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ATLAS AIR WORLDWIDE HOLDINGS INC - Quarter Report: 2015 September (Form 10-Q)

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-16545

 

 

 

LOGO

Atlas Air Worldwide Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   13-4146982

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification No.)

2000 Westchester Avenue, Purchase, New York   10577
(Address of principal executive offices)   (Zip Code)

(914) 701-8000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 2, 2015, there were 24,631,001 shares of the registrant’s Common Stock outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  

PART I. FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements

  
 

Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 (unaudited)

     3   
 

Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2015 and 2014 (unaudited)

     4   
 

Consolidated Statements of Comprehensive Income for the Three and Nine Months ended September 30, 2015 and 2014 (unaudited)

     5   
 

Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2015 and 2014 (unaudited)

     6   
 

Consolidated Statements of Stockholders’ Equity as of and for the Nine Months ended September 30, 2015 and 2014 (unaudited)

     7   
 

Notes to Unaudited Consolidated Financial Statements

     8   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     18   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     31   

Item 4.

 

Controls and Procedures

     31   

PART II. OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     32   

Item 1A.

 

Risk Factors

     32   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     32   

Item 6.

 

Exhibits

     32   
 

Signatures

     33   
 

Exhibit Index

     34   


Table of Contents

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

Atlas Air Worldwide Holdings, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

(Unaudited)

 

     September 30, 2015     December 31, 2014  

Assets

    

Current Assets

    

Cash and cash equivalents

   $ 376,695      $ 298,601   

Short-term investments

     1,866        17,802   

Restricted cash

     11,085        14,281   

Accounts receivable, net of allowance of $1,163 and $1,658, respectively

     169,676        162,092   

Prepaid maintenance

     6,398        20,806   

Deferred taxes

     41,669        40,923   

Prepaid expenses and other current assets

     29,017        51,599   
  

 

 

   

 

 

 

Total current assets

     636,406        606,104   

Property and Equipment

    

Flight equipment

     3,520,413        3,448,791   

Ground equipment

     57,522        51,418   

Less: accumulated depreciation

     (425,504     (348,036

Purchase deposits for flight equipment

     54,548        20,054   
  

 

 

   

 

 

 

Property and equipment, net

     3,206,979        3,172,227   

Other Assets

    

Long-term investments and accrued interest

     44,052        120,478   

Deposits and other assets

     80,208        80,258   

Intangible assets, net

     60,694        67,410   
  

 

 

   

 

 

 

Total Assets

   $ 4,028,339      $ 4,046,477   
  

 

 

   

 

 

 

Liabilities and Equity

    

Current Liabilities

    

Accounts payable

   $ 60,338      $ 42,864   

Accrued liabilities

     257,954        251,594   

Current portion of long-term debt

     152,421        181,202   
  

 

 

   

 

 

 

Total current liabilities

     470,713        475,660   

Other Liabilities

    

Long-term debt

     1,642,424        1,736,739   

Deferred taxes

     358,259        350,868   

Other liabilities

     69,402        65,415   
  

 

 

   

 

 

 

Total other liabilities

     2,070,085        2,153,022   

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; 50,000,000 shares authorized; 28,946,645 and 28,561,160 shares issued, 24,631,001 and 24,807,718, shares outstanding (net of treasury stock), as of September 30, 2015 and December 31, 2014, respectively

     290        286   

Additional paid-in-capital

     623,554        573,133   

Treasury stock, at cost; 4,315,644 and 3,753,442 shares, respectively

     (171,715     (145,322

Accumulated other comprehensive loss

     (8,726     (9,572

Retained earnings

     1,044,138        999,270   
  

 

 

   

 

 

 

Total equity

     1,487,541        1,417,795   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 4,028,339      $ 4,046,477   
  

 

 

   

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

3


Table of Contents

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,
2015
    September 30,
2014
    September 30,
2015
    September 30,
2014
 

Operating Revenue

       

ACMI

  $ 197,020      $ 184,068      $ 575,322      $ 568,929   

Charter

    225,068        252,855        680,642        655,462   

Dry leasing

    23,915        25,411        83,235        75,611   

Other

    3,901        3,467        11,383        10,331   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Revenue

    449,904        465,801        1,350,582        1,310,333   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses

       

Aircraft fuel

    87,330        115,690        262,156        301,276   

Salaries, wages and benefits

    86,434        78,834        262,069        229,637   

Maintenance, materials and repairs

    41,899        35,084        142,169        144,516   

Aircraft rent

    36,811        34,183        107,883        104,419   

Depreciation and amortization

    32,787        29,865        96,753        88,401   

Travel

    27,555        21,642        72,198        57,698   

Navigation fees, landing fees and other rent

    25,413        35,336        71,582        93,368   

Passenger and ground handling services

    20,504        24,876        61,820        66,106   

Loss on disposal of aircraft

    208        —          1,531        14,679   

Special charge

    7,674        90        7,605        9,567   

Other

    34,294        29,212        97,567        84,890   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

    400,909        404,812        1,183,333        1,194,557   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

    48,995        60,989        167,249        115,776   
 

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating Expenses (Income)

       

Interest income

    (2,040     (4,588     (10,953     (14,034

Interest expense

    22,110        25,960        71,691        78,777   

Capitalized interest

    (556     (44     (759     (423

Loss on early extinguishment of debt

    66,729        —          66,729        —     

Gain on investments

    (13,439     —          (13,439     —     

Other expense (income), net

    1,364        767        1,755        831   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Non-operating Expenses (Income)

    74,168        22,095        115,024        65,151   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (25,173     38,894        52,225        50,625   

Income tax expense (benefit)

    (12,419     11,318        7,357        (9,958
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

    (12,754     27,576        44,868        60,583   

Less: Net income (loss) attributable to noncontrolling interests

    —          —          —          (4,530
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) Attributable to Common Stockholders

  $ (12,754   $ 27,576      $ 44,868      $ 65,113   
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

       

Basic

  $ (0.51   $ 1.10      $ 1.81      $ 2.59   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ (0.51   $ 1.10      $ 1.80      $ 2.59   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares:

       

Basic

    24,798        24,983        24,771        25,106   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    24,798        25,064        24,947        25,164   
 

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

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Table of Contents

Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Comprehensive Income

(in thousands)

(Unaudited)

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,
2015
    September 30,
2014
    September 30,
2015
    September 30,
2014
 

Net Income (Loss)

  $ (12,754   $ 27,576      $ 44,868      $ 60,583   

Other comprehensive income (loss):

       

Interest rate derivatives:

       

Net change in fair value

    —          —          —          (251

Reclassification to interest expense

    636        677        1,924        2,049   

Income tax expense

    (243     (259     (735     (764

Foreign currency translation:

       

Translation adjustment

    —          (290     (343     59   
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

    393        128        846        1,093   
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income (Loss)

    (12,361     27,704        45,714        61,676   

Less: Comprehensive income (loss) attributable to noncontrolling interests

    —          —          —          (4,352
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income (Loss) Attributable to Common Stockholders

  $ (12,361   $ 27,704      $ 45,714      $ 66,028   
 

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

5


Table of Contents

Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

    For the Nine Months Ended  
    September 30, 2015     September 30, 2014  

Operating Activities:

   

Net Income

  $ 44,868      $ 60,583   

Adjustments to reconcile Net Income to net cash provided by operating activities:

   

Depreciation and amortization

    110,872        101,493   

Accretion of debt securities discount

    (4,316     (6,022

Provision for allowance for doubtful accounts

    61        420   

Special charge, net of cash payments

    6,589        6,484   

Loss on early extinguishment of debt

    66,729        —     

Loss on disposal of aircraft

    1,531        14,679   

Deferred taxes

    6,417        (10,282

Stock-based compensation expense

    14,481        9,769   

Changes in:

   

Accounts receivable

    (4,920     (27,147

Prepaid expenses and other current assets

    24,311        36,931   

Deposits and other assets

    666        (5,978

Accounts payable and accrued liabilities

    (1,440     (12,402
 

 

 

   

 

 

 

Net cash provided by operating activities

    265,849        168,528   

Investing Activities:

   

Capital expenditures

    (33,835     (17,509

Purchase deposits and payments for flight equipment

    (77,502     (502,782

Changes in restricted cash

    3,196        (7,072

Proceeds from investments

    76,752        2,886   

Proceeds from disposal of aircraft

    25,166        —     
 

 

 

   

 

 

 

Net cash used for investing activities

    (6,223     (524,477

Financing Activities:

   

Proceeds from debt issuance

    224,500        572,552   

Customer maintenance reserves received

    12,250        12,950   

Customer maintenance reserves paid

    (1,752     —     

Proceeds from sale of warrants

    36,290        —     

Payments for convertible note hedges

    (52,903     —     

Proceeds from stock option exercises

    1,193        —     

Excess tax benefit from stock-based compensation expense

    588        —     

Payment of debt issuance costs

    (6,804     (17,117

Purchase of treasury stock

    (26,393     (19,479

Payment of debt extinguishment costs

    (34,014     —     

Payments of debt

    (334,487     (252,549
 

 

 

   

 

 

 

Net cash (used for) provided by financing activities

    (181,532     296,357   

Net increase (decrease) in cash and cash equivalents

    78,094        (59,592

Cash and cash equivalents at the beginning of period

    298,601        321,816   
 

 

 

   

 

 

 

Cash and cash equivalents at the end of period

  $ 376,695      $ 262,224   
 

 

 

   

 

 

 

Non-cash Investing and Financing Activities:

   

Acquisition of flight equipment included in Accounts payable and accrued liabilities

  $ 18,321      $ 29,087   
 

 

 

   

 

 

 

Disposition of aircraft included in Accounts receivable

  $ —        $ 5,072   
 

 

 

   

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

6


Table of Contents

Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(Unaudited)

 

    Common
Stock
    Treasury
Stock
    Additional
Paid-In
Capital
    Accumulated
Other
Comprehensive
Loss
    Retained
Earnings
    Total
Stockholders’
Equity
    Noncontrolling
Interest
    Total
Equity
 

Balance at December 31, 2013

  $ 282      $ (125,826   $ 561,481      $ (10,677   $ 892,513      $ 1,317,773      $ 4,352      $ 1,322,125   

