Notes to Unaudited Consolidated Financial Statements
June 30, 2017
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, which includes additional disclosures and a summary of our significant accounting policies. The December 31, 2016 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 June 30, 2017, the results of operations for the three and six months ended June 30, 2017 and 2016, comprehensive income for the three and six months ended June 30, 2017 and 2016, cash flows for the six months ended June 30, 2017 and 2016, and shareholders’ equity as of and for the six months ended June 30, 2017 and 2016.
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
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 $1.1 million and zero for the three months ended June 30, 2017 and June 30, 2016, respectively, and was $1.9 million and zero for the six months ended June 30, 2017 and June 30, 2016, 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
|
|
|
24,042
|
|
Amortization of deferred maintenance
|
|
|
(1,902
|
)
|
Balance as of June 30, 2017
|
|
$
|
41,240
|
|
8
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:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Cash and cash equivalents
|
|
$
|
271,655
|
|
|
$
|
123,890
|
|
Restricted cash
|
|
|
11,092
|
|
|
|
14,360
|
|
Total Cash, cash equivalents and restricted cash
|
|
|
|
|
|
|
|
|
shown in consolidated statements of cash flows
|
|
$
|
282,747
|
|
|
$
|
138,250
|
|
Recent Accounting Pronouncements
In March 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 $1.5 million of excess tax benefits during the six months ended June 30, 2017 as a reduction of income tax expense in our consolidated statements of operations. Excess tax benefits were previously recognized within equity. Additionally, our consolidated statements of cash flows present such excess tax benefits, which were previously presented as a financing activity, as an operating activity.
In February 2016, the FASB amended its accounting guidance for leases. The guidance requires a lessee to recognize assets and liabilities on the balance sheet arising from leases with terms greater than twelve months. While lessor accounting guidance is relatively unchanged, certain amendments were made to conform with changes made to lessee accounting and amended revenue recognition guidance. The new guidance will continue to classify leases as either finance or operating, with classification affecting the presentation and pattern of expense and income recognition, in the statement of operations. It also requires additional quantitative and qualitative disclosures about leasing arrangements. The amended guidance is effective as of the beginning of 2019, with early adoption permitted. While we are still assessing the impact the amended guidance will have on our financial statements, we expect that recognizing the right-of-use asset and related lease liability will impact our balance sheet materially. We have developed and are implementing a plan for adopting this amended guidance.
In May 2014, the FASB amended its accounting guidance for revenue recognition. Subsequently, the FASB has issued several clarifications and updates. The fundamental principles of the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and consideration that a company expects to receive for the services provided. It also requires additional disclosures necessary for the financial statement users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We will adopt this guidance on its required effective date of January 1, 2018. While we are still assessing the methods of adoption and impact the amended guidance will have on our financial statements, we expect that an immaterial amount of revenue currently recognized based on flight departure will likely be recognized over time as the services are performed. In addition, we expect that revenue related to contracted minimum block hour guarantees under certain ACMI and CMI contracts will likely be recognized in later periods under the amended guidance. The implementation of our plan to adopt this amended guidance is progressing as expected.
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”), 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.
9
The following table summarizes our transactions with Polar:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
Revenue and Expenses:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Revenue from Polar
|
|
$
|
108,930
|
|
|
$
|
101,980
|
|
|
$
|
211,158
|
|
|
$
|
200,717
|
|
Ground handling and airport fees to Polar
|
|
|
513
|
|
|
|
321
|
|
|
|
979
|
|
|
|
624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable/payable as of:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
Receivables from Polar
|
|
$
|
9,702
|
|
|
$
|
8,161
|
|
|
|
|
|
|
|
|
|
Payables to Polar
|
|
|
893
|
|
|
|
2,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Carrying Value of Polar Investment as of:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
Aggregate Carrying Value of Polar Investment
|
|
$
|
4,870
|
|
|
$
|
4,870
|
|
|
|
|
|
|
|
|
|
GATS
We hold a 50% interest in GATS GP (BVI) Ltd. (“GATS”), a joint venture with an unrelated third party. As of June 30, 2017 and December 31, 2016, our investment in GATS was $21.5 million and $22.2 million, respectively. We had Accounts payable to GATS of $0.5 million as of June 30, 2017 and $2.4 million as of December 31, 2016.
