200 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
737-800 Cargo |
|
| 3.7 |
|
|
| - |
|
|
| 3.7 |
| ||||||||||||
737-400 Cargo |
|
| 5.0 |
|
|
| 5.0 |
|
|
| - |
|
|
| 5.0 |
|
|
| 5.0 |
|
|
| - |
|
747-400 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
767-200 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
Total |
|
| 60.9 |
|
|
| 49.2 |
|
|
| 11.7 |
|
|
| 81.2 |
|
|
| 72.9 |
|
|
| 8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
747-8F Cargo |
|
| 0.5 |
|
|
| 2.1 |
|
|
| (1.6 | ) |
|
| 2.2 |
|
|
| 1.1 |
|
|
| 1.1 |
|
747-400 Cargo |
|
| 9.0 |
|
|
| 9.8 |
|
|
| (0.8 | ) |
|
| 15.7 |
|
|
| 13.0 |
|
|
| 2.7 |
|
747-400 Passenger |
|
| 1.9 |
|
|
| 2.0 |
|
|
| (0.1 | ) |
|
| 4.1 |
|
|
| 3.5 |
|
|
| 0.6 |
|
767-300 Passenger |
|
| 4.8 |
|
|
| 4.0 |
|
|
| 0.8 |
|
|
| 4.8 |
|
|
| 4.0 |
|
|
| 0.8 |
|
Total |
|
| 16.2 |
|
|
| 17.9 |
|
|
| (1.7 | ) |
|
| 26.8 |
|
|
| 21.6 |
|
|
| 5.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dry Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777-200 Cargo |
|
| 6.0 |
|
|
| 6.0 |
|
|
| - |
|
|
| 7.0 |
|
|
| 7.9 |
|
|
| (0.9 | ) |
767-300 Cargo |
|
| 8.6 |
|
|
| 2.6 |
|
|
| 6.0 |
|
|
| 21.0 |
|
|
| 17.7 |
|
|
| 3.3 |
|
757-200 Cargo |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
737-300 Cargo |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
737-800 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
Total |
|
| 17.6 |
|
|
| 11.6 |
|
|
| 6.0 |
|
|
| 31.0 |
|
|
| 28.6 |
|
|
| 2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Aircraft Dry Leased to CMI customers |
|
| (8.6 | ) |
|
| (2.6 | ) |
|
| (6.0 | ) |
|
| (22.7 | ) |
|
| (19.6 | ) |
|
| (3.1 | ) |
Total Operating Average Aircraft Equivalents |
|
| 86.1 |
|
|
| 76.1 |
|
|
| 10.0 |
|
|
| 116.3 |
|
|
| 103.5 |
|
|
| 12.8 |
|
| * | ACMI average fleet excludes spare aircraft provided by CMI |
Block Hours |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Total Block Hours** |
|
| 64,837 |
|
|
| 54,175 |
|
|
| 10,662 |
|
|
| 19.7 | % |
|
| 79,310 |
|
|
| 73,672 |
|
|
| 5,638 |
|
|
| 7.7 | % |
| ** | Includes ACMI, Charter and other Block Hours. |
The following table compares our Operating Revenue for the three months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 258,109 |
|
| $ | 206,310 |
|
| $ | 51,799 |
|
|
| 25.1 | % |
| $ | 289,024 |
|
| $ | 288,602 |
|
| $ | 422 |
|
|
| 0.1 | % |
Charter |
|
| 243,583 |
|
|
| 212,040 |
|
|
| 31,543 |
|
|
| 14.9 | % |
|
| 324,046 |
|
|
| 322,750 |
|
|
| 1,296 |
|
|
| 0.4 | % |
Dry Leasing |
|
| 30,804 |
|
|
| 25,907 |
|
|
| 4,897 |
|
|
| 18.9 | % |
|
| 43,847 |
|
|
| 44,487 |
|
|
| (640 | ) |
|
| (1.4 | )% |
Customer incentive asset amortization |
|
| (1,531 | ) |
|
| (174 | ) |
|
| (1,357 | ) |
| NM |
|
|
| (12,796 | ) |
|
| (4,124 | ) |
|
| 8,672 |
|
| NM |
| ||
Other |
|
| 4,783 |
|
|
| 3,932 |
|
|
| 851 |
|
|
| 21.6 | % |
|
| 4,418 |
|
|
| 4,892 |
|
|
| (474 | ) |
|
| (9.7 | )% |
Total Operating Revenue |
| $ | 535,748 |
|
| $ | 448,015 |
|
| $ | 87,733 |
|
|
| 19.6 | % |
| $ | 648,539 |
|
| $ | 656,607 |
|
|
|
|
|
|
|
|
|
NM represents year-over-year changes that are not meaningful.
ACMI
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
ACMI Block Hours |
|
| 50,243 |
|
|
| 39,448 |
|
|
| 10,795 |
|
|
| 27.4 | % |
|
| 60,337 |
|
|
| 56,571 |
|
|
| 3,766 |
|
|
| 6.7 | % |
ACMI Revenue Per Block Hour |
| $ | 5,137 |
|
| $ | 5,230 |
|
| $ | (93 | ) |
|
| (1.8 | )% |
| $ | 4,790 |
|
| $ | 5,102 |
|
| $ | (312 | ) |
|
| (6.1 | )% |
ACMI revenue increased $51.8 million, or 25.1%,slightly, primarily due to increased flying.flying, partially offset by a decrease in Revenue per Block Hour. The increase in Block Hours was primarily driven by the startup of 767incremental CMI flying for Amazon,our customers. Partially offsetting this increase were decreases in ACMI flying by our customers related to the impact of tariffs and global trade tensions, and the two-month redeployment of two 747-8F flying for Cathay Pacific Cargoaircraft to the Charter segment until we received regulatory approval and 747-400 flying for Nippon Cargo Airlines, Asiana Cargo and Suparna Airlines, as well as highersubsequently placed the aircraft utilization.with an ACMI customer. Revenue per Block Hour decreased slightly primarily due to the impact of increased smaller-gauge 767 and 747-400737 CMI flying. In addition, ACMI revenue in the third quarter of 2017 was negatively impacted by the aforementioned labor-related operationalservice disruptions.
Charter
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Charter Block Hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
| 8,680 |
|
|
| 9,797 |
|
|
| (1,117 | ) |
|
| (11.4 | )% |
|
| 12,717 |
|
|
| 12,690 |
|
|
| 27 |
|
|
| 0.2 | % |
Passenger |
|
| 5,447 |
|
|
| 4,474 |
|
|
| 973 |
|
|
| 21.7 | % |
|
| 5,425 |
|
|
| 3,952 |
|
|
| 1,473 |
|
|
| 37.3 | % |
Total |
|
| 14,127 |
|
|
| 14,271 |
|
|
| (144 | ) |
|
| (1.0 | )% |
|
| 18,142 |
|
|
| 16,642 |
|
|
| 1,500 |
|
|
| 9.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Revenue Per Block Hour: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
| $ | 17,660 |
|
| $ | 13,926 |
|
| $ | 3,734 |
|
|
| 26.8 | % |
| $ | 16,745 |
|
| $ | 19,180 |
|
| $ | (2,435 | ) |
|
| (12.7 | )% |
Passenger |
| $ | 16,577 |
|
| $ | 16,899 |
|
| $ | (322 | ) |
|
| (1.9 | )% |
| $ | 20,480 |
|
| $ | 20,079 |
|
| $ | 401 |
|
|
| 2.0 | % |
Charter |
| $ | 17,242 |
|
| $ | 14,858 |
|
| $ | 2,384 |
|
|
| 16.0 | % |
| $ | 17,862 |
|
| $ | 19,394 |
|
| $ | (1,532 | ) |
|
| (7.9 | )% |
Charter revenue increased $31.5$1.3 million, or 14.9%0.4%, primarily due to an increaseincreased flying, partially offset by a decrease in Revenue per Block Hour. The increase in Charter Block Hours was primarily driven by increased passenger demand from the AMC and the two-month redeployment of two 747-8F aircraft from the ACMI segment, partially offset by lower cargo demand from commercial customers. Revenue per Block Hour decreased primarily reflectsdue to lower commercial cargo Yields (excluding fuel), partially offset by an increase in rates for the AMC. The lower commercial cargo Yields and demand reflected the impact of Charter capacity purchased from our ACMI customers that had no associated Charter Block Hours, higher fuel pricestariffs and higher commercial cargo Yields.global trade tensions. In addition, Charter revenue in the third quarter of 2017 was negatively impacted by Hurricanes Irma and Harvey. labor-related service disruptions.
Dry Leasing
Dry Leasing revenue decreased slightly, primarily due to the scheduled return of a 777-200 freighter aircraft that is awaiting placement with a customer, partially offset by the placement of 767-300 converted freighter aircraft during the second half of 2018.
