Atlas Air Worldwide Reports Third-Quarter 2017 Results

  • Significant Revenue and Volume Growth
  • Warrant Accounting Resulted in Reported Loss from Continuing Operations of $24.2 Million
  • Excluding Warrant Accounting, Adjusted Income from Continuing Operations Was $29.7 Million After $1.7 Million Impact Related to Hurricanes
  • 10 Aircraft Now Placed with Amazon
  • Anticipating Strong Fourth Quarter; Slight Adjustment to Full-Year Outlook  

PURCHASE, N.Y., Nov. 07, 2017 (GLOBE NEWSWIRE) -- Atlas Air Worldwide Holdings, Inc. (Nasdaq:AAWW) today announced a loss from continuing operations, net of taxes, of $24.2 million, or $0.96 per diluted share, including an unrealized loss on warrants of $44.8 million, for the three months ended September 30, 2017. Results compared with a loss from continuing operations, net of taxes, of $7.5 million, or $0.30 per diluted share, for the three months ended September 30, 2016, which was primarily due to the tax impact of nondeductible expenses. 

On an adjusted basis, income from continuing operations, net of taxes, in the third quarter of 2017 totaled $29.7 million, or $1.08 per diluted share, which included a negative impact of $1.7 million, or $0.06 per diluted share, related to hurricanes. Results for the period compared with adjusted income of $27.4 million, or $1.09 per diluted share, in the year-ago quarter.

“We are encouraged by our performance in the third quarter, with 20% increases in both revenue and block hours, and higher direct contribution in all of our segments,” said President and Chief Executive Officer William J. Flynn. “Reflecting the strong demand for our services, yields rose and the utilization of our aircraft increased.

“We also placed and began operating our seventh 767-300 aircraft for Amazon in August, and introduced aircraft eight, nine and 10 in October. We remain on track to ramp up to a full 20 aircraft for Amazon by the end of 2018.

“In addition, we commenced flying for two new customers during the quarter – DHL Global Forwarding and Hong Kong Air Cargo, and we started operating our second 747-400 freighter for Nippon Cargo Airlines.

“While demand, volumes, yields and utilization increased during the third quarter, some of that performance was offset by higher maintenance expenses, labor-related operational disruptions and Hurricanes Irma and Harvey.”  

Mr. Flynn added: “We were pleased to provide support and assistance for communities affected by the recent hurricanes. In September, we provided relief to affected pilots, other employees, and their families in the Miami and Houston areas as well as charitable donations for local recovery efforts. In October, we donated to the relief efforts in Puerto Rico following Hurricane Maria, and we partnered with JetBlue to deliver 117 tonnes of humanitarian aid to the island on our aircraft. We also operated multiple hurricane-relief charters on behalf of Atlas Air and our customers, with the speed that only airfreight can provide.

“We are looking forward to a strong fourth quarter, and anticipate solid peak-season yields and volumes. Reflecting our year-to-date results and our fourth-quarter expectations, we anticipate that our full-year 2017 adjusted income from continuing operations, net of taxes, will grow by a high-single-digit to low-double-digit percentage compared with our 2016 adjusted income of $114.3 million.”

Mr. Flynn concluded: “The future for Atlas and for airfreight is bright. Growth in Asia and an expansion of the global middle class are transforming the global economy. Increased disposable income will support a strong future for global trade and the consumption of goods. And our strategic focus on express and e-commerce service and the faster-growing Asian markets positions us for further business growth as we carry through the balance of 2017, into 2018 and beyond.”

Third-Quarter Results

ACMI segment contribution in the third quarter of 2017 was slightly higher compared with the prior-year period, as an increase in flying was largely offset by higher maintenance costs and labor-related operational disruptions. Segment revenue growth benefited from an increase in block-hour volumes as well as higher aircraft utilization.

Higher Charter segment contribution during the period was primarily driven by an increase in commercial yields, partially offset by higher maintenance costs, the redeployment of a 747-8F aircraft to the ACMI segment, hurricane-related impacts and labor-related operational disruptions. Higher average rates during the quarter primarily reflected the impact of Charter capacity we purchased from our ACMI customers on flights that had no associated Charter block hours, higher fuel prices and higher commercial yields. 

In Dry Leasing, higher segment contribution primarily reflected a reduction in interest expense due to the scheduled repayment of debt related to dry leased 777 aircraft and the placement of 767-300 converted aircraft.