4. Southern Air Acquisition
On April 7, 2016, we completed the acquisition of Southern Air and its subsidiaries, including Southern Air Inc. and Florida West International Airways, Inc. (“Florida West”). The acquisition of Southern Air provided us with immediate entry into 777 and 737 aircraft operating platforms, with the potential for developing additional business with existing and new customers. We believe this augments our ability to offer the broadest array of aircraft and services for domestic, regional and international operations. For the three and six months ended June 30, 2017, we incurred Transaction-related expenses of $1.4 million and $2.3 million, respectively. For the three and six months ended June 30, 2016, we incurred Transaction-related expenses of $13.3 million and $14.1 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 six months ended June 30, 2016 were $444.9 million and $889.0 million, respectively, including adjustments to conform with our accounting policies. The earnings of Southern Air were not material for the three and six months ended June 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
|
|
|
836
|
|
Cash payments
|
|
|
(1,528
|
)
|
Liability as of June 30, 2017
|
|
$
|
522
|
|
5. Special Charge
During the first quarter of 2016, we classified four CF6-80 engines as held for sale, recognized an impairment loss of $6.5 million and ceased depreciation on the engines. All four of those engines were traded in during 2016. During the fourth quarter of 2016, we classified two CF6-80 engines as held for sale, recognized an impairment loss of $3.5 million and ceased depreciation on the
10
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 June 30, 2017 was $
1.4
mil
lion, 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 exp
ected to be sold during 2017.
6. 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 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, while the CMI operations will be for seven years from the commencement of each agreement (with an option for Amazon to extend the term to a total of ten years). The first two aircraft were placed in service during the third quarter of 2016 and the first quarter of 2017. The next four aircraft were placed in service during the second quarter of 2017 with the remainder expected to be placed in service by the end of 2018.
In conjunction with these agreements, 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 portion of the warrant, representing the right to purchase 3.75 million shares, 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 11
th
through 20
th
aircraft commences. The warrant will be exercisable in accordance with its terms through 2021. As of June 30, 2017, no warrants have been exercised.
The agreements also provide 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. This warrant to purchase 3.75 million shares will vest in conjunction with payments by Amazon for additional business with us. The warrant will be exercisable in accordance with its terms through 2023.
The $92.9 million fair value of the vested portion of the warrant issued to Amazon as of May 4, 2016 was recorded as a warrant liability within Financial instruments and other liabilities (the “Amazon Warrant”). The initial fair value of the warrant was recognized as a customer incentive asset within Deferred costs and other assets, net and is being amortized as a reduction of revenue in proportion to the amount of revenue recognized over the terms of the Dry Leases and CMI agreements. We amortized $0.9 million and $1.3 million of the customer incentive asset for the three and six months ended June 30, 2017, respectively. The balance of the customer incentive asset, net of amortization, was $91.0 million as of June 30, 2017 and $92.4 million as of December 31, 2016.
The Amazon Warrant liability is marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized 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 gain of $13.8 million and $8.6 million on the Amazon Warrant during the three and six months ended June 30, 2017, respectively. We recognized a net unrealized gain of $26.5 million on the Amazon Warrant during the three and six months ended June 30, 2016. The fair value of the Amazon Warrant liability was $87.2 million as of June 30, 2017 and $95.8 million as of December 31, 2016.
7. Accrued Liabilities
Accrued liabilities consisted of the following as of:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Maintenance
|
|
$
|
140,000
|
|
|
$
|
54,495
|
|
Customer maintenance reserves
|
|
|
93,492
|
|
|
|
81,830
|
|
Salaries, wages and benefits
|
|
|
40,978
|
|
|
|
55,063
|
|
U.S. class action settlement
|
|
|
30,000
|
|
|
|
35,000
|
|
Deferred revenue
|
|
|
20,877
|
|
|
|
10,298
|
|
Aircraft fuel
|
|
|
21,141
|
|
|
|
16,149
|
|
Other
|
|
|
59,952
|
|
|
|
68,052
|
|
Accrued liabilities
|
|
$
|
406,440
|
|
|
$
|
320,887
|
|
11
8. Debt
Term Loans and Capital Lease
We have entered into various term loans during 2017 to finance the purchase and conversion of 767-300 aircraft, and
for GEnx engine performance upgrade kits and overhauls. Each term loan requires payment of principal and interest quarterly in arrears. Funds available under each term loan are subject to usual and customary fees, and funds drawn typically bear interest at a fixed rate based on LIBOR, plus a margin. Each facility is guaranteed by us and subject to customary covenants and events of default.
