Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2014 |
Summary Of Significant Accounting Policies [Abstract] | ' |
Significant Accounting Policies [Text Block] | ' |
Summary of Significant Accounting Policies |
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Rental Income – Under the Company’s fixed-fee code-share and fixed-fee charter agreements, the Company is reimbursed an amount per aircraft designed to compensate the Company for certain aircraft ownership costs. The Company has concluded that a component of its fixed-fee service revenue under the agreements discussed above is rental income, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The amounts deemed to be rental income during the three months ended September 30, 2014 and 2013, were $108.9 million and $97.2 million, respectively. The amounts deemed to be rental income during the nine months ended September 30, 2014 and 2013 were $322.0 million and $284.3 million, respectively, and have been included in fixed-fee service revenues in the Company’s condensed consolidated statements of operations. |
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Charter and Other Revenue – Charter and other revenue primarily consists of lease revenue for aircraft subleased under operating leases and miscellaneous revenue related to charter flying. Charter revenues are recognized at the point that our charter service is realizable and earned, which is when the transportation is provided. All other revenue is recognized as revenue when the related goods and services are provided. |
Restricted Cash – Restricted cash primarily consists of balances in escrow for our long-term charter agreement, restricted amounts for satisfying debt and lease payments due within the next year and certificates of deposit that secure certain letters of credit issued for workers' compensation claim reserves and certain airport authorities. Restricted cash is carried at cost, which management believes approximates fair value. |
Stockholders’ Equity – For the period from December 31, 2013 through September 30, 2014, additional paid-in capital increased to $425.0 million from $420.2 million due to $3.5 million of stock compensation expense and $1.3 million of proceeds for options exercised, accumulated other comprehensive loss decreased to $2.4 million from $2.6 million due to the reclassification adjustment for loss realized on derivatives, and accumulated earnings increased to $367.5 million from $314.9 million based on current year to date net income. |
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On April 7, 2014, the Company's Board of Directors authorized management to utilize up to $75 million to buy back shares and/or early retire convertible debt during the next twelve months. The Company may repurchase up to $50 million of common shares and retire up to $50 million of convertible notes, or any combination thereof. During the nine months ended September 30, 2014, pursuant to this authorization, the Company purchased 212,881 shares of its common stock on the open market at a weighted average price per share of $9.98 for total consideration of $2.1 million. |
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Net Income (Loss) Per Common Share – The following table is based on the weighted average number of common shares outstanding during the period. The following is a reconciliation of the weighted average common shares for the basic and diluted per share computations (in millions, except per share information): |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
Basic and diluted income per share: | | | | | | | | |
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Income from continuing operations | | $ | 18.5 | | | $ | 4.3 | | | $ | 52.6 | | | $ | 31.8 | |
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Loss from discontinued operations, net of tax | | — | | | (18.1 | ) | | — | | | (20.7 | ) |
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Net income (loss) | | 18.5 | | | (13.8 | ) | | 52.6 | | | 11.1 | |
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Income effect of assumed-conversion interest on convertible debt | | 0.3 | | | 0.2 | | | 0.8 | | | 1.5 | |
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Income (loss) after assumed conversion | | $ | 18.8 | | | $ | (13.6 | ) | | $ | 53.4 | | | $ | 12.6 | |
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Weighted average common shares outstanding | | 49.9 | | | 49.4 | | | 49.8 | | | 49.8 | |
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Effect of dilutive securities: | | | | | | | | |
Stock options and restricted stock | | 0.3 | | | 0.6 | | | 0.4 | | | 0.6 | |
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Convertible debt | | 2.8 | | | 2.5 | | | 2.8 | | | 4.7 | |
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Shares used to compute diluted earnings per share | | 53 | | | 52.5 | | | 53 | | | 55.1 | |
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Income per share - basic: | | | | | | | | |
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Income from continuing operations | | $ | 0.37 | | | $ | 0.09 | | | $ | 1.06 | | | $ | 0.64 | |
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Loss from discontinued operations, net of tax | | — | | | (0.37 | ) | | — | | | (0.42 | ) |
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Net income (loss) | | $ | 0.37 | | | $ | (0.28 | ) | | $ | 1.06 | | | $ | 0.22 | |
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Income per share - diluted: | | | | | | | | |
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Income from continuing operations | | $ | 0.35 | | | $ | 0.09 | | | $ | 1.01 | | | $ | 0.6 | |
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Loss from discontinued operations, net of tax | | — | | | (0.35 | ) | | — | | | (0.37 | ) |
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Net income (loss) | | $ | 0.35 | | | $ | (0.26 | ) | | $ | 1.01 | | | $ | 0.23 | |