The following table compares our Operating Expenses for the three months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
| $ | 114,505 |
|
| $ | 125,978 |
|
| $ | (11,473 | ) |
|
| (9.1 | )% |
| $ | 145,987 |
|
| $ | 138,345 |
|
| $ | 7,642 |
|
|
| 5.5 | % |
Aircraft fuel |
|
| 74,048 |
|
|
| 65,409 |
|
|
| 8,639 |
|
|
| 13.2 | % |
|
| 123,132 |
|
|
| 119,604 |
|
|
| 3,528 |
|
|
| 2.9 | % |
Maintenance, materials and repairs |
|
| 74,457 |
|
|
| 49,761 |
|
|
| 24,696 |
|
|
| 49.6 | % |
|
| 88,240 |
|
|
| 88,136 |
|
|
| 104 |
|
|
| 0.1 | % |
Depreciation and amortization |
|
| 42,033 |
|
|
| 37,509 |
|
|
| 4,524 |
|
|
| 12.1 | % |
|
| 62,499 |
|
|
| 55,417 |
|
|
| 7,082 |
|
|
| 12.8 | % |
Travel |
|
| 38,260 |
|
|
| 31,958 |
|
|
| 6,302 |
|
|
| 19.7 | % |
|
| 49,110 |
|
|
| 41,605 |
|
|
| 7,505 |
|
|
| 18.0 | % |
Aircraft rent |
|
| 33,873 |
|
|
| 35,730 |
|
|
| (1,857 | ) |
|
| (5.2 | )% |
|
| 40,048 |
|
|
| 39,973 |
|
|
| 75 |
|
|
| 0.2 | % |
Navigation fees, landing fees and other rent |
|
| 33,468 |
|
|
| 15,640 |
|
|
| 17,828 |
|
|
| 114.0 | % |
|
| 32,270 |
|
|
| 43,258 |
|
|
| (10,988 | ) |
|
| (25.4 | )% |
Passenger and ground handling services |
|
| 28,491 |
|
|
| 21,673 |
|
|
| 6,818 |
|
|
| 31.5 | % |
|
| 34,453 |
|
|
| 28,716 |
|
|
| 5,737 |
|
|
| 20.0 | % |
Loss (gain) on disposal of aircraft |
|
| 211 |
|
|
| (11 | ) |
|
| (200 | ) |
| NM |
| |||||||||||||||||
Special charge, net |
|
| 18,861 |
|
|
| - |
|
|
| 18,861 |
|
| NM |
| |||||||||||||||||
Transaction-related expenses |
|
| 1,092 |
|
|
| 3,905 |
|
|
| (2,813 | ) |
|
| (72.0 | )% |
|
| 324 |
|
|
| 765 |
|
|
| (441 | ) |
| NM |
| |
Other |
|
| 42,598 |
|
|
| 34,465 |
|
|
| 8,133 |
|
|
| 23.6 | % |
|
| 54,494 |
|
|
| 46,318 |
|
|
| 8,176 |
|
|
| 17.7 | % |
Total Operating Expenses |
| $ | 483,036 |
|
| $ | 422,017 |
|
|
|
|
|
|
|
|
|
| $ | 649,418 |
|
| $ | 602,137 |
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits decreased $11.5 increased $7.6 million, or 9.1%5.5%, primarily drivendue to increased flying and higher crew costs, including enhanced wages and work rules resulting from our interim agreement with the Southern Air pilots (see Note 12 to our Financial Statements) and fleet growth initiatives. These increases were partially offset by a 2016 changeratification bonus in control, as defined under certain benefit plans,2018 related to the Amazon transaction (see Note 6 to our Financial Statements), partially offset by increased flying.interim agreement with the Southern Air pilots. In addition, crewmembercrew costs were negatively impacted by the aforementioned labor-related operationalservice disruptions.
Aircraft fuel increased $8.6$3.5 million, or 13.2%2.9%, primarily due to an increase in consumption related to increased Charter flying, partially offset by a decrease in the average fuel cost per gallon. We do not incur fuel expense in our ACMI or Dry Leasing businesses as the cost of fuel is borne by the customer. Average fuel cost per gallon and fuel consumption for the three months ended September 30 were:
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Average fuel cost per gallon |
| $ | 1.84 |
|
| $ | 1.61 |
|
| $ | 0.23 |
|
|
| 14.3 | % |
| $ | 2.27 |
|
| $ | 2.43 |
|
| $ | (0.16 | ) |
|
| (6.6 | )% |
Fuel gallons consumed (000s) |
|
| 40,275 |
|
|
| 40,718 |
|
|
| (443 | ) |
|
| (1.1 | )% |
|
| 54,296 |
|
|
| 49,206 |
|
|
| 5,090 |
|
|
| 10.3 | % |
Maintenance, materials and repairs increased by $24.7 million, or 49.6%, primarily reflecting $13.3 million of increased Line Maintenance expense due to increased flying and additional repairs performed, and $10.1 million of Heavy Maintenance expense. The higher Line Maintenance primarily reflected increases of $5.8 million for 767 aircraft, $4.9 million for 747-400 aircraft and $2.7 million for 747-8F aircraft. was relatively unchanged. Heavy Maintenance expense on 747-400747-8F aircraft increased $4.0$5.9 million primarily due to an increase in the number of engine overhauls and additional repairs performed. Heavy Maintenance expense on 747-8F aircraft increased $3.1 million primarily due to an increase in the number of CD Checks. Heavy Maintenance expense on 767747-400 aircraft increased $2.9decreased $5.1 million primarily due to a decrease in the number of engine overhauls, partially offset by an increase in the number of C Checks. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the three months ended September 30 were:
Heavy Maintenance Events |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
| ||||||
747-8F C Checks |
|
| 4 |
|
|
| 2 |
|
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
|
| - |
|
747-400 C Checks |
|
| 2 |
|
|
| 2 |
|
|
| - |
|
|
| 4 |
|
|
| 2 |
|
|
| 2 |
|
767 C Checks |
|
| 2 |
|
|
| - |
|
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
|
| - |
|
747-400 D Checks |
|
| 1 |
|
|
| 1 |
|
|
| - |
| ||||||||||||
747-8F D Checks |
|
| 2 |
|
|
| - |
|
|
| 2 |
| ||||||||||||
CF6-80 engine overhauls |
|
| 1 |
|
|
| - |
|
|
| 1 |
|
|
| 1 |
|
|
| 4 |
|
|
| (3 | ) |
Depreciation and amortization increased $4.5$7.1 million, or 12.1%12.8%, primarily due to additional aircraft operating in 2017 and an increase in the amortization of deferred maintenance costs related to 747-8F engine overhauls (see Note 2 to our Financial Statements). and additional aircraft that began operating in 2018.
Travel increased $6.3$7.5 million, or 19.7%18.0%, primarily due to higher costs incurred as a result of labor-related service disruptions and increased flying.
Aircraft rent decreased $1.9 million, or 5.2%, primarily due to the amendment and extension of a lease for a 747-400 freighter aircraft to a lower monthly lease rate (see Note 8 to our Financial Statements) and a reduction in the number of spare engines leased.
Navigation fees, landing fees and other rent increased $17.8 decreased $11.0 million, or 114.0%25.4%, primarily due to an increasea decrease in purchased capacity.capacity, which is a component of other rent, partially offset by increased flying.
Passenger and ground handling services increased $6.8$5.7 million, or 31.5%20.0%, primarily due to increased Charter flying.passenger flying and higher costs incurred as a result of labor-related service disruptions.
Transaction-related expensesSpecial charge, net in 2017 related2019 primarily represents a $19.6 million impairment loss for four CF6-80 engines to be disposed of and the Southern Air acquisition, which primarily included professional fees and integration costs. Transaction-related expenses in 2016 related to the Southern Air acquisition and our transaction with Amazon and primarily included: compensation costs, including employee termination benefits; professional fees; and integration costspermanent parking of two 737-400 passenger aircraft used for training purposes (see Notes 4 andNote 6 to our Financial Statements).
Other increased $8.1$8.2 million, or 23.6%17.7%, primarily due to increasedstart-up and other costs to meet fleet growth initiatives, as well as higher passenger taxes and commission expense on higherincreased revenue from the AMC, the impact of growth initiatives, and higher legal and professional fees related to our request for a preliminary injunction to stop the aforementioned labor-related operational disruptions.AMC.
Non-operating Expenses (Income)
The following table compares our Non-operating Expenses (Income) for the three months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Non-operating Expenses (Income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | (1,688 | ) |
| $ | (1,316 | ) |
| $ | 372 |
|
|
| 28.3 | % |
| $ | (653 | ) |
| $ | (1,592 | ) |
| $ | (939 | ) |
|
| (59.0 | )% |
Interest expense |
|
| 26,553 |
|
|
| 21,355 |
|
|
| 5,198 |
|
|
| 24.3 | % |
|
| 30,117 |
|
|
| 31,115 |
|
|
| (998 | ) |
|
| (3.2 | )% |
Capitalized interest |
|
| (1,922 | ) |
|
| (1,059 | ) |
|
| 863 |
|
|
| 81.5 | % |
|
| (853 | ) |
|
| (1,120 | ) |
|
| (267 | ) |
|
| (23.8 | )% |
Loss on early extinguishment of debt |
|
| 167 |
|
|
| - |
|
|
| (167 | ) |
| NM |
|
|
| 559 |
|
|
| - |
|
|
| 559 |
|
| NM |
| ||
Unrealized loss (gain) on financial instruments |
|
| 44,775 |
|
|
| 1,462 |
|
|
| 43,313 |
|
| NM |
| |||||||||||||||||
Other income |
|
| (1,165 | ) |
|
| (180 | ) |
|
| 985 |
|
| NM |
| |||||||||||||||||
Unrealized (gain) loss on financial instruments |
|
| (83,175 | ) |
|
| (46,080 | ) |
|
| 37,095 |
|
|
| 80.5 | % | ||||||||||||||||
Other (income) expense, net |
|
| 1,434 |
|
|
| 975 |
|
|
| (459 | ) |
|
| 47.1 | % |
Interest expense increased $5.2 million, or 24.3%, primarily due to the issuance of the 2017 Convertible Notes and the financing of 767-300 aircraft purchases and conversions.