Net Income (loss)

    —          —          —          —          65,113        65,113        (4,530     60,583   

Other comprehensive income (loss)

    —          —          —          915        —          915        178        1,093   

Stock option and restricted stock compensation

    —          —          9,769        —          —          9,769        —          9,769   

Purchase of 591,305 shares of treasury stock

    —          (19,479     —          —          —          (19,479     —          (19,479

Issuance of 356,696 shares of restricted stock

    4        —          (4     —          —          —          —          —     

Tax benefit (expense) on restricted stock and stock options

    —          —          (2,016     —          —          (2,016     —          (2,016
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

  $ 286      $ (145,305   $ 569,230      $ (9,762   $ 957,626      $ 1,372,075      $ —        $ 1,372,075   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Common
Stock
    Treasury
Stock
    Additional
Paid-In
Capital
    Accumulated
Other
Comprehensive
Loss
    Retained
Earnings
    Total
Stockholders’
Equity
    Noncontrolling
Interest
    Total
Equity
 

Balance at December 31, 2014

  $ 286      $ (145,322   $ 573,133      $ (9,572   $ 999,270      $ 1,417,795      $ —        $ 1,417,795   

Net Income (loss)

    —          —          —          —          44,868        44,868        —          44,868   

Other comprehensive income (loss)

    —          —          —          846        —          846        —          846   

Stock option and restricted stock compensation

    —          —          14,481        —          —          14,481        —          14,481   

Purchase of 562,202 shares of treasury stock

    —          (26,393     —          —          —          (26,393     —          (26,393

Exercise of 25,373 employee stock options

    —          —          1,193        —          —          1,193        —          1,193   

Issuance of 360,112 shares of restricted stock

    4        —          (4     —          —          —          —          —     

Equity component of convertible notes, net of tax

    —          —          32,233        —          —          32,233        —          32,233   

Purchase of convertible note hedges, net of tax

    —          —          (33,837     —          —          (33,837     —          (33,837

Issuance of warrants

    —          —          36,290        —          —          36,290        —          36,290   

Tax benefit (expense) on restricted stock and stock options

    —          —          65        —          —          65        —          65   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2015

  $ 290      $ (171,715   $ 623,554      $ (8,726   $ 1,044,138      $ 1,487,541      $ —        $ 1,487,541   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

7


Table of Contents

Atlas Air Worldwide Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

September 30, 2015

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 its principal operating subsidiary, Atlas Air, Inc. (“Atlas”), and of Polar Air Cargo LLC (“Old Polar”). AAWW is also the parent company of several subsidiaries related to our dry leasing services (collectively referred to as “Titan”).

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”). All significant 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, 2014, which includes additional disclosures and a summary of our significant accounting policies. The December 31, 2014 balance sheet data was derived from that Annual Report. In our opinion, the Financial Statements contain all adjustments, consisting of normal recurring items, necessary to fairly state the financial position of AAWW and its consolidated subsidiaries as of September 30, 2015, the results of operations for the three and nine months ended September 30, 2015 and 2014, comprehensive income (loss) for the three and nine months ended September 30, 2015 and 2014, cash flows for the nine months ended September 30, 2015 and 2014, and shareholders’ equity as of and for the nine months ended September 30, 2015 and 2014.

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.

Certain reclassifications have been made to prior periods’ consolidated financial statement amounts and related note disclosures to conform to the current year’s presentation, including the presentation of segments.

2. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) amended its accounting guidance for revenue recognition. 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. In August 2015, the FASB deferred the effective date by one year to the beginning of 2018. Early adoption of the standard is permitted, but not before the beginning of 2017. We are currently assessing the impact the amended guidance will have on our financial statements.

In April 2015, the FASB amended its guidance for presenting debt issuance costs. The new guidance requires debt issuance costs to be presented in the balance sheet as a reduction of the carrying amount of the related debt liability instead of as an asset. We early adopted this guidance retrospectively effective March 31, 2015 and its adoption did not have a material impact on our financial condition, results of operations or cash flows. The amount of debt issuance costs classified on our balance sheet as a reduction of debt was $53.1 million at September 30, 2015 and $55.1 million at December 31, 2014.

 

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3. Related Parties

DHL Investment and Polar

AAWW has a 51% equity interest and 75% voting interest in Polar Air Cargo Worldwide, Inc. (“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. We record our share of Polar’s results under the equity method of accounting. 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. The following table summarizes our transactions with Polar:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30, 2015     September 30, 2014     September 30, 2015     September 30, 2014  

Revenue and Expenses:

       

ACMI segment revenue from Polar

  $ 96,299      $ 79,098      $ 281,817      $ 222,937   

Other revenue from Polar

  $ 6,188      $ 2,845      $ 11,875      $ 8,529   

Ground handling and airport fees paid to Polar

  $ 414      $ 537      $ 1,641      $ 1,309   

 

    September 30, 2015     December 31, 2014  

Accounts receivable/payable as of:

   

Receivables from Polar

  $ 5,194      $ 5,702   

Payables to Polar

  $ 1,658      $ 2,611   
    September 30, 2015     December 31, 2014  

Aggregate Carrying Value of Polar Investment as of:

   
  $ 4,870      $ 4,870   

GATS

We hold a 50% interest in GATS GP (BVI) Ltd. (“GATS”), a joint venture with an unrelated third party. The purpose of the joint venture is to purchase rotable parts and provide repair services for those parts, primarily for our 747-8F aircraft. The joint venture is a variable interest entity that we do not consolidate because we are not the primary beneficiary as we do not exercise financial control. As of September 30, 2015 and December 31, 2014, our investment in GATS was $20.1 million and $16.4 million, respectively, and our maximum exposure to losses from the entity is limited to our investment, which is comprised primarily of rotable inventory parts. GATS does not have any third-party debt obligations. We had Accounts payable to GATS of $1.6 million as of September 30, 2015 and $1.5 million as of December 31, 2014.

4. Special Charge

During the three and nine months ended September 30, 2015, we recognized a Special charge of $7.7 million related to the early termination of high-rate operating leases for two engines.

During the three and nine months ended September 30, 2014, we recognized $0.2 million and $4.1 million, respectively, of employee termination benefits related to British Airways Plc’s (“British Airways”) return of three 747-8F aircraft in 2014. In addition, we recognized a reserve of $4.9 million during the nine months ended September 30, 2014 related to a loan from Global Supply Systems Limited (“GSS”), a consolidated subsidiary, to its then 51% U.K. shareholder.

A summary of the Special charge liabilities is as follows:

 

    Lease
Termination
Costs
    GSS Employee
Termination
Benefits
    Other     Total  

Liability as of December 31, 2014

  $ 2,437      $ 1,014      $ 100      $ 3,551   

Special charge items, net

    384        35        14        433   

Cash payments

    (2,275     (1,049     (114     (3,438
 

 

 

   

 

 

   

 

 

   

 

 

 

Liability as of September 30, 2015

  $ 546      $ —        $ —        $ 546   
 

 

 

   

 

 

   

 

 

   

 

 

 

Substantially all remaining cash payments related to Special charge liabilities are expected to be paid in 2015.

 

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5. Accrued Liabilities

Accrued liabilities consisted of the following as of:

 

    September 30, 2015     December 31, 2014  

Customer maintenance reserves

  $ 66,388      $ 64,756   

Salaries, wages and benefits

    42,826        48,548   

Maintenance

    41,334        50,702   

Aircraft fuel

    32,545        15,078   

Deferred revenue

    10,394        10,705   

Other

    64,467        61,805   
 

 

 

   

 

 

 

Accrued liabilities

  $ 257,954      $ 251,594   
 

 

 

   

 

 

 

6. Debt

Convertible Notes

In June 2015, we issued $224.5 million aggregate principal amount of convertible senior notes (the “Convertible Notes”) in an underwritten public offering. The Convertible Notes are senior unsecured obligations and accrue interest payable semi-annually on June 1 and December 1 of each year at an annual rate of 2.25%. The Convertible Notes will mature on June 1, 2022, unless earlier converted or repurchased pursuant to their terms.

During the three months ended September 30, 2015, we used proceeds from the issuance of Convertible Notes to refinance higher-rate equipment notes funded by enhanced equipment trust certificates (“EETCs”) related to five 747-400 freighter aircraft owned by us in the aggregate amount of $187.8 million. The EETCs had an average cash coupon of 8.1%. In connection with the refinancing, we recognized a $66.7 million loss on early extinguishment of debt, of which $34.0 million was related to debt extinguishment costs paid to the EETC equipment note holders and $32.7 million was related to the write-off of the debt discount associated with aircraft financing. The debt extinguishment costs paid are reflected as a financing activity in the consolidated statements of cash flows. As a result of this refinancing, we recognized a $13.4 million Gain on investments from the early redemption of certain investments related to EETCs (see Note 8).

Each $1,000 of principal of the Convertible Notes will initially be convertible into 13.5036 shares of our common stock, which is equal to an initial conversion price of $74.05 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 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 Convertible Notes for cash at a price equal to 100% of the principal amount of the 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 Convertible Notes, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to adjustment for certain specified events) a total of 3,031,558 shares of our common stock at a price of $74.05 per share. The total cost of the convertible note hedge transactions was $52.9 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 3,031,558 shares of our common stock at a price of $95.01. We received $36.3 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 actual dilution from the conversion of the Convertible Notes and to effectively increase the overall conversion price from $74.05 to $95.01 per share. The $16.6 million net cost incurred in connection with the convertible note hedges and warrants was recorded as a reduction to additional paid-in capital, net of tax, in the consolidated balance sheet.

On or after September 1, 2021 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 Convertible Notes.

Upon conversion, the 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 Convertible Notes paid in cash.

 

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Holders may convert their Convertible Notes at their option at any time prior to September 1, 2021, only 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 the 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 non-convertible 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 6.44% over the term of the Convertible Notes. As of September 30, 2015, the remaining life of the Convertible Notes is 6.8 years. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.

As of September 30, 2015, the Convertible Notes consisted of the following:

 

Liability component:

  

Proceeds

   $ 224,500   

Less: debt discount, net of amortization

     (50,919

Less: debt issuance cost, net of amortization

     (4,985
  

 

 

 

Net carrying amount

   $ 168,596   
  

 

 

 

Equity component (1)

   $ 52,903   
  

 

 

 

 

(1) Included in Additional paid-in capital on the consolidated balance sheet as of September 30, 2015.