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%
|
|
Total
|
|
$
|
146.3
|
|
|
|
|
|
|
|
In March 2017, we amended and extended a lease for a 747-400 freighter aircraft to June 2032 at a lower monthly lease payment. As a result 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.
Convertible Notes
In May 2017, we issued $289.0 million aggregate principal amount of convertible senior notes (the “2017 Convertible Notes”) in an underwritten public offering. 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%. The 2017 Convertible Notes will mature on June 1, 2024, unless earlier converted or repurchased pursuant to their 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 converti
ble 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 int
o 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 will occur when the average share price of our common stock for a given period exceeds the conversion price of the 2017 Convertible Notes, which initially is equal to $61.08 per share. The $32.0 million net cost incurred in
12
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 any calendar quarter (and only during such calendar quarter) if, for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter, the last reported sale price of our common stock for such trading day is equal to or greater than 130% of the conversion price on such trading day;
|
|
•
|
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 June 30, 2017, t
he 2017 Convertible Notes and the 2015 Convertible Notes consisted of the following
:
|
|
2017 Convertible Note
|
|
|
2015 Convertible Note
|
|
Remaining life in months
|
|
|
83
|
|
|
|
59
|
|
Liability component:
|
|
|
|
|
|
|
|
|
Gross proceeds
|
|
$
|
289,000
|
|
|
$
|
224,500
|
|
Less: debt discount, net of amortization
|
|
|
(69,271
|
)
|
|
|
(39,587
|
)
|
Less: debt issuance cost, net of amortization
|
|
|
(5,592
|
)
|
|
|
(3,799
|
)
|
Net carrying amount
|
|
$
|
214,137
|
|
|
$
|
181,114
|
|
|
|
|
|
|
|
|
|
|
Equity component
(1)
|
|
$
|
70,140
|
|
|
$
|
52,903
|
|
|
(1)
|
Included in Additional paid-in capital on the consolidated balance sheet as of June 30, 2017.
|
13
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 Six Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Contractual interest coupon
|
|
$
|
1,850
|
|
|
$
|
1,263
|
|
|
|
$
|
3,113
|
|
|
$
|
2,526
|
|
Amortization of debt discount
|
|
|
2,567
|
|
|
|
1,592
|
|
|
|
|
4,238
|
|
|
|
3,159
|
|
Amortization of debt issuance costs
|
|
|
251
|
|
|
|
168
|
|
|
|
|
424
|
|
|
|
335
|
|
Total interest expense recognized
|
|
$
|
4,668
|
|
|
$
|
3,023
|
|
|
|
$
|
7,775
|
|
|
$
|
6,020
|
|
Revolving Credit Facility
In December 2016, we entered into a three-year $150.0 million secured revolving credit facility (the “Revolver”) for general corporate purposes, including financing the acquisition and conversion of 767 aircraft prior to obtaining permanent financing for the converted aircraft. There were no amounts outstanding and we had $142.0 million of unused availability under the Revolver, based on the collateral borrowing base, as of June 30, 2017.
9. Commitments
Equipment Purchase Commitments
As of June 30, 2017, our estimated payments remaining for flight equipment purchase commitments are $176.2 million, of which $105.7 million are expected to be made during the remainder of 2017.
10. Income Taxes
Our effective income tax rates were 21.6% and 26.4% for the three months ended June 30, 2017 and 2016, respectively. Our effective income tax rates were 22.4% and 26.8% for the six months ended June 30, 2017 and 2016, respectively. The effective income tax rates for the three and six months ended June 30, 2017 differed from the U.S. statutory rate primarily due to nontaxable changes in the value of the Amazon Warrant liability (see Note 6 to our Financial Statements). In addition, the effective income tax rate for the six months ended June 30, 2017 differed from the U.S. statutory rate due to the impact of the 2017 adoption of the amended accounting guidance for share-based compensation which requires that excess tax benefits associated with share-based compensation be recognized within income tax expense in our consolidated statement of operations. The effective income tax rate for the three and six months ended June 30, 2016 differed from the U.S. federal statutory rate primarily due to nondeductible acquisition-related expenses incurred in connection with the acquisition of Southern Air (see Note 4 to our Financial Statements). The effective rates for all periods were impacted by our assertion to indefinitely reinvest the net earnings of foreign subsidiaries outside the U.S. For interim accounting purposes, we recognize income taxes using an estimated annual effective tax rate.