Capitalized interest increased $0.9 million, or 81.5%, primarily due to an increase in the number of 767-300 aircraft undergoing passenger-to-freighter conversion.
Unrealized (gain) loss (gain) on financial instruments represents the change in fair value of the Amazon Warranta customer warrant liability (see Note 64 to our Financial Statements) primarily due to changes in our common stock price.
Income taxes. Our effectiveThe income tax expense rates were 72.7% and 230.8%benefit for the three months ended September 30, 2017 and 2016, respectively.2019 differed from tax at the U.S. statutory rate primarily due to $18.2 million of tax benefit from nontaxable changes in the fair value of the customer warrant liability (see Note 4 to our Financial Statements). The effective income tax expense rate for the three months ended September 30, 20172018 differed from tax at the U.S. statutory rate primarily due to nondeductible$6.1 million of tax benefit from nontaxable changes in the fair value of the Amazon Warrantcustomer warrant liability (see Note 6 toand $8.7 million of tax benefit from the remeasurement of our Financial Statements). The effectivedeferred income tax expense rateliability for the three months ended September 30, 2016 differed from the U.S. federal statutory rate primarily due to nondeductible expenses resulting from a change in control, as defined under certain of the Company’s benefit plans, related to the Amazon transaction. The effective rates for both periods were impacted by our assertion to indefinitely reinvest the net earnings of foreign subsidiaries outside the U.S.Singapore.
Segments
The following table compares the Direct Contribution for our reportable segments for the three months ended September 30 (see Note 1211 to our Financial Statements for the reconciliation to Operating income) (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 51,647 |
|
| $ | 51,607 |
|
| $ | 40 |
|
|
| 0.1 | % |
| $ | 33,401 |
|
| $ | 51,672 |
|
| $ | (18,271 | ) |
|
| (35.4 | )% |
Charter |
|
| 34,808 |
|
|
| 32,948 |
|
|
| 1,860 |
|
|
| 5.6 | % |
|
| 36,339 |
|
|
| 44,370 |
|
|
| (8,031 | ) |
|
| (18.1 | )% |
Dry Leasing |
|
| 10,245 |
|
|
| 7,413 |
|
|
| 2,832 |
|
|
| 38.2 | % |
|
| 12,028 |
|
|
| 12,645 |
|
|
| (617 | ) |
|
| (4.9 | )% |
Total Direct Contribution |
| $ | 96,700 |
|
| $ | 91,968 |
|
| $ | 4,732 |
|
|
| 5.1 | % |
| $ | 81,768 |
|
| $ | 108,687 |
|
| $ | (26,919 | ) |
|
| (24.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income and expenses, net |
| $ | 64,463 |
|
| $ | 80,876 |
|
| $ | (16,413 | ) |
|
| (20.3 | )% | ||||||||||||||||
Unallocated expenses and (income), net |
| $ | 93,507 |
|
| $ | 82,830 |
|
| $ | 10,677 |
|
|
| 12.9 | % |
ACMI Segment
ACMI Direct Contribution was relatively unchanged, asdecreased $18.3 million, or 35.4%, primarily due to the impact of increased flying was largely offsettariffs and global trade tensions on demand by higherour customers, labor-related service disruptions, additional Heavy and Line Maintenance costs andexpense, increased amortization of deferred maintenance costs.costs and the two-month redeployment of two 747-8F aircraft to the Charter segment. In addition, ACMI Direct Contribution was negatively impacted by start-up costs for customer growth initiatives and higher crew costs, including enhanced wages and work rules resulting from our interim agreement with the aforementioned labor-related operational disruptions.Southern Air pilots (see Note 12 to our Financial Statements). Partially offsetting these items was an increase in contribution from additional flying.
Charter Segment
Charter Direct Contribution increased $1.9decreased $8.0 million, or 5.6%18.1%, primarily due to highera decrease in commercial cargo Yields partially offset by higher Heavy Maintenance costs and volumes related to the redeploymentimpact of tariffs and global trade tensions, and labor-related service disruptions. Partially offsetting these
decreases were earnings from two 747-8F aircraft toduring a two-month redeployment from the ACMI segment. In addition, Charter Direct Contribution was negatively impacted by Hurricanes Irmasegment, an increase in AMC passenger flying and Harvey and the aforementioned labor-related operational disruptions.a decrease in Heavy Maintenance.
Dry Leasing Segment
Dry Leasing Direct Contribution increased $2.8 million, or 38.2%,decreased slightly, primarily related to lower interest expense due to the scheduled repaymentreturn of debt for Dry Leased 777-200LRFa 777-200 freighter aircraft andthat is awaiting placement with a customer, partially offset by the placement of 767-300 converted freighteradditional aircraft.
Unallocated incomeexpenses and expenses,(income), net
Unallocated incomeexpenses and expenses,(income), net decreased $16.4increased $10.7 million, or 20.3%12.9%, primarily due to fleet growth initiatives and increased amortization of a 2016 changecustomer incentive asset, partially offset by a ratification bonus in control, as defined under certain benefit plans,2018 related to the Amazon transaction (see Note 6 to our Financial Statements). Partially offsetting this item were higher costs in 2017 due to unallocated interest expense, growth initiatives, amortization ofinterim agreement with the Amazon customer incentive asset, and legal and professional fees related to our request for a preliminary injunction to stop the aforementioned labor-related operational disruptions.Southern Air pilots.
Nine Months Ended September 30, 20172019 and 20162018
Operating Statistics
The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the nine months ended September 30:
Segment Operating Fleet |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
| |||||||||||||||
ACMI* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Segment Operating Fleet* |
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
| |||||||||||||||
ACMI |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
747-8F Cargo |
|
| 8.1 |
|
|
| 8.2 |
|
|
| (0.1 | ) |
|
| 8.3 |
|
|
| 9.0 |
|
|
| (0.7 | ) |
747-400 Cargo |
|
| 14.0 |
|
|
| 13.0 |
|
|
| 1.0 |
|
|
| 18.1 |
|
|
| 16.2 |
|
|
| 1.9 |
|
747-400 Dreamlifter |
|
| 3.1 |
|
|
| 2.9 |
|
|
| 0.2 |
|
|
| 3.6 |
|
|
| 3.1 |
|
|
| 0.5 |
|
777-200 Cargo |
|
| 5.0 |
|
|
| 3.2 |
|
|
| 1.8 |
|
|
| 6.8 |
|
|
| 5.3 |
|
|
| 1.5 |
|
767-300 Cargo |
|
| 8.7 |
|
|
| 4.0 |
|
|
| 4.7 |
|
|
| 25.2 |
|
|
| 20.0 |
|
|
| 5.2 |
|
767-200 Cargo |
|
| 9.0 |
|
|
| 9.0 |
|
|
| - |
|
|
| 9.0 |
|
|
| 9.0 |
|
|
| - |
|
767-200 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
737-800 Cargo |
|
| 1.8 |
|
|
| - |
|
|
| 1.8 |
| ||||||||||||
737-400 Cargo |
|
| 5.0 |
|
|
| 3.2 |
|
|
| 1.8 |
|
|
| 5.0 |
|
|
| 5.0 |
|
|
| - |
|
747-400 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| - |
|
|
| 0.3 |
|
|
| (0.3 | ) |
767-200 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
| ||||||||||||
Total |
|
| 54.9 |
|
|
| 45.5 |
|
|
| 9.4 |
|
|
| 78.8 |
|
|
| 68.9 |
|
|
| 9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
747-8F Cargo |
|
| 1.9 |
|
|
| 1.8 |
|
|
| 0.1 |
|
|
| 1.6 |
|
|
| 1.0 |
|
|
| 0.6 |
|
747-400 Cargo |
|
| 9.9 |
|
|
| 9.7 |
|
|
| 0.2 |
|
|
| 15.3 |
|
|
| 12.4 |
|
|
| 2.9 |
|
747-400 Passenger |
|
| 2.0 |
|
|
| 2.0 |
|
|
| - |
|
|
| 4.0 |
|
|
| 2.5 |
|
|
| 1.5 |
|
767-300 Cargo |
|
| - |
|
|
| 0.3 |
|
|
| (0.3 | ) | ||||||||||||
767-300 Passenger |
|
| 4.8 |
|
|
| 3.4 |
|
|
| 1.4 |
|
|
| 4.9 |
|
|
| 4.0 |
|
|
| 0.9 |
|
Total |
|
| 18.6 |
|
|
| 16.9 |
|
|
| 1.7 |
|
|
| 25.8 |
|
|
| 20.2 |
|
|
| 5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dry Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777-200 Cargo |
|
| 6.0 |
|
|
| 6.0 |
|
|
| - |
|
|
| 7.3 |
|
|
| 7.1 |
|
|
| 0.2 |
|
767-300 Cargo |
|
| 6.0 |
|
|
| 2.0 |
|
|
| 4.0 |
|
|
| 21.2 |
|
|
| 15.8 |
|
|
| 5.4 |
|
757-200 Cargo |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
737-300 Cargo |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
737-800 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
Total |
|
| 15.0 |
|
|
| 11.0 |
|
|
| 4.0 |
|
|
| 31.5 |
|
|
| 25.9 |
|
|
| 5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Aircraft Dry Leased to CMI customers |
|
| (6.0 | ) |
|
| (2.0 | ) |
|
| (4.0 | ) |
|
| (23.1 | ) |
|
| (16.9 | ) |
|
| (6.2 | ) |
Total Operating Average Aircraft Equivalents |
|
| 82.5 |
|
|
| 71.4 |
|
|
| 11.1 |
|
|
| 113.0 |
|
|
| 98.1 |
|
|
| 14.9 |
|
| * | ACMI average fleet excludes spare aircraft provided by CMI |