The debt issuance costs related to the issuance of the Convertible Notes were allocated to the liability and equity components based on their relative values, as determined above. Total debt issuance costs were $6.8 million, of which $5.2 million was allocated to the liability component and $1.6 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 Convertible Notes.

The following table presents the amount of interest expense recognized related to the Convertible Notes:

 

    

For the Three Months

Ended

    

For the Nine Months

Ended

 
     September 30, 2015      September 30, 2015  

Contractual interest coupon

   $ 1,263       $ 1,656   

Amortization of debt discount

     1,517         1,984   

Amortization of debt issuance costs

     166         215   
  

 

 

    

 

 

 

Total interest expense recognized

   $ 2,946       $ 3,855   
  

 

 

    

 

 

 

 

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7. Income Taxes

Our effective income tax rates were a benefit of 49.3% for the three months ended September 30, 2015 and an expense of 29.1% for the three months ended September 30, 2014. Our effective income tax rates were an expense of 14.1% for the nine months ended September 30, 2015 and a benefit of 19.7% for the nine months ended September 30, 2014. The effective rate for the nine months ended September 30, 2015 differed from the U.S. federal statutory rate partially due to an income tax benefit of $4.0 million, net of reserves, related to extraterritorial income from leasing certain of our aircraft (“ETI”). In addition, the effective rate for the three and nine months ended September 30, 2015 differed from the U.S. federal statutory rate due to an income tax benefit of $2.4 million from the favorable resolution of an IRS exam. The effective rate for the three and nine months ended September 30, 2014 differed from the U.S. federal statutory rate primarily due to an income tax benefit of $24.0 million, net of reserves, related to ETI, partially offset by losses associated with GSS for which we have recognized a valuation allowance due to the uncertainty that the benefit of the losses will be realized. The effective rates also differed from the U.S. federal statutory rate due to the income tax impact of foreign operations taxed at different rates, our assertion to indefinitely reinvest the net earnings of certain foreign subsidiaries outside the U.S., U.S. state income taxes, the nondeductibility of certain expenses for tax purposes, adjustments to our liability for uncertain tax positions, and the relationship of these items to our projected operating results for the year. For interim accounting purposes, we recognize income taxes using an estimated annual effective tax rate.

As a result of current and expected future growth in our Dry Leasing business, we determined to indefinitely reinvest the net earnings of certain foreign subsidiaries engaged in this business outside of the U.S. Our effective income tax rates for the three and nine months ended September 30, 2015 and 2014 were favorably impacted by this determination. As of September 30, 2015, our undistributed net earnings of foreign subsidiaries for which deferred taxes have not been provided were $70.1 million, and the unrecognized deferred tax liability associated with these earnings was $24.5 million.

8. 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 EETCs issued by Atlas in 1998, 1999 and 2000.

The fair value of our term loans, notes guaranteed by the Export-Import Bank of the United States (“Ex-Im Bank”) and EETCs are based on a discounted cash flow analysis using current borrowing rates for instruments with similar terms.

The fair value of our Convertible Notes is based on unadjusted quoted market prices for these securities.

 

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The following table summarizes the carrying amount, estimated fair value and classification of our financial instruments as of:

 

     September 30, 2015  
     Carrying
Value
     Fair Value      Level 1      Level 2      Level 3  

Assets

              

Cash and cash equivalents

   $ 376,695       $ 376,695       $ 376,695       $ —         $ —     

Short-term investments

     1,866         1,866         —           —           1,866   

Restricted cash

     11,085         11,085         11,085         —           —     

Long-term investments and accrued interest

     44,052         53,088         —           —           53,088   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 433,698       $ 442,734       $ 387,780       $ —         $ 54,954   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

              

Term loans

   $ 888,735       $ 939,177       $ —         $ —         $ 939,177   

Ex-Im Bank guaranteed notes

     707,587         746,480         —           —           746,480   

EETCs

     29,927         32,110         —           —           32,110   

Convertible Notes

     168,596         178,343         178,343         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,794,845       $ 1,896,110       $ 178,343       $ —         $ 1,717,767   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2014  
     Carrying
Value
     Fair Value      Level 1      Level 2      Level 3  

Assets

              

Cash and cash equivalents

   $ 298,601       $ 298,601       $ 298,601       $ —         $ —     

Short-term investments

     17,802         17,802         —           —           17,802   

Restricted cash

     14,281         14,281         14,281         —           —     

Long-term investments and accrued interest

     120,478         154,743         —           —           154,743   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 451,162       $ 485,427       $ 312,882       $ —         $ 172,545   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

              

Term loans

   $ 945,813       $ 982,036       $ —         $ —         $ 982,036   

Ex-Im Bank guaranteed notes

     760,389         789,834         —           —           789,834   

EETCs

     211,739         270,333         —           —           270,333   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,917,941       $ 2,042,203       $ —         $ —         $ 2,042,203   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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:

 

     September 30, 2015      December 31, 2014  
     Carrying
Value
     Gross
Unrealized
Gain
(Loss)
     Fair Value      Carrying
Value
     Gross
Unrealized
Gain
(Loss)
     Fair Value  

Debt securities

                 

Due after one but within five years

   $ 24,342       $ 3,417       $ 27,759       $ 40,040       $ 9,700       $ 49,740   

Due after five but within ten years

     19,710         5,619         25,329         80,438         24,565         105,003   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 44,052       $ 9,036       $ 53,088       $ 120,478       $ 34,265       $ 154,743   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Our Long-term investments include investments in PTCs related to EETCs. During the three months ended September 30, 2015, we refinanced EETCs related to five 747-400 freighter aircraft owned by us (see Note 6). Following the refinancing, we recognized a $13.4 million Gain on investments resulting from the early redemption of certain PTCs, of which $5.7 million was related to the receipt of debt redemption premiums and $7.7 million was related to the recognition of deferred income on the PTCs purchased at a discount that have been repaid. The early redemption of PTCs does not impact our ability or intent to hold the remainder of our PTC investments to maturity.

9. 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 make resource allocation decisions. We do not aggregate our operating segments and, therefore, our operating segments are our reportable segments.

We use an economic performance metric (“Direct Contribution”) that shows the profitability of each segment after allocation of operating and ownership costs. Direct Contribution represents Income before income taxes excluding the following: Special charges, pre-operating expenses, nonrecurring items, Losses (gains) on the disposal of aircraft, Losses on early extinguishment of debt, Gains on investments, unallocated revenue and unallocated fixed costs. Direct operating and

 

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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 include corporate overhead, non-aircraft depreciation, non-cash expenses and income, interest expense on the portion of debt used for general corporate purposes, interest income on non-debt securities, capitalized interest, foreign exchange gains and losses, other revenue and other non-operating costs.

During the first quarter of 2015, we changed the methodology for allocating certain expenses to our Charter segment that were previously unallocated and we changed the allocation of certain expenses between our Charter and ACMI segments. The prior period information has been adjusted to consistently reflect these changes. The impact of the changes was as follows:

 

     For the Three Months Ended
September 30, 2014
     For the Nine Months Ended
September 30, 2014
 
     Prior
Methodology
     Revised
Methodology
     Prior
Methodology
     Revised
Methodology
 

Direct Contribution:

           

ACMI

   $ 54,228       $ 54,974       $ 143,554       $ 145,107   

Charter

     18,174         16,299         24,960         20,306   

The following table sets forth Operating Revenue and Direct Contribution for our reportable segments reconciled to Operating Income and Income before Income Taxes:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,
2015
    September 30,
2014
    September 30,
2015
    September 30,
2014
 

Operating Revenue:

       

ACMI

  $ 197,020      $ 184,068      $ 575,322      $ 568,929   

Charter

    225,068        252,855        680,642        655,462   

Dry Leasing

    23,915        25,411        83,235        75,611   

Other

    3,901        3,467        11,383        10,331   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Revenue

  $ 449,904      $ 465,801      $ 1,350,582      $ 1,310,333   
 

 

 

   

 

 

   

 

 

   

 

 

 

Direct Contribution:

       

ACMI

  $ 46,991      $ 54,974      $ 138,051      $ 145,107   

Charter

    29,496        16,299        84,974        20,306   

Dry Leasing

    7,673        8,721        34,092        25,630   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Direct Contribution for Reportable Segments

    84,160        79,994        257,117        191,043   
 

 

 

   

 

 

   

 

 

   

 

 

 

Add back (subtract):

       

Unallocated income and expenses, net

    (48,161     (41,010     (142,466     (116,172

Loss on early extinguishment of debt

    (66,729     —          (66,729     —     

Gain on investments

    13,439        —          13,439        —     

Special charge

    (7,674     (90     (7,605     (9,567

Loss on disposal of aircraft

    (208     —          (1,531     (14,679
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    (25,173     38,894        52,225        50,625   
 

 

 

   

 

 

   

 

 

   

 

 

 

Add back (subtract):

       

Interest income

    (2,040     (4,588     (10,953     (14,034

Interest expense

    22,110        25,960        71,691        78,777   

Capitalized interest

    (556     (44     (759     (423

Loss on early extinguishment of debt

    66,729        —          66,729        —     

Gain on investments

    (13,439     —          (13,439     —     

Other expense (income), net

    1,364        767        1,755        831   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

  $ 48,995      $ 60,989      $ 167,249      $ 115,776   
 

 

 

   

 

 

   

 

 

   

 

 

 

We are exposed to a concentration of Charter revenue from the U.S. Military Air Mobility Command (the “AMC”) and Polar (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 $122.5 million for the three months ended September 30, 2015 and $109.8 million for the three months ended September 30, 2014. Revenue from the AMC was $326.6 million for the nine

 

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months ended September 30, 2015 and $263.9 million for the nine months ended September 30, 2014. Accounts receivable from the AMC were $23.2 million and $15.3 million as of September 30, 2015 and December 31, 2014, respectively. We have not experienced any credit issues with either of these customers.