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The Company excluded 3.3 million and 3.0 million employee stock options from the calculation of diluted net income per share due to their anti-dilutive impact for the three months ended September 30, 2014 and 2013, respectively. The Company excluded 3.4 million and 3.0 million employee stock options from the calculation of diluted net income per share due to their anti-dilutive impact for the nine months ended September 30, 2014 and 2013, respectively. |
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As of September 30, 2014, the Company has a convertible note, with original face value of $25.0 million and a book value of $26.4 million, net of a $1.6 million discount. This note is convertible in whole or in part, at the option of the holder, for up to 2.8 million shares of the Company’s common stock as of September 30, 2014. As of September 30, 2013, the Company also had a convertible note payable with a book value of $22.3 million that the Company redeemed on April 7, 2014 by paying $22.3 million of cash. The outstanding convertible note payable was dilutive for the three and nine months ended September 30, 2014 and 2013. The redeemed convertible note was anti-dilutive for three months ended September 30, 2013, and dilutive for nine months ended September 30, 2013. |
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The Company has the ability to redeem the remaining convertible note upon not less than 30 days nor more than 60 days advance written notice. The Company can redeem the $28.0 million note at a premium to face value at any time through October 28, 2016 at which point the note can be redeemed at face value thereafter. |
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Fair Value Measurements - Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures, requires disclosures about how fair value is determined for assets and liabilities and a hierarchy for which these assets and liabilities must be grouped is established. The Topic establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: |
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| Level 1 | quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. | | | | | | | | | | | | | | |
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| Level 2 | quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. | | | | | | | | | | | | | | |
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| Level 3 | unobservable inputs for the asset or liability. | | | | | | | | | | | | | | |
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The following table sets forth information regarding the Company's assets measured at fair value on a recurring basis (in millions): |
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Fair Value of Assets on a Recurring Basis | | 30-Sep-14 | | Level 1 | | Level 2 | | Level 3 |
Chautauqua restructuring asset | | $ | 87.9 | | | $ | — | | | $ | — | | | $ | 87.9 | |
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Fair Value of Assets on a Recurring Basis | | 31-Dec-13 | | Level 1 | | Level 2 | | Level 3 |
Chautauqua restructuring asset | | $ | 79.6 | | | $ | — | | | $ | — | | | $ | 79.6 | |
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Chautauqua restructuring asset - In October 2012, the Company restructured certain aircraft ownership obligations related to its 50-seat regional jet platform, Chautauqua. In connection with the restructuring, the Company issued a convertible note payable with a face value of $25.0 million, provided call rights on 28 of its owned aircraft and agreed to parent company guarantees related to future minimum lease payments, among other commitments. |
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The Company elected the fair value option under ASC 825-10, "Financial Instruments" for the agreement related to its 28 owned aircraft because management believes the fair value option provides the most accurate representation of the economic benefit of this agreement to Chautauqua in the Company's financial statements. Under the fair value option, the Company recorded an $86.4 million asset representing the combined fair value of expected future cash inflows under the agreement, net of the value of the Company's obligations attributable to the call rights on the 28 aircraft. The recurring fair value measurement of this agreement has been calculated using an income approach, which requires the use of subjective assumptions that are considered level 3 inputs. Fair values have been estimated by discounting the cash flows expected to be received over the term of the agreement, using a discount rate based on observable yields on instruments bearing comparable risks and credit worthiness of the counterparty. Critical assumptions used in the fair value measurement primarily include the amount and timing of cash inflows, the discount rate and the probability of whether the call option on the restructured aircraft will be exercised by the counterparty. A change in these assumptions could result in a significantly higher or lower fair value measurement, which would result in a gain or loss during the period in which the assumption changes. A 100 basis point change in the discount rate used would have changed the fair value of the restructuring asset by approximately $2.2 million as of September 30, 2014. Similarly, a change in the assumed probability of whether the call option on the restructured aircraft will be exercised could result in either a gain or loss of up to $3.3 million per aircraft during the period in which that assumption changed. |
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In March 2013 the agreement was amended, which resulted in a $12.0 million increase in the restructuring asset under the fair value option. The $12.0 million increase represents the fair value of expected future cash inflows under the amendment. In addition, this amendment resulted in a $12.0 million deferred credit that will amortize until the final aircraft delivery in early 2015. |