11. 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 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.
14
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 c
urrent borrowing rates for instruments with similar terms.
The fair value of our convertible notes is based on unadjusted quoted market prices for these securities.
The fair value of the Amazon Warrant is based on a Monte Carlo simulation which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility, and risk-free interest rate, among others.
The following table summarizes the carrying value, estimated fair value and classification of our financial instruments as of:
|
|
June 30, 2017
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
271,655
|
|
|
$
|
271,655
|
|
|
$
|
271,655
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Short-term investments
|
|
|
7,920
|
|
|
|
7,920
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,920
|
|
Restricted cash
|
|
|
11,092
|
|
|
|
11,092
|
|
|
|
11,092
|
|
|
|
-
|
|
|
|
-
|
|
Long-term investments and accrued interest
|
|
|
23,008
|
|
|
|
27,146
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,146
|
|
|
|
$
|
313,675
|
|
|
$
|
317,813
|
|
|
$
|
282,747
|
|
|
$
|
-
|
|
|
$
|
35,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans and notes
|
|
$
|
1,719,099
|
|
|
$
|
1,799,266
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,799,266
|
|
Convertible notes
|
|
|
395,251
|
|
|
|
548,851
|
|
|
|
548,851
|
|
|
|
-
|
|
|
|
-
|
|
Amazon Warrant
|
|
|
87,225
|
|
|
|
87,225
|
|
|
|
-
|
|
|
|
87,225
|
|
|
|
-
|
|
|
|
$
|
2,201,575
|
|
|
$
|
2,435,342
|
|
|
$
|
548,851
|
|
|
$
|
87,225
|
|
|
$
|
1,799,266
|
|
|
|
December 31, 2016
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
123,890
|
|
|
$
|
123,890
|
|
|
$
|
123,890
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Short-term investments
|
|
|
4,313
|
|
|
|
4,313
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,313
|
|
Restricted cash
|
|
|
14,360
|
|
|
|
14,360
|
|
|
|
14,360
|
|
|
|
-
|
|
|
|
-
|
|
Long-term investments and accrued interest
|
|
|
27,951
|
|
|
|
33,161
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,161
|
|
|
|
$
|
170,514
|
|
|
$
|
175,724
|
|
|
$
|
138,250
|
|
|
$
|
-
|
|
|
$
|
37,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans and notes
|
|
$
|
1,674,013
|
|
|
$
|
1,739,744
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,739,744
|
|
Convertible notes
|
|
|
177,398
|
|
|
|
228,429
|
|
|
|
228,429
|
|
|
|
-
|
|
|
|
-
|
|
Amazon Warrant
|
|
|
95,775
|
|
|
|
95,775
|
|
|
|
-
|
|
|
|
95,775
|
|
|
|
-
|
|
|
|
$
|
1,947,186
|
|
|
$
|
2,063,948
|
|
|
$
|
228,429
|
|
|
$
|
95,775
|
|
|
$
|
1,739,744
|
|
The following table presents the carrying value, gross unrealized gain (loss) and fair value of our long-term investments and accrued interest by contractual maturity as of:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Carrying
Value
|
|
|
Gross
Unrealized
Gain
|
|
|
Fair Value
|
|
|
Carrying
Value
|
|
|
Gross
Unrealized
Gain
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years
|
|
$
|
23,008
|
|
|
$
|
4,138
|
|
|
$
|
27,146
|
|
|
$
|
27,951
|
|
|
$
|
5,210
|
|
|
$
|
33,161
|
|
Total
|
|
$
|
23,008
|
|
|
$
|
4,138
|
|
|
$
|
27,146
|
|
|
$
|
27,951
|
|
|
$
|
5,210
|
|
|
$
|
33,161
|
|
12. Segment Reporting
Our business is organized into three 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
15
make resource allocation decisions. We do not aggregate our operating segments and, therefore, our operating seg
ments 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 from continuing operations before income taxes excluding the following: Special charges, Transaction-related expenses, nonrecurring items, Losses (gains) on the disposal of aircraft, Losses on early extinguishment of debt, Unrealized losses (gains) on financial instruments, Gains on investments and Unallocated income and expenses, net. Direct operating and ownership costs include crew costs, maintenance, fuel, ground operations, sales costs, aircraft rent, interest expense on the portion of debt used for financing aircraft, interest income on debt securities and aircraft depreciation. Unallocated income and expenses, net include corporate overhead, nonaircraft depreciation, noncash expenses and income, interest expense on the portion of debt used for general corporate purposes, interest income on nondebt securities, capitalized interest, foreign exchange gains and losses, other revenue and other non-operating costs.