10. Legal Proceedings

Matters Related to Alleged Pricing Practices

The Company and Old Polar have been named defendants, along with a number of other cargo carriers, in several class actions in the United States arising from allegations about the pricing practices of Old Polar and a number of air cargo carriers that have now been centralized for pretrial purposes in the United States District Court for the Eastern District of New York. The consolidated complaint alleges, 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 United States, state, and European Union antitrust laws. The suit seeks treble damages, attorneys’ fees and injunctive relief.

In 2007, the Company and Old Polar commenced an adversary proceeding in bankruptcy court against each of the plaintiffs in this class action litigation seeking to enjoin the plaintiffs from prosecuting claims against the Company and Old Polar that arose prior to July 28, 2004, the date on which the Company and Old Polar emerged from bankruptcy. In 2007, the plaintiffs consented to the injunctive relief requested and the bankruptcy court entered an order enjoining plaintiffs from prosecuting Company claims arising prior to July 28, 2004.

The court in the antitrust class actions has heard and decided a number of procedural motions. Among those was the plaintiffs’ motion to join Polar Air Cargo Worldwide, Inc. as an additional defendant, which the court granted for discovery purposes on April 13, 2011. There was substantial pretrial written discovery and document production, and a number of depositions were taken. On October 15, 2014, the magistrate judge issued a decision recommending that the District Court enter an order certifying the class for adjudicating the claims. On July 10, 2015, the District Court judge issued an order affirming the magistrate judge’s decision and certifying the class. On August 31, 2015, the District Court judge held a hearing on the various motions for summary judgment filed by the plaintiffs and defendants. Ruling from the bench, the judge granted plaintiffs’ motions and denied defendants’ motions. The District Court judge has scheduled a jury trial to commence on April 18, 2016. We are unable to reasonably predict the outcome of the litigation.

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. Future procedures, including the pre-trial disclosure process, are undergoing court review. We are unable to reasonably predict the outcome of the litigation.

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. 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 one or more of the matters described above, 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 such matters 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 $4.9 million in aggregate based on September 30, 2015 exchange rates.

 

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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 balances were $3.6 million as of September 30, 2015 and $5.3 million as of December 31, 2014, and are included in Deposits 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.

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.

11. Stock Repurchases

In 2008, we established a stock repurchase program authorizing the repurchase of up to $100.0 million of our common stock. In November 2013, we announced an increase of $51.0 million to our stock repurchase program. During the three and nine months ended September 30, 2015, we repurchased 425,154 shares of our common stock for an aggregate purchase price of $20.0 million under an open market repurchase program. As of September 30, 2015, we repurchased approximately $107.1 million under this program, resulting in $25.0 million of available authorization remaining. Purchases may be made at our discretion in the form of open market repurchase programs, privately negotiated transactions, accelerated share repurchase programs or a combination of these methods. The actual timing and amount of our repurchases will depend on Company and market conditions.

12. Earnings Per Share

Basic earnings per share (“EPS”) represent net income attributable to common shareholders divided by the weighted average number of common shares outstanding during the measurement period. Diluted EPS represent net income attributable to common shareholders 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 for the three and nine months ended September 30, 2015 were 3.0 million and for the three and nine months ended September 30, 2014 were de minimis.

The calculations of basic and diluted EPS were as follows:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30, 2015     September 30, 2014     September 30, 2015     September 30, 2014  

Numerator:

       

Net Income (Loss) Attributable to Common Stockholders

  $ (12,754   $ 27,576      $ 44,868      $ 65,113   

Denominator:

       

Basic EPS weighted average shares outstanding

    24,798        24,983        24,771        25,106   

Effect of dilutive stock options and restricted stock

    —          81        176        58   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted EPS weighted average shares outstanding

    24,798        25,064        24,947        25,164   
 

 

 

   

 

 

   

 

 

   

 

 

 

EPS:

       

Basic

  $ (0.51   $ 1.10      $ 1.81      $ 2.59   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ (0.51   $ 1.10      $ 1.80      $ 2.59   
 

 

 

   

 

 

   

 

 

   

 

 

 

The calculation of EPS does not include restricted share units in which performance or market conditions were not satisfied of 0.3 million for the three and nine months ended September 30, 2015, respectively, and 0.4 million for the three and nine months ended September 30, 2014.

 

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13. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the components of Accumulated other comprehensive income (loss):

 

    Interest Rate
Derivatives
    Foreign Currency
Translation
    Total  

Balance as of December 31, 2013

  $ (11,375   $ 698      $ (10,677

Net change in fair value

    (251     —          (251

Reclassification to interest expense

    2,049        —          2,049   

Translation adjustment

    —          (119     (119

Tax effect

    (764     —          (764
 

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2014

  $ (10,341   $ 579      $ (9,762
 

 

 

   

 

 

   

 

 

 
    Interest Rate
Derivatives
    Foreign Currency
Translation
    Total  

Balance as of December 31, 2014

  $ (9,924   $ 352      $ (9,572

Net change in fair value

    —          —          —     

Reclassification to interest expense

    1,924        —          1,924   

Translation adjustment

    —          (343     (343

Tax effect

    (735     —          (735
 

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2015

  $ (8,735   $ 9      $ (8,726
 

 

 

   

 

 

   

 

 

 

Interest Rate Derivatives

As of September 30, 2015, there was $14.1 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 $0.6 million and $0.7 million for the three months ended September 30, 2015 and 2014, respectively. Net realized losses reclassified into earnings were $1.9 million and $2.0 million for the nine months ended September 30, 2015 and 2014, respectively. Net realized losses expected to be reclassified into earnings within the next 12 months are $14.8 million as of September 30, 2015.

14. Subsequent Events

In October 2015, we refinanced two higher-rate term loans, in the aggregate amount of $195.2 million, with a new term loan for a period of 97 months and a final payment of $65.3 million due in December 2023 (the “First 2015 Term Loan”). The First 2015 Term Loan, which is secured by a mortgage against aircraft tail numbers N857GT and N858GT, contains customary covenants and events of default and accrues interest at a fixed rate of 3.53%, with principal and interest payable quarterly.

In November 2015, we borrowed $125.0 million for the delivery of a 747-8F aircraft under a twelve-year term loan with a final payment of $35.3 million due in November 2027 (the “Second 2015 Term Loan”). The Second 2015 Term Loan, which is secured by a mortgage against aircraft tail number N859GT, contains customary covenants and events of default and accrues interest at a fixed rate of 3.96%, with principal and interest payable quarterly. The Second 2015 Term Loan is cross collateralized and cross defaulted with the First 2015 Term Loan.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our unaudited Financial Statements appearing in this report and our audited consolidated financial statements and related notes included in our 2014 Annual Report on Form 10-K.

Background

Certain Terms - Glossary

The following represents terms and statistics specific to our business and industry. They are used by management to evaluate and measure operations, results, productivity and efficiency.

 

Block Hour    The time interval between when an aircraft departs the terminal until it arrives at the destination terminal.
C Check    High-level or “heavy” airframe maintenance checks, which are more intensive in scope than Line Maintenance and are generally performed between 18 and 24 months depending on aircraft type.
D Check    High-level or “heavy” airframe maintenance checks, which are the most extensive in scope and are generally performed every six and eight years depending on aircraft type.
Heavy Maintenance    Scheduled maintenance activities, which are the most extensive in scope and are primarily based on time or usage intervals, including, but not limited to, C Checks, D Checks and engine overhauls. In addition, unscheduled engine repairs involving the removal of the engine from the aircraft are considered to be heavy maintenance. Heavy Maintenance can generally take from one to eight weeks to complete.
Line Maintenance    Unscheduled maintenance to rectify events occurring during normal day-to-day operations.
Non-heavy Maintenance    Discrete maintenance activities for the overhaul and repair of specific aircraft components, including landing gear, auxiliary power units and engine thrust reversers.
Yield    The average amount a customer pays to fly one tonne of cargo one mile.

Business Overview

We are a leading global provider of outsourced aircraft and aviation operating services, operating the world’s largest fleet of 747 freighters, as well as operating 747 and 767 passenger aircraft and 767 freighters. We also own and dry lease a portfolio of aircraft, including six 777 freighters. We provide unique value to our customers by giving them access to highly reliable new production freighters that deliver the lowest unit cost in the marketplace combined with outsourced aircraft operating services that we believe lead the industry in terms of quality and global scale. Our customers include airlines, express delivery providers, freight forwarders, the U.S. military and charter brokers. We provide global services with operations in Africa, Asia, Australia, Europe, the Middle East, North America and South America.

Our primary service offerings include the following:

 

    ACMI, whereby we provide outsourced cargo and passenger aircraft operating solutions, including the provision of an aircraft, crew, maintenance and insurance, while customers assume fuel, demand and Yield risk. In addition, customers are responsible for landing, navigation and most other operational fees and costs;

 

    CMI, which is part of our ACMI business segment, whereby we provide outsourced cargo and passenger aircraft operating solutions, including the provision of crew, maintenance and insurance, but not the aircraft Customers assume fuel, demand and Yield risk. In addition, customers are responsible for landing, navigation and most other operational fees and costs;

 

    Charter, whereby we provide cargo and passenger aircraft charter services to customers, including the AMC, brokers, freight forwarders, direct shippers, airlines, sports teams and fans, and private charter customers. The customer pays a fixed charter fee that includes fuel, insurance, landing fees, navigation fees and most other operational fees and costs; and

 

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    Dry Leasing, whereby we provide cargo and passenger aircraft and engine leasing solutions. The customer operates, and is responsible for insuring and maintaining, the flight equipment.

We look to achieve our growth plans and enhance shareholder value by:

 

    Delivering superior service quality to our valued customers;

 

    Aggressively managing our fleet with a focus on leading-edge aircraft;

 

    Focusing on securing long-term customer contracts;

 

    Driving significant and ongoing productivity improvements;

 

    Selectively pursuing and evaluating future acquisitions and alliances; while

 

    Appropriately managing capital allocation and returning capital to shareholders.

See “Business Overview” and “Business Strategy” in our 2014 Annual Report on Form 10-K for additional information.

Business Developments

Our ACMI results for 2015, compared with 2014, were impacted by the following events:

 

    In February 2014, we began ACMI flying a 747-8F aircraft with BST Logistics (Hong Kong) Company Limited, a business partner of Navitrans International Freight Forwarding Co., Ltd. Service, which was the first 747-8F aircraft in its network.