Block Hours |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Total Block Hours** |
|
| 181,241 |
|
|
| 149,639 |
|
|
| 31,602 |
|
|
| 21.1 | % |
|
| 236,651 |
|
|
| 212,827 |
|
|
| 23,824 |
|
|
| 11.2 | % |
| ** | Includes ACMI, Charter and other Block Hours. |
Operating Revenue
The following table compares our Operating Revenue for the nine months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 687,982 |
|
| $ | 600,772 |
|
| $ | 87,210 |
|
|
| 14.5 | % |
| $ | 902,869 |
|
| $ | 832,777 |
|
| $ | 70,092 |
|
|
| 8.4 | % |
Charter |
|
| 743,302 |
|
|
| 616,794 |
|
|
| 126,508 |
|
|
| 20.5 | % |
|
| 944,839 |
|
|
| 954,725 |
|
|
| (9,886 | ) |
|
| (1.0 | )% |
Dry Leasing |
|
| 86,120 |
|
|
| 79,165 |
|
|
| 6,955 |
|
|
| 8.8 | % |
|
| 157,328 |
|
|
| 120,837 |
|
|
| 36,491 |
|
|
| 30.2 | % |
Customer incentive asset amortization |
|
| (2,873 | ) |
|
| (174 | ) |
|
| (2,699 | ) |
| NM |
|
|
| (26,018 | ) |
|
| (10,010 | ) |
|
| 16,008 |
|
| NM |
| ||
Other |
|
| 13,977 |
|
|
| 13,345 |
|
|
| 632 |
|
|
| 4.7 | % |
|
| 13,122 |
|
|
| 14,437 |
|
|
| (1,315 | ) |
|
| (9.1 | )% |
Total Operating Revenue |
| $ | 1,528,508 |
|
| $ | 1,309,902 |
|
| $ | 218,606 |
|
|
| 16.7 | % |
| $ | 1,992,140 |
|
| $ | 1,912,766 |
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
ACMI Block Hours |
|
| 133,978 |
|
|
| 108,839 |
|
|
| 25,139 |
|
|
| 23.1 | % |
|
| 182,060 |
|
|
| 159,662 |
|
|
| 22,398 |
|
|
| 14.0 | % |
ACMI Revenue Per Block Hour |
| $ | 5,135 |
|
| $ | 5,520 |
|
| $ | (385 | ) |
|
| (7.0 | )% |
| $ | 4,959 |
|
| $ | 5,216 |
|
| $ | (257 | ) |
|
| (4.9 | )% |
ACMI revenue increased $87.2$70.1 million, or 14.5%8.4%, primarily due to increased flying.flying, partially offset by a decrease in Revenue per Block Hour. The increase in Block Hours reflectswas primarily driven by incremental CMI flying for our customers. Partially offsetting this increase were decreases in ACMI flying by our customers related to the impact fromof tariffs and global trade tensions, and the Southern Air acquisition, the startuptwo-month redeployment of 767 flying for Amazon, 747-400 flying for Nippon Cargo Airlines, Asiana Cargo and Suparna Airlines, and 747-8F flying for Cathy Pacific Cargo, as well as higher aircraft utilization. Partially offsetting these items was the temporary redeployment oftwo 747-8F aircraft to the Charter segment duringuntil we received regulatory approval and subsequently placed the first quarter of 2017.aircraft with an ACMI customer. Revenue per Block Hour decreased primarily due to the impact of 777-200 and 737-400 CMI flying from the Southern Air acquisition, increased smaller-gauge 767 and 747-400737 CMI flying and the temporary redeployment of 747-8F aircraft to Charter during the first quarter of 2017.flying. In addition, ACMI revenue was negatively impacted by labor-related service disruptions.
Charter
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Charter Block Hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
| 30,908 |
|
|
| 26,698 |
|
|
| 4,210 |
|
|
| 15.8 | % |
|
| 37,084 |
|
|
| 37,968 |
|
|
| (884 | ) |
|
| (2.3 | )% |
Passenger |
|
| 14,903 |
|
|
| 12,753 |
|
|
| 2,150 |
|
|
| 16.9 | % |
|
| 15,379 |
|
|
| 13,717 |
|
|
| 1,662 |
|
|
| 12.1 | % |
Total |
|
| 45,811 |
|
|
| 39,451 |
|
|
| 6,360 |
|
|
| 16.1 | % |
|
| 52,463 |
|
|
| 51,685 |
|
|
| 778 |
|
|
| 1.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Revenue Per Block Hour: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
| $ | 16,258 |
|
| $ | 14,878 |
|
| $ | 1,380 |
|
|
| 9.3 | % |
| $ | 17,379 |
|
| $ | 18,569 |
|
| $ | (1,190 | ) |
|
| (6.4 | )% |
Passenger |
| $ | 16,159 |
|
| $ | 17,218 |
|
| $ | (1,060 | ) |
|
| (6.2 | )% |
| $ | 19,530 |
|
| $ | 18,204 |
|
| $ | 1,326 |
|
|
| 7.3 | % |
Charter |
| $ | 16,225 |
|
| $ | 15,634 |
|
| $ | 591 |
|
|
| 3.8 | % |
| $ | 18,010 |
|
| $ | 18,472 |
|
| $ | (462 | ) |
|
| (2.5 | )% |
Charter revenue increased $126.5decreased $9.9 million, or 20.5%1.0%, primarily due to increaseda decrease in Revenue per Block Hour, partially offset by an increase in flying. Revenue per Block Hour decreased primarily due to a decrease in Yields for commercial customers reflecting the impact of tariffs and global trade tensions. Partially offsetting this decrease were higher Yields (excluding fuel) on passenger flying, primarily driven by an increase in rates for the AMC and the expansion of our flying for sports teams and other VIP charter customers. The increase in Charter Block Hours was primarily driven by increased commercial cargo demand, increased cargo and passenger demand from the AMC and the temporarytwo-month redeployment of two 747-8F aircraft from the ACMI segment, during the first quarter of 2017. Revenue per Block Hour increased primarily due to higher Yields for commercial cargo, higher fuel prices and the impact of Charter capacity purchased from our ACMI customers that had no associated Charter Block Hours, partially offset by lower cargo and passenger ratesdemand from commercial customers. Charter Block Hours were also negatively impacted by decreased cargo demand from the AMC. In addition, Charter revenue was negatively impacted by labor-related service disruptions.
Dry Leasing
Dry Leasing revenue increased $36.5 million, or 30.2%, primarily due to $22.3 million of revenue from maintenance payments related to the scheduled return of a 777-200 freighter aircraft and the placement of incremental aircraft. The additional aircraft included the placement of 767-300 converted freighter aircraft throughout 2018, as well as one 777-200 freighter aircraft in February 2018 and a second 777-200 freighter aircraft in July 2018.
Operating Expenses
The following table compares our Operating Expenses for the nine months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
| $ | 330,080 |
|
| $ | 321,365 |
|
| $ | 8,715 |
|
|
| 2.7 | % |
| $ | 432,911 |
|
| $ | 392,603 |
|
| $ | 40,308 |
|
|
| 10.3 | % |
Aircraft fuel |
|
| 239,966 |
|
|
| 189,982 |
|
|
| 49,984 |
|
|
| 26.3 | % |
|
| 351,611 |
|
|
| 345,613 |
|
|
| 5,998 |
|
|
| 1.7 | % |
Maintenance, materials and repairs |
|
| 212,042 |
|
|
| 162,220 |
|
|
| 49,822 |
|
|
| 30.7 | % |
|
| 305,331 |
|
|
| 261,251 |
|
|
| 44,080 |
|
|
| 16.9 | % |
Depreciation and amortization |
|
| 120,913 |
|
|
| 109,722 |
|
|
| 11,191 |
|
|
| 10.2 | % |
|
| 190,669 |
|
|
| 155,881 |
|
|
| 34,788 |
|
|
| 22.3 | % |
Travel |
|
| 105,510 |
|
|
| 94,291 |
|
|
| 11,219 |
|
|
| 11.9 | % |
|
| 140,513 |
|
|
| 123,810 |
|
|
| 16,703 |
|
|
| 13.5 | % |
Aircraft rent |
|
| 103,738 |
|
|
| 109,490 |
|
|
| (5,752 | ) |
|
| (5.3 | )% |
|
| 122,271 |
|
|
| 119,778 |
|
|
| 2,493 |
|
|
| 2.1 | % |
Navigation fees, landing fees and other rent |
|
| 77,258 |
|
|
| 56,391 |
|
|
| 20,867 |
|
|
| 37.0 | % |
|
| 110,468 |
|
|
| 116,553 |
|
|
| (6,085 | ) |
|
| (5.2 | )% |
Passenger and ground handling services |
|
| 77,187 |
|
|
| 64,571 |
|
|
| 12,616 |
|
|
| 19.5 | % |
|
| 97,138 |
|
|
| 86,980 |
|
|
| 10,158 |
|
|
| 11.7 | % |
Loss (gain) on disposal of aircraft |
|
| 64 |
|
|
| (11 | ) |
|
| (53 | ) |
| NM |
| |||||||||||||||||
Special charge |
|
| - |
|
|
| 6,631 |
|
|
| (6,631 | ) |
| NM |
| |||||||||||||||||
Special charge, net |
|
| 22,130 |
|
|
| 9,374 |
|
|
| 12,756 |
|
| NM |
| |||||||||||||||||
Transaction-related expenses |
|
| 3,403 |
|
|
| 21,486 |
|
|
| (18,083 | ) |
|
| (84.2 | )% |
|
| 3,585 |
|
|
| 1,275 |
|
|
| 2,310 |
|
| NM |
| |
Other |
|
| 123,121 |
|
|
| 106,885 |
|
|
| 16,236 |
|
|
| 15.2 | % |
|
| 160,548 |
|
|
| 143,663 |
|
|
| 16,885 |
|
|
| 11.8 | % |
Total Operating Expenses |
| $ | 1,393,282 |
|
| $ | 1,243,023 |
|
|
|
|
|
|
|
|
|
| $ | 1,937,175 |
|
| $ | 1,756,781 |
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits increased $8.7$40.3 million, or 2.7%10.3%, primarily driven by the impact ofdue to increased flying, higher crew costs, including enhanced wages and work rules resulting from our interim agreement with the Southern Air acquisition, growth initiatives and increased flying. Partially offsetting these items were a 2016 change in control, as defined under certain benefit plans, related to the Amazon transactionpilots (see Note 612 to our Financial Statements) and lower costsfleet growth initiatives. These increases were partially offset by a ratification bonus in 2018 related to crew training.the interim agreement with the Southern Air pilots. In addition, crewmembercrew costs were negatively impacted by the aforementioned labor-related operationalservice disruptions.