The following table sets forth Operating Revenue and Direct Contribution for our reportable segments reconciled to Operating Income and Income from continuing operations before income taxes:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Operating Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
229,179
|
|
|
$
|
211,722
|
|
|
$
|
429,873
|
|
|
$
|
394,462
|
|
Charter
|
|
|
255,820
|
|
|
|
202,451
|
|
|
|
499,718
|
|
|
|
404,754
|
|
Dry Leasing
|
|
|
28,560
|
|
|
|
25,066
|
|
|
|
55,317
|
|
|
|
53,258
|
|
Customer incentive asset amortization
|
|
|
(898
|
)
|
|
|
-
|
|
|
|
(1,343
|
)
|
|
|
-
|
|
Other
|
|
|
4,705
|
|
|
|
4,033
|
|
|
|
9,196
|
|
|
|
9,413
|
|
Total Operating Revenue
|
|
$
|
517,366
|
|
|
$
|
443,272
|
|
|
$
|
992,761
|
|
|
$
|
861,887
|
|
Direct Contribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
53,524
|
|
|
$
|
45,490
|
|
|
$
|
89,487
|
|
|
$
|
70,230
|
|
Charter
|
|
|
36,884
|
|
|
|
24,856
|
|
|
|
54,070
|
|
|
|
45,633
|
|
Dry Leasing
|
|
|
9,661
|
|
|
|
6,878
|
|
|
|
19,384
|
|
|
|
17,286
|
|
Total Direct Contribution for Reportable Segments
|
|
|
100,069
|
|
|
|
77,224
|
|
|
|
162,941
|
|
|
|
133,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income and expenses, net
|
|
|
(62,746
|
)
|
|
|
(58,503
|
)
|
|
|
(118,955
|
)
|
|
|
(106,048
|
)
|
Loss on early extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(132
|
)
|
Unrealized gain on financial instruments
|
|
|
13,763
|
|
|
|
26,475
|
|
|
|
8,550
|
|
|
|
26,475
|
|
Special charge
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,631
|
)
|
Transaction-related expenses
|
|
|
(1,396
|
)
|
|
|
(16,788
|
)
|
|
|
(2,312
|
)
|
|
|
(17,581
|
)
|
Gain on disposal of aircraft
|
|
|
93
|
|
|
|
-
|
|
|
|
147
|
|
|
|
-
|
|
Income from continuing operations before income taxes
|
|
|
49,783
|
|
|
|
28,408
|
|
|
|
50,371
|
|
|
|
29,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back (subtract):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(1,342
|
)
|
|
|
(1,405
|
)
|
|
|
(2,598
|
)
|
|
|
(3,009
|
)
|
Interest expense
|
|
|
24,670
|
|
|
|
20,938
|
|
|
|
46,194
|
|
|
|
42,240
|
|
Capitalized interest
|
|
|
(1,931
|
)
|
|
|
(690
|
)
|
|
|
(3,711
|
)
|
|
|
(1,047
|
)
|
Loss on early extinguishment of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132
|
|
Unrealized gain on financial instruments
|
|
|
(13,763
|
)
|
|
|
(26,475
|
)
|
|
|
(8,550
|
)
|
|
|
(26,475
|
)
|
Other expense (income)
|
|
|
1,061
|
|
|
|
48
|
|
|
|
809
|
|
|
|
(192
|
)
|
Operating Income
|
|
$
|
58,478
|
|
|
$
|
20,824
|
|
|
$
|
82,515
|
|
|
$
|
40,881
|
|
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”), Polar and DHL (see Note 3 for further discussion regarding Polar). No other customer accounted for more than 10.0% of our Total Operating Revenue. Revenue from the AMC was $140.7 million for the three months ended June 30, 2017 and $119.6 million for the three months ended June 30, 2016. Revenue from the AMC was $272.6 million for the six months ended June 30, 2017 and $230.7 million for the six months ended June 30, 2016. Revenue from DHL was $61.6 million for the three months ended June 30, 2017 and $47.0 million for
16
the three months ended June 30, 2016. Revenue from DHL was $116.5 million for the six months ended June 30,
2017 and $70.6 million for the six months ended June 30, 2016. We have not experienced any credit issues with either of these customers.