Reported earnings in the third quarter also included an effective income tax expense rate of 72.7%, due mainly to nontaxable changes in the value of outstanding warrants. On an adjusted basis, our results reflected an effective income tax rate of 24.3%.

Nine-Month Results

For the nine months ended September 30, 2017, our continuing operations generated income of $14.9 million, or $0.58 per diluted share, which included the impact of an unrealized loss on financial instruments of $36.2 million related to outstanding warrants. For the nine months ended September 30, 2016, our income from continuing operations totaled $13.9 million, or a loss of $0.49 per diluted share, after the impact of warrant accounting and transaction-related expenses.

On an adjusted basis, income from continuing operations in the first nine months of 2017 totaled $67.1 million, or $2.48 per diluted share, compared with $55.3 million, or $2.20 per diluted share, in the first nine months of 2016.

Cash and Short-Term Investments

At September 30, 2017, our cash, cash equivalents, short-term investments and restricted cash totaled $187.0 million, compared with $142.6 million at December 31, 2016.

The change in position resulted from cash provided by operating and financing activities, partially offset by cash used for investing activities.

Net cash provided by financing activities during the first nine months of 2017 primarily reflected proceeds from our issuance of convertible notes and our financings of 767-300 aircraft, partially offset by payments on debt obligations. In October, we completed the financings of three additional 767-300 aircraft, which generated cash of $72.6 million.

Net cash used for investing activities during the first nine months primarily related to capital expenditures and payments for flight equipment and modifications, including the acquisition of 767-300 aircraft to be converted to freighter configuration, spare engines and GEnx engine performance upgrade kits.

Labor Update

In September 2017, the company requested the U.S. District Court for the District of Columbia to issue a preliminary injunction to require the International Brotherhood of Teamsters to meet its obligations under the Railway Labor Act and stop its illegal, intentional work slowdowns and service interruptions, which are intended to gain leverage in pilot contract negotiations with the company.

The hearing was completed in early November and a ruling on the request for a preliminary injunction is expected later this month.

Outlook

Looking to the fourth quarter and full year, we anticipate increased peak-season yields and volumes, including our additional seasonal flying for express and e-commerce operators.       

Consistent with our year-to-date performance and our fourth-quarter expectations, we anticipate that our full-year 2017 adjusted income from continuing operations, net of taxes, will grow by a high-single-digit to low-double-digit percentage compared with our 2016 adjusted income of $114.3 million.

For the full year, we expect total block hours to increase approximately 20% compared with 2016, with about 75% of our hours in ACMI and the balance in Charter. 

Aircraft maintenance expense in 2017 should total approximately $275 million, and depreciation and amortization is expected to total approximately $165 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $75 to $80 million, mainly for parts and components for our fleet.

We provide guidance on an adjusted basis because we are unable to predict, with reasonable certainty, the effects of outstanding warrants and other items that could be material to our reported results.

Conference Call

Management will host a conference call to discuss Atlas Air Worldwide’s third-quarter 2017 financial and operating results at 11:00 a.m. Eastern Time on Wednesday, November 7, 2017.

Interested parties are invited to listen to the call live over the Internet at www.atlasair.com (click on “Investor Information,” click on “Presentations” and on the link to the third-quarter call) or at the following Web address:

https://edge.media-server.com/m6/p/8vmmjqw2

For those unable to listen to the live call, a replay will be archived on the above websites following the call. A replay will also be available through November 13 by dialing (855) 859-2056 (U.S. Toll Free) or (404) 537-3406 (from outside the U.S.) and using Access Code 97404926#.

About Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with U.S. GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP measures include EBITDA, as adjusted; Direct Contribution; Adjusted income from continuing operations, net of taxes; Adjusted Diluted EPS from continuing operations, net of taxes; Adjusted effective tax rate; and Free Cash Flow, which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP 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; Diluted EPS from continuing operations, net of taxes; Effective tax rate; and Net Cash Provided by Operating Activities, which are the most directly comparable measures of performance prepared in accordance with U.S. GAAP.

Our management uses these non-GAAP financial measures in assessing the performance of the company’s ongoing operations and in planning and forecasting future periods. In addition, management’s incentive compensation will be determined, in part, by using Adjusted Income from continuing operations, net of taxes. We believe that these adjusted measures, when considered together with the corresponding U.S. GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance.