Aircraft fuel increased $50.0$6.0 million, or 26.3%1.7%, primarily due to increased fuel consumption reflecting the increase in Charter Block Hours operated and an increase in theconsumption related to increased flying, partially offset by a decrease in average fuel cost per gallon. We do not incur fuel expense in our ACMI or Dry Leasing businesses as the cost of fuel is borne by the customer. Average fuel cost per gallon and fuel consumption for the nine months ended September 30 were:
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Average fuel cost per gallon |
| $ | 1.85 |
|
| $ | 1.69 |
|
| $ | 0.16 |
|
|
| 9.5 | % |
| $ | 2.29 |
|
| $ | 2.34 |
|
| $ | (0.05 | ) |
|
| (2.1 | )% |
Fuel gallons consumed (000s) |
|
| 129,420 |
|
|
| 112,248 |
|
|
| 17,172 |
|
|
| 15.3 | % |
|
| 153,764 |
|
|
| 147,664 |
|
|
| 6,100 |
|
|
| 4.1 | % |
Maintenance, materials and repairs increased by $49.8$44.1 million, or 30.7%16.9%, primarily reflecting $31.0$22.5 million of higherincreased Line Maintenance expense due to increased flying and additional repairs performed, the Southern Air acquisition, and $21.1$14.0 million of increased Heavy Maintenance expense partially offset by a $3.0and $7.6 million decrease inof increased Non-heavy Maintenance expense on 747-400 aircraft.expense. The higher Line Maintenance primarily reflected increases of $11.9$14.9 million for 767 aircraft $9.9and $8.9 million for 747-400 aircraft and $6.1 million for 747-8F aircraft. Heavy Maintenance expense on 747-400747-8F aircraft increased $19.1$5.8 million primarily due to an increase in the number of D Checks, engine overhauls and additional repairs performed, partially offset by a decrease in the number of C Checks. Heavy Maintenance expense on 767747-400 aircraft increased $4.2$4.9 million primarily due to an increase in the number of C Checks and additional repairs performed, partially offset by a decrease in the number of engine overhauls and D Checks. Heavy Maintenance expense on 747-8F767 aircraft decreased $3.4increased $2.8 million primarily due to a decrease in unscheduled engine repairs, partially offset by an increase in the number of C Checks. Non-heavy Maintenance on 747-400 aircraft decreased $3.0 million as a result of fewer events.Checks and additional repairs performed. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the nine months ended September 30 were:
Heavy Maintenance Events |
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
| ||||||
747-8F C Checks |
|
| 6 |
|
|
| 4 |
|
|
| 2 |
|
|
| 3 |
|
|
| 4 |
|
|
| (1 | ) |
747-400 C Checks |
|
| 8 |
|
|
| 9 |
|
|
| (1 | ) |
|
| 15 |
|
|
| 9 |
|
|
| 6 |
|
767 C Checks |
|
| 4 |
|
|
| 1 |
|
|
| 3 |
|
|
| 3 |
|
|
| 2 |
|
|
| 1 |
|
747-8F D Checks |
|
| 3 |
|
|
| - |
|
|
| 3 |
| ||||||||||||
747-400 D Checks |
|
| 6 |
|
|
| 4 |
|
|
| 2 |
|
|
| 1 |
|
|
| 2 |
|
|
| (1 | ) |
CF6-80 engine overhauls |
|
| 5 |
|
|
| 3 |
|
|
| 2 |
|
|
| 10 |
|
|
| 13 |
|
|
| (3 | ) |
Depreciation and amortization increased $11.2$34.8 million, or 10.2%22.3%, primarily due to additional aircraft that began operating in 2017 and2018, an increase in the amortization of deferred maintenance costs related to 747-8F engine overhauls (see Note 2 to our Financial Statements). and an increase in the scrapping of rotable parts.
Travel increased $11.2$16.7 million, or 11.9%13.5%, primarily due to the impact of the Southern Air acquisition and increased flying partially offset by lower rates for crewmember travel.and higher costs incurred as a result of labor-related service disruptions.
Aircraft rent decreased $5.8 increased $2.5 million, or 5.3%2.1%, primarily due to the amendment and extension of a leaseadditional operating leases for a 747-400 freighter aircraft that began during the second half of 2018 to a lower monthly lease rate (see Note 8 to our Financial Statements) and a reduction in the number of spare engines leased.meet increased customer demand.
Navigation fees, landing fees and other rent increased $20.9 decreased $6.1 million, or 37.0%5.2%, primarily due to an increasea decrease in purchased capacity, andwhich is a component of other rent, partially offset by increased flying.
Passenger and ground handling services increased $12.6$10.2 million, or 19.5%11.7%, primarily due to increased Charter flying.passenger flying and higher costs incurred as a result of labor-related service disruptions.
Special charge, net in 20162019 primarily representedrepresents a $6.5$19.6 million impairment loss for four CF6-80 engines to be disposed of and the permanent parking of two 737-400 passenger aircraft used for training purposes. Special charge, net in 2018 represents a $9.4 million impairment loss on engines held for sale (see Note 56 to our Financial Statements). We may sell additional flight equipment, which could result in additional charges in future periods.
Transaction-related expensesin 2017 related2019 primarily relate to professional fees for a customer transaction with warrants (see Note 4 to our Financial Statements). Transaction-related expenses in 2018 were for the integration of Southern Air, acquisition, which primarily included professional fees and integration costs. Transaction-related expenses in 2016 related to the Southern Air acquisition and our transaction with Amazon and primarily included: compensation costs, including employee termination benefits; professional fees; and integration costs (see Notes 4 and 6 to our Financial Statements).
Other increased $16.2$16.9 million, or 15.2%11.8%, primarily due to increasedstart-up and other costs to meet fleet growth initiatives, as well as higher passenger taxes and commission expense on higherincreased revenue from the AMC, the impact of the Southern Air acquisition and other growth initiatives, and higher legal and professional fees related to our request for a preliminary injunction to stop the aforementioned labor-related operational disruptions. Partially offsetting these items was an accrual for legal matters in 2016 (see Note 13 to our Financial Statements).AMC.
Non-operating Expenses (Income)
The following table compares our Non-operating Expenses (Income) for the nine months ended September 30 (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Non-operating Expenses (Income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Non-operating (Income) Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest income |
| $ | (4,286 | ) |
| $ | (4,325 | ) |
| $ | (39 | ) |
|
| (0.9 | )% |
| $ | (3,975 | ) |
| $ | (4,704 | ) |
| $ | (729 | ) |
|
| (15.5 | )% |
Interest expense |
|
| 72,747 |
|
|
| 63,595 |
|
|
| 9,152 |
|
|
| 14.4 | % |
|
| 90,515 |
|
|
| 87,639 |
|
|
| 2,876 |
|
|
| 3.3 | % |
Capitalized interest |
|
| (5,633 | ) |
|
| (2,106 | ) |
|
| 3,527 |
|
|
| 167.5 | % |
|
| (1,943 | ) |
|
| (4,335 | ) |
|
| (2,392 | ) |
|
| (55.2 | )% |
Loss on early extinguishment of debt |
|
| 167 |
|
|
| 132 |
|
|
| 35 |
|
| NM |
|
|
| 804 |
|
|
| - |
|
|
| 804 |
|
| NM |
| ||
Unrealized loss (gain) on financial instruments |
|
| 36,225 |
|
|
| (25,013 | ) |
|
| (61,238 | ) |
|
| (244.8 | )% | ||||||||||||||||
Other income |
|
| (357 | ) |
|
| (372 | ) |
|
| (15 | ) |
|
| (4.0 | )% | ||||||||||||||||
Unrealized (gain) loss on financial instruments |
|
| (78,900 | ) |
|
| 11,691 |
|
|
| (90,591 | ) |
| NM |
| |||||||||||||||||
Other (income) expense, net |
|
| (596 | ) |
|
| (10,777 | ) |
|
| (10,181 | ) |
|
| (94.5 | )% |
Interest expense increased $9.2$2.9 million, or 14.4%3.3%, primarily due to the issuance of the 2017 Convertible Notes and the2018 financing of 767-300 aircraft purchases and conversions.