13. 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. 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 a seniority list is presented to us by the unions, it triggers an agreed-upon time frame to negotiate a new joint CBA with any unresolved issues submitted to binding arbitration. After the merger process began, the IBT filed an application for mediation with the National Mediation Board (“NMB”) on behalf of the Atlas pilots, and subsequently the IBT filed a similar application on behalf of Southern Air pilots. We have opposed both mediation applications as they are not in accordance with the merger provisions in the parties’ existing CBAs. The Atlas and Southern Air CBAs have a defined and streamlined process for negotiating a joint CBA when a merger occurs, as in the case with the Atlas and Southern Air merger. The NMB conducted a pre-mediation investigation on the IBT’s Atlas application in June 2016, which is currently pending (along with the IBT’s Southern Air application). Due to a lack of meaningful progress in such merger discussions, in February 2017, we filed a lawsuit against the IBT to compel arbitration on the issue of whether the merger provisions in Atlas and Southern Air's CBAs apply to the bargaining process. While this lawsuit is pending in the Southern District Court of New York, the Company and the IBT have reached an interim agreement on a process to proceed with negotiations for a new joint CBA. These negotiations commenced on July 6, 2017.
We are subject to risks of work interruption or stoppage as permitted by the Railway Labor Act of 1926 (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
17
settlement agreement in rel
ation 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 Clai
mants 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 fo
r, 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.
In the Netherlands, Stichting Cartel Compensation, successor in interest to claims of various shippers, has filed suit in the district court in Amsterdam against British Airways, KLM, Martinair, Air France, Lufthansa and Singapore Airlines seeking recovery for damages purportedly arising from the same pricing practices at issue in the proceedings described above. In response, British Airways, KLM, Martinair, Air France and Lufthansa filed third-party indemnification lawsuits against Old Polar and Polar seeking indemnification in the event the defendants are found to be liable in the main proceedings. Old Polar and Polar entered their initial court appearances on September 30, 2015. Various procedural issues are undergoing court review. Like the U.K. proceedings, the Netherlands proceedings are likely to be affected by the European Commission’s revised decision. 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 $9.2 million in aggregate based on June 30, 2017 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. As required to defend such claims, we have made deposits pending resolution of these matters. The balance was $5.0 million as of June 30, 2017 and December 31, 2016, 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.
Accruals
As of June 30, 2017, the Company had an accrual of $30.0 million related to the U.S. class action settlement that was recognized in 2015.
Other
We have certain other contingencies incident to the ordinary course of business. Management believes that the ultimate disposition of such other contingencies is not expected to materially affect our financial condition, results of operations or cash flows.
14. Earnings Per Share
Basic earnings per share (“EPS”) represents income (loss) divided by the weighted average number of common shares outstanding during the measurement period. Diluted EPS represents income (loss) divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period using the treasury stock method. Anti-dilutive shares related to warrants and stock options that were out of the money and excluded were 7.8 million for the three and six months ended June 30, 2017 and were 3.0 million for the three and six months ended June 30, 2016.