About Atlas Air Worldwide:

Atlas Air Worldwide is a leading global provider of outsourced aircraft and aviation operating services. It is the parent company of Atlas Air, Inc., Southern Air Holdings, Inc. and Titan Aviation Holdings, Inc., and is the majority shareholder of Polar Air Cargo Worldwide, Inc. Our companies operate the world’s largest fleet of 747 freighter aircraft and provide customers a broad array of Boeing 747, 777, 767, 757 and 737 aircraft for domestic, regional and international applications.

Atlas Air Worldwide’s press releases, SEC filings and other information may be accessed through the company’s home page, www.atlasair.com.

This release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect Atlas Air Worldwide’s current views with respect to certain current and future events and financial performance. 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 release that do not relate to historical facts are intended to identify forward-looking statements.

Such forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to the operations and business environments of Atlas Air Worldwide and its subsidiaries (collectively, the “companies”) that may cause the actual results of the companies to be materially different from any future results, express or implied, in such forward-looking statements. 

Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: our ability to effectively operate the network service contemplated by our agreements with Amazon, including the cost and timing of securing any aircraft necessary to fulfill our agreements; the risk that the anticipated benefits of our agreements with Amazon will not be realized when expected, or at all; the possibility that Amazon may terminate its agreements with the companies; the effect of the announcement or pendency of the transactions contemplated by the agreements with Amazon; failure to successfully integrate the Southern Air business; the ability of the companies to operate pursuant to the terms of their financing facilities; the ability of the companies to obtain and maintain normal terms with vendors and service providers; the companies’ ability to maintain contracts that are critical to their operations; the ability of the companies to fund and execute their business plan; the ability of the companies to attract, motivate and/or retain key executives and associates; the ability of the companies to attract and retain customers; the continued availability of our wide-body aircraft; demand for cargo services in the markets in which the companies operate; economic conditions; the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack; labor costs and relations; financing costs; the cost and availability of war risk insurance; our ability to maintain adequate internal controls over financial reporting; aviation fuel costs; security-related costs; competitive pressures on pricing (especially from lower-cost competitors); volatility in the international currency markets; weather conditions; government legislation and regulation; consumer perceptions of the companies’ products and services; anticipated and future litigation; and other risks and uncertainties set forth from time to time in Atlas Air Worldwide’s reports to the United States Securities and Exchange Commission.

For additional information, we refer you to the risk factors set forth under the heading “Risk Factors” in the most recent Annual Report on Form 10-K and subsequent reports on Form 10-Q filed by Atlas Air Worldwide with the Securities and Exchange Commission. Other factors and assumptions not identified above may also affect the forward-looking statements, and these other factors and assumptions may also cause actual results to differ materially from those discussed.

Except as stated in this release, Atlas Air Worldwide is not providing guidance or estimates regarding its anticipated business and financial performance for 2017 or thereafter. 

Atlas Air Worldwide assumes no obligation to update such statements contained in this release to reflect actual results, changes in assumptions or changes in other factors affecting such estimates other than as required by law.

Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
 (Unaudited)
       
   For the Three Months Ended  For the Nine Months Ended 
  September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016 
                 
Operating Revenue $535,748  $448,015  $1,528,508  $1,309,902 
                 
Operating Expenses                
Salaries, wages and benefits  114,505   125,978   330,080   321,365 
Aircraft fuel  74,048   65,409   239,966   189,982 
Maintenance, materials and repairs  74,457   49,761   212,042   162,220 
Depreciation and amortization  42,033   37,509   120,913   109,722 
Travel  38,260   31,958   105,510   94,291 
Aircraft rent  33,873   35,730   103,738   109,490 
Navigation fees, landing fees and other rent  33,468   15,640   77,258   56,391 
Passenger and ground handling services  28,491   21,673   77,187   64,571 
Loss (gain) on disposal of aircraft  211   (11)  64   (11)
Special charge  -   -   -   6,631 
Transaction-related expenses  1,092   3,905   3,403   21,486 
Other  42,598   34,465   123,121   106,885 
Total Operating Expenses  483,036   422,017   1,393,282   1,243,023 
                 