 

    In April and early May 2014, British Airways returned three 747-8F aircraft. In May and October 2014, the three 747-8F aircraft were placed in ACMI service for DHL, replacing one 747-400F aircraft.

 

    In October 2014, we began ACMI flying one additional 747-400F aircraft for DHL, increasing the number of 747 freighter aircraft in ACMI service for DHL to twelve.

 

    In November 2014, we began ACMI flying a 747-400F aircraft for Etihad Airways, which was the second 747-400F aircraft in its global network.

 

    In March 2015, we began ACMI flying one additional 747-8F aircraft for DHL following its transition from Panalpina Air & Ocean Ltd. The aircraft is initially replacing a 747-400F aircraft.

 

    In the first quarter of 2015, we began CMI flying three additional 767-200 freighters owned by DHL in its North American network. A fourth 767-200 freighter began CMI flying in April 2015.

 

    In July 2015, we began ACMI flying one additional 747-400F aircraft for DHL, increasing the number of 747 freighter aircraft in ACMI service for DHL to thirteen.

Charter Block Hours increased during the first three quarters of 2015, reflecting increased cargo and passenger demand from the AMC and stronger commercial cargo demand, which was enhanced by the U.S. West Coast port disruption in early 2015. In June 2015, based on this demand, we returned to active service a 747-400BCF that had been temporarily parked. We also entered into a short-term operating lease beginning in late June for a second 747-400 converted freighter. This lease, with terms that are more favorable to us, replaced a similar aircraft, with a lease that expired in June 2015.

During the second quarter of 2015, we Dry Leased a 757-200 freighter to DHL on a long-term basis, following the conclusion of a previous customer lease. We also acquired and are converting two 767-300 passenger aircraft to freighters. Following their conversion, which is expected to be completed during the fourth quarter of 2015 and the first quarter of 2016, they will be Dry Leased to DHL on a long-term basis. In September 2015, we agreed with DHL to operate the two 767-300 freighters in its North American network. Similar to the Dry Leases, we expect to begin CMI flying the two aircraft during the fourth quarter of 2015 and the first quarter of 2016.

 

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Results of Operations

The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.

Three Months Ended September 30, 2015 and 2014

Operating Statistics

The table below sets forth selected Operating Statistics for the three months ended September 30:

 

     2015      2014      Increase /
(Decrease)
    Percent
Change
 

Block Hours

          

ACMI

     32,072         28,096         3,976        14.2

Charter:

          

Cargo

     8,564         8,675         (111     (1.3 )% 

Passenger

     3,767         4,007         (240     (6.0 )% 

Other

     506         261         245        93.9
  

 

 

    

 

 

    

 

 

   

 

 

 

Total Block Hours

     44,909         41,039         3,870        9.4
  

 

 

    

 

 

    

 

 

   

 

 

 

Revenue Per Block Hour

          

ACMI

   $ 6,143       $ 6,551       $ (408     (6.2 )% 

Charter:

   $ 18,252       $ 19,938       $ (1,686     (8.5 )% 

Cargo

   $ 17,762       $ 19,860       $ (2,098     (10.6 )% 

Passenger

   $ 19,366       $ 20,107       $ (741     (3.7 )% 

Charter Fuel

          

Average fuel cost per gallon

   $ 2.38       $ 3.17       $ (0.79     (24.9 )% 

Fuel gallons consumed (000s)

     36,649         36,483         166        0.5
Segment Operating Fleet (average aircraft equivalents during the period)               

ACMI*

          

747-8F Cargo

     9.0         8.4         0.6     

747-400 Cargo

     12.8         11.1         1.7     

747-400 Dreamlifter

     2.9         3.0         (0.1  

767-300 Cargo

     2.0         2.0         —       

767-200 Cargo

     9.0         5.0         4.0     

747-400 Passenger

     1.5         1.3         0.2     

767-200 Passenger

     1.0         1.0         —       

767-300 Passenger

     —           0.1         (0.1  
  

 

 

    

 

 

    

 

 

   

Total

     38.2         31.9         6.3     

 

Charter

          

747-8F Cargo

     —           0.5         (0.5  

747-400 Cargo

     9.8         9.8         —       

747-400 Passenger

     1.4         1.6         (0.2  

767-300 Passenger

     2.9         3.0         (0.1  
  

 

 

    

 

 

    

 

 

   

Total

     14.1         14.9         (0.8  

 

Dry Leasing

          

777-200 Cargo

     6.0         6.0         —       

757-200 Cargo

     1.0         1.0         —       

737-300 Cargo

     1.0         1.0         —       

737-800 Passenger

     1.0         2.0         (1.0  
  

 

 

    

 

 

    

 

 

   

Total

     9.0         10.0         (1.0  
  

 

 

    

 

 

    

 

 

   

Total Operating Aircraft

     61.3         56.8         4.5     
  

 

 

    

 

 

    

 

 

   

Out-of-service

     —           1.0         (1.0  

 

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

 

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Operating Revenue

The following table compares our Operating Revenue for the three months ended September 30 (in thousands):

 

     2015      2014      Increase /
(Decrease)
     Percent
Change
 

Operating Revenue

           

ACMI

   $ 197,020       $ 184,068       $ 12,952         7.0

Charter

     225,068         252,855         (27,787      (11.0 )% 

Dry Leasing

     23,915         25,411         (1,496      (5.9 )% 

Other

     3,901         3,467         434         12.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Operating Revenue

   $ 449,904       $ 465,801       $ (15,897      (3.4 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

ACMI revenue increased $13.0 million, or 7.0%, primarily due to increased flying, partially offset by reduced Revenue per Block Hour. ACMI Block Hours were 32,072 in the third quarter of 2015, compared with 28,096 in 2014, an increase of 3,976 Block Hours, or 14.2%. The increase in Block Hours was primarily driven by two incremental 747-400F aircraft and one incremental 747-8F aircraft entering ACMI service and four incremental 767-200F aircraft entering CMI service. ACMI Revenue per Block Hour was $6,143 for the third quarter of 2015, compared with $6,551 in 2014, a decrease of $408 per Block Hour, or 6.2%. The decrease in Revenue per Block Hour reflects the impact of increased 747-400F and CMI flying.

Charter revenue decreased $27.8 million, or 11.0%, primarily driven by a decrease in Revenue per Block Hour. Charter Revenue per Block Hour was $18,252 for the third quarter of 2015 compared with $19,938 in 2014, a decrease of $1,686 per Block Hour, or 8.5%. This decrease was primarily driven by the impact of lower fuel prices, partially offset by higher Yields, excluding fuel. Charter Block Hours were 12,331 in the third quarter of 2015 compared with 12,682 in 2014, a decrease of 351 Block Hours, or 2.8%. The decrease in Charter Block Hours was primarily driven by the redeployment of one 747-8F aircraft into ACMI service.

Dry Leasing revenue decreased $1.5 million, or 5.9%, primarily due to a reduction in the number of Dry Leased aircraft from the sale of a 737-800 aircraft during the first quarter of 2015.

Operating Expenses

The following table compares our Operating Expenses for the three months ended September 30 (in thousands):

 

     2015      2014      Increase /
(Decrease)
     Percent
Change
 

Operating Expenses

           

Aircraft fuel

   $ 87,330       $ 115,690       $ (28,360      (24.5 )% 

Salaries, wages and benefits

     86,434         78,834         7,600         9.6

Maintenance, materials and repairs

     41,899         35,084         6,815         19.4

Aircraft rent

     36,811         34,183         2,628         7.7

Depreciation and amortization

     32,787         29,865         2,922         9.8

Travel

     27,555         21,642         5,913         27.3

Navigation fees, landing fees and other rent

     25,413         35,336         (9,923      (28.1 )% 

Passenger and ground handling services

     20,504         24,876         (4,372      (17.6 )% 

Loss on disposal of aircraft

     208         —           208         NM   

Special charge

     7,674         90         7,584         NM   

Other

     34,294         29,212         5,082         17.4
  

 

 

    

 

 

       

Total Operating Expenses

   $ 400,909       $ 404,812         
  

 

 

    

 

 

       

NM represents year-over-year changes that are not meaningful.

Aircraft fuel decreased $28.4 million, or 24.5%, primarily due to fuel price decreases. The average fuel price per gallon for the Charter business was $2.38 for the third quarter of 2015, compared with $3.17 in 2014, a decrease of 24.9%. We do not incur fuel expense in our ACMI or Dry Leasing businesses as the cost of fuel is borne by the customer.

Salaries, wages and benefits increased $7.6 million, or 9.6%, primarily driven by increased crewmember costs due to higher Block Hours and crew training related to our investment in fleet growth.

 

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Maintenance, materials and repairs increased $6.8 million, or 19.4%, driven by an increase of $4.2 million for 747-400 aircraft, $1.3 million for 747-8F aircraft and $1.3 million for 767 aircraft. Line Maintenance increased by $2.4 million on 747-400 aircraft and $1.9 million on 767 aircraft due to increased flying. Non-heavy Maintenance on 747-400 aircraft increased $2.3 million. Heavy Maintenance on 747-400 aircraft was unchanged as an increase in the number of C Checks was offset by a decrease in the number of engine overhauls. Heavy Maintenance expense on 747-8F aircraft increased $1.2 million due to an increase in the number of C Checks. Heavy airframe maintenance events and engine overhauls for the three months ended September 30 were:

 

Heavy Maintenance Events

   2015    2014    Increase /
(Decrease)

747-8F C Checks

   3    2    1

747-400 C Checks

   2    1    1

767 C Checks

   —      1    (1)

CF6-80 engine overhauls

   —      1    (1)

Aircraft rent increased $2.6 million, or 7.7%, primarily due to a leased 747-400BCF aircraft that entered service in June 2015.

Depreciation and amortization increased $2.9 million, or 9.8%, primarily due to increased scrapping of rotable parts related to our engine and spare parts purchase program, which avoids more expensive repairs.

Travel increased $5.9 million, or 27.3%, primarily due to higher rates related to crewmember travel to higher cost locations and increased flying.