18
The calculations of basic and diluted EPS were as follows:
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
Numerator:
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
Income from continuing operations, net of taxes
|
|
$
|
39,044
|
|
|
$
|
20,919
|
|
|
$
|
39,079
|
|
|
$
|
21,390
|
|
Less: Unrealized gain on financial instruments, net of tax
|
|
|
(14,293
|
)
|
|
|
(27,513
|
)
|
|
|
(8,869
|
)
|
|
|
(27,513
|
)
|
Diluted income (loss) from continuing operations, net of tax
|
|
$
|
24,751
|
|
|
$
|
(6,594
|
)
|
|
$
|
30,210
|
|
|
$
|
(6,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS weighted average shares outstanding
|
|
|
25,257
|
|
|
|
24,812
|
|
|
|
25,210
|
|
|
|
24,761
|
|
Effect of dilutive warrant
|
|
|
1,081
|
|
|
|
273
|
|
|
|
1,096
|
|
|
|
137
|
|
Effect of dilutive stock options and restricted stock
|
|
|
453
|
|
|
|
140
|
|
|
|
517
|
|
|
|
138
|
|
Diluted EPS weighted average shares outstanding
|
|
|
26,791
|
|
|
|
25,225
|
|
|
|
26,823
|
|
|
|
25,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.55
|
|
|
$
|
0.84
|
|
|
$
|
1.55
|
|
|
$
|
0.86
|
|
Diluted
|
|
$
|
0.92
|
|
|
$
|
(0.26
|
)
|
|
$
|
1.13
|
|
|
$
|
(0.24
|
)
|
Loss per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.54
|
|
|
$
|
0.83
|
|
|
$
|
1.51
|
|
|
$
|
0.85
|
|
Diluted
|
|
$
|
0.92
|
|
|
$
|
(0.28
|
)
|
|
$
|
1.09
|
|
|
$
|
(0.26
|
)
|
The calculation of EPS does not include restricted share units and warrants in which performance or market conditions were not satisfied of 7.6 million for the three and six months ended June 30, 2017 and 7.9 million for three and six months ended June 30, 2016.
15. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the components of Accumulated other comprehensive income (loss):
|
|
Interest Rate
|
|
|
Foreign
Currency
|
|
|
|
|
|
|
|
Derivatives
|
|
|
Translation
|
|
|
Total
|
|
Balance as of December 31, 2015
|
|
$
|
(6,072
|
)
|
|
$
|
9
|
|
|
$
|
(6,063
|
)
|
Reclassification to interest expense
|
|
|
895
|
|
|
|
-
|
|
|
|
895
|
|
Tax effect
|
|
|
(347
|
)
|
|
|
-
|
|
|
|
(347
|
)
|
Balance as of June 30, 2016
|
|
$
|
(5,524
|
)
|
|
$
|
9
|
|
|
$
|
(5,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
(5,002
|
)
|
|
$
|
9
|
|
|
$
|
(4,993
|
)
|
Reclassification to interest expense
|
|
|
820
|
|
|
|
-
|
|
|
|
820
|
|
Tax effect
|
|
|
(318
|
)
|
|
|
-
|
|
|
|
(318
|
)
|
Balance as of June 30, 2017
|
|
$
|
(4,500
|
)
|
|
$
|
9
|
|
|
$
|
(4,491
|
)
|
Interest Rate Derivatives
As of June 30, 2017, there was $7.3 million of unamortized net realized loss before taxes remaining in Accumulated other comprehensive income (loss) related to terminated forward-starting interest rate swaps, which had been designated as cash flow hedges to effectively fix the interest rates on two 747-8F financings in 2011 and three 777-200LRF financings in 2014. The net loss is amortized and reclassified into Interest expense over the remaining life of the related debt. Net realized losses reclassified into earnings were $0.4 million for the three months ended June 30, 2017 and 2016, respectively. Net realized losses reclassified into earnings were $0.8 million and $0.9 million for the six months ended June 30, 2017 and 2016, respectively. Net realized losses expected to be reclassified into earnings within the next 12 months are $1.6 million as of June 30, 2017.
19
16. Subsequent Events
In July 2017, we borrowed $12.5 million related to the purchase of a 767-300 aircraft under a sixty-month term loan (the “Eighth 2017 Term Loan”). The Eighth 2017 Term Loan, which is secured by a mortgage against the aircraft, contains customary covenants and events of default and accrues interest at a fixed rate of 3.62%, with principal and interest payable monthly.
20