Operating Income  52,712   25,998   135,226   66,879 
                 
Non-operating Expenses (Income)                
Interest income  (1,688)  (1,316)  (4,286)  (4,325)
Interest expense  26,553   21,355   72,747   63,595 
Capitalized interest  (1,922)  (1,059)  (5,633)  (2,106)
Loss on early extinguishment of debt  167   -   167   132 
Unrealized loss (gain) on financial instruments  44,775   1,462   36,225   (25,013)
Other income  (1,165)  (180)  (357)  (372)
Total Non-operating Expenses (Income)  66,720   20,262   98,863   31,911 
                 
Income (loss) from continuing operations before income taxes  (14,008)  5,736   36,363   34,968 
Income tax expense  10,187   13,237   21,479   21,079 
                 
Income (loss) from continuing operations, net of taxes  (24,195)  (7,501)  14,884   13,889 
                 
Income (loss) from discontinued operations, net of taxes  33   (445)  (859)  (790)
                 
Net Income (Loss) $(24,162) $(7,946) $14,025  $13,099 
                 
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)
                 
Weighted average shares:                
Basic  25,262   24,840   25,229   24,788 
                 
Diluted  25,262   24,840   25,822   25,116 
                 


Atlas Air Worldwide Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
       
   September 30, 2017  December 31, 2016 
Assets        
Current Assets        
Cash and cash equivalents $165,250  $123,890 
Short-term investments  10,676   4,313 
Restricted cash  11,030   14,360 
Accounts receivable, net of allowance of $1,230 and $997, respectively  172,205   166,486 
Prepaid maintenance  13,181   4,418 
Prepaid expenses and other current assets  77,434   44,603 
Total current assets  449,776   358,070 
Property and Equipment        
Flight equipment  4,267,354   3,886,714 
Ground equipment  73,653   68,688 
Less:  accumulated depreciation  (670,443)  (568,946)
Flight equipment modifications in progress  228,040   154,226 
Property and equipment, net  3,898,954   3,540,682 
Other Assets        
Long-term investments and accrued interest  19,234   27,951 
Deferred costs and other assets  210,611   204,647 
Intangible assets, net and goodwill  108,727   116,029 
Total Assets $4,687,302  $4,247,379 
         
Liabilities and Equity        
Current Liabilities        
Accounts payable $62,540  $59,543 
Accrued liabilities  421,670   320,887 
Current portion of long-term debt and capital lease  196,509   184,748 
Total current liabilities  680,719   565,178 
Other Liabilities        
Long-term debt and capital lease  1,908,835   1,666,663 
Deferred taxes  318,171   298,165 
Financial instruments and other liabilities  204,408   200,035 
Total other liabilities  2,431,414   2,164,863 
Commitments and contingencies        
Equity        
Stockholders’ Equity        
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued  -   - 
Common stock, $0.01 par value; 100,000,000 shares authorized;
  30,090,510 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
  301   296 
Additional paid-in-capital  710,446   657,082 
Treasury stock, at cost; 4,807,410 and 4,616,363 shares, respectively  (193,426)  (183,119)
Accumulated other comprehensive loss  (4,249)  (4,993)
Retained earnings  1,062,097   1,048,072 
Total equity  1,575,169   1,517,338 
Total Liabilities and Equity $4,687,302  $4,247,379 
         


1   Balance sheet debt at September 30, 2017 totaled $2,105.3 million, including the impact of $105.1 million of unamortized discount and debt issuance costs of $49.4 million.
2 The face value of our debt at September 30, 2017 totaled $2,259.8 million, compared with $1,943.4 million on December 31, 2016.
   


Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
  
   For the Nine Months Ended 
  September 30,
2017
  September 30,
2016
 
         
Operating Activities:        
Income (loss) from continuing operations, net of taxes $14,884  $13,889 
Less: Loss from discontinued operations, net of taxes  (859)  (790)
Net Income  14,025   13,099 
         