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On February 11, 2014, the Company announced the early termination of its 44 to 50 seat fixed-fee agreements with United Airlines and American Airlines, which were scheduled to terminate in 2014. These agreements began to wind-down in March 2014 and resulted in the grounding of 27 small jet aircraft. The Company notified the counterparty that 15 of the 27 aircraft to be grounded are subject to this agreement and callable by the counterparty. The Company was notified by the counterparty during the first quarter of 2014 that it did not intend to exercise its call option on these aircraft. The Company recorded a fair value gain of $18.4 million for the nine months ended September 30, 2014, which represents the fair value of the increase in cash flows expected to be received over the remaining term of the agreement, due to the counterparty's obligation to increase its payment to the Company for aircraft that cease to have applicable capacity purchase agreement reimbursement rates. |
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As of September 30, 2014, the Company would owe approximately $29.8 million under certain circumstances of non-performance or voluntary repayment, however, the Company estimated the probability of non-performance or repayment as remote. The difference between the fair value of the restructuring asset at inception and the fair value of the convertible note at inception is recognized as a reduction to depreciation expense over the remaining useful life of the related aircraft subject to this agreement. |
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The following is a reconciliation of the beginning and ending balances for the periods indicated of recurring fair value measurements using Level 3 inputs (in millions): |
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| | Three Months Ended | | | | | | | | |
Chautauqua Restructuring Asset | | 30-Sep-14 | | 30-Sep-13 | | | | | | | | |
Beginning Balance | | $ | 89.8 | | | $ | 86.7 | | | | | | | | | |
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Cash received or other | | (1.9 | ) | | (3.1 | ) | | | | | | | | |
Ending Balance | | $ | 87.9 | | | $ | 83.6 | | | | | | | | | |
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| | Nine Months Ended | | | | | | | | |
Chautauqua Restructuring Asset | | 30-Sep-14 | | 30-Sep-13 | | | | | | | | |
Beginning Balance | | $ | 79.6 | | | $ | 86.4 | | | | | | | | | |
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Amendment to agreement | | — | | | 12 | | | | | | | | | |
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Fair value gain | | 18.4 | | | — | | | | | | | | | |
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Cash received or other | | (10.1 | ) | | (14.8 | ) | | | | | | | | |
Ending Balance | | $ | 87.9 | | | $ | 83.6 | | | | | | | | | |
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Aircraft and Other Assets Impairment - Nonrecurring - In March 2014, we recorded a $19.9 million impairment charge related to our decision to permanently park our owned E140 fleet in March 2014, impairing these aircraft to zero. |
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Description | | Nine months ended September 30, 2014 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Pre-tax Losses |
Long-lived assets abandoned | | $ | — | | | | | | | $ | — | | | $ | (19.9 | ) |
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Fair Value of Debt - Market risk associated with our fixed and variable rate long-term debt primarily relates to the potential change in fair value and impact to future earnings, respectively, from a change in interest rates. In the table below, the aggregate fair value of debt was based primarily on recently completed market transactions and estimates based on interest rates, maturities, credit risk, and underlying collateral and is classified primarily as level 3 within the fair value hierarchy. |
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($ in millions) | | September 30, | | December 31, | | | | | | | | |
| | 2014 | | 2013 | | | | | | | | |
Net carrying amount | | $ | 2,345.80 | | | $ | 2,166.80 | | | | | | | | | |
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Estimated fair value | | 2,243.50 | | | 2,099.80 | | | | | | | | | |
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New Accounting Pronouncements – In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after Requisite Service Period. The update requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to rewards with performance conditions that affect vesting to account for such awards. The Performance Target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If achievement of the performance target becomes probable before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. It is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, and the impact to the consolidated financial statements is not expected to be material. |
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In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The objective of the update is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and the Company is still evaluating the impact to the consolidated financial statements. |
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In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The objective of the standard is to update the requirements for reporting discontinued operations in Subtopic 205-20. It is effective in the first quarter of 2015, and the impact to the consolidated financial statements is not expected to be material. |
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In January 2014, the FASB issued ASU 2014-05, Service Concession Arrangements (Topic 853), a consensus of the FASB Emerging Issues Task Force. The objective of the update is to specify that an operating entity should not account for a service concession arrangement within the scope of this update as a lease in accordance with Topic 840, Leases. It is effective for fiscal years beginning after December 15, 2014, and the impact to the consolidated financial statements is being evaluated by the Company. |
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In July 2013, the FASB issued ASU 2013-11–Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The standard provides updated guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendment became effective for fiscal years beginning after December 15, 2013. The Company adopted this accounting standard on January 1, 2014, and the impact to the consolidated financial statements was not material. |