Navigation fees, landing fees and other rent decreased $9.9 million, or 28.1%, primarily due to a reduction in purchased capacity from the subcontracting of certain Charter flights.

Passenger and ground handling services decreased $4.4 million, or 17.6%, primarily due to lower rates related to ground handling for Charters.

Special charge in 2015 resulted from the early termination of high-rate operating leases for two engines.

Other increased $5.1 million, or 17.4%, primarily due to increased legal fees of $1.5 million related to the U.S. class action litigation and professional fees to support key initiatives.

Non-operating Expenses (Income)

The following table compares our Non-operating Expenses (Income) for the three months ended September 30 (in thousands):

 

     2015      2014      Increase /
(Decrease)
     Percent
Change
 

Non-operating Expenses (Income)

           

Interest income

   $ (2,040    $ (4,588    $ (2,548      (55.5 )% 

Interest expense

     22,110         25,960         (3,850      (14.8 )% 

Capitalized interest

     (556      (44      512         NM   

Loss on early extinguishment of debt

     66,729         —           66,729         NM   

Gain on investments

     (13,439      —           13,439         NM   

Other expense (income), net

     1,364         767         597         77.8

Interest income decreased $2.5 million, or 55.5%, primarily due to a decrease in our investments in PTCs. See Note 8 to our Financial Statements for further discussion.

Interest expense decreased $3.9 million, or 14.8%, primarily due to a decrease in interest rates resulting from the refinancing of higher-rate EETCs with lower-rate Convertible Notes (see Note 6 to our Financial Statements for further discussion) and a reduction in our average debt balances, reflecting payments of debt.

Loss on early extinguishment of debt was related to the refinancing of five EETCs with lower-rate Convertible Notes during the third quarter of 2015. See Note 6 to our Financial Statements for further discussion.

Gain on investments was related to the early redemption of certain PTC investments resulting from the refinancing of five EETCs with lower-rate Convertible Notes during the third quarter of 2015. See Notes 6 and 8 to our Financial Statements for further discussion.

 

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Income taxes. Our effective income tax rates were a benefit of 49.3% for the three months ended September 30, 2015 and an expense of 29.1% for the three months ended September 30, 2014. The effective income tax rate for the three months ended September 30, 2015 differed from the U.S. federal statutory rate primarily due to an income tax benefit of $2.4 million from the favorable resolution of an IRS exam. The effective income tax rates for both periods were impacted by our assertion, beginning in 2013, to indefinitely reinvest the net earnings of certain foreign subsidiaries outside the U.S.

Segments

The following table compares the Direct Contribution of our reportable segments (see Note 9 to our Financial Statements for the reconciliation to Operating Income) for the three months ended September 30 (in thousands):

 

     2015      2014      Increase /
(Decrease)
     Percent
Change
 

Direct Contribution:

           

ACMI

   $ 46,991       $ 54,974       $ (7,983      (14.5 )% 

Charter

     29,496         16,299         13,197         81.0

Dry Leasing

     7,673         8,721         (1,048      (12.0 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Direct Contribution

   $ 84,160       $ 79,994       $ 4,166         5.2
  

 

 

    

 

 

    

 

 

    

 

 

 

Unallocated income and expenses, net

   $ 48,161       $ 41,010       $ 7,151         17.4
  

 

 

    

 

 

    

 

 

    

 

 

 

ACMI Segment

ACMI Direct Contribution decreased $8.0 million, or 14.5%, primarily due to increases in crew costs due to crew training related to our investment in fleet growth and maintenance expense, partially offset by lower aircraft ownership costs from the refinancing of EETCs with lower-rate Convertible Notes.

Charter Segment

Charter Direct Contribution increased $13.2 million, or 81.0%, primarily due to higher Yields, excluding fuel, higher aircraft utilization and a reduction in Heavy Maintenance expense. In addition, Charter Direct Contribution benefited from lower aircraft ownership costs from the refinancing of EETCs with lower-rate Convertible Notes. Partially offsetting these improvements were increases in crew costs due to crew training related to our investment in fleet growth and Non-Heavy and Line Maintenance expense.

Dry Leasing Segment

Dry Leasing Direct Contribution decreased $1.0 million, or 12.0%, reflecting a reduction in the number of Dry Leased aircraft from the sale of a 737-800 aircraft during the first quarter of 2015.

Unallocated income and expenses, net

Unallocated income and expenses, net increased $7.2 million, or 17.4%, due to an increase of $1.8 million in non-cash expenses related to the Convertible Notes, $1.5 million in legal fees related to the U.S. class action litigation and $3.9 million in other items, including professional fees to support key initiatives and interest expense on the portion of the Convertible Notes used for general corporate purposes.

Nine Months Ended September 30, 2015 and 2014

Operating Statistics

The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.

 

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The table below sets forth selected Operating Statistics for the nine months ended September 30:

 

     2015      2014      Increase /
(Decrease)
     Percent
Change
 

Block Hours

           

ACMI

     92,490         83,770         8,720         10.4

Charter:

           

Cargo

     26,047         22,145         3,902         17.6

Passenger

     11,247         10,210         1,037         10.2

Other

     1,140         796         344         43.2
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Block Hours

     130,924         116,921         14,003         12.0
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenue Per Block Hour

           

ACMI

   $ 6,220       $ 6,792       $ (572      (8.4 )% 

Charter:

   $ 18,251       $ 20,258       $ (2,007      (9.9 )% 

Cargo

   $ 17,736       $ 20,036       $ (2,300      (11.5 )% 

Passenger

   $ 19,443       $ 20,741       $ (1,298      (6.3 )% 

Charter Fuel

           

Average fuel cost per gallon

   $ 2.40       $ 3.19       $ (0.79      (24.8 )% 

Fuel gallons consumed (000s)

     109,344         94,342         15,002         15.9
Segment Operating Fleet (average aircraft equivalents during the period)                

ACMI*

           

747-8F Cargo

     8.9         8.5         0.4      

747-400 Cargo

     12.1         11.8         0.3      

747-400 Dreamlifter

     3.0         3.1         (0.1   

767-300 Cargo

     2.0         2.0         —        

767-200 Cargo

     8.1         5.0         3.1      

747-400 Passenger

     1.2         1.1         0.1      

767-200 Passenger

     1.0         1.0         —        
  

 

 

    

 

 

    

 

 

    

Total

     36.3         32.5         3.8      

 

Charter

           

747-8F Cargo

     0.1         0.5         (0.4   

747-400 Cargo

     9.8         9.2         0.6      

747-400 Passenger

     1.8         1.8         —        

767-300 Passenger

     2.9         2.9         —        
  

 

 

    

 

 

    

 

 

    

Total

     14.6         14.4         0.2      

 

Dry Leasing

           

777-200 Cargo

     6.0         5.9         0.1      

757-200 Cargo

     1.0         1.0         —        

737-300 Cargo

     1.0         1.0         —        

737-800 Passenger

     1.2         2.0         (0.8   
  

 

 

    

 

 

    

 

 

    

Total

     9.2         9.9         (0.7   
  

 

 

    

 

 

    

 

 

    

Total Operating Aircraft

     60.1         56.8         3.3      
  

 

 

    

 

 

    

 

 

    

Out-of-service

     0.6         1.0         (0.4   

 

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

 

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Table of Contents

Operating Revenue

The following table compares our Operating Revenue for the nine months ended September 30 (in thousands):

 

     2015      2014      Increase /
(Decrease)
     Percent
Change
 

Operating Revenue

           

ACMI

   $ 575,322       $ 568,929       $ 6,393         1.1

Charter

     680,642         655,462         25,180         3.8

Dry Leasing

     83,235         75,611         7,624         10.1

Other

     11,383         10,331         1,052         10.2
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Operating Revenue

   $ 1,350,582       $ 1,310,333       $ 40,249         3.1
  

 

 

    

 

 

    

 

 

    

 

 

 

ACMI revenue increased $6.4 million, or 1.1%, primarily due to increased flying, partially offset by reduced Revenue per Block Hour. ACMI Block Hours were 92,490 for the first three quarters of 2015, compared with 83,770 in 2014, an increase of 8,720 Block Hours, or 10.4%. The increase in Block Hours was primarily driven by two incremental 747-400F aircraft and one incremental 747-8F aircraft entering ACMI service, four incremental 767-200F aircraft entering CMI service and improvements in ACMI aircraft utilization. ACMI Revenue per Block Hour was $6,220 for the first three quarters of 2015, compared with $6,792 in 2014, a decrease of $572 per Block Hour, or 8.4%. The decrease in Revenue per Block Hour reflects the impact of higher Revenue per Block Hour in 2014 resulting from customers that flew below their contractual minimums, payments received in 2014 related to a customer’s return of aircraft, and the impact of increased 747-400F and CMI flying in 2015.

Charter revenue increased $25.2 million, or 3.8%, primarily driven by an increase in both cargo and passenger flying, partially offset by a decrease in Revenue per Block Hour. Charter Block Hours were 37,294 for the first three quarters of 2015 compared with 32,355 in 2014, an increase of 4,939 Block Hours, or 15.3%. The increase in Charter Block Hours was primarily driven by increased cargo and passenger demand from the AMC and increased commercial cargo demand, which was enhanced by the U.S. West Coast port disruption in early 2015. Charter Revenue per Block Hour was $18,251 for the first three quarters of 2015 compared with $20,258 in 2014, a decrease of $2,007 per Block Hour, or 9.9%. This decrease was primarily driven by the impact of lower fuel prices, partially offset by higher Yields, excluding fuel.

Dry Leasing revenue increased $7.6 million, or 10.1%, primarily due to revenue from maintenance payments related to the scheduled returns of a 737-800 passenger aircraft in February 2015 and a 757-200 cargo aircraft in April 2015, partially offset by a reduction in the number of Dry Leased aircraft from the sale of a 737-800 aircraft during the first quarter of 2015.