Capitalized interest increased $3.5 million, primarily due to an increaseconversions and purchases of two 777-200 aircraft in the number of 767-300 aircraft undergoing passenger-to-freighter conversion.2018.
Unrealized (gain) loss (gain) on financial instruments represents the change in fair value of the Amazon Warranta customer warrant liability (see Note 64 to our Financial Statements) primarily due to changes in our common stock price.
Other (income) expense, net decreased primarily due to a refund of $12.4 million in 2018 for aircraft rent paid in previous years, partially offset by a net insurance recovery.
Income taxes. Our effectiveThe income tax expense rates were 59.1% and 60.3%benefit for the nine months ended September 30, 2017 and 2016, respectively. The effective2019 differed from tax at the U.S. statutory rate primarily due to $59.8 million of tax benefit related to the favorable completion of the IRS’s examination of our 2015 income tax return, and to a lesser extent, $17.3 million of tax benefit from nontaxable changes in the fair value of the customer warrant liability (see Note 4 to our Financial Statements). The income tax expense rate for the nine months ended September 30, 20172018 differed from tax at the U.S. statutory rate primarily due to $11.8 million of tax expense from nondeductible changes in the fair value of the Amazon Warrantcustomer warrant liability (see Note 6 toand $8.7 million of tax benefit from the remeasurement of our Financial Statements) and by the impact of the 2017 adoption of the amended accounting guidance for share-based compensation which requires that excess tax benefits associated with share-based compensation be recognized withindeferred income tax expense in our consolidated statement of operations. The effective income tax expense rateliability for the nine months ended September 30, 2016 differed from the U.S. federal statutory rate primarily due to nondeductible expenses resulting from a change in control, as defined under certain of the Company’s benefit plans, related to the Amazon transaction. The effective rates for both periods were impacted by our assertion to indefinitely reinvest the net earnings of foreign subsidiaries outside the U.S.Singapore.
Segments
The following table compares the Direct Contribution for our reportable segments for the nine months ended September 30 (see Note 1211 to our Financial Statements for the reconciliation to Operating income) (in thousands):
|
| 2017 |
|
| 2016 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2019 |
|
| 2018 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 141,134 |
|
| $ | 121,837 |
|
| $ | 19,297 |
|
|
| 15.8 | % |
| $ | 114,048 |
|
| $ | 145,251 |
|
| $ | (31,203 | ) |
|
| (21.5 | )% |
Charter |
|
| 88,877 |
|
|
| 78,580 |
|
|
| 10,297 |
|
|
| 13.1 | % |
|
| 79,554 |
|
|
| 129,738 |
|
|
| (50,184 | ) |
|
| (38.7 | )% |
Dry Leasing |
|
| 29,629 |
|
|
| 24,699 |
|
|
| 4,930 |
|
|
| 20.0 | % |
|
| 58,646 |
|
|
| 36,195 |
|
|
| 22,451 |
|
|
| 62.0 | % |
Total Direct Contribution |
| $ | 259,640 |
|
| $ | 225,116 |
|
| $ | 34,524 |
|
|
| 15.3 | % |
| $ | 252,248 |
|
| $ | 311,184 |
|
| $ | (58,936 | ) |
|
| (18.9 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income and expenses, net |
| $ | 183,418 |
|
| $ | 186,923 |
|
| $ | (3,505 | ) |
|
| (1.9 | )% | ||||||||||||||||
Unallocated expenses and (income), net |
| $ | 255,569 |
|
| $ | 212,373 |
|
| $ | 43,196 |
|
|
| 20.3 | % |
ACMI Segment
ACMI Direct Contribution increased $19.3decreased $31.2 million, or 15.8%21.5%, primarily due to higher crew costs, including enhanced wages and work rules resulting from our interim agreement with the Southern Air acquisition,pilots (see Note 12 to our Financial Statements), the impact of tariffs and global trade tensions on demand by our customers, additional Heavy Maintenance expense, increased flying and lower costs related to crew training. Partially offsetting these items were higher Heavy and Line Maintenance costs, the amortization of deferred maintenance costs and the temporarytwo-month redeployment of two 747-8F aircraft to the Charter segment during the first quarter of 2017.segment. In addition, ACMI Direct Contribution was impacted by start-up costs to meet customer growth initiatives and by labor-related service disruptions. Partially offsetting these items was an increase in contribution from additional flying.
Charter Direct Contribution increased $10.3decreased $50.2 million, or 13.1%38.7%, primarily due to increaseda decrease in commercial cargo demand, increased cargo and passenger demand from the AMC, lower costsYields related to crew trainingthe impact of tariffs and higher commercialglobal trade tensions, a decrease in AMC cargo Yields.flying and additional Heavy Maintenance expense. In addition, Charter Direct Contribution was negatively impacted by labor-related service disruptions. Partially offsetting these itemsdecreases were higher Heavy Maintenance costsan increase in AMC passenger flying and lower cargo and passenger ratesearnings from two 747-8F aircraft during a two-month redeployment from the AMC. ACMI segment.
Dry Leasing Segment
Dry Leasing Direct Contribution increased $4.9$22.5 million, or 20.0%62.0%, primarily due to lower interest expense due to the scheduled repayment of debt related to Dry Leased 777-200LRF aircraft and the placement of 767-300 converted freighter aircraft. Partially offsetting these items wererevenue from maintenance payments received related to the scheduled return of ana 777-200 freighter aircraft duringand the first three quartersplacement of 2016. There were no aircraft returned during the first three quarters of 2017.additional aircraft.
Unallocated incomeexpenses and expenses,(income), net
Unallocated incomeexpenses and expenses,(income), net decreased $3.5increased $43.2 million, or 1.9%20.3%, primarily due to a 2016 changerefund of aircraft rent paid in control, as defined under certain benefit plans,previous years recognized during the second quarter of 2018, fleet growth initiatives and increased amortization of a customer incentive asset, partially offset by a ratification bonus in 2018 related to the Amazon transaction (see Note 6 to our Financial Statements) and a 2016 accrual for legal matters. Partially offsetting these items were higher costs in 2017 due tointerim agreement with the Southern Air acquisition, unallocated interest expense, growth initiatives, amortization of the Amazon customer incentive asset, and legal and professional fees related to our request for a preliminary injunction to stop the aforementioned labor-related operational disruptions.pilots.
Reconciliation of GAAP to non-GAAP Financial Measures
To supplement our Financial Statements presented in accordance with GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP financial measures include Adjusted Incomeincome from continuing operations, net of taxes, Adjusted Diluted EPS from continuing operations, net of taxes and Adjusted Diluted EPS from continuing operations, net ofearnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for Income from continuing operations, net of taxes and Diluted EPS from continuing operations, net of taxes which are the most directly comparable measures of performance prepared in accordance with GAAP. Effective during the three months ended September 30, 2019, we changed our method of calculating Adjusted EBITDA to include Other non-operating expenses (income) to enhance the usefulness for investors and analysts, and the comparability of the calculation to that of other companies. Prior period amounts have been adjusted for comparability.
We use these non-GAAP financial measures in assessing the performance of our ongoing operations and in planning and forecasting future periods. These adjusted measures provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance. In addition, management’s incentive compensation will beis determined, in part, by using Adjusted Incomeincome from continuing operations, net of taxes.taxes and Adjusted EBITDA. We believe that these adjusted measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our business results and assessing our prospects for future performance.