Adjustments to reconcile Net Income to net cash provided by operating activities:        
Depreciation and amortization  142,042   124,198 
Accretion of debt securities discount  (892)  (968)
Provision for allowance for doubtful accounts  304   267 
Special charge, net of cash payments  -   6,631 
Loss on early extinguishment of debt  167   132 
Unrealized loss (gain) on financial instruments  36,225   (25,013)
Loss (gain) on disposal of aircraft  64   (11)
Deferred taxes  21,106   20,794 
Stock-based compensation expense  17,030   27,919 
Changes in:        
Accounts receivable  (12,004)  32,767 
Prepaid expenses, current assets and other assets  (53,343)  (19,287)
Accounts payable and accrued liabilities  30,382   (79,684)
Net cash provided by operating activities  195,106   100,844 
Investing Activities:        
Capital expenditures  (66,395)  (36,872)
Payments for flight equipment and modifications  (338,524)  (237,093)
Acquisition of business, net of cash acquired  -   (107,498)
Proceeds from investments  3,247   8,843 
Net cash used for investing activities  (401,672)  (372,620)
Financing Activities:        
Proceeds from debt issuance  447,865   84,790 
Proceeds from revolving credit facility  150,000   - 
Payment of revolving credit facility  (150,000)  - 
Customer maintenance reserves and deposits received  22,006   11,172 
Customer maintenance reserves paid  (18,538)  - 
Proceeds from sale of convertible note warrants  38,148   - 
Payments for convertible note hedges  (70,140)  - 
Purchase of treasury stock  (10,307)  (11,071)
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)
Net increase (decrease) in cash, cash equivalents and restricted cash  38,030   (323,363)
Cash, cash equivalents and restricted cash at the beginning of period  138,250   438,931 
Cash, cash equivalents and restricted cash at the end of period $176,280  $115,568 
         
Noncash Investing and Financing Activities:        
         
Acquisition of flight equipment included in Accounts payable and accrued liabilities $61,734  $18,510 
Acquisition of flight equipment under capital lease $32,380  $10,650 
         


Atlas Air Worldwide Holdings, Inc.
Direct Contribution
(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
 
Operating Revenue:                
ACMI $258,109  $206,310  $687,982  $600,772 
Charter  243,583   212,040   743,302   616,794 
Dry Leasing  30,804   25,907   86,120   79,165 
Customer incentive asset amortization  (1,531)  (174)  (2,873)  (174)
Other  4,783   3,932   13,977   13,345 
Total Operating Revenue $535,748  $448,015  $1,528,508  $1,309,902 
                 
Direct Contribution:                
ACMI $51,647  $51,607  $141,134  $121,837 
Charter  34,808   32,948   88,877   78,580 
Dry Leasing  10,245   7,413   29,629   24,699 
Total Direct Contribution for Reportable Segments  96,700   91,968   259,640   225,116 
                 
Unallocated income and expenses, net  (64,463)  (80,876)  (183,418)  (186,923)
Loss on early extinguishment of debt  (167)  -   (167)  (132)
Unrealized loss (gain) on financial instruments  (44,775)  (1,462)  (36,225)  25,013 
Special charge  -   -   -   (6,631)
Transaction-related expenses  (1,092)  (3,905)  (3,403)  (21,486)
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 
                 
Add back (subtract):                
Interest income  (1,688)  (1,316)  (4,286)  (4,325)
Interest expense  26,553   21,355   72,747   63,595 
Capitalized interest  (1,922)  (1,059)  (5,633)  (2,106)
Loss on early extinguishment of debt  167   -   167   132 
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 
                 

Atlas Air Worldwide uses an economic performance metric, Direct Contribution, to show the profitability of each of its segments after allocation of direct ownership costs. Atlas Air Worldwide currently has the following reportable segments: ACMI, Charter, and Dry Leasing. Each segment has different commercial and economic characteristics, which are separately reviewed by our chief operating decision maker.

Direct Contribution consists of income (loss) from continuing operations before taxes, excluding loss on the early extinguishment of debt, unrealized loss (gain) on financial instruments, special charge, transaction-related expenses, loss (gain) on the disposal of aircraft, nonrecurring items, 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 nonoperating costs.  

Atlas Air Worldwide Holdings, Inc.
Reconciliation to Non-GAAP Measures
(in thousands, except per share data)
(Unaudited)
 
   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 transactions1   1,355    30,074     
Accrual for legal matters and professional fees   1,264    (210)    
Noncash expenses and income, net2   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 items3   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 hedge4   (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 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 transactions1   3,666    47,655     
Accrual for legal matters and professional fees   1,600    6,777     
Noncash expenses and income, net2   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 items3   (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 hedges4   (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%
               


1   Costs associated with transactions in 2017 primarily related to our acquisition of Southern Air. Costs associated with transactions in 2016 primarily related to the Amazon transaction, including costs resulting from a change in control under certain benefit plans.
2 Noncash expenses and income, net in 2017 primarily related to amortization of debt discount on outstanding convertible notes and amortization of customer incentive asset related to outstanding warrants. Noncash expenses and income, net in 2016 primarily related to amortization of debt discount on outstanding convertible notes.
3 Income tax effect of reconciling items is primarily impacted by a nondeductible customer incentive and nondeductible compensation expenses resulting from a change in control, as defined under certain of the company’s benefit plans, both related to the Amazon transaction.
4 Impact of the economic benefit from convertible note hedges in offsetting dilution from outstanding convertible notes.
   