Operating Expenses

The following table compares our Operating Expenses for the nine months ended September 30 (in thousands):

 

     2015      2014      Increase /
(Decrease)
     Percent
Change
 

Operating Expenses

           

Aircraft fuel

   $ 262,156       $ 301,276       $ (39,120      (13.0 )% 

Salaries, wages and benefits

     262,069         229,637         32,432         14.1

Maintenance, materials and repairs

     142,169         144,516         (2,347      (1.6 )% 

Aircraft rent

     107,883         104,419         3,464         3.3

Depreciation and amortization

     96,753         88,401         8,352         9.4

Travel

     72,198         57,698         14,500         25.1

Navigation fees, landing fees and other rent

     71,582         93,368         (21,786      (23.3 )% 

Passenger and ground handling services

     61,820         66,106         (4,286      (6.5 )% 

Loss on disposal of aircraft

     1,531         14,679         (13,148      (89.6 )% 

Special charge

     7,605         9,567         (1,962      (20.5 )% 

Other

     97,567         84,890         12,677         14.9
  

 

 

    

 

 

       

Total Operating Expenses

   $ 1,183,333       $ 1,194,557         
  

 

 

    

 

 

       

Aircraft fuel decreased $39.1 million, or 13.0%, primarily due to fuel price decreases, partially offset by increased fuel consumption. The average fuel price per gallon for the Charter business was $2.40 for the first three quarters of 2015, compared with $3.19 in 2014, a decrease of 24.8%. Fuel consumption increased by 15.0 million gallons, or 15.9%, reflecting the increase in Charter Block Hours operated. We do not incur fuel expense in our ACMI or Dry Leasing businesses as the cost of fuel is borne by the customer.

 

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Table of Contents

Salaries, wages and benefits increased $32.4 million, or 14.1%, primarily driven by increases to crewmember and ground staff costs due to higher Block Hours, crew training related to our investment in fleet growth, key initiatives and increased profitability.

Maintenance, materials and repairs decreased by $2.3 million, or 1.6%, reflecting a decrease of $10.1 million for 747-400 aircraft, partially offset by an increase of $6.1 million for 747-8F aircraft. Heavy Maintenance expense on 747-400 aircraft decreased approximately $17.6 million due to a decrease in the number of C and D Checks, and the number of engine overhauls, partially offset by an increase of $5.2 million in Non-heavy Maintenance. Heavy Maintenance expense on 747-8F aircraft increased $5.6 million primarily due to an increase in unscheduled engine repairs. Line Maintenance increased by $3.6 million on 767 aircraft and $2.3 million on 747-400 aircraft due to increased flying. Heavy airframe maintenance events and engine overhauls for the nine months ended September 30 were:

 

Heavy Maintenance Events

   2015    2014    Increase /
(Decrease)

747-8F C Checks

   4    4    —  

747-400 C Checks

   5    9    (4)

747-400 D Checks

   3    5    (2)

767 C Checks

   —      2    (2)

CF6-80 engine overhauls

   5    8    (3)

Depreciation and amortization increased $8.4 million, or 9.4%, primarily due to increased scrapping of rotable parts related to our engine and spare parts purchase program, which avoids more expensive repairs.

Travel increased $14.5 million, or 25.1%, primarily due to higher rates related to crewmember travel to higher cost locations and increased flying.

Navigation fees, landing fees and other rent decreased $21.8 million, or 23.3%, primarily due to a reduction in purchased capacity from the subcontracting of certain Charter flights.

Passenger and ground handling services decreased $4.3 million, or 6.5%, primarily due to lower rates related to ground handling for Charters.

Loss on disposal of aircraft in 2014 resulted from the trade-in of used spare engines for new engines as part of our engine acquisition program.

Special charge in 2015 resulted from the early termination of high-rate operating leases for two engines. Special charge in 2014 represents a $4.9 million reserve related to a GSS receivable for a loan made to its then 51% U.K. shareholder, a $3.9 million expense recorded for termination benefits for certain GSS employees, a $0.5 million adjustment to the early termination of operating leases for two 747-400BCFs that we parked in December 2013 to reduce capacity, and $0.2 million in professional fees related to GSS restructuring activities.

Other increased $12.7 million, or 14.9%, primarily due to increased commission expense on higher revenue from the AMC, increased legal fees related to the U.S. class action litigation and professional fees to support key initiatives.

Non-operating Expenses (Income)

The following table compares our Non-operating Expenses (Income) for the nine months ended September 30 (in thousands):

 

     2015      2014      Increase /
(Decrease)
     Percent
Change
 

Non-operating Expenses (Income)

           

Interest income

   $ (10,953    $ (14,034    $ (3,081      (22.0 )% 

Interest expense

     71,691         78,777         (7,086      (9.0 )% 

Capitalized interest

     (759      (423      336         79.4

Loss on early extinguishment of debt

     66,729         —           66,729         NM   

Gain on investments

     (13,439      —           13,439         NM   

Other expense (income), net

     1,755         831         924         NM   

 

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Interest income decreased $3.1 million, or 22.0%, primarily due to a decrease in our investments in PTCs. See Note 8 to our Financial Statements for further discussion.

Interest expense decreased $7.1 million, or 9.0%, primarily due to a decrease in interest rates resulting from the refinancing of higher-rate EETCs with lower-rate Convertible Notes (see Note 6 to our Financial Statements for further discussion) and a reduction in our average debt balances, reflecting payments of debt.

Loss on early extinguishment of debt was related to the refinancing of five EETCs with lower-rate Convertible Notes during the third quarter of 2015. See Note 6 to our Financial Statements for further discussion.

Gain on investments was related to the early redemption of certain PTC investments resulting from the refinancing of five EETCs with lower-rate Convertible Notes during the third quarter of 2015. See Notes 6 and 8 to our Financial Statements for further discussion.

Income taxes. Our effective income tax rates were an expense of 14.1% for the nine months ended September 30, 2015 and a benefit of 19.7% for the nine months ended September 30, 2014. The effective income tax rate for the nine months ended September 30, 2015 differed from the U.S. federal statutory rate primarily due to income tax benefits of $4.0 million, net of reserves, related to ETI (see Note 7 to our Financial Statements) and $2.4 million from the favorable resolution of an IRS exam. The effective income tax rate for the nine months ended September 30, 2014 differed from the U.S. federal statutory rate primarily due to an income tax benefit of $24.0 million, net of reserves, related to ETI. The effective income tax rates for both periods were impacted by our assertion to indefinitely reinvest the net earnings of certain foreign subsidiaries outside the U.S.

Segments

The following table compares the Direct Contribution for our reportable segments (see Note 9 to our Financial Statements for the reconciliation to Operating Income) for the nine months ended September 30 (in thousands):

 

    2015     2014     Increase /
(Decrease)
    Percent
Change
 

Direct Contribution:

       

ACMI

  $ 138,051      $ 145,107      $ (7,056     (4.9 )% 

Charter

    84,974        20,306        64,668        NM   

Dry Leasing

    34,092        25,630        8,462        33.0
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Direct Contribution

  $ 257,117      $ 191,043      $ 66,074        34.6
 

 

 

   

 

 

   

 

 

   

 

 

 

Unallocated income and expenses, net

  $ 142,466      $ 116,172      $ 26,294        22.6
 

 

 

   

 

 

   

 

 

   

 

 

 

ACMI Segment

ACMI Direct Contribution decreased $7.1 million, or 4.9%, primarily due to increases in crew costs due to crew training related to our investment in fleet growth, partially offset by a reduction in Heavy Maintenance expense and lower aircraft ownership costs from the refinancing of EETCs with lower-rate Convertible Notes.

Charter Segment

Charter Direct Contribution increased $64.7 million primarily due to higher Yields, excluding fuel, increased cargo and passenger flying, as well as higher aircraft utilization. In addition, Charter Direct Contribution benefited from a reduction in Heavy Maintenance expense and lower aircraft ownership costs from the refinancing of EETCs with lower-rate Convertible Notes. Partially offsetting these improvements was an increase in crew costs due to crew training related to our investment in fleet growth.

Dry Leasing Segment

Dry Leasing Direct Contribution increased $8.5 million, or 33.0%, primarily due to revenue from maintenance payments related to the scheduled returns of a 737-800 passenger aircraft in February 2015 and a 757-200 cargo aircraft in April 2015, partially offset by a reduction in the number of Dry Leased aircraft from the sale of a 737-800 aircraft during the first quarter of 2015.

 

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Table of Contents

Unallocated income and expenses, net

Unallocated income and expenses, net increased $26.3 million, or 22.6%, primarily due to the timing of incentive compensation driven by higher anticipated earnings in 2015 and increases in non-cash expenses related to our Convertible Notes, professional fees to support key initiatives and legal fees related to the U.S. class action litigation. The increase also reflected interest expense on the portion of the Convertible Notes used for general corporate purposes.

Reconciliation of GAAP to non-GAAP Financial Measures

To supplement our Financial Statements presented in accordance with GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP financial measures include Adjusted Net Income Attributable to Common Stockholders and adjusted diluted earnings per share (“Adjusted Diluted EPS”), which exclude certain non-cash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

We use these non-GAAP financial measures in assessing the performance of our ongoing operations and in planning and forecasting future periods. We believe that these adjusted measures provide meaningful supplemental information to assist investors and analysts in understanding our business results and assessing our prospects for future performance.