The following is a reconciliation of Income from continuing operations, net of taxes and Diluted EPS from continuing operations, net of taxes to the corresponding non-GAAP financial measures (in thousands, except per share data):
|
|
| For the Three Months Ended |
| ||||||||||
|
|
| September 30, 2017 |
|
|
| September 30, 2016 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes |
|
| $ | (24,195 | ) |
|
| $ | (7,501 | ) |
|
| 222.6 | % |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal of aircraft |
|
|
| 211 |
|
|
|
| (11 | ) |
|
|
|
|
Costs associated with transactions (a) |
|
|
| 1,355 |
|
|
|
| 30,074 |
|
|
|
|
|
Accrual for legal matters and professional fees |
|
|
| 1,264 |
|
|
|
| (210 | ) |
|
|
|
|
Noncash expenses and income, net (b) |
|
|
| 5,474 |
|
|
|
| 2,081 |
|
|
|
|
|
Charges associated with refinancing debt |
|
|
| 167 |
|
|
|
| - |
|
|
|
|
|
Unrealized loss (gain) on financial instruments |
|
|
| 44,775 |
|
|
|
| 1,462 |
|
|
|
|
|
Income tax effect of reconciling items (c) |
|
|
| 643 |
|
|
|
| 1,531 |
|
|
|
|
|
Adjusted income from continuing operations, net of taxes |
|
| $ | 29,694 |
|
|
| $ | 27,426 |
|
|
| 8.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
| 25,262 |
|
|
|
| 24,840 |
|
|
|
|
|
Add: dilutive warrant |
|
|
| 1,501 |
|
|
|
| 150 |
|
|
|
|
|
dilutive convertible notes |
|
|
| 109 |
|
|
|
| - |
|
|
|
|
|
effect of convertible notes hedges (d) |
|
|
| (109 | ) |
|
|
| - |
|
|
|
|
|
dilutive restricted stock |
|
|
| 636 |
|
|
|
| 285 |
|
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
| 27,399 |
|
|
|
| 25,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted EPS from continuing operations, net of taxes |
|
| $ | 1.08 |
|
|
| $ | 1.09 |
|
|
| (0.9 | )% |
|
|
| For the Three Months Ended |
| ||||||||||
|
|
| September 30, 2019 |
|
|
| September 30, 2018 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
| $ | 59,974 |
|
|
| $ | 71,138 |
|
|
| (15.7 | )% |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer incentive asset amortization |
|
|
| 12,796 |
|
|
|
| 4,124 |
|
|
|
|
|
Special charge, net |
|
|
| 18,861 |
|
|
|
| - |
|
|
|
|
|
Costs associated with transactions (a) |
|
|
| 324 |
|
|
|
| 9,979 |
|
|
|
|
|
Leadership transition costs |
|
|
| 2,852 |
|
|
|
| - |
|
|
|
|
|
Certain contract start-up costs (b) |
|
|
| 1,400 |
|
|
|
| - |
|
|
|
|
|
Noncash expenses and income, net (c) |
|
|
| 4,696 |
|
|
|
| 4,245 |
|
|
|
|
|
Unrealized (gain) loss on financial instruments |
|
|
| (83,175 | ) |
|
|
| (46,080 | ) |
|
|
|
|
Other, net (d) |
|
|
| 647 |
|
|
|
| 373 |
|
|
|
|
|
Income tax effect of reconciling items |
|
|
| (8,859 | ) |
|
|
| 47 |
|
|
|
|
|
Adjusted income from continuing operations, net of taxes |
|
| $ | 9,516 |
|
|
| $ | 43,826 |
|
|
| (78.3 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
| 25,854 |
|
|
|
| 28,747 |
|
|
|
|
|
Add: effect of convertible notes hedges (f) |
|
|
| - |
|
|
|
| (269 | ) |
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
| 25,854 |
|
|
|
| 28,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted EPS from continuing operations, net of taxes |
|
| $ | 0.37 |
|
|
| $ | 1.54 |
|
|
| (76.0 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended |
| ||||||||||
|
|
| September 30, 2019 |
|
|
| September 30, 2018 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
| $ | 117,132 |
|
|
| $ | 59,643 |
|
|
| 96.4 | % |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer incentive asset amortization |
|
|
| 26,018 |
|
|
|
| 10,010 |
|
|
|
|
|
Special charge, net |
|
|
| 22,130 |
|
|
|
| 9,374 |
|
|
|
|
|
Costs associated with transactions (a) |
|
|
| 3,585 |
|
|
|
| 10,489 |
|
|
|
|
|
Leadership transition costs |
|
|
| 3,393 |
|
|
|
| - |
|
|
|
|
|
Certain contract start-up costs (b) |
|
|
| 3,463 |
|
|
|
| - |
|
|
|
|
|
Noncash expenses and income, net (c) |
|
|
| 13,743 |
|
|
|
| 12,489 |
|
|
|
|
|
Unrealized (gain) loss on financial instruments |
|
|
| (78,900 | ) |
|
|
| 11,691 |
|
|
|
|
|
Other, net (d) |
|
|
| (2,395 | ) |
|
|
| 936 |
|
|
|
|
|
Income tax effect of reconciling items |
|
|
| (12,540 | ) |
|
|
| 2,699 |
|
|
|
|
|
Special tax item (e) |
|
|
| (54,272 | ) |
|
|
| - |
|
|
|
|
|
Adjusted income from continuing operations, net of taxes |
|
| $ | 41,357 |
|
|
| $ | 117,331 |
|
|
| (64.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
| 26,909 |
|
|
|
| 26,274 |
|
|
|
|
|
Add: dilutive warrant (g) |
|
|
| - |
|
|
|
| 2,129 |
|
|
|
|
|
Add: effect of convertible notes hedges (f) |
|
|
| - |
|
|
|
| (240 | ) |
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
| 26,909 |
|
|
|
| 28,163 |
|
|
|
|
|
Adjusted Diluted EPS from continuing operations, net of taxes |
|
| $ | 1.54 |
|
|
| $ | 4.17 |
|
|
| (63.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended |
| ||||||||||
|
|
| September 30, 2017 |
|
|
| September 30, 2016 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
| $ | 14,884 |
|
|
| $ | 13,889 |
|
|
| 7.2 | % |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal of aircraft |
|
|
| 64 |
|
|
|
| (11 | ) |
|
|
|
|
Special charge |
|
|
| - |
|
|
|
| 6,631 |
|
|
|
|
|
Costs associated with transactions (a) |
|
|
| 3,666 |
|
|
|
| 47,655 |
|
|
|
|
|
Accrual for legal matters and professional fees |
|
|
| 1,600 |
|
|
|
| 6,777 |
|
|
|
|
|
Noncash expenses and income, net (b) |
|
|
| 11,537 |
|
|
|
| 5,807 |
|
|
|
|
|
Charges associated with refinancing debt |
|
|
| 167 |
|
|
|
| 132 |
|
|
|
|
|
Unrealized loss (gain) on financial instruments |
|
|
| 36,225 |
|
|
|
| (25,013 | ) |
|
|
|
|
Income tax effect of reconciling items (c) |
|
|
| (1,061 | ) |
|
|
| (535 | ) |
|
|
|
|
Adjusted income from continuing operations, net of taxes |
|
| $ | 67,082 |
|
|
| $ | 55,332 |
|
|
| 21.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
| 25,822 |
|
|
|
| 25,116 |
|
|
|
|
|
Add: dilutive warrant |
|
|
| 1,230 |
|
|
|
| - |
|
|
|
|
|
effect of convertible note hedges (d) |
|
|
| (36 | ) |
|
|
| - |
|
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
| 27,016 |
|
|
|
| 25,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted EPS from continuing operations, net of taxes |
|
| $ | 2.48 |
|
|
| $ | 2.20 |
|
|
| 12.7 | % |
|
|
| For the Three Months Ended |
| ||||||||||
|
|
| September 30, 2019 |
|
|
| September 30, 2018 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
| $ | 59,974 |
|
|
| $ | 71,138 |
|
|
| (15.7 | )% |
Interest (income) expense, net |
|
|
| 28,611 |
|
|
|
| 28,403 |
|
|
|
|
|
Depreciation and amortization |
|
|
| 62,499 |
|
|
|
| 55,417 |
|
|
|
|
|
Income tax (benefit) expense |
|
|
| (8,282 | ) |
|
|
| 34 |
|
|
|
|
|
EBITDA |
|
|
| 142,802 |
|
|
|
| 154,992 |
|
|
|
|
|
Customer incentive asset amortization |
|
|
| 12,796 |
|
|
|
| 4,124 |
|
|
|
|
|
Special charge, net |
|
|
| 18,861 |
|
|
|
| - |
|
|
|
|
|
Costs associated with transactions (a) |
|
|
| 324 |
|
|
|
| 9,979 |
|
|
|
|
|
Leadership transition costs |
|
|
| 2,852 |
|
|
|
| - |
|
|
|
|
|
Unrealized (gain) loss on financial instruments |
|
|
| (83,175 | ) |
|
|
| (46,080 | ) |
|
|
|
|
Other, net (d) |
|
|
| 1,150 |
|
|
|
| 846 |
|
|
|
|
|
Adjusted EBITDA |
|
| $ | 95,610 |
|
|
| $ | 123,861 |
|
|
| (22.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended |
| ||||||||||
|
|
| September 30, 2019 |
|
|
| September 30, 2018 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
| $ | 117,132 |
|
|
| $ | 59,643 |
|
|
| 96.4 | % |
Interest (income) expense, net |
|
|
| 84,597 |
|
|
|
| 78,600 |
|
|
|
|
|
Depreciation and amortization |
|
|
| 190,669 |
|
|
|
| 155,881 |
|
|
|
|
|
Income tax (benefit) expense |
|
|
| (68,072 | ) |
|
|
| 16,828 |
|
|
|
|
|
EBITDA |
|
|
| 324,326 |
|
|
|
| 310,952 |
|
|
|
|
|
Customer incentive asset amortization |
|
|
| 26,018 |
|
|
|
| 10,010 |
|
|
|
|
|
Special charge, net |
|
|
| 22,130 |
|
|
|
| 9,374 |
|
|
|
|
|
Costs associated with transactions (a) |
|
|
| 3,585 |
|
|
|
| 10,489 |
|
|
|
|
|
Leadership transition costs |
|
|
| 3,393 |
|
|
|
| - |
|
|
|
|
|
Unrealized (gain) loss on financial instruments |
|
|
| (78,900 | ) |
|
|
| 11,691 |
|
|
|
|
|
Other, net (d) |
|
|
| (429 | ) |
|
|
| 2,355 |
|
|
|
|
|
Adjusted EBITDA |
|
| $ | 300,123 |
|
|
| $ | 354,871 |
|
|
| (15.4 | )% |
| (a) | Costs associated with transactions in |
(b) | Certain contract start-up costs represent unique training aircraft costs required for a new customer contract (see Note 4 to our Financial Statements). |
|
| Noncash expenses and income, net in |
(d) | Other, net in |
(e) | Special tax item represents income tax benefit from the completion of the 2015 IRS examination that are not related to |
|
|
|
Liquidity and Capital Resources
The most significant liquidity events during the first three quarters of 20172019 were as follows:
Debt Transactions
In May 2017,August 2019, we issued $289.0 million of 2017 Convertible Notesrefinanced a higher-rate secured term loan with a cash couponnew $74.0 million lower-rate secured five-year term loan with a final payment of 1.875%. In May 2017, we used the majority$32.0 million due in August 2024 related to spare GEnx engines at a fixed rate of the proceeds to repay $150.0 million then outstanding under the Revolver.2.98%.