Atlas Air Worldwide Holdings, Inc.
Reconciliation to Non-GAAP Measures
(in thousands, except per share data)
(Unaudited)
 
  For the Three Months Ended 
  September 30,
2017
  September 30,
2016
 
         
Net Cash Provided by Operating Activities $82,299  $53,600 
Less:        
  Capital expenditures  21,158   9,633 
  Capitalized interest  1,922   1,059 
Free Cash Flow1 $59,219  $42,908 
         
         
         
  For the Nine Months Ended 
  September 30,
2017
  September 30,
2016
 
         
Net Cash Provided by Operating Activities $195,106  $100,844 
Less:        
  Capital expenditures  66,395   36,872 
  Capitalized interest  5,633   2,106 
Free Cash Flow1 $123,078  $61,866 
         


1   Free Cash Flow = Cash Flows from Operations minus Base Capital Expenditures and Capitalized Interest.
   
  Base Capital Expenditures excludes purchases of aircraft.
   


Atlas Air Worldwide Holdings, Inc.
Reconciliation to Non-GAAP Measures
(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
 
                 
Income (loss) from continuing operations, net of taxes $(24,195) $(7,501) $14,884  $13,889 
Income tax expense  10,187   13,237   21,479   21,079 
Income (loss) from continuing operations before income taxes  (14,008)  5,736   36,363   34,968 
Noncash expenses and income, net1  5,474   2,081   11,537   5,807 
Gain on disposal of aircraft  211   (11)  64   (11)
Special charge2  -   -   -   6,631 
Costs associated with transactions3  1,355   30,074   3,666   47,655 
Accrual for legal matters and professional fees  1,264   (210)  1,600   6,777 
Charges associated with refinancing debt  167   -   167   132 
Unrealized loss (gain) on financial instruments  44,775   1,462   36,225   (25,013)
                 
Adjusted pretax income  39,238   39,132   89,622   76,946 
                 
Interest (income) expense, net4  19,473   17,669   55,707   53,320 
Other non-operating income  (1,165)  (180)  (357)  (372)
                 
Adjusted operating income  57,546   56,621   144,972   129,894 
                 
Depreciation and amortization  42,033   37,509   120,913   109,722 
                 
EBITDA, as adjusted5 $99,579  $94,130  $265,885  $239,616 
                 
Income tax expense $10,187  $13,237  $21,479  $21,079 
Income tax effect of reconciling items6  643   1,531   (1,061)  (535)
Adjusted income tax expense  9,544   11,706   22,540   21,614 
Adjusted pretax income $39,238  $39,132  $89,622  $76,946 
Adjusted effective tax rate  24.3%  29.9%  25.2%  28.1%
                


1 Reflects impact of noncash expenses and income related to convertible notes, debt and investments, and amortization of customer incentive related to outstanding warrants.
   
2 Special charge in 2016 primarily represented a loss on engines held for sale.
   
3 Costs associated with transactions in 2017 primarily related to our acquisition of Southern Air. Costs associated with transactions in 2016 primarily related to the Amazon transaction, including costs resulting from a change in control under certain benefit plans.
   
4 Reflects impact of noncash expenses and income related to convertible notes, debt, operating leases and investments.
   
5 Adjusted EBITDA: Earnings before interest, taxes, depreciation, amortization, noncash interest expenses and income, net, gain on disposal of aircraft, special charge, transaction-related expenses, accrual for legal matters and professional fees, charges associated with refinancing debt, and unrealized loss (gain) on financial instruments, as applicable.
   