The following is a reconciliation of Net Income Attributable to Common Stockholders and Diluted EPS to the corresponding non-GAAP financial measures (in thousands, except per share data):

 

    For the Three Months Ended  
    September 30,
2015
    September 30,
2014
    Percent Change  

Net Income (Loss) Attributable to Common Stockholders

  $ (12,754   $ 27,576        (146.3 %) 

After-tax impact from:

     

Non-cash expenses and income, net (a)

    1,720        26     

Gain on investments

    (8,596     —       

Loss on early extinguishment of debt

    44,297        —       

Loss on disposal of aircraft

    133        —       

Special charge (b)

    4,908        (135  

Accrual for legal matters and U.S. class action professional fees

    984        —       
 

 

 

   

 

 

   

 

 

 

Adjusted Net Income Attributable to Common Stockholders

  $ 30,692      $ 27,467        11.7
 

 

 

   

 

 

   

 

 

 

Diluted EPS

  $ (0.51   $ 1.10        (146.4 %) 

After-tax impact from:

     

Non-cash expenses and income, net (a)

    0.07        —       

Gain on investments

    (0.34     —       

Loss on early extinguishment of debt

    1.77        —       

Loss on disposal of aircraft

    0.01        —       

Special charge (b)

    0.20        (0.01  

Accrual for legal matters and U.S. class action professional fees

    0.04        —       
 

 

 

   

 

 

   

 

 

 

Adjusted Diluted EPS

  $ 1.23 †    $ 1.10 †      11.8
 

 

 

   

 

 

   

 

 

 
    For the Nine Months Ended  
    September 30,
2015
    September 30,
2014
    Percent Change  

Net Income Attributable to Common Stockholders

  $ 44,868      $ 65,113        (31.1 %) 

After-tax impact from:

     

Non-cash expenses and income, net (a)

    2,418        (144  

ETI tax benefit

    (4,008     (24,013  

Gain on investments

    (8,596     —       

Loss on early extinguishment of debt

    44,297        —       

Loss on disposal of aircraft

    1,090        9,389     

Special charge (b)

    4,817        3,905     

Accrual for legal matters and U.S. class action professional fees

    984        300     
 

 

 

   

 

 

   

 

 

 

Adjusted Net Income Attributable to Common Stockholders

  $ 85,870      $ 54,550        57.4
 

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    For the Nine Months Ended  
    September 30,
2015
    September 30,
2014
    Percent Change  

Diluted EPS

  $ 1.80      $ 2.59        (30.5 %) 

After-tax impact from:

     

Non-cash expenses and income, net (a)

    0.10        (0.01  

ETI tax benefit

    (0.16     (0.95  

Gain on investments

    (0.34     —       

Loss on early extinguishment of debt

    1.78        —       

Loss on disposal of aircraft

    0.04        0.37     

Special charge (b)

    0.19        0.16     

Accrual for legal matters and U.S. class action professional fees

    0.04        .01     
 

 

 

   

 

 

   

 

 

 

Adjusted Diluted EPS

  $ 3.44 †    $ 2.17        58.5
 

 

 

   

 

 

   

 

 

 

 

Items do not sum due to rounding.
(a) Non-cash expenses and income, net in 2015 primarily relates to amortization of the debt discount on the Convertible Notes.
(b) Included in Special charge in 2015 were costs related to the early termination of high-rate operating leases for two engines. Included in Special charge in 2014 were employee termination benefits, a loan reserve and tax adjustments related to GSS, and adjustments to lease termination costs for two 747-400BCFs.

Liquidity and Capital Resources

Treasury Stock Transactions

During the nine months ended September 30, 2015, we paid $20.0 million to repurchase 425,154 shares under an open market repurchase program. See Note 11 to our Financial Statements for a discussion of our stock repurchase program.

Debt Transactions

In June 2015, we issued $224.5 million of Convertible Notes with a cash coupon of 2.25%. In July and August 2015, we used a portion of the proceeds from the Convertible Notes to refinance higher-rate EETCs related to five 747-400 freighter aircraft. The EETCs had an average cash coupon of 8.1%.

Operating Activities. Net cash provided by operating activities for the first three quarters of 2015 was $265.8 million, compared with $168.5 million for the first three quarters of 2014. The increase primarily reflects an increase in earnings, excluding non-cash items and changes in the timing of working capital.

Investing Activities. Net cash used for investing activities was $6.2 million for the first three quarters of 2015, consisting primarily of $76.8 million of proceeds from investments and $25.2 million of proceeds from disposal of aircraft. Partially offsetting these investing activities was $77.5 million of purchase deposits and payments for flight equipment, and $33.8 million of core capital expenditures, excluding flight equipment. All capital expenditures for the first three quarters of 2015 were funded through working capital. Net cash used for investing activities was $524.5 million for the first three quarters of 2014, consisting primarily of $502.8 million of purchase deposits and payments for flight equipment, $17.5 million of core capital expenditures, excluding flight equipment, and a $7.1 million increase in restricted cash. Purchase deposits and payments for flight equipment in 2014 were primarily related to the purchase of three 777-200LRF aircraft.

Financing Activities. Net cash used for financing activities was $181.5 million for the first three quarters of 2015, which primarily reflected the proceeds from debt issuance of $224.5 million, $36.3 million from the sale of warrants and $12.3 million of customer maintenance reserves received partially offset by $334.5 million of payments on debt obligations, $52.9 million for the purchase of convertible note hedges, $34.0 million for the payment of debt extinguishment costs, $26.4 million related to the purchase of treasury stock and $6.8 million of debt issuance costs. Net cash provided by financing activities was $296.4 million for the first three quarters of 2014, which primarily reflected the proceeds from debt issuance of $572.6 million and $13.0 million of customer maintenance reserves received, partially offset by $252.5 million of payments on debt obligations, $19.5 million related to the purchase of treasury stock and $17.1 million of debt issuance costs. The proceeds from debt issuance and payments of debt obligations in 2014 reflect the refinancing of a $103.6 million bridge loan with a note guaranteed by Ex-Im Bank.

 

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Table of Contents

We consider Cash and cash equivalents, Short-term investments, Restricted cash and Net cash provided by operating activities to be sufficient to meet our debt and lease obligations, to fund capital expenditures for the remainder of 2015 and to repurchase shares of our stock. Core capital expenditures for the remainder of 2015 are expected to be between $10.0 to $15.0 million, which excludes flight equipment and capitalized interest. Our estimated flight equipment payments for the remainder of 2015 are expected to be between $140.0 to $150.0 million.

We may access external sources of capital from time to time depending on our cash requirements, assessments of current and anticipated market conditions, and the after-tax cost of capital. To that end, we filed a shelf registration statement with the SEC in May 2015 that enables us to sell a yet to be determined amount of debt and/or equity securities over the subsequent three years, depending on market conditions, our capital needs and other factors. Our access to capital markets can be adversely impacted by prevailing economic conditions and by financial, business and other factors, some of which are beyond our control. Additionally, our borrowing costs are affected by market conditions and may be adversely impacted by a tightening in credit markets.

We do not expect to pay any significant U.S. federal income tax until 2020 or later. Our business operations are subject to income tax in several foreign jurisdictions. We do not expect to pay any significant cash income taxes in foreign jurisdictions for at least several years. We currently do not intend to repatriate cash from certain foreign subsidiaries that is indefinitely reinvested outside the U.S. Any repatriation of cash from these subsidiaries or certain changes in U.S. tax laws could result in additional tax expense.

Contractual Obligations and Debt Agreements

See Note 6 to our Financial Statements for a description of our new debt obligations, the Convertible Notes, comprised of base and supplemental indentures, with Wilmington Trust National Association, as trustee. See our 2014 Annual Report on Form 10-K for a tabular disclosure of our contractual obligations as of December 31, 2014 and a description of our other debt obligations and amendments thereto.

Off-Balance Sheet Arrangements

There were no material changes in our off-balance sheet arrangements during the three months ended September 30, 2015.

Recent Accounting Pronouncements

See Note 2 to our Financial Statements for a discussion of recent accounting pronouncements.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”), as well as other reports, releases and written and oral communications issued or made from time to time by or on behalf of AAWW, contain statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management. Generally, the words “will,” “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “project,” “estimate” and similar expressions used in this Report that do not relate to historical facts are intended to identify forward-looking statements.

The forward-looking statements in this Report are not representations or guarantees of future performance and involve certain risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, 2014 and under the section entitled “Risk Factors” in our prospectus supplement dated May 28, 2015, as filed with the SEC pursuant to Rule 424(b)(5) on June 1, 2015 (File No. 333-204479) (the “Prospectus Supplement”). Many of such factors are beyond AAWW’s control and are difficult to predict. As a result, AAWW’s future actions, financial position, results of operations and the market price for shares of AAWW’s common stock could differ materially from those expressed in any forward-looking statements. Readers are therefore cautioned not to place undue reliance on forward-looking statements. AAWW does not intend to publicly update any forward-looking statements that may be made from time to time by, or on behalf of, AAWW, whether as a result of new information, future events or otherwise, except as required by law.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For additional discussion of our exposure to market risk, refer to Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” included in our 2014 Annual Report on Form 10-K.

 

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2015. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

With respect to the fiscal quarter ended September 30, 2015, the information required in response to this Item is set forth in Note 10 to our Financial Statements and such information is incorporated herein by reference. Such description contains all of the information required with respect hereto.

 

ITEM 1A. RISK FACTORS

For additional risk factors that may cause actual results to differ materially from those anticipated, please refer to our 2014 Annual Report on Form 10-K and Exhibit 99.1 to our Form 10-Q for the period ended June 30, 2015.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We made the following repurchases of shares of our common stock during the quarter ended September 30, 2015:

 

Period

  Total Number
of Shares
Purchased
    Average Price
Paid per Share
    Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
    Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the  Plans or
Programs
 

July 1, 2015 through July 31, 2015

    144,625      $ 49.21        3,027,382      $ 37,882,756   

August 1, 2015 through August 31, 2015

    280,529      $ 45.91        3,307,911      $ 25,002,983   

September 1, 2015 through September 30, 2015

    —          —          —          —     

Total

    425,154      $ 47.03        3,307,911      $ 25,002,983   

See Note 11 to our Financial Statements for a discussion of our stock repurchase program.

 

ITEM 6. EXHIBITS

 

  a. Exhibits

See accompanying Exhibit Index included after the signature page of this report for a list of exhibits filed or furnished with this report.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

      Atlas Air Worldwide Holdings, Inc.

Dated: November 5, 2015

     

/s/ William J. Flynn

      William J. Flynn
      President and Chief Executive Officer

Dated: November 5, 2015

     

/s/ Spencer Schwartz

      Spencer Schwartz
      Executive Vice President and Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit

Number

   Description
  31.1    Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer, furnished herewith.
  31.2    Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer, furnished herewith.
  32.1    Section 1350 Certifications, furnished herewith.
101.INS    XBRL Instance Document. *
101.SCH    XBRL Taxonomy Extension Schema Document. *
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document. *
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document. *
101.LAB    XBRL Taxonomy Extension Labels Linkbase Document. *
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document. *

 

* Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2015 and 2014, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014, (v) Consolidated Statement of Stockholders’ Equity as of and for the nine months ended September 30, 2015 and 2014 and (vi) Notes to Unaudited Consolidated Financial Statements.

 

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