In June 2017,March 2019, we borrowed $18.7$19.7 million related to GEnx engine performance upgrade kits and overhauls under an unsecured five-year term loan at a fixed interest rate of 2.17%2.73%.
During the second and third quarter of 2017, we borrowed an aggregate of $140.1 million through seven separate term loans related to the purchase and passenger-to-freighter conversion of 767-300 aircraft at fixed rates ranging from 3.02% to 3.62%.
In September 2017, we entered into the Private Placement Facility to finance up to $146.5 million for the purchase and passenger-to-freighter conversion of up to six 767-300 aircraft dry leased to Amazon. In October 2017, we borrowed $72.6 million for the first three aircraft under the facility.
Operating Activities. Net cash provided by operating activities was $195.1$193.3 million for the first three quarters of 2017,2019, which primarily reflected $14.0 million of Net Income of $117.1 million, noncash adjustments of $142.0$241.3 million for Depreciation and amortization, and $36.2$78.9 million for Unrealized lossgain on financial instruments, $68.6 million for Deferred taxes and a $30.4$11.0 million increasedecrease in Accounts payable and accrued liabilities. Partially offsetting these items wasliabilities, and a $53.3$69.3 million increase in Prepaid expenses, current assets and other assets. Net cash provided by operating activities was $100.8$264.1 million for the first three quarters of 2016,2018, which primarily reflected $13.1$59.6 million of Net Income (Loss), noncash adjustments of $124.2$189.7 million for Depreciation and amortization and $27.9$11.7 million for Stock-based compensation expense,Unrealized loss on financial instruments, and a $32.8$56.2 million decrease in Accounts receivable. Partially offsetting these items were a $79.7 million decreaseincrease in Accounts payable and accrued liabilitiesliabilities. Partially offsetting these items was a $59.1 million increase in Accounts receivable and a noncash adjustment of $25.0$34.5 million for Unrealized gain on financial instruments.increase in Prepaid expenses, current assets and other assets.
Investing Activities. Net cash used for investing activities was $401.7$208.8 million for the first three quarters of 2017,2019, consisting primarily of $338.5$153.7 million of payments for flight equipment and modifications and $66.4$107.6 million of core capital expenditures, excluding flight equipment, partially offset by $38.1 million of proceeds from insurance. Payments for flight equipment and modifications during the first three quarters of 2019 were primarily related to 767-300 passenger aircraft and related freighter conversion costs, spare engines and GEnx engine performance upgrade kits. All capital expenditures for 2019 were funded through working capital and the financing discussed above. Net cash used for investing activities was $618.7 million for the first three quarters of 2018, consisting primarily of $543.3 million of payments for flight equipment and modifications and $84.8 million of core capital expenditures, excluding flight equipment. Payments for flight equipment and modifications during the first three quarters of 20172018 were primarily related to the purchase of 777-200 aircraft, 767-300 passenger aircraft and related freighter conversion costs, spare engines and GEnx engine performance upgrade kits. All capital expenditures for 2017 were funded through working capital and the term loans discussed above.
Financing Activities. Net cash used for investingfinancing activities was $372.6$136.5 million for the first three quarters of 2016, consisting2019, which primarily of $237.1reflected $273.1 million of purchase depositspayments on debt, including a $66.2 million repayment of three term loans, and payments for flight equipment, $107.5$9.3 million related to the Southern Air acquisition,purchase of treasury stock, partially offset by $93.7 million from debt issuance and $36.9 million of core capital expenditures, excluding flight equipment. Partially offsetting these investing activities were $8.8$50.0 million of proceeds from investments.
Financing Activities.our revolving credit facility. Net cash provided by financing activities was $244.6$288.9 million for the first three quarters of 2017,2018, which primarily reflected $400.5 million of proceeds from debt issuance of $447.9 million, $38.1 million from the sale of convertible note warrants and $22.0$135.0 million of customer maintenance reserves and deposits received,proceeds from revolving credit facility, partially offset by $153.3$180.7 million of payments on debt, obligations$60.0 million of payment of revolving credit facility and $70.1$10.8 million forrelated to the purchase of convertible note hedges. Net cash used for financing activities was $51.6 million for the first three quarters of 2016, which primarily reflected $135.8 million of payments on debt, partially offset by $84.8 million of proceeds from debt issuance.treasury stock.
We consider Cash and cash equivalents, Short-term investments, Restricted cash and Net cash provided by operating activities to be sufficient to meet our debt and lease obligations and to fund core capital expenditures for 2017, and to pay amounts due related to the settlement of the U.S. class action litigation.2019. Core capital expenditures for the remainder of 20172019 are expected to range between $10.0$25.0 to $15.0$35.0 million, which excludes flight equipment and capitalized interest. Our payments remaining for flight equipment purchase and passenger-to-freighter conversion commitments are expected to be approximately $143.8 million, of which approximately $63.5 million is expected to be made during 2017. We expect to finance the acquisition and conversion of this flight equipment with working capital prior to obtaining permanent financing for the converted aircraft.
We may access external sources of capital from time to time depending on our cash requirements, assessments of current and anticipated market conditions, and the after-tax cost of capital. To that end, we filed a shelf registration statement with the SEC in May 2017 that enables us to sell a yet to be determined amount of debt and/or equity securities on a registered basis over the subsequent three years, depending on market conditions, our capital needs and other factors. Our access to capital markets can be adversely impacted by prevailing economic conditions and by financial, business and other factors, some of which are beyond our control. Additionally, our borrowing costs are affected by market conditions and may be adversely impacted by a tightening in credit markets.
We do not expect to pay any significant U.S. federal income tax until 2025in this or later.the next decade. Our business operations are subject to income tax in several foreign jurisdictions. We do not expect to pay any significant cash income taxes in foreign jurisdictions for at least several years. We currently do not intend tomay repatriate cash from certainthe unremitted earnings of our foreign subsidiaries that is indefinitely reinvested outsideto the U.S. Any repatriation of cash from these subsidiaries or certain changes in U.S. tax laws could result in additional tax expense.extent taxes are insignificant.
Contractual Obligations and Debt Agreements
See NoteNotes 7 and 8 to our Financial Statements for a description of our new debt and lease obligations. See our 20162018 Annual Report on Form 10-K for a tabular disclosure of our contractual obligations as of December 31, 20162018 and a description of our other debt obligations and amendments thereto.
Off-Balance Sheet Arrangements
There were no material changes inSee Note 8 to our off-balance sheet arrangements duringFinancial Statements for a discussion of our adoption of the nine months ended September 30, 2017.new leasing guidance.
Recent Accounting Pronouncements
See Note 2 to our Financial Statements for a discussion of recent accounting pronouncements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”), as well as other reports, releases and written and oral communications issued or made from time to time by or on behalf of AAWW, contain statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management. Generally, the words “will,” “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “project,” “estimate” and similar expressions used in this Report that do not relate to historical facts are intended to identify forward-looking statements.
The forward-looking statements in this Report are not representations or guarantees of future performance and involve certain risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, 2016.2018. Many of such factors are beyond AAWW’s control and are difficult to predict. As a result, AAWW’s future actions, financial position, results of operations and the market price for shares of AAWW’s common stock could differ materially from those expressed in any forward-looking statements. Readers are therefore cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements speak only as of the date of this report. AAWW does not intend to publicly update any forward-looking statements that may be made from time to time by, or on behalf of, AAWW, whether as a result of new information, future events or otherwise, except as required by law.law and expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our market risk during the nine months ended September 30, 2017.2019. For additional discussion of our exposure to market risk, refer to Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” included in our 20162018 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d - 15(e) under the Exchange Act) as of September 30, 2017.2019. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
ThereThere has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 20172019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHEROTHER INFORMATION
With respect to the fiscal quarter ended September 30, 2017,2019, the information required in response to this Item is set forth in Note 1312 to our Financial Statements and such information is incorporated herein by reference. Such description contains all of the information required with respect hereto.
For
There have been no material changes in our risk factors that may cause actual results to differ materially from those anticipated, please refer todisclosed in our 20162018 Annual Report on Form 10-K.
| a. | Exhibits |
See accompanying Exhibit Index included afterbefore the signature page of this report for a list of exhibits filed or furnished with this report.
Exhibit Number |
| Description |
|
|
|
|
|
|
10.1 | ||
10.2 | Employment Agreement, dated as of July 1, 2019, by and between Atlas Air, Inc. and John W. Dietrich. | |
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | ||
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer. |
|
|
|
31.2 |
| Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer. |
|
|
|
32.1 |
| |
|
|
|
101.INS |
| Inline XBRL Instance |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. * |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. * |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. * |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document. * |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. * |
104 | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101). |
* | Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| Atlas Air Worldwide Holdings, Inc. |
|
|
|
Dated: |
| /s/ William J. Flynn |
|
| William J. Flynn |
|
|
|
|
|
|
Dated: |
| /s/ Spencer Schwartz |
|
| Spencer Schwartz |
|
| Executive Vice President and Chief Financial Officer |
4039