6 See Non-GAAP reconciliation of Adjusted income from continuing operations, net of taxes.
   


Atlas Air Worldwide Holdings, Inc.
Operating Statistics and Traffic Results
(Unaudited)
             
  For the Three Months Ended  Increase/  For the Nine Months Ended  Increase/ 
  September 30,
2017
  September 30,
2016
  (Decrease)  September 30,
2017
  September 30,
2016
  (Decrease) 
                         
Block Hours                        
ACMI  50,243   39,448   10,795   133,978   108,839   25,139  
Charter                        
Cargo  8,680   9,797   (1,117)  30,908   26,698   4,210  
Passenger  5,447   4,474   973   14,903   12,753   2,150  
Other  467   456   11   1,452   1,349   103  
Total Block Hours  64,837   54,175   10,662   181,241   149,639   31,602  
                         
Revenue Per Block Hour                        
ACMI $5,137  $5,230  $(93) $5,135  $5,520  $(385) 
Charter $17,242  $14,858  $2,384  $16,225  $15,634  $591  
Cargo $17,660  $13,926  $3,734  $16,258  $14,878  $1,380  
Passenger $16,577  $16,899  $(322) $16,159  $17,218  $(1,059) 
                         
Average Utilization (block hours per day)                        
ACMI1  9.0   8.7   0.3   9.0   8.7   0.3  
Charter                        
Cargo  9.9   8.9   1.0   9.6   8.5   1.1  
Passenger  8.8   8.1   0.7   8.0   8.6   (0.6) 
All Operating Aircraft1,2  9.1   8.8   0.3   9.0   8.8   0.2  
                         
Fuel                        
Charter                        
Average fuel cost per gallon $1.84  $1.61  $0.23  $1.85  $1.69  $0.16  
Fuel gallons consumed (000s)  40,275   40,718   (443)  129,420   112,248   17,172  
                          


1   ACMI and All Operating Aircraft averages in the third quarter and first nine months of 2017 reflect the impact of increases in the number of CMI aircraft and amount of CMI flying compared with the same periods of 2016.
   
2 Average of All Operating Aircraft excludes Dry Leasing aircraft, which do not contribute to block-hour volumes.
   


Atlas Air Worldwide Holdings, Inc.
Operating Statistics and Traffic Results
(Unaudited)
             
  For the Three Months Ended  Increase/  For the Nine Months Ended  Increase/ 
  September 30,
2017
  September 30,
2016
  (Decrease)  September 30,
2017
  September 30,
2016
  (Decrease) 
                         
Segment Operating Fleet (average aircraft
  equivalents during the period)
                        
ACMI1                        
747-8F Cargo  9.5   7.9   1.6   8.1   8.2   (0.1)
747-400 Cargo  15.1   12.9   2.2   14.0   13.0   1.0 
747-400 Dreamlifter  3.1   2.8   0.3   3.1   2.9   0.2 
777-200 Cargo  5.0   5.0   -   5.0   3.2   1.8 
767-300 Cargo  12.2   4.6   7.6   8.7   4.0   4.7 
767-200 Cargo  9.0   9.0   -   9.0   9.0   - 
737-400 Cargo  5.0   5.0   -   5.0   3.2   1.8 
747-400 Passenger  1.0   1.0   -   1.0   1.0   - 
767-200 Passenger  1.0   1.0   -   1.0   1.0   - 
Total  60.9   49.2   11.7   54.9   45.5   9.4 
Charter                        
747-8F Cargo  0.5   2.1   (1.6)  1.9   1.8   0.1 
747-400 Cargo  9.0   9.8   (0.8)  9.9   9.7   0.2 
747-400 Passenger  1.9   2.0   (0.1)  2.0   2.0   - 
767-300 Passenger  4.8   4.0   0.8   4.8   3.4   1.4 
Total  16.2   17.9   (1.7)  18.6   16.9   1.7 
Dry Leasing                        
777-200 Cargo  6.0   6.0   -   6.0   6.0   - 
767-300 Cargo  8.6   2.6   6.0   6.0   2.0   4.0 
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   15.0   11.0   4.0 
Less: Aircraft Dry Leased to CMI customers  (8.6)  (2.6)  (6.0)  (6.0)  (2.0)  (4.0)
Total Operating Average Aircraft Equivalents  86.1   76.1   10.0   82.5   71.4   11.1 
                         


1   ACMI average fleet excludes spare aircraft provided by CMI customers.
   


Contacts: Dan Loh (Investors) - (914) 701-8200
  Elizabeth Roach (Media) - (914) 701-6576
     
   

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